Purchase Order Financing Priority Agreement



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PURCHASE ORDER FINANCING PRIORITY AGREEMENT

THIS AGREEMENT dated as of the day of , 200 .

AMONG:

(the “Lender”)

AND: BUSINESS DEVELOPMENT BANK OF CANADA, with a business centre at

____________________________________________________________

(“BDC”)

AND:

(the “Borrower”)

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RECITALS:

BDC has or proposes to provide purchase order financing to the Borrower in respect of Purchase Order Number dated as of issued by (the “Buyer”) to and in favour of the Borrower (the “P.O.”) in respect of the supply of certain goods (the “Financed Auto Parts”) which are the subject matter of the P.O. (the “P.O. Financing”).

The Lender has lent money or made other financial accommodations to the Borrower and may in the future loan further monies or make further financial accommodations to the Borrower;

NOW THEREFORE WITNESSETH, that in consideration of the mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the parties, the parties agree as follows:

The Lender hereby consents to the incurrence of the indebtedness of the Borrower to and in favour of BDC pursuant to the P.O. Financing and confirms that the incurrence of such indebtedness and the granting of security to and in favour of BDC in respect thereof does not and will not constitute a breach or default under any of the Borrower’s credit arrangements or any security granted by the Borrower to and in favour of the Lender in respect thereof.

Notwithstanding any priority provided by any principal of law, equity or statute or the relative order of execution, delivery, creation, grant, registration, advance, attachment, possession, perfection, default, demand, notice, crystallization, enforceability or enforcement of any security granted by the Borrower to and in favour of the Lender (the “Security”) or any security granted by the Borrower to and in favour of BDC (the “BDC Security”), the Security in and to any and all of the present and after acquired property of the Borrower related to raw materials, work in process and inventory used to produce the Financed Auto Parts, and any related invoices, agreements and the P.O., and any and all accounts receivable, cash and monies relating to the Financed Auto Parts and proceeds of any of the Financed Auto Parts, including any and all insurance proceeds in connection therewith (the “P.O. Assets”), which the Lender may now have or hereinafter obtain, shall be fully and unconditionally subordinated to BDC and the BDC Security, subject only to section 3 of this Agreement.

Upon the repayment to BDC of amounts due relating to the P.O. under the P.O. Financing, the priority set out in section 2 of this Agreement shall not apply to a pro rata portion of the P.O. Assets corresponding to the proportion of the amount repaid. In determining the value of the P.O. Assets in such calculation, (i) the value of accounts receivable, cash, monies and insurance proceeds shall be the amounts thereof, (ii) the value of any Financed Auto Parts shall be based on their value as set out in invoices provided by the Borrower to the Buyer, and (iii) the value of any raw materials, work in process and inventory used to produce the Financed Auto Parts shall be based on their value as set out in the financial records of the Borrower (which shall be based on invoices provided by any supplier of such raw materials, work in process and inventory).

The Lender or BDC, as the case may be, shall provide the other of them with prompt written notice of any demand for payment of the Borrower or proceeding to enforce security, but neither party shall be liable for any accidental failure to do so.

After the Lender receives written notice from BDC of an event of default under the P.O. Financing, all payments or proceeds in respect of the P.O. Assets which are received by the Lender contrary to the foregoing provisions of this Agreement shall be received for the benefit of BDC and shall be paid over to BDC as soon as practically possible upon the Lender’s receipt of same.

Nothing contained in this Agreement shall impair, as between the Borrower and the Lender, the obligation of the Borrower, which is absolute and unconditional, to pay all principal payments, interest, fees and other amounts payable in the ordinary course by the Borrower to the Lender for its debts, liabilities and obligations to the Lender (“Permitted Payments”), and all such Permitted Payments made prior to the Lender’s receipt of notice from BDC in accordance with Section 5 of this Agreement shall not be subject to a claim by BDC under this Agreement.

The parties hereto agree to execute and provide all documents which may be reasonably requested by another party hereto to give effect to this Agreement at the sole cost and expense of the Borrower.

The Lender acknowledges that BDC is relying on this Agreement in providing the P.O. Financing to the Borrower.

This Agreement will be binding upon the parties and their respective successors and assigns and shall enure to the benefit of the parties and their respective successors and assigns. None of the parties shall transfer or assign its indebtedness or security without receiving an acknowledgement and confirmation to and in favour of the other parties that any such transferee, successor or assign is bound by the provisions hereof.

This Agreement shall be exclusively (without any application of any rules or principles relating to conflicts of laws) governed by, construed, interpreted and enforced in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein.

IN WITNESS WHEREOF the parties hereto have duly executed this Agreement as of this _____ day of __________, 200___.

| |LENDER |

| | | | |

| |By: | | |

| | | |Name: |

| | | |Authorized Signing Officer |

| |BUSINESS DEVELOPMENT BANK OF CANADA |

| |By: | | |

| | | |Name: |

| | | |Authorized Signing Party |

| | | | |

| |By: | | |

| | | |Name: |

| | | |Authorized Signing Party |

| | | | |

| | | | |

| | | | |

| |[INSERT NAME OF BORROWER] |

| |By: | | |

| | | |Name: |

| | | | |

| | | |I have authority to bind the corporation. |

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