Exhibit 10.31
Line of Credit Agreement with
Finova Financial Services
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SECURITY AGREEMENT
(ACCOUNTS RECEIVABLE
INVENTORY AND EQUIPMENT)
BETWEEN
FINOVA CAPITAL CORPORATION
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
AND
GALAXY FOODS COMPANY
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
This Security Agreement, made and entered into in New York,
New York, as of this 1st day of November, 1996 by and
between GALAXY FOODS COMPANY, a corporation existing under and
by virtue of the laws of the State of Delaware, with its
principal place of business located at ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ("Borrower") and FINOVA CAPITAL
CORPORATION, a Delaware corporation, with a place of
business located at ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇ ("FINOVA"). This Agreement sets forth the terms and
conditions upon which FINOVA may, in its sole and absolute
discretion, make loans, advances and other financial
accommodations to or for the benefit of Borrower upon the
security referred to herein.
Section 1. DEFINED TERMS
1.1. All terms used herein which are defined in Article 1
or Article 9 of the Uniform Commercial Code (the "UCC") shall
have the same meaning as given therein unless otherwise
defined in this Agreement. All references to the plural shall
also mean the singular.
1.2. "Account" or "Accounts" shall mean all of
Borrower's present and hereafter created accounts
receivable, contract rights, general intangibles, security
deposits, chattel paper, notes, drafts, acceptances, leases,
lease payments, rents, tax refunds, options to purchase
real or personal property, securities, stock options,
customer lists, insurance claims, patents, patent
applications, documents, instruments, copyrights, claims, and
any other chooses in action, as such terms may be defined
in the UCC, including, without limitation, all
obligations for the payment of money arising out of
Borrower's sale, lease or other disposition of goods or other
property or Borrower's rendition of services, and to all
of Borrower's merchandise which is represented thereby
whether delivered or undelivered, and to all proceeds
thereof including, but not limited to, the proceeds of any
insurance thereon whether or not specifically assigned to
FINOVA.
1.3. "Account Debtor" shall mean each debtor or obligor
in any way obligated on or in connection with any Account.
1.4. "Collateral" shall have the meaning set forth
in Section 4.1 hereof.
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1.5. "Costs and Expenses" shall include, but not be
limited to commissions, fees, appraisal fees, taxes, title
insurance premiums, internal and external audit expenses for
routine and non-routine audits, field examination expenses,
filing, recording and search expenses, reasonable attorney's
fees and disbursements (as may be incurred with respect to
the effectuation of this Agreement or any claim of any
nature or litigation whatsoever arising out of or as a
result of the interpretation of this Agreement or the
financing provided for hereunder, including, but not limited
to, all fees and expenses for the service and filing of
papers, premiums on bonds and undertakings, fees of marshals,
sheriffs, custodians, auctioneers and others, travel expenses
and all court costs and collection charges), Facility Fees (as
defined herein), postage, wire transfer fees, check dishonor
fees and other out of pocket expenses arising out of or
relating to the negotiations, preparation, consummation,
administration and enforcement of this Agreement or any other agreement
between Borrower and FINOVA including, but not limited to any
guaranty of the Obligations (as defined herein).
1.6. "Default Rate of Interest" shall have the meaning set
forth in Section 3.2 hereof.
1.7. "Eligible Accounts" shall mean Accounts created by
Borrower in the ordinary course of its business arising out
of its sale of goods or rendition of services, which are and
at all times shall continue to be acceptable to FINOVA in its
sole and absolute discretion. Standards of eligibility may
be fixed and revised from time to time solely by FINOVA in
its exclusive judgment. In determining eligibility, FINOVA
may, but need not, rely on agings, reports and schedules of
Accounts furnished by Borrower but reliance by FINOVA thereon
from time to time shall not be deemed to limit its right
to revise standards of eligibility at any time without
notice as to both Borrower's present and future Accounts.
1.8. "Events of Default" shall have the meaning set forth
in Section 8.1 hereof.
1.9. "Facility Fee" shall have the meaning set forth in
Section 3.5 hereof.
1.10. "Line of Credit" as used herein is solely for
the purpose of computing the Facility Fee and does not represent
any amount or amounts available for borrowing purposes nor any
limit as to the amount or amounts available for borrowing
purposes, each of which shall be determined at FINOVA's sole
and absolute discretion. Any increase in the Line of Credit
shall be subject to the Borrower's request and consent.
Subject to the preceding sentence, Borrower's Line of Credit is
$2,000,000.
1.11. "Net Amount of Eligible Accounts" shall mean the
gross amount of Eligible Accounts less sales, excise or
similar taxes, and less returns, discounts, claims, credits,
reserves (as determined by FINOVA in its sole discretion) and
allowances of any nature at any time issued, owing,
granted, outstanding, available or claimed.
1.12. "Obligations" shall mean any and all
loans, advances, accommodations, indebtedness, liabilities, Costs
and Expenses and all obligations of every kind and nature
owing by Borrower to FINOVA, however evidenced, whether as
principal, guarantor or otherwise, whether arising under this
Agreement, any supplement hereto, or otherwise, whether now existing
or hereafter arising, whether direct or indirect, absolute
or contingent, joint or several, due or not due,
primary or secondary, liquidated or unliquidated, secured
or unsecured, original, renewed, modified or extended, and
whether arising directly or acquired from others (including,
without limitation, wherever applicable, FINOVA's
participations or interests in Borrower's
obligations to others) and including, without
limitation, FINOVA's charges, of whatever nature,
commissions, interest, expenses, costs and attorneys' fees,
all of which are chargeable to Borrower in connection with any
of the foregoing.
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1.13. "Records" shall have the meaning set forth in
Section 4.1(f) hereof.
1.14. "Renewal Date" shall have the meaning set forth in
Section 9.1 hereof.
1.15 "Service Fee" shall have the meaning set forth in
Section 3.5 hereof.
Section 2. LOANS AND ADVANCES
2.1. FINOVA shall from time to time, in its sole and
absolute discretion, make loans, advances and other
financial accommodations to or for the benefit of Borrower of
up to: (a) 80% of the Net Amount of Eligible Accounts (or
such greater or lesser percentage thereof as FINOVA shall,
in its sole and absolute discretion determine); (b) 35% of
eligible inventory (as determined by FINOVA in its sole and
absolute discretion and priced at the lower of cost or
market) in an amount not to exceed $750,000.
2.2. All Obligations shall be charged to an account in the
Borrower's name as maintained on FINOVA's books. FINOVA
shall render to Borrower a monthly statement of its
account which statement shall be deemed correct, accepted by,
and conclusively binding upon Borrower as an account stated,
except to the extent that Borrower shall deliver to FINOVA
written notice of any specific exceptions thereto within
thirty (30) days after the date such statement is rendered.
2.3. All principal, interest, fees, commissions,
charges, Costs and Expenses incurred with or in respect of this
Agreement or any supplement or amendment hereto (all of
which shall be cumulative and not exclusive) and any and all
Obligations shall be charged as an advance to Borrower's
account as maintained by FINOVA.
2.4. All Obligations shall be payable at FINOVA's office
specified above or at such other place as FINOVA may
hereafter designate from time to time. If requested,
Borrower shall execute and deliver to FINOVA one or more
promissory notes in form and substance satisfactory to FINOVA
to further evidence the Obligations.
Section 3. INTEREST AND FEES
3.1. FINOVA is authorized to charge the Borrower's loan
account as an advance on the first day of each month as
follows: (a) all Costs and Expenses; (b) interest on
Borrower's monthly average loan balance (inclusive of all
advances made pursuant to paragraph 2.1 of this Agreement
together with all costs and expenses charged to Borrower's
account); and (c) Letter of Credit, Guaranty or Acceptance
Fees ("LC Fees"), if any. Interest shall be payable by Borrower
to FINOVA at the per annum Prime Rate (the "Prime Rate") plus 2% (the
"Interest Rate"). As used herein the term "Prime Rate" shall be
deemed to mean the prime commercial rate as published from time to
time in the Wall Street Journal, in effect on the date hereof (whether or
not such rate is the lowest rate available by FINOVA) and as
same may be adjusted upwards or downwards from time to time.
The Interest Rate shall never be less than six (6%) percent
per annum nor greater than the highest rate permitted by
law. Any change in the Interest Rate shall become effective
on the first day of the month following the month in which the
Prime Rate shall have been increased or decreased, as the
case may be. The Interest Rate shall be calculated based on a
three hundred sixty (360) day year for the actual number of
days elapsed and shall be charged to Borrower on all
Obligations. All interest charged or chargeable to Borrower
shall be deemed as an additional advance and shall become
part of the Obligations.
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3.2 In the event any amount to be advanced or charged to
the Borrower under this Agreement together with any
other agreement between us exceeds the amount available to
Borrower pursuant to any percentage or sublimit set
forth in this Agreement (hereinafter sometimes referred to as
an "Overadvance") on each of any day in any month the Interest
Rate charged to the Borrower for that month on all Obligations shall
be at a rate which is one percent (1%) above the Interest Rate
otherwise applicable herein without regard as to whether
any such Overadvance is made with or without FINOVA's knowledge or
consent.
3.3. Borrower agrees that upon the occurrence of any
Event of Default (whether caused by the Borrower, an Account
Debtor or others), the Interest Rate on all Obligations shall
immediately convert to the rate of 1/15th of 1% per day (the
"Default Rate of Interest") and all interest accruing hereunder
together with all Obligations shall thereafter be payable upon
demand.
3.4. In no event shall the Interest Rate or the Default
Rate of Interest exceed the highest rate permitted
under any applicable law or regulation. If any part or provision of
this Agreement is in contravention of any such law or
regulation such part or provision shall be deemed amended to
conform thereto and any payments of interest made in excess
of such highest rate permitted, if any, shall be deemed to
be payments of principal Obligations to the extent of such
excess.
3.5. Borrower shall pay FINOVA an annual Facility Fee in
the amount of 1.25% of the Line of Credit extended by
FINOVA to Borrower. The Facility Fee is payable upon the execution
and delivery of this Agreement and upon each annual anniversary
date of this Agreement until such time as this Agreement
has been terminated in accordance with its terms. In
addition, Borrower shall pay FINOVA a monthly Service Fee in
the amount of $1,000. The Service Fee is due and payable
upon the execution and delivery of this Agreement and on
the first day of each month until such time as this
Agreement has been terminated in accordance with its terms.
3.6 Borrower shall pay FINOVA an Audit Fee in the amount
of $700 per day for each auditor performing an examination of
the Borrower's books and records, such Audit Fee to be in
addition to all other Costs and Expenses incurred by FINOVA
with regard to each such examination, all of which shall be
deemed part of the Obligations.
Section 4. GRANTING PROVISIONS
4.1. As security for the prompt performance, observance
and payment in full of all Obligations, Borrower hereby
grants to FINOVA a continuing security interest in, lien upon and right
of setoff against, and Borrower hereby assigns, transfers,
pledges and sets over to FINOVA the following (which, together
with any of Borrower's other property in which FINOVA may at
any time have a security interest or lien, whether pursuant
to any supplement or amendment hereto, or otherwise, all of
which are herein collectively referred to as the
"Collateral"): (a) All of Borrower's present and future Accounts;
(b) all of Borrower's monies, securities and other property and the
proceeds thereof, now or hereafter held or received by, or
in transit to, FINOVA from or for Borrower, or for the account
of Borrower, whether for safekeeping, pledge, custody,
transmission, collection or otherwise, and all of Borrower's
deposits (general or special) including, but not limited to security
deposits, balances, sums and credits with FINOVA at any time existing
or with a third party for the Borrower's account; (c) all
of Borrower's present and future right, title and interest,
and all of Borrower's present and future rights, remedies,
security and liens, in, to and in respect of the Accounts and
other Collateral, including, without limitation, rights of stoppage in
transit, replevin, repossession and reclamation and other
rights and remedies of an unpaid vendor, lienor or secured party,
guarantees or other contracts of suretyship with respect to the Accounts,
deposits or other security for the obligation of any Account
Debtor, and credit and other insurance; (d) all of
Borrower's present and future right, title and interest in,
to and in respect of all goods relating to, or which by sale
have resulted in, Accounts including, without limitation,
all goods described in invoices, documents, contracts or
instruments with respect to, or otherwise representing or
evidencing, any Accounts or other Collateral, including
without limitation, all returned, reclaimed or
repossessed goods; (e) all of Borrower's present and
future deposit accounts; (f) all of Borrower's present and
future books, records, ledger cards, computer programs
(including all software and data contained in or by any
computer whether in the possession of the Borrower or any
other party) and other property and general intangibles
evidencing or relating to the Accounts and any other
Collateral or any Account Debtor, together with the file
cabinets, containers, tapes or disks, in which the foregoing
are stored ("Records"); (g) all of Borrower's presently owned
or hereafter acquired inventory; (h) all of Borrower's
machinery and equipment, set forth on schedule 4.1 annexed
hereto and made a part hereof; (i) all other of Borrower's
present and future general intangibles of every kind and
description, including, without limitation, customer lists,
stock options, patent, and the goodwill of the business
symbolized thereby, patents, copyrights, licenses and
Federal, State and local tax refund claims, leases, rents
and insurance claims of all kinds; and (j) all proceeds of
the foregoing, in any form, including, without limitation, all
claims against third parties for loss or damage to or
destruction of any or all of the foregoing. The security
interests granted herein shall remain effective whether or
not the Collateral covered thereby is acceptable to FINOVA or
deemed by it to be ineligible for the purposes of any loans or
advances contemplated under this Agreement.
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4.2. Borrower shall deliver to FINOVA a duplicate
and/or original invoice, and all original documents
evidencing the delivery of goods or the performance of
services with regard to each Account, including but not
limited to all original contracts, orders, invoices, bills
of lading, warehouse receipts, delivery tickets and shipping
receipts, together with schedules describing the Accounts
and/or written confirmatory assignments to FINOVA of each
Account, in form and substance satisfactory to FINOVA and
duly executed by Borrower, together with such other
information as FINOVA may request. In no event shall the
making (or the failure to make) of any schedule or assignment
or the content of any schedule or assignment or Borrower's
failure to comply with the provisions hereof be deemed or
construed as a waiver, limitation or modification of
FINOVA's security interest in, lien upon and assignment of
the Collateral or Borrower's representations, warranties or
covenants under this Agreement or any supplement or amendment
hereto.
Section 5. ENFORCEMENT OF RIGHTS IN AND TO COLLATERAL
5.1. Until Borrower's authority to do so is curtailed
upon alleging the occurrence of an Event of Default or
terminated at any time by FINOVA in its sole and absolute
discretion, Borrower shall (at Borrower's expense) collect
on FINOVA's behalf as FINOVA's property and in trust for
FINOVA, and deliver to FINOVA in their original form on the
same date as the date of the actual receipt thereof, all
checks, drafts, notes, acceptances, cash, wire transfers and
any other evidences of payment, applicable to any assigned
Account ("Collection"). Five (5) working days shall be
allowed subsequent to receipt by FINOVA of all collections to
permit bank clearance and Collection.
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5.2. FINOVA or FINOVA's representatives shall during
regular business hours have free access to and right of
inspection of the Collateral and have full access to and the right
to examine and make copies of Borrower's Records, to confirm and
verify all Accounts, to perform general audits. FINOVA may
at any time remove from Borrower's premises or require
Borrower or its accountants or auditors to deliver any
Records to FINOVA. FINOVA may, at Borrower's cost and
expense, use any of Borrower's personnel, supplies,
computer equipment (including all computer programs, software
and data) and space at Borrower's places of business or at
any other place as FINOVA may designate, as may be reasonably
necessary for the handling of collections.
5.3. Merchandise received in settlement of any
assigned Account shall be received in trust for, segregated
and delivered to or for the account of FINOVA. All returns
of merchandise, credits, issued by Borrower, claims or
disputes of Account Debtors whether or not accepted by
Borrower or given an allowance of any nature shall be
reported by Borrower to FINOVA at least weekly. Each such
report shall be accompanied by copies of all documentation
provided to Borrower in support of all merchandise returns,
credits, claims and disputes. Borrower shall
immediately upon obtaining knowledge thereof report to FINOVA
all reclaimed, repossessed and returned goods, Account Debtor
claims and any other matter affecting the value,
enforceability or collectability of Accounts. At FINOVA's
request, any goods reclaimed or repossessed by or returned to
Borrower will be set aside, marked with FINOVA's name and
held by Borrower (at Borrower's place of business or at such
other place as FINOVA may designate) for FINOVA's account and
subject to FINOVA's security interest.
5.4 All claims and disputes relating to Accounts shall
be resolved by Borrower within a reasonable time at Borrower's
own cost and expense.
5.5. FINOVA is authorized and empowered at any time,
upon alleging the occurrence of an Event of Default, to
compromise or extend the time for payment of any Account, for
such amounts and upon such terms as FINOVA may in its sole
discretion determine, and to accept the return of the
merchandise represented by any Account, all without notice
to or consent by Borrower, and without discharging or
affecting Borrower's Obligations hereunder to any extent, and
Borrower will, upon demand, pay to FINOVA the amount of any
allowance given or authorized by FINOVA hereunder. FINOVA
shall have the right (in addition to its other rights
hereunder or otherwise), upon alleging the occurrence of an
Event of Default and without notice to Borrower, to
appropriate, set off and apply to the payment of any or all
of the Obligations, any portion or all of the Collateral, in
such manner as FINOVA shall in FINOVA's sole discretion
determine, to enforce payment of any Collateral, to settle,
compromise or release in whole or in part, any amounts owing
on any Collateral, to prosecute any action, suit or
proceeding with respect to the Collateral, to extend the
time of payment of any and all Collateral, to make allowances
and adjustments with respect thereto, to issue credits in
FINOVA's or Borrower's name, to sell, assign and deliver the
Collateral (or any part thereof) at public or private sale,
for cash, upon credit or otherwise at FINOVA's sole
option and discretion, and FINOVA may bid or become purchaser
at any such sale, free from any right of redemption which is
hereby expressly waived. Any public or private sale of the
Collateral shall be deemed reasonable to the extent
Borrower shall have received written notice of such sale at
least five (5) days prior to its occurrence and shall not
have delivered written objection to FINOVA.
SECTION 6. REPRESENTATIONS AND WARRANTIES
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Borrower hereby represents, warrants and covenants to
FINOVA the following (which shall survive the execution and
delivery of this Agreement), the truth and accuracy of which,
and continuing compliance with, being a continuing condition of
the making of all loans and advances hereunder by FINOVA or under
any supplement or amendment hereto:
6.1. Except as set forth in Schedule 6.1 annexed hereto
and made a part hereof Borrower is and shall be the owner
of the Collateral free and clear of all liens, security interests,
claims and encumbrances of every kind and nature, except
in FINOVA's favor or as otherwise consented to in writing by
FINOVA, and Borrower shall indemnify and defend FINOVA from
and against all cost, loss and expense with regard to the same. None
of Borrower's Accounts nor any of its inventory has been
previously sold or assigned to any person, firm or corporation and will
not be sold or assigned, other than to FINOVA, at any time
during the term of this Agreement without first obtaining
FINOVA's consent in writing. Borrower shall not execute any
security agreement or UCC financing statement in favor of any
other party or borrow against the security of any corporate
asset, including but not limited to the Collateral,
without first obtaining FINOVA's consent in writing which
shall not be unreasonably withheld.
6.2. (a) Without first obtaining FINOVA's consent in
writing Borrower will not directly or indirectly sell, lease,
transfer, abandon or otherwise dispose of all or any portion
of Borrower's property or assets (except in the ordinary course
of business) or consolidate or merge with or into any other
entity or permit any other entity to consolidate or merge with
or into Borrower;
(b) Borrower will preserve, renew and keep in
full force and effect Borrower's existence and good standing as a
corporation and its rights and franchises with respect thereto;
(c) Borrower will continue to engage in business of
the same type as Borrower is engaged as of the date hereof; and
(d) Borrower will give FINOVA thirty (30) days
prior written notice of any proposed change in Borrower's
corporate name which notice shall set forth the new name.
6.3. Borrower's Records and principal executive office
are maintained at the address referred to herein. Borrower
shall not change such location without FINOVA's prior written
consent which shall not be unreasonably withheld and prior to
making any such change, Borrower agrees to execute any
additional financing statements or other documents or notices
which FINOVA may require.
6.4. Borrower shall maintain its shipping forms, invoices
and other related documents in a form satisfactory to FINOVA
and shall maintain its books, records and accounts in
accordance with generally accepted accounting principles consistently
applied. Borrower agrees to furnish FINOVA monthly with
accounts receivable agings, inventory reports (if requested by
FINOVA), and interim financial statements (including balance
sheet, statement of income and surplus account, and cash flow statement)
hereafter collectively referred to as "Interim Financial
Statements"), and to furnish FINOVA, at any time or from time to time
with such other information regarding Borrower's business
affairs and financial condition as FINOVA may reasonably request, including,
without limitation, cash flow and other projections,
earnings forecasts, schedules, agings and reports. Borrower hereby
irrevocably authorizes and directs all accountants, auditors and
any other third parties to deliver to FINOVA, at Borrower's expense,
copies of Borrower's financial statements, papers related thereto, and
other accounting records of any kind or nature in their possession and
to disclose to FINOVA any information they may have regarding Borrower's
business affairs and financial condition. Borrower shall furnish
FINOVA with audited financial statements within one hundred twenty (120)
days of the end of its fiscal year end certified by independent
public accountants selected by Borrower and as to whom FINOVA
has no objection. All financial statements and information
shall fairly present Borrower's financial condition and the results
of Borrower's operations for the periods in which the
financial statements are furnished. FINOVA consents to
Borrower's employment of BDO ▇▇▇▇▇▇▇ as its accountants or any
other acceptable accountant.
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6.5. Each Account represents a valid and legally
enforceable indebtedness based upon a bona fide sale and
delivery of goods or rendition of services usually dealt in
by Borrower in the ordinary course of its business which
has been finally accepted by the Account Debtor. Each
Account is and will be for a liquidated amount maturing
as stated in the invoice rendered to the Account Debtor who
is unconditionally liable to make payment at maturity of the
amount stated in each invoice, document or instrument
evidencing the Account in accordance with the terms thereof,
and at the time of its creation without offset, defense,
deduction, counterclaim, discount or condition. Every
assigned Account, and any evidence of indebtedness with
respect thereto shall be paid in full at maturity. If any
Account is not paid in full at maturity, the amount of such
unpaid Account (whether in whole or in part) may be charged
against and deducted from any advance then or thereafter made
by FINOVA to Borrower or, in the event Borrower then has no
borrowing availability, Borrower shall pay FINOVA, upon
demand, the full amount remaining unpaid thereon. Such
payment or deduction shall not constitute a reassignment,
and FINOVA may retain the Account as collateral for all
Obligations of Borrower to FINOVA until the same have been
fully satisfied.
6.6. All statements made and all unpaid balances appearing
in the invoices, documents and instruments evidencing
each Account are true and correct and are in all respects
what they purport to be and to the best of Borrower's
knowledge all signatures and endorsements that appear thereon
are genuine and all signatories and endorsers have full
capacity to contract. To the best of Borrower's knowledge,
each Account Debtor is solvent and financially able to pay in
full each Account when it matures. None of the transactions
underlying or giving rise to any Account shall violate any
state or federal laws or regulations, and all documents
relating to the Accounts shall be legally sufficient under
such laws or regulations and shall be legally enforceable in
accordance with their terms and all recording, filing and
other requirements of giving public notice under any
applicable law have been and shall be duly complied with.
6.7. Borrower is solvent and will so remain. Borrower's
federal, state and local taxes of every kind and
nature, including, but not limited to employment taxes, are
current, and there are no pending tax audits or examinations
with respect to Borrower's federal, state or local tax
returns.
6.8 Borrower shall duly pay and discharge all taxes,
assessments, contributions and governmental charges upon
or against it or its properties or assets prior to the date on
which penalties attach thereto. Borrower shall be liable for
all taxes and penalties imposed upon any transaction under
this Agreement or any supplement or amendment hereto or
giving rise to the Accounts or any other Collateral or
which FINOVA may be required to withhold or pay for any
reason. Borrower agrees to indemnify and hold FINOVA
harmless with respect thereto, and to repay to FINOVA on
demand the amount thereof, and until paid by Borrower such
amounts shall be added to and included in Borrower's
Obligations.
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6.9. There is no investigation by any state, federal or
local agency pending or to the best of Borrower's
knowledge threatened against Borrower and there is no
action, suit, proceeding or claim pending or to the
best of Borrower's knowledge threatened against Borrower or
Borrower's assets or goodwill or affecting any transactions
contemplated by this Agreement, or any supplement or amendment hereto,
or any agreements, instruments or documents delivered in
connection herewith or therewith before any court,
arbitrator, or governmental or administrative body or agency which if
adversely determined with respect to Borrower would result in
any material adverse change in Borrower's business, properties, assets,
goodwill or condition, financial or otherwise.
6.10. The execution, delivery and performance of this
Agreement, any supplement or amendment hereto, or any
agreements, instruments and documents executed and delivered
in connection herewith, are within Borrower's corporate
powers, have been duly authorized, are not in contravention
of law or the terms of Borrower's charter, by-laws or other
incorporation papers, or of any indenture, agreement or undertaking
to which Borrower is a party or by which Borrower is bound.
6.11. Borrower shall keep and maintain, at its sole cost
and expense, satisfactory and complete Records including
records of all Accounts, all payments received and
credits granted thereon, and all other dealings therewith.
Upon the sale of goods or the rendering of services, Borrower shall
make appropriate entries in its books and records disclosing
such assignments of Accounts to FINOVA, and shall execute and
deliver all papers and instruments, and do all things
necessary to effectuate this Agreement and facilitate the collection of
the Accounts. FINOVA is hereby vested with all of Borrower's
rights, securities and guarantees with respect to each Account,
including the right of stoppage in transit. Notwithstanding
the failure of Borrower to execute and deliver such
written assignment as aforesaid, each Account created by Borrower
shall be deemed assigned to FINOVA and shall become its property.
6.12. If any Account Debtor of Borrower shall reject or
return any of the goods which created an assigned
Account, Borrower shall promptly notify FINOVA. Borrower
shall use its best effort to re-sell the same and shall
remain liable for any difference between the original
invoice price and the net proceeds of re-sale.
Notwithstanding the foregoing, FINOVA may require Borrower to
pay to it the original invoice price of such rejected or
returned goods. In case any such goods shall be re sold, the
Account thereby created shall be FINOVA's property and shall
be deemed assigned hereunder.
6.13. All monies, Accounts and other property of
Borrower which may come into FINOVA's possession in any
manner, and all sums to the credit of Borrower may be retained
by FINOVA and applied to the Obligations. Borrower's
obligations as set forth in the preceding sentence shall
remain applicable and enforceable as against Borrower should
FINOVA be merged into or with any other entity, including, but not
limited to, its parent corporation. Borrower absolutely and unconditionally
guarantees and grants a security interest to FINOVA in and to
all of its Collateral to secure any and all Obligations.
6.14. FINOVA's agents and examiners shall have the right
at any time during Borrower's regular business hours to
review, inspect, examine, check and make copies of
extracts from Borrower's Records.
6.15. Borrower shall, at Borrower's expense, duly
execute and deliver, or shall cause to be duly executed
and delivered, such further agreements, instruments and
documents, including, without limitation, additional security
agreements, mortgages, deeds of trust, deeds to secure debt,
collateral assignments, UCC financing statements or
amendments and continuations thereof, landlord's or mortgagee's waivers of
liens and consents to the exercise by FINOVA of all of its
rights and remedies hereunder, under any supplement or
amendment hereto, or applicable law with respect to the Collateral. In
addition, Borrower shall do or cause to be done such further
acts as may be necessary or proper, in FINOVA's opinion, to
evidence, perfect, maintain and enforce its security
interest and the priority thereof in and to the
Collateral and to otherwise effect the provisions and
purposes of this Agreement or any supplement or amendment hereto.
Where permitted by law, Borrower hereby authorizes FINOVA to execute
and file one or more UCC financing statements covering the Collateral
signed only by FINOVA.
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6.16. Borrower shall, at Borrower's expense,
maintain insurance covering the Collateral in such amounts and
with such insurance companies as may be acceptable to FINOVA
in its sole and absolute discretion. Borrower shall have
FINOVA named as mortgagee, loss payee and additional insured on all
such insurance policies. In the event Borrower shall fail to
maintain insurance acceptable to FINOVA, FINOVA without notice,
may obtain such insurance in the name of the Borrower and
charge Borrower's account with the costs and expenses of
such insurance. All expenses incurred by FINOVA with regard to such
insurance policies shall be deemed part of the Obligations. Borrower
represents that FINOVA shall be named as loss payee on
the insurance quotation set forth in Schedule 6.16 attached
hereto and made a part hereof and FINOVA consents to such
insurance for the purposes hereof.
6.17. Borrower hereby grants to FINOVA a license to
use all of its trademarks and copyright applications, trade
names and trademarks (collectively, the "Trademarks") in
connection with the sale of its Collateral or any of it,
including but not limited to Borrower's inventory. Borrower
represents, warrants and covenants to FINOVA that Borrower
will not sell, lease, assign, encumber, pledge or
hypothecate its Trademarks or grant exclusive licenses with
respect thereto without FINOVA's prior consent.
Section 7. ADDITIONAL POWERS
7.1. FINOVA shall have the right at any time in its sole
and absolute discretion: (a) to notify Account Debtors
that Borrower's Accounts have been assigned to and are payable
to FINOVA; and (b) to collect any and all Accounts directly in
its own name and charge all of its collection costs and
expenses including, but not limited to, its legal
expenses to the Borrower's account as part of the
Obligations.
7.2. Borrower hereby appoints FINOVA or FINOVA's designee
as Borrower's attorney-in-fact, at Borrower's own cost and
expense, to exercise at any time all or any of the following
powers which, being coupled with an interest, shall be
irrevocable until all Obligations have been paid in full:
(a) upon FINOVA alleging an Event of Default, to redirect, receive,
open and dispose of all mail addressed to Borrower and to notify postal
authorities to change the address for delivery thereof to such address as
FINOVA may designate; (b) to execute and file in
Borrower's name financing statements and amendments under
the UCC; (c) to receive, take, endorse, assign, deliver, accept
and deposit, in FINOVA's or Borrower's name, any and all checks, notes,
drafts, acceptances, money orders, remittances or other
evidences of payment of money or Collateral which may come into
FINOVA's possession; (d) to sign Borrower's name on any
drafts against Account Debtors, assignments and verifications
of Accounts; (e) upon FINOVA alleging an Event of Default, to
transmit to Account Debtors notice of FINOVA's interest
therein and to request from such Account Debtors at any time, in
FINOVA's or Borrower's name or that of FINOVA's designee, information
concerning the Accounts and the amounts owing thereon; (f) upon FINOVA
alleging an Event of Default to notify Account Debtors to make
payment directly to FINOVA; (g) upon FINOVA alleging an Event
of Default, to take or bring, in FINOVA's or Borrower's name,
and in FINOVA's sole and absolute discretion all steps,
actions, suits or proceedings deemed necessary or desirable
by FINOVA to effect collection of the Collateral; and (h) to
do all other acts and things necessary to carry out this
Agreement. Borrower hereby releases FINOVA and FINOVA's
officers, employees and designees, from all liability (other
than acts of gross negligence or wanton misconduct)
arising from any act or acts under this Agreement or
in furtherance thereof, whether by omission or commission,
and whether based upon any error of judgment or mistake of
law or fact.
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Section 8. EVENTS OF DEFAULT
8.1. All Obligations shall be, at FINOVA's
option, immediately due and payable without notice or demand
and the provision of this Agreement (or any supplement or
amendment hereto) as to future loans and advances to or for the
benefit of Borrower shall, at FINOVA's option, terminate
forthwith upon the occurrence of any one or more of the
following events of default (the "Events of Default"): (a)
if Borrower shall fail to pay FINOVA when due any amounts
owing to FINOVA under any Obligation, or shall breach any
of the terms, covenants, conditions or provisions of this
Agreement, any supplement or amendment hereto or any other
agreement between Borrower and FINOVA; (b) if any entity
liable on the Obligations shall terminate or breach any of the
terms, covenants, conditions or provisions of any guaranty,
endorsement or other agreement of such person with, or in
favor of FINOVA; (c) if any representation, warranty, or
statement of fact made to FINOVA at any time by Borrower or
on Borrower's behalf is false or misleading; (d) if Borrower,
or any guarantor, endorser or other person liable on the
Obligations shall become insolvent, fail to meet its or their
debts as they mature, call a meeting of creditors or have a
creditors' committee appointed, make an assignment for the
benefit of creditors, commence or have commenced by or against
Borrower or any guarantor, endorser or other person liable
on the Obligations any action not dismissed within 30 days or
proceeding for relief under any bankruptcy law, or if a
judgment in excess of $25,000 is entered against Borrower or
any guarantor, endorser or other person liable on the
Obligations (which has not been bonded or otherwise secured)
or if Borrower or any guarantor, endorser or other person
liable on the Obligations suspends or discontinues doing
business for any reason, or if a receiver, custodian or
trustee of any kind is appointed with regard to any property
of Borrower or guarantor, endorser or other person liable on
the Obligations; (e) if there shall be a material adverse
change in Borrower's business, assets or condition (financial
or otherwise) from the date hereof; or (f) if at any time
FINOVA shall, in FINOVA's sole and absolute discretion,
consider the Obligations insecure or any part of the
Collateral unsafe, insecure or insufficient and Borrower
(or other person or entity acting on Borrower's behalf) shall
not on FINOVA's demand furnish other Collateral or make
payment on account, satisfactory to FINOVA.
8.2. In the event FINOVA seeks to take possession of all
or any portion of the Collateral by judicial process
(including, but not limited to, FINOVA obtaining an order
of attachment, a temporary restraining order, a
preliminary or permanent injunction or otherwise) against
the Borrower or with regard to the Collateral, Borrower
irrevocably waives: (a) the posting of any bond, surety or
security with respect thereto which might otherwise be
required, (b) any demand for possession prior to the
commencement of any suit or action to recover the Collateral,
and (c) any requirement that FINOVA retain possession and not
dispose of any Collateral until after trial or final judgment.
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8.3. Borrower agrees that the giving of five (5)
days' notice by FINOVA, sent by ordinary mail, postage prepaid, to
Borrower's address set forth herein, designating the place
and time of any public sale or of the time after which any
private sale or other intended disposition of the Collateral
is to be made, shall be deemed to be reasonable notice thereof and
Borrower waives any other notice with respect thereto.
8.4. The net cash proceeds resulting from the exercise
of any of FINOVA's rights or remedies under this Agreement,
under the UCC or otherwise, shall be applied by FINOVA to the
payment of the Obligations in such order as FINOVA may
elect, and Borrower shall remain liable to FINOVA for
any deficiency. Without limiting the generality of the
foregoing, if FINOVA enters into any credit transaction, directly
or indirectly, in connection with the disposition of any Collateral,
FINOVA shall have the option, at any time, in FINOVA's sole and
absolute discretion, to reduce the Obligations by the
amount of such credit transaction or any part thereof or to defer the
reduction thereof until actual receipt by FINOVA of cash in
connection therewith.
8.5. The enumeration of the foregoing rights and remedies
is not intended to be exclusive, and such rights and remedies
are in addition to and not by way of limitation of any other
rights or remedies FINOVA may have under the UCC or other
applicable law. FINOVA shall have the right, in FINOVA's sole
and absolute discretion, to determine which rights and remedies, and in
which order any of the same, are to be exercised, and to determine
which Collateral is to be proceeded against and in which
order, and the exercise of any right or remedy shall not preclude
the exercise of any others, all of which shall be cumulative.
8.6. No act, failure or delay by FINOVA shall constitute
a waiver of any of its rights or remedies. No single or
partial waiver by FINOVA of any provision of this Agreement or
any supplement or amendment hereto, or breach or default
thereunder, or of any right or remedy which FINOVA may have
shall operate as a waiver of any other provision, breach,
default, right or remedy or of the same provision, breach,
default, right or remedy on a future occasion.
8.7. Borrower waives presentment, notice of
dishonor, protest and notice of protest of all instruments
included in or evidencing any of the Obligations or the
Collateral and any and all notices or demands whatsoever
(except as expressly provided herein). FINOVA may, at all
times, proceed directly against Borrower or any guarantor or
endorser to enforce payment of the Obligations and shall not
be required to take any action of any kind to preserve,
collect or protect FINOVA's or Borrower's rights in the
Collateral.
Section 9. MISCELLANEOUS
9.1. This Agreement shall become effective upon
acceptance by FINOVA and shall continue in full force and
effect for a term ending two (2) years from the date hereof (the
"Renewal Date") and from year to year thereafter, unless and until
terminated pursuant to the terms hereof. In addition to
FINOVA's right to declare this Agreement immediately
terminated at any time upon the occurrence of an Event of
Default, either party may terminate this Agreement on the
Renewal Date or on the anniversary of the Renewal Date in any
year by giving the other party at least sixty (60) days prior
written notice by registered or certified mail, return
receipt requested. No termination of this Agreement,
however, shall relieve or discharge Borrower of
Borrower's duties, obligations and covenants hereunder until
all Obligations have been paid in full and FINOVA's continuing
security interest in and to the Collateral shall remain in effect until all
such Obligations have been fully discharged.
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9.2. If FINOVA terminates this Agreement upon the
occurrence of an Event of Default or if Borrower terminates
this Agreement as to future transactions other than on the
Renewal Date or any anniversary of the Renewal Date, in view
of the impracticality and extreme difficulty in ascertaining
FINOVA's actual damages and by mutual agreement of the
parties as to a reasonable calculation of FINOVA's lost
profits as a result thereof, Borrower hereby agrees that it
shall immediately pay to FINOVA by wire
transfer, certified check or bank cashier's check,
Borrower's entire Obligations owing thereunder, plus
liquidated damages of an amount equal to : (a) five percent
(5%) of the Line of Credit if this Agreement is terminated
prior to October 30, 1997; and (b) four percent (4%) of the
Line of Credit if this Agreement is terminated during the
period from October 31, 1997 to October 30, 1998. Prior to
its actual receipt of payment as aforesaid, FINOVA shall be
free to exercise, without limitation, all of its rights
under this Agreement or under any other agreement it may
then have with Borrower. Borrower's default of any
provision under this Agreement may be considered and
construed at the sole option of FINOVA, as a termination of
this Agreement by Borrower. The liquidated damages provided
for in this paragraph 9.2 shall be deemed included in the
Obligations and shall be presumed to be the amount of damages
sustained by FINOVA due to the Borrower's early
termination and Borrower agrees that such damages are
reasonable and appropriate under the circumstances currently
existing.
9.3. This Agreement, and any supplement or amendment
hereto and any agreements, instruments or documents delivered or to
be delivered in connection herewith, constitute the entire
agreement and understanding between FINOVA and Borrower
concerning the subject matter hereof and thereof and as
such supersedes all other prior or contemporaneous
agreements, understandings, negotiations and discussions,
representations, warranties, commitments, offers, contracts,
whether written or oral, all of which are merged into this
Agreement. FINOVA and Borrower agree that neither party
shall be bound by anything not expressed herein, nor shall
this Agreement be modified orally.
9.4. All amendments to and modifications of this
Agreement shall be in writing and signed by Borrower and FINOVA,
which requirement shall not be modified by oral agreement or by
course of conduct.
9.5. All notices, requests and demands to or upon
the respective parties hereto shall be deemed to have been duly
given or made: (a) by hand, immediately upon sending: (b) upon
posting if by Federal Express, Express Mail or any other
overnight delivery service; or (c) upon posting if by
certified mail, return receipt requested. All notices,
requests and demands are to be given or made to the
respective parties at the addresses set forth herein or at
such other addresses as either party may designate in writing
by notice in accordance with the provisions of this paragraph.
9.6. Borrower and FINOVA each hereby waive all rights to a
trial by jury in any action or proceeding of any kind arising
out of or relating to this Agreement, any supplement or
amendment hereto, the Obligations, the Collateral or any
such other transaction. Borrower hereby waives all of its
rights of setoff and rights to interpose any defenses and/or
counterclaims in the event of any litigation with respect to
any matter connected with this Agreement, any supplement or amendment
hereto, the Obligations, the Collateral or any other transaction between
the parties. Borrower hereby irrevocably consents and submits
to the jurisdiction and venue of the Supreme Court of the State of
New York or the United States District Court for the
Southern District of New York in connection with any action or
proceeding of any kind arising out of or relating to this
Agreement, any supplement hereto, the Obligations, the
Collateral or any such other transaction. Borrower agrees
that any action brought by it against FINOVA whether with
regard to this Agreement or otherwise shall be subject to the
exclusive jurisdiction and venue of the Supreme Court of the
State of New York, County of New York or the United States
District Court for the Southern District of New York.
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9.7. In any litigation brought by FINOVA, Borrower waives
personal service of any summons, complaint or other process
and agrees that service thereof may be made by
certified or registered mail directed to Borrower at Borrower's address
set forth below and service so made shall be complete two (2)
days after the same shall have been posted. Within twenty
(20) days after such mailing, Borrower shall appear and
answer such summons, complaint or other process, failing which
Borrower shall be deemed in default and judgment may be
entered by FINOVA against Borrower for the amount of the
claim and for any other relief requested therein.
9.8. This Agreement and all transactions hereunder are
deemed to be consummated in the State of New York and shall
be governed by and interpreted in accordance with the
substantive and procedural laws of the State of New York. If
any part or provision of this Agreement shall be determined
to be invalid or in contravention of any applicable law or
regulation of the controlling jurisdiction, such part or
provision shall be severed without affecting the validity of
any other part or provision of this Agreement.
9.9 Borrower hereby consents to and authorizes FINOVA to
issue appropriate press releases and to cause a tombstone to
be published announcing the consummation of this transaction
and the aggregate amount thereof.
9.10. This Agreement shall inure to and be binding upon
the parties hereto and their successors and assigns.
ATTEST: GALAXY FOODS COMPANY
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
ACCEPTED:
FINOVA CAPITAL CORPORATION
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Assistant
Vice President