EXHIBIT 10.1
CIT Commercial Services T:213 613-2400
300 South Grand Avenue
Los Angeles, CA 90071
CIT Date: Oct 19, 2000
Cyber Merchants Exchange, Inc.
600 S. Lake Avenue, Suite 405
Pasadena, CA 91106
FACTORING AGREEMENT
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Ladies and Gentlemen:
We are pleased to confirm the terms and conditions that will govern our
funds in use accounting, non-borrowing, notification factoring arrangement with
you (the "Agreement').
1. SALE OF ACCOUNTS
You sell and assign to us, and we purchase as absolute owner, all accounts
receivable arising from your sales of inventory or rendition of services,
including those under any trade names, through any divisions and through any
selling agent (collectively, the "Accounts" and individually, an "Account").
2. CREDIT APPROVAL
2.1 Requests for credit approval for all of your orders must be submitted
to our Credit Department via computer by either: (a) On-Line Terminal Access, or
(b) Electronic Batch Transmission. If you are unable to submit orders via
computer, then orders can be submitted over the phone, by fax or in writing. All
credit decisions by our Credit Department (including approvals, declines and
holds) will be sent to you daily by a Credit Decisions Report, which constitutes
the official record of our credit decisions. Credit approvals will be effective
only if shipment is made or services are rendered within thirty (30) days from
the completion date specified in our credit approval. Credit approval of any
Account may be withdrawn by us any time before delivery is made or services are
rendered.
2.2 We assume the Credit Risk on each Account approved in the Credit
Decision Report. "Credit Risk" means the customer's failure to pay the Account
in full when due on its longest maturity solely because of its financial
inability to pay. If there is any change in the amount, terms, shipping date or
delivery date for any shipment of goods or rendition of services (other than
accepting returns and granting allowances as provided in section 8 below), you
must submit a change of terms request to us, and, if such pertains to a
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Factor Risk Account, then we shall advise you of our decision either to retain
the Credit Risk or to withdraw the credit approval. Accounts on which we bear
the Credit Risk are referred to collectively as "Factor Risk Accounts", and
individually as a "Factor Risk Account". Accounts on which you bear some or all
of the risk as to credit are referred to collectively as "Client Risk Accounts",
and individually as a "Client Risk Account".
2.3 We shall have no liability to you or to any person, firm or entity for
declining, withholding or withdrawing credit approval on any order. If we
decline to credit approve an order and furnish to you any information regarding
the credit standing of that customer, such information is confidential and you
agree not to reveal same to the customer, your sales agent or any third party.
You agree that we have no obligation to perform, in any respect, any contracts
relating to any Accounts.
3. INVOICING
You agree to place a notice (in form and content acceptable to us) on each
invoice and invoice equivalent that the Account is sold, assigned and payable
only to us, and to take all necessary steps so that payments and remittance
information are directed to us. All invoices, or their equivalents, will be
promptly mailed or otherwise transmitted by you to your customers at your
expense. You will provide us with copies of all invoices (or the equivalent
thereof if the invoices were sent electronically), confirmation of the sale of
the Accounts to us and proof of shipment or delivery, all as we may reasonably
request. If you fail to provide us with copies of such invoices (or equivalents)
or such proofs when requested by us, we will not bear any Credit Risk as to
those Accounts.
4. REPRESENTATIONS AND WARRANTIES
4.1 You represent and warrant that: each Account is based upon a bona fide
sale and delivery of inventory or rendition of services made by you in the
ordinary course of business; the inventory being sold and the Accounts created
are your exclusive property and are not, and will not be, subject to any lien,
consignment arrangement, encumbrance or security interest other than in our
favor; all amounts are due in United States Dollars; all original invoices bear
notice of the sale and assignment to us; any taxes or fees relating to your
Accounts or inventory are solely your responsibility; and none of the Accounts
factored with us hereunder represent sales to any subsidiary, affiliate or
parent company. You also warrant and represent that: your customers have
accepted the goods or services and owe and are obligated to pay the full amounts
stated in the invoices according to their terms, without dispute, claim, offset,
defense, deduction, rejection, recoupment, counterclaim or contra account, other
than as to returns and allowances as provided in section 8 below (the foregoing
being referred to in this Agreement as "Customer Claims").
4.2 You further represent and warrant that: you are a duly organized and
validly existing business organization qualified to do business in all states
where required; the most recent financial statements provided by you to us
accurately reflect your financial condition as of that date and there has been
no material adverse change in your financial
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condition since the date of those financial statements. You agree to furnish us
with such information concerning your business affairs and financial condition
as we may reasonably request from time to time, including financial statements
as of the end of each fiscal year.
4.3 You agree that you will promptly notify us of any change in your:
name, location of your chief executive office, places) of business, use of trade
names and divisions, and legal or business structure. Further, you agree that
you will promptly notify us of any change in control of the ownership of your
business organization, and of significant law suits or proceedings against you.
5. PURCHASE OF ACCOUNTS
We shall purchase the Accounts for the gross amount of the respective
invoices, less: factoring fees or charges, trade and cash discounts allowable
to, or taken by, your customers, credits, cash on account and allowances
("Purchase Price"). Our purchase of the Accounts will be reflected on the
Statement of Account (defined in section 10 below), which we shall render to
you, which will also reflect all credits and discounts made available to your
customers.
6. ADVANCES
We do not expect to advance funds to you prior to the collection of the
Accounts, but we may do so at your request in our sole discretion, subject to
such additional terms and conditions as we may reasonably request. We have the
right, at any time and from time to time, to hold any reserves we deem
reasonably necessary as security for the payment and performance of any and all
of your Obligations (defined in section 12 below). All amounts you owe us,
including all advances to you and any debit balance in your Client Position
Account (defined in section 10 below), and any Obligations, are payable on
demand and may be charged to your account at any time.
7. PAYMENT OF ACCOUNTS
7.1 All payments received by us on the Accounts will be promptly applied
to your account with us after crediting your customer's account. The Purchase
Price for Accounts with respect to which such remittances have been received and
applied by us during a week, less any amounts due us, will be transferred and
disbursed to you on Wednesday of the following week, or on the next business day
thereafter, if said Wednesday is not a business day. No checks, drafts or other
instruments received by us will constitute final payment of an Account unless
and until such items have actually been collected.
7.2 The amount of the Purchase Price of any Factor Risk Account which
remains unpaid will be deemed collected and will be credited to your account as
of the earlier of the following dates:
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(a) the date of the Account's longest maturity if a proceeding or
petition is filed by or against the customer under any state
or federal bankruptcy or insolvency law, or if a receiver or
trustee is appointed for the customer; or
(b) the last day of the third month following the Account's longest
maturity date if such Account remains unpaid as of said date
without the occurrence of any of the events specified in
clause (a) above.
If any Factor Risk Account credited to you was not paid for any reason other
than Credit Risk, we shall reverse the credit and charge your account
accordingly, and such Account is then deemed to be a Client Risk Account.
8. CUSTOMER CLAIMS AND CHARGE BACKS
8.1 You must notify us promptly of any matter affecting the value,
enforceability or collectibility of any Account and of all Customer Claims. You
agree to promptly issue credit memoranda or otherwise adjust the customer's
account upon accepting returns or granting allowances. For full invoice credit
memoranda, you agree to send duplicate copies thereof to us and to confirm their
assignment to us. We shall cooperate with you in the adjustment of Customer
Claims, but we retain the right to adjust Customer Claims on Factor Risk
Accounts directly with customers, upon such terms as we in our sole discretion
may deem advisable.
8.2 We may at any time charge back to your account the amount of: (a) any
Factor Risk Account which is not paid in full when due for any reason other than
Credit Risk; (b) any Factor Risk Account which is not paid in full when due
because of an act of God, civil strife, or war; (c) anticipation (interest)
deducted by a customer on any Account; (d) Customer Claims; (e) any Client Risk
Account which is not paid in full when due; and (f) any Account for which there
is a breach of any representation or warranty. A charge back does not constitute
a reassignment of an Account. We shall immediately charge any deduction taken by
a customer to your account.
8.3 We may at any time charge to your account the amount of: (a) payments
we receive on Client Risk Accounts which we are required at any time to turnover
or return (including preference claims); (b) all remittance expenses (including
incoming wire charges, currency conversion fees and stop payment fees), other
than stop payment fees on Factor Risk Accounts; (c) expenses, collection agency
fees and attorneys' fees incurred by us in collecting or attempting to collect
any Client Risk Account or any Obligation (defined in section 12 below); and (d)
our fees for handling collections on Client Risk Accounts which you have
requested us to process, as provided in the Guide (see section 18.2 below).
9. HANDLING AND COLLECTING ACCOUNTS; RETURNED GOODS
9.1 As owners of the Factor Risk Accounts, we have the right to: (a) bring
suit, or otherwise enforce collection, in your name or ours; (b) modify the
terms of payment, (c)
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settle, compromise or release, in whole or in part, any amounts owing, and (d)
issue credits in your name or ours. To the extent applicable, you waive any and
all claims and defenses based on suretyship. If moneys are due and owing from a
customer for both Factor Risk Accounts and Client Risk Accounts, you agree that
any payments or recoveries received on such Accounts may be applied first to any
Factor Risk Accounts. Once you have granted or issued a discount, credit or
allowance on any Account, you have no further interest therein. Any checks,
cash, notes or other documents or instruments, proceeds or property received
with respect to the Accounts must be held by you in trust for us, separate from
your own property, and immediately turned over to us with proper endorsements.
We may endorse your name or ours on any such check, draft, instrument or
document.
9.2 As owners and assignees of the Accounts and all proceeds thereof, upon
our written notice, you will, at your expense, comply with our instructions
relative to any and all returned, rejected, reclaimed or repossessed inventory
("Returned Goods").
10. STATEMENT OF ACCOUNT
After the end of each month, we shall send you certain reports reflecting
Accounts purchased, advances made, if any, fees and charges and all other
financial transactions between us during that month ("Reports"). The Reports
sent to you each month include a Statement of Account reflecting transactions in
three sections: Accounts Receivable, Client Position Account and Funds In Use.
The Reports shall be deemed correct and binding upon you and shall constitute an
account stated between us unless we receive your written statement of exceptions
within thirty (30) days after same are mailed to you.
11. GRANT OF SECURITY INTEREST
11.1 You hereby assign and grant to us a continuing security interest in
all of your right, title and interest in and to all of your now existing and
future: (a) accounts receivable (including Accounts), instruments, documents,
chattel paper, general intangibles, and any other obligations owing to you; (b)
unpaid seller's rights (including rescission, repossession, replevin,
reclamation and stoppage in transit); (c) rights to any inventory represented by
the foregoing, including Returned Goods; (d) reserves and credit balances
arising hereunder; (e) guarantees or collateral for the foregoing (including
rights under any letters of credit or other credit enhancements in your favor);
(f) insurance policies, proceeds or rights relating to the foregoing; (g) cash
and non-cash proceeds of the foregoing; and (h) Books and Records (defined in
section 13 below) evidencing or pertaining to the foregoing.
11.2 You agree to comply with all applicable laws to perfect our security
interest in collateral pledged to us hereunder, and to execute financing
statements and other documents as we may require to effectuate the foregoing and
to implement this Agreement. To the extent permitted by applicable law, you
authorize us to sign your name, or to file financing statements or continuations
without your signature, all in order to create, perfect or maintain our security
interest in the collateral.
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12. OBLIGATIONS SECURED
The security interest granted hereunder and any lien or security interest
that we now or hereafter have in any of your other assets, collateral or
property, secure the payment and performance of all of your now existing and
future indebtedness and obligations to us, whether absolute or contingent,
whether arising under this Agreement or any other agreement or arrangement
between us, by operation of law or otherwise ("Obligations"). Obligations also
includes ledger debt (which means indebtedness for goods and services purchased
by you from any party whose accounts receivable are factored or financed by us),
and indebtedness arising under any guaranty, credit enhancement or other credit
support granted by you in our favor. Any reserves or balances to your credit and
any other assets, collateral or property of yours in our possession constitutes
security for any and all Obligations.
13. BOOKS AND RECORDS AND EXAMINATIONS
13.1 You agree to maintain such Books and Records concerning the Accounts
as we may reasonably request and to reflect our ownership of the Accounts
therein. "Books and Records" means your accounting and financial records
(whether paper, computer or electronic), data, tapes, discs, or other media, and
all programs, files, records and procedure manuals relating thereto, wherever
located.
13.2 Upon our reasonable request, you agree to make your Books and Records
available to us for examination and to permit us to make copies or extracts
thereof. Also, you agree to permit us to visit your premises during your
business hours and to conduct such examinations as we deem reasonably necessary.
14. INTEREST
14.1 Interest is charged on any adjustments under this Agreement and on
any advances that may be made under section 6 above, as of the last day of each
month based on the daily debit balances in your Funds In Use account for that
month, at a rate equal to the greater of: (a) the sum of two percent (2%) plus
the Chase Prime Rate (defined below), or (b) six percent (6%) per annum. The
Chase Prime Rate is the per annum rate of interest publicly announced by The
Chase Manhattan Bank (or its successor) in New York, New York from time to time
as its prime rate, and is not intended to be the lowest rate of interest charged
by The Chase Manhattan Bank to its borrowers. Any change in the rate of interest
hereunder due to a change in the Chase Prime Rate will take effect as of the
first of the month following such change in the Chase Prime Rate. All interest
is calculated on a 360 day year.
14.2 In no event will interest charged hereunder exceed the highest lawful
rate. In the event, however, that we do receive interest in excess of the
highest lawful rate, you agree that your sole remedy would be to seek repayment
of such excess, and you irrevocably waive any and all other rights and remedies
which may be available to you under law or in equity.
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15. FACTORING FEES AND OTHER CHARGES
15.1 For our services hereunder, you will pay us a factoring fee or charge
of one and one-half percent (1.50%) of the gross face amount of all Accounts
factored with us, but in no event less than $5.00 per invoice. In addition, you
will pay a fee of one-quarter of one percent ('/4 of 1 %) of the gross face
amount of each Account for each thirty (30) day period or part thereof by which
the longest terms of sale applicable to such Account exceed sixty (60) days
(whether as originally stated or as a result of a change of terms requested by
you or the customer). For Accounts arising from sales to customers located
outside the fifty states of the United States of America, you will pay us an
additional factoring fee of one percent (1 %) of the gross face amount of all
such Accounts. All factoring fees or charges are due and charged to your account
upon our purchase of the underlying Account.
15.2 You agree to pay all costs and expenses incurred by us in connection
with the preparation, execution, administration and enforcement of this
Agreement, including all reasonable fees and expenses attributable to the
services of our attorneys (whether in-house or outside), search fees and public
record filing fees. Furthermore, you agree to pay to us our fees (as more fully
set forth in the Guide, see section 18.2 below) including fees for: (a) special
reports prepared by us at your request; (b) wire transfers; (c) handling change
of terms requests relating to Accounts; and (d) your usage of our on-line
computer services. Beginning on the first of the month six months from the date
hereof, you also agree to pay us our fees for: (i) crediting your account with
proceeds of non-factored invoices received by us; and (ii) charge backs of
invoices factored with us that were paid directly to you. All such fees will be
charged to your account when incurred. Our fees may be changed by us from time
to time upon notice to you; however, any failure to give you such notice does
not constitute a breach of this Agreement and does not impair our ability to
institute any such change.
15.3 Any tax or fee of any governmental authority imposed on or arising
from any transactions between us, any sales made by you, or any inventory
relating to such sales is your sole responsibility (other than income and
franchise taxes imposed on us which are not related to any specific transaction
between us). If we are required to withhold or pay any such tax or fee, or any
interest or penalties thereon, you hereby indemnify and hold us harmless
therefor and we shall charge your account with the full amount thereof.
16. TERMINATION
16.1 You may terminate this Agreement only as of an Anniversary Date and
then only by giving us at least sixty (60) days prior written notice of
termination. "Anniversary Date" means the last day of the month occurring two
years from the date hereof, and the same date in each year thereafter. In the
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event that this Agreement is terminated by you prior to an Anniversary Date, we
shall be entitled to the unpaid portion of the Minimum Factoring Fees, if any,
for such Period, as provided in section 15.1 above, as of the effective date of
termination. Except as otherwise provided, we may terminate this Agreement at
any time by giving you at least sixty (60) days prior written notice of
termination. However, we may terminate this Agreement immediately, without
prior notice to you, upon the occurrence of an Event of Default (defined in
section 17.1 below).
16.2 This Agreement remains effective between us until terminated as
herein provided. Unless sooner demanded, all Obligations will become immediately
due and payable upon any termination of this Agreement.
16.3 All of our rights, liens and security interests hereunder continue
and remain in full force and effect after any termination of this Agreement and
pending a final accounting, we may withhold any balances in your account unless
we are supplied with an indemnity satisfactory to us to cover all Obligations.
You agree to continue to assign accounts receivable to us and to remit to us all
collections on accounts receivable, until all Obligations have been paid in full
or we have been supplied with an indemnity satisfactory to us to cover all
Obligations.
17. EVENTS OF DEFAULT AND REMEDIES UPON DEFAULT
17.1 It is an "Event of Default" under this Agreement if: (a) your
business ceases or a meeting of your creditors is called; (b) any bankruptcy,
insolvency, arrangement, reorganization, receivership or similar proceeding is
commenced by or against you under any federal or state law; (c) you breach any
representation, warranty or covenant contained in this Agreement; or (d) you
fail to pay any Obligation when due.
17.2 After the occurrence of an Event of Default which is not waived by
us, we may terminate this Agreement without notice to you. We shall then have
immediate access to any and all Books and Records as may pertain to the
Accounts, Returned Goods and any other collateral hereunder. Furthermore, as may
be necessary to administer and enforce our rights in the Accounts, Returned
Goods and any other collateral hereunder, or to facilitate the collection or
realization thereof, we have your permission to use (at your expense) your
personnel, supplies, equipment, computers and space, at your place of business
or elsewhere.
17.3 After the occurrence of an Event of Default which is not waived by
us, with respect to any other property or collateral in which we have a security
interest, we shall have all of the rights and remedies of a secured party under
Article 9 of the Uniform Commercial Code. If notice of intended disposition of
any such property or collateral is required by law, it is agreed that five (5)
days notice constitutes reasonable notice. The net cash proceeds resulting from
the exercise of any of the foregoing rights, after deducting all charges, costs
and expenses (including reasonable attorneys' fees) will be applied by us to the
payment or satisfaction of the Obligations, whether due or to become due, in
such order as we may elect. You remain liable to us for any deficiencies. With
respect to
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Factor Risk Accounts and Returned Goods relating thereto, you hereby confirm
that we are the owners thereof, and that our rights of ownership permit us to
deal with this property as owner and you confirm that you have no interest
therein.
18. MISCELLANEOUS PROVISIONS
18.1 This Agreement, and all attendant documentation, as the same may be
amended from time to time, constitutes the entire agreement between us with
regard to the subject matter hereof, and supersedes any prior agreements or
understandings. This Agreement can be changed only by a writing signed by both
of us. Our failure or delay in exercising any right hereunder will not
constitute a waiver thereof or bar us from exercising any of our rights at any
time. The validity, interpretation and enforcement of this Agreement is governed
by the laws of the State of California, excluding the conflict laws of such
State.
18.2 The Client Service Guide, as supplemented and amended from time to
time (the "Guide") has been furnished to you or is being furnished to you
concurrently with the signing of this Agreement, and by your signature below you
acknowledge receipt thereof. The Guide provides information on credit approval
processes, accounting procedures and fees. The procedures for Electronic Batch
Transmission are covered in supplemental instructions to the Guide. From time to
time, we may provide you with amendments, additions, modifications, revisions or
supplements to the Guide, which will be operative for transactions between us.
All information and exhibits contained in the Guide, on any screen accessed by
you, and on any print-outs, reports, statements or notices received by you are,
and will be, our exclusive property and are not to be disclosed to, or used by,
anyone other than you, your employees or your professional advisors, in whole or
in part, unless we have consented in writing.
18.3 This Agreement binds and benefits each of us and our respective
successors and assigns, provided, however, that you may not assign this
Agreement or your rights hereunder without our prior written consent.
18.4 Section headings are for convenience only and are not controlling.
The use of "including" means "including without limitation".
18.5 If any provision of this Agreement is contrary to, prohibited by, or
deemed invalid under applicable laws or regulations, such provision will be
inapplicable and deemed omitted to such extent, but the remainder will not be
invalidated thereby and will be given effect so far as possible.
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19. JURY TRIAL WAIVER
TO THE EXTENT PERMITTED BY APPLICABLE LAW, WE EACH HEREBY WAIVE ANY RIGHT
TO A TRIAL BY jury IN ANY ACTION OR PROCEEDING ARISING DIRECTLY OR INDIRECTLY
OUT OF THIS AGREEMENT, OR ANY OTHER AGREEMENT OR TRANSACTION BETWEEN US OR TO
WHICH WE ARE PARTIES.
If the foregoing is in accordance with your understanding, please so
indicate by signing and returning to us the original and one copy of this
Agreement. This Agreement will take effect as of the date set forth above but
only after being accepted below by one of our officers in Los Angeles,
California, after which we shall forward a fully executed copy to you for your
files.
Very truly yours,
THE CIT GROUP/
COMMERCIAL SERVICES, INC.
By /s/ Robert K. Lewin
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Name: Robert K. Lewin
Title: Senior Vice President
Read and Agreed to:
CYBER MERCHANTS EXCHANGE, INC.
By /s/ John F. Busey
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Name: John F. Busey
Title: President
Accepted at: Los Angeles, California
THE CIT GROUP/
COMMERCIAL SERVICES, INC.
By /s/ Byron Mobley
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Name: Byron Mobley
Title: Assistant Vice President
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