UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report:
(Date of earliest event reported)
AUGUST 4, 2006
----------------------------
BLUE HOLDINGS, INC.
(Exact name of registrant as specified in charter)
NEVADA
(State or other Jurisdiction of Incorporation or Organization)
000-33297 88-0450923
(Commission File Number) (IRS Employer Identification No.)
5804 E. SLAUSON AVE.,
COMMERCE, CA 90040
(Address of Principal Executive
Offices and zip code)
(323) 725-5555
(Registrant's telephone
number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of registrant under any of the
following provisions:
[_] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[_] Soliciting material pursuant to Rule 14a-12(b) under the Exchange Act
(17 CFR 240.14a-12(b))
[_] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[_] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
ITEM 2.03 CREATION OF DIRECT FINANCIAL OBLIGATION OR AN OBLIGATION UNDER
AN OFF-BALANCE SHEET ARRANGEMENT OF A REGISTRANT.
On July 25, 2005, Blue Holdings, Inc. (the "Registrant"), entered into
an Inventory Loan Facility Agreement (the "Blue Holdings Inventory Loan
Agreement") with FTC Commercial Corp. ("FTC"). On July 25, 2005, Antik Denim,
LLC ("Antik"), a wholly-owned subsidiary of the "Registrant, also entered into
an Inventory Loan Facility Agreement (the "Antik Inventory Loan Agreement") with
FTC. On October 31, 2005, Taverniti So Jeans, LLC, a wholly-owned subsidiary of
the Registrant ("Taverniti" and together with Antik and the Registrant, the
"Inventory Loan Parties" and each an "Inventory Loan Party"), entered into an
Inventory Loan Facility Agreement (the "Taverniti Inventory Loan Agreement" and
together with the Antik Inventory Loan Agreement and the Blue Holdings Inventory
Loan Agreement, the "Inventory Loan Agreements" and each an "Inventory Loan
Agreement") with FTC.
On August 4, 2006, the Registrant entered into three amendments to the
Blue Holdings Inventory Loan Agreement, Antik entered into three amendments to
the Antik Inventory Loan Agreement, and Taverniti entered into one amendment to
the Taverniti Inventory Loan Agreement. The amendments, examined in the
aggregate, and the Registrant's continued use of the Inventory Loan Agreements,
have made the Inventory Loan Agreements material to the Registrant.
Amendment No. 1 to the Blue Holdings Inventory Loan Agreement and
Amendment No. 1 to the Antik Inventory Loan Agreement, each effective as of July
26, 2005, revised such Inventory Loan Agreements to provide that the interest
rate charged on outstanding inventory loans will be the same rate charged in
Section 23 of the factoring agreements between FTC and each of the Registrant
and Antik.
Amendment No. 2 to the Blue Holdings Inventory Loan Agreement and
Amendment No. 2 to the Antik Inventory Loan Agreement, each effective as of
October 31, 2005, revised such Inventory Loan Agreements to:
o Provide that the aggregate principal amount outstanding at any time
under the inventory facility shall not exceed the lesser of (a) the
inventory base (as defined in the Inventory Loan Agreements) or (b) up
to $1,500,000 minus (i) the aggregate amount of outstanding inventory
loans made to Taverniti and (ii) the aggregate amount of outstanding
inventory loans made to Antik (with respect to the Registrant) / the
Registrant (with respect to Antik);
o Provide for termination of such Inventory Loan Agreements at FTC's
discretion on the earlier of (a) the date on which an event of default
occurs under such Inventory Loan Agreements or any other agreement
between FTC and the Registrant, Antik or Taverniti, or (b) the date on
which any factoring agreement between FTC and the Registrant, Antik or
Taverniti (collectively the "Factoring Agreements") is terminated;
o Require that such parties provide to FTC within 21 days after the end
of each month, (a) an inventory certification substantially in the form
attached to such Inventory
2
Loan Agreements, (b) an aging of all inventory as of the end of such
month and (c) a report detailing the fabrics, finished goods inventory
available for sale and the finished goods inventory sold as of the end
of such month;
o Provide as a condition precedent that no default under any agreement
between FTC and the Registrant, Antik or Taverniti shall have occurred
or would occur as a result of any extension of credit under the
inventory loan facilities;
o Provide that a default (i.e. failure to perform any terms or conditions
or a breach of any representations or warranties) under any agreement
between FTC and the Registrant, Antik or Taverniti shall constitute a
default under all other agreements between FTC and the Registrant,
Antik or Taverniti; and
o Provide that to establish such reserves as FTC deems necessary, a
default shall occur under such Inventory Loan Agreements and the
agreements between FTC and the Registrant or Antik (as applicable), if,
at end of any fiscal quarter, (i) 30% or more of the aggregate
outstanding unpaid accounts assigned to FTC under the Factoring
Agreements are 60 or more days past due and/or (ii) the aggregate
amount of accounts charged back by FTC under the Factoring Agreements
during such fiscal quarter is equal to or greater than 30% or more of
the aggregate amount of accounts assigned to FTC under the factoring
agreements between FTC and each of the Registrant, Antik or Taverniti
during such fiscal quarter.
Amendment No. 3 to the Blue Holdings Inventory Loan Agreement,
Amendment No. 3 to the Antik Inventory Loan Agreement and Amendment No. 1 to the
Taverniti Inventory Loan Agreement, each effective as of January 1, 2006,
revised such Inventory Loan Agreements to revise the definition of "Inventory
Base" to include up to 50% of the value (the lesser of cost or market) of each
company's raw material and finished goods inventory which FTC determines to be
eligible for inclusion in the inventory base, and to increase the aggregate
principal amount outstanding at any time under the inventory facility to the
lesser of (a) the inventory base or (b) up to $2,400,000 minus (i) the aggregate
amount of outstanding inventory loans made to:
o With respect to the Registrant, Taverniti and Antik
o With respect to Taverniti, the Registrant and Antik; and
o With respect to Antik, the Registrant and Taverniti.
The Blue Holdings Inventory Loan Agreement originally provided for the
extension by FTC of an inventory loan facility to the Registrant in the
aggregate principal amount of the lesser of the inventory base or $1,500,000
minus the aggregate amount of then outstanding loans made to Antik under the
Antik Inventory Loan Agreement, and for a 10-day period after the end of each
month for the Registrant to provide to FTC various reports regarding the
Registrant's inventory. The Antik Inventory Loan Agreement originally provided
for the extension by FTC of an inventory loan facility to Antik in the aggregate
principal amount of the lesser of the inventory base or $1,500,000 minus the
aggregate amount of then outstanding loans made to the Registrant under the Blue
Holdings Inventory Loan Agreement, and for a 10-day period after the end of each
month for Antik to provide to FTC various reports regarding Antik's inventory.
The Taverniti Inventory Loan Agreement originally provided for the extension by
FTC of an inventory loan facility to Taverniti in the
3
aggregate principal amount of the lesser of the inventory base or $1,500,000
minus the aggregate amount of then outstanding loans made to Antik and the
Registrant under the Antik Inventory Loan Agreement and the Blue Holdings
Inventory Loan Agreement, respectively, and for the provisions contained in
Amendments No. 1 and 2 to the Blue Holdings Inventory Loan Agreement and the
Antik Inventory Loan Agreement.
The Inventory Loan Agreements also originally defined inventory base to
include up to 33.33% of the value (the lesser of cost or market) of each
company's raw material and finished goods inventory which FTC determined to be
eligible for inclusion in the inventory base.
The Inventory Loan Agreements are guaranteed by Paul Guez, the
Company's Chairman, Chief Executive Officer and President, and majority
shareholder, and by the Paul and Elizabeth Guez Living Trust dated February 13,
1998, of which Paul Guez and his spouse, Elizabeth Guez, serve as trustees. In
addition, the Blue Holdings Inventory Loan Agreement is guaranteed by each of
Antik and Taverniti, the Antik Inventory Loan Agreement is guaranteed by each of
the Registrant and Taverniti, and the Taverniti Inventory Loan Agreement is
guaranteed by each of the Registrant and Antik.
On August 4, 2006, each of the Inventory Loan Parties entered into an
Indemnity Agreement for Factor and Supplier Guarantees with FTC, effective
January 1, 2006, pursuant to which FTC may, at its sole discretion, guarantee
payment of certain obligations of the Inventory Loan Parties to assist such
parties in the purchase of goods and for other purposes. Each Inventory Loan
Party agreed to pay FTC a fee equal to 1% of the amount of each guaranty
(provided that such fee shall not be less than $150) for each 60-day period (or
part thereof) from the date of issuance of a guaranty to the stated expiration
date of the guaranty, and to reimburse FTC for all fees and expenses charged to
FTC in connection with any guaranty. Each Inventory Loan Party also agreed to
indemnify FTC from any and all losses and claims arising in connection with all
guaranties and for all guaranty obligations. FTC may, at its discretion, reduce
the amount of advances available to each Inventory Loan Party which would
otherwise be available under such party's Factoring Agreement and Inventory Loan
Agreement by the amount of all outstanding guaranties to such party.
As security for their obligations under the applicable Inventory Loan
Agreements and for the prompt repayment of any indebtedness to FTC, each of the
Registrant and Antik entered into a Continuing Security Agreement dated June 25,
2005, and Taverniti entered into a Continuing Security Agreement dated October
31, 2005, pursuant to which such parties pledged, assigned and granted to FTC a
continuing lien upon and security interest in, subject to no encumbrance, all of
such party's right, title and interest in and to all presently existing and
future accounts, merchandise, inventory, goods, general intangibles, balances,
reserves, deposits, debts or any other amounts or obligations of FTC owning to
the applicable Inventory Loan Party, equipment, motor vehicles, and all proceeds
and products of each of the foregoing. Upon an event of default, FTC has no
obligation to make further loans or other financial accommodations to or on
behalf of each Inventory Loan Party, FTC may declare by notice to each Inventory
Loan Party any and all obligations to be immediately due and payable, and FTC
may collect upon any part of the collateral.
On August 4, 2006, the Registrant and Antik entered into amendments to
the Continuing Security Agreements, effective as of October 31, 2005, revising
the events of default included under
4
such Continuing Security Agreements to add any misappropriation, conversion,
diversion, fraud or any material loss, theft or damage of the collateral, to add
the issuance of any warrant, process or order of attachment against the
collateral (as opposed to any property of the obligor, whether or not
collateral), and to exclude an obligor's determination of its insecurity with
respect to financial condition or a decrease in the value of the collateral.
On August 7, 2006, the Registrant entered into a Revolving Promissory
Note ("Note") with Paul Guez, the Registrant's Chairman, Chief Executive Officer
and President and majority shareholder, for an aggregate principal amount up to
a maximum of $3,000,000. Under the terms of the Note, Mr. Guez agreed to make
advances to the Registrant from time to time through December 31, 2007. Mr. Guez
has advanced approximately $2.46 million to the Registrant. Under the terms of
the Note, interest accrues at a rate of 6% per annum from the date of any
advance. All outstanding and unpaid principal and interest are due and payable
on December 31, 2007. Upon the Registrant's default on any payment under the
Note, the Registrant's breach of any material provisions between the Registrant
and Mr. Guez or the Registrant's filing for bankruptcy or similar protection,
Mr. Guez shall be held in a first position on the entire amount due on the Note
and the Note shall immediately become due and payable upon written notice from
Mr. Guez and interest shall accrue at the rate of 10% per annum or the legal
rate of interest, whichever is lower.
The Note was approved by a majority of the Company's Board of
Directors, including all of its independent directors.
5
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Blue Holdings, Inc. has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
BLUE HOLDINGS, INC.
Date: August 10, 2006 By: /s/ Patrick Chow
-----------------------------------------
Patrick Chow, Chief Financial Officer and
Secretary
6