1 1C.8 FACTORING FACTORING FORM 1C.8 FORM 1C.8 PARTICIPATION AGREEMENT THIS FACTORING PARTICIPATION AGREEMENT ( Agreement ), made and entered into as of the day of, 20, by and between ( Factor ) and ( Participant ); WITNESSETH: WHEREAS, Factor has entered into a Factoring Contact and Security Agreement, dated, 20 (such Factoring Contract and Security Agreement, as heretofore or hereafter supplemented or amended from time to time, being herein called the Factoring Agreement ) with ( Client ), pursuant to which Factor purchases certain of Client s accounts receivable and, upon Client s request, makes advances (individually, an Advance and, collectively, the Loan ) at its discretion against the purchase price of such accounts receivable prior to collection; and WHEREAS, Factor and Participant have agreed that Factor shall sell to Participant, and Participant shall purchase from Factor, an undivided ownership interest in each Advance made pursuant to the Factoring Agreement, upon the terms and subject to the conditions set forth in this Agreement. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowl edged by each party hereto, the parties hereto, intending to be legally bound hereby, hereby agree as follows: 1. Definitions. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): Advance has the meaning ascribed to such term in the recitals hereto. Approved Receivables means the Receivables purchased by Factor from Client under the Factoring Agreement which have been approved by Factor as to credit risk and terms of sale. Business Day means a day other than a Saturday, Sunday or other day in which banks are authorized or required to close under the laws of the State of. Client has the meaning ascribed to such term in the recitals hereto. Collateral means the Receivables and all other property securing repayment of the Loan. Collections means (i) all payments received by Factor from or on behalf of Client, from any source, under or in connection with the Factoring Documents; (ii) the net amounts credited to Client by Factor pursuant to the Factoring Agreement as the purchase price of Approved Receivables; (iii) all payments received by Factor on any guaranties which are or may be applicable to the payment or discharge or the Loan; and (iv) all payments received by Factor from the sale or other disposition of any Collateral. Factoring Agreement has the meaning ascribed to such term in the recitals hereto. Factoring Documents means the Factoring Agreement and each document, instrument, certificate and agreement executed pursuant thereto or in connection therewith. Funded Participation Principal means, at any time, an amount (not less than zero) equal to the difference between all amounts theretofore paid by Participant pursuant to Section 3 hereof and all amounts theretofore paid by Factor pursuant to Section 7(c) hereof. Interest Share means, with respect to a payment of interest accruing on the Loan during any period, so much of such payment as equals (i) an amount which yields interest on the average daily Funded Participation Principal during such period at a fluctuating annual rate equal to the Prime Rate plus percent ( %) (such rate to change simultaneously with each change in the Prime Rate and to be calculated on the basis of a three hundred sixty (360) day year for the actual number of days elapsed), times (ii) a fraction, the numerator of which is such payment of interest and the denominator of which is the aggregate amount of interest accruing on the Loan during such period. [Note: this definition contemplates that the Factor will be receiving a servicing fee for its own account from each interest payment; if not, then the definition may be deleted.] Ledger Debt means an amount owing by Client to Factor in connection with merchandise or services purchased by Client from any other Client of Factor, as described in the Factoring Agreement. Loan has the meaning ascribed to such term in the recitals hereto. Obligor means Client and any guarantor of, surety for, or pledgor of property to secure Client s obligations under the Factoring Documents. Participation means the undivided participating interest in the Loan, Collateral and Collections sold by Factor to Participant, and purchased by Participant from Factor, pursuant to this Agreement. Participation Commitment means $.
2 FORM 1C.8 COMMERCIAL LENDING Participation Percentage means percent ( %). Participation Statement shall have the meaning ascribed to such term in Section 8(a) hereof. Participation Statement Date shall mean the first Business Day of each [week or month]. Prime Rate means the rate of interest publicly announced by from time to time as its prime rate and is a base rate for calculating interest on certain loans. The rate publicly announced by as its prime rate may or may not be the most favorable rate charged by to its customers. Pro Rata Share means, with respect to any amount, a sum equal to such amount times the Participation Percentage. Purchase Price means, for an Advance made after the date hereof, the Participation Percentage times the original principal amount of such Advance. Receivables means all of those accounts receivable owing from customers of Client which have been sold and assigned by Client to Factor pursuant to the Factoring Agreement. 2. Sale of Participation. Participant hereby agrees to purchase and Factor hereby agrees to sell, without recourse, a percentage undivided ownership interest in each Advance heretofore made and hereafter to be made pursuant to the Factoring Agreement in an amount equal to the Participation Percentage of such Advance; provided, however, at no time shall Participant have an obligation to purchase its Participation Percentage in any Advance if, as a result of such purchase, the Funded Participation Principal shall exceed the Participation Commitment. 3. Purchase Price for Participation. a. As the purchase price for its percentage undivided ownership interest in Advances heretofore made, if any, Participant shall pay to Factor on the date hereof in immediately available funds an amount equal to the Participation Percentage times the outstanding principal amount of each such Advance. b. As the purchase price for its percentage undivided ownership interest in each Advance hereafter made, Participant shall, in accordance with Section 8 hereof, pay to Factor, with respect to such Advance, the Purchase Price therefor. 4. Interest in Factoring Documents, Collateral, etc. Participant shall have a percentage undivided ownership interest in Factor s interest in the Factoring Documents, the Collateral and the Collections to the event of Participant s Participation in the Loan. 5. Disclaimer of Representations and Warranties by Factor. Factor makes no representation or warranty with respect to, and assumes no responsibility for, (a) the validity, genuineness, legality, enforceability, sufficiency, or due exe cution of all or any part of the Factoring Documents, (b) the existence or value of any of the Collateral or the perfection or priority of any security interest therein or lien thereon, (c) any representations or warranties made by or on behalf of any Obligor in the Factoring Documents or otherwise, (d) any obligations to be performed or ob served by any Obligor under the terms of the Factoring Documents, (e) the collectability of the Loan, or (f) the financial condition of any Obligor. 6. Representations and Warranties by Participant. Participant represents, warrants, and acknowledges that it has independently reviewed and approved all of the Factoring Documents and all financial and other information neces sary to make an independent decision with respect to the Loan, this Agreement, and the creditworthiness of each Obligor, and that it did not rely upon any statement or representation by Factor with respect to the Factoring Docu ments, the Collateral, any Obligor, or otherwise in making any decisions with respect to this Agreement, the Loan, the Collateral, or the Factoring Documents. 7. Collections; Payments to Participant. a. Factor shall have the sole right to receive payment of, to collect, and to otherwise realize all Collections of principal, interest, fees and commissions with respect to the Loan and to otherwise enforce the obligations of the Obligors under the Factoring Documents. If, notwithstanding the foregoing, any Collection is received, collected, or otherwise realized by Participant, Participant shall immediately remit such Collection to Factor for distribution pursuant hereto. b. Subject to Factor s rights under Section 16 hereof, Factor shall promptly remit to Participant an Interest [or, if no servicing fee, Pro Rata] Share of all Collections of interest on the Loan actually paid, collected, or other wise realized. c. Factor shall, in accordance with Section 8 hereof, remit to Participant a Pro Rata Share of all Collections of principal of the Loan actually paid, collected, or otherwise realized. d. Prior to any remittance thereof to Participant, any sums owed to Participant hereunder shall be held in trust on behalf of Participant; provided, however, that no fiduciary relationship shall thereby be created between Factor and Participant, and Factor s sole duties and responsibilities to Participant with respect to such sums or otherwise shall be as set forth in this Agreement. 8. Manner of Payment of Purchase Price. a. Factor shall deliver to Participant on each Participation Statement Date a report ( Participation Statement ) specifying (i) the amount of Advances made to Client and other charges made to Client s account pursuant
3 FACTORING FORM 1C.8 to the Factoring Agreement during the previous period, (ii) the aggregate amount of Collections received by Factor during the previous period, (iii) the aggregate Purchase Price for such Advances, and (iv) the Pro Rata Share of such principal Collections. b. Promptly upon receipt of each Participation Statement, (i) Participant shall pay Factor the amount by which the Purchase Price specified in the Participation Statement delivered on such Participation Statement Date exceeds the Pro Rata Share of principal Collections specified therein of (ii) Factor shall, subject to Section 16 hereof, pay to Participant the amount by which the Pro Rata Share of principal Collections specified in such Participation Statement exceeds the Purchase Price specified therein, as applicable. c. The contents of each Participation Statement sent by Factor to Participant shall be deemed conclusively accurate and binding upon Participant if not objected to in writing by Participant within thirty (30) days of the mailing thereof. 9. Other Security. Participation shall have no interest in any property which may become security for the Loan by virtue of the terms of any document other than a Factoring Document now or hereafter in effect (other than any such document subsequently executed specifically in connection with the Loan) or in any money or property re ceived upon disposition thereof, unless such money or property is applied by Factor in reduction of principal, interest, or fees due with respect to the Loan, which application shall be in the sole discretion of Factor, and Factor may apply such money or property to the principal, interest, or other amounts due pursuant to any other credit or lending arrangements between Factor and Client. 10. Ledger Debt. Participant and Factor agree that Factor may charge Ledger Debt in any amount and at any time to Client s account pursuant to the Factoring Agreement. Any such charge shall, for purposes of this Agreement, be deemed an Advance made by Factor to Client in which Participant shall have a Participation pursuant to the terms of this Agreement. 11. Reimbursement of Expenses. a. Participant shall pay to Factor, on demand, a Pro Rata Share of the amount of any and all costs and expenses of every kind and nature whatsoever (including, without limitation, counsel fees and disbursements in connection with any litigation, investigation, hearing or other proceeding) with respect or in any way related to the existence, execution, delivery, enforcement, performance, administration and modification of the Loan, the Factoring Agreement, the Collateral or the Factoring Documents, other than general administration overhead costs and expenses for which Factor has not been reimbursed by or on behalf of Client. For the purposes hereof, Factor shall be deemed not to have been reimbursed by Client for any of the foregoing if payment of such costs or expenses is not made by or on behalf of Client upon demand by Factor. To the extent Factor is later reimbursed by or on behalf of Client for the amount of any costs or expenses, a Pro Rata Share of which was paid by Participant pursuant hereto, Factor shall pay to Participant its Pro Rata Share of such reimbursed amount. b. In the event of Client s failure to pay taxes, assessments, insurance premiums, claims against the Collateral or any other amount required to be paid by any of the Factoring Documents, Factor may advance amounts necessary to pay the same and Participant shall reimburse Factor for Participant s Pro Rata Share of the amount thereof on demand. 12. Administration of Loan; Modification of Factoring Documents. Factor shall have the sole and exclusive right to, and may use its sole discretion with respect to, the administration of the Factoring Documents and the Loan and with respect to exercising or not exercising any rights or taking or refraining from taking any action or actions which Factor may be entitled to exercise or take under or in connection with the Factoring Documents or the Loan and may, without the consent of Participant, modify or waive, or consent to the modification or waiver of, any of the terms or conditions of the Factoring Documents; provided, however, that Factor shall not without the prior written consent of Participant consent to any reduction in the interest on the Loan. 13. Standard of Care. Factor shall give the same care and attention to the Loan as Factor gives to loans and factoring accounts in which it does not sell a participation and, except as otherwise provided in this Agreement, Factor shall have no further duty or responsibility to Participant. Neither Factor nor any of its directors, officers, agents, or employees shall be liable to Participant for anything Factor shall do or refrain from doing (a) in the exercise of the aforementioned care and attention, (b) in the exercise by Factor of its best judgment, (c) which may seem to Factor necessary or desirable, (d) in good faith reliance on advice of counsel selected by Factor, or (e) with respect to or in reliance upon any notice, consent, certificate, warranty, or other paper or instrument believed by Factor to be genuine or authentic or to be signed by the proper party or parties; and in any event, neither Factor nor any of its directors, officers, agents, or employees shall be liable to Participant except in instances of willful misconduct or gross negligence. 14. Loan and Financial Status. Factor shall make available to Participant all financial statements of or respecting Client which it may receive pursuant to the Factoring Documents. Factor and Participant shall each provide the other with information regarding the existence of any event of default, or any event which with notice or lapse of time or both would, if unremedied, constitute such an event of default, under the Factoring Documents or of a material adverse change in the financial condition of any Obligor of which Factor or Participant, as the case may be, has actual knowledge; provided, however, that Factor and Participant shall be entitled to assume, absent actual knowl edge thereof, that
4 FORM 1C.8 COMMERCIAL LENDING no such event of default, and no event which with notice or lapse of time or both would, if unremedied, constitute such an event of default, has occurred or is continuing, and shall be entitled to assume, absent actual knowledge thereof, that there has been no material adverse change in the financial condition of any Obligor. Factor shall permit Participant and its agents to examine Factor s books and records relating to the Loan at any reasonable time and from time to time during business hours. 15. Reclaimed Collections; Other Actions. a. In the event that Factor or Participant shall be sued or threatened by suit by any Obligor, or its successors or assigns, or by a receiver or trustee for any Obligor or by any other person on account of any alleged prefer ence, fraudulent transfer, or other voidable or void payment or conveyance received or alleged to have been received from any Obligor as a result of any transaction with respect to the Loan or the Factoring Documents, any monies or other properties required to be paid or transferred in connection with such suit shall be paid or transferred by Factor and Participant in proportion to the amounts received by each with respect to such alleged preference, fraudulent conveyance, or voidable or void payment or conveyance and each shall bear any expenses, costs, and attorneys fees paid or incurred in connection therewith in the same proportion. b. In the event any suit, claim, action, or demand of any other kind shall be asserted against Factor in connection with or with respect to the Loan, the Factoring Documents, or the Collateral, then, in such event, Participant shall pay to Factor on demand a Pro Rata Share of any monies paid in satisfaction or compromise of such suit, claim, action, or demand, and any expenses, costs, and attorneys fees paid or incurred in connection therewith. c. The obligations of Participant under this Section 15 shall survive the termination of this Agreement, and shall continue in full force and effect whether or not there shall be any amounts remaining outstanding with respect to the Loan and whether or not Participant s share in the Loan is in an amount less than the amount of any obligation arising out of the provisions of this Section Deduction of Amounts Owed. Factor at any time may, but shall not be required to, deduct from any amounts to which Participant is entitled pursuant to this Agreement any amounts due and owing to Factor from Participant pursuant hereto, including, without limitation, amounts owed under Section 11 hereof. 17. Additional Participations; Sale by Participant. Participant acknowledges and agrees that Factor may at any time and from time to time sell additional participations in Advances or in the Loan. Participant agrees that it shall not sell, encumber, or otherwise transfer or dispose of all or any portion of the Participation without the prior written consent of Factor. Participant represents and warrants that Participant is acquiring the Participation for its own account and not for or with a view to sale. 18. Termination. Either party may at any time upon not less than sixty (60) days prior written notice to the other, terminate as of the date stated in such notice, its obligation to make further purchases or sales, as the case may be, of a Participation hereunder. From and after the date so fixed in any such notice, or any effective termination date of the Factoring Agreement, neither party shall be under any further obligation to make purchases or sales of Par ticipations hereunder, but the provisions of this Agreement shall continue to apply with respect to all Advances, Collections and other Collateral in which Participant shall at the time of such termination own a Participation, together with its applicable Interest Share thereof. However, after the giving of any such notice, or after the effective termination date of the Factoring Agreement, Factor shall have the option to repurchase Participant s entire Participation hereunder for a purchase price equal to the then outstanding Funded Participation Principal plus an amount equal to an Interest Share of all then accrued but unpaid interest on the Loan less any amounts then owed by Participant to Factor pursuant to this Agreement. Upon any repurchase of the Participation pursuant to this Section 19, all rights and obligations of Participant and Factor hereunder shall terminate, except as otherwise expressly set forth in Section 15 hereof and the other provisions of this Agreement. If Factor shall not purchase Participant s participation as herein provided, Participant s Participation hereunder shall continue for the purpose of receiving its Pro Rata Share of Collections from items in which it has a participating interest until Participant shall have been repaid its Participation in full, together with its Interest Share thereof. 19. Other Business with Client. Factor and Participant each may, with prompt written notice to the other, accept deposits from, lend money to and generally engage in any financial transactions with and acquire any financial or other interest in any Obligor or any principal or affiliate of any Obligor as if it were not a party to this Agreement. 20. Notices. Any notices, demands, consents, or other writings or communications permitted or required by this Agreement shall be given by facsimile transmitter, overnight air courier or certified mail, return receipt requested, addressed to the party to be notified as follows: a. If to Factor: [facsimile no.] b. If to Participant: [facsimile no.] 21. Nature of Transaction; Third Party Beneficiaries. The transaction contemplated hereby is the purchase and sale of an undivided ownership interest in the Loan and is not and shall not be construed to be a loan from Participant to Factor. Nothing contained herein and no action taken by Factor or Participant under or with respect to this Agreement, the Factoring Documents, the Loan, or the Collateral shall constitute or be deemed to constitute the formation of a partnership, joint venture, association, or other entity between Factor and Participant. This Agreement and the
5 FACTORING FORM 1C.8 rights and obligations contained herein are solely for the benefit of Factor and Participant and their respective successors and assigns, and no third party, including, without limitation, any Obligor, shall have any rights hereunder or as a result hereof as a third-party beneficiary or otherwise. 22. Title in Foreclosure. If as a result of any default under the Factoring Documents, Collateral is acquired by fore closure, deed in lieu of foreclosure, or otherwise, title shall be taken, as determined by Factor, in Factor s name or in the name of a corporation or other entity formed by Factor which shall, as appropriate, hold, manage, operate, improve, and attempt to sell the Collateral. 23. Miscellaneous. a. This Agreement represents the entire agreement of the parties and may not be amended, modified or terminated except by an agreement in writing signed by Factor and Participant. b. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns, except that Participant may not assign its rights hereunder or any interest herein except as otherwise provided in Section 17 of this Agreement. c. This Agreement may be executed in any number of counterparts, each of which shall constitute an original, but all of which together shall constitute one and the same agreement, and any party hereto may execute this Agreement by executing any such counterpart. d. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed on the day and year first above written. FACTOR: [name of factor] By: [signature] [title] PARTICIPANT: [name of participant] By: [signature] [title]