Document:

usdc_8k-ex1003.htm

     

    Exhibit 10.3

    SECURITY AGREEMENT

    

    THIS SECURITY AGREEMENT made
as of the 24 day of March, 2008, by and between USDC PORTSMOUTH, INC., a
California corporation (the “Debtor”);
and NEWSTAR FINANCIAL,
INC., a Delaware corporation (the “Secured
Party”).

     

    Section 1.  The Security Interests.  (A)  In
order to secure (i) the due and punctual payment of that certain Time Note
of the Debtor of even date herewith issued by the Debtor to the Secured Party in
the principal amount of $975,000, as the same may be amended, modified,
extended, supplemented or replaced from time to time (the “Note”),
and (ii) the due and punctual payment and performance of all the
obligations of the Debtor contained herein, (all of the foregoing are
hereinafter called the “Obligations”),
the Debtor hereby grants to the Secured Party a continuing security interest in
the following described fixtures and personal property (hereinafter collectively
called the “Collateral”):

    

    All
fixtures and all tangible and intangible personal property of the Debtor, in
each case whether now owned or hereafter acquired by the Debtor, or in which the
Debtor may now have or hereafter acquire an interest, including, without
limitation, (a) all equipment (including all machinery, tools and
furniture), inventory (including all merchandise, raw materials, work in
process, finished goods and supplies), and goods, in each case whether now owned
or hereafter acquired by the Debtor, or in which the Debtor may now have or
hereafter acquire an interest (the “Tangible
Collateral”); (b) all accounts, accounts receivable, other
receivables, contracts, payment intangibles, letters of credit, letter-of-credit
rights, chattel paper, electronic chattel paper and general intangibles of the
Debtor (including, without limitation, customer lists, goodwill, patents,
trademarks, tradenames, blueprints, designs, product lines and research and
development), and all supporting obligations, in each case whether now owned or
hereafter acquired by the Debtor, or in which the Debtor may now have or
hereafter acquire an interest; (c) all instruments, documents of title,
documents, policies and certificates of insurance, securities, securities
entitlements, investment property, partnership interests, membership interests,
limited liability company interests, bank deposits, deposit accounts, checking
accounts, certificates of deposit, and cash, in each case whether now or
hereafter owned by the Debtor, or in which the Debtor may now have or hereafter
acquire an interest; (d) in accordance with Section 1(D) hereof, all
commercial tort claims of the Debtor, whether now existing or hereafter arising,
including all such commercial tort claims described in Exhibit C
hereto; (e) all accessions, additions or improvements to, all replacements,
substitutions and parts for, and all proceeds and products of, all of the
foregoing; and (f) all books, records and documents relating to all of the
foregoing and all computer records, software and computer disks and tapes
relating to the foregoing.

     

    (B)           All
terms appearing in the foregoing description of Collateral shall have the
respective meanings given to such terms in the Uniform Commercial
Code.  All Collateral consisting of accounts, contracts, chattel paper
and general intangibles of the Debtor, whether now existing or hereafter
arising, and arising from the sale, delivery or provision of goods and/or
services are sometimes hereinafter collectively called the “Customer
Receivables.”

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (C)           The
security interests granted pursuant to this Section 1 (the “Security
Interests”) are granted as security only and shall not subject the
Secured Party to, or transfer or in any way affect or modify, any obligation or
liability of the Debtor under any of the Collateral or any transaction which
gave rise thereto.

     

    (D)           If
the Debtor shall at any time acquire a commercial tort claim, as defined in
Revised Article 9 of the Uniform Commercial Code, the Debtor shall
immediately notify the Secured Party in writing of the details thereof and shall
grant to the Secured Party in writing a security interest therein and in the
proceeds thereof, all on the terms of this Security Agreement, and in writing in
form and substance reasonably satisfactory to the Secured Party.

     

    (E)           For
avoidance of doubt it is expressly understood and agreed that, to the extent the
Uniform Commercial Code is revised subsequent to the date hereof such that the
definition of any of the foregoing terms included in the description of
Collateral is changed, the parties agree that any property which is included in
such changed definitions which would not otherwise be included in the foregoing
grant on the date hereof be included in such grant immediately upon the
effective date of such revision, it being the intention of the parties hereto
that the description of Collateral set forth herein be construed to include the
broadest possible range of property and assets and all tangible and intangible
personal property and fixtures of the Debtor of every kind and
description.

     

    Section 2.  Delivery of Pledged Securities and Chattel Paper.  (a) All
securities, securities entitlements, and other investment property of the
Debtor, whether now owned or hereafter acquired by the Debtor (collectively, the
“Securities”),
shall be promptly delivered to the Secured Party by the Debtor pursuant hereto
(which Securities, together with such other Securities which may hereafter be
delivered to the Secured Party pursuant to the terms hereof, are hereinafter
called the “Pledged
Securities”), shall be in suitable form for transfer by delivery, or
shall be accompanied by duly executed instruments of transfer or assignments in
blank, and accompanied in each case by any required transfer tax stamps, all in
form and substance satisfactory to the Secured Party.  Exhibit A
attached hereto and made a part hereof sets forth a complete description of all
Securities owned by Debtor on the date hereof.

     

    (b)           The
Secured Party may at any time or from time to time, after the occurrence and
during the continuance of an Event of Default, at its sole discretion, require
the Debtor to cause any chattel paper included in the Customer Receivables to be
delivered to the Secured Party or any agent or representative designated by it,
or to cause a legend referring to the Security Interests to be placed on such
chattel paper and upon any ledgers or other records concerning the Customer
Receivables.

     

    Section 3.  Filing; Further Assurances;
Control.  (a) The Debtor will, at its expense, execute,
deliver, file and record (in such manner and form as the Secured Party may
require), or permit the Secured Party to file and record, any financing
statements, any carbon, photographic or other reproduction of a financing
statement or this Security Agreement (which shall be sufficient as a financing
statement hereunder), any specific assignments or other paper that may be
reasonably necessary or desirable, or that the Secured Party may reasonably
request, in order to create, preserve, perfect or validate any Security Interest
or to enable the Secured Party to exercise and enforce its rights hereunder with
respect to any of the Collateral.  The Debtor hereby authorizes the
Secured Party to file one or more financing statements against the Debtor
describing or indicating the Collateral (the “Financing
Statements”) and hereby agrees that such Financing Statements may, at the
Secured Party’s option, indicate that such Financing Statements cover “all
assets” or “all personal property” of the Debtor.

     

    
      
         

      

      
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    (b)           If
requested by the Secured Party, the Debtor will execute such additional
agreements, and cooperate in obtaining agreements from such third parties as
Secured Party shall designate, as may be necessary for Secured Party to obtain
control over all collateral consisting of deposit accounts, investment property,
letter-of-credit rights and electronic chattel paper.

     

    Section 4.  Representations and Warranties of Debtor.  The
Debtor hereby represents and warrants to the Secured Party that (a) the
Debtor is, or to the extent that certain of the Collateral is to be acquired
after the date hereof, will be, the owner of the Collateral free from any
adverse lien, security interest or encumbrance (other than liens in favor of
Setal 2, LLC (the “Senior
Secured Party”)); (b) except for such financing statements as may be
described on Exhibit B
attached hereto and made a part hereof, no financing statement covering the
Collateral is on file in any public office, other than the financing statements
filed pursuant to this Security Agreement; (c) all additional information,
representations and warranties contained in Exhibit C
attached hereto and made a part hereof are true, accurate and complete on the
date hereof; and (d) there are no restrictions upon the voting rights or
the transfer of all or any of the Pledged Securities (other than those (i) in
favor of the Senior Secured Party, (ii)which may appear on the face of the
certificate thereof or (iii) as may be imposed by any federal, state or local
authorities) and the Debtor has the right to vote, pledge, or grant a security
interest in and otherwise transfer the Pledged Securities free of any
encumbrances (other than (i) the pledge in favor of the Senior Secured Party,
(ii) applicable restrictions imposed by any federal, state or local authorities,
or (iii) Federal or state securities laws or regulations).

     

    Section 5.  Covenants of Debtor.  The
Debtor hereby covenants and agrees with the Secured Party that the Debtor
(a) will defend the Collateral against all claims and demands of all
persons at any time claiming any interest therein; (b) will provide the
Secured Party with twenty (20) days prior written notice of (i) any change
in the chief executive office of the Debtor or the office where the Debtor
maintains its books and records pertaining to the Customer Receivables, or (ii)
the movement or location of Collateral to or at any address other than the
addresses set forth in said Exhibit C;
(c) will promptly pay any and all taxes, assessments and governmental
charges upon the Collateral prior to the date penalties are attached thereto,
except to the extent that such taxes, assessments and charges shall be contested
in good faith by the Debtor; (d) will immediately notify the Secured Party
of any event causing a substantial loss or diminution in the value of all or any
material part of the Collateral and the amount or an estimate of the amount of
such loss or diminution; (e) will have and maintain insurance at all times with
respect to the Tangible Collateral against risks of fire (including so-called
extended coverage) and theft, and such other risks as the Secured Party may
reasonably require in writing, containing such terms, in such form, for such
periods and written by such companies as may be reasonably satisfactory to the
Secured Party, such insurance to be payable to the Secured Party and the Debtor
as their interests may appear, and shall provide for thirty (30) days prior
written minimum cancellation notice to the Secured Party, and Debtor shall
furnish the Secured Party with certificates or other evidence reasonably
satisfactory to the Secured Party of compliance with the foregoing insurance
provisions; (f) will not sell or offer to sell or otherwise assign, transfer or
dispose of the Collateral or any interest therein (other than in the ordinary
course of business), without the prior written consent of the Secured Party;
(g)  will keep the Collateral free from any adverse lien, security interest
or encumbrance and in good order and repair, reasonable wear and tear excepted,
and will not waste or destroy the Collateral or any part thereof; and will not
use the Collateral in violation of any statute or ordinance; and (h) will
not change its name, identity or structure, or state of incorporation or
organization, without 30 days prior written notice to the Secured
Party.

     

    
      
         

      

      
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    Section 6.  Records Relating to Collateral.  The
Debtor will keep its records concerning the Collateral, including the Customer
Receivables and all chattel paper included in the Customer Receivables, at its
office at 3303 Airline Boulevard, Building 2A-H, Portsmouth, Virginia or 4040
MacArthur Blvd., Suite 305 Newport Beach, CA 92660 or at such other place or
places of business as the Secured Party may approve in writing.  The
Debtor will hold and preserve such records and chattel paper and will permit
representatives of the Secured Party at any time during normal business hours to
examine and inspect the Collateral and to make abstracts from such records and
chattel paper, and will furnish to the Secured Party such information and
reports regarding the Collateral as the Secured Party may from time to time
reasonably request.

     

    Section 7.  Record Ownership of Pledged Securities.  Upon
the occurrence and during the continuance of an Event of Default, the Secured
Party may cause any or all of the Pledged Securities to be transferred of record
into the name of the Secured Party.  The Debtor will promptly give to
the Secured Party copies of any notices or other communications received by the
Debtor with respect to Pledged Securities registered in the name of the
Debtor.

     

    Section 8.  Right to Receive Distributions on Pledged
Securities.  Unless an Event of Default shall have occurred and
be continuing, the Debtor shall be entitled, from time to time, to collect and
receive for its own use all dividends, interest and other payments and
distributions made upon or with respect to the Pledged Securities,
except

     

    (i)           stock
dividends,

     

    (ii)          dividends
payable in securities or other property (except cash dividends),

     

    (iii)         dividends
or distributions on dissolution or on partial or total liquidation or in
connection with a reduction of capital, capital surplus or paid-in surplus,
and

     

    (iv)         other
securities issued with respect to or in lieu of the Pledged Securities (whether
upon conversion of the convertible securities included therein or through stock
split, spin-off, split-off, reclassification, merger, consolidation, sale of
assets, combination of shares or otherwise).

     

    Section 9.  Right to Vote Pledged Securities.  Unless
an Event of Default shall have occurred and be continuing, the Debtor shall have
the right, from time to time, to vote and to give consents, ratifications and
waivers with respect to the Pledged Securities and to exercise conversion rights
with respect to the convertible securities included therein, and the Secured
Party shall, upon receiving a written request from the Debtor accompanied by a
certificate signed by its principal financial officer stating that no Event of
Default has occurred and is continuing, deliver to the Debtor or as specified in
such request such proxies, powers of attorney, consents, ratifications and
waivers in respect of any Pledged Securities which are registered in the name of
the Secured Party and make such arrangements with respect to the conversion of
convertible securities as shall be specified in the Debtor’s request and be in
form and substance satisfactory to the Secured Party.

     

    
      
         

      

      
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    If an
Event of Default shall have occurred and be continuing, and provided the Secured
Party elects to exercise the rights hereinafter set forth by notice to the
Debtor of such election, the Secured Party shall have the right to the extent
permitted by law, and the Debtor shall take all such action as may be necessary
or appropriate to give effect to such right, to vote and to give consents,
ratifications and waivers and take any other action with respect to all the
Pledged Securities with the same force and effect as if the Secured Party were
the absolute and sole owner thereof.

     

    Section 10.  General Authority.  The
Debtor hereby appoints the Secured Party the Debtor’s lawful attorney, with full
power of substitution, in the name of the Debtor, for the sole use and benefit
of the Secured Party, but at the Debtor’s expense, to exercise at any time after
the occurrence and during the continuance of an Event of Default, all or any of
the following powers with respect to all or any of the Collateral:

     

    (i)        
 to demand, sue for, collect, receive and give acquittance for any and all
monies due or to become due to the Debtor,

     

    (ii)         to
receive, take, endorse, assign and deliver all checks, notes, drafts, documents
and other negotiable and non-negotiable instruments and chattel paper taken or
received by the Secured Party,

     

    (iii)        to
settle, compromise, compound, prosecute or defend any action or proceeding with
respect thereto,

     

    (iv)        to
sell, transfer, assign or otherwise deal in or with the same or the proceeds or
avails thereof or the related goods securing the Customer Receivables, as fully
and effectually as if the Secured Party were the absolute owner
thereof,

     

    (v)         to
extend the time of payment of any or all thereof and to make any allowance and
other adjustments with reference thereto, and

     

    (vi)        to
discharge any taxes, liens, security interests or other encumbrances at any time
placed thereon;

     

    provided
that the Secured Party shall give the Debtor not less than ten (10) days prior
written notice of the time and place of any sale or other intended disposition
of any of the Collateral, except any Collateral which is perishable or is of a
type customarily sold on a recognized market.

     

    
      
         

      

      
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    Section 11.  Events of Default.  The
Debtor shall be in default under this Security Agreement upon the occurrence of
any of the following events (herein referred to as an “Event of
Default”):

     

    (a)           default
by the Debtor in the due observance or performance of any covenant or agreement
contained herein or breach by the Debtor of any representation or warranty
herein contained (which has not been cured within ten (10) Business Days after
Lender delivering written notice of the same);

     

    (b)           any
default in the payment when due of the principal of, or interest on, or any sum
in respect of, any Obligation of the Debtor to the Secured Party, including,
without limitation, indebtedness evidenced by or incurred pursuant to the Note
(after the giving of any required notice and/or the expiration of any applicable
grace or cure period); or

     

    (c)           the
occurrence of any Event of Default under the provisions of the Pledge Agreement,
the Guaranty, the Loan Documents or any agreement now or hereafter evidencing or
securing any of the Obligations (after the giving of any required notice and/or
the expiration of any applicable grace or cure period).

     

    Section 12.  Remedies Upon Event of Default.

     

    (a)           If
any Event of Default shall have occurred and be continuing, the Secured Party
may exercise all the rights and remedies of a secured party under the Uniform
Commercial Code (whether or not the Uniform Commercial Code is in effect in the
jurisdiction where such rights and remedies are exercised) and, in addition, the
Secured Party may, without being required to give any notice, except as herein
provided or as may be required by mandatory provisions of law, (i) apply
the cash, if any, then held by it as Collateral, and (ii) if there shall be
no such cash or if such cash shall be insufficient to pay all the Obligations in
full, sell the Collateral, or any part thereof, at public or private sale or at
any broker’s board or on any securities exchange, for cash, upon credit or for
future delivery, and at such price or prices as the Secured Party may deem
satisfactory.  The Secured Party may require the Debtor to assemble
all or any part of the Collateral and make it available to the Secured Party at
a place to be designated by the Secured Party which is reasonably
convenient.  Any holder of an Obligation may be the purchaser of any
or all of the Collateral so sold at any public sale (or, if the Collateral is of
a type customarily sold in a recognized market or is of a type which is the
subject of widely distributed standard price quotations, at any private sale)
and thereafter hold the same, absolutely, free from any right or claim of
whatsoever kind.  The Secured Party is authorized, at any such sale,
if it deems it advisable so to do, to restrict the prospective bidders or
purchasers of any of the Pledged Securities to persons who will represent and
agree that they are purchasing for their own account for investment and not with
a view to the distribution or sale of any of such Pledged
Securities.  Upon any such sale the Secured Party shall have the right
to deliver, assign and transfer to the purchaser thereof the Collateral so
sold.  Each purchaser at any such sale shall hold the Collateral so
sold absolutely, free from any claim or right of whatsoever kind, including any
equity or right of redemption of the Debtor.  The Secured Party shall
give the Debtor ten (10) days prior written notice of the Secured Party’s
intention to make any such public or private sale or sale at a broker’s board or
on a securities exchange.  Such notice, in case of a public sale,
shall state the time and place fixed for such sale, and in case of sale at a
broker’s board or on a securities exchange, shall state the board or exchange at
which such sale is to be made and the day on which the Collateral, or the
portion thereof so being sold, will first be offered for sale at such board or
exchange.  Any such public sale shall be held at such time or times
within ordinary business hours and at such place or places as the Secured Party
may fix in the notice of such sale.  At any such sale the Collateral
may be sold in one lot as an entirety or in separate parcels, as the Secured
Party may determine.  The Secured Party shall not be obligated to make
such sale pursuant to any such notice.  The Secured Party may, without
notice or publication, adjourn any public or private sale or cause the same to
be adjourned from time to time by announcement at the time and place fixed for
the sale, and such sale may be made at any time or place to which the same may
be adjourned.  In case of any sale of all or any part of the
Collateral on credit or for future delivery, the Collateral so sold may be
retained by the Secured Party until the selling price is paid by the purchaser
thereof, but the Secured Party shall not incur any liability in case of the
failure of such purchaser to take up and pay for the Collateral so sold and, in
case of any such failure, such Collateral may again be sold upon like
notice.

     

    
      
         

      

      
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    (b)           The
Secured Party, instead of exercising the power of sale herein conferred upon it,
may proceed by a suit or suits at law or in equity to foreclose the Security
Interests and sell the Collateral, or any portion thereof, under a judgment or
decree of a court or courts of competent jurisdiction.

     

    Section 13.  Application of Collateral and Proceeds.  The
proceeds of any sale of, or other realization upon, all or any part of the
Collateral shall be applied in the following order of priorities:
(a) first, to pay the expenses of such sale or other realization, and all
reasonable expenses, liabilities and advances incurred or made by the Secured
Party in connection therewith, and any other unreimbursed expenses for which the
Secured Party is to be reimbursed pursuant to Section 14; (b) second,
to the payment of the Obligations in such order as the Secured Party, in its
sole discretion, shall determine; and (c) finally, to pay to the Debtor, or
its successors or assigns, or as a court of competent jurisdiction may direct,
any surplus then remaining from such proceeds.

     

    Section 14.  Expenses:  Secured
Party Lien.  The Debtor will forthwith upon demand pay to the
Secured Party: (a) the amount of any taxes which the Secured Party may have
been required to pay by reason of the Security Interests (including any
applicable transfer taxes) or to free any of the Collateral from any lien
thereon, and (b) the amount of any and all reasonable out-of-pocket
expenses, including the reasonable fees and disbursements of their counsel and
of any agents not regularly in the Secured Party’s employ, which the Secured
Party may incur in connection with (w) the preparation and administration of
this Security Agreement, (x) the collection, sale or other disposition of any of
the Collateral, (y) the exercise by the Secured Party of any of the powers
conferred upon it hereunder or (z) any default on the Debtor’s part
hereunder.

     

    Section 15.  Termination of Security Interests; Release of
Collateral.  Upon the repayment in full of all the Obligations,
the Security Interests shall terminate and all rights to the Collateral shall
revert to the Debtor.  Upon any such termination of the Security
Interests or release of Collateral, the Secured Party will, at the Debtor’s
expense to the extent permitted by law, execute and deliver to the Debtor such
documents as the Debtor shall reasonably request to evidence the termination of
the Security Interests or the release of such Collateral, as the case may
be.

     

    
      
         

      

      
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    Section 16.  Notices.  All
notices, communications and distributions hereunder shall be given or made to
the parties at their respective addresses set forth on the last page hereof, or
at such other address as the addressee may hereafter specify for the purpose by
written notice to the other party hereto.

     

    Section 17.  Miscellaneous.  (a) No
failure on the part of the Secured Party to exercise, and no delay in
exercising, and no course of dealing with respect to, any right, power or remedy
under this Security Agreement shall operate as a waiver thereof; nor shall any
single or partial exercise by the Secured Party of any right, power or remedy
under this Security Agreement preclude any other right, power or
remedy.  The remedies in this Security Agreement are cumulative and
are not exclusive of any other remedies provided by law.  Neither this
Security Agreement nor any provision hereof may be changed, waived, discharged
or terminated orally but only by a statement in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought.

     

    (b)           This
Security Agreement shall be construed in accordance with and governed by the
laws of the Commonwealth of Massachusetts, except (i) to the extent that
the Uniform Commercial Code provides for the application of the law of another
state with respect to perfection of the Security Interests, (ii) as
otherwise required by mandatory provisions of law, and (iii) to the extent
that remedies provided by the laws of any State other than Massachusetts are
governed by the laws of said State.  Unless otherwise defined herein,
or unless the context otherwise requires, all terms used herein which are
defined in the Massachusetts Uniform Commercial Code have the meanings therein
stated.  Other terms used herein and not defined herein shall have the
meanings assigned to such terms in the Note.

     

    (c)           This
Security Agreement is intended by the parties as the final, complete and
exclusive statement of the transactions evidenced by this Security
Agreement.  All prior or contemporaneous promises, agreements and
understandings, whether oral or written, are deemed to be superseded by this
Security Agreement, and no party is relying on any promise, agreement or
understanding not set forth in this Security Agreement.  This Security
Agreement may not be amended or modified except by a written instrument
describing such amendment or modification executed by the parties
hereto.

     

    (d)           Debtor
hereby submits to the jurisdiction of the courts of the Commonwealth of
Massachusetts and the United States District Court for the District of
Massachusetts, as well as to the jurisdiction of all courts from which an appeal
may be taken or other review sought from the aforesaid courts, for the purpose
of any suit, action or other proceeding arising out of any of Debtor’s
Obligations under or with respect to this Agreement, the Note, the Security
Documents or any of the transactions contemplated hereby, and expressly waives
any and all objections it may have as to venue in any of such
courts.

     

    
      
         

      

      
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    (e)           DEBTOR
AND SECURED PARTY MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE
THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT
OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENTS
CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH OR ANY COURSE OF CONDUCT,
COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY
PARTY, INCLUDING, WITHOUT LIMITATION, ANY COURSE OF CONDUCT, COURSE OF DEALINGS,
STATEMENTS OR ACTIONS OF SECURED PARTY RELATING TO THE ADMINISTRATION OF THE
LOANS OR ENFORCEMENT OF THE LOAN DOCUMENTS, AND AGREE THAT NO PARTY WILL SEEK TO
CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT
BE OR HAS NOT BEEN WAIVED.  EXCEPT AS PROHIBITED BY LAW, EACH OF
DEBTOR AND SECURED PARTY HEREBY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER
IN ANY LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR
ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES.  DEBTOR
CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF SECURED PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SECURED PARTY WOULD NOT, IN THE EVENT
OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER.  THIS WAIVER
CONSTITUTES A MATERIAL INDUCEMENT FOR SECURED PARTY TO ACCEPT THIS AGREEMENT AND
THE NOTE AND MAKE THE LOANS AND CONSIGNMENTS.

     

    (f)           Debtor
hereby grants to Secured Party, a continuing lien, security interest and right
of setoff as security for the Obligations, upon and against all deposits,
credits, collateral and property, now or hereafter in the possession, custody,
safekeeping or control of Secured Party or any entity under the control of
Secured Party and its successors and assigns, or in transit to any of
them.  At any time, during the continuance of an Event of Default,
without demand or notice (any such notice being expressly waived by Debtor),
Secured Party may setoff the same or any part thereof and apply the same to any
liability or obligation of Debtor even though unmatured and regardless of the
adequacy of any other collateral securing this Note.  ANY AND ALL
RIGHTS TO REQUIRE SECURED PARTY TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT
TO ANY OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS
RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF
DEBTOR, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.

     

    Section 18.  Separability.  If
any provision hereof is invalid or unenforceable in any jurisdiction, the other
provisions hereof shall remain in full force and effect in such jurisdiction and
shall be liberally construed in favor of the Secured Party.  The
Secured Party may in its sole discretion enforce rights and remedies granted to
the Secured Party by this Security Agreement or by applicable law.

     

    
      
         

      

      
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    Section
19.  Intercreditor
Agreement.  The rights of the Debtor hereunder are subject to
an Intercreditor Agreement of even date (the “Intercreditor
Agreement”) among the Debtor, the Secured Party and the Senior Secured
Party.  Notwithstanding any other provision hereof to the contrary,
the Debtor shall not be required to deliver or grant control of any Collateral
to the Secured Party hereunder, prior to the payment in full of the Senior Note
(as defined in the Note), if the Debtor is also required to deliver or grant
control of such Collateral to the Senior Secured Party or any successor thereto
or assignee thereof and the Senior Secured Party and any such successor thereto
or assignee thereof has agreed, pursuant to the terms of the Intercreditor
Agreement, to hold the Collateral for the benefit of the Lender, subject to the
terms of the Intercreditor Agreement.

     

    

     

    

     

    

     

    

     

    

     

    [Balance
of Page Left Blank Intentionally –

     

    the next
page is the signature page]

     

    
      
         

      

      
        - 10
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    IN
WITNESS WHEREOF, this Security Agreement has been executed by the parties under
seal hereto all as of the day and year first above written.

     

     

     

    

     

    
      	 	

              USDC
      PORTSMOUTH, INC.

              

              

              By:                                                                

              Title:                                                 
                 

              

              

              NEWSTAR
      FINANCIAL, INC.

              

              

              

                By:                                                                

                Title:                                                 
                 

                 

              

            

    

     

     

     

     

     

     

     

     

     

    
      
         

      

      
        - 11
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    EXHIBIT A

    

    Pledged Securities on Date Hereof

    

    None

     

     

     

     

     

    
 

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    EXHIBIT B

    

    Financing Statements on File on Date Hereof

    

     

     

     

     

     

    
 

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    EXHIBIT C

    

    Additional Representations and Warranties

    

    1.         The
exact name of the Debtor is:  USDC PORTSMOUTH, INC.  Since
the date of its incorporation, the Debtor has conducted business only under such
corporate name.

     

    2.         The
Debtor owns no trade names.

     

    3.         The
Debtor is incorporated under the laws of the State of California and is in good
standing under those laws.

     

    4.         The
Debtor’s principal executive office at 125 E. Tahquitz Canyon, Suite 203, Palm
Springs, CA 92262.

     

    5.         The
Debtor is qualified to transact business in the following
state:  Virginia.

     

    6.         The
Debtor has places of business at each of the locations set forth on Annex 1
hereto.

     

    7.         The
Debtor has no commercial tort claims as of the date hereof.usdc_8k-ex1004.htm

     

    Exhibit 10.4

    GUARANTY

    

    THIS GUARANTY (this “Guaranty”) is made as of the 24 day of March,
2008, by US DRY CLEANING CORPORATION
(the “Guarantor”), to and with NEWSTAR FINANCIAL, INC., a
Delaware corporation with an address at 500 Boylston Street, Suite 1600, Boston,
Massachusetts 02116 (hereinafter referred to as the “Lender”).

    

    W I T N E S S E T H  T H A
T:

    

    WHEREAS,
Lender, Guarantor, USDC Portsmouth, Inc. (the “Borrower”) have entered in a
certain Secured Party Sale Agreement of even date, pursuant to which the
Borrower agreed to pay a portion of the purchase price thereunder by executing
and delivering a certain Time Note of even date herewith issued by the Borrower
to the Lender in the principal amount of $975,000 (as the same may be amended,
modified, extended, supplemented or replaced from time to time, the “Time Note”).

    

    WHEREAS, Guarantor is the sole
stockholder of the Borrower and therefore the Guarantor has a substantial
interest in the making of the loan evidenced by the Time
Note.

    

    WHEREAS, to induce the Lender to make
the loan evidenced by the Time Note, the Guarantor has agreed to guarantee the
payment of the indebtedness and obligations of the Borrower to the Lenders under
the Time Note.

    

    NOW, THEREFORE, in order to induce the
Lender to enter into the aforesaid loan transactions and in consideration of the
premises and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Guarantor hereby covenants and
agrees as follows:

    

    Section 1.  Definitions.  Capitalized terms used in
this Agreement without definition have the identical meanings assigned to them
in the Time Note.

    

    Section
2. Agreement
to Guaranty.  The
Guarantor, as primary obligor and not merely as surety, hereby, absolutely,
unconditionally and irrevocably, guarantees: (i) the due and punctual payment in full
(and not merely the collectibility) by the Borrower of the principal of the Time Note, and the
interest thereon, when due and payable, according to the terms of the Time Note,
whether at stated maturity,
by required prepayment, declaration, acceleration, demand or otherwise
(including amounts that would become due but for the operation of the automatic
stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C.
§ 362(a)), (ii) all costs of collection and expenses, including
reasonable attorneys’ fees incurred by the Lender to collect the Guaranteed
Obligations from any party liable for the payment thereof, whether as maker,
endorser, guarantor, surety or otherwise, or in protecting, enforcing or
realizing upon the Lender’s rights in connection with any collateral securing
the Guaranteed Obligations or any guaranty thereof (all of the indebtedness, obligations and
liabilities described in this Section 2 are collectively hereinafter called
the “Guaranteed
Obligations”).

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Section
3. Further
Agreements.  The Guarantor also agrees:  that this
Guaranty shall not be impaired by any modification, release or other alteration
of any of the Guaranteed Obligations or arrangements whatsoever with the
Borrower or anyone else; that the liability of the Guarantor is direct and
unconditional and may be enforced without requiring the Lender first to resort
to any other right, remedy or security; that if the Borrower or Guarantor should
at any time become insolvent or make a general assignment, or if any petition in
bankruptcy or any insolvency or reorganization proceedings shall be filed or
commenced by, against or in respect of the Borrower or the Guarantor, any and
all Guaranteed Obligations of the Guarantor shall, at the Lender’s option,
forthwith become due and payable without notice; that the Lender’s books and
records show­ing the account between the Lender and the Borrower shall be
admissible in any action or proceedings, and shall constitute prima facie proof
thereof; that this Guaranty is a continuing Guaranty; that nothing shall
discharge or satisfy the liability of the Guarantor hereunder except the full
payment and performance of all of the Borrower’s said debts and Guaranteed
Obligations to the Lender with interest; and that any and all present and future
debts and obligations of the Borrower to the Guarantor are hereby waived and
postponed in favor of and subordinated to the full payment and performance of
the Obligations.

    

    Section
4.  Waivers
by Guarantor.  The Guarantor waives, for the benefit of Lender: (a) any
right to require the Lender, as a condition of payment or performance by the
Guarantor, to (i) proceed against the Borrower, any other guarantor of the
Guaranteed Obligations or
any other Person, (ii) proceed against or exhaust any security held from the
Borrower, any such other guarantor or any other Person, (iii) proceed against or
have resort to any balance of any deposit account or credit on the books of the
Lender in favor of the Borrower or any other Person, or (iv) pursue any other
remedy in the power of the Lender whatsoever; (b) any defense arising by reason
of the incapacity, lack of authority or any disability or other defense of the
Borrower or any other guarantor including any defense based on or arising out of
the lack of validity or the unenforceability of the Guaranteed Obligations or any agreement or
instrument relating thereto or by reason of the cessation of the liability of
the Borrower or any other guarantor from any cause other than payment or set-off
in full of the Guaranteed Obligations; (c) any defense based upon any statute or
rule of law which provides that the obligation of a surety must be neither
larger in amount nor in other respects more burdensome than that of the
principal; (d) any defense based upon the Lender’s errors or omissions in the
administration of the Guaranteed Obligations, except behavior which amounts to
bad faith, willful misconduct or gross negligence; (e) (i) any principles or
provisions of law, statutory or otherwise, which are or might be in conflict
with the terms hereof and any legal or equitable discharge of the Guarantor’s
obligations hereunder, (ii) any rights to set-offs, recoupments and
counterclaims other than as provided in the Time Note, and
(iii) promptness, diligence and any requirement that the Lender protect,
secure, perfect or insure any security interest or lien or any property subject
thereto; (f) except as expressly provided for herein, notices, demands,
presentments, protests, notices of protest, notices of dishonor and notices of
any action or inaction, including acceptance hereof, notices of default
hereunder, the Loan Documents or any agreement or instrument related thereto,
notices of any renewal, extension or modification of the Guaranteed Obligations
or any agreement related thereto, notices of any extension of credit to the
Borrower and any right to consent to any thereof; (g) any right of
subrogation, reimbursement or indemnity whatsoever, and any right of recourse to
security for the debts and Guaranteed Obligations of the Borrower to the Lender
and the Guarantor until all of the Guaranteed Obligations are paid in full;
and (h) any defenses or benefits
that may be derived from or afforded by law that limit the liability of or
exonerate guarantors or sureties, or which may conflict with the terms
hereof.

    

    
      
         

      

      
        - 2
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    The
Guarantor waives any objection to the issuance of such prejudgment remedy based
on any offsets, claims, defenses or counterclaims to any action brought by the
Lender (other than payment in full of the Guaranteed Obligations or full set-off
under the Time Note).

    

    Section
5. Transfer
of Guarantor’s Property. Without the Lender’s prior written consent after
full disclosure, the Guarantor shall not transfer any material portion of the
Guarantor’s property, real or personal, or release any contract right or claim
which constitutes a material portion of the Guarantor’s net worth, either
voluntarily or involuntarily, absolutely or collaterally, without receiving full
fair market value therefor.  The Guarantor agrees that any transfer or
release in violation of the foregoing provisions shall per se be deemed to have
occurred with an intent to defraud creditors.  For purposes of the
foregoing, the term “material” shall be defined as any transfer or release
involving more than thirty percent (30%) of the Guarantor’s net worth in any
calendar year.

    

    Section
6.  Valid and
Binding Guaranty.  This Guaranty shall be valid and binding
upon the Guarantor, regardless of any invalidity, irregularity, defect or
unenforce­ability of or in any of the Guaranteed Obligations.  The
Guarantor further agrees that this Guaranty shall continue to be effective or be
reinstated, as the case may be, if at any time payment of all or any part of the
Guaranteed Obligations is rescinded or otherwise must be restored by the Lender
to the Borrower or to the creditors of the Borrower or any representative of the
Borrower or representative of its creditors upon the insolvency, bankruptcy or
reorganization of the Borrower, or to the Guarantor or the creditors of the
Guarantor or any representative of the Guarantor or representative of the
creditors of the Guarantor upon the insolvency, bankruptcy or reorganization of
the Guarantor, or otherwise, all as though such payments had not been
made.

    

    Section
7.  Notices.  All notices hereunder shall
be in writing and sent by certified or registered mail, return receipt
requested, or by overnight delivery service, with all charges prepaid, or
personally delivered, to the applicable party at the addresses set forth below,
or by facsimile transmission (including, without limitation, computer generated
facsimile), promptly confirmed in writing sent by first class mail, to the FAX
numbers and addresses set forth below.

     

    If to Lender:

     

    NEWSTAR FINANCIAL
INC.

    500 Boylston Street

    Suite 1600

    Boston,
Massachusetts  02116

    Attention:  Robert E.
Hornstein, Managing Director

    FAX No.:  (617)
484-4300

    

    With, except in the case of routine
correspondence, a copy (which shall not constitute notice)
to:

     

    
      
         

      

      
        - 3
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    Mark Fogel, Esq.

    Edwards Angell Palmer & Dodge
LLP

    111 Huntington
Avenue

    Boston, Massachusetts
02199

    FAX No.:  (617)
227-4420

    

    If to Guarantor:

    

    US DRY CLEANING
CORPORATION

    4040 MacArthur
Boulevard

    Suite 305

    Newport Beach, California
92660

    Attention:  Mr. Robert Y.
(Robbie) Lee, Chief Executive Officer

    FAX No.:  (949)
863-9657

    

    With, except in the case of routine
correspondence, a copy (which shall not constitute notice)
to:

     

    Levene,
Neale, Bender, Rankin & Brill L.L.P.

    10250
Constellation, Suite 1700

    Los
Angeles, California 90067

    Attention:  Mr.
Martin Brill

    FAX
No.:  (310) 229-3324

    

    and

    

    Greenberg
Traurig, LLP

    The Met
Life Building

    200 Park
Avenue, 14th
Floor

    New York,
New York 10166

    Attention:  Spencer
G. Feldman, Esq.

    FAX
No.:  (212) 801-6400

    

    or, as to each party, at such other
address as shall be designated by such party in a written notice to the other
party complying as to delivery with the terms of this Section. All such notices
and correspondence shall be deemed given upon the earliest to occur of (i)
actual receipt, (ii) if sent by certified or registered mail, three (3) Business
Days after being postmarked, (iii) if sent by overnight delivery service, when
received at the above stated addresses or when delivery is refused or (iv) if
sent by facsimile transmission, when receipt of such transmission is
acknowledged.

    

    
      
         

      

      
        - 4
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    Section
8. Waiver of
Jury Trial.  GUARANTOR HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED
HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER
DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF
ANY PARTY.  THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR LENDER
TO MAKE THE TIME LOAN AND ACCEPT THIS AGREEMENT.

    

    Section
9. Consent
to Jurisdiction.  Guarantor hereby submits to the jurisdiction of
the courts of the Commonwealth of Massachusetts and the United States District
Court for the District of Massachusetts, as well as to the jurisdiction of all
courts from which an appeal may be taken or other review sought from the
aforesaid courts, for the purpose of any suit, action or other proceeding
arising out of any Guaranteed Obligations under or with respect to this
Guaranty, the Time Note, or any of the transactions contemplated hereby, and
expressly waives any and all objections it may have as to venue in any of such
courts. Guarantor expressly submits and consents in advance to such
jurisdiction in any action or proceeding commenced in such courts, hereby
waiving personal service of the summons and complaint, or other process or
papers issued therein, and agreeing that service of such summons and complaint,
or other process or papers, may be made by registered or certified mail
addressed to Guarantor at the address set forth herein.  Should
Guarantor fail to appear or answer any summons, complaint, process or papers so
served within thirty (30) days after the mailing thereof, it shall be deemed in
default and an order and/or judgment may be entered against it as demanded or
prayed for in such summons, complaint, process or papers.  The
exclusive choice of forum set forth herein shall not be deemed to preclude the
enforcement of any judgment obtained in such forum or the taking of any action
under this Guaranty to enforce the same in any appropriate
jurisdiction.

    

    Section
10. Commercial
Transaction.  THE GUARANTOR ACKNOWLEDGES THAT THE TRANSACTIONS
UNDER WHICH THIS GUARANTY IS A PART ARE COMMERCIAL TRANSACTIONS.

    

    Section
11. Successors
and Assigns.  This Guaranty shall be binding upon the heirs,
executors, ad­ministrators, successors and assigns of the Guarantor and
shall inure to the benefit of the Lender’s successors and assigns. For the
purposes of this Guaranty, “Borrower” shall mean and
include any successor of the Borrower, including any representative of the
Borrower under the provisions of any state or federal law governing bankruptcy,
insolvency, receivership or reorganization.

    
      
         

      

      
        - 5
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    IN WITNESS WHEREOF, the Guarantor has
caused this Guaranty to be duly executed as of the 24th day of March, 2008.

     

    

    
      	 
      	
              GUARANTOR:

            
	 
      	 
      
	 
      	
              US
      DRY CLEANING CORPORATION

            
	 
      	 
      
	 
      	 
      
	 
      	
              By:   __________________________

            
	 
      	
              Name:

            
	 
      	
              Title:

            

    

     

     

     

     

     

    -
6 -

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