EXHIBIT 10.43
EXECUTION VERSION
SECURITY AGREEMENT
(SCHLOTZSKY'S FRANCHISOR, LLC)
This Security Agreement (the "Agreement") dated as of December 29, 2003
is made by and between NS ASSOCIATES I, LTD., a Texas limited partnership (the
"Secured Party"), and SCHLOTZSKY'S FRANCHISOR, LLC, a Delaware limited liability
company ("Pledgor").
RECITALS
A. DFW Restaurant Transfer Corp., a Texas corporation ("Borrower"),
Schlotzsky's, Inc., a Texas corporation ("SI"), Pledgor and Secured Party are
parties to that certain Debt Restructuring Agreement dated as of the date hereof
(the "Restructuring Agreement"), pursuant to which DFW has issued to Secured
Party that certain amended and restated promissory note dated as of December 15,
2003 (amending and restating that certain promissory note dated August 30, 2002
issued by DFW) in the original principal amount of $23,268,000.00 (as so amended
and restated, and as it may be amended, restated, modified, replaced, renewed or
extended, the "Note").
B. In order to induce Secured Party to enter into the Restructuring
Agreement, Pledgor executed and delivered to Lender that certain Guaranty, of
even date herewith (the "Guaranty"), pursuant to which Pledgor has guaranteed,
among other things, the obligations of Borrower owing under the Note.
C. Pledgor and Secured Party are entering into this Agreement in order
to secure Pledgor's obligations under the Guaranty.
AGREEMENTS
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged and confessed, the parties hereto agree as follows:
1. DEFINITIONS; CONSTRUCTION.
(a) Capitalized terms used herein and not otherwise defined
shall have the meaning assigned to such terms in the Restructuring
Agreement (including by reference to the Contribution Agreement or any
Note Document). In addition, as used herein, the following terms shall
have the following meanings:
"Accounts" has the meaning set forth in Section 2.
"Account Debtor" means any Person who is obligated under, with respect
to, or on account of, an Account, chattel paper, or a General Intangible.
"ADA Documents" means the Area Development Agreements and all other
agreements between SI or the Pledgor and an Area Developer relating to the
Schlotzsky's(R) branded business.
"Additional Documents" has the meaning set forth in Section 2(c).
"Agreement" has the meaning set forth in the first paragraph hereof.
"Bankruptcy Code" means title 11 of the United States Code, as in
effect from time to time.
"Books" has the meaning set forth in Section 2.
"Claim" shall mean any and all: suits, actions, or proceedings in any
court or forum, at law, in equity or otherwise; costs, fines, deficiencies, or
penalties; arbitration demands, proceedings or awards; damages, losses,
penalties, fines, judgments, liabilities and expenses (including reasonable
attorneys' fees and disbursements and other costs of collection, defense or
appeal); enforcement of rights and remedies; or any criminal, civil or
regulatory investigations, fines or penalties.
"Code" has the meaning set forth in Section 8.
"Collateral" has the meaning set forth in Section 2.
"Contribution Agreement" means that certain Contribution Agreement,
dated as of June 7, 2003, between SI and Pledgor, pursuant to which SI
contributed, transferred and conveyed to Pledgor all of SI's right, title and
interest in, to and under the Conveyed Assets (as defined in the Contribution
Agreement).
"DFW" has the meaning set forth in the first paragraph hereof.
"Excluded Collateral" means (a) that portion of any Franchisee Payment
representing NAMF Contributions (to the extent of rights of NAMF thereto), and
(b) that portion of any Franchisee Payment representing amounts payable to Area
Developers under any Area Development Agreement as in effect on the date hereof,
in each case only if and for so long as the grant of a Lien to Secured Party
shall constitute or result in a breach or termination pursuant to the terms of,
or a default under, any such Area Development Agreement (in each case, other
than to the extent that (i) the restrictive terms of any such Area Development
Agreement would be rendered ineffective pursuant to Sections 9-406, 9-407, 9-408
or 9-409 of the Code (or any successor provision or provisions) of any relevant
jurisdiction or any other applicable law (including the Bankruptcy Code) or
principles of equity, or (ii) such Area Development Agreement is with SI or a
subsidiary or affiliate thereof or such breach or termination can be waived by
SI or any subsidiary or affiliate thereof), provided, however, that such Lien
shall attach immediately at such time as the condition causing such breach or
termination shall be remedied or cease to be effective or SI or any subsidiary
or affiliate thereof shall have the right to waive such breach or termination.
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"Existing Liens" means the Liens relating to Pledgor described in
Schedule E-1 to the Restructuring Agreement and securing only the Xxxxxx Notes.
"Event of Default" means any "Event of Default" under the Restructuring
Agreement.
"General Intangibles" has the meaning set forth in Section 2.
"Governing Documents" means, with respect to any Person, the
certificate or articles of incorporation or formation, by-laws, limited
liability agreement, or other organizational documents of such Person.
"Governmental Authority" means any federal, state, local, or other
governmental or administrative body, instrumentality, department, or agency or
any court, tribunal, administrative hearing body, arbitration panel, commission,
or other similar dispute-resolving panel or body.
"Indemnified Person" has the meaning set forth in Section 10.
"Management Agreement" means that certain Management Agreement dated as
of June 7, 2003, between Pledgor, Schlotzsky's Brand Products, LLC, Schlotzsky's
NAMF Funding, LLC, Schlotzsky's N.A.M.F., Inc., and the Manager.
"Manager" means Schlotzsky's Franchise Operations, LLC, a Delaware
limited liability company.
"NAMF" means any of Schlotzsky's NAMF Funding, LLC and Schlotzsky's
N.A.M.F., Inc.
"NAMF Contributions" means the amounts to be contributed to NAMF by the
Franchisees pursuant to the Franchise Agreements and which are to be
administered by NAMF, so long as such amounts are consistent (as a percentage of
gross sales payable by the Franchisees under the applicable Franchise Agreement)
with the amounts required pursuant to the standard form of Schlotzsky's
Franchise Agreement as in effect on the date hereof and disclosed to Secured
Party.
"Negotiable Collateral" has the meaning set forth in Section 2.
"Note" has the meaning set forth in the Recitals hereto.
"Note Documents" has the meaning set forth in the Restructuring
Agreement, and includes the Restructuring Agreement, the Note, the Guaranty, the
Trademark Security Agreement, the Pledge Agreement, this Agreement and any other
agreement now existing or hereafter entered into by Pledgor and the Secured
Party in connection with this Agreement or the Guaranty.
"Obligations" has the meaning set forth in Section 3.
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"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization, limited
liability company or government or other entity.
"Pledge Agreement" means a stock pledge agreement executed and
delivered by Pledgor and Secured Party, the form and substance of which is
satisfactory to Secured Party, with respect to all Stock of Pledgor in any
Subsidiary thereof, including Schlotzsky's Brand Products, LLC.
"Pledgor" has the meaning set forth in the first paragraph hereof.
"Record" means information that is inscribed on a tangible medium or
which is stored in an electronic or other medium and is retrievable in
perceivable form.
"Secured Party" has the meaning set forth in the first paragraph
hereof.
"Security Interest" has the meaning set forth in Section 3.
"SI" has the meaning set forth in the first paragraph hereof.
"Stock" means all shares, options, warrants, interests (including
general or limited partnership interests, limited liability company interests or
any other ownership interests), participations or other equivalents (regardless
of how designated) of or in a Person, whether voting or nonvoting.
"Trademark Security Agreement" means a trademark security agreement
executed and delivered by Pledgor and Secured Party, the form and substance of
which is satisfactory to Secured Party.
(b) Any terms used herein that are defined in the Code shall
be construed and defined as set forth in the Code unless otherwise
defined herein.
(c) Unless the context hereof clearly requires otherwise,
references to the plural include the singular, references to the
singular include the plural, the term "including" is not limiting, and
the term "or" has, except where otherwise indicated, the inclusive
meaning represented by the phrase "and/or." Any reference in this
Agreement or in the other Note Documents to any agreement, instrument,
or document shall include all alterations, amendments, changes,
extensions, modifications, renewals, replacements, substitutions,
joinders, and supplements, thereto and thereof, as applicable (subject
to any restrictions on such alterations, amendments, changes,
extensions, modifications, renewals, replacements, substitutions,
joinders, and supplements set forth herein).
2. SECURITY INTEREST.
(a) COLLATERAL. Pledgor hereby grants to the Secured Party a
first priority security interest in and to any and all right, title and
interest of Pledgor in and to all of the following, whether now owned
or hereafter acquired or arising and wherever located (all of the
following being herein sometimes called the "Collateral"):
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(i) all accounts and any and all supporting
obligations in respect thereof (collectively, the "Accounts");
(ii) all books and records (including all of its
Records indicating, summarizing, or evidencing its assets
(including the Collateral) or liabilities, all of its Records
relating to its business operations or financial condition,
and all of its goods or General Intangibles related to such
information) (collectively, the "Books");
(iii) all commercial tort claims;
(iv) all deposit accounts;
(v) all equipment (including machinery, machine
tools, motors, furniture, furnishings, fixtures, vehicles
(including motor vehicles), computer hardware, tools, parts
and goods (other than consumer goods, farm products, or
Inventory), wherever located, including all attachments,
accessories, accessions, replacements, substitutions,
additions, and improvements to any of the foregoing);
(vi) all general intangibles (including payment
intangibles, contract rights, rights to payment, rights
arising under common law, statutes, or regulations, choses or
things in action, goodwill, patents, trade names, trademarks,
service marks, copyrights, blueprints, drawings, purchase
orders, customer lists, monies due or recoverable from pension
funds, route lists, rights to payment and other rights under
any royalty or licensing agreements, infringement claims,
computer programs, information contained on computer disks or
tapes, software, literature, reports, catalogs, money,
insurance premium rebates, tax refunds, and tax refund
claims), and any and all supporting obligations in respect
thereof, and any other personal property other than goods,
Accounts, deposit accounts, investment property, and
Negotiable Collateral. (collectively, the "General
Intangibles");
(vii) all inventory;
(viii) all investment property, and any and all
supporting obligations in respect thereof;
(ix) all letters of credit, letter of credit rights,
instruments, promissory notes, drafts, documents, and chattel
paper (including electronic chattel paper and tangible chattel
paper), and any and all supporting obligations in respect
thereof (collectively, the "Negotiable Collateral");
(x) all money or other assets of Pledgor that now or
hereafter come into the possession, custody, or control of
Secured Party or any agent or bailee thereof; and
(xi) the proceeds and products, whether tangible or
intangible, of any of the foregoing, including proceeds of
insurance covering any of the foregoing,
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and any and all Accounts, Books, deposit accounts, equipment,
General Intangibles, inventory, investment property,
Negotiable Collateral, real property, money, or other the
tangible or intangible property resulting from the sale,
exchange, collection, or other disposition of any of the
foregoing, or any portion thereof or interest therein, and the
proceeds thereof.
Without limiting the foregoing, Pledgor acknowledges that the
Collateral includes (A) the Schlotzsky's IP; (B) the Franchisee Payments and
Franchise Documents, including the present and continuing exclusive right,
remedy, power and authority to exercise each and every right, remedy, power and
authority of Pledgor under or in respect of the Franchisee Payments and
Franchise Documents; (C) the International License Payments and International
License Documents, including the present and continuing exclusive right, remedy,
power and authority to exercise each and every right, remedy, power and
authority of the Pledgor under or in respect of the International Licensee
Payments and International License Documents; (D) 100% of the membership
interests in the Branding Subsidiary, including the present and continuing
exclusive right, remedy, power and authority to exercise each and every right,
remedy, power and authority of Pledgor under or in respect of such membership
interests; (D) the ADA Documents, including the present and continuing exclusive
right, remedy, power and authority to exercise each and every right, remedy,
power and authority of Pledgor under or in respect of the ADA Documents; (E) the
present and continuing exclusive right, power and authority, subject to the
provisions of the Management Agreement, to make claim for, collect, receive and
make receipt for any of the sums, amounts, income, revenues, issues, profits and
proceeds under, on account of or with respect to, the Franchise Assets, Branding
Assets, including, without limitation, all payments made in respect thereof,
voluntary or involuntary, whether upon maturity, prepayment, acceleration,
conversion, liquidation, casualty or otherwise and paid from any source
(including both timely and delinquent payments); (F) the present and continuing
exclusive right, power and authority, subject to the rights of Pledgor under the
Management Agreement (or of Secured Party with respect thereto pursuant to the
Manager Acknowledgment), to give and receive notices and other communications,
to make waivers or other agreements in respect of, or to make claims for and
demand performance on, under or pursuant to any of the Franchise Assets,
Branding Assets, the Branding Subsidiary License Agreement, or the Area
Development Agreements, to bring actions and proceedings thereunder or for the
enforcement thereof, and to exercise all remedies, powers, privileges and
options and to do any and all things which the Pledgor is or may become entitled
to do under or in respect of the Franchise Assets, the Branding Assets, the
Branding Subsidiary License Agreement and the Area Development Agreements; and
(G) any and all property of every name and nature, now or hereafter transferred,
mortgaged, pledged or assigned as security or additional security for payment or
performance of any obligation of the Persons obligated to make payments to the
Pledgor under the Franchise Documents, Branding Documents or otherwise, and the
liabilities, obligations and the indebtedness evidenced thereby or reflected
therein and all recourse or support obligations, guarantees, indemnities and
security relating to any of the foregoing.
Notwithstanding the foregoing, in no event shall the Collateral include
the Excluded Collateral. Furthermore, (a) the parties acknowledge that the
granting of a security interest in any Collateral consisting of rights relating
to ADA Buy-Out Payments (and Secured Party's exercise of remedies with respect
thereto) shall be subject to any prior perfected security interest with respect
to the obligations of Franchisor (and the other SI Parties) relating to such ADA
Buy-
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Out Payments, and (b) the security interest granted herein is not intended to
diminish in any way any rights or interests of those three former area
developers (whose rights were re-acquired and purchased in April 1999, April
2001 and October 2001 pursuant to long term payment plans) against any SI Party
or other applicable SI subsidiary or affiliate pursuant to the applicable terms
in existence on the date hereof, and further is not intended to cause, and shall
be limited (with respect to the applicable re-acquired rights) to the extent
necessary so as to prevent, a breach of such terms in existence on the date
hereof, in each case until such area developers are paid in full.
(b) NEGOTIABLE COLLATERAL. In the event that any Collateral,
including proceeds, is evidenced by or consists of Negotiable
Collateral, and if and to the extent that perfection of priority of
Secured Party's security interest is dependent on or enhanced by
possession, Pledgor, immediately upon the request of Secured Party,
shall endorse and deliver physical possession of such Negotiable
Collateral to Secured Party.
(c) DELIVERY OF ADDITIONAL DOCUMENTATION.
(i) Concurrently herewith, Pledgor shall execute and
deliver to Secured Party each of the Trademark Security
Agreement, and the Pledge Agreement. Pledgor shall further
cause the execution and delivery to Secured Party of such
Account Control Agreements as may be required pursuant to the
Restructuring Agreement or otherwise required by Secured Party
pursuant to its rights under this Section 2(c).
(ii) Pledgor authorizes Secured Party to file,
transmit, or communicate, as applicable, financing statements,
in-lieu financing statements and amendments describing the
Collateral as "all personal property of Pledgor" or "all
assets of Pledgor" or words of similar effect, in order to
perfect Secured Party's Liens on the Collateral without such
Pledgor's signature. Notwithstanding the foregoing, at any
time upon the request of Secured Party, Pledgor shall execute
(or cause to be executed) and deliver to Secured Party, any
and all financing statements, original financing statements in
lieu of continuation statements, control agreements, fixture
filings, security agreements (including, if requested by
Secured Party, separate security agreements with respect to
Pledgor's rights relating to any patents, copyrights or
trademarks), pledges, assignments, endorsements of
certificates of title, and all other documents (the
"Additional Documents") upon which any Pledgor's signature may
be required that Secured Party may request in its reasonable
discretion, in form and substance satisfactory to Secured
Party, to perfect and continue perfected or better perfect the
Secured Party's Liens in the Collateral (whether now owned or
hereafter arising or acquired), to create and perfect Liens in
favor of Secured Party, and in order to fully consummate all
of the transactions contemplated hereby and under the other
Note Documents. To the maximum extent permitted by applicable
law, Pledgor authorizes Secured Party to execute any such
Additional Documents in Pledgor's name and authorizes Secured
Party to file such executed Additional Documents in any
appropriate filing office. Pledgor shall not terminate, amend
or file a
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correction statement with respect to any financing statement
filed with respect to the Collateral without Secured Party's
prior written consent.
(iii) In addition, on such periodic basis as Secured
Party shall require, Pledgor shall (a) provide Secured Party
with a report of all patentable, copyrightable, or
trademarkable materials acquired or generated by Pledgor
during the prior period, (b) in the exercise of Pledgor's
reasonable business judgment, cause all such patents,
copyrights, and trademarks acquired or generated by Pledgor
are not already the subject of a registration with the
appropriate filing office (or an application therefor
diligently prosecuted), and that are material in any respect
to Pledgor's business, to be registered with such appropriate
filing office in a manner sufficient to impart constructive
notice of Pledgor's ownership thereof.
(iv) In addition, Pledgor agrees that, upon acquiring
any interest in a commercial tort claim in an amount, in
excess of $500,000 such Pledgor shall, in writing, describe
the details of such claims and hereby grants to Secured Party
a first priority perfected security interest therein pursuant
to documentation acceptable to Secured Party.
3. THE OBLIGATIONS. The security interest herein granted (the "Security
Interest") shall secure full payment and performance of all liabilities,
obligations, or undertakings owing by Pledgor to the Secured Party of any kind
or description arising out of or outstanding under, advanced or issued pursuant
to, or evidenced by the Guaranty, the Restructuring Agreement, this Agreement,
or any of the other Note Documents, irrespective of whether for the payment of
money, whether direct or indirect, absolute or contingent, due or to become due,
voluntary or involuntary, whether now existing or hereafter arising, and
including all interest, costs, fees (including reasonable attorneys' fees), and
expenses (including interest, costs, fees, and expenses that, but for the
provisions of the Bankruptcy Code, would have accrued irrespective of whether a
claim thereof is allowed) and any and all other amounts which Pledgor is
required to pay pursuant to any of the foregoing, by law, or otherwise (all such
all liabilities, obligations, or undertakings, collectively the "Obligations").
4. REPRESENTATIONS AND WARRANTIES OF PLEDGOR. Pledgor hereby makes each
and every representation and warranty set forth in the Restructuring Agreement
by or with respect to Pledgor, each of which is incorporated herein by
reference. Without limiting the foregoing, Pledgor represents and warrants to
the Secured Party that (a) Pledgor is the owner of the Collateral free and clear
of any liens, claims or encumbrances, other than the Existing Liens; and no
dispute, right of setoff, counterclaim, or defenses exist with respect to all or
any part of the Collateral; (b) the security interests granted by Pledgor to
Secured Party in and to its properties and assets pursuant to this Agreement and
the other Note Documents are validly created, perfected, and first priority
security interests, subject only to the Existing Liens. The delivery at any time
by Pledgor to the Secured Party of Collateral shall constitute a representation
and warranty by Pledgor under this Agreement that, with respect to such
Collateral, and each item thereof, the matters heretofore warranted in the
foregoing clauses (a) and (b) are true and correct.
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5. AFFIRMATIVE COVENANTS OF PLEDGOR. So long as any part of the
Obligations remain unpaid or unperformed, Pledgor covenants and agrees to (and
to cause Manager or Branding Subsidiary, as applicable, to):
(a) PRESERVATION OF COLLATERAL. Preserve all of Pledgor's
rights under the Collateral in the ordinary course of business, and
subject in all events to the limitations set forth in the Note
Documents; provided, however, with respect to the International License
Assets, Pledgor shall use its sole discretion in dealing with such
International License Assets.
(b) CHANGE IN ADDRESS. Promptly notify the Secured Party of
any change in Pledgor's address;
(c) COLLATERAL INFORMATION. Promptly furnish such information
as the Secured Party may reasonably request concerning the Collateral;
(d) UPDATES. Promptly notify the Secured Party of any material
change in any fact or circumstance warranted or represented by Pledgor
herein;
(e) NOTICE OF CLAIMS. Promptly notify the Secured Party of any
Claim affecting the Collateral, or any part thereof, or the Security
Interest herein created, and at the request of the Secured Party,
appear in and defend, at Pledgor's expense, any such Claim.
6. NEGATIVE COVENANTS OF PLEDGOR. Pledgor further covenants and agrees
that, without the prior written consent of the Secured Party, Pledgor will not,
and will not permit any of its subsidiaries, or the Manager with respect to
Pledgor or any such subsidiary, to:
(a) ASSET DISPOSITIONS. Except as expressly permitted in the
Restructuring Agreement or in any other Note Document entered into on
or after the date hereof, sell, lease, license (including entering into
or permitting to exist any Franchise Agreement, Area Development
Agreement), assign, transfer or otherwise dispose of any of its assets;
(b) LIENS. Except as expressly permitted in the Restructuring
Agreement or in any other Note Document entered into on or after the
date hereof, create any other security interest in, mortgage or
otherwise encumber any of its assets (including the Collateral), or any
part thereof, or permit the same to be or become subject to any lien,
attachment, execution, sequestration, other legal or equitable process
or any encumbrance of any kind or character, except for Liens in favor
of Secured Party;
(c) AMENDMENTS TO MATERIAL CONTRACTS. Except as expressly
permitted in the Restructuring Agreement or in any other Note Document
entered into on or after the date hereof, amend, modify or terminate or
consent to an amendment, modification or termination of the Secured
Party ADA, the Assignments, the Management Agreement or the Branding
Subsidiary License Agreement;
(d) CHANGE IN BUSINESS OR FORM. Make any material change in
the principal nature of its business; change its organizational
identification number, state of
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organizational or organization identity; or reorganize, or
recapitalize, or reclassify its stock or ownership interests;
(e) MERGER. Merge with, consolidate with, acquire all or
substantially all of the assets or capital stock (or other ownership
interests) of, or otherwise combine with, any Person or form any
subsidiary, except that any subsidiary of Pledgor may merge or
consolidate with Pledgor (so long as Pledgor is the surviving entity);
(f) PLEDGOR FUNDS. Commingle any Pledgor funds with funds of
any other Person.
7. AUDIT RIGHTS. Pledgor shall permit (and cause Manager to permit)
Secured Party or its designee (at Pledgor's expense) to examine and audit, not
more often than twice per calendar year, upon prior reasonable notice to Manager
and/or Pledgor, as applicable, during business hours, but without unreasonably
disturbing such Pledgor's or Manager's operations, the quarterly results of
Pledgor reflected in filings with the Securities and Exchange Commission and
supporting information thereto.
8. REMEDIES. Upon the occurrence of an Event of Default, in addition to
any and all other rights and remedies which the Secured Party may then have
hereunder, under the Uniform Commercial Code of the State of Texas or of any
other pertinent jurisdiction (the "Code"), or otherwise, the Secured Party may,
at its option:
(a) enter upon the premises where any of the Collateral not in
the possession of the Secured Party or its agent is located and take
possession thereof and remove the same, with or without judicial
process;
(b) reduce its claim to judgment or foreclose or otherwise
enforce the Security Interest, in whole or in part, by any available
judicial procedure;
(c) after notification, if any, provided for herein, sell,
lease, or otherwise dispose of, at the offices of the Secured Party, on
the premises of Pledgor, or elsewhere, all or any part of the
Collateral, in its then condition or following any commercially
reasonable preparation or processing, and any such sale or other
disposition may be as a unit or in parcels, by public or private
proceedings, and by way of one or more contracts (it being agreed that
the sale of any part of the Collateral shall not exhaust the Secured
Party's power of sale, but sales may be made from time to time, and at
any time, until all of the Collateral has been sold or until the
Obligations have been paid and performed in full), and at any such sale
it shall not be necessary to exhibit any of the Collateral;
(d) at its discretion, surrender any policies of insurance on
the Collateral and receive the unearned premiums, and, in connection
therewith, the Pledgor hereby appoints the Secured Party as the agent
and attorney-in-fact for the Pledgor to collect such premiums;
(e) at its discretion, retain the Collateral in satisfaction
of the Obligations whenever the circumstances are such that the Secured
Party is entitled to do so under the Code or otherwise; and
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(f) exercise any and all other rights, remedies and privileges
it may have under any other agreement securing all or part of the
Obligations.
Any and all proceeds ever received by the Secured Party from any sale
or other disposition of the Collateral, or any part thereof, or the exercise of
any other remedy pursuant hereto shall be applied by the Secured Party to the
Obligations in such order and manner as the Secured Party, in its sole
discretion, may deem appropriate, notwithstanding any directions or instructions
to the contrary by the Pledgor; if such proceeds are not sufficient to pay the
Obligations in full, the Pledgor shall remain liable to the Secured Party for
the deficiency.
With respect to any of the Collateral which is or becomes accounts,
contract rights, instruments, or chattel paper, the Secured Party, without
notice to the Pledgor, shall be entitled, but not obligated, at any time and
from time to time to notify and direct the Account Debtor or Pledgor thereon to
thereafter make all payments on such Collateral directly to the Secured Party,
regardless of whether the Pledgor was previously making collections thereon.
Each Account Debtor and Pledgor making payment to the Secured Party hereunder
shall be fully protected in relying on the written statement of the Secured
Party that he then holds the Security Interest which entitles him to receive
such payment, and the receipt of the Secured Party for such payment shall be
full acquittance therefor to the one making such payment.
9. COSTS, RISKS. Should any part of the tangible Collateral come into
the possession of the Secured Party, whether before or after the occurrence of
and Event of Default, the Secured Party may, but shall have no obligation to,
use or operate such Collateral for the purpose of preserving it or its value, or
pursuant to the order of a court of appropriate jurisdiction or in accordance
with any other rights held by the Secured Party in respect of the Collateral.
The Pledgor covenants to promptly reimburse and pay to the Secured Party, at the
Secured Party's request the amount of all reasonable expenses (including the
cost of any insurance and payment of taxes or other charges) incurred by the
Secured Party in connection with its custody, preservation, use, or operation of
the Collateral, and, all such expenses, costs, taxes, and other charges shall be
a part of the Obligations and shall bear interest at the Default Rate from the
date incurred until the date repaid to the Secured Party. It is agreed, however,
that the risk of loss or damage to such Collateral is on the Pledgor, and the
Secured Party shall have no liability whatsoever (i) for failure to preserve the
value of any Collateral, (ii) for maintaining any obligation in terms of
payment, or (iii) for failure to obtain or maintain insurance, or to determine
whether any insurance ever in force is adequate as to amount or as to the risks
insured.
10. EXPENSES; INDEMNITY.
(a) Pledgor agrees to pay or reimburse Secured Party for all
costs and expenses incurred by Secured Party in connection with the
preparation, execution and delivery of this Agreement and any other
Note Document and the consummation and performance of the transactions
contemplated hereby, including, without limitation, all legal fees.
Pledgor further agrees to pay or reimburse Secured Party for all costs
and expenses (all of which shall become part of the Obligations)
incurred in connection with the enforcement or attempted enforcement,
or preservation of any rights under this Agreement, and any other Note
Document, or in connection with any refinancing, or restructuring of
any such documents in the nature of a "workout" or of any insolvency or
bankruptcy proceeding,
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including, without limitation, reasonable attorneys' fees and costs.
The foregoing costs and expenses to be reimbursed by Pledgor shall
include all search, filing, recording, insurance and appraisal charges
and fees and taxes related thereto, and other out-of-pocket expenses
incurred by Secured Party and the cost of independent public
accountants and other outside experts retained by Secured Party. The
agreements in this Section shall survive repayment of all Obligations
and termination of this Agreement.
(b) Pledgor shall indemnify and hold Secured Party and its
Affiliates, and their respective employees, attorneys and agents (each,
an "Indemnified Person"), harmless from and against any Claim which may
be instituted or asserted against or incurred by any such Indemnified
Person as the result of the transactions contemplated under this
Agreement and the other Note Documents, including any legal costs and
expenses of disputes between the parties to this Agreement or any other
Note Document; provided, that Pledgor shall not be liable for
indemnification of an Indemnified Person to the extent that any such
Claim is finally determined by a court of competent jurisdiction to
have resulted solely from such Indemnified Person's gross negligence or
willful misconduct. NO INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR
LIABLE TO ANY OTHER PARTY TO ANY LOAN DOCUMENT, ANY SUCCESSOR, ASSIGNEE
OR THIRD PARTY BENEFICIARY OR ANY OTHER PERSON ASSERTING CLAIMS
DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR
CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT OR AS A RESULT OF ANY TRANSACTION
CONTEMPLATED HEREUNDER OR THEREUNDER.
(c) In any suit, proceeding or action brought by Secured Party
relating to any item of Collateral or any sum owing hereunder, or to
enforce any provision of any item of Collateral, Pledgor shall save,
indemnify and keep Secured Party harmless from and against all expense,
loss or damage suffered by reason of such action or any defense,
setoff, or counterclaim asserted for any reason by the other party or
parties to such litigation and however arising. All obligations of
Pledgor with respect to any item of Collateral shall be and remain
enforceable against, and only against, Pledgor, and shall not be
enforceable against Secured Party.
11. NOTICE. Reasonable notification of the time and place of any public
sale of the Collateral, or reasonable notification of the time after which any
private sale or other intended disposition of the Collateral is to be made
(including retention thereof in satisfaction of the Obligations), shall be sent
to the Pledgor and to any other person entitled under the Code to notice. It is
agreed that notice sent or given at least ten (10) calendar days prior to the
taking of the action to which the notice relates is reasonable notification and
notice for the purposes of this paragraph.
12. RIGHTS CUMULATIVE. All rights and remedies of the Secured Party
hereunder are cumulative of each other and of every other right or remedy which
the Secured Party may otherwise have at law or in equity or under any other
contract or other writing for the enforcement of the Security Interest herein or
in the collection of the Note or the Obligations,
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and the exercise of one or more rights or remedies shall not prejudice or impair
the concurrent or subsequent exercise of other rights or remedies.
13. ASSIGNMENT. The rights, powers and interests held by the Secured
Party hereunder, together with the Security Interest in the Collateral, may be
transferred and assigned by the Secured Party, in whole or in part at such time
and upon such terms as the Secured Party may deem advisable.
14. POWER OF ATTORNEY. The Secured Party is hereby appointed the
attorney-in-fact of the Pledgor, effective upon the occurrence of an Event of
Default, for the purpose of carrying out the provisions of this Agreement and
taking any action and executing any instruments which the Secured Party may deem
necessary or advisable to accomplish the purposes hereof, which appointment as
attorney-in-fact is irrevocable and coupled with an interest.
15. NO WAIVERS. No failure on the part of the Secured Party to
exercise, and no delay in exercising any right, power or remedy hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise by the
Secured Party of any right, power or remedy hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
16. BINDING EFFECT. This Agreement shall be binding on the Pledgor and
the Pledgor's successors and assigns and shall inure to the benefit of the
Secured Party, and the Secured Party's successors and assigns.
17. TERMINATION. This Agreement and the Security Interest in the
Collateral will terminate when the Obligations secured hereby have been paid in
full by extinguishment thereof but not by renewal, modification or extension
thereof.
18. GOVERNING LAW. The law governing this Agreement will be that of the
State of Texas in force on the date of execution of this Agreement. All
obligations of the Pledgor under the terms of this Agreement shall be
performable in Dallas County, Texas.
19. MAILINGS. All notices and other communications hereunder shall be
in writing and shall be mailed, sent or delivered in accordance with the
Restructuring Agreement.
20. AGREEMENT AS FINANCING STATEMENT. The Secured Party shall have the
right at any time to execute and file this Agreement as a financing statement,
but the failure of the Secured Party to do so shall not impair the validity or
enforceability of this Agreement.
21. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under present or future laws effective during
the term of this Agreement, the legality, validity, and enforceability of the
remaining provisions of this Agreement shall not be affected thereby, and in
lieu of each such illegal, invalid, or unenforceable provision there shall be
added automatically as a part of this Agreement a provision as similar in terms
to such illegal, invalid, or unenforceable provision as may be possible and be
legal, valid, and enforceable.
22. COUNTERPARTS. This Agreement has been executed in a number of
identical counterparts, each of which, for all purposes, is to be deemed an
original, and all of which
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collectively constitute one agreement, but in making proof of this Agreement, it
shall not be necessary to produce or account for more than one such counterpart.
23. NUMBER AND GENDER OF WORDS. Whenever herein the singular number is
used, the same shall include the plural where appropriate, and words of any
gender shall include each other gender where appropriate.
24. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement,
and supersedes all other prior agreements and understandings, both written and
oral, among the parties with respect to the subject matter hereof.
[signature page follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day, month and year first above written.
PLEDGOR:
SCHLOTZSKY'S FRANCHISOR, LLC
By: /s/ XXXXXXX X. XXXXXX
--------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Senior Vice President
SECURED PARTY:
NS ASSOCIATES I, LTD.
By: NS Associates, Inc.
Its: General Partner
By: /s/ XXXXXX XXXXXXXXX
--------------------------------
Xxxxxx Xxxxxxxxx
President
[SIGNATURE PAGE TO SECURITY AGREEMENT]
