Document:

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 Delaware
corporation (“Borrower”) and COMERICA BANK, successor by merger to Comerica
Bank-California (“Bank”), whose Western Division headquarters is located at 333
West Santa Clara Street, San Jose, California as of January 5, 2005.

 

RECITALS

 

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

 

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

 

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

 

AGREEMENT

 

1.             Incorporation by Reference.  The Recitals and the documents referred to
therein 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 conditions
precedent as set forth herein, the Agreement is hereby modified as set forth below.

 

(a)           The reference to “Monterey Pasta Company” set
forth in the initial paragraph of the Agreement, and each subsequent reference
thereto 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 subsequent
reference thereto hereby is deleted and replaced with “Comerica Bank” mutatis, mutandis.

 

(c)           The initial sentence of Subsection 6. (a) of
the of the Agreement hereby is deleted in its entirety and replaced with the
following (for the avoidance of doubt, the remainder of Section 6. (a) shall
remain 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’s
operations, together with a detailed accounting of Borrower’s operations, by
division and on a combined basis.”

 

(d)           The following new Subsection 6. (k) hereby is inserted into the
Agreement 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 notify
Bank immediately in writing of the existence of any other bank account, deposit
account, or any other account into which money can be deposited.”

 

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

 

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

 

(f)            The following new Section 15. hereby is
inserted 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 in
litigation subject to a Jury Trial Waiver as set forth in this Agreement, the
Note and the other Loan

 

1

 

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

 

(b)           Other than (i) nonjudicial foreclosure of security interests in
real or personal property, (ii) the appointment of a receiver or (iii) the
exercise of other provisional remedies (any of which may be initiated pursuant
to applicable law), any controversy, dispute or claim (each, a “Claim”) between
the parties arising out of or relating to this Agreement, the Note or any other
Loan Document, will be resolved by a reference proceeding in California in
accordance with the provisions of Section 638 et seq. of the California
Code of Civil Procedure (“CCP”), or their successor sections, which shall
constitute the exclusive remedy for the resolution of any Claim, including
whether the Claim is subject to the reference proceeding. Except as otherwise
provided in the Loan Documents, venue for the reference proceeding will be in
the Superior Court or Federal District Court in the County or District where
the real property, if any, is located or in a County or District where venue is
otherwise appropriate under applicable law (the “Court”).

 

(c)           The referee shall be a retired Judge or Justice selected by mutual
written agreement of the parties. If the parties do not agree, the referee
shall be selected by the Presiding Judge of the Court (or his or her
representative). A request for appointment of a referee may be heard on an ex
parte or expedited basis, and the parties agree that irreparable harm would
result if ex parte relief is not granted. The referee shall be appointed to sit
with all the powers provided by law. Each party shall have one peremptory
challenge pursuant to CCP §170.6. Pending appointment of the referee, the Court
has power to issue temporary or provisional remedies.

 

(d)           The parties agree that time is of the essence in conducting the
reference proceedings. Accordingly, the referee shall be requested to (a) set
the matter for a status and trial- setting conference within fifteen (15) days
after the date of selection of the referee, (b) if practicable, try all
issues of law or fact within ninety (90) days after the date of the conference
and (c) report a statement of decision within twenty (20) days after the matter
has 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 duration
of discovery. The referee may set or extend discovery deadlines or cutoffs for
good cause, including a party’s failure to provide requested discovery for any
reason whatsoever. Unless otherwise ordered, no party shall be entitled to “priority”
in conducting discovery, depositions may be taken by either party upon seven (7) days
written notice, and all other discovery shall be responded to within fifteen
(15) days after service. All disputes relating to discovery which cannot be
resolved by the parties shall be submitted to the referee whose decision shall
be final and binding.

 

(f)            Except as expressly set forth in this
Agreement, the referee shall determine the manner in which the reference
proceeding is conducted including the time and place of hearings, the order of
presentation of evidence, and all other questions that arise with respect to
the course of the reference proceeding. All proceedings and hearings conducted
before 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 hearing
conducted before the referee, and the referee will be provided a courtesy copy
of the transcript. The party making such a request shall have the obligation to
arrange for and pay the court reporter. Subject to the referee’s power to award
costs to the prevailing party, the parties will equally share the cost of the
referee and the court reporter at trial.

 

(g)           The referee shall be required to determine all issues in accordance
with existing case law and the statutory laws of the State of California. The rules of
evidence applicable to proceedings at law in the State of California will be
applicable to the reference proceeding. The referee shall be empowered to enter
equitable as well as legal relief, provide all temporary or provisional
remedies, enter equitable orders that will be binding on the parties and rule on
any motion which would be authorized in a trial, including without limitation
motions for summary judgment or summary adjudication. The referee shall issue a
decision at the close of the reference proceeding which disposes of all claims
of the parties that are the subject of the reference. The referee’s decision
shall be entered by the Court as a judgment or an order in the same manner as
if the action had been tried by the Court. The parties reserve the right to
appeal from the final

 

2

 

judgment or order or from
any appealable decision or order entered by the referee. The parties reserve
the right to findings of fact, conclusions of laws, a written statement of
decision, and the right to move for a new trial or a different judgment, which
new trial, if granted, is also to be a reference proceeding under this
provision.

 

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

 

(i)            THE PARTIES RECOGNIZE AND AGREE THAT ALL
DISPUTES RESOLVED UNDER THIS REFERENCE PROVISION WILL BE DECIDED BY A REFEREE
AND NOT BY A JURY, AND THAT THEY ARE IN EFFECT WAIVING THEIR RIGHT TO TRIAL BY
JURY IN AGREEING TO THIS REFERENCE PROVISION. AFTER CONSULTING (OR HAVING HAD
THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR OWN CHOICE, EACH PARTY KNOWINGLY
AND VOLUNTARILY AND FOR THEIR MUTUAL BENEFIT AGREES THAT THIS REFERENCE
PROVISION WILL APPLY TO ANY DISPUTE BETWEEN THEM WHICH ARISES OUT OF OR IS
RELATED 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 and
replaced with the following:

 

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

 

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

 

“(b)         A
Quick 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 and
replaced with the following:

 

“(c)         A
ratio of Total Liabilities (less Subordinated Debt) to Tangible Effective Net
Worth of not more than .80:1.00;”

 

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

 

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

 

3.             Legal Effect.  Except as specifically set
forth in this Modification, all of the terms and conditions of the
Agreement remain in full force and effect. Except as expressly set forth
herein, the execution, delivery, and performance of this Modification shall not
operate as a waiver of, or as an amendment of, any right, power, or remedy of
Bank under the Agreement, as in effect prior to the date hereof. Borrower
ratifies and reaffirms the continuing effectiveness of all promissory notes,
guaranties, security agreements, mortgages, deeds of trust, environmental
agreements, and all other instruments, documents and agreements entered into in
connection with the Agreement. Borrower represents and warrants that the Representations
and Warranties contained in the Agreement are true and correct as of the date
of this Modification, and that no Event of Default has occurred and is
continuing. 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 in
connection herewith, is conditioned upon receipt by Bank of this Modification,
any other documents which Bank may require to carry out the terms hereof, and
including but not limited to each of the following:

 

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

 

3

 

(b)            Execution
and delivery of a new Note with respect to the of the term Loan to Borrower
from Bank for the purpose of the acquisition of the capital stock of Casual
Gourmet Foods, Inc. in form and substance satisfactory to Bank;

 

(c)            Execution
and delivery of a Security Agreement with respect to the pledge of all acquired
shares of the capital stock of Casual Gourmet Foods, Inc. to Bank as
Collateral for the Indebtedness, in form and substance satisfactory to Bank;

 

(d)            In
connection with the making of the term Loan to Borrower from Bank for the purposed
of 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 of
the making thereof; and

 

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

 

4.             Miscellaneous
Provisions.

 

(a)            This
is an integrated Modification and supersedes all prior negotiations and agreements
regarding the subject matter hereof. All amendments hereto must be in writing
and signed by the parties.

 

(b)           This
Modification may be executed in two or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one
instrument.

 

IN WITNESS WHEREOF, the
parties 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

  	
   

  	
   

  
							

 

4

 

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 the
Maturity 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 the
State of California, Five Million and no/100 Dollars (U.S.) (or that
portion of it advanced by the Bank and not repaid as later provided) with
interest until maturity, whether by acceleration or otherwise, or until
Default, as later defined, at a per annum rate equal to the Bank’s base rate
from time to time in effect plus 0.000% per annum and after that at a default
rate 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 “base
rate” is that annual rate of interest so designated by the Bank and which is changed
by the Bank from time to time. Interest rate changes will be effective for
interest computation purposes as and when the Bank’s base rate changes. Subject
to the limitations hereinbelow set forth, interest shall be calculated for the
actual number of days the principal is outstanding on the basis of a 360-day
year if this Note evidences a business or commercial loan or a 365-day year if
a 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 due
and payable in full [check applicable box]. If the frequency of interest
payments is not otherwise specified, accrued interest on this Note shall be
payable monthly on the first day of each month. If any payment of principal or
interest under this Note shall be payable on a day other than a day on which
the Bank is open for business, this payment shall be extended to the next
succeeding business day and interest shall be payable at the rate specified in
this Note during this extension. A late payment charge equal to a reasonable
amount not to exceed 5% of each late payment may be charged on any payment not
received by the Bank within 10 calendar days after the payment due date, but
acceptance of payment of this charge shall not waive any Default under this
Note. Principal amounts advanced under this Note and repaid may not be
reborrowed.

 

The term “Maximum Rate,” as used herein, shall mean at the
particular time in question the maximum nonusurious rate of interest which,
under applicable law, may then be charged on this Note. If such maximum rate of
interest changes after the date hereof, the Maximum Rate shall be automatically
increased or decreased, as the case may be, without notice to the undersigned
from 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 sum
of all advances made by the Bank to or at the request of the undersigned, less
principal payments actually received in cash by the Bank. The books and records
of the Bank shall be the best evidence of the principal amount and the unpaid
interest amount owing at any time under this Note and shall be conclusive
absent manifest error. No interest shall accrue under this Note until the date
of the first advance made by the Bank; after that interest on all advances
shall accrue and be computed on the principal balance outstanding from time to
time under this Note until the same is paid in full. AT NO TIME SHALL THE BANK
BE UNDER ANY OBLIGATION TO MAKE ANY ADVANCES TO THE UNDERSIGNED PURSUANT TO
THIS NOTE (NOTWITHSTANDING ANYTHING EXPRESSED OR IMPLIED IN THIS NOTE OR
ELSEWHERE TO THE CONTRARY, INCLUDING WITHOUT LIMIT IF THE BANK SUPPLIES THE
UNDERSIGNED WITH A BORROWING FORMULA), AND THE BANK, AT ANY TIME AND FROM TIME
TO TIME, WITHOUT NOTICE, AND IN ITS SOLE DISCRETION, MAY REFUSE TO MAKE
ADVANCES TO THE UNDERSIGNED WITHOUT INCURRING ANY LIABILITY DUE TO THIS REFUSAL
AND WITHOUT AFFECTING THE UNDERSIGNED’S LIABILITY UNDER THIS NOTE FOR ANY AND
ALL AMOUNTS ADVANCED. The preceding sentence shall not apply to this Note if
this Note is secured by a deed of trust or mortgage covering real property.

 

This Note and any other indebtedness and liabilities of any
kind of the undersigned (or any of them) to the Bank, and any and all
modifications, renewals or extensions of it, whether joint or several,
contingent or absolute, now existing or later arising, and however evidenced
and whether incurred voluntarily or involuntarily, known or unknown, or
originally payable to the Bank or to a third party and subsequently acquired by
Bank 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 any
loan document (or otherwise) or in connection with any proceeding involving the
Bank as a result of any financial accommodation to the undersigned (or any of
them), and reasonable costs and expenses of attorneys and paralegals, whether
inside or outside counsel is used, and whether any suit or other action is
instituted, and to court costs if suit or action is instituted, and whether any
such fees, costs or expenses are incurred at the trial court level or on
appeal, in bankruptcy, in administrative proceedings, in probate proceedings or
otherwise (collectively “Indebtedness”) are secured by and the Bank is granted
a security interest in and lien upon all items deposited in any account of any
of the undersigned with the Bank and by all proceeds of these items (cash or
otherwise), all account balances of any of the undersigned from time to time
with the Bank, by all property of any of the undersigned from time to time in
the possession of the Bank and by any other collateral, rights and properties
described 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 to
or for the benefit of the Bank (collectively “Collateral”). Notwithstanding the
above, (i) to the extent that any portion of the Indebtedness is a
consumer loan, that portion shall not be secured by any deed of trust or
mortgage on or other security interest in any of the undersigned’s principal
dwelling or in any of the undersigned’s real property which is not a purchase
money security interest as to that portion, unless expressly provided to the
contrary 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 other
indebtedness of the undersigned (or any of them), unless expressly provided to
the contrary in another place.

 

If the undersigned (or any of them) or any guarantor under a
guaranty of all or part of the Indebtedness (“guarantor”) (i) fail(s) to
pay this Note or any of the Indebtedness when due, by maturity, acceleration or
otherwise, or fail(s) to pay any Indebtedness owing on a demand basis upon
demand; or (ii) fail(s) to comply with any of the terms or provisions of
any agreement between the undersigned (or any of them) or any guarantor and the
Bank; or (iii) become(s) insolvent or the subject of a voluntary or involuntary
proceeding in bankruptcy, or a reorganization, arrangement or creditor
composition proceeding, (if a business entity) cease(s) doing business as a
going concern, (if a natural person) die(s) or become(s) incompetent, (if a
partnership) dissolve(s) or any general partner of it dies, becomes incompetent
or becomes the subject of a bankruptcy proceeding or (if a corporation or a
limited liability company) is the subject of a dissolution, merger or
consolidation; or (a) if any warranty or representation made by any of the
undersigned or any guarantor in connection with this Note or any of the
Indebtedness shall be discovered to be untrue or incomplete; or (b) if
there is any termination, notice of termination, or breach of any guaranty,
pledge, collateral assignment or subordination agreement relating to all or any
part of the Indebtedness; or (c) if there is any failure by any of the
undersigned or any guarantor to pay when due any of its indebtedness (other
than to the Bank) or in the observance or performance of any term, covenant or
condition in any document evidencing, securing or relating to such
indebtedness; or (d) if the Bank deems itself insecure believing that the
prospect of payment of this Note or any of the Indebtedness is impaired or
shall fear deterioration, removal or waste of any of the Collateral; or (e) if
there is filed or issued a levy or writ of attachment or garnishment or other
like judicial process upon the undersigned (or any of them) or any guarantor or
any of the Collateral, including, without limit, any accounts of the
undersigned (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 its
option and without prior notice to the undersigned (or any of them), declare
any or all of the Indebtedness to be immediately due and payable
(notwithstanding any provisions contained in the evidence of it to the
contrary), cease advancing money or extending credit to or for the benefit of
the 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 or
obligation of Bank, but without affecting Bank’s rights and security interests
in any Collateral and the Indebtedness of the undersigned (or any of them) to
Bank, sell or liquidate all or any portion of the Collateral, set off against
the Indebtedness any amounts owing by the Bank to the undersigned (or any of
them), charge interest at the default rate provided in the document evidencing
the relevant Indebtedness and exercise any one or more of the rights and
remedies granted to the Bank by any agreement with the undersigned (or any of
them) or given to it under applicable law. In addition, if this Note is secured
by a deed of trust or mortgage covering real property, then the trustor or mortgagor
shall not mortgage or pledge the mortgaged premises as security for any other
indebtedness or obligations. This Note, together with all other indebtedness
secured by said deed of trust or mortgage, shall become due and payable
immediately, without notice, at the option of the Bank, (a) if said
trustor or mortgagor shall mortgage or pledge the mortgaged premises for any
other indebtedness or obligations or shall convey, assign or transfer the
mortgaged premises by deed, installment sale contract or other instrument, or (b) if
the title to the mortgaged premises shall become vested in any other person or
party in any manner whatsoever, or (c) if there is any disposition
(through one or more transactions) of legal or beneficial title to a
controlling interest of said trustor or mortgagor. All payments under this Note
shall be in immediately available United States funds, without setoff or
counterclaim.

 

 

If this
Note is signed by two or more parties (whether by all as makers or by one or
more as an accommodation party or otherwise), the obligations and undertakings
under this Note shall be that of all and any two or more jointly and also of
each severally. This Note shall bind the undersigned, and the undersigned’s
respective heirs, personal representatives, successors and assigns.

 

The
undersigned waive(s) presentment, demand, protest, notice of dishonor, notice
of 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 the
undersigned (or any of them) or release, substitution or nonenforcement of any
security, or release or substitution of any of the undersigned, any guarantor
or any other party, whether with or without notice, shall affect the
obligations of any of the undersigned. The undersigned waive(s) all defenses or
right to discharge available under Section 3-605 of the California Uniform
Commercial Code and waive(s) all other suretyship defenses or right to
discharge. The undersigned agree(s) that the Bank has the right to sell,
assign, or grant participations or any interest in, any or all of the
Indebtedness, and that, in connection with this right, but without limiting its
ability to make other disclosures to the full extent allowable, the Bank may
disclose all documents and information which the Bank now or later has relating
to the undersigned or the Indebtedness. The undersigned agree(s) that the Bank
may provide information relating to this Note, the Indebtedness, or the
undersigned to the Bank’s parent, affiliates, subsidiaries and service
providers.

 

The
undersigned agree(s) to reimburse the holder or owner of this Note upon demand
for any and all costs and expenses (including, without limit, court costs,
legal expenses and reasonable attorney fees, whether inside or outside counsel
is 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 or
administrative proceeding or otherwise) incurred in collecting or attempting to
collect this Note or incurred in any other matter or proceeding relating to
this Note.

 

The
undersigned 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 terms
and conditions of this Note may not be amended, waived or modified except in a
writing signed by an officer of the Bank expressly stating that the writing
constitutes an amendment, waiver or modification of the terms of this Note. As used
in this Note, the word “undersigned” means, individually and collectively, each
maker, accommodation party, indorser and other party signing this Note in a
similar capacity. If any provision of this Note is unenforceable in whole or
part 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 AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF California, WITHOUT
REGARD TO CONFLICT OF LAWS PRINCIPLES.

 

The maximum interest rate
shall not exceed the highest applicable usery ceiling

 

THE UNDERSIGNED, BY ACCEPTANCE OF THIS NOTE, AND THE BANK
ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT
IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE
OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY AND
VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY IN
THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY
WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS.

 

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

 

See ADDENDUM A and
LIBOR 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

  
										

 

 

ADDENDUM A

TO
VARIABLE RATE-SINGLE PAYMENT NOTE

(Advancing-Optional Advances)

 

This Addendum A to Variable Rate-Single Payment Note (Advancing-Optional
Advances) dated January 5, 2005 (this “Addendum”) is attached to, and by
this reference shall be a part of and is hereby incorporated by this reference
into 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 but
not defined in this Addendum shall have the meanings assigned to such terms in
the Note. Borrower hereby agrees that the following terms and conditions shall
be incorporated into the Note:

 

Subject to the terms and conditions set forth in the Note, advances
under the Note shall be available from the date hereof through January 5,
2006 (the “Draw Period”). During the Draw Period, interest shall be payable as
set forth in the Note. Upon expiration of the Draw Period, all amounts
outstanding under the Note shall be payable on the 5th day of each
month, beginning on February 5, 2006, on the basis of an amortization of
forty eight (48) equal payments of principal plus accrued interest thereon. All
unpaid principal and accrued but unpaid interest shall in any event be due and
payable 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

  

 

 

LIBOR

Addendum To Variable Rate-Single Payment Note

(Advancing-Optional Advances)

 

This Addendum to Variable Rate-Single Payment
Note (Advancing-Optional Advances) (this “Addendum”) is entered into as of this
5th day of January, 2005 by and between COMERICA BANK (“Bank”) and
MONTEREY GOURMET FOODS, INC., a Delaware corporation (“Borrower”). This
Addendum 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.  As
used herein, “Business Day” means any day except a Saturday, Sunday or any
other day designated as a holiday under Federal or California statute or
regulation.

 

c.             LIBOR.  As used herein, “LIBOR” means
the rate per annum (rounded upward if necessary, to the nearest whole 1/8 of
1%) 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 which
deposits for the relevant LIBOR Period would be offered to Bank in the
approximate amount of the relevant LIBOR Option Advance in the inter-bank LIBOR
market selected by Bank, upon request of Bank at 10:00 a.m. California
time, on the day that is the first day of such LIBOR Period.

 

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

 

d.             LIBOR Business Day.  As used herein, “LIBOR Business Day” means a
Business day on which dealings in Dollar deposits may be carried out in the
interbank 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 the
Advance is made or the date on which the Advance is converted to a LIBOR Option
Advance, 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 LIBOR
Option is quoted for such period in the applicable interbank LIBOR market, as
such period is selected by Borrower in the notice of Advance as provided in the
Note or in the notice of conversion as provided in this Addendum; and

 

(2)           thereafter, each period commencing on the last day of the next
preceding LIBOR Period applicable to such LIBOR Option Advance 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 LIBOR Option is quoted for
such period in the applicable interbank LIBOR market, as such period is
selected by Borrower in the notice of continuation as provided in this Addendum.

 

f.              Note.  As used herein, “Note” means
the Variable Rate-Single Payment Note (Advancing-Optional Advances) of even
date herewith.

 

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

 

h.             Regulatory Development.  As
used herein, “Regulatory Development” means any or all of the following: (i) any
change in any law, regulation or interpretation thereof by any public authority
(whether or not having the force of law); (ii) the application of any
existing law, regulation or the interpretation thereof by any public authority
(whether or not having the force of law); and (iii) compliance by Bank
with any request or directive (whether or not having the force of law) of any
public authority.

 

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

 

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

 

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

 

1

 

3.             LIBOR Option Advance.  The
minimum LIBOR Option Advance will not be less than Two Hundred Fifty Thousand
Dollars ($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 the
terms of the Note. Interest on such LIBOR Option Advance shall be computed on
the basis of a 360-day year and shall be assessed for the actual number of days
elapsed from the first day of the LIBOR Period applicable thereto but not including
the last day thereof.

 

5.             Bank’s Records Re: LIBOR Option Advances.  With
respect to each LIBOR Option Advance, Bank is hereby authorized to note the
date, principal amount, interest rate and LIBOR Period applicable thereto and
any payments made thereon on Bank’s books and records (either manually or by
electronic entry) and/or on any schedule attached to the Note, which
notations shall be prima facie evidence of the accuracy of the information
noted.

 

6.             Selection/Conversion of Interest Rate Options.  At
the time any Advance is requested under the Note and/or Borrower wishes to
select the LIBOR Option for all or a portion of the outstanding principal balance
of the Note, and at the end of each LIBOR Period, Borrower shall give Bank
notice specifying (a) the interest rate option selected by Borrower;   (b) the principal amount subject
thereto; and (c) if the LIBOR Option is selected, the length of the
applicable LIBOR Period. Any such notice may be given by telephone so long as,
with respect to each LIBOR Option selected by Borrower, (i) Bank receives
written confirmation from Borrower not later than three (3) LIBOR Business
Days after such telephone notice is given; and (ii) such notice is given
to Bank prior to 10:00 a.m., California time, on the first day of the LIBOR
Period. For each LIBOR Option requested hereunder, Bank will quote the
applicable fixed LIBOR Rate to Borrower at approximately 10:00 a.m.,
California time, on the first day of the LIBOR Period. If Borrower does not
immediately accept the rate quoted by Bank, any subsequent acceptance by
Borrower shall be subject to a redetermination of the rate by Bank; provided,
however, that if Borrower fails to accept any such quotation given, then the
quoted rate shall expire and Bank shall have no obligation to permit a LIBOR
Option to be selected on such day. If no specific designation of interest is
made at the time any Advance is requested under the Note or at the end of any
LIBOR Period, Borrower shall be deemed to have selected the Base Rate Option
for such Advance or the principal amount to which such LIBOR Period applied. At
any time the LIBOR Option is in effect, Borrower may, at the end of the applicable
LIBOR Period, convert to the Base Rate Option. At any time the Base Rate Option
is in effect, Borrower may convert to the LIBOR OPTION, and shall designate a
LIBOR Period.

 

7.             Default Interest Rate.  From
and after the maturity date of the Note, or such earlier date as all principal
owing hereunder becomes due and payable by acceleration or otherwise, the
outstanding principal balance of the Note shall bear interest until paid in
full 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 interest
from time to time applicable to the Note.

 

8.             Prepayment.  In the event that the LIBOR
Option is the applicable interest rate for all or any part of the outstanding
principal balance of the Note, and any payment or prepayment of any such
outstanding principal balance of the Note shall occur on any day other than the
last day of the applicable LIBOR Period (whether voluntarily, by acceleration,
required payment, or otherwise), or if Borrower elects the LIBOR Option as the
applicable interest rate for all or any part of the outstanding principal
balance of the Note in accordance with the terms and conditions hereof, and,
subsequent to such election, but prior to the commencement of the applicable
LIBOR Period, Borrower revokes such election for any reason whatsoever, or if
the applicable interest rate in respect of any outstanding principal balance of
the Note hereunder shall be changed, for any reason whatsoever, from the LIBOR
Option to the Base Rate Option prior to the last day of the applicable LIBOR
Period, or if Borrower shall fail to make any payment of principal or interest
hereunder at any time that the LIBOR Option is the applicable interest rate
hereunder in respect of such outstanding principal balance of the Note,
Borrower shall reimburse Bank, on demand, for any resulting loss, cost or
expense incurred by Bank as a result thereof, including, without limitation, any
such loss, cost or expense incurred in obtaining, liquidating, employing or
redeploying deposits from third parties. Such amount payable by Borrower to
Bank 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 so
prepaid, or not so borrowed, refunded or converted, for the period from the
date 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 of
interest for such outstanding principal balance of the Note, as provided under
this 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 on
deposit for a comparable period with leading banks in the interbank LIBOR
market. Calculation of any amounts payable to Bank under this paragraph shall
be made as though Bank shall have actually funded or committed to fund the
relevant outstanding principal balance of the Note hereunder through the
purchase of an underlying deposit in an amount equal to the amount of such
outstanding principal balance of the Note and having a maturity comparable to
the relevant LIBOR Period; provided, however, that Bank may fund the
outstanding principal balance of the Note hereunder in any manner it deems fit
and the foregoing assumptions shall be utilized only for the purpose of the calculation
of amounts payable under this paragraph. Upon the written request of Borrower,
Bank shall deliver to Borrower a certificate setting forth the basis for
determining such losses, costs and expenses, which certificate shall be
conclusively presumed correct, absent manifest error. Any prepayment hereunder
shall also be accompanied by the payment of all accrued and unpaid interest on
the amount so prepaid. Any outstanding principal balance of the Note which is
bearing interest at such time at the Base Rate Option may be prepaid without
penalty or premium. Partial prepayments hereunder shall be applied to the
installments hereunder in the inverse order of their maturities.

 

BY INITIALING BELOW, BORROWER ACKNOWLEDGE(S) AND
AGREE(S) THAT:   (A) THERE IS NO
RIGHT TO PREPAY ANY LIBOR OPTION ADVANCE, IN WHOLE OR IN PART, WITHOUT PAYING

 

2

 

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

 

9.             Hold
Harmless and Indemnification. 
Borrower agrees to indemnify Bank and to hold Bank harmless from, and to
reimburse Bank on demand for, all losses and expenses which Bank sustains or incurs
as a result of (i) any payment of a LIBOR Option Advance prior to the last
day of the applicable LIBOR Period for any reason, including, without
limitation, termination of the Note, whether pursuant to this Addendum or the
occurrence of an Event of Default; (ii) any termination of a LIBOR Period
prior to the date it would otherwise end in accordance with this Addendum; or (iii) any
failure by Borrower, for any reason, to borrow any portion of a LIBOR Option
Advance.

 

10.           Funding
Losses.  The indemnification and hold
harmless provisions set forth in this Addendum shall include, without limitation,
all losses and expenses arising from interest and fees that Bank pays to lenders
of funds it obtains in order to fund the loans to Borrower on the basis of the
LIBOR Option(s) and all losses incurred in liquidating or re-deploying deposits
from which such funds were obtained and loss of profit for the period after
termination. A written statement by Bank to Borrower of such losses and expenses
shall be conclusive and binding, absent manifest error, for all purposes. This
obligation shall survive the termination of this Addendum and the payment of
the Note.

 

11.           Regulatory
Developments Or Other Circumstances Relating To Illegality or Impracticality of
LIBOR.  If any Regulatory Development
or other circumstances relating to the interbank Euro-dollar markets shall, at
any time, in Bank’s reasonable determination, make it unlawful or impractical
for Bank to fund or maintain, during any LIBOR Period, to determine or charge
interest rates based upon LIBOR, Bank shall give notice of such circumstances
to Borrower and:

 

(i)            In
the 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 date
of such request shall be deemed to be the last day of the term of the LIBOR
Period; and

 

(ii)           No
LIBOR Period may be designated thereafter until Bank determines that such would
be practical.

 

12.           Additional
Costs.  Borrower shall pay to Bank
from time to time, upon Bank’s request, such amounts as Bank determines are
needed to compensate Bank for any costs it incurred which are attributable to
Bank having made or maintained a LIBOR Option Advance or to Bank’s obligation
to make a LIBOR Option Advance, or any reduction in any amount receivable by
Bank hereunder with respect to any LIBOR Option or such obligation (such
increases in costs and reductions in amounts receivable being herein called “Additional
Costs”), resulting from any Regulatory Developments, which (i) change the basis
of taxation of any amounts payable to Bank hereunder with respect to taxation
of any amounts payable to Bank hereunder with respect to any LIBOR Option
Advance (other than taxes imposed on the overall net income of Bank for any
LIBOR Option Advance by the jurisdiction where Bank is headquartered or the
jurisdiction where Bank extends the LIBOR Option Advance;  (ii) impose or modify any reserve,
special deposit, or similar requirements relating to any extensions of credit
or other assets of, or any deposits with or other liabilities of, Bank
(including any LIBOR Option Advance or any deposits referred to in the
definition of LIBOR); or (iii) impose any other condition affecting this
Addendum (or any of such extension of credit or liabilities). Bank shall notify
Borrower of any event occurring after the date hereof which entitles Bank to
compensation pursuant to this paragraph as promptly as practicable after it obtains
knowledge thereof and determines to request such compensation. Determinations
by Bank for purposes of this paragraph, shall be conclusive, provided that such
determinations are made on a reasonable basis.

 

13.           Legal
Effect.  Except as specifically
modified hereby, all of the terms and conditions of the Note remain in full
force and effect.

 

IN WITNESS WHEREOF, the parties have agreed to the foregoing as of the
date 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

 

 

Security Agreement

 

As of January 05,
2005, for value received, the undersigned (“Debtor”) pledges, assigns and
grants to Comerica Bank (“Bank”), whose address is 333 West Santa
Clara Street, San Jose, CA, 95113, Attention: Commercial
Loan Documentation, Mail Code 4770, a continuing security interest
and lien (any pledge, assignment, security interest or other lien arising
hereunder is sometimes referred to herein as a “security interest”) in the
Collateral (as defined below) to secure payment when due, whether by stated
maturity, demand, acceleration or otherwise, of all existing and future
indebtedness (“Indebtedness”) to the Bank of Monterey Gourmet Foods, Inc.
(“Borrower”) and/or Debtor. Indebtedness includes without limit any and all
obligations or liabilities of the Borrower and/or Debtor to the Bank, whether
absolute or contingent, direct or indirect, voluntary or involuntary,
liquidated or unliquidated, joint or several, known or unknown; any and all
obligations or liabilites for which the Borrower and/or Debtor would otherwise
be liable to the Bank were it not for the invalidity or unenforceability of
them by reason of any bankruptcy, insolvency or other law, or for any other
reason; any and all amendments, modifications, renewals and/or extensions of
any of the above; all costs incurred by Bank in establishing, determining,
continuing, or defending the validity or priority of its security interest, or
in pursuing its rights and remedies under this Agreement or under any other
agreement between Bank and Borrower and/or Debtor or in connection with any
proceeding involving Bank as a result of any financial accommodation to
Borrower and/or Debtor; and all other costs of collecting Indebtedness,
including without limit attorneys fees. Debtor agrees to pay Bank all such
costs incurred by the Bank, immediately upon demand, and until paid all costs
shall bear interest at the highest per annum rate applicable to any of the
Indebtedness, but not in excess of the maximum rate permitted by law. Any
reference in this Agreement to attorneys fees shall be deemed a reference to
reasonable fees, costs, and expenses of both in-house and outside counsel and
paralegals, whether inside or outside counsel is used, whether or not a suit or
action is instituted, and to court costs if a suit or action is instituted, and
whether attorneys fees or court costs are incurred at the trial court level, on
appeal, 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 following
property 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 securities
account(s), and all other investment property, financial assets, instruments or
other property at any time held or maintained in the securities account(s),
together with all investment property, financial assets, instruments or other
property at any time substituted therefor or for any part thereof, and all
interest, dividends, increases, profits, new investment property, financial
assets, instruments or other property and or other increments, distributions or
rights of any kind received on account of any of the foregoing, and all other
income received in connection therewith and all products or proceeds thereof
(whether cash or non-cash proceeds).

 

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

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

 

•              all goods, instruments, (including, without
limit, promissory notes), documents (including, without limit, negotiable
documents), policies and certificates of insurance, deposit accounts, and money
or other property (except real property which is not a fixture) which are now
or later in possession of Bank, or as to which Bank now or later controls
possession 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 the
above including, without limit, cash or other property which were proceeds and
are recovered by a bankruptcy trustee or otherwise as a preferential transfer
by Debtor.

 

In
the definition of Collateral, a reference to a type of collateral shall not be
limited by a separate reference to a more specific or narrower type of that
collateral.

 

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

 

2.1           Debtor shall furnish to Bank, in form and at intervals as Bank may
request, 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 request
of Bank, mark its records and the Collateral to clearly indicate the security
interest of Bank under this Agreement.

 

2.2           At the time any Collateral becomes, or is represented to be, subject to
a security interest in favor of Bank, Debtor shall be deemed to have warranted
that: (a) Debtor is the lawful owner of the Collateral and has the right and
authority to subject it to a security interest granted to Bank; (b) none
of the Collateral is subject to any security interest other than that in favor
of Bank; (c) there are no financing statements on file, other than in favor
of Bank; (d) no person, other than Bank, has possesion or control (as
defined in the Uniform Commercial Code) of any Collateral of such nature that
perfection of a security interest may be accomplished by control; and (e) Debtor
acquired 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 ordinary
course of its business and will not return any Inventory to its supplier. Bank
or its representatives may at all reasonable times inspect the Collateral and
may 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 all
writings requested by Bank to establish, maintain and continue an exclusive,
perfected and first security interest of Bank in the Collateral. Debtor agrees
that Bank has no obligation to acquire or perfect any lien on or security
interest in any asset(s), whether realty or personalty, to secure payment of
the Indebtedness, and Debtor is not relying upon assets in which the Bank may
have a lien or security interest for payment of the Indebtedness.

 

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

 

2.6           Debtor will keep the Collateral in good condition and will protect it
from loss, damage, or deterioration from any cause. Debtor has and will
maintain at all times (a) with respect to the Collateral, insurance under
an “all risk” policy against fire and other risks customarily insured against,
and (b) public liability insurance and other insurance as may be required
by 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 will
deliver to Bank immediately upon demand evidence satisfactory to Bank that the
required insurance has been procured. If Debtor fails to maintain satisfactory
insurance, Bank has the option (but not the obligation) to do so and Debtor
agrees to repay all amounts so expended by Bank immediately upon demand,
together with interest at the highest lawful default rate which could be
charged by Bank on any Indebtedness.

 

 

2.7           On
each occasion on which Debtor evidences to Bank the account balances on and the
nature and extent of the Accounts Receivable, Debtor shall be deemed to have
warranted that except as otherwise indicated: (a) each of those Accounts
Receivable is valid and enforceable without performance by Debtor of any act; (b) each
of those account balances are in fact owing; (c) there are no setoffs,
recoupments, credits, contra accounts, counterclaims or defenses against any of
those Accounts Receivable; (d) as to any Accounts Receivable represented
by a note, trade acceptance, draft or other instrument or by any chattel paper
or document, the same have been endorsed and/or delivered by Debtor to Bank; (e) Debtor
has not received with respect to any Account Receivable, any notice of the
death of the related account debtor, nor of the dissolution, liquidation,
termination of existence, insolvency, business failure, appointment of a
receiver for, assignment for the benefit of creditors by, or filing of a
petition in bankruptcy by or against, the account debtor; and (f) as to
each Account Receivable, except as may be expressly permitted by Bank to the
contrary in another document, the account debtor is not an affilliate of Debtor,
the United States of America or any department, agency or instrumentality of
it, 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 to
perform, enforce performance of, and collect all Accounts Receivable. Debtor
shall neither make nor permit any modification, compromise or substitution for
any Account Receivable without the prior written consent of Bank. Bank may at
any time and from time to time verify Accounts Receivable directly with account
debtors or by other methods acceptable to Bank without notifying Debtor. Debtor
agrees, at Bank’s request, to arrange or cooperate with Bank in arranging for
verification of Accounts Receivable.

 

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

 

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

 

2.10         At any time and without notice, Bank may, as to Collateral other than
Equipment, Fixtures or Inventory: (a) cause any or all of such Collateral
to be transferred to its name or to the name of its nominees; (b) receive
or collect by legal proceedings or otherwise all dividends, interest, principal
payments and other sums and all other distributions at any time payable or
receivable on account of such Collateral, and hold the same as Collateral, or apply
the same to the Indebtedness, the manner and distribution of the application to
be in the sole discretion of Bank; (c) enter into any extension,
subordination, reorganization, deposit, merger or consolidation agreement or any
other agreement relating to or affecting such Collateral, and deposit or
surrender control of such Collateral, and accept other property in exchange for
such Collateral and hold or apply the property or money so received pursuant to
this Agreement; and (d) take such actions in its own name or in Debtor’s
name as Bank, in its sole discretion, deems necessary or appropriate to
establish exclusive control (as defined in the Uniform Commercial Code) over
any Collateral of such nature that perfection of the Bank’s security interest
may be accomplished by control.

 

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

 

2.12         Debtor delivers this Agreement based solely on Debtor’s independent
investigation of (or decision not to investigate) the financial condition of
Borrower and is not relying on any information furnished by Bank. Debtor assumes
full responsibility for obtaining any further information concerning the Borrower’s
financial condition, the status of the Indebtedness or any other matter which
the undersigned may deem necessary or appropriate now or later. Debtor waives
any duty on the part of Bank, and agrees that Debtor is not relying upon nor
expecting 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, the
occurrence of any default with respect to the Indebtedness, or otherwise,
notwithstanding any effect such fact may have upon Debtor’s risk or Debtor’s
rights against Borrower. Debtor knowingly accepts the full range of risk
encompassed in this Agreement, which risk includes without limit the possibility
that Borrower may incur Indebtedness to Bank after the financial condition of
Borrower, 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 any
and all claims, damages, fines, expenses, liabilites or causes of action of whatever
kind, including without limit consultant fees, legal expenses, and attorneys
fees, suffered by any of them as a direct or indirect result of any actual or
asserted violation of any law, including, without limit, Environmental Laws, or
of any remediation relating to any property required by any law, including
without limit Environmental Laws, INCLUDING ANY CLAIMS, DAMAGES, FINES,
EXPENSES, LIABILITIES OR CAUSES OF ACTION OF WHATEVER KIND RESULTING FROM BANK’S
OWN NEGLIGENCE, except and to the extent (but only to the extent) caused by
Bank’s gross negligence or wilful misconduct.

 

2.14         If marketable securities are pledged as Collateral under this Agreement
and if at any time the outstanding principal balance of the Indebtedness
exceeds 70% in the case of OTC stock of the value of the Collateral, as such
value is determined from time to time by Bank (herein called the “Margin
Requirement”), Debtor shall immediately pay or cause to be paid to Bank an
amount sufficient to reduce the Indebtedness such that the remaining principal
outstanding thereunder is equal to or less than the Margin Requirement. Bank
shall apply payments made under this paragraph in payment of the Indebtedness
in 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 Bank
additional collateral in the form of cash or other property acceptable to Bank
and with a value, as determined by Bank, that when added to the Collateral will
constitute compliance with the Margin Requirement.

 

3.             Collection of Proceeds.

 

3.1           Debtor agrees to collect and enforce payment of all Collateral until
Bank shall direct Debtor to the contrary. Immediately upon notice to Debtor by
Bank and at all times after that, Debtor agrees to fully and promptly cooperate
and assist Bank in the collection and enforcement of all Collateral and to hold
in trust for Bank all payments received in connection with Collateral and from
the sale, lease or other disposition of any Collateral, all rights by way of
suretyship or guaranty and all rights in the nature of a lien or security
interest which Debtor now or later has regarding Collateral. Immediately upon
and after such notice, Debtor agrees to (a) endorse to Bank and
immediately deliver to Bank all payments received on Collateral or from the
sale, lease or other disposition of any Collateral or arising from any other
rights or interests of Debtor in the Collateral, in the form received by Debtor
without commingling with any other funds, and (b) immediately deliver to
Bank all property in Debtor’s possession or later coming into Debtor’s
possession through enforcement of Debtor’s rights or interests in the
Collateral. Debtor irrevocably authorizes Bank or any Bank employee or agent to
endorse the name of Debtor upon any checks or other items which are received in
payment for any Collateral, and to do any and all things necessary in order to
reduce these items to money. Bank shall have no duty as to the collection or
protection of Collateral or the proceeds of it, nor as to the preservation of
any related rights, beyond the use of reasonable care in the custody and
preservation of Collateral in the possession of Bank. Debtor agrees to take all
steps necessary to preserve rights against prior parties with respect to the
Collateral. Nothing in this Section 3.1 shall be deemed a consent by Bank
to any sale, lease or other disposition of any Collateral.

 

 

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

 

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

 

(b)           A non-interest bearing deposit account with Bank which shall be titled
as designated by Bank (the “Cash Collateral Account”) to which Bank shall have
exclusive access and control. Debtor agrees to notify all account debtors and
other parties obligated to Debtor that all payments made to Debtor by
electronic funds transfer shall be remitted to the Cash Collateral Account, and
Debtor, at Bank’s request, shall include a
like statement on all invoices. Debtor shall execute all documents and
authorizations as required by Bank to establish and maintain the Lock Box and
the Cash Collateral Account.

 

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

 

4.             Defaults, Enforcement and Application of
Proceeds.

 

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 between
Borrower, Debtor, or any guarantor of any of the Indebtedness (“Guarantor”) and
Bank; or

 

(c)           Any warranty, representation, financial statement, or other information
made, given or furnished to Bank by or on behalf of Borrower, Debtor, or any
Guarantor shall be, or shall prove to have been, false or materially misleading
when made, given, or furnished; or

 

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

 

(e)           Sale or other disposition by Borrower, Debtor, or any Guarantor of any
substantial portion of its assets or property or voluntary suspension of the
transaction 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 or
federal bankruptcy or insolvency laws or laws for the relief of debtors by or against
Borrower, Debtor, or any Guarantor; or the appointment of a receiver, trustee,
court appointee, sequestrator or otherwise, for all or any part of the property
of Borrower, Debtor, or any Guarantor; or

 

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

 

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

 

4.2           Upon the occurrence of any Event of Default, Bank may at its discretion
and without prior notice to Debtor declare any or all of the Indebtedness to be
immediately due and payable, and shall have and may exercise any right or remedy
available to it including, without limitation, any one or more of the following
rights and remedies:

 

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

 

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

 

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

 

(d)           Personally or by agents, attorneys, or appointment of a receiver, enter
upon any premises where Collateral may then be located, and take possession of
all or any of it and/or render it unusable; and without being responsible for
loss or damage to such Collateral, hold, operate, sell, lease, or dispose of
all or any Collateral at one or more public or private sales, leasings or other
dispositions, at places and times and on terms and conditions as Bank may deem
fit, without any previous demand or advertisement; and except as provided in
this Agreement, all notice of sale, lease or other disposition, and
advertisement, and other notice or demand, any right or equity of redemption, and
any obligation of a prospective purchaser or lessee to inquire as to the power
and authority of Bank to sell, lease, or otherwise dispose of the Collateral or
as to the application by Bank of the proceeds of sale or otherwise, which would
otherwise be required by, or available to Debtor under, applicable law are
expressly waived by Debtor to the fullest extent permitted.

 

At
any sale pursuant to this Section 4.2, whether under the power of sale, by
virtue of judicial proceedings or otherwise, it shall not be necessary for Bank
or a public officer under order of a court to have present physical or
constructive possession of Collateral to be sold. The recitals contained in any
conveyances and receipts made and given by Bank or the public officer to any purchaser
at any sale made pursuant to this Agreement shall, to the extent permitted by
applicable law, conclusively establish the truth and accuracy of the matters
stated (including, without limit, as to the amounts of the principal of and
interest on the Indebtedness, the accrual and nonpayment of it and
advertisement and conduct of the sale); and all prerequisites to the sale shall
be presumed to have been satisfied and performed. Upon any sale of any
Collateral, the receipt of the officer making the sale under judicial
proceedings or of Bank shall be sufficient discharge to the purchaser for the
purchase money, and the purchaser shall not be obligated to

 

 

see
to the application of the money. Any sale of any Collateral under this
Agreement shall be a perpetual bar against Debtor with respect to that
Collateral. At any sale or other disposition of the Collateral pursuant to this
Section 4.2, Bank disclaims all warranties which would otherwise be given
under the Uniform Commercial Code, including without limit a disclaimer of any
warranty relating to title, possesion, quiet enjoyment or the like, and Bank
may communicate these disclaimers to a purchaser at such disposition. This
disclaimer of warranties will not render the sale commercially unreasonable.

 

4.3           Debtor shall at the request of Bank, notify the account debtors or
obligors of Bank’s security interest in the Collateral and direct payment of it
to Bank. Bank may, itself, upon the occurrence of any Event of Default so notify
and direct any account debtor or obligor. At the request of Bank, whether or
not an Event of Default shall have occurred, Debtor shall immediately take such
actions as the Bank shall request to establish exclusive control (as defined in
the Uniform Commercial Code) by Bank over any Collateral which is of such a
nature that perfection of a security interest may be accomplished by control.

 

4.4           The proceeds of any sale or other disposition of Collateral authorized
by this Agreement shall be applied by Bank first upon all expenses authorized
by the Uniform Commercial Code and all reasonable attorney fees and legal expenses
incurred by Bank; the balance of the proceeds of the sale or other disposition
shall be applied in the payment of the Indebtedness, first to interest, then to
principal, then to remaining Indebtedness and the surplus, if any, shall be
paid over to Debtor or to such other person(s) as may be entitled to it under
applicable law. Debtor shall remain liable for any deficiency, which it shall
pay to Bank immediately upon demand. Debtor agrees that Bank shall be under no
obligation to accept any noncash proceeds in connection with any sale or
disposition of Collateral unless failure to do so would be commercially
unreasonable. If Bank agrees in its sole discretion to accept noncash proceeds
(unless the failure to do so would be commercially unreasonable), Bank may
ascribe any commercially reasonable value to such proceeds. Without limiting
the foregoing, Bank may apply any discount factor in determining the present
value of proceeds to be received in the future or may elect to apply proceeds
to be received in the future only as and when such proceeds are actually
received in cash by Bank.

 

4.5           Nothing in this Agreement is intended, nor shall it be construed, to
preclude Bank from pursuing any other remedy provided by law or in equity for
the collection of the Indebtedness or for the recovery of any other sum to
which Bank may be entitled for the breach of this Agreement by Debtor. Nothing
in this Agreement shall reduce or release in any way any rights or security
interests 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 effective
unless in writing and signed by an authorized officer of Bank. No waiver of any
default or forbearance on the part of Bank in enforcing any of its rights under
this Agreement shall operate as a waiver of any other default or of the same
default on a future occasion or of any rights.

 

4.7           Debtor (a) irrevocably appoints Bank or any agent of Bank (which
appointment 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 expense
of, 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 sole
discretion, deems appropriate:

 

(i)            to demand, receive, sue for, and give receipts
or acquittances for any moneys due or to become due on any Collateral and to
endorse 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 financing
statements 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 required
under this Agreement.

 

4.8           Upon the occurrence of an Event of Default, Debtor also agrees, upon
request of Bank, to assemble the Collateral and make it available to Bank at
any 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 determination
of the value of any Collateral which is the subject matter of a disposition
giving rise to a calculation of any surplus or deficiency under Section 9.615(f) of
the Uniform Commercial Code (as in effect on or after July 1, 2001): (a) The
Collateral 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 or
expectation that such Collateral will be repaired or improved in any manner; (b) 
the valuation shall be based upon an assumption that the transferee of such
Collateral desires a resale of the Collateral for cash promptly (but no later
than 30 days) following the disposition; (c) all reasonable closing costs
customarily borne by the seller in commercial sales transactions relating to
property similar to such Collateral shall be deducted including, without
limitation, brokerage commissions, tax prorations, attorney’s fees, whether
inside or outside counsel is used, and marketing costs; (d) the value of
the Collateral which is the subject matter of the disposition shall be further
discounted to account for any estimated holding costs associated with
maintaining such Collateral pending sale (to the extent not accounted for in (c) above),
and other maintenance, operational and ownership expenses; and (e) any expert
opinion testimony given or considered in connection with a determination of the
value of such Collateral must be given by persons having at least 5 years experience
in appraising property similar to the Collateral and who have conducted and
prepared a complete written appraisal of such Collateral taking into
consideration the factors set forth above. The “value” of any such Collateral
shall be a factor in determining the amount of proceeds which would have been
realized in a disposition to a transferee other than a secured party, a person
related to a secured party or a secondary obligor under Section 9.615(f) of
the 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 all
contemplated changes in Debtor’s name, location, chief executive office,
principal place of business, and/or location of any Collateral, but the giving of
this notice shall not cure any Event of Default caused by this change.

 

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

 

5.4           Bank has the right to sell, assign, transfer, negotiate or grant
participations or any interest in, any or all of the Indebtedness and any
related obligations, including without limit this Agreement. In connection with
the above, but without limiting its ability to make other disclosures to the
full extent allowable, Bank may disclose all documents and information which
Bank now or later has relating to Debtor, the Indebtedness or this Agreement, however
obtained. Debtor further agrees that Bank may provide information relating to
this 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 to
Debtor 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 action
shall not constitute acceptance of collateral in discharge of any portion of
the Indebtedness.

 

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

 

 

of
personal property security held from Borrower or any other person, otherwise
comply with the provisions of Section 9.504 of the Uniform Commercial Code
in 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 of
acceptance of this Agreement and presentment, demand, protest, notice of
protest, dishonor, notice of dishonor, notice of default, notice of intent to
accelerate or demand payment of any Indebtedness, any and all other notices to
which the undersigned might otherwise be entitled, and diligence in collecting
any 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 permit
Borrower to incur additional Indebtedness, all without notice to Debtor and
without affecting in any manner the unconditional obligation of Debtor under
this Agreement. Debtor unconditionally and irrevocably waives each and every
defense and setoff of any nature which, under principles of guaranty or
otherwise, would operate to impair or diminish in any way the obligation of
Debtor under this Agreement, and acknowledges that such waiver is by this
reference incorporated into each security agreement, collateral assignment,
pledge and/or other document from Debtor now or later securing the
Indebtedness, and acknowledges that as of the date of this Agreement no such
defense 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 the
value of any Collateral given by Debtor pursuant to this Agreement until such time
as all of the Indebtedness has been fully paid.

 

5.8           In the event that applicable law shall obligate Bank to give prior
notice to Debtor of any action to be taken under this Agreement, Debtor agrees
that a written notice given to Debtor at least ten days before the date of the act
shall be reasonable notice of the act and, specifically, reasonable
notification of the time and place of any public sale or of the time after
which any private sale, lease, or other dispostion is to be made, unless a shorter
notice period is reasonable under the circumstances. A notice shall be deemed
to be given under this Agreement when delivered to Debtor or when placed in an
envelope addressed to Debtor and deposited, with postage prepaid, in a post
office or official depository under the exclusive care and custody of the
United States Postal Service or delivered to an overnight courier. The mailing
shall be by overnight courier, certified, or first class mail.

 

5.9           Notwithstanding any prior revocation, termination, surrender, or
discharge of this Agreement in whole or in part, the effectiveness of this
Agreement shall automatically continue or be reinstated in the event that any
payment received or credit given by Bank in respect of the Indebtedness is
returned, disgorged, or rescinded under any applicable law, including, without
limitation, bankruptcy or insolvency laws, in which case this Agreement, shall be
enforceable against Debtor as if the returned, disgorged, or rescinded payment
or credit had not been received or given by Bank, and whether or not Bank
relied upon this payment or credit or changed its position as a consequence of
it. In the event of continuation or reinstatement of this Agreement, Debtor
agrees upon demand by Bank to execute and deliver to Bank those documents which
Bank determines are appropriate to further evidence (in the public records or
otherwise) this continuation or reinstatement, although the failure of Debtor
to 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 this
Agreement shall inure to the benefit of Bank’s successors and assigns and to
any other holder who derives from Bank title to or an interest in the
Indebtedness or any portion of it, and shall bind Debtor and the heirs, legal
representatives, successors, and assigns of Debtor. Nothing in this Section 5.10
is deemed a consent by Bank to any assignment by Debtor.

 

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

 

5.12         Except as otherwise provided in this Agreement, all terms in this Agreement
have the meanings assigned to them in Division 9 (or, absent definition in
Division 9, in any other Division) of the Uniform Commercial Code, as those meanings
may be amended, supplemented, revised or replaced from time to time. “Uniform
Commercial Code” means the California Uniform Commercial Code, as amended,
supplemented, revised or replaced from time to time. Notwithstanding the
foregoing, the parties intend that the terms used herein which are defined in
the Uniform Commercial Code have, at all times, the broadest and most inclusive
meanings possible. Accordingly, if the Uniform Commercial Code shall in the
future be amended or held by a court to define any term used herein more broadly
or inclusively than the Uniform Commercial Code in effect on the date of this
Agreement, then such term, as used herein, shall be given such broadened
meaning. If the Uniform Commercial Code shall in the future be amended or held
by 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, such
amendment or holding shall be disregarded in defining terms used in this
Agreement.

 

5.13         No single or partial exercise, or delay in the exercise, of any right or
power under this Agreement, shall preclude other or further exercise of the
rights and powers under this Agreement. The unenforceability of any provision
of this Agreement shall not affect the enforceability of the remainder of this
Agreement. This Agreement constitutes the entire agreement of Debtor and Bank
with respect to the subject matter of this Agreement. No amendment or
modification of this Agreement shall be effective unless the same shall be in
writing and signed by Debtor and an authorized officer of Bank. THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE
STATE 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 of
that Indebtedness nor shall anything contained in this Agreement prevent Bank from
making demand, without notice and with or without reason, for immediate payment
of any or all of that Indebtedness at any time(s), whether or not an Event of
Default has occurred.

 

5.15         Debtor represents and warrants that Debtor’s exact name is the name set
forth in this Agreement. Debtor further represents and warrants the following
and agrees that Debtor is, and at all times shall be, located in the following
place :

 

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

 

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

 

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

 

Debtor
is a registered organization organized under the laws of the United States, and
Debtor is located in the state that United States law designates as its
location or, if United States law authorizes the Debtor to designate the state
for its location, the state designated by Debtor, or if neither of the
foregoing 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.

 

Debtor
is a foreign individual or foreign organization-or-a branch or agency of a bank
that 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.

 

 

 

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

 

 

	
  STREET ADDRESS

  
	
   

  
	
  CITY

  	
   

  	
  STATE

  	
   

  	
  ZIP CODE

  	
   

  	
  COUNTY

  

 

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

 

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

 

5.17         This Agreement shall be terminated only by the filing of a termination
statement in accordance with the applicable provisions of the Uniform
Commerical Code, but the obligations contained in Section 2.13 of this
Agreement shall survive termination.

 

5.18         Debtor agrees to reimburse
the Bank upon demand for any and all costs and expenses (including, without
limit, court costs, legal expenses and reasonable attorneys’ fees, whether
inside or outside counsel is used, whether or not suit is instituted and, if
suit is instituted, whether at the trial court level, appellate level, in a bankruptcy,
probate or administrative proceeding or otherwise)  incurred in enforcing or attempting to
enforce this Agreement or in exercising or attempting to exercise any right or
remedy under this Agreement or incurred in any other matter or proceeding
relating to this Security Agreement.

 

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

 

7.             Special Provisions Applicable to this
Agreement. (*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

  	
   

  
						

 

 

 

INTELLECTUAL PROPERTY SECURITY AGREEMENT

 

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

 

RECITALS

 

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

 

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

 

NOW, THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS:

 

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

 

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

 

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

 

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

 

(d)           All patents, patent applications and like
protections 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 B
attached hereto (collectively, the “Patents”);

 

(e)           Any trademark and servicemark rights, whether
registered or not, applications to register and registrations of the same and
like protections, and the entire goodwill of the business of Grantor connected
with and symbolized by such trademarks, including without limitation those set
forth on Exhibit C attached hereto (collectively, the “Trademarks”);

 

(f)            Any
and all claims for damages by way of past, present and future infringement of
any of the rights included above, with the right, but not the obligation, to
sue for and collect such damages for said use or infringement of the
intellectual property rights identified above;

 

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

 

(h)            All amendments, extensions, renewals and
extensions 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 any
indemnity or warranty payable in respect of any of the foregoing.

 

2.             Authorization
and Request.  Grantor authorizes and
requests that the Register of Copyrights and the Commissioner of Patents and
Trademarks record this security agreement.

 

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

 

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

 

1

 

(b)           Performance of this Agreement does not
conflict with or result in a breach of any agreement to which Grantor is party
or by which Grantor is bound, except to the extent that certain intellectual
property agreements prohibit the assignment of the rights thereunder to a third
party without the licensor’s or other party’s consent and this Agreement
constitutes an assignment;

 

(c)           During the term of this Agreement, Grantor
will not transfer or otherwise encumber any interest in the Collateral, except
for non-exclusive licenses granted by Grantor in the ordinary course of
business, 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, in
whole or in part, and no claim has been made that any part of the Collateral
violates the rights of any third party;

 

(e)           Grantor shall deliver to Secured Party within
thirty (30) days of the last day of each fiscal quarter, a report signed by
Grantor, in form reasonably acceptable to Secured Party, listing any
applications or registrations that Grantor has made or filed in respect of any
patents, copyrights or trademarks and the status of any outstanding
applications or registrations. Grantor shall promptly advise Secured Party of
any material change in the composition of the Collateral, including but not
limited to any subsequent ownership right of the Grantor in or to any
Trademark, Patent or Copyright not specified in this Agreement;

 

(f)            Grantor shall (i) protect, defend and
maintain the validity and enforceability of the Trademarks, Patents and
Copyrights, (ii) use its best efforts to detect infringements of the
Trademarks, Patents and Copyrights and promptly advise Secured Party in writing
of material infringements detected and (iii) not allow any Trademarks,
Patents or Copyrights to be abandoned, forfeited or dedicated to the public
without the written consent of Secured Party, which shall not be unreasonably
withheld, unless Grantor determines that reasonable business practices suggest
that abandonment is appropriate;

 

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

 

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

 

(i)             Except for, and upon, the filing with the
United States Patent and Trademark office with respect to the Patents and
Trademarks and the Register of Copyrights with respect to the Copyrights
necessary to perfect the security interests created hereunder, and, except as
has been already made or obtained, no authorization, approval or other action
by, 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 the
security interest granted hereby or for the execution, delivery or performance
of this Agreement by Grantor in the U.S. or (ii) for the perfection in the
United States or the exercise by Secured Party of its rights and remedies
hereunder;

 

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

 

(k)            Grantor shall not enter into any agreement
that would materially impair or conflict with Grantor’s obligations hereunder
without Secured Party’s prior written consent, which consent shall not be
unreasonably withheld. Grantor shall not permit the inclusion in any material
contract to which it becomes a party of any provisions that could or might in
any way prevent the creation of a security interest in Grantor’s rights and
interests in any property included within the definition of the Collateral
acquired under such contracts, except that certain contracts may contain
anti-assignment provisions that could in effect prohibit the creation of a
security interest in such contracts if Grantor is required, in its commercially
reasonable judgment to accept such provisions; and

 

(l)             Upon any executive officer of Grantor
obtaining knowledge thereof, Grantor will promptly notify Secured Party in
writing of any event that materially adversely affects the value of any of the
Collateral, the ability of Grantor to dispose of any Collateral or the rights
and remedies of Secured Party in relation thereto, including the levy of any legal
process against any of the Collateral.

 

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

 

2

 

5.             Inspection Rights. 
Grantor hereby grants to Secured Party and its employees, representatives
and agents the right to visit, during reasonable hours upon prior reasonable
written notice to Grantor, any of Grantor’s plants and facilities that
manufacture, install or store products (or that have done so during the prior
six-month period) that are sold utilizing any of the Collateral, and to inspect
the products and quality control records relating thereto upon reasonable
notice 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 and
recording places in the United States, all such instruments, including,
appropriate financing and continuation statements and collateral agreements and
filings with the United States Patent and Trademark Office and the Register of
Copyrights, and take all such action as may reasonably be deemed necessary or
advisable, or as requested by Secured Party, to perfect Secured Party’s
security interest in all Copyrights, Patents and Trademarks and otherwise to
carry out the intent and purposes of this Agreement, or for assuring and
confirming to Secured Party the grant or perfection of a security interest in
all Collateral.

 

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

 

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

 

(ii)           To file, in its sole discretion, one or more
financing or continuation statements and amendments thereto, relative to any of
the 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 to
the extent permitted under the California Uniform Commercial Code.

 

7.             Events of Default.  The
occurrence of any of the following shall constitute an Event of Default under
this Agreement:

 

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

 

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

 

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

 

9.             Indemnity.  Grantor agrees to defend,
indemnify and hold harmless Secured Party and its officers, employees, and
agents against: (a) all obligations, demands, claims, and liabilities
claimed or asserted by any other party in connection with the transactions
contemplated by this Agreement, and (b) all losses or expenses in any way
suffered, incurred, or paid by Secured Party as a result of or in any way arising
out of, following or consequential to transactions between Secured Party and
Grantor, whether under this Agreement or otherwise (including without
limitation attorneys fees and expenses), except for losses arising from or out
of Secured Party’s gross negligence or willful misconduct.

 

10.           Course of Dealing.  No
course of dealing, nor any failure to exercise, nor any delay in exercising any
right, power or privilege hereunder shall operate as a waiver thereof.

 

11.           Attorneys Fees.  If any action relating to this Agreement is
brought by either party hereto against the other party, the prevailing party
shall be entitled to recover reasonable attorneys fees, costs and
disbursements.

 

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

 

13.           Counterparts.  This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original but all of which together shall constitute the same
instrument.

 

3

 

14.           California Law and
Jurisdiction; Jury Waiver.  This
Agreement shall be governed by the laws of the State of California, without
regard for choice of law provisions. Grantor and Secured Party consent to the
exclusive jurisdiction of any state or federal court located in Santa Clara
County, California. GRANTOR AND SECURED PARTY EACH WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING
OUT OF THE LOAN DOCUMENTS. THIS AGREEMENT, OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the 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

  

 

4

 

EXHIBIT A

 

List of Copyrights

 

N/A

 

5

 

EXHIBIT B

 

List of Patents

 

N/A

 

6

 

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

  

 

7Exhibit 10.16(7)

 

SEVENTH AMENDMENT TO CREDIT AGREEMENT

 

THIS SEVENTH
AMENDMENT TO CREDIT AGREEMENT (herein called this “Amendment”) made as of March
10, 2005 by and between FIELDSTONE MORTGAGE COMPANY, a Maryland corporation (“Borrower”),
and GUARANTY BANK, a federal savings bank (“Lender”),

 

W I T N E S S E T H:

 

WHEREAS,
Borrower and Lender have entered into that certain Credit Agreement dated as of
July 23, 2003 (as heretofore amended, the “Original Credit Agreement”), for the
purposes and consideration therein expressed, pursuant to which Lender became
obligated to make loans to Borrower as therein provided; and

 

WHEREAS,
Borrower and Lender desire to amend the Original Credit Agreement as provided
herein;

 

NOW,
THEREFORE, in consideration of the premises and the mutual covenants and
agreements contained herein and in the Original Credit Agreement, in
consideration of the loans which may hereafter be made by Lender to Borrower,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto do hereby agree as follows:

 

ARTICLE I.

 

Definitions and References

 

§ 1.1.                    Terms
Defined in the Original Credit Agreement. 
Unless the context otherwise requires or unless otherwise expressly
defined herein, the terms defined in the Original Credit Agreement shall have
the same meanings whenever used in this Amendment.

 

§ 1.2.                    Other
Defined Terms.  Unless the context
otherwise requires, the following terms when used in this Amendment shall have
the meanings assigned to them in this § 1.2.

 

“Amendment” means this Seventh
Amendment to Credit Agreement.

 

“Amendment Documents” means,
collectively, this Amendment and the confirmation by Guarantor with respect to
this Amendment.

 

“Credit Agreement” means the Original
Credit Agreement as amended hereby.

 

 

“Original Omnibus Certificate” means
the Omnibus Certificate dated July 23, 2003 executed and delivered by
officers of Borrower pursuant to the Original Credit Agreement.

 

ARTICLE II.

 

Amendments to Original Credit Agreement

 

§ 2.1.                    Definitions
Amended in Entirety.  The following
definitions in Section 1.1 of the Original Credit Agreement are hereby amended
in their entirety to read as follows:

 

“‘Borrowing Base’
means at any date all Eligible Mortgage Loans and Eligible Lot Loans which have
been delivered to and held by Lender or otherwise identified as Mortgage
Collateral.”

 

“‘Borrowing Base Worksheet’
means a worksheet describing the Eligible Mortgage Loans and Eligible Lot Loans
to be included in the Borrowing Base in a form acceptable to Lender.”

 

“‘Collateral Value of the
Borrowing Base’ means, on any day, the sum of the Unit
Collateral Values of all Eligible Mortgage Loans and all Eligible Lot Loans
included in the Borrowing Base on such day, as determined by Lender based on
the information then available to Lender; provided that the Collateral Value of
the Borrowing Base shall never exceed the Commitment.”

 

“‘Jumbo Sublimit’ means
twenty percent (20%) of the Commitment.”

 

“‘Mortgage’
means (a) with respect to a Mortgage Loan, a mortgage or deed of trust, on
standard forms in form and substance satisfactory to Lender, securing a
Mortgage Note and granting a perfected, first or second priority lien on
residential real property consisting of land and a single-family dwelling
thereon which is completed and ready for occupancy; and (b) with respect to an
Lot Loan, a mortgage or deed of trust, on standard forms in form and substance
satisfactory to Lender, securing a Lot Note and granting a perfected, first
priority lien on real property consisting of land on which a single-family
dwelling is to be built.”

 

“‘Mortgage Collateral’
means (a) all Mortgage Notes (i) which are made payable to the order of
Borrower or have been endorsed (without restriction or limitation) payable to
the order of Borrower, (ii) in which Lender has been granted and continues to
hold a perfected first priority security interest, (iii) which are in form and
substance acceptable to Lender in its reasonable discretion, (iv) which are
secured by Mortgages, and (v) conform in all respects with all the
requirements for purchase of such Mortgage Note under the Take-Out Commitments
and are valid and enforceable in accordance with their respective terms; and
(b) Lot Notes (i) which are made payable to the order of Borrower

 

2

 

or have been endorsed (without
restriction or limitation) payable to the order of Borrower, (ii) in which
Lender has been granted and continues to hold a perfected first priority security
interest, (iii) which are in form and substance acceptable to Lender in its
reasonable discretion, (iv) which are secured by Mortgages, and (v) are
valid and enforceable in accordance with their respective terms.”

 

“‘Obligor’
means the Person or Persons obligated to pay the Indebtedness which is the
subject of a Mortgage Loan or a Lot Loan.”

 

“‘Take-Out Commitment’
means with respect to any Eligible Mortgage Loan or any Eligible Lot Loan, (i)
a written master commitment of an Investor to purchase a pool of Mortgage Loans
or Lot Loans under which such Eligible Mortgage Loans or Eligible Lot Loan will
be delivered to such Investor on terms satisfactory to Lender, in its
reasonable discretion or (ii) a hedging arrangement for such Eligible Mortgage
Loan or Eligible Lot Loan which is acceptable to Lender.”

 

“‘Wet Loans’
means Eligible Mortgage Loans and Eligible Lot Loans which are included in the
Borrowing Base, but for which the Required Mortgage Documents have not been
delivered to Lender.”

 

§ 2.2.                    Additional
Amendments to Definitions.

 

(a)                                  Clauses
(m)(i) and (q) in the definition of “Eligible Mortgage Loan” in Section
1.1 of the Original Agreement are hereby amended in their entirety to read as
follows:

 

“(m)                         If
such Mortgage Loan is included in the Borrowing Base and has been withdrawn
from the possession of the Lender on terms and subject to conditions set forth
in the Security Agreement:

 

(i)                                     If
such Mortgage Loan was withdrawn by Borrower for purposes of correcting
clerical or other non-substantive documentation problems, the promissory note
and other documents relating to such Mortgage Loan are returned to the Lender
within ten (10) Business Days from the date of withdrawal; and the Unit
Collateral Value of such Mortgage Loan when added to the Unit Collateral Value
of other Mortgage Loans and Lot Loans which have been similarly released to
Borrower and have not been returned does not exceed ten percent (10%) of the
Commitment;”

 

“(q)                           The
Required Mortgage Documents have been delivered to Lender prior to the
inclusion of such Mortgage Loan in any computation of either the Borrowing Base
or, if such items have not been delivered to Lender on or prior to the date
such Mortgage Loan is first included in any computation of the Borrowing Base,
(a) Borrower has pledged and agreed to deliver all Required Mortgage Documents
pursuant to a Borrowing Request delivered to Lender prior to such inclusion,
and (b) the Collateral Value of such

 

3

 

Mortgage Loan when added to the
Collateral Value of all other Mortgage Loans and Lot Loans for which Lender has
not received the Required Mortgage Documents does not exceed the Wet
Warehousing Sublimit, provided that, all Required Documents with respect to
such Mortgage Loan shall be delivered to Agent within seven (7) Business Days
after the date of the Agreement to Pledge with respect thereto.”

 

(b)                                 The
definition of “Unit Collateral Value” in Section 1.1 of the Original
Agreement is hereby amended by replacing the period at the end thereof with a
semicolon and adding and after the semicolon, and adding a new subsection (C)
to read as follows:

 

“(c)                            with
respect to each Eligible Lot Loan included in the Borrowing Base, ninety-eight
(98%) of the outstanding principal balance of the Lot Note constituting such
Lot Loan.”

 

§ 2.3.                    New
Definitions.  The following new
definitions are hereby added to Section 1.1 of the Original Credit Agreement in
alphabetical order:

 

“‘Eligible Lot Loan’
means a Lot Loan with respect to which each of the statements set forth in
clauses (a) through (n) and clause (q) of the definition of Eligible Mortgage
Loan (if made with respect to a Lot Loan and the related Lot Note) and set
forth in clauses (a) and (b) below is accurate and complete (and the Borrower by
including such Lot Loan in any computation of the Collateral Value of the
Borrowing Base shall be deemed to so represent to Lender at and as of the date
of such computation):

 

(a)                                  Such
Lot Loan conforms to underwriting guidelines of Borrower for construction-to-perm
loans, which guidelines have been approved by Lender and the proceeds of such
Lot Loan were not, and are not being, used for construction; and

 

(b)                                 The
Unit Collateral Value of such Lot Loan when added to the Unit Collateral Value
of all other Eligible Lot Loans does not exceed the Lot Loan Sublimit.”

 

“‘Lot Loan’
means a loan to pay the purchase price of a lot on which a one-to-four
single-family residence is to be constructed which is evidenced by a Lot Note
and secured by a Mortgage.”

 

“‘Lot Loan Sublimit’
means ten percent (10%) of the Commitment”

 

“‘Lot Note’
means a promissory note evidencing a Lot Loan.”

 

§ 2.4.                    Representations
Regarding Individual Mortgage Loans. 
Each reference in Section 4.21 of the Original Agreement (i) to a
Mortgage Loan shall be deemed to refer to both a Mortgage Loan and a Lot Loan
and (ii) to a Mortgage Note shall be deemed to refer to both a Mortgage Note
and a Lot Note.

 

4

 

ARTICLE III.

 

Conditions of Effectiveness

 

§ 3.1.                    Effective
Date.  This Amendment shall become
effective as of the date first above written when and only when Lender shall
have received, at Lender’s office,

 

(a)                                  a
duly executed counterpart of this Amendment,

 

(b)                                 a
duly executed Consent and Agreement in the form of Exhibit A hereto,

 

(c)                                  a
duly executed certificate of the president - chief executive officer and
secretary of Borrower certifying that (i) the specimen signatures of the
officers so authorized which are attached to the Officers’ Certificate dated
February 27, 2004 are true and correct, (ii) resolutions of its board of
directors attached to the Original Omnibus Certificate authorizing the
execution, delivery, and performance of this Amendment and identifying the
officers authorized to sign such instrument are in full force and effect, and
(iii) the charter and bylaws of Borrower attached to the Original Omnibus
Certificate have not been amended since the date of such Certificate,

 

(d)                                 all
fees and reimbursements required to be paid by Borrower to Lender pursuant to
any Loan Document or otherwise due Lender, including all fees and disbursements
of Lender’s attorneys, and

 

(e)                                  each
other document to be executed and delivered by Borrower pursuant hereto or
thereto.

 

ARTICLE IV.

 

Representations and Warranties

 

§ 4.1.                    Representations
and Warranties of Borrower.  In order
to induce Lender to enter into this Amendment,
Borrower represents and warrants to Lender that:

 

(a)                                  The
representations and warranties contained in Article IV of the Original Credit
Agreement are true and correct at and as of the time of the effectiveness
hereof;

 

(b)                                 Borrower
is duly authorized to execute and deliver this Amendment and the other
Amendment Documents and is and will continue to be duly authorized to borrow
and to perform its obligations under the Credit Agreement.  Borrower has duly taken all corporate action
necessary to authorize the execution and delivery of this Amendment and the
other Amendment Documents and to authorize the performance of the obligations of
Borrower hereunder and thereunder;

 

(c)                                  The
execution and delivery by Borrower of this Amendment and the other Amendment
Documents, the performance by Borrower of its obligations hereunder and

 

5

 

thereunder and the consummation
of the transactions contemplated hereby do not and will not conflict with any
provision of law, statute, rule or regulation or of the articles of
incorporation and bylaws of Borrower, or of any material agreement, judgment,
license, order or permit applicable to or binding upon Borrower, or result in
the creation of any lien, charge or encumbrance upon any assets or properties
of Borrower.  Except for those which have
been duly obtained, no consent, approval, authorization or order of any court
or governmental authority or third party is required in connection with the
execution and delivery by Borrower of this Amendment and the other Amendment
Documents or to consummate the transactions contemplated hereby and thereby;

 

(d)                                 When
duly executed and delivered, each of this Amendment and the other Amendment
Documents will be a legal and binding instrument and agreement of Borrower,
enforceable in accordance with its terms, except as limited by bankruptcy,
insolvency and similar laws applying to creditors’ rights generally and by
principles of equity applying to creditors’ rights generally; and

 

(e)                                  The
audited annual Consolidated financial statements of Borrower dated as of
December 31, 2003 and the unaudited monthly Consolidated financial statements
of Borrower dated as of January 31, 2005 fairly present the Consolidated
financial position at such dates and the Consolidated statement of operations
and the changes in Consolidated financial position for the periods ending on
such dates for Borrower.  Copies of such
financial statements have heretofore been delivered to Bank.  Since such dates no material adverse change
has occurred in the financial condition or businesses or in the Consolidated
financial condition or businesses of Borrower.

 

ARTICLE V.

 

Miscellaneous

 

§ 5.1.                    Ratification
of Agreement.  The Original Credit
Agreement as hereby amended is hereby ratified and confirmed in all
respects.  Any reference to the Credit
Agreement in any Loan Document shall be deemed to refer to this Amendment
also.  The execution, delivery and
effectiveness of this Amendment and the other Amendment Documents shall not,
except as expressly provided herein, operate as a waiver of any right, power or
remedy of Lender under the Credit Agreement or any other Loan Document nor
constitute a waiver of any provision of the Credit Agreement or any other Loan
Document.

 

§ 5.2.                    Survival
of Agreements.  All representations,
warranties, covenants and agreements of Borrower herein shall survive the
execution and delivery of this Amendment and the performance hereof, and shall
further survive until all of the Obligations are paid in full.  All statements and agreements contained in
any certificate or instrument delivered by Borrower hereunder or under the
Credit Agreement to Lender shall be deemed to constitute representations and
warranties by, or agreements and covenants of, Borrower under this Amendment
and under the Credit Agreement.

 

6

 

§ 5.3.                    Loan
Documents.  This Amendment and the
other Amendment Documents are each a Loan Document, and all provisions in the
Credit Agreement pertaining to Loan Documents apply hereto and thereto.

 

§ 5.4.                    Governing
Law.  This Amendment shall be
governed by and construed in accordance with the laws of the State of Texas and
any applicable laws of the United States of America in all respects, including
construction, validity and performance.

 

§ 5.5.                    Counterparts;
Fax.  This Amendment may be
separately executed in counterparts and by the different parties hereto in
separate counterparts, each of which when so executed shall be deemed to
constitute one and the same Amendment. 
This Amendment may be duly executed by facsimile or other electronic
transmission.

 

THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES.

 

THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.

 

7

 

IN WITNESS WHEREOF, this Amendment is
executed as of the date first above written.

 

 

	
   

  	
  FIELDSTONE MORTGAGE COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
   /s/ Mark C. Krebs

  	
   

  
	
   

  	
   

  	
  Name: Mark C. Krebs

  	
   

  
	
   

  	
   

  	
  Title: Sr. Vice President & Treasurer

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  GUARANTY BANK

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
   /s/ Carolyn Eskridge

  	
   

  
	
   

  	
   

  	
  Carolyn Eskridge

  	
   

  
	
   

  	
   

  	
  Senior Vice President

  	
   

  
					

 

 

EXHIBIT A

 

CONSENT AND AGREEMENT

 

FIELDSTONE
INVESTMENT CORPORATION hereby consents to the provisions of this Amendment and
the transactions contemplated herein, and hereby ratifies and confirms the
Guaranty and the Subordination Agreement, each dated as of December 31, 2003
and made by it for the benefit of Lender, and agrees that its obligations and
covenants thereunder are unimpaired hereby and shall remain in full force and
effect.

 

 

	
   

  	
  FIELDSTONE INVESTMENT CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert G. Partlow 

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Robert G. Partlow 

  
	
   

  	
   

  	
  Title:

  	
  Sr. Vice President & CFO

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