CONTRACT OF SALE
SECURITY AGREEMENT
(LOC Form 5)
This Contract of Sale and Security Agreement dated for purposes of reference March 13, 2007; is between the undersigned, Freundlich Supply Company, Inc., hereinafter called "CLIENT", andGreater Bay Business Funding, a division of Greater Bay Bank, NA hereinafter called "GBBF ", agree as follows:
PURPOSE OF AGREEMENT:
1. CLIENT desires to obtain short-term financing by selling, toGBBFALL Accounts receivable.GBBF agrees 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 ofCLIENT are to be sold toGBBF.
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 toCLIENT fromGBBF for 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 than90DAYS from the date of invoice, has been underwritten and approved byGBBF, 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.
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 toGBBF byCLIENT for any obligations and liabilities ofCLIENT toGBBF under 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 byGBBF.
CLIENT COVENANTS:
11. CLIENT agrees to sell toGBBFALL 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 byCLIENT in 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 byGBBF.GBBF is not obligated to advance funds for the purchase of All Accounts fromCLIENT. WhenCLIENT notifiesGBBF of 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 GBBF.
12. CLIENT shall prepare and give toGBBF proper written assignments of Accounts, mechanic's lien(s) on forms provided byGBBF. The execution of said assignments shall transfer toGBBF all ofCLIENT’s right, title and ownership to ALL Accounts. CLIENT orGBBFby this agreement will properly mark Accounts, as assigned and sold toGBBF, andGBBF is authorized to notify Customer of said sale and assignment.
13. CLIENT represents and Warrants toGBBF that:
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, andCLIENT has full legal right to make said sale, assignment, and/or transfer.
b. All Accounts sold toGBBF are an accurate statement of a bonafide sale, delivery and acceptance of merchandise, or performance of service byCLIENT to / for Account-debtor. Accounts are not contingent upon the fulfillment byCLIENT and 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
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the payment of said Accounts are not contingent upon the fulfillment byCLIENT 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 ofGBBF.
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 byCLIENT in any manner whatsoever. CLIENT will, immediately upon sale of Accounts toGBBFmake proper entries on its books and records disclosing the absolute sale of Accounts toGBBF andCLIENT will post no payment unless it is reflected in a payment report fromGBBF.
d.CLIENT will promptly notifyGBBF in 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.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 ofCLIENT in whichCLIENT 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 byCLIENT toGBBF. CLIENT will not execute any financing statements pledging Accounts receivables, inventory or work in process, in favor of any other person or entity, exceptingGBBF, for the term of this Agreement;
g.CLIENT'S taxes are not delinquent nor hasCLIENT been 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 byCLIENT toGBBF;
h. All records, statements, books, or other documents shown toGBBF byCLIENT 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 forGBBF 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 ofCLIENT and others will be submitted onGBBF’s form concurrent with Accounts.
14. CLIENT andGBBF agree thatGBBF will have FULL RECOURSE againstCLIENT andCLIENT shall be liable to repay toGBBF any amount paid byGBBF toCLIENT in consideration for the sale, transfer, and assignment of Accounts.
15. All Accounts shall be the sole property ofGBBF, but if for any reason a payment owing on said Accounts shall be paid toCLIENT;CLIENT shall promptly notifyGBBF of such payment,shall hold any check, draft or money so received in trust and for the benefit ofGBBF, and shall pay over such check or draft in-kind, or money, toGBBF promptly and without delay. All ofCLIENT's invoices shall bear the address ofa Lock Box acceptable to GBBF; as the "REMIT TO" address, andCLIENT agrees thatALL remittances for payment onALL Accounts shall be made to theLock Boxor other repository authorized in writing byGBBF.
16. CLIENT will furnishGBBF periodic statements, accounts receivable agings, journals, bank records, and other information as requested byGBBF from time to time.
17. CLIENT will not pledge the credit ofGBBF to any other person, or business for any purpose whatsoever.
18. CLIENT is properly licensed and authorized to operate the business
of Freundlich Supply Company, Inc., under the trade name of SAME, andCLIENT'S trade name has been properly filed and published as required by the laws of the State of Delaware.
19. CLIENT'S business is solvent.
20. CLIENT will not sell Accounts, or pledge Accounts to any party, except toGBBF for the period of this Agreement unless specific Accounts are subordinated and released byGBBF in writing.
21. CLIENT will not transfer, pledge, or give a security interest of the Assets sold or Collateral granted toGBBF to any other party.
22. CLIENT will not change, or modify the terms of the original sold and assigned Account with Customer unless
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GBBF first consents to such change in writing.GBBF agrees to provide a prompt response toCLIENT request for modification or change with respect to an Assigned Account. For example,CLIENT may not extend credit to a Customerbeyond Net 30days or the time set forth on the face of the sold and Assigned Account without prior written consent from GBBF.
23. NOTICE OF DISPUTE:CLIENT must immediately notifyGBBF of 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.CLIENT irrevocably appointsGBBF, or any person designated byGBBF, as its special attorney in fact, or agent, with power to:
a. strike outCLIENT'S address on all Accounts mailed to Customers and put onGBBF 's address.
b. receive, direct and forward, open, and dispose of all mail addressed toCLIENT, or toCLIENT'S fictitious trade name viaGBBF'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 ofGBBF on Accounts purchased byGBBF 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 from CLIENT file a carbon, photograph, facsimile, or other reproduction of any financing statement for use as a financing statement
The authority grantedGBBF shall remain in full force and effect until all Accounts are paid in full and any indebtedness ofCLIENT toGBBF is discharged.
GBBF COVENANTS:
25.GBBF reserves the sum of($1,000,000.00) One 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 toCLIENT viaGBBF'S Availability / Advance Request.
26. This Agreement shall have an initial term ending with the first full(12) Twelve calendar months and unless terminated by either party giving not less than thirty (30) days prior written notice.
27. STATEMENT OF Acceptable/Eligible Accounts:GBBF shall identify in writing all Acceptable/Eligible Accounts and provide toCLIENT, upon request, a written statement thereof (Weekly Aging Report).
ACCOUNTING & FEES:
28. Funds advanced byGBBF toCLIENT are subject todailyfeeof Greater Bay Bank N.A. Prime Rate + 4.000% /360 (equivalent to a monthly discount fee of Greater Bay Bank N.A. Prime Rate + 4.000% /12) percentcalculated on thedaily balance (as reported on theCLIENT Liability Detail Report) owing toGBBF. 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.GBBF will provide to theCLIENT daily, via fax, an advance and availability request. This report must be acknowledged and returned, via fax, toGBBF no later than 11:30AM if a deposit or wire transfer is to be made the same date as the request form was issued to theCLIENT byGBBF.
30. PAYMENT PROCESSING: All payments received byGBBF will be applied toCLIENT's Outstanding Balance daily following a 2 (Two)business day hold to allow for the application of collected funds.
31. DISPUTED ACCOUNT: CLIENT will immediately notifyGBBF of 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 byCLIENT toGBBF may atGBBF’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, byCLIENT toGBBF,CLIENT hereby grants toGBBF a security interest in the following property:
a.See Exhibit A attached.
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34. CLIENT will maintain such insurance coveringCLIENT'S business and/or the property ofCLIENT's Customers as is customary for businesses similar to the business ofCLIENT.
35. CLIENT shall complete any and all documents required to provideGBBF a perfected security interest/lien in the Collateral pledged toGBBF.
DEFAULT:
36. Any one or more of the following shall constitute an event of default:
a. IfCLIENT shall fail to pay any amount of indebtedness toGBBF when owing;
b. IfCLIENT 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 againstCLIENT.
d. If the Collateral shall be attached, levied upon, seized in any legal proceeding, and not released within 5 working days thereof;
e. IfCLIENT shall cease doing business and there shall exist any indebtedness or commitments byCLIENT toGBBF;
f. Any Accounts, documents, statements, or other writings submitted byCLIENT toGBBF prove false or inaccurate in any material respect;
g. IfCLIENT 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 againstCLIENT;
i. IfGBBF 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 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 defaultGBBF may do any one or more of the following:
a.
Declare any indebtedness secured hereby immediately due and payable;
b.
Increase thedaily fee byfive percent / 360 (equivalent to an increase in the monthly discount fee of 5.000% / 12).
c. Notify any and all Customers and take possession of the Accounts and Collateral and collect any receivables or funds paid toCLIENT all without judicial process;
d. RequireCLIENT to assemble the Collateral and the records pertaining to receivables or other assets pledged as collateral, and make them available toGBBF, at a place designated byGBBF;
e. Enter the premises ofCLIENT 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 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 toCLIENT after deduction of reasonable expenses, attorney’s fees, attorney's fees on appeal, collection costs, independent third party auditors, incurred byGBBF in resolving said default;
i. HoldCLIENT 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 againstGBBF byCLIENT,CLIENT’s customer, or other third party, as a result of an action of default.
k. Injunction againstCLIENT taking any action with regard to the Accounts or Collateral.
l.GBBF is authorized byCLIENT to receive, direct and forward, open, and dispose of all mail addressed toCLIENT at any address used byCLIENT to receive mail.
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GENERAL:
38. After terminationCLIENT remains fully responsible toGBBF for any indebtedness existing, or which may yet arise in connection with Accounts that remain unpaid.
39. If during the term hereofCLIENT fails to make any payment required,GBBF may at its discretion pay the same and chargeCLIENT therefore.
40. CLIENT will not, under any circumstances, or in any manner whatsoever, interfere with any ofGBBF's rights under this Agreement.
41. TAX COMPLIANCE:CLIENT will furnishGBBF upon request satisfactory proof of payment and/or compliance with all Federal, State and/or Local tax requirements.
42. NOTICE OF LEVY: CLIENT will promptly notifyGBBF of 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 orGBBF enforcing this Agreement one against the other.
44. HOLD HARMLESS: CLIENT shall holdGBBF harmless against any liability, damages, loss, attorneys' fees and costs of any type due to any action by a Customer arising fromGBBF'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. CLIENT maintains 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 toGBBF in this Agreement, or in any note, or other agreement given byCLIENT toGBBF, are cumulative and may be exercised singularly or concurrently with such other rights asGBBF may have. These rights may be exercised from time to time as to all or any part of the pledged Collateral asGBBF in its discretion may determine.
47. WRITTEN WAIVER:GBBF may not waive its rights and remedies unless the waiver is in writing and signed byGBBF. A waiver byGBBF of 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 inKing Co.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 ofGBBF.
52. Execution of this document may contain multiple signature pages; each shall be considered, when combined, as one signed and executed document.
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Executed the 13th day of March, 2007 at Staten Island, New York.
Freundlich Supply Company, Inc.
By:_____________________________
Title: ___________________________
By:_____________________________
Title: ___________________________
Greater Bay Business Funding, a division of Greater Bay Bank, NA
Accepted this _____ day of _____________, 200_, at Bellevue, Washington
By:_________________________________________
Title: ____________________________
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CONTRACT OF SALE
SECURITY AGREEMENT
Freundlich Supply Company, Inc.
EXHIBIT "A"
All personal property, now owned or hereafter acquired, including without limitation accounts, contract rights, chattel paper, documents, instruments, deposit accounts, investment property, letters of credit, commercial tort claims, general intangibles, inventory, raw materials, work in progress, finished goods, equipment, accessions, substitutions and accessions, and proceeds (cash and non-cash) including, without limitation, insurance proceeds, thereof.
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