**Exhibit 10.33**

 

 
| **THIRD MODIFICATION TO**   |
|-----------------------------|
| **BUSINESS LOAN AGREEMENT** |

 

This Third Modification to Business Loan Agreement (this “Modification”)is entered into by and between MONTEREY GOURMET FOODS, INC., a Delawarecorporation (“Borrower”) and COMERICA BANK, successor by merger to ComericaBank-California (“Bank”), whose Western Division headquarters is located at 333West Santa Clara Street, San Jose, California as of January 5, 2005.

 

**RECITALS**

 

This Modification is entered into upon the basis of the following factsand understandings of the parties, which facts and understandings areacknowledged by the parties to be true and accurate:

 

Bank and Borrower previously entered into that certain Business LoanAgreement dated October 22, 2001. The Business Loan Agreement wassubsequently modified by that certain First Modification to Business LoanAgreement dated as of October 31, 2003, and by that certain SecondModification to Business Loan Agreement dated as of November 1, 2004. TheBusiness Loan Agreement, as so modified, and as such may be otherwise modified,amended, restated, revised, supplemented or replaced from time to time prior tothe date hereof shall collectively be referred to herein as the “Agreement.”

 

NOW, THEREFORE, for good and valuable consideration, the receipt andsufficiency of which are hereby acknowledged, the parties agree as set forthbelow.

 

**AGREEMENT**

 

1.             Incorporation by Reference.  The Recitals and the documents referred totherein are incorporated herein by this reference. Except as otherwise noted,the terms not defined herein shall have the meaning set forth in the Agreement. 

 

2.             Modifications to the Agreement.  Subject to the satisfaction of the conditionsprecedent as set forth herein, the Agreement is hereby modified as set forth below.

 

(a)           The reference to “Monterey Pasta Company” setforth in the initial paragraph of the Agreement, and each subsequent referencethereto hereby is deleted and replaced with “Monterey Gourmet Foods, Inc.”*mutatis, mutandis.*

 

(b)           The reference to “Comerica Bank-California”set forth in the initial paragraph of the Agreement, and each subsequentreference thereto hereby is deleted and replaced with “Comerica Bank” *mutatis, mutandis.*

 

(c)           The initial sentence of Subsection 6. (a) ofthe of the Agreement hereby is deleted in its entirety and replaced with thefollowing (for the avoidance of doubt, the remainder of Section 6. (a) shallremain in full force and effect):

 

“Furnish to Bank within thirty (30) days after the end of each month,an unaudited balance sheet and statement of income covering Borrower’soperations, together with a detailed accounting of Borrower’s operations, bydivision and on a combined basis.”

 

(d)           The following new Subsection 6. (k) hereby is inserted into theAgreement in its entirety immediately following existing Subsection 6. (j)thereof, and shall read as follows:

 

“(k)         To keep all of its principal bank accounts with Bank and shall notifyBank immediately in writing of the existence of any other bank account, depositaccount, or any other account into which money can be deposited.”

 

(e)           Subsection 7. (r) of the of the Agreement hereby is deleted in itsentirety and replaced with the following:

 

“(r)          Without Bank’s prior written consent, acquire or expend for or commititself to acquire or expend for fixed assets by lease, purchase or otherwise inan aggregate amount that exceeds One Million Dollars ($1,000,000) in any fiscalyear; or”

 

(f)            The following new Section 15. hereby isinserted into the Agreement in its entirety immediately following existing Section 14.thereof, and shall read as follows:

 

“15.         Reference Provision.

 

(a)           The parties prefer that any dispute between them be resolved inlitigation subject to a Jury Trial Waiver as set forth in this Agreement, theNote and the other Loan

 

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Documents,but the availability of that process is in doubt because of the opinion of theCalifornia Court of Appeal in Grafton Partners LP v. Superior Court, 9Cal.Rptr.3d 511. This Reference Provision will be applicable until theCalifornia Supreme Court completes its review of that case, and will continueto be applicable if either that court or a California Court of Appeal publishesa decision holding that a pre-dispute Jury Trial Waiver provision similar tothat contained in the Loan Documents is invalid or unenforceable. Delay inrequesting appointment of a referee pending review of any such decision, orparticipation in litigation pending review, will not be deemed a waiver of thisReference Provision.

 

(b)           Other than (i) nonjudicial foreclosure of security interests inreal or personal property, (ii) the appointment of a receiver or (iii) theexercise of other provisional remedies (any of which may be initiated pursuantto applicable law), any controversy, dispute or claim (each, a “Claim”) betweenthe parties arising out of or relating to this Agreement, the Note or any otherLoan Document, will be resolved by a reference proceeding in California inaccordance with the provisions of Section 638 et seq. of the CaliforniaCode of Civil Procedure (“CCP”), or their successor sections, which shallconstitute the exclusive remedy for the resolution of any Claim, includingwhether the Claim is subject to the reference proceeding. Except as otherwiseprovided in the Loan Documents, venue for the reference proceeding will be inthe Superior Court or Federal District Court in the County or District wherethe real property, if any, is located or in a County or District where venue isotherwise appropriate under applicable law (the “Court”).

 

(c)           The referee shall be a retired Judge or Justice selected by mutualwritten agreement of the parties. If the parties do not agree, the refereeshall be selected by the Presiding Judge of the Court (or his or herrepresentative). A request for appointment of a referee may be heard on an exparte or expedited basis, and the parties agree that irreparable harm wouldresult if ex parte relief is not granted. The referee shall be appointed to sitwith all the powers provided by law. Each party shall have one peremptorychallenge pursuant to CCP §170.6. Pending appointment of the referee, the Courthas power to issue temporary or provisional remedies.

 

(d)           The parties agree that time is of the essence in conducting thereference proceedings. Accordingly, the referee shall be requested to (a) setthe matter for a status and trial- setting conference within fifteen (15) daysafter the date of selection of the referee, (b) if practicable, try allissues of law or fact within ninety (90) days after the date of the conferenceand (c) report a statement of decision within twenty (20) days after the matterhas been submitted for decision. Any decision rendered by the referee will be final,binding and conclusive, and judgment shall be entered pursuant to CCP §644.

 

(e)           The referee will have power to expand or limit the amount and durationof discovery. The referee may set or extend discovery deadlines or cutoffs forgood cause, including a party’s failure to provide requested discovery for anyreason whatsoever. Unless otherwise ordered, no party shall be entitled to “priority”in conducting discovery, depositions may be taken by either party upon seven (7) dayswritten notice, and all other discovery shall be responded to within fifteen(15) days after service. All disputes relating to discovery which cannot beresolved by the parties shall be submitted to the referee whose decision shallbe final and binding.

 

(f)            Except as expressly set forth in thisAgreement, the referee shall determine the manner in which the referenceproceeding is conducted including the time and place of hearings, the order ofpresentation of evidence, and all other questions that arise with respect tothe course of the reference proceeding. All proceedings and hearings conductedbefore the referee, except for trial, shall be conducted without a court reporter,except that when any party so requests, a court reporter will be used at any hearingconducted before the referee, and the referee will be provided a courtesy copyof the transcript. The party making such a request shall have the obligation toarrange for and pay the court reporter. Subject to the referee’s power to awardcosts to the prevailing party, the parties will equally share the cost of thereferee and the court reporter at trial.

 

(g)           The referee shall be required to determine all issues in accordancewith existing case law and the statutory laws of the State of California. The rules ofevidence applicable to proceedings at law in the State of California will beapplicable to the reference proceeding. The referee shall be empowered to enterequitable as well as legal relief, provide all temporary or provisionalremedies, enter equitable orders that will be binding on the parties and rule onany motion which would be authorized in a trial, including without limitationmotions for summary judgment or summary adjudication. The referee shall issue adecision at the close of the reference proceeding which disposes of all claimsof the parties that are the subject of the reference. The referee’s decisionshall be entered by the Court as a judgment or an order in the same manner asif the action had been tried by the Court. The parties reserve the right toappeal from the final

 

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judgment or order or fromany appealable decision or order entered by the referee. The parties reservethe right to findings of fact, conclusions of laws, a written statement ofdecision, and the right to move for a new trial or a different judgment, whichnew trial, if granted, is also to be a reference proceeding under thisprovision.

 

(h)           Ifthe enabling legislation which provides for appointment of a referee isrepealed (and no successor statute is enacted), any dispute between the partiesthat would otherwise be determined by reference procedure will be resolved anddetermined by arbitration. The arbitration will be conducted by a retired judgeor Justice, in accordance with the California Arbitration Act §1280 through §1294.2of the CCP as amended from time to time. The limitations with respect todiscovery set forth above shall apply to any such arbitration proceeding.

 

(i)            THE PARTIES RECOGNIZE AND AGREE THAT ALLDISPUTES RESOLVED UNDER THIS REFERENCE PROVISION WILL BE DECIDED BY A REFEREEAND NOT BY A JURY, AND THAT THEY ARE IN EFFECT WAIVING THEIR RIGHT TO TRIAL BYJURY IN AGREEING TO THIS REFERENCE PROVISION. AFTER CONSULTING (OR HAVING HADTHE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR OWN CHOICE, EACH PARTY KNOWINGLYAND VOLUNTARILY AND FOR THEIR MUTUAL BENEFIT AGREES THAT THIS REFERENCEPROVISION WILL APPLY TO ANY DISPUTE BETWEEN THEM WHICH ARISES OUT OF OR ISRELATED TO THIS AGREEMENT, THE NOTE, OR ANY OTHER LOAN DOCUMENT.”

 

(g)           Subsection 2.(a) of Addendum A to the Agreement hereby is deleted in its entirety andreplaced with the following:

 

“(a)         TangibleEffective Net Worth in an amount not less than Nineteen Million Seven HundredFifty Thousand Dollars ($19,750,000);”

 

(h)           Subsection 2.(b) of Addendum A to the Agreement hereby is deleted in its entirety andreplaced with the following:

 

“(b)         AQuick Ratio of not less than 1.00:1.00;”

 

(i)            Subsection 2.(c) of Addendum A to the Agreement hereby is deleted in its entirety andreplaced with the following:

 

“(c)         Aratio of Total Liabilities (less Subordinated Debt) to Tangible Effective NetWorth of not more than .80:1.00;”

 

(j)            Thefollowing new Subsection 2. (e) hereby is inserted into Addendum A tothe Agreement in its entirety immediately following existing Subsection 2.(d) thereof, and shall read as follows:

 

“(e)         Atall times during the effectiveness of this Agreement, the Note and the otherLoan Documents, the aggregate outstanding amount of all revolving Loans toBorrower from Bank plus the aggregate outstanding amount of all term Loans toBorrower from Bank for the purpose of the acquisition of the capital stock ofCasual Gourmet Foods, Inc. shall not exceed the sum of (i) onehundred percent (100%) of all cash, (ii) eighty percent (80%) of allaccounts receivable and (iii) thirty percent (30%) of all inventory ofBorrower and Casual Gourmet Foods, Inc., measured on a combined basis.Borrower shall promptly repay the Loans in an amount sufficient to restorecompliance with this financial covenant at any time that Borrower is not incompliance herewith.”

 

3.             Legal Effect.  Except as specifically setforth in this Modification, all of the terms and conditions of theAgreement remain in full force and effect. Except as expressly set forthherein, the execution, delivery, and performance of this Modification shall notoperate as a waiver of, or as an amendment of, any right, power, or remedy ofBank under the Agreement, as in effect prior to the date hereof. Borrowerratifies and reaffirms the continuing effectiveness of all promissory notes,guaranties, security agreements, mortgages, deeds of trust, environmentalagreements, and all other instruments, documents and agreements entered into inconnection with the Agreement. Borrower represents and warrants that the Representationsand Warranties contained in the Agreement are true and correct as of the dateof this Modification, and that no Event of Default has occurred and iscontinuing. The effectiveness of this Modification and each of the documents,instruments and agreements entered into in connection with this Modification,including without limit any replacement promissory note entered into inconnection herewith, is conditioned upon receipt by Bank of this Modification,any other documents which Bank may require to carry out the terms hereof, andincluding but not limited to each of the following:

 

(a)           Execution and delivery of a modification(s) to each existing Note inform and substance satisfactory to Bank;

 

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(b)            Executionand delivery of a new Note with respect to the of the term Loan to Borrowerfrom Bank for the purpose of the acquisition of the capital stock of CasualGourmet Foods, Inc. in form and substance satisfactory to Bank;

 

(c)            Executionand delivery of a Security Agreement with respect to the pledge of all acquiredshares of the capital stock of Casual Gourmet Foods, Inc. to Bank asCollateral for the Indebtedness, in form and substance satisfactory to Bank;

 

(d)            Inconnection with the making of the term Loan to Borrower from Bank for the purposedof the acquisition of the capital stock of Casual Gourmet Foods, Inc.,payment of a loan fee in the amount of Twenty Five Thousand Dollars ($25,000),which shall be due and payable, fully earned and non-refundable, on the date ofthe making thereof; and

 

(e)            Paymentof in-house legal documentation fees in the amount of $750 and any other feesor expenses incurred by Bank in consideration of this Modification.

 

4.             MiscellaneousProvisions.

 

(a)            Thisis an integrated Modification and supersedes all prior negotiations and agreementsregarding the subject matter hereof. All amendments hereto must be in writingand signed by the parties.

 

(b)           ThisModification may be executed in two or more counterparts, each of which shallbe deemed an original, but all of which together shall constitute oneinstrument.

 

IN WITNESS WHEREOF, theparties have agreed as of the date first set forth above.

 
| **MONTEREY GOURMET FOODS, INC.** | **COMERICA BANK**       |
|----------------------------------|-------------------------|
| (“Borrower”)           | (Bank)                  |
|                             |                    |
|                             |                    |
| By:                              | /s/ James M. Williams   |   | By: | /s/ Brian C. Santos |   |
| Name:                            | James M. Williams       |   | Name: | Brian C. Santos |   |
| Title:                           | Chief Executive Officer |   | Title: | Senior Vice President -  Western Division |   |
|                             |                    |
|                             |                    |
| By:                              | /s/ Scott Wheeler       |   |   |
| Name:                            | Scott Wheeler           |   |   |
| Title:                           | Chief Financial Officer |   |   |
|                                  |                         |  |  |  |  |  |

 

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**VARIABLE RATE-SINGLE PAYMENT NOTE (Advancing-Optional Advances)**

 
| **AMOUNT** | ** **   | **NOTE DATE** | ** **            | **MATURITY DATE** | ** **            | **TAX IDENTIFICATION #** | ** ** |
|------------|--------------|---------------|-----------------------|-------------------|-----------------------|--------------------------|------------|
| $          | 5,000,000.00 |          | January 05, 2005 |              | January 05, 2010 |                     | 77-0227341 |   |
|            |              |               |                       |                   |                       |                          |            |  |

 

**On theMaturity Date, as stated above, for value received, the undersigned promise(s)to pay to the order of Comerica Bank (“Bank”), at any office of the Bank in theState of California, Five Million and no/100****Dollars (U.S.) (or thatportion of it advanced by the Bank and not repaid as later provided) withinterest until maturity, whether by acceleration or otherwise, or untilDefault, as later defined, at a per annum rate equal to the Bank’s base ratefrom time to time in effect plus 0.000% per annum and after that at a defaultrate equal to the rate of interest otherwise prevailing under this Note plus 3%per annum (but in no event in excess of the Maximum Rate). The Bank’s “baserate” is that annual rate of interest so designated by the Bank and which is changedby the Bank from time to time. Interest rate changes will be effective forinterest computation purposes as and when the Bank’s base rate changes. Subjectto the limitations hereinbelow set forth, interest shall be calculated for theactual number of days the principal is outstanding on the basis of a 360-dayyear if this Note evidences a business or commercial loan or a 365-day year ifa consumer loan. Accrued interest on this Note shall be payable on (i) ****o****the Maturity Date or (ii)****ý****the 5th day of****each MONTH commencing February 05,2005 until the Maturity Date when all amounts outstanding under this Note shall****be dueand payable in full [check applicable box]. If the frequency of interestpayments is not otherwise specified, accrued interest on this Note shall bepayable monthly on the first day of each month. If any payment of principal orinterest under this Note shall be payable on a day other than a day on whichthe Bank is open for business, this payment shall be extended to the nextsucceeding business day and interest shall be payable at the rate specified inthis Note during this extension. A late payment charge equal to a reasonableamount not to exceed 5% of each late payment may be charged on any payment notreceived by the Bank within 10 calendar days after the payment due date, butacceptance of payment of this charge shall not waive any Default under thisNote. Principal amounts advanced under this Note and repaid may not bereborrowed.**

 

**The term “Maximum Rate,” as used herein, shall mean at theparticular time in question the maximum nonusurious rate of interest which,under applicable law, may then be charged on this Note. If such maximum rate ofinterest changes after the date hereof, the Maximum Rate shall be automaticallyincreased or decreased, as the case may be, without notice to the undersignedfrom time to time as of the effective date of each change in such maximum rate.**

 

**The principal amount payable under this Note shall be the sumof all advances made by the Bank to or at the request of the undersigned, lessprincipal payments actually received in cash by the Bank. The books and recordsof the Bank shall be the best evidence of the principal amount and the unpaidinterest amount owing at any time under this Note and shall be conclusiveabsent manifest error. No interest shall accrue under this Note until the dateof the first advance made by the Bank; after that interest on all advancesshall accrue and be computed on the principal balance outstanding from time totime under this Note until the same is paid in full. AT NO TIME SHALL THE BANKBE UNDER ANY OBLIGATION TO MAKE ANY ADVANCES TO THE UNDERSIGNED PURSUANT TOTHIS NOTE (NOTWITHSTANDING ANYTHING EXPRESSED OR IMPLIED IN THIS NOTE ORELSEWHERE TO THE CONTRARY, INCLUDING WITHOUT LIMIT IF THE BANK SUPPLIES THEUNDERSIGNED WITH A BORROWING FORMULA), AND THE BANK, AT ANY TIME AND FROM TIMETO TIME, WITHOUT NOTICE, AND IN ITS SOLE DISCRETION, MAY REFUSE TO MAKEADVANCES TO THE UNDERSIGNED WITHOUT INCURRING ANY LIABILITY DUE TO THIS REFUSALAND WITHOUT AFFECTING THE UNDERSIGNED’S LIABILITY UNDER THIS NOTE FOR ANY ANDALL AMOUNTS ADVANCED. The preceding sentence shall not apply to this Note ifthis Note is secured by a deed of trust or mortgage covering real property.**

 

**This Note and any other indebtedness and liabilities of anykind of the undersigned (or any of them) to the Bank, and any and allmodifications, renewals or extensions of it, whether joint or several,contingent or absolute, now existing or later arising, and however evidencedand whether incurred voluntarily or involuntarily, known or unknown, ororiginally payable to the Bank or to a third party and subsequently acquired byBank including, without limitation, any late charges, loan fees or charges,overdraft indebtedness, costs incurred by Bank in establishing, determining,continuing or defending the validity or priority of any security interest,pledge or other lien or in pursuing any of its rights or remedies under anyloan document (or otherwise) or in connection with any proceeding involving theBank as a result of any financial accommodation to the undersigned (or any ofthem), and reasonable costs and expenses of attorneys and paralegals, whetherinside or outside counsel is used, and whether any suit or other action isinstituted, and to court costs if suit or action is instituted, and whether anysuch fees, costs or expenses are incurred at the trial court level or onappeal, in bankruptcy, in administrative proceedings, in probate proceedings orotherwise (collectively “Indebtedness”) are secured by and the Bank is granteda security interest in and lien upon all items deposited in any account of anyof the undersigned with the Bank and by all proceeds of these items (cash orotherwise), all account balances of any of the undersigned from time to timewith the Bank, by all property of any of the undersigned from time to time inthe possession of the Bank and by any other collateral, rights and propertiesdescribed in each and every deed of trust, mortgage, security agreement,pledge, assignment and other security or collateral agreement which has been,or will at any time(s) later be, executed by any (or all) of the undersigned toor for the benefit of the Bank (collectively “Collateral”). Notwithstanding theabove, (i) to the extent that any portion of the Indebtedness is aconsumer loan, that portion shall not be secured by any deed of trust ormortgage on or other security interest in any of the undersigned’s principaldwelling or in any of the undersigned’s real property which is not a purchasemoney security interest as to that portion, unless expressly provided to thecontrary in another place, or (ii) if the undersigned (or any of them) has(have) given or give(s) Bank a deed of trust or mortgage covering real property,that deed of trust or mortgage shall not secure this Note or any otherindebtedness of the undersigned (or any of them), unless expressly provided tothe contrary in another place.**

 

**If the undersigned (or any of them) or any guarantor under aguaranty of all or part of the Indebtedness (“guarantor”) (i) fail(s) topay this Note or any of the Indebtedness when due, by maturity, acceleration orotherwise, or fail(s) to pay any Indebtedness owing on a demand basis upondemand; or (ii) fail(s) to comply with any of the terms or provisions ofany agreement between the undersigned (or any of them) or any guarantor and theBank; or (iii) become(s) insolvent or the subject of a voluntary or involuntaryproceeding in bankruptcy, or a reorganization, arrangement or creditorcomposition proceeding, (if a business entity) cease(s) doing business as agoing concern, (if a natural person) die(s) or become(s) incompetent, (if apartnership) dissolve(s) or any general partner of it dies, becomes incompetentor becomes the subject of a bankruptcy proceeding or (if a corporation or alimited liability company) is the subject of a dissolution, merger orconsolidation; or (a) if any warranty or representation made by any of theundersigned or any guarantor in connection with this Note or any of theIndebtedness shall be discovered to be untrue or incomplete; or (b) ifthere is any termination, notice of termination, or breach of any guaranty,pledge, collateral assignment or subordination agreement relating to all or anypart of the Indebtedness; or (c) if there is any failure by any of theundersigned or any guarantor to pay when due any of its indebtedness (otherthan to the Bank) or in the observance or performance of any term, covenant orcondition in any document evidencing, securing or relating to suchindebtedness; or (d) if the Bank deems itself insecure believing that theprospect of payment of this Note or any of the Indebtedness is impaired orshall fear deterioration, removal or waste of any of the Collateral; or (e) ifthere is filed or issued a levy or writ of attachment or garnishment or otherlike judicial process upon the undersigned (or any of them) or any guarantor orany of the Collateral, including, without limit, any accounts of theundersigned (or any of them) or any guarantor with the Bank, then the Bank,upon the occurrence of any of these events (each a “Default”), may at itsoption and without prior notice to the undersigned (or any of them), declareany or all of the Indebtedness to be immediately due and payable(notwithstanding any provisions contained in the evidence of it to thecontrary), cease advancing money or extending credit to or for the benefit ofthe undersigned under this Note or any other agreement between the undersigned(or any of them) and Bank, terminate this Note as to any future liability orobligation of Bank, but without affecting Bank’s rights and security interestsin any Collateral and the Indebtedness of the undersigned (or any of them) toBank, sell or liquidate all or any portion of the Collateral, set off againstthe Indebtedness any amounts owing by the Bank to the undersigned (or any ofthem), charge interest at the default rate provided in the document evidencingthe relevant Indebtedness and exercise any one or more of the rights andremedies granted to the Bank by any agreement with the undersigned (or any ofthem) or given to it under applicable law. In addition, if this Note is securedby a deed of trust or mortgage covering real property, then the trustor or mortgagorshall not mortgage or pledge the mortgaged premises as security for any otherindebtedness or obligations. This Note, together with all other indebtednesssecured by said deed of trust or mortgage, shall become due and payableimmediately, without notice, at the option of the Bank, (a) if saidtrustor or mortgagor shall mortgage or pledge the mortgaged premises for anyother indebtedness or obligations or shall convey, assign or transfer themortgaged premises by deed, installment sale contract or other instrument, or (b) ifthe title to the mortgaged premises shall become vested in any other person orparty in any manner whatsoever, or (c) if there is any disposition(through one or more transactions) of legal or beneficial title to acontrolling interest of said trustor or mortgagor. All payments under this Noteshall be in immediately available United States funds, without setoff orcounterclaim.**

 

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**If thisNote is signed by two or more parties (whether by all as makers or by one ormore as an accommodation party or otherwise), the obligations and undertakingsunder this Note shall be that of all and any two or more jointly and also ofeach severally. This Note shall bind the undersigned, and the undersigned’srespective heirs, personal representatives, successors and assigns.**

** **

**Theundersigned waive(s) presentment, demand, protest, notice of dishonor, noticeof demand or intent to demand, notice of acceleration or Intent to accelerate,and all other notices, and agree(s) that no extension or indulgence to theundersigned (or any of them) or release, substitution or nonenforcement of anysecurity, or release or substitution of any of the undersigned, any guarantoror any other party, whether with or without notice, shall affect theobligations of any of the undersigned. The undersigned waive(s) all defenses orright to discharge available under Section 3-605 of the California UniformCommercial Code and waive(s) all other suretyship defenses or right todischarge. The undersigned agree(s) that the Bank has the right to sell,assign, or grant participations or any interest in, any or all of theIndebtedness, and that, in connection with this right, but without limiting itsability to make other disclosures to the full extent allowable, the Bank maydisclose all documents and information which the Bank now or later has relatingto the undersigned or the Indebtedness. The undersigned agree(s) that the Bankmay provide information relating to this Note, the Indebtedness, or theundersigned to the Bank’s parent, affiliates, subsidiaries and serviceproviders.**

** **

**Theundersigned agree(s) to reimburse the holder or owner of this Note upon demandfor any and all costs and expenses (including, without limit, court costs,legal expenses and reasonable attorney fees, whether inside or outside counselis used, and whether or not suit is instituted and, if suit is instituted,whether at the trial court level, appellate level, in a bankruptcy, probate oradministrative proceeding or otherwise) incurred in collecting or attempting tocollect this Note or incurred in any other matter or proceeding relating tothis Note.**

** **

**Theundersigned acknowledge(s) and agree(s) that there are no contrary agreements,oral or written, establishing a term of this Note and agree(s) that the termsand conditions of this Note may not be amended, waived or modified except in awriting signed by an officer of the Bank expressly stating that the writingconstitutes an amendment, waiver or modification of the terms of this Note. As usedin this Note, the word “undersigned” means, individually and collectively, eachmaker, accommodation party, indorser and other party signing this Note in asimilar capacity. If any provision of this Note is unenforceable in whole orpart for any reason, the remaining provisions shall continue to be effective.THIS NOTE IS MADE IN THE STATE OF California AND SHALL BE GOVERNED BY ANDCONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF California, WITHOUTREGARD TO CONFLICT OF LAWS PRINCIPLES.**

 

The maximum interest rateshall not exceed the highest applicable usery ceiling

 

**THE UNDERSIGNED, BY ACCEPTANCE OF THIS NOTE, AND THE BANKACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THATIT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING (OR HAVING HAD THEOPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY ANDVOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY INTHE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANYWAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS.**

 

This Note is subject to the terms and conditions ofthat certain Business Loan Agreement dated October 22, 2001, as amended,modified, supplemented or revised from time to time.

 

See ADDENDUM A andLIBOR ADDENDUM attached hereto and made a part of this Note.

 

 
| Monterey  Gourmet Foods, Inc. |                            |
|------------------------------------|---------------------------------|
|                               |                            |
|                               |                            |
| By:                                | /s/ James M. Williams           |   | Its: | Chief Executive Officer |   |
|                               | SIGNATURE OF James M.  Williams |   | TITLE |
|                               |                            |
|                               |                            |
| By:                                | /s/ Scott Wheeler               |   | Its: | Chief Financial Officer |   |
|                               | SIGNATURE OF Scott Wheeler      |   | TITLE |

 

 
| 1528 Moffet Street |   | Salinas |   | CA    |   | USA     |   | 93905     |
|--------------------|--------|---------|--------|-------|--------|---------|--------|-----------|
| STREET ADDRESS     |   | CITY    |   | STATE |   | COUNTRY |   | ZIP  CODE |

 
| For  Bank Use Only               |   | CCAR *#*                                  |
|----------------------------------|--------|-------------------------------------------|
| **Loan Officer Initials**  BS    |   | **Loan Group Name**  Fresno Middle Market |   | **Obligor(s) Name**  Monterey Gourmet Foods, Inc. |
| ** **                       |   | ** **                                |   | ** ** |
| **Loan Officer I.D. No.**  49079 |   | **Loan Group No.**  97329                 |   | **Obligor #**  5382411592 |   | **Note #**  5382411592 |   | **Amount**  $5,000,000.00 |
|                                  |        |                                           |  |  |  |  |  |  |  |

 

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**ADDENDUM A**

**TOVARIABLE RATE-SINGLE PAYMENT NOTE(Advancing-Optional Advances)**

 

This Addendum A to Variable Rate-Single Payment Note (Advancing-OptionalAdvances) dated January 5, 2005 (this “Addendum”) is attached to, and bythis reference shall be a part of and is hereby incorporated by this referenceinto that certain Variable Rate-Single Payment Note dated January 5, 2005(the “Note”) executed by MONTEREY GOURMET FOODS, INC., a Delaware corporation (“Borrower”)in favor of COMERICA BANK (“Bank”). All initially capitalized terms used butnot defined in this Addendum shall have the meanings assigned to such terms inthe Note. Borrower hereby agrees that the following terms and conditions shallbe incorporated into the Note:

 

Subject to the terms and conditions set forth in the Note, advancesunder the Note shall be available from the date hereof through January 5,2006 (the “Draw Period”). During the Draw Period, interest shall be payable asset forth in the Note. Upon expiration of the Draw Period, all amountsoutstanding under the Note shall be payable on the 5th day of eachmonth, beginning on February 5, 2006, on the basis of an amortization offorty eight (48) equal payments of principal plus accrued interest thereon. Allunpaid principal and accrued but unpaid interest shall in any event be due andpayable on or before the Maturity Date set forth in the Note.

 

 
|   | MONTEREY GOURMET FOODS, INC.,  a Delaware corporation |
|--------|-------------------------------------------------------|
|   |                                                  |
|   |                                                  |
|   | By:                                                   | /s/ James M.Williams |
|   |                                                  | James M. Williams |
|   | Its:                                                  | Chief Executive Officer |
|   |                                                  |
|   |                                                  |
|   | By:                                                   | /s/ Scott Wheeler |
|   |                                                  | Scott Wheeler |
|   | Its:                                                  | Chief Financial Officer |

 

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**LIBOR**

**Addendum To Variable Rate-Single Payment Note(Advancing-Optional Advances)**

 

This Addendum to Variable Rate-Single PaymentNote (Advancing-Optional Advances) (this “Addendum”) is entered into as of this5th day of January, 2005 by and between COMERICA BANK (“Bank”) andMONTEREY GOURMET FOODS, INC., a Delaware corporation (“Borrower”). ThisAddendum supplements the terms of the Variable Rate-Singe Payment Note(Advancing-Optional Advances) of even date herewith.

 

1.             Definitions.

 

a.             Advance.  As used herein, “Advance”means a borrowing requested by Borrower and made by Bank under the Note,including a LIBOR Option Advance and/or a Base Rate Option Advance.

 

b.             Business Day.  Asused herein, “Business Day” means any day except a Saturday, Sunday or anyother day designated as a holiday under Federal or California statute orregulation.

 

c.             LIBOR.  As used herein, “LIBOR” meansthe rate per annum (rounded upward if necessary, to the nearest whole 1/8 of1%) and determined pursuant to the following formula:

 
|   | LIBOR = | Base LIBOR                       |   |
|--------|---------|----------------------------------|--------|
|   |    | 100% - LIBOR Reserve  Percentage |   |

 

(1)           “Base LIBOR” means the rate per annum determined by Bank at whichdeposits for the relevant LIBOR Period would be offered to Bank in theapproximate amount of the relevant LIBOR Option Advance in the inter-bank LIBORmarket selected by Bank, upon request of Bank at 10:00 a.m. Californiatime, on the day that is the first day of such LIBOR Period.

 

(2)           “LIBOR Reserve Percentage” means the reserve percentage prescribed bythe Board of Governors of the Federal Reserve System (or any successor) for “EurocurrencyLiabilities” (as defined in Regulation D of the Federal Reserve Board, asamended), adjusted by Bank for expected changes in such reserve percentageduring the applicable LIBOR Period.

 

d.             LIBOR Business Day.  As used herein, “LIBOR Business Day” means aBusiness day on which dealings in Dollar deposits may be carried out in theinterbank LIBOR market.

 

e.             LIBOR Period. As used herein, “LIBOR Period” means, with respect to a LIBOR Option Advance:

 

(1)           initially, the period commencing on, as the case may be, the date theAdvance is made or the date on which the Advance is converted to a LIBOR OptionAdvance, and continuing for, in every case, a thirty (30), sixty (60), ninety(90) or up to one hundred eighty (180) day period thereafter so long as the LIBOROption is quoted for such period in the applicable interbank LIBOR market, assuch period is selected by Borrower in the notice of Advance as provided in theNote or in the notice of conversion as provided in this Addendum; and

 

(2)           thereafter, each period commencing on the last day of the nextpreceding LIBOR Period applicable to such LIBOR Option Advance and continuingfor, in every case, a thirty (30), sixty (60), ninety (90) or up to one hundredeighty (180) day period thereafter so long as the LIBOR Option is quoted forsuch period in the applicable interbank LIBOR market, as such period isselected by Borrower in the notice of continuation as provided in this Addendum.

 

f.              Note.  As used herein, “Note” meansthe Variable Rate-Single Payment Note (Advancing-Optional Advances) of evendate herewith.

 

g.             Regulation D.  Asused herein, “Regulation D” means Regulation D of the Board of Governors of theFederal Reserve System as amended or supplemented from time to time.

 

h.             Regulatory Development.  Asused herein, “Regulatory Development” means any or all of the following: (i) anychange in any law, regulation or interpretation thereof by any public authority(whether or not having the force of law); (ii) the application of anyexisting law, regulation or the interpretation thereof by any public authority(whether or not having the force of law); and (iii) compliance by Bankwith any request or directive (whether or not having the force of law) of anypublic authority.

 

2.             Interest Rate Options. Borrower shall have the following options regarding the interest rate tobe paid by Borrower on Advances under the Note:

 

a.             A rate equal to two and three-quarterspercent (2.75%) above Bank’s LIBOR, (the “LIBOR Option”), which LIBOR Optionshall be in effect during the relevant LIBOR Period; or

 

b.             A rate equal to the “BaseRate” as referenced in the Note and quoted from time to time by Bank as suchrate may change from time to time (the “Base Rate Option”).

 

1

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3.             LIBOR Option Advance.  Theminimum LIBOR Option Advance will not be less than Two Hundred Fifty ThousandDollars ($250,000.00) for any LIBOR Option Advance.

 

4.             Payment of Interest on LIBOR Option Advances. Interest on each LIBOR Option Advance shall be payable pursuant to theterms of the Note. Interest on such LIBOR Option Advance shall be computed onthe basis of a 360-day year and shall be assessed for the actual number of dayselapsed from the first day of the LIBOR Period applicable thereto but not includingthe last day thereof.

 

5.             Bank’s Records Re: LIBOR Option Advances.  Withrespect to each LIBOR Option Advance, Bank is hereby authorized to note thedate, principal amount, interest rate and LIBOR Period applicable thereto andany payments made thereon on Bank’s books and records (either manually or byelectronic entry) and/or on any schedule attached to the Note, whichnotations shall be prima facie evidence of the accuracy of the informationnoted.

 

6.             Selection/Conversion of Interest Rate Options.  Atthe time any Advance is requested under the Note and/or Borrower wishes toselect the LIBOR Option for all or a portion of the outstanding principal balanceof the Note, and at the end of each LIBOR Period, Borrower shall give Banknotice specifying (a) the interest rate option selected by Borrower;   (b) the principal amount subjectthereto; and (c) if the LIBOR Option is selected, the length of theapplicable LIBOR Period. Any such notice may be given by telephone so long as,with respect to each LIBOR Option selected by Borrower, (i) Bank receiveswritten confirmation from Borrower not later than three (3) LIBOR BusinessDays after such telephone notice is given; and (ii) such notice is givento Bank prior to 10:00 a.m., California time, on the first day of the LIBORPeriod. For each LIBOR Option requested hereunder, Bank will quote theapplicable fixed LIBOR Rate to Borrower at approximately 10:00 a.m.,California time, on the first day of the LIBOR Period. If Borrower does notimmediately accept the rate quoted by Bank, any subsequent acceptance byBorrower shall be subject to a redetermination of the rate by Bank; provided,however, that if Borrower fails to accept any such quotation given, then thequoted rate shall expire and Bank shall have no obligation to permit a LIBOROption to be selected on such day. If no specific designation of interest ismade at the time any Advance is requested under the Note or at the end of anyLIBOR Period, Borrower shall be deemed to have selected the Base Rate Optionfor such Advance or the principal amount to which such LIBOR Period applied. Atany time the LIBOR Option is in effect, Borrower may, at the end of the applicableLIBOR Period, convert to the Base Rate Option. At any time the Base Rate Optionis in effect, Borrower may convert to the LIBOR OPTION, and shall designate aLIBOR Period.

 

7.             Default Interest Rate.  Fromand after the maturity date of the Note, or such earlier date as all principalowing hereunder becomes due and payable by acceleration or otherwise, theoutstanding principal balance of the Note shall bear interest until paid infull at an increased rate per annum (computed on the basis of a 360-day year,actual days elapsed) equal to three percent (3.00%) above the rate of interestfrom time to time applicable to the Note.

 

8.             Prepayment.  In the event that the LIBOROption is the applicable interest rate for all or any part of the outstandingprincipal balance of the Note, and any payment or prepayment of any suchoutstanding principal balance of the Note shall occur on any day other than thelast day of the applicable LIBOR Period (whether voluntarily, by acceleration,required payment, or otherwise), or if Borrower elects the LIBOR Option as theapplicable interest rate for all or any part of the outstanding principalbalance of the Note in accordance with the terms and conditions hereof, and,subsequent to such election, but prior to the commencement of the applicableLIBOR Period, Borrower revokes such election for any reason whatsoever, or ifthe applicable interest rate in respect of any outstanding principal balance ofthe Note hereunder shall be changed, for any reason whatsoever, from the LIBOROption to the Base Rate Option prior to the last day of the applicable LIBORPeriod, or if Borrower shall fail to make any payment of principal or interesthereunder at any time that the LIBOR Option is the applicable interest ratehereunder in respect of such outstanding principal balance of the Note,Borrower shall reimburse Bank, on demand, for any resulting loss, cost orexpense incurred by Bank as a result thereof, including, without limitation, anysuch loss, cost or expense incurred in obtaining, liquidating, employing orredeploying deposits from third parties. Such amount payable by Borrower toBank may include, without limitation, an amount equal to the excess, if any, of(a) the amount of interest which would have accrued on the amount soprepaid, or not so borrowed, refunded or converted, for the period from thedate of such prepayment or of such failure to borrow, refund or convert,through the last day of the relevant LIBOR Period, at the applicable rate ofinterest for such outstanding principal balance of the Note, as provided underthis Note, over (b) the amount of interest (as reasonably determined by Bank)which would have accrued to Bank on such amount by placing such amount ondeposit for a comparable period with leading banks in the interbank LIBORmarket. Calculation of any amounts payable to Bank under this paragraph shallbe made as though Bank shall have actually funded or committed to fund therelevant outstanding principal balance of the Note hereunder through thepurchase of an underlying deposit in an amount equal to the amount of suchoutstanding principal balance of the Note and having a maturity comparable tothe relevant LIBOR Period; provided, however, that Bank may fund theoutstanding principal balance of the Note hereunder in any manner it deems fitand the foregoing assumptions shall be utilized only for the purpose of the calculationof amounts payable under this paragraph. Upon the written request of Borrower,Bank shall deliver to Borrower a certificate setting forth the basis fordetermining such losses, costs and expenses, which certificate shall beconclusively presumed correct, absent manifest error. Any prepayment hereundershall also be accompanied by the payment of all accrued and unpaid interest onthe amount so prepaid. Any outstanding principal balance of the Note which isbearing interest at such time at the Base Rate Option may be prepaid withoutpenalty or premium. Partial prepayments hereunder shall be applied to theinstallments hereunder in the inverse order of their maturities.

 

BY INITIALING BELOW, BORROWER ACKNOWLEDGE(S) ANDAGREE(S) THAT:   (A) THERE IS NORIGHT TO PREPAY ANY LIBOR OPTION ADVANCE, IN WHOLE OR IN PART, WITHOUT PAYING

 

2

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THE PREPAYMENT AMOUNT SET FORTH HEREIN (“PREPAYMENTAMOUNT”), EXCEPT AS OTHERWISE REQUIRED UNDER APPLICABLE LAW; (B) BORROWERSHALL BE LIABLE FOR PAYMENT OF THE PREPAYMENT AMOUNT IF BANK EXERCISES ITSRIGHT TO ACCELERATE PAYMENT OF ANY LIBOR OPTION ADVANCE AS PART OR ALL OFTHE OBLIGATIONS OWING UNDER THE NOTE. INCLUDING WITHOUT LIMITATION,ACCELERATION UNDER A DUE-ON-SALE PROVISION; (C) BORROWER WAIVES ANY RIGHTSUNDER SECTION 2954.10 OF THE CALIFORNIA CIVIL CODE OR ANY SUCCESSORSTATUTE; AND (D) BANK HAS MADE EACH LIBOR OPTION ADVANCE PURSUANT TO THENOTE IN RELIANCE ON THESE AGREEMENTS.

 

9.             HoldHarmless and Indemnification. Borrower agrees to indemnify Bank and to hold Bank harmless from, and toreimburse Bank on demand for, all losses and expenses which Bank sustains or incursas a result of (i) any payment of a LIBOR Option Advance prior to the lastday of the applicable LIBOR Period for any reason, including, withoutlimitation, termination of the Note, whether pursuant to this Addendum or theoccurrence of an Event of Default; (ii) any termination of a LIBOR Periodprior to the date it would otherwise end in accordance with this Addendum; or (iii) anyfailure by Borrower, for any reason, to borrow any portion of a LIBOR OptionAdvance.

 

10.           FundingLosses.  The indemnification and holdharmless provisions set forth in this Addendum shall include, without limitation,all losses and expenses arising from interest and fees that Bank pays to lendersof funds it obtains in order to fund the loans to Borrower on the basis of theLIBOR Option(s) and all losses incurred in liquidating or re-deploying depositsfrom which such funds were obtained and loss of profit for the period aftertermination. A written statement by Bank to Borrower of such losses and expensesshall be conclusive and binding, absent manifest error, for all purposes. Thisobligation shall survive the termination of this Addendum and the payment ofthe Note.

 

11.           RegulatoryDevelopments Or Other Circumstances Relating To Illegality or Impracticality ofLIBOR.  If any Regulatory Developmentor other circumstances relating to the interbank Euro-dollar markets shall, atany time, in Bank’s reasonable determination, make it unlawful or impracticalfor Bank to fund or maintain, during any LIBOR Period, to determine or chargeinterest rates based upon LIBOR, Bank shall give notice of such circumstancesto Borrower and:

 

(i)            Inthe case of a LIBOR Period in progress, Borrower shall, if requested by Bank,promptly pay any interest which had accrued prior to such request and the dateof such request shall be deemed to be the last day of the term of the LIBORPeriod; and

 

(ii)           NoLIBOR Period may be designated thereafter until Bank determines that such wouldbe practical.

 

12.           AdditionalCosts.  Borrower shall pay to Bankfrom time to time, upon Bank’s request, such amounts as Bank determines areneeded to compensate Bank for any costs it incurred which are attributable toBank having made or maintained a LIBOR Option Advance or to Bank’s obligationto make a LIBOR Option Advance, or any reduction in any amount receivable byBank hereunder with respect to any LIBOR Option or such obligation (suchincreases in costs and reductions in amounts receivable being herein called “AdditionalCosts”), resulting from any Regulatory Developments, which (i) change the basisof taxation of any amounts payable to Bank hereunder with respect to taxationof any amounts payable to Bank hereunder with respect to any LIBOR OptionAdvance (other than taxes imposed on the overall net income of Bank for anyLIBOR Option Advance by the jurisdiction where Bank is headquartered or thejurisdiction where Bank extends the LIBOR Option Advance;  (ii) impose or modify any reserve,special deposit, or similar requirements relating to any extensions of creditor other assets of, or any deposits with or other liabilities of, Bank(including any LIBOR Option Advance or any deposits referred to in thedefinition of LIBOR); or (iii) impose any other condition affecting thisAddendum (or any of such extension of credit or liabilities). Bank shall notifyBorrower of any event occurring after the date hereof which entitles Bank tocompensation pursuant to this paragraph as promptly as practicable after it obtainsknowledge thereof and determines to request such compensation. Determinationsby Bank for purposes of this paragraph, shall be conclusive, provided that suchdeterminations are made on a reasonable basis.

 

13.           LegalEffect.  Except as specificallymodified hereby, all of the terms and conditions of the Note remain in fullforce and effect.

 

IN WITNESS WHEREOF, the parties have agreed to the foregoing as of thedate first set forth above.

 

 
| MONTEREY GOURMET FOODS, INC.  a Delaware corporation | COMERICA BANK           |
|------------------------------------------------------|-------------------------|
|                                                 |                    |
|                                                 |                    |
| By:                                                  | /s/ James M. Williams   |   | By: | /s/ Brian C. Santos |   |
|                                                 | James M. Williams       |   | Brian C. Santos |
| Title:                                               | Chief Executive Officer | Title: | Sr. Vice President |
|                                                 |                    |
|                                                 |                    |
| By:                                                  | /s/ Scott Wheeler       |   |   |
|                                                 | Scott Wheeler           |   |
| Title:                                               | Chief Financial Officer |   |
|                                                      |                         |  |  |  |  |  |

 

3

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**Security Agreement**

 

As of January 05,2005, for value received, the undersigned (“Debtor”) pledges, assigns andgrants to Comerica Bank (“Bank”), whose address is 333 West SantaClara Street, San Jose, CA, 95113, Attention: CommercialLoan Documentation, Mail Code 4770, a continuing security interestand lien (any pledge, assignment, security interest or other lien arisinghereunder is sometimes referred to herein as a “security interest”) in theCollateral (as defined below) to secure payment when due, whether by statedmaturity, demand, acceleration or otherwise, of all existing and futureindebtedness (“Indebtedness”) to the Bank of Monterey Gourmet Foods, Inc.(“Borrower”) and/or Debtor. Indebtedness includes without limit any and allobligations or liabilities of the Borrower and/or Debtor to the Bank, whetherabsolute or contingent, direct or indirect, voluntary or involuntary,liquidated or unliquidated, joint or several, known or unknown; any and allobligations or liabilites for which the Borrower and/or Debtor would otherwisebe liable to the Bank were it not for the invalidity or unenforceability ofthem by reason of any bankruptcy, insolvency or other law, or for any otherreason; any and all amendments, modifications, renewals and/or extensions ofany of the above; all costs incurred by Bank in establishing, determining,continuing, or defending the validity or priority of its security interest, orin pursuing its rights and remedies under this Agreement or under any otheragreement between Bank and Borrower and/or Debtor or in connection with anyproceeding involving Bank as a result of any financial accommodation toBorrower and/or Debtor; and all other costs of collecting Indebtedness,including without limit attorneys fees. Debtor agrees to pay Bank all suchcosts incurred by the Bank, immediately upon demand, and until paid all costsshall bear interest at the highest per annum rate applicable to any of theIndebtedness, but not in excess of the maximum rate permitted by law. Anyreference in this Agreement to attorneys fees shall be deemed a reference toreasonable fees, costs, and expenses of both in-house and outside counsel andparalegals, whether inside or outside counsel is used, whether or not a suit oraction is instituted, and to court costs if a suit or action is instituted, andwhether attorneys fees or court costs are incurred at the trial court level, onappeal, in a bankruptcy, administrative or probate proceeding or otherwise.Debtor further covenants, agrees, represents and warrants as follows:

 

1.             Collateral shall mean all of the followingproperty Debtor now or later owns or has an interest in, wherever located:

 

•              all of Debtor’s present and future rights,title and interest in, to and under Debtor’s securities account(s) number(s),maintained with, and all Debtor’s investment property contained therein,including without limitation all securities and securities entitlements,financial assets, instruments or other property contained in such securitiesaccount(s), and all other investment property, financial assets, instruments orother property at any time held or maintained in the securities account(s),together with all investment property, financial assets, instruments or otherproperty at any time substituted therefor or for any part thereof, and allinterest, dividends, increases, profits, new investment property, financialassets, instruments or other property and or other increments, distributions orrights of any kind received on account of any of the foregoing, and all otherincome received in connection therewith and all products or proceeds thereof(whether cash or non-cash proceeds).

 

•              specific items listed below and/or on attachedSchedule A, if any, is/are also included in Collateral:

5,760,269shares of common stocks of Casual Gourmet Foods, Inc. and registered in thename of Monterey Gourmet Foods, Inc.

 

•              all goods, instruments, (including, withoutlimit, promissory notes), documents (including, without limit, negotiabledocuments), policies and certificates of insurance, deposit accounts, and moneyor other property (except real property which is not a fixture) which are nowor later in possession of Bank, or as to which Bank now or later controlspossession by documents or otherwise, and

 

•              all additions, attachments, accessions, parts,replacements, substitutions, renewals, interest, dividends, distributions,rights of any kind (including but not limited to stock splits, stock rights,voting and preferential rights), products, and proceeds of or pertaining to theabove including, without limit, cash or other property which were proceeds andare recovered by a bankruptcy trustee or otherwise as a preferential transferby Debtor.

 

Inthe definition of Collateral, a reference to a type of collateral shall not belimited by a separate reference to a more specific or narrower type of thatcollateral.

 

2.             Warranties, Covenants and Agreements. Debtorwarrants, covenants and agrees as follows:

 

2.1           Debtor shall furnish to Bank, in form and at intervals as Bank mayrequest, any information Bank may reasonably request and allow Bank to examine,inspect, and copy any of Debtor’s books and records. Debtor shall, at the requestof Bank, mark its records and the Collateral to clearly indicate the securityinterest of Bank under this Agreement.

 

2.2           At the time any Collateral becomes, or is represented to be, subject toa security interest in favor of Bank, Debtor shall be deemed to have warrantedthat: (a) Debtor is the lawful owner of the Collateral and has the right andauthority to subject it to a security interest granted to Bank; (b) noneof the Collateral is subject to any security interest other than that in favorof Bank; (c) there are no financing statements on file, other than in favorof Bank; (d) no person, other than Bank, has possesion or control (asdefined in the Uniform Commercial Code) of any Collateral of such nature thatperfection of a security interest may be accomplished by control; and (e) Debtoracquired its rights in the Collateral in the ordinary course of its business.

 

2.3           Debtor will keep the Collateral free at all times from all claims,liens, security interests and encumbrances other than those in favor of Bank.Debtor will not, without the prior written consent of Bank, sell, transfer or lease,or permit to be sold, transferred or leased, any or all of the Collateral,except (where Inventory is pledged as Collateral) for Inventory in the ordinarycourse of its business and will not return any Inventory to its supplier. Bankor its representatives may at all reasonable times inspect the Collateral andmay enter upon all premises where the Collateral is kept or might be located.

 

2.4           Debtor will do all acts and will execute or cause to be executed allwritings requested by Bank to establish, maintain and continue an exclusive,perfected and first security interest of Bank in the Collateral. Debtor agreesthat Bank has no obligation to acquire or perfect any lien on or securityinterest in any asset(s), whether realty or personalty, to secure payment ofthe Indebtedness, and Debtor is not relying upon assets in which the Bank mayhave a lien or security interest for payment of the Indebtedness.

 

2.5           Debtor will pay within the time that they can be paid without interestor penalty all taxes, assessments and similar charges which at any time are ormay become a lien, charge, or encumbrance upon any Collateral, except to theextent contested in good faith and bonded in a manner satisfactory to Bank. IfDebtor fails to pay any of these taxes, assessments, or other charges in thetime provided above, Bank has the option (but not the obligation)  to do so and Debtor agrees to repay allamounts so expended by Bank immediately upon demand, together with interest atthe highest lawful default rate which could be charged by Bank on anyIndebtedness.

 

2.6           Debtor will keep the Collateral in good condition and will protect itfrom loss, damage, or deterioration from any cause. Debtor has and willmaintain at all times (a) with respect to the Collateral, insurance underan “all risk” policy against fire and other risks customarily insured against,and (b) public liability insurance and other insurance as may be requiredby law or reasonably required by Bank, all of which insurance shall be in amount,form and content, and written by companies as may be satisfactory to Bank,containing a lender’s loss payable endorsement acceptable to Bank. Debtor willdeliver to Bank immediately upon demand evidence satisfactory to Bank that therequired insurance has been procured. If Debtor fails to maintain satisfactoryinsurance, Bank has the option (but not the obligation) to do so and Debtoragrees to repay all amounts so expended by Bank immediately upon demand,together with interest at the highest lawful default rate which could becharged by Bank on any Indebtedness.

 

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2.7           Oneach occasion on which Debtor evidences to Bank the account balances on and thenature and extent of the Accounts Receivable, Debtor shall be deemed to havewarranted that except as otherwise indicated: (a) each of those AccountsReceivable is valid and enforceable without performance by Debtor of any act; (b) eachof those account balances are in fact owing; (c) there are no setoffs,recoupments, credits, contra accounts, counterclaims or defenses against any ofthose Accounts Receivable; (d) as to any Accounts Receivable representedby a note, trade acceptance, draft or other instrument or by any chattel paperor document, the same have been endorsed and/or delivered by Debtor to Bank; (e) Debtorhas not received with respect to any Account Receivable, any notice of thedeath of the related account debtor, nor of the dissolution, liquidation,termination of existence, insolvency, business failure, appointment of areceiver for, assignment for the benefit of creditors by, or filing of apetition in bankruptcy by or against, the account debtor; and (f) as toeach Account Receivable, except as may be expressly permitted by Bank to thecontrary in another document, the account debtor is not an affilliate of Debtor,the United States of America or any department, agency or instrumentality ofit, or a citizen or resident of any jurisdiction outside of the United States.Debtor will do all acts and will execute all writings requested by Bank toperform, enforce performance of, and collect all Accounts Receivable. Debtorshall neither make nor permit any modification, compromise or substitution forany Account Receivable without the prior written consent of Bank. Bank may atany time and from time to time verify Accounts Receivable directly with accountdebtors or by other methods acceptable to Bank without notifying Debtor. Debtoragrees, at Bank’s request, to arrange or cooperate with Bank in arranging forverification of Accounts Receivable.

 

2.8           Debtor at all times shall be in strict compliance with all applicablelaws, including without limit any laws, ordinances, directives, orders, statutes,or regulations an object of which is to regulate or improve health, safety, orthe environment (“Environmental Laws”).

 

2.9           If Bank, acting in its sole discretion, redelivers Collateral to Debtoror Debtor’s designee for the purpose of (a) the ultimate sale or exchangethereof; or (b) presentation, collection, renewal, or registration oftransfer thereof; or (c) loading, unloading, storing, shipping,transshipping, manufacturing, processing or otherwise dealing with itpreliminary to sale or exchange; such redelivery shall be in trust for thebenefit of Bank and shall not constitute a release of Bank’s security interestin it or in the proceeds or products of it unless Bank specifically so agreesin writing. If Debtor requests any such redelivery, Debtor will deliver withsuch request a duly executed financing statement in form and substancesatisfactory to Bank. Any proceeds of Collateral coming into Debtor’spossession as a result of any such redelivery shall be held in trust for Bankand immediately delivered to Bank for application on the Indebtendess. Bank may(in its sole discretion) deliver any or all of the Collateral to Debtor, andsuch delivery by Bank shall discharge Bank from all liability or responsibiltyfor such Collateral. Bank, at its option, may require delivery of anyCollateral to Bank at any time with such endorsements or assignments of theCollateral as Bank may request.

 

2.10         At any time and without notice, Bank may, as to Collateral other thanEquipment, Fixtures or Inventory: (a) cause any or all of such Collateralto be transferred to its name or to the name of its nominees; (b) receiveor collect by legal proceedings or otherwise all dividends, interest, principalpayments and other sums and all other distributions at any time payable orreceivable on account of such Collateral, and hold the same as Collateral, or applythe same to the Indebtedness, the manner and distribution of the application tobe in the sole discretion of Bank; (c) enter into any extension,subordination, reorganization, deposit, merger or consolidation agreement or anyother agreement relating to or affecting such Collateral, and deposit orsurrender control of such Collateral, and accept other property in exchange forsuch Collateral and hold or apply the property or money so received pursuant tothis Agreement; and (d) take such actions in its own name or in Debtor’sname as Bank, in its sole discretion, deems necessary or appropriate toestablish exclusive control (as defined in the Uniform Commercial Code) overany Collateral of such nature that perfection of the Bank’s security interestmay be accomplished by control.

 

2.11         Bank may assign any of the Indebtedness and deliver any or all of theCollateral to its assignee, who then shall have with respect to Collateral sodelivered all the rights and powers of Bank under this Agreement, and after thatBank shall be fully discharged from all liability and responsibility withrespect to Collateral so delivered.

 

2.12         Debtor delivers this Agreement based solely on Debtor’s independentinvestigation of (or decision not to investigate) the financial condition ofBorrower and is not relying on any information furnished by Bank. Debtor assumesfull responsibility for obtaining any further information concerning the Borrower’sfinancial condition, the status of the Indebtedness or any other matter whichthe undersigned may deem necessary or appropriate now or later. Debtor waivesany duty on the part of Bank, and agrees that Debtor is not relying upon norexpecting Bank to disclose to Debtor any fact now or later known by Bank,whether relating to the operations or condition of Borrower, the existence,liabilities or financial condition of any guarantor of the Indebtendess, theoccurrence of any default with respect to the Indebtedness, or otherwise,notwithstanding any effect such fact may have upon Debtor’s risk or Debtor’srights against Borrower. Debtor knowingly accepts the full range of riskencompassed in this Agreement, which risk includes without limit the possibilitythat Borrower may incur Indebtedness to Bank after the financial condition ofBorrower, or Borrower’s ability to pay debts as they mature, has deteriorated.

 

2.13         Debtor shall defend, indemnify and hold harmless Bank, its employees,agents, shareholders, affiliates, officers, and directors from and against anyand all claims, damages, fines, expenses, liabilites or causes of action of whateverkind, including without limit consultant fees, legal expenses, and attorneysfees, suffered by any of them as a direct or indirect result of any actual orasserted violation of any law, including, without limit, Environmental Laws, orof any remediation relating to any property required by any law, includingwithout limit Environmental Laws, INCLUDING ANY CLAIMS, DAMAGES, FINES,EXPENSES, LIABILITIES OR CAUSES OF ACTION OF WHATEVER KIND RESULTING FROM BANK’SOWN NEGLIGENCE, except and to the extent (but only to the extent) caused byBank’s gross negligence or wilful misconduct.

 

2.14         If marketable securities are pledged as Collateral under this Agreementand if at any time the outstanding principal balance of the Indebtednessexceeds 70% in the case of OTC stock of the value of the Collateral, as suchvalue is determined from time to time by Bank (herein called the “MarginRequirement”), Debtor shall immediately pay or cause to be paid to Bank anamount sufficient to reduce the Indebtedness such that the remaining principaloutstanding thereunder is equal to or less than the Margin Requirement. Bankshall apply payments made under this paragraph in payment of the Indebtednessin such order and manner of application as Bank in its sole discretion elects.In the alternative, Debtor may provide or cause to be provided to Bankadditional collateral in the form of cash or other property acceptable to Bankand with a value, as determined by Bank, that when added to the Collateral willconstitute compliance with the Margin Requirement.

 

3.             Collection of Proceeds.

 

3.1           Debtor agrees to collect and enforce payment of all Collateral untilBank shall direct Debtor to the contrary. Immediately upon notice to Debtor byBank and at all times after that, Debtor agrees to fully and promptly cooperateand assist Bank in the collection and enforcement of all Collateral and to holdin trust for Bank all payments received in connection with Collateral and fromthe sale, lease or other disposition of any Collateral, all rights by way ofsuretyship or guaranty and all rights in the nature of a lien or securityinterest which Debtor now or later has regarding Collateral. Immediately uponand after such notice, Debtor agrees to (a) endorse to Bank andimmediately deliver to Bank all payments received on Collateral or from thesale, lease or other disposition of any Collateral or arising from any otherrights or interests of Debtor in the Collateral, in the form received by Debtorwithout commingling with any other funds, and (b) immediately deliver toBank all property in Debtor’s possession or later coming into Debtor’spossession through enforcement of Debtor’s rights or interests in theCollateral. Debtor irrevocably authorizes Bank or any Bank employee or agent toendorse the name of Debtor upon any checks or other items which are received inpayment for any Collateral, and to do any and all things necessary in order toreduce these items to money. Bank shall have no duty as to the collection orprotection of Collateral or the proceeds of it, nor as to the preservation ofany related rights, beyond the use of reasonable care in the custody andpreservation of Collateral in the possession of Bank. Debtor agrees to take allsteps necessary to preserve rights against prior parties with respect to theCollateral. Nothing in this Section 3.1 shall be deemed a consent by Bankto any sale, lease or other disposition of any Collateral.

 

----

 

3.2           Debtor agrees that immediately upon Bank’s request (whether or not anyEvent of Default exists) the indebtedness shall be on a “remittance basis” inaccordance with the following. In connection therewith, Debtor shall at its soleexpense establish and maintain (and Bank, at Bank’s option, may establish andmaintain at Debtor’s expense):

 

(a)           A United States Post Office lock box (the “Lock Box”), to which Bankshall have exclusive access and control. Debtor expressly authorizes Bank, fromtime to time, to remove contents from the Lock Box, for disposition inaccordance with this Agreement. Debtor agrees to notify all account debtors andother parties obligated to Debtor that all payments made to Debtor (other thanpayments by electronic funds transfer) shall be remitted, for the credit ofDebtor, to the Lock Box, and Debtor shall include a like statement on allinvoices; and

 

(b)           A non-interest bearing deposit account with Bank which shall be titledas designated by Bank (the “Cash Collateral Account”) to which Bank shall haveexclusive access and control. Debtor agrees to notify all account debtors andother parties obligated to Debtor that all payments made to Debtor byelectronic funds transfer shall be remitted to the Cash Collateral Account, andDebtor, at Bank’s request, shall include alike statement on all invoices. Debtor shall execute all documents andauthorizations as required by Bank to establish and maintain the Lock Box andthe Cash Collateral Account.

 

3.3           All items or amounts which are remitted to the Lock Box, to the CashCollateral Account, or otherwise delivered by or for the benefit of Debtor toBank on account of partial or full payment of, or with respect to, anyCollateral shall, at Bank’s option, (a) be applied to the payment of theIndebtedness, whether then due or not, in such order or at such time ofapplication as Bank may determine in its sole discretion, or, (b) bedeposited to the Cash Collateral Account. Debtor agrees that Bank shall not beliable for any loss or damage which Debtor may suffer as a result of Bank’sprocessing of items or its exercise of any other rights or remedies under thisAgreement, including without limitation indirect, special or consequentialdamages, loss of revenues or profits, or any claim, demand or action by anythird party arising out of or in connection with the processing of items or theexercise of any other rights or remedies under this Agreement. Debtor agrees toindemnify and hold Bank harmless from and against all such third party claims,demands or actions, and all related expenses or liabilities, including, withoutlimitation, attorney’s fees and INCLUDING CLAIMS, DAMAGES, FINES, EXPENSES,LIABILITIES OR CAUSES OF ACTION OF WHATEVER KIND RESULTING FROM BANK’S OWNNEGLIGENCE except to the extent (but only to the extent) caused by Bank’s grossnegligence or willful misconduct.

 

4.             Defaults, Enforcement and Application ofProceeds.

 

4.1           Upon the occurrence of any of the following events (each an “Event of Default”),Debtor shall be in default under this Agreement:

 

(a)           Any failure to pay the Indebtedness or any other indebtedness when due,or such portion of it as may be due, by acceleration or otherwise; or

 

(b)           Any failure or neglect to comply with, or breach of or default under,any term of this Agreement, or any other agreement or commitment betweenBorrower, Debtor, or any guarantor of any of the Indebtedness (“Guarantor”) andBank; or

 

(c)           Any warranty, representation, financial statement, or other informationmade, given or furnished to Bank by or on behalf of Borrower, Debtor, or anyGuarantor shall be, or shall prove to have been, false or materially misleadingwhen made, given, or furnished; or

 

(d)           Any loss, theft, substantial damage or destruction to or of anyCollateral, or the issuance or filing of any attachment, levy, garnishment orthe commencement of any proceeding in connection with any Collateral or of anyother judicial process of, upon or in respect of Borrower, Debtor, anyGuarantor, or any Collateral; or

 

(e)           Sale or other disposition by Borrower, Debtor, or any Guarantor of anysubstantial portion of its assets or property or voluntary suspension of thetransaction of business by Borrower, Debtor, or any Guarantor, or death,dissolution, termination of existence, merger, consolidation, insolvency,business failure, or assignment for the benefit of creditors of or by Borrower,Debtor, or any Guarantor; or commencement of any proceedings under any state orfederal bankruptcy or insolvency laws or laws for the relief of debtors by or againstBorrower, Debtor, or any Guarantor; or the appointment of a receiver, trustee,court appointee, sequestrator or otherwise, for all or any part of the propertyof Borrower, Debtor, or any Guarantor; or

 

(f)            Bank deems the margin of Collateralinsufficient or itself insecure, in good faith believing that the prospect ofpayment of the Indebtedness or performance of this Agreement is impaired orshall fear deterioration, removal, or waste of Collateral; or

 

(g)           An event of default shall occur under any instrument, agreement or otherdocument evidencing, securing or otherwise relating to any of the Indebtedness.

 

4.2           Upon the occurrence of any Event of Default, Bank may at its discretionand without prior notice to Debtor declare any or all of the Indebtedness to beimmediately due and payable, and shall have and may exercise any right or remedyavailable to it including, without limitation, any one or more of the followingrights and remedies:

 

(a)           Exercise all the rights and remedies upon default, in foreclosure andotherwise, available to secured parties under the provisions of the UniformCommercial Code and other applicable law;

 

(b)           Institute legal proceedings to foreclose upon the lien and securityinterest granted by this Agreement, to recover judgment for all amounts thendue and owing as Indebtedness, and to collect the same out of any Collateral orthe proceeds of any sale of it;

 

(c)           Institute legal proceedings for the sale, under the judgment or decreeof any court of competent jurisdiction, of any or all Collateral; and/or

 

(d)           Personally or by agents, attorneys, or appointment of a receiver, enterupon any premises where Collateral may then be located, and take possession ofall or any of it and/or render it unusable; and without being responsible forloss or damage to such Collateral, hold, operate, sell, lease, or dispose ofall or any Collateral at one or more public or private sales, leasings or otherdispositions, at places and times and on terms and conditions as Bank may deemfit, without any previous demand or advertisement; and except as provided inthis Agreement, all notice of sale, lease or other disposition, andadvertisement, and other notice or demand, any right or equity of redemption, andany obligation of a prospective purchaser or lessee to inquire as to the powerand authority of Bank to sell, lease, or otherwise dispose of the Collateral oras to the application by Bank of the proceeds of sale or otherwise, which wouldotherwise be required by, or available to Debtor under, applicable law areexpressly waived by Debtor to the fullest extent permitted.

 

Atany sale pursuant to this Section 4.2, whether under the power of sale, byvirtue of judicial proceedings or otherwise, it shall not be necessary for Bankor a public officer under order of a court to have present physical orconstructive possession of Collateral to be sold. The recitals contained in anyconveyances and receipts made and given by Bank or the public officer to any purchaserat any sale made pursuant to this Agreement shall, to the extent permitted byapplicable law, conclusively establish the truth and accuracy of the mattersstated (including, without limit, as to the amounts of the principal of andinterest on the Indebtedness, the accrual and nonpayment of it andadvertisement and conduct of the sale); and all prerequisites to the sale shallbe presumed to have been satisfied and performed. Upon any sale of anyCollateral, the receipt of the officer making the sale under judicialproceedings or of Bank shall be sufficient discharge to the purchaser for thepurchase money, and the purchaser shall not be obligated to

 

----

 

seeto the application of the money. Any sale of any Collateral under thisAgreement shall be a perpetual bar against Debtor with respect to thatCollateral. At any sale or other disposition of the Collateral pursuant to thisSection 4.2, Bank disclaims all warranties which would otherwise be givenunder the Uniform Commercial Code, including without limit a disclaimer of anywarranty relating to title, possesion, quiet enjoyment or the like, and Bankmay communicate these disclaimers to a purchaser at such disposition. Thisdisclaimer of warranties will not render the sale commercially unreasonable.

 

4.3           Debtor shall at the request of Bank, notify the account debtors orobligors of Bank’s security interest in the Collateral and direct payment of itto Bank. Bank may, itself, upon the occurrence of any Event of Default so notifyand direct any account debtor or obligor. At the request of Bank, whether ornot an Event of Default shall have occurred, Debtor shall immediately take suchactions as the Bank shall request to establish exclusive control (as defined inthe Uniform Commercial Code) by Bank over any Collateral which is of such anature that perfection of a security interest may be accomplished by control.

 

4.4           The proceeds of any sale or other disposition of Collateral authorizedby this Agreement shall be applied by Bank first upon all expenses authorizedby the Uniform Commercial Code and all reasonable attorney fees and legal expensesincurred by Bank; the balance of the proceeds of the sale or other dispositionshall be applied in the payment of the Indebtedness, first to interest, then toprincipal, then to remaining Indebtedness and the surplus, if any, shall bepaid over to Debtor or to such other person(s) as may be entitled to it underapplicable law. Debtor shall remain liable for any deficiency, which it shallpay to Bank immediately upon demand. Debtor agrees that Bank shall be under noobligation to accept any noncash proceeds in connection with any sale ordisposition of Collateral unless failure to do so would be commerciallyunreasonable. If Bank agrees in its sole discretion to accept noncash proceeds(unless the failure to do so would be commercially unreasonable), Bank mayascribe any commercially reasonable value to such proceeds. Without limitingthe foregoing, Bank may apply any discount factor in determining the presentvalue of proceeds to be received in the future or may elect to apply proceedsto be received in the future only as and when such proceeds are actuallyreceived in cash by Bank.

 

4.5           Nothing in this Agreement is intended, nor shall it be construed, topreclude Bank from pursuing any other remedy provided by law or in equity forthe collection of the Indebtedness or for the recovery of any other sum towhich Bank may be entitled for the breach of this Agreement by Debtor. Nothingin this Agreement shall reduce or release in any way any rights or securityinterests of Bank contained in any existing agreement between Borrower, Debtor,or any Guarantor and Bank.

 

4.6           No waiver of default or consent to any act by Debtor shall be effectiveunless in writing and signed by an authorized officer of Bank. No waiver of anydefault or forbearance on the part of Bank in enforcing any of its rights underthis Agreement shall operate as a waiver of any other default or of the samedefault on a future occasion or of any rights.

 

4.7           Debtor (a) irrevocably appoints Bank or any agent of Bank (whichappointment is coupled with an interest) the true and lawful attorney of Debtor(with full power of substitution) in the name, place and stead of, and at the expenseof, Debtor and (b) authorizes Bank or any agent of Bank, in its own name,at Debtor’s expense, to do any of the following, as Bank, in its solediscretion, deems appropriate:

 

(i)            to demand, receive, sue for, and give receiptsor acquittances for any moneys due or to become due on any Collateral and toendorse any item representing any payment on or proceeds of the Collateral;

 

(ii)           to execute and file in the name of and on behalf of Debtor all financingstatements or other filings deemed necessary or desirable by Bank to evidence,perfect, or continue the security interests granted in this Agreement; and

 

(iii)          to do and perform any act on behalf of Debtor permitted or requiredunder this Agreement.

 

4.8           Upon the occurrence of an Event of Default, Debtor also agrees, uponrequest of Bank, to assemble the Collateral and make it available to Bank atany place designated by Bank which is reasonably convenient to Bank and Debtor.

 

4.9           The following shall be the basis for any finder of fact’s determinationof the value of any Collateral which is the subject matter of a dispositiongiving rise to a calculation of any surplus or deficiency under Section 9.615(f) ofthe Uniform Commercial Code (as in effect on or after July 1, 2001): (a) TheCollateral which is the subject matter of the disposition shall be valued in an“as is” condition as of the date of the disposition, without any assumption orexpectation that such Collateral will be repaired or improved in any manner; (b) the valuation shall be based upon an assumption that the transferee of suchCollateral desires a resale of the Collateral for cash promptly (but no laterthan 30 days) following the disposition; (c) all reasonable closing costscustomarily borne by the seller in commercial sales transactions relating toproperty similar to such Collateral shall be deducted including, withoutlimitation, brokerage commissions, tax prorations, attorney’s fees, whetherinside or outside counsel is used, and marketing costs; (d) the value ofthe Collateral which is the subject matter of the disposition shall be furtherdiscounted to account for any estimated holding costs associated withmaintaining such Collateral pending sale (to the extent not accounted for in (c) above),and other maintenance, operational and ownership expenses; and (e) any expertopinion testimony given or considered in connection with a determination of thevalue of such Collateral must be given by persons having at least 5 years experiencein appraising property similar to the Collateral and who have conducted andprepared a complete written appraisal of such Collateral taking intoconsideration the factors set forth above. The “value” of any such Collateralshall be a factor in determining the amount of proceeds which would have beenrealized in a disposition to a transferee other than a secured party, a personrelated to a secured party or a secondary obligor under Section 9.615(f) ofthe Uniform Commerical Code.

 

5.             Miscellaneous.

 

5.1           Until Bank is advised in writing by Debtor to the contrary, all notices,requests and demands required under this Agreement or by law shall be given to,or made upon, Debtor at the following address:

 
| 1528 Moffet Street |
|--------------------|
| STREET ADDRESS     |
|               |   |   |   |   |   |   |
| Salinas            |   | CA |   | 93905 |   |   |
| CITY               |   | STATE |   | ZIP CODE |   | COUNTY |

 

5.2           Debtor will give Bank not less than 90 days prior written notice of allcontemplated changes in Debtor’s name, location, chief executive office,principal place of business, and/or location of any Collateral, but the giving ofthis notice shall not cure any Event of Default caused by this change.

 

5.3           Bank assumes no duty of performance or other responsibility under anycontracts contained within the Collateral.

 

5.4           Bank has the right to sell, assign, transfer, negotiate or grantparticipations or any interest in, any or all of the Indebtedness and anyrelated obligations, including without limit this Agreement. In connection withthe above, but without limiting its ability to make other disclosures to thefull extent allowable, Bank may disclose all documents and information whichBank now or later has relating to Debtor, the Indebtedness or this Agreement, howeverobtained. Debtor further agrees that Bank may provide information relating tothis Agreement or relating to Debtor or the Indebtedness to the Bank’s parent,affiliates, subsidiaries, and service providers.

 

5.5           In addition to Bank’s other rights, any indebtedness owing from Bank toDebtor can be set off and applied by Bank on any Indebtedness at any time(s)either before or after maturity or demand without notice to anyone. Any such actionshall not constitute acceptance of collateral in discharge of any portion ofthe Indebtedness.

 

5.6           Debtor, to the extent not expressly prohibited by applicable law, waivesany right to require the Bank to:  (a) proceedagainst any person or property; (b) give notice of the terms, time andplace of any public or private sale

 

----

 

ofpersonal property security held from Borrower or any other person, otherwisecomply with the provisions of Section 9.504 of the Uniform Commercial Codein effect prior to July 1, 2001 or its successor provisions thereafter; or(c) pursue any other remedy in the Bank’s power. Debtor waives notice ofacceptance of this Agreement and presentment, demand, protest, notice ofprotest, dishonor, notice of dishonor, notice of default, notice of intent toaccelerate or demand payment of any Indebtedness, any and all other notices towhich the undersigned might otherwise be entitled, and diligence in collectingany Indebtedness, and agree(s) that the Bank may, once or any number of times,modify the terms of any Indebtedness, compromise, extend, increase, accelerate,renew or forbear to enforce payment of any or all Indebtedness, or permitBorrower to incur additional Indebtedness, all without notice to Debtor andwithout affecting in any manner the unconditional obligation of Debtor underthis Agreement. Debtor unconditionally and irrevocably waives each and everydefense and setoff of any nature which, under principles of guaranty orotherwise, would operate to impair or diminish in any way the obligation ofDebtor under this Agreement, and acknowledges that such waiver is by thisreference incorporated into each security agreement, collateral assignment,pledge and/or other document from Debtor now or later securing theIndebtedness, and acknowledges that as of the date of this Agreement no suchdefense or setoff exists.

 

5.7           Debtor waives any and all rights (whether by subrogation, indemnity,reimbursement, or otherwise) to recover from Borrower any amounts paid or thevalue of any Collateral given by Debtor pursuant to this Agreement until such timeas all of the Indebtedness has been fully paid.

 

5.8           In the event that applicable law shall obligate Bank to give priornotice to Debtor of any action to be taken under this Agreement, Debtor agreesthat a written notice given to Debtor at least ten days before the date of the actshall be reasonable notice of the act and, specifically, reasonablenotification of the time and place of any public sale or of the time afterwhich any private sale, lease, or other dispostion is to be made, unless a shorternotice period is reasonable under the circumstances. A notice shall be deemedto be given under this Agreement when delivered to Debtor or when placed in anenvelope addressed to Debtor and deposited, with postage prepaid, in a postoffice or official depository under the exclusive care and custody of theUnited States Postal Service or delivered to an overnight courier. The mailingshall be by overnight courier, certified, or first class mail.

 

5.9           Notwithstanding any prior revocation, termination, surrender, ordischarge of this Agreement in whole or in part, the effectiveness of thisAgreement shall automatically continue or be reinstated in the event that anypayment received or credit given by Bank in respect of the Indebtedness isreturned, disgorged, or rescinded under any applicable law, including, withoutlimitation, bankruptcy or insolvency laws, in which case this Agreement, shall beenforceable against Debtor as if the returned, disgorged, or rescinded paymentor credit had not been received or given by Bank, and whether or not Bankrelied upon this payment or credit or changed its position as a consequence ofit. In the event of continuation or reinstatement of this Agreement, Debtoragrees upon demand by Bank to execute and deliver to Bank those documents whichBank determines are appropriate to further evidence (in the public records orotherwise) this continuation or reinstatement, although the failure of Debtorto do so shall not affect in any way the reinstatement or continuation.

 

5.10         This Agreement and all the rights and remedies of Bank under thisAgreement shall inure to the benefit of Bank’s successors and assigns and toany other holder who derives from Bank title to or an interest in theIndebtedness or any portion of it, and shall bind Debtor and the heirs, legalrepresentatives, successors, and assigns of Debtor. Nothing in this Section 5.10is deemed a consent by Bank to any assignment by Debtor.

 

5.11         If there is more than one Debtor, all undertakings, warranties andcovenants made by Debtor and all rights, powers and authorities given to orconferred upon Bank are made or given jointly and severally.

 

5.12         Except as otherwise provided in this Agreement, all terms in this Agreementhave the meanings assigned to them in Division 9 (or, absent definition inDivision 9, in any other Division) of the Uniform Commercial Code, as those meaningsmay be amended, supplemented, revised or replaced from time to time. “UniformCommercial Code” means the California Uniform Commercial Code, as amended,supplemented, revised or replaced from time to time. Notwithstanding theforegoing, the parties intend that the terms used herein which are defined inthe Uniform Commercial Code have, at all times, the broadest and most inclusivemeanings possible. Accordingly, if the Uniform Commercial Code shall in thefuture be amended or held by a court to define any term used herein more broadlyor inclusively than the Uniform Commercial Code in effect on the date of thisAgreement, then such term, as used herein, shall be given such broadenedmeaning. If the Uniform Commercial Code shall in the future be amended or heldby a court to define any term used herein more narrowly, or less inclusively,than the Uniform Commercial Code in effect on the date of this Agreement, suchamendment or holding shall be disregarded in defining terms used in thisAgreement.

 

5.13         No single or partial exercise, or delay in the exercise, of any right orpower under this Agreement, shall preclude other or further exercise of therights and powers under this Agreement. The unenforceability of any provisionof this Agreement shall not affect the enforceability of the remainder of thisAgreement. This Agreement constitutes the entire agreement of Debtor and Bankwith respect to the subject matter of this Agreement. No amendment ormodification of this Agreement shall be effective unless the same shall be inwriting and signed by Debtor and an authorized officer of Bank. THIS AGREEMENTSHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THESTATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPALS.

 

5.14         To the extent that any of the Indebtedness is payable upon demand,nothing contained in this Agreement shall modify the terms and conditions ofthat Indebtedness nor shall anything contained in this Agreement prevent Bank frommaking demand, without notice and with or without reason, for immediate paymentof any or all of that Indebtedness at any time(s), whether or not an Event ofDefault has occurred.

 

5.15         Debtor represents and warrants that Debtor’s exact name is the name setforth in this Agreement. Debtor further represents and warrants the followingand agrees that Debtor is, and at all times shall be, located in the followingplace :

 

Debtoris an individual, and Debtor is located (as determined pursuant to the UniformCommercial Code) at Debtor’s principal residence which is (street address,state and county or parish): N/A.

 

Debtoris a registered organization which is organized under the laws of one of thestates comprising the United States (e.g. corporation, limited partnership,registered limited liability partnership or limited liability company), andDebtor is located (as determined pursuant to the Uniform Commercial Code) inthe state under the laws of which it was organized, which is (state): Delaware.

 

Debtoris a domestic organization which is not a registered organization under thelaws of the United States or any state thereof (e.g. general partnership, jointventure, trust, estate or association), and Debtor is located (as determinedpursuant to the Uniform Commercial Code) at its sole place of business or, ifit has more than one place of business, at its chief executive office, which is(street address, state and county or parish): N/A.

 

Debtoris a registered organization organized under the laws of the United States, andDebtor is located in the state that United States law designates as itslocation or, if United States law authorizes the Debtor to designate the statefor its location, the state designated by Debtor, or if neither of theforegoing are applicable, at the District of Columbia. Based on the foregoing,Debtor is located (as determined pursuant to the Uniform Commercial Code) at(state): N/A.

 

Debtoris a foreign individual or foreign organization-or-a branch or agency of a bankthat is not organized under the laws of the United States or a state thereof,Debtor is located (as determined pursuant to the Uniform Commercial Code) at(street address, state and county or parish): N/A.

 

 

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TheCollateral is located at and shall be maintained at the following location(s):

 

 
| STREET ADDRESS |
|----------------|
|           |
| CITY           |   | STATE |   | ZIP CODE |   | COUNTY |

 

Collateralshall be maintained only at the locations identified in this Section 5.15.

 

5.16         A carbon, photographic or other reproduction of this Agreement shall besufficient as a financing statement under the Uniform Commerical Code and maybe filed by Bank in any filing office.

 

5.17         This Agreement shall be terminated only by the filing of a terminationstatement in accordance with the applicable provisions of the UniformCommerical Code, but the obligations contained in Section 2.13 of thisAgreement shall survive termination.

 

5.18         Debtor agrees to reimbursethe Bank upon demand for any and all costs and expenses (including, withoutlimit, court costs, legal expenses and reasonable attorneys’ fees, whetherinside or outside counsel is used, whether or not suit is instituted and, ifsuit is instituted, whether at the trial court level, appellate level, in a bankruptcy,probate or administrative proceeding or otherwise)  incurred in enforcing or attempting toenforce this Agreement or in exercising or attempting to exercise any right orremedy under this Agreement or incurred in any other matter or proceedingrelating to this Security Agreement.

 

6.             DEBTOR AND BANK ACKNOWLEDGE THAT THE RIGHT TOTRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACHPARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSELOF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT WAIVESANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCEOR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS AGREEMENT OR THEINDEBTEDNESS.

 

7.             Special Provisions Applicable to thisAgreement. (*None, if left blank)

 

 
|                                                              | DEBTOR: | Monterey Gourmet Foods,  Inc.   |   |
|-------------------------------------------------------------------|---------|---------------------------------|--------|
|                                                              |    | DEBTOR NAME TYPED/PRINTED       |
|                                                              |    |
|                                                              | By:     | /s/ James M. Williams           |   |
|                                                              |    | SIGNATURE OF James M.  Williams |
|                                                              |    |
|                                                              | Its:    | Chief Executive Officer         |   |
|                                                              |    | TITLE (If applicable)           |
|                                                              |    |
|                                                              | By:     | /s/ Scott Wheeler               |   |
|                                                              |    | SIGNATURE OF Scott Wheeler      |
|                                                              |    |
|                                                              | Its:    | Chief Financial Officer         |   |
|                                                              |    | TITLE (If applicable)           |
|                                                              |    |
|                                                              | By:     |                            |   |
|                                                              |    | SIGNATURE OF                    |
|                                                              |    |
|                                                              | Its:    |                            |   |
|                                                              |    | TITLE (If applicable)           |
|                                                              |    |
|                                                              | By:     |                            |   |
|                                                              |    | SIGNATURE OF                    |
|                                                              |    |
|                                                              | Its:    |                            |   |
|                                                              |    | TITLE (If applicable)           |
|                                                              |    |
|                                                              |    |
| Borrower(s):                                                      |    |
| Monterey Gourmet Foods,  Inc.                                     |    |                            |
|                                                              |    |
| PEDESTAL - Dynamic Security  Agreement  Revision Date (12/03) KMA |    |
|                                                                   |         |                                 |        |  |  |

 

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**INTELLECTUAL PROPERTY SECURITY AGREEMENT**

 

This Intellectual Property Security Agreement(the “Agreement”) is made as of January 5, 2005 by and between MONTEREYGOURMET FOODS, INC., a Delaware corporation (“Grantor”), and COMERICA BANK (“SecuredParty”).

 

RECITALS

 

A.            Secured Party has agreed to lend to Grantor,certain funds (the “Loan”), and Grantor desires to borrow such funds fromSecured Party pursuant to the terms of a Variable Rate-Single Payment Note(Advancing-Optional Advances) of even date herewith, a Master Revolving Notedated October 22, 2001 and a Business Loan Agreement dated October 21,2001, as amended, modified, supplemented or revised from time to time (the “LoanDocuments”). All capitalized terms used herein without definition shall havethe meanings ascribed to them in the Loan Documents.

 

B.            In order to induce Secured Party to make theLoan, Grantor has agreed to assign certain intangible property to Secured Partyfor purposes of securing the obligations of Grantor to Secured Party.

 

NOW, THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS:

 

1.             Grant of Security Interest.  Ascollateral security for the prompt and complete payment and performance of allof Grantor’s present or future indebtedness, obligations and liabilities toSecured Party, Grantor hereby grants a security interest and mortgage toSecured Party, as security, in and to Grantor’s entire right, title andinterest in, to and under the following (all of which shall collectively be calledthe “Collateral”):

 

(a)           Any and all copyright rights, copyrightapplications, copyright registrations and like protections in each work orauthorship and derivative work thereof, whether published or unpublished andwhether or not the same also constitutes a trade secret, now or hereafterexisting, created, acquired or held, including without limitation those setforth on Exhibit A attached hereto (collectively, the “Copyrights”);

 

(b)           Any and all trade secrets, and any and allintellectual property rights in computer software and computer softwareproducts now or hereafter existing, created, acquired or held;

 

(c)           Any and all design rights which may beavailable to Grantor now or hereafter existing, created, acquired or held;

 

(d)           All patents, patent applications and likeprotections including, without limitation, improvements, divisions,continuations, renewals, reissues, extensions and continuations-in-part of the same,including without limitation the patents and patent applications set forth on Exhibit Battached hereto (collectively, the “Patents”);

 

(e)           Any trademark and servicemark rights, whetherregistered or not, applications to register and registrations of the same andlike protections, and the entire goodwill of the business of Grantor connectedwith and symbolized by such trademarks, including without limitation those setforth on Exhibit C attached hereto (collectively, the “Trademarks”);

 

(f)            Anyand all claims for damages by way of past, present and future infringement ofany of the rights included above, with the right, but not the obligation, tosue for and collect such damages for said use or infringement of theintellectual property rights identified above;

 

(g)           All licenses or other rights to use any ofthe Copyrights, Patents or Trademarks, and all license fees and royaltiesarising from such use to the extent permitted by such license or rights; and

 

(h)           All amendments, extensions, renewals andextensions of any of the Copyrights, Trademarks or Patents; and

 

(i)            All proceeds and products of the foregoing,including without limitation all payments under insurance or anyindemnity or warranty payable in respect of any of the foregoing.

 

2.             Authorizationand Request.  Grantor authorizes andrequests that the Register of Copyrights and the Commissioner of Patents andTrademarks record this security agreement.

 

3.             Covenants and Warranties.  Grantorrepresents, warrants, covenants and agrees as follows:

 

(a) Grantoris now the sole owner of the Collateral, except for non-exclusive licensesgranted by Grantor to its customers in the ordinary course of business;

 

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(b)           Performance of this Agreement does notconflict with or result in a breach of any agreement to which Grantor is partyor by which Grantor is bound, except to the extent that certain intellectualproperty agreements prohibit the assignment of the rights thereunder to a thirdparty without the licensor’s or other party’s consent and this Agreementconstitutes an assignment;

 

(c)           During the term of this Agreement, Grantorwill not transfer or otherwise encumber any interest in the Collateral, exceptfor non-exclusive licenses granted by Grantor in the ordinary course ofbusiness, or as set forth in this Agreement;

 

(d)           Each of the Patents is valid and enforceable,and no part of the Collateral has been judged invalid or unenforceable, inwhole or in part, and no claim has been made that any part of the Collateralviolates the rights of any third party;

 

(e)           Grantor shall deliver to Secured Party withinthirty (30) days of the last day of each fiscal quarter, a report signed byGrantor, in form reasonably acceptable to Secured Party, listing anyapplications or registrations that Grantor has made or filed in respect of anypatents, copyrights or trademarks and the status of any outstandingapplications or registrations. Grantor shall promptly advise Secured Party ofany material change in the composition of the Collateral, including but notlimited to any subsequent ownership right of the Grantor in or to anyTrademark, Patent or Copyright not specified in this Agreement;

 

(f)            Grantor shall (i) protect, defend andmaintain the validity and enforceability of the Trademarks, Patents andCopyrights, (ii) use its best efforts to detect infringements of theTrademarks, Patents and Copyrights and promptly advise Secured Party in writingof material infringements detected and (iii) not allow any Trademarks,Patents or Copyrights to be abandoned, forfeited or dedicated to the publicwithout the written consent of Secured Party, which shall not be unreasonablywithheld, unless Grantor determines that reasonable business practices suggestthat abandonment is appropriate;

 

(g)           Grantor shall register or cause to beregistered (to the extent not already registered) with the United States Patentand Trademark Office or the United States Copyright Office, as applicable,those intellectual property rights listed on Exhibits A, B and C hereto withinthirty (30) days of the date of this Agreement. Grantor shall register or causeto be registered with the United States Patent and Trademark Office or theUnited States Copyright Office, as applicable, those additional intellectual propertyrights developed or acquired by Grantor from time to time in connection withany product prior to the sale or licensing of such product to any third party(including without limitation revisions or additions to the intellectualproperty rights listed on such Exhibits A, B and C).  Grantor shall, from time to time, execute andfile such other instruments, and take such further actions as Secured Party mayreasonably request from time to time to perfect or continue the perfection ofSecured Party’s interest in the Collateral;.

 

(h)           This Agreement creates, and in the case ofafter acquired Collateral, this Agreement will create at the time Grantor firsthas rights in such after acquired Collateral, in favor of Secured Party a validand perfected first priority security interest in the Collateral in the UnitedStates securing the payment and performance of the obligations evidenced by theLoan Documents upon making the filings referred to in clause (i) below;

 

(i)            Except for, and upon, the filing with theUnited States Patent and Trademark office with respect to the Patents andTrademarks and the Register of Copyrights with respect to the Copyrightsnecessary to perfect the security interests created hereunder, and, except ashas been already made or obtained, no authorization, approval or other actionby, and no notice to or filing with, any U.S. governmental authority or U.S.regulatory body is required either (i) for the grant by Grantor of thesecurity interest granted hereby or for the execution, delivery or performanceof this Agreement by Grantor in the U.S. or (ii) for the perfection in theUnited States or the exercise by Secured Party of its rights and remedieshereunder;

 

(j)            All information heretofore, herein or hereaftersupplied to Secured Party by or on behalf of Grantor with respect to theCollateral is accurate and complete in all material respects.

 

(k)           Grantor shall not enter into any agreementthat would materially impair or conflict with Grantor’s obligations hereunderwithout Secured Party’s prior written consent, which consent shall not beunreasonably withheld. Grantor shall not permit the inclusion in any materialcontract to which it becomes a party of any provisions that could or might inany way prevent the creation of a security interest in Grantor’s rights andinterests in any property included within the definition of the Collateralacquired under such contracts, except that certain contracts may containanti-assignment provisions that could in effect prohibit the creation of asecurity interest in such contracts if Grantor is required, in its commerciallyreasonable judgment to accept such provisions; and

 

(l)            Upon any executive officer of Grantorobtaining knowledge thereof, Grantor will promptly notify Secured Party inwriting of any event that materially adversely affects the value of any of theCollateral, the ability of Grantor to dispose of any Collateral or the rightsand remedies of Secured Party in relation thereto, including the levy of any legalprocess against any of the Collateral.

 

4.             Secured Party’s Rights. Secured Party shall have the right, but not the obligation, to take, atGrantor’s sole expense, any actions that Grantor is required under thisAgreement to take but which Grantor fails to take, after fifteen (15) days’notice to Grantor. Grantor shall reimburse and indemnify Secured Party for allreasonable costs and expenses incurred in the reasonable exercise of its rightsunder this section 4.

 

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5.             Inspection Rights. Grantor hereby grants to Secured Party and its employees, representativesand agents the right to visit, during reasonable hours upon prior reasonablewritten notice to Grantor, any of Grantor’s plants and facilities thatmanufacture, install or store products (or that have done so during the priorsix-month period) that are sold utilizing any of the Collateral, and to inspectthe products and quality control records relating thereto upon reasonablenotice to Grantor and as often as may be reasonably requested.

 

6.             Further Assurances; Attorney in Fact.

 

(a)           On a continuing basis, Grantor will make,execute, acknowledge and deliver, and file and record in the proper filing andrecording places in the United States, all such instruments, including,appropriate financing and continuation statements and collateral agreements andfilings with the United States Patent and Trademark Office and the Register ofCopyrights, and take all such action as may reasonably be deemed necessary oradvisable, or as requested by Secured Party, to perfect Secured Party’ssecurity interest in all Copyrights, Patents and Trademarks and otherwise tocarry out the intent and purposes of this Agreement, or for assuring andconfirming to Secured Party the grant or perfection of a security interest inall Collateral.

 

(b)           Grantor hereby irrevocably appoints SecuredParty as Grantor’s attorney-in-fact, with full authority in the place and steadof Grantor and in the name of Grantor, from time to time in Secured Party’sdiscretion, to take any action and to execute any instrument which SecuredParty may deem necessary or advisable to accomplish the purposes of thisAgreement, including:

 

(i)            To modify, in its sole discretion, thisAgreement without first obtaining Grantor’s approval of or signature to suchmodification by amending Exhibit A, Exhibit B and Exhibit C,hereof, as appropriate, to include reference to any right, title or interest inany Copyrights, Patents or Trademarks acquired by Grantor after the executionhereof or to delete any reference to any right, title or interest in anyCopyrights, Patents or Trademarks in which Grantor no longer has or claims anyright, title or interest;

 

(ii)           To file, in its sole discretion, one or morefinancing or continuation statements and amendments thereto, relative to any ofthe Collateral without the signature of Grantor where permitted by law; and

 

(iii)          After the occurrence of an Event of Default,to transfer the Collateral into the name of Secured Party or a third party tothe extent permitted under the California Uniform Commercial Code.

 

7.             Events of Default.  Theoccurrence of any of the following shall constitute an Event of Default underthis Agreement:

 

(a)           An Event of Default occurs under the Loan Documents;or

 

(b)           Grantor breaches any warranty or agreementmade by Grantor in this Agreement and, as to any breach that is capable ofcure, Grantor fails to cure such breach within five (5) days of the occurrenceof such breach.

 

8.             Remedies.  Upon the occurrence of anEvent of Default, Secured Party shall have the right to exercise all theremedies of a secured party under the California Uniform Commercial Code, includingwithout limitation the right to require Grantor to assemble the Collateral andany tangible property in which Secured Party has a security interest and tomake it available to Secured Party at a place designated by Secured Party.Secured Party shall have a nonexclusive, royalty free license to use theCopyrights, Patents and Trademarks to the extent reasonably necessary to permitSecured Party to exercise its rights and remedies upon the occurrence of anEvent of Default. Grantor will pay any expenses (including attorneys’ fees)incurred by Secured Party in connection with the exercise of any of SecuredParty’s rights hereunder, including without limitation any expense incurred indisposing of the Collateral. All of Secured Party’s rights and remedies withrespect to the Collateral shall be cumulative.

 

9.             Indemnity.  Grantor agrees to defend,indemnify and hold harmless Secured Party and its officers, employees, andagents against: (a) all obligations, demands, claims, and liabilitiesclaimed or asserted by any other party in connection with the transactionscontemplated by this Agreement, and (b) all losses or expenses in any waysuffered, incurred, or paid by Secured Party as a result of or in any way arisingout of, following or consequential to transactions between Secured Party andGrantor, whether under this Agreement or otherwise (including withoutlimitation attorneys fees and expenses), except for losses arising from or outof Secured Party’s gross negligence or willful misconduct.

 

10.           Course of Dealing.  Nocourse of dealing, nor any failure to exercise, nor any delay in exercising anyright, power or privilege hereunder shall operate as a waiver thereof.

 

11.           Attorneys Fees.  If any action relating to this Agreement isbrought by either party hereto against the other party, the prevailing partyshall be entitled to recover reasonable attorneys fees, costs anddisbursements.

 

12.           Amendments.  This Agreement may be amendedonly by a written instrument signed by both parties hereto.

 

13.           Counterparts.  ThisAgreement may be executed in two or more counterparts, each of which shall bedeemed an original but all of which together shall constitute the sameinstrument.

 

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14.           California Law andJurisdiction; Jury Waiver.  ThisAgreement shall be governed by the laws of the State of California, withoutregard for choice of law provisions. Grantor and Secured Party consent to theexclusive jurisdiction of any state or federal court located in Santa ClaraCounty, California. GRANTOR AND SECURED PARTY EACH WAIVE THEIR RESPECTIVERIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISINGOUT OF THE LOAN DOCUMENTS. THIS AGREEMENT, OR ANY OF THE TRANSACTIONSCONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTYCLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement onthe day and year first above written.

 
| Address of Grantor:                                 | GRANTOR:                                              |
|-----------------------------------------------------|-------------------------------------------------------|
|                                                |                                                  |
| 1528 Moffet Street  Salinas, California  93905 | MONTEREY GOURMET FOODS, INC.,  a Delaware corporation |
|                                                |                                                  |
|                                                |                                                  |
|                                                | By:                                                   | /s/ James M. Williams |   |
|                                                |                                                  | James M. Williams |
|                                                | Its:                                                  | Chief Executive Officer |
|                                                |                                                  |
|                                                |                                                  |
|                                                | By:                                                   | /s/ Scott Wheeler |   |
|                                                |                                                  | Scott Wheeler |
|                                                | Its:                                                  | Chief Financial Officer |
|                                                |                                                  |
|                                                |                                                  |
| Address of Secured Party:                           | SECURED PARTY:                                        |
|                                                |                                                  |
| 75 E, Trimble Road  San Jose, CA. 95131             | COMERICA BANK,  Banking corporation                   |
|                                                |                                                  |
|                                                |                                                  |
|                                                | By:                                                   | /s/ Brian C. Santos |   |
|                                                |                                                  | Brian C. Santos |
|                                                | Its:                                                  | Sr. Vice President-Western Division |

 

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EXHIBIT A

 

List of Copyrights

 

N/A

 

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EXHIBIT B

 

List of Patents

 

N/A

 

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EXHIBIT C

 

List of Trademarks

 
| Monterey Pasta Company                 |   | USA    |   | Registration 1953489 |
|----------------------------------------|--------|--------|--------|----------------------|
| Monterey Pasta Co.                     |   |   |   |                 |
| California’s Finest Gourmet Pasta |
|                                   |   | USA    |   | Registration 2203576 |
|                                   |   |   |   |                 |
| Borselenni                             |   | USA    |   | Registration 2843428 |
|                                   |   |   |   |                 |
| Carb-Lite                              |   |   |   | Pending              |

 

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