June 10, 2003
Innovo Azteca Apparel, Inc.
5804 East Slauson Avenue
City of Commerce, California 90040
INVENTORY SECURITY AGREEMENT
Ladies and Gentlemen:
This agreement is being executed by you to induce us to make loans or advances to you and 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.
1.1 We are considering making advances to you in our sole discretion and from time to time of up to 50% of the
value of your Eligible Inventory (as hereinafter defined) calculated on the basis of the lower of cost or market,
with cost calculated on a first in-first out basis. Eligible Inventory shall mean the gross amount of your Inventory
(as hereinafter defined) that is subject to a valid, exclusive, first priority and fully perfected security interest in our
favor and which Inventory at all times continues to be acceptable to us in our reasonable business judgment and
less any a) work-in-process, b) supplies, other than raw material, c) Inventory not present in the United States of
America, d) Inventory returned or rejected by your customers other than goods that are undamaged and
resalable in the normal course of business, e) Inventory to be returned to your suppliers, f) Inventory in transit to
third parties (other than your agents or warehouses), g) Inventory in possession of a warehouseman, bailee or
other third party, unless such warehouseman, bailee or third party has executed a notice of security interest
agreement (in form and substance satisfactory to us) and we have taken all other action required to perfect our
security interest in such Inventory, and h) less any reserves required by us in our reasonable discretion, including
for special order goods, discontinued, slow-moving and obsolete Inventory, market value declines, bill and hold
(deferred shipment), consignment sales and shrinkage.
1.2 The amount of the loans and advances made or to be made by