-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QHENbT8bV6irry1pnkgdh0ieZVH4Ewsny9qdWsHcqlwvwZB5cKWC0Z8zmda6BmZW utVsMNPFKe6UGMatQcajMg== 0001026018-07-000013.txt : 20070410 0001026018-07-000013.hdr.sgml : 20070410 20070410161739 ACCESSION NUMBER: 0001026018-07-000013 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20070405 ITEM INFORMATION: Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20070410 DATE AS OF CHANGE: 20070410 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYNERGY BRANDS INC CENTRAL INDEX KEY: 0000870228 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-GROCERIES & GENERAL LINE [5141] IRS NUMBER: 222993066 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-19409 FILM NUMBER: 07759053 BUSINESS ADDRESS: STREET 1: 223 UNDERHILL BLVD CITY: SYOSSET STATE: NY ZIP: 11791 BUSINESS PHONE: 5167148200 MAIL ADDRESS: STREET 1: 223 UNDERHILL BLVD CITY: SYOSSET STATE: NY ZIP: 11791 FORMER COMPANY: FORMER CONFORMED NAME: KRANTOR CORP DATE OF NAME CHANGE: 19930328 FORMER COMPANY: FORMER CONFORMED NAME: DELTA VENTURES INC DATE OF NAME CHANGE: 19600201 8-K 1 file001.txt SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 Date of Report: April 5, 2007 Synergy Brands, Inc. (Exact name of registrant as specified in its charter) Delaware 0-19409 22-2993066 (State of incorporation) (Commission File No.) (IRS Employer Identification No.) 223 UNDERHILL BLVD., SYOSSET, NY 11791 (Address of principal executive offices) (zip code) Registrant's telephone number, including area code: 1-516-714-8200 Not Applicable (Former name or former address, if changed since last report) Check the appropriate box below if the Form 8-K Filing is intended to simultaneously satisfy the filing obligations of the registrant under any of the following provisions. [ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under Exchange Act (17 CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) Item 2.03 Creation of a Direct Financial Obligation. Effective April 5, 2007 Synergy Brands Inc. and its subsidiary PHS Group Inc., the latter being the designated "Borrower" within such Agreement, entered with Lloyd I. Miller, III and Milfam I L.P., an entity with whom Mr. Miller is affiliated, together both being the "Purchaser" within such Agreement, an amendment to that certain Securities Purchase Agreement and Term Notes previously agreed January 19, 2007, and with such same parties as Purchaser, Synergy Brands Inc. and its subsidiaries PHS Group Inc., SYBR.Com Inc., Gran Reserve Corporation, DealByNet.Com Inc., Quality Food Brands Inc., NYCE North America Inc., and NetCigar.Com Inc. entered an amendment to that certain Security Pledge and Guaranty Agreement entered and associated with the referenced Securities Purchase Agreement and Term Notes entered on January 19, 2007, copies of such agreements being made exhibits hereto, as well as having executed other ancillary documentation, the designed purpose of which was to arrange for an increase to $8.0 million from the previous $6.5 million of secured financing from the referenced Purchasers, proceeds of which Synergy Brands Inc., has utilized to retire present existing higher interest debt owed by PHS Group Inc. to IIG Capital LLC and for other general working capital purposes. The new financing in total principal, as amended, consists of $7.9 million in secured term notes to be amortized over a 10 year period at an interest rate of 11.75%, increase of .5% from previous loan as amended, as provided in the relevant agreements. This supplemental financing has no equity component and no shares were issued in connection with the amendment. Lloyd Miller is a director and significant shareholder of Synergy Brands Inc. The terms and conditions of this financing and the affiliated loan documentation were negotiated between Mr. Miller and Synergy Brands Inc and stated subsidiaries at arm's length and all parties were represented by independent professional advisors in evaluating those terms and conditions, and all of the material terms and conditions and the related existence of the transaction being with a related person have been fully disclosed to the Board of Directors and members of the Audit Committee of Synergy Brands Inc. and such persons have reviewed those terms and conditions and have evaluated the merits of the underlying transaction and have determined in using their reasonable business judgment that such terms and conditions are in the best interests of the shareholders of the said registrant. Item 9.01 Exhibits. Exhibit 10 (without schedules and exhibits) First Amendment to Securities Purchase Agreement between PHS Group Inc., as Borrower, Synergy Brands Inc., as Parent Company, Lloyd I. Miller III, and Milfam I L.P., as a Purchaser dated April 5, 2007. Exhibit 10.1 (without schedules and exhibits) First Amendment to Security Pledge and Guaranty Agreement by and among PHS Group Inc., a Pennsylvania corporation, Synergy Brands Inc., a Delaware corporation, SYBR.Com Inc., A New Jersey corporation, Gran Reserve Corporation, a Florida corporation, Dealbynet.com Inc., a New York corporation, Quality Food Brands Inc., a Nevada corporation, NYCE North America, a New Jersey corporation, Net Cigar.Com Inc., and Lloyd I. Miller III and Milfam I L.P. dated April 5, 2007. Exhibit 10.2 Term Note dated April 5, 2007 between PHS Group Inc., and Lloyd I. Miller III in the amount of $3,945,833.34. Exhibit 10.3 Term Note dated April 5, 2007 between PHS Group Inc., and Milfam I L.P. in the amount of $3,945,833.34. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Synergy Brands, Inc. By: /s/ Mair Faibish ---------------- Mair Faibish Chairman of the Board By: /s/ Mitchell Gerstein --------------------- Mitchell Gerstein Chief Financial Officer Dated: April 9, 2007 EX-10 2 file002.txt Exhibit 10 FIRST AMENDMENT TO SECURITIES PURCHASE AGREEMENT dated as of April 5, 2007 among PHS GROUP INC., as Borrower SYNERGY BRANDS INC., as Parent Company and LLOYD I. MILLER, III, as a Purchaser MILFAM I L.P., as a Purchaser FIRST AMENDMENT TO SECURITIES PURCHASE AGREEMENT THIS FIRST AMENDMENT TO SECURITIES PURCHASE AGREEMENT (this "First Amendment") dated as of April 5, 2007, is by and among PHS GROUP INC., a Pennsylvania corporation (the "Borrower"), SYNERGY BRANDS INC., a Delaware corporation (the "Parent Company"), and Lloyd I. Miller, III ("Miller") and Milfam I L.P., a Georgia limited partnership, ("Milfam" and collectively referred to herein with Miller as the "Purchasers"). R E C I T A L S A. WHEREAS, the Borrower, the Parent Company and the Purchasers are parties to that certain Securities Purchase Agreement dated as of January 19, 2007 (the "Purchase Agreement"), pursuant to which (x) the Borrower issued and sold to the Purchasers an initial aggregate principal amount of $6,500,000 of its secured promissory notes and (y) the Parent Company issued and sold to the Purchasers an aggregate of 1,075,000 shares of common stock, par value $0.01 per share, of the Parent Company. B. WHEREAS, as a condition to the Purchasers' obligations to enter into the Purchase Agreement and to extend credit to the Borrower thereunder, the Borrower, the Parent Company and certain subsidiaries of the Parent Company executed and delivered that certain Security, Pledge and Guaranty Agreement (the "Security Agreement"), dated as of January 19, 2007 (as amended or otherwise modified from time to time), as security for the payment and performance of all obligations of the Borrower and the Parent Company to the Purchasers and to guarantee all of the obligations of the Borrower and the Parent Company under the Purchase Agreement. C. WHEREAS, as a condition to the Purchasers' obligations to enter into the Purchase Agreement and to extend credit to the Borrower thereunder, the Borrower, the Parent Company, Laurus Master Fund, Ltd. ("Laurus"), Gran Reserve Corporation ("Gran Reserve"), SYBR.Com Inc. ("SYBR"), and the Purchasers entered into that certain Subordination and Intercreditor Agreement (the "Subordination Agreement" and collectively referred to herein with the Purchase Agreement, the Secured Notes and the Security Agreement as the "Purchase Documents"), dated as of January 19, 2007 (as amended or otherwise modified from time to time), whereby Laurus generally, pursuant to the terms thereof, subordinated liens granted to Laurus to liens granted to the Purchasers. D. WHEREAS, the Borrower is hereby authorized and wishes to have the Purchasers make an additional secured loan to the Borrower in the initial aggregate principal amount of $1,500,000 pursuant to the same terms and conditions as provided for in the Purchase Agreement subject, however, to the modifications to such terms as set forth herein. E. WHEREAS, the Borrower and the Purchasers have agreed that to give effect to the foregoing, each Purchaser shall (a) deliver to the Borrower an agreed upon amount by wire transfer of immediately available funds and (b) surrender the initial secured promissory note originally issued by the Borrower to each Purchaser on January 19, 2007, and Borrower shall thereafter issue each Purchasers in exchange therefore a new secured promissory note in the initial principal amount of $3,945,833.34. F. WHEREAS, in order to satisfy the foregoing, both the Borrower, the Parent Company and the Purchasers have agreed to amend and modify certain provisions of the Purchase Agreement and the Borrower and the Parent Company have also agreed to ratify and affirm all of their respective obligations under the Purchase Documents. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: Section 1. Defined Terms. Each capitalized term used herein but not otherwise defined herein has the meaning given such term in the Purchase Agreement. Section 2. Amendments to Purchase Agreement. 2.1 Amendments to Introductory Recital (a) The definition of "Agreement" is hereby amended in its entirety to read as follows: "Agreement" means this Securities Purchase Agreement, originally dated as of January 19, 2007, among the Borrower, the Parent Company and the Purchasers, as amended by the First Amendment, and as the same may be amended, supplemented, restated or otherwise modified from time to time. (b) The definition of "First Amendment" is hereby inserted to read as follows: "First Amendment" means the First Amendment to Securities Purchase Agreement, dated as of April 5, 2007 by and among the Borrower, the Parent Company and the Purchasers. 2.2 Further Amendments to Purchase Agreement (a) Section 1.01 is hereby amended in its entirety to read as follows: "On the terms and subject to the conditions hereof, the Borrower has authorized and agreed to issue and sell to the Purchasers, secured promissory notes, due January 15, 2012 (the "Maturity Date"), dated as of January 19, 2007, in the initial aggregate principal amount of $6,500,000 (the "Initial Secured Notes"). The Borrower has further authorized and agreed to allow the Purchasers to make an additional secured loan to the Borrower, on April 5, 2007, in the initial aggregate principal amount of $1,500,000, due on the Maturity Date. To give effect to the additional secured loan made to the Borrower by the Purchasers on April 5, 2007, the Purchasers shall surrender to the Borrower the Initial Secured Notes and in exchange therefore the Borrower shall issue to the Purchasers new secured promissory notes (the "New Secured Notes") that shall reflect the initial aggregate principal amount of the following: (a) the unpaid aggregate principal amount of the Initial Secured Notes so surrendered plus (b) $1,500,000 ((a) and (b) collectively shall equal $7,891,666.68). Each New Secured Note issued to each Purchaser, dated as of the date of this First Amendment, in the initial principal amount of $3,945,833.34, shall be due on the Maturity Date. The New Secured Notes will be substantially in the form set forth on Exhibit E hereto. The New Secured Notes shall each be referred to herein as a "Secured Note" and, collectively as the "Secured Notes," which term will also include any notes delivered in exchange or replacement therefor. The amount of accrued and unpaid interest owed by the Borrower to the Purchasers under the Initial Secured Notes immediately prior to their surrender and cancellation, as set forth above, shall remain due and owing by the Borrower and shall be paid by the Borrower on the next Interest Payment Date notwithstanding the surrender of such Initial Secured Notes by the Purchasers to the Borrower." (b) Section 1.05 is hereby amended in its entirety to read as follows: "The Secured Notes will accrue interest at the rate of 11.75% per annum. Interest will be due and payable quarterly in arrears on the last day of each calendar quarter (each, an "Interest Payment Date"), with the first interest payment due June 30, 2007. Principal will be amortized over ten years and payable in equal monthly installments on the last day of each month beginning on April 30, 2007. The principal amount owed to the Purchasers under the Secured Notes and all accrued but unpaid interest thereon shall be due and payable in full on the Maturity Date unless earlier redeemed pursuant to the terms and conditions set forth in Section 1.06 herein. In the event any payment under a Secured Note is not timely made when due, interest will accrue on such late payment at an amount equal to 18% per annum from and including the date such late payment was due to (but excluding) the date such late payment is paid to the Purchasers. All amounts payable under the Secured Notes and hereunder shall be paid in lawful money of the United States without setoff or withholding of any kind." (c) Schedule I has been amended and restated in its entirety to reflect the issuance of the Additional Secured Notes pursuant to the terms and conditions hereof. The revised Schedule 1 setting forth the "Schedule of Purchasers" is attached hereto. Section 3. Conditions Precedent. This First Amendment shall not become effective until the date on which each of the following conditions are satisfied (the "Effective Date"): (a) no Event of Default nor a breach of any representation and warranty by either the Borrower or the Parent Company shall have occurred and be continuing as of the date hereof (including after giving effect to the terms of this First Amendment); (b) the parties shall have received this First Amendment duly and validly delivered and executed on behalf of the Borrower, the Parent Company and the Purchasers; (c) Purchasers shall have received an amendment, dated as of the date hereof, amending and modifying the terms of the Security Agreement, duly and validly delivered and executed on behalf of the Borrower, the Parent Company, SYBR, Gran Reserve, Dealbynet.com Inc., Quality Food Brands, Inc., NYCE North America Inc., Net Cigar.Com Inc., and the Purchasers; (d) Purchasers shall have received a deposit bank control agreement duly executed and agreed upon by and among the Borrower and the Purchasers, whereby the Purchasers will receive, upon execution by North Fork Bank, a perfected security interest in certain deposit accounts established by the Borrower at North Fork Bank; (e) Purchasers and their counsel will have received a Borrowing Base Certificate, dated as of the date hereof, and calculated pursuant to the terms and conditions in Article VI of the Purchase Agreement and such Borrowing Base Certificate will show that the aggregate principal amount outstanding at the time of the issuance of the New Secured Notes, taken together, is less than the Borrowing Base as set forth in such Borrowing Base Certificate; (f) Purchasers will have received an opinion of the Parent Company's and the Borrower's counsel, dated the date hereof, with respect to legal matters customary for transactions of this type, in a form reasonably acceptable to Purchasers and counsel for Purchasers; (g) Purchasers will have received a consent and waiver document duly executed by an authorized signatory on behalf of Laurus, whereby Laurus waives any limitation or restriction set forth in the Laurus Secured Note Agreements to the sale by the Borrower of the Additional Secured Notes to the Purchasers pursuant to this First Amendment and whereby Laurus also waives any right of first refusal that Laurus may have pursuant to the Laurus Secured Note Agreements, in a form reasonably acceptable to the Purchasers; (h) Purchasers will have received an amendment to the Subordination Agreement duly executed by and among the Borrower, the Parent Company, Gran Reserve, SYBR, Laurus and the Purchasers dated as of the date hereof, whereby Laurus shall have agreed to increase the maximum amount of allowable Senior Debt (as defined in the Subordination Agreement) from $6,500,000 to $8,000,000; (i) the Borrower's and the Parent Company's representations and warranties contained herein will be true, complete and correct on and as of the date hereof; (j) the Borrower and the Parent Company will have performed and complied in all respects with all covenants and agreements contained herein required to be performed or complied with by it prior to or at the date hereof; (k) all corporate and other proceedings to be taken by the Borrower and the Parent Company in connection with the transactions contemplated hereby and all documents incident thereto will be satisfactory in form and substance to Purchasers and their counsel, and Purchasers and their counsel will have received all such counterpart originals or certified or other copies of such documents as they reasonably may request; (l) Purchasers and its counsel will have received copies of the following documents, which will be satisfactory in form and substance to the Purchasers and their counsel, (i) a certificate of the Secretary of State of Delaware dated as of a recent date as to the due incorporation and good standing of the Parent Company, the payment of all excise taxes by the Parent Company and listing all documents of the Parent Company on file with said Secretary, (ii) a true and complete copy of all resolutions adopted by the Board of Directors and the Audit Committee of the Parent Company and the corporate resolutions of the Borrower authorizing the execution, delivery and performance of this First Amendment and the issuance, sale and delivery of the New Secured Notes; and (iii) such additional supporting documents and other information with respect to the operations and affairs of the Borrower and the Parent Company as the Purchasers or their counsel reasonably may request; and (m) the Company shall have issued and delivered the New Secured Notes, dated the date hereof in the original aggregate principal amount of $7,891,666.68 to the Purchasers. Upon satisfaction of the foregoing conditions and receipt of the New Secured Notes by the Purchasers, the Purchasers shall deliver to the Company $1,500,000. Section 4. Miscellaneous. 4.1 Confirmation. The provisions of the Purchase Documents, as amended by this First Amendment, shall remain in full force and effect following the effectiveness of this First Amendment. 4.2 Ratification and Affirmation. The Parent Company and the Borrower each hereby (a) acknowledge the terms of this First Amendment; and (b) ratifies and affirms its obligations under, and acknowledges, renews and extends its continued liability under, each Purchase Document to which it is a party and agrees that each Purchase Document to which it is a party remains in full force and effect, except as expressly amended hereby, notwithstanding the amendments contained herein. 4.3 Representations and Warranties. The Parent Company and the Borrower each hereby represent and warrant to the Purchasers (as of the date hereof, the Effective Date and after giving effect to the terms of this First Amendment) that: (i) it has full power and authority to enter into this First Amendment and the transactions contemplated by this First Amendment, and this First Amendment and such transactions have been duly authorized, are valid and enforceable against it, are not in contravention of any law, order or agreement by which it is bound and do not require any consent, notice or filing of any kind (except for the consent of Laurus); (ii) all of the representations and warranties contained in each Purchase Document to which it is a party are true and correct, unless such representations and warranties are stated to relate to a specific earlier date, in which case, such representations and warranties shall continue to be true and correct as of such earlier date, (iii) no Event of Default under the Purchase Agreement nor Default under the Security Agreements has occurred and is continuing and (iv) from and after the date of the Purchase Agreement until the date of this First Amendment, no changes have been made to the Certificate of Incorporation of the Debtors (as such term is defined in the Security Agreement) nor the Bylaws of the Debtors (as such term is defined in the Security Agreement). 4.4 Continuing Security Interest. Both the Parent Company and the Borrower hereby represent, warrant, acknowledge and agree that the Security Interest (as defined in the Security Agreement) secures and shall continues to secure the payment and performance of the Obligations (as defined in the Security Agreement), including, without limitation, the New Secured Notes. 4.5 Further Assurances. The parties agree to (i) execute and deliver, or cause to be executed and delivered, all such other and further agreements, documents and instruments and (ii) take or cause to be taken all such other and further actions as any Purchaser may reasonably request to effectuate the intent and purposes, and carry out the terms, of this First Amendment. 4.6 Counterparts. This First Amendment may be executed by one or more of the parties hereto in any number of separate counterparts, and all of such counterparts taken together shall be deemed to constitute one and the same instrument. Delivery of this First Amendment by facsimile transmission or electronic mail shall be effective as delivery of a manually executed counterpart hereof. 4.7 ENTIRE AGREEMENT. THIS FIRST AMENDMENT, THE PURCHASE AGREEMENT, THE SECURED NOTES, THE SUBORDINATION AGREEMENT, THE SECURITY AGREEMENT AND ANY RELATED ANCILLARY DOCUMENT THERETO, EXECUTED IN CONNECTION HEREWITH AND THEREWITH REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR UNWRITTEN ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL AGREEMENTS BETWEEN THE PARTIES. 4.8 GOVERNING LAW. THIS FIRST AMENDMENT (INCLUDING, BUT NOT LIMITED TO, THE VALIDITY AND ENFORCEABILITY HEREOF) SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW). [SIGNATURES BEGIN NEXT PAGE] IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed as of the date first written above. PHS GROUP INC., the Borrower By: --------------------------- Name: --------------------------- Title: --------------------------- SYNERGY BRANDS INC., the Parent Company By: --------------------------- Name: --------------------------- Title: --------------------------- PURCHASERS: MILFAM I L.P. By: Milfam LLC Its: General Partner By: - --------------------------------- Name: Lloyd I. Miller, III Title: Manager LLOYD I. MILLER, III By: - --------------------------------- Name: Lloyd I. Miller, III EX-10.1 3 file003.txt Exhibit 10.1 FIRST AMENDMENT TO SECURITY, PLEDGE AND GUARANTY AGREEMENT This First Amendment to Security, Pledge and Guaranty Agreement (the "First Amendment") is entered into as of April 5, 2007, by and among by and among PHS Group Inc., a Pennsylvania corporation (the "Borrower"), and Synergy Brands Inc., (the "Parent Company"), and SYBR.Com Inc., a New Jersey corporation, Gran Reserve Corporation, a Florida corporation, Dealbynet.com Inc., a New York corporation, Quality Food Brands, Inc., a Nevada corporation, NYCE North America Inc., a New Jersey corporation, Net Cigar.Com Inc., a Florida corporation, (each of the foregoing a "Subsidiary" and collectively referred to herein as the "Subsidiaries") and Lloyd I. Miller, III and Milfam I L.P. (collectively referred to herein as the "Purchasers"). Together the Borrower, the Parent Company and the Subsidiaries are referred to herein as the "Debtors". WHEREAS, the Debtors and the Purchasers entered into that certain Security, Pledge and Guaranty Agreement (as amended, supplemented or otherwise modified prior to giving effect to the amendments contemplated herein) (the "Security Agreement"), dated as of January 19, 2007, as security for the payment and performance of all obligations of the Debtors to the Purchasers and to guarantee certain obligations owed by the Debtors to the Purchasers; WHEREAS, the Borrower issued and sold to the Purchasers secured promissory notes (the "Initial Secured Notes"), pursuant to that certain Securities Purchase Agreement, dated as of January 19, 2007, by and among, the Borrower, the Parent Company and the Purchasers, in an initial aggregate principal amount of $6,500,000; WHEREAS, the Borrower is authorized and wishes to have the Purchasers make an additional loan, as of the date hereof, to the Borrower in an initial aggregate principal amount of $1,500,000; WHEREAS, the Purchasers shall surrender the Initial Secured Notes to the Borrower and in exchange therefore the Borrower shall issue to the Purchasers new secured promissory notes (the "New Secured Notes") in the initial aggregate principal amount of (a) the unpaid aggregate principal amount of the Initial Secured Notes so surrendered plus (b) $1,500,000; and WHEREAS, in connection with the foregoing transaction the Debtors and Purchasers wish to amend certain terms and provisions of the Security Agreement and for the Security Agreement to otherwise continue in full force and effect. NOW, THEREFORE, in consideration of the mutual covenants and obligations set forth herein, the Debtors and Purchaser hereby agree as follows: 1. Amendments. Pursuant to Section 11.2 of the Security Agreement, the Purchasers and the Debtors hereby agree to the following: (a) The first recital of the Security Agreement defining the "Securities Purchase Agreement" is hereby amended to read in its entirety as follows: "WHEREAS, the Borrower, the Parent Company and the Purchasers are parties to that certain Securities Purchase Agreement, originally dated as of January 19, 2007, amended as of April 5, 2007, as same may hereafter be further amended, supplemented or otherwise modified from to time (the "Securities Purchase Agreement")." 2. Representations and Warranties. The Debtors represent and warrant that (a) except for the representations and warranties which are made only as of a prior date, the representations and warranties set forth in the Security Agreement are true and correct in all respects as of the Effective Date as if made on and as of such date; (b) the execution, delivery and performance of this First Amendment are within the corporate power and authority of the Debtors and have been duly authorized by appropriate corporate action and proceedings; (c) this First Amendment constitutes a legal, valid, and binding obligation of the Debtors enforceable in accordance with its terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the rights of creditors generally and general principles of equity; (d) there are no governmental or other third party consents, licenses and approvals required in connection with the execution, delivery, performance, validity and enforceability of this First Amendment; (e) no Default has occurred and is continuing, and (f) no proceedings are pending against the Debtors and the Debtors do not have any knowledge or awareness of any claim, action, impairment or proceeding that will adversely affect any of the Purchasers' rights under the Security Agreement. 3. Conditions Precedent. This First Amendment shall become effective and enforceable against the parties hereto and the Security Agreement shall be amended as provided herein upon the occurrence of the following conditions: (i) the Borrower shall have issued the New Secured Notes to the Purchasers and (ii) the parties shall have received this First Amendment duly and validly delivered and executed on behalf of the Debtors and the Purchasers. 4. Effect on Security Agreement. Other than as expressly set forth in this First Amendment: (i) The Purchasers hereby expressly reserve all of their rights, remedies, and claims under the Security Agreement; (ii) Nothing in this First Amendment shall constitute a waiver or relinquishment of (A) any Default under the Security Agreement, (B) any of the agreements, terms or conditions contained in the Security Agreement, (C) any rights or remedies of the Purchasers with respect to the Security Agreement, or (D) the rights of the Purchasers to collect the full amounts owing to them under the Secured Notes; and (iii) The Debtors acknowledges and agrees that their respective liabilities and obligations under the Security Agreement are not limited or impaired in any respect by this Agreement. 5. Continuing Security Interest. The Debtors hereby represent, warrant, acknowledge and agree that the Security Interest secures and shall continue to secure the payment and performance of the Obligations, including, without limitation, the New Secured Notes. 6. No Additional Changes. Except as otherwise set forth in this First Amendment, the terms and conditions of the Security Agreement shall remain in full force and effect. 7. Ratification. This First Amendment shall be construed in connection with and as part of the Security Agreement, and all terms, conditions, representations, warranties, covenants and agreements set forth in the Security Agreement and each other instrument, exhibit or agreement referred to in the Security Agreement, except as herein expressly amended, are hereby ratified and confirmed and shall remain in full force and effect. 8. Miscellaneous. (a) No provision of this First Amendment may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Debtors and the Purchasers. (b) This First Amendment shall be governed by the laws of the State of New York (without regard to conflicts of laws). (c) This First Amendment may be executed in counterparts, which together shall constitute one First Amendment. (d) By their signatures below, the parties acknowledge that they have had sufficient opportunity to read and consider, and that they have carefully read and considered, each provision of this First Amendment and that they are voluntarily signing this First Amendment. (e) Each term defined in the Security Agreement and used herein without definition shall have the meaning assigned to such term in the Security Agreement, unless expressly provided to the contrary. [Signature Page Follows] Signature page IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be executed and delivered by their duly authorized officers as of the date first above written. DEBTORS: SYNERGY BRANDS INC. By: --------------------------- Name: --------------------------- Title: --------------------------- SYBR.COM INC. By: --------------------------- Name: --------------------------- Title: --------------------------- GRAN RESERVE CORPORATION By: --------------------------- Name: --------------------------- Title: --------------------------- DEALBYNET.COM INC. By: --------------------------- Name: --------------------------- Title: --------------------------- QUALITY FOOD BRANDS, INC. By: --------------------------- Name: --------------------------- Title: --------------------------- NYCE NORTH AMERICA INC. By: --------------------------- Name: --------------------------- Title: --------------------------- NET CIGAR.COM INC. By: --------------------------- Name: --------------------------- Title: --------------------------- Signature page PURCHASERS: MILFAM I L.P. By: Milfam LLC Its: General Partner By: - ------------------------------------- Name: Lloyd I. Miller, III Title: Manager LLOYD I. MILLER, III By: - ------------------------------------- Name: Lloyd I. Miller, III EX-10.2 4 file004.txt Exhibit 10.2 THE SECURITY REPRESENTED BY THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. ANY TRANSFER OF SUCH SECURITY WILL BE INVALID UNLESS A REGISTRATION STATEMENT UNDER THE ACT AND AS REQUIRED BY BLUE SKY LAWS IS IN EFFECT AS TO SUCH TRANSFER OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. PHS Group Inc. Secured Promissory Note Note No.2007-03 $3,945,833.34 April 5, 2007 FOR VALUE RECEIVED, subject to the terms and conditions of this Secured Promissory Note (the "Secured Note"), PHS GROUP INC., a Pennsylvania corporation with its principal offices located at 223 Underhill Blvd, Syosset, New York, 11971 (the "Borrower"), hereby promises to pay to the order of LLOYD I. MILLER, III (the "Holder") with his principal office located at 4550 Gordon Drive, Naples, Florida, 34102, the principal sum of $3,945,833.34 on January 15, 2012 or, if such day is not a regular Business Day, on the next Business Day thereafter, with all accrued but unpaid interest (as provided below) to such date (the "Maturity Date"). Subject to the terms and conditions of this Secured Note, the Borrower also promises to pay to the Holder interest accrued on the outstanding unpaid principal amount hereof until such principal amount is paid at the rate of 11.75% per annum, from the date hereof. Said interest shall become due quarterly in arrears and shall be payable on the last day of each calendar quarter (each, an "Interest Payment Date") in respect of the immediately preceding completed calendar quarter. The first Interest Payment Date will be June 30, 2007. Principal will be amortized over ten years and payable, as set forth on Schedule A, in equal monthly installments on the last day of each month beginning on April 30, 2007, with the balance to be paid in full on the Maturity Date. In the event any payment is not timely paid when due, interest shall accrue on such late payment at a per annum rate of eighteen percent (18%) from and including the date of such late payment to (but excluding) the date such late payment is paid in full. All payments due hereunder (whether of principal or interest) shall be payable in lawful money of the United States in immediately available funds. This Secured Note is one of the Secured Notes issued pursuant to that certain Securities Purchase Agreement, originally dated as of January 19, 2007, by and among the Borrower, the Parent Company and the purchasers named therein, as amended by that certain First Amendment to the Securities Purchase Agreement, as of the date hereof, by and among the Borrower, the Parent Company and the purchasers named therein, and as may be further amended, supplemented or otherwise modified from time to time (the "Securities Purchase Agreement") and shall be entitled to the benefits thereof. The Holder has been granted a security interest in certain assets of the Borrower, the Parent Company, and its Subsidiaries as more fully described in that certain Security, Pledge and Guaranty Agreement originally dated as of January 19, 2007, and as amended by the parties thereto on the date hereof, and as may be further amended, supplemented or otherwise modified from time to time (the "Security Agreement"). The obligations of the Borrower under this Secured Note have also been guaranteed by certain Subsidiaries of the Parent Company pursuant to and as set forth in the Security Agreement. The Holder of this Secured Note is also entitled to the rights and benefits granted pursuant to that certain Subordination and Intercreditor Agreement, originally dated as of January 19, 2007, by and among the Borrower, the Parent Company, certain Subsidiaries thereto, Laurus Master Fund, Ltd., the Holder and Milfam I L.P., and as modified by the parties thereto on the date hereof, and as may be further amended, supplemented or otherwise modified from time to time (the "Subordination Agreement"). 1. Definitions. Unless the context otherwise requires, the following terms shall have the following respective meanings: "Borrower" has the meaning ascribed to such term in the first paragraph of this Secured Note. "Business Day" means any day of the week other than Saturday, Sunday or any other day of the week on which commercial banks in New York, New York are authorized or required by law to close. "Event of Default" has the meaning ascribed to such term in Section 4(a) of this Secured Note. "Holder" has the meaning ascribed to such term in the first paragraph of this Secured Note. "Maturity Date" has the meaning ascribed to such term in the first paragraph of this Secured Note. "Secured Note" has the meaning ascribed to such term in the first paragraph of this instrument. "Security Agreement" has the meaning ascribed to such term in the second paragraph of this Secured Note. "Securities Purchase Agreement" has the meaning ascribed to such term in the second paragraph of this Secured Note. "Subsidiaries" has the meaning ascribed to such term in the Securities Purchase Agreement. 2. Accounting Terms. All accounting terms not specifically defined in this Secured Note shall be construed in accordance with United States generally accepted accounting principles and, if applicable, consistent with those applied in the preparation of the financial statements of the Borrower. 3. Prepayment. The Secured Note may be paid prior to the Maturity Date provided that prior to such repayment the Borrower provides the Holder with five (5) Business Days' advance written notice. 4. Events of Default. (a) Events Constituting An Event of Default. Any of the events set forth in Section 1.11 of the Security Purchase Agreement, which section is incorporated herein by reference, shall constitute an "Event of Default" under this Secured Note. (b) Consequences of an Event of Default. Upon the occurrence of an Event of Default or at any time thereafter, the Holder may, by notice to the Borrower, declare the entire unpaid principal amount of the Secured Note, all interest accrued and unpaid thereon and all other amounts payable under this Secured Note to be forthwith due and payable, whereupon the Secured Note, all such accrued interest and all such amounts will become and be forthwith due and payable (unless there will have occurred an Event of Default under Section 1.11(i) of the Securities Purchase Agreement, in which case all such amounts will automatically become due and payable) without offset or counterclaim of any kind and without presentment, demand, protest or further notice of any kind, and without regard to the running of the statute of limitations, all of which are by this Secured Note expressly waived by the Borrower. 5. General Matters. (a) Applicable Law. This Secured Note shall be governed by the internal laws (and not the law of conflicts) of the State of New York. (b) Fees and Expenses. In the event that any suit or action is instituted to enforce any provision under this Secured Note, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Secured Note, including without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals. Notwithstanding the foregoing, the Borrower agrees to pay and hold Holder harmless against liability for the payment of the reasonable fees and expenses of Holder (including, without limitation, reasonable attorneys' fees and expenses and out of pocket expenses of Holder and its representatives, including, without limitation, fees and expenses for travel, background investigations and outside consultants) arising in connection with any refinancing or restructuring of the credit arrangements provided under this Secured Note in the nature of a "work-out' or pursuant to any insolvency or bankruptcy proceedings. If default is made in the payment of this Secured Note, the Borrower shall pay to Holder's costs of collection, including reasonable attorney's fees. (c) Amendment or Waiver. Any term of this Secured Note may be amended, and the observance of any term of this Secured Note may be waived (either generally or in a particular instance and either retroactively or prospectively) only by the written consent of the Holder. (d) Headings. The headings in this Secured Note are for purposes of convenience of reference only, and shall not be deemed to constitute a part of this Secured Note. (e) Notices. All notices, requests, consents and other communications required or permitted hereunder shall be in writing (including telecopy or similar writing) and shall be sent to the address of the party set forth in the Securities Purchase Agreement. Any notice, request, consent or other communication hereunder shall be deemed to have been given and received on the day on which it is delivered (by any means including personal delivery, overnight air courier, United States mail) or telecopied (or, if such day is not a Business Day or if the notice, request, consent or communication is not telecopied during business hours of the intended recipient, at the place of receipt, on the next following Business Day). Any of the parties hereto may, by notice given hereunder, designate any further or different address and/or number to which subsequent notices or other communications shall be sent. Unless and until such written notice is received, the addresses and numbers as provided herein shall be deemed to continue in effect for all purposes hereunder. (f) Failure or Indulgence Not Waiver. No failure or delay on the part of the Holder hereof in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available. (g) Amendment Provision. The term "Secured Note" and all reference thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later amended, supplemented or modified, then as so amended, supplemented or modified. (h) Assignability. This Secured Note shall be binding upon the Borrower and its successors and assigns, and shall inure to the benefit of the Holder and its successors and assigns, and may be assigned by the Holder in accordance with the requirements of the Securities Purchase Agreement. This Secured Note shall not be assigned and none of the obligations related hereunder shall be delegated by the Borrower without the prior written consent of the Holder. (i) Usury Limitation. In no event shall the amount paid or agreed to be paid to the Holder for the use or forbearance of money to be advanced hereunder exceed the highest lawful rate permissible under the then applicable usury laws. If it is hereafter determined by a court of competent jurisdiction that the interest payable hereunder is in excess of the amount which the Holder may legally collect under the then applicable usury laws, such amount which would be excessive interest shall be applied to the payment of the unpaid principal balance due hereunder and not to the payment of interest or, if all principal shall previously have been paid, promptly repaid by the Holder to the Borrower. (j) Severability. Every provision of this Secured Note is intended to be severable. If any term or provision hereof is declared by a court of competent jurisdiction to be illegal or invalid, such illegal or invalid term or provision shall not affect the balance of the terms and provisions hereof, which terms and provisions shall remain binding and enforceable. (k) Certain Borrower Waivers. The Borrower and any endorsers of this Secured Note hereby waive diligence, presentment, protest, demand and notice of every kind and, to the fullest extent permitted by law, the right to plead any statute of limitations as a defense to any demand hereunder. [Remainder of Page Intentionally Left Blank] Signature page IN WITNESS WHEREOF, the Borrower has caused this Secured Note to be executed as of the day and year first above written. PHS GROUP INC., a Pennsylvania corporation By: --------------------------- Name: --------------------------- Title: --------------------------- EX-10.3 5 file005.txt Exhibit 10.3 THE SECURITY REPRESENTED BY THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. ANY TRANSFER OF SUCH SECURITY WILL BE INVALID UNLESS A REGISTRATION STATEMENT UNDER THE ACT AND AS REQUIRED BY BLUE SKY LAWS IS IN EFFECT AS TO SUCH TRANSFER OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. PHS Group Inc. Secured Promissory Note Note No. 2007-04 April 5, 2007 $3,945,833.34 FOR VALUE RECEIVED, subject to the terms and conditions of this Secured Promissory Note (the "Secured Note"), PHS GROUP INC., a Pennsylvania corporation with its principal offices located at 223 Underhill Blvd, Syosset, New York, 11971 (the "Borrower"), hereby promises to pay to the order of MILFAM I L.P. (the "Holder") with its principal office located at 4550 Gordon Drive, Naples, Florida, 34102, the principal sum of $3,945,833.34 on January 15, 2012 or, if such day is not a regular Business Day, on the next Business Day thereafter, with all accrued but unpaid interest (as provided below) to such date (the "Maturity Date"). Subject to the terms and conditions of this Secured Note, the Borrower also promises to pay to the Holder interest accrued on the outstanding unpaid principal amount hereof until such principal amount is paid at the rate of 11.75% per annum, from the date hereof. Said interest shall become due quarterly in arrears and shall be payable on the last day of each calendar quarter (each, an 'Interest Payment Date") in respect of the immediately preceding completed calendar quarter. The first Interest Payment Date will be June 30, 2007. Principal will be amortized over ten years and payable, as set forth on Schedule A, in equal monthly installments on the last day of each month beginning on April 30, 2007, with the balance to be paid in full on the Maturity Date. In the event any payment is not timely paid when due, interest shall accrue on such late payment at a per annum rate of eighteen percent (18%) from and including the date of such late payment to (but excluding) the date such late payment is paid in full. All payments due hereunder (whether of principal or interest) shall be payable in lawful money of the United States in immediately available funds. This Secured Note is one of the Secured Notes issued pursuant to that certain Securities Purchase Agreement, dated as of January 19, 2007, by and among the Borrower, the Parent Company and the purchasers named therein, as amended by that certain First Amendment to the Securities Purchase Agreement, as of the date hereof, by and among the Borrower, the Parent Company and the purchasers named therein, and as may be further amended, supplemented or otherwise modified from time to time (the "Securities Purchase Agreement") and shall be entitled to the benefits thereof. The Holder has been granted a security interest in certain assets of the Borrower, the Parent Company, and its Subsidiaries as more fully described in that certain Security, Pledge and Guaranty Agreement, originally dated as of January 19, 2007, and as amended by the parties thereto on the date hereof, and as may be further amended, supplemented or otherwise modified from time to time (the "Security Agreement"). The obligations of the Borrower under this Secured Note have also been guaranteed by certain Subsidiaries of the Parent Company pursuant to and as set forth in the Security Agreement. The Holder of this Secured Note is also entitled to the rights and benefits granted pursuant to that certain Subordination and Intercreditor Agreement, dated as of January 19, 2007, by and among the Borrower, the Parent Company, certain Subsidiaries thereto, Laurus Master Fund, Ltd., the Holder and Lloyd I. Miller, III (as amended, supplemented or otherwise modified from time to time) (the "Subordination Agreement"). 1. Definitions. Unless the context otherwise requires, the following terms shall have the following respective meanings: "Borrower" has the meaning ascribed to such term in the first paragraph of this Secured Note. "Business Day" means any day of the week other than Saturday, Sunday or any other day of the week on which commercial banks in New York, New York are authorized or required by law to close. "Event of Default" has the meaning ascribed to such term in Section 4(a) of this Secured Note. "Holder" has the meaning ascribed to such term in the first paragraph of this Secured Note. "Maturity Date" has the meaning ascribed to such term in the first paragraph of this Secured Note. "Secured Note" has the meaning ascribed to such term in the first paragraph of this instrument. "Security Agreement" has the meaning ascribed to such term in the second paragraph of this Secured Note. "Securities Purchase Agreement" has the meaning ascribed to such term in the second paragraph of this Secured Note. "Subsidiaries" has the meaning ascribed to such term in the Securities Purchase Agreement. 2. Accounting Terms. All accounting terms not specifically defined in this Secured Note shall be construed in accordance with United States generally accepted accounting principles and, if applicable, consistent with those applied in the preparation of the financial statements of the Borrower. 3. Prepayment. The Secured Note may be paid prior to the Maturity Date provided that prior to such repayment the Borrower provides the Holder with five (5) Business Days' advance written notice. 4. Events of Default. (a) Events Constituting An Event of Default. Any of the events set forth in Section 1.11 of the Security Purchase Agreement, which section is incorporated herein by reference, shall constitute an "Event of Default" under this Secured Note. (b) Consequences of an Event of Default. Upon the occurrence of an Event of Default or at any time thereafter, the Holder may, by notice to the Borrower, declare the entire unpaid principal amount of the Secured Note, all interest accrued and unpaid thereon and all other amounts payable under this Secured Note to be forthwith due and payable, whereupon the Secured Note, all such accrued interest and all such amounts will become and be forthwith due and payable (unless there will have occurred an Event of Default under Section 1.11(i) of the Securities Purchase Agreement, in which case all such amounts will automatically become due and payable) without offset or counterclaim of any kind and without presentment, demand, protest or further notice of any kind, and without regard to the running of the statute of limitations, all of which are by this Secured Note expressly waived by the Borrower. 5. General Matters. (a) Applicable Law. This Secured Note shall be governed by the internal laws (and not the law of conflicts) of the State of New York. (b) Fees and Expenses. In the event that any suit or action is instituted to enforce any provision under this Secured Note, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Secured Note, including without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals. Notwithstanding the foregoing, the Borrower agrees to pay and hold Holder harmless against liability for the payment of the reasonable fees and expenses of Holder (including, without limitation, reasonable attorneys' fees and expenses and out of pocket expenses of Holder and its representatives, including, without limitation, fees and expenses for travel, background investigations and outside consultants) arising in connection with any refinancing or restructuring of the credit arrangements provided under this Secured Note in the nature of a "work-out" or pursuant to any insolvency or bankruptcy proceedings. If default is made in the payment of this Secured Note, the Borrower shall pay to Holder's costs of collection, including reasonable attorney's fees. (c) Amendment or Waiver. Any term of this Secured Note may be amended, and the observance of any term of this Secured Note may be waived (either generally or in a particular instance and either retroactively or prospectively) only by the written consent of the Holder. (d) Headings. The headings in this Secured Note are for purposes of convenience of reference only, and shall not be deemed to constitute a part of this Secured Note. (e) Notices. All notices, requests, consents and other communications required or permitted hereunder shall be in writing (including telecopy or similar writing) and shall be sent to the address of the party set forth in the Securities Purchase Agreement. Any notice, request, consent or other communication hereunder shall be deemed to have been given and received on the day on which it is delivered (by any means including personal delivery, overnight air courier, United States mail) or telecopied (or, if such day is not a Business Day or if the notice, request, consent or communication is not telecopied during business hours of the intended recipient, at the place of receipt, on the next following Business Day). Any of the parties hereto may, by notice given hereunder, designate any further or different address and/or number to which subsequent notices or other communications shall be sent. Unless and until such written notice is received, the addresses and numbers as provided herein shall be deemed to continue in effect for all purposes hereunder. (f) Failure or Indulgence Not Waiver. No failure or delay on the part of the Holder hereof in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available. (g) Amendment Provision. The term "Secured Note" and all reference thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later amended, supplemented or modified, then as so amended, supplemented or modified. (h) Assignability. This Secured Note shall be binding upon the Borrower and its successors and assigns, and shall inure to the benefit of the Holder and its successors and assigns, and may be assigned by the Holder in accordance with the requirements of the Securities Purchase Agreement. This Secured Note shall not be assigned and none of the obligations related hereunder shall be delegated by the Borrower without the prior written consent of the Holder. (i) Usury Limitation. In no event shall the amount paid or agreed to be paid to the Holder for the use or forbearance of money to be advanced hereunder exceed the highest lawful rate permissible under the then applicable usury laws. If it is hereafter determined by a court of competent jurisdiction that the interest payable hereunder is in excess of the amount which the Holder may legally collect under the then applicable usury laws, such amount which would be excessive interest shall be applied to the payment of the unpaid principal balance due hereunder and not to the payment of interest or, if all principal shall previously have been paid, promptly repaid by the Holder to the Borrower. (j) Severability. Every provision of this Secured Note is intended to be severable. If any term or provision hereof is declared by a court of competent jurisdiction to be illegal or invalid, such illegal or invalid term or provision shall not affect the balance of the terms and provisions hereof, which terms and provisions shall remain binding and enforceable. (k) Certain Borrower Waivers. The Borrower and any endorsers of this Secured Note hereby waive diligence, presentment, protest, demand and notice of every kind and, to the fullest extent permitted by law, the right to plead any statute of limitations as a defense to any demand hereunder. [Remainder of Page Intentionally Left Blank] IN WITNESS WHEREOF, the Borrower has caused this Secured Note to be executed as of the day and year first above written. PHS GROUP INC., a Pennsylvania corporation By: --------------------------- Name: --------------------------- Title: --------------------------- -----END PRIVACY-ENHANCED MESSAGE-----