EXHIBIT 10.20
LSQ FUNDING GROUP P.C.
SUBORDINATION AGREEMENT
THIS AGREEMENT is entered into as of this 11th day of April 2002 by and between
LSQ FUNDING GROUP L.C., a Florida corporation, located at 0000 Xxxx Xxxxxxxx
Xxxxx, Xxxxxxx, XX 00000 (hereinafter referred to as "LSQ") and GARDEN STATE
NUTRITIONALS, a division of VITAQUEST INTERNATIONAL, INC. a Delaware corporation
located at 0 Xxxxxxxxx Xxxxx, Xxxx Xxxxxxxx, Xxx Xxxxxx (hereinafter referred to
as "GSN"). (LSQ and GSN are sometimes hereinafter collectively called
"Creditors" and individually, a "Creditor").
ARTICLE 1. BACKGROUND
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1.01. Health & Nutrition Systems International, Inc, a Florida
corporation located at 0000 Xxxxxxxxxx Xxxx, Xxxxx 0, Xxxx Xxxx Xxxxx, Xxxxxxx
00000 (hereinafter referred to as the "Client") entered into a Factoring and
Security Agreement with LSQ effective as of March 15, 2002, as same may be
modified, extended, or amended from time to time (hereinafter referred to as the
"Credit Agreement") pursuant to which the Client sells certain of its accounts
receivable to LSQ which accounts receivable arise out of the ordinary course of
business as more fully set forth in the Credit Agreement.
To secure its obligations to LSQ in connection with the Credit
Agreement, the Client has provided LSQ with a first priority security interest
in all of its accounts receivable, contract rights, documents, instruments,
chattel paper, inventory, equipment, general intangibles, books, records,
returns, repossessions, deposits and credit balances in relation thereto, and
all increases, substitutions and accessions thereto, wherever situated, now
owned by the Client or hereafter acquired together with the proceeds of such
collateral (hereinafter referred to as the "Collateral").
1.02 GSN, as the manufacturer of the Client's products, has extended
credit to the Client (the "GSN Loans"). In connection therewith, the Client has
simultaneously with the execution hereof, granted to GSN a second priority
security interest in the Collateral.
1.03 The Client and GSN have agreed with LSQ that in order for LSQ to
provide the financing of the Client as referenced in the Credit Agreement, LSQ
must have a first priority lien in the Collateral.
1.04 The Client and LSQ have agreed that GSN shall have a second
priority security interest in the Collateral which security interest shall only
be enforceable upon the occurrence of any of the following: (i) the Client has
become insolvent or has failed to pay its debts generally as such debts become
due (including its obligations to pay under the Credit Agreement) or has
admitted in writing its inability to pay any of its indebtedness; (ii) has
consented to or has petitioned or applied to any authority for the appointment
of a receiver, liquidator, trustee or similar official for itself or for all or
any substantial part of its properties or assets or that any such trustee,
receiver, liquidator or similar official has been appointed; or (iii) that
insolvency, reorganization, arrangement or liquidation proceedings (or similar
proceedings) have been instituted by or against the Client.
1.05 Therefore, in consideration of the foregoing and the covenants set
forth below, the Creditors have signed this Agreement to establish the relative
priorities of their respective security interests in the Collateral and to
memorialize certain other agreements with respect to the enforcement of their
respective rights and remedies against the Client.
ARTICLE 2. PRIORITIES
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LSQ and GSN agree that the priorities of their respective security
interests in the Collateral shall be as follows:
2.01 LSQ's Senior Priority. GSN agrees that LSQ's security interest in
the Collateral shall constitute a first and paramount security interest therein.
GSN's security interest in the Collateral shall be inferior and subordinate to
LSQ's security interest therein. Notwithstanding anything to the contrary set
forth in the Credit Agreement, LSQ hereby consents to the granting by Client of
a security interest in the Collateral to GSN.
ARTICLE 3. SUBORDINATION AND STAND-BY
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3.01 GSN agrees that until LSQ has been paid in full for any and all
Obligations (as defined in the Credit Agreement) due from the Client pursuant to
the Credit Agreement, GSN will not, without LSQ's prior written consent from a
duly authorized officer of LSQ, assert or seek to enforce by legal proceedings
or otherwise, any security interest or other rights that it may have with
respect to the Collateral, and GSN will not accept or receive delivery of any of
the Collateral or payment of any proceeds thereof. In the event that GSN should
directly or indirectly receive any proceeds of the Collateral, GSN shall
immediately notify LSQ of same and promptly remit such proceeds to LSQ. In the
event that GSN shall declare the Client to be in default of any term or
condition pursuant to the GSN Loans, LSQ may, in its sole discretion, continue
its financing arrangement with the Client pursuant to the Credit Agreement and
GSN will not take any action to foreclose or realize upon any of the Collateral
absent the express written consent of a duly authorized officer of LSQ until
such time as the Client's obligations due LSQ under the Credit Agreement have
been paid in full.
ARTICLE 4. AMENDMENTS TO DOCUMENTS
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4.01 GSN agrees and acknowledges that LSQ, in accordance with the terms
of the Credit Agreement, may at any time or times, in its discretion, (i) renew
or extend the time of payment of any obligations or indebtedness owing to it by
the Client; (ii) waive or release any collateral or guaranties which may be held
therefor, or (iii) modify or amend the documents evidencing its financing
arrangement with the Client (its "Documents") in any manner, in each case
without further consent from the other Creditor or any other person, and without
impairing or affecting this Agreement or any of its rights hereunder.
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ARTICLE 5. REPRESENTATIONS CONCERNING THE CLIENT; LIABILITY OF CREDITORS.
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5.01 No Creditor, nor any of its respective directors, officers, agents
or employees, shall be responsible to the other Creditor or to any other person
for (i) Client's solvency, financial condition or ability to repay its
obligations or indebtedness to any Creditor, (ii) any oral or written statements
of the Client or (iii) the validity, sufficiency or enforceability of such
indebtedness, any of its Documents or the security interest and liens granted by
the Client. Each Creditor has entered into its financing arrangements with the
Client based upon its own independent investigation, and makes no warranty or
representation to the other Creditor, nor does it rely on any warranty or
representation of the other Creditor with respect to the matters referred to in
this Article.
ARTICLE 6. MISCELLANEOUS
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6.01 The validity of this Agreement, its construction, interpretation
and enforcement, and the rights of the parties hereunder shall be determined
under, governed by, and construed in accordance with the laws of the State of
Florida.
6.02 GSN agrees with LSQ that LSQ shall be provided with simultaneous
written notice of any notices pertaining to a default, demand for payment, or
termination delivered to any party in connection with the GSN Loans as well as
any contemplated amendments, modifications or revisions to the GSN Loans.
6.03 Any notice, declaration, demand, request or other communication
which by any provision of this Agreement is required or permitted to be given to
or served on any party hereto shall be given in writing and shall be deemed to
have been sufficiently given or served for all purposes when (i) delivered
personally; (ii) sent by overnight mail; or (iii) sent by registered or
certified mail, return receipt requested, postage prepaid, to the address set
forth or provided for such party below, or at such other address as one party
may indicate from time to time in writing to the other:
If to LSQ: LSQ Funding Group L. C.,
0000 Xxxx Xxxxxxxx Xxxxx
Xxxxxxx, XX 00000
Attn: Xxxx Xxxxxxxxxx, Executive Vice President
If to GSN: Garden State Nutritionals
0 Xxxxxxxxx Xxxxx
Xxxx Xxxxxxxx, Xxx Xxxxxx ______
Attn: Xxxxx Xxxxxx, General Counsel
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Notices sent in accordance with the foregoing shall be deemed effective when so
delivered personally, the next business day if sent by overnight mail; or if
mailed, five (5) days after being sent by United States mail.
6.04 GSN and LSQ represent and warrant that they have not assigned
their respective security interests in the Collateral. Any assignment entered
into after the date of this Agreement shall be made expressly subject to the
terms of this Agreement, and the party so assigning shall give written notice to
the other party to this Agreement at least five (5) business days prior to such
an assignment.
6.05 This Agreement constitutes the entire agreement between the
parties and supersedes all prior agreements and understandings between the
parties relating to the subject matter hereof. This Agreement may not be changed
orally, but only by an agreement in writing and signed by the party against whom
enforcement of any waiver, change, modification or discharge is sought.
6.06 The headings of the various Articles of this Agreement have been
inserted for convenience only and shall not be deemed to be part of this
Agreement.
6.07 This Agreement shall be binding upon and inure to the benefit of
each of the Creditors and its respective successors, permitted assigns and
affiliates.
6.08 If any term, restriction or covenant of this Agreement is deemed
illegal or unenforceable, all other terms, restrictions and covenants, and the
application thereof to all persons and circumstances subject hereto, shall
remain unaffected to the extent permitted by law; and if any application of any
term, restriction or covenant to any person or circumstance is deemed illegal,
the application of such term, restriction or covenant to the persons and
circumstances shall remain unaffected to the extent permitted by law.
6.09 The knowledge by either Creditor of any breach or other
non-observance by the other Creditor of the terms of this Agreement shall not
constitute a waive thereof or of any obligations to be performed by the other
Creditor hereunder.
6.10 Except as provided herein, the subordinations, agreements and
priorities set forth hereinabove shall remain in full force and effect
regardless of whether any party hereto in the future seeks to rescind, amend or
terminate or reform by litigation or otherwise, its respective agreements with
the Client until such time as any and all obligations due GSN and LSQ have been
paid in full or until GSN and LSQ or their respective heirs or assigns shall
have agreed to a written termination hereof.
6.11 The subordinations and priorities specified herein are applicable,
irrespective of the time or order of attachment or perfection of the security
interests referred to herein, the time or order of filing of financing
statements, or the acquisition of or time of giving or failing to give notice of
the acquisition or expected acquisition of purchase money or other security
interests.
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6.12 This Agreement may be executed in one or more counterparts, each
of which shall constitute an original, but which when taken together shall be
deemed one and the same instrument.
6.13 This Agreement is solely for the benefit of the parties hereto and
nothing contained herein shall confer upon anyone other than the parties hereto
and their permitted successors and assigns, any right to insist upon or to
enforce the performance or observance of any of the obligations contained
herein; provided, however, that notwithstanding the foregoing, it is
acknowledged and agreed that the Client may rely on the consent set forth in
Section 2.01 hereof.
IN WITNESS WHEREOF, the Creditors have signed this Agreement as of the
date first written above.
Witnesses: "LSQ"
LSQ FUNDING GROUP L.C.
a Florida corporation
______________________________ By: /s/ X. Xxxxxxx Xxxxxx
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X. Xxxxxxx Eliscu
President
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"GSN"
Garden State Nutritionals,
a _______________ corporation
/s/ Xxxxx Xxxxxxx
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Xxxxx Xxxxxxx
______________________________ Name: Xxxxx Xxxxxxx
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Title: President and CEO
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The Client hereby consents to all of the terms and conditions of the foregoing
Subordination Agreement, and agrees to be bound in all respects thereby.
Health & Nutrition Systems International, Inc.,
a Florida corporation
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Name: Xxxxxxxxxxx Xxxx
______________________________ Title: President and Chief Executive Officer
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