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EXHIBIT 10.35
SECURITY AGREEMENT
In consideration of the covenants and agreements contained herein and
the financial accommodations given, the undersigned The Delicious Frookie
Company, a Delaware corporation ("Borrower") hereby, pursuant to the California
Uniform Commercial Code, grants to American Pacific Financial Corporation, a
California corporation (the "Secured Party"), as collateral security for the
prompt and complete payment, or satisfaction, of the Obligation, as hereinafter
defined, a security interest in all of the assets of Borrower, including but not
limited to those certain items of tangible and intangible personal property
described on "Exhibit A" attached hereto, as well as any other assets of
Borrower of whatsoever kind and proceeds thereof. The security interest created
by this Agreement attaches immediately upon execution hereof and is made for the
purpose of securing Borrower's payment of the principal, interest and all other
sums due with respect to that certain loan (the "Loan") evidenced by the
promissory note ("Promissory Note") of even date herewith, a copy of which is
attached as "Exhibit B" to the Loan Agreement ("Loan Agreement") between
Borrower and Secured Party of even date herewith.
NOW THEREFORE, the parties agree as follows:
1. DEFINITIONS OF TERMS USED HEREIN:
a. "Accounts Receivable" shall mean and include all invoices,
contracts, contract rights, claims, instruments, leases, agreements, and
accounts, whether now existing or hereafter arising, evidencing or representing
indebtedness due or to become due to the Borrower for its own account or account
of goods sold or leased by the Borrower, or services rendered by the Borrower
and any accounts and contract rights, as defined in the Uniform Commercial Code,
from time to time owned by Borrower, however acquired.
b. "Bank Accounts" shall mean all bank accounts and safe
deposit boxes used in the conduct of the Business.
c. "Books of Account" shall mean all books of account,
customer lists, client lists, employee lists, files, papers, records and
telephone numbers used in conducting the Business.
d. "Causes of Action" shall mean all causes of action,
judgments, claims or demands of whatever kind or description relating to the
Business which Seller has or may have against any other person or entity.
e. "Collateral" shall mean (i) Contracts, (ii) Accounts
Receivable, (iii) Causes of Action, (iv) Books of Account, (v) Insurance
Policies, (vi) Bank Accounts, (vii) Goodwill, (viii) Real Property Leases, (ix)
Personal Property, (x) Permits, (xi) Proprietary Rights, (xii) Personal
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Property Leases, (xiii) Proceeds, and (xiv) any other assets of Borrower,
tangible or intangible, whether now owned or hereafter acquired.
f. "Contracts" shall mean contracts, agreements, contract
rights, license agreements, customer contracts, distribution and shelf space
agreements and other franchise rights and agreements, purchase and sales orders,
quotations and executory commitments, instruments, asset-based lines of credit,
royalty agreements, third party guaranties, indemnifications, arrangements and
understandings, whether oral or written, to which Seller is a party (whether or
not legally bound thereby) and used in conducting its Business.
g. "Event of Default" shall mean a failure by Borrower to pay
any obligations required by the Promissory Note or any inaccuracy contained in
the Warranties and Representations contained in Section 7, any event which
causes any such Warranties and Representations to become inaccurate in any
material respect, or any Event of Default, as defined in the Loan Agreement.
h. "Goodwill" shall mean all goodwill relating to the
Business.
i. "Insurance Policies" shall mean all insurance policies of
the Seller relating to the Business and all claims or demands or rights of
whatever kind or description relating to such policies.
j. "Obligation" shall mean all the unpaid principal amount of,
and accrued interest on, the Loan and all other obligations and liabilities of
Borrower to Secured Party, now existing or hereinafter incurred, under, arising
out of or in connection with the Loan or this Agreement.
k. "Permits" shall mean all franchises, licenses, permits,
consents, authorizations, approvals and certificates of any regulatory,
administrative or other governmental agency or body used in conducting the
Business.
l. "Personal Property" shall mean all inventory, raw
materials, packaging materials, machinery, equipment, tooling, parts, furniture,
supplies, vehicles, office equipment and other tangible personal property used
in conducting the Business.
m. "Personal Property Leases" shall mean all leases of
equipment or other tangible personal property used in conducting the Business.
n. "Proceeds" shall mean whatever is received, including cash,
negotiable instruments and other instruments for the payment of money, chattel
paper, security agreements or other documents, when any of the Equipment,
Accounts Receivable and/or Inventory are sold, exchanged, leased, collected or
otherwise disposed of, and any instruments, securities, contract rights, general
intangibles, credits, claims, dividends, and any other property, rights, and
interest of Borrower.
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o. "Proprietary Rights" shall mean all patents, inventions,
trade secrets, processes, formulas, customer lists, distribution rights and
shelf space, proprietary rights, proprietary knowledge, computer software,
trademarks, names, service marks, trade names, copyrights, symbols and logos
used in conducting the Business and all applications therefor, registrations
thereof and licenses, sublicenses or agreements in respect thereof, which Seller
owns or has the right to use or to which Seller is a party and all filings,
registrations or issuances of any of the foregoing with or by any federal,
state, local or foreign regulatory, administrative or governmental office.
p. "Real Property Leases" shall mean the leases of real
property, along with all appurtenant rights, easements and privileges
appertaining or relating thereto and construction in progress, if any, and
leasehold improvements owned by Borrower relating to the real property subject
to such leases.
q. "Security Interest" shall mean a lien or other interest in
the Collateral which secures payment in full of a Liability or performance of
any obligation hereunder continuing in full force and effect until the payment
in full of the Obligation, subordinate only to the previously filed security
interest in favor of U.S. Bancorp Republic Commercial Finance, Inc. f.k.a.
Republic Acceptance Corporation outstanding as of the date hereof and senior to
the security interest of Xxxxxxx Foods, L.L.C., created pursuant to the terms of
the certain Security Agreement and Trademark Security Agreement each of Borrower
in favor of Xxxxxxx Foods, L.L.C. and each dated April 3, 1998.
2. SECURITY INTERESTS:
As security for the payment and faithful performance and observance of
all Obligation of the Borrower to the Secured Party, the Borrower hereby grants
to the Secured Party a Security Interest in all the Collateral and in all ledger
sheets, files, records, and documents relating to the Collateral which shall,
until delivered or removed by the Secured Party, be kept by the Borrower in
trust for the Secured Party and without cost to the Secured Party. The Security
Interest hereinabove granted in the Inventory of the Borrower shall attach to
all Inventory of the Borrower now or hereafter owned by the Borrower and shall
continue through all stages of preparation and eventual sale to the public.
Until payment in full and faithful performance and observance of the Obligation,
the pledge and assignment of, and the Security Interest in, all Collateral shall
continue in full force and effect.
3. TAXES; FINANCING STATEMENTS:
At its option, the Secured Party may discharge taxes, liens, or
security interests or other encumbrances at any time levied or placed on the
Collateral, and may pay for the maintenance and preservation thereof, and the
Borrower agrees to reimburse the Secured Party on demand for any payment made or
any expense incurred by the Secured Party for such purposes. Borrower further
authorizes Secured Party to file a financing statement or financing statements
and any amendments thereto without the signature of the Borrower or to sign any
such statements or amendments as the attorney-in-fact of the Borrower. Such
authorization and power of attorney shall be deemed coupled
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with an interest and shall be irrevocable. Such power of attorney and
authorization is limited to the Security Interest granted by this Security
Agreement.
4. COLLECTIONS:
Upon the occurrence of an Event of Default hereunder, the Secured Party
shall have the right to receive, endorse, assign, and/or deliver in its own name
or the name of the Borrower any and all checks, drafts, and other instruments
for the payment of money relating to the Accounts Receivable and the Proceeds
and the Borrower hereby waives notices of presentment, protest, and nonpayment
of any instrument so endorsed. In furtherance of the foregoing, the Borrower
hereby irrevocably appoints the Secured Party its true and lawful agent, with
power of substitution for such Borrower's name or in the name of the Secured
Party or otherwise, for the use and benefit of the Secured Party: (a) to endorse
the name of the Borrower upon any notes, acceptances, checks, drafts, money
orders, or other evidences of payment that may come into the possession of the
Secured Party; (b) to demand, collect, receive payment of, receipt for, and give
discharges and releases of all or any of the Accounts Receivable and the
Proceeds; (c) to sign the Borrower's name on any invoice or xxxx of lading
relating to any of the Accounts Receivable and notices to customers; (d) to send
verifications of Accounts Receivable to any customer; (e) to commence and
prosecute any and all suits, actions, or proceedings in law or in equity in any
court of competent jurisdiction to collect or otherwise realize on all or any of
the Accounts Receivable or the Proceeds or to enforce any rights in respect
thereof or in respect of any other Collateral; (f) to settle, compromise,
compound, adjust, or defend any actions, suits, or proceedings relating to or
pertaining to all or any of the Collateral; and (g) generally to sell, assign,
transfer, pledge, make any agreement with respect to or otherwise deal with all
or any of the Collateral, and do all other acts and things necessary to carry
out this Security Agreement, as fully and completely as though the Secured Party
were the absolute owner thereof for all purposes; provided, however, that,
unless an Event of Default shall have occurred, the Borrower may make
collections and otherwise may deal with the Collateral, including the Proceeds,
in any lawful manner in the ordinary course of its business. The Secured Party
shall not be responsible nor liable for any shortage, discrepancy, damage, loss,
or destruction of any part of the Collateral wherever the same may be located
regardless of the cause thereof unless the same shall happen through the Secured
Party's gross negligence or wilful misconduct. The costs of collection,
notification, and enforcement, including reasonable counsel fees and
out-of-pocket expenses, shall be borne solely by the Borrower whether the same
are incurred by the Security Party or the Borrower.
5. SALE OF COLLATERAL:
Subject to prior the rights of U.S. Bancorp Republic Commercial
Finance, Inc. f.k.a. Republic Acceptance Corporation or Xxxxxxx Foods, L.L.C.,
upon the occurrence and continuance of an Event of Default hereunder or under
the terms of the Note or Loan Agreement, Borrower agrees to transfer possession
of all Collateral to Lender, wherever situated, and authorizes Lender to take
possession of same by whatever means deemed necessary or appropriate by Lender,
in its sole discretion. Borrower further authorizes Lender to sell such
Collateral in the manner required by law at public or private sale and deliver
to the purchaser or purchasers thereof all right, title and interest in the
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Collateral held by Lender or Borrower. After deducting all costs, fees and
expenses of such sale and reasonable attorney fees, Lender shall apply the
proceeds thereof as required under applicable law.
6. FINANCING STATEMENT AND FURTHER ASSURANCES:
(a) Concurrently with the execution of this Security Agreement, at
Borrower's sole cost and expense, (i) the Borrower shall execute any financing
statement or financing statements required to perfect the security interest
created by this Agreement and file such financing statement in the appropriate
state and local offices in the State of California and in any other state or
jurisdiction requested by Secured Party in a timely manner. Such financing
statement or financing statements shall be on a form or forms approved by
applicable state authorities and Borrower shall pay the filing fees required to
file such financing statements.
(b) At any time and from time to time, upon the written request of the
Secured Party, and at the sole expense of the Borrower, Borrower promptly and
duly shall execute and deliver any and all such further instruments and
documents and take such further action as Secured Party reasonably may deem
desirable in obtaining the full benefits of this Agreement and of the rights and
powers herein granted, including, without limitation, the filing of any
financing or continuation statements under the Uniform Commercial Code in effect
in any jurisdiction with respect to the liens and security interests granted
hereby. Secured Party also hereby authorizes Borrower to file any such financing
statement or continuation statement without the signature of the Secured Party
to the extent permitted by applicable laws.
7. WARRANTIES AND REPRESENTATIONS:
Borrower warrants and represents that:
(a) Except as to the respective security interests of U.S.
Bancorp Republic Commercial Finance, Inc. f.k.a. Republic Acceptance Corporation
and Xxxxxxx Foods, L.L.C., as described above, Borrower has, and will maintain
throughout the term of this Agreement, good and valid title to all Collateral,
and no other person, entity, agency, or government agency has or purports to
have, any right, title, lien, encumbrance, adverse claim, or interest in any
Collateral other than liens incurred in the ordinary course of business. The
Borrower has obtained all consents and approvals necessary to grant the Security
Interest granted hereby.
(b) Borrower has authority to enter into the Security
Agreement and Promissory Note and any person signing it on Borrower's behalf has
been duly authorized to execute the Agreement for Borrower.
(c) Any and all information now or hereafter supplied to
Secured Party by Borrower, or at Borrower's request or instruction, is and shall
be correct in all material respects.
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(e) No security agreement, financing statement, equivalent
security or lien instrument or continuation statement covering all or any part
of the Collateral is on file or of record in any public office, except such as
may have been filed by Borrower or Secured Party in favor of Secured Party
pursuant to this Agreement, and except the respective security interests of U.S.
Bancorp Republic Commercial Finance, Inc. f.k.a. Republic Acceptance Corporation
and Xxxxxxx Foods, L.L.C., as described above.
(f) This Agreement constitutes a valid and continuing lien on
and security interest in the Collateral in favor of Secured Party, prior to all
other liens, encumbrances, security interests and rights of others, except as
may be limited by inchoate liens arising under the laws of applicable state laws
and except as to the security interests of U.S. Bancorp Republic Commercial
Finance, Inc. f.k.a. Republic Acceptance Corporation as described hereinabove,
and is enforceable as such against creditors of and purchasers from Borrower.
(g) Borrower's principal place of business and the place where
its records concerning the Collateral are kept is at 0000 Xxxxx Xxxx, Xxxxx 000,
Xxx Xxxxxxx, Xxxxxxxx 00000. Borrower will not change such principal place of
business (except to Xxxxxxx'x principal place of business) or remove such
records without the express prior written consent of Secured Party, which
consent will not be unreasonably withheld. Borrower will not dispense or
relocate any part of the Collateral without the express prior written consent of
Secured Party, except in the ordinary course of business.
(h) Borrower has reviewed the Promissory Note dated the date
hereof, made by Borrower and evidencing the Loan and Security Agreement dated
the date hereof, granting to Lender a lien on the Collateral and all other
documents executed by Borrower or guarantor, if any, in connection with the
Loan.
(i) The execution, delivery and performance of the obligations
imposed on Borrower under the Loan Documents will not cause Borrower to be in
default under the provisions of any agreement, judgment or order to which
Borrower is a party or by which borrower is bound. No default exists under the
Loan, and all of the following items regarding the Collateral which have become
due and payable have been paid taxes; government assessments; insurance
premiums; lease payments; and any other charges affecting the Collateral.
(j) Borrower knows of no facts that would support a claim of
usury to defeat or avoid its obligation to repay the principal of, interest on,
and other sums or amounts due and payable with respect to the Loan.
(k) Borrower is not currently (i) the subject of or a party to
any completed or pending bankruptcy, reorganization or insolvency proceeding; or
(ii) the subject of any unsatisfied judgment of record or docketed in any court
located in the United States.
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(l) Borrower has filed all federal, state, county and
municipal tax returns required to have been filed by Borrower, and has paid all
taxes which have become due pursuant to such returns or to any notice of
assessment received by Borrower, and Borrower has no knowledge of any basis for
additional assessment with respect to such taxes. To the best of Borrower's
knowledge, there are not presently pending any governmental claims or special
assessments against the Collateral or any part thereof.
(m) Each and every representation and warranty contained
herein or in the Loan Agreement will remain true and correct at all times from
the date hereof until the Loan is repaid in full in accordance with its terms.
In the event that any representation or warranty contained herein becomes
untrue, in whole or in part, after the date hereof, Borrower will so advise
Lender in writing immediately.
(n) Borrower covenants that it shall, promptly upon the
request of Lender, ratify and affirm the representations and warranties set
forth herein, in writing, as of such date or dates as Lender shall specify.
8. COVENANTS AND AGREEMENTS:
Borrower covenants and represents that:
(a) Borrower will pay any and all of Borrower's indebtedness
to Secured Party promptly when due, and Borrower will repay immediately, and
without demand, all expenses, including reasonable attorneys' fees, legal
expenses and costs, incurred by Secured Party under this Agreement with interest
at the Default Rate, as provided in the Promissory Note, from the date of
expenditure.
(b) Borrower will execute any additional agreements,
assignments or documents that may be deemed necessary or advisable to effectuate
the purpose of this Agreement.
(c) Borrower will maintain and repair the Collateral; will use
the Collateral lawfully and only with insurance coverage; other than in the
ordinary course of business, will not use the Collateral so as to cause or
result in any waste, unreasonable deterioration or depreciation; and will permit
Secured Party to enter on Borrower's property and to inspect the Collateral at
any reasonable time, with two (2) days prior written notice.
(d) Borrower will pay when due all taxes, assessments,
charges, liens, or encumbrances now or hereafter affecting the Collateral.
(e) Borrower, at its own cost and expense, will appear in and
defend any action or proceeding which may adversely affect the Secured Party's
security interest in, or Borrower's title to, any Collateral and Borrower shall
keep Secured Party informed. Secured Party shall have the option of defending
any such action or proceeding at Borrower's cost.
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(f) Borrower will keep and maintain at its own cost and
expense satisfactory and complete records of the Collateral. Borrower will xxxx
its books and records pertaining to the Collateral to evidence this Agreement
and the security interests granted hereby. For Secured Party's further security,
Borrower agrees that Secured Party shall have a special property interest in all
of Borrower's books and records pertaining to the Collateral and Borrower shall
deliver and turn over any such books and records to Secured Party or its
representatives upon written demand of Secured Party, following any Event of
Default. Secured Party shall review any such books and records delivered to it
hereunder promptly and shall make reasonable efforts to minimize any
interference therewith.
(g) In any suit, proceedings or action brought by Secured
Party under any contract for any sum owing thereunder, or to enforce any
provisions of such contract, Borrower will save, indemnify and keep Secured
Party harmless from and against all expense, loss or damage suffered by reason
of any defense, set off, counterclaim, recoupment or reduction of liability
whatsoever of the person against whom such suit, proceedings or action is
brought, arising out of a breach by Borrower of any obligation thereunder or
arising out of any other agreement, indebtedness or liability at any time owing
to or in favor of such obligee or its successors from Borrower, and all such
obligations of Borrower shall be and remain enforceable against and only against
Borrower and shall not be enforceable against Secured Party.
(h) Borrower will, upon its acquisition of the business of
Xxxxxxx Foods, L.L.C., a Delaware limited liability company ("Xxxxxxx") use its
best efforts to immediately collect all of the then outstanding accounts
receivable of Xxxxxxx and will use all such funds received to pay all of the
then outstanding accounts payable of Xxxxxxx until the same have been fully paid
and liquidated. So long as any account payable or receivable at the time of
acquisition remains outstanding, Borrower will provide to Secured Party reports
of the status of and any changes in such accounts receivable and payable upon
the reasonable request of Borrower.
(i) Borrower will not create, permit or suffer to exist, and
will defend the Collateral against and take such other action as is necessary to
remove, any lien, security interest, encumbrance, claim or right, in or to the
Collateral, except for existing liens set forth in this Agreement.
(j) Borrower will not sell, transfer, lease or otherwise
dispose of any of the Collateral, or attempt, offer or contract to do so, except
in the ordinary course of business as previously conducted by Borrower.
(k) Borrower will furnish to Secured Party from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as Secured Party reasonably
may request, all in reasonable detail.
(l) Borrower shall notify Secured Party immediately of any
default under this Agreement.
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9. TERM OF AGREEMENT:
This Agreement shall remain in full force and effect until the
obligations secured hereby have been fully performed or paid. Upon payment in
full of the Obligation, this Security Agreement shall automatically terminate.
10. REMEDIES:
Borrower understands and agrees that on the occurrence of an
Event of Default, in addition to any remedies provided by law or by this
Agreement, to the extent provided by law Secured Party may, without notice and
without allowing any grace period to rectify such Event of Default:
(a) Expenses: Incur expenses, including reasonable attorneys'
fees, legal expenses and costs, to exercise any right or power under the
Agreement.
(b) Performance of Borrower's Obligations by Secured Party:
The Secured Party may, but need not, perform any obligation of Borrower, and
may, but need not, make payments, purchase, contest, or compromise any
encumbrance, charge, or lien and pay taxes and expenses.
(c) Acceleration: Declare any or all of the Obligation due and
payable, without presentment, demand, protest, or notice of any kind, all of
which are hereby expressly waived, anything contained herein or in the
Promissory Note to the contrary notwithstanding;
(d) Possession: With or without legal process and with or
without previous notice or demand for performance, enter any premises where the
Collateral is located and take possession of the same, together with anything
therein, and make disposition of, or proceed to enforce payment of, the
Collateral subject to any and all applicable provisions of law; and/or
(e) Suit, Retention or Disposition of Collateral, Application
of Proceeds: Xxx the Borrower or any other person or entity liable for the
Obligation; retain the Collateral in satisfaction of the obligation; dispose of
the Collateral; and apply the proceeds of disposition, including provision for
reasonable attorneys' fees and legal expenses incurred by Secured Party, all as
provided by law.
11. WAIVER:
The Secured Party shall not be deemed to have waived any rights
hereunder by reason of any other agreement, instrument, or paper signed by the
Secured Party. No delay or omission on the part of the Secured Party in
exercising any right hereunder shall operate as a waiver thereof or of any other
right. A waiver upon any one occasion shall not be construed as a bar or a
waiver of any right or remedy on any future occasion. All of the rights and
remedies of the Secured Party, whether
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evidenced hereby or by any other agreement, instrument, or paper, shall be
cumulative and may be exercised singly or concurrently.
12. SEVERABILITY:
If any part of this Security Agreement is contrary to, prohibited by,
or deemed invalid under applicable laws or regulations, such provision shall be
inapplicable and deemed omitted to the extent so contrary, prohibited, or
invalid, but the remainder hereof shall not be invalidated thereby and shall be
given effect so far as possible.
13. EXECUTION BY THE SECURED PARTY:
This Security Agreement shall take effect immediately upon execution by
the Borrower, and the execution hereof by the Secured Party shall not be
required as a condition to the effectiveness of the Security Agreement.
14. HEADINGS:
Section headings have been inserted in this Security Agreement as a
matter of convenience of reference only, and it is agreed that such Section
headings are not a part of this Security Agreement and shall not be used in the
interpretation of any provision of this Security Agreement.
15. NOTICES:
All notices or other written communications hereunder shall be deemed
to have been properly given (i) upon delivery, if delivered in person or by
facsimile transmission with receipt acknowledged by the recipient thereof, (ii)
one (1) Business Day, as defined below, after having been deposited for
overnight delivery with any reputable overnight courier service, or (iii) three
(3) Business Days after having been deposited in any post office or mail
depository regularly maintained by the U.S. Postal Service and sent by
registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:
Borrower: The Delicious Frookie Company, Inc.
0000 Xxxxx Xxxx, Xxxxx 000
Xxx Xxxxxxx, Xxxxxxxx 00000
Secured Party: American Pacific Financial Corporation
000 Xxxx Xxxxxxxxxxx Xxxx, Xxxxx 000
Xxx Xxxxxxxxxx, XX 00000
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16. CHOICE OF LAW: This Agreement shall be governed by, and construed
in accordance with the laws of the State of California. In any action brought
under or arising out of this Agreement, Borrower hereby consents to the
jurisdiction of any federal or state court within California and to any lawful
service of process in California. Borrower hereby agrees that no other federal
or state court may entertain any suit, action or proceeding relating to or
arising out of this Agreement.
17. ASSIGNMENTS, ETC.: The provisions of the Agreement are hereby made
applicable to and shall inure to the benefit of Secured Party's successors and
assigns and bind Borrower's heirs, legatees, devisees, administrators,
executors, successors, and assigns.
[Signature page immediately following]
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Dated: April 3, 1998
BORROWER:
THE DELICIOUS FROOKIE COMPANY, INC.,
A Delaware corporation
/s/
By:----------------------------------
Xxxxxxx Xxxxx, President
SECURED PARTY:
AMERICAN PACIFIC FINANCIAL
CORPORATION,
a California corporation
/s/
By:----------------------------------
Xxxxx X. Xxxxxxx, President
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"EXHIBIT A"
DESCRIPTION OF COLLATERAL
[to be prepared by Xxxxxx Xxxxxxxx Frome & Xxxxxxxxxx LLP]
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"EXHIBIT B"
PROMISSORY NOTE
(SEE ATTACHED)
