Document:

Exhibit 10.1

 

FIRST
AMENDMENT TO NOTE AND WARRANT PURCHASE AGREEMENT

 

This FIRST AMENDMENT TO NOTE AND WARRANT PURCHASE
AGREEMENT (this “Amendment”) is made and entered into as of December 31,
2008, by and among ARTISTdirect, Inc., a Delaware corporation (the “Company”),
U.S. Bank National Association, a national banking association as collateral
agent for the Initial Purchasers (the “Collateral Agent”), and the
investors listed in the signature page to this Amendment (the “Senior
Lenders”), with reference to the following facts:

 

A.            The
Company entered into a Note and Warrant Purchase Agreement, dated July 28,
2005 (the “Agreement”), pursuant to which the Initial Purchasers
purchased from the Company 11.25% senior secured notes for the aggregate
principal amount of $15,000,000 (the “Notes”) and warrants to purchase
up to an aggregate of 3,250,000 shares of the Company’s common stock at an
exercise price of $2.00 per share (the “Warrants”).

 

B.            CCM
Master Qualified Fund, Ltd., one of the Initial Purchasers, transferred its
equity interest in the Company, including the securities received under the
Transaction Documents, to Trilogy Capital Partners, Inc. (“Trilogy”),
pursuant to a Stock Purchase Agreement, dated October 31, 2008.

 

C.            The
Collateral Agent, Senior Lenders and the Company desire to amend the Agreement
to extinguish all obligations by the Company under the Agreement and
Transaction Documents, as such term is defined in the Agreement, subject to and
conditioned upon (a) the payment to the Senior Lenders of $3,500,000; (b) the
issuance to the Senior Lenders of subordinated notes in the aggregate principal
amount of $1,000,000; (c) the issuance of 9,000,000 shares of the Company’s
Common Stock; and (d) the conversion by the holders thereof of all of the
Convertible Subordinated Notes, issued by the Company on July 28, 2005
(the “Subordinated Notes”).

 

D.            The
Collateral Agent and the Senior Lenders desire to amend the Agreement in
accordance with Section 13(e) thereof.

 

E.             All
defined terms not defined herein shall have the same meanings as set forth in
the Agreement, except as otherwise provided.

 

NOW, THEREFORE, the Company, the Collateral Agent and the Senior
Lenders agree as follows:

 

1.             Extinguishment
of Obligations.  Each Senior Lender
agrees to extinguish all obligations by the Company under the Agreement and
Transaction Documents (the “Senior Debt Restructuring”),
subject to the following conditions, which shall be satisfied by or before January 30,
2009 (the “Effective Date”):

 

(a)           the payment to the Senior Lenders of $3,500,000;

 

(b)          the
issuance to the Senior Lenders of 5-year subordinated notes at the rate of 6%
per annum, in the aggregate principal amount of $1,000,000 (the “New
Subordinated Notes”), substantially in the form of Exhibit A attached hereto;

 

 

(c)           the issuance of 9,000,000 restricted shares of the Company’s
Common Stock to the Senior Lenders (the “Covered Securities”); and

 

(d)                               the conversion of all of the Subordinated Notes.

 

For avoidance of doubt, upon satisfaction of the conditions
set forth above by or before the Effective Date, all obligations of the Company
under the Agreement, the Notes, the Guaranty, the Security Agreement, the
Pledge Agreement, the Registration Rights Agreement, the Irrevocable Transfer
Agent Instructions, the Warrants, together with any other Transaction Document
entered into by the parties to the Agreement in connection with the
transactions contemplated therein shall be extinguished.

 

2.             Deliveries.  In connection with the Senior Debt
Restructuring, each Senior Lender shall deliver to the Company for cancellation
the Notes and the Warrants by or before the Effective Date, and the Company
shall deliver to the Senior Lenders the deliveries set forth under Subsections
1(a)-(c) above by or before the Effective Date.

 

3.             Trilogy.  In connection with the Senior Debt
Restructuring, Trilogy shall deliver to the Company for cancellation the
Warrant to purchase up to 433,333 shares of Common Stock at an exercise price
of $2.00 per share.

 

4.             Lock
Up.  Each Senior Lender agrees to
not: (1) sell, transfer, assign, pledge or hypothecate the Covered
Securities or (2) subject the Covered Securities to any hedging, short
sale, derivative, put, or call transactions that would result in the effective
economic disposition of the Covered Securities by any person during the period
beginning on the Effective Date and ending on the date that is 12 months after
the Effective Date, unless the Covered Securities are transferred to a
transferee pursuant to a private sale or to an affiliate, provided  that
such transferee or affiliate agrees to be subject to the terms and conditions
of this Section 4.

 

5.             Representations
and Warranties of Senior Lenders. Each Senior Lender represents and
warrants as follows to the Company as of the date hereof and acknowledges and
confirms that the Company are relying on such representations and warranties in
connection with the issuance by the Company of the Covered Securities and the
other transactions contemplated hereby (it being understood that no investigations
made by or on behalf of the Company shall have the effect of waiving,
diminishing the scope of, or otherwise affecting any such representations and
warranties):

 

(a)           Requisite Power
and Authority.  The Senior Lender has
all necessary corporate, limited liability company or other (as the case may
be) power and authority to execute and deliver this Agreement and to carry out
their provisions.  All corporate, limited
liability company or other (as the case may be) action on the Senior Lender’s
part required for the execution and delivery of this Agreement has been
taken.  Upon execution and delivery, this
Agreement will be valid and binding obligations of the Senior Lender,
enforceable in accordance with their respective terms, except (a) as limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other laws
of general application affecting enforcement of creditors’ rights and (b) as
limited by general principles of equity that restrict the availability of
equitable remedies.

 

 

(b)           Experience.  Senior Lender is an accredited investor
within the meaning of Regulation D promulgated by the Securities and Exchange
Commission and, by virtue of its experience in evaluating and investing in
private placement transactions of securities in companies similar to the
Company, it is capable of evaluating the merits and risks of his investment in
the Company and has the capacity to protect its own interests.

 

(c)           Investment.  Senior Lender is acquiring the Covered
Securities for investment for its own account, not as a nominee or agent, and
not with the view to, or for resale in connection with, any distribution of any
part thereof, and that the Senior Lender has no present intention of selling,
granting any participation in, or otherwise distributing the same.  By executing this Agreement, the Senior
Lender further represents that it does not presently have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or
grant participations to such person or to any third person, with respect to any
of the Covered Securities.  Senior Lender
understands that the Covered Securities have not been registered under the
Securities Act of 1933, as amended (the “Securities Act of 1933”) or
applicable state and other securities laws by reason of a specific exemption
from the registration provisions of the Securities Act of 1933 and applicable
state and other securities laws, the availability of which depends upon, among
other things, the bona fide nature of the investment intent and the accuracy of
its representations as expressed herein.

 

6.             No Assignment.  Senior Lender will not assign either this Amendment, the Agreement or any of its rights,
interests or obligations hereunder or under the Transaction Documents without
the prior written approval of the Company, and any such assignment by Senior
Lender without the prior written approval of the Company will be deemed invalid
and not binding on the Company.

 

7.             Further
Assurances.  From time to time after
the Effective Date, each party shall, at the request of any other party,
execute and deliver such additional conveyances, transfers and other assurances
as may be reasonably required to effectively carry out the intent of this
Agreement.

 

8.             Effect of Amendment.  Except as amended herein, the Agreement shall
remain in full force and effect.

 

[Signature
pages follow]

 

 

IN WITNESS WHEREOF, the Company, the Collateral Agent
and the Senior Lenders have accepted and agreed to this Amendment, and have
executed this Amendment as of the day and year first above written.

 

	
  Company:

  	
   

  	
  Collateral Agent:

  
	
   

  	
   

  	
   

  
	
  ARTISTdirect, Inc.

  	
   

  	
  U.S.
  BANK NATIONAL ASSOCIATION

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Dimitri
  Villard

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
  Dimitri
  Villard

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Its:

  	
  Interim
  CEO 

  	
   

  	
  Its:

  	
   

  
	
   

  	
   

  	
   

  
	
  Senior Lenders:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  JMB
  Capital Partners, L.P.

  	
   

  	
  JMG
  Capital Partners, L.P.

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Cyrus
  Hadidi 

  	
   

  	
  By:

  	
  /s/ Jonathan
  Glaser

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
  Cyrus
  Hadidi 

  	
   

  	
  Name:

  	
  Jonathan
  M. Glaser

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Its:

  	
  Managing
  Director

  	
   

  	
  Its:

  	
  Member
  Manager 

  
	
   

  	
   

  	
   

  
	
  CCM
  Master Qualified Fund, Ltd.

  	
   

  	
  JMG
  Triton Offshore Fund, Ltd.

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Clint
  D. Coghill

  	
   

  	
  By:

  	
  /s/ Jonathan
  Glaser

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
  Clint
  D. Coghill

  	
   

  	
  Name:

  	
  Jonathan
  M. Glaser

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Its:

  	
  Director

  	
   

  	
  Its:

  	
  Member
  Manager 

  
	
   

  	
   

  	
   

  
	
  Trilogy:  

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Trilogy
  Capital Partners, Inc.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Robert
  S. Rein

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
  Robert
  S. Rein

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Its:

  	
  Vice
  Chairman 

  	
   

  	
   

  

 

 

Exhibit A

 

Subordinated
Promissory NoteExhibit
10.2

 

ACCOUNTS
RECEIVABLE PURCHASE & SECURITY AGREEMENT

 

This Accounts Receivable Purchase & Security Agreement (the “Agreement”),
effective January 27, 2009, is entered into by and between                                   
(hereafter “Client”) and PACIFIC BUSINESS CAPITAL CORPORATION, a California
corporation (hereinafter “PBCC”).  The
parties agree as follows:

 

PURPOSE OF AGREEMENT

 

          1.  Client desires to obtain short term financing
by factoring, selling and assigning to PBCC acceptable accounts receivable at a
discount below face value.  The purpose
of this financing is commercial in nature, and not for household, family,
and/or personal use.

 

DEFINITIONS

 

          2.  “Account” or 
“Account Receivable” means any right to payment of a monetary obligation
as defined in Commercial Code Section 9102 and includes, without
limitation, goods sold, leased, and/or delivered, or services rendered which
are not evidenced by an instrument or chattel paper.

 

          3.  “Acceptable Account” means an Account
conforming to the warranties and terms set forth herein.

 

          4.  “Customer” means Client’s customer or the
account debtor.

 

          5.  “Client” means the seller and assignor of the
Accounts.

 

          6.  “Collateral” means the intangible or tangible
property given as security to PBCC by Client for any obligations and
liabilities of Client to PBCC under this Agreement.

 

          7.  “Warrant” means to guarantee, as a material
element of this Agreement.  Each separate
warranty herein is also an independent condition to PBCC’s duties under this
Agreement.

 

          8.  “Credit Problem” means a customer is unable
to pay his debts because of insolvency, the filing of a voluntary petition in
bankruptcy, the quitting of business, and the like.

 

          9.  “Customer Dispute” means a claim, by customer
against Client, of any kind whatsoever, that reduces the amount collectible
from customer by PBCC.

 

                  (a)  A “Customer
Dispute” may arise from any kind of disagreement between customer and Client
whatsoever, valid or invalid.

 

                  (b)  A “Customer
Dispute” may arise at anytime, both before and/or after the signing of this
agreement or the purchase of the Account.

 

WARRANTIES AND COVENANTS BY CLIENT

 

          10.  As an inducement for PBCC to enter into this
Agreement, and with full knowledge that the truth and accuracy of the warranties
in this Agreement are being relied upon by PBCC instead of the delay of a
complete credit investigation, Client warrants and/or covenants that:

 

          11.  Client is properly licensed and authorized to
operate its business under the trade name of                          and
Client’s trade name(s) has been properly filed and published as required
by applicable law.

 

          12.  Client’s business is solvent, and Client has
made and shall continue to make timely payment on deposit of any tax required
to be deducted and withheld by Client from the wages of any employee of Client.

 

          13.  Each customer’s business is solvent to the
best of Client’s information and knowledge.

 

          14.  Client is, at the time of purchase by PBCC,
the lawful owner of and has good and undisputed title to the Accounts purchased
by PBCC.

 

          15.  Each Account offered for sale to PBCC is an
accurate and undisputed statement of indebtedness by customer to Client for a
certain sum which is due and payable in thirty days or less, or within such
time as is agreed to, in writing, by PBCC and Client.

 

          16.  Each Account offered for sale to PBCC is an
accurate statement of a bonafide sale, delivery and acceptance of merchandise
or performance of service by Client to customer.

 

          17.  Client does not own, control or exercise
dominion over, in any way whatsoever, the business of any customer/account
debtor to be factored by Client to PBCC.

 

          18.  All financial records, statements, books or
other documents shown to PBCC by Client at anytime, either before or after the
signing of this Agreement are true and accurate.

 

1

 

          19.  Client will not, under any circumstances or
in any manner whatsoever, interfere with any of PBCC’s rights under this
Agreement.

 

          20.  Client will not factor or sell Accounts
except to PBCC for the period of this Agreement, and/or for as long as any
indebtedness whatsoever remains owing by Client to PBCC.

 

          21.  Client has not transferred, pledged or
granted a security interest in Client’s Accounts or other personal property to
any other party which Client has not fully disclosed in writing to PBCC and
Client will not transfer, pledge or grant a security interest to any other
party in said Accounts or personal property for the term of this Agreement and
for as long as Client is indebted to PBCC hereunder.

 

          22.  Client will not change or modify the terms of
the original Account with customer unless PBCC first consents to such change in
writing.  For example, Client may not
extend credit to a customer beyond thirty days without prior written consent
from PBCC.

 

          23.  Client shall not consent to the placement of
any lien, security interest or encumbrance upon Client’s fixtures, personal
property of any type and wherever located except upon written notice to PBCC,
and Client shall provide written notice to PBCC within ten days of Client
obtaining any knowledge, from any source, of the filing, recording or
perfection by any means, of any non-consensual lien, claim or encumbrance
against the aforementioned property of Client.

 

          24.  Client will maintain such insurance covering
Client’s business and/or the property of Client’s customers as is customary for
businesses similar to the business of Client and, at the request of PBCC, name
PBCC as loss payee of such insurance.

 

          25.  Client will notify PBCC in writing prior to
any change in the location of Client’s place of business or, if Client has or
intends to acquire any additional place(s) of business, or prior to any
change in Client’s chief executive office, the office or offices where Client’s
books and records concerning Accounts are kept.

 

          26.  Client will immediately notify PBCC in
writing of any proposed change of Client’s name, identity, legal entity,
corporate structure, use of additional trade name(s), and/or any proposed
change in any of the officers, principals, partners, and/or owners of Client.

 

FURTHER PROMISES

 

          27.  SECURITY
INTEREST/COLLATERAL:  As a
further inducement for PBCC to enter into this Agreement, Client gives to PBCC,
as collateral for the repayment of any and all obligations and liabilities
whatsoever of Client to PBCC, a security interest, under the Uniform Commercial
Code, in the following described property hereinafter collectively called “Collateral”:
ALL ASSETS, including, without limitation, any and all presently existing, or
hereafter arising, now owned or hereafter acquired Accounts, Accounts
Receivable, contract rights, chattel paper, choses in action, documents,
instruments, reserves, reserve accounts, rebates, and general intangibles, and
all books and records pertaining to Accounts and all proceeds of the foregoing
property, and all property set forth in Exhibit “A” attached hereto and
incorporated by reference herein.

 

          28.  NOTIFICATION:  PBCC may at any time and at its sole
discretion notify any customer/account debtor of Client to make payments
directly to PBCC.

 

          29.  ASSIGNMENT:  Client shall from time to time at Client’s
option sell, transfer and assign Accounts to PBCC and said Accounts shall be
identified by separate and subsequent written assignments on a form to be
provided to Client by PBCC known as Schedule of Accounts.

 

          30.  APPROVAL:  PBCC will not purchase an Account unless such
Account is first submitted to PBCC by Client for approval.  PBCC is not obligated to buy any Account from
Client.

 

          31.  DISCOUNT:  PBCC agrees to buy Acceptable Accounts from
Client at a minimum discount (fee) of 1.0
Percent (.01) of the face value of each Account.

 

          32.  RESERVE:  PBCC may reserve and withhold an amount in a
reserve account equal  to Twenty
Percent  (20%) or more of the gross face
amount of all Accounts purchased.  Said
reserve account may be held by PBCC and applied by PBCC against charge-backs or
any obligations of Client to PBCC, known or anticipated, and said reserve
account is not due and payable to Client until any and all such obligations are
fully paid and/or satisfied.  Client
gives to PBCC a security interest in this reserve account which secures all
obligations and indebtedness arising hereunder.

 

          33.  PURCHASE
TERMS:  The purchase price for
each Acceptable Account shall be the gross amount 

 

2

 

due of each Account, less PBCC’s earned discount of 1.0 Percent (.01)
of said gross amount.  In the event that
any Account remains unpaid after the fifteenth (15th) day from the date said Account was purchased by PBCC,
the purchase price shall be reduced by an additional service discount of .067 Percent (.00067) per day, until said
Account is paid in full  commencing from
the sixteenth (16th) day after
purchase of each such Account.  The
additional service discount shall be consideration for PBCC’s prolonging the
period its funds are outstanding and the additional services required in
collecting Accounts which are paid after the initial fifteen (15) day period
contemplated in this Agreement.  The
service discount fees stated herein assume an advance rate of eighty percent
(80%).  In the event the advance rate is
more or less than eighty percent (80%), the service discount fees applicable
thereto shall be adjusted pro-rata, as applicable, in order to maintain the
same effective yield assuming an eighty percent (80%) advance rate.  PBCC will not apply any partial payments
against factored invoices.  Partial
payments shall be held by PBCC until such time as the Client repurchases the
invoice(s) in full and complete payment is received from the
customer.  PBCC shall continue to charge
its full service fee on the gross invoice amount until full payment is
received.  PBCC reserves the right to
renegotiate its discount rate on specific Accounts, and/or all Accounts
purchased pursuant to this Agreement, as market conditions, interest rates, and
credit risks warrant.  Any payments
received by Client on PBCC’s Accounts shall be the sole property of PBCC and
Client agrees and commits to hold the exact payment instrument, (e.g., check
received from any account debtor in partial or full settlement of Accounts sold
to PBCC) and to remit to PBCC said payment instrument immediately.  The receipt of any check or other items of
payment from account debtors or Client, shall not be considered a payment on
account until such check or other item of payment is presented to PBCC’s bank
for payment, in which event, said check or other item of payment shall be
deemed to have been paid to PBCC three (3) calendar
days after advise of receipt of funds in PBCC’s account at WELLS FARGO BANK
located in Orange County California.  Should Client intercept and deposit checks into Client’s
bank account which represent payment on any invoice(s) purchased by PBCC
and fail to reimburse PBCC for the full amount of such intercepted funds within
two (2) business days after receipt of funds by Client, in addition to the
discounts earned and due under the terms of this Agreement, Client shall
forfeit the entire initial reserve associated with the invoices involved
as well as be charged any and all reasonable collection and/or legal fees
associated with the collection of the same.

 

          34.  RESERVES.  As set forth in Paragraph 32 above, the
reserve shall be held by PBCC and applied to any obligations of Client to PBCC
including all discounts earned.  PBCC
will pay, i.e., “rebates,” to Client the balance of the reserve account, after
deducting all discounts earned (PBCC fees), hard costs (legal fees and other
collection charges, UPS and other freight charges, and any other advances
required before an Account can be collected), charge backs (e.g. short payment
because of customer deductions, Client-intercepted payments), on each Account
included on the Schedule of Accounts. 
PBCC will generally rebate the reserve on an invoice by invoice basis,
but reserves the right under appropriate circumstances to delay the rebate
until all the Accounts included on the Schedule of Accounts have been collected
in full by PBCC.  Reserve account rebates
shall be paid once each week on the same day (i.e., every “Monday,” for
schedules paid in full by 12:00 pm of the preceding “Monday, Tuesday and
Wednesday.”)  Rebates due on schedule(s) paid
subsequent to this deadline shall be paid the following week on the day
scheduled for payment (e.g., the following “Wednesday.”)  PBCC shall advise Client of the rebate
settlement day and, in the event PBCC elects to change the settlement day,
shall advise Client at least one (1) day in advance.  Any sums received by PBCC with regard to an
Account shall be applied as specified in the payment or, if not readily
ascertainable, against the oldest Account of that customer. Any rebate money
owing to Client may be held by PBCC in PBCC’s sole discretion as further
security for payment of any and all obligations owing by Client to PBCC.  In the event that Client intercepts any funds
due to PBCC, any sums due as a result of such intercept may be charged against
any reserves otherwise due Client.

 

          35.  REQUIRED
FORMS:  When Client offers a
Schedule of Accounts to PBCC for sale, PBCC shall receive an original invoice(s) together
with one copy thereof, a copy of the Bill of Lading, Proof of Delivery,
Contract or Purchase Order, and/or a Purchase Order number which corresponds
with such invoice(s), and any other necessary documents as appropriate to the
business of Client.

 

          36.  RECOURSE:  PBCC will have recourse against Client in
each of the following events:

 

(a)                               When
an Account is not paid by customer when due, if the reason for non-payment is a

 

3

 

Credit Problem (See Paragraph 8 for
definition);

 

(b)                                      If Client has breached any warranties or
promises in this Agreement with regard to the unpaid Account;

 

(c)                                       If Client has contributed to, or
aggravated customer’s failure to pay an Account timely;

 

(d)         If Client and a customer are involved in
a Customer Dispute (See Paragraph 9for definition), regardless of the validity
of such dispute; and

 

(e)                               If
customer asserts a claim of loss or offset of any kind against Client or PBCC.

 

In addition, all invoices purchased by PBCC which remain uncollected
after 90 days of the invoice date, shall be 
repurchased by Client.  In all
instance the repurchase price shall include PBCC’s purchase price plus
applicable daily factoring fees as set forth in this Agreement.  Should Client fail to  repurchase each uncollected invoice after
written notice, PBCC may apply any and all monies due Client held by PBCC
including advances, rebates and collections of non-factored invoices, or PBCC
may seek recovery through any other remedies legally available to it.  Furthermore, PBCC shall have recourse against
Client, and Client shall reimburse PBCC for the gross amount of each invoice
not paid, in the event of the occurrence of any of the following:

 

1.               If Client has
breached any warranties or promises in this Agreement, or misrepresented any
material facts with regard to the unpaid Account;

 

2.               If Client has
contributed to or aggravated the account debtor’s inability to pay, or Client
directly or indirectly interferes with PBCC’s efforts to collect the unpaid
Account;

 

          37.  NOTICE OF
DISPUTE:  Client will
immediately notify PBCC of any disputes between customer and Client.

 

          38.  PAYMENT OF
DISPUTED ACCOUNT:  Client will
immediately pay to PBCC the full amount of any Account subject to a Customer
Dispute (see Paragraph 9 for definition) of any kind whatsoever.

 

          39.  SETTLEMENT
OF DISPUTE:  PBCC may settle
any dispute with customer.  Such
settlement does not relieve Client of final responsibility for such Accounts.

 

          40.  CHARGE-BACK:  If Client does not fully settle the dispute
with immediacy, PBCC may, in addition to any other remedies under this Agreement,
charge back or sell back the Account to Client.

 

          41.  CHARGE-BACK
FOR INVOICING ERROR: 
Mistaken, incorrect and/or erroneous invoicing, submitted by Client to
PBCC may, at PBCC’s discretion be deemed a disputed invoice and be charged back
to Client.

 

          42.  STATEMENT
OF CHARGE-BACK:  PBCC shall
identify in writing all charge-backs and provide to Client a written statement
thereof.  Said statement shall be deemed
an “Account Stated” between Client and PBCC as to said charge-backs except for
any errors of which Client shall have notified PBCC in writing within fifteen
(15) days after the date of receipt by Client of said statement.

 

          43.  SOLE
PROPERTY:  Once PBCC has
purchased an Account, the payment from customer as to that Account is the sole
property of PBCC.  Any interference by
Client with this payment will result in civil and/or criminal liability.

 

          44.  HOLD IN
TRUST:  Client will hold in
trust and safekeeping, as the property of PBCC, and immediately turn over to
PBCC the identical check or other form of payment received by Client, whenever
any payment on an Account purchased by PBCC comes into Client’s
possession.  Should Client come into
possession of a check comprising payments owing to both Client and PBCC, Client
shall turn over said check to PBCC.  PBCC
will refund Client’s portion to Client.

 

          45.  FINANCIAL
RECORDS:  Client will furnish
PBCC financial statements and information as requested by PBCC from time to
time.

 

          46.  TAX
COMPLIANCE:  Client will
furnish PBCC upon request satisfactory proof of payment and/or compliance with
all Federal, State and/or local tax requirements.

 

          47.  NOTICE OF
LEVY:  Client will promptly
notify PBCC of any attachment, tax assessment or other legal process levied
against Client or any of Client’s customers.

 

          48.  NO PLEDGE:  Client will not pledge the credit of PBCC to
any person or business for any purpose whatsoever.

 

          49.  BOOK ENTRY:  Client will, immediately upon sale of
Accounts to PBCC, make proper entries on 

 

4

 

its books and records disclosing the absolute sale of said Accounts to
PBCC.

 

          50.  LEGAL &
COLLECTION FEES:  Except as is
prohibited by law, Client shall pay to PBCC all costs and expenses including
without limitation attorney’s fees and costs incurred by PBCC in the
prosecution or enforcement of any of PBCC’s rights, claims or causes of action
which arise out of, relate to or pertain to this Agreement.

 

          51.  POWER OF
ATTORNEY:  In order to carry
out this Agreement and avoid unnecessary notification of customers, Client
irrevocably appoints PBCC, or any person designated by PBCC, its special
attorney in fact, or agent, with power to:

 

	
  (a)

  	
   

  	
  Strike
  out Client’s address on all Accounts mailed to customers and put PBCC’s
  address on all Accounts.

  
	
   

  	
   

  	
   

  
	
  (b)

  	
   

  	
  Receive,
  open and dispose of all mail addressed to Client, or to Client’s fictitious
  trade name via PBCC’s address.

  
	
   

  	
   

  	
   

  
	
  (c)

  	
   

  	
  Endorse
  the name of Client or Client’s fictitious trade name on any checks or other
  evidences of payment that may come into the possession of PBCC on Accounts
  purchased by PBCC or pursuant to default and on any other documents relating
  to any of the Accounts or to Collateral.

  
	
   

  	
   

  	
   

  
	
  (d)

  	
   

  	
  In
  Client’s name, or otherwise, demand, sue for, collect, and give releases for
  any and all monies due or to become due on Accounts.

  
	
   

  	
   

  	
   

  
	
  (e)

  	
   

  	
  Compromise,
  prosecute, or defend any action, claim or proceeding as to said Accounts.

  
	
   

  	
   

  	
   

  
	
  (f)

  	
   

  	
  Do
  any and all things necessary and proper to carry out the purpose intended by
  this Agreement.

  
	
   

  	
   

  	
   

  
	
  (g)

  	
   

  	
  Execute
  and file a UCC-1 Financing Statement, or UCC-2 as applicable, on behalf of
  Client evidencing and perfecting the security interest granted by Client to
  PBCC and renewing the security interest granted herein.

  

 

The authority granted PBCC herein shall remain in full force and effect
until all assigned Accounts are paid in full and any indebtedness of Client to
PBCC is discharged.

 

          52.  DOUBLE
PAYMENTS:  Should PBCC receive
a double payment on an Account or other payment which is not identified, PBCC
shall carry these sums as open items and shall return them to said Payor upon
proper identification.

 

          53.  MAXIMUM
ACCOUNT:  The outstanding
amount of Client’s account with PBCC (i.e, Accounts purchased by PBCC from
Client and not yet paid by customer) shall not exceed the sum of $3,000,000 unless
otherwise agreed by the parties in writing.

 

          54.  HOLD
HARMLESS:  Client shall
indemnify and hold PBCC free and harmless from and against any customer ill
will arising from PBCC’s collecting or attempting to collect any Accounts.

 

          55.  DEFAULTS:  Any one or more of the following shall be a
default hereunder:

 

	
  (a)

  	
   

  	
  Client
  shall fail to pay any indebtedness to PBCC when due.

  
	
   

  	
   

  	
   

  
	
  (b)

  	
   

  	
  Client
  shall breach any term, provision, covenant, warranty or representation under
  this Agreement, or under any other agreements or contracts between Client and
  PBCC or obligation of Client to PBCC.

  
	
   

  	
   

  	
   

  
	
  (c)

  	
   

  	
  The
  appointment of any receiver or trustee of all or a substantial portion of the
  assets of Client.

  
	
   

  	
   

  	
   

  
	
  (d)

  	
   

  	
  Client
  shall become insolvent or unable to pay debts as they mature, shall make a
  general assignment for the benefit of creditors, or shall voluntarily file
  under any bankruptcy or similar law.

  
	
   

  	
   

  	
   

  
	
  (e)

  	
   

  	
  Any
  involuntary petition in bankruptcy shall be filed against Client and shall
  not be dismissed within 60 days.

  
	
   

  	
   

  	
   

  
	
  (f)

  	
   

  	
  Any
  levies of attachment, executions, tax assessments, tax liens, or similar
  process shall be issued against the Collateral and shall not be released
  within ten days thereof.

  
	
   

  	
   

  	
   

  
	
  (g)

  	
   

  	
  Any
  financial statements, profit and loss statements, borrowing certificates, or
  schedules, or other statements furnished by Client to PBCC prove false or
  incorrect in any material respect.

  
	
   

  	
   

  	
   

  
	
  (h)

  	
   

  	
  Client
  shall terminate/cease factoring while PBCC has factored Accounts outstanding
  as to which the entire collectibility is uncertain.

  
	
   

  	
   

  	
   

  
	
  (i)

  	
   

  	
  Any
  default by                                  
  under its agreements with PBCC.

  

 

          56.  REMEDIES
AFTER DEFAULT:  In the event
of any default PBCC may do any one or more of the 

 

5

 

following:

 

	
  (a)

  	
   

  	
  Declare
  any indebtedness including outstanding factored Accounts, immediately due and
  payable;

  
	
   

  	
   

  	
   

  
	
  (b)

  	
   

  	
  Notify
  any customers of Client default and take possession of Collateral and collect
  any Accounts without judicial process;

  
	
   

  	
   

  	
   

  
	
  (c)

  	
   

  	
  Require
  Client to assemble the Collateral and the records pertaining to Accounts and
  make them available to PBCC at a place designated by PBCC;

  
	
   

  	
   

  	
   

  
	
  (d)

  	
   

  	
  Enter
  the premises of Client and take possession of the Collateral and of the
  records pertaining to the Accounts and any other Collateral;

  
	
   

  	
   

  	
   

  
	
  (e)

  	
   

  	
  Grant
  extensions, compromise claims, and settle Accounts for less than face value,
  all without prior notice to Client;

  
	
   

  	
   

  	
   

  
	
  (f)

  	
   

  	
  Use,
  in connection with any assembly or disposition of the Collateral, any
  trademark, trade name, trade style, copyright, patent right or technical
  process used or utilized by Client;

  
	
   

  	
   

  	
   

  
	
  (g)

  	
   

  	
  Return
  any surplus realized to Client after deducting the actual expenses,
  attorneys’ fees incurred by PBCC in resolving said default;

  
	
   

  	
   

  	
   

  
	
  (h)

  	
   

  	
  Hold
  Client liable for any deficiency; and

  
	
   

  	
   

  	
   

  
	
  (i)

  	
   

  	
  Terminate
  the Agreement forthwith.

  
	
   

  	
   

  	
   

  

          57.  TERMINATION:
 This Agreement shall have a
minimum term of twelve (12) months and shall thereafter automatically renew for
successive twelve (12) month periods unless terminated by certified written
notice by either party thirty (30) days prior to such renewal period.

 

          58.  POST-TERMINATION:  After termination, Client shall be liable to
PBCC for the full and prompt payment of the full amount of factored Accounts
which are then outstanding and unpaid, disputed or undisputed, as well as any
other indebtedness whatsoever.  PBCC
continues to have a security interest in the Collateral of Client until any
existing indebtedness of Client to PBCC is paid in full.

 

          59.  BINDING ON
FUTURE PARTIES:  This
Agreement inures to the benefit of and is binding upon the heirs, executors,
administrators, successors and assigns of the parties thereto.

 

          60.  CUMULATIVE
RIGHTS:  All rights, remedies
and powers granted to PBCC in this Agreement, or in any note or other agreement
given by Client to PBCC, are cumulative and may be exercised singularly or
concurrently with such other rights and PBCC may have.  These rights may be exercised from time to
time as to all or any part of the pledged Collateral as PBCC in its discretion
may determine.

 

          61.  WRITTEN
WAIVER:  PBCC may not waive
its rights and remedies unless the waiver is in writing and signed by
PBCC.  A waiver by PBCC of a right or
remedy under this Agreement on one occasion is not a waiver of the right or
remedy on any subsequent occasion.

 

          62.  GOVERNING
LAW; JURISDICTION AND VENUE: 
This Agreement shall be governed by and construed in accordance with the
laws of the State of California.  The
sole and only proper jurisdiction and venue for any action under this Agreement
shall be Orange County, California.

 

          63.  JURY TRIAL
WAIVER:  IN RECOGNITION OF THE
HIGHER COSTS AND DELAY WHICH MAY RESULT FROM A JURY TRIAL, THE PARTIES HERETO
WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION (A) ARISING HEREUNDER, OR (B) IN ANY WAY CONNECTED WITH OR
RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH
RESPECT HERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND
WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY FURTHER
WAIVES ANY RIGHT TO CONSOLIDATE ANY SUCH ACTION IN WHICH A JURY TRIAL HAS BEEN
WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN
WAIVED; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND
THAT ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF
THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE
PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

 

          64.  INVALID
PROVISIONS:  If any provision
of this Agreement shall be declared illegal or contrary to law, it is agreed
that such provision shall be disregarded and this Agreement shall continue in
force as though such provision had not been incorporated herein.

 

6

 

          65.  ENTIRE
AGREEMENT:  This instrument
contains the entire Agreement between the parties.  Any addendum or modification hereto must be
signed by both parties and attached hereto. 
This Agreement may be executed in multiple counterparts, each of which
shall be deemed an original Agreement, and all of which shall constitute one agreement
to be effective as of the Effective Date.

 

          66.  EFFECTIVE:  This Agreement becomes effective when it is
accepted and executed by an authorized officer of PBCC.

 

7

 

          67.  INDEMNIFICATION:  Client agrees to indemnify and hold PBCC
harmless from any and all liability, claims and damages, including attorney
fees, costs of suit and interest which PBCC may incur as a result of the
failure of Client to pay withholding taxes due and payable to any taxing authority.

 

          68.  COSTS:
Client shall pay 2.0 Percent (.02) of the maximum account, or $60,000 to PBCC
for underwriting and other costs associated with verification of credit,
consulting and credit research.  UCC
filing and registration fees shall be billed at PBCC’s cost.  All costs shall be reimbursed out of the
first funding. Client shall pay said fee before/or out of first funding and
such fees are nonrefundable.

 

 

	 
	
   

  	
   

  	
  PACIFIC BUSINESS CAPITAL CORPORATION

  	 

	 
	
   

  	
   

  	
  245
  Fischer Ave., Suite A-1

  	 

	 
	
   

  	
   

  	
  Costa
  Mesa, CA 92626

  	 

	 
	
   

  	
   

  	
   

  	 

	
  BY:

  	
   

  	
   

  	
  BY:

  	
   

  
	
   

  	
   

  	
   

  	
  BERNARD
  J. HITTNER, CEO

  
	
   

  	
   

  	
   

  
								

 

ACKNOWLEDGMENT

 

	
  STATE
  OF CALIFORNIA

  	
  )

  
	
   

  	
  )
  SS

  
	
  COUNTY
  OF

  	
  )

  

 

On                                               ,
2009, before me                                                                             ,
the undersigned Notary Public in and for said State, personally appeared DIMITRI VILLARD, 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

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  

 

8

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