FACTORING AGREEMENT
Exhibit 99.1
THIS FACTORING AGREEMENT (the “Agreement”) made and entered into this MAY 6, 2016 (the “Effective Date”) by and between RTS FINANCIAL SERVICE, INC., (“Factor”), a Kansas Corporation; and TSS, INC. D/B/A TOTAL SITE SOLUTIONS, a Delaware corportion; VTC, LLC d/b/a Total Site Solutions, a maryland limited liability company; and Innovative Power Systems, Inc., a virginia corporation (collectively, the “Assignor”).
RECITALS
1. Assignor desires to sell to Factor certain existing and future Accounts Receivable (“Accounts”) arising from goods sold or services performed in the regular course of Assignor’s business; and
2. Factor desires to purchase certain of those Accounts, which Factor in its sole discretion deems acceptable for purchase, according to the terms and conditions provided in this Agreement.
In consideration of the above recitals and mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
SECTION 1. DEFINITIONS
An “Account” means any right to payment for services rendered and goods sold by or on behalf of Assignor. “Account Debtor” means a person or other entity, which is obligated to pay the Account.
SECTION 2. PURCHASE OF ACCOUNTS
2.1 Assignor agrees to present to Factor for purchase, with recourse, certain Accounts arising from the activities and services performed by Assignor; provided, however that accounts for Dell, Inc. are excluded from this Agreement (the “Excluded Account”).
2.2 Factor, in its sole discretion, may purchase such Accounts from Assignor as Factor determines to be acceptable. Assignor hereby agrees to sell, assign, transfer, convey and deliver to Factor, such Accounts as Factor shall elect to purchase. Assignor will notify each Account Debtor of the sale of its Account or Accounts to Factor and shall place a clear statement or legend, approved by Factor, on each such Account invoice, purchase order, or statement, stating that such Account has been sold and assigned, and is payable to Factor at its office at 0000 Xxxxxxx Xxx., Xxxxxxxx Xxxx, Xxxxxx 00000 or at such other address as Factor shall designate in writing. Factor shall become the absolute owner of all Accounts purchased hereunder. All remittances received by Assignor for payment of Accounts sold to Factor are the property of Factor, and Assignor shall hold such proceeds in trust for Factor, and shall immediately deliver to Factor, in the identical form, all payments received by Assignor on each such Account, together with all documents accompanying the remittance to Assignor. Assignor guarantees the timely payment of the monies and amounts represented by the assigned Accounts.
SECTION 3. PURCHASE PRICE AND FACTORING CHARGE; SECURITY RESERVES
3.1 The purchase price for each Account purchased by Factor hereunder shall be the net amount of such Account, less the Factor’s fee. The Factor’s fee payable on each Account shall consist of the following: For each day from the date of the advance of the purchase price to Assignor (the “Advance Date”) until the Account has been paid in full, a daily fee equal to the sum of the one-month Prime Rate in US dollars (“PRIME”) in effect on the Advance Date, plus 7.0% (the “SPREAD”), divided by 360 ((PRIME + 7.0%) / 360) shall be charged on the full net amount of the Account. The one-month PRIME in effect on the date of this Agreement is 3.5%. The PRIME rate in effect on the Advance Date of an Account shall remain fixed as to that Account and shall not be adjusted to reflect subsequent changes in the PRIME rate. The Factor's fee shall be paid for by a deduction from the Security Reserve as described below; provided, however, Factor shall at its sole discretion nevertheless in all cases retain the right to require repurchase by the Assignor of any Account as provided in Section 5 below. “Net amount” means the gross amount of the Account less any discount or allowance of any nature allowed the Account Debtor.
3.2 Payment of the purchase price to Assignor shall be made as follows:
(a) Initial Payment and Security Reserve. Upon the presentation by Assignor to Factor of documents reasonably acceptable to Factor, for an Account approved for purchase by Factor, and provided no claim or dispute shall then exist with the Account Debtor as to the Account, Factor will advance to the Assignor the purchase price of the Account, less a security reserve equal to TWENTY PERCENT (20.0%) of the net amount of the Account.
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(b) Final Payment. Upon Factor’s receipt of full payment of the invoice for the Account from the Account Debtor, and provided Assignor shall not otherwise be in default in any respect under this Agreement, Factor will remit to the Assignor the security reserve in complete and full payment of the purchase price. In all cases, Factor will also retain its Factor’s fee.
SECTION 4. SECURITY INTEREST
4.1 Assignor hereby grants to Factor as collateral, to secure all of the debts, liabilities and obligations of Assignor to Factor under this Agreement, including all costs and expenses incurred by Factor in connection with the enforcement of its rights under this Agreement, a security interest in the following property of Assignor: (a) all Accounts (except for the Excluded Account), wherever located or situated, and whether now existing or arising in the future, and whether now owned or at any time in the future acquired by Assignor, together with all proceeds and monies due or becoming due on such Accounts; all guaranties, insurance and security for such Accounts; all security reserves related to such Accounts; all of Assignor’s rights and interests in the goods giving rise to such Accounts, and the rights associated with or related or pertaining to such goods, including without limitation the right of stoppage in transit and any and all related insurance, any items substituted therefore as replacements and all additions thereto; (b) all of Assignor’s chattel paper, instruments, general intangibles, securities, contract rights and insurance associated with or related to the Accounts; (c) all equipment, inventory, and deposit accounts; and (d) all proceeds of any of the foregoing Accounts, property, rights and interests. Factor in its own name, or Factor’s collateral agent Electus 116 Trust in its name as the agent of Factor, may file financing statements and all amendments thereto describing as the collateral any or all of the foregoing collateral by any description Factor or its collateral agent deems appropriate in any jurisdiction or office Factor or its collateral agent deems appropriate to perfect Factor’s security interest in foregoing collateral.
4.2 In the event of Assignor’s breach of any warranty made in this Agreement or the Assignor’s failure to observe or perform any of the provisions or obligations of this Agreement, Assignor shall be in default, and Factor may enforce payment and exercise any and all of the rights and remedies provided by Article 9 of the Uniform Commercial Code. In addition, upon default by Assignor, Factor shall also have the right to take all actions necessary to collect the Accounts directly from the Account Debtors.
SECTION 5. REPURCHASE OF ACCOUNTS
All Accounts purchased by Factor from Assignor are purchased with full recourse. If Assignor breaches any warranty or otherwise violates or defaults on any of its obligations hereunder, or if any Account purchased by Factor hereunder is not paid in full on or before the payment due date of such Account, then upon request by Factor, Assignor shall immediately repurchase such Account from Factor for an amount equal to the face amount of such Account (less any payments received by Factor on such Account from the Account Debtor), together with interest thereon at the rate of ZERO% per annum from the date of the assignment of such Account to Factor. Any security reserve held by Factor for such Account shall be released only in accordance with Section 3.2(b), and Factor shall in all events also be entitled to and shall retain its Factor’s fee on the Account. Typically, Factor will require repurchase of any unpaid Account no later than 90 days after the Account invoice date, unless Factor, in its sole discretion chooses otherwise. However, in all cases, any unpaid Account must be repurchased by Assignor within 120 days after the Account invoice date. Assignor shall not be relieved of its absolute repurchase obligation hereunder, even though the Account Debtor, whose Account Assignor must repurchase hereunder, was listed on Factor’s debtor credit rating list.
SECTION 6. REPRESENTATIONS AND WARRANTIES
Assignor represents, covenants, warrants and agrees as follows:
6.1 Assignor was duly formed, organized, existing and in good standing under the laws of the states of Delaware, Maryland, and Virginia respectively; that the execution, delivery and performance of this Agreement are in every respect within its corporate powers and have been duly authorized by appropriate corporate action; and that this Agreement, when duly executed and delivered by the Assignor and the Factor, will constitute a legal, valid and binding agreement of the Assignor fully enforceable in accordance with its terms and conditions.
6.2 The Assignor’s address set out in Section 15 of this Agreement is TSS, INC. D/B/A TOTAL SITE SOLUTIONS principal place of business. Assignor shall give Factor immediate written notice of any change in the location of its principal office, the addition of any new place or places of business and their addresses, any name change or the addition of any name under which Assignor does business, or any change in the nature or status of Assignor’s business or operations.
6.3 As to each Account purchased by Factor under this Agreement: (1) the Account is not yet past due, arose in the ordinary course of Assignor’s business and represents a bona fide completed transaction; (2) the title of Assignor to the Account is absolute and subject to no assignment, claim, lien or security interest other than liens in favor of any person or entity providing financing to Assignor provided that any such liens covering this collateral are subject to a written subordination agreement in favor of Factor; (3) the Account, as shown on Assignor’s books and records and on any invoices, or statements, delivered to Factor is a legally enforceable debt owed by Account Debtor to Assignor in its full face amount; (4) no partial payment has been made by anyone on such Account; (5) no set off, credit, allowance, adjustment, counterclaim or defense to such Account exists or will exist and no agreement has been made or will be made with any person or entity under which any deduction or discount may be claimed on such Account; (6) the Account is payable not more than thirty (30) days from the date of assignment of the Account to Factor unless a longer period of time is approved by Factor.
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6.4 Assignor shall execute any and all financing statements, Uniform Commercial Code forms or other documents or instruments which Factor deems necessary to protect its interest under this Agreement.
6.5 Assignor shall indemnify, defend and hold Factor harmless from and against any and all misrepresentations or breaches of warranty or other defaults hereunder by Assignor, and from any losses, expenses, attorney’s fees or other costs incurred by Factor caused by or arising out of any such defaults or breaches of this Agreement by the Assignor and from any costs expenses or attorney’s fees incurred by Factor in enforcing Factor’s rights under this Agreement; from any dispute or claim resulting in liability, loss, expense, cost or attorney’s fees caused by or arising out of the rejection of any work performed or services rendered by Assignor; or from any alleged claim, dispute, action, defense or set off of every kind and nature asserted by any Account Debtor.
6.6 The Assignor shall not, without the express written consent of the Factor, release, compromise, settle or adjust any Account purchased hereunder, or grant any discounts, allowances or credits thereon.
SECTION 7. POWER OF ATTORNEY
7.1 In order to carry out this Agreement, and to avoid unnecessary notification of Account Debtors, Assignor irrevocably appoints Factor as Assignor’s true and lawful attorney with the full power and right to: (a) invoice or xxxx for, collect, receive, and deposit to Assignor’s bank accounts any and all amounts which may be due or become due to Assignor from Account Debtors, and to use Assignor’s name for purposes of billing and collection of any and all amounts due; (b) receive, accept, open, dispose of and redirect any and all mail addressed to Assignor; (c) negotiate any checks received in payment of Accounts whether payable to Assignor or Factor or both, and endorse the name of Assignor on any checks or other evidences of payment or other instruments or documents that may come into the possession of Factor on Accounts purchased by Factor and on any invoices or other documents or instruments relating to any of the Accounts or relating to any collateral or security hereby granted by Assignor to Factor; (d) in Assignor’s name, or otherwise, demand, make claim for. xxx for, collect, grant extensions, compromise, discharge, and get or give releases for any and all monies or funds due or to become due on Accounts; (e) execute and deliver receipts or acknowledgments to Account Debtors for such amounts due which shall be binding upon Assignor and Factor; (f) notify Account Debtors of the sale of Accounts to Factor and notify and instruct Account Debtors, in Assignor’s name, of the address and procedures for making payments on any Accounts that are sold to Factor or which constitute collateral hereby granted by Assignor to Factor; (g) take all steps necessary to insure payment of such amounts and monies due, and do any and all things in Assignor’s name necessary or proper to carry out the purposes intended by this Agreement; (h) file financing statements and all amendments thereto, describing as collateral any or all of the collateral described in Section 4 hereof by any description Factor deems appropriate in any jurisdiction or office Factor deems appropriate to perfect its security interest in the collateral described in Section 4 hereof; and (i) initiate debit or credit entries through the Federal Reserve Automated Clearing House System (ACH) to any deposit account maintained by Assignor wherever located in order to satisfy any obligations of Assignor to Factor under this Agreement. It is understood that this power of attorney is coupled with an interest, and is irrevocable until all obligations of Assignor to Factor under this Agreement have been satisfied.
7.2 Exercise of the foregoing powers shall be in the sole and absolute discretion of Factor, but Factor shall have no obligation to exercise any of the foregoing powers. Nothing contained in this Agreement shall in any way require Factor to initiate or become a party to any litigation or other legal proceedings.
7.3 The Factor shall not, under any circumstances, or in any event whatsoever, have any liability for any error, omission or delay of any kind occurring in the collection, payment or settlement of any Account or of any instrument received in full or in part payment thereof or in dealing with any lien, security or guaranty of any such Account
SECTION 8. BOOKS, RECORDS AND FINANCIAL STATEMENTS
All of Assignor’s books, accounts, ledgers, correspondence, records and papers pertaining to all of the Assignor’s Accounts and business shall be accurately and properly prepared and maintained by Assignor and shall disclose the sale of Accounts purchased by Factor. All such books, ledgers, accounts, records, correspondence and papers shall be opened by Assignor at all reasonable times for Factor’s inspection, audit and copying. Upon request, but not more often than quarter annually, Assignor shall furnish Factor with financial statements including income statements and balance sheets showing Assignor’s financial condition. Upon request, Assignor shall also provide Factor with annual financial statements acceptable to Factor.
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SECTION 9. ATTORNEY’S FEES AND EXPENSES
If Factor retains the services of an attorney to enforce any obligation of Assignor to Factor under this Agreement, Factor shall be entitled to recover from Assignor all attorney’s fees, court costs and expenses, regardless of whether or not an action is commenced.
SECTION 10. GOVERNING LAW AND CONSENT TO JURISDICTION
10.1 This Agreement is accepted and made in the state of Kansas and this Agreement and the rights of the parties hereunder shall be interpreted under and governed as to construction, enforcement and validity by the laws of the state of Kansas.
10.2 Factor and Assignor agree that any legal suit, action or proceeding arising out of or related to this Agreement shall be instituted, heard and resolved solely and exclusively in a State or Federal Court in or for Xxxxxxx County, Kansas. Factor and Assignor submit to the jurisdiction of the State and Federal Courts for Xxxxxxx County, Kansas for the purpose of deciding any questions, disputes or causes, arising under this Agreement, and in the event Assignor is not qualified to do business in the State of Kansas, the Secretary of State of the State of Kansas is hereby designated as Assignor’s agent for service of process for any actions commenced under or to enforce this Agreement in the State of Kansas, provided that a copy of any such process shall be mailed to Assignor in accordance with the notice provisions of this Agreement.
SECTION 11. TERMINATION
11.1 This Agreement shall have an initial term of twelve (12) months from the Effective Date hereof (the “Original Term”), and shall automatically renew for successive periods of twelve (12) months each (“Renewal Periods”), unless sooner terminated as hereinafter provided. Assignor may terminate this Agreement as of the expiration of the Original Term by giving Factor prior written notice of its intention to so terminate and agreeing to pay Factor an early termination fee equal to $10,000 (the 1% or 2% early termination fee noted below shall not apply in this situation); provided, however, that any presentation of Accounts by Assignor to Factor for funding after the termination notice shall cancel any prior termination notice and renew this Agreement for the Renewal Period. All such notices shall be given by Assignor to Factor at least sixty (60) days, but not more than ninety (90) days prior to the expiration of the Original Term or any Renewal Term.
Assignor may also terminate this Agreement at any time during the first 24 months by providing Factor at least thirty (30) days prior written notice and paying Factor an early termination fee equal to (i) two percent (2.0%) of the average monthly amount purchased during the term of the Agreement if Assignor exercises this option during the first 12 month period of this Agreement, or (ii) one percent (1.0%) of the average monthly amount purchased during the term of the Agreement if Assignor exercises this option during the second 12 month period of this Agreement (the “Early Termination Fee”). Any such termination shall be effective upon payment to Factor in full of all obligations under this Agreement, including the applicable Early Termination Fee. In addition to the foregoing, Factor may terminate this Agreement at any time upon ninety (90) days prior written notice to Assignor; provided however, that this Agreement shall terminate immediately, at the option of Factor, upon the filing of a petition in bankruptcy by or against the Assignor or upon any default or breach of this Agreement by Assignor (each an “Event of Default”). Upon notice of termination following an Event of Default, all obligations under the Agreement, including the Early Termination Fee, shall be due and payable in full and such obligations shall survive this Agreement. Assignor acknowledges and agrees that the termination fees that may become payable under this section represent a reasonable and genuine estimate of liquidated damages to Factor. Assignor hereby acknowledges and agrees that Factor will incur significant time and expense setting up this financing relationship (the “Due Diligence Expenses”). In the event that Factor does not purchase any Accounts from Assignor under this Agreement for any reason out of the control of Factor (including, but not limited to, the inability of Assignor to completely terminate its relationship with another financing company), Assignor hereby agrees to pay Factor a fee equal to $5,000.00 to cover the Due Diligence Expenses.
11.2 All of the Assignor’s covenants, warranties and agreements under this Agreement made to Factor, and all rights and remedies of the Factor under this Agreement, shall survive the termination of this Agreement and shall continue in full force and effect until all Accounts purchased hereunder are paid in full and all debts and obligations to of Assignor to Factor hereunder have been satisfied in full. Upon termination Assignor shall remain liable to Factor for any and all unpaid Accounts, and for all other amounts and monies as may be owed to Factor under the terms and conditions of this Agreement. Upon termination, any security reserve and any other funds or monies from any source whatsoever which would otherwise be owing to Assignor by Factor may be retained by Factor until such time as all obligations and debts of Assignor to Factor have been fully satisfied, and Factor’s security interest provided in Section 4 hereof shall continue until all obligations of Assignor to Factor are paid in full. Factor shall have the right, in its sole discretion, to set off against the security reserve and any other sums owing to Assignor by Factor all obligations and debts of Assignor to Factor.
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SECTION 12. MODIFICATION, SEVERABILITY, SUCCESSORS AND ASSIGNS, ETC.
This Agreement may be modified only by written instrument signed by the parties hereto. In the event that any one or more of the provisions contained in this Agreement should be held by any court of competent jurisdiction to be unenforceable, the holding or decision shall not affect or impair any of the other provisions of this Agreement. This Agreement supersedes all prior agreements between the parties, and shall bind the successors and assigns of Assignor and shall inure to the benefit of the successors and assigns of Factor. As used in this Agreement, the singular shall be deemed to include the plural and vice versa, and the neuter shall be deemed to include the masculine or feminine, and vice versa.
SECTION 13. NO DELAY
13.1 No delay or omission on the part of Factor in enforcing or exercising any right hereunder shall operate as a waiver of such right or any other right. The waiver by Factor of the breach by Assignor of any provision of this Agreement, or of Assignor’s compliance with such provisions, shall not be construed as a waiver of any other breach or of the provision itself. No waiver or modification of the Agreement shall be chargeable against Factor unless in writing, signed by Factor and delivered by Factor to Assignor.
13.2 The waiver, compromise, discharge, extension or release by Factor, of any duty or obligation of any Account Debtor shall not reduce, diminish, limit, or restrict in any way Assignor’s obligations and liabilities to Factor.
SECTION 14. JOINT AND SEVERAL LIABILITY
In the event that Assignor consists of more than one entity, these parties hereto agree that they shall be jointly and severally liable for any and all amounts due under this Agreement including, but not limited to, the obligations of the other party and collection fees in the event Factor is not paid as required herein.
SECTION 15. NOTICE
Notices under this Agreement shall be in writing and mailed postage prepaid, registered or certified mail, return receipt requested, or sent by overnight delivery service, addressed to the addressees set forth below, or to such other address as either party notifies the other in writing. All such notices shall be effective upon receipt if delivered by hand or overnight delivery service; otherwise upon three (3) business days after the notice is placed in the U.S. Mail. Addresses for notices are as follows:
| In the case of Assignor, to: | In the case of Factor, to: |
| TSS, INC. D/B/A TOTAL SITE SOLUTIONS | RTS FINANCIAL SERVICE, INC. |
| 000 X XXX XXXXXXXX XXXX, XXX. 000 | 0000 XXXXXXX XXX |
| XXXXX XXXX, XX 00000 | XXXXXXXX XXXX, XX 00000 |
| Tel: 000-000-0000 | TEL: (000) 000-0000 |
| Fax: 000-000-0000 |
SECTION 16. COUNTERPARTS; FACSIMILE SIGNATURES
This Agreement may be executed in one or more counterparts and by different signatories thereto, all of which counterparts, when taken together, shall constitute but one agreement. This Agreement may be validly executed and delivered by facsimile or other electronic transmission and any such execution or delivery shall be fully effective as if executed and delivered in person.
[Signatures on the following page]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their duly authorized officers, as of MAY 5, 2016.
| ASSIGNOR: | ||||
| TSS, INC. D/B/A TOTAL SITE SOLUTIONS | ||||
| VTC, LLC d/b/a Total Site Solutions | ||||
| Innovative Power Systems, Inc. | ||||
| ATTEST: | ||||
| /s/ Xxxx Xxxxxx | By: | /s/ Xxxxxxx Xxxxxxx | ||
| XXXX XXXXXX | XXXXXXX XXXXXXXX | |||
| Title: | CHIEF FINANCIAL OFFICER | Title: | CHIEF EXECUTIVE OFFICER | |
| FACTOR: RTS FINANCIAL SERVICE, INC. | ||||
| ATTEST: | ||||
| /s/ Xxx Xxxxxx | By | /s/ Xxxxxx X. Xxxx | ||
| XXX XXXXXX | XXXXXX X. XXXX | |||
| Title: | VICE-PRESIDENT | Title: | VICE-PRESIDENT | |
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