**Exhibit 10.51**

 

SECURITY AGREEMENT

 

This SecurityAgreement (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 andJeffrey J. Wooley*** (collectively, the “**Secured Party**”).

 

Section I.               CREATION OFSECURITY INTEREST

 

The Debtorhereby grants to the Secured Party a security interest in the Collateraldescribed in Section II of this Security Agreement to secureperformance and payment of the obligations and indebtedness of the Debtor tothe Secured Party described in Section III of this SecurityAgreement (collectively, the “**Indebtedness**”).

 

Section II.              COLLATERAL

 

In order tosecure the payment when due of any and all Indebtedness, the Debtor herebypledges to the Secured Party and grants to the Secured Party a securityinterest in and to the following properties (collectively, the “**Collateral**”):  all of the Debtor’s accounts, contract rights and generalintangibles (including without limitation payment intangibles), and allproceeds thereof, whether cash, deposit accounts, investment securities,general or payment intangibles, or otherwise; ***provided, however,*** that there isexpressly excluded from the Collateral hereunder that property which haspreviously been pledged to area developers under area developer agreements andany amounts designated as advertising contributions under franchise agreements.

 

Section III.             PAYMENTOBLIGATIONS OF THE DEBTOR

 

1.             The Debtor shall payto the Secured Party any sum or sums due or which may become due pursuant tothat certain Promissory Note dated of even date herewith in the originalprincipal sum or $2,500,000.00, executed by the Debtor and payable to the orderof the Secured Party, including any renewals, extensions or rearrangementsthereof (the “**Note**”), inaccordance with the terms of such Note and the terms of this Security Agreementas well as all other indebtedness now due and owing the said Secured Partyhereunder or under any other document executed in connection with or assecurity for the Note.

 

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

 

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

 

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

 

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

 

Section IV.             THE DEBTOR’SREPRESENTATION, WARRANTIES AND AGREEMENTS

 

1.             All informationsupplied and statements made by the Debtor in any financial, credit oraccounting statement or application for credit prior to, contemporaneously withor subsequent to the execution of this Security Agreement are and shall betrue, correct, complete, valid and genuine.

 

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

 

3.             Until the occurrenceof an Event of Default or any event or condition which, but for the giving ofnotice or passage of time, or both, would constitute an Event of Default(“Potential Default”), the Debtor may use the Collateral in any lawful mannernot inconsistent with this Security Agreement or with the terms or conditionsof any policy of insurance thereon and except for accounts and contract rightsmay also sell the Collateral in the ordinary course of business.  The Secured Party’s security interest shallattach to all proceeds of sales and other dispositions of the Collateral.

 

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

 

5.             The Debtor shall, atits own expense, do, make, procure, execute and deliver all acts, things,writings and assurances as the Secured Party may at any time request toprotect, 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 notsell, lend, rent, lease or otherwise dispose of the Collateral or any interesttherein except as authorized in this Security Agreement or in writing by theSecured Party, and the Debtor shall keep the Collateral, including the proceedsthereof, free from unpaid charges, including taxes, and from liens,encumbrances and security interests other than that of the Secured Party.

 

7.             The Debtor shall signand execute alone or with the Secured Party any Financing Statement or otherdocument or procure any document and pay all connected costs, necessary toprotect the security interest under this Security Agreement against the rightsor interests of third persons.

 

8.             The Debtor is theowner of the Collateral free of all liens, claims and encumbrances, exceptthose in favor of the Secured Party.

 

Section V.              EVENTS OF DEFAULT

 

The Debtorshall be in default under this Security Agreement upon the happening of anycondition or event set forth below (herein called an “**Event of Default**”):

 

1.             The failure of any ofIndebtedness secured by this Security Agreement to be paid when due and thecontinuance of such failure beyond any applicable period of grace and/or noticeand cure.

 

2.             Default by the Debtorand/or Schlotzsky’s, as the case may be, in punctual performance of any of theobligations, covenants, terms or provisions contained or referred to in thisSecurity Agreement or in any note or other document performance of which issecured hereby, and the continuance of such default beyond any applicableperiod of grace and/or notice and cure.

 

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

 

4.             The Debtor’sdissolution, termination of existence, insolvency or business failure; theappointment of a receiver of all or any part of the property of the Debtor; anassignment for the benefit of creditors by the Debtor; the calling of a meetingof creditors of the Debtor; or the commencement of any proceeding under anybankruptcy or insolvency laws by or against the Debtor or any guarantor, suretyor endorser for the Debtor.

 

Section VI.             SECURED PARTY’SRIGHTS AND REMEDIES

 

A.            Rights Exclusive ofDefault

 

1.             This SecurityAgreement, the Secured Party’s rights hereunder or the Indebtedness herebysecured may be assigned from time to time, and in any such case the Assigneeshall be entitled to all of the rights, privileges and remedies granted in thisSecurity Agreement to the Secured Party, and the Debtor will assert no claimsor defenses it may have against the Secured Party against the Assignee, exceptthose granted in this Security Agreement.

 

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2.             The Secured Party mayexecute, 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 otherdocuments, necessary to evidence, perfect or realize upon the security interestand obligations created by this Security Agreement.

 

B.            Rights in Event ofDefault

 

1.             Upon the occurrenceof an Event of Default, and at any time thereafter the Secured Party maydeclare all obligations secured hereby immediately due and payable and shallhave the rights and remedies of a Secured Party under the Texas Business andCommerce Code, including without limitation thereto, the right to sell, leaseor otherwise dispose of any or all of the Collateral and the right to takepossession of the Collateral.  Unlessthe Collateral is perishable or threatens to decline speedily in value or is ofa type customarily sold on a recognized market, the Secured Party will send theDebtor reasonable notice of the time and place of any public sale thereof or ofthe time after which any private sale or other disposition thereof is to bemade.  The requirement of sending reasonablenotice shall be met if such notice is mailed, postage prepaid, to the Debtor at203 Colorado, Austin, Texas  78703, Attention:  ChiefFinancial 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 forsale, selling or the like shall include the Secured Party’s reasonableattorney’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 mayremedy any default and may waive any default without waiving any other prior orsubsequent default.

 

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

 

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

 

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

 

Section VI.             ADDITIONALAGREEMENTS

 

1.              The term “Debtor” asused in this instrument shall be construed as singular or plural to correspondwith the number of persons executing this instrument as the Debtor.  The pronouns used in this instrument are inthe masculine gender but shall be construed as feminine or neuter as occasionmay 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 oneperson executes this instrument as the Debtor, their obligations under thisinstrument shall be joint and several.

 

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3.             The section headingsappearing in this instrument have been inserted for convenience only and shallbe given no substantive meaning or significance whatever in construing theterms and provisions of this instrument. Terms used in this instrument which are defined in the Texas UniformCommercial Code are used with the meanings as therein defined.

 

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

 

5.             All property acquiredby the Debtor after the date hereof, which by the terms hereof is required orintended 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 Agreementas fully as though now owned by the Debtor and specifically describedherein.  Nevertheless, the Debtor willdo all such further acts and execute, acknowledge and deliver all such furtherconveyances, mortgages, financing statements and assurances as the SecuredParty shall reasonably require for accomplishing the purposes of this SecurityAgreement.

 

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

 

EXECUTED to beEFFECTIVE 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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