EXHIBIT 4
SECURITY AGREEMENT
This SECURITY AGREEMENT (as amended, supplemented or otherwise
modified from time to time, this "Agreement"), is entered into as of April 26,
2002, by and among CONCEPTS DIRECT, INC., a Delaware corporation (the "Company"
or the "Grantor") ST. CLOUD CAPITAL PARTNERS, LP, a Delaware limited partnership
("St. Cloud"), and XXXXXXX X. XXXXXX and XXXXX X. XXXXXX (collectively,
"Xxxxxx"), individuals, as secured parties hereunder (St. Cloud, Xxxxxxx X.
Xxxxxx and Xxxxx X. Xxxxxx are each referred to herein as a "Secured Party" and
are collectively referred to herein as the "Secured Parties").
RECITALS:
WHEREAS, pursuant to that certain Note and Warrant Purchase
Agreement, dated as of even date hereof, by and between the Company and the
Secured Parties (the "Purchase Agreement"), the Secured Parties are purchasing
from the Company (a) the Company's 10.0% Senior Secured Notes in the aggregate
principal amount of Four Million Dollars ($4,000,000.00) (each, a "Note", and
together the "Notes") and (b) Common Stock Purchase Warrants to purchase an
aggregate of 550,000 shares of the common stock, par value $0.10 per share, of
Grantor; and
WHEREAS, in order to induce the Secured Parties to enter into the
Purchase Agreement and the other Transaction Documents and to induce the Secured
Parties to purchase the Notes as provided for in the Purchase Agreement, Grantor
has agreed to grant the Secured Parties, for the ratable benefit of each of the
Secured Parties, a continuing security interest in the Collateral (as
hereinafter defined) to secure all obligations of Grantor under the Transaction
Documents.
AGREEMENT:
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. DEFINED TERMS. The following terms shall have the following
respective meanings:
"Accounts" means all of Grantor's now owned or hereafter acquired
or arising accounts, as defined in the UCC, including any rights to payment for
the sale or lease of goods or rendition of services, whether or not they have
been earned by performance, in each case to the extent (and only to such extent)
used or useful in, arising from or otherwise related to the Colorful Images
Business.
"Affiliate" shall mean, when used with reference to any specified
Person, any other Person directly or indirectly controlling, controlled by, or
under direct or indirect common control with, such specified Person. For the
purposes of this definition, "control," when used with respect to any specified
Person, means the power to direct or cause the direction of management or
policies of such Person, directly or indirectly, whether through the ownership
of
1
voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative of the foregoing.
"Assigned Contracts" means, collectively, all of Grantor's rights
and remedies under, and all moneys and claims for money due or to become due to
Grantor under those contracts set forth on Schedule I hereto, and all other
material contracts and agreements to which Grantor is a party, and any and all
amendments, supplements, extensions, and renewals thereof including all rights
and claims of Grantor now or hereafter existing: (a) under any insurance,
indemnities, warranties, and guarantees provided for or arising out of or in
connection with any of the foregoing agreements; (b) for any damages arising out
of or for breach or default under or in connection with any of the foregoing
contracts; (c) to all other amounts from time to time paid or payable under or
in connection with any of the foregoing agreements; or (d) to exercise or
enforce any and all covenants, remedies, powers and privileges thereunder, in
each case to the extent (and only to such extent) used or useful in, arising
from or otherwise related to the Colorful Images Business.
"Chattel Paper" means all of Grantor's now owned or hereafter
acquired chattel paper, as defined in the UCC, including electronic chattel
paper, in each case to the extent (and only to such extent) used or useful in,
arising from or otherwise related to the Colorful Images Business.
"Colorful Images Business" means the business, revenues and all
assets of the Grantor used or useful in or otherwise relating to the Colorful
Images catalog and all related businesses, including without limitation, its
xxxxxxxxxxxxxx.xxx domain name.
"Documents" means all documents as such term is defined in the
UCC, including bills of lading, warehouse receipts or other documents of title,
now owned or hereafter acquired by Grantor, in each case to the extent (and only
to such extent) used or useful in, arising from or otherwise related to the
Colorful Images Business.
"Equipment" means all of Grantor's now owned, leased and
hereafter acquired machinery, equipment, furniture, furnishings, fixtures, and
other tangible personal property (except Inventory), including embedded
software, motor vehicles with respect to which a certificate of title has been
issued, aircraft, dies, tools, jigs, molds and office equipment, as well as all
of such types of property leased by Grantor and all of Grantor's rights and
interests with respect thereto under such leases (including, without limitation,
options to purchase); together with all present and future additions and
accessions thereto, replacements therefor, component and auxiliary parts and
supplies used or to be used in connection therewith, and all substitutes for any
of the foregoing, and all manuals, drawings, instructions, warranties and rights
with respect thereto; wherever any of the foregoing is located, in each case to
the extent (and only to such extent) used or useful in, arising from or
otherwise related to the Colorful Images Business.
"General Intangibles" means all of Grantor's now owned or
hereafter acquired general intangibles, choses in action and causes of action
and all other intangible personal property of Grantor of every kind and nature
(other than Accounts), including, without limitation, all contract rights,
payment intangibles, Proprietary Rights, corporate or other business records,
inventions, designs, blueprints, plans, specifications, patents, patent
2
applications, trademarks, service marks, trade names, trade secrets, goodwill,
copyrights, domain names, computer software, customer lists, registrations,
licenses (to the extent used or useful in connection with the Colorful Images
Business), franchises, tax refund claims, any funds which may become due to
Grantor in connection with the termination of any employee benefit plan or any
rights thereto and any other amounts payable to Grantor from any employee
benefit plan, rights and claims against carriers and shippers, rights to
indemnification, business interruption insurance and proceeds thereof, property,
casualty or any similar type of insurance and any proceeds thereof, proceeds of
insurance covering the lives of key employees on which Grantor is beneficiary,
rights to receive dividends, distributions, cash, Instruments and other property
in respect of or in exchange for pledged equity interests or Investment Property
and any letter of credit, guarantee, claim, security interest or other security
held by or granted to Grantor, in each case to the extent (and only to such
extent) used or useful in, arising from or otherwise related to the Colorful
Images Business.
"Instruments" means all instruments as such term is defined in
the UCC, now owned or hereafter acquired by Grantor.
"Inventory" means all of Grantor's now owned and hereafter
acquired inventory, goods and merchandise, wherever located, to be furnished
under any contract of service or held for sale or lease, all returned goods, raw
materials, work-in-process, finished goods (including embedded software), other
materials and supplies of any kind, nature or description which are used or
consumed in Grantor's business or used in connection with the packing, shipping,
advertising, selling or finishing of such goods, merchandise, and all documents
of title or other Documents representing them, in each case to the extent (and
only to such extent) used or useful in, arising from or otherwise related to the
Colorful Images Business.
"Investment Property" means all of Grantor's right title and
interest in and to any and all: (a) securities whether certificated or
uncertificated, (b) securities entitlements, (c) securities accounts, (d)
commodity contracts, or (e) commodity accounts, in each case to the extent (and
only to such extent) used or useful in, arising from or otherwise related to the
Colorful Images Business.
"Mortgages" means any and all mortgages, deeds of trust or other
real property encumbrances that secure the Obligations.
"Proprietary Rights" means all of Grantor's now owned and
hereafter arising or acquired: licenses, franchises, permits, patents, patent
rights, copyrights, works which are the subject matter of copyrights, trademarks
(including, without limitation all Colorful Images trademarks), service marks,
trade names, trade styles, patent, trademark and service xxxx applications, and
all licenses and rights related to any of the foregoing, and all other rights
under any of the foregoing, all extensions, renewals, reissues, divisions,
continuations, and continuations-in-part of any of the foregoing, and all rights
to xxx for past, present and future infringement of any of the foregoing, in
each case to the extent (and only to such extent) used or useful in, arising
from or otherwise related to the Colorful Images Business.
"Real Estate" means the property subject to the Mortgages.
3
"Supporting Obligations" means all supporting obligations as such
term is defined in the UCC, in each case to the extent (and only to such extent)
used or useful in, arising from or otherwise related to the Colorful Images
Business.
"UCC" means the Uniform Commercial Code, as in effect from time
to time, of the State of California or of any other state the laws of which are
required as a result thereof to be applied in connection with the issue of
perfection of security interests.
All other capitalized terms used but not otherwise defined herein
have the meanings given to them in the Purchase Agreement. All other undefined
terms contained in this Agreement, unless the context indicates otherwise, have
the meanings provided for by the UCC to the extent the same are used or defined
therein.
2. GRANT OF LIEN.
(a) Grantor, as security for all Obligations of Grantor under the
Transaction Documents, hereby grants to each Secured Party, for the ratable
benefit of the Secured Parties, a continuing security interest in, lien on,
assignment of and right of set-off against, all of the following property and
assets of Grantor, whether now owned or existing or hereafter acquired or
arising, regardless of where located:
(i) all Accounts;
(ii) all Inventory;
(iii) all contract rights, in each case to the extent (and only
to such extent) used or useful in, arising from or otherwise related to the
Colorful Images Business, including Assigned Contracts;
(iv) all Chattel Paper
(v) all Documents;
(vi) all Instruments;
(vii) all Supporting Obligations;
(viii) all General Intangibles;
(ix) all Equipment;
(x) all Investment Property;
(xi) all money, cash, cash equivalents, securities and other
property of any kind of such Grantor held directly or indirectly by any of the
Secured Parties, in each case to the extent (and only to such extent) used or
useful in, arising from or otherwise related to the Colorful Images Business;
4
(xii) all of Grantor's deposit accounts, credits, and balances
with and other claims against any of the Secured Parties or any of their
Affiliates or any financial institution with which Grantor maintains deposits,
in each case to the extent (and only to such extent) used or useful in, arising
from or otherwise related to the Colorful Images Business;
(xiii) all books, records and other property related to or
referring to any of the foregoing, including books, records, account ledgers,
data processing records, computer software and other property and General
Intangibles at any time evidencing or relating to any of the foregoing, in each
case to the extent (and only to such extent) used or useful in, arising from or
otherwise related to the Colorful Images Business; and
(xv) all accessions to, substitutions for and replacements,
products and proceeds of any of the foregoing, including, but not limited to,
proceeds of any insurance policies, claims against third parties, and
condemnation or requisition payments with respect to all or any of the
foregoing.
All of the foregoing, together with all other property of Grantor
in which any of the Secured Parties may at any time be granted a Lien as
collateral for the Obligations, is herein collectively referred to as the
"Collateral."
(b) All of the Obligations of Grantor under the Transaction
Documents shall be secured by all of the Collateral of Grantor.
3. PERFECTION AND PROTECTION OF SECURITY INTEREST.
(a) Grantor shall, at its expense, perform all steps reasonably
requested by any Secured Party at any time to perfect, maintain, protect, and
enforce such Secured Party's Liens, including: (i) executing and filing
financing or continuation statements, and amendments thereof, in form and
substance reasonably satisfactory to such Secured Party; (ii) at the Secured
Parties request, delivering to the Secured Parties the originals of all
Instruments, Documents, and Chattel Paper, and all other Collateral of which the
Secured Parties reasonably determine they should have physical possession in
order to perfect and protect the Secured Parties' security interest therein,
duly pledged, endorsed or assigned to the Secured Parties without restriction;
(iii) delivering to the Secured Parties warehouse receipts covering any portion
of the Collateral located in warehouses and for which warehouse receipts are
issued and certificates of title covering any portion of the collateral for
which certificates of title have been issued; (iv) at the request of the Secured
Parties when a Event of Default has occurred and is continuing, transferring
Inventory to warehouses or other locations designated by the Secured Parties (or
such Secured Party); (v) placing notations on Grantor's books of account to
disclose the Secured Parties' security interest; (vi) obtaining control
agreements in favor of the Secured Parties from securities intermediaries with
respect to financial assets in the possession of securities intermediaries;
(vii) at the request of the Secured Parties, assigning and delivering to the
Secured Parties all Supporting Obligations, including letters of credit on which
Grantor is named beneficiary with the written consent of the issuer thereof; and
(viii) taking such other steps as are reasonably deemed necessary or desirable
by any Secured Party to maintain and protect such Secured Party's Liens. To the
extent permitted by applicable law, any Secured Party may file, without
Grantor's signature, one or more financing statements disclosing such Secured
Party's
5
Liens. Grantor agrees that a carbon, photographic, photostatic, or other
reproduction of this Agreement or of a financing statement is sufficient as a
financing statement.
(b) If any Collateral is at any time in the possession or control
at any third party warehouse or agent, then Grantor shall notify each Secured
Party thereof and shall obtain a letter from such third party acknowledging the
Secured Parties security interest in such Collateral. If at any time any
Collateral is located in any operating facility of any Grantor that is leased by
any Grantor, then such Grantor shall obtain written landlord lien waivers or
subordinations, in form and substance reasonably satisfactory to the Secured
Parties, that waives or subordinates all present and future Liens which the
owner or lessor of such premises may be entitled to assert against the
Collateral.
(c) So long as the Purchase Agreement is in effect and until all
Obligations have been fully satisfied, each Secured Party's Liens shall continue
in full force and effect in all Collateral.
(d) The exercise of remedies with respect to the Collateral
described in this Section 3 is subject to the provisions of Section 26.
4. LOCATION OF COLLATERAL. Grantor represents and warrants to the
Secured Parties that: (a) Schedule II is a correct and complete list of
Grantor's chief executive office, the location of its books and records, the
locations of the Collateral, and the locations of all of its other places of
business; and (b) Schedule II correctly identifies any of such facilities and
locations that are not owned by Grantor and sets forth the names of the owners
and lessors or sublessors of such facilities and locations. Grantor covenants
and agrees that it will not (i) maintain any Collateral at any location other
than those locations listed for Grantor on Schedule II attached hereto, (ii)
otherwise change or add to any of such locations, or (iii) change the location
of its chief executive office from the location identified in Schedule II,
unless it gives each Secured Party at least thirty (30) days' prior written
notice thereof and executes any and all financing statements and other documents
that any Secured Party reasonably requests in connection therewith. Without
limiting the foregoing, Grantor represents that all of its Inventory (other than
Inventory not yet received) is, and covenants that all of its Inventory will be,
located either (a) on premises owned by Grantor, (b) on premises leased by
Grantor, provided that the Secured Parties have received an executed landlord
waiver from the landlord of such premises in form and substance satisfactory to
the Secured Parties, or (c) in a warehouse or with a bailee, provided that the
Secured Parties have received an executed bailee letter from the applicable
Person in form and substance satisfactory to the Secured Parties.
5. JURISDICTION OF ORGANIZATION. Schedule III attached hereto identifies
the jurisdiction in which Grantor is incorporated or organized.
6. TITLE TO, LIENS ON, AND SALE AND USE OF COLLATERAL. Grantor
represents and warrants to the Secured Parties and agrees with the Secured
Parties that: (a) all of the Collateral is and will continue to be owned by
Grantor free and clear of all Liens whatsoever, except for Permitted Liens and
sales in the ordinary course and any sale required under Section 26; (b) the
Secured Parties Liens in the Collateral will not be subject to any prior Lien;
and
6
(c) Grantor will use, store, and maintain the Collateral with all reasonable
care and will use such Collateral for lawful purposes only.
7. APPRAISALS. Upon the request of the Secured Parties whenever a
default or Event of Default has occurred and is continuing, Grantor shall, at
its expense, provide each Secured Party with appraisals of any or all of the
Collateral from an appraiser, and prepared on a basis, satisfactory to the
Secured Parties.
8. ACCESS AND EXAMINATION. Any Secured Party may at all reasonable times
during regular business hours (and at any time when a default or Event of
Default exists and is continuing) have access to, examine, audit, make extracts
from or copies of and inspect any or all of Grantor's records, files, and books
of account and the Collateral, and discuss Grantor's affairs with Grantor's
officers and management. Grantor will deliver to the Secured Parties any
instrument necessary for the Secured Parties to obtain records from any service
bureau maintaining records for Grantor. Upon the request of the Secured Parties
when an Event of Default has occurred and is continuing, the Secured Parties (or
such Secured Party) may, at the Grantor' expense, make copies of all of
Grantor's books and records, or require Grantor to deliver such copies to the
Secured Parties (or such Secured Party). The Secured Parties may, without
expense to any Secured Party, use such of Grantor's respective personnel,
supplies, and Real Estate as may be reasonably necessary for maintaining or
enforcing each Secured Party's Liens. The Secured Parties shall have the right,
at any time, in such Secured Party's name or in the name of a nominee of such
Secured Party, to verify the validity, amount or any other matter relating to
the Accounts, Inventory, or other Collateral, by mail, telephone, or otherwise.
9. [INTENTIONALLY OMITTED.]
10. [INTENTIONALLY OMITTED.]
11. [INTENTIONALLY OMITTED.]
12. INVENTORY.
(a) Grantor represents and warrants to the Secured Parties and
agrees with the Secured Parties that all of the Inventory owned by Grantor is
and will be held for sale or lease, or to be furnished in connection with the
rendition of services, in the ordinary course of Grantor's business, and is and
will be fit for such purposes. Grantor will keep its Inventory in good and
marketable condition, except for damaged or defective goods arising in the
ordinary course of Grantor's business. Grantor agrees that all Inventory
produced by Grantor in the United States of America will be produced in
accordance with the Federal Fair Labor Standards Act of 1938, as amended, and
all rules, regulations, and orders thereunder. Grantor will conduct a physical
count of the Inventory at the Secured Parties request after an Event of Default.
Grantor will not, without the Secured Parties' written consent, sell any
Inventory on a xxxx-and-hold, guaranteed sale, sale and return or sale on
approval.
(b) In connection with all Inventory financed by Letters of
Credit, Grantor will, at the Secured Parties' request, instruct all suppliers,
carriers, forwarders, customs brokers, warehouses or others receiving or holding
cash, checks, Inventory, Documents or Instruments in which the Secured Parties
hold a security interest to deliver them to the Secured Parties and/or
7
subject to the Secured Parties' order, and if they shall come into Grantor's
possession, to deliver them, upon request, to the Secured Parties in their
original form. Grantor shall also, at the Secured Parties' request, designate
the Secured Parties as the consignee on all bills of lading and other negotiable
and non-negotiable documents.
13. EQUIPMENT.
(a) Grantor represents and warrants to the Secured Parties and
agrees with the Secured Parties that all of the Equipment owned by Grantor is
and will be used or held for use in Grantor's business, and is and will be fit
for such purposes. Grantor shall keep and maintain its Equipment in good
operating condition and repair (ordinary wear and tear excepted) and shall make
all necessary replacements thereof.
(b) Grantor shall promptly inform the Secured Parties of any
material additions to or deletions from the Equipment. Grantor shall not permit
any Equipment to become a fixture with respect to real property or to become an
accession with respect to other personal property with respect to which real or
personal property the Secured Parties do not have a Lien. Grantor will not,
without the Secured Parties' prior written consent, alter or remove any
identifying symbol or number on Grantor's Equipment constituting Collateral.
(c) Except as otherwise permitted under the Purchase Agreement,
Grantor will not, without the Secured Parties' prior written consent, sell,
lease as a lessor, or otherwise dispose of any of Grantor's Equipment.
14. ASSIGNED CONTRACTS. Grantor shall fully perform all of its
obligations under each of the Assigned Contracts, and shall enforce all of its
rights and remedies thereunder, in each case, as it deems appropriate in its
business judgment; provided, however, that except after and during the
continuance of an Event of Default Grantor shall have full power to amend,
modify or terminate any such contract it deems appropriate in its business
judgment, and that after and during the continuance of an Event of Default but
subject to the provisions of Section 26 that Grantor shall not take any action
or fail to take any action with respect to its Assigned Contracts which would
cause the termination of a material Assigned Contract. Without limiting the
generality of the foregoing, after and during the continuance of an Event of
Default, but subject to the provisions of Section 26, Grantor shall take all
action necessary or appropriate to permit, and shall not take any action which
would have any materially adverse effect upon, the full enforcement of all
indemnification rights under its Assigned Contracts. Except as otherwise
provided in the first sentence, and subject to Section 26, Grantor shall notify
the Secured Parties in writing, promptly after Grantor becomes aware thereof, of
any event or fact which could give rise to a material claim by it for
indemnification under any of its Assigned Contracts, and shall diligently pursue
such right and report to the Secured Parties on all further developments with
respect thereto. Except as otherwise provided in the first sentence, and subject
to Section 16, Grantor shall fail after the Secured Parties' demand to pursue
diligently any right under its Assigned Contracts, or if an Event of Default
then exists, the Secured Parties may, directly enforce such right in their own
or the Grantor's name and may enter into such settlements or other agreements
with respect thereto as the Secured Parties shall determine. In any suit,
proceeding or action brought by the Secured Parties under any Assigned Contract
for any sum owing thereunder or to enforce any provision thereof, the Grantor
shall indemnify and hold the
8
Secured Parties harmless from and against all expense, loss or damage suffered
by reason of any defense, setoff, counterclaims, recoupment, or reduction of
liability whatsoever of the obligor thereunder arising out of a breach by
Grantor of any obligation thereunder or arising out of any other agreement,
indebtedness or liability at any time owing from Grantor to or in favor of such
obligor or its successors except, with respect to any Secured Party, for such
expenses, losses or damages that are attributable solely to the gross negligence
or willful misconduct of such Secured Party as finally determined by a court of
competent jurisdiction. All such obligations of Grantor shall be and remain
enforceable only against the Grantor and shall not be enforceable against any of
the Secured Parties. Notwithstanding any provision hereof to the contrary,
Grantor shall at all times remain liable to observe and perform all of its
duties and obligations under its Assigned Contracts, and the Secured Parties'
exercise of any of their respective rights with respect to the Collateral shall
not release Grantor from any of such duties and obligations. No Secured Party
shall be obligated to perform or fulfill any of Grantor's duties or obligations
under its Assigned Contracts or to make any payment thereunder, or to make any
inquiry as to the nature or sufficiency of any payment or property received by
it thereunder or the sufficiency of performance by any party thereunder, or to
present or file any claim, or to take any action to collect or enforce any
performance, any payment of any amounts, or any delivery of any property.
15. DOCUMENTS, INSTRUMENTS, AND CHATTEL PAPER. Grantor represents and
warrants to the Secured Parties that (a) all Documents, Instruments, and Chattel
Paper describing, evidencing, or constituting Collateral, and all signatures and
endorsements thereon, are and will be complete, valid, and genuine, and (b) all
goods evidenced by such Documents, Instruments, and Chattel Paper are and will
be owned by Grantor, free and clear of all Liens other than Permitted Liens.
16. RIGHT TO CURE. The Secured Parties may, in their discretion (but
shall have not obligation to), pay any amount or do any act required of Grantor
hereunder or under any other Transaction Document in order to preserve, protect,
maintain or enforce the Obligations, the Collateral or the Secured Parties'
Liens therein, and which Grantor fails to pay or do, including payment of any
judgment against Grantor, any insurance premium, any warehouse charge, any
finishing or processing charge, any landlord's or bailee's claim, and any other
Lien upon or with respect to the Collateral. All reasonable payments that any
Secured Party makes under this Section 16 and all reasonable out-of-pocket costs
and expenses that any Secured Party pays or incurs in connection with any action
taken by it hereunder shall be subject to reimbursement by the Company. Any
payment made or other action taken by any Secured Party under this Section 16
shall be without prejudice to any right to assert an Event of Default hereunder
and to proceed thereafter as herein provided.
17. POWER OF ATTORNEY. Grantor hereby appoints each Secured Party
(subject to Section 26) or its designee as Grantor's attorney, with power: (a)
to endorse Grantor's name on any checks, notes, acceptances, money orders, or
other forms of payment or security that come into any of the Secured Parties'
possession; (b) to sign Grantor's name on any invoice, xxxx of lading, warehouse
receipt or other negotiable or non-negotiable Document constituting Collateral,
on drafts against customers, on assignments of Accounts, on notices of
assignment, financing statements and other public records and to file any such
financing statements by electronic means with or without a signature as
authorized or required by
9
applicable law or filing procedure; (c) so long as any Event of Default has
occurred and is continuing, to notify the post office authorities to change the
address for delivery of Grantor's mail to an address designated by the Secured
Parties and to receive, open and dispose of all mail addressed to Grantor; (d)
to send requests for verification of Accounts to customers; (e) to complete in
Grantor's name or such Secured Party's (or designee's) name, any order, sale or
transaction, obtain the necessary Documents in connection therewith, and collect
the proceeds thereof; (f) to clear Inventory through customs in Grantor's name,
or such Secured Party's (or designee's) name and to sign and deliver to customs
officials powers of attorney in Grantor's name for such purpose; and (g) to do
all things necessary to carry out the Purchase Agreement and this Agreement and
the other Transaction Documents. Grantor ratifies and approves all acts of such
attorney. None of the Secured Parties nor their attorneys will be liable for any
acts or omissions or for any error of judgment or mistake of fact or law except
for their willful misconduct. This power, being coupled with an interest, is
irrevocable until the Purchase Agreement has been terminated and the Obligations
have been fully satisfied.
18. CERTAIN RIGHTS, DUTIES AND LIABILITIES OF THE SECURED PARTIES.
(a) Grantor assumes all responsibility and liability arising from
or relating to the use, sale or other disposition of the Collateral. The
Obligations shall not be affected by any failure of any of the Secured Parties
to take any steps to perfect any Secured Party's Liens or to collect or realize
upon the Collateral, nor shall loss of or damage to the Collateral release
Grantor from any of the Obligations. Following the occurrence and during the
continuation of an Event of Default, the Secured Parties may (but shall not be
required to), without notice to or consent from Grantor, xxx upon or otherwise
collect, extend the time for payment of, modify or amend the terms of,
compromise or settle for cash, credit, or otherwise upon any terms, grant other
indulgences, extensions, renewals, compositions, or releases, and take or omit
to take any other action with respect to the Collateral, any security therefor,
any agreement relating thereto, any insurance applicable thereto, or any Person
liable directly or indirectly in connection with any of the foregoing, without
discharging or otherwise affecting the liability of Grantor for the Obligations
or under the Purchase Agreement or any other Transaction Document or any other
agreement now or hereafter existing between the Secured Parties and/or any of
the Secured Parties and Grantor.
19. PATENT, TRADEMARK AND COPYRIGHT COLLATERAL.
(a) As of the date hereof, Grantor has no other interest in, or
title to, any patent, trademark or copyright included in the Collateral except
as set forth in Schedule IV hereto. This Agreement is effective to create a
valid and continuing Lien on and, perfected Liens in favor of the Secured
Parties on Grantor's patents, trademarks and copyrights included in the
Collateral and such perfected Liens are enforceable as such as against any and
all creditors of and purchasers from Grantor. All action necessary or desirable
to protect and perfect the Secured Parties' Liens on Grantor's patents,
trademarks or copyrights included in the Collateral shall have been duly taken.
(b) Grantor shall notify the Secured Parties immediately if it
knows or has reason to know that any application or registration relating to any
patent, trademark or copyright
10
(now or hereafter existing) included in the Collateral may become abandoned or
dedicated, or of any adverse determination or development (including the
institution of, or any such determination or development in, any proceeding in
the United States Patent and Trademark Office, the United States Copyright
Office or any court) regarding Grantor's ownership of any patent, trademark or
copyright included in the Collateral, its right to register the same, or to keep
and maintain the same.
(c) In no event shall Grantor, either directly or through any
agent, employee, licensee or designee, file an application for the registration
of any patent, trademark or copyright included in the Collateral with the United
States Patent and Trademark Office, the United States Copyright Office or any
similar office or agency without giving the Secured Parties prior written notice
thereof,
(d) Grantor shall take all actions necessary or requested by the
Secured Parties to maintain and pursue each application, to obtain the relevant
registration and to maintain the registration of each of the patents, trademarks
and copyrights (now or hereafter existing) included in the Collateral, including
the filing of applications for renewal, affidavits of use, affidavits of
noncontestability and opposition and interference and cancellation proceedings.
(e) In the event that any of patent, trademark or copyright
included in the Collateral is infringed upon, or misappropriated or diluted by a
third party, the Company shall notify the Secured Parties promptly after the
Company learns thereof. Grantor shall, unless it shall reasonably determine that
such patent, trademark or copyright is in no way material to the conduct of its
business or operations, promptly xxx for infringement, misappropriation or
dilution and to recover any and all damages for such infringement,
misappropriation or dilution, and shall take such other actions as the Secured
Parties shall deem appropriate under the circumstances to protect such patent,
trademark or copyright.
20. INDEMNIFICATION. In any suit, proceeding or action brought by any
Secured Party relating to any Account, Chattel Paper, Contract, Document,
General Intangible or Instrument for any sum owing thereunder or to enforce any
provision of any Account, Chattel Paper, Contract, Document, General Intangible
or Instrument, Grantor will save, indemnify and keep the Secured Parties and the
Secured Parties harmless from and against all expense (including reasonable
attorneys' fees and expenses), loss or damage suffered by reason of any defense,
setoff, counterclaim, recoupment or reduction of liability whatsoever of the
obligor thereunder, arising out of a breach by Grantor of any obligation
thereunder or arising out of any other agreement, indebtedness or liability at
any time owing to, or in favor of, such obligor or its successors from Grantor,
except in the case of any of the Secured Parties, to the extent such expense,
loss, or damage is attributable solely to the gross negligence or willful
misconduct of such Secured Party as finally determined by a court of competent
jurisdiction.
21. LIMITATION ON LIENS ON COLLATERAL. Grantor will not create, permit
or suffer to exist, and will defend the Collateral against, and take such other
action as is necessary to remove, any Lien on the Collateral except Permitted
Liens, and will defend the right, title and interests of each of the Secured
Parties in and to any of Grantor's rights under the Collateral against the
claims and demands of all Persons whomsoever.
11
22. NOTICE REGARDING COLLATERAL. Grantor will advise the Secured Parties
promptly, in reasonable detail, (i) of any Lien (other than Permitted Liens) or
claim made or asserted against any of the Collateral, and (ii) of the occurrence
of any other event which could have a Material Adverse Effect.
23. REMEDIES; RIGHTS UPON DEFAULT.
(a) In addition to all other rights and remedies granted to it
under this Agreement, the Purchase Agreement, the other Transaction Documents
and under any other instrument or agreement securing, evidencing or relating to
any of the Obligations, if any Event of Default shall have occurred and be
continuing, the Secured Parties may exercise all rights and remedies of a
secured party under the UCC. Without limiting the generality of the foregoing,
Grantor expressly agrees that in any such event the Secured Parties, without
demand of performance or other demand, advertisement or notice of any kind
(except the notice specified below of time and place of public or private sale)
to or upon Grantor or any other Person (all and each of which demands,
advertisements and notices are hereby expressly waived to the maximum extent
permitted by the UCC and other applicable law), may forthwith enter upon the
premises of Grantor where any Collateral is located through selfhelp, without
judicial process, without first obtaining a final judgment or giving Grantor or
any other Person notice and opportunity for a hearing on the Secured Parties'
claim or action and may collect, receive, assemble, process, appropriate and
realize upon the Collateral, or any part thereof, and may forthwith sell, lease,
assign, give an option or options to purchase, or sell or otherwise dispose of
and deliver said Collateral (or contract to do so), or any part thereof, in one
or more parcels at a public or private sale or sales, at any exchange at such
prices as it may deem acceptable, for cash or on credit or for future delivery
without assumption of any credit risk. The Secured Parties shall have the right
upon any such public sale or sales and, to the extent permitted by law, upon any
such private sale or sales, to purchase for the benefit of the Secured Parties,
the whole or any part of said Collateral so sold, free of any right or equity of
redemption, which equity of redemption Grantor hereby releases. Such sales may
be adjourned and continued from time to time with or without notice. The Secured
Parties shall have the right to conduct such sales on Grantor's premises or
elsewhere and shall have the right to use Grantor's premises without charge for
such time or times as the Secured Parties deems necessary or advisable.
(b) Grantor further agrees, at the Secured Parties' request, to
assemble the Collateral and make it available to the Secured Parties at places
which the Secured Parties shall select, whether at Grantor's premises or
elsewhere. Until the Secured Parties are able to effect a sale, lease, or other
disposition of Collateral, the Secured Parties shall have the right to hold or
use Collateral, or any part thereof, to the extent that deemed appropriate by
the Secured Parties for the purpose of preserving Collateral or its value or for
any other purpose deemed appropriate by the Secured Parties. The Secured Parties
shall have no obligation to Grantor to maintain or preserve the rights of
Grantor as against third parties with respect to Collateral while Collateral is
in the possession of the Secured Parties. The Secured Parties may, if they so
elect, seek the appointment of a receiver or keeper to take possession of
Collateral and to enforce any of the Secured Parties' remedies (for the benefit
of the Secured Parties), with respect to such appointment without prior notice
or hearing as to such appointment. The Secured Parties shall apply the net
proceeds of any such collection, recovery, receipt, appropriation, realization
or sale ratably to the Obligations as provided in the Purchase Agreement, and
only after so paying over
12
such net proceeds, and after the payment by the Secured Parties of any other
amount required by any provision of law, need the Secured Parties account for
the surplus, if any, to Grantor. To the maximum extent permitted by applicable
law, Grantor waives all claims, damages, and demands against any of the Secured
Parties arising out of the repossession, retention or sale of the Collateral
except such as arise solely out of the gross negligence or willful misconduct of
the Secured Parties or any of the Secured Parties as finally determined by a
court of competent jurisdiction. Grantor agrees that ten (10) days prior notice
by the Secured Parties of the time and place of any public sale or of the time
after which a private sale may take place is reasonable notification of such
matters. Grantor shall remain liable for any deficiency if the proceeds of any
sale or disposition of the Collateral are insufficient to pay all Obligations,
including any attorneys' fees or other expenses incurred by any of the Secured
Parties to collect such deficiency.
(c) Except as otherwise specifically provided herein, Grantor
hereby waives presentment, demand, protest or any notice (to the maximum extent
permitted by applicable law) of any kind in connection with this Agreement or
any Collateral.
(d) The provisions of this Section are subject to the provisions
of Section 26.
24. GRANT OF LICENSE TO USE INTELLECTUAL PROPERTY. For the purpose of
enabling the Secured Parties to exercise rights and remedies under Section 23
hereof (including, without limiting the terms of Section 23 hereof, in order to
take possession of, hold, preserve, process, assemble, prepare for sale, market
for sale, sell or otherwise dispose of Collateral) at such time as the Secured
Parties shall be lawfully entitled to exercise such rights and remedies, Grantor
hereby grants to the Secured Parties, for the benefit of the Secured Parties, an
irrevocable, nonexclusive license (exercisable without payment of royalty or
other compensation to Grantor) to use, license or sublicense any Intellectual
Property now owned or hereafter acquired by Grantor (in the cases of licenses
from third parties, to the extent permitted under the terms of such licenses),
and wherever the same may be located, and including in such license access to
all media in which any of the licensed items may be recorded or stored and to
all computer software and programs used for the compilation or printout thereof.
In the event that any third party consent is required to effectuate the
foregoing, Grantor shall use its reasonable efforts to obtain any such consent.
25. LIMITATION ON SECURED PARTY'S DUTY IN RESPECT OF COLLATERAL. Each of
the Secured Parties shall use reasonable care with respect to the Collateral in
its possession or under its control. No Secured Parties shall have any other
duty as to any Collateral in its possession or control or in the possession or
control of any agent or nominee of any Secured Party, or any income thereon or
as to the preservation of rights against prior parties or any other rights
pertaining thereto.
26. LIMITATION OF REMEDIES AS TO CERTAIN COLLATERAL; INTERCREDITOR
PROVISIONS.
(a) Notwithstanding any contrary provision of this Agreement or
any other Transaction Document, and as long as a petition of voluntary or
involuntary bankruptcy (in the case of any such involuntary petition, that has
not been withdrawn or removed within ten
13
(10) days after demand by any Secured Party) has not been filed against the
Company, the Secured Parties agree that their rights under this Agreement with
respect to all of the Collateral hereunder (but not including the Real Estate)
shall be subject to the following:
(1) Upon receipt by the Company of a notice of an Event of Default (a
"Default Notice") by a Secured Party, which default is not cured
within the applicable grace period, if any, under the Transaction
Documents, the Company shall, within 10 days of receipt of such
notice, provide the Secured Parties a list of three (3)
investment banks with recognized expertise in the direct
marketing and/or catalog retailing business that the Company
wishes to hire, at its own expense, to sell the Colorful Images
Business as a going concern or otherwise in a transaction
intended to maximize the return from such a sale in a timely
manner to all creditors and equityholders of the Company (the
"CIB Sale"). The Secured Parties shall have five (5) days in
which to agree to one of the three investment banks. In the event
that the Secured Parties are unable to agree on any one of the
three, St. Cloud may designate one of the three and, if it does
not do so within 10 Business Days, the Company shall select one
of the three within 5 Business Days. Upon selection of an
investment bank in accordance with the foregoing, the Company
shall promptly (and in any event within 10 Business Days) retain
such investment bank at Company's expense to effect the CIB Sale.
(2) For a period of six (6) months from receipt of the Default
Notice, the Secured Parties agree, so long as no petition for
voluntary or involuntary bankruptcy has been filed (in the case
of any such involuntary petition, that has not been withdrawn or
removed within ten (10) days after demand by any Secured Party),
not to exercise any of their remedies under Section 23 with
respect to any Collateral other than the Real Estate pursuant to
this Agreement or any of the Transaction Documents so as to allow
the investment bank retained (the "Investment Bank") to find a
credit worthy party to enter into an agreement with the Company
to purchase the Colorful Images Business. The Company shall
provide each of the Secured Parties regular reports on the
Investment Bank's progress and the Secured Parties shall be
authorized to communicate directly with the Investment Bank with
respect to all matters relating to the Collateral and the sale
thereof.
(3) St. Cloud may exercise any of its rights and remedies at any time
with respect to the Real Estate after receipt by the Company of a
Default Notice that is not cured within the applicable grace
period, if any, under the Transaction Documents. The parties
agree that all proceeds realized with respect to the Real Estate
shall first be applied to the costs and expenses (including
attorney's fees) of realizing on such Collateral, then towards
the Obligations owed to St. Cloud under the Purchase Agreement,
the Notes and the other Transaction Documents and thereafter to
amounts owed to Xxxxxx.
(4) In the event that (i) the Company has not retained an investment
bank as required under clause (1) above, (ii) the Secured Parties
have not received, within 10 days after retention of the
Investment Bank, a written opinion from the Investment
14
Bank that the CIB Sale can be effected at no less than the
Minimum Price (as defined below) within the time frame required
hereunder, (ii) the Company has not entered into a definitive
agreement with a creditworthy purchaser within six (6) months
after receipt of a Default Notice for the CIB Sale at or above
the price that will result, after payment of all expenses, in the
Secured Parties receiving in cash all amounts due to them under
the Notes and the Note Purchase Agreement (less, with respect to
any Secured Party, any proceeds received by such Secured Party in
respect of such amounts from the sale of the Real Estate) (the
"Minimum Price"), (iv) the Investment Bank informs the Company
that it believes it will be unable to identify for the Company a
purchaser willing to pay the Minimum Price in a CIB Sale or (v)
the Investment Bank is not making a commercially reasonable
effort to effectuate the CIB Sale at or above the Minimum Price,
each of the Secured Parties that has not been paid in full may
exercise any and all rights and remedies of the Secured Parties
under this Agreement and the Transaction Documents.
(5) In the event that Company has entered into a definitive agreement
with a creditworthy purchaser for the CIB Sale at or above the
Minimum Price within six (6) months of receipt of a Default
Notice, the Company shall have sixty (60) days in which to close
the transaction contemplated therein and shall disburse the
proceeds received pursuant to Section 26(d) immediately upon
receipt so as to pay in full the Secured Parties. In the event
the Company fails to close the transaction within sixty (60)
days, each of the Secured Parties may exercise any and all rights
and remedies of the Secured Parties under this Agreement and the
Transaction Documents.
(6) The Secured Parties agree to consent to any CIB Sale that results
in the Minimum Price or higher and to release, upon receipt by
the Secured Parties of indefeasible payment in full in cash of
all Obligations owing to the Secured Parties, all security
interests granted under this Agreement and the Transaction
Documents so as to effectuate such sale.
(7) Until a Secured Party has the right under paragraph (4) or (5) of
this Section 26(a) to exercise rights and remedies under this
Agreement or the Transaction Documents, Grantor shall have the
right to deal with the Assigned Contracts, and all other
Collateral other than the Real Estate as though no Event of
Default has occurred or is continuing but shall do so only in the
ordinary course of business and in accordance with past
practices.
(b) Whenever an Event of Default has occurred or is continuing,
Xxxxxxx X. Xxxxxx and/or Xxxxx X. Xxxxxx shall have the right to purchase from
St. Cloud all of its Notes upon payment in full in cash of all Obligations owing
to St. Cloud; such payment to be made in cash within five (5) Business Days
after receipt by St. Cloud of written notice (which shall be irrevocable) of the
exercise of such right, whereupon St. Cloud shall have no further rights under
the Note or this Agreement except with respect to any amounts owed to it for
expenses required to be paid to it under the Note or this Agreement.
15
(c) Except as set forth in Section 26(a), notwithstanding
anything to the contrary contained in this Agreement or any other Transaction
Document and irrespective of:
(1) the time, order or method of attachment or perfection of the
security interests created by any Security Document,
(2) the time or order of filing or recording of financing
statements or other documents filed or recorded to perfect
security interests in any Collateral,
(3) anything contained in any filing or agreement to which any
Secured Party now or hereafter may be a party and
(4) the rules for determining priority under the Uniform
Commercial Code or any other law governing the relative
priorities of secured creditors,
the security interests of the Secured Parties in the Collateral other than the
Real Estate as provided in Section 26(a) shall be of equal priority.
(d) Any money, property or securities realized upon the sale,
disposition or other realization upon all or any part of the Collateral (other
than with respect to the Real Estate, which shall be governed by Section
26(a)(3) above), shall be applied in the following order:
(1) First, to the payment in full of all costs and expenses
(including, without limitation, reasonable attorneys' fees
and disbursements) paid or incurred by the Investment Bank
and each Secured Party in connection with such realization
on the Collateral or the protection of their rights and
interests therein;
(2) Second, to the Secured Parties, ratably, in payment of all
Obligations until such Obligations are paid in full;
(3) Third, to the Company, or its representative or as a court
of competent jurisdiction may direct, any surplus then
remaining.
In furtherance of the foregoing, each Secured Party agrees that if it receives
any payment in respect of the Obligations in excess of its ratable share of all
such payments received by all Secured Parties (other than amounts received by
St. Cloud in respect of the Real Estate as set forth herein), such Secured Party
shall immediately pay to the other Secured Parties such amount as is necessary
so that all Secured Parties have received their ratable share of all such
payments and, in the event of any such payment by a Secured Party, Grantor
agrees that the Obligations owing to such Secured Party shall be reinstated to
the extent of such payment.
(e) Any dispute among the Secured Parties under this Section 26
shall be settled by arbitration in accordance with the then current CPR Rules
for Non-Administered Arbitration by three arbitrators, of whom St. Cloud shall
select one, Xxxxxxx X. Xxxxxx and Xxxxx X. Xxxxxx collectively shall select one
and such two arbitrators shall select the third arbitrator. The arbitration
shall be governed by the Federal Arbitration Act, 9 U.S.C. Sections 1-16, and
judgment
16
upon the award rendered by the arbitrator(s) may be entered by any court having
jurisdiction thereof. The place of arbitration shall be Los Angeles, California.
27. MISCELLANEOUS.
(a) REINSTATEMENT. This Agreement shall remain in full force and
effect and continue to be effective should any petition be filed by or against
Grantor for liquidation or reorganization, should Grantor become insolvent or
make an assignment for the benefit of any creditor or creditors or should a
receiver or trustee be appointed for all or any significant part of Grantor's
assets, and shall continue to be effective or be reinstated, as the case may be,
if at any time payment and performance of the Obligations, or any part thereof,
is, pursuant to applicable law, rescinded or reduced in amount, or must
otherwise be restored or returned by any obligee of the Obligations, whether as
a "voidable preference," "fraudulent conveyance," or otherwise, all as though
such payment or performance had not been made. In the event that any payment, or
any part thereof, is rescinded, reduced, restored or returned, the Obligations
shall be reinstated and deemed reduced only by such amount paid and not so
rescinded, reduced, restored or returned.
(b) NOTICES. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval, declaration
or other communication shall or may be given to or served upon any of the
parties by any other party, or whenever any of the parties desires to give and
serve upon any other party any communication with respect to this Agreement,
each such notice, demand, request, consent, approval, declaration or other
communication shall be in writing and shall be given in the manner, and deemed
received, as provided for in the Purchase Agreement.
(c) SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in a manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity without invalidating the remainder of such
provision or the remaining provisions of this Agreement. This Agreement is to be
read, construed and applied together with the Purchase Agreement and the other
Transaction Documents which, taken together, set forth the complete
understanding and agreement of the Secured Parties and the Grantor with respect
to the matters referred to herein and therein.
(d) NO WAIVER; CUMULATIVE REMEDIES. No Secured Party shall by any
act, delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder, and no waiver shall be valid unless in writing, signed by
the Secured Parties and then only to the extent therein set forth. A waiver by
the Secured Parties of any right or remedy hereunder on any one occasion shall
not be construed as a bar to any right or remedy which the Secured Parties would
otherwise have had on any future occasion. No failure to exercise nor any delay
in exercising on the part of any of the Secured Parties, any right, power or
privilege hereunder, shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege hereunder preclude any other
or future exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies hereunder provided are cumulative and may be
exercised singly or concurrently, and are not exclusive of any rights and
remedies provided by
17
law. None of the terms or provisions of this Agreement may be waived, altered,
modified or amended except by an instrument in writing, duly executed by the
Secured Parties and the Company.
(e) LIMITATION BY LAW. All rights, remedies and powers provided
in this Agreement may be exercised only to the extent that the exercise thereof
does not violate any applicable provision of law, and all the provisions of this
Agreement are intended to be subject to all applicable mandatory provisions of
law that may be controlling and to be limited to the extent necessary so that
they shall not render this Agreement invalid, unenforceable, in whole or in
part, or not entitled to be recorded, registered or filed under the provisions
of any applicable law.
(f) TERMINATION OF THIS AGREEMENT. Subject to Section 27(a)
hereof, this Agreement shall terminate upon the payment in full of all
Obligations (other than indemnification Obligations as to which no claim has
been asserted).
(g) SUCCESSORS AND ASSIGNS. This Agreement and all obligations of
Grantor hereunder shall be binding upon the successors and assigns of Grantor
(including any debtor-in-possession on behalf of Grantor) and shall, together
with the rights and remedies of the Secured Parties hereunder, inure to the
benefit of the Secured Parties, all future holders of any instrument evidencing
any of the Obligations and their respective successors and assigns. No sales of
participations, other sales, assignments, transfers or other dispositions of any
agreement governing or instrument evidencing the Obligations or any portion
thereof or interest therein shall in any manner affect the Lien granted to the
Secured Parties hereunder. Grantor may not assign, sell, hypothecate or
otherwise transfer any interest in or obligation under this Agreement.
(h) COUNTERPARTS. This Agreement may be executed in any number of
separate counterparts, each of which shall collectively and separately
constitute one and the same agreement.
(i) GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY
OF THE TRANSACTION DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS SECURITY AGREEMENT AND THE
OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS
MADE AND PERFORMED IN THAT STATE, AND ANY APPLICABLE LAWS OF THE UNITED STATES
OF AMERICA. GRANTOR HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS
LOCATED IN LOS ANGELES COUNTY, CITY OF LOS ANGELES, SHALL HAVE EXCLUSIVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN GRANTOR AND
THE SECURED PARTIES PERTAINING TO THIS SECURITY AGREEMENT OR ANY OF THE OTHER
TRANSACTION DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS
SECURITY AGREEMENT OR ANY OF THE OTHER TRANSACTION DOCUMENTS, PROVIDED, THAT THE
SECURED PARTIES AND GRANTOR ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY
HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF LOS ANGELES COUNTY, CITY OF LOS
ANGELES, AND, PROVIDED, FURTHER, NOTHING IN THIS SECURITY AGREEMENT
18
SHALL BE DEEMED OR OPERATE TO PRECLUDE ANY SECURED PARTY FROM BRINGING SUIT OR
TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE COLLATERAL
OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER
COURT ORDER IN FAVOR OF THE SECURED PARTIES. GRANTOR EXPRESSLY SUBMITS AND
CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY
SUCH COURT, AND GRANTOR HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON
LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY
CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY SUCH COURT. GRANTOR HEREBY WAIVES PERSONAL SERVICE OF THE
SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND
AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY
REGISTERED OR CERTIFIED MAIL ADDRESSED TO GRANTOR AT THE ADDRESS SET FORTH IN
SECTION 11.12 OF THE PURCHASE AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED
COMPLETED UPON THE ACTUAL RECEIPT THEREOF.
(j) WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION
WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED
BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND
FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES EXCEPT AS EXPRESSLY SET
FORTH IN SECTION 26), THE PARTIES DESIRE THAT DISPUTES ARISING HEREUNDER OR
RELATING HERETO (EXCEPT AS EXPRESSLY SET FORTH IN SECTION 26) BE RESOLVED BY A
JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION
OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO
WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO
RESOLVE ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, AMONG THE
SECURED PARTIES (OR ANY SECURED PARTY) AND GRANTOR ARISING OUT OF, CONNECTED
WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED IN CONNECTION
WITH, THIS SECURITY AGREEMENT OR ANY OF THE OTHER TRANSACTION DOCUMENTS OR THE
TRANSACTIONS RELATED HERETO OR THERETO.
(k) SECTION TITLES. The Section titles contained in this
Agreement are and shall be without substantive meaning or content of any kind
whatsoever and are not a part of the agreement between the parties hereto.
(l) NO STRICT CONSTRUCTION. The parties hereto have participated
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provisions of this Agreement.
19
(m) ADVICE OF COUNSEL. Each of the parties represents to each
other party hereto that it has discussed this Agreement and, specifically, the
provisions of Section 27(i) and Section 27(j), with its counsel.
(n) BENEFIT OF THE SECURED PARTIES. All Liens granted or
contemplated hereby shall be for the benefit of the Secured Parties, and all
proceeds or payments realized from Collateral in accordance herewith shall be
applied to the Obligations in accordance with the terms of the Purchase
Agreement.
20
IN WITNESS WHEREOF, each of the parties hereto has caused this
Security Agreement to be executed and delivered by its duly authorized officer
as of the date first set forth above.
CONCEPTS DIRECT, INC.,
as a Grantor
By: /s/ XXXX X. XxXXXXXXXX
-----------------------------------
Name: Xxxx X. XxXxxxxxxx
Title: Chief Financial Officer
ST. CLOUD CAPITAL PARTNERS, LP,
as a Secured Party
By: /s/ XXXXXXXX X. XXXXXX
-----------------------------------
Name: Xxxxxxxx X. Xxxxxx
----------------------------
Title: Senior Manager
---------------------------
XXXXXXX X. XXXXXX,
as a Secured Party
By: /s/ XXXXXXX X. XXXXXX
-----------------------------------
Xxxxxxx X. Xxxxxx
XXXXX X. XXXXXX,
as a Secured Party
By: /s/ XXXXX X. XXXXXX
-----------------------------------
Xxxxx X. Xxxxxx
S-1
