GENERAL CONTINUING GUARANTY

June 4, 2007

BFI Business Finance

1655 The Alameda

San Jose, California 95126

 

To: BFI Business Finance

For good and valuable consideration, and in order to induce BFI Business
Finance, a California corporation ("Lender"), to extend and/or continue to
extend financial accommodations to Adsouth Marketing, LLC, a Delaware limited
liability company, WORLDWIDE EXCELLENCE, INC., a Delaware corporation, Pet Vac,
LLC, a California limited liability company, TRAMP-O-LEAN, LLC, a California
limited liability company, YOUTH FACTOR BEAUTY CARE, LLC, a California limited
liability company, and LEGACY FORMULAS, LLC, a California limited liability
company (individually and collectively "Borrower"), pursuant to the terms and
conditions of that certain Loan and Security Agreement and/or promissory note
(individually and collectively, the "Agreement"), dated June 4, 2007, evidencing
and otherwise relating to a loan by Lender to Borrower in the original principal
amount of Five Million and 00/100 Dollars ($5,000,000.00) (the "Loan"), or
pursuant to any other present or future agreement between Lender and Borrower,
and in consideration thereof, and inconsideration of any loans, advances, or
financial accommodations hereto fore or here after granted by Lender to or for
the account of Borrower, whether pursuant to the Agreement, or otherwise ,
Vertical Branding, Inc. , a Delaware corporation ("Guarantor"), whose address is
16000 Ventura Blvd., Suite 301, Encino, CA 91436, hereby, jointly and severally,
guarantees, promises and undertakes as follows:

1.  Guarantor unconditionally, absolutely and irrevocably guarantees and
promises to pay to Lender, or order, on demand, in lawful money of the United
States, any and all indebtedness and/or obligations of Borrower to Lender and
the payment to Lender of all sums which may be presently due and owing and of
all sums which shall in the future become due and owing to Lender from Borrower
whether under the Agreement or otherwise. The terms "indebtedness" and
"obligations" (hereinafter collectively referred to as the "Obligations") are
used herein in their most comprehensive sense and include, without limitation ,
the Loan and any and all advances , debts, obligations, and liabilities of
Borrower, heretofore, now, or hereafter made, incurred, or created, whether
voluntarily or involuntarily, and however arising , including, without
limitation, (a) indebtedness owing by Borrower to third parties who have granted
Lender a security interest in the accounts, chattel paper and/or general
intangibles of said third party; (b) any and all attorneys' fees, expenses,
costs, premiums, charges and/or interest owed by Borrower to Lender, whether
under the Agreement, or otherwise, whether due or not due, absolute or
contingent, liquidated or unliquidated, determined or undetermined, whether
Borrower may be liable individually or jointly with others, whether recovery
upon such indebtedness may be or hereafter becomes barred by any statute of
limitations or whether such indebtedness may be or hereafter becomes otherwise
unenforceable, and includes Borrower's prompt, full and faithful performance,
observance and discharge or each and every term, condition, agreement,
representation, warranty undertaking and provision to be performed by Borrower
under the Agreement; (c) any and all obligations or liabilities of Borrower to
Lender arising out of any other agreement by Borrower including without
limitation any agreement to indemnify Lender for environmental liability or to
clean up hazardous waste; (d) any and all indebtedness, obligations or
liabilities for which Borrower would otherwise be liable to Lender were it not
for the invalidity , irregularity or unenforceability of them by reason of any
bankruptcy, insolvency or other law or order of any kind, including from and
after the filing by or against Borrower of a bankruptcy petition, whether an
involuntary or voluntary bankruptcy case, and all attorneys' fees related
thereto; and (e) any and all amendments, modifications, renewals and/or
extensions of any of the above , including without limit amendments,
modifications, renewals and/or extensions which are evidenced by new or
additional instruments, documents or agreements.

2.  This General Continuing Guaranty (this "Guaranty") is a continuing guaranty
that shall remain effective during the term of the Agreement and relates to any
Obligations, including those which arise under successive transactions which
shall either continue the Obligations from time to time or renew them after they
have been satisfied until this Guaranty has been expressly terminated. Any such
termination (a) shall be applicable only with respect to Obligations incurred at
least thirty (30) days after written notice to Lender specifying such
termination, (b) shall be effective only with respect to transactions having
their inception after the effective date of termination, and (c) shall not
affect the Loan or any rights or obligations arising out of transactions having
their inception prior to such date. No termination shall be effective until such
time as Lender is no longer committed or otherwise obligated to make the Loan or
any other loans or advances , or to grant any credit whatsoever to Borrower. In
the absence of any termination of this Guaranty, Guarantor agrees that nothing
shall discharge or satisfy its obligations created hereunder except for the full
payment and performance of the Obligations with interest.

3.  Guarantor agrees that it is directly and primarily liable to Lender, that
the obligations hereunder are independent of the obligations of Borrower, and
that a separate action or actions may be brought and prosecuted against
Guarantor irrespective of whether Borrower is joined in any such action or
actions . Guarantor agrees that any releases which may be given by Lender to
Borrower or any other guarantor or endorser shall not release it from this
Guaranty .

4.  In the event that any bankruptcy, insolvency, receivership or similar
proceeding is instituted by or against Guarantor and/or Borrower or in the event
that either Guarantor or Borrower become insolvent, make an assignment for the
benefit of creditors, or attempt to effect a composition with creditors, or if
there be any default under the Agreement (whether declared or not), then, at
Lender's election, without notice or demand, the obligations

of Guarantor created hereunder shall become due, payable and enforceable against
Guarantor whether or not the Obligations are then due and payable.

5.  Guarantor agrees to indemnify Lender and hold Lender harmless against all
obligations, demands, and liabilities, by whomsoever asserted and against all
losses in any way suffered, incurred, or paid by Lender as a result of or in any
way arising out of, following, or consequential to transactions with Borrower
whether under the Agreement, or otherwise, and also agrees that this Guaranty
shall not be impaired by any modification, supplement, extension, or amendment
of any contract or agreement to which Lender and Borrower may hereafter agree,
nor by any modification, release, or other alteration of any of the Obligations
hereby guaranteed or of any security there for, nor by any agreements or
arrangements whatsoever with Borrower or anyone else.

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6.  Guarantor hereby authorizes Lender, without notice or demand and without
affecting its liability hereunder, from time to time to: (a) renew, compromise,
extend, accelerate, or otherwise change the interest rate, time for payment, or
the other terms of any of the Obligations guaranteed hereby, and exchange,
enforce, waive, and release any security there for; (b) apply such security and
direct the order or manner of sale thereof as Lender in its discretion may
determine; (c) release or substitute anyone or more endorser(s) or guarantor(s);
and (d) assign, without notice, this Guaranty in whole or in part and/or
Lender's rights hereunder to anyone at any time. Guarantor agrees that Lender
may do any or all of the foregoing in such manner, upon such terms, and at such
times as Lender, in its discretion, deems advisable, without, in any way or
respect, impairing, affecting, reducing or releasing Guarantor from its
undertakings hereunder and Guarantor hereby consents to each and all of the
foregoing acts, events and/or occurrences.

7.  Guarantor hereby waives any right to assert against Lender as a defense,
counterclaim, set-off on crossclaim, any defense (legal or equitable), set-off,
counterclaim, and/or claim which Guarantor may now or at any time hereafter have
against Borrower and/or any other party liable to Lender in any way or manner.

8.  Guarantor hereby waives all defenses, counterclaims and/off-sets of any kind
or nature, arising directly or indirectly from the present or future lack of
perfection, sufficiency, validity and/or enforceability of the Agreement, or any
security interest.

9.  Guarantor hereby waives any defense arising by reason of any claim or
defense based upon an election of remedies by Lender, which, in any manner
impairs, affects, reduces, releases, destroys and/or extinguishes Guarantor's
subrogation rights, rights to proceed against Borrower for reimbursement, and/or
any rights of Guarantor to proceed against Borrower or against any other person
or security, including, but not limited to, any defense based upon an election
of remedies by Lender under the provisions of Section 580d of the California
Code of Civil Procedure, and/or any similar law of California or of any other
State or of the United States. Guarantor waives all presentments, demands for
performance, notices of non-performance, protests, notices of protest, notices
of dishonor, notices of default, notices of acceptance of this Guaranty, and
notices of the existence, creation, or incurring of new or additional
indebtedness, and all other notices or formalities to which Guarantor may be
entitled. Guarantor waives any right to a jury trial in any action hereunder or
arising out of Lender's transactions with Borrower. Guarantor also hereby waives
any right of subrogation it may have or assert, or any other right of
reimbursement from Borrower or any other party, unless Lender expressly consents
to Guarantor's assertion of such rights. Without limiting the foregoing,
Guarantor expressly waives all benefits which might otherwise be available to
Guarantor under California Civil Code Sections 2809, 2810, 2815, 2819, 2822,
2839, 2845, 2847, 2848, 2849, 2850, 2899 and 3433 and California Code of Civil
Procedure Sections 580a, 580b, 580d and 726, as those statutory provisions are
now in effect and hereafter amended, and under any other similar statutes now
and hereafter in effect deemed applicable to this Guaranty and its enforcement.

10.  Guarantor waives all presentments, demands for performance, notices of
non-performance, protests, notices of protest, notices of dishonor, notices of
default, notices of intent to accelerate or demand payment of any kind,
diligence in collecting any Obligations, notices of acceptance of this Guaranty,
notices of the existence, creation, or incurring of new or additional
indebtedness, notices respecting the terms, time and place of any public or
private sale of personal property security held from Borrower or any other
person, and all other notices or formalities to which Guarantor may be entitled.
Each Guarantor hereby waives any claim, right or remedy now existing or
hereafter acquired against the Borrower, which claims arise from the performance
of such Guarantor's obligations under the respective guaranties, including
without limitation, any right of subrogation, reimbursement, exoneration,
contribution, indemnification or participation in any claim, right or remedy
against Borrower for any security which Lender now has or hereafter acquires,
whether or not such claim, right or remedy arises in equity, under contract, by
statute, under common law or otherwise. Lender may modify the terms of any
Obligations, compromise, extend, increase, accelerate, renew or forbear to
enforce payment of any or all Obligations, or permit Borrower to incur
additional Obligations, all without notice to Guarantor and without affecting in
any manner the unconditional obligation of Guarantor under this Guaranty.
Guarantor further waives any and all other notices to which Guarantor might
otherwise be entitled. Guarantor acknowledges and agrees that the liabilities
created by this Guaranty are direct and are not conditioned upon pursuit by
Lender of any remedy Lender may have against Borrower or any other person or any
security. No invalidity, irregularity or unenforceability of any part or all of
the Obligations or any documents evidencing the same, by reason of any
bankruptcy, insolvency or other law or order of any kind or for any other
reason, and no defense or setoff available at any time to Borrower, shall
impair, affect or be a defense or set off to the obligations of Guarantor under
this Guaranty.

11.  Any and all present and future debts and obligations of Borrower to
Guarantor are hereby postponed in favor of and subordinated to the full payment
and performance of all present and future debts and obligations of Borrower to
Lender. All monies or other property of Guarantor at any time in Lender's
possession may be held by Lender as security for any and all obligations of
Guarantor to Lender no matter how or when arising, whether absolute or
contingent, whether due or to become due, and whether under this Guaranty or
otherwise. Guarantor also agrees that Lender's books and records showing the
account between Lender and Borrower shall be admissible in any action or
proceeding and shall be binding upon Guarantor for the purpose of establishing
the terms set forth therein and shall constitute prima facie proof thereof.

12.  Based solely on its own independent investigation and not upon any
information provided by Lender, Guarantor acknowledges that it is presently
informed of the financial condition of Borrower and of all other circumstances
which a diligent inquiry would reveal and which bear upon the risk of non
payment of the Obligations. Guarantor hereby covenants that it will continue to
keep itself informed of Borrower's financial condition and of all other
circumstances which bear upon the risk of nonpayment. Absent a written request
for such information by Guarantor to Lender, Guarantor hereby waives its rights,
if any, to require the disclosure of, and Lender is relieved of any obligation
or duty to disclose to Guarantor, any information which Lender may now or
hereafter acquire concerning such condition or circumstances. Guarantor agrees
that it is not relying upon nor expecting Lender to disclose to Guarantor 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
co-guarantor of the Obligations, the occurrence of any default with respect to
the Obligations, or otherwise, notwithstanding any effect these facts may have
upon Guarantor's risk under this Guaranty or Guarantor's rights against
Borrower. Guarantor knowingly accepts the full range of risk encompassed in this
Guaranty, which risk includes without limit the possibility that Borrower may
incur Obligations to Lender after the financial condition of Borrower, or its
ability to pay its debts as they mature, has deteriorated.

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13.  Notwithstanding any prior revocation, termination, surrender or discharge
of this Guaranty (or of any lien, pledge or security interest securing this
Guaranty) in whole or part, and of all liens, pledges and security interests
securing this Guaranty, this Guaranty shall continue in full force and effect
until Borrower's Obligations are fully paid, performed and discharged and Lender
gives Guarantor written notice of that fact. Borrower's Obligations shall not be
considered fully paid, performed and discharged unless and until all payments by
Borrower to Lender are no longer subject to any right on the part of any person
whomsoever including but not limited to Borrower, Borrower as a
debtor-in-possession, and/or any trustee or receiver in bankruptcy, to set aside
such payments or seek to recoup the amount of such payments, or any part
thereof. In the event that any such payments by Borrower to Lender are set aside
after the making thereof, in whole or in part, or settled without litigation, to
the extent of such settlement, all of which is within Lender's discretion,
Guarantor shall be liable for the full amount Lender is required to repay plus
costs, interest, attorneys' fees and any and all expenses which Lender paid or
incurred in connection therewith. The foregoing shall include, by way of example
and not by way of limitation, all rights to recover preferences voidable under
the United States Bankruptcy Code and any liability imposed, or sought to be
imposed, against Lender relating to the environmental condition of, or the
presence of hazardous or toxic substances on, in or about, any property given as
collateral to Lender by Borrower. For purposes of this Guaranty, "environmental
condition" includes, without limitation, conditions existing with respect to the
surface or ground water, drinking water supply, land surface or subsurface and
the air; and "hazardous or toxic substances" shall include all substances now or
subsequently determined by any federal, state or local authority to be hazardous
or toxic, or otherwise regulated by any of these authorities.

14.  This Guaranty shall be binding upon the successors and assigns of Guarantor
and shall inure to the benefit of Lender's successors and assigns. If Guarantor
is a natural person, the death of Guarantor shall not terminate this Guaranty.
If Guarantor is a partnership or an unincorporated association, Guarantor's
rights and liability shall not be affected by any changes in the name of the
entity or its membership.

15.  All notices, demands and other communications which Guarantor or Lender may
desire, or may be required, to give to the other shall be in writing and shall
be sent via registered or certified mail, nationally recognized overnight
courier, or personally delivered and shall be addressed to the party at the
addresses set forth in the preamble ofthis Guaranty. Any such notice, demand or
communication shall be deemed given when received if personally delivered or
sent by overnight courier, or deposited in the United States mail, postage
prepaid, if sent by registered or certified mail. The address of either
Guarantor or Lender may be changed by notice given in accordance with this
paragraph.

16.  This is an integrated agreement and is the sole and final agreement with
respect to the subject matter hereof, and supersedes all prior negotiations and
agreements. No modification of this Guaranty shall be effective for any purpose
unless it is in writing and executed by an officer of Lender authorized to do
so.

17.  Guarantor agrees to pay all attorneys' fees and all other costs and
out-of-pocket expenses which may be incurred by Lender in the enforcement of
this Guaranty or in any way arising out of, following, or consequential to the
enforcement of Borrower's Obligations, whether under this Guaranty, the
Agreement, or otherwise, including without limitation the prosecution or defense
of (a) motions or actions for relief from any stay under the Bankruptcy Code,
(b) motions to deny discharge ability of any debt under the Bankruptcy Code, (c)
motions to grant or deny use of cash collateral or extend financing, (d) motions
to challenge or assert preference liability motions or fraudulent transfer
liability motions, and (e) all other motions brought by Borrower, Guarantor,
Lender or third parties in any way relating to Lender's rights with respect to
such Borrower, Guarantor, or third party and/or affecting any collateral
securing any obligation owed to Lender by Borrower, Guarantor, or any third
party, or probate proceedings.

18.  In all cases where the word "Guarantor" is used in this Guaranty, it shall
mean and apply equally to each of and all of the individuals and/or entities
which have executed this Guaranty.  If any Obligation is guaranteed by two or
more guarantors, the obligation of Guarantor shall be several and also joint,
each with all and also each with anyone or more of the others, and may be
enforced at the option of Lender against each severally, any two or more
jointly, or some severally and some jointly. The term "Borrower" includes any
debtor-in-possession or trustee in bankruptcy which succeeds to the interests of
Borrower.

 

19.  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, without regard to choice of law principles.

GUARANTOR ACKNOWLEDGES THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL
RIGHT, BUT THAT IT MAY BE WAIVED. AFTER CONSULTING (OR HAVING HAD THE
OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, GUARANTOR AND LENDER
KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVE ANY RIGHT TO
TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR
ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS GUARANTY OR THE OBLIGATIONS.

WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES' AGREEMENT TO WAIVE THEIR
RESPECTIVE RIGHT TO A TRIAL BY JURY, if the above waiver of the right to a trial
by jury is not enforceable, the parties hereto agree that any and all disputes
or controversies of any nature between them arising at any time shall be decided
by a reference to a private judge, mutually selected by the parties (or, if they
cannot agree , by the Presiding Judge of the Santa Clara County, California
Superior Court) appointed in accordance with California Code of Civil Procedure
Section 638 (or pursuant to comparable provisions of federal law if the dispute
falls within the exclusive jurisdiction of the federal courts), sitting without
a jury, in Santa Clara County, California; and the parties hereby submit to the
jurisdiction of such court. The reference proceedings shall be conducted
pursuant to and in accordance with the provisions of California Code of Civil
Procedure §§ 638 through 645 .1, inclusive. The private judge shall have the
power, among others, to grant provisional relief, including without limitation,
entering temporary restraining orders, issuing preliminary and permanent
injunctions and appointing receivers. All such proceedings shall be closed to
the public and confidential and all records relating thereto shall be
permanently sealed. If during the course of any dispute, a party desires to seek
provisional relief, but a judge has not been appointed at that point pursuant to
the judicial reference procedures, then such party may apply to the Santa Clara
County, California Superior Court for such relief. The proceeding before the
private judge shall be conducted in the same manner as it would be before a
court under the rules of evidence applicable to judicial proceedings. The
parties shall be entitled to discovery which shall be conducted in the same
manner as it would be before a court under the rules of discovery applicable to
judicial proceedings. The private judge shall oversee discovery and may enforce
all discovery rules and order applicable to judicial proceedings in the same
manner as a trial court judge. The parties agree that the selected or appointed
private judge shall have the power to decide all issues in the action or
proceeding, whether of fact or of law, and shall report a statement of decision
thereon pursuant to the California Code of Civil Procedure § 644(a). Nothing in
this paragraph shall limit the right of any party at any time to exercise
self-help remedies, foreclose against collateral, or obtain provisional
remedies. The private judge shall also determine all issues relating to the
applicability, interpretation, and enforceability of this paragraph.

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GUARANTOR ACKNOWLEDGES THAT GUARANTOR HAS HAD THE OPPORTUNITY TO READ AND REVIEW
WITH GUARANTOR'S COUNSEL THIS GUARANTY AND GUARANTOR ACKNOWLEDGES HAVING READ
AND UNDERSTOOD THE MEANING AND EFFECT OF THIS DOCUMENT BEFORE SIGNING IT.

IN WITNESS WHEREOF, the undersigned has/have executed this Guaranty as of the
date set forth above.

 

Vertical Branding, Inc.

 

 

 

/s/Nancy Duitch

 

By: Nancy Duitch

 

Title: Chief Executive Officer