Document:

ex10-1.htm

    EXHIBIT
10.1

     

     

    MULTIMEDIA
GAMES, INC.

    CONSOLIDATED
EQUITY INCENTIVE PLAN

     

    1.           Purpose
of the Plan. The
purpose of the Plan is to: (i) attract and retain the best available personnel
for positions of substantial responsibility, (ii) provide additional incentive
to Employees, Directors and Consultants, and (iii) promote the success of the
Company’s business. TheSubject to Section 30, the Plan permits the
grant of Incentive Stock Options, Nonstatutory Stock Options, Stock Appreciation
Rights, Restricted Stock, Restricted Stock Units, Performance Units, Performance
Shares, and Other Stock Based Awards.

     

    2.           Definition. As
used in this Plan, the following definitions shall apply:

     

    (a)       “Administrator”
means the Board or any of its Committees that shall be administering the Plan,
in accordance with Section 4 of the Plan.

     

    (b)       “Applicable
Laws” means the requirements relating to the administration of
equity-based awards or equity compensation plans under U.S. federal and state
corporate laws, U.S. federal and state securities laws, the Code, any stock
exchange or quotation system on which the Common Stock is listed or quoted and
the applicable laws of any foreign country or jurisdiction where Awards are, or
shall be, granted under the Plan.

     

    (c)       “Award”
means, subject to Section 30, individually or collectively, a
grant under the Plan of Options, SARs, Restricted Stock, Restricted Stock Units,
Performance Units, Performance Shares or Other Stock Based Awards.

     

    (d)       “Award
Agreement” means the written or electronic agreement setting forth the
terms and provisions applicable to each Award granted under the
Plan.  The Award Agreement is subject to the terms and conditions of
the Plan.

     

    (e)       “Awarded
Stock” means the Common Stock subject to an Award.

     

    (f)       “Board”
means the Board of Directors of the Company.

     

    (g)       “Change
in Control” means, except as otherwise provided in the Award Agreement,
the occurrence of any of the following events:

     

    (i)           Any
“person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act)
becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act),
directly or indirectly, of securities of the Company representing 50% or more of
the total voting power represented by the Company’s then outstanding voting
securities;

     

    (ii)          the
sale or disposition by the Company of all or substantially all of the Company’s
assets other than (A) the sale or disposition of all or substantially all of the
assets of the Company to a person or persons who beneficially own, directly or
indirectly, at least 50% or more of the combined voting power of the outstanding
voting securities of the Company at the time of the sale or (B) pursuant to a
spin-off type transaction, directly or indirectly, of such assets to the
Company’s shareholders;

     

    (iii)         A
change in the composition of the Board occurring within a two-year period as a
result of which fewer than a majority of the directors are Incumbent
Directors.  “Incumbent
Directors” are directors who either (A) are Directors as of the effective
date of the Plan, or (B) are elected, or nominated for election, to the Board
with the affirmative votes of at least a majority of the Incumbent Directors at
the time of such election or nomination (but shall not include an individual
whose election or nomination is in connection with an actual or threatened proxy
contest relating to the election of directors to the Company); or

     

    (iv)         a
merger or consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity or its parent) at least 50% of the total voting power
represented by the voting securities of the Company or such surviving entity or
its parent outstanding immediately after such merger or
consolidation.

     

    (h)      “Code”
means the Internal Revenue Code of 1986, as amended, and the U.S. Treasury
regulations promulgated thereunder.  Any reference to a section of the
Code shall be a reference to any successor or amended section of the
Code.

     

    (i)       “Committee”
means a committee of Directors or other individuals satisfying Applicable Laws
appointed by the Board in accordance with Section 4 of the Plan

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (j)       “Common
Stock” means the Common Stock of the Company, or in the case of
Performance Units, Restricted Stock Units, and certain Other Stock Based Awards,
the cash equivalent thereof, as applicable.

     

    (k)      “Company”
means Multimedia Games, Inc., a Texas corporation, and any successor to
Multimedia Games, Inc.

     

    (l)       “Consultant”
means any person, including an advisor, engaged by the Company or a Parent or
Subsidiary to render services to such entity.

     

    (m)     “Director”
means a member of the Board.

     

    (n)      “Disability”
means total and permanent disability as defined in Section 22(e)(3) of the
Code, provided that in the case of Awards other than Incentive Stock Options,
the Administrator in its sole discretion may determine whether a permanent and
total disability exists in accordance with uniform and non-discriminatory
standards adopted by the Administrator from time to time.

     

    (o)      “Dividend
Equivalent” means a credit, made at the sole discretion of the
Administrator, to the account of a Participant in an amount equal to the value
of dividends paid on one Share for each Share represented by an Award held by
such Participant.  Under no circumstances shall the payment of a
Dividend Equivalent be made contingent on the exercise of an Option or Stock
Appreciation Right.

     

    (p)      “Employee”
means any person, including officers and Directors, employed by the
Company or any Parent or Subsidiary of the Company.  Neither service
as a Director nor payment of a director’s fee by the Company shall be sufficient
to constitute “employment” by the Company.

     

    (q)      “Exchange
Act” means the Securities Exchange Act of 1934, as amended.

    
       

      (r)       “Exchange Program” means a program under which (i) outstanding Awards are surrendered or
cancelled in exchange for Awards of the same type (which may have lower exercise
prices and different terms), Awards of a different type, and/or of cash, and/or
(ii) the exercise price of an outstanding Award is reduced.  The terms
and conditions of any Exchange Program shall be determined by the Administrator
in its sole discretion.

       

    

    (r)       “Fair
Market Value” means, as of any date, the value of Common Stock determined
as follows:

     

    (i)           If
the Common Stock is listed on any established stock exchange or a national
market system, including without limitation the NASDAQ Global Select Market, the
NASDAQ Global Market (formerly the NASDAQ National Market) or the NASDAQ Capital
Market (formerly the NASDAQ SmallCap Market) of the NASDAQ Stock Market, the
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the day of determination, as reported in The
Wall Street Journal or such other source as the Administrator deems
reliable;

     

    (ii)          If
the Common Stock is regularly quoted by a recognized securities dealer but
selling prices are not reported, the Fair Market Value of a Share of Common
Stock shall be the mean between the high bid and low asked prices for the Common
Stock for the day of determination, as reported in The
Wall Street Journal or such other source as
the Administrator deems reliable; or

     

    (iii)         In
the absence of an established market for the Common Stock, the Fair Market Value
shall be determined in good faith by the Administrator.

     

    Notwithstanding
the preceding, for federal, state, and local income tax reporting purposes and
for such other purposes as the Administrator deems appropriate, the Fair Market
Value shall be determined by the Administrator in accordance with uniform and
nondiscriminatory standards adopted by it from time to time.

     

    (s)       “Incentive
Stock Option” means an Option intended to qualify and receive favorable
tax treatment as an incentive stock option within the meaning of Section 422 of
the Code, as designated in the applicable Award Agreement.

     

    (t)       “Nonstatutory
Stock Option” means an Option that by its terms does not qualify or is
not intended to qualify as an Incentive Stock Option.

     

    (u)       “Option”
means an option to purchase Common Stock granted pursuant to the
Plan.

     

    (v)       “Other
Stock Based Awards” means any other awards not specifically described in
the Plan that are valued in whole or in part by reference to, or are otherwise
based on, Shares and are created by the Administrator pursuant to Section
12.

     

    (w)      “Outside
Director” means an “outside director” within the meaning of Section
162(m) of the Code.

     

    (x)       “Parent”
means a “parent corporation” with respect to the Company, whether now or
hereafter existing, as defined in Section 424(e) of the Code.

     

    (y)       “Participant”
means a Service Provider who has been granted an Award under the
Plan.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (z)       “Performance
Goals” means goals which have been established by the Committee in
connection with an Award and are based on one or more of the following criteria,
as determined by the Committee in its absolute and sole discretion: net income;
cash flow; cash flow on investment; pre-tax or post-tax profit levels or
earnings; operating income or earnings; return on investment; earned value
added; expense reduction levels; free cash flow; free cash flow per share;
earnings per share; net earnings per share; net earnings from continuing
operations; sales growth; sales volume; economic profit; expense reduction;
controlled expenses; return on assets; return on net assets; return on equity;
return on capital; return on sales; return on invested capital; organic revenue;
growth in managed assets; total shareholder return; stock price; stock price
appreciation; EBITA; adjusted EBITA; EBITDA; adjusted EBITDA; return in excess
of cost of capital; profit in excess of cost of capital; net operating profit
after tax; operating margin; profit margin; adjusted revenue; revenue; net
revenue; operating revenue; net cash provided by
operating activities; net cash provided by operating activities per share; cash
conversion percentage; new sales; net new sales; cancellations; gross margin;
gross margin percentage; and revenue before deferral.

     

    (aa)     
“Performance
Period” means the time period during which the Performance Goals or
performance objectives must be met.

     

    (bb)    
“Performance
Share” means Shares issued pursuant to a Performance Share Award under
Section 10 of the Plan.

     

    (cc)     “Performance
Unit” means, pursuant to Section 10 of the Plan, an unfunded and
unsecured promise to deliver Shares, cash or other securities equal to the value
set forth in the Award Agreement.

     

    (dd)     “Period
of Restriction” means the period during which the transfer of Shares of
Restricted Stock are subject to restrictions and therefore, the Shares are
subject to a substantial risk of forfeiture.  Such restrictions may be
based on the passage of time, the achievement of Performance Goals or other
target levels of performance, or the occurrence of other events as determined by
the Administrator.

     

    (ee)      “Plan”
means this Consolidated Equity Incentive Plan.  The Plan is the
successor to the Prior Plans.  The Plan was approved by the Board
on January 25March 10, 2010 and by the
Company’s shareholders on [___________].

     

    (ff)       “Prior
Plans” means the following plans sponsored by the Company: (i) 2000
Stock Option Plan, (ii) 2001 Stock Option Plan, (iii) 2002 Stock Option
Plan, (iv) 2003 Outside Director Stock Option Plan, and (v) 2008 Employment
Inducement Award Plan.

     

    (gg)     “Restricted
Stock” means Shares issued pursuant to a Restricted Stock Award under
Section 8 or issued pursuant to the early exercise of an Option.

     

    (hh)     “Restricted
Stock Unit” means, pursuant to Sections 4 and 11 of the Plan, an unfunded
and unsecured promise to deliver Shares, cash or other securities equal in value
to the Fair Market Value of one Share in the Company on the date of vesting or
settlement, or as otherwise set forth in the Award Agreement.

     

    (ii)       “Rule
16b-3” means Rule 16b-3 of the Exchange Act or any successor to Rule
16b-3, as in effect when discretion is being exercised with respect to the
Plan.

     

    (jj)       “Section
16(b)” means Section 16(b) of the Exchange Act.

     

    (kk)     “Service
Provider” means an Employee, Director or Consultant.

     

    (ll)       “Share”
means a share of Common Stock, as adjusted in accordance with Section 15
of the Plan.

     

    (mm)     “Stock
Appreciation Right” or “SAR”
means, pursuant to Section 9 of the Plan, an unfunded and unsecured promise to
deliver Shares, cash or other securities equal in value to the difference
between the Fair Market Value of a Share as of the date such SAR is
exercised/settled and the Fair Market Value of a Share as of the date such SAR
was granted, or as otherwise set forth in the Award Agreement.

     

    (nn)     “Subsidiary”
means a “subsidiary corporation” with respect to the Company, whether now
or hereafter existing, as defined in Section 424(f) of the Code.

     

    3.           Stock
Subject to the Plan.

     

    (a)             Stock
Subject to the Plan.  Subject to the provisions of Section 15
of the Plan, the maximum aggregate number of Shares that may be issued pursuant
to all Awards under the Plan is 1,161,213 Shares, representing the remaining
shares available for issuance under the Prior Plans, plus the amount of
outstanding Common Stock subject to Lapsed Awards (defined below) under the
Prior Plans.  The maximum number of Shares that may be subject to
Incentive Stock Option treatment is 1,161,213.  Shares shall not be
deemed to have been issued pursuant to the Plan with respect to any portion of
an Award that is settled in cash.  Upon payment in Shares pursuant to
the exercise of an Award, the number of Shares available for issuance under the
Plan shall be reduced only by the number of Shares actually issued in such
payment.  If a Participant pays the exercise price (or purchase price,
if applicable) of an Award through the tender of Shares, or if Shares are
tendered or withheld to satisfy any Company withholding obligations, the number
of Shares so tendered or withheld shall again be available for issuance pursuant
to future Awards under the Plan.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (b)          Lapsed
Awards.  If any outstanding Award expires or is terminated or
canceled without having been exercised or settled in full, or if Shares acquired
pursuant to an Award subject to forfeiture or repurchase are forfeited or
repurchased by the Company, the Shares allocable to the terminated portion of
the Award or the forfeited or repurchased Shares shall again be available for
grant under the Plan (the “Lapsed
Awards”).  Similarly, the shares subject to Lapsed Awards under
the Prior Plans shall add to the maximum number of Shares that are available for
grant under Section 3(a) of the Plan.

     

    (c)          Share
Reserve.  The Company, during the term of the Plan, shall at
all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.

     

    4.                      Administration
of the Plan.

     

    (a)           Procedure.

     

    (i)           Multiple
Administrative Bodies.  Different Committees with respect to
different groups of Service Providers may administer the Plan.

     

    (ii)          Section
162(m).  To the extent that the Administrator determines it to
be desirable and necessary to qualify Awards granted under this Plan as
“performance-based compensation” within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more Outside
Directors.

     

    (iii)         Rule
16b-3.  If a transaction is intended to be exempt under Rule
16b-3 of the Exchange Act, it shall be structured to satisfy the
requirements for exemption under Rule 16b-3.

     

    (iv)        Other
Administration.  Other than as provided above, the Plan shall
be administered by (A) the Board or (B) a Committee constituted to satisfy
Applicable Laws.

     

    (v)        Delegation
of Authority for Day-to-Day Administration.  Except to the
extent prohibited by Applicable Law, the Administrator may delegate to one or
more individuals the day-to-day administration of the Plan and any of the
functions assigned to it in this Plan.  Such delegation may be revoked
at any time.

     

    (b)           Powers
of the Administrator.  Subject to the provisions of the Plan,
and in the case of a Committee, subject to the specific duties delegated by the
Board to the Committee, the Administrator shall have the authority, in its
discretion to:

     

    (i)              determine
the Fair Market Value of Awards;

     

    (ii)             select
the Service Providers to whom Awards may be granted under this
Plan;

     

    (iii)            determine
the number of Shares to be covered by each Award granted under this
Plan;

     

    (iv)            approve
forms of Award Agreements for use under the Plan;

     

    (v)             determine
the terms and conditions, not inconsistent with the terms of the Plan, of any
Award granted under this Plan, including but not limited to, the exercise price,
the time or times when Awards may be exercised (which may be based on
Performance Goals or other performance criteria), any vesting acceleration or
waiver of forfeiture or repurchase restrictions, and any restriction or
limitation regarding any Award or the Shares relating thereto, based in each
case on such factors as the Administrator, in its sole discretion, shall
determine;

     

    (vi)   institute an Exchange
Program

     

    (vi)            construe
and interpret the terms of the Plan and Awards granted pursuant to the
Plan;

     

    (vii)           prescribe,
amend and rescind rules and regulations relating to the Plan, including rules
and regulations relating to sub-plans;

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (viii)          amend
the terms of any outstanding Award, including the discretionary authority to
extend the post-termination exercise period of Awards and accelerate the
satisfaction of any vesting criteria or waiver of forfeiture or repurchase
restrictions, provided that any amendment that would adversely affect the
Participant’s rights under an outstanding Award shall not be made without the
Participant’s written consent; however, except as otherwise provided in Section 15, the
Administrator shall not, without prior approval of the Company’s shareholders
(i) amend the exercise price of outstanding Options or SARs,
(ii) cancel and regrant Options or SARs at a lower exercise price, or
(iii) substitute underwater Options for other securities (including buyouts
through issuance of such cash or other means).  Notwithstanding
the foregoing, an amendment shall not be treated as adversely affecting the
rights of the Participant if the amendment causes an Incentive Stock Option to
become a Nonstatutory Stock Option or if the amendment is made to the minimum
extent necessary to avoid the adverse tax consequences of Section 409A of the
Code.

     

    (ix)            allow
Participants to satisfy withholding tax obligations by electing to have the
Company withhold from the Shares or cash to be issued upon exercise or vesting
of an Award that number of Shares or cash having a Fair Market Value equal to
the minimum amount required to be withheld.  The Fair Market Value of
any Shares to be withheld shall be determined on the date that the amount of tax
to be withheld is to be determined, and all elections by a Participant to have
Shares or cash withheld for this purpose shall be made in such form and under
such conditions as the Administrator may deem necessary or
advisable;

     

    (x)             authorize
any person to execute on behalf of the Company any instrument required to effect
the grant of an Award previously granted by the Administrator;

     

    (xi)            allow
a Participant to defer the receipt of the payment of cash or the delivery of
Shares that would otherwise be due to the Participant under an
Award;

     

    (xii)           determine
whether Awards shall be settled in Shares, cash or in a combination of Shares
and cash;

     

    (xiii)          determine
whether Awards shall be adjusted for Dividend Equivalents;

     

    (xiv)          create
Other Stock Based Awards for issuance under the Plan;

     

    (xv)           establish
a program whereby Service Providers designated by the Administrator can reduce
compensation otherwise payable in cash in exchange for Awards under the
Plan;

     

    (xvi)          impose
such restrictions, conditions or limitations as it determines appropriate as to
the timing and manner of any resales by a Participant or other subsequent
transfers by the Participant of any Shares issued as a result of or under an
Award, including without limitation, (A) restrictions under an insider trading
policy, and (B) restrictions as to the use of a specified brokerage firm for
such resales or other transfers;

     

    (xvii)         establish
one or more programs under the Plan to permit selected Participants the
opportunity to elect to defer receipt of consideration upon exercise of an
Award, satisfaction of Performance Goals or other performance criteria, or other
event that absent the election, would entitle the Participant to payment or
receipt of Shares or other consideration under an Award; and

     

    (xviii)        make
all other determinations that the Administrator deems necessary or advisable for
administering the Plan.

     

    The
express grant in the Plan of any specific power to the Administrator shall not
be construed as limiting any power or authority of the
Administrator.  However, the Administrator may not exercise any right
or power reserved to the Board.

     

    (c)           Effect
of Administrator’s Decision.  The Administrator’s decisions,
determinations, actions and interpretations shall be final, conclusive and
binding on all persons having an interest in the Plan.

     

    (d)           Indemnification.  The
Company shall defend and indemnify members of the Board, officers and Employees
of the Company or of a Parent or Subsidiary whom authority to act for the Board,
the Administrator or the Company is delegated (“Indemnitees”)
to the maximum extent permitted by law against (i) all reasonable expenses,
including reasonable attorneys’ fees incurred in connection with the defense of
any claim, investigation, action, suit or proceeding, or in connection with any
appeal therein (collectively, a “Claim”),
to which any of them is a party by reason of any action taken or failure to act
in connection with the Plan, or in connection with any Award granted under the
Plan; and (ii) all amounts required to be paid by them in settlement the Claim
(provided the settlement is approved by the Company) or required to be paid by
them in satisfaction of a judgment in any Claim.  However, no person
shall be entitled to indemnification to the extent he is determined in such
Claim to be liable for gross negligence, bad faith or intentional
misconduct.  In addition, to be entitled to indemnification, the
Indemnitee must, within 30 days after written notice of the Claim, offer the
Company, in writing, the opportunity, at the Company’s expense, to defend the
Claim.  The right to indemnification shall be in addition to all other
rights of indemnification available to the Indemnitee.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    5.           Eligibility.  Nonstatutory
Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock
Units, Performance Units, Performance Shares, and Other Stock Based Awards may
be granted to Service Providers.  Incentive Stock Options may be
granted only to Employees.

     

    6.           Limitations.

     

    (a)           $100,000
Limitation for Incentive Stock Options.  Each Option shall be
designated in the Award Agreement as either an Incentive Stock Option or a
Nonstatutory Stock Option.  However, notwithstanding such designation,
to the extent that the aggregate Fair Market Value of the Shares with respect to
which Incentive Stock Options are exercisable for the first time by a
Participant during any calendar year (under all plans of the Company and any
Parent or Subsidiary) exceeds $100,000, such Options shall be treated as
Nonstatutory Stock Options.  For purposes of this Section 6(a),
Incentive Stock Options shall be taken into account in the order in which they
were granted.  The Fair Market Value of the Shares shall be determined
as of the time the Options with respect to such Shares are granted.

     

    (b)           Special
Annual Limits.  Subject to Section 15 of the Plan, the maximum
number of Shares that may be subject to Options or Stock Appreciation Rights
granted to any Service Provider in any calendar year shall equal 580,606 Shares
and contain an exercise price equal to the Fair Market Value of the Common Stock
as of the date of grant.  Subject to Section 15 of the Plan, the
maximum number of Shares that may be subject to Restricted Stock, Restricted
Stock Units, Performance Shares, Performance Units and Other Stock Based Awards,
Other Stock Based Awards granted to any Service Provider in any calendar year
shall equal 580,606 Shares.  Subject to Section 15 of the Plan, the
maximum dollar amount that may be subject to cash awards granted to any Service
Provider in any calendar year shall equal $2,000,000.

     

    7.           Options

     

    (a)           Term
of Option.  The term of each Option shall be stated in the
Award Agreement.  In the case of an Incentive Stock Option, the term
shall be 10 years from the date of grant or such shorter term as may be provided
in the Award Agreement.  Moreover, in the case of an Incentive Stock
Option granted to a Participant who, at the time the Incentive Stock Option is
granted, owns stock representing more than 10% of the total combined voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
term of the Incentive Stock Option shall be five years from the date of grant or
such shorter term as may be provided in the Award Agreement.

     

    (b)           Option
Exercise Price and Consideration.

     

    (i)           Exercise
Price.  The per Share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:

     

    (1)           In
the case of an Incentive Stock Option

     

    (A)           granted
to an Employee who, at the time the Incentive Stock Option is granted, owns
stock representing more than 10% of the total combined voting power of all
classes of stock of the Company or any Parent or Subsidiary, the per Share
exercise price shall be no less than 110% of the Fair Market Value per Share on
the date of grant.

     

    (B)          
granted to any Employee other than an Employee described in paragraph (A)
immediately above, the per Share exercise price shall be no less than 100% of
the Fair Market Value per Share on the date of grant.

     

    (2)           In
the case of a Nonstatutory Stock Option, the per Share exercise price shall be
determined by the Administrator, but shall not be less than Fair Market Value
for those subject to U.S. taxation.  In the case of a Nonstatutory
Stock Option intended to qualify as “performance-based compensation” within the
meaning of Section 162(m) of the Code, the per Share exercise price shall be no
less than 100% of the Fair Market Value per Share on the date of
grant.

     

    (3)           Notwithstanding
the foregoing, Incentive Stock Options may be granted with a per Share exercise
price of less than 100% of the Fair Market Value per Share on the date of grant
pursuant to a transaction described in, and in a manner consistent with, Section
424(a) of the Code.

     

    (ii)           Waiting
Period and Exercise Dates.  At the time an Option is granted,
the Administrator shall fix the period within which the Option may be exercised
and shall determine any conditions that must be satisfied before the Option may
be exercised.  The Administrator, in its sole discretion, may
accelerate the satisfaction of such conditions at any time.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (c)           Form
of Consideration.  The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment.  In the case of an Incentive Stock Option, the
Administrator shall determine the acceptable form of consideration at the time
of grant.  Such consideration, to the extent permitted by Applicable
Laws, may consist entirely of:

     

    (i)           cash;

     

    (ii)          check;

     

    (iii)         other
Shares which meet the conditions established by the Administrator to avoid
adverse accounting consequences (as determined by the
Administrator);

     

    (iv)         consideration
received by the Company under a cashless exercise program implemented by the
Company in connection with the Plan;

     

    (v)          a
reduction in the amount of any Company liability to the Participant, including
any liability attributable to the Participant’s participation in any
Company-sponsored deferred compensation program or arrangement;

     

    (vi)         any
combination of the foregoing methods of payment; or

     

    (vii)        any
other consideration and method of payment for the issuance of Shares permitted
by Applicable Laws.

     

    (d)           Exercise
of Option.

     

    (i)        Procedure
for Exercise; Rights as a Shareholder.  Any Option granted
under this Plan shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Award Agreement.  An Option shall be deemed exercised
when the Company receives: (x) written or electronic notice of exercise (in
accordance with the Award Agreement) from the person entitled to exercise the
Option, and (y) full payment for the Shares with respect to which the Option is
exercised (including provision for any applicable tax
withholding).  Full payment may consist of any consideration and
method of payment authorized by the Administrator and permitted by the Award
Agreement and the Plan.  Shares issued upon exercise of an Option
shall be issued in the name of the Participant or, if requested by the
Participant, in the name of the Participant and his spouse.  Until the
Shares are issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a shareholder shall exist with
respect to the Awarded Stock, notwithstanding the exercise of the
Option.  The Company shall issue (or cause to be issued) such Shares
promptly after the Option is exercised.  No adjustment shall be made
for a dividend or other right for which the record date is prior to the date the
Shares are issued, except as provided in Section 15 of the Plan or the
applicable Award Agreement.  Exercising an Option in any manner shall
decrease the number of Shares thereafter available for sale under the Option, by
the number of Shares as to which the Option is exercised.

     

    (ii)       Termination
of Relationship as a Service Provider.  If a Participant ceases
to be a Service Provider, other than upon the Participant’s death or Disability,
the Participant may exercise his Option within such period of time as is
specified in the Award Agreement to the extent that the Option is vested on the
date of termination (but in no event later than the expiration of the term of
such Option as set forth in the Award Agreement).  In the absence of a
specified time in the Award Agreement, the Option shall remain exercisable for
30 days following the Participant’s termination after which the Option shall
terminate.  Unless otherwise provided by the Administrator, if on the
date of termination the Participant is not vested as to his entire Option, the
Shares covered by the unvested portion of the Option shall revert to the
Plan.  If the Participant does not exercise his Option as to all of
the vested Shares within the time specified by the Award Agreement, the Option
shall terminate, and the remaining Shares covered by the Option shall revert to
the Plan.

     

    (iii)      Disability
of Participant.  If a Participant ceases to be a Service
Provider as a result of his Disability, the Participant may exercise his Option,
to the extent vested, within the time specified in the Award Agreement (but in
no event later than the expiration of the term of the Option as set forth in the
Award Agreement).  If no time for exercise of the Option on Disability
is specified in the Award Agreement, the Option shall remain exercisable for 24
months following the Participant’s termination for Disability.  Unless
otherwise provided by the Administrator, on the date of termination for
Disability, the unvested portion of the Option shall revert to the
Plan.  If after termination for Disability, the Participant does not
exercise his Option as to all of the vested Shares within the time specified by
the Award Agreement, the Option shall terminate and the remaining Shares covered
by such Option shall revert to the Plan.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (iv)      Death
of Participant.  If a Participant dies while a Service
Provider, the Option, to the extent vested, may be exercised within the time
specified in the Award Agreement (but in no event may the Option be exercised
later than the expiration of the term of the Option as set forth in the Award
Agreement), by the beneficiary designated by the Participant prior to his death;
provided that such designation must be acceptable to the
Administrator.  If no beneficiary has been designated by the
Participant, then the Option may be exercised by the personal representative of
the Participant’s estate, or by the persons to whom the Option is transferred
pursuant to the Participant’s will or in accordance with the laws of descent and
distribution.  If the Award Agreement does not specify a time within
which the Option must be exercised following a Participant's death, it shall be
exercisable for 24 months following his death.  Unless otherwise
provided by the Administrator, if at the time of death, the Participant is not
vested as to his entire Option, the Shares covered by the unvested portion of
the Option shall immediately revert to the Plan.  If the Option is not
exercised as to all of the vested Shares within the time specified by the
Administrator, the Option shall terminate, and the remaining Shares covered by
such Option shall revert to the Plan.

     

    8.           Restricted
Stock.

     

    (a)           Grant
of Restricted Stock.  Subject to the terms and provisions of
the Plan, the Administrator, at any time and from time to time, may grant Shares
of Restricted Stock to Service Providers in such amounts as the Administrator,
in its sole discretion, shall determine.

     

    (b)           Restricted
Stock Agreement.  Each Award of Restricted Stock shall be
evidenced by an Award Agreement that shall specify the Period of Restriction,
the number of Shares granted, and such other terms and conditions as the
Administrator, in its sole discretion, shall determine.  Unless the
Administrator determines otherwise, Shares of Restricted Stock shall be held by
the Company as escrow agent until the restrictions on the Shares have
lapsed.

     

    (c)           Removal
of Restrictions.  Except as otherwise provided in this Section
8, Shares of Restricted Stock covered by each Award made under the Plan shall be
released from escrow as soon as practical after the last day of the Period of
Restriction.  The Administrator, in its sole discretion, may
accelerate the time at which any restrictions shall lapse or be
removed.

     

    (d)           Voting
Rights.  During the Period of Restriction, Service Providers
holding Shares of Restricted Stock may exercise full voting rights with respect
to those Shares, unless the Administrator determines otherwise.

     

    (e)           Dividends
and Other Distributions.  During the Period of Restriction,
Service Providers holding Shares of Restricted Stock shall be entitled to
receive all dividends and other distributions paid with respect to such Shares
unless otherwise provided in the Award Agreement.  If any dividends or
distributions are paid in Shares, the Shares shall be subject to the same
restrictions on transferability and forfeitability as the Shares of Restricted
Stock with respect to which they were paid.

     

    (f)           Return
of Restricted Stock to Company.  On the date set forth in the
Award Agreement, the Restricted Stock for which restrictions have not lapsed
shall revert to the Company and again shall become available for grant under the
Plan.

     

    9.           Stock
Appreciation Rights

     

    (a)           Grant
of SARs.  Subject to the terms and conditions of the Plan, a
SAR may be granted to Service Providers at any time and from time to time as
shall be determined by the Administrator, in its sole discretion.  The
Administrator shall have complete discretion to determine the number of SARs
granted to any Service Provider.  The Administrator, subject to the
provisions of the Plan, shall have complete discretion to determine the terms
and conditions of SARs granted under the Plan, including the sole discretion to
accelerate exercisability at any time.

     

    (b)           SAR
Agreement.  Each SAR grant shall be evidenced by an Award
Agreement that shall specify the exercise price, the term, the conditions of
exercise, and such other terms and conditions as the Administrator, in its sole
discretion, shall determine.

     

    (c)           Expiration
of SARs.  A SAR granted under the Plan shall expire upon the
date determined by the Administrator, in its sole discretion, as set forth in
the Award Agreement.  Notwithstanding the foregoing, the rules of
Sections 7(d)(ii), 7(d)(iii) and 7(d)(iv) shall also apply to SARs.

     

    (d)           Payment
of SAR Amount.  Upon exercise of a SAR, a Participant shall be
entitled to receive payment from the Company in an amount determined by
multiplying:

     

    (i)           The
difference between the Fair Market Value of a Share on the date of exercise over
the exercise price; times

     

    (ii)          The
number of Shares with respect to which the SAR is exercised.

     

    At
the sole discretion of the Administrator, the payment upon the exercise of a SAR
may be in cash, in Shares of equivalent value, or in some combination
thereof.

     

    10.           Performance Units
and Performance Shares.

     

    (a)           Grant
of Performance Units and Performance Shares.  Subject to the
terms and conditions of the Plan, Performance Units and Performance Shares may
be granted to Service Providers at any time and from time to time, as shall be
determined by the Administrator in its sole discretion.  The
Administrator shall have complete discretion in determining the number of
Performance Units and Performance Shares granted to each Service
Provider.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (b)           Value
of Performance Units and Performance Shares.  Each Performance
Unit shall have an initial value established by the Administrator on or before
the date of grant.  Each Performance Share shall have an initial value
equal to the Fair Market Value of a Share on the date of grant.

     

    (c)           Performance
Objectives and Other Terms.  The Administrator shall set
Performance Goals or other performance objectives in its sole discretion which,
depending on the extent to which they are met, shall determine the number or
value of Performance Units and Performance Shares that shall be paid out to the
Participant.  Each award of Performance Units or Performance Shares
shall be evidenced by an Award Agreement that shall specify the Performance
Period and such other terms and conditions as the Administrator in its sole
discretion shall determine.  The Administrator may set Performance
Goals or performance objectives based upon the achievement of Company-wide,
divisional, or individual goals (including solely continued service), applicable
federal or state securities laws, or any other basis determined by the
Administrator in its sole discretion.

     

    (d)           Earning
of Performance Units and Performance Shares.  After the
applicable Performance Period has ended, the holder of Performance Units or
Performance Shares shall be entitled to receive a payout of the number of
Performance Units or Performance Shares earned by the Participant over the
Performance Period, to be determined as a function of the extent to which the
corresponding Performance Goals or performance objectives have been
achieved.  After the grant of Performance Units or Performance Shares,
the Administrator, in its sole discretion, may reduce or waive any performance
objectives for the Performance Unit or Performance Share.

     

    (e)           Form
and Timing of Payment of Performance Units and Performance
Shares.  Payment of earned Performance Units and Performance
Shares shall be made after the expiration of the applicable Performance Period
at the time determined by the Administrator.  The Administrator, in
its sole discretion, may pay earned Performance Units and Performance Shares in
the form of cash, in Shares (which have an aggregate Fair Market Value equal to
the value of the earned Performance Units or Performance Shares, as applicable,
at the close of the applicable Performance Period) or in a combination of cash
and Shares.

     

    (f)           Cancellation
of Performance Units or Performance Shares.  On the date set
forth in the Award Agreement, all unearned or unvested Performance Units and
Performance Shares shall be forfeited to the Company, and again shall be
available for grant under the Plan.

     

    11.           Restricted
Stock Units.  Restricted Stock Units shall consist of a
Restricted Stock, Performance Share or Performance Unit Award that the
Administrator, in its sole discretion permits to be paid out in a lump sum,
installments or on a deferred basis, in accordance with rules and procedures
established by the Administrator

     

    12.           Other
Stock Based Awards.  Other Stock Based Awards may be granted
either alone, in addition to, or in tandem with, other Awards granted under the
Plan and/or cash awards made outside of the Plan.  The Administrator
shall have authority to determine the Service Providers to whom and the time or
times at which Other Stock Based Awards shall be made, the amount of such Other
Stock Based Awards, and all other conditions of the Other Stock Based Awards,
including any dividend or voting rights and whether the Award should be paid in
cash.

     

    13.           Leaves
of Absence.  Unless the Administrator provides otherwise,
vesting of Awards granted under this Plan shall be suspended during any unpaid
leave of absence and shall resume on the date the Participant returns to work on
a regular schedule as determined by the Company; provided,
however,
that no vesting credit shall be awarded for the time vesting has been suspended
during such leave of absence.  A Service Provider shall not cease to
be an Employee in the case of (i) any leave of absence approved by the Company
or (ii) transfers between locations of the Company or between the Company, its
Parent, or any Subsidiary.  For purposes of Incentive Stock Options,
no leave of absence may exceed 90 days, unless reemployment upon expiration of
such leave is guaranteed by statute or contract.  If reemployment upon
expiration of a leave of absence approved by the Company is not guaranteed by
statute or contract, then at the end of three months following the expiration of
the leave of absence, any Incentive Stock Option held by the Participant shall
cease to be treated as an Incentive Stock Option and shall be treated for tax
purposes as a Nonstatutory Stock Option.

     

    14.           Non-Transferability
of Awards.  Unless determined otherwise by the Administrator,
an Award may not be sold, pledged, assigned, hypothecated, transferred, or
disposed of in any manner other than by shall or by the laws of descent or
distribution and may be exercised, during the lifetime of the Participant, only
by the Participant.  If the Administrator makes an Award transferable,
such Award shall contain such additional terms and conditions as the
Administrator deems appropriate.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    15.           Adjustments;
Dissolution or Liquidation; Change in Control.

     

    (a)           Adjustments.  In
the event of any change in the outstanding Shares of Common Stock by reason of
any stock split, stock dividend or other non-recurring dividends or
distributions, recapitalization, merger, consolidation, spin-off, combination,
repurchase or exchange of stock, reorganization, liquidation, dissolution or
other similar corporate transaction that affects the Common Stock, an adjustment
shall be made, as the Administrator deems necessary or appropriate, in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan.  Such adjustment may include an
adjustment to the number and class of Shares which may be delivered under the
Plan, the number, class and price of Shares subject to outstanding Awards, the
number and class of Shares issuable pursuant to Options, and the numerical
limits in Sections 3 and 6(b).  Notwithstanding the preceding, the
number of Shares subject to any Award always shall be a whole
number.

     

    (b)           Dissolution
or Liquidation.  In the event of the proposed dissolution or
liquidation of the Company, the Administrator shall notify each Participant as
soon as practical prior to the effective date of the proposed
transaction.  The Administrator, in its sole discretion, may provide
for a Participant to have the right to exercise his Award, to the extent
applicable, until 10 days prior to the transaction as to all of the Awarded
Stock covered thereby, including Shares as to which the Award would not
otherwise be exercisable.  In addition, the Administrator may provide
that any Company repurchase option or forfeiture rights applicable to any Award
shall lapse 100%, and that any Award vesting shall accelerate 100%, provided the
proposed dissolution or liquidation takes place at the time and in the manner
contemplated.  To the extent it has not been previously exercised or
vested, an Award shall terminate immediately prior to the consummation of such
proposed action.

     

    (c)           Change
in Control.  This Section 15(c) shall apply except as otherwise
provided in the Award Agreement.

     

    (i)          Stock
Options and SARs.  In the Award Agreement, in the event of a
Change in Control, each outstanding Option and SAR shall be assumed or an
equivalent option or SAR substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation.  Unless determined otherwise
by the Administrator, if the successor corporation refuses to assume or
substitute for the Option or SAR, the Participant shall fully vest in and have
the right to exercise the Option or SAR as to all of the Awarded Stock,
including Shares as to which it would not otherwise be vested or
exercisable.  If an Option or SAR is not assumed or substituted on the
Change in Control, the Administrator shall notify the Participant in writing or
electronically that the Option or SAR shall be exercisable, to the extent
vested, for a period of up to 15 days from the date of such notice, and the
Option or SAR shall terminate upon the expiration of such period.  For
the purposes of this Section 15(c)(i), the Option or SAR shall be considered
assumed if, following the Change in Control, the option or SAR confers the right
to purchase or receive, for each Share of Awarded Stock subject to the Option or
SAR immediately prior to the Change in Control, the consideration (whether
securities, cash, or property) received in the Change in Control by holders of
Common Stock for each Share held on the effective date of the transaction (and
if holders were offered a choice of consideration, the type of consideration
chosen by the holders of a majority of the outstanding
Shares).  However, if the consideration received in the Change in
Control is not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation, provide
for the consideration to be received upon the exercise of the Option or SAR, for
each share of Awarded Stock subject to the Option or SAR, to be solely common
stock of the successor corporation or its Parent equal in Fair Market Value to
the per share consideration received by holders of Common Stock in the Change in
Control.  Notwithstanding anything in this Plan to the contrary, an
Award that vests, is earned, or is paid-out upon the satisfaction of one or more
performance objectives shall not be considered assumed if the Company or its
successor modifies any of the performance objectives without the Participant’s
consent; provided, however, a modification to performance objectives only to
reflect the successor corporation’s post-Change in Control corporate structure
shall not be deemed to invalidate an otherwise valid Award
assumption.

     

    (ii)           Restricted
Stock, Performance Shares, Performance Units, Restricted Stock Units and Other
Stock Based Awards.  In the event of a Change in Control, each
outstanding Award of Restricted Stock, Restricted Stock Unit, Performance Share,
Performance Unit, and Other Stock Based Award shall be assumed or an equivalent
Restricted Stock, Restricted Stock Unit, Performance Share, Performance Unit,
and Other Stock Based Award shall be substituted by the successor corporation or
a Parent or Subsidiary of the successor corporation.  Unless
determined otherwise by the Administrator, if the successor corporation refuses
to assume or substitute for the Award, the Participant shall fully vest in the
Award, including as to Shares or Units that would not otherwise be vested, all
applicable restrictions shall lapse, and all performance objectives and other
vesting criteria shall be deemed achieved at targeted levels.  For the
purposes of this Section 15(c)(ii), an Award of Restricted Stock, Restricted
Stock Units, Performance Shares, Performance Units, and Other Stock Based Awards
shall be considered assumed if, following the Change in Control, the award
confers the right to purchase or receive, for each Share subject to the Award
immediately prior to the Change in Control (and if a Restricted Stock Unit or
Performance Unit, for each Share as determined based on the then current value
of the unit), the consideration (whether stock, cash, or other securities or
property) received in the Change in Control by holders of Common Stock for each
Share held on the effective date of the transaction (and if holders were offered
a choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares).  However, if the consideration
received in the Change in Control is not solely common stock of the successor
corporation or its Parent, the Administrator may, with the consent of the
successor corporation, provide that the consideration to be received for each
Share (and if a Restricted Stock Unit or Performance Unit, for each Share as
determined based on the then current value of the unit) be solely common stock
of the successor corporation or its Parent equal in fair market value to the per
share consideration received by holders of Common Stock in the Change in
Control.  Notwithstanding anything in this Plan to the contrary, an
Award that vests, is earned, or is paid-out upon the satisfaction of one or more
performance objectives shall not be considered assumed if the Company or its
successor modifies any of the performance objectives without the Participant’s
consent; provided, however, a modification to the performance objectives only to
reflect the successor corporation’s post-Change in Control corporate structure
shall not be deemed to invalidate an otherwise valid Award
assumption.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (iii)           Outside
Director Awards.  Notwithstanding any provision of Sections
15(c)(i) or 15(c)(ii) to the contrary, with respect to Awards granted to an
Outside Director that are assumed or substituted for, if on the date of or
following the assumption or substitution, the Participant’s status as a Director
or a director of the successor corporation, as applicable, is terminated other
than upon a voluntary resignation by the Participant, then the Participant shall
fully vest in and have the right to exercise his Options and Stock Appreciation
Rights as to all of the Award, including Shares as to which such Awards would
not otherwise be vested or exercisable, and all restrictions on Restricted Stock
and Restricted Stock Units, as applicable, shall lapse, and, with respect to
Performance Shares, Performance Units, and Other Stock Based Awards, all
performance goals and other vesting criteria shall be deemed achieved at target
levels and all other terms and conditions met.

     

    16.           Date
of Grant.  The date of grant of an Award shall be, for all
purposes, the date on which the Administrator makes the determination granting
such Award, or a later date as is determined by the
Administrator.  Notice of the determination shall be provided to each
Participant within a reasonable time after the date of such grant.

     

    17.           Shareholder
Approval and Term of Plan.  The Plan became effective on
[___________] and thereafter shall continue in effect for a term of two10 years unless terminated earlier under Section
18 of the Plan.

     

    18.           Amendment
and Termination of the Plan.

     

    (a)           Amendment
and Termination.  The Board may at any time amend, alter,
suspend or terminate the Plan.

     

    (b)           Shareholder
Approval.  The Company shall obtain shareholder approval of any
Plan amendment to the extent necessary to comply with Applicable
Laws.

     

    (c)           Effect
of Amendment or Termination.  No amendment, alteration,
suspension, or termination of the Plan shall materially or adversely impair the
rights of any Participant, unless otherwise mutually agreed upon by the
Participant and the Administrator, which agreement must be in writing and signed
by the Participant and the Company.  Termination of the Plan shall not
affect the Administrator’s ability to exercise the powers granted to it under
this Plan with respect to Awards granted under the Plan prior to the date of
termination.

     

    19.           Conditions
upon issuance of shares.

     

    (a)           Legal
Compliance.  Shares shall not be issued pursuant to the
exercise of an Award unless the exercise of the Award and the issuance and
delivery of such Shares shall comply with Applicable Laws and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.

     

    (b)           Investment
Representations.  As a condition to the exercise or receipt of
an Award, the Company may require the person exercising or receiving the Award
to represent and warrant at the time of any such exercise or receipt that the
Shares are being purchased only for investment and without any present intention
to sell or distribute the Shares if, in the opinion of counsel for the Company,
such a representation is required.

     

    (c)           Taxes.  No
Shares shall be delivered under the Plan to any Participant or other person
until the Participant or other person has made arrangements acceptable to the
Administrator for the satisfaction of any non-U.S., U.S.-federal, U.S.-state, or
local income and employment tax withholding obligations, including, without
limitation, obligations incident to the receipt of Shares.  Upon
exercise or vesting of an Award, the Company shall withhold or collect from the
Participant an amount sufficient to satisfy such tax obligations, including, but
not limited to, by surrender of the whole number of Shares covered by the Award
sufficient to satisfy the minimum applicable tax withholding obligations
incident to the exercise or vesting of an Award.

     

    20.           Severability.  Notwithstanding
any contrary provision of the Plan or an Award to the contrary, if any one or
more of the provisions (or any part thereof) of this Plan or the Awards shall be
held invalid, illegal, or unenforceable in any respect, such provision shall be
modified so as to make it valid, legal, and enforceable, and the validity,
legality, and enforceability of the remaining provisions (or any part thereof)
of the Plan or Award, as applicable, shall not in any way be affected or
impaired thereby.

     

    21.           Inability
to obtain authority.  The inability of the company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the company’s counsel to be necessary to the lawful issuance and sale
of any shares hereunder, shall relieve the company of any liability in respect
of the failure to issue or sell such shares as to which such requisite authority
shall not have been obtained.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    22.           No
rights to awards.  No eligible service provider or other person
shall have any claim to be granted any award pursuant to the plan, and neither
the company nor the administrator shall be obligated to treat participants or
any other person uniformly.

     

    23.           No
shareholder rights.  Except as otherwise provided in an award
agreement, a participant shall have none of the rights of a shareholder with
respect to shares covered by an award until the participant becomes the record
owner of the shares.

     

    24.           Fractional
shares.  No fractional shares shall be issued and the
administrator shall determine, in its sole discretion, whether cash shall be
given in lieu of fractional shares or whether such fractional shares shall be
eliminated by rounding up or down as appropriate.

     

    25.           Governing
law.  The plan, all award agreements, and all related matters,
shall be governed by the laws of the state of Texas, without regard to choice of
law principles that direct the application of the laws of another
state.

     

    26.           No
effect on terms of employment or consulting relationship.  The
plan shall not confer upon any participant any right as a service provider, nor
shall it interfere in any way with his right or the right of the company or a
parent or subsidiary to terminate the participant’s service at any time, with or
without cause, and with or without notice.

     

    27.           Unfunded
obligation.  Participants shall have the status of general
unsecured creditors of the company.  Any amounts payable to
participants pursuant to the plan shall be unfunded and unsecured obligations
for all purposes, including, without limitation, title i of the employee
retirement income security act of 1974, as amended.  Neither the
company nor any parent or subsidiary shall be required to segregate any monies
from its general funds, or to create any trusts, or establish any special
accounts with respect to such obligations.  The company shall retain
at all times beneficial ownership of any investments, including trust
investments, which the company may make to fulfill its payment obligations under
this plan.  Any investments or the creation or maintenance of any
trust for any participant account shall not create or constitute a trust or
fiduciary relationship between the administrator, the company or any parent or
subsidiary and participant, or otherwise create any vested or beneficial
interest in any participant or the participant’s creditors in any assets of the
company or parent or subsidiary.  The participants shall have no claim
against the company or any parent or subsidiary for any changes in the value of
any assets that may be invested or reinvested by the company with respect to the
plan.

     

    28.           Section
409A.  It is the intention of the Company that no Award shall
be “deferred compensation” subject to Section 409A of the Code, unless and to
the extent that the Administrator specifically determines otherwise, and the
Plan and the terms and conditions of all Awards shall be interpreted
accordingly.  The following rules shall apply to Awards intended to be
subject to Section 409A of the Code (“409A
Awards”):

     

    (a)           Any
distribution of a 409A Award following a separation from service that would be
subject to Section 409A(a)(2)(A)(i) of the Code as a distribution following a
separation from service of a “specified employee” (as defined under Section
409A(a)(2)(B)(i) of the Code) shall occur no earlier than the expiration of the
six-month period following such separation from service.

     

    (b)           In
the case of a 409A Award providing for distribution or settlement upon vesting
or lapse of a risk of forfeiture, if the time of such distribution or settlement
is not otherwise specified in the Plan or Award Agreement or other governing
document, the distribution or settlement shall be made no later than March 15 of
the calendar year following the calendar year in which such 409A Award vested or
the risk of forfeiture lapsed.

     

    (c)           In
the case of any distribution of any other 409A Award, if the timing of such
distribution is not otherwise specified in the Plan or Award Agreement or other
governing document, the distribution shall be made not later than the end of the
calendar year during which the settlement of the 409A Award is specified to
occur.

     

    29.           Construction.  Headings
in this Plan are included for convenience and shall not be considered in the
interpretation of the Plan.  References to sections are to Sections of
this Plan unless otherwise indicated.  Pronouns shall be construed to
include the masculine, feminine, neutral, singular or plural as the identity of
the antecedent may require.  This Plan shall be construed according to
its fair meaning and shall not be strictly construed against the
Company.

     

    30.           No Full Value Awards for Two Years Without Shareholder
Approval.  Notwithstanding anything in the Plan to the contrary,
after shareholder approval of the Plan and before expiration of the initial two
year term set forth in Section 17, no full value Awards shall be granted without
further approval of such Awards by the Company's
shareholders.

     

    *     *     *     *     *ex10-13.htm

Exhibit 10.13

 

FACTORING AND INVENTORY

ADVANCES AND SECURITY AGREEMENT

 

Date: December 7, 2009.

 

Name of Client: IRONCLAD PERFORMANCE WEAR CORPORATION (“Client”) 

 

Factor: FCC, LLC d/b/a First Capital Western Region, LLC (“Factor”)

 

WHEREAS, Client has requested and Factor has agreed to purchase all of Client's Accounts, provide Account Advances against such Accounts, provide Inventory Advances against Inventory, guaranty Letters of Credit and provide certain services;

 

NOW, THEREFORE, in consideration of the agreements, provisions, and covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Client and Factor, hereby agree to the terms and conditions set forth in this Factoring and Inventory Advances and Security Agreement:

 

Section 1. Definitions.

 

1.1       Defined Terms. Capitalized terms shall have the meanings ascribed to them on Schedule A.

 

1.2            Other Referential Provisions.

 

(a)            All terms in this Agreement, the Exhibits and Schedules shall have the same

 

defined meanings when used in any other Factoring Documents, unless the context shall require otherwise.

 

(b)            Except as otherwise expressly provided herein, all accounting terms not specifically

 

defined or specified herein shall have the meanings generally attributed to such terms under GAAP including, without limitation, applicable statements and interpretations issued by the Financial Accounting Standards Board and bulletins, opinions, interpretations and statements issued by the American Institute of Certified Public Accountants or its committees.

 

(c)            All personal pronouns used in this Agreement, whether used in the masculine,

feminine or neuter gender, shall include all other genders; the singular shall include the plural, and the plural shall include the singular.

 

(d)            The words “hereof”, “herein”, “hereto” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provisions of this Agreement.

 

(e)            Titles of Articles and Sections in this Agreement are for convenience only, do not constitute part of this Agreement and neither limit nor amplify the provisions of this Agreement, and all references in this Agreement to Articles, Sections, Subsections, paragraphs, clauses, sub clauses, Schedules or Exhibits shall refer to the corresponding Article, Section, Subsection, paragraph, clause or sub clause of, or Schedule or Exhibit attached to, this Agreement, unless specific reference is made to the articles, sections or other subdivisions or divisions of, or to schedules or exhibits to, another document or instrument.

 

(f)            Each definition of or reference to a document in this Agreement shall include such document as amended, modified, supplemented or restated from time to time.

 

(g)           Except where specifically restricted, reference to any Person shall be construed to include such Person’s successors and permitted assigns.

 

 

 

 

 

(h)           Any and all terms used in this Agreement which are defined in the UCC shall be construed and defined in accordance with the meaning and definition ascribed to such terms under the UCC, unless otherwise defined herein.

 

(i)            The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. The word “will” shall be construed to have the same meaning and effect as the word “shall”. Reference to any law, constitution, statute, treaty, regulation, rule or ordinance, including any section or other part thereof (each, for purposes of this paragraph (i), a “law”), shall refer to that law as amended from time to time and shall include any successor law.

 

1.3       Exhibits and Schedules. All Exhibits and Schedules attached hereto are incorporated herein by reference and made a part hereof.

 

Section 2. Purchase & Sale of Accounts.

 

2.1 Purchase of Accounts. Client hereby sells to Factor all of Client’s right, title and interest in and to all of Client’s Accounts. Factor shall be the sole and exclusive owner of such Accounts with full power to collect and otherwise deal with such Accounts. All Accounts shall be submitted to Factor on a Schedule of Accounts listing each Account separately. The Schedule of Accounts shall be in such form as Factor may prescribe from time to time and shall be signed by an officer or authorized signer of the Client. Client may submit such Accounts electronically, by facsimile, by mail or other delivery service of Client’s choosing that is approved by Factor. Any Accounts submitted electronically shall be submitted in such electronic format as Factor may require. At the time the Schedule of Accounts is presented, Client shall also deliver to Factor, if requested by Factor, one copy of an invoice for each Account together with evidence of shipment, furnishing and/or delivery of the Goods or rendition of service(s).

 

2.2 Credit Approval.

 

(a)      Client shall submit to Factor the credit requirements of Client’s Customers, a description of its selling terms and such other information as Factor may request. Factor may, in its sole credit judgment, establish credit lines for sales by Client to its Customers on its normal selling terms or such other terms as Factor may approve (“Credit Lines”). Client may also submit for credit approval specific orders from Customers and Factor may, in its sole credit judgment, approve such orders on a single order approval basis (“Single Order Approval”). Accounts arising under the terms of Credit Lines or Single Order Approvals are hereinafter referred to as Approved Accounts; Accounts not arising under Credit Lines or Single Order Approvals are hereinafter referred to as Client Risk Accounts. All Credit Approvals must be in writing to be effective. Credit Approval(s) shall be limited to the specific terms and amounts indicated in either the Credit Line or Single Order Approval. If Goods are shipped or services are rendered based on a verbal approval, it is Client’s responsibility to ensure that such Credit Approval is received in writing. Any Account for freight, samples, or miscellaneous sales (including the sale of Goods and/or in quantities not regularly sold by Client) shall always be a Client Risk Account, notwithstanding any written Credit Approval from Factor. For purposes of determining Factor’s Credit Approval hereunder, the Account(s) balance due Factor from any given Customer shall be calculated as the aggregate amount owed by that Customer less any credits to which such Customer may be entitled, and is not to be construed to mean individual invoices owed by that Customer.

 

(b)      Credit Approval(s) may be withdrawn, either orally or in writing, in Factor’s sole discretion at any time before actual delivery of Goods or rendering of services. Credit Approval(s) are automatically rescinded and withdrawn if the terms of sale vary from the terms approved by Factor, or if the terms of sale are changed by Client without Factor’s prior written approval of the new terms, or if the Account is not assigned to Factor within ten days from the date of the invoice, or if the Goods are not delivered on or before the expiration of the Single Order Approval or if there is no expiration date if the Goods are not delivered within 30 days of the date of the Single Order Credit Approval. If Accounts exceed either a Credit Line or Single Order Approval, only the amount in excess of the Credit Line or Single Order Approval shall be considered Client Risk Accounts, provided, however, that if Client ships Goods or provides services to a Customer who has outstanding Accounts owed to Client, and such Customer’s Credit Line and/or outstanding Single Order Approval(s) have been withdrawn by Factor, and the Accounts created by such shipment exceed [***] of the total amount of Client’s Accounts outstanding, any Credit Approvals applying to those Accounts shall be deemed cancelled and all outstanding Accounts from that Customer are Client Risk Accounts for all purposes.

 

 

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(c)      Factor shall have no liability of any kind for declining or refusing to give, or for withdrawing, revoking, or modifying, any Credit Approval pursuant to the terms of this Agreement, or for exercising or failing to exercise any rights or remedies Factor may have under this Agreement or otherwise. In the event Factor declines to give Credit Approval on any order received by Client from a Customer and in advising Client of such decline Factor furnishes Client with information as to the credit standing of the Customer, such information shall be deemed to have been requested of Factor by Client and Factor’s advice containing such information is recognized as a privileged communication. Client agrees that such information shall not be given to Client’s Customer or to Client’s sales representative(s). If necessary, Client shall merely advise its Customer(s) that credit has been declined on the account and that any questions should be directed to Factor.

 

(d)      Factor will assume the Credit Risk on Approved Accounts, i.e., if a Customer, after receiving and accepting the delivery of Goods or services (subject to all warranties herein) for which Factor has given written Credit Approval, fails to pay an Account when due, and such nonpayment is due solely to financial inability to pay, Factor shall bear any loss thereon up to the amount of the Credit Approval, subject to the terms and provisions stated herein or in the Credit Approval. If Factor fails to collect an Approved Account within 120 Days of its maturity solely due to the Customer’s financial inability to pay, Factor will pay the Purchase Price of such Approved Account to Client on the Collection Date. Specifically, Factor shall not be responsible for any nonpayment of a Credit Approved Account: (i) because of the assertion of any claim or Dispute by a Customer for any reason whatsoever, including, dispute as to price, terms of sales, delivery, quantity, quality, or other, or the exercise of any counterclaim or offset (whether or not such claim, counterclaim or offset relates to the specific Account); (ii) where nonpayment is a consequence of enemy attack, terrorism, natural disaster, civil commotion, strikes, lockouts, the act or restraint of public authorities, acts of God or force majeure; or (iii) if any representation or warranty made by Client to Factor in respect of such Account has been breached whether intentionally or unintentionally. The assertion of a Dispute by a Customer shall have the effect of negating any Credit Approval on the affected Approved Account(s) and such Approved Account(s) shall be deemed a Client Risk Account until paid or otherwise cleared from Factor’s books.

 

(e)      Client shall bear the Credit Risk on all Client Risk Accounts; Factor shall have full recourse to Client for all Client Risk Accounts. Upon demand by Factor, Client shall pay to Factor the full amount of a Client Risk Account, together with all expenses incurred by Factor up to the date of such payment, including reasonable attorney’s fees in attempting to collect or enforce such payment or payment of such Account(s).

 

(f)      If monies are owing from a Customer for both Approved Accounts and Client Risk Accounts, Client agrees that any payments or credits applying to any Account owing by such Customer will be applied: first, to any Approved Accounts outstanding on Factor’s books and second, to any Client Risk Account outstanding on Factor’s books. This order of payment applies regardless of the respective dates the sales occurred and regardless of any notations on payment items.

 

2.3 Purchase Price.

 

(a)      On the Collection Date applicable to an Account, Factor shall pay to Client the Purchase Price for such Account, less (i) any Reserve or credit balance that Factor, in Factor’s sole discretion, determines to hold, (ii) moneys remitted, paid, or otherwise advanced by Factor to or on behalf of Client (including any amounts which Client may reasonably be obligated to pay in the future), (iii) any other charges provided for by this Agreement or otherwise due Factor by Client, and (iv) any deductions taken by the Customer in connection with such Account.

 

 

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(b)       No discount, credit, allowance or deduction with respect to any Account shall be granted or approved by Client to any Customer without the prior written consent of Factor unless such discount, credit, allowance or deduction is shown on the face of an invoice at the time such invoice is submitted to Factor.

 

(c)       Client shall pay to Factor or Factor may charge Client’s account with Factor, the amount of any payment that Factor receives with respect to a Client Risk Account if Factor is subsequently required to return such payment, whether as a result of any proceeding in bankruptcy or otherwise.

 

2.4 Reserve. Factor shall be entitled to withhold a Reserve, and may revise the Reserve at any time and from time to time if Factor deems it necessary to do so in order to protect Factor’s interests. Factor may charge against the Reserve any amount for which Client may be obligated to Factor at any time, whether under the terms of this Agreement, or otherwise, including any damages suffered by Factor as a result of Client’s breach of any provision of Section 6 hereof (whether intentional or unintentional), any adjustments due and any attorneys’ fees, costs and disbursements due. Client recognizes that the Reserve represents bookkeeping entries only and not cash funds. It is further agreed that with respect to the balance in the Reserve, Factor is authorized to withhold, without giving prior notice to Client, such payments and credits otherwise due to Client under the terms of this Agreement for reasonably anticipated claims or to adequately satisfy reasonably anticipated Obligation(s) Client may owe Factor.

 

2.5 Notice Of Purchase. All invoices submitted to Customers by Client shall plainly state on their face that the amounts payable thereunder are payable to Factor at such lockbox address as Factor may designate to Client in writing from time to time. Client agrees to execute and deliver to each Customer obligated under an Account such written notice of sale of the Account as Factor may request.

 

Section 3. Account Advances/Inventory Advances.

 

3.1 Account Advances. In Factor’s sole discretion, subject to the terms and conditions of this Agreement, Factor may from time to time advance to Client up to [***] of the aggregate Net Invoice Amount of Accounts outstanding at the time any such advance is made, less: (1) Any such Accounts that are in Dispute; (2) any such Accounts that are not Approved Accounts; (3) the amount of the Reserve; (4) any interest, fees and other items, actual or estimated, that are chargeable to the Reserve; and (5) the amount of any Letters of Credit not deducted pursuant to section 3.2 (a). In Factor’s sole discretion, subject to the terms and conditions of this Agreement, Factor may from time to time consider certain foreign accounts as Eligible Accounts so long as they are less than [***] of Client’s total sales. Prior to any advance to Client on any foreign accounts that may be considered Eligible Accounts, the foreign accounts are subject to satisfactory credit approval by Factor or credit insurance.

 

3.2 Inventory Advances. (a) In Factor’s sole discretion, subject to the terms and conditions of this Agreement, Factor may from time to time advance to Client up to the least of (i) $1,500,000, (ii) [***] of total availability from Accounts, (iii) [***] of the cost of Eligible Inventory, or (iv) [***] of the appraised net orderly liquidation value of Eligible Inventory (adjusted seasonally as necessary, based on appraisal results), less the face amount of all Letters of Credit issued or guarantied by Factor for or on behalf of Client and such reserves as Factor shall establish from time to time in its sole discretion. Borrowed amounts that are repaid may be reborrowed upon the terms and conditions of this Agreement. In no event shall the total of the outstanding Inventory Advances exceed $1,500,000 and Client shall immediately pay to Factor any and all amounts necessary to reduce the aggregate outstanding Inventory Advances below such limit. All Eligible Inventory shall be located at Client’s warehouse or in-transit on the water (availability from in-transit Inventory shall be capped at [***] and subject to documentation acceptable to Factor as necessary to support Factor’s perfected security interest in such Inventory).

 

(b)      Factor will determine eligibility and the loan value of the Eligible Inventory, in its sole discretion, consistent with Factor’s experience, prudent business judgment and standards of commercial reasonableness applicable to asset-based credits and in good faith.

 

 

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(c)  Client shall deliver to Factor an Inventory Certificate no less frequently than monthly (by the fifth Business Day of each month) with respect to the previous month’s Inventory.

 

3.3 Letters of Credit.

 

(a)            Subject to the terms of this Agreement, and so long as no Default has occurred and is continuing, upon the request of Client and for Client’s account, Factor shall issue or shall cause to be issued one or more Letters of Credit for the purpose of facilitating the purchase of goods or services in the ordinary course of Client’s business. The aggregate face amount of all Letters of Credit shall be deducted from the amount of Inventory Advances available under Section 3.2 hereof. The aggregate face amount of all Letters of Credit outstanding at any time shall not exceed the amount of Inventory Advances available under Section 3.2 hereof, less such reserves as Factor shall establish from time to time in its sole discretion; provided, that, at no time shall the aggregate face amount of all Letters of Credit outstanding, plus the outstanding Account Advances and Inventory Advances, exceed the lesser of Three Million and No/100 Dollars ($3,000,000) or the amounts available to be advanced/borrowed under Sections 3.1 and 3.2 hereof. The expiration date of each Letter of Credit shall not be later than the earlier of (i) 365 days from the date of issuance of such Letter of Credit and (ii) the date which is 90 days following the end of the then current Term of this Agreement. No Letter of Credit shall have any automatic or “evergreen” renewal provisions. No extensions, modifications or amendments to a Letter of Credit shall be made without Factor's prior written consent.

 

(b)            In the event that Factor shall make any payment on or pursuant to any Letter of Credit, such payment shall then be deemed automatically to constitute first, an Inventory Advance, and second an Account Advance, hereunder.

 

(c)            Client shall pay to Factor, as compensation for the Letter of Credit Obligations incurred hereunder, immediately upon demand, all amounts necessary for Factor to meet all disbursements and payments of any kind or character, together with the Letter of Credit Fee, and any interest, commissions and other charges, which Factor has incurred or will incur or to which Factor is entitled in connection with the Letters of Credit or any draft drawn thereunder and any fees charged by any Bank issuing any Letters of Credit, all as set forth on Exhibit A.

 

(d)            Client shall give Factor at least five (5) business days’ prior written notice of a requested Letter of Credit. The Letter of Credit shall be issued pursuant to a letter of credit application entered into by Client and Factor for the benefit of the Issuer, completed in a manner satisfactory to Factor and the Issuer. The terms and conditions set forth in such letter of credit application shall supplement the terms and conditions hereof, but if the terms of such letter of credit application and the terms of this Agreement are inconsistent, the terms hereof shall control.

 

(e)    The Client hereby agrees to reimburse Factor for payments made with respect to any Letter of Credit Obligations and such obligation shall be absolute, unconditional and irrevocable, without necessity of presentment, demand, protest or other formalities. Client acknowledges that neither this Agreement nor any guaranty of a Letter of Credit by Factor pursuant to this Agreement shall in any way be construed to create any liability, obligation, warranty or representation on Factor's part with respect to any matter other than Factor's obligation to make payment of any Letter of Credit guarantied by Factor. Neither Factor nor any Person issuing a Letter of Credit shall be responsible for: (a) verifying the existence of any act, condition or statement made by a beneficiary of a Letter of Credit in relation to its drawing or presentment under the Letter of Credit or for verifying or passing judgment on the reasonableness of any statement made by the beneficiary of the Letter of Credit; (b) the validity, sufficiency or genuineness of documents, even if such documents should in fact prove to be in any or all respects invalid, insufficient, fraudulent or forged; (c) the failure to give any notice; or (d) any breach of contract between the beneficiary of the Letter of Credit and Client. Furthermore, neither Factor nor any Person issuing a Letter of Credit shall be responsible for errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph or otherwise; and none of the above shall affect or impair any of Factor's rights or powers hereunder. In furtherance of the foregoing, Client agrees that, absent gross negligence or willful misconduct on Factor's part, any action taken or not taken by Factor or by any Person issuing a Letter of Credit, under or in connection with a Letter of Credit or the related draft or documents shall be binding on Client and shall not make Factor liable to Client.

 

 

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(f)            Factor shall not be obligated to issue or cause to be issued Letters of Credit for any purpose other than the sole purpose of allowing Client to purchase goods or services in the ordinary course of business.

 

(g)            Client shall indemnify Factor and hold Factor harmless from and against any and all liabilities, losses, costs, fees and expenses, including attorneys' fees, that Factor may sustain or incur based upon, arising under, or in any way relating to any Letter of Credit. Client's obligation to reimburse and indemnify Factor shall be conclusive but shall not prejudice any rights Client may have against any other person in the event that Client disputes liability of any amounts owing under any Letter of Credit.

 

(h)            Whenever a draft is submitted under the Letter of Credit, Clients authorize Factor (regardless of whether a Default exists or whether Clients have sufficient borrowing availability hereunder) to make a Inventory Advance first and, to the extent necessary to cover the amount of such Letter of Credit, an Account Advance hereunder in the amount of such draft (plus any applicable fees of the Issuer associated therewith) and to apply the proceeds of such Inventory Advance or Account Advance thereto. Such Inventory Advances and/or Account Advances shall bear interest and be repayable in accordance with, and be treated in all other respects pursuant to the terms hereof.

 

(i)            Clients’ obligations arising hereunder shall be absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement under all circumstances whatsoever, including (without limitation) the following circumstances:

 

(A)            any lack of validity or enforceability of the Letter of Credit or any other agreement or instrument relating thereto (collectively the “Related Documents”);

 

(B)            any amendment or waiver of or any consent to departure from all or any of the Related Documents;

 

(C)            the existence of any claim, setoff, defense or other right which any Client may have at any time, against any beneficiary or any transferee of the Letter of Credit or any other Person, whether in connection with this Agreement, the transactions contemplated herein or in the Related Documents or any unrelated transactions;

 

(D)            any statement or any other document presented under the Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect whatsoever;

 

(E)            payment by or on behalf of the Issuer under the Letter of Credit against presentation of a draft or certificate which does not strictly comply with the terms of the Letter of Credit; and

 

(F)            any other circumstance or happening whatsoever, whether or not similar to any of the foregoing.

 

3.4     Maximum Credit Facility Amount. Notwithstanding anything to the contrary in this Agreement, in no event shall the total of the outstanding Account Advances, Inventory Advances and Letters of Credit exceed Three Million and No/100 Dollars ($3,000,000) at any one time (“Maximum Credit Facility Amount”), and Client shall immediately pay to Factor any and all amounts necessary to reduce the aggregate outstanding Account Advances, Inventory Advances and Letters of Credit below such limit.

 

 

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Section 4. Collections/Repayment. 

 

4.1 Collections.

 

(a)       Factor shall have the right at any time with or without notice to Client, to notify any or all Customers of the sale and assignment of the Accounts and pledge of the Collateral to Factor and to direct such Customers to make payment of all amounts due or to become due to Client directly to Factor. Client agrees not to change any of such instructions or to give its Customers different instructions so long as this Agreement shall remain in effect. To the extent there are no Obligations of Client owed to Factor hereunder and so long as Client is not in Default, Factor shall be deemed to have received any such proceeds of Accounts and other Collateral in excess of that to which Factor is entitled as Owner of the Accounts or in full repayment of any Obligations, as a pure pass-through for and on account of Client.

 

(b)       Factor, as the sole and absolute owner of the Accounts, shall have the sole and exclusive power and authority to collect each such Account, through legal action or otherwise, and Factor may, in its sole discretion, settle, compromise, or assign (in whole or in part) any of such Accounts, or otherwise exercise, to the maximum extent permitted by applicable law, any other right now existing or hereafter arising with respect to any of such Accounts.

 

(c)       Should Client receive payment of all or any portion of any Account or other Collateral, Client shall immediately notify Factor of the receipt of such payment, hold such payment in trust for Factor separate and apart from Client’s own property and funds, and shall deliver such payment to Factor without delay in the identical form in which received. Should Client receive any check or other payment instrument with respect to any Account or other Collateral and fail to surrender and deliver to Factor such check or payment instrument within two (2) business days, Factor shall be entitled to charge Client a Misdirected Payment Fee to compensate Factor for the additional administrative expenses that the parties acknowledge are likely to be incurred as a result of such breach.

 

4.2 Repayment.

 

(a)       Client hereby unconditionally promises to pay all Advances, Letters of Credit Obligations and all Obligations. All Advances and all Obligations shall be payable on demand and shall bear interest at the rate set forth in subsection 5.1 below until paid in full. All Advances and Obligations shall be immediately due and payable upon termination of this Agreement for any reason.

 

(b)       The Purchase Price and all other amounts received by Factor will be paid to Client by crediting same to Client’s account with Factor on the Collection Date. The Purchase Price and all other amounts so credited to Client’s account with Factor shall be applied first to all fees and expenses due Factor, next to accrued interest, then to the Inventory Advances, then to Account Advances, provided, however, that the allocation of Credit Risk shall be governed by Section 2.2 hereof.

 

(c)       Notwithstanding anything herein to the contrary, Client shall make each payment required hereunder or under any other Factoring Document without setoff, deduction or counterclaim.

 

(d)       Unless payment is otherwise timely made by Client, the becoming due of any amount required to be paid under this Agreement or any other Factoring Documents as principal, accrued interest, expenses or fees shall be deemed irrevocably to be a request by Client for an Account Advance or Inventory Advance on the due date of, and in the amount required to pay, such principal, accrued interest or fees or expenses and the proceeds of each such Account Advances or Inventory Advance if made by Factor, shall be disbursed by Factor by way of direct payment of such Obligation.

 

 

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Section 5. Interest and Fees. 

 

5.1 Interest.

 

(a)       Client will pay Factor or, at Factor’s option, Factor may charge Client’s account with, interest on the average daily net principal amount of all Account Advances outstanding hereunder, calculated monthly and payable on the first day of each calendar month, at a rate (computed on the basis of the actual number of days elapsed over a year of 360 days) equal to the sum of (i) LIBOR, plus (ii) seven and one-half percent (7.5%) (the “Account Advances Interest Rate”) on a floating basis. The Account Advances Interest Rate may not be the lowest or best rate at which Factor calculates interest or extends credit. The Account Advances Interest Rate for each calendar month shall be adjusted (if necessary) on the first day of such calendar month and shall be equal to the Account Advances Interest Rate in effect as of the close of business on the last Business Day of the immediately preceding calendar month.

 

(b)       If during any month, a net credit balance exists (i.e., the Reserve or credit balance exceeds outstanding Accounts), then Factor shall credit Client’s account as of the last day of each month with interest at a rate equal to the Account Advances Interest Rate.

 

(c)       Client will pay Factor or, at Factor’s option, Factor may charge Client’s account with, interest on the average daily net principal amount of all Inventory Advances outstanding hereunder, calculated monthly and payable on the first day of each calendar month, at a rate (computed on the basis of the actual number of days elapsed over a year of 360 days) equal to the sum of (i) LIBOR, plus (ii) eight and one-half percent (8.5%) (the “Inventory Advances Interest Rate”) on a floating basis. The Inventory Advances Interest Rate may not be the lowest or best rate at which Factor calculates interest or extends credit. The Inventory Advances Interest Rate for each calendar month shall be adjusted (if necessary) on the first day of such calendar month and shall be equal to the Inventory Advances Interest Rate in effect as of the close of business on the last Business Day of the immediately preceding calendar month.

 

(d)       Beginning the first full month after the first Contract Year of this Agreement, the Account Advances Interest Rate and Inventory Advances Interest Rate shall be adjusted quarterly, based on the Client’s trailing twelve-month EBITDA, as detailed in the following:

 

	 	Account Advances	Inventory Advances
	EBITDA 	Interest Rate	Interest Rate
	 	 	 
	<$500,000  	LIBOR + [***]	LIBOR + [***]
	>$500,000 but <$1,000,000 	LIBOR + [***]	LIBOR + [***]
	equal or >$1,000,000 	LIBOR + [***]	LIBOR + [***]

 

(e)       Interest shall be charged to Client’s account with Factor as of the last day of each month and shall constitute Obligations. Any adjustment in Factor’s interest rate, whether downward or upward will become effective on the first day of the month following the month in which the rate of interest is reduced or increased. All Interest shall be computed for the actual number of days elapsed on the basis of a year consisting of 360 days.

 

(f)       To the extent permitted by law and without limiting any other right or remedy of Factor hereunder, whenever there is a Default under this Agreement, the rate of interest on the Obligations shall, at the option of Factor, be increased to a default interest rate by adding [***] to the highest interest rate otherwise in effect hereunder. Factor may charge such default interest rate retroactively beginning on the date the applicable Default first occurred or existed. Client acknowledges that: (i) such additional rate is a material inducement to Factor to purchase Accounts or consider requests for Advances hereunder; (ii) Factor would not have made the Advances in the absence of the agreement of Client to pay such additional rate; (iii) such additional rate represents compensation for increased risk to Factor that Factor will not be repaid; and (iv) such rate is not a penalty and represents a reasonable estimate of (A) the cost to Factor in allocating its resources (both personnel and financial) to the ongoing review, monitoring, administration or collection of the Advances and Obligations, and (B) compensation to Factor for losses that are difficult to ascertain. In the event of termination of this Agreement by either party hereto, Factor’s entitlement to this charge will continue until all Obligations are paid in full.

 

 

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(g)       IT IS THE INTENTION OF THE PARTIES HERETO THAT AS TO ALL ACCOUNTS, THE TRANSACTIONS CONTEMPLATED HEREBY SHALL CONSTITUTE A TRUE PURCHASE AND SALE OF ACCOUNT(S) UNDER § 9-318 OF THE UCC AS IN EFFECT IN THE STATE OF CALIFORNIA AND AS SUCH, THE CLIENT SHALL HAVE NO LEGAL OR EQUITABLE INTEREST IN SUCH PROPERTY SOLD. NEVERTHELESS, IN THE EVENT ANY PORTION OF THIS TRANSACTION IS CHARACTERIZED AS A LOAN AND AS IT RELATES TO THE INVENTORY ADVANCE, THE PARTIES HERETO INTEND TO

CONTRACT IN STRICT COMPLIANCE WITH APPLICABLE USURY LAW FROM TIME TO TIME IN EFFECT. IN FURTHERANCE THEREOF SUCH PARTIES STIPULATE AND AGREE THAT NONE OF THE TERMS AND PROVISIONS CONTAINED IN THIS AGREEMENT SHALL EVER BE CONSTRUED TO CREATE A CONTRACT TO PAY, FOR THE USE, FORBEARANCE OR DETENTION OF MONEY, INTEREST IN EXCESS OF THE MAXIMUM RATE (AS HEREINAFTER DEFINED) FROM TIME TO TIME IN EFFECT. NEITHER CLIENT, ANY PRESENT OR FUTURE GUARANTOR OR ANY OTHER PERSON HEREAFTER BECOMING LIABLE FOR THE PAYMENT OF THE OBLIGATIONS, SHALL EVER BE LIABLE FOR ANY OBLIGATION THAT MAY BE CHARACTERIZED AS UNEARNED INTEREST THEREON OR SHALL EVER BE REQUIRED TO PAY ANY OBLIGATION THAT MAY BE CHARACTERIZED AS INTEREST THEREON IN EXCESS OF THE MAXIMUM AMOUNT THAT MAY BE LAWFULLY CHARGED UNDER APPLICABLE LAW FROM TIME TO TIME IN EFFECT, AND THE PROVISIONS OF THIS SECTION SHALL CONTROL OVER ALL OTHER PROVISIONS OF THIS AGREEMENT WHICH MAY BE IN CONFLICT THEREWITH. IF ANY INDEBTEDNESS OR OBLIGATION OWED BY CLIENT HEREUNDER IS DETERMINED TO BE IN EXCESS OF THE LEGAL MAXIMUM, OR FACTOR SHALL OTHERWISE COLLECT MONEYS WHICH ARE DETERMINED TO CONSTITUTE INTEREST WHICH WOULD OTHERWISE INCREASE THE INTEREST ON ALL OR ANY PART OF SUCH OBLIGATIONS TO AN AMOUNT IN EXCESS OF THAT PERMITTED TO BE CHARGED BY APPLICABLE LAW THEN IN EFFECT, THEN ALL SUCH SUMS DETERMINED TO CONSTITUTE INTEREST IN EXCESS OF SUCH LEGAL LIMIT SHALL, WITHOUT PENALTY, BE PROMPTLY APPLIED TO REDUCE THE THEN OUTSTANDING OBLIGATIONS OR, AT FACTOR’S OPTION, RETURNED TO CLIENT OR THE OTHER PAYOR THEREOF UPON SUCH DETERMINATION. IF AT ANY TIME THE RATE AT WHICH INTEREST IS PAYABLE HEREUNDER EXCEEDS THE MAXIMUM RATE, THE AMOUNT OUTSTANDING HEREUNDER SHALL CEASE BEARING INTEREST UNTIL SUCH TIME AS THE TOTAL AMOUNT OF INTEREST ACCRUED HEREUNDER EQUALS (BUT DOES NOT EXCEED) THE MAXIMUM RATE APPLICABLE HERETO. AS USED IN THIS SECTION, THE TERM “APPLICABLE LAW” MEANS THE LAWS OF THE STATE OF CALIFORNIA OR, IF DIFFERENT, THE LAWS OF THE STATE OR TERRITORY IN WHICH THE CLIENT RESIDES, WHICHEVER LAW ALLOWS THE GREATER RATE OF INTEREST, AS SUCH LAWS NOW EXIST OR MAY BE CHANGED OR AMENDED OR COME INTO EFFECT IN THE FUTURE AND THE TERM “MAXIMUM RATE” MEANS THE MAXIMUM NONUSURIOUS RATE OF INTEREST THAT FACTOR IS PERMITTED UNDER APPLICABLE LAW TO CONTRACT FOR, TAKE, CHARGE OR RECEIVE WITH RESPECT TO THE OBLIGATIONS.

 

5.2 Commission.

 

(a)            For Factor’s services hereunder, Client shall pay and Factor shall be entitled to receive a factoring commission equal to [***] of the gross invoice amount of each Account (“Commission”). The Commission shall be due and payable to Factor on the date of creation of each Account and shall be chargeable to Client’s account with Factor. Upon Factor’s written notification to Client and acceptance by Client, Factor shall be entitled to receive a surcharge equal to [***] of the gross invoice amount of all Accounts arising out of sales to any Customer that is a debtor-in- possession.

 

(b)            Factor’s Commission is based upon Client’s maximum selling terms of ninety (90) days. Client will not grant additional dating to any Customer without Factor’s prior written approval. If Factor approves extended terms or additional dating, the rate of Commission shall be increased by [***] of the gross invoice amount of each Account for each 30 days or portion thereof of extended or additional dating.

 

 

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5.3 Fees.

 

(a)            All of the fees charged under this Agreement constitute compensation to Factor for services rendered and are not interest or a charge for the use of money. Each installment of such fees shall be fully earned when due and payable and shall not be subject to refund or rebate.

 

(b)            Upon execution of this Agreement, in consideration of Factor’s structuring, approving and committing to this Agreement, but without affecting Client’s obligation to reimburse Factor for costs associated with this Agreement and the transactions contemplated hereby as provided elsewhere in this Agreement, Client agrees to pay Factor a closing fee in the amount of [***], which will be fully earned on the date of this Agreement and non-refundable when paid.

 

(c)    In consideration of the maintenance of Factor’s commitment hereunder, Client will pay Factor a fee at the rate of [***] per annum on the daily average unused portion of Factor’s commitment to make loans or advances hereunder, payable monthly in arrears on the first day of each calendar month, beginning on the first such date following the date of this Agreement.

 

Section 6. Collateral.

 

6.1 Security Interest. In order to secure the payment of all Advances and Obligations of Client to Factor, Client hereby grants to Factor a first priority security interest in and lien upon and assigns, mortgages and pledges to Factor all of Client’s right, title and interest in and to all of Client’s presently existing or hereafter arising Collateral wherever located.

 

6.2 Perfection/Further Assurances. Client agrees to comply with all appropriate laws in order to perfect Factor’s security interest in and to the Collateral and to execute such documents as Factor may require from time to time. Client authorizes Factor to file at such times and places as Factor may designate such financing statements, continuations and amendments thereto as are necessary or desirable to perfect Factor’s rights in and give notice of Factor's purchase of the Accounts under the UCC in effect in any applicable jurisdiction and Factor’s security interest in the Collateral. Factor may at any time and from time to time file financing statements, continuation statements and amendments thereto that describe the Collateral as “all assets” of Client or words of similar effect and which contain any other information required by Part 5 of Article 9 of the applicable UCC for the sufficiency or filing office acceptance of any financing statement, continuation statement or amendment, including whether Client is an organization, the type of organization and any organization identification number issued to Client. Client agrees to furnish any such information to Factor promptly upon request. Any such financing statements, continuation statements or amendments may be signed by Factor on behalf of Client or filed by Factor without the signature of Client and may be filed at any time in any jurisdiction. Client acknowledges that it is not authorized to file any financing statement or amendment or termination statement with respect to any financing statement naming Client as the debtor and Factor as the secured party without the prior written consent of Factor, and Client agrees that it shall not do so without the prior written consent of Factor. Client hereby ratifies any UCC financing statements previously filed by Factor.

 

6.3 Collateral Representations, Warranties & Covenants

 

(a)    Client is the sole owner and holder of all Collateral and there is no security interest, Lien, judgment or other encumbrance in or affecting such Accounts or any of the other Collateral except as set forth on Schedule 6.3 (a) hereof. At the time of assignment to Factor, the Account is a valid, bona fide account, representing an undisputed indebtedness incurred by the named Customer for goods actually sold and delivered or for services completely rendered;

 

 

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(b)   The Collateral is located at the locations set forth on Schedule 6.3 (b) hereof and at no other location. Client shall provide written notice to Factor of any change in the locations at which it keeps its Collateral at least thirty (30) days prior to any such change. Client shall obtain from any landlord, warehouseman, or other third party operator of premises on which any Collateral is located an acceptable lien waiver or subordination agreement in Factor’s favor with respect to such Collateral. In the event that any Collateral, including proceeds, is evidenced by or consists of Negotiable Collateral, Client shall, immediately endorse and assign such Negotiable Collateral over to Factor and deliver actual physical possession of the Negotiable Collateral to Factor. Client shall at any time and from time to time take such steps as Factor may request for Factor (i) to obtain an acknowledgment, in form and substance satisfactory to Factor, of any bailee having possession of any of the Collateral that such bailee holds such Collateral for Factor, (ii) to obtain “control” of any investment property, deposit accounts, letter-of-credit rights or electronic chattel paper in accordance with Article 9 of the UCC, with any agreements establishing control to be in form and substance satisfactory to Factor, and (iii) otherwise to insure the continued perfection and priority of Factor’s security interest in the Collateral and of the preservation of its rights therein.

 

(c)   Accounts. Other than those discounts, allowances and deductions set forth on the face of the invoice at the time it was created, there are and shall be no set-offs, allowances, discounts, deductions, counterclaims, or disputes with respect to any Account. Client shall inform Factor, in writing, immediately upon learning that there exists any Dispute. Client may accept returns and grant allowances or credits to any Customer, unless Factor notifies Client in writing that Client may not grant such allowances or credits to any designated Customer(s). If required by Factor, Client shall submit to Factor credit memos itemized on a separate Schedule of Accounts for all returns and allowances made during the previous week. At Factor’s option, Factor may require that Client pay Factor for the amount of such credit memos, or in Factor’s sole and exclusive discretion, Factor may agree to accept the Schedule of Accounts and apply same to Client’s Reserve.

 

(d)   Inventory. Client will maintain Inventory at the locations set forth on Schedule 6.3 (b) hereof subject to a perfected, first-priority Lien in favor of Factor. Sales of Inventory will be made in compliance with all material requirements of applicable law. Client covenants and agrees:

 

(i)            To notify Factor immediately of any event causing loss or depreciation in the value of Inventory and the amount of such loss or depreciation;

 

(ii)           To keep correct current stock, cost and sales records of Client's Inventory, accurately and sufficiently itemizing and describing the kinds, type, and quantities of Inventory and the cost and selling prices thereof, all of which records shall be continuously available to Factor for inspection, and Factor shall at all reasonable times have access to and the right to inspect and draw off data from any of Client's other books and records for the purposes of checking and verifying all such statements, stock, cost and sales records;

 

(iii)   At all reasonable times and from time to time, by or through any of Client's officers, agents, attorneys, or accountants, permit Factor to examine or inspect the Inventory wherever located and, for such purposes, to enter upon Client's premises or wherever any of the Inventory may be found; and

 

(iv)   Until Default, Client may use the Inventory in any lawful manner not inconsistent with this Agreement or with the terms or conditions of any policy of insurance thereon, may use and consume any raw materials or supplies, the use and consumption of which is necessary in order to carry on Client's business, and may also sell the Inventory in the ordinary course of business. (A sale in the ordinary course of business does not include a transfer in partial or total satisfaction of a debt owing by Client to any person other than Factor.)

 

(e)    Equipment. Client will maintain all Equipment used or useful in Client’s business in good and workable condition, ordinary wear and tear excepted, subject to a perfected, first-priority security interest in Factor’s favor and free and clear of all other Liens except as set forth on Schedule 6.3 (e) at one of the locations set forth on Schedule 6.3(b).

 

(f)    Defense of Title. All Collateral will at all times be owned by Client, and Client will defend Client’s title to the Collateral against the claims of third parties. Client will at all times keep accurate and complete records of the Collateral.

 

 

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(g)    Insurance. Client will obtain and maintain in full force and effect insurance covering the Collateral against all risks to which the Collateral is exposed, including loss, damage, fire, theft, and all other such risks, in such amounts, with such companies, under such policies and in such form as will be satisfactory to Factor, which policies will name Factor as an additional insured and provide that loss thereunder will be payable to Factor as Factor’s interests may appear upon a loss payee endorsement acceptable to Factor. All proceeds of any such insurance will be paid over to Factor directly, and Factor may apply such proceeds to payment of the Obligations, whether or not due, in such order of application as Factor determines or, in Factor’s sole discretion, apply such proceeds, in whole or in part, to the replacement, restoration or rebuilding of the lost or damaged property. Client will provide to Factor from time to time certificates showing such coverage in effect and, at Factor’s request, the underlying policies.

 

(h)    Commercial Tort Claims. If Client shall at any time acquire a commercial tort claim, Client shall immediately notify Factor in a writing signed by Client of the details thereof and grant to Factor in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance satisfactory to Factor.

 

Section 7. Power of Attorney.

 

7.1 Power of Attorney. Client hereby grants to Factor an irrevocable power of attorney authorizing and permitting Factor, at its option, without notice to Client to do any or all of the following: (a) endorse the name of Client on any checks or other evidences of payment whatsoever that may come into the possession of Factor regarding Accounts or Collateral, including checks received by Factor pursuant to Section 9 hereof; (b) upon the occurrence of a Default, receive, open and dispose of any mail addressed to Client and put Factor’s address on any statements mailed to Customers; (c) pay, settle, compromise, prosecute or defend any action, claim, conditional waiver and release, or proceeding relating to Accounts or Collateral; (d) upon the occurrence of a Default, notify in the name of the Client, the U.S. Post Office to change the address for delivery of mail addressed to Client to such address as Factor may designate, however, Factor shall turn over to Client all such mail not relating to Accounts or Collateral; (e) file any financing statement deemed necessary or appropriate by Factor to protect Factor’s interest in and to the Accounts or Collateral, or under any provision of this Agreement; (f) effect debits to any deposit account or other account that Client or Client’s principals who have executed a guaranty agreement maintain at any bank for any sums due to or from the Client under this Agreement; (g) upon a Default, to prepare and mail all invoices relating to Accounts; and (h) to take all actions necessary and proper in order to carry out this Agreement. The authority granted to Factor herein is irrevocable until this Agreement is terminated and all Obligations are fully satisfied.

 

Section 8. Client’s Representations, Covenants and Warranties.

 

Section 8.1 Client’s Representations, Covenants and Warranties. Client, as well as each of Client’s principals, represent, warrant and covenant to Factor that:

 

(a)            Client is a corporation or limited liability company, duly organized, validly existing and in good standing under the laws of the state of California and is qualified and authorized to do business and is in good standing in all states in which such qualification and good standing are necessary or desirable;

 

(b)            The execution, delivery and performance by Client of this Agreement does not and will not constitute a violation of any applicable law, violation of Client’s articles of incorporation or organization or bylaws or any material breach of any other document, agreement or instrument to which Client is a party or by which Client is bound. The Agreement is a legal, valid and binding obligation of Client enforceable against it in accordance with its terms;

 

(c)    Client’s address, as set forth below its signature line hereto, is Client’s mailing address, its chief executive office, principal place of business and the office where all of the books and records concerning the Accounts and/or Collateral are maintained which shall not be changed without giving thirty (30) days prior written notice to Factor;

 

 

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(d)            Client shall maintain its books and records in accordance with GAAP and shall reflect on its books the absolute sale of the Accounts to Factor. Client shall furnish Factor, upon request, such information and statements, as Factor shall require from time to time regarding Client’s business affairs, financial condition and results of its operations. Without limiting the generality of the foregoing, Client shall provide Factor, (i) within 30 days of each month end, internally prepared financial and operating statements with respect to the prior month, (ii) within ninety (90) days after the end of each of Client’s fiscal years, audited financial statements (on a fiscal year-to-date basis) prepared by a CPA acceptable to Factor, (iii) within 30 days of each month-end, a certificate from the president or chief financial officer of Client stating whether any Default has occurred and stating the nature of the Default, (iv) within 10 days of each month end, a detailed listing of Inventory with a cover summary report, (v) within 10 days of each month-end, a current listing of all open and unpaid accounts payable, (vi) within 60 days of Client’s year end, projected income statements, balance sheet and statement of cash flows by quarter for the next fiscal year, (vii) within 90 days from the date of this Agreement, an updated glove inventory appraisal to be completed by an appraiser acceptable to Factor, and (viii) such other information as Factor may request. All financial statements and reports furnished to Factor hereunder shall be prepared and all financial computations and determinations pursuant hereto shall be made in accordance with GAAP;

 

(e)            Client has paid and will pay all taxes and governmental charges imposed with respect to sale of Goods and rendition of services and shall furnish to Factor upon request satisfactory proof of payment and compliance with all federal, state and local tax requirements;

 

(f)            Client will promptly notify Factor of (i) the filing of any lawsuit against Client involving amounts greater than [***], and (ii) any attachment or any other legal process levied against Client;

 

(g)            The application made and information delivered by or on behalf of Client in connection with this Agreement, and the statements made therein are true and correct at the time that this Agreement is executed. There is no fact which Client has not disclosed to Factor in writing which could materially adversely affect the properties, business or financial condition of Client, or any of the Accounts or Collateral, or which is necessary to disclose in order to keep the foregoing representations and warranties from being misleading;

 

(h)             In no event shall the funds paid to Client hereunder be used directly or indirectly for personal, family, household or agricultural purposes;

 

(i)            Client does business under no trade or assumed names.

 

(j)            Any invoice or written communication that is issued by Client to Factor by facsimile transmission is a duplicate of the original;

 

(k)            Any electronic communication of data, whether by e-mail, tape, disk, or otherwise that Client remits or causes to be remitted to Factor shall be authentic and genuine; and

 

(l)            Client does not own, control or exercise dominion over, in any way whatsoever, the business of any Account or Customer.

 

(m)            Client represents and warrants to Factor that: (i) Client is not engaged as one of Client’s principal activities in owning, carrying or financing the purchase or ownership by others of “margin stock” (as defined in Regulation U of the Board of Governors of the Federal Reserve System); (ii) Client owns no real property and leases no real property other than as listed on Schedule 8.1 (m); (iii) a true, correct and complete list of any warehousemen, processors, consignees or other bailees with possession or control of any Inventory is set forth on Schedule 6.3 (b); and (iv) a list and brief description of all bank accounts maintained by Client with any bank or financial institution is set forth on Schedule 8.1 (m);

 

 

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(n)   Negative Covenants.

 

(i)            Merger/Sale of Assets. Client may merge or consolidate with any other Person, provided, that Client must provide at least 60 days prior written notice to Factor of any such merger or consolidation, and the surviving entity must be in all respects satisfactory to Factor in Factor’s commercially reasonable discretion. Client will not sell, transfer, lease, abandon, or otherwise dispose of a substantial portion of Client’s assets or any of the Collateral or any interest therein, except that, so long as no Default has occurred and is continuing, Client may sell Inventory in the ordinary course of Client’s business.

 

(ii)            No Debt or Liens; Taxes. Client will not obtain or attempt to obtain from any Person other than Factor any loans, advances, or other financial accommodations or indebtedness of any kind, nor will Factor enter into any direct or indirect guaranty of any obligation of another Person. Client will not permit any of Client’s assets or any part of the Collateral to be subject to any Lien. Client shall pay when due (or before the expiration of any extension period) any tax or other assessment (including all required payments or deposits with respect to withholding taxes), and Client will, upon request by Factor, promptly furnish Factor with proof satisfactory to Factor that Client has made such payments and deposits.

 

(iii)            No Distributions. Unless Factor consents in advance and in writing (which consent will not be unreasonably withheld), Client will not retire, repurchase or redeem any of Client’s capital stock or other ownership interest in Client, nor declare or pay any dividend in cash or other property (other than additional shares of capital stock or additional ownership interests) to any owner or holder of Client’s shares or other ownership interest.

 

(iv)            No ERISA Liabilities. Client will make timely payments of all contributions required to meet the minimum funding standards for Client’s employee benefit plans subject to the Employee Retirement Income Security Act of 1974 (as amended, “ERISA”) and will promptly report to Factor the occurrence of any reportable event (as defined in ERISA) and any giving or receipt by Client of any governmental notice (other than routine requests for information) in respect of any such plan.

 

(v)            Transactions with Affiliates. Client will not engage in any transaction with any of Client’s officers, directors, employees, owners or other Affiliates, except for an “arms-length” transaction on terms no less favorable to Client than would be granted to Client in a transaction with a Person who is not an Affiliate, which transaction shall be approved by Client’s disinterested directors and shall be disclosed in a timely manner to Client prior to the consummation of the transaction.

 

(vi)            Loans/Investments. Client will not make any loans or advances to or extend any credit to any Person except (i) the extension of trade credit in the ordinary course of business; and (ii) advances to employees not to exceed an aggregate outstanding amount of [***] at any one time outstanding for all employees. Client shall not purchase, acquire or otherwise invest in any Person except: (A) existing investments in Client’s subsidiaries described on Schedule 8.1 (n) (vi); (B) direct obligations of the United States of America maturing within one year from the acquisition thereof; (C) certificates of deposit issued by, or investment accounts in, banks or financial institutions having a net worth of not less than [***]; and (D) commercial paper rated A-1 by Standard & Poor’s Ratings Group or P-1 by Moody’s Investors Service, Inc. Without limiting the generality of the foregoing, Client shall not create any new subsidiary.

 

(vii)   Capital Expenditures. Client shall not make or incur capital expenditures in excess of [***] during any fiscal year.

 

Section 9. Administration.

 

9.1 Disputes/Chargebacks. Client shall notify Factor immediately upon the assertion by a Customer of a Dispute and Factor may charge such Account back to Client. Factor may charge back to Client all Client Risk Accounts at any time either before or after the due date and any or all Accounts upon the breach of any representation or warranty relating to an Account or upon a Default hereunder. Client indemnifies and holds Factor harmless from and against any and all loss, costs and expenses arising out of Disputes or Client Risk Accounts, including collection and attorneys fees with respect thereto. A chargeback shall not be deemed a reassignment of an Account and title thereto and to the Goods represented thereby shall remain in Factor until such time as Factor executes a reassignment of the Account.

 

 

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9.2 Expenses. Client shall pay all costs incurred by Factor pursuant to this Agreement, including search and filing fees, on line access fees, wire and ACH transfer fees, audit and field examination fees, legal fees (including the allocated cost of internal counsel) for preparation of this Agreement and any other Factoring Documents and the perfection, preservation and enforcement of any of Factor’s rights hereunder.

 

9.3 Field Examinations. During the term of this Agreement and so long as there exists or has existed no Default, Factor may conduct up to two (2) field examinations per contract year at the following rates:

 

	Time Period	Maximum Amount To Be Charged Annually for Field Examinations
	
During the first year of this Agreement

	
[***]

	
During the second year of this Agreement

	
[***]

	
During the third year of this Agreement

	
[***]

 

However, upon the occurrence of a Default and so long as it continues, Factor may conduct and charge additional amounts for additional field examinations.

 

9.4 Credit Inquiries. Client authorizes Factor to disclose such information as Factor deems appropriate to persons making credit inquiries about Client.

 

9.5 Persons Authorized to Request Advances. Client hereby authorizes and directs Factor to make Advances to or for the benefit of Client upon receipt of instructions from any of the persons listed on Schedule 9.4. Factor shall have no liability whatsoever to Client or any other Person for acting upon any such instructions which Factor, in good faith, believes were given by any such person, and Factor shall have no duty to inquire as to the propriety of any disbursement. Factor is hereby authorized to make the loans provided for herein based on instructions received by facsimile, electronic mail, telephone or other method of communication from any of such persons. Although Factor shall make a reasonable effort to determine the person’s identity, Factor shall not be responsible for determining the authenticity of any such instructions, and Factor may act on the instructions of anyone it perceives to be one of the persons authorized to request loans hereunder. Factor shall have the right to accept the instructions of any of the foregoing persons unless and until Factor actually receives from Client (in accordance with the notice provisions of this Agreement) written notice of termination of the authority of that person. Client may change persons designated to give Factor borrowing instructions only by delivering to Factor written notice of such change. Client will ensure that each telephone instruction from any person designated in or pursuant to this paragraph shall be followed by written confirmation of the request for disbursement in such form as Factor makes available to Client from time to time for such purpose; provided, however, that Client’s failure to provide written confirmation of any telephonic instruction shall not invalidate such telephonic instruction.

 

 

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Section 10. Accounting Information.

 

10. 1 Accounting Statements. Factor shall provide Client with information on the Accounts and a monthly reconciliation of the factoring relationship relating to billing, collection, Account Advances, Inventory Advances, Obligations and account maintenance such as aging, posting, error resolution and e- mailing or mailing of statements. All of the foregoing shall be in a format and in such detail, as Factor, in

its sole discretion, deems appropriate. Factor’s books and records shall be admissible in evidence without objection as prima facie evidence of the status of the Accounts and Reserve between Factor and Client. Each statement, report, or accounting rendered or issued by Factor to Client shall be deemed conclusively accurate and binding on Client unless within thirty (30) days after the date of issuance Client notifies Factor to the contrary pursuant to Section 13 hereof, setting forth with specificity the reasons why Client believes such statement, report, or accounting is inaccurate, as well as what Client believes to be correct amount(s) therefore. If the Client gives notice of its disagreement with Factor’s statement, all matters in such statement that are not objected to in Client’s notice, shall be deemed conclusively accurate and binding on Client. Client’s failure to receive any monthly statement shall not relieve it of the responsibility to request such statement and Client’s failure to do so shall nonetheless bind Client to whatever Factor’s records would have reported.

 

10.2 Inspections. Factor shall have the right at any time, at Client’s expense, to visit and inspect Client’s books and records, and to make and take away copies of Client’s books and records.

 

Section 11. Defaults and Remedies.

 

11. 1 Default. A Default shall be deemed to have occurred hereunder upon the happening of one or more of the following: (a) Client shall fail to pay as and when due any amount owed to Factor; (b) any Obligor shall breach any covenant, warranty or representation set forth herein or in any Factoring Document or same shall be untrue when made; (c) any Obligor becomes insolvent in that its debts are greater than the fair value of its assets or is unable to pay its debts as they mature, or admits in writing that it is insolvent or unable to pay its debts, makes an assignment for the benefit of creditors, makes a conveyance fraudulent as to creditors under any state or federal law, or a proceeding is instituted by or against any Obligor alleging that such Obligor is insolvent or unable to pay debts as they mature, or a petition under any provision of Title 11 of the United States Code, as amended, or any state insolvency proceeding is filed by or against any Obligor; (d) any involuntary lien, garnishment, attachment or the like shall be issued against or shall attach to the Accounts, the Collateral or any portion thereof and the same is not released within ten (10) days; (e) any Obligor suffers the entry against it for a final judgment for the payment of money in excess of [***], unless the same is discharged within thirty (30) days after the date of entry thereof or an appeal or appropriate proceeding for review thereof is taken within such periods and a stay of execution pending such appeal is obtained; (f) any report, certificate, schedule, financial statement, profit and loss statement or other statement furnished by Client, or by any Obligor or other person on behalf of Client, to Factor is not true and correct in any material respect; (g) Obligor shall have a federal or state tax lien filed against any of its properties (and the same is not released in 10 days), or shall fail to pay any federal or state tax when due (unless such tax is properly challenged or appealed by Client in good faith and Client makes appropriate reserves for such tax), or shall fail to file any federal or state tax form as and when due; (h) a material adverse change shall have occurred in Obligor’s financial conditions, business or operations; (i) any suspension of the operation of Obligor’s present business; (j) death of any Obligor who was a natural person, or death or withdrawal of any partner of any Obligor that is a partnership, or dissolution, merger, or consolidation of any Obligor that is a corporation, partnership or limited liability company; (k) transfer of a substantial part (determined by market value) of the property of any Obligor; (l) sale, transfer or exchange, either directly or indirectly, of a controlling stock or equity ownership interest of any Obligor; (m) termination, unenforceability or withdrawal of any guaranty for the Obligations, or failure of any Obligor to perform any of its obligations under such a guaranty or assertion by any Obligor that it has no liability or obligation under such a guaranty, or (n) Factor shall deem itself insecure with respect to its interest in the Collateral or prospects for repayment.

 

11.2 Remedies. (a) Upon a Default, Factor may, without demand or notice to Client, exercise all rights and remedies available to it under this Agreement, under the UCC or otherwise, including terminating this Agreement and declaring all Obligations immediately due and payable, provided, however, that in the event of a Default described under clause (c) of Section 11. 1, such termination and acceleration shall automatically occur without any notice, demand or presentment of any kind.

 

 

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(b) Without notice to or demand upon Client or any other Person, Factor may make such payments and do such acts as Factor considers necessary or reasonable to protect its security interest in the Collateral. Client authorizes Factor to enter each premises where any Collateral is located, take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest or compromise any lien which in Factor’s opinion appears to be prior or superior to its security interest and to pay all expenses incurred in connection therewith. Factor may ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale and sell the Collateral. Any such sale may be either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms. It is not necessary that the Collateral be present at any such sale.

 

(c) Factor shall be entitled to any form of equitable relief that may be appropriate without having to establish that any remedy at law is inadequate or other grounds. Factor shall be entitled to freeze, debit and/or effect a set-off against any fund or account Client may maintain with any bank. In the event Factor deems it necessary to seek equitable relief, including injunctive or receivership remedies, as a result of a Default, Client waives any requirement that Factor post or otherwise obtain or procure any bond. Alternatively, in the event Factor, in its sole and exclusive discretion, desires to procure and post a bond, Factor may procure and file with the court a bond in an amount up to and not greater than [***] notwithstanding any common or statutory law requirement to the contrary. Upon Factor’s posting of such bond it shall be entitled to all benefits as if such bond was posted in compliance with state law. Client waives any right it may be entitled to, including an award of attorney’s fees or costs, in the event any equitable relief sought by and awarded to Factor is thereafter, for whatever reason(s), vacated, dissolved or reversed.

 

11.3 Cumulative Rights; Waivers. The occurrence of any Default shall entitle Factor to all of the default rights and remedies (without limiting the other rights and remedies exercisable by Factor either prior or subsequent to a Default) as available to a Secured Party under the Uniform Commercial Code in effect in any applicable jurisdiction. All rights, remedies and powers granted to Factor in this Agreement, or in any other instrument or agreement given by Client to Factor or otherwise available to Factor in equity or at law, are cumulative and may be exercised singularly or concurrently with such other rights as Factor may have. These rights may be exercised from time to time as to all or any part of the Accounts hereunder or the Collateral as Factor in its discretion may determine. In the event that any part of the purchase of Accounts hereunder by Factor is construed to be a loan from Factor to Client, any advances or payments made as the Purchase Price for all Accounts shall be secured by the Accounts and the Collateral. Factor may not be held to have waived its rights and remedies unless the waiver is in writing and signed by Factor. A waiver by Factor of a right, remedy or default under this Agreement on one occasion is not a waiver of any right, remedy or default on any subsequent occasion. No exercise by Factor of one right or remedy shall be deemed an election, and no waiver by Factor of any default on Client’s part shall be deemed a continuing waiver. No delay by Factor shall constitute a waiver, election or acquiescence by it.

 

Section 12. Term.

 

12.1 Term. The Original Term of this Agreement shall be three (3) years from the date of this Agreement (the “Original Term”). Client shall have the right to terminate the Agreement upon sixty (60) days prior written notice, subject to the following prepayment penalties:

 

 

	
Period

	
Penalty

	
During the first year

	
[***] of the Maximum Credit Facility Amount

	
During the second year

	
[***] of the Maximum Credit Facility Amount

	
During the third year

	
[***] of the Maximum Credit Facility Amount

 

Notwithstanding anything herein to the contrary, Factor may terminate this Agreement i) at any time after the occurrence of a Default, or ii) assuming no Default hereunder, at any time by giving not less than sixty (60) days notice provided, however, that if Factor terminates this Agreement prior to the end of the Original Term other than upon the occurrence of a Default, Client shall not be obligated to pay any prepayment fees.

 

 

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Notwithstanding payment in full of all Obligations by Client, any such notice of termination is conditioned on Client’s delivery, to Factor, of a general release in a form reasonably satisfactory to Factor. Client understands that this provision constitutes a waiver of its rights under § 9-513 of the UCC. Factor shall not be required to record any terminations or satisfactions of any of Factor’s liens on the Collateral unless and until Client has executed and delivered to Factor said general release and Client shall have no authority to do so without Factor’s express written consent. Any termination of this Agreement shall not affect Factor’s security interest in the Collateral and Factor’s ownership of the Accounts, and this Agreement shall continue to be effective, until all transactions entered into and Obligations incurred hereunder have been completed and satisfied in full. The expense reimbursement, repayment and indemnification provisions of this Agreement shall survive the termination of this Agreement. All Obligations shall be immediately due and payable in full upon termination of this Agreement.

 

Section 13. Notices. Any notice or communication with respect to this Agreement shall be given in writing, sent by (i) personal delivery, (ii) overnight delivery service with proof of delivery, (iii) email at the email address set forth below the signature of the respective party to this Agreement, (iv) United States mail, first-class with postage prepaid, or registered or certified mail, or (v) prepaid telegram, telex or telecopy, addressed to each party hereto at its address and to the attention of the person listed as set forth below the signatures of the parties to this Agreement. Any such notice or communication shall be deemed to have been given either at the time of personal delivery or, in the case of overnight delivery service or telecopy, on the next business day at the receiving location or in the case of mail, upon receipt.

 

Section 14. Attorney’s Fees. Client agrees to reimburse Factor upon demand for all reasonable attorney’s fees, court costs and other expenses incurred by Factor in the preparation, negotiation and enforcement of this Agreement and protecting or enforcing its interest in the Accounts or the Collateral, or in the representation of Factor in connection with any bankruptcy case or insolvency proceeding involving Client, the Collateral, or any Accounts, including any defense of any Avoidance Claims (except to the extent related to Approved Accounts where no Dispute exists). Client hereby agrees to pay such fees, costs and expenses and Factor shall also have the right to charge the Reserve therefore. Notwithstanding the existence of any law, statute or rule, in any jurisdiction which may provide Client with a right to attorney’s fees or costs, Client hereby waives any and all rights to hereafter seek attorney’s fees or costs hereunder and Client agrees that Factor exclusively shall be entitled to indemnification and recovery of any and all attorney’s fees or costs in respect to any litigation based hereon, arising out of, or related hereto, whether under, or in connection with, this and/or any agreement executed in conjunction herewith, or any course of conduct, course of dealing, statements (whether verbal or written) or actions of either party.

 

Section 15. Indemnity. Client hereby indemnifies and agrees to hold harmless and defend Factor from and against any and all claims, judgments, liabilities, fees and expenses (including attorney’s fees) which may be imposed upon, threatened or asserted against Factor at any time and from time to time in any way connected with this Agreement or the Collateral. The foregoing indemnification shall apply whether or not such indemnified claims are in any way or to any extent owed, in whole or in part, under any claim or theory of strict liability, or are caused, in whole or in part, by any negligent act or omission of Factor.

 

Section 16. Severability. Each and every provision, condition, covenant and representation contained in this Agreement is, and shall be construed to be, a separate and independent covenant and agreement. If any term or provision of this Agreement shall to any extent be invalid or unenforceable, the remainder of the Agreement shall not be affected thereby.

 

Section 17. Parties in Interest. All grants, covenants and agreements contained in this Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that Client may not delegate or assign any of its duties or obligations under this Agreement without the prior written consent of Factor. Notwithstanding anything herein to the contrary, the Factor may, without consent of the Client, grant a security interest in, sell or assign, grant or sell participations in or otherwise transfer all or any portion of its rights and obligations hereunder to one or more Persons.

 

 

18

 

Section 18. Governing Law; Submission to Process and Venue. This Agreement shall be deemed a contract made under the laws of the State of California and shall be construed and enforced in accordance with and governed by the internal laws of the State of California, without reference to the rules thereof relating to conflicts of law. Client hereby irrevocably submits itself to the exclusive jurisdiction of the state and federal courts located in the state of California, and agrees and consents that service of process may be made upon it in any legal proceeding relating to this Agreement, the purchase of Accounts or any other relationship between Factor and Client by any means allowed under state or federal law. Client hereby waives and agrees not to assert, by way of motion, as a defense or otherwise, that any such proceeding, is brought in any inconvenient forum or that the venue thereof is improper.

 

Section 19. Complete Agreement. This Agreement, the written documents executed pursuant to this Agreement, if any, and the acknowledgment delivered in connection herewith set forth the entire understanding and agreement of the parties hereto with respect to the transactions contemplated herein and may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the parties. No modification or amendment of or supplement to this Agreement shall be valid or effective unless the same is in writing and signed by the party against whom it is sought to be enforced.

 

Section 20. Miscellaneous.

 

(a)    Client acknowledges that there is no, and it will not seek or attempt to establish any, fiduciary relationship between Factor and Client, and Client waives any right to assert, now or in the future, the existence or creation of any fiduciary relationship between Factor and Client in any action or proceeding (whether by way of claim, counterclaim, crossclaim or otherwise) for damages.

 

(b)    This Agreement shall be deemed to be one of financial accommodation and not assumable by any debtor, trustee or debtor-in-possession in any bankruptcy proceeding without Factor’s express written consent and may be suspended in the event a petition in bankruptcy is filed by or against Client.

 

(c)    In the event Client’s principals, officers or directors form a new entity, whether corporate, partnership, limited liability company or otherwise, similar to that of Client during the term of this Agreement, such entity shall be deemed to have expressly assumed the obligations due Factor by Client under this Agreement. Upon the formation of any such entity, Factor shall be deemed to have been granted an irrevocable power of attorney with authority to file, on behalf of the newly formed successor business, a new UCC financing statement or other UCC financing statement with the appropriate secretary of state or Uniform Commercial Code filing office. Factor shall be held-harmless and be relieved of any liability resulting from the filing of a financing statement or the resulting perfection of a lien in any of the successor entity’s assets. In addition, Factor shall have the right to notify the successor entity’s Customers of Factor’s lien rights, its right to collect all Accounts, and to notify any new factor or Factor who has sought to procure a competing lien of Factor’s right is in such successor entity’s assets.

 

(d)    Client expressly authorizes Factor to access the systems of and/or communicate with any shipping or trucking company in order to obtain or verify tracking, shipment or delivery status of any Goods regarding an Account.

 

(e)    Client’s principal(s) acknowledge that the duty to accurately complete each Schedule of Accounts is critical to this Agreement and as such all obligations with respect thereto are non- delegable. Each of Client’s principal(s) acknowledge that he/she shall remain fully responsible for the accuracy of each Schedule of Accounts delivered to Factor regardless of who is delegated the responsibility to prepare and/or complete such Schedule of Accounts.

 

(f)    Client shall indemnify Factor from any loss arising out of the assertion of any Avoidance Claim. Client shall notify Factor within two business days of it becoming aware of the assertion of an Avoidance Claim.

 

 

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(g)           Client agrees to execute any and all forms (i.e. Forms 8821 and/or 2848) that Factor may require in order to enable Factor to obtain and receive tax information issued by the Department of the Treasury, Internal Revenue Service, or receive refund checks.

 

(h)           The Client shall make each payment required hereunder, and/or under any instrument delivered hereunder, without setoff, deduction or counterclaim.

 

(i)    The terms of this Agreement and the other Factoring Documents are confidential and Client agrees not to disclose same to any party other than its accountants, attorneys and others that are in a confidential relationship with Client and who agree to treat this Agreement and the other Factoring documents and the contents of same as confidential.

 

Section 21. Waiver of Jury Trial, Punitive and Consequential Damages, Etc. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, CLIENT AND FACTOR HEREBY IRREVOCABLY AND EXPRESSLY WAIVE ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER FACTORING DOCUMENT, THE OBLIGATIONS OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY OR EITHER PARTY'S ACTIONS IN THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT HEREOF OR THEREOF; AND (B) IRREVOCABLY AND EXPRESSLY WAIVE, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITITGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES AND CLIENT HEREBY RELEASES AND EXCULPATES FACTOR, ITS OFFICERS, EMPLOYEES AND DESIGNEES, FROM ANY LIABILITY ARISING FROM ANY ACTS UNDER THIS AGREEMENT OR IN FURTHERANCE THEREOF WHETHER OF OMISSION OR COMMISSION, AND WHETHER BASED UPON ANY ERROR OF JUDGMENT OR MISTAKE OF LAW OR FACT, EXCEPT FOR WILLFUL MISCONDUCT. EACH OF CLIENT AND FACTOR ACKNOWLEDGES THAT SUCH WAIVER IS MADE WITH FULL KNOWLEDGE AND UNDERSTANDING OF THE NATURE OF THE RIGHTS AND BENEFITS WAIVED HEREBY, AND WITH THE BENEFIT OF ADVICE OF COUNSEL OF ITS CHOOSING.

 

Section 22. Arbitration.

 

Any dispute, claim or controversy arising out of or relating to this Agreement or the breach, termination, enforcement, interpretation or validity thereof, including the determination of the scope or applicability of this agreement to arbitrate, shall be determined by arbitration in Los Angeles, before three arbitrators. The arbitration shall be administered by JAMS pursuant to its Comprehensive Arbitration Rules and Procedures. Judgment on the award may be entered in any court having jurisdiction. This clause shall not preclude parties from seeking provisional remedies in aid of arbitration from a court of appropriate jurisdiction. The arbitrator may, in the award, allocate all or part of the costs of the arbitration, including the fees of the arbitrator and the reasonable attorneys’ fees of the prevailing party.

 

 

 

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In Witness Whereof, the parties have set their hands and seals on the day and year first hereinabove written.

 

	 	FCC, LLC d/b/a First Capital Western Region, LLC	 
	 	 	 	 
	 	
By: 

	/s/ Ronald E. Garber	 
	 	Name: Ronald E. Garber	 
	 	Title: S.V.P.	 
	 	 	 	 
	 	700 S. Flower Street, Suite 2325	 
	 	Los Angeles, California 90017 	 
	 	Attention: David Scheer	 
	 	Email: dscheer@firstcapital.com	 

 

	 	IRONCLAD PERFORMANCE WEAR CORPORATION	 
	 	 	 	 
	 	
By: 

	/s/ Scott Jarus	 
	 	Scott Jarus, Chief Executive Officer	 
	 	 	 	 
	 	Client address & name for notice:	 
	 	 	 	 
	 	2201 Park Place, Suite 10 1	 
	 	El Segundo, California 90245 	 
	 	Attention: Scott Jarus	 
	 	Email: scottj@ironclad.com	 

 

 

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STATE OF_________)

COUNTY OF_______)

 

On                                , 2009, before me,                                                      , Notary Public, personally appeared Scott Jarus, who proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity, and that by his signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.

 

I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

 

WITNESS my hand and official seal.

 

Signature ______________________ (Signature of Notary)                                (Seal of Notary)

 

 

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SCHEDULE “A”

 

Definitions

 

“Account(s)” means (i) all “accounts” as defined in the UCC due to Client, whether presently existing or hereafter arising due to Client, and (ii) all presently existing or hereafter arising accounts receivable due to Client, book debts, notes, drafts and acceptances and other forms of obligations or rights to payment of a monetary obligation now or hereafter owing to Client, whether arising from the sale or lease of goods or the rendition of services by Client or otherwise (including any obligation that might be characterized as an account, contract right, general intangible or chattel paper under the UCC), all of Client’s rights in, to and under all purchase orders now or hereafter received by Client for goods and services, all proceeds from the sale of Inventory, all monies due or to become due to Client under all contracts for the sale or lease of goods or the rendition of services by Client or otherwise (whether or not yet earned by performance) (including the right to receive the proceeds of said purchase orders and contracts), all collateral security and guarantees of any kind given by any obligor with respect to any of the foregoing, and all goods returned to or reclaimed by Client that correspond to any of the foregoing and all proceeds of the foregoing..

 

“Account Advance” means amounts advanced by Factor to or for the benefit of the Client under this Agreement or otherwise against the Net Invoice Amount of Accounts.

 

“Account Advance Availability” means the amount determined by Factor pursuant to section 3.1 hereof.

 

“Advance(s)” means all Account Advances and Inventory Advances and any other amounts advanced by Factor to or on behalf of Client.

 

“Agreement” means this Agreement, including the Exhibits and any Schedules hereto, and all amendments, modifications and supplements hereto and thereto and restatements hereof and thereof.

 

“Approved Account” means an Account representing a sale to a Customer within the terms of a Credit Line established for such Customer on Client’s normal selling terms or within the Single Order Approval issued by Factor provided that delivery is completed while such Credit Line or Single Order Approval remains in effect and such Account has not been charged back to the Client.

 

“Avoidance Claim” means any claim that any payment received by Factor from or for the account of an Account Debtor is avoidable under the federal Bankruptcy Code or any other debtor relief statute.

 

“Business Day” means any day that a bank located in California, Oklahoma or Ohio is open for business.

 

“Chattel Paper” means (i) all “chattel paper” as defined in the UCC, and (ii) all record or records that evidence both a monetary obligation and a security interest in specific goods, a security interest in specific goods and software used in the goods, a security interest in specific goods and license of software used in the goods, a lease of specific goods, or a lease of specific goods and license of software used in the goods.

 

“Client” has the meaning ascribed thereto in the introductory paragraphs hereof.

 

“Client Risk Account” means those Accounts for which Factor has not given Credit Approval, for which Credit Approval has been withdrawn or revoked or with respect to which Factor is not responsible under Section 2 hereof.

 

 

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 “Collateral” means and includes all of Client’s right, title and interest in and to all of Client’s property, whether real or personal, tangible or intangible, now owned or existing or hereafter acquired or arising and wherever located, including all of the following: (a) all Accounts, (b) Chattel Paper, (c) Commercial Tort Claims, (d) Deposit Accounts, (e) Documents, (f) Equipment (g) General Intangibles (including but not limited to all files, correspondence, computer programs, tapes, disks and related data processing software which contain information identifying or pertaining to any of the Collateral or any Customer or showing the amounts thereof or payments thereon or otherwise necessary or helpful in the realization thereon or the collection thereof), (h) Goods, (i) Inventory, (j) Instruments, (k) Investment Property, (l) Letters of Credit and Letter of Credit Rights, (m) Negotiable Collateral (n) the Reserve, (o) all Supporting Obligations, (p) all other personal property and assets of the Client and (q) all proceeds (as defined in the UCC) and any other products of the foregoing and this clause (q).

 

“Collection Date” means (a) for payments received by Factor in payment of Accounts, the date a check, draft or other item representing payment on an invoice is posted to Factor’s account plus two (2) business days; or (b) for Approved Accounts paid by Factor due to Customer’s financial inability to pay, the Friday of the calendar week following the calendar week in which the 120 day period for such Approved Account ends.

 

“Commercial Tort Claim” means (i) all “commercial tort claims” as defined in the UCC, and (ii) all claims arising in tort with respect to which: (A) The claimant is an organization; or (B) The claimant is an individual and the claim: (x) arose in the course of the claimant’s business or profession; and (y) does not include damages arising out of personal injury to or the death of an individual.

 

“Commission” has the meaning ascribed thereto in Section 5.2 (a) hereof.

 

“Contract Year” means the twelve month period ending on the date that is twelve months after the effective date of this Agreement and the twelve month period ending on each annual anniversary thereof.

 

“Credit Approval(s) and Credit Approved” means, with regard to an Approved Account, that Factor has accepted the Credit Risk.

 

“Credit Lines” has the meaning ascribed thereto in Section 2.2 (a).

 

“Credit Risk” means the Customer’s failure to pay an Account when due solely because of its financial inability to pay.

 

“Customer” means any Person who is obligated on an Account, Chattel Paper or General Intangible. “Default” means any of the events specified in Section 11 of this Agreement.

 

“Deposit Account” means (i) all “deposit accounts” as defined in the UCC , and (ii) any demand, time, savings, passbook or like account maintained with a bank, savings and loan association, credit union, trust company or like organization, other than an account evidenced by a certificate of deposit that is an instrument under the UCC.

 

“Dispute or Disputed Account” means any claim, whether or not provable, bona fide, or with or without support, made by an Customer as a basis for refusing to pay an Account, either in whole or in part, including any contract dispute, charge back, credit, right to return Goods, or other matter which diminishes or may diminish the dollar amount or timely collection of such Account.

 

“Documents” means a document of title or a receipt of the type described in UCC 7-201(2).

 

“EBITDA” means, with respect to Client for any applicable period, (a) net income (excluding extraordinary gains), plus (b) the sum of interest expense, stock options and non-cash item under FAS 123(R), taxes, depreciation and amortization, in each case determined in accordance with GAAP.

 

 

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 “Eligible Inventory” means and includes that Inventory (other than packaging materials, labels and supplies) located in the continental United States which Factor, in its discretion, deems to be Eligible Inventory. Without limiting the generality of the foregoing, no Inventory shall be Eligible Inventory unless:

 

(a)            it is finished goods;

 

(b)            at all times it strictly complies with all of Client’s warranties, covenants and representations to Factor;

 

(c)            it is in good, new and salable condition;

 

(d)            it is not slow moving, obsolete or unmerchantable, in Factor’s discretion;

 

(e)            it meets all standards imposed by any governmental agency or authority;

 

(f)            it is at all times subject to Factor’s duly perfected, first-priority security interest and there exists no other Lien thereon;

 

(g)            it is in Client’s possession and control situated at a location disclosed to Factor in compliance with this Agreement, the Inventory is not in-transit, Client’s books reflect the Inventory, the Inventory is insured to the full value thereof, and the insurance policy lists Factor as sole loss payee;

 

(h)            it is not in the hands of any third party, including a warehouseman, finisher, consignee, bailor, etc., unless such arrangement is fully disclosed to Factor in writing and Client shall have provided to Factor such waivers, acknowledgments and other items requested by Factor in its discretion;

 

(i)            it is not subject to any license or other agreement that limits, conditions, or restricts

 

Client’s or Factor’s right to sell, transfer or otherwise dispose of such Inventory;

 

(j)            Client owns such Inventory and such Inventory is not in Client’s possession based upon any consignment, guaranteed sale, or similar basis; and

 

(k)    it is not of a type that Factor, in its discretion, has determined is not Eligible Inventory.

 

“Equipment” means (a) all “equipment” as defined in the UCC, and (b) all of Client’s present and hereafter acquired machinery, equipment, furniture, fixtures, goods, and all other tangible personal property (other than Inventory), including computer and other electronic data processing equipment and other office equipment and supplies, computer programs and related data processing software, embedded software, spare parts, tools, motors, automobiles, trucks, tractors and other motor vehicles, rolling stock, jigs, as well as all of such types of property leased by Client and all of Client’s rights and interests with respect thereto under such leases (including, without limitation, options to purchase), together with all present and future additions and accessions thereto, replacements therefor, component and auxiliary parts and supplies used or to be used in connection therewith, and all substitutes for any of the foregoing, and all manuals, drawings, instructions, warranties and rights with respect thereto; wherever any of the foregoing is located.

 

“Factor” has the meaning ascribed thereto in the introductory paragraph hereof.

 

“Factoring Documents” means, collectively, this Agreement and any other agreements, instruments, certificates or other documents entered into in connection with this Agreement, including collateral documents, letter of credit agreements, riders covering inventory or other loans, security agreements, pledges, guaranties, mortgages, deeds of trust, assignments and subordination agreements, and any other agreement executed by Client, any guarantor or any affiliate of Client or any guarantor pursuant hereto or in connection herewith.

 

 

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 “Financing Statement” means each Uniform Commercial Code financing statement naming the Factor as purchaser/secured party and the Client as Client/debtor, in connection with this Agreement.

 

“GAAP” means generally accepted accounting principles consistently applied and maintained throughout the period indicated and consistent with the prior financial practices of the Person referred to.

 

“General Intangible” means (i) all “general intangibles” as defined in the UCC, and (ii) all of Client’s present and future general intangibles and all other presently owned or hereafter acquired intangible personal property of Client (including payment intangibles and any and all choses or things in action, goodwill, patents and patent applications, tradenames, servicemarks, trademarks and trademark applications, copyrights, blueprints, drawings, purchase orders, customer lists, monies due or recoverable from pension funds, licenses and rights under any licensing agreements, route lists, infringement claims, software, computer programs, computer discs, computer tapes, literature, reports, catalogs, deposit accounts, tax refunds and tax refund claims) other than Goods, Accounts, Chattel Paper, Commercial Tort Claims, Deposit Accounts, Documents, Equipment, Instruments, Investment Property, Letters of Credit or Letters of Credit Rights, but specifically including all of Client’s books and records.

 

“Goods” means (i) all “goods” as defined in the UCC, and (ii) all of Client’s present and hereafter acquired goods, wherever located, including imbedded software to the extent included in “goods”, manufactured homes, and standing timber that is cut and removed for sale.

 

“Guarantor” has the meaning ascribed thereto in the introductory paragraph.

 

“Instrument” means (i) all “instruments” as defined in the UCC, and (ii) all negotiable instruments or any other writings that evidence a right to the payment of a monetary obligation, is not itself a security agreement or lease, and is of a type that in ordinary course of business is transferred by delivery with any necessary endorsement or assignment. The term does not include (i) Investment Property, (ii) Letters of Credit, or (iii) writings that evidence a right to payment arising out of the use of a credit or charge card or information contained on or for use with the card.

 

“Inventory” means (i) all “inventory” as defined in the UCC, and (ii) all of Client’s inventory, together with all of Client’s present and future inventory, including goods held for sale or lease or to be furnished under a contract of service and all of Client’s present and future raw materials, work in process, finished goods, shelving and racking upon which the inventory is stored and packing and shipping materials, wherever located, and any documents of title representing any of the above.

 

“Inventory Advance” means amounts advanced by Factor to or for the benefit of the Client under this Agreement or otherwise against Eligible Inventory pursuant to Section 3.2 hereof.

 

“Inventory Advance Availability” means the amount determined by Factor in under section 3.2 hereof.

 

“Inventory Certificate” means the certificate, in such form as Factor may prescribe from time to time, with appropriate insertions, to be submitted to Factor by Client pursuant to this Agreement and certified as true and correct by the Chief Executive Officer or the Chief Financial Officer of Client.

 

“Investment Property” means (i) any “investment property” as defined in the UCC, and (ii) a security, whether certificated or uncertificated, security entitlement, securities account, commodity contract, or commodity account.

 

“Issuer” means a financial institution selected by Factor and reasonably acceptable to Client.

 

“Ledger Debt” means any debt, liability or obligation now or hereafter owing by Client to others, including any present or future client of Factor, which Factor may have obtained or may obtain by purchase, assignment, negotiation, discount, participation or otherwise.

 

 

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 “Letter of Credit” means a commercial or stand-by letter of credit issued by or on behalf of or for the benefit of Client.

 

“Letter of Credit Fee” means a monthly fee equal to [***] of the face amount of all issued and/or outstanding Letters of Credit and such other fees and charges as set forth on Exhibit A hereto as such may be revised from time to time.

 

“Letter of Credit Obligations” means all indebtedness, liabilities and obligations incurred by Factor at the request of Client in connection with the issuance of Letters of Credit.

 

“Letter of Credit Reserve” means, from time to time, an amount equal to the aggregate amount that may then be drawn under the Letter of Credit assuming compliance with all conditions for drawing, plus the aggregate amount of all draws under the Letter of Credit for which Client has not reimbursed

Factor.

 

“Letter of Credit Right” means (i) “letter of credit right” as defined in the UCC, and (ii) a right to payment or performance under a Letter of Credit, whether or not the beneficiary has demanded or is at the time entitled to demand payment or performance. The term does not include the right of a beneficiary to demand payment or performance under a Letter of Credit.

 

“LIBOR” means, at any time, an interest rate per annum equal to the interest rate per annum (rounded upwards, if necessary, to the nearest 1/100th of 1%) as published in the “Money Rates” section of The Wall Street Journal (or another national publication selected by the Factor) as the one month London Interbank Offered Rate for United States dollar deposits or such other language (or, if such page shall cease to be publicly available or, if the information/description contained on such page, in Factor’s sole judgment, shall cease to accurately reflect such London Interbank Offered Rate, then such rate as reported by any publicly available recognized source of similar market data selected by Factor that, in Factor’s reasonable judgment, accurately reflects such London Interbank Offered Rate).

 

“Lien” means any security interest, security title, mortgage, deed to secure debt, deed of trust, lien, pledge, charge, conditional sale or other title retention agreement, or other encumbrance of any kind in respect of any property, including the interest of each lessor under any capitalized lease and the interest of any bondsman under any payment or performance bond, in, of or on any assets or properties of a Person, whether now owned or hereafter acquired and whether arising by agreement or operation of law.

 

"Misdirected Payment Fee" means [***] of the amount of any payment on account of an Account which has been received by Client and not delivered in kind to Factor within two (2) business days following the date of receipt by Client.

 

“Negotiable Collateral” means all of Client’s present and future letters of credit, advises of credit, notes, drafts, instruments, and documents, including bills of lading, leases, and chattel paper, and Client’s books and records relating to any of the foregoing.

 

“Net Invoice Amount” means the invoice amount of the Account, less returns (whenever made), all selling discounts (at Factor’s option, calculated on shortest terms), credits or deductions of any kind allowed or granted to or taken by the Customer at any time.

 

“Obligations” means all present and future Account Advances, Inventory Advances, Letter of Credit Obligations, interest, fees, Commission, expenses, and all other present and future obligations (including the obligation to turn over all proceeds of Accounts and other Collateral) owing by Client to Factor, including interest thereon, whether or not for the payment of money, whether or not evidenced by any note or other instrument, whether direct or indirect, absolute or contingent, due or to become due, joint or several, primary or secondary, liquidated or unliquidated, secured or unsecured, original or renewed or extended, whether presently contemplated or not, regardless of how the same arise, or by what instrument, agreement or book account they may be evidenced, or whether evidenced by any instrument, agreement or book account, whether arising before, during or after the commencement of any federal Bankruptcy Case in which Client is a debtor including obligations arising pursuant to Letters of Credit or acceptance transactions or any other financial accommodations or agreements between Client and Factor.

 

 

27

 

“Obligor” means Client and any other Person primarily or secondarily, directly or indirectly, liable on any of the Obligations, including, but not limited to, any guarantor thereof (individually an “Obligor” and collectively, the “Obligors”),

 

“Original Term” means the term of this Agreement as reflected in section 12 hereof and “Term” means the Original Term and any extensions thereof.

 

“Person” means an individual, corporation, limited liability company, partnership, association, trust or unincorporated organization or a government or any agency or political subdivision thereof.

 

“Purchase Price” means the amounts received by Factor from a Customer in payment of an Account, provided, however, that with respect to an Approved Account that remains unpaid 120 days after its maturity due solely to a Customer’s financial inability to pay, purchase price means the Net Invoice Amount less Factor’s Commission but in no event in excess of the amount of the Credit Approval related thereto.

 

“Reserve” means a bookkeeping account on the books of the Factor representing an unpaid portion of the Purchase Price and such other amounts as Factor deems advisable as security for the payment and performance by Client of its Obligations hereunder.

 

“Schedule of Accounts” means a form supplied by Factor from time to time wherein Client lists all Accounts.

 

“Security Interest” means the rights, title and interest in and to and liens of Factor on and in the Collateral.

 

“Single Order Approval” has the meaning ascribed thereto in Section 2.2 (a) hereof.

 

“Supporting Obligation” means (i) a “supporting obligation” as defined in the UCC, and (ii) a Letter of Credit Right or secondary obligation that supports the payment or performance of an Account, Chattel paper, a Document, a General Intangible, an Instrument, or Investment Property.

 

“UCC” means the Uniform Commercial Code as in effect from time to time in the State of California.

 

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