EXHIBIT 10.20
September 1, 2006
Versatile Entertainment, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Re: Inventory Loan Facility
Dear ▇▇▇▇▇▇:
Reference is made to (i) the Factoring Agreement between FTC Commercial Corp.
("FTC") and Versatile Entertainment, Inc. (the "Company") dated October 14, 2004
(as supplemented or amended from time to time, the "Factoring Agreement") and
(ii) the Continuing Security Agreement between FTC and the Company of the date
herewith (as supplemented or amended from time to time, the "Security
Agreement"). The Factoring Agreement, the Security Agreement, and all agreements
now or hereafter entered into between FTC and the Company shall be referred to
herein collectively as the "Company Agreements."
Except as otherwise provided in this letter agreement (this "Agreement"), any
capitalized terms used herein but not defined in this Agreement shall have the
meanings assigned to such terms in the Factoring Agreement.
For purposes of this Agreement:
"Inventory" as used herein shall have the meaning set forth in the
Security Agreement.
"Inventory Base" means up to fifty percent (50.0%) of the value (the
lesser of cost or market) of the Company's raw material and finished
goods Inventory which FTC determines, in its sole discretion, to be
eligible for inclusion in the Inventory Base. Without limiting the
generality of the foregoing, the following Inventory shall not be
eligible for inclusion in the Inventory Base if (i) such Inventory is
over one hundred eighty (180) days old; (ii) such Inventory is
defective or damaged; (iii) such Inventory is not located at the
Company's premises at ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇;
(iv) such Inventory is located at any real property leased by the
Company or at any contract warehouse, unless such Inventory is subject
to a collateral access agreement acceptable to FTC and executed by the
lessor or warehouseman, as the case may be, and unless such Inventory
is separately identifiable from the goods of others, if any, stored on
the premises; (v) the Company does not have good, valid, and marketable
title to such Inventory; (vi) such Inventory is not subject to a valid
and perfected first priority security interest in favor of FTC; (vii)
such Inventory consists of bill and hold goods or goods acquired on
consignment or (viii) such Inventory consists of work in process.
"Obligations" means the any and all obligations of the Company under
this Agreement and the Company Agreements.
This Agreement shall confirm our mutual understanding and agreement that,
subject to the terms and conditions of the Company Agreements, and provided that
no default or Event of Default under any of the Company Agreements and no
termination of the Factoring Agreement has occurred, FTC may, in its sole and
absolute discretion, extend an inventory loan facility to the Company in an
aggregate principal amount outstanding at any time not to exceed the lesser of
(a) the Inventory Base or (b) up to $1,000,000 MINUS the aggregate amount of
then outstanding inventory loans made to (i) ▇▇▇▇▇ ▇▇▇▇, LLC d/b/a ▇▇▇▇▇▇▇ ▇▇▇▇
("BRL") under the Inventory Loan Facility between BRL and FTC of even date
herewith (as amended from time to time, the "BRL Facility Agreement") and (ii)
any subsidiaries of BRL (the "BRL Subsidiaries") which enter into factoring and
inventory loan arrangements with FTC (the " BRL Subsidiaries Agreements")
The interest rate charged on outstanding inventory loans under this Agreement
will be the same rate charged in Section 23 of the Factoring Agreement and will
be calculated, computed and payable in accordance with the provisions of Section
23.
This Agreement shall terminate, at FTC's discretion, on the date which is the
earlier to occur of: (a) the date on which a default or Event of Default occurs
under this Agreement, the Company Agreements, the Factoring Agreement between
FTC and BRL dated October 12, 2005 (as amended, the "BRL Factoring Agreement"),
the BRL Facility Agreement, any of the other agreements between BRL and FTC (the
BRL Factoring Agreement, the BRL Facility Agreement and all such other
agreements between BRL and FTC are collectively the "BRL Agreements"), or the
BRL Subsidiaries Agreements; or (b) the date on which the Factoring Agreement or
the BRL Factoring Agreement or any factoring agreement between FTC and any of
the BRL Subsidiaries is terminated in accordance with the notice provisions
thereof.
In order to induce FTC to extend the foregoing inventory loan facility to the
Company, the Company agrees that, so long as the Factoring Agreement remains in
effect and any of the Obligations have not been paid and performed in full:
i. The Company shall, no later than ten (10) days after
the end of each month, provide to FTC: (a) an
Inventory Certification or designation in the form
attached hereto as "Attachment A" or in such other
form as is acceptable to FTC; (b) an aging of all
Inventory as of the end of such month, in form and
substance acceptable to FTC; and (c) a report
detailing the piece goods, the work-in-process, the
finished goods Inventory available for sale, and the
finished goods Inventory sold as of the end of such
month, in form and substance acceptable to FTC.
ii. The Company shall not, without FTC's prior written
consent which shall not be unreasonably withheld,
sell, lease, transfer, assign, abandon or otherwise
dispose of any of the Company's assets in which FTC
has been granted a first priority security interest
under any of the Company Agreements, excluding: (a)
assignments of the Company's accounts to FTC under
the Factoring Agreement, (b) sales
2
of Inventory to the Company's customers in the
ordinary course of the Company's business and
operations, (c) licenses of the Company's tradenames,
(d) sales or transfers of the Company's tradenames to
BRL or the BRL Subsidiaries or any other affiliates
of the Company which enter into a factoring agreement
with FTC, and (e) the sale, lease, transfer,
assignment, abandonment or other disposition of
Inventory that is not be eligible for inclusion in
the Inventory Base and/or Equipment (as defined in
the Security Agreement) which is not essential for
the business and operations provided that the
aggregate fair market value of such Inventory and/or
Equipment does not exceed $100,000 during any of the
Company's fiscal years.
iii. The Company shall not, without FTC's prior written
consent which shall not be unreasonably withheld,
become a guarantor, a surety, or otherwise liable for
the debts or other obligations of any other person or
firm including, without limitation, BRL, the BRL
Subsidiaries or any other affiliates of the Company,
in excess of an aggregate amount $100,000 outstanding
at any time, excluding debts or other obligations of
BRL, the BRL Subsidiaries or any other affiliates of
the Company to FTC.
iv. The Company shall, at the time the BRL Subsidiaries
or any other affiliates of the Company are formed
under the laws of the state in which the BRL
Subsidiaries or any other affiliates of the Company
are organized, give FTC written notice of any such
formation.
The inventory loan facility outlined in this Agreement shall be subject to the
satisfaction of each of the following conditions precedent in a manner
satisfactory to FTC:
i. The representations and warranties contained herein
and in each of the other Company Agreements shall be
true and correct as of the date of any inventory
loans made under this Agreement.
ii. No default or Event of Default under this Agreement,
the Company Agreements, the BRL Agreements or the BRL
Subsidiaries Agreements shall have occurred or would
occur as a result of any extension of credit under
the facility described herein.
iii. FTC shall have received originals of this Agreement
and the Security Agreement, both of the foregoing to
be dated as of the date hereof and to be duly
executed by the Company, and originals of Guaranties
of the Obligations, in the forms provided to the
Company by FTC, both of the foregoing to be dated as
of the date hereof and to be duly executed by BRL and
People's Liberation, Inc., as applicable.
Nothing herein shall be construed as limiting or modifying in any way any of
FTC's rights under the Company Agreements, including without limitation, FTC's
rights, to be exercised in its sole and absolute discretion, to hold any reserve
FTC deems necessary as security for payment and performance of the Obligations,
change any advance rates, cease making
3
advances or other financial accommodations to the Company and determine
standards of eligibility. The Obligations shall be secured by a first lien on
and security interest in all of the assets of the Company in which the Company
has granted FTC a security interest under the Company Agreements. The failure to
perform any of the terms and conditions of this Agreement or the breach of any
of the representations or warranties contained in this Agreement shall
constitute a default or an Event of Default under the Company Agreements, the
BRL Agreements and the BRL Subsidiaries Agreements and the failure to perform
any of the terms and conditions of, or the breach of any of the representations
or warranties contained in, the Company Agreements, the BRL Agreements or the
BRL Subsidiaries Agreements shall constitute a default under this Agreement.
The foregoing is based upon the financial condition of the Company as set forth
in its financial statements for the three months ended June 30, 2006, as filed
with the Securities and Exchange Commission in its Form 10-QSB. In addition, by
its signature below, the Company further represents and warrants that there has
been no material adverse change in the Company's financial condition since such
statement was prepared.
Please sign below to acknowledge that the Company is in agreement with all of
the foregoing.
Very truly yours, ACKNOWLEDGED AND AGREED TO:
FTC COMMERCIAL CORP. VERSATILE ENTERTAINMENT, INC.
By: /s/ ▇▇▇ ▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
----------------------------- --------------------------------
Name: ▇▇▇ ▇▇▇▇▇▇▇ Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President Title: President
4