CONTRACT OF SALE SECURITY AGREEMENT (LOC Form 5)

EXHIBIT 10.1

CONTRACT OF SALE
SECURITY AGREEMENT
(LOC Form 5)

This Contract of Sale and Security Agreement dated for purposes of reference June 25, 2006; is between the undersigned, Jones Soda (USA), Inc., hereinafter called “CLIENT”, and CAPCO Financial Company — a division of Greater Bay Bank N.A. hereinafter called “CAPCO ”, agree as follows:

a. CLIENT is sole and absolute owner of any and all Accounts and mechanic’s liens and rights to payment under any stop notices, or bonded stop notices, sold and assigned hereunder, and CLIENT has full legal right to make said sale, assignment, and/or transfer.
b. All Accounts sold to CAPCO are an accurate statement of a bonafide sale, delivery and acceptance of merchandise, or performance of service by CLIENT to / for Account-debtor. Accounts are not contingent upon the fulfillment by CLIENT and each Account-debtor’s business is believed to be solvent. The terms for payment of said Accounts are Net 30 days or as expressly set forth on the face of said sold and assigned Accounts, and the payment of said Accounts are not contingent upon the fulfillment by CLIENT of any further performance of any nature whatsoever. CLIENT shall accept no returns and shall grant no allowances or credits to any sold and Assigned Account of any Account-debtor without the prior written approval of CAPCO.
c. There are no known setoffs, Customer Disputes, adverse claims, defenses, and/or liens whatsoever against the payment of Accounts, and Account’s mechanic’s liens have not been previously assigned or encumbered by CLIENT in any manner whatsoever. CLIENT will, immediately upon sale of Accounts to CAPCO make proper entries on its books and records disclosing the absolute sale of Accounts to CAPCO and CLIENT will post no payment unless it is reflected in a payment report from CAPCO.
d. CLIENT will promptly notify CAPCO in writing of any proposed change in CLIENT‘s place of business, name, legal entity, corporate structure, record-keeping location, and/or as to any additional place of business, or expiration of any special license(s), or transfer of assets, or technology, to a third party, or proposed change in ownership in excess of twenty five percent, (25%), of outstanding shares;
e. CLIENT does not own, control, manage, participate in management, or have any involvement and/or association whatsoever with the business of any Account-debtor related to any Accounts sold and assigned hereunder;
f. There are no financing statements now on file in any public office governing, any Account, Inventory or work in process of CLIENT in which CLIENT is named in or has signed as the debtor, except the financing statement or statements filed or to be filed in respect to this Agreement, or those statements now on file that have been disclosed in writing by CLIENT to CAPCO. CLIENT will not execute any financing statements pledging Accounts receivables, inventory or work in process, in favor of any other person or entity, excepting CAPCO, for the term of this Agreement;
g. CLIENT‘s taxes are not delinquent nor has CLIENT been subject to a tax levy by any governmental entity nor are there now on file in any public office tax liens affecting CLIENT other than those delinquencies, levies and/or liens which have been disclosed by CLIENT to CAPCO;
h. All records, statements, books, or other documents shown to CAPCO by CLIENT at any time, either before, or after the signing of the Agreement are true and accurate;
i. CLIENT has served or caused to be served any and all preliminary 10-day notices required by law to perfect or enforce any mechanic’s lien for All Accounts to insure perfection of ownership for CAPCO and the information contained on those preliminary 10-day notices is true, correct, and properly recorded, to Seller’s knowledge and belief;
j. Waivers and releases for all labor, services, equipment, or material of CLIENT and others will be submitted on CAPCO’s form concurrent with Accounts.

a. strike out CLIENT‘s address on all Accounts mailed to Customers and put on CAPCO’s address.
b. receive, direct and forward, open, and dispose of all mail addressed to CLIENT, or to CLIENT‘s fictitious trade name via CAPCO‘s address.
c. endorse the name of CLIENT, or CLIENT‘S fictitious trade name on any checks or other evidences of payment that may come into the possession of CAPCO on Accounts purchased by CAPCO and on any other documents relating to any of the Accounts or to assigned Collateral.
d. in CLIENT‘S name, or otherwise, demand, sue for, collect, and give release for any and all monies due, or to become due on Accounts sold and assigned hereunder.
e. do any and all things necessary and proper to carry out the purpose intended by this Agreement.
f. execute any documents necessary to perfect or to continue any Security Interest and without further authorization from CLIENT file a carbon, photograph, facsimile, or other reproduction of any financing statement for use as a financing statement.
The authority granted CAPCO shall remain in full force and effect until all Accounts are paid in full and any indebtedness of CLIENT to CAPCO is discharged.

a. See Exhibit A attached.

a. If CLIENT shall fail to pay any amount of indebtedness to CAPCO when owing;
b. If CLIENT shall be in breach of any term, provision, Warranty, or representation under this Agreement, or any other agreement related hereto;
c. If bankruptcy or insolvency proceedings shall be instituted by or against CLIENT.
d. If the Collateral shall be attached, levied upon, seized in any legal proceeding, and not released within 5 working days thereof;
e. If CLIENT shall cease doing business and there shall exist any indebtedness or commitments by CLIENT to CAPCO;
f. Any Accounts, documents, statements, or other writings submitted by CLIENT to CAPCO prove false or inaccurate in any material respect;
g. If CLIENT has contributed to, or aggravated Account debtor’s problem, insolvency, and/or said Account debtor’s ability and/or willingness to pay any Accounts;
h. If any unpaid judgment or tax lien exists against CLIENT;
i. If CAPCO with reasonable cause and in good faith determines that it’s purchased asset or collateral is impaired for any reason whatsoever;
j. Terminating prior to end of initial term;
k. Any change in CLIENT‘S place of business, name, legal entity, corporate structure, record-keeping location, and/or as to any additional place of business, or expiration of any special license(s), or transfer of assets, or technology, to a third party, or proposed change in ownership in excess of twenty five percent, (25%), of outstanding shares.

a. Declare any indebtedness secured hereby immediately due and payable;
b.
c. Notify any and all Customers and take possession of the Accounts and Collateral and collect any receivables or funds paid to CLIENT all without judicial process;
d. Require CLIENT to assemble the Collateral and the records pertaining to receivables or other assets pledged as collateral, and make them available to CAPCO, at a place designated by CAPCO;
e. Enter the premises of CLIENT and take possession of the Collateral and of the records pertaining to the receivables and any other Collateral;
f. Grant extensions, compromise claims, and settle receivables for less than face value, all without prior notice to CLIENT;
g. Use, in connection with any assembly or disposition of the Collateral, any trademark, trade name, trade style, copyright, patent right or technical process used or utilized by CLIENT;
h. Return any surplus realized to CLIENT after deduction of reasonable expenses, attorney’s fees, attorney’s fees on appeal, collection costs, independent third party auditors, incurred by CAPCO in resolving said default;
i. Hold CLIENT liable for any deficiency.
j. Establish a reserve from the collection of Accounts to meet reasonable legal expenses associated with a future defense resulting from an action brought against CAPCO by CLIENT, CLIENT’s customer, or other third party, as a result of an action of default.
k. Injunction against CLIENT taking any action with regard to the Accounts or Collateral.
l. CAPCO is authorized by CLIENT to receive, direct, and forward, open, and dispose of all mail addressed to CLIENT at any address used by CLIENT to receive mail.

1

CONTRACT OF SALE
SECURITY AGREEMENT
Jones Soda (USA), Inc.
EXHIBIT “A”

All right, title, and interest in inventory, raw materials, work in progress and finished

goods now owned or hereafter acquired and products and proceeds thereof:

2

AMENDMENT #1
TO CAPCO SECURITY AGREEMENT
June 25, 2006

DEFINITIONS:
Paragraph 3 as follows:
3. “Advance Formula” means the maximum amount available to Client from CAPCO for the purchase of All Accounts will not exceed 80.00% of acceptable/eligible accounts.

Is replaced by:

3. “Advance Formula” means the maximum amount available to Client from CAPCO for the purchase of All Accounts will not exceed 80.00% of acceptable/eligible accounts PLUS up to 50% against acceptable inventory not to exceed 110% of acceptable/eligible accounts.

CLIENT COVENANTS:

Paragraph 20 as follows:

CLIENT will not sell Accounts, or pledge Accounts to any party, except to CAPCO for the period of this Agreement unless specific Accounts are subordinated and released by CAPCO in writing.

Is replaced by:

CLIENT will not sell Accounts, or pledge Accounts to any party, except to CAPCO for the period of this Agreement unless specific Accounts are subordinated and released by CAPCO in writing. CAPCO agrees not to resell CLIENT’s accounts except in the event of a default by CLIENT.

Paragraph 23 as follows:

Is replaced by:

23. NOTICE OF DISPUTE: CLIENT must immediately notify CAPCO of Customer Disputes greater than $2500.00 in total for any one Customer.

ACCOUNTING & FEES:
Paragraph 30 as follows:

PAYMENT PROCESSING: All payments received by CAPCO will be applied to CLIENT‘s Outstanding Balance daily following a 1 (One) business day hold to allow for the application of collected funds.

Is replaced by:

PAYMENT PROCESSING: All payments received by CAPCO will be applied to CLIENT‘s Outstanding Balance daily following a 1 (One) business day hold to allow for the application of collected funds. Funds received via wire transfer will be applied the day after receipt.

In the event CLIENT has fully paid all amounts due CAPCO under this agreement including but not limited to fees, expenses and advances, CAPCO agrees to promptly remit any funds collected in excess of the amounts due to CAPCO to CLIENT at CLIENT’s request.

At CLIENTS request (and subject to payment of all amounts fees due to CAPCO) CAPCO agrees to promptly terminate the agreement and re convey all right title and interest in the Accounts to CLIENT. In the event CLIENT notifies CAPCO of its intention to terminate the agreement and CAPCO has been fully paid all amounts due CAPCO, said notice of termination shall not be considered an event of default.

DEFAULT:
Paragraph 36k as follows:

k. Any change in CLIENT‘S place of business, name, legal entity, corporate structure, record-keeping location, and/or as to any additional place of business, or expiration of any special license(s), or transfer of assets, or technology, to a third party, or proposed change in ownership in excess of twenty five percent, (25%), of outstanding shares.

Is replaced by:

k. Any change in CLIENT‘S place of business, name, legal entity, corporate structure, record-keeping location, and/or as to any additional place of business, or expiration of any special license(s), or transfer of assets, or technology, to a third party, or change in ownership in excess of twenty five percent, (25%), of outstanding shares. CLIENT will not be deemed to be in default, if CLIENT pays to CAPCO all amounts due, concurrent with any ownership change in excess of twenty-five percent (25%) of outstanding shares.

This amendment is effective and applicable to invoices purchased after
June 27, 2006. All other terms, covenants and conditions will remain in effect and unchanged.

3