ACKNOWLEDGMENT, RATIFICATION AND SUBORDINATION AGREEMENT
THIS ACKNOWLEDGMENT, RATIFICATION AND SUBORDINATION AGREEMENT (this
"Agreement") dated as of May 29, 2008, by and among Gran Reserve Corporation, a
Florida corporation and a wholly owned indirect subsidiary of Synergy (as
defined below) ("Gran Reserve"), GRC Group Inc., a Florida corporation ("GRC"),
Synergy Brands Inc., a Delaware corporation (referred to herein as either
"Synergy" or the "Junior Secured Party"), and Lloyd I. Miller, III ("Miller")
and Milfam I L.P., a Georgia limited partnership ("Milfam" and collectively
referred to herein with Miller as the "Senior Secured Parties"). The Senior
Secured Parties and Synergy are collectively referred to herein as the "Secured
Parties". Capitalized terms not otherwise defined herein shall have the meaning
as set forth in the Security Agreement (as defined below).
R E C I T A L S
A. WHEREAS, Synergy, PHS Group Inc., a Pennsylvania corporation and a
wholly owned indirect subsidiary of Synergy ("PHS"), and the Senior Secured
Parties are parties to that certain Securities Purchase Agreement dated as of
January 19, 2007, as amended by that certain First Amendment to Securities
Purchase Agreement, dated as of April 5, 2007 (as so amended and as further
amended, supplemented or otherwise modified from time to time, the "Purchase
Agreement"), pursuant to which (x) PHS issued and sold to the Senior Secured
Parties an initial aggregate principal amount of $8,000,000 of its secured
promissory notes (the "Secured Notes") and (y) Synergy issued and sold to the
Senior Secured Parties an aggregate of 1,075,000 shares of common stock, par
value $0.01 per share, of Synergy.
B. WHEREAS, as a condition to the Senior Secured Parties' obligations to
enter into the Purchase Agreement and to extend credit to PHS thereunder, PHS,
Synergy and certain subsidiaries of Synergy, including Gran Reserve, executed
and delivered that certain Security, Pledge and Guaranty Agreement, dated as of
January 19, 2007, as amended by that certain First Amendment to Security, Pledge
and Guaranty Agreement, dated as of April 5, 2007 (as so amended and as further
amended, supplemented or otherwise modified from time to time, the "Security
Agreement"), as security for the payment and performance of all obligations of
PHS and Synergy to the Senior Secured Parties and to guarantee all of the
obligations of PHS and Synergy under the Purchase Agreement.
C. WHEREAS, Synergy intends to enter into a Stock Purchase Agreement (the
"Stock Purchase Agreement"), in substantially the form attached hereto as
Exhibit A, with GRC, and Gran Reserve, pursuant to which, among other things,
Synergy would sell, transfer and assign to GRC all of the Company Stock (as
defined in the recitals of the Stock Purchase Agreement) for the Purchase Price
(as defined in Section 2 of the Stock Purchase Agreement) (the "Sale
Transaction");
D. WHEREAS, in connection with the Sale Transaction, GRC has issued a
secured promissory note (the "Gran Reserve Note") to Synergy whereby Gran
Reserve has granted a security interest to Synergy in all of the assets owned by
Gran Reserve as collateral for the indebtedness owed by GRC to Synergy under the
Gran Reserve Note;
E. WHEREAS, pursuant to that certain Waiver and Consent Agreement, dated as
of the date hereof (the "Waiver Agreement"), the Senior Secured Parties have
consented to the Sale Transaction; and
F. WHEREAS, in connection with the Senior Secured Parties consenting to the
Sale Transaction pursuant to the Waiver Agreement, GRC and Gran Reserve have
agreed to enter into this Agreement which shall, among other things, (i) contain
the acknowledgment and ratification by GRC and Gran Reserve of the continuation
after the consummation of the Sale Transaction of the security interest pursuant
to the Security Agreement of the Senior Secured Parties in all of the assets and
property now owned or hereafter acquired by Gran Reserve and (ii) provide for
the lien priority between the Senior Secured Parties and the Junior Secured
Party.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth and for other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereby agree as follows:
1. Acknowledgment and Agreements Regarding Security Interest and
Priorities.
(a) Acknowledgment and Ratification of Security Interest: GRC and Gran
Reserve hereby represent, warrant, acknowledge, ratify and agree that (i) the
security interest granted by Gran Reserve to the Senior Secured Parties pursuant
to the Security Agreement, continues to secure the payment and performance of
the obligations owed to the Senior Secured Parties under the Purchase Agreement
and (ii) the first priority continuing security interest granted to the Senior
Secured Parties in, lien on and right of set-off against, all of the assets and
property now owned and hereafter acquired by Gran Reserve pursuant to the
Security Agreement shall continue and remain in full force and effect following
the consummation of the Sale Transaction, including, without limitation, the
following agreements and obligations of Gran Reserve pursuant to the Security
Agreement:
(i) Name Change or Change of Jurisdiction: Gran Reserve shall not change
its jurisdiction of organization without first giving 30 days' prior written
notice of its intent to do so to the Secured Parties. Gran Reserve shall not
change its legal name or transact business under any other trade name without
first giving 30 days' prior written notice of its intent to do so to the Secured
Parties. With respect to such new name or jurisdiction of organization, Gran
Reserve shall have taken all action reasonably requested by the Secured Parties,
to maintain the security interest granted by Gran Reserve to the Secured Parties
at all times fully perfected and in full force and effect.
(ii) Authorization: To the extent required, Gran Reserve hereby authorizes
the Secured Parties to file a UCC financing statement naming Gran Reserve, as
debtor, and Secured Parties, as secured party, and covering all the Collateral
(as defined in the Security Agreement) in the jurisdictions and filing locations
deemed appropriate by Secured Parties to the extent necessary to perfect Secured
Parties' security interest in the Collateral.
(b) Maintenance of Existence: GRC and Gran Reserve will preserve and
maintain its existence.
(c) Mergers, Consolidations and Asset Sales: Neither GRC nor Gran Reserve
will be a party to any merger or consolidation, or sell, transfer, lease or
otherwise dispose of all or any substantial part of its assets without the prior
written consent of the Secured Parties.
(d) Change in the Nature of Business: Gran Reserve will not engage in any
business or activity other than the general nature of the business engaged in by
it as of the closing date of the Sale Transaction and Gran Reserve shall not
discontinue its engagement in any business or activity engaged in by it as of
the closing date of the Sale Transaction without the prior written consent of
the Secured Parties.
2. Subordination: Any lien on the assets of Gran Reserve held by Junior
Secured Party which secures the obligations owed by GRC under the Gran Reserve
Note shall be fully subordinate to any lien granted by Gran Reserve pursuant to
the Security Agreement in favor of the Senior Secured Parties which secures the
Obligations (as defined in the Security Agreement).
(a) Priority of Payments: All cash or other proceeds from any sale,
exchange, destruction, condemnation, foreclosure, or other disposition of any
Collateral (as such term is defined in the Security Agreement) shall, for so
long as the Security Agreement shall not have terminated in accordance with
Section 4 hereof, be applied first to satisfy the Obligations owed to the Senior
Secured Parties in full and second, to satisfy the obligations owed to Junior
Secured Party by GRC under the Gran Reserve Note.
(b) Exercise of Remedies: The Junior Secured Party may not exercise or seek
to exercise any rights or remedies (including, without limitation, any set-off,
commencement, prosecution, foreclosure or cause of action) with respect to the
assets of Gran Reserve or any collateral granted by Gran Reserve to the Secured
Parties until the earlier of (i) the payment in full in cash to Senior Secured
Parties with respect to the Obligations and (ii) the termination of the Security
Agreement in accordance with Section 4 hereof.
(c) Turnover of Proceeds: If any payment or distribution of any character
in respect of the Collateral, whether in cash, securities or other property
shall be received by Junior Secured Party in contravention of any of the terms
hereof or otherwise before the earlier of (i) the payment in full in cash to
Senior Secured Parties with respect to the Obligations and (ii) the termination
of the Security Agreement in accordance with Section 4 hereof, such payment or
distribution shall be received in trust for the benefit of, and shall be
immediately paid over or delivered and transferred to Senior Secured Parties for
application to the payment of all Obligations remaining unpaid, to the extent
necessary to pay all such Obligations owed to Senior Secured Parties in full.
3. Representations and Warranties. Each of the parties hereto each hereby
represent and warrant to the Purchasers (as of the date hereof) that it has full
power and authority to enter into this Agreement, and the agreements
contemplated hereby have been duly authorized, are valid and enforceable against
it, are not in contravention of any law, order or agreement by which it is bound
and do not require any consent, notice or filing of any kind.
4. Termination. This Agreement shall terminate upon the receipt by the
Secured Parties of a notice in writing by Synergy that the Gran Reserve Note has
been paid in full in cash. Upon receipt of such notice by the Secured Parties
the security interests granted by Gran Reserve to the Secured Parties shall
automatically terminate and the Security Agreement, solely with respect to the
security interest granted by Gran Reserve with respect to the Collateral
thereto, shall be of no further force nor effect.
5. Miscellaneous.
(a) No provision of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing and signed
by GRC, Gran Reserve and the Secured Parties, respectively.
(b) This Agreement shall be governed by, and construed in accordance with,
the laws of the State of New York (without regard to any conflicts of law).
(c) This Agreement may be executed in counterparts, which together shall
constitute one Agreement.
(d) By their signatures below, the parties acknowledge that they have had
sufficient opportunity to read and consider, and that they have carefully read
and considered, each provision of this Agreement and that they are voluntarily
signing this Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Acknowledgment,
Ratification and Subordination Agreement to be duly executed as of the date
first written above.
GRAN RESERVE CORPORATION
By:
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Name:
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Title:
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GRC GROUP INC.
By:
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Name:
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Title:
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SECURED PARTIES:
MILFAM I L.P.
By: Milfam LLC
Its: General Partner
By:
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Name: Lloyd I. Miller, III
Title: Manager
LLOYD I. MILLER, III
By:
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Name: Lloyd I. Miller, III
SYNERGY BRANDS INC.
By:
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Name:
Title:
EXHIBIT A
Stock Purchase Agreement