Karns Prime & Fancy Food, Ltd. - Page 4

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          that the customer’s obligation to repay funds that it advanced              
          would arise only if the customer materially breached the supply             
               While petitioner was negotiating with Super Rite with                  
          respect to the terms of the supply agreement and the correspond-            
          ing note that Super Rite required as conditions to Super Rite’s             
          advancing any funds to it, petitioner requested, and received,              
          permission from PNC Bank, petitioner’s primary bank, to enter               
          into such supply agreement and to execute such note.  That is               
          because petitioner had outstanding indebtedness to PNC Bank, and            
          the loan documents with respect to that indebtedness required PNC           
          Bank’s permission before petitioner entered into any transaction            
          in which it received an advance of funds that it might have to              
          repay and/or with respect to which certain of petitioner’s assets           
          were to serve as collateral.  In all events, PNC Bank was to                
          retain a first security interest in any assets of petitioner that           
          served as collateral with respect to petitioner’s outstanding               

          amount of products and that contemplated that Super Rite would              
          pay an advance price rebate to such customer at the inception of            
          such supply agreement.  Before Super Rite entered into such a               
          supply agreement, it required the customer to execute a note                
          payable to Super Rite in the amount of any such advance rebate in           
          order to facilitate repayment of such advanced funds in the event           
          that the customer did not satisfy the minimum annual purchase               
          requirement set forth in the supply agreement or otherwise                  
          materially breached that agreement.                                         

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Last modified: May 25, 2011