Exhibit 10.51


 


SECURITY AGREEMENT


 


This Security
Agreement (the “Security Agreement”),
is dated effective as of the 14th day of November 2003 (the “Effective Date”), and is by and between
Schlotzsky’s Franchisor,
LLC, a Delaware limited liability company (the “Debtor”), and John C. Wooley and
Jeffrey J. Wooley (collectively, the “Secured Party”).


 


Section I.               CREATION OF
SECURITY INTEREST


 


The Debtor
hereby grants to the Secured Party a security interest in the Collateral
described in Section II of this Security Agreement to secure
performance and payment of the obligations and indebtedness of the Debtor to
the Secured Party described in Section III of this Security
Agreement (collectively, the “Indebtedness”).


 


Section II.              COLLATERAL


 


In order to
secure the payment when due of any and all Indebtedness, the Debtor hereby
pledges to the Secured Party and grants to the Secured Party a security
interest in and to the following properties (collectively, the “Collateral”):  all of the Debtor’s accounts, contract rights and general
intangibles (including without limitation payment intangibles), and all
proceeds thereof, whether cash, deposit accounts, investment securities,
general or payment intangibles, or otherwise; provided, however, that there is
expressly excluded from the Collateral hereunder that property which has
previously been pledged to area developers under area developer agreements and
any amounts designated as advertising contributions under franchise agreements.


 


Section III.             PAYMENT
OBLIGATIONS OF THE DEBTOR


 


1.             The Debtor shall pay
to the Secured Party any sum or sums due or which may become due pursuant to
that certain Promissory Note dated of even date herewith in the original
principal sum or $2,500,000.00, executed by the Debtor and payable to the order
of the Secured Party, including any renewals, extensions or rearrangements
thereof (the “Note”), in
accordance with the terms of such Note and the terms of this Security Agreement
as well as all other indebtedness now due and owing the said Secured Party
hereunder or under any other document executed in connection with or as
security for the Note.


 


2.             All obligations of
any one or more of the Debtor, Schlotzsky’s, Inc. a Texas corporation
(“Schlotzsky’s”) and Schlotzsky’s NAMF Funding, LLC, a Delaware limited
liability company (“NAMF”), to either or both of the Secured Party arising by
way of subrogation, contribution, or otherwise in connection with any guaranty
by either or both of the Secured Party of any indebtedness or obligation of any
one or more of the Debtor, Schlotzsky’s and NAMF.  For purposes of this paragraph, the pledging of collateral shall
operate and be construed as a “guaranty”.


 


3.             The Debtor shall
account fully and faithfully to the Secured Party for proceeds from disposition
of the Collateral in any manner and shall pay or turn over promptly in cash,
negotiable instruments, drafts, assigned accounts or chattel paper all the
proceeds from each sale to be applied to the Debtor’s Indebtedness to the
Secured Party, subject if other than cash, to final payment or collection.  Application of such proceeds to Indebtedness
of the Debtor shall be in the sole discretion of the Secured Party, provided
such application of proceeds is made by the Secured Party in a reasonable
manner.


 


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4.             The Debtor shall pay
to the Secured Party on demand all expenses and expenditures, including
reasonable attorney’s fees and other legal expenses incurred or paid by the
Secured Party in connection with the origination of the loans evidenced by the
Note and/or in exercising or protecting its interests, rights and remedies
under this Security Agreement, plus interest thereon at the rate of interest
provided for matured, unpaid amounts under the Note (the “Default Rate”).


 


5.             The Debtor shall pay
immediately, without notice, the entire unpaid Indebtedness of the Debtor to
the Secured Party whether created or incurred pursuant to this Security
Agreement or otherwise, upon the occurrence of an Event of Default under Section V
of this Security Agreement.


 


Section IV.             THE DEBTOR’S
REPRESENTATION, WARRANTIES AND AGREEMENTS


 


1.             All information
supplied and statements made by the Debtor in any financial, credit or
accounting statement or application for credit prior to, contemporaneously with
or subsequent to the execution of this Security Agreement are and shall be
true, correct, complete, valid and genuine.


 


2.             Except for those in
favor of the Secured Party, no Financing Statement covering the Collateral or
its proceeds is on file in any public office; and, except for the security
interests in favor of the Secured Party; there is no lien, security interest or
encumbrance in or on the Collateral.


 


3.             Until the occurrence
of an Event of Default or any event or condition which, but for the giving of
notice or passage of time, or both, would constitute an Event of Default
(“Potential Default”), the Debtor may use the Collateral in any lawful manner
not inconsistent with this Security Agreement or with the terms or conditions
of any policy of insurance thereon and except for accounts and contract rights
may also sell the Collateral in the ordinary course of business.  The Secured Party’s security interest shall
attach to all proceeds of sales and other dispositions of the Collateral.


 


4.             At the request of the
Secured Party after the occurrence of an Event of Default Potential Default,
the Debtor will maintain a special bank account with a bank designated by the
Secured Party, over which the Secured Party shall have the sole power of
withdrawal.  Upon the Secured Party’s
demand, the Debtor will deposit upon receipt all checks, drafts, cash and other
payments pursuant to the Debtor’s contract rights, or in payment or on account
of the Debtor’s accounts.  At least once
a week, the Secured Party will apply the whole or part of the funds on deposit
in the special account against the principal or interest or both of the
Indebtedness.  The Secured Party may
determine the order and method of such application.  Any portion of funds on deposit in the special account which the
Secured Party elects to not so apply may be paid over by the Secured Party to
the Debtor.


 


5.             The Debtor shall, at
its own expense, do, make, procure, execute and deliver all acts, things,
writings and assurances as the Secured Party may at any time request to
protect, assure or enforce its interests, rights and remedies created by,
provided in or emanating from this Security Agreement.


 


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6.             The Debtor shall not
sell, lend, rent, lease or otherwise dispose of the Collateral or any interest
therein except as authorized in this Security Agreement or in writing by the
Secured Party, and the Debtor shall keep the Collateral, including the proceeds
thereof, free from unpaid charges, including taxes, and from liens,
encumbrances and security interests other than that of the Secured Party.


 


7.             The Debtor shall sign
and execute alone or with the Secured Party any Financing Statement or other
document or procure any document and pay all connected costs, necessary to
protect the security interest under this Security Agreement against the rights
or interests of third persons.


 


8.             The Debtor is the
owner of the Collateral free of all liens, claims and encumbrances, except
those in favor of the Secured Party.


 


Section V.              EVENTS OF DEFAULT


 


The Debtor
shall be in default under this Security Agreement upon the happening of any
condition or event set forth below (herein called an “Event of Default”):


 


1.             The failure of any of
Indebtedness secured by this Security Agreement to be paid when due and the
continuance of such failure beyond any applicable period of grace and/or notice
and cure.


 


2.             Default by the Debtor
and/or Schlotzsky’s, as the case may be, in punctual performance of any of the
obligations, covenants, terms or provisions contained or referred to in this
Security Agreement or in any note or other document performance of which is
secured hereby, and the continuance of such default beyond any applicable
period of grace and/or notice and cure.


 


3.             Any warranty,
representation or statement contained in this Security Agreement or made or
furnished to the Secured Party by or on behalf of the Debtor in connection with
this Security Agreement or to induce the Secured Party to make a loan to the
Debtor proves to have been false in any respect when made or furnished.


 


4.             The Debtor’s
dissolution, termination of existence, insolvency or business failure; the
appointment of a receiver of all or any part of the property of the Debtor; an
assignment for the benefit of creditors by the Debtor; the calling of a meeting
of creditors of the Debtor; or the commencement of any proceeding under any
bankruptcy or insolvency laws by or against the Debtor or any guarantor, surety
or endorser for the Debtor.


 


Section VI.             SECURED PARTY’S
RIGHTS AND REMEDIES


 


A.            Rights Exclusive of
Default


 


1.             This Security
Agreement, the Secured Party’s rights hereunder or the Indebtedness hereby
secured may be assigned from time to time, and in any such case the Assignee
shall be entitled to all of the rights, privileges and remedies granted in this
Security Agreement to the Secured Party, and the Debtor will assert no claims
or defenses it may have against the Secured Party against the Assignee, except
those granted in this Security Agreement.


 


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2.             The Secured Party may
execute, sign, endorse, transfer or deliver in the name of the Debtor, notes,
checks, drafts or other instruments for the payment of money and receipts,
certificates of origin, applications for certificates of title or any other
documents, necessary to evidence, perfect or realize upon the security interest
and obligations created by this Security Agreement.


 


B.            Rights in Event of
Default


 


1.             Upon the occurrence
of an Event of Default, and at any time thereafter the Secured Party may
declare all obligations secured hereby immediately due and payable and shall
have the rights and remedies of a Secured Party under the Texas Business and
Commerce Code, including without limitation thereto, the right to sell, lease
or otherwise dispose of any or all of the Collateral and the right to take
possession of the Collateral.  Unless
the Collateral is perishable or threatens to decline speedily in value or is of
a type customarily sold on a recognized market, the Secured Party will send the
Debtor reasonable notice of the time and place of any public sale thereof or of
the time after which any private sale or other disposition thereof is to be
made.  The requirement of sending reasonable
notice shall be met if such notice is mailed, postage prepaid, to the Debtor at
203 Colorado, Austin, Texas  78703, Attention:  Chief
Financial Officer (with a required copy to General Counsel at the same address)
at least ten (10) days before the time of the sale or disposition.  Expenses of retaking, holding, preparing for
sale, selling or the like shall include the Secured Party’s reasonable
attorney’s fees and legal expenses, and the Debtor agrees to pay such expenses,
plus interest thereon at the Default Rate. 
The Debtor shall remain liable for any deficiency.


 


2.             The Secured Party may
remedy any default and may waive any default without waiving any other prior or
subsequent default.


 


3.             The Secured Party may
notify the account debtors or obligors of any accounts, chattel paper,
negotiable instruments or other evidences of indebtedness remitted by the
Debtor to the Secured Party as proceeds to pay the Secured Party directly.


 


4.             The Secured Party may
demand, sue for, collect or make any compromise or settlement with reference to
the Collateral as the Secured Party, in its sole discretion, chooses.


 


5.             The remedies of the
Secured Party hereunder are cumulative, and the exercise of any one or more of
the remedies provided for herein shall not be construed as a waiver of any of
the other remedies of the Secured Party.


 


Section VI.             ADDITIONAL
AGREEMENTS


 


1.              The term “Debtor” as
used in this instrument shall be construed as singular or plural to correspond
with the number of persons executing this instrument as the Debtor.  The pronouns used in this instrument are in
the masculine gender but shall be construed as feminine or neuter as occasion
may require.  “Secured Party” and
“Debtor”, as used in this instrument, include the heirs, executors or administrators,
successors, representatives, receivers, trustees and assigns of those parties.


 


2.             If more than one
person executes this instrument as the Debtor, their obligations under this
instrument shall be joint and several.


 


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3.             The section headings
appearing in this instrument have been inserted for convenience only and shall
be given no substantive meaning or significance whatever in construing the
terms and provisions of this instrument. 
Terms used in this instrument which are defined in the Texas Uniform
Commercial Code are used with the meanings as therein defined.


 


4.             The law governing
this secured transaction shall be that of the State of Texas in force at the
date of this instrument.


 


5.             All property acquired
by the Debtor after the date hereof, which by the terms hereof is required or
intended to be subjected to the lien of this Security Agreement, shall,
immediately upon the acquisition thereof and without further mortgage,
conveyance or assignment, become subject to the lien of this Security Agreement
as fully as though now owned by the Debtor and specifically described
herein.  Nevertheless, the Debtor will
do all such further acts and execute, acknowledge and deliver all such further
conveyances, mortgages, financing statements and assurances as the Secured
Party shall reasonably require for accomplishing the purposes of this Security
Agreement.


 


6.             Actions hereunder by
the Secured Party shall require the unanimous approval of all the persons comprising
the “Secured Party” hereunder.


 


EXECUTED to be
EFFECTIVE AS OF, but not necessarily on, the Effective Date.


 


	
  DEBTOR:

  	
   

  	
  SECURED
  PARTY:

  
	
   

  	
   

  	
   

  
	
  Schlotzsky’s
  Franchisor, LLC,

  	
   

  	
   

  
	
  a Delaware
  limited liability company

  	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Joyce V. Cates

  	
   

  	
              /s/
  John C. Wooley

  	
   

  	 

	
   

  	
  Joyce V. Cates,

  	
  John C.
  Wooley

  	 

	
   

  	
  Senior Vice President

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
             /s/
  Jeffrey J. Wooley

  	
   

  	 

	
   

  	
   

  	
  Jeffrey J.
  Wooley

  	 

								



 


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