LOAN AND SECURITY AGREEMENT

 

Exhibit 10.21

 

LOAN AND SECURITY AGREEMENT

 

 

THIS LOAN AND SECURITY AGREEMENT made as of February 17, 2009, by and between STERLING NATIONAL BANK, a national banking association, having an office located at 500 Seventh Avenue, New York, New York 10018 (hereinafter referred to as the "Bank" or "Secured Party"), and COFFEE HOLDING CO., INC. , a Nevada corporation, with its principal and executive offices located at 4401 First Avenue, Suite 1507, Brooklyn, New York 11232 (hereinafter referred to as the "Borrower" or "Debtor");  

 

W I T N E S S E T H :

 

 

WHEREAS, the Borrower desires the Bank to make extensions of credit to the Borrower, and the Bank has agreed to make such extensions of credit upon certain terms and conditions set forth herein and in other agreements, instruments and documents executed in conjunction herewith;

 

NOW, THEREFORE, in consideration of the premises and mutual agreements herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

SECTION 1.   DEFINITIONS AND TERMS

 

1.1

Defined Terms .   As used in this Agreement, the following words and terms shall have the following meanings:

 

"Accounts" or "Accounts Receivable" shall mean, in addition to the definition of the term "account" contained in the UCC, any and all obligations of any kind at any time due and/or owing to the Debtor (including any such obligation that might be characterized or classified under the UCC as accounts, contract rights, chattel paper, general intangibles or otherwise), and all rights of the Debtor to receive payment or any other consideration whether arising from goods sold or leased by the Debtor or services rendered or otherwise, whether or not such right has been earned by performance, whether secured or unsecured, including without limitation, invoices, contract rights, accounts receivable, notes, drafts, acceptances, instruments, refunds, including tax refunds, and all other debts, obligations and liabilities in whatever form owing to the Debtor from any Person, all security and guaranties therefor, all of the Debtor's rights in, to and under all purchase orders heretofore, now or hereafter received by the Debtor for goods or services, and all Debtor's rights to goods sold (whether delivered, undelivered, in transit or returned) which may be represented thereby, including all of Debtor's rights as an unpaid vendor or lienor, including stoppage in transit, replevin and reclamation, whether now existing or hereafter arising, and

 

all books, records, ledger cards and other tangible and intangible property pertaining to same including records, computerized data,  and software.

 

"Account Debtor" shall mean a Person obligated on an Account, chattel paper or a general intangible.

 

"Advances" shall mean any monies advanced, loans made, or credit extended to Borrower by the Bank hereunder.

 

"Affiliate" of any Person shall mean (a) any Person which, directly or indirectly, is in control of, is controlled by, or is under common control with such Person, or (b) any Person who is a director or officer or manager (i) of such Person, (ii) of any Subsidiary of such Person or (iii) of any Person described in clause (a) above. For purposes of this definition, control of a Person shall mean the power, direct or indirect, to vote 5% or more of the securities or membership interests having ordinary voting power for the election of directors or managers of such Person, or to direct or cause the direction of the management and policies of such Person whether by contract or otherwise.

 

"Agreement" shall mean this Loan and Security Agreement, together with any and all exhibits, schedules, amendments or supplements hereto.

 

"Anti-Terrorism Laws" shall mean any applicable laws relating to terrorism or money laundering, including Executive Order No. 13224, the USA Patriot Act, applicable laws comprising or implementing the Bank Secrecy Act, and applicable laws administered by the United States Treasury Department’s Office of Foreign Asset Control (as any of the foregoing may from time to time be amended, renewed, extended, or replaced).

 

"Bank" shall mean STERLING NATIONAL BANK , its affiliates and subsidiaries, and all successors and assigns thereof (also referred to as "Secured Party" and "Lender").

 

"Base Rate" shall mean the base commercial lending rate of interest of the Bank in effect from time to time, such rate to be adjusted automatically, without notice, on the effective date of any change in such rate. This rate of interest is determined from time to time by the Bank, in its sole discretion, as a means of pricing some loans to its customers and is not tied to any external rate of interest or index. The Bank may price loans to any of its customers at, above or below the Base Rate and the Base Rate does not necessarily reflect the lowest rate of interest actually charged by the Bank to any particular customer of the Bank. Any change in the Base Rate will take effect at the opening of business on the day of a change in the Bank's Base Rate.

 

"Borrower" shall mean COFFEE HOLDING CO., INC. , together with all successors and assigns thereof (also referred to herein as "Debtor" and "Obligor").

 

"Borrower's Availability" shall mean, as of any date of determination, the amount computed under the Borrowing Base less the outstanding principal balance currently owing

 

2

 

 

 

on the Line of Credit, but in no event greater than the Maximum Revolving Advance Amount.

 

"Borrowing Base" (also known as the "Advance Rate") shall mean the following formula utilized by the Bank to make Advances to the Borrower subject to the Maximum Revolving Advance Amount and subject to any sublimits established under this Agreement: (i) up to 85% of Borrower’s Domestic Eligible Accounts Receivable, plus (ii) up to 25% of the value of the Eligible Inventory of Borrower from time to time on hand, less reserves with respect to Inventory which the Bank may deem necessary in its sole and absolute discretion, up to the Inventory Sublimit. The Bank shall have the right from time to time to adjust the foregoing percentages based upon, among other things, dilution, its sole determination of the value or likelihood of collection of Eligible Accounts Receivables owing to said Borrower from a particular Account Debtor or class of Account Debtors, considerations regarding Inventory, and other factors. All amounts collected by Bank on Eligible Accounts Receivable shall be credited to Borrower's current loan account with the Bank. The excess of collections over Obligations, as herein defined, shall be credited to Borrower on a daily basis.

 

"Borrowing Base Certificate" shall mean the certificate form prescribed by the Bank as its borrowing base certificate which forms the basis upon which Advances are made to the Borrower hereunder, and which sets forth the percentages of prescribed assets of the Borrower as set forth in this Agreement and required by the Bank as part of the Borrower's financial reporting obligations to the Bank.

 

"Business Day" shall mean any day other than Saturday or Sunday or a legal holiday on which commercial banks are authorized or required by law to be closed for business in the State of New York.

 

"Capital Expenditures" shall mean for any period, the aggregate of all expenditures, including that portion of Capitalized Lease Obligations attributable to that period, made for the acquisition of any fixed assets or improvements, replacements, substitutions or additions determined in accordance with GAAP.

 

"Capitalized Lease Obligation" shall mean any Indebtedness of Debtor represented by obligations under a lease that are required to be capitalized for financial reporting purposes in accordance with GAAP.

 

"Change of Control" shall mean the occurrence of any event (whether in one or more transactions) which results in a transfer of control of Borrower to any group which does not have Andrew Gordon and David Gordon as members thereof or to any single individual other than Andrew Gordon. For purposes of this definition, "control of Borrower" shall mean the power, direct or indirect, to direct or cause the direction of the management and policies of Borrower whether by contract or otherwise.  

 

 

 

3

 

 

 

 

 

 

"Collateral" shall mean all property of any nature whatsoever pledged, assigned for security, mortgaged, hypothecated or otherwise transferred for security to the Bank, or in which the Bank has been granted a security interest, lien or other interest, for the purpose of securing the Obligations.

 

"Consents" shall mean all filings and all licenses, permits, consents, approvals, authorizations, qualifications and orders of each governmental body and other third parties, domestic or foreign, necessary to carry on Debtor's business, including, without limitation, any Consents required under all applicable federal, state or other applicable law.

 

“Contract Rate” shall mean the rate of interest at which the aggregate principal balance outstanding under the Line of Credit shall bear as prescribed in Section 2.5 hereof.

 

"Debtor" shall mean the Borrower and any other Person who has pledged, assigned, mortgaged, hypothecated, or granted a security interest or other Lien to the Bank in any property in connection with the Loan Documents.

 

"Default" shall mean that an Event of Default (as defined herein) has occurred, the giving of notice, the lapse of time, or both, has occurred, and such Event of Default has continued beyond any permitted cure period.

 

"Default Rate" shall mean the increased rate of interest chargeable by the Bank if a Default has occurred and as specified in Section 2 of this Agreement.

 

"Domestic Accounts Receivable" shall mean Accounts with respect to which the Account Debtor is domiciled in the United States of America.

 

"Eligible Accounts Receivable" shall mean those Accounts or Accounts Receivable of the Borrower which (i) are less than 30 days past due date or 60 days or less from the original date of invoice; (ii) comply with all of the terms, conditions, warranties and representations applicable to Accounts and Accounts Receivable made to the Bank under this Agreement and the other Loan Documents; and (iii) are otherwise acceptable in all respects to the Bank. Eligible Accounts Receivable shall not include the following: (a) that portion of the Accounts owed by any single Account Debtor which exceeds twenty-five percent (25%) of all of the Accounts [commonly referred to as Accounts Receivable concentration factor]; (b) all Accounts owing by any Account Debtor if twenty-five percent (25%) or more of the Accounts due from such Account Debtor are more than 30 days past due date or more than 60 days from the original date of invoice [commonly referred to as Accounts Receivable cross age factor]; (c) Accounts arising from progress billings, invoices for deposits, and rebills of amounts previously credited to the extent of credits issued more than fifteen (15) days prior to such rebill; (d) Foreign Accounts Receivable unless any such Foreign Account Receivable is approved as an Eligible Account Receivable by the Bank in advance in the Bank's sole and absolute discretion, and on such terms as may be set by the Bank in its sole and absolute discretion; (e) Accounts with respect to which the sale is

 

4

 

 

 

 

 

 

 

 

on an installment sale, lease or other extended payment basis; (f) Accounts with respect to which the Account Debtor is a federal governmental authority unless approved by the Bank in advance and subject to the Bank requiring compliance with the Federal Assignment of Claims Act; (g) Accounts with respect to which goods are placed on consignment, guaranteed sale, bill-and-hold, repurchase or return, or other terms by reason of which the payment by the Account Debtor may be conditional; (h) Accounts with respect to which the Account Debtor is a Subsidiary of, Affiliate of, or has common officers or directors with the Debtor; (i) Accounts with respect to which the Bank does not for any reason have a perfected first priority security interest; (j) Accounts with respect to which the Debtor is or may become liable to the Account Debtor for goods sold or services rendered by the Account Debtor to the Debtor, to the extent of the Debtor's existing or potential liability to such Account Debtor; (k) Accounts with respect to which the Account Debtor has disputed any liability, or the Account Debtor has made any claim with respect to any other Account due to the Debtor, or the Account is otherwise subject to any right of setoff, deduction, breach of warranty or other defense, dispute or counterclaim by the Account Debtor; (l) Accounts with respect to which the Account Debtor is an officer, director, employee, or agent of the Debtor or an Affiliate; (m) that portion of any Accounts representing late fees, service charges or interest, but only to the extent of such portion; (n) Accounts of an Account Debtor where the Account Debtor is located in a state which requires a Notice of Business Activities Report or similar report to be filed, and the Debtor has not filed same for the current year, or where the Debtor is not otherwise authorized to transact business in said state, or where the Debtor is not in good standing in such state; (o) Accounts owed by any Account Debtor which is insolvent or is the subject of an insolvency proceeding; (p) that portion of any Accounts represented by unperformed contract rights, documents, instruments, chattel paper or general intangibles; (q) any and all Accounts of an Account Debtor whose credit worthiness is not satisfactory to the Bank in its sole credit judgment based on information available to the Bank. References to percentages of all Accounts are based on dollar amount of Accounts, and not number of Accounts. Any Account Receivable which is 30 days or more past due date or is more than 60 days from the original date of invoice shall be deemed ineligible.  Accounts due from Jorge Cafe Caribe Inc. are declared to be ineligible. Anything to the contrary notwithstanding, the Bank shall have the right, in its sole and absolute discretion, to classify any Accounts Receivable as not being Eligible Accounts Receivable.

 

"Eligible Inventory" shall mean that portion of the Borrower's green coffee (“raw materials”) and finished coffee (“finished goods Inventory”) held for sale by the Borrower, normally and currently saleable in the ordinary course of the Borrower's business, and which at all times pertinent hereto is of good and merchantable quality, free from defects, as to which the Bank has a perfected first priority Lien, and which is located at the locations set forth in this Agreement, and as to which Borrower has satisfied all terms, conditions, warranties and representations of this Agreement and the other Loan Documents. Eligible Inventory does not include any of the following: (a) catalogs and other promotional

 

5

 

 

 

 

 

 

 

 

materials of any kind; (b) work in process; (c) any returned items; (d) any damaged, defective or recalled items; (e) any obsolete items; (f) any items used as demonstrators, prototypes or salesmen's samples; (g) any items of Inventory which have been consigned to Borrower or as to which a Person claims a Lien; (h) any items of Inventory which have been consigned by the Borrower to a consignee; (i) packing, packaging and shipping materials; (j) Inventory located on premises leased by the Borrower from a landlord with whom the Bank has not entered into a landlord's waiver on terms satisfactory to the Bank; (k) Inventory in the possession of a bailee which is not bonded or has not acknowledged to the Bank that such bailee holds said Inventory for the benefit of the Bank and shall act upon the instructions of the Bank, without the further consent of the Borrower; (l) perishable items of produce; (m) Inventory which in the reasonable judgment of the Bank is considered to be slow moving or otherwise not merchantable; and (n) Inventory located outside of the United States. Eligible Inventory shall be valued at the lower of (a) cost, (b) market value, or (c) the valuation consistent with that employed in the preparation of the financial statements of the Borrower required under this Agreement. Anything to the contrary notwithstanding, the Bank shall have the right, in its sole and absolute discretion, to classify any Inventory as not being Eligible Inventory.

 

"Environmental Laws" means any and all federal, state, regional, county, municipal or local laws, statutes, rules, regulations, directives or ordinances concerning public health, safety, or the environment, affecting or applicable to Debtor, Debtor's operations, properties or facilities, or any property or facility at which any Collateral is located. Without limiting the expansive definition of Environmental Laws hereunder, Environmental Laws includes all rules, regulations, and guidance documents promulgated or published by any agency which regulates, investigates, or is involved with issues relating to public health, safety, or the environment, including, without limitation, relating to (i) releases, discharges, emissions, or disposals to air, water, land, or groundwater; (ii) the withdrawal or use of groundwater, (iii) the use, handling, or disposal of polychlorinated biphenyls (PCBs), asbestos or urea formaldehyde; (iv) the treatment, storage, disposal, or management of hazardous substances (including, without limitation, petroleum, its derivatives, by-products, or other hydrocarbons), and any other solid, liquid, or gaseous substance, exposure to which is prohibited, limited, or regulated, or may or could pose a hazard to the health and safety of the occupants of the Property and the operations thereon or the property adjacent to or surrounding the Property; (v) the exposure of persons to toxic, hazardous, or other controlled, prohibited, or regulated substances; and (vi) the transportation, storage, disposal management, or release of gaseous or liquid substances, and any regulation, order, injunction, judgment, declaration, notice or demand issued in connection therewith.

 

"Equipment" shall mean any "equipment" as such term is defined in the UCC, now or hereafter owned by the Debtor and, in any event, including, without limitation, all machinery, equipment, furnishings, fixtures, and vehicles now or hereafter owned by the Debtor, of any kind, nature and description whether affixed to real property or not, and all

 

6

 

 

 

 

 

 

 

 

additions to, substitutions and replacements for or accessions to any of the foregoing, together with all attachments, components, parts (including spare parts), equipment and accessories installed thereon or affixed thereto and all fuel for any thereof.

 

"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time and the rules and regulations promulgated thereunder.

 

"Event of Default" shall mean any of the events specified in this Agreement as constituting an Event of Default whether or not any requirement for the giving of notice, the lapse of time, or both, has been satisfied.

 

"Executive Order No. 13224" shall mean the Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001, as the same has been, or shall hereafter be, renewed, extended, amended or replaced.

 

"Foreign Accounts Receivable" shall mean Accounts with respect to which the Account Debtor is not domiciled in the United States of America

 

"GAAP" shall mean the Generally Accepted Accounting Principles in the United States of America as in effect from time to time.

 

“Guarantor(s)” shall mean Andrew Gordon and/or David Gordon , together with all heirs, executors, administrators, personal representatives, successors and assigns thereof.

 

"Indebtedness" of any Person at any date, shall mean (i) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services (other than current trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices), (ii) any other indebtedness of such Person which is evidenced by a note, bond, debenture or similar instrument, (iii) all Capitalized Lease Obligations of such Person, (iv) the face amount of all letters of credit issued for the account of such Person and all drafts drawn thereunder, (v) all obligations of other Persons which such Person has guaranteed, (vi) all Obligations of such Person under hedging agreements, (vii) all liabilities secured by any Lien on any property owned by such Person even though such Person has not assumed or otherwise become liable for the payment thereof, and (viii) all obligations of such Person which in accordance with GAAP would be classified upon a balance sheet as liabilities (other than current trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices).

 

"Intellectual Property" shall mean all of Borrower's past, present and future: trade secrets, know-how and other proprietary information; trademarks, Internet domain names, service marks, trade names, business names, designs, logos, slogans (and all translations, adaptations, derivations and combinations of the foregoing) indicia and other source and/or

 

7

 

 

 

 

 

 

 

business identifiers, and the goodwill of the business relating thereto and all registrations or applications for registrations which have heretofore been or may hereafter be issued thereon throughout the world; copyrights (including copyrights for computer programs) and copyright registrations or applications for registrations which have heretofore been or may hereafter be issued throughout the world and all tangible property embodying copyrights and unpatented inventions (whether or not patentable); patent applications and patents; industrial design applications and registered industrial designs; license agreements related to any of the foregoing and income therefrom; books, records, writings, computer tapes or disks, flow diagrams, specification sheets, computer software, source codes, object codes, executable codes, data, databases and other physical manifestations, embodiments or incorporations of any of the foregoing; the right to sue for all past, present and future infringements of any of the foregoing; all other intellectual property; and all common law and other rights throughout the world in and to all of the foregoing.

 

"Inventory" shall mean inventory as such term is defined in the UCC, and shall include, without limitation, all goods and other personal property of the Debtor, whether now owned or hereafter acquired or in which the Debtor now has or hereafter may acquire any right, title or interest, and wherever located, whether in transit or otherwise, held for sale or lease, or furnished or to be furnished under contracts for service, sale or lease, including all goods returned or reclaimed from customers, and all raw materials, work in process and materials owned by the Debtor and used or consumed or to be used or consumed in its business, or in the processing, packaging or shipping of the same, and all finished goods and all assets of a type classified as Inventory as reflected, or as should be reflected pursuant to GAAP, on the financial statements of the Debtor.

 

"Inventory Sublimit" shall mean the maximum amount of Advances permitted at any time from the Line of Credit against Eligible Inventory, which amount is fixed at $1,000,000.00.  

 

"Lien" shall mean any mortgage, deed of trust, pledge, hypothecation, assignment for security, security interest, lien (whether statutory or otherwise), charge, claim or encumbrance, or preference, priority or other security agreement or preferential arrangement held or asserted in respect of any asset of any kind or nature whatsoever including, without limitation, any conditional sale or other title retention agreement, any lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to permit the filing of, any financing statement under the UCC or comparable law of any jurisdiction

 

"Line of Credit" shall mean the revolving line of credit established for the benefit of the Borrower having a maximum principal amount of $5,000,000.00 , the proceeds of which are to be used for the refinance of existing lender Indebtedness and for working capital needs of the Borrower.

 

 

8

 

 

 

 

 

 

 

"Loan" shall mean any Advance or extension of credit in any form made by the Bank to or for the benefit of the Borrower.

 

"Loan Facility" shall mean the Line of Credit.

 

"Loan Documents" shall collectively mean this Agreement and all agreements, instruments and documents executed in connection herewith including, but not limited to, all notes, guarantees and all documents giving the Bank an interest in Collateral, all as may be extended, modified, renewed, restated, supplemented, amended, or replaced from time to time.

 

"Material Adverse Effect" shall mean a material adverse effect with respect to (a) the business, assets, properties, financial condition, stockholders' equity, contingent liabilities, prospects, material agreements or results of operations of Borrower under the Loan Documents, or (b) Borrower's ability to pay the Obligations in accordance with the terms hereof, or (c) the validity or enforceability of this Agreement or any of the other Loan Documents or the rights and remedies of Bank hereunder or thereunder.

 

"Material Default With Third Party" shall mean a default under any material Indebtedness or other material obligations of Borrower to any third party that entitles such third party to declare such Indebtedness or obligation due prior to its date of maturity.

 

"Maturity Date" shall mean the date on which the Loan Facility matures and comes due. In the case of the Line of Credit, the initial term shall be three (3) years (the "Initial Term"), and the Maturity Date of the Initial Term shall mean February 16, 2012 .  The Maturity Date for the Loan Facility shall be extended as provided for in this Agreement, with each renewal term ("Renewal Term") having its corresponding later Maturity Date.

 

"Maximum Revolving Advance Amount" shall mean $5,000,000.00 .

 

"Note" shall mean any promissory note executed at any time in connection with the Loan Documents.

 

"Obligations" shall mean any and all loans, Advances, debts, liabilities, obligations, covenants and duties owing by Borrower to Bank or to any other direct or indirect subsidiary or affiliate of Bank of any kind or nature, present or future (including, without limitation, any interest accruing thereon after maturity, or after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), whether or not evidenced by any note, guaranty or other instrument, whether arising under any agreement, instrument or document (including, without limitation, this Agreement and the other Loan Documents), whether or not for the payment of money, whether arising by reason of an extension of credit, opening of a letter

 

9

 

 

 

 

 

 

 

of credit, loan, equipment lease or guarantee, under any interest or currency swap, future, option or other similar agreement, or in any other manner, whether arising out of overdrafts or deposit or other accounts or electronic funds transfers (whether through automated clearing houses or otherwise) or out of Bank's non-receipt of or inability to collect funds or otherwise not being made whole in connection with depository transfer check or other similar arrangements, whether direct or indirect (including those acquired by assignment or participation), absolute or contingent, joint or several, due or to become due, now existing or hereafter arising, contractual or tortious, liquidated or unliquidated, regardless of how such indebtedness or liabilities arise or by what agreement or instrument they may be evidenced or whether evidenced by any agreement or instrument, including, but not limited to, any and all of Borrower's Indebtedness and/or liabilities under this Agreement, the other Loan Documents or under any other agreement between Bank and Borrower and any amendments, extensions, renewals or increases and all costs and expenses of Bank incurred in the documentation, negotiation, modification, enforcement, collection or otherwise in connection with any of the foregoing, including but not limited to reasonable attorneys' fees and expenses, and expenses arising from all obligations of Borrower to perform acts or refrain from taking any action, and the Bank's enforcement thereof.

 

"Obligor" shall mean Borrower, together with all successors and assigns thereof.

 

"Permitted Liens" shall mean (a) Liens in favor of Bank; (b) Liens for taxes, assessments or other governmental charges not delinquent or being contested in good faith and by appropriate proceedings and with respect to which proper reserves have been taken by Borrower; provided, that, the Lien shall have no effect on the priority of the Liens in favor of Bank or the value of the assets in which Bank has such a Lien and a stay of enforcement of any such Lien shall be in effect; (c) deposits or pledges to secure obligations under worker's compensation, social security or similar laws, or under unemployment insurance; (d) Liens securing Capital Lease Obligations of Borrower permitted by this Agreement; (e) any interest or title of a lessor or sublessor under any lease or sublease permitted by this Agreement; and (f) Liens listed as Permitted Liens on Schedule B, if any.

 

"Person" shall mean any individual, sole proprietorship, partnership, corporation, business trust, joint stock company, trust, unincorporated organization, association, limited liability company, limited liability partnership, institution, public benefit corporation, joint venture, entity or government (whether federal, state, county, city, municipal or otherwise, including any instrumentality, division, agency, body or department thereof).

 

"Revolving Credit Loans" shall mean Advances made directly to the Borrower from the Line of Credit.

 

“SEC” shall mean the U.S. Securities and Exchange Commission.

 

 

10

 

 

 

 

 

 

 

 

"Subordinated Debt" shall mean Indebtedness of Borrower that is to be made subordinate to the Obligations due the Bank .

 

"Subsidiary" shall mean, as to any Person, a corporation or other entity of whose shares of stock or other ownership interests having ordinary voting power to elect a majority of the directors of such corporation or entity, or other Persons performing similar functions for such entity, are owned, directly or indirectly, by such Person.

 

"UCC" shall mean the Uniform Commercial Code as in effect in the State of New York, and Article 9 of the Uniform Commercial Code as in effect in the state of formation of any entity which is a party to this Agreement.

 

1.2

Accounting Terms .  As used in this Agreement, the other Loan Documents or any certificate, report or other document made or delivered pursuant to this Agreement, accounting terms not defined in this Section or elsewhere in this Agreement and accounting terms partly defined in this Section to the extent not defined, shall have the respective meanings given to them under GAAP.

 

1.3

UCC Terms .  If not otherwise defined in this Agreement, terms used herein which are defined by the UCC shall have the same meaning as set forth in the UCC. All terms indicating Collateral include the meanings assigned thereto under the UCC.

 

1.4

Other Capitalized Terms .  If not otherwise defined in any other Loan Document, capitalized terms used in such other Loan Document shall have the respective meaning ascribed to said term in this Agreement. The definitions of any other capitalized terms appearing in any sections of this Agreement shall be deemed incorporated into this Section.

 

     

1.5

Certain Matters of Construction .  The terms "herein", "hereof' and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular section, paragraph or subdivision. Any pronoun used shall be deemed to cover all genders. Wherever appropriate in the context, terms used herein in the singular also include the plural and vice versa. All references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations. Unless otherwise provided, all references to any instruments or agreements to which Bank is a party, including, without limitation, references to any of the other Loan Documents, shall include any and all modifications or amendments thereto and any and all extensions or renewals thereof.

 

SECTION 2. LOAN FACILITY

 

2.1

In accordance with the Loan Documents, the Bank hereby establishes for the benefit of the Borrower the Line of Credit Loan Facility.

 

 

11

 

 

 

 

 

 

 

 

2.2

Subject to the terms and conditions set forth in this Agreement and the other Loan Documents, and provided that Borrower is not in Default thereunder, the Bank agrees that it shall, from time to time and in its sole and absolute discretion, make Loans to or on behalf of Borrower from its Loan Facility which the Bank deems warranted by the facts and circumstances existing at the time of each request by Borrower. Each request by Borrower for a Loan as well as each such Loan to be made by the Bank shall constitute a representation by Borrower that all conditions set forth in the Loan Documents on the part of Borrower have been satisfied on the date of such request.   

 

2.3

Borrower may request Advances from the Line of Credit, and Borrower shall be authorized to make such borrowings, repay same in whole or in part, and reborrow on a revolving basis (the "Revolving Credit Loans"). At the time of each Revolving Credit Loan made pursuant to this Agreement, Borrower shall immediately become indebted to the Bank for the amount of each such Loan. All Advances shall be disbursed by Bank from its office in the City and State of New York, and shall be payable at such office. Bank agrees to make Advances to Borrower from time to time in Bank's sole and absolute discretion up to Borrower's Availability and subject to the Loan Documents.

 

2.4

A request for an Advance must be received by the Bank no later than 11:00 A.M. on a Business Day for the Advance to be made effective as of such Business Day. If such request is received by the Bank after said time, the Advance shall be made effective as of the next Business Day. Requests shall be made by fax transmittal to the Bank at the fax number provided to the Borrower by the Bank. If a request for an Advance is made by telephone (although the Bank is not required to make an Advance pursuant to a telephonic request), it must be promptly confirmed by written fax transmittal. Borrower hereby authorizes Bank to make an Advance based on (i) a fax transmittal ostensibly sent by a representative of the Borrower without regard to verification by the Bank of the authority of the representative, or (ii) a telephonic request for an Advance ostensibly made by a representative of the Borrower without regard to verification by the Bank of the authority of the representative. Borrower hereby indemnifies and holds Bank harmless from and against any and all damages, losses, liabilities, costs and expenses (including reasonable attorneys' fees and expenses) which may arise or be created by the acceptance of any requests or the making of any Advances. Bank will enter on its books and records the date and amount of each Advance.

 

2.5

Borrower shall be obligated to pay to the Bank interest upon the aggregate principal balance outstanding of Borrower's Revolving Credit Loans calculated at the close of each day, and payable on a monthly basis. The aggregate principal balance outstanding shall bear interest thereon at a per annum rate equal to the greater of (i) the Base Rate plus one percent (1.0%) per annum, or (ii) 4.25% per annum. The effective interest rate applicable to the Borrower's Revolving Credit Loans evidenced hereby shall change on the date of each change in the Base Rate. Interest at the rate set forth herein shall be charged on all sums due to the Bank even after a Default or the entry of judgment, subject to the imposition of the increased Default Rate of interest as prescribed by the terms of this

 

12

 

 

 

 

 

 

 

 

Agreement. All computations of interest shall be made on the basis of a three hundred sixty (360) day year and the actual number of days elapsed.

 

2.6

The amount billed to the Borrower hereunder may be charged to Borrower's account maintained with the Bank as of the first day of the month following the month for which it is billed. Such amount shall be deemed paid out of the first collections in the account subsequent to the date of the charge. At Bank's option, up to three (3) Business Days' shall be allowed subsequent to receipt of remittances, without regard to the form thereof, from Account Debtors or the Borrower to permit bank clearance and collection of such remittances before the amount thereof shall be deemed collected by Bank, which time interval Borrower agrees is reasonable. In the event Bank determines at any time, or from time to time, in its sole discretion, to make available advances or funds to Borrower prior to the expiration of such interval, Borrower shall pay additional interest on such advances or funds at the rate set forth herein for each day that such remittances are deemed uncollected under the provisions of this Paragraph. Bank shall render to Borrower each month by mailing to Borrower, by ordinary mail prepaid, a statement of Borrower's account with Bank, which shall be deemed to be correct and accepted by and binding upon Borrower unless Bank shall have received a written statement of Borrower's exceptions within 15 days after the mailing thereof, and any event shall be deemed correct and accepted except as to the matters stated in such exceptions.

 

2.7

The Revolving Credit Loans made by the Bank to Borrower pursuant to this Agreement shall be noted on the records of the Bank. The Bank shall render to Borrower each month by mailing to Borrower, by ordinary mail, postage prepaid, a statement of Borrower's account with the Bank, which shall be deemed to be correct and accepted by and binding upon Borrower unless the Bank shall have received a written statement of Borrower's exceptions within 15 days after mailing thereof, and in any event shall be deemed correct and accepted except as to the matters stated in such exceptions.  

 

2.8

The Borrower shall be permitted to receive payments on Accounts Receivable and other remittances on a direct basis, provided that Borrower delivers all checks, drafts and other monies received by Borrower to the Bank on a daily basis. In connection with collections and remittances in the form of checks, the Borrower shall subscribe to the Bank's Remote Deposit Service, execute the Bank's standard Remote Deposit Service Agreement, purchase the remote deposit service unit at a cost of $0.00 per remote unit, and pay the Bank a monthly service fee of $0.00 in connection with the Remote Deposit Service. Pursuant to the procedures of the Remote Deposit Service, the Borrower shall, on the same day as received by Borrower, scan collection checks and electronically transmit the images of the checks and deposit data to the Bank on a daily basis. Upon receipt and acknowledgment of the image transmission, the Bank shall confirm image quality and post the deposit to an account maintained by the Bank for such deposits (the "Blocked Account"). The amount of the posted deposit will be credited by Bank as payment toward the Obligations on the Business Day after which such deposit is posted to such account. Borrower will be charged a sum equal to three (3) Business Days' interest on all such

 

13

 

 

 

 

 

 

 

 

deposits, at the interest rate specified for Revolving Credit Loans hereunder. If an Event of Default hereunder occurs and is not cured within any prescribed cure period, the Bank shall have the right to convert the collection process to a full dominion financing arrangement with the Bank, which will involve collections through a lockbox maintained at the Bank, and in accordance with the terms of the Bank's customary lockbox procedures.  Borrower has executed an undated lockbox agreement and an undated letter authorizing the forwarding of Borrower's mail to a Post Office Box which can be accessed by designated representatives of the Bank. Such lockbox agreement and letter shall not be utilized by the Bank unless the Bank has converted the collection process to a lockbox-full dominion financing arrangement under the provisions of this section, in which event the Bank is authorized to insert a date thereon which is beyond any cure date of an Event of Default. The Bank shall send a copy of the dated lockbox agreement and dated letter to the Borrower for its records, and the Borrower shall thereafter comply with all of the terms and conditions of the lockbox agreement.

 

2.9

At no time shall the aggregate amount of all Loans made by the Bank from the Line of Credit exceed the lesser of (i) the Borrower's Availability, or (ii) the Maximum Revolving Advance Amount. At no time shall the outstanding amount of Advances against Eligible Inventory exceed $1,000,000.00. At no time shall the outstanding amount of Advances against Eligible Inventory exceed the outstanding amount of Advances against Eligible Accounts Receivable. Should the outstanding amount of all Advances or Loans in the aggregate, or should any sublimit or category established hereunder, exceed any limitations set forth in this Agreement at any time, the excess (i) shall continue to be secured by the Collateral, (ii) shall be subject to all of the terms of this Agreement and the other Loan Documents and, at the option of the Bank, (iii) shall immediately become due and payable on demand by the Bank.

 

2.10

All payments shall be made by Borrower to Bank at the office of the Bank as appears in this Agreement, or such other place as Bank may from time to time specify, in lawful currency of the United States of America in immediately available funds, without counterclaim or set off and free and clear of, and without any deduction or withholding for, any taxes or other payments. The Bank shall be authorized to charge any interest payment, principal payment or other sum due under the Loan Documents against any account maintained by the Borrower at the Bank. The Borrower hereby authorizes the Bank to make all such charges authorized by any of the Loan Documents. All payments shall be applied first to the payment of all fees, expenses and other amounts due to the Bank (excluding principal and interest), then to accrued interest, and the balance on account of outstanding principal; provided, however, that after Default, payments will be applied to the obligations of Borrower to Bank as Bank determines in its sole discretion.  

 

2.11

If a Maturity Date shall fall on a day, or any payment hereunder becomes due on a day, which is not a Business Day, the due date for payment hereunder shall be extended to the next succeeding Business Day, and such extension of time shall be included in computing interest and fees in connection with such payment.

  

 

14

 

 

 

 

 

 

 

 

2.12  

Anything to the contrary notwithstanding, on the Maturity Date the Loan Facility shall terminate, and there shall be due and payable all unpaid principal together with all accrued and unpaid interest, charges, fees, and all other sums computed in accordance with this Agreement and the other Loan Documents. The liability of the Borrower and any other party liable for any Obligations to the Bank with respect to any other document, instrument or obligation (such as a letter of credit) arising from the Loan Documents which matures beyond the Maturity Date, if any, shall continue until all Obligations thereunder and under the Loan Documents to the Bank have been satisfied in full.

 

2.13  It is understood and agreed that the Bank may, in its sole and absolute discretion, create reserves and alter the Borrowing Base to reflect considerations of the Bank including, but not limited to, expenses involved in the collection of receivables and liquidation of Collateral, dilution, obsolescence, miscalculation of value or quantities, bad debts, set-offs, market conditions and other factors. As of the date of this Agreement there is hereby established a reserve against Borrower's Availability in the amount of $500,000.00.

 

2.14  

The Bank may, without notice to or consent of any party liable under the Loan Documents as an obligor, guarantor, endorser, surety or in any capacity whatsoever and without impairing or in anywise affecting the liability of such party to the Bank, (i) extend the time for any payment under the Loan Documents; (ii) alter any other term of Loan Documents by agreement with the Borrower; (iii) release, settle or compromise with any other party liable for any payment under the Loan Documents; and/or (iv) release, or substitute for, any property held by the Bank as security for the payment of any sum owing to the Bank by any party hereto; and any renewal and/or modification document required by the Bank shall be deemed consented to by all such parties without any requirement that any such party execute any such document. The Borrower and all guarantors, endorsers, sureties, and all other parties liable under the Loan Documents hereby jointly and severally waive presentment, demand, notice of non-payment, notice of protest, protest, and all other notice of any kind except as otherwise expressly set forth in the Loan Documents.

 

2.15

If Obligations become immediately due and payable pursuant to the provisions of this Agreement, or if Obligations are not paid in full upon the effective date of termination of this Agreement or upon a maturity date, or if an Event of Default has occurred, Borrower shall thereafter be obligated to pay interest on the Obligations from the date of such declaration, termination, maturity or Event of Default, as the case may be at the option of the Bank, until the date the Obligations are paid in full at a rate per annum (calculated on the actual number of days based upon a year of 360 days) equal to 5% in excess of the Contract Rate then in effect, provided, however, that such interest rate shall in no event exceed the maximum interest rate which Borrower may pay by law (the "Default Rate"). The Borrower acknowledges that:(i) such additional rate is a material inducement to the Bank to make Loans hereunder; (ii) the Bank would not have entered into the Loan Documents and agreed to make Loans hereunder in the absence of the agreement of the Borrower to pay such additional rate; (iii) such additional rate represents compensation for

 

15

 

 

 

 

 

 

 

 

increased risk to the Bank that the Loans hereunder will not be repaid; and (iv) such rate is not a penalty and represents a reasonable estimate of (a) the cost to the Bank in allocating its resources (both personnel and financial) to the on-going review, monitoring, administration and collection of the Loans, and (b) compensation to the Bank for losses that are difficult to ascertain.

 

2.16

Borrower hereby grants to Bank, a continuing lien, security interest and right of set off as security for all liabilities and obligations to Bank whether now existing or hereafter arising, upon and against all deposits, credits, collateral and property, now or hereafter in the possession, custody safekeeping or control of Bank or any entity under the control of Bank and its successors and assigns or in transit to any of them. At any time, without demand or notice (any such notice being expressly waived and irrespective of the fact that actual book entries may be made at some time subsequent thereto), Bank may set off the same or any part thereof and apply the same to any liability or obligation of Borrower regardless of the adequacy of any other collateral securing the Loan. Any and all rights to require Bank to exercise its rights or remedies with respect to any other Collateral which secures the Loan Facility or any Loans thereunder, prior to exercising its right of set off with respect to such deposits, credits or other property of Borrower, are hereby knowingly, voluntarily and irrevocably waived.

 

2.17

Borrower shall pay on demand all expenses of Bank in connection with the preparation, administration default, collection, waiver or amendment of loan terms or in connection with Bank's exercise, preservation or enforcement of any of its rights, remedies or options hereunder, including, without limitation, reasonable fees of outside legal counsel or the allocated reasonable costs of in-house legal counsel, accounting, consulting, brokerage or other similar professional fees or expenses, and any reasonable fees or expenses associated with travel or other costs relating to any appraisals or examinations conducted in connection with the loan or any collateral therefor, and the amount of all such expenses shall, until paid, bear interest at the rate applicable to principal hereunder (including any default rate) and be an obligation secured by any Collateral. If not paid upon demand, Bank shall be authorized to charge any account of Borrower for such expenses.

 

2.18

This Agreement shall become effective the day when finally accepted by Bank at its office in the State of New York. This Agreement shall remain in effect until the Maturity Date of the Initial Term, and shall thereafter be deemed automatically renewed for successive terms of one (1) year each (each renewed term being a "Renewal Term"); subject, however, to the right of either party not to renew the Initial term or to terminate a Renewal Term upon not less than ninety (90) days' written notice, and subject to the payment of any prepayment premium prescribed in this Agreement. Anything to the contrary notwithstanding, should an Event of Default as defined hereunder have occurred and be continuing, the Initial Term or any Renewal Term shall be terminable at any time by the Bank forthwith on written notice, and in such case of termination by the Bank, there shall be no prepayment premium or other future monthly fees due. The termination of the Initial Term or any Renewal Term by Borrower for any reason shall not affect any of a Borrower's obligations under the Loan Documents, inclusive of payment of the prepayment

 

16

 

 

 

 

 

 

 

 

premium for early termination and all monthly fees prescribed for the Loan Facility under the terms of this Agreement as if the Loan Facility continued to its scheduled Maturity Date.

 

SECTION 3.   SECURITY; GUARANTEE

 

3.1

Borrower (also referred to as "Debtor") hereby grants to the Bank, to secure the payment and performance in full of all of the Obligations, a security interest in and so pledges and assigns to the Bank the following properties, assets and rights of the Debtor, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof (all of the same being hereinafter called the "Collateral"): all personal and fixture property of every kind and nature including without limitation all goods (including  inventory,  machinery, equipment  and  any  accessions  thereto), instruments (including promissory notes), documents, accounts and accounts receivable (including health-care-insurance receivables and other accounts receivables), chattel paper (whether tangible or electronic), deposit accounts, letter-of-credit rights (whether or not the letter of credit is evidenced by a writing), commercial tort claims, securities and all other investment property, supporting obligations, any other contract rights or rights to the payment of money, insurance claims and proceeds, tort claims, and all general intangibles including, without limitation, all payment intangibles, patents, patent applications, trademarks, trademark applications, trade names, copyrights, copyright applications, software, engineering drawings, service marks, customer lists, goodwill, and all licenses, permits, agreements of any kind or nature pursuant to which the Debtor possesses, uses or has authority to possess or use property (whether tangible or intangible) of others or others possess, use or have authority to possess or use property (whether tangible or intangible) of the Debtor, and all recorded data of any kind or nature, regardless of the medium of recording including, without limitation, all software, writings, plans, specifications and schematics, and any property set forth on Schedule A annexed hereto and made a part hereof.

 

3.2

The Debtor hereby irrevocably authorizes the Bank at any time and from time to time to file in any Uniform Commercial Code jurisdiction any initial financing statements and amendments thereto that (a) indicate the Collateral (i) as "all assets" of the Debtor or words of similar effect, regardless of whether any particular asset comprised in the Collateral falls within the scope of Article 9 of the Uniform Commercial Code of the State or such jurisdiction, or (ii) as being of an equal or lesser scope or with greater detail, and (b) contain any other information required by part 5 of Article 9 of the Uniform Commercial Code of the State for the sufficiency or filing office acceptance of any financing statement or amendment, including (i) whether the Debtor is an organization, the type of organization and any organization identification number issued to the Debtor and, (ii) in the case of a financing statement filed as a fixture filing or indicating Collateral as-extracted collateral or timber to be cut, a sufficient description of real property to which the Collateral relates. The Debtor agrees to furnish any such information to the Bank promptly upon request. The Debtor also ratifies its authorization for the Bank to have filed in any Uniform Commercial Code jurisdiction any like initial financing statements or amendments thereto if filed prior to the date hereof.

 

17

 

 

 

 

 

 

 

 

 

3.3

Further to insure the attachment, perfection and first priority of, and the ability of the Bank to enforce, the Bank's security interest in the Collateral, the Debtor agrees, in each case at the Debtor's own expense, to take the following actions with respect to the following Collateral (as applicable):

 

     

    

3.3.1. Promissory Notes and Tangible Chattel Paper. If the Debtor shall at any time hold or acquire any promissory notes or tangible chattel paper, the Debtor shall forthwith endorse, assign and deliver the same to the Bank, accompanied by such instruments of transfer or assignment duly executed in blank as the Bank may from time to time specify.

 

3.3.2. Deposit Accounts.  For each deposit account that the Debtor at any time opens or maintains, the Debtor shall, at the Bank's request and option, pursuant to an agreement in form and substance satisfactory to the Bank, either (a) cause the depositary bank to agree to comply at any time with instructions from the Bank to such depositary bank directing the disposition of funds from time to time credited to such deposit account, without further consent of the Debtor, or (b) arrange for the Bank to become the customer of the depositary bank with respect to the deposit account, with the Debtor being permitted, only with the consent of the Bank, to exercise rights to withdraw funds from such deposit account. The provisions of this paragraph shall not apply to (i) any deposit account for which the Debtor, the depositary bank and the Bank have entered into a cash collateral agreement specially negotiated among the Debtor, the depositary bank and the Bank for the specific purpose set forth therein, (ii) deposit accounts for which the Bank is the depositary and (iii) deposit accounts specially and exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of the Debtor's salaried employees .

 

3.3.3  Investment Property. If the Debtor shall at any time hold or acquire any certificated securities, the Debtor shall forthwith endorse, assign and deliver the same to the Bank, accompanied by such instruments of transfer or assignment duly executed in blank as the Bank may from time to time specify. If any securities now or hereafter acquired by the Debtor are uncertificated and are issued to the Debtor or its nominee directly by the issuer thereof, the Debtor shall immediately notify the Bank thereof and, at the Bank's request and option, pursuant to an agreement in form and substance satisfactory to the Bank, either (a) cause the issuer to agree to comply with instructions from the Bank as to such securities, without further consent of the Debtor or such nominee, or (b) arrange for the Bank to become the registered owner of the securities. If any securities, whether certificated or uncertificated, or other investment property now or hereafter acquired by the Debtor are held by the Debtor or its nominee through a securities intermediary or commodity intermediary, the Debtor shall immediately notify the Bank thereof and, at the Bank's request and option, pursuant to an agreement in form and substance satisfactory to the Bank, either (i) cause such securities intermediary or (as the case may be) commodity intermediary to agree to comply with entitlement orders or other instructions from the Bank to such securities intermediary as to such securities or other investment property, or (as the

 

18

 

 

 

 

 

 

 

 

case may be) to apply any value distributed on account of any commodity contract as directed by the Bank to such commodity intermediary, in each case without further consent of the Debtor or such nominee, or (ii) in the case of financial assets or other investment property held through a securities intermediary, arrange for the Bank to become the entitlement holder with respect to such investment property, with the Debtor being permitted, only with the consent of the Bank, to exercise rights to withdraw or otherwise deal with such investment property.

      

3.3.4.  Collateral in the Possession of a Bailee. If any goods are at any time in the possession of a bailee, the Debtor shall promptly notify the Bank thereof and, if requested by the Bank, shall promptly obtain an acknowledgment from the bailee, in form and substance satisfactory to the Bank, that the bailee holds such Collateral for the benefit of the Bank and shall act upon the instructions of the Bank, without the further consent of the Debtor.

 

3.3.5  Electronic Chattel Paper and Transferable Records. If the Debtor at any time holds or acquires an interest in any electronic chattel paper or any "transferable record," as that term is defined in Section 201 of the federal Electronic Signatures in Global and National Commerce Act, or in § 16 of the Uniform Electronic Transactions Act as in effect in any relevant jurisdiction, the Debtor shall promptly notify the Bank thereof and, at the request of the Bank, shall take such action as the Bank may reasonably request to vest in the Bank control under UCC § 9-105 of such electronic chattel paper or control under Section 201 of the federal Electronic Signatures in Global and National Commerce Act or, as the case may be, § 16 of the Uniform Electronic Transactions Act, as so in effect in such jurisdiction, of such transferable record.

 

      

    

3.3.6.   Letter of Credit Rights. If the Debtor is at any time a beneficiary under a letter of credit now or hereafter issued in favor of the Debtor, the Debtor shall promptly notify the Bank thereof and, at the request and option of the Bank, the Debtor shall, pursuant to an agreement in form and substance satisfactory to the Bank, either (i) arrange for the issuer and any confirmor of such letter of credit to consent to an assignment to the Bank of the proceeds of any drawing under the letter of credit or (ii) arrange for the Bank to become the transferee beneficiary of the letter of credit, with the Bank agreeing, in each case, that the proceeds of any drawing under the letter to credit are to be applied as provided in this Agreement.  

 

3.3.7

 Commercial Tort Claims. If the Debtor shall at any time hold or acquire a commercial tort claim, the Debtor shall immediately notify the Bank in a writing signed by the Debtor of the details thereof and grant to the Bank in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance satisfactory to the Bank.

    

3.3.8.   Other Actions as to any and all Collateral.  The Debtor further agrees to take any other action reasonably requested by the Bank to insure the attachment, perfection and first priority of, and the ability of the Bank to enforce, the Bank's security

 

19

 

 

 

 

 

 

 

 

interest in any and all of the Collateral including, without limitation, (a) executing, delivering and, where appropriate, filing financing statements and amendments relating thereto under the Uniform Commercial Code, to the extent, if any, that the Debtor's signature thereon is required therefor, (b) causing the Bank's name to be noted as secured party on any certificate of title for a titled good if such notation is a condition to attachment, perfection or priority of, or ability of the Bank to enforce, the Bank's security interest in such Collateral, (c) complying with any provision of any statute, regulation or treaty of the United States as to any Collateral if compliance with such provision is a condition to attachment, perfection or priority of, or ability of the Bank to enforce, the Bank's security interest in such Collateral, (d) obtaining governmental and other third party consents and approvals, including without limitation any consent of any licensor, lessor or other person obligated on Collateral, (e) obtaining waivers from mortgagees and landlords in form and substance satisfactory to the Bank and (i) taking all actions required by any earlier versions of the Uniform Commercial Code or by other law, as applicable in any relevant Uniform Commercial Code jurisdiction, or by other law as applicable in any foreign jurisdiction.

 

     

3.4.

Relation to Other Security Documents. The provisions of this Agreement shall be read and construed with any other security documents executed at any time by the Debtor in favor of the Bank to the end that the Bank's Collateral has the most expansive interpretation . Nothing contained in any such other security documents shall impair any of the rights or remedies of the Bank hereunder. If Debtor has interests in any patents, trademarks, or copyrights as reflected on Schedule B, at the Bank's request Debtor shall execute and deliver to the Bank such assignments, memorandum and agreements as Bank shall request for the Bank's perfection of its security interests granted to the Bank hereunder including the filing thereof in the applicable U.S. government office.

 

3.5

In connection with any letter of credit issued by the Bank on behalf of the Borrower, the Borrower hereby pledges, assigns and transfers to the Bank, and grants to the Bank a continuing first priority security interest in and lien on all of the Borrower's right, title and interest in and to (i) any payment instrument drawn under, or purported to be drawn under, such letter of credit and other documents accompanying or relating to any such payment instrument; (ii) any and all shipping documents, warehouse receipts, bills of lading, invoices, steamship guarantees, airway releases, documents of title, policies and certificates of insurance, and other documents accompanying or relating to payment instruments drawn under such letter of credit; (iii) any and all property shipped under or pursuant to or in connection with such letter of credit, or relating thereto or to any trade documents drawn thereunder (whether such documents, goods or other property be released to or upon Bank's order under this agreement or any other agreement or bailee receipt or otherwise under any payment instrument pursuant to which Bank retains a security interest); (iv) all rights or causes of action against any party arising from or in connection with any contract of sale or purchase of any property covered by such letter of credit, or any guarantees, undertakings or other agreements, credits, or other assurances in connection therewith and in and to the proceeds of each and all of the foregoing; and all substitutions therefor, accessions thereto, and proceeds and products thereof.

 

 

20

 

 

 

 

 

 

 

 

3.6

Guarantee.

 

3.6.1

Unconditional Guarantee. Borrower shall secure the execution and delivery to the Bank of an unconditional guarantee (“Unconditional Guarantee”) from Guarantors Andrew Gordon and David Gordon.

 

3.6.2

The Unconditional Guarantee shall provide for the release of said Unconditional Guarantee and the substitution of a validity guaranty under the following terms and conditions:

 

(a)

not less than the sum of $3,000,000.00 shall be contributed to the Borrower in the form of permanent equity; and

 

(b)

the Borrower reports net profits of not less than $550,000.00 (exclusive of any gain or proceeds arising from the sale of any Borrower owned real estate) on its certified financial statement for its fiscal year ending October 31, 2009; and

 

(c)

the Borrower shall be in compliance with all financial covenants set forth in this Agreement and no other Event of Default hereunder shall have occurred; and

 

(d)

the Guarantors shall execute and deliver to the Bank a validity guaranty in form prescribed by the Bank.

 

3.7

Cross-Collateralization and Cross-Default. All Collateral heretofore, herein or hereafter given or granted to the Bank shall secure payment and performance of all of the Obligations, including any Collateral given or granted to the Bank by any Debtor or other third party. All Loans, Advances and all other Obligations shall be and are hereby declared to be cross-collateralized, cross-defaulted and cross-guaranteed. All property of Borrower, and of each third party, if any, of any kind or nature in which Bank has been, is hereunder, or shal