FACTORING AGREEMENT
XXXXXXXXX & XXXXXXXXX, INC.
0000 XXXXXXXX
XXX XXXX, X.X. 00000
Xxx Xxxx, Xxx Xxxx October 19, 1999
CANDIE'S, INC.
0000 Xxxxxxxxxxx Xxxxxx
Xxxxxxxx, XX 00000
THE FOLLOWING IS THE AGREEMENT UNDER WHICH WE ARE TO ACT AS YOUR SOLE FACTOR:
1. You hereby sell and assign to us, making us absolute owner thereof, all
of your accounts, contract rights, and all other obligations to you, now
existing or hereafter arising, for the payment of money arising out of the sale
of goods or rendition of services ("receivables"), together with all proceeds
thereof, all security and guarantees therefor, and all of your rights to any
goods and property represented thereby. We shall have all the rights of an
unpaid seller of any goods, the sale of which gives rise to each receivable,
including the right of stoppage in transit, reclamation and replevin. Upon each
sale of goods or rendition of services, you shall execute and deliver to us such
further and confirmatory assignments of your receivables as we require, in form
and manner satisfactory to us, together with copies of invoices and all shipping
or delivery receipts and such other proof of sale and delivery or performance as
we from time to time may require. You will make appropriate notations upon your
books and ledgers indicating the sale and assignment of your receivables to us.
All invoices or other statements to customers evidencing receivables shall be
mailed at your expense whether mailed by you or at our option by us and shall
clearly state in a manner satisfactory to us that each such receivable has been
assigned to us and is payable to us only.
2. Before accepting or filling any order from any customer, the amount and
terms of sale are to be submitted to us for our credit approval, which approval
must be in writing and shall be limited to the specific terms and amounts
described therein. We reserve the right to withdraw such credit approval at any
time before delivery or performance and, in any event, a credit approval shall
be deemed to be withdrawn if full delivery or performance is not made within 30
days after the delivery or shipment date specified in the terms of sale
submitted for such approval, or, if no such delivery or shipment date is
specified, within 30 days of the date of such credit approval, or as may be
otherwise stated in such credit approval. On sales approved and accepted by us,
we shall assume the credit risk, being responsible only for the financial
inability of your customers to pay at maturity, such assumption of credit risk
going into effect upon delivery or performance, and acceptance of the goods or
services by such customer, without dispute. We shall not be responsible for any
nonpayment of a receivable because of the assertion of any claim or dispute by a
customer or the exercise of any counterclaim or offset (whether or not such
claim, dispute, counterclaim or offset relates to the specific receivable) or
where nonpayment is a consequence of enemy attack, civil commotion, the acts or
restraint of public authorities, acts of God or force majeure, or if any
warranty made by you to us in respect of such receivable has been breached, or
if you fail to provide us, upon our request, with copies of invoices and
shipping or delivery receipts or such other proof of sale and delivery or
performance as we may from time to time require. We shall have no liability of
any kind for refusing to give or for withdrawing credit approval pursuant to the
terms of this Agreement, or for exercising or refusing to exercise any rights or
remedies we have under this Agreement or otherwise. Any sale of goods or
rendition of services made by you which is not approved in writing by us as to
credit shall be known as a C.R. (Client's risk) receivable (each a "CR
Receivable" and collectively the "CR Receivables"). All CR Receivables are
assigned to and purchased by us are with full recourse to you and at your credit
risk, but are otherwise subject to the covenants, terms and conditions provided
herein in respect of approved receivables on which we have assumed the credit
risk. We shall have the right to charge back to your account the amount of CR
Receivables after their maturity and you agree to pay us upon demand the amount
thereof, together with all expenses including collection charges and other
collection and attorneys' fees incurred by us
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up to the date of such payment in attempting to collect or enforce any such
payment and in attempting to collect or enforce any such receivable. In
addition, if we, at your request, in our discretion, file a proof of claim in
any insolvency proceeding with respect to a CR Receivable and/or forward such CR
Receivable to an attorney or agency for collection, we shall charge your account
with an amount equal to ten percent of the CR Receivable at the time such CR
Receivable or claim is so filed or forwarded and, in addition, any other charges
incurred by us thereafter shall be charged to your account.
3. Any goods rejected or returned by any customer shall be our property
held by you in trust for us separate and apart from any other goods, and upon
demand shall forthwith be delivered to us or disposed of by you at our direction
and without charge to us. You shall report to us in writing all disputes and
claims made by your customers, and the return of or offer to return any goods,
and you will promptly settle all such claims and disputes at your expense. As
absolute owner of each receivable, we may in our sole discretion enforce, upon
no less than three days notice to you effect any compromise, settle and adjust
any receivable, in our name or yours, without affecting or limiting your
obligation to us under this Agreement, and whether or not any such receivable
shall have been charged back. We reserve the right at any time to charge back to
your account the full amount of the receivable involved in any claim, dispute or
return asserted by your customer, and you agree to pay us upon demand the full
amount thereof. The charge back to your account of the amount of any receivable
shall not be deemed a reassignment thereof to you and title thereto, to the
proceeds thereof, to all security and guarantees therefor and to your interest
in the goods represented thereby, shall remain in us. You shall indemnify us
for, and hold us harmless against, any loss, liability, claim or expense of any
kind arising from any claims of, or disputes with, your customers as to terms,
price, quality, or otherwise, with respect to receivables, including, without
limitation, any claim for a return of any payments thereunder and any and all
expenses and attorney's (whether in-house or outside) fees incurred by us in
collecting or attempting to collect any receivables charged back to you.
4. If any checks, drafts, notes, acceptances, cash collections or payments
in any form shall be received by you on receivables, you will immediately
transmit and deliver them to us in the identical form received. You agree that
we and any such person or entity as we may from time to time designate, shall
have the right to sign and/or endorse your name on all remittances and all
papers, bills of lading, receipts, instruments and documents relating to the
receivables and the transactions between us. We shall have the right to deposit
any checks or other remittances received on receivables regardless of notations
or conditions placed thereon by your customers or deductions reflected thereby
and to charge the amount of any such deductions to your account.
5. As to each receivable assigned to us, you hereby warrant that: (i) it is
a bona fide existing obligation created by the sale and actual delivery of goods
or the rendition of services to customers in the ordinary course of business,
which you then own free of liens and encumbrances, and which is then
unconditionally owing to you without defense, offset or counterclaim; and (ii)
the customers have received and will accept the goods or services, and the
invoices therefor, without dispute or claim of any kind. You hereby warrant that
you are solvent, that you have full right and authority to sell and assign to us
and to grant to us a security interest in your receivables, that you have not
granted a security interest therein or in any of your inventory to any other
party and that you will not hereafter grant any security interest therein or in
any of your inventory, other than to us, at any time during the term of this
Agreement and until the security interests granted hereunder have been
terminated. You further represent and warrant that your name, place of business,
chief executive office and location of your books and records relating to your
receivables is as you are addressed above and you agree to notify us promptly of
any change in such or in your corporate or business structure. You also warrant
to us that (and at our request, you shall provide assurances acceptable to us
that) your computer based systems are Year 2000 Compliant. "Year 2000 Compliant"
shall mean that neither performance nor functionality of any computer hardware
or software is affected by dates prior to, during or after the Year 2000. In
particular: (a) no value for current date will cause any interruption in
operation; (b) date based functionality must behave consistently for dates prior
to, during and after the Year 2000; (c) in all interfacing and data storage, the
century in any date must be specified either explicitly or by unambiguous
algorithms or inferencing rules; and (d) Year 2000 must be recognized as a leap
year. You warrant that (i) you have identified to us all tradenames, tradestyles
or other assumed or fictitious business names (sometimes referred to as "DBA" or
"doing business as" names) that you use; (ii) you will advise us in writing if
you commence using any other such names in the future; and (iii) upon our
request therefor, you will provide to us evidence of your registration of all
such names in all jurisdictions in which such registration is required by law.
You warrant that at all times you shall have (i) Tangible Net Worth in an amount
not less than $15,000,000 and (ii) Working Capital of not less than $12,000,000.
For the purpose hereof the following terms shall have the following
definitions:
"Current Assets" at a particular date shall mean your cash accounts and
inventory providing however, that such
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amounts shall not include any amounts for any indebtedness owing by any of your
affiliate.
"Current Liabilities" at a particular date shall mean all amounts which
would, in conformity with GAAP, be included under current liabilities or
duplications, the amounts of (a) all indebtedness payable on demand, or at the
option of the person or entity to whom such indebtedness is owed, not more than
twelve (12) months after such date, (b) any payments in respect of any
indebtedness (whether installment, serial maturity, sinking fund payment or
otherwise) required to be made not more than twelve (12) months after such date,
(c) all reserves in respect of liabilities or indebtedness payable on demand or,
at the option of the person or entity to whom such indebtedness is owed, not
more than twelve (12) months after such date, the validity which is not
contested to such date, (d) all accruals for federal or other taxes measured by
income payable within twelve (12) months of such date and (e) all outstanding
indebtedness to us.
"GAAP" shall mean generally accepted accounting principles in the United
States of America in effect on the date hereof.
"Tangible Net Worth" shall mean, at a particular date (a) the aggregate
amount of all of your assets as may be properly classified as such in accordance
with GAAP consistently applied excluding such other assets as are properly
classified as intangible assets under GAAP, less (b) the aggregate amount of all
of your liabilities (excluding subordinated liabilities to us) determined in
accordance with GAAP.
"Working Capital" shall mean the excess, if any, of Current Assets less
Current Liabilities.
6. (a) For our services hereunder, we shall receive a factoring commission
equal to 0.5% of the gross invoice amount of each receivable, which commission
shall be due and payable by you as at the date a receivable arises, and shall
then be chargeable to your account with us except for those receivables due from
a customer (or any affiliates or subsidiaries thereof) listed on the Special
Accounts Schedule submitted herewith and/or from time to time hereafter, for
which the commission on such receivables shall be increased by an amount equal
to the surcharge set forth on the said Special Accounts Schedule to the extent
of the amount credit approved, which commission shall be due and payable and
chargeable to your account with us as at the date a receivable arises. On sales
assigned as C.R. Receivables our commission shall be 0.25%. The minimum
factoring commission on each invoice in respect of any receivable shall be
$2.00.
(b) Our charge specified in paragraph 6(a) hereof is based upon maximum
selling terms of sixty (60) days, and no more extended terms or additional
dating shall be granted by you to any customer without our prior written
approval (which approval is hereby granted for maximum selling terms of ninety
(90) days for sales to (i) SHOEBOX and (ii) S & J SHOES). If such approval is
given by us, then for each additional thirty days or part thereof of such
extended terms or additional dating, our charge with respect to the receivables
covered thereby shall be increased by an amount equal to the greater of (i) one
quarter of one percent (.25%) of the invoice amount of such receivable; or (ii)
twenty-five percent (25%) of the charge specified in paragraph 6(a) hereof.
(c) The minimum aggregate factoring commissions payable under this
Agreement shall be $480,000 the Initial Term and $240,000 for each contract year
thereafter, which to the extent of any deficiency (after giving effect to
commissions payable and other charges under the foregoing subparagraphs), shall
be chargeable to your account with us on an annual basis.
(d) Should we open letters of credit or issue guarantees for your account,
we shall receive a commission equal to 0.25% of the face amount of such letters
of credit or guarantees plus an additional 0.125% for each 30 days or portion
thereof that the letter of credit (or any resulting acceptance) or guarantee
remains undrawn and/or outstanding and/or unpaid plus preparation fees and bank
charges. We shall establish a reserve equal to 40% of the face amount of any
undrawn and/or outstanding and/or unpaid letters of credit or guarantees.
(e) You shall pay to us an annual facility fee equal to 1/4 of 1% of the
Maximum Credit Facility (which shall be fully earned on the date hereof and each
anniversary of the date hereof (each an "Anniversary Date")) which amount shall
be payable for each year as follows: (a) fifty (50%) percent on, respectively,
the date hereof and on the first day of each Anniversary Date and (b) the
balance, for each respective year, in six equal successive monthly installments
commencing on the first day of the seventh month following, respectively: (i)
the date hereof and (ii) each Anniversary Date.
7. (a) The purchase price for each receivable shall be the invoice amount
of the receivable, less returns (whenever
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made), less all selling discounts (at our option, calculated on shortest terms)
and credits or deductions of any kind allowed or granted to or taken by the
customer at any time, except in the ordinary course of business, and less our
commission provided for herein. No discount, credit or allowance with respect to
the receivables shall be granted by you to any customer, and no return of goods
shall be accepted by you without our prior written consent. A discount, credit
or allowance may be claimed only by the customer. All amounts collected against
the receivables shall be credited to your account adding three (3) banking days
for collection and clearance of remittances.
(b) If you require funds from time to time, we will advance to you, at our
discretion, up to (i) eighty-two and one half percent (82.5%) of the net amount
of receivables purchased by us and (ii) up to sixty (60%) of the amount of
Eligible Inventory (determined at the lower of cost or market). "Eligible
Inventory" shall mean inventory of finished goods on premises (or in warehouses
within the continental United States), in which we have a first and only
perfected security interest, and at all times shall be acceptable in all
respects to us in our sole discretion. Standards of eligibility of inventory may
be fixed and revised from time to time solely by us in our exclusive and sole
discretion. In no event, however, shall all advances made by us to you
hereunder, plus all letter of credit or guaranty accommodations made by us to
you plus all advances made by us to Bright Star Footwear, Inc. ("Bright")
pursuant to the Factoring Agreement between us and Bright dated of even date
herewith plus all letter of credit or guaranty accommodations made by us to
Bright exceed $35,000,000 at any one time outstanding (the "Maximum Credit
Facility"). You will be charged with interest on all sums paid, advanced or
charged to you at a rate equal to eight and three fourths percent (8.75%) per
annum upon the average daily debt cash balance in your account. That portion of
advances made by us to you which is in excess of the above stated percentage of
your receivables shall bear interest at a per annum rate which is 2.5% in excess
of such interest rate. The rates of interest and discount provided for in this
paragraph 7 shall be increased or decreased by one eighth of one percent (1/8 of
1%) per annum for each increase or decrease respectively of one eighth of one
percent (1/8 of 1%) per annum that is hereafter made in the prime rate of The
Chase Manhattan Bank (the "Bank") as announced by the Bank from time to time
("Prime Rate"), such change to become effective when and as the Prime Rate shall
change. The Prime Rate may not be the lowest or best rate charged by the Bank.
Notwithstanding the foregoing, in no event shall the rate of interest agreed to
by or charged to you hereunder exceed the maximum rate of interest permitted to
be so agreed or charged under the law of the jurisdiction whose laws are
applicable to such rate of interest. We shall have the privilege of remitting to
you at any time any amount standing to your credit on our books. The present
Prime Rate is 8.25% per annum.
(c) About fifteen (15) days after the end of each month, we will render to
you a statement with respect to the receivables purchased by us during the
previous month, together with advances and charges made to your account under
this Agreement. In addition to any other amounts chargeable to your account,
your account shall be charged with our expenses consisting of postage on
invoices, bank wire and similar charges and in addition all expenses and costs
from time to time hereafter incurred by us during the course of periodic
examinations of your books and records, and operations, plus a per diem charge
at our then standard rate per person, per day, for our examiners in the field
and office. Our current standard rate is $500.00 per person, per day. We may, at
our discretion, charge your account with a fee for all trial balances and sales
summaries we prepare at your request. All statements, reports or accountings
rendered or issued by us to you, including such trial balances and sales
summaries, shall be deemed accepted and be finally conclusive and binding upon
you unless you notify us to the contrary by registered or certified mail within
sixty (60) days after the date such statement, report or accounting is sent to
you.
(d) If any payment or recovery is received from or on behalf of a customer
which is an account debtor on both approved and CR Receivables, any such payment
or recovery may be first applied to the approved receivables notwithstanding (i)
any notation to the contrary on or with respect thereto, (ii) the payment terms
thereof, (iii) the due date thereof, or (iv) whether such payments were made in
the ordinary course of business or otherwise.
8. As collateral security for any and all of your (and your subsidiaries
and affiliates) indebtedness and obligations to us and to each of our
subsidiaries and affiliates, whether matured or unmatured, absolute or
contingent, now existing or that may hereafter arise (including under indemnity
or reimbursement agreements or by subrogation), and howsoever acquired by us,
whether arising directly between us or acquired by us by assignment, whether
relating to this Agreement or independent hereof, including all obligations
incurred by you to any other concern factored or financed by us (collectively,
the "Obligations"), you grant to us a security interest in all of your accounts,
contract rights and general intangibles (whether or not specifically assigned to
us), now existing and hereafter arising, and in the proceeds thereof, any
security and guarantees therefor, in the goods and property represented thereby,
in all of your books and records relating to the foregoing, in all sums of money
at any time to your credit with us, all your present and future claims against
us under or in connection with this Agreement and any of your property at any
time in our possession. All Obligations shall be due and payable on demand, and
you hereby irrevocably authorize and direct us to charge at any time to your
account any Obligations, and to pay any Obligations owing to any of our
subsidiaries or affiliates by so charging your
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account. You agree to execute financing statements and any and all other
instruments and documents that may now or hereafter be provided for by the
Uniform Commercial Code or other law applicable thereto reflecting the security
interests granted to us hereunder ("Financing Statements"). You authorize us to
file the Financing Statements without your signature, signed only by us as a
secured party, to reflect the security interests granted to us hereunder. You
shall be liable for, and we may charge your account with, all costs and expenses
of any public record filings including Financing Statements (including any
filing or recording taxes), the making of lien searches, and any attorney's
(whether in-house or outside) fees which may be incurred by us in administering
this Agreement and protecting, preserving and enforcing our security interests
and rights hereunder.
9. You shall maintain your books, records and accounts in accordance with
sound accounting practice. You agree to furnish us with balance sheets,
statements of profit and loss, interim financial statements and such other
information regarding your business affairs and financial condition as we may
from time to time reasonably request, including audited statements within 90
days after the end of each of your fiscal years, in such detail and scope as we
may require, prepared and certified by independent Certified Public Accountants
acceptable to us. All such statements and information shall fairly present your
financial condition as of the dates, and the results of your operations for the
periods, for which the same are furnished.
10. (a) This Agreement shall commence on the date hereof, and shall
continue until October 31, 2001 (the period from the date hereof is herein
referred to as the Initial Term), and automatically from year to year
thereafter, unless you give us notice in writing, by registered or certified
mail, not less than sixty days prior to the expiration of the original term of
this Agreement (or any renewal term thereof), of your intention to terminate
this Agreement as at the end of such term, with the understanding that we may
terminate this Agreement at any time upon not less than ninety days notice to
you by registered or certified mail. If you or any guarantor, endorser or other
person liable on the Obligations (each a "Guarantor") becomes insolvent or
unable to meet your or its debts as they mature, or fail, suspend or go out of
business (or, in the case of a Guarantor which is an individual, die) or apply
for, consent to, or suffer the appointment of a receiver, trustee or custodian
(or similar person) for you or any Guarantor or any of your or any Guarantor's
property, make an assignment for the benefit of creditors, or commence or become
the subject of a case or proceeding under any federal bankruptcy law, or if any
Guarantor terminates or sends notice of termination of its guaranty of the
Obligations, or if you shall be in default under this Agreement or under any
other agreement with us or any Obligations to us, or if Xxxx Xxxx ceases to
function as your Chief Executive Officer, then notwithstanding the foregoing, we
shall have the right to terminate this Agreement at any time without notice. Our
rights and your Obligations arising out of transactions having their inception
prior to the termination date shall not be affected by any termination or notice
thereof. Termination of this Agreement shall not become effective in respect of
the liens and security interests granted to us hereunder until you have fully
paid and discharged any and all of your Obligations to us, and you shall
continue to furnish confirmatory assignments and schedules of receivables
assigned to us and all proceeds in respect thereof. After the giving of any
notice of termination hereunder and until the full liquidation of your account
and the payment in full of all Obligations, you shall not be entitled to receive
any equities or payments from us, to the extent we are obligated to make
payments to you under this Agreement. From and after the effective date of
termination, all amounts charged or chargeable to your account hereunder, and
all your Obligations to us, shall become immediately due and payable without
further notice or demand.
(b) Should you desire to terminate this Agreement other than as
specifically provided herein, as a condition to such termination, you shall pay
to us, in addition to any other fees payable pursuant to this Agreement,
additional liquidated damages as follows:
i) during the period commencing on the first day of this Agreement
through and including the last day of the third month of this Agreement, an
amount equal to three (3%) percent of the average outstanding daily balance
of advances in your account with us, during the period from the date of
this Agreement through and including the date of such termination;
ii) during the period commencing on the first day of the third month
through and including the last day of the twelfth month of this Agreement,
an amount equal to three (3%) percent of the average outstanding daily
balance of advances in your account with us, during the three month period
immediately preceding the date of such termination;
iii) during the period commencing on the first day of the thirteenth
month through and including, the last day of the eighteenth month of this
Agreement, an amount equal to two (2%) percent of the average outstanding
daily balance of advances in your account with us, during the three month
period immediately preceding the date of such termination;
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iv)during the period commencing on the first day of the nineteenth
month through and including the last day of the twenty-forth month of this
Agreement, an amount equal to one and one half (1 1/2%) percent of the
average outstanding daily balance of advances in your account with us,
during the three month period immediately preceding the date of such
termination.
11. This Agreement is deemed made in the State of New York and shall be
governed, interpreted and construed in accordance with the laws of the State of
New York. No modification, waiver or discharge of this Agreement shall be
binding upon us unless in writing and signed by us. If at any time we should
fail to exercise any right or remedy hereunder, it shall not constitute a waiver
on our part of exercising the same or any other right or remedy at any
subsequent time. If any taxes are imposed upon, or if we shall be required to
withhold or pay any tax or penalty because of or in connection with any
transactions between us under this Agreement, you agree to indemnify us and hold
us harmless in respect thereof. This Agreement embodies our entire agreement as
to the subject matter and supersedes all prior agreements (whether oral or
written) as to the subject matter. Trial by jury is hereby waived by each of us
in any action, proceeding or counterclaim brought by either of us against the
other on any matters whatsoever arising out of or in any way connected with this
Agreement or the relationship created hereby, and you hereby consent to the
jurisdiction of the Supreme Court of the State of New York (or the Civil Court
of the City of New York if such matters be within its jurisdiction), and of any
Federal Court in such State, for a determination of any dispute as to any such
matters. In connection therewith, you hereby waive personal service of any
summons, complaint or other process and agree that service thereof may be made
by registered or certified mail directed to you at your address set forth above,
or such other address as shall have previously been communicated to us by
registered or certified mail. Within thirty days after such mailing, you shall
appear or answer to such summons, complaint or other process. In the event we
shall retain counsel for the purpose of enforcing the performance, payment or
collection of any of the Obligations, then and in that event you agree to pay
the reasonable fees of our counsel, plus any and all reasonable expenses and
disbursements incurred in connection therewith and/or incidental thereto. Our
books and records shall be admissible as prima facie evidence of the status of
the account between us. This Agreement shall be binding upon and inure to the
benefit of each of us and our respective heirs, executors, administrators,
successors and assigns.
XXXXXXXXX & XXXXXXXXX, INC.
By: /s/ XXXXX XXXXXX
-----------------------------------------------
Name and Title: Xxxxx Xxxxxx, Xx. Exec. Vice Pres.
The foregoing is acknowledged,
accepted and agreed to:
CANDIE'S, INC.
By: /s/ XXXX XXXX, CEO
-----------------------------
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