ex10-2
SECURITY AGREEMENT
THIS
SECURITY AGREEMENT (as amended, restated, supplemented, extended or
otherwise modified from time to time, this "Agreement") dated as
of April 8, 2020, is jointly and severally entered into by
Charlie's Holdings, Inc., a Nevada corporation ("Holdings"),
Charlie's Chalk Dust, LLC, a Delaware limited liability company
("Chalk
Dust"), and Don Polly LLC, a Nevada limited liability
company ("Don
Polly" and together with Holdings and Chalk Dust,
individually and collectively, the "Debtor"), as debtor
in favor of Red Beard Holdings, LLC, a Delaware limited liability
Company ("Red
Beard" and together with its successors and assigns,
"Secured
Party").
WHEREAS,
concurrently herewith, Debtor is issuing that certain Secured
Promissory Note of even date herewith in favor of Secured Party (as
amended, restated, supplemented, extended or otherwise modified
from time to time, the "Red Beard
Note").
WHEREAS, as a
condition to the obligation of Secured Party to enter into the Red
Beard Note and to loan and advance funds thereunder pursuant to the
Red Beard Note, Secured Party has required Debtor to enter into
this Agreement, and Debtor to grant the security interests
described herein in the Collateral in favor of Secured
Party.
NOW
THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good, valuable, and binding
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. Definitions.
(a)
Capitalized terms
used herein and not otherwise defined herein shall have the
meanings provided in the Red Beard Note. This Agreement is the
"Security Agreement" referred to in the Red Beard Note. This
Agreement is one of the "Transaction Documents" referred to in the
Red Beard Note. To the extent that any terms or concepts defined or
used herein are defined or used in the UCC (as defined below), such
terms or concepts shall be interpreted for purposes hereof in a
manner that is consistent with such definition or use in the
UCC.
(b) The following terms
shall have the meanings set forth below:
"Collateral"
shall mean all right, title, and interest of the Debtor in and to
all of the following property of the Debtor, whether now owned or
hereafter acquired and whether now existing or hereafter coming
into existence:
(i) Accounts;
(ii) Chattel
Paper and rights to receive monies included thereby;
(iii) Commercial
Tort Claims;
(iv) Deposit
Accounts;
(v) Documents;
(vi) Equity
Collateral;
(vii) General
Intangibles;
(viii) Goods,
including Inventory and Equipment;
(ix) Instruments
and rights to receive monies included thereby;
(x) Intellectual
Property;
(xi) Investment
Property, including Commodity Accounts and Commodity
Contracts;
(xii) Letter-of-Credit
Rights;
(xiii) Notes;
(xiv) other
tangible and intangible personal property and Fixtures of the
Debtor;
(xv) to
the extent related to any property described in the clauses (i)
through (xiv), all books, correspondence, loan files, records,
invoices, and other papers, including without limitation all tapes,
cards, computer runs, and other papers and documents in the
possession or under the control of the Debtor or any computer
service company from time to time acting for the Debtor;
and
(xvi) cash
and non-cash Proceeds of any and all of the foregoing.
"Copyright
Collateral" shall
mean all Copyrights, whether now owned or hereafter acquired by the
Debtor.
"Copyrights"
shall mean all copyrights, copyright registrations, and
applications for copyright registrations, including, without
limitation, all renewals and extensions thereof, the right to
recover for all past, present, and future infringements thereof,
and all other rights of any kind whatsoever accruing thereunder or
pertaining thereto.
"Equity
Collateral" shall
mean Pledged Equity and Pledged Equity Proceeds.
"Intellectual
Property" shall mean,
collectively, all Copyright Collateral, all Patent Collateral, and
all Trademark Collateral, together with (a) all inventions,
processes, production methods, proprietary information, know-how,
and trade secrets; (b) all licenses or user or other
agreements granted to the Debtor with respect to any of the
foregoing, in each case whether now or hereafter owned or used;
(c) all information, customer lists, identification of
suppliers, data, plans, blueprints, specifications, designs,
drawings, recorded knowledge, surveys, engineering reports, test
reports, manuals, materials standards, processing standards,
performance standards, catalogs, computer and automatic machinery
software and programs, splash screens, films, masters, and artwork;
(d) all field repair data, sales data, and other information
relating to sales or service of products now or hereafter
manufactured; (e) all accounting information and all media in
which or on which any information or knowledge or data or records
may be recorded or stored and all computer programs used for the
compilation or printout of such information, knowledge, records, or
data; and (f) all licenses, consents, permits, variances,
certifications, and approvals of governmental agencies now or
hereafter held by the Debtor.
"Lien" shall mean a pledge, assignment, lien,
charge, mortgage, encumbrance, or other security interest obtained
under this Agreement or under any other agreement or instrument
with respect to any present or future assets, property, contract
rights, or revenues in order to secure the payment of indebtedness
of the party referred to in the context in which the term is
used.
"Motor
Vehicles" shall mean
motor vehicles, tractors, trailers, and other like property,
whether or not the title thereto is governed by a certificate of
title or ownership.
"Notes" shall mean all Promissory Notes or
other debt instruments (including, without limitation, bonds and
debentures of any nature whatsoever) from time to time issued to,
or held by, the Debtor.
"Obligations"
shall mean (i) (x) the principal of and any interest on the Red
Beard Note (including, without limitation, any further advances),
and (y) all other obligations and liabilities of the Debtor,
whether now existing or hereafter incurred, under, arising out of,
or in connection with, the Red Beard Note and the due performance
and compliance by the Debtor with all of the terms, conditions, and
agreements contained in the Red Beard Note; (ii) any and all sums
advanced by the Secured Party in order to preserve the
Collateral or preserve its Lien and security interest in the
Collateral; (iii) in the event of any proceeding for the collection
or enforcement of any indebtedness, obligations, or liabilities
referred to in clauses (i) and (ii) above, all costs and expenses
of any exercise by the Secured Party of its rights hereunder,
together with attorneys' fees and court costs; and (iv) to the
extent not otherwise included in clauses (i), (ii), or (iii) above,
the Debtor's obligations set forth in this Agreement, including,
without limitation, the Debtor's obligations set forth in
Section
21.
"Patent
Collateral" shall
mean all Patents, whether now owned or hereafter acquired by the
Debtor.
"Patents" shall mean all patents and patent
applications, including, without limitation, the inventions and
improvements described and claimed therein together with the
reissues, divisions, continuations, renewals, extensions, and
continuations-in-part thereof, all income, royalties, damages, and
payments now or hereafter due and/or payable under and with respect
thereto, including, without limitation, damages and payments for
past or future infringements thereof, the right to sue for past,
present, and future infringements thereof, and all rights
corresponding thereto throughout the world.
"Pledged
Equity" shall mean
(i) the shares of stock of, or partnership and other ownership
interest in, any entity, and any and all equity interests now or
hereafter issued in substitution, exchange or replacement therefor
or with respect thereto, and (ii) all ownership interests of any
class or character of a successor entity formed by or resulting
from a consolidation or merger in which any such issuer is not the
surviving entity; in each case, whether now or hereafter owned by
the Debtor, together with any certificates evidencing any of the
foregoing.
"Pledged Equity
Proceeds" shall mean
all shares, securities, moneys, or property representing a dividend
on any of the Pledged Equity, or representing a distribution or
return of capital upon or in respect of the Pledged Equity, or
resulting from a split-up, revision, reclassification, or other
like change of the Pledged Equity or otherwise received in exchange
therefor, and any subscription warrants, rights, or options issued
to the holders of, or otherwise in respect of, the Pledged
Equity.
"Trademark
Collateral" shall
mean all Trademarks, whether now owned or hereafter acquired by the
Debtor.
"Trademarks"
shall mean all trade names, trademarks and service marks, logos,
domain names, trademark and service mark registrations, and
applications for trademark and service mark registrations,
including, without limitation, all renewals of trademark and
service mark registrations, all rights corresponding thereto
throughout the world, the right to recover for all past, present,
and future infringements thereof, all other rights of any kind
whatsoever accruing thereunder or pertaining thereto, together, in
each case, with the product lines and goodwill of the business
connected with the use of, and symbolized by, each such trade name,
trademark, and service mark.
"UCC" shall mean the Uniform Commercial Code
as in effect in the State of California from time to
time.
. As
security for the due and punctual payment and performance in full
of all Obligations (whether at the stated maturity, by
acceleration, or otherwise and whether now owing or incurred in the
future), the Debtor hereby pledges, assigns, charges, delivers, and
grants to the Secured Party a continuing perfected first
priority security
interest in and a general Lien upon all of the Debtor's right,
title, and interest in and to the Collateral and all additions
thereto and substitutions therefor, whether heretofore, now or
hereafter received by or delivered or transferred to the Secured
Party hereunder.
3. Continuing Security Interest.
This Agreement creates an assignment, pledge, charge, continuing
perfected first priority security interest in, and general
Lien upon, the Collateral and shall (a) remain in full force and
effect until all Obligations have been indefeasibly paid in full in
cash, (b) be binding upon the Debtor and its successors, permitted
transferees, and permitted assigns, and (c) inure, together with
the rights and remedies of the Secured Party hereunder, to the
benefit of the Secured Party and its successors, transferees,
and assigns.
4. Debtor
Remains Liable
.
Anything herein to the contrary notwithstanding, (a) the Debtor
shall remain liable under any agreements which have been (in whole
or in part) pledged or assigned herein 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 the Secured
Party of any of the rights hereunder shall not release the
Debtor from any of its duties or obligations under any such
agreements; and (c) the Secured Party shall not have any
obligation or liability under any such agreements by reason of this
Agreement, nor shall the Secured Party be obligated to perform
any of the obligations or duties of the Debtor thereunder or to
take any action to collect or enforce any claim for payment
assigned hereunder.
5. Delivery
and Perfection
. The
Debtor hereby authorizes the Secured Party to file one or more
financing or continuation statements, and amendments thereto,
relating to all or any part of the Collateral, and agrees to take
all such other actions and to execute and deliver and file or cause
to be filed such other instruments or documents, as the Secured
Party may reasonably require in order to establish and
maintain a perfected, valid, and continuing security interest and
Lien in the Collateral in accordance with this Agreement and the
UCC and other applicable law.
(a) The Debtor shall,
at the request of the Secured Party:
(i) immediately deliver
any and all Documents, Instruments, and Chattel Paper (including,
without limitation, any Certificates of Title) evidencing or
relating to the Collateral to the Secured Party at the time and
place and manner specified in the Secured Party's
request;
(ii) immediately execute
(if applicable) and deliver to the Secured Party (or file or
record in such offices as the Secured Party may deem necessary
or appropriate) any and all financing and continuation statements,
other agreements, instruments, or other documents or amendments
thereto, and perform any acts which may be necessary or desirable
(A) to create, perfect, preserve, or otherwise protect the security
interest and Liens granted herein or (B) to enable the Secured
Party to exercise and enforce its rights
hereunder;
(iii) with respect to any
Certificated Security not otherwise credited to a Securities
Account, the Debtor shall immediately effect transfer thereof to
the Secured Party (A) by physical delivery of such
Certificated Security to the Secured Party endorsed to the
Secured Party or its nominee or in blank or (B) in the case of
a Certificated Security in registered form, by physical delivery of
such Certificated Security to the Secured Party specially
endorsed to the Secured Party or its nominee and thereafter
reregistered in the name of the Secured Party or their
nominee;
(iv) with respect to any
Uncertificated Security not otherwise credited to a Securities
Account, the Debtor shall immediately (A) effect transfer thereof
to the Secured Party by registration thereof on the books and
records of the issuer in the name of the Secured Party or its
nominee or (B) obtain the agreement of the issuer of such
Uncertificated Securities that it will comply with instructions
originated by the Secured Party without further consent by the
registered owner, through a written agreement in form and substance
satisfactory to the Secured Party; and
(v) mark all
Certificates of Title in the manner specified in a written notice
of the Secured Party to the Debtor requesting such marking, to
evidence the fact that such Certificates of Title are subject to
the security interest and Lien of the Secured Party granted
herein.
(b) Upon the request of
the Secured Party, the Debtor agrees immediately to deliver to the
Secured Party, appropriately endorsed to the order of the Secured
Party, any Notes, trade acceptance, Chattel Paper, or other
Instrument in which a security interest must be perfected by
delivery or transfer of such Collateral to a secured party, which
are acquired by the Debtor from time to time.
(c) Notwithstanding
Section 9207 of the UCC, the Secured Party may hold as additional
security any Proceeds, including money and funds, received from the
Collateral, all of which shall constitute Collateral hereunder, and
the Secured Party shall not be required to apply such money or
funds to reduce the Obligations other than as expressly set forth
herein.
6. Proceeds
of Sale
.
Nothing contained in this Agreement shall limit or restrict in any
way the Secured Party's right to receive Proceeds of the Collateral
in any form in accordance with the provisions of this Agreement.
All Proceeds that are received by the Debtor contrary to the
provisions of this Agreement shall be received in trust for the
benefit of the Secured Party, shall be segregated from other
property or funds of the Debtor and shall be forthwith paid over to
the Secured Party as Collateral in the same form as so
received (with any necessary endorsement, document or instrument of
transfer).
7. Records
and Information
. The
Debtor agrees to keep, at its office set forth in Section 11(d), its records
concerning the Collateral. The Debtor agrees to promptly furnish to
the Secured Party such information concerning itself, the
Collateral, and any Account Debtor as the Secured Party may
request at any time and from time to time.
8. Inspection
. The
Debtor agrees upon notice provided by the Secured Party, to permit
the Secured Party, through its officers and agents, to examine and
inspect the Collateral and all records pertaining thereto, and to
make extracts from such records as the Secured Party may
require.
9. Use
of Collateral
.
Except upon the occurrence and during the continuance of any Event
of Default, the Debtor may in the ordinary course of its business
use, consume, exhibit, demonstrate, sell, lease, or otherwise
dispose of its Inventory in carrying on its businesses
substantially in the same manner as now conducted; provided, however, that a sale,
disposition or transfer in the ordinary course of business shall
not include any sale, disposition or transfer in satisfaction,
partial or complete, of a debt owed by the Debtor or any sale,
transfer or disposition to any shareholder or affiliate of the
Debtor; and provided further that any such sale,
disposition or transfer shall be for fair equivalent value and
shall not be unlawful or inconsistent with the terms of this
Agreement or of any policy of insurance covering such
Collateral.
10. No
Disposition
. The
Debtor covenants and agrees that it will not sell, assign,
transfer, exchange, or otherwise dispose of, or grant any option
with respect to, any of the Collateral, except as provided for in
Section 9 hereof,
nor will it create, incur, or permit to exist any Lien on or with
respect to any of the Collateral, any interest therein, or any
Proceeds thereof.
11. Representations
and Warranties
. The
Debtor represents, warrants and covenants to the Secured
Party throughout the term of this Agreement that:
(a) The Debtor is and
will be the sole legal and beneficial owner of all of the
Collateral now owned or hereafter acquired free and clear of any
Lien, security interest, assignment, option, or other charge or
encumbrance;
(b) This Agreement has
been duly and validly authorized by the Debtor and executed and
delivered by the Debtor and constitutes the legal, valid, and
binding obligation of the Debtor, enforceable against the Debtor in
accordance with its terms (subject to applicable bankruptcy,
reorganization, insolvency, moratorium, or similar laws affecting
creditors' rights generally) and, subject to the performance of the
relevant procedures as specified in Section 5 herein with respect
to such Collateral, creates a valid, binding, enforceable, and
first priority perfected security interest in and general first
Lien upon all of the Collateral, and the Debtor is duly authorized
to make all filings and take all other actions necessary or
desirable to perfect and to continue perfected such security
interest;
(c) As of the date
hereof and on the date of delivery or transfer to the Secured
Party of any Collateral under this Agreement, the Debtor has
good and marketable title to the Collateral;
(d) The office where
the Debtor maintains all records relating to the Collateral is
located at:
|
1007
Brioso Drive
Costa
Mesa CA 92627
|
(e) Holdings is a
corporation duly incorporated and validly existing under the laws
of the State of Nevada. Chalk Dust is a limited liability company
duly organized and validly existing under the laws of the State of
Delaware. Don Polly is a limited liability company duly organized
and validly existing under the laws of the State of
Nevada.
(f) The Debtor's exact
legal name as that name appears on the Debtor's Certificate of
Formation or equivalent formation document is exactly as set forth
in the signature page for Debtor below.
(g) All Pledged Equity
in which the Debtor currently has or shall hereafter acquire an
interest is and will be, as applicable, duly authorized, validly
existing, fully paid, and non-assessable (in the case of any equity
interest in a corporation) and duly issued and outstanding (in the
case of any equity interest in any other entity), and none of such
Pledged Equity is or will be subject to any contractual
restriction, or any restriction under the charter, by-laws,
partnership agreement, or other organizational document of the
respective issuer, upon the transfer of such Pledged
Equity;
(h) Except pursuant to
licenses and other user agreements entered into by the Debtor in
the ordinary course of business, the Debtor owns and possesses the
right to use, and has done nothing to authorize or enable any other
Person to use, any Copyright, Patent or Trademark owned or used by
the Debtor on the date hereof, and all registrations therefor are
valid and in full force and effect; and the Debtor owns or
possesses the right to use all such Copyrights, Patents and
Trademarks;
(i) To the Debtor's
knowledge, (i) there is no violation by others of any right of
the Debtor with respect to any Copyright, Patent or Trademark of
Debtor and (ii) the Debtor is not infringing in any respect
upon any Copyright, Patent or Trademark of any other Person; and no
proceedings have been instituted or are pending against the Debtor
or, to the Debtor's knowledge, threatened, and no claim against the
Debtor has been received by the Debtor, and
(j) To the best of
Debtor's knowledge, there are no actions, suits, proceedings or
investigations pending or threatened in writing against Debtor
before any governmental authority which could reasonably be
expected to cause any portion of the Intellectual Property to be
adjudged invalid or unenforceable, in whole or in
part.
12. Covenants.
(a) The Debtor
shall:
(i) Maintain, or cause
to be maintained, all items of the Collateral in good condition and
repair, ordinary wear and tear excepted in the case of Equipment,
and pay, or cause to be paid, the costs of repairs to or
maintenance of that Collateral which is of a type that could be
repaired or maintained;
(ii) Take all steps to
preserve and protect the Collateral, including, with respect to the
Intellectual Property, the filing of any renewal affidavits and
applications;
(iii) Not use any
Collateral in violation of applicable laws or any applicable policy
of insurance;
(iv) Pay or cause to be
paid when due all taxes, assessments, and other charges relating to
the Collateral or this Agreement and reimburse the Secured
Party for all costs of and fees incurred in connection with
any filing of the documents and instruments referred to in
Section
5;
(v) Not change its: (a)
name or the name under which it does business; (b) chief executive
office; (c) type of organization; (d) jurisdiction of
incorporation; or (e) other legal structure without at least 30
day's prior written notice to the Secured Party. Prior to
effectuating any change described in the preceding sentence, the
Debtor shall take or cause to be taken all actions deemed by the
Secured Party to be necessary or desirable to prevent any
financing or continuation statement from becoming seriously
misleading or rendered ineffective, or the security interests
granted herein from becoming unperfected or the relative priority
thereof otherwise impaired, as a result of such removal or
change;
(vi) Perform and observe
all the terms and provisions of any agreement for the sale or lease
of goods, or any agreement for the rendering of services, giving
rise to an Account to be performed or observed by it, maintain any
such agreement in full force and effect, enforce any such agreement
in accordance with its terms, and take all such action to such end
as may be from time to time reasonably requested by the Secured
Party;
(vii) Render any
assistance, as Secured Party may solely determine is necessary, to
Secured Party in any proceeding before the USPTO, the USCO, any
federal or state court, or any similar office or agency in the
United States of America, or any State therein, to maintain any
Patent Collateral, Trademark Collateral or Copyright Collateral and
to protect Secured Party's security interest therein, including,
without limitation, filing of renewals, affidavits of use,
affidavits of incontestability and opposition, interference, and
cancellation proceedings;
(viii) Immediately notify
Secured Party if Debtor learns of any use by any Person of any term
or design likely to cause confusion with any of the Trademark
Collateral, or of any use by any Person of any other process or
product which infringes upon any of the Trademark Collateral in a
manner which is adverse to Debtor's business, and if requested by
Secured Party, Debtor, at its expense, shall join with Secured
Party in such action as Secured Party in Secured Party's discretion
may deem advisable for the protection of Secured Party's interest
in and to the Trademark Collateral;
(ix) Assume all
responsibility and liability arising from the use of the
Intellectual Property, and Debtor hereby indemnifies and holds
Secured Party harmless from and against any claim, suit, loss,
damage or expense (including attorneys' fees) arising out of any
alleged defect in any product manufactured, promoted, or sold by
Debtor in connection with any Intellectual Property or out of the
manufacture, promotion, labeling, sale, or advertisement of any
such product by Debtor;
(x) Immediately notify
Secured Party in writing of any adverse determination in any
proceeding in the USPTO, USCO, or any other foreign or domestic
governmental authority, court or body, Debtor becomes aware of
regarding Debtor's claim of ownership in any of the Trademark
Collateral, Patent Collateral or Copyright Collateral, and in the
event of any infringement of any Trademark, Patent or Copyright
owned by Debtor by a third party which is adverse to Debtor's
business, Debtor shall promptly notify Secured Party of such
infringement and sue for and diligently pursue damages for such
infringement, and if Debtor shall fail to take such action within
one (1) month after such notice is given to Secured Party, Secured
Party may, but shall not be required to, itself take such action in
the name of Debtor, and Debtor hereby appoints Secured Party the
true and lawful attorney of Debtor, for it and in its name, place
and stead, on behalf of Debtor, solely, without limitation on any
other rights of Secured Party under this Agreement, to commence
judicial proceedings in any court or before any other tribunal to
enjoin and recover damages for such infringement, any such damages
due to Debtor, net of costs and attorneys' fees, to be applied to
the Obligations;
(xi) (A) Maintain, with
responsible insurance companies, insurance covering the Collateral
against such insurable losses as is consistent with sound business
practice and, in any event, as is required by the Transaction
Documents and, (B) cause Secured Party to be designated as loss
payee (as customary for secured parties based on the type of
insurance) with respect to all insurance (whether or not required
by the Transaction Documents), (C) obtain the written agreement of
the insurers that such insurance shall not be cancelled, terminated
or materially modified to the detriment of Secured Party without at
least 30 days' prior written notice to Secured Party, and (D)
furnish copies of such insurance policies or certificates to
Secured Party immediately upon request therefor and otherwise
comply with the terms and provisions of the Transaction Documents
with respect to such insurance coverage; and
(xii) with respect to the
Copyright Collateral, at its sole expense, do, make, execute and
deliver all such additional and further acts, things, deeds,
assurances, and instruments, in each case in form and substance
satisfactory to Secured Party, relating to the creation, validity,
or perfection of the security interests provided for in this
Agreement under 35 U.S.C. Section 261, 15 U.S.C. Section 1051 et
seq., 17 U.S.C. Sections 101, 201 et seq., the UCC or other law of
the United States of America, the State of California, other States
or any other domestic or foreign jurisdiction as Secured Party may
from time to time reasonably request, and shall take all such other
action as Secured Party may reasonably require to perfect Secured
Party's security interest in any of the Copyright Collateral and to
completely vest in and assure to Secured Party its rights hereunder
in any of the Copyright Collateral; and
(xiii) within 10 days
after any request by Secured Party, Debtor shall, and shall cause
each depository or intermediary holding any of the Debtor's Deposit
Accounts, Securities Accounts, or other deposit, brokerage,
securities or other similar accounts to, enter into control
agreements in favor of Secured Party, in form and substance
satisfactory to Secured Party in its sole and absolute discretion,
over such accounts.
13. Further Assurances and
Protections.
(a)
The Debtor shall at
its expense do, file, record, make, execute, and deliver all such
acts, notices, instruments, statements, or other documents as the
Secured Party may request to perfect, preserve, or otherwise
protect the security interest and Liens of the Secured
Party in the Collateral or any part thereof or to give effect
to the rights, powers, and remedies of the Secured Party under
this Agreement;
(b) The Debtor will
give prompt written notice to the Secured Party of, and defend
the Collateral against, any suit, action, or proceeding related to
the Collateral or which could adversely affect the security
interests and Liens granted hereunder; and
(c) Debtor authorizes
Secured Party to have this or any other similar agreement recorded
or filed with the USCO, USPTO or other appropriate federal, state
or foreign government office.
14. Events
of Default
. The
occurrence of any of the following events or conditions shall
constitute an event of default (each an "Event of Default")
under this Agreement:
(a) The occurrence and
continuation of an Event of Default as defined in the Red Beard
Note;
(b) any representation
or warranty made in this Agreement or the Red Beard Note or any
written statement pursuant hereto or thereto or any other report,
financial statement or certificate made or delivered to the Secured
Party shall be untrue or incorrect in any respect as of the date
when made or deemed made;
(c) The failure or
refusal by the Debtor to perform, or the breach or violation of,
any of the terms, obligations, covenants, or warranties of this
Agreement or the Red Beard Note.
15. Remedies
upon an Event of Default
. On
and after the occurrence and continuance of an Event of Default,
the Secured Party may, in its discretion:
(a) request that the
Debtor, and upon such request the Debtor shall, assemble the
Collateral at such place or places convenient to the Secured
Party designated in such request;
(b) enforce collection
of any of the Collateral by suit or any other lawful means
available to the Secured Party, or demand, collect, or receive any
money or property at any time payable or receivable on account of
or in exchange for any of the Collateral;
(c) surrender, release,
or exchange or otherwise modify the terms of all or any part of the
Collateral, or compromise or extend or renew for any period any
indebtedness thereunder or evidenced thereby;
(d) assert all other
rights and remedies of a secured party under the UCC (whether or
not in effect in any applicable jurisdiction) and all other
applicable law, including, without limitation, the right to take
possession of, hold, collect, sell, lease, deliver, grant options
to purchase, or otherwise retain, liquidate, or dispose of all or
any portion of the Collateral. The proceeds of any collection,
liquidation, or other disposition of the Collateral shall be
applied by the Secured Party first to the payment of all
expenses (including, without limitation, all fees, taxes,
attorneys' fees and legal expenses) incurred by the Secured
Party in connection with retaking, holding, collecting, or
liquidating the Collateral. The balance of such proceeds, if any,
shall, to the extent permitted by law, be applied to the payment of
the Obligations in the order and manner designated by the Secured
Party in its sole discretion until all Obligations are indefeasibly
paid in full in cash. After all of the Obligations have been
indefeasibly paid in full in cash, the balance of such proceeds, if
any, shall be remitted to the Debtor or as otherwise required by
law. In case of any deficiency, the Debtor shall, whether or not
then due, remain liable therefor. If notice prior to disposition of
the Collateral or any portion thereof is necessary under applicable
law, written notice mailed to the Debtor at its notice address
specified in the Red Beard Note ten (10) days prior to the date of
such disposition shall constitute commercially reasonable notice,
but notice given in any other reasonable manner shall be
sufficient. Without precluding any other methods of sale or other
disposition, the sale or other disposition of the Collateral or any
portion thereof shall have been made in a commercially reasonable
manner if conducted in conformity with commercial practices of
creditors disposing of similar property; but in any event the
Secured Party may sell, lease, deliver, grant options to
purchase or otherwise retain, liquidate or dispose such Collateral
on such terms and to such purchaser(s) (including the Secured
Party) as the Secured Party in its absolute discretion may
choose, and for cash or for credit or for future delivery, without
assuming any credit risk, at public or private sale or other
disposition, without demand of performance, and without any
obligation to advertise or give notice of any kind other than that
necessary under applicable law. The Debtor hereby waives and
releases to the fullest extent permitted by law any right or equity
of redemption with respect to the Collateral, whether before or
after sale or other disposition hereunder, and all rights, if any,
of marshalling the Collateral and any other security for the
Obligations or otherwise. At any such sale or other disposition,
unless prohibited by applicable law, the Secured Party may bid
for and purchase all or any part of the Collateral so sold free
from any such right or equity of redemption. The Secured
Party shall not be liable for failure to collect or realize
upon any or all of the Collateral or for any delay in so doing nor
shall it be under any obligation to take any action whatsoever with
regard thereto.
The
Secured Party shall incur no liability as a result of the sale
of the Collateral, or any part thereof, at any private sale
pursuant to this Agreement. The Debtor hereby waives any claims
against the Secured Party arising by reason of the fact that
the price at which the Collateral may have been sold at such a
private sale was less than the price that might have been obtained
at a public sale or was less than the aggregate amount of the
Obligations, even if the Secured Party accepts the first offer
received and does not offer the Collateral to more than one
offeree.
The
Debtor recognizes that, by reason of certain prohibitions contained
in the Securities Act of 1933, as amended, and applicable state
securities laws, the Secured Party may be compelled, with
respect to any sale of all or any part of the Collateral, to limit
purchasers to those who will agree, among other things, to acquire
the relevant Collateral for their own account, for investment and
not with a view to the distribution or resale thereof. The Debtor
acknowledges that any such private sale may be at prices and on
terms less favorable to the Secured Party than those
obtainable through a public sale without such restrictions, and,
notwithstanding such circumstances, agrees that any such private
sale shall be deemed to have been made in a commercially reasonable
manner and that the Secured Party shall have no obligation to
engage in public sales and no obligation to delay the sale of any
Collateral for the period of time necessary to enable the
registration of the Collateral or related transaction so as to
permit a public offer to be made with respect thereto;
(e) license or
sublicense, whether general, special or otherwise, and whether on
an exclusive or non-exclusive basis, any Intellectual Property
included in the Collateral throughout the world for such term or
terms, on such conditions and in such manner as the Secured
Party shall in its sole discretion determine;
(f) without assuming
any obligation or liability thereunder, at any time and from time
to time, in its sole discretion, enforce (and shall have the
exclusive right to enforce) against any licensee or sublicensee all
rights and remedies of the Debtor in, to and under any of its
Intellectual Property and take or refrain from taking any action
under any thereof, and the Debtor releases the Secured
Party from liability for, and agrees to hold the Secured
Party free and harmless from and against any claims and
expenses arising out of, any lawful action so taken or omitted to
be taken with respect thereto;
(g) make a request upon
the Debtor (which shall not be construed as implying any limitation
on the rights or powers of the Secured Party), and upon such
request the Debtor shall, execute and deliver to the Secured
Party a power of attorney, in form and substance satisfactory
to the Secured Party, for the implementation of any sale, lease,
license or other disposition of Intellectual Property owned by the
Debtor or any such action related thereto. In connection with any
such disposition, the Debtor will supply to the Secured
Party its know-how and expertise relating to the relevant
Intellectual Property, and its customer lists and other records
relating to such Intellectual Property and to the distribution of
said products or services;
(h) to the extent not
already so transferred, transfer all or any part of the Collateral
into the Secured Party's names or the name of their nominee or
nominees; and
(i) give all consents,
waivers, and ratifications in respect of the Collateral and
otherwise act with respect thereto as though it were the outright
owner thereof (the Debtor hereby irrevocably constituting and
appointing the Secured Party the proxy and attorney-in-fact of the
Debtor, with full power of substitution to do so, which power is
coupled with an interest), including, without limitation, the
exercise of all voting, consensual and other powers of ownership
pertaining to the Collateral.
16. Secured Party Appointed
Attorney-in-Fact
.
Without limiting any rights or powers granted to the Secured
Party pursuant to this Agreement, applicable law or otherwise,
the Debtor hereby appoints the Secured Party as its
attorney-in-fact, with full power and authority in the place and
stead of the Debtor and in the name of the Debtor or otherwise,
from time to time in the Secured Party's discretion to take any and
all action and to execute, file and record any and all instruments,
agreements, and documents which the Secured Party may deem
necessary or advisable to accomplish the purposes of this
Agreement, including, without limitation, to execute any assignment
of Intellectual Property to the Secured Party or other
transferee, and to receive, endorse and collect all instruments
made or payable to the Debtor representing any Collateral or
Proceeds in respect of the Collateral or any part thereof and to
give full discharge for the same. The appointment set forth in this
Section 16 is
coupled with an interest and is irrevocable.
17. Secured Party May Perform
. If
the Debtor fails to perform any agreement, covenant, or obligation
contained herein, the Secured Party may itself perform, or
cause performance of such agreement, covenant or obligation and the
expenses and costs of the Secured Party incurred in connection
therewith shall be payable by the Debtor.
18. Security
Interest Absolute
. All
rights of the Secured Party and all Liens hereunder, and all
obligations of the Debtor hereunder, shall be absolute and
unconditional irrespective of:
(a) lack of validity or
enforceability of this Agreement or the Red Beard Note or any other
Transaction Document;
(b) any change in the
time, manner, or place of payment of, or in any other term of any
or all of the Obligations or any amendment or waiver of any
provision of this Agreement or the Red Beard Note or any other
Transaction Document;
(c) any release or
non-perfection of any portion of the Collateral or any exchange,
release, or non-perfection of any other collateral, or any release,
amendment, or waiver of any guaranty for all or any of the
Obligations; or
(d) any other
circumstance which might otherwise constitute a defense available
to, or a discharge of the Debtor in respect of the Obligations or
this Agreement or the Red Beard Note or any other Transaction
Document.
19. Secured Party's Duties
. The
powers conferred to the Secured Party hereunder are solely to
protect the Secured Party's interest in the Collateral and shall
not impose any duty upon it to exercise any such powers except for
the safe custody of any Collateral or any portion thereof in its
possession, and the Secured Party shall exercise that standard
of care with respect to the Collateral in its possession which it
exercises in the administration of its own assets and property;
provided,
however, that the
Secured Party shall not be liable for any action taken or
omitted with respect to the Collateral or this Agreement unless
such liability results solely from the gross negligence or willful
misconduct of the Secured Party as determined by a final
non-appealable judgment by a court of competent jurisdiction. The
Secured Party shall have no duty as to the Collateral or as to
the taking of any necessary steps to preserve rights against other
parties pertaining to the Collateral.
20. Rights
Cumulative
. The
rights, powers, and remedies of the Secured Party under this
Agreement shall be in addition to all rights, powers, and remedies
given to the Secured Party by virtue of any statute or rule of
law or any agreement, all of which rights, powers and remedies
shall be cumulative and may be exercised successively or
concurrently without impairing the Secured Party's security
interest, Lien, and assignment in the Collateral.
21. Indemnity and
Expenses.
(a) The Secured
Party shall not have any liability to any Person and shall be
indemnified and held harmless by the Debtor for any liability
incurred by reason of taking or refraining from taking any action
with respect to the Collateral, except in the case such liability
results solely from the gross negligence or willful misconduct of
the Secured Party as determined by a final non-appealable judgment
by a court of competent jurisdiction. The Debtor agrees to
indemnify the Secured Party from and against any and all
claims, losses, and liabilities arising out of or connected with
this Agreement (including, without limitation, enforcement of this
Agreement), except such claims, losses, or liabilities resulting
solely from the Secured Party's gross negligence or willful
misconduct as determined by a final non-appealable judgment by a
court of competent jurisdiction. This Section 21(a) shall survive any
termination of this Agreement.
(b) The Debtor agrees
to pay all expenses, costs, and disbursements incurred by the
Secured Party (including, without limitation, all attorneys'
fees and other legal expenses incurred by the Secured Party in
connection therewith) in connection with (i) retaking, holding,
collecting, preparing for sale, and selling or otherwise realizing
upon, liquidating, or disposing of the Collateral, (ii) the
enforcement of its rights hereunder upon the occurrence and during
the continuance of an Event of Default, (iii) the performance by
the Secured Party of any agreement, covenant, or obligation of
the Debtor contained herein that the Debtor has failed or refused
to perform, and (iv) the participation or other involvement of the
Secured Party with (x) bankruptcy, insolvency, receivership,
foreclosure, winding up, or liquidation proceedings, or any actual
or attempted sale, or any exchange, enforcement, collection,
compromise, or settlement in respect of any of the Collateral, and
for the care of the Collateral and defending or asserting rights
and claims of the Secured Party in respect thereof, by litigation
or otherwise, including expenses of insurance, (y) judicial or
regulatory proceedings, and (z) workout, restructuring, or other
negotiations or proceedings (whether or not the workout,
restructuring or transaction contemplated thereby is
consummated).
22. Amendment
or Waiver
.
Neither this Agreement nor any terms hereof may be changed, waived,
discharged, or terminated unless such change, waiver, discharge or
termination is in writing signed by the parties
hereto.
23. Notices
.
Except as otherwise expressly provided herein, all notices and
other communications provided for hereunder shall be in writing and
mailed or delivered to the Debtor or the Secured Party at the
respective addresses specified in the Red Beard Note; or at such
other address as shall be designated by any party in a written
notice to the other parties hereto. All such notices and
communications shall, when mailed, be effective three business days
after deposit in the mails and shall, when delivered, be effective
upon delivery of such notice.
24. No
Waiver
. No
failure or delay on the part of the Secured Party in
exercising any right, power or privilege hereunder or under the UCC
or any other applicable law shall operate as a waiver hereof or
thereof; nor shall any single or partial exercise of any right,
power, or privilege hereunder or under the UCC or any other
applicable law preclude any other or further exercise thereof or
the exercise of any other right, power or privilege hereunder or
thereunder. No notice to or demand on the Secured Party in any
case shall entitle the Debtor to any other or further notice or
demand in similar or other circumstances or constitute a waiver of
the rights of the Secured Party to any other or further action
in any circumstances without notice or demand.
25. Severability
of Provisions
. Any
provision of this Agreement that is prohibited or unenforceable in
any jurisdiction shall, as to that jurisdiction, be ineffective to
the extent of that prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the
validity or enforceability of that provision in any other
jurisdiction.
26. Non-Assignment
. The
Debtor shall not have the right to assign its rights or delegate
its obligations hereunder or any part thereof to any other person
without the Secured Party's prior written consent. This Agreement
shall be binding upon any successors or assigns of the Debtor, and
shall benefit any successors or assigns of the Secured
Party.
27. Integration
of Terms
. This
Agreement contains the entire agreement between the parties with
respect to the subject matter hereof and supersedes all oral
statements and prior writings with respect thereto.
28. Governing
Law
. This
Agreement and the rights and obligations of the parties hereunder
shall be construed in accordance with and be governed by the law of
the State of California without regard to choice of law principles
thereof that would cause the laws of any other jurisdiction to
apply.
29. Counterparts
. This
Agreement may be executed in any number of counterparts and by the
different parties hereto on separate counterparts, each of which
when so executed and delivered shall be an original, but all of
which shall together constitute one and the same
instrument.
30. Joint
and Several Liability
. Each
of Holdings, Chalk Dust and Don Polly acknowledge that each of the
undersigned are parties to this Agreement as the "Debtor" as joint
and several grantors hereunder. Any references in this Agreement to
the "Debtor" shall refer to any of Holdings, Chalk Dust or Don
Polly, or both such Persons as the context may require. Each of
Holdings, Chalk Dust and Don Polly accept joint and several
liability for the payment and performance of all of the obligations
of the Debtor hereunder, and each of such obligations constitute
the absolute and unconditional full recourse obligations of each
such Person enforceable against each such Person to the full extent
of its properties and assets. Each of Holdings, Chalk Dust and Don
Polly hereby waive, to the fullest extent permitted by law, any and
all defenses or benefits that may be derived from or afforded by
applicable law limiting the liability of or exonerating guarantors
or sureties (including co-borrowers to the extent applicable),
including , including but not limited to any rights and defenses
that are or may become available to any such Person by reason of
Sections 2787 to 2855, inclusive, 2899 and 3433 of the California
Civil Code.
[Signature
Page Follows]
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the day and year first written
above.
DEBTOR:
CHARLIE'S HOLDINGS,
INC.,
a
Nevada corporation
By:
Brandon
Stump
Name: Brandon
Stump
Title: Chief Executive
Officer
CHARLIE'S CHALK
DUST, LLC,
a
Delaware limited liability company
By:
Brandon
Stump
Name: Brandon
Stump
Title: Chief Executive
Officer
DON
POLLY LLC,
a
Nevada limited liability company
By:
Brandon
Stump
Name: Brandon
Stump
Title: Chief Executive
Officer
SECURED PARTY:
RED
BEARD HOLDINGS, LLC
a
Delaware limited liability company
By:
Vinny
Smith
Name: Vinny Smith
Title: General
Partner