EXHIBIT 10.4

Security Agreement

 

(All Assets)

This Security Agreement (All Assets) (as hereafter amended, revised and/or
extended, this “Agreement”) is entered into on December 27, 2013 and between
JONES SODA CO., a(n) Washington corporation (together with its successors and
assigns, “Guarantor/Pledgor”) and BFI Business Finance, a California corporation
(together with its successors and assigns, “Lender”), at Campbell, California.

RECITALS

A. Lender has provided and/or will provide financial accommodations to Jones
Soda Co. (USA) Inc. (“Jones USA”) and JONES SODA (CANADA) INC. (“Jones Canada”)
 (Jones USA and Jones Canada, each individually and collectively, together with
its successors and assigns, the “Borrower”).

B. Guarantor/Pledgor has executed that certain General Continuing Guaranty (as
hereafter amended, revised and/or extended, the “Guaranty”) in favor of Lender,
whereby Guarantor/Pledgor agrees to guarantee the Obligations owing by Borrower
to Lender, as more completely set forth in the Guaranty.

C. This Agreement is given to secure Guarantor/Pledgor’s Obligations to Lender
under the  Guaranty as well as any other Obligations that may be owed now or in
the future by Guarantor/Pledgor to Lender.

AGREEMENT

1. Incorporation by Reference.   The foregoing Recitals and the documents
referred to in such Recitals are incorporated herein by this reference as though
set forth in full herein.

2. Definitions.

“Acceptable to Lender” means acceptable to Lender exercising reasonable business
judgment, considered in light of all of the facts and circumstances existing
with respect to the issue under consideration, including but not limited to, the
performance by Guarantor/Pledgor of its obligations under the Guaranty and this
Agreement and whether any of such facts and circumstances cause Lender to
reasonably deem itself insecure if any given decision were to be made or not
made or any approval were to be given or not given.

“Accounts” means all currently existing and hereafter arising accounts as
defined in the Code, as such definition may be amended from time to time, and
shall include, but not be limited to, a right to payment of a monetary
obligation for property sold or services rendered, and any and all credit
insurance, guaranties, or security therefor.

“Books” means all of Guarantor/Pledgor’s books and records, including, without
limitation, all ledgers, records indicating, summarizing, or evidencing
Guarantor/Pledgor’s properties or assets (including, without limitation, the
Collateral) or liabilities, all information relating to Guarantor/Pledgor’s
business operations or financial condition, and all computer programs, disc or
tape files, printouts, runs, or other computer prepared information, and the
Equipment containing such information.

“Cash Collateral Account” has the meaning given in Section 5.2 hereof.

“Chattel Paper” has the meaning given in the Code, as such definition may be
amended from time to time, which defines Chattel Paper as  a record or records
that evidence both a monetary obligation; and  a security interest in  specific
goods;  a security interest in specific goods and Software used in the goods;  a
security interest in specific goods and license of Software used in the goods;
or   a lease of specific goods and license of Software used in the goods.

“Chief Executive Office” has the meaning given in Section 8.18 hereof.

“Code” means the California Uniform Commercial Code or any successor statute, as
same may be amended and / or renumbered from time to time hereafter.

“Collateral” means all of the personal property and Trade Fixtures now owned or
hereafter acquired by Guarantor/Pledgor whether now existing or hereafter
arising and wherever located, including without limitation:  all Accounts;  all
Chattel Paper including, without limitation, Electronic Chattel Paper;  all
Inventory;  all Equipment;  all Trade Fixtures;  all Fixtures, but only if
connected with Real Property Collateral;  all Instruments;  all Financial
Assets, including without limitation, Investment Property;  all Documents;  all
Deposit Accounts;  all Letter of Credit Rights;  all General Intangibles,
including, without limitation, copyrights, trademarks, and patents, Payment
Intangibles and Software;  all Supporting Obligations;  any Commercial Tort
Claim listed on any schedule provided herewith or hereafter;  all returned or
repossessed goods arising from or relating to any Accounts or Chattel Paper;
 all certificates of title and certificates of origin or manufacturers
statements of origin relating to any of the foregoing, now owned or hereafter
acquired;  all property similar to any of the foregoing hereafter acquired by
Guarantor/Pledgor;  all ledger sheets, files, records, documents, instruments,
and other books and records (including, without limitation, related electronic
data processing Software) evidencing an interest in or relating to the above;
 all money, cash or cash equivalents; and  to the extent not otherwise included
in the foregoing, all proceeds, products, insurance claims, and other rights to

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payment and all accessions to, replacements for, attachments to, substitutions
for, and rents and profits of, and noncash proceeds of, each of the
foregoing  including, without limitation, cash or other property which were
proceeds and are recovered by a bankruptcy trustee or otherwise as a
preferential transfer by Guarantor/Pledgor.  Notwithstanding any contrary term
of this Agreement, the definition of “Collateral” shall not include any waste or
other materials that have been or may be designated as a Hazardous Substance or
a Hazardous Waste.

“Commercial Tort Claim” has the meaning give in the Code, as such definition may
be amended from time to time, which means a claim arising in tort with respect
to which the claimant is an organization or if the claimant is an individual,
 the claim arose in a. the course of the claimant’s business or profession; and
 does not include damages arising out of personal injury to or death of an
individual.

“Deposit Account(s)” has the meaning given in the Code, as such definition may
be amended from time to time, including, without limitation, a demand, time,
savings, passbook or similar account maintained with a bank or other depositary
institution.

“Discretion” means the exercise by Lender of its reasonable business judgment in
light of all of the facts and circumstances existing with respect to the issue
under consideration.

“Documents” has the meaning given in the Code, as such definition may be amended
from time to time.

“Electronic Chattel Paper” has the meaning given in the Code, as such definition
may be amended from time to time, which defines Electronic Chattel Paper as
Chattel Paper evidenced by a record or records consisting of information stored
in an electronic medium.

“Environmental Laws” has the meaning given in Section 4.8 hereof.

“Equipment” means all of Guarantor/Pledgor’s now owned and hereafter acquired
equipment as defined in the Code, as such definition may be amended from time to
time, and wherever located, and shall include, but not be limited to, all goods
(other than inventory, farm products, or consumer goods) including, without
limitation, machinery, computers and computer hardware and Software (whether
owned or licensed), vehicles, tools, furniture, Trade Fixtures (but not
including Fixtures unless Real Property Collateral has been pledged to Lender),
all attachments, accessions and property now or hereafter affixed thereto or
used in connection therewith, and substitutions and replacements thereof,
wherever located.

“Financial Assets” has the meaning given in the Code, as such definition may be
amended from time to time, which defines Financial Assets as any of the
following:  a security;  an obligation of a person or a share, participation, or
other interest in a person or in property or an enterprise of a person, that is,
or is of a type, dealt in or traded on financial markets or that is recognized
in any area in which it is issued or dealt in as a medium for investment; and
 any property that is held by a securities intermediary for another person in a
securities account that has expressly agreed with the other person that the
property is to be treated as a financial asset.

“Fixtures” has the meaning given in the Code, as such definition may be amended
from time to time, which defines Fixtures as goods that have become so related
to particular real property that an interest in them arises under property law,
but shall not include Trade Fixtures.

“General Intangibles” means general intangibles as defined in the Code, as such
definition may be amended from time to time, (and shall include, but not be
limited to, registered and unregistered patents, trademarks, service marks,
copyrights, trade names, applications for the foregoing, trade secrets,
goodwill, processes, drawings, blueprints, customer lists, licenses, whether as
licensor or licensee, choses in action and other claims and existing and future
leasehold interests in Equipment, Payment Intangibles and Software), all whether
arising under the laws of the United States of America or any other country.

“Guarantor” has the meaning given in Section 6.1.3 hereof.

“Guarantor/Pledgor” has the meaning given in the preamble of this Agreement.

“Guaranty” means the guaranty executed by Guarantor/Pledgor in favor of Lender,
as the Guaranty may be amended or revised from time to time.

“Hazardous Substances” and “Hazardous Wastes” means all or any of the following:

(a.) substances that are defined or listed in, or otherwise classified pursuant
to, any applicable laws or regulations as “hazardous substances,” “hazardous
materials,” “hazardous wastes,” “toxic substances,” or any other formulation
intended to define, list, or classify substances by reason of deleterious
properties such as ignitability, corrosivity, reactivity, carcinogenicity,
reproductive toxicity, or “EP toxicity”;

(b.) oil, petroleum, or petroleum derived substances, natural gas, natural gas
liquids, synthetic gas, drilling fluids, produced waters, and other wastes
associated with the exploration, development, or production of crude oil,
natural gas, or geothermal resources;

(c.) any flammable substances or explosives or any radioactive materials; and

(d.) asbestos in any form or electrical Equipment which contains any oil or
dielectric fluid containing levels of polychlorinated biphenyls in excess of
fifty (50) parts per million

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(e.) asbestos in any form or electrical Equipment which contains any oil or
dielectric fluid containing levels of polychlorinated biphenyls in excess of
fifty (50) parts per million.

“Indebtedness” .means all of the following:

(a.) all indebtedness for borrowed money (whether by loan or the issuance and
sale of debt securities);

(b.) that portion of obligations with respect to capital leases that is properly
classified as a liability on a balance sheet in conformity with GAAP;

(c.) acceptances, bonds, indentures, notes payable, and drafts accepted
representing extensions of credit whether or not representing obligations for
borrowed money;

(d.) any obligation owed for all or any part of the deferred purchase price of
property or services if the purchase price is due more than six (6) months from
the date the obligation is incurred or is evidenced by a note or similar written
instrument;

(e.) all indebtedness secured by any lien on any property or asset owned or held
by Guarantor/Pledgor regardless of whether the indebtedness secured thereby
shall have been assumed by Guarantor/Pledgor or is nonrecourse to the credit of
Guarantor/Pledgor;

(f.) contingent obligations to the extent such obligations are no longer
contingent but become absolute and remain unpaid;

(g.) all obligations, contingent or otherwise, relative to the face amount of
any letter of credit, letter of credit guaranties, bankers acceptances, interest
rate swaps, controlled disbursement accounts, or other financial products;

(h.) any unfunded obligation of Guarantor/Pledgor or any of its subsidiaries to
a multiemployer plan required to be accrued by GAAP; and

(i.) obligations of Guarantor/Pledgor guaranteeing or intended to guarantee
(whether guaranteed, endorsed, co-made, discounted, or sold with recourse to
Guarantor/Pledgor), any indebtedness, lease, dividend, letter of credit, or
other obligation of any other person or entity.

“Instrument” has the meaning given in the Code, as such definition may be
amended from time to time, which defines an Instrument as a negotiable
instrument or any other writing that evidences a right to payment of a monetary
obligation, is not itself a security agreement or lease, and is of a type that
in the ordinary course of business is transferred by delivery with any necessary
endorsement or assignment.  Instrument shall include, but not be limited to,
promissory notes.

“Inventory” means all present and future inventory, as defined in the Code, as
such definition may be amended from time to time, in which Guarantor/Pledgor has
any interest and wherever located, and shall include but not be limited to,
goods held for sale or lease or to be furnished under a contract of service and
all of Guarantor/Pledgor’s present and future raw materials, work in process,
finished goods, and packing and shipping materials, wherever located, and any
documents of title representing any of the above.

“Investment Property” has the meaning given in the Code, as such definition may
be amended from time to time, which defines Investment Property as securities,
security accounts, commodity contracts, or commodity accounts.

“Letter of Credit Rights” has the meaning given in the Code, as such definition
may be amended from time to time, which defines Letter of Credit Rights as a
right to payment or performance under a letter of credit, whether or not
beneficiary has demanded or is at the time entitled to demand payment or
performance.

“Loan Agreement” means the Loan and Security Agreement executed by and between
Borrower and Lender, as the Loan Agreement now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced.

“Loan Documents” means collectively, this Agreement, the Loan Agreement, the
Term Loan Documents (if any), the Guaranty, and all notes, other guarantees,
security agreements, subordination agreements, and other agreements, documents
and instruments now or at any time hereafter executed and/or delivered by
Borrower or any Obligor in connection with this Agreement or otherwise, as the
same now exist or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced.

“Lockbox Account” has the meaning given in Section 5.2 hereof.

“Material Event of Default” has the meaning given in Section 6.1 hereof.

“Obligations” means all of the following:  the due and punctual payment of all
amounts due or to become due under this Agreement;  the performance of all
obligations of Borrower and/or Guarantor/Pledgor under the Loan Documents; and
 all present and future obligations owing by Borrower and/or Guarantor/Pledgor
to Lender whether or not for the payment of money, whether or not evidenced by
any note or other instrument, whether direct or indirect, absolute or
contingent, due or to become due, joint or several, primary or secondary,

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liquidated or unliquidated, secured or unsecured, original or renewed or
extended, whether arising before, during or after the commencement of any
bankruptcy case in which Borrower and/or Guarantor/Pledgor is a debtor,
including but not limited to any expenses and any obligations arising pursuant
to letters of credit or acceptance transactions or any other financial
accommodations; and all principal, interest, fees, charges, expenses, attorneys’
fees and accountants’ fees chargeable to Borrower and/or Guarantor/Pledgor or
incurred by Lender in connection with the Loan Documents.  Except to the extent
otherwise provided, this Agreement does not secure any obligation described
above which is secured by a consensual lien on real property.

“Payment Intangibles” means a General Intangible under which the account
debtor’s principal obligation is a monetary obligation.

“Permitted Indebtedness” means all of the following:

(a.) Indebtedness evidenced by the Guaranty, the Loan Agreement and / or the
Loan Documents;

(a.) amounts owing under licenses in the ordinary course of Guarantor/Pledgor’s
business, so long as the licensor (if a third party other than
Guarantor/Pledgor) has entered into an agreement in form and content reasonably
satisfactory to Lender;

(b.) subordinated debt that is subject to a subordination agreement in favor of
Lender in form and content reasonably satisfactory to Lender;

(c.) Permitted Purchase Money Indebtedness for Acquisition of Fixed Assets;

(d.) the Indebtedness set forth in the latest financial statements of
Guarantor/Pledgor submitted to Lender on or prior to the Closing Date;

(e.) Indebtedness secured by Permitted Liens; and

(f.) refinancings, renewals, or extensions of the foregoing, provided: 1) the
terms and conditions of such refinancings, renewals, or extensions do not
materially impair the prospects of repayment of the Obligations by Borrower;
2) the net cash proceeds of such refinancings, renewals, or extensions do not
result in an increase in the aggregate principal amount of the Indebtedness so
refinanced, renewed, or extended; 3) such refinancings, renewals, or extensions
do not result in a shortening of the average weighted maturity of the
Indebtedness so refinanced, renewed, or extended; and 4) that to the extent that
the Indebtedness that is refinanced was subordinated in right of payment to the
Obligations, then the subordination terms and conditions of the refinancing of
the Indebtedness must be at least as favorable to Lender as those applicable to
the refinanced Indebtedness;

“Permitted Liens” means all of the following:

(a.) liens and Security Interests held by Lender or agreed to by Lender in the
any Loan Documents;

(b.) liens for unpaid taxes of Guarantor/Pledgor that are either  not yet due
and payable; or    do not constitute an Event of Default hereunder; and  are the
subject of a Permitted Protest;

(c.) liens and Security Interests granted against Equipment disclosed in writing
by Guarantor/Pledgor to Lender and consented to by Lender in writing;

(d.) liens described in Schedule A-1 hereto, provided such liens are subject to
such subordination agreements as Lender may require;

(e.) purchase money liens or the interests of lessor under capital leases to the
extent that such liens or interests secure Permitted Purchase Money Indebtedness
for Acquisition of Fixed Assets and so long as such lien attaches only to the
asset purchased or acquired and the proceeds thereof;

(f.) with respect to real property, easements, rights of way, reservations,
covenants, conditions, restrictions, zoning variances, and other similar
encumbrances that do not materially interfere with the use or value of the
property subject thereto;

(g.) obligations and duties as lessee under any operating lease existing on the
date of this Agreement; and obligations and duties as lessee under any lease
existing on the date of this Agreement;

(h.) any liens incurred in connection with the refinancing, renewal, or
modification of indebtedness secured by Permitted Liens, provided:  the terms
and conditions of such refinancings, renewals, or extensions do not materially
impair the prospects of repayment of the Obligations by Guarantor/Pledgor;  the
net cash proceeds of such refinancings, renewals, or extensions do not result in
an increase in the aggregate principal amount of the Indebtedness so refinanced,
renewed, or extended;  such refinancings, renewals, or extensions do not result
in a shortening of the average weighted maturity of the Indebtedness so
refinanced, renewed, or extended; and  that to the extent that the Indebtedness
that is refinanced was subordinated in right of payment to the Obligations, then
the subordination terms and conditions of the refinancing of the Indebtedness
must be at least as favorable to Lender as those applicable to the refinanced
Indebtedness;

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(i.) liens for unpaid taxes, assessments, or other governmental charges or
levies  that are not yet delinquent; or  do not constitute an Event of Default
hereunder and are the subject of Permitted Protests;

(j.) judgment liens that do not constitute an Event of Default under this
Agreement;

(k.) liens on amounts deposited in connection with obtaining Workers’
Compensation Insurance or other unemployment insurance; and

(l.) liens on amounts deposited as security for surety or appeal bonds in
connection with obtaining such bonds in the ordinary course of business,
provided that such deposits have been made with Lender’s prior written consent.

“Permitted Protest” means a protest taken by Guarantor/Pledgor in good faith
with respect to disputed taxes for which a bond has been posted by
Guarantor/Pledgor in the amount of the disputed taxes that have not yet been
paid.

“Permitted Purchase Money Indebtedness for Acquisition of Fixed Assets” means,
as of any date of determination, Purchase Money Indebtedness for Acquisition of
Fixed Assets incurred after the date hereof in an aggregate principal amount
outstanding at any one time which shall not exceed Twenty-five Thousand and
00/100 Dollars ($25,000.00) without Lender’s prior written consent, which
consent shall not be unreasonably withheld.

“Real Property Collateral” means any item(s) of real property pledged by
Guarantor/Pledgor to Lender.

“Software” has the meaning given in the Code, as such definition may be amended
from time to time, which defines Software as a computer program and any
supporting information provided in connection with a transaction relating to the
program.

“Supporting Obligations” has the meaning given in the Code, as such definition
may be amended from time to time, which defines a Supporting Obligation as a
letter-of-credit right or secondary obligation that supports the payment or
performance of an Account, Chattel Paper, a Document, a General Intangible, an
Instrument, or a Financial Asset, including, without limitation, Investment
Property.

“Term Loan Documents”, if any, has the meaning given in the Loan Agreement.

“Trade Fixtures” means Equipment and furnishings which are used in
Guarantor/Pledgor’s business or operations which become affixed to the premises
at which Guarantor/Pledgor has its Chief Executive Office or other location
owned, operated or otherwise used by Guarantor/Pledgor, but which Equipment and
furnishings can be removed without causing undue damage to such premises or
other location.

3. Grant of Security Interest in the Collateral.   Guarantor/Pledgor hereby
grants a continuing security interest in the Collateral to secure payment when
due, whether by stated maturity, demand, acceleration or otherwise, of all
 Obligations owing to Lender by Borrower as defined in the Agreement; and  all
Obligations of Guarantor/Pledgor under the Guaranty, this Agreement and any
other agreement by and between Lender and Guarantor/Pledgor.

4. Warranties, Covenants, and Agreements.  Guarantor/Pledgor warrants, covenants
and agrees as set forth below.

4.1. Information; Right to Inspect.  Guarantor/Pledgor shall furnish to Lender,
in form and at intervals as Lender may reasonably request, any information
Lender may reasonably request and allow Lender to examine, inspect, and copy any
of Guarantor/Pledgor's books and records.  Guarantor/Pledgor shall, at the
written request of Lender, mark its records and the Collateral to clearly
indicate the security interest of Lender under this Agreement. Lender agrees to
give Guarantor/Pledgor reasonable notice of its intent to examine, inspect and
copy any of Guarantor/Pledgor’s records. Notwithstanding the foregoing, after
the occurrence of and during the continuation of a Material Event of Default, as
defined below, no such prior notice shall be required. In that regard, (i) any
fraud, defalcation or conversion on the part of Borrower or Guarantor/Pledgor or
any other Guarantor shall be deemed to be a Material Event of Default; and (ii)
there shall be no requirement that such fraud, defalcation or conversion be
continuing in order to permit Lender to exercise any rights or remedies
available to Lender under the Guaranty or applicable law.

4.2. Warranties as to Collateral.   At the time any Collateral becomes, or is
represented to be, subject to a security interest in favor of Lender,
Guarantor/Pledgor shall be deemed to have warranted that  Guarantor/Pledgor is
the lawful owner of the Collateral and has the right and authority to subject
the Collateral to a security interest granted to Lender;  none of the Collateral
is subject to any security interest other than that in favor of Lender or the
holder of any Permitted Lien;  there are no financing statements on file, other
than in favor of Lender or the holders of Permitted Liens; and
 Guarantor/Pledgor acquired its rights in the Collateral in the ordinary course
of its business.

4.3. Collateral Shall be Free From Liens Other Than Permitted Liens.
  Guarantor/Pledgor shall keep the Collateral free at all times from all claims,
liens, security interests and encumbrances other than those in favor of Lender
or the holders of Permitted Liens.  Guarantor/Pledgor will not, without the
prior written consent of Lender, sell, transfer or lease, or permit to be sold,
transferred or leased, any or all of the Collateral, except (where inventory is
pledged as Collateral) for Inventory in the ordinary course of its business and
will not return any Inventory to its supplier.  Lender or its representatives
may at all reasonable times and upon reasonable advance notice inspect the

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Collateral and may enter upon all premises where the Collateral is kept or might
be located; provided, however, that Lender agrees to give Guarantor/Pledgor
reasonable notice of its intent to inspect the Collateral and enter upon the
premises where the Collateral is kept or might be located.  Notwithstanding the
foregoing, after the occurrence of and during the continuation of a Material
Event of Default, no such prior notice shall be required.

4.4. Reasonable Acts to Establish and Maintain Priority of Lender’s
Lien.  Guarantor/Pledgor shall do all reasonable acts and or cause to be
executed all writings reasonably requested by Lender to establish, maintain and
continue a perfected and first security interest of Lender in the Collateral
subject to Permitted Liens.  Guarantor/Pledgor agrees that Lender has no
obligation to acquire or perfect any lien on or security interest in any
asset(s), whether real property or personal property, to secure payment of the
Indebtedness, and Guarantor/Pledgor is not relying upon assets in which Lender
may have a lien or security interest for payment of the Indebtedness.

4.5. Taxes and Assessments.   Guarantor/Pledgor shall pay within the time that
they can be paid without interest or penalty, or on or prior to the date that
the tax return for such taxes is due, all taxes, assessments and similar charges
which at any time are or may become a lien, charge, or encumbrance upon any
Collateral, except to the extent subject to a Permitted Protest.  If
Guarantor/Pledgor fails to pay any of these taxes, assessments, or other charges
in the time provided above, Lender has the option (but not the obligation) to do
so and Guarantor/Pledgor agrees to repay all amounts so expended by Lender
immediately upon demand, together with interest at the highest lawful default
rate which could be charged by Lender to Borrower and/or Guarantor/Pledgor on
any Indebtedness.

4.6. Collateral Shall be Maintained in Good Condition; Insurance.
  Guarantor/Pledgor shall keep the Collateral in good condition and will protect
it from loss, damage, or deterioration from any cause, subject only to normal
wear and tear.  Guarantor/Pledgor has and will maintain at all times  with
respect to the Collateral, insurance under an “all risk” policy against fire and
other risks customarily insured against, and  public liability insurance and
other insurance as may be required by law or reasonably required by Lender, all
of which insurance shall be in amount, form and content, and written by
companies as may be satisfactory to Lender, containing a lender's loss payable
endorsement Acceptable to Lender.  Guarantor/Pledgor will deliver to Lender
immediately upon demand evidence satisfactory to Lender that the required
insurance has been procured.  If Guarantor/Pledgor fails to maintain
satisfactory insurance, Lender has the option (but not the obligation) to do so
and Guarantor/Pledgor agrees to repay all amounts so expended by Lender
immediately upon demand, together with interest at the highest lawful default
rate which could be charged by Lender to Guarantor/Pledgor on any Indebtedness.

4.7. Warranties as to Accounts.   With respect to the Accounts pledged as
Collateral under this Agreement, then on each occasion on which
Guarantor/Pledgor evidences to Lender the account balances on and the nature and
extent of the Accounts, Guarantor/Pledgor shall be deemed to have warranted that
except as otherwise indicated to the best of Guarantor/Pledgor’s knowledge after
reasonable inquiry, the following is true:  each of those Accounts is valid and
enforceable without the need for performance by Guarantor/Pledgor of any act;
 each of those balances reflected as to each Account is in fact owing;  there
are no setoffs, recoupments, credits, contra accounts, counterclaims or defenses
against any of those Accounts;  as to any Accounts represented by a note, trade
acceptance, draft or other instrument or by any chattel paper or document, the
same have been endorsed and/or delivered by Guarantor/Pledgor to
Lender;  Guarantor/Pledgor has not received with respect to any Account, any
notice of the death of the related account debtor, nor the dissolution,
liquidation, termination of existence, insolvency, business failure, appointment
of a receiver for, assignment for the benefit of creditors by, or filing of a
petition in bankruptcy by or against, the account debtor; and  as to each
Account, the Account Debtor is not an affiliate of Guarantor/Pledgor, the United
States of America or any department, agency or instrumentality of it, or a
citizen or resident of any jurisdiction outside of the United
States.  Guarantor/Pledgor will do all acts and will execute all writings
reasonably requested by Lender to perform, enforce performance of, and collect
all Accounts.  Guarantor/Pledgor shall immediately advise Lender at such time
that Guarantor/Pledgor learns that any of the foregoing representations and
warranties are incorrect in any material respect. Guarantor/Pledgor shall
neither make nor permit any modification, compromise, or substitution for any
Account other than in the ordinary course of Guarantor/Pledgor’s business
without the prior written consent of Lender, which consent shall not
unreasonably be withheld.  Guarantor/Pledgor shall, at Lender's reasonable
prior  request, arrange for verification of Accounts directly with the accounts
of Guarantor/Pledgor or by other methods Acceptable to Lender.

4.8. Compliance by Guarantor/Pledgor with Laws.   Guarantor/Pledgor at all times
shall be in material compliance with all applicable laws, including, without
limitation, any laws, ordinances, directives, orders, statutes, or regulations
an object of which is to regulate or improve health, safety, or the environment
(collectively, “Environmental Laws”).

4.9. Redelivery of Collateral.   If Lender, acting in its sole reasonable
Discretion, redelivers Collateral to Guarantor/Pledgor or Guarantor/Pledgor's
designee for any of the following purposes:  the ultimate sale or exchange
thereof;  the presentation, collection, renewal, or registration of transfer
thereof; or   the loading, unloading, storing, shipping, transshipping,
manufacturing, processing or otherwise dealing with it preliminary to sale or
exchange; such redelivery shall be in trust for the benefit of Lender and shall
not constitute a release of Lender's security interest in it or in the proceeds
or products of it unless Lender specifically so agrees in writing.  If
Guarantor/Pledgor requests any such redelivery, Guarantor/Pledgor will deliver
with such request a proposed form of financing statement, which financing
statement will be filed by Lender if such financing statement is in form and
substance satisfactory to Lender.  Any proceeds of Collateral coming into
Guarantor/Pledgor's possession as a result of any such redelivery shall be held
in trust for Lender and immediately delivered to Lender for application against
the Indebtedness.  Lender may (in its sole reasonable Discretion) deliver any or
all of the Collateral to Guarantor/Pledgor, and such delivery by Lender shall
discharge Lender from all liability or responsibility for such
Collateral.  Lender, at its option, may require delivery of any Collateral to
Lender at any time

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following the occurrence and during the continuance of a Material Event of
Default with such endorsements or assignments of the Collateral as Lender may
request.

4.10. Additional Rights of Lender Upon Default by Guarantor/Pledgor.   Upon the
occurrence and during the continuance of a Material Event of Default under the
Guaranty, after giving such notice as may be reasonable under the circumstances,
Lender may as to Collateral other than Equipment, Fixtures or Inventory  cause
any or all of such Collateral to be transferred to its name or to the name of
its nominees;  receive or collect by legal proceedings or otherwise all
dividends, interest, principal payments and other sums and all other
distributions at any time payable or receivable on account of such Collateral,
and hold the same as Collateral, or apply the same to the Indebtedness, the
manner and distribution of the application to be in the sole reasonable
Discretion of Lender; and  enter into any extension, subordination,
reorganization, deposit, merger or consolidation agreement or any other
agreement relating to or affecting such Collateral, and deposit or surrender
control of such Collateral, and accept other property in exchange for such
Collateral and hold or apply the property or money so received pursuant to this
Agreement.

4.11. Assignment of Indebtedness and Collateral by Lender.   Lender may assign
any of the Indebtedness and deliver any or all the Collateral to its assignee,
which then shall have with respect to Collateral so delivered all the rights and
powers of Lender under this Agreement, and after that Lender shall be fully
discharged from all liability and responsibility with respect to Collateral so
delivered under the following circumstances:  Lender is assigning the
Indebtedness and related obligations for collateral purposes only;  a Material
Event of Default has occurred and is continuing; or  the assignee is the
successor in interest to Lender following a change of control of Lender.

4.12. Independent Investigation and Decision by Guarantor/Pledgor.
  Guarantor/Pledgor delivers this Agreement based solely on Guarantor/Pledgor's
independent investigation of (or decision not to investigate) the financial
condition of Borrower and is not relying on any information furnished by
Lender.  Guarantor/Pledgor assumes full responsibility for obtaining any further
information concerning Borrower's financial condition, the status of the
Indebtedness or any other matter that the undersigned may deem necessary or
appropriate now or later.  Guarantor/Pledgor waives any duty on the part of
Lender, and agrees that Guarantor/Pledgor is not relying upon nor expecting
Lender to disclose to Guarantor/Pledgor any fact now or later known by Lender,
whether relating to the operations or condition of Borrower, the existence,
liabilities or financial condition of any guarantor of the Indebtedness, the
occurrence of any default with respect to the Indebtedness, or otherwise,
notwithstanding any effect such fact may have upon Guarantor/Pledgor's risk or
Guarantor/Pledgor's rights against Borrower.  Guarantor/Pledgor knowingly
accepts the full range of risk encompassed in this Agreement, which risk
includes, without limitation, the possibility that Borrower may incur
Indebtedness to Lender after the financial condition of Borrower or Borrower's
ability to pay debts as they mature, has deteriorated.

4.13. Indemnification for Violation by Guarantor/Pledgor of Law.
  Guarantor/Pledgor shall defend, indemnify and hold harmless Lender, its
employees, agents, shareholders, officers, and directors from and against any
and all claims, damages, fines, expenses, liabilities or causes of action of
whatever kind, including, without limitation, reasonable consultants’ fees,
reasonable legal expenses, and reasonable attorneys' fees and estimated
allocated costs of in-house legal counsel, paralegals and other legal staff,
suffered by any of them as a direct or indirect result of any actual or asserted
violation by Guarantor/Pledgor of any law, including, without limitation,
Environmental Laws, or of any remediation relating to any property required by
any law, including, without limitation, Environmental Laws, except to the extent
caused directly by the gross negligence or willful misconduct of Lender.

4.14. Reasonable Costs of Lender.   Guarantor/Pledgor agrees to pay Lender all
such reasonable costs and expenses incurred by Lender, immediately upon demand,
and until paid all costs shall bear interest at the highest per annum rate
applicable to any of the Indebtedness, but not in excess of the maximum rate
permitted by law.  Any reference in this Agreement to attorneys’ fees shall be
deemed a reference to the reasonable attorneys’ fees, costs, and expenses of
outside counsel and paralegals and the estimated allocated costs of in-house
legal counsel, paralegals and other legal staff, whether or not a suit or action
is instituted, and to court costs if a suit or action is instituted, and whether
such actually or estimated allocated attorneys’ fees or court costs are incurred
at the trial court level, on appeal, in a bankruptcy, (including, without
limitation, motions for relief from stay, for determination of dischargeability
or otherwise) administrative or probate proceeding or otherwise.

5. Collection of Proceeds.

5.1. Collection of Accounts.   Guarantor/Pledgor agrees to collect and enforce
payment of all Collateral until such time as Lender shall direct
Guarantor/Pledgor to the contrary under the following circumstances:  after a
Material Event of Default has occurred and is continuing; or  if Lender
reasonably believes it is necessary to do so to prevent prejudice to
Lender.  Immediately upon notice to Guarantor/Pledgor by Lender and at all times
after that, Guarantor/Pledgor agrees to fully and promptly cooperate and assist
Lender in the collection and enforcement of all Collateral and to hold in trust
for Lender all payments received in connection with Collateral and from the
sale, lease or other disposition of any Collateral, all rights by way of
suretyship or guaranty and all rights in the nature of a lien or security
interest which Guarantor/Pledgor now or later has regarding
Collateral.  Immediately upon and after such notice, Guarantor/Pledgor agrees to
 endorse to Lender and immediately deliver to Lender all payments received on
Collateral or from the sale, lease or other disposition of any Collateral or
arising from any other rights or interests of Guarantor/Pledgor in the
Collateral, in the form received by Guarantor/Pledgor without commingling with
any other funds; and  immediately deliver to Lender all property in
Guarantor/Pledgor's possession or later coming into Guarantor/Pledgor's
possession through enforcement of Guarantor/Pledgor's rights or interests in the
Collateral.  Guarantor/Pledgor irrevocably authorizes Lender or any Lender
employee or agent to endorse the name of Guarantor/Pledgor upon any checks or
other items that are received in payment for any Collateral, and to do any and
all things necessary in order to reduce these items to

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money.  Lender shall have no duty as to the collection or protection of
Collateral or the proceeds of it, nor as to the preservation of any related
rights, beyond the use of reasonable care in the custody and preservation of
Collateral in the possession of Lender.  Guarantor/Pledgor agrees to take all
steps necessary to preserve rights against prior parties with respect to the
Collateral.  Nothing in this Section  5.1 shall be deemed to constitute consent
by Lender to any sale, lease, or other disposition of any Collateral.

5.2. Accounts Pledged as Collateral.   With respect to any Accounts that are
pledged as Collateral under this Agreement, Guarantor/Pledgor agrees that
immediately upon Lender's written request (whether or not a Material Event of
Default exists) the Indebtedness shall be on a “remittance basis” as
follows:  Guarantor/Pledgor shall at its sole expense establish and maintain
(and Lender, at Lender’s option, may establish and maintain at
Guarantor/Pledgor’s expense):   an United States Post Office lock box (the “Lock
Box”), to which Lender shall have exclusive access and
control.  Guarantor/Pledgor expressly authorizes Lender, from time to time, to
remove contents from the Lock Box, for disposition in accordance with this
Agreement.  Guarantor/Pledgor agrees to notify all account debtors and other
parties obligated to Guarantor/Pledgor that all payments made to
Guarantor/Pledgor (other than payments by electronic funds transfer) shall be
remitted, for the credit of Guarantor/Pledgor, to the Lock Box, and
Guarantor/Pledgor shall include a like statement on all invoices; and  a non
interest bearing deposit account with Lender which shall be titled as designated
by Lender (the “Cash Collateral Account”) as security for payment of the
Indebtedness to which Lender shall have exclusive access and
control.  Guarantor/Pledgor agrees to notify all accounts of Guarantor/Pledgor
and other parties obligated to Guarantor/Pledgor that all payments made to
Guarantor/Pledgor by electronic funds transfer shall be remitted, to the Cash
Collateral Account, and Guarantor/Pledgor, at Lender's request, shall include a
like statement on all invoices.  Guarantor/Pledgor shall execute all documents
and authorizations as may reasonably be required by Lender to establish and
maintain the Lock Box and the Cash Collateral Account.

5.3. Processing by Lender; Indemnification by Guarantor/Pledgor.   To the extent
that Accounts are pledged as Collateral under this Agreement, all items or
amounts which are remitted to the Lock Box or otherwise delivered by or for the
benefit of Guarantor/Pledgor to Lender on account of partial or full payment of,
or with respect to, any Collateral shall, at Lender's option  be applied to the
payment of the Indebtedness, whether then due or not, in such order or at such
time of application as Lender may determine in its sole reasonable Discretion;
or  be deposited to the Cash Collateral Account.

6. Default, Enforcement of Rights and Application of Proceeds.

6.1. Definition of Event of Default.   Guarantor/Pledgor shall be in default
under this Agreement upon the occurrence of any of the following events (each, a
“Material Event of Default”):

6.1.1. Any Event of Default by Borrower under the Loan Agreement or any of the
other the Loan Documents of any material term, provision, condition, covenant or
agreement occurs without being cured to the extent that cure is permitted under
the Loan Agreement or the other Loan Documents;

6.1.2. Guarantor/Pledgor fails to pay the Indebtedness or any other indebtedness
when due, or such portion of it as may be due, by acceleration or otherwise;

6.1.3. Any failure or neglect to comply with, or breach of, or default under,
any material term, provision, condition, covenant or agreement  of this
Agreement, the Guaranty or any other agreement or commitment between Borrower,
Guarantor/Pledgor, or any other guarantor of any of the Indebtedness of Borrower
(each, a “Guarantor”) and Lender;

6.1.4. Any warranty, representation, financial statement, or other information
made, given or furnished to Lender by or on behalf of Borrower,
Guarantor/Pledgor, or any Guarantor shall be, or shall prove to have been,
false, materially misleading or intentionally misleading when made, given, or
furnished;

6.1.5. Any loss, theft, substantial damage or destruction to or of any
Collateral, or the issuance or filing of any attachment, levy, garnishment or
the commencement of any proceeding in connection with any Collateral or of any
other judicial process of, upon or in respect of Borrower, Guarantor/Pledgor,
any Guarantor, or any Collateral without such attachment, levy, garnishment or
commencement of proceeding being dismissed within ten (10) days;

6.1.6. The sale or other disposition by Borrower, Guarantor/Pledgor, or any
Guarantor of any substantial portion of its assets or property or voluntary
suspension of the transaction of business by Borrower, Guarantor/Pledgor, or any
Guarantor, or death, dissolution, termination of existence, merger,
consolidation, insolvency, business failure, or assignment for the benefit of
creditors of or by Borrower, Guarantor/Pledgor, or any Guarantor; or
commencement of any proceedings under any state or federal bankruptcy or
insolvency law or laws for the relief of Guarantor/Pledgor by or against
Borrower, Guarantor/Pledgor, or any Guarantor; or the appointment of a receiver,
trustee, court appointee, sequestrator or otherwise, for all or any part of the
property of Borrower, Guarantor/Pledgor, or any Guarantor, without such
proceeding being dismissed in sixty (60) days; provided, however, that nothing
shall require Lender to continue to advance sums to Borrower upon the filing of
such a proceeding by or against Guarantor/Pledgor;

6.1.7. If applicable, Lender reasonably deems the margin of Collateral to be
insufficient or itself insecure, in good faith believing that the prospect of
payment of the Indebtedness or performance of this Agreement is materially
impaired or shall fear material deterioration, removal, or waste of Collateral;
or

6.1.8. Any breach or default under this Agreement, the Guaranty the Loan
Agreement, the Loan Documents or any other present or future agreement between
Borrower and Lender shall become a Material

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Event of Default if Borrower or Guarantor/Pledgor has not cured said breach or
default within the time period specified by Lender in its sole reasonable
Discretion in any notice of default, which time period shall depend upon the
facts and circumstances then in effect.

6.2. Specified Remedies Available to Lender.

6.2.1. Upon the occurrence and during the continuance of a Material Event of
Default, Lender may at its reasonable Discretion and with such prior notice to
Guarantor/Pledgor as may be reasonable under the circumstances, declare any or
all of the Indebtedness to be immediately due and payable, and shall have and
may exercise any one or more of the following rights and remedies:

6.2.1.1. exercise all the rights and remedies upon default, in foreclosure and
otherwise, available to secured parties under the provisions of the Code and
other applicable law;

6.2.1.2. institute legal proceedings to foreclose upon the lien and security
interest granted by this Agreement, to recover judgment for all amounts then due
and owing as Indebtedness, and to collect the same out of any Collateral or the
proceeds of any sale of it;

6.2.1.3. institute legal proceedings for the sale, under the judgment or decree
of any court of competent jurisdiction, of any or all Collateral; and/or

6.2.1.4. personally or by its agents, attorneys, or appointment of a receiver,
enter upon any premises where Collateral may then be located, and take
possession of all or any of it and/or render it unusable; and without being
responsible for loss or damage to such Collateral, hold, operate, sell, lease,
or dispose of all or any Collateral at one or more public or private sales,
leasings or other dispositions, at places and times and on terms and conditions
as Lender may deem fit, without any previous demand or advertisement; and except
as provided in this Agreement, all notice of sale, lease or other disposition,
and advertisement, and other notice or demand, any right or equity of
redemption, and any obligation of a prospective purchaser or lessee to inquire
as to the power and authority of Lender to sell, lease, or otherwise dispose of
the Collateral or as to the application by Lender of the proceeds of sale or
otherwise, which would otherwise be required by, or available to
Guarantor/Pledgor under, applicable law are hereby expressly waived by
Guarantor/Pledgor to the fullest extent permitted.

6.2.2. At any sale pursuant to this Section 6.2, whether under the power of
sale, by virtue of judicial proceedings or otherwise, it shall not be necessary
for Lender or a public officer under order of a court to have present physical
or constructive possession of Collateral to be sold.  The recitals contained in
any conveyances and receipts made and given by Lender or the public officer to
any purchase at any sale made pursuant to this Agreement shall, to the extent
permitted by applicable law, conclusively establish the truth and accuracy of
the matters stated (including, without limitation, as to the amounts of the
principal of and interest on the Indebtedness, the accrual and nonpayment of it
and advertisement and conduct of the sale); and all prerequisites to the sale
shall be presumed to have been satisfied and performed to the extent permitted
by applicable law.

6.3. Notification of Account Debtors.  Upon the occurrence and during the
continuance of a Material Event of Default, Lender may  request that
Guarantor/Pledgor notify the Guarantor/Pledgor’s account debtor or obligors of
Lender's security interest in the Collateral, including, without limitation, the
Accounts and Inventory, and direct payment of the proceeds of Accounts and the
sale of Inventory to Lender; or  itself so notify and direct any account debtor
or obligor to pay Lender directly; provided; however, that if any fraud,
defalcation or conversion on the part of Borrower and/or Guarantor/Pledgor shall
have occurred regardless of the dollar amount involved with such fraud,
conversion or defalcation,  such Event of Default shall be deemed to be a
Material Event of Default; and  there shall be no requirement that such Event of
Default be continuing to permit Lender to send such notification to
Guarantor/Pledgor’s Accounts.

6.4. Application of Proceeds of Sale.   The proceeds of any sale or other
disposition of Collateral authorized by this Agreement shall be applied by
Lender first, to all reasonable expenses authorized by the Code and all
reasonable attorneys’ fees and reasonable legal expenses incurred by Lender and
estimated allocated costs of in-house legal counsel, paralegals and other legal
staff; the balance of the proceeds of the sale or other disposition shall be
applied in the payment of the Indebtedness, first, to interest, then to
principal, then to remaining Indebtedness and the surplus, if any, shall be paid
over to Guarantor/Pledgor or to such other person(s) as may be entitled to it
under applicable law.  Guarantor/Pledgor shall remain liable for any deficiency,
which it shall pay to Lender immediately upon demand.

6.5. No Restriction.   Nothing in this Agreement is intended, nor shall it be
construed, to preclude Lender from pursuing any other remedy provided by law for
the collection of the Indebtedness or for the recovery of any other sum to which
Lender may be entitled for the breach of this Agreement by
Guarantor/Pledgor.  Nothing in this Agreement shall reduce or release in any way
any rights or security interests of Lender contained in any existing agreement
between Borrower, Guarantor/Pledgor, or any Guarantor and Lender.

6.6. No Waiver Effective Unless in Writing and Signed by Authorized Officer of
Lender.   No waiver of default or consent to any act of Guarantor/Pledgor by
Lender shall be effective unless in writing and signed by an authorized officer
of Lender.  No waiver of any default or forbearance on the part of Lender in
enforcing any of its rights under this Agreement shall operate as a waiver of
any other default or of the same default on a future occasion or of any rights.

6.7. Appointment of Agent and Grant of Power of Attorney.   Guarantor/Pledgor
irrevocably appoints Lender or any agent of Lender (which appointment is coupled
with an interest) the true and lawful attorney of Guarantor/Pledgor (with full
power of substitution) in the name, place, and stead of, and at the expense of,

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Guarantor/Pledgor (which power of attorney shall only be used  upon the
occurrence and during the continuance of a Material Event of Default, after
giving such notice as may be reasonable under the circumstances unless giving
such notice would cause prejudice to lender in Lender’s reasonable judgment; or
 if Lender reasonably believes in good faith that the power of attorney should
be used to avoid prejudice to Lender):

6.7.1. to demand, receive, sue for, and give receipts or acquittances for any
monies due or to become due on any Collateral and to endorse any item
representing any payment on or proceeds of the Collateral;

6.7.2. to execute and file in the name of and on behalf of Guarantor/Pledgor all
financing statements or other filings deemed necessary or desirable by Lender to
evidence, perfect, or continue the security interests granted in this Agreement;

6.7.3. after the occurrence and during the continuance of an Event of Default,
to qualify Borrower to do business in any state if Borrower shall fail to do so
following request by Lender; and

6.7.4. to do and perform any act on behalf of Guarantor/Pledgor permitted or
required under this Agreement.

Upon the occurrence of and during the continuance of a Material Event of Default
and upon written request of Lender, Guarantor/Pledgor will assemble the
Collateral and make it available to Lender at any place designated by Lender
that is reasonably convenient to Lender and Guarantor/Pledgor.

7. Indemnification.

7.1. Limitation on Loss or Damage.   Guarantor/Pledgor agrees that Lender shall
not be liable for any loss or damage which Guarantor/Pledgor may suffer as a
result of Lender's processing of items or its exercise of any other rights or
remedies under this Agreement, including, without limitation, indirect, special
or consequential damages, loss of revenues or profits, or any claim, demand or
action by any third party arising out of or in connection with the processing of
items or the exercise of any other rights or remedies under this
Agreement.  Guarantor/Pledgor agrees to indemnify and hold Lender harmless from
and against all such third party claims, demands, or actions, and all related
expenses or liabilities, including, without limitation, attorneys’ fees and
estimated allocated costs of in-house legal counsel, paralegals and other legal
staff, except to the extent of any of the foregoing was caused by Lender’s gross
negligence or willful misconduct.  Lender shall not in any way or manner be
liable or responsible for the safekeeping of the Collateral; any loss or damage
thereto occurring or arising in any manner or fashion from any cause; any
diminution in the value thereof; or any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other Person.  All risk of loss,
damage, or destruction of the Collateral shall be borne by Guarantor/Pledgor.

7.2. Hold Harmless, etc.  Guarantor/Pledgor agrees to defend, indemnify, save,
and hold Lender and Lender’s officers, employees, shareholders, directors,
attorneys, and agents harmless against all obligations, demands, claims, and
liabilities claimed or asserted by any other Person arising out of or relating
to the transactions contemplated by this Agreement or any of the other Loan
Documents; and all losses (including attorneys’ fees and legal and other costs)
in any way suffered, incurred, or paid by Lender as a result of or in any way
arising out of, following, or consequential to the transactions contemplated by
this Agreement or any of the other Loan Documents; provided, however, that no
such indemnification shall apply with respect to any liability directly arising
out of the gross negligence or willful misconduct on the part of Lender or any
of Lender’s officers, employees, shareholders, directors, attorneys, and agents.

8. General Terms.

8.1. Notices.   Until Lender is advised in writing by Guarantor/Pledgor to the
contrary, all notices, requests and demands required under this Agreement or by
law shall be given to, or made upon, Guarantor/Pledgor at the address indicated
in Section 8.20 below.

8.2. Notifications of Changes.   Guarantor/Pledgor will give Lender not less
than thirty  (30) days’ prior written notice of all contemplated changes in
Guarantor/Pledgor's name, Chief Executive Office location, and/or location of
any of the Collateral, but the giving of this notice shall not cure any Event of
Default caused by this change.

8.3. No Assumption by Lender of Duties of Borrower.   Lender assumes no duty of
performance or other responsibility under any contracts contained within the
Collateral.

8.4. Assignments, etc, by Lender.   Lender has the right to sell, assign,
transfer, negotiate, or grant any interest in, any or all of the Indebtedness
and any related obligations, including, without limitation, this Agreement, in
the following circumstances:  Lender is assigning the Indebtedness and related
obligations for collateral purposes only;  a Material Event of Default has
occurred and is continuing; or  the assignee is the successor in interest to
Lender following a change of control of Lender.  Lender has the right to grant
participations in any or all of the Indebtedness irrespective of whether  Lender
is assigning the Indebtedness and related obligations for collateral purposes
only;  an Event of Default has occurred and is continuing; or  the assignee is
the successor in interest to Lender following a change of control of Lender. In
connection with the above, but without limiting its ability to make other
disclosures to the full extent allowable, Lender may disclose all documents and
information which Lender now or later has relating to Guarantor/Pledgor, the
Indebtedness or this Agreement, however obtained.  Guarantor/Pledgor further
agree(s) that Lender may provide information relating to this Agreement or
relating to Guarantor/Pledgor to Lender's parent, affiliates, subsidiaries, and
service providers.  The

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confidentiality provisions of the Agreement in favor of Borrower and
Pledgor/Guarantor are hereby incorporated by reference into, and shall
constitute additional terms applicable to, this Agreement. 

8.5. Further Credit Reports.  Borrower acknowledges and agrees that Lender may
from time to time at its sole discretion run such further credit reports and
other reports as it may deem necessary to continue to keep itself apprised
regarding the continued financial condition of Borrower during the term of this
Agreement and hereby authorizes Lender to run such credit and other reports from
time to time as Lender deems appropriate.

8.6. Setoff.   In addition to Lender's other rights, any Indebtedness owing from
Lender to Guarantor/Pledgor can be set off and applied by Lender on any
Indebtedness at any time(s) either before or after maturity or demand without
notice to any Borrower, Guarantor/Pledgor, any other guarantor, or any other
person.

8.7. Waivers.   Guarantor/Pledgor waives any right to require Lender to
undertake any of the following:   proceed against any person or property;  (to
the extent permitted by applicable law) give notice of the terms, time and place
of any public or private sale of personal property security held from Borrower
or any other person, or otherwise comply with the provisions of § 9601 et seq,
including without limitation, §  9611 of the California or other applicable
Uniform Commercial Code; or  pursue any other remedy in Lender's
power.  Guarantor/Pledgor waives notice of acceptance of this Agreement and
presentment, demand, protest, notice of protest, dishonor, notice of dishonor,
notice of default, notice of intent to accelerate or demand payment of any
Indebtedness, any and all other notices to which the undersigned might otherwise
be entitled, and diligence in collecting any Indebtedness, and agree(s) that
Lender may (subject to specified rights Borrower may have, if any, to approve
any of the following pursuant to the terms of the Agreement), once or any number
or times, modify the terms of any Indebtedness, compromise, extend, increase,
accelerate, renew or forbear to enforce payment of any or all Indebtedness, or
permit Borrower to incur additional Indebtedness, all without notice to
Guarantor/Pledgor and without affecting in any manner the unconditional
obligation of Guarantor/Pledgor under this Agreement.  Guarantor/Pledgor
unconditionally and irrevocably waives each and every defense and setoff of any
nature which, under principles of guaranty or otherwise, would operate to impair
or diminish in any way the obligation of Guarantor/Pledgor under this Agreement
and acknowledges that such waiver is by this reference incorporated into each
security agreement, collateral assignment, pledge and/or other document from
Guarantor/Pledgor now or later securing the Indebtedness, and acknowledges that
as of the date of this Agreement no such defense or setoff exists.

8.8. Waiver of Subrogation Rights etc.   Until Lender has been paid in full,
with no agreement or obligation to extend any further financial accommodations
to Borrower, Guarantor/Pledgor waives any and all rights (whether by
subrogation, indemnity, reimbursement, or otherwise) to recover from Borrower
any amounts paid or the value of any Collateral given by Guarantor/Pledgor
pursuant to this Agreement.

8.9. Agreement Regarding What Constitutes Reasonable Notice.   In the event that
applicable law shall obligate Lender to give prior notice to Guarantor/Pledgor
of any action to be taken under this Agreement, Guarantor/Pledgor agrees that a
written notice given to Guarantor/Pledgor at least ten (10) days before the date
of the action shall be reasonable notice of the intended action and,
specifically, reasonable notification of the time and place of any public sale
or of the time after which any private sale, lease, or other disposition is to
be made, unless a shorter notice period is reasonable under the
circumstances.  A notice shall be deemed to be given under this Agreement when
delivered to Guarantor/Pledgor or when placed in an envelope addressed to
Guarantor/Pledgor and deposited, with postage prepaid, in a post office or
official depository under the exclusive care and custody of the United States
Postal Service or delivered to an overnight courier.  The mailing shall be by
overnight courier, certified mail or first class mail.

8.10. Reinstatement.   Notwithstanding any prior revocation, termination,
surrender, or discharge of this Agreement in whole or in part, the effectiveness
of this Agreement shall automatically continue or be reinstated in the event
that any payment received or credit given by Lender in respect of the
Indebtedness is returned, disgorged, or rescinded under any applicable law,
including, without limitation, bankruptcy or insolvency laws, in which case this
Agreement, shall be enforceable against Guarantor/Pledgor as if the returned,
disgorged, or rescinded payment or credit had not been received or given by
Lender, and whether or not Lender relied upon this payment or credit or changed
its position as a consequence of it.  In the event of continuation or
reinstatement of this Agreement, Guarantor/Pledgor agrees upon demand by Lender
to execute and deliver to Lender those documents which Lender determines are
appropriate to further evidence (in the public records or otherwise) this
continuation or reinstatement, although the failure of Guarantor/Pledgor to do
so shall not affect in any way the reinstatement or continuation.

8.11. Successors and Assigns.   This Agreement and all of the rights and
remedies of Lender under this Agreement shall inure to the benefit of Lender's
successors and assigns and to any other holder who derives from Lender title to
or an interest in the Indebtedness or any portion of it, and shall bind
Guarantor/Pledgor and the heirs, legal representatives, successors, and assigns
of Guarantor/Pledgor.  Nothing in this Section 8.11 is or shall be deemed to
constitute consent by Lender to any assignment by Guarantor/Pledgor.

8.12. Joint and Several Undertakings.   If there is more than one
Guarantor/Pledgor, all undertakings, warranties and covenants made by
Guarantor/Pledgor and all rights, powers and authorities given to or conferred
upon Lender are made or given jointly and severally.

8.13. Meanings Except as otherwise provided in this Agreement.   All terms in
this Agreement have the meanings assigned to them in Division 9 (or, absent
definition in Division 9, in any other division) of the Code in effect as of the
date of this Agreement.

8.14. No Exercise or Delay in Exercise of Rights Shall Preclude Exercise by
Lender of any Other Right.   No single or partial exercise, or delay in the
exercise, of any right or power under this Agreement, shall

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preclude other or further exercise of the rights and powers under this
Agreement.  The unenforceability of any provision of this Agreement shall not
affect the enforceability of the remainder of this Agreement.  This Agreement
constitutes the entire agreement of Guarantor/Pledgor and Lender with respect to
the subject matter of this Agreement.  No amendment or modification of this
Agreement shall be effective unless the same shall be in writing and signed by
Guarantor/Pledgor and an authorized officer of Lender.

8.15. Choice of Law.  This Agreement shall in all respects be governed by and
construed in accordance with the internal laws of the State of California
without regard to conflict of laws principles.

8.16. Venue.  The parties agree that all actions or proceedings arising in
connection with this Agreement and/or the Loan Documents shall be tried and
litigated only in the State and Federal courts located in the County of Santa
Clara, State of California or, at the sole option of Lender, in any other court
in which Lender shall initiate legal or equitable proceedings and which has
subject matter jurisdiction over the matter in controversy.  Each of
Guarantor/Pledgor and Lender waives, to the extent permitted under applicable
law, any right each may have to assert the doctrine of forum non conveniens or
to object to venue to the extent any proceeding is brought in accordance with
this section.

8.17. Counterparts.   This Agreement may be executed in any number of
counterparts, all of which, taken together, shall constitute a single original.

8.18. Chief Executive Office; Other Locations.  Guarantor/Pledgor's Chief
Executive Office is located and shall be maintained at 1000 1st Avenue South,
Suite 100,  Seattle,  Washington 98134.  If any Collateral is located at other
than the Chief Executive Office, such Collateral is located and shall be
maintained at the following locations:

----------n/a---------- 

8.19. Termination.   This Agreement shall be terminated only by the filing of a
termination statement in accordance with the applicable provisions of the Code,
but the obligations contained in Sections 4.13 (indemnification for violations
of law by Guarantor/Pledgor), 5.3 (as to indemnification for processing by
Lender) and 8.10 (reinstatement of Indebtedness) of this Agreement shall survive
termination.

8.20. Address and Method of Notice.  Unless otherwise provided in this
Agreement, all notices or demands by any party relating to this Agreement or any
of the other Loan Documents shall be in writing and (except for financial
statements and other informational documents which may be sent by first-class
mail, postage prepaid) shall be personally delivered or sent by overnight mail,
registered or certified mail, postage prepaid, return receipt requested, or by
prepaid telex, TWX, telefacsimile, or telegram (with messenger delivery
specified) to Borrower or to Lender, as the case may be, at its address set
forth below:

 

 

 

 

If to Guarantor/Pledgor:

JONES SODA CO.

 

 

1000 1st Avenue South, Suite 100,  Seattle,  Washington 98134

 

Attn:

Jennifer Cue,  President

 

Telephone No.:

(206) 624-3357

 

Facsimile No.:

(206) 624-6857

 

If to Lender:

BFI Business Finance

 

 

851 East Hamilton Avenue, Second Floor, Campbell, California 95008

 

Attn:

David Drogos, President

 

Telephone No.:

(408) 369-4000

 

Facsimile No.:

(408) 369-4018

 

 

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The parties hereto may change the address at which they are to receive notices
hereunder, by notice in writing in the foregoing manner given to the other.  All
notices or demands sent in accordance with this Section 8.20, other than notices
by Lender in connection with §§ 9610, 9611, 9615, 9617, 9618, 9620, 9621, or
9624 of the Code, shall be deemed received on the earlier of the date of actual
receipt or three (3) days after the deposit thereof in the
mail.  Guarantor/Pledgor acknowledges and agrees that notices sent by Lender in
connection with the foregoing described sections of the Code shall be deemed
sent when deposited in the mail or transmitted by telefacsimile or other similar
method set forth above.

8.21. Captions.   Captions are solely to be used for the convenience of the
parties hereto and shall not be used to construe the meaning of the terms of
this Agreement.

8.22. Further Assurances.   Guarantor/Pledgor shall execute such other and
further documents and instruments as Lender may reasonably request in order to
implement the provisions of this Agreement and to perfect and protect the
security interest of Lender.

8.23. Integration.   This is an integrated agreement and taken together with the
documents executed in connection herewith, represents the final agreement of the
parties with respect to the subject matter hereof. Any amendments hereto shall
be in writing and signed by the party to be charged.

9. WAIVER OF JURY TRIAL.   GUARANTOR/PLEDGOR AND LENDER ACKNOWLEDGE THAT THE
RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED.  EACH
PARTY AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL
OF ITS CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF THE
PARTIES WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING
THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS AGREEMENT OR
THE INDEBTEDNESS.

10. Oral Agreements; Oral Commitments; Choice of Law.  Oral agreements or Oral
Commitments to loan money, extend credit, or forbear from enforcing repayment of
a debt are not enforceable under Washington Law.  All acts and transactions
hereunder and the rights and obligations of the parties hereto shall be
governed, construed, and interpreted in accordance with the laws of the State of
California.

[Signature Page Follows]

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This Agreement is subject to the terms and conditions set forth in Addendum A
attached hereto and made a part hereof.

IN WITNESS WHEREOF, the parties have executed this Security Agreement (All
Assets) as of the date first set forth above.

 

 

 

JONES SODA CO.

 

 

 

 

 

/s/ Jennifer Cue

 

By:Jennifer Cue

 

Title:President

 

 

 

 

 

Accepted at Campbell, California:

 

 

 

BFI Business Finance

 

 

 

 

 

/s/ Jeffrey Lizar

 

By:Jeffrey Lizar

 

Title:Executive Vice President

 

 

 

 

 

 

 

 

 

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Addendum A to Security Agreement (All Assets)

 

Pursuant to this Addendum A to Security Agreement (All Assets) (this
“Addendum”), the foregoing Security Agreement (All Assets) (the “Agreement”) by
and between BFI Business Finance (“Lender”) and JONES SODA CO.
(“Guarantor/Pledgor”) is hereby amended and/or supplemented by the following
terms and conditions, which are incorporated by this reference in the Agreement,
as the following additional sections of the Agreement:

11. Intentionally left blank

 

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Schedule A-1

Additional Permitted Liens

None

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