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EXHIBIT 10.28

 

LOAN AND SECURITY AGREEMENT

by and between

GEMCAP LENDING I, LLC,

as Lender,

and

REED’S, INC.,

as Borrower

Dated: November 18, 2009
 
 
 

 
 
 

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LOAN AND SECURITY AGREEMENT

LOAN AND SECURITY AGREEMENT, dated as of November 18, 2009, by and between
REED’S, INC., a Delaware corporation, with its principal place of business
located at 13000 South Spring Street, Los Angeles, California 90061
(“Borrower”), and GEMCAP LENDING I, LLC, a Delaware limited liability company
with offices at 1401 Ocean Avenue, Suite 305, Santa Monica, California 90401.
(together with its successors and assigns, the “Lender”).

R E C I T A L S:

WHEREAS, Borrower desires to enter into an accounts receivable-based and
inventory-based revolving loan credit facility with Lender; and

WHEREAS, Lender is willing to provide such loans on the terms and conditions
hereinafter set forth;

NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and
agreements herein contained and other good and valuable consideration, Lender
and Borrower mutually covenant, warrant and agree as follows:

SECTION 1.  DEFINITIONS AND RULES OF INTERPRETATION AND CONSTRUCTION

Specific Terms Defined.  The following terms (including both the singular and
plurals thereof) shall have the following meanings unless the context indicates
otherwise:

1.1           “Account Debtor” or “account debtor” shall have the meaning
ascribed to such term in the UCC.
 
1.2           “Accounts” or “accounts” shall mean “accounts” as defined in the
UCC, and, in addition, any and all obligations of any kind at any time due
and/or owing to Borrower, whether now existing or hereafter arising, and all
rights of Borrower to receive payment or any other consideration including,
without limitation, invoices, contract rights, accounts receivable, general
intangibles, choses-in-action, notes, drafts, acceptances, instruments and all
other debts, obligations and liabilities in whatever form owing to Borrower from
any Person, Governmental Authority or any other entity, all security therefor,
and all of Borrower’s rights to receive payments for goods sold (whether
delivered, undelivered, in transit or returned), which may be represented
thereby, or with respect thereto, including, but not limited to, all rights as
an unpaid vendor (including stoppage in transit, replevin or reclamation), and
all additional amounts due from any Account Debtor, together with all Proceeds
and products of any and all of the foregoing.

1.3             “ACH” shall have the meaning set forth in Section 2.2(k) hereof.
 
1.4             “Advance” shall have the meaning as set forth in Section 2.2(b)
hereof.

 
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1.5             “Affiliate” shall mean, with respect to any Person, (a) any
other Person that, directly or indirectly, controls, is controlled by, or is
under common control with such Person or (b) any other Person who is a director
or officer (i) of such Person, (ii) of any Subsidiary of such Person or (iii) of
any Person described in clause (a) above.  For the purposes of this definition,
control of a Person shall mean the power (direct or indirect) to direct or cause
the direction of the management or the policies of such Person, whether through
the ownership of any class of stock or equity of such person or by contract or
otherwise.
 
1.6             “Agreement” shall mean this Loan and Security Agreement
(including all Exhibits annexed hereto and the Borrower’s Disclosure Schedule)
as originally executed or, if amended, modified, supplemented, renewed or
extended from time to time, as so amended, modified, supplemented, renewed or
extended.
 
1.7             “Availability” shall mean the lesser of (i) the Borrowing Base,
and (ii) $3,000,000.
 
1.8             “Balance Sheet” means the Borrower’s balance sheet dated as of
September 30, 2009.
 
1.9             “Borrower” shall have the meaning set forth in the introductory
paragraph hereof.
 
1.10           “Borrower’s Disclosure Schedule” means the disclosure schedule
prepared by Borrower that is being delivered to Lender concurrently herewith.
 
1.11           “Borrowing Base” shall be calculated at any time as the sum of
(A) the product obtained by multiplying the outstanding amount of Eligible
Accounts, net of all taxes, discounts, allowances and credits given or claimed,
and net of all Reserves, by eighty percent (80%), plus (B) the lesser of (1) the
product obtained by multiplying the outstanding amount of Eligible Inventory by
fifty percent (50%) of the actual manufactured cost or invoiced cost thereof, as
applicable, or (2) $1,500,000, net of all Reserves.

1.12           “Borrowing Certificate” shall have the meaning as set forth in
Section 2.2(f) hereof.
 
1.13           “Business” shall mean the manufacture, sale and distribution of
non-alcoholic and New Age beverages, candies and ice creams. “New Age” beverages
include natural soda, fruit juices and fruit drinks, ready-to-drink teas, sports
drinks and water..
 
1.14           “Business Day” shall mean any day other than a Saturday, Sunday
or any other day on which banks located in the State of California are
authorized or required to close under applicable banking laws.
 
1.15           “Capital Assets” shall mean, in accordance with GAAP, fixed
assets, both tangible (such as land, buildings, fixtures, machinery and
equipment) and intangible (such as patents, copyrights, trademarks, franchises
and goodwill).
 
1.16           “Change of Control” shall have the meaning as set forth in
Section 10.1 hereof.
 
1.17           “Chattel Paper” shall have the meaning ascribed to such term in
the UCC.

 
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1.18           “Closing Date”  shall mean the date of this Agreement.
 
1.19           “Collateral” shall have the meaning as set forth in Section 5.1
hereof.
 
1.20           “Collection Account” has the meaning set forth in Section 2.2
hereof.
 
1.21           “Collection Days” shall mean a period equal to the greater of (i)
two (2) Business Days after the deposit of Collections into the Collection
Account, or (ii) such longer period as may be required by the financial
institution with whom the Collection Account is maintained, in either event for
which interest may be charged on the aggregate amount of such deposits at the
Interest Rate or, if applicable, the Default Interest Rate.

1.22           “Collections” means with respect to any Account, all cash
collections on such Account.
 
1.23           “Commercial Tort Claims” shall have the meaning ascribed to such
term in the UCC.
 
1.24           “Default Interest Rate” shall have the meaning set forth in
Section 3.1 hereof.
 
1.25           “Deposit Accounts” shall have the meaning ascribed to such term
in the UCC.
 
1.26           “Document” or “document” shall have the meaning ascribed to such
term in the UCC.
 
1.27           “Eligible Accounts” are Accounts created by Borrower which
satisfy the following criteria:
 
(1)           such Accounts are created from, or arise in connection with, the
sale of Inventory in the ordinary course of Borrower’s Business;
 
(2)           such Accounts are good and valid Accounts representing undisputed
bona fide indebtedness incurred by the Account Debtor therein named, for a fixed
sum as set forth in the invoice relating thereto with respect to an
unconditional sale and delivery upon the stated terms of goods sold by the
Borrower, and collectible in accordance with their terms;
 
(3)           the amounts of the Accounts reported to Lender are absolutely
owing to Borrower and do not arise from sales on consignment, guaranteed sales
or other terms under which payment by the Account Debtors may be conditional or
contingent;
 
(4)           the Account Debtor’s chief executive office or principal place of
business is located in the United States;
 
(5)           such Accounts do not arise from progress billings, retainages or
bill and hold sales;
 
(6)           there are no contra relationships, setoffs, counterclaims or
disputes existing with respect thereto;
 
 
 
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(7)             the Inventory giving rise thereto are not subject to any Liens
except for the Liens of Lender;
 
(8)             such Accounts are free and clear of all Liens except for the
Liens of Lender;

(9)            such Accounts are not Accounts with respect to which the Account
Debtor or any officer or employee thereof is an officer, employee or agent of or
is affiliated with Borrower, directly or indirectly, whether by virtue of family
membership, ownership, control, management or otherwise;
 
(10)           such Accounts are not Accounts with respect to which the Account
Debtor is the United States or any state or political subdivision thereof or any
department, agency or instrumentality of the United States, any state or
political subdivision;
 
(11)           Borrower has delivered to Lender or Lender’s representative such
documents as Lender may have requested in connection with such Accounts and
Lender shall have received a verification of such Accounts, satisfactory to it,
if sent to the Account Debtor or any other obligor or any bailee;
 
(12)           there are no facts existing or threatened which might result in
any material adverse change in the Account Debtor’s financial condition;
 
(13)           Accounts owed by a single Account Debtor or its Affiliates which
are no greater than twenty (20%) of all Eligible Accounts;
 
(14)           such Accounts are not owed by an Account Debtor with respect to
which more than 25% of such Account Debtor’s Accounts have remained unpaid for
more than forty (40) days after the invoice date thereof;
 
(15)           such Accounts have not remained unpaid for more than ninety
(90)  days after the invoice date thereof;
 
(16)           such Accounts continue to be in full conformity with the
representations and warranties made by Borrower to Lender with respect thereto;
 
(17)           Lender is, and continues to be, reasonably satisfied with the
credit standing of the Account Debtor in relation to the amount of credit
extended;
 
(18)           such Accounts are not evidenced by chattel paper or an instrument
of any kind with respect to or in payment of the Account unless such instrument
is duly endorsed to and in possession of Lender or represents a check in payment
of an account;
 
(19)           such Accounts are net of any returns, discounts, claims, credits
and allowances;
 
(20)           Borrower is able to bring suit and enforce its remedies against
the Account Debtor through judicial process;
 
 
 
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(21)           such Accounts do not represent interest payments, late or finance
charges owing to Borrower; and
 
(22)           such Accounts are otherwise satisfactory to Lender in its sole
discretion.

1.28           “Eligible Inventory” shall mean finished goods and processed
Inventory owned by Borrower consisting of beverages, candies and ice creams, and
raw materials for the manufacture thereof, based on reports furnished to Lender
by Borrower that are acceptable to Lender in its sole discretion, excluding any
Inventory having any of the following characteristics:

(1)             In-transit Inventory;
 
(2)             Inventory that is located at any warehouse or other premises
other than Borrower’s premises at 12930 or 13000 South Spring Street, Los
Angeles, California 90061, or any other warehouse expressly approved by Lender
in writing;
 
(3)             Inventory as to which Lender has not received a waiver in form
and substance acceptable to Lender from the applicable landlord, warehouseman,
filler, processor or packer in respect thereof;
 
(4)             Inventory not subject to a duly perfected first priority
security interest in Lender's favor;
 
(5)             Inventory that is subject to any Lien in favor of any Person
other than Lender that is not subordinate to Lender's first priority security
interest on terms satisfactory to Lender in its sole discretion;
 
(6)             Inventory on consignment from any Person, on consignment to any
Person or subject to any bailment;
 
(7)             Inventory that is damaged, defective, tainted, slow-moving or
not currently saleable in the normal course of the Borrower's operations, or the
amount of such Inventory that has been reduced by shrinkage;
 
(8)             Inventory that the Borrower has returned, has attempted to
return, is in the process of returning or intends to return to the vendor
thereof;
 
(9)             Inventory manufactured or produced by the Borrower pursuant to a
license unless the applicable licensor has agreed in writing to permit the
Lender to exercise its rights and remedies against such Inventory;
 
(10)           Inventory not covered by a casualty insurance policy reasonably
acceptable to Lender and under which Lender has been named as a loss payee and
additional insured;
 
(11)           Inventory consisting of (i) packaging (except bottle inventory
approved by Lender in its sole discretion), (ii) work-in-process, (iii)
replacement parts, (iv) cleaning supplies, (v) office supplies, (vi) Inventory
held at locations carrying less than an aggregate of $20,000 of Inventory at
actual manufactured cost or invoiced cost, as applicable, (vii) raw materials in
opened or partial containers, and (viii) any raw materials or finished goods
which are past or near the expiration date thereof;
 

 
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(12)           Inventory with any contra relationships, setoffs, counterclaims
or disputes existing with respect thereto;
 
(13)           Inventory located at any warehouse or other storage facility as
to which amounts payable by Borrower to such warehouse or storage facility are
past due; and
 
(14)           Inventory otherwise deemed ineligible by Lender in its sole
discretion.
 
1.29           “Environment” means all air, surface water, groundwater or land,
including, without limitation, land surface or subsurface, including, without
limitation, all fish, wildlife, biota and all other natural resources.

1.30           “Environmental Law” or “Environmental Laws” shall mean all
federal, state and local laws, statutes, ordinances and regulations now or
hereafter in effect, and in each case as amended or supplemented from time to
time, and any judicial or administrative interpretation thereof, including any
judicial or administrative order, consent decree or judgment relating to the
regulation and protection of human health, safety, the environment and natural
resources (including ambient air, surface water, groundwater, wetlands, land
surface or subsurface strata, wildlife, aquatic species and vegetation).

1.31           “Environmental Liabilities and Costs” shall mean, as to any
Person, all liabilities, obligations, responsibilities, remedial actions,
losses, damages, punitive damages, consequential damages, treble damages, costs
and expenses (including all fees, disbursements and expenses of counsel, experts
and consultants and costs of investigation and feasibility studies), fines,
penalties, sanctions and interest incurred as a result of any claim or demand by
any other Person, whether based in contract, tort, implied or express warranty,
strict liability, criminal or civil statute, including any Environmental Law,
permit, order or agreement with any Governmental Authority or other Person, and
which arise from any environmental, health or safety conditions, or a Release or
conditions that are reasonably likely to result in a Release, and result from
the past, present or future operations of such Person or any of its Affiliates.
 
1.32           “Environmental Lien” shall mean any Lien in favor of any
Governmental Authority for Environmental Liabilities and Costs.
 
1.33           “ERISA” shall mean the Employee Retirement Income Security Act of
1974, as the same now exists or may from time to time hereafter be amended,
modified, recodified or supplemented, together with all rules, regulations and
interpretations thereunder or related thereto.
 
1.34           “Equipment” shall mean “equipment”, as such term is defined in
the UCC, now owned or hereafter acquired by Borrower, wherever located, and
shall include, without limitation, the machinery and equipment set forth on
Exhibit 1.34 annexed hereto, and all other equipment, machinery, furniture,
Fixtures, computer equipment, telephone equipment, molds, tools, dies,
partitions, tooling, transportation equipment, all other tangible assets used in
connection with the manufacture, sale or lease of goods or rendition of
services, and Borrower’s interests in any leased equipment, and all repairs,
modifications, alterations, additions, controls and operating accessories
thereof or thereto, and all substitutions and replacements therefor.
 

 
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1.35           “Equity Interests” shall mean, with respect to any Person, any
and all shares, rights to purchase, options, warrants, general, limited or
limited liability partnership interests, membership interests, units,
participations or other equivalents of or interest in (regardless of how
designated) equity of such Person, whether voting or nonvoting, including common
stock, preferred stock, convertible securities or any other “equity security”
(as such term is defined in Rule 3a11-1 of the General Rules and Regulations
promulgated by the SEC (or any successor thereto) under the 1934 Act).
 
1.36           “Event of Default” shall mean the occurrence or existence of any
event or condition described in Section 11 of this Agreement.
 
1.37           “Financial Statements” shall have the meaning as set forth in
Section 8.9 hereof.
 
1.38           “Financing Statements” shall mean the Uniform Commercial Code
UCC-1 Financing Statements to be filed with applicable Governmental Authorities
of each State or Commonwealth or political subdivisions thereof pursuant to
which Lender shall perfect its security interest in the Collateral.
 
1.39           “Fiscal Year” shall mean that twelve (12) month period commencing
on  January 1 and ending on December 31.
 
1.40           “Fixtures” shall have the meaning ascribed to such term in the
UCC.
 
1.41           “GAAP” means generally accepted accounting principles in effect
in the United States of America at the time of any determination, and which are
applied on a consistent basis.  All accounting terms used in this Agreement
which are not expressly defined in this Agreement shall have the meanings given
to those terms by GAAP, unless the context of this Agreement otherwise requires.

1.42           “General Intangibles” shall have the meaning ascribed to such
term in the UCC.
 
1.43           “Goods” shall have the meaning ascribed to such term in the UCC.
 
1.44           “Governmental Authority” or “Governmental Authorities” shall mean
any federal, state, county or municipal governmental agency, board, commission,
officer, official or entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.
 
1.45           “Guarantor” shall mean Christopher Reed.
 
1.46           “Indebtedness” shall mean, with respect to any Person, all of the
obligations of such Person which, in accordance with GAAP, should be classified
upon such Person’s balance sheet as liabilities, or to which reference should be
made by footnotes thereto, including without limitation, with respect to
Borrower, in any event and whether or not so classified:
 
 
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(a)           all debt and similar monetary obligations of Borrower, whether
direct or indirect;

(b)           all obligations of Borrower arising or incurred under or in
respect of any guaranties (whether direct or indirect) by Borrower of the
indebtedness, obligations or liabilities of any other Person; and

(c)           all obligations of Borrower arising or incurred under or in
respect of any Lien upon or in any property owned by such Person, even though
such Person has not assumed or become liable for the payment of such
obligations.

1.47           “Intellectual Property” shall mean all of the following
intellectual property used in the conduct of the business of Borrower: (a)
inventions, processes, techniques, discoveries, developments and related
improvements, whether or not patentable; (b) United States patents, patent
applications, divisionals, continuations, reissues, renewals, registrations,
confirmations, re-examinations, extensions and any provisional applications, of
any such patents or patent applications, and any foreign or international
equivalent of any of the foregoing; (c) United States registered or pending
trademarks, trade dress, service marks, service names, trade names, brand names,
logos, domain names, or business symbols and any foreign or international
equivalent of any of the foregoing and all goodwill associated therewith; (d)
work specifications, software (including object and source code listing) and
artwork; (e) technical, scientific and other know-how and information, trade
secrets, methods, processes, practices, formulas, designs, assembly procedures,
specifications owned or used by Borrower; (f) copyrights; (g) work for hire; (h)
customer and mailing lists; and (i) any and all rights of the Seller to the name
“Reed’s” or any derivation thereof, and Borrower’s entire customer list and
database and all assets used or useful by Borrower in the conduct of its
business over the internet or in any electronic medium, including any websites
or domain names owned by Borrower.

1.48           [RESERVED]

 
1.49           “Interest Rate” shall have the meaning set forth in Section 3.1
hereof.
 
1.50           “Instruments” shall have the meaning ascribed to such term in the
UCC
 
1.51           “Inventory” shall mean “inventory,” as such term is defined in
the UCC, now owned or hereafter acquired by Borrower, wherever located, and, in
any event, shall include, without limitation, all raw materials,
work-in-process, finished and semi-finished Inventory including, without
limitation, all materials, parts, components and supplies relating to the
manufacture or assembly thereof, packaging and shipping supplies relating
thereto, and all other inventory, merchandise, goods and other personal property
now or hereafter owned by Borrower, which are held for sale, exchange or lease
or are furnished or are to be furnished under a contract of service or an
exchange arrangement or which constitute raw materials, work-in-process or
materials used or consumed or to be used or consumed in Borrower’s business, or
the processing, packaging, delivery or shipping of the same, and all finished
goods and the products of the foregoing, whatever form and wherever located; and
all names or marks affixed to or to be affixed thereto for purposes of selling
same by the seller, manufacturer, lessor or licensor thereof and all right,
title and interest of Borrower therein and thereto.
 
 
 
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1.52           “Investment Property” shall have the meaning ascribed to such
term in the UCC.
 
1.53           “Landlord Waiver(s)” shall mean the Landlord Waiver(s) executed
by 525 South Douglas Street, LLC (“Landlord”) in the form of Exhibit 1.53
annexed hereto.
 
1.54           “Lender” shall have the meaning set forth in the introductory
paragraph hereof.

1.55           “Letter-of-Credit Rights” means “letter-of-credit rights” as such
term is defined in the UCC, including rights to payment or performance under a
letter of credit, whether or not the beneficiary thereof has demanded or is
entitled to demand payment or performance.
 
1.56           “Lien” or “lien” shall mean any mortgage, deed of trust, pledge,
security interest, hypothecation, assignment, lien (statutory or other,
including, without limitation, liens imposed by any Governmental Authority),
charge or other encumbrance of any kind or nature whatsoever (including, without
limitation, pursuant to any conditional sale or other title retention agreement,
any financing lease having substantially the same economic effect as any of the
foregoing, and the filing of any financing statement under the UCC or comparable
law of any jurisdiction to evidence any of the foregoing) on personal or real
property or fixtures.
 
1.57           “Loan Documents” shall mean this Agreement and any and all other
agreements, notes, documents, mortgages, financing statements, guaranties,
certificates and instruments executed and/or delivered by Borrower or any other
Person to Lender pursuant to and in connection with the Loan and this Agreement,
including, without limitation, the Revolving Loan Note, the Validity Guaranty,
the Landlord Waiver(s), the Patent and Trademark Security Agreement, the
Warehouse Agreements and all other documents entered into by the parties in
connection with the transactions contemplated hereby.
 
1.58            “Material Adverse Effect” means a material adverse effect on
(a) the Business, assets, liabilities, financial condition, results of
operations or business prospects of Borrower, (b) the ability of Borrower to
perform its obligations under any Loan Document to which it is a party, (c) the
value of the Collateral or the rights of Lender therein, (d) the validity or
enforceability of any of the Loan Documents, (e) the rights and remedies of
Lender under any of such Loan Documents, or (f) the timely payment of the
principal of or interest on the Loan or other amounts payable in connection
therewith. All determinations of materiality shall be made by the Lender in its
reasonable judgment.
 
1.59           “Material Contract” means any contract or other arrangement
(other than Loan Documents), whether written or oral, to which Borrower is a
party as to which the breach, nonperformance, cancellation or failure to renew
by any party thereto could have a Material Adverse Effect.
 
1.60           “Maturity Date” shall mean November 18, 2011, or such earlier
date by which the maturity of the Obligations shall have been accelerated
pursuant to the terms hereof.
 
1.61           “1934 Act” shall mean the Securities Exchange Act of 1934, as
amended.

1.62           “Note” shall mean the Revolving Loan Note.
 
 
 
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1.63           “Obligations” shall mean all obligations, liabilities and
indebtedness of every kind, nature and description owing by Borrower to Lender
pursuant to the Loan Documents, including, without limitation, principal,
interest, repurchase obligations, charges, fees, costs and expenses, however
evidenced, whether as principal, surety, endorser, guarantor or otherwise,
whether now existing or hereafter arising, whether arising before, during or
after the Term or after the commencement of any case with respect to Borrower
under the United States Bankruptcy Code or any similar statute (including,
without limitation, the payment of interest and other amounts which would accrue
and become due but for the commencement of such case), whether direct or
indirect, absolute or contingent, joint or several, due or not due, primary or
secondary, liquidated or unliquidated, secured or unsecured.
 
1.64           “Overadvance” shall have the meaning as set forth in Section
2.2(d) hereof.
 
1.65           “Patent and Trademark Security Agreement” shall mean the Patent
and Trademark Security Agreement in the form of Exhibit 1.65 annexed hereto.
 
1.66           “Payment Intangibles” shall have the meaning ascribed to such
term in the UCC.
 
1.67           “Permitted Encumbrances” shall mean the following:  (a) Liens
granted to Lender or its Affiliates; (b) purchase money security interests in
favor of equipment vendors upon any Capital Assets hereafter acquired
(including, without limitation, capitalized or finance leases); provided, that,
(i) no such purchase money security interest or other Lien (or capitalized or
finance lease, as the case may be) with respect to specific future Capital
Assets shall extend to or cover any other property, other than the specific
Capital Assets so acquired, and the proceeds thereof, (ii) such mortgage, Lien
or security interest secures only the cost or obligation to pay the purchase
price of such specific Capital Assets only (or the obligations under the
capitalized or finance lease), (iii) the principal amount secured thereby shall
not exceed one hundred (100%) percent of the lesser of the cost or the fair
market value (at the time of the acquisition of the Capital Assets) of the
Capital Assets so acquired, and (iv) such purchase money security interest is
permitted under Section 10.5 hereof; (c) Liens of carriers, warehousemen,
artisans, bailees, mechanics and materialmen incurred in the ordinary course of
business securing sums not overdue; (d) Liens incurred in the ordinary course of
business in connection with worker’s compensation, unemployment insurance or
other forms of governmental insurance or benefits, relating to employees,
securing sums (i) not overdue or (ii) being diligently contested in good faith
provided that adequate reserves with respect thereto are maintained on the books
of Borrower in conformity with GAAP; (e) Liens for taxes (i) not yet due or (ii)
being diligently contested in good faith by appropriate proceedings, provided
that adequate reserves with respect thereto are maintained on the books of
Borrower in conformity with GAAP, and which have no effect on the priority of
Liens in favor of Lender or the value of the assets in which Lender has a Lien;
and (f) such other Liens as are set forth on Exhibit  1.67 annexed hereto and
made a part hereof.

1.68           “Person” or “person” shall mean, as applicable, any individual,
sole proprietorship, partnership, corporation, limited liability company,
limited liability partnership, business trust, unincorporated association, joint
stock corporation, trust, joint venture or other entity or any government or any
agency or instrumentality or political subdivision thereof.
 
 
 
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1.69           “Proceeds” shall have the meaning ascribed to such term in the
UCC and shall also include, but not be limited to, (a) any and all proceeds of
any and all insurance policies (including, without limitation, life insurance,
casualty insurance, business interruption insurance and credit insurance),
indemnity, warranty or guaranty payable to Borrower from time to time with
respect to any of the Collateral or otherwise, (b) any and all payments (in any
form whatsoever) made or due and payable to Borrower from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Collateral by any governmental body,
authority, bureau or agency or any other Person (whether or not acting under
color of Governmental Authority) and (c) any and all other amounts from time to
time paid or payable under or in connection with any of the Collateral.
 
1.70           “Promissory Note” shall have the meaning ascribed to such term in
the UCC.
 
1.71           [RESERVED]
 
1.72           “Release” means any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping, or
disposing of a Hazardous Substance into the Environment.
 
1.73           “Reserves” shall mean, as of any date of determination, such
amounts as Lender  may from time to time establish and revise in good faith
reducing the amount of the Availability (a) to reflect events, conditions,
contingencies or risks which, as determined by Lender in good faith, do or may
adversely affect either (i) the Collateral or any other property which is
security for the Obligations or its value, (ii) the assets, Business or
prospects of Borrower, (iii) the security interests and other rights of Lender
in the Collateral (including the enforceability, perfection and priority
thereof), or (iv) Borrower’s ability to perform its Obligations under the Loan
Documents; or (b) in respect of any state of facts which Lender determines in
good faith constitutes an Event of Default or may, with notice or passage of
time or both, constitute an Event of Default.

1.74           “Responsible Officer” shall mean the Chief Executive Officer, the
Chief Operating Officer or the Chief Financial Officer of Borrower.
 
1.75           “Revolving Loan Commitment” shall mean the difference between (i)
Availability and (ii) the sum of the Reserves plus matured and unpaid
Obligations.
 
1.76           “Revolving Loan Note” shall have the meaning as set forth in
Section 2.2(b) hereof.
 
1.77           “Revolving Loan Prepayment Fee” shall have the meaning set forth
in Section 4.2 hereof.
 
1.78           “Revolving Loans” shall have the meaning as set forth in Section
2.2(a) hereof.
 
1.79           “SEC” shall mean the United States Securities and Exchange
Commission.
 
1.80           “SEC Reports” shall mean the Borrower’s periodic and other
reports filed by the Borrower with the SEC pursuant to the 1934 Act, in each
case as filed with the SEC and including the information and documents (other
than exhibits) incorporated therein by reference.
 
 
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1.81           “Securities” shall have the meaning ascribed to such term in the
UCC.
 
1.82           “Software” shall have the meaning ascribed to such term in the
UCC.

1.83           “Subsidiary” shall mean, as to any Person, a corporation, limited
liability company or other entity with respect to which more than fifty (50%)
percent of the outstanding Equity Interests of each class having voting power is
at the time owned by such Person or by one or more Subsidiaries of such Person
or by such Person.
 
1.84            “Tangible Chattel Paper” shall have the meaning ascribed to such
term in the UCC.
 
1.85           “Term” shall have the meaning set forth in Section 4.1.
 
1.86           “UCC” shall mean the Uniform Commercial Code as presently enacted
in California (or any successor legislation thereto), and as the same may be
amended from time to time, and the state counterparts thereof as may be enacted
in such states or jurisdictions where any of the Collateral is located or held.
 
1.87           “Validity Guaranty”shall mean that certain guaranty made by
Guarantor in favor of Lender, in the form of Exhibit 1.87 annexed hereto.
 
1.88           “Warehouse Agreements” shall mean the agreements, of even date
herewith, among Lender, Borrower and each of United States Cold Storage, Valley
Distributing & Storage, Advanced Packaging & Distribution Specialists, La Grou,
Castle & Cooke Cold Storage, Gress Refrigerated Services and United Warehouses,
in the form of Exhibit 1.88 annexed hereto.
 
1.89           Rules of Interpretation and Construction. In this Agreement
unless the context otherwise requires:
 
(a)           All terms used herein which are defined in the UCC  shall have the
meanings given therein unless otherwise defined in this Agreement;
 
(b)           Sections mentioned by number only are the respective Sections of
this Agreement as so numbered;

(c)           Words importing a particular gender shall mean and include the
other gender and words importing the singular number mean and include the plural
number and vice versa;
 
(d)           Words importing persons shall mean and include firms,
associations, partnerships (including limited partnerships), societies, trusts,
corporations, limited liability companies or other legal entities, including
public or governmental bodies, as well as natural persons;
 
 
 
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(e)           Each reference in this Agreement to a particular person shall be
deemed to include a reference to such person's successors and permitted assigns;
 
(f)           Any headings preceding the texts of any Section of this Agreement,
and any table of contents or marginal notes appended to copies hereof are
intended, solely for convenience of reference and shall not constitute a part of
this Agreement, nor shall they affect its meaning, construction or effect;
 
(g)           If any clause, provision or section of this Agreement shall be
ruled invalid or unenforceable by any court of competent jurisdiction, such
holding shall not invalidate or render unenforceable any of the remaining
provisions thereof;
 
(h)           The terms “herein”, “hereunder”, “hereby”, “hereto”, and any
similar terms as used in this Agreement refer to this Agreement; the term
“heretofore” means before the date of execution of this Agreement; and the term
“hereafter” shall mean after the date of execution of this Agreement;
 
(i)            If any clause, provision or section of this Agreement shall be
determined to be apparently contrary to or conflicting with any other clause,
provision or section of this Agreement, then the clause, provision or section
containing the more specific provisions shall control and govern with respect to
such apparent conflict;
 
(j)            Unless otherwise specified, (i) all accounting terms used herein
or in any Loan Document shall be interpreted in accordance with GAAP, (ii) all
accounting determinations and computations hereunder or thereunder shall be made
in accordance with GAAP and (iii) all financial statements required to be
delivered hereunder or thereunder shall be prepared in accordance with GAAP;
 
(k)           An Event of Default that occurs shall exist or continue or be
continuing unless such Event of Default is waived by Lender in accordance with
the terms of this Agreement; and
 
(l)           The word “and” when used from time to time herein shall mean “or”
or “and/or” if such meaning is expansive of the rights or interests of Lender in
the given context.
 
 
SECTION 2.  LOANS

2.1           [RESERVED]
 
2.2           Revolving Loans.
 
(a)           Lender may, subject to the terms and conditions contained herein
and the satisfaction of the closing and funding conditions set forth herein,
make revolving loans to Borrower (“Revolving Loans”) prior to the Maturity Date
in amounts requested by Borrower from time to time, but not more than 15 times
each month, provided that the requested Revolving Loan would not cause the
outstanding Revolving Loans to exceed the Revolving Loan Commitment existing
immediately prior to the making of the requested Revolving Loan.  Subject to the
terms and conditions hereof, Borrower may borrow, repay and reborrow Revolving
Loans, as set forth in this Agreement.
 
(b)           Revolving Loans may be drawn in tranches of not less than Five
Thousand Dollars ($5,000) (each drawing, an “Advance” and collectively, the
“Advances”). The obligation of Borrower to repay the Revolving Loans shall be
evidenced by a note (the “Revolving Loan Note”) in the form of Exhibit
2.2(b) hereto and dated the date hereof.
 
 
 
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(c)           Subject to mandatory payment of Revolving Loans as set forth in
Section 2.2(d) below,  the principal amount of the Revolving Loans shall be
payable on the Maturity Date.
 
(d)           Notwithstanding any provision herein to the contrary, Borrower
shall repay the Revolving Loans immediately at any time and from time to time in
an amount by which the outstanding balance of the Revolving Loans exceeds the
Revolving Loan Commitment, as determined by Lender (an “Overadvance”).
 
(e)           Borrower may prepay the entire unpaid principal sum of the
Revolving Loans without premium or penalty, except as set forth in Section 4.2
hereof.

(f)           Whenever Borrower desires an Advance, Borrower will notify Lender
by delivery of a borrowing certificate certified by a Responsible Officer
(“Borrowing Certificate”) no later than one (1) Business Day prior to the date
of the proposed Advance, setting forth in reasonable detail, as of the date set
forth on the Borrowing Certificate, (i) a schedule of all Accounts; (ii) a
schedule of Eligible Accounts and the calculation of the Advance requested in
connection therewith, (iii) a schedule of all Inventory, and (iv) a schedule of
Eligible Inventory setting forth the calculation of Eligible Inventory on which
such Advance is based and the calculation of the Advance requested in connection
therewith, which Borrowing Certificate shall in all respects be subject to
Lender’s review and approval. In addition, Borrower shall furnish Lender with a
Borrowing Certificate weekly on each Tuesday during the Term setting forth such
information, irrespective of whether Borrower has then requested an Advance.
Lender shall be entitled to rely on any facsimile or electronic transmission of
a Borrowing Certificate given by a person who Lender reasonably believes to be a
Responsible Officer, and Borrower shall indemnify and hold Lender harmless for
any damages or loss suffered by Lender as a result of such reliance. The funding
of each Advance shall be made in accordance with the applicable Borrowing
Certificate as approved by Lender.

(g)           Remittances from Account Debtors and all other proceeds of
Accounts and other Collateral shall be directed to Lender and deposited in an
account at a financial institution selected by Lender (the “Collection
Account”).  Borrower shall cause all Collections with respect to all Accounts to
be sent directly to Lender’s address set forth in this Agreement or in
accordance with wire instructions as provided by Lender pursuant to a written
instruction approved by Lender and delivered to all Account Debtors, which
instruction may not be modified or terminated without Lender’s prior written
consent in each case. Once instituted, such payment system shall remain in
effect unless Lender directs otherwise.  Borrower shall bear all risk of loss of
any funds deposited into such account except to the extent such loss is caused
by the gross negligence or the willful misconduct of Lender.  In connection
therewith, Borrower shall execute such lockbox and/or bank account agreements as
Lender shall specify from time to time.  Any collections or other Collateral
proceeds received by Borrower from any source whatsoever shall be held in trust
for the benefit of Lender and immediately remitted to Lender in kind.
 
(h)           In the event that Borrower receives any Collections that should
have been sent to the Collection Account, Borrower shall, promptly upon receipt
and in any event within one Business Day of receipt, forward such Collections
directly to Lender, in the form received, and promptly notify Lender of such
event.  Until so forwarded, such Collections shall be held in trust for the
benefit of Lender.
 
 
 
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(i)           Subject to charges for Collections Days, all amounts deposited
into the Collection Account will, for the purposes of calculating the Borrowing
Base and interest, be credited to the aggregate outstanding amount of the
Revolving Loans on the date of deposit in the Collection Account.  No checks,
drafts or other instruments received by Lender shall constitute final payment to
Lender unless and until such instruments have actually been collected.
 
(j)           All payments of principal, interest, fees, costs, expenses and
other charges provided for in this Agreement or any other Loan Document that
have not been paid to Lender on the due dates thereof, and any chargeback on an
Eligible Account against which an Advance was made, shall be added to the
principal amount of the Revolving Loans, and shall bear interest at the Default
Interest Rate.
 
(k)           Application of Collections and Proceeds of Collateral:
 
1.           So long as no Event of Default shall have occurred and remain
outstanding, Lender agrees to apply all Collections as follows: first, to
Overadvances; second, to all fees, costs and expenses; third, to accrued and
unpaid interest; fourth, to matured and unpaid Obligations; and fifth, the
principal amount of the Revolving Loans.
 
2.           If an Event of Default shall have occurred and be continuing,
Lender may apply Collections, any other proceeds of Collateral and all other
payments received by Lender to the payment of the Obligations in such manner and
in such order as Lender may elect in its sole discretion.

3.           In addition to the foregoing application of Collections, in order
to satisfy Borrower’s payment of amounts due under the Revolving Loans and all
fees, expenses and charges with respect thereto that are due and payable under
this Agreement or any other Loan Document, Borrower hereby irrevocably
authorizes the Lender to initiate manual and automatic electronic (debit and
credit) entries through the Automated Clearing House or other appropriate
electronic payment system (“ACH”) to all deposit accounts maintained by
Borrower, wherever located. At the request of the Lender, Borrower shall
complete, execute and deliver to the institution set forth below (with a copy to
the Lender) any ACH agreement, voided check, information and/or direction letter
reasonably necessary to so instruct Borrower’s depository institution.  Borrower
(i) shall maintain in all respects this ACH arrangement; (ii) shall not change
depository institutions without Lender’s prior written consent, and if consent
is received, shall immediately execute similar ACH instruction(s), and
(iii) waive any and all claims for loss or damage arising out of debits or
credits to/from the depository institution, whether made properly or in
error.  Borrower has communicated and instructed the institutions set forth
below:
 
Bank Name:
City National Bank
Address:
3424 Carson Street,
 
Torrance, CA 90503
ABA #:
122016066
Account #:
017236482
Phone:
310-264-2919
Fax:
310-264-2906
Reference:
Reed’s
Contact Person:
Jackie Saidian

 
 
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2.3           Maximum Credit.  The aggregate principal amount of the Revolving
Loans shall not exceed $3,000,000.

2.4           Reserves. Without limiting any other rights and remedies of Lender
hereunder or under the other Loan Documents, the Availability shall be subject
to Lender's continuing right, in its sole discretion in good faith, from time to
time, to withhold a Reserve from Availability.

2.5           Use of Proceeds. Borrower shall use the proceeds of the Revolving
Loans solely for (i) payment in full of any existing senior debt secured by the
Collateral; or (ii) ordinary course working capital purposes in its Business,
including without limitation, the payment of any fees hereunder.

2.6           Repayment. Borrower shall repay the Revolving Loans and other
Obligations in accordance with the Revolving Loan Note and this Agreement
 
 
SECTION 3.  INTEREST, FEES AND CHARGES

3.1           Interest.
 
(a)             Interest on the unpaid principal balance of Revolving Loans,
including interest charges for Collection Days,  shall be computed on the basis
of the actual number of days elapsed and a year of 360 days and shall accrue at
the rate of Eighteen Percent (18%) per annum (the “Interest Rate”). All accrued
interest on the Revolving Loans, including interest charges for Collection Days,
shall be due and payable in arrears monthly on the first Business Day of each
month.
 
(b)             Following and during the continuation of an Event of Default,
interest on the unpaid principal balance of the Revolving Loans shall accrue at
a rate equal to Twenty-Four Percent (24%) per annum (the “Default Interest
Rate”).

3.2           Fees. Borrower shall pay Lender, or Lender’s designee, the fees
set forth in Exhibit 3.2. Such fees, other than the audit fees referenced
therein, shall be deemed fully earned on the date hereof, shall be paid from
Loan proceeds, and not be subject to rebate or proration for any reason.

3.3           Fees and Expenses. Borrower shall pay, on Lender's demand, all
costs, expenses, filing fees and taxes payable in connection with the
preparation, execution, delivery, recording, administration, collection,
liquidation, defense and enforcement of the Loan Documents, Lender's rights in
the Collateral, and all other existing and future agreements or documents
contemplated herein or related hereto, including any amendments, waivers,
supplements or consents which may now or hereafter be made or entered into in
respect hereof, or in any way involving claims or defenses asserted by Lender or
claims or defenses against Lender asserted by Borrower or any third party
directly or indirectly arising out of or related to the relationship between
Borrower and Lender, including, but not limited to the following, whether
incurred before, during or after the Term or after the commencement of any case
with respect to Borrower under the United States Bankruptcy Code or any similar
or successor statute: (a) all costs and expenses of filing or recording
(including UCC Financing Statement and mortgage filing fees); (b) all title
insurance and other insurance premiums, appraisal fees, fees incurred in
connection with any environmental report and audit, survey and search fees and
charges; (c) all fees relating to the collection and wire transfer of loan
proceeds, including lockbox charges, and other funds and fees for returned
checks; and (d) all costs, fees and disbursements of counsel to Lender. If any
fees, costs or charges payable to Lender hereunder are not paid when due, such
amounts shall be added to the principal amount of the Revolving Loans and accrue
interest at the Default Interest Rate until paid.
 
 
 
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3.4           Savings Clause. It is intended that the Interest Rate and the
Default Interest Rate shall never exceed the maximum rate, if any, which may be
legally charged in the State of California for loans made to corporations (the
“Maximum Rate”).  If the provisions for interest contained in the Revolving Loan
Note would result in a rate higher than the Maximum Rate, the interest shall
nevertheless be limited to the Maximum Rate and any amounts which may be paid
toward interest in excess of the Maximum Rate shall be applied to the reduction
of principal, or, at the option of Lender, returned to the Borrower.

 
SECTION 4.  TERM.

4.1           Term. This Agreement shall continue until all Obligations shall
have been indefeasibly paid in full (the “Term”).
 
4.2           Early Termination; Loan Prepayment Fees.

(a)           Lender shall have the right to terminate this Agreement at any
time upon or after the occurrence of an Event of Default.

(b)           Except as set forth in Sections 4.2(c) hereof, the Revolving Loans
shall be prepayable by Borrower without premium or penalty.

(c)           Borrower may prepay the entire unpaid principal sum of the
Revolving Loans without premium or penalty, provided, however, that, (i) such
prepayment is no less than the amount of the remaining outstanding principal sum
of all outstanding Revolving Loans, (ii) as part of such prepayment, Borrower
shall pay Lender all other amounts due to Lender pursuant to the Revolving Loan
Note, this Agreement and other Loan Documents, and  (iii) in addition, in the
event Borrower makes such prepayment during the first nine (9) months of the
Term, then Borrower shall pay to Lender an amount equal to $60,000 (representing
two percent (2%) of the maximum Revolving Loan Commitment of $3,000,000) (the
“Revolving Loan Prepayment Fee”).  The Revolving Loan Prepayment Fee is intended
to compensate Lender for committing and deploying funds for Borrower’s Revolving
Loans pursuant to the Agreement and for Lender’s loss of investment of such
funds in connection with such early termination, and is not intended as a
penalty.

(d)           The Revolving Loan Prepayment Fee also shall be due and payable by
Borrower to Lender if Lender accelerates the payment of the Obligations during
the first nine (9) months of the Term due to the occurrence of an Event of
Default.

 
SECTION 5.  COLLATERAL.
 
 
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5.1           Security Interests in Borrower’s Assets. As collateral security
for the payment and performance of the Obligations, Borrower hereby grants and
conveys to Lender a first priority continuing security interest in and Lien upon
all now owned and hereafter acquired property and assets of Borrower and the
Proceeds and products thereof (which property, assets and Proceeds, together
with all other collateral security for the Obligations now or hereafter granted
to or otherwise acquired by Lender, are referred to herein collectively as the
“Collateral”), including, without limitation, all property of Borrower now or
hereafter held or possessed by Lender, and including the following:
 

 
(a)
Accounts;
       
(b)
Chattel Paper;
       
(c)
Commercial Tort Claims;
       
(d)
Deposit Accounts;
       
(e)
Documents;
       
(f)
Electronic Chattel Paper;
       
(g)
Equipment;
       
(h)
Fixtures;
       
(i)
General Intangibles;
       
(j)
Goods;
       
(k)
Instruments;
       
(l)
Inventory;
       
(m)
Investment Property;
       
(n)
Letter-of-Credit Rights;
       
(o)
Payment Intangibles;
       
(p)
Promissory Notes;
       
(q)
Software;
       
(r)
Tangible Chattel Paper;
       
(s)
Securities (whether certificated or uncertificated);
       
(t)
Warehouse receipts;

 
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(u)           Cash monies;
 
(v)           Tax and duty refunds;
 
(w)           Intellectual Property;

(x)           All present and future books and records relating to any of the
above including, without limitation, all present and future books of account of
every kind or nature, purchase and sale agreements, invoices, ledger cards,
bills of lading and other shipping evidence, statements, correspondence,
memoranda, credit files and other data relating to the Collateral or any Account
Debtor, together with the tapes, disks, diskettes and other data and software
storage media and devices, file cabinets or containers in or on which the
foregoing are stored (including any rights of Borrower with respect to any of
the foregoing maintained with or by any other Person);
 
(y)           All of Borrower’s real property as well as any and all fixtures
and improvements thereto, and any and all interests therein, wherever located;
and
 
(z)           Any and all products and Proceeds of the foregoing in any form
including, without limitation, all insurance claims, warranty claims and
proceeds and claims against third parties for loss or destruction of or damage
to any or the foregoing.
 
5.2           Financing Statements. Borrower hereby authorizes Lender to file
Financing Statements with respect to the Collateral in form acceptable to Lender
and its counsel, and hereby ratifies any actions taken by Lender prior to the
date hereof to file such Financing Statements.  Borrower shall, at all times,
do, make, execute, deliver and record, register or file all Financing Statements
and other instruments, acts, pledges, leasehold or other mortgages, amendments,
modifications, assignments and transfers (or cause the same to be done), and
will deliver to Lender such instruments and/or documentation evidencing items of
Collateral, as may be requested by Lender to better secure or perfect Lender's
security interest in the Collateral or any Lien with respect thereto. Borrower
acknowledges that it is not authorized to file any Financing Statement or
amendment or termination statement with respect to any Financing Statement
without the prior written consent of Lender and agrees that it will not do so
without the prior written consent of Lender.
 
5.3           License Grant. Borrower hereby grants to Lender an irrevocable,
non-exclusive, worldwide license without payment of royalty or other
compensation to Borrower, upon the occurrence and during the continuance of an
Event of Default, to use or otherwise exploit in any manner as to which
authorization of the holder of such Intellectual Property would be required, and
to license or sublicense such rights in to and under, any Intellectual Property
now or hereafter owned by or licensed to Borrower, and wherever the same may be
located, including in such license access to all media in which any of such
Intellectual Property may be recorded or stored and to all software and hardware
used for the compilation or printout thereof, and represents, promises and
agrees that any such license or sublicense is not and will not be in conflict
with the contractual or commercial rights of any third Person and subject, in
the case of trademarks and service marks, to sufficient rights to quality
control and inspection in favor of Borrower to avoid the risk of invalidation of
said trademarks and service marks.  The foregoing license will terminate on the
indefeasible payment in full of all Obligations; provided, however, that any
license, sublicense, or other rights granted by Lender pursuant to such license
during its term shall remain in effect in accordance with its terms.
 
 
 
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5.4           Representations, Warranties and Covenants Concerning the
Collateral. Borrower represents, warrants (each of which such representations
and warranties shall be deemed repeated upon the making of each request for a
Revolving Loan and made as of the time of each and every Revolving Loan
hereunder) and covenants as follows:

(a)           All of the Collateral (i) is owned by it free and clear of all
Liens  (including any claim of infringement) except those in Lender’s favor and
Permitted Encumbrances and (ii) is not subject to any agreement prohibiting the
granting of a Lien or requiring notice of or consent to the granting of a Lien.
 
(b)           It shall not encumber, mortgage, pledge, assign or grant any Lien
upon any Collateral or any other assets to anyone other than the Lender and
except for Permitted Encumbrances.
 
(c)           The Liens granted pursuant to this Agreement, upon the filing of
Financing Statements in respect of Borrower in favor of the Lender in the
applicable filing office of the state of organization of Borrower, the recording
of the Liens in favor of the Lender in the U.S. Patent and Trademark Office and
the U.S. Copyright Office, as applicable, and the taking of any actions required
under the laws of jurisdictions outside the United States with respect to
Intellectual Property included in the Collateral which is created under such
laws, constitute valid perfected first priority security interests in all of the
Collateral in favor of the Lender, as security for the prompt and complete
payment and performance of the Obligations, enforceable in accordance with the
terms hereof.
 
(d)           No security agreement, mortgage, deed of trust, financing
statement, equivalent security or Lien instrument or continuation statement
covering all or any part of the Collateral is or will be on file or of record in
any public office, except those relating to Permitted Encumbrances.
 
(e)           It shall not dispose of any of the Collateral whether by sale,
lease or otherwise except for (i) the sale of Inventory in the ordinary course
of business and (ii) the disposition or transfer in the ordinary course of
business of Equipment only to the extent that the proceeds of any such
disposition are used to acquire replacement Equipment which is subject to the
Lender’s security interest or are used to repay the Obligations.
 
(f)           It shall defend the right, title and interest of the Lender in and
to the Collateral against the claims and demands of all Persons whomsoever, and
take such actions, including (i) all actions necessary to grant the Lender
“control” of any Investment Property, Deposit Accounts, Letter-of-Credit Rights
or Electronic Chattel Paper owned by it, with any agreements establishing
control to be in form and substance satisfactory to the Lender, (ii) the prompt
(but in no event later than three (3) Business Days following the Lender’s
request therefor) delivery to the Lender of all original Instruments, Chattel
Paper, negotiable Documents and certificated Securities owned by it (in each
case, accompanied by stock powers, allonges or other instruments of transfer
executed in blank), (iii) notification to third parties of the Lender’s interest
in Collateral at the Lender’s request, and (iv) the institution of litigation
against third parties as shall be prudent in order to protect and preserve its
and/or the Lender’s interests in the Collateral.
 

 
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(g)           It shall promptly, and in any event within three (3) Business Days
after the same is acquired by it, notify the Lender of any Commercial Tort Claim
acquired by it and, unless otherwise consented to by the Lender, it shall enter
into a supplement to this Agreement granting to the Lender a Lien in such
Commercial Tort Claim for the benefit of Lender.
 
(h)           It shall perform in a reasonable time all other steps requested by
the Lender to create and maintain in the Lender’s favor a valid perfected first
Lien in all Collateral subject only to Permitted Encumbrances.
 
(i)             [RESERVED]
 
(j)            All Accounts (i) represent complete bona fide transactions which
require no further act under any circumstances on its part to make such Accounts
payable by the Account Debtors, (ii) are not subject to any present, future
contingent offsets or counterclaims, and (iii) do not represent bill and hold
sales, consignment sales, guaranteed sales, sale or return or other similar
understandings or obligations of any Affiliate or Subsidiary of the applicable
Borrower.  It has not made, nor will it make, any agreement with any Account
Debtor for any extension of time for the payment of any Account, any compromise
or settlement for less than the full amount thereof, any release of any Account
Debtor from liability therefor, or any deduction therefrom except a discount or
allowance for prompt or early payment allowed by it in the ordinary course of
its business consistent with historical practice and as previously disclosed to
the Lender in writing.
 
(k)           It shall keep and maintain its Equipment in good operating
condition, except for ordinary wear and tear, and shall make all necessary
repairs and replacements thereof so that the value and operating efficiency
shall at all times be maintained and preserved.  It shall not permit any such
items to become a fixture to real estate or accessions to other personal
property.
 
(l)            It shall maintain and keep all of its books and records
concerning the Collateral at its executive offices listed in Section 5.4(n) of
the Borrower’s Disclosure Schedule.
 
(m)           Section 5.4(m) of the Borrower’s Disclosure Schedule lists all
banks and other financial institutions at which it maintains deposits and/or
other accounts, and such Schedule correctly identifies the name, address and
telephone number of each such depository, the name in which the account is held,
a description of the purpose of the account, and the complete account
number.  It shall not establish any depository or other bank account with any
financial institution (other than the accounts set forth on Section 5.4(m) of
the Borrower’s Disclosure Schedule) without providing Lender with written
notification thereof and providing similar information related thereto.
 
(n)           On the date hereof, its exact legal name (as indicated in the
public record of its jurisdiction of organization), jurisdiction of
organization, organizational identification number, if any, from the
jurisdiction of organization, and the location of its chief executive office and
all other offices or locations out of which it conducts business or operations,
are specified on Section 5.4(n) of the Borrower’s Disclosure Schedule.  It has
furnished to the Lender a certified charter, certificate of incorporation or
other organization document and long-form good standing certificate as of a date
which is within thirty (30) days of the date hereof.  It is organized solely
under the law of the jurisdiction so specified and has not filed any
certificates of domestication, transfer or continuance in any other
jurisdiction.  Except as otherwise indicated on Section 5.4(n) of the Borrower’s
Disclosure Schedule, the jurisdiction of its organization of formation is
required to maintain a public record showing it to have been organized or
formed.  Except as specified on Section 5.4(n) of the Borrower’s Disclosure
Schedule, it has not changed its name, jurisdiction of organization, chief
executive office or sole place of business or its corporate structure in any way
(e.g., by merger, consolidation, change in corporate form or otherwise) within
the last five years and has not within the last five years become bound (whether
as a result of merger or otherwise) as a grantor under a security agreement
entered into by another Person, which has not heretofore been terminated.
 

 
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(o)           It will not, except upon thirty (30) days’ prior written notice to
the Lender and delivery to the Lender of all additional financing statements and
other documents reasonably requested by the Lender to maintain the validity,
perfection and priority of the security interests provided for herein:  (i)
change its jurisdiction of organization or the location of its chief executive
office from that referred to in Section 5.4(n) of the Borrower’s Disclosure
Schedule; or (ii) change its name, identity or organizational structure.

(p)           None of the Collateral is subject to any prohibition against
encumbering, pledging, hypothecating or assigning the same or requires notice or
consent to Borrower’s doing of the same.
 

SECTION 6.  CONDITIONS TO INITIAL LOANS.

The obligation of Lender to make the initial Revolving Loans shall be subject to
the satisfaction or waiver by Lender, prior thereto or concurrently therewith,
of each of the following conditions precedent:

6.1           Loan Documents. Each of the Loan Documents shall have been duly
and properly authorized, executed and delivered by Borrower and the other
parties thereto and shall be in full force and effect as of the date hereof.

6.2           Representations and Warranties. Each of the representations and
warranties made by or on behalf of Borrower to Lender in this Agreement and in
other Loan Documents shall be true and correct in all material respects as of
the date hereof, provided that any such representation or warranty that is
qualified by materiality shall be true and correct in all respects as of the
date hereof.

6.3           Certified Copies of Corporate Documents. Lender shall have
received from Borrower, certified by a duly authorized officer to be true and
complete on and as of a date which is not more than ten (10) Business Days prior
to the date hereof, a copy of each of (a) the certificate of incorporation or
such other formation documents of Borrower in effect on such date of
certification, and (b) the by-laws of Borrower in effect on such date.

6.4           Proof of Corporate Action. Lender shall have received from
Borrower a copy, certified by a duly authorized officer to be true and complete
on and as of the date which is not more than ten (10) Business Days prior to the
date hereof, of the records of all corporate action taken by Borrower to
authorize (a) its execution and delivery of each of the Loan Documents to which
it is or is to become a party as contemplated or required by this Agreement, (b)
its performance of all of its agreements and obligations under each of such
documents, and (c) the incurring of the Obligations contemplated by this
Agreement.

 
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6.5           Legal Opinion. Lender shall have received a written legal opinion,
addressed to Lender, dated the date hereof, from counsel for Borrower.  Such
legal opinion shall be acceptable to Lender and its counsel.

6.6           Collateral. Lender shall have obtained a first, perfected security
interest in the Collateral of Borrower, subject only to the Permitted
Encumbrances.

6.7           Insurance. Lender shall have received evidence of insurance,
additional insured and loss payee endorsements required hereunder and under the
other Loan Documents, in form and substance satisfactory to Lender, and
certificates of insurance policies and/or endorsements naming Lender as
additional insured and loss payee.

6.8           Validity of Collateral Representation. Lender shall have received
a statement by the appropriate officers of the Borrower which shall represent
and certify the validity of the Collateral.

6.9           ACH Agreement. Lender shall have received from Borrower an
agreement executed by Borrower which irrevocably authorizes Lender to initiate
manual and automatic electronic (debit and credit) entries through the Automated
Clearing House or other appropriate electronic payment system to all deposit
accounts maintained by Borrower, wherever located.

6.10         IRS Form 4506. Lender shall have received from Borrower an executed
Form 4506 to be submitted to the Internal Revenue Service which shall grant
Lender access to Borrower’s tax returns.

6.11         IRS Form W-9. Lender shall have received from Borrower an executed
Form W-9 to be submitted to the Internal Revenue Service which shall allow
Lender to verify Borrower’s tax identification number(s).

6.12         Pay Proceeds Letter. Borrower shall have delivered to Lender a pay
proceeds letter with respect to the disbursement of the proceeds of the initial
Revolving Loans in form and substance satisfactory to Lender, which letter shall
provide for, among other things, the payment or reimbursement of all costs and
expenses incurred by Lender in connection with this Agreement and the other Loan
Documents.

 
SECTION 7.  CONDITIONS TO MAKING ALL LOANS.

The obligations of Lender to make all Revolving Loans hereunder shall be subject
to the satisfaction or waiver by Lender, prior thereto or concurrently
therewith, of each of the following conditions precedent:
 
 
 
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7.1           Applications and Compliance. The application for such Revolving
Loans shall have been made by Borrower to Lender in accordance with the
applicable provisions of this Agreement and in compliance with all provisions of
this Agreement.

7.2           Representations and Warranties. Each of the representations and
warranties made by or on behalf of Borrower to Lender in this Agreement or in
other Loan Documents shall have been true and correct in all material respects
when made (provided that any such representation or warranty that is qualified
as to materiality shall be true and correct in all respects), shall, for all
purposes of this Agreement, be deemed to be repeated on and as of the date of
each Revolving Loan by Lender hereunder and shall be true and correct in all
respects on and as of each such date, except to the extent that any of such
representations and warranties relate, by the express terms thereof, solely  to
a date prior to the date of each Revolving Loan by Lender hereunder, and Lender
shall have received a certification from a Responsible Officer with respect to
the foregoing  in form and substance satisfactory to Lender.

7.3           Performance, etc. Borrower shall have duly and properly performed,
complied with and observed each of its covenants, agreements and obligations
contained in this Agreement and in any other Loan Documents on the date of each
Revolving Loan by Lender hereunder, and Lender shall have received a
certification from a Responsible Officer with respect to the foregoing in form
and substance satisfactory to Lender.  No event shall have occurred on or prior
to the date of each Revolving Loan by Lender hereunder and be continuing on the
date of each Revolving Loan by Lender hereunder, and no condition shall exist on
the date of each Revolving Loan by Lender hereunder, which constitutes an Event
of Default or which would, with notice or the lapse of time, or both, constitute
an Event of Default under this Agreement or any other Loan Document, and Lender
shall have received a certification from a Responsible Officer with respect to
the foregoing  in form and substance satisfactory to Lender.
 
 
SECTION 8.  REPRESENTATIONS AND WARRANTIES.

Borrower hereby represents and warrants to Lender, knowing and intending that
Lender shall rely thereon in making the Revolving Loan contemplated hereby (each
of which representations and warranties shall be continuing unless expressly
made in relation only to a specific date), that:

8.1           Corporate Existence:  Good Standing.

(a)           Borrower (i) is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its organization, (ii) is
in good standing in all other jurisdictions in which it is required to be
qualified to do business as a foreign corporation, and (iii) has all requisite
corporate power and authority and full legal right to own or to hold under lease
its properties and to carry on the business as presently engaged.
 
(b)           Borrower has corporate power and authority and has full legal
rights to enter into each of the Loan Documents to which it is a party, and to
perform, observe and comply with all of its agreements and obligations under
each of such documents.
 
 
 
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8.2           No Violation, etc. The execution and delivery by Borrower of the
Loan Documents to which Borrower is a party, the performance by Borrower of all
of its agreements and obligations under each of such documents, and the
incurring by Borrower of all of the Obligations contemplated by this Agreement,
have been duly authorized by all necessary corporate actions on the part of
Borrower and, if required, its shareholders, and do not and will not (a)
contravene any provision of Borrower’s charter, bylaws or other governing
documents or this Agreement (each as from time to time in effect), (b) conflict
with, or result in a breach of the terms, conditions, or provisions of, or
constitute a default under, or result in the creation of any Lien upon any of
the property of Borrower under, any agreement, mortgage or other instrument to
which Borrower is or may become a party, (c) violate or contravene any provision
of any law, regulation, order, ruling or interpretation thereunder or any
decree, order or judgment or any court or governmental or regulatory authority,
bureau, agency or official (all as from time to time in effect and applicable to
such entity), (d) other than waivers required from Borrower’s landlords, require
any waivers, consents or approvals by any of third party, including any
creditors or trustees for creditors of Borrower, or (e) require any approval,
consent, order, authorization, or license by, or giving notice to, or taking any
other action with respect to, any Governmental Authority.

8.3           Binding Effect of Documents, etc. Borrower has duly executed and
delivered each of the Loan Documents to which Borrower is a party, and each of
the Loan Documents is valid, binding and in full force and effect. The
agreements and obligations of Borrower as contained in each of the Loan
Documents constitute, or upon execution and delivery thereof will constitute,
legal, valid and binding obligations of Borrower, enforceable against Borrower
in accordance with their respective terms, subject, as to the enforcement of
remedies only, to limitations imposed by federal and state laws regarding
bankruptcy, insolvency, reorganization, moratorium and other laws affecting
creditors' rights and remedies generally, and by general principles of law and
equity.

8.4           No Events of Default.

(a)           No Event of Default has occurred and is continuing and no event
has occurred and is continuing and no condition exists that would, with notice
or the lapse of time, or both, constitute an Event of Default.
 
(b)           Borrower is not in default under any material contract, agreement
or instrument to which Borrower is a party or by which Borrower or any property
of Borrower is bound.
 
(c)           Borrower’s execution, delivery and performance of and compliance
with this Agreement and the other Loan Documents  will not, with or without the
passage of time or giving of notice, result in any material violation of law, or
be in conflict with or constitute a default under any term or provision, or
result in the creation of any Lien upon any of Borrower’s  properties or assets
or the suspension, revocation, impairment, forfeiture or nonrenewal, of any
permit, license, authorization or approval applicable to Borrower, or any of its
businesses or operations or any of its assets or properties.
 
8.5           No Governmental Consent Necessary. No consent or approval of,
giving of notice to, registration with or taking of any other action in respect
of, any Governmental Authority is required with respect to the execution,
delivery and performance by Borrower of this Agreement and the other Loan
Documents to which it is a party.
 
 
 
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8.6           No Proceedings. There are no actions, suits, or proceedings
pending or, to the best of Borrower’s knowledge, threatened against or affecting
Borrower in any court or before any Governmental Authority which, if adversely
determined, would have an adverse effect on the ability of Borrower to perform
its obligations under this Agreement or the other Loan Documents to which it is
a party.

8.7           No Violations of Laws. Borrower has conducted, and is conducting,
its business, so as to comply in all material respects with all applicable
federal, state, county and municipal statutes and regulations.  Neither Borrower
nor any officer, director or shareholder of Borrower is charged with, or so far
as is known by Borrower, is under investigation with respect to, any violation
of any such statutes, regulations or orders, which could have a Material Adverse
Effect.

8.8           Use of Proceeds of the Loan. Proceeds from the Revolving Loan
shall be used only for those purposes set forth in this Agreement.  No part of
the proceeds of the Loan shall be used, directly or indirectly, for the purpose
of purchasing or carrying any margin stock or for the purpose of purchasing or
carrying or trading in any stock under such circumstances as to involve Borrower
in a violation of any statute or regulation.  In particular, without limitation
of the foregoing, no part of the proceeds from the Revolving Loans are intended
to be used to acquire any publicly-held stock of any kind.

8.9             Financial Statements; Indebtedness.

(a)           The audited and unaudited financial statements contained in the
SEC Reports (collectively, the “Financial Statements”) (x) fairly present as of
the respective dates thereof the financial position of the Borrower and the
results of its operations, cash flows and stockholders’ equity for each of the
periods then ended in all material aspects; and (y) except for the fact that the
unaudited financial statements omit notes to such statements and year-end
adjustments thereto, have been prepared in accordance with GAAP in conformity
with the rules and regulations of the SEC.

(b)           Except as shown on the most recent Financial Statements, (i)
Borrower has  no other Indebtedness as of the date hereof which would adversely
affect the financial condition of Borrower or the Collateral, and (ii) Borrower
has no liabilities, contingent or otherwise, except those which, individually or
in the aggregate, are not material to the financial condition or
operating  results of Borrower.

8.10           Changes in Financial Condition. Since September 30, 2009, there
has been no material adverse change and no material adverse development in the
business, properties, operations, condition (financial or otherwise), results of
operations or prospects of the Borrower.  Since September 30, 2009, Borrower has
not (i) declared or paid any dividends, (ii) sold any assets, individually or in
the aggregate, outside of the ordinary course of business, (iii) had capital
expenditures outside of the ordinary course of business, (iv) engaged in any
transaction with any Affiliate or (v) engaged in any other transaction outside
of the ordinary course of business.

8.11           Equipment. Borrower shall keep its Equipment in good order and
repair, and in running and marketable condition, ordinary wear and tear
excepted.
 
 
 
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8.12           Taxes and Assessments.

(a)           Borrower has paid and discharged when due all taxes, assessments
and other governmental charges which may lawfully be levied or assessed upon its
income and profits, or upon all or any portion of any property belonging to it,
whether real, personal or mixed, to the extent that such taxes, assessment and
other charges have become due.  Borrower has filed all tax returns, federal,
state and local, and all related information, required to be filed by it.

(b)           Borrower shall make all payments to be made by it hereunder
without any Tax Deduction (as defined below), unless a Tax Deduction is required
by law. If Borrower is aware that it must make a Tax Deduction (or that there is
a change in the rate or the basis of a Tax Deduction), it shall promptly notify
Lender.  If a Tax Deduction is required by law to be made by Borrower, the
amount of the payment due from Borrower shall be increased to an amount which
(after making the Tax Deduction) leaves an amount equal to the payment which
would have been due if no Tax Deduction had been required. If Borrower is
required to make a Tax Deduction, Borrower shall make the minimum Tax Deduction
allowed by law and shall make any payment required in connection with that Tax
Deduction within the time allowed by law. Within thirty (30) days of making
either a Tax Deduction or a payment required in connection with a Tax Deduction,
Borrower shall deliver to Lender evidence satisfactory to Lender that the Tax
Deduction has been made or (as applicable) the appropriate payment has been paid
to the relevant taxing authority.

(c)           “Tax Deduction” means a deduction or withholding for or on account
of Tax from a payment under a Loan Document. “Tax” means any tax, levy, impost,
duty or other charge or withholding of a similar nature, including any income,
franchise, stamp, documentary, excise or property tax, charge or levy (in each
case, including any related penalty or interest).

8.13           ERISA. Borrower is in compliance in all material respects with
the applicable provisions of ERISA and all regulations issued thereunder by the
United States Treasury Department, the Department of Labor and the Pension
Benefit Guaranty Corporation.

8.14           Environmental Matters.

(a)           To the best of its knowledge, Borrower has duly complied with, and
its facilities, business assets, property, leaseholds and equipment are in
compliance in all respects with, the provisions of all Environmental Laws.

(b)           To the best of its knowledge, Borrower has been issued all
required federal, state and local licenses, certificates or permits relating to
the operation of its business; and each Borrower and its facilities, business,
assets, property and equipment are in compliance in all material respects with
all Environmental Laws.

8.15           United States Anti-Terrorism Laws; Holding Company Status.

(a)           In this Section 8.15:
 
 
 
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“Anti-Terrorism Law” means each of:  (i) Executive Order No. 13224 of September
23, 2001  Blocking Property and Prohibiting Transactions With Persons Who
Commit, Threaten To Commit, or Support Terrorism (the “Executive Order”); (ii)
the Uniting and Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56 (commonly known
as the USA Patriot Act); (iii) the Money Laundering Control Act of 1986, Public
Law 99-570; and (iv) any similar law enacted in the United States of America
subsequent to December 31, 2004.

“holding company” has the meaning given to it in the United States Public
Utility Holding Company Act of 1935, and any successor legislation and rules and
regulations promulgated thereunder.

“investment company” has the meaning given to it in the United States Investment
Company Act of 1940.

“public utility” has the meaning given to it in the United States Federal Power
Act of 1920.

“Restricted Party” means any person listed: (i) in the Annex to the Executive
Order; (ii) on the Specially Designated Nationals and Blocked Persons list
maintained by the Office of Foreign Assets Control of the United States
Department of the Treasury; or (iii) in any successor list to either of the
foregoing.

(b)           Borrower is not (i) a holding company or subject to regulation
under the United States Public Utility Holding Company Act of 1935; (ii) a
public utility or subject to regulation under the United States Federal Power
Act of 1920; (iii) required to be registered as an investment company or subject
to regulation under the United States Investment Company Act of 1940; or (iv)
subject to regulation under any United States Federal or State law or regulation
that limits its ability to incur or guarantee indebtedness.

(c)           To the best of Borrower’s knowledge, Borrower (i) is not, and is
not controlled by, a Restricted Party; (ii) has not received funds or other
property from a Restricted Party; and (iii) is not in breach of and is not the
subject of any action or investigation under any Anti-Terrorism Law.

(d)           Borrower has taken reasonable measures to ensure compliance with
the Anti-Terrorism Laws.

8.16           Customers and Vendors. There are no disputes with any customers,
suppliers, manufacturers, vendors and independent contractors of Borrower in
excess of $15,000 in the aggregate with any such party.

8.17           Representations, Warranties and Covenants Concerning the
Collateral. The representations and warranties of Borrower set forth in Section
5.4 hereof are incorporated in this Section 8.17 by reference.
 
 
 
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8.18           Books and Records. Borrower maintains its chief executive office
and its books and records related to its Accounts, Inventory and all other
Collateral at its address set forth in Section 5.4(n) of Borrower’s Disclosure
Schedule.

8.19            SEC Reports. The SEC Reports do not contain any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading.

8.20           Internal Accounting Controls.  Borrower maintains disclosure
controls and procedures (as such term is defined in Rule 13a-15 under the 1934
Act) to ensure that information required to be disclosed by the Borrower in the
reports that it files or submits under the 1934 Act is recorded, processed,
summarized and reported, within the time periods specified in the rules and
forms of the SEC, including, without limitation, controls and procedures
designed to ensure that information required to be disclosed by the Borrower in
the reports that it files or submits under the 1934 Act is accumulated and
communicated to the Borrower’s management, including its principal executive
officer or officers and its principal financial officer or officers, as
appropriate, to allow timely decisions regarding required disclosure.  The
result of management’s evaluation of internal controls are described in
Borrower’s SEC Reports under “Controls and Procedures”.

8.21           Changes. Since the date of the Balance Sheet, except as disclosed
in Section 8.21 of Borrower’s Disclosure Schedule, with respect to Borrower,
there has not been:
 
(a)           any change in its business, assets, liabilities, condition
(financial or otherwise), properties, operations or prospects, which,
individually or in the aggregate, has had, or could reasonably be expected to
have, a Material Adverse Effect;
 
(b)           any resignation or termination of any of its officers, key
employees or groups of employees;
 
(c)           any material change, except in the ordinary course of business, in
its contingent obligations by way of guaranty, endorsement, indemnity, warranty
or otherwise;
 
(d)           any damage, destruction or loss, whether or not covered by
insurance, which has had, or could reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect;
 
(e)           any waiver by it of a valuable right or of a material debt owed to
it;
 
(f)           any direct or indirect material loans made by it to any of its
stockholders, employees, officers or directors, other than advances made in the
ordinary course of business;
 
(g)           any material change in any compensation arrangement or agreement
with any employee, officer, director or stockholder;
 
(h)           any declaration or payment of any dividend or other distribution
of its assets;
 
(i)           any labor organization activity related to it;
 
 
 
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(j)           any debt, obligation or liability incurred, assumed or guaranteed
by it, except those for immaterial amounts and for current liabilities incurred
in the ordinary course of business;
 
(k)           any sale, assignment, transfer, abandonment or other disposition
of any Collateral other than Inventory in the ordinary course of business;

(l)           any change in any material agreement to which it is a party or by
which it is bound which, either individually or in the aggregate, has had, or
could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect;
 
(m)           any other event or condition of any character that, either
individually or in the aggregate, has had, or could reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect; or
 
(n)           any arrangement or commitment by it to do any of the acts
described in subsection (a) through (m) of this Section 8.21.
 
8.22           Intellectual Property.
 
(a)           Except for Permitted Encumbrances, (1) Borrower holds all
Intellectual Property that it owns free and clear of all Liens and restrictions
on use or transfer, whether or not recorded, and has sole title to and ownership
of or has the full, exclusive (subject to the rights of its licensees) right to
use in its field of business such Intellectual Property; and Borrower holds all
Intellectual Property that it uses but does not own under valid licenses or
sub-licenses from others; (2) the use of the Intellectual Property by Borrower
does not, to the knowledge of Borrower, violate or infringe on the rights of any
other Person; (3) Borrower has  not received any notice of any conflict between
the asserted rights of others and Borrower with respect to any Intellectual
Property; (4) Borrower has used its commercially reasonable best efforts to
protect its rights in and to all Intellectual Property; (5) Borrower is in
compliance with all material terms and conditions of its agreements relating to
the Intellectual Property; (6) Borrower is not, and since January 1, 2009 has
not been, a defendant in any action, suit, investigation or proceeding relating
to infringement or misappropriation by Borrower of any Intellectual Property nor
has Borrower been notified of any alleged claim of infringement or
misappropriation by Borrower of any Intellectual Property; (7) to the knowledge
of Borrower, none of the products or services Borrower is researching,
developing, proposes to research and develop, make, have made, use, or sell,
infringes or misappropriates any Intellectual Property right of any third party;
(8) none of the trademarks and service marks used by Borrower, to the knowledge
of Borrower, infringes the trademark or service mark rights of any third party;
and (9) to Borrower’s knowledge, none of the material processes and formulae,
research and development results and other know-how relating to Borrower's
business, the value of which to Borrower is contingent upon maintenance of the
confidentiality thereof, has been disclosed to any Person other than Persons
bound by written confidentiality agreements.

(b)           Section 8.22 of Borrower’s Disclosure Schedule sets forth a true
and complete list of (i) all registrations and applications for Intellectual
Property owned by Borrower filed or issued by any Intellectual Property
registry, (ii) all Intellectual Property licenses which are either material to
the business of Borrower or relate to any material portion of Borrower’s
Inventory, including licenses for standard software having a replacement value
of more than $10,000 and (iii) all domain names owned by or registered in the
name of Borrower.  None of such Intellectual Property licenses are reasonably
likely to be construed as an assignment of the licensed Intellectual Property to
Borrower.  Borrower shall update this list throughout the Term immediately upon
the filing or issuance of any registrations or applications for Intellectual
Property owned by Borrower, the licensing by Borrower of any third party
Intellectual Property material to Borrower’s business or the acquisition or
registration by Borrower of any domain names, in each case made after the
effective date of this Agreement.

 
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8.23           Employees. Borrower has no collective bargaining agreements with
any of its employees.  There is no labor union organizing activity pending or,
to Borrower’s knowledge, threatened with respect to Borrower.  Borrower is not a
party to or bound by any currently effective deferred compensation arrangement,
bonus plan, incentive plan, profit sharing plan, retirement agreement or other
employee compensation plan or agreement.  To Borrower’s knowledge, no employee
of Borrower, nor any consultant with whom Borrower has contracted, is in
violation of any material term of any employment contract or any other contract
relating to the right of any such individual to be employed by, or to contract
with, Borrower or to receive any benefits; and, to  Borrower’s knowledge, the
continued employment by Borrower of its present employees, and the performance
of Borrower’s contracts with its independent contractors, will not result in any
such violation.  Except for employees who have a current effective employment
agreement with Borrower, as set forth in Section 8.23 of Borrower’s Disclosure
Schedule, no employee of Borrower has been granted the right to continued
employment by Borrower or to any material compensation following termination of
employment with Borrower.  Borrower is not aware that any officer, director,
manager, partner, key employee or group of employees intends to terminate his,
her or their employment with Borrower, nor does Borrower have a present
intention to terminate any of the same.

8.24           Tax Status. Borrower (i) has made or filed all federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject, (ii) has paid all taxes and other
governmental assessments and charges that are shown or determined to be due on
such returns, reports and declarations, except those being contested in good
faith and for which it has set aside on its books a provision in the amount of
such taxes being contested in good faith and (iii) has set aside on its books
provisions reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations
apply.  There are no unpaid taxes claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Borrower know of no basis for any such
claim.

8.25           Sarbanes-Oxley Act.  To Borrower’s knowledge, Borrower is in
compliance with any and all applicable requirements of the Sarbanes-Oxley Act of
2002 that are effective as of the date hereof, and any and all applicable rules
and regulations promulgated by the SEC thereunder that are effective as of the
date hereof.

8.26           Fees; Brokers; Finders. Except as set forth in Section 8.26 of
the Borrower’s Disclosure Schedule, there are no fees, commissions or other
compensation due to any third party acting on behalf of or at the direction of
Borrower in connection with the Loan Documents.  Except as set forth in
Section  8.26 of the Borrower’s Disclosure Schedule, all negotiations relative
to the Loan Documents, and the transactions contemplated thereby, have been
carried on by the Borrower with the Lender without the intervention of any other
person or entity acting on behalf of the Borrower, and in such manner as not to
give rise to any claim against the Borrower or the Lender for any finder's fee,
brokerage commission or like payment due to any third party acting on behalf of
or at the direction of Borrower, and if any such fee, commission or payment is
payable, it shall be the sole responsibility of the Borrower and the Borrower
shall pay, and indemnify the Lender for, the same.

 
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8.27           Representations and Warranties: True, Accurate and Complete. None
of the representations, certificates, reports, warranties or statements now or
hereafter made or delivered to Lender pursuant hereto or in connection with this
Agreement or any other Loan Document or the transactions contemplated hereby
contains or will contain any untrue statement of a material fact, or omits or
will omit to state a material fact necessary in order to make the statements
contained herein and therein, in light of the circumstances in which they are
made, not misleading.

SECTION 9.  AFFIRMATIVE COVENANTS.

Until the indefeasible payment and satisfaction in full of all Obligations,
Borrower hereby covenants and agrees as follows:

9.1           Notify Lender. Borrower shall promptly, and in any event within
three (3) Business Days after obtaining knowledge thereof,  inform Lender (a) if
any one or more of the representations and warranties made by Borrower in this
Agreement or in any document related hereto shall no longer be entirely true,
accurate and complete in any respect, (b) of any event or circumstance that, to
its knowledge, would cause Lender to consider any then existing Inventory as no
longer constituting Eligible Inventory or to consider any then existing
Receivable as no longer constituting an Eligible Receivable, (c) of any material
delay in its performance of any of its obligations to any Account Debtor, (d) of
any assertion by any Account Debtor of any material claims, offsets or
counterclaims; (e) of any allowances, credits and/or monies granted by it to any
Account Debtor; (f) of all material adverse information relating to the
financial condition of Borrower or any Account Debtor; (g) of any material
return of Goods; and (h) of any loss, damage or destruction of any of the
Collateral.

9.2           Change in Directors or Officers. Borrower shall promptly notify
Lender of any changes in Borrower’s Directors or Officers.

9.3           Pay Taxes and Liabilities; Comply with Agreement. Borrower shall
promptly pay, when due, or otherwise discharge, all indebtedness, sums and
liabilities of any kind now or hereafter owing by Borrower to its employees as
wages or salaries or to Lender and Governmental Authorities however created,
incurred, evidenced, acquired, arising or payable, including, without
limitation, the Obligations, income taxes, excise taxes, sales and use taxes,
license fees, and all other taxes with respect to any of the Collateral, or any
wages or salaries paid by Borrower or otherwise, unless the validity of which
are being contested in good faith by Borrower by appropriate proceedings,
provided that Borrower shall have maintained reasonably adequate reserves and
accrued the estimated liability on Borrower’s balance sheet for the payment of
same.

 
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9.4           Observe Covenants, etc. Borrower shall observe, perform and comply
with the covenants, terms and conditions of this Agreement and the other Loan
Documents.

9.5           Maintain Corporate Existence and Qualifications. Borrower shall
maintain and preserve in full force and effect, its corporate existence and
rights, franchises, licenses and qualifications necessary to continue its
business, and comply with all applicable statutes, rules and regulations
pertaining to the operation, conduct and maintenance of its existence and
business including, without limitation, all federal, state and local laws
relating to benefit plans, environmental safety, or health matters, and
hazardous or liquid waste or chemicals or other liquids (including use, sale,
transport and disposal thereof).

9.6           Financial Reports and other Information and Documents to be
Furnished to Lender. Borrower shall deliver or cause to be delivered to Lender,
unless such information has been filed with the SEC:

(a)           Annual Financial Statements. Annual financial statements of the
Borrower, certified by the Chief Financial Officer of Borrower and audited by an
outside accounting firm acceptable to Lender, including Weinberg & Company,
P.A., as soon as available, but in any event within ninety (90) days after the
end of Borrower’s Fiscal Year during the Term.  Such financial statements shall
(x) fairly present the financial position of the Borrower as of the dates
thereof and the results of its operations, cash flows and stockholders’ equity
for each of the periods then ended in all material aspects; and (y) be prepared
in accordance with GAAP.
 
(b)           Quarterly Financial Statements. As soon as available but in any
event no later than the last day of the SEC filing periods of (i) forty-five
(45) days from the close of each calendar quarter for the first three quarters
of each calendar year, and (ii) ninety (90) days from the last day of each
calendar year, quarterly financial statements of the Borrower, the unaudited
balance sheet and the related statement of income of the Borrower, prepared in
accordance with GAAP, subject to year-end audit adjustments, together with such
other information with respect to the business of Borrower as Lender may
request.
 
(c)           Monthly Financial Statements. Not later than thirty (30) days
after the end of each calendar month, the unaudited balance sheet and the
related statement of income of the Borrower, certified by the Chief Financial
Officer of Borrower, subject to year-end audit adjustments, with an aging
schedule for all accounts receivable and accounts payable, together with such
other information with respect to the business of Borrower as Lender may
request.

(d)           Borrowing Certificates. Weekly, a Borrowing Certificate in
accordance with Section 2.2(f) hereof.

(e)           Notice of Judgments, Environmental, Health or Safety Complaints.
 
(i)               Within three (3) Business Days thereafter, written notice to
Lender of the entry of any judgment or the institution of any lawsuit or of
other legal or equitable proceedings or the assertion of any crossclaim or
counterclaim seeking monetary damages from Borrower in an amount exceeding
$25,000; and
 
 
 
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(ii)              Within three (3) Business Days thereafter, notice or copies if
written of all claims, complaints, orders, citations or notices, whether formal
or informal, written or oral, from a governmental body or private person or
entity, relating to air emissions, water discharge, noise emission, solid or
liquid waste disposal, hazardous waste or materials, or any other environmental,
health or safety matter, which adversely effect Borrower.  Such notices shall
include, among other information, the name of the party who filed the claim, the
potential amount of the claim, and the nature of the claim.

(f)           Other Information. Upon demand,
 
(i)                Certificates of insurance for all policies of insurance to be
maintained by Borrower pursuant hereto;

(ii)               An estoppel certificate executed by an authorized officer of
Borrower indicating that there then exists no Event of Default and no event
which, with the giving of notice or lapse of time, or both, would constitute an
Event of Default;

(iii)              All information received by Borrower affecting the financial
status or condition of any Account Debtor or the payment of any Account,
including but not limited to, invoices, original orders, shipping and delivery
receipts;

(iv)              Assignments, in form acceptable to Lender, of all Accounts,
and of the monies due or to become due on specific contracts relating to the
same; and

(v)               At Borrower’s expense, annual appraisals of Inventory by an
appraiser acceptable to Lender.

(g)           Additional Information. From time to time, such other information
as Lender may reasonably request, including financial projections and cash flow
analysis.

9.7           Comply with Laws. Borrower shall comply with the requirements of
all applicable laws, rules, regulations and orders of any Governmental
Authority, compliance with which is necessary to maintain its corporate
existence or the conduct of its business or non-compliance with which would
adversely affect in any respect its ability to perform its obligations or any
security given to secure its obligations.

9.8           Insurance Required.

(a)           Borrower shall cause to be maintained, in full force and effect on
all property of Borrower including, without limitation, all Inventory and
Equipment, insurance in such amounts against such risks as is reasonably
satisfactory to Lender, including, but without limitation, business
interruption, fire, boiler, theft, burglary, pilferage, vandalism, malicious
mischief, loss in transit, director’s and officer’s insurance in an amount no
less than the maximum Revolving Loan Commitment of $3,000,000, hazard insurance
and, if as of  the date hereof, any of the real property of Borrower is in an
area that has been identified by the Secretary of Housing and Urban Development
as having special flood or mudslide hazards, and on which the sale of flood
insurance has been made available under the National Flood Insurance Act of
1968, then Borrower shall maintain flood insurance.  Said policy or policies
shall:
 
 
 
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(i)               Be in a form and with insurers which are satisfactory to
Lender;

(ii)             Be for such risks, and for such insured values as Lender or its
assigns may reasonably require in order to replace the property in the event of
actual or constructive total loss;

(iii)            Designate Lender as additional insured and loss payee as
Lender’s interest may from time to time appear;

(iv)            Contain a clause whereby the Lender and any assignee of Lender
has the right to receive loss payment even if the Lender or its assignee has
started foreclosure or similar action on property covered by the insurance;

(v)             Contain a clause whereby if the insurer denies a claim by
Borrower because of Borrower’s acts or because Borrower failed to comply with
any of the terms of the insurance coverage, the Lender and any assignee of
Lender will nonetheless have the right to receive loss payment if the Lender or
its assignee:

(A) Pays any premium due under the insurance at the insurer’s request if
Borrower has failed to do so; and
 
(B) Submits a signed, sworn proof of loss within 60 days after receiving notice
from the insurer of Borrower’s failure to do so.

(vi)             Contain a “breach of warranty clause” whereby the insurer
agrees that a breach of the insuring conditions or any negligence by Borrower or
any other person shall not invalidate the insurance as to Lender and its
assignee;

(vii)            Provide that they may not be canceled or altered without thirty
(30) days prior written notice to Lender; and

(viii)           Upon demand, be delivered to Lender.

(b)           Borrower shall obtain such additional insurance as Lender may
reasonably require.
 
(c)           Borrower shall, in the event of loss or damage, forthwith notify
Lender and file proofs of loss with the appropriate insurer.  Borrower hereby
authorizes Lender to endorse any checks or drafts constituting insurance
proceeds.
 
(d)           Borrower shall forthwith upon receipt of insurance proceeds
endorse and deliver the same to Lender.
 
 
 
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(e)           In no event shall Lender be required either to (i) ascertain the
existence of or examine any insurance policy or (iii) advise Borrower in the
event such insurance coverage shall not comply with the requirements of this
Agreement.
 
9.9             Condition of Collateral; No Liens. Borrower shall maintain all
Collateral in good condition and repair at all times, and preserve it against
any loss, damage, or destruction of any nature whatsoever relating to said
Collateral or its use, and keep said Collateral free and clear of any Liens,
except for the Permitted Encumbrances, and shall not permit Collateral to become
a fixture to real estate or accessions to other personal property.

9.10           Payment of Proceeds. Borrower shall forthwith upon receipt of all
proceeds of Collateral, pay such proceeds (insurance or otherwise) up to the
amount of the then-outstanding Obligations over to Lender for application
against the Obligations in such order and manner as Lender may elect.

9.11           Records. Borrower shall at all times keep accurate and complete
records of its operations, of the Collateral and the status of each Account,
which records shall be maintained at its executive offices as set forth on
Section 5.4(n) of Borrower’s Disclosure Schedule

9.12           Delivery of Documents. If any proceeds of Accounts shall include,
or any of the Accounts shall be evidenced by, notes, trade acceptances or
instruments or documents, or if any Inventory is covered by documents of title
or chattel paper, whether or not negotiable, then Borrower waives protest
regardless of the form of the endorsement.  If Borrower fails to endorse any
instrument or document, Lender is authorized to endorse it on Borrower’s behalf.

9.13           United States Contracts. If any of the Accounts arise out of
contracts with the United States or any of its departments, agencies or
instrumentalities, Borrower will notify Lender and, if requested by Lender,
execute any necessary instruments in order that all monies due or to become due
under such contract shall be assigned to Lender and proper notice of the
assignment given under the Federal Assignment of Claims Act.

9.14           Other Names; Location Changes.
 
(a)           Borrower shall promptly notify Lender if Borrower is known by or
conducting business under any names other than those set forth in this
Agreement.

(b)           Borrower shall deliver not less than thirty (30) Business Days
prior written notice to Lender if Borrower intends to conduct any of its
business or operations at or out of offices or locations other than those set
forth in this Agreement, or if it changes the location of its chief executive
office or the address at which it maintains its books and records.

9.15           SEC Reporting Status.  Borrower shall timely file all reports
required to be filed with the SEC pursuant to Section 13 or 15(d) of the 1934
Act, and the  Borrower shall not terminate its status as an issuer required to
file reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would permit such termination.
 
 
 
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9.16           Further Assurances. Borrower shall at any time or from time to
time upon request of Lender take such steps and execute and deliver such
Financing Statements and other documents all in the form of substance
satisfactory to Lender relating to the creation, validity or perfection of the
security interests provided for herein, under the UCC or which are reasonably
necessary to effectuate the purposes and provisions of this Agreement.
Borrower  shall defend the right, title and interest of Lender in and to the
Collateral against the claims and demands of all Persons whomsoever, and take
such actions, including (i) all actions necessary to grant Lender “control” of
any Investment Property, Deposit Accounts, Letter-of-Credit Rights or Electronic
Chattel Paper owned by it, with any agreements establishing control to be in
form and substance satisfactory to Lender, (ii) the prompt (but in no event
later than three (3) Business Days following Lender’s request therefor) delivery
to Lender of all original Instruments, Chattel Paper, negotiable Documents and
certificated Securities owned by it (in each case, accompanied by stock powers,
allonges or other instruments of transfer executed in blank), (iii) notification
of Lender’s interest in Collateral at Lender’s request, and (iv) the institution
of litigation against third parties as shall be prudent in order to protect and
preserve Borrower’s and/or Lender’s respective and several interests in the
Collateral.

9.17           Indemnification. Borrower shall indemnify, protect, defend and
save harmless Lender, as well as Lender's directors, officers, trustees,
employees, agents, attorneys, members and shareholders (hereinafter referred to
collectively as the “Indemnified Parties” and individually as an “Indemnified
Party”) from and against (a) any and all losses, damages, expenses or
liabilities of any kind or nature and from any suits, claims or demands, by
third parties (including, without limitation, claims of brokers and finders),
including reasonable counsel fees incurred in investigating or defending such
claim, suffered by any of them and caused by, relating to, arising out of,
resulting from, or in any way connected with the Revolving Loans, the
transactions contemplated herein and the Loan Documents, and (b) any and all
losses, damages, expenses or liabilities sustained by Lender in connection with
any Environmental Liabilities and Costs. In case any action shall be brought
against an Indemnified Party based upon any of the above and in respect to which
indemnity may be sought against Borrower, the Indemnified Party against whom
such action was brought shall promptly notify Borrower in writing, and Borrower
shall assume the defense thereof, including the employment of counsel selected
by Borrower and reasonably satisfactory to the Indemnified Party, the payment of
all costs and expenses and the right to negotiate and consent to
settlement.  Upon reasonable determination made by the Indemnified Party, the
Indemnified Party shall have the right to employ separate counsel in any such
action and to participate in the defense thereof; provided, however, that the
Indemnified Party shall pay the costs and expenses incurred in connection with
the employment of separate counsel.  Borrower shall not be liable for any
settlement of any such action effected without their consent, but if settled
with Borrower’s consent, or if there be a final judgment for the claimant in any
such action, Borrower agrees to indemnify and save harmless said Indemnified
Party against whom such action was brought from and against any loss or
liability by reason of such settlement or judgment, except as otherwise provided
above. The provisions of this Section shall survive the termination of this
Agreement and the final repayment of the Obligations.
 

SECTION 10.  NEGATIVE COVENANTS.
 
Until payment and satisfaction in full of all Obligations and the termination of
this Agreement, Borrower hereby covenants and agrees as follows:
 
 
 
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10.1           Change of Control; No Creation of Subsidiaries. Borrower will not
consolidate with, merge with, or acquire the stock or a material portion of the
assets of any person, firm, joint venture, partnership, corporation, or other
entity, whether by merger, consolidation, purchase of stock or otherwise if any
such action results in a Change of Control (as defined below). Borrower will not
create or permit to exist any Subsidiary unless such new Subsidiary is a
wholly-owned Subsidiary and is designated by Lender as either a co-borrower or
guarantor hereunder and such Subsidiary shall have entered into all such
documentation required by Lender, including, without limitation, to grant to
Lender a first priority perfected security interest in substantially all of such
Subsidiary’s assets to secure the Obligations.  In addition, Borrower will not
acquire a material portion of the assets of any entity in a manner that is not
addressed by the foregoing provisions of this Section 10.1 if such action would
impair Lender’s rights hereunder or in the Collateral.

A “Change of Control” shall be deemed to have occurred if:

(i)              any “Person,” which shall mean a “person” as such term is used
in Sections 13(d) and 14(d) of the 1934 Act, or group of Persons is or becomes
the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly
or indirectly, of securities of Borrower representing 50% or more of the
combined voting power of Borrower’s then outstanding voting securities;
 
 
(ii)             individuals, who at the Closing Date constitute the Board of
Directors  of Borrower, and any new director whose election by the Board of
Directors of Borrower, or whose nomination for election by Borrower’s
stockholders, was approved by a vote of at least one-half (1/2) of the directors
then in office (other than in connection with a contested election), cease for
any reason to constitute at least a majority of the Board of Directors of
Borrower;

(iii)            the stockholders or members of Borrower approve (I) a plan of
complete liquidation of Borrower or (II) the sale or other disposition by
Borrower of all or substantially all of Borrower’s assets; or

(iv)            a merger or consolidation of Borrower with any other entity is
consummated, other than:

(A)              a merger or consolidation which results in the voting
securities of Borrower outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 50% of the combined voting power
of the surviving entity's outstanding voting securities immediately after such
merger or consolidation; or

(B)              a merger or consolidation which would result in the directors
or managers of Borrower (who were directors or managers immediately prior
thereto) continuing to constitute more than 50% of all directors or managers of
the surviving entity immediately after such merger or consolidation.
 
 
 
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In this paragraph (iv), “surviving entity” shall mean only an entity in which
all of Borrower’s stockholders immediately before such merger or consolidation
(determined without taking into account any stockholders or members properly
exercising appraisal or similar rights) become stockholders by the terms of such
merger or consolidation, and the phrase “directors of Borrower (who were
directors immediately prior thereto)” shall include only individuals who were
directors of Borrower at the Closing Date.

10.2           Disposition of Assets or Collateral. Borrower will not sell,
lease, transfer, convey, or otherwise dispose of any or all of its assets or
Collateral, other than the disposition or transfer in the ordinary course of
business, of obsolete and worn-out Equipment only to the extent that the
proceeds of any such disposition are used to acquire replacement Equipment which
is subject to Lender’s first priority security interest or are used to repay the
Revolving Loans.

10.3           Other Liens. Borrower will not incur, create or permit to exist
any Lien on any of its property or assets, whether now owned or hereafter
acquired, except (a) those Liens in favor of Lender created by this Agreement
and the other Loan Documents; and (b) for the Permitted Encumbrances.

10.4           Other Liabilities. Borrower will not incur, create, assume, or
permit to exist, any Indebtedness or liability on account of either borrowed
money or the deferred purchase price of property, except (i) Obligations to
Lender, or (ii) Indebtedness incurred in connection with any of the Permitted
Encumbrances.

10.5           Financing of Capital Assets.

(a)           Notwithstanding the provisions of Section 10.4, Borrower shall be
permitted to incur Indebtedness to acquire a Capital Asset secured by a purchase
money security interest that qualifies as a Permitted Encumbrance, provided that
(i) the total of all such Indebtedness does not exceed $25,000 in the aggregate,
without the prior written approval of Lender, and (ii) Borrower is otherwise
then in compliance with the terms of this Agreement.

(b)           Borrower hereby grants to the Lender a right of first refusal to
provide any Capital Asset Financing (as defined below) to be issued by Borrower,
subject to the following terms and conditions. In the event that Borrower
desires to incur indebtedness for the purpose of acquiring a Capital Asset whose
total purchase cost is greater than $25,000, including all accessories and
attachments thereto (a “Capital Asset Financing”), Borrower shall notify Lender
in writing of such proposed Capital Asset Financing.  In connection therewith,
Borrower shall submit to Lender all information requested by Lender regarding
the Capital Asset proposed to be acquired pursuant to the Capital Asset
Financing (the “Capital Asset Financing Notice”).  Lender shall have the right
of first refusal, exercisable with  ten (10) Business Days of Lender’s receipt
of the Capital Asset Financing Notice, to provide the Capital Asset Financing in
accordance with the terms hereof, whereby sums advanced to acquire the subject
Capital Asset shall be added to the principal amount of the Revolving Loan
hereunder and bear interest in accordance with the terms hereof. If Lender
declines to exercise its right to provide such Capital Asset Financing, or fails
to respond to the Capital Asset Financing Notice within the ten-Business Day
period set forth above, then Borrower shall be entitled to obtain Capital Asset
Financing for such Capital Asset from a third party within thirty (30) days of
the last day of such notice period, provided that any lien securing the
financing thereof constitutes a Permitted Encumbrance hereunder. If such third
party Capital Asset Financing is not consummated within such thirty (30) day
period, than Borrower’s right to obtain such third party Capital Asset Financing
shall terminate, and any such financing shall once again become subject to
Lender’s first refusal right to provide such financing pursuant to the
provisions of this Section 10.5(b).

(c)           Borrower will not make any capital expenditures for equipment
other than out of proceeds of future equity financings without the prior written
approval of Lender.

 
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10.6             Loans. Borrower will not make any loans to any Person, other
than advances to employees of Borrower in the ordinary course of business, with
outstanding advances to any employee not to exceed $1,000 at any time.

10.7             Guaranties. Borrower will not assume, guaranty, endorse,
contingently agree to purchase or otherwise become liable upon the obligation of
any Person, except by the endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business.

10.8             Transfers of Notes or Accounts. Borrower will not sell, assign,
transfer, discount or otherwise dispose of any Accounts or any promissory note
payable to Borrower, with or without recourse.

10.9             Dividends. Borrower will not declare or pay any cash dividend,
make any distribution on, redeem, retire or otherwise acquire directly or
indirectly, any shares of its stock or other Equity Interests (collectively,
“Equity Distributions”) without the prior written consent of Lender, provided,
however, that so long as no Event of Default has occurred and is continuing,
Borrower may make Equity Distributions during the first and second years of the
Term not to exceed an aggregate of Fifty Thousand Dollars ($50,000) during each
such year.

10.10           Payments to Affiliates. Except as set forth in Section 10.10 of
the Borrower’s Disclosure Schedule,  or as otherwise approved by Lender in
writing in advance, Borrower shall not make any payments of cash or other
property to any Affiliate.

10.11           Modification of Documents. Borrower will not change, alter or
modify, or permit any change, alteration or modification of its certificate of
incorporation, by-laws or other governing documents in any manner that might
adversely affect Lender’s rights hereunder as a secured  lender or its
Collateral without Lender's prior written consent.

10.12           Change of Business or Name. Borrower will not change or alter
the nature of its business, or change its name as it appears in the official
filings of its state of organization.

10.13           Settlements. Other than in the ordinary course of its business,
Borrower will not comprise, settle or adjust any claims in any amount relating
to any of the Collateral, without the prior written consent of Lender.

 
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SECTION 11.  EVENTS OF DEFAULT.

The occurrence of any of the following shall constitute an event of default
(hereinafter referred to as an “Event of Default”):

11.1             Failure to Pay. The failure by Borrower to pay, when due, (a)
any payment of principal, interest or other charges due and owing to Lender
pursuant to any obligations of Borrower to Lender including, without limitation,
those Obligations arising pursuant to this Agreement or any Loan Document, or
under any other agreement for the payment of monies then due and payable to
Lender, or (b) any taxes due to any Governmental Authority.

11.2            Failure of Insurance. Failure of one or more of the insurance
policies required hereunder to remain in full force and effect; failure on the
part of Borrower to pay or cause to be paid all premiums when due on the
insurance policies pursuant to this Agreement; failure on the part of Borrower
to take such other action as may be requested by Lender in order to keep said
policies of insurance in full force and effect until all Obligations have been
indefeasibly paid in full; and failure on the part of Borrower to execute any
and all documentation required by the insurance companies issuing said policies
to effectuate said assignments.

11.3             Failure to Perform. Borrower’s failure to perform or observe
any covenant, term or condition of this Agreement or in any other Loan Document.

11.4             Cross Default. Borrower’s default under any covenant,
representation, term or warranty contained in (i) any agreement or contract with
a third party which default would result in liability to the Borrower in excess
of $100,000, and which default is not cured or waived within five (5) Business
Days, or (ii) any other Loan Document.

11.5             False Representation or Warranty. Borrower shall have made any
statement, representation or warranty in this Agreement or in any other Loan
Document to which Borrower is a party or in a certificate executed by Borrower
incident to this Agreement, which is at any time found to have been false in any
material respect at the time such representation or warranty was made.

11.6             Liquidation, Voluntary Bankruptcy, Dissolution, Assignment to
Creditors. Any resolution shall be passed or any action (including a meeting of
creditors) shall be taken by Borrower for the termination, winding up,
liquidation or dissolution of Borrower, or Borrower shall make an assignment for
the benefit of creditors, or Borrower shall file a petition in voluntary
liquidation or bankruptcy, or Borrower shall file a petition or answer or
consent seeking, or consenting to, the reorganization of Borrower or the
readjustment of any of the indebtedness of Borrower under any applicable
insolvency or bankruptcy laws now or hereafter existing (including the United
States Bankruptcy Code), or Borrower shall consent to, or be the subject of a
court order for, the appointment of any receiver, administrator, liquidator,
custodian or trustee of all or any part of the property or assets of Borrower or
any corporate action shall be taken by Borrower for the purposes of effecting
any of the foregoing.

11.7             Involuntary Petition Against Borrower. Any petition or
application for any relief is filed against Borrower under applicable insolvency
or bankruptcy laws now or hereafter existing (including the United States
Bankruptcy Code) or under any insolvency, reorganization, receivership,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction now or hereafter in effect (whether at law or in equity), and is
not discharged or stayed within thirty (30) days of the filing thereof.

 
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11.8             Judgments; Levies. Any judgments or attachments aggregating in
excess of $100,000 at any given time is obtained against Borrower which remains
unstayed for a period of ten (10) days or is enforced.

11.9             Change in Condition. There occurs any event or a change in the
condition or affairs, financial or otherwise, of Borrower which, in the
reasonable opinion of Lender, impairs Lender's security or ability of Borrower
to discharge its obligations hereunder or any other Loan Document or which
impairs the rights of Lender in Borrower’s Collateral.

11.10           Environmental Claims. Lender determines that any Environmental
Liabilities and Costs or Environmental Lien with respect to Borrower will have a
potentially adverse effect on the financial condition of Borrower or on the
Collateral.

11.11           Failure to Notify. If at any time Borrower fails to provide
Lender with notice or copies, if written, of all material complaints, orders,
citations or notices with respect to environmental, health or safety complaints
within five (5) days of Borrower’s receipt thereof.

11.12           Failure to Deliver Documentation. Borrower shall fail to obtain
and deliver to Lender any other documentation required to be signed or obtained
as part of this Agreement, or shall have failed to take any reasonable action
requested by Lender to perfect, protect, preserve and maintain the security
interests and Lien on the Collateral provided for herein.

11.13           Change of Control. Borrower undergoes a Change of Control.

11.14           Reduction in Equity Ownership Interests. Guarantor ceases to own
of record and beneficially not less than Twenty Percent (20%) of the issued and
outstanding voting ownership interests of Borrower.

11.15           Dissolution; Maintenance of Existence. Borrower is dissolved, or
Borrower fails to maintain its corporate existence in good standing, or the
usual business of Borrower ceases or is suspended in any respect.

11.16           Indictment. The indictment of Borrower or any director or
Responsible Officer of Borrower under any criminal statute, or commencement of
criminal or civil proceedings against Borrower, pursuant to which statute or
proceedings the penalties or remedies sought or available include forfeiture of
any portion of the property of Borrower.

11.17           Tax Liens. The filing of a Lien for any unpaid taxes filed by
any Governmental Authority against Borrower or any of its assets.
 
 
 
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11.18           Challenge to Validity of Loan Documents. Borrower attempts to
terminate, or challenges the validity of, or its liability under, this Agreement
or any other Loan Document, or any proceeding shall be brought to challenge the
validity, binding effect of Loan Document, or any Loan Document ceases to be a
valid, binding and enforceable obligation of Borrower.

11.19            Trading of Common Stock.  The Common Stock ceases to be traded
on a national securities exchange or electronic quotation system.
 

SECTION 12.  REMEDIES.

12.1             Acceleration; Other Remedies. Upon the occurrence and during
the continuation of an Event of Default:

(a)           Lender shall have all rights and remedies provided in this
Agreement, any of the other Loan Documents, the UCC or other applicable law, all
of which rights and remedies may be exercised without notice to Borrower, all
such notices being hereby waived, except such notice as is expressly provided
for hereunder or is not waivable under applicable law.  All rights and remedies
of Lender are cumulative and not exclusive and are enforceable, in Lender's
discretion, alternatively, successively, or concurrently on any one or more
occasions and in any order Lender may determine.  Without limiting the
foregoing, Lender may (i) accelerate the payment of all Obligations and demand
immediate payment thereof to Lender, (ii) with or without judicial process or
the aid or assistance of others, enter upon any premises on or in which any of
the Collateral may be located and take possession of the Collateral or complete
processing, manufacturing and repair of all or any portion of the Collateral,
(iii) require Borrower, at Borrower’s expense, to assemble and make available to
Lender any part or all of the Collateral at any place and time designated by
Lender, (iv) collect, foreclose, receive, appropriate, setoff and realize upon
any and all Collateral, (v) notify Account Debtors or other obligors to make
payment directly to Lender, or notify bailees as to the disposition of
Collateral, (vi) extend the time of payment of, compromise or settle for cash,
credit, return of merchandise, and upon any terms or conditions, any and all
Accounts or other Collateral which includes a monetary obligation and discharge
or release the Account Debtor or other obligor, without affecting any of the
Obligations, and (vii) sell, lease, transfer, assign, deliver or otherwise
dispose of any and all Collateral (including, without limitation, entering into
contracts with respect thereto, by public or private sales at any exchange,
broker's board, any office of Lender or elsewhere) at such prices or terms as
Lender may deem reasonable, for cash, upon credit or for future delivery, with
Lender having the right to purchase the whole or any part of the Collateral at
any such public sale, all of the foregoing being free from any right or equity
of redemption of Borrower, which right or equity of redemption is hereby
expressly waived and released by Borrower.  If any of the Collateral or other
security for the Obligations is sold or leased by Lender upon credit terms or
for future delivery, the Obligations shall not be reduced as a result thereof
until payment therefor is finally collected by Lender. If notice of disposition
of Collateral is required by law, ten (10) days prior notice by Lender to
Borrower designating the time and place of any public sale or the time after
which any private sale or other intended disposition of Collateral is to be
made, shall be deemed to be reasonable notice thereof and Borrower waives any
other notice.  In the event Lender institutes an action to recover any
Collateral or seeks recovery of any Collateral by way of prejudgment remedy,
Borrower waives the posting of any bond which might otherwise be required.
 
 
 
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(b)           Lender may apply the proceeds of Collateral actually received by
Lender from any sale, lease, foreclosure or other disposition of the Collateral
to payment of any of the Obligations, in whole or in part (including attorneys'
fees and legal expenses incurred by Lender with respect thereto or otherwise
chargeable to Borrower) and in such order as Lender may elect, whether or not
then due.  Borrower shall remain liable to Lender for the payment on demand of
any deficiency together with interest at the Default Interest Rate and all costs
and expenses of collection or enforcement, including reasonable attorneys' fees
and legal expenses.
 
(c)           Lender may, at its option, cure any default by Borrower under any
agreement with a third party or pay or bond on appeal any judgment entered
against Borrower, discharge taxes and Liens at any time levied on or existing
with respect to the Collateral, and pay any amount, incur any expense or perform
any act which, in Lender's sole judgment, is necessary or appropriate to
preserve, protect, insure, maintain, or realize upon the Collateral.  Such
amounts paid by Lender shall be repayable by Borrower on demand and added to the
Obligations, with interest payable thereon at the Default Interest Rate. Lender
shall be under no obligation to effect such cure, payment, bonding or discharge,
and shall not, by doing so, be deemed to have assumed any obligation or
liability of Borrower.

(d)           Lender and Lender’s agents shall have the right to utilize any of
Borrower’s customer lists, registered names, trade names or trademarks to
publicly advertise the sell, lease, transfer, assign, deliver or otherwise
dispose of any and all Collateral and Borrower will be deemed to have waived and
voided any confidentiality agreements by and between Borrower and Lender.
 
12.2           Set-off. Lender shall have the right, immediately and without
notice of other action, to set-off against any of Borrower’s liabilities to
Lender any money or other liability owed by Lender or any Affiliate of Lender
(and such Affiliate of Lender is hereby authorized to effect such set-off) in
any capacity to Borrower, whether or not due, and Lender or such Affiliate shall
be deemed to have exercised such right of set-off and to have made a charge
against any such money or other liability immediately upon the occurrence of
such Event of Default even though the actual book entries may be made at a time
subsequent thereto.  The right of set-off granted hereunder shall be effective
irrespective of whether Lender shall have made demand under or in connection
with the Loan.  None of the rights of Lender described in this Section are
intended to diminish or limit in any way Lender's or Affiliates of Lender's
common-law set-off rights.

12.3           Costs and Expenses. Borrower shall be liable for all costs,
charges and expenses, including attorney's fees and disbursements, incurred by
Lender by reason of the occurrence of any Event of Default or the exercise of
Lender's remedies with respect thereto, each of which shall be repayable by
Borrower on demand with interest at the Default Interest Rate, and added to the
Obligations.

12.4           No Marshalling. Lender shall be under no obligation whatsoever to
proceed first against any of the Collateral or other property which is security
for the Obligations before proceeding against any other of the Collateral.  It
is expressly understood and agreed that all of the Collateral or other property
which is security for the Obligations stands as equal security for all
Obligations, and that Lender shall have the right to proceed against any or all
of the Collateral or other property which is security for the Obligations in any
order, or simultaneously, as in its sole and absolute discretion it shall
determine.  It is further understood and agreed that Lender shall have the
right, subject to the notice provisions in Section 12.1 of this Agreement, as it
in its sole and absolute discretion shall determine, to sell any or all of the
Collateral or other property which is security for the Obligations in any order
or simultaneously, as Lender shall determine in its sole and absolute
discretion.
 
 
 
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12.5           No Implied Waivers; Rights Cumulative. No delay on the part of
Lender in exercising any right, remedy, power or privilege hereunder or under
any other Loan Document or provided by statute or at law or in equity or
otherwise shall impair, prejudice or constitute a waiver of any such right,
remedy, power or privilege or be construed as a waiver of any Event of Default
or as an acquiescence therein.  No right, remedy, power or privilege conferred
on or reserved to Lender hereunder or under any other Loan Document or otherwise
is intended to be exclusive of any other right, remedy, power or
privilege.  Each and every right, remedy, power or privilege conferred on or
reserved to Lender under this Agreement or under any of the other Loan Documents
or otherwise shall be cumulative and in addition to each and every other right,
remedy, power or privilege so conferred on or reserved to Lender and may be
exercised by Lender at such time or times and in such order and manner as Lender
shall (in its sole and complete discretion) deem expedient.
 
 
SECTION 13.  OTHER RIGHTS OF LENDER.

13.1           Collections. Borrower hereby authorizes Lender to, and Lender
shall make such arrangements as it shall deem necessary or appropriate to,
collect the Accounts and any other monetary obligations included in, or proceeds
of, the Collateral at any time whether or not an Event of Default has
occurred.  Borrower shall, at Borrower’s expense and in the manner requested by
Lender from time to time, direct that remittances and all other proceeds of
accounts and other Collateral up to the amount of the then-current Obligations
shall be (a) remitted in kind to Lender,  (b) sent to a post office box
designated by and/or in the name of Lender, or in the name of Borrower, but as
to which access is limited to Lender and/or (c) deposited into a bank account
maintained in the name of Lender and/or a blocked bank account under
arrangements with the depository bank under which all funds deposited to such
blocked bank account are required to be transferred solely to Lender.  In
connection therewith, Borrower shall execute such post office box and/or blocked
bank account agreements as Lender shall specify.

13.2           Repayment of Obligations. All Obligations shall be payable at
Lender's office set forth below or at a bank or such other place as Lender may
expressly designate from time to time for purposes of this Section.  Lender
shall apply all proceeds of Accounts or other Collateral received by Lender and
all other payments in respect of the Obligations to the Revolving Loans whether
or not then due or to any other Obligations then due, in whatever order or
manner Lender shall determine.

13.3           Lender Appointed Attorney-in-Fact.
 
(a)           Borrower hereby irrevocably constitutes and appoints Lender, with
full power of substitution, as its true and lawful attorney-in-fact, with full
irrevocable power and authority in its place and stead and in its name or
otherwise, from time to time in Lender's discretion, at Borrower’s sole cost and
expense, to take any and all appropriate action and to execute and deliver any
and all documents and instruments which Lender may deem reasonably necessary or
advisable to accomplish the purposes of this Agreement, including, without
limiting the generality of the foregoing, (i) at any time any of the Obligations
are outstanding, (A) to transmit to Account Debtors, other obligors or any
bailees notice of the interest of Lender in the Collateral or request from
Account Debtors or such other obligors or bailees at any time, in the name of
Borrower or Lender or any designee of Lender, information concerning the
Collateral and any amounts owing with respect thereto; (B) to execute in the
name of Borrower and file against Borrower in favor of Lender Financing
Statements or amendments with respect to the Collateral, or record a copy or an
excerpt hereof in the United States Copyright Office or the United States Patent
and Trademark Office and to take all other steps as are necessary in the
reasonable opinion of Lender under applicable law to perfect the security
interests granted herein; and (C) to pay or discharge taxes, Liens, security
interests or other encumbrances levied or placed on or threatened against the
Collateral; (ii) after and during the continuation of an Event of Default, (A)
to receive, take, endorse, assign, deliver, accept and deposit, in the name of
Lender or Borrower, any and all cash, checks, commercial paper, drafts,
remittances and other instruments and documents relating to the Collateral or
the proceeds thereof, (B) to notify Account Debtors or other obligors to make
payment directly to Lender, or notify bailees as to the disposition of
Collateral, (C) to change the address for delivery of mail to Borrower and to
receive and open mail addressed to Borrower, (D) take or bring, in the name of
Lender or Borrower, all steps, actions, suits or proceedings deemed by Lender
necessary or desirable to effect collection of or other realization upon the
Collateral; (E) to obtain and adjust insurance required pursuant to this
Agreement and to pay all or any part of the premiums therefor and the costs
thereof, and (F) to extend the time of payment of, compromise or settle for
cash, credit, return of merchandise, and upon any terms or conditions, any and
all accounts or other Collateral which includes a monetary obligation and
discharge or release the Account Debtor or other obligor, without affecting any
of the Obligations.

 
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(b)           Borrower hereby ratifies, to the extent permitted by law, all that
Lender shall lawfully and in good faith do or cause to be done by virtue of and
in compliance with this Agreement.  The powers of attorney granted pursuant to
this Agreement are each a power coupled with an interest and shall be
irrevocable until the Obligations are paid indefeasibly in full.

13.4           Release of Lender. Borrower hereby releases and exculpates
Lender, its officers, partners, members, directors, employees, agents,
representatives and designees, from any liability arising from any acts under
this Agreement or in furtherance thereof, whether as attorney-in-fact or
otherwise, whether of omission or commission, and whether based upon any error
of judgment or mistake of law or fact, except for gross negligence or willful
misconduct as determined by a final and non-appealable order from a court of
competent jurisdiction.  In no event will Lender have any liability to Borrower
for lost profits or other special or consequential damages.

13.5           Uniform Commercial Code. At all times prior and subsequent to an
Event of Default hereinafter, Lender shall be entitled to all the rights and
remedies of a secured party under the UCC with respect to all Collateral.

13.6           Preservation of Collateral. At all times prior and subsequent to
an Event of Default hereinafter, Lender may (but without any obligation to do
so) take any and all action which in its sole and absolute discretion is
necessary and proper to preserve its interest in the Collateral consisting of
Accounts, including without limitation the payment of debts of Borrower which
might, in Lender's sole and absolute discretion, impair the Collateral or
Lender's security interest therein, and the sums so expended by Lender shall be
secured by the Collateral, shall be added to the amount of the Obligations due
Lender and shall be payable on demand with interest at the rate set forth in
Section 3.1 hereof from the date expended by Lender until repaid by
Borrower.  After written notice by Lender to Borrower and automatically, without
notice, after an Event of Default, Borrower shall not, without the prior written
consent of Lender in each instance, (a) grant any extension of time of payment
of any Accounts, (b) compromise or settle any Accounts for less than the full
amount thereof, (c) release in whole or in part any account debtor or other
person liable for the payment of any of the Accounts or any such other
Collateral, or (d) grant any credits, discounts, allowances, deductions, return
authorizations or the like with respect to any of the Accounts.

 
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13.7           Lender's Right to Cure. In the event Borrower shall fail to
perform any of its Obligations hereunder or under any other Loan Document, then
Lender, in addition to all of its rights and remedies hereunder, may perform the
same, but shall not be obligated to do so, at the cost and expense of Borrower.
Such costs and expenses shall be added to the amount of the Obligations due
Lender, and Borrower shall promptly reimburse Lender for such amounts together
with interest at the Default Interest Rate from the date such sums are expended
until repaid by Borrower.

13.8           Inspection of Collateral. From time to time as requested by
Lender, Lender or its designee shall have access, (a) prior to an Event of
Default, during reasonable business hours to all of  the premises where
Collateral is located for the purpose of inspecting the Collateral and to all of
Borrower’s Collateral, inclusive of books and records, and Borrower shall permit
Lender or Lender’s designees to make copies of such books and records or
extracts therefrom as Lender may request, and (b) on or after an Event of
Default that remains uncured, at the sole expense of Borrower, at any time, to
all of the premises where Collateral is located for the purposes of inspecting,
disposing and realizing upon the Collateral, and all Borrower’s books and
records, and Borrower shall permit Lender or its designee to make such copies of
such books and records or extracts therefrom as Lender may request.  Without
expense to Lender, Lender may use such of Borrower’s personnel, equipment,
including computer equipment, programs, printed output and computer readable
media, supplies and premises for the collection of Accounts and realization on
other Collateral as Lender, in its sole discretion, deems appropriate.  Borrower
hereby irrevocably authorize all accountants and third parties to disclose and
deliver to Lender at Borrower’s expense all financial information, books and
records, work papers, management reports and other information in its possession
regarding Borrower.

SECTION 14.                         PROVISIONS OF GENERAL APPLICATION.

14.1           Waivers. Borrower waives demand, presentment, notice of
dishonor  protest and notice of protest of any instrument of Borrower or others
which may be included in the Collateral.

14.2           Survival. All covenants, agreements, representations and
warranties made by Borrower herein or in any other Loan Document or in any
certificate, report or instrument contemplated hereby shall survive any
independent investigation made by Lender and the execution and delivery of this
Agreement, and such certificates, reports or instruments and shall continue so
long as any Obligations are outstanding and unsatisfied, applicable statutes of
limitations to the contrary notwithstanding.

 
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14.3           Notices. All notices, requests and demands to or upon the
respective parties hereto shall be in writing and either (a) delivered by hand
or (b) delivered by national overnight courier service, and shall be deemed to
have been duly given or made upon receipt by the receiving party.  All notices,
requests and demands are to be given or made to the respective parties at the
following addresses (or to such other addresses as either party may designate by
notice in accordance with the provisions of this paragraph):

If to Borrower:
Reed’s Inc.
 
1300 South Spring Street
 
Los Angeles, CA 90061
 
Attention: Christopher Reed, Chief Executive Officer
   
If to Lender:
GemCap Lending I, LLC
 
1401 Ocean Avenue,
 
Suite 305
 
Santa Monica, California 90401
 
Attention: David Ellis

 
With a copy to:
Cohen Tauber Spievack & Wagner P.C.
   
420 Lexington Avenue, Suite 2400
   
New York, New York 10170
   
Attention:  Robert A. Boghosian, Esq.

                                        
14.4           Amendments; Waiver of Defaults. The terms of this Agreement shall
not be amended, waived, altered, modified, supplemented or terminated in any
manner whatsoever except by a written instrument signed by Lender and
Borrower.  Any default or Event of Default by Borrower may only be waived by a
written instrument specifically describing such default or Event of Default and
signed by the Lender.

14.5           Binding on Successors.
 
(a)           This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns, provided,
however, that Borrower may not assign any of its rights or obligations under
this Agreement or the other Loan Documents to any Person without the prior
written consent of Lender.

(b)           Lender may assign any or all of the Obligations together with any
or all of the security therefor to any Person and any such assignee shall
succeed to all of Lender’s rights with respect thereto.  Lender shall notify
Borrower of any such assignment. Upon such assignment, Lender shall have no
further obligations under the Loan Documents.  Lender may from time to time sell
or otherwise grant participations in any of the Obligations and the holder of
any such participation shall, subject to the terms of any agreement between
Lender and such holder, be entitled to the same benefits as Lender with respect
to any security for the Obligations in which such holder is a participant.

 
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14.6           Invalidity. Any provision of this Agreement which may be
determined by competent authority to be 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
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

14.7           Publicity. Borrower hereby authorizes Lender to make appropriate
announcements of the financial arrangement entered into by and between Borrower
and Lender, including, without limitation, announcements which are commonly
known as tombstones, in such publications and to such selected parties as Lender
shall in its sole and absolute discretion deem appropriate, or as required by
applicable law.  Lender authorizes Borrower to make appropriate disclosures of
the financial arrangement entered into by and between Borrower and Lender in
Borrower’s SEC Reports, including in a Current Report on Form 8-K and as
required by applicable law.

14.8           Section or Paragraph Headings. Section and paragraph headings are
for convenience only and shall not be construed as part of this Agreement.

14.9           APPLICABLE LAW:
 
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF CALIFORNIA, THE LAWS OF WHICH THE BORROWER HEREBY
EXPRESSLY ELECTS TO APPLY TO THIS AGREEMENT, WITHOUT GIVING EFFECT TO PROVISIONS
FOR CHOICE OF LAW THEREUNDER.  THE BORROWER AGREES THAT ANY ACTION OR PROCEEDING
BROUGHT TO ENFORCE OR ARISING OUT OF THIS AGREEMENT SHALL BE COMMENCED IN
ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT.
 
14.10           WAIVER OF JURY TRIAL.
 
BORROWER HEREBY WAIVES ANY AND ALL RIGHTS THAT IT MAY NOW OR HEREAFTER HAVE
UNDER THE LAWS OF THE UNITED STATES OF AMERICA OR ANY STATE TO A TRIAL BY JURY
OF ANY AND ALL ISSUES ARISING EITHER DIRECTLY OR INDIRECTLY IN ANY ACTION OR
PROCEEDING BETWEEN BORROWER, LENDER OR ITS SUCCESSORS AND ASSIGNS, OUT OF OR IN
ANY WAY CONNECTED WITH THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, THE OBLIGATIONS
AND/OR THE COLLATERAL.  IT IS INTENDED THAT SAID WAIVER SHALL APPLY TO ANY AND
ALL DEFENSES, RIGHTS, AND/OR COUNTERCLAIMS IN ANY ACTION OR PROCEEDINGS BETWEEN
BORROWER AND LENDER.  BORROWER WAIVES ALL RIGHTS TO INTERPOSE ANY CLAIMS,
DEDUCTIONS, SETOFFS OR COUNTERCLAIMS OF ANY KIND, NATURE OR DESCRIPTION IN ANY
ACTION OR PROCEEDING INSTITUTED BY LENDER WITH RESPECT TO THIS AGREEMENT, THE
OTHER LOAN DOCUMENTS, THE OBLIGATIONS, THE COLLATERAL OR ANY MATTER ARISING
THEREFROM OR RELATING THERETO, EXCEPT COMPULSORY COUNTERCLAIMS.
 
14.11           CONSENT TO JURISDICTION.
 
BORROWER HEREBY (a) IRREVOCABLY SUBMITS AND CONSENTS TO THE EXCLUSIVE
JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN THE STATE OF CALIFONIA,
LOS ANGELES COUNTY WITH RESPECT TO ANY ACTION OR PROCEEDING ARISING OUT OF THIS
AGREEMENT, THE OTHER LOAN DOCUMENTS, THE OBLIGATIONS AND/OR THE COLLATERAL OR
ANY MATTER ARISING THEREFROM OR RELATING THERETO, AND (b) WAIVES ANY OBJECTION
WHICH IT MAY NOW OR HEREAFTER HAVE BASED ON VENUE AND/OR FORUM NON CONVENIENS
WITH RESPECT THERETO.  IN ANY SUCH ACTION OR PROCEEDING, BORROWER WAIVES
PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT OR OTHER PROCESS AND PAPERS
THEREIN AND AGREES THAT THE SERVICE THEREOF MAY BE MADE BY CERTIFIED MAIL,
RETURN RECEIPT REQUESTED, DIRECTED TO BORROWER AT ITS OFFICES SET FORTH HEREIN
OR OTHER ADDRESS THEREOF OF WHICH LENDER HAS RECEIVED NOTICE AS PROVIDED IN THIS
AGREEMENT.  NOTWITHSTANDING THE FOREGOING, BORROWER CONSENTS TO THE COMMENCEMENT
BY LENDER OF ANY ACTION OR PROCEEDING IN ANY OTHER JURISDICTION TO ENFORCE ITS
RIGHTS IN AND TO THE COLLATERAL AND BORROWER WAIVES ANY OBJECTIONS WHICH IT MAY
NOW OR HEREAFTER HAVE BASED ON VENUE AND/OR FORUM NON CONVENIENS OF ANY SUCH
ACTION OR PROCEEDING.
 
 
 
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14.12           Entire Agreement. This Agreement, the other Loan Documents, any
supplements or amendments hereto or thereto, and any instruments or documents
delivered or to be delivered in connection herewith or therewith represents the
entire agreement and understanding concerning the subject matter hereof and
thereof between the parties hereto, and supersede all other prior agreements,
understandings, negotiations and discussions, representations, warranties,
commitments, proposals, offers and contracts concerning the subject matter
hereof, whether oral or written.  In the event of any inconsistency between the
terms of this Agreement and any schedule or exhibit hereto, the terms of this
Agreement shall govern.

14.13           Counterparts. This Agreement may be executed in counterparts and
by facsimile or other electronic signatures, each of which when so executed,
shall be deemed an original, but all of which shall constitute but one and the
same instrument.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
 
 
 
 
 
 
 

 
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IN WITNESS WHEREOF, this Loan and Security Agreement has been duly executed as
of the day and year first above written.

 

 
BORROWER:
         
REED’S, INC.
           
By:
/s/        Name        Title           

 

 
LENDER:
         
GEMCAP LENDING I, LLC
           
By:
/s/        Name        Title           

 

[signature page of loan and security agreement]

 
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Exhibit 1.34
to
Loan and Security Agreement

Machinery and Equipment

Summary:
 

   
September 30,
2009
 
    Vehicles
    320,000  
Machinery and equipment
    1,056,000  
Office equipment
    389,000  

Detail:

       
09/30/09
   
Leased
    16200  
    Furniture & Fixtures
    19,643.86           16300  
    Office  Equipment
    49,675.58           16400  
    Automobiles
    320,073.61           16700  
    Mach & Equip after 06-15-09
    175,165.64           16710  
    Brewery Equipment
    556,387.83       556,387.83     16720  
    Leased Equip after 06-30-09
    163,156.24       163,156.24     16730  
    Pasteurizer
    -             16740  
    Candy Room
    12,630.46             16750  
    Vending/Display Materials
    149,054.56             16800  
    Computer – Hardware
    86,551.36             16900  
    Computer – Software
    68,565.60             16902  
    Computer – Navision
    133,344.37             16904  
    CRM Hardware server
    31,358.71          

 
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Exhibit 1.53
to
Loan and Security Agreement

Form of Landlord Waiver
 
LANDLORD WAIVER AND ACCESS AGREEMENT
 
THIS AGREEMENT effective the 13th day of November 2009,
 
BETWEEN:
 
525 SOUTH DOUGLAS STREET, LLC (the “Landlord”)
 
- and -
 
GEMCAP LENDING I, LLC (“Lender”)
 
WHEREAS:
 
A.  
Lender is about to enter into a loan agreement (the “Loan Agreement”) with
Reed’s, Inc. (“Borrower”) and in connection therewith Lender has been or will be
granted a security interest in all of the personal property and the assets of
Borrower, including, without limitation, all of Borrower’s inventory (as defined
in the Uniform Commercial Code, or state counterpart thereof, in effect from
time to time in California) and books and records, in any form whatsoever (such
inventory, books and records, collectively, the “Assets”);

 
B.  
the Assets are or may be kept at either of the following locations: 12930 South
Spring Street, Los Angeles, California  90061, or 13000 South Spring Street, Los
Angeles, California 90061 (collectively, and each individually, as the context
may require, the “Premises”);

 
C.  
the Landlord is the owner of the Premises;

 
D.  
the Landlord has by an Industrial Lease by and between Landlord and Borrower
(the “Lease”) dated May 7, 2009, leased the Premises to Borrower for a term
expiring on June 15, 2024; and

 
E.  
a condition of Lender making the loans described in the Loan Agreement (the
“Loans”) is the execution of this Agreement by the Landlord;

 
NOW THEREFORE, in consideration of the granting of the Loans by Lender to
Borrower and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged by the Landlord, the Landlord represents,
covenants and agrees with Lender as follows:
 
1.  
The Landlord hereby waives and releases in favor of Lender and his assignee:

 
(a) 
any contractual lien, security interest, charge or interest and any other
landlord’s lien which it may be entitled to at law or in equity against the
Assets;

 
(b) 
any and all rights granted by or under any present or future laws to levy or
distrain for rent or any other charges which may be due to the Landlord against
the Assets; and

 
(c) 
any and all other claims, liens and demands of every kind which the Landlord has
or may hereafter have against the Assets.

 
2.  
The Landlord specifically waives its right to distrain against the Assets in
favor of any rights which Lender may now or hereafter have with respect to the
Assets and agrees to release all such Assets to Lender or his assignee in the
event of default by Borrower pursuant to the terms of any lease of the Premises
by Borrower prior to the repayment by Borrower of the Loans.

 
3.  
The Landlord hereby disclaims any interest in the Assets and agrees to assert no
claim to the Assets while Borrower is indebted to Lender or Lender’s assignee.

 
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4.  
The Landlord agrees that Lender, its assignee or any of its representatives, may
enter and remain upon the Premises for a commercially reasonable period of time
at any time during the term of the Lease and thereafter (in accordance with
Section 8, below) to inspect or, in addition to its other rights herein
provided, take possession of, remove and / or dispose of the Assets without
interference by the Landlord.

 
5.  
To the extent necessary, the Landlord consents to Lender’s security in the
Assets and agrees that should Lender or his assignee exercise any rights under
its security, the Landlord will not interfere with enforcement of the rights
thereunder.

 
6.  
The Landlord agrees that Lender may assign its security interest in the Assets
and this Agreement without the consent of the Landlord.

 
7.  
The Landlord shall give Lender, as applicable, (i) two weeks’ prior written
notice of the expiration or termination of the Lease and/or the removal of the
Assets to Lender and (ii) prompt written notice of default by Borrower under the
Lease and/or the abandonment of the Premises by Borrower (any notice described
in clauses (i) or (ii), the “Notice”).  Without limitation of any other
provision hereof, Lender or its assignee shall have, for a period of up to three
months commencing immediately upon expiration or termination of the Lease (the
“Period”), the right, and a license, to enter upon and use the
Premises  (including any personal property of the Landlord licensed or leased to
Borrower prior to the exercise by the Landlord of its rights and remedies) to
enjoy all the rights and benefits of Borrower under the Lease (but without
becoming tenant thereunder or otherwise assuming any obligations of Borrower
thereunder or any obligation to cure any defaults thereunder) to assemble,
appraise, display, operate, sever, remove, maintain, prepare for sale, lease,
process or repair the Assets or lease, transfer and/or sell (by private sale or
public auction from the Premises) the Assets, or any part thereof; subject,
however, only to the obligation of Lender to pay to Landlord the Base Rent and
Additional Rent (each as defined in the Lease) on a per diem basis for the
number of days during the Period or any extension thereof in which Lender has
exercised such right, and all utility costs for utilities used by Lender during
such days, such rent and utilities to be payable monthly.

 
8.
Under no circumstances shall Lender have any obligation to remove any of the
Assets from the Premises. Lender shall not be responsible for any costs or
expenses arising from acts or omissions of Borrower with respect to the Premises
or the Lease, including, without limitation, damage to the Premises, failure to
pay rent, or failure to clean or otherwise leave the Premises in an appropriate
condition.

9.
[RESERVED]

10.  
The terms and provisions of this Agreement shall inure to the benefit of and be
binding upon the successors and assigns of the Landlord (including, without
limitation, any successor owner or encumbrancers of the Premises) and
Lender.  Specifically, the Landlord acknowledges and agrees that, in connection
with any refinancing of any loans to Borrower or its affiliates (including,
without limitation, an increase in the aggregate principal amount of
indebtedness thereunder), Lender may assign this Agreement to a new lender or
lenders extending such financing (which lender or lenders may include Lender)
(the “New Lenders”), in which event this Agreement shall, without further action
by any party, be enforceable by the New Lenders.  Notwithstanding that the
provisions of this paragraph are self-executing, the Landlord agrees, upon
request by the New Lenders, to execute and deliver a written acknowledgment
confirming the provisions of this paragraph in form satisfactory to the New
Lenders.

 
11.  
To the extent necessary, the Landlord consents to the recording or registration
by Lender in any appropriate registry of any notice or document as Lender in its
sole discretion may deem desirable, appropriate or necessary, evidencing this
Agreement, the Lease or Lender’s security in any property which is or may in the
future become a fixture or is or may in the future otherwise become attached to
the Premises.

 
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12.  
All notices including any notice of assignment, to any party hereto under this
Agreement shall be in writing and sent to such party at its respective address
set forth hereinafter by registered mail or by courier.  For purposes hereof,
the Landlord’s address is 525 S. Douglas Street, Suite 200, El Segundo, CA 90245
and Lender’s address is 1401 Ocean Avenue, Suite 305, Santa Monica, CA 90401.

 
13.  
The provisions of this Agreement shall continue in effect until the undersigned
shall have received Lender’s or the New Lenders’, as the case may be, written
certification that all loans and indebtedness of Borrower have been paid in
full.

 
14.  
The interpretation, validity and enforcement of this Agreement shall be governed
by and construed under the laws of the State of California, without giving
effect to the conflicts of laws principles thereof.

 
15.  
The parties irrevocably and unconditionally submit to the jurisdiction of any
court located in Los Angeles County, California, and all courts competent to
hear appeals therefrom.

 
16.  
Borrower has executed this Agreement for the purpose of acknowledging and
agreeing to the terms of the Agreement and waiving and releasing any claims it
may have against Landlord for Landlord agreeing to the matters set forth herein
(including, but not limited to, allowing the Lender and its assignees to enter
the Premises to remove the Assets.

 
17.  
The Landlord agrees to execute, acknowledge, deliver and do and perform such
further instruments and things as Lender may request to give effect to the terms
hereof.

 

 

 
[SIGNATURE PAGE FOLLOWS]
 
 
56

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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first written above.
 

525 SOUTH DOUGLAS STREET, LLC

By: ____________________

Name: __________________

Title: ___________________

 
____________________________
Witness as to signature of
___________________

 
GEMCAP LENDING I, LLC

By: ____________________

Name: __________________

Title: ___________________

BORROWER acknowledges and agrees to the foregoing:
 
Dated this ____ day of November 2009.
 
REED’S, INC.

By:      /s/ Christopher Reed                                      

Name:    Christopher Reed

Title:      Chief Executive Officer

 

[SIGNATURE PAGE TO LANDLORD WAIVER AND ACCESS AGREEMENT]
 
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Exhibit 1.65
to
Loan and Security Agreement

Form of Patent and Trademark Security Agreement

PATENT AND TRADEMARK SECURITY AGREEMENT

PATENT AND TRADEMARK SECURITY AGREEMENT, dated as of November 12, 2009, (this
“Agreement”), made by REED’S, INC., a Delaware corporation, with its principal
place of business located at 13000 South Spring Street, Los Angeles, California
90061 (“Grantor”), in favor of GEMCAP LENDING I, LLC, a Delaware limited
liability company with offices at 1401 Ocean Avenue, Suite 305, Santa Monica, CA
90401 (“Lender”).

W I T N E S S E T H:

WHEREAS, the Grantor is the borrower under, and has entered into, a loan
agreement with Lender, of even date herewith, pursuant to which Lender is making
revolving loans to Borrower (the “Loan Agreement”);
 
WHEREAS, the Grantor has, or may in the future acquire, certain right, title and
interest in and to certain patents, patent applications and trademarks and
related property;
 
WHEREAS, the Grantor has agreed to grant to the Lender a security interest in
its right, title and interest in and to all of its owned and after-acquired
patents, patent applications, trademarks and related rights to secure the
payment and performance of obligations of the Grantor under the Loan Agreement
and the other Loan Documents (as defined in the Loan Agreement);
 
WHEREAS, it is a condition precedent to the Lender’s entry into the Loan
Agreement that the Grantor shall have executed and delivered this Agreement to
the Lender;
 
NOW, THEREFORE, in consideration of the mutual agreements and covenants
contained herein and in the other Loan Documents, and for other good and
valuable consideration the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby as follows:
 
1.           Certain Definitions.
 
(a)           All the agreements or instruments herein defined shall mean such
agreements or instruments as the same may from time to time be supplemented or
amended or the terms thereof waived or modified to the extent permitted by, and
in accordance with, the terms thereof and of this Agreement.
 
(b)           Capitalized terms used herein without definition shall have the
respective meanings assigned to such terms in the Loan Agreement.
 
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(c)           The following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
 
“Contract” means any contract, agreement, arrangement, license, lease,
commitment or other instrument or understanding of any kind, whether written or
oral, express or implied.
 
“Patent and Trademark Collateral” means all of the Grantor’s right, title and
interest in and to each of the following, whether now owned or at any time
hereafter acquired by the Grantor or in which the Grantor now has or at any time
in the future may acquire any right, title or interest:
 
(1)           all Patents;
 
(2)           all Patent Licenses;
 
(3)           all Trademarks;
 
(4)           all Trademark Licenses;
 
(5)           all Contracts, Documents and General Intangibles developed or
acquired by the Grantor relating to any and all of the foregoing;
 
(6)           all insurance policies to the extent they relate to the preceding
items (1) through (5); and
 
(7)           to the extent not otherwise included in the preceding items (1)
through (6), all Proceeds, products, rents, issues, profits and returns of and
arising from any and all of the foregoing.
 
“Patent(s)” means all patents, patent applications and patent disclosures which
are presently, or in the future may be, owned, issued, acquired or used (whether
pursuant to a license or otherwise) anywhere in the world by the Grantor, in
whole or in part, and all of the Grantor’s right, title and interest in and to
all patentable inventions and to file applications for patents under patent laws
of the United States or of any other jurisdiction, including any and all
extensions, reissues, substitutes, continuations, continuations-in-part,
divisionals, patents of addition, re-examinations and renewals thereof, and
patents issuing therefrom, and any other proprietary rights related to any of
the foregoing (including, without limitation, remedies against infringements
thereof and rights of protection of an interest therein under the laws of all
jurisdictions) and any and all foreign counterparts of any of the foregoing,
including those listed on Exhibit A to this Agreement, as it may be amended,
supplemented or otherwise modified from time to time.
 
“Patent Licenses” means each license agreement identified in Exhibit A to this
Agreement as it may be amended, supplemented or otherwise modified from time to
time, and each license agreement relating to Patents hereafter granted to, used
or acquired by the Grantor, in each case together with the right to use and rely
upon the inventions and other intellectual property conveyed thereunder.
 
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“PTO” means the United States Patent and Trademark Office.
 
“Security Interest” means the security interest and collateral assignment
granted in the Patent and Trademark Collateral pursuant to this Agreement.
 
“Trademark License” means each license agreement identified in Exhibit B hereto
as it may be amended, supplemented or otherwise modified from time to time, and
each license agreement relating to Trademarks hereafter used, adopted or
acquired by the Grantor.
 
“Trademarks” means (a) all trademarks, trade names, corporate names, company
names, business names, fictitious business names, trade styles, service marks,
logos and other source or business identifiers of the Grantor adopted for its
use anywhere in the world or hereinafter adopted or acquired, whether currently
in use or not, and the goodwill associated therewith, all registrations and
recordings thereof, and all applications in connection therewith, including
those identified in Exhibit B to this Agreement, and (b) all renewals thereof by
the Grantor.
 
2.           Grant of Security Interest.  As collateral security for the prompt
and complete payment and performance when due of the Obligations and for the
other purposes provided in this Agreement, the Grantor hereby grants, assigns
and conveys to the Lender all of the Grantor’s right, title and interest in and
to the Patent and Trademark Collateral as collateral security and hereby grants
the Lender a continuing first priority security interest therein. Such grant
includes, without limitation, a grant of the security interest to secure the
payment and performance of the Obligations.  Notwithstanding the foregoing
assignment, unless and until there shall have occurred and be continuing an
Event of Default, the Grantor shall retain and the Lender hereby grants to the
Grantor the exclusive, non-transferable, revocable right and license to use the
Patent and Trademark Collateral on and in connection with making, having made,
using and selling products sold by the Grantor, for the Grantor’s own benefit
and account and for none other (except as provided in the Patent Licenses
identified on Exhibit A and the Trademark Licenses identified on Exhibit
B).  The Grantor agrees not to sell or assign its interest in, or grant any
sublicense under, the foregoing license granted to the Grantor without the prior
written consent of the Lender, which may be withheld in the Lender’s sole and
absolute discretion.
 
3.           Representations and Warranties.  The Grantor hereby represents and
warrants to Lender that:
 
(a)           Description of Patent and Trademark Collateral.  True and complete
schedules setting forth all Patents, Patent Licenses, Trademarks and Trademark
Licenses owned, held, controlled or used by the Grantor or to which the Grantor
is a party on the date of this Agreement, together with a summary description
and full information in respect of the filing, registration, issuance and
expiration dates thereof, as applicable, are set forth on Exhibit A with respect
to Patents and Patent Licenses and on Exhibit B with respect to Trademarks and
Trademark Licenses, respectively, to this Agreement.
 
(b)           Title; No Other Liens. The Patent and Trademark Collateral is held
by Grantor free and clear of any and all Liens or claims of others.  None of the
Grantor’s Affiliates has any right, title or interest in or to any of the Patent
and Trademark Collateral.  No security agreement, financing statement or other
public notice with respect to all or any part of the Patent and Trademark
Collateral is on file or of record in any public office, except such as may have
been filed in favor of the Lender pursuant to the Loan Documents.
 
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(c)           Perfected Liens.  The Liens granted pursuant to this Agreement
will constitute, upon the completion of all the filings or notices listed in
Exhibit C to this Agreement, which Exhibit includes all UCC-1 financing
statements to be filed pursuant to the Loan Documents and all requisite filings
to be made with the PTO in the forms substantially similar to that of Exhibit D
and Exhibit E to this Agreement, as applicable, valid and perfected Liens on all
Patent and Trademark Collateral in favor of the Lender, which are prior to all
other Liens on such Patent and Trademark Collateral and which are enforceable as
such against all Persons.
 
(d)           Consents under Contracts.  No consent (other than consents that
have been obtained) of any party (other than the Grantor) to any Contract that
constitutes part of the Patent and Trademark Collateral is required, or purports
to be required, in connection with the execution, delivery and performance of
this Agreement or the exercise of the Lender’s rights and remedies provided
herein or at law.
 
(e)           Chief Executive Office.  The Grantor’s chief executive office and
chief place of business is located at 13000 South Spring Street, Los Angeles,
California 90061.
 
(f)           Authority.  The Grantor has full power, authority and legal right
to grant the Lender the Lien on the Patent and Trademark Collateral pursuant to
this Agreement.
 
(g)           Approvals, Filings, Etc.  No authorization, approval or consent
of, or filing, registration, recording or other action with, any United States
or foreign court, governmental body, regulatory agency, self-regulatory
organization, or stock exchange or market, the shareholders of the Grantor or
any other Person, including, without limitation, the PTO, is required to be
obtained or made by the Grantor or any Subsidiary (1) for the grant by the
Grantor of the Lien on the Patent and Trademark Collateral pursuant to this
Agreement, (2) the collateral assignment of the Patent and Trademark Collateral
to the Lender pursuant to this Agreement or (3) to perfect the Lien purported to
be created by this Agreement, in each case except as has been obtained or made
or (4) for the exercise of the Lender’s rights and remedies provided herein or
at law.
 
(h)           No Claims.  Each of the Patents and Trademarks existing on the
date hereof is valid and enforceable, and the Grantor is not presently aware of
any past, present or prospective claim by any third party that any of such
Patents or Trademarks are invalid or unenforceable, or that the use of any
Patents does or may violate the rights of any third person, or of any basis for
any such claims.
 
(i)           Statutory Notice.  The Grantor has used and will continue to use
proper statutory notice in connection with its use of the Patents.
 
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(j)           Certain Patent Matters.  To its knowledge, the Grantor does not
lack any material rights or licenses to use the Patents or to make, have made,
use, sell, or offer for sale the claimed subject matter of the Patents.  To the
knowledge of the Grantor, there are no facts which would form a basis for a
finding that any of the claims of the Patents is unpatentable, unenforceable or
invalid.  To the knowledge of the Grantor, there are no pending U.S. or foreign
patent applications which, if issued, would limit or prohibit the ability of the
Grantor or the Lender to make, have made, use, sell, or offer for sale the
claimed subject matter of the Patents.
 
(k)           Custom License Matters.  Each Patent License or Trademark License
is the legal, valid and binding obligation of the Grantor and the respective
licensor thereunder; the Grantor is not, and, to the best knowledge of the
Grantor, each licensor is not, in default of any of its obligations under any
Patent License or Trademark License; no event has occurred and no circumstance
exists that with the giving of notice or the passage of time, or both, would
constitute such a default by the Grantor; and, to the best knowledge of the
Grantor, no such event has occurred or circumstance exists that would constitute
a default by the licensor under any Patent License or Trademark License.
 
4.           Covenants.  The Grantor covenants and agrees with the Lender that
from and after the date of this Agreement until the payment and performance in
full by the Grantor of all of the Obligations:
 
(a)           Further Documentation.  At any time and from time to time, upon
the written request of the Lender, and at the sole expense of the Grantor, the
Grantor will promptly and duly execute and deliver such further instruments and
documents and take such further actions as the Lender may request for the
purpose of obtaining or preserving the full benefits of this Agreement and of
the rights and powers herein granted, including, without limitation, any
applicable filing with the PTO and the filing of any financing or continuation
statements under the UCC or similar laws in effect in any such jurisdiction with
respect to the Liens created hereby.  The Grantor also hereby authorizes the
Lender to file any such financing or continuation statement without the
signature of the Grantor to the extent permitted by applicable law.  A
photographic or other reproduction of this Agreement shall be sufficient as a
financing statement for filing in any jurisdiction.
 
(b)           Maintenance of Records. The Grantor will keep and maintain at its
own cost and expense satisfactory and complete records of the Patent and
Trademark Collateral.  For the further security of the Lender, the Grantor
hereby grants to the Lender a security interest in all of the Grantor’s books
and records pertaining to the Patent and Trademark Collateral, and the Grantor
shall turn over any such books and records for inspection at the office of the
Grantor to the Lender or to its representatives during normal business hours at
the request of the Lender.
 
(c)           Limitation on Liens on Patent and Trademark Collateral.  The
Grantor (x) will not create, incur or permit to exist, will defend the Patent
and Trademark Collateral against, and will take such other action as is
necessary to remove, any Lien or claim on or to the Patent and Trademark
Collateral, other than the Liens created hereby and by the other Loan Documents,
and (y) will defend the right, title and interest of the Lender in and to any of
the Patent and Trademark Collateral against the claims and demands of all
Persons.
 
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(d)           Limitations on Dispositions of Patent and Trademark
Collateral.  The Grantor will not sell, transfer, assign, grant any
participation in, sublicense or otherwise dispose of any of the Patent and
Trademark Collateral to any Persons, including, without limitation, any
Subsidiary or Affiliate, or attempt, offer or contract to do so.
 
(e)           Limitations on Modifications, Waivers, Extensions of Patent
Licenses and Trademark Licenses.  The Grantor will not (i) amend, modify,
terminate or waive any provision of any Patent License with respect to any
Patent or Trademark License with respect to any Trademark in any manner which
could reasonably be expected to materially adversely affect the value of such
Patent License or Trademark License as Patent and Trademark Collateral, or (ii)
fail to exercise promptly and diligently each and every material right and
perform each material obligation which it may have under each Patent License and
Trademark License with respect to any Trademarks.  Within three (3) days of
receipt thereof, the Grantor will deliver to the Lender a copy of each material
demand, notice or document received by it relating in any way to each Patent
License and Trademark License.
 
(f)           Further Identification of Patent and Trademark Collateral.  The
Grantor shall furnish to the Lender from time to time, upon the request of the
Lender, statements and schedules further identifying and describing the Patent
and Trademark Collateral and such other reports in connection with the Patent
and Trademark Collateral as the Lender may reasonably request, all in reasonable
detail.
 
(g)           Notices.  The Grantor shall advise the Lender promptly, but in no
event later than three (3) days after the occurrence thereof, in reasonable
detail, at its address specified in accordance with Section 15 hereof, (i) of
any Lien on, or claim asserted against, any of the Patent and Trademark
Collateral, other than as created hereby or as permitted hereby, (ii) of any
Event of Default hereunder or any event which, with the giving of notice or the
passage of time, or both, would become an Event of Default hereunder and (iii)
of the occurrence of any other event which could reasonably be expected to have
a material adverse effect on the Liens created hereunder or the rights of the
Lender hereunder.
 
(h)           Patents.

(1)           The Grantor will notify the Lender immediately if it knows, or has
reason to know, that any application relating to any Patent may become abandoned
or of any adverse determination or development (including, without limitation,
the institution of, or any such determination or development in, any proceeding
in the PTO or any court or tribunal in any country) regarding the Grantor’s
ownership of or license rights or other rights with respect to any Patent.
 
(2)           The Grantor will, with respect to any Patent that the Grantor
obtains after the Closing Date or any Patent License that the Grantor acquires
after the Closing Date, promptly, but in no event later than three (3) days
thereafter, (i) take all actions necessary so that the Lender shall obtain a
perfected security interest in such Patent or Patent License and (ii) provide to
the Lender a revised Exhibit A, listing all Patents and all Patent Licenses in
which the Grantor has an interest.
 
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(3)           Upon request of the Lender, the Grantor shall execute and deliver
any and all agreements, instruments, documents, and papers as the Lender may
request to evidence the Lender’s security interest in such Patents or Patent
Licenses, and the Grantor hereby constitutes the Lender its attorney-in-fact to
execute and file all such writings for the foregoing purposes, all acts of such
attorney being hereby ratified and confirmed; such power being coupled with an
interest is irrevocable until the Grantor shall have paid and performed in full
all of its obligations under this Agreement and the other Loan Documents.
 
(4)           The Grantor will take all reasonable and necessary steps,
including, without limitation, in any proceeding before the PTO to maintain and
pursue each Patent including, without limitation, payment of maintenance fees.
 
(5)           In the event that any Patent included in the Patent and Trademark
Collateral is infringed by a third party, the Grantor shall promptly notify the
Lender after the Grantor learns thereof and shall, if appropriate, sue for
infringement, seeking injunctive relief where appropriate and to recover any and
all damages for such infringement, or take such other actions as the Grantor
shall reasonably deem appropriate under the circumstances to protect such
Patent.
 
(6)           The Grantor hereby grants to the Lender and Lender’s employees and
agents the right, upon prior written notice, to visit the Grantor’s plants and
facilities, and the Grantor shall use its best efforts to arrange for the Lender
and its employees and agents to have access to such plants and facilities of
third parties which manufacture or supply goods or services, for or under
contract with the Grantor.
 
(i)           Trademarks.
 
(1)           The Grantor (either itself or through licensees) will, with
respect to each Trademark identified in Exhibit B, as Exhibit B may be amended,
supplemented or otherwise modified from time to time, (i) continue to use or
have used such Trademark to the extent necessary to maintain such Trademark in
full force free from any claim of abandonment for non-use, (ii) maintain as in
the past the quality of products and services offered under such Trademark,
(iii) employ such Trademark with the appropriate notice of registration, (iv)
not adopt or use any mark which is confusingly similar or a colorable imitation
of such Trademark unless the Lender shall obtain a first priority perfected
security interest in the Grantor’s interest in such mark pursuant to this
Agreement, and (v) not (and not permit any licensee or sublicensee thereof to)
do any act or knowingly omit to do any act whereby any such Trademark may become
invalidated.
 
(2)           The Grantor will promptly notify the Lender if any application or
registration relating to any Trademark may become abandoned, canceled or denied,
or of any adverse determination or development (including, without limitation,
the institution of, or any such determination or development in, any proceeding
in the PTO or any court or tribunal in any country) regarding the Grantor’s
ownership interest in such Trademark or its right to register the same or to
keep and maintain the same.
 
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(3)           The Grantor will, with respect to any Trademark that the Grantor
registers after the Closing Date or any Trademark License that the Grantor
acquires after the Closing Date, promptly (i) take all actions necessary so that
the Lender shall obtain a perfected security interest in such Trademark or
Trademark License and (ii) provide to the Lender a revised Exhibit B listing all
registered Trademarks and all Trademark Licenses in which the Grantor has an
interest.
 
(4)           Upon request of the Lender, the Grantor shall execute and deliver
any and all agreements, instruments, documents, and papers as the Lender may
request to evidence the Lender’s security interest in any Trademark and the
goodwill and general intangibles of the Grantor relating thereto or represented
thereby, and the Grantor hereby constitutes the Lender its attorney-in-fact to
execute and file all such writings for the foregoing purposes, all acts of such
attorney being hereby ratified and confirmed; such power being coupled with an
interest is irrevocable until the Grantor shall have paid and performed in full
all of its obligations under the Loan Documents.
 
(5)           The Grantor will take all reasonable and necessary steps,
including, without limitation, in any proceeding before the PTO, to maintain and
pursue each application (and to obtain the relevant registration) and to
maintain the registration of the Trademarks, including, without limitation,
filing of applications for renewal, affidavits of use and affidavits of
incontestability.
 
(6)           In the event that any Trademark included in the Patent and
Trademark Collateral is infringed, misappropriated or diluted by a third party,
the Grantor shall notify the Lender and shall, if appropriate, sue for
infringement, misappropriation or dilution, seeking injunctive relief where
appropriate and to recover any and all damages for such infringement,
misappropriation or dilution, or take such other action as the Grantor
reasonably deems appropriate under the circumstances to protect such Trademark.

(j)           Further Actions.  Without limiting the foregoing provisions of
this Section 4, the Grantor further agrees for itself and its successors and
assigns to execute upon request any other lawful documents and likewise to
perform any other lawful acts which may be necessary or desirable to secure
fully for the Lender, all right, title and interest in and to the Patent and
Trademark Collateral, including, but not limited to, the execution of
substitution, reissue, divisional or continuation patent applications, and
preliminary or other statement of the giving of testimony in any interference or
other proceeding in which the Patent and Trademark Collateral or any
application, Patent or Trademark directed thereto or derived therefrom may be
involved.
 
(k)           License Agreements.  The Grantor shall comply with its obligations
under each of its Patent Licenses and Trademark Licenses.
 
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(l)           Changes in Locations, Name, Etc.   The Grantor will not (i) change
the location of its chief executive office/chief place of business from that
specified in Section 3(e) or (ii) change its name, identity or corporate
structure except as may be permitted under the Loan Agreement and, prior to such
action or event, shall have taken appropriate action satisfactory to the Lender
to preserve and protect the Lender’s collateral assignment and the Security
Interest under this Agreement.
 
(m)           Subsidiaries.  This Agreement is entered into on behalf of and for
the benefit of the Grantor.  The Grantor will not permit any of its Subsidiaries
or Affiliates to have any ownership or other rights in or to exercise any
control over any of the Patent and Trademark Collateral.
 
(n)           Indemnification.  The Grantor shall indemnify, protect, defend and
hold harmless the Lender and its officers, trustees, employees, attorneys,
managers, members, directors, Affiliates, agents, shareholders and
representatives (each, an “Indemnified Person”) from and against any and all
claims, demands, losses, judgments, damages, expenses or liabilities (including
liabilities for penalties) of whatsoever kind or nature, and to reimburse the
Lender for all costs and expenses, including, without limitation, reasonable
attorneys’ fees and expenses, caused by, relating to, arising out of, resulting
from, or in any way connected with this Agreement or the transactions
contemplated herein, including, without limitation, any breach hereof or Event
of Default, or the exercise by the Lender of any right or remedy granted to it
hereunder or under the other Loan Documents or under applicable law.  In no
event shall any Indemnified Person other than the Lender have any liability or
obligation to the Grantor under this Agreement or applicable law (liability
under which the Grantor hereby waives) for any matter or thing in connection
with this Agreement, and in no event shall the Lender be liable, in the absence
of a determination of gross negligence or willful misconduct on its part by
final judgment (not subject to further appeal) of a court of competent
jurisdiction, for any matter or thing in connection with this Agreement other
than to account for moneys actually received by it in accordance with the terms
hereof.  If and to the extent that the obligations of the Grantor under this
Section 4(n) are unenforceable for any reason, the Grantor hereby agrees to make
the maximum contribution to the payment and satisfaction of such obligations
which is permissible under applicable law.
 
5.           Lender’s Powers.
 
(a)           Powers.  The Grantor hereby irrevocably constitutes and appoints
the Lender and any officer or agent thereof with full power of substitution, as
its true and lawful attorney-in-fact with full irrevocable power and authority
in the place and stead of the Grantor and in the name of the Grantor or in its
own name, from time to time in the Lender’s discretion, during any period in
which an Event of Default is continuing, for the purpose of carrying out the
terms of this Agreement, to take any and all appropriate action and to execute
any and all documents and instruments which may be necessary or desirable to
accomplish the purposes of this Agreement. The Grantor hereby ratifies all that
said attorneys shall lawfully do or cause to be done by virtue hereof.  This
power of attorney is a power coupled with an interest and shall be irrevocable
until the Grantor shall have paid and performed in full all of the Obligations.
 
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(b)           Filing and Recordation.  In addition to the filings the Grantor is
required to make as specified in Exhibit C, this Agreement or an instrument
referring hereto may be filed and recorded in such public offices and with such
governmental authorities, including the PTO, as the Lender may determine from
time to time.  The Lender may so file and record this Agreement as a “security
interest”, “collateral assignment”, “assignment” or similar designation as the
Lender may determine (so long as such designation is consistent with the terms
of this Agreement) and the Lender may from time to time rerecord and refile or
take other action to change the designation under which this Agreement is filed
or recorded (so long as such designation is consistent with the terms of this
Agreement).
 
(c)           Other Powers.  The Grantor also authorizes the Lender, at any time
and from time to time, to execute, in connection with the sale provided for
herein, any endorsements, assignments or other instruments of conveyance or
transfer with respect to the Patent and Trademark Collateral.
 
(d)           No Duty on Lender’s Part.  The powers conferred on the Lender
hereunder are solely to protect the Lender’s interests in the Patent and
Trademark Collateral and shall not impose any duty upon the Lender to exercise
any such powers.  The Lender shall be accountable only for amounts that it
actually receives as a result of the exercise of such powers, and neither it nor
any of its officers, directors, partners, managers, employees or agents shall be
responsible to the Grantor for any act or failure to act hereunder, except for
their own gross negligence or willful misconduct.
 
(e)           Grantor Remains Liable under Contracts.  Anything herein to the
contrary notwithstanding, the Grantor shall remain liable under each of the
Contracts that constitute part of the Patent and Trademark Collateral to observe
and perform all the conditions and obligations to be observed and performed by
it thereunder, all in accordance with and pursuant to the terms and provisions
of each such Contract.  The Lender shall not have any obligation or liability
under any Contract that constitutes part of the Patent and Trademark Collateral
by reason of or arising out of this Agreement or the receipt by the Lender of
any payment relating to such Contract pursuant hereto, nor shall the Lender be
obligated in any manner to perform any of the obligations of the Grantor under
or pursuant to any such Contract, to make any payment, to make any inquiry as to
the nature or the sufficiency of any payment received by it or as to the
sufficiency of any performance by any party under any such Contract, to present
or file any claim, to take any action to enforce any performance or to collect
the payment of any amounts which may have been assigned to it or to which it may
be entitled at any time or times.
 
6.           Performance by Lender of Grantor’s Obligations.  If the Grantor
fails to perform or comply with any of its agreements contained herein, the
Lender, following notice to the Grantor to the extent required under the Loan
Documents, may itself perform or comply, or otherwise cause performance or
compliance, with such agreement, and the expenses of the Lender incurred in
connection with such performance or compliance shall be payable by the Grantor
to the Lender on demand and shall constitute Obligations secured hereby in
accordance with the provisions of the Loan Agreement.
 
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7.           Remedies.  If an Event of Default has occurred and is continuing,
the Lender may exercise, in addition to all other rights and remedies granted to
it in this Agreement and in any other instrument or agreement securing,
evidencing or relating to the Obligations, all rights and remedies of a secured
party under the UCC and all other rights and remedies granted to it under the
Loan Agreement.
 
8.           Limitation on Duties Regarding Preservation of Patent and Trademark
Collateral.  The Lender’s sole duty with respect to the custody, safekeeping and
physical preservation of the Patent and Trademark Collateral in its possession,
under the UCC or otherwise, shall be to deal with it in the same manner as the
Lender deals with similar property for its own account.  Neither the Lender nor
any of its Affiliates, directors, managers, members, officers, employees,
representatives or agents shall be liable for failure to demand, collect or
realize upon all or any part of the Patent and Trademark Collateral or for any
delay in doing so or shall be under any obligation to sell or otherwise dispose
of any Patent and Trademark Collateral upon the request of the Grantor or
otherwise.
 
9.           Powers Coupled with an Interest.  All authorizations and agencies
herein contained with respect to the Patent and Trademark Collateral are
irrevocable and powers coupled with an interest until the Grantor has paid and
performed in full all of the Obligations.
 
10.           Severability.  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 provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
 
11.           Paragraph Headings, Captions, Etc.  The paragraph headings, the
captions and the footers, used in this Agreement are for convenience of
reference only and are not to affect the construction hereof or be taken into
consideration in the interpretation hereof.
 
12.           No Waiver; Cumulative Remedies.  The Lender shall not by any act,
delay, indulgence, omission or otherwise be deemed to have waived any right or
remedy hereunder or to have acquiesced in any Event of Default or in any breach
of any of the terms and conditions hereof.  No failure to exercise, nor any
delay in exercising, on the part of the Lender, any right, power or privilege
hereunder shall operate as a waiver thereof.  No single or partial exercise of
any right, power or privilege hereunder shall preclude any other or further
exercise thereof or the exercise of any other right, power or privilege.  A
waiver by the Lender of any right or remedy hereunder on any one occasion shall
not be construed as a bar to any right or remedy which the Lender would
otherwise have on any future occasion.  The rights and remedies herein and in
the other Loan Documents provided are cumulative, may be exercised singly or
concurrently and are not exclusive of any rights or remedies provided by law or
in equity or by statute.
 
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13.           Waivers and Amendments; Successors and Assigns.  None of the terms
or provisions of this Agreement may be waived, amended, supplemented or
otherwise modified except by a written instrument executed by the party to be
charged with enforcement.  This Agreement shall be binding upon the successors
and assigns of the Grantor and shall inure to the benefit of the Lender and its
successors and assigns.  The Grantor may not assign its rights or obligations
under this Agreement without the prior written consent of the Lender, which may
be withheld by the Lender in its sole and absolute discretion.
 
14.           Termination of Security Interest; Release of Patent and Trademark
Collateral.
 
(a)    Upon the indefeasible payment and performance in full by the Grantor of
the Obligations, all right, title and interest of the Lender in and to the
Patent and Trademark Collateral, including the Security Interest, pursuant to
this Agreement shall terminate and all rights to the Patent and Trademark
Collateral shall revert to the Grantor.
 
(b)           Upon any such termination of the Security Interest, the Lender
will, at the expense of the Grantor, execute and deliver to the Grantor such
documents and take such other actions as the Grantor shall reasonably request to
evidence the reassignment of the Patent and Trademark Collateral to the Grantor
and the termination of the Security Interest.  The Lender shall deliver to the
Grantor all Patent and Trademark Collateral so released then in the Lender’s
possession.
 
15.           Notices.
 
All notices, requests and demands to or upon the respective parties hereto shall
be given in writing and either (a) delivered by hand or (b) delivered by
national overnight courier service with next business day delivery, and shall be
deemed to have been duly given or made on the date of delivery if delivered by
hand, and on the next business day if delivered by national overnight courier
service.    All notices, requests and demands are to be given or made to the
respective parties at the following addresses (or to such other addresses as
either party may designate by notice in accordance with the provisions of this
paragraph):

If to Grantor:
Reed’s, Inc.
13000 South Spring Street,
Los Angeles, California 90061
Attn: Christopher Reed, Chief Executive Officer

 
 

 
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If to Lender:
GemCap Lending I, LLC
1401 Ocean Avenue
Suite 305
Santa Monica, California 90401
Attn: David Ellis

 

With a copy to: 
Cohen Tauber Spievack & Wagner P.C.
420 Lexington Avenue, Suite 2400
New York, New York 10170
Attention:  Robert A. Boghosian, Esq.

 
16.           Fees and Expenses.  The Grantor agrees to pay the fees of the
Lender in performing its services under this Agreement and all reasonable
expenses (including but not limited to attorneys’ fees and costs for legal
services, costs of insurance and payments of taxes or other charges) of, or
incidental to, the custody, care, sale or realization on any of the Patent and
Trademark Collateral or in any way relating to the performance of the
obligations or the enforcement or protection of the rights of the Lender
hereunder.
 
17.           Survival.  All representations, warranties, covenants and
agreements of the Grantor and of the Lender contained herein will survive the
execution and delivery hereof and the release of any Patent and Trademark
Collateral pursuant hereto and shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of the Lender or the
Grantor or any person who controls the Lender or the Grantor.
 
18.           Grantor’s Obligations Absolute, Etc. The obligations of the
Grantor under this Agreement shall be absolute and unconditional and shall
remain in full force and effect without regard to, and shall not be released,
suspended, discharged, terminated or otherwise affected by, any circumstance or
occurrence whatsoever, including, without limitation:  (a) any renewal,
extension, amendment or modification of or addition or supplement to or deletion
from any of the other Loan Documents or any other agreement or instrument
referred to therein, or any assignment or transfer of any thereof; (b) any
waiver, consent, extension, indulgence or other action or inaction under or in
respect of any such Loan Document or other agreement or instrument; (c) any
furnishing of any additional security to the Lender or its assignees or any
acceptance thereof or any release of any security by the Lender or its
assignees; (d) any limitation on any party’s liability or obligations under any
such Loan Document or other agreement or instrument or any invalidity or
unenforceability, in whole or in part, of any such Loan Document or other
agreement or instrument or any term thereof; or (e) any bankruptcy, insolvency,
reorganization, composition, adjustment, dissolution, liquidation or other like
proceeding relating to the Grantor, or any action taken with respect to this
Agreement by any trustee or receiver, or by any court, in any such proceeding,
whether or not the Grantor shall have notice or knowledge of any of the
foregoing.
 
19.           Integration.  This Agreement, together with the other agreements
referenced herein, represents the entire agreement of the Grantor and the Lender
with respect to the subject matter hereof, and there are no promises,
undertakings, representations or warranties by the Lender relative to the
subject matter hereof not expressly set forth or referred to herein.
 
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20.           Counterparts; Execution.  This Agreement may be executed in any
number of counterparts and all the counterparts taken together shall be deemed
to constitute one and the same instrument.  This Agreement, once executed by a
party, may be delivered to the other party hereto by electronic transmission of
a copy of this Agreement bearing the signature of the party so delivering this
Agreement.
 
21.           APPLICABLE LAW.  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, THE LAWS
OF WHICH THE GRANTOR HEREBY EXPRESSLY ELECTS TO APPLY TO THIS AGREEMENT, WITHOUT
GIVING EFFECT TO PROVISIONS FOR CHOICE OF LAW THEREUNDER.  THE GRANTOR AGREES
THAT ANY ACTION OR PROCEEDING BROUGHT TO ENFORCE OR ARISING OUT OF THIS
AGREEMENT SHALL BE COMMENCED IN ACCORDANCE WITH THE PROVISIONS OF THIS
AGREEMENT.
 
22.           WAIVER OF JURY TRIAL.  GRANTOR HEREBY WAIVES ANY AND ALL RIGHTS
THAT IT MAY NOW OR HEREAFTER HAVE UNDER THE LAWS OF THE UNITED STATES OF AMERICA
OR ANY STATE TO A TRIAL BY JURY OF ANY AND ALL ISSUES ARISING EITHER DIRECTLY OR
INDIRECTLY IN ANY ACTION OR PROCEEDING BETWEEN GRANTOR AND LENDER OR THEIR
SUCCESSORS AND ASSIGNS, OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT, THE
OTHER LOAN DOCUMENTS, THE OBLIGATIONS AND/OR THE COLLATERAL.  IT IS INTENDED
THAT SAID WAIVER SHALL APPLY TO ANY AND ALL DEFENSES, RIGHTS, AND/OR
COUNTERCLAIMS IN ANY ACTION OR PROCEEDINGS BETWEEN GRANTOR AND LENDER.  GRANTOR
WAIVES ALL RIGHTS TO INTERPOSE ANY CLAIMS, DEDUCTIONS, SETOFFS OR COUNTERCLAIMS
OF ANY KIND, NATURE OR DESCRIPTION IN ANY ACTION OR PROCEEDING INSTITUTED BY
LENDER WITH RESPECT TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, THE
OBLIGATIONS, THE COLLATERAL OR ANY MATTER ARISING THEREFROM OR RELATING THERETO,
EXCEPT COMPULSORY COUNTERCLAIMS.
 
23.           CONSENT TO JURISDICTION.  GRANTOR HEREBY (a) IRREVOCABLY SUBMITS
AND CONSENTS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS
LOCATED IN THE STATE OF CALIFORNIA, LOS ANGELES COUNTY, WITH RESPECT TO ANY
ACTION OR PROCEEDING ARISING OUT OF THIS AGREEMENT, THE OTHER LOAN DOCUMENTS,
THE OBLIGATIONS AND/OR THE COLLATERAL OR ANY MATTER ARISING THEREFROM OR
RELATING THERETO, AND (b) WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
HAVE BASED ON VENUE OR FORUM NON CONVENIENS WITH RESPECT THERETO.  IN ANY SUCH
ACTION OR PROCEEDING, GRANTOR WAIVES PERSONAL SERVICE OF THE SUMMONS AND
COMPLAINT OR OTHER PROCESS AND PAPERS THEREIN AND AGREES THAT THE SERVICE
THEREOF MAY BE MADE BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, DIRECTED TO
GRANTOR AT ITS OFFICES SET FORTH HEREIN OR OTHER ADDRESS THEREOF OF WHICH LENDER
HAS RECEIVED NOTICE AS PROVIDED IN THIS AGREEMENT.    NOTWITHSTANDING THE
FOREGOING, GRANTOR CONSENTS TO THE COMMENCEMENT BY LENDER OF ANY ACTION OR
PROCEEDING IN ANY OTHER JURISDICTION TO ENFORCE ITS RIGHTS IN AND TO THE
COLLATERAL AND GRANTOR WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE
BASED ON VENUE AND/OR FORUM NON CONVENIENS OF ANY SUCH ACTION OR PROCEEDING.
 
 
[SIGNATURE PAGE FOLLOWS]

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24.           Construction.  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.

IN WITNESS WHEREOF, the Grantor and the Lender have caused this Patent and
Trademark Security Agreement to be duly executed and delivered by their
respective officers or other representatives thereunto duly authorized as of the
date first above written.
 

 
REED’S, INC.

By: _________________________
Name:
Title:
         
GEMCAP LENDING I, LLC
 
 
By: _________________________
Name:
Title:

 

 

[SIGNATURE PAGE – PATENT AND TRADEMARK SECURITY AGREEMENT]
 
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STATE OF                )ss.
COUNTY OF            )

On _______________, 2009, before me, ______________________, a Notary Public,
personally appeared  _____________________________, who proved to me on the
basis of satisfactory evidence to be the person ( s ) whose name ( s ) is / are
subscribed to the within instrument and acknowledged to me that he / she / they
executed the same in his / her / their authorized capacity ( ies ) on behalf of
Reed’s, Inc., as Grantor, and that by his / her / their signature ( s ) on the
instrument, Reed’s, Inc. executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of ___________
that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.

____________________________________________
                                                                , Notary Public
My Commission Expires ___________________

 
STATE OF                )ss.
COUNTY OF            )

On _______________, 2009, before me, ________________________, a Notary Public,
personally appeared  ___________________________, who proved to me on the basis
of satisfactory evidence to be the person whose name is subscribed to the within
instrument and acknowledged to me that he executed the same in his authorized
capacity on behalf of GemCap Lending I, LLC, as Lender, and that by his
signature on the instrument, GemCap Lending I, LLC executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the state of California
that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.

____________________________________________
                                                                , Notary Public
My Commission Expires ___________________
 
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EXHIBIT A
 
Patents, Patent Licenses and Patent Applications

None

 
ISSUED PATENTS
None

 
PATENT  LICENSES

None

 
PATENT APPLICATIONS
 
None

 
 
 
 
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EXHIBIT B

Trademarks and Trademark Licenses
TRADEMARKS

Serial App. No.
Item
Status
Filing Date
Date Published,  Allowed, or Registered
       
 
 
78014426
Reed’s
[                    ]
[                    ]
[                          ]
 
78867175
Virgil’s
Live
April 21, 2006
February 27, 2007
 
 
Sonoma Sparkler
Abandoned
 
 
 
73720012
China Cola
Live
January 9, 2009
Not yet registered
 
       
 
 

TRADEMARK LICENSES

Trademark License
Parties
Date
 
None.
 
 
 
   
 
 
   
 
 
   
 
 

 
 
 
 
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EXHIBIT C
 
Filings Required for Collateral Assignment
and to Perfect Security Interest
 

1. 
Filing of Trademark Collateral Assignment and Security Agreement with the United
States Patent and Trademark Office

2. 
Filing of Patent Collateral Assignment and Security Agreement with the United
States Patent and Trademark Office, as applicable

3. 
Filing of notice of security interest with the State of Delaware.

 
 
 
 
 
 
 
 
 
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EXHIBIT D

FORM OF PATENT COLLATERAL ASSIGNMENT
AND SECURITY AGREEMENT

This PATENT SECURITY AGREEMENT, dated as of November __, 2009, (this
“Agreement”), made by REED’S, INC., a Delaware corporation with its principal
place of business located at 13000 South Spring Street, Los Angeles, California
90061  (“Grantor”), in favor of GEMCAP LENDING I, LLC, a Delaware limited
liability company with offices at 1401 Ocean Avenue, Suite 305, Santa Monica, CA
90401 (“Lender”).
 
Capitalized terms not otherwise defined herein have the meaning set forth in the
Patent and Trademark Security Agreement, of even date herewith, between Grantor
and Lender (the “Patent and Trademark Security Agreement”).
 
W I T N E S S E T H:

WHEREAS, the Grantor has acquired certain right, title and interest in certain
United States patents and patent applications identified in Exhibit 1 hereto
(the “Patents”);

WHEREAS, the Grantor and the Lender are parties to that certain Loan and
Security Agreement, dated as of November _, 2009 (as from time to time amended
or supplemented, the “Loan Agreement”);
 
WHEREAS, it is a condition precedent to the Lender’s entry into the Loan
Agreement that the Grantor shall have executed and delivered the Patent and
Trademark Security Agreement to the Lender;
 
WHEREAS, the Grantor wishes to grant to the Lender a security interest in
certain of its property and assets to secure the performance of its obligations
under the Loan Agreement and the other Loan Documents; and
 
WHEREAS, the Grantor and Lender by this instrument seek to confirm and make a
record of the collateral assignment of and grant of a security interest in the
Patents;
 
NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the Grantor does hereby acknowledge and confirm
that it has made a collateral assignment to the Lender of, and has granted to
the Lender a security interest in, all of the Grantor’s right, title and
interest in, to, and under the Patents.  The Grantor also acknowledges and
confirms that the rights and remedies of the Lender with respect to the
collateral assignment of and security interests in the Patents acknowledged and
confirmed hereby are more fully set forth in the Patent and Trademark Security
Agreement and the Loan Documents, the terms and provisions of which are
incorporated herein by reference.
 
 
[SIGNATURE PAGE FOLLOWS]
 
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REED’S, INC.

By: _________________________
Name:
Title:
         
GEMCAP LENDING I, LLC
 
 
By: _________________________
Name:
Title:

 
 

[SIGNATURE PAGE - PATENT COLLATERAL ASSIGNMENTAND SECURITY AGREEMENT]
 
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STATE OF                )ss.
COUNTY OF            )

On _____________, 2009, before me, ______________________, a Notary Public,
personally appeared  _________________________________, who proved to me on the
basis of satisfactory evidence to be the person whose name is subscribed to the
within instrument and acknowledged to me that he executed the same in his
authorized capacity on behalf of Reed’s, Inc., as Grantor, and that by his
signature on the instrument, Reed’s, Inc. executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of ___________
that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.

____________________________________________
                                                                , Notary Public
My Commission Expires ___________________

STATE OF               )ss.
COUNTY OF           )

On ______________, 2009, before me, _________________________, a Notary Public,
personally appeared  ______________________________, who proved to me on the
basis of satisfactory evidence to be the person whose name is subscribed to the
within instrument and acknowledged to me that he executed the same in his
authorized capacity on behalf of GemCap Lending I, LLC, as Lender, and that by
his signature on the instrument, GemCap Lending I, LLC executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of California
that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.

____________________________________________
                                                                , Notary Public
My Commission Expires ___________________

 
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EXHIBIT 1

Patents and Patent Applications
 
 
 
 
 
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EXHIBIT E
 
FORM OF TRADEMARK COLLATERAL ASSIGNMENT
AND SECURITY AGREEMENT

This TRADEMARK SECURITY AGREEMENT, dated as of November 13, 2009, made
by REED’S, INC., a Delaware corporation, with its principal place of business
located at 13000 South Spring Street, Los Angeles, California
90061  (“Grantor”), in favor of GEMCAP LENDING I, LLC, a Delaware limited
liability company with offices at 1401 Ocean Avenue, Suite 305, Santa Monica, CA
90401 (“Lender”).
 
Capitalized terms not otherwise defined herein have the meaning set forth in the
Patent and Trademark Security Agreement, of even date herewith, between Grantor
and Lender (the “Patent and Trademark Security Agreement”).

W I T N E S S E T H:

WHEREAS, the Grantor has acquired an interest in certain trademarks identified
in Exhibit 1 hereto (the “Trademarks”);

WHEREAS, the Grantor and the Lender are parties to that certain Loan and
Security Agreement, dated as of November 13, 2009 (as from time to time amended
or supplemented, the “Loan Agreement”);
 
WHEREAS, it is a condition precedent to the Lender’s entry into the Loan
Agreement that the Grantor shall have executed and deliver the Patent and
Trademark Security Agreement to the Lender;
 
WHEREAS, the Grantor wishes to grant to Lender a security interest in certain of
its property and assets to secure the performance of its obligations under the
Loan Agreement and the other Loan Documents;
 
WHEREAS, the Grantor and the Lender by this instrument seek to confirm and make
a record of the collateral assignment of and grant of a security interest in the
Trademarks.
 
NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the Grantor does hereby acknowledge and confirm
that it has made a collateral assignment to the Lender of, and has granted to
the Lender a security interest in, all of the Grantor’s right, title and
interest in, to, and under the Trademarks.  The Grantor also acknowledges and
confirms that the rights and remedies of Lender with respect to the collateral
assignment of and security interests in the Trademarks acknowledged and
confirmed hereby are more fully set forth in the Patent and Trademark Security
Agreement and the Loan Documents, the terms and provisions of which are
incorporated herein by reference.

 
[SIGNATURE PAGE FOLLOWS]
 
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REED’S, INC.

By: _________________________
Name:
Title:
         
GEMCAP LENDING I, LLC
 
 
By: _________________________
Name:
Title:

 

 

 
[SIGNATURE PAGE - TRADEMARK COLLATERAL ASSIGNMENTAND SECURITY AGREEMENT]
 
 
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STATE OF                )ss.
COUNTY OF            )

On _______________, 2009, before me, ________________________, a Notary Public,
personally appeared  ____________________________, who proved to me on the basis
of satisfactory evidence to be the person whose name is subscribed to the within
instrument and acknowledged to me that he executed the same in his authorized
capacity on behalf of Reed’s, Inc., as Grantor, and that by his signature on the
instrument, Reed’s, Inc. executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of ___________
that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.

____________________________________________
                                                                , Notary Public
My Commission Expires ___________________

STATE OF                )ss.
COUNTY OF            )

On ________________, 2009, before me, __________________________, a Notary
Public, personally appeared  _________________________, who proved to me on the
basis of satisfactory evidence to be the person whose name is subscribed to the
within instrument and acknowledged to me that he executed the same in his
authorized capacity on behalf of GemCap Lending I, LLC, as Lender, and that by
his signature on the instrument, GemCap Lending I, LLC executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of California
that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.

____________________________________________
                                                                , Notary Public
My Commission Expires ___________________
 
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EXHIBIT 1

Trademarks

Serial App. No.
Item
 
 
 
 
78014426
Reed’s
 
78867175
Virgil’s
 
 
Sonoma Sparkler
 
73720012
China Cola
 

 
 
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Exhibit 1.67
to
Loan and Security Agreement

Permitted Encumbrances

Landlord’s interest in the following equipment (and in similar equipment used
for the brewing of beverages hereafter acquired by Borrower and located at 12930
South Spring Street, Los Angeles, California  90061, or 13000 South Spring
Street, Los Angeles, California 90061):

Machinery & Equipment
Ursell Dicer Cutter &Slicer
Cooling Tower
Air Compressor
Keg Machine
Floor Grinder
Forklift Overhaul
20 Ton Glycol Chiller Refrigerator system
Storage containers (4)x 40 foot
5,000# lift truck
Air Compressor
 
Brewery  Equipment
Bottling Line from Palm Springs Brewing
included 1997 GAI Rinser/Filler/Crowner, Kosme labeler and conveyers and two
jacked 50 BBl pressure vessels
Case Packer
Conveyer
Fristam Sanitary pump
Electrical panel
pasteurizer from AGAR Tank & Equipment
Cirque Brewery
includes 600 sq ft cold box 3 kettle 30 BBl brewhouse 6x 60 BBl pressure vessels
misc pumps etc
tank insulation upgrade
IDD flash pasteurizer
Filter Culligan Carbon bed
5 gallon kegs x 500
Marq case erector
Pearson 6 pak erector
Pearson stuffer
Conveyor for marq and pearson
 
Boiler Equipment
Smith Boiler from SAI, Inc
Boiler System add-ons
 
Other Equipment
Equipment described as collateral in the UCC Financing Statements filed by
Landlord on November 12, 2009, with initial filing numbers 2009 3643183, 2009
3643191, 2009 3643209, and 2009 3643217.
   

 
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Exhibit 1.87
to
Loan and Security Agreement

Form of Validity Agreement

VALIDITY GUARANTY
 
This Validity Guaranty, dated as of November 12,2009 ("Guaranty"), is by
Christopher Reed ("Guarantor") in favor of GemCap Lending I, LLC, a Delaware
limited liability company ("Lender").

RECITALS

 
A.           Capitalized terms not otherwise defined herein have the meaning set
forth in that certain Loan and Security Agreement, of even date herewith (the
"Loan Agreement"), by and among Lender and Reed's, Inc., a Delaware corporation
("Borrower"). "Guarantor Obligations" means Guarantor's guarantee of the full
and prompt payment, satisfaction and performance of the Obligations in
accordance with the terms and subject to the limitations set forth herein.
 
B.           Guarantor desires that Lender establish a revolving loan credit
facility for Borrower in the principal amount of up to Three Million Dollars
($3,000,000) pursuant to the Loan agreement (such facility, as may be modified
or replaced from time to time, the "Facility").
 
C.           Lender has conditioned its willingness to establish the Facility
upon the fulfillment of certain conditions, among them that Guarantor enters
into this Guaranty.
 
D.           Guarantor acknowledges and agrees that Guarantor will derive a
substantial and direct benefit and advantage from the Facility and other
agreements and financial accommodations of Lender to Borrower under the Loan
Documents.
 
Accordingly, in consideration of the foregoing and the mutual covenants and
agreements hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by Guarantor, the
parties hereby agree as follows:
 
Section 1. Guaranty. Subject to Section 2. Guarantor hereby absolutely,
unconditionally and irrevocably guarantees to Lender the full and prompt
payment, satisfaction and performance of any and all Obligations as and when
due, whether at stated maturity, by acceleration or otherwise, and including any
and all interest, fees, expenses, damages, and penalties that may be paid or
incurred by Lender in the collection of all or any portion of the Obligations or
the exercise or enforcement of any one or more of the other rights, powers,
privileges, remedies and interests of Lender relating thereto, irrespective of
the manner or success of any such collection, exercise or enforcement.
 
Section 2. Limitation. Notwithstanding any other provision of this Guaranty to
the contrary, Lender shall not enforce this Guaranty except to the extent of any
loss, damage, cost, expense, liability, claim or other obligation incurred by
Lender (including attorneys' fees and costs reasonably incurred) arising out of
or in connection with one or more of the following (each of the following
clauses (a) through (e) being independent and Lender may enforce this Guaranty
separately under any or all of them):
 
(a)  any fraud or misrepresentation by Borrower or Guarantor in connection with
the Loan Documents or the transactions contemplated thereby;
 
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(b)      the gross negligence or willful misconduct of Borrower or Guarantor;
 
(c)  the removal or disposal of any portion of the Collateral after an Event of
Default;
 
(d)  any tortious interference by Guarantor with the Loan Documents or the
transactions contemplated thereby; or
 
(e)  any misappropriation of any Loan proceeds by Borrower or Guarantor, or any
other negligent or intentional misconduct by Borrower or Guarantor that impairs
the Collateral.
 
Section 3. Continuing Guaranty. Guarantor covenants and agrees that: (a) this is
a continuing guarantee of payment, satisfaction and performance, and not
collectibility only, whether the Obligations are now or hereafter existing,
acquired or created, and irrespective of the fact that, from time to time,
monies may be advanced, repaid and readvanced, and the outstanding balance of
the Facility may be zero; (b) mis Guaranty may not be revoked or terminated
until such time as the Obligations and Guarantor Obligations shall have been
fully paid and satisfied and Lender acknowledges the same in writing to
Guarantor; (c) the Obligations shall not be deemed to have been otherwise fully
paid and satisfied so long as any Loan Document (other than this Guaranty) shall
have any continuing force or effect; and (d) the Obligations will be paid and
satisfied in full in accordance with the terms and provisions of the Loan
Documents without regard to any applicable law now or hereafter in effect in any
jurisdiction, or the legality, validity, binding effect or enforceability of any
term of any Loan Document, including, without limitation, any applicable law
that might in any manner affect any of those terms and provisions, or any of the
rights, powers, privileges, remedies and interests of Lender with respect
thereto, or that might cause or permit to be invoked any alteration in the time,
amount, or manner of payment of any of the Obligations by Borrower or any other
person or entity (other than Lender).
 
Section 4. Agreement Absolute. Survival of Representations. Etc. Each of the
representations, warranties, covenants and other obligations and agreements
contained in this Guaranty and the Loan Documents: (a) shall be absolute and
unconditional, irrespective of the legality, validity, binding effect or
enforceability of any Obligations or Guarantor Obligations or of any Loan
Document; (b) shall survive the execution and delivery of this Guaranty and the
Loan Documents, and any and all advances, repayments and readvances thereunder,
and shall remain and continue in full force and effect until Lender's lending
commitment (if any) under the Facility has terminated and all Obligations and
Guarantor Obligations have been fully paid and/or satisfied, without regard (i)
to any waiver, modification, extension, renewal, consolidation, division,
amendment or restatement of any term or provision of any Loan Document, (ii) to
any full, partial, delayed, discontinued or non-exercise of any of Lender's
rights, powers, privileges, remedies and interests under any Loan Document or
applicable law, against any person or entity, which exercise or enforcement may
be delayed, discontinued or otherwise not pursued or exhausted for any or no
reason whatsoever, or which may be waived, omitted or otherwise not exercised or
enforced (whether intentionally or otherwise), (iii) to any surrender,
repossession, sequestration, foreclosure, conveyance or assignment (by deed in
lieu of foreclosure, or otherwise), sale, lease or other realization, dealing or
disposition respecting any Collateral, (iv) to any release, subordination or
impairment of all or any part of any Obligations or Collateral, or any security
interest therein (whether intentionally or otherwise), (v) to any extension,
stay, moratorium or statute of limitations or similar time constraint under any
applicable law, (vi) to any investigation, analysis or evaluation by Lender or
its designees or representatives of the assets, business, operations, properties
or condition (financial or otherwise) of Borrower or Guarantor (vii) to any act
or omission on the part of Lender, Borrower, or any other person or entity,
(viii) to any inducement to Guarantor to enter into this Guaranty, or (ix) to
any other event that otherwise might constitute a legal or equitable
counterclaim, defense or discharge of Borrower or Guarantor; (c) shall not be
subject to any defense, counterclaim, setoff, right of recoupment, abatement,
reduction or other claim or determination that Guarantor may have against
Lender, Borrower, or any other person or entity; and (d) shall not be diminished
or qualified by the death, disability, dissolution, reorganization, insolvency,
bankruptcy, custodianship or receivership of Guarantor, Borrower, or any other
person or entity, or the inability of any of them to pay debts or perform or
otherwise satisfy obligations as they become due for any reason whatsoever.
 
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Section 5. Guaranty Not Affected. Without limiting the generality of the
foregoing sections or any other term or provision of this Guaranty, Guarantor
covenants, agrees and consents that, at any time, and from time to time, in
accordance with the Loan Documents: (a) loans may be advanced, repaid and
readvanced from time to time, or the amount of loans, the rate of interest
thereon, any other Obligation or the credit availability under the Facility or
any Loan Document may be increased or otherwise changed; (b) the time, manner,
place and other terms and provisions of payment or performance of any one or
more of the Obligations may be amended, extended or otherwise changed; (c) any
partial or late payment, or any payment during the continuance of any default,
under any Loan Document may be accepted in whole or in part or rejected; (d) any
Collateral may be surrendered, repossessed, sequestered, judicially or
nonjudicially foreclosed, conveyed or assigned (by deed in lieu of foreclosure
or otherwise), sold, leased or otherwise realized upon, dealt with or disposed
of, in whole or in part, whether to Lender, its designees or representatives or
otherwise; (e) any mortgage or other security interest in any such Collateral
may be held without recordation or other filing or notice or perfection (whether
intentionally or otherwise), may be recorded or otherwise perfected, or may be
assigned, released, subordinated or otherwise impaired, dealt with or disposed
of in whole or in part; (f) any one or more payments, distributions and proceeds
received from or in respect of Borrower, Guarantor or any other person or
entity, or any Collateral may be applied in the sole and absolute discretion of
Lender to the Obligations or to any other indebtedness or obligations (including
interest), the payment to or reimbursement of Lender for any fees and expenses
for which it is entitled to be paid or reimbursed pursuant to any of the
provisions of this Guaranty or the other Loan Documents, or the establishment
and maintenance of any Collateral (all payments made by Guarantor, Borrower, or
any other person or entity shall be made free and clear of, and without any
reduction for, any and all present or future taxes, levies, imposts, deductions,
charges or withholdings, and any and all liabilities with respect thereto); (g)
the liability of Borrower, Guarantor or any other person or entity to pay any
and all of the Obligations may be settled, compromised, adjusted, forgiven,
released or affected by any other accommodation, in whole or in part, and
payment of any and all of the Obligations may be subordinated to the prior
payment of any other debts or claims of any other person; (h) any
representation, warranty, covenant or other term or provision of any Loan
Document, in whole or in part, may be the subject of one or more waivers of
applicability or consents to nonperformance, noncompliance or nonobservance,
whether or not constituting defaults, or may be otherwise not exercised or
enforced (whether intentionally or otherwise); (i) any Loan Document, or any
term or provision thereof, in whole or in part, may be amended, extended,
renewed or otherwise changed in any respect by the respective parties thereto in
the manner provided therein; (j) any one or more of this Guaranty or the other
Loan Documents, or any one or more of the rights, powers, privileges, remedies
and interests of Lender herein or therein, may be sold, conveyed, assigned or
otherwise transferred in whole or part (including participations or other
undivided interests) to any other person or entity; (k) any other right, power,
privilege, remedy or interest of Lender under this Guaranty, any other Loan
Document or applicable law may be exercised or enforced by Lender or its
designees or representatives, which exercise or enforcement may be delayed,
discontinued or otherwise not pursued or exhausted for any or no reason
whatsoever, or any such right, power, privilege, remedy or interest may be
waived, omitted or otherwise not exercised or enforced (whether intentionally or
otherwise); all in such manner and order, upon such terms and provisions and
subject to such conditions as Lender may, subject to the terms of the Loan
Documents, deem necessary or desirable in its sole and absolute discretion, all
without notice to or consent from Guarantor; or (1) the death, incapacity,
imprisonment or indictment and/or conviction of any criminal offense of
Guarantor; and all of the above clauses (a^ through (1) without affecting this
Guaranty or any other Loan Document or any of the Guarantor Obligations, which
obligations shall continue in full force and effect until such time as all
Obligations and all Guarantor Obligations have been fully paid and satisfied.
 
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Section 6. Certain Representations and Warranties. Guarantor represents and
warrants to Lender as to each of the matters set forth below: (a) Guarantor is
an individual residing at the address set forth herein; (b) Guarantor has the
full legal capacity and unconditional right to execute and deliver this Guaranty
and each of the other Loan Documents to which Guarantor is or will be a party,
and to perform all of Guarantor's obligations hereunder and thereunder; (c) the
execution and delivery by Guarantor of this Guaranty and each of the other Loan
Documents to which Guarantor is or will be a party, and the performance by
Guarantor of all of Guarantor's obligations hereunder and thereunder will not
violate or be in conflict with any term or provision of (i) any law, rule
statute, ordinance, regulation, code, (including, without limitation, any
applicable usury or similar law), (ii) any judgments, orders, writs, injunction,
or decrees or (ii) any mortgages, indentures, leases, licenses, agreements,
understandings, instruments, contracts, proposed transactions or other
obligation of Guarantor or to which Guarantor is a party or by which Guarantor,
or any material part of Guarantor's assets and properties, may be bound or
subject, and will not result in the creation or imposition of any Lien upon any
of Guarantor's assets or properties; (d) Guarantor shall not take any action or
inaction that may impair any material part of Guarantor's assets and properties;
(e) no licenses, permits, franchises, approvals, consents, waivers, notices,
authorizations, qualifications, concessions, or the like, or registration,
declaration or filing are required (1) in connection with the due and valid
execution, delivery and performance by Guarantor of this Guaranty or any other
Loan Document to which Guarantor is or will be a party, or (2) to effect the
legality, validity, binding effect or enforceability of this Guaranty or any of
the Loan Documents; (f) this Guaranty is, and the other Loan Documents to which
Guarantor is or will be a party, when executed and delivered, will be, legal,
valid and binding obligations of Guarantor, enforceable against Guarantor in
accordance with their respective terms and provisions; and (g) Guarantor is
solvent (i.e., the aggregate fair value of Guarantor's assets exceeds the sum of
Guarantor's actual and contingent liabilities) and, both before and after taking
into account the Guarantor Obligations, Guarantor has adequate capital and is
able to pay his debts as they mature.
 
Section 7. Certain Covenants of the Guarantor. Guarantor covenants and agrees
that, from the date hereof and until the Obligations and Guarantor Obligations
have each been fully paid and satisfied, Guarantor shall give, or cause to be
given, immediate written notice to Lender of (i) any change in the domicile of
Guarantor, (ii) the institution or threat of, or any adverse change in, any
action, suit, investigation or proceeding at law, in equity, in arbitration or
otherwise, involving or affecting Guarantor or any Guarantor Obligation, or
(iii) any change in location or material loss in the assets, properties and/or
liabilities of Guarantor or a material decline in the value or the validity
thereof.
 
Section 8. Certain Acknowledgments and Waivers of Guarantor. Guarantor
acknowledges and agrees that the rights, powers, privileges, remedies and
interests granted to or conferred upon Lender by this Guaranty, the other Loan
Documents and applicable law are purely discretionary and shall not, and shall
not be deemed or construed to, impose upon Lender any duty or other obligation,
including, without limitation, any obligation (a) to sell, foreclose or
otherwise realize upon any Collateral, (b) to protect or preserve any
Collateral, (c) to perform or satisfy any obligation under or respecting any
Collateral or Guarantor, (d) to mitigate or otherwise reduce any expense, fees,
penalties, damage or other loss, or (e) to otherwise exercise or enforce any
such right, power, privilege, remedy or interest. Any sale, foreclosure or other
realization upon any Collateral, or any other exercise or enforcement of any
such right, power, privilege, remedy or interest, if undertaken by Lender in its
discretion, may be delayed, discontinued or otherwise not pursued or exhausted
for any reason whatsoever (whether intentionally or otherwise). Without limiting
the generality of the foregoing, to the extent waiver is not limited under
applicable law, Guarantor hereby expressly waives each and every claim or
defense, and agrees that Guarantor will not assert or pursue (by action, suit,
counterclaim or otherwise) any claim or defense, respecting (i) any settlement
or compromise with any obligor or other third party under any account
receivable, note, instrument, agreement, document or general intangible included
in the Collateral, irrespective of any reduction in the potential proceeds
therefrom, (ii) the selection or order of disposition of any Collateral (which
may be at random or in any order Lender may select in its sole and absolute
discretion, and may be without regard to any holding period or tax basis that
any person or entity may have therein or any tax or other consequences arising
from such disposition), (iii) the private sale of any Collateral, whether or not
any public market exists, (iv) the choice or timing of any sale date as to any
Collateral (which Lender may select in its sole and absolute discretion),
irrespective of whether greater sale proceeds would be realizable on a different
sale date, (v) the adequacy of the sale price of any Collateral, (vi) any
insufficiency of any such proceeds to fully satisfy the Obligations and
Guarantor Obligations, (vii) any sale of any Collateral to the first person or
entity to receive an offer or make a bid, (viii) the selection of any purchaser
of any Collateral, or (ix) any default by any purchaser of any Collateral.
Guarantor hereby expressly waives the applicability of any and all applicable
laws that are or may be in conflict with the terms and provisions of this
Guaranty or the other Loan Documents now or at any time in the future to the
extent waiver is not limited under applicable law, including (without
limitation) those pertaining to notice (other than notices required by this
Guaranty or any other Loan Document), protest, appraisal, valuation, stay,
extension, moratorium, marshaling of assets, exemption and equity of redemption.
Neither Lender nor any of its designees or representatives shall incur any
liability in connection with any sale of or other action taken respecting any
Collateral in accordance with the provisions of this Guaranty or any other Loan
Document or applicable law.
 
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Section 9. Waivers of Notice. Etc. Guarantor hereby expressly waives: (a) notice
of acceptance of this Guaranty; (b) notice of any action taken or omitted in
reliance hereon; (c) presentment; (d) demand for payment; (e) protest or notice
of protest; (f) notice of any nonpayment or the occurrence or continuance of any
other default, or any other event that (with the giving of notice or the passage
of time or both) could constitute a default, under any Loan Document; (g) notice
of any material or adverse effect, whether individually or in the aggregate,
upon the assets, business, operations, properties or condition (financial or
otherwise) of Borrower, Guarantor or any other person or entity, or upon any
part of any Collateral; (h) any statute of limitations or similar time
constraint under any applicable law, whether with respect to the Obligations or
Guarantor Obligations or otherwise; or (i) any other proof, notice or demand of
any kind whatsoever or the making or promptness in making any claim or demand
under this Guaranty or any other Loan Document. No act or omission of any kind
in connection with any of the foregoing shall in any way impair or otherwise
affect the legality, validity, binding effect or enforceability of any term or
provision of this Guaranty or any of the Guarantor Obligations.
 
Section 10. Bankruptcy: Reinstatement. In the event Lender is not permitted or
is otherwise unable (because of the pendency of any bankruptcy, insolvency,
receivership or other proceeding) to demand or accelerate the Obligations, but
otherwise would have been permitted to do so at such time pursuant to any Loan
Document, Lender may demand payment in full, and may exercise and enforce any
and all of its other rights, powers, privileges, remedies and interests under
this Guaranty or the other Loan Documents to which Guarantor is a party or by
which Guarantor may be bound or subject, in each case as if the Obligations had
been duly demanded or accelerated, and Guarantor will not raise, and hereby
expressly waives and releases, any claim or defense with respect to such deemed
demand or acceleration. In the event any payment of or any application of any
amount, asset or property to any of the Obligations or Guarantor Obligations, or
any part thereof, at any time is rescinded or must otherwise be restored or
returned by Lender upon the insolvency, bankruptcy or reorganization of
Borrower, Guarantor, or any other person or entity, whether by order of any
court, by any settlement approved by any court, or otherwise, then the terms and
provisions of this Guaranty and the other Loan Documents shall continue to
apply, or shall be reinstated if not then in effect, as the case may be, with
respect to the Obligations or Guarantor Obligations so rescinded, restored or
returned, all as though such payment or application had never been made.
 
Section 11. Enforcement. Lender, in its sole discretion, may proceed to exercise
or enforce any right, power, privilege, remedy or interest that Lender may have
under this Guaranty, any other Loan Document or applicable law at law, in
equity, in rem or in any other forum available under applicable law, severally
and cumulatively. Lender may institute one or more proceedings (which may be
separate proceedings) with respect to this Guaranty and each of the other Loan
Documents in such order and at such times as Lender may elect in its sole and
absolute discretion. This Guaranty and the other Loan Documents may be enforced
without possession of any underlying promissory note, security agreement or
pledge, or its production in any action, suit or proceeding, and without the
presence or participation of Borrower or Guarantor, whether through lack of
jurisdiction, venue or service or otherwise; and Guarantor will not raise, and
each hereby waives, any objection or defense respecting the need for any such
production, presence or participation.
 
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Section 12. Exculpation. Lender and its participants, affiliates, custodians and
designees, representatives, and its officers, employees, attorneys and agents,
shall not incur any liability for any acts or omissions (and Guarantor hereby
expressly waives any and all related claims and actions against each such person
or entity) arising out of or related directly or indirectly to this Guaranty,
except to the extent occasioned by the respective person's or entity's gross
negligence or willful misconduct as finally determined pursuant to applicable
law by a governmental authority or court having jurisdiction.
 
Section 13. Subrogation. No payment by Guarantor shall entitle Guarantor, by
subrogation to the rights of Lender, rights of reimbursement, restitution or
contribution from Borrower, or otherwise, to any payment by Borrower (or out of
any assets of Borrower), except after the final and irrevocable payment (in
cash) and satisfaction of any and all Obligations and Guarantor Obligations.
 
Section 14. Expenses. Etc. Guarantor shall pay or reimburse, on demand, any and
all costs and expenses incurred by Lender, whether directly or indirectly, in
connection with the enforcement and adjudication of this Guaranty and any other
Loan Documents, including (without limitation) the disbursements, expenses and
reasonable fees of counsel.
 
Section 15. Further Assurances. Guarantor agrees to do such further acts and
things and to execute and deliver such statements, assignments, agreements,
instruments and other documents as Lender from time to time may request in
connection with this Guaranty and in order to (a) evidence, confirm, perfect and
protect any lien granted by Guarantor, (b) give Lender or its designees or
representatives confirmation and further assurance of its rights, powers,
privileges, remedies and interests under this Guaranty, the other Loan Documents
and applicable law, (c) better enable Lender or its designees or representatives
to exercise any such right, power, privilege, remedy or interest, and (d)
otherwise effectuate the purpose and the terms and provisions of this Guaranty
or the other Loan Documents, each in such form and substance as may be
acceptable to Lender.
 
Section 16. Relationship of Guarantor and Lender. Etc. Guarantor represents,
warrants, acknowledges and agrees that: (a) Lender is acting solely in the
capacity of Lender with respect to this Guaranty, the other Loan Documents and
the Collateral; (b) Guarantor's sole relationship with Lender is that of debtor
and creditor, respectively, and no term or provision of this Guaranty or any
other Loan Document is intended to create, nor shall any such term or provision
be deemed or construed to have created, any joint venture, partnership, trust,
agency or other fiduciary or advisory relationship with Guarantor; and (c)
Guarantor has independently and fully reviewed and evaluated this Guaranty, the
other Loan Documents, and the transactions contemplated hereunder and thereunder
and the potential effects of such transactions on the assets, business,
operations, properties and condition (financial or otherwise) of Guarantor and
Borrowers (if any), which review and evaluation was made (i) together with
counsel and (to the extent deemed prudent by Guarantor) financial and other
advisors to Guarantor, and (ii) without any reliance upon any oral or written
advice, analysis or assurance of any kind whatsoever from Lender.
 
Section 17. Notices. All notices, requests and demands to or upon the respective
parties hereto shall be given in writing and shall be deemed to have been duly
given or made upon receipt by the receiving party. All notices, requests and
demands are to be given or made to the respective parties at the following
addresses (or to such other addresses as either party may designate by notice in
accordance with the provisions of this Paragraph):
 
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If to Guarantor:
 
Christopher Reed
7706 Dunbarton Ave
Los Angeles, CA 90045
 
If to Lender:
 
GemCap Lending I, LLC
1401 Ocean Avenue, Suite 305
Santa Monica, California 90401
Attn: David Ellis
 
With a copy to:
 
Cohen Tauber Spievack & Wagner P.C.
420 Lexington Avenue, Suite 2400
New York, New York 10170
Attention: Robert A. Boghosian, Esq.
 
Section 18. APPLICABLE LAW. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, THE LAWS OF
WHICH GUARANTOR HEREBY EXPRESSLY ELECTS TO APPLY TO THIS GUARANTY, WITHOUT
GIVING EFFECT TO PROVISIONS FOR CHOICE OF LAW THEREUNDER. GUARANTOR AGREES THAT
ANY ACTION OR PROCEEDING BROUGHT TO ENFORCE OR ARISING OUT OF THIS GUARANTY
SHALL BE COMMENCED IN ACCORDANCE WITH THE PROVISIONS OF THIS GUARANTY.
 
Section 19. WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED UNDER APPLICABLE LAW,
GUARANTOR HEREBY WAIVES ANY AND ALL RIGHTS THAT IT MAY NOW OR HEREAFTER HAVE
UNDER THE LAWS OF THE UNITED STATES OF AMERICA OR ANY STATE TO A TRIAL BY JURY
OF ANY AND ALL ISSUES ARISING EITHER DIRECTLY OR INDIRECTLY IN ANY ACTION OR
PROCEEDING BETWEEN GUARANTOR AND LENDER OR THEIR SUCCESSORS AND ASSIGNS, OUT OF
OR IN ANY WAY CONNECTED WITH THIS GUARANTY, THE OTHER LOAN DOCUMENTS, THE
OBLIGATIONS AND/OR THE COLLATERAL. IT IS INTENDED THAT SAID WAIVER SHALL APPLY
TO ANY AND ALL DEFENSES, RIGHTS, AND/OR COUNTERCLAIMS IN ANY ACTION OR
PROCEEDINGS BETWEEN GUARANTOR AND LENDER. GUARANTOR WAIVES ALL RIGHTS TO
INTERPOSE ANY CLAIMS, DEDUCTIONS, SETOFFS OR COUNTERCLAIMS OF ANY KIND, NATURE
OR DESCRIPTION IN ANY ACTION OR PROCEEDING INSTITUTED BY LENDER WITH RESPECT TO
THIS GUARANTY, THE OTHER LOAN DOCUMENTS, THE OBLIGATIONS, THE COLLATERAL OR ANY
MATTER ARISING THEREFROM OR RELATING THERETO, EXCEPT COMPULSORY COUNTERCLAIMS.

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Section 20. CONSENT TO JURISDICTION. GUARANTOR HEREBY (a) IRREVOCABLY SUBMITS
AND CONSENTS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS
LOCATED IN THE STATE OF CALIFORNIA, LOS ANGELES COUNTY, WITH RESPECT TO ANY
ACTION OR PROCEEDING ARISING OUT OF THIS GUARANTY, THE OTHER LOAN DOCUMENTS, THE
OBLIGATIONS AND/OR THE COLLATERAL OR ANY MATTER ARISING THEREFROM OR RELATING
THERETO, AND (b) WAIVES ANY OBJECTIONS WHICH IT MAY NOW OR HEREAFTER HAVE BASED
ON VENUE OR FORUM NON CONVENIENS WITH RESPECT THERETO. IN ANY SUCH ACTION OR
PROCEEDING, GUARANTOR WAIVES PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT OR
OTHER PROCESS AND PAPERS THEREIN AND AGREES THAT THE SERVICE THEREOF MAY BE MADE
BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, DIRECTED TO GUARANTOR AT ITS
OFFICES SET FORTH HEREIN OR OTHER ADDRESS THEREOF OF WHICH LENDER HAS RECEIVED
NOTICE AS PROVIDED IN THIS GUARANTY. NOTWITHSTANDING THE FOREGOING, GUARANTOR
CONSENTS TO THE COMMENCEMENT BY LENDER OF ANY ACTION OR PROCEEDING IN ANY OTHER
JURISDICTION TO ENFORCE ITS RIGHTS IN AND TO THE COLLATERAL AND GUARANTOR WAIVES
ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE BASED ON VENUE AND/OR FORUM NON
CONVENIENS OF ANY SUCH ACTION OR PROCEEDING.
 
Section 21. Construction. No provision of this Guaranty shall be construed
against or interpreted to the disadvantage of any party hereto by reason of such
party or his or its counsel having, or being deemed to have, structured or
drafted such provision.
 
Section 22. Headings. Amendments. Waiver. Etc. Section and paragraph headings
are for convenience only and shall not be construed as part of this Guaranty.
Any modification and amendment shall be in writing and signed by the parties,
and any waiver of, or consent to any departure from, any representation,
warranty, covenant or other term or provision shall be in writing and signed by
each affected party hereto or thereto, as applicable.
 
Section 23. Entire Agreement. This Guaranty represents the entire agreement and
understanding concerning the subject matter hereof and thereof between the
parties, and supersedes all other prior agreements and understandings concerning
the subject matter hereof, whether oral or written.
 
Section 24. Survival. All covenants, agreements, representations and warranties
made by Guarantor herein or in any of the Loan Documents or in any certificate,
report or instrument contemplated hereby shall survive any independent
investigation made by Lender and the execution and delivery of this Guaranty,
the Loan Documents and such certificates, reports or instruments and shall
continue so long as any Obligations are outstanding and unsatisfied, applicable
statutes of limitations to the contrary notwithstanding.
 
Section 25. Severability. Every provision of this Guaranty is intended to be
severable. If, in any jurisdiction, any term or provision hereof is determined
to be invalid or unenforceable, (a) the remaining terms and provisions hereof
shall be unimpaired, (b) any such invalidity or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such term or provision
in any other jurisdiction, and (c) the invalid or unenforceable term or
provision shall, for purposes of such jurisdiction, be deemed replaced by a term
or provision that is valid and enforceable and that comes closest to expressing
the intention of the invalid or unenforceable term or provision. If a court of
competent jurisdiction determines that any covenant or restriction, by the
length of time or any other restriction, or portion thereof, set forth in this
Guaranty is unreasonable or unenforceable, the court shall reduce or modify such
covenants or restrictions to those which it deems reasonable and enforceable
under the circumstances and, as so reduced or modified, the parties hereto agree
that such covenants and restrictions shall remain in full force and effect as so
modified. In the event a court of competent jurisdiction determines that any
provision of this Guaranty is invalid or against public policy and cannot be so
reduced or modified so as to be made enforceable, the remaining provisions of
this Guaranty shall not be affected thereby, and shall remain in full force and
effect.
 
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Section 26. No Waiver bv Action. Cumulative Rights. Etc. A waiver of a breach of
any term, covenant or condition of this Guaranty shall not operate or be
construed as a continuing waiver of such term, covenant or condition, or breach,
or of any other term, covenant or condition, or breach by such party. No failure
to exercise and no delay in exercising any right, remedy, or power hereunder
shall preclude any other or further exercise of any other right, remedy or power
provided herein or by law or in equity. Lender is entitled to exercise all
rights and remedies available to it at law or in equity in connection with this
Guaranty. The rights and remedies of Lender hereunder are several and cumulative
at Lender's discretion and may be exercised at Lender's discretion.
 
Section 27. Successors and Assigns. All covenants, promises and agreements by or
on behalf of the parties contained in this Guaranty shall be binding upon and
shall inure to the benefit of the parties and their respective estates,
representatives, successors and assigns, as applicable; provided, however, that
nothing in this Guaranty, express or implied, shall confer on Guarantor the
right to assign any of his rights or obligations hereunder at any time.
 
Section 28. Counterparts. This Guaranty may be executed in one or more
counterparts, and by facsimile or electronic signature, each of which when so
executed, shall be deemed an original, but all of which shall constitute but one
and the same instrument.
 
IN WITNESS WHEREOF, the undersigned has executed and delivered this Validity
Guaranty as of the date first written above.

 
GUARANTOR:

AGREED TO AND ACCEPTED BY LENDER:
 
GEMCAP LENDING I, LLC

By: _______________________________
Name:
Title:

 
 [SIGNATURE PAGE TO VALIDITY GUARANTY]
 
 
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Exhibit 1.88
to
Loan and Security Agreement

Form of Warehouse Agreement
 
GemCap Lending I, LLC
1401 Ocean Avenue, Suite 305
Santa Monica, California 90401

November 12, 2009

[WAREHOUSE ]
[ADDRESS        ]
[                           ]
[ATTN:              ]

 
Re:
Reed’s, Inc.

Dear [                     ]:

As part of our financing arrangement with Reed’s, Inc., a Delaware corporation
(“Borrower”), Borrower has pledged and granted to GemCap Lending I, LLC
(“GemCap”, “us” or “we”) a first priority continuing security interest in and
lien upon all property and assets now owned and hereafter acquired by Borrower
and the proceeds and products thereof (the “Collateral”).  The Collateral
includes, among other things, merchandise, inventory and goods of the Borrower
located in your facility at [_______________________] (the “Premises”) and which
may be shipped to and stored with you from time to time in the future (any and
all such merchandise, inventory and goods, collectively, the “Inventory”).

By your acknowledgement below, you certify as follows:
 
1.   There is storage or warehouse agreement in place between you and Borrower
with respect to your storage of the Inventory (the “Warehouse Agreement”).  You
agree that, to the extent any of the terms of this letter agreement conflict
with any of the terms of the Warehouse Agreement, the terms of this letter
agreement will govern and control. You further agree that the Warehouse
Agreement may not be amended, supplemented or otherwise modified without our
prior written consent.
 
2.   (a)  The Warehouse Agreement is in full force and effect and has not been
amended, supplemented or otherwise modified, (b) there is no defense, offset,
claim or counterclaim by or in favor of you against Borrower under the Warehouse
Agreement, and (c) no notice of default has been given under or in connection
with the Warehouse Agreement in connection with a default that has not been
cured, and you have no knowledge of the occurrence of any default under or in
connection with the Warehouse Agreement.
 
3.   This letter agreement is binding upon you and shall constitute notice to
you that we have a security interest in the Inventory. You certify that you have
not previously been advised that any person or entity, other than Borrower and
GemCap, has any existing right, title or interest in any of the Inventory.
 
4.   Until you have received written notification to the contrary from us, you
may release Inventory from the Premises in accordance with Borrower’s
instructions. Upon delivery of any such written notification, you will handle
the Inventory only in accordance with GemCap’s instructions, notwithstanding any
instruction of the Borrower to the contrary.
 
5.   You are holding and will hold all Inventory for GemCap’s account in
accordance with this letter agreement and you will release same to us upon
demand, provided that you receive payment of any accrued charges for the storage
of the Inventory being released.  You agree that you will not hinder or delay
GemCap in enforcing its rights in and to the Inventory.
 
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6.   To assist us in keeping accurate records relating to the Inventory, you
will provide us with a finished goods inventory report (“Inventory Report”)
regarding the Inventory upon request.  The Inventory Report shall set forth the
quantity of Inventory held by you, and such other matters as we shall reasonably
request, including information regarding delivery and shipment of the Inventory
and statements of charges rendered to the Borrower.  In addition, you will
confirm balances of the Inventory to us when an inventory is taken by you or the
Borrower, and make copies of any such inventory available to us upon request.
 
7.   You hereby warrant and represent that you do not deal in the type of goods
stored by the Borrower and you do not buy or sell such goods in the ordinary
course of your business.
 
8.   Your costs and expenses of storing the Inventory shall be paid by Borrower.
You agree to advise us in the event that any charges or expenses due from the
Borrower to you become past due, and if not paid by Borrower, then we shall be
afforded the option to pay such amounts. However, we shall not be directly or
indirectly liable or responsible for any of said charges whether due or to
become due.
 
9.   The arrangement and instructions outlined herein shall continue without any
change or modification until we have given written notification to the contrary
to you, which notification need only be signed by us.  Upon delivery of any such
notification, you will handle the Inventory in accordance with our instructions.
 
10.   You hereby grant to the authorized representatives of GemCap a license to
enter the Premises to do any or all of the following with respect to the
Inventory: inspect, have appraised, remove, maintain, prepare for sale,
transfer, or sell (at public or private sale) the Inventory at any time, with
reasonable prior notice.  We shall not have any duty or obligation to remove or
dispose of any Inventory, or any other property left on the Premises by
Borrower.
 
11.   (a) You will not assert contractual, statutory or possessory liens, claims
or demands of any kind which you have or may have in respect of the Inventory
and (b) any rights you may have in or to the Inventory, no matter how arising
(to the extent not effectively waived pursuant to clause (a) of this paragraph),
shall be subordinate in all respects to the rights of GemCap in respect
thereof.  It is specifically acknowledged that GemCap’s security interest is
senior to and will take priority over any warehouseman’s lien now existing or
hereafter arising under applicable law in your favor on account of unpaid
warehouse charges in connection with the Inventory.
 
12.   You will immediately notify us of any physical loss, damage, theft, or
destruction of any portion of the Inventory.
 
13.   All notices, requests and demands to or upon the respective parties hereto
shall be in writing and either (a) delivered by hand or (b) delivered by
national overnight courier service, and shall be deemed to have been duly given
or made upon receipt by the receiving party.  All notices, requests and demands
are to be given or made to the respective parties at the following addresses (or
to such other addresses as either party may designate by notice in accordance
with the provisions of this paragraph):

If to GemCap
GemCap Lending I, LLC
1401 Ocean Avenue
Suite 305
Santa Monica, California 90401
Attn: David Ellis

If to you
[                                       ]

 
If to Borrower
Reed’s, Inc.
13000 South Spring Street
Los Angeles, California 90061
Attn: Christopher Reed,
           Chief Executive Officer

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This letter agreement shall be governed by, and construed in accordance with,
the laws of the State of California.  This letter agreement may be executed in
counterparts and by facsimile or other electronic signature, each of which shall
be an original, and all of which, when taken together, shall constitute one
agreement.
 

 
Very truly yours,

GEMCAP LENDING I, LLC

By: _________________________
Name/Title:

 

ACKNOWLEDGED AND AGREED TO BY:

[                                                       ]

By: _________________________
Name/Title:

REED’S, INC.

By: /s/ James Linesch                          
James Linesch
Chief Financial Officer
Reed’s Inc.

 
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Exhibit 2.2(b)
to
Loan and Security Agreement

Form of Revolving Loan Note

SECURED LOAN NOTE

Up to $3,000,000

Dated:  November 18, 2009

FOR VALUE RECEIVED, Reed’s, Inc. ("Borrower"), promises to pay to the order of
GEMCAP LENDING I, LLC, a Delaware limited liability company with offices at 1401
Ocean Avenue, Suite 305, Santa Monica, California 90401 and its successors and
assigns (“Lender”), on or before November 18, 2011, the principal sum of up to
Three Million Dollars ($3,000,000) in accordance with the Loan and Security
Agreement, of even date herewith, entered into by and between Borrower and
Lender (as amended from time to time, the “Agreement”).  Capitalized terms used
herein and not defined herein shall have their respective meanings as set forth
in the Agreement.

INTEREST; AMORTIZATION; DUE DATE:  Interest on the outstanding principal balance
hereof shall be computed on the basis of the actual number of days elapsed and a
year of 360 days. Interest shall accrue at a rate per annum equal to Eighteen
Percent (18%), and shall be payable by Borrower in arrears (x) prior to the
Maturity Date, on the first Business Day of each calendar month, commencing
December 1, 2009, (y) in full on the Maturity Date and (z) on demand after the
Maturity Date. Following and during the continuation of an Event of Default,
interest on the Loan, including principal and interest, shall accrue at a rate
per annum equal to Twenty-Four Percent (24%).

Subject to the prepayment provisions hereof, Borrower may borrow, repay and
reborrow Loans, as set forth in the Agreement.

The entire principal balance of this Note then outstanding, plus any accrued and
unpaid interest thereon, together with all penalties and late payment fees, if
any, shall be due and payable on the Maturity Date pursuant to the terms of the
Agreement. Borrower may prepay the entire unpaid principal sum of the Revolving
Loans without premium or penalty, provided, however, that, (i) such prepayment
is no less than the amount of the remaining outstanding principal sum of all
outstanding Revolving Loans, (ii) as part of such prepayment, Borrower shall pay
Lender all other amounts due to Lender pursuant to this Note, the Agreement and
other Loan Documents, and (iii) in addition, in the event Borrower makes such
prepayment during the first nine (9) months of the Term, then Borrower shall pay
to Lender an amount equal to $60,000 (representing two percent (2%) of the
maximum Revolving Loan Commitment of $3,000,000) (the “Revolving Loan Prepayment
Fee”).  The Revolving Loan Prepayment Fee is intended to compensate Lender for
committing and deploying funds for Borrower’s Revolving Loans pursuant to the
Agreement and for Lender’s loss of investment of such funds in connection with
such early termination, and is not intended as a penalty.  The Revolving Loan
Prepayment Fee also shall be due and payable by Borrower to Lender if Lender
accelerates the payment of the Obligations during the first nine (9) months of
the Term due to the occurrence of an Event of Default.

 
 
 
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PAYMENT AND COLLECTION:  In order to satisfy Borrower’s payment of amounts due
under the Revolving Loans and all fees, expenses and charges with respect
thereto that are due and payable under this Note, the Agreement or any other
Loan Document, Borrower hereby irrevocably authorizes Lender to initiate manual
and automatic electronic (debit and credit) entries through the Automated
Clearing House or other appropriate electronic payment system (“ACH”) to all
deposit accounts maintained by Borrower, wherever located. At the request of
Lender,  Borrower shall complete, execute and deliver to the institution set
forth below (with a copy to the Lender) an ACH agreement, voided check,
information and/or direction letter reasonably necessary to so instruct
Borrower’s depository institution.  Borrower (i) shall maintain in all respects
this ACH arrangement; (ii) shall not change depository institutions without
Lender’s prior written consent, and if consent is received, shall immediately
execute similar ACH instruction(s), and (iii) waive any and all claims for loss
or damage arising out of debits or credits to/from the depository institution,
whether made properly or in error.  Borrower has communicated with and
instructed the institution set forth below:
 
Bank Name:
City National Bank
Address:
3424 Carson Street,
 
Torrance, CA 90503
ABA #:
122016066
Account #:
017236482
Phone:
310-264-2919
Fax:
310-264-2906
Reference:
Reed’s
Contact Person: Jackie Saidian
 

 
MAXIMUM RATE OF INTEREST:  It is intended that the rates of interest herein
shall never exceed the maximum rate, if any, which may be legally charged on the
Revolving Loans evidenced by this Note (the “Maximum Rate”), and if the
provisions for interest contained in this Note would result in a rate higher
than the Maximum Rate, interest shall nevertheless be limited to the Maximum
Rate and any amounts which may be paid toward interest in excess of the Maximum
Rate shall be applied to the reduction of principal, or, at the option of
Lender, returned to Borrower.

PLACE OF PAYMENT:  All payments hereon shall be made, and all notices to the
Lender required or authorized hereby shall be given, at the office of Lender at
the address designated in the Agreement, or to such other place as Lender may
from time to time direct by written notice to Borrower.

APPLICATION OF PAYMENTS:  All payments received hereunder shall be applied in
accordance with the provisions of the Agreement.

PAYMENT AND COLLECTION:  All amounts payable hereunder are payable by check or
wire transfer in immediately available funds to the account number specified by
Lender, in lawful money of the United States.  At Lender’s option, Lender may
charge the Borrower’s account for the interest accrued hereunder. Borrower
agrees to perform and comply with each of the covenants, conditions, provisions
and agreements contained in every instrument now evidencing or securing the
indebtedness evidenced hereby.
 
 
 
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SECURITY:  This Note is issued pursuant to the Agreement and is secured by a
pledge of the Collateral as described in the Loan Documents.  Notwithstanding
the pledge of the Collateral described above, Borrower hereby acknowledges,
admits and agrees that Borrower’s obligations under this Note are recourse
obligations of Borrower to which Borrower pledges its full faith and credit.

DEFAULTS; REMEDIES:  Upon the happening of an Event of Default, the Lender shall
have all of the rights and remedies set forth in the Agreement.

The failure to exercise any of the rights and remedies set forth in the
Agreement shall not constitute a waiver of the right to exercise the same or any
other option at any subsequent time in respect of the same event or any other
event.  The acceptance by Lender of any payment which is less than payment in
full of all amounts due and payable at the time of such payment shall not
constitute a waiver of the right to exercise any of the foregoing rights and
remedies at that time or at any subsequent time or nullify any prior exercise of
any such rights and remedies without the express consent of Lender, except as
and to the extent otherwise provided by law.

WAIVERS:  Borrower waives diligence, presentment, protest and demand and also
notice of protest, demand, dishonor and nonpayment of this Note.

TERMINOLOGY:  Any reference herein to Lender shall be deemed to include and
apply to every subsequent holder of this Note.

AGREEMENT:  Reference is made to the Agreement for provisions as to the
Revolving Loans, rates of interest, Collateral, acceleration and release
matters.  If there is any conflict between the terms of this Note and the terms
of the Agreement, the terms of the Agreement shall control.

APPLICABLE LAW:
 
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF CALIFORNIA, THE LAWS OF WHICH BORROWER HEREBY EXPRESSLY
ELECTS TO APPLY TO THIS NOTE, WITHOUT GIVING EFFECT TO PROVISIONS FOR CHOICE OF
LAW THEREUNDER.  BORROWER AGREES THAT ANY ACTION OR PROCEEDING BROUGHT TO
ENFORCE OR ARISING OUT OF THIS NOTE SHALL BE COMMENCED IN ACCORDANCE WITH THE
PROVISIONS OF THIS NOTE.
 
WAIVER OF JURY TRIAL.  TO THE EXTENT PERMITTED BY APPLICABLE LAW,
 
BORROWER HEREBY WAIVES ANY AND ALL RIGHTS THAT IT MAY NOW OR HEREAFTER HAVE
UNDER THE LAWS OF THE UNITED STATES OF AMERICA OR ANY STATE TO A TRIAL BY JURY
OF ANY AND ALL ISSUES ARISING EITHER DIRECTLY OR INDIRECTLY IN ANY ACTION OR
PROCEEDING BETWEEN BORROWER AND LENDER OR THEIR SUCCESSORS AND ASSIGNS, OUT OF
OR IN ANY WAY CONNECTED WITH THIS NOTE, THE OTHER LOAN DOCUMENTS, THE
OBLIGATIONS AND/OR THE COLLATERAL.  IT IS INTENDED THAT SAID WAIVER SHALL APPLY
TO ANY AND ALL DEFENSES, RIGHTS, AND/OR COUNTERCLAIMS IN ANY ACTION OR
PROCEEDINGS BETWEEN BORROWER AND LENDER.  BORROWER WAIVES ALL RIGHTS TO
INTERPOSE ANY CLAIMS, DEDUCTIONS, SETOFFS OR COUNTERCLAIMS OF ANY KIND, NATURE
OR DESCRIPTION IN ANY ACTION OR PROCEEDING INSTITUTED BY LENDER WITH RESPECT TO
THIS NOTE, THE OTHER LOAN DOCUMENTS, THE OBLIGATIONS, THE COLLATERAL OR ANY
MATTER ARISING THEREFROM OR RELATING THERETO, EXCEPT COMPULSORY COUNTERCLAIMS.
 

 
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CONSENT TO JURISDICTION.
 
BORROWER HEREBY (a) IRREVOCABLY SUBMITS AND CONSENTS TO THE EXCLUSIVE
JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN THE STATE OF CALIFORNIA,
LOS ANGELES COUNTY, WITH RESPECT TO ANY ACTION OR PROCEEDING ARISING OUT OF THIS
NOTE, THE OTHER LOAN DOCUMENTS, THE OBLIGATIONS AND/OR THE COLLATERAL OR ANY
MATTER ARISING THEREFROM OR RELATING THERETO, AND (b) WAIVES ANY OBJECTION WHICH
IT MAY NOW OR HEREAFTER HAVE BASED ON VENUE AND/OR FORUM NON CONVENIENS WITH
RESPECT THERETO.  IN ANY SUCH ACTION OR PROCEEDING,  BORROWER WAIVES PERSONAL
SERVICE OF THE SUMMONS AND COMPLAINT OR OTHER PROCESS AND PAPERS THEREIN AND
AGREES THAT THE SERVICE THEREOF MAY BE MADE BY CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, DIRECTED TO BORROWER AT ITS OFFICES SET FORTH IN THE AGREEMENT OR
OTHER ADDRESS THEREOF OF WHICH LENDER HAS RECEIVED NOTICE AS PROVIDED IN THE
AGREEMENT.  NOTWITHSTANDING THE FOREGOING,  BORROWER CONSENTS TO THE
COMMENCEMENT BY LENDER OF ANY ACTION OR PROCEEDING IN ANY OTHER JURISDICTION TO
ENFORCE ITS RIGHTS IN AND TO THE COLLATERAL AND WAIVES ANY OBJECTION WHICH
BORROWER MAY NOW OR HEREAFTER HAVE BASED ON VENUE AND/OR FORUM NON CONVENIENS OF
ANY SUCH ACTION OR PROCEEDING.

IN WITNESS WHEREOF, this Secured Revolving Loan Note has been duly executed and
delivered by the undersigned as of the day and year first above written.
 

 
BORROWER:
         
REED’S, INC.
           
By:
/s/        Name        Title           

 
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Exhibit 3.2
to
Loan and Security Agreement

Fees

Borrower shall pay to Lender the following fees:

Annual Line Fee:

A non-refundable fee of Thirty Thousand Dollars ($30,000) per year (representing
one percent (1%) per annum, computed on the basis of a 360 day year and the
actual number of days elapsed, of the maximum Revolving Loan Commitment of
$3,000,000) shall be due and payable on (i) the Closing Date and (ii) each
subsequent anniversary of the Closing Date during the Term.

Unused Revolver Line Fee:

A monthly fee at the rate of one-half percent (0.5%) per annum (computed on the
basis of a 360 day year and the actual number of days elapsed) on the average
daily unused maximum Revolving Loan Commitment of $3,000,000 during such month,
payable monthly in arrears on the first day of each month during the Term.

Loan Administration Fee and Funding Fee:

$500.00 per month, payable in arrears on the first day of each month during the
Term.

Audit Fees:

$700 per person, per day, plus out-of-pocket expenses, for not more than two (2)
audits during each 12-month period of the Term; provided, that no such
limitation shall apply following the occurrence of an Event of Default.
 
 
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Schedule 5.4(m)
To
Loan and Security Agreement
Banks and Financial Institutions

Wells Fargo Bank
FBO Reed’s Inc
Dept 8184
1200 West 7th Street, Suite T2-210
Los Angeles, Ca  90017-2349
Account No. 4121722698
Representative
DENISE SUDENGA
612-573-9539
denise.j.sudenga@wellsfargo

City National Bank
ACCT 017-236482     General
ACCT  017-236481     Credit Card
Attn:     Jackie Saidian
310-264-2919
3424 Carson Street, Torrance, CA  90503

First Capital
ACCT  4121722698
Attn:     John Neher
213.412.1566
700 South Flower Street, Suite 2325 | Los Angeles, California 90017
 
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Schedule 5.4(n)
To
Loan and Security Agreement

●
Borrower’s Legal Name: Reed’s, Inc.

●
Borrower’s Jurisdiction of Organization: Delaware

●
Borrower’s Chief Executive Office and Other Offices:

Chief Executive Office:
 
13000 S. Spring Street
Los Angeles, CA 90061
 
Other Offices:
 
12930 S. Spring Street
Los Angeles, CA 90061

 
●
Describe any changes in name, jurisdiction of organization, chief office
location or corporate structure undertaken by Borrower within the last five
years: None.

●
List any security agreements entered into by third parties which currently bind
Borrower as a grantor thereunder: None.

 
 
 
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Schedule 8.21
To
Loan and Security Agreement
Changes since Balance Sheet Date of September 30, 2009

On October 1, 2009, 60,000 warrants were issued in connection with long-term
financing obligation at exercise price of $1.20 for approximately five years.

On October 19, 2009, the Company executed an Asset Purchase Agreement with
Sonoma Cider Mill, Inc., to acquire certain assets of the Sonoma Sparkler
brand.  Since June 1, 2009, based on a non-binding letter of intent, the Company
has been packing and selling the six Sonoma Sparkler brand products in
anticipation of completion of this acquisition.  The assets purchased in this
transaction include the intellectual property known as the Sonoma Sparkler label
and formulas for six flavors currently on the market, customer lists and vendor
contact information, assignable licenses and permits and existing
inventory.  The aggregate purchase price under the Agreement is $252,000.
Initial payments of $45,000 were made prior to the Agreement and the balance of
$207,000 is payable in installments of $9,000 over 23 remaining months,
continuing on the first of every month.

On October 8, 2009, the Company sold an aggregate of 364,189 units (“Units”)
consisting of one share of our common stock (“Share”) and warrants to purchase
shares of our common stock (“Warrants”)at a price of $1.80 per Unit pursuant to
a public shelf registration on Form S-3.  The Warrants consist of  (i) Series A
Warrants, for the purchase of a number of shares of common stock equal to 40% of
a purchaser’s Shares, which have an initial exercise price of $2.25 per share
and are exercisable for a period of five years commencing 183 days from the date
of issuance, (ii) Series B Warrants, for the purchase of a number of shares of
common stock equal to 50% of a purchaser’s Shares, which have an exercise price
equal to $1.80 and are exercisable for 60 trading days commencing immediately,
and (iii) Series C Warrants, for the purchase of a number of a shares of common
stock equal to 20% of a purchaser’s Shares, which have an exercise price of
$2.25 and are exercisable for five years commencing 183 days from the date of
issuance.  The Series B Warrants and Series C Warrants were only issued to
purchasers who purchase Units for an aggregate purchase price of at least
$125,000.   The Company paid an 8% placement agent fee. The net proceeds to the
Company from the shelf-take down, after deducting placement agent fees and
estimated offering expenses, were approximately $563,000. At the closing, the
Company issued 364,189 shares of common stock, Series A Warrants to purchase
145,676 shares of common stock, Series B Warrants to purchase 69,445 shares of
common stock, and Series C Warrants to purchase 27,778 shares of common stock.
 

 

 
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Schedule 8.22
To
Loan and Security Agreement
Intellectual Property

Proprietary Rights
 
We own trademarks that we consider material to our business. Three of our
trademarks are registered trademarks in the U.S. Patent and Trademark Office:
Virgil’s ®, Reed’s Original Ginger Brew All-Natural Jamaican Style Ginger Ale ®
and Tianfu China Natural Soda ®. Registrations for trademarks in the United
States will last indefinitely as long as we continue to use and police the
trademarks and renew filings with the applicable governmental offices. We have
not been challenged in our right to use any of our material trademarks in the
United States.

We have one pending trademark registration application, including application[s]
for registration of the China Cola mark, serial application number 77646445.

We utilize the following other unregistered marks in the conduct of our
business: Sonoma Sparkler

In addition, we consider our finished product and concentrate formulae, which
are not the subject of any patents, to be trade secrets.  Our brewing process is
a trade secret.  This process can be used to brew flavors of beverages other
than ginger ale and ginger beer, such as root beer, cream soda, cola, and other
spice and fruit beverages.  We have not sought any patents on our brewing
processes because we would be required to disclose our brewing process in patent
applications.

We have registered, or have rights to utilize in the conduct of our business,
the reedsinc.com and reedsgingerbrew.com domain names.

We generally use non-disclosure agreements with employees and distributors to
protect our proprietary rights.
 
Government Regulation
 
The production, distribution and sale in the United States of many of our
Company’s products are subject to the Federal Food, Drug, and Cosmetic Act, the
Federal Trade Commission Act, the Lanham Act, state consumer protection laws,
federal, state and local workplace health and safety laws, various federal,
state and local environmental protection laws and various other federal, state
and local statutes and regulations applicable to the production, transportation,
sale, safety, advertising, labeling and ingredients of such products. Outside
the United States, the distribution and sale of our many products and related
operations are also subject to numerous similar and other statutes and
regulations.
  
All of our facilities and other operations in the United States are subject to
various environmental protection statutes and regulations, including those
relating to the use of water resources and the discharge of wastewater. Our
policy is to comply with all such legal requirements.
 
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Schedule 8.23
To
Loan and Security Agreement
Employee Matters

We have 37 full-time employees, as follows: three in general management, nine in
sales and marketing support, six in admin and operations and 19 in production.
We employ additional people on a part-time basis as needed.  We have never
participated in a collective bargaining agreement. We believe that the
relationship with our employees is good.

There are no written employment agreements with any of our officers or key
employees In the event of a sale of Reed’s, Inc., should Mr. James Linesch’s
employment terminate during the first 12 months after the sale, he will be
entitled to three months severance.
 
 
 
 
 

 
107

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Schedule 8.23
To
Loan and Security Agreement
Employee Matters

We have 32 full-time employees, as follows: three in general management, ten in
sales and marketing support, five in admin and operations and 16 in production.
We employ additional people on a part-time basis as needed.  We have never
participated in a collective bargaining agreement. We believe that the
relationship with our employees is good.
 

 
 
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