Document:

ex10x1.htm

    Exhibit
10.1

    
 

    SECURITY
AGREEMENT

     

    This
Security Agreement dated July 9, 2010, hereinafter Agreement, is between the
undersigned PEPPERBALL TECHNOLOGIES - CA, INC., A Delaware Corporation,
hereinafter called "SELLER", and PRIMARY FUNDING CORPORATION ,
A California Corporation, hereinafter " PFC," hereinafter collectively
referred to as the Parties. Said parties, for good and valuable consideration,
agree to be bound by the terms and conditions herein.

    

    
      	
              1. 

            	
              PURPOSE
      OF AGREEMENT

            

    

    

    SELLER
desires to obtain short-term financing by factoring, selling and assigning
accounts receivable to PFC, and PFC desires to purchase such
Accounts as are acceptable to it, in its sole discretion, at a discount below
face value.

    

    
      	
              2.

            	
              DEFINITIONS

            

    

     

    A. "ACCOUNT" means any right to
payment for goods sold, and delivered, or services rendered which is not
evidenced by an instrument or chattel paper.                                

    B. "ACCEPTABLE ACCOUNT" means an
account conforming to the warranties and terms set forth herein that is approved
for purchase by PFC.

    C. "CUSTOMER" means SELLER's
Customer, the account debtor.

    D. "SELLER" means the seller and
assignor of the accounts.

    E. "COLLATERAL" means the
intangible or tangible property given as security (as further defined by
Paragraph 4) to PFC by
SELLER for any obligations and liabilities of SELLER to PFC under this
Agreement.

    F. "WARRANT" means to
guarantee, as a material element of this Agreement.

    G. "CREDIT PROBLEM" means an
account debtor is unable to pay trade debts due to the filing of a Judicial
Bankruptcy under the terms and conditions of the US Bankruptcy
Codes.

    H. "CUSTOMER DISPUTE" means
any claim by Customer against SELLER, of any kind whatsoever, valid or invalid,
that reduces the amount collectible from Customer by PFC.

    I. "ADVANCE" shall be
determined by the actual amount funded against any given collateral. In the
event an account is offered to PFC for funding, the funding formula would be the
gross amount of said invoice, less the Discount. The Advance percentage shall be
Eighty-five Percent (85%).

     

    
      	
              3.

            	
              WARRANTIES

            

    

     

    As an
inducement for PFC 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 PFC, SELLER warrants and
covenants that:

    A. SELLER is properly licensed
and authorized to operate the business of Security Products ,
under the trade name(s) of PEPPERBALL TECHNOLOGIES -
CA, INC. and SELLER's trade name(s) has been properly filed and published
as required by the laws of the applicable County/State.

    B. SELLER's business is
solvent, and all the SELLER's obligations to the government for all Federal,
state and/or local taxes including employee withholding taxes are paid in full
and will continue to be paid in full on a timely basis.

    C. Each of SELLER's account
debtors is solvent to the best of SELLER's current information and
knowledge.

    D. SELLER is the lawful owner
of, and has good and undisputed title to, the Accounts purchased by PFC.

    E. Each account offered for
sale to PFC is an
accurate and undisputed statement of indebtedness by customer to SELLER for a
sum certain which is due and payable in thirty days or less or other trade terms
pre-approved in writing by PFC.

    F. Each account offered for
sale to PFC is an
accurate statement of a bonafide sale, delivery and acceptance of merchandise or
performance of service by SELLER to Customer

    G. SELLER does not own,
control or exercise dominion over, in any part or way whatsoever, the business
of any account debtor which Accounts are factored by SELLER to PFC.

    H. All financial records,
statements, books or other documents shown to PFC by SELLER at any time,
either before or after the signing of this Agreement are true and
accurate.

    I. SELLER will not, in any
manner whatsoever interfere with any of PFC's rights under this
Agreement.

     

     

    1

    __jcs__      __jgm_    _______    _________

    (Initial)       (Initial)      (Initial)     (Initial)

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    J. SELLER will not factor or
sell Accounts except to PFC for the period of this
Agreement, and for so long as any indebtedness whatsoever remains owing by
SELLER to PFC.

    K. SELLER has not transferred,
pledged or granted a security interest in SELLER's Accounts or other personal
property further defined as Collateral by Paragraph 4, to any third person,
which SELLER has not fully disclosed in writing to PFC, and SELLER will not
transfer, pledge or grant a security interest to any other party in said
personal property of the business for the term of this Agreement and for so long
as SELLER is indebted to PFC.

     

    4.   SECURITY
INTEREST/COLLATERAL: As a further inducement for PFC to enter into this
Agreement and as Collateral for the repayment of any indebtedness by SELLER to
PFC, SELLER hereby
grants to PFC a
continuing security interest in the following described personal property of
SELLER, hereinafter called "Collateral":

     

    A. All presently existing or
hereafter arising, now owned or hereafter acquired, Accounts, returned,
reclaimed or repossessed goods with respect thereto; contract rights; purchase
orders; chattel paper; general intangibles; intellectual property; reserves;
credit balances; documents; instruments; deposit accounts; inventory, wherever
located, including raw materials, work-in-process, finished goods, and all names
or marks affixed to or to be affixed thereto for purposes of selling same;
equipment and fixtures, including without limitation, all motor vehicles,
furniture and any and all additions, substitutions or replacement; books and
records relating to any of the above including, without limitation, all computer
programs, optical data, electronically, magnetically or compressed, or any
combination thereof, on-site or off-site, pertaining to the foregoing, in the
possession of debtor, or any computer service bureau or other third person.
Debtor is not authorized to sell, transfer, or otherwise convey or dispose of
the foregoing property except finished inventory held for sale and sold in the
debtor's usual course of business.

     

    5.   FUNDING:
Funding shall occur in the following manner and amounts.

     

    A. ASSIGNMENT: At SELLER's
option SELLER may from time to time sell, transfer and assign Accounts to PFC. Such assigned Accounts
shall be identified by separate and subsequent written agreements on a form
entitled "Schedule of Accounts". PFC may in its sole and
absolute discretion purchase any specific Account from SELLER regardless of
credit rating of customer.

    B. APPROVAL: PFC will not
purchase an Account unless such Account is first submitted to PFC by SELLER for approval and
said Account is approved. PFC is not obligated to buy
any Account from SELLER notwithstanding the fact that the aggregate sum of
factored Accounts remaining unpaid/outstanding may be less than the Maximum
Account stated in Paragraph 5H below. PFC shall have no liability
whatsoever to SELLER of any Customer of SELLER for PFC's failure or refusal to
purchase an Account. PFC
may rescind any approval prior to any shipment of the goods, inventory, services
rendered or equipment generating the Account.

    C. REQUIRED FORMS: When SELLER
offers a Schedule of Accounts to PFC for factoring, PFC shall receive (I) a copy
of the original invoice with PFC's assignment stamp affixed
to said invoice as evidence that SELLER is factoring the Account with PFC, (ii) evidence of delivery
of product or services, or time card, or signature of acceptance by customer, or
proof of completion, and (iii) a copy of the Bill of Lading or tracking number,
Contract or Purchase Order, and/or a Purchase Order number which corresponds
with said invoice(s), as appropriate to the business of SELLER or as required by
PFC.

    D. DISCOUNT: SELLER shall pay
to PFC as earned a
Factoring Discount fee of One Percent (1%) of the gross face value of each
Account Purchased for each additional 15 day period or fraction thereof ("Fee
Period") until the date Account purchased is paid in full or charged back to
SELLER.

    E.  MINIMUM MONTHLY
FEE:  None.

    F. RESERVE: Upon the purchase
by PFC of each
Account, PFC shall,
unless waived by PFC in
its sole discretion, establish a Reserve. The Reserve shall be the amount by
which the face amount of the purchased Account exceeds the Advance, less all
accrued fees and Adjustments on that purchased Account and any and all
remittances received for the benefit of SELLER that PFC comes into possession of
and may be deemed non-factored ("the Reserve"). Said Reserve Account may be held
by PFC and applied
against any obligations of SELLER to PFC. PFC reserves the right to
initiate at any time and/or adjust the Reserve Account as deemed necessary by
PFC.

     

    2

    _  jcs
_       __jgm_     _______    ________

    (Initial)      (Initial)      (Initial)      (Initial)

     

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    G. RESERVE RELEASE: As PFC collects Customer payments
from or on behalf of account debtors, PFC shall credit the Customer
Payments as funds clear to those Accounts purchased. In the event PFC receives electronic funds
as payment for Accounts purchased, the funds will be credited when PFC's lender notifies same and
proper identification/remittance of payments can be established. Any
non-factored payments received by PFC shall be credited to the
reserve and held by PFC
for three business days from the receipt of said funds to allow said funds to
clear. The Reserve portion as described in paragraph 5F. shall be released less
the discount or minimum Fee from the proceeds received less any offsets,
charge-backs or other obligations that SELLER may have to PFC. The Reserve Release
generally takes place weekly. However, PFC reserves the right to
withhold the Reserve Release to offset pending Charge-Backs.

    H. MAXIMUM ACCOUNT: The
outstanding amount in SELLER's Accounts with PFC (that is, Accounts
Purchased by PFC from
SELLER and not yet paid by Customer) shall not exceed the sum of $500,000.00. SELLER
acknowledges that this stated amount is intended as a guideline only, and it
does not obligate PFC to
purchase Accounts in an aggregate sum equivalent to said stated Maximum
Account.

    I. TIMING: PFC will make a
good faith effort to fund accepted SELLER Accounts within 24 hours of the
submission of all Schedules of Accounts, excepting the initial Schedule and new
customers, provided that SELLER has fully complied with this Agreement in every
respect.

    J.  LINE RESERVATION
FEE:  None

     

    6.  
PROTECTION OF COLLATERAL/SECURITY INTEREST

     

    A. SELLER will not change or
modify the terms of sale on any Account purchased by PFC.

    B. SELLER will not permit any
lien, security interest or other encumbrance of any nature whatsoever to be
created upon the Collateral except with prompt and written notice thereof to
PFC, and its express
written consent.

    C. SELLER shall maintain
adequate casualty insurance covering SELLER's business premises as is customary
for similar businesses and, at the request of PFC, name PFC as loss payee of said
insurance. Additionally, SELLER shall maintain adequate liability and workers
compensation insurance and shall provide PFC with evidence of said insurance.
Seller shall also maintain insurance that is appropriate by the licensing
authorities that govern their industry and shall upon request provide evidence
to PFC.

    D. SELLER will immediately
notify PFC in writing of
any proposed or actual change of SELLER's name, identity, legal entity,
corporate structure, use of additional trade name(s) and/or any proposed change
in any executive officers, partners and/or owners of SELLER.

    E. NOTICE OF LEVY: SELLER will
promptly notify PFC of
any attachment, levy or lien against SELLER. In addition, SELLER shall notify
PFC of any legal action
claiming money damages from SELLER in which SELLER is named as a
Defendant.

    F. NOTIFICATION TO CUSTOMER:
PFC may any time and at its sole discretion notify any account debtor of
SELLER of the assignment herein and/or the security interest of PFC and request that payments
be made directly to PFC.
PFC may at its sole
discretion require the account debtor prior to funding to acknowledge in
writting an assignment of payment to PFC for Accounts purchased
from SELLER.

    G. BOOK ENTRY: SELLER will,
immediately upon sale of Accounts to PFC make proper entries on its
books and records disclosing the absolute sale of said Accounts to PFC.

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

    I. HOLD IN TRUST: SELLER will
promptly notify PFC of
any payment received by it on an Account that has been factored to PFC, and will hold in trust
and safekeeping, as the property of PFC and immediately surrender
to PFC said same check,
or other form of payment received by SELLER. Should SELLER come into possession
of a check, or other payment, comprising payment(s) owing to both SELLER and
PFC, SELLER shall
surrender said same check or payment PFC prior to negotiation,
whereupon PFC will
refund to SELLER its portion of such payment. If any such "check" is
deposited, cashed, or negotiated by SELLER, or any agent or employee of SELLER,
a minimum charge of $50.00 will be charged for each occurrence, in addition to
the ordinary Discount Fees owed on the Account to PFC.
An additional
fee of 1% of the gross amount of the Account will be charged SELLER for each
five days SELLER fails to reimbursed PFC for funds SELLER received.
In

     

                                            3

    __jcs__    ___jgm      _________   _______

    (Initial)      (Initial)      (Initial)      (Initial)

     

     

     

     

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    addition to repayment of the
amount owed together with the fees, any such interference could also result in
further civil and/or criminal liability. In the event funds on Accounts
purchased are electronically transferred to SELLER, SELLER must immediately
transfer said funds to PFC or be subject to the
formula of fees described above.

     

    7.  RECOURSE:

     

    PFC will
have the right to charge-back to Seller any invoice remaining unpaid regardless
as to the reason for nonpayment after a period of ninety days from the time the
invoice was first originated. An account or invoice deemed as a recourse
charge-back will be considered in dispute for failure to pay within the payment
or credit terms established under the Warranties provided by Seller in paragraph
3E of this Agreement. The administration of the rights of Charge-Back are
defined below in paragraph 8A.

     

    8. 
CHARGE-BACKS:

     

    A. RIGHT OF CHARGE-BACK: All
Accounts subject to Customer Dispute as defined in Section 2H hereinabove will
be immediately paid in full by SELLER to PFC by either SELLER (I)
submitting "approved and acceptable" new Accounts, (ii) PFC requiring payment thereof,
or (iii) PFC debiting
SELLER's reserve account. All charge-backs are at the gross amount of said
Account without any offset for fees, or reductions of any nature
whatsoever.

    B. NOTICE OF DISPUTE: SELLER
must immediately notify PFC of any disputes between
Customer and SELLER.

    C. INVOICING ERROR: Mistaken,
incorrect, and/or erroneous invoicing submitted by SELLER to PFC may at PFC's discretion be deemed a
disputed Account and be charged back to SELLER.

    D. DISPUTE SETTLEMENT: PFC may
settle any dispute directly with Customer, however any remaining unpaid balance
becomes the responsibility of the SELLER.

    E. STATEMENT OF CHARGE-BACK (ACCOUNT
STATED): PFC shall identify in writing all charge-backs and provide to
SELLER a written statement thereof, which statement shall be deemed an "Account
Stated" between SELLER and PFC, except for any errors of
which SELLER has notified PFC in writing within fifteen
(15) days after the date of receipt by SELLER of said statement. Any errors
which PFC is timely
notified of by the SELLER and
PFC determines are not charge-backs as defined in this Agreement, shall
be immediately credited to SELLER.

     

    9.
TERM AND TERMINATION:

     

    A. TERM: This Agreement shall
continue in effect until January 31, 2010 and shall be
automatically renewed for successive periods of six months , so long as the
accounts are in good standing. PFC may terminate this
Agreement at any time. SELLER shall give sixty ( 60 ) days
written notice of intent to terminate to PFC.

    B. TERMINATION UPON DEFAULT:
Notwithstanding the foregoing, upon the occurrence of Default by SELLER,
this Agreement shall terminate automatically.

    C. INDEBTEDNESS DUE AND
PAYABLE: Upon the effective date of any termination, whether such
termination is pursuant to the occurrence of a Default or otherwise, any
indebtedness owing by SELLER shall become immediately due and payable without
notice or demand. The gross outstanding Accounts in addition to all reservation,
commitment, Line Fee, Discount Fees, Minimum Monthly Fee, Interest or other
accrued Fees as provided for in this Agreement or subsequent Agreements, Notes
or Addendum's between the parties, shall become immediately due and
payable.

    D. POST TERMINATION: After
termination SELLER remains fully responsible to PFC in connection with any
indebtedness existing or which may yet arise in connection with
outstanding/factored Accounts. PFC's security interest shall
continue until all indebtedness has been paid in full.

    E.  EARLY
TERMINATION:  Not applicable.

    

                                        4

    __jcs_     ___jgm__    ________   ________

    (Initial)      (Initial)      (Initial)      (Initial)

     

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    10.
DEFAULT AND REMEDIES:

     

    A. DEFAULT: Any one or more of
the following shall constitute a default of this Agreement:

     

    (a) SELLER
fails to pay any indebtedness or obligation to PFC when due,

    (b) SELLER
breaches any term, provision, covenant, warranty or representation under this
Agreement, any Amendment hereto, or any other agreements or contracts between
SELLER and PFC or
obligation of SELLER to PFC,

    (c) A
receiver or trustee is appointed for any or all of the assets of
SELLER,

    (d) SELLER
becomes insolvent, ceases business operations, or unable to pay debts as they
mature, makes a general assignment for the benefit of creditors or voluntarily
files under bankruptcy or similar law(s),

    (e) Any
involuntary petition in bankruptcy is filed against SELLER and is not dismissed
within 60 days,

    (f) Any
levies of attachment, executions, tax assessment or similar process is issued
against the SELLER or the Collateral and shall not be released within ten (10)
days thereof, and/or

    (g) Any
document, statement, writing, warranty, representation, report, certificate,
financial statement made or delivered to PFC by SELLER or any of
SELLER's officers, employees or agents, now or hereafter, is incorrect, false,
untrue or misleading in any material respect whatever, and/or

    (h) The
death or insolvency or incompetency of any guarantor of SELLER; revocation or
termination of, invalidity or claim of invalidity of, or limitation of liability
upon, any guarantee of any or all of SELLER's obligations and/or indebtedness,
or commencement of proceedings against any guarantor or surety for SELLER under
any bankruptcy or insolvency law, and/or

    ( i) PFC at any time, acting in
good faith and in a commercially reasonable manner, deems itself
insecure.

     

    B. REMEDIES AFTER DEFAULT: In
the event of any default PFC may do any one or more of
the following:

     

    (a)
Declare any indebtedness secured hereby immediately due and
payable,

    (b)
Directly notify any account debtor/Customers and effect collections of
Accounts/take possession of Collateral and collect such Accounts without
judicial process whether said Account(s) is specifically assigned or
not,

    (c)
Require SELLER to assemble the Collateral and the records pertaining to Accounts
and any other Collateral and deliver it to PFC,

    (d) Enter
the premises of SELLER 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 SELLER,

    (f) Use in
connection with any assembly or disposition of the Collateral, any trademark,
trade name, trade style, copyright or technical process used or utilized by
SELLER,

    (g) Return
any surplus realized to SELLER after deducting the reasonable expenses, costs,
attorney's fees incurred by PFC in resolving said
default

    (l)
Exercise any other rights and/or remedies available to PFC under law or
equity.

    
      (h) Hold
SELLER liable for any deficiency, and/or

      ( i) Sell,
lease or otherwise dispose of all or any portion of the Collateral in its
condition at the time PFC took possession, or after
further manufacturing, processing or repair, at any one or more public and/or
private sale(s), and to adjourn any such sale from time-to-time without notice
other than oral announcement at time scheduled for sale. PFC may directly or through
any affiliated company purchase or lease any Collateral at any such public
disposition and, if permissible under applicable law, at any private
disposition. Any sale or other disposition shall not relieve SELLER of any
liability SELLER may have if any Collateral is defective as to title or physical
condition at the time of sale, or such sale results in a deficiency,
and/or

      (j) PFC may charge and SELLER
shall pay interest on all unpaid indebtedness at the rate of one and one-half
percent (1 1⁄2%) per month, and/or

      (k) PFC
may withhold all Reserves until said default is remedied, and/or

      (l) Exercise any other rights and/or remedies
available to PFC
under law or equity.

      

 

    

    __jcs__   __jgm__   _______    _______

    (Initial)     (Initial)     (Initial)     (Initial)                                                                                                  5

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

       

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

       

    

    11.
OTHER PROVISIONS:

     

    A. FINANCIAL RECORDS: SELLER
will furnish to PFC
financial statements and information as reasonably requested by PFC from time to
time.

    B. TAX COMPLIANCE: SELLER will
furnish PFC, upon
reasonable request satisfactory proof of payment and/or compliance with all
Federal, State and/or local tax requirements.

    C. NO PLEDGE: SELLER has no
authority to, and will not, pledge, or claim to pledge, the credit of PFC to any person or business
for any purpose whatsoever.

    D. POWER OF ATTORNEY: In order
to carry out this Agreement, SELLER grants to PFC, an irrevocable power of
attorney, coupled with an interest, authorizing and permitting PFC (acting through any of its
employees, attorney's or agents) at any time, at PFC's option, with or without
notice to SELLER, and at SELLER's sole expense, to do any or all of the
following in SELLER's name or otherwise: its special attorney in fact, or agent,
with power to:

    (a) Insert
PFC's remittance address
on all Accounts of SELLER mailed by PFC,

    (b)
Receive, open, and dispose of all mail addressed to SELLER and in the event of a
Default to notify the United States Postal Service to change the address for
delivery of SELLER's mail to any address designated by PFC, including but not limited
to, PFC's own address.
PFC shall turn over to
SELLER all mail not relating to the Collateral or SELLER's payment of any
indebtedness owing,

    (c)
Endorse the name of SELLER, or SELLER's fictitious trade name, on any checks or
other evidences of payment that may come into the possession of PFC on Accounts purchased by
PFC or pursuant to default on any other documents relating to any of the
Accounts or to Collateral, and including but not limited to, financing
statements, financing statement amendments, notices to Customers and any other
documents necessary to carry out the purposes of this Agreement,

    (d) In
SELLER'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) From
time to time offer a trade discount to SELLER's Customer exclusive of SELLER's
normal business practice with said Customer,

    (g) To
direct any financial institution which is a participant with PFC in making Advances to or
for the benefit of SELLER, or which is the institution with which any deposit
account is maintained by SELLER, to pay to PFC all monies on deposit by
SELLER, which are payable by said institution to SELLER regardless of any loss
of interest, charge or penalty as a result of payment before
maturity,

    (h) To
instruct any accountant or third party having custody or control of any books or
records or computer records belonging to, or relating to, SELLER to give PFC full rights of access,
inspection and opportunity to copy said records as PFC may require,

    (i) File
financing statements or financing statement amendments to reflect any change of
SELLER's trade style or fictitious name or legal status, and

    (j) To do
any and all things PFC
deems necessary and proper to carry out the purpose(s) of this
Agreement.

    (k) SELLER
authorizers PFC to file
all necessary financing statements in behalf of the SELLER with the State(s) in
which PFC deems it
necessary to secure its interest in the "Personal Property" assets as described
in section 4 entitled "Security Interest/Collateral.

    The
authority granted PFC
shall remain in full force and effect until all assigned Accounts are paid in
full and any indebtedness or obligation of SELLER to PFC is
discharged.

    E. HOLD HARMLESS: SELLER
agrees to indemnify and hold PFC harmless against any and
all claims, losses, expenses, costs, obligations, liabilities, and attorneys'
fees PFC may incur by
reason of: (I) SELLER's breach of or failure to perform any of its warranties,
guarantees, commitments, or covenants in this Agreement; or (ii) PFC's collecting or attempting
to collect any Accounts.

     

                                             6

    __jcs__    ___jgm_    ________    _______

     (Initial)      (Initial)      (Initial)      (Initial)

     

     

     

    
      
         

      

      
         

        
          

        

      

      
         

      

       

      F. 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.

      G. WRITTEN WAIVER: PFC may not
waive its rights and remedies unless the waiver is in writing and signed by
PFC. A waiver by PFC of any right or remedy
under this Agreement on one occasion is not a wavier of any other right on that
occasion, nor the waiver of that or any other right on any subsequent
occasion.

      H. LEGAL FEES: SELLER shall
pay to PFC all
attorney's fees, costs and/or expenses ("Legal Fees") incurred by PFC in connection with PFC negotiating, preparing,
obtaining legal advise about, or enforcing this Agreement and any documents
prepared in connection herewith, and/or protecting, preserving or enforcing any
lien, security interest or other right granted by SELLER to PFC, whether or not suit is
brought. In any lawsuit, arbitration or other proceeding, including any and all
appeals therefrom, the prevailing party shall be entitled to recover its Legal
Fees wherever applicable.

      I. CALIFORNIA LAW: This
Agreement shall be governed by and construed both as to validity and performance
and enforced in accordance with the laws of the State of California, without
giving effect to the choice of law principles thereof. The venue for any
litigation, arbitration or other proceeding relative to this Agreement shall be
in San Diego County, State of California.

      J. INVALID PROVISIONS: If any
provision(s) of this Agreement shall be declared illegal, contrary to law or
policy, or otherwise unenforceable, it is agreed that such provision shall be
disregarded and that all other provisions of this Agreement shall remain in full
force and effect as though such provision(s) had not been incorporated
herein.

      K. ENTIRE AGREEMENT: This
Agreement, and any exhibits and schedules attached hereto, constitutes the
entire agreement of the Parties and supersedes all other prior agreements,
understandings, representations and warranties, whether written or oral. This
Agreement may be amended only by written agreement executed by the
Parties.

      L. NOTICE: All notices,
requests, demands, and other communications (collectively "Notices") given or
made pursuant to this Agreement shall be given if sent by telex, telecopy,
first-class mail or by registered or certified mail, return receipt requested,
postage and fees prepaid, or equivalent private messenger/delivery service
offering signature acknowledgment by recipient (FEDEX, UPS, etc.), or by
personal delivery to the addresses listed on the original application, new
addresses provided by the parties, or "wherever

       

      
        
          	
                  _______ 

                	
                  M. WAIVER OF JURY TRIAL:
      BOTH SELLER AND PFC ACKNOWLEDGE THE  EXTREME
      COST ATTENDANT TO TRIAL BY JURY, AND THEREFOR BOTH SELLER
      AND PFC WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING
      OR TRANSACTION RELATING TO THIS AGREEMENT OR ANY AGREEMENT(S)
      RELATED
HERETO.

                

        

         

        N. VENUE: SELLER agrees that
all actions or proceedings of any nature whatsoever relating directly
or indirectly hereto shall be litigated or arbitrated in courts or places
located within the State of California, County of San Diego and if such action
shall be brought in Federal Court then within the Federal District Court located
in said State.

      

      (a) Service of Process: If PFC is not able to
serve process upon SELLER, SELLER hereby irrevocably appoints and designates the
Secretary of State of California whose address is 1230 "J" Street, Sacramento,
CA 95814, or any other person having or maintaining a place of business in such
State, whom SELLER may from time to time hereafter designate having given ten
(10) days written notice thereof to PFC" as SELLER's true and
lawful attorney and duly authorized agent for acceptance of legal process.
Service of such process upon either the Secretary of State as aforementioned, or
upon such designated agent shall constitute personal service of such process
upon SELLER.

      O. REIMBURSEMENT FOR PAYMENT OF
JUDGMENTS OR TAXES : In the event any governmental taxing authority or
third party imposes or levies any sales, excise or other tax or other form of
judgment against SELLER in such form that PFC deems it appropriate or
necessary to pay such taxes, liens or judgments, SELLER will immediately
reimburse PFC the amount
of taxes, liens or judgments paid by PFC.

      P. PARTICIPATION: SELLER
acknowledges and agrees that PFC may seek to or enter into an agreement with a
third party or parties whereby such third parties or parties ("Participant")
participates with PFC in
the transactions that are the subject of this Agreement (the "Participation").
SELLER further acknowledges and agrees that for the Participation, PFC may provide Participant
with financial and other relevant information that PFC has obtained from or about
SELLER in connection with this Agreement and/or any anticipated
Participation.

    

     

     

    7

    __jcs__      __jgm__      ________      ________                                                                                                                               

     (Initial)       (Initial)        (Initial)         (Initial)

     

     

    
 

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Q. DESTRUCTION OF SELLER'S DOCUMENTS
: Any documents, schedules, invoices, accounts or other papers delivered
to PFC may be destroyed
or otherwise disposed of by PFC six (6) months after the
same are delivered to PFC unless SELLER makes
written request therefore and pays all expenses attendant to their return, and
in which event PFC shall
return same when PFC's
actual or anticipated need therefore has terminated.

    R. POST TERMINATION FEE'S: In
the event that this Agreement is terminated, PFC shall issue a UCC
termination financing statement at no cost to Seller or other authorized form of
termination. Seller is responsible for filing this form at the Secretary of
States Office or other such place as is appropriate. In the event that Seller
request PFC to retrieve, recreate or reissue said documentation post
termination, SELLER will be charged $50.00 plus any actual cost paid to a third
party for this service.

    S. POST TERMINATION ACCOUNTING
RECOVERY FFES: In the event that Seller request copies of factoring
reports or accounting documents sixty days or more post termination, SELLER
shall pay reasonable recovery cost if those documents can be recovered. In some
instances, when an Account becomes dormant information is purged from the system
making recovery of this information unlikely.

    T. PLACE OF PERFORMANCE: All
acts to be performed under this Agreement are performable at PFC's chief place of
business.

    U. DISCLOSURE OF CHARGES:
SELLER HAS FULLY READ THIS AGREEMENT, AND SELLER FULLY UNDERSTANDS THE CONTENTS
HEREOF, PARTICULARLY THE CHARGES, RATES AND/OR COSTS WHICH SELLER WILL/MAY PAY
TO PFC HEREUNDER. SELLER HAS EVALUATED THE CHARGES AT OTHER FINANCIAL
INSTITUTIONS AND AGREES THAT THE CHARGES TO BE PAID HEREUNDER ARE FAIR AND
REASONABLE UNDER THE CIRCUMSTANCES.

    Executed
this ninth day of July 2010, at San Diego, California.

     

     

    
      
        	PRIMARY
      FUNDING CORPORATION  	 	 	      
                PEPPERBALL
      TECHNOLOGIES – ­CA, INC.

              	 
	 	 	 	A
      Delaware Corporation	 
	 	 	 	 	 
	
                /s/
      Patricia J. Burns

              	 	 	
                /s/
      John C. Stiska

              	 
	
                By: 
      Patricia J. Burns, President

              	 	 	
                By: 
      John C. Stiska, Chief Executive Officer

              	 
	
                 

              	 	 	
                 

              	 
	 	 	 	 	 
	 	 	 	/s/
      Jeffrey G. McGonegal	 
	 	 	 	By: 
      Jeffrey G. MeGonegal, SEC/CFOex10x2.htm

    Exhibit
10.2

     

     
 

    INTERCREDITOR
AGREEMENT

     

    This
Intercreditor Agreement (Agreement) is made this day 9th day
of July, and entered into between James A. Simpson Foundation, J.A. & G.L.
Simpson Trust, dtd May 18, 1988 (Bridge Lender) and Primary Funding Corporation
(Primary Funding).

    

    Recitals

     

    WHEREAS,
the Bridge Lender and Primary Funding have entered into an agreement where the
Bridge Lender is subordinating and assigning its priority interest in the
inventory and the accounts of PepperBall Technologies – CA, Inc. and PepperBall
Technologies, Inc. (CLIENT);

     

    WHEREAS,
the parties wish to further clarify their respective rights regarding the
Agreement.

     

    NOW,
THEREFORE, for good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and intending to be legally bound hereby, the
Bridge Lender and the Primary Funding hereby agree as follows:

     

    1.) The
term Accounts shall mean all existing and hereafter arising accounts, contract
rights, instruments, notes, drafts, documents, chattel paper and all other forms
of obligations owing to Client arising out of the sale or lease of goods or the
rendition of services by Client, irrespective of whether earned by performance,
and any and all credit insurance, guarantees and other security therefor, as
well as all merchandise returned to or reclaimed by Client and Clients books
relating to any of the foregoing.

     

    2.) The
term Inventory shall mean all of Client’s present and future inventory in which
Client has any interest, including goods which have been leased or 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, and packing
and shipping materials, wherever located, and any documents of title
representing any of the above.

     

    3.) The
Bridge Lender and the Primary Funding agree that Primary Funding’s security
interest in the Accounts and Inventory is to be construed as having priority to
the extent of all indebtedness secured thereby, now existing or hereafter
arising in the Accounts and Inventory over the security interest of the Bridge
Lender.

     

     

     

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    4.)
Notwithstanding any other provisions of this Agreement, it is the intent of the
Bridge Lender and Primary Funding that this Agreement and all prior agreements
shall be construed to be a subordination, subject to the terms and conditions
stated herein, from the Bridge Lender to Primary Funding of its security
interest as well as all rights, title and interest in the Accounts and the
Inventory. If, however, at the time either the Bridge Lender or Primary Funding,
as the case may be, has elected to foreclose upon its secured interest in Client
or otherwise files suit against Client related to the collection of the
obligation Client owes it, and Client is indebted to Primary Funding the parties
agree that the following shall be the order and priority of their respective
security interests in the Accounts and Inventory:

     

    ( i ) the
security interest of Primary Funding shall be superior to and entitled to
priority over the security interest of the Bridge Lender but only up to the
amount of $200,000 owed to Primary Funding by Client. Thereafter, Bridge Lender
shall have priority over the security interest of Primary Funding.

    

    ( ii ) to
the extent of the costs, expenses and attorneys fees incurred by Primary Funding
in conjunction with foreclosure efforts, the security interest of the Primary
Funding shall be superior to and entitled to priority over the security interest
of the Bridge Lender;

    

    ( iii )
thereafter, and to the extent of the indebtedness owed by Client to the Bridge
Lender, the security interest of Bridge Lender shall be superior to and entitled
to priority over the security interest of Primary Funding.

    

    5.) The
parties each agree that prior to the exercise of any of their rights and
remedies with respect to any security interest they may have in Client, the
party pursuing its rights and remedies will first give the other twenty four
hours written notice before pursuing its claim.

     

    6.) In the
event of any action to enforce or interpret the terms of this agreement, that
the prevailing party in any such action will be entitled to recover reasonable
attorney’s fees and cost.

     

    7.) The
parties agree that all actions or proceedings of any nature whatsoever relating
directly or indirectly hereto shall be litigated or arbitrated in courts or
places located within the State of California, County of San Diego and if such
action shall be brought in Federal Court then within the Federal District Court
located in said State.

     

    8.) This
Intercreditor Agreement constitutes the entire, final and integrated agreement
between the parties hereto pertaining to the subject matter hereof, and
supersedes any and all prior understandings, representations, warranties and
agreements between the parties hereto, or any of them pertaining to the subject
matter hereof.

     
 

     

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    IN WITNESS
WHEREOF, this Agreement is executed on the day first written above.

    

    
      
        	 	PRIMARY
      FUNDING CORPORATION	 
	 	 	 
	
                 

              	/s/ Patricia
      J. Burns	 
	 	By: 
      Patricia J. Burns, President	 
	 	 	 
	 	 	 

      

    

     

    
      
        	 	
                BRIDGE
      LENDER

                 

                James
      A. Simpson Foundation

              	 
	 	 	 
	
                 

              	/s/ James
      A. Simpson	 
	 	James
      A. Simpson, Manager	 
	 	 	 
	 	 	 

      

    

    
       

      
        
          	 	
                   

                   

                  J.A.
      & G.L. Simpson Trust, dtd May 18, 1988

                	 
	 	 	 
	
                   

                	/s/ James
      A. Simpson	 
	 	James
      A. Simpson, Trustee

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00176-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00176-of-00352.parquet"}]]