SYNERGY BRANDS, INC. CORPORATION AND CERTAIN OF ITS SUBSIDIARIES
MASTER SECURITY AGREEMENT
To: Laurus Master Fund, Ltd.
c/o Ironshore Corporate Services, Ltd.
P.O. Box 1234 G.T
Queensgate House
South Church Street
Grand Cayman, Cayman Islands
Date: April 2, 2004
To Whom It May Concern:
1. To secure the payment of all Obligations (as hereafter defined), Synergy
Brands, Inc., a Delaware corporation (the "Company") each of the other
undersigned parties (other than Laurus Master Fund, Ltd "Laurus")) and each
other entity that is required to enter into this Master Security Agreement (each
an "Assignor", collectively, the "Assignors") hereby assigns and grants to
Laurus a continuing security interest in all of the following property now owned
or at any time hereafter acquired by any Assignor, or in which any Assignor now
have or at any time in the future may acquire any right, title or interest (the
"Collateral"): all accounts, inventory, equipment, goods, documents, instruments
(including, without limitation, promissory notes), contract rights, general
intangibles (including, without limitation, payment intangibles and an absolute
right to license on terms no less favorable than those current in effect among
our affiliates, but not own intellectual property), chattel paper, supporting
obligations, investment property (including, without limitation, all equity
interests owned by any Assignor), letter-of-credit rights, trademarks and
tradestyles in which any Assignor now have or hereafter may acquire any right,
title or interest, all proceeds and products thereof (including, without
limitation, proceeds of insurance) and all additions, accessions and
substitutions thereto or therefore. In the event any Assignor wishes to finance
the acquisition of any hereafter acquired equipment and/or inventory , in each
case, in the ordinary course of business and have obtained a commitment from a
financing source to finance such equipment or inventory from an unrelated third
party, Laurus agrees to, upon the request of the respective Assignor, release
its security interest on such hereafter acquired equipment or inventory so
financed by such third party financing source. Except as otherwise defined
herein, all capitalized terms used herein shall have the meaning provided such
terms in the Securities Purchase Agreement referred to below.
2. The term "Obligations" as used herein shall mean and include all debts,
liabilities and obligations owing by each Assignor to Laurus arising under, out
of, or in connection with: (i) that certain Securities Purchase Agreement dated
as of the date hereof by and between the Company and Laurus (the "Securities
Purchase Agreement"), (ii) that certain Secured Convertible Note dated as of the
date hereof made by the Company in favor of Laurus (the "Term Note"), (iii) that
certain Warrant dated as of the date hereof made by the Company in favor of
Laurus (the "Warrant"), (iv) that certain Subsidiary Guaranty dated as of the
date hereof made by certain Subsidiaries of the Company, (the "Subsidiary
Guaranty"), (v) that certain Registration Rights Agreement dated as of the date
hereof by and between the Company and Laurus (the " Registration Rights
Agreement"), (vi) this Master Security Agreement, (vii) that certain Stock
Pledge Agreement dated as of the date hereof among the Company and Laurus (the
"Stock Pledge Agreement"), (viii) that certain Escrow Agreement dated as of the
date hereof among the Company, Laurus and the escrow agent referred to therein
(the "Escrow Agreement"), and (ix) that certain Intercompany Subordination
Agreement dated as of the date hereof among the Company, certain Subsidiaries of
the Company and Laurus (the "Intercompany Subordination Agreement") (the
Securities Purchase Agreement, the Term Note, the Warrant, the Registration
Rights Agreement, the Subsidiary Guaranty, this Master Security Agreement, the
Stock Pledge Agreement, the Escrow Agreement and the Intercompany Subordination
Agreement, as each may be amended, modified, restated or supplemented from time
to time, are collectively referred to as the "Documents"), and in connection
with any documents, instruments or agreements relating to or executed in
connection with the Documents or any documents, instruments or agreements
referred to therein or otherwise, and in connection with any other indebtedness,
obligations or liabilities of any Assignor to Laurus, whether now existing or
hereafter arising, direct or indirect, liquidated or unliquidated, absolute or
contingent, due or not due and whether under, pursuant to or evidenced by a
note, agreement, guaranty, instrument or otherwise, in each case, irrespective
of the genuineness, validity, regularity or enforceability of such Obligations,
or of any instrument evidencing any of the Obligations or of any collateral
therefor or of the existence or extent of such collateral, and irrespective of
the allowability, allowance or disallowance of any or all of the Obligations in
any case commenced by or against any Assignor under Title 11, United States
Code, including, without limitation, obligations or indebtedness of each
Assignor for post-petition interest, fees, costs and charges that would have
accrued or been added to the Obligations but for the commencement of such case.
3. Each Assignor hereby jointly and severally represents, warrants and covenants
to Laurus that:
(a) it is a corporation, partnership or limited liability company, as the case
may be, validly existing, in good standing and organized under the respective
laws of its jurisdiction of organization, as set forh on Schedule A and each
Assignor will provide Laurus thirty (30) days' prior written notice of any
change in any of its respective jurisdiction of organization;
(b) its legal name is as set forth in its respective Certificate of
Incorporation or other organizational document (as applicable) as amended
through the date hereof on Schedule A and it will provide Laurus thirty (30)
days' prior written notice of any change in any of its legal names;
(c) its organizational identification number (if applicable) is as set forth on
Schedule A hereto and it will provide Laurus thirty (30) days' prior written
notice of any change in any of its organizational identification numbers;
(d) it is the lawful owner of the respective Collateral and it has the sole
right to grant a security interest therein and will defend the Collateral
against all claims and demands of all persons and entities;
(e) it will keep its respective Collateral free and clear of all attachments,
levies, taxes, liens, security interests and encumbrances of every kind and
nature ("Encumbrances"), except (i) Encumbrances securing the Obligations, (ii)
Encumbrances securing indebtedness of any Assignor owed to IIG Capital LLC or
any of its affiliates under agreements currently in place on the date hereof,
and (iii) to the extent said Encumbrance does not secure indebtedness in excess
of $100,000 and such Encumbrance is removed or otherwise released within ten
(10) days of the creation thereof;
(f) it will, at its and the other Assignors joint and several cost and expense
keep the Collateral in good state of repair (ordinary wear and tear excepted)
and will not waste or destroy the same or any part thereof other than ordinary
course discarding of items no longer used or useful in its or such other
Assignors' business;
(g) it will not without Laurus' prior written consent, sell, exchange, lease or
otherwise dispose of the Collateral, whether by sale, lease or otherwise, except
for the sale of inventory and collections of accounts receivable in the ordinary
course of business and for the disposition or transfer in the ordinary course of
business during any fiscal year of obsolete and worn-out equipment or equipment
no longer necessary for its ongoing needs, having an aggregate fair market value
of not more than $25,000 and only to the extent that:
(i) the proceeds of any such disposition are used to acquire replacement
Collateral which is subject to Laurus' security interest hereunder, or are
used to repay Obligations or to pay general corporate expenses (it being
understood that such replacement Collateral may also be subject to a
security interest in favor of IIG Capital LLC); and
(ii) following the occurrence of an Event of Default which continues to
exist the proceeds of which are remitted to Laurus to be held as cash
collateral for the Obligations;
(h) it will insure or cause the Collateral to be insured with Laurus' name as an
additional insured against loss or damage by fire, theft, burglary, pilferage,
loss in transit and such other hazards as Laurus shall specify in amounts and
under policies by insurers as is customary in the case of companies engaged in
businesses similar to the Company's business and all premiums thereon shall be
paid by such Assignor and copies of the policies delivered to Laurus. If any
such Assignor fails to do so, Laurus may procure such insurance and the cost
thereof shall be promptly reimbursed by the Assignors, jointly and severally,
and shall constitute Obligations;
(i) it will at all reasonable times allow Laurus or Laurus' representatives
free access to and the right of inspection of the Collateral;
(j) such Assignor (jointly and severally with each other Assignor) hereby
indemnifies and saves Laurus harmless from all loss, costs, damage, liability
and/or expense, including reasonable attorneys' fees, that Laurus may sustain or
incur to enforce payment, performance or fulfillment of any of the Obligations
and/or in the enforcement of this Master Security Agreement or in the
prosecution or defense of any action or proceeding either against Laurus or any
Assignor concerning any matter growing out of or in connection with this Master
Security Agreement, and/or any of the Obligations and/or any of the Collateral
except to the extent caused by Laurus' own gross negligence or willful
misconduct (as determined by a court of competent jurisdiction in a final and
nonappealable decision).
4. The occurrence of any of the following events or conditions shall constitute
an "Event of Default":
(a) Breach of any covenant, warranty, representation or statement made or
furnished to Laurus by any Assignor or on any Assignor's benefit was false or
misleading in any material respect when made or furnished, and if subject to
cure, shall not be cured for a period of fifteen (15) days;
(b) the loss, theft, substantial damage, destruction, sale or encumbrance to or
of any of the Collateral or the making of any levy, seizure or attachment
thereof or thereon except to the extent:
(i) such loss is covered by insurance proceeds which are used to replace
the item or repay Laurus; or
(ii) said levy, seizure or attachment does not secure indebtedness in
excess of $100,000 and such levy, seizure or attachment has not been
removed or otherwise released within ten (10) days of the creation or the
assertion thereof;
(b) any Assignor shall become insolvent, cease operations, dissolve, terminate
our business existence, make 0 an assignment for the benefit of creditors,
suffer the appointment of a receiver, trustee, liquidator or custodian of all or
any part of Assignors' property;
(c) any proceedings under any bankruptcy or insolvency law shall be commenced by
or against any Assignor and if commenced against any Assignor shall not be
dismissed within thirty (30) days;
(d) the Company shall repudiate, purport to revoke or fail to perform any or all
of its obligations under the Note (after passage of applicable cure period, if
any) in any material respect; or
(e) an Event of Default shall have occurred under and as defined in the
Securities Purchase Agreement or in any other Document .
5. Upon the occurrence of any Event of Default and at any time thereafter,
Laurus may declare all Obligations immediately due and payable and Laurus shall
have the remedies of a secured party provided in the Uniform Commercial Code as
in effect in the State of New York, this Agreement and other applicable law.
Upon the occurrence of any Event of Default and at any time thereafter, Laurus
will have the right to take possession of the Collateral and to maintain such
possession on our premises or to remove the Collateral or any part thereof to
such other premises as Laurus may desire. Upon Laurus' request, each of the
Assignors shall assemble or cause the Collateral to be assembled and make it
available to Laurus at a place designated by Laurus. If any notification of
intended disposition of any Collateral is required by law, such notification, if
mailed, shall be deemed properly and reasonably given if mailed at least ten
(10) days before such disposition, postage prepaid, addressed to any Assignor
either at such Assignor's address shown herein or at any address appearing on
Laurus' records for such Assignor. Any proceeds of any disposition of any of the
Collateral shall be applied by Laurus to the payment of all expenses in
connection with the sale of the Collateral, including reasonable attorneys' fees
and other legal expenses and disbursements and the reasonable expense of
retaking, holding, preparing for sale, selling, and the like, and any balance of
such proceeds may be applied by Laurus toward the payment of the Obligations in
such order of application as Laurus may elect, and each Assignor shall be liable
for any deficiency.
6. If any Assignor defaults in the performance or fulfillment of any of the
terms, conditions, promises, covenants, provisions or warranties on such
Assignor's part to be performed or fulfilled under or pursuant to this Master
Security Agreement, Laurus may, at its option without waiving its right to
enforce this Master Security Agreement according to its terms, immediately or at
any time thereafter and without notice to any Assignor, perform or fulfill the
same or cause the performance or fulfillment of the same for each Assignor's
joint and several account and at each Assignor's joint and several cost and
expense, and the cost and expense thereof (including reasonable attorneys' fees)
shall be added to the Obligations and shall be payable on demand with interest
thereon at the highest rate permitted by law.
7. Each Assignor appoints Laurus, any of Laurus' officers, employees or any
other person or entity whom Laurus may designate as our attorney, with power to
execute such documents in each of our behalf and to supply any omitted
information and correct patent errors in any documents executed by any Assignor
or, in the event that such Assignor does not act in a prompt manner, on such
Assignor's behalf; to file financing statements against us covering the
Collateral; to sign our name on public records; and to do all other things
Laurus deems necessary as allowed under applicable law, to carry out this Master
Security Agreement. Each Assignor hereby ratifies and approves all acts of the
attorney and neither Laurus nor the attorney will be liable for any acts of
commission or omission, nor for any error of judgment or mistake of fact or law
other than gross negligence or willful misconduct (as determined by a court of
competent jurisdiction in a final and non-appealable decision). This power being
coupled with an interest, is irrevocable so long as any Obligations remains
unpaid.
8. No delay or failure on Laurus' part in exercising any right, privilege or
option hereunder shall operate as a waiver of such or of any other right,
privilege, remedy or option, and no waiver whatever shall be valid unless in
writing, signed by Laurus and then only to the extent therein set forth, and no
waiver by Laurus of any default shall operate as a waiver of any other default
or of the same default on a future occasion. Laurus' books and records
containing entries with respect to the Obligations shall be admissible in
evidence in any action or proceeding. Laurus shall have the right to enforce any
one or more of the remedies available to Laurus, successively, alternately or
concurrently. Each Assignor agrees to join with Laurus in executing financing
statements or other instruments to the extent required by the Uniform Commercial
Code in form satisfactory to Laurus and in executing such other documents or
instruments as may be required or deemed necessary by Laurus for purposes of
affecting or continuing Laurus' security interest in the Collateral.
9. This Master Security Agreement shall be governed by and construed in
accordance with the laws of the State of New York and cannot be terminated
orally. All of the rights, remedies, options, privileges and elections given to
Laurus hereunder shall inure to the benefit of Laurus' successors and assigns.
The term "Laurus" as herein used shall include Laurus, any parent of Laurus, any
of Laurus' subsidiaries and any co-subsidiaries of Laurus' parent, whether now
existing or hereafter created or acquired, and all of the terms, conditions,
promises, covenants, provisions and warranties of this Agreement shall inure to
the benefit of the foregoing and shall bind the representatives, successors and
assigns of each Assignor and each of the foregoing. Laurus and each Assignor
hereby (a) waive any and all right to trial by jury in litigation relating to
this Agreement and the transactions contemplated hereby, (b) submit to the
nonexclusive jurisdiction of any New York State court sitting in the borough of
Manhattan, the city of New York and (c) waive any objection Laurus or each
Assignor may have as to the bringing or maintaining of such action with any such
court.
10. All notices from Laurus to any Assignor shall be sufficiently given if
mailed or delivered to such Assignor's address set forth below.
Very truly yours,
SYNERGY BRANDS, INC.
By:
Name:
Title:
Address
PHS GROUP, INC.
By:
Name:
Title:
Address:
GRAN RESERVE CORPORATION
By:
Name:
Title:
Address:
ACKNOWLEDGED:
LAURUS MASTER FUND, LTD.
By:
Name:
Title:
SCHEDULE A
Assignor
Jurisdiction of Organization
Organization Identification Number
Synergy Brands, Inc.
Delaware
22-2993066
PHS Group, Inc.
Pennsylvania
22-3611766
Gran Reserve Corporation
Florida
27-0026581