Document:

Exhibit 10.2

 

SECURITY
AGREEMENT

(Blanket
- All Business Assets)

 

This Security Agreement (Blanket - All Business Assets) (the “Agreement”) is dated for
reference purposes as of August 19, 2005 by POORE
BROTHERS, INC., a Delaware corporation (the “Borrower”) in favor of U.S. BANK NATIONAL ASSOCIATION, a national banking
association (the “Bank”).  Borrower ‘s
Organizational Identification Number is: 
DE-2483575.

 

Unless defined elsewhere in this Agreement, defined
terms used herein have the meanings given them in the Definitions Section
hereof.

 

Factual
Background

 

A.            Bank is extending credit and/or other financial
accommodations to Borrower, now and/or in the future, including a revolving line of credit loan in the
maximum principal amount of Five Million and No/100 Dollars ($5,000,000.00) (“Facility
1”) and a term loan in the principal amount of Seven Hundred Fifty Six Thousand
Six Hundred Two and 56/100 Dollars ($756,602.56) (“Facility 2”) (each,
individually, a “Loan” and collectively, the “Loans”).  The Loans are is being made under a loan
agreement (the “Loan Agreement”) between Bank and Borrower dated as of the date
hereof. 
Each Loan is
evidenced by a promissory note (the “Notes”) made payable to Bank in the
principal amount of such Loan,
is secured by the collateral described below, and may also be secured by other
collateral.

 

B.            This
Agreement, and all other documents which evidence, secure, or otherwise pertain
to any of the Obligations, including the Loans, collectively constitute the “Loan
Documents.” Capitalized terms used in this Agreement without definition have
the meanings given them in the Loan Agreement.  All
terms not defined herein or in the Loan Agreement shall have the meaning given them in the Uniform Commercial Code, as enacted
in the state of formation of the Borrower (or the state of domicile of the
Borrower, if Borrower is an individual), or under the Uniform Commercial Code
in any other state to the extent the same is applicable law (collectively, as
amended, recodified, and in effect from time to time, the “UCC”).  If
a term is defined differently in Article 9 of the UCC than in another Article,
Article 9 shall control.

 

C.            As
a material condition to Bank extending
credit and/or other financial accommodations to Borrower, including but not
limited to the Loans, Bank has required that Borrower pledge to Bank, and
create a security interest in favor of Bank, in and to all of the Collateral
described below, pursuant to the terms and conditions set forth below.

 

NOW
THEREFORE, in consideration of Bank’s agreement to extend credit and/or other financial
accommodations to Borrower, now and/or in the future, and for other
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrower and Bank hereby agree as follows:

 

AGREEMENT

 

Definitions:  The following capitalized words and terms
shall have the meanings set forth in the “Factual Background” section above, or
if not defined therein, shall have the following meanings when used in this
Agreement.  All references to dollar
amounts shall mean amounts in lawful money of the United States of
America.  Words and terms used in the
singular shall include the plural, and the plural shall include the singular,
as the context may require.

 

“Credit Facilities” means all extensions
of credit from the Bank to Borrower, whether now existing or hereafter arising,
including but not limited to the Loans described in Recital A
above.

 

“Insolvency Obligations” means all monetary
obligations incurred or accrued during the pendency of any Insolvency
Proceeding regardless of whether allowed or allowable in such proceeding.

 

“Insolvency Proceeding” means any
bankruptcy, receivership, or other voluntary or involuntary proceeding, in or
out of court, for the adjustment of debtor-creditor relationships

 

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“Obligations” means, collectively, all obligations, indebtedness, and liabilities of
Borrower to Bank, or any of
Bank’s Affiliates, successors or assigns, of
every kind and nature, including but not limited to all loans, advances,
interest, costs, drafts, overdrafts, checks, credit card indebtedness, lease
obligations, obligations under any Rate Management Agreement, and all other
debts, liabilities, and obligations of every kind owning by the Borrower to the
Bank, whether direct or indirect, voluntary or involuntary, due or not due,
absolute or contingent, liquidated or unliquidated, of the same or a different
nature, whether now existing or hereafter incurred or created, or whether
incurred directly or acquired by Bank by assignment or otherwise, together with
all renewals, extensions, modifications, consolidations, and substitutions of
any of the them, including interest thereon and all costs, expenses, and
reasonable attorney’s fees paid or incurred by Bank at any time before or after
judgment in attempting to collect any of the foregoing, to realize on any
collateral securing any of the foregoing, to realize on any guaranty or
indemnity executed in connection with the foregoing, and to enforce this
Agreement.  The “Obligations”
specifically include, but are not limited to, all indebtedness of Borrower to Bank under the Credit Facilities, and all
advances made by Bank to or for the benefit of Borrower thereunder.  The “Obligations” also specifically include
all Insolvency Obligations and all Surrendered Payments. .  Unless Borrower shall have otherwise agreed
in writing, for the purposes of this Agreement, “Obligations” shall not include
“consumer credit” subject to the disclosure requirements of the Federal Truth
in Lending Act or any regulations promulgated thereunder.

 

“Rate Management Agreement” means any rate
lock agreement or interest rate protection agreement (such as any
interest rate swap agreement, International Swaps and Derivatives Association,
Inc. Master Agreement, or similar agreement or arrangements now existing or
hereafter entered into by Trustor and
Beneficiary in connection with the Loan evidenced by the Note to hedge the risk
of variable rate interest volatility or fluctuations in interest rates as any
such agreement or arrangement may be modified, supplemented and in effect from
time to time).

 

“Surrendered Payments” means, collectively, the amount of any payments made to Bank or any
other party on behalf of Borrower (including payments resulting from
liquidation of collateral) which are recovered from the Bank by a trustee,
receiver, creditor, or other party pursuant to applicable federal or state law.

 

1.             Assignment
and Grant of Security.  For the purpose of securing payment and
performance of the Obligations, including the prompt payment and
performance of all obligations and indebtedness of Borrower to Bank under the Loan
Documents, and all renewals, extensions, modifications, amendments,
and/or supplements thereto, in such order
of priority as Bank may determine in its sole and absolute discretion, Borrower
hereby irrevocably and unconditionally assigns, grants, pledges,
transfers, and sets over to Bank, and there is hereby created a security
interest in favor of Bank, in and to all Borrower’s right, title, and interest
in, to, and under all of the following, whether now or hereafter existing, or
now owned or hereafter acquired (all or any
part of such property, or any interest in all or any part of it, as the context
may require, the “Collateral”):

 

1.1          All
assets of Borrower, including all personal and fixture property of every kind
and nature including but not limited to those specifically described below.

 

1.2          All
of the following, whether now owned or hereafter acquired by Borrower:  accounts (including health-care-insurance
receivables) and other rights of Borrower to the payment of money no matter how
evidenced, including but not limited to accounts receivable, pledges receivable,
grants receivable, capital campaign receivables, and any other receivables,
contract rights, instruments, documents, promissory notes, certificates of
deposit, chattel paper (whether tangible or electronic), deposit accounts,
letter-of-credit rights (whether or not the letter of credit is evidenced by a
writing), supporting obligations, and general intangibles of every nature, all
permits, regulatory approvals, copyrights, copyright applications, patents,
trademarks, trademark applications, service marks, trade names, software,
symbols, mask works, engineering drawings, customer lists, goodwill, licenses,
permits, all agreements of any kind or nature by which Borrower possesses,
uses, or has authority to possess or use property (whether tangible or
intangible) of others or others possess, use, or have authority to possess or
use property (whether tangible or intangible) of Borrower, all recorded data of
any kind or nature (regardless of the medium of recording) including but not
limited to all software, writings, plans, specifications, and schematics, and
all other intellectual property owned by Borrower or used in Borrower’s
business.

 

1.3          All
fixed assets, machinery, furniture, fixtures, and other equipment of every type
now owned or hereafter acquired by Borrower.

 

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1.4          All inventory now owned or hereafter acquired by
Borrower, including, without limitation, all raw materials, work in process, materials
used or consumed in Borrower’s business, finished goods, and supplies.

 

1.5          All other property
of Borrower now or hereafter in the
possession, custody, or control of Bank, including, without limitation, all
deposit accounts of Borrower with
Bank, and all property of Borrower in
which Bank now has or hereafter acquires a security interest.

 

1.6          All investment
property, including all investment securities and investment securities
accounts (each, and “ISA”), now owned or hereafter acquired, together with all assets and investment of any kind or nature
now or hereafter held in each ISA, including cash, certificated or
uncertificated securities, notes, instruments, documents, general intangibles,
and commercial paper, together with (a) all new substituted and
additional documents, instruments, and general intangibles issued with respect
thereto, (b) all voting and rights to and interest in all cash, non-cash
dividends and all other property now or hereafter distributable on account of
or receivable with respect thereto, (c) interest
thereon, stock and subscription rights; dividends and dividend rights; and new
securities or other property the Borrower receives in connection therewith,
which the Borrower agrees to deliver to the Bank immediately, and (d) all proceeds thereof, including, without
limitation, proceeds consisting of cash, dividends (including dividends
consisting of stock), stock splits, distributions, interest, certificated or
uncertificated securities, notes, instruments, documents, general intangibles,
commercial paper, and any other earnings of whatever nature.

 

1.7          All tort claims and insurance claims and
proceeds, including commercial tort claims.

 

1.8          All software embedded within or used in connection
with any of the above-described property.

 

1.9          All negotiable and nonnegotiable documents of
title now owned or hereafter acquired by Borrower covering any of the
above-described property.

 

1.10        All rights under contracts of insurance now owned
or hereafter acquired by Borrower covering any of the above-described property.

 

1.11        All books and records now owned or hereafter
acquired by Borrower pertaining to any of the above-described property,
including but not limited to any computer-readable memory and any computer
hardware or software (including embedded software) necessary to process such
memory (collectively, the “Books and Records”).

 

1.12        All products, rents, and profits now owned or
hereafter acquired by Borrower of any of the above-described property.

 

1.13        All
cash and non-cash proceeds of, additions
and accretions to, substitutions and replacements for, and changes in  any of the above-described property (collectively,
“Proceeds”), including without limitation (i) all interest and dividends
earned on the Proceeds; (ii) all monies and other tangible or intangible
property received upon a sale or other disposition of any of the Proceeds; (iii)
all rights to payment in connection with any cause of action with respect to
any Proceeds and all proceeds of any
voluntary or involuntary disposition or claim respecting any of the
foregoing (arising out of any judgment or
award, or otherwise arising) and (iv) all goods, documents, general
intangibles, chattel paper and accounts, wherever located, acquired with cash
proceeds of any of the foregoing or its proceeds, and all supporting
obligations ancillary to or arising in any way in connection with any of the above-described property.

 

2.             Further
Assurances; Authorization to File Financing Statements; Attorney-in-Fact.

 

2.1          Further Assurances. 
Borrower agrees that, from time to time, at its own expense, it will:

 

(a)           Protect
and defend the Collateral against all claims and demands of all persons at any
time claiming the same or any interest therein, and preserve and protect Bank’s
security interest in the Collateral.

 

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(b)           Promptly
execute and deliver to Bank all instruments and documents, and take all further
action necessary or desirable, as Bank may reasonably request to (i) correct
any defect, error, or omission which may be discovered in the contents,
execution, or acknowledgment of this Agreement; (ii) continue, perfect, or
protect any security interest granted or purported to be granted hereby, and
(iii)  enable Bank to exercise and enforce any of its rights and remedies
hereunder with respect to any Collateral. 
Such actions may include but not be limited to executing,
authenticating, authorizing, acknowledging, delivering, procuring, and
recording and/or filing such further documents (including, without limitation,
further security agreements, financing statements, financing statement
amendments, and continuation statements), and doing such further acts as may be
necessary, desirable, or proper to (A) carry out more effectively the purposes
of this Agreement or (B) more fully identify and subject to the liens and
security interests hereof any property intended to be covered hereby (including
specifically, but without limitation, any renewals, additions, substitutions,
or replacements, of or to the Collateral), (C) protect the lien or the security
interest hereunder against the rights or interests of third persons, and/or (D)
enable Bank to exercise and enforce any of its rights and remedies hereunder
with respect to any Collateral.

 

(c)           Permit
Bank’s representatives to inspect and make copies of all Books and Records
relating to the Collateral, wherever such Books and Records are located, and to
conduct an audit relating to the Collateral at any reasonable time or times.

 

(d)           Provide, promptly on request of Bank,
such certificates, documents, reports, information, affidavits, and other
instruments to Bank, and do such further acts as may be necessary, desirable,
or proper in the reasonable determination of Bank, to enable Bank to comply
with the requirements or requests of any agency having jurisdiction over Bank,
and/or any examiners of such agencies, with respect to the Obligations,
Borrower, or the Collateral.

 

2.2          Authorization to File
Financing Statements.  Borrower hereby irrevocably
authorizes Bank at any time, and from time to time, to file in any Uniform
Commercial Code jurisdiction, any initial financing statements, amendments
thereto, and continuation statements with or without signature of Borrower as
authorized by applicable law, as applicable to the Collateral.  Except to the extent expressly prohibited by
applicable law, a carbon, photographic,
facsimile, or other reproduction of this Agreement or any financing statement
shall be sufficient as a financing statement. 
For purposes of such filings, Borrower agrees to furnish any
information requested by Bank promptly upon request by Bank.  Borrower also ratifies its authorization for
Bank to have filed any like initial financing statements, amendments thereto,
or continuation statements if filed prior to the date of this Agreement.

 

2.3          Attorney-in-Fact;
Exercise of Rights.  Borrower
hereby irrevocably constitutes and appoints Bank, including any officer or
agent of Bank, with full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power and authority in the place and
stead of Borrower, or in Borrower’s own name, to execute any such documents and
to otherwise carry out the purposes of this Agreement, to the extent that
Borrower’s authorization above is not sufficient.  To the extent not expressly prohibited by
law, Borrower hereby ratifies and affirms all acts said attorneys-in-fact shall
lawfully do, have done in the past or cause to be done in the future by virtue
hereof.  This power of attorney is a
power coupled with an interest and shall be irrevocable.  Additionally,
effective upon the occurrence of a Event of Default under this
Agreement, Borrower hereby irrevocably appoints Bank as its attorney-in-fact,
to demand, receive, and enforce Borrower’s rights with respect to the
Collateral, including the protection thereof, and to give appropriate receipts,
releases, and satisfactions for and on behalf of, and in the name of,
Borrower.  Such powers are deemed to be coupled with an interest, and are therefore
irrevocable.  Any third party may
rely on representations of Bank that an Event of Default exists hereunder or
that the power of attorney hereby granted by Borrower to Bank is effective,
without further inquiry.  In addition to
the foregoing facilitate Bank’s exercise of the rights and remedies set forth
herein, Borrower authorizes Bank to (a) enter any premises where any Books or
Records relating to the Collateral may be located, at reasonable times and
following reasonable notice, for the purpose of inspecting, and/or copying any
documents, files, and records relating to the Collateral, and to use such supplies
and space of Borrower at its places of business as may be reasonably necessary
to administer and control the Collateral or the handling of collections and
realizations thereon, (b) give notices to and to communicate with any party in
possession or control of any of the Collateral with respect to such Collateral,
and (c) take all steps and to institute (in Bank’s name or Borrower’s name) all
actions and proceedings deemed necessary or advisable by Bank to effect the
collection or realization upon any of the Collateral.

 

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3.             Borrower’s Representations and Warranties.  Borrower
promises that each representation and warranty set forth below is and will be
true, accurate, and correct:

 

3.1          Authority;
Enforceability.  Borrower’s exact legal name and correct
organizational identification number is correctly set forth in the introductory
paragraph of this Agreement.  If Borrower is not an individual, Borrower has
complied with any and all laws and regulations concerning its organization,
existence, and the transaction of its business. 
Borrower has the right, power, and authority to make this Agreement and
to grant the security interests granted hereunder.  When fully executed, this Agreement will
create a valid and enforceable first-priority
security interest in the Collateral, except to the extent previously disclosed
in writing to Bank.

 

3.2          No
Violation; Compliance With Law. 
The execution and delivery of this Agreement and performance by Borrower
of its obligations hereunder will not result in a default under any other
material agreement to which Borrower is a party. To the best of Borrower’s
knowledge and belief, Borrower is in full compliance with all applicable
federal, state, and local statutes, rules, and regulations pertaining to the
Collateral.

 

3.3          No
Consent of Action Required.  To
the best of Borrower’s knowledge and belief, no authorization, consent,
approval, other action by, notice to, or filing with, any governmental
authority, regulatory body, or any other person or entity is required for the
execution of this Agreement or the grant or perfection of the security
interests granted herein, except any written consent attached hereto or
otherwise previously provided by Borrower to Bank.  There exist no restrictions on Borrower’s
ability to pledge and assign such Collateral to Bank by virtue of any
arrangement or agreement with any other third party.

 

3.4          No
Other Pledge.  Except as previously disclosed in
writing to Bank, Borrower is the sole legal and equitable owner and
holder of all right, title, and interest in and to all of the Collateral, free and clear of any liens,
encumbrances, or interests of third parties, other
than those in favor of Bank, specifically allowed pursuant to the terms
of the Loan Documents, or otherwise agreed to in writing by Bank.  Borrower has not pledged or assigned any of
its right, title, or interest in or to all or any portion of the Collateral to any other person or entity.

 

3.5          Use
of Secured Obligations.  The
Obligations, including all loans secured hereby, are solely for business and/or
investment purposes, and are not intended for personal, family, household, or
agricultural purposes.  All loans secured
hereby are considered and construed for all purposes as commercial loans.  The proceeds of the Obligations shall be used
for commercial purposes.

 

3.6          Collateral Attributes.  Except
as previously
disclosed in writing to Bank, (i) none of the account debtors or other persons
obligated on any of the Collateral is a governmental authority subject to the
Federal Assignment of Claims Act or any similar federal, state, or local law,
rule, or regulation with respect to such Collateral, and (ii) to the best of
Borrower’s knowledge and belief, Borrower holds no commercial tort claims.  To the best of Borrower’s knowledge
and belief, except as otherwise disclosed to Bank in writing prior to the
execution of this Agreement, each of the presently existing Collateral
Documents (as such term is defined below) is genuine, valid, in full force and
effect, and enforceable against all applicable parties in accordance with its
terms (except to the extent that enforceability is limited by bankruptcy,
insolvency, or other laws affecting the enforcement of creditors’ rights
generally).

 

3.7          Borrower Location and Information.  Borrower’s
correct organizational identification number if any, assigned by the state of
incorporation or organization is correctly set forth in the introductory
paragraph of this Agreement.  Borrower is an organization of the type and
(if not an unregistered entity) is incorporated in or organized under the laws
of the state specified in the introductory paragraph of this Agreement.  Borrower’s
principal place of business and chief executive office, and the place where Borrower keeps its books and records, has
for the preceding four (4) months (or, if less, the entire period of the
existence of Borrower) been and will
continue to be (unless Borrower
notifies Bank of any change in writing at least thirty (30) days prior to the date
of such change) at the address or addresses specified on the signature page of
this Agreement, and (d) if such Borrower is an unregistered entity (including,
without limitation, a general partnership) it is organized under the laws of
the state specified in the introductory paragraph of this Agreement.

 

4.             Borrower’s Covenants.  Borrower
covenants and warrants that unless compliance is waived by Bank in writing:

 

5

 

4.1          Collateral Preservation.  Borrower
will properly preserve the Collateral, keep the Collateral in good order and
repair, keep accurate Books and Records, protect and defend the
Collateral against all claims and demands of all persons at any time claiming
the same or any interest therein, and preserve and protect Bank’s security
interest in the Collateral.

 

4.2          No Liens.  Borrower
has not granted and will not grant any security interest in any of the
Collateral except to Bank and except for any other security interests
specifically allowed pursuant to the terms of Loan Documents or otherwise
agreed to in writing by Bank, and will keep the Collateral free of all liens,
claims, security interests, and encumbrances of any kind or nature, except the
security interest of Bank and other security interests specifically allowed
pursuant to the terms of Loan Documents or otherwise agreed to in writing by
Bank.

 

4.3          Restriction on Assignment or
Transfer.  Borrower will not sell, convey, lease,
assign, encumber, pledge, or otherwise transfer or dispose of all or any
portion of the Collateral, or any interest therein, whether such transfer is
voluntary, involuntary, by operation of law, or otherwise, except for (a) those
transfers of Collateral, if any, specifically
allowed pursuant to the terms of Loan Documents or otherwise agreed to in
writing by Bank, and (b) so long as no Event of Default has occurred and is
continuing hereunder, inventory sold or supplies used in the ordinary course of
Borrower’s business.  The foregoing
restriction on transfer specifically includes transfers to any trust.   Any attempted transfer of any
Collateral, or any interest therein, which is not specifically authorized
pursuant to the terms of this Agreement or otherwise consented to by Bank in
writing shall be null and void and of no force or effect for any purpose
whatsoever.

 

4.4          Collateral Documents; Actions
Without Consent.  Borrower will not (i) amend,
supplement, terminate, or otherwise modify any contract or other document or
instrument now or hereafter included in the Collateral (each, a “Collateral
Document” and collectively, the “Collateral Documents”); (ii) release,
relinquish, or waive any right, or grant any approval or consent, with respect
to any Collateral Document; (iii) enter into any new agreement with respect to
any Collateral; or (iv) take any other action with respect to any Collateral
which is inconsistent with this Agreement or which could impair Bank’s
interests hereunder, except as may be specifically
allowed pursuant to the terms of Loan Documents or otherwise agreed to in
writing by Bank.  Any such
termination, modification, waiver, approval, or other action taken which is not
specifically authorized pursuant to the terms of this Agreement shall, at Bank’s
option, be null and void and of no force or effect for any purpose whatsoever.

 

4.5          Defense of Proceedings; Payments
of Taxes, Assessments, and Charges. Borrower shall, at Borrower’s sole expense, defend all actions,
proceedings and other claims affecting the Collateral, including without
limitation actions, proceedings, and claims challenging Borrower’s title to the
Collateral or the validity or priority of Bank’s rights hereunder.  Borrower shall promptly pay all taxes and other
governmental charges, and all license fees, and other public and private
charges, levied or assessed upon or against
any of the Collateral (if any) or upon or against the creation, perfection or
continuance of the Bank’s security interest created hereunder, as well as all
other claims of any kind against or with respect to the Collateral, except to
the extent (a) such taxes, charges or claims are being contested in good faith
by appropriate proceedings, (b) such proceedings do not involve any material
danger of the sale, forfeiture or loss of any of the Collateral or any interest
therein, and (c) such taxes, charges or claims are adequately reserved against
on the Borrower ‘s books in accordance with generally accepted
accounting principles.

 

4.6          Location and Identification.  If
Borrower is an individual, Borrower’s will not change its principal
residence unless Borrower notifies
Bank of any change in writing at least thirty (30) days prior to the date of
such change, and shall have first taken all action required by Bank for the
purpose of further perfecting or protecting the lien and security interest of
Bank in the Collateral.  If Borrower is not an individual, Borrower will not cause or permit any
change to be made in (a) its name, identity, or corporate, partnership, limited
liability company, or other entity structure, (b) its jurisdiction on
organization (c) its organizational identification number, (d) its place of
business or, if more than one, its chief executive office, or (e) its mailing
address, or (f) any change in the location
of  any Collateral, including the
Books and Records, unless Borrower
shall have notified Bank in writing of such change at least thirty (30) days
prior to the effective date of such change, and shall have first taken all
action required by Bank for the purpose of further perfecting or protecting the
lien and security interest of Bank in the Collateral.  If Borrower
does not have an organizational identification number and later obtains one,
Borrower shall promptly notify Bank of such organizational identification
number.

 

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4.7          Books and Records; Collateral. Borrower will keep accurate and complete
Books and Records with respect to the Collateral, and shall, if required by
Bank from time to time, promptly deliver reports to Bank with respect to the
Collateral in form and substance satisfactory to Bank in its sole and absolute
discretion.  Borrower will permit Bank’s representatives to inspect the
Collateral and/or make copies of, and /or extracts from, all Books and Records,
wherever such Books and Records are located, and to conduct an audit relating
to the Collateral at any reasonable time or times.  Upon the
request of Bank, Borrower will deliver to Bank (a) copies of or extracts
from the Books and Records, and (b) information on any matters affecting the
Collateral.

 

4.8          Compliance With Law; Notice of Material Events.  Borrower will not use any of
the Collateral in violation of any applicable law or regulation, or in
violation of any policy of insurance thereon. 
Borrower will promptly notify Bank in writing of any event which affects
the value of the Collateral, the ability of Borrower or Bank to dispose of the
Collateral, or the rights and remedies of Bank in relation thereto, including
but not limited to, the levy of any legal process against any Collateral and
the adoption of any marketing order, arrangement, or procedure affecting the
Collateral, whether governmental or otherwise.

 

4.9          Attachment.  Borrower
will not attach any Collateral to any real property or fixture in a manner
which might cause such Collateral to become a part thereof unless Borrower
first obtains the written consent of any owner, holder of any lien on the real
property or fixture, or other person having an interest in such property to the
removal by Bank of the Collateral from such real property or fixture.  Such written consent shall be in form and
substance acceptable to Bank and shall provide that Bank has no liability to
such owner, holder of any lien, or any other person.

 

4.10        Insurance.  Borrower
will maintain and keep in force insurance covering Collateral designated by
Bank against fire and extended coverages. 
Such insurance shall require losses to be paid on a replacement cost
basis, be issued by insurance companies acceptable to Bank and include Bank’s
standard form Certification and Material Change Endorsement and Commodity Loss
Payable Endorsement, or such other material change and/or loss payable
endorsements in favor of Bank requested by Bank, all in a form and substance
acceptable to Bank in its sole and absolute discretion.

 

4.11        Delivery of Documents; Collection.  If any
Collateral is or becomes the subject of any registration certificate or
negotiable document of title including any warehouse receipt or bill of lading,
Borrower shall immediately deliver such document to Bank.  If requested by Bank, Borrower will deliver to Bank any instruments, certificates
of deposit, or chattel paper.  If requested by Bank, Borrower will segregate all collections and proceeds of the Collateral so that they are
capable of identification and deliver daily such collections and proceeds to
Bank in kind, and/or direct all account debtors to forward all payments and
proceeds of the Collateral to a post office box under Bank’s exclusive
control.  To the extent that any of the
Collateral consists of accounts, promissory notes, instruments, or other items for which payments are due or
coming due, unless otherwise agreed in writing by Bank, until Bank exercises
its rights to make collection, Borrower will diligently collect such
Collateral.

 

5.             Obligations of
Bank with Respect to Collateral. 
Neither Bank’s acceptance of the assignment and security interests
granted hereunder nor any exercise by Bank of its rights and remedies hereunder
shall be deemed to be an assumption by Bank of any obligation or liability of
Borrower with respect to any Collateral or under the terms of any Collateral
Document, and Borrower shall indemnify, defend, and hold Bank harmless for,
from, and against any and all actions, suits, claims, demands, liabilities, losses,
damages, obligations, and costs or expenses, including litigation costs and
reasonable attorneys’
fees, arising from or in any way connected with any such obligation or
liability.  Bank’s obligations with
respect to Collateral in its possession shall be limited to the duty to
exercise reasonable care in the custody and preservation of such Collateral; provided,
however, that Bank shall have no duty to take any steps to preserve the
rights of Borrower against other persons, or to initiate any action to protect
any Collateral.  Upon any transfer by
Bank of any or all of the Obligations, Bank may transfer any or all of the
Collateral and shall thereupon be fully discharged of liability and
responsibility with respect to the Obligations and/or Collateral so transferred;
but Bank shall retain all applicable rights and interest hereunder with respect
to any Obligations and/or Collateral not then transferred.

 

7

 

6.             Defaults
and Remedies.

 

6.1          Events of Default.   Borrower
will be in default under this Agreement upon the occurrence of any one or more
of the following events (each an “Event of Default”):

 

(a)           A default or Event of Default occurs under any of the Loan Documents (as
defined in the applicable document, subject to applicable notice and cure
periods).

 

(b)           Borrower fails to comply with any of the terms and conditions of this
Agreement within ten (10) days after Bank’s written demand.

 

(c)           Any representation or warranty made or given by Borrower in this Agreement
proves to be false or misleading in any material respect.

 

(d)           Any involuntary lien of any kind or character attaches to any
Collateral.

 

(e)           Borrower
becomes insolvent or the subject of any bankruptcy or other voluntary or
involuntary proceeding, in or out of court, for the adjustment of
debtor-creditor relationships (an “Insolvency Proceeding”), or Borrower
consents to the appointment or taking of possession by a receiver (or similar
official) of Borrower, or its property, or Borrower makes an assignment for the
benefit of creditors; provided, however, that an involuntary
Insolvency Proceeding shall not be considered an Event of Default hereunder if
it is either (i) consented to in writing by Bank, or (ii) has been
dismissed within ninety (90) days of the filing thereof.

 

6.2          Remedies.  If an Event of Default occurs under this
Agreement, Bank may exercise any right or remedy available at law or in equity
or by statute, including but not limited to all rights, powers and remedies of
an owner and as a secured party under the UCC, and all of Bank’s rights and
remedies shall be cumulative.  Bank’s
rights and remedies, each of which may be exercised with or without further
notice to Borrower, shall specifically include, without limitation, the right
to: (a) exercise all rights and remedies available upon the occurrence of an
Event of Default under any Loan Document, including without limitation the
right to declare any and/or all Obligations immediately due and payable and to
foreclose Bank’s security interests in any and/or all Collateral by any means
allowed by law, with or without judicial process; (b) notify any person
obligated with respect to any Collateral that the same has been assigned to
Bank and that all payments thereon are to be made to Bank, and (c) renew,
extend, amend, or otherwise modify any Collateral Document (subject to any
required consents of third parties required pursuant to the terms thereof) and
to otherwise exercise rights and remedies and act with respect to any
Collateral as if it were the owner thereof.

 

Without
limiting the foregoing, Bank’s rights after an Event of Default hereunder
specifically include it’s right, at its option to: (i) declare any Obligations, including any Credit Facility,
immediately due and payable, without notice or demand, (ii) enforce the
security interest given hereunder pursuant to the UCC and/or any other applicable law, (iii) enforce the
security interest of Bank, or exercise any right of setoff, in any deposit
account of Borrower by applying such account to the Obligations in such order
and manner as Bank shall determine, (iv) grant extensions and compromise or
settle claims with respect to the Collateral for less than face value, all
without prior notice to Borrower, (v) have a receiver appointed by any court of competent jurisdiction to take
possession of all or any portion of the Collateral, and/or (vi) take
such measures as Bank may deem necessary or advisable to take possession of,
hold, preserve, process, assemble, insure, prepare for sale or lease, market
for sale or lease, sell or lease, or otherwise dispose of any Collateral (each
a “Collateral Disposition”).

 

6.3          Other Rights of Bank.

 

(a)           The remedies
provided herein in favor of Bank are not exclusive, but are cumulative and in
addition to all other remedies in favor of Bank existing under the Loan
Documents, and at law or in equity. 
Without limiting the foregoing, Bank may exercise its rights with
respect to a portion of the Collateral without exercising its rights with
respect to any other portion of the Collateral, and may exercise any of its
rights under this Agreement without any obligation to enforce any of its rights
to any other security for the Obligations.

 

(b)           Bank may comply
with any applicable federal, state, or local law or regulatory requirements in
connection with a disposition of the Collateral, and such compliance will not
be considered to affect adversely the commercial reasonableness of any sale of
the Collateral.  Bank may sell the Collateral
without giving any warranties as to the Collateral, and specifically disclaim
any warranties of title,

 

8

 

merchantability, fitness for a specific purpose or the like, and this
procedure will not be considered to affect adversely the commercial
reasonableness of any sale of the. 
Borrower acknowledges that a private sale of the Collateral may result
in less proceeds than a public sale. 
Borrower acknowledges that the Collateral may be sold at a loss to
Borrower, and that, in such event, Bank shall have no liability or
responsibility to Borrower for such loss.

 

(c)           Upon any public or
private sale of all or any portion of the Collateral, (i) Bank may bid for and
purchase the Collateral being sold, and, upon compliance with the terms of
sale, may hold, retain, possess, and dispose of such Collateral in its own
absolute right without further accountability, and (i) all rights, title,
interests, claims, and demands whatsoever, either at law or in equity, of
Borrower of, in, and to the property so sold will be divested; such sale will
be a perpetual bar both at law and in equity against Borrower, its successors
and assigns.  Borrower shall make and
deliver to the purchaser or purchasers a good and sufficient deed, certificate,
bill of sale, and instrument of assignment and transfer of the Collateral
sold.  To the extent it may do so
lawfully, Borrower each agree not to insist upon, plead, claim, or take the
benefit or advantage of, at any time, or in any manner whatsoever, any
appraisement, valuation, stay, extension, or redemption laws, or any law
permitting them to direct the order in which the Collateral or any portion
thereof will be sold, now or at any time hereafter in force, which may delay,
prevent, or otherwise affect the performance or enforcement of the this
Agreement, and Borrower hereby expressly waives all benefit or advantage of any
such laws, and covenant that it will not hinder, delay, or impede the execution
of any power granted or delegated to Bank in this Agreement, but will suffer and
permit the execution of every such power as though no such laws were in force.

 

(d)           Following an Event of Default, Bank is expressly
granted the right, at its option, to transfer the Collateral, or any part
thereof, to itself, or its nominee, and to receive the payments, collections,
monies, income, proceeds, attributable or accruing thereto, and to hold same as
security for the Obligations, or to apply same to the Obligations secured by this Agreement in
such order and manner as Bank shall determine in its sole and absolute
discretion. 
Except to the extent expressly prohibited by law, the right of Bank to
take possession of the Collateral following an Event of Default hereunder may
be exercised without resort to any court proceeding or judicial process, and
without any hearing, whatsoever. 
Borrower expressly waives any and all rights (i) with regard to judicial
process or hearing prior to the exercise of Bank’s right to take possession and
control of the Collateral after an Event of Default, and (ii) to marshalling of
assets, including such right with respect to the Collateral.

 

(e)           Borrower agrees that Bank may at its option at any time, whether or not
Borrower is in default, notify
any account debtors, any buyers of the Collateral, or any other persons of Bank’s
interest in the Collateral.  Bank is expressly granted the right, at its
option, following an Event of Default, to demand and collect any payments and proceeds of the Collateral.  In connection with the foregoing,
Borrower irrevocably authorizes Bank, and
irrevocably appoints Bank as Borrower’s attorney-in-fact, with full power of
substitution, to endorse or sign Borrower’s name on all checks, drafts,
collections, receipts, and other documents, and to take possession of and open
the mail addressed to Borrower and remove therefrom any payments and proceeds
of the Collateral, such appointment being a
power coupled with an interest.

 

(f)            In connection with any
Collateral Disposition, Bank may (A) require
Borrower to assemble all of any portion of the Collateral and make them
available to Bank at a place designated by Bank, and/or enter upon the property
where any such Collateral is located and take possession of such Collateral,
and use such property (including any buildings and facilities) and any of Borrower’s
equipment, if Bank deems such use necessary or advisable for or in connection
with such Collateral Disposition, and/or (B) use or transfer, without
any additional consideration to Borrower, any of Borrower’s rights and
interests in any Intellectual Property now owned or hereafter acquired by
Borrower, including, but not limited to, all trade secrets, computer software,
service marks, trademarks, trade names, trade styles, copyrights, patents,
applications for any of the foregoing, customer lists, working drawings,
instructional manuals, and rights in processes for technical manufacturing,
packaging and labeling in which Borrower has any right or interest, whether by
ownership, license, contract or otherwise, if Bank deems such use or transfer
necessary or advisable for or in connection
with such Collateral Disposition.  Borrower
hereby irrevocably constitutes and appoints Bank as Borrower’s
attorney-in-fact, with full power of substitution, to perform all acts and
execute all documents in connection with any Collateral Disposition, such
appointment being a power coupled with an interest.

 

(g)           Borrower agrees to take
all steps necessary to avoid the violation of any current and future securities
laws, and consents to any steps Bank takes to avoid violation of the same.  Borrower h further agrees to enter into any
amendments hereto that Bank may reasonably request to avoid the violation of
such

 

9

 

laws.  Borrower recognizes that,
due to certain prohibitions contained in the Securities Act of 1933, as
amended, or other applicable securities laws, Bank may, with respect to any
securities, consider it advisable to resort to one or more private sales to a
restricted group of purchasers who will agree to acquire any securities for
their own accounts for investment and not to engage in a distribution of resale
thereof, and that private sales so made may be at prices and on other terms
less favorable to the seller than if such securities were sold at public sale.  Borrower acknowledges that the price received
for the purchase of such Collateral may be substantially lower than Borrower
might have negotiated under other circumstances, and Borrower agrees that such
procedures are commercially reasonable. 
If a deficiency remains due, Borrower must pay the same promptly to
Bank.

 

6.4          Setoff. 
As additional security for the Obligations, including the payment and
performance of all obligations of Borrower under the Loan Documents,
Borrower hereby grants Bank a security interest in, a lien on, and an express
contractual right to set off against each account (including all deposit
accounts), including all depository account balances, cash, and any other
property of Borrower, now or hereafter in the possession of Bank and the right
to refuse to allow withdrawals from any account.  Bank may, at any time upon the occurrence of
any default or Event of Default, or an event that, with notice or the passage
of time, or both, could become an Event of Default, under this Agreement or any
other Loan Document, setoff against any amounts outstanding under the
Obligations, whether or not any of the Obligations are then due or have been
accelerated, all without any advance or contemporaneous notice of demand of any
kind to Borrower, such notice and demand being expressly waived.

 

6.5          Surrendered Payments.  In the
event that Bank makes any Surrendered Payment, including pursuant to a
negotiated settlement, the Surrendered Payments, the Surrendered Payments shall
immediately and automatically without any further action required on behalf of
Bank or any other party, be reinstated as Obligations, regardless of whether
this Agreement has been terminated, cancelled, or released pursuant to its
terms or otherwise and regardless of whether Bank has surrendered, terminated,
cancelled, or released this Agreement prior to returning any Surrendered
Payments

 

7.             Miscellaneous
Provisions.

 

7.1          No
Waiver; Consents.  Each waiver by
Bank shall be in writing, and no waiver may be construed as a continuing waiver.  No waiver will be implied from Bank’s delay
in exercising or failure to exercise any right or remedy against any party or
any security.  Bank’s consent to any act
or omission by Borrower may not be construed as a consent to any other or
subsequent act or omission or as a waiver of the requirement for Bank’s consent
to be obtained in any future or other instance.

 

7.2          Purpose
and Effect of Bank Approval. 
Bank’s approval of any matter in connection with this Agreement is for
the sole purpose of protecting Bank’s security and rights.  No such approval will result in a waiver of
any default of Borrower.  In no event may
Bank’s approval be a representation of any kind with regard to the matter being
approved.

 

7.3          Notices.  All notices given under this Agreement shall
be in writing and be given by personal delivery, overnight receipted courier
(such as Airborne or Federal Express) or by registered or certified United
States mail, postage prepaid, sent to the party at its address appearing below
its signature.  Notices shall be
effective upon the first to occur of receipt, when proper delivery is refused,
or the expiration of forty-eight (48) hours after deposit in registered or
certified United States mail as described above.  Addresses for notice may be changed by any
party by notice to any other party in accordance with this Section.  Service of any notice on any general partner
of Borrower is effective service on such party for all purposes.

 

7.4          Actions.  If Borrower fails to perform any agreement
contained herein, Bank may itself perform, or cause the performance of, such
agreement, and the reasonable expenses of Bank incurred in connection therewith
shall be payable by the applicable non-performing party.  Bank also shall have the right, but not the
obligation, to commence, appear in, and defend any action or proceeding that
might affect its security hereunder. 
Borrower shall pay promptly on demand all of Bank’s reasonable
out-of-pocket costs, expenses and legal fees and expenses of Bank’s counsel
incurred in those actions or proceedings.

 

7.5          Dispute
Resolution.  Disputes under this
Agreement shall be resolved in the manner specified in the Loan Agreement.

 

10

 

7.6          Attorneys’
Fees.  In any lawsuit or arbitration
arising out of or relating to this Agreement, the Loan Documents, or the Loans,
the prevailing party will be entitled to recover from each other party such
sums as the court or arbitrator adjudges to be reasonable attorneys’ fees in
the action or arbitration, in addition to costs and expenses otherwise allowed
by law.  In all other actions or
proceedings, including any matter arising out of or relating to any Insolvency
Proceeding, Borrower agrees to pay all of Bank’s costs and expenses, including
reasonable attorneys’ fees, incurred in enforcing or protecting Bank’s rights
or interests.  From the time(s) incurred
until paid in full to Bank, all such sums shall bear interest at the Default
Rate.  Whenever Borrower is obligated to
pay or reimburse Bank for any attorneys’ fees, those fees include the allocated
costs for services of in-house counsel, to the extent not prohibited by
applicable law.

 

7.7          Governing
Law.  This Agreement shall be governed by and construed according to the laws
of the State of Arizona, without regards to the choice of law rules of
that state, except (a) to the extent that any of such laws may now or hereafter
be preempted by Federal law, and (a) as
otherwise required by mandatory provisions of law, and (c) to the extent that
remedies provided by the laws of any jurisdiction other than the such state are
governed by the laws of such other jurisdiction.  Borrower consents to the jurisdiction of any
Federal or State court within such state, submits to venue in such state, and
also consents to service of process by any means authorized by Federal law or
the law of such state.  Without limiting the generality of the foregoing,
Borrower hereby waives and agrees
not to assert by way of motion, defense, or otherwise in such suit, action, or
proceeding, any claim that (i) Borrower is not subject to the jurisdiction of the courts of the
above-referenced state or the United States District Court for such state, or
(ii) such suit, action, or proceeding is brought in an inconvenient forum, or
(iii) the venue of such suit, action, or proceeding is improper.

 

7.8          Heirs,
Successors and Assigns.  The
terms of this Agreement will bind and benefit the heirs, legal representatives,
successors and assigns of the parties; provided, however, that
Borrower may not assign this Agreement, or assign or delegate any of their
rights or obligations, without the prior written consent of Bank in each
instance.

 

7.9          Severability.  The invalidity or unenforceability of any one
or more provisions of this Agreement in no way affects any other provision.

 

7.10        Interpretation.  Whenever the context requires, all words used
in the singular will be construed to have been used in the plural, and vice
versa, and each gender will include any other gender.  The captions of the sections of this
Agreement are for convenience only and do not define or limit any terms or
provisions.  The word “include(s)” means “include(s),
without limitation,” and the word “including” means “including, but not limited
to.”  No listing of specific instances,
items or matters in any way limits the scope or generality of any language of
this Agreement.

 

7.11        Amendments.  This Agreement may not be modified or amended
except by a written agreement signed by the parties.

 

7.12        Counterparts.  This Agreement and any attached consents or
exhibits requiring signatures may be executed in counterparts, and all
counterparts constitute but one and the same document.

 

7.13        Language
of Agreement.  The language of
this Agreement will be construed as a whole according to its fair meaning and
not strictly for or against any party.

 

7.14        Exchange of Information.  Each Borrower agrees that the Bank may
exchange or disclose financial information about them with or to any bank
affiliates or other related entities.

 

7.15        Survival.  The representations, warranties,
acknowledgments, and agreements set forth herein shall survive the date of this
Agreement.

 

7.16        Time is of the Essence.  Time is of the essence in the performance of
this Agreement, and each and every term thereof, by Borrower.

 

7.17        Relationship
of Parties.  This Agreement is
intended to be and is deemed for all purposes to constitute additional security
granted to Bank for the repayment of the Loan. 
The execution and delivery of this

 

11

 

Agreement and the enforcement of this Agreement by Bank does not alter
or expand upon the debtor and creditor relationship between Borrower and Bank,
and nothing contained herein is to be construed to constitute Bank a partner of
or a joint venturer with any party.

 

7.18        Continuing Agreement.  This is a continuing agreement and all the
rights, powers and remedies hereunder shall apply to all past, present, and
future Obligations of Borrower, including those arising under successive transactions
which shall either continue some or all the Obligations, increase or decrease
any of them, or from time to time create new Obligations after all or any prior
Obligations have been satisfied, and notwithstanding the bankruptcy of
Borrower, or any other event or proceeding affecting Borrower, and
notwithstanding the death or incapacity of any Borrower that is an
individual.

 

7.19        Recitals; Exhibits.  The Recitals to this Agreement set
forth above are true, complete, accurate, and correct, and such recitals are
incorporated hereby by reference.  The
exhibits to this Agreement are incorporated hereby by reference.

 

7.20        Integration.  This Agreement integrates all the terms and
conditions mentioned in or incidental to the subject matter contained herein,
supersede all oral negotiations and prior writings with respect to such subject
matter, and is intended by the parties as the final expression of their
agreement with respect to the terms and conditions set forth in herein.

 

7.21        Patriot Act Provisions.  The following notification is provided to
Borrower pursuant to Section 326 of the USA Patriot Act of 2001, 31 U.S.C.
Section 5318 (as such maybe amended or recodified from time to time, the “Patriot
Act”):

 

(a)           Important
Information About Procedures for Opening a New Account.  To help the government fight the funding of
terrorism and money laundering activities, federal law requires all financial
institutions to obtain, verify, and record information that identifies each
person or entity that opens an account, including any deposit account, treasury
management account, loan, other extension of credit, or other financial
services product.  Borrower is hereby
notified that when Borrower opens an account, including but not limited to any
deposit account or other account that may be required pursuant to the terms of
this Agreement, (i) if Borrower is not an individual, Bank will ask for
Borrower’s name, taxpayer identification number, business address, and other
information that will allow Bank to identify Borrower, and may also ask to see
Borrower’s legal organizational documents or other identifying documents, and
(ii) if Borrower is an individual, Bank will ask for Borrower’s name, taxpayer
identification number, residential address, date of birth, and other information
that will allow Bank to identify Borrower, and may also ask to see Borrower’s
driver’s license or other identifying documents.

 

(b)           Government
Regulation.  Borrower shall not (a)
be or become subject at any time to any law, regulation, or list of any
government agency (including, without limitation, the U.S. Office of Foreign
Asset Control list) that prohibits or limits Bank from making any advance or
extension of credit to Borrower or from otherwise conducting business with
Borrower, or (b) fail to provide documentary and other evidence of Borrower’s
identity as may be requested by Bank at any time to enable Bank to verify
Borrower’s identity or to comply with any applicable law or regulation,
including, without limitation, Section 326 of the Patriot Act.

 

12

 

IN WITNESS WHEREOF, the parties
have executed this Agreement as of the date first above written.

 

	
  “BORROWER”

  	
   

  
	
   

  	
   

  
	
  POORE
  BROTHERS, INC.,

  	
  Address
  for notices to Borrower:

  

  Poore Brothers, Inc.,

  3500 S La Cometa Drive

  Goodyear, Arizona  85338

  Attention:  Rick Finkbeiner

  
	
  a Delaware corporation

  
	
   

  
	
  By:

  	
  /s/ Rick Finkbeiner

  	
   

  
	
   

  	
  Rick Finkbeiner, Senior
  Vice President,

  Chief Financial Officer, Secretary, and

  Treasurer

  
				

 

Address for notices to Bank:

 

U.S.
Bank National Association

101 North First
Avenue, Suite 1600

Phoenix, AZ 
85003

Attention: 
Commercial Banking

 

13Exhibit 10.3

 

PROMISSORY
NOTE

(Facility
1 - Revolving Line of Credit  Loan)

 

	
  $5,000,000.00

  	
  August 19, 2005

  	
  Phoenix, Arizona

  

 

1.                                      Borrower’s
Promise To Pay.

 

FOR VALUE RECEIVED, POORE BROTHERS, INC., a Delaware
corporation (the “Borrower”), promises to pay to the order of U.S. BANK NATIONAL ASSOCIATION, a national banking association (the “Bank”), at 101 N. First Avenue, Suite 1600, Phoenix,
Arizona  85003, Attention: 
Commercial Banking, or at such other place as the holder of this
Note may from time to time designate, the principal sum of Five Million and
No/100 Dollars ($5,000,000.00) (“Maximum Loan Amount”), or such lesser amount
as may be advanced and outstanding under this promissory note (the “Note”),
plus interest as specified in this Note. 
Bank shall not be required to make any advance if that would cause the
outstanding principal of this Note to exceed the Maximum Loan Amount.  This Note
evidences a revolving line of
credit  loan (“Loan”) made by Bank to
Borrower pursuant to the terms of a loan agreement (the “Loan Agreement”)
between Bank and Borrower of even date herewith.  During
the availability period described in the Loan Agreement, Borrower may repay
principal amounts and reborrow them upon the terms and conditions set forth in
the Loan Agreement.

 

This
Note is secured by a certain Security Agreement (Blanket - All Business Assets) being executed by Borrower in favor
of Bank dated of even date herewith (the “Security Agreement”) and may be
secured by other collateral.  This Note and the Loan Agreement,
together with all other documents which evidence, guaranty, secure, or
otherwise pertain to the Loan collectively constitute the “Loan Documents.”  Some or
all of the Loan Documents, including the Loan Agreement, contain provisions for
the acceleration of the maturity of this Note. 
This Note is subject to the terms and conditions of the Loan
Agreement.  Capitalized terms used but
not defined herein shall have the meanings set forth in the Loan Agreement.

 

2.                                      Maturity
Date.  All principal and all accrued and unpaid interest and other sums due
hereunder shall be due and payable on June 30, 2007 (the “Maturity Date”).

 

3.                                      Interest
Rate and Payment Terms.

 

3.1                               Interest
Only Payments.  Borrower shall
make monthly interest only payments in arrears on the first day of each month
beginning on the first day of the month following the first disbursement of
Loan funds.

 

3.2                               Interest
Rate.  The unpaid principal
balance will bear interest at an annual rate equal to the prime rate announced
by Bank minus one-half of one percent (1⁄2%).  The interest rate hereunder will be adjusted
each time that the prime rate changes.

 

3.3                               Principal
Prepayments.  Borrower may prepay
some or all of the principal under this Note, from time to time, without
payment of any prepayment premium or fee.

 

4.                                      General
Interest and Payment Terms.

 

4.1                               Note Rate.  The interest rate in effect from time to time
under this note is herein referred to as the “Note Rate.”

 

4.2                               Effective Contracted Rate.  Borrower
agrees to pay an effective contracted for rate of interest equal to the rate of
interest resulting from all interest payable as provided in this Note plus
the

 

1

 

additional rate of interest resulting from (a)
any loan fee(s) or other similar fees described or defined in the Loan
Documents, and (b) all Other Sums. 
For purposes hereof, the “Other Sums” shall mean all fees, charges,
goods, things in action, or any other sums or things of value (other than
interest payable as provided in this Note and any loan fee) paid or payable by
Borrower, whether pursuant to this Note, any of the other Loan Documents, or
any other document or instrument in any way pertaining to this lending
transaction, that may be deemed to be interest for the purpose of any law of
the State of Arizona, or any other applicable law, that may limit the maximum amount of interest to
be charged with respect to this lending transaction.  The Other Sums shall be deemed to be interest
and part of the “contracted for rate of interest” for the purposes of any such
law only.

 

4.3                               Usury Savings Clause.  It is expressly stipulated and agreed to be
the intent of Borrower and Bank at all times to comply with applicable state
law or applicable United States federal law (to the extent that it permits Bank
to contract for, charge, take, reserve, or receive greater amount of interest
than under state law) and that this Section shall control every other covenant
and agreement in this Note and the other Loan Documents.  If applicable state or federal law should at
any time be judicially interpreted so as to render usurious any amount charged,
taken, reserved, or received with respect to the Loan, or if Bank’s exercise of
the option to accelerate the Maturity Date, or if any prepayment by Borrower,
results in Borrower having paid any interest in excess of that permitted by
applicable law, then it is Bank’s express intent that all such excess amounts
theretofore collected by Bank shall be credited to the principal balance of
this Note and all other indebtedness, and that the provisions of this Note and
the other Loan Documents shall immediately be deemed reformed and the amounts
thereafter collectible hereunder and thereunder reduced, without the necessity
of the execution of any new documents, so as to comply with the applicable law,
but so as to permit the recovery of the fullest amount otherwise called for
hereunder or thereunder.  All sums paid
or agreed to be paid to Bank for the use, forbearance, or detention of the Loan
shall, to the extent not prohibited by applicable law, be amortized, prorated,
allocated, and spread throughout the full stated term of the Loan until payment
in full so that the rate or amount of interest on account of the Loan does not
exceed the maximum lawful rate from time to time in effect and applicable to
the Loan for so long as the Loan is outstanding.

 

4.4                               Calculation of Interest.  Interest will be computed for the actual days
elapsed on the basis of a three hundred sixty (360) day year, which results in
more interest than if a three hundred sixty-five (365) day year method were
used.

 

4.5                               Payments.  Except as otherwise provided herein, all amounts payable under this Note are payable in
lawful money of the United States during normal business hours on a Banking
Day.  For purposes hereof, “Banking Day”
means a day, other than a Saturday or Sunday, on which Bank is open for
business for all banking functions in Phoenix,
Arizona.  Checks and drafts constitute payment
only when collected.  All payments made
under this Note shall be made without offset, demand, counter-claim, deduction
or recoupment (each of which is hereby waived), and acceptance by Bank of any
payment in an amount less than the amount then due shall be deemed an
acceptance on account only, notwithstanding any notation on or accompanying
such partial payment to the contrary, and shall not constitute a waiver by Bank
of any Event of Default.  Except as
otherwise set forth herein or in any other Loan Document, payments shall be applied
in such order and manner as Bank may determine in its sole and absolute
discretion.

 

5.                                      Late
Payments; Default Rate

 

5.1                               Late
Charge for Overdue Payments. If Bank has not received the full amount
of any payment scheduled to be made under
this Note, other than the final principal payment, by the end of ten
(10) calendar days after the date it is due, Borrower shall pay a late charge
to Bank in the amount of five percent (5%) of the overdue payment; provided,
however, in no event shall any late charge be payable hereunder without
Bank first having provided Borrower with any notice required by applicable
law.  Borrower shall pay this late charge
only once on any late payment.  This late
charge shall not be construed as in any way extending the due date of any
payment, and is in addition to, and not in lieu of, any other remedy Bank may
have.

 

5.2                               Default
Rate. Upon the occurrence of any
Event of Default (subject to any applicable notice and cure periods),
the unpaid balance of the Loan shall bear interest at the rate which is five
percent (5%)

 

2

 

above the then applicable Note Rate as it may thereafter change
pursuant to the terms of this Note (the “Default Rate”).  Additionally, from and after the Maturity
Date, or such earlier date as all sums owing on this Note become due and
payable by acceleration or otherwise, the Loan shall bear interest at the
Default Rate.  Accrued interest, at the
Note Rate, if not paid when due, shall accrue interest at the Default Rate, as
hereinabove provided, which may result in compounding of interest.  Except as
otherwise set forth herein or in any other Loan Document, payments under
this Note or under any other Loan Document that are due on demand, shall bear
interest at the Default Rate (i) from the date costs or expenses are incurred
by Bank that give rise to the demand or (ii) if there is no such date, then
from the date of demand, until Borrower pays the full amount of such payment,
including interest.

 

6.                                      Events
of Default.  If any of the
following “Events of Default” occur, any obligation of the holder to make
advances under this Note terminates and, at the holder’s option, exercisable in
its sole and absolute discretion, all sums of principal and interest under this
note immediately become due and payable without notice of default, presentment,
demand for payment, protest, or notice of nonpayment or dishonor, or other
notices or demands of any kind or character:

 

6.1                               Borrower
fails to perform any obligation under this Note to pay principal or interest
when due; or

 

6.2                               Borrower
fails to perform any other obligation under this Note to pay money when due; or

 

6.3                               Under
any of the Loan Documents, a default or Event of Default occurs, except as
provided in Section 7 below.

 

7.                                      Insolvency.  It is an “Event of Default” under this Note
if Borrower becomes the subject of any bankruptcy or other voluntary or
involuntary proceeding, in or out of court, for the adjustment of
debtor-creditor relationships (“Insolvency Proceeding”), and as to any
involuntary Insolvency Proceeding, it either: (i) is consented to or (ii) has
not been dismissed within ninety (90) days. 
Upon such an Event of Default, all sums of principal and interest under
this Note automatically become immediately due and payable without notice of
default, presentment or demand for payment, protest or notice of nonpayment or
dishonor, or other notices or demands of any kind or character.  If Borrower becomes the subject of any
Insolvency Proceeding, any obligation of the holder to make advances under this
Note shall automatically terminate, and in the case of an involuntary
Insolvency Proceeding which is dismissed within ninety (90) days, the holder’s
obligation to make advances under this Note shall resume upon the dismissal
thereof.

 

8.                                      Waiver
of Jury Trial.  TO THE EXTENT NOT
PROHIBITED BY APPLICABLE LAW, BORROWER WAIVES TRIAL BY JURY IN ANY ACTION OR
PROCEEDING TO WHICH BORROWER AND BANK MAY BE PARTIES, ARISING OUT OF, IN
CONNECTION WITH OR IN ANY WAY PERTAINING TO, THIS NOTE, THE LOAN AGREEMENT, OR
ANY OF THE OTHER LOAN DOCUMENTS.  IT IS
AGREED AND UNDERSTOOD THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF
ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTION OR PROCEEDINGS, INCLUDING CLAIMS
AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE.  THIS WAIVER IS KNOWINGLY, WILLINGLY AND
VOLUNTARILY MADE BY BORROWER, AND BORROWER HEREBY REPRESENTS THAT NO
REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE
THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT.  BORROWER FURTHER REPRESENTS AND WARRANTS THAT
IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS
WAIVER BY INDEPENDENT LEGAL COUNSEL, OR HAS HAD THE OPPORTUNITY TO BE
REPRESENTED BY INDEPENDENT LEGAL COUNSEL SELECTED OF ITS OWN FREE WILL, AND
THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.

 

9.                                      Miscellaneous.

 

9.1                               Waivers.  Borrower hereby waives presentment, demand,
notice of dishonor, notice of default or delinquency, notice of acceleration,
notice of nonpayment, notice of costs, expenses, or losses and interest
thereon; and notice of interest on interest and late charges.

 

3

 

9.2                               Delay
In Enforcement.  If Bank delays
in exercising or fails to exercise any of its rights under this Note, that
delay or failure does not constitute a waiver of any of Bank’s rights, or of
any breach, default or failure of condition of or under this Note.  No waiver by Bank of any of its rights, or of
any breach, default or failure of condition is effective, unless the waiver is
expressly stated in writing by Bank.

 

9.3                               Joint
and Several Liability.  If more
than one person or entity is signing this Note as Borrower, their obligations
under this Note shall be joint and several.  
As to any Borrower that is a partnership, the obligations of Borrower
under this Note are the joint and several obligations of each general partner
thereof.  Any married person signing this
Note agrees that recourse may be had against community property assets and
against his or her separate property for the satisfaction of all obligations
contained herein.

 

9.4                               Heirs,
Successors, and Assigns; Participations.  This Note inures to and binds the heirs,
legal representatives, successors and assigns of Borrower and Bank; provided,
however, Borrower may not assign this Note or any Loan funds, or assign
or delegate any of its rights or obligations, without the prior written consent
of Bank in each instance, which consent is at the sole and absolute discretion
of Bank.  Bank, in its sole and absolute
discretion, may transfer this Note, and may sell or assign participations or
other interests in all or part of the Loan, on the terms and subject to the
conditions of the Loan Documents, all without notice to or the consent of
Borrower.  Without notice to or the
consent of Borrower, Bank may disclose to any actual or prospective purchaser
of any securities issued or to be issued by Bank or its affiliates, and to any
actual or prospective purchaser or assignee of any participation or other interest
in this Note, the Loan, or any other loans made by Bank to Borrower (whether
evidenced by this Note or otherwise), any financial or other information, data
or material in Bank’s possession relating to Borrower, or the Loan.  If Bank so requests, Borrower shall sign and
deliver a new note, in the form and substance of this Note, to be issued in
exchange for this Note.

 

9.5                               Cumulative
Remedies.  All of Bank’s remedies
in connection with this Note or under applicable law are cumulative, and Bank’s
exercise of any one or more of those remedies shall not constitute an election
of remedies.

 

9.6                               Governing
Law.  This Note shall be governed
by, and construed in accordance with, the laws of the State of Arizona, without
regard to the choice of law rules of that State, except to the extent that any
of such laws may now or hereafter be preempted by Federal law.  Borrower consents to the jurisdiction of any
Federal or State court within the State of Arizona, submits to venue in such
state, and also consents to service of process by any means authorized by
Federal law or the law of such state.  Without limiting the generality of the foregoing,
Borrower hereby waives and agrees
not to assert by way of motion, defense, or otherwise in such suit, action, or
proceeding, any claim that (i) Borrower is not subject to the jurisdiction of the courts of the
above-referenced state or the United States District Court for such state, or
(ii) such suit, action, or proceeding is brought in an inconvenient forum, or
(iii) the venue of such suit, action, or proceeding is improper.

 

9.7                               Attorney’s
Fees and Costs.  In any lawsuit
or arbitration arising out of or relating to this Note, the Loan Documents or
the Loan, the prevailing party will be entitled to recover from each other party
such sums as the court or arbitrator adjudges to be reasonable attorneys’ fees
in the action or arbitration, in addition to costs and expenses otherwise
allowed by law.  In all other actions or
proceedings, including any matter arising out of or relating to any Insolvency
Proceeding, Borrower agrees to pay all of Bank’s costs and expenses, including
reasonable attorneys’ fees, incurred in enforcing or protecting Bank’s rights
or interests.  From the time(s) incurred
until paid in full to Bank, all such sums shall bear interest at the Default
Rate.  Whenever
Borrower is obligated to pay or reimburse Bank for any attorneys’ fees, those
fees shall include the allocated costs for services of in-house counsel.

 

9.8                               Holder’s
Rights.  Borrower agrees that the holder of this Note may accept additional or
substitute security for this Note, or release any security or any party liable
for this Note, or extend or renew this Note, all without notice to Borrower and
without affecting the liability of Borrower.

 

4

 

9.9                               Interpretation.  As used
in this Note, the terms “Bank,” “holder” and “holder of this Note” are
interchangeable.  As used in this Note,
the word “include(s)” means “include(s), without limitation,” and the word “including”
means “including, but not limited to.”

 

9.10                        Time
of the Essence.  Time is of the essence with regard to all payment
obligations under this Note.

 

9.11                        Amendments.  This Note may not be modified or amended
except by a written agreement signed by the parties.

 

9.12                        Counterparts.  This Note may be executed in counterparts,
and all counterparts constitute but one and the same document.

 

IN WITNESS WHEREOF,
Borrower has duly executed and delivered this Note to Bank as of the date first
above written.

 

	
  BORROWER:

  	
   

  
	
   

  	
   

  
	
  POORE
  BROTHERS, INC.,

  	
  Address
  for notices to Borrower:

  

  Poore Brothers, Inc.,

  3500 S La Cometa Drive

  Goodyear, Arizona  85338

  Attention:  Rick Finkbeiner

  

  Tax I.D. # 86-0786101

  
	
  a Delaware corporation

  
	
   

  
	
  By:

  	
  /s/ Rick Finkbeiner

  	
   

  
	
   

  	
  Rick Finkbeiner, Senior
  Vice President,

  Chief Financial Officer, Secretary, and

  Treasurer

  
				

 

5

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