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**9. IDENTIFICATION AND DELIVERY OF COLLATERAL; COLLATERAL REPORTS**Debtor shall mark and identify all Collateral and all books and records pertaining to theCollateral as required by Secured Party. Debtor shall deliver to Secured Party at Secured Party’srequest, all original instruments, documents and title documents, leases, contracts, securities,licenses, records, and other chattel paper (together with any related certificates of title)included in the Collateral, each assigned or endorsed as Secured Party may require, and alloriginal and duplicate invoices representing sales and delivery of goods or performance of services(each of which shall bear and assignment stamp acceptable to Secured Party) together with evidenceof delivery as may be required by Secured Party Debtor shall deliver to Secured Party at SecuredParty’s request such reports concerning the Collateral on such dates and in such detail as SecuredParty from time to time may require. The value of all inventory reflected on the reports shall bethe lesser of cost or market value.**10. FINANCIAL AND OTHER INFORMATION**Debtor shall furnish to Secured Party from time to time such financial statements and otherfinancial data as Secured Party may require, each in form and detail acceptable to Secured Party.Debtor warrants that all information concerning the Collateral, all financial statements, balancesheets and other financial data, and all other information furnished by Debtor to Secured Partyare, or at the time furnished shall be, accurate and correct in all material respects and ascomplete as necessary to give Secured Party true and accurate knowledge of the subject matter. Allfinancial information furnished by Debtor to Secured Party shall be prepared in accordance withgenerally accepted accounting principles consistently applied.**11. INSPECTIONS**Debtor shall at all reasonable times allow Secured Party by or through its nominees (i) to examineand inspect the Collateral; (ii) to verify the Collateral directly with applicable third partiessuch as account debtors or by any other methods; and (iii) to examine, inspect and take extractsfrom Debtor’s books and records.**12. USE AND ADVERSE LIENS**Debtor shall not use or permit the Collateral to be used in violation of any law or regulation,waste or destroy the Collateral, or permit anything to be done that may impair the value of theCollateral. Debtor shall promptly pay when due all taxes and assessments on the Collateral, or forits use or operation, and shall keep the Collateral free from any adverse lien, security interestor encumbrance. At its option, Secured Party may discharge taxes, liens, security interests orencumbrances at any time levied or placed on the Collateral and may pay for the maintenance andpreservation of the Collateral, and Debtor shall pay to Secured Party on demand all such amounts.**13. INSURANCE**Unless expressly waived by Secured Party, Debtor shall provide, maintain and deliver to SecuredParty policies insuring the Collateral against loss or damage by such risks, in such form andamount, for such periods and by such companies as may be satisfactory to Secured Party. Allpolicies of insurance shall include a standard loss payable endorsement and such other endorsementsas Secured Party may request. If Debtor fails to obtain such insurance, Secured Party shall havethe right, but not the obligation, to obtain such insurance and Debtor shall pay to Secured Partyon demand the cost thereof. Secured Party is hereby appointed Debtor’s attorney-in-fact to obtain,adjust, settle and cancel such insurance in Secured Party’s sole discretion. Debtor hereby assignsto Secured Party all rights to receive proceeds of insurance to the full extent of the amount ofall Obligations secured hereunder, directs any insurer to pay all proceeds directly to SecuredParty, and authorizes Secured Party to endorse any check for proceeds.**14. POSSESSION, USE AND SALE OF COLLATERAL**Until default, Debtor may retain possession of all Collateral composed of equipment and fixturesand may use them in any lawful manner not inconsistent with the terms and conditions of thisSecurity Agreement. Debtor shall not sell, lease, transfer or otherwise dispose of any interest inany such Collateral without the prior written consent of Secured Party. Until default, Debtor mayuse any Collateral composed of inventory in any lawful manner not inconsistent with the terms andconditions of this Security Agreement and the GATEWAY Agreement, and may consume any raw materialsand supplies comprising such Collateral as may be necessary to carry on Debtor’s business. Debtormay also sell such Collateral but only in the ordinary course of business. A sale in the ordinarycourse of business does not include a transfer in bulk or as security for or in total or partialsatisfaction of a money debt.**15. COLLECTION OF ACCOUNTS**Subject to the following sentence, Debtor shall make collections from the account debtors on allCollateral composed of accounts, chattel paper and general intangibles as directed by SecuredParty. Secured Party may before or after any default hereunder without prior notice to Debtor, andDebtor shall at Secured Party’s request and in such form as Secured Party may require, notify theaccount debtors that the Collateral has been assigned to and payment thereon shall be made directlyto Secured Party.**16. FINANCING STATEMENTS; FURTHER ASSURANCE**At Secured Party’s request, Debtor shall execute and pay the costs of filing one or more financingstatements and any other documents required by the Uniform Commercial Code or other applicable lawsor regulations. A carbon, photographic or other reproduction of this Security Agreement or of anyrelated financing statement shall be sufficient as a financing statement. At the request ofSecured Party, Debtor shall do, make, execute and deliver all such additional and further acts,deeds, assurances and instruments as Secured Party from time to time may require to more completelyvest in and assure to Secured Party its rights hereunder and in or to the Collateral, all atDebtor’s expense. Secured Party hereby is appointed Debtor’s attorney-in-fact with power to do allacts and things which Secured Party may deem necessary to perfect and continue perfected itssecurity interest in the Collateral, and to protect the Collateral. Without the prior writtenconsent of Secured Party, Debtor shall not grant a security interest in the Collateral to anyperson other than Secured Party, and shall not allow any financing statement or other securityinstrument covering Collateral or its proceeds to be on file in any public office.**17. EVENTS OF DEFAULT**Time is of the essence of this Security Agreement. The occurrence of any of the following shall,at the discretion of Secured Party, be an Event of Default hereunder:**17.1**Default in the payment or performance of any Obligation, in any covenant or liabilitycontained or referred to herein, in the Agreement and/or Addenda thereto, in any note, or in anyother agreement between Debtor and Secured Party;
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**17.2**Any warranty, representation or statement (including but not limited to financial statements)made or furnished to Secured Party by or on behalf of Debtor or any guarantor of any of theObligations (“Guarantor”) proves to have been false in any material respect when made or furnished;**17.3**Any indebtedness of Debtor under any note, indenture, agreement, undertaking or obligation ofany kind to any person, including Secured Party, becomes due by acceleration or otherwise and isnot paid;**17.4**Default by Debtor under any lease or other arrangement whereby Debtor occupies, or storesCollateral in, any premises owned by any person other than Debtor;**17.5**Any default under any security agreement or other instrument executed by any person whichsecures any of the Obligations or under any guaranty of any Guarantor:**17.6**Any guaranty of any Guarantor shall cease to be, or shall be asserted by any person not to be,in full force and effect;**17.7**Loss, theft, damage, destruction, sale (except as expressly permitted under this SecurityAgreement) or encumbrance to or of any of the Collateral, or the making of any levy, seizure orattachment thereof or thereon;**17.8**Death, dissolution, termination of existence, insolvency, business failure, appointment of areceiver for any part of the property of, assignment for the benefit of creditors by, entry of anyjudgment against or the commencement of any proceeding under any bankruptcy or insolvency laws byor against, Debtor, and Guarantor or any surety for Debtor, or failure of Debtor, any Guarantor orany such surety to provide Secured Party with financial information promptly when requested;**17.9**Sale, transfer, or other disposition of all or a substantial part of the assets of Debtor orany Guarantor other than in the ordinary course of business;**17.10**Interruption or cessation of a material portion of Debtor’s ordinary business operations;**17.11**Secured Party in good faith believes the Collateral inadequate, unsafe, or in danger of misuse;**17.12**Secured Party deems itself insecure with respect to repayment of any of the Obligations.**18. RIGHTS AND REMEDIES**Upon the occurrence of any Event of Default and at any time thereafter, Secured Party at its optionand not withstanding any time or credit allowed by any instrument evidencing any Obligation orrelated thereto, may without notice declare any and all Obligations immediately due and payable andterminate any commitment to extend credit to Debtor. In such event, Secured Party shall have allthe rights and remedies provided herein and in all other instruments or writings, executed byDebtor or any other person in connection with the Obligations, and as otherwise provided by law.Without limiting the foregoing, Secured Party may do any one or more of the following: (i) enterupon any premises where the Collateral may be located and remove there from the Collateral, andwith respect to accounts, may remove any records which Secured Party deems necessary for collectionthereof; (ii) require Debtor to assemble the Collateral and make it available to Secured Party at aplace designated by Secured Party; and (iii) establish a field warehouse under the control ofSecured Party on Debtor’s premises and place the Collateral therein. Secured Party in its solediscretion, without notice and without bringing suit on the Obligations, may apply for and secureappointment of a receiver, receiver-manager, or receiver and manager (“receiver”) for theundersigned to take possession of Debtor’s business and the Collateral, and the incomes, rents andproceeds thereof. Debtor hereby expressly waives any requirement that Secured Party or thereceiver post a bond upon such appointment. Any receiver appointed by Secured Party, so far asconcerns responsibility for its acts, shall he deemed the agent of the undersigned and not ofSecured Party. All Secured Party’s rights and remedies, whether evidenced hereby or by any otheragreement, instrument or writing shall be cumulative and may be exercised singularly orconcurrently.**19. ADDITIONAL SECURITY AND COLLATERAL AGREEMENT**As additional security and collateral for the Obligations, Debtor hereby grants to Secured Party asecurity interest in all instruments, documents, notes, bills of exchange, title or documents oftitle, policies and certificates of insurance, securities, stock certificates, bonds, goods,accounts receivable, deposits, choses in action, chattel paper, cash, property and the proceedsthereof (whether or not the same are Collateral hereunder) owned by Debtor or in which Debtor hasan interest, which now or hereafter are at any time in the possession or control of Secured Partyat any of its offices or in transit by mail or carrier to or from Secured Party or in thepossession of any third party acting in Secured Party’s behalf, without regard to whether SecuredParty received the same in pledge, for safekeeping, as agent for collection or transmission orotherwise or whether Secured Party has conditionally released the same, shall constitute additionalsecurity and collateral for the Obligations and may at any time be collected, negotiated, sold,assigned, set off or applied against any Obligations which are then due whether by acceleration orotherwise.**20. GENERAL****20.1**Nothing contained in this Security Agreement shall be construed to obligate Secured Party toextend credit to Debtor, or enter into any foreign exchange contracts or other contracts of anynature with Debtor.**20.2**Without notice to Debtor and without diminishing or affecting Secured Party’s rights orDebtor’s obligations hereunder, Secured Party may deal in any manner with any person who at anytime is liable for, or provides and real or personal property collateral for (i) any of theObligations; or (ii) any obligations constituting Collateral. Without limiting the foregoing,Secured Party may, in its sole discretion: (a) provide secured or unsecured credit to Debtor;(b) agree to any number of waivers, modifications, extensions and renewals of any length of anyObligations and of any obligations constituting Collateral; (c) impair, release (with or withoutsubstitution of new collateral) and fail to perfect a security interest in, any collateral providedby any person, whether with respect to the Obligations or any obligations constituting Collateral;(d) sue, fail to sue, agree not to sue, release, and settle or compromise with, any person.**20.3**This Security Agreement and all rights and liabilities hereunder and in and to any and allObligations and Collateral or other security shall inure to the benefit of Secured Party and itssuccessors and assigns, and shall be binding upon Debtor and its successors and assigns.**20.4**If at any time or times by assignment or otherwise Secured Party transfers any Obligations andCollateral or other security therefore, the transferee shall become vested with Secured Party’srights and powers hereunder with respect to the Obligations, Collateral and other securitytransferred, whether or not specifically referred to in the transfer. To the extent that SecuredParty retains any Obligations and Collateral or other security therefore, Secured Party’s rightsand powers hereunder shall continue with respect thereto.**20.5**Secured Party shall not be deemed to have waived any of Secured Party’s rights hereunder orunder any other agreement, instrument or writing signed by Debtor unless such waiver be in writingand signed by Secured Party. No delay or omission on the part of Secured Party in exercising anyright shall operate as a waiver of such right or any other right. A waiver on any one occasionshall not be construed as a bar or waiver of any right or remedy on any future occasion.
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**20.6**Any demand upon or notice to Debtor that Secured Party may give shall be effective when servedpersonally or deposited in the mails or by facsimile or courier addressed to the address shownabove, such other address as may be designated in writing to Secured Party from time to time, or toany address at which Secured Party customarily communicates with Debtor.**20.7**If there is more than one Debtor hereunder, all references to “Debtor” shall mean all or anyone or more of them.**20.8**Whether or not litigation is commenced, Debtor shall pay to Secured Party on demand any andall costs and expenses reasonably incurred or expended by Secured Party in the repossession,protection, storage, maintenance, and liquidation of any Collateral and other security, in thecollection or attempted collection of the Collateral and in protecting and enforcing the rights ofSecured Party hereunder, including such additional sums as any court or arbitrator(s) shall adjudgereasonable as attorney fees, including but not limited to costs and attorney fees incurred in anyappellate proceeding, proceeding under the bankruptcy code or receivership.**20.9**This Security Agreement shall be effective when signed by Debtor and delivered to SecuredParty. Subject to Section 20.10 Whenever there is no outstanding Obligation and no commitment onthe part of Secured Party under any agreement which might give rise to an Obligation, Debtor mayterminate this Security Agreement by notice in writing delivered to Secured Party at the office ofSecured Party to which this Security Agreement was delivered. Prior to such termination, thisshall be a continuing agreement in every respect.**20.10**Even if this Security Agreement and any security interest granted herein has been terminatedin whole or in part (pursuant to Section 20.9 or otherwise), if any payment or other transfer toSecured Party on account of any Obligation(s) is avoided or set aside under any applicablebankruptcy, insolvency or fraudulent conveyance law or law for the relief of debtors or on anyother basis, or if Secured Party in its sole discretion consents in good faith to any suchavoidance or set aside, such Obligation(s) and the security interest granted herein shall be deemedto continue or be reinstated to the extent of such payment or transfer.**20.11**Any disputes claims, counterclaims, and defenses, including those based on or arising fromany alleged tort (“Claims”) relating in any way to this Security Agreement, or breach thereof,shall be settled in accordance with the laws of the State of Washington, and shall be commenced inthe city and county of Spokane, Washington. The fees and expenses of any action shall be borne bythe losing party. The prevailing party shall be entitled to recover from the losing party theexpenses of its witnesses and reasonable attorney fees. In addition, each has the right before,during, and after any action to exercise any number of the following remedies, in any order orconcurrently: (i) setoff; (ii) self-help repossession; (iii) judicial or non judicial foreclosureagainst real or personal property collateral; and (iv) provisional remedies, including injunction,appointment of receiver, attachment, claim and delivery and replevin.**20.12**This Security Agreement shall be governed by and construed and enforced in accordance withthe laws of the State of Washington without regard to conflict of law principles. Notwithstanding,any legal action taken in connection with this Security Agreement shall be commenced in Spokane,Washington, and the parties agree that they will be subject to the jurisdictions of the Courts ofSpokane County, Washington.**20.13**If anything in this Security Agreement is held to be illegal, then only that portion is voidand not the entire Security Agreement.**20.14**Secured Party shall use ordinary reasonable care in the physical preservation and custody ofthe Collateral in its possession, but shall have no other obligation to protect the Collateral orits value, and in particular, Secured Party shall have no responsibility for the collection orprotection of any income on the Collateral; preservation of rights against parties thereto oragainst third persons; ascertaining any maturities, calls, conversions, exchanges, offers, tenders,or similar matters relating to any of the Collateral; nor for informing the undersigned withrespect to any of the above, whether or not Secured Party has or is deemed to have knowledgethereof. The undersigned hereby waives presentment, protest, demand, or notice of non-payment tothe undersigned, or to any maker, endorser, surety, guarantor, or other person who is a party toany of the Collateral, and agrees that Secured Party shall have no obligations to commencelitigation, notify debtor or take any other action to prevent the running of any statute oflimitations. Further, the undersigned waives presentment, protest, demand, or notice ofnon-payment to the undersigned of any portion of the indebtedness and Secured Party may grant anextension of time to or renew any obligation of the undersigned or any one or more of them, orexchange or release any Collateral or other security without first obtaining the consent of theundersigned.**21. GATEWAY AGREEMENT AND ADDENDA**This Security Agreement supports and backs the GATEWAY Agreement dated as of September 12,2007 and all Addenda thereto.Signed and Delivered to Secured Party as of the day and year first written above.**Corgi USA, Inc.**     **By:**    **Title:**         
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