EXECUTION VERSION

 

Rosenthal & Rosenthal, Inc.

 

Financing Agreement

 

AGREEMENT dated October 4, 2018 between Reed’s Inc. (“Borrower”), a Corporation
duly organized and presently existing in good standing under the laws of the
State of Delaware whose chief executive office is at 201 Merritt 7 Corporate
Park, Norwalk, Connecticut 06851, and ROSENTHAL & ROSENTHAL, INC. (“Lender”), a
New York corporation with an address at 1370 Broadway, New York NY 10018.

 

Borrower desires to obtain loans and other financial accommodations from Lender
on a revolving basis upon the security of the Collateral (as herein defined).
Now, therefore, Borrower and Lender agree as follows.

 

1. DEFINITIONS

 

As used in this Agreement, these terms shall have the following meanings which
shall be applicable to both the singular and plural forms of such terms.

 

1.1. “Account Debtor” shall mean the account debtor with respect to a Receivable
and any other person who is obligated on such Receivable.

 

1.2. “Affiliate” of a party shall mean any entity controlling, controlled by, or
under common control with, the party, and the term “controlling” and such
variations thereof shall mean ownership of a majority of the voting power of a
party.

 

1.3. “Business Day” shall mean a day on which Lender and major banks in New York
City are open for the regular transaction of business.

 

1.4. “Closing Date” shall mean the date set forth in the first paragraph of this
Agreement.

 

1.5. “Collateral” shall have the meaning provided in Section 4.1 hereof.

 

1.6. “Collateral Documents” shall mean any and all security agreements, deposit
account control agreements, mortgages and other documents executed and delivered
to Lender to secure the Obligations including but not limited to the LC.

 

1.7. “Default” shall have the meaning provided in Section 9.1 hereof.

 

1.8. “Effective Rate” shall have the meaning provided in Section 3.1 hereof.

 

1.9. “Eligible Inventory” shall mean Inventory owned by Borrower in the ordinary
course of its business in which Lender holds a perfected security interest
pursuant to the terms hereof, ranking prior to free and clear of all interests,
claims and rights of others, and has received agreements executed by any
landlords and bailees where such Inventory may be located in accordance with
Section 6.15 hereof, and which is and at all times shall continue to be
acceptable to Lender in all respects. Standards of eligibility may be fixed and
revised from time to time solely by Lender in its commercially reasonable
judgment. In determining eligibility, Lender may, but need not, rely on
certificates of inventory and reports furnished by Borrower, but reliance
thereon by Lender from time to time shall not be deemed to limit Lender’s right
to revise standards of eligibility at any time. In general, Inventory shall not
be deemed eligible unless it complies in all respects with the representations,
covenants and warranties hereinafter set forth, made by Borrower with respect
thereto and meets all standards meets all standards imposed by any governmental
agency or authority.

 

   

 

 

1.10. “Eligible Receivables” shall mean Receivables created by Borrower in the
ordinary course of its business which have been validly assigned to Lender and
in which Lender holds a perfected security interest pursuant to the terms hereof
ranking prior to and free and clear of all interests, claims, and rights of
others and which are and at all times shall continue to be acceptable to Lender
in all other respects. Standards of eligibility may be fixed and revised from
time to time solely by Lender in its commercially reasonable judgment. In
determining eligibility Lender may, but need not, rely on agings, reports and
schedules of Receivables furnished by Borrower, but reliance thereon by Lender
from time to time shall not be deemed to limit Lender’s right to revise
standards of eligibility at any time. In general, a Receivable shall not be
deemed eligible unless the Receivable complies with the Minimum Receivable
Eligibility Requirements and the Account Debtor on such Receivable is and at all
times continues to be acceptable to Lender and unless each Receivable complies
in all respects with the representations, covenants and warranties hereinafter
set forth and meets all standards imposed by any governmental agency or
authority.

 

1.11. “Equipment” shall mean equipment as now or hereafter defined in Article 9
of the UCC.

 

1.12. “ERISA” shall mean the Employee Retirement Income Security Act.

 

1.13. “Insolvency Proceeding” shall mean any proceeding commenced by or against
any person or entity under any provision of the United States Bankruptcy Code,
or comparable state statute, as amended, or under any other Bankruptcy or
insolvency law, including assignments for the benefit of creditors, formal or
informal moratoria, compositions, extension generally with its creditors, or
proceedings seeking reorganization, arrangement, or other relief.

 

1.14. “Intercreditor Agreement” shall mean (a) the Intercreditor Agreement of
even date herewith and/or (b) letter agreement regarding (among other things)
the purchase of intellectual property rights of Borrower in consideration for
the payment in full of the Permitted Indebtedness by and between Raptor/Harbor
Reed’s SPV LLC and Lender.

 

1.15. “Inventory” shall mean inventory as now or hereafter defined in Article 9
of the UCC.

 

1.16. “Inventory Availability” shall have the meaning provided in Section 2.1
hereof.

 

1.17. “LC” shall have the meaning provided in Section 2.1 hereof.

 

1.18. “Lease” and “Leased Premises” shall have the meanings provided in Section
9.1 hereof.

 

1.19. “Loan Account” shall mean the Loan Account as described in Section 2.2
hereof.

 

1.20. “Loan Availability” shall have the meaning provided in Section 2.1 hereof.

 

1.21. “Loan Documents” shall mean, collectively, this Agreement, the
Intercreditor Agreement, the LC, the Collateral Documents, and each guaranty,
certificate, agreement, or document now or hereafter executed by Borrower or any
of its future guarantors and delivered to Lender in connection with the
foregoing or as they may be amended.

 

1.22. “Margin” shall mean two percent (2%) per annum.

 

1.23. “Maximum Credit Facility” shall mean $13,000,000.

 

1.24. “Maximum Rate” shall have the meaning provided in Section 10.2 hereof.

 

1.25. “Minimum Receivable Eligibility Requirements” shall have the meaning
provided in Section 2.3 hereof.

 

1.26. “Net Amount of Eligible Receivables” shall mean the gross amount of
Eligible Receivables less sales, excise or similar taxes, returns, discounts,
claims, credits and allowances of any nature at any time issued, owing, granted,
outstanding or claimed, and less (without duplication) all amounts payable by
any Account Debtor on Eligible Receivables of such Account Debtor that are
unpaid more than 60 days following its invoice date.

 

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1.27. “Obligations” shall mean all obligations, liabilities and indebtedness of
Borrower to Lender or an Affiliate of Lender, however evidenced, arising under
this Agreement, any other Loan Document (whether by reason of extension of
credit, guaranty, indemnity or otherwise), or under any other or supplemental
financing provided to Borrower by Lender or an Affiliate of Lender, or
independent hereof or thereof, whether now existing or incurred from time to
time hereafter and whether before or after termination hereof, absolute or
contingent, joint or several, matured or unmatured, direct or indirect, primary
or secondary, liquidated or unliquidated, and whether arising directly or
acquired from others (whether acquired outright, by assignment unconditionally
or as collateral security from another and including participations or interest
of Lender in obligations of Borrower to others), and including (without
limitation) all of Lender’s charges, commissions, fees, interest, expenses,
costs and attorneys’ fees chargeable to Borrower in connection therewith.

 

1.28. “Over-advance” shall mean any portion of all loans and advances which on
any day exceeds the Loan Availability.

 

1.29. “Permitted Liens” shall mean the liens of Lender granted under the Loan
Documents and any other liens, if any, described on the attached Exhibit A.

 

1.30. “Permitted Overadvance” shall have the meaning provided in Section 2.1.

 

1.31. “Person” shall mean any person, firm, corporation, partnership, limited
liability company, association, company, trust, estate, custodian, nominee or
other individual or entity.

 

1.32. “Pledgor” shall have the meaning specified in Section 9.1.

 

1.33. “Prime Rate” shall mean the prime rate from time to time publicly
announced in New York City by JPMorgan Chase Bank.

 

1.34. “Receivables” shall mean all obligations to Borrower for the payment of
money arising out of the sale of goods by Borrower, now existing or hereafter
arising, however evidenced, including all accounts, contract rights, general
intangibles, documents, chattel paper and instruments (as each of such terms is
now or hereafter defined in the UCC).

 

1.35. “Receivable Availability” shall have the meaning specified in Section 2.1
hereof.

 

1.36. “UCC” shall mean the Uniform Commercial Code as in effect from time to
time in the State of New York, provided, however, that in the event by reason of
mandatory provisions of law, any of the attachment, perfection, or priority of
Lender’s security interest in any of the Collateral is governed by the Uniform
Commercial Code as in effect in any jurisdiction other than the State of New
York, the term “UCC” shall mean the Uniform Commercial Code as in effect in such
other jurisdiction for purposes of the provisions hereof relating to such
attachment, perfection or priority and for purposes of definitions related to
such provisions.

 

2. LOANS; Eligibility of Receivables

 

2.1. Lender shall, in its commercially reasonable discretion, make loans to
Borrower from time to time, at Borrower’s request, which loans in the aggregate
shall not exceed the up to the lesser of (A) the Maximum Credit Facility; or (B)
the Loan Availability, which means (a) the Receivable Availability equal to up
to eighty percent (80%) of the Net Amount of Eligible Receivables; plus (b) the
Inventory Availability, which means the lesser of (A) (i) up to sixty-five
percent (65%) of the lower of cost or market value of Eligible Inventory
consisting of finished goods, but in no event more than up to eighty-five
percent (85%) of the orderly appraised net liquidation value, as set forth in an
appraisal obtained at Borrower’s expense and issued by an appraiser satisfactory
to Lender; plus (ii) the lesser of (x) up to thirty-five percent (35%) of
Eligible Inventory consisting of raw materials, but in no event more than up to
eighty-five percent 85% of the net orderly liquidation value; or (y) one million
dollars ($1,000,000), or (B) six million dollars ($6,000,000); plus a Permitted
Overadvance (the “Permitted Overadvance”) not to exceed four million dollars
($4,000,000), based upon (x) a percentage of the net orderly liquidation value
of Borrower’s registered and acceptable trademarks, which Lender has determined
by appraisal to be two million five hundred thousand dollars ($2,500,000); plus
(y) an amount equal to one hundred percent (100%) of an irrevocable
stand-by-letter of credit effective through and including the Renewal Date (or
any extension permitted under Section 10.1 hereof) in favor of Lender naming
Lender as irrevocable beneficiary, with terms and conditions and issued by a
bank satisfactory to Lender in amount not less than one million five hundred
thousand dollars ($1,500,000) (“LC”), minus such reserves as Lender may deem, in
its sole discretion, to be necessary from time to time.

 

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2.2. The making of any loan in excess of the percentages set forth above shall
not be deemed to modify such percentages or create any obligation to make any
further such loan. All loans (and all other amounts chargeable to Borrower under
this Agreement or any supplement hereto) shall be charged to a Loan Account in
Borrower’s name on Lender’s books. Lender shall render to Borrower each month a
statement of the Loan Account (and all credits and charges thereto) which shall
be considered correct and accepted by Borrower and conclusively binding upon
Borrower as an account stated except to the extent that Lender receives a
written notice by registered mail of Borrower’s exceptions within 30 days after
such statement has been rendered to Borrower.

 

2.3. A Receivable meets the Minimum Receivable Eligibility Requirements if 1)
the Receivable arose from bona fide completed transactions and has not remained
unpaid for more than the number of days after the invoice date set forth in
Section 1.26; 2) the amount of the Receivable reported to Lender is absolutely
owing to Borrower and payment is not conditional or contingent, (such as
consignments, guaranteed sales or right of return or other similar terms); 3)
the Receivable did not arise from progress billings, retainages or bill and hold
sales; 4) there are no contra relationships, setoffs, counterclaims or disputes
existing with respect thereto and there are no other facts existing or
threatened which would impair or delay the collectibility of all or any portion
thereof; 5) the goods giving rise thereto were not at the time of the sale
subject to any liens except those permitted in this Agreement; 6) the Account
Debtor is not an Affiliate of Borrower; 7) there has been compliance with the
Assignment of Claims Act or similar State or local law, if applicable, if the
Account Debtor is the United States or any domestic governmental unit; 8)
Borrower has delivered to Lender such documents as Lender may have requested
pursuant to Section 4.2 hereof in connection with such Receivable and Lender
shall have received verifications of such Receivable, satisfactory to it, if
sent to the Account Debtor or any other obligors or any bailees; 9) there are no
facts existing or threatened which might in Lender’s commercially reasonable
discretion result in any adverse change in the Account Debtor’s financial
condition; 10) not more than 50% of the Receivables of the Account Debtor or its
Affiliates owed to Borrower are more than 60 days past their invoice date or
fail to otherwise constitute Eligible Receivables; 11) the total indebtedness to
Borrower of the Account Debtor does not exceed the amount of any customer credit
limits as established from time to time on notice to Borrower; 12) the Account
Debtor is deemed creditworthy at all times by Lender; and 13) all
representations and warranties in this Agreement or any other Loan Document with
respect to such Receivable are true and correct.

 

3. LENDER’S CHARGES

 

3.1. Borrower agrees to pay to Lender each month interest (computed on the basis
of the actual number of days elapsed over a year of 360 days) (a) on that
portion of the average daily balances in the Loan Account during the preceding
month which does not exceed the Receivable Availability at a rate per annum
equal to the Prime Rate plus the Margin (the “Effective Rate”); (b) on that
portion of the average daily balances in the Loan Account during the preceding
month, that exceeds the Inventory Availability but does not exceed the Loan
Availability, at a rate per annum equal to the Prime Rate plus two and one half
percent (2.5%) per annum (the “Inventory Rate”); (c) on the Permitted
Overadvances, if any, at a per annum rate equal to three and one half percent
(3.5%) above the Prime Rate (the “Permitted Overadvance Rate”); and (d) on any
other Over-advances at a rate of three percent (3%) above the Permitted
Overadvance Rate. Any change in the effective interest rates due to a change in
the Prime Rate shall take effect on the date of such change in the Prime Rate
provided, that, with respect to Lender’s charges, no decrease in the Prime Rate
below 4.75% per annum shall be given any effect.

 

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3.2. Borrower shall pay to Lender a facility fee payable on the Closing Date in
the amount of 1.00% of the Maximum Credit Facility and on the anniversary of
such date in each succeeding year, in the amount of 1.00% of the Maximum Credit
Facility.

 

3.3. Borrower shall pay to Lender monthly an administration fee of $1,000
payable in arrears on the first day of each month with respect to the prior
month for the stated term of this Agreement.

 

3.4. A statement of all of Lender’s charges shall accompany each monthly
statement of the Loan Account and such charges shall be payable by Borrower
within 5 days after receipt of such statement. In lieu of the separate payment
of charges, Lender at its option, shall have the right to debit the amount of
such charges to Borrower’s Loan Account, which charges shall be deemed to be
first paid by amounts subsequently credited to the Loan Account. Borrower agrees
that the minimum charges payable by Borrower to Lender each month under Section
3.1 hereof shall be $4,000. As more fully provided in Section 10.2 hereof, in no
event shall the interest charges hereunder exceed the Maximum Rate.

 

4. SECURITY INTEREST IN COLLATERAL

 

4.1. As security for the prompt performance, observance and payment in full of
all of the Obligations, Borrower grants to Lender a security interest in, a
continuing lien upon and a right of setoff against, and Borrower hereby assigns,
transfers, pledges and sets over to Lender (collectively, including any other
assets of Borrower in which Lender may be granted a security interest under any
Loan Document, the “Collateral”): (i) all Receivables (whether or not Eligible
Receivables and whether or not specifically listed on any schedules, assignments
or reports furnished to Lender) (ii) all of Borrower’s property, and the
proceeds thereof, now or hereafter held or received by or in transit to Lender
or held by others for Lender’s account, including any and all deposits,
balances, sums and credits of Borrower with, and any and all claims of Borrower
against, Lender, at any time existing, (iii) all credit insurance policies, and
all other insurance and all guarantees relating to the Receivables or other
Collateral, (iv) all books, records and other general intangibles evidencing or
relating to Receivables or other Collateral and the computer hardware and
software and media containing such books and records; all deposits, or other
security for the obligation of any person under or relating to Receivables, all
of the Borrower’s rights and remedies of whatever kind or nature it may hold or
acquire for the purpose of securing or enforcing Receivables; all right, title
and interest of the Borrower in and to all goods relating to, or which by sale
have resulted in, Receivables, including goods returned by or reclaimed or
repossessed from Account Debtors and all goods described in copies of invoices
delivered by Borrower to Lender; all rights of stoppage in transit, replevin,
repossession and reclamation and all other rights and remedies of an unpaid
vendor or lienor, and all proceeds of any Letter of Credit naming Borrower as
beneficiary and which provides for, guarantees or assures the payment of any
Receivable; (v) all accounts, instruments, chattel paper, documents, general
intangibles, deposit accounts, investment property, the LC and all letter of
credit rights, whether or not arising out of the sale of goods or rendition of
services, and including choses in action, causes of action, tax refunds (and
claims), and reversions from terminated pension plans; (vi) all of Borrower’s
Inventory and Equipment; and (vii) all proceeds of such Collateral, in any form,
including cash, non-cash items, checks, notes, drafts and other instruments for
the payment of money all of which now existing or hereafter arising. Such
security interest in favor of Lender shall continue during the term of this
Agreement and until indefeasible payment in full of all Obligations, whether or
not this Agreement shall have sooner terminated. Notwithstanding anything
contained herein to the contrary, the Collateral will not include property,
plant and equipment currently being liquidated by Borrower as part of its exit
from its manufacturing plant and related business of producing and bottling
branded and private label beverages located at Los Angeles, California.

 

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4.2. At Lender’s request, Borrower will provide Lender with confirmatory
assignment schedules in form satisfactory to Lender, copies of customers’
invoices, evidence of shipment or delivery, and such further information as
Lender may require. Borrower will take any and all steps and observe such
formalities as Lender may request from time to time to create and maintain in
Lender’s favor a valid and first lien upon, security interest in and pledge of
all of Borrower’s Receivables and all other Collateral, including executing all
documents that may be requested by Lender to maintain such security interest in
and pledge of the Collateral. Borrower hereby authorizes Lender to file any
Financing Statements under the UCC, and renewals and amendments thereof, naming
Borrower as debtor, that are necessary to perfect and maintain the perfection of
Lender’s security interest in the Collateral. Borrower agrees to take all steps
necessary to allow Lender to comply with any Federal or state statute, which, in
Lender’s judgment, if not complied with, might afford to any Person an interest
in the Collateral that would be superior to Lender’s security interest in the
Collateral. Lender’s security interest in Borrower’s intellectual property is
subject to release pursuant to the terms and conditions of the Intercreditor
Agreement.

 

5. CUSTODY AND INSPECTION OF COLLATERAL AND RECORDS;

 

COLLECTION AND HANDLING OF COLLATERAL

 

5.1. As to all moneys so collected, including all prepayments by customers,
Borrower shall on the day received remit all such collections to Lender in the
form received by depositing such collections into an account of Lender specified
by Lender and maintained at Borrower’s expense. All amounts collected on
Receivables when received by Lender shall be credited to Borrower’s Loan
Account, adding 1 Business Days for collection and clearance of remittances sent
by wire transfer and 3 Business Days for collection and clearance of all other
remittances. Such credits shall be conditional upon final payment to Lender.
Nothing contained in this Section 5.1, or otherwise in this Agreement, shall be
deemed to limit Lender’s rights and powers pursuant to Section 7 of this
Agreement.

 

5.2. All records, ledger sheets, correspondence, contracts, documentation and
computer hardware and software and media relating to or evidencing Receivables
or containing information relating to the Receivables shall, until delivered to
Lender or removed by Lender from Borrower’s premises, be kept on Borrower’s
premises, without cost to Lender, in appropriate containers in safe places.
Lender shall at all reasonable times have full access to and the right to
examine and make copies of Borrower’s books and records, and shall have full
access to Borrower’s computer information systems, to confirm and verify all
Receivables assigned to Lender and to do whatever else Lender deems necessary to
protect its interest. Lender may at any time remove from Borrower’s premises, or
require Borrower to deliver certified copies of any contracts, documentation,
files and records relating to Receivables, and any computer hardware, software
and media containing information relating to the Receivables or Lender may,
without cost or expense to Lender, use such of Borrower’s personnel, supplies,
computer information systems and space at Borrower’s places of business as may
be reasonably necessary for collection of Receivables.

 

5.3. Borrower will immediately upon obtaining knowledge thereof report to Lender
all reclaimed, repossessed or returned merchandise, Account Debtor claims and
any other matter affecting the value, enforceability or collectibility of
Receivables. Any merchandise reclaimed or repossessed by or returned to
Borrower, after the occurrence and during the continuation of a Default will, at
the cost and expense of Borrower, be set aside marked with the name of the
Lender and will be held by Borrower for the account of Lender and subject to
Lender’s security interest. All claims and disputes relating to Receivables are
to be promptly adjusted by Borrower within a reasonable time, at its own cost
and expense. Lender may, at its option, settle, adjust or compromise claims and
disputes relating to Receivables which are not adjusted by Borrower within a
reasonable time. Following and during the continuance of a Default, Lender may,
at its option, revoke Borrower’s authority to settle or adjust disputes or to
further communicate with Account Debtors.

 

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5.4 Borrower shall reimburse Lender on demand for all costs of collection
incurred by Lender in efforts to enforce payment of Receivables, recovery of or
realization upon any other Collateral, including attorneys’ fees and the fees
and commissions of collection agencies. All and any fees, costs and expenses, of
whatever kind and nature, including taxes of any kind, which Lender may incur in
filing public notices, obtaining appraisals of the Collateral, and the
reasonable charges of any attorney whom Lender may engage in preparing and
filing documents, making title or lien examinations and rendering opinion
letters, as well as all fees, costs and expenses incurred by Lender (including
all attorneys’ fees and including Lender’s out of pocket expenses in conducting
periodic field examinations of Borrower and the Collateral (including any costs
of third-party examiners) plus Lender’s prevailing per diem charge for each of
its examiners in the field and office, now $950 per person per day), in
administering this Agreement, protecting, preserving, enforcing or foreclosing
any security interests or rights granted to Lender hereunder, whether through
judicial proceedings or otherwise (including advertising costs), enforcing or
collecting the Receivables or enforcing the Loan Documents, recovery of or
realization upon any other Collateral, or in defending or prosecuting any
actions or proceedings arising out of or related to its transactions with
Borrower, including actions or proceedings that may involve any person asserting
a priority or claim with respect to the Collateral, shall be borne and paid for
by Borrower on demand, shall constitute part of the Obligations and may at
Lender’s option be charged to Borrower’s Loan Account. Borrower’s obligations
under this section shall survive termination of this Agreement for any reason.

 

6. REPRESENTATIONS, COVENANTS AND WARRANTIES

 

As an inducement to Lender to enter into this Agreement, Borrower represents,
covenants and warrants (which shall survive the execution and delivery of this
Agreement) that:

 

6.1. Borrower is and at all times during the term of this Agreement shall be a
Corporation duly organized and presently existing in good standing under the
laws of the State of Delaware and is and at all times during the term of this
Agreement shall be duly qualified and existing in good standing in every other
state in which the nature of Borrower’s business requires it to be qualified.
Borrower is not aware, and will upon becoming aware promptly notify Lender, of
any person organizing under its name in another state.

 

6.2. The execution, delivery and performance of this Agreement are within the
corporate powers of Borrower, have been duly authorized by appropriate corporate
action and are not in contravention of the terms of Borrower’s charter or
by-laws or of any indenture, agreement or undertaking to which Borrower is a
party or by which it may be bound. Borrower is not now the subject of any
pending governmental investigation or proceeding or of any insolvency
proceeding. No receiver or custodian has been appointed for any of the property
of Borrower. No consent, approval or authorization of any person, including
stockholders of Borrower or any governmental or regulatory authority, that has
not been obtained, is required in connection with the execution, delivery and
performance by Borrower of this Agreement. Borrower warrants that all financial
statements and other reports provided to Lender prior to the Closing Date are
true and correct in all material respects.

 

6.3. There are no pending suits, Federal or state tax liens, or judgment liens
against Borrower or affecting its assets, except for claims set forth on
Schedule 6.3 and Permitted Liens. No assets of Borrower are subject to any liens
or encumbrances except for Permitted Liens. Borrower has no employee benefit
plans subject to ERISA that have accumulated funding deficiencies or liquidity
shortfalls as defined and calculated under ERISA or with respect to which
Borrower presently has withdrawal liability.

 

6.4. Borrower is and shall be, with respect to all Inventory, Equipment,
intellectual property collateral, cash collateral and other Collateral, the
owner thereof free from any lien, security interest or encumbrance of any kind,
except for Permitted Liens, subject to release of security interest in
intellectual property pursuant to the terms and conditions of the Intercreditor
Agreement. No Receivable or any other Collateral has been or shall hereafter be
assigned, pledged or transferred to any person other than the Lender or in any
way encumbered or subject to a security interest except to Lender, and except
for Permitted Liens, and Borrower shall defend the same against the claims of
all persons.

 

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6.5. Borrower’s books and records relating to the Receivables and Collateral are
and shall be maintained at the office referred to below. Except as otherwise
stated below, the principal executive office of Borrower is located at such
address and has been so located on a continuous basis for not less than six
months. Borrower shall not change such location without Lender’s prior written
consent, and, upon making any such change, Lender shall be authorized to file
any additional financing statements or other documents or notices which may be
necessary under the UCC or other applicable law and Borrower shall execute and
deliver to Lender any such documents requiring Borrower’s signature, failing
which Lender shall be authorized to sign such documents on behalf of Borrower as
Borrower’s attorney-in-fact. The listing of offices on Schedule 6.5 hereto
represents all of Borrower’s places of business. Borrower shall notify Lender of
the existence of any additional places of business within 5 Business Days after
any such place of business is established.

 

6.6. All loans and advances requested by Borrower under this Agreement shall be
used for the general corporate and business purposes of Borrower and in no event
shall Borrower request Lender to remit a loan or advance to an account of
Borrower that is used for the specific purpose of purchasing or carrying margin
stock (within the meaning of Regulation U of the Federal Reserve Board) or to
extend credit to others for the purpose of purchasing or carrying any such
margin stock in contravention of Regulation T, U or X of the Federal Reserve
Board; or to the extent that any loans and advances requested by Borrower under
this Agreement shall be used for paying wages of the employees of Borrower,
Borrower hereby represents and warrants that it shall withhold and pay over to
the applicable tax authorities any amount thereof as it shall be so required by
applicable law.

 

6.7. Borrower shall maintain its shipping forms, invoices and other related
documents in a form satisfactory to Lender and shall maintain its books, records
and accounts in accordance with sound accounting practice. Borrower shall
furnish to Lender accounts receivable agings, accounts receivable roll forward
reports (in the form attached hereto as Exhibit B), reconciliations of accounts
receivable collateral and the loan balance on the monthly statements provided by
Lender to Borrower’s records, accounts payable ageing reports, and inventory
designations, monthly, not later than (10) days after the end of each month,
covering the previous month. Borrower shall furnish to Lender such other
information regarding the business affairs and financial condition of Borrower
as Lender may, from time to time, reasonably request, including (a) audited
financial statements prepared at the end of and for each fiscal year of
Borrower, as soon as practical and in any event within one hundred twenty (120)
days after the end of each such fiscal year, including a balance sheet, a
statement of income, a statement of cash flows and notes, prepared by
independent Certified Public Accountants reasonably acceptable to Lender; and
concurrently with such financial statements, a written statement signed by such
independent public accountants to the effect that, (i) in making the examination
necessary for their opinion of such financial statements, they have not obtained
any knowledge of the existence of any Default (form 10-K and the form of auditor
letter provided to Lender are acceptable in lieu of the foregoing), or (ii) if
such independent public accountants shall have obtained from such examination
any such knowledge, they shall disclose in such written statement the Default
and the nature thereof, (b) financial statements prepared internally as at the
end of and for each of the first, second and third fiscal quarterly period of
Borrower, as soon as practical and in any event within forty-five (45) days
after the end of each such fiscal quarter of Borrower, in such detail and scope
as Lender may reasonably require including without limitation, a balance sheet,
a statement of income, a statement of cash flows and notes, (form 10-Q is
acceptable in lieu of the foregoing) certified by the Chief Financial Officer of
Borrower (“CFO”); and concurrently with such financial statements, a written
statement signed by the CFO to the effect that, (i) CFO has not obtained any
knowledge of the existence of any Default, or (ii) if such CFO has obtained from
such examination any such knowledge, such CFO shall disclose in such written
statement the Default and the nature thereof and (c) such other information
regarding the business affairs and financial condition of Borrower as Lender
may, from time to time, request. All such statements and information shall
fairly present the financial condition of Borrower, and the results of its
operations as of the dates and for the periods, for which the same are
furnished.

 

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6.8. Borrower shall duly pay and discharge all taxes, assessments, contributions
and governmental charges upon or against it or its properties or assets prior to
the date on which penalties attach thereto. Borrower shall be liable for any tax
(excluding a tax imposed on the overall net income of Lender) imposed upon any
transaction under this Agreement or giving rise to the Receivables or which
Lender may be required to withhold or pay for any reason and Borrower agrees to
indemnify and hold Lender harmless with respect thereto, and to repay Lender on
demand the amount thereof. Until paid by Borrower, Borrower’s liability under
this paragraph shall be added to the Obligations secured hereunder, and may at
Lender’s option be charged to Borrower’s Loan Account but shall nonetheless be
independent hereof and continue notwithstanding any termination hereof.

 

6.9. With respect to each Receivable, Borrower hereby represents and warrants
that: each Receivable represents a valid and legally enforceable indebtedness
based upon an actual and bona fide sale and delivery of property in the ordinary
course of Borrower’s business which has been completed and finally accepted by
the Account Debtor and for which the Account Debtor is unconditionally liable to
make payment of the amount stated in each invoice, document or instrument
evidencing the Receivable in accordance with the terms thereof, without offset,
defense or counterclaim; each Receivable will be paid in full at maturity; no
Receivables have arisen from sales on bill and hold terms; all statements made
and all unpaid balances appearing in any invoices, documents, instruments and
statements of account describing or evidencing the Receivables are true and
correct and are in all respects what they purport to be and all signatures and
endorsements that appear thereon are genuine and all signatories and endorsers
have full capacity to contract; the Account Debtor owing the Receivable and each
validity guarantor, endorser or surety of such Receivable is solvent and
financially able to pay in full the Receivable when it matures; and all
recording, filing and other requirements of giving public notice under any
applicable law have been duly complied with.

 

6.10. Prior to the making of any loans hereunder: 1) Lender shall have received
an opinion of Borrower’s counsel in the form, and as to the matters, required by
Lender; 2) Lender shall have received Good standing Certificates and other
certifications with respect to Borrower and any other Person liable on the
Obligations from such governmental authorities as Lender shall require; 3)
Lender or its agents shall have completed such examinations and appraisals of
the Collateral and such searches with regard to Borrower and its assets, as
Lender shall require, all at Borrower’s expense; 4) Lender shall have received a
payoff letter duly executed and delivered by PMC Financial Services Group and
Borrower or other evidence of such termination in form and substance
satisfactory to Lender, and any other evidence Lender may require that on the
Closing Date there shall be no Liens on the Collateral other than Permitted
Liens; 5) a lockbox or deposit account complying with Section 5.1 shall have
been established which is satisfactory to Lender; 6) Lender shall have received
evidence, in form satisfactory to Lender, that Borrower has obtained; 7) the
Loan Availability shall be in an amount equal to or greater than $250,000 plus
the sum of all amounts required to be disbursed at closing for the purpose of
paying Lender’s expenses and attorney’s fees chargeable to Borrower hereunder
and all amounts required to be paid to creditors to induce them to release any
liens in the Collateral that are not Permitted Liens; and 8) Lender shall have
received evidence that it is filed and has a perfected first and only security
interest in all Collateral. Notwithstanding the foregoing, the parties hereto
acknowledge the subordinate security interest of Raptor/Harbor Reeds SPV LLC
which is subject to the terms of the Subordination Agreement executed
contemporaneously herewith.

 

6.11. During the term of this Agreement, including online sales, Borrower shall
not make any sales to customers by accepting a credit card issued to such
customers unless Borrower has prior thereto entered into a merchant agreement
with a processor, relating to sales made using such credit card, on terms that
are acceptable to Lender, and such processor has agreed to remit the proceeds of
such sales to an account of Borrower with respect to which Lender has control in
accordance with Section 9-104 of the UCC.

 

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6.12. Attached as Exhibit C is a listing of all of Borrower’s patents,
trademarks and copyrights. So long as any Obligations remain outstanding, Lender
is hereby irrevocably authorized to use any of Borrower’s patents, trademarks
and copyrights for the purpose of enforcing Lender’s security interest in the
Collateral and disposing of any of the Collateral, subject to the terms and
conditions of the Intercreditor Agreement.

 

6.13. So long as any Obligations remain outstanding, Borrower shall (i) advise
Lender of the existence of any commercial tort claims in favor of Borrower,
which advice shall be given to Lender in writing no later than 10 days after
Borrower becomes aware of existence of such a claim in its favor; (ii) within 5
Business Days after Lender’s request therefor, provide Lender with a listing of
all deposit accounts and securities accounts maintained by Borrower and a
listing of all letters of credit issued and outstanding in favor of Borrower as
beneficiary and, if requested by Lender, arrange for the execution by each
depository bank and financial intermediary of a control agreement in Lender’s
favor with respect to such accounts, and by each letter of credit issuer of a
consent to an assignment of the proceeds of such letter of credit to Lender, in
each case in form and content satisfactory to Lender; (iii) maintain in effect
in favor of Lender, agreements (in form satisfactory to Lender) executed by the
landlords of Borrower’s places of business and the bailees of its property,
pursuant to which Lender is granted access to such places of business and such
bailees are directed to honor Lender’s instructions with respect to the
disposition of such property.

 

6.14. Until indefeasible payment in full of the Obligations, Borrower shall not
(i) make any loans or advances to officers, directors, shareholders or
Affiliates (except through participation in equity-based incentive compensation
pursuant to which participants place shares of stock awarded under a
compensation program into a trust which uses the shares as collateral for a loan
to such employee participants from an independent lender); (ii) engage in any
other transactions with Affiliates except on terms similar to those that would
be in effect in transactions between unrelated parties (iii) incur or repay
indebtedness for borrowed money or guaranty the obligations of Affiliates or
other Persons; (iv) sell, transfer or otherwise dispose of any assets except for
sales of Inventory in the normal course other than sale or liquidation of
property, plant and equipment comprising Borrower’s manufacturing plant and
related production and bottling business for branded and private label products
in Los Angeles, California; (v) declare any cash dividends, redeem or repurchase
any stock, or make any other distributions in respect of its stock (other than
dividends paid in-kind or through issuance of common stock and distributions of
non-cash rights or entitlements to stockholders); or (vi) enter into any
agreements to buy or sell goods on consignment terms; or (vi) merge with or into
any entity or undergo any other restructuring or reorganization including
reorganizations that would result in Borrower being organized under the laws of
a state other than Delaware.

 

6.15. Borrower shall not (i) conduct any business or engage in any transaction
or dealing with any Blocked Person (as hereafter defined), including the making
or receiving of any contribution of funds, goods or services to or for the
benefit of any Blocked Person; (ii) deal in, or otherwise engage in any
transaction relating to any property or interests in property blocked pursuant
to Executive Order No. 13224; or (iii) engage in or conspire to engage in any
transaction that evades or avoids, or has the purpose of evading or avoiding, or
attempts to violate, any of the prohibitions set forth in Executive Order No.
13224, the USA Patriot Act or any other Anti-Terrorism Law. Borrower shall
deliver to Lender any certification or other evidence requested from time to
time by Lender in its sole discretion, confirming Borrower’s compliance with
this Section. Borrower is not in violation of any Anti-Terrorism Law and
Borrower is not a Person (a “Blocked Person”) that (a) is listed in the annex
to, or is otherwise subject to the provisions of, Executive Order No. 13224; (b)
is owned or controlled by, or acting for or on behalf of, any Person that is
listed in the annex to, or is otherwise subject to the provisions of, Executive
Order No. 13224; (c) any financial institution is prohibited from dealing or
otherwise engaging in any transaction by any Anti-Terrorism Law; (d) commits,
threatens or conspires to commit or supports “terrorism” as defined in Executive
Order No. 13224; (e) is named as a “specially designated national” on the most
current list published by the U.S. Treasury Department Office of Foreign Asset
Control at its official website or any replacement website or other replacement
official publication of such list, or is affiliated or associated with a person
or entity listed above; (f) conducts any business or engages in making or
receiving any contribution of funds, goods or services to or for the benefit of
any Blocked Person, or deals in, or otherwise engages in any transaction
relating to, any property or interests in property blocked pursuant to Executive
Order No. 13224.

 

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For purposes of this Section 6.15, (i) “Anti-Terrorism Laws” shall mean any
laws, regulations, rules, orders and directives relating to terrorism or money
laundering, including Executive Order No. 13224, the USA Patriot Act, the Laws
comprising or implementing the Bank Secrecy Act, and the Law administered by the
United States Treasury Department’s Office of Foreign Asset Control (as any of
the foregoing laws, regulations, rules, orders and directives may from time to
time be amended, renewed, extended, or replaced); (ii) “Executive Order No.
13224” shall mean Executive Order No. 13224 on Terrorist Financing, effective
September 24, 2001, as the same has been, or shall hereafter be, renewed,
extended, amended or replaced; and (iii) “USA Patriot Act” shall mean the
Uniting and Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56, as the same has
been, or shall hereafter be, renewed, extended, amended or replaced.

 

6.16. Borrower shall deliver to Lender within 5 days of any of Borrower’s senior
officers obtaining knowledge of any condition or event which constitutes, or
might reasonably be expected to constitute, a Default or that any Person has
given notice to Borrower or any Affiliates of Borrower or taken any other action
with respect to a claimed Default, Borrower shall deliver to Lender an officer’s
certificate describing the same and the period of existence thereof and
specifying what action Borrower has taken, are taking and propose to take with
respect thereto.

 

6.17. Borrower shall until payment in full of all Obligations to Lender and
termination of this Agreement: (a) cause to be maintained at the end of each of
its fiscal quarters, Tangible Net Worth in an amount not less than negative
$1,500,000 and Working Capital of not less than negative $2,500,000.

 

7. BORROWER’S INSURANCE

 

7.1. Borrower covenants and agrees that, on and after the date hereof, until
payment in full of the Obligations and termination of this Agreement, Borrower
shall obtain and maintain in effect, at Borrower’s sole expense, policies of
insurance as more specifically set forth on Exhibit D annexed hereto, in form
and substance satisfactory to Lender, each of which shall have ratings of at
least “A-VIII” by A.M. Best Company, and shall otherwise be approved by Lender.

 

7.2. Borrower hereby directs all insurers under such policies of insurance to
pay all proceeds of insurance policies directly to Lender. Borrower irrevocably
makes, constitutes and appoints Lender (and each officer, employee or agent
designated by Lender) as Borrower’s true and lawful attorney-in-fact for the
purpose of (i) making, settling and adjusting such claims under all such
policies of insurance if Borrower fails to make such claim within fifteen (15)
days after any casualty or fails to diligently prosecute such claim, (ii)
endorsing the name of Borrower on any check, draft, instrument or other item of
payment pertaining to the Collateral received by Borrower or Lender pursuant to
any such policies of insurance, and (iii) making all determinations and
decisions with respect to such policies of insurance as they relate to the
Collateral. Borrower agrees to provide Lender with prompt written notice of any
change, amendment or modification to any insurance policy.

 

7.3. Lender is authorized to collect all casualty insurance proceeds and, at
Lender’s option: (i) apply (A) such proceeds against the outstanding principal
amount of the Obligations, or (ii) allow Borrower to use such proceeds, or a
part thereof, to repair any damage or restore, replace or rebuild the Collateral
that was the subject of such proceeds. Notwithstanding anything herein to the
contrary, at any time when a Default has occurred and is continuing, if Lender
receives proceeds of insurance or is holding proceeds of insurance theretofore
received by Lender, Lender may apply the same to the Obligations at any time and
from time to time as it may determine in its discretion. If no Default has
occurred and is continuing and Borrower has been permitted to apply insurance
proceeds to repair, restore, replace or rebuild property, then Lender will
return any insurance proceeds to Borrower which Lender continues to hold after
any such repair, restoration, replacement or rebuilding of such property is
completed to Lenders’ satisfaction as determined reasonably in its discretion.

 

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7.4. If Borrower fails to provide Lender with evidence of the insurance coverage
required by this Agreement, Lender may purchase insurance, at Borrower’s
expense, to protect Lender’s interests in the Collateral. This insurance may,
but need not, protect the interests of Borrower. The coverage that Lender
purchases may not pay any claim that Borrower may make or any claim that is made
against Borrower in connection with the Collateral. Borrower may later cancel
any insurance purchased by Lender, but only after providing Lender with evidence
that Borrower has obtained insurance as required by this Agreement. If Lender
purchases insurance for the Collateral, Borrower will be responsible for the
costs of that insurance, including interest and any other charges that may be
imposed in connection with the placement of the insurance, until the effective
date of the cancellation or expiration of the insurance. The costs of the
insurance shall be added to the Obligations. The costs of the insurance may be
more than the cost of insurance that Borrower may be able to obtain on its own.

 

8. SPECIFIC POWERS OF LENDER

 

8.1. Borrower hereby constitutes Lender or its agent, or any other person whom
Lender may designate, as Borrower’s attorney, at Borrower’s own cost and expense
to exercise at any time all or any of the following powers which, being coupled
with an interest, shall be irrevocable until all Obligations have been paid in
full: (a) to receive, take, endorse, assign, deliver, accept and deposit, in
Lender’s or Borrower’s name, any and all checks, notes, drafts, remittances and
other instruments and documents relating to Receivables and proceeds thereof;
(b) to receive, open and dispose of all mail addressed to Borrower and to
notify, following the occurrence and during the continuation of an alleged event
of Default, postal authorities to change the address for delivery thereof to
such address as Lender may designate; (c) Following the occurrence and during
the continuation of an alleged event of Default, to transmit to Account Debtors
indebted on Receivables notice of Lender’s interest therein and to request from
such Account Debtors at any time, in Borrower’s name or in Lender’s or that of
Lender’s designee, information concerning the Receivables and the amounts owing
thereon; (d) Following the occurrence and during the continuation of an alleged
event of Default, to notify Account Debtors to make payment directly to Lender,
including by sending the letter attached hereto as Annex A; and (e) to take or
bring, in Borrower’s name or Lender’s, all steps, actions, suits or proceedings
deemed by Lender necessary or desirable to effect collection of the Receivables.
In addition, to the extent permitted by law, Lender may file one or more
financing statements, naming Borrower as debtor and Lender as secured party and
indicating therein the types or describing the items of Collateral. Without
limitation of any of the powers enumerated above, Lender is hereby authorized to
accept and to deposit all collections in any form, relating to Receivables,
received from or for the account of Account Debtors (whether such collections
are remitted directly to Lender by Account Debtors or are forwarded to Lender by
Borrower), including remittances which may reflect deductions taken by Account
Debtors, regardless of amount, the Loan Account of Borrower to be credited only
with amounts actually collected on Receivables in accordance with Section 5.1.
Borrower hereby releases (i) any bank, trust company or other firm receiving or
accepting such collections in any form, and (ii) Lender and its officers,
employees and designees, from any liability arising from any act or acts
hereunder or in furtherance hereof, whether of omission or commission, and
whether based upon any error of judgment or mistake of law or fact; provided
however, Borrower’s release does not extend to acts of gross negligence or
willful misconduct.

 

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9. LENDER’S REMEDIES

 

9.1. Borrower agrees that all of the loans and advances made by Lender under the
terms of this Agreement, together with all Obligations of Borrower as defined
herein (unless otherwise provided in any instrument evidencing the same or
agreement relating thereto), shall be payable by Borrower at Lender’s demand at
the office of Lender in New York, New York. In addition, all Obligations shall
be, at Lender’s option, due and payable without notice or demand upon
termination of this Agreement or upon the occurrence of any one or more of the
following events of default (“Default”): (1) if Borrower shall fail to pay to
Lender when due any amounts owing to Lender under any Obligation, or if there
shall occur a Default or breach by Borrower or any Affiliate of Borrower of any
of the terms, covenants, conditions or provisions of this Agreement, any Loan
Document or any other agreement by or among Borrower or any of its Affiliates
and Lender or any of its Affiliates or if Borrower shall fail to pay when due
any indebtedness for borrowed money; (2) if any person who has pledged, granted,
issued or arranged collateral security or the LC for the Obligations (a
“Pledgor”), shall die, terminate or attempt to terminate its obligations; or if
any such person shall breach any of the terms, covenants, conditions or
provisions of any agreement or if a material portion of any tangible Collateral
for the Obligations is destroyed or lost or rendered valueless or no longer
subject to insurance; (3) if any representation, warranty, or statement of fact
made to Lender or an Affiliate of Lender at any time by or on behalf of Borrower
or an Affiliate of Borrower is false or misleading in any material respect at
the time it is made; (4) if an Insolvency Proceeding is commenced by Borrower or
any Pledgor or if an Insolvency Proceeding is commenced against Borrower or any
Pledgor and is not dismissed or stayed within sixty (60) days (provided that no
advances will be made prior to the dismissal of such Insolvency Proceeding) or
if a judgment, levy, attachment or distraint against Borrower remains unpaid,
unstayed or undismissed for a period of more than five days, or if Borrower
discontinues doing business for any reason, or if a custodian, receiver or
trustee of any kind is appointed for it or any of its property; (5) if at any
time Lender shall, in its sole discretion, reasonably exercised, consider the
Obligations insecure or any part of the Receivables unsafe, insecure or
insufficient and Borrower shall not on demand furnish other collateral or make
payment on account, satisfactory to Lender; (6) if (x) Borrower shall default
under or breach the terms of any present or future lease (each a “Lease”) of any
premises now or hereafter leased by Borrower (“Leased Premises”) or (y) Lender
shall receive notice from any lessor of any Leased Premises that a default has
occurred under any Lease, or that any Lease has been terminated; (7) any
employee benefit plan of Borrower subject to ERISA is completely or partially
terminated or the Pension Benefit Guaranty Corporation commences proceedings for
the purpose of effecting any such termination or an event or circumstance occurs
which could result in any such termination; or (8) if a claim is made or
threatened, or a proceeding is commenced, by any governmental agency or
authority against Borrower or any Affiliate of Borrower under any environmental
protection laws; or (9) if there is a default or breach of any provision of any
Intercreditor Agreement; or (10) or upon any Event of Default as defined or
alleged with respect to any indebtedness or obligation evidenced by or referred
to in any Increditor Agreement, including but not limited to a certain April 21,
2017 Subordinated Convertible Non-Redeemable Secured Note (or any replacement)
payable to Raptor/Harbor Reeds SPV LLC; or (11) the LC is terminated, cancelled
or no longer in favor of Lender prior to a Renewal Date and $1,500,000 of the
Permitted Overadvance has not been paid to Lender immediately thereafter; or
(12) if the LC is not extended or renewed to Lender’s satisfaction within ninety
(90) days prior to any Renewal Date. Upon the occurrence of any Default, (i)
Borrower shall pay to Lender, as liquidated damages and as part of the
Obligations, in addition to amounts payable under Section 10.1 hereof, a charge
at the rate of two percent per month upon the outstanding balance of the
Obligations from the date of Default until the date of full payment of the
Obligations, which charge shall be in lieu of compensation payable under Section
3.1 from such date; provided, that in no event shall such rate exceed the
Maximum Rate and (ii) Lender shall have the right (in addition to any other
rights Lender may have under this Agreement or otherwise) without further notice
or demand to Borrower, to enforce payment of any Receivables or Collateral, to
settle, compromise, or release in whole or in part, any amounts owing on
Receivables or Collateral, to prosecute any action, suit or proceeding with
respect to Receivables or Collateral, to extend the time of payment of any and
all Receivables or Collateral, to make allowances and adjustments with respect
thereto, to issue credits in Lender’s name or Borrower’s, to demand payment
under the LC (subject to the Subordination Agreement with Raptor/Harbor Reeds
SPV LLC executed contemporaneously herewith) to sell, assign and deliver the
Receivables or Collateral (or any part thereof) and any returned, reclaimed or
repossessed merchandise or other property held by Lender or by Borrower for
Lender’s account, at public or private sale, at broker’s board, for cash, upon
credit or otherwise, at Lender’s sole option and discretion, and Lender may bid
or become purchaser at any such sale if public, free from any right of
redemption which is hereby expressly waived. Borrower agrees that the giving of
five days’ notice by Lender, sent by ordinary mail, postage prepaid, to the
mailing address of Borrower set forth in this Agreement, designating the place
and time of any public sale or the time after which any private sale or other
intended disposition of the Receivables or Collateral or any other security held
by Lender is to be made, shall be deemed to be reasonable notice thereof and
Borrower waives any other notice with respect thereto. The net cash proceeds
resulting from the exercise of any of the foregoing rights or remedies shall be
applied by Lender to the payment of the Obligations in such order as Lender may
elect, and Borrower shall remain liable to Lender for any deficiency.
Notwithstanding anything to the contrary contained in this section, (i) to the
extent that an event or occurrence described in this section consists of
Borrower’s failure to take, do or perform an act or action, then such failure
shall not constitute a Default if no other Default has occurred and if such act
or action is taken, done or performed by Borrower within 5 Business Days after
Borrower’s receipt of written notice from Lender that the act or action is
required to be taken, done or performed by Borrower and has not been taken, done
or performed; and (ii) to the extent that an event or occurrence described in
this section consists of the commencement of a proceeding against Borrower under
Federal or state law or the appointment of a receiver or custodian under Federal
or state law, then the commencement of such proceeding or the appointment of
such receiver or custodian shall not constitute a Default if no other Default
has occurred and if such proceeding or appointment is contested by Borrower
within the time period and in the manner required by law and is dismissed,
terminated or vacated within ten (10) Business Days after such commencement or
appointment.

 

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9.2. The enumeration of the foregoing rights and remedies is not intended to be
exhaustive, and such rights and remedies are in addition to and not by way of
limitation of any other rights or remedies Lender may have under the UCC or
other applicable law. Lender shall have the right, in its sole discretion, to
determine which rights and remedies, and in which order any of the same, are to
be exercised, and to determine which Receivables or Collateral are to be
proceeded against and in which order, and the exercise of any right or remedy
shall not preclude the exercise of any others, all of which shall be cumulative.
No act, failure or delay by Lender shall constitute a waiver of any of its
rights and remedies. No single or partial waiver by Lender of any provision of
this Agreement, or breach or default thereunder, or of any right or remedy which
Lender may have shall operate as a waiver of any other provision, breach,
default, right or remedy or of the same provision, breach, default, right or
remedy on a future occasion. Borrower waives presentment, notice of dishonor,
protest and notice of protest of all instruments included in or evidencing any
of the Obligations or the Receivables or Collateral and any and all notices or
demands whatsoever (except as expressly provided herein). Lender may, at all
times, proceed directly against Borrower to enforce payment of the Obligations
or any other rights and remedies in the Loan Documents and shall not be required
to first enforce its rights in the Receivables or Collateral or any other
security granted to it. Lender shall not be required to take any action of any
kind to preserve, collect or protect its or Borrower’s rights in the Receivables
or any other security granted to it.

 

9.3. BORROWER HEREBY WAIVES ALL RIGHTS TO A TRIAL BY JURY IN THE EVENT OF ANY
LITIGATION WITH RESPECT TO ANY MATTER CONNECTED WITH THIS AGREEMENT, THE
OBLIGATIONS, THE RECEIVABLES, OR ANY OTHER TRANSACTION BETWEEN THE PARTIES AND
BORROWER HEREBY IRREVOCABLY CONSENTS TO THE EXCLUSIVE JURISDICTION OF THE COURTS
OF THE STATE OF NEW YORK AND OF ANY FEDERAL COURT LOCATED IN SUCH STATE IN
CONNECTION WITH ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT, OR THE OBLIGATIONS. IN ANY SUCH LITIGATION BORROWER WAIVES PERSONAL
SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS AND AGREES THAT SERVICE
THEREOF MAY BE MADE BY CERTIFIED OR REGISTERED MAIL DIRECTED TO BORROWER AT ITS
PLACE OF BUSINESS SET FORTH ABOVE.

 

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9.4. Borrower hereby agrees to indemnify Lender and hold Lender harmless from
and against any liability, loss, damage, suit or proceeding ever suffered or
incurred by Lender (including attorneys’ fee) as a result of Borrower’s failure
to observe, perform or discharge Borrower’s duties hereunder or as a result of
Borrower’s breach of any of the representations, warranties and covenants of
this Agreement. This indemnity shall survive termination of this Agreement for
any reason.

 

10. EFFECTIVE DATE, CONTROLLING LAW AND TERMINATION

 

10.1. This Agreement shall become effective upon acceptance by Lender at its
office in the State of New York, and shall continue in full force and effect
until March 30, 2021 (the “Renewal Date”) and from year to year thereafter,
unless sooner terminated as herein provided. Borrower may terminate this
Agreement on the Renewal Date or on the anniversary of the Renewal Date in any
year by giving Lender not less than sixty (60) days prior written notice by
registered or certified mail, return receipt requested, and in addition to its
other rights hereunder, Lender shall have the right to terminate this Agreement
at any time by giving Borrower one hundred fifty (150) days’ prior written
notice. Should a Default occur hereunder, this Agreement will be terminable by
Lender at any time and Borrower shall, upon any such termination by Lender, pay
to Lender, as liquidated damages and as part of the Obligations, in addition to
amounts payable under Section 9.1 hereof, an amount equal to (a) three percent
(3%) of the Maximum Credit Facility then in effect, if such termination occurs
on or prior to the first anniversary of the Closing Date; (b) two percent (2%)
of the Maximum Credit Facility then in effect, if such termination occurs after
the first anniversary of the Closing Date but on or prior to the second
anniversary of the Closing Date; and (c) one percent (1%) of the Maximum Credit
Facility then in effect if such termination occurs after the second anniversary
of the Closing Date. In the event that Lender shall permit termination of this
Agreement by Borrower other than as provided herein, as a condition to such
termination, Borrower shall pay to Lender such additional liquidated damages in
addition to performance of any other conditions to such termination. No
termination of this Agreement, however, shall relieve or discharge Borrower of
its duties, obligations and covenants hereunder until such time as all
Obligations have been paid in full, and the continuing security interest in
Receivables and other Collateral granted to Lender hereunder or under any other
agreement shall remain in effect until such Obligations have been indefeasibly
paid and performed in full and any provision hereof that by its terms survives
termination of this Agreement shall survive pursuant to such terms. No provision
hereof shall be modified or amended orally or by course of conduct but only by a
written instrument expressly referring hereto signed by both parties. This
Agreement and the Loan Documents embodies the entire agreement between Lender
and Borrower as to the subject matter hereof and supersedes all prior agreements
(whether oral or written) as to the subject matter hereof. This Agreement shall
be binding upon and inure to the benefit of Borrower and Lender and their
respective heirs, executors, administrators, successors and assigns, provided,
however, that Borrower may not assign this Agreement or its rights hereunder
without Lender’s prior written consent. Borrower consents to Lender’s sale of
participations in the loans made under this Agreement.

 

 15 

 

 

10.2. ALL LOANS SHALL BE DISBURSED BY LENDER FROM ITS OFFICE IN THE STATE OF NEW
YORK, SHALL BE PAYABLE BY BORROWER AT SUCH OFFICE, AND THIS AGREEMENT AND ALL
TRANSACTIONS THEREUNDER SHALL BE DEEMED TO BE CONSUMMATED IN SUCH STATE AND
SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THAT STATE.
If any part or provision of this Agreement is invalid or in contravention of the
applicable laws or regulations of any controlling jurisdiction, such part or
provision shall be severable without affecting the validity of any other part or
provision of this Agreement. Notwithstanding any provision herein or in any
related document, Lender shall never be entitled to receive, collect, or apply,
as interest on the Loan Account, any amount in excess of the maximum rate of
interest (“Maximum Rate”) permitted to be charged from time to time by
applicable law (if such law imposes any maximum rate), and in the event Lender
ever receives, collects, or applies as interest, any amount in excess of the
Maximum Rate, such amount shall be deemed and treated as a partial prepayment of
the principal of the Loan Account; and, if the principal of the Loan Account and
all other of Lender’s charges other than interest are paid in full, any
remaining excess shall be paid to Borrower.

 

11. Miscellaneous

 

11.1. Unless otherwise specifically provided in this Agreement, any notices,
requests, demands or other communications permitted or required to be given
under this Agreement shall be in writing and shall be sent by facsimile, hand
delivery or by a nationally recognized overnight delivery service, to the
addresses and facsimile numbers of the parties set forth below (or to such other
address or facsimile number as a party may hereafter designate by a notice to
the other that complies with this section) and shall be deemed given (a) in the
case of a notice sent by facsimile, when received by the recipient if the
sending party receives a confirmation of delivery from its own facsimile
machine; and (b) in the case of a notice that is hand delivered or sent by such
overnight courier, when delivered (provided that the sending party retains a
confirmation of delivery). Any notice which, pursuant to the terms hereof must
be sent by Borrower by certified or registered mail shall be deemed given and
effective when received by Lender, or Borrower, as the case may be.

 

  If to Lender: If to Borrower:     Rosenthal & Rosenthal, Inc. Reed’s Inc.    
1370 Broadway 201 Merritt 7 Corporate Park     New York NY 10018 Norwalk,
Connecticut 06851     Attn: Robert Miller Attn: Valentin Stalowir     Facsimile:
(212) 356-0989 Facsimile:               with a copy to       Wilentz, Goldman &
Spitzer, P.A.       Paul H. Shur, Esq.       110 William Street       26th Floor
      New York, NY 10038-0958       Email: pshur@wilentz.com    

 

11.2. Nothing contained herein shall impose on Lender any liability for any
contracts, undertakings or other obligations of Borrower to others, including
obligations of Borrower to any Account Debtor for breach of the terms of any
contract of sale between Borrower and the Account Debtor.

 

11.3. Wherever in this Agreement (i) the term “including” appears, such term
shall be deemed to mean “including without limitation”; (ii) the term
“satisfactory” or “acceptable” to Lender appears, such terms shall be deemed to
mean “acceptable” or “satisfactory” to Lender and its counsel in their
commercially reasonable discretion; and (iii) the terms “in the opinion” or “in
the judgment” of Lender appear, such terms shall be deemed to mean commercially
reasonably determined “in the sole opinion” and “in the sole judgment” of Lender
and its counsel.

 

 16 

 

 

11.4. Terms used in this Agreement that are not defined in this Agreement but
are defined in the UCC shall have the meanings given in the UCC.

 

11.5. DRAFTING PRESUMPTION. In the event of any ambiguity or dispute regarding
the definition or meaning of any word, phrase, or other verbiage, or the
construction of any provision in this Agreement, there shall be no presumption
favoring the definition, meaning or construction propounded by a particular
party based upon which party (or which party’s attorney) drafted the word,
verbiage or provision at issue, and same will be deemed mutually drafted.

 

IN WITNESS WHEREOF, Lender and Borrower have caused this Agreement to be
executed by their respective corporate officers thereto duly authorized as of
the day and year first above written.

 

  REED’S INC.       By: /s/ Valentin Stalowir   Name: Valentin Stalowir   Title:
Chief Executive Officer

 

  Accepted:       ROSENTHAL & ROSENTHAL, INC.         By: /s/ Robert L. Martucci
  Name: Robert L. Martucci   Title: Senior Vice President

 

 17 

 

 

STATE OF CONNECTICUT )

:SS.

COUNTY OF ___________)

 

BE IT REMEMBERED, that on this ____________ day of September, 2018, before me
the subscriber, an officer duly authorized to take acknowledgments for use in
the State of Connecticut, personally appeared Valentin Stalowir, who I am
satisfied is the person who executed the within document as Chief Executive
Officer of Reed’s, Inc., and I having first made known to him the contents
thereof, he did thereupon acknowledge that said document is the voluntary act
and deed of Reed’s, Inc., made by virtue of authority from Reed’s, Inc.’s
By-Laws for the uses and purposes therein expressed.

 

      Name:   Title:   My Commission expires:

 

   

 

 

Exhibit A

 

PERMITTED LIENS

 

(a) the security interests and liens of Lender;

 

(b) liens securing the payment of taxes, assessments or other governmental
charges or levies either not yet overdue or the validity of which are being
contested in good faith by appropriate proceedings diligently pursued and
available to such Borrower or Subsidiary, as the case may be and with respect to
which adequate reserves have been set aside on its books;

 

(c) non-consensual statutory liens (other than liens securing the payment of
taxes) arising in the ordinary course of such Borrower’s business to the extent:
(i) such liens secure indebtedness which is not overdue or (ii) such liens
secure indebtedness relating to claims or liabilities which are fully insured
and being defended at the sole cost and expense and at the sole risk of the
insurer or being contested in good faith by appropriate proceedings diligently
pursued and available to such Borrower, in each case prior to the commencement
of foreclosure or other similar proceedings and with respect to which adequate
reserves have been set aside on its books;

 

(d) zoning restrictions, easements, licenses, covenants and other restrictions
affecting the use of real property which do not interfere in any material
respect with the use of such real property or ordinary conduct of the business
of such Borrower as presently conducted thereon or materially impair the value
of the real property which may be subject thereto;

 

(e) purchase money security interests in machinery and equipment (including
capital leases);

 

(f) pledges and deposits of cash by any Borrower after the date hereof in the
ordinary course of business in connection with workers’ compensation,
unemployment insurance and other types of social security benefits consistent
with the current practices of such Borrower as of the date hereof;

 

(g) pledges and deposits of cash by Borrower after the date hereof to secure the
performance of tenders, bids, leases, trade contracts (other than for the
repayment of indebtedness), statutory obligations and other similar obligations
in each case in the ordinary course of business consistent with the current
practices of Borrower as of the date hereof; provided, that, in connection with
any performance bonds issued by a surety or other person, the issuer of such
bond shall have waived in writing any rights in or to, or other interest in, any
of the Collateral in an agreement, in form and substance satisfactory to Lender;

 

(h) liens arising from (i) operating leases and the precautionary UCC financing
statement filings (satisfactory to Lender) in respect thereof and (ii) equipment
or other materials which are not owned by Borrower located on the premises of
such Borrower (but not in connection with, or as part of, the financing thereof)
from time to time in the ordinary course of business and consistent with current
practices of such Borrower and the precautionary UCC financing statement filings
(satisfactory to Lender) in respect thereof;

 

(i) judgments and other similar liens arising in connection with court
proceedings that do not constitute a Default, provided, that, (i) such liens are
being contested in good faith and by appropriate proceedings diligently pursued,
(ii) adequate reserves or other appropriate provision, if any, as are required
by GAAP have been made therefor, and (iii) a stay of enforcement of any such
liens is in effect; and

 

(j) any other liens to which Lender has consented in writing, including but not
limited to Raptor/Harbor Reed’s SPV LLC secured note.

 

   

 

 

Schedule 6.3

 

Litigation, Liens and Judgments

 

As disclosed in the Los Angeles County litigation search dated 9/13/18

 

   

 

 

Schedule 6.5

 

Other locations of Borrower

 

a. Cano Logistics – 13100 South Broadway, Los Angeles, CA 90061 (Inventory) b.
Global Freight – 13171 Charles Willard, Carson, CA 90746 (Inventory) c.
Henningsen Cold Storage – 229 Maple Street, Scranton, PA 18504 (Inventory) d.
LAGROU DES PLAINES, INC. – 1800 South Wolf Road, Des Plaines, IL 60018
(Inventory) e. Lion Brewery -700 N Pennsylvania Avenue, Wilkes-Barre, PA 18705
(Inventory) f. Odom Corporation – 1825 Raymond Avenue, Renton, WA 98057
(Inventory) g. PRI-PAK – 200 Schenley Place, Greendale, IN 47025 (Inventory) h.
RC Moore, Inc. – 301 Oak Street, Pittson, PA 18640 (Inventory) i. States
Logistics Services Inc. – 5590 E. Francis Street, Ontario, CA 91761 (Inventory)
j. 201 Merritt 7 Corporate Park, Norwalk, CT 06840 k. 13000 South Spring Street,
Los Angeles, CA 90061

 

   

 

 

ANNEX A

 

TO ALL CUSTOMERS OF: REED’S INC.

 

Attention: Accounts Payable Supervisor

 

All accounts receivables of REED’S INC. have been assigned and are payable to
Rosenthal & Rosenthal, Inc. Accordingly, payment of all accounts receivables
arising from sales made or services rendered by REED’S INC. to you whether now
existing or hereafter arising are to be made directly and only to:

 

Rosenthal & Rosenthal, Inc.

1370 Broadway

New York, NY 10018

Attn:

 

or pursuant to such other instructions as Rosenthal & Rosenthal, Inc. may
hereafter provide.

 

This notification of assignment of accounts receivables is being given to you in
accordance with the provisions of the Uniform Commercial Code. If you should
make payment to REED’S INC. or anyone else other than Rosenthal & Rosenthal,
Inc., unless otherwise instructed by Rosenthal & Rosenthal, Inc. hereafter such
payment will not constitute payment of the account receivable, and may subject
you to double liability for the sums due in connection therewith.

 

  Very truly yours,       REED’S INC.         By:     Name:     Title:  

 

   

 

 

Exhibit B

 

MONTHLY ACCOUNTS RECEIVABLE ROLLFORWARD REPORT

 

SAMPLE FORM

 

        +   -   -   -   +   -   +         Beginning   Gross     (Net     Debit  
(Credit   Non A/R   Ending Date   Balance   Sales   (Credits)   Collections)  
(Discounts)   Adj   Adj)   Cash   Balance 8/31/2018                   Enter
opening aging balance here     9/1/2018   0.00                              
0.00 9/2/2018   0.00                               0.00 9/3/2018   0.00        
                      0.00 9/4/2018   0.00                               0.00
9/5/2018   0.00                               0.00 9/6/2018   0.00              
                0.00 9/7/2018   0.00                               0.00 9/8/2018
  0.00                               0.00 9/9/2018   0.00                      
        0.00 9/10/2018   0.00                               0.00 9/11/2018  
0.00                               0.00 9/12/2018   0.00                        
      0.00 9/13/2018   0.00                               0.00 9/14/2018   0.00
                              0.00 9/15/2018   0.00                            
  0.00 9/16/2018   0.00                               0.00 9/17/2018   0.00    
                          0.00 9/18/2018   0.00                              
0.00 9/19/2018   0.00                               0.00 9/20/2018   0.00      
                        0.00 9/21/2018   0.00                               0.00
9/22/2018   0.00                               0.00 9/23/2018   0.00            
                  0.00 9/24/2018   0.00                               0.00
9/25/2018   0.00                               0.00 9/26/2018   0.00            
                  0.00 9/27/2018   0.00                               0.00
9/28/2018   0.00                               0.00 9/29/2018   0.00            
                  0.00 9/30/2018   0.00                               0.00    
0.00                               0.00

 

  Balance per Aging       Calculated balance   0.00       Variance

 

   

 

 

Exhibit C

 

PATENTS, TRADEMARKS AND COPYRIGHTS

 

Trademarks in the United States

 

  Trademark Serial/Reg. No. Class   REED'S ORIGINAL GINGER BREW ALL-NATURAL
JAMAICAN STYLE GINGER ALE 86035664/4513979     VIRGIL’S 78867175/3213043     DR.
BETTER 85892888/4432318     BELIEVE THE UNBELIEVABLE 87836349     REED’S
87721630  

 

Patents in United States

 

None

 

Copyrights in United States

 

None

 

   

 

 

Exhibit D

 

A. Specific Insurance Requirements.

 

(i) Property Insurance - An all risks property insurance policy, including
coverage for fire, theft, collision, burglary, pilferage, loss in transit,
explosion, spoilage, wind, hail, earthquake, flood, collapse, sinkhole and
terrorism (domestic and foreign), for an amount not less than one hundred
percent (100%) of the replacement cost of the Collateral (exclusive of costs for
foundations, underground utilities and footings for any Collateral consisting of
real property, if applicable) without deduction for physical depreciation.
Earthquake coverage will be required for any Collateral consisting of real
property, if applicable, if the locations PML/SEL exceeds 20% with a limit equal
to the PML/SEL. Earthquake deductibles shall not be greater than five percent
(5%) of the total insured value of the property. If all or any portion of the
improvements at any real property Collateral is, at any time during the term of
this Agreement, located in a special flood hazard area or such other area as
Lender may determine its reasonable discretion, flood coverage in an amount
equal to (1) the maximum amount of such insurance available through the National
Flood Insurance Program and (2) such additional flood coverage in form and
substance and in amounts as may be reasonably required by Lender. “All risks”
shall provide coverage for all direct damage to property except as specifically
excluded by the policy. Such all risks property insurance policy shall contain a
438 BFU endorsement, or an equivalent New York Standard Mortgagee (if
applicable) and Lenders Loss Payable Endorsement (CG 12 18 06 95 provision “C”
or its equivalent, and: (A) no coinsurance provision or an agreed amount
endorsement waiving any coinsurance provisions; (B) a deductible not to exceed
$50,000; (C) if applicable, ordinance or law coverage including (1) loss in
value to the undamaged portion of the building(s) to full replacement value, (2)
demolition costs with a limit per loss of ten percent (10%) of the value of the
building(s) affected by loss, and (3) increased costs of construction with a
limit per loss of ten percent (10%) of the value of the building(s) affected by
loss; (D) if applicable, equipment breakdown coverage including, but not limited
to, loss or damage from electrical injury, machinery and equipment breakdown,
and explosion of steam boilers, air conditioning equipment, high pressure
piping, pressure vessels or similar apparatus; and (E) business income and/or
loss of rents coverage, if applicable, in amount equal to the estimated net
operating income and continuing expenses for the property for a period of twelve
(12) months, which may be increased from time to time by Lender, with a 180 Day
Extended Period of Indemnity (or such other period of time as may be needed, in
Lender’s commercially reasonable discretion, to return to normal operating
levels);

 

(ii) Liability Insurance – (A) a commercial general liability policy insuring
against claims for personal injury, bodily injury, death or property damage
occurring upon, in or about Borrower’s premises, to be on an “occurrence” form,
with limits not less than $1,000,000 per occurrence and $2,000,000 general
aggregate; (B) if applicable, a business automobile liability policy with symbol
1 with limits not less than $1,000,000 per accident; and (C) if applicable, a
workers compensation policy with limits not less than statutory requirements for
workers compensation and an employer’s liability limit of not less than
$1,000,000 each accident and $1,000,000 per employee and policy aggregate for
bodily injury by disease. Each commercial general liability policy shall contain
a per location general aggregate if covering multiple locations; (D) if
applicable, Products Recall expense and indemnity policy with a limit not less
than $5,000,000 per occurrence and annual aggregate, (E) if applicable, Cyber
Liability insurance with a limit of not less than $1,000,000 per occurrence and
annual aggregate, and (F) such additional liability coverages as deemed
necessary during the lender’s loan due diligence process.

 

(iii) Umbrella or Excess Liability Insurance –A commercial umbrella or excess
liability policy with limits not less than $5,000,000 which, at a minimum, shall
schedule the following policies as “underlying”: commercial general & products
liability, business automobile liability and employer’s liability.

 

   

 

 

(iv) if applicable, a “Blanket Crime” policy including employee dishonesty,
forgery or alteration, theft, disappearance and destruction, robbery and safe
burglary, property, and computer fraud coverage.

 

B. General Insurance Requirements.

 

(i) All insurance premiums on all policies must be paid as and when due and
payable, consistent with the past practices of Borrower. All outstanding
premiums for the current policy term are to be paid prior to the effective date
of such policy;

 

(ii) No insurance policy required hereunder shall be permitted to provide for
premium assessments to be made against Lender;

 

(iii) Borrower shall provide the following prior to the effective date of such
policy: (i) an ACORD 25 or equivalent certificate of liability insurance and
(ii) an ACORD 28 or equivalent certificate of property insurance;

 

(iv) Prior to the renewal date of each insurance policy required hereunder,
Borrower shall provide certificates of insurance providing evidence that the
policies have been renewed on forms ACORD 28 and ACORD 25;

 

(v) Borrower shall provide promptly upon Lender’s request complete copies of the
insurance policies providing the coverage required hereunder;

 

(vi) Each property policy and to the extent possible, each liability policy
shall contain a provision providing not less than thirty (30) days’ prior
written notice to Lender of cancellation and not less than ten (10) days’ prior
written notice to Lender of cancellation for non-payment of premium;

 

(vii) Lender is to be named (A) the first mortgagee (if applicable) and first
lender loss payee with respect to the property insurance coverage, and (B) an
additional insured with respect to general liability and umbrella or excess
liability insurances, as follows: Rosenthal & Rosenthal, Inc., 1370 Broadway,
New York, NY 10018.

 

(viii) A waiver of subrogation shall be provided on all liability policies of
insurance waiving rights of recovery against Lender; and

 

(ix) The limits of insurance contained herein are minimum limits established by
Lender and shall not be construed to mean that Lender represents or warrants
that the required limits contained herein are adequate for protection to
Borrower, nor limit the liability of Borrower to the limits stated herein.