Exhibit: 99.11
Date: January 24, 2002
CARLYLE INDUSTRIES, INC.
▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
INVENTORY SECURITY AGREEMENT
----------------------------
Ladies and Gentlemen:
This agreement is being executed by you 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. GRANT OF SECURITY INTEREST
1.1 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.
1.2 The Security Interest in the Inventory shall extend and attach to:
1
(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.
2. 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 agreement, the Agreement or any
other agreement or arrangement which may be now or hereafter entered into
between us.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS
3.1 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
2
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.
3.2 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.
3.3 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. To the extent permitted by applicable law, 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 Inventory, and you hereby ratify and confirm any and all
financing statements, amendments and continuations with respect thereto
heretofore and hereafter filed by us pursuant to the foregoing authorization.
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.
3
3.4 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 3.4, 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.
3.5 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 GAAP.
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
4
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.
3.6 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 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.
3.7 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.
4. BOOKS AND RECORDS AND EXAMINATIONS
4.1 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.
4.2 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
4.3 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.
5. EVENTS OF DEFAULT AND REMEDIES UPON DEFAULT
5.1 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.
5.2 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 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
6
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.
5.3 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.
6. 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.
7. MISCELLANEOUS PROVISIONS
7.1 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 New York without
reference to principles of conflicts of law other than Sections 5-1401 and
5-1402 of the New York General Obligations Law.
7.2 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.
7.3 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.
7
[Remainder of this page intentionally left blank]
8
8. 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: _____________________________________
Name:
Title:
Read and Agreed to:
CARLYLE INDUSTRIES, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Vice President
Accepted at New York, New York
THE CIT GROUP/COMMERCIAL SERVICES, INC.
By: _____________________________________
Name:
Title:
9