EXHIBIT 10.5
July 25, 2005
Blue Holdings, Inc.
0000 X. Xxxxxxx Xxxxxx
Xxxxxxxx, XX 00000
Attn: Xxxx Xxxx
Re: Inventory Loan Facility
Dear Xxxx:
Reference is made to (i) the Factoring Agreement between FTC Commercial Corp.
("FTC") and Blue Holdings Inc. (the "Company") of even date herewith (as
supplemented or amended from time to time, the "Factoring Agreement") and (ii)
the Continuing Security Agreement between FTC and the Company of even 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 and 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 the up to thirty-three and one third percent
(33.33%) 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 0000 X. Xxxxxxx Xxxxxx, Xxxxxxxx,
Xxxxxxxxxx 00000; (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
xxxx 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 $1,500,000 minus the aggregate amount of
then outstanding loans made to Antik Denim, LLC ("Antik") under the Inventory
Loan Facility between Antik and FTC of even date herewith (the "Antik Facility
Agreement").
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 sell, lease, transfer, assign,
abandon or otherwise dispose of any of the Company's
assets in which FTC has been granted a security
interest under any of the Company Agreements,
excluding sales of Inventory to the Company's
customers in the ordinary course of business.
iii. The Company shall not become a guarantor, a surety,
or otherwise liable for the debts or other
obligations of any other person or firm, including,
without limitation, any affiliate of the Company
excluding debts or other obligations of any affiliate
of the Company to FTC.
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 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, or the Antik Facility
Agreement shall have occurred or would occur as a
result of any extension of credit under the facility
described herein.
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iii. FTC shall have received a duly executed original of
this Agreement, the Security Agreement, and originals
of the Guaranties, each in the form of Exhibit 1
hereto, to be executed by Xxxx Xxxx, individually,
and by Xxxx Xxxx and Xxxxxxxxx Xxxx, as trustees of
The Xxxx and Xxxxxxxxx Xxxx Living Trust dated
February 13, all of the foregoing to be dated as of
the date hereof and duly executed by the Company and
any guarantors of the Obligations, 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 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 and the Antik Facility Agreement 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 or the
Antik Facility Agreement shall constitute a default under this Agreement.
The foregoing is based upon the financial condition of the Company as
represented in the financial statement dated ___________________________, which
the Company has represented and warranted completely and correctly reflects the
Company's financial condition. 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. BLUE HOLDINGS, INC.
By: /s/ Xxx Xxxxxxx By: /s/ Xxxxxxx Xxxx
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Xxx Xxxxxxx, President Title: CFO
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