August 20, 2002
Joe's Jeans, Inc.
0000 Xxxx Xxxxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxxxx 00000
INVENTORY SECURITY AGREEMENT
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Ladies and Gentlemen:
This agreement is being executed by you to induce us to make loans or advances
to you and to induce us to enter into or continue a factoring or financing
arrangement with you, and is executed in consideration of our doing or having
done any of the foregoing.
1. ADVANCES
1.1 We are considering making advances to you in our sole discretion
and from time to lime of up to 500/a of the value of your Eligible Inventory (as
hereinafter defined) calculated on the basis of the lower of cost or market,
with cost calculated on a first in-first out basis; provided however, in no
event shall the outstanding principal amount of all advances made hereunder
exceed $400,000.00 at any time. Eligible Inventory shall mean the gross amount
of your Inventory (as hereinafter defined) that is subject to a valid,
exclusive, first priority and fully perfected security interest in our favor and
which any a) work-in-process, b) supplies, other than raw material, c) Inventory
not present in the United States of America, d) Inventory returned or rejected
e) Inventory to be returned to your suppliers, f) Inventory in transit to third
parties (other than your agents or warehouses), g) Inventory in possession of a
warehouseman, bailee or other third party, unless such warehouseman, bailee or
third party has executed a notice of security interest agreement (in form and
substance satisfactory to us) and we have taken all other action required to
perfect our security interest in such Inventory, and h) less any reserves
required by us in our reasonable discretion, including for special order goods,
discontinued, slow-moving and obsolete Inventory, market value declines, xxxx
and hold (deferred shipment), consignment sales and shrinkage.
1.2 The amount of the loans and advances made or to be made by us to
you, and the period of time during which they are to remain outstanding shall at
all times be in our sole discretion. The ratio of Eligible Inventory to such
loans and advances and to the other Obligations referred to herein must be
satisfactory to us at all times, and the valuation and acceptability of the
Eligible Inventory is to be determined exclusively by us. We are to be at
liberty, from time to time, without responsibility or liability to you, to
revise any limit placed by us on loans and advances or other Obligations.
Furthermore, all such advances remain payable to us on demand.
1.3 Nothing contained herein shall be construed as limiting or
modifying, in any way, our right to: (a) hold any reserve we deem necessary as
security for payment and performance of your Obligations, and/or (b) change the
aforementioned advance rate or entirely cease making advances.
2. GRANT OF SECURITY INTEREST
2.1 As security for the prompt payment in full of all Obligations (as
hereinafter defined) due by you from time to time to us, in conjunction with the
factoring or accounts receivable financing agreement between us, as amended from
time to time (herein the "Agreement"), you hereby pledge and grant to us a
continuing general lien upon, and security interest in (herein "Security
Interest"), the following described "Inventory":
All present and hereafter acquired merchandise, inventory and
goods, and all additions, substitutions and replacements
thereof, wherever located, together with all goods and
materials used or usable in manufacturing, processing,
packaging or shipping same; in all stages of production --
from raw materials through work-in-process to finished goods
--and all proceeds of whatever sort.
2.2 The Security Interest in the Inventory shall extend and attach to:
(a) All Inventory which is presently in existence and which is owned by
you or in which you have any ownership interest, and all Inventory which you may
purchase or in which you may acquire any ownership interest at any time and from
time to time in the future, whether such Inventory is in transit or in your or
our constructive, actual or exclusive possession, or is held by others for your
account;
(b) All Inventory wherever located, including, without limitation, all
Inventory which may be located on your premises or upon the premises of any
carriers, forwarding agents, truckers, warehousemen, vendors, selling agents,
finishers, converters, processors, or other third persons who may have
possession of the Inventory; and
(c) All Inventory and any portion thereof which may be returned,
rejected, reclaimed or repossessed by either of us from your customers, as well
as to all supplies, goods, incidentals, packaging materials, and any other items
which contribute to the finished goods or products manufactured or processed by
you, or to the sale, promotion or shipment thereof.
3. OBLIGATIONS SECURED
The Security Interest granted hereunder and any lien or security
interest that we now or hereafter have in any of your other assets, collateral
or property, secure the payment and performance of all of your now existing and
future indebtedness and obligations to us, whether absolute or contingent,
whether arising under the Agreement, this agreement or any other agreement or
arrangement between us, by operation of law or otherwise including ledger debt
(which is indebtedness for goods and services purchased by you from any party
whose accounts receivable are factored or financed by us), and indebtedness
arising under any guaranty, credit enhancement or other credit support granted
by us in your favor, including any accommodation extended with respect to
applications for letters of credit, our acceptance of drafts or our endorsement
of notes or other instruments for your account and benefit (herein the
"Obligations"). Obligations shall also include, without limitation, all
interest, commissions, financing and service charges, and expenses and fees
chargeable to and due from you under this
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agreement, the Agreement or any other agreement or arrangement which may be now
or hereafter entered into between us.
4. REPRESENTATIONS. WARRANTIES AND COVENANTS
4.1 You agree to safeguard, protect and hold all Inventory for our
account and make no disposition thereof except in the regular course of your
business as herein provided. You represent and warrant that Inventory will be
sold and shipped by you to your customers only in the ordinary course of your
business and then only on open account and on terms not exceeding the terms
currently being extended by you to your customers, provided that all proceeds of
all sales (including cash, accounts receivable, checks, notes, instruments for
the payment of money and similar proceeds) are forthwith transferred, assigned,
endorsed, and turned over and delivered to us. Invoices covering sales of
Inventory are to be assigned to us in accordance with the provisions of the
Agreement, and the proceeds thereof (if collected by you) are to be turned over
to us in accordance with the provisions of the Agreement. Cash sales of
Inventory, or sales in which a lien upon or security interest in the Inventory
is retained by you shall only be made by you with our written approval, and all
proceeds of such sales shall not be commingled with your other property, but
shall be segregated, held by you in trust for us as our exclusive property, and
shall be delivered immediately by you to us in the identical form received by
you. Upon the sale, exchange, or other disposition of the Inventory, as herein
provided, the Security Interest provided for herein shall, without break in
continuity and without further formality or act, continue in, and attach to, all
proceeds, including any instruments for the payment of money, accounts
receivable, contract rights, documents of title, shipping documents, chattel
paper and all other cash and non-cash proceeds of such sale, exchange or
disposition. As to any such sale, exchange or other disposition, we shall have
all of the rights of an unpaid seller, including stopping in transit, replevin,
rescission and reclamation.
4.2 You hereby warrant and represent that you are solvent; that this
Security Interest constitutes and shall at all times constitute a first and only
lien on the Inventory; that you are, or will be at the time additional Inventory
is acquired by you, the absolute owner of the Inventory with full right to
pledge, sell, consign, transfer and create a Security Interest therein, free and
clear of any and all claims or liens in favor of others; that you will at your
expense forever warrant and, at our request, defend the same from any and all
claims and demands of any other person; and that you will not grant, create or
permit to exist, any lien upon or security interest in the Inventory, or any
proceeds, in favor of any other person.
4.3 You agree to comply with the requirements of all state and federal
laws in order to grant to us a valid and perfected first Security Interest in
the Inventory. We are hereby authorized by you to file any financing statements
or amendments covering the Inventory whether or not your signature appears
thereon. To the extent permitted by applicable law, you authorize us to sign
your name, or to file financing statements or continuations or amendments
without your signature, all in order to create, perfect or maintain our security
interest in the Inventory. You agree to do whatever we may request, from time to
time, by way of; leasing warehouses; filing notices of lien, financing
statements, amendments, renewals and continuations thereof; cooperating with our
agents and employees; keeping Inventory records; obtaining waivers from
landlords and mortgagees; and performing such further acts as we may require in
order to effect the purposes of this agreement.
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4.4 You agree to maintain insurance on the Inventory under such
policies of insurance, with such insurance companies, in such amounts and
covering such risks as are at all times satisfactory to us. All policies
covering the Inventory are to be made payable to us, in case of loss, under a
standard non-contributory "mortgagee", "lender" or "secured party" clause and
are to contain such other provisions as we may require to fully protect our
interest in the Inventory and to any payments to be made under such policies.
All original policies or true copies thereof are to be delivered to us, premium
prepaid, with the loss payable endorsement in our favor, and shall provide for
not less than thirty (30) days prior written notice to us of the exercise of any
right of cancellation. At your request, or if you fail to maintain such
insurance, we shall arrange for such insurance, but at your expense and without
any responsibility on our part for: obtaining the insurance, the solvency of the
insurance companies, the
adequacy of the coverage, or the collection of claims. The insurance we purchase
may not pay any claims made by you or against you in connection with your
Inventory. You are responsible for the costs of this insurance, including
interest and any other charges we may impose in connection with the purchase of
this insurance. The costs of this insurance may be more than insurance you can
buy on your own. You may still obtain insurance of your own choosing, subject to
the terms and conditions of this paragraph 4.4, on the Inventory. If you provide
us with proof that you have obtained adequate insurance on your Inventory, we
will cancel the insurance that we purchased and refund or credit any unearned
premiums to you. In the event that we purchase such insurance, we will notify
you of said purchase within thirty (30) days after the date of such purchase.
If, within thirty (30) days after the date notice was sent to you, you provide
us with proof that you had adequate insurance on your Inventory as of the date
we also purchased insurance and that you continue to have the insurance that you
purchased yourself, we will cancel the insurance that we purchased without
charging you any costs, interest, or other charges in connection with the
insurance that we purchased. Unless we shall otherwise agree with you in
writing, we shall have the sole right, in our name or yours, to file claims
under any insurance policies, to receive, receipt and give acquittance for any
payments that may be payable thereunder, and to execute any and all
endorsements, receipts, releases, assignments, reassignments or other documents
that may be necessary to effect the collection, compromise or settlement of any
claims under any such insurance policies.
4.5 You agree to pay, when due, all taxes, assessments, claims and
other charges (herein "taxes") lawfully levied or assessed upon the Inventory
unless such taxes are being diligently contested in good faith by you by
appropriate proceedings and adequate reserves are established in accordance with
GMP. Notwithstanding the foregoing, if such taxes remain unpaid after the date
fixed for the payment thereof, and a lien therefor shall be claimed which in our
opinion might create a valid obligation having priority over the rights granted
to us herein, we may then, without notice to you, on your behalf, pay such
taxes, and the amount thereof shall be an Obligation secured hereby and due to
us on demand. "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time and for the period as to
which such accounting principles are to apply.
4.6 Any and all fees, costs and expenses, of whatever kind and nature,
(including any taxes, attorneys' fees or costs for insurance of any kind), which
we may incur in filing public notices; in preparing or filing documents, making
title examinations; in protecting, maintaining, or preserving the Inventory; in
enforcing or foreclosing the Security Interest hereunder, whether
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through judicial procedures or otherwise; or in defending or prosecuting any
actions or proceedings arising out of or related to our transactions with you
under this arrangement, shall be borne and paid by you. If same are not promptly
paid by you, we may pay same on your behalf, and the amount thereof shall be an
Obligation secured hereby and due to us on demand.
4.7 You agree to comply with all acts, rules, regulations, and orders
of any legislative, administrative or judicial body or official, applicable to
the Inventory or any part thereof, or to the operation of your business;
provided that you may contest any acts, rules, regulations, orders and
directions of such bodies or officials in any reasonable manner which will not,
in our opinion, adversely affect our rights or priority in the Inventory
hereunder.
5. BOOKS AND RECORDS AND EXAMINATIONS
5.1 You agree to maintain Books and Records pertaining to the Inventory
in such detail, form and scope as we shall reasonably require. "Books and
Records" means your accounting and financial records (whether paper, computer or
electronic), data, tapes, discs, or other media, and all programs, files,
records and procedure manuals relating thereto, wherever located.
5.2 You agree that we or our agents may enter upon your premises at any
time during normal business hours, and from time to time, for the purpose of
inspecting the Inventory and any and all Books and Records pertaining thereto.
You agree to notify us promptly of any change in your name, mailing address,
principal place of business or the location of the Inventory. You are also to
advise us promptly, in sufficient detail, of any substantial change relating to
the type, quantity or quality of the Inventory, or any event which would have a
material effect on the value of the Inventory or on the Security Interest
granted to us herein.
5.3 You agree to: execute and deliver to us, from time to time, solely
for our convenience in maintaining a record of the Inventory, such consignments
or written statements as we may reasonably require, designating, identifying or
describing the Inventory pledged to us hereunder. Your failure, however, to
promptly give us such consignments, or other statements shall not affect,
diminish, modify or otherwise limit our Security Interest in the Inventory.
6. EVENTS OF DEFAULT AND REMEDIES UPON DEFAULT
6.1 It is an "Event of Default" under this agreement if: (a) your
business ceases or a meeting of your creditors is called; (b) any bankruptcy,
insolvency, arrangement, reorganization, receivership or similar proceeding is
commenced by or against you under any federal or state law; (c) you breach any
representation, warranty or covenant contained in this agreement; (d) you fail
to pay any Obligation when due; or (e) there is an occurrence of an Event of
Default (as defined therein) under the Agreement.
6.2 After the occurrence of an Event of Default which is not waived by
us, we shall have the right, with or without notice to you, to foreclose the
Security Interest created herein by any available judicial procedure, or to take
possession of the Inventory without judicial process, and to enter any premises
where the Inventory may be located for the purpose of taking possession of or
removing the Inventory. We shall have the right, without notice or
advertisement, to sell, lease, or otherwise dispose of all or any part of the
Inventory, whether in
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its then condition or after further preparation or processing, in your name or
in ours, or in the name of such party as we may designate, either at public or
private sale or at any broker's board, in lots or in bulk, for cash or for
credit, with or without warranties or representations, and upon such other terms
and conditions as we in our sole discretion may deem advisable, and we shall
have the right to purchase at any such sale. If notice of intended disposition
of any said Inventory is required by law, five (5) days notice shall constitute
reasonable notification. If any Inventory shall require maintenance,
preparation, or is in process or other unfinished state, we shall have the
right, at our option, to do such maintenance, preparation, processing or
completion of manufacturing, for the purpose of putting the Inventory in such
saleable form as we shall deem appropriate. You agree, at our request, to
assemble the Inventory and to make it available to us at places which we shall
select, whether at your premises or elsewhere, and to make available to us your
premises and facilities for the purpose of our taking possession of, removing or
putting the Inventory in saleable form. The proceeds of any such sale, lease or
other disposition of the Inventory shall be applied first, to the expenses of
taking, holding, storing, processing, preparing for sale, selling, and the like,
and then to the satisfaction of your Obligations to us, application as to
particular Obligations or as to principal or interest to be in our sole
discretion. You shall be liable to us for, and shall pay to us on demand, any
deficiency which may remain after such sale, lease or other disposition, and we
in turn agree to remit to you, or your successors or assigns, any surplus
resulting therefrom. The enumeration of the foregoing rights is not intended to
be exhaustive and the exercise of any right shall not preclude the exercise of
any other rights, all of which shall be cumulative.
6.3 To the extent that your Obligations are now or hereafter secured by
any assets or property other than the Inventory, or by the guarantee,
endorsement, assets or property of any other person, then we shall have the
right in our sole discretion to determine which rights, security, liens,
security interests or remedies we shall at any time pursue, foreclose upon,
relinquish, subordinate, modify or take any other action with respect to,
without in any way modifying or affecting any of them, or of any of our rights
hereunder.
7. TERMINATION
The rights and Security Interest granted to us hereunder are to
continue in full force and effect, notwithstanding the fact that the account
maintained in your name on our books may from time to time be temporarily in a
credit position, until termination of the Agreement and the final payment in
full of all Obligations due us by you.
8. MISCELLANEOUS PROVISIONS
8.1 This agreement and all attendant documentation, as the same may be
amended from time to time, constitutes the entire agreement between us with
regard to the subject matter hereof and supersedes any prior agreements or
understandings. This agreement can be changed only by a writing signed by both
of us and our failure or delay in exercising any of our rights hereunder will
not constitute a waiver thereof, unless such waiver is in writing and signed by
us, or bar us from exercising any of our rights at any time. No course of
dealing between us shall change or modify this agreement. A waiver on any one
occasion shall not be construed as a bar to or waiver of any right or remedy on
any future occasion. The validity, interpretation and enforcement of this
agreement shall be governed by the laws of the State of California.
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8.2 This agreement binds and benefits each of us and our respective
successors and assigns, provided, however, that you may not assign this
agreement or your rights hereunder without our prior written consent.
8.3 If any provision of this agreement is contrary to, prohibited by,
or deemed invalid under, applicable laws or regulations, such provision will be
inapplicable and deemed omitted to such extent, but the remainder will not be
invalidated thereby and will be given effect so far as possible.
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9. JURY TRIAL WAIVER
To the extent permitted by applicable law, we each hereby waive any
right to a trial by jury in any action or proceeding arising directly or
indirectly out of this agreement, or any other agreement or transaction between
us or to which we are parties.
If the foregoing is in accordance with your understanding, please so
indicate by signing and returning to us the original and one copy of this
agreement. The agreement shall take effect as of the date set forth above, after
being accepted below by one of our officers after which we shall forward a fully
executed copy to you for your files.
Very truly yours,
THE CIT GROUP / COMMERCIAL SERVICES, INC.
By: /s/ Xxxxxxx Xxxx
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Title: Account Executive
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Read and Agreed to:
JOE'S JEANS, INC.
By: /s/ Xxxxxx X. Xxxxxx
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Title: Vice-President
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Accepted at Los Angeles, California
THE CIT GROUP/COMMERCIAL SERVICES, INC.
By: /s/ Xxxxxxx Xxxx
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Title: Account Executive
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