Factoring Agreement between Hemptown USA, Inc. and Spectrum Financial Corporation

Exhibit 10.5

Factoring Agreement between Hemptown USA, Inc. and Spectrum Financial Corporation

SPECTRUM FINANCIAL CORPORATION

FACTORING AGREEMENT

Date:   December 18, 2004

From:

HEMPTOWN USA, INC.

6100 Neil Road, Suite 500

Reno, Nevada 89511

To:

SPECTRUM FINANCIAL CORPORATION

625 N. Flagler Drive, Suite 400

West Palm Beach, Florida 33401

Gentlemen:

Upon your written acceptance, to be noted at the foot of this Agreement, the following will state the terms and conditions under which you are to act as our sole factor:

1.  APPOINTMENT AND SALE OF ACCOUNTS:  We hereby appoint you our sole factor, and hereby sell and assign to you, making you absolute owner thereof, all of our accounts, contract rights, notes, bills, acceptances and all other obligations to us (hereinafter referred to as "Receivables") for the payment of money, in cash or in kind, together with all proceeds thereof, all security and guarantees therefor, and all of our rights to the goods and property represented thereby.  You shall have all the rights of an unpaid seller or provider of the goods or services, the sale or rendering of which gives rise to each Receivable, including the rights of stoppage in transit, reclamation and replevin.  Upon each sale of goods or rendering of services, we shall execute and deliver to you such confirmatory assignments of our Receivables as you may require, in form and manner satisfactory to you, together with copies of invoices, all shipping or delivery receipts, and such other proof of sale and delivery or performance as you may, at any time or from time to time, require to effect collection of our Receivables.  We shall make appropriate notations upon our books and records indicating the sale and assignment of our Receivables to you.  All invoices or other statements to our customers concerning Receivables shall clearly state, in language satisfactory to you, that each such Receivable has been sold and assigned to you and is payable to you and to you only.  Copies of Receivables sold and assigned to you shall also bear this language.  If we fail for any reason to provide you with copies of invoices (or other necessary documentation requested) for a Factored Receivable or proof of shipment or delivery within a reasonable period of time after request by you, which will mean within thirty (30) days or less, for any Factored Receivable for which you have granted Credit Approval (as hereinafter defined), such Credit Approval shall automatically be withdrawn and you shall have no liability with respect to such Factored Receivable.  Each invoice shall bear the terms of sale and if any change is made from the original terms of sale without your prior written consent, you shall have the right to withdraw your Credit Approval.  You reserve the right to mail original invoices to the Customers at our expense; however, mailing, sending or delivery by you of a bill or invoice shall not be deemed to be any representation by you with respect thereto.  During the term of this Agreement, we agree not to sell, negotiate, pledge, assign or grant any security interest in any or all of our Receivables to anyone other than you.  If we are or become engaged in finishing or improving goods, we agree, notwithstanding any credit approval you may have given on the customer(s) involved, to assert promptly, at our expense and upon your demand, any lien rights provided by law on goods in our possession.  We will remit to you the proceeds of sale of

such goods to satisfy the amounts owed to you by the owner of the goods.  It is understood that your credit approval is limited to the net amount of the customer's obligation after the sale and disposition of such goods.

2.  ADDITIONAL COLLATERAL:  In addition to Receivables and all proceeds thereof, we also assign to you all right, title and interest, and grant to you a security interest in, the following collateral to secure all of our present and future obligations and indebtedness to you:  (1) all deposit, savings, passbook or like accounts maintained at any bank, savings and loan or similar institution; and  (2) the proceeds of any tax refund due or to become due to us by the state or federal government.

3.  CREDIT RISK:  You will assume the credit risk only on Receivables for which you have given credit approval in writing (“Credit Approvals”).  In the absence of such written Credit Approval from you, the Receivable is at our risk. If we ship merchandise or provide services based on a verbal approval, we acknowledge our responsibility to ensure that such approval is received by us in writing in a timely manner.  We acknowledge that Credit Approvals may be withdrawn, either orally or in writing, in your discretion at any time if, in your opinion, a customer's credit standing becomes impaired before actual delivery of merchandise or rendering of services.  Credit Approvals shall be limited to the specific terms and amounts indicated, and, notwithstanding any information subsequently provided to us by you, such credit approvals are automatically rescinded and withdrawn if the terms of sale vary from the terms approved by you, or if the terms of sale are changed by us without your written Credit Approval on the new terms, or if the Receivable is not assigned to you promptly (within five days) after creation.  We further acknowledge that if we ship merchandise or provide services to a customer who has outstanding Receivables from us, and such customer's credit line and/or outstanding Credit Approvals have been withdrawn by you, and the Receivables created thereby, whether or not they are sold and assigned to you, exceed ten percent (10%) of the amount outstanding on your books, that any Credit Approvals applying to those Receivables outstanding on your books are canceled and all outstanding Receivables from that customer are at our risk.  If a customer, after receiving and accepting delivery of goods or services (subject to all warranties herein) for which you have given written Credit Approval, fails to pay a Receivable when due solely to financial inability to pay, you shall bear any loss thereon.  If nonpayment is due to any other reason, however, you shall not be responsible.

Specifically, you shall not be responsible for any nonpayment of a Receivable:  (a) because of the assertion of any claim or dispute by a customer for any reason whatsoever, including, without limitation, disputes as to price, terms of sale, delivery, quantity, quality, or otherwise, or the exercise of any counterclaim or offset (whether or not such claim, counterclaim or offset relates to the specific Receivable);  (b) where nonpayment is a consequence of enemy attack, civil commotion, strikes, lockouts, the act or restraint of public authorities, acts of God or force majeure; or (c) if any representation or warranty made by us to you in respect of such Receivable has been breached.  The assertion of a dispute by a customer shall have the effect of negating any Credit Approval on the total affected Receivable(s) as may be in dispute, and such Receivable(s) shall be at our risk until paid or otherwise cleared from your books.  With regard to sales without Credit Approval or in excess of any Credit Approval as to any given customer, we agree that any payments or credits applying to any of our Receivables owing by such customer will be applied: first , to any Credit-Approved Receivables outstanding on your books; second , to any Client Risk Receivables outstanding on your books; and, third , to any Receivables outstanding on our books.  This order of payment applies regardless of the respective dates the sales occurred and regardless of any notations on payment items.  If you fail to collect a Receivable for which you have given Credit Approval within 270 days of its maturity, and your failure to collect such Receivable is due solely to the customer's financial inability to pay, you shall pay to us the net amount of such Receivable then owing on the Wednesday next following the week during which said 270 days expired.  Any Receivable for freight, samples, or miscellaneous sales (including, without limitation, the sale of merchandise and/or in quantities not regularly sold by us) is always assigned to you at our risk, notwithstanding any written credit approval from you.  You shall have no liability of any kind for declining or refusing to give, or for withdrawing, revoking, or modifying, any Credit Approval pursuant to the terms of this Agreement, or for exercising or failing to exercise any rights or remedies you may have under this Agreement or otherwise.  In the event you decline to give your Credit Approval on any order received by us from a customer, and in advising us of such decline you furnish us with information as to the credit standing of the customer, such information shall be deemed to have been requested of you by us and your advice containing such information is recognized as a privileged communication.  We agree that such information shall not be given to our customer or to our salesman.  If

necessary, we shall merely advise our customer that credit has been declined on the account and that any questions should be directed to you.

4.  CLIENT RISK RECEIVABLES:  Any sale of goods or rendering of services by us for which we have not received written Credit Approval, or for which Credit Approval has been withdrawn or revoked, shall be known as a "Client Risk Receivable."  Any Client Risk Receivable(s) assigned to and purchased by you are with recourse to us and at our sole credit risk.  You shall have the right to charge back to our account the amount of such Client Risk Receivable(s) at any time and from time to time, either before or after maturity.  We agree to pay you on demand the full amount thereof, and, failing to do so, we agree to pay all expenses incurred by you up to the date of such payment in attempting to collect or enforce payment of such Receivable(s).  However, in no event shall you have any credit risk on the first Two Hundred Fifty dollars ($250) of any Receivable, notwithstanding the fact that such Receivable has been credit approved by you.  For purposes of determining your credit risk hereunder, the Receivable balance due you from any given customer shall be calculated as the aggregate amount owed by that customer less any credits to which such customer may be entitled, and is not to be construed to mean individual invoices owed by that customer.

5.  PURCHASE PRICE:

(a)  The purchase price you shall pay to us for each Receivable shall equal the Net Invoice Amount (as hereafter defined) thereof less your factoring commission, as specified below.  As used herein, the term "Net Invoice Amount" means the gross invoice amount of the Receivable, less returns (whenever made), all selling discounts (at your option calculated on shortest terms) made available or extended to our customer, whether taken or not, and credits or deductions of any kind allowed or granted to or taken by the customer at any time.  Unless specifically shown on the invoice sold and assigned to you, no discount, credit, allowance, or deduction with respect to any Receivable shall be granted, or approved, by us to any customer without your prior written consent.

(b)  The purchase price (as computed above), less (i) any reasonable reserves or credit balance that you, in your sole discretion, determine to hold, (ii) moneys remitted, paid, or otherwise advanced by you to us or for our account (including any amounts which you may be obligated to pay in the future), and (iii) any other charges to our account provided for by this Agreement, shall be payable by you to us on the date of collection. Moneys shall be deemed to have been collected on the date of receipt thereof by you plus seven (7) business days for clearing.

(c)  You shall be entitled to withhold a reserve of sums otherwise due us, and may revise the amount of such reserve at any time and from time to time if you deem it necessary to do so in order to protect your interests.  Furthermore, at your request, we shall maintain a credit balance ("credit balance" or "reserve" shall be defined for purposes of this subparagraph 5(c) as credit for amounts due us and not a "cash balance") with you in such amount as you determine to be commensurate with the volume and character of the business conducted by us and sufficient to protect you against all possible returns, claims of our customers, indebtedness owing by us to you, or any other contingencies.  We shall pay you any debit balance in our account on demand.

(d)  In your sole discretion, in accordance with the terms of this Agreement, you may from time to time advance to us, against the purchase price of Receivables purchased by you hereunder, sums up to seventy  percent (70%) of the aggregate purchase price of Receivables outstanding at the time any such advance is made, less:  (1) Any such Receivables that are in dispute; (2)  Any such Receivables that are not credit approved; and (3)  Any fees, actual or estimated, that are chargeable to our reserve account. Unless otherwise specified in any promissory note, or loan or other agreement, executed in connection with such advance, any such advance shall be payable on demand and shall bear interest at the rate set forth in subparagraph (e) below from the date such advance is made until the date you would otherwise be obligated hereunder to pay the purchase price of the Receivable(s) against which such advance was made.

(e)  Interest upon the daily net balance of any moneys remitted, paid, advanced or otherwise charged to us or for our account before the payment date (including any advance made pursuant to subparagraph 5(d) above), and interest applicable to the charges or to the expenses referred to in this Agreement, shall be charged to our reserve account as of the

last day of each month at a rate the greater of six percent (6.00%) per annum or:  (i) As to average daily advances against the purchase price of Receivables purchased by you, that do not exceed the amount seventy percent (70%) specified in paragraph 5 (d) above, interest shall be charged at one and one-half percent (1.50%) above the rate of interest designated by The Wall Street Journal as the “Prime Rate” or “Base Rate,” as the case may be; (ii)  As to average daily advances against the purchase price of Receivables purchased by you that exceed the amount seventy percent (70%) specified in paragraph 5 (d) above, interest shall be charged at four percent (4.00%) per annum above the rate of interest designated by The Wall Street Journal as the “Prime Rate” or “Base Rate”, as the case may be.  If, during any month, our reserve account or credit balance, subject to the terms and conditions of this Agreement, shall be in a net credit balance (i.e., the reserve or credit balance exceeds outstanding Receivables), then you agree to credit our reserve account as of the last day of each month with interest at a rate equal to four percent (4.00%) below the rate of interest designated by The Wall Street Journal as the “Prime Rate” or “Base Rate,” as the case may be.  All such interest shall be computed for the actual number of days elapsed on the basis of year consisting of 360 days.  Any adjustment in your interest rate, whether downward or upward, will become effective on the first day of the month following the month in which the prime rate of interest is reduced or increased.  HOWEVER, in no event shall the rate of interest agreed to or charged to us hereunder exceed the maximum rate of interest permitted to be agreed to or charged to us under applicable law.  IT IS THE INTENTION OF THE PARTIES HERETO