EXHIBIT 4.22
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is dated as of March 31, 1999 and
entered into by and between ValueStar, Inc., a California corporation
("Borrower"), and Seacoast Capital Partners Limited Partnership, a Delaware
limited partnership, Pacific Mezzanine Fund, L.P., a California limited
partnership and Tangent Growth Fund, L.P., a California limited partnership
(collectively, "Lenders").
W I T N E S S E T H:
WHEREAS, Borrower and Lenders are parties to a Note Purchase
Agreement of even date herewith, as the same may hereafter be amended, restated,
supplemented or otherwise modified from time to time (the "Note Purchase
Agreement"), providing for the purchase of $2,450,000 of Borrower's 8% senior
notes (collectively, the "Senior Note") and other financial accommodations to be
made to Borrower by Lenders;
WHEREAS, it is a condition to the purchase of the Senior Note
and other financial accommodations under the Note Purchase Agreement, that
Borrower shall have granted the security interests contemplated by this
Agreement, and Borrower desires to grant such security interests in order to
induce Lenders to purchase the Senior Note pursuant to the Note Purchase
Agreement;
NOW, THEREFORE, in consideration of the premises and in order
to induce Lenders to purchase the Senior Note, Borrower hereby agrees with
Lenders as follows:
1. Definitions
1.1. Certain Defined Terms. Terms defined in the Note Purchase
Agreement and not otherwise defined herein have the respective meanings provided
for in the Note Purchase Agreement. The following terms, as used herein, have
the meanings set forth below:
"Accounts" means all "accounts" (as defined in the UCC) now
owned or hereafter created or acquired by Borrower and all of the
following now owned or hereafter created or acquired by Borrower: (a)
accounts receivable, contract rights, book debts, notes, drafts and
other obligations or indebtedness owing to Borrower arising from the
sale, lease or exchange of goods or other property and/or the
performance of services; (b) rights in, to and under all purchase
orders for goods, services or other property; (c) rights to any goods,
services or other property represented by any of the foregoing
(including returned or repossessed goods and unpaid sellers' rights of
rescission, replevin, reclamation and rights to stoppage in transit);
(d) monies due to or to become due to Borrower under all contracts for
the sale, lease or exchange of goods or other property and/or the
performance of services including the right to payment of any interest
or finance charges with respect thereto (whether or not yet earned by
performance on the part of Borrower); and (e) all collateral security
and guaranties of any kind given by any Person with respect to any of
the foregoing.
"Collateral" has the meaning assigned to that term in Section
2.
"Control" means "control" as defined in the UCC.
"Copyright License" means any oral or written agreement now or
hereafter in existence granting to Borrower any right to use any
copyright, all as may be amended, supplemented or otherwise modified
from time to time.
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"Copyright Mortgage" means, if any, a Copyright Mortgage
executed and delivered by Borrower to Lenders, as the same may be
amended, supplemented or otherwise modified from time to time.
"Copyrights" means collectively all of the following now owned
or hereafter created or acquired by Borrower: (a) all copyrights,
rights and interests in copyrights, works protectable by copyright,
copyright registrations and copyright applications including, without
limitation, those listed on any schedule to any Copyright Mortgage; (b)
all renewals of any of the foregoing; (c) all income, royalties,
damages and payments now or hereafter due and/or payable under any of
the foregoing or with respect to any of the foregoing, including,
without limitation, damages and payments for past, present and future
infringements of any of the foregoing; (d) the right to xxx for past,
present and future infringements of any of the foregoing; (e) all
rights corresponding to any of the foregoing throughout the world; and
(f) all goodwill associated with any of the foregoing.
"Depository Account" has the meaning assigned to such term in
Section 7.
"Documents" means all "documents" (as defined in the UCC) or
other receipts covering, evidencing or representing goods now owned or
hereafter acquired by Borrower including, without limitation, all bills
of lading, dock warrants, dock receipts, warehouse receipts and orders
for the delivery of goods, and any other document which in the regular
course of business or financing is treated as adequately evidencing
that the Person in possession of it is entitled to receive, hold and
dispose of the document and the goods it covers.
"Equipment" means all "equipment" (as defined in the UCC) now
owned or hereafter acquired by Borrower including, without limitation,
all machinery, motor vehicles, trucks, trailers, vessels, aircraft,
rolling stock and all other tangible personal property (other than
Inventory) and all parts thereof and all additions and accessions
thereto and replacements therefor.
"Fixtures" means all "fixtures" (as defined in the UCC) now
owned or hereafter acquired by Borrower including, without limitation,
plant fixtures, trade fixtures and business fixtures, wherever located,
and all additions and accessions thereto and replacements therefor.
"General Intangibles" means all "general intangibles" (as
defined in the UCC) now owned or hereafter created or acquired by
Borrower including, without limitation: (a) all agreements, leases,
licenses and contracts to which Borrower is or may become a party; (b)
all obligations or indebtedness owing to Borrower (other than Accounts)
or other rights to receive payments of money from whatever source
arising and all collateral security therefor; (c) all tax refunds and
tax refund claims; (d) all Intellectual Property; (e) all choses in
action and causes of action; and (f) all trade secrets and other
confidential information relating to the business of Borrower
including, without limitation: the names and addresses of, and credit
and other business information concerning, Borrower's past, present or
future customers; the prices which Borrower obtains for its services or
at which it sells merchandise; policies and procedures pertaining to
the sale and design of equipment, components, devices and services
furnished by Borrower; information concerning suppliers of Borrower;
and information concerning the manner of operation, business plans,
projections, and all other information of any kind or character,
whether or not reduced to writing, with respect to the conduct by
Borrower of its business not generally known by the public.
"Instruments" means all "instruments", "chattel paper" and
"letters of credit" (each as defined in the UCC) in which Borrower now
has or hereafter acquires any rights including, without limitation, all
checks, drafts, notes, bonds, debentures and certificates of deposit.
"Intellectual Property" means collectively all of the
following: Copyrights, Copyright Licenses, Patents, Patent Licenses,
Trademarks and Trademark Licenses.
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"Inventory" means all "inventory" (as defined in the UCC) now
owned or hereafter acquired by Borrower, wherever located, including,
without limitation, finished goods, raw materials, work in process and
other materials and supplies (including packaging and shipping
materials) used or consumed in the manufacture or production thereof
and goods which are returned to or repossessed by Borrower.
"Investment Property" means all "investment property" (as
defined in the UCC) now owned or hereafter acquired by Borrower
including, without limitation, all securities (certificated and
uncertificated), securities accounts, securities entitlements,
commodity contracts and commodity accounts (as each such term is
defined in the UCC).
"Patent License" means any oral or written agreement now or
hereafter in existence granting to Borrower any right to use any
invention on which a patent is in existence, all as may be amended,
supplemented or otherwise modified from time to time.
"Patent Mortgage" means, if any, a Patent Mortgage executed
and delivered by Borrower to Lenders, as the same may be amended,
supplemented or otherwise modified from time to time.
"Patents" means collectively all of the following now owned or
hereafter created or acquired by Borrower: (a) all patents and patent
applications including, without limitation, those listed on any
schedule to any Patent Mortgage and the inventions and improvements
described and claimed therein, and patentable inventions; (b) the
reissues, divisions, continuations, renewals, extensions and
continuations-in-part of any of the foregoing; (c) all income,
royalties, damages and payments now or hereafter due and/or payable
under any of the foregoing or with respect to any of the foregoing,
including, without limitation, damages and payments for past, present
and future infringements of any of the foregoing; (d) the right to xxx
for past, present and future infringements of any of the foregoing; (e)
all rights corresponding to any of the foregoing throughout the world;
and (f) all goodwill associated with any of the foregoing.
"Proceeds" means all "proceeds" (as defined in the UCC) of,
and all other profits, rentals or receipts, in whatever form, arising
from the collection, sale, lease, exchange, assignment, licensing or
other disposition of, or realization upon, any Collateral including,
without limitation, all claims of Borrower against third parties for
loss of, damage to or destruction of, or for proceeds payable under, or
unearned premiums with respect to, policies of insurance with respect
to any Collateral, and any condemnation or requisition payments with
respect to any Collateral, in each case whether now existing or
hereafter arising.
"Secured Obligations" has the meaning assigned to that term in
Section 3.
"Security Interests" means the security interests granted
pursuant to Section 2 hereof and pursuant to any Copyright Mortgage,
Patent Mortgage and any Trademark Mortgage, as well as all other
security interests created or assigned as additional security for the
Secured Obligations pursuant to the provisions of this Agreement or the
other Loan Documents.
"Trademark License" means any oral or written agreement now or
hereafter in existence granting to Borrower any right to use any
trademark, all as may be amended, supplemented or otherwise modified
from time to time.
"Trademark Mortgage" means, if any, a Trademark Mortgage
executed and delivered by Borrower to Lenders, as the same may be
amended, supplemented or otherwise modified from time to time.
"Trademarks" means collectively all of the following now owned
or hereafter created or acquired by Borrower: (a) all trademarks, trade
names, corporate names, company names, business names, fictitious
business names, trade styles, service marks, logos, other business
identifiers, prints
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and labels on which any of the foregoing have appeared or appear, all
registrations and recordings thereof, and all applications in
connection therewith including, without limitation, those listed on any
schedule to any Trademark Mortgage; (b) all renewals thereof; (c) all
income, royalties, damages and payments now or hereafter due and/or
payable under any of the foregoing or with respect to any of the
foregoing, including, without limitation, damages and payments for
past, present and future infringements of any of the foregoing; (d) the
right to xxx for past, present and future infringements of any of the
foregoing; (e) all rights corresponding to any of the foregoing
throughout the world; and (f) all goodwill associated with and
symbolized by any of the foregoing.
"UCC" means the Uniform Commercial Code as in effect on the
date hereof in the State of California, provided that if by reason of
mandatory provisions of law, the perfection or the effect of perfection
or non-perfection of the Security Interests in any Collateral or the
availability of any remedy hereunder is governed by the Uniform
Commercial Code as in effect on or after the date hereof in any other
jurisdiction, "UCC" means the Uniform Commercial Code as in effect in
such other jurisdiction for purposes of the provisions hereof relating
to such perfection or effect of perfection or non-perfection or
availability of such remedy.
1.2. Other Definition Provisions. References to "Sections",
"subsections", "Exhibits" and "Schedules" shall be to Sections, subsections,
Exhibits and Schedules, respectively, of this Agreement unless otherwise
specifically provided. Any of the terms defined in subsection 1.1 may, unless
the context otherwise requires, be used in the singular or the plural depending
on the reference. All references to statutes and related regulations shall
include (unless otherwise specifically provided herein) any amendments of the
same and any successor statutes and regulations.
2. Grant of Security Interests
To secure the payment, performance and observance of (i) the
Secured Obligations, (ii) any obligations, liabilities, indebtedness or other
amounts owing by Parent to Lenders, and (iii) Borrower's obligations under the
Subsidiary Guaranty Agreement, Borrower hereby grants Lenders, a continuing
security interest in, a right of setoff against, and an assignment to Lenders
of, all right, title and interest of Borrower in all personal property, whether
now owned or existing or hereafter acquired or arising and regardless of where
located including, without limitation, the following (all being collectively
referred to as the "Collateral"):
(a) Accounts;
(b) Inventory;
(c) General Intangibles;
(d) Documents;
(e) Instruments;
(f) Equipment;
(g) Fixtures;
(h) Investment Property;
(i) All deposit accounts of Borrower maintained with any bank
or financial institution (other than Depository Accounts) and the
contents thereof;
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(j) All Depository Accounts, all cash and other property
deposited therein from time to time and other monies and property of
Borrower in the possession or under the control of Lenders;
(k) All books, records, ledger cards, files, correspondence,
computer programs, tapes, disks and related data processing software
that at any time evidence or contain information relating to any of the
property described in subparts (a) - (j) above or are otherwise
necessary or helpful in the collection thereof or realization thereon;
and
(l) Proceeds of all or any of the property described in
subparts (a) - (k) above.
3. Security for Obligations
This Agreement secures the payment and performance of the
Obligations and all indebtedness, liabilities and obligations of Borrower now or
hereafter existing under this Agreement and all renewals, extensions,
restructurings and refinancings of any of the above, including, without
limitation, any additional indebtedness which may be extended to Borrower
pursuant to any restructuring or refinancing of Borrower's indebtedness under
the Note Purchase Agreement, and including any post-petition interest accruing
during any bankruptcy reorganization of Borrower or other similar proceeding
(all such indebtedness, liabilities and obligations of Borrower being
collectively called the "Secured Obligations").
4. Borrower Remains Liable
Anything herein to the contrary notwithstanding: (a) Borrower
shall remain liable under the contracts and agreements included in the
Collateral to the extent set forth therein to perform all of its duties and
obligations thereunder to the same extent as if this Agreement had not been
executed; (b) the exercise by Lenders of any of the rights hereunder shall not
release Borrower from any of its duties or obligations under the contracts and
agreements included in the Collateral; and (c) Lenders shall not have any
obligation or liability under the contracts and agreements included in the
Collateral by reason of this Agreement, nor shall the Lenders be obligated to
perform any of the obligations or duties of Borrower thereunder or to take any
action to collect or enforce any claim for payment assigned hereunder.
5. Representations and Warranties
Borrower represents and warrants as follows, except as set
forth on Schedule IV:
5.1. Location of Equipment, Inventory and Fixtures. All of the
Equipment, Inventory and Fixtures are located at the places specified on
Schedule I. All hereafter acquired or arising Equipment, Inventory or Fixtures
will be located at the places specified on Schedule I hereto, except as
otherwise permitted hereunder. All of said locations are leased by Borrower as
lessee except those designated otherwise on Schedule I.
5.2. Ownership of Collateral; Bailees. Except for matters
disclosed on Schedule II, other Permitted Liens and the Security Interests,
Borrower owns the Collateral, and will own all after-acquired Collateral, free
and clear of any Lien. No effective financing statement or other form of lien
notice covering all or any part of the Collateral is on file in any recording
office, except for those in favor of Lenders or as disclosed on Schedule II.
Except as disclosed on Schedule II, none of the Collateral is in the possession
of any consignee, bailee, warehouseman, agent or processor. Borrower does not
sell any Inventory to any customer on approval or on any other basis which
entitles the customer to return, or which may obligate Borrower to repurchase,
such Inventory.
5.3. Office Locations; Fictitious Names. The mailing address,
chief place of business, chief executive office and office where Borrower keeps
its books and records relating to the Accounts, Documents, General Intangibles,
Instruments and Investment Property is located at the place specified on
Schedule I. Borrower does not have any other places of business except those
separately set forth on Schedule I. Borrower does not do
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business and has not done business during the past three years under any trade
name or fictitious business name except as disclosed on Schedule III.
5.4. Perfection. This Agreement, all necessary UCC filings and
all recordings with the U.S. Patent and Trademark Office and the U.S. Copyright
Office together create a valid, perfected and, except for the Permitted Liens,
first priority security interest in the Collateral, securing the payment of the
Secured Obligations, and all filings (other than continuation statements),
registrations, recordings and other actions necessary or desirable to create,
perfect and protect such Security Interests have been duly taken, and such
Security Interests are entitled to all of the rights, priorities and benefits
afforded by the UCC or other relevant law as enacted in any relevant
jurisdiction which relates to perfected security interests.
5.5. Governmental Authorizations; Consents. No authorization,
approval or other action by, and no notice to or filing with, any domestic or
foreign governmental authority or regulatory body or consent of any other Person
is required either (a) for the grant by Borrower of the Security Interests
granted hereby or for the execution, delivery or performance of this Agreement
by Borrower or (b) for the perfection of or the exercise by Lenders of their
rights and remedies hereunder (except as may have been taken by or at the
direction of Borrower or Lenders and except for UCC filings in the State of
California and all recordings with the U.S. Patent and Trademark Office and the
U.S. Copyright Office).
5.6. Accounts. Each existing Account constitutes, and each
hereafter arising Account will constitute, the legally valid and binding
obligation of the customer obligated to pay the same. The amount represented by
Borrower to Lenders as owing by each customer is, or will be, the correct amount
actually and unconditionally owing, except for normal cash discounts and
allowances where applicable. To Borrower's knowledge, no customer has any
defense, set-off, claim or counterclaim against Borrower that can be asserted
against Lenders, whether in any proceeding to enforce Lenders' rights in the
Collateral or otherwise except defenses, setoffs, claims or counterclaims that
would not, in the aggregate, have a Material Adverse Effect on Borrower. None of
the Accounts are, nor will any hereafter arising Account be, evidenced by a
promissory note or other Instrument other than a check.
5.7. Intellectual Property. Except as disclosed on Schedule
5.6 of the Note Purchase Agreement, there are no federally registered
Copyrights, Patents or Trademarks. All federally registered Copyrights, Patents
and Trademarks disclosed on Schedule 5.6 of the Note Purchase Agreement are
valid, subsisting and enforceable and all requisite filings have been made and
fees paid.
5.8. Inventory. All Inventory is and will be of good and
merchantable quality, free from any defects. None of such Inventory is subject
to any licensing, patent, trademark, trade name or copyright agreement with any
Person that restricts Borrower's ability to manufacture and/or sell the
Inventory. The completion of the manufacturing process of such Inventory by a
Person other than Borrower would be permitted under any contract to which
Borrower is a party or to which the Inventory is subject.
6. Further Assurances; Covenants
6.1. Other Documents and Actions. Borrower will, from time to
time, at its expense, promptly execute and deliver all further instruments and
documents and take all further action that may be necessary or desirable, or
that Lenders may request, in order to create, perfect and protect any security
interest granted or purported to be granted hereby or pursuant to any other
Agreements or to enable the Lenders to exercise and enforce their rights and
remedies hereunder or under any other Agreements with respect to any Collateral.
Without limiting the generality of the foregoing, Borrower will: (a) execute and
file such financing or continuation statements, or amendments thereto, and such
other instruments, documents or notices, as may be necessary or desirable, or as
the Lenders may request, in order to create, perfect and preserve the security
interests granted or purported to be granted hereby or pursuant to any other
Agreements; (b) at any reasonable time, upon demand by the Lenders, exhibit the
Collateral to allow inspection of the Collateral by the Lenders or Persons
designated by the Lenders and to examine and make copies of the records of
Borrower related thereto, and to discuss the Collateral and the records of
Borrower with respect thereto with, and to be advised as to the same by,
Borrower's officers and employees and, after the occurrence and during the
continuance of an Event of Default, in the case of the Accounts,
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Documents, General Intangibles, Instruments and Investment Property with any
Person which is or may be obligated thereon; and (c) upon the Lenders' request,
appear in and defend any action or proceeding that may affect Borrower's title
to or the Lenders' security interest in the Collateral.
6.2. Corporate or Name Change. Borrower will give Lenders at
least thirty (30) days prior written notice of any change in Borrower's name,
identity, mailing address or corporate structure. With respect to any such
change, Borrower will execute such documents and take such actions as the
Lenders reasonably deem necessary or desirable to create, perfect and preserve
the Security Interests.
6.3. Business Locations. Subject to the next sentence,
Borrower will keep the Collateral (other than Collateral in the possession of
the Lenders and cash on deposit in Depository Accounts and other permitted
deposit accounts) at the locations specified on Schedule I. Borrower will give
the Lenders at least thirty (30) days prior written notice of any change in
Borrower's chief executive office or of any new location of business or any new
location for any of the Collateral. With respect to any new location (which in
any event shall be within the continental United States), Borrower will execute
such documents and take such actions as the Lenders deem necessary to perfect
and preserve the Security Interests.
6.4. Bailees. No Collateral shall at any time be in the
possession or control of any warehouseman, bailee or any of Borrower's agents or
processors without Lenders' prior written consent and unless the Lenders, if the
Lenders have so requested, have received warehouse receipts or bailee letters
satisfactory to the Lenders prior to the commencement of such storage. Borrower
shall, upon the request of the Lenders, notify any such warehouseman, bailee,
agent or processor of the Security Interests created hereby and shall instruct
such Person to hold all such Collateral for the Lenders' account subject to the
Lenders' instructions.
6.5. Instruments. Borrower will deliver and pledge to Lenders
all Instruments duly endorsed and accompanied by duly executed instruments of
transfer or assignment, all in form and substance satisfactory to Lenders.
Borrower will also deliver to Lenders all security agreements securing any
Instruments and execute UCC-3 financing statements assigning to Lenders any UCC
financing statements filed by Borrower in connection with such security
agreements. Borrower will xxxx conspicuously all chattel paper with a legend, in
form and substance satisfactory to Lenders, indicating that such chattel paper
is subject to the Security Interests.
6.6. Filing Requirements. None of the Equipment (other than
motor vehicles not having a market value in excess of $50,000 in the aggregate)
is covered by any certificate of title. Upon request of the Lenders, Borrower
shall promptly deliver to Lenders any and all certificates of title,
applications for title or similar evidence of ownership of all Equipment and
shall cause Lenders to be named as lienholder on any such certificate of title
or other evidence of ownership. None of the Collateral is of a type in which
security interests or liens may be registered, recorded or filed under, or
notice thereof given under, any federal statute or regulation except for
Collateral described on the schedules to any Copyright Mortgage, Patent Mortgage
or any Trademark Mortgage. Borrower shall promptly notify Lenders in writing
upon acquiring any interest hereafter in Collateral that is of a type where a
security interest or lien may be registered, recorded or filed under, or notice
thereof given under, any federal statute or regulation. Borrower shall promptly
inform Lenders of any additions to or deletions from the Equipment and shall not
permit any such items to become Fixtures to real estate other than real estate
subject to mortgages or deeds of trust in favor of Lenders. The legal
description and street address of the property on which any Fixtures are located
is set forth on Schedule I, together with the name and common address of the
record owner of each such property.
6.7. Investment Property Covenants. Borrower will take any and
all actions required or requested by Lenders, from time to time, to (a) cause
Lenders to obtain exclusive Control of any Investment Property owned by Borrower
in a manner acceptable to Lenders and (b) obtain from any issuers of Investment
Property and such other Persons, for the benefit of Lenders, written
confirmation of Lenders' Control over such Investment Property. For purposes of
this subsection 6.7, Lenders shall have exclusive Control of Investment Property
if (i) such Investment Property consists of certificated securities and the
Borrower delivers such certificated securities to Lenders (with appropriate
endorsements if such certificated securities are in registered form); (ii) such
Investment Property consists of uncertificated securities and either (x) the
Borrower delivers such uncertificated securities to Lenders or (y) the issuer
thereof agrees, pursuant to documentation in form and
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substance satisfactory to Lenders, that it will comply with instructions
originated by Lenders without further consent by Borrower; and (iii) such
Investment Property consists of security entitlements and either (x) Lenders
become the entitlement holder thereof or (y) the appropriate securities
intermediary agrees, pursuant to documentation in form and substance
satisfactory to Lenders, that it will comply with entitlement orders originated
by Lenders without further consent by Borrower.
6.8. Account Covenants. Except as otherwise provided in this
subsection 6.8, Borrower shall continue to collect, at its own expense, all
amounts due or to become due to Borrower under the Accounts and apply such
amounts as are so collected to the outstanding balances of said Accounts. In
connection with such collections, Borrower may take (and, at Lenders' direction,
shall take) such action as Borrower or Lenders may deem necessary or advisable
to enforce collection of the Accounts; provided, that Lenders shall have the
right at any time after the occurrence and during the continuance of a Default
or an Event of Default to: (a) notify the customers or obligors under any
Accounts of the assignment of such Accounts to Lenders and to direct such
customers or obligors to make payment of all amounts due or to become due
directly to Lenders; (b) enforce collection of any such Accounts; and (c)
adjust, settle or compromise the amount or payment of such Accounts. After the
occurrence and during the continuance of a Default or an Event of Default, all
amounts and proceeds received by Borrower with respect to the Accounts shall, if
requested in writing by Lenders, be received in trust for the benefit of Lenders
shall be segregated from other funds of Borrower and shall be forthwith paid
over to Lenders in the same form as so received (with any necessary endorsement)
to be held in the Depository Accounts pursuant to Section 7 or applied pursuant
to Section 12. Borrower shall not adjust, settle or compromise the amount or
payment of any Account, or release wholly or partly any customer or obligor
thereof, or allow any credit or discount thereon (other than credits and
discounts in the ordinary course of business and in amounts which are not
material to Borrower) without the prior consent of Lenders.
6.9. Intellectual Property Covenants. Borrower shall
concurrently herewith deliver to Lenders each Copyright Mortgage, Patent
Mortgage and Trademark Mortgage requested by Lenders and all other documents,
instruments and other items as may be necessary for Lenders to file such
mortgages, as applicable, with the U.S. Copyright Office and the U.S. Patent and
Trademark Office. If, before the Secured Obligations are paid in full, Borrower
obtains any new Intellectual Property or rights thereto or becomes entitled to
the benefit of any Intellectual Property not listed on the schedules to a
Copyright Mortgage, Patent Mortgage or Trademark Mortgage, as applicable,
Borrower shall give to Lenders prompt written notice thereof, and shall amend
the schedules to include any such new Intellectual Property. Borrower shall: (a)
prosecute diligently any copyright, patent or trademark application at any time
pending; (b) make application for registration or issuance of all new
copyrights, patents and trademarks as reasonably deemed appropriate by Borrower;
(c) preserve and maintain all rights in the Intellectual Property; and (d) use
its best efforts, at any time after the occurrence and during the continuance of
a Default or an Event of Default, to obtain any consents, waivers or agreements
necessary to enable Lenders to exercise its remedies with respect to the
Intellectual Property. Borrower shall not abandon any material right to file a
copyright, patent or trademark application or shall not abandon any material
pending copyright, patent or trademark application, or Copyright, Copyright
License, Patent, Patent License, Trademark or Trademark License, without the
prior written consent of Lenders. Borrower represents and warrants to Lenders
that the execution, delivery and performance of this Agreement by Borrower will
not violate or cause a default under any of the Intellectual Property or any
agreement in connection therewith.
6.10. Protection of Collateral. Borrower will not do anything
to impair the rights of Lenders in the Collateral. Borrower will at all times
keep the Collateral insured in favor of the Lenders in compliance with the
requirements of the Note Purchase Agreement. Borrower assumes all liability and
responsibility in connection with the Collateral acquired by it, and the
liability of Borrower to pay the Secured Obligations shall in no way be affected
or diminished by reason of the fact that such Collateral may be lost, stolen,
damaged, or for any reason whatsoever unavailable to Borrower.
6.11. Taxes and Claims. Borrower will pay when due all
property and other taxes, assessments and governmental charges imposed upon, and
all claims against, the Collateral; provided that no such tax, assessment or
charge need be paid if Borrower is contesting same in good faith by appropriate
proceedings promptly instituted and diligently conducted and if Borrower has
established such reserve or other appropriate
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provision, if any, as shall be required in conformity with GAAP; and provided
further that the same can be contested without risk of loss or forfeiture or
material impairment of the Collateral or the use thereof.
6.12. Collateral Description. Borrower will furnish to
Lenders, from time to time upon request, statements and schedules further
identifying and describing the Collateral and such other reports in connection
with the Collateral as the Lenders may reasonably request, all in reasonable
detail. Borrower will, promptly upon request, provide to Lenders all information
and evidence it may reasonably request concerning the Collateral, and in
particular the Accounts, to enable Lenders to enforce the provisions of this
Agreement.
6.13. Records of Collateral. Borrower shall keep full and
accurate books and records relating to the Collateral and shall stamp or
otherwise xxxx such books and records in such manner as Lenders may reasonably
request indicating that the Collateral is subject to the Security Interests.
6.14. Federal Claims. Borrower shall notify Lenders of any
Collateral having a value in excess of $100,000 which, to its best knowledge,
constitutes a claim against the United States government or any instrumentality
or agency thereof, the assignment of which claim is restricted by federal law.
Upon the request of Lenders, Borrower shall take such steps as may be necessary
to comply with any applicable federal assignment of claims laws.
6.15. Hot Goods. None of the Inventory of Borrower or any
Subsidiary has been or will be produced in violation of any provision of the
Fair Labor Standards Act of 1938, as amended, or in violation of any other law.
7. Bank Accounts; Collection of Accounts and Payments
Lenders and Borrower shall enter into a bank agency agreement
("Bank Agency Agreement"), in a form specified by Lenders, with each financial
institution with which Borrower maintains from time to time any deposit accounts
(general or special). Pursuant to the Bank Agency Agreements, if any, and
pursuant hereto, Borrower grants and shall grant to Lenders, a continuing lien
upon, and security interest in, all such accounts and all funds at any time
paid, deposited, credited or held in such accounts (whether for collection,
provisionally or otherwise) or otherwise in the possession of such financial
institutions, and each such financial institution shall act as Lenders' agent in
connection therewith.
Borrower shall establish lock-box or blocked accounts
(collectively, "Blocked Accounts") in Borrower's name with such banks as are
acceptable to Lenders ("Collecting Banks"), subject to irrevocable instructions
in a form specified by Lenders, to which the obligors of all Accounts shall
directly remit all payments on Accounts and in which Borrower will immediately
deposit all cash payments for Inventory or other cash payments constituting
proceeds of Collateral in the identical form in which such payment was made,
whether by cash or check. In addition, Lenders may establish one or more
depository accounts at each Collecting Bank or at a centrally located bank
(collectively, the "Depository Account"). From and after receipt by any
Collecting Bank of written notice from Lenders to such Collecting Bank that an
Event of Default has occurred and is continuing, all amounts held or deposited
in the Blocked Accounts held by such Collecting Bank shall be transferred to the
Depository Account. Subject to the foregoing, Borrower hereby agrees that all
payments received by Lenders whether by cash, check, wire transfer or any other
instrument, made to such Blocked Accounts or otherwise received by Lenders and
whether on the Accounts or as proceeds of other Collateral or otherwise will be
the sole and exclusive property of Lenders. Borrower, and any of its Affiliates,
employees, agents, other Persons acting for or in concert with Borrower shall,
acting as trustee for Lenders, receive, as the sole and exclusive property of
Lenders, any moneys, checks, notes, drafts or other payments relating to and/or
proceeds of Accounts or other Collateral which come into the possession or under
the control of Borrower or any Affiliates, employees, agent, or other Persons
acting for or in concert with Borrower, and immediately upon receipt thereof
subsequent to the establishment of any Blocked Accounts, Borrower or such
Persons shall deposit the same or cause the same to be deposited in kind in a
Blocked Account.
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8. Lenders Appointed Attorney-in-Fact
Borrower hereby irrevocably appoints Lenders as Borrower's
attorney-in-fact, with full authority in the place and stead of Borrower and in
the name of Borrower, Lenders or otherwise or without the signature of Borrower
where permitted by law, from time to time in Lenders' reasonable discretion to
take any action and to execute any instrument that Lenders may reasonably deem
necessary or advisable to accomplish the purposes of this Agreement.
9. Remedies
(a) If any Event of Default shall have occurred and be
continuing, Lenders may exercise in respect of the Collateral, in
addition to all other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured
party on default under the UCC (whether or not the UCC applies to the
affected Collateral) and also may: (i) require Borrower to, and
Borrower hereby agrees that it will, at its expense and upon request of
Lenders forthwith, assemble all or part of the Collateral as directed
by Lenders and make it available to Lenders at any reasonable place or
places designated by Lenders, in which event Borrower shall at its own
expense (A) forthwith cause the same to be moved to the place or places
so designated by Lenders and there delivered to Lenders, (B) store and
keep any Collateral so delivered to Lenders at such place or places
pending further action by Lenders, and (C) while the Collateral shall
be so stored and kept, provide such guards and maintenance services as
shall be necessary to protect the same and to preserve and maintain the
Collateral in good condition; (ii) withdraw all cash in the Depository
Accounts and apply such monies in payment of the Secured Obligations;
and (iii) without notice except as specified below, sell, lease or
otherwise dispose of the Collateral or any part thereof in one or more
parcels at public or private sale, and without the necessity of
gathering at the place of sale of the property to be sold, at any of
Lenders' offices or elsewhere, at such time or times, for cash, on
credit or for future delivery, and at such price or prices and upon
such other terms as Lenders may deem commercially reasonable. Borrower
agrees that, to the extent notice of sale shall be required by law, at
least ten (10) days notice to Borrower of the time and place of any
public sale or the time after which any private sale is to be made
shall constitute reasonable notification. At any sale of the
Collateral, if permitted by law, Lenders may bid (which bid may be, in
whole or in part, in the form of cancellation of indebtedness) for the
purchase of the Collateral or any portion thereof for the account of
Lenders. Lenders shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. Lenders may adjourn any
public or private sale from time to time by announcement at the time
and place fixed therefor, and such sale may, without further notice, be
made at the time and place to which it was so adjourned. To the extent
permitted by law, Borrower hereby specifically waives all rights of
redemption, stay or appraisal which it has or may have under any law
now existing or hereafter enacted.
(b) Upon the occurrence and during the continuance of an Event
of Default, Lenders or its agents or attorneys shall have the right
without notice or demand or legal process (unless the same shall be
required by applicable law), personally, or by agents or attorneys, (i)
to enter upon, occupy and use any premises owned or leased by Borrower
or where the Collateral is located (or is believed to be located) until
the Secured Obligations are paid in full without any obligation to pay
rent to Borrower, to render the Collateral useable or saleable and to
remove the Collateral or any part thereof therefrom to the premises of
Lenders or any agent of Lenders for such time as Lenders may desire in
order to effectively collect or liquidate the Collateral and use in
connection with such removal any and all services, supplies and other
facilities of Borrower; (ii) to take possession of Borrower's original
books and records, to obtain access to Borrower's data processing
equipment, computer hardware and software relating to the Collateral
and to use all of the foregoing and the information contained therein
in any manner Lenders deem appropriate; and (iii) to notify postal
authorities to change the address for delivery of Borrower's mail to an
address designated by Lenders and to receive, open and dispose of all
mail addressed to Borrower.
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(c) Borrower acknowledges and agrees that a breach of any of
the covenants contained in Sections 6, 7 and 9 hereof will cause
irreparable injury to Lenders and that Lenders have no adequate remedy
at law in respect of such breaches and therefore agrees, without
limiting the right of Lenders to seek and obtain specific performance
of other obligations of Borrower contained in this Agreement, that the
covenants of Borrower contained in the Sections referred to in this
Section shall be specifically enforceable against Borrower.
10. Assigned Agreements
If an Event of Default shall have occurred and be continuing,
Borrower hereby irrevocably authorizes and empowers Lenders, without limiting
any other authorizations or empowerments contained in any of the other
Agreements, to assert, either directly or on behalf of Borrower, any claims
Borrower may have, from time to time, against any other party to any of the
agreements to which Borrower is a party or to otherwise exercise any right or
remedy of Borrower under any such agreements (including without limitation, the
right to enforce directly against any party to any such agreement, all of
Borrower's rights thereunder, to make all demands and give all notices and to
make all requests required or permitted to be made by Borrower thereunder).
11. Limitation on Duty of Lenders with Respect to Collateral
Beyond the safe custody thereof, Lenders shall have no duty
with respect to any Collateral in its possession or control (or in the
possession or control of any agent or bailee) or with respect to any income
thereon or the preservation of rights against prior parties or any other rights
pertaining thereto. Lenders shall be deemed to have exercised reasonable care in
the custody and preservation of the Collateral in its possession if the
Collateral is accorded treatment substantially equal to that which it accords
its own property. Lenders shall not be liable or responsible for any loss or
damage to any of the Collateral, or for any diminution in the value thereof, by
reason of the act or omission of any warehouseman, carrier, forwarding agency,
consignee or other agent or bailee selected by Lenders in good faith.
12. Application of Proceeds
Upon the occurrence and during the continuance of an Event of
Default, the proceeds of any sale of, or other realization upon, all or any part
of the Collateral and any cash held in the Depository Accounts shall be applied:
first, to all fees, costs and expenses incurred by Lenders with respect to the
Note Purchase Agreement, the other Agreements, or the Collateral including,
without limitation, those described in Section 13 hereof; second, to accrued and
unpaid interest on the Secured Obligations (including any interest which but for
the provisions of the Bankruptcy Code, would have accrued on such amounts);
third, to the principal amounts of the Secured Obligations outstanding; and
fourth, to any other indebtedness or obligations of Borrower owing to Lenders.
Any balance remaining shall be delivered to Borrower or to whomsoever may be
lawfully entitled to receive such balance or as a court of competent
jurisdiction may direct.
13. Expenses
Borrower shall pay all costs, fees and expenses of protecting,
storing, warehousing, appraising, insuring, handling, maintaining and shipping
the Collateral, all costs, fees and expenses of perfecting, maintaining and
enforcing the Security Interests, and any and all excise, property, sales and
use taxes imposed by any state, federal or local authority on any of the
Collateral, or with respect to periodic appraisals and inspections of the
Collateral as may be required under the terms of the Note Purchase Agreement, or
with respect to the sale or other disposition thereof.
14. Termination of Security Interests; Release of Collateral
Upon payment in full of all Secured Obligations and the
termination of all commitments under the Agreement, including any notice of
default or notice of sale, the Security Interests granted herein shall terminate
and all rights to the Collateral shall revert to Borrower. Upon such termination
of the Security Interests or release of any Collateral, Lenders will, at the
expense of Borrower, execute and deliver to Borrower such documents as Borrower
shall
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reasonably request to evidence the termination of the Security Interests or the
release of such Collateral, as the case may be.
15. Notices
Any notice, approval, request, demand, consent or other
communication hereunder, including any notice of default or notice of sale,
shall be given in accordance with the notice provision of the Note Purchase
Agreement.
16. Successors and Assigns
This Agreement is for the benefit of the Lenders and their
respective successors and assigns, and in the event of an assignment of all or
any of the Secured Obligations, the rights hereunder, to the extent applicable
to the Secured Obligations so assigned, may be transferred with such Secured
Obligations. This Agreement shall be binding on Borrower and its successors and
assigns; provided that Borrower may delegate its obligations under this
Agreement without Lenders' prior written consent.
17. Amendments, Waivers and Consents
No consent, amendment, modification, termination or waiver of
any provision of this Agreement shall be effective unless the same shall be in
writing signed by a majority in interest of Lenders and Borrower.
Borrower hereby waives any right to exoneration of sureties
which would otherwise be applicable and waives the benefit of any statute of
limitations to the extent permitted by law.
Borrower agrees that each waiver set forth in this Agreement
is made with full knowledge of its significance and consequences and is, under
the circumstances, reasonable and not contrary to public policy or law. If a
court of competent jurisdiction shall determine that any such waiver is in any
respect contrary to public policy or applicable law, such waiver shall
nevertheless remain effective to the extent not so contrary.
18. Applicable Law
THIS AGREEMENT IS GOVERNED BY AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA,
WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
19. Headings
The headings in this Agreement are included for convenience of
reference only and shall not constitute a part of this Agreement for any other
purpose or be given any substantive effect.
20. Survival
All representations and warranties of Borrower shall survive
the execution and delivery of this Agreement.
Witness the due execution hereof by the respective duly
authorized officers of the undersigned as of the date first written above.
VALUESTAR, INC.
By:/s/ XXXXX XXXXX
Name: Xxxxx Xxxxx
Its: President and Chief Executive Officer
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SEACOAST CAPITAL PARTNERS LIMITED PARTNERSHIP
By: Seacoast Capital Corporation,
its general partner
By:/s/ XXXXXXX X. XXXXXXX
Name: Xxxxxxx X. Xxxxxxx
Title: Vice President
PACIFIC MEZZANINE fund, a limited
liability company
By: Pacific Private Capital
its general partner
By: /s/ XXXXX XXXXXXXX
Name: Xxxxx Xxxxxxxx
Title: General Partner
TANGENT GROWTH FUND, L.P.
By: Tangent Fund Management LLC
its general partner
By: /s/ XXXX X. XXXXXX
Name: Xxxx X. Xxxxxx
Title: Vice President
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