SECURITY AGREEMENT
Execution
Version
THIS
SECURITY AGREEMENT is
dated
as of February 1, 2008 (the "Agreement")
by and
between Colorep, Inc., a California corporation (the "Borrower"
or the
"Company"),
with
its primary place of business at 0000 Xxxxxxxx Xxxxxx, Xxxxxx Xxxxxxxxx, XX
00000, and Carthew Bay Technologies Inc., an Ontario corporation (the
"Secured
Party"),
which
party is also party to a Note Purchase Agreement (the "Note
Purchase Agreement")
of
even
date
herewith with the Company.
The
Borrower and the Secured Party hereby agree as follows:
1.
Certain
Definitions.
(a) "Agent"
has the
meaning set forth in Section 11.
(b) "Collateral"
shall
mean the property described on Exhibit
A
hereto.
(c) "Financing
Statements"
means
UCC-1 financing statements, security agreements, chattel mortgages, assignments,
copyright security agreements or collateral assignments,
patent or trademark security agreements or collateral assignments, fixture
filings and
other
agreements or instruments executed, delivered, filed or recorded for the purpose
of granting
or perfecting any Lien.
(d) "Lien"
means
any lien (statutory or other), mortgage, pledge, hypothecation,
assignment, deposit arrangement, security interest, charge, claim or other
encumbrance
of any kind (including any conditional sale or other title retention agreement,
or any
lease
in the nature thereof).
(e) "Permitted
Liens"
means:
(i) Liens imposed by law, such as carriers', warehousemen's, materialmen's
and
mechanics' liens, or Liens arising out of judgments
or awards against Borrower with respect to which Borrower at the time shall
currently be
prosecuting an appeal or proceedings for review; (ii) Liens for taxes not yet
subject to penalties
for nonpayment and Liens for taxes the payment of which is being contested
in
good faith
and
by appropriate proceedings and for which, to the extent required by generally
accepted accounting
principles then in effect, proper and adequate book reserves relating thereto
are established
by Borrower; (iii) Liens (A) upon or in any equipment acquired or held by the
Borrower
to secure the purchase price of such equipment or indebtedness incurred solely
for the purpose of financing the acquisition of such equipment, or (B) existing
on such equipment at the time
of
its acquisition, provided that the Lien is confined solely to the property
so
acquired and improvements
thereon, and the proceeds of such equipment and other equipment financed by
the
holder
of
such Lien; (iv) Liens consisting of leases or subleases and licenses and
sublicenses granted
to others in the ordinary course of Borrower's business not interfering in
any
material respect
with the business of Borrower and any interest or title of a lessor or licensor
under any lease
or
license, as applicable; (v) Liens incurred or deposits made in the ordinary
course of Debtor's
business in connection with worker's compensation, unemployment insurance,
social security
and other like laws; (vi) Liens in favor of customs and revenue authorities
arising as a matter
of
law to secure payment of customs duties in connection with the importation
of
goods; (vii)
Liens of landlords and of holders of deposit accounts (including rights of
setoff), in each case
incurred in the ordinary course of business; (viii) Liens in the nature of
easements, rights-of-way,
restrictions, encroachments and other irregularities or defects in title, in
each case which do not interfere in any material respect with the ordinary
conduct of the business of the Borrower or materially detract from the value
of
the Collateral; and (ix) Liens in favor of the Secured
Party.
(f)
"UCC"
means the Uniform Commercial Code of the State of California,
as amended from time to time.
(a) Grant.
Borrower, for valuable consideration, the receipt of which is
acknowledged, hereby grants to the Secured Party a security interest in and
Lien
on all of the Collateral
now owned or at any time hereafter acquired by the Borrower or in which the
Borrower
now has or at any time in the future may acquire any right, title or
interest.
(b) Continuing
Security Interest.
The
Borrower agrees that this Agreement
shall create a continuing security interest in the Collateral which shall remain
in effect
until the payment and performance in full of all of the
Obligations.
3. Obligations
Secured.
The
security interest granted hereby secures payment
of all outstanding principal and accrued interest under the Secured Convertible
Debentures
(each a "Debenture"
and
collectively, the "Debentures")
of the
Borrower issued to the
Secured Party pursuant to the Note Purchase Agreement and all other obligations
of the Borrower
to the Secured Party under the Debentures, the Note Purchase Agreement and
this
Agreement
(collectively, the "Obligations").
4. Borrower's
Representations, Warranties and Covenants.
Borrower hereby represents,
warrants and covenants to the Secured Party that:
(a) Borrower's
principal place of business is the address set forth above
and
Borrower keeps its records concerning accounts, contract rights and other
property, including
all of the Collateral, at that location. Borrower will promptly notify the
Secured Party in writing of the establishment of any new place of business
where
any of the Collateral is kept. Borrower
is a corporation organized under the laws of the State of California. Borrower
will notify
the Secured Party prior to changing either its form or jurisdiction of
organization.
(b) Borrower
will at all times keep in a manner reasonably satisfactory to
the
Secured Party accurate and complete records of the Collateral and will keep
such
Collateral
insured to the extent similarly situated companies insure their assets. The
Secured Party
shall be entitled, at reasonable times and intervals after reasonable notice
to
Borrower, to enter
Borrower's premises for purposes of inspecting the Collateral and Borrower's
books and records
relating thereto.
(c) Except
for Permitted Liens, the Collateral is owned by the Borrower
free and clear from any Liens.
2
(d) Borrower
will not, without the consent of the Secured Party, create or
permit
to be created or suffer to exist any Lien, except Permitted Liens, of any kind
on any of the
Collateral.
(e) Borrower
shall not use the Collateral in any manner that is or would
result in any material violation of any applicable statute, ordinance, law
or
regulation or in material violation of any insurance policy maintained by
Borrower with respect to the Collateral.
(f) Other
Financing Statements.
All
Financing Statements affecting any
of
the Collateral or naming Borrower as debtor existing on the date hereof are
listed on Schedule
1
hereto.
Other than the foregoing, Financing Statements in connection with any
Permitted
Lien and Financing Statements in favor of the Secured Party, no effective
Financing Statement
naming the Borrower as debtor, assignor, grantor, mortgagor, pledgor or the
like
and covering
all or any part of the Collateral is on file in any filing or recording office
in any jurisdiction.
(g) Notices,
Reports and Information.
The
Borrower will (i) notify the Secured
Party of any material claim made or asserted against the Collateral by any
person or entity
and of any change in the composition of the Collateral or other event which
could reasonably
be expected to materially adversely affect the value of the Collateral or
Secured Party's
Lien thereon; (ii) furnish to the Secured Party such statements and schedules
further identifying
and describing the Collateral and such other reports and other information
in
connection
with the Collateral as Secured Party may reasonably request, all in reasonable
detail; and
(iii)
upon request of Secured Party make such demands and requests for information
and
reports
as the Borrower is entitled to make in respect of the Collateral.
(h)
Disposition
of Collateral.
The
Borrower will not surrender or lose possession
of (other than to the Secured Party), sell, lease, rent, or otherwise dispose
of
or transfer
any of the Collateral, outside of the ordinary course of business, or any right
or interest therein,
except to the extent permitted by this Agreement.
(i)
Separate
Obligations and Liens.
The
Borrower acknowledges and agrees
that (i) the Obligations represent separate and distinct indebtedness,
obligations and liabilities
of the Borrower to the Secured Party, which the Borrower is separately obligated
to Secured Party to pay and perform, in each case regardless of whether or
not
any indebtedness, obligation
or liability to Secured Party or any other person or entity, or any agreement,
instrument
or guaranty that evidences any such other indebtedness, liability or obligation,
or any provision
thereof, shall for any reason be or become void, voidable, unenforceable or
discharged, whether
by payment, performance, avoidance or otherwise; and (ii) the Lien that secures
each of the
Secured Party's Obligations (A) is separate and distinct from any and all other
Liens on the Collateral,
(B) is enforceable without regard to whether or not any other Lien shall be
or
become void,
voidable or unenforceable or the indebtedness, obligations or liabilities
secured by any such
other Lien shall be discharged, whether by payment, performance, avoidance
or
otherwise, and (C) shall not merge with or be impaired by any other
Lien.
(j)
Payment
of Obligations.
Borrower will pay promptly when due all taxes,
assessments and governmental charges or levies imposed upon the Collateral
or
with respect
to any of its income or profits derived from the Collateral, as well as all
claims of any kind
(including, without limitation, claims for labor, materials and supplies)
against or with respect
to the Collateral, except that no such charge need be paid if (i) the validity
of such charge is being contested in good faith by appropriate proceedings,
(ii)
such proceedings do not involve any
material danger of the sale, forfeiture or loss of any of the Collateral or
any
interest in the Collateral
and (iii) such charge is adequately reserved against on Borrower's books in
accordance
with generally accepted accounting principles.
3
(k)
Limitation
on Liens on Collateral.
Borrower will not create, incur or
permit
to exist, will defend the Collateral against, and will take such other action
as
is necessary
to remove, any Lien (other than Permitted Liens) or other claim on or to the
Collateral, and
will
defend the right, title and interest of the Secured Party in and to any of
the
Collateral against
the claims and demands of all other persons and entities.
(1)
Trade
Secrets.
Borrower has taken and will continue to take all reasonable
steps to protect the secrecy of and preserve its rights and interests in and
to
all of its trade
secrets and other proprietary rights and interests.
(m)
No
Infringement.
To the
best of Borrower's knowledge, no material
infringement or unauthorized use presently is being made of any of the
Collateral, including
without limitation any of the intellectual property Collateral, by any person
or
entity, and Borrower's use of the Collateral does not and will not infringe
upon
the rights or interests of any
other
person or entity.
(n)
Further
Identification of Collateral.
Borrower will furnish to the Secured
Party from time to time statements and schedules further identifying and
describing the Collateral
and such other reports in connection with the Collateral as Secured Party may
reasonably
request, all in reasonable detail.
5. Financing
Statements.
Borrower shall at Borrower's cost cause to be filed and
recorded Financing Statements in the State of California, and Borrower at its
cost shall upon request cause to be filed and recorded any other Financing
Statements, including any statements of
continuation or assignment of any Financing Statements in respect of any Lien
created pursuant
to this Agreement, which may at any time be required or which, in the opinion
of
the Secured
Party, may at any time be desirable. The Borrower will promptly provide to
the
Secured Party
and
Agent copies of Financing Statements filed and recorded in connection with
this
Agreement. To the fullest extent permitted by applicable law, the Borrower
authorizes the Agent,
Secured Party, and any other agent acting on behalf of Secured Party, to file
any Financing
Statements describing the Collateral without the signature of the
Borrower.
6. Borrower's
Rights Until Event of Default.
So long
as an Event of Default does
not
exist, Borrower shall have the right to use, possess, license and sublicense
the
Collateral,
(in each instance subject to the Lien in favor of the Secured Party), manage
its
property,
sell its inventory and sell or dispose of any equipment that has become worn
out
or obsolete
in Borrower's business, in each instance in the ordinary course of
business.
4
7. Event
of Default.
The
following events shall be considered an "Event of Default"
under this Agreement:
(a) failure
to observe or perform any of its agreements, warranties, representations
or covenants in this Agreement, which failure is not cured within thirty (30)
days after
the
earlier of (i) receipt of written notice thereof by the Secured Party to the
Borrower or (ii) the
date
on which the Borrower had knowledge of such failure; or
(b) the
occurrence of any Event of Default, as defined in the Note Purchase
Agreement.
8. Rights
and Remedies on Event of Default.
(a) During
the continuance of an Event of Default, Secured Party shall have
the
right, itself or through any of its agents, with or without notice to Borrower
(as provided below),
as to any or all of the Collateral, by any available judicial procedure, or
without judicial process
(provided,
however,
that it
is in compliance with the UCC), to exercise any and all rights afforded
to a secured party under the UCC or other applicable law. Without limiting
the
generality
of the foregoing, Secured Party shall have the right to sell or otherwise
dispose of all or
any
part of the Collateral, either at public or private sale, in lots or in bulk,
with or without warranties
or representations, and upon such terms and conditions, all as the Secured
Party
may deem
advisable, and the Secured Party shall have the right to purchase at any such
sale to the extent
permitted by applicable law. Borrower agrees that a notice sent during the
continuance of an
Event
of Default and at least ten (10) days before the time of any intended public
sale or of the
time
after which any private sale or other disposition of the Collateral is to be
made shall be reasonable
notice of such sale or other disposition. The proceeds of any such sale, or
other Collateral
disposition shall be applied, first to the expenses of retaking, holding,
storing, processing and preparing for sale, selling, and the like, and to
Secured Party's reasonable attorneys'
fees and legal expenses in connection therewith, and then to the Obligations
and
to the payment
of any other amounts required by applicable law, after which Secured Party
shall
account
to Borrower for any surplus proceeds. If, upon the sale or other disposition
of
the Collateral
made in compliance with the requirements of the UCC and other applicable law,
the proceeds
thereof are insufficient to pay all amounts to which Secured Party is legally
entitled, Borrower
shall be liable for the deficiency.
(b) Borrower
appoints Secured Party, and any officer, employee or agent
of
Secured Party, with full power of substitution, as Borrower's true and lawful
attorney- in-fact,
effective as of the date hereof, with power in its own name or in the name
of
Borrower, during
the continuance of an Event of Default, (i) to endorse any notes, checks,
drafts, money orders,
or other instruments of payment in respect of the Collateral that may come
into
Secured Party's
possession; (ii) to sign and endorse any drafts against Borrower, assignments,
verifications
and notices in connection with accounts, and other documents relating to
Collateral; (iii)
to
pay or discharge taxes or Liens at any time levied or placed on or threatened
against the Collateral;
(iv) to demand, collect and issue receipt for, monies due in respect of the
Collateral; (v)
to
notify persons and entities obligated with respect to the Collateral to make
payments directly
to Secured Party; and (vi) generally, to do, at Secured Party's option and
at
Borrower's expense,
at any time, or from time to time, all acts and things which Secured Party
deems
necessary
to protect, preserve and realize upon the Collateral and Secured Party's
security interest
therein to effect the intent of this Agreement, all as fully and effectually
as
Borrower might
or
could do. This power of attorney shall be irrevocable as long as any of the
Obligations are
outstanding.
5
(c)
All
of Secured Party's rights and remedies with respect to the Collateral,
whether established hereby or by any other agreements, instruments or documents
or by law shall be cumulative and may be exercised singly or
concurrently.
9. Covenant
to Subordinate.
Secured
Party hereby acknowledges and agrees that it shall, if and when requested by
the
Company, subordinate its security interest granted by the
Company hereunder to he commercial lender under the Colorep Credit Facility.
Secured Party
further agrees that it shall execute any and all documents required to effect
such subordination,
all as reasonably requested by the Company and/or such commercial
lender.
10. Secured
Party's Rights; Borrower Waivers.
Secured
Party's acceptance of partial
or delinquent payment from Borrower under the Debentures or hereunder, or
Secured Party's
failure to exercise any right hereunder, shall not constitute a waiver of any
obligation of Borrower
hereunder, or any right of Secured Party hereunder, and shall not affect in
any
way the right
to
require full performance at any time thereafter. The Borrower waives, to the
fullest extent
permitted by law, any right to require Secured Party to make or give any
presentments, demands
for performance, notices of nonperformance, protests, notices of protests or
notices of dishonor
in connection with any of the Collateral.
11. Collateral
Agent.
At any
time or times, in order to comply with any legal requirement
in any jurisdiction or in order to effectuate any provision of this Agreement
as
determined
in the discretion of the Secured Party, the Secured Party may, without the
consent of or notice to the Borrower, appoint any bank or trust company or
any
other person or entity to act as collateral agent (the "Agent")
on
behalf of the Secured Party with such power and authority as may
be
necessary for the effectual operation of the provisions hereof and specified
in
the instrument
of appointment. The Borrower acknowledges that the rights and responsibilities
of the
collateral Agent under this Agreement or arising out of this Agreement shall,
as
between the collateral
Agent and the Secured Party, be governed by the matters as among the Secured
Party and
the
collateral Agent to which the Borrower shall not be a third party or other
beneficiary.
12. Miscellaneous.
(a) Amendment
and Waiver.
Neither
this Agreement nor any part hereof
may be changed, waived or amended except by an instrument in writing signed
by
the Secured
Party and by the Borrower; and waiver on one occasion shall not operate as
a
waiver on any
other
occasion.
(b) Notices.
Unless
otherwise provided, any notice required or permitted
under this Agreement shall be given in writing and shall be deemed effectively
given upon
personal delivery to the party to be notified or five days (5) days (excluding
Sundays and holidays)
after deposit with the United States Post Office, by registered or certified
mail, postage prepaid
and addressed to such party at the address set forth below, or at such other
address as such
party may designate by ten (10) days' advance written notice to the other
parties.
6
(c) Successors
and Assigns.
This
Agreement shall be binding upon and inure to the benefit of, the successors
and
assigns of the parties hereto, including, without limitation,
all future holders of the Debentures.
(d) Governing
Law.
The
laws of the State of California shall govern the
construction of this Agreement, without giving effect to the principles of
conflicts of laws thereof.
(e) Counterparts.
This
Agreement, and any of the other agreements, documents
and instruments contemplated hereby, may be executed in two or more
counterparts, each
of
which shall be deemed an original, but all of which together shall constitute
one and the same
instrument. Delivery of an executed signature page to this Agreement, and any
of
the other agreements, documents and instruments contemplated hereby, by
facsimile transmission shall be as effective as delivery of a manually signed
counterpart hereof or thereof.
(f) Titles
and Subtitles.
The
titles and subtitles used in this Agreement are
used
for convenience only and are not to be considered in construing or interpreting
this Agreement.
(g) Severability.
If one
or more provisions of this Agreement are held to
be
unenforceable under applicable law, such provision shall be excluded from this
Agreement and
the
balance of the Agreement shall be interpreted as if such provision were so
excluded and shall
be
enforceable in accordance with its terms.
(h)
Venue.
Borrower and Secured Party agree that all actions or proceedings
arising in connection with this Agreement shall be tried and litigated only
in
the state
and
federal courts located in the County of Los Angeles, State of
California.
(i)
Waiver
of Jury Trial.
TO THE
EXTENT EACH MAY LEGALLY DO
SO,
EACH PARTY HERETO HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY
OF
ANY CLAIM, DEMAND, ACTION, CAUSE OF ACTION, OR PROCEEDING ARISING UNDER
OR
WITH RESPECT TO THIS AGREEMENT, OR IN ANY WAY CONNECTED WITH, OR RELATED
TO, OR INCIDENTAL TO, THE DEALING OF THE PARTIES HERETO WITH RESPECT
TO THIS AGREEMENT, OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE
WHETHER NOW EXISTING OR HEREAFTER ARISING, AND IRRESPECTIVE OF WHETHER
SOUNDING IN CONTRACT, TORT, OR OTHERWISE. TO THE EXTENT EACH MAY LEGALLY
DO SO, EACH PARTY HERETO HEREBY AGREES THAT ANY SUCH CLAIM, DEMAND,
ACTION, OR PROCEEDING SHALL BE DECIDED BY A COURT TRIAL WITHOUT A JURY
AND
THAT EITHER PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY
OF
THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF ANY OTHER
PARTY HERETO TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.
(j)
Indemnification.
Borrower agrees to defend, indemnify and hold harmless
Secured Party (including the Agent) against any and all liabilities, costs
and
expenses (including,
without limitation, legal fees and expenses), other than those arising solely
from the gross
negligence or willful misconduct of the Secured Party: (i) with respect to,
or
resulting from,
any
delay in paying, any and all excise, sales or other taxes which may be payable
or determined to be payable with respect to any of the Collateral, (ii) with
respect to, or resulting from,
any
delay in complying with any law, rule, regulation or order of any governmental
authority
applicable to any of the Collateral and (iii) in connection with or arising
as a
consequence
of holding any interest in any of the Collateral or any of transactions
contemplated by
this
Agreement.
7
(k)
Further Assurances. Borrower covenants and agrees to do, make, execute
and deliver such further and other assignments, transfers, deeds, agreements
and
other documents
as may be required by the Secured Party to establish in favor of the Secured
Party the security
interest intended to be created hereby and to accomplish the intention of this
Agreement.
(1)
Definitions.
Except
as set forth in Section l(a) or as otherwise defined
herein, capitalized terms shall have the meaning set forth in the Note Purchase
Agreement.
[THE
REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
8
IN
WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as
of the date first above written.
| BORROWER: | ||
|
Colorep,
Inc.
|
||
| |
|
|
| By: |  |
|
|
Xxxxx
Xxxx
Chief
Executive Officer
|
||
| Address: |
0000
Xxxxxxxx Xxxxxx
|
|
|
Xxxxxx
Xxxxxxxxx, XX 00000
|
| SECURED PARTY: | ||
|
Carthew
Bay Technologies
Inc.
|
||
| |
|
|
| By: |  |
|
|
By: XXXXX
XXXXXX
Its:
CFO
|
||
| Address: |
Brookfield
Place. 000 Xxx
Xxxxxx
|
|
|
Xxxxx
0000
|
||
|
Xxxxxxx,
Xxxxxxx, Xxxxxx X0X 0X0
|
Signature
Page to Security Agreement
