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:
PURPOSE OF AGREEMENT:
1.
CLIENTdesires to obtain short-term financing by selling, toCAPCOALL Accounts receivable.CAPCOagrees to PurchaseCLIENT’s Accounts from time to time at a discount below face value, utilizing an advance formula for the purchase of ALL Accounts based upon advances against Acceptable/Eligible Accounts. It is clearly understood by both parties that ALL Accounts ofCLIENTare to be sold toCAPCO.
DEFINITIONS:
2.
“Account” means any right of payment for goods sold, or leased, and delivered, or services rendered, any specific transaction, or any right of payment.
3.
“Advance Formula” means the maximum amount available toCLIENTfromCAPCOfor the purchase of All Accounts will not exceed80% of Acceptable/Eligible Accounts.
4.
“Acceptable/Eligible Account” means an Account conforming to the Warranties and terms set forth herein that has not been outstanding for more than90 DAYSfrom the date of invoice, has been underwritten and approved byCAPCO, and has not been reduced from the original amount billed by, credit memo, offset, adjustment of any kind, or partial payment subsequent to invoice date.
4.1
“Acceptable Inventory” shall be defined as: Finished goods inventory reported to CAPCO in a format acceptable to CAPCO in accordance with paragraph 12.1 below.
5.
“Customer” meansCLIENT‘s Customer or the Account debtor.
6.
"CLIENT” means the seller of All Accounts.
7.
“Collateral” means the intangible or tangible property given as security toCAPCObyCLIENT for any obligations and liabilities ofCLIENTtoCAPCOunder the Agreement.
8.
“Warrant” means to guarantee, as a material element of this Agreement.
9.
“Credit Problem” means Customer is unable to pay his debts because of problems or insolvency.
10.
“Customer Dispute” means any claim by Customer againstCLIENT, of any kind whatsoever, valid or invalid, that reduces the amount collectible from Customer byCAPCO.
CLIENT COVENANTS:
11.
CLIENTagrees to sell toCAPCOALL Accounts Receivable, (Accounts) mechanic’s lien(s), and rights to payment under any stop notice(s), or bonded stop notice(s) securing payment of those Accounts created byCLIENTin the course of its business, existing as of the date of this agreement or thereafter created during the term of this agreement, subject to approval and verification byCAPCO.CAPCOis not obligated to advance funds for the purchase of All Accounts fromCLIENT. WhenCLIENTnotifiesCAPCOof it’s Accounts,CLIENT shall provide a copy of the original Assigned Account (Invoice) a copy of the bill of lading contract, purchase order, purchase order number, and/or any other requisite supporting documentation corresponding to said Accounts and appropriate to the business ofCLIENT,as requested by CAPCO.
12.
CLIENTshall prepare and give toCAPCOproper written assignments of Accounts, mechanic’s lien(s) on forms provided byCAPCO. The execution of said assignments shall transfer toCAPCO all ofCLIENT’s right, title and ownership to ALL Accounts.CLIENTorCAPCOby this agreement will properly mark Accounts, as assigned and sold toCAPCO, andCAPCOis authorized to notify Customer of said sale and assignment.
12.1
CLIENTagrees to provide CAPCO with monthly certifications of the quantity and value (based on the lower of cost or market applied on a first in first out basis) of Inventory in a form satisfactory to CAPCO.
13.
CLIENTrepresents and Warrants toCAPCOthat:
a.CLIENTis 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, andCLIENT has full legal right to make said sale, assignment, and/or transfer. b. All Accounts sold toCAPCOare an accurate statement of a bonafide sale, delivery and acceptance of merchandise, or performance of service byCLIENTto / for Account-debtor. Accounts are not contingent upon the fulfillment byCLIENTand each Account-debtor’s business is believed to be solvent. The terms for payment of said Accounts areNet 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 byCLIENTof any further performance of any nature whatsoever.CLIENTshall 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 ofCAPCO. 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 byCLIENTin any manner whatsoever.CLIENTwill, immediately upon sale of Accounts toCAPCOmake proper entries on its books and records disclosing the absolute sale of Accounts toCAPCOandCLIENTwill post no payment unless it is reflected in a payment report fromCAPCO. d.CLIENTwill promptly notifyCAPCOin writing of any proposed change inCLIENT‘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.CLIENTdoes 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 ofCLIENTin whichCLIENTis 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 byCLIENTtoCAPCO.CLIENT will not execute any financing statements pledging Accounts receivables, inventory or work in process, in favor of any other person or entity, exceptingCAPCO, for the term of this Agreement; g.CLIENT‘s taxes are not delinquent nor hasCLIENTbeen subject to a tax levy by any governmental entity nor are there now on file in any public office tax liens affectingCLIENT other than those delinquencies, levies and/or liens which have been disclosed byCLIENTtoCAPCO; h. All records, statements, books, or other documents shown toCAPCObyCLIENTat any time, either before, or after the signing of the Agreement are true and accurate; i.CLIENThas 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 forCAPCOand 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 ofCLIENTand others will be submitted onCAPCO’s form concurrent with Accounts.
14.
CLIENTandCAPCOagree thatCAPCOwill have FULL RECOURSE againstCLIENTandCLIENT shall be liable to repay toCAPCOany amount paid byCAPCOtoCLIENTin consideration for the sale, transfer, and assignment of Accounts.
15.
All Accounts shall be the sole property ofCAPCO, but if for any reason a payment owing on said Accounts shall be paid toCLIENT;CLIENTshall promptly notifyCAPCOof such payment,shall hold any check, draft or money so received in trust and for the benefit ofCAPCO, and shall pay over such check or draft in-kind, or money, toCAPCOpromptly and without delay.All ofCLIENT’sinvoices shall bear the address ofa Lock Box acceptable toCAPCO; as the “REMIT TO” address, andCLIENTagrees thatALL remittances for payment onALL Accounts shall be made to theLock Boxor other repository authorized in writing byCAPCO.
16.
CLIENTwill furnishCAPCOperiodic statements, accounts receivable agings, journals, bank records, and other information as requested byCAPCOfrom time to time.
17.
CLIENTwill not pledge the credit ofCAPCOto any other person or business for any purpose whatsoever.
18.
CLIENTis properly licensed and authorized to operate the business of Jones Soda (USA), Inc., under the trade name of Jones Soda Co., andCLIENT‘S trade name has been properly filed and published as required by the laws of the State of Washington.
19.
CLIENT‘s business is solvent.
20.
CLIENTwill not sell Accounts, or pledge Accounts to any party, except toCAPCOfor the period of this Agreement unless specific Accounts are subordinated and released byCAPCOin writing.
21.
CLIENTwill not transfer, pledge, or give a security interest of the Assets sold or Collateral granted toCAPCOto any other party.
22.
CLIENTwill not change, or modify the terms of the original sold and assigned Account with Customer unlessCAPCOfirst consents to such change in writing.CAPCOagrees to provide a prompt response toCLIENTrequest for modification or change with respect to an Assigned Account. For example,CLIENTmay not extend credit to a Customerbeyond Net 30 days or the time set forth on the face of the sold and Assigned Account without prior written consent from CAPCO.
23.
NOTICE OF DISPUTE:CLIENTmust immediately notifyCAPCOof Customer Disputes greater than $400.00 in total for any one Customer.
24.
POWER OF ATTORNEY: In order to carry out this Agreement and avoid unnecessary notification of Customers.CLIENTirrevocably appointsCAPCO, or any person designated byCAPCO, as its special attorney in fact, or agent, with power to:
a. strike outCLIENT‘s address on all Accounts mailed to Customers and put onCAPCO’s address. b. receive, direct and forward, open, and dispose of all mail addressed toCLIENT, or toCLIENT‘s fictitious trade name viaCAPCO‘s address. c. endorse the name ofCLIENT, orCLIENT‘S fictitious trade name on any checks or other evidences of payment that may come into the possession ofCAPCOon Accounts purchased byCAPCO and on any other documents relating to any of the Accounts or to assigned Collateral. d. inCLIENT‘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 fromCLIENTfile a carbon, photograph, facsimile, or other reproduction of any financing statement for use as a financing statement. The authority grantedCAPCOshall remain in full force and effect until all Accounts are paid in full and any indebtedness ofCLIENTtoCAPCOis discharged.
CAPCO COVENANTS:
25.
CAPCOreserves the sum of($5,000,000.00) Five Million and 00/100for the purchase of ALL ofCLIENT‘s Accounts. These funds are available daily atCLIENT‘s option, subject to restriction as governed by the Advance Formula. Daily availability will be communicated toCLIENTviaCAPCO‘S Availability / Advance Request.
26.
This Agreement shall have an initial term ending with the first full(12) Twelvecalendar months and unless terminated by either party giving not less than thirty (30) days prior written notice.
27.
STATEMENT OF Acceptable/Eligible Accounts:CAPCOshall identify in writing all Acceptable/Eligible Accounts and provide toCLIENT, upon request, a written statement thereof (Weekly Aging Report).
ACCOUNTING & FEES:
28.
Funds advanced byCAPCOtoCLIENTare subject todaily fee of Greater Bay Bank N.A. Prime Rate + 0.500% /360 (equivalent to a monthly discount fee of Greater Bay Bank N.A. Prime Rate + 0.500% /12) percentcalculated on thedaily balance (as reported on theCLIENT Liability Detail Report) owing toCAPCO. This period will usually be 1 calendar day except for weekends and or weeks where holidays or other non-operating days prevent the fee from being taken on a daily basis.
29.
CAPCOwill provide to theCLIENTdaily, via fax, an advance and availability request. This report must be acknowledged and returned, via fax, toCAPCOno later than 11:30AM if a deposit or wire transfer is to be made the same date as the request form was issued to theCLIENTbyCAPCO.
30.
PAYMENT PROCESSING: All payments received byCAPCOwill be applied toCLIENT‘s Outstanding Balance daily following a1 (One)business day hold to allow for the application of collected funds.
31.
DISPUTED ACCOUNT:CLIENTwill immediately notifyCAPCOof any Account subject to a Customer Dispute (See Paragraph 10 for definition) of any kind whatsoever and said Account shall be removed as an Acceptable/Eligible Account.
32.
INVOICING ERRORS: Mistaken, incorrect and/or erroneous invoicing, submitted byCLIENTtoCAPCOmay atCAPCO’s discretion be deemed a Customer Disputed sold and Assigned Account and shall be removed as an Acceptable/Eligible Account.
COLLATERAL:
33.
As Collateral for the payment of any indebtedness now owing, or in the future owing, byCLIENTtoCAPCO,CLIENThereby grants toCAPCOa security interest in the following property:
a.See Exhibit A attached.
34.
CLIENTwill maintain such insurance coveringCLIENT‘S business and/or the property ofCLIENT‘s Customers as is customary for businesses similar to the business ofCLIENT.
35.
CLIENTshall complete any and all documents required to provideCAPCOa perfected security interest/lien in the Collateral pledged toCAPCO.
DEFAULT:
36.
Any one or more of the following shall constitute an event of default:
a. IfCLIENTshall fail to pay any amount of indebtedness toCAPCOwhen owing; b. IfCLIENTshall 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 againstCLIENT. d. If the Collateral shall be attached, levied upon, seized in any legal proceeding, and not released within 5 working days thereof; e. IfCLIENTshall cease doing business and there shall exist any indebtedness or commitments byCLIENTtoCAPCO; f. Any Accounts, documents, statements, or other writings submitted byCLIENTtoCAPCOprove false or inaccurate in any material respect; g. IfCLIENThas 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 againstCLIENT; i. IfCAPCOwith 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 inCLIENT‘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.
REMEDIES AFTER DEFAULT:
37.
In the event of any defaultCAPCOmay do any one or more of the following:
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 toCLIENTall without judicial process; d. RequireCLIENTto assemble the Collateral and the records pertaining to receivables or other assets pledged as collateral, and make them available toCAPCO, at a place designated byCAPCO; e. Enter the premises ofCLIENTand 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 toCLIENT; 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 byCLIENT; h. Return any surplus realized toCLIENTafter deduction of reasonable expenses, attorney’s fees, attorney’s fees on appeal, collection costs, independent third party auditors, incurred byCAPCOin resolving said default; i. HoldCLIENTliable 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 againstCAPCObyCLIENT,CLIENT’s customer, or other third party, as a result of an action of default. k. Injunction againstCLIENTtaking any action with regard to the Accounts or Collateral. l.CAPCOis authorized byCLIENTto receive, direct, and forward, open, and dispose of all mail addressed toCLIENTat any address used byCLIENTto receive mail.
GENERAL:
38.
After terminationCLIENTremains fully responsible toCAPCOfor any indebtedness existing, or which may yet arise in connection with Accounts that remain unpaid.
39.
If during the term hereofCLIENTfails to make any payment required,CAPCOmay at its discretion pay the same and chargeCLIENTtherefore.
40.
CLIENTwill not, under any circumstances, or in any manner whatsoever, interfere with any ofCAPCO‘s rights under this Agreement.
41.
TAX COMPLIANCE:CLIENTwill furnishCAPCOupon request satisfactory proof of payment and/or compliance with all Federal, State, and/or Local tax requirements.
42.
NOTICE OF LEVY:CLIENTwill promptly notifyCAPCOof any attachment or any other legal process levied againstCLIENT.
43.
LEGAL FEES: The losing party will pay any and all legal expenses and reasonable attorney’s fees, paralegal fees; staff overtime expense, travel costs, costs on appeal, or other reasonable collection costs, that the prevailing party may incur as a result of eitherCLIENT orCAPCOenforcing this Agreement one against the other.
44.
HOLD HARMLESS:CLIENTshall holdCAPCOharmless against any liability, damages, loss, attorneys’ fees and costs of any type due to any action by a Customer arising fromCAPCO‘S collecting or attempting to collect any Accounts so long as these collections are performed in a commercially reasonable manner and in compliance with all applicable laws, rules and regulations.CLIENTmaintains the primary responsibility for collections efforts, until the occurrence of an event of default.
45.
BINDING ON FUTURE PARTIES: This Agreement inures to the benefit of and is binding upon the heirs, executors, administrators, successors and assigns of the parties thereto.
46.
CUMULATIVE RIGHTS: All rights, remedies and powers granted toCAPCOin this Agreement, or in any note, or other agreement given byCLIENTtoCAPCO, are cumulative and may be exercised singularly or concurrently with such other rights asCAPCOmay have. These rights may be exercised from time to time as to all or any part of the pledged Collateral asCAPCOin its discretion may determine.
47.
WRITTEN WAIVER:CAPCOmay not waive its rights and remedies unless the waiver is in writing and signed byCAPCO. A waiver byCAPCOof a right, or remedy under this Agreement on one occasion is not a waiver of the right, or remedy on any subsequent occasion.
48.
WASHINGTON LAW: This Agreement shall be governed by and construed in accordance with the laws of the State ofWashington. CLIENT hereby consents to the exclusive jurisdiction of the State of Washington in any dispute arising hereunder or related hereto. Venue for any actions shall be inKingCo.Washington.
49.
INVALID PROVISIONS: If any provision of this Agreement shall be declared illegal or contrary to law, it is agreed that such provision shall be disregarded and this Agreement shall continue in force as though such provision had not been incorporated herein.
50.
ENTIRE AGREEMENT: This instrument contains the entire Agreement between the parties. Any addendum or modification hereto will be signed by both parties and attached hereto.
51.
EFFECTIVE: This Agreement becomes effective when it is accepted and executed by the authorized officers ofCAPCO
52.
Execution of this document may contain multiple signature pages; each shall be considered, when combined, as one signed and executed document.
Executed the 27th day of June, 2006 at Seattle, Washington.
Jones Soda (USA), Inc.
By: /s/ Peter van Stolk
Title: President & CEO
By: /s/ Hassan N. Natha
Title: Chief Financial Officer & Secretary CAPCO Financial Company — a division of Greater Bay Bank N.A.
Accepted this 27th day of June, 2006, at Bellevue, Washington
By: /s/ Bruce Tretzen
Title:Assistant Vice President
1
CONTRACT OF SALE SECURITY AGREEMENT Jones Soda (USA), Inc. EXHIBIT “A”
All Accounts, contract rights, chattel paper, documents, instruments and general intangibles now owned or hereafter acquired and proceeds, thereof:
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:
CLIENTwill not sell Accounts, or pledge Accounts to any party, except toCAPCOfor the period of this Agreement unless specific Accounts are subordinated and released byCAPCOin writing.
Is replaced by:
CLIENTwill not sell Accounts, or pledge Accounts to any party, except toCAPCOfor the period of this Agreement unless specific Accounts are subordinated and released byCAPCOin writing.CAPCO agrees not to resellCLIENT’saccounts except in the event of a default byCLIENT.
Paragraph 23 as follows:
23.
NOTICE OF DISPUTE:CLIENTmust immediately notifyCAPCOof Customer Disputes greater than $400.00 in total for any one Customer.
Is replaced by:
23. NOTICE OF DISPUTE:CLIENTmust immediately notifyCAPCOof Customer Disputes greater than $2500.00 in total for any one Customer.
ACCOUNTING & FEES: Paragraph 30 as follows:
PAYMENT PROCESSING: All payments received byCAPCOwill be applied toCLIENT‘s Outstanding Balance daily following a1 (One)business day hold to allow for the application of collected funds.
Is replaced by:
PAYMENT PROCESSING: All payments received byCAPCOwill be applied toCLIENT‘s Outstanding Balance daily following a1 (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 eventCLIENThas fully paid all amounts dueCAPCOunder this agreement including but not limited to fees, expenses and advances,CAPCOagrees to promptly remit any funds collected in excess of the amounts due toCAPCOtoCLIENTatCLIENT’srequest.
AtCLIENTSrequest (and subject to payment of all amounts fees due toCAPCO)CAPCOagrees to promptly terminate the agreement and re convey all right title and interest in the Accounts toCLIENT. In the eventCLIENTnotifies CAPCO of its intention to terminate the agreement andCAPCO 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 inCLIENT‘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 inCLIENT‘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.CLIENTwill not be deemed to be in default, ifCLIENTpays toCAPCOall 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.
Jones Soda (USA), Inc.
By: /s/ Hassan N. Natha
Title: Chief Financial Officer & Secretary CAPCO Financial Company — a division of Greater Bay Bank N.A.
By: /s/ Bruce Tretzen
Title:Assistant Vice President
3
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