January 23, 2002
CANDlE'S INC.
400 Columbus Avenue
Valhalla, NY 10595-1335
NOTIFICATION FACTORING AGREEMENT
Ladies and Gentlemen:
We are pleased to confirm the terms and conditions that shall govern our
full recourse funds in use accounting factoring arrangement with advances (the
"Agreement").
1. SALE OF ACCOUNTS
1. You hereby sell, assign and transfer to us, and we hereby purchase as
absolute owner, all of your accounts created by or arising from the sale of
goods or rendition of services by you (referred to herein collectively as the
"Accounts", individually as an `Account"). This includes, without limitation,
all sales made and services rendered under any of your trade names or styles or
through any of your divisions. Anything contained herein to the contrary
notwithstanding, for purposes of paragraphs 4, 5 and 6 hereof, the term
"Accounts" shall not include accounts arising from sales to any subsidiary,
parent or affiliated company of yours.
2. RISK OF NON-PAYMENT
2. Under no circumstances are we to be deemed to have assumed any risk of
non-payment with respect to any Accounts, it being understood that all Accounts
shall be at your exclusive risk and with recourse back to you if payment is not
made on any Account for any reason whatsoever.
3. INVOICING
3. Each of your invoices shall bear a notice (in form and content approved
by us) that the Account represented thereby has been sold, assigned and
transferred to us, and is owned by and payable only to us. All invoices shall be
mailed by you to your customers at your expense. You shall provide us with
copies of all invoices, and with such confirmation of the transfer of Accounts
to us and such proof of order, shipment or delivery as we may require. Your
printed name or rubber stamp signature on invoices and confirmatory assignment
schedules shall have the same legal effect as a manual signature by one of your
authorized officers or agents. Should you for any reason defer shipment of goods
which you have sold and invoiced to a customer (such sales are also known as
bill and hold sales) you shall: so advise us promptly, submit all relevant
details to us, and comply with such conditions as we deem necessary as a
prerequisite to our handling the Accounts arising therefrom on our books.
4. REPRESENTATIONS AND WARRANTIES
4.1 You hereby represent and warrant that: each Account is based upon an
actual and bona fide sale and delivery of goods or rendition of services to
customers, made by you in the ordinary course of your business; the goods and
inventory being sold and the Accounts created are your exclusive property and
are not and shall not be subject to any lien, consignment arrangement,
encumbrance, security interest or financing statement whatsoever, other than in
our favor; at the time of purchase by us of the Account, your customers have
accepted the goods or services, owe and are obligated to pay the full amounts
stated in the invoices according to their terms, without dispute, claim, offset,
defense, deduction, recoupment, counterclaim or contra account (any of the
foregoing being referred to herein as a "Customer Claim") unless you have
notified us pursuant to paragraph 8; all amounts are due in United States
Dollars; all original invoices bear notice of the assignment and transfer to us;
any taxes or fees relating to your Accounts or goods are solely your
responsibility; and none of the Accounts factored with us hereunder represent
sales to any subsidiary, parent or affiliated company of yours.
4.2 You further represent and warrant that: your legal name is exactly as
set forth on the signature page of this Agreement, you are a duly organized and
validly existing business organization incorporated or registered in the state
of New York, and are qualified to do business in all states where required; the
most recent financial statements provided by you to us accurately reflect your
financial condition as of that date and there has been no material adverse
change in your financial condition since the date of those financial statements.
You agree to furnish us with such information concerning your business affairs
and financial condition as we may reasonably request from time to time. You will
furnish to us as soon as possible, but not later than one hundred twenty (120)
days after the close of each of your fiscal years, your and your consolidated
subsidiaries financial statements as of the end of such year, on a consolidated
basis, audited by a firm of independent, certified public accountants, which as
of the date of this Agreement is BDO Seidman, LLP and which is acceptable to us
of such date, or such other firm as may be mutually acceptable to us, and
consolidating statements certified by one of your financial officers. In
addition, you shall deliver to us promptly upon their becoming available, a copy
of (A) all consultants' reports, investment bankers' reports, accountants'
management letters, business plans and similar documents, (b) all reports,
financial statements or other information delivered to your shareholders and/or
filed with the SEC or any other governmental authority, (C) all reports, proxy
statements, financial statements and other information generally distributed by
you to your creditors or the financial community in general; and (D) any audit
or other reports submitted to you by independent accountants in connection with
any annual, interim or special audit.
4.3 You agree that you will promptly notify us of any change in your: name,
state of incorporation or registration, location of your chief executive office,
place(s) of business, and legal or business structure. Further, you agree that
you will promptly notify us of any change in control of the ownership of your
business organization, and of significant law suits or proceedings against you.
4.4 You further represent and warrant that (a) the trademark and/or
tradename "Candies" together with all related intellectual property is owned by
you and (b) the trademark and/or tradename "Bongo" together with all related
intellectual property is owned by your wholly owned subsidiary, Michael Caruso &
Co., Inc, in each case free and clear of all liens and/or security interest. You
agree that said trademarks and/or tradenames shall not be sold or transferred
without our prior written consent.
5. PURCHASE OF ACCOUNTS
5. We shall purchase the Accounts for the gross amount of the respective
invoices, less factoring fees or commissions relating thereto, trade and cash
discounts allowable to your customers and credits and allowances (the "Purchase
Price of Accounts"). Our purchase of the Accounts shall be reflected on the
Statements of Account which we shall render to you, and such statements shall
also reflect all credits and discounts made available to your customers (whether
or not taken) and anticipation earned by your customers. A more detailed
description of these and all other accounting procedures used hereunder is
contained in the Guide.
6. ADVANCES
6. At your request, and in our sole discretion, we may advance funds to you
and Bright Star Footwear, Inc. ("Bright Star"), under its separate Factoring
Agreement with us, in an aggregate amount of up to the lesser of (A) $20,000,000
or (B) the sum of: (i) up to eighty-five percent (85%) prior to the collection
of the Accounts, (ii) subject to your execution and delivery of an inventory
security agreement supplement in form and substance satisfactory to us, in
amounts of up to sixty percent (60%) of the value of your Eligible Inventory (as
defined in the Inventory Security Agreement) calculated on the basis of the
lower of cost or market, with cost calculated on a first in-first out basis,
(iii) subject to your execution and delivery of a letter of credit security
agreement supplement in form and substance satisfactory to us, we will, in our
sole discretion, assist you in establishing or opening letters of credit for
your account or guarantee the payment or performance of such letters of credit
up to an aggregate face amount not exceeding $3,000,000 at any one time
outstanding for you and Bright Star and (iv) we may make available to you and
Bright Star, in our sole discretion, an overadvance accommodation of up to
$5,000,000.00 in the aggregate outstanding at any onetime. (For purposes hereof,
"overadvances" shall mean advances in excess of the percentage limitations set
forth above.). In addition, we will establish a discretionary line for you and
Bright Star of up to $250,000.00 in the aggregate outstanding at any one time
for Ledger Debt (as defined in section 11). This line will be available to you
provided that (a) this Agreement is in full force and effect, (b) no Event of
Default hereunder is then outstanding and (c) there is no material deterioration
in your credit worthiness in our reasonable opinion. At your request, we may in
our sole discretion, make advances to you prior to the collection of Accounts,
subject to our right to hold any reserves we deem necessary as security for the
payment and performance of any and all of your Obligations, as defined herein.
All amounts owing to us by you, including, without limitation, any advances
which may be made to you prior to shipment and any debit balance in your Client
Position Account (as defined below), shall be payable to us on demand. We may
send to you at any time any credit balance in your Funds-In-Use Account (as
defined below), without prior notice to you.
7. PAYMENT OF ACCOUNTS
7. Checks and other proceeds received by us in payment of Accounts will be
promptly applied to your account with us after crediting your customer's
account; however, we shall debit your account monthly with the cost of two (2)
additional business days on all such amounts. The foregoing shall be computed at
the rate charged by us on debit balances, as set forth in paragraph 13.1 hereof.
No checks, drafts or other instruments received by us shall constitute final
payment of an Account unless and until such instruments have actually been
collected.
8. CUSTOMER CLAIMS AND CHARGEBACKS
8. You shall notify us promptly of any matter affecting the value,
enforceability or collectability of any Account and of all Customer Claims,
returns and rejections. You shall issue credit memoranda promptly upon accepting
returns or granting allowances, (and upon our request, send duplicates and/or
confirm the assignment of such credit memoranda to us). We may at any time debit
or charge back to your account the amount of: any Account which is not paid in
full when due for any reason and any Account with respect to which we determine
that there has been a breach of any representation or warranty hereunder. Any
deduction taken by a customer shall be charged back to your account immediately,
and we may at any time debit or charge back to your account the amount of: (i)
payments we receive on Accounts which we are required thereafter to turnover or
return; (ii) any and all expenses and attorneys' fees incurred by us in
collecting or attempting to collect any Account charged back to you or any
Obligation hereunder; and (iii) any expenses incurred by us as a result of
remittances made by customers on Accounts that are not finally paid, for
whatever reason. Further, we shall be entitled to charge you a reasonable fee
for each Account which we may place with a collection agency or attorney for
collection, which fee shall be charged to your account in addition to any fees
or expenses of such collection agency or attorney. We may bring suit or
otherwise enforce collection, in your name or ours, and generally shall have all
other rights respecting said Accounts, including, without limitation, the right
to: accelerate or extend the time of payment, modify the terms of payment,
settle, compromise, release in whole or in part any amounts owing, and issue
credits in your name or ours. To the extent applicable, you hereby waive any and
all claims and defenses based on suretyship. We may endorse or sign your name or
ours on any checks or other instruments or documents with respect to Accounts or
the goods covered thereby.
9. STATEMENTS OF ACCOUNT
9. After the end of each month, within ten (10) business days on the end of
each month, we shall send to you one or more reports showing the accounting for
sales, charges, advances and other transactions between us during that month
(herein the "Reports"). The Reports sent to you each month will include, among
other things, a Statement of Account which will reflect transactions in three
accounts: an accounts receivable account (the "Accounts Receivable Account"), a
client position account (the "Client Position Account') and a funds-in-use
account (the "Funds-In-Use Account"). All financial transactions between us will
be reflected on these monthly Reports. The monthly Reports shall be deemed
correct and binding upon you and shall constitute an account stated between us,
unless we receive a written statement of your exceptions within thirty (30) days
after the date the same are received by you.
10. GRANT OF SECURITY INTEREST
10.1 In addition to the sale of Accounts hereunder, and without the
necessity of any further formality, writing or evidence, you hereby transfer and
assign to us and grant us a security interest in all of your right, title and
interest in and to all of your now existing and future (herein collectively the
"Collateral"): (a) accounts (including the Accounts), instruments, documents,
chattel paper (including electronic chattel paper), general intangibles
(including all payment intangibles and all other rights to payment), and any
other obligations owing to you; (b) unpaid seller's rights (including
rescission, repossession, replevin, reclamation and stoppage in transit); (c)
rights to any inventory represented by the foregoing, including returned or
repossessed goods; (d) reserves and credit balances arising hereunder; (e)
guarantees, collateral, supporting obligations and letter of credit rights with
respect to the foregoing; (0 insurance policies, proceeds or rights relating to
the foregoing; (g) federal, state and local income tax refunds; (h) cash and
non-cash proceeds of the foregoing; (i) Books and Records (defined in section 12
below) evidencing or pertaining to the foregoing; and U) all now existing and
future patents and trademarks, including those registered in the United States
Patent and Trademark Office, the goodwill of the business in connection
therewith, and any and all proceeds, royalties and other fees which are or may
become due therefrom or for the use thereof.. (It is understood that we shall
have no obligation to perform in any respect, any contracts relating to any
Accounts).
10.2 You agree to comply with all applicable laws to perfect our security
interest in collateral pledged to us hereunder, and to execute such documents as
we may require to effectuate the foregoing and to implement this Agreement. You
irrevocably authorize us to file financing statements and all amendments and
continuations with respect thereto, all in order to create, perfect or maintain
our security interest in the Collateral, and you hereby ratify and confirm any
and all financing statement, amendments and continuations with respect thereto
heretofore and hereafter filed by us pursuant to the foregoing authorization.
11. OBLIGATIONS SECURED
11. 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 this Agreement or any other agreement or arrangement
between us, by operation of law or otherwise ("Obligations"). Obligations also
include ledger debt (which means indebtedness for goods and services purchased
by you from any party whose accounts receivable are factored or financed by us)
("Ledger Debt"), and indebtedness arising under any guaranty, credit enhancement
or other credit support granted by you in our favor. Any reserves or balances to
your credit and any other assets, collateral or property of yours in our
possession constitutes security for any and all Obligations.
12. BOOKS AND RECORDS AND EXAMINATIONS
12. You agree: to make your records, files and books of account (including,
without limitation, paper records, computer-based data, records or media,
electronic records, tapes, discs, etc., and all programs and procedure manuals
relating thereto) (all of the foregoing referred to herein as "Books and
Records") available to us on request; to permit us to visit your premises during
business hours to examine the same and to make copies or extracts thereof; and
to conduct such examinations as we deem necessary. In order to cover costs and
expenses we may incur in connection with any such examinations, we shall be
entitled to charge you a fee of $750.00 for each day or part thereof for each
examiner during which such examination is conducted, which fee shall be charged
to your account, in addition to any out-of-pocket costs and expenses we incur as
a result of conducting said examinations.
13. INTEREST, FACTORING FEES OR COMMISSIONS AND OTHER CHARGES
13.1 Interest shall be charged as of the last day of each month on the
debit balance in your Funds-In-Use Account each day during that month. The
amount that appears in your Funds-In-Use Account is the difference between the
balance in your Accounts Receivable Account and the balance in your Client
Position Account. Interest is charged as of the last day of each month based on
the daily debit balances in your Funds In Use account for that month, at a rate
equal to the sum of one percent (1%) plus the Chase Prime Rate (defined below).
The Chase Rate is the per annum rate of interest publicly announced by The Chase
Manhattan Bank in New York, New York from time to time as its prime rate. (The
prime rate is not intended to be the lowest rate of interest charged by The
Chase Manhattan Bank to its borrowers.) Any change in the rate of interest
hereunder due to a change in the Chase Rate shall take effect as of the first of
the month following such change in the Chase Rate. Interest shall be calculated
based on a 360 day year. Interest shall be credited as of the last day of each
month on any credit balance in your Funds-In-Use Account each day during that
month, at a rate four percent (4%) per annum below the Chase Rate being used to
calculate interest hereunder for the period. In no event, shall the rate charged
hereunder exceed the highest rate permitted under applicable law. In the event,
however, that we do receive interest hereunder in excess of the highest rate
permissible, you agree that your sole remedy shall be to seek repayment of such
excess, and you hereby waive any and all other rights and remedies which may be
available to you under law or in equity.
13.2 If you, as a client of ours, purchase goods or services from another
client of ours and your payments on these invoices are not timely received, a
late interest payment, at our then late interest rate, will be charged to your
account with us and shall be deemed an Obligation under this Agreement.
13.3 For our services hereunder, you will pay us a factoring fee or charge
of one-quarter of one percent (.25%) of the gross face amount of all Accounts
factored with us, but in no event less than $1.00 per invoice. All factoring
fees or charges are due and charged to your account upon our purchase of the
underlying Account. Commencing on even date herewith, if the actual factoring
fees or charges paid to us by you during any Contract Year, is less than
$100,000.00 ("Minimum Factoring Fees"), we shall charge your account as of the
end of such Contract Year with an amount equal to the difference between the
actual factoring fees or charges paid during such Period and said Minimum
Factoring Fees. "Contract Year" shall mean the period ending on the last day of
the month occurring one year from the date of this Agreement and each subsequent
Contract Year shall be the twelve month period ending on the same day in each
year thereafter.
13.4 In addition to the foregoing, you shall pay all costs and expenses
incurred by us in connection with the preparation, execution, administration and
enforcement of this Agreement, including, without limitation, all reasonable
fees and expenses attributable to the services of our attorneys (whether
in-house or outside), all search fees and the cost of all public record filings.
Furthermore, you shall pay to us a reasonable fee for: all special reports
prepared by us at your request and all wire transfers. All such fees shall be
charged to your account and may be changed by us from time to time upon notice
to you. Notwithstanding the foregoing, in no event shall the fees for
preparation and execution of this Agreement exceed $10,000 in the aggregate,
plus all search and fling fees.
13.5 In addition to the fees and charges under this Agreement, you and your
affiliate, Bright Star Footwear, Inc., jointly and severally agree to pay us, as
of the date hereof, a Documentation Fee, set forth in 13.4 above, in the amount
of $10,000 in the aggregate, to compensate us for the use of our in-house legal
department and facilities in documenting this Agreement.
13.6 If any tax by any governmental authority (other than income and
franchise taxes imposed on us which are not related to any transaction between
us) is or may be imposed on, or arises as a result of, any transactions between
us, any sales made by you, or any inventory or goods relating to such sales, and
we are or may be required to withhold or pay such tax and any interest or
penalties related thereto, you shall indemnify and hold us harmless in respect
thereof and pay to us the amount of any such tax, interest or penalties.
14. TERMINATION
14. Except as otherwise provided herein, you may terminate this Agreement
for any reason whatsoever, but only as of an Anniversary Date, as defined
herein, and then only by giving us at least sixty (60) days prior written notice
of termination. We may terminate this Agreement for any reason whatsoever at any
time by giving you written notice stating a termination date not less than sixty
(60) days from the date such notice is given, or immediately at any time without
prior notice to you upon and after the occurrence of an Event of Default (as
defined below). This Agreement continues uninterrupted unless terminated as
herein provided. As used herein, the term "Anniversary Date" shall mean the last
day of the month occurring three years from the date hereof or the same date in
any year thereafter. In the event you terminate this Agreement prior to an
Anniversary Date you shall pay to us and we shall be entitled to receive an
amount equal to the difference between the actual commissions paid to us under
paragraph 13.3 hereof and the aggregate of the Minimum Factoring Fees for the
Contract Year during which this Agreement is terminated and each additional
Contract Year occurring thereafter prior to the next Anniversary Date; provided
however, no termination fees of any kind shall be imposed in the event of any
replacement of this factoring agreement by us. Unless sooner demanded, all
Obligations shall become due and payable upon termination of this Agreement and,
pending a final accounting, we may withhold any balances in your account unless
supplied with an indemnity satisfactory to us to cover all Obligations. All our
rights, liens and security interests hereunder shall continue and remain in
effect after termination of this Agreement, whether said termination is upon
notice or as a result of the occurrence of an Event of Default, and you shall
continue to assign accounts receivable to us and to remit to us all collections
on accounts receivable, until all Obligations have been paid in full or we have
been supplied with an indemnity satisfactory to us to cover all Obligations.
15. EVENTS OF DEFAULT AND REMEDIES UPON DEFAULT
15.1 An "Event of Default" shall be deemed to have occurred under this
Agreement upon: (a) the cessation of your business or the calling of a meeting
of your creditors; (b) your failure to meet your debts as they mature; (c) the
commencement by or against you of any bankruptcy, insolvency, arrangement,
reorganization, receivership or similar proceedings under any federal or state
law; (d) breach by you of any representation, warranty or covenant contained
herein or in any other agreement between us; (e) your failure to pay any
Obligation within five (5) days of the due date thereof or (0 the occurrence of
an Event of Default under or termination of our Factoring Agreement with Bright
Star.
15.2 Upon and after the occurrence of an Event of Default, this Agreement
may be terminated by us immediately at anytime, without notice to you, and all
Obligations shall, at our option and without notice or demand of any kind (all
of which you hereby expressly waive), become due and payable immediately.
Further, we may remove, from any premises where the same may be located, any and
all documents, instruments, Books and Records (and any receptacles or cabinets
containing the same) pertaining to the Accounts or other collateral hereunder
and/or we may use (at your expense) such of your personnel, supplies and space
at your place of business or elsewhere, as may be necessary to properly
administer and enforce our rights in the Accounts and any other collateral
hereunder, and to facilitate the collection thereof and realization thereon. We
may sell, assign or otherwise dispose of the Accounts and any returned,
reclaimed or repossessed inventory, goods or other property relating thereto,
whether held by you or by us, at public or private sale, for cash, on credit or
otherwise, at such price and on such terms as we in our sole option and
discretion may determine, and we may bid or become purchasers at any such sale,
or acquire an interest in or dispose of said property. You hereby acknowledge
that you have no right to notice, or to an accounting or right of redemption
with respect to any such sale or other disposition of the aforesaid Accounts or
aforesaid goods. With respect to any other property or collateral in which we
have a security interest, we shall have all of the rights and remedies of a
secured party under Article 9 of the Uniform Commercial Code. If notice of
intended disposition of any of said property or collateral is required by law,
it is agreed that ten (10) days notice shall constitute reasonable notice. The
net cash proceeds resulting from the exercise of any of the foregoing rights,
after deducting all charges, costs and expenses (including reasonable attorneys'
fees) shall be applied by us to the payment or satisfaction of the Obligations,
whether due or to become due, in such order as we may elect, and you shall
remain liable to us for any deficiencies. Upon and after the occurrence of an
Event of Default, or in the event of a termination of this Agreement by us, we
are hereby authorized by you to notify postal authorities at any time to change
the address for delivery of mail to you to such address as we may designate, and
to receive and open mail addressed to you to enable us to carry out our rights
under this Agreement.
15.3 Anything contained herein to the contrary notwithstanding you shall
have the right to terminate this Agreement without the imposition of any Minimum
Factoring Fees or other termination fees if we have not offered you a term loan
facility substantially on the terms set forth in our proposal letter of December
21, 2001 in the amount of not less $12,500,000 within ninety (90) days from the
date first written above on the terms and conditions set forth therein.
16. MISCELLANEOUS PROVISIONS
16.1 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. Furthermore, unless specifically provided otherwise herein, this
Agreement can be changed only by a writing signed by both of us, and shall bind
and benefit 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. Our failure or delay in exercising any right
hereunder shall not constitute a waiver thereof or bar us from exercising any of
our rights at anytime. The validity, interpretation and enforcement of this
Agreement shall be governed by the laws of the State of New York Jurisdiction to
be in New York County.
16.2 If any provision of this Agreement (including, without limitation, any
provision relating to charges constituting interest payable by you) is contrary
to, prohibited by, or deemed invalid under applicable laws or regulations, such
provision shall be inapplicable and deemed omitted to the extent so contrary,
prohibited or invalid, but the remainder hereof shall not be invalidated thereby
and shall be given effect so far as possible.
16.3 Paragraph headings are for convenience only and shall not be deemed to
be a controlling part of this Agreement.
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17. JURY TRIAL WAIVER
17. To the extent permitted by applicable law, you and 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 both parties.
If the foregoing is in accordance with, and accurately reflects, your
understanding, please so indicate by signing and returning to us the original
and one copy of this Agreement. This Agreement shall take effect as of the date
set forth above, but only after being accepted below by one of our officers in
New York, New York, after which, we shall forward your fully executed copy to
you for your files.
Very truly yours,
THE CIT GROUP/COMMERCIAL SERVICES, INC.
By:/s/ Richard Lyons
-------------------------------------
Name: Richard Lyons
Title: Vice President
Read and Agreed:
CANDIES, INC
By:/s/ Richard Danderline
- -----------------------------------
Name: Richard Danderline
Title: Executive Vice President
Accepted at New York, New York
THE CIT GROUP/COMMERCIAL SERVICES, INC.
By:/s/ Jonathan A. Lucas
-------------------------------------
Name: Jonathan A. Lucas
Title: Senior Vice President