Exhibit 10.3
THE SECURITY REPRESENTED BY THIS NOTE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. ANY
TRANSFER OF SUCH SECURITY WILL BE INVALID UNLESS A REGISTRATION STATEMENT UNDER
THE ACT AND AS REQUIRED BY BLUE SKY LAWS IS IN EFFECT AS TO SUCH TRANSFER OR AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
PHS Group Inc.
Secured Promissory Note
Note No. 2007-02
$3,250,000.00 January 19, 2007
FOR VALUE RECEIVED, subject to the terms and conditions of this Secured
Promissory Note (the 'Note'), PHS GROUP INC., a Pennsylvania corporation with
its principal offices located at 223 Underhill Blvd, Syosset, New York, 11971
(the "Borrower"), hereby promises to pay to the order of MILFAM I L.P. (the
"Holder") with its principal office located at 4550 Gordon Drive, Naples,
Florida, 34102, the principal sum of THREE MILLION, TWO HUNDRED AND FIFTY
THOUSAND dollars ($3,250,000.00) on January 15, 2012 or, if such day is not a
regular Business Day, on the next Business Day thereafter, with all accrued but
unpaid interest (as provided below) to such date (the 'Maturity Date"). Subject
to the terms and conditions of this Note, the Borrower also promises to pay to
the Holder interest accrued on the outstanding unpaid principal amount hereof
until such principal amount is paid at the rate of 11.25% per annum, compounding
quarterly, from the date hereof. Said interest shall become due quarterly in
arrears and shall be payable on the last day of each calendar quarter (each, an
"Interest Payment Date") in respect of the immediately preceding completed
calendar quarter. The first Interest Payment Date will be March 31, 2007.
Notwithstanding the foregoing, the interest rate set forth above shall be
reduced to a rate of 11.00% per annum (the "Reduced Rate") upon the Holder
obtaining a first priority secured interest in all of the assets of the
Borrower, Synergy Brands Inc. (the "Parent Company") and Gran Reserve
Corporation. In order for the Reduced Rate to be applicable, the Borrower must
provide written notice to the Holder evidencing that all prior security
interests granted to IIG Capital LLC (the "IIG Security Interests") in
connection with or related to the IIG Loan Agreement (as such term is defined in
the Securities Purchase Agreement) have been duly terminated and are of no
further force and effect. Such notice shall be subject to the independent
confirmation of the Holder that in its sole discretion the IIG Security
Interests have been duly terminated and are of no further force and effect. From
and after the date upon which the Holder provides written notice to the Borrower
confirming that the IIG Security Interests have been duly terminated, the
Secured Notes will begin accruing interest at the Reduced Rate. Principal will
be amortized over ten years and payable, as set forth on Schedule A, in equal
monthly installments on the last day of each month beginning on January 31,
2007, with the balance to be paid in full on the Maturity Date. In the event any
payment is not timely paid when due, interest shall accrue on such late payment
at a per annum rate of eighteen percent (18%) from and including the date of
such late payment to (but excluding) the date such late payment is paid in full.
All payments due hereunder (whether of principal or interest) shall be payable
in lawful money of the United States in immediately available funds.
This Note is one of the Notes issued pursuant to that certain Securities
Purchase Agreement dated as of the date hereof, among the Borrower, the Parent
Company and the purchasers named therein (the "Securities Purchase Agreement")
and shall be entitled to the benefits thereof. The Holder has been granted a
security interest in certain assets of the Borrower, the Parent Company and its
Subsidiaries as more fully described in that certain Security, Pledge and
Guaranty Agreement (the "Security Agreement") dated as of the date hereof. The
obligations of the Borrower under this Note have also been guaranteed by certain
Subsidiaries of the Parent Company pursuant to and as set forth in the Security
Agreement. The Holder of this Note is also entitled to the rights and benefits
granted pursuant to that certain Subordination and Intercreditor Agreement,
dated as of the date hereof, by and among the Borrower, the Parent Company,
certain Subsidiaries thereto, Laurus Master Fund, Ltd., the Holder and Lloyd I.
Miller, III.
1. Definitions. Unless the context otherwise requires, the following terms
shall have the following respective meanings:
"Borrower" has the meaning ascribed to such term in the first paragraph of
this Note.
"Business Day" means any day of the week other than Saturday, Sunday or any
other day of the week on which commercial banks in New York, New York are
authorized or required by law to close.
"Event of Default" has the meaning ascribed to such term in Section 4(a) of
this Note.
"Holder" has the meaning ascribed to such term in the first paragraph of
this Note.
"Maturity Date" has the meaning ascribed to such term in the first
paragraph of this Note.
"Note" has the meaning ascribed to such term in the first paragraph of this
instrument.
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"Security Agreement" has the meaning ascribed to such term in the second
paragraph of this Note.
"Securities Purchase Agreement" has the meaning ascribed to such term in
the second paragraph of this Note.
"Subsidiaries" has the meaning ascribed to such term in the Securities
Purchase Agreement.
2. Accounting Terms. All accounting terms not specifically defined in this
Note shall be construed in accordance with United States generally accepted
accounting principles and, if applicable, consistent with those applied in the
preparation of the financial statements of the Borrower.
3. Prepayment. The Note may be paid prior to the Maturity Date provided
that prior to such repayment the Borrower provides the Holder with five (5)
Business Days' advance written notice.
4. Events of Default.
(a) Events Constituting An Event of Default. Any of the events set forth in
Section 1.11 of the Security Purchase Agreement, which section is incorporated
herein by reference, shall constitute an "Event of Default" under this Note.
(b) Consequences of an Event of Default. Upon the occurrence of an Event of
Default or at any time thereafter, the Holder may, by notice to the Borrower,
declare the entire unpaid principal amount of the Note, all interest accrued and
unpaid thereon and all other amounts payable under this Note to be forthwith due
and payable, whereupon the Note, all such accrued interest and all such amounts
will become and be forthwith due and payable (unless there will have occurred an
Event of Default under Section 1.11(i) of the Securities Purchase Agreement, in
which case all such amounts will automatically become due and payable) without
offset or counterclaim of any kind and without presentment, demand, protest or
further notice of any kind, and without regard to the running of the statute of
limitations, all of which are by this Note expressly waived by the Borrower.
5. General Matters.
(a) Applicable Law. This Note shall be governed by the internal laws (and
not the law of conflicts) of the State of New York.
(b) Fees and Expenses. In the event that any suit or action is instituted
to enforce any provision under this Note, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
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Note, including without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals. Notwithstanding the foregoing, the Borrower
agrees to pay and hold Holder harmless against liability for the payment of the
reasonable fees and expenses of Holder (including, without limitation,
reasonable attorneys' fees and expenses and out of pocket expenses of Holder and
its representatives, including, without limitation, fees and expenses for
travel, background investigations and outside consultants) arising in connection
with any refinancing or restructuring of the credit arrangements provided under
this Note in the nature of a "work-out" or pursuant to any insolvency or
bankruptcy proceedings. If default is made in the payment of this Note, the
Borrower shall pay to Holder's costs of collection, including reasonable
attorney's fees.
(c) Amendment or Waiver. Any term of this Note may be amended, and the
observance of any term of this Note may be waived (either generally or in a
particular instance and either retroactively or prospectively) only by the
written consent of the Holder.
(d) Headings. The headings in this Note are for purposes of convenience of
reference only, and shall not be deemed to constitute a part of this Note.
(e) Notices. All notices, requests, consents and other communications
required or permitted hereunder shall be in writing (including telecopy or
similar writing) and shall be sent to the address of the party set forth in the
Securities Purchase Agreement. Any notice, request, consent or other
communication hereunder shall be deemed to have been given and received on the
day on which it is delivered (by any means including personal delivery,
overnight air courier, United States mail) or telecopied (or, if such day is not
a Business Day or if the notice, request, consent or communication is not
telecopied during business hours of the intended recipient, at the place of
receipt, on the next following Business Day). Any of the parties hereto may, by
notice given hereunder, designate any further or different address and/or number
to which subsequent notices or other communications shall be sent. Unless and
until such written notice is received, the addresses and numbers as provided
herein shall be deemed to continue in effect for all purposes hereunder.
(f) Failure or Indulgence Not Waiver. No failure or delay on the part of
the Holder hereof in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
(g) Amendment Provision. The term "Note" and all reference thereto, as used
throughout this instrument, shall mean this instrument as originally executed,
or if later amended, supplemented or modified, then as so amended, supplemented
or modified.
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(h) Assignability. This Note shall be binding upon the Borrower and its
successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder in accordance with the
requirements of the Securities Purchase Agreement. This Note shall not be
assigned and none of the obligations related hereunder shall be delegated by the
Borrower without the prior written consent of the Holder.
(i) Usury Limitation. In no event shall the amount paid or agreed to be
paid to the Holder for the use or forbearance of money to be advanced hereunder
exceed the highest lawful rate permissible under the then applicable usury laws.
If it is hereafter determined by a court of competent jurisdiction that the
interest payable hereunder is in excess of the amount which the Holder may
legally collect under the then applicable usury laws, such amount which would be
excessive interest shall be applied to the payment of the unpaid principal
balance due hereunder and not to the payment of interest or, if all principal
shall previously have been paid, promptly repaid by the Holder to the Borrower.
(j) Severability. Every provision of this Note is intended to be severable.
If any term or provision hereof is declared by a court of competent jurisdiction
to be illegal or invalid, such illegal or invalid term or provision shall not
affect the balance of the terms and provisions hereof, which terms and
provisions shall remain binding and enforceable.
(k) Certain Borrower Waivers. The Borrower and any endorsers of this Note
hereby waive diligence, presentment, protest, demand and notice of every kind
and, to the fullest extent permitted by law, the right to plead any statute of
limitations as a defense to any demand hereunder.
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IN WITNESS WHEREOF, the Borrower has caused this Note to be executed as of
the day and year first above written.
PHS GROUP INC.,
a Pennsylvania corporation
By:
Name:
Title:
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