Financing Agreements

6 Months Ended

Dec. 31, 2011

3.	Financing Agreements

The Company has a financing agreement with CIT that permits CIT to make loans and advances on a revolving basis at CIT’s “Sole Discretion,” which is defined as “the sole and absolute discretion exercised in good faith in accordance with customary business practices for similarly situated asset-based lenders in comparable asset-based lending transactions.” Borrowings are based on a borrowing base formula, as defined, and include a sublimit in the amount of $2 million for the issuance of letters of credit. The Company’s obligations under the agreement are secured by a first priority lien on substantially all of the Company’s assets, including the Company’s accounts receivable, inventory, intangibles, equipment, and trademarks, and a pledge of the Company’s interest in its subsidiaries. The agreement had an original maturity of September 30, 2011 with automatic annual extensions to September 30th (“Anniversary Date”) unless terminated by CIT with written notice at least sixty days in advance of the Anniversary Date. No such termination notice has been received by the Company from CIT.

The borrowings under the agreement accrue interest at a rate of 3.00% above prime; however, the applicable margin shall revert to the original 2.00% interest rate in the event that the Company achieves two successive quarters of profitable business. The interest rate as of December 31, 2011 was 6.25%. The Company has the option to terminate the agreement with CIT. If the Company terminates the agreement with CIT due to non-performance by CIT of certain of its obligations for a specified period of time, the Company will not be liable for any termination fees. Otherwise, in the event of an early termination by the Company, the Company will be liable for minimum factoring fees.

On December 31, 2011, the Company had $1.2 million of outstanding letters of credit, total availability of approximately $3.2 million and revolving credit borrowings of $4.5 million under the agreement. On January 1, 2011, the Company had $1.1 million of outstanding letters of credit, total availability of approximately $1.1 million and revolving credit borrowings of $7.2 million under the agreement.

Factoring Agreement

The agreement with CIT also provides for a non-recourse factoring arrangement which provides notification factoring on substantially all of the Company’s sales. The proceeds of this agreement are assigned to CIT as collateral for all indebtedness, liabilities and obligations due to CIT. A factoring commission based on various rates is charged on the gross face amount of all accounts with minimum fees as defined in the agreement.

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

+ References+ Details

CHAUS BERNARD INC 10-Q