Exhibit 10.5
 
THE COMPANY HAS NOT OBTAINED AN INDEPEND ENT OPINION REGARDING THE VALUATION OF
THE COMPANY, THE  SECURITIES, OR THE COLLATERAL SECURING THE COMPANY’S SECURED
OBLIGATIONS UNDER THE SECURED NOTES, NOR HAS THERE BEEN ANY LEGAL, INVESTMENT
BANKING, OR OTHER DILIGENCE IN CONNECTION WITH THE VALUATION OF THE COMPANY, THE
SECURITIES OR THE COLLATERAL. PROSPECTIVE INVESTORS MUST RELY ON THEIR OWN
BUSINESS AND INVESTMENT BACKGROUND AND THEIR OWN INVESTIGATION OF THE COMPANY
AND ITS PROPOSED BUSINESS  IN  DETERMINING  WHETHER  TO  INVEST  IN THE COMPANY
AND THE SECURED NOTES.
 
SECURITY AGREEMENT
 
This SECURITY AGREEMENT (this “Agreement”), dated as of June 20, 2013, is by and
among True Drinks Holdings, Inc., a company incorporated in the State of Nevada
(the “Company”) and the holders of the Secured Notes identified on the signature
pages hereto (each, a “Purchaser” and collectively, the “Purchasers”), and Union
Bank, N.A., or an affiliate thereof, as agent for the Purchasers (in such
capacity, together with its successors in such capacity, the “Collateral
Agent”).

 
WHEREAS, the Company and each of the Purchasers are parties to a Subscription
Agreement (each a “Subscription Agreement”) for the purchase of Secured Notes
(such offering the “Bridge Note Offering”), that provides, subject to the terms
and conditions thereof, for the issuance and sale by the Company to each of the
Purchasers, severally and not jointly, of the Secured Notes and Warrants, as
more fully described in the Subscription Agreement; and
 
WHEREAS, to induce each of the Purchasers to enter into a Subscription
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company has agreed to grant a
security interest in the Collateral (as hereinafter defined) as security for the
Secured Obligations (as hereinafter defined). Accordingly, the parties hereto
agree as follows:

Section 1.                      Definitions. Each capitalized term used herein
and not otherwise defined shall have the meaning assigned to such term in the
Subscription Agreement (or its Exhibits). In addition, as used herein:

“Accounts” shall have the meaning ascribed thereto in Section 3(a) hereof.

 
“Agreement” shall have the meaning ascribed thereto in the preamble hereof.
 
“Bridge Note Offering” shall have the meaning ascribed thereto in the recitals
hereof.

 
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“Business”  shall  mean  the  businesses  from  time  to  time,  now  or  hereafter,
conducted by the Company and its subsidiaries.
 
“Collateral
 Agent”  shall  have  the  meaning  ascribed  thereto  in  the  preamble hereof.
 
“Collateral  Agent  Agreement”  shall  mean  the  Collateral  Agent  Agreement
attached as Annex 1 to this Agreement.
 
“Collateral” shall have the meaning ascribed thereto in Section 3 hereof.
 
“Company” shall have the meaning ascribed thereto in the preamble hereof.
 
“Copyright Collateral” shall mean all Copyrights, whether now owned or hereafter
acquired by the Company or its subsidiaries, that are associated with the
Business.
 
“Copyrights” shall mean all copyrights, copyright registrations and applications
for copyright registrations, and, without limitation, all renewals and
extensions thereof, the right to recover for all past, present and future
infringements thereof, and all other rights of any kind whatsoever accruing
thereunder or pertaining thereto.

“Equipment” shall have the meaning ascribed thereto in Section 3(e) hereof.

 
“Event of Default” shall have the meaning ascribed thereto in Section 8 of the
Secured Notes.

“Excluded Assets” means the collective reference to (a) any asset subject to a
purchase money security interest (“PMSI Assets”) in each case to the extent the
grant by the Company of a security interest pursuant to this Agreement in the
Company’s right, title and interest in such PMSI Asset (i) is prohibited by
legally enforceable provisions of any contract, agreement, instrument or
indenture governing such PMSI Asset, (ii) would give any other party to such
contract, agreement, instrument or indenture a legally enforceable right to
terminate its obligations thereunder or accelerate the indebtedness evidenced
thereby, or (iii) is permitted only with the consent of another party, if the
requirement to obtain such consent is legally enforceable and such consent has
not been obtained, (b) Motor Vehicles the perfection of a security interest in
which is excluded from the Uniform Commercial Code in the relevant jurisdiction,
and (c) the Capital Stock in any Foreign Subsidiary, to the extent (but only to
the extent) required to prevent the Collateral from including more than 65% of
all capital stock of any Foreign Subsidiary of the Company.

“Excluded Collateral” shall mean (a) the assets of the Company which secure the
Permitted Indebtedness, and (b) the Excluded Assets.

“Foreign Subsidiary” shall mean any subsidiary of the Company that is organized
under the laws of a jurisdiction outside the United States.

 
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“Governmental Authority” means any government, any governmental, regulatory or
administrative body, agency or authority, any court or judicial authority, any
arbitrator or any other public authority, whether foreign, federal, state,
provincial or local.

“Instruments” shall have the meaning ascribed thereto in Section 3(b) hereof.

 
“Intellectual Property” shall mean, collectively, all Copyright Collateral, all
Patent Collateral and all Trademark Collateral, together with (a) all
inventions, processes, production methods, proprietary information, know-how and
trade secrets used or useful in the Business, (b) all licenses or user or other
agreements granted to the Company with respect to any of the foregoing, in each
case whether now or hereafter owned or used including, without limitation, the
licenses or other agreements with respect to the Copyright Collateral, the
Patent Collateral or the Trademark Collateral, (c) all customer lists,
identification of suppliers, data, plans, blueprints, specifications, designs,
drawings, recorded knowledge, surveys, manuals, materials standards, processing
standards, catalogs, computer and automatic machinery software and programs, and
the like pertaining to the operation by the Company of the Business, (d) all
sales data and other information relating to sales now or hereafter collected
and/or maintained by the Company that pertain to the Business, (e) all
accounting information which pertains to the Business and all media in which or
on which any of the information or knowledge or data or records which pertain to
the Business may be recorded or stored and all computer programs used for the
compilation or printout of such information, knowledge, records or data, (f) all
licenses, consents, permits, variances, certifications and approvals of
governmental agencies now or hereafter held by the Company pertaining to the
operation by the Company and its Subsidiaries of the Business, and (g) all
causes of action, claims and warranties now or hereafter owned or acquired by
the Company in respect of any of the items listed above.
 
“Inventory” shall have the meaning ascribed thereto in Section 3(c) hereof.
 
“Liens” shall mean a lien, charge, security interest, encumbrance, right of
first refusal, preemptive right or other restriction.
 
“Motor
 Vehicles”  shall  mean  motor  vehicles,  tractors,  trailers  and  other  like
property, whether or not the title thereto is governed by a certificate of title
or ownership.
 
“Patent Collateral” shall mean the Patents.
 
“Patents” shall mean all patents and patent applications set forth on
Schedule1AP, and, without limitation, the inventions and improvements described
and claimed therein together with the reissues, divisions, continuations,
renewals, extensions and continuations-in-part thereof, all income, royalties,
damages and payments now or hereafter due and/or payable under and with respect
thereto, including, without limitation, damages and payments for past or future
infringements thereof, the right to sue for past, present and future
infringements thereof, and all rights corresponding thereto throughout the
world.

“Permitted Indebtedness” shall mean the Company’s existing indebtedness,
liabilities and obligations as disclosed on
Schedule 1PI hereto and any future capitalized leases, purchase money
indebtedness, or any additional indebtedness permissible under the Secured
Notes.

 
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“Permitted Liens” shall mean (a) the Company’s existing Liens as disclosed in
Schedule 1PL hereto and any Liens applicable to the Permitted Indebtedness, (b)
the security interests created by this Agreement, (c) Liens of local or state
authorities for franchise,real estate or other like taxes, (d) statutory Liens
of landlords and liens of carriers, warehousemen, bailees, mechanics,
materialmen and other like Liens imposed by law, created in the ordinary course
of business and for amounts not yet due, (e) tax Liens not yet due and payable,
and (f) existing or future Liens which do not materially affect the value of the
Company’s property and do not materially interfere with the use made and
proposed to be made of such property by the Company and the Subsidiaries or the
Liens granted hereunder.
 
"Person” means an individual, a sole proprietorship, a partnership, a
corporation, a limited liability company, an association, a joint stock company,
a trust, a joint venture, an unincorporated organization, any other business
entity or any Governmental Authority.
 
“Placement Agent” shall mean Axiom Capital Management, Inc., a Delaware
corporation.
 
“PMSI
 Asset”  shall  have  the  meaning  ascribed  thereto  in  the  definition  of
Excluded Assets.

“Purchaser”  or  “Purchasers”  shall  have  the  meaning  ascribed  thereto  in  the
preamble hereof.

“Real Estate” shall have the meaning ascribed thereto in Section 3(j) hereof.

 
“Secured Obligations” shall mean, collectively, (a) the principal of and
interest on the Secured Notes issued or issuable (as applicable) by the Company
and held by the applicable Purchaser and all other amounts from time to time
owing to such Purchasers by the Company under the Subscription Agreement and the
Secured Notes, and (b) all obligations of the Company to such Purchasers
thereunder.

“Secured Notes” shall mean the secured convertible promissory notes with an
optional and a mandatory conversion feature issued to the Purchasers in
connection with the Bridge Note Offering.

“Subscription Agreement” shall have the meaning ascribed thereto in the preamble
hereof.

“Trademark Collateral” shall mean all Trademarks, whether now owned or hereafter
acquired by the Company  or its subsidiaries, that are associated with the
Business.

 
“Trademarks” shall mean all trade names, trademarks and service marks, logos,
trademark and service mark registrations, and applications for trademark and
service mark registrations, and, without limitation, all renewals of trademark
and service mark registrations, all rights corresponding thereto throughout the
world, the right to recover for all past, present and future infringements
thereof, all other rights of any kind whatsoever accruing thereunder or
pertaining thereto, together, in each case, with the product lines and goodwill
of the business connected with the use of, and symbolized by, each such trade
name, trademark and service mark.
 
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“Uniform Commercial Code” shall mean the Uniform Commercial Code as in effect in
the State of New York from time to time.
 
Section 2. Representations and Warranties. The Company represents and warrants
to each of the Purchasers that:
 
        (a) except as set forth on Schedule 2(a) the Company is the sole
beneficial owner of the Collateral and no Lien exists or will exist upon any
Collateral at any time, except for Permitted Liens and security interest in
favor of each of the Purchasers created or provided for herein which security
interest will constitute a first priority perfected security interest in and to
all of the Collateral (other than (i) Real Estate, and (ii) as otherwise set
forth in this Agreement) upon the filing of the applicable financing statements
required hereunder or other action required by this Agreement necessary to
establish “control” as that term is defined in the Uniform Commercial Code over
the Collateral for the benefit of the Collateral Agent.

(b) except as set forth on Schedule 2(b), to the knowledge of the Company, the
Company is not, in connection with the Business, infringing in any material
respect upon any Copyrights, Patents or Trademarks of any other Person; and no
proceedings have been instituted or are pending against the Company or, to the
Company’s knowledge, threatened, and no claim against the Company has been
received by the Company, alleging any such violation.

Section 3. Collateral. As collateral security for the prompt payment in full
when due (whether at stated maturity, by acceleration or otherwise) of the
Secured Obligations, the Company and its subsidiaries hereby grant, collaterally
assign, hypothecate and transfer to the Collateral Agent on behalf of the
Purchasers as hereinafter provided, a security interest in and Lien upon all of
the Company’s right, title and interest in, to and under all personal property
and other assets of the Company, whether now owned or hereafter acquired by or
arising in favor of the Company, whether now existing or hereafter coming into
existence, whether owned or consigned by or to, or leased from or to the Company
and regardless of where located, except for the Excluded Assets and the Excluded
Collateral, (all being collectively referred to herein as “Collateral”)
including:

(a) all accounts and general intangibles (each as defined in the Uniform
Commercial Code) of the Company constituting any right to the payment of money,
including (but not limited to) all moneys due and to become due to the Company
in respect of any loans or advances for the purchase price of Inventory or
Equipment or other goods sold or leased or for services rendered, all moneys due
and to become due to the Company under any guarantee (including a letter of
credit) of the purchase price of Inventory or Equipment sold by the Company and
all tax refunds (such accounts, general intangibles and moneys due and to become
due being herein called collectively “Accounts”);

 
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(b) all instruments, chattel paper or letters of credit (each as defined in the
Uniform Commercial Code) of the Company evidencing, representing, arising from
or existing in respect of, relating to, securing or otherwise supporting the
payment of, any of the Accounts, including (but not limited to) promissory
notes, drafts, bills of exchange, stock certificates, unit certificates or other
instruments representing equity ownership in any Person, and trade acceptances
(herein collectively called “Instruments”);

(c) all inventory (as defined in the Uniform Commercial Code) of the Company and
all goods obtained by the Company in exchange for such inventory (herein
collectively called “Inventory”);

(d) all other accounts or general intangibles of the Company not constituting
Intellectual Property or Accounts;

(e) all equipment (as defined in the Uniform Commercial Code) of the Company
(herein collectively called “Equipment”);
 
(f) each contract and other agreement of the Company relating to the sale or
other disposition of Inventory or Equipment;
 
(g) all deposit accounts (as defined in the Uniform Commercial Code) of the
Company;
 
(h) all documents of title (as defined in the Uniform Commercial Code) or other
receipts of the Company covering, evidencing or representing Inventory or
Equipment;

(i) all rights, claims and benefits of the Company against any Person arising
out of, relating to or in connection with Inventory or Equipment purchased by
the Company, including, without limitation, any such rights, claims or benefits
against any Person storing or transporting such Inventory or Equipment;

(j) all estates in land together with all improvements and other structures now
or hereafter situated thereon, together with all rights, privileges, tenements,
hereditaments, appurtenances, easements, including, but not limited to, rights
and easements for access and egress and utility connections, and other rights
now or hereafter appurtenant thereto (“Real Estate”);

(k) all other tangible or intangible property of the Company, including, without
limitation, all proceeds, products and accessions of and to any of the property
of the Company described in clauses (a) through (j) above in this Section 3
(including, without limitation, any proceeds of insurance thereon), and, to the
extent related to any property described in said clauses or such proceeds,
products and accessions, all books, correspondence, credit files, records,
invoices and other papers, including without limitation all tapes, cards,
computer runs and other papers and documents in the possession or under the
control of the Company, or any computer bureau or service company from time to
time acting for the Company;

 
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(l) and all Intellectual Property.
 
Section 4. Further Assurances; Remedies. In furtherance of the grant of the
security interest pursuant to Section 3 hereof, the Company hereby agrees with
the Collateral Agent and each of the Purchasers as follows:

4.1 Delivery and Other Perfection. The Company shall:

(a) give, execute, deliver, file and/or record any financing statement, notice,
instrument, document, agreement or other papers that may be necessary (in the
reasonable judgment of the Collateral Agent) to create, preserve, perfect or
validate any security interest granted pursuant hereto or to enable the
Collateral Agent to exercise and enforce their rights hereunder with respect to
such security interest, provided that notices to account debtors in respect of
any Accounts or Instruments shall be subject to the provisions of Section 4.09
below;

(b) upon the acquisition after the date hereof by the Company of any Equipment
covered by a certificate of title or ownership cause the Collateral Agent to be
listed as the lienholder on such certificate of title and within one hundred
twenty (120) days of the acquisition thereof (or such other time as the
Collateral Agent may approve in its sole discretion) deliver evidence of the
same to the Collateral Agent;

(c) keep accurate books and records relating to the Collateral, and, during the
continuation of an Event of Default, stamp or otherwise mark such books and
records in such manner as the Collateral Agent may reasonably require in order
to reflect the security interests granted by this Agreement;

(d) permit representatives of the Collateral Agent, upon reasonable notice, at
any time during normal business hours to inspect and make abstracts from its
books and records pertaining to the Collateral, and permit representatives of
the Collateral Agent to be present at the Company’s place of business to receive
copies of all communications and remittances relating to the Collateral, and
forward copies of any notices or communications by the Company with respect to
the Collateral, all in such manner as the Collateral Agent may reasonably
require, provided, however, that so long as an Event of Default is not
continuing, such visits shall be made not more than once per fiscal year at
Company’s expense;

(e) upon the occurrence and during the continuance of any Event of Default, upon
request of the Collateral Agent, promptly notify each account debtor in respect
of any Accounts or Instruments that such Collateral has been assigned to the
Collateral Agent hereunder, and that any payments due or to become due in
respect of such Collateral are to be made directly to the Collateral Agent; and

 
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(f) provide the Collateral Agent with thirty (30) days prior written notice of
its intent to (a) change its name or the name of any of its subsidiaries, or
(ii) dispose of a significant portion of its equity or assets or the equity or
assets of any of its subsidiaries.

4.2 Other Financing Statements and Liens. Except with respect to Permitted
Indebtedness, without the prior written consent of the Collateral Agent, the
Company shall not file or authorize or permit to be filed, in any jurisdiction,
any financing statement or like instrument with respect to the Collateral in
which the Collateral Agent is not named as the sole secured party for the
benefit of each of the Purchasers, except for Permitted Liens.

4.3 Preservation of Rights. The Collateral Agent shall not be required to take
steps necessary to preserve any rights against prior parties to any of the
Collateral.

4.4 Events of Default, etc. During the period during which an Event of Default
shall have occurred and be continuing:

(a) The Company shall, at the request of the Collateral Agent, assemble the
Collateral owned by it at such place or places, reasonably convenient to both
the Collateral Agent and the Company, designated in its request.

(b) The Collateral Agent may make any reasonable compromise or settlement deemed
desirable with respect to any of the Collateral and may extend the time of
payment, arrange for payment in installments, or otherwise modify the terms of,
any of the Collateral with the consent of the Company, which shall not be
unreasonably withheld.

(c) The Collateral Agent shall have all of the rights and remedies with respect
to the Collateral of a secured party under the Uniform Commercial Code (whether
or not said Code is in effect in the jurisdiction where the rights and remedies
are asserted) and such additional rights and remedies to which a secured party
is entitled under the laws in effect in any jurisdiction where any rights and
remedies hereunder may be asserted, including, without limitation, the right, to
the maximum extent permitted by law, to exercise all voting, consensual and
other powers of ownership pertaining to the Collateral as if the Collateral
Agent were the sole and absolute owner thereof.

(d) The Collateral Agent in its discretion may, in its name or in the name of
the Company, demand, sue for, collect or receive any money or property at any
time payable or receivable on account of or in exchange for any of the
Collateral or Patent Collateral (as the case may be), but shall be under no
obligation to do so.

(e) The Collateral Agent may, upon thirty (30) Business Days prior written
notice to the Company, of the time and place, with respect to the Collateral or
any part thereof which shall then be or shall thereafter come into the
possession, custody or control of the Collateral Agent, or any of its respective
agents, sell, lease, assign or otherwise dispose of all or any of such
Collateral, at such place or places as the Collateral Agent deems best, and for
cash or on credit or for future delivery (without thereby assuming any credit
risk), at public or private sale, without demand of performance or notice of
intention to effect any such disposition or of

 
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time or place thereof (except such notice as is required above or by applicable
statute and cannot be waived) and the Collateral Agent or anyone else may be the
purchaser, lessee, assignee or recipient of any or all of the Collateral so
disposed of at any public sale (or, to the extent permitted by law, at any
private sale), and thereafter hold the same absolutely, free from any claim or
right of whatsoever kind, including any right or equity of redemption (statutory
or otherwise), of the Company, any such demand, notice or right and equity being
hereby expressly waived and released. The Collateral Agent may, without notice
or publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for the
sale, and such sale may be made at any time or place to which the same may be so
adjourned.

(f) The proceeds of each collection, sale or other disposition under this
Section 4.04 shall be applied in accordance with Section 4.08 hereof.

(g) The Company recognizes that, by reason of certain prohibitions contained in
the Securities Act of 1933, as amended, and applicable state securities laws,
the Collateral Agent may be compelled, with respect to any sale of all or any
part of the Collateral, to limit purchasers to those who will agree, among other
things, to acquire the Collateral for their own account, for investment and not
with a view to the distribution or resale thereof. The Company acknowledges that
any such private sales to an unrelated third party in an arm’s length
transaction may be at prices and on terms less favorable to the Collateral Agent
than those obtainable through a public sale without such restrictions, and,
notwithstanding such circumstances, agrees that any such private sale shall be
deemed to have been made in a commercially reasonable manner and that the
Collateral Agent shall have no obligation to engage in public sales and no
obligation to delay the sale of any Collateral for the period of time necessary
to permit the respective Issuer thereof to register it for public sale.

4.5 Deficiency. If the proceeds of sale, collection or other realization of or
upon the Collateral pursuant to Section 4.04 hereof are insufficient to cover
the costs and expenses of such realization and the payment in full of the
Secured Obligations, the Company shall remain liable for any deficiency.

4.6 Removals, etc. Without at least thirty (30) days’ prior written notice to
the Collateral Agent or unless otherwise required by law, the Company shall not
(a) maintain any of its books or records with respect to the Collateral at any
office or maintain its chief executive office or its principal place of business
at any place, or permit any Inventory or Equipment to be located anywhere other
than at the address indicated for the Company in Section 6(g)(i) of the
Subscription Agreement or at one of the locations identified in Schedule 4.06
hereto or in transit from one of such locations to another or (b) change its
corporate name, or the name under which it does business, from the name shown on
the signature page hereto.

4.7 Private Sale. The Collateral Agent shall incur no liability as a result of
the sale of the Collateral, or any part thereof, at any private sale to an
unrelated third party in an arm’s length transaction pursuant to Section 4.04
hereof conducted in a commercially reasonable manner. The Company hereby waives
any claims against the Collateral Agent arising by reason of the fact that the
price at which the Collateral may have been sold at such a private sale was less
than the price which might have been obtained at a public sale or was less than
the aggregate amount of the Secured Obligations, even if the Collateral Agent
accepts the first offer received and does not offer the Collateral to more than
one offeree.

 
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4.8 Application of Proceeds. Except as otherwise herein expressly provided, the
proceeds of any collection, sale or other realization of all or any part of the
Collateral pursuant hereto, and any other cash at the time held by the
Collateral Agent under this Section 4, shall be applied by the Collateral Agent:

(a) First, to the payment of the costs and expenses of such collection, sale or
other realization, including reasonable out-of-pocket costs and expenses of the
Collateral Agent and the reasonable fees and expenses of its agents and counsel,
and all expenses, and advances made or incurred by the Collateral Agent in
connection therewith;

(b) Second, to the payment in full of the Secured Obligations in each case
equally and ratably in accordance with the respective amounts thereof then due
and owing to each of the Purchasers; and

(c) Lastly, to the payment to the Company, or its successors or assigns, or as a
court of competent jurisdiction may direct, of any surplus then remaining.

As used in this Section 4, “proceeds” of Collateral shall mean cash, securities
and other property realized in respect of, and distributions in kind of,
Collateral, including any thereof received under any reorganization, liquidation
or adjustment of debt of the Company or any issuer of or obligor on any of the
Collateral.

4.9 Attorney-in-Fact. Without limiting any rights or powers granted by this
Agreement to the Collateral Agent while no Event of Default has occurred and is
continuing, upon the occurrence and during the continuance of any Event of
Default, the Collateral Agent is hereby appointed the attorney-in-fact of the
Company for the purpose of carrying out the provisions of this Section 4 and
taking any action and executing any instruments which the Collateral Agent may
deem necessary or advisable to accomplish the purposes hereof, which appointment
as attorney-in-fact is irrevocable and coupled with an interest. Without
limiting the generality of the foregoing, so long as the Purchasers shall be
entitled under this Section 4 to make collections in respect of the Collateral,
the Collateral Agent shall have the right and power to receive, endorse and
collect all checks made payable to the order of the Company representing any
dividend, payment, or other distribution in respect of the Collateral or any
part thereof and to give full discharge for the same.
 
4.10  Perfection; Name Changes.
 
(a) Concurrently with the execution and delivery of this Agreement or within
five (5) Business Days following the date hereof, the Company shall file such
financing statements and other documents in such offices as the Collateral Agent
may reasonably request to perfect the security interests granted by Section 3 of
this Agreement, and (b) the Company shall within five (5) Business Days
following the date hereof, grant control over any deposit

 
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accounts to the Collateral Agent and hereby agrees to execute any deposit
control agreement in order to accomplish such grant of control. The Collateral
Agent and the Purchasers each hereby acknowledge that neither the Placement
Agent nor its legal counsel shall have any responsibility whatsoever for the
filing, updating, amending, monitoring or taking any other action in connection
with any financing statements or for taking any other actions to perfect, or
otherwise protect, the Purchasers’ security interest in the Collateral. The
Company hereby covenants that it shall provide the Purchasers, the Collateral
Agent and the Placement Agent with at least ten (10) Business Days’ prior
written notice before effecting any name change for the Company or any of its
subsidiaries. Any breach of this covenant shall be considered an Event of
Default hereunder.

4.11 Termination. When all Secured Obligations shall have been paid in full
under the Subscription Agreement, this Agreement shall terminate, and the
Collateral Agent shall forthwith cause to be assigned, transferred and
delivered, against receipt but without any recourse, warranty or representation
whatsoever, any remaining Collateral and money received in respect thereof, to
or on the order of the Company. The Collateral Agent shall also execute and
deliver to the Company upon such termination such Uniform Commercial Code
termination statements, certificates for terminating the Liens on the Motor
Vehicles and such other documentation as shall be reasonably requested by the
Company to effect the termination and release of the Liens on the Collateral.

4.12 Expenses. The Company agrees to pay to the Collateral Agent all reasonable
out-of-pocket expenses (including reasonable expenses for legal services of
every kind) of, or incident to, the enforcement of any of the provisions of this
Section 4, or performance by the Collateral Agent of any obligations of the
Company in respect of the Collateral which the Company has failed or refused to
perform upon reasonable notice, or any actual or attempted sale, or any
exchange, enforcement, collection, compromise or settlement in respect of any of
the Collateral, and for the care of the Collateral and defending or asserting
rights and claims of the Collateral Agent in respect thereof, by litigation or
otherwise, including expenses of insurance, and all such expenses shall be
Secured Obligations to the Collateral Agent secured under Section 3 hereof.
 
4.13 Further Assurances.
 
(a) The Company agrees that, from time to time upon the written reasonable
request of the Collateral Agent, the Company will execute and deliver such
further documents and do such other acts and things as the Collateral Agent may
reasonably request in order fully to effect the purposes of this Agreement.

(b) In the event that the Company acquires any direct or indirect ownership
interest in the shares of capital stock or equity interests of any Person, the
Company agrees to execute a pledge agreement, in a form satisfactory to the
Collateral Agent, pledging such shares of capital stock or equity interests, and
agrees that such shares of capital stock or equity interests shall become part
of the Collateral.
 
 
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4.14 Indemnity. The Company hereby covenants and agrees to reimburse, indemnify
and hold the Collateral Agent harmless from and against any and all claims,
actions, judgments, damages, losses, liabilities, costs, transfer or other
taxes, consequential damages and expenses (including, without limitation,
reasonable attorneys’ fees and expenses) incurred or suffered without any gross
negligence, bad faith or willful misconduct by the Collateral Agent, arising out
of or incident to any investigation, proceeding or litigation arising out of
this Agreement or the administration of the Collateral Agent’s duties hereunder,
or resulting from its actions or inactions as Collateral Agent.

Section 5. Miscellaneous.

5.1 No Waiver. No failure on the part of the Collateral Agent or any of its
agents to exercise, and no course of dealing with respect to, and no delay in
exercising, any right, power or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise by the Collateral Agent or any
of its agents of any right, power or remedy hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
The remedies herein are cumulative and are not exclusive of any remedies
provided by law.

5.2 Governing Law and Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts to be wholly performed within such state and without regard to
conflicts of laws provisions. Any legal action or proceeding arising out of or
relating to this Agreement may be instituted in the courts of the State of New
York sitting in New York County or in the United States of America for the
Southern District of New York, and the parties hereto irrevocably submit to the
jurisdiction of each such court in any action or proceeding. Purchaser hereby
irrevocably waives and agrees not to assert, by way of motion, as a defense, or
otherwise, in every suit, action or other proceeding arising out of or based on
this Agreement and brought in any such court, any claim that Purchaser is not
subject personally to the jurisdiction of the above named courts, that
Purchaser’s property is exempt or immune from attachment or execution, that the
suit, action or proceeding is brought in an inconvenient forum or that the venue
of the suit, action or proceeding is improper.

5.03. Notices. All notices, requests, consents and demands hereunder shall be in
writing and facsimile (facsimile confirmation required) or delivered to the
intended recipient at its address or telex number specified in Subscription
Agreement and shall be deemed to have been given at the times specified in said
Subscription Agreement.

5.4 Waivers, etc. The terms of this Agreement may be waived, altered or amended
only by an instrument in writing duly executed by the Company and the Collateral
Agent. Any such amendment or waiver shall be binding upon each of the Purchasers
and the Company.

5.5 Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the successors and assigns of the Company and each of the
Purchasers (provided, however, that the Company shall not assign or transfer its
rights hereunder without the prior written consent of the Collateral Agent).

5.6 Counterparts. This Agreement may be executed in any number of counterparts,
all of which together shall constitute one and the same instrument and any of
the parties hereto may execute this Agreement by signing any such counterpart.
Execution and delivery of this Agreement by facsimile transmission (including
delivery of documents in Adobe PDF format) shall constitute execution and
delivery of this Agreement for all purposes, with the same force and effect as
execution and delivery of an original manually signed copy hereof.

 
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5.7 Collateral Agent. Each Purchaser agrees to appoint Union Bank, N.A., or an
affiliate thereof, as its Collateral Agent for purposes of this Agreement. The
Collateral Agent may employ agents and attorneys-in-fact in connection herewith
and shall not be responsible for the negligence or misconduct of any such agents
or attorneys-in-fact selected by it in good faith. The rights and
responsibilities of the Collateral Agent are set forth in the Collateral Agent
Agreement attached as Annex 1 hereto. In the event of a conflict between the
terms of this Agreement and the terms of the Collateral Agent Agreement, the
terms of the Collateral Agent Agreement shall govern.

5.8 Severability. If any provision hereof is invalid and unenforceable in any
jurisdiction, then, to the fullest extent permitted by law, (a) the other
provisions hereof shall remain in full force and effect in such jurisdiction and
shall be liberally construed in favor of the Purchasers in order to carry out
the intentions of the parties hereto as nearly as may be possible and (b) the
invalidity or unenforceability of any provision hereof in any jurisdiction shall
not affect the validity or enforceability of such provision in any other
jurisdiction.

5.9 UCC and other Security Filings. The Collateral Agent and the Purchasers each
hereby acknowledge that neither the Placement Agent nor its legal counsel shall
have any responsibility whatsoever for the filing of any financing statements,
or other security filings, or for taking any other actions to perfect, monitor,
or otherwise protect, the Purchasers’ security interest in the Collateral. All
such tasks shall be the sole responsibility of the Collateral Agent.

[SIGNATURE PAGE FOLLOWS]

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

COMPANY: True Drinks Holdings, Inc.
 
By: /s/ Dan Kerker
Name: Dan Kerker
Title: Chief Financial Officer
 
COLLATERAL AGENT: Union Bank, N.A.

By: /s/ Rafael E. Miranda
Name: Rafael E. Miranda
Title: Vice President
 
PURCHASERS:

Beneficial Capital Corp

By: /s/ John J. Hoey
Name: John J. Hoey
Title: President

JSL Kids Partners

By: /s/ John S. Lemak
Name: John S. Lemak
Title: Manager

The Fred R. Gumbinner Living Trust

By: /s/ Fred R. Gumbinner
Name: Fred R. Gumbinner
Title: Trustee

/s/ John S. Lemak
John S. Lemak

/s/ John S. Lemak, Jr.
John S. Lemak, Jr.

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