FACTORING AND INVENTORY ADVANCES AND SECURITY AGREEMENT

1.1       Defined Terms. Capitalized terms shall have the meanings ascribed to them on Schedule A.

1.3       Exhibits and Schedules. All Exhibits and Schedules attached hereto are incorporated herein by reference and made a part hereof.

 

(e)            Client has paid and will pay all taxes and governmental charges imposed with respect to sale of Goods and rendition of services and shall furnish to Factor upon request satisfactory proof of payment and compliance with all federal, state and local tax requirements;

 

(f)            Client will promptly notify Factor of (i) the filing of any lawsuit against Client involving amounts greater than [***], and (ii) any attachment or any other legal process levied against Client;

 

(g)            The application made and information delivered by or on behalf of Client in connection with this Agreement, and the statements made therein are true and correct at the time that this Agreement is executed. There is no fact which Client has not disclosed to Factor in writing which could materially adversely affect the properties, business or financial condition of Client, or any of the Accounts or Collateral, or which is necessary to disclose in order to keep the foregoing representations and warranties from being misleading;

 

(h)             In no event shall the funds paid to Client hereunder be used directly or indirectly for personal, family, household or agricultural purposes;

 

(i)            Client does business under no trade or assumed names.

 

(j)            Any invoice or written communication that is issued by Client to Factor by facsimile transmission is a duplicate of the original;

 

(k)            Any electronic communication of data, whether by e-mail, tape, disk, or otherwise that Client remits or causes to be remitted to Factor shall be authentic and genuine; and

 

(l)            Client does not own, control or exercise dominion over, in any way whatsoever, the business of any Account or Customer.

 

(m)            Client represents and warrants to Factor that: (i) Client is not engaged as one of Client’s principal activities in owning, carrying or financing the purchase or ownership by others of “margin stock” (as defined in Regulation U of the Board of Governors of the Federal Reserve System); (ii) Client owns no real property and leases no real property other than as listed on Schedule 8.1 (m); (iii) a true, correct and complete list of any warehousemen, processors, consignees or other bailees with possession or control of any Inventory is set forth on Schedule 6.3 (b); and (iv) a list and brief description of all bank accounts maintained by Client with any bank or financial institution is set forth on Schedule 8.1 (m);

 

(n)   Negative Covenants.

 

(i)            Merger/Sale of Assets. Client may merge or consolidate with any other Person, provided, that Client must provide at least 60 days prior written notice to Factor of any such merger or consolidation, and the surviving entity must be in all respects satisfactory to Factor in Factor’s commercially reasonable discretion. Client will not sell, transfer, lease, abandon, or otherwise dispose of a s ubstantial portion of Client’s assets or any of the Collateral or any interest therein, except that, so long as no Default has occurred and is continuing, Client may sell Inventory in the ordinary course of Client’s business.

 

(ii)            No Debt or Liens; Taxes. Client will not obtain or attempt to obtain from any Person other than Factor any loans, advances, or other financial accommodations or indebtedness of any kind, nor will Factor enter into any direct or indirect guaranty of any obligation of another Person. Client will not permit any of Client’s assets or any part of the Collateral to be subject to any Lien. Client shall pay when due (or before the expiration of any extension period) any tax or other assessment (including all required payments or deposits with respect to withholding taxes), and Client will, upon request by Factor, promptly furnish Factor with proof satisfactory to Factor that Client has made such payments and deposits.

 

(iii)            No Distributions. Unless Factor consents in advance and in writing (which consent will not be unreasonably withheld), Client will not retire, repurchase or redeem any of Client’s capital stock or other ownership interest in Client, nor declare or pay any dividend in cash or other property (other than additional shares of capital stock or additional ownership interests) to any owner or hol der of Client’s shares or other ownership interest.

 

(iv)            No ERISA Liabilities. Client will make timely payments of all contributions required to meet the minimum funding standards for Client’s employee benefit plans subject to the Employee Retirement Income Security Act of 1974 (as amended, “ERISA”) and will promptly report to Factor the occurrence of any reportable eve nt (as defined in ERISA) and any giving or receipt by Client of any governmental notice (other than routine requests for information) in respect of any such plan.

 

(v)            Transactions with Affiliates. Client will not engage in any transaction with any of Client’s officers, directors, employees, owners or other Affiliates, except for an “arms-length” transaction on terms no less favorable to Client than would be granted to Client in a transaction with a Person who is not an Affiliate, which transaction shall be approved by Client’s disintere sted directors and shall be disclosed in a timely manner to Client prior to the consummation of the transaction.

 

(vi)            Loans/Investments. Client will not make any loans or advances to or extend any credit to any Person except (i) the extension of trade credit in the ordinary course of business; and (ii) advances to employees not to exceed an aggregate outstanding amount of [***] at any one time outstanding for all employees. Client shall not purchase, acquire or otherwise invest in any Person except: (A) existin g investments in Client’s subsidiaries described on Schedule 8.1 (n) (vi); (B) direct obligations of the United States of America maturing within one year from the acquisition thereof; (C) certificates of deposit issued by, or investment accounts in, banks or financial institutions having a net worth of not less than [***]; and (D) commercial paper rated A-1 by Standard & Poor’s Ratings Group or P-1 by Moody’s Investors Service, Inc. Without limiting the generality of the foregoing, Client shall not create any new subsidiary.

 

(vii)   Capital Expenditures. Client shall not make or incur capital expenditures in excess of [***] during any fiscal year.

 

Section 9. Administration.

 

9.1 Disputes/Chargebacks. Client shall notify Factor immediately upon the assertion by a Customer of a Dispute and Factor may charge such Account back to Client. Factor may charge back to Client all Client Risk Accounts at any time either before or after the due date and any or all Accounts upon the breach of any representation or warranty relating to an Account or upon a Default hereunder. Client indemnifies and holds Factor harmless from and against any and all loss, costs and expenses arising out of Disputes or Client Risk Accounts, including collection and attorneys fees with respect thereto. A chargeback shall not be deemed a reassignment of an Account and title thereto and to the Goods represented thereby shall remain in Factor until such time as Factor executes a reassignment of the Account.

 

9.2 Expenses. Client shall pay all costs incurred by Factor pursuant to this Agreement, including search and filing fees, on line access fees, wire and ACH transfer fees, audit and field examination fees, legal fees (including the allocated cost of internal counsel) for preparation of this Agreement and any other Factoring Documents and the perfection, preservation and enforcement of any of Factor’s rights hereunder.

 

9.3 Field Examinations. During the term of this Agreement and so long as there exists or has existed no Default, Factor may conduct up to two (2) field examinations per contract year at the following rates:

 

However, upon the occurrence of a Default and so long as it continues, Factor may conduct and charge additional amounts for additional field examinations.

 

9.4 Credit Inquiries. Client authorizes Factor to disclose such information as Factor deems appropriate to persons making credit inquiries about Client.

 

9.5 Persons Authorized to Request Advances. Client hereby authorizes and directs Factor to make Advances to or for the benefit of Client upon receipt of instructions from any of the persons listed on Schedule 9.4. Factor shall have no liability whatsoever to Client or any other Person for acting upon any such instructions which Factor, in good faith, believes were given by any such person, and Factor shall have no duty to inquire as to the propriety of any disbursement. Factor is hereby authorized to make the loans provided for herein based on instructions received by facsimile, electronic mail, telephone or other method of communication from any of such persons. Although Factor shall make a reasonable effort to determine the person’s identity, Factor shall not be responsible for determining the authenticity of any such instructions, and Factor may act on the instructions of anyone it perceives to be one of the persons authorized to request loans hereunder. Factor shall have the right to accept the instructions of any of the foregoing persons unless and until Factor actually receives from Client (in accordance with the notice provisions of this Agreement) written notice of termination of the authority of that person. Client may change persons designated to give Factor borrowing instructions only by delivering to Factor written notice of such change. Client will ensure that each telephone instruction from any person designated in or pursuant to this paragraph shall be followed by written confirmation of the request for disbursement in such form as Factor makes available to Client from time to time for such purpose; provided, however, that Client’s failure to provide written conf irmation of any telephonic instruction shall not invalidate such telephonic instruction.

 

Section 10. Accounting Information.

 

10. 1 Accounting Statements. Factor shall provide Client with information on the Accounts and a monthly reconciliation of the factoring relationship relating to billing, collection, Account Advances, Inventory Advances, Obligations and account maintenance such as aging, posting, error resolution and e- mailing or mailing of statements. All of the foregoing shall be in a format and in such detail, as Factor, in

its sole discretion, deems appropriate. Factor’s books and records shall be admissible in evidence without objection as prima facie evidence of the status of the Accounts and Reserve between Factor and Client. Each statement, report, or accounting rendered or issued by Factor to Client shall be deemed conclusively accurate and binding on Client unless within thirty (30) days after the date of issuance Client notifies Factor to the contrary pursuant to Section 13 hereof, setting forth with specificity the reasons why Client believes such statement, report, or accounting is inaccurate, as well as what Client believes to be correct amount(s) therefore. If the Client gives notice of its disagreement with Factor’s statement, all matters in such statement that are not objected to in Client’s notice, sh all be deemed conclusively accurate and binding on Client. Client’s failure to receive any monthly statement shall not relieve it of the responsibility to request such statement and Client’s failure to do so shall nonetheless bind Client to whatever Factor’s records would have reported.

 

10.2 Inspections. Factor shall have the right at any time, at Client’s expense, to visit and inspect Client’s books and records, and to make and take away copies of Client’s books and records.

 

Section 11. Defaults and Remedies.

 

11. 1 Default. A Default shall be deemed to have occurred hereunder upon the happening of one or more of the following: (a) Client shall fail to pay as and when due any amount owed to Factor; (b) any Obligor shall breach any covenant, warranty or representation set forth herein or in any Factoring Document or same shall be untrue when made; (c) any Obligor becomes insolvent in that its debts are greater than the fair value of its assets or is unable to pay its debts as they mature, or admits in writing that it is insolvent or unable to pay its debts, makes an assignment for the benefit of creditors, makes a conveyance fraudulent as to creditors under any state or federal law, or a proceeding is instituted by or against any Obligor alleging that such Obligor is insolvent or unable to pay debts as they mature, or a petition under any provision of Title 11 of the United States Code, as amended, or any state insolvency proceeding is filed by or against any Obligor; (d) any involuntary lien, garnishment, attachment or the like shall be issued against or shall attach to the Accounts, the Collateral or any portion thereof and the same is not released within ten (10) days; (e) any Obligor suffers the entry against it for a final judgment for the payment of money in excess of [***], unless the same is discharged within thirty (30) days after the date of entry thereof or an appeal or appropriate proceeding for review thereof is taken within such periods and a stay of execution pending such appeal is obtained; (f) any report, certificate, schedule, financial statement, profit and loss statement or other statement furnished by Client, or by any Obligor or other person on behalf of Client, to Factor is not true and correct in any material respect; (g) Obligor shall have a federal or state tax lien filed against any of its properties (and the same is not released in 10 days), or shall fail to pay any federal or state tax when due (unless such tax is properly challenged or appealed by Client in good faith and Client makes appropriate reserves for such tax), or shall fail to file any federal or state tax form as and when due; (h) a material adverse change shall have occurred in Obligor’s financial conditions, business or operations; (i) any suspension of the operation of Obligor’s present business; (j) death of any Obligor who was a natural person, or death or withdrawal of any partner of any Obligor that is a partnership, or dissolution, merger, or consolidation of any Obligor that is a corporation, partnership or limited liability company; (k) transfer of a substantial part (determined by market value) of the property of any Obligor; (l) sale, transfer or exchange, either directly or indirectly, of a controlling stock or equity ownership interest of any Obli gor; (m) termination, unenforceability or withdrawal of any guaranty for the Obligations, or failure of any Obligor to perform any of its obligations under such a guaranty or assertion by any Obligor that it has no liability or obligation under such a guaranty, or (n) Factor shall deem itself insecure with respect to its interest in the Collateral or prospects for repayment.

 

11.2 Remedies. (a) Upon a Default, Factor may, without demand or notice to Client, exercise all rights and remedies available to it under this Agreement, under the UCC or otherwise, including terminating this Agreement and declaring all Obligations immediately due and payable, provided, however, that in the event of a Default described under clause (c) of Section 11. 1, such termination and acceleration shall automatically occur without any notice, demand or presentment of any kind.

 

(b) Without notice to or demand upon Client or any other Person, Factor may make such payments and do such acts as Factor considers necessary or reasonable to protect its security interest in the Collateral. Client authorizes Factor to enter each premises where any Collateral is located, take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest or compromise any lien which in Factor’s opinion appears to be prior or superior to its security interest and to pay all expenses incurred in connection therewith. Factor may ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for s ale and sell the Collateral. Any such sale may be either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms. It is not necessary that the Collateral be present at any such sale.

 

(c) Factor shall be entitled to any form of equitable relief that may be appropriate without having to establish that any remedy at law is inadequate or other grounds. Factor shall be entitled to freeze, debit and/or effect a set-off against any fund or account Client may maintain with any bank. In the event Factor deems it necessary to seek equitable relief, including injunctive or receivership remedies, as a result of a Default, Client waives any requirement that Factor post or otherwise obtain or procure any bond. Alternatively, in the event Factor, in its sole and exclusive discretion, desires to procure and post a bond, Factor may procure and file with the court a bond in an amount up to and not greater than [***] notwithstand ing any common or statutory law requirement to the contrary. Upon Factor’s posting of such bond it shall be entitled to all benefits as if such bond was posted in compliance with state law. Client waives any right it may be entitled to, including an award of attorney’s fees or costs, in the event any equitable relief sought by and awarded to Factor is thereafter, for whatever reason(s), vacated, dissolved or reversed.

 

11.3 Cumulative Rights; Waivers. The occurrence of any Default shall entitle Factor to all of the default rights and remedies (without limiting the other rights and remedies exercisable by Factor either prior or subsequent to a Default) as available to a Secured Party under the Uniform Commercial Code in effect in any applicable jurisdiction. All rights, remedies and powers granted to Factor in this Agreement, or in any other instrument or agreement given by Client to Factor or otherwise available to Factor in equity or at law, are cumulative and may be exercised singularly or concurrently with such other rights as Factor may have. These rights may be exercised from time to time as to all or any part of the Accounts hereunder or the Collateral as Fac tor in its discretion may determine. In the event that any part of the purchase of Accounts hereunder by Factor is construed to be a loan from Factor to Client, any advances or payments made as the Purchase Price for all Accounts shall be secured by the Accounts and the Collateral. Factor may not be held to have waived its rights and remedies unless the waiver is in writing and signed by Factor. A waiver by Factor of a right, remedy or default under this Agreement on one occasion is not a waiver of any right, remedy or default on any subsequent occasion. No exercise by Factor of one right or remedy shall be deemed an election, and no waiver by Factor of any default on Client’s part shall be deemed a continuing waiver. No delay by Factor shall constitute a waiver, election or acquiescence by it.

 

Section 12. Term.

 

12.1 Term. The Original Term of this Agreement shall be three (3) years from the date of this Agreement (the “Original Term”). Client shall have the right to terminate the Agreement upon sixty (60) days prior written notice, subject to the following prepayment penalties:

 

Notwithstanding anything herein to the contrary, Factor may terminate this Agreement i) at any time after the occurrence of a Default, or ii) assuming no Default hereunder, at any time by giving not less than sixty (60) days notice provided, however, that if Factor terminates this Agreement prior to the end of the Original Term other than upon the occurrence of a Default, Client shall not be obligated to pay any prepayment fees.

 

Notwithstanding payment in full of all Obligations by Client, any such notice of termination is conditioned on Client’s delivery, to Factor, of a general release in a form reasonably satisfactory to Factor. Client understands that this provision constitutes a waiver of its rights under § 9-513 of the UCC. Factor shall not be required to record any terminations or satisfactions of any of Factor’s liens on the Collateral unless and until Client has executed and delivered to Factor said general release and Client shall have no authority to do so without Factor’s express written consent. Any termination of this Agreement shall not affect Factor’s security interest in the Collateral and Factor’s ownership of the Accounts, and this Agreement shall continue to be effective, until all tra nsactions entered into and Obligations incurred hereunder have been completed and satisfied in full. The expense reimbursement, repayment and indemnification provisions of this Agreement shall survive the termination of this Agreement. All Obligations shall be immediately due and payable in full upon termination of this Agreement.

 

Section 13. Notices. Any notice or communication with respect to this Agreement shall be given in writing, sent by (i) personal delivery, (ii) overnight delivery service with proof of delivery, (iii) email at the email address set forth below the signature of the respective party to this Agreement, (iv) United States mail, first-class with postage prepaid, or registered or certified mail, or (v) prepaid telegram, telex or telecopy, addressed to each party hereto at its address and to the attention of the person listed as set forth below the signatures of the parties to this Agreement. Any such notice or communication shall be deemed to have been given either at the time of personal delivery or, in the case of overnight delivery service or telecopy, o n the next business day at the receiving location or in the case of mail, upon receipt.

 

Section 14. Attorney’s Fees. Client agrees to reimburse Factor upon demand for all reasonable attorney’s fees, court costs and other expenses incurred by Factor in the preparation, negotiation and enforcement of this Agreement and protecting or enforcing its interest in the Accounts or the Collateral, or in the representation of Factor in connection with any bankruptcy case or insolvency proceeding involving Client, the Collateral, or any Accounts, including any defense of any Avoidance Claims (except to the extent related to Approved Accounts where no Dispute exists). Client hereby agrees to pay such fees, costs and expenses and Factor shall also have the right to charge the Reserve therefore. Notwithstanding the existence of any law, st atute or rule, in any jurisdiction which may provide Client with a right to attorney’s fees or costs, Client hereby waives any and all rights to hereafter seek attorney’s fees or costs hereunder and Client agrees that Factor exclusively shall be entitled to indemnification and recovery of any and all attorney’s fees or costs in respect to any litigation based hereon, arising out of, or related hereto, whether under, or in connection with, this and/or any agreement executed in conjunction herewith, or any course of conduct, course of dealing, statements (whether verbal or written) or actions of either party.

 

Section 15. Indemnity. Client hereby indemnifies and agrees to hold harmless and defend Factor from and against any and all claims, judgments, liabilities, fees and expenses (including attorney’s fees) which may be imposed upon, threatened or asserted against Factor at any time and from time to time in any way connected with this Agreement or the Collateral. The foregoing indemnification shall apply whether or not such indemnified claims are in any way or to any extent owed, in whole or in part, under any claim or theory of strict liability, or are caused, in whole or in part, by any negligent act or omission of Factor.

 

Section 16. Severability. Each and every provision, condition, covenant and representation contained in this Agreement is, and shall be construed to be, a separate and independent covenant and agreement. If any term or provision of this Agreement shall to any extent be invalid or unenforceable, the remainder of the Agreement shall not be affected thereby.

 

Section 17. Parties in Interest. All grants, covenants and agreements contained in this Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that Client may not delegate or assign any of its duties or obligations under this Agreement without the prior written consent of Factor. Notwithstanding anything herein to the contrary, the Factor may, without consent of the Client, grant a security interest in, sell or assign, grant or sell participations in or otherwise transfer all or any portion of its rights and obligations hereunder to one or more Persons.

 

Section 18. Governing Law; Submission to Process and Venue. This Agreement shall be deemed a contract made under the laws of the State of California and shall be construed and enforced in accordance with and governed by the internal laws of the State of California, without reference to the rules thereof relating to conflicts of law. Client hereby irrevocably submits itself to the exclusive jurisdiction of the state and federal courts located in the state of California, and agrees and consents that service of process may be made upon it in any legal proceeding relating to this Agreement, the purchase of Accounts or any other relationship between Factor and Client by any means allowed under state or federal law. Client hereby waives and agrees not to a ssert, by way of motion, as a defense or otherwise, that any such proceeding, is brought in any inconvenient forum or that the venue thereof is improper.

 

Section 19. Complete Agreement. This Agreement, the written documents executed pursuant to this Agreement, if any, and the acknowledgment delivered in connection herewith set forth the entire understanding and agreement of the parties hereto with respect to the transactions contemplated herein and may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the parties. No modification or amendment of or supplement to this Agreement shall be valid or effective unless the same is in writing and signed by the party against whom it is sought to be enforced.

 

Section 20. Miscellaneous.

 

(a)    Client acknowledges that there is no, and it will not seek or attempt to establish any, fiduciary relationship between Factor and Client, and Client waives any right to assert, now or in the future, the existence or creation of any fiduciary relationship between Factor and Client in any action or proceeding (whether by way of claim, counterclaim, crossclaim or otherwise) for damages.

 

(b)    This Agreement shall be deemed to be one of financial accommodation and not assumable by any debtor, trustee or debtor-in-possession in any bankruptcy proceeding without Factor’s express written consent and may be suspended in the event a petition in bankruptcy is filed by or against Client.

 

(c)    In the event Client’s principals, officers or directors form a new entity, whether corporate, partnership, limited liability company or otherwise, similar to that of Client during the term of this Agreement, such entity shall be deemed to have expressly assumed the obligations due Factor by Client under this Agreement. Upon the formation of any such entity, Factor shall be deemed to have been granted an irrevocable power of attorney with authority to file, on behalf of the newly formed successor business, a new UCC financing statement or other UCC financing statement with the appropriate secretary of state or Uniform Commercial Code filing office. F actor shall be held-harmless and be relieved of any liability resulting from the filing of a financing statement or the resulting perfection of a lien in any of the successor entity’s assets. In addition, Factor shall have the right to notify the successor entity’s Customers of Factor’s lien rights, its right to collect all Accounts, and to notify any new factor or Factor who has sought to procure a competing lien of Factor’s right is in such successor entity’s assets.

 

(d)    Client expressly authorizes Factor to access the systems of and/or communicate with any shipping or trucking company in order to obtain or verify tracking, shipment or delivery status of any Goods regarding an Account.

 

(e)    Client’s principal(s) acknowledge that the duty to accurately complete each Schedule of Accounts is critical to this Agreement and as such all obligations with respect thereto are non- delegable. Each of Client’s principal(s) acknowledge that he/she shall remain fully responsible for the accuracy of each Schedule of Accounts delivered to Factor regardless of who is delegated the responsibility to prepare and/or complete such Schedule of Accounts.

 

(f)    Client shall indemnify Factor from any loss arising out of the assertion of any Avoidance Claim. Client shall notify Factor within two business days of it becoming aware of the assertion of an Avoidance Claim.

 

(g)           Client agrees to execute any and all forms (i.e. Forms 8821 and/or 2848) that Factor may require in order to enable Factor to obtain and receive tax information issued by the Department of the Treasury, Internal Revenue Service, or receive refund checks.

 

(h)           The Client shall make each payment required hereunder, and/or under any instrument delivered hereunder, without setoff, deduction or counterclaim.

 

(i)    The terms of this Agreement and the other Factoring Documents are confidential and Client agrees not to disclose same to any party other than its accountants, attorneys and others that are in a confidential relationship with Client and who agree to treat this Agreement and the other Factoring documents and the contents of same as confidential.

 

Section 21. Waiver of Jury Trial, Punitive and Consequential Damages, Etc. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, CLIENT AND FACTOR HEREBY IRREVOCABLY AND EXPRESSLY WAIVE ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER FACTORING DOCUMENT, THE OBLIGATIONS OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY OR EITHER PARTY'S ACTIONS IN THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT HEREOF OR THEREOF; AND (B) IRREVOCABLY AND EXPRESSLY WAIVE, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITITGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES AND CLIENT HEREBY RELEASES AND EXCULPATES FACTOR, ITS OFFICERS, EMPLOYEES AND DESIGNEES, FROM ANY LIABILITY ARISING FROM ANY ACTS UNDER THIS AGREEMENT OR IN FURTHERANCE THEREOF WHETHER OF OMISSION OR COMMISSION, AND WHETHER BASED UPON ANY ERROR OF JUDGMENT OR MISTAKE OF LAW OR FACT, EXCEPT FOR WILLFUL MISCONDUCT. EACH OF CLIENT AND FACTOR ACKNOWLEDGES THAT SUCH WAIVER IS MADE WITH FULL KNOWLEDGE AND UNDERSTANDING OF THE NATURE OF THE RIGHTS AND BENEFITS WAIVED HEREBY, AND WITH THE BENEFIT OF ADVICE OF COUNSEL OF ITS CHOOSING.

 

Section 22. Arbitration.

 

Any dispute, claim or controversy arising out of or relating to this Agreement or the breach, termination, enforcement, interpretation or validity thereof, including the determination of the scope or applicability of this agreement to arbitrate, shall be determined by arbitration in Los Angeles, before three arbitrators. The arbitration shall be administered by JAMS pursuant to its Comprehensive Arbitration Rules and Procedures. Judgment on the award may be entered in any court having jurisdiction. This clause shall not preclude parties from seeking provisional remedies in aid of arbitration from a court of appropriate jurisdiction. The arbitrator may, in the award, allocate all or part of the costs of the arbitration, including the fees of the arbitrator and the reasonable attorneys’ fees of the prevailing party.

 

 

In Witness Whereof, the parties have set their hands and seals on the day and year first hereinabove written.

 

 

STATE OF_________)

COUNTY OF_______)

 

On                                , 2009, before me,                                                      , Notary Public, personally appeared Scott Jarus, who proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity, and that by his signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.

 

I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

 

WITNESS my hand and official seal.

 

Signature ______________________ (Signature of Notary)                                (Seal of Notary)

 

“Account(s)” means (i) all “accounts” as defined in the UCC due to Client, whether presently existing or hereafter arising due to Client, and (ii) all presently existing or hereafter arising accounts receivable due to Client, book debts, notes, drafts and acceptances and other forms of obligations or rights to payment of a monetary obligation now or hereafter owing to Client, whether arising from the sale or lease of goods or the rendition of services by Client or otherwise (including any obligation that might be characterized as an account, contract right, general intangible or chattel paper under the UCC), all of Client’s rights in, to and under all purchase orders now or hereafter received by Client for goods and serv ices, all proceeds from the sale of Inventory, all monies due or to become due to Client under all contracts for the sale or lease of goods or the rendition of services by Client or otherwise (whether or not yet earned by performance) (including the right to receive the proceeds of said purchase orders and contracts), all collateral security and guarantees of any kind given by any obligor with respect to any of the foregoing, and all goods returned to or reclaimed by Client that correspond to any of the foregoing and all proceeds of the foregoing..

 

“Account Advance” means amounts advanced by Factor to or for the benefit of the Client under this Agreement or otherwise against the Net Invoice Amount of Accounts.

 

“Account Advance Availability” means the amount determined by Factor pursuant to section 3.1 hereof.

 

“Advance(s)” means all Account Advances and Inventory Advances and any other amounts advanced by Factor to or on behalf of Client.

 

“Agreement” means this Agreement, including the Exhibits and any Schedules hereto, and all amendments, modifications and supplements hereto and thereto and restatements hereof and thereof.

 

“Approved Account” means an Account representing a sale to a Customer within the terms of a Credit Line established for such Customer on Client’s normal selling terms or within the Single Order Approval issued by Factor provided that delivery is completed while such Credit Line or Single Order Approval remains in effect and such Account has not been charged back to the Client.

 

“Avoidance Claim” means any claim that any payment received by Factor from or for the account of an Account Debtor is avoidable under the federal Bankruptcy Code or any other debtor relief statute.

 

“Business Day” means any day that a bank located in California, Oklahoma or Ohio is open for business.

 

“Chattel Paper” means (i) all “chattel paper” as defined in the UCC, and (ii) all record or records that evidence both a monetary obligation and a security interest in specific goods, a security interest in specific goods and software used in the goods, a security interest in specific goods and license of software used in the goods, a lease of specific goods, or a lease of specific goods and license of software used in the goods.

 

“Client” has the meaning ascribed thereto in the introductory paragraphs hereof.

 

“Client Risk Account” means those Accounts for which Factor has not given Credit Approval, for which Credit Approval has been withdrawn or revoked or with respect to which Factor is not responsible under Section 2 hereof.

 

 “Collateral” means and includes all of Client’s right, title and interest in and to all of Client’s property, whether real or personal, tangible or intangible, now owned or existing or hereafter acquired or arising and wherever located, including all of the following: (a) all Accounts, (b) Chattel Paper, (c) Commercial Tort Claims, (d) Deposit Accounts, (e) Documents, (f) Equipment (g) General Intangibles (including but not limited to all files, correspondence, computer programs, tapes, disks and related data processing software which contain information identifying or pertaining to any of the Collateral or any Customer or showing the amounts thereof or payments thereon or otherwise necessary or helpful in the realizatio n thereon or the collection thereof), (h) Goods, (i) Inventory, (j) Instruments, (k) Investment Property, (l) Letters of Credit and Letter of Credit Rights, (m) Negotiable Collateral (n) the Reserve, (o) all Supporting Obligations, (p) all other personal property and assets of the Client and (q) all proceeds (as defined in the UCC) and any other products of the foregoing and this clause (q).

 

“Collection Date” means (a) for payments received by Factor in payment of Accounts, the date a check, draft or other item representing payment on an invoice is posted to Factor’s account plus two (2) business days; or (b) for Approved Accounts paid by Factor due to Customer’s financial inability to pay, the Friday of the calendar week following the calendar week in which the 120 day period for such Approved Account ends.

 

“Commercial Tort Claim” means (i) all “commercial tort claims” as defined in the UCC, and (ii) all claims arising in tort with respect to which: (A) The claimant is an organization; or (B) The claimant is an individual and the claim: (x) arose in the course of the claimant’s business or profession; and (y) does not include damages arising out of personal injury to or the death of an individual.

 

“Commission” has the meaning ascribed thereto in Section 5.2 (a) hereof.

 

“Contract Year” means the twelve month period ending on the date that is twelve months after the effective date of this Agreement and the twelve month period ending on each annual anniversary thereof.

 

“Credit Approval(s) and Credit Approved” means, with regard to an Approved Account, that Factor has accepted the Credit Risk.

 

“Credit Lines” has the meaning ascribed thereto in Section 2.2 (a).

 

“Credit Risk” means the Customer’s failure to pay an Account when due solely because of its financial inability to pay.

 

“Customer” means any Person who is obligated on an Account, Chattel Paper or General Intangible. “Default” means any of the events specified in Section 11 of this Agreement.

 

“Deposit Account” means (i) all “deposit accounts” as defined in the UCC , and (ii) any demand, time, savings, passbook or like account maintained with a bank, savings and loan association, credit union, trust company or like organization, other than an account evidenced by a certificate of deposit that is an instrument under the UCC.

 

“Dispute or Disputed Account” means any claim, whether or not provable, bona fide, or with or without support, made by an Customer as a basis for refusing to pay an Account, either in whole or in part, including any contract dispute, charge back, credit, right to return Goods, or other matter which diminishes or may diminish the dollar amount or timely collection of such Account.

 

“Documents” means a document of title or a receipt of the type described in UCC 7-201(2).

 

“EBITDA” means, with respect to Client for any applicable period, (a) net income (excluding extraordinary gains), plus (b) the sum of interest expense, stock options and non-cash item under FAS 123(R), taxes, depreciation and amortization, in each case determined in accordance with GAAP.

 

 “Eligible Inventory” means and includes that Inventory (other than packaging materials, labels and supplies) located in the continental United States which Factor, in its discretion, deems to be Eligible Inventory. Without limiting the generality of the foregoing, no Inventory shall be Eligible Inventory unless:

 

(a)            it is finished goods;

 

(b)            at all times it strictly complies with all of Client’s warranties, covenants and representations to Factor;

 

(c)            it is in good, new and salable condition;

 

(d)            it is not slow moving, obsolete or unmerchantable, in Factor’s discretion;

 

(e)            it meets all standards imposed by any governmental agency or authority;

 

(f)            it is at all times subject to Factor’s duly perfected, first-priority security interest and there exists no other Lien thereon;

 

(g)            it is in Client’s possession and control situated at a location disclosed to Factor in compliance with this Agreement, the Inventory is not in-transit, Client’s books reflect the Inventory, the Inventory is insured to the full value thereof, and the insurance policy lists Factor as sole loss payee;

 

(h)            it is not in the hands of any third party, including a warehouseman, finisher, consignee, bailor, etc., unless such arrangement is fully disclosed to Factor in writing and Client shall have provided to Factor such waivers, acknowledgments and other items requested by Factor in its discretion;

 

(i)            it is not subject to any license or other agreement that limits, conditions, or restricts

 

Client’s or Factor’s right to sell, transfer or otherwise dispose of such Inventory;

 

(j)            Client owns such Inventory and such Inventory is not in Client’s possession based upon any consignment, guaranteed sale, or similar basis; and

 

(k)    it is not of a type that Factor, in its discretion, has determined is not Eligible Inventory.

 

“Equipment” means (a) all “equipment” as defined in the UCC, and (b) all of Client’s present and hereafter acquired machinery, equipment, furniture, fixtures, goods, and all other tangible personal property (other than Inventory), including computer and other electronic data processing equipment and other office equipment and supplies, computer programs and related data processing software, embedded software, spare parts, tools, motors, automobiles, trucks, tractors and other motor vehicles, rolling stock, jigs, as well as all of such types of property leased by Client and all of Client’s rights and interests with respect thereto under such leases (including, without limitation, options to purchase), together with all present and future additions and accessions thereto, replacements therefor, component and auxiliary parts and supplies used or to be used in connection therewith, and all substitutes for any of the foregoing, and all manuals, drawings, instructions, warranties and rights with respect thereto; wherever any of the foregoing is located.

 

“Factor” has the meaning ascribed thereto in the introductory paragraph hereof.

 

“Factoring Documents” means, collectively, this Agreement and any other agreements, instruments, certificates or other documents entered into in connection with this Agreement, including collateral documents, letter of credit agreements, riders covering inventory or other loans, security agreements, pledges, guaranties, mortgages, deeds of trust, assignments and subordination agreements, and any other agreement executed by Client, any guarantor or any affiliate of Client or any guarantor pursuant hereto or in connection herewith.

 

 “Financing Statement” means each Uniform Commercial Code financing statement naming the Factor as purchaser/secured party and the Client as Client/debtor, in connection with this Agreement.

 

“GAAP” means generally accepted accounting principles consistently applied and maintained throughout the period indicated and consistent with the prior financial practices of the Person referred to.

 

“General Intangible” means (i) all “general intangibles” as defined in the UCC, and (ii) all of Client’s present and future general intangibles and all other presently owned or hereafter acquired intangible personal property of Client (including payment intangibles and any and all choses or things in action, goodwill, patents and patent applications, tradenames, servicemarks, trademarks and trademark applications, copyrights, blueprints, drawings, purchase orders, customer lists, monies due or recoverable from pension funds, licenses and rights under any licensing agreements, route lists, infringement claims, software, computer programs, computer discs, computer tapes, literature, reports, catalogs, deposit accounts, tax refunds and tax refund claims) other than Goods, Accounts, Chattel Paper, Commercial Tort Claims, Deposit Accounts, Documents, Equipment, Instruments, Investment Property, Letters of Credit or Letters of Credit Rights, but specifically including all of Client’s books and records.

 

“Goods” means (i) all “goods” as defined in the UCC, and (ii) all of Client’s present and hereafter acquired goods, wherever located, including imbedded software to the extent included in “goods”, manufactured homes, and standing timber that is cut and removed for sale.

 

“Guarantor” has the meaning ascribed thereto in the introductory paragraph.

 

“Instrument” means (i) all “instruments” as defined in the UCC, and (ii) all negotiable instruments or any other writings that evidence a right to the payment of a monetary obligation, is not itself a security agreement or lease, and is of a type that in ordinary course of business is transferred by delivery with any necessary endorsement or assignment. The term does not include (i) Investment Property, (ii) Letters of Credit, or (iii) writings that evidence a right to payment arising out of the use of a credit or charge card or information contained on or for use with the card.

 

“Inventory” means (i) all “inventory” as defined in the UCC, and (ii) all of Client’s inventory, together with all of Client’s present and future inventory, including goods held for sale or lease or to be furnished under a contract of service and all of Client’s present and future raw materials, work in process, finished goods, shelving and racking upon which the inventory is stored and packing and shipping materials, wherever located, and any documents of title representing any of the above.

 

“Inventory Advance” means amounts advanced by Factor to or for the benefit of the Client under this Agreement or otherwise against Eligible Inventory pursuant to Section 3.2 hereof.

 

“Inventory Advance Availability” means the amount determined by Factor in under section 3.2 hereof.

 

“Inventory Certificate” means the certificate, in such form as Factor may prescribe from time to time, with appropriate insertions, to be submitted to Factor by Client pursuant to this Agreement and certified as true and correct by the Chief Executive Officer or the Chief Financial Officer of Client.

 

“Investment Property” means (i) any “investment property” as defined in the UCC, and (ii) a security, whether certificated or uncertificated, security entitlement, securities account, commodity contract, or commodity account.

 

“Issuer” means a financial institution selected by Factor and reasonably acceptable to Client.

 

“Ledger Debt” means any debt, liability or obligation now or hereafter owing by Client to others, including any present or future client of Factor, which Factor may have obtained or may obtain by purchase, assignment, negotiation, discount, participation or otherwise.

 

 “Letter of Credit” means a commercial or stand-by letter of credit issued by or on behalf of or for the benefit of Client.

 

“Letter of Credit Fee” means a monthly fee equal to [***] of the face amount of all issued and/or outstanding Letters of Credit and such other fees and charges as set forth on Exhibit A hereto as such may be revised from time to time.

 

“Letter of Credit Obligations” means all indebtedness, liabilities and obligations incurred by Factor at the request of Client in connection with the issuance of Letters of Credit.

 

“Letter of Credit Reserve” means, from time to time, an amount equal to the aggregate amount that may then be drawn under the Letter of Credit assuming compliance with all conditions for drawing, plus the aggregate amount of all draws under the Letter of Credit for which Client has not reimbursed

Factor.

 

“Letter of Credit Right” means (i) “letter of credit right” as defined in the UCC, and (ii) a right to payment or performance under a Letter of Credit, whether or not the beneficiary has demanded or is at the time entitled to demand payment or performance. The term does not include the right of a beneficiary to demand payment or performance under a Letter of Credit.

 

“LIBOR” means, at any time, an interest rate per annum equal to the interest rate per annum (rounded upwards, if necessary, to the nearest 1/100th of 1%) as published in the “Money Rates” section of The Wall Street Journal (or another national publication selected by the Factor) as the one month London Interbank Offered Rate for United States dollar deposits or such other language (or, if such page shall cease to be publicly available or, if the information/description contained on such page, in Factor’s sole judgment, shall cease to accurately reflect such London Interbank Offer ed Rate, then such rate as reported by any publicly available recognized source of similar market data selected by Factor that, in Factor’s reasonable judgment, accurately reflects such London Interbank Offered Rate).

 

“Lien” means any security interest, security title, mortgage, deed to secure debt, deed of trust, lien, pledge, charge, conditional sale or other title retention agreement, or other encumbrance of any kind in respect of any property, including the interest of each lessor under any capitalized lease and the interest of any bondsman under any payment or performance bond, in, of or on any assets or properties of a Person, whether now owned or hereafter acquired and whether arising by agreement or operation of law.

 

"Misdirected Payment Fee" means [***] of the amount of any payment on account of an Account which has been received by Client and not delivered in kind to Factor within two (2) business days following the date of receipt by Client.

 

“Negotiable Collateral” means all of Client’s present and future letters of credit, advises of credit, notes, drafts, instruments, and documents, including bills of lading, leases, and chattel paper, and Client’s books and records relating to any of the foregoing.

 

“Net Invoice Amount” means the invoice amount of the Account, less returns (whenever made), all selling discounts (at Factor’s option, calculated on shortest terms), credits or deductions of any kind allowed or granted to or taken by the Customer at any time.

 

“Obligations” means all present and future Account Advances, Inventory Advances, Letter of Credit Obligations, interest, fees, Commission, expenses, and all other present and future obligations (including the obligation to turn over all proceeds of Accounts and other Collateral) owing by Client to Factor, including interest thereon, whether or not for the payment of money, whether or not evidenced by any note or other instrument, whether direct or indirect, absolute or contingent, due or to become due, joint or several, primary or secondary, liquidated or unliquidated, secured or unsecured, original or renewed or extended, whether presently contemplated or not, regardless of how the same arise, or by what instrument, agreement or book acc ount they may be evidenced, or whether evidenced by any instrument, agreement or book account, whether arising before, during or after the commencement of any federal Bankruptcy Case in which Client is a debtor including obligations arising pursuant to Letters of Credit or acceptance transactions or any other financial accommodations or agreements between Client and Factor.

 

“Obligor” means Client and any other Person primarily or secondarily, directly or indirectly, liable on any of the Obligations, including, but not limited to, any guarantor thereof (individually an “Obligor” and collectively, the “Obligors”),

 

“Original Term” means the term of this Agreement as reflected in section 12 hereof and “Term” means the Original Term and any extensions thereof.

 

“Person” means an individual, corporation, limited liability company, partnership, association, trust or unincorporated organization or a government or any agency or political subdivision thereof.

 

“Purchase Price” means the amounts received by Factor from a Customer in payment of an Account, provided, however, that with respect to an Approved Account that remains unpaid 120 days after its maturity due solely to a Customer’s financial inability to pay, purchase price means the Net Invoice Amount less Factor’s Commission but in no event in excess of the amount of the Credit Approval related thereto.

 

“Reserve” means a bookkeeping account on the books of the Factor representing an unpaid portion of the Purchase Price and such other amounts as Factor deems advisable as security for the payment and performance by Client of its Obligations hereunder.

 

“Schedule of Accounts” means a form supplied by Factor from time to time wherein Client lists all Accounts.

 

“Security Interest” means the rights, title and interest in and to and liens of Factor on and in the Collateral.

 

“Single Order Approval” has the meaning ascribed thereto in Section 2.2 (a) hereof.

 

“Supporting Obligation” means (i) a “supporting obligation” as defined in the UCC, and (ii) a Letter of Credit Right or secondary obligation that supports the payment or performance of an Account, Chattel paper, a Document, a General Intangible, an Instrument, or Investment Property.

 

“UCC” means the Uniform Commercial Code as in effect from time to time in the State of California.

 

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