Israel Discount Bank of New York v. Simis, Inc. et al

Filing 44

ORDER GRANTING PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION AND DENYING MOTION FOR APPOINTMENT OF RECEIVER WITHOUT PREJUDICE AS MODIFIED BY THE COURT re 39 Proposed Order filed by Israel Discount Bank of New York. Signed by Judge Phyllis J. Hamilton on 12/13/10. (nah, COURT STAFF) (Filed on 12/13/2010)

Doc. 44

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Attorneys for Plaintiff Israel Discount Bank of New York, a New York corporation

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA-OAKLAND DIVISION
ISRAEL DISCOUNT BANK OF NEW YORK, a New York corporation, Plaintiff,
V.

CASE NO. CV1O 5047 PJH

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Israel Discount Bank of New York v. Simis, Inc. et al

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BUCHALTER NEMER
A PROFESSONfl= CORPORATION

SIMIS, INC., a California corporation; SIMLV, INC., a Nevada corporation; WORLD OF CHARMS, INC., formerly known as WOC, INC., a Nevada corporation; SIMSF, INC., a California corporation; SIMUS, INC., a California corporation; SIMBP, INC., a California corporation; ADI SIMAYOF, an individual; SARIT SIMHAYOFF COHEN, an individual,
Defendants.
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SAN FRANCISCO

FPROPOSED1 ORDER GRANTING PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION AND DENYING MOTION FOR APPOINTMENT OF RECEIVER WITHOUT PREJUDICE

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ORDER GRANTING MOTION FOR PRELIMINARY INJUNCTION

AS MODIFIED BY THE COURT

BUCHALTER NEMER A Professional Corporation MICHAEL L. WACHTELL (SBN: 47218) BENJAMIN SEIGEL (SBN: 59992) SCOTT 0. SMITH (SBN: 62839) 1000 Wilshire Boulevard, Suite 1500 Los Angeles, CA 90017-2457 Telephone: [phone] Facsimi1e [phone] Email: [e-mail]; [e-mail]; [e-mail]

Dockets.Justia.com

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Equipment, Instruments, Inventory, Investment Property, General Intangibles,
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Letter of Credit Rights, Negotiable Collateral, Supporting Obligations, and

Debtors' Books (as all such terms are defined in the Amended and Restated

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Security Agreement dated August 26, 2010, by and between 1DB and SIMIS

(defined below), a copy of which is attached hereto as Exhibit A and incorporated

herein by this reference), in each case whether now existing or hereafter acquired or

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created, any money or other assets of SIMIS or any Guarantor (defined below) that

now or hereafter come into the possession, custody, or control of 1DB and any

Proceeds or products of any of the foregoing, or any portion thereof, of (a) SIMIS,

Inc., a California Corporation ("SIMIS"), and (b) defendants SIMLV, Inc., a

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Nevada corporation, World of Charms, Inc., formerly known as WOC, Inc., a

Nevada corporation, SIMSF, Inc., a California corporation, SIMUS, Inc., a

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California corporation, and SIMBP Inc., a California corporation (collectively, the "Guarantors").

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PRELIMINARY INJUNCTION

IT IS ORDERED that SIMIS, the Guarantors, and their respective members,
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managers, agents, representatives, employees, or anyone claiming under or through

SIMIS or the Guarantors (collectively, the "Related Parties"), and all persons or
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BUCHALTR NEMER
A FROPESSIONaL. CORPORATION

entities now in possession of any part of the Collateral, are restrained and enjoined

from engaging in or performing, directly or indirectly, any of the following acts

except with the express written consent of 1DB: transferring, conveying, assigning,

pledging, deeding, selling (other than in the ordinary course of business), leasing,
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SAN FR-ANCISCO

encumbering, changing ownership of, vesting title to, or otherwise disposing of, the
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ORDER GRANTiNG MOTION FOR PRELIMINARY INJUNCTION

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necessary expenses for maintenance of the Collateral. No later than 5:00 p.m.,
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Pacific Standard Time, on December 15, 2010, SIMIS shall submit a budget of such

expenses to 1DB, which budget shall be reasonably acceptable to 1DB. No later

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than 5:00 p.m., Pacific Standard Time, on December 10, 2010, SIMIS shall inform

1DB or IDB's attorneys of the account number, amounts deposited into the account,
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and the location where the account is domiciled. SIMIS, the Guarantors and the
S DISTRICT TE C TA

ERED

amilton

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appointed with respect to the Collateral.

O ORD

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Federal Rules of Civil Procedure, Rule 65(c).

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UNIT ED

IT IS FURTHER ORDERED that IDB's motion for appointment of a
receiver be, and hereby is, denied without prejudice.

IT IS SO ORDERED.
DATED:

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THE HONORABLE PHYLLIS J. HAMILTON UNITED STATES DISTRICT COURT JUDGE
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BUCHALTR NEMER
A FROFESSIONA& CORPORATCON

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ORDER GRANTING MOTION FOR PRELIMINARY INJUNCTION

12/13/10

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The Court reserves the right to require that a bond be posted pursuant to
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IT IS S

Judge P

H hyllis J.

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until further order of this Court and/or instruction from 1DB or any receiver

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RT Related Parties shall not remove any fundsUdeposited into the segregated account
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BUCHALTrR NEMER
A FRORESSI000L CORPORATION

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ORDER GRANTING MOTION FOR PRELIMINARY INJUNCTION

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ECITALS

WHEREAS, Debtor and Secured Party are contemporaneously herewith entering into the Loan Agreement (as hereinafter defined); and

WHEREAS, Debtor previously entered into that certain Security Agreement dated

October 6, 2008 in order to grant to Secured Party a first priority security interest in the

Collateral to secure its obligations owing to Secured Party (the "Prior Security Agreement").

WHEREAS, in order to induce Secured Party to enter into the Loan Agreement and waive the Existing Events of Default (as defined therein), and in consideration thereof, Debtor agrees to amend and restate the Prior Security Agreement in its entirety in accordance
with the terms and conditions of this Security Agreement.

AGREEMENT
consideration, the parties hereto agree as follows:

NOW, TFIEREFORE, in consideration of the mutual promises, covenants, conditions,

representations, and warranties hereinafter set forth, and for other good and valuable

1. Definitions. All initially capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Loan Agreement. In addition, as used herein, the following terms shall have the following meanings:

"Account Debtor" means any Person who is or who may become obligated with respect to, or on account of, an Account, Chattel Paper or General Intangible.

"Accounts" means any and all of Debtor's presently existing and hereafter arising accounts (including health-care-insurance receivables, contract rights, and all other forms of

monetary obligations owing to Debtor, and all credit insurance, guaranties, or security therefor), irrespective of whether earned by performance.

"Expenses" has the meaning of "Expenses" under the Loan Agreement and shall also mean: any and all costs or expenses required to be paid by Debtor under this Security

Agreement which are paid or advanced by Secured Party; all costs and expenses of Secured Party, including its attorneys' fees and expenses (including attorneys' fees incurred pursuant to proceedings arising under the Bankruptcy Code), incurred or expended to correct any default or enforce any provision of this Security Agreement, or in gaining possession of, maintaining,

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"

Debtor's Books" means any and all presently existing and hereafter acquired or created books and records of Debtor, including all records (including maintenance and warranty records), ledgers, computer programs, disc or tape files, printouts, runs, and other computer
prepared information indicating, summarizing, or evidencing the Collateral.

"Chattel Paper" means all of Debtor's presently existing and hereafter acquired

or created chattel paper (including tangible chattel paper and intangible chattel paper).

"Code" means the California Uniform Commercial Code, as amended or

supplemented from time to time. Any and all terms used in this Security Agreement which are

defined in the Code shall be construed and defined in accordance with the meaning and

definition ascribed to such terms under the Code, unless otherwise defined herein.

"Collateral" means the following, collectively: any and all of the Accounts,

Chattel Paper, Commercial Tort Claims, Deposit Accounts, Documents, Equipment, Instruments,

Inventory, Investment Property, General Intangibles, Letter of Credit Rights, Negotiable Collateral, Supporting Obligations, Debtors' Books, in each case whether now existing or

hereafter acquired or created, any money or other assets of any Debtor that now or hereafter come into the possession, custody, or control of Secured Party and any Proceeds or products of any of the foregoing, or any portion thereof.

"Collateral Access Agreement" means a landlord waiver, mortgagee waiver,

bailee letter, or acknowledgement agreement of any warehouseman, processor, lessor, consignee,

or other Person in possession of, having a Lien upon, or having rights or interests in the

Equipment or Inventory, in each case, in form and substance satisfactory to Secured Party.

"Commercial Tort Claims" means all of Debtor's presently existing and hereafter acquired commercial tort claims (as such term is defined in the Code).

"Deposit Account" means any demand, time, savings, passbook or similar account now or hereafter maintained by or for the benefit of Debtor with an organization that is engaged designated for a particular purpose.

in the business of banking including a bank, savings bank, savings and loan association, credit union and trust companies, and all funds and amounts therein, whether or not restricted or

"Documents" means any and all documents and documents of title, including

documents of title, bills of lading, dock warrants, dock receipts, warehouse receipts and other documents of Debtor, whether or not negotiable, and includes all other documents which purport

to be issued by a bailee or agent and purport to cover goods in any bailee's or agent's possession which are either identified or are fungible portions of an identified mass, including such documents of title made available to Debtor for the purpose of ultimate sale or exchange of

goods or for the purpose of loading, unloading, storing, shipping, transshipping, manufacturing,

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upplies, computer programs and related data processing software, spare parts, tools, motors, automobiles, trucks, tractors and other motor vehicles, rolling stock, jigs, and other goods (other than Inventory, farm products, and consumer goods), including software embedded in such goods, together with any and all parts, improvements, additions, attachments, replacements,

accessories, and substitutions thereto or therefor, and all other rights of Debtor relating thereto, whether in the possession and control of Debtor, or in the possession and control of a third party for the account of Debtor.
"FEll')" means Federal Employer Identification Number.

"General Intangibles" means any and all of Debtor's presently existing and

hereafter acquired or arising general intangibles and any other intangible personal property of every kind and description, including:

contracts and contract rights, noncompetition covenants, licensing and

distribution agreements, indemnity agreements, guaranties, insurance policies, franchise agreements and lease agreements;

uncertificated certificates of deposit, and interests in any joint ventures, partnerships or limited liability companies;

choses in action and causes of action (whether legal or equitable, whether in contract or tort or otherwise, and however arising);
Governmental Authority;
Intellectual Property Collateral;

licenses, approvals, permits or any other authorizations issued by any

computer software, magnetic media, electronic data processing files,
systems and programs;

rights of stoppage in transit, replevin and reclamation, rebates or credits of every kind and nature to which Debtor may be entitled;

purchase orders, customer lists, subscriber lists and goodwill;

monies due or recoverable from pension funds, refunds and claims for tax or other refunds against any Governmental Authority;
payment intangibles; and

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ebtor or in which Debtor otherwise has any interest, now existing or hereafter acquired or
arising:

all patents and patent applications, domestic or foreign, all licenses relating to any of the foregoing and all income and royalties with respect to any licenses, all rights to sue for past, present or future infringement thereof, all rights arising therefrom and

pertaining thereto and all reissues, divisions, continuations, renewals, extensions and continuations in-part thereof;

all copyrights and applications for copyright, domestic or foreign, together with the underlying works of authorship (including titles), whether or not the underlying works of authorship have been published and whether said copyrights are statutory or arise under the common law, and all other rights and works of authorship, all rights, claims and demands in any

way relating to any such copyrights or works, including royalties and rights to sue for past,

present or future infringement, and all rights of renewal and extension of copyright;

all state (including common law), federal and foreign trademarks, service marks and trade names, and applications for registration of such trademarks, service marks and

trade names, all licenses relating to any of the foregoing and all income and royalties with

respect to any licenses, whether registered or unregistered and wherever registered, all rights to

sue for past, present or future infringement or unconsented use thereof, all rights arising

therefrom and pertaining thereto and all reissues, extensions and renewals thereof;

all trade secrets, confidential information, customer lists, license rights,

advertising materials, operating manuals, methods, processes, know-how, sales literature, sales and operating plans, drawings, specifications, blue prints, descriptions, inventions, name plates and catalogs;

the entire goodwill of or associated with the businesses now or hereafter conducted by Debtor connected with and symbolized by any of the aforementioned properties
and assets; and

Intellectual Property Collateral shall include, without limitation, rights and

interests pursuant to licensing or other contracts in favor of Debtor pertaining to patents,

trademarks, copyrights and other intellectual property presently or in the future owned or used by third Persons.

"Inventory" means any and all of Debtor's presently existing and hereafter acquired goods (including software embedded in such goods) of every kind and description

(including goods in transit) which are held for sale or lease, or to be furnished under a contract of

service or which have been so leased or furnished, or other disposition, wherever located,
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y way of substitution, replacement, return, repossession or otherwise, and all additions and accessions thereto, and any Document representing or relating to any of the foregoing at any
time. hereafter acquired investment property. hereafter acquired letter of credit rights.

"Investment Property" means any and all of Debtor's presently existing and

"Letter of Credit Rights" means any and all of Debtor's presently existing and

"Loan Agreement" means that certain Amended and Restated Loan Agreement,
hereafter supplemented, modified, amended or restated.

dated as of even date herewith, between Debtor and Secured Party, as may be at any time

"Negotiable Collateral" means any and all of Debtor's presently existing and

hereafter acquired or arising letters of credit, letter of credit rights, advises of credit, certificates of deposit, notes, drafts, money, Instruments, Documents and tangible Chattel Paper.

"Proceed?' means whatever is receivable or received from or upon the sale, lease, license, collection, use, exchange or other disposition, whether voluntary or involuntary, of any Collateral, including "proceeds" as defined in the Code, any and all proceeds of any insurance, indemnity, warranty or guaranty payable to or for the account of Debtor from time to time with respect to any of the Collateral, any and all payments (in any form whatsoever) made or due and

payable to Debtor from time to time in connection with any requisition, confiscation,

condemnation, seizure or forfeiture of all or any part of the Collateral by any Governmental Authority (or any Person acting under color of Governmental Authority), any and all other

amounts from time to time paid or payable under or in connection with any of the Collateral or for or on account of any damage or injury to or conversion of any Collateral by any Person, any and all other tangible or intangible property received upon the sale or disposition of Collateral, and all proceeds of proceeds.

"Rights to Payment" means all Accounts and any and all rights and claims to the payment or receipt of money or other forms of consideration of any kind in, to and under all

electronic Chattel Paper, General Intangibles, Letter of Credit Rights, Negotiable Collateral and Proceeds thereof.

"Secured Obligations" shall have the meaning of "Obligations" under the Loan Agreement and shall also mean any and all debts, liabilities, obligations, or undertakings owing by Debtor to Secured Party arising under, advanced pursuant to, or evidenced by this Security Agreement, whether direct or indirect, absolute or contingent, matured or unmatured, due or to become due, voluntary or involuntary, whether now existing or hereafter arising, and including

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onstruction. Unless the context of this Security Agreement clearly requires otherwise, references to the plural include the singular, references to the singular include the plural, the part includes the whole, "including" is not limiting, and "or" has the inclusive meaning represented by the phrase "and/or." References in this Security Agreement to "determination" by Secured Party include reasonable estimates (absent manifest error) by Secured Party, as applicable (in the case of quantitative determinations) and reasonable beliefs (absent manifest error) by Secured Party, as applicable (in the case of qualitative determinations). The words "hereof," "herein," "hereby," "hereunder," and similar terms in this Security Agreement refer to this Security Agreement as a whole and not to any particular provision of this Security Agreement. Article, section, subsection, exhibit, and schedule

references are to this Security Agreement unless otherwise specified.

Creation of Security Interest. Debtor hereby grants to Secured Party a continuing security interest in all presently existing and hereafter acquired or arising Collateral in order to
Collateral without further act on the part of Secured Party or Debtor.

secure the prompt payment and performance of all of the Secured Obligations. Debtor acknowledges and affirms that such security interest in the Collateral has attached to all
Further Assurances.
4.1

Debtor shall execute and deliver to Secured Party concurrently with

Debtor's execution of this Security Agreement, and from time to time at the request of Secured Party, and Debtor hereby authorizes Secured Party to file, all financing statements, continuation financing statements, fixture filings, security agreements, chattel mortgages, assignments, and all other documents that Secured Party may reasonably require, in form satisfactory to Secured Party, to perfect and maintain perfected Secured Party's security interests in the Collateral, and in order to consummate fully all of the transactions contemplated by this Security Agreement and the Loan Agreement. Debtor hereby irrevocably makes, constitutes, and appoints Secured Party (and Secured Party's officers, employees, or agents) as Debtor's true and lawful attorney with power to sign the name of Debtor on any of the above-described documents or on any other similar documents which need to be executed, recorded, or filed, and to do any and all things necessary in the name and on behalf of Debtor in order to perfect, or continue the perfection of, Secured Party's security interests in the Collateral. Debtor agrees that neither Secured Party, nor any of its designees or attorneys-in-fact, will be liable for any act of commission or omission, or for any error of judgment or mistake of fact or law with respect to the exercise of the power of

attorney granted under this Section 4.1, other than as a result of its or their gross negligence or willful misconduct. THE POWER OF ATTORNEY GRANTED UNDER THIS

SECTION 4.1 IS COUPLED WITH AN INTEREST AND SHALL BE IRREVOCABLE UNTIL ALL OF THE SECURED OBLIGATIONS HAVE BEEN INDEFEASIBLY PAID

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nd defend any action or proceeding which may affect Debtor's title to, or the security interest of Secured Party in, any of the Collateral.
4.3

With respect to the Negotiable Collateral (other than drafts received in the

ordinary course of business so long as no Event of Default is continuing), Debtor shall, immediately upon request by Secured Party, endorse (where appropriate) and assign the Negotiable Collateral over to Secured Party, and deliver to Secured Party actual physical possession of the Negotiable Collateral to Secured Party together with any instruments of

transfer or assignment, all in form and substance satisfactory to Secured Party, in order to fully perfect the security interest therein of Secured Party.

4.4 In the event that any Collateral is in the possession of a third party (other than Inventory sold in the ordinary course of business), Debtor shall join with Secured Party in notifying such third party of Secured Party's security interest and obtaining an acknowledgement from such third party that it is holding such Collateral for the benefit of Secured Party.

Debtor shall promptly notify Secured Party of any Commercial Tort 4.5 Claims it may bring against any Person, including the name and address of each defendant, a summary of the facts, an estimate of Debtor's damages, copies of any complaint or demand letter

submitted by Debtor, and such other information as Secured Party may request, and in

connection therewith, at Secured Party's request, Debtor and Secured Party shall enter into an

amendment to this Security Agreement granting a security interest to Secured Party in each such Commercial Tort Claim to secured the Secured Obligations.

5. Representations and Warranties. In order to induce Secured Party to enter into the Loan Agreement and to make the Term Loans to Debtor, in addition to the representations and warranties of Debtor set forth in the Loan Agreement which are incorporated herein by this

reference, Debtor represents and warrants to Secured Party that on the Closing Date and
thereafter:

Legal Name; State of Organization; Location of Chief Executive Office 5.1 and Collateral; FEIN. Debtor's exact legal name, state of incorporation, FEIN and charter or organizational identification number is accurately set forth in Schedule 1. Debtor's chief

executive office is located at the address set forth in Schedule 1, and all other locations where Debtor conducts business or Collateral is kept are set forth in Schedule 1.

5.2 Locations of Debtor's Books. All locations where Debtor's Books are kept, including all equipment necessary for accessing Debtor's Books and the names and addresses of all service bureaus, computer or data processing companies and other Persons

keeping Debtor's Books or collecting Rights to Payment for Debtor, are set forth in Schedule 1.

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Ownership of Collateral. Debtor has rights in and the power to transfer .4 the Collateral, and Debtor's title to the Collateral is free from all Liens and restrictions other than Permitted Liens.

5.5 Enforceability; Priority of Security Interest. (i) This Security Agreement creates a security interest which is enforceable against the Collateral in which Debtor now has rights and will create a security interest which is enforceable against the Collateral in which Debtor hereafter acquires rights at the time Debtor acquires any such rights, and (ii) Secured Party has a perfected security interest (to the fullest extent perfection can be obtained by filing, notification to third parties, possession or control) and a first priority security interest in the Collateral in which Debtor now has rights (subject only to Permitted Liens), and will have a perfected and first priority security interest (to the fullest extent perfection can be obtained by filing, nOtification to third parties, possession or control) in the Collateral in which Debtor

hereafter acquires rights at the time Debtor acquires any such rights (subject only to Permitted Liens), in each case securing the payment and performance of the Secured Obligations.

Other Financing Statements. Other than financing statements in favor of 5.6 Secured Party and financing statements filed in connection with Permitted Liens, no effective financing statement naming Debtor 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.
5.7

Rights to Payment.

the Rights to Payment represent valid, binding and enforceable obligations of the Account Debtors or other Persons obligated thereon, representing undisputed, bona fide transactions completed in accordance with the terms and provisions contained in any documents related thereto, and are and will be genuine, free from Liens, adverse claims, counterclaims, setoffs, defaults, disputes, defenses, retainages, holdbacks and conditions precedent of any kind of character, except to the extent reflected by Debtor's reserves for
uncollectible Rights to Payment;

to Debtor's knowledge, all Account Debtors and other obligors on the Rights to Payment are Solvent and'generally paying their debts as they come due;

all Rights to Payment comply with all applicable laws concerning form, content and manner of preparation and execution, including where applicable any federal and state consumer credit laws;
Payment other than to Secured Party pursuant to this Security Agreement;

Debtor has not assigned any of its rights under the Rights to

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Inventory. No Inventory is stored with any bailee, warehouseman or .8 similarPerson, nor has any Inventory been consigned to Debtor or consigned by Debtor to any Person or is held by Debtor for any Person under any "bill and hold" or other arrangement.
5.9

Intellectual Property.

except as set forth in Schedule 1, Debtor (directly or through any

Subsidiary) does not own, possess or use under any licensing arrangement any patents,
service mark or trade name;

copyrights, trademarks, service marks or trade names, nor is there currently pending before any Governmental Authority any application for registration of any patent, copyright, trademark,

all patents, copyrights, trademarks, service marks and trade names are subsisting and have not been adjudged invalid or unenforceable in whole or in part;

all maintenance fees required to be paid on account of any patents

have been timely paid for maintaining such patents in force, and, to the best of Debtor's

knowledge, each of the patents is valid and enforceable and Debtor has notified Secured Party in writing of all prior art (including public uses and sales) of which it is aware;

to the best of Debtor's knowledge after due inquiry, no infringement or unauthorized use presently is being made of any Intellectual Property Collateral by any Person;

Debtor is the sole and exclusive owner of the Intellectual Property Collateral and the past, present and contemplated future use of such Intellectual Property Collateral by Debtor has not, does not and will not infringe or violate any right, privilege or
license agreement of or with any other Person; and
(1)

Debtor owns, has material rights under, is a party to, or an assignee

of a party to all material licenses, patents, patent applications, copyrights, service marks,

trademarks, trademark applications, trade names and all other intellectual property Collateral necessary to continue to conduct its business as heretofore conducted.
5.10
Equipment.
(a)

none of the Equipment or other Collateral is affixed to real

property, except Collateral with respect to which Debtor has supplied Secured Party with all information and documentation necessary to make all fixture filings required to perfect and protect the priority of Secured Party's security interest in all such Collateral which may be

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hich Debtor maintains its Deposit Accounts, and the account numbers and account names of such Deposit Accounts, are set forth in Schedule 1.

5.12 Investment Properly. All Investment Property is set forth and described in Schedule 1, and all financial institutions or financial intermediaries holding or in possession of such Investment Property are set forth in Schedule 1.

5.13 Commercial Tort Claims. All of Debtor's Commercial Tort Claims that it has brought against any Person, including the name and address of each defendant, a summary of the facts, and an estimate of Debtor's damages, are set forth in Schedule 1.

6. Covenants. In addition to the covenants of Debtor set forth in the Loan Agreement which are incorporated herein by this reference, Debtor agrees that from the Closing

Date and thereafter until the payment, performance and satisfaction in full, in cash, of the

Secured Obligations, and all of Secured Party's obligations under the Loan Agreement to Debtor have been terminated:

6.1 Defense of Collateral. Debtor shall appear in and defend any action, suit or proceeding which may affect its title to or right or interest in, or Secured Party's right or

interest in, the Collateral.

6.2 Preservation of Collateral. Debtor shall do and perform all commercially reasonable acts that may be necessary and appropriate to maintain, preserve and protect the

Collateral.

6.3 Compliance with Laws, Etc. Debtor shall comply with all laws, regulations and ordinances, and all policies of insurance, relating to the possession, operation, maintenance and control of the Collateral.

6.4 Location of Debtor's Books and Chief Executive Office. Debtor shall: (i) keep all Debtor's Books at the locations set forth in Schedule 1; and (ii) maintain the location of Debtor's chief executive office or principal place of business at the location set forth in Schedule 1; provided, however, that Debtor may amend Schedule 1 so long as (i) such amendment occurs by written notice to Secured Party not less than 30 days prior to the date on which the location of Debtor's Books or Debtor's chief executive office or principal place of business is changed, and (ii) at the time of such written notification, Debtor executes and delivers any financing statement amendments or fixture filing amendments necessary to perfect or continue perfected Secured

Party's security interests in the Collateral and also obtains for Secured Party such duly executed Collateral Access Agreement as Secured Party shall require with respect to such new location.

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erfect and continue perfected Secured Party's security interests in such Assets and also obtains
require with respect to such new location.
6.6

for Secured Party such duly executed Collateral Access Agreement as Secured Party shall

Change in Name, Trade Name, Trade Style or FEIN. Debtor shall not

change its legal name, trade names, trade styles or FEIN, or add any new trade names or trade styles from those listed on Schedule 1; provided, however, that Debtor may amend Schedule 1 so long as (i) such amendment occurs by written notice to Secured Party not less than 30 days prior to the date on which such new name, trade name, trade style or FEIN becomes effective, and (ii)
security interests in the Collateral.

at the time of such written notification, Debtor executes and delivers any financing statement amendments or fixture filing amendments necessary to continue perfected Secured Party's

6.7 State of Incorporation or Formation. Debtor shall not change the state of its incorporation or formation. 6.8

Maintenance of Records.

Debtor shall keep separate, accurate and

complete Debtor's Books, disclosing Secured Party's security interest hereunder.

6.9 Disposition of Collateral. Debtor shall not surrender or lose possession of (other than to Secured Party), sell, lease, rent, license, or otherwise dispose of or transfer any of the Collateral or any right or interest therein, other than a Permitted Asset Disposition.

6.10
Liens.
6.11

Liens. Debtor shall keep the Collateral free of all Liens except Permitted

Leased Premises. At Secured Party's request, Debtor shall endeavor to

obtain from each Person from whom Debtor leases any premises at which any Collateral is at any time present, such Collateral Access Agreements as Secured Party may require.
6.12

Rights to Payment. Debtor shall:

perform and observe all terms and provisions of the Rights to Payment and all obligations to be performed or observed by it in connection therewith and
maintain the Rights to Payment in full force and effect;

enforce all Rights to Payment strictly in accordance with their

terms, and take all such action to such end as may be from time to time reasonably requested by Secured Party;

if, to the knowledge of Debtor, any dispute, setoff, claim, counterclaim or defense shall exist or shall be asserted or threatened with respect to a Right to

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uch demands and requests for information and reports as Debtor is entitled to make in respect of the Rights to Payment; and

upon the occurrence of any Event of Default, establish such

Iockbox or similar arrangements for the payment of the Rights to Payment as Secured Party shall require.
6.13

Inventory. Debtor shall:

at such times as Secured Party shall request, prepare and deliver to Secured Party periodic reports pertaining to the Inventory to Secured Party as set forth in Section 6 of the Loan Agreement;

not store any Inventory with a bailee, warehouseman or similar Person or on premises leased to Debtor without obtaining for Secured Party such Collateral
Access Agreements as Secured Party shall require; and

not dispose of any Inventory on a bill-and-hold, guaranteed sale, sale and return, sale on approval, consignment or similar basis, nor acquire any Inventory from any Person on any such basis, without in each case giving Secured Party prior written notice
thereof.

6.14 Equipment. Debtor shall, upon Secured Party's request, deliver to Secured Party a report of each item of Equipment, in form and substance satisfactory to Secured Party.

6.15

Intellectual Property Collateral. Debtor shall:

not enter into any agreement (including any license or royalty

agreement) pertaining to any Intellectual Property Collateral without in each case giving Secured Party prior notice thereof;

not allow or suffer any Intellectual Property Collateral to become abandoned, nor any registration thereof to be terminated, forfeited, expired or dedicated to the public;

promptly give Secured Party notice of any rights Debtor may

obtain to any new patentable inventions, trademarks, servicemarks, copyrightable works or other new Intellectual Property Collateral, prior to the filing of any application for registration thereof; and

diligently prosecute all applications for patents, copyrights and

trademarks, and file and prosecute any and all continuations, continuations-in-part, applications

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ollowing an Event of Default (i) to notify the Account Debtors to make payments directly to Secured Party or a lockbox account as set forth in clause (iii) of this Section 7, (ii) to enforce Debtor's rights against the Account Debtors, and (iii) to require that all payments made by Account Debtors be deposited directly into a lockbox account as Secured Party may specify, pursuant to a lockbox agreement in form and substance satisfactory to Secured Party, with a
lockbox servicing Secured Party acceptable to Secured Party.

Events of Default. The occurrence of any Event of Default under the Loan Agreement shall constitute an event of default ("Event of Default") hereunder.
Rights and Remedies.

During the continuance of an Event of Default, Secured Party, without 9.1 notice or demand, may do any one or more of the following, all of which are authorized by
Debtor:

Settle or adjust disputes and claims directly with Account Debtors for amounts and upon terms which Secured Party considers advisable, and in such cases, Secured Party will credit the Secured Obligations with only the net amounts received by Secured Party in
connection therewith;

payment of such disputed Accounts after deducting all Expenses incurred or expended in

Cause Debtor to hold all returned Inventory in trust for Secured

Party, segregate all returned Inventory from all other property of Debtor or in Debtor's

possession and conspicuously label said returned Inventory as the property of Secured Party;

Without notice to or demand upon Debtor or any guarantor, make such payments and do such acts as Secured Party considers necessary or reasonable to protect its security interests in the Collateral. Debtor agrees to assemble the Collateral if Secured Party so requires, and to make the Collateral available to Secured Party as Secured Party may designate. Debtor authorizes Secured Party to enter the premises where the Collateral is located, to take and

maintain possession of the Collateral, or any part of it, and to pay, purchase, contest, or

compromise any encumbrance, charge, or Lien that in Secured Party's determination appears to conflict with its security interests and to pay all expenses incurred in connection therewith. With respect to any of Debtor's owned or leased premises, Debtor hereby grants Secured Party a license to enter into possession of such premises and to occupy the same, without charge, for up to 120 days in order to exercise any of Secured Party's rights or remedies provided herein, at
law, in equity, or otherwise;

Without notice to Debtor (such notice being expressly waived), and without constituting a retention of any collateral in satisfaction of an obligation), set off and apply to the Secured Obligations any and all (i) balances and Deposit Accounts of Debtor held
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hip, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Collateral. Secured Party is hereby granted a license or other right to use, without charge, Debtor's labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and Debtor's rights

under all licenses and all franchise agreements shall inure to Secured Party's benefit;

Sell the Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Debtor's premises) as Secured Party determines is commercially reasonable. Secured Party shall have no obligation to clean-up or otherwise prepare the Collateral for sale. It is not necessary that the Collateral be present at any such sale;
as follows:

Secured Party shall give notice of the disposition of the Collateral

Secured Party shall give Debtor and each holder of a

security interest in the Collateral who has filed with Secured Party a written request for notice, a notice in writing of the time and place of public sale, or, if the sale is a private sale or some other
which the private sale or other disposition is to be made;

disposition other than a public sale is to be made of the Collateral, then the time on or after

The notice shall be personally delivered or mailed, postage prepaid, to Debtor as provided in Section 10.1 of the Loan Agreement, at least ten (10) days before the date fixed for the sale, or at least ten (10) days before the date on or after which the private sale or other disposition is to be made; no notice needs to be given prior to the disposition of any portion of the Collateral that is perishable or threatens to decline speedily in value or that is of a type customarily sold on a recognized market. Notice to Persons other than Debtor claiming an interest in the Collateral shall be sent to such addresses as they have furnished to
Secured Party;

If the sale is to be a public sale, Secured Party also shall

give notice of the time and place by publishing a notice one time at least ten (10) days before the date of the sale in a newspaper of general circulation in the county in which the sale is to be held;
(1)

Secured Party may credit bid and purchase at any public sale; and

Any deficiency that exists after disposition of the Collateral as ) provided above will be paid immediately by Debtor. Any excess will be returned, without

interest and subject to the rights of third Persons, by Secured Party to Debtor.

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.3

Secured Party may comply with any applicable state or federal law

requirements in connection with a disposition of the Collateral, and Secured Party's compliance therewith will not be considered to adversely affect the commercial reasonableness of any sale of the Collateral.

9.4 Secured Party may sell the Collateral without giving any warranties as to the Collateral. Secured Party may specifically disclaim any warranties of title or the like. This

procedure will not be considered to adversely affect the commercial reasonableness of any sale of the Collateral.

9.5 If Secured Party sells any of the Collateral upon credit, Debtor will be credited only with payments actually made by the purchaser, received by Secured Party and

applied to the indebtedness of the purchaser. In the event that the purchaser fails to pay for the Collateral, Secured Party my resell the Collateral and Debtor will be credited with the proceeds of such sale.

Secured Party shall be under no obligation to marshal any assets in favor 9.6 of Debtor, or against or in payment of the Secured Obligations or any other obligation owned to Secured Party or any Lender by Debtor or any other Person.

9.7 Upon the exercise by Secured Party of any power, right, privilege, or remedy pursuant to this Security Agreement which requires any consent, approval, registration, qualification, or authorization of any Governmental Authority, Debtor agrees to execute and deliver, or will cause the execution and delivery of, all applications, certificates, instruments, assignments, and other documents and papers that Secured Party or any purchaser of the Collateral may be required to obtain for such governmental consent, approval, registration,

qualification, or authorization.

The rights and remedies of Secured Party under this Security Agreement, 9.8 the Loan Agreement, the other Loan Documents, and all other agreements contemplated hereby and thereby shall be cumulative. Secured Party shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by Secured Party of any one right or remedy shall be deemed an election of remedies, and no waiver by
respect to any right or remedy.

Secured Party of any default on Debtor's part shall be deemed a continuing waiver of any further

defaults. No delay by Secured Party shall constitute a waiver, election or acquiescence with

10. Secured Party Not Liable. So long as Secured Party complies with the obligations, if any, imposed by the Code, Secured Party shall not otherwise be liable or responsible in any way or manner for: (a) the safekeeping of the Collateral; (b) any loss or

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ecured Party are no longer subject to any right on the part of any Person, including Debtor,

Debtor as a debtor in possession, or any trustee (whether appointed under the Bankruptcy Code or otherwise) of Debtor or Debtor's Assets to invalidate or set aside such payments or to seek to recoup the amount of such payments or any portion thereof, or to declare same to be fraudulent or preferential. In the event that, for any reason, any portion of such payments to Secured Party is set aside or restored, whether voluntarily or involuntarily, after the making thereof, then the obligation intended to be satisfied thereby shall be revived and continued in full force and effect as if said payment or payments had not been made.

Notices. All notices or demands by any party hereto to the other party and relating to this Security Agreement shall be made in the manner and to the addresses set forth in Section 10.1 of the Loan Agreement.

General Provisions.

13.1 Successors and Assigns. This Security Agreement shall bind and inure to the benefit of the respective successors and assigns of Debtor and Secured Party; provided, however, that Debtor may not assign this Security Agreement nor delegate any of its duties hereunder without Secured Party's prior written consent and any prohibited assignment or delegation shall be absolutely void. No consent by Secured Party to an assignment by Debtor shall release Debtor from the Secured Obligations. Secured Party reserves its right to sell,

assign, transfer, negotiate, or grant participations in all or any part of, or any interest in, the rights

and benefits hereunder pursuant to and in accordance with the provisions of the Loan
Collateral to any such prospective or actual Transferee.

Agreement. In connection therewith, Secured Party may disclose all documents and information which Secured Party now or hereafter may have relating to Debtor, Debtor's business, or the

13.2 Exhibits and Schedules. All of the exhibits and schedules attached hereto shall be deemed incorporated by reference.

13.3 No Presumption Against Any Party. Neither this Security Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against Secured Party or Debtor, whether under any rule of construction or otherwise. On the contrary, this Security

Agreement has been reviewed by each of the parties and their counsel and shall be construed and interpreted according to the ordinary meaning of the words used so as to accomplish fairly the purposes and intentions of all parties hereto.

13.4 Amendments and Waivers. Any provision of this Security Agreement or any of the Loan Documents to which Debtor is a party may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the party asserted to be bound thereby,

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c

onstitutes the entire agreement and understanding among the parties hereto and supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof. This Security Agreement shall become effective when executed by each of the parties hereto and delivered to Secured Party.

13.6 Severability. The provisions of this Security Agreement are severable. The invalidity, in whole or in part, of any provision of this Security Agreement shall not affect the validity or enforceability of any other of its provisions. If one or more provisions hereof shall be declared invalid or unenforceable, the remaining provisions shall remain in full force and effect and shall be construed in the broadest possible manner to effectuate the purposes

hereof.
13.7

CHOICE OF IA WAND VENUE; JURY TRIAL WAIVER.

THE VALIDITY OF THIS SECURITY AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCH OTHER LOAN DOCUMENT), TIlE CONSTRUCTION, INTERPRETATION, AN!) ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE PARTIES

HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING

HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE REGARD FOR PRINCIPLES OF CONFLICTS OF LAWS.

WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT

THE PARTIES AGREE THAT ALL ACTIONS OR

PROCEEDINGS ARISING IN CONNECTION WITH THIS SECURITY AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF SAN FRANCISCO, STATE OF CALIFORNIA, PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT SECURED PARTY'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SECURED PARTY ELECTS TO BRING SUCH'ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. DEBTOR

AND SECURED PARTY WAIVE, TO THE EXTENT PERMITTED UNDER

APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 13.7.

DEBTOR AND SECURED PARTY HEREBY WAIVE

THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF

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WAIVES ITS FOLLOWING OLUNTARILY TRIAL RIGHTS JURY CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A

COPY OF THIS SECURITY AGREEMENT MAY BE FILED AS A WRITTEN
CONSENT TO A TRIAL BY THE COURT.
13.8

Reference Provision.

The parties prefer that any dispute between them be resolved in litigation

subject to a jury trial waiver as set forth in Section 13.7(c) ("Jury Trial Waiver"), but the

availability of that process is in doubt because of the opinion of the California Court of Appeal in Grafton Partners LP v. Superior Court, 9 Cal.Rptr.3d 511. This Section 13.8 will be applicable until the California Supreme Court completes its review of that case, and will continue to be applicable if either that court or a California Court of Appeal publishes a decision holding that a pre-dispute Jury Trial Waiver provision similar to that contained in Section 13.7(c) is invalid or

unenforceable. Delay in requesting appointment of a referee pending review of any such decision, or participation in litigation pending review, will not be deemed a waiver of this Section 13.8.

Other than (i) nonjudicial foreclosure of security interests in real or personal property, (ii) the appointment of a receiver or (iii) the exercise of other provisional remedies (any of which may be initiated pursuant to applicable law), any controversy, dispute or claim (each, a "Claim") between the parties arising out of or relating to this Security Agreement, will be resolved by a reference proceeding in California in accordance with the provisions of Section 638 et seq. of the California Code of Civil Procedure ("CCP"), or their successor sections, which shall constitute the exclusive remedy for the resolution of any Claim, including whether the Claim is subject to the reference proceeding. Except as otherwise provided herein or in the Loan Documents, venue for the reference proceeding will be in the Superior Court or

Federal District Court in the County or District where the real property, if any, is located or in a County or District where venue is otherwise appropriate under applicable law (the "Court").

The referee shall be a retired Judge or Justice selected by mutual written agreement of the parties. If the parties do not agree, the referee shall be selected by the Presiding

Judge of the Court (or his or her representative). A request for appointment of a referee may be heard on an ex parte or expedited basis, and the parties agree that irreparable harm would result if ex parte relief is not granted. The referee shall be appointed to sit with all the powers provided by law. Each party shall have one peremptory challenge pursuant to CCP § 170.6. Pending

appointment of the referee, the Court has power to issue temporary or provisional remedies.

The parties agree that time is of the essence in conducting the reference proceedings. Accordingly, the referee shall be requested to (i) set the matter for a status and trial- setting conference within fifteen (15) days after the date of selection of the referee, (ii) if

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iscovery.

The referee may set or extend discovery deadlines or cutoffs for good cause,

including a party's failure to provide requested discovery for any reason whatsoever. Unless otherwise ordered, no party shall be entitled to "priority" in conducting discovery, depositions may be taken by either party upon seven (7) days written notice, and all other discovery shall be responded to within fifteen (15) days after service. All disputes relating to discovery which cannot be resolved by the parties shall be submitted to the referee whose decision shall be final
and binding.

Except as expressly set forth in this Security Agreement, the referee shall determine the manner in which the reference proceeding is conducted including the time and place of hearings, the order of presentation of evidence, and all other questions that arise with respect to the course of the reference proceeding. All proceedings and hearings conducted before the referee, except for trial, shall be conducted without a court reporter, except that when any party so requests, a court reporter will be used at any hearing conducted before the referee,

and the referee will be provided a courtesy copy of the transcript. The party making such a request shall have the obligation to arrange for and pay the court reporter. Subject to the

referee's power to award costs to the prevailing party, the parties will equally share the cost of the referee and the court reporter at trial.

The referee shall be required to determine all issues in accordance with existing case law and the statutory laws of the State of California. The rules of evidence applicable to proceedings at law in the State of California will be applicable to the reference

proceeding. The referee shall be empowered to enter equitable as well as legal relief, provide all temporary or provisional remedies, enter equitable orders that will be binding on the parties and rule on any motion which would be authorized in a trial, including without limitation motions for summary judgment or summary adjudication. The referee shall issue a decision at the close of the reference proceeding which disposes of all claims of the parties that are the subject of the reference. The referee's decision shall be entered by the Court as a judgment or an order in the same manner as if the action had been tried by the Court. The parties reserve the right to appeal from the final judgment or order or from any appealable decision or order entered by the referee.

The parties reserve the right to findings of fact, conclusions of laws, a written statement of decision, and the right to move for a new trial or a different judgment, which new trial, if
granted, is also to be a reference proceeding under this provision.

If the enabling legislation which provides for appointment of a referee is

repealed (and no successor statute is enacted), any dispute between the parties that would

otherwise be determined by reference procedure will be resolved and determined by arbitration. The arbitration will be conducted by a retired judge or Justice, in accordance with the California

Arbitration Act § 1280 through § 1294.2 of the CCP as amended from time to time. The limitations with respect to discovery set forth above shall apply to any such arbitration
proceeding.

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HEIR MUTUAL BENEFIT AGREES THAT THIS REFERENCE PROVISION WILL

APPLY TO ANY DISPUTE BETWEEN THEM WHICH ARISES OUT OF OR IS RELATED TO THIS SECURITY AGREEMENT.

13.9 Mediation. If a dispute shall arise between the parties regarding the interpretation or enforcement of this Security Agreement, each agrees to first mediate the dispute with the assistance of a trained and experienced mediator to be selected by mutual agreement of the parties. If the parties cannot agree on a mediator, either party may apply to Judicate West in San Francisco, California for the appointment of a mediator. The parties shall engage in at least eight (8) hours of good faith mediation pursuant to the then applicable rules of Judicate West. In the event that the dispute cannot be resolved by mediation, either party shall be free to initiate whatever litigation such party deems appropriate in the Superior Court of California for the of

County of San Francisco or the United States District Court for the Northern District of

California located in San Francisco, California. The fees and costs of the mediator shall be borne equally by the parties unless they agree otherwise as part of the mediation process.

13.10 No Novation. Debtor and Secured Party each hereby agree that effective upon the execution and delivery of this Security Agreement by Debtor, this Security Agreement shall amend, restate and supersede in its entirety the Prior Security Agreement. Nothing herein

contained shall be construed as a substitution or novation of the obligations of Debtor

outstanding under the Prior Security Agreement or instruments securing the same, which obligations shall remain in full force and effect, except to the extent that the terms thereof are modified hereby or by instruments executed concurrently herewith. Nothing expressed or implied in this Security Agreement shall be construed as a release or other discharge of Debtor from any of its obligations or liabilities under the Prior Security Agreement or any of the other loan documents executed in connection therewith. Debtor hereby (i) confirms and agrees that each Loan Document to which it is a party is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects except that on and after the date hereof all references in any such Loan Document to "the Security Agreement", "thereto", "thereof', "thereunder" or words of like import referring to the Prior Security Agreement shall mean the Prior Security Agreement as amended and restated by this Security Agreement; and (ii) confirms and agrees that to the extent that the Prior Security Agreement or any loan document executed in connection therewith purports to assign or pledge to Secured Party, a security interest in or lien on, any collateral as security for the Obligations of Debtor from time to time existing in respect of the Prior Security Agreement, such pledge, assignment or grant of the security interest or lien is hereby ratified and confirmed in all respects and shall remain effective as of the first date it
became effective. [remainder of this page intentionally left blank]

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By: Name: Sarit Simh Title: President

1 .Cohen

ecured Party:

ISRAEL DISCOUNT BANK OF NEW YORK

By: Name: Jerry Hertzman Title: Senior Vice President I

By Name: Kevin Coleman Vice President
Title:

Amended and Restated Security Agreement (Borrower)

B

y:

Name: Sarit Simhayoff Cohen President
Title:

Secured Party:

ISPAEL DISCOUNT BANK OF NEW YORK

By:/'
By:

Name: eHeii /' ' r r -r°
Title: Senior Vice President 1 Title:

Name: Kevin Coleman Vice President

)

Amended and Restated Security Agreement (Borrower)

Section 5.1 Location of Chief Executive Office and Collateral- 1409 Sutter Street, San Francisco, CA 94109

Section 5.2

Locations of Debtor's Books- See 5.1 Trade Names or Trade Styles- None Intellectual Property- None

Section 5.3 Section 5.9

Section 5.10
Section 5.11
Deposit. Accounts

Equipment Leases- None

Descriptio

Name of Institutions
East West Bank

Account Number
8617000008 8617000032 8617000040

n

Branch Address 711 Van Ness Avenue San Francisco, CA 94102

of Account Clearing

vendor expenses

Section 5.12
Section 5.13

Investment Property- None Commercial Tort Claims- None

Schedule 1
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