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EXHIBIT 10.27
FACTORING AGREEMENT
SUMMIT Financial Resources, L.P. ("SUMMIT"), a Hawaii limited partnership, and
DISC, Inc., a California corporation ("Client"), agree as follows:
Definitions.
a. "Acceptable account" shall mean an account of Client conforming
to the representations, warranties, and requirements of this
Agreement.
b. "Account" shall mean any and all accounts as defined in the
Uniform Commercial Code, accounts receivable, amounts owing to
Client under any rental agreement or lease, payments on
construction contracts, promissory notes or on any other
indebtedness, any rights to payment customarily or for
accounting purposes classified as accounts receivable, and all
rights to payment, proceeds or distributions under any contract,
of Client, presently existing or hereafter created, and all
proceeds thereof.
c. "Account debtor" shall mean any account debtor obligated for
payment of any account.
d. "Account debtor dispute" shall refer to any delay or failure of
an account debtor to timely pay an account or any portion of an
account for any reason which is not solely a credit problem,
including, without limitation, any dispute or claim against
Client (whether or not relating to the goods or services sold
giving rise to the account), whether or not valid, setoff,
deduction, or any other alleged defense or counterclaim. An
account subject to both a credit problem and an account debtor
dispute shall be treated as subject only to an account debtor
dispute.
"Advance" or "Advances" shall mean an advance described in
Paragraph 3, Purchase Price of Accounts, below.
"Chargeback" refers to the procedure whereby a Client purchases
an account back from SUMMIT pursuant to the limited non-recourse
obligations of Client under this Agreement or pursuant to any
other provision of this Agreement.
g. "Collateral" refers collectively to the following, and to any
other collateral or security for the obligations of Client under
this Agreement:
(1) All inventory as defined in the Uniform Commercial Code,
wherever located, all goods, merchandise or other
personal property held for sale or lease, names or marks
affixed thereto for purposes of selling or identifying
the same or the seller or manufacturer thereof and all
related rights, title and interest, all raw materials,
work or goods in process or materials or supplies of
every nature used, consumed or to be used in Client's
business, all packaging and shipping materials, and all
other goods customarily or for accounting purposes
classified as inventory, of Client, now owned or
hereafter acquired or created, all proceeds and products
of the foregoing and all additions and accessions to,
replacements of, insurance or condemnation proceeds of,
and documents covering any of the foregoing, all
property received wholly or partially in trade or
exchange for any of the foregoing, all leases of any of
the foregoing, and all rents, revenues, issues, profits
and proceeds arising from the sale, lease, license,
encumbrance, collection, or any other temporary or
permanent disposition of any of the foregoing or any
interest therein.
(2) All accounts (as defined in Subparagraph "b", above).
(3) Any and all general intangibles of Client, presently
existing or hereafter arising, including general
intangibles as defined in the Uniform Commercial Code,
chooses in action, proceeds, contracts, distributions,
dividends, refunds, security deposits, judgments,
insurance claims, any right to payment of any nature,
intellectual property rights or licenses, any other
rights or assets of Client customarily or for accounting
purposes classified as general intangibles, and all
documentation and supporting information related to any
of the foregoing, and all proceeds thereof.
(4) All balances, reserves, deposits, debts or any other
amounts or obligations of SUMMIT owing to Client,
including, without limitation, any rebates, the Reserve,
and any other amounts owing pursuant to this Agreement,
whether or not due, now existing or hereafter arising or
created, and all proceeds thereof.
(5) All equipment and goods as defined in the Uniform
Commercial Code, all motor vehicles, including all
tires, accessories, spare and repair parts, and tools,
wherever located, and all related right, title and
interest, of Client, now owned or hereafter acquired or
created, all additions and accessions to, replacements
of, insurance or condemnation proceeds of, and documents
covering any of the any of the foregoing, all leases of
any of the foregoing, and all rents, revenues, issues,
profits and proceeds arising from the sale, lease,
license, encumbrance, collection, or any other temporary
or permanent disposition of any of the foregoing or any
interest therein (collectively, the "Equipment").
"Credit problem" means the filing of a petition for relief under
Chapter 7 or Chapter II of the United States Bankruptcy Code by
an account debtor within ninety (90) days of the date of the
invoice.
"Discount" shall mean the discount described in Paragraph 3,
Purchase Price of Accounts, below.
"Event of Default" shall mean an event of default as defined in
Paragraph 25, Default and Remedies, below.
k. "Person" shall mean an individual, corporation, partnership,
trust, or any other legal entity.
l. "Rebate" shall mean the rebate described in Paragraph 3,
Purchase Price of Accounts, and 4, Payment of Purchase Price and
Rebate below.
"Reserve" shall mean the Reserve described in Paragraph 5,
Reserve for Security, below.
2. Factoring of Accounts.
SUMMIT may purchase from Client such acceptable accounts as
Client may submit to SUMMIT, subject to the terms and conditions of this
agreement. The obligation of SUMMIT to purchase accounts from Client is
discretionary and SUMMIT shall have no obligation to purchase any
account from Client, notwithstanding anything to the contrary in this
Agreement. SUMMIT may decline to purchase any account submitted by
Client for any reason or for no reason, without notice, regardless of
any course of conduct or past purchases of accounts by SUMMIT.
SUMMIT shall be the sole and exclusive factor for Client's
accounts. Client will not factor or otherwise finance its accounts
receivable except with SUMMIT.
Notwithstanding anything to the contrary in this Agreement, the
purchase of accounts by SUMMIT shall be deemed to be a true purchase
with transfer of title and shall not be deemed to be a loan arrangement
or secured transaction, except to the extent that a true purchase of
accounts is subject to laws relating to secured transactions.
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3. Purchase Price of Accounts.
An advance shall be the amount paid to Client by SUMMIT upon the
initial purchase of an acceptable account. The amount of the advance
shall be the face amount of each account less the discount. The discount
shall be Fifteen Percent (15%) of the face amount of each account
provided dilution, as determined at the sole discretion of SUMMIT, is
less than Five Percent (5%). The amount of the discount may be adjusted
by SUMMIT at any time. The discount will be indicated on the factoring
bill of sale.
Client shall be entitled to a rebate on the discount determined
as follows:
Discount
-Base Commission
-Total Daily Funds Charges
Rebate
The base commission shall be calculated at a rate of Eight
hundred and Twenty-five Thousandths of One Percent (0.825%) of the face
amount of each account.
The total daily funds charges will be determined as follows:
Daily Funds Rate
x Advance Amount
Daily Funds Charge
Daily Funds Charge
x Days Outstanding
Total Daily Funds Charges
The daily funds rate shall be the prime rate as announced in the
Wall Street Journal plus Four Percent (4.00%) divided by 360. The prime
rate shall be adjusted and initially determined in accordance with the
following provision:
At the option of SUMMIT, the prime rate may be adjusted
from time to time as of the date of any change in the
prime rate. The initial prime rate shall be the prime
rate in effect under this formula on the date of this
Factoring Agreement.
The days outstanding shall be the number of days from purchase of
the account by SUMMIT until payment in full is received by SUMMIT.
The Monthly Minimum Fee shall be determined by multiplying One
Half of One Percent (0.50%) by the Maximum Credit Line. Such payment
shall be due and payable upon demand and may be treated as a chargeback.
Client shall be obligated to pay the Monthly Minimum Fee for at
least Twelve (12) months from the date of this Agreement,
notwithstanding any termination by Client pursuant to Section 16,
Termination of Factoring, or any termination based on any Event of
Default. If Client decides to terminate prior to the end of the term,
Client will be obligated to pay the greater of Two Percent (2.00%) of
the Maximum Credit Line or the Monthly Minimum Fee multiplied by the
number of months remaining in the Factoring Agreement. Unless Client
gives SUMMIT written notice that it will not renew this Agreement at
least sixty (60) days prior to the end of such period, this obligation
to pay the Monthly Minimum Fee shall automatically renew and be extended
for successive additional periods of Twelve (12) months each until such
notice is timely given.
At no time will the aggregate outstanding financed balance exceed
One Million Five Hundred Thousand Dollars ($1,500,000.00) (the "Maximum
Credit Line").
Payments will be applied against proper accounts after allowing five (5)
business days for collection and clearance of payments.
4. Payment of Purchase Price and Rebate.
Payment to Client for accounts factored to SUMMIT will be
available within three (3) business days of the date the account and all
other required documentation is received by SUMMIT. Any rebate owing to
Client by SUMMIT will be paid after the weekly collection cycle or at
such other intervals as may be determined by SUMMIT.
Payment shall be made in accordance with any written instructions
of Client which are agreed to by SUMMIT. Absent other instructions,
payment shall be made by the mailing of a check to Client.
5. Reserve for Security.
As security for the payment of recourse obligations and
performance of all obligations of Client hereunder, SUMMIT may withhold
a reserve (the "Reserve") from amounts owing to Client by SUMMIT as a
result of material adverse changes in the accounts of Client.
The Reserve may be funded by SUMMIT withholding amounts owing to
Client for advances or for rebates or, upon request of SUMMIT, Client
will from time to time pay SUMMIT an amount sufficient to fund the
Reserve.
Upon termination of the right of Client to submit accounts to
SUMMIT as provided in Paragraph 16 Termination of Factoring, any balance
of the Reserve shall be due and owing and paid to Client upon completion
of the following conditions: (1) all amounts owing to SUMMIT by Client
pursuant to this Agreement or otherwise have been paid in full; and (2)
Ninety-one (91) days have elapsed since such termination.
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6. Limited Non-Recourse Purchases.
All accounts shall be purchased with limited non-recourse.
All account shall be subject to chargeback if not paid in full
within ninety (90) days of the date on the face of the invoice unless
the account debtor fails to pay due to a credit problem.
Client agrees to purchase any and all chargeback accounts, or the
uncollected portion thereof, from SUMMIT upon demand. The purchase price
to be paid by the Client for a chargeback shall be the face amount of
the account, less any collections received on the account by SUMMIT.
Any waiver or extension by SUMMIT of the right to demand that
Client purchase any chargeback accounts shall not constitute a waiver or
extension to any other accounts and such waiver or extension may be
revoked at any time without notice.
7. Credit Insurance.
SUMMIT may, but is not obligated to, obtain an umbrella credit
insurance policy for factored accounts receivable. The umbrella policy
will provide coverage for certain losses due to insolvency (as defined
in the policy). SUMMIT may elect to place coverage under the policy on
any accounts factored pursuant to this Factoring Agreement and or
require the Client to purchase coverage under the policy when any
account represents Twenty Five percent (25%) of the total outstanding
factored accounts. Client may also elect, by written notice to SUMMIT,
to place coverage under the policy on any accounts factored pursuant to
this Factoring Agreement. Placement of coverage shall be subject to the
policy being in effect, coverage being available under the terms and
conditions and dollar limitations of the policy, and any required
approval of the insurer.
Client shall pay SUMMIT a fee in an amount equal to five-tenths
percent (.5%) of the face amount of each invoice for which coverage
under the policy is placed. This fee is payable upon demand and may be
deducted from amounts owing to Client by SUMMIT.
Credit insurance coverage shall be subject to all terms and
conditions of the policy. No obligations of Client under this Factoring
Agreement shall be excused or deferred based upon insurance coverage or
any pending claim under the policy. Upon payment of any claim under the
policy to SUMMIT, SUMMIT shall, in its discretion, pay the payment to
Client as reimbursement for corresponding chargeback obligations
creating the claim that Client has paid to SUMMIT, apply the payment to
other obligations of Client to SUMMIT, or add the payment to the
Reserve.
8. Chargeback Procedure.
Upon an account becoming eligible for chargeback, chargeback
shall be deemed to have automatically taken place at that time. SUMMIT
may then (i) setoff such chargeback against any amount then or
thereafter owing by SUMMIT to Client, including, without limitation,
payments for the purchase of accounts; (ii) notify Client that
chargeback has been made, identifying the subject accounts, whereupon
Client shall promptly purchase such accounts and pay the amount owing to
SUMMIT, (iii) SUMMIT may debit the Reserve, or (iv) SUMMIT may exercise
any combination of the alternatives set forth in this paragraph as to
any account or group of accounts.
9. Collection Procedures.
a. SUMMIT shall have the exclusive right to collect accounts and
receive payments thereon. Client shall not bill for, submit any
invoice, or otherwise attempt to collect any factored account
except as authorized in writing by SUMMIT.
b. Client agrees to pay all reasonable handling and out of pocket
costs incurred by SUMMIT in collection of the accounts of
Client, including, without limitation, postage, Credit Reports,
Dun & Bradstreet Reports, Lexis-Nexis services, photocopy
charges, and long distance phone expenses. Payment of such costs
shall be due upon request. SUMMIT may deduct such costs from
amounts owing to Client and may debit the Reserve for such
costs.
c. Client shall promptly and completely respond to all requests
from SUMMIT for any information or records requested to assist
in collection of factored accounts. If Client fails to respond
to any request within five (5) days, SUMMIT may treat the
account as a chargeback.
d. Client may authorize SUMMIT to revise the amount of or otherwise
modify an outstanding account. SUMMIT shall have no obligation
to advise the account debtor of such revision except to send the
account debtor any revised invoice which may be provided to
SUMMIT by Client. In the event such revision results in a
reduction in the amount owing on such account, such reduced
amount may be treated as a chargeback.
e. In the event an account debtor makes payment to Client on an
account which has been purchased by SUMMIT, Client shall
immediately deliver the payment to SUMMIT. If payment is made in
cash, such payment shall be immediately delivered to SUMMIT. If
payment is made by check or similar instrument, such instrument
shall be immediately delivered to SUMMIT in the form received
without negotiation. Upon inquiry from the account debtor or
upon request of SUMMIT, Client shall notify the account debtor
to make payment directly to SUMMIT. Any payments received by
Client on accounts purchased by SUMMIT shall be held in trust by
Client for SUMMIT.
If any payment received by Client on an account which has been
purchased by SUMMIT is deposited or negotiated by Client, or if
Client fails to tender the payment to SUMMIT within ten (10)
business days of receipt by Client, Client shall promptly pay
SUMMIT an amount equal to ten percent (10%) of the payment, not
as a penalty but as liquidated damages, to compensate SUMMIT for
additional administrative and collection expenses, interest
costs and other damages resulting from such action.
Client acknowledges and agrees that it would be very difficult
or impossible to calculate such damages and that ten percent (
10%) of the payment is a fair estimation of those damages.
Upon failure by Client to immediately deliver any such payment
or ten percent (10%) fee to SUMMIT, SUMMIT may treat the amount
of such payment and fee as a chargeback. The duty of Client to
immediately deliver any such payment and to pay any such fee to
SUMMIT shall terminate only when such chargeback is paid.
Client acknowledges and agrees that it has no right, title or
interest whatsoever in the funds constituting payment of an
account purchased by SUMMIT, that said funds are the sole and
exclusive property of SUMMIT, and that any use of or
interference with said funds by Client will result in civil and
criminal liability.
f. Client shall immediately notify SUMMIT of any account debtor
dispute concerning an account purchased by SUMMIT and of any
bankruptcy filing, lien, garnishment or other legal action
concerning such accounts.
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g. SUMMIT shall make a good faith, commercially reasonable effort
to collect the factored accounts. It is agreed that collection
of accounts in a commercially reasonable manner does not
require, and SUMMIT shall have no obligation to, commence any
legal action, including the sending of an attorney's demand
letter, to collect any account. Client hereby waives and
releases any and all claims relating to or arising out of any
act or omission by SUMMIT in the collection of the factored
accounts, gross negligence and intentional misconduct excepted.
h. Upon request of SUMMIT, Client will cause all payments on all
accounts of Client, whether or not factored to SUMMIT, to be
sent directly to such address as may be designated by SUMMIT.
SUMMIT is authorized to receive and open all such payments and
retain such payments which are owing to SUMMIT.
Upon request of SUMMIT, Client will tender to SUMMIT all
payments received by Client from an account debtor on accounts
created after Client begins factoring any accounts of that
account debtor to SUMMIT, whether or not those accounts are
factored to SUMMIT. Upon such request being made, all such
payments received by Client shall be the sole and exclusive
property of SUMMIT and shall be held in trust by Client for
SUMMIT. All such payments shall be applied on obligations of
that account debtor to SUMMIT.
In the event SUMMIT receives any payment from an account debtor
on an account which has not been factored to SUMMIT, SUMMIT may,
subject to any rights of the account debtor, apply such payment
to any other obligation of Client owing to SUMMIT, including,
without limitation, funding of any deficiency in the Reserve.
10. Acceptable Accounts.
SUMMIT will purchase only acceptable accounts. An acceptable
account must meet all of the following requirements and conditions:
a. The account shall be evidenced by an invoice submitted to SUMMIT
in duplicate meeting the following conditions:
(1) Contain the Client name, invoice number, and date;
(2) Contain the full and complete name and address of the
account debtor;
(3) Clearly set forth the amount owing and to be collected
by SUMMIT;
(4) State the due date and any other terms for payment of
the account;
(5) Be completely legible;
(6) Be stamped with a notice, in a form acceptable to
SUMMIT, stating that the account has been purchased by
SUMMIT and is payable to SUMMIT; and
(7) Be accompanied by such other documents as are required
by SUMMIT.
b. The account shall be submitted to SUMMIT within seven (7)
business days of the date the goods are sold or services
performed giving rise to the account are completed, except as
otherwise approved in writing by SUMMIT.
c. The invoice shall be accompanied by proof of delivery of goods
or performance of services acceptable to SUMMIT.
d. The account shall meet and comply with the following conditions:
(1) Client has sole and unconditional good title to the
account, the account and any goods sold to create the
account being free from any other security interest,
assignment, lien or other encumbrance of any type;
(2) The account is a bona fide obligation of the account
debtor for the amount identified on the account and
there have been no payments, deductions, credits,
payment terms, or other modifications or reductions in
the amount owing on such account except as set forth on
the face of the invoice;
(3) To the best knowledge of Client, there are no defenses
or setoffs to payment of the account which can be
asserted by way of defense or counterclaim against
Client or SUMMIT;
(4) To the best knowledge of Client, the account will be
timely paid in full by the account debtor;
(5) Any services performed or goods sold which give rise to
the account have been rendered or sold in compliance
with all applicable laws, ordinances, rules and
regulations and were performed or sold in the ordinary
course of Client's business;
(6) There have been no extensions, modifications, or other
agreements relating to payment of such account except as
shown upon the face of the invoice;
(7) The account debtor is located or authorized to do
business within the United States; and
(8) No proceeding has been commenced or petition filed under
any bankruptcy or insolvency law by or against the
account debtor; no receiver, trustee or custodian has
been appointed for any part of the property of the
account debtor; and no property of the account debtor
has been assigned for the benefit of creditors.
11. Grant of Security Interest.
Client hereby grants SUMMIT a security interest in the
Collateral. The Collateral shall secure all obligations of Client to
SUMMIT arising under or relating to this Agreement and all other
obligations of Client to SUMMIT which recite that they are secured by
the Collateral.
Client's obligations under this Agreement may also be secured by
other collateral as may be evidenced by other documentation apart from
this Agreement.
Client and SUMMIT acknowledge that all security interests and
liens contemplated herein are given as a contemporaneous exchange for
new value to Client, regardless of when advances under this Agreement
are actually made.
12. Representations, Warranties and Covenants of Client.
Client represents, warrants and covenants that:
a. A11 accounts sold to SUMMIT are acceptable accounts;
b. Client has been duly organized or incorporated, as the case may
be, and is in good standing, under the laws of the state of its
organization or incorporation;
c. The place of business of Client, or, if Client has more than one
place of business, the location of its chief executive office,
is in the City of Milpitas, County of Santa Clara, State of
California, and will not be moved therefrom without at least
thirty (30) days prior written notice to SUMMIT;
d. A11 records of Client pertaining to accounts sold to SUMMIT
shall be kept and stored in the City of Milpitas, County of
Santa Clara, State of California, and will not be moved
therefrom without at least thirty (30) days prior written notice
to SUMMIT;
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e. The Equipment will be located in the State of California and,
other than temporary (not to exceed three months) uses outside
that state in the ordinary course of Client's business, will not
be removed from that state without the prior written consent of
SUMMIT;
f. Client shall keep the Equipment in good repair and be
responsible for any loss or damage to the Equipment. Client
shall pay when due all taxes, license fees and other charges on
the Equipment. Client shall not sell, misuse, conceal, or in any
way dispose of the Equipment or permit it to be used unlawfully
or for hire or contrary to the provisions of any insurance
coverage. Risk of loss of the Equipment shall be on Client at
all times unless SUMMIT takes possession of the Equipment. Loss
of or damage to the Equipment or any part thereof shall not
release Client from any of the obligations secured by the
Equipment. SUMMIT or its representatives may, at any time and
from time to time, enter any premises where the Equipment is
located and inspect, audit and check the Equipment;
g. Client agrees to insure the Equipment, at Client's expense,
against loss, damage, theft, and such other risks as SUMMIT may
request to the full insurable value thereof with insurance
companies and polices satisfactory to SUMMIT. Proceeds from such
insurance shall be payable to SUMMIT as its interest may appear
and such policies shall provide for a minimum ten days written
cancellation notice to SUMMIT. Upon request, policies or
certificates attesting to such coverage shall be delivered to
SUMMIT. Insurance proceeds may be applied by SUMMIT toward
payment of any obligation secured by this agreement, whether or
not due, in such order of application as SUMMIT may elect.
h. Client is duly qualified to do business in each jurisdiction
where the conduct of its business requires such qualification.
i. Client has all necessary material licenses and other
certificates or permits required for the conduct of its business
and all such necessary licenses and other certificates or
permits are current and will be maintained at all times;
Client has and shall maintain the full power and authority to
conduct the business in which it engages and to enter into and
perform its obligations under this Agreement.
k. The execution, delivery and performance by Client of this
Agreement have been duly authorized by all necessary action on
the part of Client, and are not inconsistent with any Articles
of Incorporation, By-Laws, Articles of Partnership, or other
organizational document of Client, do not and will not
contravene any provision of, or constitute a default under, any
indenture, mortgage, contract or other instrument to which
Client is a party or by which it is bound, and upon execution
and delivery hereof, this Agreement will constitute a legal,
valid and binding agreement and obligation of Client,
enforceable in accordance with its terms;
All financial statements of Client, and of any guarantor of
Client's obligations under this Agreement, have been prepared in
accordance with generally accepted accounting principles and
fairly present the financial condition of Client and any such
guarantor as of the date thereof and the results of operations
for the period or periods covered thereby. Since the date of
such financial statements there has been no material, adverse
change in the financial condition of Client or any such
guarantor. Client agrees to submit monthly, quarterly and annual
financial statements for Client to SUMMIT and Client shall cause
any such guarantor to submit financial statements for such
guarantor to SUMMIT as may be requested by SUMMIT. All such
financial statements to be prepared in accordance with generally
accepted accounting principles with quarterly reviewed and
annual audited financial statements from a firm acceptable to
SUMMIT.
Client shall conduct its business in a lawful manner and in
compliance with all applicable federal, state, and local laws,
ordinances, rules, regulations, and orders and shall pay when
due all lawfully imposed taxes upon its property, business and
income;
Client will at all times keep accurate and complete records
relating to its accounts. Client shall not show factored
accounts as an asset on its financial statements unless such
treatment is in accordance with generally accepted accounting
principles. SUMMIT and its representatives shall have the right
at any reasonable time to enter any premises where any such
records are located to inspect, audit, check, copy and make
extracts from any records or other data relating to said
accounts or to any other transactions between SUMMIT and Client.
Reasonable out of pocket expenses to conduct such audits or
inspections will be the responsibility of the Client;
This Agreement, the financial statements referred to herein, and
all other statements furnished by Client to SUMMIT in connection
herewith contain no untrue statement of a material fact and omit
no material fact necessary to make the statements contained
therein or herein not misleading. Client represents and warrants
that it has not failed to disclose in writing to SUMMIT any fact
that materially and adversely affects, or is reasonably likely
to materially and adversely affect, Client's business,
operations, properties, prospects, profits, condition (financial
or otherwise), or ability to perform this Agreement; and
p. Client agrees to execute any financing statements, notices of
assignment, and other documents reasonably requested by SUMMIT
for perfection or enforcement of the rights and interests of
SUMMIT, and to give good faith, diligent cooperation to SUMMIT,
and to perform such other acts reasonably requested by SUMMIT
for perfection and enforcement of the rights and interests of
SUMMIT. SUMMIT is authorized to file, record, or otherwise
utilize such documents as it sees fit.
Client shall maintain a minimum Tangible Net Worth of One
Million Nine Hundred Thousand Dollars ($1,900,000), as
calculated on a quarterly basis and in accordance with Generally
Accepted Accounting Principals (GAAP). Tangible Net Worth shall
be defined as net worth minus depreciation/amortization,
goodwill, prepaids, loans to shareholders and other intangible
assets as defined by Summit.
13. Representations, Warranties and Covenants Concerning Collateral.
Client represents, warrants, and covenants concerning the
Collateral as follows:
a. Client has sole and unconditional good title to the Collateral,
the Collateral being free from any other security interest,
assignment, lien or other encumbrance of any type, except as has
been previously disclosed to SUMMIT; and
b. The Collateral will be kept free from any other security
interest, assignment, lien or other encumbrance of any type,
except as consented to in writing by SUMMIT.
c. Client agrees to insure the Collateral, at Client's expense,
against loss, damage, theft, and such other risks as SUMMIT may
request to the full insurable value thereof with insurance
companies and policies satisfactory to SUMMIT. Proceeds from
such insurance shall be payable to SUMMIT as its interests may
appear and such policies shall provide for a minimum ten days
written cancellation notice to SUMMIT. Upon request, policies or
certificates attesting to such coverage shall be delivered to
SUMMIT.
Insurance proceeds may be applied by SUMMIT toward payment of
any obligation secured by the Collateral, whether or not due, in
such order of application as SUMMIT may elect.
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14. Assignment of Rights Concerning Collateral.
Client hereby assigns to SUMMIT all of its interest in and rights
to any inventory or other goods giving rise to the accounts factored to
SUMMIT which may be returned by account debtors, all rights as an unpaid
vendor or lienor, all rights of stoppage in transit, replevin and
reclamation relating thereto, all rights in and to all security therefor
and guarantees thereof, all rights against third parties with respect
thereto, and all rights under the Uniform Commercial Code and any other
law, statute, regulation or agreement. Any goods so recovered or
returned shall be set aside, marked with the name of SUMMIT, and held
for the account of SUMMIT. Client will promptly notify SUMMIT of all
such returned or recovered inventory or other goods.
Upon request, Client shall deliver such inventory or other goods
to SUMMIT. SUMMIT may take possession of such inventory or other goods
and resell such inventory or other goods. Client shall pay all
reasonable costs and expenses incurred in taking possession and selling
such inventory and other goods, including, without limitation,
reasonable attorneys fees and legal expenses, transportation expenses,
storage expenses, insurance, and sales commissions. Such reasonable
costs and expenses may be treated as a chargeback. All proceeds from
such resale shall be retained by SUMMIT and the net proceeds credited
against the obligations of Client.
15. Adjustments Upon Refund of Collections.
In the event SUMMIT is required to refund or pay back any
collection received on any factored account for any reason other than a
credit problem concerning a limited recourse account, Client shall
promptly reimburse SUMMIT for such amount. Such reimbursement may be
treated as a chargeback.
16. Termination of Factoring.
The right of Client to submit accounts to SUMMIT for factoring
shall remain in force and effect until terminated by either party hereto
by giving sixty (60) days written notice of such termination. This
Agreement may be terminated by SUMMIT at any time without notice should
any default occur. Upon the effective date of such notice, Client and
SUMMIT shall be excused from the covenants of the second paragraph of
Paragraph 2 Factoring of Accounts providing that SUMMIT shall be the
sole and exclusive factor for Client's accounts until the effective date
of such termination.
Upon such termination or in the event an Event of Default
terminates the right of Client to submit accounts to SUMMIT, at the
election of SUMMIT all outstanding, recourse accounts factored to SUMMIT
may be immediately subject to chargeback.
In the event Client elects to terminate its right to submit
accounts to SUMMIT or an Event of Default terminates the right of Client
to submit accounts to SUMMIT within ninety (90) days of the date of this
Agreement, Client shall forfeit to SUMMIT twenty-five percent (25%) of
the Reserve, not as a penalty but as liquidated damages to compensate
SUMMIT for loss of profits, recovery of expenses, and other damages
resulting from such premature termination. Client acknowledges and
agrees that it would be very difficult or impossible to calculate such
amounts and that twenty-five percent (25%) of the Reserve is a fair
estimation of those amounts.
17. Right to Perform for Client.
SUMMIT may, in its sole discretion, elect to discharge any
security interest, lien or other encumbrance upon any account purchased
by SUMMIT from Client, elect to pay any insurance charges payable by
Client or provide insurance as required herein if Client fails to do so.
Any such payments and all expenses incurred in connection therewith
shall be treated as a chargeback. SUMMIT shall have no obligation to
discharge any such security interest, lien or other encumbrance or pay
such insurance charges or provide such insurance. In the event Client is
indebted to SUMMIT as the account debtor on any account which has been
purchased by SUMMIT, SUMMIT may treat such debt as a chargeback.
18. Power of Attorney to Endorse Checks.
Client does hereby make, constitute and appoint SUMMIT, and its
designees, as its true and lawful attorneys-in-fact, with full power of
substitution, with full power to endorse the name of Client upon any
checks or other forms of payment on accounts purchased by SUMMIT and to
effect the deposit and collection thereof. Such power may be exercised
at any time. Client does hereby make, constitute, and appoint SUMMIT,
and its designees, as Client's true and lawful attorneys in fact, with
full power of substitution, such power to be exercised only upon the
occurrence of an Event of Default, to: (a) receive, open, and dispose of
all mail addressed to Client; (b) cause mail relating to accounts of
Client sold to SUMMIT to be delivered to a designated address of SUMMIT
where SUMMIT may open all such mail and remove therefrom any payment of
such accounts; (c) SUMMIT may settle or adjust account debtor disputes
in respect to said accounts for amounts and upon such terms as SUMMIT,
in good faith, deems to be advisable, in such case crediting Client with
only the proceeds received and collected by SUMMIT after deduction of
SUMMIT' costs, including reasonable attorneys fees and legal expenses;
and (d) SUMMIT may do any and all other things necessary or proper to
carry out the intent of this Agreement and to perfect and protect the
rights of SUMMIT created under this Agreement. Exercise of any of the
foregoing powers shall be in the sole discretion of SUMMIT without any
duty to do so.
19. Disclosure of Information.
Client hereby consents to SUMMIT disclosing to any financial
institution or investor providing financing for SUMMIT, any and all
information, knowledge, reports and records, including, without
limitation, financial statements, concerning Client or any guarantor.
20. Interest on Unpaid Chargebacks.
In the event Client fails to pay any chargeback, Client agrees to
pay interest on the chargeback amount from the date of chargeback until
paid, both before and after judgment, at the rate of eighteen percent
(18%) per annum, unless such rate is in violation of law in which case
such interest rate shall be at the maximum rate allowable by law.
21. Sale of All Acceptable Accounts.
Unless otherwise agreed in writing by SUMMIT, Client may not sell
only a portion of the accounts for any particular account debtor to
SUMMIT but shall offer to sell to SUMMIT all acceptable accounts of an
account debtor unless Client elects not to sell any accounts of that
account debtor to SUMMIT.
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22. Collection of Chargeback Accounts.
Until a chargeback has been paid in full, SUMMIT shall retain the
right to collect the account(s) giving rise to such chargeback. All out
of pocket expenses, including reasonable attorneys fees and legal
expenses, incurred by SUMMIT in seeking collection of such chargeback
account(s) shall be added to the amount due for payment of said
chargeback. Client hereby authorizes SUMMIT to initiate any legal action
to collect a chargeback account which is not paid by Client within
fifteen (15) days of chargeback. Client further authorizes SUMMIT to
settle or compromise any such chargeback account, in the sole discretion
of SUMMIT subject only to acting in good faith, which has not been paid
within fifteen (15) days of chargeback. Any deficiency remaining after
such settlement or compromise shall remain as a chargeback.
23. No Third Party Beneficiary.
This Agreement is made for the sole and exclusive benefit of
SUMMIT and Client and is not intended to benefit any third party. No
such third party may claim any right or benefit or seek to enforce any
term or provision of this Agreement.
24. Indemnification.
Client agrees to indemnify SUMMIT for any and all claims,
liabilities, and damages which may be awarded against SUMMIT, and for
all reasonable attorneys fees, legal expenses and other expenses
incurred in defending such claims, arising from or relating in any
manner to the purchase of accounts pursuant to the terms of this
Agreement, excluding claims based on the negligence or misconduct of
SUMMIT.
25. Default and Remedies.
Time is of the essence of this agreement. The occurrence of any
of the following events shall constitute a default under this Agreement
and be termed an "Event of Default";
a. Failure by Client to promptly repurchase any account or pay any
chargeback in accordance with the terms of this Agreement;
b. Client fails in the payment or performance of any obligation,
covenant, agreement, or liability created by this Agreement;
c. Any representation, warranty, or financial statement made by or
on behalf of Client in this Agreement, or on behalf of any
guarantor of this Agreement, proves to have been false or
materially misleading when made or furnished;
d. Any default or event which, with the giving of notice or the
passage of time or both, occurs on any indebtedness of Client or
any such guarantor to others;
e. Client or any such guarantor becomes dissolved or terminated, or
experiences a business failure;
f. A receiver, trustee, or custodian is appointed for any part of
Client's or any such guarantor's property, or any part of
Client's or any such guarantor's property is assigned for the
benefit of creditors;
g. Any proceeding is commenced or petition filed under any
bankruptcy or insolvency law by or against Client or any such
guarantor;
h. Any judgment is entered against Client or any such guarantor
which may materially affect Client's or any such guarantor's
financial condition;
i. Client or any such guarantor becomes insolvent or unable to pay
its debts as they mature; or
j. The accounts purchased by SUMMIT from Client become, for any
reason whatsoever, substantially delinquent or uncollectible.
Waiver of any Event of Default shall not constitute a waiver of
any subsequent Event of Default.
Upon the occurrence of any event of Default and at any time
thereafter, at the election of SUMMIT and without notice of such
election, SUMMIT may terminate the right of Client or factor accounts to
SUMMIT and all obligations of Client to SUMMIT shall become immediately
due and payable. At the election of SUMMIT, all outstanding recourse
accounts and outstanding limited recourse accounts which are eligible
for chargeback may be immediately subject to chargeback. SUMMIT shall
have the right to enter upon any premises where the Collateral or
records pertaining thereto may be take possession of the Collateral and
records relating thereto or, Client shall, if requested by SUMMIT,
assemble such Collateral and records at a place designated by SUMMIT.
SUMMIT shall have all rights and remedies under the Uniform Commercial
Code. Without notice to Client, SUMMIT may obtain the appointment of a
receiver of the business, property and assets of Client and Client
consents to the appointment of SUMMIT or such person as SUMMIT may
designate as such receiver. SUMMIT may continue to hold the Reserve for
payment of any obligations of Client to SUMMIT then existing or which
may thereafter arise. At any time after the occurrence of an Event of
Default, SUMMIT may, in its desecration, apply the reserve against
obligations of Client owing to SUMMIT. In the event the Reserve is
applied against chargeback shall remain the property of SUMMIT and
SUMMIT may continue to pursue and collect such accounts until all
obligations of Client to SUMMIT then owing or which may thereafter arise
have been paid in full or are otherwise satisfied.
SUMMIT may sell, lease or otherwise dispose of any or all of the
Collateral and, after deducting the reasonable costs and out-pocket
expenses incurred by SUMMIT, including, without limitation, (I)
reasonable attorney fees and legal expenses, (2) transportation and
storage costs, (3) advertising of sale of the Collateral, (4) sale
commissions, (5) sales tax, (6) costs for improving or repairing the
Collateral, and (7) costs for preservation and protection of the
Collateral, apply the remainder to pay, or to hold as a reserve against,
the obligations secured by the Collateral.
26. Payment of Expenses and Attorneys Fees.
Client shall pay all reasonable expenses of SUMMIT relating to
the negotiation, drafting of documents, and documentation of this
Agreement, and administration of this Agreement, including, without
limitation, title insurance, recording fees, filing fees, reasonable
attorneys fees and legal expenses, audit fees, inspection fees, wire
transfer fees, and overnight delivery expenses, whether incurred in
entering into this Agreement, in future amendments or modifications to
this Agreement, or in ongoing administration of this Agreement. SUMMIT
currently charges a fee for field audit of Client's records and business
of $600.00 per day plus travel expenses.
Upon occurrence of an Event of Default, Client agrees to pay all
costs and expenses, including reasonable attorney fees and legal
expenses, incurred by SUMMIT in enforcing or exercising any remedies
under this Agreement or any other rights and remedies.
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Client agrees to pay all expenses, including reasonable attorney
fees and legal expenses, incurred by SUMMIT in any bankruptcy
proceedings of any type involving Client, this Agreement, or the
Collateral, including, without limitation, expenses incurred in
modifying or lifting the automatic stay, determining adequate
protection, use of cash collateral or relating to any plan of
reorganization.
27. Bankruptcy Considerations.
In addition to any other covenants made herein by Client, Client
covenants that it will notify SUMMIT of any voluntary or involuntary
bankruptcy petition filed by or against Client or any guarantor of this
Agreement under the United States Bankruptcy Code, within twenty-four
(24) hours of any such filing. Failure to notify SUMMIT of any such
bankruptcy filing within twenty-four (24) hours shall constitute an
Event of Default.
Client acknowledges that this Agreement is a contract to extend
debt financing or financial accommodations to or for the benefit of
Client within the meaning of II U.S.C. Section 365(c)(2) and, as such,
may not be assumed or assigned. SUMMIT shall be under no obligation to
purchase accounts under this Agreement from and after the filing of any
voluntary or involuntary petition against Client. However, SUMMIT may,
at its sole option, agree to provide post-petition financing to the
debtor and/or debtor-in-possession after the filing of a voluntary or
involuntary bankruptcy petition by or against Client. Any such agreement
to provide post-petition financing shall not obligate SUMMIT to purchase
accounts until such time as the Bankruptcy Court approves the
post-petition financing agreement.
28. Jury Waiver, Exclusive Jurisdiction of Utah Courts.
Client hereby irrevocably submits to the jurisdiction of any Utah
State or Federal court sitting in Salt Lake County in any action or
proceeding arising out of or relating to this Agreement, or any other
agreements, and Client hereby irrevocably agrees that all claims, with
respect to such action or proceeding court. Client hereby irrevocably
waives, to the fullest extent Client may effectively do so, the defense
of inconvenient forum to the maintenance of such action or proceeding.
Client irrevocably consents to the service of any and all process in any
such action or proceeding by the mailing of copies of such process to
Client's address specified in the Agreement. Client agrees that a final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other
matter provided by law. Nothing in this Section shall affect SUMMIT's
right to serve legal process in any other manner permitted by law or
affect SUMMIT's right to bring an action or proceeding against Client or
Client's property in the courts of other jurisdictions.
CLIENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY OF ANY
ACTION OR PROCEEDING ASSERTING ANY CAUSE OF ACTION, CLAIM, THIRD PARTY
CLAIM OR COUNTERCLAIM (COLLECTIVELY, "CLAIMS") ARISING OUT OF OR
RELATING TO THIS AGREEMENT, ANY OTHER AGREEMENT, OR THE COLLATERAL. THIS
WAIVER EXTENDS TO ALL SUCH CLAIMS, INCLUDING, WITHOUT LIMITATION, CLAIMS
WHICH INVOLVE PERSONS OR ENTITIES OTHER THAN SUMMIT, CLAIMS WHICH ARISE
OUT OF OR ARE IN ANY WAY CONNECTED TO THE RELATIONSHIP BETWEEN SUMMIT
AND CLIENT, AND ANY CLAIMS FOR DAMAGES, BREACH OF CONTRACT, SPECIFIC
PERFORMANCE, TORT OR ANY EQUITABLE OR LEGAL RELIEF OF ANY KIND.
29. Severability of Invalid Provisions, Headings, Interpretations of
Agreement.
Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability
without invalidating the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
All headings in this Agreement are inserted for convenience and
shall not be considered part of the Agreement or be used in its
interpretation.
All references in this Agreement to the singular shall be deemed
to include the plural when the context so requires, and visa versa.
References in the collective or conjunctive shall also include the
disjunctive unless the context otherwise clearly requires a different
interpretation.
30. Notices.
All notices hereunder shall be in writing and may be mailed,
postage prepaid, addressed as follows:
To SUMMIT:
SUMMIT Financial Resources, L, P.
2323 South Foothill Drive
Salt Lake City, UT 84109
Attention: Director of Operations
To Client:
DISC, Inc.
372 Turquoise Street
Milpitas, CA 95035
Attention: Henry Madrid
Any notice so mailed shall be deemed given three (3) days after
mailing. Any notice otherwise delivered shall be deemed given when
received by the addressee.
31. Survival of Representations. Warranties and Covenants.
All agreements, representations, warranties and covenants made
herein by Client shall survive the execution and delivery of this
Agreement and any bankruptcy proceedings involving Client and shall
continue in effect so long as any obligation to SUMMIT contemplated by
this Agreement is outstanding and unpaid, notwithstanding any
termination of this Agreement.
32. Assignability.
This Agreement is not assignable or transferable by Client and
any such purported assignment or transfer is void. This Agreement shall
be binding upon the successors of Client. Client acknowledges and agrees
that SUMMIT may assign all or any portion of
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this Agreement, including, without limitation, assignment of the rights,
benefits and remedies of SUMMIT hereunder without any assignment of the
duties, obligations or liabilities of SUMMIT hereunder.
33. Integrated Agreement, Amendment, Headings, Governing Law.
This Agreement shall replace and supersede any prior agreement
between Client and SUMMIT.
This Agreement and the documents identified or contemplated
herein constitute the entire agreement between SUMMIT and Client as to
the subject matter hereof and may not be altered or amended except by
written agreement signed by SUMMIT and Client. No provision hereof may
be waived by SUMMIT except upon written waiver executed by SUMMIT. This
Agreement shall be governed by and construed in accordance with the laws
of the State of Utah and this Agreement shall be deemed to have been
executed by the parties in the State of Utah.
Dated: 27 Dec., 2000.
DISC, Inc.
By: /s/ J. Richard Ellis
-------------------------------------
J. Richard Ellis
Title (Its): President
Witnessed or verified signature by: /s/ Theodore Dalessi
--------------------------
SUMMIT Financial Resources, L.P. a
Hawaii limited partnership
By: /s/ Theodore Dalessi
-------------------------------------
Title: Authorized Representative
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EXHIBIT A TO UCC-I FINANCING STATEMENT (FACTORING)
DEBTOR: DISC, INC.
SECURED PARTY: SUMMIT FINANCIAL RESOURCES, L. P.
Debtor hereby grants Secured party a security interest in the
following collateral to secure any and all of Debtor's present and
future debts, obligations, and liabilities of whatever nature to Secured
party:
All accounts as defined in the Uniform Commercial Code, accounts
receivable, amounts owing to Debtor under any rental agreement or lease,
payments on construction contracts, promissory notes or on any other
indebtedness, any rights to payment customarily or for accounting
purposes classified as accounts receivable, and all rights to payment,
proceeds or distributions under any contract, of Debtor, presently
existing or hereafter created, and all proceeds thereof.
All equipment and goods as defined in the Uniform Commercial
Code, all motor vehicles, including all tires, accessories, spare and
repair parts, and tools, wherever located, and all related right, title
and interest, of Debtor, now owned or hereafter acquired or created, all
proceeds and products of the foregoing and all additions and accessions
to, replacements of, insurance or condemnation proceeds of, and
documents covering any of the foregoing, all leases of any of the
foregoing, and all rents, revenues, issues, profits and proceeds arising
from the sale, lease, license, encumbrance, collection, or any other
temporary or permanent disposition of any of the foregoing or any
interest therein.
All general intangibles of Debtor, presently existing or
hereafter arising, including general intangibles as defined in the
Uniform Commercial Code, chooses in action, proceeds, contracts,
distributions, dividends, refunds, security deposits, judgments,
insurance claims, any right to payment of any nature, intellectual
property rights or licenses, any other rights or assets of Debtor
customarily or for accounting purposes classified as general
intangibles, and all documentation and supporting information related to
any of the foregoing, all rents, profits and issues thereof, and all
proceeds thereof.
All inventory as defined in the Uniform Commercial Code, wherever
located, all goods, merchandise or other personal property held for sale
or lease, names or marks affixed thereto for purposes of selling or
identifying the same or the seller or manufacturer thereof and all
related rights, title and interest, all raw materials, work or goods in
process or materials or supplies of every nature used, consumed or to be
used in Debtor's business, all packaging and shipping materials, and all
other goods customarily or for accounting purposes classified as
inventory, of Debtor, now owned or hereafter acquired or created, all
proceeds and products of the foregoing and all additions and accessions
to, replacements of, insurance or condemnation proceeds of, and
documents covering any of the foregoing, all leases of any of the
foregoing, and all rents, revenues, issues, profits and proceeds arising
from the sale, lease, license, encumbrance, collection, or any other
temporary or permanent disposition of any of the foregoing or any
interest therein.
All balances, reserves, deposits, debts, or any other amounts or
obligations of Secured Party owing to Debtor, including, without
limitation, any rebates, the Reserve (as defined in the Factoring
Agreement between Secured Party and Debtor), and any other amounts owing
pursuant to the Factoring Agreement, whether or not due, now existing or
hereafter arising or created, and all proceeds thereof.
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