Domestic Factoring Contract (with Recourse)

 

S/N: 37062020120000119

 

(This is a summary translation to be used for reference only)

 

Party A:                       Trunkbow Asia Pacific (Shandong) Co. Limited

Legal Representative: HOU Wanchun

 

Party B:                       Agricultural Bank of China, Jinan Hi-Tech
Development Zone Branch

Legal Representative: ZHANG Guiying

 

Article 1Definition

 

1.1          “Accounts Receivable”: Party A’s right to demand the party to pay
for the goods or services provided by Party A.

 

1.2          The “Buyer”: The party that has purchased goods or services from
Party A.

 

1.3          “Base Transaction Contracts”: Contracts between Party A and the
Buyer from which the accounts receivable are generated.

 

1.4          “Accounts Receivable Amount”: The amount that the Buy must pay to
Party A pursuant to the base transaction contracts.

 

1.5          “Accounts Receivable Due Date”: The date when the last accounts
receivable payment is due.

 

1.6          “Margin Loan”: The amount Party B must pay to Party A as
consideration for accepting the transfer of the accounts receivable.

 

1.7          “Margin Loan Delivery Date”: The date when Party B releases the
margin loan to Party A.

 

1.8          “Accounts Receivable Transferred”: Accounts receivable accepted by
Party B.

 

1.9          “Amount Receivable by the Bank”: Amount that Party B has the right
to receive from the accounts receivable transferred.

 

1.10        “Buy Back”: Party A’s act of buying back the accounts receivable
transferred upon the occurrence of certain events.

 

1.11        “Buy Back Amount”: The price that Party A must pay to Party B to buy
back the accounts receivable transferred.

 

 

 

 

1.12        “Factoring”: The service whereby Party B accepts Party A’s accounts
receivable and provides margin loan Party A.

 

1.13        “Resource”: Party B’s right to demand Party A to buy back accounts
receivable transferred.

 

1.14        “Open Factoring”: Factoring service in which the transfer of
accounts receivable by Party A is made known to the Buyer.

 

1.15        “Covert Factoring”: Factoring service in which the transfer of
accounts receivable by Party A is temporarily not made known to the Buyer.

 

1.16        “Period”: Period of time defined by day, month and year.

 

1.17        “Laws and Regulations”: Laws and regulations of the People’s
Republic of China.

 

Article 2Party A’s Promises

 

2.1         Party A is a duly incorporated and approved organization in good
standing and is permitted to engage in factoring financing transaction.

 

2.2         Party A has obtained all necessary approval in accordance with the
law and the company’s charter for the execution and performance of this
contract.

 

2.3         Party A will not use the margin loan to engage in activities in
violation of law and regulations, and will accept Party B’s supervision on its
operation and financial conditions and provide documents as requested.

 

2.4         The documents provided by Party A are true, complete, accurate,
valid and effective.

 

2.5         Without Party B’s consent, Party A will not modify, terminate or
dissolve the base transaction contracts.

 

2.6         Party A agrees that, if Party B accepts the transfer of the accounts
receivable and is pursued by the buyer or a third party, Party A will assume all
responsibility and compensate Party B for all resulting losses.

 

2.7         If Party B pursues the buyer (including through litigation,
arbitration and filing for enforcement), Party A must take all necessary
measures to assist Party B in realizing its recourse right.

 

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2.8         Party A will notify Party B in writing immediately if Party A comes
to any knowledge of (actual or potential) bankruptcy, dissolution, going out of
business and other corporate events that will materially affect Party B’s
creditor rights.

 

Article 3Basic Provisions

 

3.1         Margin Loan

 

3.1.1Party A transfers the accounts receivable listed below to Party B; and
Party B, based on the amount of each item of the transfer below, provides margin
loan to Party A as consideration for such transfer (all four invoices listed are
billed to Guangdong Guangxin Communications Services Co., Ltd. and all are due
on Sept. 30, 2012):

·RMB 7,014,000          (for amount of RMB 6,310,000 in margin loan)

·RMB 1,141,000          (for amount of RMB 1,010,000 in margin loan)

·RMB 11,688,000        (for amount of RMB 10,500,000 in margin loan)

·RMB 312,000             (for amount of RMB 170,000 in margin loan)

Total amount of accounts receivable:        RMB 20,155,000

Total amount of margin loan:                    RMB 18,000,000

3.1.2Margin Loan Interest

3.1.2.1Margin Loan Interest Calculation:

Amount of margin loan X loan interest X term of the margin loan

3.1.2.2Margin Loan interest

Fixed at the base rate of the same type of loan published by People’s Bank of
China on the date of execution plus 25%

3.1.3Interest Accrual and Settlement

Interest settlement date is the 20th of each month.

3.1.4Past-due penalty

If, upon the expiration of the term of the margin loan, Party B fails to receive
the payments for the accounts receivable in full and Party A fails to buy back
the accounts receivable in accordance with the provisions herein, Party B shall
charge the past-due penalty at the penalty rate (amount of the accounts
receivable times penalty rate) for each day past-due until Party A pays in full
to buy back the accounts receivable and pays all other related fees and
interests. The penalty rate is the margin loan rate specified herein plus 100%.

3.1.5Compound rate

Interest will be compounded if Party A fails to pay interest on time.

3.16Domestic factoring service fee

[None specified]

3.17Factoring Model

Covert factoring.

 

3.2          Transfer of Accounts Receivable

3.2.1Qualified accounts receivable

 

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The accounts receivable listed in Section 3.1.1 must meet the following criteria
(otherwise, Party B shall have the right to refuse to accept them):

(1)They are generated in bona fide business transactions between Party A and the
buyer; base transaction contracts are authentic, valid and effective; the
transfer of the accounts receivable has not be forbidden or restricted; the
creditor/debtor relationship does not involved a third party.

(2)They are payable in RMB.

(3)Party A is the rightful owner of such accounts receivable and such accounts
receivable have not been encumbered in any manner or transferred; there are not
disputes and objections nor any claims, demands or counter-claims regarding such
accounts receivable.

(4)They are not generated by consignment, trial, brokering, distributor or other
form of sales that might result in a refund upon return of the goods.

(5)Party A has performed major obligations under the base transaction contracts.

3.2.2Delivery of documents regarding the accounts receivable

3.2.2.1After the contract has become effective, Party B shall have the right to
ask Party A to deliver the documents and invoices regarding the accounts
receivable listed in Section 3.1.1, including but not limited to:

(1)Base transaction contract or documents evidencing the performance of
sales/service contracts;

(2)Business invoices;

(3)Documents evidencing transportation of goods or delivery acceptance;

(4)“Accounts Receivable Performance Confirmation Letter”;

(5)Other documents that Party B reasonably requests.

3.2.2.2If copies of the above documents are provided, they must be verified
against the original and confirmed by Party A’s company seal.

3.2.2.3In additional, Party B may request Party A to provide other documents at
any time.

3.2.3Transfer notice and account change notice

3.2.3.1[N/A]

3.2.3.2[N/A]

3.2.3.3If Party A fails to deliver notices in accordance with the provisions
herein, Party B shall have the right to refuse to accept the transfer of the
accounts receivable.

3.2.4Accounts receivable payment account

3.2.4.1Party A and Party B agree to designate the following account as the
accounts receivable repayments:

Account Title: Trunkbow Asia Pacific (Shandong) Co. Limited

Account Bank: Agricultural Bank of China,

  Jinan Hi-Tech Development Zone Branch

 

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Account No.: 15-155101040038498

3.2.4.2The accounts receivable payment account must be the dedicated account for
factoring service management. Any withdrawal of funds from this account must be
approved by Party B and Party B shall have the right to place restrictions.

3.2.5Transfer Effectiveness

3.2.5.1[N/A]

3.2.5.2   Upon the delivery of margin loan funds, all the rights to the
corresponding accounts receivable shall be transferred to Party B and Party B is
entitled to all rights available to Party A prior to such transfer, including
but not limited to:

(1)Right to receive payment for such accounts receivable, including principal,
interest, penalty and past-due interest and fines;

(2)Corresponding lien, right of stoppage, endorsement right and other rights
available to Party A upon return of the goods and services;

(3)Right to all measures provided by law to demand the buyer to repay such
accounts receivable, including litigation, arbitration and subrogation;

(4)Right to demand the buyer to provide guarantee should the buyer experiences
operation and financial difficulties;

(5)Right to participate in the buyer’s bankruptcy or liquidation proceedings as
creditor of the accounts receivable;

(6)Right to transfer and pledge the accounts receivable;

(7)Other rights available under the law.

3.2.5.3Party B’s acceptance of the accounts receivable shall not be construed to
be Party B’s obligation to perform, on Party A’s behalf, any of Party A’s
obligations under the base transaction contracts.

3.2.5.4After the transfer of the accounts receivable, Party A shall not have any
rights to the accounts receivable entitled to the creditor, but has the
obligation to assist Party B in asserting Party B’s creditor claims against the
buyer.

3.2.5.5Party A agrees to be Party B’s agent for receiving the payment of the
accounts receivable into the special accounts receivable payment account set up
with Party B.

3.2.6      Registration of the transfer

After the transfer of the accounts receivable, the parties hereto must promptly
proceed to process registration procedures for the transfer.

 

3.3         Receiving Accounts Receivable Payment

3.3.1Accounts receivable payment due date

 

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On the due date for such accounts receivable, Party B has the right to deduct
directly from the accounts receivable payment account such amount equal to the
amount due to the bank. Whether the payment for the accounts receivable is in
full or whether such payment is on time shall not affect the aforementioned
right.

3.3.2Early payment of the accounts receivable

If the buyer pay in full or in part the accounts receivable in advance any
single amount of the accounts receivable, Party B has the right to deduct
directly from the accounts receivable payment account such amount equal to the
amount due to the bank.

3.3.3Authorization for deduction

Party A irrevocably authorizes Party B to deduct directly from the accounts
receivable payment account such amount equal to the amount due to the bank and
the corresponding margin loan interest and other amount payable.

3.3.4After making deductions in accordance with Section 3.3.1 and Section 3.3.2,
Party B has the right to deduct the remaining amount in the accounts receivable
payment account to offset other amount owed by Party A to Party B and
outstanding interest and fees.

3.3.5Order of payment for the accounts receivable

If the buyer has not specified which amount of the accounts receivable a payment
is for, Party B shall have the right to make determination.

 

3.4          Buy-back of the accounts receivable

3.4.1Buy-back on the due date

When the accounts receivable are due, if for whatever reason the fund in the
accounts receivable payment account is insufficient to repay the amount owed to
the bank and to pay interest and other amounts payable, Party A must provide
enough fund to complete the buy-back of the accounts receivable within the grace
period.

3.4.2Advance buy-back

3.4.2.1Upon the occurrence of any of the following, Party B has the right to
demand Party A to buy back all or part of the accounts receivable:

(1)After accepting the transfer, Party B discovers unqualified item of the
accounts receivable;

(2)The accounts receivable are seized or frozen, either in part or in whole, by
judicial or administrative authorities;

(3)Party A fails to provide documents in accordance with the provisions herein;

(4)The buyer fails to make the accounts receivable payment into the accounts
receivable payment account but instead into Party A’s other accounts;

(5)Party A reduces the creditor claim regarding the accounts receivable without
Party B’s authorization;

(6)Party A and the buyer modify the base transaction contracts without Party B’s
authorization; or Party A or the buyer announces its refusal to perform its
major obligations thereunder;

 

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(7)Party A experiences material difficulty in its operations or financial
conditions;

(8)Other situations specified herein.

3.4.2.2Upon the occurrence of any of the following on the part of one buyer,
Party B has the right to demand Party A to buy back all or part of such buyer’s
accounts receivable:

(1)The buyer refuses to make payment or to make payment in full;

(2)The rate of bad accounts has increased for 2 consecutive months;

(3)The buyer experiences material difficulty in its operations or financial
conditions;

(4)The buyer undertakes corporate activities such as merger, spin-off,
reorganization, debt restructuring or the buyer’s assets have been frozen or
seized;

(5)Other situations that will materially affect the buyer’s ability to make
payments;

3.4.2.3The parties hereto will choose the following method to calculate the
interest on the margin loan that corresponds to the accounts receivable that are
to be bought back.

[N/A]

3.4.2.4If Party B demands Party A to buy back the accounts receivable in
accordance with the provisions herein, Party A irrevocably authorizes Party B to
make deductions from all of Party A’s accounts set up with Party B.

3.4.3After Party B accepts the transfer of the accounts receivable and releases
the amount of margin loan to Party A, if the amount that the buyer is obligated
to pay is less than the amount of the accounts receivable listed in Section
3.1.1, thus triggering the buy-back condition, Party A must buy back the
accounts receivable with amount specified herein.

3.4.4Party A’s buy-back fund must be deposited into the accounts receivable
payment account. If the accounts receivable payment account is set up with Party
B, Party A irrevocably authorizes Party B to make corresponding deductions from
such account to complete the buy-back.

3.4.5If Party A fails to complete such buy-back, Party B has the right to charge
default penalty and compound interest and Party A irrevocably authorizes Party B
to make deductions from all of Party A’s accounts set up with Party B and Party
B’s affiliates.

3.4.6Party B will exercise its right to offset in accordance with the law or
with the provisions herein; Party A has 7 days (starting from the day when Party
B notifies Party A either orally or in writing) to raise objections.

 

3.5         Payment Reminder

Under the covert factoring model, Party A must send reminder for payment 15
prior to the due date of the accounts receivable.

 

3.6         Loan Certificate

 

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All the loan certificates constitute the component part of this contract and the
loan amount, interest and release date must be based on those recorded in such
certificates.

 

3.7         Rights and Obligations

3.7.1      Party A’s rights and obligations

(1)Withdraw the margin loan in accordance with the provisions herein;

(2)Buy back the accounts receivable in accordance with the provisions herein;

(3)Use the margin loan for the purpose in accordance with the provisions herein
or with the law;

(4)Accept Party B’s supervision on its production operations and financial
conditions and provide assistance and provide relevant documents at Party B’s
request;

(5)If Party A undertakes the following activities, Party A must notify Party B
in advance and obtain Party B’s approval:

(a)Merger, lease, consolidation, separation, joint venture, transfer of assets,
shutting down, dissolution, issuance of securities or debts, major financing or
investment, filling for bankruptcy;

(b)Providing guarantee or pledging its major assets for a third party;

(c)Other activities that may adversely affect Party B’s creditor’s rights.

(6)Upon the occurrence of any of the following, Party A must notify Party B in
writing within 5 days:

(a)Involvement of Party A’s legal representative, major responsible person or
control person in criminal activities;

(b)Ceasing operation, going out of business or having the license revoked;

(c)Deterioration of Party A’s production operations and financial conditions;

(d)Other events that may adversely affect Party B’s creditor’s rights.

(7)Upon the occurrence of any of the following, Party A must notify Party B in
writing within 7 days:

(a)Change of affiliate relationship, major management change or major
reorganization;

(b)Change in the name, address and scope of operation;

(c)Increase of registered capital or major amendment of the company’s charter;

(d)Other events that may adversely affect Party A’s ability to perform its
obligations.

(8)Party A and its investor shall not evade its debt obligations by transfer
funds or assets or equity without authorization and shall not engage in other
activities harmful to Party B’s interests;

(9)Other rights and obligations provided by law or by the parties hereto.

3.7.2Party B’s rights and obligations

(1)Release the margin loan in full and on time;

 

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(2)Has the right to monitor and inspect Party A’s operations, financial
condition, inventory and use of the margin loan funds and request Party A to
provide relevant documents;

(3)Has the right to demand Party A to take remedial measures, make arrangements
or provide additional guarantee, buy back the accounts receivable and the right
to suspend margin loan, upon the occurrence of events and activities that may
affect the performance by Party A of this contract;

(4)Other rights and obligations provided by law or by the parties hereto.

3.7.3Other obligations

3.7.3.1Both parties hereto must maintain confidentiality on the other party’s
commercial secrets or other critical information and must not disclose such
information to any third party, except as required by law.

3.7.3.2Upon the termination of the contract, the parties hereto must perform the
necessary notification and assistance obligation in good faith.

 

Article 4Optional Provisions

 

The Section 4.1, Section 4.2 and Section 4.3 all apply to the services hereunder
and are binding to both parties. Other sections in this Article 4 are not
binding

 

4.1Purpose of use of the margin loan funds

4.1.1The margin loan funds can only be used for payments under the contracts
between the Company and Guangdong Guangxin Communications Service Co., Ltd.

4.1.2Party B has the right to monitor Party A’s use of the margin loan funds,
and Party A must provide relevant documents when using such funds.

4.1.3If Party A fails to use the margin loan funds in accordance with the
provisions herein, Party B will charge default penalty at the rate of the loan
plus 100% until the principal and interest have been repaid.

4.1.4If Party A uses the margin loan fund in violation of the provisions herein
or fails to pay interest on time, Party A must pay past-due interest at the
compounded rate in accordance with the provisions herein.

 

4.2Performance of the obligations under the base transaction contracts

Party A warrants that Party A has already performed the major obligations under
the base transaction contracts and promises to continue to perform other
obligations thereunder.

 

4.3The accounts receivable are not based on related-party transactions

Party A warrants that the accounts receivable listed in Section 3.1.1 are not
based on related-party transactions.

 

4.4[N/A]

 

4.5[N/A]

 

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Article 5Legal Liabilities

 

5.1         The following acts by Party A constitute breach:

(1)Violation of the obligations hereunder;

(2)Failure to carry out the commits stated in Article 2;

(3)Refusal to perform obligations hereunder;

(4)Failure to perform or to completely perform the obligations under other
contracts between Party A and Party B;

 

5.2         Upon the occurrence of any of the following, Party B may dissolve
this contract and other contracts between Party A and Party B:

(1)Party A’s breach;

(2)Party A breaches other contracts between Party A and Party B ;

(3)Party A’s ability to perform the obligations hereunder suffers material
adverse change;

(4)State policy change that may have adverse effect on Party A’s ability to
perform the obligations hereunder suffers material adverse change ;

(5)Party A commits major breaches with other creditors;

(6)Other situations provided by law or by this contract that can result in the
dissolution of this contract.

If Party B decides to dissolve this contract, Party A has 7 days (starting from
the day when Party B notifies Party A either orally or in writing) to raise
objections.

 

5.3         Upon the occurrence of the situations set forth in Section 5.1 and
Section 5.2, Party B may take the following remedial steps:

(1)Demand Party A to remedy the acts of breach, make arrangement to ensure the
repayment of debts or provide other valid guarantee;

(2)Charge default penalty and compound interest rate, until the principal and
interest have been repaid;

(3)Suspend the release of the margin loan funds, demand Party A to buy back in
advance the accounts receivable and declare that other loans under other
contracts between Party A and Party B immediately due;

(4)Exercise the right to offset and other rights;

(5)Demand Party A to assume responsibility for compensation and other legal
liabilities;

(6)Take other measures to protect assets and other legal actions;

(7)Make public Party A’s acts of breach;

(8)Other remedies.

 

5.4         If Party A’s breaches force Party B to resort to litigation or
arbitration, Party B must be responsible for all the attorney fees, traveling
expenses, enforcement fees, appraisal fees and other fees incurred for
realization of Party B’s creditor rights.

 

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5.5         Provided that Party A has performed the obligations hereunder, if
Party B fails to accept the transfer of the accounts receivable listed in
Section 3.1.1, Party B must compensate Party A for the actual resulting loss.

 

Article 6Other Matters

 

6.1Notification

All notices and other communication hereunder will be sent to the addresses and
fax numbers listed herein.

 

6.2Sharing of fees

All fees paid to a third party in the performance of this contract will be
assumed based on the agreement between the parties hereto. If no such agreement,
such fees will be assumed according to the law or the equitable principle.

 

6.3Dispute Resolution

6.3.1Any dispute arising from this contract must be resolved through
consultation; if such consultation fails, the dispute may be submitted to the
local people’s court.

6.3.2During the period of the legal proceedings, the obligations hereunder not
in dispute must continue to be carried out.

 

6.4Contract Effectiveness

6.4.1This contract becomes effective upon execution

6.4.2Place of execution: Jinan, Shandong Province

6.4.3Prior to the completion of the performance of this contract, if there is
any change of law or regulation that renders some or all of the provisions
herein not in compliance with the law, Party B may carry out the affected
matters in accordance with the newly implemented law or regulations, unless
otherwise stipulated between the two parties.

6.4.4Other matters not covered herein will be determined between the parties
hereto separately.

6.4.5This contract is in duplicates, with one to each party.

 

Party A:                       /seal/ Trunkbow Asia Pacific (Shandong) Co.
Limited

Legal Representative: /s/ HOU Wanchun

                      /s/ LI Qiang

April 26, 2012

 

Party B:                       Agricultural Bank of China, Jinan Hi-Tech
Development Zone Branch

Legal Representative: ZHANG Guiying

April 26, 2012

 

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