Exhibit 10.2
 
THIS SENIOR SECURED PROMISSORY NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER
ANY STATE SECURITIES LAWS.

SENIOR SECURED PROMISSORY NOTE
 

$5,000,000.00  April 14, 2014
 Effective Date

 
FOR VALUE RECEIVED, Cosi, Inc., a Delaware corporation (the “Company”), promises
to pay to the order of Milfam II L.P., a Georgia limited partnership, or its
registered assigns (“Lender”), the principal sum of Five Million Dollars
($5,000,000) (the “Principal Amount”) with interest on the outstanding principal
amount accruing as set forth in Section 1. Interest shall commence with the date
hereof and shall continue on the outstanding principal of this Senior Secured
Promissory Note (this “Note”) as set forth in Section 1 until paid in accordance
with the provisions hereof.

1.    Interest.
 
(a)   Interest shall accrue on the outstanding Principal Amount at the rate of
nine percent (9%) per annum (computed on the basis of actual days elapsed and a
fiscal year of 364 days).
 
(b)   Accrued interest shall be payable semi-annually, in arrears, on each
successive six (6) month anniversary of the Effective Date. Notwithstanding the
foregoing, but provided the Company is not then in default pursuant to this Note
or any other Loan Document, the Company may elect to pay the interest due for
the first two (2) semi-annual interest payments following the Effective Date by
converting such interest amount to principal (the “PIK Right”), which converted
interest amount shall then be treated for all purposes as principal under this
Note, including that it shall incur interest; provided that, if the Company
elects to convert interest to principal pursuant to this Section 1(b), such
interest shall be deemed to have accrued at the rate of eleven percent (11%) per
annum (computed on the basis of actual days elapsed and a fiscal year of 364
days).  The election of the PIK Right shall be made by written notice to Lender
not later than one (1) business day prior to the date such interest payment is
due, and the Company’s failure to so exercise the PIK Right shall be deemed a
waiver thereof.     
 
(c)   Upon any default pursuant to this Note or any other Loan Document, this
Note shall bear interest at the rate of the lesser of (i) thirteen percent (13%)
and (ii) such maximum rate of interest allowable under the laws of the State of
New York (“Default Rate”).
 
2.    Senior Secured Note Purchase Agreement; Security.
 
(a)   This Note is issued pursuant to, and subject in all respects to, the terms
of that certain Senior Secured Note Purchase Agreement (the “Note Agreement”),
dated as of the date hereof, by and between the Company and the Lender.
Capitalized terms used but not defined
 
 
 
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herein shall have the meaning set forth in the Note Agreement.
 
(b)   The indebtedness evidenced by this Note is secured by all of the assets of
the Company, as further described in Section 6.
 
3.     Maturity.  The entire unpaid principal amount and all unpaid accrued
interest (collectively, the “Obligations”) shall become fully due and payable on
the third anniversary of the date hereof (the “Maturity Date”).
 
4.     Payments.
 
(a)   All payments of the Obligations shall be made in lawful money of the
United States of America to Lender, at the address specified in the Note
Agreement, or at such other address as may be specified from time to time by
Lender in a written notice delivered to the Company. All payments shall be
applied first to accrued interest, expenses or fees due to Lender pursuant to
this Note or any other Loan Document, and thereafter to principal.
 
(b)   The Obligations under this Note may be prepaid by the Company at any time
without penalty upon first providing ten (10) days written notice to Lender.
 
5.     Use of Proceeds.  The Company shall use the proceeds from this Note for
general working capital purposes.
 
6.     Security.
 
(a)   Except as set forth herein with respect to Permitted Liens (as defined
below) and Permitted Transactions (as defined below), this Note shall constitute
a security agreement for all purposes under applicable law. The Company hereby
grants to Lender, subject to any and all Permitted Liens now or hereafter
existing with respect to same, a continuing first priority security interest in
all assets of the Company whether now owned or hereafter acquired, including all
proceeds therefrom (collectively, the “Collateral”) to secure the payment of
this Note and all other loans and advances (including all renewals,
modifications and extensions thereof) and all obligations of any and every kind
and nature of the Company and the Guarantors to Lender, whether arising prior
to, under or after this Note or any other Loan Documents, however incurred or
evidenced, plus all interest, reasonable costs, reasonable expenses and
reasonable attorneys’ fees, which may be made or incurred by Lender in the
disbursement, administration, and collection of such amounts, and in the
protection, maintenance, and liquidation of the Collateral. Except for Permitted
Liens, whether or not now or hereafter existing, and Permitted Transactions,
whether or not now or hereafter contemplated or occurring, the Company shall not
sell, assign, transfer, pledge or otherwise dispose of or encumber any
Collateral to any third party while this Note is in effect without the prior
written consent of Lender in its sole discretion. Notwithstanding the foregoing,
the security interest granted pursuant to this Section 6(a) shall not include
any assets or equity of Hearthstone Partners, LLC, a Massachusetts limited
liability company, if the same is acquired by the Company after the date hereof,
so long as such entity remains a direct, wholly-owned subsidiary of Hearthstone
Associates, LLC, a Massachusetts limited liability company.
 
 
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(b)   The Company shall execute and deliver to Lender, concurrently with the
Company’s execution of this Note and at any time or times hereafter at the
request of Lender, all financing statements, assignments, affidavits, reports,
notices, schedules of accounts, letters of authority and all other documents
that Lender may reasonably request, in form satisfactory to Lender, to perfect
and maintain perfected Lender’s security interests in the Collateral. In
addition, the Company irrevocably authorizes Lender, its agents, attorneys, and
representatives, to file financing statements and amendments thereto at the
Company’s expense, necessary to establish and maintain Lender’s perfected
security interest in the Collateral. In order to fully consummate all of the
transactions contemplated hereunder, the Company shall make appropriate entries
on its books and records disclosing Lender’s security interests in the
Collateral. Immediately upon full satisfaction of this Note, including payment
of all Obligations and reasonable fees and expenses due to Lender hereunder and
pursuant to the Loan Documents (collectively, the “Liabilities”), without
further notice from the Company, the Company may terminate any financing
statements, assignments, affidavits, reports, notices, schedules of accounts,
letters of authority and all other documents used to perfect and maintain
perfected Lender’s security interests in the Collateral.
 
(c)   For purposes of this Agreement, “Permitted Liens” means:
 
(i) purchase money security interests to secure purchase money indebtedness of
the Company, so long as such security interests arise or are created (A) in the
ordinary course of business and consistent with past practices and (B)
substantially contemporaneously with the purchase or acquisition by the Company
of the respective property or assets to which such security interests relate and
the incurrence of the respective purchase money indebtedness which such security
interests secure, secure only the respective purchase money indebtedness so
incurred by the Company to enable the Company to so purchase or acquire such
property or assets, and no other indebtedness, and encumber only the respective
property or assets so purchased or acquired, and no other property or assets of
the Company;
 
(ii) any liens arising in connection with capital leases or equipment financing
arrangements of the Company;
 
(iii) liens acquired with liabilities assumed by the Company in connection with
acquisitions of existing businesses, business divisions, or assets, in whole or
in part after the date hereof;
 
(iv) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s,
processor’s, landlord’s liens or other like liens arising in the ordinary course
of business that are not overdue for a period of more than thirty (30) days or
which are being contested in good faith by appropriate proceedings;
 
(v) liens arising in connection with worker’s compensation, unemployment
insurance, old age pensions and social security benefits and similar statutory
obligations (excluding liens arising under ERISA), provided that no enforcement
proceedings in respect of such liens are pending and provisions have been made
for the payment of such liens on the books of such person as may be required by
generally accepted accounting principles; and
 
 
 
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(vi) (i) liens incurred in the ordinary course of business to secure the
performance of statutory obligations arising in connection with progress
payments or advance payments due under contracts with the United States
government or any agency thereof entered into in the ordinary course of business
and (ii) liens incurred or deposits made in the ordinary course of business to
secure the performance of statutory obligations, bids, leases, fee and expense
arrangements with trustees and fiscal agents, trade contracts, surety and appeal
bonds, performance bonds and other similar obligations (exclusive of obligations
incurred in connection with the borrowing of money, any lease-purchase
arrangements or the payment of the deferred purchase price of property),
provided, that in each case full provision for the payment of all such
obligations;
 
provided, however, that, notwithstanding the foregoing, a Permitted Lien shall
not include any lien, encumbrance or other interest which would cause, or could
reasonably be expected to cause, a Material Adverse Change.
 
(d)   For purposes of this Note, “Permitted Transactions” means:  (i) the sale,
assignment, transfer, sublease, disposal or other transfer of the Company’s
restaurants or operating assets of the Company’s restaurants to franchisees,
landlords, subtenants, or other third parties (but not affiliates of the Company
or the Guarantors) with respect to restaurants (A) closed due to expiration or
termination of leases in the ordinary course of business, and (B) franchised to
franchisees in the ordinary course of business; and (ii) the transfer or
assignment of the Company’s business or assets to an affiliated entity owned or
controlled by the Company provided that any such assignment or transfer
expressly includes the transfer and assignment of this Note and the Ancillary
Agreements (as defined below) to and assumption thereof by such affiliated
entity.   Unless otherwise agreed to by the Company and the Lender, net cash
proceeds from the sale of any assets pursuant to clause (d)(i) above in this
paragraph shall be applied towards the outstanding Obligations.
 
7.     Default.
 
(a)   Events of Default.  For purposes of this Note, any of the following events
shall constitute an “Event of Default”:
 
(i) The Company shall fail to pay when due any Obligations hereunder;
 
(ii) Any representation or warranty of the Company under the Note Agreement, the
other Loan Documents or any agreement ancillary thereto (collectively, the
“Ancillary Agreements”), as applicable, shall be untrue in any material respect
as of the date made;
 
(iii) the Company shall breach any covenant set forth in this Note or the
Ancillary Agreements, taking into account applicable periods of notice and cure,
if any; provided, however, that, in the event no grace or cure period is so
provided, the Company shall have a period of (A) three (3) days after the
earlier of the Company’s actual knowledge thereof and written notice of
non-compliance to cure such non-compliance to the extent it relates to any
monetary default and (B) twenty (20) days after the earlier of the Company’s
actual knowledge thereof and written notice of non-compliance to cure any other
non-compliance; provided that, in
 
 
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the event that any default described in clause (B) cannot reasonably be cured
within such twenty (20) day period, then the Company shall have an additional
ten (10) days in which to cure such non-compliance, so long as the Company
continues to diligently pursue curing such non-compliance;
 
(iv) The Company makes an assignment for the benefit of creditors, or admits in
writing its inability to pay its debts as they become due, or files a voluntary
petition for bankruptcy, or files any petition or answer seeking for itself any
reorganization, arrangement, composition, readjustment, dissolution or similar
relief under any present or future statute, law or regulation, or seeks or
consents to or acquiesces in the appointment of any trustee, receiver or
liquidator of the Company, or of all or any substantial part of the properties
of the Company, or the Company or its respective directors or majority
stockholders takes any action looking to the dissolution, liquidation or winding
up of the Company;
 
(v) An involuntary proceeding shall be commenced or an involuntary petition
shall be filed in a court of competent jurisdiction seeking (i) relief in
respect of the Company or any Guarantor under Title 11 of the United States
Code, as now constituted or hereafter amended, or any other federal, state or
foreign bankruptcy, insolvency, receivership or similar law, (ii) the
appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for the Company or any Guarantor or for a substantial part of
the property or assets of the Company or any Guarantor or (iii) the winding-up
or liquidation of the Company or any Guarantor; and such proceeding or petition
shall continue undismissed for thirty (30) days or an order or decree approving
or ordering any of the foregoing shall be entered; or
 
(vi) One or more judgments shall be rendered against the Company or any
Guarantor or any combination thereof and the same shall remain undischarged for
a period of thirty (30) consecutive days during which execution shall not be
effectively stayed, or any action shall be legally taken by a judgment creditor
to levy upon assets or properties of the Company or any Guarantor to enforce any
such judgment and such judgment either (i) is for the payment of money in an
aggregate amount in excess of $250,000 or (ii) is for injunctive relief and
could reasonably be expected to result in a Material Adverse Change;
 
(vii) If any material portion of the Collateral or the Guarantor Collateral (as
defined in the Guaranty) is attached, seized, subjected to a writ or distress
warrant, or is levied upon, or comes into the possession of any trustee,
receiver or person acting in a similar capacity and such attachment, seizure,
writ or distress warrant or levy has not been removed, discharged or rescinded
within fifteen (15) days, or if the Company is enjoined, restrained, or in any
way prevented by court order from continuing to conduct all or any material part
of its business affairs, or if a judgment or other claim becomes a lien upon any
material portion of the Collateral or the Guarantor Collateral, or if a notice
of lien, levy, or assessment is filed of record with respect to any material
portion of the Collateral or the Guarantor Collateral by the United States
Government, or any department, agency, or instrumentality thereof, or by any
state, county, municipal, or governmental agency, and the same is not paid
within fifteen (15)  days after the Company receives notice thereof;
 
(viii) There shall occur any material event of loss, theft, damage or
destruction of any Collateral or the Guarantor Collateral for which there is
less than 80% insurance coverage
 
 
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(subject to reasonable deductibles as determined by the Company and consistent
with the Company’s past practices); or
 
(ix) The occurrence of any event (financial or otherwise) resulting in, or which
will likely result in, a Material Adverse Change in the Company or the
Guarantors, as determined by Lender in its reasonable discretion, and remains
uncured for a period of fifteen (15) days following the earlier of the Company’s
knowledge of such event and written notice of such event by Lender to the
Company (or, such longer period of time as reasonable given the circumstances if
such occurrence is not reasonably curable within such thirty (30) day period and
provided that the Company is taking steps to cure such occurrence during such
thirty (30) day period and thereafter diligently pursues to completion).
 
(b)   Consequences of Events of Default.  If any Event of Default shall occur
for any reason, whether voluntary or involuntary, or continue beyond the
expiration of any applicable cure period:
 
(i) upon notice or demand, the Lender may declare the outstanding indebtedness
under this Note, together with all other amounts due or owing to Lender pursuant
to any Ancillary Agreements, to be due and payable, whereupon each of the
foregoing shall be and become immediately due and payable, and the Company shall
immediately pay to Lender all such indebtedness, without presentment, demand,
protest or any other notice of any kind, all of which are hereby expressly
waived by the Company, anything contained herein or in any Ancillary Agreement
to the contrary notwithstanding; provided, however, that upon the occurrence of
an actual or deemed entry of an order for relief with respect to the Company
under the United States Bankruptcy Code, then all indebtedness under this Note,
together with all other amounts due or owing to Lender pursuant to any Ancillary
Agreements, shall automatically be due immediately without notice of any kind;
 
(ii) the Company shall, at a minimum, comply with all lease obligations for at
least the twenty (20) retail stores (the “Key Stores”) chosen by Lender pursuant
to this Section 7(b)(ii), notwithstanding any other agreement, obligation or
rights of the Company to the contrary at such time.  For purposes of determining
the Key Stores, upon the occurrence of an Event of Default and for so long as
the Event of Default is continuing, the Company shall provide Lender, its agents
and designees with (i) immediate access to all financial and operational data
with respect to all Company retail stores, (ii) immediate access to Company
executives, employees and agents with knowledge of the foregoing for purposes of
discussion and diligence (A) to the extent the Company has the authority to
grant such access and (B) so long as the Company is permitted to attend and
participate in any discussions with the foregoing and (iii) any other
information reasonably requested by Lender. Lender shall deliver its initial
list of Key Stores to the Company not later than thirty (30) days after the
occurrence of any Event of Default, so long as the Company has provided all
access and information required by the previous sentence, and, if not, such
period shall be extended on a day-for-day basis (but the Company’s failure to
comply therewith shall be deemed a separate and immediate Event of
Default).  Further, upon the occurrence of an Event of Default and for so long
as an Event of Default is continuing, the Lender shall have the right, but not
the obligation, to (A) receive copies of all financial and operational data
reported to the Company by, from or with respect to the Key Stores promptly
after the Company’s receipt thereof and (B) modify or substitute other
 
 
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Company retail stores for Key Stores in its sole discretion (but with written
notice to the Company). In addition, notwithstanding any provision of this Note,
the Note Agreement or any Ancillary Agreement to the contrary, upon the
occurrence of an Event of Default and for so long as an Event of Default is
continuing, the Company shall not sell, transfer or dispose of any Key Store,
directly or indirectly, without the prior written consent of Lender.
 
(iii) Lender may exercise from time to time any rights and remedies available to
it under applicable law, including without limitation the right to: (a)
immediate possession of the Collateral by Lender, (b) institute legal
proceedings to foreclose upon the lien and security interest granted by this
Note or for the sale of all Collateral, to recover judgment for all amounts then
due and owing from the Company, and to collect the same out of any Collateral or
the proceeds of any sale of the Collateral, and (c) peacefully enter upon any
premises (whether it be the Lender, its agents or attorneys, or an appointment
of a receiver selected or appointed by Lender to which Debtor shall consent to
in all respects) where Collateral may then be located, and take possession of
all or any of it and/or render it unusable and without being responsible for
loss or damage to such Collateral, hold, operate, sell, lease, or dispose of all
or any Collateral at one or more public or private sales, leasings or other
dispositions, at places and times and on terms and conditions as Lender may deem
fit, without any previous demand or advertisement (unless such demand or
advertisement is expressly required by law).
 
The Company agrees to pay Lender all out-of-pocket costs and expenses reasonably
incurred by Lender in any effort to collect indebtedness under this Note and to
exercise remedies under the Note Agreement or any Ancillary Agreement,
including, without limitation, reasonable attorneys’ fees, and to pay interest
at the Default Rate on such costs and expenses to the extent not paid when
demanded.  Lender may exercise any and all of its remedies under the Note
Agreement or any Ancillary Agreement contemporaneously or separately from the
exercise of any other remedies hereunder or under applicable law.
 
8.   Lost, Stolen, Destroyed or Mutilated Note.  In case this Note shall be
mutilated, lost, stolen or destroyed, the Company shall issue a new Note of like
date, tenor and denomination and deliver the same in exchange and substitution
for and upon surrender and cancellation of any mutilated Note, or in lieu of any
Note lost, stolen or destroyed, upon receipt of evidence satisfactory to the
Company of the loss, theft or destruction of such Note and an agreement from
Lender to indemnify the Company against any claim that may be made against the
Company on account of the mutilation, loss, theft or destruction of this Note.
 
9.   Governing Law.  This Note is to be construed in accordance with and
governed by the laws of the State of New York, without regard to principles of
conflict of laws.
 
10.  Amendment and 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 with the
written consents of each of Lender and the Company.
 
11.  Notices.  Except as may be otherwise provided herein, all notices,
requests, waivers and other communications made pursuant to this Note shall be
made in accordance with Section 7(d) of the Note Agreement.
 
 
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12.  Severability.  If one or more provisions of this Note are held to be
unenforceable under applicable law, such provision shall be excluded from this
Note and the balance of the Note shall be interpreted as if such provision were
so excluded and shall be enforceable in accordance with its terms.
 
13.  Successors and Assigns; Assignment.  The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties.  Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations,
or liabilities under or by reason of this Agreement, except as expressly
provided in this Agreement. Neither party may assign this Agreement without the
prior written consent of the other party.
 
14.  Remedies Cumulative; Failure or Indulgence Not a Waiver.  The remedies
provided in this Note shall be cumulative and in addition to all other remedies
available under this Note, the Note Agreement and the Ancillary Agreements.  No
failure or delay on the part of Lender in the exercise of any power, right or
privilege hereunder or under this Note, the Note Agreement or any Ancillary
Agreement 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.
 
15.  Payments.  Whenever any payment of cash is to be made by the Company to
Lender pursuant to this Note, such payment shall be made in lawful money of the
United States of America by, at the Company’s option, a check drawn on the
account of the Company and sent via overnight courier service to Lender at the
address previously provided to the Company in writing (which address shall
initially be the address for Lender as set forth in the Note Agreement),
electronic funds transfer, or wire transfer of immediately available funds, to
an account designated in writing by Lender.  Whenever any payment to be made
shall otherwise be due on a day which is not a business day, such payment shall
be made on the immediately succeeding Business Day and such extension of time
shall be included in the computation of accrued interest.
 
16.  Excessive Interest. Notwithstanding any other provision herein to the
contrary, this Note is hereby expressly limited so that the interest rate
charged hereunder shall at no time exceed the maximum rate permitted by
applicable law. If, for any circumstance whatsoever, the interest rate charged
exceeds the maximum rate permitted by applicable law, the interest rate shall be
reduced to the maximum rate permitted, and if Lender shall have received an
amount that would cause the interest rate charged to be in excess of the maximum
rate permitted, such amount that would be excessive interest shall be applied to
the reduction of the principal amount owing hereunder (without charge for
prepayment) and not to the payment of interest, or if such excessive interest
exceeds the unpaid balance of principal, such excess shall be refunded to the
Company.
 
17.  Waiver of Notice.  To the extent permitted by law, the Company hereby
waives demand, notice, protest and all other demands and notices in connection
with the delivery, acceptance, performance, default or enforcement of this Note
or the Ancillary Agreements.
 
 
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[Signature Page Follows]
 
 
 
 
 
 

 
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IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by its
officers, thereunto duly authorized as of the date first above written.
 
 
 

 
COSI, INC.
                             By: /s/ William Koziel              Name:  William
Koziel              Title: Chief Financial Officer    

 
 
 
 
 
 
 
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