As filed with the Securities and Exchange Commission
on May 9, 1996
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
CAPITAL FACTORS HOLDING, INC.
(Exact name of registrant as specified in its charter)
Florida 6153 59-1565319
(State or Other (Primary Standard (I.R.S Employer
Jurisdiction of Industrial Classi- Identification No.)
Incorporation or fication Code Number)
Organization)
1799 West Oakland Park Boulevard
Fort Lauderdale, Florida 33311
(954) 730-2900
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
John W. Kiefer
President and Chief Executive Officer
Capital Factors Holding, Inc.
1799 West Oakland Park Boulevard
Fort Lauderdale, Florida 33311
(954) 730-2900
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
_______________
with copies to:
Robert L. Grossman, Esq. Lee Meyerson, Esq.
Greenberg, Traurig, Hoffman, Simpson Thacher & Bartlett
Lipoff, Rosen & Quentel, P.A. 425 Lexington Avenue
1221 Brickell Avenue New York, New York 10017
Miami, Florida 33131 (212) 425-2000
(305) 579-0500
Approximate date of commencement of proposed sale to the
public: As soon as practicable after the effective date of this
Registration Statement.
If any of the securities being registered on this Form are to
be offered on a delayed or continuous basis pursuant to Rule 415
under the Securities Act of 1933, check the following box. [ ]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration
number of the earlier effective registration statement for the same
offering. [ ]
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
[ ]
If delivery of the prospectus is expected to be made pursuant
to Rule 434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
[CAPTION]
<TABLE>
<S> <C> <C>
Proposed
Title of Each Maximum
Class of Aggregate Amount of
Securities To Be Offering Registration
Registered Price(1)(2) Fee
Common Stock, $.01 par
value (1) $32,200,000 $11,103.45
</TABLE>
(1) Estimated solely for the purpose of calculating the
registration fee in accordance with Rule 457(c) under the
Securities Act of 1933.
(2) Includes 300,000 shares of Common Stock which may be
purchased by the Underwriters pursuant to an over-allotment
option.
_____________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH
DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL
THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY
STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME
EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF
1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
CAPITAL FACTORS HOLDING, INC.
CROSS REFERENCE SHEET
Furnished Pursuant to Item 501(b) of Regulation S-K
[CAPTION]
<TABLE>
<S> <C>
ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus Facing Page of the Registra-
tion Statement; Cross
Reference Sheet; Outside Front
Cover Page
2. Inside Front and Outside Back
Cover Pages of Prospectus Inside Front Cover Page;
Outside Back Cover Page
3. Summary Information, Risk
Factors and Ratio of
Earnings to Fixed
Charges Prospectus Summary; Risk
Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering
Price Underwriting
6. Dilution Dilution
7. Selling Security Holders *
8. Plan of Distribution Underwriting
9. Description of Securities
to be Registered Description of Capital Stock;
Dividend Policy
10. Interests of Named Experts
and Counsel *
11. Information with Respect to the
Registrant
(a) Description of Business Prospectus Summary; Risk
Factors; Management's Discus-
sion and Analysis of Financial
Condition and Results of
Operations; Business
(b) Description of Property Business
(c) Legal Proceedings Business
(d) Market Price of and
Dividends on the
Registrant's Common
Equity and Related
Stockholder Matters Prospectus Summary;
Description of Capital Stock;
Dividend Policy; Shares
Eligible for Future Sale
(e) Financial Statements Financial Statements
(f) Selected Consolidated
Financial Data Selected Consolidated
Financial Data
(g) Supplementary Financial
Information *
(h) Management's Discussion
and Analysis of Financial
Condition and Results of
Operations Management's Discussion and
Analysis of Financial Condi-
tion and Results of Operations
(i) Changes in and Dis-
agreements with
Accountants on Accounting
and Financial Disclosure *
(j) Directors and Executive
Officers Management; Principal
Shareholders
(k) Executive Compensation Management
(l) Security Ownership of
Certain Beneficial
Owners and Management Principal Shareholders
(m) Certain Relationships
and Related Trans-
actions Management; Certain Transac-
tions
12. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities *
</TABLE>
_______________________
* Not applicable or answer thereto is negative.
Information contained herein is subject to completion or amendment.
A registration statement relating to these securities has been
filed with the Securities and Exchange Commission. These
securities may not be sold nor may offers to buy be accepted prior
to the time the registration statement becomes effective. This
prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of
these securities in any State in which such offer, solicitation or
sale would be unlawful prior to registration or qualification under
the securities laws of any such State.
SUBJECT TO COMPLETION, DATED MAY 9, 1996
2,000,000 Shares
CAPITAL FACTORS HOLDING, INC.
Common Stock
________________________
All of the 2,000,000 shares of Common Stock offered hereby are
being sold by Capital Factors Holding, Inc., a Florida corporation
(the "Company"). All of the Common Stock of the Company is
presently owned by Capital Bank, a Florida bank. Following this
offering, Capital Bank will continue to beneficially own
approximately 83% of the outstanding Common Stock (approximately
81% if the over-allotment option granted to the Underwriters is
exercised in full).
Prior to this offering, there has been no public trading market
for the Common Stock and there can be no assurance that any active
trading market will develop. It is currently anticipated that the
public offering price will be between $______ and $______ per
share. See "Underwriting" for information relating to the factors
to be considered in determining the initial public offering price.
Application has been made for quotation of the Company's Common
Stock on The Nasdaq National Market System ("Nasdaq") under the
symbol "CAPF."
The Common Stock offered hereby involves a high degree of risk.
See "Risk Factors" beginning on page 5 hereof for a discussion of
certain factors that should be considered by prospective purchasers
of shares of Common Stock.
____________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
[CAPTION]
<TABLE>
<S> <C> <C> <C>
Proceeds
Price Underwriting to
to Discount Company
Public (1) (2)
Per Share $ $ $
Total(3) $ $ $
</TABLE>
(1) See "Underwriting" for information concerning indemnification
of the Underwriters and other information.
(2) Before deducting expenses of the offering payable by the
Company estimated at $________.
(3) The Company has granted the Underwriters an option,
exercisable from time to time within 30 days from the date
hereof, to purchase up to 300,000 additional shares of Common
Stock at the Price to Public per share, less the Underwriting
Discount, solely for the purpose of covering over-allotments,
if any. If the Underwriters exercise such option in full,
the total Price to Public, Underwriting Discount and Proceeds
to Company will be $________, $________ and $________,
respectively. See "Underwriting."
________________________
The shares of Common Stock are offered by the Underwriters
when, as and if delivered to and accepted by them, subject to their
right to withdraw, cancel or reject orders in whole or in part and
subject to certain other conditions. It is expected that delivery
of certificates representing the shares of Common Stock will be
made against payment on or about __________, 1996 at the offices of
Oppenheimer & Co., Inc., Oppenheimer Tower, World Financial Center,
New York, New York 10281.
________________________
OPPENHEIMER & CO., INC.
The date of this Prospectus is ___________, 1996
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-
ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET
PRICE OF THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE
EFFECTED IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
____________________
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange
Commission (the "Commission") a Registration Statement on Form S-1
(together with all amendments, exhibits and schedules thereto, the
"Registration Statement") under the Securities Act of 1933, as
amended (the "Act"), with respect to the Common Stock offered
hereby. This Prospectus does not contain all of the information
set forth in the Registration Statement. For further information
with respect to the Company and the Common Stock offered hereby,
reference is hereby made to such Registration Statement.
Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete and, in
each instance, reference is made to the copy of such contract or
document filed as an exhibit to the Registration Statement, each
such statement being qualified in all respects by such reference.
Copies of the Registration Statement may be obtained from the
Commission's principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of the fees prescribed by the
Commission, or may be examined without charge at the offices of the
Commission.
____________________
The Company intends to furnish its shareholders with annual
reports containing audited financial statements which have been
certified by its independent public accountants, and quarterly
reports containing unaudited summary financial information for each
of the first three quarters of each fiscal year.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the
more detailed information and financial statements appearing
elsewhere in this Prospectus. Unless otherwise indicated, all
information set forth herein (i) assumes that the Underwriters'
over-allotment option is not exercised, and (ii) gives effect to a
10,000 for-1 stock split to be effected immediately prior to the
offering. References in this Prospectus to the "Company" include
Capital Factors Holding, Inc. ("Holding"), and its direct and
indirect subsidiaries, including Capital Factors, Inc. ("Factors"),
the primary operating company.
THE COMPANY
The Company is a specialized financial services company
principally engaged in providing receivables-based commercial
financing and related fee-based credit, collection and management
information services. The Company's clients are primarily small to
medium size companies in various industries, including textile and
apparel and furniture manufacturing and, recently, entities
involved in the healthcare industry. The Company operates through
four offices located in New York City, Los Angeles, Charlotte and
its headquarters in South Florida. In late 1994, the Company began
to expand its asset-based lending business.
The Company generally provides financing to its clients
through the purchase of accounts receivable owed to the Company's
clients by the clients' customers, usually on a non-recourse basis,
as well as by guaranteeing amounts due under letters of credit
issued to the Company's clients which are collateralized by such
accounts receivable and other assets. The purchase of accounts
receivable is known as "factoring" and results in the payment by
the client of a factoring fee, generally equal to 0.5% to 2% of the
factored sales volume. No money is paid to the client at the time
the Company purchases the client's receivables. Payment for
receivables which are credit-approved by the Company are made to
the client after collection from the client's customer or, if the
receivable was not paid based solely on the customer's financial
inability to pay, payment is made to the client within 120 days
after the due date of the receivable. In some cases, the Company
does not guarantee payment of the receivable, in which case payment
is made to the client only upon collection of the receivable.
Frequently, the Company also advances funds to its clients prior to
collection of receivables, charges interest on such advances (in
addition to any factoring fees) and satisfies such advances from
receivables collections.
Factoring has been a method of working capital financing in
the United States for over 200 years. The factoring industry has
undergone considerable consolidation over the past several years;
as a result the industry is characterized by a small number of very
large factors operating nationally, with a multitude of small
companies generally operating on a local or regional basis. In a
recent survey, the largest fourteen factoring companies reported
factoring volume in 1995 of $60.9 billion, an increase of 48% over
reported volume in 1988. The Company had a 3.3% share of this
reported volume for 1995.
The Company has grown significantly in size and
profitability, with compounded annual growth rates in operating
revenues and net income of 21.4% and 69.0%, respectively, for the
five-year period ended December 31, 1995, and a compounded annual
growth rate in factored sales volume of 27.2% for the same period.
For 1995, the Company's operating revenues, net income and factored
sales volume increased by 28.5%, 42.7% and 30.2%, respectively,
over 1994. The Company's operating strategy includes (i) managing
credit risk to ensure consistent and stable growth, (ii) increasing
market penetration through offices in key factoring centers,
(iii) recruiting and retaining experienced personnel who use a team
approach to provide quality service, and (iv) diversifying by
product and industry, especially in healthcare financing, which
management believes has significant growth potential.
In 1994, the Company became the first company to effect a
securitization of factored advances (the "Securitized Financings").
The advances ("Advances") are collateralized by accounts receivable
from customers of the Company's clients and, in certain cases, by
cash, letters of credit, inventory or other collateral. The
Company has not employed gain-on-sale accounting in its Securitized
Financings. The Company has completed two additional
securitizations of factored advances since 1994. See "Business -
Background of the Company."
Holding is a wholly owned subsidiary of Capital Bank, a
Florida commercial bank ("Capital Bank"), which is a wholly owned
subsidiary of Capital Bancorp ("Bancorp"). The Company's principal
executive offices are located at 1799 West Oakland Park Boulevard,
Fort Lauderdale, Florida 33311, and its telephone number is (954)
730-2900.
The Offering
[CAPTION]
<TABLE>
<S> <C>
Common Stock offered by the Company . . 2,000,000 shares
Common Stock outstanding after
this offering. . . . . . . . . . . . . 12,000,000 shares(1)
Use of proceeds . . . . . . . . . . . . To reduce indebtedness
Proposed NASDAQ symbol . . . . . . . . . "CAPF"
</TABLE>
________________
(1) Does not include 700,000 shares of Common Stock reserved for
issuance upon exercise of stock options granted under the
Company's stock option plan. See "Management--Company Stock
Option Plan."
Summary Consolidated Financial Data
(Dollars in thousands, except per share data)
[CAPTION]
<TABLE>
<S> <C> <C> <C>
1991 1992 1993
Income Statement Data:
Factoring fees . . . . . $ 9,870 $ 12,482 $ 15,376
Net interest income. . . 3,762 4,445 5,669
Letter of credit and
other fees. . . . . . . 378 665 1,128
Other income . . . . . 1,092 905 1,303
Operating revenues. . 15,102 18,497 23,476
Provision for credit
losses . . . . . . . . 2,550 3,150 2,645
Operating expenses . . . 9,594 11,316 13,072
Total expenses . . . . 12,144 14,466 15,717
Income before income
taxes(1) . . . . . . . 2,958 4,031 7,759
Net income . . . . . . . 1,716 2,304 4,305
Net income per
share(2) . . . . . . . $0.17 $0.23 $0.43
Pro Forma Income
Statement Data(3):
Pro forma net interest
income . . . . . . . .
Pro forma net income . .
Pro forma net income
per share(2) . . . . .
Operating Ratios and
Other Data(4):
Factored sales . . . . .$825,116 $1,057,846 $1,326,802
Factoring fees to
factored sales . . . . 1.20% 1.18% 1.16%
Net interest income
to factored sales. . . 0.46% 0.42% 0.43%
Letter of credit and
other fees to
factored sales . . . . 0.05% 0.06% 0.09%
Other income to
factored sales . . . . 0.13% 0.09% 0.09%
1.84% 1.75% 1.77%
Provision for credit
losses to factored
sales. . . . . . . . . 0.31% 0.30% 0.20%
Operating expenses to
factored sales . . . . 1.16% 1.07% 0.99%
Total expenses to
factored sales . . . . 1.47% 1.37% 1.18%
Income before income
taxes to factored
sales. . . . . . . . . 0.36% 0.38% 0.58%
Return on equity(5). . . 15.63% 17.78% 26.57%
Return on assets(5). . . 1.23% 1.32% 1.99%
Average funds
employed(6). . . . . . $89,700 $108,300 $131,800
Net interest income
to average funds
employed . . . . . . . 4.19% 4.10% 4.30%
Net charge-offs to
factored sales
volume . . . . . . . . 0.16% 0.30% 0.20%
Accounts receivable
turnover in
days(7). . . . . . . . 53 54 52
Average number of
employees. . . . . . . 118 140 153
Average factored sales
per employee . . . . . $6,158 $7,246 $8,672
(continued)
<S> <C> <C>
1994 1995
Income Statement Data:
Factoring fees . . . . . . . . $17,371 $19,519
Net interest income. . . . . . 7,299 11,850
Letter of credit and other
fees . . . . . . . . . . . . 1,238 2,040
Other income. . . . . . . . . 1,541 1,849
Operating revenues . . . . . 27,449 35,258
Provision for credit losses. . 2,235 2,235
Operating expenses . . . . . . 14,137 18,457
Total expenses . . . . . . . 16,372 20,692
Income before income
taxes(1) . . . . . . . . . . 11,077 14,566
Net income . . . . . . . . . . 6,092 8,693
Net income per share(2). . . . $0.61 $0.87
Pro Forma Income Statement
Data(3):
Pro forma net interest
income . . . . . . . . . . . $
Pro forma net income . . . . . $
Pro forma net income per
share(2) . . . . . . . . . . $
Operating Ratios and Other Data(4):
Factored sales . . . . . . . .$1,536,960 $2,001,364
Factoring fees to factored
sales . . . . . . . . . . . 1.13% 0.98%
Net interest income to
factored sales . . . . . . . 0.47% 0.59%
Letter of credit and other
fees to factored sales . . . 0.08% 0.10%
Other income to factored
sales. . . . . . . . . . . . 0.10% 0.09%
1.79% 1.76%
Provision for credit losses
to factored sales. . . . . . 0.15% 0.11%
Operating expenses to
factored sales . . . . . . . 0.92% 0.92%
Total expenses to factored
sales. . . . . . . . . . . . 1.07% 1.03%
Income before income taxes
to factored sales. . . . . . 0.72% 0.73%
Return on equity(5). . . . . . 28.80% 30.20%
Return on assets(5). . . . . . 2.35% 2.51%
Average funds employed(6). . . $153,600 $210,900
Net interest income to
average funds employed . . . 4.75% 5.62%
Net charge-offs to factored
sales volume . . . . . . . . 0.17% 0.05%
Accounts receivable turnover
in days(7) . . . . . . . . . 53 53
Average number of employees. . 162 193
Average factored sales
per employee . . . . . . . . $9,487 $10,370
</TABLE>
[CAPTION]
<TABLE>
<S> <C>
December 31, 1995
Actual As Adjusted(8)
Balance Sheet Data:
Receivables, net . . . . . $ 354,821
Total assets . . . . . . . 399,471
Due to factoring clients . 128,578
Borrowings . . . . . . . . 227,260
Due to affiliates and other
liabilities. . . . . . . 10,293
Shareholders' equity . . . 33,340
</TABLE>
___________________
(1) The results of operations of the Company are included in the
consolidated Federal income tax returns filed by Capital
Bancorp, the parent of Capital Bank. Capital Bank, the
Company's sole shareholder, allocates income taxes to the
Company calculated on a separate return basis. See "Certain
Transactions."
(2) Gives retroactive effect to the 10,000-for-1 stock split to be
effected immediately prior to the offering.
(3) Pro forma income statement data reflects (i) the issuance of
2,000,000 shares of Common Stock offered hereby as if such
issuance had occurred on January 1, 1995, at $_____ per share,
net of issuance costs, to repay indebtedness as described in
"Use of Proceeds," and (ii) reduction of interest expense
related to such indebtedness, net of income taxes, as if the
repayment occurred on January 1, 1995.
(4) For purposes of the ratios and other data below for 1994 and
1995, factored sales include certain receivables which are
collateral for those asset-based loans for which the Company
provides factoring-type services.
(5) Computed using average monthly balances.
(6) Computed using average monthly balances of funds employed
(receivables less amounts due to factoring clients).
(7) Computed by dividing 365 by the quotient of (i) factored sales
volume for the periods indicated and (ii) the average monthly
accounts receivable balance for the periods indicated.
(8) Adjusted to give effect to the sale of the Common Stock
offered hereby (at an assumed initial public offering price of
$_____ per share) and the application of the estimated net
proceeds therefrom. See "Use of Proceeds."
RISK FACTORS
INVESTMENT IN THE COMPANY'S COMMON STOCK OFFERED HEREBY
INVOLVES A HIGH DEGREE OF RISK. PROSPECTIVE INVESTORS SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, TOGETHER WITH THE
OTHER INFORMATION INCLUDED IN THIS PROSPECTUS, BEFORE PURCHASING
THE SHARES OF COMMON STOCK OFFERED HEREBY. THE CAUTIONARY
STATEMENTS SET FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS SHOULD
BE READ AS ACCOMPANYING FORWARD-LOOKING STATEMENTS INCLUDED UNDER
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS," "BUSINESS" AND ELSEWHERE HEREIN. THE RISKS
DESCRIBED IN SUCH STATEMENTS COULD CAUSE THE COMPANY'S RESULTS TO
DIFFER MATERIALLY FROM THOSE EXPRESSED IN OR INDICATED BY SUCH
FORWARD-LOOKING STATEMENTS.
CREDIT LOSSES; RECESSIONARY ENVIRONMENT. The financial
failure of clients or their customers may adversely affect the
Company's ability to fully recover amounts due under either the
accounts receivable purchased by the Company or advances made to
clients under the Company's factoring arrangements. Accordingly,
the Company makes provisions for credit losses. The allowance for
credit losses is determined after evaluating the outstanding
receivables and advances, current economic conditions, changes in
the nature and the volume of the outstanding receivables and
advances, past loss experience and other pertinent considerations.
Many of these considerations involve significant estimation and are
subject to rapid changes which may be unforeseen by management and
could result in immediate increased losses and material adjustments
to the allowance. As a result, ultimate losses could be
significant and may vary from current estimates and the amount of
provisions for credit losses may be either greater or less than
actual future charge-offs of receivables or advances relating to
these provisions. Additionally, the Company's results of
operations could be materially and adversely affected if the
Company were to experience a loss as a result of the purchase of
fraudulent receivables. The Company also guarantees payment of
letters of credit issued for the benefit of its clients, which pose
similar risks as discussed above. See "Business-Credit Loss Policy
and Experience." Moreover, the risks to which the Company's
business is subject become more acute in an economic slowdown or
recession because less accounts receivable may be generated by
clients, resulting in decreased factoring fees, and financial
ability of customers to pay outstanding accounts receivable and
clients to pay outstanding advances may be impaired, resulting in
increased credit losses. Some of the Company's clients are startup
or less mature ventures that may be more susceptible to economic
slowdowns or recessions.
DEPENDENCE ON AVAILABILITY OF FUNDING SOURCES. The Company
obtains substantially all of its funds for its factoring activities
from (i) the Securitized Financings (presently $175 million) which
expire between December 1999 and January 2001 and (ii) a $125
million revolving line of credit (the "Capital Facility") funded by
its sole shareholder, Capital Bank, a Florida commercial bank,
which facility is subject to annual review by Capital Bank each
June and is due on demand. The Company also has a $40 million
revolving line of credit with an unaffiliated commercial bank which
was closed in April 1996, the initial term of which expires on
March 4, 1999, subject to automatic one-year renewals unless sooner
terminated by either party thereto (the "Other Bank Facility").
While the Company expects to have continued access to credit after
expiration of these facilities, there is no assurance that such
financing will be available, or if available, that it will be on
terms as favorable. In the event the Company is not able to renew
the Securitized Financings, the Capital Facility or the Other Bank
Facility or find alternative financing for its activities, the
Company would be forced to curtail or cease its factoring and
financing business, which action would have a material adverse
effect on the Company's operations and financial condition. The
Company's ability to access the Securitized Financings for future
financings would be adversely affected if Capital Bank were to
enter into a written agreement with the Federal Deposit Insurance
Corporation (the "FDIC") under the Financial Institution
Supervisory Act. Furthermore, the Company would be unable to
access the Securitized Financings for future funding in the event
Capital Bank became a party to any proceeding provided for by any
debtor relief law, other than as creditor or claimant.
DILUTION OF RECEIVABLES. Dilution of factored receivables
occurs when such receivables are not fully collectable for reasons
other than the client's customer's financial inability to pay (such
as disagreements as to the quality of goods shipped). The Company
generally advances funds to borrowing clients up to a specified
percentage of factored sales purchased. Should dilution occur in
excess of the amount of the receivables not advanced upon, the
Company will in practice typically need to look to newer
receivables of the client for the collection of the outstanding
obligation to the Company. Significant dilution may be an
indication of problems in a client's business which could result in
a decreased volume of new receivables available for payment of
outstanding obligations to the Company. Some dilution occurs with
respect to most, if not all, clients. Increased dilution with
respect to any client's receivables puts the Company's collection
of the client's obligation to the Company at risk. The Company
monitors dilution on a daily basis. Notwithstanding the foregoing,
the Company may not be able to react quickly enough to dilution to
avoid losses and to ensure collection of receivables.
CONCENTRATION OF CLIENT BASE AND CLIENT CUSTOMER BASE. A
large percentage of the Company's clients are in the textile and
apparel industry and the furniture manufacturing industry, as well
as certain other industries. These industries are segmented by
product, price, style and other items. Many of the customers of
the Company's clients are in various retail or wholesale industry
segments. Adverse conditions in any of these industries or
industry segments could have a material adverse effect on the
Company and on the Company's ability to collect receivables from
certain of its clients' customers.
DEPENDENCE ON MANAGEMENT AND KEY PERSONNEL. The Company's
success depends to a significant degree upon the continued
contributions of members of its senior management, particularly
John W. Kiefer, the Company's President and Chief Executive
Officer, Stephen J. Donohue, the Company's Executive Vice President
- - - - New York Regional Manager, and James L. Morrison, the Company's
Executive Vice President - California Regional Manager, as well as
other officers and key personnel, many of whom would be difficult
to replace. The future success of the Company also depends on its
ability to identify, attract and retain additional qualified
technical and managerial personnel, particularly in the healthcare
financing industry. In light of the fact that following this
offering Capital Bank will continue to own 83% of the Company's
outstanding Common Stock (approximately 81% if the overallotment
option granted to the Underwriters is executed in full), Capital
Bank will have significant influence over decisions regarding the
continued employment of executive officers and key employees of the
Company, including Mr. Kiefer. Although the Company is negotiating
an employment agreement with Mr. Kiefer and has employment
agreements with Messrs. Donohue and Morrison, the loss of Messrs.
Kiefer, Donohue and Morrison or other officers and key personnel
could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Management."
SEASONALITY AND VARIABILITY OF QUARTERLY RESULTS. The
Company, as well as the factoring industry, has historically
experienced and expects to continue to experience seasonal
fluctuations in its factored sales volume and factoring fees, which
generally have been highest during the period from August through
November. A principal reason for the fluctuation in the Company's
factored sales volume and factoring fees is the seasonality in the
sales of certain of the Company's clients, especially those in the
apparel industry, which typically ship more goods during such 4-
month period in order to fill increased customer orders in
anticipation of "back to school" and the ensuing holiday season.
The Company realized approximately 40.0% of its annual factored
sales volume in each of 1994 (approximately $605 million of $1.5
billion annual factored sales) and 1995 (approximately $757 million
of $2 billion annual factored sales) during this 4-month period.
Historical experience indicates that the Company's factored sales
volume is at its lowest during the period from December through
February. Although the Company's healthcare financing services
should help to mitigate the effect of seasonal fluctuations in the
Company's operating results, the Company does expect to see
fluctuations in its quarter-to-quarter results. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."
ABILITY OF THE COMPANY TO CONTINUE ITS GROWTH STRATEGY. The
Company's growth strategy is principally dependent upon its ability
to increase its factored sales volume by purchasing good quality
accounts receivable meeting its underwriting standards. In 1995,
the Company's factored sales volume increased approximately 30.2%
to approximately $2 billion and operating revenue increased by
approximately 28.5% to $35.3 million. The Company experiences a
certain amount of turnover in its client base annually due
primarily to credit issues. Therefore, the Company's ability to
further implement its strategy for continued growth of factored
sales volume is largely dependent upon the Company's ability to
attract and retain quality clients for the Company's services in a
competitive market and on the business growth of those clients,
which may be affected by a number of factors not within the
Company's control. Historical growth rates are not necessarily
indicative of future results.
COMPETITION. The Company competes with numerous banks,
financial institutions, commercial finance companies and other
factoring companies with greater financial and other resources than
the Company. The four largest factors in the United States had
approximately $37.9 billion of reported volume in factored sales in
1995, compared to approximately $2 billion in factored sales volume
for the Company in 1995. The Company also competes with other
regional factoring companies that target similar clients to the
Company and that have operated in the markets serviced by the
Company for a longer period of time than the Company. See
"Business-Competition."
COLLECTION OF HEALTHCARE RECEIVABLES. The Company's
healthcare division provides healthcare financing and factoring
services to hospitals, nursing homes, doctor groups, home treatment
centers, home healthcare provider services, temporary nursing or
staffing services and providers of durable medical equipment. A
significant portion of the Company's healthcare receivables are
payable by Medicare and Medicaid, federal government sponsored
programs. Pursuant to Federal law, a healthcare provider is
prohibited from granting a third party a direct assignment of
Medicare and/or Medicaid proceeds. Accordingly, all Medicare and
Medicaid proceeds are paid directly to the provider of the medical
services. As a result, the Company is unable to perform certain
traditional factoring services with respect to such receivables,
such as collection, and, instead, the Company must closely monitor
the client's collection of such receivables on a daily basis.
Although to date the Company has been successful in monitoring and
collecting its Medicare and Medicaid-based receivables directly
from its clients, there can be no assurance that the Company will
continue to be successful in its monitoring and collection
activities in the future. In addition, healthcare receivables have
historically been subject to significant dilution. While the
Company has been successful in managing dilution and has not
realized any losses to date, there can be no assurance that the
Company will continue to be successful in managing dilution or that
the Company will not realize losses in the future as a result of
dilution of its healthcare receivables. See "Business-Healthcare
Financing" and "-Dilution of Receivables."
CONTROL BY MAJORITY SHAREHOLDER. Upon completion of this
offering, the Company's current sole shareholder, Capital Bank,
which is a wholly-owned subsidiary of Bancorp, will beneficially
own approximately 83% of the outstanding shares of Common Stock
(approximately 81% if the Underwriters' over-allotment option is
exercised in full) and will therefore be able to elect the entire
Board of Directors and control all matters submitted to
shareholders for a vote, all fundamental corporate matters,
including the selection of management and key personnel, whether
the Company engages in any mergers, acquisitions or other business
combinations or whether Capital Bank, at some time in the future,
divests all or any portion of its interest in Holding by means of
a distribution to its shareholders or otherwise. This offering has
been structured to allow for a subsequent tax-free distribution of
all or a portion of Capital Bank's shares in Holding, although
there is no assurance that any such distribution will occur.
Pursuant to the Amended and Restated Articles of Incorporation of
the Company (the "Articles") no additional shares of Common Stock
may be issued that would reduce Capital Bank's interest below 80%
without Capital Bank's written approval, for the period that
Capital Bank owns at least 80% of the issued and outstanding Common
Stock of the Company (the "Eighty Percent Period"). In addition,
although the Articles provide for the issuance of one or more
series of preferred stock from time to time, during the Eighty
Percent Period no shares of any other class of capital stock be
issued without Capital Bank's written approval during such period.
Any decision as to whether any transactions of the type mentioned
above ultimately occur will be solely within the discretion of
Bancorp and Capital Bank. Four of the ten anticipated directors of
Holding also serve as officers or directors of Capital Bank or its
affiliates. See "Management", "Principal Shareholders" and
"Description of Capital Stock."
Additionally, because the Company's immediate parent, Capital
Bank, is a Florida-chartered, FDIC-insured bank, the business
activities of the Company are generally limited under applicable
FDIC regulations to those activities that are permissible for
national banks. Although factoring and the other businesses in
which the Company currently engages are authorized activities for
national banks, there can be no assurance that business
opportunities the Company might wish to pursue in the future will
be authorized activities for Capital Bank and therefore might be
unavailable to the Company because of its regulated status as a
subsidiary of Capital Bank. See "Business-Regulation" and
"Principal Shareholders."
BANCORP AND CAPITAL BANK LITIGATION AND CHANGE IN CONTROL
ISSUES. At times over the past several years, Bancorp, Capital
Bank and certain of their former and existing officers and
directors, including Daniel M. Holtz, the Chairman of the Board,
Chief Executive Officer and President of Bancorp and Capital Bank
and a director of the Company, Fana Holtz, Vice-Chairman of the
Bancorp Board, Javier J. Holtz, Chairman of the Board and Executive
Vice President of the Company, a Senior Vice President of Bancorp
and an Executive Vice President and a director of Capital Bank, and
Abel Holtz, the former Chairman of the Board, Chief Executive
Officer and President of Bancorp and Capital Bank and the former
Chairman of the Board of the Company, and presently a shareholder
of Bancorp, have been parties to litigation brought either by
certain shareholders of Bancorp or its Audit Committee. Although
an initial action brought in 1992 by the Audit Committee was
voluntarily dismissed by the plaintiffs, a derivative action and an
individual action were brought by certain shareholders of Bancorp
in February 1995. See "Business - Legal and Administrative
Proceedings" for a description of the action brought by the Audit
Committee.
Pursuant to the derivative action, the plaintiffs have
alleged, among other things, that certain defendants engaged in a
series of illegal activities causing harm to Bancorp and Capital
Bank. In addition, the plaintiffs have alleged that certain of
such officers and directors engaged in a series of activities
designed to improperly increase or maintain their interest in, and
control of, Bancorp. In the individual action, the plaintiffs have
alleged, among other things, that the defendants breached fiduciary
duties by, among other things, improperly using proxies to vote
shares of Bancorp owned by one plaintiff, that certain of the
defendants unlawfully solicited proxies for a shareholders' meeting
and that actions taken at this meeting were invalid. The
plaintiffs are seeking, on behalf of Bancorp in the derivative
action, and on behalf of themselves in the individual action,
unspecified monetary damages, including treble damages, reasonable
costs and attorneys' fees, and certain injunctive and declaratory
relief. The plaintiffs have not indicated that they are seeking
any monetary relief from Bancorp and Capital Bank other than costs
in the individual action. The defendants have denied the
allegations and are defending against both actions. The Company is
not a party to these proceedings and no relief is sought from the
Company, although Daniel Holtz, a director of the Company, and
Javier Holtz, Chairman of the Board and an Executive Vice President
of the Company, are defendants in the litigation. The Company does
not believe that the outcome of the foregoing litigations will have
a material adverse effect on its financial condition, results of
operations or liquidity. For more information regarding these
matters, see "Business-Legal and Administrative Proceedings" and
"Principal Shareholders."
Daniel Holtz, Fana Holtz and Javier Holtz have advised Bancorp
that they had discussions with the Florida Department of Banking
and Finance ("FDBF") as to whether one or more of them was required
under Florida law to file an application to acquire and/or maintain
a controlling interest in Capital Bank through their ownership and
control of Bancorp. As a result of those discussions, Daniel
Holtz, Fana Holtz and Javier Holtz have advised Bancorp that they,
both individually and as a group, have voluntarily filed an
application to acquire and/or maintain a controlling interest in
Bancorp, although they do not believe such an application is
legally required. Daniel Holtz, Fana Holtz and Javier Holtz are
also having discussions with the Board of Governors of the Federal
Reserve System ("FRB") as to whether a change of control notice is
required under federal law. It presently cannot be determined what
effect, if any, the discussions with the FRB or the FDBF's action
on the application will have on Bancorp, Capital Bank and the
Company, although if the control applications are denied,
regulatory authorities could take various actions, including
requiring that one or more members of the Holtz family divest
sufficient shares of Bancorp so as not to have legal control of
Bancorp as defined by regulatory authorities. For more information
regarding the change in control application, see "Business-Legal
and Administrative Proceedings" and "Principal Shareholders."
Abel Holtz is also subject to the restrictions of Section 19
of the Federal Deposit Insurance Act which precludes him from
owning or controlling, or otherwise participating in, the affairs
of Bancorp and Capital Bank without regulatory approval. Abel
Holtz has advised Bancorp that he has orally agreed with the FDIC
not to vote his shares in Bancorp at the present time. Federal
bank regulatory authorities are also examining and investigating
whether Abel Holtz and some or all of the persons discussed in this
section, including Bancorp and its subsidiaries, as well as
possibly other persons, are in compliance with applicable change in
control laws and Section 19. The Company cannot presently
determine when these investigations by the federal bank regulatory
authorities will be completed or what the results of such
investigations will be.
NO DIVIDENDS. The Company has not paid any cash dividends to
date and does not intend to pay cash dividends in the foreseeable
future. The Company intends to retain earnings to finance the
development and expansion of its business. Under the Securitized
Financings, the Company is prohibited from paying dividends if
immediately after giving effect to such dividend payment the
consolidated net worth of the Company will be less than that of the
Company as of December 31, 1993. In addition, the Other Bank
Facility prohibits the Company from paying dividends if immediately
after giving effect to such dividend payments the Company fails to
meet certain financial covenants and ratios, such as those relating
to debt to net worth, profitability and cash flows. In addition,
Holding's ability to pay dividends in the future is dependent upon
its receipt of dividends paid to it by its direct and indirect
subsidiaries. See "Dividend Policy."
ABSENCE OF PUBLIC MARKET; Possible Fluctuations of Stock
Price. Prior to this offering, there has been no public market for
the Company's Common Stock. There can be no assurance that an
active trading market for the Common Stock will develop or that, if
developed, it will be sustained after this offering or that it will
be possible to resell the shares of Common Stock at or above the
initial public offering price. The market price of the Common
Stock could be subject to significant fluctuations in response to
the Company's operating results and other factors. In addition,
the stock market in recent years has experienced extreme price and
volume fluctuations that often have been unrelated or
disproportionate to the operating performance of companies. Such
fluctuations, and general economic and market conditions, may
adversely affect the market price of the Common Stock. See
"Selected Consolidated Financial Data," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and
"Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE. Upon consummation of this
offering, the Company will have 12,000,000 shares of Common Stock
outstanding. Of these shares, 2,000,000 shares (2,300,000 if the
over-allotment option granted to the Underwriters is exercised in
full) will be freely tradeable without restriction or registration
under the Securities Act of 1933, as amended (the "Act"). All of
the remaining 10,000,000 shares of Common Stock held by the current
sole shareholder of the Company will be "restricted securities" as
that term is defined in Rule 144 promulgated under the Act. The
current sole shareholder has agreed not to sell any such shares of
Common Stock for 180 days from the date of this Prospectus without
the prior written consent of Oppenheimer & Co., Inc., as
representative of the Underwriters. See "Underwriting."
Additionally, upon consummation of this offering, options to
purchase 700,000 shares of Common Stock will be reserved for
issuance under the Company's Stock Option Plan. The Company
intends to register under the Act all shares reserved for issuance
under its Stock Option Plan. Shares covered by such registration
will be eligible for resale in the public market, subject to Rule
144 limitations applicable to affiliates. See "Management-Stock
Option Plan." Future sales of substantial amounts of Common Stock
in the public market, or the availability of such shares for future
sale, could impair the Company's ability to raise capital through
an offering of securities and may adversely affect the then-
prevailing market prices. See "Shares Eligible for Future Sale."
FACTORS INHIBITING TAKEOVER. As the Company's sole
shareholder, Capital Bank, will continue to own in excess of 80% of
the Company's Common Stock after this offering, no takeover would
be successful without its consent. Changes in the management or
ownership of Capital Bank or Bancorp or a reduction in the number
of shares owned by Capital Bank, however, could have an effect on
the likelihood of a takeover. See "Business-Regulation." However,
the Articles provide that no additional shares of Common Stock may
be issued that would reduce Capital Bank's interest below 80%
without Capital Bank's written approval during the Eighty Percent
Period. In addition, although the Articles provide for the
issuance of one or more series of preferred stock from time to
time, during the Eighty Percent Period no shares of any other class
of capital stock may be issued without Capital Bank's written
approval. Even in the event that at some later date Capital Bank's
percentage ownership in the Company is significantly reduced,
certain provisions of the Company's Articles and Amended and
Restated Bylaws (the "Bylaws") may be deemed to have anti-takeover
effects and may delay, defer or prevent a takeover attempt that a
shareholder might consider in its best interest. The Company's
Articles authorize the Board to determine the rights, preferences,
privileges and restrictions of unissued series of Preferred Stock
and to fix the number of shares of any series of Preferred Stock
and the designation of any such series, without any vote or action
by the Company's shareholders. Thus, the Board can authorize and
issue shares of Preferred Stock with voting or conversion rights
that could adversely affect the voting or other rights of holders
of the Company's Common Stock. In addition, the issuance of
Preferred Stock may have the effect of delaying, deferring or
preventing a change of control of the Company, since the terms of
the Preferred Stock that might be issued could potentially prohibit
the Company's consummation of any merger, reorganization, sale of
substantially all of its assets, liquidation or other extraordinary
corporate transaction without the approval of the holders of the
outstanding shares of the Common Stock. Other provisions of the
Company's Articles and Bylaws (i) provide that special meetings of
the shareholders may be called only by the Board of Directors or
upon the written demand of the holders of not less than 30% of the
votes entitled to be cast at a special meeting and (ii) establish
certain advance notice procedures for nomination of candidates for
election as directors by shareholders and for shareholder proposals
to be considered at annual shareholders' meetings. Capital Bank
could also vote to amend the Articles or Bylaws without the vote of
any other shareholders. In addition, certain provisions of the
Florida Business Corporation Act may have the effect of delaying,
deferring or preventing a change in control of the Company. See
"Description of Capital Stock-Anti-takeover Effects of Certain
Provisions of Florida Law and the Company's Articles of
Incorporation and Bylaws."
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale
of shares of Common Stock offered hereby, based upon an assumed
initial public offering price of $____ per share and after
deducting the underwriting discount and estimated offering
expenses, are estimated to be approximately $_____ million ($____
million if the over-allotment option granted to the Underwriters is
exercised in full).
The Company intends to use all of the net proceeds to reduce
the Company's indebtedness under the Capital Facility, which bears
interest at the prime rate, as published in THE WALL STREET JOURNAL
(8.75% at December 31, 1995), is subject to annual review each June
by Capital Bank and is due on demand. The outstanding borrowings
under the Capital Facility were approximately $52.3 million at
December 31, 1995. See Note 6 of Notes to the Company's Financial
Statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital
Resources."
DIVIDEND POLICY
The Company intends to retain all future earnings for the
operation and expansion of its business, and does not anticipate
paying cash dividends in the foreseeable future. Any future
determination as to the payment of cash dividends will depend upon
the Company's results of operations, financial condition and
capital requirements and any regulatory restrictions or
restrictions under credit agreements or other funding sources of
the Company existing from time to time, as well as other matters
which the Company's Board of Directors may consider. See "Risk
Factors."
CAPITALIZATION
The following table sets forth the capitalization of the
Company as of December 31, 1995, giving effect to the 10,000 for-1
stock split to be effected prior to the effective date of this
offering, and as adjusted for the sale of the 2,000,000 shares of
Common Stock offered hereby (at an assumed public offering price of
$_____ per share) and the application of the estimated net proceeds
therefrom. See "Use of Proceeds."
[CAPTION]
<TABLE>
<S> <C>
December 31, 1995
Actual As Adjusted
(In thousands)
BORROWINGS:
Notes Payable . . . . . . . . . $52,260
Variable Rate Asset-Backed
Certificates . . . . . . . . . 175,000
SHAREHOLDERS' EQUITY:
Preferred Stock, $.01 par
value; 1,000,000 shares
authorized; no shares
outstanding. . . . . . . . . . 0 0
Common Stock, $.01 par value;
25,000,000 shares
authorized; 10,000,000
shares issued and
outstanding;
12,000,000 shares issued and
outstanding, as adjusted(1). . 100
Additional paid-in capital. . . 9,542
Retained earnings . . . . . . . 23,698
Total shareholders' equity. . 33,340
TOTAL CAPITALIZATION. . . . . $260,600
</TABLE>
_______________________
(1) Does not include shares of Common Stock reserved for issuance
upon exercise of stock options granted under the Company's
Stock Option Plan or shares issuable pursuant to the
Underwriters' over-allotment option. See "Management--Company
Stock Option Plan" and "Underwriting."
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share data)
The consolidated selected financial data set forth below for
income statement and balance sheet data has been derived from the
financial statements of the Company. The consolidated financial
statements as of and for the years ended December 31, 1991, 1992,
1993, 1994 and 1995 have been audited by Deloitte & Touche LLP,
independent auditors. The data set forth below should be read in
conjunction with the financial statements and related notes, and
Management's Discussion and Analysis of Financial Condition and
Results of Operations included elsewhere in this Prospectus.
[CAPTION]
<TABLE>
<S> <C> <C> <C>
1991 1992 1993
Income Statement Data:
Factoring fees . . . . . $ 9,870 $ 12,482 $ 15,376
Net interest income. . . 3,762 4,445 5,669
Letter of credit and
other fees. . . . . . . 378 665 1,128
Other income . . . . . 1,092 905 1,303
Operating revenues. . 15,102 18,497 23,476
Provision for credit
losses . . . . . . . . 2,550 3,150 2,645
Operating expenses . . . 9,594 11,316 13,072
Total expenses . . . . 12,144 14,466 15,717
Income before income
taxes(1) . . . . . . . 2,958 4,031 7,759
Net income . . . . . . . 1,716 2,304 4,305
Net income per
share(2) . . . . . . . $0.17 $0.23 $0.43
Pro Forma Income
Statement Data(3):
Pro forma net interest
income . . . . . . . .
Pro forma net income . .
Pro forma net income
per share(2) . . . . .
Operating Ratios and
Other Data(4):
Factored sales . . . . .$825,116 $1,057,846 $1,326,802
Factoring fees to
factored sales . . . . 1.20% 1.18% 1.16%
Net interest income
to factored sales. . . 0.46% 0.42% 0.43%
Letter of credit and
other fees to
factored sales . . . . 0.05% 0.06% 0.09%
Other income to
factored sales . . . . 0.13% 0.09% 0.09%
1.84% 1.75% 1.77%
Provision for credit
losses to factored
sales. . . . . . . . . 0.31% 0.30% 0.20%
Operating expenses to
factored sales . . . . 1.16% 1.07% 0.99%
Total expenses to
factored sales . . . . 1.47% 1.37% 1.18%
Income before income
taxes to factored
sales. . . . . . . . . 0.36% 0.38% 0.58%
Return on equity(5). . . 15.63% 17.78% 26.57%
Return on assets(5). . . 1.23% 1.32% 1.99%
Average funds
employed . . . . . . . $89,700 $108,300 $131,800
Net interest income
to average funds
employed(6). . . . . . 4.19% 4.10% 4.30%
Net charge-offs to
factored sales
volume . . . . . . . . 0.16% 0.30% 0.20%
Accounts receivable
turnover in
days(7). . . . . . . . 53 54 52
Average number of
employees. . . . . . . 118 140 153
Average factored sales
per employee . . . . . $6,158 $7,246 $8,672
Balance Sheet Data (at
end of period):
Receivables, net . . . .$142,338 $176,376 $221,281
Total assets . . . . . . 151,407 188,176 233,259
Due to factoring
clients. . . . . . . . 46,956 72,784 88,917
Borrowings . . . . . . . 89,950 99,500 123,000
Due to affiliates and
other liabilities. . . 2,555 1,641 2,787
Shareholders' equity . . 11,946 14,250 18,555
(continued)
<S> <C> <C>
1994 1995
Income Statement Data:
Factoring fees . . . . . . . . $17,371 $19,519
Net interest income. . . . . . 7,299 11,850
Letter of credit and other
fees . . . . . . . . . . . . 1,238 2,040
Other income. . . . . . . . . 1,541 1,849
Operating revenues . . . . . 27,449 35,258
Provision for credit losses. . 2,235 2,235
Operating expenses . . . . . . 14,137 18,457
Total expenses . . . . . . . 16,372 20,692
Income before income
taxes(1) . . . . . . . . . . 11,077 14,566
Net income . . . . . . . . . . 6,092 8,693
Net income per share(2). . . . $0.61 $0.87
Pro Forma Income Statement
Data(3):
Pro forma net interest
income . . . . . . . . . . . $
Pro forma net income . . . . . $
Pro forma net income per
share(2) . . . . . . . . . . $
Operating Ratios and Other Data(4):
Factored Sales . . . . . . . .$1,536,960 $2,001,364
Factoring fees to factored
sales . . . . . . . . . . . 1.13% 0.98%
Net interest income to
factored sales . . . . . . . 0.47% 0.59%
Letter of credit and other
fees to factored sales . . . 0.08% 0.10%
Other income to factored
sales. . . . . . . . . . . . 0.10% 0.09%
1.79% 1.76%
Provision for credit losses
to factored sales. . . . . . 0.15% 0.11%
Operating expenses to
factored sales . . . . . . . 0.92% 0.92%
Total expenses to factored
sales. . . . . . . . . . . . 1.07% 1.03%
Income before income taxes
to factored sales. . . . . . 0.72% 0.73%
Return on equity(5). . . . . . 28.80% 30.20%
Return on assets(5). . . . . . 2.35% 2.51%
Average funds employed (6) . . $153,600 $210,900
Net interest income to
average funds employed . . . 4.75% 5.62%
Net charge-offs to factored
sales volume . . . . . . . . 0.17% 0.05%
Accounts receivable turnover
in days(7) . . . . . . . . . 53 53
Average number of employees. . 162 193
Average factored sales
per employee . . . . . . . . $9,487 $10,370
Balance Sheet Data (at end
of period):
Receivables, net . . . . . . . $255,835 $354,821
Total assets . . . . . . . . . 282,880 399,471
Due to factoring clients . . . 90,707 128,578
Borrowings . . . . . . . . . . 159,540 227,260
Due to affiliates and other
liabilities. . . . . . . . . 7,986 10,293
Shareholders' equity . . . . . 24,647 33,340
</TABLE>
___________________
(1) The results of operations of the Company are included in the
consolidated Federal income tax returns filed by Capital
Bancorp, the parent of Capital Bank. Capital Bank, the
Company's sole shareholder, allocates income taxes to the
Company calculated on a separate return basis. See "Certain
Transactions."
(2) Gives retroactive effect to the 10,000-for-1 stock split to be
effected prior to the offering.
(3) Pro forma income statement data reflects (i) the issuance of
2,000,000 shares of Common Stock offered hereby as if such
issuance had occurred on January 1, 1995, at $____ per share,
net of issuance costs, to repay indebtedness as described in
"Use of Proceeds," and (ii) reduction of interest expense
related to such indebtedness, net of income taxes, as if the
repayment occurred on January 1, 1995.
(4) For purposes of the ratios and other data below for 1994 and
1995, factored sales include certain receivables which are
collateral for those asset-based loans for which the Company
provides factoring-type services.
(5) Computed using average monthly balances.
(6) Computed using average monthly balances of funds employed
(receivables less amounts due to factoring clients).
(7) Computed by dividing 365 by the quotient of (i) factored sales
volume for the periods indicated and (ii) the average monthly
accounts receivable balance for the periods indicated.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
The Company provides fee-based services to its clients,
including credit protection, collection and management information
services, and also makes advances to many of its clients. Clients
are generally manufacturers of goods or providers of services in
various industries. At the time the Company purchases the factored
receivables, the Company records a receivable and an offsetting
liability "due to factoring client." Advances, which are interest
earning and secured by the client's factored receivables, are
recorded by the Company as reductions to the amounts due to the
factoring client for factored receivables. Cash collections from
the client's customers are used to repay the client's loans. If,
as a result of financial inability to pay, a client's customer
fails to pay a receivable that was credit-approved by the Company,
the Company will ultimately bear any loss with respect to such
receivable. In the event of dilution in excess of the unfinanced
portion of receivables, where factored receivables are not fully
collected for a reason other than the customer's financial
inability to pay, such as breach of warranty, the Company will in
practice typically need to look to newer receivables of the client
for the collection of the outstanding obligation to the Company and
may not be repaid.
In contrast to the Company's purchase of factored receivables,
when the Company makes an asset-based loan, a client assigns its
collateral (usually accounts receivable and inventory) to the
Company. Upon request of the client, the Company may advance funds
to the client as a loan in an amount based upon the eligible
collateral. When funds are advanced to a client, a loan receivable
balance is created, and cash is disbursed. Although the Company
loans funds to the client based on eligible collateral, the Company
provides no credit protection and, accordingly, does not assume the
risk of loss from a client's customers' inability to pay, although
the Company may actually suffer a loss if all sources of repayment
fail, including other collateral and guarantees, if any. In
connection with asset-based loans, instead of a factoring fee, the
Company earns a facility fee. Both factored advances and asset-
based loans bear interest at a rate tied to the prime rate.
The Company was acquired by Capital Bank in May 1985, at which
time the Company had one office in South Florida. The Company
acquired its Los Angeles regional office in August 1989, opened its
New York regional office in April 1990 and the North Carolina
regional office in May 1995. In September, 1994 the Company also
established a healthcare division which provides financing to
various types of healthcare providers and companies involved in the
healthcare industry. The Company has experienced a compounded
annual growth rate in factored sales volume of 27.2% for the 5-year
period ended December 31, 1995. Additionally, primarily as a
result of the growth in the California and New York regional
offices and the opening of the North Carolina regional office, the
Company has experienced a compounded annual growth rate in
operating revenues of 21.4% for the 5-year period ended December
31, 1995.
The Company operates through four regional offices (including
the Florida office) and currently has over 400 clients who generate
annual sales from $500,000 to over $100 million, and services over
100,000 customers of those clients. The majority of the Company's
customers are large national or regional department store chains or
specialty retailers. At December 31, 1995, the largest amount due
from any one customer, a national department store chain, was
approximately $14.7 million.
The Company's factored sales volume can be affected in several
ways, including new clients, client retention or losses, inflation
and other economic conditions. Additionally, fluctuations in the
sales dollar volume of the Company's clients, both positive and
negative, have a direct impact on the Company's factored sales
volume and factoring fees. In this regard, the Company has
historically experienced seasonal fluctuations in its factored
sales volume and factoring fees as a result of the seasonality of
the sales of certain of the Company's clients, especially those in
the apparel industry, who typically ship more goods during the
four-month period of August through November in order to fill
increased customer orders in anticipation of "back to school" and
the ensuing holiday season. The Company realized approximately 40%
of its annual factored sales volume during this 4-month period in
each of 1994 (approximately $605 million of $1.5 billion annual
factored sales) and 1995 (approximately $757 million of $2 billion
annual factored sales).
Management believes that one of the essential tools in
maintaining and managing growth of the Company is the monitoring of
certain key financial ratios. The Company monitors the key
components of its income statement data, such as factoring fees,
net interest income, other income, provision for credit losses and
operating expenses, as a percentage of its factored sales volume.
These key ratios allow the Company to monitor its performance in
achieving its goals of (i) obtaining higher gross margins on
factoring fee income, (ii) increasing fee income as a percentage of
cash employed, (iii) reducing credit losses, (iv) controlling
costs, and (v) maximizing return to its investors. Management also
monitors both accounts receivable turnover and the aging of
customers' accounts receivable, with particular emphasis on amounts
greater than 60 days past due.
MONITORING ASSET QUALITY AND CREDIT LOSSES
The monitoring of asset quality is a routine function
performed by management to control credit losses. Monitoring asset
quality involves the periodic review, sometimes daily, of such
pertinent financial statistics as the aging of the accounts
receivable portfolio, accounts receivable turnover, dilution and
charge-offs. The Company's allowance for credit losses is
determined after evaluating the receivables portfolio, current
market conditions, changes in the nature and volume of the
portfolio, past loss experience and other pertinent factors.
Set forth below are those ratios and statistics utilized by
management in monitoring asset quality for the five years ended
December 31, 1995:
[CAPTION]
<TABLE>
<S> <C>
As of December 31,
1991 1992 1993
(Dollars in thousands)
Provision for credit
losses . . . . . . . . . $2,550 $3,150 $2,645
Charge-offs net of
recoveries . . . . . . . $1,348 $3,164 $2,663
Allowance for credit
losses . . . . . . . . . $2,189 $2,175 $2,157
Accounts receivable
turnover in days . . . . 53 54 52
Accounts receivable
past due more
than 60 days . . . . . . 6.72% 6.08% 4.85%
Provision for credit
losses as a percentage
of factored sales. . . . 0.31% 0.30% 0.20%
Net charge-offs to
factored sales . . . . . 0.16% 0.30% 0.20%
Non-accruing advances. . . $ 965 $1,083 $ 385
(continued)
<S> <C>
As of December 31,
1994 1995
(Dollars in thousands)
Provision for credit
losses . . . . . . . . $2,235 $2,235
Charge-offs net of
recoveries . . . . . . $2,618 $1,028
Allowance for credit
losses . . . . . . . . $1,774 $2,981
Accounts receivable
turnover in days . . . 53 53
Accounts receivable
past due more than
60 days. . . . . . . . 4.69% 4.85%
Provision for credit
losses as a percentage
of factored sales. . . 0.15% 0.11%
Net charge-offs to
factored sales . . . . 0.17% 0.05%
Non-accruing advances. . $ 739 $2,184
</TABLE>
Charge-offs as a percentage of factored sales decreased from
0.20% at December 31, 1993 to 0.05% at December 1995. Management
determines reserves for those clients' customer receivables and
client advances that it considers uncollectible or partially
collectible. Provisions for credit losses as a percentage of
accounts receivable purchases have declined from 0.20% at December
31, 1993 to 0.11% at December 31, 1995 as a result of the decrease
in net charge-offs, reflecting improved credit quality in the
Company's portfolio.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31,
1994
Net income increased from approximately $6.1 million during
1994 to approximately $8.7 million for 1995, a 42.6% increase,
primarily as a result of increased operating revenues generated
from increased factored sales. Operating revenues increased from
approximately $27.4 million for 1994 to approximately $35.3 million
for 1995, a 28.8% increase, primarily attributed to the increase in
the Company's factored sales volume, and the resulting increase in
interest income and factoring fees. Factored sales increased from
approximately $1.5 billion for 1994 to approximately $2 billion for
1995, an increase of 30.2%, with factoring fees increasing by 12.4%
from approximately $17.4 million for 1994 to approximately $19.5
million for 1995. A significant portion of these increases were
attributable to continued growth of the Company's New York and
California offices and the opening of the Charlotte, North Carolina
office, as well as the business generated by the Company's
healthcare division.
Although the Company experienced increased factoring fee
income as a result of increased factored sales, factoring fee
income as a percentage of factored sales has declined from 1.13%
for 1994 to 0.98% (1.03%, excluding asset-based lending activities)
for 1995. This decline was primarily the result of lower factoring
fees charged to high volume clients in the New York market and a
lower fee structure, partly because of high volume clients, in the
Charlotte market. The Company typically receives lower factoring
fees from high volume clients because, among other reasons, high
volume clients do not have the same servicing needs as smaller
clients, requiring less labor intensive services to be performed by
the Company, and because there is increased competition for such
clients' business. The New York office accounted for 48.0% of the
Company's factored sales volume for 1995, compared to 53.0% for
1994.
Net interest income increased from approximately $7.3 million
for 1994 to approximately $11.8 million for 1995, a 62.3% increase,
principally as a result of a $57.3 million increase in average
outstanding client advances for 1995 compared to 1994. Net
interest income was also favorably impacted by continued interest
expense reductions achieved through the issuance of additional
Certificates under the Securitized Financing initiated by the
Company in June 1994. The Company issued an additional $25 million
of such certificates in December 1994, and an additional $50
million in July 1995. This allowed the Company to reduce the
higher interest debt outstanding under the Capital Facility
(approximately 8.75% at December 31, 1995). At December 31, 1995,
there were $175 million of certificates outstanding bearing
interest at LIBOR plus 1.25% (approximately 7.19% at December 31,
1995, excluding annualized transaction costs of 0.37%). The
Company intends to continue using the Securitized Financings as a
principal funding source for its traditional factoring activities,
to the extent available.
Letter of credit and other fee income increased from
approximately $1.2 million in 1994 to approximately $2.0 million in
1995, a 66.7% increase, primarily as a result of an increase in
letter of credit fees of approximately $305,000 in 1995 as compared
to 1994, and an increase in overadvance fees of approximately
$332,000 in 1995 as compared to 1994. In addition, fees related to
field examinations increased by approximately $91,000 in 1995 as
compared to 1994. Overadvances represent loans to clients in
excess of the factored accounts receivable, substantially all of
which are collateralized by assets other than receivables. All of
the foregoing increases were principally the result of increased
factoring volume in 1995.
Operating expenses increased as a percentage of operating
revenues, increasing from approximately 51.5% in 1994 to
approximately 52.3% in 1995. The increase was the result of the
opening of the North Carolina office in May 1995, and increases in
salaries and benefits related principally to increased staff levels
in the healthcare division and the hiring of personnel for the
North Carolina office.
The provision for credit losses was approximately $2.2 million
in both 1994 and 1995. The provision for credit losses as a
percentage of factored sales declined from 0.15% in 1994 to 0.11%
in 1995. The Company's allowance for credit losses is determined
after evaluating the receivables portfolio, current market
conditions, changes in the nature and the volume of the receivables
portfolio and past loss experience. Management believes that the
decline in net charge-offs over such period reflects the Company's
policies and practices of (i) generally refraining from providing
factoring services to certain industries, (ii) carefully screening
and selecting new clients, (iii) maintaining stringent underwriting
criteria and using good credit judgment, (iv) using diligent
monitoring procedures and (v) avoiding a significant concentration
in any one client or clients. Although management attributes this
positive trend primarily to the procedures it employs in monitoring
asset quality, which procedures have kept losses on client advances
at negligible levels and customer credit losses at their lowest
level in the past three years, there can be no assurances that such
levels will be sustained by the Company in the future. Non-
accruing advances at December 31, 1995 were approximately $2.2
million compared to approximately $739,000 at December 31, 1994.
This increase was primarily attributable to advances to a single
client, most of which were collected in 1996.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31,
1993
Net income increased from approximately $4.3 million in 1993
to approximately $6.1 million in 1994, a 41.5% increase, primarily
as a result of increased operating revenues generated from
increased factored sales. Operating revenues increased from
approximately $23.5 million in 1993 to approximately $27.4 million
in 1994, a 16.9% increase, and was primarily attributable to a
significant increase in the Company's factored sales, and the
resulting increase in factoring fees. Factored sales increased
from approximately $1.3 billion in 1993 to approximately $1.5
billion in 1994, an increase of 15.8%, with factoring fees
increasing by 13% from approximately $15.4 million in 1993 to
approximately $17.4 million in 1994. A significant portion of
these increases was attributable to continued growth of the
Company's New York office.
Although the Company experienced increased factoring fee
income as a result of increased factored sales, factoring fee
income as a percentage of factored sales declined slightly, from
1.16% in 1993 to 1.13% in 1994. This decline was primarily the
result of lower rates for factoring fees experienced on several
large client relationships where expenses as a percentage of
factored sales are also lower.
Net interest income increased from approximately $5.7 million
in 1993 to approximately $7.3 million in 1994, a 28.8% increase,
primarily as a result of a $21.8 million increase in average client
advances outstanding in 1994 compared to 1993, and interest expense
reductions achieved as a result of the issuance in June 1994 of
$100 million in certificates under the Securitized Financings.
These certificates bear interest at LIBOR plus 1.25% and were used
to (i) repay in full the outstanding balance under a $15 million
loan from an unaffiliated bank, where the Company paid LIBOR plus
1.75%, and (ii) reduce the amount outstanding under the Capital
Facility which bears interest at the prime rate.
Letter of credit and other fee income increased from
approximately $1.1 million in 1993 to approximately $1.2 million in
1994, an increase of 8.3%.
The Company's total expenses increased from approximately
$15.7 million in 1993 to approximately $16.4 million in 1994, a
4.2% increase, primarily as a result of increases in salaries and
benefits associated with the growth in New York and California, as
well as operations in the Florida office.
The provision for credit losses decreased from approximately
$2.6 million in 1993 to approximately $2.2 million in 1994, a 15.5%
decrease. As a percentage of factored sales, the provision for
credit losses declined from .20% in 1993 to .15% in 1994. The
Company's allowance for credit losses is determined after
evaluating the receivables portfolio, current market conditions,
changes in the nature and volume of the receivables portfolio and
past loss experience.
LIQUIDITY AND CAPITAL RESOURCES
Since June 1994, the Company has relied upon an asset
securitization program, the Securitized Financings, as its
principal source of funding. This funding is supplemented by the
Capital Facility and, more recently, the Other Bank Facility.
Through December 31, 1995, the Company had issued three series
of asset-backed certificates (each, a "Certificate") aggregating
$175 million, under the Securitized Financings. All of the
Certificates were issued to life insurance companies. Initially,
the Certificates were rated "AA" by Duff & Phelps Credit Rating
Company and "A" by Fitch Investors Services, Inc. Approximately
one year after its initial rating, Fitch Investors Services, Inc.
upgraded its rating of the Certificates to "AA". The scheduled
maturity date of the Certificates corresponding to each series is
December 1999 ($100 million), June 2000 ($25 million), and January
2001 ($50 million), respectively. The Certificates issued under
each series bears interest at LIBOR plus 1.25% before transaction
costs (approximately 7.19% at December 31, 1995, excluding
annualized transaction costs of 0.37%). Interest is payable
monthly. However, an early amortization event will occur if the
Company fails to satisfy certain financial covenants. The Company
may continue to use the Securitized Financings for funding,
provided eligible Advances are available for transfer to the trust
created to accommodate the Securitized Financings (the "Trust") for
future funding through new series. Generally, all of the Advances
made by the Company, with the exception of those made by its
healthcare division, as well as certain asset-based loans, are
eligible for transfer to the Trust. As of December 31, 1995, the
Company had transferred to the Trust Advances aggregating nearly
$200 million. Additionally, in connection with any additional
secured indebtedness to be incurred by the Company, the Securitized
Financings require that all additional secured lenders enter into
an intercreditor agreement with the holders of the Certificates and
the trustee of the Trust. The Securitized Financings permit future
purchases to the extent that the Company generates eligible
Advances. The Company used all of the funding it has obtained
through the Securitized Financings to (i) repay in full the
outstanding balance under a $15 million loan from an unaffiliated
bank, where the Company paid interest of LIBOR plus 1.75%, and (ii)
pay down the indebtedness under the Capital Facility.
Under the Capital Facility, the Company also has a $125
million unsecured revolving line of credit with Capital Bank, the
Company's sole shareholder, pursuant to which the Company has
outstanding borrowings of approximately $52.3 million at December
31, 1995. The indebtedness under the Capital Facility bears
interest at the prime rate, as published in THE WALL STREET JOURNAL
(8.75% at December 31, 1995), is subject to annual review by
Capital Bank each June and is due on demand. The Facility has been
in place since 1985 and historically has been renewed for one-year
periods in June of each year. Interest under the Capital Facility
is payable monthly. The Company generally has used the Capital
Facility to make Advances to its clients.
In March 1996, the Company entered into the Other Bank
Facility, a revolving credit facility with an unaffiliated bank in
the amount of $40 million which was closed in April 1996.
Indebtedness under the Other Bank Facility will be secured by
Advances not transferred to the Trust or eligible for transfer to
the Trust, most of which were made by the Company's healthcare
division or were asset-based loans, as well as all of the equipment
used by the Company in its operations. In order for the Other Bank
Facility to be fully funded, the Company would have to pledge an
amount in excess of $57 million in Advances. The indebtedness
under the Other Bank Facility may not exceed 70% of the value of
the Advances pledged by the Company as collateral for such
indebtedness. The Company currently has borrowings of
approximately $21 million outstanding under the Other Bank
Facility. The indebtedness under the Other Bank Facility bears
interest at a rate of LIBOR plus 2.15% (7.53% at March 31, 1996),
payable monthly. The indebtedness under the Other Bank Facility
matures upon termination in March 1999, although it will be
automatically renewed for additional one year periods unless the
Company or the lender terminate it. Funds borrowed under the Other
Bank Facility were used by the Company to pay down indebtedness
under the Capital Facility, and to fund certain of the Company's
healthcare financing activities and asset-based lending activities.
In addition to the continued availability of the above
financing, the Company's future liquidity will continue to be
dependent upon its ability to collect the accounts receivables
purchased from its clients. Of the Company's approximately $361.2
million of accounts receivable outstanding at December 31, 1995,
approximately $130 million have balances exceeding $1 million.
These customers are primarily large national or regional department
store chains or specialty retailers. At December 31, 1995, the
largest amount due from any one customer, a national chain store,
was approximately $14.7 million. In addition, the Company's
accounts receivable turned over in an average of 53 days during
1995.
Management believes that it has the corporate infrastructure
in place to support its earnings growth for the foreseeable future.
Management also believes that funds available under the Company's
current credit facilities (assuming such facilities are renewed or
replaced with similar facilities) and cash flow from operations
will be sufficient to satisfy the Company's working capital
requirements for at least 12 months after this offering.
EFFECTS OF INFLATION
The Company believes that inflation has not had a material
impact on its results of operations.
BUSINESS
GENERAL
The Company is a specialized financial services company
principally engaged in providing receivables-based commercial
financing and related fee-based credit, collection and management
information services. The Company's clients are primarily small to
medium size companies in various industries, including textile and
apparel and furniture manufacturing, and, recently, entities
involved in the healthcare industry. The Company operates through
four offices located in New York City, Los Angeles, Charlotte and
its headquarters in South Florida. In late 1994, the Company began
to expand its asset-based lending business. Management expects
healthcare financing and asset-based lending to contribute
significantly to the growth of the Company, although there can be
no assurance that this will be the case. The Company currently has
over 400 clients who generate annual sales of $500,000 to over $100
million, and services over 100,000 customers of those clients.
The Company generally provides financing to its clients
through the purchase of accounts receivable owed to the Company's
clients by the clients' customers, usually on a non-recourse basis,
as well as by guaranteeing amounts due under letters of credit
issued to the Company's clients which are collateralized by
accounts receivable and other assets. The purchase of accounts
receivable is usually known as "factoring" and results in the
payment by the client of a factoring fee, generally equal to 0.5%
to 2% of the factored sales volume. No money is paid to the client
at the time the Company purchases the client's receivables.
Instead, the Company records a liability to the client on its books
for the purchase price of the receivable. Generally, the Company
and the client notify the client's customer to make all payments on
the receivable directly to the Company. In most cases, a client's
customers are other commercial entities and the client does not
deal directly with individuals. In healthcare financing, the
client's customers are individuals, but the client's receivables
are mostly from third-party obligors. See "-Healthcare Financing."
The Company guarantees the collection of each client's pre-
approved receivables or receivables from each client's customers
with pre-approved credit lines. Payment for receivables which are
credit-approved by the Company is made to the client after
collection from the client's customer or, if the receivable is not
paid based solely on the customer's financial inability to pay,
payment is made to the client within 120 days after the due date of
the receivable. Frequently, the Company also advances funds to its
clients prior to collection of receivables, charges interest on
such advances (in addition to any factoring fees) and satisfies
such advances from receivables collections. All payments to
clients are reduced by amounts outstanding to the Company, such as
the factoring fee charged to the client or any outstanding advances
to the client. Interest charged on such advances is generally
equal to 1% to 4% over prime. Management believes that the
generally short-term and floating rate characteristics of its
advances and the floating rate of its financings result in minimal
interest rate exposure. Approximately 30% of the Company's
clients use only the credit protection and management information
services offered by the Company in connection with the purchase of
their accounts receivable, and do not obtain advances against the
purchased receivables from the Company.
The Company has grown significantly in size and profitability,
with a compounded annual growth rates in operating revenues and net
income of 21.4% and 69.0%, respectively, for the five-year period
ended December 31, 1995, and a compounded annual growth rate in
factored sales volume of 27.2% for the same period. For 1995, the
Company's operating revenues, net income and factored sales volume
increased by 28.5%, 42.7% and 30.2%, respectively, over 1994. The
Company's operating strategy has been primarily attributable to its
(i) managing credit risk to ensure consistent and stable growth,
(ii) increasing market penetration through offices in key factoring
centers, (iii) recruiting and retaining experienced personnel who
use a team approach to provide quality service and (iv) diversi-
fying by product and industry, especially in healthcare financing,
which management believes has significant growth potential.
BACKGROUND OF THE COMPANY
Factors was acquired by Capital Bank in May 1985, at which
time Factors had one office in South Florida and total assets of
less than $6 million, compared to total assets of $399.5 million as
of December 31, 1995. Factors grew rapidly during 1985 and the
first six months of 1986, but sustained losses during these
periods. In 1986, Factors hired a new management team, including
the current President and Chief Executive Officer of Holding and
Factors and two members of the current senior management team
located in Florida. Factors, under this management, acquired the
Los Angeles regional office in August 1989, which was initially
staffed with former officers of NatWest Commercial Services, Inc.,
and opened the New York regional office in April 1990, which was
initially staffed with former officers of Bankers Trust Factors.
Factors experienced substantial growth in the early 1990s, and
added several key executive officers. In September 1994, the
Company established a healthcare division and, in late 1994, the
Company also began asset-based lending. The Company opened its
Charlotte regional office in May 1995, initially staffed with
former executives of Barclays Commercial Corporation. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of increases in factored
sales volume in the newer offices.
Holding is a wholly-owned subsidiary of Capital Bank, a
Florida commercial bank, which is a wholly-owned subsidiary of
Bancorp. Holding was formed in June 1994 in order to serve as the
holding company for Factors and to accommodate the issuance of
asset-backed certificates in connection with the Securitized
Financings which have been issued pursuant to several private
placements.
MARKET FOR COMPANY SERVICES
Traditionally, the factoring client base has consisted of
members of the textile and apparel industries, furniture
manufacturers, electronics and home furnishings organizations,
wholesalers, distributors and service organizations. Approximately
76.0% of the Company's clients are in the textile and apparel
industry and 10.8% are manufacturers of furniture and home
furnishings. Clients who, for various reasons, have insufficient
or less effective in-house staff, equipment or procedures to
monitor customers, manage accounts receivable or protect against
credit loss, also use factors to provide such services. These
include both mature and younger companies. For example, as the
retail industry becomes more fragmented due to an increased number
of specialty stores challenging department stores, mass merchants
and discounters, suppliers are faced with a larger universe of
buyers and may experience higher costs to maintain their credit and
receivables department and increasing paper flow, requiring more
sophisticated systems. As clients experience these rising costs,
credit, collection and management information services such as
those provided by the Company become economically and operationally
more attractive. In addition, manufacturers benefit from factoring
because it allows them to turn inventory more quickly, particularly
if they receive cash advances, which may be used to produce more
inventory that could not have been produced if the manufacturer had
waited to be paid by its customer.
The Company, as well as the factoring industry, has
historically experienced and expects to continue to experience
seasonal fluctuations in its factored sales volume and factoring
fees, which generally have been highest during the period from
August through November. A principal reason for the fluctuation in
the Company's factored sales volume and factoring fees is the
seasonality in the sales of certain of the Company's clients,
especially those in the textile and apparel industry, who typically
ship more goods during such 4-month period in order to fill
increased customer orders in anticipation of "back to school" and
the ensuing holiday season. The Company realized approximately
40.0% of its annual factored sales volume in each of 1994
(approximately $605 million of $1.5 billion annual factored sales)
and 1995 (approximately $757 million of $2 billion annual factored
sales) during this 4-month period. Historical experience also
indicates that the Company's factored sales volume and factoring
fees are at their lowest during the period from December through
February. Such seasonal fluctuations can be seen by a review of
the Company's quarterly factored sales volume and net income for
the 3-year period ending December 31, 1995, as set forth below:
[CAPTION]
<TABLE>
<S> <C> <C> <C> <C>
First Second Third
Quarter Quarter Quarter
(Dollars in thousands)
1993 Factored Sales
Volume. . . . . . $296,710 $319,767 $341,953
Net Income. . . . $824 $991 $1,154
1994 Factored Sales
Volume. . . . . . $328,855 $365,176 $423,884
Net Income. . . . $1,128 $1,110 $1,769
1995 Factored Sales
Volume. . . . . . $441,211 $460,407 $561,222
Net Income. . . . $1,883 $2,069 $2,524
(continued)
<S> <C> <C> <C>
Fourth Full
Quarter Year
(Dollars in thousands)
1993 Factored Sales
Volume. . . . . . $368,372 $1,326,802
Net Income. . . . $1,336 $4,305
1994 Factored Sales
Volume. . . . . . $419,045 $1,536,960
Net Income. . . . $2,085 $6,092
1995 Factored Sales
Volume. . . . . . $538,523 $2,001,364
Net Income. . . . $2,217 $8,693
</TABLE>
One fast-growing market is healthcare financing, which the
Company has recently entered. Typical clients include hospitals,
nursing homes, doctor groups, home treatment centers, home
healthcare service providers, temporary nursing or staffing
services and providers of durable medical equipment. These
companies often have long waits for receivables to be paid, but
steady needs for cash, and, accordingly, are less subject to
seasonal changes. See "-Healthcare Financing."
INDUSTRY OVERVIEW
Financial service companies which compete with the Company
are widely known as factors and typically service retail trade
clients with a large number of customers, requiring intensive
customer credit and operational support. Factoring companies
service industries such as apparel, textiles, shoe, carpeting and
furniture, frozen foods, housewares, electronics, toys and other
service-related industries, including hospitals, medical companies
and employment services. Such industries benefit from the use of
credit, collection and management information services such as
those provided by the Company because factoring companies can (i)
achieve economies of scale in evaluating the credit quality of
various customers and processing receivables and (ii) help clients
to achieve more stable cash flows and additional credit facilities.
Factoring has been a method of working capital financing in
the United States for over 200 years. Traditionally, the industry
has focused on the purchase of receivables in the apparel and
furniture industries, but recently, new industries, including
healthcare providers, have begun factoring. The factoring industry
has undergone considerable consolidation over the past several
years; as a result, the industry is characterized by a small number
of very large factors operating nationally, with a multitude of
small companies generally operating on a local or regional basis.
In a recent survey, the largest fourteen factoring companies
reported volume in 1995 of $60.9 billion, an increase of 48% over
reported volume in 1988. The Company had a 3.3% share of this
reported volume for 1995.
STRATEGY
The Company provides fee-based services to its clients,
including credit, collection and management information services,
and also makes advances to its clients. Each of the Company's
regional offices is staffed with a business development manager,
who has the primary responsibility for generating new business.
Potential new clients are often identified from (i) referrals by
previous and existing clients, accountants and lawyers, (ii) direct
mail efforts and (iii) direct telemarketing efforts. The Company
also attempts to expand its network through (i) mailings and
magazine and trade journal advertisements to increase its name
recognition, (ii) cultivating its existing referral relationships
and (iii) soliciting additional referral relationships. Since the
Company opened its Charlotte office in 1995, management believes
that it has a network in place to meet the needs of its target
client base in the key markets for factoring services. Additional
expansion and growth is contemplated through product
diversification, such as through healthcare financing, as well as
asset-based lending.
Management believes that the Company's growth has been
primarily attributable to the following operating strategies:
. MANAGEMENT OF CREDIT RISKS. The Company manages credit
risks associated with collection of accounts receivable
and advances to clients primarily by (i) conducting
extensive financial and business due diligence on both
clients and their customers before entering into a
factoring arrangement with a client or establishing
credit limits for customers, (ii) adhering to written
guidelines set forth in a Loan and Credit Policy Manual
distributed to all credit and collection employees, and
(iii) monitoring outstanding accounts receivable and
advances on a daily basis in order to alert the Company
to potential problems in a timely manner.
. INCREASED MARKET PENETRATION. The Company believes that
it has been able to increase market penetration by
servicing a wide range of clients nationally through its
regional offices located in key factoring centers. In
addition, by providing its clients with personalized,
flexible cost-efficient and effective service, the
Company allows clients to be more responsive to their
customers and to devote more time to the management of
other aspects of their business.
. EXPERIENCED PERSONNEL WHO USE A TEAM APPROACH.
Management believes that the quality of service provided
to its clients is a critical factor to the Company's
growth. In order to provide quality services, the
Company strives to recruit and retain management and
other personnel with significant industry experience, as
well as a commitment to client service. The Company's
account executives, credit officers and operations
officers work together under the supervision of
management to service the Company's clients. As a result
of this strategy, the Company's clients and the customers
of such clients interact with experienced personnel
working as a team.
. DIVERSIFICATION BY PRODUCT AND INDUSTRY. As part of its
operating and growth strategy, the Company offers
different variations and combinations of its traditional
products and services to clients and has recently
expanded into healthcare financing and asset-based
lending. Asset-based lending, in particular, provides
the Company a vehicle to finance clients who may not need
its other services and who have different financial needs
than general factoring clients. Although the Company has
a high concentration of clients in the textile and
apparel industry and furniture manufacturing industry,
the Company provides services to companies in various
industries. In addition to traditional factoring
clients, the Company now provides accounts-receivable
financing to various clients in the healthcare industry.
Diversification provides the Company with a potential
client base that has significant growth potential, which
may be serviced from its existing offices.
FACTORING ARRANGEMENTS
Factoring Agreement
After the Company has completed a financial and business
analysis on a potential client and its customers, the Company will
enter into a factoring agreement with approved clients. Many of
these factoring agreements provide for advances to be made by the
Company based on a client's receivables. The factoring agreement
typically appoints the Company as the client's sole factor for all
accounts receivable, generally for a term of one year. The Company
can usually terminate the agreement at any time upon 30 days' prior
written notice to the client.
Once the factoring agreement has been executed, the Company
will purchase the client's accounts receivables for the face amount
of the receivables, less certain specified discounts, including the
Company's factoring fee, and other deductions. No money is paid to
the client upon the purchase of the receivables. Instead, the
Company records a liability on its books for the purchase price of
the receivable. Generally, the Company and the client notify the
customer to make all payments for the receivable directly to the
Company. In most areas, a client's customers are other commercial
entities and the client does not deal directly with individuals.
In healthcare financing, the client's customers are individuals,
but the client's receivables are mostly from third-party obligors.
The Company guarantees the collection of each client's pre-
approved receivables or receivables from each client's customers
with pre-approved credit lines. Payment for the receivable is made
to the client after collection from the customer or, in the event
the collection of the receivable was guaranteed by the Company and
the receivable was not paid based solely on the customer's
financial inability to pay, payment is made to the client within
120 days after the due date of the receivable. If the customer
fails to pay the receivable for any reason other than financial
inability to pay, such as a dispute regarding defective
merchandise, the Company has no obligation to pay the client for
the receivable, notwithstanding guarantee of the receivable by the
Company. All payments to clients are reduced by amounts
outstanding to the Company, such as the factoring fee charged to
the client or any outstanding advances to the client.
At the time the Company purchases the client's accounts
receivable, the client becomes obligated to pay the Company a fee,
generally equal to 0.5% to 2.0% of the gross amount of the
receivable (not reduced by any discounts that may have been
provided to the customer for early payment). Typically, the fee is
paid from the proceeds of the accounts receivable collections. The
factoring fee paid by the client is not related to the
collectibility or non-collectibility of the purchased accounts
receivable. Accordingly, even if the Company is not obligated to
pay for a guaranteed receivable because of a dispute between the
client and its customer, or if payment of the receivable was not
guaranteed by the Company, the factoring fee is due from the client
on such receivable. The factoring fee charged by the Company
depends on various considerations, such as the length of time the
receivables are expected to be outstanding, the monthly volume of
receivables generated by the client, the anticipated administrative
costs and the perceived level of risk. Management believes that
its factoring fees remain competitive with other factoring
companies, primarily because of the type of client serviced by the
Company (generally, clients generating less than $50 million in
sales) and the type and quality of services provided to its
clients.
Services
The Company offers an interrelated package of financial
services which meets a variety of the business and financing needs
of its clients. The Company's services are designed to allow
clients to be more responsive to their customers and to devote more
time to the management of other aspects of their business. The
Company's clients and the range of products and services offered
distinguish it from certain other commercial finance companies and
asset-based lenders because the Company's main focus is to provide
fee-based services, as well as act as a lending source for many of
its clients. Management believes that it generally can provide
these fee-based services in a more cost-efficient manner than its
clients because of economies of scale.
CREDIT, COLLECTION AND MANAGEMENT INFORMATION SERVICES. The
Company provides its clients with access to credit management,
collection and information services, including certain computerized
accounting services, as well as the equivalent of credit insurance.
Each of the Company's regional offices is staffed with a credit
department of between 10 to 30 people. The credit department, at
the direction of the credit officer, conducts the credit checks on
client's customers, analyzes the information and makes a
recommendation as to the amount of credit to be extended, if any.
If the Company approves the credit of the customer, in accordance
with written guidelines established by the Company, then the
Company will purchase the receivable for a fee and guarantee the
collection of the receivable based solely on the customer's
financial ability to pay the receivable. If the Company did not
approve the credit of the customer, the Company purchases the
receivable for a fee, but will not guarantee collection of the
receivable.
Except with respect to much of the Company's healthcare
financing, upon purchase of the receivable by the Company, the
client notifies the customer that all payments on the receivable
should be sent to the Company. The Company also notifies the
customer that it has purchased the receivable and provides payment
instructions to the customer. All payments are sent to the
Company's operations department in Florida. The regional
collection departments monitor the collection of the accounts
receivable and make necessary follow-up calls if payment is not
received on a timely basis. Where necessary, the Company will
press for collections. Company staff is trained to seek
collections in a courteous and professional manner so as not to
adversely affect a client's relationship with its customers. In
certain circumstances, the Company will use the services of
independent collection agencies. See "-Monitoring and Oversight
Policies -Receivables Portfolio."
In addition, the Company provides various management
information services to its clients, including (i) a monthly
analysis that includes an aging schedule of all open receivables by
customer and (ii) information as to the creditworthiness of its
customers.
ADVANCES. The Company may also make advances to its clients,
with interest charged on such advances, generally equal to 1% to 4%
over prime. These fees are generally higher than the fees charged
by banks because a factor provides startup and expanding businesses
more financial flexibility, in addition to credit and other
services. Interest accrues on the advance from the date the
advance is made until the date the Company would otherwise be
obligated to pay the client for purchased receivables. Advances
are made on receivables before they are due or collected by the
Company based upon a stipulated percentage of the net face value of
aggregate outstanding receivables, usually ranging from 75% to 90%.
Advances are payable upon demand. All advances must be approved in
accordance with the written guidelines established by the Company.
Approximately 70% of the Company's clients obtain advances from the
Company. A number of these clients might not otherwise qualify for
financing of a comparable level from traditional sources. From
time to time, the Company makes advances in excess of a client's
receivables to the extent needed by such client because of the
seasonality of its business or otherwise. These overadvances may
be secured by one or more of a client's inventory, other assets or
personal guarantees or may be unsecured.
OTHER FINANCING SERVICES. The Company also provides other
fee-based financial services to its clients, including guarantees
of commercial letters of credit and standby letters of credits.
Most, if not all of such letters of credit are issued by Capital
Bank. See "Certain Transactions." The Company may also provide
financial guarantees for its clients. Commercial letters of credit
are issued to facilitate certain trade transactions for the clients
of the Company, principally the purchase of goods. Standby letters
of credit and financial guarantees are conditional commitments
issued to guarantee the performance of a client to a third party.
The Company guarantees letters of credit and issues financial
guarantees only for clients with which the Company has factoring or
other financing arrangements. Generally, the Company requires
collateral to support these commitments and the collateral held
varies, but may include cash, inventory, real estate and the
client's reserve balance.
MONITORING AND OVERSIGHT POLICIES
Receivables Portfolio
The quality of purchased receivables is the Company's primary
security against credit losses. Accordingly, the Company conducts
an extensive financial and business analysis on a client prior to
entering into a factoring arrangement with the client, and on the
client's customers, prior to the establishment of credit lines for
a customer. The Company focuses on such items as the age of
receivables, the quality of management and the ethical character of
a prospective client's owners, as well as the diversity of its
customer base. The Company generally seeks to avoid situations
where a significant percentage of a prospective client's
receivables are from one customer. Pursuant to Company policy, all
factoring arrangements must conform to the guidelines set forth in
the Company's Loan and Credit Policy Manual, a written manual
provided to all credit and collection employees of the Company.
There can be no assurance, however, that adherence to the Company's
written guidelines will result in full collection of the purchased
receivables or that such guidelines will be complied with in every
instance. See "-Credit Loss Policy and Experience."
Each of the Company's regional offices is staffed with one or
more field examiners who visit the office of each potential client
for diligence purposes. In certain situations, the Company will
also use the services of independent certified public accountants
to assist the field examiners. In addition to on-site visits, the
Company's field examiners will review current financial statements
and business references of the client and personal financial
statements of the principals of the client and its major
shareholders. The Company's field examiners also conduct periodic
field examinations of and visits with clients to continue to learn
about the client's operation. The Company generally requires
business plans for start-up ventures. Additionally, each of the
Company's regional credit departments makes routine random
telephone calls and mails written requests to customers to verify
the existence and the terms of receivables purchased from clients
and obtains shipping evidence for all invoices purchased, as well
as remaining in communication with the client.
After the necessary financial and business information has
been collected and reviewed, if the Company intends to enter into
a factoring arrangement with the proposed client, a written
proposal of the terms of the proposed factoring arrangement is
prepared. The proposal includes, among other things, (i) the
amount of the factoring fee to be charged, (ii) anticipated
accounts receivable purchases to be generated by the client and
(iii) the interest rate to be charged on advances, if applicable.
All new factoring arrangements are approved by the Company's
President and the respective regional manager. If the factoring
arrangement provides for advances to the client against purchased
receivables, additional approvals are required. See "-Client
Advances" below.
Each of the Company's clients is serviced by a team of Company
personnel. Clients are assigned to an account executive and credit
officer in one of the Company's four regional offices, and an
operations officer in the Florida executive office. The account
executive is the client's primary contact with the Company. The
account executive is responsible for managing the assigned client
relationship, including approval of client advances, and obtaining
necessary documentation prior to any advances to the client.
Requests for customer credit approvals or increases in customer
credit lines are directed to the credit officer. The operations
officer is responsible for the processing of all receivables,
including application of payments and invoice handling. In
addition, the Company's senior management team will often meet with
clients to discuss problems, if any, and monitor client
satisfaction.
Prior to the establishment of a credit line for a client's
customer, the Company conducts a credit check on the customer and
obtains a credit rating for the customer. The Company takes into
consideration the amount of the requested credit line, the
customer's credit rating and satisfaction of internal written
guidelines in determining whether to establish a credit line for
the customer. If certain formulas contained in the Company's
written guidelines are not satisfied, additional information is
obtained and reviewed by the Company, including bank references,
trade surveys and financial statements of the customer. The
Company may also conduct on-site visits of the customer's business
and interview the customer's management team. All credit lines
over $250,000 require either executive officer or combined
executive officer and director approval, depending on the amount of
the credit line. The Company may also assume the credit risk of a
single credit transaction for a client's customer. Generally, the
same credit check procedures are followed in such transactions.
The Company assumes the credit risk only on receivables for
which written approval has been provided by the Company. The
Company also reserves the right to withdraw a credit approval if
the Company believes a customer's credit standing has become
impaired before actual delivery of merchandise or rendering of
services by the Company's client. Credit approvals are limited to
the specific terms provided by the client to the Company and can be
withdrawn if the terms of the sale are changed. If a dispute
relating to goods or services rendered by the client to its
customer arises, the credit approval on the receivable is negated.
If sales are made by the client to a customer without credit
approval or in excess of any credit approval, any payments made by
such customer on outstanding receivables will be applied first to
outstanding credit-approved receivables on the books of the
Company.
The Company monitors whether receivables are paid according to
their terms. Daily aging reports are generated by the Company and
reviewed by the regional credit department staff and the account
executive responsible for the account. If payment is not received
on its due date, follow-up contact is made with the client's
customer in accordance with written procedures established by the
Company. During this follow-up contact, the Company seeks to
determine the cause of the delay in order to take appropriate
action at an early stage. The status of overdue accounts and other
relevant information is reported to each client monthly, or sooner,
if appropriate. The Company's average accounts receivables
turnover rate was 53 days for 1994 and 1995. The Company may
receive payments, from time to time, that it is unable to match
against specific outstanding invoices. The Company generally
notifies the payor when unidentifiable payments or portions thereof
are received. If the payor does not respond within 90 days, the
Company generally records the unallocated credits as income. The
Company maintains an allowance for unallocated credits recorded as
income which may be subsequently repaid based upon its historical
experience. This allowance is also available for amounts that may
be payable to governmental authorities for property that is
abandoned. There can be no assurance that the allowance will be
sufficient to meet all such future claims.
The Company periodically uses the services of independent
collection agencies to assist it in the collection of accounts
receivable more than 90 days past due. The Company's policy is to
charge-off accounts receivable once they have been placed with a
collection agency. Collection agencies charge, on the average, a
20% fee of the delinquent account collected. On occasion, the
Company initiates litigation to recover payment of the receivable.
As security for the accounts receivable purchased, the Company
obtains blanket first liens on a client's receivables, and may also
obtain personal guarantees and liens (which may be subordinate to
other liens) on other assets of the client, including cash, tax
refunds, inventory, real estate and equipment. In addition, the
Company arranges for periodic reviews of public records in order to
monitor the filing of any subsequent liens which could impair the
value of receivables in which the Company has an interest.
Client Advances
Prior to making any advances to a client on accounts
receivable, the Company will conduct additional business and
financial analysis on the client. The typical written credit
analysis sets forth (i) the purpose for the advance, (ii) security
to be provided for the advance, such as personal guarantees from
principals of the client and subordination arrangements, (iii) the
rate structure to be charged and projected income to be earned by
the Company, (iv) prior experience with the client if the client
has previously had a relationship with the Company or Capital Bank,
(v) the client's history, organization and operations, (vi) bank
and trade information on the client, (vi) financial information of
the client and (viii) future plans and projections of the client.
In addition to the written credit analysis, the account executive
assigned to the account reviews a factoring status report on the
client, which sets forth the client's monthly sales and accounts
receivable volume, along with collection information on the
receivables.
Based upon a review of the credit analysis and factoring
status report, the account executive will make a recommendation as
to whether or not the advance is reasonable in relation to the
value of the client's outstanding receivables. All advances
against purchased receivables must be approved by no less than four
officers of the Company, two of whom are generally the account
executive and head of client administration from the originating
office and two in the Company's executive offices in Florida,
providing another level of control in the advance process.
Outstanding advances to clients are reviewed on a daily basis
and on a monthly basis at monthly portfolio meetings attended by
the President, or his designee, and the regional managers (or their
designees). At the monthly portfolio meetings, senior management
evaluates the Company's outstanding advances and receivables in
order to identify potential problems. The meetings also allow
senior management to evaluate the performance of their account
executives, who have the responsibility of managing their client's
outstanding advances and receivables.
CREDIT LOSS POLICY AND EXPERIENCE
The Company regularly reviews its outstanding accounts
receivable and other extensions of credit, such as advances to
clients, to determine the adequacy of its allowance for credit
losses. The level of related credit balances of clients and the
impact of economic conditions on the creditworthiness of the
Company's clients and the client's customers are given major
consideration in determining the adequacy of the allowance. The
Company's methodology for calculating its reserve for doubtful
accounts has remained consistent for the period commencing in 1991
and continuing through 1995, and includes a specific and general
component. Specific reserves are established for receivables and
client advances which the Company's management deems to be wholly
or partially uncollectible. The general component represents 0.75%
of those receivables that are not specifically reserved for but for
which the Company has provided credit guarantees. Provisions for
credit losses as a percentage of factored sales have declined from
0.20% at December 31, 1993 to 0.11% at December 31, 1995. Net
charge-offs may exceed provisions in certain periods due to the
timing of recording a provision and subsequent charge-off.
Ultimate losses may vary from current estimates and the amount of
the provisions, which are current expenses, may be either greater
or less than actual future charge-offs of receivables or advances
relating to these provisions.
At the time a receivable is purchased an anticipated payment
date is recorded and is subsequently used to identify past due
receivables. Receivables which have been identified as past due
will not be written-off if, in the opinion of management,
collection from the customer, client or realization on the
collateral held, if any, is likely. As of December 31, 1995,
approximately $12.4 million of receivables, representing 3.8% of
outstanding receivables as of such date, were 90 days or more past
the payment date anticipated at the time of purchase and had not
been written-off.
Accrual of interest income is discontinued on advances to
clients when the loan balance, including interest, is considered
impaired and exceeds the estimated value of the collateral securing
the advance. At December 31, 1994 and 1995, the Company had
discontinued its accrual of interest income on approximately
$739,000 and $2.2 million, respectively, of client advances. In
addition, at December 31, 1994 and 1995, approximately $48,000 and
$134,000, respectively, of such client advances were deemed to be
uncollectible by the Company.
The credit and market risks associated with guaranteeing
commercial letters of credit and standby letters of credit and
issuing financial guarantees are generally managed in conjunction
with the Company's accounts receivable collection activities and
are subject to normal credit policies, financial controls and risk
limiting and monitoring procedures. Commercial letters of credit
are generally for a short commitment period. The risk involved in
guaranteeing standby letters of credit and issuing financial
guarantees is similar to the risk involved in advancing funds to
clients. At December 31, 1995, the Company had approximately $22.6
million of letters of credit and financial guarantees outstanding.
HEALTHCARE FINANCING
The Company provides healthcare financing and factoring
services to hospitals, nursing homes, doctor groups, home treatment
centers, home healthcare provider services, temporary nursing or
staffing services and providers of durable medical equipment
through its Capital Healthcare Financing division. Healthcare
businesses financed by the Company generally have annual net sales
of at least $1 million or are anticipated to grow to that size
shortly. Financing is provided as to bona fide and medically
necessary goods or services that have been provided to a patient
for which a receivable is due with no contingencies. For
transactions to be financeable, fees claimed by the client are to
be reasonable and customary and the patient must be covered by a
third party obligor, although, in limited circumstances, the
Company will consider financing private pay receivables if they
represent a small percentage of overall receivables. The Company
does not generally finance workers' compensation claims or,
medical/legal (personal injury), dental and chiropractic claims.
At December 31, 1995, the Company had approximately $16.3 million
in healthcare factored receivables outstanding, in addition to
approximately $11.0 million of healthcare asset-based loans.
Approved third party payors include Medicare, Medicaid, preferred
provider organizations, private insurance carriers, Blue Cross/Blue
Shield and corporate employee coverage for self-administered
healthcare plans.
The minimum term for a healthcare financing contract is one
year. Fees include origination and due diligence fees of between
1% and 5% of the initial line and a monthly monitoring fee of .35%
to 2%, with the possibility of a guaranteed minimum monitoring fee.
The annual interest rate on advances ranges from 2% over prime to
4% over prime. Advances may be up to 85% of the net receivable
amount from the financed receivables. The client usually pays for
periodic audits and legal expenses to close the transaction.
In order to obtain healthcare financing from the Company,
generally the same steps must be followed as with the Company's
factoring clients. A business plan, current financial statements,
receivables aging, resumes of the principals and references are
generally required. Once accepted, clients must file claims with
third party payors on the appropriate forms and assign such claims
to the Company. The Company posts the claim to its monitoring
system and, thereafter, closely monitors the collection by the
client on a daily basis. In the case of Medicare and Medicaid
claims that must be paid directly to the provider of the service,
the Company, the client and the client's bank enter into an
agreement pursuant to which payments on account of such claims are
made directly to a lockbox account to which the Company and the
client have access and thereafter, are immediately swept out of
such account into the Company's account. In either case, the
Company provides credit monitoring services as well as periodic
accountings to the client. Advances are based upon claims assigned
to the Company by the client.
The benefits of healthcare financing to the Company's clients
are similar to the benefits obtained by the Company's factoring
clients. Healthcare clients maximize their ability to monitor
patient accounts. In addition, they receive immediate cash for
accounts receivable which can be injected into the business to,
among other things, increase purchasing power, improve and increase
patient services or reduce expenses and increase patient revenues.
ASSET-BASED LENDING
The Company began to expand its asset-based lending activities
in late 1994. The Company's asset-based loans range from $300,000
to $6 million and are primarily secured by accounts receivable and,
to some extent, inventory. Such loans bear interest at annual
rates ranging from 1% over prime to 6% over prime. Most of such
loans originate from the Company's California and Florida offices.
At December 31, 1995, the Company had asset-based loans outstanding
aggregating approximately $38 million, including loans to
healthcare clients of approximately $11.0 million.
The Company makes asset-based loans to companies who may not
need its other services and who have different financial
circumstances than factored clients. In underwriting such loans,
the Company pays more attention to the borrower's financial
stability and creditworthiness, rather than that of the borrower's
customers. In making such loans the Company competes primarily
with financial institutions and other asset-based lenders, such as
commercial finance companies. See "-Competition."
MANAGEMENT INFORMATION SYSTEMS
Factoring is a systems intensive business because of the high
volume of transactions required to be entered and the matching with
such transactions of cash payments, chargebacks and other
adjustments. In 1990, the Company purchased an IBM AS400 computer
and developed software tailored to the requirements of the
Company's accounting, receivables collection, monitoring and
oversight functions. The system permits the Company to generate
payment histories and analyses with respect to its clients'
customers, to generate daily aging of accounts receivable reports,
to accumulate accounting information and other data useful for
credit analysis, to produce information used in marketing and to
respond to account and management inquires. The Company continues
to add enhancements and updates to its management information
systems. In 1995, the Company acquired and installed a software
package to administer and process transactions of the clients of
its healthcare division. In March 1996, the Company installed the
latest IBM AS400 model. The Company expects that this new hardware
will provide the Company with additional capacity to handle the
Company's increased transaction volume.
COMPETITION
The Company competes with numerous banks, financial
institutions, commercial finance companies and other factoring
companies with greater financial and other resources than the
Company. The four largest factors in the United States, CIT Group,
BNY Financial Corp., NationsBanc Commercial and Heller Financial,
control approximately 62% of the factored sales volume in the
United States. The Company also competes with other regional
factoring companies that target similar clients as the Company and
that have operated in the markets serviced by the Company for a
longer period of time than the Company. Certain factors compete
with the Company for certain types of accounts. For example, one
factor may provide services only to textile mills, while another
may provide services only to furniture manufacturers. The Company
competes primarily on the basis of service, not price. Future
competition is expected to be based primarily on the quality and
level of service provided and the ability to respond to the
changing credit environment and demands of many factoring clients.
The Company believes that it is well-positioned to respond to these
needs.
REGULATION
As a result of the Company's ownership by Capital Bank, a
Florida commercial bank, which in turn is owned by Bancorp, a bank
holding company, the Company is affected by certain regulations
normally applicable only to banking institutions. The Company is
subject to periodic examination by representatives of the Florida
Department of Banking and Finance, the FDIC and the FRB.
Additionally, because the Company's immediate parent, Capital Bank,
is a Florida-chartered, FDIC-insured bank, the business activities
of the Company are generally limited under applicable FDIC
regulations to those activities that are permissible for national
banks. Although factoring and the other businesses in which the
Company currently engages are authorized activities for national
banks, there can be no assurance that business opportunities the
Company might wish to pursue in the future will be authorized
activities for Capital Bank and therefore might be unavailable to
the Company because of its regulated status as a subsidiary of
Capital Bank.
Federal law requires the Company's parent, Capital Bank, and
its parent, Bancorp, to meet two capital-to-assets ratios. The
first such ratio, referred to as the "risk-based" capital test,
assigns a weight (or percentage) to assets by categories of risk
established by the federal regulators. Under this test, Capital
Bank's and Bancorp's "tier one capital" (consisting essentially of
their common stockholders' equity and minority interests, if
applicable) is required to equal at least 4% of their risk-weighted
assets. As of December 31, 1995, Capital Bank and Bancorp's tier
one capital to risk-weighted assets was 10.77% and 11.23%,
respectively. After giving effect to the sale of the 2,000,000
shares of Common Stock offered hereby, the tier one capital to
risk-weighted assets as of December 31, 1995 would have been __%
and __% for Capital Bank and Bancorp, respectively.
Also as part of the "risk-based" capital test, all of Capital
Bank's and Bancorp's capital (tier one or otherwise) must equal or
exceed 8% of aggregate risk-weighted assets. As of December 31,
1995, Capital Bank and Bancorp's total capital to aggregate risk-
weighted assets was 12.03% and 12.48%, respectively. After giving
effect to the sale of the 2,000,000 shares of Common Stock offered
hereby, the total capital ratio to aggregate risk-weighted assets
as of December 31, 1995 would have been __% and __% for Capital
Bank and Bancorp, respectively.
The second ratio is referred to as the "leverage" test. Under
this test, each of Capital Bank and Bancorp must maintain tier one
capital equal to or exceeding 3% of total assets, or such higher
level as may be imposed by federal regulators. The regulators have
publicly indicated that a bank should, in practice, maintain a
leveraged capital-to-assets ratio of 1% to 2% above the minimum 3%
required by law. In 1993, in order to address comments made by the
State of Florida banking examiners, Capital Bank adopted a
resolution to maintain a leveraged capital-to-assets ratio of 6%
and not to pay dividends in excess of 75% of earnings on a
quarterly basis. As of December 31, 1995, Capital Bank and
Bancorp's leveraged capital-to-assets ratio was 7.66% and 7.97%,
respectively. After giving effect to the sale of the 2,000,000
shares of Common Stock offered hereby, the leveraged capital-to-
assets ratio as of December 31, 1995 would have been __% and __%
for Capital Bank and Bancorp, respectively.
Bancorp has historically not included certain assets of the
Company and its subsidiaries in its capital ratio calculations. In
1995, banking regulators issued new instructions for the reporting
of total assets in the Consolidated Report of Condition (the "Call
Report"), effective March 31, 1997. As a result of a review of the
new instructions, Bancorp believes that it may be required to
include the assets of the Company and its subsidiaries for capital
calculation purposes. Bancorp is seeking clarification as to the
applicability of the new instructions. If these assets were
included, at December 31, 1995, Bancorp's tier one capital-to-risk-
weighted assets would have been 9.4%, its total capital to
aggregate risk-weighted assets would have been 11.19%, and its
leveraged capital-to-assets ratio would have been 7.25%. These
capital ratios would have been in compliance with all regulatory
requirements and expectations at December 31, 1995.
PROPERTIES
The Company provides services to its clients through offices
located in Fort Lauderdale, Florida; Los Angeles, California; New
York City, New York; and Charlotte, North Carolina. The Company
acquired the office building located in Fort Lauderdale, Florida
from an affiliate in December 1990. The Company leases
approximately 14,000 square feet of office space in Los Angeles
pursuant to a ten-year lease that terminates in September, 2005,
and provides for annual base rental payments of approximately
$218,600 through August 2000 and $257,500 during the remaining term
of the lease. The Company leases approximately 12,300 square feet
of office space in New York pursuant to a five-year sublease that
terminates in December 1999 and provides for annual base rental
payments of approximately $337,700 through December 1996 and
$368,400 during the remaining term of the lease. The Company
leases approximately 9,800 square feet of office space in North
Carolina pursuant to a five year lease that terminates in April
2000 and provides for annual base rental payments of approximately
$196,430.
TRADEMARKS, SERVICE MARKS AND LICENSES
In 1991, Bancorp registered the name "Capital Factors" with
the United States Patent and Trademark Office. Since the
registration of such service mark, Bancorp has authorized the
Company's uninterrupted and unrestricted use of the name "Capital
Factors." No agreement regarding the Company's use of such service
mark exists between Bancorp and the Company and no fee is paid by
the Company in connection with such use. The service mark is
effective until December 2001, unless sooner terminated as provided
by law. In addition, the Company has recently applied for certain
other service marks to be used by it in connection with its
business operations. The Company's management does not believe
that its business is dependent upon the use of any particular
service mark, trademark, license or similar property.
LEGAL AND ADMINISTRATIVE PROCEEDINGS
The Company
From time to time, the Company has been a party to lawsuits
and claims, including lender liability claims, which management
considers incidental to normal operations. The Company is
currently a party to one lawsuit that was dismissed after trial.
The plaintiff is currently appealing the dismissal. Management,
after review, including consultation with counsel, believes that
any ultimate liability which could arise from this current lawsuit
would not materially affect the financial position of the Company.
Bancorp and Capital Bank Legal Proceedings
Beginning in approximately August 1992, the Audit Committee of
Capital Bank began to investigate certain allegations made by a
then-officer and director of Capital Bank (who is currently the
beneficial owner of approximately 10% of Bancorp common stock)
against Abel Holtz, Capital Bank and possibly other family members
of Abel Holtz. At the time, Abel Holtz was the Chairman of the
Board, Chief Executive Officer and President of Bancorp and Capital
Bank and the Chairman of the Board of the Company, as well as a
principal shareholder of Bancorp. He currently owns slightly less
than 10% of Bancorp's outstanding shares. See "Principal
Shareholders." The allegations related primarily to alleged
wrongful conduct by Abel Holtz with respect to (i) the settlement
of two sexual harassment claims brought against Capital Bank and
Abel Holtz, (ii) the reimbursement of certain travel and
entertainment expenses by Capital Bank and (iii) certain charitable
donations made by Capital Bank.
In connection with this investigation, the Audit Committee
filed a Report of Apparent Crime with certain governmental
authorities. Thereafter, members of the Audit Committee, together
with three other directors of Capital Bank, attempted to call a
special meeting of the Board of Capital Bank to, among other
things, remove Abel Holtz as the Chief Executive Officer and as
Chairman of the Board of Capital Bank. Prior to such meeting, the
holders of a majority of Bancorp stock, either in person or by
proxy, took certain actions by written consent in lieu of a meeting
pursuant to which Bancorp's Board of Directors was expanded from
seven to ten directors, three new directors were elected and
certain sections of Bancorp's bylaws were amended. Holders of a
majority of Bancorp stock voted in favor of the foregoing,
including the outstanding shares of Bancorp that were subject to
irrevocable proxies in favor of Abel Holtz. Holders of certain of
the shares covered by these proxies notified Abel Holtz that, in
their view, the irrevocable proxies previously given to Abel Holtz
were invalid and purported to revoke them. Abel Holtz advised the
Company that he believed that the irrevocable proxies continued to
be valid. Subsequent to the Bancorp meeting, Bancorp, as the sole
shareholder of Capital Bank, by written consent removed four
directors of Capital Bank, including a member of the Audit
Committee. This corporate action occurred prior to the special
meeting called by certain directors of Capital Bank, including
those directors removed by such action. Thereafter, the Audit
Committee (including the removed director) instituted Case No. 92-
2520-Civ-Graham in the United States District Court, Southern
District of Florida against Abel Holtz, Capital Bank, Bancorp and
certain directors of Bancorp (the "Audit Committee Action"). The
Audit Committee Action sought, among other things, to (i) obtain
declaratory and injunctive relief to prevent alleged interference
with the Audit Committee and to invalidate the corporate actions
undertaken by the shareholders of the Company and Capital Bank on
October 19, 1992, (ii) declare that Abel Holtz and Daniel Holtz
unlawfully interfered with the investigative work of the Audit
Committee and that Abel Holtz was unlawfully in de facto control of
Capital Bank, its assets and its business, and (iii) declare
invalid the actions allegedly taken in the self interest of Abel
Holtz.
Certain of the governmental authorities having regulatory
oversight for Capital Bank and Bancorp, as well as a Federal Grand
Jury, investigated these matters among others. Bancorp was advised
that neither it nor Capital Bank were targets of the Federal Grand
Jury investigation, although Bancorp ultimately learned that Abel
Holtz was a target. The independent accounting firm of Arthur
Andersen & Co. was engaged to conduct an independent investigation
of the matters investigated by the Audit Committee.
The Audit Committee Action was voluntarily dismissed by the
Audit Committee on November 24, 1992. On January 28, 1993, after
conducting an investigation and reviewing the report from Arthur
Anderson & Co., both the Audit Committee and Capital Bank's Board
of Directors adopted resolutions which ratified the settlement of
the sexual harassment claims, determined that there was no basis
for requiring Abel Holtz to contribute to such settlement and
concluded that certain travel and entertainment expenses and
charitable contributions reviewed by the Audit Committee were
ordinary business expenses of Capital Bank.
On October 25, 1994, Bancorp was advised that the above-
described Federal Grand Jury investigation terminated when Mr.
Holtz entered a guilty plea to one count of giving misleading
testimony in 1991 to a Federal Grand Jury in violation of 18 United
States Code Section 1503, with respect to the purpose of certain
payments made by Capital Bank, the Company and certain related
parties to a public official. Bancorp was advised that this plea
resolved all pending criminal investigations against Mr. Holtz
being conducted or supervised by the United States Attorney's
Office for the Southern District of Florida and that no charges
would be filed against either Bancorp or Capital Bank with respect
to the matters that were the subject of the Grand Jury
investigation. On January 20, 1995, Abel Holtz was sentenced to a
term of confinement of 45 days, to be followed by two years of
supervised release, including 4 1/2 months of house confinement, to
be followed by community service during the supervised release.
Abel Holtz was also fined $20,000 and assessed certain costs.
In approximately April 1994, Abel Holtz, pursuant to the terms
of the irrevocable proxies, designated Fana Holtz, his wife, as
successor proxyholder with respect to most of the irrevocable
proxies within his control and transferred the remainder of such
proxies in January 1995. Fana Holtz has designated her son, the
current Chairman of the Board, President and Chief Executive
Officer of Bancorp and Capital Bank, Daniel Holtz, as her successor
proxyholder in the event of her death. On October 7, 1994, Abel
Holtz resigned from all positions with Bancorp and it subsidiaries.
On February 8, 1995, certain shareholders, including the
removed member of the Audit Committee, commenced a derivative
action against Bancorp, Daniel M. Holtz, the Chairman of the Board,
President and Chief Executive Officer of Bancorp, Fana Holtz, the
Vice Chairman of the Board, Javier Holtz, a director of Capital
Bank, and Abel Holtz (the "Derivative Action"). The Derivative
Action is entitled Nathan J. Esformes, Stanley I. Worton, M.D., and
Leonard Wien, as individual shareholders and on behalf of all other
shareholders of Capital Bancorp v. Abel Holtz, Fana Holtz,
Daniel M. Holtz, Javier J. Holtz, Capital Bank and Capital
Bancorp., Circuit Court for the 11th Judicial District in and for
Dade County, Florida, Case No. 95-02515. The Derivative Action was
subsequently amended to add, among other things, the remaining
members of the Board of Directors as defendants. Through the
Derivative Action, the plaintiffs have alleged that certain
defendants engaged in a series of illegal activities causing harm
to Bancorp and Capital Bank, including (i) the settlement of the
sexual harassment claims, (ii) the payment of excessive
compensation and separation payments, (iii) the appointment of
unqualified family members as officers, (iv) the withholding of
information and (v) the misappropriation of Capital Bank funds for
personal uses. The plaintiffs also alleged that such individuals
engaged in a series of activities designed to improperly increase
or maintain their interest in, and control of, Bancorp, including
(i) the unlawful use of proxies, (ii) the prevention of
investigations and shareholder meetings, (iii) the unlawful
alteration of the composition of Bancorp's Board of Directors and
(iv) the failure to obtain approval for a change in control.
The Board of Directors of Bancorp established an independent
committee to investigate the allegations contained in the
Derivative Action and to retain independent legal counsel.
Thereafter, the plaintiffs challenged the independence of the
committee. Upon motion of the defendants, the complaint was
dismissed without prejudice in November 1995 for containing legal
argument, which the court ruled to be improper. The Court allowed
for the filing of an amended complaint, but stayed the proceedings
and any required response to an amended complaint until the
independent committee has a reasonable period of time to complete
its review. The plaintiffs appeal of the Court's decision to stay
the proceedings was denied.
An amended complaint was filed in December 1995 containing
substantially the same allegations. A new director and former
director of Bancorp were added as defendants, while another former
director of Bancorp was removed as a defendant. The plaintiffs are
seeking, on behalf of Bancorp, unspecified monetary damages,
including treble damages, reasonable costs and attorneys' fees, and
injunctive relief (i) precluding Fana Holtz from voting shares for
which she has proxies, (ii) setting aside the February 27, 1995
annual shareholders' meeting, (iii) reinstating two former
directors, (iv) precluding the current Board from taking any action
and (v) returning certain shares to Bancorp. No monetary relief is
sought from Bancorp and no count specifically seeks relief from
Bancorp.
Also on February 8, 1995, a shareholder of Bancorp, who was
one of the members of the 1992 Audit Committee who was removed from
Capital Bank's Board of Directors, commenced an individual action
against Bancorp, Daniel Holtz, Fana Holtz, Javier Holtz and Abel
Holtz (the "Individual Action"). Such action alleged that the
defendants, other than Bancorp, breached fiduciary duties owed to
the plaintiff by, among other things, improperly using proxies to
vote shares of Bancorp owned by the plaintiff and another
shareholder to engage in improper activity and to promote their
personal interest to the detriment of the plaintiff. The
Individual Action is entitled Stanley I. Worton, M.D. and Nathan
Esformes v. Abel Holtz, Fana Holtz, Daniel Holtz, Alex Halberstein
and Capital Bancorp, Circuit Court for the 11th Judicial District
in and for Dade County, Florida, Case No. 95-02520-CA-09. In
support of the complaint, the plaintiff asserted many of the same
allegations contained in the Derivative Action. Thereafter, the
plaintiff filed an amended complaint pursuant to which an
additional plaintiff was added (both plaintiffs are named
plaintiffs in the Derivative Action) and all the existing and
certain former directors of Bancorp were added as defendants. The
amended complaint alleged that certain of the defendants unlawfully
solicited proxies for the February 27, 1995 annual shareholders'
meeting and that the actions taken at this meeting, including the
reduction in the size of the Board, were invalid. Although, the
amended complaint also sought a court order directing Bancorp to
hold a shareholders' meeting on or before May 29, 1995 to elect a
board of directors, the court did not order Bancorp to hold a
meeting prior to such date.
Upon motion of the defendants in the Individual Action, the
amended complaint was dismissed without prejudice for containing
legal argument, which the court ruled to be improper. The Court
dismissed with prejudice the plaintiff's request to terminate the
proxies granted by the non-plaintiff shareholder. The Court
allowed for the filing of an amended complaint, but stayed the
proceedings as to certain claims until the independent committee
has a reasonable period of time to complete its review. The Court
also indicated that certain counts of the complaint did not
properly plead the elements for injunctive relief. An amended
complaint was filed in December 1995 containing substantially the
same allegations. The plaintiffs seek unspecified monetary damages
and costs and, in addition to the injunctive relief requested in
the Derivative Action, plaintiffs seek relief regarding, among
other things, the voting and/or termination of certain proxies, the
establishment of a constructive trust for certain shares and
options, the holding of a shareholders' meeting, the return to one
of the plaintiffs of his percentage of any shares obtained by
members of the Holtz family because of the control group created by
the proxies and the reinstatement of one of the plaintiffs to the
Board of Directors and invalidation of the actions of the current
Board. Plaintiffs also seek declaratory relief invalidating the
proxies and former actions with respect to which the proxies were
voted. The plaintiffs have not indicated that they are seeking any
monetary relief from Bancorp other than costs. Bancorp has filed
a motion to dismiss the two counts of the complaint in the
individual action in which it is named and has moved to stay
certain other counts of the complaint on the grounds that those
claims are derivative.
Bancorp has advised the Company that it has not determined
whether, if asked, it would indemnify directors and former
directors named in these actions if the plaintiffs are successful,
although it is currently advancing the legal expenses of the
outside directors who were named as defendants. Such defendants
have agreed to repay Bancorp for all or any portion of such
advances which they are ultimately found not to be entitled to
pursuant to applicable law.
The Company is not a party to either of the current actions
and management does not believe that the outcome of such actions
will have a material adverse effect on the Company's financial
condition, results of operations or liquidity.
Administrative Proceedings
As of February 14, 1996, Daniel Holtz, Chairman of the Board,
President and Chief Executive Officer of Bancorp, Fana Holtz, the
Vice-Chairman of the Board, and Javier Holtz, a director of Capital
Bank, owned and/or had the power to vote, approximately 7%, 40% and
4% (51% in the aggregate), respectively, of Bancorp's Common Stock
(including shares of Common Stock subject to options exercisable by
such individuals within 60 days). Fana Holtz, Daniel Holtz, and
Javier Holtz have advised Bancorp that they had discussions with
the Florida Department of Banking and Finance (the "FDBF") as to
whether one or more of them was required under Florida law to file
an application to acquire and/or maintain a controlling interest in
Capital Bank through their ownership and control of Bancorp. Fana
Holtz, Daniel Holtz and Javier Holtz have advised Bancorp that, as
a result of those discussions, they both individually and as a
group, have voluntarily filed an application to acquire and/or
maintain a controlling interest in Bancorp, although they do not
believe such an application is legally required. Fana Holtz,
Daniel Holtz and Javier Holtz are also having discussions with the
FRB as to whether a change of control notice is required under
federal law. The plaintiffs and another shareholder in the pending
litigations described in "Legal and Administrative Proceedings-
Bancorp and Capital Bank Legal Proceedings" have filed a Notice of
Intent to Appear and Petition for a Formal Administrative Hearing
with the FDBF in connection with the disposition of the Florida
application. A hearing date has been set for August 1996. It
cannot presently be determined what effect, if any, the FDBF's
action on the application and the discussions with the FRB will
have on the Company although if the control applications are
denied, regulatory authorities could take various actions,
including requiring that one or more members of the Holtz family
divest sufficient shares of Bancorp so as not to have legal control
of Bancorp as defined by regulatory authorities.
Abel Holtz is subject to the restrictions of Section 19 of the
Federal Deposit Insurance Act which precludes him from owning or
controlling, or otherwise participating in, the affairs of Bancorp
and Capital Bank without regulatory approval. Abel Holtz has
advised Bancorp that he has orally agreed with the FDIC not to vote
his shares in Bancorp at the present time. Federal bank regulatory
authorities are also examining and investigating whether Abel Holtz
and some or all of the persons discussed in this section, including
Bancorp and its subsidiaries, as well as possibly other persons,
are in compliance with applicable change in control laws and
Section 19. To date, the Company is unaware of any conclusions
which may have resulted from these inquiries.
EMPLOYEES
At December 31, 1995, the Company had 217 employees, of which
105 were employed in the Florida office, including 29 professional
staff and 76 clerical staff, 45 were employed in the California
office, including 22 professional staff and 23 clerical staff, 42
were employed in the New York office, including 22 professional
staff and 20 clerical staff, and 25 were employed in the North
Carolina Office, including 9 professional staff and 16 clerical
staff. None of the Company's employees are covered by a collective
bargaining agreement and the Company considers its employee
relations to be good.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as
follows:
[CAPTION]
<TABLE>
<S> <C> <C>
Name Age Position with the Company
John W. Kiefer 49 President, Chief Executive
Officer and Director
Stephen J. Donohue 51 Executive Vice President - New
York Regional Manager
James L. Morrison 52 Executive Vice President -
California Regional Manager
Michael J. Sullivan 47 Senior Vice President - North
Carolina Regional Manager
Dennis A. McDermott 45 Senior Vice President - Chief
Financial Officer
John B. Apgar 42 Senior Vice President -
Healthcare
Javier J. Holtz 35 Executive Vice President and
Chairman of the Board
Daniel M. Holtz 36 Director
Stephen N. Ashman 47 Director
Ronald S. Chase 51 Director
Harold L. Oshry 73 Director
Bruce Raiffe 38 Director
Jack Listanowsky 48 Director
</TABLE>
Mr. Kiefer has served as the Company's President and Chief
Executive Officer and as a director since April 1987. Mr. Kiefer
has also served as a Senior Vice President of Bancorp since January
1987 and as a director of Capital Bank since October 1992. From
1984 to 1986, Mr. Kiefer served as Senior Vice President-Regional
Manager of Barclays American/Commercial Inc. and served as Vice
President from 1981 to 1984.
Mr. Donohue has served as the Company's New York Regional
Manager since April 1990, and was promoted from a Senior Vice
President to an Executive Vice President in January 1992. From
1970 to April 1990, Mr. Donohue was employed by Bankers Trust
Factors in various positions, including Manager of Client
Portfolio.
Mr. Morrison has served as the Company's California Regional
Manager since August 1989, and was promoted from a Senior Vice
President to an Executive Vice President in January 1992. From
1984 to August 1989, Mr. Morrison served as Vice President-Regional
Manager of the Los Angeles office of NatWest Commercial Services,
Inc.
Mr. McDermott has served as the Company's Senior Vice
President-Chief Financial Officer since July 1991. Prior to
joining the Company, Mr. McDermott served as Chief Accounting
Officer from April 1990 to June 1991 at the request of the
Resolution Trust Company with several troubled financial
institutions, including AmeriFirst Bank, American Pioneer Savings
Bank, and Centrust Bank. Mr. McDermott served as Vice President -
Chief Financial Officer of Ambassador Financial Group, Inc., a
savings and loan holding company, from July 1988 to March 1990, and
as Executive Vice President - Chief Financial Officer of Crossland
Savings from September 1983 to June 1988.
Mr. Sullivan has served as the Company's Senior Vice President
- - - - North Carolina Regional Manager since March 1995. From August
1994 to February 1995, Mr. Sullivan served as the Head of Business
Development for the CIT Group, the successor to Barclays Commercial
Corporation. From November 1981 to February 1994, Mr. Sullivan
served as Senior Vice President-Regional Executive of Barclays
Commercial Corporation and, from March 1994 to August 1994, Mr.
Sullivan served in the same capacity with the CIT Group. Prior to
that and from June 1975 to December 1980, Mr. Sullivan was
International Credit Director of the B.F. Goodrich Company. Mr.
Sullivan performed independent consulting services from December
1980 to November 1981.
Mr. Apgar has served as the Company's Senior Vice President -
Healthcare since June 1994. From April 1992 to April 1993, Mr.
Apgar was the head of the new business segment of Tower Financial
Corporation. In April 1993, Tower Financial Corporation filed a
petition seeking relief under the United States Bankruptcy Code.
In May 1993, Mr. Apgar was appointed Senior Vice President - Client
Relations - Healthcare Division of Tower Financial Corporation by
the trustee appointed to administer Tower Financial's bankruptcy
estate and served in such position until April 1994. From July
1990 to March 1992, Mr. Apgar was Vice President-New Business of
BancBoston Financial Company, a Trust of Bank of Boston.
Mr. Javier Holtz has served as a director of the Company since
August 1987 and as Executive Vice President since November 1994.
Mr. Holtz was appointed Chairman of the Board of the Company in
October 1994. In addition, Mr. Holtz has been employed by Capital
Bank since 1983, most recently as an Executive Vice President. Mr.
Holtz has been a director of Capital Bank since 1988. Mr. Holtz
has also served as Senior Vice President of Bancorp since January
1990. Mr. Holtz is the brother of Daniel Holtz, a director of the
Company and the Chairman of the Board, President and Chief
Executive Officer of each of Bancorp and Capital Bank, and the son
of Fana Holtz, the Vice Chairman of Bancorp's Board of Directors
and the beneficial owner of approximately 40% of Bancorp common
stock, and Abel Holtz, the beneficial owner of approximately 9.1%
of Bancorp common stock. See "Principal Shareholder."
Mr. Daniel Holtz has served as a director of the Company from
1985 to 1987 and from 1993 to the present. Mr. Holtz has been a
director of Bancorp since June 1988 and also served as President of
Bancorp since February 1994 and as Chairman of the Board and Chief
Executive Officer since October 1994. In addition, Mr. Holtz has
served as President of Capital Bank since October 1991 and as
Chairman of the Board and Chief Executive Officer since October
1994. Mr. Holtz was President and Chief Executive Officer of
Capital Bank of California from September 1987 to November 1991 and
director from July 1985 until June 1993, when the bank was declared
insolvent and closed by the California Superintendent of Banks.
Mr. Holtz is the brother of Javier Holtz and the son of Fana Holtz
and Abel Holtz. See "Principal Shareholder."
Mr. Ashman has been a director of the Company since May 1985.
Mr. Ashman has served as President and Chief Executive Officer of
Capital Bank, N.A., Washington branch since November 1991. Mr.
Ashman served as Treasurer and Chief Financial Officer of Bancorp
from February 1985 to November 1991, and as Executive Vice
President and Chief Financial Officer of Capital Bank from February
1985 to November 1991.
Mr. Chase has served as a director of the Company since
September 1992. Mr. Chase has also served as a director of Capital
Bank since July 1993. Mr. Chase has been the President and owner
of Chase Holdings & Advisory Services, Inc., which provides
financial advisory services to corporations and litigation
attorneys, since June 1991. In addition, Mr. Chase is the owner
and has served as President of each of RSC Development, Inc., a
residential developer, and CFAT H20, Inc., a water treatment
facility, both of which are located in Ocala, Florida, since
approximately November 1993. Mr. Chase is a certified public
accountant who served as Managing Partner for several offices of
Deloitte & Touche, LLP for 14 of his 25 years with the firm. Mr.
Chase also serves as a director of the Greater Miami Neighborhood,
Inc., a not-for-profit affordable housing developer.
Mr. Oshry has served as a director of the Company since
September 1992. Mr. Oshry served as Chairman, President and Chief
Executive Officer of Sandgate Corp., a New York real estate
developer, from 1955 until his retirement in 1985.
Mr. Raiffe has served as a director of the Company since 1993.
Mr. Raiffe has served as the President of Gund, Inc., a toy
manufacturer, since March 1993. From 1980 to 1993, Mr. Raiffe
served as an Executive Vice President of Gund, Inc. Mr. Raiffe
also serves as a director of the United Cerebral Palsy Association.
Mr. Listanowsky has served as a director of the Company since
1993. Mr. Listanowsky has served as the Vice President-Sourcing
and Production of The Limited, Inc. since April 1995. From
December 1989 to May 1995, Mr. Listanowsky served as the Executive
Vice President of Manufacturing and Operations of Liz Claiborne,
Inc. Prior to joining Liz Claiborne, Inc. in 1981, Mr. Listanowsky
was the Vice President of Manufacturing and Operations of SKYR
Sportswear from 1974 to 1981.
The Company intends to add two additional directors to the
Board.
All directors hold office until the next annual meeting of
shareholders of the Company and until their successors have been
duly elected and qualified. Each officer serves at the discretion
of the Board of Directors (and in the case of Messrs. Donohue and
Morrison pursuant to employment agreements.)
DIRECTORS' COMPENSATION
The Company pays all directors a monthly retainer of $1,000
and $250 for each meeting attended by the director. The Company
also reimburses all directors for all travel-related expenses
incurred in connection with their activities as directors. The
Company also paid $94,000 in salary and bonus to Javier Holtz for
his services as Executive Vice President of the Company during
1995.
In addition, non-officer directors of the Company also have in
the past received options to acquire Bancorp Common Stock for their
service on the Company's Board of Directors. For the 1995 fiscal
year, each outside director of the Company received options to
acquire 5,000 shares of Bancorp Common Stock.
COMMITTEES OF THE BOARD OF DIRECTORS
Messrs. Chase, Oshry, Listanowsky and Raiffe serve on the
Company's Audit Committee. The Audit Committee's functions include
recommending to the Board of Directors the engagement of the
Company's independent certified public accountants, reviewing with
such accountants the plan and results of their audit of the
financial statements and determining the independence of such
accountants. In addition, Messrs. Chase, Oshry, Listanowsky and
Raiffe serve on the Company's Compensation and Benefits Committee,
which reviews and makes recommendations with respect to
compensation of officers and key employees, including the grant of
options under the Company's Stock Option Plan, and the Company's
Conflict of Interest Committee, which, among other things, reviews
and makes recommendations with respect to transactions between the
Company and any of its affiliates, including those with Bancorp and
Capital Bank.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the
Company, for services rendered during the past year to the five
most highly compensated officers (the "Named Officers") of the
Company.
SUMMARY COMPENSATION TABLE
[CAPTION]
<TABLE>
<S> <C>
Annual Compensation
Name and
Principal Fiscal Other Annual
Position Year Salary Bonus Compensation
($) ($) ($)
John W. Kiefer 1995 275,000 300,000 --(2)
Chief Executive
Officer
Stephen J.
Donohue 1995 210,000 262,171 --(2)
Executive Vice
President,
New York -
Regional Manager
James L.
Morrison 1995 171,000 162,490 --(2)
Executive Vice
President,
California -
Regional Manager
Michael J.
Sullivan 1995 125,577 70,000 --(2)
Senior Vice
President,
North Carolina -
Regional Manager(5)
Dennis A. 1995 100,000 60,000 --(2)
McDermott
Senior Vice
President and
Chief Financial
Officer
(continued)
<S> <C> <C>
Long-Term
Compensation
No. of
Name and Securities All Other
Principal Underlying Compen-
Position Options(1) sation
# ($)
John W. Kiefer 12,500 300,000(3)
Chief Executive Officer
Stephen J. Donohue 3,500 1,500(4)
Executive Vice President,
New York - Regional
Manager
James L. Morrison 3,475 --
Executive Vice President,
California - Regional
Manager
Michael J. Sullivan 700 --
Senior Vice President,
North Carolina -
Regional Manager(5)
Dennis A. McDermott 2,500 1,000(4)
Senior Vice President
and Chief Financial Officer
</TABLE>
_______________________
(1) Represents options to purchase shares of Bancorp common stock
granted under the Bancorp 1992 Stock Option Plan which options
were granted in 1996.
(2) The aggregate amount of perquisites and other personal
benefits provided to such Named Officer is less than 10% of
the total annual salary and bonus of such officer.
(3) Represents a cash bonus which was paid to Mr. Kiefer pursuant
to the terms of his employment agreement, which agreement
terminated on December 31, 1995.
(4) Reflects matching contributions to Bancorp's 401(k) plan.
(5) Mr. Sullivan was not employed by the Company for the full
fiscal year. Represents the period commencing on February 28,
1995 and continuing through December 31, 1995.
EMPLOYMENT AGREEMENTS
Subject to final execution, the Company is enterng into an
employment agreement with John W. Kiefer, the President and Chief
Executive Officer of the Company. The proposed employment
agreement with Mr. Kiefer will expire in December 2000. Upon
execution of the agreement, Mr. Kiefer will receive a signing bonus
of $250,000 and a $100,000 loan expiring upon termination or
expiration of the employment agreement, whichever is earlier.
Twenty percent (20%) of the outstanding principal balance and all
accrued interest attributable thereto shall be forgiven by the
Company at the end of each calendar year during the term of the
employment agreement, provided that Mr. Kiefer is still employed by
the Company. The agreement provides for an annual base salary to
Mr. Kiefer of $300,000 in the first year, subject to adjustment in
the discretion of the Company's Board of Directors or Compensation
and Benefits Committee. The employment agreement also provides for
an annual bonus based on the Company's success in reaching certain
targets for net revenues and income before income taxes. In the
event the targets are reached, the portion of the bonus relating to
net revenues would equal 20% of Mr. Kiefer's salary and the portion
of the bonus relating to income before income taxes would equal 80%
of his salary. Each portion of the bonus could be a smaller or
larger percentage of his salary depending upon whether the targets
are either not met or exceeded, with the aggregate maximum in any
year being 185% of salary if both targets are doubled. Mr. Kiefer
shall also receive deferred compensation equal to 67% of his salary
for each year that (i) net revenues and income before income taxes
exceed projected net revenues and income before income taxes as set
forth in the Company's 5-year plan, (ii) net revenues increase by
13.5% over net revenues for the prior year and (iii) income before
income taxes increases by 22.5% over income before income taxes for
the prior year. The deferred compensation shall vest 50% after
three years and 25% after each of the fourth and fifth years,
provided that Mr. Kiefer is still employed by the Company, although
the employment condition for vesting will lapse after the 5-year
term of the employment agreement if Mr. Kiefer is employed at that
time. If at the end of the 5-year term, Mr. Kiefer agrees to be
employed by the Company for another five years, then all deferred
compensation that has not yet vested shall immediately vest. In
addition, on the effective date of this offering, Mr. Kiefer will
receive options to purchase one (1%) percent of the Company's
Common Stock outstanding after giving effect to such offering at
the initial public offering price, subject to the terms and
conditions of the Company's Stock Option Plan then in effect. Upon
the Company's termination of Mr. Kiefer's employment agreement
without cause, Mr. Kiefer shall be entitled to receive, among other
things, (i) base salary through the date of such termination and
(ii) all previous bonuses and a pro-rata portion of the bonus
payable, if any, for the year in which termination occurs, (iii) an
acceleration of the vesting of all deferred compensation and (iv)
subject to mitigation if he obtains subsequent employment, his base
salary through the expiration date of his employment agreement. In
the event of a change in control, Mr. Kiefer shall receive the same
compensation as if terminated without cause except that in lieu of
the compensation payable in (iv) above, Mr. Kiefer shall be
entitled to receive a lump sum payment equal to two times his
salary and prior year's bonus if he terminates his employment
because of changes in his employment situation and an additional
amount equal to two times his prior year's deferred compensation,
if any, if he is terminated by the Company without cause within one
year after a change in control. Upon termination for "cause" or
upon voluntary resignation, Mr. Kiefer shall be entitled to receive
his base salary through the date of such termination. Payment of
the bonus and deferred compensation in certain years during the
term that would not otherwise be deductible by reason of Section
162(m) of the Internal Revenue Code of 1986, as amended, is subject
to certain approvals, including shareholder approval. The
Company's Compensation and Benefits Committee may, at its option,
defer payment of amounts that would not otherwise be deductible
under Section 162(m) until a time when it would be deductible. The
stock option grant will also be conditioned upon approval of the
Compensation and Benefits Committee and approval of the Company's
Stock Option Plan by the Company's shareholder. The agreement also
contains certain non-competition covenants and covenants against
solicitation of clients and employees for a competitive business.
The Company has entered into an employment agreement with
Stephen J. Donohue, the Company's Executive Vice President and
Regional Manager of the Company's New York office. The employment
agreement with Mr. Donohue will expire in December 1997. The
agreement provides for an annual base salary to Mr. Donohue of
$170,000, subject to a 6% increase from the base salary paid in the
previous year as well as an annual bonus based upon the Company's
earnings before income taxes ("EBT") attributable to the Company's
New York office. In particular, Mr. Donohue will receive 2.5% of
such EBT in each of 1996 and 1997. Mr. Donohue will also receive
an additional cash bonus of $250,000 if he is employed by the
Company through the expiration date of his employment agreement, as
well as additional bonuses in the sole discretion of the Company's
Board of Directors. Pursuant to the Board's discretion, during the
previous two years, Mr. Donohue received 3.0% of EBT attributable
to the New York office. In addition, upon consummation of this
offering, Mr. Donohue will receive options to purchase 0.5% of the
Company's Common Stock outstanding after giving effect to such
offering at the initial public offering price. Upon the Company's
termination of Mr. Donohue's employment agreement without cause,
Mr. Donohue shall be entitled to receive (i) his base salary
through the date of such termination, (ii) all previous unpaid
bonuses and a pro-rata portion of the bonus payable, if any, for
the year in which termination occurs and (iii) subject to the
obligation to seek subsequent employment, his base salary for one
year following termination, but in no event beyond the expiration
date of his employment agreement. In the event of a change in
control, Mr. Donohue shall be entitled to terminate his employment
agreement in the event of certain changes in his employment
situation. Mr. Donohue shall be entitled to receive (i) his base
salary through the date of such termination, (ii) all previous
unpaid bonuses and a pro-rata portion of the bonus payable, if any,
for the year in which termination occurs, (iii) his base salary for
one year following termination but in no event beyond the
expiration date of his employment agreement and (iv) a portion of
his additional cash bonus. Upon termination for "cause" or upon
voluntary resignation, Mr. Donohue shall be entitled to receive his
base salary through the date of such termination.
In addition, the Company has entered into an employment
agreement with James L. Morrison, the Company's Executive Vice
President and Regional Manager of the Company's California office.
The employment agreement with Mr. Morrison will expire in December
1997. The agreement provides for an annual base salary to Mr.
Morrison of $140,000, subject to a 6% increase from the base salary
paid in the previous year as well as an annual bonus based upon the
Company's EBT attributable to the Company's California office. In
particular, Mr. Morrison will receive 2.5% of such EBT in each of
1996 and 1997. In addition, Mr. Morrison will receive an
additional cash bonus of $150,000 if he is employed by the Company
through the expiration date of the employment agreement, as well as
additional bonuses in the sole discretion of the Company's Board of
Directors. Pursuant to the Board's discretion, during the previous
two years, Mr. Morrison received 3.0% of EBT attributable to the
California office. In addition, upon consummation of this
offering, Mr. Morrison will receive options to purchase 0.5% of the
Common Stock outstanding after giving effect to such offering at
the initial public offering price. Upon the Company's termination
of Mr. Morrison's employment agreement without cause, Mr. Morrison
shall be entitled to receive (i) base salary through the date of
such termination, (ii) all previous unpaid bonuses and a pro-rata
portion of the bonus payable, if any, for the year in which
termination occurs and (iii) subject to the obligation to seek
subsequent employment, his base salary for one year following
termination, but in no event beyond the expiration date of his
employment agreement. In the event of a change in control, Mr.
Morrison shall be entitled to terminate his employment agreement in
the event of certain changes in his employment situation. Upon Mr.
Morrison's termination of the employment agreement as a result of
a change in control, Mr. Morrison shall be entitled to receive (i)
base salary through the date of such termination, (ii) all previous
unpaid bonuses and a pro-rata portion of the bonus payable, if any,
for the year in which termination occurs, (iii) his base salary for
one year following termination but in no event beyond the
expiration date of his employment agreement and (iv) a portion of
his additional cash bonus. Upon termination for "cause" or upon
voluntary resignation, Mr. Morrison shall be entitled to receive
his base salary through the date of such termination.
COMPANY STOCK OPTION PLAN
Under the Company's Stock Option Plan (the "Plan"), which will
be effective upon the consummation of this offering, 700,000 shares
of Common Stock will be reserved for issuance upon exercise of
stock options. No more than 200,000 of such options may be granted
without the restrictions set forth below. The remaining options,
even if vested, may not be exercised without the written approval
of Capital Bank during the Eighty Percent Period. Such shares may
be convertible into stock appreciation rights at certain times
during this term in the event that Capital Bank does not give such
written approval. The Plan is designed as a means to retain and
motivate key employees and directors. The Compensation and
Benefits Committee of the Board of Directors will administer and
interpret the Plan and be authorized to grant options thereunder to
all eligible employees and directors of the Company, except that no
incentive stock options (as defined in Section 422 of the Internal
Revenue Code) may be granted to a director who is not also an
employee of the Company or a subsidiary.
The Plan will provide for the granting of both incentive stock
options and nonqualified stock options. Options will be granted
under the Plan on such terms and at such prices as determined by
the Compensation and Benefits Committee, except that the per share
exercise price of incentive stock options cannot be less than the
fair market value of the Common Stock on the date of grant. Each
option is exercisable after the period or periods specified in the
option agreement, but no option may be exercisable after the
expiration of ten years from the date of grant. Options granted to
an individual who owns (or is deemed to own) at least 10% of the
total combined voting power of all classes of stock of the Company
or its subsidiary must have an exercise price of at least 110% of
the fair market value of the Common Stock on the date of grant and
a term of no more than five years. Options granted under the Plan
are not transferable other than by will or by the laws of descent
and distribution. The Plan also authorizes the Company to make or
guarantee loans to optionees to enable them to exercise their
options. Such loans must (i) provide for recourse to the optionee,
(ii) bear interest at a rate no less than the prime rate of
interest, and (iii) be secured by the shares of Common Stock
purchased. The Board of Directors has the authority to amend or
terminate the Plan, provided that no such action may impair the
rights of the holder of any outstanding option without the written
consent of such holder, and provided further that certain
amendments of the Plan are subject to shareholder approval. Unless
terminated sooner, the Plan will continue in effect until all
options granted thereunder have expired or been exercised, provided
that no options may be granted after _______________, 2006.
The Plan will provide that (i) each director who is not an
employee of the Company and who may be required to meet certain
other criteria (a "Non-Employee Director") will receive, on the
date of his or her appointment as a director or the date of this
offering, whichever is earlier (but in no event earlier than the
date of this offering), and, at the annual meeting each year
commencing in 1997 (if such person continues to serve as a director
of the Company on such date), an option to purchase that number of
shares of Common Stock to be specified in the Plan, (ii) each
option granted to Non-Employee Directors will become exercisable as
to be provided in the Plan, although each such option shall be
restricted as provided above, (iii) the unexercised portion of any
option granted to Non-Employee Directors shall terminate a
specified period of time after such director no longer serves on
the Company's Board (or one year in the event of physical or mental
disability or death), except that such period shall not begin until
the restrictions listed above cease, or if the option is converted
into a stock appreciation right, until such conversion, and
(iv) the per share exercise price of all options granted to Non-
Employee Directors will be equal to the fair market value of the
Common Stock on the date of grant.
The following table sets forth information with respect to
options granted under the Plan to (i) each Named Officer, (ii) each
director, (iii) all executive officers as a group, and (iv) all
other employees of the Company as a group. All of the options are
nonstatutory, are being granted with an exercise price equal to the
offering price, are subject to the consummation of this offering
and are being granted in 1996.
[CAPTION]
<TABLE>
<S> <C>
Number of
Name of Grantee or Group Shares
John W. Kiefer 120,000
Stephen J. Donohue 60,000
James L. Morrison 60,000
Michael J. Sullivan
Dennis A. McDermott
John B. Apgar
Javier J. Holtz
Daniel M. Holtz
Stephen N. Ashman
Ronald S. Chase
Harold L. Oshry
Bruce Raiffe
Jack Listanowsky
All executive officers as a group
(13 persons)
All other employees as a group
(__ persons)
</TABLE>
BANCORP PENSION PLAN
Currently, all eligible officers of the Company participate in
the Bancorp Employees Pension Plan which was established in 1983
(the "Bancorp Pension Plan"). The normal retirement age under the
Bancorp Pension Plan is the later of age 65 or the age of the
participant on the 5th anniversary of plan participation. The
monthly pension benefit for normal retirement in 1.2% of average
monthly compensation for the 5 consecutive years during the last 10
years of service that produce the highest average salary, plus an
additional 0.6% of the portion of the average monthly compensation
during these same 5 years in excess of the monthly social security
integration level. The entire monthly pension benefit for normal
retirement will be multiplied by each year of service at normal
retirement age, not to exceed 25 years. The Bancorp Pension Plan
provides for early retirement at age 55 with 10 years continuous
employment as well as full vesting of benefits upon termination of
employment before retirement age and after completion of 7 years
continuous employment. In the event of the death of an active
participant, the total value of the decedent's accrued pension
benefit will be paid to the designated beneficiary by the method
selected by the beneficiary and approved by the Bancorp Pension
Plan administrator. The benefit will be based upon the years of
service and number of years before normal retirement age. The
Bancorp Pension Plan does not provide for disability benefits. The
Company funds the Bancorp Pension Plan for its proportionate share
of the costs of such plan, based on the number of its employee
participants. During 1995, the Company paid $172,090 for its share
of the Bancorp Pension Plan's costs. See "Certain Transactions."
Annual amounts of normal retirement pension payable under the
Bancorp Pension Plan are illustrated in the following table. The
illustration assumes retirement as of December 31, 1995 at the
normal retirement age of 65.
[CAPTION]
<TABLE>
<S> <C> <C> <C> <C>
Five Year Years of Service
Average
Compensation 10 15 20 25
$ 125,000 $ 21,060 $ 31,590 $ 42,120 $ 52,650
150,000 25,560 38,340 51,120 63,900
175,000 25,560 38,340 51,120 63,900
200,000 25,560 38,340 51,120 63,900
225,000 25,560 38,340 51,120 63,900
250,000 25,560 38,340 51,120 63,900
275,000 25,560 38,340 51,120 63,900
300,000 25,560 38,340 51,120 63,900
</TABLE>
As of December 31, 1995, each of the Named Officers and
certain directors of the Company had credited service (to the
nearest whole year) under the Bancorp Pension Plan as follows:
[CAPTION]
<TABLE>
<S> <C>
Name Credited Service in Years
John W. Kiefer . . . . . . . . 9
Stephen J. Donohue . . . . . . 6
James L. Morrison. . . . . . . 6
Michael J. Sullivan. . . . . . 0
Dennis A. McDermott. . . . . . 4
Javier J. Holtz. . . . . . . . 13
Daniel M. Holtz. . . . . . . . 13
</TABLE>
In the event that Capital Bank's percentage ownership of the
Common Stock of the Company drops below 80%, it is anticipated that
the Company would adopt its own pension plan. At such time, the
officers of the Company with years of credited service in the
Bancorp Pension Plan would transfer such credit to the Company's
pension plan.
BANCORP STOCK OPTION PLANS
Certain of the Company's executive officers and all of the
directors also participate in the Bancorp 1982 Employee Stock
Option Plan and/or 1992 Employee Stock Option Plan (collectively,
the "Bancorp Plans"). All of the directors and executive officers
of the Company have participated in one or both of the Bancorp
Plans. Messrs. John W. Kiefer, Daniel M. Holtz, Javier J. Holtz
and Ronald S. Chase participate in the Bancorp Plans as a result of
their relationship with Bancorp and Capital Bank and will continue
to participate in such plans after the consummation of this
offering. Mr. Kiefer's participation also relates to his
employment by the Company. The participation of the officers of
the Company in the 1992 Employee Stock Option Plan may continue
after the consummation of this offering so long as the Company
remains a subsidiary of Bancorp or Capital Bank.
The following table sets forth certain information with
respect to stock options outstanding under the Bancorp Plans held
by (i) each Named Officer, (ii) each director of the Company and
(iii) all directors and executive officers of the Company as a
group. All references to shares are to the Common Stock of
Bancorp.
[CAPTION]
<TABLE>
<S> <C> <C> <C> <C>
Options Weighted
unexercised Granted average per Exercised
(in shares) (in share exer- (in
at shares) cise price shares)
December 31, for 1995 1995 during
1995 (1) options 1995
John W.
Kiefer 46,501 12,500 $31.00 4,500
Stephen J.
Donohue 12,000 3,500 $31.00 1,500
James L.
Morrison 11,625 3,475 $31.00 1,500
Michael J.
Sullivan 0 700 $31.00 0
Dennis A.
McDermott 9,000 2,500 $31.00 0
Javier Holtz 90,001 6,000 $32.67 0
Daniel Holtz 150,001 18,000 $31.56 0
Stephen Ashman 15,000 5,000 $31.00 9,990
Ronald Chase 18,750 5,000 $31.00 0
Harold Oshry 15,000 5,000 $31.00 0
Bruce Raiffe 15,000 5,000 $31.00 0
Jack
Listanowsky 7,500 5,000 $31.00 0
All executive
officers and
directors as
a group (13
persons) 391,878 72,275 $32.03 17,490
(continued)
<S> <C> <C> <C>
Net value
realized for Expired outstand-
exercise of (in ing (in
options shares) shares)
during during at March
1995 1995 31, 1996
John W. Kiefer $124,110 0 59,001
Stephen J. Donohue $41,370 0 15,500
James L. Morrison $41,370 0 15,100
Michael J. Sullivan 0 0 700
Dennis A. McDermott 0 0 11,500
Javier Holtz 0 0 96,001
Daniel Holtz 0 0 168,001
Stephen Ashman $272,200 0 20,000
Ronald Chase 0 0 23,750
Harold Oshry 0 0 20,000
Bruce Raiffe 0 0 20,000
Jack Listanowsky 0 0 12,500
All executive officers
and directors as
a group (13
persons) $479,050 0 464,153
</TABLE>
____________________
(1) Granted in February 1996.
CERTAIN TRANSACTIONS
LOANS FROM AFFILIATES
The Company has a $125 million revolving line of credit
facility with Capital Bank, the Company's sole shareholder prior to
the Offering, pursuant to which the Company had outstanding
borrowings of approximately $52 million as of December 31, 1995.
The Capital Facility bears interest at the prime rate as published
in the Wall Street Journal (8.75% at December 31, 1995). The
Facility is subject to annual review by Capital Bank and is due on
demand. The following table sets forth certain information with
respect to amounts owed by the Company to Capital Bank since
December 31, 1993:
[CAPTION]
<TABLE>
<S> <C> <C> <C>
1993 1994 1995
(Dollars in thousands)
Maximum amount out-
standing at any
month-end $122,200 $118,000 $ 64,840
Average borrowings $103,929 $ 84,095 $ 52,701
Interest expense for
the period $ 6,845 $ 6,090 $ 4,732
Average interest rate 6.6% 7.2% 9.0%
</TABLE>
PENSION PLAN
Eligible employees of the Company participate in the Bancorp
Pension Plan. The Company's share of the required contributions to
the Bancorp Pension Plan are based on a fixed percentage of the
Company's payroll and is remitted monthly to Capital Bank. Capital
Bank is responsible for the actual contributions to the Bancorp
Pension Plan. The Company remitted $113,420, $134,390 and $172,090
for the years ending 1993, 1994 and 1995, respectively, for its
share of the Bancorp Pension Plan's costs.
GROUP MEDICAL AND LIFE PLANS
Capital Bank obtains group medical, dental and life insurance
coverage on behalf of the Company. Premiums are charged to the
Company at the same amount as they are assessed by the insurance
companies to Capital Bank with respect to the Company. During
1993, 1994 and 1995, the Company paid insurance premiums of
$114,846, $533,843 and $527,669, respectively, for its actual
portion of such insurance premiums.
ALLOCATED EXPENSES WITH AFFILIATES
Capital Bank charges the Company for services rendered by
Capital Bank's legal department. Charges are based upon internal
time estimates prepared by Capital Bank for personnel costs and
related overhead costs associated with such services. Legal costs
paid by the Company to Capital Bank for 1993, 1994 and 1995 were
$190,662, $102,543 and $80,048 respectively. The Company also
reimburses Capital Bank for its portion of insurance expenses.
Payments to Capital Bank for insurance expenses during 1993, 1994
and 1995 aggregated approximately $126,219, $97,384 and $149,302,
respectively.
LETTERS OF CREDIT
Capital Bank provided approximately $66.6 million, $79.5
million and $130.1 million during 1993, 1994 and 1995,
respectively, of letters of credit for clients of the Company. For
a fee, the Company guarantees the payment by its clients under
these letters of credit. Fees charged for issuance of the letters
of credit are paid directly to Capital Bank and amounted to
$445,090, $389,571 and $462,013, during 1993, 1994 and 1995,
respectively.
INCOME TAX PAYMENTS TO AFFILIATES
The results of operations of the Company are included in the
consolidated federal income tax returns filed by Bancorp. Capital
Bank allocates income taxes to the Company calculated on a separate
return basis, except that tax benefits are allocated to the Company
to the extent such benefits are useable by the consolidated group.
The Company pays to (or receives from) Capital Bank the amount of
its estimated annual current tax provisions (benefits). The
Company paid approximately $3.0 million and $4.9 million for income
taxes related to its fiscal years ended December 31, 1993 and
December 31, 1994, respectively. As of December 31, 1995, the
Company had not paid Capital Bank the amounts due for taxes for the
1995 fiscal year.
TAX SHARING AND INDEMNITY AGREEMENT
After this offering, the results of operations of the Company
will continue to be included in the tax returns filed by Bancorp's
affiliated, combined or unitary groups for federal, state and local
income and franchise tax purposes. The members of those groups,
including the Company, currently are parties to a tax allocation
agreement that allocates the liability for those taxes among them.
Effective on consummation of this offering, the Company, Bancorp
and the other members of those tax reporting groups will enter into
a new tax allocation and indemnity agreement. Under the new
agreement, for periods ending after the offering, the tax
liabilities of the group will be allocated between Bancorp and its
direct and indirect wholly-owned subsidiaries ("Parent Group") and
the Company and its direct and indirect wholly-owned subsidiaries
("Factors Group") pursuant to a method specified in regulations of
the Treasury Department that would impose on Parent Group and
Factors Group liability for an amount that corresponds (with
various modifications) to the liability that Parent Group and
Factors Group each would incur if Parent Group and Factors Group
filed tax returns as separate affiliated, combined or unitary
groups. In addition, the new agreement provides that the Factors
Group will indemnify the Parent Group for any increase in the tax
liability of the group that is attributable (under the prior
agreement or the new agreement, as applicable) to the Factors
Group, and the Factors Group will be entitled to receive any tax
refund that is attributable to the Factors Group. The new
agreement similarly provides that the Parent Group will indemnify
the Factors Group for any increase in the tax liability of the
group that is attributable to the Parent Group.
TRANSACTIONS WITH OPPENHEIMER & CO., INC.
Craig L. Platt, a director of Bancorp since May 1993 and of
Capital Bank since April 1993, has been a Senior Vice President
with Oppenheimer & Co., Inc., the managing underwriter of this
offering, since December 1994. In addition to Oppenheimer & Co.,
Inc.'s involvement with this offering, in July 1995, Oppenheimer &
Co., was engaged by Capital Bank to provide advisory services, for
which Oppenheimer & Co., Inc. received a fee of $30,000. In
addition, Oppenheimer & Co., Inc. provided certain brokerage
services to Capital Bank in connection with its sale of 120,000
shares of Bancorp common stock, for which it received its customary
brokerage commission.
LOANS TO OFFICERS OF THE COMPANY
From time to time, Capital Bank makes loans and extends credit
to certain of the Company's officers and directors, including John
W. Kiefer, the President, Chief Executive Officer and a director of
the Company. In the opinion of Capital Bank, all of such loans and
extensions of credit were made in ordinary course of business, on
substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable
transactions with other third parties.
APPROVAL OF RELATED PARTY TRANSACTIONS
The Company has adopted a policy whereby all transactions
between the Company and one or more of its affiliates must be
approved in advance by a majority of the Company's Conflict of
Interest Committee.
PRINCIPAL SHAREHOLDERS
Capital Bank, whose principal address is 1221 Brickell Avenue,
Miami, Florida 33131, currently owns 10,000,000 shares of Common
Stock (after giving effect to the 10,000-for-1 stock split),
representing 100% of all the issued and outstanding Common Stock of
the Company. After giving effect to issuance of the Common Stock
pursuant to this offering, Capital Bank will own approximately 83%
of the issued and outstanding Common Stock of the Company
(approximately 81% if the Underwriters' over-allotment option is
exercised in full).
Bancorp is the sole shareholder of Capital Bank. The
following table sets forth information, as of April 1, 1996, with
respect to the beneficial ownership of the common stock of Bancorp
by (i) each director of the Company, (ii) each person known to the
Company to be the beneficial owner of more than 5% of the
outstanding common stock of Bancorp, and (iii) all directors and
executive officers of the Company as a group.
[CAPTION]
<TABLE>
<S> <C> <C>
Percentage
Ownership
Amount and Attributable
Name of Individual Nature of to the Company
or Identity of Beneficial Before After
Group Ownership Offering Offering
Fana Holtz 2,942,616(1) 39.6% 33.0%
Daniel M. Holtz 546,166(2) 7.3% 6.1%
Javier J. Holtz 285,778(3) 3.8% 3.2%
John W. Kiefer 68,001(4) * *
Stephen N. Ashman 60,866(5) * *
Harold L. Oshry 42,500(6) * *
Ronald S. Chase 23,750(7) * *
Bruce Raiffe 107,834(8) 1.4% 1.2%
Jack Listanowsky 12,500(9) * *
Leon Simkins 712,399(10) 9.6% 8.0%
Abel Holtz 677,077(11) 9.1% 7.6%
Alex Halberstein 734,692(12) 10.0% 8.3%
All directors and
executive officers
of the Company as
a group, including
those listed above
(13 persons) 1,195,305 15.1% 12.6%
</TABLE>
___________________________
* Less than 1%
(1) Includes 1,527,565 shares held individually, 1,392,051 shares
over which Mrs. Holtz claims voting power pursuant to various
shareholder agreements and irrevocable proxies and 23,000
shares that Mrs. Holtz has the right to acquire upon exercise
of presently exercisable options. Does not include an
aggregate of 325,838 shares, nor presently exercisable options
to purchase a total of 264,002 shares, owned by the adult sons
of Mrs. Holtz, as to which shares Mrs. Holtz disclaims
beneficial ownership and voting power. Also does not include
665,893 shares, nor presently exercisable options to purchase
a total of 11,184 shares, owned by Mr. Abel Holtz, Mrs.
Holtz's husband, as to which shares Mrs. Holtz disclaims
beneficial ownership and voting power. Mrs. Holtz,
individually, and together with her sons Daniel Holtz and
Javier Holtz, filed an application with the FDBF to acquire
and/or maintain control of Bancorp, although they do not
believe that such an application is required. See "Business-
Legal and Administrative Proceedings-Administrative
Proceedings" and "Business-Regulation."
(2) Includes 162,919 shares held individually, 166,665 shares held
by DH Associates, Ltd., a partnership of which Daniel Holtz is
general partner, and 168,001 shares that Mr. Holtz has the
right to acquire upon exercise of currently exercisable
options. Mr. Holtz, individually and together with Fana Holtz
and Javier Holtz, filed an application with the FDBF to
acquire and/or maintain control of Bancorp, although they do
not believe such an application is required. See "Business-
Legal and Administrative Proceedings-Administrative
Proceedings" and "Business-Regulation."
(3) Includes 162,919 shares held individually, 3,937 shares held
jointly by Javier Holtz and his wife, 22,500 shares held by
his wife individually and 421 shares over which Mr. Holtz
claims voting power pursuant to various shareholder agreements
and irrevocable proxies. Also includes 96,001 shares that Mr.
Holtz has the right to acquire upon exercise of currently
exercisable options. Mr. Holtz, individually and together
with Fana Holtz and Daniel Holtz, filed an application with
the FDBF to acquire and/or maintain control of Bancorp,
although they do not believe such an application is required.
See "Business-Legal and Administrative Proceedings-
Administrative Proceedings" and "Business-Regulation."
(4) Includes 9,000 shares held individually and 59,001 shares that
Mr. Kiefer has the right to acquire upon exercise of currently
exercisable options.
(5) Includes 24,466 shares held jointly by Stephen Ashman and his
wife, 7,000 shares held by his wife individually, 5,400 shares
held by a trust of which Mr. Ashman is a co-trustee and
presently exercisable options held by Mr. Ashman to purchase
an aggregate of 20,000 shares.
(6) Includes 20,000 shares that Mr. Oshry has the right to acquire
upon exercise of currently exercisable options.
(7) Represents presently exercisable options held by Mr. Chase to
purchase 23,750 shares.
(8) Includes 20,000 shares that Mr. Raiffe has the right to
acquire upon exercise of presently exercisable options.
(9) Represents 12,500 shares that Mr. Listanowsky has the right to
acquire upon exercise of presently exercisable options.
(10) Includes 516,277 shares held by Mr. Simkins individually, 13
shares held as custodian for Mr. Simkins' son under the
Florida Gifts to Minors Act, 170,109 shares held by a trust
for the benefit of Mr. Simkins and 26,000 shares that Mr.
Simkins has the right to acquire upon exercise of presently
exercisable options.
(11) Based upon the Schedule 13G filed by Mr. Holtz on February 14,
1996 pursuant to Rule 13d-1 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), includes presently
exercisable options held by Abel Holtz to purchase an
aggregate of 11,184 shares. Abel Holtz has advised Bancorp
that he has orally agreed with the FDIC not to vote his shares
in Bancorp at the present time.
(12) Based upon the Schedule 13G filed by Mr. Halberstein on
February 14, 1996 pursuant to Rule 13d-1 of the Exchange Act,
includes 527,814 shares held individually by Mr. Halberstein
and 90,000 shares held jointly with his wife. Also includes
116,878 shares held by Mr. Halberstein as trustee for various
trusts established for the benefit of Mr. Halberstein's family
members.
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 25,000,000
shares of Common Stock, $.01 par value, and 1,000,000 shares of
Preferred Stock, par value $.01 per share. After giving effect to
10,000 for-1 stock split to be effected by the Company prior to the
effective date of this offering, an aggregate of 10,000,000 shares
of Common Stock will be outstanding. See "Principal Shareholders."
No shares of Preferred Stock have been issued to date. The
following brief description of the Company's capital stock does not
purport to be complete and is subject in all respects to applicable
Florida law and the provisions of the Company's Articles of
Incorporation (the "Articles") and Bylaws, copies of which have
been filed as exhibits to the Registration Statement of which this
Prospectus is a part.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on
all matters submitted to a vote of shareholders, including the
election of directors. The Common Stock does not have cumulative
voting rights, which means that the holders of a majority of the
shares voting for election of directors can elect all members of
the Board of Directors. A majority vote is also sufficient for
other actions that require the vote of shareholders. Dividends may
be paid to holders of Common Stock when and if declared by the
Board of Directors out of funds legally available therefor. See
"Dividend Policy." Upon liquidation or dissolution of the Company,
holders of Common Stock will be entitled to share ratably in the
assets of the Company legally available for distribution to
shareholders.
Upon completion of this offering, the Company's existing
shareholder will beneficially own approximately 83% of the
outstanding shares of Common Stock (approximately 81% if the
Underwriters' over-allotment option is exercised in full) and will
therefore be able to elect the entire Board of Directors and
control all matters submitted to shareholders for a vote.
The holders of Common Stock, other than Capital Bank, have no
preemptive or conversion rights and are not subject to further
calls or assessments by the Company. Capital Bank will have
preemptive rights (the "Preemptive Rights") prior to the issuance
of any shares, including shares issuable pursuant to outstanding
options, other than options issued pursuant to the Plan which are
exercisable without Capital Bank's approval. The Preemptive Rights
shall be exercisable at the same price per share as the shares
proposed to be issued. Such rights shall remain in effect during
the Eighty Percent Period. During this period, no additional
shares of Common Stock may be issued that would reduce Capital
Bank's ownership interest in the Common Stock below 80% of the
issued and outstanding shares of Common Stock without Capital
Bank's written approval, and no shares of any other class of
capital stock may be issued without Capital Bank's written
approval. The shares of Common Stock offered hereby will be, when
issued and paid for, fully paid and non-assessable.
PREFERRED STOCK
Although the Company has no present plans to issue shares of
Preferred Stock, Preferred Stock may be issued from time to time in
one or more classes or series with such designations, powers,
preferences, rights, qualifications, limitations and restrictions
as may be fixed by the Company's Board of Directors. The Board of
Directors, without obtaining shareholder approval other than
written approval from Capital Bank during the Eighty Percent
Period, could issue the Preferred Stock with voting and/or
conversion rights and thereby dilute the voting power and equity of
the holders of Common Stock and adversely effect the market price
of such stock. The issuance of Preferred Stock could also be used
as an antitakeover measure by the Company without any further
action by the shareholders.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF FLORIDA LAW
AND THE COMPANY'S ARTICLES OF INCORPORATION AND BYLAWS
The Company is subject to (i) the Florida Control Share Act,
which generally provides that shares acquired in excess of certain
specified thresholds will not possess any voting rights unless such
voting rights are approved by a majority vote of the corporation's
disinterested shareholders and (ii) the Florida Fair Price Act,
which generally requires supermajority approval by disinterested
directors or shareholders of certain specified transactions between
a corporation and holders of more than 10% of the outstanding
shares of the corporation (or their affiliates).
In addition, certain provisions of the Company's Articles
summarized in the following paragraphs may be deemed to have an
anti-takeover effect and may delay, defer or prevent a tender offer
or takeover attempt that a shareholder might consider in its best
interest, including those attempts that might result in a premium
over the market price for the shares held by shareholders.
Board of Directors. The Articles authorize the Board of
Directors to fill vacant directorships or increase the size of the
Board. This provision may deter a shareholder from removing
incumbent directors and simultaneously gaining control of the Board
of Directors by filling the vacancies created by such removal with
its own nominees.
Special Meeting of Shareholders. The Articles provide that
special meetings of shareholders of the Company be called only by
the Board of Directors or holders of not less than 30% of the votes
entitled to be cast at the special meeting.
Advance Notice Requirements for Shareholder Proposals and
Director Nominations. The Articles provide that shareholders
seeking to bring business before an annual meeting of shareholders,
or to nominate candidates for election as directors at an annual or
special meeting of shareholders, must provide timely notice thereof
in writing. To be timely, a shareholder's notice must be delivered
to or mailed and received at the principal executive offices of the
Company not less than 60 days nor more than 90 days prior to the
meeting; provided, however, that in the event that less than 80
days' notice or prior public disclosure of the date of the meeting
is given or made to shareholders, notice by the shareholder, to be
timely, must be received no later than the close of business on the
10th day following the day on which such notice of the date of the
meeting was mailed or such public disclosure was made, whichever is
first. The Bylaws also specify certain requirements for a
shareholder's notice to be in proper written form. These
provisions may preclude shareholders from bringing matters before
the shareholders at an annual or special meeting or from making
nominations for directors at an annual or special meeting.
Authorized But Unissued Shares. The authorized but unissued
shares of Common Stock and Preferred Stock are available for future
issuance without shareholder approval, except that during the
Eighty Percent Period, written approval of Capital Bank is required
for the issuance of shares of Common Stock that would reduce
Capital Bank's ownership of Common Stock below 80% of the issued
and outstanding shares of Common Stock or for the issuance of
shares of any other class of capital stock. If issued, these
additional shares may be utilized for a variety of corporate
purposes, including future public offerings to raise additional
capital, corporate acquisitions and employee benefit plans. The
existence of authorized but unissued and unreserved Common Stock
and Preferred Stock may enable the Board of Directors, with Capital
Bank approval during the Eighty Percent Period and without such
approval thereafter, to issue shares to persons friendly to current
management or Capital Bank which could render more difficult or
discourage an attempt to obtain control of the Company by means of
a proxy contest, tender offer, merger or otherwise, and thereby
protect the continuity of the Company's management.
Preemptive Rights. Capital Bank will have the Preemptive
Rights during the Eighty Percent Period.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar of the Common Stock will be
American Stock Transfer and Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of this offering, the Company will have
12,000,000 shares of Common Stock outstanding (12,300,000 shares if
the Over-Allotment Option is exercised in full). Of those shares,
the 2,000,000 shares sold in this offering (2,300,000 shares if the
Over-Allotment Option is exercised in full) will be freely
transferable without restriction or registration under the Act,
unless purchased by persons deemed to be "affiliates" of the
Company (as that term is defined under the Act). The remaining
10,000,000 shares of Common Stock to be outstanding immediately
following the offering ("restricted shares") may only be sold in
the public market if such shares are registered under the Act or
sold in accordance with Rule 144 promulgated under the Act.
In general, under Rule 144 a person (or persons whose shares
are aggregated) including an affiliate, who has beneficially owned
his shares for two years, may sell in the open market within any
three-month period a number of shares that does not exceed the
greater of (i) 1% of the then outstanding shares of the Company's
Common Stock (approximately 120,000 shares immediately after this
offering, 123,000 if the over-allotment option is exercised in
full) or (ii) the average weekly trading volume in the Common Stock
in the over-the-counter market during the four calendar weeks
preceding such sale. Sales under Rule 144 are also subject to
certain limitations on the manner of sale, notice requirements and
availability of current public information about the Company. A
person (or persons whose shares are aggregated) who is deemed not
to have been an "affiliate" of the Company at any time during the
90 days preceding a sale by such person and who has beneficially
owned his shares for at least three years, may sell such shares in
the public market under Rule 144(k) without regard to the volume
limitations, manner of sale provisions, notice requirements or
availability of current information referred to above. Restricted
shares properly sold in reliance upon Rule 144 are thereafter
freely tradeable without restrictions or registration under the
Act, unless thereafter held by an "affiliate" of the Company.
The Company has reserved an aggregate of 700,000 shares of
Common Stock for issuance pursuant to the Plan and the Company
intends to register such shares on Form S-8 following this
offering. Subject to restrictions imposed pursuant to the Plans,
shares of Common Stock issued pursuant to the Plans after the
effective date of any Registration Statement on Form S-8 will be
available for sale in the public market without restriction to the
extent they are held by persons who are not affiliates of the
Company, and by affiliates pursuant to Rule 144. See "Management-
Stock Option Plan."
Prior to this offering, there has been no trading market for
the Common Stock. No prediction can be made as to the effect, if
any, that future sales of shares pursuant to Rule 144 or otherwise
will have on the market price prevailing from time to time. Sales
of substantial amounts of the Common Stock in the public market
following this offering could adversely affect the then prevailing
market price. The Company's existing sole shareholder has agreed
that it will not sell or otherwise transfer any shares of Common
Stock to the public for 180 days after this offering. See
"Underwriting."
UNDERWRITING
Subject to the terms and conditions of the Underwriting
Agreement between the Company and the Underwriters named below (the
"Underwriting Agreement"), for whom Oppenheimer & Co., Inc. is
acting as representative (the "Representative"), the Underwriters
have severally agreed to purchase from the Company, and the Company
has agreed to sell to the Underwriters, the number of shares of
Common Stock set forth opposite their respective names:
[CAPTION]
<TABLE>
<S> <C>
Number of
Underwriter Shares
Oppenheimer & Co., Inc. . . . . . . . .
________
Total. . . . . . . . . . . . . . . 2,000,000
</TABLE>
The Underwriters will be obligated to purchase all of the
shares of Common Stock offered (other than the shares covered by
the over-allotment option described below) if any are purchased.
The Underwriters propose to offer the shares of Common Stock
directly to the public at the public offering price set forth on
the cover page of this Prospectus, and at such price less a
concession not in excess of $__________ per share. The
Underwriters may allow, and such dealers may reallow, concessions
not in excess of $__________ per share on sales to other brokers or
dealers. After the initial public offering, the public offering
price, concession and reallowance to brokers or dealers may be
changed by the Representative.
The Underwriters have been granted a 30-day over-allotment
option to purchase from the Company up to an aggregate of 300,000
additional shares of Common Stock exercisable from time to time at
the public offering price less the underwriting discount. If the
Underwriters exercise such over-allotment option, then each of the
Underwriters will be obligated, subject to certain conditions, to
purchase the same proportion thereof as the number of shares of
Common Stock to be purchased by it as shown in the above table
bears to the shares of Common Stock offered hereby. The
Underwriters may exercise such option only to cover over-allotments
made in connection with the sale of Common Stock offered hereby.
The Company has agreed to indemnify the Underwriters against
certain liabilities, losses and expenses, including liabilities
under the Act, and to contribute to payments that the Underwriters
may be required to make in respect thereof.
The Company, the sole shareholder of the Company prior to the
offering and their respective officers and directors have agreed
that they will not sell, offer to sell, contract to sell,
distribute, transfer, grant any option for the sale of or otherwise
dispose of, directly or indirectly, any shares of Common Stock, any
securities convertible into, exercisable for or exchangeable for
Common Stock or any rights to purchase or acquire Common Stock for
a period of 180 days after the date of this Prospectus without the
prior written consent of the Representative, except for the shares
offered hereby and the issuance of shares upon exercise of options
granted under the Company's stock option plans. See "Shares
Eligible for Future Sale."
Prior to this Offering, there has been no public market for
the Common Stock. The initial public offering price of the Common
Stock offered hereby has been determined by negotiation between the
Company and the Representative. The matters considered in
determining the initial public offering price include the history
of and prospects for the industry in which the Company competes,
the ability of the Company's management, the past and present
operations of the Company, the historical results of operations of
the Company, the prospects for further earnings of the Company, the
general condition of the securities markets at the time of the
offering and the prices of similar securities of generally
comparable companies. There can be no assurance that an active or
orderly trading market will develop for Common Stock or that the
Common Stock will trade in the public market subsequent to the
offering at or above the initial public trading price. Application
has been made for quotation of the Common Stock on the Nasdaq
National Market System under the symbol "CAPF."
Craig L. Platt, a director of Capital Bancorp since May 1993
and Capital Bank since April 1993, has been a Senior Vice President
with Oppenheimer & Co., Inc., the managing underwriter of this
offering, since December 1994. See "Certain Transactions."
LEGAL MATTERS
The legality of the shares of Common Stock offered hereby will
be passed upon for the Company by Greenberg, Traurig, Hoffman,
Lipoff, Rosen & Quentel, P.A., Miami, Florida. Certain legal
matters for the Underwriters will be passed upon by Simpson Thacher
& Bartlett (a partnership which includes professional
corporations), New York, New York.
EXPERTS
The consolidated financial statements as of December 31, 1994
and 1995 and for each of the three years in the period ended
December 31, 1995 included in this Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their
reports thereon appearing herein and elsewhere in the Registration
Statement, and have been so included in reliance upon such reports
given upon the authority of that firm as experts in accounting and
auditing.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
[CAPTION]
<TABLE>
<S> <C>
PAGE
THE COMPANY'S FINANCIAL STATEMENTS
Report of Independent Auditors . . . . . . . . . . F-2
Consolidated Balance Sheets as of
December 31, 1994 and 1995 . . . . . . . . . . . F-3
Consolidated Statements of Income
for the Years Ended December 31,
1993, 1994 and 1995. . . . . . . . . . . . . . . F-4
Consolidated Statements of
Stockholders' Equity for the Years
Ended December 31, 1993, 1994 and 1995 . . . . . F-5
Consolidated Statements of Cash Flows
for the Years Ended December 31, 1993,
1994 and 1995. . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . F-7
</TABLE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of Capital Factors Holding, Inc.:
We have audited the accompanying consolidated balance sheets of
Capital Factors Holding, Inc. (a wholly owned subsidiary of Capital
Bank) and subsidiaries as of December 31, 1995 and 1994 and the
related consolidated statements of income, stockholder's equity and
cash flows for each of the three years in the period ended December
31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of Capital Factors
Holding, Inc. and subsidiaries as of December 31, 1995 and 1994,
and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Ft. Lauderdale, Florida
February 28, 1996 (March 4, 1996 as to second paragraph of Note 13
and May __, 1996 as to the first paragraph of Note 13)
The accompanying consolidated financial statements reflect the
10,000-for-one stock split of Common Stock which is to be effected
immediately prior to the effective date of the offering
contemplated by this Prospectus. The above opinion is in the form
which will be signed by Deloitte & Touche LLP upon consummation of
the 10,000-for-one stock split, as described in the first paragraph
of Note 13 of Notes to Consolidated Financial Statements, assuming
that from May 6, 1996 to the date of such split no other events
shall have occurred that would affect the accompanying financial
statements and notes thereto.
DELOITTE & TOUCHE LLP
Ft. Lauderdale, Florida
May 6, 1996
CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
[CAPTION]
<TABLE>
<S> <C>
December 31,
1994 1995
ASSETS
Cash (Note 12) $15,446,835 $20,326,814
Restricted Cash (Notes
5,12) 4,687,500 16,187,500
Receivables (Notes 3,5,12) 260,390,337 361,205,965
Unearned discounts (2,781,219) (3,404,016)
Allowance for credit losses (1,774,101) (2,980,778)
Receivables, net 255,835,017 354,821,171
Property and equipment, net
(Note 4) 3,026,155 3,285,049
Other Assets (Notes 5,7) 3,884,422 4,850,831
TOTAL $282,879,929$399,471,365
LIABILITIES AND STOCKHOLDER'S
EQUITY
LIABILITIES:
Due to affiliates (Note 9) $4,835,698 $6,452,964
Capital Factors variable rate
asset backed certificates
(Notes 5,12) 125,000,000 175,000,000
Notes payable to affiliates
(Notes 6,12) 34,540,000 52,260,000
Due to factoring clients
(Note 12) 90,706,683 128,577,577
Other liabilities 3,150,246 3,840,425
Total liabilities 258,232,627 366,130,966
COMMITMENTS AND CONTINGENCIES
(Notes 8,10,11,12)
STOCKHOLDER'S EQUITY (Note 1,13):
Common stock, $0.0001 par
value, 10,000,000 shares
authorized, issued and
outstanding 100,000 100,000
Additional paid-in capital 9,542,096 9,542,096
Retained earnings 15,005,206 23,698,303
Total stockholder's
equity 24,647,302 33,340,399
TOTAL $282,879,929$399,471,365
See notes to consolidated financial statements.
</TABLE>
CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
[CAPTION]
<TABLE>
<S> <C>
Year Ended December 31,
REVENUES 1993 1994 1995
Factoring fees $15,375,900 $17,370,626 $19,518,541
Interest income 13,511,324 17,628,230 28,210,599
Letter of Credit
and other fees 1,127,513 1,237,611 2,040,383
Other 1,302,685 1,540,712 1,849,466
Total revenue 31,317,422 37,777,179 51,618,989
EXPENSES (Note 9)
Interest expense
(Note 5,6) 7,841,958 10,329,116 16,361,059
Salaries and
benefits 7,773,626 8,698,858 11,240,046
Provision for
credit losses
(Note 3) 2,645,000 2,235,000 2,234,721
Occupancy and
other office
expenses 1,861,862 2,135,319 2,588,459
Depreciation 565,311 591,554 632,739
Professional fees 1,286,929 1,180,861 991,535
Other 1,584,017 1,529,925 3,004,570
Total expenses 23,558,703 26,700,633 37,053,129
INCOME BEFORE INCOME
TAXES 7,758,719 11,076,546 14,565,860
PROVISION FOR INCOME
TAXES (Note 7) 3,453,428 4,984,450 5,872,763
NET INCOME $4,305,291 $6,092,096 $8,693,097
NET INCOME PER SHARE
(Note 2) $0.43 $0.61 $0.87
See notes to consolidated financial statements.
</TABLE>
CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
[CAPTION]
<TABLE>
<S> <C>
Years Ended December 31, 1993, 1994 and 1995
Additional
Common Paid-In Retained
Stock Capital Earnings
BALANCE, DECEMBER
31, 1992 $100,000 $9,542,096 $4,607,819
Net Income 0 0 4,305,291
BALANCE, DECEMBER
31, 1993 100,000 9,542,096 8,913,110
Net Income 0 0 6,092,096
BALANCE, DECEMBER
31, 1994 100,000 9,542,096 15,005,206
Net Income 0 0 8,693,097
BALANCE, DECEMBER
31, 1995 $100,000 $9,542,096 $23,698,303
See notes to consolidated financial statements.
</TABLE>
CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
[CAPTION]
<TABLE>
<S> <C>
Year Ended December 31,
OPERATING ACTIVITIES: 1993 1994 1995
Net income $4,305,291 $6,092,096 $8,693,097
Adjustments to
reconcile net
income to net
cash provided
by operating
activities:
Depreciation 565,311 591,554 632,739
Deferred income
taxes (259,664) 209,383 (399,986)
Provision for
credit losses2,645,000 2,235,000 2,234,721
Increase in
restricted cash 0 (4,687,500) (1,500,000)
Loss on sale of
assets 0 12,399 3,873
Due to
affiliates 456,869 3,936,578 1,617,266
Other assets (104,338) 343,208 (430,465)
Other
liabilities 688,899 1,052,788 690,179
Net cash provided
by operating
activities 8,297,368 9,785,506 11,541,424
INVESTING ACTIVITIES:
Loan to clients,
net (6,202,118) (7,448,868) (3,053,589)
Increase in asset
backed loans 0 (10,473,533)(27,841,907)
Net increase in
factoring accounts
receivable, net of
due to factoring
clients (34,761,943) (5,230,704)(32,940,825)
Sales of
participations11,545,936 334,570 1,238,287
Payments on
participations(2,000,000) (12,180,506) (751,947)
Purchase of
property and
equipment (313,839) (621,391) (914,342)
Disposal of
property and
equipment 0 2,821 18,836
Net cash used
in investing
acti-
vities (31,731,964) (35,617,611)(64,245,487)
FINANCING ACTIVITIES:
Issuance of senior
certificates 0 125,000,000 50,000,000
Restricted proceeds
from senior
certificates 0 0 (10,000,000)
Proceeds from
borrowings 50,700,000 51,900,000 53,522,033
Payments on
borrowings (27,200,000)(140,360,000)(35,802,033)
Payments of
deferred
financing costs 0 (2,700,761) (744,802)
Amortization of
deferred costs 0 228,189 608,844
Net cash provided
by financing
activities 23,500,000 34,067,428 57,584,042
NET INCREASE IN CASH 65,404 8,235,323 4,879,979
CASH, BEGINNING OF
PERIOD 7,146,108 7,211,512 15,446,835
CASH, END OF PERIOD$7,211,512 $15,446,835 $20,326,814
SUPPLEMENTAL CASH
FLOW INFORMATION
Cash payments
for interest $8,064,714 $9,375,978 $14,874,541
See notes to consolidated financial statements.
</TABLE>
CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND DESCRIPTION OF OPERATIONS
Capital Factors Holding, Inc. ("the Parent Company") is a wholly-
owned subsidiary of Capital Bank (the "Bank"). The Bank is a
wholly-owned subsidiary of Capital Bancorp ("Bancorp"). The Parent
Company was incorporated in June 1994, in order to accommodate the
issuance of Variable Rate Asset Backed Certificates (as further
discussed in Note 5 to the financial statements), and issued 1000
shares (100%) of its stock to Capital Bank in exchange for 60
shares (100%) of the outstanding shares of Capital Factors, Inc.
("Factors"). Since the stock transaction has been between related
parties, the results of operations have been presented as though
the companies had been combined as of the earliest year presented.
The Parent Company has two wholly-owned subsidiaries, Factors and
CF One, Inc. ("CF One"). Factors has one wholly-owned subsidiary,
CF Funding Corp. ("Funding").
Factors provides factoring and other services primarily to
commercial businesses and generally purchases trade accounts
receivables from clients and assumes all risks of collectibility
for credit approved receivables, except as such risks result from
fraud or invalid receivables, and dilution. Factors generally
enters into advance factoring arrangements which allow clients to
obtain cash advances against a stipulated percentage of the
receivables before they are due or collected.
The Company provides services to its clients through four offices
located in Fort Lauderdale, Florida; Los Angeles, California; New
York, New York and Charlotte, North Carolina. The Company's
clients primarily include manufacturers, importers, wholesalers and
distributors in apparel and textile related industries and, to a
lesser extent, clients in consumer goods related industries such as
plastics, video game cartridges, paper and healthcare services.
The Company's factored accounts receivable are due from clients'
customers geographically located throughout the United States,
principally retailers, manufacturers and distributors. As of
December 31, 1994 and 1995, the Company had factored accounts
receivable aggregating approximately $114.1 million and $130.0
million, respectively, due from 34 and 37 customers, respectively,
each with balances exceeding $1 million. These customers are
primarily large national or regional department store chains or
specialty retailers. The largest amount due from any one customer,
a national department store chain, at December 31, 1995 was
approximately $14.7 million.
The Company's asset backed loans represent loans provided to
clients principally collateralized by accounts receivables. The
Company does not service the accounts receivables nor does it
provide credit protection of the receivables.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
of Capital Factors Holding, Inc. and Subsidiaries (the "Company")
include the accounts of the Parent Company, Factors and Funding,
and CF One. All significant intercompany transactions and balances
have been eliminated in consolidation.
INCOME RECOGNITION - Interest income on all loans and advances is
calculated using the simple interest method on the daily balances
of principal outstanding and is recorded as earned in accordance
with the terms of the related factoring agreements with clients.
Accrual of interest income is discontinued on troubled loans and
advances to factoring clients when the loan balance and interest
receivable exceeds the estimated value of the collateral securing
the loan or advance. Factoring fees are recognized generally at
the time of purchase of factored receivables due to the nature of
the relationship with the factoring client and the relatively short
term nature of the factored receivables. Commitment/closing fees
related to asset based loans are amortized over the life of the
loan as an adjustment of yield.
ALLOWANCE FOR CREDIT LOSSES - The allowance for credit losses is
maintained at a level deemed adequate by management to absorb
losses in the portfolio after evaluating the portfolio, current
economic conditions, changes in the nature and the volume of the
portfolio, past loss experience and other pertinent factors. Many
of these factors involve a significant degree of estimation and are
subject to rapid change which may be unforeseen by management. It
is reasonably possible that changes in these factors could result
in material adjustments to the allowance in the near term.
PROPERTY AND EQUIPMENT - Property and equipment are carried at cost
less accumulated depreciation. Depreciation is provided over the
estimated useful lives, primarily on the straight-line method.
Estimated depreciable lives range from 3 - 8 years for furniture,
equipment, software and leasehold improvements and 39 years for
buildings.
UNEARNED AND EARNED DISCOUNTS - The Company deducts trade and cash
discounts on all factoring invoices purchased. Discounts not taken
by customers are recognized as income principally at the time of
payment of the invoice.
UNALLOCATED CREDITS - The Company generally notifies the payor when
unidentifiable payments or portions thereof are received. If the
payor does not respond within 90 days, the Company generally
records the unallocated credits as income. The Company maintains
an allowance for unallocated credits recorded as income which may
be subsequently repaid based upon its historical experience.
NET INCOME PER SHARE - Net income per share amounts are based on
the average number of common shares outstanding for each period,
after giving effect to the stock split discussed in Note 13.
3. RECEIVABLES
Receivables consist of the following:
[CAPTION]
<TABLE>
<S> <C>
December 31,
1994 1995
Nonrecourse $188,698,818 $226,916,598
Recourse 37,786,588 69,558,913
Factored accounts
receivables 226,485,406 296,475,511
Loans to factoring client 23,431,398 26,415,014
Asset based loans 10,473,533 38,315,440
$260,390,337 $361,205,965
</TABLE>
The Company also makes advances to factoring clients. Such
advance payments, which are interest earning, are recorded as
reductions to the amounts due to the factoring clients for the
purchase of receivables.
Changes in the Company's allowance for credit losses were as
follows:
[CAPTION]
<TABLE>
<S> <C>
Year Ended December 31,
1993 1994 1995
Beginning balance $2,174,844 $ 2,157,333 $1,774,101
Provision for
credit losses 2,645,000 2,235,000 2,234,721
Charge-offs (3,384,956) (3,148,281)(1,625,148)
Recoveries 722,445 530,049 597,104
Ending balance $2,157,333 $ 1,774,101 $2,980,778
</TABLE>
The Company specifically considered $739,332 and $2,184,046 of
its client advances impaired at December 31, 1994 and 1995,
respectively and has discontinued the accrual of interest
income. The allowance for credit losses related to these
impaired loans for the same periods was $48,051 and $133,847,
respectively.
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
[CAPTION]
<TABLE>
<S> <C>
December 31,
1994 1995
Land $479,581 $479,581
Building 1,518,538 1,518,538
Building
improvements 744,909 744,909
Furniture and
equipment 2,311,602 3,007,122
Computer software 191,486 267,666
Leasehold
improvements 53,447 59,140
5,299,563 6,076,956
Less accumulated
depreciation (2,273,408) (2,791,907)
$3,026,155 $3,285,049
</TABLE>
5. VARIABLE RATE ASSET-BASED CERTIFICATES
On June 29, 1994, December 15, 1994 and July 28, 1995. Capital
Factors, Inc., through its wholly owned subsidiary CF Funding
Corp., issued $100,000,000, $25,000,000 and $50,000,000,
respectively, of Variable Rate Asset Backed Certificates
("senior certificates") with maturity dates of December 1999,
June 2000 and January 2001. The senior certificates bear an
interest rate of LIBOR plus 1.25%. The interest rate on
December 31, 1995 was 7.1875%. Interest is payable monthly.
The senior certificates are collateralized by interest-earning
advances to factoring clients which totaled $198,992,000 at
December 31, 1995. Such advances are made on receivables
before they are due or collected by the Company. Capital
Factors, Inc., services and administers these advances and
related receivables under an agreement entered into by Bankers
Trust Company as Trustee, CF Funding Corp. and Capital
Factors, Inc. The senior certificates may not be redeemed
prior to their stated maturity and are subject to acceleration
if certain collateral requirements are not maintained.
Deferred issuance costs of $2.6 million are being amortized
over the terms of the related series. Such costs are included
in other assets on the balance sheets.
RESTRICTED CASH - CF Funding Corporation is required to
maintain a cash collateral account at Bankers Trust Company,
pursuant to the terms of the aforementioned agreement. Such
restricted cash collateral amounted to $6,187,500 at December
31, 1995.
Of the $50,000,000 of senior certificates issued on July 28,
1995, CF Funding Corp. initially utilized $15,000,000, and a
Pre-Funding account was created at Bankers Trust Company for
the remaining $35,000,000. During 1995 CF Funding Corp.
drewdown these funds as supported by interest earning advances
to clients. At December 31, 1995, $10,000,000 remained in the
Pre-Funding account. This remaining amount is also included
in restricted cash.
6. BORROWINGS
Notes payable are summarized as follows:
[CAPTION]
<TABLE>
<S> <C>
December 31,
1994 1995
Affiliates
A $125 million revolving
line-of-credit payable to
the Bank at prime (8.25%
and 8.75% at December 31,
1994 and December 31,
1995) with interest
payable monthly. The
loan matures on
demand. $34,540,000 $52,260,000
</TABLE>
Supplemental information for the Company's borrowings
including the Variable Rate Asset Backed Certificates (Note
5), follows:
[CAPTION]
<TABLE>
<S> <C>
Year Ended December 31,
1993 1994 1995
Maximum amount
outstanding at
any
month-end $137,200,000 $171,000,000 $221,871,000
Average
borrowings $118,929,000 $142,959,000 $191,264,000
Interest
expense for
the period $ 7,662,569 $ 9,990,305 $ 15,140,324
Average
interest
rate 6.44% 6.99% 7.92%
Average
interest
rate, end
of period 6.35% 7.67% 7.57%
</TABLE>
7. INCOME TAXES
The results of operations of the Company are included in the
consolidated Federal income tax return filed by Bancorp.
Bancorp allocates income taxes to the Company principally
calculated on a separate return basis. The Company pays to
(or receives from) the Bank the amount of its estimated annual
current tax provisions (benefits). The Company paid
approximately $3,042,000, $0, and $4,929,000, for income taxes
in the years ended December 31, 1993, 1994 and 1995,
respectively, for income taxes related to its fiscal years
ended December 31, 1993 and 1994 respectively. As of December
31, 1995, the Company had not paid the Bank the amounts due
for taxes for the 1995 fiscal year. The amounts are included
in the balance sheet as due to affiliates.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. The tax effects of significant
items comprising the Company's net deferred tax asset, which
is included in other assets in the balance sheet, as of
December 31, 1994 and 1995 are as follows:
[CAPTION]
<TABLE>
<S> <C> <C>
1994 1995
Deferred tax assets:
Bad debts $684,359 $1,149,834
Difference between
book and tax basis
of property 145,592 126,393
Deferred compensation 138,870 92,580
Deferred asset 968,821 1,368,807
Deferred tax liability:
Pension costs (29,750) (29,750)
Difference between book and
tax basis of assets (6,099) (6,099)
Deferred liability (35,849) (35,849)
Net deferred asset $ 932,972 $ 1,332,958
</TABLE>
The components of the provision for income taxes are as follows:
[CAPTION]
<TABLE>
<S> <C>
Year Ended December 31,
1993 1994 1995
Current taxes:
Federal $2,728,004 $3,436,645 $4,898,648
State 985,088 1,338,422 1,374,101
3,713,092 4,775,067 6,272,749
Deferred taxes
(benefit):
Federal and
State (259,664) 209,383 (399,986)
$3,453,428 $4,984,450 $5,872,763
</TABLE>
The following is a reconciliation between the provision for income
taxes included in the accompanying statements of income and the
provision computed using the statutory federal tax rate:
[CAPTION]
<TABLE>
<S> <C>
Year Ended December 31,
1993 1994
% of
Pretax
Amount Income Amount
Computed provision at
statutory rate $2,715,552 35.0% $3,876,791
Benefit of graduated
tax rate (77,587) (1.0%) (110,765)
State taxes, net of
Federal
benefit 640,307 8.3% 889,379
Other $ 175,156 2.3% 329,045
$3,453,428 44.6% $4,984,450
(continued)
<S> <C> <C> <C>
1995
% of % of
Pretax Pretax
Income Amount Income
Computed provision at
statutory rate 35.0% $5,098,051 35.0%
Benefit of graduated
tax rate (1.0%)
State taxes, net of
Federal
benefit 8.0% 774,712 53.0%
Other 3.0%
45.0% $5,872,763 40.3%
</TABLE>
8. COMMITMENTS AND OFF-BALANCE SHEET RISK
The Company is a lessee under operating leases for real estate
and equipment. The real estate leases contain clauses which
require additional rent for increases in operating expenses or
a proportionate share of taxes and operating expenses. There
are no options to renew the leases of the leased regional
offices. The approximate future minimum rental payments under
noncancellable leases (exclusive of additional amounts for
taxes and operating expenses) as of December 31, 1995 are as
follows:
[CAPTION]
<TABLE>
<S> <C>
Years ending December 31,
1996...................... $ 702,277
1997...................... 817,049
1998...................... 817,049
1999...................... 817,049
2000 and thereafter....... $1,534,424
$4,687,848
</TABLE>
Rental expense for the years ended December 31, 1993, 1994 and
1995 was approximately $428,000, $487,000, and $624,000,
respectively.
In the normal course of business, the Company utilizes certain
financial instruments with off-balance sheet risk to meet the
financing needs of its clients. These off-balance sheet
activities include amounts available under the unused portion
of approved customer and client credit limits, commercial
letters of credit and standby letters of credit and financial
guarantees. Letters of credit are issued by the Bank for the
Company's clients and the Company guarantees the payment by
its clients under these letters of credit. The credit and
market risks associated with these financial instruments are
generally managed in conjunction with the Company's balance
sheet activities and are subject to normal credit policies,
financial controls and risk limiting and monitoring
procedures.
Credit losses may be incurred when one of the parties fails to
perform in accordance with the terms of the contract. The
Company's exposure to credit loss is represented by the
contractual amount of the commitments to extend credit,
commercial letters of credit and standby letters of credit and
financial guarantees. This is the maximum potential loss of
principal in the event the commitment is drawn upon and the
counterpart defaults. In addition, the measurements of the
risks associated with these financial instruments is
meaningful only when all related and offsetting transactions
are considered.
Amounts available under the unused portion of approved
customer and client credit limits do not necessarily represent
legally binding arrangements to factored sales or otherwise
advance funds to clients. Generally, credit approvals and
limits are modified or withdrawn based upon the Company's
evaluation of the customer or client's credit or if the client
violates the terms of the factoring agreement. Credit limits
for clients and customers continually vary and do not
necessarily represent future cash requirements to fund the
factored sales or otherwise advance funds to clients.
Commercial letters of credit are issued to facilitate certain
trade transactions, principally the purchase of goods. The
risks associated with these transactions are somewhat reduced
since the contracts are generally for a short commitment
period. Standby letters of credit and financial guarantees
are conditional commitments issued to guarantee the
performance of a customer to a third party. The Company
issues standby letters of credit and financial guarantees to
ensure contract performance or assure payment by its clients.
The risk involved in issuing standby letters of credit to
clients and financial guarantees is similar to the risk
involved in extending credit to clients and they are subject
to the same credit approvals and monitoring procedures. At
December 31, 1994 and 1995, the Company had approximately
$19,677,000 and $22,645,000, respectively, of letters of
credit and financial guarantees outstanding. The Company
usually guarantees letters of credit and financial guarantees
only for clients with which the Company has factoring
arrangements. Generally, the Company requires collateral to
support these commitments and the collateral held varies but
may include cash, merchandise, inventory, real estate and the
client's reserve balance.
9. RELATED PARTY TRANSACTIONS
The Company expensed interest payments to the Bank of
$6,845,000, $6,090,000 and $4,732,000 on its $125 million
revolving line of credit facility with the Bank during the
periods ended December 31, 1993, 1994 and 1995 respectively.
The Bank obtained group medical, dental and life insurance
coverage on behalf of the Company. Premiums are charged to
the Company at the same amount as they are assessed by the
insurance companies to the Bank with respect to the Company.
During 1993, 1994 and 1995, the Company paid insurance
premiums of $114,846, $533,843 and $527,669, respectively, for
its actual portion of such insurance premiums.
Capital Bank provided approximately $66.6 million, $79.5
million and $130.1 million during 1993, 1994 and 1995,
respectively, of letters of credit for clients of the Company.
For a fee, the Company guarantees the payment by its clients
under these letters of credit. Fees charged for issuance of
the letters of credit are paid directly to Capital Bank and
amounted to $445,090, $389,571 and $462,013, during 1993, 1994
and 1995, respectively.
The Bank charged the Company for services rendered by the
Bank's legal department. Charges are based upon estimates
prepared by the Bank. Payments to the Bank for these items
during the periods ended December 31, 1993, 1994 and 1995
aggregated approximately, $190,663, $102,543, and $80,048,
respectively. The Company also reimburses the Bank for its
portion of commercial insurance expenses. Payments to the
Bank for insurance expenses during 1993, 1994 and 1995 equaled
$126,219, $97,384 and $149,302, respectively. In addition,
the Company paid the Bank $136,100, $17,700, and $148,900
during the periods ended December 31, 1993, 1994 and 1995,
respectively, for bank service charges.
Due to affiliate represents balances owed to the Bank at the
end of the fiscal year, principally the unremitted portion of
the Company's current tax liability.
10. CONTINGENCIES
From time to time, the Company has been a party to lawsuits
and claims, including lender liability claims, which
management considers incidental to normal operations. The
Company is currently a party to one lawsuit that was dismissed
after trial. The Plaintiff is currently appealing the
dismissal. Management, after review, including consultation
with counsel, believes that any ultimate liability which could
arise from this current lawsuit would not materially affect
the financial position of the Company.
11. RETIREMENT PLAN
Bancorp sponsors a noncontributory defined benefit pension
plan (the "Plan") covering employees meeting certain
eligibility requirements. The Company's employees are
included in the Plan. The benefits are based on years of
service and the employee's compensation for the five
consecutive years during the last ten years of service that
produce the highest average salary. The Plan provides for
accumulation of full benefits equal to 30% of eligible
compensation over a 25-year period. Full vesting will occur
after completion of seven years of service. Bancorp's funding
policy is to contribute annually the maximum amount that can
be deducted for Federal income tax purposes. The Bank charged
the Company pension costs of approximately $113,420, $134,390,
and $172,090, for the years ended December 31, 1993, 1994 and
1995, respectively.
The following items are components of the net periodic pension
cost of the Plan:
[CAPTION]
<TABLE>
<S> <C>
December 31,
1993 1994 1995
Service cost-benefits earned
during the year $554,156 $704,851 $700,348
Interest cost-projected
benefits obligation 307,955 370,261 525,785
Actual return on plan
assets (390,959) (102,875) (1,403,127)
Net amortization and
deferral 91 (300,215) 1,384,221
Net periodic pension cost $471,243 $672,022 $1,207,227
</TABLE>
The funded status of the Plan is shown in the table below:
[CAPTION]
<TABLE>
<S> <C>
December 31,
1994 1995
Plan assets at fair value $5,464,072 $7,176,298
Projected benefit
obligation for
services rendered (6,271,120) (8,635,263)
Plan assets less than
projected benefit
obligation (807,048) (1,458,965)
Unrecognized prior
service cost 112,193 407,424
Unrecognized net loss 642,231 336,923
Adjustment to recognize
minimum required
liability (522,530)
Accrued pension cost
(Bancorp) $(575,154) $(714,618)
</TABLE>
At December 31, 1994 and 1995, the Plan's assets consisted
primarily of corporate obligations, mutual funds, U.S. Government
securities and other cash equivalents.
The accumulated benefits obligation at December 31, 1994 and 1995
was approximately $6,039,000 and $7,097,000, respectively.
Included in these amounts were vested benefits of approximately
$5,422,000 and $6,454,000 at December 31, 1994 and 1995,
respectively.
The assumed weighted average discount rate used in determining the
actuarial present value of the projected benefit obligation was
7.00% in 1994 and 1995. The assumed expected long-term rate of
return on assets was 8.50% in 1994 and 1995. The assumed rate of
salary progression was 5.50% in 1994 and 1995.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
In cases where quoted market prices are not available, fair value
estimates are based on the quoted market price of a financial
instrument with similar characteristics, the present value of
expected future cash flows or other valuation techniques. Fair
value estimates determined using other valuation techniques are
significantly affected by the assumptions used and consequently may
not reflect the proceeds that may be realizable from the sale of
such financial instruments.
The estimated fair value disclosures related to the Company's
financial instruments are as follows:
Cash: Since the Company's cash is maintained in demand deposit
accounts, the carrying amount is equal to the fair value.
Accounts Receivable, Due to/from Factoring Clients: The Company's
receivables turn over quickly and interest earning advances made to
clients against such receivables and loans to factoring clients
carry variable interest rates based upon the prime rate and reprice
as the prime rate changes. Therefore, the Company believes the
carrying amounts are reasonable estimates of fair value.
Notes and Certificates Payable: The Company's notes payable are
short-term in nature and carry variable interest rates which
reprice at least every 30 days. The Company believes the interest
rates on the notes and certificates payable approximate rates
currently available to the Company and consequently the carrying
amount is a reasonable estimate of fair value.
Letters of Credit: As indicated in Note 8, the Company utilizes
certain financial instruments with off-balance sheet risk to meet
the financing needs of its clients. At December 31, 1994 and 1995
the Company had approximately $19,677,000 and $22,645,000
respectively, of letters of credit and financial guarantees for
clients outstanding. The estimated fair value of these off-balance
sheet instruments, based on discounting the fees to be charged on
the unused portion of such facilities until their respective
expiration dates is considered insignificant.
13. SUBSEQUENT EVENTS
Effective , 1996, the Parent Company executed a 10,000 for
1 stock split resulting in 10,000,000 common shares issued and
outstanding. The stock split is retroactively reflected in the
consolidated financial statements.
On March 4, 1996, Factors entered into a loan and security
agreement with Fleet Capital Corporation ("Fleet"), under which
Fleet agrees to make a total credit facility of up to $40,000,000,
available upon Factors' request. The revolver loans bear an
interest rate of LIBOR plus 2.15% (7.525% at March 31, 1996).
Interest is payable monthly. The revolver loans are collateralized
by interest-bearing advances to borrowers. Factors services and
administers these advances under the agreement with Fleet. This
agreement shall be in effect for a period of 3 years through March
4, 1999 and shall automatically renew itself for 1-year periods
thereafter unless terminated by lender or borrower upon at least 90
days prior written notice. The revolver loans are subject to
termination if certain events of default occur.
* * * * *
No dealer, salesman or other person has been authorized to give
information or to make any representation in connection with this
Offering other than those contained in this Prospectus, and, if
given or made, such information or representations must not be
relied upon as having been authorized by the Company or by the
Underwriters. This Prospectus does not constitute an offer to sell
or a solicitation of an offer to buy any securities offered hereby
by anyone in any jurisdiction in which such offer or solicitation
is not authorized or in which the person making such offer or
solicitation is not qualified to do so or to anyone to whom it is
unlawful to make such offer or solicitation. Neither the delivery
of this Prospectus nor any sale made hereunder shall under any
circumstances create any implication that there has been no change
in the affairs of the Company since the date hereof.
________________________
TABLE OF CONTENTS
_________________________
Page
Prospectus Summary
Risk Factors
Use of Proceeds
Dividend Policy
Capitalization
Selected Consolidated Financial Data
Management's Discussion and Analysis of
Financial Condition and
Results of Operations
Business
Management
Certain Transactions
Principal Shareholders
Description of Capital Stock
Shares Eligible for Future Sale
Underwriting
Legal Matters
Experts
Index to Financial StatementsF-1
_________________
Until _______________, 1996 (25 days after the date of this
Prospectus), all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may
be required to deliver a Prospectus. This is in addition to the
obligations of dealers to deliver a Prospectus when acting as
underwriters and with respect to their unsold allotments or
subscriptions.
2,000,000 Shares
CAPITAL FACTORS HOLDING, INC.
Common Stock
_______________
PROSPECTUS
_______________
Oppenheimer & Co., Inc.
, 1996
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant estimates that expenses payable by the
Registrant in connection with the offering described in this
registration statement (other than underwriting discounts and
commissions) will be as follows:
[CAPTION]
<TABLE>
<S> <C>
Securities and Exchange Commission
registration fee $ 11,103.45
NASD filing fee 3,720.00
Nasdaq National Market listing fee 47,500.00
Printing and engraving expenses *
Accounting fees and expenses *
Legal fees and expenses *
Fees and expenses (including legal fees) for
qualifications under state securities laws *
Registrar and Transfer Agent's fees and
expenses *
Miscellaneous *
Total $ *
</TABLE>
____________________
* To be provided by amendment.
All amounts except the Securities and Exchange Commission registra-
tion fee, the NASD filing fee and the Nasdaq listing fee are
estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant has authority under the Florida Business
Corporation Act to indemnify its directors and officers to the
extent provided in such statute. The Registrant's Articles of
Incorporation provide that the Registrant shall indemnify its
executive officers and directors to the fullest extent permitted by
law either now or hereafter. The Registrant is also entering into
an agreement with each of its directors and certain of its officers
wherein it is agreeing to indemnify each of them to the fullest
extent permitted by law. In general, Florida law permits a Florida
corporation to indemnify its directors, officers, employees and
agents, and persons serving at the corporation's request in such
capacities for another enterprise against liabilities arising from
conduct that such persons reasonably believed to be in, or not
opposed to, the best interests of the corporation and, with respect
to any criminal action or proceeding, had no reasonable cause to
believe their conduct was unlawful.
The provisions of the Florida Business Corporation Act that
authorize indemnification do not eliminate the duty of care of a
director and, in appropriate circumstances, equitable remedies such
as injunctive or other forms of nonmonetary relief will remain
available under Florida law. In addition, each director will
continue to be subject to liability for (a) violations of the
criminal law, unless the director had reasonable cause to believe
his conduct was lawful or had no reasonable cause to believe his
conduct was unlawful, (b) deriving an improper personal benefit
from a transaction, (c) voting for or assenting to an unlawful
distribution, and (d) willful misconduct or a conscious disregard
for the best interests of the Registrant in a proceeding by or in
the right of the Registrant to procure a judgment in its favor or
in a proceeding by or in the right of a shareholder. The statute
does not affect a director's responsibilities under any other law,
such as the Federal securities laws or state or Federal
environmental laws.
At present, there is no pending litigation or proceeding
involving a director or officer of the Registrant as to which
indemnification is being sought from the Registrant, nor is the
Registrant aware of any threatened litigation that may result in
claims for indemnification from the Registrant by any officer or
director. See "Business - Legal and Administrative Proceedings"
for information regarding claims for indemnification asserted
against Capital Bancorp.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In May 1985, Capital Bank acquired 100% of the issued and
outstanding common stock of Capital Factors, Inc. ("Factors"). In
June 1994, Factors completed a reorganization in which Capital
Factors Holding, Inc. ("Holding") was formed. In connection with
this reorganization, Holding issued 1,000 shares (100%) of its
common stock, representing all of the then-issued and outstanding
shares of such capital stock to Capital Bank in exchange for 60
shares (100%) of Factors common stock. Prior to the effective date
of this offering, as a result of a 10,000-for-1 stock split, the
1,000 shares of Holding Common Stock owned by Capital Bank will be
converted into 10,000,000 shares of Common Stock. The original
issuances of Factors and Holding Common Stock were exempt from the
registration requirements of the Act pursuant to the exemption set
forth in Section 4(2) thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
[CAPTION]
<TABLE>
<S> <C>
Exhibit Description
1.1 Proposed form of Underwriting Agreement *
3.1 Registrant's Amended and Restated Articles of
Incorporation *
3.2 Registrant's Amended and Restated Bylaws *
5.1 Opinion of Greenberg, Traurig, Hoffman, Lipoff,
Rosen & Quentel, P.A. as to the validity of the
Common Stock being registered *
10.1 Registrant's Stock Option Plan *
10.2 Capital Bancorp Employees Pension Plan *
10.3 Form of Indemnification Agreement between the
Registrant and each of its directors and certain
executive officers **
10.4 Capital Factors Financing Trust Pooling and
Servicing Agreement, dated as of June 1, 1994,
among CF Funding Corp., the Registrant and
Bankers Trust Company **
10.5 Contribution and Sale Agreement related to the
Capital Factors Financing Trust Pooling and
Services Agreement.**
10.6 Series 1994-1 Supplement, dated as of June 1,
1994, to Capital Factors Financing Trust Pooling
and Servicing Agreement**
10.7 Series 1994-2 Supplement, dated as of December
1, 1994, to Capital Factors Financing Trust
Pooling and Servicing Agreement**
10.8 Series 1995-1 Supplement, dated as of July 1,
1995, to Capital Factors Financing Trust Pooling
and Servicing Agreement**
10.9 Promissory Note evidencing Credit Facility with
Capital Bank **
10.10 Credit Facility with Fleet Capital Corporation**
10.11 Lease Agreement dated as of April 30, 1990,
between Hachette Filipacchi Magazines, Inc. and
Factors, as amended.*
10.12 Lease Agreement dated April 19, 1995, between
Factors and H-C REIT, Inc.**
10.13 Lease Agreement dated as of March 1, 1995,
between Hope & Flowers B.P. Partnership and
Factors.**
10.14 Tax Sharing and Indemnity Agreement *
10.15 Form of Employment Agreement between John W.
Kiefer, the Registrant and Capital Factors
Inc.**
10.16 Employment Agreement, dated January 1, 1993,
between Stephen J. Donohue and the Registrant **
10.17 Employment Agreement, dated January 1, 1993,
between James L. Morrison and the Registrant **
23.1 Consent of Greenberg, Traurig, Hoffman, Lipoff,
Rosen & Quentel, P.A. (to be included in its
opinion to be filed as Exhibit 5.1) *
23.2 Consent of Deloitte & Touche LLP**
24.1 Reference is made to the Signatures section of
this Registration Statement for the Power of
Attorney contained therein **
</TABLE>
________________________
* To be filed by amendment.
** Filed herewith.
(b) Financial Statement Schedules:
All schedules for which provision is made in the applicable
accounting regulations of the Commission are not required under the
related instructions or are not applicable, and therefore have been
omitted.
Item 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes to provide
to the underwriters at the closing specified in the underwriting
agreement, certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery
to each purchaser.
(b) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the registration of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under
the Securities Act of 1933, the information omitted from the form
of prospectus filed as part of a registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of the registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under
the Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Fort Lauderdale, State of Florida, on May 9, 1996.
CAPITAL FACTORS HOLDING, INC.
By:/s/ John W. Kiefer
John W. Kiefer, President
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below hereby constitutes and appoints John W.
Kiefer and Javier J. Holtz, his true and lawful attorneys-in-fact,
each acting alone, with full powers of substitution and
resubstitution, for him and in his name, place and stead, in any
and all capacities, to sign any or all amendments, including any
post-effective amendments, to this registration statement, and to
file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorneys-in-fact or
their substitutes, each acting alone, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ John W. Kiefer President, Chief May 9, 1996
John W. Kiefer Executive Officer
and Director (principal
executive officer)
/s/ Dennis A. McDermott Senior Vice President-- May 9, 1996
Dennis A. McDermott Finance and Chief
Financial Officer
(principal financial
officer and principal
accounting officer)
/s/ Javier J. Holtz Chairman of the Board May 9, 1996
Javier J. Holtz
/s/ Daniel M. Holtz Director May 9, 1996
Daniel M. Holtz
/s/ Stephen N. Ashman Director May 9, 1996
Stephen N. Ashman
/s/ Ronald S. Chase Director May 9, 1996
Ronald S. Chase
/s/ Harold L. Oshry Director May 9, 1996
Harold L. Oshry
/s/ Bruce Raiffe Director May 9, 1996
Bruce Raiffe
/s/ Jack Listanowsky Director May 9, 1996
Jack Listanowsky
EXHIBIT 10.3
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT ("Agreement"), is made and
entered into as of the ____ day of ____________, 1996, by and
between CAPITAL FACTORS HOLDING, INC. a Florida corporation (the
"Company"), and ______________________ (the "Indemnitee").
Recitals
A. The Company desires to retain the services of the
Indemnitee as a director or executive officer of the Company.
B. As a condition to the Indemnitee's agreement to serve the
Company as such, the Indemnitee requires that he be indemnified
from liability to the fullest extent permitted by law.
C. The Company is willing to indemnify the Indemnitee to the
fullest extent permitted by law in order to retain the services of
the Indemnitee.
NOW, THEREFORE, for and in consideration of the mutual prem-
ises and covenants contained herein, the Company and the Indemnitee
agree as follows:
SECTION 1. MANDATORY INDEMNIFICATION IN PROCEEDINGS OTHER
THAN THOSE BY OR IN THE RIGHT OF THE COMPANY. Subject to Section
4 hereof, the Company shall indemnify and hold harmless the
Indemnitee from and against any and all claims, damages, expenses
(including attorneys' fees), judgments, penalties, fines (including
excise taxes assessed with respect to an employee benefit plan),
amounts paid in settlement and all other liabilities actually and
reasonably incurred or paid by him in connection with the
investigation, defense, prosecution, settlement or appeal of any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative, investigative or otherwise
(other than an action by or in the right of the Company) and to
which the Indemnitee was or is a party or is threatened to be made
a party by reason of the fact that the Indemnitee is or was an
officer, director, shareholder, employee or agent of the Company,
or is or was serving at the request of the Company as an officer,
director, partner, trustee, employee or agent of another corpora-
tion, partnership, joint venture, trust, employee benefit plan, or
other enterprise, or by reason of anything done or not done by the
Indemnitee in any such capacity or capacities, provided that the
Indemnitee acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful.
SECTION 2. MANDATORY INDEMNIFICATION IN PROCEEDINGS BY OR
IN THE RIGHT OF THE COMPANY. Subject to Section 4 hereof, the
Company shall indemnify and hold harmless the Indemnitee from and
against any and all expenses (including attorneys' fees) and
amounts paid in settlement actually and reasonably incurred or paid
by him in connection with the investigation, defense, prosecution,
settlement or appeal of any threatened, pending or completed
action, suit or proceeding by or in the right of the Company to
procure a judgment in its favor, whether civil, criminal,
administrative, investigative or otherwise, and to which the
Indemnitee was or is a party or is threatened to be made a party by
reason of the fact that the Indemnitee is or was an officer,
director, shareholder, employee or agent of the Company, or is or
was serving at the request of the Company as an officer, director,
partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other
enterprise, or by reason of anything done or not done by the
Indemnitee in any such capacity or capacities, provided that (i)
the Indemnitee acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the
Company, and (ii) no indemnification shall be made under this
Section 2 in respect of any claim, issue or matter as to which the
Indemnitee shall have been adjudged to be liable to the Company for
misconduct in the performance of his duty to the Company unless and
only to the extent that the court in which such action, suit or
proceeding was brought (or any other court of competent
jurisdiction) shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of
the case, the Indemnitee is fairly and reasonably entitled to
indemnity for such expenses which such court shall deem proper.
SECTION 3. REIMBURSEMENT OF EXPENSES FOLLOWING ADJUDICA-
TION OF NEGLIGENCE. The Company shall reimburse the Indemnitee for
any expenses (including attorney's fees) and amounts paid in
settlement actually and reasonably incurred or paid by him in
connection with the investigation, defense, settlement or appeal of
any action or suit described in Section 2 hereof that results in an
adjudication that the Indemnitee was liable for negligence, gross
negligence or recklessness (but not willful misconduct) in the
performance of his duty to the Company; provided, however, that the
Indemnitee acted in good faith and in a manner he believed to be in
the best interests of the Company.
SECTION 4. AUTHORIZATION OF INDEMNIFICATION. Any indemni-
fication under Sections 1 and 2 hereof (unless ordered by a court)
and any reimbursement made under Section 3 hereof shall be made by
the Company only as authorized in the specific case upon a
determination (the "Determination") that indemnification or reim-
bursement of the Indemnitee is proper in the circumstances because
the Indemnitee has met the applicable standard of conduct set forth
in Section 1, 2 or 3 hereof, as the case may be. Subject to
Sections 5.6, 5.7, 5.8 and 8 of this Agreement, the Determination
shall be made in the following order of preference:
(1) first, by the Company's Board of Directors (the
"Board") by majority vote or consent of a quorum consisting of
directors ("Disinterested Directors") who are not, at the time of
the Determination, named parties to such action, suit or proceed-
ing; or
(2) next, if such a quorum of Disinterested Directors
cannot be obtained, by majority vote or consent of a committee duly
designated by the Board (in which designation all directors,
whether or not Disinterested Directors, may participate) consisting
solely of two or more Disinterested Directors; or
(3) next, if such a committee cannot be designated, by
any independent legal counsel (who may be any outside counsel reg-
ularly employed by the Company); or
(4) next, if such legal counsel determination cannot be
obtained, by vote or consent of the holders of a majority of the
Company's Common Stock that are represented in person or by proxy
at a meeting called for such purpose.
4.1 NO PRESUMPTIONS. The termination of any action,
suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of NOLO CONTENDERE or its equivalent, shall not, of
itself, create a presumption that the Indemnitee did not act in
good faith and in a manner that he reasonably believed to be in or
not opposed to the best interests of the Company, and with respect
to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
4.2 BENEFIT PLAN CONDUCT. The Indemnitee's conduct with
respect to an employee benefit plan for a purpose he reasonably
believed to be in the interests of the participants in and bene-
ficiaries of the plan shall be deemed to be conduct that the
Indemnitee reasonably believed to be not opposed to the best inter-
ests of the Company.
4.3 RELIANCE AS SAFE HARBOR. For purposes of any
Determination hereunder, the Indemnitee shall be deemed to have
acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Company, or, with
respect to any criminal action or proceeding, to have had no
reasonable cause to believe his conduct was unlawful, if his action
is based on (i) the records or books of account of the Company or
another enterprise, including financial statements, (ii) informa-
tion supplied to him by the officers of the Company or another
enterprise in the course of their duties, (iii) the advice of legal
counsel for the Company or another enterprise, or (iv) information
or records given or reports made to the Company or another enter-
prise by an independent certified public accountant or by an
appraiser or other expert selected with reasonable care by the
Company or another enterprise. The term "another enterprise" as
used in this Section 4.3 shall mean any other corporation or any
partnership, joint venture, trust, employee benefit plan or other
enterprise of which the Indemnitee is or was serving at the request
of the Company as an officer, director, partner, trustee, employee
or agent. The provisions of this Section 4.3 shall not be deemed
to be exclusive or to limit in any way the other circumstances in
which the Indemnitee may be deemed to have met the applicable
standard of conduct set forth in Sections 1, 2 or 3 hereof, as the
case may be.
4.4 SUCCESS ON MERITS OR OTHERWISE. Notwithstanding any
other provision of this Agreement, to the extent that the
Indemnitee has been successful on the merits or otherwise in de-
fense of any action, suit or proceeding described in Section 1 or
2 hereof, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the
investigation, defense, settlement or appeal thereof. For purposes
of this Section 4.4, the term "successful on the merits or
otherwise" shall include, but not be limited to, (i) any termina-
tion, withdrawal, or dismissal (with or without prejudice) of any
claim, action, suit or proceeding against the Indemnitee without
any express finding of liability or guilt against him, (ii) the
expiration of 120 days after the making of any claim or threat of
an action, suit or proceeding without the institution of the same
and without any promise or payment made to induce a settlement, or
(iii) the settlement of any action, suit or proceeding under
Section 1, 2 or 3 hereof pursuant to which the Indemnitee pays less
than $25,000.
4.5 PARTIAL INDEMNIFICATION OR REIMBURSEMENT. If the
Indemnitee is entitled under any provision of this Agreement to
indemnification and/or reimbursement by the Company for some or a
portion of the claims, damages, expenses (including attorneys'
fees), judgments, fines or amounts paid in settlement by the
Indemnitee in connection with the investigation, defense, settle-
ment or appeal of any action specified in Section 1, 2 or 3
hereof, but not, however, for the total amount thereof, the Company
shall nevertheless indemnify and/or reimburse the Indemnitee for
the portion thereof to which the Indemnitee is entitled. The party
or parties making the Determination shall determine the portion (if
less than all) of such claims, damages, expenses (including
attorneys' fees), judgments, fines or amounts paid in settlement
for which the Indemnitee is entitled to indemnification and/or
reimbursement under this Agreement.
4.6 LIMITATIONS ON INDEMNIFICATION. No indemnification
pursuant to Sections 1 or 2 hereof shall be paid by the Company if
a judgment (after exhaustion of all appeals) or other final
adjudication determines that the Indemnitee's actions, or omissions
to act, were material to the cause of action so adjudicated and
constitute:
(a) a violation of criminal law, unless the
Indemnitee had reasonable cause to believe his conduct was lawful
or had no reasonable cause to believe his conduct was unlawful;
(b) a transaction from which the Indemnitee derived
an improper personal benefit within the meaning of Section
607.0850(7) of the Florida Business Corporation Act;
(c) in the event that the Indemnitee is a director
of the Company, a circumstance under which the liability provisions
of Section 607.0834 of the Florida Business Corporation Act are
applicable; or
(d) willful misconduct or conscious disregard for
the best interests of the Company in a proceeding by or in the
right of the Company to procure a judgment in its favor or in a
proceeding by or in the right of a shareholder of the Company.
SECTION 5. PROCEDURES FOR DETERMINATION OF WHETHER STAN-
DARDS HAVE BEEN SATISFIED.
5.1 COSTS. All costs of making the Determination
required by Section 4 hereof shall be borne solely by the Company,
including, but not limited to, the costs of legal counsel, proxy
solicitations and judicial determinations. The Company shall also
be solely responsible for paying (i) all reasonable expenses
incurred by the Indemnitee to enforce this Agreement, including,
but not limited to, the costs incurred by the Indemnitee to obtain
court-ordered indemnification pursuant to Section 8 hereof,
regardless of the outcome of any such application or proceeding,
and (ii) all costs of defending any suits or proceedings chal-
lenging payments to the Indemnitee under this Agreement.
5.2 TIMING OF THE DETERMINATION. The Company shall use
its best efforts to make the Determination contemplated by Section
4 hereof promptly. In addition, the Company agrees:
(a) if the Determination is to be made by the Board
or a committee thereof, such Determination shall be made not later
than 15 days after a written request for a Determination (a
"Request") is delivered to the Company by the Indemnitee;
(b) if the Determination is to be made by indepen-
dent legal counsel, such Determination shall be made not later than
30 days after a Request is delivered to the Company by the
Indemnitee; and
(c) if the Determination is to be made by the
shareholders of the Company, such Determination shall be made not
later than 90 days after a Request is delivered to the Company by
the Indemnitee.
The failure to make a Determination within the above-specified time
period shall constitute a Determination approving full indemnifica-
tion or reimbursement of the Indemnitee. Notwithstanding anything
herein to the contrary, a Determination may be made in advance of
(i) the Indemnitee's payment (or incurring) of expenses with
respect to which indemnification or reimbursement is sought, and/or
(ii) final disposition of the action, suit or proceeding with
respect to which indemnification or reimbursement is sought.
5.3 REASONABLENESS OF EXPENSES. The evaluation and
finding as to the reasonableness of expenses incurred by the
Indemnitee for purposes of this Agreement shall be made (in the
following order of preference) within 15 days after the
Indemnitee's delivery to the Company of a Request that includes a
reasonable accounting of expenses incurred:
(a) first, by the Board by majority vote or consent
of a quorum consisting of Disinterested Directors; or
(b) next, if such a quorum cannot be obtained, by
majority vote or consent of a committee duly designated by the
Board (in which designation all directors, whether or not
Disinterested Directors, may participate), consisting solely of two
or more Disinterested Directors; or
(c) next, if such a committee cannot be designated,
by any independent legal counsel (who may be any outside counsel
regularly employed by the Company);
provided, however, that if a determination as to reasonableness of
expenses is not made under any of the foregoing subsections (a),
(b) and (c), such determination shall be made, not later than 90
days after the Indemnitee's delivery of such Request, by vote or
consent of the holders of a majority of the Company's Common Stock
that are represented in person or by proxy at a meeting called for
such purpose.
All expenses shall be considered reasonable for purposes of this
Agreement if the finding contemplated by this Section 5.3 is not
made within the prescribed time. The finding required by this
Section 5.3 may be made in advance of the payment (or incurring) of
the expenses for which indemnification or reimbursement is sought.
5.4 PAYMENT OF INDEMNIFIED AMOUNT. Immediately
following a Determination that the Indemnitee has met the appli-
cable standard of conduct set forth in Section 1, 2 or 3 hereof, as
the case may be, and the finding of reasonableness of expenses
contemplated by Section 5.3 hereof, or the passage of time
prescribed for making such determination(s), the Company shall pay
to the Indemnitee in cash the amount to which the Indemnitee is
entitled to be indemnified and/or reimbursed, as the case may be,
without further authorization or action by the Board; provided,
however, that the expenses for which indemnification or reimburse-
ment is sought have actually been incurred by the Indemnitee.
5.5 SHAREHOLDER VOTE ON DETERMINATION. Notwithstanding
the provisions of Section 607.0850 of the Florida Business
Corporation Act, the Indemnitee and any other shareholder who is a
party to the proceeding for which indemnification or reimbursement
is sought shall be entitled to vote on any Determination to be made
by the Company's shareholders, including a Determination made
pursuant to Section 5.7 hereof. In addition, in connection with
each meeting at which a shareholder Determination will be made, the
Company shall solicit proxies that expressly include a proposal to
indemnify or reimburse the Indemnitee. Any Company proxy statement
relating to a proposal to indemnify or reimburse the Indemnitee
shall not include a recommendation against indemnification or
reimbursement.
5.6 SELECTION OF INDEPENDENT LEGAL COUNSEL. If the
Determination required under Section 4 is to be made by independent
legal counsel, such counsel shall be selected by the Indemnitee
with the approval of the Board, which approval shall not be
unreasonably withheld. The fees and expenses incurred by counsel
in making any Determination (including Determinations pursuant to
Section 5.8 hereof) shall be borne solely by the Company regardless
of the results of any Determination and, if requested by counsel,
the Company shall give such counsel an appropriate written
agreement with respect to the payment of their fees and expenses
and such other matters as may be reasonably requested by counsel.
5.7 RIGHT OF INDEMNITEE TO APPEAL AN ADVERSE DETERMINA-
TION BY BOARD. If a Determination is made by the Board or a
committee thereof that the Indemnitee did not meet the applicable
standard of conduct set forth in Section 1, 2 or 3 hereof, upon the
written request of the Indemnitee and the Indemnitee's delivery of
$500 to the Company, the Company shall cause a new Determination to
be made by the Company's shareholders at the next regular or
special meeting of shareholders. Subject to Section 8 hereof, such
Determination by the Company's shareholders shall be binding and
conclusive for all purposes of this Agreement.
5.8 RIGHT OF INDEMNITEE TO SELECT FORUM FOR DETERMINA-
TION. If, at any time subsequent to the date of this Agreement,
"Continuing Directors" do not constitute a majority of the members
of the Board, or there is otherwise a change in control of the Com-
pany (as contemplated by Item 403(c) of Regulation S-K), then upon
the request of the Indemnitee, the Company shall cause the Deter-
mination required by Section 4 hereof to be made by independent
legal counsel selected by the Indemnitee and approved by the Board
(which approval shall not be unreasonably withheld), which counsel
shall be deemed to satisfy the requirements of clause (3) of
Section 4 hereof. If none of the legal counsel selected by the
Indemnitee are willing and/or able to make the Determination, then
the Company shall cause the Determination to be made by a majority
vote or consent of a Board committee consisting solely of
Continuing Directors. For purposes of this Agreement, a "Con-
tinuing Director" means either a member of the Board at the date of
this Agreement or a person nominated to serve as a member of the
Board by a majority of the then Continuing Directors.
5.9 ACCESS BY INDEMNITEE TO DETERMINATION. The Company
shall afford to the Indemnitee and his representatives ample oppor-
tunity to present evidence of the facts upon which the Indemnitee
relies for indemnification or reimbursement, together with other
information relating to any requested Determination. The Company
shall also afford the Indemnitee the reasonable opportunity to
include such evidence and information in any Company proxy state-
ment relating to a shareholder Determination.
5.10 JUDICIAL DETERMINATIONS IN DERIVATIVE SUITS. In
each action or suit described in Section 2 hereof, the Company
shall cause its counsel to use its best efforts to obtain from the
Court in which such action or suit was brought (i) an express
adjudication whether the Indemnitee is liable for negligence or
misconduct in the performance of his duty to the Company, and, if
the Indemnitee is so liable, (ii) a determination whether and to
what extent, despite the adjudication of liability but in view of
all the circumstances of the case (including this Agreement), the
Indemnitee is fairly and reasonably entitled to indemnification.
SECTION 6. SCOPE OF INDEMNITY. The actions, suits and
proceedings described in Sections 1 and 2 hereof shall include, for
purposes of this Agreement, any actions that involve, directly or
indirectly, activities of the Indemnitee both in his official
capacities as a Company director or officer and actions taken in
another capacity while serving as director or officer, including,
but not limited to, actions or proceedings involving (i) compen-
sation paid to the Indemnitee by the Company, (ii) activities by
the Indemnitee on behalf of the Company, including actions in which
the Indemnitee is plaintiff, (iii) actions alleging a misappropria-
tion of a "corporate opportunity," (iv) responses to a takeover
attempt or threatened takeover attempt of the Company, (v) trans-
actions by the Indemnitee in Company securities, and (vi) the
Indemnitee's preparation for and appearance (or potential appear-
ance) as a witness in any proceeding relating, directly or
indirectly, to the Company. In addition, the Company agrees that,
for purposes of this Agreement, all services performed by the
Indemnitee on behalf of, in connection with or related to any
subsidiary of the Company, any employee benefit plan established
for the benefit of employees of the Company or any subsidiary, any
corporation or partnership or other entity in which the Company or
any subsidiary has a 5% ownership interest, or any other affiliate
of the Company, shall be deemed to be at the request of the Com-
pany.
SECTION 7. ADVANCE FOR EXPENSES.
7.1 MANDATORY ADVANCE. Expenses (including attorneys'
fees, court costs, judgments, fines, amounts paid in settlement and
other payments) incurred by the Indemnitee in investigating,
defending, settling or appealing any action, suit or proceeding
described in Section 1 or 2 hereof shall be paid by the Company in
advance of the final disposition of such action, suit or pro-
ceeding. The Company shall promptly pay the amount of such
expenses to the Indemnitee, but in no event later than 10 days
following the Indemnitee's delivery to the Company of a written
request for an advance pursuant to this Section 7, together with a
reasonable accounting of such expenses.
7.2 UNDERTAKING TO REPAY. The Indemnitee hereby
undertakes and agrees to repay to the Company any advances made
pursuant to this Section 7 if and to the extent that it shall
ultimately be found that the Indemnitee is not entitled to be
indemnified by the Company for such amounts.
7.3 MISCELLANEOUS. The Company shall make the advances
contemplated by this Section 7 regardless of the Indemnitee's
financial ability to make repayment, and regardless whether
indemnification of the Indemnitee by the Company will ultimately be
required. Any advances and undertakings to repay pursuant to this
Section 7 shall be unsecured and interest-free.
SECTION 8. COURT-ORDERED INDEMNIFICATION. Regardless
whether the Indemnitee has met the standard of conduct set forth in
Sections 1, 2 or 3 hereof, as the case may be, and notwithstanding
the presence or absence of any Determination whether such standards
have been satisfied, the Indemnitee may apply for indemnification
(and/or reimbursement pursuant to Section 3 or 12 hereof) to the
court conducting any proceeding to which the Indemnitee is a party
or to any other court of competent jurisdiction. On receipt of an
application, the court, after giving any notice the court considers
necessary, may order indemnification (and/or reimbursement) if it
determines the Indemnitee is fairly and reasonably entitled to
indemnification (and/or reimbursement) in view of all the relevant
circumstances (including this Agreement).
SECTION 9. NONDISCLOSURE OF PAYMENTS. Except as expressly
required by Federal securities laws, neither party shall disclose
any payments under this Agreement unless prior approval of the
other party is obtained. Any payments to the Indemnitee that must
be disclosed shall, unless otherwise required by law, be described
only in Company proxy or information statements relating to special
and/or annual meetings of the Company's shareholders, and the
Company shall afford the Indemnitee the reasonable opportunity to
review all such disclosures and, if requested, to explain in such
statement any mitigating circumstances regarding the events
reported.
SECTION 10. COVENANT NOT TO SUE, LIMITATION OF ACTIONS AND
RELEASE OF CLAIMS. No legal action shall be brought and no cause
of action shall be asserted by or on behalf of the Company (or any
of its subsidiaries) against the Indemnitee, his spouse, heirs,
executors, personal representatives or administrators after the
expiration of 2 years following the date the Indemnitee ceases (for
any reason) to serve as either an executive officer or director of
the Company, and any and all such claims and causes of action of
the Company (or any of its subsidiaries) shall be extinguished and
deemed released unless asserted by filing of a legal action within
such 2-year period.
SECTION 11. INDEMNIFICATION OF INDEMNITEE'S ESTATE. Not-
withstanding any other provision of this Agreement, and regardless
whether indemnification of the Indemnitee would be permitted and/or
required under this Agreement, if the Indemnitee is deceased, the
Company shall indemnify and hold harmless the Indemnitee's estate,
spouse, heirs, administrators, personal representatives and
executors (collectively the "Indemnitee's Estate") against, and the
Company shall assume, any and all claims, damages, expenses
(including attorneys' fees), penalties, judgments, fines and
amounts paid in settlement actually incurred by the Indemnitee or
the Indemnitee's Estate in connection with the investigation,
defense, settlement or appeal of any action described in Section 1
or 2 hereof. Indemnification of the Indemnitee's Estate pursuant
to this Section 11 shall be mandatory and not require a Determina-
tion or any other finding that the Indemnitee's conduct satisfied
a particular standard of conduct.
SECTION 12. REIMBURSEMENT OF ALL LEGAL EXPENSES. Notwith-
standing any other provision of this Agreement, and regardless of
the presence or absence of any Determination, the Company promptly
(but not later than 30 days following the Indemnitee's submission
of a reasonable accounting) shall reimburse the Indemnitee for all
attorneys' fees and related court costs and other expenses incurred
by the Indemnitee (but not for judgments, penalties, fines or
amounts paid in settlement) in connection with the investigation,
defense, settlement or appeal of any action described in Section 1
or 2 hereof (including, but not limited to, the matters specified
in Section 6 hereof).
SECTION 13. MISCELLANEOUS.
13.1 NOTICE PROVISION. Any notice, payment, demand or
communication required or permitted to be delivered or given by the
provisions of this Agreement shall be deemed to have been
effectively delivered or given and received on the date personally
delivered to the respective party to whom it is directed, or when
deposited by registered or certified mail, with postage and charges
prepaid and addressed to the parties at the respective addresses
set forth below opposite their signatures to this Agreement, or to
such other address as to which notice is given.
13.2 ENTIRE AGREEMENT. Except for the Company's Articles
of Incorporation, this Agreement constitutes the entire
understanding of the parties and supersedes all prior understand-
ings, whether written or oral, between the parties with respect to
the subject matter of this Agreement.
13.3 SEVERABILITY OF PROVISIONS. If any provision of
this Agreement is held to be illegal, invalid, or unenforceable
under present or future laws effective during the term of this
Agreement, such provision shall be fully severable; this Agreement
shall be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part of this Agree-
ment; and the remaining provisions of this Agreement shall remain
in full force and effect and shall not be affected by the illegal,
invalid, or unenforceable provision or by its severance from this
Agreement. Furthermore, in lieu of each such illegal, invalid, or
unenforceable provision there shall be added automatically as a
part of this Agreement a provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible and
be legal, valid, and enforceable.
13.4 APPLICABLE LAW. This Agreement shall be governed by
and construed under the laws of the State of Florida.
13.5 EXECUTION IN COUNTERPARTS. This Agreement and any
amendment may be executed simultaneously or in two or more
counterparts, each of which together shall constitute one and the
same instrument.
13.6 COOPERATION AND INTENT. The Company shall cooperate
in good faith with the Indemnitee and use its best efforts to
ensure that the Indemnitee is indemnified and/or reimbursed for
liabilities described herein to the fullest extent permitted by
law.
13.7 AMENDMENT. No amendment, modification or alteration
of the terms of this Agreement shall be binding unless in writing,
dated subsequent to the date of this Agreement, and executed by the
parties.
13.8 BINDING EFFECT. The obligations of the Company to
the Indemnitee hereunder shall survive and continue as to the
Indemnitee even if the Indemnitee ceases to be a director, officer,
employee and/or agent of the Company. Each and all of the cove-
nants, terms and provisions of this Agreement shall be binding upon
and inure to the benefit of the successors to the Company and, upon
the death of the Indemnitee, to the benefit of the estate, heirs,
executors, administrators and personal representatives of the
Indemnitee.
13.9 GENDER AND NUMBER. Wherever the context shall so
require, all words herein in the male gender shall be deemed to
include the female or neuter gender, all singular words shall
include the plural and all plural words shall include the singular.
13.10 NONEXCLUSIVITY. The rights of indemnification
and reimbursement provided in this Agreement shall be in addition
to any rights to which the Indemnitee may otherwise be entitled by
statute, bylaw, agreement, vote of shareholders or otherwise.
13.11 EFFECTIVE DATE. The provisions of this
Agreement shall cover claims, actions, suits and proceedings
whether now pending or hereafter commenced and shall be
retroactive to cover acts or omissions or alleged acts or omissions
which heretofore have taken place.
(signatures on following page)
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first above written.
ADDRESS: THE COMPANY
Capital Factors Holding, Inc. CAPITAL FACTORS HOLDING, INC.
1799 West Oakland Park Boulevard
Fort Lauderdale, Florida 33311
Attention: President By:
Name:
Title:
ADDRESS: THE INDEMNITEE:
EXHIBIT 10.4
CF FUNDING CORP.,
Transferor,
CAPITAL FACTORS, INC.,
Servicer
and
BANKERS TRUST COMPANY,
Trustee
on behalf of the Certificateholders
CAPITAL FACTORS FINANCING TRUST
POOLING AND SERVICING AGREEMENT
Dated as of June 1, 1994
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS . . . . . . . . . . . .
Section 1.01 Definitions. . . . . . . . . . . . . . . .
Section 1.02 Other Definitional Provisions. . . . . . .
Section 1.03 Calculations and Payments. . . . . . . . .
ARTICLE II
CONVEYANCE OF ADVANCES; ISSUANCE
OF CERTIFICATES . . . . . . . . . . .
Section 2.01 Conveyance of Advances. . . . . . . . . .
Section 2.02 Declaration of Trust; Acceptance by
Trustee.. . . . . . . . . . . . . . . . .
Section 2.03 Representations and Warranties of the
Transferor Relating to the Transferor,
the Agreement and any Supplement.. . . . .
Section 2.04 Representations and Warranties of the
Transferor Relating to the Advances and
the Receivables; Reassignment of Advances
and Receivables. . . . . . . . . . . . . . .
Section 2.05 Addition of Accounts; Removal of
Accounts. . . . . . . . . . . . . . . . . .
Section 2.06 Covenants of the Transferor.. . . . . . . .
Section 2.07 Authentication of Certificates. . . . . . .
ARTICLE III
ADMINISTRATION AND SERVICING
OF ADVANCES AND RECEIVABLES . . . . . . . . .
Section 3.01 Acceptance of Appointment and Other
Matters Relating to the Servicer. . . . . .
Section 3.02 Servicing Compensation.. . . . . . . . . . .
Section 3.03 Representations, Warranties and
Covenants
of the Servicer.. . . . . . . . . . . . . .
Section 3.04 Records and Reports for the Trustee. . . . .
Section 3.05 Annual Servicer's Certificate. . . . . . . .
Section 3.06 Public Accountants' Servicing Reports. . . .
Section 3.07 Tax Treatment. . . . . . . . . . . . . . . .
Section 3.08 Notices to Transferor. . . . . . . . . . . .
Section 3.09 Covenant to Maintain Privileges. . . . . . .
Section 3.10 Servicer Principal Advance.. . . . . . . . .
ARTICLE IV
RIGHTS OF CERTIFICATEHOLDERS AND ALLOCATION
AND APPLICATION OF COLLECTIONS. . . . . . . . .
Section 4.01 Rights of Certificateholders.. . . . . . . .
Section 4.02 Establishment of Interest Funding
Account, Excess Funding Account, Cash
Collateral Account, Accumulation Account,
Principal Funding Account and
Concentration Account.. . . . . . . . . . .
Section 4.03 Collections and Allocations. . . . . . . . .
Section 4.04 Payments of Interest Collections.. . . . . .
Section 4.05 Payment of Principal Collections.. . . . . .
Section 4.06 Payment of Recoveries. . . . . . . . . . . .
Section 4.07 Funds Unrelated to Advances or
Receivables.. . . . . . . . . . . . . . . .
ARTICLE V
DISTRIBUTIONS AND REPORTS TO
CERTIFICATEHOLDERS. . . . . . . . . . . .
Section 5.01 Distributions. . . . . . . . . . . . . . . .
Section 5.02 Monthly Investor Certificateholders'
Statement; Annual Tax Statement.. . . . . .
ARTICLE VI
THE CERTIFICATES . . . . . . . . . . . .
Section 6.01 The Certificates.. . . . . . . . . . . . . .
Section 6.02 Authentication of Certificates.. . . . . . .
Section 6.03 Registration of Transfer and Exchange
of
Certificates. . . . . . . . . . . . . . . .
Section 6.04 Mutilated, Destroyed, Lost or Stolen
Certificates. . . . . . . . . . . . . . . .
Section 6.05 Persons Deemed Owners. . . . . . . . . . . .
Section 6.06 Appointment of Paying Agent. . . . . . . . .
Section 6.07 Access to List of Certificateholders'
Names and Addresses.. . . . . . . . . . . .
Section 6.08 Authenticating Agent.. . . . . . . . . . . .
Section 6.09 New Issuances. . . . . . . . . . . . . . . .
Section 6.10 Book-Entry Certificates. . . . . . . . . . .
Section 6.11 Notices to Clearing Agency.. . . . . . . . .
Section 6.12 Definitive Certificates. . . . . . . . . . .
Section 6.13 Letter of Representations. . . . . . . . . .
ARTICLE VII
OTHER MATTERS RELATING
TO THE TRANSFEROR. . . . . . . . . . . .
Section 7.01 Liability of the Transferor. . . . . . . . .
Section 7.02 Merger or Consolidation of, or
Assumption
of the Obligations of, the Transferor.. . .
Section 7.03 Limitation on Liability of the
Transferor. . . . . . . . . . . . . . . . .
Section 7.04 Liabilities. . . . . . . . . . . . . . . . .
ARTICLE VIII
OTHER MATTERS RELATING
TO THE SERVICER . . . . . . . . . . . .
Section 8.01 Liability of the Servicer. . . . . . . . . .
Section 8.02 Merger or Consolidation of, or
Assumption
of the Obligations of, the Servicer.. . . .
Section 8.03 Limitation on Liability of the Servicer
and Others. . . . . . . . . . . . . . . . .
Section 8.04 Servicer Indemnification of the Trust
and
the Trustee.. . . . . . . . . . . . . . . .
Section 8.05 The Servicer Not to Resign.. . . . . . . . .
Section 8.06 Access to Certain Documentation and
Information Regarding the Advances and
Receivables.. . . . . . . . . . . . . . . .
Section 8.07 Delegation of Duties.. . . . . . . . . . . .
Section 8.08 Examination of Records.. . . . . . . . . . .
ARTICLE IX
EARLY AMORTIZATION EVENTS. . . . . . . . . .
Section 9.01 Early Amortization Events with Respect
to any Series. . . . . . . . . . . . . . . .
Section 9.02 Additional Rights Upon the Occurrence
of Certain Events. . . . . . . . . . . . . .
ARTICLE X
SERVICER DEFAULTS. . . . . . . . . . . .
Section 10.01 Servicer Defaults. . . . . . . . . . . . .
Section 10.02 Trustee to Act; Appointment of
Successor.. . . . . . . . . . . . . . . . .
Section 10.03 Notification to Certificateholders. . . . .
Section 10.04 Waiver of Past Defaults.. . . . . . . . . .
ARTICLE XI
THE TRUSTEE . . . . . . . . . . . . .
Section 11.01 Duties of Trustee.. . . . . . . . . . . . .
Section 11.02 Certain Matters Affecting the
Trustee. . . . . . . . . . . . . . . . . . . . . . . .
Section 11.03 Trustee Not Liable for Recitals in
Certificates. . . . . . . . . . . . . . . .
Section 11.04 Trustee May Own Certificates, Etc. . . . .
Section 11.05 Eligibility Requirements for Trustee. . . .
Section 11.06 Resignation or Removal of Trustee.. . . . .
Section 11.07 Successor Trustee.. . . . . . . . . . . . .
Section 11.08 Merger or Consolidation of Trustee. . . . .
Section 11.09 Appointment of Co-Trustee or Separate
Trustee.. . . . . . . . . . . . . . . . . .
Section 11.10 Tax Returns.. . . . . . . . . . . . . . . .
Section 11.11 Trustee May Enforce Claims Without
Possession of Certificates. . . . . . . . .
Section 11.12 Suits for Enforcement.. . . . . . . . . . .
Section 11.13 Rights of Certificateholders to Direct
Trustee. . . . . . . . . . . . . . . . . . . . . . . .
Section 11.14 Representations and Warranties of
Trustee.. . . . . . . . . . . . . . . . . .
Section 11.15 Maintenance of Office or Agency.. . . . . .
Section 11.16 Statements, Certificates and Reports. . . .
Section 11.17 Trustee's Fees and Expenses.. . . . . . . .
ARTICLE XII
TERMINATION . . . . . . . . . . . . .
Section 12.01 Termination of Trust. . . . . . . . . . . .
Section 12.02 Optional Purchase and Series
Termination
Date of Investor Certificates of any
Series. . . . . . . . . . . . . . . . . . .
Section 12.03 Final Payment.. . . . . . . . . . . . . . .
Section 12.04 Transferor's Termination Rights.. . . . . .
Section 12.05 Defeasance. . . . . . . . . . . . . . . . .
ARTICLE XIII
MISCELLANEOUS PROVISIONS . . . . . . . . . .
Section 13.01 Amendment.. . . . . . . . . . . . . . . . .
Section 13.02 Protection of Right, Title and
Interest
of Trust. . . . . . . . . . . . . . . . . .
Section 13.03 Limitation on Rights of Certificate
holders. . . . . . . . . . . . . . . . . . . . . . . .
Section 13.04 Governing Law; Jurisdiction; Consent
to
Service of Process. . . . . . . . . . . . .
Section 13.05 Notices.. . . . . . . . . . . . . . . . . .
Section 13.06 Severability of Provisions. . . . . . . . .
Section 13.07 Assignment. . . . . . . . . . . . . . . . .
Section 13.08 Certificates Nonassessable and Fully
Paid. . . . . . . . . . . . . . . . . . . .
Section 13.09 Further Assurances. . . . . . . . . . . . .
Section 13.10 No Waiver; Cumulative Remedies. . . . . . .
Section 13.11 Counterparts. . . . . . . . . . . . . . . .
Section 13.12 Third-Party Beneficiaries.. . . . . . . . .
Section 13.13 Actions by Certificateholders.. . . . . . .
Section 13.14 Merger and Integration. . . . . . . . . . .
Section 13.15 Headings. . . . . . . . . . . . . . . . . .
Section 13.16 Schedules and Exhibits. . . . . . . . . . .
Section 13.17 Assignment of Related Property. . . . . . .
Section 13.18 No Proceedings. . . . . . . . . . . . . . .
Section 13.19 Obligations.. . . . . . . . . . . . . . . .
Exhibits:
2.04(a)(v) Eligible Pool Balance and aggregate Unpaid
Balance of Receivables as of Close of
Business on Initial Cut-Off Date.
2.05(b)(ii) Form of Removal Notice.
2.05(b)(iii) Form of Reassignment.
2.06(j) Additional Indebtedness.
3.01(i)(A) List of Post Office Banks, Lock-Box Banks
and Lock-Box Accounts.
3.01(i)(D)-1 Form of Lock-Box Account Transfer Letter.
3.01(i)(D)-2 Form of Post Office Box Transfer Instruction.
3.03(k)(ii) Loan and Credit Policy.
3.03(m) Modification of Systems.
3.04(b) Form of Daily Report.
3.04(c) Form of Settlement Statement.
3.05 Form of Annual Servicer's Certificate.
3.06(a)-1 Form of Public Accountants' Quarterly
Servicing Report.
3.06(a)-2 Form of Public Accountants' Annual
Servicing Report.
4.02(c) Interest Funding Account.
4.02(f) Excess Funding Account.
4.02(i) Cash Collateral Account.
4.02(l) Accumulation Account.
4.02(o) Principal Funding Account.
4.02(r) Concentration Account.
6.01-1 Form of Senior Certificate.
6.01-2 Form of Transferor Certificate.
6.06 Minimum Required Rating of Paying Agent.
10.01-1 Form of Notification to Clients.
10.01-2 Form of Notification to Customers.
11.05 Minimum Required Rating of Trustee.
13.02(c)(i) Form of Opinion of Counsel in Respect of
Amendments.
13.02(c)(ii) Form of Annual Opinion of Counsel.
SCHEDULE 1 List of Advances and Related Receivables in
Designated Accounts.
ANNEX X Definitions.
POOLING AND SERVICING AGREEMENT, dated as of June 1,
1994, by and among CF FUNDING CORP., a Delaware corporation, as
Transferor, CAPITAL FACTORS, INC., a Florida corporation,
individually and as Servicer, and BANKERS TRUST COMPANY, a New
York banking corporation, as Trustee.
This Pooling and Servicing Agreement shall be
applicable to the formation of the Trust and the issuance of the
Transferor Certificate and, upon the execution of any Supplement,
shall apply also to the issuance of any Series of Certificates
issued pursuant thereto.
In consideration of the mutual agreements herein
contained, each party agrees as follows for the benefit of the
other parties, for the benefit of the Certificateholders and for
the benefit of any Enhancement Provider with respect to any
Series to the extent provided herein:
ARTICLE I
DEFINITIONS
Section 1.01 DEFINITIONS. For all purposes of this
Agreement, except as otherwise expressly provided herein or
unless the context otherwise requires, capitalized terms not
otherwise defined herein shall have the meanings assigned to such
terms in the Definitions attached hereto as Annex X which is
incorporated by reference herein. All other capitalized terms
used herein shall have the meanings specified herein.
"AGREEMENT" shall mean this Pooling and Servicing
Agreement as it may from time to time be amended, supplemented or
otherwise modified in accordance with the terms hereof, including
by any Supplement.
Section 1.02 OTHER DEFINITIONAL PROVISIONS.
(a) All terms defined in any Supplement or this
Agreement shall have the defined meanings when used in any
certificate or other document made or delivered pursuant hereto
unless otherwise defined therein.
(b) As used herein and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting
terms not defined in Annex X or otherwise defined herein, and
accounting terms partly defined in Annex X or otherwise defined
herein, to the extent not defined, shall have the respective
meanings given to them under GAAP. To the extent that the
definition of accounting terms herein or in Annex X are
inconsistent with the meanings of such terms under GAAP, the
definitions contained herein or in Annex X shall control.
(c) The agreements, representations and warranties of
Factors in this Agreement in its capacity as Servicer shall be
deemed to be the agreements, representations and warranties of
Factors solely in such capacity.
(d) The words "HEREOF," "HEREIN" and "HEREUNDER" and
words of similar import when used in this Agreement or any
Supplement shall refer to such Supplement or this Agreement, as
the case may be, as a whole and not to any particular provision
of such Supplement or this Agreement, as the case may be; and
Section, Schedule and Exhibit references contained in this
Agreement or any Supplement are references to Sections, Schedules
and Exhibits in or to this Agreement or such Supplement unless
otherwise specified.
(e) The word "INCLUDING" (and with correlative meaning
"INCLUDE") means including without limiting the generality of any
description preceding such term.
Section 1.03 CALCULATIONS AND PAYMENTS. Except as may
be otherwise provided in any Supplement, all computations of
interest shall be made on the basis of a 360-day year comprising
twelve 30-day months. Unless otherwise specified herein,
expressions of a time of day refer to such time in New York, New
York. Except as otherwise expressly provided herein, all amounts
payable hereunder shall be paid in immediately available funds.
Whenever any reference is made to an amount or time the
determination or calculation of which is governed by this Section
1.03, the provisions of this Section 1.03 shall be applicable to
such determination or calculation, whether or not reference is
specifically made to this Section 1.03, unless some other method
of determination or calculation is expressly specified in the
particular provision.
ARTICLE II
CONVEYANCE OF ADVANCES; ISSUANCE OF CERTIFICATES
Section 2.01 CONVEYANCE OF ADVANCES. By execution of
this Agreement, the Transferor does hereby assign, transfer and
otherwise convey to the Trustee for the benefit of the
Certificateholders from time to time, without recourse (except as
specifically provided herein), and without any other formal or
other written instrument of assignment, all of the Transferor's
right, title and interest in, to and under (i) all Advances
outstanding under the Designated Accounts on the Initial Cut-Off
Date, as identified in SCHEDULE 1 hereto, all installments in
respect of Advances generated thereafter and prior to the Final
Trust Termination Date under such Designated Accounts and
Advances existing on the applicable Addition Date and all
installments in respect thereof generated thereafter and prior to
the Final Trust Termination Date under any Designated Accounts
conveyed to the Trustee for the benefit of the Certificateholders
from time to time pursuant to Section 2.05 (but excluding
Advances in Removed Accounts unless and until such Removed
Accounts become Additional Accounts pursuant to Section
2.05(b)(iv)), (ii) all related Receivables, (iii) all Related
Property, (iv) all monies due or to become due with respect to
any of the foregoing and (v) all proceeds (as defined in the UCC)
of any of the foregoing. Such property, together with (x) all
monies relating to the Advances and related Receivables on
deposit in the Concentration Account, the Interest Funding
Account, the Cash Collateral Account, the Excess Funding Account,
the Accumulation Account, the Principal Funding Account and any
other Series Accounts, (y) all investments of such monies as
provided hereunder and (z) the benefits of any Enhancements,
shall constitute the assets of the Trust (the "Trust Assets")
held by the Trustee for the benefit of the Certificateholders
from time to time. The foregoing transfer, assignment and
conveyance does not constitute an assumption and is not intended
to result in the creation, by the Trustee, any Enhancement
Provider or any Investor Certificateholder, of any obligation of
Factors, the Transferor or any other Person in connection with
the Advances or related Receivables or under any agreement or
instrument relating thereto (including any Advance Document or
Receivable Document), including any obligation to any Obligors or
any Affiliate of or other Person to whom the Servicer may
delegate servicing duties hereunder or insurers.
In connection with such transfer, the Transferor agrees
to record and file, at its own expense, any financing statements
(and continuation statements with respect to such financing
statements when applicable) required to be filed with respect to
the Advances now existing and hereafter created and the other
Trust Assets meeting the requirements of applicable state law in
such manner and in such jurisdictions as are necessary under the
applicable UCC to perfect the transfer and assignment of the
Advances and the other Trust Assets to the Trustee for the
benefit of the Certificateholders from time to time, and to
deliver to the Trustee on or prior to the Initial Closing Date
evidence (which may be telephonic evidence, to be followed
promptly by written evidence) that appropriate financing
statements and, when applicable, continuation statements, have
been filed. The Trustee shall be under no obligation whatsoever
to file such financing or continuation statements or make any
other filings under the UCC in connection with such transfer, but
the Trustee shall be obligated pursuant to Section 13.02(c) to
determine whether evidence of the filing of continuation
statements is delivered to it on or prior to the respective
expiration dates appearing in the most recent Client UCC List.
In connection with such transfer, the Transferor
further agrees, at its own expense, (a) on or prior to the
Initial Closing Date and each Addition Date, to indicate on its
books and records (including any computer files) that all
Advances and the Transferor's interest in the other property
described in clauses (ii), (iii), (iv) and (v) of the first
paragraph of this Section 2.01 (the "OTHER PROPERTY") have been
transferred to the Trustee pursuant to this Agreement for the
benefit of the Certificateholders and (b) on or prior to the
Initial Closing Date and on or prior to the Business Day
immediately following each Addition Date, to deliver to the
Trustee a computer file containing a true and complete list of
all Advances and related Receivables specifying for each
Designated Account, as of the Initial Cut-Off Date or such
Addition Date, the Unpaid Balance of the Eligible Advance (as
well as of the remaining portion of such Advance) relating to
such Designated Account, the aggregate Unpaid Balance of the
Eligible Receivables (as well as of any other Receivables)
relating to such Designated Account and the internal Factors
number and name identifying such Designated Account. Such
computer file shall be marked as SCHEDULE 1 to this Agreement and
is hereby incorporated into and made a part of this Agreement.
In addition, (i) on the third Business Day following the date on
which the Servicer receives a Termination Notice pursuant to
Section 10.01, (ii) on the third Business Day following any
Amortization Period Commencement Date, (iii) on the Initial
Closing Date, (iv) on or before any Removal Date in accordance
with Section 2.05(b)(ii) and (v) on any Business Day on which the
Transferor desires to cause Removed Accounts to become eligible
to generate Advances and related Receivables for transfer to the
Trustee for the benefit of the Certificateholders from time to
time in accordance with Section 2.05(b)(iv), the Servicer shall
deliver to the Trustee a true and complete computer file in
respect of each Advance outstanding on such date, specifying for
each Designated Account (A) the Unpaid Balance of such Eligible
Advance (as well as the remaining portion of such Advance) in
such Designated Account and the aggregate Unpaid Balance of the
related Receivables as of (i) the date on which the Servicer
receives a Termination Notice pursuant to Section 10.01, (ii)
such Amortization Period Commencement Date, (iii) the fourth
Business Day immediately preceding the Initial Closing Date, (iv)
the date of the Removal Notice in respect of Designated Accounts
to be removed pursuant to Section 2.05(b)(ii) or (v) the third
Business Day preceding the Business Day on which the Transferor
desires to cause Advances and Receivables in Removed Accounts to
become eligible for transfer to the Trustee for the benefit of
the Certificateholders from time to time pursuant to Section
2.05(b)(iv), respectively, and (B) the internal Factors name and
number identifying such Designated Account. Each such additional
computer file shall be marked as SCHEDULE 1 hereto, shall replace
the then existing SCHEDULE 1 hereto, and shall be incorporated
into and made a part hereof.
Section 2.02 DECLARATION OF TRUST; ACCEPTANCE BY
TRUSTEE.
(a) In consideration of the premises and mutual
covenants set forth herein, the Trustee hereby declares that it
holds and will hold as trustee in trust under this Agreement all
of its right, title and interest in, to and under, and hereby
acknowledges its acceptance on behalf of the Trust of all right,
title and interest in, to and under the property, now existing
and hereafter created, conveyed to the Trustee for the benefit of
the Certificateholders from time to time pursuant to Section
2.01; to have and to hold such property unto the Trustee and its
successors in trust under this Agreement; in trust nevertheless,
under and subject to the terms and conditions set forth in this
Agreement, for the benefit of all Certificateholders. The
Trustee further acknowledges that, prior to or simultaneously
with the execution and delivery of this Agreement, the Transferor
delivered to the Trustee a file that was represented as being the
computer file described in the last paragraph of Section 2.01.
(b) The Trustee hereby agrees not to disclose, except
as may be required by law or regulation or as may be otherwise
provided in any Supplement, to any Person any of the information
contained in the computer files marked as SCHEDULE 1 or otherwise
delivered to the Trustee by the Transferor pursuant to this
Agreement except as is required in connection with the
performance of its duties hereunder (including collecting,
enforcing and/or realizing upon, any Advances, related
Receivables or other Related Property or any Advance Document or
Receivable Document and effecting the sale contemplated by
Section 12.02) or in enforcing the rights of the
Certificateholders or to a Successor Servicer appointed pursuant
to Section 10.02 or to a prospective Successor Servicer. The
Trustee agrees to take such reasonable measures as shall be
reasonably requested by the Transferor to protect and maintain
the security and confidentiality of such information and, in
connection therewith, shall allow the Transferor to inspect the
Trustee's security and confidentiality arrangements from time to
time during normal business hours. The Trustee shall use its
best efforts to provide the Transferor with written notice at
least five Business Days prior to any disclosure pursuant to this
Section 2.02(b) except that no notice shall be required of any
disclosure expressly provided for in this Agreement or any
Supplement.
(c) It is intended by the Transferor that this
Agreement constitute a security agreement under the UCC (as
defined in the UCC as in effect in the State of New York). The
Transferor hereby grants to the Trustee on the terms and
conditions of this Agreement a perfected first priority security
interest in and against all of the Transferor's right, title and
interest in the Advances and the other Trust Assets, whether now
owned or hereafter acquired, now existing or hereafter created
and wherever located for the purpose of securing the rights of
the Trustee for the benefit of the Certificateholders from time
to time and any Enhancement Provider under this Agreement.
(d) The Trustee hereby agrees not to use any
information it obtains pursuant to this Agreement, including any
of the information contained in the computer files marked as
SCHEDULE 1 or otherwise delivered by the Transferor to the
Trustee pursuant to this Agreement, for any purpose unrelated to
this Agreement or to compete or assist any Person in competing
with the Transferor or Factors in its business, provided that if
the Trustee becomes the Successor Servicer the Trustee may employ
as a sub-servicer or collection agent any Person that qualifies
as an Eligible Servicer.
Section 2.03 REPRESENTATIONS AND WARRANTIES OF THE
TRANSFEROR RELATING TO THE TRANSFEROR, THE AGREEMENT AND ANY
SUPPLEMENT. The Transferor (x) hereby represents and warrants,
as of the date of this Agreement and the Initial Closing Date
and, with respect to any Series, as of the date of the related
Supplement and the related Closing Date, unless otherwise stated
in such Supplement, and (y) shall be deemed to represent and
warrant on each day that any Advance is created, that:
(a) ORGANIZATION AND GOOD STANDING. The Transferor is
a corporation duly organized and validly existing in good
standing under the laws of the State of Delaware, and has full
corporate power, authority and legal right to execute, deliver
and perform its obligations under the Contribution and Sale
Agreement, this Agreement and any Supplement and to execute and
deliver to the Trustee pursuant hereto the Certificates, to own
its properties and conduct its business as such properties are
presently owned and such business is presently conducted.
(b) DUE QUALIFICATION. The Transferor is duly
qualified to do business and is in good standing as a foreign
corporation (or is exempt from such requirements), and has
obtained all necessary licenses and approvals with respect to the
Transferor, in each jurisdiction in which the failure to be so
qualified, to be in good standing or to obtain such licenses and
approvals would render any Factoring Agreement or any Advance or
related Receivable unenforceable by the Transferor or the Trust
or would have a material adverse effect on the Certificateholders
or any Enhancement Provider.
(c) DUE AUTHORIZATION. The execution, delivery and
performance of the Contribution and Sale Agreement, this
Agreement and any Supplement and the execution and delivery to
the Trustee of the Certificates by the Transferor and the
consummation of the transactions provided for in this Agreement
and any Supplement, have been duly authorized by the Transferor
by all necessary corporate action on the part of the Transferor.
(d) BINDING OBLIGATION. Each of the Contribution and
Sale Agreement, this Agreement and each Supplement constitutes
the legal, valid and binding obligation of the Transferor,
enforceable against it in accordance with its terms, except (x)
the enforceability thereof may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar rights
now or hereinafter in effect relating to creditors' rights, and
(y) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses
and to the discretion of the court before which any proceeding
therefor may be brought.
(e) NO CONFLICTS. The execution, delivery and
performance of this Agreement and any Supplement and the
Certificates and the Contribution and Sale Agreement, the
performance of the transactions contemplated by this Agreement
and any Supplement and the Contribution and Sale Agreement and
the fulfillment of the terms hereof and thereof by the
Transferor, will not (i) contravene its Certificate of
Incorporation or By-Laws, (ii) violate any provision of, or
require any filing (except for the filings under the UCC required
by this Agreement, each of which has been duly made and is in
full force and effect), registration, consent or approval under,
any law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award presently in effect having
applicability to the Transferor, except for such filings,
registrations, consents or approvals as have already been
obtained and are in full force and effect, (iii) result in a
breach of or constitute a default or require any consent under
any indenture or loan or credit agreement or any other agreement,
lease or instrument to which the Transferor is a party or by
which it or its properties may be bound or affected except those
as to which a consent or waiver has been obtained and is in full
force and effect and an executed copy of which has been delivered
to the Trustee, or (iv) result in, or require, the creation or
imposition of any Lien upon or with respect to any of the
properties now owned or hereafter acquired by the Transferor
other than as specifically contemplated by this Agreement or the
Contribution and Sale Agreement.
(f) TAXES. The Transferor has filed all tax returns
(federal, state and local) required to be filed and has paid or
made adequate provision in accordance with GAAP for the payment
of all taxes, assessments and other governmental charges due from
the Transferor or is contesting any such tax, assessment or other
governmental charge in good faith through appropriate
proceedings.
(g) NO PROCEEDINGS. There are no proceedings or
investigations pending or, to the best knowledge of the
Transferor, threatened against the Transferor, before any
Governmental Authority (i) asserting the invalidity of the
Contribution and Sale Agreement, this Agreement or any Supplement
or the Certificates, (ii) seeking to prevent the issuance of the
Certificates or the consummation of any of the transactions
contemplated by this Agreement or any Supplement or the
Certificates or the Contribution and Sale Agreement, (iii)
seeking any determination or ruling that would materially and
adversely affect the performance by the Transferor of its
obligations under the Contribution and Sale Agreement, this
Agreement or any Supplement, (iv) seeking any determination or
ruling that would materially and adversely affect the validity or
enforceability of the Contribution and Sale Agreement, this
Agreement or any Supplement or the Certificates, or (v) seeking
to assert any tax liability against the Trust under the United
States Federal or Florida State or any other applicable income or
property tax systems.
(h) ALL CONSENTS REQUIRED. All approvals,
authorizations, consents, orders or other actions of any Person
or of any Governmental Authority required to be obtained by the
Transferor in connection with the execution and delivery by the
Transferor of this Agreement, any Supplement, the Contribution
and Sale Agreement and the Certificates, the performance by the
Transferor of the transactions contemplated by this Agreement and
any Supplement and the fulfillment by the Transferor of the terms
hereof and thereof, have been obtained and are in full force and
effect; PROVIDED, HOWEVER, that the Transferor makes no
representation or warranty regarding state securities or "blue
sky" laws in connection with the distribution of the
Certificates.
(i) ELIGIBLE ACCOUNTS. Each Advance is or will be an
obligation of a Client of Factors in an Eligible Account arising
out of the past, current or future performance by Factors in
accordance with the terms of the Factoring Agreement giving rise
to such Advance. The Transferor has no knowledge of any fact
which should have led it to expect at the time of the initial
creation of an interest in any Advance hereunder that such
Advance would not be paid in full when due. Each Advance
classified as an "Eligible Advance" by the Transferor in any
document or report delivered hereunder will satisfy the
requirements of eligibility contained in the definition of
Eligible Advance.
(j) BONA FIDE RECEIVABLES. Each Receivable is or will
be an obligation of a Customer of a Client of Factors arising out
of the past, current or future performance by such Client in
accordance with the terms of the Contract giving rise to such
Receivable. The Transferor has no knowledge of any fact which
should have led it to expect at the time of the initial creation
of an interest in any Receivable hereunder that such Receivable
would not be paid in full when due. Each Receivable classified
as an "Eligible Receivable" by the Transferor in any document or
report delivered hereunder will satisfy the requirements of
eligibility contained in the definition of Eligible Receivable.
(k) PLACE OF BUSINESS. The principal place of
business of the Transferor and its chief executive office (as
that term is used in the UCC) is in Fort Lauderdale, Florida, and
there are no other such locations, and the office where the
Transferor keeps its records concerning the Advances, related
Receivables and Related Property is in Fort Lauderdale, Florida,
and there is no other such location and the location of such
office has not changed in the preceding four months.
(l) USE OF PROCEEDS. No proceeds of the issuance of
any Certificate will be used by the Transferor to acquire any
security in a transaction that is subject to sections 13 and 14
of the Securities Exchange Act of 1934, as amended, or to
purchase or carry any margin security.
(m) LOCK-BOX BANK AND ACCOUNTS. The Lock-Box Banks
are the only institutions holding any lock-box account for the
receipt of payments from Obligors in respect of Advances and
Receivables (subject to such changes as may be made from time to
time in accordance with Section 3.01(i)(E)). All Obligors of the
Advances and Receivables have been instructed in writing to make
payments only to a Post Office Box or by wire transfer to a Lock-
Box Account and such instructions are in full force and effect.
(n) EARLY AMORTIZATION EVENT. As of the Initial
Closing Date, no Early Amortization Event, and no event or
condition that with the giving of notice, the passage of time
and/or the making of any declaration would constitute an Early
Amortization Event (a "Prospective Early Amortization Event,"
which term shall not include any Accumulation Event), has
occurred and is continuing.
(o) NOT AN INVESTMENT COMPANY. The Transferor is not
an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, or is exempt from all provisions
of such Act.
(p) ERISA. No Plan maintained by the Transferor or
any of its ERISA Affiliates has any "accumulated funding
deficiency" (within the meaning of Section 302 of ERISA or
Section 412 of the Internal Revenue Code), whether or not waived.
The Transferor and each ERISA Affiliate of the Transferor has
timely made all contributions required to be made by it to any
Plan and Multiemployer Plan to which contributions are or have
been required to be made during the preceding five years by the
Transferor or such ERISA Affiliate, and no event requiring notice
to the PBGC under Section 302(f) of ERISA has occurred and is
continuing or could reasonably be expected to occur with respect
to any such Plan, in any case, that could reasonably be expected
to result, directly or indirectly, in any lien being imposed on
the property of the Transferor or the payment of any material
amount to avoid such lien. No Plan Event with respect to the
Transferor or any of its ERISA Affiliates has occurred or could
reasonably be expected to occur that could reasonably be expected
to result, directly or indirectly, in any lien being imposed on
the property of the Transferor or the payment of any material
amount to avoid such lien.
(q) LEGAL NAME. The legal name of the Transferor has
been since the date of its incorporation and is now "CF Funding
Corp.", and the Transferor does not do business under any
different or additional names.
The representations and warranties set forth in this
Section 2.03 shall survive the transfer and assignment of the
Advances and Receivables to the Trust, and termination of the
rights and obligations of the Servicer pursuant to Section 10.01.
Upon discovery by the Transferor, any Enhancement Provider or the
Servicer, or upon receipt of written notice by a Responsible
Officer of the Trustee, of a breach of any of the foregoing
representations and warranties, the party discovering or
receiving notice of such breach shall give written notice thereof
to the others and each Enhancement Provider promptly after such
discovery or such receipt of notice.
Section 2.04 REPRESENTATIONS AND WARRANTIES OF THE
TRANSFEROR RELATING TO THE ADVANCES AND THE RECEIVABLES;
REASSIGNMENT OF ADVANCES AND RECEIVABLES.
(a) REPRESENTATIONS AND WARRANTIES. The Transferor
(x) hereby represents and warrants, as of the date of this
Agreement and the Initial Closing Date with respect to the
Advances created on or prior to, and outstanding on, each such
date and with respect to the Receivables related thereto, and (y)
shall be deemed to represent and warrant on each day thereafter
that any Advance is created with respect to the Advance or
Advances created on such date, that:
(i) the Transferor is not insolvent and will not
become insolvent after giving effect to the transactions
contemplated hereby; the Transferor is paying its debts when
they are due, and the Transferor will have adequate capital
to conduct its business after the consummation of the
transactions contemplated hereby;
(ii) the Transferor is the legal and beneficial
owner of all right, title and interest in and to each such
Advance, the Transferor has a perfected first priority
security interest in each Receivable related to such
Advance, the Transferor has the full right to transfer the
Advances and its interest in the related Receivables to the
Trustee for the benefit of the Certificateholders from time
to time, and each such Advance and related Receivable has
been or will be transferred to the Trustee for the benefit
of the Certificateholders from time to time free and clear,
with respect to each such Advance, of any Lien and, with
respect to each such related Receivable, of any Lien created
by or through Factors or the Transferor other than Liens for
municipal or other local taxes if such taxes shall not at
the time be due and payable or if the Transferor shall
currently be contesting the validity thereof in good faith
by appropriate proceedings and shall have set aside on its
books adequate reserves in accordance with GAAP with respect
thereto;
(iii) all consents, licenses, approvals or
authorizations of or registrations or declarations with any
Governmental Authority required to be obtained, effected or
given by the Transferor in connection with the transfer of
such Advances and the Other Property to the Trustee for the
benefit of the Certificateholders from time to time have
been duly obtained, effected or given and are in full force
and effect and the transfer of such Trust Assets is in
compliance with all Requirements of Law;
(iv) (A) the Transferor has indicated on its
books and records (including any computer files) that such
Advances and the Other Property have been transferred to the
Trustee for the benefit of the Certificateholders from time
to time and shall maintain such records in a manner such
that the Trustee shall have a first priority perfected
security interest in the Advances and the Other Property.
This Agreement either constitutes a valid transfer and
assignment to the Trustee for the benefit of the
Certificateholders from time to time of all right, title and
interest of the Transferor in and to the Advances and
related Receivables now existing and hereafter created and
in the Related Property and all monies due or to become due
with respect thereto, all proceeds (as defined in the UCC)
of each Advance and related Receivable and Related Property
and such funds as are deposited from time to time in the
Concentration Account, the Interest Funding Account, the
Principal Funding Account, the Excess Funding Account, the
Accumulation Account, the Cash Collateral Account and the
Series Accounts or constitutes a grant of a "security
interest" (as defined in the UCC) in such property to the
Trustee for the benefit of the Certificateholders from time
to time as provided in Section 2.02(c), which, in the case
of existing Advances, Receivables and the Related Property
and all monies due or to become due with respect thereto and
the proceeds thereof, is enforceable upon execution and
delivery of this Agreement, and which will be enforceable
with respect to such Advances, Receivables and Related
Property hereafter created and the proceeds thereof upon
such creation. The Contribution and Sale Agreement
constitutes a valid sale or contribution to the Transferor
of all right, title and interest of Factors in and to the
Advances and the Other Property now existing or hereafter
created;
(B) upon the filing of any financing statements
described in Section 2.01 and, in the case of the Advances
and related Receivables hereafter created or transferred to
the Trustee for the benefit of the Certificateholders from
time to time and the proceeds thereof, upon the creation or
transfer thereof, the Trustee for the benefit of the
Certificateholders from time to time shall have a first
priority perfected security interest (as such term is
defined in the UCC) in such property free and clear, with
respect to each such Advance, of any Lien or interest of any
Person and, with respect to each such related Receivable, of
any Lien or interest of any Person created by or through
Factors or the Transferor, except as otherwise contemplated
by this Agreement and except for Liens for municipal or
other local taxes if such taxes shall not at the time be due
and payable or if the Transferor shall currently be
contesting the validity thereof in good faith by appropriate
proceedings and shall have set aside on its books adequate
reserves in accordance with GAAP with respect thereto;
PROVIDED, HOWEVER, that such security interest in proceeds
shall remain perfected after 10 days from their receipt by
the Transferor only to the extent that such proceeds are
identifiable cash proceeds or they come into the Trustee's
possession within the applicable 10-day period; and
PROVIDED, FURTHER, that the Transferor makes no
representation or warranty with respect to the effect of
Section 9-306(4) of the UCC on the rights of the Trustee for
the benefit of the Certificateholders from time to time to
proceeds of Advances and proceeds of Other Property held by
the Transferor at the time insolvency proceedings are
instituted by or against the Transferor. Except as
otherwise provided in this Agreement, neither the Transferor
nor any Person claiming through or under the Transferor has
any claim to or interest in the Concentration Account,
Interest Funding Account, the Excess Funding Account, the
Cash Collateral Account, the Accumulation Account, the
Principal Funding Account or any Series Account;
(v) on the Business Day following the date the
Servicer receives a Termination Notice pursuant to Section
10.01, on the Business Day following any Amortization Period
Commencement Date, on the Business Day immediately preceding
the Initial Closing Date, on or before any Removal Date in
accordance with Section 2.05(b)(ii) and on any Business Day
on which the Transferor desires to cause Removed Accounts to
become eligible to generate Advances and related Receivables
for transfer to the Trustee for the benefit of the
Certificateholders from time to time in accordance with
Section 2.05(b)(iv), SCHEDULE 1 to this Agreement (as
replaced pursuant to Section 2.01) is and will be an
accurate and complete listing of all the Advances and
related Receivables outstanding under the Designated
Accounts in all material respects as of the respective date
to which such Schedule relates and the information contained
therein with respect to the identity of each Advance and
each related Receivable and the Unpaid Balance existing
thereunder is and will be true and correct in all material
respects as of the respective date to which such Schedule
relates; as of the close of business on the Initial Cut-Off
Date, the Eligible Pool Balance and the aggregate Unpaid
Balance of such Receivables, was equal to the amount set
forth in EXHIBIT 2.04(A)(V);
(vi) each such Advance, all of the Transferor's
interest in the Other Property, and Collections with respect
thereto have been or will be transferred to the Trustee for
the benefit of the Certificateholders from time to time free
and clear, with respect to each such Advance, of any Lien or
interest of any Person and, with respect to such Other
Property and such Collections, of any Lien or interest of
any Person created by or through Factors or the Transferor
except as otherwise contemplated by this Agreement;
(vii) each obligation of a Client of Factors
transferred pursuant to Section 2.01 is on the date of
creation of such obligation an Eligible Advance and each
Advance has arisen under an Eligible Account that is a
Designated Account; and
(viii) on the date on which such Advance is conveyed
hereunder to the Trustee for the benefit of the
Certificateholders from time to time, (A) the related
Factoring Agreement limits the aggregate amount of the
Advance which may be outstanding to the Client party to such
Factoring Agreement at any time to a percentage (the
"ADVANCE RATE") of the aggregate purchase price of such
Client's Receivables outstanding at the time such Advance is
made, less certain adjustments which may include (x) any
such Receivables that are in dispute, (y) any such
Receivables the credit risk of which has not been approved
by Factors and (z) any fees chargeable to such Client's
reserve account maintained by Factors; and such Advance Rate
is not less than 70%; and (B) pursuant to the Loan and
Credit Policy such Client is entitled to an Advance Rate of
not less than 70%.
(b) NOTICE OF BREACH. The representations and
warranties set forth in this Section 2.04 shall survive the
transfer and assignment of the Trust Assets to the Trustee for
the benefit of the Certificateholders from time to time. Upon
discovery by the Transferor, any Enhancement Provider or the
Servicer, or upon receipt of written notice by a Responsible
Officer of the Trustee, of a breach of any of the representations
and warranties set forth in this Section 2.04, the Person
discovering or receiving notice of such breach shall give written
notice to the other parties hereto and to each Enhancement
Provider promptly after such discovery or such receipt of notice.
(c) TRANSFER UPON BREACH OF WARRANTY. In the event of
a breach with respect to an Advance of any of the representations
and warranties set forth in Sections 2.03(i) and 2.04(a) (ii),
(iii), (iv)(B), (v), (vi), (vii) and (viii), and (1) as a result
thereof such Advance is no longer an Eligible Advance or was not
an Eligible Advance at the time of the making of such
representation or warranty, and after giving effect to the
exclusion of such Advance from the Eligible Pool Balance the
Participation Deficiency Amount would be greater than zero, or
(2) such breach has a material adverse effect on the interests of
the holders of Certificates of any outstanding Series in any
Advance, in each case without regard to any Enhancement with
respect to any Series, and such material adverse effect continues
for 30 days after the earlier to occur of the discovery of such
breach by the Transferor or the Servicer or receipt of written
notice of such breach by the Transferor or the Servicer pursuant
to Section 2.03 or 2.04(b) (or such longer period as may be
agreed to by the Majority Certificateholders of all outstanding
Series), then the Transferor shall cause the Designated Account
containing such Advance to be removed from the Trust, without the
need of any formal or other instrument of assignment, prior to
the second Business Day next following (x) the day on which such
Participation Deficiency Amount exists or (y) such 30th day (or
the end of such longer period agreed to by the Majority
Certificateholders of all Series outstanding), as the case may
be, by making or causing to be made a deposit in the
Concentration Account in immediately available funds in an amount
equal to the related Transfer Deposit Amount for such Removed
Account. Such deposit shall be considered a payment in full of
the Advance in such Removed Account during the Settlement Period
to which such payment relates, shall be deemed to be a Principal
Collection and shall be allocated in accordance with Section
4.03. Any necessary expense incidental to the reconveyance of a
Removed Account pursuant to this Section 2.04(c) shall be for the
account of the Transferor and the Transferor hereby agrees to
cause any such expense to be duly paid when due. Upon the making
of such a deposit in respect of the Advance in such Removed
Account, the Trustee shall automatically and without further
action be deemed to transfer, assign and otherwise convey to or
upon the order of the Transferor, without recourse,
representation or warranty, all the right, title and interest of
the Trustee for the benefit of the Certificateholders from time
to time in and to the Advance in such Removed Account, each
related Receivable, all Related Property and Collections with
respect thereto and all proceeds thereof, and to release and
terminate the security interest granted pursuant to Section 2.02
in such property, without the need of any formal or other
instrument of assignment. On and after the date of such removal,
any defined term herein or in the applicable Supplement, the
definition of which assumes that such Advance or each such
related Receivable is not in a Removed Account, shall thereafter
be computed on the basis of the assumption that such Advance or
each such Receivable is no longer a Trust Asset. Notwithstanding
anything to the contrary contained herein, the Trustee shall
execute such documents and instruments of transfer or assignment
and UCC termination statements as shall be prepared by the
Transferor, and shall take such other actions as shall reasonably
be requested by the Transferor, in connection with the conveyance
of any Advance and the related Receivables in a Removed Account
pursuant to this Section. The obligation of the Transferor to
make a deposit in respect of any Advance in a Removed Account as
set forth in this Section shall, subject to Article IX and
Section 13.19, constitute the sole remedy respecting any breach
of the representations and warranties set forth in Sections
2.03(i) and 2.04(a)(ii), (iii), (iv)(B), (v), (vi), (vii) and
(viii) with respect to such Advance available to the Investor
Certificateholders or the Trustee on behalf of the Investor
Certificateholders. At the Transferor's option, this Section
2.04(c) shall apply to permit the remedy by the Transferor of a
Prospective Early Amortization Event caused by a breach of
representations and warranties set forth above in this sub-clause
(c), as more particularly described in Section 9.01(ii).
(d) REASSIGNMENT OF TRUST PORTFOLIO. In the event of
a breach of any of the representations and warranties set forth
in Sections 2.03(a), (b), (c), (d) or (e), or Section
2.04(a)(iv)(A), and the effect of such breach is materially
adverse to the interests of Certificateholders (without regard to
any Enhancement with respect to any Series), the Majority
Certificateholders of all Series outstanding, by notice then
given in writing to the Transferor (with a copy thereof to the
Rating Agencies and to the Trustee and the Servicer), may direct
the Transferor to make the deposit described in the next sentence
on or prior to the first Payment Date next succeeding 30 days
after receipt by the Transferor of such notice, or within such
longer period as may be specified in such notice, and the
Transferor shall be obligated to make such deposit or cause such
deposit to be made on or prior to such Payment Date on the terms
and conditions set forth below; PROVIDED, HOWEVER, that no such
deposit shall be required to be made if, at such Payment Date,
the representations and warranties set forth in Section 2.03(a),
(b), (c), (d) or (e), or Section 2.04(a)(iv)(A), shall be true
and correct in all material respects as if made on such date.
The Transferor shall deposit in the Concentration Account on any
date permitted by the notice described in the preceding sentence
an amount equal to the sum of (x) the Aggregate Invested Amount
on such Payment Date, LESS (y) the aggregate principal amount on
deposit in any Principal Funding Sub-Account established for the
benefit of any Series pursuant to any Supplement, PLUS (z) an
amount equal to interest at the applicable Certificate Rate
accrued but unpaid on the Senior Certificates of each Series
through such Payment Date on which the distribution of such
deposit is scheduled to be made pursuant to Section 12.03.
Notwithstanding anything to the contrary in this Agreement, the
entire amount deposited in the Concentration Account pursuant to
the preceding sentence shall be distributed to the
Certificateholders on such Payment Date pursuant to Section
12.03. Payment of such deposit amount into the Concentration
Account in immediately available funds shall otherwise be
considered a payment in full of all of the Advances. The
obligation of the Transferor to make the deposit specified in
this Section 2.04(d) shall, except as provided in Article IX and
Section 13.19, constitute the sole remedy available to any of the
Certificateholders or the Trustee on behalf of the
Certificateholders for a breach of the representations and
warranties contained in Sections 2.03(a), (b), (c), (d), (e) or
Section 2.04(a)(iv)(A).
Section 2.05 ADDITION OF ACCOUNTS; REMOVAL OF
ACCOUNTS.
(a) The Transferor may, but shall not be obligated to,
designate from time to time any Eligible Account (an "ADDITIONAL
ACCOUNT") as a Designated Account, PROVIDED, HOWEVER, that the
requirements of Section 2.01 with respect to such Additional
Account are met. The Advance, related Receivables and Related
Property in such Account shall be transferred by the Transferor
to the Trustee for the benefit of the Certificateholders from
time to time on the date of the designation of such Account as a
Designated Account (each such date of designation being referred
to as an "ADDITION DATE"), except as provided in Section 2.05(b).
For purposes of this Agreement, all Advances arising under
Additional Accounts will be treated as Advances upon such
designation. The Transferor hereby represents and warrants as of
each applicable Addition Date that each related Additional
Account is an Eligible Account, and that the addition to the
Trust of the Advance arising in such Additional Account shall not
result in the occurrence of an Early Amortization Event, a
Prospective Early Amortization Event or an Accumulation Event.
(b) (i) On any Business Day other than during the
existence of an Early Amortization Event, the Transferor shall
have the right to remove Designated Accounts, including all
Advances, related Receivables and Related Property then existing
and thereafter arising under such Designated Accounts, from the
Trust in the manner prescribed in Section 2.05(b)(ii).
(ii) To remove Designated Accounts, including all
Advances, related Receivables and Related Property then existing
in respect of or thereafter arising in respect of such Designated
Accounts, the Transferor (or the Servicer on its behalf) shall
take the following actions and make the following determinations:
(A) furnish to the Trustee not less than five
Business Days prior to the Removal Date, and furnish to the
Rating Agencies and each Enhancement Provider, not less than
30 Business Days prior to the Removal Date, a written notice
substantially in the form attached hereto as EXHIBIT
2.05(B)(II) (the "REMOVAL NOTICE") specifying the Business
Day on which removal of one or more Designated Accounts will
occur (a "REMOVAL DATE");
(B) represent and warrant (pursuant to the
Reassignment) to the Trustee that after giving effect to the
removal of such Designated Accounts on the Removal Date, and
after giving effect to any contemporaneous designation of
Additional Accounts pursuant to Section 2.05(a), (1) no
Early Amortization Event, Prospective Early Amortization
Event or Accumulation Event will exist and (2) the
Participation Deficiency Amount will not exceed zero;
(C) represent and warrant (pursuant to the
Reassignment) to the Trustee that no selection procedures
reasonably believed by the Transferor to be adverse to the
interests of the Certificateholders were utilized in
selecting the proposed Removed Accounts;
(D) no Rating Agency shall have notified the
Transferor, within 30 Business Days after delivery by the
Transferor of the Removal Notice, that, after giving effect
to such removal, the then current rating of the Certificates
would be downgraded or withdrawn (it being hereby understood
that the Transferor agrees to use its best efforts during
such 30 Business Day period to obtain from a Rating Agency
confirmation that no downgrade or withdrawal of such rating
will occur after giving effect to such removal);
(E) on or before the Removal Date, furnish to the
Trustee and each Enhancement Provider a computer file or
other list in respect of the proposed Removed Accounts that
are to be removed on the Removal Date, which computer file
or other list shall specify for each such Removed Account,
as of the date of the Removal Notice, the internal Factors
name and number identifying such Removed Account and the
Unpaid Balance of the Advance in respect of such Removed
Account and the aggregate Unpaid Balance of the Receivables
in respect of such Removed Account, and represent and
warrant (pursuant to the Reassignment) that such computer
file or other list is true and complete in all material
respects;
(F) on or before the Removal Date, furnish to the
Trustee and each Enhancement Provider a computer file in
respect of each Designated Account which will remain in the
Trust after removal of the Removed Accounts, which computer
file shall specify for each such Designated Account, as of
the date of the Removal Notice, the internal Factors name
and number identifying such Designated Account and the
Unpaid Balance of the Advance in respect of such Designated
Account and the aggregate Unpaid Balance of the Receivables
in respect of such Designated Account, and represent and
warrant (pursuant to the Reassignment) that such computer
file is true and complete in all material respects.
No Designated Accounts shall be so removed if the Servicer, the
Transferor or the Trustee determines that (1) after giving effect
to the removal of such Designated Accounts on the Removal Date,
and after giving effect to any contemporaneous designation of
Additional Accounts pursuant to Section 2.05(a), (y) an Early
Amortization Event, Prospective Early Amortization Event or
Accumulation Event will exist or (z) the Participation Deficiency
Amount will exceed zero or (2) any adverse selection procedures
were used in selecting such Removed Accounts. Any such
determination by the Servicer or the Transferor shall be promptly
communicated to the Trustee.
(iii) Subject to Section 2.05(b)(ii), on the Removal
Date with respect to any such Removed Account, such Removed
Account shall be deemed removed from the Trust for all purposes
and the Transferor shall cease to transfer to the Trustee for the
benefit of the Certificateholders from time to time any
installment of the Advance or any related Receivables arising in
such Removed Account. On the Removal Date the Trustee shall
deliver to the Transferor a reassignment in substantially the
form of EXHIBIT 2.05(B)(III) (the "REASSIGNMENT"). The Trustee
may conclusively rely on the representations and warranties
contained in the Reassignment and shall have no duty to make
inquiries with regard to the matters set forth therein and shall
incur no liability in so relying. Any necessary expense
incidental to the reconveyance of a Removed Account pursuant to
this Section 2.05(b) shall be for the account of the Transferor
and the Transferor hereby agrees to pay or cause to be paid any
such expense when due.
(iv) At the option and direction of the Transferor, and
provided that the requirements of Section 2.01 with respect to
such Additional Account are met, any Removed Account removed
pursuant to Section 2.05(b)(ii) which would otherwise constitute
an Eligible Account shall be designated by the Servicer as being
eligible to generate an Advance for transfer by the Transferor to
the Trustee for the benefit of the Certificateholders from time
to time pursuant to Section 2.05(a) by delivering a new computer
file marked as SCHEDULE 1 hereto in accordance with Section 2.01,
and delivering an executed instrument of assignment (and one or
more UCC financing statements) in form and substance reasonably
satisfactory to the Trustee, which instrument of assignment shall
specify that the representations and warranties contained in
Sections 2.03 and 2.04 are true and correct as of the date of
transfer of such Advance and the related Receivables, and such
designated Removed Account shall no longer be considered to be a
Removed Account for purposes of this Agreement.
Section 2.06 COVENANTS OF THE TRANSFEROR. The
Transferor hereby covenants that:
During the term of this Agreement, and until (i) the
Aggregate Invested Amount is reduced to zero, (ii) the Investor
Certificateholders shall have received all accrued interest on
the applicable Certificates and (iii) all amounts owed by the
Transferor pursuant to this Agreement have been paid, the
Transferor covenants and agrees as follows:
(a) COMPLIANCE WITH LAWS, ETC. The Transferor shall
duly satisfy all obligations on its part to be fulfilled under or
in connection with the Advances and related Receivables, will
maintain in effect all qualifications required under Requirements
of Law in order to properly purchase and convey the Advances,
related Receivables and other Trust Assets and will comply in all
material respects with all Requirements of Law applicable to it.
(b) PRESERVATION OF CORPORATE EXISTENCE. The
Transferor (i) shall preserve and maintain its corporate
existence, rights, franchises and privileges in the jurisdiction
of its incorporation, and (ii) shall qualify and remain qualified
in good standing as a foreign corporation in each jurisdiction
where the failure to preserve and maintain such existence,
rights, franchises, privileges and qualifications would
materially adversely affect the interests of the Investor
Certificateholders hereunder or in the Advances or related
Receivables, or the ability of the Transferor or the Servicer to
perform its obligations hereunder.
(c) AUDITS. At any time and from time to time during
the Transferor's regular business hours, on reasonable prior
notice and for a purpose reasonably related to this Agreement,
the Transferor shall, in response to any reasonable request of
the Trustee or any Enhancement Provider, permit such Person, or
its agents or representatives, (i) to examine and make copies of
and abstracts from all books, records and documents (including
computer tapes and disks) in the possession or under the control
of the Transferor relating to the Advances, the related
Receivables, the Related Property and the related Factoring
Agreements and Contracts and (ii) to visit the offices and
properties of the Transferor for the purpose of examining such
materials and to discuss matters relating to the Advances or
related Receivables or the Transferor's performance hereunder
with any of the officers or employees of the Transferor having
knowledge thereof. The Trustee hereby agrees, and each
Enhancement Provider shall be deemed to have agreed by its
providing any Enhancement, not to disclose to any Person any
information made available to the Trustee from time to time with
respect to the Advances, related Receivables, Related Property
and the related Factoring Agreements and Contracts or any Obligor
except (i) to a Successor Trustee or successor Enhancement
Provider, (ii) as required in the performance of the Trustee's
duties hereunder or the Enhancement Provider's duties under the
applicable Enhancement Agreement or (iii) as required in
enforcing their rights hereunder or, in the case of the Trustee,
the rights of the Certificateholders. The Trustee agrees, and
each Enhancement Provider shall be deemed to have agreed by its
providing any Enhancement, to take such measures as shall be
reasonably requested by the Transferor to protect and maintain
the security and confidentiality for such information and, in
connection therewith, will allow the Transferor to inspect the
Trustee's security arrangements from time to time during normal
business hours. The Trustee agrees, and each Enhancement
Provider shall be deemed to have agreed by its providing any
Enhancement, to use its best efforts to provide the Transferor
with notice at least five Business Days prior to any disclosure
pursuant to this Section.
(d) CONTINUOUS PERFECTION. The Transferor shall not
change its name, identity or structure in any manner which might
make any financing or continuation statement filed hereunder
misleading within the meaning of Section 9-402(7) of the UCC (or
any other then applicable provision of the UCC) unless the
Transferor shall have given the Trustee at least 90 days' prior
written notice thereof and shall have taken all action 60 days
prior to making such change (or made arrangements to take such
action substantially simultaneously with such change if it is
impossible to take such action in advance) necessary or advisable
to amend such financing statement or continuation statement so
that it is not misleading. The Transferor shall not change its
chief executive office or change the location of its principal
records concerning the Advances, the related Receivables, the
Related Property or the Collections from the locations specified
in Section 2.03(k) unless it has given the Trustee at least 60
days' prior written notice of its intention to do so and has
taken such action as is necessary or advisable to cause the
interest of the Trustee in the Advances and the other Trust
Assets to continue to be perfected with the priority required by
this Agreement. The Transferor will at all times maintain its
principal executive office and any other office at which it
maintains records relating to the Advances, related Receivables
and Related Property within the United States of America.
(e) EXTENSION OR AMENDMENT OF ADVANCES. In no event
shall the Transferor extend, amend or otherwise modify the terms
of any Advance or related Receivable, or amend, modify or waive
any term or condition of any Factoring Agreements or Contracts,
respectively.
(f) REPORTS. The Transferor shall furnish to the
Trustee and to each Rating Agency as soon as possible and in any
event within five Business Days after the occurrence of each
Early Amortization Event or the Transferor's knowledge of a
Prospective Early Amortization Event or Accumulation Event, an
Officer's Certificate of the Transferor setting forth the details
of such Early Amortization Event, Prospective Early Amortization
Event or Accumulation Event and the action taken, or which the
Transferor proposes to take, with respect thereto.
(g) CERTAIN DOCUMENTATION. The Transferor shall hold
for the account of the Trust (to the extent of its interest
therein) any document evidencing or securing an Advance and the
related Factoring Agreement (including any Permitted
Intercreditor Agreement with respect thereto) or evidencing or
securing a Receivable and the related Contract, other than
instruments (as such term is used in the UCC), if any, that shall
have been delivered to the Trustee contemporaneously with the
conveyance to the Trustee for the benefit of the
Certificateholders from time to time hereunder. Such holding by
the Transferor shall be deemed to be the holding thereof by the
Trustee for purposes of perfecting the Trust's rights therein as
provided in the UCC. On the Initial Closing Date and on each
Addition Date the Transferor shall deliver to the Trustee for the
benefit of the Certificateholders from time to time, to the
extent not previously so delivered, a copy of any document
evidencing or securing an Advance and a copy of the related
Factoring Agreement (including any Permitted Intercreditor
Agreement with respect thereto) with respect to each Designated
Account. The Transferor shall also deliver to the Trustee for
the benefit of the Certificateholders from time to time a copy of
any amendment, modification or waiver of, or supplement to, any
of the foregoing promptly after the Transferor's receipt of the
original thereof. Upon the occurrence of any Servicer Default,
the Transferor shall deliver to the Trustee for the benefit of
the Certificateholders from time to time, to the extent not
previously so delivered, an original of any document evidencing
or securing each Advance and an original of the related Factoring
Agreement (including any Permitted Intercreditor Agreement with
respect thereto) and an original of any document evidencing or
securing each Receivable and a copy of the related Contract, in
each case with respect to each Designated Account. Upon the
occurrence of any Servicer Default, the Transferor shall also
deliver to the Trustee for the benefit of the Certificateholders
from time to time any amendment, modification or waiver of, or
supplement to, any of the foregoing promptly after the
Transferor's receipt of the original thereof.
(h) ASSESSMENTS. The Transferor will promptly pay and
discharge all taxes, assessments, levies and other governmental
charges imposed on it which may adversely affect any of the
Advances or related Receivables or the Trust's rights with
respect thereto and will not claim any credit on, or any
deduction from, the principal of, or interest on, any of the
Certificates by reason of the payment of any of such taxes,
assessments, levies and other governmental charges.
(i) FURTHER ACTION. The Transferor shall, from time
to time, execute and deliver to the Trustee any instruments,
financing or continuation statements or other writings reasonably
necessary or desirable to maintain the perfection or priority of
its ownership or security interest in the Advances, the related
Receivables, the Related Property and the Collections under the
UCC or other applicable law. The Transferor shall, from time to
time, execute and deliver to the Obligors on the Advances and
related Receivables any bills, statements and letters or other
writings necessary to carry out the terms and provisions of this
Agreement and to facilitate the collection of the Advances and
related Receivables.
(j) ADDITIONAL INDEBTEDNESS. The Transferor shall not
create, incur, assume or suffer to exist any indebtedness
(including any guaranty) or expense (whether or not accounted for
as a liability) except (i) indebtedness hereunder, under the
Contribution and Sale Agreement, the Investor Certificates, or
any agreements, contracts or instruments which relate thereto,
(ii) indebtedness or other expense to its professional advisers
and its counsel and (iii) other indebtedness and expenses in
accordance with EXHIBIT 2.06(J); PROVIDED, that notwithstanding
anything to the contrary in this Agreement but subject to Section
13.19, the obligations of the Transferor to Certificateholders or
any Enhancement Provider shall be payable solely from the Trust
Assets in accordance herewith and that the Certificateholders and
any Enhancement Provider shall not look to any other property or
assets of the Transferor in respect of such obligations, and such
obligations shall not constitute a claim against the Transferor
in the event that the Trust Assets are insufficient to pay in
full such obligations, and the obligations of the Transferor to
any Enhancement Provider are fully subordinated to the
Transferor's obligations under the Certificates.
(k) NO TRANSFER. The Transferor agrees that, except
as permitted by this Agreement and the Contribution and Sale
Agreement, it (i) shall not sell, assign, pledge, convey or
otherwise transfer any Advance or any interest therein, any
related Receivable or any interest therein or any other Trust
Asset, (ii) shall not grant, create, incur, or suffer to exist
any Lien on any Advance or any interest therein, any related
Receivable or any interest therein or any other Trust Asset,
(iii) shall notify the Trustee and each Enhancement Provider upon
becoming aware of any such Lien, and (iv) shall defend the
interest of the Trust in the Advances, related Receivables and
other Trust Assets against all claims of other Persons claiming
through the Transferor.
(l) NO OTHER BUSINESS. The Transferor agrees to
engage in no business other than the business contemplated
hereunder and under the Contribution and Sale Agreement.
(m) ENFORCEMENT. The Transferor agrees to take all
action necessary and appropriate to enforce its rights and claims
under the Contribution and Sale Agreement. If, upon notice from
the Trustee, the Transferor does not take such necessary and
appropriate action, then, at the direction of the Majority
Certificateholders of all Series outstanding, the Trustee shall
take action.
(n) SEPARATE BUSINESS. The Transferor will not permit
its assets to be commingled with those of Factors or any
Affiliate of Factors (except that funds may be commingled in the
Lock-Box Accounts to the extent provided in this Agreement), the
Transferor shall maintain separate corporate records and books of
account from those of Factors and its Affiliates, and the
Transferor shall conduct its business from an office separate
from that of Factors and its Affiliates. The Transferor will
conduct its business solely in its own name and will cause
Factors and its Affiliates to conduct their business solely in
their own names so as not to mislead others as to the identity
with which those others are concerned. The Transferor will
provide for its own operating expenses and liabilities from its
own funds, except that the organizational expenses of the
Transferor may be paid by Factors. Except as contemplated by the
placement agency agreement or underwriting agreement in respect
of any Series among the Transferor, Factors and the placement
agent or underwriter(s) referred to therein, the Transferor will
not hold itself out, or permit itself to be held out, as having
agreed to pay, or as being liable for, the debts of Factors or
any of its Affiliates, and the Transferor shall cause Factors and
its Affiliates not to hold themselves out, or permit themselves
to be held out, as having agreed to pay, or as being liable for,
the debts of the Transferor. The Transferor will maintain an
arm's length relationship with Factors and its Affiliates with
respect to any transactions between the Transferor, on the one
hand, and Factors or its Affiliates, on the other. The
Transferor will not permit Factors to be involved with its "day-
to-day" management and will not provide for or allow to exist an
agency relationship between the Transferor and Factors, other
than Factors' obligations as Servicer hereunder. The Transferor
shall at all times maintain at least one director who shall not
be an officer, director, employee or 10% or greater stockholder
of Factors or any affiliate of Factors, which independent
director's vote shall be required for all fundamental changes and
material policy decisions of the Transferor, including the filing
for relief under any bankruptcy or insolvency laws. The
Transferor's financial statements shall reflect the separate
corporate existence of the Transferor. The Transferor will
conduct its business in an independent manner so that its assets
should not be substantively consolidated with the assets, or
deemed to be part of the bankruptcy estate, of any other entity
by a court adjudicating the bankruptcy or insolvency of such
other entity.
(o) CORPORATE DOCUMENTS. The Transferor shall not
amend or delete the Third, Fourth, Ninth, Tenth or Eleventh
Articles of its Certificate of Incorporation without the prior
consent of the Majority Certificateholders of all Series
outstanding, and the Transferor shall notify each Rating Agency
prior to the occurrence thereof.
(p) ERISA. The Transferor shall promptly give the
Trustee and each Enhancement Provider notice of the following
events, as soon as possible and in any event within 30 days after
the Transferor or any of its ERISA Affiliates knows or has reason
to know thereof: (i) the occurrence or expected occurrence of
any Reportable Event with respect to any Plan to which the
Transferor or any of its ERISA Affiliates contributed, or any
withdrawal from, or the termination, Reorganization or Insolvency
of any Multiemployer Plan to which the Transferor or any of its
ERISA Affiliates contributes or to which contributions have been
required to be made by the Transferor or such ERISA Affiliate
during the preceding five years or (ii) the institution of
proceedings or the taking of any other action by the PBGC or the
Transferor or any of its ERISA Affiliates or any such
Multiemployer Plan with respect to the withdrawal from, or the
termination, Reorganization or Insolvency of, any such Plan or
Multiemployer Plan.
(q) CONTRIBUTION AND SALE AGREEMENT NOTICES, WAIVERS,
ETC. The Transferor shall promptly give the Trustee and each
Enhancement Provider copies of any notices, reports or
certificates given or delivered to the Transferor under the
Contribution and Sale Agreement.
(r) ISSUANCE OF CAPITAL STOCK, ETC. The Transferor
shall not issue any capital stock except to Factors or create or
otherwise have any Subsidiary. The Transferor shall not pay any
dividends to Factors if such payment would be prohibited under
the General Corporation Law of the State of Delaware. Factors
shall deliver to the Trustee to hold for the benefit of Factors,
on the Initial Closing Date, all certificates evidencing the
capital stock issued by the Transferor to Factors.
(s) PERMITTED INTERCREDITOR AGREEMENTS. The
Transferor shall not permit the aggregate Unpaid Balance of
Advances subject to Permitted Intercreditor Agreements to exceed
19% of the Eligible Pool Balance at any time.
(t) UCC FINANCING STATEMENTS. The Transferor shall
deliver to the Trustee, on the Initial Closing Date with respect
to the Designated Accounts on the Initial Closing Date and on
each Addition Date with respect to Additional Accounts, unsigned
amendments of UCC financing statements with respect to the
Advances now existing and hereafter created and a power of
attorney in favor of the Trustee authorizing the Trustee to sign
and file such amendments upon the occurrence of an Early
Amortization Event or Servicer Default and the Trustee shall so
sign and file such amendments upon the occurrence of an Early
Amortization Event or Servicer Default.
Section 2.07 AUTHENTICATION OF CERTIFICATES. Pursuant
to the request of the Transferor, the Trustee has caused
Certificates in authorized denominations evidencing the entire
beneficial ownership of the Trust to be duly authenticated and
delivered to or upon the order of the Transferor pursuant to
Section 6.02.
ARTICLE III
ADMINISTRATION AND SERVICING
OF ADVANCES AND RECEIVABLES
Section 3.01 ACCEPTANCE OF APPOINTMENT AND OTHER
MATTERS RELATING TO THE SERVICER.
(a) Factors agrees to act, and is hereby appointed by
the initial Holder of the Subordinated Certificate of the initial
Series and the Transferor to act as the Servicer under this
Agreement, and all Certificateholders, including the Transferor,
by their acceptance of the Certificates consent to Factors acting
as Servicer. The Servicer shall, on behalf of the Trust, the
Transferor and the Holders of the Subordinated Certificates, and
subject to the direction of the Majority Subordinated
Certificateholders (such direction to be given in a manner not
inconsistent with this Agreement), service and administer the
Advances and related Receivables and shall collect payments due
under the Advances and related Receivables in accordance with
customary and usual servicing standards for institutional
servicers and applicable law and, to the extent not inconsistent
therewith, the Servicer's own customary and usual servicing
procedures for servicing advances and receivables owned by it and
comparable to the Advances and related Receivables and in
accordance with the Loan and Credit Policy and shall have full
power and authority, acting alone or through any party properly
designated by it hereunder, to do any and all things in
connection with such servicing and administration which it may
deem necessary or desirable. Without limiting the generality of
the foregoing and subject to Section 10.01, the Servicer is
hereby authorized and empowered (i) to instruct the Trustee,
pursuant to a written certificate that shall have attached
thereto or be included in the then most recent Daily Report and
all other necessary supporting documentation with respect
thereto, to make allocations, withdrawals and payments from the
Concentration Account, the Interest Funding Account, the
Principal Funding Account, the Excess Funding Account, the
Accumulation Account, the Cash Collateral Account and any Series
Account as set forth in this Agreement or any Supplement, (ii) to
execute and deliver, on behalf of the Trust for the benefit of
the Certificateholders, any and all instruments of satisfaction
or cancellation, or of partial or full release or discharge, and
all other comparable instruments, with respect to the Advances
and related Receivables and, after the delinquency of any Advance
and related Receivable and to the extent permitted under and in
compliance with applicable law and regulations, to commence
enforcement proceedings with respect to such Advance or related
Receivable, and (iii) to make any filings, reports, notices,
applications, registrations with, and to seek any consent or
authorizations from, the Securities and Exchange Commission and
any state securities authority on behalf of the Trust as may be
necessary or advisable to comply with any federal or state
securities or reporting requirements or laws. The Majority
Subordinated Certificateholders or the Majority
Certificateholders of all outstanding Series may remove Factors
or any Successor Servicer and designate a Successor Servicer in
accordance with Sections 10.01 and 10.02.
(b) Except as otherwise expressly provided for herein,
the Servicer shall not, and no Successor Servicer shall, be
obligated to use separate servicing procedures, offices,
employees or accounts for servicing the Advances and related
Receivables from the procedures, offices, employees and accounts
used by the Servicer or such Successor Servicer, as the case may
be, in connection with servicing other advances and receivables
of the same type.
(c) The Servicer shall maintain fidelity bond coverage
insuring against losses through wrongdoing of its officers and
employees who are involved in the servicing of Advances or
related Receivables covering such actions and in such amounts as
the Servicer believes to be reasonable from time to time and as
is consistent with sound business practice.
(d) Subject to the rights retained by the Trustee
pursuant to Section 10.01, each of (i) the initial Holder of the
Subordinated Certificate of the initial Series and (ii) the
Transferor hereby appoints the Servicer to enforce its respective
rights and interest in and under the Advances and the related
Factoring Agreements, the Receivables and the related Contracts
and the Related Property, which enforcement shall be in
compliance with all Requirements of Law. If Factors is not the
Servicer, Factors shall promptly deliver to the Servicer, and the
Servicer shall hold in trust for the Transferor and the Trustee
in accordance with their respective interests, all documents,
instruments and records (including computer tapes or disks) that
evidence or relate to Advances or related Receivables. Nothing
in this clause (d) shall limit or restrict the obligations of
Factors under Section 10.01.
(e) The Servicer may, in accordance with the Loan and
Credit Policy and at the direction of the Majority Subordinated
Certificateholders or the Transferor (such direction to be given
in a manner not inconsistent with this Agreement), extend, amend
or otherwise modify the terms of any Advance or related
Receivable or amend, modify or waive any term or condition of any
Factoring Agreement or Contract relating thereto provided no
Early Amortization Event, Prospective Early Amortization Event or
Accumulation Event shall have occurred and be continuing, except
that the Servicer may make such an extension amendment or
modification during the continuance of a Prospective Amortization
Period if such extension, amendment or modification is in the
ordinary course of its business, is in accordance with the Loan
and Credit Policy and if the Servicer promptly notifies the
Trustee thereof. The Servicer may not make any change to the
Loan and Credit Policy (including changes in respect of credit
approval criteria, extensions of payment terms, and aging and
write-off policies), if such change would have a material adverse
effect on the Advances or the related Receivables or the
interests of the Certificateholders. If Factors is not the
Servicer, Factors may not extend, amend or otherwise modify the
terms of any Advance or related Receivable or amend, modify or
waive any term or condition of any Factoring Agreement or
Contract relating thereto. If Factors is not the Servicer,
Factors may not make any change to the Loan and Credit Policy
(including changes in respect of credit approval criteria,
extensions of payment terms, and aging and write-off policies) as
such Policy applies to any Designated Account, any Advance
therein, any related Receivable with respect thereto or any
Related Property in respect thereof.
(f) Except as otherwise required by law, Collections
shall be applied to the Advances and Receivables to which they
relate.
(g) The Servicer shall provide all reports and
documentation required by Section 3.04.
(h) In the event that the Transferor is unable for any
reason to transfer Advances, installments of Advances and
interests in related Receivables to the Trustee for the benefit
of the Certificateholders from time to time in accordance with
the provisions of this Agreement (including by reason of any
court of competent jurisdiction ordering that the Transferor not
transfer any additional Advances or interests in related
Receivables to the Trustee for the benefit of the
Certificateholders from time to time) then, in any such event,
(A) the Servicer agrees to allocate and pay to the Trustee for
the benefit of the Certificateholders from time to time, after
the date of such inability, all Collections with respect to
Advances and related Receivables transferred to the Trustee for
the benefit of the Certificateholders from time to time prior to
the occurrence of such event, and all amounts that would have
constituted Collections with respect to obligations of Clients of
Factors that would have been Advances or obligations of Customers
that would have been Receivables but for the Transferor's
inability to transfer such obligations to the Trustee for the
benefit of the Certificateholders from time to time (up to an
aggregate amount equal to the amount of Advances in the Trust as
of such date); and (B) the Servicer agrees to have such amounts
applied as Collections in accordance with Section 4.03. For the
purpose of the immediately preceding sentence of this Section
3.01(h), the Servicer shall treat the first received collections
with respect to the advances and related receivables as allocable
to the Trustee for the benefit of the Certificateholders from
time to time, as provided above, for the benefit of all
Certificateholders until the Trust shall have been allocated and
paid collections in an amount sufficient to pay the aggregate
amount of Advances in the Trust as of the date of occurrence of
such event.
(i) (A) The Servicer shall send, or shall cause to be
sent, to each Obligor invoices in respect of the Advances of such
Obligor and the Receivables related thereto instructing the
Obligors to send payments thereon by mail to any Post Office Box
or by wire transfer to any Lock-Box Account (as defined below).
EXHIBIT 3.01(I)(A) hereto lists (x) post office boxes which the
Servicer maintains and to which Obligors are directed to send
payments in respect of Advances and related Receivables (such
post office boxes, together with any other post office boxes
permitted hereunder, being referred to collectively as the "POST
OFFICE BOXES") and (y) banks that are not Affiliates of Factors
and are Eligible Institutions (such banks, together with any
other such bank holding a Lock-Box Account in accordance with the
terms hereof, being referred to collectively as the "Lock-Box
Banks") which pursuant to the Lock-Box Agreements remove checks
representing Collections from the Post Office Boxes and deposit
the same in deposit accounts maintained at such banks in the name
of the Servicer (the "LOCK-BOX ACCOUNTS") or accept wire
transfers of such payments from such Obligors. All Collections
on Advances and related Receivables transmitted by Obligors to
the Post Office Boxes or the Servicer or directly by wire
transfer to the Lock-Box Account will, pending remittance by the
Servicer or by the Lock-Box Bank at the direction of the Servicer
to the Concentration Account, be held for the benefit of the
Trust and shall be payable (via wire transfer of immediately
available funds) to the Concentration Account not later than the
second Business Day after receipt of the instrument of payment or
wire transfer in respect of such Collection by the Lock-Box Bank;
PROVIDED, HOWEVER, that deduction from the amount of any such
transfer shall be made in the amount of any debit to the related
Lock-Box Account caused by the non-payment and return of any
check by the payor bank in respect of any such Collection or any
Collection funds in respect of which shall have been previously
transferred to the Concentration Account. Any payments on the
Advances or related Receivables made by Obligors directly to the
Servicer or, if Factors is not the Servicer, to Factors shall be
deposited in the Concentration Account not later than the
Business Day following the date on which funds are available.
(B) Pursuant to Section 4.02, the Trustee shall
maintain the Concentration Account in accordance with the terms
hereof into which account funds available for withdrawal from the
Lock-Box Accounts are deposited on a daily basis. On each
Business Day the Servicer shall direct the Lock-Box Bank to
transfer funds from the Lock-Box Accounts to the Concentration
Account in accordance with Section 3.01(i)(A) above. All
Collections in the Concentration Account shall be held for the
benefit of the Trust and applied in accordance with Article IV.
(C) The Servicer agrees that it will not change the
foregoing method of collection or its related instructions to
Obligors except in accordance with this Agreement.
(D) On or prior to the Initial Closing Date with
respect to the initial Lock-Box Agreements and upon the entering
into of Lock-Box Agreements with new Lock-Box Banks pursuant to
Section 3.01(i)(E), the Servicer shall provide to the Trustee (x)
copies of such Lock-Box Agreements, (y) copies of all other
agreements previously given or entered into with such Lock-Box
Banks and (z) undated, duly executed letters (each, a "LOCK-BOX
ACCOUNT TRANSFER LETTER") from the Servicer addressed to each
such Lock-Box Bank substantially in the form of EXHIBIT
3.01(I)(D)-1 and undated, duly executed Post Office Box transfer
instructions substantially in the form of EXHIBIT 3.01(I)(D)-2.
The Servicer may amend, supplement, restate or otherwise modify
such Lock-Box Agreements from time to time with the prior written
consent of the Majority Certificateholders of all Series
outstanding, which consent shall not be unreasonably withheld.
The Servicer shall deliver to the Trustee a copy of any such
amendment, supplement or restatement of any Lock-Box Agreement.
Upon the occurrence and during the continuance of an Early
Amortization Event or a Servicer Default, the Trustee, at the
direction of the Majority Certificateholders of the affected
Series in the case of an Early Amortization Event and at the
direction of the Majority Certificateholders of all Series
outstanding in the case of a Servicer Default, shall have the
right to change the name in which such Lock-Box Accounts and Post
Office Boxes are maintained and assume control over amounts
deposited in such Lock-Box Accounts and Post Office Boxes by
dating and delivering the Lock-Box Account Transfer Letter
relating to such Lock-Box Account and Post Office Box, and the
Servicer hereby irrevocably authorizes the Trustee to date and
deliver a Lock-Box Account Transfer Letter to each Lock-Box Bank.
Neither the Servicer nor Factors has given and neither shall give
any instructions to any Lock-Box Bank inconsistent with the Lock-
Box Account Transfer Letter, and the Servicer and Factors shall
cooperate fully with the Trustee in effecting any such transfer
of control. By its purchase or ownership of any Subordinated
Certificate, each Subordinated Certificateholder shall be deemed
to agree that it shall not give any instructions to any Lock-Box
Bank inconsistent with the Lock-Box Account Transfer Letter and
shall cooperate fully with the Trustee in effecting any such
transfer of control. Neither the Servicer nor Factors shall
enter into any Lock-Box Agreement or other lock-box servicing
agreement which does not allow for the foregoing provisions and
terms, unless such deviation is consented to by the Majority
Certificateholders of all outstanding Series.
(E) The Servicer may add or terminate any bank as a
Lock-Box Bank from those listed in EXHIBIT 3.01(I)(A) hereto, or
make any change in its instructions to Obligors regarding
payments of Collections, including in respect of Post Office
Boxes (so long as an Obligor remains instructed to make such
payments directly to the Lock-Box Account or to a post office box
to which a Lock-Box Bank party to a Lock-Box Agreement has
access), but in each case only (i) upon written notice from the
Servicer to the Trustee, the Transferor and the Senior
Certificateholders of each outstanding Series and (ii) so long as
no Early Amortization Event, Prospective Early Amortization
Event, Accumulation Event or Servicer Default shall have occurred
and be continuing. The Servicer shall give notice to the Trustee
of the name and address of each new Lock-Box Bank, which notice
shall identify the related Lock-Box Account and Post Office Box.
The Servicer shall enter into a Lock-Box Agreement with each new
Lock-Box Bank and shall deliver to the Trustee and the Senior
Certificateholders of each outstanding Series a copy of the
executed Lock-Box Agreement prior to instructing any Obligors to
make payment to such new Lock-Box Bank or Lock-Box Account.
(F) Prior to any grant by Factors of a Lien on
obligations of clients of Factors other than Clients (other than
obligations of the United States of America or any department or
agency thereof so long as collections in respect of such
governmental obligations are not deposited into the Concentration
Account, the Lock-Box Account or any Post Office Box), Factors
shall have requested that the Trustee enter, and the Trustee
shall have entered, into such intercreditor agreements with the
secured party to whom such Lien is granted as are customary and
necessary to identify separately the rights of the Trust in the
Trust Assets and the rights of such Person in such obligations of
such clients; PROVIDED, HOWEVER, that (i) the Trustee shall not
be required to enter into any intercreditor agreement which would
adversely affect the interests of any Series of
Certificateholders or the Trustee and, upon the request of the
Trustee, Factors will cause an Opinion of Counsel to be delivered
to the Trustee relating to such intercreditor agreement, in form
and substance reasonably satisfactory to the Trustee and the
Majority Certificateholders of all outstanding Series and (ii)
the Majority Certificateholders of all outstanding Series shall
have consented to the form and substance of each such
intercreditor agreement, which consent shall not be unreasonably
withheld. Neither the Servicer nor the Transferor will grant a
Lien to any third party on the Lock-Box Account, the Advances or
the related Receivables.
Section 3.02 SERVICING COMPENSATION. As compensation
for its servicing activities hereunder and reimbursement for its
expenses as set forth in the immediately following paragraph, the
Servicer shall be entitled to receive an annual servicing fee
prior to the termination of the Trust pursuant to Section 12.01
(the "SERVICING FEE"), payable on the dates specified in the
applicable Supplement, equal to the product of (i) the weighted
average Servicing Fee Percentage (based upon the Servicing Fee
Percentage for each Series and the Invested Amount thereof), and
(ii) the daily average Unpaid Balance of Advances in the Trust
over the term of the applicable measuring period. The share of
the Servicing Fee allocable to each Series with respect to any
date of payment shall be equal to the product of (i) the
applicable Servicing Fee Percentage for such Series and (ii) the
Invested Amount of such Series as of the date of determination
for such payment as specified in the applicable Supplement. The
portion, if any, of the Servicing Fee not allocated to any Series
shall be paid by the Transferor, or retained by the Servicer as
provided in Article IV and any Supplement, and in no event shall
the Trust, the Trustee, any Enhancement Provider or the Investor
Certificateholders be liable for the share of the Servicing Fee
to be paid by the Transferor. Any Servicing Fees shall be
payable to the Servicer solely pursuant to the terms of, and to
the extent amounts are available for payment as provided in,
Article IV and any Supplement. In the event a Successor Servicer
is appointed pursuant to Section 10.02, the Servicing Fee
Percentage for each outstanding Series with respect to such
Successor Servicer shall be equal to the Servicing Fee Percentage
for such Series in effect immediately prior to the appointment of
such Successor Servicer or such other percentage as is reasonable
at such time in the reasonable judgment of the Trustee and the
Majority Certificateholders of such Series.
The Servicer's expenses include the fees and
disbursements of independent accountants, all other expenses
incurred by the Servicer in connection with its activities
hereunder, and all other fees and expenses of the Trust
(including all fees and expenses due to any Lock-Box Bank
relating to a Lock-Box Account or Post Office Box) not expressly
stated herein to be for the account of the Certificateholders;
PROVIDED that in no event shall the Servicer be liable for any
federal, state or local income or franchise tax, or any interest
or penalties with respect thereto, assessed on the Trust, the
Trustee or the Certificateholders except as expressly provided
herein. The Servicer shall be required to pay expenses for its
own account and shall not be entitled to any payment or
reimbursement therefor other than the Servicing Fee.
Section 3.03 REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE SERVICER. Factors as initial Servicer, and any Successor
Servicer by its acceptance of appointment hereunder, hereby
represents, warrants and covenants, in the case of the initial
Servicer, as of the date of this Agreement and the Initial
Closing Date and, with respect to any Series as of the date of
any Supplement and the related Closing Date, and in the case of
any Successor Servicer, as of the date of its appointment (except
that, as of such date of appointment, no representation, warranty
or covenant is made by such Successor Servicer with respect to
paragraphs (l) and (q) below) and, with respect to any Series
issued after such date, as of the date of the related Supplement
and the related Closing Date, in each case unless otherwise
stated in such Supplement:
(a) ORGANIZATION AND GOOD STANDING. The Servicer is a
corporation duly organized, validly existing and in good standing
under the laws of its state of incorporation, and has full
corporate power as a corporation organized under the laws of its
state of incorporation and authority granted by its board of
directors, any committees thereof and otherwise granted or
permitted by applicable law to execute, deliver and perform its
obligations under this Agreement and any Supplement, and has the
legal right to execute, deliver and perform its obligations under
this Agreement and any Supplement and in all material respects
has the legal right to own its property and conduct its business
as such properties are presently owned and as such business is
presently conducted.
(b) DUE QUALIFICATION. The Servicer is duly qualified
to do business and is in good standing as a foreign corporation
(or is exempt from such requirements), and has obtained all
necessary licenses and approvals, in each jurisdiction in which
the failure to be so qualified, to be in good standing or to
obtain such licenses and approvals would have a material adverse
effect on the Certificateholders (without regard to Enhancement)
or upon the ability of the Servicer to perform its obligations
under this Agreement.
(c) DUE AUTHORIZATION. The execution, delivery and
performance of this Agreement and any Supplement, and the
consummation of the transactions provided in this Agreement and
any Supplement, have been duly authorized by the Servicer by all
necessary corporate action on the part of the Servicer.
(d) BINDING OBLIGATION. This Agreement and any
Supplement constitute legal, valid and binding obligations of the
Servicer, enforceable against it in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws now
or hereinafter in effect, relating to the enforcement of
creditors' rights in general and except as such enforceability
may be limited by general principles of equity (whether
considered in a proceeding at law or in equity).
(e) NO VIOLATION. The execution and delivery of this
Agreement and any Supplement by the Servicer, and the performance
of the transactions contemplated by this Agreement and any
Supplement and the fulfillment of the terms hereof applicable to
the Servicer, will not conflict with, violate, result in any
breach of any of the terms and provisions of, or constitute (with
or without notice or lapse of time or both) a default under, or
require any consent, approval or registration under, any
Requirement of Law applicable to the Servicer or any indenture,
contract, agreement, mortgage, deed of trust or other instrument
to which the Servicer is a party or by which it is bound, except
where the violation, breach, default or failure to obtain such
consent, approval or registration would not have a material
adverse effect upon the Certificateholders (without regard to
Enhancement for any Series) or upon the ability of the Servicer
to perform its obligations under this Agreement or upon the
collectibility of the Advances and related Receivables as a
whole.
(f) NO PROCEEDING. There are no proceedings or
investigations pending or, to the best knowledge of the Servicer,
threatened against the Servicer before any Governmental Authority
(i) seeking to prevent the issuance of the Certificates or the
consummation of any of the transactions contemplated by this
Agreement or any Supplement, (ii) seeking any determination or
ruling that, in the reasonable judgment of the Servicer, would
materially and adversely affect the performance by the Servicer
of its obligations under this Agreement or any Supplement, or
(iii) seeking any determination or ruling that would materially
and adversely affect the validity or enforceability of this
Agreement or any Supplement.
(g) COMPLIANCE WITH REQUIREMENTS OF LAW. The Servicer
shall (i) duly satisfy all obligations on its part to be
fulfilled under or in connection with the Advances, the related
Receivables and the Related Property; (ii) maintain in effect all
qualifications to do business required under Requirements of Law
in order to service properly the Advances, the related
Receivables and the Related Property; and (iii) comply in all
material respects with all Requirements of Law applicable to the
Advances and related Receivables and in connection with servicing
the Advances, the related Receivables and the Related Property.
(h) NO RESCISSION OR CANCELLATION. The Servicer shall
not permit any rescission or cancellation of an Advance or
related Receivable or any Factoring Agreement or Contract related
thereto except (i) as ordered by a court of competent
jurisdiction or other Governmental Authority or (ii) in the
ordinary course of its business and in accordance with the Loan
and Credit Policy.
(i) PROTECTION OF CERTIFICATEHOLDERS' RIGHTS. The
Servicer shall take no action which, nor omit to take any action
the omission of which, in any material respect would impair the
rights of Certificateholders or any Enhancement Provider in any
Advance, the related Receivables or the Related Property.
(j) ALL CONSENTS REQUIRED. All approvals,
authorizations, consents, orders or other actions of any Person
or of any Governmental Authority required in connection with the
execution and delivery by the Servicer of this Agreement and any
Supplement, the performance by the Servicer of the transactions
contemplated by this Agreement and any Supplement and the
fulfillment by the Servicer of the terms hereof and thereof, have
been obtained or have been completed and are in full force and
effect (other than approvals, authorizations, consents, orders or
other actions which if not obtained or completed or in full force
and effect would not have a material adverse effect on
Certificateholders (without regard to Enhancement for any
Series)). Notwithstanding anything to the contrary in this
Agreement, the Servicer makes no representation or warranty
regarding state securities or "blue sky" laws in connection with
the transactions contemplated by this Agreement or any
Supplement.
(k) LOAN AND CREDIT POLICY. The Servicer, (i) except
as otherwise permitted in Section 3.01(e), shall not extend,
amend or otherwise modify the terms of any Advance or any related
Receivable, or amend, modify or waive any term or condition of
any Factoring Agreement or Contract, respectively, related
thereto, in any manner which would have a material adverse effect
on the interests of the Certificateholders or any Enhancement
Provider or the Trust, including extending the due dates, or
impairing the collectibility of the Advances and related
Receivables and (ii) shall comply in all material respects with
the Loan and Credit Policy in regard to each Advance and the
related Factoring Agreement and each Receivable and the related
Contract.
(l) NO CHANGE IN ABILITY TO SERVICE. With respect to
the initial Servicer only, since the Initial Closing Date there
has been no material adverse change in the ability of the
Servicer to service and collect the Advances, the related
Receivables and the Related Property.
(m) MODIFICATION OF SYSTEMS. Except as described in
Exhibit 3.03(m), the Servicer agrees, promptly after the
replacement or any material modification of any computer,
automation or other operating systems (in respect of hardware or
software) used to provide the Servicer's services as Servicer or
to make any calculations or reports hereunder, to give notice of
any such replacement or modification to the Trustee, each
Enhancement Provider and each of the Rating Agencies.
(n) BUSINESS DAYS. No later than December 1 of each
year, the Servicer shall furnish the Trustee with a list of days
other than Saturday and Sunday on which the office of the
Servicer listed in Section 13.05 shall be closed during the
immediately succeeding year, and the Servicer shall furnish a
list of such days to the Trustee on or before the Initial Closing
Date with respect to the calendar year 1994.
(o) KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The
Servicer shall maintain and implement administrative and
operating procedures (including the ability to recreate records
evidencing the Advances and related Receivables in the event of
the destruction of the originals thereof), and keep and maintain
all documents, books, computer records and other information,
reasonably necessary or advisable for the collection of all the
Advances and related Receivables and the Related Property. Such
documents, books and computer records shall reflect all facts
giving rise to the Advances and related Receivables and the
Related Property, all payments and credits with respect thereto,
and the computer records shall indicate the interests of the
Trust in the Advances and related Receivables and Related
Property.
(p) PERFORMANCE AND COMPLIANCE WITH FACTORING
AGREEMENTS. The Servicer shall or, if Factors is no longer the
Servicer, Factors shall timely and fully perform and comply with
all material provisions, covenants and other promises required to
be observed by it under the Factoring Agreements related to the
Advances.
(q) NO SERVICER DEFAULT. No Servicer Default has
occurred or is continuing.
(r) NO EARLY AMORTIZATION EVENT. No Early
Amortization Event, Prospective Early Amortization Event or
Accumulation Event has occurred or is continuing, except for any
such event that has been properly disclosed in each applicable
Daily Report or Settlement Statement.
In the event there is any breach of any of the
representations, warranties or covenants of the Servicer
contained in Section 3.03(g), (h), (i) or (k) with respect to any
Advance or related Receivable or the related Designated Account
and as a result thereof, such Advance or related Receivable has
been charged off as uncollectible or the proceeds of any such
Advance or Receivable are not available to the Trustee for the
benefit of the Certificateholders from time to time, then upon
the expiration of 30 days from the earlier to occur of the
discovery of any such event by the Servicer or receipt by the
Servicer of written notice of such event given by the Trustee
(such notice to be given by a Responsible Officer of the Trustee
promptly after the receipt by such Responsible Officer of written
notice thereof), the Servicer shall accept the transfer of each
Designated Account containing any Advance as to which such event
relates on the terms and conditions set forth below; PROVIDED,
HOWEVER, that no such removal shall be required to be made with
respect to a Designated Account if, within such 30-day period,
such representations, warranties or covenants with respect to
such Advance, such related Receivables and such Designated
Account shall be true and correct or shall have been complied
with, in all material respects. The Servicer shall accept the
transfer of the Advance in such Removed Account, each related
Receivable and the Related Property and all monies due or to
become due with respect thereto by making or causing to be made a
deposit into the Concentration Account in immediately available
funds on or prior to the Determination Date following the
Settlement Period during which such obligation arises in an
amount equal to the Transfer Deposit Amount for such Removed
Account, which deposit shall be deemed a Principal Collection and
allocated in accordance with Section 4.03. Upon each such
transfer of a Removed Account to the Servicer, the Trustee shall
automatically and without further action be deemed to transfer,
assign and otherwise convey to or upon the order of the Servicer,
without recourse, representation or warranty, all right, title
and interest of the Trust in and to the Advance in such Removed
Account, each related Receivable, the Related Property and all
monies due or to become due with respect thereto and all proceeds
thereof, and to release and terminate the security interest
granted pursuant to Section 2.02(c) to the extent it covers such
property; and such Advance shall be treated by the Trustee as
collected in full as of the date on which such Transfer Deposit
Amount in respect of such Removed Account is deposited in the
Concentration Account. The Trustee shall execute such documents
and instruments of transfer or assignment as shall be prepared by
the Servicer, and shall take such other actions as shall be
reasonably requested by the Servicer, to effect the conveyance of
any Removed Account pursuant to this Section. The obligation of
the Servicer to accept the transfer of any such Advance, the
related Receivables, the Related Property and all monies due or
to become due shall, except as provided in Article IX, Article X
or Section 13.19, constitute the sole remedy with respect to any
breach of the representations, warranties and covenants set forth
in Section 3.03(g), (h), (i) or (k) available to
Certificateholders or the Trustee on behalf of Certificate-
holders.
Section 3.04 RECORDS AND REPORTS FOR THE TRUSTEE.
(a) DAILY RECORDS. Upon reasonable prior notice by
the Trustee, the Servicer shall make available at an office of
the Servicer selected by the Servicer for inspection by the
Trustee on a Business Day during the Servicer's normal business
hours a record setting forth (i) the Collections on each Advance
and each Receivable and (ii) the amount of Advances and
Receivables for the Business Day preceding the date of the
inspection. The Servicer shall, at all times, maintain its
computer files with respect to the Advances and Receivables in
such a manner so that each Advance and each of its related
Receivables may be specifically identified and related to one
another and, upon reasonable prior request of the Trustee, shall
make available to the Trustee at an office of the Servicer
selected by the Servicer on any Business Day during the
Servicer's normal business hours any computer programs necessary
to make such identification. The Transferor and Factors shall,
at all times, maintain their respective computer files with
respect to the Advances and Receivables in such a manner so that
each Advance and each of its related Receivables may be
specifically identified and related to one another and, upon
reasonable prior request of the Servicer or Trustee, shall make
available to the Servicer or Trustee at an office of Transferor
or Factors selected by the Transferor or Factors, as the case may
be, on any Business Day during the normal business hours any
computer programs necessary to make such identification. Nothing
in this Section 3.04 shall affect the obligations of the Servicer
in Section 10.01.
(b) DAILY REPORT.
(i) On each Business Day, the Servicer shall
prepare, or, if Factors is not the Servicer, Factors shall
cooperate with the Successor Servicer in preparing, a
completed Daily Report.
(ii) The Servicer shall, or if Factors is not the
Servicer, the Successor Servicer shall (with information
provided by Factors prior to 12:00 noon (New York City time)
on such day and Factors hereby agrees to so supply such
information), deliver to the Trustee and each Enhancement
Provider the Daily Report by 12:00 noon (New York City time)
on each Business Day with respect to (A) activity in the
Advances and Receivables for the prior Business Day (or, in
the case of a Daily Report delivered on the second Business
Day following a Saturday, Sunday or other non-Business Day,
the aggregate activity for the preceding Business Day and
such non-Business Days) and (B) the funds that the Servicer
has directed the Lock-Box Banks to transfer from the Lock-
Box Accounts to the Concentration Account on such Business
Day. In the event a Daily Report is delivered to the
Trustee after 12:00 noon on any Business Day, the Trustee
shall use its best efforts to act in accordance with the
instructions contained therein, but the Trustee shall not be
liable in such event for failing to fully comply with such
instructions on such Business Day.
(iii) Upon discovery of any error or receipt of
notice of any error in any Daily Report, the Servicer, the
Transferor and the Trustee shall arrange to confer and shall
agree upon any adjustments necessary to correct any such
errors. Until correction of such error, the Trustee shall
retain all Collections (or such lesser amount as the Trustee
and the Servicer shall agree to be necessary to cover any
error) in the Concentration Account. Unless the Trustee has
received actual notice of any error in a Daily Report, the
Trustee may rely on such Daily Report for all purposes
hereunder.
(c) SETTLEMENT STATEMENT. On each Determination Date,
the Servicer shall, or if Factors is not the Servicer, the
Successor Servicer shall (with information provided by Factors
prior to 12:00 noon (New York City time) on such day and Factors
hereby agrees to so supply such information), deliver to the
Trustee, the Paying Agent, each Enhancement Provider and the
Rating Agencies the Settlement Statement for the related
Settlement Period.
Section 3.05 ANNUAL SERVICER'S CERTIFICATE. The
Servicer will deliver to the Trustee, each Enhancement Provider
and each of the Rating Agencies on or before March 31 of each
calendar year, beginning with March 31, 1995, an Officer's
Certificate substantially in the form of EXHIBIT 3.05 stating
that (a) a review of the activities of the Servicer during the
preceding fiscal year of the Servicer and of its performance
under this Agreement and any Supplement was made under the
supervision of the officer signing such certificate and (b) to
the best of such officer's knowledge, based on such review, the
Servicer has fully performed or has caused to be fully performed
all of its obligations under this Agreement and any Supplement
throughout such year, or, if there has been a default in the
performance of any such obligation, specifying each such default
known to such officer and the nature and status thereof.
Section 3.06 PUBLIC ACCOUNTANTS' SERVICING REPORTS.
(a) On or before 45 days after the end of each
calendar quarter, beginning with the calendar quarter ending
September 30, 1994, the Servicer shall cause Deloitte & Touche or
another firm of Independent Public Accountants (who may also
render other services to the Servicer or the Transferor) to
furnish a report (which report shall cover such calendar quarter)
to the Trustee, each Enhancement Provider and each Rating Agency,
in substantially the form of EXHIBIT 3.06(A)-1 hereto, to the
effect that they have applied certain agreed upon procedures and
examined certain documents and records relating to the servicing
of Advances and related Receivables under this Agreement and
setting forth their findings, based upon such agreed-upon
procedures, with respect to the servicing (including the
allocation of Collections) conducted pursuant to the terms and
conditions set forth in Sections 3.01, 3.02, 3.04, 3.05, 4.02,
4.03, 4.04, 4.05, 4.06, and 12.01 of this Agreement and any
Supplement. The quarterly report for the quarter for which each
annual audit of the Servicer is performed shall be in the
expanded form of EXHIBIT 3.06(A)-2.
(b) The Servicer shall cause Deloitte & Touche or
another firm of Independent Public Accountants (who may also
render other services to the Servicer or the Transferor) to
furnish a report to the Trustee and each Enhancement Provider, on
or prior to the fifteenth Business Day after the first
Determination Date following the Initial Closing Date, to the
effect that they have compared the mathematical calculations of
each amount set forth in the Settlement Statements and Daily
Reports forwarded by the Servicer pursuant to Sections 3.04(b)
and (c) during the period covered by such report (which shall be
the period from the Initial Closing Date to and including the
first Determination Date after the Initial Closing Date) with the
Servicer's computer reports which were the source of such amounts
and that on the basis of such comparison, such accountants have
found that such amounts are in agreement, except for such
exceptions as they believe to be immaterial and such other
exceptions as shall be set forth in such statement. The Servicer
shall promptly forward a copy of such report to each Rating
Agency. In the event that such accountants' report contains
material exceptions, the Servicer shall have 30 days from the
date of such report to correct the basis of the calculations
which resulted in such exception.
(c) On or before March 31 of each calendar year,
beginning with March 31, 1995, the Servicer shall cause Deloitte
& Touche or another firm of Independent Public Accountants (who
may also render other services to the Servicer or the Transferor)
to furnish a report to the Trustee and each Enhancement Provider
to the effect that they have compared the mathematical
calculations of each amount set forth in the Settlement
Statements forwarded by the Servicer pursuant to Section 3.04(c)
during the period covered by such report (which shall be the
period from and including January 1 of the prior calendar year to
and including December 31 of the prior calendar year) with the
Servicer's computer reports which were the source of such amounts
and that on the basis of such comparison, such accountants have
found that such amounts are in agreement, except for such
exceptions as they believe to be immaterial and such other
exceptions as shall be set forth in such statement. The Servicer
shall promptly forward a copy of such report to each Rating
Agency.
Section 3.07 TAX TREATMENT. The Transferor and the
initial Holder of the Subordinated Certificates have entered into
this Agreement, and the Senior Certificates have been (or will
be) issued, with the intention that such Senior Certificates will
qualify under applicable tax law as indebtedness secured by the
Advances and the related Receivables. The Transferor, each
Subordinated Certificateholder and each Senior Certificateholder
by acceptance of its Senior Certificate and each Certificate
Owner acquiring an interest in a Senior Certificate by reason of
such acquisition agrees to treat the Senior Certificates as
indebtedness for purposes of federal, state and local income or
franchise taxes and for any other tax imposed on or measured by
income. The Trustee hereby agrees to treat the Trust as a
security device only, and shall not file tax returns or obtain an
employer identification number on behalf of the Trust. The
Transferor covenants and agrees to pay when due any AD VALOREM
tax imposed upon it or the Trust as owner of the Advances or
interests in related Receivables.
Section 3.08 NOTICES TO TRANSFEROR. The Servicer
shall deliver or make available to the Transferor each
certificate and report required to be prepared, forwarded or
delivered pursuant to Sections 3.04, 3.05 and 3.06.
Section 3.09 COVENANT TO MAINTAIN PRIVILEGES. The
Servicer shall maintain all of its rights, powers and privileges
material to the collectibility of the Advances and the related
Receivables.
Section 3.10 SERVICER PRINCIPAL ADVANCE. The
Servicer may, at its option, advance funds (a "SERVICER PRINCIPAL
ADVANCE") in respect of any Advance; PROVIDED that the Servicer
certifies that it reasonably believes such Servicer Principal
Advance is recoverable and PROVIDED, FURTHER, that the Servicer
shall not be permitted to make any Servicer Principal Advance on
any date if the sum of (x) the amount of such proposed Servicer
Principal Advance and (y) the amount of all prior Servicer
Principal Advances relating to Eligible Accounts at the time of
the proposed Servicer Principal Advance (less any amount received
by the Servicer in repayment of such Servicer Principal Advances)
shall exceed 10% of the aggregate amount of all Eligible Advances
on such date. The amount of such Servicer Principal Advance
shall bear interest at the rate applicable in respect of such
Advance and the Supplement for each Series shall provide that
such Series shall pay its Series Allocation Percentage of such
accrued interest out of the Interest Collections allocated to
such Series pursuant to Section 4.03. Upon any Collection on
such Advance received by the Trustee, the Trustee shall first
reimburse the Servicer in such manner as may be specified in any
Supplement. If the Servicer elects to make such Servicer
Principal Advance it shall notify the Trustee and the Servicer
will deposit or cause to be deposited into the Concentration
Account on such day the Servicer Principal Advance. Any Servicer
Principal Advance so deposited in the Concentration Account shall
be deemed to constitute Principal Collections.
ARTICLE IV
RIGHTS OF CERTIFICATEHOLDERS AND ALLOCATION
AND APPLICATION OF COLLECTIONS
Section 4.01 RIGHTS OF CERTIFICATEHOLDERS. The Senior
Certificates of each Series shall evidence an interest in the
Trust Assets representing the right to receive Collections and
other amounts at the times and in the amounts specified in this
Article IV to be deposited in such Series' Interest Funding Sub-
Account, Principal Funding Sub-Account, Excess Funding Sub-
Account, Accumulation Sub-Account, Cash Collateral Sub-Account or
any other Series Account or paid to or on behalf of the Holders
of the Senior Certificates (the "SENIOR INVESTORS' INTEREST").
The Subordinated Certificates, if any, of each Series shall
evidence an interest in the Trust Assets representing the right
to receive Collections and other amounts at the times and in the
amounts specified in this Article IV to be deposited in such
Series' Interest Funding Sub-Account, Principal Funding Sub-
Account, Accumulation Sub-Account, Cash Collateral Sub-Account or
any other Series Account or paid to or on behalf of the Holders
of the Subordinated Certificates (the "SUBORDINATED INVESTORS'
INTEREST"). The Transferor Certificate shall represent the
remaining interest in the Trust Assets, including (i) the right
to receive Collections and other amounts at the times and in the
amounts specified in this Article IV to be paid to or on behalf
of the Holder of the Transferor Certificate and (ii) the right to
receive any funds remaining on deposit in the Series Accounts of
any Series after the payment in full of all amounts owing to the
Investor Certificateholders of such Series (the "TRANSFEROR'S
INTEREST"); PROVIDED, HOWEVER, that such certificate shall not
represent any interest in the Concentration Account (except to
the extent provided in this Agreement) and neither the Transferor
nor the Servicer shall have the right to withdraw funds from the
Concentration Account or to receive funds on deposit therein
except as and when provided by this Agreement.
Section 4.02 ESTABLISHMENT OF INTEREST FUNDING
ACCOUNT, EXCESS FUNDING ACCOUNT, CASH COLLATERAL ACCOUNT,
ACCUMULATION ACCOUNT, PRINCIPAL FUNDING ACCOUNT AND CONCENTRATION
ACCOUNT.
(a) THE INTEREST FUNDING ACCOUNT. The Trustee, for
the benefit of the Certificateholders, shall establish or shall
cause to be established and maintained in the name of the
Trustee, on behalf of the Trust, a segregated trust account (the
"INTEREST FUNDING ACCOUNT") that shall be an Eligible Trust
Account, bearing a designation clearly indicating that the funds
deposited therein are held for the benefit of the
Certificateholders and shall establish within the Interest
Funding Account a sub-account (each, a "INTEREST FUNDING SUB-
ACCOUNT") for each Series. The Interest Funding Account shall be
under the sole dominion and control of the Trustee for the
benefit of the Certificateholders from time to time; each
Interest Funding Sub-Account shall be under the sole dominion and
control of the Trustee for the benefit of the Certificateholders
from time to time of the Series to which it relates. If, at any
time, the Interest Funding Account and Interest Funding Sub-
Accounts cease to be Eligible Trust Accounts, the Trustee shall
within 10 Business Days of a Responsible Officer learning of such
event establish a new Interest Funding Account with Interest
Funding Sub-Accounts meeting the conditions specified above as
Eligible Trust Accounts, transfer any cash and/or any investments
to such new Interest Funding Account and Interest Funding Sub-
Accounts and from the date such new Interest Funding Account and
Interest Funding Sub-Accounts are established, they shall be the
"Interest Funding Account" and its "Interest Funding Sub-
Accounts". Neither the Transferor nor the Servicer, nor any
Person claiming by, through or under the Transferor or Servicer,
shall have any right, title or interest in, or any right to
withdraw any amount from, the Interest Funding Account or its
Interest Funding Sub-Accounts except to the extent provided in
this Agreement. Pursuant to the authority granted to the
Servicer pursuant to Section 3.01(a), the Servicer shall have the
revocable power to instruct the Trustee to make allocations,
withdrawals and payments from or within, as the case may be, the
Interest Funding Account and its Interest Funding Sub-Accounts
for the purposes of carrying out the Servicer's, and, where
applicable, the Trustee's duties hereunder. Unless otherwise
specified, all references to the Interest Funding Account herein
shall be references to the general account.
(b) ADMINISTRATION OF THE INTEREST FUNDING ACCOUNT.
Funds on deposit in the Interest Funding Account and its Interest
Funding Sub-Accounts (other than interest, investment earnings
and amounts deposited pursuant to Sections 2.04(c), 3.03, 9.02 or
Article XII) shall at the direction of the Servicer be invested
by the Trustee in Eligible Investments that will mature so that
such funds will be available prior to the applicable Payment Date
following such investment. Any funds on deposit in the Interest
Funding Account and its Interest Funding Sub-Accounts to be so
invested shall be invested solely in Eligible Investments. Any
request by the Servicer to invest funds on deposit in the
Interest Funding Account or its Interest Funding Sub-Accounts
shall be in writing and shall certify that the requested
investment is an Eligible Investment which matures at or prior to
the time required hereby. The Trustee shall maintain possession
of the negotiable instruments or securities, if any, evidencing
the Eligible Investments described in clause (a) of the
definition thereof from the time of purchase thereof until
maturity. All interest and investment earnings (net of losses
and investment expenses) on funds on deposit in the Interest
Funding Account and its Interest Funding Sub-Accounts shall
remain on deposit in said Interest Funding Account or Interest
Funding Sub-Account and be treated as Interest Collections in
respect thereof. Neither the Transferor nor the Servicer shall
deposit any of their funds in the Interest Funding Account or any
Interest Funding Sub-Account at any time except for funds
unconditionally required to be paid on account of the purchase
price of Advances pursuant to this Agreement or as specified in
any Supplement.
(c) IDENTIFICATION OF INTEREST FUNDING ACCOUNT.
EXHIBIT 4.02(C) identifies the Interest Funding Account by
setting forth the account number of such account, the account
designation of such account and the name and location of the
institution with which such account has been established. Each
Interest Funding Sub-Account of the Interest Funding Account in
respect of a Series shall be identified in the Supplement related
thereto.
(d) THE EXCESS FUNDING ACCOUNT. The Trustee, for the
benefit of the Certificateholders, shall establish or shall cause
to be established and maintained in the name of the Trustee, on
behalf of the Trust, a segregated trust account (the "EXCESS
FUNDING ACCOUNT") that shall be an Eligible Trust Account,
bearing a designation clearly indicating that the funds deposited
therein are held for the benefit of the Certificateholders and
shall establish for each Series its own designated sub-account
(each, an "EXCESS FUNDING SUB-ACCOUNT") within the Excess Funding
Account. On each Business Day, all amounts (excluding interest
and other investment earnings (net of losses and investment
expenses)) on deposit in any Excess Funding Sub-Account shall be
applied as set forth in the Supplement related to such Series.
The Excess Funding Account shall be under the sole dominion and
control of the Trustee for the benefit of the Certificateholders
from time to time; each Excess Funding Sub-Account shall be under
the sole dominion and control of the Trustee for the benefit of
the Certificateholders from time to time of the Series to which
it relates. If, at any time, the Excess Funding Account and its
Excess Funding Sub-Accounts cease to be Eligible Trust Accounts,
the Trustee shall within 10 Business Days of a Responsible
Officer learning of such event establish a new Excess Funding
Account (together with all necessary Excess Funding Sub-Accounts
in respect thereof) meeting the conditions specified above as
Eligible Trust Accounts, transfer any cash and/or any investments
to such new Excess Funding Account and its Excess Funding Sub-
Accounts and from the date such new Excess Funding Account and
its Excess Funding Sub-Accounts are established, they shall be
the "Excess Funding Account" and its "Excess Funding Sub-
Accounts". Neither the Transferor nor the Servicer, nor any
Person claiming by, through or under the Transferor or the
Servicer, shall have any right, title or interest in, or any
right to withdraw any amount from, the Excess Funding Account or
its Excess Funding Sub-Accounts except to the extent provided in
this Agreement. Pursuant to the authority granted to the
Servicer pursuant to Section 3.01(a), the Servicer shall have the
revocable power to instruct the Trustee to make allocations,
withdrawals and payments from or within the Excess Funding
Account and its Excess Funding Sub-Accounts, as the case may be,
for the purposes of carrying out the Servicer's duties under this
Agreement. Unless otherwise specified, all references to the
Excess Funding Account herein shall be references to the general
account.
(e) ADMINISTRATION OF THE EXCESS FUNDING ACCOUNT.
Funds on deposit in the Excess Funding Account and its Excess
Funding Sub-Accounts (other than interest and investment
earnings) shall be invested by the Trustee at the direction of
the Servicer in Eligible Investments that will mature on each
Business Day on a daily basis. Any funds on deposit in the
Excess Funding Account and its Excess Funding Sub-Accounts to be
so invested shall be invested solely in Eligible Investments.
Any request by the Servicer to invest funds on deposit in the
Excess Funding Account and its Excess Funding Sub-Accounts shall
be in writing and shall certify that the requested investment is
an Eligible Investment which matures at or prior to the time
required hereby. The Trustee shall maintain possession of the
negotiable instruments or securities, if any, evidencing the
Eligible Investments described in clause (a) of the definition
thereof from the time of purchase thereof until maturity. All
interest and investment earnings (net of losses and investment
expenses) on funds on deposit in the Excess Funding Sub-Account
for any Series shall on each Business Day be withdrawn from such
Excess Funding Sub-Account, be deposited in the Interest Funding
Sub-Account for such Series and be treated as Interest
Collections allocable to such Series.
(f) IDENTIFICATION OF EXCESS FUNDING ACCOUNT. EXHIBIT
4.02(F) identifies the Excess Funding Account by setting forth
the account number of such account, the account designation of
such account and the name and location of the institution with
which such account has been established. Each Excess Funding
Sub-Account shall be identified in the Supplement related
thereto.
(g) THE CASH COLLATERAL ACCOUNT. The Trustee, for the
benefit of the Certificateholders, shall establish or shall cause
to be established and maintained in the name of the Trustee, on
behalf of the Trust, a segregated trust account (the "CASH
COLLATERAL ACCOUNT") that shall be an Eligible Trust Account,
bearing a designation clearly indicating that the funds deposited
therein are held for the benefit of the Certificateholders and
shall establish for each Series of Certificates its own
designated sub-account (each, a "CASH COLLATERAL SUB-ACCOUNT")
within the Cash Collateral Account. The Cash Collateral Account
shall be under the sole dominion and control of the Trustee for
the benefit of the Certificateholders; each Cash Collateral Sub-
Account shall be under the sole dominion and control of the
Trustee for the benefit of the Certificateholders of the Series
to which it relates. If, at any time, the Cash Collateral
Account and the Cash Collateral Sub-Accounts cease to be Eligible
Trust Accounts, the Trustee shall within 10 Business Days of a
Responsible Officer learning of such event establish a new Cash
Collateral Account and new Cash Collateral Sub-Accounts meeting
the conditions specified above as Eligible Trust Accounts,
transfer any cash and/or any investments to such new Cash
Collateral Account and Cash Collateral Sub-Accounts and from the
date such new Cash Collateral Account and new Cash Collateral
Sub-Accounts are established, they shall be the "Cash Collateral
Account" and the "Cash Collateral Sub-Accounts." Neither the
Servicer nor any Person claiming by, through or under the
Servicer shall have any right, title or interest in, or any right
to withdraw any amount from, the Cash Collateral Account or its
Cash Collateral Sub-Accounts except to the extent provided in
this Agreement. Pursuant to the authority granted to the
Servicer pursuant to Section 3.01(a), the Servicer shall have the
revocable power to instruct the Trustee to make withdrawals and
payments from the Cash Collateral Account and the Cash Collateral
Sub-Accounts for the purposes of carrying out the Servicer's,
and, where applicable, the Trustee's duties hereunder. Unless
otherwise specified, all references to the Cash Collateral
Account herein shall be references to the general account.
(h) ADMINISTRATION OF THE CASH COLLATERAL ACCOUNT.
Funds on deposit in the Cash Collateral Account and the Cash
Collateral Sub-Accounts (other than interest and investment
earnings) shall at the direction of the Servicer be invested by
the Trustee in Eligible Investments that will mature so that such
funds will be available prior to the next applicable Payment Date
following such investment. Any funds on deposit in the Cash
Collateral Account and the Cash Collateral Sub-Accounts to be so
invested shall be invested solely in Eligible Investments. Any
request by the Servicer to invest funds on deposit in the Cash
Collateral Account and the Cash Collateral Sub-Accounts shall be
in writing and shall certify that the requested investment is an
Eligible Investment which matures at or prior to the time
required hereby. The Trustee shall maintain possession of the
negotiable instruments or securities, if any, evidencing the
Eligible Investments described in clause (a) of the definition
thereof from the time of purchase thereof until maturity. All
interest and investment earnings (net of losses and investment
expenses) on funds on deposit in the Cash Collateral Sub-Account
for any Series shall on each Business Day be withdrawn from such
Cash Collateral Sub-Account, be deposited in the Interest Funding
Sub-Account for such Series and be treated as Interest
Collections allocable to such Series.
(i) IDENTIFICATION OF CASH COLLATERAL ACCOUNT.
EXHIBIT 4.02(I) identifies the Cash Collateral Account by setting
forth the account number of such account, the account designation
of such account and the name and location of the institution with
which such account has been established. The Cash-Collateral
Sub-Account of a Series shall be identified in the Supplement
related thereto.
(j) THE ACCUMULATION ACCOUNT. The Trustee, for the
benefit of the Certificateholders, shall establish or shall cause
to be established and maintained in the name of the Trustee, on
behalf of the Trust, a segregated trust account (the
"ACCUMULATION ACCOUNT") that shall be an Eligible Trust Account,
bearing a designation clearly indicating that the funds deposited
therein are held for the benefit of the Certificateholders and
shall establish for each Series of Certificates its own
designated sub-account (each, an "ACCUMULATION SUB-ACCOUNT")
within the Accumulation Account. The Accumulation Account shall
be under the sole dominion and control of the Trustee for the
benefit of the Certificateholders from time to time; each
Accumulation Sub-Account shall be under the sole dominion and
control of the Trustee for the benefit of the Certificateholders
from time to time of the Series to which it relates. If, at any
time, the Accumulation Account and its Accumulation Sub-Accounts
cease to be Eligible Trust Accounts, the Trustee shall within 10
Business Days of a Responsible Officer learning of such event
establish a new Accumulation Account and Accumulation Sub-
Accounts meeting the conditions specified above as Eligible Trust
Accounts, transfer any cash and/or any investments to such new
Accumulation Account and its Accumulation Sub-Accounts and from
the date such new Accumulation Account and such new Accumulation
Sub-Accounts are established, they shall be the "Accumulation
Account" and its "Accumulation Sub-Accounts". Neither the
Transferor nor the Servicer, nor any Person claiming by, through
or under the Transferor or the Servicer, shall have any right,
title or interest in, or any right to withdraw any amount from,
the Accumulation Account or its Accumulation Sub-Accounts except
to the extent provided in this Agreement. Pursuant to the
authority granted to the Servicer pursuant to Section 3.01(a),
the Servicer shall have the revocable power to instruct the
Trustee to make allocations, withdrawals and payments from or
within the Accumulation Account and its Accumulation Sub-
Accounts, as the case may be, for the purposes of carrying out
the Servicer's duties under this Agreement. Unless otherwise
specified, all references to the Accumulation Account herein
shall be references to the general account.
(k) ADMINISTRATION OF THE ACCUMULATION ACCOUNT. Funds
on deposit in the Accumulation Account and its Accumulation Sub-
Accounts shall be invested by the Trustee at the direction of the
Servicer in Eligible Investments that will mature so that such
funds will be available prior to the applicable Payment Date
following such investment. Any funds on deposit in the
Accumulation Account and its Accumulation Sub-Accounts to be so
invested shall be invested solely in Eligible Investments. Any
request by the Servicer to invest funds on deposit in the
Accumulation Account and its Accumulation Sub-Accounts shall be
in writing and shall certify that the requested investment is an
Eligible Investment which matures at or prior to the time
required hereby. The Trustee shall maintain possession of the
negotiable instruments or securities, if any, evidencing the
Eligible Investments described in clause (a) of the definition
thereof from the time of purchase thereof until maturity. All
interest and investment earnings (net of losses and investment
expenses) on funds on deposit in the Accumulation Sub-Account for
any Series shall remain on deposit in such Accumulation Sub-
Account and be treated as Principal Collections allocable to such
Series.
(l) IDENTIFICATION OF ACCUMULATION ACCOUNT. EXHIBIT
4.02(L) identifies the Accumulation Account by setting forth the
account number of such account, the account designation of such
account and the name and location of the institution with which
such account has been established. Each Accumulation Sub-Account
shall be identified in the Supplement related thereto.
(m) THE PRINCIPAL FUNDING ACCOUNT. The Trustee, for
the benefit of the Certificateholders, shall establish or shall
cause to be established and maintained in the name of the
Trustee, on behalf of the Trust, a segregated trust account (the
"PRINCIPAL FUNDING ACCOUNT") that shall be an Eligible Trust
Account, bearing a designation clearly indicating that the funds
deposited therein are held for the benefit of the
Certificateholders and shall establish within the Principal
Funding Account a sub-account (each, a "PRINCIPAL FUNDING SUB-
ACCOUNT") for each Series. The Principal Funding Account shall
be under the sole dominion and control of the Trustee for the
benefit of the Certificateholders from time to time; each
Principal Funding Sub-Account shall be under the sole dominion
and control of the Trustee for the benefit of the
Certificateholders from time to time of the Series to which it
relates. If, at any time, the Principal Funding Account and its
Principal Funding Sub-Accounts cease to be Eligible Trust
Accounts, the Trustee shall within 10 Business Days after a
Responsible Officer has learned of such event establish a new
Principal Funding Account and its Principal Funding Sub-Accounts
meeting the conditions specified above as Eligible Trust
Accounts, transfer any cash and/or any investments to such new
Principal Funding Account and its Principal Funding Sub-Accounts
and from the date such new Principal Funding Account and its
Principal Funding Sub-Accounts is established, they shall be the
"Principal Funding Account" and its "Principal Funding Sub-
Accounts". Neither the Transferor nor the Servicer, nor any
Person claiming by, through or under the Transferor or Servicer,
shall have any right, title or interest in, or any right to
withdraw any amount from, the Principal Funding Account or its
Principal Funding Sub-Accounts except to the extent provided in
this Agreement. Pursuant to the authority granted to the
Servicer pursuant to Section 3.01(a), the Servicer shall have the
revocable power to instruct the Trustee to make allocations,
withdrawals and payments from or within, as the case may be, the
Principal Funding Account and its Principal Funding Sub-Accounts
for the purposes of carrying out the Servicer's duties under the
Agreement. Unless otherwise specified, all references to the
Principal Funding Account herein shall be references to the
general account.
(n) ADMINISTRATION OF THE PRINCIPAL FUNDING ACCOUNT.
Funds on deposit in the Principal Funding Account and its
Principal Funding Sub-Accounts shall be invested by the Trustee
at the direction of the Servicer in Eligible Investments that
will mature so that such funds will be available prior to the
applicable Payment Date following such investment. Any funds on
deposit in the Principal Funding Account and its Principal
Funding Sub-Accounts to be so invested shall be invested solely
in Eligible Investments. Any request by the Servicer to invest
funds on deposit in the Principal Funding Account or its
Principal Funding Sub-Accounts shall be in writing and shall
certify that the requested investment is an Eligible Investment
which matures at or prior to the time required hereby. The
Trustee shall maintain possession of the negotiable instruments
or securities, if any, evidencing the Eligible Investments
described in clause (a) of the definition thereof from the time
of purchase thereof until maturity. All interest and investment
earnings (net of losses and investment expenses) on funds on
deposit in the Principal Funding Sub-Account for any Series shall
remain on deposit in such Principal Funding Sub-Account and be
treated as Principal Collections allocable to such Series.
(o) IDENTIFICATION OF PRINCIPAL FUNDING ACCOUNT.
EXHIBIT 4.02(O) identifies the Principal Funding Account by
setting forth the account number of such account, the account
designation of such account and the name and location of the
institution with which such account has been established. Each
Principal Funding Sub-Account shall be identified in the
Supplement related thereto.
(p) THE CONCENTRATION ACCOUNT. The Trustee, for the
benefit of all Certificateholders, shall establish or shall cause
to be established and maintained in the name of the Trustee, on
behalf of the Trust, a segregated trust account (the
"CONCENTRATION ACCOUNT") that shall be an Eligible Trust Account,
bearing a designation clearly indicating that the funds deposited
therein are held for the benefit of the Certificateholders. The
Concentration Account shall be under the sole dominion and
control of the Trustee for the benefit of the Certificateholders
from time to time. If, at any time, the Concentration Account
ceases to be an Eligible Trust Account, the Trustee shall within
10 Business Days of a Responsible Officer learning of such event
establish a new Concentration Account meeting the conditions
specified above as an Eligible Trust Account, transfer any cash
and/or any investments to such new Concentration Account and from
the date such new Concentration Account is established, it shall
be the "Concentration Account". Neither the Transferor nor the
Servicer, nor any Person claiming by, through or under the
Transferor or Servicer, shall have any right, title or interest
in, or any right to withdraw any amount from, the Concentration
Account except to the extent provided in this Agreement.
Pursuant to the authority granted to the Servicer pursuant to
Section 3.01(a), the Servicer shall have the revocable power to
instruct the Trustee to make allocations, withdrawals and
payments from or within, as the case may be, the Concentration
Account for the purposes of carrying out the Servicer's, and,
where applicable, the Trustee's duties hereunder.
(q) ADMINISTRATION OF THE CONCENTRATION ACCOUNT. On
each Business Day the Trustee shall allocate funds on deposit in
the Concentration Account in accordance with this Article IV,
each Supplement hereto and the Daily Report received by it on
such day. Neither the Transferor nor the Servicer shall deposit
any of their funds in the Concentration Account at any time
except for funds unconditionally required to be paid on account
of the purchase price of Advances pursuant to this Agreement or
as specified in any Supplement.
(r) IDENTIFICATION OF CONCENTRATION ACCOUNT. EXHIBIT
4.02(R) identifies the Concentration Account by setting forth the
account number of such account, the account designation of such
account and the name and location of the institution with which
such account has been established.
Section 4.03 COLLECTIONS AND ALLOCATIONS.
(a) COLLECTIONS. The Servicer will direct the
allocation, deposit and payment of all Collections with respect
to the Advances and related Receivables for each Business Day as
described in this Article IV. On each Business Day the Servicer
shall direct the Lock-Box Banks to wire funds in respect of such
Collections from the Lock-Box Accounts to the Concentration
Account as provided in Section 3.01(i)(A). In the Daily Report
for such Business Day the Servicer shall direct, and shall
provide such information with respect to such Collections as
shall enable, the Trustee to allocate and pay such Collections as
indicated in Section 4.03(b).
(b) PAYMENTS AND ALLOCATIONS. On each Business Day,
the Trustee, at the written direction of the Servicer, shall
allocate the aggregate amount of Collections available in the
Concentration Account on such Business Day as provided in this
clause (b). "INTEREST COLLECTIONS" for such Business Day shall
mean an amount equal to the sum of (A) collections received from
any Client in respect of interest on such Client's Advance, to
the extent of accrued and unpaid interest thereon, (B)
collections on any Receivable to the extent of accrued and unpaid
interest on the related Advance after application of clause (A),
(C) collections in respect of factoring fees, commissions,
interest or other financing charges or fees pursuant to the
Factoring Agreements and (D) any interest or investment earnings
on amounts on deposit on such Business Day in the Excess Funding
Account, the Cash Collateral Account and the Interest Funding
Account. "PRINCIPAL COLLECTIONS" for such Business Day shall
mean an amount equal to the sum of (A) all collections on the
Advances that are not Recoveries or Interest Collections, (B) all
collections on the Receivables to the extent of the Unpaid
Balance of the Advances related thereto less the amount allocated
to Interest Collections in respect thereof, (C) any interest or
investment earnings on amounts on deposit on such Business Day in
the Accumulation Account and Principal Funding Account and
(D) the amount of any Servicer Principal Advance pursuant to
Section 3.10. On each Business Day, the Servicer shall calculate
the amounts or percentages of the Collections to be withdrawn
from the Concentration Account on such Business Day as provided
below and shall instruct the Trustee to so pay or allocate such
Collections as provided below.
(i) Allocate to each outstanding Series an amount
equal to its Series Allocation Percentage of Interest
Collections for such Business Day (except that all interest
or investment earnings on amounts on deposit in the Excess
Funding Sub-Account, Cash Collateral Sub-Account and
Interest Funding Sub-Account for any Series shall be
allocable solely to such Series).
(ii) Allocate to each outstanding Series an amount
equal to its Series Allocation Percentage of Principal
Collections for such Business Day (except that all interest
or investment earnings on amounts on deposit in the
Accumulation Sub-Account and Principal Funding Sub-Account
for any Series shall be allocable solely to such Series).
(iii) Allocate to each outstanding Series an amount
equal to its Series Allocation Percentage of the Recoveries
for such Business Day.
(iv) Allocate and pay to the Holder of the Transferor
Certificate an amount equal to Receivables Collections for
such Business Day.
Section 4.04 PAYMENTS OF INTEREST COLLECTIONS.
Payments of Interest Collections allocated to a Series shall be
made in the manner set forth in the related Supplement.
Section 4.05 PAYMENT OF PRINCIPAL COLLECTIONS.
Payments of Principal Collections allocated to a Series shall be
made in the manner set forth in the related Supplement.
Section 4.06 PAYMENT OF RECOVERIES; ALLOCATION OF
CHARGEOFFS. Payments of Recoveries allocated to a Series shall
be made in the manner set forth in the related Supplement. Each
Series shall be allocated its Series Allocation Percentage of
each Chargeoff which shall then be allocated among the Classes of
such Series pursuant to the Supplement in respect thereof.
Section 4.07 FUNDS UNRELATED TO ADVANCES OR
RECEIVABLES. In the event that the Trustee shall have received
amounts in respect of payments made by any Person on an
obligation of a Client of Factors, a Client's Customer or other
obligation, in each case which has not been transferred to the
Trustee for the benefit of the Certificateholders from time to
time, the Trustee shall, as soon as practicable and as instructed
in the most recently delivered Daily Report or Settlement
Statement, forward such amounts, in the manner specified in
writing by Factors, to Factors or such other Person as Factors
designates and, pending the forwarding of such amounts, hold such
amounts in trust for Factors or such other Person designated by
Factors. The Trustee will, if requested in writing by Factors,
acknowledge and confirm the foregoing to any Person designated by
Factors. On each Business Day, the Servicer shall withdraw from
amounts on deposit in the Concentration Account all funds not
related to Trust Assets and pay such funds to Factors.
ARTICLE V
DISTRIBUTIONS AND REPORTS TO
CERTIFICATEHOLDERS
Section 5.01 DISTRIBUTIONS. On each Payment Date for
any Series and on each Special Payment Date for any Series, the
Paying Agent shall distribute (in accordance with the Settlement
Statement delivered by the Servicer to the Trustee on the
preceding Determination Date pursuant to Section 3.04(c)) to each
Investor Certificateholder of any Class of such Series of record
on the preceding Record Date (other than as provided in Section
2.04(d) hereof in respect of a reassignment of the Trust
portfolio) such Investor Certificateholder's pro rata share
(based on the aggregate Undivided Interests represented by
Investor Certificates of such Class of such Series held by such
Investor Certificateholder) of amounts on deposit in the
applicable Series Accounts of such Series specified in the
applicable Supplement as are payable to the Investor
Certificateholders of such Class of such Series pursuant to
Sections 4.04, 4.05 or 4.06. Such distribution shall be made by
check mailed to each Certificateholder or, if so stated in any
Supplement, by wire transfer to each Certificateholder so
qualified as stated therein, except that if all Investor
Certificates are registered in the name of Cede & Co., the
nominee registrar for The Depository Trust Company, such
distribution to Investor Certificateholders shall be made in
immediately available funds to The Depository Trust Company. All
payments on account of principal and interest to
Certificateholders of any Series shall be made from amounts on
deposit in the applicable Series Accounts as specified herein or
in the applicable Supplement.
Section 5.02 MONTHLY INVESTOR CERTIFICATEHOLDERS'
STATEMENT; ANNUAL TAX STATEMENT.
(a) On or before each Payment Date, the Paying Agent
shall forward to each Investor Certificateholder of each Series
the Settlement Statement received by the Paying Agent pursuant to
Section 3.04(c).
(b) On or before March 31 of each calendar year,
beginning with calendar year 1995, the Servicer shall deliver to
the Paying Agent, which shall thereupon furnish to each Person
who at any time during the preceding calendar year was a
Certificateholder, a statement prepared by the Servicer
containing the information which is required to be contained in
the regular monthly report to Investor Certificateholders as set
forth in Section 5.02(a), aggregated for such calendar year or
the applicable portion thereof during which such person was a
Certificateholder, together with such other information as is
required to be provided by an issuer of indebtedness under the
Code and such other customary information as the Servicer deems
necessary or desirable, or as may be reasonably requested by any
Certificateholder, to enable the Certificateholders to prepare
their tax returns. Such obligation of the Servicer shall be
deemed to have been satisfied to the extent that substantially
comparable information shall be provided by the Paying Agent
pursuant to this Agreement or pursuant to any requirements of the
Code as from time to time in effect. Notwithstanding anything to
the contrary in this Agreement, the Trustee shall from time to
time after the date hereof furnish to the appropriate Persons a
Form 1099-INT within the periods required by applicable law.
ARTICLE VI
THE CERTIFICATES
Section 6.01 THE CERTIFICATES. The Senior
Certificates of each Series and the Transferor Certificate shall
be substantially in the form of EXHIBITS 6.01-1 and 6.01-2,
respectively, hereto (with such changes as may be specified in
the relevant Supplement). Any Series may have a Class of
Subordinated Certificates and each such Subordinated Certificate
shall be in the form set forth in the Supplement for such Series.
Each Certificate shall, upon its issuance pursuant hereto or to
Section 6.09, be executed and delivered by the Transferor to the
Trustee for authentication and redelivery as provided in Section
6.02. Investor Certificates shall be issued in the minimum
denominations, if any, indicated in the related Supplement. The
Transferor Certificate shall initially be issued in one
certificate to the Transferor. Each Certificate shall be
executed by manual or facsimile signature on behalf of the
Transferor by its Chairman of the Board, its President, its Vice
Chairman of the Board or any Vice President. Certificates
bearing the signature of the individual who was, at the time when
such signature was affixed, authorized to sign on behalf of the
Transferor or the Trustee shall not be rendered invalid,
notwithstanding that such individual has ceased to be so
authorized prior to the authentication and delivery of such
Certificates or does not hold such office at the date of such
Certificates. No Certificate shall be entitled to any benefit
under this Agreement or any applicable Supplement, or be valid
for any purpose, unless there appears on such Certificate a
certificate of authentication substantially in the form provided
for herein executed by or on behalf of the Trustee by the manual
signature of a duly authorized signatory, and such certificate
upon any Certificate shall be conclusive evidence, and the only
evidence, that such Certificate has been duly authenticated and
delivered hereunder. All Certificates shall be dated the date of
their authentication.
Section 6.02 AUTHENTICATION OF CERTIFICATES.
Contemporaneously with the initial assignment and transfer of the
Advances, whether now existing or hereafter created, and the
other components of the Trust to the Trustee for the benefit of
the Certificateholders from time to time, the Trustee shall
authenticate and deliver the Transferor Certificate to the
Transferor and, upon the execution of any Supplement and the
satisfaction of the conditions provided in Section 6.09, shall
authenticate and deliver the Series of Investor Certificates to
be issued thereunder as provided in Section 6.09. The
Certificates of each Series shall be duly authenticated by or on
behalf of the Trustee as provided for herein and in the
applicable Supplement, in authorized denominations equal to (in
the aggregate) the Initial Invested Amount of such Series
specified in such Supplement. As provided in any Supplement,
Investor Certificates of any Series may be issued and sold
pursuant to an effective registration statement under the
Securities Act, or pursuant to an exemption therefrom. In such
former case, such Series of Certificates may be delivered in
book-entry form as provided in Sections 6.10 and 6.11 and, in the
latter, may not be so delivered. Further, if any such Series is
sold pursuant to an exemption from registration under the
Securities Act pursuant to Section 4(2) of the Securities Act or
its substantial equivalent (the "PRIVATE PLACEMENT EXEMPTION") as
stated in the applicable Supplement, the Certificates of such
Series may only be transferred as provided in Section 6.03(e).
Section 6.03 REGISTRATION OF TRANSFER AND EXCHANGE OF
CERTIFICATES.
(a) The Trustee shall cause to be kept at the office
or agency to be maintained by a transfer agent and registrar
(which may be the Trustee) (the "TRANSFER AGENT AND REGISTRAR")
a register (the "CERTIFICATE REGISTER") in which, subject to such
reasonable regulations as it may prescribe, the Transfer Agent
and Registrar shall provide for the registration of each Series
of Investor Certificates and the Transferor Certificate and of
transfers and exchanges of such Certificates as herein provided.
The Trustee is hereby initially appointed Transfer Agent and
Registrar for the purpose of registering each Series of Investor
Certificates and the Transferor Certificate and of registering
transfers and exchanges of the Investor Certificates and the
Transferor Certificate as herein provided. The Trustee shall be
permitted to resign as Transfer Agent and Registrar upon 30 days'
written notice to the Transferor and the Servicer; PROVIDED,
HOWEVER, that such resignation shall not be effective and the
Trustee shall continue to perform its duties as Transfer Agent
and Registrar until the Servicer has appointed a successor
Transfer Agent and Registrar acceptable to the Transferor and the
Majority Certificateholders of all outstanding Series. The
Trustee shall initially register the Transferor Certificate in
the name of the Transferor.
Upon surrender for registration of transfer of any
Investor Certificate of a Series at any office or agency of the
Transfer Agent and Registrar maintained for such purpose, the
Transferor shall execute, and the Trustee shall authenticate and
deliver, in the name of the designated transferee or transferees,
one or more Investor Certificates of such Series in authorized
denominations evidencing the same aggregate Undivided Interests;
PROVIDED, HOWEVER, that any Investor Certificate of any Series
sold pursuant to the Private Placement Exemption shall satisfy
the conditions provided in Section 6.03(e) prior to such
registration of transfer.
At the option of an Investor Certificateholder,
Investor Certificates of a Class of any Series may be exchanged
for one or more Investor Certificates of such Class and Series of
authorized denominations evidencing the same aggregate Undivided
Interests, upon surrender of the Investor Certificates to be
exchanged at any office or agency of the Transfer Agent and
Registrar maintained for such purpose. Whenever any Investor
Certificates are so surrendered for exchange, the Transferor
shall execute, and the Trustee shall authenticate and deliver,
the Investor Certificates which the Investor Certificateholder
making the exchange is entitled to receive. Every Investor
Certificate presented or surrendered for registration of transfer
or exchange shall be accompanied by a written instrument of
transfer in a form reasonably satisfactory to the Trustee and the
Transfer Agent and Registrar (which, unless otherwise specified
by the Trustee, shall be in the form attached as Exhibit A to
EXHIBIT 6.01-2 hereto) duly executed by the Certificateholder
thereof or its attorney duly authorized in writing.
No service charge shall be imposed for any registration
of transfer or exchange of Investor Certificates, but the
Transfer Agent and Registrar may require payment of a sum
sufficient to cover any tax or other governmental charge that may
be imposed in connection with any transfer or exchange of
Investor Certificates.
All Investor Certificates surrendered for registration
of transfer or exchange shall be cancelled by the Transfer Agent
and Registrar and disposed of in a manner satisfactory to the
Trustee or retained by the Trustee in accordance with its
standard retention policy.
(b) Reserved.
(c) Notwithstanding Section 6.03(a) or any other
provision of this Agreement, no Subordinated Certificate nor any
interest represented thereby shall be sold, transferred,
assigned, exchanged, pledged or otherwise conveyed unless (i) the
Holders of 100% of the Transferor Certificates and the Majority
Certificateholders of all outstanding Series shall, in their sole
discretion have consented to such transfer, assignment, exchange,
pledge or conveyance and (ii) the Trustee shall have received a
Tax Opinion.
(d) The Transfer Agent and Registrar will maintain at
its expense in the Borough of Manhattan, the City of New York, an
office or offices or agency or agencies where Certificates may be
surrendered for registration of transfer or exchange.
(e) Until the earlier of (i) such time as the Trustee
shall receive an Officer's Certificate of the Transferor
certifying that a Series of Investor Certificates has been
registered under the Securities Act and qualified under all
applicable state securities laws or (ii) the later of three years
from (A) the Closing Date of such Series and (B) the date an
Investor Certificate (or any predecessor Investor Certificate) of
such Series was last acquired from an "affiliate" of the
Transferor within the meaning of Rule 144, neither the Trustee
nor the Transfer Agent and Registrar shall register a transfer of
such Investor Certificates of such Series or any interest therein
unless such transfer is to be made in a transaction that does not
require such registration or qualification and such Series of
Investor Certificates shall bear a legend to such effect. Any
Investor Certificate of any Series as to which such restrictions
on transfer shall have expired or terminated may, upon surrender
of such Investor Certificate for exchange to the Trustee in
accordance with the provisions hereof, be exchanged for a new
Investor Certificate of the same Series and Class, of like tenor
and aggregate principal amount, which shall not bear the legend
required by the first sentence of this Section 6.03(e). During
such time as such legend is required to be on an Investor
Certificate, in the event that such Investor Certificate is
presented for registration of a transfer the Trustee, in order to
assure compliance with the Securities Act, shall require either
(i) the transferee to deliver to the Trustee and the Transferor
an Opinion of Counsel reasonably satisfactory to the Transferor
and the Trustee that such transfer may be made pursuant to an
exemption from the Securities Act and applicable state securities
laws or (ii) (A) the transferring Certificateholder to deliver to
the Trustee and the Transferor an officer's certificate
reasonably satisfactory to the Trustee stating that such
transferring Certificateholder is a "qualified institutional
buyer" within the meaning of Rule 144A and that such officer
reasonably believes the transferee to be a "qualified
institutional buyer" within the meaning of Rule 144A and (B) the
transferee to deliver to the Trustee and the Transferor an
officer's certificate reasonably satisfactory to the Trustee
stating that such transferee is a "qualified institutional buyer"
within the meaning of Rule 144A and that such transferee is
acquiring such Certificate for its own account or for the account
of a "qualified institutional buyer" within the meaning of Rule
144A and that such transferee understands that such Certificate
has been sold or transferred to it in reliance upon Rule 144A.
Any such Opinion of Counsel or officer's certificate shall be
obtained at the expense of the prospective transferor or
transferee, and not at the expense of the Trustee or the
Transferor, and shall be delivered to the Trustee and the
Transferor prior to or contemporaneously with any such transfer.
Neither the Transferor nor the Trustee shall be obligated to
register any Series of Investor Certificates under any state
securities laws or under the Securities Act or to take any other
action not otherwise required under this Agreement to permit the
transfer of such Series without registration.
The Transferor covenants to furnish or cause to be
furnished promptly upon the request of a Certificateholder, at
any time when the Transferor is not subject to Section 13 or
15(d) of the Exchange Act, Rule 144A Information (as defined
below) to such Certificateholder or to a prospective transferee
of a Certificate or interests in such Certificate designated by
such Certificateholder, as the case may be, in connection with
the resale pursuant to Rule 144A of such Certificate or such
interests by such Certificateholder; PROVIDED, HOWEVER, that the
Transferor shall not be required to furnish such information in
connection with any request made after the date which is the
earlier to occur of (a) the date three years after the later to
occur of (i) the Closing Date with respect to such Certificate
and (ii) the date such Certificate (or any Predecessor
Certificate) was last acquired from an "affiliate" of the
Transferor within the meaning of Rule 144 or (b) the date on
which the Certificates have been sold pursuant to an effective
registration statement filed with the Securities and Exchange
Commission. "Rule 144A Information" shall mean the information
specified in Rule 144A(d)(4)(i) and (ii) under the Securities
Act.
Notwithstanding anything to the contrary contained
herein, in no event shall an Investor Certificate of any Series
which is either (a) not sold pursuant to an effective
registration statement under the Securities Act or (b) so sold
but not intended to be sold to more than 100 Persons, as
evidenced by disclosure in the disclosure document with respect
thereto or any interest therein, be transferred to an employee
benefit plan, trust or account subject to ERISA, or described in
Section 4975(e)(1) of the Code. No Holder of an Investor
Certificate of any Series shall be permitted to transfer its
Investor Certificate, nor shall the Trustee register any such
transfer, unless the Trustee has received an investor letter (an
"INVESTOR LETTER") from the transferee (1) representing and
warranting that it is not a Benefit Plan and (2) if it is
acquiring such Investor Certificate on behalf of more than one
beneficial owner, confirming on behalf of each such beneficial
owner that each such beneficial owner is not a Benefit Plan. As
used in this Section 6.03, "BENEFIT PLAN" shall mean (i) an
employee benefit plan (as defined in Section 3(3) of ERISA) that
is subject to the provisions of Title I of ERISA, (ii) a plan
described in Section 4975(e)(1) of the Code or (iii) an entity
whose underlying assets include plan assets by reason of a plan's
investment in such entity (as contemplated in 29 C.F.R. Section
2510.3-101). By accepting and holding an Investor Certificate by
transfer, the holder of such Investor Certificate represents and
warrants that it is not a Benefit Plan. By acquiring any
interest in an Investor Certificate by transfer, the applicable
Certificate Owner or Owners shall be deemed to have represented
and warranted that it or they are not Benefit Plans. The Trustee
shall not be under any obligation to investigate the truth or
falsity of any Investor Letter.
The Transferor may, on advice of counsel, instruct the
Trustee to take, and the Trustee upon receipt of such instruction
and satisfaction of the further provisions of this paragraph
shall take, all reasonable action necessary, including, without
limitation, requiring Holders of Investor Certificates of any
Series (or, if such Series shall have 2 or more Classes, of any
Class of such Series), which Holders are Benefit Plans, to sell
(on a basis that is equitable, taking into account the relevant
facts and circumstances) Investor Certificates of such Series or
Class, as the case may be, to a third party selected by such
Holder (or, if such Holder shall not have selected such third-
party within a reasonable time, selected by the Trustee) to
ensure that less than 25% of the value of the Investor
Certificates of such Series or Class, as the case may be, are
owned by Benefit Plans, provided that the Transferor may not so
instruct the Trustee if there shall be any other provision under
ERISA or the regulations promulgated in connection therewith that
would otherwise ameliorate or resolve any possible violation of
ERISA by virtue of the ownership of such Investor Certificate or
Investor Certificates of such Series or Class by a Benefit Plan.
The Trustee shall take no action under this paragraph unless it
shall have been provided with an Opinion of Counsel confirming
the proviso in the immediately preceding sentence and shall have
also been provided with written evidence that the aforesaid 25%
threshold in respect of such Series or Class has been exceeded.
Any actions to be taken by the Trustee under this paragraph shall
be communicated to each Holder of an Investor Certificate in each
affected Series or Class, as the case may be.
Section 6.04 MUTILATED, DESTROYED, LOST OR STOLEN
CERTIFICATES. If (a) any mutilated Certificate is surrendered to
the Transfer Agent and Registrar, or the Transfer Agent and
Registrar receives evidence to its satisfaction of the
destruction, loss or theft of any such Certificate (provided that
any Certificateholder's affidavit with respect to such
destruction, loss or theft shall be satisfactory evidence
thereof) and (b) there is delivered to the Transfer Agent and
Registrar, the Trustee and the Transferor such security or
indemnity as may be required by them to save each of them
harmless, then, in the absence of notice to the Trustee that such
Certificate has been acquired by a BONA FIDE purchaser, the
Transferor shall execute and the Trustee shall authenticate and
deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Certificate, a new Certificate of like
tenor and aggregate Undivided Interest, if applicable. In
connection with the issuance of any new Certificate under this
Section 6.04, the Trustee or the Transfer Agent and Registrar may
require the payment by the Certificateholder of a sum sufficient
to cover any tax or expense (including the fees and expenses of
the Trustee and Transfer Agent and Registrar) connected
therewith. Any duplicate Certificate issued pursuant to this
Section 6.04 shall constitute complete and indefeasible evidence
of ownership in the Trust, as if originally issued, whether or
not the lost, stolen or destroyed Certificate shall be found at
any time.
Section 6.05 PERSONS DEEMED OWNERS. Prior to due
presentation of a Certificate for registration of transfer, the
Trustee, the Paying Agent, the Transfer Agent and Registrar and
any agent of any of them may treat the Person in whose name any
Certificate is registered as the owner of such Certificate for
the purpose of receiving distributions (including the final
distribution with respect to any Series, unless otherwise
provided in the related Supplement and such Certificate) pursuant
to Section 5.01 and for all other purposes whatsoever, and
neither the Trustee, the Paying Agent, the Transfer Agent and
Registrar nor any agent of any of them shall be affected by any
notice to the contrary; PROVIDED, HOWEVER, that in determining
whether the holders of the requisite Undivided Interests or the
Majority Certificateholders have given any request, demand,
authorization, direction, notice, consent or waiver hereunder,
Certificates owned by the Transferor, the Servicer or any
Affiliate thereof shall be disregarded and deemed not to be
outstanding, except that, in determining whether the Trustee
shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only
Certificates which a Responsible Officer of the Trustee knows to
be so owned shall be so disregarded.
Section 6.06 APPOINTMENT OF PAYING AGENT. The Paying
Agent shall be the Trustee or shall (i) have a rating by Fitch of
at least that specified in EXHIBIT 6.06 or be approved by Fitch
and (ii) have a rating by Duff & Phelps of at least that
specified in EXHIBIT 6.06 or be approved by Duff & Phelps and
(iii) be approved by the Servicer, and (iv) be a depositary
institution organized under the laws of the United States or any
one of the states thereof, including the District of Columbia.
The Paying Agent shall make distributions to Certificateholders
from the applicable Series Accounts as contemplated by Section
5.01. Any Paying Agent shall have the revocable power to
withdraw funds from the applicable Series Account for the purpose
of making distributions referred to above. The Trustee may
revoke such power and remove any Paying Agent if the Trustee
determines in its sole discretion that the Paying Agent shall
have failed to perform its obligations under this Agreement in
any material respect. The Paying Agent shall initially be the
Trustee. The Paying Agent shall be permitted to resign as Paying
Agent upon 30 days' written notice to the Trustee, the Servicer
and the Transferor; PROVIDED, HOWEVER, that such resignation
shall not be effective and the Paying Agent shall continue to
perform its duties until the Trustee has appointed, and such
appointment has been accepted by, a successor Paying Agent and
approved by the Majority Certificateholders of all outstanding
Series. The Trustee shall cause the resigning Paying Agent and
each successor Paying Agent to execute and deliver to the Trustee
an instrument in which such resigning or successor Paying Agent
or additional Paying Agent shall agree with the Trustee that, as
Paying Agent, such resigning or successor Paying Agent or
additional Paying Agent will hold all sums, if any, held by it
for payment to the Certificateholders in trust for the benefit of
the Certificateholders entitled thereto until such sums shall be
paid to such Certificateholders. The Paying Agent shall return
all unclaimed funds to the Trustee and upon removal shall also
return all funds in its possession to the Trustee. The
provisions of Sections 11.01, 11.02 and 11.03 shall apply to the
Paying Agent in its role as Paying Agent.
Section 6.07 ACCESS TO LIST OF CERTIFICATEHOLDERS'
NAMES AND ADDRESSES. The Trustee shall furnish or instruct the
Transfer Agent and Registrar to furnish to the Servicer, the
Paying Agent or any Senior Certificateholder, within five
Business Days after receipt by the Trustee of a request therefor
from any such Person, a list in such form as such Person may
reasonably require, of the names and addresses of the
Certificateholders. Every Certificateholder agrees with the
Trustee that neither the Trustee, the Transfer Agent and
Registrar, nor any of their respective agents shall be held
accountable by reason of the disclosure of any such information
as to the names and addresses of the Certificateholders
hereunder, regardless of the sources from which such information
was derived.
Section 6.08 AUTHENTICATING AGENT.
(a) The Trustee may appoint one or more authenticating
agents with respect to the Certificates which shall be authorized
to act on behalf of the Trustee in authenticating the
Certificates in connection with the issuance, delivery,
registration of transfer, exchange or repayment of the
Certificates. Whenever reference is made in this Agreement to
the authentication of Certificates by the Trustee or the
Trustee's certificate of authentication, such reference shall be
deemed to include authentication on behalf of the Trustee by an
authenticating agent and a certificate of authentication executed
on behalf of the Trustee by an authenticating agent. Each
authenticating agent must be acceptable to the Transferor.
(b) Any institution succeeding to all or substantially
all of the corporate agency business of an authenticating agent
shall continue to be an authenticating agent without the
execution or filing of any paper or any further act on the part
of the Trustee or such authenticating agent.
(c) An authenticating agent may at any time resign by
giving written notice of resignation to the Trustee and to the
Transferor. The Trustee may at any time terminate the agency of
an authenticating agent by giving notice of termination to such
authenticating agent and to the Transferor. Upon receiving such
a notice of resignation or upon such a termination, or in case at
any time an authenticating agent shall cease to be acceptable to
the Trustee or the Transferor, the Trustee promptly may appoint a
successor authenticating agent. Any successor authenticating
agent upon acceptance of its appointment hereunder shall become
vested with all the rights, powers and duties of its predecessor
hereunder, with like effect as if originally named as an
authenticating agent. No successor authenticating agent shall be
appointed unless acceptable to the Trustee and the Transferor.
(d) The Trustee agrees to pay, out of the fees payable
to it hereunder, to each authenticating agent from time to time
reasonable compensation for its services under this Section 6.08.
(e) The provisions of Sections 11.01, 11.02 and 11.03
shall be applicable to any authenticating agent.
(f) Pursuant to an appointment made under this Section
6.08, the Certificates may have endorsed thereon, in lieu of the
Trustee's certificate of authentication, an alternate certificate
of authentication in substantially the following form:
This is one of the Certificates referred to in the
Pooling and Servicing Agreement.
as Authenticating Agent
for the Trustee,
by
Authorized Signatory
Section 6.09 NEW ISSUANCES. (a) The Transferor may
from time to time direct the Trustee, on behalf of the Trust, to
issue one or more new Series of Investor Certificates pursuant to
a Supplement. The Investor Certificates of all outstanding
Series shall be equally and ratably entitled as provided herein
to the benefits of this Agreement without preference, priority or
distinction, all in accordance with the terms and provisions of
this Agreement and the applicable Supplement except that, with
respect to any Series or Class, the Supplement giving rise to
such Series or Class may subordinate such Series or Class with
respect to other Series or Classes.
(b) On or before the Series Issuance Date relating to
any new Series, the parties hereto will execute and deliver a
Supplement which will specify the Principal Terms of such new
Series. The terms of such Supplement may modify or amend the
terms of this Agreement solely as applied to such new Series and
no such modification or amendment shall have any effect as to any
other Series. The Trustee shall have no obligation to, and shall
not, authenticate (or cause any authenticating agent to
authenticate) the Investor Certificates of such new Series and
shall have no obligation to, and shall not, execute and deliver
the related Supplement unless all of the following conditions
shall have been satisfied:
(i) on or before the fifth Business Day
immediately preceding the Series Issuance Date (other than
with respect to the initial Series issued hereunder), the
Transferor shall have given the Trustee, the Servicer, each
Rating Agency and each Enhancement Provider written notice
of such issuance and the Series Issuance Date (the "ISSUANCE
NOTICE");
(ii) the Transferor shall have delivered to the
Trustee the related Supplement, in form satisfactory to the
Trustee, executed by each party hereto other than the
Trustee;
(iii) the Transferor shall have delivered to the
Trustee the form of any Enhancement relating to such Series
and any related Enhancement Agreement executed by each of
the parties thereto, other than the Trustee;
(iv) the Rating Agency Condition shall have been
satisfied with respect to such issuance;
(v) such issuance will not result in the
occurrence of an Early Amortization Event, Prospective Early
Amortization Event or Accumulation Event and the Transferor
shall have delivered to the Trustee and any Enhancement
Provider an Officer's Certificate, dated the Series Issuance
Date, to the effect that the Transferor reasonably believes
that such issuance will not result in the occurrence of an
Early Amortization Event, Prospective Early Amortization
Event or Accumulation Event and is not reasonably expected
to result in the occurrence of an Early Amortization Event,
Prospective Early Amortization Event or Accumulation Event
at any time in the future;
(vi) the Transferor shall have delivered to the
Trustee and any Enhancement Provider a Tax Opinion, dated
the Series Issuance Date, with respect to such issuance; and
(vii) the Aggregate Transferor's Current
Participation Amount shall not be less than the Aggregate
Transferor's Required Participation Amount, in each case as
of the Series Issuance Date and after giving effect to such
issuance and the Transferor shall have delivered to the
Trustee an Officer's Certificate to such effect.
Upon satisfaction of the above conditions, the Trustee shall
execute the Supplement and issue to the Transferor the Investor
Certificates of such Series for execution and redelivery to the
Trustee for authentication. Without limiting the generality of
the foregoing, the Trustee will hold any Enhancement provided
pursuant to any Supplement only on behalf of each Series (or
related Class) to which such Enhancement relates.
(c) The Transferor Certificate will at all times be legally
and beneficially owned by the Transferor.
Section 6.10 BOOK-ENTRY CERTIFICATES. If provided in
any Supplement, the Investor Certificates of any Series, upon
original issuance, will be issued in the form of one or more
typewritten Certificates representing the Book-Entry
Certificates, to be delivered to The Depository Trust Company,
the initial Clearing Agency, by, or on behalf of, the Transferor.
The Investor Certificates of such Series shall initially be
registered on the Certificate Register in the name of Cede & Co.,
the nominee of the initial Clearing Agency, and no Certificate
Owner will receive a Definitive Certificate representing such
Certificate Owner's interest in the Investor Certificates, except
as provided in Section 6.12. Unless and until certificated,
fully registered Investor Certificates (the "DEFINITIVE
CERTIFICATES") have been issued to Certificate Owners pursuant to
Section 6.12:
(i) the provision of this Section 6.10 shall be in
full force and effect;
(ii) the Transferor, the Servicer, the Paying Agent,
the Transfer Agent and Registrar and the Trustee may deal with
the Clearing Agency and the Clearing Agency Participants for all
purposes (including the making of distributions on the Investor
Certificates) as the authorized representatives of the
Certificate Owners;
(iii) to the extent that the provisions of this Section
6.10 conflict with any other provisions of this Agreement, the
provisions of this Section 6.10 shall control; and
(iv) the rights of Certificate Owners shall be
exercised only through the Clearing Agency and the Clearing
Agency Participants and shall be limited to those established by
law and agreements between such Certificate Owners and the
Clearing Agency and/or the Clearing Agency Participants. Unless
and until Definitive Certificates are issued pursuant to Section
6.12, the initial Clearing Agency will make book-entry transfers
among the Clearing Agency Participants and receive and transmit
distributions of principal and interest on the Investor
Certificates to such Clearing Agency Participants.
Section 6.11 NOTICES TO CLEARING AGENCY. Whenever
notice or other communication to the Investor Certificateholders
of any Series delivered as provided in Section 6.10 is required
under this Agreement, unless and until Definitive Certificates
shall have been issued to Certificate Owners pursuant to Section
6.12, the Trustee, the Servicer and the Paying Agent shall give
all such notices and communications specified herein to be given
to Holders of the Investor Certificates of such Series to the
Clearing Agency.
Section 6.12 DEFINITIVE CERTIFICATES. If (i) (A) the
Transferor advises the Trustee in writing that the Clearing
Agency is no longer willing or able to properly discharge its
responsibilities under any Letter of Representations, and (B) the
Transferor is unable to locate a qualified successor, (ii) the
Transferor, at its option, advises the Trustee in writing that,
with respect to any Series, it elects to terminate the book-entry
system through the Clearing Agency or (iii) after the occurrence
of a Servicer Default of any Series, Certificate Owners
representing beneficial interests aggregating not less than 50%
of the Invested Amount of such Series advise the Trustee and the
Clearing Agency through the Clearing Agency Participants in
writing that the continuation of a book-entry system through the
Clearing Agency is no longer in the best interests of the
Certificate Owners of such Series, the Trustee shall notify the
Clearing Agency of the occurrence of any such event and of the
availability of Definitive Certificates of such Series to
Certificate Owners of such Series requesting the same. Upon
surrender to the Trustee of the Investor Certificates of such
Series by the Clearing Agency accompanied by registration
instructions from such Clearing Agency for registration, the
Trustee shall authenticate and deliver Definitive Certificates of
such Series. Neither the Transferor, the Transfer Agent and
Registrar nor the Trustee shall be liable for any delay in
delivery of such instructions and may conclusively rely on, and
shall be protected in relying on, such instructions. Upon the
issuance of Definitive Certificates of any Series, all references
herein to obligations with respect to such Series imposed upon or
to be performed by the Clearing Agency shall be deemed to be
imposed upon and performed by the Trustee, to the extent
applicable with respect to such Definitive Certificates and the
Trustee shall recognize the Holders of the Definitive
Certificates as Certificateholders hereunder.
Section 6.13 LETTER OF REPRESENTATIONS.
Notwithstanding anything to the contrary in this Agreement or any
Supplement, the parties hereto shall comply with the terms of
each Letter of Representations.
ARTICLE VII
OTHER MATTERS RELATING
TO THE TRANSFEROR
Section 7.01 LIABILITY OF THE TRANSFEROR. The
Transferor shall be liable for each obligation, covenant,
representation and warranty of the Transferor arising under or
related to this Agreement or any Supplement and shall, in its
capacity as Transferor hereunder, be liable only to the extent of
the obligations specifically undertaken hereunder in such
capacity.
Section 7.02 MERGER OR CONSOLIDATION OF, OR ASSUMPTION
OF THE OBLIGATIONS OF, THE TRANSFEROR.
(a) The Transferor shall not consolidate with or merge
into any other corporation or convey or transfer its properties
and assets substantially as an entirety to any Person unless:
(i) the corporation formed by such consolidation
or into which the Transferor is merged or the Person which
acquires by conveyance or transfer the properties and assets
of the Transferor substantially as an entirety shall be, if
the Transferor is not the surviving entity, organized and
existing under the laws of the United States of America or
any state or the District of Columbia, and, if the
Transferor is not the surviving entity, shall expressly
assume, by an agreement supplemental hereto, executed and
delivered to the Trustee, in form satisfactory to the
Trustee, the performance of every covenant and obligation of
the Transferor hereunder;
(ii) the Transferor shall have delivered to the
Trustee, each Enhancement Provider and each
Certificateholder an Officer's Certificate of the Transferor
and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance or transfer complies with
this Section 7.02 and that all conditions precedent herein
provided for relating to such transaction have been complied
with;
(iii) the Rating Agency Condition shall have been
satisfied with respect to such action; and
(iv) the Majority Certificateholders of all
outstanding Series shall have consented to such action.
(b) The obligations of the Transferor hereunder shall
not be assignable nor shall any Person succeed to the obligations
of the Transferor hereunder except in each case in accordance
with the provisions of Section 7.02(a).
Section 7.03 LIMITATION ON LIABILITY OF THE
TRANSFEROR. Subject to Sections 7.01 and 7.04, except as
specifically provided herein or in any Supplement, neither the
Transferor nor any of the directors or officers or employees or
agents of the Transferor in its capacity as Transferor shall be
under any liability to the Trust, the Trustee, the
Certificateholders, any Enhancement Provider or any other Person
for any action taken or for refraining from the taking of any
action in its capacity as Transferor in good faith whether
arising from express or implied duties under this Agreement or
any Supplement or otherwise; PROVIDED, HOWEVER, that this
provision shall not protect the Transferor or any such Person
against any liability which would otherwise be imposed by reason
of willful misfeasance, bad faith or gross negligence in the
performance of duties or by reason of reckless disregard of
obligations and duties hereunder. The Transferor and any
director or officer or employee or agent of the Transferor may
rely in good faith on any document of any kind prima facie
properly executed and submitted by any Person respecting any
matters arising hereunder. Each of the Trustee and the Servicer
agrees that the obligations of the Transferor to the Trustee, the
Servicer, the Certificateholders and the Trust hereunder,
including the obligation of the Transferor in respect of
indemnities pursuant to Section 7.04 hereof, shall be payable
solely from the Trust Assets in accordance with the provisions of
this Agreement and any Supplement and that the Trustee, the
Servicer, the Certificateholders and the Trust shall not look to
any other property or assets of the Transferor in respect of such
obligations and that such obligations shall not constitute a
claim against the Transferor in the event that the Transferor's
assets are insufficient to pay in full such obligations.
Section 7.04 LIABILITIES. The holder of the
Transferor Certificate agrees to pay, directly to the injured
party, subject to the next sentence, the entire amount of any
losses, claims, damages or liabilities (other than those incurred
by an Investor Certificateholder of any Series as a result of
defaults on the Advances or related Receivables and other than
any losses, claims, damages or liabilities arising out of the
imposition by any taxing authority of any federal, state or local
income or franchise taxes or any other taxes imposed on or
measured by the income of (including any interest, penalties or
additions with respect thereto) the Investor Certificateholders
or the Certificate Owners (including any liabilities, costs or
expenses with respect thereto) with respect to the Advances or
related Receivables not specifically indemnified or represented
to hereunder) arising out of or based on the arrangements created
by this Agreement or any Supplement or the actions of the
Servicer taken pursuant to this Agreement or any Supplement as
though this Agreement and each Supplement created a partnership
among the holder of the Transferor Certificate and the
Certificateholders under the Uniform Partnership Act in effect in
the State of New York in which the Transferor is a general
partner. The holder of the Transferor Certificate agrees to pay,
indemnify and hold harmless each Investor Certificateholder of
any Series and the Trustee (and its officers, directors,
employees and agents) against and from any and all such losses,
claims, damages and liabilities including litigation, and
including the fees and expenses of Trustee's Counsel except, with
respect to Investor Certificateholders to the extent that they
arise from any action (including the disposition of an Investor
Certificate or any interest therein) by any such Investor
Certificateholder causing such losses, claims, damages or
liabilities, or, with respect to the Trustee, except to the
extent that they were caused by the gross negligence or willful
misconduct of the Trustee. The provisions of this Section 7.04
shall survive the resignation or removal of the Trustee and the
termination of the Trust and payment in full of the Investor
Certificates.
ARTICLE VIII
OTHER MATTERS RELATING
TO THE SERVICER
Section 8.01 LIABILITY OF THE SERVICER. The Servicer
shall be liable under this Agreement only to the extent of the
obligations specifically undertaken by the Servicer in its
capacity as Servicer.
Section 8.02 MERGER OR CONSOLIDATION OF, OR ASSUMPTION
OF THE OBLIGATIONS OF, THE SERVICER.
(a) The Servicer shall not consolidate with or merge
into any other corporation or convey or transfer its properties
and assets substantially as an entirety to any Person, unless:
(i) the corporation formed by such consolidation
or into which the Servicer is merged or the Person which
acquires by conveyance or transfer the properties and assets
of the Servicer substantially as an entirety shall be a
corporation organized and existing under the laws of the
United States of America or any State or the District of
Columbia, and, if the Servicer is not the surviving entity,
such corporation shall qualify as an Eligible Servicer and
shall expressly assume, by an agreement supplemental hereto
executed and delivered to the Trustee in a form satisfactory
to the Trustee, the performance of every covenant and
obligation of the Servicer hereunder;
(ii) the Servicer has delivered to the Trustee,
each Enhancement Provider and each Certificateholder an
Officer's Certificate of the Servicer and an Opinion of
Counsel each stating that such consolidation, merger,
conveyance or transfer complies with this Section 8.02 and
that all conditions precedent herein provided for relating
to such transaction have been complied with.
(iii) the Rating Agency Condition shall have been
satisfied with respect to such action; and
(iv) the Majority Certificateholders of all
outstanding Series shall have consented to such action, such
consent not to be unreasonably withheld.
Section 8.03 LIMITATION ON LIABILITY OF THE SERVICER
AND OTHERS. Subject to Sections 8.01 and 8.04 with respect to
the Servicer, except as otherwise specifically provided herein or
in any Supplement, neither the Servicer nor any of the directors
or officers or employees or agents of the Servicer shall be under
any liability to the Trust, the Trustee, the Certificateholders,
any Enhancement Provider or any other Person for any action taken
or for refraining from the taking of any action in its capacity
as Servicer in good faith, whether arising from express or
implied duties under this Agreement or any Supplement or
otherwise; PROVIDED, HOWEVER, that this provision shall not
protect the Servicer or any such Person against any liability
which would otherwise be imposed by reason of willful
misfeasance, bad faith or negligence in the performance of its
duties or by reason of reckless disregard of its obligation and
duties hereunder. The Servicer and any director or officer or
employee or agent of the Servicer may rely in good faith on any
document of any kind PRIMA FACIE properly executed and submitted
by any Person respecting any matters arising hereunder. The
Servicer shall not be under any obligation to appear in,
prosecute or defend any legal action which is not incidental to
its duties to service the Advances and related Receivables in
accordance with this Agreement or any Supplement. The Servicer
may undertake any legal action which it may deem necessary or
desirable for the benefit of Certificateholders with respect to
this Agreement and any Supplement and the rights and duties of
the parties thereto and the interest of the Certificateholders
thereunder.
Section 8.04 SERVICER INDEMNIFICATION OF THE TRUST AND
THE TRUSTEE. The Servicer shall indemnify and hold harmless the
Trustee (which shall include its respective directors, officers,
employees and agents) and the Trust, for the benefit of the
Certificateholders, from and against any loss, liability, expense
(including the reasonable fees and expenses of counsel), damage
or injury suffered or sustained by reason of: (1) any acts or
omissions of the Servicer pursuant to this Agreement or any
Supplement, or (2) otherwise arising out of the performance by
the Trustee of its duties under this Agreement or any Supplement
(other than any such acts or omissions permitted under this
Agreement or any Supplement), including any judgment, award,
settlement, reasonable attorneys' fees and other costs or
expenses incurred in connection with the defense of any actual
action, proceeding or claim; PROVIDED, HOWEVER, that the Servicer
shall not indemnify the Trustee or the Trust if such acts or
omissions were attributable to fraud, gross negligence, or
willful misconduct by the Trustee; and PROVIDED, FURTHER, that
the Servicer shall not indemnify the Trust or the Investor
Certificateholders (x) for any liabilities, costs or expenses of
the Trust with respect to any action taken by the Trustee at the
request of any Investor Certificateholder or (y) with respect to
any federal, state or local income or franchise taxes or any
other taxes imposed on or measured by income (or any interest or
penalties or additions with respect thereto) required to be paid
by the Trust or the Investor Certificateholders in connection
herewith to any taxing authority, or (z) with respect to any
liabilities, losses, costs or expenses incurred by any
Certificateholder in the Investor Certificates of any Series as a
result of defaults or other losses with respect to the Advances
or related Receivables not specifically indemnified or
represented to hereunder arising out of or based on the
arrangement created by this Agreement or any Supplement. Subject
to Sections 8.01 and 10.02(b), any indemnification pursuant to
this Section shall be had only from the assets of the Servicer.
The provisions of such indemnity shall run directly to and be
enforceable by an injured party subject to the limitations
hereof. The provisions of this Section 8.04 shall survive the
resignation or removal of the Trustee and the termination of the
Trust and payment in full of the Certificates.
Section 8.05 THE SERVICER NOT TO RESIGN. The Servicer
shall not resign from the obligations and duties hereby imposed
on it except upon determination that (i) the performance of its
duties hereunder is no longer permissible under applicable law,
regulation or order and (ii) there is no reasonable action which
the Servicer could take to make the performance of its duties
hereunder permissible under applicable law, regulation or order.
Any such determination permitting the resignation of the Servicer
shall be evidenced as to clause (i) above by an Opinion of
Counsel to such effect delivered to the Trustee, each Enhancement
Provider, each Rating Agency and each Certificateholder. No such
resignation shall become effective until the Trustee or a
Successor Servicer shall have assumed the responsibilities and
obligations of the Servicer in accordance with Section 10.02
hereof; PROVIDED, that if within ninety (90) days of the date
that the Servicer notifies the Trustee of its resignation in
accordance with this Section 8.05 the Trustee does not receive
any bids from Eligible Servicers in accordance with Section
10.02(c) to act as Successor Servicer, then the Trustee shall
automatically be appointed Successor Servicer in accordance with
Section 10.02.
Section 8.06 ACCESS TO CERTAIN DOCUMENTATION AND
INFORMATION REGARDING THE ADVANCES AND RECEIVABLES. The Servicer
shall provide to the Trustee, each Enhancement Provider and each
Rating Agency, and their respective representatives, access to
the documents, books, computer records and other information
regarding the Advances, the related Receivables and the other
Trust Assets, such access being afforded without charge but only
(i) upon reasonable request, (ii) during normal business hours,
(iii) subject to the Servicer's normal security and
confidentiality procedures and (iv) at the offices of the
Servicer in Fort Lauderdale, Florida. Nothing in this Section
8.06 shall derogate from the obligation of the Transferor, the
Trustee or the Servicer to observe any applicable law prohibiting
disclosure of information regarding the Obligors and the failure
of the Servicer to provide access as provided in this Section
8.06 as a result of such obligation shall not constitute a breach
of this Section 8.06.
Section 8.07 DELEGATION OF DUTIES. In the ordinary
course of business, the Servicer may at any time delegate any
duties hereunder to any Person who agrees to conduct such duties
in accordance with the Loan and Credit Policy and this Agreement
or any Supplement. Any delegation shall not relieve the Servicer
of its liability and responsibility with respect to such duties
and shall not constitute a resignation within the meaning of
Section 8.05 hereof.
Section 8.08 EXAMINATION OF RECORDS. The Transferor,
the Servicer and Factors shall, prior to the sale or transfer to
a third party of any advance, receivable, contract or invoice
held in its custody, examine its computer and other records to
determine that such advance, receivable, contract or invoice is
not part of the Trust Assets.
ARTICLE IX
EARLY AMORTIZATION EVENTS
Section 9.01 EARLY AMORTIZATION EVENTS WITH RESPECT TO
ANY SERIES. If any one of the following events shall occur at
such time as there shall be at least one outstanding Investor
Certificate:
(i) failure (A) on the part of the Transferor, the
Trustee, Factors or the Servicer to make any payment or deposit
required by the terms of this Agreement, any Supplement or the
Contribution and Sale Agreement on or before two Business Days
after the date such payment or deposit is required to be made
herein or therein; or (B) on the part of the Transferor to duly
observe or perform in any material respect the covenant of the
Transferor set forth in Section 2.06(b)(i); or (C) on the part of
the Transferor to duly observe or perform the covenant of the
Transferor set forth in Section 2.06(l) or Section 7.02; or (D)
on the part of the Transferor to duly observe or perform the
covenants of the Transferor set forth in Sections 2.06(b)(ii) or
2.06(n), in each case if such failure shall remain unremedied for
a period of 30 days, or the covenants of the Transferor set forth
in Sections 2.06(c), 2.06(j), 2.06(k), 2.06(o) and the first
sentence of Section 2.06(r), in each case if such failure shall
remain unremedied for a period of three Business Days; or (E) on
the part of the Transferor duly to observe or perform the
covenants of the Transferor set forth in Section 2.06(e) or
2.06(f) or the second sentence of Section 2.06(r) if such failure
would materially and adversely affect the interests of the
Certificateholders without regard to any Enhancement for any
Series, and in the case of the second sentence of Section
2.06(r), such failure continues unremedied for a period of two
Business Days; or (F) on the part of the Transferor or Factors
duly to observe or perform in any material respect any other
covenants or agreements of the Transferor or Factors, as the case
may be, set forth in this Agreement or any Supplement (or the
Contribution and Sale Agreement, to the extent assigned to the
Trustee for the benefit of the Certificateholders from time to
time hereunder), which, in the case of clause (F), continues
unremedied for a period of 30 days after the earlier of (x) the
date on which written notice of such failure, requiring the same
to be remedied, shall have been given to the Transferor and the
Trustee or Factors by the Majority Certificateholders of any
Series or (y) the date on which any officer of the Transferor or
Factors has knowledge of such failure and as a result of which
the interests of the Certificateholders of any Series would be
materially and adversely affected without regard to any
Enhancement for any Series and which continues to materially and
adversely affect the interests of such Certificateholders without
regard to any Enhancement for any Series for such period;
(ii) any representation or warranty made by the
Transferor in this Agreement or any Supplement (or Factors in the
Contribution and Sale Agreement) or any information required to
be delivered by the Transferor to the Trustee shall prove to have
been incorrect in any material respect when made, which continues
to be incorrect in any material respect for a period of 30 days
after the date on which written notice of such failure, requiring
the same to be remedied, shall have been given to the Transferor
and the Trustee by the Majority Certificateholders of the
affected Series and as a result of which the interests of the
Certificateholders of such Series are materially and adversely
affected without regard to any Enhancement for any Series and
which continues to materially and adversely affect the interests
of such Certificateholders without regard to any Enhancement for
any Series for such period; PROVIDED, HOWEVER, that a declarable
Early Amortization Event under clause (a) below pursuant to this
Section 9.01(ii) shall not be deemed to have occurred hereunder
with respect to any such Series if the Transferor has accepted
the transfer of the affected Designated Account and paid the
applicable Transfer Deposit Amount related thereto, all in
accordance with Section 2.04(c), during such 30-day period (or
such longer period as the Majority Certificateholders of the
affected Series may specify, not to exceed an additional 30 days)
and if such incorrect misrepresentation, warranty or other
information which caused this Section 9.01(ii) to be activated
relates to one or more of the representations and warranties set
forth in said Section 2.04(c); and PROVIDED FURTHER that a
declarable Early Amortization Event under clause (a) below
pursuant to this Section 9.01(ii) shall not be deemed to have
occurred hereunder with respect to any such Series if the
Transferor has accepted the transfer of the affected Designated
Account and paid the applicable Transfer Deposit Amount related
thereto, all in accordance with Section 2.05(b), during such 30-
day period (or such longer period as the Majority
Certificateholders of the affected Series may specify, not to
exceed an additional 30 days);
(iii) Factors or the Transferor voluntarily seeks,
consents to or acquiesces in the benefit or benefits of any
Debtor Relief Law or becomes a party to (or is made the subject
of or any of their respective property is made the subject of)
any proceeding provided for by any Debtor Relief Law, other than
as creditor or claimant, and in the event such proceeding is
involuntary, the petition instituting same is not dismissed
within 60 days of its filing; or the Transferor shall become
unable for any reason, or shall otherwise fail, to transfer
Advances or Receivables to the Trustee for the benefit of the
Certificateholders from time to time in accordance with the
provisions of this Agreement, or Factors shall become unable for
any reason, or shall otherwise fail, to sell Advances or
Receivables to the Transferor in accordance with the provisions
of the Contribution and Sale Agreement;
(iv) the Trust shall be required to register as an
"investment company" within the meaning of the Investment Company
Act of 1940, as amended;
(v) this Agreement, any Supplement or the Contribution
and Sale Agreement shall cease to be in full force and effect
except in accordance with the terms thereof; provided that in the
case of any Supplement ceasing to be in full force and effect, an
Early Amortization Event shall exist only with respect to the
Series established by such Supplement;
(vi) the security interest of the Trustee in the
Advances and related Receivables shall cease to be effective or
shall cease to be a first priority security interest by law or by
contract;
(vii) the Senior Invested Amount of a Series is not paid
in full on the related Scheduled Maturity Date;
(viii) the occurrence of a Servicer Default if such
Servicer Default would materially and adversely affect the
interests of the Senior Certificateholders of any Series without
regard to any Enhancement for any Series; or
(ix) the Servicer fails to deliver to the Trustee any
Daily Report or Settlement Statement on the date such report or
statement is due and such failure continues for 3 Business Days;
provided that such failure shall not constitute a declarable
Early Amortization Event under clause (a) below if it is the
result of an act of God, the public enemy, acts of declared or
undeclared war, public disorder, rebellion or sabotage,
epidemics, landslides, lightning, fire, hurricanes, earthquakes,
floods or similar causes;
then, an "Early Amortization Event" shall exist
(a) in the case of any event described in
subparagraphs (i), (ii), (vi), (viii) and (ix), after the
expiration of any applicable grace period set forth in such
subparagraphs, if the Trustee or the Majority Certificateholders
of any affected Series give notice thereof in writing to the
Transferor, the Trustee and the Servicer and in such notice
declare that an Early Amortization Event has occurred as of the
date of such notice with respect to such affected Series;
(b) in the case of any event described in
subparagraphs (iii), (iv) or (v), immediately upon the occurrence
of such event and without any notice or other action on the part
of the Majority Certificateholders of any Series, the Trustee or
the Servicer, and
(c) in the case of an event described in subparagraph
(vii) with respect to a Series, immediately upon the occurrence
of such event and without any notice or other action on the part
of the Majority Certificateholders of such Series, the Trustee or
the Servicer, PROVIDED that the Supplement related to such Series
expressly provides for the treatment of subparagraph (vii) as set
forth in this clause (c).
Notwithstanding anything to the contrary herein, the
Trustee shall not be responsible for independently calculating
whether the Aggregate Transferor's Current Participation Amount
is less than the Aggregate Transferor's Required Participation
Amount. Promptly after receiving written notice of the existence
of any Early Amortization Event, Prospective Early Amortization
Event or Accumulation Event with respect to any Series, the
Trustee shall notify the Rating Agencies and all
Certificateholders. In addition, on each Payment Date the
Trustee shall provide to each Rating Agency notification as to
whether, to the Trustee's knowledge based upon information
contained in the Daily Reports, Settlement Statement or other
written notice contemplated by this Agreement, in each case
delivered to it with respect to the related Settlement Period, an
Early Amortization Event, Prospective Early Amortization Event or
Accumulation Event has occurred during the related Settlement
Period with respect to any Series that is rated by such Rating
Agencies.
Section 9.02 ADDITIONAL RIGHTS UPON THE OCCURRENCE OF
CERTAIN EVENTS.
(a) If any Holder of a Subordinated Certificate of any
Series (i) voluntarily seeks, consents to or acquiesces in the
benefit or benefits of any Debtor Relief Law or becomes a party
to (or is made the subject of) any proceeding provided for by any
Debtor Relief Law, other than as a creditor or claimant, or (ii)
goes into liquidation or any other Person shall be appointed as a
bankruptcy trustee or receiver or conservator of such Holder of a
Subordinated Certificate, the Transferor shall on the day of any
event described in clause (i) or clause (ii) of this Section
9.02(a) (the "APPOINTMENT DATE") immediately cease to transfer
Advances and Receivables to the Trustee for the benefit of the
Certificateholders from time to time and shall promptly give
notice to the Trustee of such event. Notwithstanding any
cessation of the transfer to the Trustee for the benefit of the
Certificateholders from time to time of additional Advances and
Receivables, Advances and Receivables transferred to the Trustee
for the benefit of the Certificateholders from time to time prior
to the occurrence of such event and collections in respect of
such Advances and Receivables whenever created, accrued in
respect of such Advances, shall continue to be a part of the
Trust. The Trustee shall proceed within 60 days of the
Appointment Date to sell, dispose of, or otherwise liquidate the
Advances and related Receivables in accordance with directions
from the Majority Certificateholders of all outstanding Series
and in a commercially reasonable manner and, to the best of its
ability, on commercially reasonable terms, which shall include
the solicitation of competitive bids. The Trustee may obtain,
and shall be fully protected in relying on, a prior determination
from such bankruptcy trustee or receiver or conservator that the
terms and manner of any proposed sale, disposition or liquidation
hereunder are commercially reasonable. The provisions of
Sections 9.01 and 9.02 shall not be deemed to be mutually
exclusive.
(b) The proceeds from the sale, disposition or
liquidation of the Advances and related Receivables pursuant to
subsection (a) above, net of all reasonable expenses incurred by
the Trustee in connection with such sale, disposition or
liquidation, which shall be paid to the Trustee from such
proceeds, shall be treated as Collections of the Advances and
related Receivables and shall be allocated in accordance with the
provisions of Section 4.03, and, subject to such sale,
disposition or liquidation having been completed, the Trust shall
be dissolved effective 90 days after the Appointment Date.
(c) Notwithstanding anything in this Agreement to the
contrary, this Section 9.02 shall not limit the obligations of
any Enhancement Provider to make payments in respect of the
applicable Series in a timely manner and, to the extent required,
in accordance with the applicable Enhancement Agreement.
ARTICLE X
SERVICER DEFAULTS
Section 10.01 SERVICER DEFAULTS. If any one of the
following events (a "SERVICER DEFAULT") shall occur and be
continuing:
(a) failure by the Servicer to make any payment,
transfer or deposit or to give instructions or to give
notice to the Trustee to make such payment, transfer or
deposit on or before the date occurring two Business Days
after the date such payment, transfer or deposit or such
instruction or notice is required to be made or given, as
the case may be, under the terms of this Agreement or any
Supplement;
(b) failure on the part of the Servicer duly to
observe or perform (I) the covenants set forth in Sections
3.03(g), (h), (i), (k) and (l), (II) any other covenants or
agreements of the Servicer set forth in this Agreement or
any Supplement which if unremedied would have a material
adverse effect on the Investor Certificateholders of any
Series and which failure continues unremedied for a period
of 30 days after the earlier to occur of (x) the date on
which written notice of such failure, requiring the same to
be remedied, shall have been given to the Servicer by the
Majority Certificateholders of an affected Series or (y) the
date on which any senior officer of the Servicer has actual
knowledge of such failure, (III) failure on the part of the
Servicer to duly observe Section 8.02 or 8.05;
(c) any representation, warranty or certification made
by the Servicer in this Agreement, any Supplement or in any
certificate delivered pursuant to this Agreement or any
Supplement shall prove to have been incorrect when made,
which has a material adverse effect on the Investor
Certificateholders of any Series and which material adverse
effect continues unremedied for a period of 30 days after
(x) the date on which written notice of such failure,
requiring the same to be remedied, shall have been given to
the Servicer by the Majority Certificateholders of an
affected Series or (y) the date on which any senior officer
of the Servicer has actual knowledge of such failure,;
(d) the Servicer shall voluntarily seek, consent to or
acquiesce in the benefit or benefits of any Debtor Relief
Law or becomes a party to (or be made the subject of) any
proceeding provided for under any Debtor Relief Law, other
than as creditor or claimant, and in the event such
proceeding is involuntary, the petition instituting same is
not dismissed within 60 days of its filing; or the Servicer
shall assign its duties under this Agreement, except as
permitted by this Agreement;
(e) if Factors is the Servicer, Factors shall on any
date pay any dividend in respect of its capital stock if,
immediately after giving effect to such payment the
consolidated net worth of Factors and its Subsidiaries
determined as of such date in accordance with GAAP shall be
less than the amount of the consolidated net worth of the
Factors and its Subsidiaries determined as of December 31,
1993 in accordance with GAAP;
(f) if Factors is the Servicer, the consolidated net
worth of Factors and its Subsidiaries, determined in
accordance with GAAP, shall on any date be less than
$14,000,000;
(g) if Factors is the Servicer, the ratio of (x) the
consolidated tangible shareholders' equity of Factors and
its Subsidiaries determined in accordance with GAAP plus the
allowances for credit losses to (y) the consolidated
tangible assets of Factors and its Subsidiaries determined
in accordance with GAAP on such date shall be less than 6%;
(h) if Factors is the Servicer, the making of any
loans or advances by Factors or any of its Subsidiaries to
Capital Bank or any of Capital Bank's Affiliates (other than
Factors or any of Factors' Subsidiaries), which loans or
advances, at any time in the aggregate, exceed 10% of
consolidated net worth of Factors and its Subsidiaries,
determined at such time in accordance with GAAP; PROVIDED,
HOWEVER, that such 10% limit shall not apply to any loan by
Factors to Holding when the proceeds of such loan are used
by Holding to invest in a subsidiary of Holding for the
purpose of enabling such subsidiary to purchase a
Subordinated Certificate or Subordinated Certificates of any
Series;
(i) if Factors is the Servicer, the entering into by
Capital Bank with the FDIC of a written agreement under the
Financial Institution Supervisory Act, as amended, which has
a material adverse effect on the ability of Factors to act
as Servicer under this Agreement;
(j) Capital Bancorp voluntarily seeks, consents to or
acquiesces in the benefit or benefits of any Debtor Relief
Law or becomes a party to (or is made the subject of) any
proceeding provided for by any Debtor Relief Law, other than
as creditor or claimant, and in the event such proceeding is
involuntary, the petition or order instituting same is not
dismissed, revoked or withdrawn within 60 days of its
filing; or
(k) Capital Bank becomes a party to (or is made the
subject of) any proceeding provided for by any Debtor Relief
Law, other than as creditor or claimant,
then, in the event of any Servicer Default, so long as the
Servicer Default shall not have been remedied, the Majority
Subordinated Certificateholders (with the consent of the Trustee,
which consent shall be given at the direction of the Majority
Certificateholders of all outstanding Series), or the Majority
Certificateholders of all outstanding Series, by notice then
given in writing to the Servicer, the Trustee and the Transferor
(with a copy thereof to each Rating Agency) (a "Termination
Notice"), may terminate all of the rights and obligations of the
Servicer as Servicer under this Agreement and in and to the
Advances, related Receivables and the proceeds thereof.
After receipt by the Servicer of a Termination Notice,
and on the date that a Successor Servicer shall have been
appointed pursuant to Section 10.02:
(l) all authority and power of the Servicer under this
Agreement and each Supplement shall pass to and be vested in
a Successor Servicer (a "SERVICE TRANSFER"); and, without
limiting the generality of the foregoing, the Trustee is
hereby authorized and empowered (upon the failure of the
Servicer to cooperate) to execute and deliver, on behalf of
the Servicer, as attorney-in-fact or otherwise, all
documents and other instruments upon the failure of the
Servicer to execute or deliver such documents or
instruments, and to do and accomplish all other acts or
things necessary or appropriate to effect the purposes of
such Service Transfer; and
(m) the Servicer agrees to cooperate with the Trustee,
the Transferor and such Successor Servicer in effecting the
termination of the responsibilities and rights of the
Servicer to conduct servicing hereunder, including the
transfer to such Successor Servicer of all authority of the
Servicer to service the Advances, the related Receivables
and the Related Property provided for under this Agreement,
including all authority over all Collections which shall on
the date of the transfer be held by the Servicer for
deposit, or which have been deposited by the Servicer in the
Concentration Account or other applicable Series Account, or
which shall thereafter be received with respect to the
Advances and the Related Property, and in assisting the
Successor Servicer; and without limiting the generality of
the foregoing, the Servicer shall assist and cooperate with
the Successor Servicer in transferring all material and data
(other than software) used by the Servicer and necessary to
service the Advances and related Receivables effectively in
accordance with the terms of this Agreement.
The Servicer (including Factors as the initial
Servicer) will, without any charge, license to the Trustee all
computer software used by the Servicer (including Factors as the
initial Servicer) and necessary to service the Advances and
related Receivables effectively in accordance with the terms of
this Agreement but only for such purpose, provided that such
license shall not take effect for any Person other than the
Trustee unless a Servicer Default has occurred and is continuing.
Once such license takes effect, such license shall remain
effective for so long as any Certificate remains outstanding
hereunder. Factors will deliver a licensing agreement effecting
the above to the Trustee on the Initial Closing Date and will
keep such licensing agreement current with respect to any
computer software it may use in the future to service the
Advances and the related Receivables. The Servicer (including
Factors as the initial Servicer) shall use its best efforts to
obtain sublicenses in favor of the Trustee of all third-party
computer software used by the Servicer (including Factors as the
initial Servicer) and necessary to service the Advances and
related Receivables effectively in accordance with the terms of
this Agreement. Factors shall use its best efforts to obtain
sublicenses in favor of the Trustee of all third-party computer
software used by Factors and necessary to service the Advances
and related Receivables effectively in accordance with the terms
of this Agreement.
On the Initial Closing Date and weekly thereafter, the
Servicer shall deliver, whether or not a Servicer Default shall
have occurred, to the Corporate Trust Office of the Trustee all
computer software, electronic data files compatible therewith and
all other information in respect of the Advances, the related
Receivables and the Related Property (in each case current as of
the time of dispatch and in the form of magnetic cartridges,
tapes or other electronic media commonly used by institutional
servicers) that would be necessary for a Successor Servicer to
service the Advances and related Receivables in accordance with
the terms of this Agreement in the event of a Service Transfer.
The Trustee shall hold such computer software, electronic data
files and other information as it shall be in receipt of from
time to time in a separate trust for the following uses and
purposes: to hold and manage such property (including the
installation thereof) for the exclusive benefit of the Servicer
but only for such time as no Service Transfer shall have occurred
and prior to the Final Trust Termination Date. The Trustee once
each month shall return to, or dispose of in a manner agreed upon
with, the Servicer the cartridges, tapes or other physical
storage devices previously delivered to the Trustee. The
separate trust with respect to such computer software, electronic
data files and other information shall terminate upon the earlier
to occur of a Service Transfer pursuant to this Section 10.01 and
the Final Trust Termination Date. In the event such separate
trust terminates by reason of a Service Transfer, the Trustee
shall transfer and convey such property to the Successor
Servicer. In the event such separate trust terminates by reason
of the occurrence of the Final Trust Termination Date, the
Trustee shall transfer and convey such property to the Servicer.
To the extent that compliance with this Section 10.01
shall require the Servicer to disclose to the Successor Servicer
or the Trustee information of any kind which the Servicer
reasonable deems to be confidential, the Successor Servicer and
the Trustee shall enter into such customary licensing and
confidentiality agreements as the Servicer shall deem necessary
to protect its interest.
Notwithstanding anything to the contrary in this
Agreement, (x) a delay in or failure of performance under Section
10.01(a) for a period of ten Business Days after the expiration
of the grace period provided therein, and (y) a delay in or
failure of performance under Section 10.01(b) or 10.01(c) for a
period of 30 Business Days after the expiration of the grace
period provided therein, shall not constitute a Servicer Default
until the expiration of such additional period of Business Days
if such delay or failure could not be prevented by the exercise
of reasonable diligence by the Servicer and such delay or failure
was caused by an act of God, the public enemy, acts of declared
or undeclared war, public disorder, rebellion or sabotage,
epidemics, landslides, lightning, fire, hurricanes, earthquakes,
floods or similar causes. The preceding sentence shall not
relieve the Servicer from using its best efforts to perform its
obligations in a timely manner in accordance with the terms of
this Agreement and each Supplement, and the Servicer shall
provide the Trustee, the Rating Agencies, the Transferor, each
Enhancement Provider and the Investor Certificateholders with an
Officer's Certificate giving prompt notice of such failure or
delay by it, together with a description of its efforts to so
perform its obligations. The Servicer shall immediately notify
the Trustee in writing of any Servicer Default. In connection
with any Service Transfer, all reasonable costs and expenses
(including attorneys' fees) incurred in connection with
transferring the Advances, the related Receivables and the
Related Property to the Successor Servicer and amending this
Agreement to reflect such succession as Successor Servicer
pursuant to this Section 10.01 and Section 10.02 shall be paid by
the Servicer being replaced by such Successor Servicer.
Notwithstanding anything to the contrary in this
Agreement, during the continuance of a Servicer Default, the
Majority Certificateholders of all Series shall have the right to
instruct the Trustee to take other actions acceptable to the
Majority Certificateholders of all outstanding Series with
respect to the servicing of the Advances, including (x)
notification of Clients and Customers in substantially the forms
attached hereto as EXHIBIT 10.01-1 and EXHIBIT 10.01-2,
respectively, and (y) initiation of lawsuits against Obligors
with respect to Advances and Receivables which have not been paid
for at least 20 days after the Due Date for such Advances and
Receivables.
Section 10.02 TRUSTEE TO ACT; APPOINTMENT OF
SUCCESSOR.
(a) On and after the receipt by the Servicer of a
Termination Notice pursuant to Section 10.01, the Servicer shall
continue to perform all servicing functions under this Agreement
and any Supplement until the date specified in the Termination
Notice or as otherwise specified by the Trustee in writing or, if
no such date is specified in such Termination Notice, or as
otherwise specified by the Trustee, until a date mutually agreed
upon by the Servicer and Trustee. After the giving of a
Termination Notice by the Majority Subordinated
Certificateholders, the Majority Subordinated Certificateholders
shall appoint (with the consent of the Trustee, which consent
shall be given at the direction of the Majority
Certificateholders of all outstanding Series), and after the
giving of a Termination Notice by the Majority Certificateholders
of all outstanding Series, the Majority Certificateholders of all
outstanding Series shall appoint, an Eligible Servicer as a
successor servicer (the "SUCCESSOR SERVICER"), PROVIDED that (i)
the Rating Agency Condition shall have occurred with respect to
such appointment and (ii) such Successor Servicer shall have
accepted its appointment by a written assumption and agreement to
perform all of the duties, obligations and liabilities of the
Servicer hereunder in a form acceptable to the Trustee. In the
event that a Successor Servicer has not been appointed or has not
accepted its appointment at the time when the Servicer ceases to
act as Servicer, or upon the occurrence of the events specified
in Section 8.05, the Trustee without further action shall
automatically be appointed the Successor Servicer. Upon any such
automatic appointment of the Trustee as Successor Servicer, the
Trustee shall use its best efforts to promptly locate an Eligible
Servicer that is not an Affiliate of Factors and is ready,
willing and able to act as Successor Servicer. Upon the
appointment of a Successor Servicer, the Servicing Fee Percentage
for any Series having a Servicing Fee Percentage below 1% shall
automatically increase to 1% without the need for any amendment
of the related Supplement. Notwithstanding the foregoing, the
Trustee shall, if it is legally unable or is unwilling to act as
Successor Servicer or desires that a Person other than itself be
appointed as Successor Servicer pursuant to this Section
10.02(a), petition a court of competent jurisdiction to appoint
as Successor Servicer any established institution having a net
worth of not less than $10,000,000. The Trustee shall promptly
give notice to each Rating Agency and the Certificateholders of
the appointment of a Successor Servicer upon such appointment.
(b) Upon its appointment, the Successor Servicer shall
be the successor in all respects to the Servicer with respect to
servicing functions under this Agreement and shall be subject to
all the responsibilities, duties and liabilities relating thereto
placed on the Servicer by the terms and provisions hereof, and
all references in this Agreement and any Supplement to the
Servicer shall be deemed to refer to the Successor Servicer
except for the references in Sections 3.03 (which shall continue
to refer to both Factors and the Successor Servicer to the extent
provided therein) and 8.04 (which shall refer to both Factors and
the Successor Servicer).
(c) Prior to any Service Transfer, if a Termination
Notice shall have been delivered but such Termination Notice
shall not have contained an appointment of a Successor Servicer,
or if the Person named does not accept such appointment or is not
an Eligible Servicer, the Trustee will seek to obtain bids from
Eligible Servicers and shall be permitted to appoint, at the
direction of the Majority Subordinated Certificateholders with
the consent of the Majority Certificateholders of all outstanding
Series, any Eligible Servicer submitting such a bid as a
Successor Servicer for servicing compensation not in excess of
the Servicing Fee permitted for a Successor Servicer pursuant to
Section 3.02; PROVIDED, HOWEVER, that if no such bids not in
excess of the Servicing Fee are received, the Trustee may
appoint, at the direction of the Majority Subordinated
Certificateholders, the Eligible Servicer submitting the lowest
such bid and Factors shall be responsible for payment of all
servicing compensation in excess of such permitted Servicing Fee,
and PROVIDED FURTHER that no such monthly compensation paid out
of Interest Collections shall be in excess of the Servicing Fee
permitted to a Successor Servicer pursuant to Section 3.02. In
the event that the Trustee fails to obtain a satisfactory bid
from an Eligible Servicer, then the Transferor shall have the
option, upon satisfaction of the terms of Section 12.02(a), to
acquire all the Advances and related Receivables.
(d) All authority and power granted to the Successor
Servicer under this Agreement shall automatically cease and
terminate upon termination of the Trust pursuant to Section
12.01, and shall pass to and be vested in the Transferor and,
without limiting the generality of the foregoing, the Transferor
is hereby authorized and empowered to execute and deliver, on
behalf of the Successor Servicer, as attorney-in-fact or
otherwise, all documents and other instruments, and to do and
accomplish all other acts or things necessary or appropriate to
effect the purposes of such transfer of servicing rights. The
Successor Servicer agrees to cooperate with the Transferor in
effecting the termination of the responsibilities and rights of
the Successor Servicer to conduct servicing of the Advances, the
related Receivables and the Related Property, including all
authority over Collections then held by the Successor Servicer or
which shall thereafter be received by the Successor Servicer.
The Successor Servicer shall promptly transfer its electronic
records relating to the Advances and the related Receivables to
the Transferor in such electronic form as the Transferor may
reasonable request and shall promptly transfer all other records,
correspondence and documents to the Transferor in the manner and
at such times as the Transferor shall reasonably request. To the
extent that compliance with this Section 10.02 shall require the
Successor Servicer to disclose to the Transferor information of
any kind which the Successor Servicer deems confidential, the
Transferor shall be required to enter into such customary
licensing and confidentiality agreements as the Successor
Servicer shall deem necessary to protect its interests.
Section 10.03 NOTIFICATION TO CERTIFICATEHOLDERS.
Upon the occurrence of any Servicer Default, the Servicer shall
give prompt written notice thereof to the Trustee and each
Enhancement Provider and, upon receipt of such written notice,
the Trustee shall give notice to each Rating Agency and the
Investor Certificateholders at their respective addresses
appearing in the Certificate Register. Upon any termination or
appointment of a Successor Servicer pursuant to this Article X,
the Trustee shall give prompt written notice thereof to the
Investor Certificateholders at their respective addresses
appearing in the Certificate Register.
Section 10.04 WAIVER OF PAST DEFAULTS. The Majority
Certificateholders of each affected Series, on behalf of all
Certificateholders of such affected Series, may waive any default
by the Servicer or the Transferor in the performance of their
obligations hereunder for such Series and its consequences,
except a default in the failure to make any required deposits or
payments of interest or principal with respect to such Series of
Certificates. The Trustee, upon receipt by a Responsible Officer
of written notice of such waiver, shall promptly give notice
thereof to each Rating Agency. Upon any such waiver of a past
default, such default shall cease to exist as to such Series, and
any default arising therefrom shall be deemed to have been
remedied for every purpose of this Agreement. No such waiver
shall extend to any subsequent or other default or impair any
right consequent thereon except to the extent expressly so
waived.
ARTICLE XI
THE TRUSTEE
Section 11.01 DUTIES OF TRUSTEE. (a) The Trustee
undertakes to perform such duties and only such duties as are
specifically set forth in this Agreement. The provisions of this
Article XI (other than the last sentence of this Section
11.01(a)) shall apply to the Trustee solely in its capacity as
Trustee, and not to the Trustee in its capacity as Successor
Servicer if it is acting as the Successor Servicer. If a
Responsible Officer of the Trustee has received written notice or
otherwise has actual knowledge that a Servicer Default has
occurred (which has not been cured or waived), and if, pursuant
to Section 10.02, the Trustee shall become the Successor
Servicer, the Trustee shall, pursuant to Section 10.02, assume
the duties of Successor Servicer and shall exercise, or cause to
be exercised, such of the rights and powers vested in it, as
Successor Servicer, by this Agreement or any Supplement, as the
case may be in a manner consistent with customary and usual
servicing standards for institutional servicers.
(b) The Trustee, upon receipt of all resolutions,
certificates, statements, opinions, reports, documents, orders or
other instruments furnished to the Trustee which are specifically
required to be furnished pursuant to any provision of this
Agreement or any Supplement, shall examine them to determine
whether they substantially conform to the requirements of this
Agreement or any Supplement. The Trustee shall give prompt
written notice to the Certificateholders and each Rating Agency
of any material lack of conformity of any such instrument to the
applicable requirements of this Agreement or any Supplement
discovered by the Trustee which would entitle the Trustee or the
Majority Certificateholders of any Series to take any action
pursuant to this Agreement or any Supplement. The Trustee, upon
receipt of each Daily Report and Settlement Statement, shall
examine promptly such Daily Report or Settlement Statement to
determine whether it substantially conforms to the forms set
forth as Exhibits 3.04(b) or 3.04(c) hereto, respectively, in
each case as such forms may be supplemented or modified by any
Supplement in respect of a Series, shall confirm the mathematical
accuracy of all calculations set forth therein, shall determine
on the basis of the information set forth therein whether an
Early Amortization Event, Prospective Early Amortization Event or
Accumulation Event in respect of any Series shall have occurred,
and, if the Trustee so determines that any such event shall have
occurred, shall act pursuant to the terms of this Agreement and
any applicable Supplement with respect to such occurrence.
(c) Subject to Section 11.01(a), no provision of this
Agreement or any Supplement shall be construed to relieve the
Trustee from liability for its own negligent action, its own
negligent failure to act or its own willful misconduct; PROVIDED,
HOWEVER, that:
(i) The Trustee shall not be liable for an error
of judgment made in good faith by a Responsible Officer or
Responsible Officers of the Trustee, unless it shall be
proved that the Trustee was negligent in ascertaining the
pertinent facts;
(ii) The Trustee shall not be personally liable or
liable in its capacity as Trustee with respect to any action
taken, suffered or omitted to be taken by it in good faith
in accordance with, unless otherwise specified herein, the
direction of the Transferor, the Servicer, any Enhancement
Provider or the Majority Certificateholders of any Series
entitled to so direct, relating to the time, method and
place of conducting any proceeding for any remedy available
to the Trustee, or exercising any trust or power conferred
upon the Trustee, under this Agreement or any Supplement;
(iii) The Trustee shall not be charged with
knowledge of the occurrence of any Servicer Default, Early
Amortization Event, Prospective Early Amortization Event or
Accumulation Event, unless a Responsible Officer of the
Trustee obtains actual knowledge of such occurrence or the
Trustee receives written notice, including through any Daily
Report or Settlement Statement, of such occurrence from the
Servicer, the Transferor, an Enhancement Provider or any
Holders of Investor Certificates evidencing Undivided
Interests aggregating not less than 10% of the Invested
Amount of any Series adversely affected thereby; and
(iv) Prior to the occurrence of a Servicer Default
of which a Responsible Officer has received written notice
or has actual knowledge, and after the curing or waiver of
such Servicer Defaults that may have occurred, the duties
and obligations of the Trustee shall be determined solely by
the express provisions of this Agreement and any
Supplements; the Trustee shall not be liable except for the
performance of such duties and obligations as shall be
specifically set forth in this Agreement and any Supplement;
no implied covenants or obligations shall be read into this
Agreement or any Supplement against the Trustee and, in the
absence of bad faith on the part of the trustee, the Trustee
may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Trustee and, if
specifically required to be furnished pursuant to any
provision of this Agreement or any Supplement, conforming to
the requirements of this Agreement or such Supplement.
(d) The Trustee shall not be required to expend or
risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder, or in the exercise of
any of its rights or powers, if there is reasonable ground for
believing that the repayment of such funds or adequate indemnity
against such risk or liability is not reasonably assured to it,
and none of the provisions contained in this Agreement or any
Supplement shall in any event require the Trustee to perform, or
be responsible for the manner of performance of, any obligations
of the Servicer under this Agreement or any Supplement except
during such time, if any, as the Trustee shall be the successor
to, and be vested with the rights, duties, powers and privileges
of, the Servicer in accordance with the terms of this Agreement
or any Supplement and except that the Trustee shall be obligated
to examine each Daily Report, Settlement Statement, Termination
Notice and each other notice delivered to a Responsible Officer
pursuant to this Agreement and act in accordance with this
Agreement and any applicable Supplement with respect thereto.
(e) Except for actions expressly authorized by this
Agreement or any Supplement, the Trustee shall take no action
reasonably likely to impair the interests of the Trust in any
Advance or related Receivable now existing or hereafter created
or to impair the value of any Advance or related Receivable now
existing or hereafter created.
(f) Except as specifically provided in this Agreement
or any Supplement, the Trustee shall have no power to vary the
corpus of the Trust.
(g) If, to the actual knowledge of a Responsible
Officer of the Trustee, the Paying Agent or the Transfer Agent
and Registrar shall fail to perform any obligation, duty or
agreement in the manner or on the day required to be performed by
the Paying Agent or the Transfer Agent and Registrar, as the case
may be, under this Agreement, the Trustee shall be obligated as
soon as possible after such Responsible Officer obtains actual
knowledge thereof and receives appropriate records, if any, to
perform such obligation, duty or agreement in the manner so
required.
(h) Except as specifically otherwise provided in this
Agreement, any action, suit or proceeding brought in respect of
one or more particular Series shall have no effect on the
Trustee's rights, duties and obligations hereunder with respect
to any one or more Series not the subject of such action, suit or
proceeding.
Section 11.02 CERTAIN MATTERS AFFECTING THE TRUSTEE.
Except as otherwise provided in Section 11.01:
(a) The Trustee may rely on and shall be protected in
acting on, or in refraining from acting in accordance with, any
resolution, Officer's Certificate, certificate of auditors or any
other certificate, statement, instrument, opinion, report,
notice, request, consent, order, appraisal, bond or other paper
or document believed by it to be genuine and to have been signed
or presented to it pursuant to this Agreement or any Supplement
by the proper party or parties;
(b) The Trustee may consult with counsel and other
experts deemed appropriate by the Trustee and any advice from
such counsel or Opinion of Counsel or written advice from such
other experts shall be full and complete authorization and
protection in respect of any action taken or suffered or omitted
by it hereunder in good faith and in accordance with such advice
or Opinion of Counsel;
(c) The Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this
Agreement or any Supplement, or to institute, conduct or defend
any litigation hereunder or in relation hereto or any Supplement,
at the request, order or direction of any Person or Persons,
pursuant to the provisions of this Agreement or any Supplement,
unless such Person or Persons shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and
liabilities which may be incurred therein or thereby;
(d) The Trustee shall not be liable for any action
taken, suffered or omitted by it in good faith and believed by it
to be authorized or within the discretion or rights or powers
conferred upon it by this Agreement or any Supplement;
(e) The Trustee shall not be bound to make any
investigation into the facts of matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice,
request, consent, order, approval, bond or other paper or
document, unless requested in writing so to do by the Majority
Certificateholders of any Series which could be adversely
affected if the Trustee does not perform such acts; PROVIDED,
HOWEVER, that if the payment within a reasonable time to the
Trustee of the costs, expenses or liabilities likely to be
incurred by it in the making of such investigation shall be, in
the opinion of the Trustee, not reasonably assured to the Trustee
by the security afforded to it by the terms of this Agreement,
the Trustee may require reasonable indemnity against such cost,
expense or liability as a condition to so proceeding. The
reasonable expense of every such examination shall be paid by the
Servicer or, if paid by the Trustee, shall be reimbursed by the
Servicer upon demand;
(f) The Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly
or by or through agents or attorneys or custodians, and the
Trustee shall not be responsible for any misconduct or negligence
on the part of any such agent, attorney or custodian appointed
with due care by it hereunder;
(g) Except as may be required by Section 11.01(b)
hereof, the Trustee shall not be required to make any initial or
periodic examination of any documents or records related to the
Advances or related Receivables for the purpose of establishing
the presence or absence of defects, the compliance by the
Transferor or the Servicer with their representations and
warranties or for any other purpose;
(h) The right of the Trustee to perform any
discretionary act enumerated in this Agreement or any Supplement
shall not be construed as a duty, and the Trustee shall not be
answerable for other than its negligence or willful misconduct in
the performance of any such act.
Section 11.03 TRUSTEE NOT LIABLE FOR RECITALS IN
CERTIFICATES. The Trustee assumes no responsibility for the
correctness of the recitals contained herein and in the
Certificates (other than the certificate of authentication on the
Certificates). Except as set forth in Section 11.14, the Trustee
makes no representations as to the validity or sufficiency of
this Agreement or any Supplement or of the Certificates (other
than the certificate of authentication on the Certificates) or of
any Advance or Receivable or related document. The Trustee shall
not be accountable for the use or application by the Transferor
of any of the Certificates or of the proceeds of such
Certificates, or for the use or application of any funds paid to
the Transferor in respect of the Advances or related Receivables.
The Trustee shall have no duty to conduct any
affirmative investigation as to the occurrence of any condition
requiring the repurchase of any Advance or Receivable by the
Transferor or the Servicer pursuant to this Agreement or any
Supplement or the eligibility of any Advance or Receivable for
purposes of this Agreement or any Supplement. The Trustee shall
have no responsibility for filing any financing or continuation
statement in any public office at any time or to otherwise
perfect or maintain the perfection of any security interest or
lien granted to it hereunder (unless the Trustee shall have
become the Successor Servicer or unless such security interest or
lien pertains to the possession of any instrument evidencing an
Advance) or to prepare or file any Securities and Exchange
Commission filing for the Trust or to record this Agreement or
any Supplement.
Section 11.04 TRUSTEE MAY OWN CERTIFICATES, ETC. Each
of the Trustee, the Transferor, the Servicer, and each of such
Person's respective Affiliates in its individual or any other
capacity may become the owner or pledgee of Investor
Certificates; PROVIDED, that any Investor Certificates so held
shall not be entitled to participate in any decisions made or
instructions given to the Trustee by the Certificateholders as a
group. The Trustee (and its Affiliates) may deal with the
Transferor and the Servicer (and their respective Affiliates) in
banking and trustee transactions with the same rights as it would
have if it were not the Trustee.
Section 11.05 ELIGIBILITY REQUIREMENTS FOR TRUSTEE.
The Trustee hereunder shall at all times be a corporation
organized and doing business under the laws of the United States
or any state thereof, including the District of Columbia,
authorized under such laws to exercise corporate trust powers,
having a combined capital and surplus of at least $100,000,000,
and whose senior unsecured debt is rated at least the applicable
rating specified in EXHIBIT 11.05 by Fitch or at least the
applicable rating specified in EXHIBIT 11.05 by Duff & Phelps or
be approved by the Rating Agencies, and be subject to supervision
or examination by Federal or state authority. If such
corporation publishes reports of condition at least annually,
pursuant to law or to the requirements of the aforesaid
supervising or examining authority, then for the purpose of this
Section 11.05, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so
published. In case at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section 11.05,
the Trustee shall resign immediately in the manner and with the
effect specified in Section 11.06.
Section 11.06 RESIGNATION OR REMOVAL OF TRUSTEE.
(a) The Trustee may at any time resign and be
discharged from the trust hereby created by giving written notice
thereof to the Transferor and the Servicer. Upon receiving such
notice of resignation, the Servicer (with the consent of the
Majority Certificateholders of all outstanding Series) shall
promptly appoint a successor trustee by written instrument, in
duplicate, one copy of which instrument shall be delivered to the
resigning Trustee and one copy to the successor trustee. If no
successor trustee shall have been so appointed and have accepted
appointment within 30 days after the giving of such notice of
resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor
trustee.
(b) If at any time the Trustee shall cease to be
eligible in accordance with the provisions of Section 11.05
hereof and shall fail to resign after written request therefor by
the Servicer, or if at any time the Trustee shall be legally
unable to act, or shall be adjudged a bankrupt or insolvent, or
if a receiver of the Trustee or of its property shall be
appointed, or any public officer shall take charge or control of
the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation, then the Servicer
may remove the Trustee with the consent of the Majority
Certificateholders of all outstanding Series, and, with the same
such consent, promptly appoint a successor trustee by written
instrument, in duplicate, one copy of which instrument shall be
delivered to the Trustee so removed and one copy to the successor
trustee.
(c) Any resignation or removal of the Trustee and
appointment of successor trustee pursuant to any of the
provisions of this Section 11.06 shall not become effective until
acceptance of appointment by the successor trustee as provided in
Section 11.07.
Section 11.07 SUCCESSOR TRUSTEE.
(a) Any successor trustee appointed as provided in
Section 11.06 hereof shall execute, acknowledge and deliver to
the Transferor and to its predecessor Trustee an instrument
accepting such appointment hereunder, and thereupon the
resignation or removal of the predecessor Trustee shall become
effective and such successor trustee, without any further act,
deed or conveyance, shall become fully vested with all the
rights, powers, duties and obligations of its predecessor
hereunder and under any Supplement with like effect as if
originally named as Trustee herein. The predecessor Trustee
shall deliver to the successor trustee all documents or copies
thereof, at the expense of the Servicer, and statements held by
it hereunder; and the Transferor and the predecessor Trustee
shall execute and deliver such instruments and do such other
things as may reasonably be required for fully and certainly
vesting and confirming in the successor trustee all such rights,
powers, duties and obligations. The Servicer shall immediately
give notice to the Rating Agencies upon the appointment of a
successor trustee.
(b) No successor trustee shall accept appointment as
provided in this Section 11.07 unless at the time of such
acceptance such successor trustee shall be eligible under the
provisions of Section 11.05 hereof.
(c) Upon acceptance of appointment by a successor
trustee as provided in this Section 11.07 hereof, such successor
trustee shall mail notice of such succession hereunder to all
Certificateholders at their addresses as shown in the Certificate
Register.
Section 11.08 MERGER OR CONSOLIDATION OF TRUSTEE. Any
Person into which the Trustee may be merged or converted or with
which it may be consolidated, or any Person resulting from any
merger, conversion or consolidation to which the Trustee shall be
a party, or any Person succeeding to all or substantially all of
the corporate trust business of the Trustee, shall be the
successor of the Trustee hereunder, provided such corporation
shall be eligible under the provisions of Section 11.05 hereof,
without the execution or filing of any paper or any further act
on the part of any of the parties hereto, anything herein to the
contrary notwithstanding. The Trustee, upon any such merger,
conversion or consolidation, shall give notice to the Rating
Agencies, the Servicer and the Certificateholders.
Section 11.09 APPOINTMENT OF CO-TRUSTEE OR SEPARATE
TRUSTEE.
(a) Notwithstanding any other provisions of this
Agreement or any Supplement, at any time, for the purpose of
meeting any legal requirements of any jurisdiction in which any
part of the Trust may at the time be located, the Trustee shall
have the power and may execute and deliver all instruments to
appoint one or more Persons to act as a co-trustee or co-
trustees, or separate trustee or separate trustees, of all or any
part of the Trust, and to vest in such Person or Persons, in such
capacity and for the benefit of the Certificateholders, such
title to the Trust, or any part thereof, and, subject to the
other provisions of this Section 11.09, such powers, duties,
obligations, rights and trusts as the Trustee may consider
necessary or desirable. No co-trustee or separate trustee
hereunder shall be required to meet the terms of eligibility as a
successor trustee under Section 11.05 and no notice to
Certificateholders of the appointment of any co-trustee or
separate trustee shall be required under Section 11.07 hereof.
Any such appointment of a co-trustee shall not relieve the
Trustee of its duties under this Agreement.
(b) Every separate trustee and co-trustee shall, to
the extent permitted by law, be appointed and act subject to the
following provisions and conditions:
(i) All rights, powers, duties and obligations
conferred or imposed upon the Trustee shall be conferred or
imposed upon and exercised or performed by the Trustee and
such separate trustee or co-trustee jointly (it being
understood that such separate trustee or co-trustee is not
authorized to act separately without the Trustee joining in
such act), except to the extent that under any law of any
jurisdiction in which any particular act or acts are to be
performed (whether as Trustee hereunder or as successor to
the Servicer hereunder), the Trustee shall be incompetent or
unqualified to perform such act or acts, in which event such
rights, powers, duties and obligations (including the
holding of title to the Trust Assets or any portion thereof
in any such jurisdiction) shall be exercised and performed
singly by such separate trustee or co-trustee, but solely at
the discretion of the Trustee;
(ii) No trustee hereunder shall be personally
liable by reason of any act or omission of any other trustee
hereunder; and
(iii) The Trustee may at any time accept the
resignation of or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the
Trustee shall be deemed to have been given to each of the then
separate trustees and co-trustees, as effectively as if given to
each of them. Every instrument appointing any separate trustee
or co-trustee shall refer to this Agreement and the conditions of
this Article XI. Each separate trustee and co-trustee, upon its
acceptance of the trusts conferred, shall be vested with the
estates or property specified in its instrument of appointment,
either jointly with the Trustee or separately, as may be provided
therein, subject to all the provisions of this Agreement or any
Supplement, specifically including every provision of this
Agreement or any Supplement relating to the conduct of, affecting
the liability of, or affording protection to, the Trustee. Every
such instrument shall be filed with the Trustee and a copy
thereof given to the Servicer.
(d) Any separate trustee or co-trustee may at any time
constitute the Trustee, its agent or attorney-in-fact with full
power and authority, to the extent not prohibited by law, to do
any lawful act under or in respect to this Agreement or any
Supplement on its behalf and in its name. If any separate
trustee or co-trustee shall die, become incapable of acting,
resign or be removed, all of its estates, properties, rights,
remedies and trusts shall vest in and be exercised by the
Trustee, to the extent permitted by law, without the appointment
of a new or successor trustee.
Section 11.10 TAX RETURNS. No federal or state income
tax return shall be filed on behalf of the Trust unless either
(i) the Trustee or the Servicer shall receive an Opinion of
Counsel based on a change in applicable law occurring after the
date hereof that the Code or applicable state law requires such a
filing or (ii) the Internal Revenue Service or applicable state
taxation authority shall determine that the Trust is required to
file such a return. In the event the Trust shall be required to
file tax returns, the Servicer shall prepare or shall cause to be
prepared any tax returns required to be filed by the Trust and
shall remit such returns to the Trustee for signature at least
five days before such returns are due to be filed; the Trustee
shall promptly sign such returns and deliver such returns after
signature to the Servicer and such returns shall be filed by the
Servicer. Subject to the responsibilities of the Trustee set
forth in Section 5.02(b), the Servicer in accordance with Section
5.02(b) shall also prepare or shall cause to be prepared all tax
information required by law to be distributed to Investor
Certificateholders. The Trustee, upon request, will furnish the
Servicer with all such information known to the Trustee as may be
reasonably required in connection with the preparation of all tax
returns of the Trust, and shall, upon request, execute such
returns. In no event shall the Trustee, the Servicer or the
Transferor be liable for any liabilities, costs or expenses of
the Trust, the Investor Certificateholders or the Certificate
Owners arising out of the application of any tax law, including
federal, state or local income or excise taxes or any other tax
imposed on or measured by income (or any interest, penalty or
addition with respect thereto or arising from a failure to comply
therewith).
Section 11.11 TRUSTEE MAY ENFORCE CLAIMS WITHOUT
POSSESSION OF CERTIFICATES. All rights of action and claims
under this Agreement or any Supplement or the Certificates may be
prosecuted and enforced by the Trustee without the possession of
any of the Certificates or the production thereof in any
proceeding relating thereto, and any such proceeding instituted
by the Trustee shall be brought in its own name as trustee. Any
recovery of judgment shall, after provision for the payment of
the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel, be for the ratable
benefit of the Certificateholders in respect of which such
judgment has been obtained.
Section 11.12 SUITS FOR ENFORCEMENT. If a Servicer
Default of which a Responsible Officer has received written
notice or actual knowledge shall occur and be continuing, the
Trustee, in its discretion may, subject to the provisions of
Article X, proceed to protect and enforce its rights and the
rights of the Certificateholders under this Agreement or any
Supplement by suit, action or proceeding in equity or at law or
otherwise, whether for the specific performance of any covenant
or agreement contained in this Agreement or any Supplement or in
aid of the execution of any power granted in this Agreement or
any Supplement or for the enforcement of any other legal,
equitable or other remedy as the Trustee, being advised by
counsel, shall deem most effectual to protect and enforce any of
the rights of the Trustee or the Certificateholders. Nothing
herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any
Certificateholder any plan of reorganization, arrangement,
adjustment or composition affecting the Certificates or the
rights of any holder thereof, or authorize the Trustee to vote in
respect of the claim of any Certificateholder in any such
proceeding.
Section 11.13 RIGHTS OF CERTIFICATEHOLDERS TO DIRECT
TRUSTEE. The Majority Certificateholders of any Series with
respect to matters only affecting the related Series, or the
Holders of Senior Certificates aggregating together more than 50%
of the affected Undivided Interests with respect to matters
affecting more than one Series shall have the right to direct the
time, method and place at or by which the Trustee conducts any
proceeding for any remedy available to the Trustee, or exercises
any such trust or power conferred upon the Trustee; PROVIDED that
to the extent that the Trustee fails to make a demand for payment
pursuant to or under any Enhancement Agreement then any Holder of
an Investor Certificate shall have the right to direct the
Trustee to make such demand for payment; PROVIDED, HOWEVER, that,
subject to Section 11.01, the Trustee shall have the right to
decline to follow any such direction if the Trustee being advised
by counsel determines that the action so directed may not
lawfully be taken, or if the Trustee in good faith shall, by a
Responsible Officer or Responsible Officers of the Trustee,
determine that the proceedings so directed would be illegal or
involve it in personal liability or be unduly prejudicial to the
rights of Certificateholders not parties to such direction; and
PROVIDED, FURTHER, that nothing in this Agreement or any
Supplement shall impair the right of the Trustee to take any
action deemed proper by the Trustee and which is not inconsistent
with such direction of the Certificateholders.
Section 11.14 REPRESENTATIONS AND WARRANTIES OF
TRUSTEE. The Trustee represents and warrants, as of the Initial
Closing Date and, with respect to any Series, as of the related
Closing Date, that:
(i) The Trustee is a banking corporation
organized, existing and in good standing under the laws of
the State of New York;
(ii) The Trustee has full power, authority and
right to execute, deliver and perform this Agreement, and
has taken all necessary action to authorize the execution,
delivery and performance by it of this Agreement;
(iii) This Agreement has been duly executed and
delivered by the Trustee; and
(iv) This Agreement constitutes the legal, valid
and binding obligation of the Trustee, enforceable in
accordance with its terms (subject to the effect of any
applicable bankruptcy, insolvency, reorganization,
moratorium or similar law affecting creditors' rights
generally).
Section 11.15 MAINTENANCE OF OFFICE OR AGENCY. The
Trustee will maintain at its expense in the Borough of Manhattan,
The City of New York, an office or offices or agency or agencies
where notices and demands to or upon the Trustee in respect of
the Certificates and this Agreement may be served. The Trustee
initially appoints the Corporate Trust Office as its office for
such purposes in New York. The Trustee will give prompt written
notice to the Servicer and to Certificateholders of any change in
the location of the Certificate Register or any such office or
agency.
Section 11.16 STATEMENTS, CERTIFICATES AND REPORTS. A
copy of each statement, certificate and report furnished to the
Trustee pursuant to this Agreement shall be provided to any
Certificateholder or Rating Agency requesting the same in a
writing to the Trustee addressed to the Corporate Trust Office.
Section 11.17 TRUSTEE'S FEES AND EXPENSES. The
Trustee shall be entitled to receive reasonable compensation
(which shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust) for all
services rendered by it in the execution of the Trust hereby
created and in the exercise and performance of any of the powers
and duties of the Trustee hereunder or under any Supplement and
the Trustee shall also be entitled to Documented Trustee
Expenses. The share of the aforesaid Trustee's compensation
allocable to each Series with respect to any date of payment
shall be as set forth in the Supplement related thereto. The
remainder, if any, of the aforesaid Trustee's compensation shall
be paid by the Transferor, and in no event shall any Investor
Certificateholders be liable for the payment of such remainder.
Each Series shall pay its pro rata share of the Documented
Trustee Expenses that relate to such Series; for purposes of this
sentence, "pro rata share" shall be determined based on the
aggregate amount of the Invested Amounts of all Series to which
such Documented Trustee Expenses relate. The provisions of this
paragraph shall survive the termination of the Trust and the
resignation or removal of the Trustee.
ARTICLE XII
TERMINATION
Section 12.01 TERMINATION OF TRUST. (a) The
respective obligations and responsibilities of the Transferor,
the Servicer and the Trustee created hereby (other than the
obligation of the Trustee to make payments to Certificateholders
as hereafter set forth) shall terminate, except with respect to
the duties described in Sections 7.04, 8.04, 11.17 and 12.03(a),
upon the earlier of (i) the Business Day after the day on which
(x) the Aggregate Invested Amount is zero or (y) available funds
shall have been deposited in Series Accounts at the times and in
the amounts provided for in this Agreement (including Sections
2.04, 12.01(b), 12.02 and Article IV hereof) and any applicable
Supplement sufficient to pay the Aggregate Invested Amount plus
interest accrued at the applicable Certificate Rates through the
last day of the month preceding the next Payment Date in full
with respect to each Series of Certificates; and (ii) the
expiration of 21 years from the death of the last survivor of the
descendants of George H. W. Bush living on the date of this
Agreement (the "FINAL TRUST TERMINATION DATE").
(b) If on the Determination Date in the month
immediately preceding the month in which the Final Trust
Termination Date occurs (after giving effect to all transfers,
withdrawals, deposits and drawings to occur on such date and the
payment of principal on any Series of Investor Certificates to be
made on the related Payment Date pursuant to Section 4.05) the
Invested Amount of any Series would be greater than zero, the
Servicer on behalf of the Trust shall sell in a commercially
reasonable manner within 30 days of such Determination Date all
of the Advances, the related Receivables and the Related
Property. The proceeds of such sale, net of all reasonable
expenses of the Trustee incurred in connection with such sale,
which shall be paid to the Trustee from such proceeds, shall be
treated as Collections of the Advances, the Related Receivables
and shall be allocated in accordance with Section 4.03. During
such 30-day period, the Servicer shall continue to collect
Collections on the Advances and related Receivables and allocate
such payments in accordance with the provisions of Section 4.03.
Section 12.02 OPTIONAL PURCHASE AND SERIES TERMINATION
DATE OF INVESTOR CERTIFICATES OF ANY SERIES.
(a) If provided in any Supplement, on a Payment Date
the Transferor may, but shall not be obligated to, purchase any
Series of Investor Certificates on the next following Payment
Date by depositing into a Series Account specified in such
Supplement, prior to such Payment Date, an amount equal to the
sum of (i) the Invested Amount of such Series plus (ii) interest
accrued and unpaid thereof at the applicable Certificate Rate
through the end of the interest accrual period preceding such
Payment Date, plus (iii) any amounts owing to Enhancement
Providers or the Trustee with respect to such Series (the "SERIES
REPURCHASE AMOUNT").
In the event that the Trustee obtains no satisfactory
bid from an Eligible Servicer in the circumstances described in
Section 10.02, and the Servicer delivers an Officer's Certificate
to the Trustee to the effect that the Servicer cannot in good
faith cure the applicable Servicer Default, then the Transferor
may, but shall not be obligated to, purchase any Series of
Investor Certificates on the next following Payment Date by
depositing the related Series Repurchase Amount, prior to such
Payment Date, into a Series Account specified in the Supplement
relating to such Series.
No purchase of any Certificates contemplated by the
preceding two paragraphs shall occur (i) unless the Transferor
shall deliver to the Trustee an Opinion of Counsel reasonably
acceptable to the Trustee to the effect that such purchase of any
Certificates would not constitute a fraudulent conveyance of the
Transferor or (ii) if the Transferor is party to a proceeding
provided under a Debtor Relief Law (other than as a creditor or a
claimant).
(b) The Series Repurchase Amount deposited pursuant to
Section 12.02(a) shall be paid to the Investor Certificateholders
of the related Series and the Enhancement Provider or the Trustee
with respect to such Series pursuant to Article IV and the
related Supplement on the Payment Date following the date of such
deposit. All Certificates which are purchased by the Transferor
pursuant to Section 12.02(a) shall be delivered by the Transferor
upon such purchase to, and be cancelled by, the Transfer Agent
and Registrar and be disposed of in a manner satisfactory to the
Trustee and the Transferor.
(c) All principal or interest with respect to any
Series of Investor Certificates shall be due and payable no later
than the Series Termination Date with respect to such Series.
Unless otherwise provided in a Supplement (e.g., providing for
Enhancement to cover payment of such principal and interest), in
the event that the Invested Amount of any Series of Certificates
is greater than zero on its Series Termination Date, the Trustee
will use its best efforts to sell or cause to be sold in a
commercially reasonable manner, and pay the proceeds (net of all
reasonable expenses of the Trustee incurred in connection with
such sale, which shall be paid to the Trustee from such
proceeds), to the extent necessary, to all Senior
Certificateholders of such Series pro rata, in final payment of
all principal of and accrued interest on such Series of
Certificates, an amount of Advances up to such Series' Series
Allocation Percentage of Advances, together with the related
Receivables and other Related Property, at the close of business
on such date. Any proceeds of such sale in excess of such
principal and interest paid and such expenses of the Trustee
shall be paid FIRST in respect of any amounts owing to the
Enhancement Provider for such Series, SECOND to the Subordinated
Certificateholders of such Series in an amount up to the
remaining Subordinated Invested Amount plus any accrued and
unpaid interest thereon and THIRD to the Transferor. Upon
payment of the proceeds of such sale as provided in this Section
12.02(c), all principal of and accrued interest on such Series
shall be deemed for all purposes to have been paid in full. Upon
such Series Termination Date, or (if applicable) on the first
Payment Date following the sale of Advances, related Receivables
and Related Property called for above in this Section 12.02(c),
with respect to the applicable Series of Certificates, final
payment of all amounts allocable to any Investor Certificates of
such Series shall be made in the manner provided in Section
12.03.
Section 12.03 FINAL PAYMENT.
(a) Written notice of any termination, specifying the
Special Payment Date upon which the Investor Certificateholders
of any Series will receive payment of the final distribution with
respect to such Series, shall be given (subject to at least ten
days' prior notice from the Servicer to the Trustee) by the
Trustee to the Investor Certificateholders of such Series mailed
not later than the fifth day of the month of such final
distribution specifying (i) the Payment Date (which shall be the
Payment Date in the month in which the deposit is made pursuant
to Section 2.04(d) or 12.02(a)) upon which final payment of such
Investor Certificates will be made to the Certificateholders of
record on the Record Date immediately preceding such Payment Date
and (ii) the amount of any such final payment. Each
Certificateholder by its purchase of a Certificate shall be
deemed to agree to use its best efforts to return its Certificate
for cancellation by the Trustee within 60 Business Days after the
final distribution with respect thereto. The Servicer's notice
to the Trustee in accordance with the preceding sentence shall be
accompanied by an Officer's Certificate setting forth the
information specified in Section 5.02(a), as applicable, covering
the period during the then current calendar year through the date
of such notice and setting forth the date of such final
distribution. The Trustee shall give such notice to the Transfer
Agent and Registrar and the Paying Agent at the time such notice
is given to such Certificateholders. The Paying Agent or the
Trustee shall pay out of funds then on deposit in the
Concentration Account and Series Accounts to the
Certificateholders of such Series of record in the Certificate
Register on the Record Date all amounts then due and payable to
such Certificateholders. In the event that all of the Investor
Certificateholders of all, or the applicable, Series, shall not
surrender their Certificates for cancellation within one month
after the date specified in the above-mentioned written notice,
the Trustee shall give a second written notice to the remaining
Investor Certificateholders, upon receipt of the appropriate
records from the Transfer Agent and Registrar, to surrender their
Certificates for cancellation.
(b) All Certificates surrendered for cancellation in
connection with the final distribution with respect to such
Certificates, shall be cancelled by the Transfer Agent and
Registrar and be disposed of in a manner satisfactory to the
Trustee. Upon the termination of the Trust, the Transferor shall
return the Transferor Certificate to the Trustee, and the Trustee
shall dispose of such Certificates in a manner satisfactory to
the Trustee.
Section 12.04 TRANSFEROR'S TERMINATION RIGHTS. Upon
the termination of the Trust pursuant to this Article XII and the
surrender of the Transferor Certificate, the Trustee shall
assign, transfer and otherwise convey to the Transferor or its
designee (without recourse, representation or warranty) all
right, title and interest of the Trust in the Advances, related
Receivables and the other Trust Assets, whether then existing or
thereafter created, all moneys due or to become due with respect
thereto, and all proceeds thereof, and release and terminate the
security interest granted pursuant to Section 2.01. The Trustee
shall execute and deliver such instruments of transfer and
assignment, and UCC termination statements, in each case prepared
by the Transferor and without recourse, representation or
warranty, as shall be reasonably requested by the Transferor to
vest in the Transferor or its designee all right, title and
interest which the Trust had in the Advances, related Receivables
and other Trust Assets and to evidence the release and
termination of such security interest.
Section 12.05 DEFEASANCE. Except as may be expressly
provided to the contrary with respect to any Series in the
Supplement related thereto:
(a) The Transferor may at its option be discharged
from its obligations with respect to the Investor
Certificates on the date the applicable conditions set forth
in Section 12.05(c) are satisfied ("DEFEASANCE"); PROVIDED,
HOWEVER, that the following rights, obligations, powers,
duties and immunities shall survive until otherwise
terminated or discharged hereunder: (A) the rights of
Holders of Investor Certificates to receive, solely from the
trust fund provided for in Section 12.05(c), payments in
respect of principal of and interest on such Investor
Certificates when such payments are due; (B) the
Transferor's obligations with respect to such Certificates
under Sections 6.03 and 6.04; (C) the rights, powers,
trusts, duties and immunities of the Trustee, the Paying
Agent and the Transfer Agent and Registrar hereunder; and
(D) this Section 12.05.
(b) Subject to Section 12.05(c), the Transferor at its
option may use Interest Collections, Principal Collections
and Recoveries that would otherwise be allocated to the
Series being defeased pursuant to Sections 4.04, 4.05 and
4.06 to purchase Eligible Investments rather than additional
Advances and related Receivables for transfer to the Trustee
for the benefit of the Certificateholders of such Series
from time to time until such time as no Advances and related
Receivables remain in the Trust.
(c) The following shall be the conditions to
Defeasance under Section 12.05(a): (1) the Transferor
irrevocably shall have deposited or caused to be deposited
with the Trustee, under the terms of an irrevocable trust
agreement in form and substance satisfactory to the Trustee,
as trust funds in trust for making the payments described
below, (A) Dollars in an amount, or (B) Eligible Investments
which through the scheduled payment of principal and
interest in respect thereof will provide, not later than the
due date of payment thereon, money in an amount, or (C) a
combination thereof, in each case sufficient to pay and
discharge, and, which shall be applied by the Trustee to pay
and discharge, all remaining scheduled interest and
principal payments on all outstanding Investor Certificates
of the Series being defeased on the dates scheduled for such
payments in this Agreement and the applicable Supplements;
(2) prior to its first exercise of its right pursuant to
this Section 12.05 to substitute money or Eligible
Investments for Advances and related Receivables, the
Transferor shall have delivered to the Trustee one or more
Opinions of Counsel to the effect that such deposit and
termination of obligations will not result in (x) the
Holders of such Investor Certificates recognizing income,
gain, or loss for federal income or Florida or New York
income tax purposes or an adverse effect on the
characterization of such Certificates as indebtedness for
federal income or Florida, New York or income tax purposes
or (y) the Trust being required to register as an
"investment company" within the meaning of the Investment
Company Act of 1940, as amended; (3) the Transferor shall
have delivered to the Trustee an Officer's Certificate
stating that such deposit and termination of obligations
will not result in an Early Amortization Event for any
Series; (4) the Transferor shall have delivered to the
Rating Agencies an Opinion of Counsel in form and substance
satisfactory to the Rating Agencies to the effect that the
deposit pursuant to clause (1) of this paragraph (c) shall
not constitute a preferential transfer within the meaning of
the Bankruptcy Code of the United State of America; and (5)
the Transferor shall have delivered to the Rating Agencies
and the Trustee a certificate of Deloitte & Touche or
another nationally recognized independent public accountants
(who may also render services to the Servicer or the
Transferor), in form and substance satisfactory to the
Rating Agencies, to the effect that the deposit pursuant to
clause (1) of this paragraph (c) will be sufficient to pay
and discharge all remaining scheduled interest and principal
payments on all outstanding Investor Certificates of such
Series.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
Section 13.01 AMENDMENT.
(a) This Agreement may be amended from time to time by
the Servicer, the Transferor and the Trustee, without the consent
of any of the Certificateholders as shall not have consented
thereto, to cure any ambiguity which may be inconsistent with any
other provisions herein or any patent error herein, or to improve
the position of the Senior Certificateholders, provided that such
action shall not adversely affect the interests of any of the
Investor Certificateholders, as specifically addressed by the
Opinion of Counsel required to be delivered in connection
therewith pursuant to Section 13.01(f).
(b) This Agreement (including any Supplement) may also
be amended or the provisions thereof waived from time to time by
the Transferor, the Servicer and the Trustee with the consent of
the Holders of Investor Certificates aggregating not less than
66-2/3% of the Invested Amount of each Class of each Series
adversely affected for the purpose of adding any provisions to,
changing in any manner or eliminating any of the provisions of
this Agreement (including any Supplement) or of modifying in any
manner the rights of Certificateholders of any Class of any
Series then issued and outstanding. No such amendment or waiver,
however, may (i) reduce in any manner the amount of or delay the
timing of, distributions required to be made with respect of such
Class of such Series or impair the right to institute suit for
the enforcement of any such distribution, (ii) change the
definition or the manner of calculating interest in respect of
any Investor Certificate of such Class of such Series, (iii)
modify any of the covenants set forth in Section 2.06 or, except
as expressly provided herein, terminate the security interest of
this Agreement on any Trust Assets at any time subject thereto or
deprive any Certificateholder of the benefit afforded thereby,
(iv) reduce the aforesaid percentage of Invested Amounts the
Holders of which are required to consent to any such amendment or
waiver, in each case without the consent of all
Certificateholders of such Class or such Series adversely
affected.
(c) Promptly after the execution of any amendment or
waiver in respect of this Agreement, the Trustee shall furnish a
copy of such amendment to each Investor Certificateholder (or,
with respect to an amendment or waiver of a Supplement, to the
Holders of the Certificates of the related Series) and to each
Rating Agency.
(d) Any Supplement and any amendments necessary to
effectuate the addition or removal of Advances and related
Receivables pursuant to the terms of this Agreement executed in
accordance with the provisions hereof shall not be considered
amendments to this Agreement or any Supplement, including for the
purpose of Sections 13.01(a), (b) and (c).
(e) Prior to the execution of any amendment or waiver
to this Agreement or any Supplement, the Trustee shall receive
and be entitled to rely upon an Opinion of Counsel of Milbank,
Tweed, Hadley & McCloy, or other nationally recognized
securitization counsel, stating that the execution of such
amendment or waiver is authorized or permitted by this Agreement.
The Trustee may, but shall not obligated to, enter into any such
amendment or waiver which affects the Trustee's own rights,
duties or immunities under this Agreement, any Supplement or
otherwise.
Section 13.02 PROTECTION OF RIGHT, TITLE AND INTEREST
OF TRUST.
(a) The Servicer shall cause this Agreement, any
Supplement, all amendments hereto or thereto and/or all financing
statements and continuation statements and any other necessary
documents covering the Certificateholders and the Trustee's
right, title and interest to the Trust Assets to be promptly
recorded, registered and filed, and at all times to be kept
recorded, registered and filed, all in such manner and in such
places as may be required by law fully to preserve and protect
the right, title and interest of the Trustee hereunder to all
property comprising the Trust Assets. The Servicer shall deliver
to the Trustee file-stamped copies of, or filing receipts for,
any document recorded, registered or filed as provided above, as
soon as available following such recording, registration or
filing. The Transferor shall cooperate fully with the Servicer
in connection with the obligations set forth above and will
execute any and all documents reasonably required to fulfill the
intent of this Section 13.02(a).
(b) The Servicer and Factors, if it is not the
Servicer, will give the Trustee and each Enhancement Provider
prompt written notice of any relocation of any office from which
it services Advances or keeps records concerning the Advances or
Receivables or of its principal place of business or chief
executive office and whether, as a result of such relocation, the
applicable provisions of the UCC would require the filing of any
amendment of any previously filed financing or continuation
statement or of any new financing statement and shall file such
financing statements or amendments as may be necessary to perfect
or to continue the perfection of the Trust's ownership or
security interest in the Advances, the related Receivables and
the other Trust Assets. The Servicer and Factors, if it is not
the Servicer, will at all times maintain each office from which
it services, or maintains records in respect of, Advances, the
related Receivables and the Related Property and its principal
executive office within the United States of America.
(c) The Servicer will deliver to the Trustee: (i) upon
the execution and delivery of each amendment of Article I, II,
III or IV hereto, an Opinion of Counsel, substantially in the
form of EXHIBIT 13.02(C)(I) hereto, (ii) on or before March 31 of
each year, beginning with March 31, 1995, an Opinion of Counsel,
substantially in the form of EXHIBIT 13.02(C)(II) hereto, dated
as of a date between January 1 and March 31 of such year, (iii)
on or before March 31 of each calendar year, beginning with March
31, 1995, an Opinion of Counsel from independent counsel of the
Transferor or the Servicer, which counsel shall be reasonably
acceptable to the Trustee (with the consent of the Majority
Certificateholders of all outstanding Series), stating that
(x) such counsel has reviewed (1) a list prepared by the Servicer
setting forth the Designated Accounts, the names of the Clients
in respect of such Designated Accounts and each UCC financing
statement filed in respect of each such Client and/or Designated
Account hereunder, under the Contribution and Sale Agreement or
pursuant to the relevant Factoring Agreement (together with the
date of recordation, place or recordation and recordation number
thereof), (2) the UCC financing statements filed hereunder, under
the Contribution and Sale Agreement and under each relevant
Factoring Agreement showing (aa) Transferor as "debtor" and the
Trustee as "secured party," (bb) Factors as "debtor" and
"Transferor" as "original secured party" (whether or not assigned
to the Trustee) and (cc) any Client under a Designated Account as
"debtor" and "Factors" as "original secured party" (whether or
not assigned to Transferor and/or Trustee) and (3) a report from
a UCC reporting service of national reputation in respect of any
local, state or federal income tax lien filing against Factors,
Transferor, CF One, Holding, Capital Bank or Capital Bancorp
recorded with the Secretary of State of Florida, the Secretary of
State of New York and/or the Secretary of State of California,
(y) all action has been taken with respect to the recording,
filing, registering, re-recording, refiling, re-registering or
continuing of all UCC financing statements required to be filed
hereunder in order for the Trustee to have and continue to have a
perfected first priority security interest in and to the Advances
and to have a perfected first priority security interest in and
to the Receivables securing the Advances under the Designated
Accounts or, if any such action is required to be so taken, the
specific actions that must be so taken and when such actions
should be so taken and (z) no local, state or federal tax lien
shall have appeared of record in the report referred to in sub-
clause (x)(3) above or, if such a tax lien shall have so appeared
of record, the description of such lien and the amount of
delinquent taxes secured thereby, (iv) on or before the last day
of each calendar quarter, beginning with September 30, 1994, a
report from a UCC reporting service of national reputation in
respect of any local, state or federal income tax lien filing
against Factors, Transferor, CF One, Holding, Capital Bank or
Capital Bancorp recorded with the Secretary of State of Florida,
the Secretary of State of New York and/or the Secretary of State
of California, and (v) on or before each Determination Date, a
master list or lists (the "CLIENT UCC LIST") containing the name
of each Client in a Designated Account as of the last day of the
prior Settlement Period, the date the most recent UCC financing
statement or continuation statement in favor of Factors was filed
with respect to such Client and the date on which such financing
statement or continuation statement shall expire. The Trustee
shall from time to time determine whether evidence of the filing
of a continuation statement shall have been delivered to it
pursuant to Section 2.01 prior to the expiration date for each
Client as reported in the Client UCC List.
(d) If at any time the Servicer is no longer Factors,
the Transferor shall deliver to the Successor Servicer
powers-of-attorney such that such Successor Servicer may perform
the obligations set forth in Sections 13.02(a), 13.02(b) and
13.02(c).
Section 13.03 LIMITATION ON RIGHTS OF CERTIFICATE-
HOLDERS.
(a) The death or incapacity of any Certificateholder
shall not operate to terminate this Agreement or the Trust, nor
shall such death or incapacity entitle such Certificateholders'
legal representatives or heirs to claim an accounting or to take
any action or commence any proceeding in any court for a
partition or winding up of the Trust, nor otherwise affect the
rights, obligations and liabilities of the parties hereto or any
of them.
(b) No Certificateholder shall have any right to vote
(except as specifically provided in this Agreement or any
Supplement) or in any manner otherwise control the operation and
management of the Trust, or the obligations of the parties
hereto, nor shall anything herein set forth, or contained in the
terms of the Certificates, be construed (other than for tax
purposes) so as to constitute the Certificateholders from time to
time as partners; nor shall any Certificateholder be under any
liability to any third person by reason of any action taken by
the parties to this Agreement pursuant to any provision hereof,
except as expressly provided for herein.
(c) No Certificateholder shall have any right by
virtue of any provisions of this Agreement or any Supplement to
institute any suit, action or proceeding in equity or at law upon
or under or with respect to this Agreement, unless the Majority
Certificateholders of any Series which may be materially
adversely affected but for the institution of such suit, action
or proceeding shall have made written request upon the Trustee to
institute such action, suit or proceeding in its own name as
Trustee hereunder and shall have offered to the Trustee such
reasonable indemnity as it may require against the costs,
expenses and liabilities to be incurred therein or thereby, and
the Trustee, for 30 days after its receipt of such notice,
request and offer of indemnity, shall have neglected or refused
to institute any such action, suit or proceeding; it being
understood and intended, and being expressly covenanted by each
Certificateholder with every other Certificateholder and the
Trustee, that no one or more Certificateholders shall have any
right in any manner whatever by virtue or by availing itself or
themselves of any provisions of this Agreement or any Supplement
to affect, disturb or prejudice the rights of the Holders of any
other of the Certificates, or to obtain or seek to obtain
priority over or preference to any other such Certificateholder
(except pursuant to the priorities established in the applicable
Supplement), or to enforce any right under this Agreement or any
Supplement, except in the manner herein provided and for the
equal, ratable and common benefit of all Certificateholders in
accordance with any priorities established in the applicable
Supplements. For the protection and enforcement of the
provisions of this Section 13.03, each and every
Certificateholder and the Trustee shall be entitled to such
relief as can be given either at law or in equity.
Section 13.04 GOVERNING LAW; JURISDICTION; CONSENT TO
SERVICE OF PROCESS.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK.
(b) JURISDICTION. Each of the parties hereto hereby
irrevocably and unconditionally submits to the nonexclusive
jurisdiction of any New York State court or federal court of the
United States of America sitting in the Borough of Manhattan in
New York City, and any appellate court from any thereof, in any
action or proceeding arising out of or relating to this
Agreement, and each of the parties hereto hereby irrevocably and
unconditionally agrees that all claims in respect of any such
action or proceeding may be heard and determined in such New York
State or, to the extent permitted by law, in such federal court.
Each of the parties hereto agrees that a final judgment in any
such action or proceeding shall be conclusive and may be enforced
in other jurisdictions by suit on the judgment or in any other
manner provided by law.
(c) CONSENT TO SERVICE OF PROCESS. Each party to this
Agreement irrevocably consents to service of process in the
manner provided for notices in Section 13.05. Nothing in this
Agreement will affect the right of any party to this Agreement to
serve process in any other manner permitted by law.
Section 13.05 NOTICES. All demands, notices,
directions, instructions and communications hereunder shall be in
writing and shall be deemed to have been duly given (i) if
personally delivered, (ii) if sent by facsimile transmission,
(iii) the next day after dispatch by overnight courier to other
than a post office box or (iv) five days after mailing by
certified or registered mail, return receipt requested, (a) in
the case of the Servicer, to Capital Factors, Inc., 1799 West
Oakland Park Boulevard, Fort Lauderdale, FL 33311, Attention:
John W. Kiefer and Dennis A. McDermott, telephone: 305-730-2900,
facsimile: 305-730-2920; (b) in the case of the Trustee, to the
Corporate Trust Office; (c) in the case of the Transferor, to CF
Funding Corp., P.O. Box 8457, Fort Lauderdale, FL 33310-8457,
Attention: President, telephone: 305-677-9931, facsimile: 305-
730-2918, with a copy to: Capital Factors, Inc., 1799 West
Oakland Park Boulevard, Fort Lauderdale, FL 33311, Attention:
John W. Kiefer and Dennis A. McDermott, telephone: 305-730-2900,
facsimile: 305-730-2920; or, as to each such Person, at such
other address as shall be designated by such Person in a written
notice to each other party. Any notice required or permitted to
be mailed to a Certificateholder shall be given by first-class
registered mail, postage prepaid, at the address of such
Certificateholder as shown in the Certificate Register (with a
copy thereof to one such other Person as such Certificateholder
may have requested in writing, the address of such other Person
to receive such copy also to be shown in the Certificate
Register). Any notice so mailed within the time prescribed in
this Agreement shall be conclusively presumed to have been duly
given after the fifth Business Day after such mailing, whether or
not the Certificateholder receives such notice.
Copies of all notices, reports, certificates and
amendments required to be delivered to the Rating Agencies
hereunder shall be mailed to the Rating Agencies as follows:
Fitch Investors Service, Inc., One State Street Plaza, 32nd
Floor, New York, New York 10004, Attention: Asset Backed
Securities Group and Duff & Phelps Credit Rating Co., 55 East
Monroe Street, Chicago, Illinois 60603, Attention: Structured
Finance--Research and Monitoring.
The Trustee shall promptly deliver to the Transferor,
the Servicer and each Rating Agency any notices it receives in
connection with this Agreement which are not otherwise delivered
to such parties unless a Responsible Officer of the Trustee
reasonably believes that a copy of such notice has previously
been so delivered.
Section 13.06 SEVERABILITY OF PROVISIONS. If any one
or more of the covenants, agreements, provisions or terms of this
Agreement shall for any reason whatsoever be held invalid, then
such covenants, agreements, provisions or terms shall be deemed
severable from the remaining covenants, agreements, provisions or
terms of this Agreement and shall in no way affect the validity
or enforceability of the other provisions of this Agreement or of
the Certificates or rights of the Certificateholders thereof.
Section 13.07 ASSIGNMENT. Notwithstanding anything to
the contrary contained herein, except as provided in Sections
8.02 or 8.05, this Agreement, including any Supplement, may not
be assigned by the Servicer without the prior consent of the
Majority Certificateholders of all outstanding Series.
Section 13.08 CERTIFICATES NONASSESSABLE AND FULLY
PAID. It is the intention of the parties to this Agreement that
the Investor Certificateholders shall not be personally liable
for obligations of the Trust, that the interests in the Trust
represented by the Certificates shall be nonassessable for any
losses or expenses of the Trust or for any reason whatsoever, and
that Certificates upon authentication thereof by the Trustee
pursuant to Sections 2.07 and 6.02 are and shall be deemed fully
paid.
Section 13.09 FURTHER ASSURANCES. The Transferor and
the Servicer agree to do and perform, from time to time, any and
all acts and to execute any and all further instruments required
or reasonably requested by the Trustee more fully to effect the
purposes of this Agreement, including the execution of any
financing statements or continuation statements relating to the
Advances, the related Receivables and the other Trust Assets for
filing under the provisions of the UCC of any applicable
jurisdiction.
Section 13.10 NO WAIVER; CUMULATIVE REMEDIES. No
failure to exercise and no delay in exercising, on the part of
any Certificateholder or any party hereto, any right, remedy,
power or privilege hereunder, shall operate as a waiver thereof;
nor shall any single or partial exercise of any right, remedy,
power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy,
power or privilege. The rights, remedies, powers and privileges
herein provided are cumulative and not exhaustive of any rights,
remedies, powers and privileges provided by law.
Section 13.11 COUNTERPARTS. This Agreement and any
Supplement may be executed in two or more counterparts (and by
different parties on separate counterparts), each of which shall
be an original, but all of which together shall constitute one
and the same instrument.
Section 13.12 THIRD-PARTY BENEFICIARIES. This
Agreement and any Supplement will inure to the benefit of and be
binding upon the parties hereto, and, in addition, shall inure to
the benefit of the Certificateholders and their respective
successors and permitted assigns. Except as otherwise provided
in this Article XIII or Section 7.04, no other Person will have
any right or obligation hereunder.
Section 13.13 ACTIONS BY CERTIFICATEHOLDERS.
(a) Wherever in this Agreement or any Supplement, a
provision is made that an action may be taken or a notice, demand
or instruction given by Investor Certificateholders, such action,
notice or instruction may be taken or given by any Investor
Certificateholder of any Series, unless such provision requires a
specific percentage of Investor Certificateholders of a certain
Series or all Series or certain Classes.
(b) Any request, demand, authorization, direction,
notice, consent, waiver or other act by a Certificateholder shall
bind such Certificateholder and every subsequent holder of such
Certificate issued upon the registration of transfer thereof or
in exchange therefor or in lieu thereof in respect of anything
done or omitted to be done by the Trustee or the Servicer in
reliance thereon, whether or not notation of such action is made
upon such Certificate.
(c) Any request, demand, authorization, direction,
notice, consent, waiver or other action provided by this
Agreement or any Supplement to be given or taken by
Certificateholders may be embodied in and evidenced by one or
more instruments of substantially similar tenor signed by such
Certificateholders in person or by an agent duly appointed in
writing; and except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments
are delivered to the Trustee and, when required, to the
Transferor or the Servicer. Proof of execution of any such
instrument or of a writing appointing any such agent shall be
sufficient for any purpose of this Agreement or any Supplement
and conclusive in favor of the Trustee, the Transferor and the
Servicer, if made in the manner provided in this Section.
(d) The fact and date of the execution by any
Certificateholder of any such instrument or writing may be proved
in any reasonable manner which the Trustee deems sufficient.
(e) The Trustee may require such additional proof of
any matter referred to in this Section as it shall reasonably
deem necessary.
Section 13.14 MERGER AND INTEGRATION. Except as
specifically stated otherwise herein, this Agreement sets forth
the entire understanding of the parties relating to the subject
matter hereof, and all prior understandings, written or oral, are
superseded by this Agreement. This Agreement may not be
modified, amended, waived or supplemented except as provided
herein.
Section 13.15 HEADINGS. The headings herein are for
purposes of reference only and shall not otherwise affect the
meaning or interpretation of any provision hereof.
Section 13.16 SCHEDULES AND EXHIBITS. The schedules,
exhibits and annexes attached hereto and referred to herein shall
constitute a part of this Agreement and are incorporated into
this Agreement for all purposes.
Section 13.17 ASSIGNMENT OF RELATED PROPERTY. (a)
Notwithstanding the Transferor's assignment of the Related
Property hereunder and for so long as no Early Amortization Event
shall exist, the Transferor shall be permitted to give all
consents, requests, notices, directions, approvals, extensions or
waivers, if any, which are required by the specific terms of the
Contribution and Sale Agreement to be given by it to Factors.
The assignment of the Related Property hereunder shall not
relieve the Transferor or Factors from the performance of any
term, covenant, condition or agreement on the part of the
Transferor or Factors to be performed or observed under or in
connection with the Contribution and Sale Agreement.
(b) Promptly following a request from the Majority
Certificateholders of an affected Series or the Trustee, acting
at the direction of such Majority Certificateholders, to do so,
and at the Transferor's own expense, the Transferor, prior to an
Early Amortization Event, and the Trustee, after an Early
Amortization Event, agree to exercise any and all rights,
remedies, powers and privileges lawfully available to the
Transferor under or in connection with the Contribution and Sale
Agreement to the extent and in the manner directed by the
Majority Certificateholders of all affected Series or the
Trustee, acting at the direction of such Majority
Certificateholders, including the transmission of notices of
default on the part of the Transferor thereunder and the
institution of legal or administrative action or proceedings to
compel or secure performance by Factors of its obligations under
the Contribution and Sale Agreement. The Transferor, prior to an
Early Amortization Event, and the Trustee, after an Early
Amortization Event, further agrees that it will not, without the
prior written consent of the Majority Certificateholders of all
outstanding Series or the Trustee, acting at the direction of
such Majority Certificateholders, exercise any right, remedy,
power or privilege available to it under the Contribution and
Sale Agreement or take any action to compel or secure performance
or observance by Factors of its obligations thereunder, or give
any consent, request, notice, direction, approval, extension or
waiver to Factors under the Contribution and Sale Agreement not
required to be exercised, taken, observed or given by the
Transferor pursuant to the terms of the Contribution and Sale
Agreement.
(c) The Transferor agrees to give the Trustee and the
Investor Certificateholders of all outstanding Series prompt
written notice of any default on the part of Factors under the
Contribution and Sale Agreement that comes to the Transferor's
attention.
(d) The Majority Certificateholders of all outstanding
Series shall have the right to direct the time and manner at or
in which the Trustee exercises any right, remedy, power or
privilege available to it under the Contribution and Sale
Agreement.
Section 13.18 NO PROCEEDINGS. The Trustee and the
Servicer each hereby agrees that it will not institute against
the Transferor, or join any other Person in instituting against
the Transferor, any proceeding under any Debtor Relief Law so
long as any Investor Certificates shall be outstanding or there
shall not have elapsed one year plus one day since the last day
on which any such Investor Certificates shall have been
outstanding.
Section 13.19 OBLIGATIONS. Anything contained in
this Agreement to the contrary notwithstanding, the Trustee shall
not be precluded from having recourse to, and pursuing any rights
or remedies it may have hereunder, under any document related
hereto or at law or in equity against, the Transferor, Factors or
any Servicer due to, or arising out of, (i) any fraud perpetrated
by any such person in connection with transactions described in,
or contemplated by, this Agreement, any Supplement or the
Contribution and Sale Agreement, (ii) any failure by any such
person, respectively, to deposit money required by such Person to
be so deposited pursuant to Section 2.04(c), Section 2.04(d) or
Section 3.03 or (iii) any breach by any such person,
respectively, in respect of any indemnity given by such person
hereunder, under any document related hereto or in any
Supplement.
[SIGNATURES FOLLOW]
IN WITNESS WHEREOF, CF Funding Corp., Capital Factors,
Inc. and Bankers Trust Company have caused this Agreement to be
duly executed by their respective officers as of the day and year
first above written.
CF FUNDING CORP.,
as Transferor
By: /s/ Dennis McDermott
Name: Dennis McDermott
Title: Treasurer
CAPITAL FACTORS, INC.,
individually and as Servicer
By: /s/ Dennis McDermott
Name: Dennis McDermott
Title: Senior Vice President
BANKERS TRUST COMPANY,
as Trustee
By: /s/ Marie C. Rasch
Name: Marie C. Rasch
Title: Vice President
EXHIBIT 10.5
CF FUNDING CORP.,
Buyer
and
CAPITAL FACTORS, INC.,
Seller
CONTRIBUTION AND SALE AGREEMENT
Dated as of June 1, 1994
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . .
Section 1.2 Other Definitional Provisions . . . . . . . . . .
ARTICLE II
PURCHASE, CONVEYANCE AND SERVICING OF ADVANCES
Section 2.1 Sale. . . . . . . . . . . . . . . . . . . . . . .
Section 2.2 Addition of Accounts. . . . . . . . . . . . . . .
ARTICLE III
CONSIDERATION AND PAYMENT
Section 3.1 Purchase Price. . . . . . . . . . . . . . . . . .
Section 3.2 Payment of Purchase Price . . . . . . . . . . . .
Section 3.3 Settlement. . . . . . . . . . . . . . . . . . . .
Section 3.4 Capital Contribution. . . . . . . . . . . . . . .
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 Seller's Representations and Warranties . . . . .
Section 4.2 Seller's Representations and Warranties
Regarding Advances and Receivables. . . . . . . .
Section 4.3 Representations and Warranties of the Buyer . . . .
Section 4.4 Survival of Representations and Warranties. . . . .
ARTICLE V
COVENANTS OF SELLER AND BUYER
Section 5.1 Seller Covenants. . . . . . . . . . . . . . . . . .
Section 5.2 Buyer Covenants . . . . . . . . . . . . . . . . . .
Section 5.3 Service Covenants . . . . . . . . . . . . . . . . .
ARTICLE VI
REPURCHASE OBLIGATION
Section 6.1 Mandatory Repurchase. . . . . . . . . . . . . . . .
Section 6.2 Conveyance of Repurchased Advances. . . . . . . . .
ARTICLE VII
CONDITIONS PRECEDENT
Section 7.1 Conditions to the Buyer's Obligations
Regarding Advances. . . . . . . . . . . . . . . .
Section 7.2 Conditions Precedent to the Seller's
Obligations . . . . . . . . . . . . . . . . . . .
ARTICLE VIII
TERM AND TERMINATION
Section 8.1 Term. . . . . . . . . . . . . . . . . . . . . . . .
Section 8.2 Effect of Termination . . . . . . . . . . . . . . .
ARTICLE IX
MISCELLANEOUS PROVISIONS
Section 9.1 Amendment . . . . . . . . . . . . . . . . . . . . .
Section 9.2 Governing Law; Jurisdiction; Consent
to Service of Process . . . . . . . . . . . . . .
Section 9.3 Notices . . . . . . . . . . . . . . . . . . . . . .
Section 9.4 Severability of Provisions. . . . . . . . . . . . .
Section 9.5 Assignment. . . . . . . . . . . . . . . . . . . . .
Section 9.6 Further Assurances. . . . . . . . . . . . . . . . .
Section 9.7 No Waiver; Cumulative Remedies. . . . . . . . . . .
Section 9.8 Counterparts. . . . . . . . . . . . . . . . . . . .
Section 9.9 Binding Effect; Third-Party Beneficiaries . . . . .
Section 9.10 Merger and Integration . . . . . . . . . . . . . .
Section 9.11 Headings . . . . . . . . . . . . . . . . . . . . .
Section 9.12 Schedules and Exhibits . . . . . . . . . . . . . .
CONTRIBUTION AND SALE AGREEMENT
CONTRIBUTION AND SALE AGREEMENT, dated as of June 1,
1994, by and between CAPITAL FACTORS, INC., a Florida corporation
(the "Seller"), and CF FUNDING CORP., a Delaware corporation (the
"Buyer"), a wholly-owned subsidiary of the Seller.
W I T N E S S E T H:
WHEREAS, the Buyer desires to purchase from the Seller
and the Seller desires to sell or contribute to the Buyer (i)
Advances (hereinafter defined) outstanding under Designated
Accounts (hereinafter defined) on the Initial Cut-Off Date
(hereinafter defined) and (ii) Advances in Designated Accounts
generated from time to time after the Initial Cut-Off Date by the
Seller, all upon the terms and conditions hereinafter set forth;
WHEREAS, the Seller and the Buyer are entering into
this Agreement with the intention that the transactions
contemplated hereby will be executed;
WHEREAS, the Buyer is a wholly-owned subsidiary of the
Seller;
NOW, THEREFORE, it is hereby agreed by and between the
Buyer and the Seller as follows:
ARTICLE I
DEFINITIONS
Section 1.1 DEFINITIONS. For all purposes of this
Agreement, except as otherwise expressly provided herein or
unless the context otherwise requires, capitalized terms not
otherwise defined herein shall have the meanings assigned to such
terms in the Definitions attached hereto as Annex X. All other
capitalized terms used herein shall have the meanings specified
herein.
"ADDITION DATE" shall have the meaning specified in
Section 2.2.
"ADDITIONAL ACCOUNTS" shall have the meaning specified
in Section 2.2.
"AGREEMENT" shall mean this Contribution and Sale
Agreement as it may from time to time be amended, supplemented or
otherwise modified in accordance with the terms hereof.
"BUYER" shall have the meaning specified in the
introductory paragraph.
"CONVEYANCE PAPERS" shall have the meaning specified in
Section 4.1(b).
"INVOLUNTARY CASE" shall have the meaning specified in
Section 2.1(c).
"PERMITTED ASSIGNEE" shall have the meaning specified
in Section 9.5.
"PURCHASE PRICE" shall have the meaning specified in
Section 3.1.
"OTHER PROPERTY" shall have the meaning specified in
Section 2.1(b).
"RECONVEYANCE" shall have the meaning specified in
Section 6.2.
"RELATED PROPERTY" shall mean with respect to any
Advance or Receivable, (a) all of the Seller's right, title and
interest in, to and under the Factoring Agreement or Contract
relating to such Advance or Receivable and any Permitted Inter-
creditor Agreement, (b) all guarantees, insurance, assignments of
any nature and other collateral supporting or securing payment of
such Advance or Receivable whether pursuant to the Factoring
Agreement or Contract relating to such Advance or Receivable or
otherwise, including without limitation, cash, letters of credit,
inventory (including Pre-Sold Inventory), receivables and credit
balances, (c) all factoring fees, commissions, interest or other
financing charges or fees arising under the Factoring Agreement
relating to such Advance or Receivable and (d) all other
instruments and all rights under, and all books, records
(including computer tapes) in respect of, the Advance Documents
or Receivable Documents relating to such Advance or Receivable
and all rights (but not obligations) relating to such Advance,
Receivable, Advance Documents or Receivable Documents.
"REMOVED ACCOUNT" shall have the meaning specified in
Section 6.1(a).
"SECURED OBLIGATIONS" shall have the meaning specified
in Section 2.1(g).
"SELLER" shall have the meaning specified in the
introductory paragraph.
"TERMINATION DATE" shall have the meaning specified in
Section 8.1.
Section 1.2 OTHER DEFINITIONAL PROVISIONS. The words
"HEREOF", "HEREIN" and "HEREUNDER" and words of similar import
when used in this Agreement or any Conveyance Paper shall refer
to this Agreement as a whole and not to any particular provision
of this Agreement; the word "INCLUDING" (and with correlative
meaning "INCLUDE") means including without limiting the
generality of any description preceding such term; and Section,
Subsection, Schedule and Exhibit references contained in this
Agreement are references to Sections, Subsections, Schedules and
Exhibits in or to this Agreement unless otherwise specified.
ARTICLE II
PURCHASE, CONVEYANCE AND SERVICING OF ADVANCES
Section 2.1 SALE.
(a) Upon the terms and subject to the conditions set
forth herein, the Seller hereby sells, assigns, transfers and
conveys to the Buyer, and the Buyer hereby purchases from the
Seller, on the terms and subject to the conditions specifically
set forth herein, all of the Seller's respective right, title and
interest in, to and under (i) all Advances outstanding under the
Designated Accounts on the Initial Cut-Off Date, as identified in
Schedule I hereto, installments in respect of Advances generated
thereafter and prior to the Final Trust Termination Date under
such Designated Accounts and Advances existing on the applicable
Addition Date and installments thereof generated thereafter and
prior to the Final Trust Termination Date under Designated
Accounts added to the Trust from time to time pursuant to Section
2.2 (but excluding Advances in Removed Accounts unless and until
such Removed Accounts become Additional Accounts pursuant to
Section 2.2), (ii) all related Receivables, (iii) all Related
Property, (iv) all monies due or to become due with respect to
any of the foregoing and (v) all proceeds (as defined in the UCC)
of any of the foregoing. The foregoing sale, assignment,
transfer and conveyance does not constitute an assumption by the
Buyer of any obligations of the Seller or any other Person to
Obligors or to any other Person in connection with the Advances,
related Receivables or Related Property or other agreement and
instrument relating thereto (including any Advance Document or
Receivable Document).
(b) In connection with the foregoing sale, the Seller
agrees to record and file, at its own expense, any financing
statements and continuation statements with respect to such
financing statements (when applicable) required to be filed with
respect to the Advances and the Seller's interest in the other
property described in clauses (ii), (iii), (iv) and (v) of
Section 2.1(a) (the "OTHER PROPERTY") sold or to be sold by the
Seller hereunder meeting the requirements of applicable state law
in such manner and in such jurisdictions as are necessary under
the applicable UCC to perfect and protect the interests of the
Buyer created hereby against all creditors of and purchasers from
the Seller, and to deliver file-stamped copies of such financing
statements or other evidence (which may be telephonic evidence)
of such filings to the Buyer on or prior to the Initial Closing
Date. The Seller agrees that if a third party, including a
potential purchaser of the Advances and the Seller's interest in
the Other Property, inquires, the Seller will promptly state that
the Seller has sold, contributed, or otherwise made an absolute
transfer of the Advances and its interest in the Other Property
to the Buyer, and will claim no ownership interest in the
Advances or the Other Property.
(c) The Buyer shall not purchase Advances or
installments of Advances hereunder if the Seller shall become an
involuntary party to (or be made the subject of) any proceeding
provided for by any insolvency, readjustment of debt, marshalling
of assets and liabilities or similar proceedings of or relating
to the Seller or relating to all or substantially all of its
property (an "INVOLUNTARY CASE") upon receipt by the Seller at
its chief executive office of notice of such Involuntary Case.
The Seller shall give prompt notice to the Buyer of any
Involuntary Case.
(d) The Buyer shall not purchase Advances or
installments of Advances hereunder if the Seller shall admit in
writing its inability to pay its debts as they are due, or the
Seller shall commence a voluntary case under the federal
bankruptcy laws, as now or hereafter in effect, or any present or
future federal or state bankruptcy, insolvency or similar law, or
the Seller shall consent to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee,
custodian, sequestrator or other similar official of the Seller
or of any substantial part of its property or the Seller shall
make an assignment for the benefit of creditors or the Seller
shall fail generally to pay its debts as such debts become due or
the Seller shall take corporate action in furtherance of any of
the foregoing. The Seller shall give prompt notice to the Buyer
of any of the events in this Section 2.1(d).
(e) In connection with the sales and conveyances
hereunder, the Seller agrees, at its own expense, on or prior to
the Initial Closing Date, to indicate in its computer files that
all Advances and the Seller's interest in the Other Property has
been sold and conveyed to the Buyer pursuant to this Agreement as
of the Initial Cut-Off Date. Such indication shall be sufficient
to show each of the Advances being sold and conveyed hereunder
and to permit differentiation between such Advances and any
Advances in Removed Accounts.
(f) In connection with the sales and conveyances
hereunder, the Seller further agrees, at its own expense, on or
prior to the Initial Closing Date and each Addition Date
(i) to indicate on its books and records (including any computer
files) that all Advances and the Seller's interest in the related
Receivables have been sold to the Buyer pursuant to this
Agreement and (ii) to deliver to the Buyer a computer file
containing a true and complete list of all Advances and related
Receivables specifying for each Designated Account, as of the
Initial Cut-Off Date or such Addition Date, the Aggregate Unpaid
Balance of the Advances relating to such Designated Account, the
aggregate Unpaid Balance of the Receivables relating to such
Designated Account and the internal Seller number and name of
such Designated Account. Such computer file shall be marked as
Schedule I hereto and shall be incorporated into and made a part
hereof.
(g) It is the express intent of the Seller and the
Buyer that the conveyance of the Advances and the Seller's
interest in the Other Property by the Seller to the Buyer
pursuant to this Agreement be construed as a sale and absolute
conveyance, without recourse, of the Advances and the Seller's
interest in the Other Property by the Seller to the Buyer. It
is, further, not the intention of the Seller and the Buyer that
such conveyance be deemed a grant of a security interest in the
Advances and the Seller's interest in the Other Property by the
Seller to the Buyer to secure a debt or other obligation of the
Seller. However, in the event that, notwithstanding the intent
of the parties, the Advances and the Seller's interest in the
Other Property are held to continue to be property of the Seller,
then (x) this Agreement also shall be deemed to be and hereby is
a security agreement within the meaning of the UCC, and (y) the
sale and conveyance by the Seller provided for in this Agreement
shall be deemed to be and hereby is a grant by the Seller to the
Buyer of a security interest in and to all of the Seller's right,
title and interest in, to and under (i) all Advances outstanding
under the Designated Accounts on the Initial Cut-Off Date, as
identified in Schedule I hereto, Advances generated thereafter
under such Designated Accounts and Advances existing on the
applicable Addition Date and generated thereafter and prior to
the Final Trust Termination Date under Designated Accounts added
to the Trust from time to time pursuant to Section 2.2 (but
excluding Advances in Removed Accounts) and (ii) all Other
Property to secure (A) the right and ability of the Buyer to
require the Seller to sell Advances or installments thereof as
set forth in this Agreement and (B) all other rights of the Buyer
under this Agreement (collectively, the "SECURED OBLIGATIONS").
The Seller and the Buyer shall, to the extent consistent with
this Agreement, take such actions as may be necessary to ensure
that, if this Agreement were deemed to create a security interest
in the Advances, such security interest would be deemed to be a
perfected security interest of first priority under applicable
law and will be maintained as such throughout the term of this
Agreement. The Seller and the Buyer may rely upon an Opinion of
Counsel addressed to them as to what is required to provide the
Buyer with such security interest and any such Opinion of Counsel
shall permit the Certificateholders and the Rating Agencies to
rely on it.
Section 2.2 ADDITION OF ACCOUNTS.
The Seller may, but shall not be obligated to,
designate any Eligible Account created by the Seller during any
Settlement Period after the Initial Cut-Off Date (the "ADDITIONAL
ACCOUNTS") as a Designated Account. The Advance and the Seller's
interest in the Other Property in such Account shall be sold by
the Seller to the Buyer on the date of the designation of such
Account as a Designated Account (each such date of designation
being referred to as an "ADDITION DATE"). For purposes of this
Agreement, all Advances arising under the Designated Accounts
will be treated as Advances upon such designation. The Seller
hereby represents and warrants as of each applicable Addition
Date that each related Additional Account is an Eligible Account,
and that the addition to the Trust of the Advance arising in such
Additional Account shall not result in the occurrence of an Early
Amortization Event or Prospective Early Amortization Event.
ARTICLE III
CONSIDERATION AND PAYMENT
Section 3.1 PURCHASE PRICE. The "PURCHASE PRICE" for
the Advances and the Seller's interest in the Other Property
conveyed to the Buyer under this Agreement shall be a dollar
amount equal to (a) for Advances transferred on the Initial
Closing Date, one hundred twenty-seven million two hundred
ninety-seven thousand seventy-six Dollars and twenty-five cents
($127,297,076.25) plus 100% of the ownership of the capital stock
of the Buyer pursuant to Section 3.4, and (b) for Advances and
installments of Advances transferred on any date thereafter, the
aggregate Unpaid Balance of all such Advances or such
installments.
Section 3.2 PAYMENT OF PURCHASE PRICE. The Purchase
Price for the Advances and installments thereof and the Seller's
interest in the Other Property shall be paid on the Initial
Closing Date with respect to the Advances existing on the Initial
Cut-Off Date and on each Business Day thereafter on which
Advances or installments thereof are transferred hereunder, by
payment in cash in immediately available funds to the extent
available and the remainder of the Purchase Price shall be deemed
a capital contribution by the Seller to the Buyer pursuant to
Section 3.4.
Section 3.3 SETTLEMENT. On each Business Day, the
Seller shall deliver to the Buyer a Daily Report showing the
aggregate Purchase Price of Advances or installments thereof
generated on the preceding Business Day and the aggregate
repurchase price of Advances to be repurchased on such Business
Day pursuant to Section 6.1.
Section 3.4 CAPITAL CONTRIBUTION. The Advances and
the Seller's interest in the Other Property transferred as of the
Initial Closing Date other than for Dollars pursuant to
Section 3.1 are to be conveyed by the Seller to the Buyer as a
capital contribution to the Buyer in exchange for 1,000 shares of
common stock of the Buyer, which shares represent all of the
outstanding common stock of the Buyer.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 SELLER'S REPRESENTATIONS AND WARRANTIES.
The Seller represents and warrants to the Buyer (x) as of the
date hereof and as of the Initial Closing Date, and, as of the
date of any Supplement and the related Closing Date, and
(y) shall be deemed to represent and warrant as of the date of
the creation of any Advance sold to the Buyer hereunder, that:
(a) ORGANIZATION, GOOD STANDING AND DUE QUALIFICATION.
The Seller is a corporation duly organized, validly existing and
in good standing under the laws of the State of Florida and has
full corporate power as a corporation organized under the laws of
the State of Florida, authority granted by its board of
directors, any committee thereof or otherwise granted or
permitted by applicable law and legal right (i) to execute,
deliver and perform its obligations under this Agreement and the
Conveyance Papers and (ii) in all material respects, to own its
property and conduct its business as such properties are
presently owned and as such business is presently conducted. The
Seller is duly qualified to do business and is in good standing
as a foreign corporation (or is exempt from such requirements),
and has obtained all necessary licenses and approvals with
respect to the Seller, in each jurisdiction in which the failure
to be so qualified, to be in good standing, or to obtain such
licenses and approvals would render any Factoring Agreement or
any Advance or related Receivable unenforceable by the Seller or
the Buyer or would have a material adverse effect on the Buyer or
on the ability of the Seller to perform its obligations under
this Agreement.
(b) DUE AUTHORIZATION; BINDING AGREEMENT. The
execution, delivery and performance of this Agreement, each
Factoring Agreement relating to a Designated Account and each
other document or instrument to be delivered by the Seller
hereunder (collectively, the "CONVEYANCE PAPERS"), have been duly
authorized by all necessary corporate action on the part of the
Seller, and each of this Agreement, such Factoring Agreements,
and the Conveyance Papers constitutes the legal, valid and
binding obligation of the Seller, enforceable against it in
accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereinafter in effect,
relating to the enforcement of creditors' rights in general and
except as such enforceability may be limited by general
principles of equity (whether considered in a proceeding at law
or in equity).
(c) NO CONFLICTS. The execution and delivery by the
Seller of this Agreement and the Conveyance Papers, and the
performance of the transactions contemplated hereby and thereby
and the fulfillment of the terms hereof and thereof applicable to
the Seller, will not (i) contravene its Articles of Incorporation
or By-laws, (ii) violate any provision of, or require any filing
(except for the filings under the UCC required by this Agreement,
each of which has been duly made and is in full force and
effect), registration, consent or approval under, any law, rule,
regulation, order, writ, judgment, injunction, decree,
determination or award presently in effect having applicability
to the Seller, except for such filings, registrations, consents
or approvals as have already been obtained and are in full force
and effect, (iii) result in a breach of or constitute a default
or require any consent under any indenture or loan or credit
agreement or any other agreement, lease or instrument to which
the Seller is a party or by which it or its properties may be
bound or affected except those as to which a consent or waiver
has been obtained and is in full force and effect, or (iv) result
in, or require, the creation or imposition of any Lien upon or
with respect to any of the properties now owned or hereafter
acquired by the Seller other than as specifically contemplated by
this Agreement or the Pooling and Servicing Agreement.
(d) NO PROCEEDINGS. There are no proceedings or
investigations pending or, to the best knowledge of the Seller,
threatened against the Seller before any Governmental Authority
(i) asserting the invalidity of this Agreement or any of the
Conveyance Papers, (ii) seeking to prevent the consummation of
any of the transactions contemplated by this Agreement or any of
the Conveyance Papers, (iii) seeking any determination or ruling
that, in the reasonable judgment of the Seller, would materially
and adversely affect the performance by the Seller of its
obligations under this Agreement or any of the Conveyance Papers,
or (iv) seeking any determination or ruling that would materially
and adversely affect the validity or enforceability of this
Agreement or any of the Conveyance Papers or the rights of the
Seller hereunder or thereunder. No event has occurred which
materially adversely affects the Seller's ability to perform its
obligations under this Agreement.
(e) ALL CONSENTS REQUIRED. All approvals,
authorizations, consents, orders or other actions of any Person
or of any Governmental Authority required in connection with the
execution and delivery by the Seller of this Agreement or any of
the Conveyance Papers, the performance by the Seller of the
transactions contemplated by this Agreement or any of the
Conveyance Papers and the fulfillment by the Seller of the terms
hereof and thereof, have been obtained or have been completed and
are in full force and effect (other than approvals,
authorizations, consents, orders or other actions which if not
obtained or completed or in full force and effect would not have
a material adverse effect on the Seller or upon the
collectability of the Advances as a whole or upon the ability of
the Seller to perform its obligations under this Agreement).
(f) ELIGIBLE ACCOUNTS. Each Advance is or will be an
obligation of a Client of the Seller in an Eligible Account
arising out of the Seller's past, current or future performance
in accordance with the terms of the Factoring Agreement giving
rise to such Advance. The Seller has no knowledge of any fact
which should have led it to expect at the time of the initial
creation of an interest in any Advance hereunder that such
Advance would not be paid in full when due. Each Advance
classified as an "Eligible Advance" by the Seller in any document
or report delivered hereunder will satisfy the requirements of
eligibility contained in the definition of Eligible Advance.
(g) BONA FIDE RECEIVABLES. Each Receivable is or will
be an obligation of a Customer of a Client of the Seller arising
out of the past, current or future performance by such Client in
accordance with the terms of the Contract giving rise to such
Receivable. The Seller has no knowledge of any fact which should
have led it to expect at the time of the initial creation of an
interest in any Receivable hereunder that such Receivable would
not be paid in full when due. Each Receivable classified as an
"Eligible Receivable" by the Seller in any document or report
delivered hereunder will satisfy the requirements of eligibility
contained in the definition of Eligible Receivable.
(h) TAXES. The Seller has filed all tax returns
(federal, state and local) required to be filed and has paid or
made adequate provision in all material respects for the payment
of all taxes, assessments and other governmental charges due from
the Seller or is contesting any such tax, assessment or other
governmental charge in good faith through appropriate proceedings
except in which the failure to make such filings, payments or
provisions would not have a material adverse effect on the
business, operations or financial condition of the Seller. The
Seller knows of no basis for any material additional tax
assessment for any fiscal year for which adequate reserves have
not been established.
(i) PLACE OF BUSINESS. The chief executive office (as
that term is used in the UCC) of the Seller is in Fort
Lauderdale, Florida and the offices where the Seller keeps its
records concerning the Advances, related Receivables and Related
Property are in Fort Lauderdale, Florida, Los Angeles, California
and New York, New York and the locations of such offices have not
changed in the preceding four months.
(j) USE OF PROCEEDS. No proceeds of the sale of any
Advance hereunder received by the Seller will be used by the
Seller to acquire any security in a transaction that is subject
to Sections 13 and 14 of the Securities Exchange Act of 1934, as
amended, or to purchase or carry any margin security.
(k) LOCK-BOX BANKS AND ACCOUNTS. The Lock-Box Banks
are the only institutions holding any lock-box accounts for the
receipt of payments from Obligors in respect of Advances and
Receivables (subject to such changes as may be made from time to
time in accordance with Section 3.01(i)(E) of the Pooling and
Servicing Agreement). All Obligors have been instructed in
writing to make payments only to the Post Office Box or by wire
transfer to the Lock-Box Account and such instructions are in
full force and effect.
(l) ERISA. No Plan of the Seller or any of its
ERISA Affiliates has any "accumulated funding deficiency" (within
the meaning of Section 302 of ERISA or Section 412 of the Code),
whether or not waived. The Seller and each ERISA Affiliate of
the Seller has timely made all contributions required to be made
by it to any Plan and Multiemployer Plan to which contributions
are or have been required to be made during the preceding
five years by the Seller or such ERISA Affiliates, and no event
requiring notice to the PBGC under Section 302(f) of ERISA has
occurred and is continuing or could reasonably be expected to
occur with respect to any such Plan, in each case that could
reasonably be expected to result, directly or indirectly, in any
lien being imposed on the property of the Seller or the payment
of any material amount to avoid such lien. No Plan Event with
respect to the Seller or any of its ERISA Affiliates has occurred
or could reasonably be expected to occur that could reasonably be
expected to result, directly or indirectly, in any lien being
imposed on the property of the Seller or the payment of any
material amount to avoid such lien.
(m) LEGAL NAME. The Seller's legal name is "Capital
Factors, Inc." and the Seller has not changed its name in the
preceding six years. The Seller does not do business under any
different or additional names, other than "Capital Factors
Northeast".
(n) VALID BUSINESS REASON. The Seller has a valid
business reason for selling, contributing or otherwise effecting
absolute transfers of the Advances and the Seller's interest in
the Other Property rather than obtaining a loan by using such
Advances and Other Property as collateral or otherwise. The
transfers of the Advances and the Seller's interest in the Other
Property constitute a practical and reasonable course of action
designed to improve the Seller's financial condition without
impairing the rights of the Seller's creditors.
Section 4.2 SELLER'S REPRESENTATIONS AND WARRANTIES
REGARDING ADVANCES AND RECEIVABLES. The Seller represents and
warrants to the Buyer (x) as of the date of this Agreement and
the Initial Closing Date with respect to the Advances outstanding
on each such date and with respect to the Receivables related
thereto, and (y) shall be deemed to represent and warrant on each
day thereafter that the amount of any Advance is increased, that:
(a) the Seller is not insolvent and will not
become insolvent after giving effect to the transactions
contemplated hereby; the Seller is paying its debts when
they are due, and the Seller will have adequate capital to
conduct its business after the consummation of the
transactions contemplated hereby;
(b) the Seller is the legal and beneficial owner
of all right, title and interest in and to each such
Advance, the Seller has a perfected first priority security
interest in each Receivable related to such Advance, the
Seller has the full right to transfer the Advances and its
interest in the related Receivables to the Buyer, and each
such Advance and related Receivable has been or will be
transferred to the Buyer free and clear, in the case of each
such Advance, of any Lien and, in the case of each such
Receivable, of any Lien created by or through the Seller,
other than Liens for municipal or other local taxes if such
taxes shall not at the time be due and payable or if the
Seller shall currently be contesting the validity thereof in
good faith by appropriate proceedings and shall have set
aside on its books adequate reserves in accordance with GAAP
with respect thereto;
(c) all consents, licenses, approvals or
authorizations of or registrations or declarations with any
Governmental Authority required to be obtained, effected or
given by the Seller in connection with the transfer of such
Advances and the Other Property to the Buyer have been duly
obtained, effected or given and are in full force and effect
and the transfer of such Advances and the Other Property is
in compliance with all Requirements of Law;
0 (d) (i) the Seller has indicated on its books and
records (including any computer files) that such Advances
and the Other Property have been transferred to the Buyer
and shall maintain such records in a manner such that the
Buyer shall have a perfected security interest in the
Advances and the Other Property; this Agreement constitutes
a valid sale and contribution to the Buyer of all right,
title and interest of the Seller in and to the Advances and
the Other Property now existing and hereafter created;
(ii) upon the filing of any financing statements
described in Section 7.1(d) and, in the case of the
Advances, related Receivables and Related Property hereafter
created or transferred to the Buyer and the proceeds
thereof, upon the creation or transfer thereof, the Buyer
shall have an ownership interest, and, to the extent
contemplated by Section 9-102(1)(b) of the UCC, a first
priority security interest, in such property free and clear,
in the case of each such Advance, of any Lien or interest of
any Person and, in the case of each such Receivable, of any
Lien or interest of any Person created by or through the
Seller, except as otherwise contemplated by this Agreement
and except for Liens for municipal or other local taxes if
such taxes shall not at the time be due and payable or if
the Seller shall currently be contesting the validity
thereof in good faith by appropriate proceedings and shall
have set aside on its books adequate reserves in accordance
with GAAP with respect thereto; PROVIDED, HOWEVER, that such
security interest in proceeds shall remain perfected after
10 days from their receipt by the Seller only to the extent
that such proceeds are identifiable cash proceeds or they
come into the Buyer's possession within the applicable 10-
day period; and PROVIDED, FURTHER that the Seller makes no
representation or warranty with respect to the effect of
Section 9-306(4) of the UCC on the rights of the Buyer to
proceeds held by the Seller at the time insolvency
proceedings are instituted by or against the Seller of the
Advances and the Seller's interest in the Other Property to
which the proceeds relate;
(iii) such Advances are subject to no defense,
counterclaim or right of rescission, offset or set-off;
(e) on the Business Day following the date the
Servicer receives a Termination Notice pursuant to Section
10.01 of the Pooling and Servicing Agreement, on the
Business Day following any Amortization Period Commencement
Date and as of the Business Day immediately preceding the
Initial Closing Date, Schedule I to this Agreement (as
replaced pursuant to Section 2.01 of the Pooling and
Servicing Agreement) is and will be an accurate and complete
listing of all the Advances and related Receivables
outstanding under the Designated Accounts in all material
respects as of the respective date to which such Schedule
relates and the information contained therein with respect
to the identity of each Advance and each related Receivable
and the Unpaid Balance existing thereunder is and will be
0true and correct in all material respects as of the
respective date to which such Schedule relates; as of the
close of business on the Initial Cut-Off Date, the Aggregate
Unpaid Balance for all such Advances and the aggregate
Unpaid Balance of such Receivables was equal to the amount
set forth in Exhibit 2.04(a)(v) to the Pooling and Servicing
Agreement;
(f) each such Advance and the Seller's interest
in the Other Property has been or will be transferred to the
Buyer free and clear of any Lien or interest of any Person
created by or through the Seller, except as otherwise
contemplated by this Agreement; none of such Advances has
been satisfied, subordinated or rescinded;
(g) each obligation of a Client of the Seller
transferred pursuant to Section 2.1(a) hereof is on the date
of creation of such obligation an Eligible Advance; and
(h) on the date on which such Advance was
conveyed to the Buyer hereunder, (A) the related Factoring
Agreement limits the aggregate amount of the Advance which
may be outstanding to the Client party to such Factoring
Agreement at any time to a percentage (the "Advance Rate")
of the aggregate purchase price of the related Client's
receivables outstanding at the time such Advance is made,
less certain adjustments which may include (x) any such
receivables that are in dispute, (y) any such receivables
not credit approved by the Seller and (z) any fees
chargeable to such Client's reserve account; and such
Advance Rate is not less than 70%; and (B) pursuant to the
Loan and Credit Policy such Client was entitled to an
Advance Rate of not less than 70%.
Section 4.3 REPRESENTATIONS AND WARRANTIES OF THE
BUYER. As of the date hereof and as of the Initial Closing Date,
the Buyer hereby represents and warrants to, and agrees with, the
Seller and shall be deemed to represent and warrant as of the
date of an increase in the amount of any Advance sold to the
Buyer hereunder that:
(a) ORGANIZATION, GOOD STANDING AND DUE QUALIFICATION.
The Buyer is a corporation duly organized and validly existing in
good standing under the laws of the State of Delaware and has
full corporate power, authority, and right to own its properties
and to conduct its business as such properties are presently
owned and such business is presently conducted, and to execute,
deliver, and perform its obligations hereunder and under the
Conveyance Papers. The Buyer is duly qualified to do business
and is in good standing as a foreign corporation (or is exempt
from such requirements), and has obtained all necessary licenses
and approvals with respect to the Buyer, in each jurisdiction in
which the failure to be so qualified, to be in good standing or
to obtain such licenses and approvals would render any Factoring
Agreement or any Advance or related Receivable unenforceable by
the Buyer.
(b) DUE AUTHORIZATION; BINDING AGREEMENT. The
execution, delivery and performance of this Agreement and the
Conveyance Papers have been duly authorized by the Buyer by all
necessary corporate action on the part of the Buyer, and each of
this Agreement and the Conveyance Papers constitutes the legal,
valid and binding obligation of the Buyer, enforceable against it
in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereinafter in effect,
affecting the enforcement of creditors' rights in general and
except as such enforceability may be limited by general
principles of equity (whether considered in a proceeding at law
or in equity).
(c) NO CONFLICTS. The execution and delivery by the
Buyer of this Agreement and the Conveyance Papers, the
performance of the transactions contemplated and the fulfillment
of the terms hereof and thereof applicable to the Buyer, will not
(i) contravene its Certificate of Incorporation or By-laws,
(ii) violate any provision of, or require any filing (except for
the filings under the UCC required by this Agreement, each of
which has been duly made and is in full force and effect),
registration, consent or approval under, any law, rule,
regulation, order, writ, judgment, injunction, decree,
determination or award presently in effect having applicability
to the Buyer, except for such filings, registrations, consents or
approvals as have already been obtained and are in full force and
effect, (iii) result in a breach of or constitute a default or
require any consent under any indenture or loan or credit
agreement or any other agreement, lease or instrument to which
the Buyer is a party or by which it or its properties may be
bound or affected except those as to which a consent or waiver
has been obtained and is in full force and effect, or (iv) result
in, or require, the creation or imposition of any Lien upon or
with respect to any of the properties now owned or hereafter
acquired by the Buyer other than as specifically contemplated by
this Agreement or the Pooling and Servicing Agreement.
(d) NO PROCEEDINGS. There are no proceedings or
investigations pending or, to the best knowledge of the Buyer,
threatened against the Buyer before any Governmental Authority
(i) asserting the invalidity of this Agreement or any of the
Conveyance Papers, (ii) seeking to prevent the consummation of
any of the transactions contemplated by this Agreement or any of
the Conveyance Papers, (iii) seeking any determination or ruling
that, in the reasonable judgment of the Buyer, would materially
and adversely affect the performance by the Buyer of its
obligations under this Agreement or any of the Conveyance Papers,
or (iv) seeking any determination or ruling that would materially
and adversely affect the validity or enforceability of this
Agreement or any of the Conveyance Papers or the rights of the
Buyer hereunder or thereunder.
(e) ALL CONSENTS REQUIRED. All approvals,
authorizations, consents, orders or other actions of any Person
or of any Governmental Authority required in connection with the
execution and delivery by the Buyer of this Agreement or any of
0the Conveyance Papers, the performance by the Buyer of the
transactions contemplated by this Agreement or any of the
Conveyance Papers, and the fulfillment by the Buyer of the terms
hereof or thereof have been obtained or have been completed and
are in full force and effect (other than approvals,
authorizations, consents, orders or other actions which if not
obtained or completed or in full force and effect would not have
a material adverse effect on the Buyer or upon the collectability
of the Advances as a whole or upon the ability of the Buyer to
perform its obligations under this Agreement).
Section 4.4 SURVIVAL OF REPRESENTATIONS AND
WARRANTIES. The representations and warranties set forth in this
Article IV shall survive the sale and conveyance of the Advances
and the Seller's interest in the Other Property to the Buyer, and
termination of the rights and obligations of the Buyer and the
Seller under this Agreement. Upon discovery by the Buyer or the
Seller of a breach of any of the foregoing representations and
warranties, the party discovering such breach shall give prompt
written notice to the other parties hereto within three Business
Days of such discovery.
ARTICLE V
COVENANTS OF SELLER AND BUYER
Section 5.1 SELLER COVENANTS. The Seller hereby
covenants and agrees with the Buyer as follows:
During the term of this Agreement, and until all
Advances sold to the Buyer shall have been paid in full, written-
off or otherwise reduced to zero, and all amounts owed by the
Seller pursuant to this Agreement have been paid, unless the
Buyer otherwise consents, in writing, the Seller covenants and
agrees as follows:
(a) COMPLIANCE WITH LAWS, ETC. The Seller shall duly
satisfy all obligations on its part to be fulfilled under or in
connection with the Advances and the Other Property, will
maintain in effect all qualifications required under Requirements
of Law in order to properly convey the Advances and the Seller's
interest in the Other Property to be conveyed hereunder and will
comply in all material respects with all Requirements of Law
applicable to it.
(b) PRESERVATION OF CORPORATE EXISTENCE. The Seller
(i) shall preserve and maintain its corporate existence, rights,
franchises and privileges in the jurisdiction of its
incorporation, and (ii) shall qualify and remain qualified in
good standing as a foreign corporation in each jurisdiction where
the failure to preserve and maintain such existence, rights,
franchises, privileges and qualification would materially
adversely affect the interests of the Buyer or its interest in
the Advances and the Other Property, or the ability of the Seller
to perform its obligations hereunder.
(c) AUDITS. At any time and from time to time during
the Seller's regular business hours, on reasonable prior notice
and for a purpose reasonably related to this Agreement, the
Seller shall, in response to any reasonable request of the Buyer,
permit the Buyer, or its agents or representatives, (a) to
examine and make copies of and abstracts from all books, records
and documents (including computer tapes and disks) in the
possession or under the control of the Seller relating to the
Advances, the related Receivables, the Related Property and the
related Factoring Agreements and Contracts and (b) to visit the
offices and properties of the Seller for the purpose of examining
such materials and to discuss matters relating to the Advances or
related Receivables, the related Receivables, the Related
Property and the related Factoring Agreements and Contracts or
the Seller's performance hereunder with any of the officers of
employees of the Seller having knowledge thereof.
(d) KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The
Seller shall maintain and implement administrative and operating
procedures (including the ability to recreate records evidencing
the Advances, the related Receivables and the Related Property
conveyed hereunder in the event of the destruction of the
originals thereof), and keep and maintain all documents, books,
computer records and other information, reasonably necessary or
advisable for the collection of all the Advances, the related
Receivables and the Related Property. Such documents, books and
computer records shall reflect all facts giving rise to the
Advances, the related Receivables and the Related Property, all
payments and credits with respect thereto, and the Seller shall
indicate in its computer files the interest of the Buyer in the
Advances, the related Receivables and the Related Property.
(e) PERFORMANCE AND COMPLIANCE WITH ADVANCES AND
FACTORING AGREEMENTS. At its expense the Seller shall timely and
fully perform and comply with all provisions, covenants and other
promises required to be observed by it under the Factoring
Agreements related to the Advances.
(f) CONTINUOUS PERFECTION. The Seller shall not
change its name, identity or structure in any manner which might
make any financing or continuation statement filed hereunder
misleading within the meaning of Section 9-402(7) of the UCC (or
any other then applicable provision of the UCC) unless the Seller
shall have given the Buyer at least 90 days' prior written notice
thereof and shall have taken all action 60 days prior to making
such change (or made arrangements to take such action
substantially simultaneously with such change if it is impossible
to take such action in advance) necessary or advisable to amend
such financing statement or continuation statement so that it is
not misleading. The Seller shall not change its chief executive
office or change the location of its principal records concerning
the Advances, related Receivables and Related Property from the
locations specified in Section 4.1(i) unless it has given the
Buyer at least 60 days' prior written notice of its intention to
do so and has taken such action as is necessary or advisable to
cause the interest of the Buyer in the Advances, the related
Receivables and the Related Property to continue to be perfected
with the priority required by this Agreement. The Seller will at
all times maintain its principal executive office and any other
office at which it maintains records relating to the Advances,
the related Receivables and the Related Property within the
United States of America.
(g) LOAN AND CREDIT POLICY; EXTENSION OR AMENDMENT OF
ADVANCES. The Seller shall not extend, amend or otherwise modify
the terms of any Advance or related Receivable, or amend, modify
or waive any term or condition of any Factoring Agreement or
Contract related thereto, in any manner without the consent of
the of the Buyer or any Enhancement Provider, including
extending the due dates, or impairing the collectability of the
Advances, (ii) the Seller shall comply in all respects with the
Loan and Credit Policy with respect to each Advance and related
Receivable and the Factoring Agreement or Contract related
thereto, and (iii) the Seller shall not make any change in the
Loan and Credit Policy without the consent of the Buyer or any
Enhancement Provider (including changes in credit approval
criteria, extensions of payment terms and aging and write-off
policies); PROVIDED, HOWEVER, that if no Early Amortization Event
shall have occurred and be continuing, the Seller may, in
accordance with the Loan and Credit Policy and at the direction
of the Buyer, extend, amend or otherwise modify the terms of any
Advance or related Receivable or amend, modify or waive any term
or condition of any Factoring Agreement or Contract relating
thereto.
(h) MODIFICATION OF SYSTEMS. Except as described in
Exhibit 3.03(m) to the Pooling and Servicing Agreement, the
Seller agrees, promptly after the replacement or any material
modification of any computer, automation or other operating
systems (in respect of hardware or software) used to make any
calculations or reports hereunder, to give notice of any such
replacement or modification to the Buyer.
(i) CHANGE IN BUSINESS. The Seller may not make any
change in the character of its business, which change would have
a material adverse effect on the collectability of the Advances
or related Receivables in the Trust, taken as a whole.
(j) ASSESSMENTS. The Seller will promptly pay and
discharge all taxes, assessments, levies and other governmental
charges imposed on it which may materially and adversely affect
any of the Advances or related Receivables or the Buyer's rights
with respect thereto.
(k) CHANGE IN LOCK-BOX BANKS OR INSTRUCTIONS. The
Seller may add or terminate any bank as a Lock-Box Bank or
Concentration Account Bank from those listed in Exhibit 5.1(k)
hereto, or make any change in its existing instructions to
Obligors regarding payments of Collections, including in respect
of Post Office Boxes (so long as an Obligor remains instructed to
make such payments to the Lock-Box Account or a post office box
to which a Lock-Box Bank party to a Lock-Box Agreement has
access), but in each case (i) only upon written notice from the
Seller to the Buyer, and (ii) so long as no Early Amortization
Event, Prospective Early Amortization Event or Servicer Default
shall have occurred and be continuing; provided that any bank,
other than those banks listed on Exhibit 5.1(k) hereto (including
their successors), added as a Lock-Box Bank shall have been
consented to by the Buyer (which consent shall not be
unreasonably withheld). The Seller shall give notice to the
Buyer of the name and address of each additional Lock-Box Bank
and Concentration Account Bank, which notice shall identify the
related Lock-Box Account, Concentration Account and Post Office
Box, as the case may be. The Seller shall enter into a Lock-Box
Agreement with each Lock-Box Bank and shall deliver to the Buyer
a copy of the executed Lock-Box Agreement prior to instructing
any Obligors to make payment to such Lock-Box Bank.
(l) FURTHER ACTION. The Seller shall make, execute or
endorse, acknowledge, and file or deliver to the Buyer from time
to time such schedules, confirmatory assignments, conveyances,
transfer endorsements, powers of attorney, certificates, reports
and other assurances or instruments and take such further steps
relating to the Advances, the Other Property and other rights
covered by this Agreement, as the Buyer may request and
reasonably require including executing and delivering to the
Buyer any instruments, financing or continuation statements or
other writings reasonably necessary or desirable to maintain the
perfection or priority of its interest in the Advances and the
Other Property under the UCC or other applicable law. At any
time at the request of the Buyer, the Seller shall, from time to
time, deliver to, and sign any bills, statements and letters
directed to the Obligors on the Advances or the related
Receivables or other writings necessary to carry out the terms
and provisions of this Agreement and to facilitate the collection
of the Advances and the related Receivables.
(m) NO TRANSFER. The Seller, except as contemplated
by this Agreement or the Pooling and Servicing Agreement,
(i) shall not sell, assign, pledge, convey or otherwise transfer
any Advance or its interest in the Other Property except for the
transfer of such Advance and its interest in the Other Property
to the Buyer as provided herein, (ii) shall not grant, create,
incur, assume or suffer to exist any Lien on any such Advance or
its interest in the Other Property, (iii) shall notify the Buyer
upon becoming aware of any such Lien and (iv) shall defend the
right, title and interest of the Buyer in such Advances and its
interest in the Other Property against all claims of other
Persons claiming through the Seller.
(n) INDEMNIFICATION. The Seller agrees to indemnify,
defend and hold the Buyer harmless from and against any and all
loss, liability, damage, judgment, claim, deficiency, or expense
(including interest, penalties, reasonable attorneys' fees and
amounts paid in settlement) to which the Buyer may become subject
insofar as such loss, liability, damage, judgment, claim,
deficiency, or expense arises out of or is based upon a breach by
the Seller of its representations, warranties and covenants
contained herein, or any information certified in any Schedule
delivered by the Seller hereunder, being untrue in any respect at
any time. The obligations of the Seller under this
Section 5.1(n) shall be considered to have been relied upon by
the Buyer and shall survive the execution, delivery, performance
and termination of this Agreement regardless of any investigation
made by the Buyer or on its behalf.
(o) SALE. The Seller agrees to treat this conveyance
for all purposes (including, without limitation, for federal
income tax, other tax and financial accounting purposes) as a
sale on all relevant books, records, tax returns, financial
statements and other applicable documents, except to the extent
such conveyance is made in the form of a capital contribution
pursuant to Article III in which case the Seller agrees to treat
and report such conveyance for all purposes (including, without
limitation, for federal income tax, other tax and financial
accounting purposes) as a capital contribution by the Seller to
the Buyer on all relevant books, records, tax returns, financial
statements and other applicable documents.
(p) ERISA. The Seller will promptly give the Buyer
notice of the following events, as soon as possible and in any
event within 30 days after the Seller or any ERISA Affiliate
knows or has reason to know thereof: (i) the occurrence or
expected occurrence of any Reportable Event with respect to any
Plan to which the Seller or any ERISA Affiliate contributed, or
any withdrawal from, or the termination, Reorganization or
Insolvency of any Multiemployer Plan to which the Seller or any
ERISA Affiliates contributes or to which contributions have been
required to be made by the Seller or any such ERISA Affiliates
during the preceding five years or (ii) the institution of
proceedings or the taking of any other action by the PBGC or the
Seller or any ERISA Affiliates or any such Multiemployer Plan
with respect to the withdrawal from, or the termination,
Reorganization or Insolvency of, any such Plan or Multiemployer
Plan.
(q) PERFORMANCE. The Seller agrees that its
obligations to make all payments hereunder are absolute and
unconditional and are independent of the performance by the Buyer
of any of its obligations hereunder or the realization by the
Seller of the benefits sought by the transaction contemplated
hereby and that the Seller will make all payments hereunder
regardless of (i) the validity of the organization of the Buyer,
the termination of the existence of the Buyer or the illegality,
invalidity or unenforceability of this Agreement, (ii) any
defense, claim, set-off, recoupment, abatement or other right,
existing or future, which the Seller may have against the Buyer
or (iii) any inaccuracy of any representation, warranty or
statement made by or on behalf of Buyer.
(r) CONDUCT OF BUSINESS. The Seller will conduct its
business in an independent manner so that its assets should not
be substantively consolidated with the assets, or deemed to be
part of the bankruptcy or receivership estate, of any other
entity by a court adjudicating the bankruptcy, receivership or
insolvency of such other entity.
(s) ABSOLUTE TRANSFER. Pursuant to the transfers of
the Advances and the Other Property, the Seller intends to
relinquish all rights to possess, control and monitor the
Advances and the Other Property, except as necessary for the
Seller to perform its duties as Servicer. The Seller will not
take any action inconsistent with the Buyer's ownership of the
Advances and Other Property. Upon the inquiry of a third party
(including a potential purchaser of the Advances and Other
Property), the Seller will promptly state that it has sold,
contributed or otherwise made an absolute transfer of the
Advances and Other Property to the Buyer, and will claim no
ownership interest in the Advances and Other Property.
(t) SEPARATE BUSINESS. Except as contemplated by the
placement agency agreement or underwriting agreement in respect
of any Series among the Seller, the Buyer and the placement agent
or underwriter(s) referred to therein, the Seller will not hold
itself out, or permit itself to be held out, as having agreed to
pay, or as being liable for, the debts of the Buyer, and the
Seller will not hold out the Buyer or CF One as having agreed to
pay, or as being liable for, the debts of the Seller. The Seller
will at all times hold the Buyer and CF One out to the public
(including any creditors of the Buyer, CF One or the Seller)
under the Buyer's or CF One's own name as separate and distinct
corporate entities. The Seller conducts its business solely in
its own name so as not to mislead others as to the identity of
the entity with which those others are concerned. Without
limiting the generality of the foregoing, all oral and written
communications are made solely in the name of the Seller if they
relate to the Seller. The Seller will ensure that its annual
financial statements (including the consolidated financial
statements of Capital Bancorp) will disclose the effects of the
transactions contemplated hereby and by the Pooling and Servicing
Agreement and any Supplement (the "TRANSACTIONS") in accordance
with GAAP. The resolutions, agreements and other instruments
made by the Seller underlying the Transactions will be
continuously maintained by the Seller as official records.
Section 5.2 BUYER COVENANTS. The Buyer hereby
covenants and agrees with the Seller as follows:
(a) RECEIVABLES COLLECTIONS. The Buyer agrees that
upon its receipt of amounts in respect of Receivables Collections
pursuant to Section 4.03(b) of the Pooling and Servicing
Agreement, it shall as soon as practicable forward such amounts
to the Seller and, pending the forwarding of such amounts, hold
such amounts in trust for the Seller.
(b) SALE. The Buyer agrees to treat this conveyance
for all purposes (including, without limitation, for federal
income tax, other tax and financial accounting purposes) as a
sale on all relevant books, records, tax returns, financial
statements and other applicable documents, except to the extent
such conveyance is made in the form of a capital contribution
pursuant to Article III in which case the Buyer agrees to treat
and report such conveyance for all purposes (including, without
limitation, for federal income tax, other tax and financial
accounting purposes) as a capital contribution to the Buyer by
the Seller on all relevant books, records, tax returns, financial
statements and other applicable documents.
Section 5.3 SERVICE COVENANTS.
(a) CERTAIN DOCUMENTATION. The Servicer shall hold in
trust for the account of the Buyer (to the extent of its interest
therein) any document evidencing or securing an Advance and the
Advance Documents, other than instruments (as such term is used
in the UCC), if any, that shall have been delivered to the Buyer
hereunder. Such holding in trust by the Servicer shall be deemed
to be the holding thereof by the Buyer for purposes of perfecting
the Buyer's rights therein as provided in the UCC. The Servicer
shall, upon the Buyer's request, deliver to the Buyer any
document held by the Servicer in trust hereunder.
(b) NO RESCISSION OR CANCELLATION. The Servicer shall
not permit any rescission or cancellation of an Advance or
related Receivable or any Factoring Agreement or Contract related
thereto except (i) as ordered by a court of competent
jurisdiction or other Governmental Authority or (ii) in the
ordinary course of its business or in accordance with the Loan
and Credit Policy.
ARTICLE VI
REPURCHASE OBLIGATION
Section 6.1 MANDATORY REPURCHASE.
(a) TRANSFER UPON BREACH OF WARRANTY. In the event of
a breach with respect to an Advance of any of the representations
and warranties set forth in Section 4.1(f) or 4.2(b), (c),
(d)(ii), (e), (f), (g) or (h), and as a result of a breach with
respect to such Advance of the corresponding representation or
warranty of the Buyer set forth in the Pooling and Servicing
Agreement the Designated Account containing such Advance (the
"Removed Account") is removed from the Trust and conveyed to the
Buyer pursuant to Section 2.04(c) of the Pooling and Servicing
Agreement, then such Removed Account shall be reconveyed (without
further action) from the Buyer to the Seller on the date such
Removed Account is removed from the Trust pursuant to Section
2.04(c) of the Pooling and Servicing Agreement and on such date
the Seller shall pay to the Buyer (or, upon the Buyer's
instructions, into the Collection Account on behalf of the
Buyer), in immediately available funds, an amount equal to the
Transfer Deposit Amount with respect to each such Removed
Account. Upon each reconveyance of a Removed Advance from the
Buyer, the Buyer shall automatically and without further action
be deemed to transfer, assign, set-over and otherwise convey to
or upon the order of the Seller, without recourse, representation
or warranty, all the right, title and interest of the Buyer in
and to the Advance in such Removed Account and the Other Property
related thereto. The Buyer shall execute such documents and
instruments of transfer, assignment, release or termination and
take such other actions as shall reasonably be requested by the
Seller in connection with the conveyance of such Removed Account
pursuant to this Section. Except to the extent provided in
Section 5.1(n), the obligations of the Seller set forth in this
Section, and the reconveyance of such Removed Account from the
Buyer shall constitute the sole remedy respecting any breach of
the representations and warranties set forth in the above-
referenced Sections with respect to such Advance available to the
Buyer.
(b) REASSIGNMENT OF THE SOLD ASSETS. In the event of
a breach of any of the representations and warranties set forth
in Section 4.1(a), (b), (c) or 4.2(d)(i), and the effect of such
breach is materially adverse to the interests of
Certificateholders (without regard to any Enhancement with
respect to any Series), the Buyer by notice given in writing to
the Seller may direct the Seller to make the payment described in
the next sentence on or prior to the first Payment Date next
succeeding 30 days after receipt by the Seller of such notice, or
within such longer period as may be specified in such notice, and
the Seller shall be obligated to make such payment or cause such
payment to be made on such Payment Date on the terms and
conditions set forth below; PROVIDED, HOWEVER, that no such
payment shall be required to be made if, at such Payment Date,
the representations and warranties contained in Section 4.1(a),
(b), (c) or 4.2(d)(i) are then true and correct in all material
respects as if made on such date. The Seller shall pay to the
Buyer on any date permitted by the notice described in the
preceding sentence an amount equal to the sum of (x) the
Aggregate Invested Amount at the end of the day on the Record
Date preceding the date such deposit is made, LESS (y) the
aggregate principal amount on deposit in any Principal Funding
Sub-Account established for the benefit of any Series pursuant to
any Supplement, PLUS (z) an amount equal to interest at the
applicable Certificate Rate accrued but unpaid on the Senior
Investor Certificates of each Series through the Record Date for
such Payment Date. On the day on which such amount has been
paid, each Advance and the Other Property related thereto shall
be released to the Seller, and the Buyer shall execute and
deliver such instruments of transfer or assignment, in each case
without recourse, representation or warranty, as shall be
reasonably requested by the Seller to vest in the Seller, or its
designee or assignee, all right, title and interest of the Buyer
in and to each Advance and the Other Property related thereto.
The obligation of the Seller to make the payment specified in
this Section 6.1(b) shall constitute the sole remedy available to
the Buyer for a breach of any of the representations and
warranties contained in Section 4.1(a), (b), (c) or 4.2(d)(i).
Section 6.2 CONVEYANCE OF REPURCHASED ADVANCES. Upon
the request of the Seller, the Buyer shall execute and deliver to
the Seller a Reconveyance substantially in the form and upon the
terms of EXHIBIT 6.2 hereto, pursuant to which the Buyer
evidences the conveyance to the Seller of all of the Buyer's
right, title, and interest in any Advances reconveyed of the
Seller pursuant to Section 6.1 (a "RECONVEYANCE"). The Buyer
shall (and shall cause the Trustee to) execute such other
documents or instruments of conveyance or take such other actions
as the Seller may reasonably require to effect any repurchase of
Advances pursuant to this Article VI.
ARTICLE VII
CONDITIONS PRECEDENT
Section 7.1 CONDITIONS TO THE BUYER'S OBLIGATIONS
REGARDING ADVANCES. The obligations of the Buyer to purchase the
Advances on the Initial Closing Date and on any Business Day
shall be subject to the satisfaction of the following conditions:
(a) All representations and warranties of the Seller
contained in this Agreement shall be true and correct on the
Initial Closing Date and the date hereof, and, with respect to
the representations and warranties of the Seller contained in
this Agreement relating to Advances, shall also be true and
correct on the day of creation of such Advance with the same
effect as though such representations and warranties had been
made on such date;
(b) All information concerning the Advances provided
to the Buyer shall be true and correct in all material respects
as of the Initial Cut-Off Date, in the case of Advances
transferred on the Initial Closing Date, or on the date the
Advance is created, in the case of Advances created after the
Initial Closing Date;
(c) At the Initial Closing Date, the Seller shall have
delivered to the Buyer a computer file containing a true and
complete list of all Advances identified by account number and
account name and by Unpaid Balance and shall have substantially
performed all other obligations required to be performed by the
provisions of this Agreement;
(d) The Seller shall have recorded and filed, at its
expense, any financing statement with respect to the Advances now
existing and hereafter created, and the Other Property, meeting
the requirements of applicable state law in such manner and in
such jurisdictions as are necessary under the applicable UCC to
perfect the sale of the Advances, and the Seller's interest in
the Other Property, from the Seller to the Buyer, and shall
deliver (or have previously delivered) a file-stamped copy of
such financing statements or other evidence of such filings
(which may, for purposes of this paragraph, consist of telephone
confirmations of such filings) to the Buyer; and
(e) All corporate and legal proceedings and all
instruments in connection with the transactions contemplated by
this Agreement shall be satisfactory in form and substance to the
Buyer, and the Buyer shall have received from the Seller copies
of all documents (including, without limitation, records of
corporate proceedings) relevant to the transactions herein
contemplated as the Buyer may reasonably have requested.
Section 7.2 CONDITIONS PRECEDENT TO THE SELLER'S
OBLIGATIONS. The obligations of the Seller to sell Advances on
the Initial Closing Date and on any Business Day shall be subject
to the satisfaction of the following conditions:
(a) All representations and warranties of the Buyer
contained in this Agreement shall be true and correct on the
Initial Closing Date and the date hereof with the same effect as
though such representations and warranties had been made on such
date;
(b) Payment or provision for payment of the Purchase
Price in accordance with the provisions of Article III hereof
shall have been made; and
(c) All corporate and legal proceedings and all
instruments in connection with the transactions contemplated by
this Agreement shall be satisfactory in form and substance to the
Seller, and the Seller shall have received from the Buyer copies
of all documents (including records of corporate proceedings)
relevant to the transactions herein contemplated as the Seller
may reasonably have requested.
ARTICLE VIII
TERM AND TERMINATION
Section 8.1 TERM. This Agreement shall commence as of
the date of execution and delivery hereof and shall continue in
full force and effect until the earlier of (a) the Final Trust
Termination Date and (b) the occurrence of any of the following
events: the Buyer or the Seller shall (i) become insolvent, (ii)
fail to pay its debts generally as they become due, (iii)
voluntarily seek, consent to, or acquiesce in the benefit or
benefits of any Debtor Relief Law, (iv) become a party to (or be
made the subject of) any proceeding provided for by any Debtor
Relief Law, other than as a creditor or claimant, and, in the
event such proceeding is involuntary, the petition instituting
same is not dismissed within 60 days after its filing, PROVIDED,
HOWEVER, that the Buyer shall have no duty to continue to
purchase Advances from and after the filing of an involuntary
petition but prior to dismissal, or (v) become unable for any
reason to convey or reconvey Advances in accordance with the
provisions of this Agreement (any such date set forth in clause
(a) or (b) hereof being a "TERMINATION DATE"); PROVIDED, HOWEVER,
that the termination of this Agreement pursuant to this
subsection 8.1(b) shall not discharge any Person from any
obligations incurred prior to such termination, including,
without limitation, any obligations to repurchase Advances sold
prior to such termination pursuant to Section 6.1.
Section 8.2 EFFECT OF TERMINATION. No termination or
rejection or failure to assume the executory obligations of this
Agreement in the bankruptcy of the Seller or the Buyer shall be
deemed to impair or affect the obligations pertaining to any
executed sale or executed obligations, including, without
limitation, pretermination breaches of representations and
warranties by the Seller or the Buyer. Without limiting the
foregoing, prior to termination, the failure of the Seller to
deliver computer records of Advances or Settlement Statements
shall not render such transfer or obligation executory, nor shall
the continued duties of the parties pursuant to Section 5 or 9.1
render an executed sale executory.
ARTICLE IX
MISCELLANEOUS PROVISIONS
Section 9.1 AMENDMENT. This Agreement and any of the
Conveyance Papers and the rights and obligations of the parties
hereunder may not be changed orally, but only by an instrument in
writing signed by the Buyer and the Seller and consented to in
writing by the Trustee. This Agreement and any of the Conveyance
Papers may be amended from time to time by the Buyer and the
Seller to correct or supplement any provisions herein which may
be inconsistent with any other provisions herein or in any of the
Conveyance Papers or to add any other provisions with respect to
matters or questions arising under this Agreement or any of the
Conveyance Papers which shall not be inconsistent with the
provisions of this Agreement or any of the Conveyance Papers.
Any repurchase pursuant to Section 6.1 executed in accordance
with the provisions hereof shall not be considered amendments to
this Agreement.
Section 9.2 GOVERNING LAW; JURISDICTION; CONSENT TO
SERVICE OF PROCESS. (a) THIS AGREEMENT AND THE CONVEYANCE PAPERS
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF NEW YORK.
(b) JURISDICTION. Each of the parties hereto
hereby irrevocably and unconditionally submits to the
nonexclusive jurisdiction of New York State court or federal
court of the United States of America sitting in New York City,
and any appellate court from any thereof, in any action or
proceeding arising out of or relating to this Agreement, and each
of the parties hereto hereby irrevocably and unconditionally
agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or,
to the extent permitted by law, in such federal court. Each of
the parties hereto agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other
manner provided by law.
(c) CONSENT TO SERVICE OF PROCESS. Each party to
this Agreement irrevocably consents to service of process in the
manner provided for notices in Section 13.05 of the Pooling and
Servicing Agreement. Nothing in this Agreement will affect the
right of any party to this Agreement to serve process in any
other manner permitted by law.
Section 9.3 NOTICES. All demands, notices and
communications hereunder shall be in writing and shall be deemed
to have been duly given if personally delivered at or mailed by
registered mail, return receipt requested, to:
(a) in the case of the Buyer, to:
CF Funding Corp.
P.O. Box 8457
Fort Lauderdale, Florida 33310-8457
Attention: President
Telephone: 305-677-9931
Telecopy: 305-730-2920
with a copy to:
Milbank, Tweed, Hadley & McCloy
One Chase Manhattan Plaza
New York, NY 10005
Attention: Trayton M. Davis, Esq.
Telephone: (212) 530-5349
Telecopy: (212) 530-5219
(provided that the failure to deliver any such copy
shall in no way affect the validity or effectiveness of
any demand, notice or communication given to the Buyer)
(b) in the case of the Seller, to:
Capital Factors, Inc.
1799 West Oakland Park Boulevard
Fort Lauderdale, Florida 33311
Attention: John W. Kiefer and
Dennis A. McDermott
Telephone: 305-730-2900
Telecopy: 305-730-2920
with a copy to:
Milbank, Tweed, Hadley & McCloy
One Chase Manhattan Plaza
New York, NY 10005
Attention: Trayton M. Davis, Esq.
Telephone: (212) 530-5349
Telecopy: (212) 530-5219
(provided that the failure to deliver any such copy
shall in no way affect the validity or effectiveness of
any demand, notice or communication given to the
Seller)
or, as to each party, at such other address as shall be
designated by such party in a written notice to each other party.
Section 9.4 SEVERABILITY OF PROVISIONS. If any one or
more of the covenants, agreements, provisions or terms of this
Agreement or any other Conveyance Paper shall for any reason
whatsoever be held invalid, then such covenants, agreements,
provisions, or terms shall be deemed severable from the remaining
covenants, agreements, provisions, or terms of this Agreement or
any of the Conveyance Papers and shall in no way affect the
validity or enforceability of the other provisions of this
Agreement or of any of the Conveyance Papers.
Section 9.5 ASSIGNMENT. Neither this Agreement nor
any of the Conveyance Papers may be assigned by the parties
hereto except (i) by the Buyer to a Person contemplated by
Section 7.02 of the Pooling and Servicing Agreement (the
"PERMITTED ASSIGNEE") or (ii) as otherwise provided in the
Pooling and Servicing Agreement. The Seller, however, expressly
acknowledges and consents to the Buyer's assignment of its rights
hereunder to the Trust.
Section 9.6 FURTHER ASSURANCES. The Buyer and the
Seller agree to do and perform, from time to time, any and all
acts and to execute any and all further instruments required or
reasonably requested by the other party more fully to effect the
purposes of this Agreement and the Conveyance Papers, including,
without limitation, the execution of any financing statements or
continuation statements or equivalent documents relating to the
Advances or the Other Property for filing under the provisions of
the UCC or other laws of any applicable jurisdiction.
Section 9.7 NO WAIVER; CUMULATIVE REMEDIES. No
failure to exercise and no delay in exercising, on the part of
the Buyer or the Seller, any right, remedy, power or privilege
hereunder, shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, remedy, power or
privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, remedy, power or
privilege. The rights, remedies, powers and privileges herein
provided are cumulative and not exhaustive of any rights,
remedies, powers and privileges provided by law.
Section 9.8 COUNTERPARTS. This Agreement and all of
the Conveyance Papers may be executed in two or more counterparts
(and by different parties on separate counterparts), each of
which shall be an original, but all of which together shall
constitute one and the same instrument.
Section 9.9 BINDING EFFECT; THIRD-PARTY BENEFICIARIES.
This Agreement and all of the Conveyance Papers will inure to the
benefit of and be binding upon the parties hereto and their
respective successors and permitted assigns. Any Permitted
Assignee shall be considered a third-party beneficiary of this
Agreement.
Section 9.10 MERGER AND INTEGRATION. Except as
specifically stated otherwise herein, this Agreement and all of
the Conveyance Papers set forth the entire understanding of the
parties relating to the subject matter hereof, and all prior
understandings, written or oral, are superseded by this Agreement
and all of the Conveyance Papers. This Agreement and all of the
Conveyance Papers may not be modified, amended, waived or
supplemented except as provided herein.
Section 9.11 HEADINGS. The headings herein are for
purposes of reference only and shall not otherwise affect the
meaning or interpretation of any provision hereof.
Section 9.12 SCHEDULES AND EXHIBITS. The schedules
and exhibits attached hereto and referred to herein shall
constitute a part of this Agreement and are incorporated into
this Agreement for all purposes.
IN WITNESS WHEREOF, the Buyer and the Seller each have
caused this Contribution and Sale Agreement to be duly executed
by their respective officers as of the day and year first above
written.
CAPITAL FACTORS, INC.,
as Seller
By: /s/ Dennis McDermott
Name: Dennis McDermott
Title: Unreadable
CF FUNDING CORP.,
as Buyer
By: /s/ Dennis McDermott
Name: Dennis McDermott
Title: Unreadable
For the purposes of Section 5.3
only:
CAPITAL FACTORS, INC.,
as Servicer
By: /s/ Dennis McDermott
Name: Dennis McDermott
Title: Senior Vice President
EXHIBIT 10.6
CF FUNDING CORP.,
Transferor,
CAPITAL FACTORS, INC.,
individually and as Servicer,
and
BANKERS TRUST COMPANY,
Trustee
on behalf of the Certificateholders
SERIES 1994-1 SUPPLEMENT
Dated as of June 1, 1994
to
CAPITAL FACTORS FINANCING TRUST
POOLING AND SERVICING AGREEMENT
Dated as of June 1, 1994
$115,000,000
VARIABLE RATE ASSET BACKED CERTIFICATES
SERIES 1994-1
$100,000,000 CLASS A
AND
$15,000,000 CLASS B
Series 1994-1 SUPPLEMENT, dated as of June 1, 1994
(this "SUPPLEMENT") among CF FUNDING CORP., a Delaware
corporation, as Transferor (the "TRANSFEROR"), CAPITAL FACTORS,
INC., a Florida corporation, individually and as Servicer (the
"SERVICER"), and BANKERS TRUST COMPANY, a New York banking
corporation, as trustee (together with its successors in trust
thereunder as provided in the Pooling and Servicing Agreement
referred to below, the "TRUSTEE"), under the Pooling and
Servicing Agreement, dated as of June 1, 1994 (the "AGREEMENT")
among the Transferor, the Servicer and the Trustee.
PRELIMINARY STATEMENT
Section 6.09 of the Agreement provides, among other
things, that the Transferor and the Trustee may at any time and
from time to time enter into a supplement to the Agreement for
the purpose of authorizing the issuance of the Investor
Certificates. The Transferor hereby enters into this Supplement
with the Servicer and the Trustee as required by Section 6.09(b)
of the Agreement to provide for the issuance, authentication and
delivery of its Variable Rate Asset Backed Certificates, Series
1994-1, Class A (the "SERIES 1994-1 SENIOR CERTIFICATES") and
Variable Rate Asset Backed Certificates, Series 1994-1, Class B
(the "SERIES 1994-1 SUBORDINATED CERTIFICATES" and together with
the Series 1994-1 Senior Certificates, the "SERIES 1994-1
INVESTOR CERTIFICATES"). In the event that any term or provision
contained herein shall conflict with or be inconsistent with any
term or provision contained in the Agreement, the terms and
provisions of this Supplement shall govern.
All capitalized terms not otherwise defined herein are
defined in the Agreement. All Article, Section or Subsection
references herein shall mean Article, Section or Subsections of
the Agreement as modified by this Supplement, except as otherwise
provided herein.
Any reference to the Early Amortization Period,
Scheduled Amortization Period, Amortization Period or the
Revolving Period in this Supplement shall refer only to such
periods as they relate to the Series 1994-1 Investor
Certificates.
SECTION 1. DESIGNATION.
The Series 1994-1 Investor Certificates shall be
designated as the Variable Rate Asset Backed Certificates, Series
1994-1, Class A and Variable Rate Asset Backed Certificates,
Series 1994-1, Class B or, collectively, the Series 1994-1
Investor Certificates. No other classes in respect of the Series
1994-1 Investor Certificates shall be designated.
SECTION 2. AGREEMENT MODIFICATIONS.
The following terms of the Agreement are hereby
modified only with respect to this Supplement and the Series
1994-1 Investor Certificates as follows:
Section 3.06(b) of the Agreement is modified to add the
following sentence at the end thereof:
The report required by this Section 3.06(b) shall also
state that such Independent Public Accountants have randomly
selected at least 25 Clients representing at least 35% of the
Pool Balance (including the ten Clients with the largest
Advances) and recalculated the computations required by clauses
(iii), (iv) and (v) of the definition of "Series 1994-1 Secondary
Eligible Advance" in the Series 1994-1 Supplement to the extent
applicable to each such Client and agreed to summarized records
or reports produced by Factors' computer system. In addition,
such report shall state that such Independent Public Accountants
recalculated for all Designated Accounts the computations
required by clauses (ii), (iii) and (iv) of the definition of
"Series 1994-1 Secondary Eligible Receivable" in the Series
1994-1 Supplement and agreed to summarized records or reports
produced by Factors' computer system.
Section 4.04 is modified to add the following at the
end thereof:
PAYMENTS AND DEPOSITS OF INTEREST COLLECTIONS WITH RESPECT TO THE
SERIES 1994-1 INVESTOR CERTIFICATES.
DAILY SETTLEMENT
On each Business Day during a Settlement Period, the
Servicer shall instruct (which instruction shall be certified by
the Servicer to be true and accurate and shall be accompanied by
a Daily Report and back-up information required thereby) the
Trustee to, and the Trustee shall, withdraw from the
Concentration Account an amount equal to the aggregate amount of
Interest Collections allocated to Series 1994-1 pursuant to
Section 4.03 of the Agreement and not previously withdrawn from
the Concentration Account and allocate, apply, deposit or pay, as
the case may be, such amount in the following priority.
(a) TRUSTEE FEES AND SUCCESSOR SERVICER FEES.
To the payment to the Trustee of the sum of (x)
the Daily Trustee Fees (as defined in this Supplement)
accrued for such Business Day and for each non-Business
Day, if any, since the immediately preceding Business
Day plus (y) the Series 1994-1 Investor Certificate's
pro rata share of the Documented Trustee Expenses
incurred and not previously paid that relate to such
Series; for purposes of this sub-clause (y), "pro rata
share" shall be determined based on the aggregate
amount of the Invested Amounts of all Series to which
such Documented Trustee Expenses relate.
If the Servicer is not Factors on such Business
Day, to the payment to the Servicer of the Daily
Servicing Fees (as defined in this Supplement) accrued
for such Business Day and for each non-Business Day on
which Factors was not the Servicer, if any, since the
immediately preceding Business Day.
(b) SERVICER PRINCIPAL ADVANCE INTEREST.
If any Interest Collection for such Business Day
relates to an Advance that is the subject of a Servicer
Principal Advance, to pay the Servicer an amount equal
to the lesser of (x) the Series 1994-1 Allocation
Percentage of the Daily Servicer Principal Advance
Interest for each Servicer Principal Advance
outstanding on such day accrued for such Business Day
and for each non-Business Day, if any, since the
immediately preceding Business Day and (y) the Series
1994-1 Allocation Percentage of the amount of such
Interest Collection in respect of such Advance.
(c) SPECIAL AUDIT FEES.
If, on such Business Day, amounts are due and
payable to a firm of Independent Public Accountants in
respect of a Special Audit, then to pay such amounts to
such firm.
(d) SERIES 1994-1 CERTIFICATEHOLDER INTEREST
COLLECTIONS.
To deposit into the Series 1994-1 Interest
Funding Sub-Account for the exclusive benefit of the
Series 1994-1 Investor Certificateholders an amount
equal to the Series 1994-1 Floating Allocation
Percentage of the remainder for such Business Day.
(e) TRANSFEROR'S INTEREST COLLECTIONS.
Pay to the Transferor the remainder as interest
on the Transferor Certificate for such Business Day.
PAYMENTS AND DEPOSITS ON PAYMENT DATES
On or before the Determination Date immediately prior
to each Payment Date or Special Payment Date, in addition to the
deposits and payments required pursuant to the other provisions
of this Article IV, the Servicer shall instruct (which
instruction shall be certified by the Servicer to be true and
accurate and shall be accompanied by a Settlement Statement and
back-up information required thereby) the Trustee to withdraw
from the Series 1994-1 Interest Funding Sub-Account certain
amounts on deposit therein on such Payment Date or Special
Payment Date and, to the extent required by clause (f)(i) below,
from the Series 1994-1 Cash Collateral Sub-Account and pay or
deposit on such Payment Date or Special Payment Date, and the
Trustee acting in accordance with such instructions shall so
withdraw and pay or deposit or cause to be so withdrawn and paid
or deposited, in the priority set forth below in clause (f), the
amounts referred to below in clause (f), all pursuant to such
clause (f).
(f) MONTHLY INTEREST AND CASH COLLATERAL. The
Trustee, acting in accordance with instructions from the
Servicer, shall pay, deposit or apply (as the case may be) the
following amounts in the following priority out of the amounts
deposited into the Series 1994-1 Interest Funding Sub-Account
pursuant to Sections 4.02, 4.03, 4.04(d) and 4.05(a)(ii):
(i) pay to the Series 1994-1 Senior
Certificateholders an amount equal to the Monthly
Senior Interest; to the extent such amounts on
deposit in the Series 1994-1 Interest Funding Sub-
Account are not sufficient to pay such Monthly
Senior Interest in full, the Trustee, acting in
accordance with instructions from the Servicer,
shall withdraw from the Series 1994-1 Cash
Collateral Sub-Account an amount sufficient to
cover such deficiency and shall pay such amount to
the Series 1994-1 Senior Certificateholders;
(ii) during the Revolving Period, if the
balance in the Series 1994-1 Cash Collateral Sub-
Account is less than the Cash Collateral
Maintenance Amount (as defined in this
Supplement), deposit into such Cash Collateral
Sub-Account an amount as shall cause the balance
in such Cash Collateral Sub-Account to equal the
Cash Collateral Maintenance Amount; and
(iii) (A) during the Revolving Period,
pay FIRST if there is a Subordination Deficiency
Amount (as defined in this Supplement), to the
Transferor an amount equal to such Subordination
Deficiency Amount to purchase Advances from the
Transferor pursuant to Section 6.09, SECOND if
Factors is the Servicer, to the Servicer in the
amount of the sum of the Daily Servicing Fees (as
defined in this Supplement) for each day in such
Settlement Period, and THIRD to the Series 1994-1
Subordinated Certificateholders in the amount of
Monthly Subordinated Interest for the related
Settlement Period,
(B) during an Amortization Period,
FIRST if Factors is the Servicer, to the Servicer
in the amount of the sum of the Daily Servicing
Fees (as defined in this Supplement) for each day
in such Settlement Period, SECOND to the Series
1994-1 Senior Certificateholders in respect of
principal on the Senior Certificates in an
aggregate amount up to the Senior Invested Amount
in respect of the Series 1994-1 Senior
Certificates and THIRD to the Series 1994-1
Subordinated Certificateholders in the amount of
Monthly Subordinated Interest for the related
Settlement Period.
Section 4.05 is modified to add the following at the
end thereof:
PAYMENT AND DEPOSIT OF PRINCIPAL COLLECTIONS WITH RESPECT TO THE
SERIES 1994-1 INVESTOR CERTIFICATES.
DAILY PAYMENTS AND DEPOSITS
(a) On each Business Day, the Servicer shall
instruct the Trustee (which instruction shall be certified by the
Servicer to be true and accurate and shall be accompanied by a
Daily Report and back-up information required thereby) to
withdraw from the Concentration Account an amount (the "SECTION
4.05 AMOUNT") equal to the sum of the (x) Daily Transferor
Principal Collections, plus (y) amounts deposited in the
Concentration Account by the Series 1994-1 Subordinated
Certificateholder to purchase additional Subordinated
Certificates, plus, (z) only during the Revolving Period (except
with respect to clause (i) below), Available Certificateholder
Principal Collections, and apply and pay or deposit such Business
Day's Section 4.05 Amount to the extent available in the
following order of priority (and the Trustee shall so withdraw,
apply and pay or deposit such amounts):
(i) if any Principal Collection for such Business
Day relates to an Advance that is or has been the
subject of a Servicer Principal Advance, pay from the
Section 4.05 Amount to the Servicer an amount equal to
the lesser of (x) the Series 1994-1 Allocation
Percentage of the amount of such Principal Collection
and (y) the Series 1994-1 Allocation Percentage of the
sum of the balance remaining on such Servicer Principal
Advance plus any interest accrued thereon and remaining
unpaid (after giving effect to the application of
Sections 4.04(b) and 4.06(a) to the Series 1994-1
Allocation Percentage of such interest);
(ii) if the Servicer determines that a Negative
Spread Shortfall for Series 1994-1 exists on such
Business Day, deposit into the Series 1994-1 Interest
Funding Sub-Account an amount equal to the lesser of
(x) the Section 4.05 Amount (after giving effect to
sub-clause (i) above) and (y) the amount of such
Negative Spread Shortfall;
(iii) if on such Business Day the Series 1994-1
Participation Deficiency Amount exceeds zero, deposit
in the Series 1994-1 Excess Funding Sub-Account an
amount equal to the lesser of (y) such Series 1994-1
Participation Deficiency Amount and (x) the Section
4.05 Amount (after giving effect to sub-clauses (i) and
(ii) above); during the Amortization Period, any amount
to be deposited in the Series 1994-1 Excess Funding
Sub-Account shall be subject to redirection as provided
in clause (c)(ii) below;
(iv) if, on such Business Day, an Accumulation
Event but no Early Amortization Event (other than an
Early Amortization Event caused by the continuation of
an Accumulation Event described in clause (a) or (b) of
the definition of "Accumulation Event") shall have
occurred or be continuing, deposit in the Series 1994-1
Accumulation Sub-Account the remainder, if any, of the
Section 4.05 Amount;
(v) pay to the Transferor the remainder, if any,
of the Section 4.05 Amount; pay to the Transferor the
amounts under clause (c)(i) below and pay to the
Transferor the amounts under clause (d) below;
(b) Notwithstanding anything to the contrary in
Section 4.05(a), commencing on the first Business Day in an
Amortization Period with respect to Series 1994-1 and on each
Business Day thereafter until the end of such Amortization
Period, the Servicer shall instruct (which instructions shall be
certified by the Servicer to be true and accurate and shall be
accompanied by a Settlement Statement and back-up information
required thereby) the Trustee to withdraw
(w) from amounts on deposit in the Concentration
Account, the Available Certificateholder Principal
Collections (after payment of clause (a)(i) above),
(x) all amounts on deposit in the Series 1994-1
Excess Funding Sub-Account, if any,
(y) all amounts on deposit in the Series 1994-1
Accumulation Sub-Account, if any, and
(z) any portion of the Section 4.05 Amount
consisting of moneys paid by the Series 1994-1
Subordinated Certificateholders to purchase additional
Subordinated Certificates (allocations and/or
utilizations of said Section 4.05 Amount being deemed
first to come from Principal Collections allocated to
Series 1994-1 and second from such moneys paid by the
Series 1994-1 Subordinated Certificateholders to
purchase additional Subordinated Certificates),
and deposit all of such amounts in the Series 1994-1 Principal
Funding Sub-Account in an aggregate amount not to exceed the
Invested Amount. Any such amount in excess of such Invested
Amount will be applied in accordance with clauses (i) through (v)
of Section 4.05(a).
(c) (i) On each Business Day during the Revolving
Period, the Trustee, at the Servicer's direction and
certification, will withdraw amounts on deposit in the Series
1994-1 Excess Funding Sub-Account and pay such amounts to the
Transferor to the extent that, prior to and immediately after
giving effect to such withdrawal and payment, the Transferor's
Current Participation Amount exceeds the Transferor's Required
Participation Amount.
(ii) On each Business Day of an Amortization Period,
the Trustee, at the Servicer's direction and certification, will
redirect amounts which would otherwise be deposited in the Series
1994-1 Excess Funding Sub-Account pursuant to Section
4.05(a)(iii), and deposit such redirected amounts directly in the
Series 1994-1 Principal Funding Sub-Account; PROVIDED, HOWEVER,
that such amounts will no longer be so redirected and deposited
during such Amortization Period after such time as an amount of
funds equal to the Senior Invested Amount for Series 1994-1 shall
have been deposited in such Series 1994-1 Principal Funding Sub-
Account.
(d) If during the Revolving Period on any of the three
immediately succeeding Determination Dates after the date on
which an Accumulation Event shall have occurred, such
Accumulation Event shall not be continuing, the Trustee, at the
Servicer's written direction and certification, shall withdraw
all amounts on deposit in the Series 1994-1 Accumulation Sub-
Account in respect of such Accumulation Event and if a Series
1994-1 Participation Deficiency Amount exists, deposit all or a
portion of such amounts to the extent of such Series 1994-1
Participation Deficiency Amount in the Series 1994-1 Excess
Funding Sub-Account and pay the remainder to the Transferor or,
if a Series 1994-1 Participation Deficiency Amount does not
exist, pay such amounts to the Transferor.
PAYMENTS ON EACH SPECIAL PAYMENT DATE
(e) On each Special Payment Date in an
Amortization Period, after giving effect to the payments and
deposits required pursuant to Sections 4.05(a), (b), (c) and (d)
the Trustee, acting in accordance with instructions from the
Servicer, shall pay the amount on deposit in the Series 1994-1
Principal Funding Sub-Account to the Holders of the Series 1994-1
Investor Certificates in the following priority:
(i) to the Series 1994-1 Senior
Certificateholders until the Senior Invested Amount of
the Series 1994-1 equals zero, and
(ii) to the Series 1994-1 Subordinated
Certificateholders until the Subordinated Invested
Amount of Series 1994-1 equals zero.
Section 4.06 is modified to add the following at the
end thereof:
DAILY SETTLEMENT
On each Business Day on which a Charge-off occurs, the
Subordinated Invested Amount shall be reduced by the full amount
of the Series 1994-1 Allocation Percentage of each such Charge-
off occurring on such Business Day.
On each Business Day, the Servicer shall instruct the
Trustee to withdraw the Series 1994-1 Allocation Percentage of
Recoveries on deposit in the Concentration Account and apply, pay
or deposit them in the following priority.
(a) To the extent any such Recovery on
deposit in the Concentration Account relates to an
Advance that is the subject of a Servicer
Principal Advance, pay to the Servicer an amount
equal to the lesser of (x) the Series 1994-1
Allocation Percentage of the amount of such
Recovery relating to such Servicer Principal
Advance and (y) the Series 1994-1 Allocation
Percentage of the sum of the balance remaining on
such Servicer Principal Advance plus any accrued
and unpaid interest thereon.
(b) During the Revolving Period, if the
balance in the Cash Collateral Sub-Account for
Series 1994-1 is less than the Cash Collateral
Maintenance Amount for Series 1994-1 after
application of Section 4.04(f)(ii), deposit into
such Cash Collateral Sub-Account an amount as
shall cause the balance in such Cash Collateral
Sub-Account to equal such Cash Collateral
Maintenance Amount; and
(c) (i) during the Revolving Period, pay
FIRST if there is a Subordination Deficiency
Amount, to the Transferor an amount equal to such
Subordination Deficiency Amount to purchase
Advances from the Transferor pursuant to Section
6.09 of the Agreement and SECOND to the Series
1994-1 Subordinated Certificateholders in respect
of interest on the Series 1994-1 Subordinated
Certificates to the extent of any remainder after
application of the foregoing clauses in this
Section 4.06,
(ii) during an Amortization Period,
FIRST to the Series 1994-1 Senior
Certificateholders in respect of principal on the
Series 1994-1 Senior Certificates in an aggregate
amount up to the Senior Invested Amount for Series
1994-1 and SECOND to the Series 1994-1
Subordinated Certificateholders in respect of
interest on the Series 1994-1 Subordinated
Certificates to the extent of any remainder after
application of the foregoing clauses in this
Section 4.06.
Article IV is further amended by adding the following
section:
Section 4.10 TRANSFEROR'S OR SERVICER'S FAILURE TO
MAKE A DEPOSIT OR PAYMENT. (a) If the Servicer or the
Transferor fails to make, or give instructions to make, any
payment or deposit (other than as required by Section 2.04(d) or
the last paragraph of Section 3.03) required to be made or given
by the Servicer or Transferor, respectively, at the time
specified in the Agreement (including applicable grace periods),
the Trustee shall make such payment or deposit from the
applicable Series Account or the Excess Funding Account without
instruction from the Servicer or Transferor. The Trustee shall
be required to make any such payment or deposit hereunder only to
the extent that the Trustee has sufficient information in a
Settlement Statement or other writing furnished by the Servicer
or the Majority Certificateholders of the Series affected to
allow the Trustee to determine the amount thereof; PROVIDED,
HOWEVER, that, to the extent that the Trustee has actual
knowledge of the principal balance of the Series 1994-1 Investor
Certificates as of the close of business on the last day of the
preceding Settlement Period, the Trustee shall be deemed to have
sufficient information to determine the amount of Monthly
Interest payable to the Series 1994-1 Investor Certificateholders
on such Payment Date. The Servicer shall, upon request of the
Trustee, promptly provide the Trustee with all information
necessary to allow the Trustee to make such payment or deposit.
Such funds or the proceeds of such withdrawal shall be applied by
the Trustee in the manner in which such payment or deposit should
have been made by the Transferor or the Servicer, as the case may
be.
Section 6.04 MUTILATED, DESTROYED, LOST OR STOLEN
CERTIFICATES. With respect to clause (b) of Section 6.04, the
delivery of an unsecured agreement of indemnity, in form and
substance reasonably satisfactory to the Trustee or the Transfer
Agent and Registrar, by any Holder of a Series 1994-1
Certificate, which Holder is an institutional holder with a
claims paying ability or long-term debt rating of at least
investment grade or its equivalent, shall satisfy the requirement
under said Section of the delivery of security or indemnity.
Section 6.09 is modified to add the following:
(d) Any Holder of the Series 1994-1 Subordinated
Certificate may from time to time give written notice to the
Trustee, the Servicer and the Transferor of its desire to
purchase an additional Series 1994-1 Subordinated Certificate
("ADDITIONAL SERIES 1994-1 SUBORDINATED CERTIFICATE"). Following
receipt of such notice, the Transferor may direct the Trustee, on
behalf of the Trust, to issue an Additional Series 1994-1
Subordinated Certificate pursuant to the Series 1994-1 Supplement
and this Section 6.09(d). Any Additional Series 1994-1
Subordinated Certificate shall be equally and ratably entitled as
provided herein and in the Series 1994-1 Supplement to the
benefits of this Agreement accorded to the Series 1994-1
Subordinated Certificates without preference, priority or
distinction, all in accordance with the terms and provisions of
this Agreement and the Series 1994-1 Supplement. The obligation
of the Trustee to issue an Additional Series 1994-1 Subordinated
Certificate is subject to the satisfaction of the following
conditions:
(i) on or before the fifth Business Day
immediately preceding the issuance date ("ADDITIONAL
ISSUANCE DATE") of the Additional Series 1994-1 Subordinated
Certificate, the Transferor shall have delivered to the
Trustee, the Servicer and each Rating Agency written notice
of such issuance, including the Additional Issuance Date,
the principal amount thereof and the name of the person in
whose name the Additional Series 1994-1 Subordinated
Certificate shall be registered (the "ADDITIONAL ISSUANCE
NOTICE"), and
(ii) the Servicer shall have certified to the
Trustee that the Holder of the existing Series 1994-1
Subordinated Certificate has deposited in the Concentration
Account immediately available funds in the amount of the
purchase price (at par) of the Additional Series 1994-1
Subordinated Certificate. Any such funds so deposited by
such Holder in such Concentration Account shall be deemed to
constitute Principal Collections allocable solely to Series
1994-1 and shall be applied in accordance with Section 4.05.
Upon satisfaction of the above conditions, the Trustee shall
deliver to the Transferor the Additional Series 1994-1
Subordinated Certificate for execution and redelivery to the
Trustee for authentication thereof. The Trustee shall deliver
such executed and authenticated Additional Series 1994-1
Subordinated Certificate to such Holder.
Section 12.05 DEFEASANCE. Section 12.05 of the
Agreement shall not be applicable with respect to the Series
1994-1 Investor Certificates.
SECTION 3. INSPECTION RIGHTS; IN-DEPTH AUDITS; REPORTING
REQUIREMENTS; CONFIDENTIALITY.
(a) INSPECTION. At any time and from time to time during
the Transferor's, Factors' or the Servicer's regular business
hours, on reasonable prior notice and for a purpose reasonably
related to the Agreement, the Transferor, Factors and the
Servicer shall, in response to any reasonable request of any
Series 1994-1 Certificateholder or the Trustee or in connection
with the Independent Public Accountants' preparation of any
report required by Section 3.06 of the Agreement, permit such
Certificateholder or its agents or representatives, the Trustee
or its agents or representatives and such Independent Public
Accountants (i) to examine and make copies of and abstracts from
all books, records and documents (including computer tapes and
disks) in the possession or under the control of the Transferor,
Factors or the Servicer relating to the Advances, the related
Receivables, the Related Property and the related Factoring
Agreements and Contracts, (ii) to visit the offices and
properties of the Transferor, Factors and the Servicer for the
purpose of examining such materials and to discuss matters
relating to the Advances or related Receivables or the
Transferor's, Factors' and the Servicer's performance under the
Agreement with any of the officers or employees of the
Transferor, Factors and the Servicer having knowledge thereof and
with the independent public accountants of the Transferor,
Factors and the Servicer (and by this provision the Transferor,
Factors and the Servicer each authorize their respective
accountants to discuss their respective finances and affairs).
(b) IN-DEPTH AUDITS. (1) Upon the delivery of an Audit
Request to Factors or the Transferor by any Series 1994-1 Senior
Certificateholder holding 10% or more of the Invested Amount of
such Series, and provided that no other audit under this clause
(b)(1) shall have been performed during the then current fiscal
quarter, the Servicer shall cause a firm of Independent Public
Accountants (who may also render other services to the Servicer,
the Transferor or Factors) to promptly perform a Special Audit
and furnish to the Trustee, each Series 1994-1 Senior
Certificateholder and each Rating Agency a report thereon. The
Servicer hereby authorizes and directs such firm of Independent
Public Accountants to deliver a copy of such report directly to
the Trustee. To the extent that the Independent Public
Accountants report to the Servicer any material negative findings
prior to the issuance of their report, the Servicer shall inform,
in writing, the Trustee of the same. The Servicer will use its
best efforts to cause the Independent Public Accountants to
complete their Special Audit within 60 days of the commencement
of the same and will otherwise cooperate and assist the
Independent Public Accountants in connection therewith.
(2) In addition, upon the delivery of an Audit Request
to Factors or the Transferor by any Series 1994-1 Senior
Certificateholder, and provided that such Certificateholder shall
not have previously exercised its rights under this clause (b)(2)
during the then current fiscal quarter, such Series 1994-1 Senior
Certificateholder shall be entitled, at its own expense, to
dispatch its own designated representative or representatives to
perform such investigations and review of such records of the
Servicer as such Certificateholder or such representative or
representatives may reasonably determine (the scope as well as
the plan of such investigation and review to be determined by
such Certificateholder in its sole discretion); such
investigation and review to include, without limitation, the
silent participation by such representative or representatives in
the telephonic verifications performed by the Independent Public
Accountants in respect of a randomly selected sampling of at
least 25 Clients representing at least 35% of the Pool Balance
and of 100 Customers whose Advances and Receivables constitute
Trust Assets.
(c) REPORTING REQUIREMENTS. Factors and the Transferor
will deliver to the Trustee, and the Trustee will deliver to each
Holder of outstanding Series 1994-1 Senior Certificates and to
each Rating Agency:
(i) CAPITAL BANK QUARTERLY CALL REPORTS -- within
forty-five days after the end of each quarterly fiscal
period in each fiscal year of Capital Bank, duplicate copies
of the Quarterly Consolidated Reports of Condition and
Income as filed with the appropriate federal banking
regulatory agency.
(ii) HOLDING QUARTERLY STATEMENTS -- within forty-five
days after the end of each quarterly fiscal period in each
fiscal year of Holding (other than the last quarterly fiscal
period of each such fiscal year), duplicate copies of
(A) a consolidated balance sheet of Holding and
its consolidated subsidiaries as at the end of such
quarter, and
(B) consolidated statements of operations,
stockholders' equity and cash flows of Holding and its
consolidated subsidiaries for such quarter and (in the
case of the second and third quarters) for the portion
of the fiscal year ending with such quarter,
setting forth in each case in comparative form the figures
for the corresponding periods in the immediately preceding
fiscal year, all in reasonable detail, prepared in
accordance with GAAP applicable to quarterly financial
statements generally, and accompanied by a certificate
signed by a principal financial officer of Holding stating
that such financial statements present fairly, in all
material respects, the financial position, results of
operations and cash flows of the companies being reported
upon and have been prepared in accordance with GAAP;
(iii) HOLDING ANNUAL STATEMENTS -- within ninety days
after the end of each fiscal year of Holding, duplicate
copies of
(A) a consolidated balance sheet of Holding and
its consolidated subsidiaries as at the end of such
year, and
(B) consolidated statements of operations,
stockholders' equity and cash flows of Holding its
consolidated subsidiaries for such year,
setting forth in each case in comparative form the figures
for the previous year and accompanied by an opinion of a
firm of independent certified public accountants of
recognized national standing stating that such financial
statements present fairly, in all material respects, the
financial position, results of operations and cash flows of
the companies being reported upon and have been prepared in
accordance with GAAP;
(iv) FACTORS QUARTERLY STATEMENTS -- within forty-five
days after the end of each quarterly fiscal period in each
fiscal year of Factors (other than the last quarterly fiscal
period of each such fiscal year), duplicate copies of
(A) a consolidated balance sheet of Factors and
its consolidated subsidiaries as at the end of such
quarter, accompanied by supplemental consolidating
schedules, and
(B) consolidated statements of operations,
stockholders' equity and cash flows of Factors and its
consolidated subsidiaries for such quarter and (in the
case of the second and third quarters) for the portion
of the fiscal year ending with such quarter,
accompanied by supplemental consolidating schedules,
setting forth in each case in comparative form the figures
for the corresponding periods in the immediately preceding
fiscal year, all in reasonable detail, prepared in
accordance with GAAP applicable to quarterly financial
statements generally, and accompanied by a certificate
signed by a principal financial officer of Factors stating
that such financial statements present fairly, in all
material respects, the financial position, results of
operations and cash flows of the companies being reported
upon and have been prepared in accordance with GAAP;
(v) FACTORS ANNUAL STATEMENTS -- within ninety days
after the end of each fiscal year of Factors, duplicate
copies of
(A) a consolidated balance sheet of Factors and
its consolidated subsidiaries as at the end of such
year, accompanied by supplemental consolidating
schedules, and
(B) consolidated statements of operations,
stockholders' equity and cash flows of Factors its
consolidated subsidiaries for such year, accompanied by
supplemental consolidating schedules,
setting forth in each case in comparative form the figures
for the previous year and accompanied by an opinion of a
firm of independent certified public accountants of
recognized national standing stating that such financial
statements present fairly, in all material respects, the
financial position, results of operations and cash flows of
the companies being reported upon and have been prepared in
accordance with GAAP;
(vi) AUDIT REPORTS -- promptly upon receipt thereof,
one copy of each other report submitted to Holding, Factors
or the Transferor or any of their respective subsidiaries by
independent accountants in connection with any annual,
interim, or special audit made by such accountants of the
books of Holding, Factors or the Transferor or any of their
respective subsidiaries;
(vii) SEC AND OTHER REPORTS -- promptly upon their
becoming available, a copy of each financial statement,
report (including, without limitation, each Quarterly Report
on Form 10-Q, each Annual Report on Form 10-K and each
Current Report on Form 8-K), notice or proxy statement sent
by Capital Bancorp, Capital Bank, Holding, Factors or the
Transferor or any of their respective subsidiaries to
stockholders generally and of each regular or periodic
report and any registration statement, prospectus or written
communication (other than transmittal letters), and each
amendment thereto, together in each case with a copy of any
document incorporated by reference therein, in respect
thereof filed by Capital Bancorp, Capital Bank, Holding,
Factors or the Transferor or any of their respective
subsidiaries with, or received by, such Person in connection
therewith from, the National Association of Securities
Dealers, any securities exchange or the Securities and
Exchange Commission or any successor agency;
(viii) REPORT ON PROCEEDINGS -- promptly upon Factors or
the Transferor becoming aware of (A) any proposed or pending
investigation of Capital Bancorp, Capital Bank, Holding,
Factors or the Transferor or any of their respective
subsidiaries by any governmental authority or agency or (B)
any court or administrative proceeding, that in either case
involves the possibility of materially and adversely
affecting the ability of any of Factors, the Servicer or the
Transferor to perform their respective obligations under the
Agreement, this Supplement or the Contribution and Sale
Agreement, a notice specifying its nature and the action
being taking with respect thereto;
(ix) NOTICES OF REGULATORY ACTION -- promptly upon
receipt thereof, copies of any notices received from any
Federal or state regulatory agencies relating to an order,
ruling, statute, or other law or information that might
materially and adversely affect the ability of any of
Factors, the Servicer or the Transferor to perform their
respective obligations under the Agreement, this Supplement
or the Contribution and Sale Agreement; PROVIDED that
delivery of such copies shall not be prohibited by any
Requirements of Law; and
(x) REQUESTED INFORMATION -- with reasonable
promptness, any other data and information that may be
reasonably requested from time to time by any Holder of
Series 1994-1 Senior Certificates.
(d) TRUSTEE DISCLOSURE. The Trustee may disclose to each
holder of Series 1994-1 Investor Certificates the information
referred to in Section 2.02(b) of the Agreement.
(e) CONFIDENTIALITY. Each 1994-1 Certificateholder agrees
that any information furnished to it under this Section will be
held in confidence and not disclosed, all in accordance with and
pursuant to its current procedures and practices for maintaining
the confidentiality of similar "confidential" information
(provided that such information neither (y) was previously
publicly known, or otherwise known to such Certificateholder, at
the time of disclosure nor (z) subsequently became publicly known
other than through any act or omission by such Holder), provided
that such Certificateholder may disclose the aforesaid
information (i) to its officers, directors, trustees, internal
counsel, internal investment advisers and employees (and the
officers, directors, trustees, internal counsel, internal
investment advisers and employees of any parent or holding
company, if any, and of any other of their affiliates) in the
ordinary course of its respective duties; (ii) when required by
law or regulation or to the extent necessary to comply with any
summons, subpoena or notice of discovery or in connection with
any litigation or legal proceeding or in connection with any
formal or informal governmental investigative demand; (iii) to
the extent necessary to comply with the request of, or as
otherwise customarily disclosed to, any regulatory body having
(or claiming to have) jurisdiction over them, to the United
States National Association of Insurance Commissioners or similar
organizations or their successors; (iv) to its independent
auditors and accountants, counsel and other professional advisers
(or the independent auditors and accountants, counsel and other
professional advisers of its parent or holding company, if any,
and of any other of their affiliates) in the course of its
respective duties, provided that they consent to the provisions
of this Section; (v) as may be required or appropriate in
connection with (a) the enforcement of its rights under the
Certificates, the Agreement, the Supplement or any related
agreement or (b) any contemplated transfer of any Certificates
owned by it (provided that any potential transferee agrees to be
bound by the provisions of this Section); and (vi) to any other
Certificateholder, the Trustee, the Servicer, the Transferor or
the Paying Agent.
SECTION 4. SERIES 1994-1 SENIOR CERTIFICATE RATE.
The "SERIES 1994-1 SENIOR CERTIFICATE RATE" for the
Series 1994-1 Senior Certificates shall be equal to a per annum
rate equal to LIBOR, determined as of two LIBOR Business Days
prior to the commencement of any Interest Accrual Period, plus
1.2500%. For purposes of the first Interest Accrual Period in
respect of the Series 1994-1 Senior Certificates, LIBOR shall be
determined two LIBOR Business Days prior to the Initial Closing
Date. Interest shall be calculated monthly and shall accrue at
the Series 1994-1 Senior Certificate Rate as determined on the
related LIBOR Determination Date for each Interest Accrual
Period.
"LIBOR" for each Interest Accrual Period shall be
established by the Trustee as follows:
(i) on each LIBOR Determination Date, the Trustee
shall determine LIBOR for the next succeeding Interest
Accrual Period on the basis of the 30 day offered LIBOR
quotations, appearing on Telerate Page 3750 as of
11:00 a.m., London Time, on such LIBOR Determination Date.
If such rate does not appear on Telerate Page 3750, the rate
for that day will be determined on the basis of the rates at
which deposits in U.S. Dollars are offered by the Reference
Banks at approximately 11:00 a.m., London Time, on the LIBOR
Determination Date to prime banks in the London interbank
market for a period of one month commencing on that day.
The Trustee will request the principal London office of each
of the Reference Banks to provide a quotation of its rate.
If at least two such quotations are provided, the rate for
that day will be the arithmetic mean of the quotations. If
fewer than two quotations are provided as requested, the
rate for that day will be the arithmetic mean of the rates
quoted by major banks in New York City, selected by the
Servicer, at approximately 11:00 a.m., New York City time,
on that date for loans in U.S. Dollars to leading European
banks for a period of one month commencing on that day.
(ii) For purposes of this Section 4, the initial
Reference Banks shall be Bankers Trust Company, The Chase
Manhattan Bank, N.A. and National Westminster Bank, PLC. If
any of the foregoing Banks (or any of their replacements as
provided for in this clause (ii)) shall no longer qualify as
a Reference Bank, then the Servicer shall promptly designate
a replacement Reference Bank and shall notify the Trustee of
such replacement. The Trustee may conclusively rely and
shall be protected in relying upon the offered quotations
(whether electronic, written or oral) of the selected
Reference Banks.
The establishment of LIBOR and the subsequent
calculation of the interest rate for each Interest Accrual Period
by the Trustee, in the absence of manifest error, will be final
and binding. The Trustee shall telephone the Servicer and send
written notice to each Certificateholder within two Business Days
after each LIBOR Determination Date specifying the interest rate
determined on such LIBOR Determination Date and the Interest
Accrual Period to which it applies.
SECTION 5. SERVICING FEE PERCENTAGE AND DAILY TRUSTEE FEE.
The "SERVICING FEE PERCENTAGE" applicable to the Series
1994-1 Investor Certificates shall be .50%. The "DAILY TRUSTEE
FEE" applicable to the Series 1994-1 Investor Certificates shall
be $205.48.
SECTION 6. NOTIFICATIONS.
The Trustee shall provide to each Certificateholder a
copy of each notice or other information listed in Exhibit 6 and
any other notice or information relating to the Trust received by
the Trustee as any Certificateholder may request.
SECTION 7. SERIES TERMINATION DATE.
The "SERIES TERMINATION DATE" for the Series 1994-1
Investor Certificates shall be the Special Payment Date in June,
2000.
SECTION 8. REPURCHASE TERMS.
(a) The Series 1994-1 Investor Certificates may be
repurchased by the Transferor on any Payment Date on or after the
day on which the Senior Invested Amount is reduced to an amount
less than or equal to $10,000,000 upon the satisfaction of the
conditions described in Section 12.02(a). The repurchase price
shall be equal to the sum of the Senior Invested Amount and the
Subordinated Invested Amount plus accrued (or otherwise payable)
and unpaid interest on the Series 1994-1 Investor Certificates
through the Business Day immediately preceding the Payment Date
on which the repurchase occurs. Other than as set forth in this
Section 8(a), the Transferor may not repurchase the Series 1994-1
Investor Certificates.
(b) Any Series Repurchase Amount to be paid pursuant
to the first or second paragraph of Section 12.02(a) shall be
deposited into the Series 1994-1 Principal Funding Sub-Account.
SECTION 9. DELIVERY AND PAYMENT FOR THE SERIES 1994-1
INVESTOR CERTIFICATES.
The Trustee shall deliver the Series 1994-1 Investor
Certificates to the Transferor when authenticated upon the
written direction of the Transferor.
SECTION 10. MINIMUM AUTHORIZED DENOMINATIONS.
The Series 1994-1 Investor Certificates shall be issued
in fully registered, certificated form. The Series 1994-1 Senior
Certificates shall be issued in denominations of $500,000 (except
as may be necessary to reflect any principal amount not evenly
divisible by $500,000) or in any integral multiples of $100,000
in excess thereof.
SECTION 11. SUBORDINATION OF SUBORDINATED INVESTORS' INTEREST.
The Subordinated Investors' Interest in the Trust
Assets will be subordinated to the Senior Investors' Interest to
the extent provided herein and shall be required to be maintained
at the Required Subordinated Amount as contemplated by Section
4.04(f)(iii)(A). Unless otherwise consented to by the Majority
Certificateholders of Series 1994-1, no Series 1994-1
Subordinated Certificate shall be initially issued to any Person
other than CF One and the Trustee shall not authenticate any such
Series 1994-1 Subordinated Certificate if issued to a Person
other than CF One. The Series 1994-1 Subordinated Certificates
shall be substantially in the form of Exhibit 11 hereto.
SECTION 12. ADDITIONAL EARLY AMORTIZATION EVENTS WITH RESPECT
TO SERIES 1994-1; WAIVER OF EARLY AMORTIZATION
EVENTS; CONTINUOUS RATING.
(a) Without limiting the application of Section 9.01
of the Agreement to Series 1994-1, if any one of the following
events shall occur at such time as there shall be at least one
outstanding Series 1994-1 Senior Certificate:
(i) at any time Fitch shall then be rating
the Series 1994-1 Senior Certificates below
"A" (or the equivalent thereof) or shall have
withdrawn its rating of the Series 1994-1
Senior Certificates;
(ii) any results of any audit prepared as a result of
an Audit Request shall demonstrate the existence of a
material discrepancy from the Loan and Credit Policy or
from reports previously rendered pursuant to Section
3.06;
(iii) the Required Subordinated Percentage shall at
any time exceed 25%;
(iv) the Transferor's Current Participation Amount is
less than the Transferor's Required Participation
Amount for any three consecutive Determination Dates;
(v) the Series 1994-1 Allocation Percentage of the
Aggregate Unpaid Balance of Series 1994-1 Secondary
Eligible Advances shall be less than $103,500,000 for
any three consecutive Determination Dates;
(vi) during the Revolving Period, there shall be less
than 125 Designated Accounts with outstanding Series
1994-1 Secondary Eligible Advances each with Unpaid
Balances of at least $50,000 in the Trust; for purposes
of this clause (vi), all Designated Accounts of Clients
that are affiliated with each other shall be deemed to
be a single Designated Account;
(vii) (a) the Servicer is terminated pursuant to
Section 10.01 of the Agreement without the consent of
the Majority Certificateholders of Series 1994-1 or (b)
the Servicer is not terminated pursuant to such Section
under circumstances constituting any Servicer Default
in respect of which such Majority Certificateholders
have requested such termination or (c) the Servicer is
terminated pursuant to Section 10.01 of the Agreement
with the consent of the Majority Certificateholders of
Series 1994-1 and a Successor Servicer (including,
without limitation, the Trustee acting as such
Successor Servicer 30 days after a Servicer Default) is
appointed pursuant to Section 10.02 of the Agreement
without the consent of the Majority Certificateholders
of Series 1994-1 or (d) the Servicer is terminated
pursuant to Section 10.01 of the Agreement with the
consent of the Majority Certificateholders of Series
1994-1 and no Successor Servicer is appointed pursuant
to Section 10.02 of the Agreement within 30 days of
such termination;
(viii) the Required Receivable Coverage for Series
1994-1 shall exceed the Actual Receivable Coverage for
any three consecutive Determination Dates;
(ix) the Settlement Statement due on any Determination
Date reports that, or facts shall exist such that,
Actual Receivables Nonpayment exceeds 18% for the
related Settlement Period;
(x) the aggregate Unpaid Balance of Series 1994-1
Secondary Eligible Receivables shall be less than 135%
of the Senior Invested Amount for Series 1994-1 on any
Determination Date;
(xi) the Settlement Statement due on any Determination
Date reports that, or facts shall exist such that, as
of the last day of the related Settlement Period (A)
the aggregate Unpaid Balance of Receivables that are at
least 60 days past due on such date exceeds 10% of the
Unpaid Balance of all Eligible Receivables on such
date, (B) the average of the aggregate Unpaid Balances
of Receivables that are at least 60 days past due on
the last days of such Settlement Period and the two
immediately preceding Settlement Periods exceeds 7% of
the average of the Unpaid Balances of all Eligible
Receivables on such dates, (C) the aggregate Unpaid
Balance of Receivables that are at least 90 days past
due on such date exceeds 4.5% of the Unpaid Balance of
all Eligible Receivables on such date or (D) the
average of the aggregate Unpaid Balances of Receivables
that are at least 90 days past due on the last days of
such Settlement Period and the two immediately
preceding Settlement Periods exceeds 3.25% of the
average of the Unpaid Balances of all Eligible
Receivables on such dates;
(xii) the Subordinated Invested Amount for Series
1994-1 equals (a) less than 13% of the Senior Invested
Amount for Series 1994-1 for any three consecutive
Determination Dates or (b) less than 10% of the Senior
Invested Amount for Series 1994-1 on any Determination
Date;
(xiii) on the next succeeding Payment Date after
(A) any withdrawal from the Series 1994-1 Cash
Collateral Sub-Account or (B) any increase in the Cash
Collateral Maintenance Amount for Series 1994-1, the
amount on deposit in such Cash Collateral Sub-Account
is less than the Cash Collateral Maintenance Amount for
Series 1994-1, after giving effect to any refunding of
such Cash Collateral Sub-Account on such Payment Date;
(xiv) the Aggregate Certificateholder Interest
Collections for Series 1994-1 received during any two
consecutive Settlement Periods shall be in each case
less than the Required Monthly Payment Amount due for
Series 1994-1 on the Payment Date immediately following
each such Settlement Period;
(xv) the Weighted Average Factoring Fee shall be less
than .75%;
(xvi) any Settlement Statement due on any Determina-
tion Date shall state that, or facts shall exist such
that, the Weighted Average Receivable Life of all
Receivables in Designated Accounts at any time during
the three-month period ended on the last day of the
immediately preceding Settlement Period exceeds 70
days;
(xvii) the Settlement Statement due on any Determina-
tion Date reports that, or facts shall exist such that,
Actual Receivables Dilution Nonpayment exceeds 11% for
the related Settlement Period;
(xviii) the Accumulation Event described in clause (e)
of the definition of "Accumulation Event" shall have
existed for 30 consecutive Business Days;
(xix) on any Determination Date, the average of the
Receivable Payment Ratios for the three immediately
preceding Settlement Periods shall be less than 40%;
(xx) the Settlement Statement due on any Determination
Date reports that, or facts shall exist such that, as
of the last day of the related Settlement Period
(A) the aggregate Unpaid Balance of Receivables that
are at least 60 days past due on such date exceeds 30%
of the Unpaid Balance of all Eligible Receivables on
such date; or (B) the aggregate Unpaid Balance of
Receivables that are at least 90 days past due on such
date exceeds 10% of the Unpaid Balance of all Eligible
Receivables on such date; or
(xxi) on any Determination Date, the average of the
Subordinated Invested Amount for Series 1994-1 as of
such Determination Date and the two immediately
preceding Determination Dates shall be less than 13% of
the average of the Senior Invested Amount for Series
1994-1 as of such Determination Dates;
PROVIDED that the events described in clauses (x) and (xv) above
shall not constitute declarable Early Amortization Events under
clause (a) at the end of Section 9.01 of the Agreement or
Prospective Early Amortization Events unless such events shall
have occurred on three consecutive Determination Dates; and
PROVIDED FURTHER that the events described in clauses (iv), (v),
(viii) and (xii)(a) above shall not constitute Prospective Early
Amortization Events unless such events shall have occurred on
three consecutive Determination Dates, it being understood that
this proviso as to Prospective Early Amortization Events shall
not limit the status of the events in such clauses as declarable
Early Amortization Events;
then,
in the case of any event described in subparagraphs (i) through
(xxi) above, the Trustee or the Majority Certificateholders of
Series 1994-1 by notice then given in writing to the Transferor,
the Trustee and the Servicer may declare that an Early
Amortization Event has occurred as of the date of such notice
with respect to Series 1994-1.
(b) No Early Amortization Event with respect to the
Series 1994-1 Certificates may be waived without the consent of
each Series 1994-1 Certificateholder.
(c) So long as any Series 1994-1 Senior Certificate
shall remain outstanding, the Transferor shall cause Fitch to
reconfirm its rating of the Series 1994-1 Senior Certificates at
least annually and at such other times as may be requested by the
Majority Certificateholders of Series 1994-1. The Transferor
shall pay all fees of such Rating Agency related to the rating of
the Series 1994-1 Senior Certificates.
(d) With respect to Section 9.01(c) of the Agreement,
this Supplement hereby provides for the treatment of subparagraph
(vii) of Section 9.01 of the Agreement as set forth in such
Section 9.01(c).
SECTION 13. FUNDING OF CASH COLLATERAL SUB-ACCOUNT.
On or prior to the Initial Closing Date the Transferor
shall deposit into the Cash Collateral Sub-Account for Series
1994-1 an amount equal to $3,750,000 out of the proceeds of the
issuance of the Series 1994-1 Certificates.
SECTION 14. DEFINITIONS.
For the purposes of the Agreement and this Supplement,
the following terms shall be defined as follows and shall
supersede, with respect to the Series 1994-1 Investor
Certificates, any definitions stated in Article I of the
Agreement or Annex X thereto:
"ACCUMULATION EVENT", for Series 1994-1, shall mean (a)
the occurrence on any one Determination Date of any event
described in clauses (x) or (xv) of Section 12(a) of this
Supplement or the occurrence on any day of any event described in
clauses (xi)(A) or (xi)(C) of Section 12(a) of this Supplement,
(b) the occurrence on any day of a withdrawal from the Cash
Collateral Sub-Account for Series 1994-1 which reduces the amount
on deposit in such Cash Collateral Sub-Account below the Cash
Collateral Maintenance Amount for Series 1994-1, (c) the
termination of Factors as the Servicer for any reason pursuant to
Section 10.01 of the Agreement, (d) the occurrence of a breach of
the Transferor's covenants in Section 2.06(h) or (k) of the
Agreement or (e) on any Business Day there are not at least 300
Customers each with Receivables having an aggregate Unpaid
Balance of at least $50,000.
"AGGREGATE CERTIFICATEHOLDER INTEREST COLLECTIONS"
means, for any Settlement Period, the aggregate amount of
Collections deposited into the Interest Funding Sub-Account for
Series 1994-1 pursuant to Sections 4.04(d) and 4.05 (a)(ii)
during such Settlement Period.
"AUDIT REQUEST" shall mean a written request delivered
by any Series 1994-1 Class A Certificateholder to Factors or the
Transferor, as the case may be, stating that such
Certificateholder (i) is reasonably concerned about its
investment in its Certificates and (ii) requests the performance
of a Special Audit in accordance with Section 3(b)(1) or Section
3(b)(2), as the case may be.
"AVAILABLE CERTIFICATEHOLDER PRINCIPAL COLLECTIONS"
means for any Business Day the product of (a) the Series 1994-1
Allocation Percentage of Principal Collections for such Business
Day times either (b) if such Business Day is during the Revolving
Period, the Series 1994-1 Floating Allocation Percentage on such
Business Day times or (c) if such Business Day is during an
Amortization Period, the Series 1994-1 Principal Allocation
Percentage on such Business Day.
"CASH COLLATERAL MAINTENANCE AMOUNT" for Series 1994-1
shall at any time be the greater of (a) $3,750,000 and (b) three
times the sum of Monthly Senior Interest plus Monthly Servicing
Fee.
"CERTIFICATE RATE" for the Series 1994-1 Senior
Certificates has the meaning specified for "Series 1994-1 Senior
Certificate Rate" in Section 4 of this Supplement. Interest on
the Series 1994-1 Subordinated Certificates will not accrue at
the Certificate Rate, but the Holders of the Series 1994-1
Subordinated Certificates shall, in certain cases, be entitled on
each Payment Date to payment of the Monthly Subordinated Interest
for the related Settlement Period.
"DAILY SERVICER PRINCIPAL ADVANCE INTEREST" means, for
any day, in respect of a Servicer Principal Advance, 1/365th of
the product of (i) the rate of interest applicable to the Advance
to which such Servicer Principal Advance relates and (ii) the
balance of such Servicer Principal Advance on such day.
"DAILY SERVICING FEE" means for any day, 1/365th of the
product of (i) the Servicing Fee Percentage and (ii) the amount
of the Invested Amount of the Series 1994-1 Certificates on such
day.
"DAILY TRANSFEROR PRINCIPAL COLLECTIONS" means the
product of (i) the Series 1994-1 Transferor's Percentage on any
Business Day times (ii) the Series 1994-1 Allocation Percentage
of Principal Collections for such Business Day.
"DAILY TRUSTEE FEE", with respect to the Series 1994-1
Investor Certificates, has the meaning set forth in Section 5 of
this Supplement.
"INITIAL INVESTED AMOUNT" means the sum of the Initial
Senior Invested Amount and the Initial Subordinated Invested
Amount.
"INITIAL SENIOR INVESTED AMOUNT" means $100,000,000
(the aggregate initial amount of the Series 1994-1 Senior
Certificates).
"INITIAL SUBORDINATED INVESTED AMOUNT" means
$15,000,000 (the aggregate initial amount of the Series 1994-1
Subordinated Certificates).
"INTEREST ACCRUAL PERIOD" means, for the Series 1994-1
Senior Certificates, the period from and including the Initial
Closing Date to and including the calendar day immediately
preceding the initial Payment Date, and each period from and
including a Payment Date to and including the calendar day
immediately preceding the next Payment Date.
"LIBOR" shall mean the London interbank offered
quotations rate for one-month U.S. dollar deposits as determined
by the Trustee in accordance with Section 4 of this Supplement.
"LIBOR BUSINESS DAY" shall mean any day other than
(a) a Saturday or a Sunday, (b) any other day on which the
Servicer is closed, as specified on the list furnished by the
Servicer pursuant to Section 3.03(n) of the Pooling and Servicing
Agreement or (c) another day on which dealings in deposits in
United States Dollars are not transacted in the London interbank
market.
"LIBOR DETERMINATION DATE" for the Initial Closing Date
or for any Interest Accrual Period, as the case may be, shall
mean the second LIBOR Business Day immediately preceding the
commencement of such Interest Accrual Period.
"LIMITED RECOURSE PROMISSORY NOTE" shall mean a limited
recourse promissory note issued by the Transferor to a Series
1994-1 Senior Certificateholder pursuant to which the Transferor
promises to pay to such Certificateholder the amounts such
Certificateholder is entitled to receive pursuant to the
Agreement, this Supplement and the Series 1994-1 Senior
Certificates.
"MONTHLY SENIOR INTEREST" for any Payment Date shall
mean an amount equal to one-twelfth of the product of (a) the
Certificate Rate and (b) the outstanding principal amount of the
Series 1994-1 Senior Certificates as of the close of business on
the preceding Payment Date after giving effect to all repayments
of principal made to the Holders thereof on such preceding
Payment Date, if any; provided, however, that, with respect to
the first Payment Date, Monthly Senior Interest shall be equal to
$255,555.56.
"MONTHLY SERVICING FEE" for any Payment Date shall mean
an amount equal to the sum of the Daily Servicing Fees on each
day in the immediately preceding Settlement Period.
"MONTHLY SUBORDINATED INTEREST" for any Payment Date
shall mean an amount, which shall in no event be less than zero,
equal to the difference between the Aggregate Certificateholder
Interest Collections for the related Settlement Period minus the
amounts, if any, paid on such Payment Date pursuant to Sections
4.04(f)(i), (ii), (iii)(A) first and second, and (iii)(B) first
and second.
"NEGATIVE SPREAD SHORTFALL" shall mean, with respect to
the Series 1994-1 Senior Certificates, the shortfall occurring
when the amount of Interest Collections in the Series 1994-1
Interest Funding Sub-Account to be applied on any Payment Date is
less than the amount of the Monthly Senior Interest due on such
Payment Date, but only to the extent such shortfall is
attributable to the Certificate Rate for the Series 1994-1 Senior
Certificates of such Series being in excess of the weighted
average interest rate on the underlying Eligible Advances.
"PAYMENT DATE" shall mean, for each Settlement Period,
the fifteenth day of the next succeeding month (or if such day is
not a Business Day, the next succeeding Business Day) commencing
July 15, 1994.
"RECEIVABLE PAYMENT RATIO, for any Settlement Period,
shall mean a fraction, expressed as a percentage, the numerator
of which is the aggregate of all Collections received during such
Settlement Period and the denominator of which is the aggregate
Unpaid Balance of all Receivables on the first day of such
Settlement Period.
"RECORD DATE" shall mean, with respect to any Payment
Date or Special Payment Date, the last Business Day of the
immediately preceding Settlement Period, except that with respect
to the first Payment Date the Record Date shall be the Initial
Closing Date.
"REFERENCE BANKS" shall mean the three leading banks,
selected by the Servicer in accordance with Section 4 hereof,
quoting London interbank offered quotations rates for one-month
U.S. dollar deposits in the City of New York, New York.
"REQUIRED MONTHLY PAYMENT AMOUNT" for any Settlement
Period shall mean the Monthly Senior Interest due on the
following Payment Date or Special Payment Date.
"REQUIRED RECEIVABLE COVERAGE" shall mean, for Series
1994-1, a percentage amount, initially 135%, that shall be
increased by 2% for each 1% that the Required Subordinated
Percentage of Series 1994-1 is increased on any Determination
Date other than as a result of the purchase by any Series 1994-1
Subordinated Certificateholder of additional Series 1994-1
Subordinated Certificates.
"REQUIRED SUBORDINATED AMOUNT" shall mean, with respect
to Series 1994-1, the product of the Required Subordinated
Percentage for such Series and $100,000,000.
"REQUIRED SUBORDINATED PERCENTAGE", with respect to
Series 1994-1, shall be reset on each Determination Date and
shall mean the sum of 15% plus the greatest of (x) and (y) and
(z), where (x) is the percentage amount by which the average
Series 1994-1 Actual Receivables Nonpayment for any three
consecutive Settlement Periods shall have exceeded 13% and (y) is
the percentage amount by which the average Series 1994-1 Actual
Receivables Dilution Nonpayment for any three consecutive
Settlement Periods shall have exceeded 9% and (z) is the
percentage amount, if any, by which the average of the aggregate
Unpaid Balances of Receivables that are at least 60 days past due
on the last days of such Settlement Period and the two
immediately preceding Settlement Periods exceeds 5% of the
average of the Unpaid Balances of all Receivables that are not
Aged Receivables on such dates. In no case shall the Required
Subordinated Percentage decrease once it has increased.
"SCHEDULED AMORTIZATION PERIOD COMMENCEMENT DATE", with
respect to the Series 1994-1 Investor Certificates, means
June 29, 1999.
"SCHEDULED MATURITY DATE", with respect to the Series
1994-1 Investor Certificates, means the Payment Date in December,
1999.
"SERIES 1994-1 ACTUAL RECEIVABLE COVERAGE" shall be
determined on each Business Day and shall be a percentage amount
determined by dividing the aggregate Unpaid Balance of Series
1994-1 Secondary Eligible Receivables by the aggregate of the
Initial Senior Invested Amounts of all Series then outstanding.
"SERIES 1994-1 ACTUAL RECEIVABLES NONPAYMENT" shall be
determined on any Determination Date for the immediately
preceding Settlement Period and shall be a percentage amount
determined by dividing the aggregate Unpaid Balance of
Receivables that became Aged Receivables during such Settlement
Period by the sum of such aggregate Unpaid Balance and the
aggregate Unpaid Balance of Receivables that were paid during
such Settlement Period but were not Aged Receivables when so
paid.
"SERIES 1994-1 ACTUAL RECEIVABLES DILUTION NONPAYMENT"
shall be determined on any Determination Date for the immediately
preceding Settlement Period and shall be a percentage amount
determined by dividing the aggregate Unpaid Balance of
Receivables that were charged back by Factors to the applicable
Client during such Settlement Period by the sum of such aggregate
Unpaid Balance and the aggregate Unpaid Balance of Receivables
that were paid during such Settlement Period but had not been so
charged back when so paid.
"SERIES 1994-1 ALLOCATION PERCENTAGE" means, for any
date, the percentage equivalent of a fraction, the numerator of
which is the Invested Amount for Series 1994-1 as of the last day
of the immediately preceding Settlement Period and the
denominator of which is the Aggregate Invested Amount as of such
last day.
"SERIES 1994-1 CRP-RELIANT DESIGNATED ACCOUNT" shall
mean any Designated Account (that is an Eligible Account) the
Series 1994-1 Secondary Eligible Advance of which (after giving
effect to the first test of the Series 1994-1 Ratio Test) shall
exceed the product of .9 and the sum of the Unpaid Balances of
all Eligible Receivables in such Designated Account.
"SERIES 1994-1 DISPERSION CONCENTRATION LIMIT" shall
mean that (a) the maximum aggregate Unpaid Balance for all
Advances of the 5 Clients with the largest Unpaid Balances of
Advances that may be included in the calculation of "Series 1994-
1 Secondary Eligible Advances" shall not exceed 25% of the
Eligible Pool Balance as of the applicable date of determination
and (b) the maximum aggregate Unpaid Balance for all Advances of
the 10 Clients with the largest Unpaid Balances of Advances that
may be included in the calculation of "Series 1994-1 Secondary
Eligible Advances" shall not exceed 40% of the Eligible Pool
Balance as of the applicable date of determination and (c) the
maximum aggregate Unpaid Balance for all Advances of the 15
Clients with the largest Unpaid Balances of Advances that may be
included in the calculation of "Series 1994-1 Secondary Eligible
Advances" shall not exceed 50% of the Eligible Pool Balance as of
the applicable date of determination and (d) the maximum
aggregate Unpaid Balance for all Advances of the 20 Clients with
the largest Unpaid Balances of Advances that may be included in
the calculation of "Series 1994-1 Secondary Eligible Advances"
shall not exceed 60% of the Eligible Pool Balance as of the
applicable date of determination and (e) the maximum aggregate
Unpaid Balance for all Advances of the 50 Clients with the
largest Unpaid Balances of Advances that may be included in the
calculation of "Series 1994-1 Secondary Eligible Advances" shall
not exceed 80% of the Eligible Pool Balance as of the applicable
date of determination.
"SERIES 1994-1 FIRST RECEIVABLES CONCENTRATION LIMIT"
shall mean at any time with respect to each Receivable, a maximum
Unpaid Balance for all Receivables of a single Customer that may
be included in the calculation of "Series 1994-1 Secondary
Eligible Receivables" and shall be an amount equal to a certain
percentage (set forth in the next sentence) of the aggregate
Unpaid Balance of all Eligible Receivables in Designated Accounts
as of the date of determination. If the related Customer's
senior unsecured debt rating as published by the Rating Agencies
shall be: (i) at least "AA" or the equivalent, such percentage
shall be 10%, (ii) at least "A" or the equivalent but below "AA"
or the equivalent, such percentage shall be 5%, (iii) at least
"BBB" or the equivalent but below "A" or the equivalent, such
percentage shall be 3% and (iv) below BBB or unrated, such
percentage shall be 1%, except that, at the option of the
Servicer, (a) for an additional 5 Customers rated below "BBB" or
the equivalent or unrated, such percentage shall be 1.5%, (b) for
an additional 10 Customers rated below "BBB" or the equivalent or
unrated, such percentage shall be 2% and (c) for any Customer
rated below "BBB" or the equivalent or unrated that is wholly
owned by a company rated "BBB" or the equivalent or above, such
percentage shall be 2%, PROVIDED, HOWEVER, that the maximum
Unpaid Balance for all Series 1994-1 Secondary Eligible
Receivables of such Customer, when aggregated with the Series
1994-1 Secondary Eligible Receivables of any of such Customer's
direct or indirect parent companies, shall not exceed the highest
Series 1994-1 First Receivables Concentration Limit on any of
such Customer's direct or indirect parent companies. Notwith-
standing any of the foregoing, on the Initial Closing Date and
during the first 10 Business Days thereafter, the foregoing
percentage limits may be calculated against Receivables rather
than Eligible Receivables.
"SERIES 1994-1 FLOATING ALLOCATION PERCENTAGE" for any
day means the percentage equivalent (which shall never exceed
100%) of a fraction, the numerator of which is the Invested
Amount of Series 1994-1 as of the end of the last day of the
immediately preceding Settlement Period, and the denominator of
which is the sum of (a) the product of the Eligible Pool Balance
as of the end of the last day of the immediately preceding
Settlement Period multiplied by the Series 1994-1 Allocation
Percentage for such date plus (b) amounts on deposit in the
Series 1994-1 sub-account of the Excess Funding Account as of the
end of the last day of the immediately preceding Settlement
Period PROVIDED, HOWEVER, that, with respect to the first
Settlement Period, the Series 1994-1 Floating Allocation
Percentage shall mean 88.0654%.
"SERIES 1994-1 HIGHER CONCENTRATION ACCOUNT" shall mean
no more than ten Designated Accounts identified by the Transferor
that shall not be subject to the Series 1994-1 Normal
Concentration Limit but shall be subject to the Series 1994-1
Higher Concentration Limit and the Series 1994-1 Dispersion
Concentration Limit.
"SERIES 1994-1 HIGHER CONCENTRATION LIMIT" shall mean
at any time with respect to the Advance in each Series 1994-1
Higher Concentration Account, the maximum Unpaid Balance for the
Advance in such Series 1994-1 Higher Concentration Account that
may be included in the calculation of "Series 1994-1 Secondary
Eligible Advances" and shall be an amount equal to 5% of the
Eligible Pool Balance as of the applicable date of determination.
"SERIES 1994-1 INVESTOR CERTIFICATES" shall have the
meaning set forth in the preliminary statement to this
Supplement.
"SERIES 1994-1 NORMAL CONCENTRATION LIMIT" shall mean
at any time with respect to each Advance, the maximum Unpaid
Balance for the Advance of a single Client Obligor that may be
included in the calculation of "Series 1994-1 Secondary Eligible
Advances" and shall be an amount equal to 3% of the Eligible Pool
Balance as of the applicable date of determination.
"SERIES 1994-1 PARTICIPATION DEFICIENCY AMOUNT" shall
mean, for any Business Day, the amount (if any) by which the
Transferor's Required Participation Amount exceeds the
Transferor's Current Participation Amount.
"SERIES 1994-1 PRINCIPAL ALLOCATION PERCENTAGE" for any
date means the percentage equivalent (which shall never exceed
100%) of a fraction, the numerator of which is the Invested
Amount of Series 1994-1 as of the last day of the Revolving
Period or, in the event that an Early Amortization Event has
occurred prior to the end of the Revolving Period, the last day
of the Settlement Period occurring in the month immediately
preceding the month in which such Early Amortization Event
occurred, and the denominator of which is (a) the product of the
Eligible Pool Balance as of the end of the last day of the
immediately preceding Settlement Period multiplied by the Series
1994-1 Allocation Percentage for such date plus (b) amounts on
deposit in the Series 1994-1 sub-account of the Excess Funding
Account as of the end of the last day of the immediately
preceding Settlement Period.
"SERIES 1994-1 PRINCIPAL FUNDING SUB-ACCOUNT" shall
mean the Principal Funding Sub-Account established by the Trustee
pursuant to this Supplement for the benefit of the Series 1994-1
Investor Certificateholders in accordance with Section 4.02(m).
"SERIES 1994-1 RATIO TEST" shall mean the following
four tests that determine the extent to which an Advance or
Receivable is an "Series 1994-1 Secondary Eligible Advance" or
"Series 1994-1 Secondary Eligible Receivable".
FIRST, the Series 1994-1 Ratio Test requires that the
Advance in each Designated Account that is an Eligible
Account shall satisfy this first test only to the extent
that the aggregate amount of such Advance does not exceed
"EA" as calculated pursuant to the following formula for
such Designated Account (the aggregate amount of such
Advance in excess of such "EA" shall be excluded from the
further determinations under the second, third and fourth
tests set forth below):
[CAPTION]
<TABLE>
<S> <C>
EA = (R X F) + {the lesser of (R X F) and CRP}
EA = the amount of the Advance in such
Designated Account that is available to
satisfy the second test;
R = the sum of the Unpaid Balances of all
Eligible Receivables in such Designated
Account; provided, however, that on the
Initial Closing Date and for the first
10 Business Days thereafter "R" shall
equal the sum of the Unpaid Balances of
all Receivables in such Designated
Account;
F = .85 if such Designated Account is a
Series 1994-1 Higher Concentration
Account and .9 if such Designated
Account is not a Series 1994-1 Higher
Concentration Account, and
CRP = the sum of all of the following property
which constitutes Certain Related
Property in respect of such Designated
Account for which the Trustee has a
first priority security therein subject
to no other Liens except lower priority
Liens in favor of a creditor or
creditors of Factors under Permitted
Intercreditor Agreements: 40% of
Presold Inventory constituting such
Certain Related Property + 100% of all
cash and cash equivalents constituting
such Certain Related Property + 80% of
marketable debt securities constituting
such Certain Related Property;
</TABLE>
SECOND, the Series 1994-1 Ratio Test requires that the sum
of all Series 1994-1 Secondary Eligible Advances (after
giving effect to the first test of the Series 1994-1 Ratio
Test) of all Series 1994-1 CRP-Reliant Designated Accounts
shall not exceed 30% of the Eligible Pool Balance. If such
sum of all Series 1994-1 Secondary Eligible Advances for
such Series 1994-1 CRP-Reliant Designated Accounts exceeds
30% of the Eligible Pool Balance on any date of determina-
tion, Advances and Receivables in such Series 1994-1
CRP-Reliant Designated Accounts with the highest ratios of
{EA / ((R X .9) + CRP)} as of such date shall be excluded
from Series 1994-1 Secondary Eligible Advances and Series
1994-1 Secondary Eligible Receivables respectively, until
the aforesaid sum does not exceed 30%. For purposes of this
second test,
[CAPTION]
<TABLE>
<S> <C> <C>
R = has the same definition as in the first
test of the Series 1994-1 Ratio Test;
EA = has the same definition as in the first
test of the Series 1994-1 Ratio Test,
and
CRP = has the same definition as in the first
test of the Series 1994-1 Ratio Test.
</TABLE>
The amounts of the Series 1994-1 Secondary Eligible Advance
and Series 1994-1 Secondary Eligible Receivables remaining
in each such Designated Account shall be used in the third
test below.
THIRD, after the calculation of EA for each Designated
Account that is an Eligible Account and after giving effect
to the second test of the Series 1994-1 Ratio Test, a
weighted ratio for each such Designated Account shall be
calculated as follows:
Weighted Ratio = {EA' / ((R X F) + CRP)} X EA' / Eligible
Pool Balance
[CAPTION]
<TABLE>
<S> <C> <C>
EA' = the amount of Series 1994-1 Secondary
Eligible Advance calculated for such
Designated Account after giving effect
to the first and second tests of the
Series 1994-1 Ratio Test;
R = has the same definition as in the first
test of the Series 1994-1 Ratio Test;
F = .85 if such Designated Account is a
Series 1994-1 Higher Concentration
Account and .9 if such Designated
Account is not a Series 1994-1 Higher
Concentration Account, and
CRP = has the same definition as in the first
test of the Series 1994-1 Ratio Test.
</TABLE>
The Weighted Ratios (each expressed as a percentage) for
each Designated Account shall be summed and if such sum for
all such Designated Accounts exceeds 85% on any date of
determination, Series 1994-1 Secondary Eligible Advances and
Series 1994-1 Secondary Eligible Receivables in Designated
Accounts with the highest ratios of {EA' / ((R X F) + CRP)}
as of such date shall be excluded from Series 1994-1
Secondary Eligible Advances and Series 1994-1 Secondary
Eligible Receivables respectively, until the aforesaid sum
of Weighted Ratios equals 85%.
FOURTH, after giving effect to the first three tests of the
Series 1994-1 Ratio Test, the following ratio (expressed as
a percentage) shall be calculated for each Designated
Account as follows:
Ratio = EA" / (R + CRP')
[CAPTION]
<TABLE>
<S> <C> <C>
EA" = the amount of Series 1994-1 Secondary
Eligible Advance calculated for such
Designated Account after giving effect
to the first three tests of the Series
1994-1 Ratio Test;
R = has the same definition as in the first
test of the Series 1994-1 Ratio Test,
and
CRP' = 100% of Certain Related Property for
such Designated Account.
</TABLE>
To the extent such Ratio exceeds 85%, an amount of Series
1994-1 Secondary Eligible Advances equal to such excess over
85% shall be summed with such excess from all other
Designated Accounts and if such total from all Designated
Accounts exceeds 3.5% of the Eligible Pool Balance before
giving effect to this fourth test, then Series 1994-1
Secondary Eligible Advances from the Designated Accounts
having the highest Ratios under this fourth test shall be
excluded in whole or in part from Series 1994-1 Secondary
Eligible Advances until such total for all Designated
Accounts equals 3.5%.
"SERIES 1994-1 SECOND RECEIVABLES CONCENTRATION LIMIT"
shall mean that (a) the maximum aggregate Unpaid Balance for all
Receivables of the five Customers with the largest Unpaid
Balances of Receivables that may be included in the calculation
of "Series 1994-1 Secondary Eligible Receivables" shall not
exceed 25% of the Unpaid Balance of all Eligible Receivables as
of the applicable date of determination and (b) the maximum
aggregate Unpaid Balance for all Receivables of the ten Customers
with the largest Unpaid Balances of Receivables that may be
included in the calculation of "Series 1994-1 Secondary Eligible
Receivables" shall not exceed 40% of the Unpaid Balance of all
Eligible Receivables as of the applicable date of determination
and (c) the maximum aggregate Unpaid Balance for all Receivables
of any three Customers that may be included in the calculation of
"Series 1994-1 Secondary Eligible Receivables" shall not exceed
15% of the Unpaid Balance of all Eligible Receivables as of the
applicable date of determination. For purposes of each of the
foregoing limits, any resulting ineligibility shall, in the case
of clause (c), be applied to the Customer with the highest aggre-
gate Unpaid Balance of Receivables, and in each case be taken
into account for subsequent calculations under this definition.
Notwithstanding any of the foregoing on the Initial Closing Date
and for the first 10 Business Days thereafter, the foregoing
percentage limits may be calculated against Receivables rather
than Eligible Receivables.
"SERIES 1994-1 SECONDARY ELIGIBLE ADVANCE" shall mean
an Advance under a Designated Account that is an Eligible
Account:
(i) that is an Eligible Advance as defined in Annex X
to the Agreement;
(ii) if such Designated Account is a Series 1994-1 CRP-
Reliant Designated Account, as to which the Trustee has a fully
perfected first priority security interest (as defined in the
UCC) in the Certain Related Property related to such Designated
Account;
(iii) that complies with the Series 1994-1 Normal
Concentration Limit or, in the case of an Advance in a Series
1994-1 Higher Concentration Account, complies with the Series
1994-1 Higher Concentration Limit (provided that any Advance that
partially complies with the Series 1994-1 Higher Concentration
Limit shall be an "Series 1994-1 Secondary Eligible Advance" in
the amount of such compliance);
(iv) that complies with the Series 1994-1 Dispersion
Concentration Limit;
(v) that meets the Series 1994-1 Ratio Test; and
(vi) that is secured by Eligible Receivables not
subject to a Lien or security interest other than the Lien or
security interest therein of the Trustee, provided that a Lien or
security interest lower in priority shall be permitted for
purposes of this clause (vi) if (y) such Lien or security
interest is in favor of a creditor or creditors of the related
Client under Permitted Intercreditor Agreements and (z) the
aggregate Unpaid Balance of such Eligible Advance and all other
Eligible Advances secured by Receivables and subject to a
Permitted Intercreditor Agreement shall not exceed 19% of the
Eligible Pool Balance at any time.
"SERIES 1994-1 SECONDARY ELIGIBLE RECEIVABLE" shall
mean a Receivable under a Designated Account that is an Eligible
Account:
(i) that is an Eligible Receivable as defined in Annex
X to the Agreement;
(ii) that complies with the Series 1994-1 First
Receivables Concentration Limit (provided that any Receivable
that partially conforms with the Series 1994-1 First Receivables
Concentration Limit shall be a "Series 1994-1 Secondary Eligible
Receivable" in the amount of such conformance);
(iii) that complies with the Series 1994-1 Second
Receivables Concentration Limit (provided that any Receivable
that partially conforms with the Series 1994-1 Second Receivables
Concentration Limit shall be a "Series 1994-1 Secondary Eligible
Receivable" in the amount of such conformance);
(iv) that meets the Series 1994-1 Ratio Test; and
(v) that is not subject to a Lien or security interest
other than the Lien or security interest therein of the Trustee,
provided that a Lien or security interest lower in priority shall
be permitted for purposes of this clause (vi) if (y) such Lien or
security interest is in favor of a creditor or creditors of the
related Client under Permitted Intercreditor Agreements and (z)
the aggregate Unpaid Balance of the Eligible Advance secured by
such Receivable and all other Eligible Advances secured by
Receivables and subject to a Permitted Intercreditor Agreement
shall not exceed 19% of the Eligible Pool Balance at any time.
"SERIES 1994-1 TRANSFEROR'S PERCENTAGE" for any date in
a Revolving Period means 100% minus the Series 1994-1 Floating
Allocation Percentage for such date and for any date in an
Amortization Period means 100% minus the Series 1994-1 Principal
Allocation Percentage for such date.
"SERIES TERMINATION DATE" has the meaning set forth in
Section 7 of this Supplement.
"SERVICING FEE PERCENTAGE" has the meaning set forth in
Section 5 of this Supplement.
"SPECIAL AUDIT" means an audit of the Servicer
conducted by a firm of Independent Public Accountants selected by
the Servicer upon the issuance of an Audit Request and consisting
of the procedures set forth in EXHIBIT A hereto.
"SPECIAL PAYMENT DATE" means each Payment Date during
an Amortization Period or following the Scheduled Maturity Date.
"Subordinated Invested Amount" shall mean, with respect
to Series 1994-1 for any day, an amount equal to (a) the Initial
Subordinated Invested Amount MINUS (b) the aggregate amount of
Principal Collections paid with respect to the Series 1994-1
Subordinated Certificates prior to such day MINUS (c) the
aggregate amount of Charge-offs allocated to the Series 1994-1
Subordinated Certificates pursuant to Section 4.06 prior to such
day PLUS (d) the initial Unpaid Balance of any additional Advance
purchased as a result of the existence of any Subordination
Deficiency Amount pursuant to Sections 4.04(f)(iii) and
4.06(c)(i) prior to such day PLUS (e) the purchase price (at par)
of any Additional Series 1994-1 Subordinated Certificates
purchased by any Holder of a Series 1994-1 Subordinated
Certificate pursuant to Section 6.09(d) of the Agreement.
"SUBORDINATION DEFICIENCY AMOUNT" shall mean, with
respect to Series 1994-1 for any Business Day, the amount (if
any) by which the Required Subordinated Amount for Series 1994-1
exceeds the Subordinated Invested Amount for Series 1994-1.
"TELERATE PAGE 3750" shall mean the display page so
designed by the Dow Jones Telerate Service, or any other page as
may replace that page on that service for the purpose of
displaying comparable rates or prices.
"TRANSFEROR'S CURRENT PARTICIPATION AMOUNT" for any
date shall mean an amount equal to (a) the product of the
Eligible Pool Balance multiplied by the Series 1994-1 Allocation
Percentage, minus (b) the Invested Amount of Series 1994-1 on
such date, plus (c) the amount on deposit on such date in the
Series 1994-1 Excess Funding Sub-Account.
"TRANSFEROR'S REQUIRED PARTICIPATION AMOUNT" shall mean
$8,050,000.
The words "HEREOF," "HEREIN" and "HEREUNDER" and words
of similar import when used in this Supplement shall refer to
this Supplement or the Agreement as a whole and not to any
particular provision of this Supplement or the Agreement, as the
case may be; the word "INCLUDING" (and with correlative meaning
"INCLUDE") means including without limiting the generality of any
description preceding such term; and Section, Schedule and
Exhibit references contained in this Agreement or this Supplement
are references to Sections, Schedules and Exhibits in or to the
Agreement or this Supplement unless otherwise specified.
Unless otherwise specified in this Supplement, all
accounting terms used herein shall be interpreted, all accounting
determinations hereunder shall be made, and all financial
statements required to be delivered hereunder shall be prepared
in accordance with generally accepted accounting principles as in
effect from time to time, applied on a basis consistent (except
for immaterial changes or changes concurred in by the independent
public accountants of Factors) with the most recent audited
consolidated financial statements of Factors and its consolidated
Subsidiaries.
SECTION 15. ACCRUAL OF INTEREST ON THE SERIES 1994-1 INVESTOR
CERTIFICATES.
Interest shall accrue on the Series 1994-1 Investor
Certificates from the Initial Closing Date. Notwithstanding
anything to the contrary in the Agreement or this Supplement,
neither the Transferor, the Servicer nor the Trust shall have any
interest in Collections received prior to May 31, 1994.
SECTION 16. DISTRIBUTIONS.
The Trustee shall send distributions to the Series
1994-1 Investor Certificateholders under Section 5.01 of the
Agreement to each Series 1994-1 Certificateholder by 12:00 P.M.
(New York City time) on each Payment Date by wire transfer of
immediately available funds to an account or accounts designated
by such Series 1994-1 Certificateholders, by written notice to
the Trustee and the Paying Agent given at least five days prior
to any Payment Date (such notice to remain effective with respect
to a Holder until different instructions from such Holder are
received by the Trustee and the Paying Agent), or if no such
notice is given, by check mailed as provided in Section 5.01 of
the Agreement.
SECTION 17. RATIFICATION OF AGREEMENT.
As supplemented by this Supplement, the Agreement is in
all respects ratified and confirmed and the Agreement as so
supplemented by his Supplemental shall be read, taken, and
construed as one and the same instrument.
SECTION 18. THE TRUSTEE.
The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of
this Supplement or for or in respect of the Preliminary Statement
contained herein, all of which recitals are made solely by the
Transferor. The Trustee hereby represents and warrants that this
Supplement has been duly executed and delivered by it and that
this Supplement constitutes the legal, valid and binding
obligation of the Trustee, enforceable in accordance with its
terms (subject to the effect of any applicable bankruptcy,
insolvency, reorganization, moratorium or similar law affecting
creditors' rights generally)
SECTION 19. INSTRUCTIONS IN WRITING.
All instructions given by the Servicer to the Trustee
pursuant to this Supplement shall be in writing, and may be
included in a Daily Report or Settlement Statement.
SECTION 20. COUNTERPARTS.
This Supplement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an
original, but all of such counterparts shall together constitute
but one and the same instrument.
SECTION 21. GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF
PROCESS.
(a) THIS SUPPLEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK.
(b) JURISDICTION. Each of the parties hereto hereby
irrevocably and unconditionally submits to the nonexclusive
jurisdiction of New York State court or federal court of the
United States of America sitting in the Borough of Manhattan in
New York City, and any appellate court from any thereof, in any
action or proceeding arising out of or relating to this
Supplement, and each of the parties hereto hereby irrevocably and
unconditionally agrees that all claims in respect of any such
action or proceeding may be heard and determined in such New York
State or, to the extent permitted by law, in such federal court.
Each of the parties hereto agrees that a final judgment in any
such action or proceeding shall be conclusive and may be enforced
in other jurisdictions by suit on the judgment or in any other
manner provided by law.
(c) CONSENT TO SERVICE OF PROCESS. Each party to this
Supplement irrevocably consents to service of process in the
manner provided for notices in Section 13.05 of the Agreement.
Nothing in this Supplement will affect the right of any party to
this Supplement to serve process in any other manner permitted by
law.
SECTION 22. SERIES 1994-1 SUB-ACCOUNTS.
The Trustee shall establish within the Interest Funding
Account, Principal Funding Account, Excess Funding Account, Cash
Collateral Account and Accumulation Account an Interest Funding
Sub-Account, Principal Funding Sub-Account, Excess Funding Sub-
Account, Cash Collateral Sub-Account and Accumulation Sub-
Account, respectively, in each case in accordance with Section
4.02 of the Agreement and for the benefit of the
Certificateholders of Series 1994-1.
SECTION 23. SCHEDULE 1.
Notwithstanding anything to the contrary in the
Agreement or this Supplement, the Schedule 1 required to be
delivered by the Transferor to the Trustee on the Initial Closing
Date shall not be required to specify the aggregate Unpaid
Balance of Eligible Receivables for each Designated Account, but
the Transferor shall be required to deliver to the Trustee within
10 Business Days after the Initial Closing Date an updated
Schedule 1 that specifies such information.
SECTION 24. DEBT SECURITIES.
Notwithstanding anything contained herein to the con-
trary (including, without limitation, the form of the Series
1994-1 Investor Certificates), the parties hereto agree, and by
its acceptance of a Certificate each Certificateholder shall be
deemed to agree, that the Investor Certificates evidence debt and
such debt is further evidenced by the Limited Recourse Promissory
Notes. Nothing in this Section 24 or in any Limited Recourse
Promissory Note shall be deemed to diminish or otherwise
adversely affect in any way the rights of, and benefits to be
afforded to, the Holder of any Certificate as provided in the
Agreement, this Supplement and such Certificate, regardless of
whether or not such Holder of such Certificate shall at any time
also hold a Limited Recourse Promissory Note.
IN WITNESS WHEREOF, the parties hereto have caused this
Supplement to be duly executed by their respective officers
thereunto duly authorized as of the date first above written.
CF FUNDING CORP.,
as Transferor
By: /s/ Dennis McDermott
Name: Dennis McDermot
Title: Treasurer
CAPITAL FACTORS, INC.,
individually and as Servicer
By: /s/ Dennis McDermott
Name: Dennis McDermott
Title: Senior Vice President
BANKERS TRUST COMPANY,
as Trustee
By: /s/ Marie C. Rasch
Name: Marie C. Rasch
Title: Vice President
EXHIBIT 10.7
CF FUNDING CORP.,
Transferor,
CAPITAL FACTORS, INC.,
individually and as Servicer,
and
BANKERS TRUST COMPANY,
Trustee
on behalf of the Certificateholders
SERIES 1994-2 SUPPLEMENT
Dated as of December 1, 1994
to
CAPITAL FACTORS FINANCING TRUST
POOLING AND SERVICING AGREEMENT
Dated as of June 1, 1994
up to
$57,500,000
VARIABLE RATE ASSET BACKED CERTIFICATES
SERIES 1994-2
up to $50,000,000 CLASS A
AND
up to $7,500,000 CLASS B
Series 1994-2 SUPPLEMENT, dated as of December 1, 1994
(this "SUPPLEMENT") among CF FUNDING CORP., a Delaware
corporation, as Transferor (the "TRANSFEROR"), CAPITAL FACTORS,
INC., a Florida corporation, individually and as Servicer (the
"SERVICER"), and BANKERS TRUST COMPANY, a New York banking
corporation, as trustee (together with its successors in trust
thereunder as provided in the Pooling and Servicing Agreement
referred to below, the "TRUSTEE"), under the Pooling and
Servicing Agreement, dated as of June 1, 1994 (the "Agreement")
among the Transferor, the Servicer and the Trustee.
PRELIMINARY STATEMENT
Section 6.09 of the Agreement provides, among other
things, that the Transferor and the Trustee may at any time and
from time to time enter into a supplement to the Agreement for
the purpose of authorizing the issuance of the Investor
Certificates. The Transferor has delivered the Issuance Notice
required by Section 6.09 of the Agreement and hereby enters into
this Supplement with the Servicer and the Trustee as required by
Section 6.09(b) of the Agreement to provide for the issuance,
authentication and delivery of its Variable Rate Asset Backed
Certificates, Series 1994-2, Class A in the initial aggregate
amount of $25,000,000, which amount may be increased through a
Second Takedown to a maximum of $50,000,000 (the "SERIES 1994-2
SENIOR CERTIFICATES") and Variable Rate Asset Backed
Certificates, Series 1994-2, Class B in the initial aggregate
amount of $3,750,000, which amount may be increased through a
Second Takedown to a maximum of $7,500,000 (the "SERIES 1994-2
SUBORDINATED CERTIFICATES" and together with the Series 1994-2
Senior Certificates, the "SERIES 1994-2 INVESTOR CERTIFICATES").
In the event that any term or provision contained herein shall
conflict with or be inconsistent with any term or provision
contained in the Agreement, the terms and provisions of this
Supplement shall govern.
All capitalized terms not otherwise defined herein are
defined in the Agreement. All Article, Section or Subsection
references herein shall mean Article, Section or Subsections of
the Agreement as modified by this Supplement, except as otherwise
provided herein.
Any reference to the Early Amortization Period,
Scheduled Amortization Period, Amortization Period or the
Revolving Period in this Supplement shall refer only to such
periods as they relate to the Series 1994-2 Investor
Certificates, except as otherwise provided herein.
SECTION 1. DESIGNATION.
The Series 1994-2 Investor Certificates shall be
designated as the Variable Rate Asset Backed Certificates, Series
1994-2, Class A and Variable Rate Asset Backed Certificates,
Series 1994-2, Class B or, collectively, the Series 1994-2
Investor Certificates. No other classes in respect of the Series
1994-2 Investor Certificates shall be designated.
SECTION 2. AGREEMENT MODIFICATIONS.
The following terms of the Agreement are hereby
modified only with respect to this Supplement and the Series
1994-2 Investor Certificates as follows:
Section 4.04 is modified to add the following at the
end thereof:
PAYMENTS AND DEPOSITS OF INTEREST COLLECTIONS WITH RESPECT TO THE
SERIES 1994-2 INVESTOR CERTIFICATES.
DAILY SETTLEMENT
On each Business Day during a Settlement Period, the
Servicer shall instruct (which instruction shall be certified by
the Servicer to be true and accurate and shall be accompanied by
a Daily Report and back-up information required thereby) the
Trustee to, and the Trustee shall, withdraw from the
Concentration Account an amount equal to the aggregate amount of
Interest Collections allocated to Series 1994-2 pursuant to
Section 4.03 of the Agreement and not previously withdrawn from
the Concentration Account and allocate, apply, deposit or pay, as
the case may be, such amount in the following priority.
(a) TRUSTEE FEES AND SUCCESSOR SERVICER FEES.
To the payment to the Trustee of the sum of (x)
the Daily Trustee Fees (as defined in this Supplement)
accrued for such Business Day and for each non-Business
Day, if any, since the immediately preceding Business
Day plus (y) the Series 1994-2 Investor Certificate's
pro rata share of the Documented Trustee Expenses
incurred and not previously paid that relate to such
Series; for purposes of this sub-clause (y), "pro rata
share" shall be determined based on the aggregate
amount of the Invested Amounts of all Series to which
such Documented Trustee Expenses relate.
If the Servicer is not Factors on such Business
Day, to the payment to the Servicer of the Daily
Servicing Fees (as defined in this Supplement) accrued
for such Business Day and for each non-Business Day on
which Factors was not the Servicer, if any, since the
immediately preceding Business Day.
(b) SERVICER PRINCIPAL ADVANCE INTEREST.
If any Interest Collection for such Business Day
relates to an Advance that is the subject of a Servicer
Principal Advance, to pay the Servicer an amount equal
to the lesser of (x) the Series 1994-2 Allocation
Percentage of the Daily Servicer Principal Advance
Interest for each Servicer Principal Advance
outstanding on such day accrued for such Business Day
and for each non-Business Day, if any, since the
immediately preceding Business Day and (y) the Series
1994-2 Allocation Percentage of the amount of such
Interest Collection in respect of such Advance.
(c) SPECIAL AUDIT FEES.
If, on such Business Day, amounts are due and
payable to a firm of Independent Public Accountants in
respect of a Special Audit, then to pay such amounts to
such firm.
(d) SERIES 1994-2 CERTIFICATEHOLDER INTEREST
COLLECTIONS.
To deposit into the Series 1994-2 Interest
Funding Sub-Account for the exclusive benefit of the
Series 1994-2 Investor Certificateholders an amount
equal to the Series 1994-2 Floating Allocation
Percentage of the remainder for such Business Day.
(e) TRANSFEROR'S INTEREST COLLECTIONS.
Pay to the Transferor the remainder as interest
on the Transferor Certificate for such Business Day.
PAYMENTS AND DEPOSITS ON PAYMENT DATES
On or before the Determination Date immediately prior
to each Payment Date or Special Payment Date, in addition to the
deposits and payments required pursuant to the other provisions
of this Article IV, the Servicer shall instruct (which
instruction shall be certified by the Servicer to be true and
accurate and shall be accompanied by a Settlement Statement and
back-up information required thereby) the Trustee to withdraw
from the Series 1994-2 Interest Funding Sub-Account certain
amounts on deposit therein on such Payment Date or Special
Payment Date and, to the extent required by clause (f)(i) below,
from the Series 1994-2 Cash Collateral Sub-Account and pay or
deposit on such Payment Date or Special Payment Date, and the
Trustee acting in accordance with such instructions shall so
withdraw and pay or deposit or cause to be so withdrawn and paid
or deposited, in the priority set forth below in clause (f), the
amounts referred to below in clause (f), all pursuant to such
clause (f).
(f) MONTHLY INTEREST AND CASH COLLATERAL. The
Trustee, acting in accordance with instructions from the
Servicer, shall pay, deposit or apply (as the case may be) the
following amounts in the following priority out of the amounts
deposited into the Series 1994-2 Interest Funding Sub-Account
pursuant to Sections 4.02, 4.03, 4.04(d) and 4.05(a)(ii):
(i) pay to the Series 1994-2 Senior
Certificateholders an amount equal to the Monthly
Senior Interest; to the extent such amounts on
deposit in the Series 1994-2 Interest Funding Sub-
Account are not sufficient to pay such Monthly
Senior Interest in full, the Trustee, acting in
accordance with instructions from the Servicer,
shall withdraw from the Series 1994-2 Cash
Collateral Sub-Account an amount sufficient to
cover such deficiency and shall pay such amount to
the Series 1994-2 Senior Certificateholders;
(ii) during the Revolving Period, if the
balance in the Series 1994-2 Cash Collateral Sub-
Account is less than the Cash Collateral
Maintenance Amount (as defined in this
Supplement), deposit into such Cash Collateral
Sub-Account an amount as shall cause the balance
in such Cash Collateral Sub-Account to equal the
Cash Collateral Maintenance Amount; and
(iii) (A) during the Revolving Period,
pay FIRST if there is a Subordination Deficiency
Amount (as defined in this Supplement), to the
Transferor an amount equal to such Subordination
Deficiency Amount to purchase Advances from the
Transferor pursuant to Section 6.09, SECOND if
Factors is the Servicer, to the Servicer in the
amount of the sum of the Daily Servicing Fees (as
defined in this Supplement) for each day in such
Settlement Period, and THIRD to the Series 1994-2
Subordinated Certificateholders in the amount of
Monthly Subordinated Interest for the related
Settlement Period,
(B) during an Amortization Period,
FIRST if Factors is the Servicer, to the Servicer
in the amount of the sum of the Daily Servicing
Fees (as defined in this Supplement) for each day
in such Settlement Period, SECOND to the Series
1994-2 Senior Certificateholders in respect of
principal on the Senior Certificates in an
aggregate amount up to the Senior Invested Amount
in respect of the Series 1994-2 Senior
Certificates, THIRD if the Amortization Period is
a Special Premium Amortization Period, to the
Series 1994-2 Senior Certificateholders in payment
of the Special Premium until such Special Premium
has been paid in full and FOURTH to the Series
1994-2 Subordinated Certificateholders in the
amount of Monthly Subordinated Interest for the
related Settlement Period.
Section 4.05 is modified to add the following at the
end thereof:
PAYMENT AND DEPOSIT OF PRINCIPAL COLLECTIONS WITH RESPECT TO THE
SERIES 1994-2 INVESTOR CERTIFICATES.
DAILY PAYMENTS AND DEPOSITS
(a) On each Business Day, the Servicer shall
instruct the Trustee (which instruction shall be certified by the
Servicer to be true and accurate and shall be accompanied by a
Daily Report and back-up information required thereby) to
withdraw from the Concentration Account an amount (the "Section
4.05 Amount") equal to the sum of the (x) Daily Transferor
Principal Collections, plus (y) amounts deposited in the
Concentration Account by the Series 1994-2 Subordinated
Certificateholder to purchase additional Subordinated
Certificates, plus, (z) only during the Revolving Period (except
with respect to clause (i) below), Available Certificateholder
Principal Collections, and apply and pay or deposit such Business
Day's Section 4.05 Amount to the extent available in the
following order of priority (and the Trustee shall so withdraw,
apply and pay or deposit such amounts):
(i) if any Principal Collection for such Business
Day relates to an Advance that is or has been the
subject of a Servicer Principal Advance, pay from the
Section 4.05 Amount to the Servicer an amount equal to
the lesser of (x) the Series 1994-2 Allocation
Percentage of the amount of such Principal Collection
and (y) the Series 1994-2 Allocation Percentage of the
sum of the balance remaining on such Servicer Principal
Advance plus any interest accrued thereon and remaining
unpaid (after giving effect to the application of
Sections 4.04(b) and 4.06(a) to the Series 1994-2
Allocation Percentage of such interest);
(ii) if the Servicer determines that a Negative
Spread Shortfall for Series 1994-2 exists on such
Business Day, deposit into the Series 1994-2 Interest
Funding Sub-Account an amount equal to the lesser of
(x) the Section 4.05 Amount (after giving effect to
sub-clause (i) above) and (y) the amount of such
Negative Spread Shortfall;
(iii) if on such Business Day the Series 1994-2
Participation Deficiency Amount exceeds zero, deposit
in the Series 1994-2 Excess Funding Sub-Account an
amount equal to the lesser of (y) such Series 1994-2
Participation Deficiency Amount and (x) the Section
4.05 Amount (after giving effect to sub-clauses (i) and
(ii) above); during the Amortization Period, any amount
to be deposited in the Series 1994-2 Excess Funding
Sub-Account shall be subject to redirection as provided
in clause (c)(ii) below;
(iv) if, on such Business Day, an Accumulation
Event but no Early Amortization Event (other than an
Early Amortization Event caused by the continuation of
an Accumulation Event described in clause (a) or (b) of
the definition of "Accumulation Event") shall have
occurred or be continuing, deposit in the Series 1994-2
Accumulation Sub-Account the remainder, if any, of the
Section 4.05 Amount; and
(v) pay to the Transferor the remainder, if any,
of the Section 4.05 Amount; pay to the Transferor the
amounts under clause (c)(i) below and pay to the
Transferor the amounts under clause (d) below.
(b) Notwithstanding anything to the contrary in
Section 4.05(a), commencing on the first Business Day in an
Amortization Period with respect to Series 1994-2 and on each
Business Day thereafter until the end of such Amortization
Period, the Servicer shall instruct (which instructions shall be
certified by the Servicer to be true and accurate and shall be
accompanied by a Settlement Statement and back-up information
required thereby) the Trustee to withdraw
(w) from amounts on deposit in the Concentration
Account, the Available Certificateholder Principal
Collections (after payment of clause (a)(i) above),
(x) all amounts on deposit in the Series 1994-2
Excess Funding Sub-Account, if any,
(y) all amounts on deposit in the Series 1994-2
Accumulation Sub-Account, if any, and
(z) any portion of the Section 4.05 Amount
consisting of moneys paid by the Series 1994-2
Subordinated Certificateholders to purchase additional
Subordinated Certificates (allocations and/or
utilizations of said Section 4.05 Amount being deemed
first to come from Principal Collections allocated to
Series 1994-2 and second from such moneys paid by the
Series 1994-2 Subordinated Certificateholders to
purchase additional Subordinated Certificates),
and deposit all of such amounts in the Series 1994-2 Principal
Funding Sub-Account in an aggregate amount not to exceed the
Invested Amount. Any such amount in excess of such Invested
Amount will be applied in accordance with clauses (i) through (v)
of Section 4.05(a).
(c) (i) On each Business Day during the Revolving
Period, the Trustee, at the Servicer's direction and
certification, will withdraw amounts on deposit in the Series
1994-2 Excess Funding Sub-Account and pay such amounts to the
Transferor to the extent that, prior to and immediately after
giving effect to such withdrawal and payment, the Transferor's
Current Participation Amount exceeds the Transferor's Required
Participation Amount.
(ii) On each Business Day of an Amortization Period,
the Trustee, at the Servicer's direction and certification, will
redirect amounts which would otherwise be deposited in the Series
1994-2 Excess Funding Sub-Account pursuant to Section
4.05(a)(iii), and deposit such redirected amounts directly in the
Series 1994-2 Principal Funding Sub-Account; PROVIDED, HOWEVER,
that such amounts will no longer be so redirected and deposited
during such Amortization Period after such time as an amount of
funds equal to the Senior Invested Amount for Series 1994-2 shall
have been deposited in such Series 1994-2 Principal Funding Sub-
Account.
(d) If during the Revolving Period on any of the three
immediately succeeding Determination Dates after the date on
which an Accumulation Event shall have occurred (or, in the case
of a Special Premium Accumulation Event, on any of the two
immediately succeeding Determination Dates after the date on
which such Special Premium Accumulation Event initially shall
have occurred or on the last Business Day of the Settlement
Period in which the second such succeeding Determination Date
occurs), such Accumulation Event shall not be continuing, the
Trustee, at the Servicer's written direction and certification,
shall withdraw all amounts on deposit in the Series 1994-2
Accumulation Sub-Account in respect of such Accumulation Event
and if a Series 1994-2 Participation Deficiency Amount exists,
deposit all or a portion of such amounts to the extent of such
Series 1994-2 Participation Deficiency Amount in the Series 1994-
2 Excess Funding Sub-Account and pay the remainder to the
Transferor or, if a Series 1994-2 Participation Deficiency Amount
does not exist, pay such amounts to the Transferor.
PAYMENTS ON EACH SPECIAL PAYMENT DATE
(e) On each Special Payment Date in an
Amortization Period (and on the first Business Day of any Special
Premium Amortization Period), after giving effect to the payments
and deposits required pursuant to Sections 4.05(a), (b), (c) and
(d), the Trustee, acting in accordance with instructions from the
Servicer, shall pay the amount on deposit in the Series 1994-2
Principal Funding Sub-Account to the Holders of the Series 1994-2
Investor Certificates in the following priority:
(i) to the Series 1994-2 Senior
Certificateholders until the Senior Invested Amount of
the Series 1994-2 equals zero;
(ii) if the Amortization Period is a Special
Premium Amortization Period, to the Series 1994-2
Senior Certificateholders in payment of the Special
Premium until such Special Premium shall have been paid
in full; and
(iii) to the Series 1994-2 Subordinated
Certificateholders until the Subordinated Invested
Amount of Series 1994-2 equals zero.
Section 4.06 is modified to add the following at the
end thereof:
DAILY SETTLEMENT
On each Business Day on which a Charge-off occurs, the
Subordinated Invested Amount shall be reduced by the full amount
of the Series 1994-2 Allocation Percentage of each such Charge-
off occurring on such Business Day.
On each Business Day, the Servicer shall instruct the
Trustee to withdraw the Series 1994-2 Allocation Percentage of
Recoveries on deposit in the Concentration Account and apply, pay
or deposit them in the following priority.
(a) To the extent any such Recovery on
deposit in the Concentration Account relates to an
Advance that is the subject of a Servicer
Principal Advance, pay to the Servicer an amount
equal to the lesser of (x) the Series 1994-2
Allocation Percentage of the amount of such
Recovery relating to such Servicer Principal
Advance and (y) the Series 1994-2 Allocation
Percentage of the sum of the balance remaining on
such Servicer Principal Advance plus any accrued
and unpaid interest thereon.
(b) During the Revolving Period, if the
balance in the Cash Collateral Sub-Account for
Series 1994-2 is less than the Cash Collateral
Maintenance Amount for Series 1994-2 after
application of Section 4.04(f)(ii), deposit into
such Cash Collateral Sub-Account an amount as
shall cause the balance in such Cash Collateral
Sub-Account to equal such Cash Collateral
Maintenance Amount; and
(c) (i) during the Revolving Period, pay
FIRST if there is a Subordination Deficiency
Amount, to the Transferor an amount equal to such
Subordination Deficiency Amount to purchase
Advances from the Transferor pursuant to Section
6.09 of the Agreement and SECOND to the Series
1994-2 Subordinated Certificateholders in respect
of interest on the Series 1994-2 Subordinated
Certificates to the extent of any remainder after
application of the foregoing clauses in this
Section 4.06,
(ii) during an Amortization Period,
FIRST to the Series 1994-2 Senior
Certificateholders in respect of principal on the
Series 1994-2 Senior Certificates in an aggregate
amount up to the Senior Invested Amount for Series
1994-2, SECOND if the Amortization Period is a
Special Premium Amortization Period, to the Series
1994-2 Senior Certificateholders in payment of the
Special Premium until such Special Premium shall
have been paid in full and THIRD to the Series
1994-2 Subordinated Certificateholders in respect
of interest on the Series 1994-2 Subordinated
Certificates to the extent of any remainder after
application of the foregoing clauses in this
Section 4.06.
Article IV is further amended by adding the following
section:
Section 4.10 TRANSFEROR'S OR SERVICER'S FAILURE TO
MAKE A DEPOSIT OR PAYMENT. (a) If the Servicer or the
Transferor fails to make, or give instructions to make, any
payment or deposit (other than as required by Section 2.04(d) or
the last paragraph of Section 3.03) required to be made or given
by the Servicer or Transferor, respectively, at the time
specified in the Agreement (including applicable grace periods),
the Trustee shall make such payment or deposit from the
applicable Series Account or the Excess Funding Account without
instruction from the Servicer or Transferor. The Trustee shall
be required to make any such payment or deposit hereunder only to
the extent that the Trustee has sufficient information in a
Settlement Statement or other writing furnished by the Servicer
or the Majority Certificateholders of the Series affected to
allow the Trustee to determine the amount thereof; PROVIDED,
HOWEVER, that, to the extent that the Trustee has actual
knowledge of the principal balance of the Series 1994-2 Investor
Certificates as of the close of business on the last day of the
preceding Settlement Period, the Trustee shall be deemed to have
sufficient information to determine the amount of Monthly
Interest payable to the Series 1994-2 Investor Certificateholders
on such Payment Date. The Servicer shall, upon request of the
Trustee, promptly provide the Trustee with all information
necessary to allow the Trustee to make such payment or deposit.
Such funds or the proceeds of such withdrawal shall be applied by
the Trustee in the manner in which such payment or deposit should
have been made by the Transferor or the Servicer, as the case may
be.
Section 6.04 MUTILATED, DESTROYED, LOST OR STOLEN
CERTIFICATES. With respect to clause (b) of Section 6.04, the
delivery of an unsecured agreement of indemnity, in form and
substance reasonably satisfactory to the Trustee or the Transfer
Agent and Registrar, by any Holder of a Series 1994-2
Certificate, which Holder is an institutional holder with a
claims paying ability or long-term debt rating of at least
investment grade or its equivalent, shall satisfy the requirement
under said Section of the delivery of security or indemnity.
Section 6.09 is modified to add the following:
(d) Any Holder of the Series 1994-2 Subordinated
Certificate may from time to time give written notice to the
Trustee, the Servicer and the Transferor of its desire to
purchase an additional Series 1994-2 Subordinated Certificate
("ADDITIONAL SERIES 1994-2 SUBORDINATED CERTIFICATE"). Following
receipt of such notice, the Transferor may direct the Trustee, on
behalf of the Trust, to issue an Additional Series 1994-2
Subordinated Certificate pursuant to the Series 1994-2 Supplement
and this Section 6.09(d). Any Additional Series 1994-2
Subordinated Certificate shall be equally and ratably entitled as
provided herein and in the Series 1994-2 Supplement to the
benefits of this Agreement accorded to the Series 1994-2
Subordinated Certificates without preference, priority or
distinction, all in accordance with the terms and provisions of
this Agreement and the Series 1994-2 Supplement. The obligation
of the Trustee to issue an Additional Series 1994-2 Subordinated
Certificate is subject to the satisfaction of the following
conditions:
(i) on or before the fifth Business Day
immediately preceding the issuance date ("ADDITIONAL
ISSUANCE DATE") of the Additional Series 1994-2 Subordinated
Certificate, the Transferor shall have delivered to the
Trustee, the Servicer and each Rating Agency written notice
of such issuance, including the Additional Issuance Date,
the principal amount thereof and the name of the person in
whose name the Additional Series 1994-2 Subordinated
Certificate shall be registered (the "ADDITIONAL ISSUANCE
NOTICE"), and
(ii) the Servicer shall have certified to the
Trustee that the Holder of the existing Series 1994-2
Subordinated Certificate has deposited in the Concentration
Account immediately available funds in the amount of the
purchase price (at par) of the Additional Series 1994-2
Subordinated Certificate. Any such funds so deposited by
such Holder in such Concentration Account shall be deemed to
constitute Principal Collections allocable solely to Series
1994-2 and shall be applied in accordance with Section 4.05.
Upon satisfaction of the above conditions, the Trustee shall
deliver to the Transferor the Additional Series 1994-2
Subordinated Certificate for execution and redelivery to the
Trustee for authentication thereof. The Trustee shall deliver
such executed and authenticated Additional Series 1994-2
Subordinated Certificate to such Holder.
Section 12.05 DEFEASANCE. Section 12.05 of the
Agreement shall not be applicable with respect to the Series
1994-2 Investor Certificates.
SECTION 3. INSPECTION RIGHTS; IN-DEPTH AUDITS; REPORTING
REQUIREMENTS; CONFIDENTIALITY.
(a) INSPECTION. At any time and from time to time during
the Transferor's, Factors' or the Servicer's regular business
hours, on reasonable prior notice and for a purpose reasonably
related to the Agreement, the Transferor, Factors and the
Servicer shall, in response to any reasonable request of any
Series 1994-2 Certificateholder or the Trustee or in connection
with the Independent Public Accountants' preparation of any
report required by Section 3.06 of the Agreement, permit such
Certificateholder or its agents or representatives, the Trustee
or its agents or representatives and such Independent Public
Accountants (i) to examine and make copies of and abstracts from
all books, records and documents (including computer tapes and
disks) in the possession or under the control of the Transferor,
Factors or the Servicer relating to the Advances, the related
Receivables, the Related Property and the related Factoring
Agreements and Contracts, (ii) to visit the offices and
properties of the Transferor, Factors and the Servicer for the
purpose of examining such materials and to discuss matters
relating to the Advances or related Receivables or the
Transferor's, Factors' and the Servicer's performance under the
Agreement with any of the officers or employees of the
Transferor, Factors and the Servicer having knowledge thereof and
with the independent public accountants of the Transferor,
Factors and the Servicer (and by this provision the Transferor,
Factors and the Servicer each authorize their respective
accountants to discuss their respective finances and affairs).
(b) IN-DEPTH AUDITS. (1) Upon the delivery of an Audit
Request to Factors or the Transferor by any Series 1994-2 Senior
Certificateholder holding 10% or more of the Invested Amount of
such Series, and provided that no other audit under this clause
(b)(1) shall have been performed during the then current fiscal
quarter, the Servicer shall cause a firm of Independent Public
Accountants (who may also render other services to the Servicer,
the Transferor or Factors) to promptly perform a Special Audit
and furnish to the Trustee, each Series 1994-2 Senior
Certificateholder and each Rating Agency a report thereon. The
Servicer hereby authorizes and directs such firm of Independent
Public Accountants to deliver a copy of such report directly to
the Trustee. To the extent that the Independent Public
Accountants report to the Servicer any material negative findings
prior to the issuance of their report, the Servicer shall inform,
in writing, the Trustee of the same. The Servicer will use its
best efforts to cause the Independent Public Accountants to
complete their Special Audit within 60 days of the commencement
of the same and will otherwise cooperate and assist the
Independent Public Accountants in connection therewith.
(2) In addition, upon the delivery of an Audit Request
to Factors or the Transferor by any Series 1994-2 Senior
Certificateholder, and provided that such Certificateholder shall
not have previously exercised its rights under this clause (b)(2)
during the then current fiscal quarter, such Series 1994-2 Senior
Certificateholder shall be entitled, at its own expense, to
dispatch its own designated representative or representatives to
perform such investigations and review of such records of the
Servicer as such Certificateholder or such representative or
representatives may reasonably determine (the scope as well as
the plan of such investigation and review to be determined by
such Certificateholder in its sole discretion); such
investigation and review to include, without limitation, the
silent participation by such representative or representatives in
the telephonic verifications performed by the Independent Public
Accountants in respect of a randomly selected sampling of at
least 25 Clients representing at least 35% of the Pool Balance
and of 100 Customers whose Advances and Receivables constitute
Trust Assets.
(c) REPORTING REQUIREMENTS. Factors and the Transferor
will deliver to the Trustee, and the Trustee will deliver to each
Holder of outstanding Series 1994-2 Senior Certificates and to
each Rating Agency:
(i) CAPITAL BANK QUARTERLY CALL REPORTS -- within
forty-five days after the end of each quarterly fiscal
period in each fiscal year of Capital Bank, duplicate copies
of the Quarterly Consolidated Reports of Condition and
Income as filed with the appropriate federal banking
regulatory agency.
(ii) HOLDING QUARTERLY STATEMENTS -- within forty-five
days after the end of each quarterly fiscal period in each
fiscal year of Holding (other than the last quarterly fiscal
period of each such fiscal year), duplicate copies of
(A) a consolidated balance sheet of Holding and
its consolidated subsidiaries as at the end of such
quarter, and
(B) consolidated statements of operations,
stockholders' equity and cash flows of Holding and its
consolidated subsidiaries for such quarter and (in the
case of the second and third quarters) for the portion
of the fiscal year ending with such quarter,
setting forth in each case in comparative form the figures
for the corresponding periods in the immediately preceding
fiscal year, all in reasonable detail, prepared in
accordance with GAAP applicable to quarterly financial
statements generally, and accompanied by a certificate
signed by a principal financial officer of Holding stating
that such financial statements present fairly, in all
material respects, the financial position, results of
operations and cash flows of the companies being reported
upon and have been prepared in accordance with GAAP;
(iii) HOLDING ANNUAL STATEMENTS -- within ninety days
after the end of each fiscal year of Holding, duplicate
copies of
(A) a consolidated balance sheet of Holding and
its consolidated subsidiaries as at the end of such
year, and
(B) consolidated statements of operations,
stockholders' equity and cash flows of Holding its
consolidated subsidiaries for such year,
setting forth in each case in comparative form the figures
for the previous year and accompanied by an opinion of a
firm of independent certified public accountants of
recognized national standing stating that such financial
statements present fairly, in all material respects, the
financial position, results of operations and cash flows of
the companies being reported upon and have been prepared in
accordance with GAAP;
(iv) FACTORS QUARTERLY STATEMENTS -- within forty-five
days after the end of each quarterly fiscal period in each
fiscal year of Factors (other than the last quarterly fiscal
period of each such fiscal year), duplicate copies of
(A) a consolidated balance sheet of Factors and
its consolidated subsidiaries as at the end of such
quarter, accompanied by supplemental consolidating
schedules, and
(B) consolidated statements of operations,
stockholders' equity and cash flows of Factors and its
consolidated subsidiaries for such quarter and (in the
case of the second and third quarters) for the portion
of the fiscal year ending with such quarter,
accompanied by supplemental consolidating schedules,
setting forth in each case in comparative form the figures
for the corresponding periods in the immediately preceding
fiscal year, all in reasonable detail, prepared in
accordance with GAAP applicable to quarterly financial
statements generally, and accompanied by a certificate
signed by a principal financial officer of Factors stating
that such financial statements present fairly, in all
material respects, the financial position, results of
operations and cash flows of the companies being reported
upon and have been prepared in accordance with GAAP;
(v) FACTORS ANNUAL STATEMENTS -- within ninety days
after the end of each fiscal year of Factors, duplicate
copies of
(A) a consolidated balance sheet of Factors and
its consolidated subsidiaries as at the end of such
year, accompanied by supplemental consolidating
schedules, and
(B) consolidated statements of operations,
stockholders' equity and cash flows of Factors its
consolidated subsidiaries for such year, accompanied by
supplemental consolidating schedules,
setting forth in each case in comparative form the figures
for the previous year and accompanied by an opinion of a
firm of independent certified public accountants of
recognized national standing stating that such financial
statements present fairly, in all material respects, the
financial position, results of operations and cash flows of
the companies being reported upon and have been prepared in
accordance with GAAP;
(vi) AUDIT REPORTS -- promptly upon receipt thereof,
one copy of each other report submitted to Holding, Factors
or the Transferor or any of their respective subsidiaries by
independent accountants in connection with any annual,
interim, or special audit made by such accountants of the
books of Holding, Factors or the Transferor or any of their
respective subsidiaries;
(vii) SEC AND OTHER REPORTS -- promptly upon their
becoming available, a copy of each financial statement,
report (including, without limitation, each Quarterly Report
on Form 10-Q, each Annual Report on Form 10-K and each
Current Report on Form 8-K), notice or proxy statement sent
by Capital Bancorp, Capital Bank, Holding, Factors or the
Transferor or any of their respective subsidiaries to
stockholders generally and of each regular or periodic
report and any registration statement, prospectus or written
communication (other than transmittal letters), and each
amendment thereto, together in each case with a copy of any
document incorporated by reference therein, in respect
thereof filed by Capital Bancorp, Capital Bank, Holding,
Factors or the Transferor or any of their respective
subsidiaries with, or received by, such Person in connection
therewith from, the National Association of Securities
Dealers, any securities exchange or the Securities and
Exchange Commission or any successor agency;
(viii) REPORT ON PROCEEDINGS -- promptly upon Factors or
the Transferor becoming aware of (A) any proposed or pending
investigation of Capital Bancorp, Capital Bank, Holding,
Factors or the Transferor or any of their respective
subsidiaries by any governmental authority or agency or (B)
any court or administrative proceeding, that in either case
involves the possibility of materially and adversely
affecting the ability of any of Factors, the Servicer or the
Transferor to perform their respective obligations under the
Agreement, this Supplement or the Contribution and Sale
Agreement, a notice specifying its nature and the action
being taking with respect thereto;
(ix) NOTICES OF REGULATORY ACTION -- promptly upon
receipt thereof, copies of any notices received from any
Federal or state regulatory agencies relating to an order,
ruling, statute, or other law or information that might
materially and adversely affect the ability of any of
Factors, the Servicer or the Transferor to perform their
respective obligations under the Agreement, this Supplement
or the Contribution and Sale Agreement; PROVIDED that
delivery of such copies shall not be prohibited by any
Requirements of Law; and
(x) REQUESTED INFORMATION -- with reasonable
promptness, any other data and information that may be
reasonably requested from time to time by any Holder of
Series 1994-2 Senior Certificates.
(d) TRUSTEE DISCLOSURE. The Trustee may disclose to each
holder of Series 1994-2 Investor Certificates the information
referred to in Section 2.02(b) of the Agreement.
(e) CONFIDENTIALITY. Each 1994-2 Certificateholder agrees
that any information furnished to it under this Section will be
held in confidence and not disclosed, all in accordance with and
pursuant to its current procedures and practices for maintaining
the confidentiality of similar "confidential" information
(provided that such information neither (y) was previously
publicly known, or otherwise known to such Certificateholder, at
the time of disclosure nor (z) subsequently became publicly known
other than through any act or omission by such Holder), provided
that such Certificateholder may disclose the aforesaid
information (i) to its officers, directors, trustees, internal
counsel, internal investment advisers and employees (and the
officers, directors, trustees, internal counsel, internal
investment advisers and employees of any parent or holding
company, if any, and of any other of their affiliates) in the
ordinary course of its respective duties; (ii) when required by
law or regulation or to the extent necessary to comply with any
summons, subpoena or notice of discovery or in connection with
any litigation or legal proceeding or in connection with any
formal or informal governmental investigative demand; (iii) to
the extent necessary to comply with the request of, or as
otherwise customarily disclosed to, any regulatory body having
(or claiming to have) jurisdiction over them, to the United
States National Association of Insurance Commissioners or similar
organizations or their successors; (iv) to its independent
auditors and accountants, counsel and other professional advisers
(or the independent auditors and accountants, counsel and other
professional advisers of its parent or holding company, if any,
and of any other of their affiliates) in the course of its
respective duties, provided that they consent to the provisions
of this Section; (v) as may be required or appropriate in
connection with (a) the enforcement of its rights under the
Certificates, the Agreement, the Supplement or any related
agreement or (b) any contemplated transfer of any Certificates
owned by it (provided that any potential transferee agrees to be
bound by the provisions of this Section); and (vi) to any other
Certificateholder, the Trustee, the Servicer, the Transferor or
the Paying Agent.
SECTION 4. SERIES 1994-2 SENIOR CERTIFICATE RATE.
The "SERIES 1994-2 SENIOR CERTIFICATE RATE" for the
Series 1994-2 Senior Certificates shall be equal to a per annum
rate equal to LIBOR, determined as of two LIBOR Business Days
prior to the commencement of any Interest Accrual Period, plus
1.2500%. For purposes of the first Interest Accrual Period in
respect of the Series 1994-2 Senior Certificates, LIBOR shall be
determined two LIBOR Business Days prior to the Closing Date.
Interest shall be calculated monthly and shall accrue at the
Series 1994-2 Senior Certificate Rate as determined on the
related LIBOR Determination Date for each Interest Accrual
Period.
"LIBOR" for each Interest Accrual Period shall be
established by the Trustee as follows:
(i) on each LIBOR Determination Date, the Trustee
shall determine LIBOR for the next succeeding Interest
Accrual Period on the basis of the 30 day offered LIBOR
quotations, appearing on Telerate Page 3750 as of
11:00 a.m., London Time, on such LIBOR Determination Date.
If such rate does not appear on Telerate Page 3750, the rate
for that day will be determined on the basis of the rates at
which deposits in U.S. Dollars are offered by the Reference
Banks at approximately 11:00 a.m., London Time, on the LIBOR
Determination Date to prime banks in the London interbank
market for a period of one month commencing on that day.
The Trustee will request the principal London office of each
of the Reference Banks to provide a quotation of its rate.
If at least two such quotations are provided, the rate for
that day will be the arithmetic mean of the quotations. If
fewer than two quotations are provided as requested, the
rate for that day will be the arithmetic mean of the rates
quoted by major banks in New York City, selected by the
Servicer, at approximately 11:00 a.m., New York City time,
on that date for loans in U.S. Dollars to leading European
banks for a period of one month commencing on that day.
(ii) For purposes of this Section 4, the initial
Reference Banks shall be Bankers Trust Company, The Chase
Manhattan Bank, N.A. and National Westminster Bank, PLC. If
any of the foregoing Banks (or any of their replacements as
provided for in this clause (ii)) shall no longer qualify as
a Reference Bank, then the Servicer shall promptly designate
a replacement Reference Bank and shall notify the Trustee of
such replacement. The Trustee may conclusively rely and
shall be protected in relying upon the offered quotations
(whether electronic, written or oral) of the selected
Reference Banks.
The establishment of LIBOR and the subsequent
calculation of the interest rate for each Interest Accrual Period
by the Trustee, in the absence of manifest error, will be final
and binding. The Trustee shall telephone the Servicer and send
written notice to each Certificateholder within two Business Days
after each LIBOR Determination Date specifying the interest rate
determined on such LIBOR Determination Date and the Interest
Accrual Period to which it applies.
SECTION 5. SERVICING FEE PERCENTAGE AND DAILY TRUSTEE FEE.
The "SERVICING FEE PERCENTAGE" applicable to the Series
1994-2 Investor Certificates shall be .50%. The "DAILY TRUSTEE
FEE" applicable to the Series 1994-2 Investor Certificates shall
be $47.95 plus, in the event of a Second Takedown, an additional
$47.95.
SECTION 6. NOTIFICATIONS.
The Trustee shall provide to each Certificateholder a
copy of each notice or other information listed in Exhibit 6 and
any other notice or information relating to the Trust received by
the Trustee as any Certificateholder may request.
SECTION 7. SERIES TERMINATION DATE.
The "SERIES TERMINATION DATE" for the Series 1994-2
Investor Certificates shall be the Special Payment Date in
November, 2000.
SECTION 8. REPURCHASE TERMS.
(a) The Series 1994-2 Investor Certificates may be
repurchased by the Transferor on any Payment Date on or after the
day on which the Senior Invested Amount is reduced to an amount
less than or equal to 10% of the Initial Senior Invested Amount
upon the satisfaction of the conditions described in Section
12.02(a). The repurchase price shall be equal to the sum of the
Senior Invested Amount and the Subordinated Invested Amount plus
accrued (or otherwise payable) and unpaid interest on the Series
1994-2 Investor Certificates through the Business Day immediately
preceding the Payment Date on which the repurchase occurs. Other
than as set forth in this Section 8(a), the Transferor may not
repurchase the Series 1994-2 Investor Certificates.
(b) Any Series Repurchase Amount to be paid pursuant
to the first or second paragraph of Section 12.02(a) shall be
deposited into the Series 1994-2 Principal Funding Sub-Account.
SECTION 9. DELIVERY AND PAYMENT FOR THE SERIES 1994-2
INVESTOR CERTIFICATES; SECOND TAKEDOWN.
(a) The Trustee shall deliver Series 1994-2 Senior
Certificates in the aggregate amount of the First Takedown Senior
Invested Amount and Series 1994-2 Subordinated Certificates in
the aggregate amount of the Initial Subordinated Invested Amount
to the Transferor when authenticated upon the written direction
of the Transferor.
(b) The Trustee shall authenticate and deliver to the
Transferor Series 1994-2 Senior Certificates in the aggregate
amount of the Second Takedown Senior Amount and a Series 1994-2
Subordinated Certificate in the Second Takedown Subordinated
Amount in accordance with the Second Takedown Order, but only if
all the following conditions shall have been satisfied:
(i) on or before the fifth Business Day
immediately preceding the Second Takedown Date, the
Transferor shall have given the Trustee, the Servicer and
each Rating Agency (if any) written notice (substantially in
the form of Exhibit 9(b)(i) hereto) of such Second Takedown
(the "SECOND TAKEDOWN NOTICE");
(ii) the Rating Agency Condition shall have been
satisfied with respect to such Second Takedown;
(iii) such Second Takedown will not result in the
occurrence of an Early Amortization Event, Prospective Early
Amortization Event or Accumulation Event and the Transferor
shall have delivered to the Trustee an Officer's
Certificate, dated the Second Takedown Date, to the effect
that the Transferor reasonably believes that such Second
Takedown will not result in the occurrence of an Early
Amortization Event, Prospective Early Amortization Event or
Accumulation Event and is not reasonably expected to result
in the occurrence of an Early Amortization Event,
Prospective Early Amortization Event or Accumulation Event
at any time in the future;
(iv) the Transferor shall have delivered to the
Trustee a Tax Opinion, dated the Second Takedown Date, with
respect to such Second Takedown;
(v) the Aggregate Transferor's Current
Participation Amount shall not be less than the Aggregate
Transferor's Required Participation Amount, in each case as
of the Second Takedown Date and after giving effect to such
Second Takedown and the Transferor shall have delivered to
the Trustee an Officer's Certificate to such effect;
(vi) the Transferor shall have delivered to the
Trustee a written instruction substantially in the form of
Exhibit 9(b)(vi) hereto (the "SECOND TAKEDOWN ORDER") to
authenticate and deliver Series 1994-2 Senior Certificates
in the aggregate amount of the Second Takedown Senior Amount
and a Series 1994-2 Subordinated Certificate in the Second
Takedown Subordinated Amount;
(vii) the Transferor shall have delivered to the
Trustee for authentication and redelivery Series 1994-2
Senior Certificates in the aggregate amount of the Second
Takedown Senior Amount and a Series 1994-2 Subordinated
Certificate in the Second Takedown Subordinated Amount, in
each case duly executed by the Transferor;
(viii) in the event that any of the Series 1994-2
Senior Certificates to be issued in connection with the
Second Takedown are to be initially registered in the name
of any Person who was not a Holder of Series 1994-2 Senior
Certificates on the Record Date next preceding (but not
coinciding with) the Second Takedown Date, the Trustee shall
have received unanimous written consent to such issuance
from the Senior Certificateholders of Series 1994-2 as of
the Record Date next preceding (but not coinciding with) the
Second Takedown Date;
(ix) the Transferor shall have certified to the
Trustee that the Transferor has received immediately
available funds in the aggregate amounts of the Second
Takedown Senior Amount and the Second Takedown Subordinated
Amount; and
(x) the Transferor shall have deposited into the
Cash Collateral Sub-Account for Series 1994-2 an amount
sufficient to cause the amounts on deposit therein to equal
the Cash Collateral Maintenance Amount that will be required
after giving effect to the Second Takedown.
Any Series 1994-2 Investor Certificates issued in
connection with a Second Takedown shall be equally and ratably
entitled as provided in the Agreement and this Supplement to the
benefits of the Agreement and this Supplement accorded to Series
1994-2 Investor Certificates without preference, priority or
distinction, all in accordance with the terms and provisions of
the Agreement and this Supplement, except that no Series 1994-2
Investor Certificate that may be issued on the Second Takedown
Date shall be entitled to any distribution due on any Payment
Date occurring prior to the Second Takedown Date, whether or not
such distribution is actually made on such prior Payment Date.
SECTION 10. MINIMUM AUTHORIZED DENOMINATIONS.
The Series 1994-2 Investor Certificates shall be issued
in fully registered, certificated form. The Series 1994-2 Senior
Certificates shall be issued in minimum denominations of $500,000
(except as may be necessary to reflect any principal amount not
evenly divisible by $500,000) or in any integral multiples of
$100,000 in excess thereof.
SECTION 11. SUBORDINATION OF SUBORDINATED INVESTORS' INTEREST.
The Subordinated Investors' Interest in the Trust
Assets will be subordinated to the Senior Investors' Interest to
the extent provided herein and shall be required to be maintained
at the Required Subordinated Amount as contemplated by Section
4.04(f)(iii)(A). Unless otherwise consented to by the Majority
Certificateholders of Series 1994-2, no Series 1994-2
Subordinated Certificate shall be initially issued to any Person
other than CF One and the Trustee shall not authenticate any such
Series 1994-2 Subordinated Certificate if issued to a Person
other than CF One. The Series 1994-2 Subordinated Certificates
shall be substantially in the form of EXHIBIT 11 hereto.
SECTION 12. ADDITIONAL EARLY AMORTIZATION EVENTS WITH RESPECT
TO SERIES 1994-2; WAIVER OF EARLY AMORTIZATION
EVENTS.
(a) Without limiting the application of Section 9.01
of the Agreement to Series 1994-2, if any one of the following
events shall occur at such time as there shall be at least one
outstanding Series 1994-2 Senior Certificate:
(i) at any time Fitch shall then be rating
the Series 1994-1 Senior Certificates below
"A" (or the equivalent thereof) or shall have
withdrawn its rating of the Series 1994-1
Senior Certificates;
(ii) any results of any audit prepared as a result of
an Audit Request shall demonstrate the existence of a
material discrepancy from the Loan and Credit Policy or
from reports previously rendered pursuant to Section
3.06;
(iii) the Required Subordinated Percentage shall at
any time exceed 25%;
(iv) the Transferor's Current Participation Amount is
less than the Transferor's Required Participation
Amount for any three consecutive Determination Dates;
(v) the Series 1994-2 Allocation Percentage of the
Aggregate Unpaid Balance of Series 1994-2 Secondary
Eligible Advances shall be less than 90% of the Initial
Invested Amount for Series 1994-2 on any two
consecutive Determination Dates and on the last
Business Day of the Settlement Period in which the
second such consecutive Determination Date occurs;
(vi) during the Revolving Period, there shall be less
than 125 Designated Accounts in the Trust; for purposes
of this clause (vi), all Designated Accounts of Clients
that are Affiliates of each other shall be deemed to be
a single Designated Account;
(vii) (a) the Servicer is terminated pursuant to
Section 10.01 of the Agreement without the consent of
the Majority Certificateholders of Series 1994-2 or (b)
the Servicer is not terminated pursuant to such Section
under circumstances constituting any Servicer Default
in respect of which such Majority Certificateholders
have requested such termination or (c) the Servicer is
terminated pursuant to Section 10.01 of the Agreement
with the consent of the Majority Certificateholders of
Series 1994-2 and a Successor Servicer (including,
without limitation, the Trustee acting as such
Successor Servicer 30 days after a Servicer Default) is
appointed pursuant to Section 10.02 of the Agreement
without the consent of the Majority Certificateholders
of Series 1994-2 or (d) the Servicer is terminated
pursuant to Section 10.01 of the Agreement with the
consent of the Majority Certificateholders of Series
1994-2 and no Successor Servicer is appointed pursuant
to Section 10.02 of the Agreement within 30 days of
such termination;
(viii) the Required Receivable Coverage for Series
1994-2 shall exceed the Series 1994-2 Actual Receivable
Coverage for any three consecutive Determination Dates;
(ix) the Settlement Statement due on any Determination
Date reports that, or facts shall exist such that,
Series 1994-2 Actual Receivables Nonpayment exceeds 18%
for the related Settlement Period;
(x) the Series 1994-2 Allocation Percentage of the
aggregate Unpaid Balance of Series 1994-2 Secondary
Eligible Receivables shall be less than 135% of the
Senior Invested Amount for Series 1994-2 on any two
consecutive Determination Dates and on the last
Business Day of the Settlement Period in which the
second such consecutive Determination Date occurs;
(xi) the Settlement Statement due on any Determination
Date reports that, or facts shall exist such that, as
of the last day of the related Settlement Period (A)
the aggregate Unpaid Balance of Receivables that are at
least 60 days past due on such date exceeds 10% of the
Unpaid Balance of all Eligible Receivables on such
date, (B) the average of the aggregate Unpaid Balances
of Receivables that are at least 60 days past due on
the last days of such Settlement Period and the two
immediately preceding Settlement Periods exceeds 7% of
the average of the Unpaid Balances of all Eligible
Receivables on such dates, (C) the aggregate Unpaid
Balance of Receivables that are at least 90 days past
due on such date exceeds 4.5% of the Unpaid Balance of
all Eligible Receivables on such date or (D) the
average of the aggregate Unpaid Balances of Receivables
that are at least 90 days past due on the last days of
such Settlement Period and the two immediately
preceding Settlement Periods exceeds 3.25% of the
average of the Unpaid Balances of all Eligible
Receivables on such dates;
(xii) the Subordinated Invested Amount for Series
1994-2 equals (a) less than 13% of the Senior Invested
Amount for Series 1994-2 for any three consecutive
Determination Dates or (b) less than 10% of the Senior
Invested Amount for Series 1994-2 on any Determination
Date;
(xiii) on the next succeeding Payment Date after
(A) any withdrawal from the Series 1994-2 Cash
Collateral Sub-Account or (B) any increase in the Cash
Collateral Maintenance Amount for Series 1994-2, the
amount on deposit in such Cash Collateral Sub-Account
is less than the Cash Collateral Maintenance Amount for
Series 1994-2, after giving effect to any refunding of
such Cash Collateral Sub-Account on such Payment Date;
(xiv) the Aggregate Certificateholder Interest
Collections for Series 1994-2 received during any two
consecutive Settlement Periods shall be in each case
less than the Required Monthly Payment Amount due for
Series 1994-2 on the Payment Date immediately following
each such Settlement Period;
(xv) the Weighted Average Factoring Fee shall be less
than .75%;
(xvi) any Settlement Statement due on any Determina-
tion Date shall state that, or facts shall exist such
that, the Weighted Average Receivable Life of all
Receivables in Designated Accounts at any time during
the three-month period ended on the last day of the
immediately preceding Settlement Period exceeds 70
days;
(xvii) the Settlement Statement due on any Determina-
tion Date reports that, or facts shall exist such that,
Series 1994-2 Actual Receivables Dilution Nonpayment
exceeds 11% for the related Settlement Period;
(xviii) the Accumulation Event described in clause (e)
of the definition of "Accumulation Event" shall have
existed for 30 consecutive Business Days;
(xix) on any Determination Date, the average of the
Receivable Payment Ratios for the three immediately
preceding Settlement Periods shall be less than 40%;
(xx) the Settlement Statement due on any Determination
Date reports that, or facts shall exist such that, as
of the last day of the related Settlement Period
(A) the aggregate Unpaid Balance of Receivables that
are at least 60 days past due on such date exceeds 30%
of the Unpaid Balance of all Eligible Receivables on
such date; or (B) the aggregate Unpaid Balance of
Receivables that are at least 90 days past due on such
date exceeds 10% of the Unpaid Balance of all Eligible
Receivables on such date; or
(xxi) on any Determination Date, the average of the
Subordinated Invested Amount for Series 1994-2 as of
such Determination Date and the two immediately
preceding Determination Dates shall be less than 13% of
the average of the Senior Invested Amount for Series
1994-2 as of such Determination Dates;
PROVIDED that the event described in clause (xv) above shall not
constitute a declarable Early Amortization Event or Prospective
Early Amortization Event under this Section 12(a) unless such
event shall have occurred on three consecutive Determination
Dates; and PROVIDED that the events described in clauses (iv),
(viii) and (xii)(a) above shall not constitute Prospective Early
Amortization Events unless such events shall have occurred on
three consecutive Determination Dates; and PROVIDED FURTHER that
the events described in clauses (v) and (x) above shall not
constitute Prospective Early Amortization Events unless such
events shall have occurred on two consecutive Determination Dates
and on the last Business Day of the Settlement Period in which
the second such consecutive Determination Date occurs, it being
understood that these provisos as to Prospective Early
Amortization Events shall not limit the status of the events in
such clauses as declarable Early Amortization Events;
then, an "Early Amortization Event" shall exist,
in the case of any event described in subparagraphs (i) through
(iv), (vi) through (ix) and (xi) through (xxi) above, if the
Trustee or the Majority Certificateholders of Series 1994-2 give
notice thereof in writing to the Transferor, the Trustee and the
Servicer and in such notice declare that an Early Amortization
Event has occurred as of the date of such notice with respect to
Series 1994-2, and in the case of any event described in
subparagraphs (v) and (x), immediately upon the occurrence of
such event and without any notice or other action on the part of
the Majority Certificateholders of Series 1994-2, the Trustee or
the Servicer.
(b) No Early Amortization Event with respect to the
Series 1994-2 Certificates may be waived without the consent of
each Series 1994-2 Certificateholder.
(c) With respect to Section 9.01(c) of the Agreement,
this Supplement hereby provides for the treatment of subparagraph
(vii) of Section 9.01 of the Agreement as set forth in such
Section 9.01(c).
(d) On or before the fifth Business Day next preceding
the potential commencement of a Special Premium Amortization
Period, the Servicer shall instruct the Trustee to, and the
Trustee shall, give notice by telecopier or facsimile device to
each Series 1994-2 Senior Certificateholder of the possible
commencement of a Special Premium Amortization Period, and, if it
is not possible to give such notice to any such Holder on such
Business Day, then the Trustee shall dispatch such notice by
overnight courier on such Business Day to such Holder.
SECTION 13. FUNDING OF CASH COLLATERAL SUB-ACCOUNT.
On or prior to the Closing Date the Transferor shall
deposit into the Cash Collateral Sub-Account for Series 1994-2 an
amount equal to $937,500. In the event of a Second Takedown, on
the Second Takedown Date the Transferor shall deposit into the
Cash Collateral Sub-Account for Series 1994-2 funds sufficient to
cause the amounts on deposit in such Sub-Account to equal the
Cash Collateral Maintenance Amount that will be required after
giving effect to the Second Takedown.
SECTION 14. DEFINITIONS.
For the purposes of the Agreement and this Supplement,
the following terms shall be defined as follows and shall
supersede, with respect to the Series 1994-2 Investor
Certificates, any definitions stated in Article I of the
Agreement or Annex X thereto:
"125TH ACCOUNT MULTIPLIER" for any Business Day shall
mean (a) 1.0000 if the 125th Account Rolling Average for such day
is equal to or greater than 1.0000 or (b) the 125th Account
Rolling Average for such day if the 125th Account Rolling Average
for such day is less than 1.0000.
"125TH ACCOUNT ROLLING AVERAGE" for any Business Day
shall mean the average (rounded to the fourth decimal place) of
the 125th Account Daily Fractions for such Business Day and each
of the 9 immediately preceding Business Days.
"125TH ACCOUNT DAILY FRACTION" for any Business Day
shall mean a fraction (rounded to the fourth decimal place) the
numerator of which is equal to the 125th Account Advance Amount
and the denominator of which is equal to $50,000.
"125TH ACCOUNT ADVANCE AMOUNT" for any Business Day
shall have the meaning set forth in the two immediately
succeeding sentences. On each Business Day, the Servicer shall
list all Designated Accounts in descending order according to the
amount of outstanding Series 1994-2 Secondary Eligible Advances
in each Designated Account. The "125th Account Advance Amount"
for such Business Day shall be the amount of outstanding Series
1994-2 Secondary Eligible Advances in the 125th Designated
Account on such list. For purposes of this definition, all
Designated Accounts of Clients that are affiliated with each
other shall be deemed to be a single Designated Account.
"ACCUMULATION EVENT", for Series 1994-2, shall mean (a)
the occurrence on any one Determination Date of the event
described in clause (xv) of Section 12(a) of this Supplement or
the occurrence on any day of any event described in clauses
(xi)(A) or (xi)(C) of Section 12(a) of this Supplement, (b) the
occurrence on any day of a withdrawal from the Cash Collateral
Sub-Account for Series 1994-2 which reduces the amount on deposit
in such Cash Collateral Sub-Account below the Cash Collateral
Maintenance Amount for Series 1994-2, (c) the termination of
Factors as the Servicer for any reason pursuant to Section 10.01
of the Agreement, (d) the occurrence of a breach of the
Transferor's covenants in Section 2.06(h) or (k) of the
Agreement, (e) on any Business Day there are not at least 300
Customers each with Receivables having an aggregate Unpaid
Balance of at least $50,000, (f) the Series 1994-2 Allocation
Percentage of the Aggregate Unpaid Balance of Series 1994-2
Secondary Eligible Advances shall be less than 90% of the Initial
Invested Amount for Series 1994-2 on any one Determination Date,
or (g) the Series 1994-2 Allocation Percentage of the aggregate
Unpaid Balance of Series 1994-2 Secondary Eligible Receivables
shall be less than 135% of the Senior Invested Amount for Series
1994-2 on any one Determination Date.
"AGGREGATE CERTIFICATEHOLDER INTEREST COLLECTIONS"
means, for any Settlement Period, the aggregate amount of
Collections deposited into the Interest Funding Sub-Account for
Series 1994-2 pursuant to Sections 4.04(d) and 4.05(a)(ii) during
such Settlement Period.
"ASSUMPTIONS" means the following assumptions that
shall be used in calculating any Special Premium: (i) the Senior
Invested Amount is assumed to be the Senior Invested Amount as of
the first day of the relevant Early Amortization Period, prior to
giving effect to any payment of principal on such day, (ii) the
Certificate Rate for the calculation of Monthly Senior Interest
is assumed to be the Certificate Rate calculated as of the first
day of the relevant Early Amortization Period (with the LIBOR
Determination Date being for such purpose the second LIBOR
Business Day immediately preceding the first day of the relevant
Early Amortization Period), (iii) the discount rate for
calculating present values is equal to the sum of LIBOR as of the
first day of the Early Amortization Period (with the LIBOR
Determination Date being for such purpose the second LIBOR
Business Day immediately preceding the first day of the Early
Amortization Period) plus, in the case of any Special Premium
Amortization Period beginning within the first nine months after
the Closing Date, 1% and, in the case of any Special Premium
Amortization Period beginning thereafter, .75%, and (iv) the
Senior Invested Amount is assumed to be fully repaid on December
15, 1999.
"AUDIT REQUEST" shall mean a written request delivered
by any Series 1994-2 Class A Certificateholder to Factors or the
Transferor, as the case may be, stating that such
Certificateholder (i) is reasonably concerned about its
investment in its Certificates and (ii) requests the performance
of a Special Audit in accordance with Section 3(b)(1) or Section
3(b)(2), as the case may be.
"AVAILABLE CERTIFICATEHOLDER PRINCIPAL COLLECTIONS"
means for any Business Day the product of (a) the Series 1994-2
Allocation Percentage of Principal Collections for such Business
Day times either (b) if such Business Day is during the Revolving
Period, the Series 1994-2 Floating Allocation Percentage on such
Business Day or (c) if such Business Day is during an
Amortization Period, the Series 1994-2 Principal Allocation
Percentage on such Business Day.
"CASH COLLATERAL MAINTENANCE AMOUNT" for Series 1994-2
shall at any time be the greater of (a) the product of 3.75%
times the Initial Senior Invested Amount and (b) three times the
sum of Monthly Senior Interest plus Monthly Servicing Fee.
"CERTIFICATE RATE" for the Series 1994-2 Senior
Certificates has the meaning specified for "Series 1994-2 Senior
Certificate Rate" in Section 4 of this Supplement. Interest on
the Series 1994-2 Subordinated Certificates will not accrue at
the Certificate Rate, but the Holders of the Series 1994-2
Subordinated Certificates shall, in certain cases, be entitled on
each Payment Date to payment of the Monthly Subordinated Interest
for the related Settlement Period.
"CLOSING DATE", with respect to the Series 1994-2
Investor Certificates, shall mean December 15, 1994.
"DAILY SERVICER PRINCIPAL ADVANCE INTEREST" means, for
any day, in respect of a Servicer Principal Advance, 1/365th of
the product of (i) the rate of interest applicable to the Advance
to which such Servicer Principal Advance relates and (ii) the
balance of such Servicer Principal Advance on such day.
"DAILY SERVICING FEE" means for any day, 1/365th of the
product of (i) the Servicing Fee Percentage and (ii) the amount
of the Invested Amount of the Series 1994-2 Certificates on such
day.
"DAILY TRANSFEROR PRINCIPAL COLLECTIONS" means the
product of (i) the Series 1994-2 Transferor's Percentage on any
Business Day times (ii) the Series 1994-2 Allocation Percentage
of Principal Collections for such Business Day.
"DAILY TRUSTEE FEE", with respect to the Series 1994-2
Investor Certificates, has the meaning set forth in Section 5 of
this Supplement.
"FIRST TAKEDOWN" means the issuance on the Closing Date
of Series 1994-2 Senior Certificates in the aggregate amount of
the First Takedown Senior Invested Amount and a Series 1994-2
Subordinated Certificate in the Initial Subordinated Invested
Amount.
"FIRST TAKEDOWN SENIOR INVESTED AMOUNT" means
$25,000,000 (the aggregate initial amount of the Series 1994-2
Senior Certificates).
"GROWTH TEST ADDITIONAL ACCOUNT" means an Additional
Account as to which both (a) the related Client shall not have
been a Client of Factors for a continuous period of at least
three months immediately preceding the Addition Date for such
Additional Account and (b) Factors shall not have had in its
underwriting files on such Addition Date historical financial and
receivables performance data, including dilution and chargeoff
data, covering a period of at least one year immediately
preceding such Addition Date.
"INITIAL INVESTED AMOUNT" means the sum of the Initial
Senior Invested Amount plus the Initial Subordinated Invested
Amount plus any Second Takedown Subordinated Amount.
"INITIAL SENIOR INVESTED AMOUNT" means the sum of the
First Takedown Senior Invested Amount plus any Second Takedown
Senior Invested Amount.
"INITIAL SUBORDINATED INVESTED AMOUNT" means $3,750,000
(the aggregate initial amount of the Series 1994-2 Subordinated
Certificates).
"INTEREST ACCRUAL PERIOD" means, for the Series 1994-2
Senior Certificates, the period from and including the Closing
Date to and including the calendar day immediately preceding the
initial Payment Date, and each period from and including a
Payment Date to and including the calendar day immediately
preceding the next Payment Date.
"LIBOR" shall mean the London interbank offered
quotations rate for one-month U.S. dollar deposits as determined
by the Trustee in accordance with Section 4 of this Supplement.
"LIBOR BUSINESS DAY" shall mean any day other than
(a) a Saturday or a Sunday, (b) any other day on which the
Servicer is closed, as specified on the list furnished by the
Servicer pursuant to Section 3.03(n) of the Pooling and Servicing
Agreement or (c) another day on which dealings in deposits in
United States Dollars are not transacted in the London interbank
market.
"LIBOR DETERMINATION DATE" for the Closing Date or for
any Interest Accrual Period, as the case may be, shall mean the
second LIBOR Business Day immediately preceding the commencement
of such Interest Accrual Period.
"LIMITED RECOURSE PROMISSORY NOTE" shall mean a limited
recourse promissory note issued by the Transferor to a Series
1994-2 Senior Certificateholder pursuant to which the Transferor
promises to pay to such Certificateholder the amounts such
Certificateholder is entitled to receive pursuant to the
Agreement, this Supplement and the Series 1994-2 Senior
Certificates.
"MONTHLY SENIOR INTEREST" for any Payment Date shall
mean an amount equal to one-twelfth of the product of (a) the
Certificate Rate TIMES (b) the outstanding principal amount of
the Series 1994-2 Senior Certificates as of the close of business
on the preceding Payment Date after giving effect to all
repayments of principal made to the Holders thereof on such
preceding Payment Date, if any; PROVIDED, HOWEVER, that, with
respect to the first Payment Date, Monthly Senior Interest shall
be equal to $154,947.92, and PROVIDED, FURTHER, with respect to
the first Payment Date after any Second Takedown Date, Monthly
Senior Interest shall be an amount equal to one-twelfth of the
product of (a) the Certificate Rate TIMES (b) the outstanding
principal amount of the Series 1994-2 Senior Certificates as of
the close of business on the Second Takedown Date after giving
effect to the Second Takedown.
"MONTHLY SERVICING FEE" for any Payment Date shall mean
an amount equal to the sum of the Daily Servicing Fees on each
day in the immediately preceding Settlement Period.
"MONTHLY SUBORDINATED INTEREST" for any Payment Date
shall mean an amount, which shall in no event be less than zero,
equal to the difference between the Aggregate Certificateholder
Interest Collections for the related Settlement Period minus the
amounts, if any, paid on such Payment Date pursuant to Sections
4.04(f)(i), (ii), (iii)(A) first and second, and (iii)(B) first,
second and third.
"NEGATIVE SPREAD SHORTFALL" shall mean, with respect to
the Series 1994-2 Senior Certificates, the shortfall occurring
when the amount of Interest Collections in the Series 1994-2
Interest Funding Sub-Account to be applied on any Payment Date is
less than the amount of the Monthly Senior Interest due on such
Payment Date, but only to the extent such shortfall is
attributable to the Certificate Rate for the Series 1994-2 Senior
Certificates of such Series being in excess of the weighted
average interest rate on the underlying Eligible Advances.
"PAYMENT DATE" shall mean, for each Settlement Period,
the fifteenth day of the next succeeding month (or if such day is
not a Business Day, the next succeeding Business Day) commencing
January 15, 1995.
"RECEIVABLE PAYMENT RATIO, for any Settlement Period,
shall mean a fraction, expressed as a percentage, the numerator
of which is the aggregate of all Collections received during such
Settlement Period and the denominator of which is the aggregate
Unpaid Balance of all Receivables on the first day of such
Settlement Period.
"RECORD DATE" shall mean, with respect to any Payment
Date or Special Payment Date, the last Business Day of the
immediately preceding Settlement Period, except that with respect
to the first Payment Date the Record Date shall be the Closing
Date.
"REFERENCE BANKS" shall mean the three leading banks,
selected by the Servicer in accordance with Section 4 hereof,
quoting London interbank offered quotations rates for one-month
U.S. dollar deposits in the City of New York, New York.
"REQUIRED MONTHLY PAYMENT AMOUNT" for any Settlement
Period shall mean the Monthly Senior Interest due on the
following Payment Date or Special Payment Date.
"REQUIRED RECEIVABLE COVERAGE" shall mean, for Series
1994-2, a percentage amount, initially 135%, that shall be
increased by 2% for each 1% that the Required Subordinated
Percentage of Series 1994-2 is increased on any Determination
Date other than as a result of the purchase by any Series 1994-2
Subordinated Certificateholder of additional Series 1994-2
Subordinated Certificates.
"REQUIRED SUBORDINATED AMOUNT" shall mean, with respect
to Series 1994-2, the product of the Required Subordinated
Percentage for such Series times the Initial Senior Invested
Amount for such Series.
"REQUIRED SUBORDINATED PERCENTAGE", with respect to
Series 1994-2, shall be reset on each Determination Date and
shall mean the sum of 15% plus the greatest of (x) and (y) and
(z), where (x) is the percentage amount by which the average
Series 1994-2 Actual Receivables Nonpayment for any three
consecutive Settlement Periods shall have exceeded 13% and (y) is
the percentage amount by which the average Series 1994-2 Actual
Receivables Dilution Nonpayment for any three consecutive
Settlement Periods shall have exceeded 9% and (z) is the
percentage amount, if any, by which the average of the aggregate
Unpaid Balances of Receivables that are at least 60 days past due
on the last days of such Settlement Period and the two
immediately preceding Settlement Periods exceeds 5% of the
average of the Unpaid Balances of all Receivables that are not
Aged Receivables on such dates. In no case shall the Required
Subordinated Percentage decrease once it has increased.
"SCHEDULED AMORTIZATION PERIOD COMMENCEMENT DATE", with
respect to the Series 1994-2 Investor Certificates, means
December 15, 1999.
"SCHEDULED MATURITY DATE", with respect to the Series
1994-2 Investor Certificates, means the Payment Date in June,
2000.
"SECOND TAKEDOWN" means the issuance on the Second
Takedown Date of Series 1994-2 Senior Certificates in the
aggregate amount of the Second Takedown Senior Amount and a
Series 1994-2 Subordinated Certificate in the Second Takedown
Subordinated Amount in accordance with Section 9(b) of this
Supplement.
"SECOND TAKEDOWN AMOUNT" means the sum of the Second
Takedown Senior Amount plus the Second Takedown Subordinated
Amount.
"SECOND TAKEDOWN DATE" means the date, which may only
occur on the last Business Day of a Settlement Period, on which
the Trustee shall have authenticated and delivered additional
Series 1994-2 Investor Certificates in accordance with Section
9(b) of this Supplement.
"SECOND TAKEDOWN NOTICE" shall have the meaning
specified in Section 9(b) of this Supplement.
"SECOND TAKEDOWN ORDER" shall have the meaning
specified in Section 9(b) of this Supplement.
"SECOND TAKEDOWN SENIOR AMOUNT" means the aggregate
amount of Series 1994-2 Senior Certificates that the Trustee
authenticates and delivers on the Second Takedown Date pursuant
to the Second Takedown Order.
"SECOND TAKEDOWN SUBORDINATED AMOUNT" means the amount
of Series 1994-2 Subordinated Certificate that the Trustee
authenticates and delivers on the Second Takedown Date pursuant
to the Second Takedown Order.
"SENIOR INVESTED AMOUNT", when used in the Agreement
with respect to Series 1994-2 and when used in this Supplement,
shall mean for any day an amount equal to (a) the First Takedown
Senior Invested Amount MINUS (b) the aggregate amount of payments
of principal paid with respect to the Series 1994-2 Senior
Certificates prior to such day PLUS (c) in the event a Second
Takedown shall have occurred, the Second Takedown Senior Amount.
"SERIES 1994-2 ACTUAL RECEIVABLE COVERAGE" shall be
determined on each Business Day and shall be a percentage amount
determined by dividing the aggregate Unpaid Balance of Series
1994-2 Secondary Eligible Receivables by the aggregate of the
Senior Invested Amounts of all Series then outstanding.
"SERIES 1994-2 ACTUAL RECEIVABLES DILUTION NONPAYMENT"
shall be determined on any Determination Date for the immediately
preceding Settlement Period and shall be a percentage amount
determined by dividing the aggregate Unpaid Balance of
Receivables that were charged back by Factors to the applicable
Client during such Settlement Period by the sum of such aggregate
Unpaid Balance and the aggregate Unpaid Balance of Receivables
that were paid during such Settlement Period but had not been so
charged back when so paid.
"SERIES 1994-2 ACTUAL RECEIVABLES NONPAYMENT" shall be
determined on any Determination Date for the immediately
preceding Settlement Period and shall be a percentage amount
determined by dividing the aggregate Unpaid Balance of
Receivables that became Aged Receivables during such Settlement
Period by the sum of such aggregate Unpaid Balance and the
aggregate Unpaid Balance of Receivables that were paid during
such Settlement Period but were not Aged Receivables when so
paid.
"SERIES 1994-2 ALLOCATION PERCENTAGE" means, for any
date, the percentage equivalent of a fraction, the numerator of
which is the Invested Amount for Series 1994-2 as of the last day
of the immediately preceding Settlement Period (and in the event
the Second Takedown shall have occurred on such day, after giving
effect thereto) and the denominator of which is the Aggregate
Invested Amount as of such last day (and in the event the Second
Takedown shall have occurred on such day, after giving effect
thereto).
"SERIES 1994-2 CRP-RELIANT DESIGNATED ACCOUNT" shall
mean any Designated Account (that is an Eligible Account) the
Series 1994-2 Secondary Eligible Advance of which (after giving
effect to the first test of the Series 1994-2 Ratio Test) shall
exceed the product of .9 and the sum of the Unpaid Balances of
all Eligible Receivables in such Designated Account.
"SERIES 1994-2 DISPERSION CONCENTRATION LIMIT" shall
mean that (a) the maximum aggregate Unpaid Balance for all
Advances of the 5 Clients with the largest Unpaid Balances of
Advances that may be included in the calculation of "Series 1994-
2 Secondary Eligible Advances" shall not exceed an amount equal
to the product of the 125th Account Multiplier TIMES 25% of the
Eligible Pool Balance as of the applicable date of determination
and (b) the maximum aggregate Unpaid Balance for all Advances of
the 10 Clients with the largest Unpaid Balances of Advances that
may be included in the calculation of "Series 1994-2 Secondary
Eligible Advances" shall not exceed an amount equal to the
product of the 125th Account Multiplier TIMES 40% of the Eligible
Pool Balance as of the applicable date of determination and (c)
the maximum aggregate Unpaid Balance for all Advances of the 15
Clients with the largest Unpaid Balances of Advances that may be
included in the calculation of "Series 1994-2 Secondary Eligible
Advances" shall not exceed an amount equal to the product of the
125th Account Multiplier TIMES 50% of the Eligible Pool Balance
as of the applicable date of determination and (d) the maximum
aggregate Unpaid Balance for all Advances of the 20 Clients with
the largest Unpaid Balances of Advances that may be included in
the calculation of "Series 1994-2 Secondary Eligible Advances"
shall not exceed an amount equal to the product of the 125th
Account Multiplier TIMES 60% of the Eligible Pool Balance as of
the applicable date of determination and (e) the maximum
aggregate Unpaid Balance for all Advances of the 50 Clients with
the largest Unpaid Balances of Advances that may be included in
the calculation of "Series 1994-2 Secondary Eligible Advances"
shall not exceed an amount equal to the product of the 125th
Account Multiplier TIMES 80% of the Eligible Pool Balance as of
the applicable date of determination.
"SERIES 1994-2 FIRST RECEIVABLES CONCENTRATION LIMIT"
shall mean at any time with respect to each Receivable, a maximum
Unpaid Balance for all Receivables of a single Customer that may
be included in the calculation of "Series 1994-2 Secondary
Eligible Receivables" and shall be an amount equal to a certain
percentage (set forth in the next sentence) of the aggregate
Unpaid Balance of all Eligible Receivables in Designated Accounts
as of the date of determination. If the related Customer's
senior unsecured debt rating as published by the Rating Agencies
shall be: (i) at least "AA" or the equivalent, such percentage
shall be 10%, (ii) at least "A" or the equivalent but below "AA"
or the equivalent, such percentage shall be 5%, (iii) at least
"BBB" or the equivalent but below "A" or the equivalent, such
percentage shall be 3% and (iv) below BBB or unrated, such
percentage shall be 1%, except that, at the option of the
Servicer, (a) for an additional 5 Customers rated below "BBB" or
the equivalent or unrated, such percentage shall be 1.5%, (b) for
an additional 10 Customers rated below "BBB" or the equivalent or
unrated, such percentage shall be 2% and (c) for any Customer
rated below "BBB" or the equivalent or unrated that is wholly
owned by a company rated "BBB" or the equivalent or above, such
percentage shall be 2%, PROVIDED, HOWEVER, that the maximum
Unpaid Balance for all Series 1994-2 Secondary Eligible
Receivables of such Customer, when aggregated with the Series
1994-2 Secondary Eligible Receivables of any of such Customer's
direct or indirect parent companies, shall not exceed the highest
Series 1994-2 First Receivables Concentration Limit on any of
such Customer's direct or indirect parent companies.
"SERIES 1994-2 FLOATING ALLOCATION PERCENTAGE" for any
day means the percentage equivalent (which shall never exceed
100%) of a fraction, the numerator of which is the Invested
Amount of Series 1994-2 as of the end of the last day of the
immediately preceding Settlement Period (and in the event the
Second Takedown shall have occurred on such day, after giving
effect thereto), and the denominator of which is the sum of (a)
the product of the Eligible Pool Balance as of the end of the
last day of the immediately preceding Settlement Period
multiplied by the Series 1994-2 Allocation Percentage for such
date plus (b) amounts on deposit in the Series 1994-2 sub-account
of the Excess Funding Account as of the end of the last day of
the immediately preceding Settlement Period PROVIDED, HOWEVER,
that, with respect to the first Settlement Period, the Series
1994-2 Floating Allocation Percentage shall mean 92.7887%.
"SERIES 1994-2 GROWTH TEST" shall mean that, for each
Business Day, if the sum on such Business Day of all Eligible
Advances in the Growth Test Additional Accounts that were added
to the Trust pursuant to Section 2.05 of the Agreement in the
preceding 90 days exceeds 7.5% of the Eligible Pool Balance on
such Business Day, then such excess Eligible Advances shall not
constitute "Series 1994-2 Secondary Eligible Advances" on such
Business Day.
"SERIES 1994-2 HIGHER CONCENTRATION ACCOUNT" shall mean
no more than ten Designated Accounts identified by the Transferor
that shall not be subject to the Series 1994-2 Normal
Concentration Limit but shall be subject to the Series 1994-2
Higher Concentration Limit and the Series 1994-2 Dispersion
Concentration Limit.
"SERIES 1994-2 HIGHER CONCENTRATION LIMIT" shall mean
at any time with respect to the Advance in each Series 1994-2
Higher Concentration Account, the maximum Unpaid Balance for the
Advance in such Series 1994-2 Higher Concentration Account that
may be included in the calculation of "Series 1994-2 Secondary
Eligible Advances" and shall be an amount equal to the product of
the 125th Account Multiplier TIMES 5% of the Eligible Pool
Balance as of the applicable date of determination.
"SERIES 1994-2 INVESTOR CERTIFICATES" shall have the
meaning set forth in the preliminary statement to this
Supplement.
"Series 1994-2 Normal Concentration Limit" shall mean
at any time with respect to each Advance, the maximum Unpaid
Balance for the Advance of a single Client Obligor that may be
included in the calculation of "Series 1994-2 Secondary Eligible
Advances" and shall be an amount equal to the product of the
125th Account Multiplier TIMES 3% of the Eligible Pool Balance as
of the applicable date of determination.
"SERIES 1994-2 PARTICIPATION DEFICIENCY AMOUNT" shall
mean, for any Business Day, the amount (if any) by which the
Transferor's Required Participation Amount exceeds the
Transferor's Current Participation Amount.
"SERIES 1994-2 PRINCIPAL ALLOCATION PERCENTAGE" for any
date means the percentage equivalent (which shall never exceed
100%) of a fraction, the numerator of which is the Invested
Amount of Series 1994-2 as of the last day of the Revolving
Period or, in the event that an Early Amortization Event has
occurred prior to the end of the Revolving Period, the last day
of the Settlement Period occurring in the month immediately
preceding the month in which such Early Amortization Event
occurred, and the denominator of which is (a) the product of the
Eligible Pool Balance as of the end of the last day of the
immediately preceding Settlement Period multiplied by the Series
1994-2 Allocation Percentage for such date plus (b) amounts on
deposit in the Series 1994-2 sub-account of the Excess Funding
Account as of the end of the last day of the immediately
preceding Settlement Period.
"SERIES 1994-2 PRINCIPAL FUNDING SUB-ACCOUNT" shall
mean the Principal Funding Sub-Account established by the Trustee
pursuant to this Supplement for the benefit of the Series 1994-2
Investor Certificateholders in accordance with Section 4.02(m).
"SERIES 1994-2 RATIO TEST" shall mean the following
four tests that determine the extent to which an Advance or
Receivable is a "Series 1994-2 Secondary Eligible Advance" or
"Series 1994-2 Secondary Eligible Receivable".
FIRST, the Series 1994-2 Ratio Test requires that the
Advance in each Designated Account that is an Eligible
Account shall satisfy this first test only to the extent
that the aggregate amount of such Advance does not exceed
"EA" as calculated pursuant to the following formula for
such Designated Account (the aggregate amount of such
Advance in excess of such "EA" shall be excluded from the
further determinations under the second, third and fourth
tests set forth below):
[CAPTION]
<TABLE>
<S> <C>
EA = (R X F) + {the lesser of (R X F) and CRP}
EA = the amount of the Advance in such
Designated Account that is available to
satisfy the second test;
R = the sum of the Unpaid Balances of all
Eligible Receivables in such Designated
Account;
F = .85 if such Designated Account is a
Series 1994-2 Higher Concentration
Account and .9 if such Designated
Account is not a Series 1994-2 Higher
Concentration Account, and
CRP = the sum of all of the following property
which constitutes Certain Related
Property in respect of such Designated
Account for which the Trustee has a
first priority security therein subject
to no other Liens except lower priority
Liens in favor of a creditor or
creditors of Factors under Permitted
Intercreditor Agreements: 40% of
Presold Inventory constituting such
Certain Related Property + 100% of all
cash and cash equivalents constituting
such Certain Related Property + 80% of
marketable debt securities constituting
such Certain Related Property;
</TABLE>
SECOND, the Series 1994-2 Ratio Test requires that the sum
of all Series 1994-2 Secondary Eligible Advances (after
giving effect to the first test of the Series 1994-2 Ratio
Test) of all Series 1994-2 CRP-Reliant Designated Accounts
shall not exceed 30% of the Eligible Pool Balance. If such
sum of all Series 1994-2 Secondary Eligible Advances for
such Series 1994-2 CRP-Reliant Designated Accounts exceeds
30% of the Eligible Pool Balance on any date of determina-
tion, Advances and Receivables in such Series 1994-2
CRP-Reliant Designated Accounts with the highest ratios of
{EA / ((R X .9) + CRP)} as of such date shall be excluded
from Series 1994-2 Secondary Eligible Advances and Series
1994-2 Secondary Eligible Receivables respectively, until
the aforesaid sum does not exceed 30%. For purposes of this
second test,
[CAPTION]
<TABLE>
<S> <C> <C>
R = has the same definition as in the first
test of the Series 1994-2 Ratio Test;
EA = has the same definition as in the first
test of the Series 1994-2 Ratio Test,
and
CRP = has the same definition as in the first
test of the Series 1994-2 Ratio Test.
</TABLE>
The amounts of the Series 1994-2 Secondary Eligible Advance
and Series 1994-2 Secondary Eligible Receivables remaining
in each such Designated Account shall be used in the third
test below.
THIRD, after the calculation of EA for each Designated
Account that is an Eligible Account and after giving effect
to the second test of the Series 1994-2 Ratio Test, a
weighted ratio for each such Designated Account shall be
calculated as follows:
Weighted Ratio = {EA' / ((R X F) + CRP)} X EA' / Eligible
Pool Balance
[CAPTION]
<TABLE>
<S> <C> <C>
EA' = the amount of Series 1994-2 Secondary
Eligible Advance calculated for such
Designated Account after giving effect
to the first and second tests of the
Series 1994-2 Ratio Test;
R = has the same definition as in the first
test of the Series 1994-2 Ratio Test;
F = .85 if such Designated Account is a
Series 1994-2 Higher Concentration
Account and .9 if such Designated
Account is not a Series 1994-2 Higher
Concentration Account, and
CRP = has the same definition as in the first
test of the Series 1994-2 Ratio Test.
</TABLE>
The Weighted Ratios (each expressed as a percentage) for
each Designated Account shall be summed and if such sum for
all such Designated Accounts exceeds 85% on any date of
determination, Series 1994-2 Secondary Eligible Advances and
Series 1994-2 Secondary Eligible Receivables in Designated
Accounts with the highest ratios of {EA' / ((R X F) + CRP)}
as of such date shall be excluded from Series 1994-2
Secondary Eligible Advances and Series 1994-2 Secondary
Eligible Receivables respectively, until the aforesaid sum
of Weighted Ratios equals 85%.
FOURTH, after giving effect to the first three tests of the
Series 1994-2 Ratio Test, the following ratio (expressed as
a percentage) shall be calculated for each Designated
Account as follows:
Ratio = EA" / (R + CRP')
[CAPTION]
<TABLE>
<S> <C> <C>
EA" = the amount of Series 1994-2 Secondary
Eligible Advance calculated for such
Designated Account after giving effect
to the first three tests of the Series
1994-2 Ratio Test;
R = has the same definition as in the first
test of the Series 1994-2 Ratio Test,
and
CRP' = 100% of Certain Related Property for
such Designated Account.
</TABLE>
To the extent such Ratio exceeds 85%, an amount of Series
1994-2 Secondary Eligible Advances equal to such excess over
85% shall be summed with such excess from all other
Designated Accounts and if such total from all Designated
Accounts exceeds 3.5% of the Eligible Pool Balance before
giving effect to this fourth test, then Series 1994-2
Secondary Eligible Advances from the Designated Accounts
having the highest Ratios under this fourth test shall be
excluded in whole or in part from Series 1994-2 Secondary
Eligible Advances until such total for all Designated
Accounts equals 3.5%.
"SERIES 1994-2 SECOND RECEIVABLES CONCENTRATION LIMIT"
shall mean that (a) the maximum aggregate Unpaid Balance for all
Receivables of the five Customers with the largest Unpaid
Balances of Receivables that may be included in the calculation
of "Series 1994-2 Secondary Eligible Receivables" shall not
exceed 25% of the Unpaid Balance of all Eligible Receivables as
of the applicable date of determination and (b) the maximum
aggregate Unpaid Balance for all Receivables of the ten Customers
with the largest Unpaid Balances of Receivables that may be
included in the calculation of "Series 1994-2 Secondary Eligible
Receivables" shall not exceed 40% of the Unpaid Balance of all
Eligible Receivables as of the applicable date of determination
and (c) the maximum aggregate Unpaid Balance for all Receivables
of any three Customers that may be included in the calculation of
"Series 1994-2 Secondary Eligible Receivables" shall not exceed
15% of the Unpaid Balance of all Eligible Receivables as of the
applicable date of determination. For purposes of each of the
foregoing limits, any resulting ineligibility shall, in the case
of clause (c), be applied to the Customer with the highest aggre-
gate Unpaid Balance of Receivables, and in each case be taken
into account for subsequent calculations under this definition.
"SERIES 1994-2 SECONDARY ELIGIBLE ADVANCE" shall mean
an Advance under a Designated Account that is an Eligible
Account:
(i) that is an Eligible Advance as defined in Annex X
to the Agreement;
(ii) if such Designated Account is a Series 1994-2 CRP-
Reliant Designated Account, as to which the Trustee has a fully
perfected first priority security interest (as defined in the
UCC) in the Certain Related Property related to such Designated
Account;
(iii) that complies with the Series 1994-2 Normal
Concentration Limit or, in the case of an Advance in a Series
1994-2 Higher Concentration Account, complies with the Series
1994-2 Higher Concentration Limit (provided that any Advance that
partially complies with the Series 1994-2 Higher Concentration
Limit shall be a "Series 1994-2 Secondary Eligible Advance" in
the amount of such compliance);
(iv) that complies with the Series 1994-2 Dispersion
Concentration Limit;
(v) that meets the Series 1994-2 Ratio Test;
(vi) that is secured by Eligible Receivables not
subject to a Lien or security interest other than the Lien or
security interest therein of the Trustee, provided that a Lien or
security interest lower in priority shall be permitted for
purposes of this clause (vi) if (y) such Lien or security
interest is in favor of a creditor or creditors of the related
Client under Permitted Intercreditor Agreements and (z) the
aggregate Unpaid Balance of such Eligible Advance and all other
Eligible Advances secured by Receivables and subject to a
Permitted Intercreditor Agreement shall not exceed 19% of the
Eligible Pool Balance at any time; and
(vii) that meets the Series 1994-2 Growth Test.
"SERIES 1994-2 SECONDARY ELIGIBLE RECEIVABLE" shall
mean a Receivable under a Designated Account that is an Eligible
Account:
(i) that is an Eligible Receivable as defined in Annex
X to the Agreement;
(ii) that complies with the Series 1994-2 First
Receivables Concentration Limit (provided that any Receivable
that partially conforms with the Series 1994-2 First Receivables
Concentration Limit shall be a "Series 1994-2 Secondary Eligible
Receivable" in the amount of such conformance);
(iii) that complies with the Series 1994-2 Second
Receivables Concentration Limit (provided that any Receivable
that partially conforms with the Series 1994-2 Second Receivables
Concentration Limit shall be a "Series 1994-2 Secondary Eligible
Receivable" in the amount of such conformance);
(iv) that meets the Series 1994-2 Ratio Test; and
(v) that is not subject to a Lien or security interest
other than the Lien or security interest therein of the Trustee,
provided that a Lien or security interest lower in priority shall
be permitted for purposes of this clause (vi) if (y) such Lien or
security interest is in favor of a creditor or creditors of the
related Client under Permitted Intercreditor Agreements and (z)
the aggregate Unpaid Balance of the Eligible Advance secured by
such Receivable and all other Eligible Advances secured by
Receivables and subject to a Permitted Intercreditor Agreement
shall not exceed 19% of the Eligible Pool Balance at any time.
"SERIES 1994-2 TRANSFEROR'S PERCENTAGE" for any date in
a Revolving Period means 100% minus the Series 1994-2 Floating
Allocation Percentage for such date and for any date in an
Amortization Period means 100% minus the Series 1994-2 Principal
Allocation Percentage for such date.
"SERIES TERMINATION DATE" has the meaning set forth in
Section 7 of this Supplement.
"SERVICING FEE PERCENTAGE" has the meaning set forth in
Section 5 of this Supplement.
"SPECIAL AUDIT" means an audit of the Servicer
conducted by a firm of Independent Public Accountants selected by
the Servicer upon the issuance of an Audit Request and consisting
of the procedures set forth in EXHIBIT A hereto.
"SPECIAL PAYMENT DATE" means each Payment Date during
an Amortization Period or following the Scheduled Maturity Date.
"SPECIAL PREMIUM" means an aggregate amount payable, as
provided elsewhere herein, pro rata to the Series 1994-2 Senior
Certificateholders as a result of Series 1994-2 entering a
Special Premium Amortization Period and shall be an amount equal
to the difference, if positive, between (a) the sum of (i) the
present value on the first Business Day of such Special Premium
Amortization Period of the Monthly Senior Interest payments to
and including December 15, 1999 plus (ii) the present value on
the first Business Day of such Special Premium Amortization
Period of the Senior Invested Amount paid on December 15, 1999
and (b) the Senior Invested Amount; provided, however, that all
of the preceding calculations shall be based on the Assumptions.
"SPECIAL PREMIUM ACCUMULATION EVENT" means either of
the Accumulation Events defined in clauses (f) or (g) of the
definition of "Accumulation Event" in this Supplement.
"SPECIAL PREMIUM AMORTIZATION PERIOD" means an Early
Amortization Period resulting in whole or in part from the
occurrence of an Early Amortization Event described in Section
12(a)(v) or (x) of this Supplement, except that such Early
Amortization Period shall not be a "Special Premium Amortization
Period" if on the first day of such Early Amortization Period an
Early Amortization Event shall have been declared or be
declarable by reason of the occurrence or continuation on such
day of any event described in Section 12(a)(i), (iii), (viii),
(ix), (xi) through (xiv) or (xvi) through (xxi) of this
Supplement, PROVIDED that the foregoing exception shall not apply
to any such event caused by Factors or the Transferor with the
intent to prevent any Special Premium from being payable
hereunder.
"SUBORDINATED INVESTED AMOUNT" shall mean, with respect
to Series 1994-2 for any day, an amount equal to (a) the Initial
Subordinated Invested Amount MINUS (b) the aggregate amount of
Principal Collections paid with respect to the Series 1994-2
Subordinated Certificates prior to such day MINUS (c) the
aggregate amount of Charge-offs allocated to the Series 1994-2
Subordinated Certificates pursuant to Section 4.06 prior to such
day PLUS (d) the initial Unpaid Balance of any additional Advance
purchased as a result of the existence of any Subordination
Deficiency Amount pursuant to Sections 4.04(f)(iii) and
4.06(c)(i) prior to such day PLUS (e) the purchase price (at par)
of any Additional Series 1994-2 Subordinated Certificates
purchased by any Holder of a Series 1994-2 Subordinated
Certificate pursuant to Section 6.09(d) of the Agreement PLUS (f)
in the event a Second Takedown shall have occurred, the Second
Takedown Subordinated Amount MINUS (g) the amount of any Special
Premium paid hereunder.
"SUBORDINATION DEFICIENCY AMOUNT" shall mean, with
respect to Series 1994-2 for any Business Day, the amount (if
any) by which the Required Subordinated Amount for Series 1994-2
exceeds the Subordinated Invested Amount for Series 1994-2.
"TELERATE PAGE 3750" shall mean the display page so
designed by the Dow Jones Telerate Service, or any other page as
may replace that page on that service for the purpose of
displaying comparable rates or prices.
"TRANSFEROR'S CURRENT PARTICIPATION AMOUNT" for any
date shall mean an amount equal to (a) the product of the
Eligible Pool Balance multiplied by the Series 1994-2 Allocation
Percentage, minus (b) the Invested Amount of Series 1994-2 on
such date, plus (c) the amount on deposit on such date in the
Series 1994-2 Excess Funding Sub-Account.
"TRANSFEROR'S REQUIRED PARTICIPATION AMOUNT", at any
time, shall mean a dollar amount equal to 7% of the Initial
Invested Amount for Series 1994-2 at such time.
The words "HEREOF," "HEREIN" and "HEREUNDER" and words
of similar import when used in this Supplement shall refer to
this Supplement or the Agreement as a whole and not to any
particular provision of this Supplement or the Agreement, as the
case may be; the word "INCLUDING" (and with correlative meaning
"INCLUDE") means including without limiting the generality of any
description preceding such term; and Section, Schedule and
Exhibit references contained in this Agreement or this Supplement
are references to Sections, Schedules and Exhibits in or to the
Agreement or this Supplement unless otherwise specified.
Unless otherwise specified in this Supplement, all
accounting terms used herein shall be interpreted, all accounting
determinations hereunder shall be made, and all financial
statements required to be delivered hereunder shall be prepared
in accordance with generally accepted accounting principles as in
effect from time to time, applied on a basis consistent (except
for immaterial changes or changes concurred in by the independent
public accountants of Factors) with the most recent audited
consolidated financial statements of Factors and its consolidated
Subsidiaries.
SECTION 15. ACCRUAL OF INTEREST ON THE SERIES 1994-2 INVESTOR
CERTIFICATES.
Interest shall accrue on the Series 1994-2 Investor
Certificates from the Closing Date, except that for any Series
1994-2 Senior Certificates issued on the Second Takedown Date,
interest shall accrue from the first day of the Interest Accrual
Period in which the Second Takedown Date occurs. Interest shall
accrue on the unpaid amount of any Special Premium at the
Certificate Rate from and including the first Business Day of any
Special Premium Amortization Period to but excluding the date of
payment. Notwithstanding anything to the contrary in the
Agreement or this Supplement, no Series 1994-2 Senior
Certificateholder in its capacity as such shall have any interest
in Collections received prior to the Closing Date.
SECTION 16. DISTRIBUTIONS.
The Trustee shall send distributions to the Series
1994-2 Investor Certificateholders under Section 5.01 of the
Agreement to each Series 1994-2 Certificateholder by 12:00 P.M.
(New York City time) on each Payment Date by wire transfer of
immediately available funds to an account or accounts designated
by such Series 1994-2 Certificateholders, by written notice to
the Trustee and the Paying Agent given at least five days prior
to any Payment Date (such notice to remain effective with respect
to a Holder until different instructions from such Holder are
received by the Trustee and the Paying Agent), or if no such
notice is given, by check mailed as provided in Section 5.01 of
the Agreement.
SECTION 17. RATIFICATION OF AGREEMENT.
As supplemented by this Supplement, the Agreement is in
all respects ratified and confirmed and the Agreement as so
supplemented by this Supplement shall be read, taken, and
construed as one and the same instrument.
SECTION 18. THE TRUSTEE.
The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of
this Supplement or for or in respect of the Preliminary Statement
contained herein, all of which recitals are made solely by the
Transferor. The Trustee hereby represents and warrants that this
Supplement has been duly executed and delivered by it and that
this Supplement constitutes the legal, valid and binding
obligation of the Trustee, enforceable in accordance with its
terms (subject to the effect of any applicable bankruptcy,
insolvency, reorganization, moratorium or similar law affecting
creditors' rights generally)
SECTION 19. INSTRUCTIONS IN WRITING.
All instructions given by the Servicer to the Trustee
pursuant to this Supplement shall be in writing, and may be
included in a Daily Report or Settlement Statement.
SECTION 20. COUNTERPARTS.
This Supplement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an
original, but all of such counterparts shall together constitute
but one and the same instrument.
SECTION 21. GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF
PROCESS.
(a) THIS SUPPLEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK.
(b) JURISDICTION. Each of the parties hereto hereby
irrevocably and unconditionally submits to the nonexclusive
jurisdiction of New York State court or federal court of the
United States of America sitting in the Borough of Manhattan in
New York City, and any appellate court from any thereof, in any
action or proceeding arising out of or relating to this
Supplement, and each of the parties hereto hereby irrevocably and
unconditionally agrees that all claims in respect of any such
action or proceeding may be heard and determined in such New York
State or, to the extent permitted by law, in such federal court.
Each of the parties hereto agrees that a final judgment in any
such action or proceeding shall be conclusive and may be enforced
in other jurisdictions by suit on the judgment or in any other
manner provided by law.
(c) CONSENT TO SERVICE OF PROCESS. Each party to this
Supplement irrevocably consents to service of process in the
manner provided for notices in Section 13.05 of the Agreement.
Nothing in this Supplement will affect the right of any party to
this Supplement to serve process in any other manner permitted by
law.
SECTION 22. SERIES 1994-2 SUB-ACCOUNTS.
The Trustee shall establish within the Interest Funding
Account, Principal Funding Account, Excess Funding Account, Cash
Collateral Account and Accumulation Account an Interest Funding
Sub-Account, Principal Funding Sub-Account, Excess Funding Sub-
Account, Cash Collateral Sub-Account and Accumulation Sub-
Account, respectively, in each case in accordance with Section
4.02 of the Agreement and for the benefit of the
Certificateholders of Series 1994-2.
SECTION 23. DEBT SECURITIES.
Notwithstanding anything contained herein to the con-
trary (including, without limitation, the form of the Series
1994-2 Investor Certificates), the parties hereto agree, and by
its acceptance of a Certificate each Certificateholder shall be
deemed to agree, that the Investor Certificates evidence debt and
such debt is further evidenced by the Limited Recourse Promissory
Notes. Nothing in this Section 23 or in any Limited Recourse
Promissory Note shall be deemed to diminish or otherwise
adversely affect in any way the rights of, and benefits to be
afforded to, the Holder of any Certificate as provided in the
Agreement, this Supplement and such Certificate, regardless of
whether or not such Holder of such Certificate shall at any time
also hold a Limited Recourse Promissory Note.
(TESTIMONIUM AND SIGNATURES FOLLOW)
IN WITNESS WHEREOF, the parties hereto have caused this
Supplement to be duly executed by their respective officers
thereunto duly authorized as of the date first above written.
CF FUNDING CORP.,
as Transferor
By: /s/ Dennis McDermott
Name: Dennis McDermott
Title: Treasurer
CAPITAL FACTORS, INC.,
individually and as Servicer
By: /s/ Dennis McDermott
Name: Dennis McDermott
Title: Senior Vice President
BANKERS TRUST COMPANY,
as Trustee
By: /s/ Kevin J. Healey
Name: Kevin J. Healey
Title: Administrative Vice
President
EXHIBIT 10.8
CF FUNDING CORP.,
Transferor,
CAPITAL FACTORS, INC.,
individually and as Servicer,
and
BANKERS TRUST COMPANY,
Trustee
on behalf of the Certificateholders
SERIES 1995-1 SUPPLEMENT
Dated as of July 1, 1995
to
CAPITAL FACTORS FINANCING TRUST
POOLING AND SERVICING AGREEMENT
Dated as of June 1, 1994
up to $57,500,000
VARIABLE RATE ASSET BACKED CERTIFICATES
SERIES 1995-1
$50,000,000 CLASS A
AND
up to $7,500,000 CLASS B
Series 1995-1 SUPPLEMENT, dated as of July 1, 1995
(this "SUPPLEMENT") among CF FUNDING CORP., a Delaware
corporation, as Transferor (the "TRANSFEROR"), CAPITAL FACTORS,
INC., a Florida corporation, individually and as Servicer (the
"SERVICER"), and BANKERS TRUST COMPANY, a New York banking
corporation, as trustee (together with its successors in trust
thereunder as provided in the Pooling and Servicing Agreement
referred to below, the "TRUSTEE"), under the Pooling and
Servicing Agreement, dated as of June 1, 1994 (the "AGREEMENT")
among the Transferor, the Servicer and the Trustee.
PRELIMINARY STATEMENT
Section 6.09 of the Agreement provides, among other
things, that the Transferor and the Trustee may at any time and
from time to time enter into a supplement to the Agreement for
the purpose of authorizing the issuance of the Investor
Certificates. The Transferor has delivered the Issuance Notice
required by Section 6.09 of the Agreement and hereby enters into
this Supplement with the Servicer and the Trustee as required by
Section 6.09(b) of the Agreement to provide for the issuance,
authentication and delivery of its $50,000,000 Variable Rate
Asset Backed Certificates, Series 1995-1, Class A (the "SERIES
1995-1 SENIOR CERTIFICATES") and Variable Rate Asset Backed
Certificates, Series 1995-1, Class B in the initial aggregate
amount of $2,250,000, which amount may be increased through the
issuance and sale of one or more Additional Series 1995-1
Subordinated Certificates to a maximum of $7,500,000 (the "SERIES
1995-1 SUBORDINATED CERTIFICATES" and together with the Series
1995-1 Senior Certificates, the "SERIES 1995-1 INVESTOR
CERTIFICATES"). The Series 1995-1 Senior Certificates have an
initial Full Senior Invested Amount of $50,000,000, with
$35,000,000 of such Full Senior Invested Amount being deposited
in the Pre-Funding Account on the Closing Date. The Transferor
may increase the Senior Invested Amount through Drawdowns from
the Pre-Funding Account from time to time to a maximum of
$50,000,000 pursuant to Section 9(b) of this Supplement. In the
event that any term or provision contained herein shall conflict
with or be inconsistent with any term or provision contained in
the Agreement, the terms and provisions of this Supplement shall
govern.
All capitalized terms not otherwise defined herein are
defined in the Agreement. All Article, Section or Subsection
references herein shall mean Article, Section or Subsections of
the Agreement as modified by this Supplement, except as otherwise
provided herein.
Any reference to the Early Amortization Period,
Scheduled Amortization Period, Amortization Period or the
Revolving Period in this Supplement shall refer only to such
periods as they relate to the Series 1995-1 Investor
Certificates, except as otherwise provided herein.
SECTION 1. DESIGNATION.
The Series 1995-1 Investor Certificates shall be
designated as the Variable Rate Asset Backed Certificates, Series
1995-1, Class A and Variable Rate Asset Backed Certificates,
Series 1995-1, Class B or, collectively, the Series 1995-1
Investor Certificates. No other classes in respect of the Series
1995-1 Investor Certificates shall be designated.
SECTION 2. AGREEMENT MODIFICATIONS.
The following terms of the Agreement are hereby
modified only with respect to this Supplement and the Series
1995-1 Investor Certificates as follows:
Section 4.04 is modified to add the following at the
end thereof:
PAYMENTS AND DEPOSITS OF INTEREST COLLECTIONS WITH RESPECT TO THE
SERIES 1995-1 INVESTOR CERTIFICATES.
DAILY SETTLEMENT
On each Business Day during a Settlement Period, the
Servicer shall instruct (which instruction shall be certified by
the Servicer to be true and accurate and shall be accompanied by
a Daily Report and back-up information required thereby) the
Trustee to, and the Trustee shall, withdraw from the
Concentration Account an amount equal to the aggregate amount of
Interest Collections allocated to Series 1995-1 pursuant to
Section 4.03 of the Agreement and not previously withdrawn from
the Concentration Account and allocate, apply, deposit or pay, as
the case may be, such amount in the following priority.
(a) TRUSTEE FEES AND SUCCESSOR SERVICER FEES.
To the payment to the Trustee of the sum of (x)
the Daily Trustee Fees (as defined in this Supplement)
accrued for such Business Day and for each non-Business
Day, if any, since the immediately preceding Business
Day plus (y) the Series 1995-1 Investor Certificate's
pro rata share of the Documented Trustee Expenses
incurred and not previously paid that relate to such
Series; for purposes of this sub-clause (y), "pro rata
share" shall be determined based on the aggregate
amount of the Invested Amounts of all Series to which
such Documented Trustee Expenses relate.
If the Servicer is not Factors on such Business
Day, to the payment to the Servicer of the Daily
Servicing Fees (as defined in this Supplement) accrued
for such Business Day and for each non-Business Day on
which Factors was not the Servicer, if any, since the
immediately preceding Business Day.
(b) SERVICER PRINCIPAL ADVANCE INTEREST.
If any Interest Collection for such Business Day
relates to an Advance that is the subject of a Servicer
Principal Advance, to pay the Servicer an amount equal
to the lesser of (x) the Series 1995-1 Allocation
Percentage of the Daily Servicer Principal Advance
Interest for each Servicer Principal Advance
outstanding on such day accrued for such Business Day
and for each non-Business Day, if any, since the
immediately preceding Business Day and (y) the Series
1995-1 Allocation Percentage of the amount of such
Interest Collection in respect of such Advance.
(c) SPECIAL AUDIT FEES.
If, on such Business Day, amounts are due and
payable to a firm of Independent Public Accountants in
respect of a Special Audit, then to pay such amounts to
such firm.
(d) SERIES 1995-1 CERTIFICATEHOLDER INTEREST
COLLECTIONS.
To deposit into the Series 1995-1 Interest
Funding Sub-Account for the exclusive benefit of the
Series 1995-1 Investor Certificateholders an amount
equal to the Series 1995-1 Floating Allocation
Percentage of the remainder for such Business Day.
(e) TRANSFEROR'S INTEREST COLLECTIONS.
If the Transferor is in default on its obligation
to make payments in respect of a Negative Carry Amount
pursuant to Section 13(b) of this Supplement, then
deposit to the Negative Carry Account until such
amounts are paid in full, from whatever source; and
then if the Transferor is in default on its obligation
to make payment in respect of a Prepayment Premium
pursuant to Section 22(e) of this Supplement, then
deposit to the Pre-Funding Account until such
Prepayment Premium is paid in full, from whatever
source; and then pay to the Transferor the remainder as
interest on the Transferor Certificate for such
Business Day.
PAYMENTS AND DEPOSITS ON PAYMENT DATES
On or before the Determination Date immediately prior
to each Payment Date or Special Payment Date, in addition to the
deposits and payments required pursuant to the other provisions
of this Article IV, the Servicer shall instruct (which
instruction shall be certified by the Servicer to be true and
accurate and shall be accompanied by a Settlement Statement and
back-up information required thereby) the Trustee to withdraw
from the Series 1995-1 Interest Funding Sub-Account certain
amounts on deposit therein on such Payment Date or Special
Payment Date and, to the extent required by clause (f)(i) below,
from the Negative Carry Account and Series 1995-1 Cash Collateral
Sub-Account and pay or deposit on such Payment Date or Special
Payment Date, and the Trustee acting in accordance with such
instructions shall so withdraw and pay or deposit or cause to be
so withdrawn and paid or deposited, in the priority set forth
below in clause (f), the amounts referred to below in clause (f),
all pursuant to such clause (f).
(f) MONTHLY INTEREST AND CASH COLLATERAL. The
Trustee, acting in accordance with instructions from the
Servicer, shall pay, deposit or apply (as the case may be) the
following amounts in the following priority out of the amounts
deposited into the Series 1995-1 Interest Funding Sub-Account
pursuant to Section 22(c) of this Supplement and Sections 4.02,
4.03, 4.04(d) and 4.05(a)(ii):
(i) pay to the Series 1995-1 Senior
Certificateholders an amount equal to the Monthly
Senior Interest; during the Funding Period, to the
extent such amounts on deposit in the Series 1995-
1 Interest Funding Sub-Account are not sufficient
to pay such Monthly Senior Interest in full (such
shortfall being the "NEGATIVE CARRY AMOUNT"), the
Trustee, acting in accordance with instructions
from the Servicer, shall withdraw from the
Negative Carry Account an amount sufficient to
cover such deficiency and shall pay such amount to
the Series 1995-1 Senior Certificateholders; to
the extent the amount on deposit in the Series
1995-1 Interest Funding Sub-Account (and, during
the Funding Period, the Negative Carry Account) is
not sufficient to pay such Monthly Senior Interest
in full, the Trustee, acting in accordance with
instructions from the Servicer, shall withdraw
from the Series 1995-1 Cash Collateral Sub-Account
an amount sufficient to cover such deficiency and
shall pay such amount to the Series 1995-1 Senior
Certificateholders;
(ii) during the Revolving Period, if the
balance in the Series 1995-1 Cash Collateral Sub-
Account is less than the Cash Collateral
Maintenance Amount (as defined in this
Supplement), deposit into such Cash Collateral
Sub-Account an amount as shall cause the balance
in such Cash Collateral Sub-Account to equal the
Cash Collateral Maintenance Amount; and
(iii) (A) during the Revolving Period,
pay FIRST if there is a Subordination Deficiency
Amount (as defined in this Supplement), to the
Transferor an amount equal to such Subordination
Deficiency Amount to purchase Advances from the
Transferor pursuant to Section 6.09, SECOND if
Factors is the Servicer, to the Servicer in the
amount of the sum of the Daily Servicing Fees (as
defined in this Supplement) for each day in such
Settlement Period, THIRD if a Prepayment Premium
is due and unpaid after application thereto of any
available amounts in the Negative Carry Account
pursuant to Section 22(e) of this Supplement, to
the Series 1995-1 Senior Certificateholders an
amount equal to the unpaid amount of such
Prepayment Premium, and FOURTH to the Series
1995-1 Subordinated Certificateholders in the
amount of Monthly Subordinated Interest for the
related Settlement Period,
(B) during an Amortization Period,
FIRST if Factors is the Servicer, to the Servicer
in the amount of the sum of the Daily Servicing
Fees (as defined in this Supplement) for each day
in such Settlement Period, SECOND to the Series
1995-1 Senior Certificateholders in respect of
principal on the Senior Certificates in an
aggregate amount up to the Senior Invested Amount
in respect of the Series 1995-1 Senior
Certificates, THIRD to the Series 1995-1
Subordinated Certificateholders in the amount of
Monthly Subordinated Interest for the related
Settlement Period.
Section 4.05 is modified to add the following at the
end thereof:
PAYMENT AND DEPOSIT OF PRINCIPAL COLLECTIONS WITH RESPECT TO THE
SERIES 1995-1 INVESTOR CERTIFICATES.
DAILY PAYMENTS AND DEPOSITS
(a) On each Business Day, the Servicer shall
instruct the Trustee (which instruction shall be certified by the
Servicer to be true and accurate and shall be accompanied by a
Daily Report and back-up information required thereby) to
withdraw from the Concentration Account an amount (the "SECTION
4.05 AMOUNT") equal to the sum of the (x) Daily Transferor
Principal Collections, plus (y) amounts deposited in the
Concentration Account by the Series 1995-1 Subordinated
Certificateholder to purchase additional Subordinated
Certificates, plus, (z) only during the Revolving Period (except
with respect to clause (i) below), Available Certificateholder
Principal Collections, and apply and pay or deposit such Business
Day's Section 4.05 Amount to the extent available in the
following order of priority (and the Trustee shall so withdraw,
apply and pay or deposit such amounts):
(i) if any Principal Collection for such Business
Day relates to an Advance that is or has been the
subject of a Servicer Principal Advance, pay from the
Section 4.05 Amount to the Servicer an amount equal to
the lesser of (x) the Series 1995-1 Allocation
Percentage of the amount of such Principal Collection
and (y) the Series 1995-1 Allocation Percentage of the
sum of the balance remaining on such Servicer Principal
Advance plus any interest accrued thereon and remaining
unpaid (after giving effect to the application of
Sections 4.04(b) and 4.06(a) to the Series 1995-1
Allocation Percentage of such interest);
(ii) if the Servicer determines that a Negative
Spread Shortfall for Series 1995-1 exists on such
Business Day, deposit into the Series 1995-1 Interest
Funding Sub-Account an amount equal to the lesser of
(x) the Section 4.05 Amount (after giving effect to
sub-clause (i) above) and (y) the amount of such
Negative Spread Shortfall;
(iii) if on such Business Day the Series 1995-1
Participation Deficiency Amount exceeds zero, deposit
in the Series 1995-1 Excess Funding Sub-Account an
amount equal to the lesser of (y) such Series 1995-1
Participation Deficiency Amount and (x) the Section
4.05 Amount (after giving effect to sub-clauses (i) and
(ii) above); during the Amortization Period, any amount
to be deposited in the Series 1995-1 Excess Funding
Sub-Account shall be subject to redirection as provided
in clause (c)(ii) below;
(iv) if, on such Business Day, an Accumulation
Event but no Early Amortization Event (other than an
Early Amortization Event caused by the continuation of
an Accumulation Event described in clause (a) or (b) of
the definition of "Accumulation Event") shall have
occurred and be continuing (and, if such Accumulation
Event was caused by the occurrence on any one
Determination Date of an event described in clause (x)
of Section 12(a) of this Supplement, an Accumulation
Continuation Event also shall be continuing), deposit
in the Series 1995-1 Accumulation Sub-Account the
remainder, if any, of the Section 4.05 Amount; and
(v) pay to the Transferor the remainder, if any,
of the Section 4.05 Amount; pay to the Transferor the
amounts under clause (c)(i) below and pay to the
Transferor the amounts under clause (d) below.
(b) Notwithstanding anything to the contrary in
Section 4.05(a), commencing on the first Business Day in an
Amortization Period with respect to Series 1995-1 and on each
Business Day thereafter until the end of such Amortization
Period, the Servicer shall instruct (which instructions shall be
certified by the Servicer to be true and accurate and shall be
accompanied by a Settlement Statement and back-up information
required thereby) the Trustee to withdraw
(w) from amounts on deposit in the Concentration
Account, the Available Certificateholder Principal
Collections (after payment of clause (a)(i) above),
(x) all amounts on deposit in the Series 1995-1
Excess Funding Sub-Account, if any,
(y) all amounts on deposit in the Series 1995-1
Accumulation Sub-Account, if any, and
(z) any portion of the Section 4.05 Amount
consisting of moneys paid by the Series 1995-1
Subordinated Certificateholders to purchase additional
Subordinated Certificates (allocations and/or
utilizations of said Section 4.05 Amount being deemed
first to come from Principal Collections allocated to
Series 1995-1 and second from such moneys paid by the
Series 1995-1 Subordinated Certificateholders to
purchase additional Subordinated Certificates),
and deposit all of such amounts in the Series 1995-1 Principal
Funding Sub-Account to the extent that such amounts in the
aggregate do not exceed the Invested Amount. Any such amount in
excess of such Invested Amount will be applied in accordance with
clauses (i) through (v) of Section 4.05(a).
(c) (i) On each Business Day during the Revolving
Period, the Trustee, at the Servicer's direction and
certification, will withdraw amounts on deposit in the Series
1995-1 Excess Funding Sub-Account and pay such amounts to the
Transferor to the extent that, prior to and immediately after
giving effect to such withdrawal and payment, the Transferor's
Current Participation Amount exceeds the Transferor's Required
Participation Amount.
(ii) On each Business Day of an Amortization Period,
the Trustee, at the Servicer's direction and certification, will
redirect amounts which would otherwise be deposited in the Series
1995-1 Excess Funding Sub-Account pursuant to Section
4.05(a)(iii), and deposit such redirected amounts directly in the
Series 1995-1 Principal Funding Sub-Account; PROVIDED, HOWEVER,
that such amounts will no longer be so redirected and deposited
during such Amortization Period after such time as an amount of
funds equal to the Senior Invested Amount for Series 1995-1 shall
have been deposited in such Series 1995-1 Principal Funding Sub-
Account.
(d) If during the Revolving Period on any of the three
immediately succeeding Determination Dates after the date on
which an Accumulation Event shall have occurred, such
Accumulation Event shall not be continuing, the Trustee, at the
Servicer's written direction and certification, shall withdraw
all amounts on deposit in the Series 1995-1 Accumulation Sub-
Account in respect of such Accumulation Event and if a Series
1995-1 Participation Deficiency Amount exists, deposit all or a
portion of such amounts to the extent of such Series 1995-1
Participation Deficiency Amount in the Series 1995-1 Excess
Funding Sub-Account and pay the remainder to the Transferor or,
if a Series 1995-1 Participation Deficiency Amount does not
exist, pay such amounts to the Transferor.
PAYMENTS ON EACH SPECIAL PAYMENT DATE
(e) On each Special Payment Date in an
Amortization Period, after giving effect to the payments and
deposits required pursuant to Section 22(e) of this Supplement
and Sections 4.05(a), (b), (c) and (d), the Trustee, acting in
accordance with instructions from the Servicer, shall pay the
amount on deposit in the Series 1995-1 Principal Funding Sub-
Account to the Holders of the Series 1995-1 Investor Certificates
in the following priority:
(i) to the Series 1995-1 Senior
Certificateholders until the Senior Invested Amount of
Series 1995-1 equals zero and any Prepayment Amount on
deposit therein is fully distributed pursuant to
Section 22(e) of this Supplement; and
(ii) to the Series 1995-1 Subordinated
Certificateholders until the Subordinated Invested
Amount of Series 1995-1 equals zero.
Section 4.06 is modified to add the following at the
end thereof:
DAILY SETTLEMENT
On each Business Day on which a Charge-off occurs, the
Subordinated Invested Amount shall be reduced by the full amount
of the Series 1995-1 Allocation Percentage of each such Charge-
off occurring on such Business Day.
On each Business Day, the Servicer shall instruct the
Trustee to withdraw the Series 1995-1 Allocation Percentage of
Recoveries on deposit in the Concentration Account and apply, pay
or deposit them in the following priority.
(a) To the extent any such Recovery on
deposit in the Concentration Account relates to an
Advance that is the subject of a Servicer
Principal Advance, pay to the Servicer an amount
equal to the lesser of (x) the Series 1995-1
Allocation Percentage of the amount of such
Recovery relating to such Servicer Principal
Advance and (y) the Series 1995-1 Allocation
Percentage of the sum of the balance remaining on
such Servicer Principal Advance plus any accrued
and unpaid interest thereon.
(b) During the Revolving Period, if the
balance in the Cash Collateral Sub-Account for
Series 1995-1 is less than the Cash Collateral
Maintenance Amount for Series 1995-1 after
application of Section 4.04(f)(ii), deposit into
such Cash Collateral Sub-Account an amount as
shall cause the balance in such Cash Collateral
Sub-Account to equal such Cash Collateral
Maintenance Amount; and
(c) (i) during the Revolving Period, pay
FIRST if there is a Subordination Deficiency
Amount, to the Transferor an amount equal to such
Subordination Deficiency Amount to purchase
Advances from the Transferor pursuant to Section
6.09 of the Agreement and SECOND to the Series
1995-1 Subordinated Certificateholders in respect
of interest on the Series 1995-1 Subordinated
Certificates to the extent of any remainder after
application of the foregoing clauses in this
Section 4.06,
(ii) during an Amortization Period,
FIRST to the Series 1995-1 Senior
Certificateholders in respect of principal on the
Series 1995-1 Senior Certificates in an aggregate
amount up to the Senior Invested Amount for Series
1995-1 and SECOND to the Series 1995-1
Subordinated Certificateholders in respect of
interest on the Series 1995-1 Subordinated
Certificates to the extent of any remainder after
application of the foregoing clauses in this
Section 4.06.
Article IV is further amended by adding the following
section:
Section 4.10 TRANSFEROR'S OR SERVICER'S FAILURE TO
MAKE A DEPOSIT OR PAYMENT. (a) If the Servicer or the
Transferor fails to make, or give instructions to make, any
payment or deposit (other than as required by Section 13(b) or
the penultimate sentence of Section 22(e) of this Supplement or
by Section 2.04(d) or the last paragraph of Section 3.03)
required to be made or given by the Servicer or Transferor,
respectively, at the time specified in the Agreement (including
applicable grace periods), the Trustee shall make such payment or
deposit from the applicable Series Account or the Excess Funding
Account without instruction from the Servicer or Transferor. The
Trustee shall be required to make any such payment or deposit
hereunder only to the extent that the Trustee has sufficient
information in a Settlement Statement or other writing furnished
by the Servicer or the Majority Certificateholders of the Series
affected to allow the Trustee to determine the amount thereof;
PROVIDED, HOWEVER, that, to the extent that the Trustee has
actual knowledge of the principal balance of the Series 1995-1
Investor Certificates as of the close of business on the last day
of the preceding Settlement Period, the Trustee shall be deemed
to have sufficient information to determine the amount of Monthly
Interest payable to the Series 1995-1 Investor Certificateholders
on such Payment Date. The Servicer shall, upon request of the
Trustee, promptly provide the Trustee with all information
necessary to allow the Trustee to make such payment or deposit.
Such funds or the proceeds of such withdrawal shall be applied by
the Trustee in the manner in which such payment or deposit should
have been made by the Transferor or the Servicer, as the case may
be.
Section 6.04 MUTILATED, DESTROYED, LOST OR STOLEN
CERTIFICATES. With respect to clause (b) of Section 6.04, the
delivery of an unsecured agreement of indemnity, in form and
substance reasonably satisfactory to the Trustee or the Transfer
Agent and Registrar, by any Holder of a Series 1995-1
Certificate, which Holder is an institutional holder with a
claims paying ability or long-term debt rating of at least
investment grade or its equivalent, shall satisfy the requirement
under said Section of the delivery of security or indemnity.
Section 6.09 is modified to add the following:
(d) Any Holder of the Series 1995-1 Subordinated
Certificate may from time to time give written notice to the
Trustee, the Servicer and the Transferor of its desire to
purchase an additional Series 1995-1 Subordinated Certificate
("ADDITIONAL SERIES 1995-1 SUBORDINATED CERTIFICATE"). Following
receipt of such notice, the Transferor may direct the Trustee, on
behalf of the Trust, to issue an Additional Series 1995-1
Subordinated Certificate pursuant to the Series 1995-1 Supplement
and this Section 6.09(d). Any Additional Series 1995-1
Subordinated Certificate shall be equally and ratably entitled as
provided herein and in the Series 1995-1 Supplement to the
benefits of this Agreement accorded to the Series 1995-1
Subordinated Certificates without preference, priority or
distinction, all in accordance with the terms and provisions of
this Agreement and the Series 1995-1 Supplement. The obligation
of the Trustee to issue an Additional Series 1995-1 Subordinated
Certificate is subject to the satisfaction of the following
conditions:
(i) on or before the second Business Day
immediately preceding the issuance date ("ADDITIONAL
ISSUANCE DATE") of the Additional Series 1995-1 Subordinated
Certificate, the Transferor shall have delivered to the
Trustee, the Servicer and each Rating Agency written notice
of such issuance, including the Additional Issuance Date,
the principal amount thereof and the name of the person in
whose name the Additional Series 1995-1 Subordinated
Certificate shall be registered (the "ADDITIONAL ISSUANCE
NOTICE"), and
(ii) the Servicer shall have certified to the
Trustee that the Holder of the existing Series 1995-1
Subordinated Certificate has deposited in the Concentration
Account immediately available funds in the amount of the
purchase price (at par) of the Additional Series 1995-1
Subordinated Certificate. Any such funds so deposited by
such Holder in such Concentration Account shall be deemed to
constitute Principal Collections allocable solely to Series
1995-1 and shall be applied in accordance with Section 4.05.
Upon satisfaction of the above conditions, the Trustee shall
deliver to the Transferor the Additional Series 1995-1
Subordinated Certificate for execution and redelivery to the
Trustee for authentication thereof. The Trustee shall deliver
such executed and authenticated Additional Series 1995-1
Subordinated Certificate to such Holder.
Section 12.05 DEFEASANCE. Section 12.05 of the
Agreement shall not be applicable with respect to the Series
1995-1 Investor Certificates.
SECTION 3. INSPECTION RIGHTS; IN-DEPTH AUDITS; REPORTING
REQUIREMENTS; CONFIDENTIALITY.
(a) INSPECTION. At any time and from time to time during
the Transferor's, Factors' or the Servicer's regular business
hours, on reasonable prior notice and for a purpose reasonably
related to the Agreement, the Transferor, Factors and the
Servicer shall, in response to any reasonable request of any
Series 1995-1 Certificateholder or the Trustee or in connection
with the Independent Public Accountants' preparation of any
report required by Section 3.06 of the Agreement, permit such
Certificateholder or its agents or representatives, the Trustee
or its agents or representatives and such Independent Public
Accountants (i) to examine and make copies of and abstracts from
all books, records and documents (including computer tapes and
disks) in the possession or under the control of the Transferor,
Factors or the Servicer relating to the Advances, the related
Receivables, the Related Property and the related Factoring
Agreements and Contracts, (ii) to visit the offices and
properties of the Transferor, Factors and the Servicer for the
purpose of examining such materials and to discuss matters
relating to the Advances or related Receivables or the
Transferor's, Factors' and the Servicer's performance under the
Agreement with any of the officers or employees of the
Transferor, Factors and the Servicer having knowledge thereof and
with the independent public accountants of the Transferor,
Factors and the Servicer (and by this provision the Transferor,
Factors and the Servicer each authorize their respective
accountants to discuss their respective finances and affairs).
(b) IN-DEPTH AUDITS. (1) Upon the delivery of an Audit
Request to Factors or the Transferor by any Series 1995-1 Senior
Certificateholder holding 10% or more of the Invested Amount of
such Series, and provided that no other audit under this clause
(b)(1) shall have been performed during the then current fiscal
quarter, the Servicer shall cause a firm of Independent Public
Accountants (who may also render other services to the Servicer,
the Transferor or Factors) to promptly perform a Special Audit
and furnish to the Trustee, each Series 1995-1 Senior
Certificateholder and each Rating Agency a report thereon. The
Servicer hereby authorizes and directs such firm of Independent
Public Accountants to deliver a copy of such report directly to
the Trustee. To the extent that the Independent Public
Accountants report to the Servicer any material negative findings
prior to the issuance of their report, the Servicer shall inform,
in writing, the Trustee of the same. The Servicer will use its
best efforts to cause the Independent Public Accountants to
complete their Special Audit within 60 days of the commencement
of the same and will otherwise cooperate and assist the
Independent Public Accountants in connection therewith.
(2) In addition, upon the delivery of an Audit Request
to Factors or the Transferor by any Series 1995-1 Senior
Certificateholder, and provided that such Certificateholder shall
not have previously exercised its rights under this clause (b)(2)
during the then current fiscal quarter, such Series 1995-1 Senior
Certificateholder shall be entitled, at its own expense, to
dispatch its own designated representative or representatives to
perform such investigations and review of such records of the
Servicer as such Certificateholder or such representative or
representatives may reasonably determine (the scope as well as
the plan of such investigation and review to be determined by
such Certificateholder in its sole discretion); such
investigation and review to include, without limitation, the
silent participation by such representative or representatives in
the telephonic verifications performed by the Independent Public
Accountants in respect of a randomly selected sampling of at
least 25 Clients representing at least 35% of the Pool Balance
and of 100 Customers whose Advances and Receivables constitute
Trust Assets.
(c) REPORTING REQUIREMENTS. Factors and the Transferor
will deliver to the Trustee, and the Trustee will deliver to each
Holder of outstanding Series 1995-1 Senior Certificates and to
each Rating Agency:
(i) CAPITAL BANK QUARTERLY CALL REPORTS -- within
forty-five days after the end of each quarterly fiscal
period in each fiscal year of Capital Bank, duplicate copies
of the Quarterly Consolidated Reports of Condition and
Income as filed with the appropriate federal banking
regulatory agency.
(ii) HOLDING QUARTERLY STATEMENTS -- within forty-five
days after the end of each quarterly fiscal period in each
fiscal year of Holding (other than the last quarterly fiscal
period of each such fiscal year), duplicate copies of
(A) a consolidated balance sheet of Holding and
its consolidated subsidiaries as at the end of such
quarter, and
(B) consolidated statements of operations,
stockholders' equity and cash flows of Holding and its
consolidated subsidiaries for such quarter and (in the
case of the second and third quarters) for the portion
of the fiscal year ending with such quarter,
setting forth in each case in comparative form the figures
for the corresponding periods in the immediately preceding
fiscal year, all in reasonable detail, prepared in
accordance with GAAP applicable to quarterly financial
statements generally, and accompanied by a certificate
signed by a principal financial officer of Holding stating
that such financial statements present fairly, in all
material respects, the financial position, results of
operations and cash flows of the companies being reported
upon and have been prepared in accordance with GAAP;
(iii) HOLDING ANNUAL STATEMENTS -- within ninety days
after the end of each fiscal year of Holding, duplicate
copies of
(A) a consolidated balance sheet of Holding and
its consolidated subsidiaries as at the end of such
year, and
(B) consolidated statements of operations,
stockholders' equity and cash flows of Holding its
consolidated subsidiaries for such year,
setting forth in each case in comparative form the figures
for the previous year and accompanied by an opinion of a
firm of independent certified public accountants of
recognized national standing stating that such financial
statements present fairly, in all material respects, the
financial position, results of operations and cash flows of
the companies being reported upon and have been prepared in
accordance with GAAP;
(iv) FACTORS QUARTERLY STATEMENTS -- within forty-five
days after the end of each quarterly fiscal period in each
fiscal year of Factors (other than the last quarterly fiscal
period of each such fiscal year), duplicate copies of
(A) a consolidated balance sheet of Factors and
its consolidated subsidiaries as at the end of such
quarter, accompanied by supplemental consolidating
schedules, and
(B) consolidated statements of operations,
stockholders' equity and cash flows of Factors and its
consolidated subsidiaries for such quarter and (in the
case of the second and third quarters) for the portion
of the fiscal year ending with such quarter,
accompanied by supplemental consolidating schedules,
setting forth in each case in comparative form the figures
for the corresponding periods in the immediately preceding
fiscal year, all in reasonable detail, prepared in
accordance with GAAP applicable to quarterly financial
statements generally, and accompanied by a certificate
signed by a principal financial officer of Factors stating
that such financial statements present fairly, in all
material respects, the financial position, results of
operations and cash flows of the companies being reported
upon and have been prepared in accordance with GAAP;
(v) FACTORS ANNUAL STATEMENTS -- within ninety days
after the end of each fiscal year of Factors, duplicate
copies of
(A) a consolidated balance sheet of Factors and
its consolidated subsidiaries as at the end of such
year, accompanied by supplemental consolidating
schedules, and
(B) consolidated statements of operations,
stockholders' equity and cash flows of Factors its
consolidated subsidiaries for such year, accompanied by
supplemental consolidating schedules,
setting forth in each case in comparative form the figures
for the previous year and accompanied by an opinion of a
firm of independent certified public accountants of
recognized national standing stating that such financial
statements present fairly, in all material respects, the
financial position, results of operations and cash flows of
the companies being reported upon and have been prepared in
accordance with GAAP;
(vi) AUDIT REPORTS -- promptly upon receipt thereof,
one copy of each other report submitted to Holding, Factors
or the Transferor or any of their respective subsidiaries by
independent accountants in connection with any annual,
interim, or special audit made by such accountants of the
books of Holding, Factors or the Transferor or any of their
respective subsidiaries;
(vii) SEC AND OTHER REPORTS -- promptly upon their
becoming available, a copy of each financial statement,
report (including, without limitation, each Quarterly Report
on Form 10-Q, each Annual Report on Form 10-K and each
Current Report on Form 8-K), notice or proxy statement sent
by Capital Bancorp, Capital Bank, Holding, Factors or the
Transferor or any of their respective subsidiaries to
stockholders generally and of each regular or periodic
report and any registration statement, prospectus or written
communication (other than transmittal letters), and each
amendment thereto, together in each case with a copy of any
document incorporated by reference therein, in respect
thereof filed by Capital Bancorp, Capital Bank, Holding,
Factors or the Transferor or any of their respective
subsidiaries with, or received by, such Person in connection
therewith from, the National Association of Securities
Dealers, any securities exchange or the Securities and
Exchange Commission or any successor agency;
(viii) REPORT ON PROCEEDINGS -- promptly upon Factors or
the Transferor becoming aware of (A) any proposed or pending
investigation of Capital Bancorp, Capital Bank, Holding,
Factors or the Transferor or any of their respective
subsidiaries by any governmental authority or agency or (B)
any court or administrative proceeding, that in either case
involves the possibility of materially and adversely
affecting the ability of any of Factors, the Servicer or the
Transferor to perform their respective obligations under the
Agreement, this Supplement or the Contribution and Sale
Agreement, a notice specifying its nature and the action
being taking with respect thereto;
(ix) NOTICES OF REGULATORY ACTION -- promptly upon
receipt thereof, copies of any notices received from any
Federal or state regulatory agencies relating to an order,
ruling, statute, or other law or information that might
materially and adversely affect the ability of any of
Factors, the Servicer or the Transferor to perform their
respective obligations under the Agreement, this Supplement
or the Contribution and Sale Agreement; PROVIDED that
delivery of such copies shall not be prohibited by any
Requirements of Law; and
(x) REQUESTED INFORMATION -- with reasonable
promptness, any other data and information that may be
reasonably requested from time to time by any Holder of
Series 1995-1 Senior Certificates.
(d) TRUSTEE DISCLOSURE. The Trustee may disclose to each
holder of Series 1995-1 Investor Certificates the information
referred to in Section 2.02(b) of the Agreement.
(e) CONFIDENTIALITY. Each 1995-1 Certificateholder agrees
that any information furnished to it under this Section will be
held in confidence and not disclosed, all in accordance with and
pursuant to its current procedures and practices for maintaining
the confidentiality of similar "confidential" information
(provided that such information neither (y) was previously
publicly known, or otherwise known to such Certificateholder, at
the time of disclosure nor (z) subsequently became publicly known
other than through any act or omission by such Holder), provided
that such Certificateholder may disclose the aforesaid
information (i) to its officers, directors, trustees, internal
counsel, internal investment advisers and employees (and the
officers, directors, trustees, internal counsel, internal
investment advisers and employees of any parent or holding
company, if any, and of any other of their affiliates) in the
ordinary course of its respective duties; (ii) when required by
law or regulation or to the extent necessary to comply with any
summons, subpoena or notice of discovery or in connection with
any litigation or legal proceeding or in connection with any
formal or informal governmental investigative demand; (iii) to
the extent necessary to comply with the request of, or as
otherwise customarily disclosed to, any regulatory body having
(or claiming to have) jurisdiction over them, to the United
States National Association of Insurance Commissioners or similar
organizations or their successors; (iv) to its independent
auditors and accountants, counsel and other professional advisers
(or the independent auditors and accountants, counsel and other
professional advisers of its parent or holding company, if any,
and of any other of their affiliates) in the course of its
respective duties, provided that they consent to the provisions
of this Section; (v) as may be required or appropriate in
connection with (a) the enforcement of its rights under the
Certificates, the Agreement, the Supplement or any related
agreement or (b) any contemplated transfer of any Certificates
owned by it (provided that any potential transferee agrees to be
bound by the provisions of this Section); and (vi) to any other
Certificateholder, the Trustee, the Servicer, the Transferor or
the Paying Agent.
SECTION 4. SERIES 1995-1 SENIOR CERTIFICATE RATE.
The "SERIES 1995-1 SENIOR CERTIFICATE RATE" for the
Series 1995-1 Senior Certificates shall be equal to a per annum
rate equal to LIBOR, determined as of two LIBOR Business Days
prior to the commencement of any Interest Accrual Period, plus
1.2500%. For purposes of the first Interest Accrual Period in
respect of the Series 1995-1 Senior Certificates, LIBOR shall be
determined two LIBOR Business Days prior to the Closing Date.
Interest shall be calculated monthly and shall accrue at the
Series 1995-1 Senior Certificate Rate as determined on the
related LIBOR Determination Date for each Interest Accrual
Period.
"LIBOR" for each Interest Accrual Period shall be
established by the Trustee as follows:
(i) on each LIBOR Determination Date, the Trustee
shall determine LIBOR for the next succeeding Interest
Accrual Period on the basis of the 30 day offered LIBOR
quotations, appearing on Telerate Page 3750 as of
11:00 a.m., London Time, on such LIBOR Determination Date.
If such rate does not appear on Telerate Page 3750, the rate
for that day will be determined on the basis of the rates at
which deposits in U.S. Dollars are offered by the Reference
Banks at approximately 11:00 a.m., London Time, on the LIBOR
Determination Date to prime banks in the London interbank
market for a period of one month commencing on that day.
The Trustee will request the principal London office of each
of the Reference Banks to provide a quotation of its rate.
If at least two such quotations are provided, the rate for
that day will be the arithmetic mean of the quotations. If
fewer than two quotations are provided as requested, the
rate for that day will be the arithmetic mean of the rates
quoted by major banks in New York City, selected by the
Servicer, at approximately 11:00 a.m., New York City time,
on that date for loans in U.S. Dollars to leading European
banks for a period of one month commencing on that day.
(ii) For purposes of this Section 4, the initial
Reference Banks shall be Bankers Trust Company, The Chase
Manhattan Bank, N.A. and National Westminster Bank, PLC. If
any of the foregoing Banks (or any of their replacements as
provided for in this clause (ii)) shall no longer qualify as
a Reference Bank, then the Servicer shall promptly designate
a replacement Reference Bank and shall notify the Trustee of
such replacement. The Trustee may conclusively rely and
shall be protected in relying upon the offered quotations
(whether electronic, written or oral) of the selected
Reference Banks.
The establishment of LIBOR and the subsequent
calculation of the interest rate for each Interest Accrual Period
by the Trustee, in the absence of manifest error, will be final
and binding. The Trustee shall telephone the Servicer and send
written notice to each Certificateholder within two Business Days
after each LIBOR Determination Date specifying the interest rate
determined on such LIBOR Determination Date and the Interest
Accrual Period to which it applies.
SECTION 5. SERVICING FEE PERCENTAGE AND DAILY TRUSTEE FEE.
The "SERVICING FEE PERCENTAGE" applicable to the Series
1995-1 Investor Certificates shall be .50%. The "DAILY TRUSTEE
FEE" applicable to the Series 1995-1 Investor Certificates shall
be the greater of (a) $47.95 or (b) $95.90 times a fraction the
numerator of which is the Senior Invested Amount of Series 1995-1
at the time of determination and the denominator of which is
$50,000,000.
SECTION 6. NOTIFICATIONS.
The Trustee shall provide to each Certificateholder a
copy of each notice or other information listed in Exhibit 6 and
any other notice or information relating to the Trust received by
the Trustee as any Certificateholder may request.
SECTION 7. SERIES TERMINATION DATE.
The "Series Termination Date" for the Series 1995-1
Investor Certificates shall be the Special Payment Date in July,
2001.
SECTION 8. REPURCHASE TERMS.
(a) The Series 1995-1 Investor Certificates may be
repurchased by the Transferor on any Payment Date on or after the
day on which the Senior Invested Amount is reduced to an amount
less than or equal to 10% of the Initial Senior Invested Amount
upon the satisfaction of the conditions described in Section
12.02(a). The repurchase price shall be equal to the sum of the
Senior Invested Amount and the Subordinated Invested Amount plus
accrued (or otherwise payable) and unpaid interest on the Series
1995-1 Investor Certificates through the Business Day immediately
preceding the Payment Date on which the repurchase occurs. Other
than as set forth in this Section 8(a), the Transferor may not
repurchase the Series 1995-1 Investor Certificates.
(b) Any Series Repurchase Amount to be paid pursuant
to the first or second paragraph of Section 12.02(a) shall be
deposited into the Series 1995-1 Principal Funding Sub-Account.
SECTION 9. DELIVERY AND PAYMENT FOR THE SERIES 1995-1
INVESTOR CERTIFICATES; DRAWDOWNS.
(a) The Trustee shall deliver Series 1995-1 Senior
Certificates in an aggregate initial amount equal to the
Beginning Senior Invested Amount and Series 1995-1 Subordinated
Certificates in the aggregate initial amount equal to the Initial
Subordinated Invested Amount to the Transferor when authenticated
upon the written direction of the Transferor.
(b) At any time during the Funding Period when, but
only when, all the following conditions are satisfied, the
Trustee shall withdraw a Drawdown Senior Amount from the Pre-
Funding Account and pay such amount to the Transferor on the last
Business Day of a Settlement Period (the date of such withdrawal
and payment being a "DRAWDOWN DATE"):
(i) on or before the second Business Day
preceding the Drawdown Date the Transferor shall have
delivered a Drawdown Certificate to the Trustee, each Rating
Agency and the Servicer;
(ii) such Drawdown will not result in the
occurrence of an Early Amortization Event, Prospective Early
Amortization Event or Accumulation Event;
(iii) the Aggregate Transferor's Current
Participation Amount shall not be less than the Aggregate
Transferor's Required Participation Amount, in each case as
of such Drawdown Date and after giving effect to such
Drawdown;
(iv) the Transferor shall have deposited into the
Cash Collateral Sub-Account for Series 1995-1 an amount
sufficient to cause the amounts on deposit therein to equal
the Cash Collateral Maintenance Amount that will be required
after giving effect to such Drawdown;
(v) on or before the Drawdown Date the
Subordinated Certificateholder shall have purchased
Additional Series 1995-1 Subordinated Certificates in the
Drawdown Subordinated Amount in accordance with Section
6.09(d); and
(vi) no Accumulation Event or Prospective Early
Amortization Event shall have occurred and be continuing.
SECTION 10. MINIMUM AUTHORIZED DENOMINATIONS.
The Series 1995-1 Investor Certificates shall be issued
in fully registered, certificated form. The Series 1995-1 Senior
Certificates shall be issued in minimum denominations of $500,000
(except as may be necessary to reflect any principal amount not
evenly divisible by $500,000) or in any integral multiples of
$100,000 in excess thereof.
SECTION 11. SUBORDINATION OF SUBORDINATED INVESTORS' INTEREST.
The Subordinated Investors' Interest in the Trust
Assets will be subordinated to the Senior Investors' Interest to
the extent provided herein and shall be required to be maintained
at the Required Subordinated Amount as contemplated by Section
4.04(f)(iii)(A). Unless otherwise consented to by the Majority
Certificateholders of Series 1995-1, no Series 1995-1
Subordinated Certificate shall be initially issued to any Person
other than CF One and the Trustee shall not authenticate any such
Series 1995-1 Subordinated Certificate if issued to a Person
other than CF One. The Series 1995-1 Subordinated Certificates
shall be substantially in the form of EXHIBIT 11 hereto.
SECTION 12. ADDITIONAL EARLY AMORTIZATION EVENTS WITH RESPECT
TO SERIES 1995-1; WAIVER OF EARLY AMORTIZATION
EVENTS.
(a) Without limiting the application of Section 9.01
of the Agreement to Series 1995-1, if any one of the following
events shall occur at such time as there shall be at least one
outstanding Series 1995-1 Senior Certificate:
(i) at any time Fitch shall then be rating
the Series 1994-1 Senior Certificates below
"A" (or the equivalent thereof) or shall have
withdrawn its rating of the Series 1994-1
Senior Certificates;
(ii) any results of any audit prepared as a result of
an Audit Request shall demonstrate the existence of a
material discrepancy from the Loan and Credit Policy or
from reports previously rendered pursuant to Section
3.06;
(iii) the Required Subordinated Percentage shall at
any time exceed 25%;
(iv) the Transferor's Current Participation Amount is
less than the Transferor's Required Participation
Amount for any three consecutive Determination Dates;
(v) the Series 1995-1 Allocation Percentage of the
Aggregate Unpaid Balance of Series 1995-1 Secondary
Eligible Advances shall be less than 90% of the Initial
Invested Amount for Series 1995-1 for any three
consecutive Determination Dates;
(vi) during the Revolving Period, there shall be less
than 125 Designated Accounts in the Trust; for purposes
of this clause (vi), all Designated Accounts of Clients
that are Affiliates of each other shall be deemed to be
a single Designated Account;
(vii) (a) the Servicer is terminated pursuant to
Section 10.01 of the Agreement without the consent of
the Majority Certificateholders of Series 1995-1 or (b)
the Servicer is not terminated pursuant to such Section
under circumstances constituting any Servicer Default
in respect of which such Majority Certificateholders
have requested such termination or (c) the Servicer is
terminated pursuant to Section 10.01 of the Agreement
with the consent of the Majority Certificateholders of
Series 1995-1 and a Successor Servicer (including,
without limitation, the Trustee acting as such
Successor Servicer 30 days after a Servicer Default) is
appointed pursuant to Section 10.02 of the Agreement
without the consent of the Majority Certificateholders
of Series 1995-1 or (d) the Servicer is terminated
pursuant to Section 10.01 of the Agreement with the
consent of the Majority Certificateholders of Series
1995-1 and no Successor Servicer is appointed pursuant
to Section 10.02 of the Agreement within 30 days of
such termination;
(viii) the Required Receivable Coverage for Series
1995-1 shall exceed the Series 1995-1 Actual Receivable
Coverage for any three consecutive Determination Dates;
(ix) the Settlement Statement due on any Determination
Date reports that, or facts shall exist such that,
Series 1995-1 Actual Receivables Nonpayment exceeds 18%
for the related Settlement Period;
(x) the Series 1995-1 Allocation Percentage of the
aggregate Unpaid Balance of Series 1995-1 Secondary
Eligible Receivables shall, for any three consecutive
Determination Dates, be less than 135% of the
difference of (a) the Senior Invested Amount for Series
1995-1 MINUS (b) the sum of all amounts on deposit in
the Series 1995-1 Excess Funding Sub-Account and Series
1995-1 Accumulation Sub-Account;
(xi) the Settlement Statement due on any Determination
Date reports that, or facts shall exist such that, as
of the last day of the related Settlement Period (A)
the aggregate Unpaid Balance of Receivables that are at
least 60 days past due on such date exceeds 10% of the
Unpaid Balance of all Eligible Receivables on such
date, (B) the average of the aggregate Unpaid Balances
of Receivables that are at least 60 days past due on
the last days of such Settlement Period and the two
immediately preceding Settlement Periods exceeds 7% of
the average of the Unpaid Balances of all Eligible
Receivables on such dates, (C) the aggregate Unpaid
Balance of Receivables that are at least 90 days past
due on such date exceeds 4.5% of the Unpaid Balance of
all Eligible Receivables on such date or (D) the
average of the aggregate Unpaid Balances of Receivables
that are at least 90 days past due on the last days of
such Settlement Period and the two immediately
preceding Settlement Periods exceeds 3.25% of the
average of the Unpaid Balances of all Eligible
Receivables on such dates;
(xii) the Subordinated Invested Amount for Series
1995-1 equals (a) less than 13% of the Senior Invested
Amount for Series 1995-1 for any three consecutive
Determination Dates or (b) less than 10% of the Senior
Invested Amount for Series 1995-1 on any Determination
Date;
(xiii) on the next succeeding Payment Date after
(A) any withdrawal from the Series 1995-1 Cash
Collateral Sub-Account or (B) any increase in the Cash
Collateral Maintenance Amount for Series 1995-1, the
amount on deposit in such Cash Collateral Sub-Account
is less than the Cash Collateral Maintenance Amount for
Series 1995-1, after giving effect to any refunding of
such Cash Collateral Sub-Account on such Payment Date;
(xiv) for any two consecutive Settlement Periods, the
sum of (a) the amount of funds on deposit in the
Negative Carry Account on the Payment Date immediately
following each such Settlement Period PLUS (b) the
Aggregate Certificateholder Interest Collections for
Series 1995-1 received during each such Settlement
Period shall be less than the Required Monthly Payment
Amount due for Series 1995-1 on the Payment Date
immediately following each such respective Settlement
Period;
(xv) the Weighted Average Factoring Fee shall be less
than .75%;
(xvi) any Settlement Statement due on any Determina-
tion Date shall state that, or facts shall exist such
that, the Weighted Average Receivable Life of all
Receivables in Designated Accounts at any time during
the three-month period ended on the last day of the
immediately preceding Settlement Period exceeds 70
days;
(xvii) the Settlement Statement due on any Determina-
tion Date reports that, or facts shall exist such that,
Series 1995-1 Actual Receivables Dilution Nonpayment
exceeds 11% for the related Settlement Period;
(xviii) the Accumulation Event described in clause (e)
of the definition of "Accumulation Event" shall have
existed for 30 consecutive Business Days;
(xix) on any Determination Date, the average of the
Receivable Payment Ratios for the three immediately
preceding Settlement Periods shall be less than 40%;
(xx) the Settlement Statement due on any Determination
Date reports that, or facts shall exist such that, as
of the last day of the related Settlement Period
(A) the aggregate Unpaid Balance of Receivables that
are at least 60 days past due on such date exceeds 30%
of the Unpaid Balance of all Eligible Receivables on
such date; or (B) the aggregate Unpaid Balance of
Receivables that are at least 90 days past due on such
date exceeds 10% of the Unpaid Balance of all Eligible
Receivables on such date; or
(xxi) on any Determination Date, the average of the
Subordinated Invested Amount for Series 1995-1 as of
such Determination Date and the two immediately
preceding Determination Dates shall be less than 13% of
the average of the Senior Invested Amount for Series
1995-1 as of such Determination Dates;
PROVIDED that the event described in clause (xv) above shall not
constitute a declarable Early Amortization Event or Prospective
Early Amortization Event under this Section 12(a) unless such
event shall have occurred on three consecutive Determination
Dates; and PROVIDED that the events described in clauses (iv),
(viii) and (xii)(a) above shall not constitute Prospective Early
Amortization Events unless such events shall have occurred on
three consecutive Determination Dates; and PROVIDED FURTHER that
the events described in clauses (v) and (x) above shall not
constitute Prospective Early Amortization Events unless such
events shall have occurred on three consecutive Determination
Dates, it being understood that these provisos as to Prospective
Early Amortization Events shall not limit the status of the
events in such clauses as declarable Early Amortization Events;
then, an "Early Amortization Event" shall exist,
in the case of any event described in subparagraphs (i) through
(iv), (vi) through (ix) and (xi) through (xxi) above, if the
Trustee or the Majority Certificateholders of Series 1995-1 give
notice thereof in writing to the Transferor, the Trustee and the
Servicer and in such notice declare that an Early Amortization
Event has occurred as of the date of such notice with respect to
Series 1995-1, and in the case of any event described in
subparagraphs (v) and (x), immediately upon the occurrence of
such event and without any notice or other action on the part of
the Majority Certificateholders of Series 1995-1, the Trustee or
the Servicer.
(b) No Early Amortization Event with respect to the
Series 1995-1 Certificates may be waived without the consent of
each Series 1995-1 Certificateholder.
(c) With respect to Section 9.01(c) of the Agreement,
this Supplement hereby provides for the treatment of subparagraph
(vii) of Section 9.01 of the Agreement as set forth in such
Section 9.01(c).
SECTION 13. FUNDING OF CASH COLLATERAL SUB-ACCOUNT AND
NEGATIVE CARRY ACCOUNT.
(a) On or prior to the Closing Date the Transferor
shall deposit into the Cash Collateral Sub-Account for Series
1995-1 an amount equal to $562,500. On or before each Drawdown
Date the Transferor shall deposit into the Cash Collateral Sub-
Account for Series 1995-1 funds sufficient to cause the amounts
on deposit in such Sub-Account to equal the Cash Collateral
Maintenance Amount that will be required after giving effect to
the Drawdown occurring on such Drawdown Date.
(b) On or prior to the Closing Date the Transferor
shall deposit or cause to be deposited into the Negative Carry
Account an amount equal to $250,000. On or before the Business
Day preceding each Payment Date, the Transferor shall pay to the
Trustee for deposit into the Negative Carry Account funds equal
to any Negative Carry Amount for such Payment Date, and if the
amounts on deposit in such Account, after giving effect to any
withdrawal therefrom on such Payment Date, are less than double
the Negative Carry Amount for such Payment Date, the Transferor
on or before such Payment Date shall pay to the Trustee for
deposit into the Negative Carry Account funds in the amount of
such insufficiency; if the amounts on deposit in such Account,
after giving effect to any withdrawal therefrom on such Payment
Date, are greater than double the Negative Carry Amount for such
Payment Date, the Trustee, at the Servicer's direction and
certification, shall withdraw the amount of such excess from the
Negative Carry Account and pay such amount to the Transferor.
SECTION 14. DEFINITIONS.
For the purposes of the Agreement and this Supplement,
the following terms shall be defined as follows and shall
supersede, with respect to the Series 1995-1 Investor
Certificates, any definitions stated in Article I of the
Agreement or Annex X thereto:
"125TH ACCOUNT MULTIPLIER" for any Business Day shall
mean (a) 1.0000 if the 125th Account Rolling Average for such day
is equal to or greater than 1.0000 or (b) the 125th Account
Rolling Average for such day if the 125th Account Rolling Average
for such day is less than 1.0000.
"125TH ACCOUNT ROLLING AVERAGE" for any Business Day
shall mean the average (rounded to the fourth decimal place) of
the 125th Account Daily Fractions for such Business Day and each
of the 9 immediately preceding Business Days.
"125TH ACCOUNT DAILY FRACTION" for any Business Day
shall mean a fraction (rounded to the fourth decimal place) the
numerator of which is equal to the 125th Account Advance Amount
and the denominator of which is equal to $50,000.
"125TH ACCOUNT ADVANCE AMOUNT" for any Business Day
shall have the meaning set forth in the two immediately
succeeding sentences. On each Business Day, the Servicer shall
list all Designated Accounts in descending order according to the
amount of outstanding Series 1995-1 Secondary Eligible Advances
in each Designated Account. The "125th Account Advance Amount"
for such Business Day shall be the amount of outstanding Series
1995-1 Secondary Eligible Advances in the 125th Designated
Account on such list. For purposes of this definition, all
Designated Accounts of Clients that are affiliated with each
other shall be deemed to be a single Designated Account.
"ACCUMULATION CONTINUATION EVENT" means, solely for
purposes of the second parenthetical clause in Section
4.05(a)(iv), that on any Business Day the Series 1995-1
Allocation Percentage of the aggregate Unpaid Balance of Series
1995-1 Secondary Eligible Receivables shall be less than the
difference of (a) 135% of the Senior Invested Amount for Series
1995-1 minus (b) the sum of all amounts on deposit in the Series
1995-1 Excess Funding Sub-Account and Series 1995-1 Accumulation
Sub-Account.
"ACCUMULATION EVENT", for Series 1995-1, shall mean (a)
the occurrence on any one Determination Date of an event
described in clause (x) or (xv) of Section 12(a) of this
Supplement or the occurrence on any day of any event described in
clauses (xi)(A) or (xi)(C) of Section 12(a) of this Supplement,
(b) the occurrence on any day of a withdrawal from the Cash
Collateral Sub-Account for Series 1995-1 which reduces the amount
on deposit in such Cash Collateral Sub-Account below the Cash
Collateral Maintenance Amount for Series 1995-1, (c) the
termination of Factors as the Servicer for any reason pursuant to
Section 10.01 of the Agreement, (d) the occurrence of a breach of
the Transferor's covenants in Section 2.06(h) or (k) of the
Agreement or (e) on any Business Day there are not at least 300
Customers each with Receivables having an aggregate Unpaid
Balance of at least $50,000.
"AGGREGATE CERTIFICATEHOLDER INTEREST COLLECTIONS"
means, for any Settlement Period, the aggregate amount of
Collections deposited into the Interest Funding Sub-Account for
Series 1995-1 pursuant to Sections 4.04(d) and 4.05(a)(ii) during
such Settlement Period.
"AUDIT REQUEST" shall mean a written request delivered
by any Series 1995-1 Class A Certificateholder to Factors or the
Transferor, as the case may be, stating that such
Certificateholder (i) is reasonably concerned about its
investment in its Certificates and (ii) requests the performance
of a Special Audit in accordance with Section 3(b)(1) or Section
3(b)(2), as the case may be.
"AVAILABLE CERTIFICATEHOLDER PRINCIPAL COLLECTIONS"
means for any Business Day the product of (a) the Series 1995-1
Allocation Percentage of Principal Collections for such Business
Day times either (b) if such Business Day is during the Revolving
Period, the Series 1995-1 Floating Allocation Percentage on such
Business Day or (c) if such Business Day is during an
Amortization Period, the Series 1995-1 Principal Allocation
Percentage on such Business Day.
"BEGINNING SENIOR INVESTED AMOUNT" means $15,000,000.
"CASH COLLATERAL MAINTENANCE AMOUNT" for Series 1995-1
shall at any time be the greater of (a) the product of 3.75%
times the Initial Senior Invested Amount and (b) three times the
sum of Monthly Senior Interest plus Monthly Servicing Fee.
"CERTIFICATE RATE" for the Series 1995-1 Senior
Certificates has the meaning specified for "Series 1995-1 Senior
Certificate Rate" in Section 4 of this Supplement. Interest on
the Series 1995-1 Subordinated Certificates will not accrue at
the Certificate Rate, but the Holders of the Series 1995-1
Subordinated Certificates shall, in certain cases, be entitled on
each Payment Date to payment of the Monthly Subordinated Interest
for the related Settlement Period.
"CLOSING DATE", with respect to the Series 1995-1
Investor Certificates, shall mean July 28, 1995.
"DAILY SERVICER PRINCIPAL ADVANCE INTEREST" means, for
any day, in respect of a Servicer Principal Advance, 1/365th of
the product of (i) the rate of interest applicable to the Advance
to which such Servicer Principal Advance relates and (ii) the
balance of such Servicer Principal Advance on such day.
"DAILY SERVICING FEE" means for any day, 1/365th of the
product of (i) the Servicing Fee Percentage and (ii) the amount
of the Invested Amount of the Series 1995-1 Certificates on such
day.
"DAILY TRANSFEROR PRINCIPAL COLLECTIONS" means the
product of (i) the Series 1995-1 Transferor's Percentage on any
Business Day times (ii) the Series 1995-1 Allocation Percentage
of Principal Collections for such Business Day.
"DAILY TRUSTEE FEE", with respect to the Series 1995-1
Investor Certificates, has the meaning set forth in Section 5 of
this Supplement.
"DRAWDOWN" means the funding from time to time of
increases of the Senior Invested Amount through withdrawals from
the Pre-Funding Account pursuant to Section 9(b) hereof.
"DRAWDOWN CERTIFICATE" means a certificate signed by
the Chairman of the Board, President, Treasurer, Controller,
Chief Financial Officer or any Vice President of the Transferor
substantially in the form of Exhibit 9(b)(i) to this Supplement.
"DRAWDOWN DATE" has the meaning set forth in Section
9(b) of this Supplement.
"DRAWDOWN SENIOR AMOUNT" for any Drawdown means an
amount not exceeding the Pre-Funded Amount and not less than
$5,000,000 (unless the Pre-Funded Amount is less than $5,000,000)
specified in the applicable Drawdown Certificate to be withdrawn
from the Pre-Funding Account and paid to the Transferor.
"DRAWDOWN SUBORDINATED AMOUNT" for any Drawdown means
an amount sufficient to cause the Subordinated Deficiency Amount
not to exceed zero on the related Drawdown Date after giving
effect to the funding of the Drawdown Senior Amount.
"FULL SENIOR INVESTED AMOUNT" means for any day an
amount equal to (a) the Senior Invested Amount on such day plus
(b) the Pre-Funded Amount on such day.
"FUNDING PERIOD" means the period beginning on the
Closing Date and ending on the earlier of (a) the last Business
Day of the Settlement Period in which the first anniversary of
the Closing Date occurs and (b) the day on which an Early
Amortization Event occurs.
"GROWTH TEST ADDITIONAL ACCOUNT" means an Additional
Account as to which both (a) the related Client shall not have
been a Client of Factors for a continuous period of at least
three months immediately preceding the Addition Date for such
Additional Account and (b) Factors shall not have had in its
underwriting files on such Addition Date historical financial and
receivables performance data, including dilution and chargeoff
data, covering a period of at least one year immediately
preceding such Addition Date.
"INITIAL INVESTED AMOUNT" means the sum of the Initial
Senior Invested Amount plus the Initial Subordinated Invested
Amount plus all Drawdown Subordinated Amounts.
"INITIAL SENIOR INVESTED AMOUNT" means the sum of the
Beginning Senior Invested Amount plus all Drawdown Senior
Amounts.
"INITIAL SUBORDINATED INVESTED AMOUNT" means $2,250,000
(the initial amount of the Series 1995-1 Subordinated
Certificate).
"INTEREST ACCRUAL PERIOD" means, for the Series 1995-1
Senior Certificates, the period from and including the Closing
Date to and including the calendar day immediately preceding the
initial Payment Date, and each period from and including a
Payment Date to and including the calendar day immediately
preceding the next Payment Date.
"LIBOR" shall mean the London interbank offered
quotations rate for one-month U.S. dollar deposits as determined
by the Trustee in accordance with Section 4 of this Supplement.
"LIBOR BUSINESS DAY" shall mean any day other than
(a) a Saturday or a Sunday, (b) any other day on which the
Servicer is closed, as specified on the list furnished by the
Servicer pursuant to Section 3.03(n) of the Pooling and Servicing
Agreement or (c) another day on which dealings in deposits in
United States Dollars are not transacted in the London interbank
market.
"LIBOR DETERMINATION DATE" for the Closing Date or for
any Interest Accrual Period, as the case may be, shall mean the
second LIBOR Business Day immediately preceding the commencement
of such Interest Accrual Period.
"LIMITED RECOURSE PROMISSORY NOTE" shall mean a limited
recourse promissory note issued by the Transferor to a Series
1995-1 Senior Certificateholder pursuant to which the Transferor
promises to pay to such Certificateholder the amounts such
Certificateholder is entitled to receive pursuant to the
Agreement, this Supplement and the Series 1995-1 Senior
Certificates.
"MONTHLY SENIOR INTEREST" for any Payment Date shall
mean an amount equal to one-twelfth of the product of (a) the
Certificate Rate times (b) the Full Senior Invested Amount as of
the close of business on the preceding Payment Date after giving
effect to all repayments of principal made to the Holders thereof
on such preceding Payment Date, if any; PROVIDED, HOWEVER, that,
with respect to the first Payment Date, Monthly Senior Interest
shall be equal to $178,125.
"MONTHLY SERVICING FEE" for any Payment Date shall mean
an amount equal to the sum of the Daily Servicing Fees on each
day in the immediately preceding Settlement Period.
"MONTHLY SUBORDINATED INTEREST" for any Payment Date
shall mean an amount, which shall in no event be less than zero,
equal to the difference between the Aggregate Certificateholder
Interest Collections for the related Settlement Period minus the
amounts, if any, paid on such Payment Date pursuant to Sections
4.04(f)(i), (ii), (iii)(A) first, second and third, and (iii)(B)
first and second.
"NEGATIVE CARRY ACCOUNT" has the meaning set forth in
Section 22(f) of this Supplement.
"NEGATIVE CARRY AMOUNT" has the meaning set forth in
Section 4.04(f)(i).
"NEGATIVE SPREAD SHORTFALL" shall mean, with respect to
the Series 1995-1 Senior Certificates, the shortfall occurring
when the amount of Interest Collections in the Series 1995-1
Interest Funding Sub-Account to be applied on any Payment Date is
less than the amount of the Monthly Senior Interest due on such
Payment Date, but only to the extent such shortfall is
attributable to the Certificate Rate for the Series 1995-1 Senior
Certificates of such Series being in excess of the weighted
average interest rate on the underlying Eligible Advances.
"OFFICER'S CERTIFICATE" of the Transferor means a
certificate signed by the Chairman of the Board, President,
Treasurer, Controller, Chief Financial Officer or any Vice
President of the Transferor.
"PAYMENT DATE" shall mean, for each Settlement Period,
the fifteenth day of the next succeeding month (or if such day is
not a Business Day, the next succeeding Business Day) commencing
August 15, 1995.
"PRE-FUNDED AMOUNT" means on any day (a) $35,000,000
minus (b) the sum of all Drawdown Senior Amounts on or prior to
such day minus (c) any Prepayment Amount distributed pursuant to
Section 22(e) of this Supplement and Section 4.05(e)(i).
"PRE-FUNDING ACCOUNT" has the meaning set forth in
Section 22 of this Supplement.
"PREPAYMENT AMOUNT" has the meaning set forth in
Section 22(e) of this Supplement
"PREPAYMENT ASSUMPTIONS" means the following
assumptions that shall be used in calculating any Prepayment
Premium: (i) for purposes of calculating Monthly Senior Interest,
the Full Senior Invested Amount is assumed to be replaced by the
Prepayment Amount, (ii) the Certificate Rate for the calculation
of Monthly Senior Interest is assumed to be the Certificate Rate
calculated as of the Prepayment Date (with the LIBOR
Determination Date being for such purpose the second LIBOR
Business Day immediately preceding such Prepayment Date), and
(iii) the discount rate for calculating present values is equal
to the sum of LIBOR as of the Prepayment Date (with the LIBOR
Determination Date being for such purpose the second LIBOR
Business Day immediately preceding such Prepayment Date) plus
.50%.
"PREPAYMENT DATE" has the meaning set forth in Section
22(e) of this Supplement.
"PREPAYMENT PREMIUM" means an aggregate amount payable
pro rata to the Series 1995-1 Senior Certificateholders pursuant
to Section 22(e) of this Supplement and shall be an amount equal
to the difference, if positive, of (a) the sum of (i) the present
value on the Prepayment Date of the Monthly Senior Interest
payments in respect of the Prepayment Amount to and including
August 15, 2000 plus (ii) the present value on the Prepayment
Date of the Prepayment Amount paid on August 15, 2000 MINUS (b)
the Prepayment Amount; provided, however, that all of the
preceding calculations shall be based on the Prepayment
Assumptions.
"RECEIVABLE PAYMENT RATIO", for any Settlement Period,
shall mean a fraction, expressed as a percentage, the numerator
of which is the aggregate of all Collections received during such
Settlement Period and the denominator of which is the aggregate
Unpaid Balance of all Receivables on the first day of such
Settlement Period.
"RECORD DATE" shall mean, with respect to any Payment
Date or Special Payment Date, the last Business Day of the
immediately preceding Settlement Period, except that with respect
to the first Payment Date the Record Date shall be the Closing
Date.
"REFERENCE BANKS" shall mean the three leading banks,
selected by the Servicer in accordance with Section 4 hereof,
quoting London interbank offered quotations rates for one-month
U.S. dollar deposits in the City of New York, New York.
"REQUIRED MONTHLY PAYMENT AMOUNT" for any Settlement
Period shall mean the Monthly Senior Interest due on the
following Payment Date or Special Payment Date.
"REQUIRED RECEIVABLE COVERAGE" shall mean, for Series
1995-1, a percentage amount, initially 135%, that shall be
increased by 2% for each 1% that the Required Subordinated
Percentage of Series 1995-1 is increased on any Determination
Date other than as a result of (a) the purchase by any Series
1995-1 Subordinated Certificateholder of additional Series 1995-1
Subordinated Certificates or (b) a Drawdown.
"REQUIRED SUBORDINATED AMOUNT" shall mean, with respect
to Series 1995-1, the product of the Required Subordinated
Percentage for such Series times the Initial Senior Invested
Amount for such Series.
"REQUIRED SUBORDINATED PERCENTAGE", with respect to
Series 1995-1, shall be reset on each Determination Date and
shall mean the sum of 15% plus the greatest of (x) and (y) and
(z), where (x) is the percentage amount by which the average
Series 1995-1 Actual Receivables Nonpayment for any three
consecutive Settlement Periods shall have exceeded 13% and (y) is
the percentage amount by which the average Series 1995-1 Actual
Receivables Dilution Nonpayment for any three consecutive
Settlement Periods shall have exceeded 9% and (z) is the
percentage amount, if any, by which the average of the aggregate
Unpaid Balances of Receivables that are at least 60 days past due
on the last days of such Settlement Period and the two
immediately preceding Settlement Periods exceeds 5% of the
average of the Unpaid Balances of all Receivables that are not
Aged Receivables on such dates. In no case shall the Required
Subordinated Percentage decrease once it has increased.
"SCHEDULED AMORTIZATION PERIOD COMMENCEMENT DATE", with
respect to the Series 1995-1 Investor Certificates, means July
28, 2000.
"SCHEDULED MATURITY DATE", with respect to the Series
1995-1 Investor Certificates, means the Payment Date in January,
2001.
"SENIOR INVESTED AMOUNT", when used in the Agreement
with respect to Series 1995-1 and when used in this Supplement,
shall mean for any day an amount equal to (a) the Beginning
Senior Invested Amount MINUS (b) the aggregate amount of payments
of principal paid with respect to the Series 1995-1 Senior
Certificates prior to such day (other than payments in respect of
a Prepayment Amount from the Pre-Funding Account) PLUS (c) the
sum of all Drawdown Senior Amounts.
"SERIES 1995-1 ACTUAL RECEIVABLE COVERAGE" shall be
determined on each Business Day and shall be a percentage amount
determined by dividing the aggregate Unpaid Balance of Series
1995-1 Secondary Eligible Receivables by the difference of (a)
the aggregate of the Senior Invested Amounts of all Series then
outstanding MINUS (b) the sum of all amounts on deposit on such
Business Day in the Excess Funding Account and Accumulation
Account (including in each case the sub-accounts thereof for all
Series).
"SERIES 1995-1 ACTUAL RECEIVABLES DILUTION NONPAYMENT"
shall be determined on any Determination Date for the immediately
preceding Settlement Period and shall be a percentage amount
determined by dividing the aggregate Unpaid Balance of
Receivables that were charged back by Factors to the applicable
Client during such Settlement Period by the sum of such aggregate
Unpaid Balance and the aggregate Unpaid Balance of Receivables
that were paid during such Settlement Period but had not been so
charged back when so paid.
"SERIES 1995-1 ACTUAL RECEIVABLES NONPAYMENT" shall be
determined on any Determination Date for the immediately
preceding Settlement Period and shall be a percentage amount
determined by dividing the aggregate Unpaid Balance of
Receivables that became Aged Receivables during such Settlement
Period by the sum of such aggregate Unpaid Balance and the
aggregate Unpaid Balance of Receivables that were paid during
such Settlement Period but were not Aged Receivables when so
paid.
"SERIES 1995-1 ALLOCATION PERCENTAGE" means, for any
date, the percentage equivalent of a fraction, the numerator of
which is the Invested Amount for Series 1995-1 as of the last day
of the immediately preceding Settlement Period (and in the event
a Drawdown shall have occurred on such day, after giving effect
thereto) and the denominator of which is the Aggregate Invested
Amount as of such last day (and in the event a Drawdown shall
have occurred on such day, after giving effect thereto).
"SERIES 1995-1 CRP-RELIANT DESIGNATED ACCOUNT" shall
mean any Designated Account (that is an Eligible Account) the
Series 1995-1 Secondary Eligible Advance of which (after giving
effect to the first test of the Series 1995-1 Ratio Test) shall
exceed the product of .9 and the sum of the Unpaid Balances of
all Eligible Receivables in such Designated Account.
"SERIES 1995-1 DISPERSION CONCENTRATION LIMIT" shall
mean that (a) the maximum aggregate Unpaid Balance for all
Advances of the 5 Clients with the largest Unpaid Balances of
Advances that may be included in the calculation of "Series 1995-
1 Secondary Eligible Advances" shall not exceed an amount equal
to the product of the 125th Account Multiplier TIMES 25% of the
Eligible Pool Balance as of the applicable date of determination
and (b) the maximum aggregate Unpaid Balance for all Advances of
the 10 Clients with the largest Unpaid Balances of Advances that
may be included in the calculation of "Series 1995-1 Secondary
Eligible Advances" shall not exceed an amount equal to the
product of the 125th Account Multiplier TIMES 40% of the Eligible
Pool Balance as of the applicable date of determination and (c)
the maximum aggregate Unpaid Balance for all Advances of the 15
Clients with the largest Unpaid Balances of Advances that may be
included in the calculation of "Series 1995-1 Secondary Eligible
Advances" shall not exceed an amount equal to the product of the
125th Account Multiplier TIMES 50% of the Eligible Pool Balance
as of the applicable date of determination and (d) the maximum
aggregate Unpaid Balance for all Advances of the 20 Clients with
the largest Unpaid Balances of Advances that may be included in
the calculation of "Series 1995-1 Secondary Eligible Advances"
shall not exceed an amount equal to the product of the 125th
Account Multiplier TIMES 60% of the Eligible Pool Balance as of
the applicable date of determination and (e) the maximum
aggregate Unpaid Balance for all Advances of the 50 Clients with
the largest Unpaid Balances of Advances that may be included in
the calculation of "Series 1995-1 Secondary Eligible Advances"
shall not exceed an amount equal to the product of the 125th
Account Multiplier TIMES 80% of the Eligible Pool Balance as of
the applicable date of determination.
"SERIES 1995-1 FIRST RECEIVABLES CONCENTRATION LIMIT"
shall mean at any time with respect to each Receivable, a maximum
Unpaid Balance for all Receivables of a single Customer that may
be included in the calculation of "Series 1995-1 Secondary
Eligible Receivables" and shall be an amount equal to a certain
percentage (set forth in the next sentence) of the aggregate
Unpaid Balance of all Eligible Receivables in Designated Accounts
as of the date of determination. If the related Customer's
senior unsecured debt rating as published by the Rating Agencies
shall be: (i) at least "AA" or the equivalent, such percentage
shall be 10%, (ii) at least "A" or the equivalent but below "AA"
or the equivalent, such percentage shall be 5%, (iii) at least
"BBB" or the equivalent but below "A" or the equivalent, such
percentage shall be 3% and (iv) below BBB or unrated, such
percentage shall be 1%, except that, at the option of the
Servicer, (a) for an additional 5 Customers rated below "BBB" or
the equivalent or unrated, such percentage shall be 1.5%, (b) for
an additional 10 Customers rated below "BBB" or the equivalent or
unrated, such percentage shall be 2% and (c) for any Customer
rated below "BBB" or the equivalent or unrated that is wholly
owned by a company rated "BBB" or the equivalent or above, such
percentage shall be 2%, PROVIDED, HOWEVER, that the maximum
Unpaid Balance for all Series 1995-1 Secondary Eligible
Receivables of such Customer, when aggregated with the Series
1995-1 Secondary Eligible Receivables of any of such Customer's
direct or indirect parent companies, shall not exceed the highest
Series 1995-1 First Receivables Concentration Limit on any of
such Customer's direct or indirect parent companies.
"SERIES 1995-1 FLOATING ALLOCATION PERCENTAGE" for any
day means the percentage equivalent (which shall never exceed
100%) of a fraction, the numerator of which is the Invested
Amount of Series 1995-1 as of the end of the last day of the
immediately preceding Settlement Period (and in the event a
Drawdown shall have occurred on such day, after giving effect
thereto), and the denominator of which is the sum of (a) the
product of the Eligible Pool Balance as of the end of the last
day of the immediately preceding Settlement Period multiplied by
the Series 1995-1 Allocation Percentage for such date plus (b)
amounts on deposit in the Series 1995-1 sub-account of the Excess
Funding Account as of the end of the last day of the immediately
preceding Settlement Period PROVIDED, HOWEVER, that, with respect
to the first Settlement Period, the Series 1995-1 Floating
Allocation Percentage shall mean 88.3599%.
"SERIES 1995-1 GROWTH TEST" shall mean that, for each
Business Day, if the sum on such Business Day of all Eligible
Advances in the Growth Test Additional Accounts that were added
to the Trust pursuant to Section 2.05 of the Agreement in the
preceding 90 days exceeds 7.5% of the Eligible Pool Balance on
such Business Day, then such excess Eligible Advances shall not
constitute "Series 1995-1 Secondary Eligible Advances" on such
Business Day.
"SERIES 1995-1 HIGHER CONCENTRATION ACCOUNT" shall mean
no more than ten Designated Accounts identified by the Transferor
that shall not be subject to the Series 1995-1 Normal
Concentration Limit but shall be subject to the Series 1995-1
Higher Concentration Limit and the Series 1995-1 Dispersion
Concentration Limit.
"Series 1995-1 Higher Concentration Limit" shall mean
at any time with respect to the Advance in each Series 1995-1
Higher Concentration Account, the maximum Unpaid Balance for the
Advance in such Series 1995-1 Higher Concentration Account that
may be included in the calculation of "Series 1995-1 Secondary
Eligible Advances" and shall be an amount equal to the product of
the 125th Account Multiplier TIMES 5% of the Eligible Pool
Balance as of the applicable date of determination.
"SERIES 1995-1 INVESTOR CERTIFICATES" shall have the
meaning set forth in the preliminary statement to this
Supplement.
"SERIES 1995-1 NORMAL CONCENTRATION LIMIT" shall mean
at any time with respect to each Advance, the maximum Unpaid
Balance for the Advance of a single Client Obligor that may be
included in the calculation of "Series 1995-1 Secondary Eligible
Advances" and shall be an amount equal to the product of the
125th Account Multiplier TIMES 3% of the Eligible Pool Balance as
of the applicable date of determination.
"SERIES 1995-1 PARTICIPATION DEFICIENCY AMOUNT" shall
mean, for any Business Day, the amount (if any) by which the
Transferor's Required Participation Amount exceeds the
Transferor's Current Participation Amount.
"SERIES 1995-1 PRINCIPAL ALLOCATION PERCENTAGE" for any
date means the percentage equivalent (which shall never exceed
100%) of a fraction, the numerator of which is the Invested
Amount of Series 1995-1 as of the last day of the Revolving
Period or, in the event that an Early Amortization Event has
occurred prior to the end of the Revolving Period, the last day
of the Settlement Period occurring in the month immediately
preceding the month in which such Early Amortization Event
occurred, and the denominator of which is (a) the product of the
Eligible Pool Balance as of the end of the last day of the
immediately preceding Settlement Period multiplied by the Series
1995-1 Allocation Percentage for such date plus (b) amounts on
deposit in the Series 1995-1 sub-account of the Excess Funding
Account as of the end of the last day of the immediately
preceding Settlement Period.
"SERIES 1995-1 PRINCIPAL FUNDING SUB-ACCOUNT" shall
mean the Principal Funding Sub-Account established by the Trustee
pursuant to this Supplement for the benefit of the Series 1995-1
Investor Certificateholders in accordance with Section 4.02(m).
"SERIES 1995-1 RATIO TEST" shall mean the following
four tests that determine the extent to which an Advance or
Receivable is a "Series 1995-1 Secondary Eligible Advance" or
"Series 1995-1 Secondary Eligible Receivable".
FIRST, the Series 1995-1 Ratio Test requires that the
Advance in each Designated Account that is an Eligible
Account shall satisfy this first test only to the extent
that the aggregate amount of such Advance does not exceed
"EA" as calculated pursuant to the following formula for
such Designated Account (the aggregate amount of such
Advance in excess of such "EA" shall be excluded from the
further determinations under the second, third and fourth
tests set forth below):
[CAPTION]
<TABLE>
<S> <C>
EA = (R X F) + {the lesser of (R X F) and CRP}
EA = the amount of the Advance in such
Designated Account that is available to
satisfy the second test;
R = the sum of the Unpaid Balances of all
Eligible Receivables in such Designated
Account;
F = .85 if such Designated Account is a
Series 1995-1 Higher Concentration
Account and .9 if such Designated
Account is not a Series 1995-1 Higher
Concentration Account, and
CRP = the sum of all of the following property
which constitutes Certain Related
Property in respect of such Designated
Account for which the Trustee has a
first priority security therein subject
to no other Liens except lower priority
Liens in favor of a creditor or
creditors of Factors under Permitted
Intercreditor Agreements: 40% of
Presold Inventory constituting such
Certain Related Property + 100% of all
cash and cash equivalents constituting
such Certain Related Property + 80% of
marketable debt securities constituting
such Certain Related Property;
</TABLE>
SECOND, the Series 1995-1 Ratio Test requires that the sum
of all Series 1995-1 Secondary Eligible Advances (after
giving effect to the first test of the Series 1995-1 Ratio
Test) of all Series 1995-1 CRP-Reliant Designated Accounts
shall not exceed 30% of the Eligible Pool Balance. If such
sum of all Series 1995-1 Secondary Eligible Advances for
such Series 1995-1 CRP-Reliant Designated Accounts exceeds
30% of the Eligible Pool Balance on any date of determina-
tion, Advances and Receivables in such Series 1995-1
CRP-Reliant Designated Accounts with the highest ratios of
{EA / ((R X .9) + CRP)} as of such date shall be excluded
from Series 1995-1 Secondary Eligible Advances and Series
1995-1 Secondary Eligible Receivables respectively, until
the aforesaid sum does not exceed 30%. For purposes of this
second test,
[CAPTION]
<TABLE>
<S> <C> <C>
R = has the same definition as in the first
test of the Series 1995-1 Ratio Test;
EA = has the same definition as in the first
test of the Series 1995-1 Ratio Test,
and
CRP = has the same definition as in the first
test of the Series 1995-1 Ratio Test.
</TABLE>
The amounts of the Series 1995-1 Secondary Eligible Advance
and Series 1995-1 Secondary Eligible Receivables remaining
in each such Designated Account shall be used in the third
test below.
THIRD, after the calculation of EA for each Designated
Account that is an Eligible Account and after giving effect
to the second test of the Series 1995-1 Ratio Test, a
weighted ratio for each such Designated Account shall be
calculated as follows:
Weighted Ratio = {EA' / ((R X F) + CRP)} X EA' / Eligible
Pool Balance
[CAPTION]
<TABLE>
<S> <C> <C>
EA' = the amount of Series 1995-1 Secondary
Eligible Advance calculated for such
Designated Account after giving effect
to the first and second tests of the
Series 1995-1 Ratio Test;
R = has the same definition as in the first
test of the Series 1995-1 Ratio Test;
F = .85 if such Designated Account is a
Series 1995-1 Higher Concentration
Account and .9 if such Designated
Account is not a Series 1995-1 Higher
Concentration Account, and
CRP = has the same definition as in the first
test of the Series 1995-1 Ratio Test.
</TABLE>
The Weighted Ratios (each expressed as a percentage) for
each Designated Account shall be summed and if such sum for
all such Designated Accounts exceeds 85% on any date of
determination, Series 1995-1 Secondary Eligible Advances and
Series 1995-1 Secondary Eligible Receivables in Designated
Accounts with the highest ratios of {EA' / ((R X F) + CRP)}
as of such date shall be excluded from Series 1995-1
Secondary Eligible Advances and Series 1995-1 Secondary
Eligible Receivables respectively, until the aforesaid sum
of Weighted Ratios equals 85%.
FOURTH, after giving effect to the first three tests of the
Series 1995-1 Ratio Test, the following ratio (expressed as
a percentage) shall be calculated for each Designated
Account as follows:
Ratio = EA" / (R + CRP')
[CAPTION]
<TABLE>
<S> <C> <C>
EA" = the amount of Series 1995-1 Secondary
Eligible Advance calculated for such
Designated Account after giving effect
to the first three tests of the Series
1995-1 Ratio Test;
R = has the same definition as in the first
test of the Series 1995-1 Ratio Test,
and
CRP' = 100% of Certain Related Property for
such Designated Account.
</TABLE>
To the extent such Ratio exceeds 85%, an amount of Series
1995-1 Secondary Eligible Advances equal to such excess over
85% shall be summed with such excess from all other
Designated Accounts and if such total from all Designated
Accounts exceeds 3.5% of the Eligible Pool Balance before
giving effect to this fourth test, then Series 1995-1
Secondary Eligible Advances from the Designated Accounts
having the highest Ratios under this fourth test shall be
excluded in whole or in part from Series 1995-1 Secondary
Eligible Advances until such total for all Designated
Accounts equals 3.5%.
"SERIES 1995-1 SECOND RECEIVABLES CONCENTRATION LIMIT"
shall mean that (a) the maximum aggregate Unpaid Balance for all
Receivables of the five Customers with the largest Unpaid
Balances of Receivables that may be included in the calculation
of "Series 1995-1 Secondary Eligible Receivables" shall not
exceed 25% of the Unpaid Balance of all Eligible Receivables as
of the applicable date of determination and (b) the maximum
aggregate Unpaid Balance for all Receivables of the ten Customers
with the largest Unpaid Balances of Receivables that may be
included in the calculation of "Series 1995-1 Secondary Eligible
Receivables" shall not exceed 40% of the Unpaid Balance of all
Eligible Receivables as of the applicable date of determination
and (c) the maximum aggregate Unpaid Balance for all Receivables
of any three Customers that may be included in the calculation of
"Series 1995-1 Secondary Eligible Receivables" shall not exceed
15% of the Unpaid Balance of all Eligible Receivables as of the
applicable date of determination. For purposes of each of the
foregoing limits, any resulting ineligibility shall, in the case
of clause (c), be applied to the Customer with the highest aggre-
gate Unpaid Balance of Receivables, and in each case be taken
into account for subsequent calculations under this definition.
"SERIES 1995-1 SECONDARY ELIGIBLE ADVANCE" shall mean
an Advance under a Designated Account that is an Eligible
Account:
(i) that is an Eligible Advance as defined in Annex X
to the Agreement;
(ii) if such Designated Account is a Series 1995-1 CRP-
Reliant Designated Account, as to which the Trustee has a fully
perfected first priority security interest (as defined in the
UCC) in the Certain Related Property related to such Designated
Account;
(iii) that complies with the Series 1995-1 Normal
Concentration Limit or, in the case of an Advance in a Series
1995-1 Higher Concentration Account, complies with the Series
1995-1 Higher Concentration Limit (provided that any Advance that
partially complies with the Series 1995-1 Higher Concentration
Limit shall be a "Series 1995-1 Secondary Eligible Advance" in
the amount of such compliance);
(iv) that complies with the Series 1995-1 Dispersion
Concentration Limit;
(v) that meets the Series 1995-1 Ratio Test;
(vi) that is secured by Eligible Receivables not
subject to a Lien or security interest other than the Lien or
security interest therein of the Trustee, provided that a Lien or
security interest lower in priority shall be permitted for
purposes of this clause (vi) if (y) such Lien or security
interest is in favor of a creditor or creditors of the related
Client under Permitted Intercreditor Agreements and (z) the
aggregate Unpaid Balance of such Eligible Advance and all other
Eligible Advances secured by Receivables and subject to a
Permitted Intercreditor Agreement shall not exceed 19% of the
Eligible Pool Balance at any time; and
(vii) that meets the Series 1995-1 Growth Test.
"SERIES 1995-1 SECONDARY ELIGIBLE RECEIVABLE" shall
mean a Receivable under a Designated Account that is an Eligible
Account:
(i) that is an Eligible Receivable as defined in Annex
X to the Agreement;
(ii) that complies with the Series 1995-1 First
Receivables Concentration Limit (provided that any Receivable
that partially conforms with the Series 1995-1 First Receivables
Concentration Limit shall be a "Series 1995-1 Secondary Eligible
Receivable" in the amount of such conformance);
(iii) that complies with the Series 1995-1 Second
Receivables Concentration Limit (provided that any Receivable
that partially conforms with the Series 1995-1 Second Receivables
Concentration Limit shall be a "Series 1995-1 Secondary Eligible
Receivable" in the amount of such conformance);
(iv) that meets the Series 1995-1 Ratio Test; and
(v) that is not subject to a Lien or security interest
other than the Lien or security interest therein of the Trustee,
provided that a Lien or security interest lower in priority shall
be permitted for purposes of this clause (vi) if (y) such Lien or
security interest is in favor of a creditor or creditors of the
related Client under Permitted Intercreditor Agreements and (z)
the aggregate Unpaid Balance of the Eligible Advance secured by
such Receivable and all other Eligible Advances secured by
Receivables and subject to a Permitted Intercreditor Agreement
shall not exceed 19% of the Eligible Pool Balance at any time.
"SERIES 1995-1 TRANSFEROR'S PERCENTAGE" for any date in
a Revolving Period means 100% minus the Series 1995-1 Floating
Allocation Percentage for such date and for any date in an
Amortization Period means 100% minus the Series 1995-1 Principal
Allocation Percentage for such date.
"SERIES TERMINATION DATE" has the meaning set forth in
Section 7 of this Supplement.
"SERVICING FEE PERCENTAGE" has the meaning set forth in
Section 5 of this Supplement.
"SPECIAL AUDIT" means an audit of the Servicer
conducted by a firm of Independent Public Accountants selected by
the Servicer upon the issuance of an Audit Request and consisting
of the procedures set forth in EXHIBIT A hereto.
"SPECIAL PAYMENT DATE" means each Payment Date during
an Amortization Period or following the Scheduled Maturity Date.
"SUBORDINATED INVESTED AMOUNT" shall mean, with respect
to Series 1995-1 for any day, an amount equal to (a) the Initial
Subordinated Invested Amount MINUS (b) the aggregate amount of
Principal Collections paid with respect to the Series 1995-1
Subordinated Certificates prior to such day MINUS (c) the
aggregate amount of Charge-offs allocated to the Series 1995-1
Subordinated Certificates pursuant to Section 4.06 prior to such
day PLUS (d) the initial Unpaid Balance of any additional Advance
purchased as a result of the existence of any Subordination
Deficiency Amount pursuant to Sections 4.04(f)(iii) and
4.06(c)(i) prior to such day PLUS (e) the purchase price (at par)
of any Additional Series 1995-1 Subordinated Certificates
purchased by any Holder of a Series 1995-1 Subordinated
Certificate pursuant to Section 6.09(d) of the Agreement PLUS (f)
the sum of all Drawdown Subordinated Amounts.
"SUBORDINATION DEFICIENCY AMOUNT" shall mean, with
respect to Series 1995-1 for any Business Day, the amount (if
any) by which the Required Subordinated Amount for Series 1995-1
exceeds the Subordinated Invested Amount for Series 1995-1.
"TELERATE PAGE 3750" shall mean the display page so
designed by the Dow Jones Telerate Service, or any other page as
may replace that page on that service for the purpose of
displaying comparable rates or prices.
"TRANSFEROR'S CURRENT PARTICIPATION AMOUNT" for any
date shall mean an amount equal to (a) the product of the
Eligible Pool Balance multiplied by the Series 1995-1 Allocation
Percentage, minus (b) the Invested Amount of Series 1995-1 on
such date, plus (c) the amount on deposit on such date in the
Series 1995-1 Excess Funding Sub-Account.
"TRANSFEROR'S REQUIRED PARTICIPATION AMOUNT", at any
time, shall mean a dollar amount equal to 7% of the Initial
Invested Amount for Series 1995-1 at such time.
The words "HEREOF," "HEREIN" and "HEREUNDER" and words
of similar import when used in this Supplement shall refer to
this Supplement or the Agreement as a whole and not to any
particular provision of this Supplement or the Agreement, as the
case may be; the word "INCLUDING" (and with correlative meaning
"INCLUDE") means including without limiting the generality of any
description preceding such term; and Section, Schedule and
Exhibit references contained in this Agreement or this Supplement
are references to Sections, Schedules and Exhibits in or to the
Agreement or this Supplement unless otherwise specified.
Unless otherwise specified in this Supplement, all
accounting terms used herein shall be interpreted, all accounting
determinations hereunder shall be made, and all financial
statements required to be delivered hereunder shall be prepared
in accordance with generally accepted accounting principles as in
effect from time to time, applied on a basis consistent (except
for immaterial changes or changes concurred in by the independent
public accountants of Factors) with the most recent audited
consolidated financial statements of Factors and its consolidated
Subsidiaries.
SECTION 15. ACCRUAL OF INTEREST ON THE SERIES 1995-1 INVESTOR
CERTIFICATES.
Interest shall accrue on the Series 1995-1 Investor
Certificates from the Closing Date. Notwithstanding anything to
the contrary in the Agreement or this Supplement, no Series 1995-
1 Senior Certificateholder in its capacity as such shall have any
interest in Collections received prior to the Closing Date.
SECTION 16. DISTRIBUTIONS.
The Trustee shall send distributions to the Series
1995-1 Investor Certificateholders under Section 5.01 of the
Agreement to each Series 1995-1 Certificateholder by 12:00 P.M.
(New York City time) on each Payment Date by wire transfer of
immediately available funds to an account or accounts designated
by such Series 1995-1 Certificateholders, by written notice to
the Trustee and the Paying Agent given at least five days prior
to any Payment Date (such notice to remain effective with respect
to a Holder until different instructions from such Holder are
received by the Trustee and the Paying Agent), or if no such
notice is given, by check mailed as provided in Section 5.01 of
the Agreement.
SECTION 17. RATIFICATION OF AGREEMENT.
As supplemented by this Supplement, the Agreement is in
all respects ratified and confirmed and the Agreement as so
supplemented by this Supplement shall be read, taken, and
construed as one and the same instrument.
SECTION 18. THE TRUSTEE.
The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of
this Supplement or for or in respect of the Preliminary Statement
contained herein, all of which recitals are made solely by the
Transferor. The Trustee hereby represents and warrants that this
Supplement has been duly executed and delivered by it and that
this Supplement constitutes the legal, valid and binding
obligation of the Trustee, enforceable in accordance with its
terms (subject to the effect of any applicable bankruptcy,
insolvency, reorganization, moratorium or similar law affecting
creditors' rights generally)
SECTION 19. INSTRUCTIONS IN WRITING.
All instructions given by the Servicer to the Trustee
pursuant to this Supplement shall be in writing, and may be
included in a Daily Report or Settlement Statement.
SECTION 20. COUNTERPARTS.
This Supplement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an
original, but all of such counterparts shall together constitute
but one and the same instrument.
SECTION 21. GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF
PROCESS.
(a) THIS SUPPLEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK.
(b) JURISDICTION. Each of the parties hereto hereby
irrevocably and unconditionally submits to the nonexclusive
jurisdiction of New York State court or federal court of the
United States of America sitting in the Borough of Manhattan in
New York City, and any appellate court from any thereof, in any
action or proceeding arising out of or relating to this
Supplement, and each of the parties hereto hereby irrevocably and
unconditionally agrees that all claims in respect of any such
action or proceeding may be heard and determined in such New York
State or, to the extent permitted by law, in such federal court.
Each of the parties hereto agrees that a final judgment in any
such action or proceeding shall be conclusive and may be enforced
in other jurisdictions by suit on the judgment or in any other
manner provided by law.
(c) CONSENT TO SERVICE OF PROCESS. Each party to this
Supplement irrevocably consents to service of process in the
manner provided for notices in Section 13.05 of the Agreement.
Nothing in this Supplement will affect the right of any party to
this Supplement to serve process in any other manner permitted by
law.
SECTION 22. SERIES 1995-1 SUB-ACCOUNTS; PRE-FUNDING ACCOUNT;
PREPAYMENTS; NEGATIVE CARRY ACCOUNT.
(a) The Trustee shall establish within the Interest
Funding Account, Principal Funding Account, Excess Funding
Account, Cash Collateral Account and Accumulation Account an
Interest Funding Sub-Account, Principal Funding Sub-Account,
Excess Funding Sub-Account, Cash Collateral Sub-Account and
Accumulation Sub-Account, respectively, in each case in
accordance with Section 4.02 of the Agreement and for the benefit
of the Certificateholders of Series 1995-1.
(b) The Trustee, for the benefit of the
Certificateholders, shall establish or shall cause to be
established and maintained in the name of the Trustee, on behalf
of the Trust, a segregated trust account (the "PRE-FUNDING
ACCOUNT") that shall be an Eligible Trust Account, bearing a
designation clearly indicating that the funds deposited therein
are held for the benefit of the Series 1995-1 Senior
Certificateholders. The Pre-Funding Account shall be under the
sole dominion and control of the Trustee for the benefit of the
Series 1995-1 Senior Certificateholders from time to time. If,
at any time, the Pre-Funding Account ceases to be an Eligible
Trust Account, the Trustee shall within 10 Business Days of a
Responsible Officer learning of such event establish a new Pre-
Funding Account meeting the conditions specified above as an
Eligible Trust Account, transfer any cash and/or any investments
to such new Pre-Funding Account and from the date such new Pre-
Funding Account is established, it shall be the "Pre-Funding
Account". Neither the Transferor nor the Servicer, nor any
Person claiming by, through or under the Transferor or Servicer,
shall have any right, title or interest in, or any right to
withdraw any amount from, the Pre-Funding Account except to the
extent provided in this Supplement. The Transferor shall have
the revocable power to instruct the Trustee to make withdrawals
and payments from the Pre-Funding Account pursuant to Section
9(b) of this Supplement. Pursuant to the authority granted to
the Servicer pursuant to Section 3.01(a), the Servicer shall have
the revocable power to instruct the Trustee to make allocations,
withdrawals and payments from the Pre-Funding Account for the
purposes of carrying out the Servicer's, and, where applicable,
the Trustee's duties under Section 22(c) and (e) of this
Supplement.
(c) Funds on deposit in the Pre-Funding Account (other
than interest and investment earnings thereon) shall at the
direction of the Servicer be invested by the Trustee in Eligible
Investments that will mature so that such funds will be available
prior to the last Business Day of the Settlement Period in which
such investment is made. Any funds on deposit in the Pre-Funding
Account to be so invested shall be invested solely in Eligible
Investments. Any request by the Servicer to invest funds on
deposit in the Pre-Funding Account shall be in writing and shall
certify that the requested investment is an Eligible Investment
which matures at or prior to the time required hereby. The
Trustee shall maintain possession of the negotiable instruments
or securities, if any, evidencing the Eligible Investments
described in clause (a) of the definition thereof from the time
of purchase thereof until maturity. All interest and investment
earnings (net of losses and investment expenses) on funds on
deposit in the Pre-Funding Account shall be transferred to the
Interest Funding Sub-Account for Series 1995-1 and be treated as
Interest Collections in respect thereof. Neither the Transferor
nor the Servicer shall deposit any of their funds in the Pre-
Funding Account at any time, except as provided in Section 22(e)
of this Supplement.
(d) EXHIBIT 22(D) identifies the Pre-Funding Account
by setting forth the account number of such account, the account
designation of such account and the name and location of the
institution with which such account has been established.
(e) If on the last day of the Funding Period (after
giving effect to any Drawdown occurring on such day) the Pre-
Funded Amount is greater than zero, the Servicer shall instruct
(which instruction shall be certified by the Servicer to be true
and accurate and shall be accompanied by a Settlement Statement)
the Trustee to, and the Trustee shall, withdraw the Pre-Funded
Amount (the "PREPAYMENT AMOUNT") then on deposit in the Pre-
Funding Account and deposit such Amount in the Series 1995-1
Principal Funding Sub-Account for distribution to the Series
1995-1 Senior Certificateholders pro rata on the next succeeding
Payment Date (the "PREPAYMENT DATE") after the end of the Funding
Period. If the Prepayment Amount is greater than $100,000, the
Transferor shall pay to the Trustee for deposit in the Pre-
Funding Account on or before the Business Day immediately
preceding the Prepayment Date an amount equal to the Prepayment
Premium, provided that the Transferor shall not be obligated to
pay any Prepayment Premium if the Funding Period ended due to the
occurrence of an Early Amortization Event. The Trustee shall
distribute such Prepayment Premium to the Series 1995-1 Senior
Certificateholders pro rata on the Prepayment Date. If by the
opening of business on the Prepayment Date the Trustee shall not
have received such Prepayment Premium in full, the Trustee shall,
without direction from the Servicer, withdraw from funds
remaining in the Negative Carry Account after application of
Section 13(b) of this Supplement and Section 4.04(f)(i) an amount
equal to the lesser of (i) the unpaid amount of such Prepayment
Premium and (ii) the amount of funds so remaining in the Negative
Carry Account.
(f) The Trustee, for the benefit of the
Certificateholders, shall establish or shall cause to be
established and maintained in the name of the Trustee, on behalf
of the Trust, a segregated trust account (the "NEGATIVE CARRY
ACCOUNT") that shall be an Eligible Trust Account, bearing a
designation clearly indicating that the funds deposited therein
are held for the benefit of the Series 1995-1 Senior
Certificateholders. The Negative Carry Account shall be under
the sole dominion and control of the Trustee for the benefit of
the Series 1995-1 Senior Certificateholders from time to time.
If, at any time, the Negative Carry Account ceases to be an
Eligible Trust Account, the Trustee shall within 10 Business Days
of a Responsible Officer learning of such event establish a new
Negative Carry Account meeting the conditions specified above as
an Eligible Trust Account, transfer any cash and/or any
investments to such new Negative Carry Account and from the date
such new Negative Carry Account is established, it shall be the
"Negative Carry Account". Neither the Transferor nor the
Servicer, nor any Person claiming by, through or under the
Transferor or Servicer, shall have any right, title or interest
in, or any right to withdraw any amount from, the Negative Carry
Account except to the extent provided in this Supplement.
Pursuant to the authority granted to the Servicer pursuant to
Section 3.01(a), the Servicer shall have the revocable power to
instruct the Trustee to make allocations, withdrawals and
payments from the Negative Carry Account for the purposes of
carrying out the Servicer's, and, where applicable, the Trustee's
duties under this Supplement.
(g) Funds on deposit in the Negative Carry Account
(other than interest and investment earnings thereon) shall at
the direction of the Servicer be invested by the Trustee in
Eligible Investments that will mature so that such funds will be
available prior to the applicable Payment Date following such
investment. Any funds on deposit in the Negative Carry Account
to be so invested shall be invested solely in Eligible
Investments. Any request by the Servicer to invest funds on
deposit in the Negative Carry Account shall be in writing and
shall certify that the requested investment is an Eligible
Investment which matures at or prior to the time required hereby.
The Trustee shall maintain possession of the negotiable
instruments or securities, if any, evidencing the Eligible
Investments described in clause (a) of the definition thereof
from the time of purchase thereof until maturity. All interest
and investment earnings (net of losses and investment expenses)
on funds on deposit in the Negative Carry Account shall remain on
deposit in the Negative Carry Account and be applied as provided
in Sections 13(b) and 22(e) of this Supplement and Section
4.04(f)(i). Neither the Transferor nor the Servicer shall
deposit any of their funds in the Negative Carry Account at any
time, except as provided in Section 13(b) of this Supplement.
(h) EXHIBIT 22(H) identifies the Negative Carry
Account by setting forth the account number of such account, the
account designation of such account and the name and location of
the institution with which such account has been established.
SECTION 23. DEBT SECURITIES.
Notwithstanding anything contained herein to the con-
trary (including, without limitation, the form of the Series
1995-1 Investor Certificates), the parties hereto agree, and by
its acceptance of a Certificate each Certificateholder shall be
deemed to agree, that the Investor Certificates evidence debt and
such debt is further evidenced by the Limited Recourse Promissory
Notes. Nothing in this Section 23 or in any Limited Recourse
Promissory Note shall be deemed to diminish or otherwise
adversely affect in any way the rights of, and benefits to be
afforded to, the Holder of any Certificate as provided in the
Agreement, this Supplement and such Certificate, regardless of
whether or not such Holder of such Certificate shall at any time
also hold a Limited Recourse Promissory Note.
(TESTIMONIUM AND SIGNATURES FOLLOW)
IN WITNESS WHEREOF, the parties hereto have caused this
Supplement to be duly executed by their respective officers
thereunto duly authorized as of the date first above written.
CF FUNDING CORP.,
as Transferor
By: /s/ Dennis McDermott
Name: Dennis McDermott
Title: Treasurer
CAPITAL FACTORS, INC.,
individually and as Servicer
By: /s/ Dennis McDermott
Name: Dennis McDermott
Title: Senior Vice President
BANKERS TRUST COMPANY,
as Trustee
By: /s/ Marie C. Rasch
Name: Marie C. Rasch
Title: Vice President
EXHIBIT 10.9
CAPITAL BANK
PROMISSORY NOTE
Customer No.: 1353772
Note No.: 9001
$125,000,000.00
Date:
Maturity Date: On Demand
[x] IF CHECKED, THIS NOTE IS A MASTER NOTE (See Section 5)
[x] IF CHECKED, THIS NOTE IS A RENEWAL
FOR VALUE RECEIVED, the undersigned ("Borrower") promise(s)
to pay to the order of CAPITAL BANK, a Florida commercial bank
("Bank"), at the office of Bank at 1221 Brickell Avenue, Miami,
Florida 33131, or at such other place or places as the holder of
this Note from time to time may designate in writing, the
principal sum of ONE HUNDRED TWENTY-FIVE MILLION AND NO/100
DOLLARS ($125,000,000.00) in lawful money of the United States
(the "Loan"), together with interest in like lawful money from
the date funds are advanced under this Note at the applicable
annual rate set forth below, to be computed on the basis of the
actual number of days elapsed and a year of 360 days. Borrower
and all endorsers, sureties, guarantors and any other persons
liable or to become liable with respect to the Loan are each
included in the term "Obligor" as used in this Note.
1. PAYMENTS. Borrower shall pay the interest and
principal of this Note as follows:
(a) PRINCIPAL: due and payable on Demand
(b) INTEREST: due and payable monthly commencing on
October 30, 1994
Borrower shall pay all amounts owing under this Note in full
when due without set-off, counterclaim, deduction or withholding
for any reason whatsoever. If any payment falls due on a day
other than a day on which Bank is open for business (a "Business
Day"), then such payment shall instead be made on the next
succeeding Business Day, and interest shall accrue accordingly.
2. INTEREST RATE. The unpaid principal balance of the
Loan shall bear interest at:
[x] A floating rate of interest equal to zero percent ( 0
%) over The Wall Street Journal Prime Rate per annum, subject to
provisions of Section 4 of this Note, with the floating interest
rate under the Note to be adjusted on the first day of each
month; or [ ] A fixed interest rate of --------- percent (------
- - - -%) per annum.
3. SECURITY INTEREST. As security for the payment of this
Note, and any renewals, extensions or modifications hereof, and
any other liabilities, indebtedness or obligations of Borrower to
Bank, however or whenever created, Borrower hereby grants to Bank
a security interest in any and all collateral pledged to the Bank
as set forth below and any and all other collateral now or
hereafter pledged to the Bank pursuant to a security agreement
which provides for such security interest:
See Schedule "A" attched hereto and by this reference made
a part hereof.
including all proceeds and products thereof and rights in
connection therewith.
Whether or not specific property is described above, as
additional security for the payment of this Note, any renewals,
extensions or modifications thereof, and any other liabilities of
Borrower to Bank, however or whenever created, Borrower hereby
pledges, assigns and grants to Bank, a security interest in and
lien on any and all property of Borrower of every kind (whether
tangible or intangible) now or hereafter delivered to or left in
or coming into the actual or constructive possession, control or
custody of Bank, whether expressly as collateral security or for
any other purpose (including cash, deposits, accounts, bills,
checks, drafts, collections, balances, notes, stocks, dividends
and all rights to subscribe for securities incident to, declared,
or granted in connection with such property), and property
described in collateral receipts or other documents signed or
furnished by Borrower, and any and all replacements of any of the
foregoing, whether or not in the possession of Bank. All such
property and all other property securing Borrower's liabilities
to Bank will hereinafter be referred to as the "Collateral". The
Collateral shall also serve as security for all other liabilities
(primary, secondary, direct, contingent, sole, joint or several),
due or to become due or which may be hereafter contracted or
acquired, of each Obligor (as defined above) to Bank, whether
such liabilities arise in the ordinary course of business or not.
It is expressly agreed that if the Collateral or a portion
thereof is real estate, all covenants, conditions and agreements
contained in the mortgage are hereby made a part of this Note and
a default thereunder is a default under this Note. It is further
agreed that if a separate security agreement is executed by any
Obligor, all covenants, conditions and agreements contained in
the security agreement are made a part of this Note to the extent
that the terms of the security agreement are consistent with the
terms of this Note and a default thereunder is a default under
this Note. Bank may continue to hold any Collateral after the
payment of this Note, if at the time of the payment and discharge
hereof, Borrower or any other Obligor shall be then directly or
contingently liable to Bank, as borrower, endorser, surety or
guarantor of any other note, draft, bill of exchange, or other
instrument, or otherwise, and Bank may thereafter exercise the
rights with respect to the Collateral granted herein even though
this Note shall have been surrendered to Borrower. Any married
person who signs this Note hereby expressly agrees that recourse
may be had against his or her separate property for any
obligation secured by the Collateral under this Note.
(a) Additions to, releases, reductions or exchanges
of, or substitutions for the Collateral, payments on account of
the Loan or increases of the same, or other loans made partially
or wholly upon the Collateral, may from time to time be made
without affecting the provisions of this Note or liabilities of
any Obligor hereto. Bank shall have no responsibility for
ascertaining any maturities, calls, conversions, exchanges,
offers, tenders or similar matters relating to any of the
Collateral, nor for informing the undersigned with respect to any
thereof. Bank shall not be bound to take any steps necessary to
preserve any rights in the Collateral against prior parties, and
Borrower shall take all necessary steps for such purposes. Bank
or its nominee need not collect dividends or interest on or
principal of any Collateral or give any notice with respect to
it.
(b) Bank shall have, without limitation, the following
rights, each of which may be exercised at Bank's sole discretion
at any time whether or not this Note is due: (i) to pledge,
assign, sell, transfer or otherwise dispose of this Note and the
Collateral, whereupon Bank shall be relieved of all duties and
responsibilities and relieved from any and all liability with
respect to any Collateral so pledged or transferred, and any
pledgee or transferee shall for all purposes stand in the place
of Bank hereunder and have all the rights of Bank hereunder; (ii)
to transfer the whole or any part of the Collateral into the name
of itself or its nominee; (iii) to notify the obligors on any
Collateral to make payment to Bank of any amounts due or to
become due on any Collateral and hold same as additional
Collateral and upon an occurrence of an Event of Default (as
defined in Section 6 of this Note) apply it to the principal or
interest hereon or to any liabilities secured hereby; (iv) to
demand, sue for, collect, or make any compromise or settlement it
deems desirable with reference to the Collateral; and (v) to take
possession or control of any proceeds of the Collateral.
4. MAXIMUM INTEREST RATE. In no event shall any agreed or
actual exaction charged, reserved or taken as an advance or
forbearance by Bank as consideration for the Loan exceed the
limits (if any) imposed or provided by the law applicable from
time to time to the Loan for the use or detention of money or for
forbearance in seeking its collection, and Bank hereby waives any
right to demand such excess. If the floating rate of interest
based on the Prime Rate (as set forth in Section 2 of this Note)
should increase above such maximum interest rate permitted by
applicable law (if any), then notwithstanding any contrary
provision in this Note or any other Loan Document (as defined in
Section 6 of this Note) and without necessity of further
agreement or notice by Bank or any Obligor, the unpaid principal
balance of the Loan, shall thereupon bear interest at such
maximum lawful rate. If the floating interest rate should
thereafter decrease below such maximum lawful rate, the Loan
shall nevertheless continue to bear interest at such maximum
lawful rate until Bank receives the full amount of interest
delayed by application of such maximum lawful rate under this
paragraph, at which time the Loan shall once again bear interest
at the then applicable floating interest rate under Section 2.
In the event that the interest provisions of this Note or any
exactions provided for in this Note or any other Loan Document
(as defined in Section 6 of this Note) shall result at any time
or for any reason in an effective rate of interest that
transcends the maximum interest rate permitted by applicable law
(if any), then without further agreement or notice the obligation
to be fulfilled shall be automatically reduced to such limit and
all sums received by Bank in excess of those lawfully collectible
as interest shall be applied against the principal of the Loan
immediately upon Bank's receipt thereof, with the same force and
effect as though the payor had specifically designated such extra
sums to be so applied to principal and Bank had agreed to accept
such extra payments(s) as a premium-free prepayment or
prepayments. During any time that the Loan bears interest at the
maximum lawful rate (whether by application of this paragraph,
the Default Rate provisions of this Note or otherwise), interest
shall be computed on the basis of the actual number of days
elapsed and the actual number of days in the respective calendar
year.
5. MASTER NOTE. If this Note is a Master Note, Borrower
is extended a non-binding, discretionary line of credit up to but
not to exceed the amount shown herein. Bank, in its sole
discretion, may make advances pursuant to this Note from time to
time and it is therefore contemplated that the outstanding
balance may fluctuate accordingly. Nothing herein shall be
construed as a warranty or representation by Bank that it will at
any time make advances to Borrower. Any request for an advance
under this Note shall be subject to review and approval by Bank.
6. EVENTS OF DEFAULT. The entire unpaid principal balance
of the Loan, together with all unpaid interest accrued thereon
and all other sums owing under this Note or any other instrument
or document executed by any Obligor in connection with the Loan
(this Note and all such instruments and documents, including,
without limitation, any guaranties, agreements, undertakings,
contracts, mortgages, security agreements, assignments and other
documents executed to secure the Loan being referred to in this
Note as the "Loan Documents"), shall at the option of Bank become
immediately due and payable without notice or demand upon the
occurrence of any one or more of the following events ("Events of
Default"), regardless of the cause thereof and whether within or
beyond the control of any Obligor: (a) the failure of any
Obligor to pay any sum when due under this Note, or the failure
of any Obligor to pay any other sum when due under any other Loan
Document (and the expiration of any applicable grace period
provided in such Loan Document for that payment); (b) the failure
of any Obligor to observe or perform any covenant or agreement in
any Loan Document, or the occurrence of any other default
(whether concerned with the payment of money or otherwise) under
any Loan Document, and the expiration of any applicable grace
period provided in such Loan Document for the cure of that
failure or default; (c) if any representation, warranty,
affidavit, certificate or statement made or delivered to Bank by
any Obligor or on any Obligor's behalf from time to time in
connection with the Loan shall be deemed by Bank to be false,
incorrect or misleading; (d) the death or mental or physical
incapacity of any Obligor who is a natural person, or the
dissolution or merger or consolidation or termination of
existence of any other Obligor, or the failure or cessation or
liquidation of the business of any obligor, or a material change
in the business of any Obligor, or if the person(s) controlling
any Obligor which is a business entity shall take any action
authorizing or leading to the same; (e) if any Obligor shall
default in the payment of any indebtedness for borrowed money
(whether direct or contingent or whether matured or accelerated)
to Bank or to any person whomsoever, including, without
limitation, any affiliate or subsidiary of Bank, or if any
Obligor shall become insolvent or unable to pay such Obligor's
debts as they become due; (f) the anticipatory repudiation by any
Obligor of that Obligor's obligations under the Loan Documents,
or any declaration by any Obligor of intention not to perform any
such obligations as and when the same become due; (g) the
disposition, sale, transfer or exchange of all or a substantial
part of any Obligor's assets, or the entry of any judgment
against any Obligor, or the issuance of any levy, attachment,
charging order, garnishment or other process against any property
of any Obligor or the filing of any lien against any such
property (and the expiration of any grace period provided in any
Loan Document for the discharge of such lien); (h) if any Obligor
shall make an assignment for the benefit of creditors, file a
petition in bankruptcy, apply to or petition any tribunal for the
appointment of a custodian, receiver, intervenor or trustee for
such Obligor or a substantial part of such Obligor's assets, or
if any Obligor shall commence any proceeding under any
bankruptcy, arrangement, readjustment or debt, dissolution or
liquidation under any law or statute of any jurisdiction, whether
now or hereinafter in effect, or if any such petition or
application shall have been filed or proceeding commenced against
any Obligor, or if any such custodian, receiver, intervenor or
trustee shall have been appointed; (i) if any Obligor shall have
concealed, transferred, removed or permitted to be concealed or
transferred or removed, any part of such Obligor's property with
intent to hinder, delay or defraud any such obligor's creditors,
or if any Obligor shall have made or suffered a transfer of any
such Obligor's properties which may be invalid under any
bankruptcy, fraudulent conveyance, preference or similar law, or
if any Obligor shall have made any transfer of such Obligor's
properties to or for the benefit of any creditor at a time when
other creditors similarly situated have not been paid; (j) the
failure to obtain any permit, license, approval or consent from,
or to make any filing with, any federal, state or municipal
governmental authority (or the lapse or revocation or rescission
thereof once obtained or made) which is necessary in connection
with the execution or delivery of any Loan Document, the making
of the Loan, the performance of any of Obligor's obligations
under any Loan Document, or the enforcement of any Loan Document;
(k) if it shall become unlawful for Bank to extend credit to
Borrower, or to maintain any credit so extended, or for any
Obligor to perform any of such Obligor's obligations under any
Loan Document; (l) if any governmental authority (or any person
acting or purporting to act under governmental authority) shall
take any action to condemn, assume custody or control of, seize
or appropriate all or any part of any Obligor's property in which
the value taken is equal to or greater than ten percent (10%) of
the fair market value of the property, or displace the management
of such Obligor's business; (m) in the case of any Obligor then
residing or located in any jurisdiction outside the United
States, if such jurisdiction shall impose any moratorium or
suspension on the repayment of its foreign indebtedness or any
substantial portion thereof, or if such jurisdiction shall
declare that it is not liable or responsible for or will not
honor its foreign indebtedness or any substantial portion
thereof; (n) the failure of any Obligor, after request by Bank,
to furnish financial information or additional financial
information or to permit examination and inspection of the
Collateral and/or of Obligor's books and records; (o) in the case
of any Obligor that is a corporation, the payment of any
dividends, or the distribution of earnings, by such Obligor to
its stockholders without the prior written consent of Bank; (p)
the further granting by any Obligor of a security interest in any
of the Collateral without the prior written consent of Bank; (q)
the failure to do all things necessary to preserve and maintain
the value and collectibility of the Collateral, including, but
not limited to, the payment of taxes and premiums on policies of
insurance on the due date without benefit of the grace period; or
(r) if at any time Bank deems itself insecure for any reason
whatsoever (notwithstanding any grace period in any Loan
Document), or if any change or event shall occur which in Bank's
exclusive judgment impairs any security for the Loan, increases
Bank's risk in connection with the Loan, or indicates that any
Obligor may be unable to perform such Obligor's obligations under
any Loan Document.
7. LATE PENALTY AND DEFAULT RATE OF INTEREST. Borrower
shall pay to Bank a late charge of five percent (5%) of any
payment not received by Bank within fifteen (15) days of its due
date; provided, however, if said fifteen (15) day period ends on
a day other than a Business Day, then the aforedescribed late
charge shall be payable if the payment is not received by the
last Business Day within said fifteen (15) day period. At Bank's
sole option, the entire unpaid principal balance of the Loan and
any other sums owing under any Loan Document shall bear interest
until paid at an augmented annual rate (the "Default Rate") from
and after the occurrence and during the continuation of any Event
of Default, regardless of whether Bank also elects to accelerate
the maturity of the Loan; provided, however, that after judgment
all such sums shall bear interest at the greater of the Default
Rate or the rate prescribed by applicable law for judgments. At
Bank's sole option, all interest which accrues at the Default
Rate shall be due and payable on Bank's demand from time to time,
but absent such demand shall be due and payable on the regularly
scheduled dates for interest payments under this Note. The
Default Rate shall equal the lesser of (i) twenty-five percent
(25%) per annum or (ii) the maximum interest rate permitted by
applicable law, if any.
8. RIGHTS AND REMEDIES OF BANK. Bank shall be entitled to
pursue any and all rights and remedies provided by applicable law
and/or under the terms of this Note or any other Loan Document,
all of which shall be cumulative and may be exercised
successively or concurrently. Upon the occurrence and during the
continuation of any Event of Default, Bank, at its option, may at
any time declare any or all other liabilities of any Obligor to
Bank immediately due and payable (notwithstanding any contrary
provisions thereof) without demand or notice of any kind. In
addition, Bank shall have the right to set off any and all sums
owed to any Obligor by Bank in any capacity (whether or not then
due) against the Loan and/or against any other liabilities of any
Obligor to Bank. Bank's delay in exercising or failure to
exercise any rights or remedies to which Bank may be entitled if
any Event of Default occurs shall not constitute a waiver of any
rights or remedies of Bank with respect to that or any subsequent
Event of Default, whether of the same or a different nature, nor
shall any single or partial exercise of any right or remedy by
Bank preclude any other or further exercise of that or any other
right or remedy. No waiver of any right or remedy by Bank shall
be effective unless made in writing and signed by Bank nor shall
any waiver on one occasion apply to any future occasion, but
shall be effective only with respect to the specific occasion
addressed in that signed writing.
9. WAIVER AND CONSENT. The Obligors hereby severally:
(a) waive demand, presentment, protest, notice of dishonor, suit
against or joinder of any other person, and all other
requirements necessary to charge or hold any Obligor liable with
respect to the Loan; (b) waive any right to immunity from any
such action or proceeding; and waive any immunity or exemption of
any property, wherever located, from garnishment, levy,
execution, seizure or attachment prior to or in execution of
judgment, or sale under execution or other process for the
collection of debts; (c) waive any right to interpose any set-off
or non-compulsory counterclaim or to plead laches or any statute
of limitations as a defense in any such action or proceeding, and
waive (to the extent lawfully waivable) all provisions and
requirements of law for the benefit of any obligor now or
hereafter in force; (d) submit to the jurisdiction of the state
and federal courts in the State of Florida for purposes of any
such action or proceeding; (e) agree that the venue of any such
action or proceeding may be laid in Dade County (in addition to
any county in which any collateral for the Loan is located) and
waive any claim that the same is an inconvenient forum; and (f)
stipulate that service of process in any such action or
proceeding shall be properly made if mailed by any form of
registered or certified mail (airmail if international), postage
prepaid, to the address then registered in Bank's records for the
Obligor(s) so served and that any process so served shall be
effective ten (10) days after mailing. No provision of this Note
shall limit Bank's right to serve legal process in any other
manner permitted by law or to bring any such action or proceeding
in any other competent jurisdiction. The Obligors hereby
severally consent and agree that, at any time and from time to
time without notice, (i) Bank and the owner(s) of any Collateral
then securing the Loan may agree to release, increase, change,
substitute or exchange all or any part of such Collateral, and
(ii) Bank and any person(s) then primarily liable for the Loan
may agree to renew, extend or compromise the Loan in whole or in
part or to modify the terms of the Loan in any respect
whatsoever; no such release, increase, change, substitution,
exchange, renewal extension, compromise or modification shall
release or affect in any way the liability of any Obligor, and
the Obligors hereby severally waive any and all defenses and
claims whatsoever based thereon. Until Bank receives all sums
due under this Note and all other Loan Documents in immediately
available funds, no Obligor shall be released from liability with
respect to the Loan unless Bank expressly releases such Obligor
in a writing signed by Bank, and Bank's release of any Obligor(s)
shall not release any other person liable with respect to the
Loan.
10. COSTS, INDEMNITIES AND EXPENSES. The Obligors jointly
and severally agree to pay all filing fees and similar charges
and all costs incurred by Bank in collecting or securing or
attempting to collect or secure the Loan and such right shall
extend beyond the entry of a Final Judgment including attorneys'
fees, whether or not involving litigation and/or appellate,
administrative or bankruptcy proceedings. Such entitlement to
attorneys' fees shall not merge with the entry of a Final
Judgment and shall continue post-judgment unless and/or until any
and all indebtedness due Capital Bank is fully satisfied. The
Obligors jointly and severally agree to pay any documentary stamp
taxes, intangible taxes or other taxes (except for federal or
Florida franchise or income taxes based on Bank's net income)
which may now or hereafter apply to this Note or the Loan or any
security therefor, and the Obligors jointly and severally agree
to indemnify and hold Bank harmless from and against any
liability, costs, attorneys' fees, penalties, interest or
expenses relating to any such taxes, as and when the same may be
incurred. The Obligors jointly and severally agree to pay on
demand, and to indemnify and hold Bank harmless from and against,
any and all present or future taxes, levies, imposts, deductions,
charges and withholdings imposed in connection with the Loan by
the laws or governmental authorities of any jurisdiction other
than the State of Florida or the United States of America, and
all payments to Bank under this Note shall be made free and clear
thereof and without deduction therefor. Notwithstanding the
existence of Florida Statute 57.105(2) or any statute of a like
or similar nature each Borrower and/or Obligor hereby waives any
right to any attorneys' fees thereunder and each Borrower and/or
Obligor agrees that the Bank exclusively shall be entitled to
indemnification and recovery of any and all attorneys' fees in
respect of any litigation based hereon, or arising out of, or
related hereto whether, under or in connection with this Note
and/or any agreement contemplated to be executed in conjunction
herewith, or any course of conduct, course of dealing, statements
(whether verbal or written) or actions of any party.
11. GOVERNING LAW. This Note shall be governed by, and
construed and enforced in accordance with, the laws of the State
of Florida, except that federal law shall govern to the extent
that it may permit Bank to charge, from time to time, interest on
the Loan at a rate higher than may be permissible under
applicable Florida law.
12. INVALIDITY. Any provision of this Note which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction only, be ineffective only to the extent of such
prohibition or unenforceability without invalidating the
remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction. To
the extent that the Obligors may lawfully waive any law that
would otherwise invalidate any provision of this Note, each of
them hereby waives the same, to the end that this Note shall be
valid and binding and enforceable against each of them in
accordance with all of its terms.
13. INTERPRETATION. If this Note is signed by more than
one person, then the term "Borrower" as used in this Note shall
refer to all such persons jointly and severally, and all
promises, agreements, covenants, waivers, consents,
representations, warranties and other provisions in this Note are
made by and shall be binding upon each and every undersigned
person, jointly and severally. The term "Bank" shall be deemed
to include any subsequent holder(s) of this Note. As used in
Sections 3 and 8 of this Note, the term "Bank" shall also be
deemed to include each affiliate and subsidiary of Bank. Each
affiliate and subsidiary of Bank shall have the same rights and
remedies granted to Bank under Sections 3 and 8 of this Note.
Whenever used in this note, the term "person" means any
individual, firm, corporation, trust or other organization or
association or other enterprise or any governmental or political
subdivision, agency, department or instrumentality thereof.
Whenever used in this Note, words in the singular include the
plural, words in the plural include the singular, and pronouns of
any gender include the other genders, all as may be appropriate.
Captions and paragraph headings in this Note are for convenience
only and shall not affect its interpretation. The "Prime Rate"
is a base reference rate of interest adopted by Bank as a general
benchmark from which Bank determines the floating interest rates
chargeable on various loans to borrowers with varying degrees of
creditworthiness, and Borrower acknowledges and agrees that Bank
has made no representations whatsoever that the "Prime Rate" is
the interest rate actually offered by Bank to borrowers of any
particular creditworthiness.
14. MISCELLANEOUS. Time shall be of the essence with
respect to the terms of this Note. This Note cannot be changed
or modified orally. Bank shall have the right unilaterally to
correct patent errors or omissions in this Note or any other Loan
Document. This Note may be prepaid in whole or in part at any
time without penalty. Except as otherwise required by law or by
the provisions of this Note or any other Loan Document, payments
received by Bank hereunder shall be applied first against
expenses and indemnities, next against interest accrued on the
Loan, and next in reduction of the outstanding principal balance
of the Loan, except that during the continuance of any Event of
Default, Bank may apply such payments in any order of priority
determined by Bank in its exclusive judgment. Borrower shall
receive immediate credit on payments if made in immediately
available funds; otherwise, said payments shall be credited after
clearance. If any payment required to be made pursuant to the
Note is not received on the due date, Bank shall have the right,
at its election, to charge any of Borrower's accounts at Bank
with the amount of such payment. Except as otherwise required by
the provisions of this Note or any other Loan Document, any
notice required to be given to any Obligor shall be deemed
sufficient if made personally or if mailed, postage prepaid, to
such Obligor's address as it appears in this Note (or, if none
appears, to any address for such Obligor then registered in
Bank's records). Bank may grant participations in all or any
portion of, and may assign all or any part of Bank's rights
under, this Note. Bank may disclose to any such participant or
assignee any and all information held by or known to Bank at any
time with respect to any Obligor. Borrower shall furnish Bank
such financial information of Borrower as Bank may from time to
time request and shall permit Bank to inspect its books and
records. All of the terms of this Note shall inure to the
benefit of Bank and its successors and assigns and shall be
binding upon each and every of the Obligors and their respective
heirs, executors, administrators, personal representatives,
successors and assigns, jointly and severally.
15. WAIVER OF JURY TRIAL. BANK AND BORROWER HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT ANY
PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION
BASED HEREON, ARISING OUT OF OR RELATED HERETO WHETHER, UNDER OR
IN CONNECTION WITH THIS NOTE AND ANY AGREEMENT CONTEMPLATED TO BE
EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT,
COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR
ACTIONS OF ANY PARTY.
The Obligors have subscribed their names to the respective
Loan Documents (as defined in Section 6 of this Note) without
condition that anyone else should sign the same or become bound
thereunder, and without any other condition whatsoever. The
failure of any witness to sign as witness or the failure of this
Note to be notarized shall not affect the validity of this Note.
This Note is signed, sealed and delivered as of the date first
written above.
WITNESS: BORROWER:
- - - ------------------------------- CAPITAL FACTORS, HOLDING,
INC.,
a Florida corporation
- - - -------------------------------
By:/s/ Javier J. Holtz
10/18/94 ---------------------------
Javier J. Holtz, Executive
Vice President
- - - -------------------------------- (Address) Hold Mail -
Lee Ann Hall
- - - -------------------------------- BRC - 6B
- - - --------------------------------
CITY OF WASHINGTON )
) SS:
DISTRICT OF COLUMBIA )
The foregoing instrument was subscribed, sworn to and
acknowledged before me this 18th day of October, 1994 by Javier
J. Holtz.
/s/ Yvette A. Galvez
-----------------------------
My Commission Expires: Notary Public, City of
Washington
April 30, 1998
SCHEDULE "A"
ADDENDUM TO PROMISSORY NOTE
THIS IS AN ADDENDUM to that certain Promissory Note (the
"Note") dated October ----, 1994, executed by CAPITAL FACTORS
HOLDING, INC., a Florida corporation (the "Borrower") in favor of
CAPITAL BANK, a Florida banking corporation (the "Bank") in the
original principal amount of ONE HUNDRED TWENTY-FIVE MILLION AND
NO/100 DOLLARS ($125,000,000.00).
THIS NOTE IS UNSECURED.
Prime Rate shall mean, at any time, the rate of interest
quoted in the Wall Street Journal, Money Rates Section as the
"Prime Rate" (currently defined as the base rate on corporate
loans posted by at least 75% of the nation's thirty (30) largest
banks), with the Prime Rate in effect on the first day of a month
being applicable to the entire month. In the event that the Wall
Street Journal quotes more than one rate, or a range of rates as
the Prime Rate, then the Prime Rate shall mean the average of the
quoted rates. In the event that the Wall Street Journal ceases
to publish a Prime Rate, then the Prime Rate shall be the average
of the three largest U.S. money center commercial banks, as
determined by Bank.
Borrower shall receive immediate credit on payments only if
made in the form of either a federal wire transfer of cleared
funds or a check drawn on an account maintained with Bank
containing sufficient available funds. Otherwise, Borrower shall
receive credit on payments after clearance, which shall be no
sooner than the first Business Day after receipt of payment by
Bank. For purpose of determining interest accruing under this
Note, principal shall be deemed outstanding on the date payment
is credited by Bank.
This Note is subject to the terms and conditions of any loan
documentation entered into in connection therewith, and a default
under any of the foregoing shall constitutes a default under this
Note, and shall entitle Bank to exercise any and all of its
rights and remedies as provided for herein.
THE MONEY RECEIVED BY MAKER IN EXCHANGE FOR THIS NOTE IS
BEING USED FOR A BUSINESS OR COMMERCIAL PURPOSE.
CAPITAL FACTORS HOLDING,
INC., a Florida corporation
By: /s/ Javier J. Holtz
10/18/94 --------------------------
Javier J. Holtz, Executive
Vice President
DISTRICT OF COLUMBIA )
) SS:
)
The foregoing representations and warranties was
acknowledged before the undersigned authority in the District of
Columbia, this 18th day of October, 1994 by Javier J. Holtz, as
Executive Vice President of CAPITAL FACTORS HOLDINGS, INC., a
Florida corporation, on behalf of the corporation. He [x] is
personally known to me or [ ] has produced ----------------------
- - - --------- as identification.
/s/ Yvette A. Galvez
-----------------------------
Notary Public District of
Columbia
Print Name: Yvette A. Galvez
-----------------------------
Commission Number: Not
Readable
-----------------------------
EXHIBIT 10.10
CAPITAL FACTORS, INC.
LOAN AND SECURITY AGREEMENT
Dated: As of March 4, 1996
$40,000,000.00
FLEET CAPITAL CORPORATION
TABLE OF CONTENTS
Page
SECTION 1. CREDIT FACILITY. . . . . . . . . . . . . . . .
1.1. Revolver Loans. . . . . . . . . . . . . . . . .
SECTION 2. INTEREST, FEES AND CHARGES . . . . . . . . .
2.1. Interest. . . . . . . . . . . . . . . . . . . .
2.2. Computation of Interest and Fees. . . . . . . .
2.3. Closing Fee . . . . . . . . . . . . . . . . . .
2.4. Annual Administration Fee . . . . . . . . . . .
2.5. Unused Line Fee . . . . . . . . . . . . . . . .
2.6. Audit and Appraisal Fees. . . . . . . . . . . .
2.7. Reimbursement of Expenses . . . . . . . . . . .
2.8. Bank Charges. . . . . . . . . . . . . . . . . .
SECTION 3. LOAN ADMINISTRATION. . . . . . . . . . . . . .
3.1. Manner of Borrowing Revolver Loans. . . . . . .
3.2. Payments. . . . . . . . . . . . . . . . . . . .
3.3. Application of Payments and Collections . . . .
3.4. All Loans to Constitute One Obligation. . . . .
3.5. Loan Account. . . . . . . . . . . . . . . . . .
3.6. Statements of Account . . . . . . . . . . . . .
SECTION 4. TERM AND TERMINATION. . . . . . . . . . . . .
4.1. Term of Agreement . . . . . . . . . . . . . . .
4.2. Termination . . . . . . . . . . . . . . . . . .
SECTION 5. SECURITY INTERESTS. . . . . . . . . . . . . . .
5.1. Security Interest in Collateral . . . . . . . .
5.2. Lien Perfection; Further Assurances . . . . . .
SECTION 6. PROVISIONS RELATING TO BORROWER ADVANCES;
COLLATERAL ADMINISTRATION . . . . . . . . . . .
6.1. Representations and Warranties Regarding
Borrower Advances . . . . . . . . . . . . . . .
6.2. Administration of Borrower Advances . . . . . .
6.3. Payment of Charges. . . . . . . . . . . . . . . .
SECTION 7. REPRESENTATIONS AND WARRANTIES. . . . . . . . . .
7.1. General Representations and Warranties. . . . . .
7.2. Continuous Nature of Representations and
Warranties. . . . . . . . . . . . . . . . . . . .
7.3. Survival of Representations and Warranties. . . .
SECTION 8. COVENANTS AND CONTINUING AGREEMENTS . . . . . . .
8.1. Affirmative Covenants . . . . . . . . . . . . . .
8.2. Negative Covenants. . . . . . . . . . . . . . . .
8.3. Specific Financial Covenants. . . . . . . . . . .
SECTION 9. CONDITIONS PRECEDENT. . . . . . . . . . . . . . .
9.1. Conditions Precedent to Initial Loans . . . . . .
9.2. Conditions Precedent to all Credit
Extensions. . . . . . . . . . . . . . . . . . . .
SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON
DEFAULT . . . . . . . . . . . . . . . . . . . . .
10.1. Events of Default . . . . . . . . . . . . . . . .
10.2. Acceleration of the Obligations . . . . . . . . .
10.3. Other Remedies. . . . . . . . . . . . . . . . . .
10.4. Setoff. . . . . . . . . . . . . . . . . . . . . .
10.5. Remedies Cumulative; No Waiver. . . . . . . . . .
SECTION 11. MISCELLANEOUS . . . . . . . . . . . . . . . . . .
11.1. Agency Agreement. . . . . . . . . . . . . . . . .
11.2. Indemnity . . . . . . . . . . . . . . . . . . . .
11.3. Modification of Agreement; Sale of
Interest. . . . . . . . . . . . . . . . . . . . .
11.4. Severability. . . . . . . . . . . . . . . . . . .
11.5. Successors and Assigns. . . . . . . . . . . . . .
11.6. Cumulative Effect; Conflict of Terms. . . . . . .
11.7. Execution in Counterparts . . . . . . . . . . . .
11.8. Notice. . . . . . . . . . . . . . . . . . . . . .
11.9. Confidentiality.. . . . . . . . . . . . . . . . .
11.10. Reserved. . . . . . . . . . . . . . . . . . . . .
11.11. Time of Essence . . . . . . . . . . . . . . . . .
11.12. Entire Agreement; Appendix A and Exhibits . . . .
11.13. Interpretation. . . . . . . . . . . . . . . . . .
11.14. Governing Law; Consent To Forum . . . . . . . . .
11.15. Waivers by Borrower . . . . . . . . . . . . . . .
LIST OF SCHEDULES AND EXHIBITS
Appendix A General Definitions
Schedule 7.1.1 Jurisdictions in which Borrower and each
Subsidiary is Authorized to do Business
Schedule 7.1.4 Capital Structure of Borrower
Schedule 7.1.5 Corporate Names
Schedule 7.1.6 Borrower's and each Subsidiary's Business
Locations
Schedule 7.1.11 Surety Bonds
Schedule 7.1.12 Tax Identification Numbers of Subsidiaries
Schedule 7.1.14 Patents, Trademarks, Copyrights and Licenses
Schedule 7.1.17 Contracts Restricting Borrower's Right to
Incur Debts
Schedule 7.1.18 Litigation
Schedule 7.1.20 Capitalized Leases
Schedule 7.1.21 Pension Plans
Schedule 7.1.22 Collective Bargaining
Schedule 8.2.5 Permitted Liens
Exhibit A Compliance Certificate
Exhibit B Borrower's Counsel's Legal Opinion to Lender
Exhibit C Schedule of Designated Obligors
Exhibit D Accounts That Are Not Deposit Accounts
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT is made as of March 4,
1996, by and between FLEET CAPITAL CORPORATION ("Lender"), a
Connecticut corporation with an office at 300 Galleria Parkway,
N.W., Suite 800, Atlanta, Georgia 30339; and CAPITAL FACTORS,
INC. ("Borrower"), a Florida corporation with its chief executive
office and principal place of business at 1799 West Oakland Park
Boulevard, Fort Lauderdale, Florida 33311. Capitalized terms
used in this Agreement have the meanings assigned to them in
Appendix A, General Definitions. Accounting terms not otherwise
specifically defined herein shall be construed in accordance with
GAAP consistently applied.
SECTION 1. CREDIT FACILITY
Subject to the terms and conditions of, and in reliance upon
the representations and warranties made in, this Agreement and
the other Loan Documents, Lender agrees to make a total credit
facility of up to $40,000,000 available upon Borrower's request
therefor, as follows:
1.1. REVOLVER LOANS. Lender agrees, during the term of
this Agreement and for so long as no Default or Event of Default
exists, to make Revolver Loans to Borrower from time to time, as
requested by Borrower in the manner set forth in Section 3.1.1
hereof, up to a maximum principal amount at any time outstanding
equal to the Borrowing Base at such time. The Revolver Loans
shall be used solely for Permitted Uses. In no event shall any
proceeds of any Revolver Loans be used to purchase or to carry,
reduce, retire or refinance any Debt incurred to purchase or
carry any Margin Stock. The initial Revolver Loan shall be for
an amount in excess of $250,000. If the unpaid balance of
Revolver Loans outstanding at any time should exceed the
Borrowing Base at such time, such Revolver Loans shall
nevertheless constitute Obligations that are secured by the
Collateral and entitled to all of the benefits of the Loan
Documents. In the event that Lender is willing in its sole and
absolute discretion to make Out-of-Formula Loans, such Out-of-
Formula Loans shall be payable ON DEMAND, shall be secured by the
Collateral and shall bear interest as provided in this Agreement
for Revolver Loans generally or at such higher rate of interest
as Lender may require as a condition to making any such Out-of-
Formula Loans.
SECTION 2. INTEREST, FEES AND CHARGES
2.1. INTEREST.
2.1.1. RATES OF INTEREST. Interest
shall accrue on the principal amount of the Revolver Loans
outstanding at the end of each day at a variable rate per annum
equal to 2.15% PLUS the LIBOR Rate in effect from time to time.
On the date hereof the LIBOR Rate in effect for such day is
5.3125% and therefore the rate of interest in effect hereunder
on the date hereof, expressed in simple interest terms, is
7.4625%. The rate of interest shall increase or decrease by an
amount equal to any increase or decrease in the LIBOR Rate,
effective as of the opening of business on the day that any such
change in the LIBOR Rate occurs.
2.1.2. DEFAULT RATE OF INTEREST. Upon
and after the occurrence of an Event of Default, and during the
continuation thereof, the principal amount of all Revolver Loans
(and, to the extent permitted by Applicable Law, all accrued
interest that is past due) shall, at the election of Lender at
any time without notice, bear interest at a variable rate per
annum equal to 4.15% plus the LIBOR Rate in effect from time to
time (the "Default Rate").
2.2. COMPUTATION OF INTEREST AND FEES. Interest, unused
line fees and collection charges hereunder shall be calculated
daily and shall be computed on the actual number of days elapsed
over a year of 360 days. For the purpose of computing interest
hereunder, all Payment Items or other forms of payment received
by Lender shall be deemed applied by Lender on account of the
Obligations (subject to final payment of such items) on the
Business Day received by Lender in Lender's account located in
Chicago, Illinois, and Lender shall be deemed to have received
such Payment Items or other forms of payment on the date
specified in Section 3.3 hereof.
2.3. CLOSING FEE. Borrower shall pay to Lender a closing
fee of $135,000, which shall be fully earned and (except to the
extent otherwise required by Applicable Law) nonrefundable on the
Closing Date and shall be paid concurrently with the initial
Revolver Loan hereunder.
2.4. ANNUAL ADMINISTRATION FEE. Borrower shall pay to
Lender an annual administration fee of $25,000, which shall be
fully earned and (except to the extent otherwise required by
Applicable Law) nonrefundable. The annual administration fee
shall be payable annually, in arrears, on March 4 (or, if March 4
is not a Business Day, on the next succeeding Business Day) each
year, with the first such annual administration fee payable on
March 4, 1997.
2.5. UNUSED LINE FEE. Borrower agrees that if the Average
Monthly Loan Balance for any month is less than $40,000,000,
then, to the extent of the difference (the "Deficiency"),
Borrower shall pay to Lender a fee equal to (i) .25% per annum of
the Deficiency if the Deficiency is not greater than $24,000,000,
or (ii) .50% per annum of the Deficiency if the Deficiency is in
excess of $24,000,000. The unused line fee shall be payable
monthly, in arrears, on the first day of each calendar month
hereafter.
2.6. AUDIT AND APPRAISAL FEES. Borrower shall reimburse
Lender for all reasonable costs and expenses incurred in
connection with audits and appraisals of Borrower's books and
records and such other matters as Lender shall deem reasonable
and appropriate.
2.7. REIMBURSEMENT OF EXPENSES. If, at any time or times
regardless of whether or not an Event of Default then exists,
Lender or any Qualified Participant incurs legal or accounting
expenses or any other costs or out-of-pocket expenses in
connection with (i) the negotiation and preparation of this
Agreement or any of the other Loan Documents, any amendment of or
modification of this Agreement or any of the other Loan
Documents, or any sale or attempted sale of any interest herein
to a Qualified Participant; (ii) the administration of this
Agreement or any of the other Loan Documents and the transactions
contemplated hereby and thereby; (iii) any litigation, contest,
dispute, suit, proceeding or action (whether instituted by
Lender, Borrower or any other Person) in any way relating to the
Collateral, this Agreement or any of the other Loan Documents or
Borrower's affairs; (iv) any attempt to enforce any rights of
Lender or any Qualified Participant against Borrower or any other
Person which may be obligated to Lender by virtue of this
Agreement or any of the other Loan Documents, including the
Account Debtors; or (v) any attempt to inspect, verify, protect,
preserve, perfect or continue the perfection of Lender's Liens
upon, restore, collect, sell, liquidate or otherwise dispose of
or realize upon the Collateral; then all such legal and
accounting expenses, other reasonable costs and out of pocket
expenses of Lender shall be charged to Borrower. All amounts
chargeable to Borrower under this Section 2.7 shall be
Obligations secured by all of the Collateral, shall be payable on
demand to Lender or to such Qualified Participant, as the case
may be, and shall bear interest from the date such demand is made
until paid in full at the rate applicable to Revolver Loans from
time to time. Borrower shall also reimburse Lender for
reasonable expenses incurred by Lender in its administration of
the Collateral to the extent and in the manner provided in
Section 6 hereof.
2.8. BANK CHARGES. Borrower shall pay to Lender, ON
DEMAND, any and all reasonable fees, costs or expenses which
Lender or any Qualified Participant pays to a bank or other
similar institution (including, any fees paid by Lender to any
Qualified Participant) arising out of or in connection with (i)
the forwarding to Borrower or any other Person on behalf of
Borrower, by Lender or any Qualified Participant, of proceeds of
Revolver Loans made by Lender to Borrower pursuant to this
Agreement and (ii) the depositing for collection, by Lender or
any Qualified Participant, of any check or item of payment
received or delivered to Lender or any Qualified Participant on
account of the Obligations.
2.9. MAXIMUM INTEREST. Regardless of any provision
contained in this Agreement or any of the other Loan Documents,
in no contingency or event whatsoever shall the aggregate of all
amounts that are contracted for, charged or received by Lender
pursuant to the terms of this Agreement or any of the other Loan
Documents and that are deemed interest under Applicable Law
exceed the highest rate permissible under any Applicable Law. No
agreements, conditions, provisions or stipulations contained in
this Agreement or any of the other Loan Documents or the exercise
by Lender of the right to accelerate the payment or the maturity
of all or any portion of the Obligations, or the exercise of any
option whatsoever contained in any of the Loan Documents, or the
prepayment by Borrower of any of the Obligations, or the
occurrence of any contingency whatsoever, shall entitle Lender to
charge or receive in any event, interest or any charges, amounts,
premiums or fees deemed interest by Applicable Law (such
interest, charges, amounts, premiums and fees referred to herein
collectively as "Interest") in excess of the Maximum Rate and in
no event shall Borrower be obligated to pay Interest exceeding
such Maximum Rate, and all agreements, conditions or
stipulations, if any, which may in any event or contingency
whatsoever operate to bind, obligate or compel Borrower to pay
Interest exceeding the Maximum Rate shall be without binding
force or effect, at law or in equity, to the extent only of the
excess of Interest over such Maximum Rate. If any Interest is
charged or received in excess of the Maximum Rate ("Excess"),
Borrower acknowledges and stipulates that any such charge or
receipt shall be the result of an accident and bona fide error,
and such Excess, to the extent received, shall be applied first
to reduce the principal Obligations and the balance, if any,
returned to Borrower, it being the intent of the parties hereto
not to enter into a usurious or otherwise illegal relationship.
The right to accelerate the maturity of any of the Obligations
does not include the right to accelerate any interest that has
not otherwise accrued on the date of such acceleration, and
Lender does not intend to collect any unearned interest in the
event of any such acceleration. Borrower recognizes that, with
fluctuations in the rates of interest set forth in Section 2.1.1
of this Agreement and the Maximum Rate, such an unintentional
result could inadvertently occur. All monies paid to Lender
hereunder or under any of the other Loan Documents, whether at
maturity or by prepayment, shall be subject to any rebate of
unearned interest as and to the extent required by Applicable
Law. By the execution of this Agreement, Borrower covenants that
(i) the credit or return of any Excess shall constitute the
acceptance by Borrower of such Excess, and (ii) Borrower shall
not seek or pursue any other remedy, legal or equitable, against
Lender, based in whole or in part upon contracting for, charging
or receiving any Interest in excess of the Maximum Rate. For the
purpose of determining whether or not any Excess has been
contracted for, charged or received by Lender, all interest at
any time contracted for, charged or received from Borrower in
connection with any of the Loan Documents shall, to the extent
permitted by Applicable Law, be amortized, prorated, allocated
and spread in equal parts throughout the full term of the
Obligations. Borrower and Lender shall, to the maximum extent
permitted under Applicable Law, (i) characterize any non-
principal payment as an expense, fee or premium rather than as
Interest and (ii) exclude voluntary prepayments and the effects
thereof. The provisions of this Section shall be deemed to be
incorporated into every Loan Document (whether or not any
provision of this Section is referred to therein). All such Loan
Documents and communications relating to any Interest owed by
Borrower and all figures set forth therein shall, for the sole
purpose of computing the extent of Obligations, be automatically
recomputed by Borrower, and by any court considering the same, to
give effect to the adjustments or credits required by this
Section.
SECTION 3. LOAN ADMINISTRATION
3.1. MANNER OF BORROWING REVOLVER LOANS. Borrowings under
the credit facility established pursuant to Section 1 hereof
shall be as follows:
3.1.1. LOAN REQUESTS. A request for a
Revolver Loan shall be made, or shall be deemed to be made, in
the following manner: (i) Borrower may give Lender notice of its
intention to borrow, in which notice Borrower shall specify the
amount of the proposed borrowing and the proposed borrowing date,
no later than 11:00 a.m. on the proposed borrowing date;
PROVIDED, HOWEVER, that no such request may be made at a time
when there exists a Default or an Event of Default; and (ii)
unless payment is otherwise timely made by Borrower, the becoming
due of any amount required to be paid under this Agreement or any
of the other Loan Documents, as principal, accrued interest, fees
or other charges, shall be deemed irrevocably to be a request by
Borrower from Lender for a Revolver Loan on the due date of, and
in an aggregate amount required to pay, such principal, accrued
interest, fees or other charges and the proceeds of each such
Revolver Loan may be disbursed by Lender by way of direct payment
of the relevant Obligation and shall bear interest at the rate of
interest applicable to Revolver Loans (whether or not any
Default, Event of Default or Out-of-Formula Condition exists at
the time of or would result from such Revolver Loan). As an
accommodation to Borrower, Lender may permit telephonic requests
for loans and electronic transmittal of instructions,
authorizations, agreements or reports to Lender by Borrower.
Unless Borrower specifically directs Lender in writing not to
accept or act upon telephonic or electronic communications from
Borrower, Lender shall have no liability to Borrower for any loss
or damage suffered by Borrower as a result of Lender's honoring
of any requests, execution of any instructions, authorizations or
agreements or reliance on any reports communicated to Lender
telephonically or electronically and purporting to have been sent
to Lender by Borrower and Lender shall have no duty to verify the
origin of any such communication or the authority of the person
sending it.
3.1.2. DISBURSEMENT. Borrower hereby
irrevocably authorizes Lender to disburse the proceeds of each
Revolver Loan requested, or deemed to be requested, pursuant to
Section 3.1.1 as follows: (i) the proceeds of each Revolver Loan
requested under Section 3.1.1(i) shall be disbursed by Lender in
lawful money of the United States of America in immediately
available funds, in the case of the initial borrowing, in
accordance with the terms of the written disbursement letter from
Borrower, and in the case of each subsequent borrowing, by wire
transfer to such bank account as may be agreed upon by Borrower
and Lender from time to time or elsewhere if pursuant to a
written direction from Borrower; and (ii) the proceeds of each
Revolver Loan requested under Section 3.1.1(ii) shall be
disbursed by Lender by way of direct payment of the relevant
interest or other Obligation.
3.2. PAYMENTS. All payments with respect to any of the
Obligations shall be made to Lender on the date when due, in
Dollars and in immediately available funds, without any offset or
counterclaim. Except where evidenced by notes or other
instruments issued or made by Borrower to Lender specifically
containing payment provisions which are in conflict with this
Section 3.2 (in which event the conflicting provisions of said
notes or other instruments shall govern and control), the
Obligations shall be payable as follows:
3.2.1. PRINCIPAL. Principal payable on
account of Revolver Loans shall be payable by Borrower to Lender
immediately upon the earliest of (i) the receipt by Lender or
Borrower of any proceeds of any of the Collateral (other than
proceeds of Collateral that are not required to be placed in the
Dominion Account or other account designated by Lender in
connection with the issuance of a Payment Direction Notice
pursuant to Section 6.2.5 of this Agreement or the Deposit
Accounts Assignments, or both), to the extent of said proceeds,
(ii) the occurrence of an Event of Default in consequence of
which Lender elects to accelerate the maturity and payment of the
Obligations, or (iii) termination of this Agreement pursuant to
Section 4 hereof; PROVIDED, HOWEVER, that if an Out-of-Formula
Condition shall exist at any time, Borrower shall, ON DEMAND,
repay the Obligations to the extent necessary to eliminate the
Out-of-Formula Condition.
3.2.2. INTEREST. Interest accrued on
the Revolver Loans shall be due on the earliest of (i) the first
calendar day of each month (for the immediately preceding month),
computed through the last calendar day of the preceding month,
(ii) the occurrence of an Event of Default in consequence of
which Lender elects to accelerate the maturity and payment of the
Obligations or (iii) termination of this Agreement pursuant to
Section 4 hereof.
3.2.3. COSTS, FEES AND CHARGES. Costs,
fees and charges payable pursuant to this Agreement shall be
payable by Borrower as and when provided in Section 2 hereof, to
Lender or to any other Person designated by Lender in writing.
3.2.4. OTHER OBLIGATIONS. The balance
of the Obligations requiring the payment of money, if any, shall
be payable by Borrower to Lender as and when provided in this
Agreement, the Other Agreements or the Security Documents, or, if
no date of payment is otherwise specified in the Loan Documents,
ON DEMAND.
3.2.5. PAYMENT RIGHTS OF BORROWER.
Subject to Sections 2.5 and 4.2.3 of this Agreement, nothing
contained in this Agreement shall be deemed to limit the right of
Borrower, at its discretion, to pay or reduce the amount of
Obligations at any time or times outstanding under this
Agreement.
3.3. APPLICATION OF PAYMENTS AND COLLECTIONS. All Payment
Items or other forms of payment received by Lender by 12:00
noon, Chicago, Illinois time, on any Business Day shall be deemed
received on that Business Day. All Payment Items or other forms
of payment received after 12:00 noon, Chicago, Illinois time, on
any Business Day shall be deemed received on the following
Business Day. Borrower irrevocably waives the right to direct
the application of any and all payments and collections at any
time or times hereafter received by Lender from or on behalf of
Borrower, and Borrower does hereby irrevocably agree that Lender
shall have the continuing exclusive right to apply and reapply
any and all such payments and collections received at any time or
times hereafter by Lender or its agent against the Obligations,
in such manner as Lender may deem advisable. If as the result of
collections of Borrower Advances and related Payment Rights as
authorized by Section 6.2.6 hereof a credit balance exists in the
Loan Account, such credit balance shall not accrue interest in
favor of Borrower, but shall be available to Borrower at any time
or times for so long as no Default or Event of Default exists.
3.4. ALL LOANS TO CONSTITUTE ONE OBLIGATION. The Revolver
Loans shall constitute one general Obligation of Borrower, and
(unless and to the extent otherwise expressly provided in any of
the Security Documents) shall be secured by Lender's Lien upon
all of the Collateral.
3.5. LOAN ACCOUNT. Lender shall establish an account on
its books (the "Loan Account") and shall enter all Revolver Loans
as debits to the Loan Account and shall also record in the Loan
Account all payments made by Borrower on any Obligations and all
proceeds of Collateral which are finally paid to Lender, and may
record therein, in accordance with customary accounting practice,
other debits and credits, including interest and all charges and
expenses properly chargeable to Borrower.
3.6. STATEMENTS OF ACCOUNT. Lender will account to
Borrower monthly with a statement of Revolver Loans, charges and
payments made pursuant to this Agreement, and such accounting
rendered by Lender shall be deemed final, binding and conclusive
upon Borrower unless Lender is notified by Borrower in writing to
the contrary within 30 days after the date each accounting is
deemed to have been sent pursuant to Section 11.8. Such notice
shall only be deemed an objection to those items specifically
objected to therein.
SECTION 4. TERM AND TERMINATION
4.1. TERM OF AGREEMENT. Subject to Lender's right to
cease making Revolver Loans to Borrower upon or after the
occurrence of any Default or Event of Default, this Agreement
shall be in effect for a period of 3 years from the date hereof,
through March 4, 1999 (the "Original Term"), and this Agreement
shall automatically renew itself for 1-year periods thereafter
(each a "Renewal Term"), unless terminated as provided in Section
4.2 hereof.
4.2. TERMINATION.
4.2.1. TERMINATION BY LENDER. Upon at
least 90 days prior written notice to Borrower, Lender may
terminate this Agreement as of the last day of the Original Term
or the then current Renewal Term and Lender may terminate this
Agreement without notice upon or after the occurrence of an Event
of Default.
4.2.2. TERMINATION BY BORROWER. Upon at
least 90 days prior written notice to Lender, Borrower may, at
its option, terminate this Agreement; PROVIDED, HOWEVER, that no
such termination by Borrower shall be effective until Borrower
has satisfied all of the Obligations in immediately available
funds. Any notice of termination given by Borrower shall be
irrevocable unless Lender otherwise agrees in writing. Borrower
may elect to terminate this Agreement in its entirety only. No
section of this Agreement or type of Loan available hereunder may
be terminated singly.
4.2.3. TERMINATION CHARGES. On the
effective date of termination of this Agreement by Borrower for
any reason, Borrower shall pay to Lender (in addition to the then
outstanding principal, accrued interest and other charges owing
under the terms of this Agreement and any of the other Loan
Documents), as liquidated damages for the loss of the bargain and
not as a penalty, an amount equal to 3% of the highest of the
Average Monthly Loan Balances prior to the effective date of
termination if termination occurs during the first 12-month
period of the Original Term (March 4, 1996 through March 4,
1997); 2% of the highest of the Average Monthly Loan Balances
prior to the effective date of termination if termination occurs
during the second twelve-month period of the Original Term (March
5, 1997 through March 4, 1998); and 1% of the highest of the
Average Monthly Loan Balances prior to the effective date of
termination if termination occurs during the third twelve-month
period of the Original Term (March 5, 1998 through March 4,
1999). If termination occurs on the last day of the Original
Term or the last day of any Renewal Term, no termination charge
shall be payable.
4.2.4. EFFECT OF TERMINATION. All of
the Obligations shall be immediately due and payable upon the
effective date of termination by Lender or, in the case of a
termination by Borrower, upon the date specified in Borrower's
notice of termination of this Agreement as the effective date of
such termination, and on the effective date of any termination
(whether by Lender or Borrower) Lender shall have no obligation
to make any Revolver Loans to or for the direct or indirect
benefit of Borrower. All undertakings, agreements, covenants,
warranties and representations of Borrower contained in the Loan
Documents shall survive any such termination and Lender shall
retain its Liens in the Collateral and all of its rights and
remedies under the Loan Documents notwithstanding such
termination until Borrower has paid the Obligations to Lender, in
full, in immediately available funds, together with the
applicable termination charge, if any. Notwithstanding the
payment in full of the Obligations, Lender shall not be required
to terminate its security interests in the Collateral unless,
with respect to any loss or damage Lender may incur as a result
of dishonored checks, Payment Items or other forms of payment
received by Lender from Borrower or any Designated Obligor and
applied to the Obligations, Lender shall, at its option, (i) have
received a written agreement, executed by Borrower and by any
Person whose loans or other advances to Borrower are used in
whole or in part to satisfy the Obligations, indemnifying Lender
from any such loss or damage; or (ii) have retained such monetary
reserves and Liens on the Collateral for such period of time as
Lender, in its reasonable discretion, may deem necessary to
protect Lender from any such loss or damage. All obligations of
any party to this Agreement to indemnify Lender shall survive any
termination of this Agreement.
SECTION 5. SECURITY INTERESTS
5.1. SECURITY INTEREST IN COLLATERAL. To secure the
prompt payment and performance to Lender of all of the
Obligations, Borrower hereby grants to Lender a continuing
security interest in and Lien upon all of the following Property
of Borrower and all of Borrower's right, title and interest
therein, whether such Property is now owned or existing or
hereafter created, acquired or arising and wheresoever located:
(i) All Borrower Advances;
(ii) All Payment Rights;
(iii) All Transaction Documents and all
Remedies;
(iv) All Equipment;
(v) All Deposit Accounts;
(vi) All monies and other Property of any
kind now or at any time or times hereafter in the possession
or under the control of Lender or a bailee or Affiliate of
Lender;
(vii) All accessions to, substitutions
for and all replacements, products and cash and non-cash
proceeds of (i) through (vi) above, including proceeds of
and unearned premiums with respect to insurance policies
insuring any of the Collateral; and
(viii) All books and records (including
customer lists, credit files, computer programs, print-outs,
and other computer materials and records) of Borrower
pertaining to any of (i) through (vii) above.
5.2. LIEN PERFECTION; FURTHER ASSURANCES. Borrower shall
execute such Code-1 financing statements as are required by the
Code or other Applicable Law and such other instruments,
assignments or documents as are necessary to perfect Lender's
Lien upon any of the Collateral and shall take such other action
as may be required to perfect or to continue the perfection of
Lender's Lien upon the Collateral, including (i) the pledge and
delivery to Lender of all Instruments evidencing a Payment Right
to Borrower and (ii) promptly upon Lender's request therefor, the
assignment of record to Lender of all UCC-1 financing statements
naming a Designated Obligor as debtor and Borrower as secured
party. To the extent that any of the Transaction Documents
evidence a Payment Right and a security interest in or lease of
specific goods (and, therefore, constitute Chattel Paper)
Borrower shall either cause to be inscribed on the face of each
such Transaction Document a conspicuous legend indicating that
the same is at all times subject to the Liens in favor of Lender
or deliver possession thereof to Lender. For so long as no
Default or Event of Default exists, upon Borrower's request
therefor Lender will deliver to Borrower any Instrument
evidencing a Payment Right theretofore delivered by Borrower
pursuant to this Section 5.2 for the purpose of enabling Borrower
(a) to enforce payment of, or otherwise exercise its rights and
remedies with respect to, such Payment Right, or (b) to
administer such Instrument in the ordinary course of Borrower's
business operations, which, by way of example, may include
modifications, amendments, extensions, renewals or consolidations
of such Instrument. Unless prohibited by Applicable Law,
Borrower hereby authorizes Lender to execute and file any such
financing statement on Borrower's behalf. The parties agree that
a carbon, photographic or other reproduction of this Agreement
shall be sufficient as a financing statement and may be filed in
any appropriate office in lieu thereof. At Lender's reasonable
request, Borrower shall also promptly execute or cause to be
executed and shall deliver to Lender any and all documents,
instruments and agreements deemed reasonably necessary by Lender
to give effect to or carry out the terms or intent of the Loan
Documents.
SECTION 6. PROVISIONS RELATING TO BORROWER ADVANCES; COLLATERAL
ADMINISTRATION
6.1. REPRESENTATIONS AND WARRANTIES REGARDING BORROWER
ADVANCES. Lender may rely, in determining which Borrower
Advances are Qualified Borrower Advances, on all statements and
representations made by Borrower with respect to any Borrower
Advance. Unless otherwise indicated in writing to Lender, with
respect to each Borrower Advance:
(i) It is genuine and in all respects what
it purports to be, and it is not evidenced by a judgment;
(ii) It arises out of a completed, bona
fide extension of credit by Borrower in the ordinary course
of its business and in accordance with the terms and
conditions of Transaction Documents relating thereto that,
to the best of Borrower's knowledge, is secured by a Senior
Security Interest;
(iii) Such Borrower Advance, and
Lender's security interest therein, is not, and will not (by
voluntary act or omission of the Designated Obligor or
Borrower) be in the future, subject to any offset, Lien,
deduction, defense, dispute, counterclaim or any other
adverse condition, and each such Borrower Advance is
absolutely owing to Borrower and is not contingent in any
respect or for any reason;
(iv) Borrower has made no agreement with
any Designated Obligor for any extension, compromise,
settlement or modification of any such Borrower Advance or
any deduction therefrom;
(v) To the best of Borrower's knowledge
and belief there are no facts, events or occurrences which
in any way impair the validity or enforceability of any
Borrower Advances or tend to reduce the amount payable with
respect thereto from the full amount provided in the
Transaction Documents relating thereto;
(vi) To the best of Borrower's knowledge,
the Designated Obligor thereunder (1) had the capacity to
contract at the time any Transaction Documents giving rise
to the Borrower Advance were executed and (2) such
Designated Obligor is Solvent;
(vii) To the best of Borrower's
knowledge, there are no proceedings or actions which are
threatened or pending against any Designated Obligor which
might result in any material adverse change in such
Designated Obligor's financial condition or the
collectibility of such Borrower Advance;
(viii) The Borrower Advance, all
Transaction Documents relating to such Borrower Advance and
all Remedies in connection therewith are freely assignable
by Borrower to Lender without violation of any Transaction
Document or any Applicable Law and Lender's Lien therein is
valid and enforceable.
6.2. ADMINISTRATION OF BORROWER ADVANCES.
6.2.1. RECORDS, SCHEDULES, ASSIGNMENTS
OF BORROWER ADVANCES AND REPORTING. Borrower shall keep accurate
and complete records of all Borrower Advances and all payments
and collections thereon and shall submit to Lender on such
periodic basis as Lender shall reasonably request an advance and
payments and collections report for the preceding period, in form
satisfactory to Lender. On or before the third Business Day of
each week from and after the date hereof, Borrower shall deliver
to Lender, in form acceptable to Lender, a detailed schedule or
report of all Borrower Advances existing as of the last day of
the preceding week, specifying the names and addresses for each
Designated Obligor obligated on a Borrower Advance so listed, the
outstanding amount of each Borrower Advance, the aggregate face
amount of all Accounts of each Designated Obligor and the
aggregate Value of all Inventory of each Designated Obligor, in
each case multiplied by the applicable advance rates under the
relevant Transaction Document, the existence and type of
participations in each Borrower Advance sold or conveyed by
Borrower to any other Person and present status reports relating
to the Borrower Advances so scheduled ("Schedule of Borrower
Advances"), and, upon Lender's reasonable request therefor,
copies of all Transaction Documents, repayment histories and such
other matters and information relating to the status of then
existing Borrower Advances as Lender shall reasonably request.
In addition, if Borrower Advances in an aggregate face amount in
excess of $100,000 cease to be Qualified Borrower Advances in
whole or in part, Borrower shall notify Lender of such occurrence
promptly (and in any event within 2 Business Days) after
Borrower's having obtained knowledge of such occurrence and the
Borrowing Base shall thereupon be adjusted to reflect such
occurrence. In addition to other reports that Borrower is
required to deliver to Lender hereunder, Borrower shall deliver
to Lender, or cause to be delivered to Lender, in a form
reasonably satisfactory to Lender, the following: (i) on a
monthly basis from and after the date hereof, Trend Cards with
respect to each Designated Obligor; and (ii) promptly after the
rendition and receipt thereof, true and correct copies of the
results of internal audits of Borrower's operations conducted by
Capital Bank. Reports, records and other information required to
be delivered by Borrower to Lender upon Lender's written request
as set forth in this Section 6.2.1 shall be delivered to Lender
not later than the fifth Business Day following Lender's request
therefor. In the event that Borrower is incapable of delivering
the Schedule of Borrower Advances or any other reports required
under this Section 6.2.1 or other provisions of this Agreement
due to the occurrence of a natural disaster, Borrower shall take
all steps necessary to deliver such Schedule of Borrower Advances
or other reports to Lender as soon as possible under the
circumstances.
6.2.2. DISCOUNTS, ALLOWANCES, DISPUTES.
If an Obligor grants any allowances or credits that are not
embodied in the Transaction Documents governing the Borrower
Advance involved, Borrower shall report such discounts,
allowances or credits, as the case may be, to Lender as part of
the next required Schedule of Borrower Advances. If any amounts
due and owing in excess of $100,000 are in dispute between
Borrower and any Designated Obligor, upon Lender's written
request Borrower shall provide Lender with written notice thereof
at the time of submission of the next Schedule of Borrower
Advances, explaining in detail the reason for the dispute, all
claims related thereto and the amount in controversy. Upon and
after the occurrence of an Event of Default, Lender shall have
the right to settle or adjust all disputes and claims directly
with the Designated Obligor and to compromise the amount or
extend the time for payment of the Borrower Advances upon such
terms and conditions as Lender may deem advisable, and to charge
the deficiencies, costs and expenses thereof, including
attorney's fees, to Borrower.
6.2.3. TAXES. If a Borrower Advance
includes a charge for any Tax payable to any governmental taxing
authority, Lender is authorized, in its sole discretion, to pay
the amount thereof to the proper taxing authority for the account
of Borrower and to charge Borrower therefor; PROVIDED, HOWEVER,
that Lender shall not be liable for any Taxes that may be due by
any Obligor or Borrower.
6.2.4. BORROWER ADVANCE VERIFICATION.
Whether or not a Default or an Event of Default has occurred, any
of Lender's officers, employees or agents shall have the right,
at any time or times hereafter, in the name of Lender, any
designee of Lender or Borrower, to verify the validity, amount or
any other matter relating to any Borrower Advances by mail,
telephone, telegraph or otherwise. Borrower shall cooperate
fully with Lender in an effort to facilitate and promptly
conclude any such verification process.
6.2.5. MAINTENANCE OF DOMINION ACCOUNT.
Upon or after the occurrence of an Event of Default, (i) Borrower
shall, if requested by Lender, establish and maintain a Dominion
Account pursuant to lockbox arrangement acceptable to Lender with
such banks as may be selected by Borrower and be acceptable to
Lender, and in connection therewith Borrower shall issue to any
such banks an irrevocable letter of instruction directing such
banks to deposit all payments or other remittances received in
the lockbox to the Dominion Account for application on account of
the Obligations, or (ii) pursuant to the Deposit Accounts
Assignment, Lender may issue to any or all of the banks at which
Deposit Accounts are maintained a Payment Direction Notice
directing such bank or banks to directly deposit all payments,
remittances or other deposits received in the Deposit Accounts to
an account designated by Lender for application on account of the
Obligations. All funds deposited in the Dominion Account or in
any Deposit Account subsequent to the issuance by Lender of a
Payment Direction Notice, shall immediately become the property
of Lender and Borrower shall obtain the agreement by such banks
in favor of Lender to waive any offset rights against the funds
so deposited. Lender assumes no responsibility for any such
lockbox arrangement or any Deposit Account including any claim of
accord and satisfaction or release with respect to deposits
accepted by any bank thereunder. Borrower shall not be obligated
to deposit any proceeds of Collateral into a Dominion Account
unless an Event of Default has occurred and Lender has requested
that Borrower establish and maintain a Dominion Account and
Lender shall not be entitled to issue a Payment Direction Notice
unless an Event of Default then exists. If any Event of Default
in consequence of which Lender required the establishment of a
Dominion Account or issued a Payment Direction Notice is
subsequently cured within any period of cure expressly provided
for in this Agreement or otherwise to the satisfaction of Lender
or is waived in writing pursuant to this Agreement by Lender,
then Borrower thereafter shall not be obligated to deposit any
proceeds of Collateral into a Dominion Account and Lender shall
rescind any Payment Direction Notice. The preceding sentence
shall not be deemed to limit Lender's rights under this Section
6.2.5 or the Deposit Accounts Assignments in respect of any Event
of Default or Events of Default that occur after the Dominion
Account has been discontinued or Lender has rescinded a Payment
Direction Notice.
6.2.5. COLLECTION OF BORROWER ADVANCES;
PROCEEDS OF COLLATERAL. Borrower shall endeavor in the first
instance to make collection of the Borrower Advances and related
Payment Rights for Lender. When any Event of Default exists,
Borrower agrees that all remittances received by Borrower in
respect of Borrower Advances and related Payment Rights, together
with the proceeds of any other Collateral, shall be held as
Lender's property by Borrower as trustee of an express trust for
Lender's benefit. Lender retains the right at all times after
the occurrence of a Default or an Event of Default (i) to notify
Designated Obligors that Borrower Advances have been assigned to
Lender and to collect Borrower Advances and related Payment
Rights directly in its own name and to charge to Borrower the
collection costs and expenses, including attorneys' fees to
Borrower, (ii) to notify the banks at which the Deposit Accounts
are maintained to deposit all payments or other remittances
received in the Deposit Accounts into an account designated by
Lender as provided in the Deposit Accounts Assignments or (iii)
to exercise the rights of Lender under the Agency Agreement.
6.3. PAYMENT OF CHARGES. All amounts chargeable to
Borrower under Section 6 hereof shall be Obligations secured by
all of the Collateral, shall be payable ON DEMAND and shall bear
interest from the date such advance was made until paid in full
at the rate applicable to Revolver Loans from time to time.
SECTION 7. REPRESENTATIONS AND WARRANTIES
7.1. GENERAL REPRESENTATIONS AND WARRANTIES. To induce
Lender to enter into this Agreement and to make advances
hereunder, Borrower warrants and represents to Lender and
covenants with Lender that:
7.1.1. ORGANIZATION AND QUALIFICATION.
Each of Borrower and its Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation. Each of Borrower and
its Subsidiaries is duly qualified and is authorized to do
business and is in good standing as a foreign corporation in each
state or jurisdiction listed on SCHEDULE 7.1.1 hereto and, to the
best of Borrower's knowledge and belief, in all other states and
jurisdictions where the character of its Properties or the nature
of its activities make such qualification necessary.
7.1.2. CORPORATE POWER AND AUTHORITY.
Borrower is duly authorized and empowered to enter into, execute,
deliver and perform this Agreement and each of the other Loan
Documents to which it is a party. The execution, delivery and
performance of this Agreement and each of the other Loan
Documents have been duly authorized by all necessary corporate
action and do not and will not (i) require any consent or
approval of the shareholders of Borrower or any of its
Subsidiaries; (ii) contravene Borrower's charter, articles or
certificate of incorporation or by-laws; (iii) violate, or cause
Borrower to be in default under, any provision of any law, rule,
regulation, order, writ, judgment, injunction, decree,
determination or award in effect having applicability to Borrower
or any of its Subsidiaries; (iv) result in a breach of or
constitute a default under any indenture or loan or credit
agreement or any other agreement, lease or instrument to which
Borrower or any of its Subsidiaries is a party or by which it or
its Properties may be bound or affected; or (v) result in, or
require, the creation or imposition of any Lien (other than
Permitted Liens) upon or with respect to any of the Properties
now owned or hereafter acquired by Borrower or any of its
Subsidiaries.
7.1.3. LEGALLY ENFORCEABLE AGREEMENT.
This Agreement is, and each of the other Loan Documents when
delivered under this Agreement will be, a legal, valid and
binding obligation of Borrower enforceable against it in accor-
dance with its respective terms.
7.1.4. CAPITAL STRUCTURE. SCHEDULE
7.1.4 hereto states (i) the correct name of each of the
Subsidiaries of Borrower, its jurisdiction of incorporation and
the percentage of its Voting Stock owned by Borrower, (ii) the
name of each of Borrower's corporate or joint venture Affiliates
and the nature of the affiliation, (iii) the number, nature and
holder of all outstanding Securities of Borrower and (iv) the
number of authorized, issued and treasury shares of Borrower and
each Subsidiary of Borrower. Except as provided in SCHEDULE
7.1.4 hereto, Borrower has good title to all of the shares it
purports to own of the stock of each of its Subsidiaries, free
and clear in each case of any Lien other than Permitted Liens.
All such shares have been duly issued and are fully paid and non-
assessable. There are no outstanding options to purchase, or any
rights or warrants to subscribe for, or any commitments or
agreements to issue or sell, or any Securities or obligations
convertible into, or any powers of attorney relating to, shares
of the capital stock of Borrower or any of its Subsidiaries.
There are no outstanding agreements or instruments binding upon
any of Borrower's shareholders relating to the ownership of its
shares of capital stock.
7.1.5. CORPORATE NAMES. Neither
Borrower nor any of its Subsidiaries has been known as or used
any corporate, fictitious or trade names except those listed on
SCHEDULE 7.1.5 hereto. Except as set forth on SCHEDULE 7.1.5,
neither Borrower nor any of its Subsidiaries has been the
surviving corporation of a merger or consolidation or acquired
all or substantially all of the assets of any Person.
7.1.6. BUSINESS LOCATIONS; AGENT FOR
PROCESS. Each of Borrower's and its Subsidiaries' chief
executive office and other places of business are as listed on
SCHEDULE 7.1.6 hereto. During the preceding five-year period,
neither Borrower nor any of its Subsidiaries has had an office,
place of business or agent for service of process other than as
listed on SCHEDULE 7.1.6.
7.1.7. TITLE TO PROPERTIES; PRIORITY OF
LIENS. Each of Borrower and its Subsidiaries has good,
indefeasible and marketable title to and fee simple ownership of,
or valid and subsisting leasehold interests in, all of its real
Property, and good title to all of the Collateral and all of its
other Property, in each case, free and clear of all Liens except
Permitted Liens. Borrower has paid or discharged all lawful
claims which, if unpaid, might become a Lien against any of
Borrower's Properties that is not a Permitted Lien. The Liens
granted to Lender under Section 5 hereof are first priority
Liens, subject only to those Permitted Liens which are expressly
stated to have priority over the Liens of Lender.
7.1.8. FINANCIAL STATEMENTS; FISCAL
YEAR. The Consolidated and consolidating balance sheets of
Borrower and such other Persons described therein (including the
accounts of all Subsidiaries of Borrower for the respective
periods during which a Subsidiary relationship existed) as of
December 31, 1995, and the related statements of income, changes
in stockholder's equity, and changes in financial position for
the periods ended on such dates, have been prepared in accordance
with GAAP, and present fairly the financial positions of Borrower
and such Persons at such dates and the results of Borrower's
operations for such periods. Since September 30, 1995, there has
been no material change in the condition, financial or otherwise,
of Borrower and such other Persons as shown on the Consolidated
balance sheet as of such date, except changes in the ordinary
course of business, none of which individually or in the
aggregate has been materially adverse. The fiscal year of
Borrower and each of its Subsidiaries ends on December 31 of each
year.
7.1.9. FULL DISCLOSURE. The financial
statements referred to in Section 7.1.8 hereof do not, nor does
this Agreement or any other written statement of Borrower to
Lender, contain any untrue statement of a material fact or omit a
material fact necessary to make the statements contained therein
or herein not misleading. There is no fact or circumstances
which Borrower has failed to disclose to Lender in writing and
which may reasonably be expected to have a Material Adverse
Effect.
7.1.10. SOLVENT FINANCIAL CONDITION. Each
of Borrower and its Subsidiaries is now and, after giving effect
to the Loans to be made hereunder, at all times will be, Solvent.
7.1.11. SURETY OBLIGATIONS. Except as set
forth on SCHEDULE 7.1.11 hereto, neither Borrower nor any of its
Subsidiaries is obligated as surety or indemnitor under any
surety or similar bond or other contract issued or entered into
any agreement to assure payment, performance or completion of
performance of any undertaking or obligation of any other Person.
7.1.12. TAXES. The federal tax
identification number of each of Borrower and each of Borrower's
Subsidiaries is shown on SCHEDULE 7.1.12 hereto. Borrower is a
part of a consolidated group comprised of Parent, Capital Bank
and Affiliates thereof described in the Tax Allocation Agreement
(the "Tax Group"), that has filed all federal, state and local
tax returns and other reports the Tax Group is required by law to
file and has paid, or made provision for the payment of, all
Taxes upon it, its income and Properties as and when such Taxes
are due and payable, except to the extent being Properly
Contested. The provision for Taxes on the books of Borrower and
its Subsidiaries are adequate to cover that portion of Taxes
owing by Borrower and its Subsidiaries as allocated pursuant to
the Tax Allocation Agreement for all years not closed by
applicable statutes, and for its current fiscal year.
7.1.13. BROKERS. Except for a one-time
fee in an amount equal to the greater of .25% of the maximum
amount that Borrower is entitled to borrow under the Loan
Agreement on the date hereof or $100,000 payable to Broker by
Borrower, there are no claims for brokerage commissions, finder's
fees or investment banking fees in connection with the
transactions contemplated by this Agreement.
7.1.14. PATENTS, TRADEMARKS, COPYRIGHTS
AND LICENSES. With the exception of Borrower's federally
registered service mark which is owned by Parent, each of
Borrower and its Subsidiaries owns or possesses all the patents,
trademarks, service marks, trade names, copyrights and licenses
necessary for the present and planned future conduct of its
business without any conflict with the rights of others. All
such patents, trademarks, service marks, trade names, copyrights,
licenses and other similar rights are listed on SCHEDULE 7.1.14
hereto.
7.1.15. GOVERNMENTAL CONSENTS. Borrower
and its Subsidiaries has, and is in good standing with respect
to, all Governmental Approvals necessary to continue to conduct
its business as heretofore or proposed to be conducted by it and
to own or lease and operate its Properties as now owned or leased
by it.
7.1.16. COMPLIANCE WITH LAWS. Each of
Borrower and its Subsidiaries has duly complied with, and its
Properties, business operations and leaseholds are in compliance
in all material respects with, the provisions of ERISA,
Environmental Laws and all Applicable Law and there have been no
citations, notices or orders of noncompliance issued to Borrower
or any of its Subsidiaries under any such law, rule or
regulation. Each of Borrower and its Subsidiaries has
established and maintains an adequate monitoring system to insure
that it remains in compliance with all federal, state and local
laws, rules and regulations applicable to it.
7.1.17. RESTRICTIONS. Neither Borrower
nor any of its Subsidiaries is a party or subject to any
contract, agreement, or charter or other corporate restriction,
which has or could be reasonably expected to have a Material
Adverse Effect. Neither Borrower nor any of its Subsidiaries is
a party or subject to any contract or agreement which restricts
its right or ability to incur Debt, other than as provided in the
Securitization Documents (with respect to which any consent
required thereby has been obtained) and as set forth on SCHEDULE
7.1.17 hereto, none of which prohibit the execution of or
compliance with this Agreement or the other Loan Documents by
Borrower or any of its Subsidiaries, as applicable.
7.1.18. LITIGATION. Except as set forth
on SCHEDULE 7.1.18 hereto, there are no actions, suits,
proceedings or investigations pending, or to the knowledge of
Borrower, threatened, against or affecting Borrower or any of its
Subsidiaries, or the business, operations, Properties, prospects,
profits or condition of Borrower or any of its Subsidiaries, none
of which if resolved adversely to Borrower or its Subsidiaries
would have a Material Adverse Effect. Neither Borrower nor any
of its Subsidiaries is in default with respect to any order,
writ, injunction, judgment, decree or rule of any court,
governmental authority or arbitration board or tribunal.
7.1.19. NO DEFAULTS. No event has
occurred and no condition exists which would, upon or after the
execution and delivery of this Agreement or Borrower's
performance hereunder, constitute a Default or an Event of
Default. Neither Borrower nor any of its Subsidiaries is in
default, and no event has occurred and no condition exists which
constitutes, or which with the passage of time or the giving of
notice or both would constitute, a default in the payment of any
Debt to any Person for Money Borrowed.
7.1.20. LEASES. Except for miscellaneous
leases of office Equipment entered into in the ordinary course of
Borrower's business, SCHEDULE 7.1.20 hereto is a complete listing
of all capitalized leases and operating leases of Borrower and
its Subsidiaries on the date hereof. Each of Borrower and its
Subsidiaries is in full compliance with all of the terms of each
of its respective capitalized and operating leases.
7.1.21. PENSION PLANS. Except as
disclosed on SCHEDULE 7.1.21 hereto, neither Borrower nor any of
its Subsidiaries has any Plan on the date hereof. The Plan in
which Borrower and each of its Subsidiaries participates is in
full compliance with the requirements of ERISA and the
regulations promulgated thereunder with respect thereto. No fact
or situation that could result in a material adverse change in
the financial condition of Borrower exists in connection with
such Plan. Neither Borrower nor any of its Subsidiaries has any
withdrawal liability in connection with a Multiemployer Plan.
7.1.22. LABOR RELATIONS. Except as
described on SCHEDULE 7.1.22 hereto, neither Borrower nor any of
its Subsidiaries is a party to any collective bargaining
agreement on the date hereof. On the date hereof, there are no
material grievances, disputes or controversies with any union or
any other organization of Borrower's or any of its Subsidiaries'
employees, or threats of strikes, work stoppages or any asserted
pending demands for collective bargaining by any union or
organization.
7.2. CONTINUOUS NATURE OF REPRESENTATIONS AND WARRANTIES.
Each representation and warranty contained in this Agreement and
the other Loan Documents shall be continuous in nature and shall
remain accurate, complete and not misleading at all times during
the term of this Agreement, except for changes in the nature of
Borrower's or its Subsidiaries' business or operations that would
not have a Material Adverse Effect or would not render the
information in any exhibit attached hereto either inaccurate,
incomplete or misleading, so long as Lender has consented to such
changes or such changes are expressly permitted by this
Agreement. Notwithstanding the foregoing, representations and
warranties which by their terms are applicable only to a specific
date shall be deemed made only at and as of such date.
7.3. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties of Borrower contained in this
Agreement or any of the other Loan Documents shall survive the
execution, delivery and acceptance thereof by Lender and the
parties thereto and the closing of the transactions described
therein or related thereto.
SECTION 8. COVENANTS AND CONTINUING AGREEMENTS
8.1. AFFIRMATIVE COVENANTS. During the term of this
Agreement, and thereafter for so long as there are any
Obligations to Lender, Borrower covenants that, unless otherwise
consented to by Lender in writing, it shall:
8.1.1. VISITS AND INSPECTIONS. Unless
access to the Properties of Borrower is not possible due to the
occurrence of a natural disaster, permit representatives of
Lender, from time to time, as often as may be reasonably
requested, but only during normal business hours, to visit and
inspect the Properties of Borrower and each of its Subsidiaries,
inspect, audit and make extracts from Borrower's books and
records, and discuss with Borrower's officers, its employees and
its independent accountants Borrower's and each of its
Subsidiaries' business, assets, liabilities, financial condition,
business prospects and results of operations. In the event of
inaccessibility to the Properties of Borrower due to such a
natural disaster, Borrower shall afford Lender such access to the
Properties of Borrower as soon as possible under the
circumstances.
8.1.2. NOTICES. Notify Lender in
writing (i) of the occurrence of any event or the existence of
any fact which renders any representation or warranty in this
Agreement or any of the other Loan Documents inaccurate,
incomplete or misleading; (ii) promptly after Borrower's learning
thereof, of the commencement of any litigation having a Material
Adverse Effect on Borrower or any of its Properties, whether or
not the claim is considered by Borrower to be covered by
insurance, and of the institution of any administrative
proceeding which if determined adversely to Borrower would have a
Material Adverse Effect; (iii) at least 30 days prior thereto, of
Borrower's opening of any new office or place of business or
Borrower's closing of any existing office or place of business;
(iv) promptly after Borrower's learning thereof, of any labor
dispute to which Borrower may become a party, any strikes or
walkouts relating to any of its plants or other facilities, and
the expiration of any labor contract to which it is a party or by
which it is bound; (v) promptly after Borrower's learning
thereof, of any material default by any Loan Party under any
note, indenture, loan agreement, mortgage, lease, deed, guaranty
or other similar agreement relating to any Debt of Borrower
exceeding $2,000,000; (vi) promptly after the occurrence thereof,
of any Default or Event of Default; (vii) promptly after the
occurrence thereof, of any default by any obligor under any note
or other evidence of Debt payable to Borrower; (viii) promptly
after the rendition thereof, of any judgment rendered against any
Loan Party in an amount exceeding $1,000,000; (ix) at least 2
Business Days prior thereto, of any designation of Additional
Accounts (as defined in Securitization Documents) or any other
action that would cause the contribution, transfer, assignment or
other conveyance of Property of Borrower to CF Funding, the Trust
or any other Person under or in connection with the
Securitization Documents with respect to any Person that is not
identified on SCHEDULE I to the Intercreditor Agreement as in
effect on the Closing Date; and (x) at least 2 Business Days
prior to the sooner to occur of the execution and delivery
thereof by all parties thereto or the effective date thereof, of
any proposed amendment or modification of, or supplement to, any
of the Securitization Documents, which notification shall be
accompanied by a true, correct and complete copy of the proposed
amendment, modification or supplement.
8.1.3. FINANCIAL STATEMENTS. Keep, and
cause each Subsidiary to keep, adequate records and books of
account with respect to its business activities in which proper
entries are made in accordance with GAAP reflecting all its
financial transactions; and cause to be prepared and furnished to
Lender the following (all to be prepared in accordance with GAAP
applied on a consistent basis, unless Borrower's certified public
accountants concur in any change therein and such change is
disclosed to Lender and is consistent with GAAP):
(i) not later than 90 days after the close
of each fiscal year of Borrower, unqualified audited
financial statements of Borrower and its Subsidiaries as of
the end of such year, on a Consolidated and consolidating
basis, certified by a firm of independent certified public
accountants of recognized standing selected by Borrower but
reasonably acceptable to Lender (except for a qualification
for a change in accounting principles with which the
accountant concurs);
(ii) not later than 30 days after the end
of each month hereafter, including the last month of
Borrower's fiscal year, unaudited interim financial
statements of Borrower and its Subsidiaries as of the end of
such month and of the portion of Borrower's financial year
then elapsed, on a Consolidated and consolidating basis,
certified by the principal financial officer of Borrower as
prepared in accordance with GAAP and fairly presenting the
Consolidated financial position and results of operations of
Borrower and its Subsidiaries for such month and period
subject only to changes from audit and year-end adjustments
and except that such statements need not contain notes;
(iii) promptly after the sending or
filing thereof, as the case may be, copies of any proxy
statements, financial statements or reports which Borrower
has made available to its shareholders and copies of any
regular, periodic and special reports or registration
statements which Borrower files with the Securities and
Exchange Commission or any governmental authority which may
be substituted therefor, or any national securities
exchange;
(iv) promptly after the filing thereof,
copies of any annual report to be filed in accordance with
ERISA in connection with each Plan; and
(v) such other data and information
(financial and otherwise) as Lender, from time to time, may
reasonably request, bearing upon or related to the
Collateral or Borrower's and each of its Subsidiaries'
financial condition or results of operations.
Concurrently with the delivery of the financial
statements described in clause (i) of this Section 8.1.3,
Borrower shall forward to Lender a copy of the accountants'
letter to Borrower's management that is prepared in connection
with such financial statements and also shall cause to be
prepared and shall furnish to Lender a certificate of the
aforesaid certified public accountants certifying to Lender that,
based upon their examination of the financial statements of
Borrower and its Subsidiaries performed in connection with their
examination of said financial statements, they are not aware of
any Default or Event of Default, or, if they are aware of such
Default or Event of Default, specifying the nature thereof, and
acknowledging, in a manner reasonably satisfactory to Lender,
that they are aware that Lender is relying on such financial
statements in making its decisions with respect to the Loans.
Concurrently with the delivery of the financial statements
described in clauses (i) and (ii) of this Section 8.1.3, or more
frequently if requested by Lender, Borrower shall cause to be
prepared and furnished to Lender a Compliance Certificate in the
form of EXHIBIT A hereto executed by the chief financial officer
of Borrower.
8.1.4. TRANSACTION DOCUMENTS. Include
in each Transaction Document executed and delivered subsequent to
the Closing Date language providing that, subject to any
restrictions upon the assignment thereof by the Designated
Obligor, such Transaction Document shall be binding upon and
inure to the benefit of any and all successors and assigns of the
parties thereto, and exercise its best efforts to include such
language in any Transaction Document in existence on the Closing
Date that does not expressly purport to be binding upon the
successors and assigns of the parties thereto pursuant to a
written amendment or modification of any such Transaction
Document.
8.1.5. GUARANTOR FINANCIAL STATEMENTS.
Deliver or cause to be delivered to Lender financial statements
for each Guarantor in form and substance reasonably satisfactory
to Lender at such intervals and covering such time periods as
Lender may reasonably request.
8.1.6. PROJECTIONS. No later than 30
days after the end of each fiscal year of Borrower, deliver to
Lender Projections of Borrower for the forthcoming fiscal year,
month by month.
8.1.7. TAXES. Pay and discharge, and
cause each Subsidiary to pay and discharge, all Taxes prior to
the date on which such Taxes become delinquent or penalties
attach thereto, except and to the extent only that such Taxes are
being Properly Contested.
8.1.8. COMPLIANCE WITH LAWS. Comply,
and cause each Subsidiary to comply, with all Applicable Law,
including all laws, statutes, regulations and ordinances
regarding the collection, payment and deposit of Taxes, and all
ERISA and Environmental Laws, and obtain and keep in force any
and all Governmental Approvals necessary to the ownership of its
Properties or to the conduct of its business, which violation or
failure to obtain might have a Material Adverse Effect.
8.1.9. INSURANCE. In addition to the
insurance required herein with respect to the Collateral,
maintain, with financially sound and reputable insurers,
insurance with respect to its Properties and business against
such casualties and contingencies of such type (including
business interruption, larceny, embezzlement or other criminal
misappropriation insurance) and in such amounts as is customary
in the business of Borrower or as otherwise reasonably required
by Lender.
8.1.10. COMPUTER SYSTEM. Other than
computer hardware and related products leased by Borrower
pursuant to the GECC Lease, all computer hardware, related
products and software that is used by Borrower to track,
determine the aging of, organize, or that otherwise relates to,
Borrower Advances shall at all times be owned by Borrower and
shall not be subject to any Lien or other interest other than a
Lien in favor of Lender and certain rights of Trustee under the
Software License Agreement and the Securitization Agreement.
8.1.11. SENIOR SECURITY INTEREST. For so
long as any Borrower Advance is owing by a Designated Obligor to
Borrower or a Transaction Document between a Designated Obligor
and Borrower is in effect, Borrower shall take all steps
necessary to maintain a Senior Security Interest in such
Designated Obligor's Properties, subject to Liens that may arise
by operation of Applicable Law.
8.1.12. POLICY AND PROCEDURE MANUALS.
Prepare, distribute and implement the policies and procedures set
forth in a policies and procedures manual (i) for Borrower's
operations relating to Healthcare Advances on or before June 30,
1996, and (ii) for Borrower's operations relating to ABL Advances
within 6 months following the employment of an officer of
Borrower to manage and oversee Borrower's operations relating to
ABL Advances, but in all events on or before December 31, 1996.
8.1.13. LIQUIDITY.
(i) Maintain in full force and effect with
Capital Holding, or any other bank or financial institution
on terms similar to the terms of the Capital Holding Line of
Credit, an unsecured line of credit which, when aggregated
with amounts realized in connection with any initial public
offering of the stock of Capital Holding or Borrower after
the Closing Date, is in an amount not less than $50,000,000.
(ii) Maintain Liquidity of at least
$25,000,000.
8.2. NEGATIVE COVENANTS. During the term of this
Agreement, and thereafter for so long as there are any
Obligations to Lender, Borrower covenants that, unless Lender has
first consented thereto in writing, it will not:
8.2.1. MERGERS; CONSOLIDATIONS. Enter
into any transaction to merge, consolidate or amalgamate with any
Person, or liquidate, wind up or dissolve itself, except mergers
or consolidations of any Subsidiary with another Subsidiary of
Borrower.
8.2.2. LOANS. Make, or permit any
Subsidiary of Borrower to make, any loans or other advances of
money to any Person other than (i) for salary, travel advances,
advances against commissions and other similar advances in the
ordinary course of Borrower's business, (ii) loans or other
advances of money to Obligors in the ordinary course of
Borrower's business and (iii) loans or other advances made from
time to time relating to the Securitization Documents.
8.2.3. TOTAL DEBT. Create, incur,
assume, or suffer to exist, or permit any Subsidiary of Borrower
to create, incur or suffer to exist, any Debt, except:
(i) Obligations owing to Lender;
(ii) Subordinated Debt existing on the date
of this Agreement;
(iii) Debt outstanding from time to
time under the Capital Holding Line of Credit;
(iv) Debt that is unsecured and outstanding
from time to time under any unsecured line of credit,
whether in replacement of or in addition to the Capital
Holding Line of Credit;
(v) Securitization Debt existing on or
after the date of this Agreement;
(vi) Debt of any Subsidiary of Borrower to
Borrower;
(vii) accounts payable to trade
creditors and current operating expenses (other than for
Money Borrowed) which are not aged more than 120 days from
billing date or more than 30 days from the due date, in each
case incurred in the ordinary course of business and paid
within such time period, unless the same are being Properly
Contested;
(viii) obligations to pay Rentals
permitted by Section 8.2.12;
(ix) Purchase Money Debt of Borrower
secured by a Purchase Money Lien;
(x) contingent liabilities arising out of
endorsements of checks and other negotiable instruments for
deposit or collection in the ordinary course of business;
(xi) Debt not included in paragraphs (i)
through (viii) above which does not exceed at any time, in
the aggregate, the sum of $1,000,000.
Borrower shall not incur any Debt to Capital Bank, except for
nominal fees and charges arising from Borrower's routine banking
relationship with Capital Bank unless, prior to the incurrence by
Borrower of any such Debt to Capital Bank, Capital Bank shall
have executed and delivered to Lender an agreement that, among
other things, establishes that Capital Bank shall not set off any
amounts of Borrower in the Deposit Accounts or any other accounts
of Borrower maintained with Capital Bank, and that is in all
respects acceptable to Lender.
8.2.4. AFFILIATE TRANSACTIONS. Enter
into, or be a party to any transaction with any Affiliate or
stockholder, except: (i) the transactions contemplated by the
Loan Documents; (ii) payment of customary directors' fees and
indemnities; (iii) transactions with Affiliates that were
consummated prior to the date hereof; (iv) in the ordinary course
of and pursuant to the reasonable requirements of Borrower's or
such Subsidiary's business and upon fair and reasonable terms
which are fully disclosed to Lender; and (v) subject to the
provisions of Section 8.2.18, transactions contemplated by the
Securitization Documents from time to time.
8.2.5. LIMITATION ON LIENS. Create or
suffer to exist, or permit any Subsidiary of Borrower to create
or suffer to exist, any Lien upon any of its Property, income or
profits, whether now owned or hereafter acquired, except:
(i) Liens at any time granted in favor of
Lender;
(ii) Liens for Taxes (excluding any Lien
imposed pursuant to any of the provisions of ERISA) incurred
in the ordinary course of Borrower's business and not yet
due or being Properly Contested;
(iii) Liens arising in the ordinary
course of Borrower's business by operation of law or
regulation, but only if payment in respect of any such Lien
is not at the time required or the Debt secured by any such
Lien is being Properly Contested and such Liens do not
materially detract from the value of the Property of
Borrower or materially impair the use thereof in the
operation of Borrower's business;
(iv) Purchase Money Liens securing Purchase
Money Debt of Borrower;
(v) Liens arising by virtue of the
rendition, entry or issuance against Borrower, or any
Property of Borrower, of any judgment, writ, order, or
decree for so long as each such Lien is in existence for
less than 30 consecutive days after it first arises and is
at all times junior in priority to the Liens in favor of
Lender or is being Properly Contested;
(vi) such other Liens as appear on SCHEDULE
8.2.5 hereto;
(vii) Liens securing Debt of a
Subsidiary of Borrower to Borrower or another Subsidiary of
Borrower;
(viii) Liens arising under or in
connection with the Securitization Documents, provided that such
Liens do not encumber any of the Collateral; and
(ix) such other Liens as Lender may
hereafter approve in writing.
8.2.6. SUBORDINATED DEBT. Make, or
permit any Subsidiary of Borrower to make, any payment of any
part or all of any Subordinated Debt or take any other action or
omit to take any other action in respect of any Subordinated
Debt, except in accordance with the Subordination Agreement
relative thereto.
8.2.7. DISTRIBUTIONS. Declare or make,
or permit any Subsidiary of Borrower to declare or make, any
Distributions at any time that a Default or Event of Default
exists or would occur as the result of the making of any such
Distribution.
8.2.8. RESERVED.
8.2.9. DISPOSITION OF ASSETS. Sell,
lease or otherwise dispose of any of, or permit any Subsidiary of
Borrower to sell, lease or otherwise dispose of any of, its
Properties, including any disposition of Property as part of a
sale and leaseback transaction, to or in favor of any Person,
except: (i) a transfer of Property to Borrower by a Subsidiary of
Borrower; (ii) dispositions expressly authorized by this
Agreement; (iii) sales, assignments, transfers, conveyances or
advances to, or contributions to the capital of, CF Funding by
Borrower of Property other than Collateral pursuant to the
Contribution and Sale Agreement or the Trust by CF Funding of
Property other than Collateral pursuant to the Securitization
Agreement;; or (iv) dispositions of any other Property other than
Collateral at any time that a Default or Event of Default does
not exist.
8.2.10. STOCK OF SUBSIDIARIES. At any
time that a Default or Event of Default exists, permit any of its
Subsidiaries to issue any additional shares of its capital stock
except director's qualifying shares.
8.2.11. RESTRICTED INVESTMENT. Make or
have, or permit any Subsidiary of Borrower to make or have, any
Restricted Investment; PROVIDED, HOWEVER, that for so long as no
Default or Event of Default exists, Borrower may, subject to
Section 8.2.15, make or have, any Restricted Investment.
8.2.12. LEASES. Become, or permit any
Subsidiary of Borrower to become, a lessee under any operating
lease (other than a lease under which Borrower or any of its
Subsidiaries is lessor) of Property if the aggregate Rentals
payable during any current or future period of 12 consecutive
months under the lease in question and all other leases under
which Borrower or any of its Subsidiaries is then lessee would
exceed $2,000,000. The term "Rentals" means, as of the date of
determination, all payments which the lessee is required to make
by the terms of any lease.
8.2.13. FISCAL YEAR. Establish a fiscal
year of Borrower and its subsidiaries other than the 12-month
period ending December 31 of each year.
8.2.14. CORPORATE DOCUMENTS. Amend,
modify or otherwise change any of the terms or provisions in any
of Borrower's corporate charter, Articles of Incorporation, By-
laws, or other governing documents as in effect on the Closing
Date, except for changes that do not affect in any way Borrower's
or such Subsidiary's rights and obligations to enter into and to
perform the Loan Documents to which it is a party and to pay all
of the Obligations and that do not otherwise have a Material
Adverse Effect.
8.2.15. CONDUCT OF BUSINESS. Engage in
any business other than the business engaged in by it on the
Closing Date and any other type of financing business or
activities which are substantially similar, related or incidental
thereto.
8.2.16. TRANSACTION DOCUMENTS.
Subordinate any Lien securing any Borrower Advance to the Lien of
another Person, subordinate all or any part of any Borrower
Advance to the Debt of another Person, forgive all or any part of
any Borrower Advance, release any collateral or other security
for any Borrower Advance (except as expressly provided in the
Transaction Documents applicable thereto) or release any Solvent
guarantor of the payment or performance of all or any part of any
Borrower Advance.
8.2.17. SALE OF PARTICIPATIONS. Convey,
assign, transfer or sell a participation in any Borrower Advance
or the Transaction Documents relating thereto, except to the
extent that each of the following conditions has been fully
satisfied: (i) no Default or Event of Default exist at the time
of are would result from the conveyance, assignment, transfer or
sale of a participation in such Borrower Advance; (ii) Borrower
gives Lender at least five (5) days prior written notice of
Borrower's intent to convey, assign, transfer or sell a
participation in any Borrower Advance; (iii) no Out-of-Formula
Condition exists at the time or would result from such
conveyance, assignment, transfer or sale of a participation in a
Borrower Advance that would not be cured or eliminated by payment
of the purchase price therefor by Borrower to Lender, and said
purchase price therefor promptly is paid by Borrower to Lender in
immediately available funds; and (iv) the participation or other
interest conveyed, assigned, transferred or sold in any Borrower
Advance does not provide for payment thereof on a preferred or
priority basis or provide for a priority right to the
distribution of proceeds of collateral or other security for the
Borrower Advance, but, rather, is to be paid on a pro rata basis
in relation to Borrower's interest in the Borrower Advance.
8.2.18. SECURITIZATION DOCUMENTS.
Designate, contribute, transfer, assign or otherwise convey any
of the Collateral to CF Funding, the Trust or any other Person
under or in connection with the Securitization Documents.
8.2.19. BOOKS AND RECORDS. Move or
relocate books and records pertaining to any of the Collateral
from Borrower's chief executive office and principal place of
business.
8.3. SPECIFIC FINANCIAL COVENANTS. During the term of
this Agreement, and thereafter for so long as there are any
Obligations outstanding, Borrower covenants that, unless
otherwise consented to by Lender in writing, it shall:
8.3.1. PROFITABILITY. Achieve Consolidated
Net Income of not less than the amount shown below for the period
corresponding thereto:
[CAPTION]
<TABLE>
<S> <C>
Period Amount
The first fiscal quarter of $ 840,000
Borrower beginning January 1
of each year and ending March
31 of the same year
The first two fiscal quarters $2,165,000
of Borrower beginning January 1
of each year and ending June 30
of the same year
The first three fiscal quarters $3,664,000
of Borrower beginning January 1
of each year and ending September
30 of the same year
Each fiscal year of Borrower, $5,200,000
commencing with the fiscal year of
Borrower ending December 31, 1996
</TABLE>
8.3.2. DEBT TO NET WORTH RATIO.
Maintain at all times a Debt to Net Worth Ratio of not less than
1 to 1.
8.3.3. CASH FLOW. Achieve Consolidated
Cash Flow of more than $1 for each fiscal quarter of Borrower.
SECTION 9. CONDITIONS PRECEDENT
9.1. CONDITIONS PRECEDENT TO INITIAL LOANS.
Notwithstanding any other provision of this Agreement or any of
the other Loan Documents, and without affecting in any manner the
rights of Lender under the other sections of this Agreement,
Lender shall not be required to make the initial Loans requested
by Borrower unless, on or before April 15, 1996, each of the
following conditions has been and continues to be satisfied:
9.1.1. DOCUMENTATION. Lender shall have
received, in form and substance satisfactory to Lender and its
counsel, a duly executed counterpart of this Agreement and the
other Loan Documents, including the Intercreditor Agreement,
together with such additional documents, instruments and
certificates as Lender and its counsel shall require in
connection therewith from time to time, all in form and substance
satisfactory to Lender and its counsel.
9.1.2. EVIDENCE OF PERFECTION AND
PRIORITY OF LIENS IN COLLATERAL. Lender shall have received
copies of all filing receipts or acknowledgments issued by any
governmental authority to evidence any filing or recordation
necessary to perfect the Liens of Lender in the Collateral and
evidence in form satisfactory to Lender that such Liens
constitute valid and perfected security interests and Liens, and
that there are no other Liens upon any Collateral except for
Permitted Liens.
9.1.3. ARTICLES OF INCORPORATION.
Lender shall have received a copy of the Articles or Certificate
of Incorporation of Borrower, and all amendments thereto,
certified by the Secretary of State or other appropriate official
of the jurisdiction of Borrower's incorporation.
9.1.4. GOOD STANDING CERTIFICATES.
Lender shall have received good standing certificates for
Borrower, issued by the Secretary of State or other appropriate
official of Borrower's jurisdiction of incorporation and each
jurisdiction where the conduct of Borrower's business activities
or ownership of its Property necessitates qualification.
9.1.5. OPINION LETTER. Lender shall
have received (a) a favorable, written opinion of Greenberg,
Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A., counsel to
Borrower, as to the transactions contemplated by this Agreement,
to be in substantially the form of EXHIBIT B hereto, and (b) a
favorable, written opinion of Milbank, Tweed, Hadley & McCloy as
to the compliance of the transactions contemplated by this
Agreement with the Securitization Documents.
9.1.6. INSURANCE. Lender shall have
received copies of the casualty insurance policies of Borrower,
together with loss payable endorsements on Lender's standard form
of loss payee endorsement naming Lender as loss payee and copies
of Borrower's liability insurance policies, together with
endorsements naming Lender as a co-insured.
9.1.7. DISBURSEMENT LETTER. Lender
shall have received written instructions from Borrower directing
application of proceeds of the initial Loans made pursuant to
this Agreement, and an initial Borrowing Base Certificate from
Borrower, in form satisfactory to Lender.
9.2. CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS.
Notwithstanding any other provision of this Agreement or any of
the other Loan Documents, and without affecting in any manner the
rights of Lender under the other sections of this Agreement,
Lender shall not be required to make any Loan or otherwise extend
any credit or other financial accommodations to or for the
benefit of Borrower, unless and until each of the following
conditions has been and continues to be satisfied:
9.2.1. NO DEFAULT. No Default or Event
of Default shall exist.
9.2.2. SATISFACTION OF CONDITIONS IN
OTHER LOAN DOCUMENTS. Each of the conditions precedent set forth
in any other Loan Document shall have been and shall remain
satisfied.
9.2.3. NO LITIGATION. No action,
proceeding, investigation, regulation or legislation shall have
been instituted, threatened or proposed before any court,
governmental agency or legislative body to enjoin, restrain or
prohibit, or to obtain damages in respect of, or which is related
to or arises out of this Agreement or the consummation of the
transactions contemplated hereby.
9.2.4. MATERIAL ADVERSE EFFECT. No
event shall have occurred and no condition shall exist which has
or may be reasonably likely to have a Material Adverse Effect.
SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT
10.1. EVENTS OF DEFAULT. The occurrence of any one or more
of the following events or conditions shall constitute an "Event
of Default":
10.1.1. PAYMENT OF OBLIGATIONS. Borrower
shall fail to pay any of the Obligations on the due date thereof
(whether due at stated maturity, on demand, upon acceleration or
otherwise).
10.1.2. MISREPRESENTATIONS. Any
representation, warranty or other statement made or furnished to
Lender by or on behalf of Borrower, or any Subsidiary of
Borrower, or any Subsidiary of Borrower, or Guarantor in this
Agreement, any of the other Loan Documents or any instrument,
certificate or financial statement furnished in compliance with
or in reference thereto proves to have been false or misleading
in any material respect when made or furnished or when reaffirmed
pursuant to Section 7.2 hereof.
10.1.3. BREACH OF SPECIFIC COVENANTS.
Borrower shall fail or neglect to perform, keep or observe any
covenant contained in Sections 5.2, 6.2.1, 8.1.1, 8.1.3, 8.2 or
8.3 hereof on the date that Borrower is required to perform, keep
or observe such covenant.
10.1.4. BREACH OF OTHER COVENANTS.
Borrower shall fail or neglect to perform, keep or observe any
covenant contained in this Agreement (other than a covenant which
is dealt with specifically elsewhere in Section 10.1 hereof) and
the breach of such other covenant is not cured to Lender's
satisfaction within 15 days after the sooner to occur of
Borrower's receipt of notice of such breach from Lender or the
date on which such failure or neglect first becomes known to any
officer of Borrower; PROVIDED, HOWEVER, that such notice and
opportunity to cure shall not apply in the case of any failure to
perform, keep or observe any covenant which is not capable of
being cured at all or within such 15 day period, or which has
been the subject of a prior failure within the preceding 180
days, or which is a willful and knowing breach by Borrower.
10.1.5. DEFAULT UNDER SECURITY
DOCUMENTS/OTHER AGREEMENTS. Any event of default shall occur
under, or Borrower shall default in the performance or observance
of any term, covenant, condition or agreement contained in, any
of the Security Documents or the Other Agreements and such
default shall continue beyond any applicable grace period.
10.1.6. OTHER DEFAULTS. There shall occur
any default or event of default on the part of Borrower under any
agreement, document or instrument to which Borrower is a party or
by which Borrower or any of its Property is bound, creating or
relating to any Debt (other than the Obligations) if (i) such
Debt is Subordinated Debt, Securitization Debt or the Capital
Holding Line of Credit or (ii) the payment or maturity of such
Debt is accelerated in consequence of such event of default or
demand for payment of such Debt is made.
10.1.7. UNINSURED LOSSES. Any material
loss, theft, damage or destruction of any of the Collateral not
fully covered (subject to such deductibles as Lender shall have
permitted) by insurance.
10.1.8. INSOLVENCY AND RELATED PROCEEDINGS.
Any Loan Party shall cease to be Solvent or any Insolvency
Proceeding shall be commenced by or against any Loan Party (if
against an Loan Party, the continuation of such proceeding for
more than 30 days), or any Loan Party shall make any offer of
settlement, extension or composition to such unsecured creditors
generally.
10.1.9. BUSINESS DISRUPTION; CONDEMNATION.
There shall occur a cessation of a substantial part of the
business of Borrower, any Subsidiary of Borrower or any Guarantor
for a period which may be reasonably expected to have Material
Adverse Effect; or Borrower, any Subsidiary of Borrower or any
Guarantor shall suffer the loss or revocation of any license or
permit now held or hereafter acquired by Borrower, such
Subsidiary or such Guarantor which is necessary to the continued
or lawful operation of its business and such license or permit
shall not have been reinstated on or before the thirtieth day
after the loss or revocation thereof; or Borrower, any Subsidiary
of Borrower or any Guarantor shall be enjoined, restrained or in
any way prevented by court, governmental or administrative order
from conducting all or any material part of its business affairs;
or any material lease or agreement pursuant to which Borrower or
Guarantor leases, uses or occupies any Property shall be canceled
or terminated prior to the expiration of its stated term; or any
material part of the Collateral shall be taken through
condemnation or the value of such Property shall be materially
impaired through condemnation.
10.1.10. ERISA. A Reportable Event shall
occur which Lender, in its sole discretion, shall determine in
good faith constitutes grounds for the termination by the Pension
Benefit Guaranty Corporation of any Plan or for the appointment
by the appropriate United States district court of a trustee for
any Plan, or if any Plan shall be terminated or any such trustee
shall be requested or appointed, or if Borrower, any Subsidiary
of Borrower or any Guarantor is in "default" (as defined in
Section 4219(c)(5) of ERISA) with respect to payments to a
Multiemployer Plan resulting from Borrower's or such Guarantor's
complete or partial withdrawal from such Plan.
10.1.11. CHALLENGE TO AGREEMENT. Borrower,
any Subsidiary of Borrower or any Guarantor, or any Affiliate of
any of them, shall challenge or contest in any action, suit or
proceeding the validity or enforceability of this Agreement, or
any of the other Loan Documents, the legality or enforceability
of any of the Obligations or the perfection or priority of any
Lien granted to Lender.
10.1.12. REPUDIATION OF OR DEFAULT UNDER
GUARANTY AGREEMENT. Any Guarantor shall revoke or attempt to
revoke the Guaranty Agreement signed by such Guarantor, or shall
repudiate such Guarantor's liability thereunder or shall be in
default under the terms thereof.
10.1.13. CRIMINAL FORFEITURE. Borrower or
any Guarantor shall be criminally indicted or convicted under any
law that could lead to a forfeiture of any Property of Borrower
or any Guarantor.
10.1.14. BANK RANKING. Capital Bank is
assigned a Thomson BankWatch Ranking of 4 or greater at a time
when Borrower is a wholly-owned Subsidiary of Capital Bank.
10.2. ACCELERATION OF THE OBLIGATIONS. Without in any way
limiting the right of Lender to demand payment of any portion of
the Obligations payable on demand in accordance with Section 3.2
hereof, upon or at any time after the occurrence of an Event of
Default, all or any portion of the Obligations shall, at the
option of Lender and without presentment, demand protest or
further notice by Lender, become at once due and payable and
Borrower shall forthwith pay to Lender, the full amount of such
Obligations; PROVIDED, HOWEVER, that upon the commencement of an
Insolvency Proceeding by Borrower, all of the Obligations shall
become automatically due and payable without declaration, notice
or demand by Lender.
10.3. OTHER REMEDIES. Upon and after the occurrence of an
Event of Default, Lender shall have and may exercise from time to
time the following rights and remedies:
10.3.1. All of the rights and remedies of
a secured party under the Code or under other Applicable Law, and
all other legal and equitable rights to which Lender may be
entitled under any of the Loan Documents, all of which rights and
remedies shall be cumulative and shall be in addition to any
other rights or remedies contained in this Agreement or any of
the other Loan Documents, and none of which shall be exclusive.
10.3.2. The right to take immediate
possession of the Collateral, and to (i) require Borrower to
assemble the Collateral, at Borrower's expense, and make it
available to Lender at a place designated by Lender which is
reasonably convenient to both parties, and (ii) enter any
premises where any of the Collateral shall be located and to keep
and store the Collateral on said premises until sold (and if said
premises be the Property of Borrower, then Borrower agrees not to
charge Lender for storage thereof).
10.3.3. The right to sell or otherwise
dispose of all or any Collateral in its then condition, at public
or private sale or sales, with such notice as may be required by
law, in lots or in bulk, for cash or on credit, all as Lender, in
its sole discretion, may deem advisable. Borrower agrees that
any requirement of notice to Borrower of any proposed public or
private sale or other disposition of Collateral by Lender shall
be deemed reasonable notice thereof if given at least 10 days
prior thereto, and such sale may be at such locations as Lender
may designate in said notice. Lender shall have the right to
conduct such sales on Borrower's premises, without charge
therefor, and such sales may be adjourned from time to time in
accordance with Applicable Law. Lender shall have the right to
sell, lease or otherwise dispose of the Collateral, or any part
thereof, for cash, credit or any combination thereof, and Lender
may purchase all or any part of the Collateral at public or, if
permitted by law, private sale and, in lieu of actual payment of
such purchase price, may set off the amount of such price against
the Obligations. The proceeds realized from the sale of any
Collateral may be applied, after allowing 2 Business Days for
collection, first to the reasonable costs and expenses, and
attorneys' fees, incurred by Lender in collecting the
Obligations, in enforcing the rights of Lender under the Loan
Documents and in collecting, retaking, completing, protecting,
removing, storing, advertising for sale, selling and delivering
any Collateral, second to the interest due upon any of the
Obligations; and third, to the principal of the Obligations. If
any deficiency shall arise, Borrower and each Guarantor shall
remain jointly and severally liable to Lender therefor.
Lender is hereby granted a license or other right to use, without
charge, Borrower's labels, patents, copyrights, rights of use of
any name, trade secrets, trade names, trademarks and advertising
matter, or any Property of a similar nature, as it pertains to
the Collateral, in advertising for sale and selling any
Collateral and Borrower's rights under all licenses and all
franchise agreements shall inure to Lender's benefit.
10.4. SETOFF. In addition to any Liens granted under any
of the Loan Documents and any rights now or hereafter available
under Applicable Law, Lender is hereby authorized by Borrower at
any time that an Event of Default exists, without notice to
Borrower or any other Person (any such notice being hereby
expressly waived) to set off and to appropriate and to apply any
and all deposits, general or special (including Debt evidenced by
certificates of deposit whether matured or unmatured (but not
including trust accounts)) and any other Debt at any time held or
owing by Lender or its Affiliates to or for the credit or the
account of Borrower against and on account of the Obligations of
Borrower arising under the Loan Documents to Lender, including
all Loans and all claims of any nature or description arising out
of or in connection with this Agreement, irrespective of whether
or not (i) Lender shall have made any demand hereunder or (ii)
Lender shall have declared the principal of and interest on the
Loans and other amounts due hereunder to be due and payable as
permitted by this Agreement and even though such Obligations may
be contingent or unmatured.
10.5. REMEDIES CUMULATIVE; NO WAIVER. All covenants,
conditions, provisions, warranties, guaranties, indemnities, and
other undertakings of Borrower contained in this Agreement and
the other Loan Documents, or in any document referred to herein
or contained in any agreement supplementary hereto or in any
schedule or in any Guaranty Agreement given to Lender or
contained in any other agreement between Lender and Borrower,
heretofore, concurrently, or hereafter entered into, shall be
deemed cumulative to and not in derogation or substitution of any
of the terms, covenants, conditions, or agreements of Borrower
herein contained. The failure or delay of Lender to require
strict performance by Borrower of any provision of this Agreement
or to exercise or enforce any rights, Liens, powers, or remedies
hereunder or under any of the aforesaid agreements or other
documents or security or Collateral shall not operate as a waiver
of such performance, Liens, rights, powers and remedies, but all
such requirements, Liens, rights, powers, and remedies shall
continue in full force and effect until all Loans and all other
Obligations owing or to become owing from Borrower to Lender
shall have been fully satisfied. None of the undertakings,
agreements, warranties, covenants and representations of Borrower
contained in this Agreement or any of the other Loan Documents
and no Event of Default by Borrower under this Agreement or any
other Loan Documents shall be deemed to have been suspended or
waived by Lender, unless such suspension or waiver is by an
instrument in writing specifying such suspension or waiver and is
signed by a duly authorized representative of Lender and directed
to Borrower.
SECTION 11. MISCELLANEOUS
11.1. AGENCY AGREEMENT. Borrower will execute and deliver
the Agency Agreement on the Closing Date.
11.2. INDEMNITY. Borrower hereby agrees to indemnify and
defend Lender and hold Lender harmless from and against any
Claims against Lender (including reasonable attorneys' fees and
legal expenses) as the result of Borrower's failure to observe,
perform or discharge Borrower's duties hereunder. In addition,
Borrower shall indemnify and defend Lender against and save
Lender harmless from all Claims of any Person with respect to the
Collateral. Without limiting the generality of the foregoing,
these indemnities shall extend to any Claims asserted against
Lender by any Person under any Environmental Laws or similar laws
by reason of Borrower's or any other Person's failure to comply
with laws applicable to solid or hazardous waste materials or
other toxic substances. Additionally, if any Taxes (excluding
taxes imposed upon or measured solely by the net income of
Lender, but including, any intangibles tax, stamp tax, recording
tax or franchise tax) shall be payable by Lender, Borrower or any
Guarantor on account of the execution or delivery of this
Agreement, or the execution, delivery, issuance or recording of
any of the other Loan Documents, or the creation of any of the
Obligations hereunder, by reason of any existing or hereafter
enacted federal, state, foreign or local statute, rule or
regulation, Borrower will pay (or will promptly reimburse Lender
for the payment of) all such Taxes, including any interest and
penalties thereon, and will indemnify and hold Lender harmless
from and against liability in connection therewith.
Notwithstanding any contrary provision in this Agreement, the
obligation of Borrower under this Section 11.2 shall survive the
payment in full of the Obligations and the termination of this
Agreement.
11.3. MODIFICATION OF AGREEMENT; SALE OF INTEREST. This
Agreement may not be modified, altered or amended, except by an
agreement in writing signed by Borrower and Lender. Borrower may
not sell, assign or transfer any interest in this Agreement, any
of the other Loan Documents, or any of the Obligations, or any
portion thereof, including Borrower's rights, title, interests,
remedies, powers, and duties hereunder or thereunder. Lender may
not participate, sell, assign, transfer or otherwise dispose of
this Agreement or any of the other Loan Documents, or of any
portion hereof or thereof, including Lender's rights, title,
interests, remedies, powers, and duties hereunder or thereunder,
without the prior written consent of Borrower. In the case of an
assignment to which Borrower has provided its written consent,
the assignee shall have, to the extent of such assignment, the
same rights, benefits and obligations as it would if it were
"Lender" hereunder and Lender shall be relieved of all
obligations hereunder upon any such assignment. Borrower agrees
that it will use its best efforts to assist and cooperate with
Lender in any manner reasonably requested by Lender to effect the
sale of participations in or assignments of any of the Loan
Documents or any portion thereof or interest therein to which
Borrower has provided its written consent, including assisting in
the preparation of appropriate disclosure documents. Borrower
further agrees that Lender may disclose credit information
regarding Borrower and its Subsidiaries, if any, to any potential
participant or assignee with respect to which Borrower has
provided its prior written consent.
11.4. SEVERABILITY. Wherever possible, each provision of
this Agreement shall be interpreted in such manner as to be
effective and valid under Applicable Law, but if any provision of
this Agreement shall be prohibited by or invalid under Applicable
Law, such provision shall be ineffective only to the extent of
such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this
Agreement.
11.5. SUCCESSORS AND ASSIGNS. This Agreement, the Other
Agreements and the Security Documents shall be binding upon and
inure to the benefit of the successors and assigns of Borrower
and Lender permitted under Section 11.3 hereof.
11.6. CUMULATIVE EFFECT; CONFLICT OF TERMS. The provisions
of the Other Agreements and the Security Documents are hereby
made cumulative with the provisions of this Agreement. Except as
otherwise provided in Section 3.2 hereof and except as otherwise
provided in any of the other Loan Documents by specific reference
to the applicable provision of this Agreement, if any provision
contained in this Agreement is in direct conflict with, or
inconsistent with, any provision in any of the other Loan
Documents, the provision contained in this Agreement shall govern
and control.
11.7. EXECUTION IN COUNTERPARTS. This Agreement may be
executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed
and delivered shall be deemed to be an original and all of which
counterparts taken together shall constitute but one and the same
instrument.
11.8. NOTICE. All notices, requests and demands to or upon
a party hereto shall be in writing and shall be sent by certified
or registered mail, return receipt requested, personal delivery
against receipt or by telecopier or other facsimile transmission
and shall be deemed to have been validly served, given or
delivered when delivered against receipt or 5 Business Days after
deposit in the U.S. mail, postage prepaid, or, in the case of
facsimile transmission, when received at the office where the
noticed party's telecopier is located, in each case addressed as
follows:
If to Lender: Fleet Capital Corporation
300 Galleria Parkway, N.W., Suite 800
Atlanta, Georgia 30339
Attention: Loan Administration
Manager
Facsimile No.: (404) 859-2483
With a copy to: Parker, Hudson, Rainer & Dobbs
1500 Marquis Two Tower
285 Peachtree Center Avenue
Atlanta, Georgia 30303
Attention: C. Edward Dobbs
Facsimile No.: (404) 522-8409
If to Borrower: Capital Factors, Inc.
1799 West Oakland Park Boulevard
Fort Lauderdale, Florida 33311
Attention: President
Facsimile No.: (954) 730-2910
With a copy to: Capital Factors, Inc.
1799 West Oakland Park Boulevard
Fort Lauderdale, Florida 33311
Attention: Michael G. Levine,
Senior Vice President
and Corporate Counsel
Facsimile No.: (954) 497-3136
or to such other address as each party may designate for itself
by notice given in accordance with this Section 11.8; PROVIDED,
HOWEVER, that any notice, request or demand to or upon Lender
pursuant to Section 3.1.1 or 4.2.2 hereof shall not be effective
until received by Lender. Any written notice or demand that is
not sent in conformity with the provisions hereof shall
nevertheless be effective on the date that such notice is
actually received by the noticed party.
11.9. CONFIDENTIALITY. All non-public, confidential or
proprietary information of, and documentation relating to,
Borrower, including the Software (as defined in the License
Agreement) and the Securitization Documents (the "Confidential
Information"), shall be held in confidence by Lender to the same
extent and in at least the same manner as Lender protects its own
confidential or proprietary information. Lender shall not
disclose, publish, release, transfer or otherwise make available
any Confidential Information in any form to, or for the use or
benefit of, any Person without Borrower's written consent.
Lender shall, however, be permitted to disclose relevant aspects
of the Confidential Information to its officers, agents,
Affiliates, representatives, attorneys and employees to the
extent that such disclosure is necessary to the performance of
its duties and obligations or the exercise of any of its rights
or remedies under any of the Loan Documents, provided that Lender
shall take all reasonable measures to ensure that the
Confidential Information is not disclosed or duplicated in
contravention of the provisions of this Agreement by such
officers, agents, Affiliates, representatives, attorneys and
employees. The obligations in this Section 11.9 shall not (i)
restrict any disclosure by Lender pursuant to any Applicable Law
or by order of any court or government agency, or as the result
of legal compulsion by oral questioning, deposition,
interrogatory, request for documents, subpoena, civil
investigative demand or similar process (provided that Lender
shall endeavor to give such notice thereof to Borrower as may be
reasonable under the circumstances), (ii) restrict any disclosure
by Lender to the extent necessary to enforce any of the
Obligations or realize upon any of the Collateral; or (iii) apply
with respect to information that (a) is independently developed
by Lender or otherwise was available to Lender on a non-
confidential basis prior to disclosure by Borrower, (b) is or
becomes generally available to the public or any segment thereof
(other than through unauthorized disclosure by Lender) or (c)
becomes available to Lender on a non-confidential basis from a
source, other than Borrower, who is not bound to Borrower to keep
such information confidential. Notwithstanding any contrary
provision of this Agreement, the obligation of Lender under this
Section 11.9 shall survive the payment in full of the Obligations
and termination of this Agreement.
11.10. RESERVED.
11.11. TIME OF ESSENCE. Time is of the essence of this
Agreement, the Other Agreements and the Security Documents.
11.12. ENTIRE AGREEMENT; APPENDIX A AND EXHIBITS. This
Agreement and the other Loan Documents, together with all other
instruments, agreements and certificates executed by the parties
in connection therewith or with reference thereto, embody the
entire understanding and agreement between the parties hereto and
thereto with respect to the subject matter hereof and thereof and
supersede all prior agreements, understandings and inducements,
whether express or implied, oral or written. Appendix A and each
of the Exhibits attached hereto are incorporated into this
Agreement and by this reference made a part hereof.
11.13. INTERPRETATION. No provision of this Agreement or
any of the other Loan Documents shall be construed against or
interpreted to the disadvantage of any party hereto by any court
or other governmental or judicial authority by reason of such
party having or being deemed to have structured, drafted or
dictated such provision.
11.14. GOVERNING LAW; CONSENT TO FORUM. This Agreement has
been negotiated, executed and delivered at and shall be deemed to
have been made in Atlanta, Georgia. This Agreement shall be
governed by and construed in accordance with the laws of the
State of Georgia; PROVIDED, HOWEVER, that if any of the
Collateral shall be located in any jurisdiction other than
Georgia, the laws of such jurisdiction shall govern the method,
manner and procedure for foreclosure of Lender's Lien upon such
Collateral and the enforcement of Lender's other remedies in
respect of such Collateral to the extent that the laws of such
jurisdiction are different from or inconsistent with the laws of
Georgia. As part of the consideration for new value received,
and regardless of any present or future domicile or principal
place of business of Borrower or Lender, Borrower hereby consents
and agrees that the Superior Court of Fulton County, Georgia, or,
at Lender's option, the United States District Court for the
Northern District of Georgia, Atlanta Division, shall have
jurisdiction to hear and determine any claims or disputes between
Borrower and Lender pertaining to this Agreement or to any matter
arising out of or related to this Agreement. Borrower expressly
submits and consents in advance to such jurisdiction in any
action or suit commenced in any such Court, and Borrower hereby
waives any objection which Borrower may have based upon lack of
personal jurisdiction, improper venue or forum non conveniens and
hereby consents to the granting of such legal or equitable relief
as is deemed appropriate by such Court. Nothing in this
Agreement shall be deemed or operate to affect the right of
Lender to serve legal process in any other manner permitted by
law, or to preclude the enforcement by Lender of any judgment or
order obtained in such forum or the taking of any action under
this Agreement to enforce same in any other appropriate forum or
jurisdiction.
11.15. WAIVERS BY BORROWER. BORROWER WAIVES (I) THE RIGHT
TO TRIAL BY JURY (WHICH LENDER HEREBY ALSO WAIVES) IN ANY ACTION,
SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR
RELATED TO ANY OF THE LOAN DOCUMENTS, THE OBLIGATIONS OR THE
COLLATERAL; (II) PRESENTMENT, DEMAND AND PROTEST AND NOTICE OF
PRESENTMENT, PROTEST, DEFAULT, NON PAYMENT, MATURITY, RELEASE,
COMPROMISE, SETTLEMENT, EXTENSION OR RENEWAL OF ANY OR ALL
COMMERCIAL PAPER, ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS,
INSTRUMENTS, CHATTEL PAPER AND GUARANTIES AT ANY TIME HELD BY
LENDER ON WHICH BORROWER MAY IN ANY WAY BE LIABLE AND HEREBY
RATIFIES AND CONFIRMS WHATEVER LENDER MAY DO IN THIS REGARD;
(III) NOTICE PRIOR TO TAKING POSSESSION OR CONTROL OF THE
COLLATERAL; AND (IV) NOTICE OF ACCEPTANCE HEREOF. BORROWER
ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL INDUCEMENT
TO LENDER'S ENTERING INTO THIS AGREEMENT AND THAT LENDER IS
RELYING UPON THE FOREGOING WAIVERS IN ITS FUTURE DEALINGS WITH
BORROWER. BORROWER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED
THE FOREGOING WAIVERS WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY
AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION,
THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY
THE COURT.
[Signatures on following page]
IN WITNESS WHEREOF, this Agreement has been duly executed
in Atlanta, Georgia, as of the day and year specified at the
beginning of this Agreement.
ATTEST: CAPITAL FACTORS, INC.
("Borrower")
/s/ Unreadable By: /s/ John Kiefer
Assistant Secretary
[CORPORATE SEAL] Title: President
Accepted in Atlanta,
Georgia:
FLEET CAPITAL CORPORATION
("Lender")
By: /s/ Not Readable
Title: Not Readable
APPENDIX A
GENERAL DEFINITIONS
When used in the Loan and Security Agreement dated as
of March 4, 1996, by and between FLEET CAPITAL CORPORATION and
CAPITAL FACTORS, INC., the following terms shall have the
following meanings (terms defined in the singular to have the
same meaning when used in the plural and vice versa):
ABL ADVANCES - Borrower Advances that are not
Healthcare Advances.
ACCOUNT - shall have the meaning given to "account"
in the Code.
ACCOUNT DEBTOR - any Person who is or may become
obligated under or on account of a Customer Account.
AFFILIATE - a Person (other than a Subsidiary and the
Trust): (i) which directly or indirectly through one or
more intermediaries controls, or is controlled by, or is
under common control with, a Person; (ii) which beneficially
owns or holds 5% or more of any class of the Voting Stock of
a Person; or (iii) 5% or more of the Voting Stock (or in the
case of a Person which is not a corporation, 5% or more of
the equity interest) of which is beneficially owned or held
by a Person or a Subsidiary of a Person.
AGENCY AGREEMENT - the Collateral Assignment of
Transaction Documents and Agency Agreement to be executed by
Borrower on or about the Closing Date in favor of Lender.
AGREEMENT - the Loan and Security Agreement referred
to in the first sentence of this Appendix A, all Exhibits
and Schedules thereto and this Appendix A.
APPLICABLE LAW - all laws, rules and regulations
applicable to the Person, conduct, transaction, covenant or
Loan Documents in question, including all applicable common
law and equitable principles; all provisions of all
applicable state and federal constitutions, statutes, rules,
regulations and orders of governmental bodies; and orders,
judgments and decrees of all courts and arbitrators.
ASSIGNED AMOUNT - with respect to a Borrower Advance,
the amount thereof that has been transferred, assigned or
otherwise conveyed, or in which a participation interest has
been sold, by Borrower to another Person.
AVAILABILITY - the amount that Borrower is entitled
to borrow from time to time as Revolver Loans, such amount
being the difference derived when the sum of the principal
amount of Revolver Loans then outstanding (including any
amounts which Lender may have paid for the account of
Borrower pursuant to any of the Loan Documents and which
have not been reimbursed by Borrower) is subtracted from the
Borrowing Base. If the amount outstanding is equal to or
greater than the Borrowing Base, Availability is 0.
AVAILABILITY RESERVE - on any date of determination
thereof, an amount equal to the sum of (i) any amounts which
Borrower is obligated to pay pursuant to the provisions of
the Loan Documents but does not pay when due and which
Lender elects to pay pursuant to any of the Loan Documents
for the account of Borrower; (ii) an amount equal to
$4,000,000; (iii) for so long as any Event of Default
exists, such additional reserves as Lender in its sole and
absolute discretion may elect to impose from time to time,
without waiving any such Event of Default or Lender's
entitlement to accelerate the maturity of the Obligations as
a consequence thereof; and (iv) all amounts of past due rent
or other charges owing by Borrower to any landlord of any
premises leased and occupied by Borrower.
AVERAGE MONTHLY LOAN BALANCE - for any month, the
amount obtained by adding the aggregate unpaid balance of
Revolver Loans at the end of each day for each day during
the month in question and by dividing such sum by the number
of days in such month that the Agreement is in effect.
BORROWER ADVANCE - a loan or other extension of
credit by Borrower to a Designated Obligor under a
Transaction Document.
BORROWING BASE - on any date of determination
thereof, an amount equal to the lesser of:
(i) $40,000,000; or
(ii) an amount equal to:
(a) 70% of the Net Amount of
Qualified Borrower Advances
outstanding at such date;
MINUS
(b) the Availability Reserve.
BROKER - Financial Consultants, Ltd., a Florida
limited partnership.
BUSINESS DAY - any day excluding Saturday, Sunday and
any day which is a legal holiday under the laws of the State
of Georgia or is a day on which banking institutions located
in such state are closed.
CAPITAL BANK - Capital Bank, a Florida banking
corporation.
CAPITAL EXPENDITURES - expenditures made or
liabilities incurred for the acquisition of any fixed assets
or improvements, replacements, substitutions or additions
thereto which have a useful life of more than one year,
including the total principal portion of Capitalized Lease
Obligations.
CAPITAL HOLDING LINE OF CREDIT - the unsecured line
of credit from Capital Holding in favor of Borrower under
the Capital Holding Line of Credit Documents.
CAPITAL HOLDING LINE OF CREDIT DOCUMENTS - the
Capital Holding Line of Credit Note and any and all other
documents, agreements and instruments heretofore, now or
hereafter executed by Borrower in respect to the Capital
Holding Line of Credit Agreement.
CAPITAL HOLDING LINE OF CREDIT NOTE - the Promissory
Note dated October 18, 1994, made by Borrower to the order
of Capital Holding in the original principal amount of
$125,000,000.
CAPITAL HOLDING - Capital Factors Holding, Inc., a
Florida corporation.
CAPITALIZED LEASE OBLIGATION - any Debt represented
by obligations under a lease that is required to be
capitalized for financial reporting purposes in accordance
with GAAP.
CASH EQUIVALENTS - (i) marketable direct obligations
issued or unconditionally guaranteed by the United States
government and backed by the full faith and credit of the
United States government having maturities of not more than
12 months from the date of acquisition; (ii) domestic
certificates of deposit and time deposits having maturities
of not more than 12 months from the date of acquisition,
bankers' acceptances having maturities of not more than 12
months from the date of acquisition and overnight bank
deposits, in each case issued by any commercial bank
organized under the laws of the United States, any state
thereof or the District of Columbia, which at the time of
acquisition are rated A-1 (or better) by Standard & Poor's
Corporation of P-1 (or better) by Moody's Investors
Services, Inc., and not subject to offset rights in favor of
such bank arising from any banking relationship with such
bank; (iii) repurchase obligations with a term of not more
than 30 days for underlying securities of the types
described in clauses (i) and (ii) above entered into with
any financial institution meeting the qualifications
specified in clause (ii) above; and (iv) commercial paper
having at the time of investment therein or a contractual
commitment to invest therein a rating of A-1 (or better) by
Standard & Poor's Corporation or P-1 (or better) by Moody's
Investors Services, Inc., and having a maturity within 9
months after the date of acquisition thereof.
CASH FLOW - for any period, Borrower's (i) Net Income
for such period, PLUS (ii) depreciation and amortization
expenses for such period, LESS (iii) Distributions during
such period, LESS (iv) unfinanced Capital Expenditures
during such period, LESS principal payments made on account
of Purchase Money Debt during such period, all as determined
in accordance with GAAP.
CF FUNDING - CF Funding Corp., a Delaware
corporation.
CHATTEL PAPER - shall have the meaning ascribed to
the term "chattel paper" in the Code.
CLOSING DATE - the date on which all of the
conditions precedent in Section 9 of the Agreement are
satisfied and the initial Revolver Loan is made under the
Agreement.
CODE - the Uniform Commercial Code as adopted and in
force in the State of Georgia.
COLLATERAL - all of the Property and interests in
Property described in Section 5 of the Agreement, and all
other Property and interests in Property that now or
hereafter secure the payment and performance of any of the
Obligations.
CONSOLIDATED - the consolidation in accordance with
GAAP of the accounts or other items as to which such term
applies which, for the purposes of the Agreement, shall
include Capital Holding and its Subsidiaries.
CONTRIBUTION AND SALE AGREEMENT - the Contribution
and Sale Agreement dated June 1, 1994, by and between
Borrower, as seller, and CF Funding, as buyer.
CLAIMS - any and all claims, demands, liabilities,
obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or
nature whatsoever (including reasonable attorneys' fees and
expenses), whether arising under or in connection with the
Loan Documents, under any Applicable Law (including any
Environmental Law) or otherwise.
CURRENT ASSETS - at any date means the amount at
which all of the current assets of a Person would be
properly classified as current assets shown on a balance
sheet at such date in accordance with GAAP, except that
amounts due from Affiliates and investments in Affiliates
shall be excluded therefrom.
DEBT - as applied to a Person means, without
duplication: (i) all items which in accordance with GAAP
would be included in determining total liabilities as shown
on the liability side of a balance sheet of such Person as
at the date as of which Debt is to be determined, including
Capitalized Lease Obligations; (ii) all obligations of other
Persons which such Person has guaranteed; (iii) all
reimbursement obligations in connection with letters of
credit or letter of credit guaranties issued for the account
of such Person; and (iv) in the case of Borrower (without
duplication), the Obligations.
DEBT TO NET WORTH RATIO - at any date of
determination thereof, with respect to Borrower, the ratio
of (i) the unpaid balance of all Revolver Loans to (ii)
Borrower's Consolidated Net Worth.
DEFAULT - an event or condition the occurrence of
which would, with the lapse of time or the giving of notice,
or both, become an Event of Default.
DEFAULT RATE - as defined in Section 2.1.2 of the
Agreement.
DEFICIENCY - as defined in Section 2.5 of the
Agreement.
DEPOSIT ACCOUNTS ASSIGNMENT - the Collateral
Assignments of Certain Deposit Accounts to be executed by
Borrower on the Closing Date, and at any time and from time
to time thereafter, in favor of Lender as security for the
Obligations, and related Notice of Collateral Assignment of
Certain Deposit Accounts and Payment Direction Agreement
among Borrower, Lender and each bank at which Deposit
Accounts are maintained.
DEPOSIT ACCOUNTS - all of a Person's demand, time,
savings, passbook, money market or other deposit accounts,
and all certificates of deposit, maintained by such Person
with any bank, savings and loan association, credit union or
other depository institution, but, in the case of Borrower,
excluding the accounts (and any sub-accounts thereof)
identified in EXHIBIT D hereto and all other deposit
accounts (and any sub-accounts thereof) that hereafter
become "Lock-Box Accounts" or "Trust Assets" under the
Securitization Documents.
DESIGNATED OBLIGOR - each Obligor identified on
EXHIBIT C hereto, as supplemented from time to time by
written agreement between Lender and Borrower, or hereafter
indicated as a Designated Obligor by written agreement
between Lender and Borrower.
DESIGNATED OBLIGOR BORROWING BASE - with respect to
any Designated Obligor on any date of determination thereof,
an amount equal to the lesser of (i) the line amount or
maximum credit, in either case expressed as a Dollar amount,
available to a Designated Obligor under the applicable
Transaction Documents between such Designated Obligor and
Borrower, if any, and (ii) the sum of (a) an amount equal to
a percentage (based upon the applicable rate of advance
under the applicable Transaction Documents between such
Designated Obligor and Borrower) of the net amount of
eligible Accounts of such Designated Obligor, plus (b) an
amount equal to a percentage (based upon the applicable rate
of advance under the applicable Transaction Documents
between such Designated Obligor and Borrower) of the Value
of eligible Inventory of such Designated Obligor, minus (c)
the amount of all reserves established or provided under the
Transaction Documents between such Designated Obligor and
Borrower.
DESIGNATED OBLIGOR OVERADVANCE - an extension of
credit by Borrower to a Designated Obligor when a Designated
Obligor Overadvance Condition exists or the amount of any
extension of credit by Borrower to a Designated Obligor
which results in a Designated Obligor Overadvance Condition.
DESIGNATED OBLIGOR OVERADVANCE CONDITION - at any
date of determination thereof, a condition such that the
outstanding principal amount of extensions of credit by
Borrower to a Designated Obligor on such date exceeds the
Designated Obligor Borrowing Base with respect to such
Designated Obligor on such date.
DISTRIBUTION - in respect of any corporation means
and includes: (i) the payment of any dividends or other
distributions on capital stock of the corporation (except
distributions in such stock) and (ii) the redemption or
acquisition of Securities unless made contemporaneously from
the net proceeds of the sale of Securities.
DOCUMENT - shall have the meaning ascribed to the
term "document" in the Code.
DOLLARS AND THE SIGN "$" - lawful money of the United
States of America.
DOMINION ACCOUNT - a special account of Lender
established by Borrower pursuant to the Agreement at a bank
selected by Borrower, but acceptable to Lender in its
reasonable discretion, and over which Lender shall have sole
and exclusive access and control for withdrawal purposes.
ENVIRONMENTAL LAWS - all federal, state and local
laws, rules, regulations, ordinances, programs, permits,
guidances, orders and consent decrees relating to health,
safety or environmental matters, including the Comprehensive
Environmental Response, Compensation and Liability Act of
1980.
EQUIPMENT - all machinery, apparatus, equipment,
fittings, furniture, fixtures, motor vehicles and other
tangible personal Property (other than Inventory) of every
kind and description used in Borrower's operations or owned
by Borrower or in which Borrower has an interest, whether
now owned or hereafter acquired by Borrower and wherever
located, and all parts, accessories and special tools and
all increases and accessions thereto and substitutions and
replacements therefor.
ERISA - the Employee Retirement Income Security Act
of 1974, as amended, and all rules and regulations from time
to time promulgated thereunder.
EVENT OF DEFAULT - as defined in Section 10.1 of the
Agreement.
GAAP - generally accepted accounting principles in
the United States of America in effect from time to time.
GECC LEASE - that certain Master Equipment Lease
entered into on February 13, 1996, between Borrower and
General Electric Capital Computer Leasing Corporation with
respect to certain computer hardware.
GENERAL INTANGIBLES - all general intangibles of
Borrower, whether now owned or hereafter created or acquired
by Borrower, including all choses in action, causes of
action, corporate or other business records, deposit
accounts, inventions, blueprints, designs, patents, patent
applications, trademarks, trademark applications, trade
names, trade secrets, service marks, goodwill, brand names,
copyrights, registrations, licenses, franchises, customer
lists, tax refund claims, computer programs, operational
manuals, all claims under guaranties, security interests or
other security held by or granted to Borrower to secure
payment of any of the Accounts by an Account Debtor, all
rights to indemnification and all other intangible property
of every kind and nature (other than Accounts).
GOVERNMENTAL APPROVALS - means all authorizations,
consents, approvals, licenses and exemptions of,
registrations and filings with, and reports to, all national
state or local government (whether domestic or foreign) and
any political subdivisions thereof in any other
governmental, quasi-governmental, judicial, administrative,
public or statutory instrumentality, authority, body,
agency, bureau or entity.
GUARANTOR - Capital Holding and any other Person who
may hereafter guarantee payment or performance of the whole
or any part of the Obligations.
GUARANTY AGREEMENT - the Continuing Guaranty
Agreement which is to be executed by Guarantor in form and
substance satisfactory to Lender.
HEALTHCARE ADVANCES - Borrower Advances to Designated
Obligors that are engaged primarily in the delivery or
provision of health care services, including hospitals,
nursing homes, health agencies, durable medical equipment
manufacturers and distributors, physician groups and
rehabilitation programs.
INSOLVENCY PROCEEDING - any action, case or
proceeding commenced by or against a Person, or any
agreement of such Person, for (a) the entry of an order for
relief under any chapter of the Bankruptcy Code or other
insolvency or debt adjustment law (whether state, federal or
foreign), (b) the appointment of a receiver, trustee,
liquidator or other custodian for such Person or any part of
its Property, (c) an assignment or trust mortgage for the
benefit of creditors of such Person, or (d) the liquidation,
dissolution or winding up of the affairs of such Person.
INSTRUMENT - shall have the meaning ascribed to the
term "instrument" in the Code.
INTERCREDITOR AGREEMENT - the Intercreditor Agreement
dated as of March 21, 1996, among Trustee, Lender, Borrower
and CF Funding by which such parties shall establish the
relative rights of CF Funding, Trustee and Lender in and to
Property of Obligors.
LIBOR RATE - the average (rounded upward to the
nearest 1/16th of 1%) per annum rate of interest determined
by Lender (each such determination to be conclusive and
binding) as the effective rate at which deposits in
immediately available funds in U.S. Dollars are being, have
been or would be offered or quoted by major banks selected
by Lender in the London Interbank Market for U.S. Dollar
deposits for a 30-day term and in an amount comparable to
the amount of the Obligations at any time during the
Business Day which is the second Business Day immediately
preceding the date of determination. If no such offers or
quotes are generally available for such amounts, then Lender
shall be entitled to determine the LIBOR Rate by estimating
in its reasonable judgment a per annum rate that would be
applicable if such quotes or offers were generally
available.
LICENSE AGREEMENT - the Software License Agreement to
be executed by Borrower on or about the Closing Date in
favor of Lender in connection with the Obligations.
LIEN - any interest in Property securing an
obligation owed to, or a claim by, a Person other than the
owner of the Property, whether such interest is based on
common law, statute or contract. The term "Lien" shall also
include reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions, leases
and other title exceptions and encumbrances affecting
Property. For the purpose of the Agreement, Borrower shall
be deemed to be the owner of any Property which it has
acquired or holds subject to a conditional sale agreement or
other arrangement pursuant to which title to the Property
has been retained by or vested in some other Person for
security purposes.
LIQUIDITY - at any date of determination, the sum of
Availability PLUS the unutilized amount under the Capital
Holding Line of Credit (or any line of credit subordinated
therefor in accordance with the Agreement).
LOAN ACCOUNT - the loan account established on the
books of Lender pursuant to Section 3.6 of the Agreement.
LOAN DOCUMENTS - the Agreement, the Other Agreements
and the Security Documents.
LOAN PARTY - Borrower, each Guarantor and each other
Person (other than Lender) who is at any time a party to any
Loan Document.
LOANS - all loans and advances of any kind made by
Lender pursuant to the Agreement.
MARGIN STOCK - as such term is defined in Regulation
U and Regulation G of the Board of Governors.
MATERIAL ADVERSE EFFECT - the effect of any event or
condition which, alone or when taken together with other
events or conditions occurring or existing concurrently
therewith, (a) has a material adverse effect upon the
business, operations, Properties, condition (financial or
otherwise) or business prospects of Borrower; (b) has any
material adverse effect whatsoever upon the validity or
enforceability of the Agreement or any of the other Loan
Documents; (c) has or may be reasonably expected to have any
material adverse effect upon the value of the whole or any
material part of the Collateral, the Liens of Lender with
respect to the Collateral or any material part thereof or
the priority of such Liens; (d) materially impairs the
ability of Borrower to perform its obligations under this
Agreement or any of the other Loan Documents, including
repayment of the Obligations when due; or (e) materially
impairs the ability of Lender to enforce or collect the
Obligations or realize upon any of the Collateral in
accordance with the Loan Documents and Applicable Law.
MAXIMUM RATE - the maximum non-usurious rate of
interest permitted by Applicable Law that at any time, or
from time to time, may be contracted for, taken, reserved,
charged or received on the Debt in question or, to the
extent that at any time Applicable Law may thereafter permit
a higher maximum non-usurious rate of interest, then such
higher rate. Notwithstanding any other provision hereof,
the Maximum Rate shall be calculated on a daily basis
(computed on the actual number of days elapsed over a year
of 365 or 366 days, as the case may be).
MONEY BORROWED - means (i) Debt arising from the
lending of money by any Person to Borrower; (ii) Debt,
whether or not in any such case arising from the lending by
any Person of money to Borrower, (A) which is represented by
notes payable or drafts accepted that evidence extensions of
credit, (B) which constitutes obligations evidenced by
bonds, debentures, notes or similar instruments, or (C) upon
which interest charges are customarily paid (other than
accounts payable) or that was issued or assumed as full or
partial payment for Property; (iii) Debt that constitutes a
Capitalized Lease Obligation; (iv) reimbursement obligations
with respect to letters of credit or guaranties of letters
of credit and (v) Debt of Borrower under any guaranty of
obligations that would constitute Debt for Money Borrowed
under clauses (i) through (iii) hereof, if owed directly by
Borrower.
MULTIEMPLOYER PLAN - has the meaning set forth in
Section 4001(a)(3) of ERISA.
NET AMOUNT - with reference to the amount of a
Borrower Advance, the full amount of such Borrower Advance
less the Assigned Amount in respect thereof.
NET INCOME - at any date of determination, as applied
to any Person, the net income (or net loss) of such Person
for the period in question after giving effect to deduction
of or provision for all operating expenses, all taxes and
reserves (including reserves for deferred taxes) and all
other proper deductions, all determined in accordance with
GAAP.
NET WORTH - at any date of determination, with
respect to any Person, such Person's total shareholder's
equity (including capital stock, additional paid-in capital
and retained earnings, after deducting treasury stock) which
would appear as such on a balance sheet of such Person
prepared in accordance with GAAP, PLUS Subordinated Debt of
such Person.
NON-OFFSET AGREEMENT - the Non-Offset Agreement to be
executed on or about the Closing Date by Capital Bank and
Lender establishing that Capital Bank shall not set-off any
amounts of Borrower in the Deposit Accounts or any other
accounts of Borrower maintained with Capital Bank.
OBLIGATIONS - all Loans and all other advances,
debts, liabilities, obligations, covenants and duties,
together with all interest, fees and other charges thereon,
owing, arising, due or payable from Borrower to Lender of
any kind or nature, present or future, whether or not
evidenced by any note, guaranty or other instrument, whether
arising under the Agreement or any of the other Loan
Documents or otherwise, and whether direct or indirect
(including those acquired by assignment), absolute or
contingent, primary or secondary, due or to become due,
joint or several, now existing or hereafter arising and
however acquired.
OBLIGOR - a Person to whom Borrower has loaned money
or otherwise extended credit that is secured by a Lien in
favor of Borrower in all or a part of such Person's
Properties.
ORIGINAL TERM - as defined in Section 4.1 of the
Agreement.
OTHER AGREEMENTS - any and all agreements,
instruments and documents (other than the Agreement and the
Security Documents), heretofore, now or hereafter executed
by Borrower, any Subsidiary of Borrower or any other third
party and delivered to Lender in respect of the transactions
contemplated by the Agreement, including the Agency
Agreement, the Subordination Agreement, the Intercreditor
Agreement and the Non-Offset Agreement.
OUT-OF-FORMULA CONDITION - at any date of
determination thereof, a condition such that the outstanding
principal amount of Revolver Loans on such date exceeds the
Borrowing Base on such date.
OUT-OF-FORMULA LOAN - a Revolver Loan made when an
Out-of-Formula Condition exists or the amount of any
Revolver Loan which results in an Out-of-Formula Condition.
PARENT - Capital Bancorp, a Florida corporation.
PARTICIPANT - each Person who shall be granted the
right by Lender to participate in any of the Loans described
in the Agreement and who shall have entered into a
participation agreement in form and substance satisfactory
to Lender.
PAYMENT DIRECTION NOTICE - as defined in the Deposit
Accounts Assignments.
PAYMENT ITEMS - all checks, drafts, or other items of
payment payable to Borrower, including proceeds of any of
the Collateral.
PAYMENT RIGHTS - all rights of Borrower to the
payment of money from one or more Designated Obligors
(whether any of such rights constitutes or is evidenced by
an Account, Chattel Paper, a Document, a General Intangible
or an Instrument), including all rights to the repayment of
Borrower Advances.
PERMITTED LIEN - a Lien of a kind specified in
Section 8.2.5 of the Agreement.
PERMITTED USES - a use of proceeds of any of the
Loans to pay (i) on the Closing Date, a portion of the Debt
owing to Capital Bank and the closing fee owing to Lender
under the Agreement, and (ii) after the Closing Date, any
Debt incurred in the ordinary course of Borrower's business
to the extent not prohibited by the Agreement, Capital
Expenditures to the extent permitted by the Loan Documents,
principal and interest payments with respect to any
Subordinated Debt to the extent not prohibited by the
Agreement or any Subordination Agreement, Debt to Capital
Bank under the Capital Bank Line of Credit that is not
Subordinated Debt and any of the Obligations.
PERSON - an individual, partnership, corporation,
limited liability company, joint stock company, land trust,
business trust, or unincorporated organization, or a
government or agency or political subdivision thereof.
PLAN - an employee benefit plan now or hereafter
maintained for employees of Borrower that is covered by
Title IV of ERISA.
PROJECTIONS - Borrower's forecasted Consolidated and
consolidating (a) balance sheets, (b) profit and loss
statements, (c) change in borrowing position statements, and
(d) capitalization statements, all prepared on a consistent
basis with Borrower's historical financial statements,
together with appropriate supporting details and a statement
of underlying assumptions.
PROPERLY CONTESTED - in the case of any Debt of a
Loan Party (including any Tax) that is not paid as and when
due or payable by reason of such Loan Party's bona fide
dispute concerning its liability to pay same or concerning
the amount thereof, that (i) such Debt and any Liens
securing same are being properly contested in good faith by
appropriate proceedings promptly instituted and diligently
conducted; (ii) such Loan Party has established appropriate
reserves as shall be required in conformity with GAAP; (iii)
the non-payment of such Debt during the period being
contested by such Loan Party will not have a Material
Adverse Effect and does not and will not result in a
forfeiture of, foreclosure upon or loss of any assets of
such Loan Party; (iv) no Lien is imposed upon any of such
Loan Party's assets with respect to such Debt unless such
Lien is at all times junior and subordinate in priority to
the Liens in favor of Lender (except only with respect to
property taxes that have priority as a matter of applicable
state law) and enforcement of such Lien is stayed during the
period prior to the final resolution or disposition of such
dispute; (v) if the Debt results from the entry, rendition
or issuance against a Loan Party or any of its assets of a
judgment, writ, order or decree, such judgment, writ, order
or decree is stayed pending a timely appeal or other
judicial review and such Loan Party shall have established
adequate reserves in accordance with GAAP for such judgment,
writ, order or decree or the same is either fully insured
against by an insurer that has not denied or reserved rights
with respect to coverage or has been bonded to Lender's
satisfaction; and (vi) if such contest is abandoned, settled
or determined adversely to such Loan Party, such Loan Party
forthwith pays such Debt and all penalties and interest in
connection therewith.
PROPERTY - any interest in any kind of property or
asset, whether real, personal or mixed, or tangible or
intangible.
PURCHASE MONEY DEBT - means and includes (i) Debt
(other than the Obligations) for the payment of all or any
part of the purchase price of any fixed assets, (ii) any
Debt (other than the Obligations) incurred at the time of or
within 10 days prior to or after the acquisition of any
fixed assets for the purpose of financing all or any part of
the purchase price thereof, (iii) any renewals, extensions
or refinancings thereof, but not any increases in the
principal amounts thereof outstanding at the time, and (iv)
the principal amount of any Capitalized Lease Obligations.
PURCHASE MONEY LIEN - a Lien upon fixed assets which
secures Purchase Money Debt, but only if such Lien shall at
all times be confined solely to the fixed assets the
purchase price of which was financed through the incurrence
of the Purchase Money Debt secured by such Lien.
QUALIFIED BORROWER ADVANCES - Borrower Advances made
in the ordinary course of Borrower's business which is
payable in Dollars and which Lender, in its customary credit
judgment, deems to be Qualified Borrower Advances. Without
limiting the generality of the foregoing, Borrower Advances
shall not be Qualified Borrower Advances if and to the
extent that: (i) Borrower is not the legal and beneficial
owner of the Borrower Advances, other than any portion
thereof that is an Assigned Amount; (ii) the aggregate
outstanding balance of Borrower Advances of a Designated
Obligor exceeds $5,000,000, to the extent of such excess;
(iii) the amount thereof is not based upon a Designated
Obligor Borrowing Base; (iv) a Designated Obligor
Overadvance exists, but such Borrower Advances shall be
ineligible only to the extent of such Designated Obligor
Overadvance; (v) to the extent that a part of the amount of
the Borrower Advances is based upon the amount of the
eligible Accounts and the eligible Inventory of a Designated
Obligor, the amount of the Borrower Advances based upon the
Value of such Designated Obligor's eligible Inventory
exceeds the amount of the Borrower Advances based upon such
Designated Obligor's eligible Accounts, to the extent of
such excess; (vi) the amount of Borrower Advances based upon
the Value of a Designated Obligor's Inventory exceeds 40% of
the Value of such Inventory, to the extent of such excess;
(vii) in connection with Borrower Advances that are
Healthcare Advances, the amount of Borrower Advances owing
by a Designated Obligor exceeds an amount equal to the sum
of all collections of Accounts of such Designated Obligor
applied in payment of such Borrower Advances during the
immediately preceding 3 calendar months; (viii) it arises
out of an extension of credit by Borrower to a Subsidiary or
an Affiliate of Borrower or to a Person controlled by an
Affiliate of Borrower; (ix) the Designated Obligor is also
Borrower's creditor or the Designated Obligor has disputed
liability with respect to any Borrower Advance, or the
Designated Obligor has made any claim with respect to any
Borrower Advances due from such Designated Obligor to
Borrower, or the Borrower Advances otherwise are or may
become subject to any right of setoff, counterclaim or
reserve; (x) all or any part of the Borrower Advances has
been written off as a loss or designated as a "non-accrual"
or "non-earning" asset; (xi) an Insolvency Proceeding has
been commenced by or against the Designated Obligor or the
Designated Obligor has failed or suspended business; (xii)
it arises from an extension of credit to a Designated
Obligor with its principal office, assets or place of
business outside the United States, unless the extension of
credit is backed by an irrevocable letter of credit issued
or confirmed by a bank to Lender and is in form and
substance acceptable to Lender, payable in the full amount
of the Borrower Advance and freely convertible Dollars at a
place of payment within the United States; (xiii) the
Designated Obligor is located in New Jersey, Minnesota or
any other state imposing similar conditions on the right of
a creditor to collect accounts receivable unless a
Designated Obligor has either qualified to do business in
such state as a foreign corporation or filed a Notice of
Business Activities Report or other required report with the
appropriate officials in those states for the then current
year; (xiv) the Designated Obligor is located in a state in
which Borrower is deemed to be doing business under the laws
of such state and which denies creditors access to its
courts in the absence of qualification to transact business
in such state or of the filing of any reports with such
state, unless Borrower has qualified as a foreign
corporation authorized to transact business in such state or
has filed all required reports; (xv) the Borrower Advances
are subject to a Lien other than a Lien in favor of
Borrower; (xvi) the Designated Obligor's liability for such
Borrower Advances has been reduced to a judgment; (xvii) the
Designated Obligor is not a duly organized and validly
existing corporation, general partnership, limited
partnership, limited liability company or sole
proprietorship; (xviii) the Designated Obligor is not in
good standing under the laws of the jurisdiction of its
creation or is not authorized to do business and in good
standing as a foreign corporation in all other states and
jurisdictions where the character of such Designated
Obligor's properties or the nature of such Designated
Obligor's activities make such qualification necessary;
(xix) the Designated Obligor is not a party to a legal,
valid and binding Transaction Document that provides that it
is binding upon and inures to the benefit of the successors
and assigns to the parties thereto; (xx) Borrower has
accelerated the maturity or demanded payment of, or
otherwise commenced the exercise of its remedies with
respect to, the Borrower Advance; (xxi) with respect to any
Borrower Advances that are Healthcare Advances, the Payment
Rights relating to such Healthcare Advances are payable by
an individual and are not insured by any private contract of
insurance or Medicare or Medicaid; or (xxii) the Borrower
Advances are not made under or memorialized by Transaction
Documents containing terms similar in material respects to
the Transaction Documents provided by Borrower to Lender and
approved by Lender prior to the Closing Date; or (xxiii) any
covenant, representation or warranty contained in the
Agreement with respect to the Borrower Advances has been
breached.
QUALIFIED PARTICIPANT - any Participant required by
Lender as a condition to Lender's agreement to, at
Borrower's request, increase the maximum amount Borrower can
borrow under the Agreement in excess of $50,000,000.
REMEDIES - all rights, remedies, privileges and
powers of Borrower arising under or in connection with any
of the Transaction Documents.
RENTALS - as defined in Section 8.2.13 of the
Agreement.
RENEWAL TERM - as defined in Section 4.1 of the
Agreement.
REPORTABLE EVENT - any of the events set forth in
Section 4043(b) of ERISA.
RESTRICTED INVESTMENT - any acquisition of Property
by Borrower or any of its Subsidiaries in exchange for cash
or other Property, whether in the form of an acquisition of
Securities or other Debt, or the purchase or acquisition by
Borrower or any Subsidiary of any other Property, or a loan,
advance, capital contribution or subscription, except
acquisitions of the following: (a) fixed assets to be used
in the business of Borrower or any Subsidiary so long as the
acquisition costs thereof constitute Capital Expenditures
permitted hereunder; (b) investments in Subsidiaries to the
extent existing on the Closing Date; and (c) Cash
Equivalents. Notwithstanding the foregoing, the definition
of Restricted Investments shall not include the transactions
contemplated by the Securitization Agreement or the
Contribution and Sale Agreement.
REVOLVER LOAN - a Loan made by Lender as provided in
Section 1.1 of the Agreement.
SCHEDULE OF ACCOUNTS - as defined in Section 6.2.1 of
the Agreement.
SECURITIZATION AGREEMENT - the Capital Factors
Financing Trust Pooling and Servicing Agreement dated as of
June 1, 1994, among CF Funding, Borrower and Trustee.
SECURITIZATION DEBT - Debt and other obligations of
Borrower or CF Funding under or in connection with the
Securitization Documents.
SECURITIZATION DOCUMENTS - the Securitization
Agreement, the Series 1994-1 Supplement, the Series 1994-2
Supplement, the Series 1995-1 Supplement, the Contribution
and Sale Agreement, the Securitization Lock-Box Agreement,
the Securitization Software License Agreement and any and
all other documents, agreements or instruments heretofore,
now or hereafter executed by Borrower, any Subsidiary of
Borrower or any Affiliate of Borrower in respect to the
transactions contemplated by the Securitization Agreement,
the Series 1994-1 Supplement, the Series 1994-2 Supplement,
the Series 1995-1 Supplement or any further supplements to
the Securitization Agreement, the Contribution and Sale
Agreement, the Securitization Lock-Box Agreement and the
Securitization Software License Agreement.
SECURITIZATION LOCK-BOX AGREEMENT - (a) the Lockbox
Service Agreement and Master Agreement, each dated April 25,
1994, by and between First Union National Bank of Florida
and Borrower, as amended by Amendment No. 1 dated June 23,
1994, as in effect from time to time and (b) each other
"Lock-Box Agreement" (as defined in the Securitization
Agreement) that may hereafter be entered into by Borrower
pursuant to the Securitization Agreement.
SECURITIZATION SOFTWARE LICENSE AGREEMENT - the
Software License Agreement, dated as of June 1, 1994, by and
between Borrower and Trustee, as in effect from time to
time.
SECURITY - shall have the same meaning as in Section
2(1) of the Securities Act of 1933, as amended.
SECURITY DOCUMENTS - the Guaranty Agreement, the
Deposit Accounts Assignments, the License Agreement and all
other instruments and agreements now or at any time
hereafter securing the whole or any part of the Obligations.
SENIOR SECURITY INTEREST - a security interest
granted by a Designated Obligor in favor of Borrower in all
such Designated Obligor's Properties to secure the payment
and performance of all Debt owing by such Designated Obligor
to Borrower, but only to the extent that such security
interest has been and remains perfected under the Code and
has priority over all other Liens that may have attached to
any Properties of such Designated Obligor.
SERIES 1994-1 SUPPLEMENT - the Series 1994-1
Supplement dated as of June 1, 1994, among CF Funding,
Borrower and Trustee, to Capital Factors Financing Trust
Pooling and Servicing Agreement dated as of June 1, 1994,
providing for up to $115,000,000 Variable Rate Asset Backed
Certificates Series 1994-1.
SERIES 1994-2 SUPPLEMENT - the Series 1994-2
Supplement dated as of December 1, 1994, among CF Funding,
Borrower and Trustee, to Capital Factors Financing Trust
Pooling and Servicing Agreement dated as of June 1, 1994,
providing for up to $57,500,000 of Variable Rate Asset
Backed Certificates, Series 1994-2.
SERIES 1995-1 SUPPLEMENT - the Series 1995-1
Supplement dated as of July 1, 1995, among CF Funding,
Borrower and Trustee, to Capital Factors Financing Trust
Pooling and Servicing Agreement dated as of June 1, 1994,
providing for up to $57,500,000 of Variable Rate Asset
Backed Certificates, Series 1995-1.
SOLVENT - as to any Person, such Person (i) owns
Property whose fair saleable value is greater than the
amount required to pay all of such Person's Debt (including
contingent debts), (ii) is able to pay all of its Debt as
such Debt matures, (iii) has capital sufficient to carry on
its business and transactions and all business and
transactions in which it is about to engage and (iv) is not
"insolvent" within the meaning of Section 101(32) of the
Bankruptcy Code.
SUBORDINATED DEBT - Debt of Borrower that is
subordinated to the Obligations in a manner reasonably
satisfactory to Lender.
SUBORDINATION AGREEMENT - the Debt Subordination
Agreement to be dated on or about the Closing Date among
Lender, Capital Holding and Borrower.
SUBSIDIARY - any corporation of which a Person owns,
directly or indirectly through one or more intermediaries,
more than 50% of the Voting Stock at the time of
determination.
TAX ALLOCATION AGREEMENT - the Tax Allocation
Agreement dated November 14, 1983, among Parent, Capital
Bank and Affiliates thereof described therein.
TAX GROUP - as defined in Section 7.1.12 of the
Agreement.
TAXES - any present or future taxes, levies, imposts,
duties, fees, assessments, deductions, withholdings or other
charges of whatever nature, including income, receipts,
excise, property, sales, transfer, license, payroll,
withholding, social security and franchise taxes now or
hereafter imposed or levied by the United States or any
state, local or foreign government or by any department,
agency or other political subdivision or taxing authority
thereof or therein, and all interest, penalties, additions
to tax and similar liabilities with respect thereto.
THOMSON BANKWATCH - Thomson BankWatch, Inc.
THOMSON BANKWATCH RANKING - the overall performance
score or ranking for banks and other financial institutions
assigned by Thomson BankWatch from time to time.
TRANSACTION DOCUMENTS - all instruments, agreements,
documents and other writings that now or hereafter (i)
evidence any Payment Right, including all promissory notes,
loan agreements and factoring agreements, (ii) secure
(whether by the grant or conveyance of a security interest,
Lien or other encumbrance) any Payment Right, including all
security agreements, UCC-1 financing statements, mortgages,
security deeds, trust deeds, pledge agreements, lease
agreements, conditional sales agreements, negative pledge
agreements, hypothecation agreements and assignments, (iii)
guarantee the payment or performance of all or any part of
any Payment Right owing by a Designated Obligor, including
all guaranties, support or contribution agreements, letters
of credit, indemnifications and repurchase agreements, and
(iv) are at any time executed and delivered by any Person in
connection with or relating to any Payment Right, including
all landlord waivers or agreements, mortgagee waivers or
agreements, warehousemen agreements, processor agreements,
lockbox, blocked account or other dominion account
agreements, intercreditor or subordination agreements and
estoppel certificates, whether the foregoing are executed
and delivered by a Designated Obligor, any guarantor or
surety of a Payment Right or any other Person.
TREND CARDS - Borrower's internally prepared summary
of Obligor data, significant terms of Borrower's financing
relationships with Obligors (including type of financing
arrangement, factoring rate, advance rate, annual
commissions and collection days) financial statement
summaries and monthly Obligor performance with Borrower
(with respect to Obligor sales, Accounts collections and
Borrower's credit risk).
TRUST - the Capital Factors Financing Trust
established pursuant to the Securitization Agreement.
TRUSTEE - Bankers Trust Company, a New York banking
company, in its capacity as trustee under the Securitization
Documents, and its successors in such capacity.
VALUE - when used with reference to eligible
Inventory of a Designated Obligor, the value of such
eligible Inventory at the time in question, calculated on
the basis of the lower of such Designated Obligor's cost or
market, with the cost of finished goods calculated on a
first-in, first-out basis.
VOTING STOCK - Securities of any class or classes of
a corporation the holders of which are ordinarily, in the
absence of contingencies, entitled to elect a majority of
the corporate directors (or Persons performing similar
functions).
ACCOUNTING TERMS. Unless otherwise specified herein,
all terms of an accounting character used in the Agreement shall
be interpreted, all accounting determinations under the Agreement
shall be made, and all financial statements required to be
delivered under the Agreement shall be prepared, in accordance
with GAAP, applied on a basis consistent with the most recent
audited Consolidated financial statements of Borrower and its
Subsidiaries heretofore delivered to Lender and using the same
method for inventory valuation as used in such audited financial
statements, except for any change in which Borrower's independent
public accountants concur or as required by GAAP unless (i)
Borrower shall have objected to determining such compliance on
such basis at the time of delivery of such financial statements
or (ii) Lender shall so object in writing within 30 days after
the delivery of such financial statements, in either of which
events such calculations shall be made on a basis consistent with
those used in the preparation of the latest financial statements
as to which such objection shall not have been made. In the
event of any change in GAAP that occurs after the date of the
Agreement and that is material to Borrower, Lender shall the
right to require either that conforming adjustments be made to
any financial covenants set forth in the Agreement, or the
components thereof, that are affected by such change or that
Borrower report its financial condition based on GAAP as in
effect immediately prior to the occurrence of such change.
OTHER TERMS. All other terms contained in the
Agreement shall have, when the context so indicates, the meanings
provided for by the Code to the extent the same are used or
defined therein.
CERTAIN MATTERS OF CONSTRUCTION. The terms "herein",
"hereof" and "hereunder" and other words of similar import refer
to the Agreement as a whole and not to any particular section,
paragraph or subdivision. Any pronoun used shall be deemed to
cover all genders. In the computation of periods of time from a
specified date to a later specified date, the word "from" means
"from and including" and the words "to" and "until" each means
"to but excluding." The section titles, table of contents and
list of exhibits appear as a matter of convenience only and shall
not affect the interpretation of the Agreement. All references
to statutes and related regulations shall include any amendments
of same and any successor statutes and regulations. All
references to any instruments or agreements, including the Loan
Documents, Transaction Documents and Securitization Documents,
shall include any and all modifications thereto and any and all
extensions or renewals thereof. Wherever the phrase "including"
shall appear in the Agreement, such word shall be understood to
mean "including, without limitation." All references to the time
of day shall mean the time of day on the day in question in
Atlanta, Georgia, unless otherwise expressly provided in the
Agreement. A Default or an Event of Default shall be deemed to
exist at all times during the period commencing on the date that
such Default or Event of Default occurs to the date on which such
Default or Event of Default is waived in writing pursuant to this
Agreement or is cured within any period of cure expressly
provided in this Agreement. Wherever in the Agreement and the
other Loan Documents reference is made to attorneys' fees and
expenses that are incurred by Lender and that are to be
reimbursed to Lender by Borrower, such reference shall be
understood to mean the attorneys' fees and expenses which were
incurred by Lender for services actually rendered by attorneys on
Lender's behalf at rates no greater than such attorneys'
customary hourly rates at the time such services are rendered for
matters of the general type for which they were engaged by Lender
and which Lender in good faith determines are not unreasonable.
[Signatures on following page]
IN WITNESS WHEREOF, this Appendix has been duly executed in
Atlanta, Georgia, as of March 4, 1996.
ATTEST: CAPITAL FACTORS, INC.
("Borrower")
/s/ Not Readable By:/s/ John Kiefer
Assistant Secretary Title: President
[CORPORATE SEAL]
Accepted in Atlanta,
Georgia:
FLEET CAPITAL CORPORATION
("Lender")
By: /s/ Not Readable
Title: Not Readable
EXHIBIT 10.12
STATE OF NORTH CAROLINA
COUNTY OF MECKLENBURG LEASE
THIS LEASE, made and entered into this the 19th day of April,
1995, by and between H-C REIT, INC., a North Carolina
corporation, hereinafter referred to as "Landlord," and Capital
Factors, Inc., a North Carolina corporation, hereinafter called
"Tenant";
W I T N E S S E T H:
THAT for and in consideration of the mutual agreements of the
parties, including the rental agreed to be paid by Tenant to
Landlord, Landlord hereby leases to Tenant, and Tenant leases and
rents from Landlord the following described premises on the terms
and conditions hereinafter set forth, to wit:
ARTICLE I
BASIC LEASE TERMS
Section 1. COMMENCEMENT, TERMINATION AND BASE RENT.
Building: One Morrocroft Centre
6805 Morrison Boulevard
Charlotte, North Carolina 28211
Location of Premises: Suite 300 on the 3rd floor of the
Building.
Rentable Area of Building: 94,740 square feet
Rentable Area of Premises: 9,871 square feet
Lease Term: Five (5) years
Commencement Date: Upon substantial completion of
upfitting
Termination Date: The last day of the fifth (5th)
year
after the Commencement Date
Base Rent: $19.90 per rentable square foot
per annum
Initial Annual Base Rent: $196,432.90
Initial Monthly Base Rent: $ 16,369.41
Security Deposit: $ 16,369.41
Signage: Landlord shall provide building
standard suite signage and lobby
directory signage to Tenant at no
charge.
Section 2. ADDRESS OF LANDLORD AND TENANT; NOTICES.
Rental and Other Payments To: H-C REIT, INC.
c/o The Harris Group
4201 Congress Street, Suite 175
Charlotte, NC 28209
Correspondence To: H-C REIT, INC.
c/o The Harris Group
4201 Congress Street, Suite 175
Charlotte, NC 28209
Address of Tenant: Capital Factors, Inc.
John W. Kiefer
1799 W. Oakland Park Blvd.
Ft. Lauderdale, FL 33311
All sums of money to be paid to Tenant by Landlord and all
written notices by Landlord to Tenant shall be delivered to the
Premises (as hereinafter defined) unless a different address for
Tenant is set forth above.
All sums of money to be paid to Landlord by Tenant and all
written notices by Tenant to Landlord shall be delivered to the
respective addresses of Landlord as set forth above.
All notices required or permitted under this Lease shall be in
writing, signed by the party giving such notice and transmitted
by certified mail, postage prepaid, and shall be deemed given
when it is deposited in an official depository of the United
States Mails. Either party may change the address to which money
due or notices shall be sent by giving the other party written
notice of such change of address.
Tenant hereby appoints as its agent for service of process in
all dispossessory, distraint and summary ejectment proceedings
which may be brought against it by Landlord, any person occupying
the Premises, provided that if no person is occupying the
Premises, then Tenant agrees that such service may be made by
attachment thereof to the main entrance to the Premises.
ARTICLE II
LEASED PREMISES
Section 1. DESCRIPTION OF PREMISES. The Premises this day
leased and demised (hereinafter called "the Premises") are
located within the Building identified in Article I (hereinafter
called the "Building") which is located on the real property
described in Exhibit A attached hereto and incorporated herein by
reference (said land and the building and improvements thereon
being hereinafter called the "Property"). The Premises are shown
as outlined on the floor plan of the Building attached hereto as
Exhibit B and incorporated herein by reference.
Section 2. TENANT'S ACCEPTANCE OF PROPERTY. Except as
specifically provided to the contrary in Exhibit"C" attached to
this Lease, Tenant shall accept the Premises in "as is" condition
and Landlord shall have no obligation to upfit the same. Except
as expressly set forth herein, neither Landlord nor its agents
have made any representations with respect to the Premises, the
Building or the Property and no rights, easements or licenses are
acquired by the Tenant by implication or otherwise. The taking
of possession of the Premises by Tenant shall be conclusive that
the Premises and the Building were in satisfactory condition at
the time possession was taken, subject only to agreed upon minor
"punch list" items. If Landlord is required to do any work in
the Premises, then Tenant must notify Landlord in writing within
thirty (30) days of the taking of possession of the Premises of
any incomplete "punch list" items. Any items not contained in
such notice shall be deemed fulfilled.
Section 3. COMMON AREAS. Tenant and its employees, agents,
invitees and licensees are granted the right, in common with
others and subject to the exclusive control and management
thereof at all times by Landlord, to the nonexclusive use of such
of the areas as are from time to time designated as Common Areas
by Landlord. These areas shall include the facilities in the
Building which are designated for the general use, in common, of
the occupants of the Building, and, to the extent the same are
provided, the parking areas, sidewalks, roadways, loading
platforms, restrooms, ramps, maintenance and mechanical areas,
lobbies, corridors, elevators, stairwells and landscaped areas.
Section 4. QUIET ENJOYMENT. The Landlord agrees that the
Tenant, on paying the stipulated rental and keeping and
performing the agreements and covenants herein contained, shall
hold and enjoy the Premises for the term aforesaid, subject,
however, to the terms of this Lease.
Section 5. UPFITTING ALLOWANCE. Landlord shall provide
Tenant with an upfitting allowance not to exceed Ten Dollars
($10.00) per rentable square foot of the Premises for upfitting
work actually performed above and below the finished ceiling to
be applied against Landlord's cost of upfitting the Premises.
Any cost of upfitting in excess of said allowance shall be paid
by Tenant to Landlord within ten (10) days of receipt of invoice
for the same.
ARTICLE III
LEASE TERM
Section 1. TERM. The term of this Lease shall commence and
end on the Commencement Date and Termination Date, respectively,
set forth in Article I. However, if due to causes beyond
Landlord's reasonable control, including without limitation, the
inability of Landlord, despite due diligence, to complete any
work that it is obligated to perform in the Premises or to obtain
possession of the Premises because of a holdover tenant therein,
Landlord is unable to deliver the Premises to Tenant by the
Commencement Date, then in such case the Commencement Date and
Termination Date shall be deferred by the number of days of such
delays.
At any time prior to said Commencement Date, Tenant shall have
the right, at its own risk, to enter upon the Premises for any
reasonable purpose expressly permitted by Landlord; provided,
however, that such entry shall not interfere with any work being
done by or on behalf of Landlord therein, and Tenant shall
indemnify Landlord against any loss or liability arising from
such entry.
Section 2. HOLDING OVER. If Tenant continues to occupy the
Premises after the last day of the term hereof or after the last
day of any renewal or extension of the term hereof and if
Landlord elects to accept rent, a monthly tenancy terminable at
will by either party on not less than ten (10) days written
notice shall be created which shall be on the same conditions as
those herein specified, except Tenant shall pay double the
monthly rent paid for the last full month of the lease term for
each month or partial month during which Tenant retains
possession of the Premises after such expiration or termination
date. Tenant shall indemnify Landlord against all liabilities
and damages sustained by Landlord by reason of such retention of
possession. The provisions of this section shall not constitute
a waiver by Landlord of any reentry rights available under this
Lease or by law.
ARTICLE IV
BASE RENT AND ADJUSTMENTS
Section 1. BASE RENTAL. The Tenant covenants and agrees to
pay to Landlord as rental for the Premises, without setoff or
demand thereof, the Initial Monthly Base Rent set forth in
Article I, adjusted as hereinafter provided, on the first day of
each month, in advance, during the term of this Lease; provided,
however, that if the term of this Lease does not begin on the
first day or end on the last day of a month, the Base Rent for
that partial month shall be prorated by multiplying the Monthly
Base Rent by a fraction, the numerator of which is the number of
days of the partial month included in the term and the
denominator of which is the total number of days in the full
calendar month that is being prorated.
Section 2. ADJUSTMENT OF ANNUAL AND MONTHLY BASE RENT. For
the purposes of this Article III, the following definitions
apply:
a. LEASE YEAR. The term Lease Year shall mean that period of
time from the Commencement Date to the first anniversary of the
Commencement Date and from the first or any subsequent
anniversary of the Commencement Date to the next succeeding
anniversary date.
b. CPI. The term CPI shall mean the Consumer Price Index
published monthly for all urban consumers, all items, U.S. City
Average, Base Year 1982-84=100, issued by the Bureau of Labor
Statistics of the United States Department of Labor, as the said
CPI Base Year may change, or in the event such index is no longer
published, then such other index as shall be generally acceptable
as being comparable thereto.
Annual and Monthly Base Rent shall be increased on each
anniversary of the Commencement Date during the term of this
Lease, or any renewal thereof, by the same percentage as the
percentage increase in the CPI, for the immediately preceding
Lease year. The percentage increase in the CPI for the first
Lease Year shall be determined by comparing the CPI for the month
immediately preceding the Commencement Date with the CPI for the
month immediately preceding the first anniversary of the
Commencement Date. For each subsequent Lease Year, the
percentage increase in the CPI shall be determined by comparing
the CPI for the month immediately preceding the closest prior
anniversary date with the CPI for the month immediately preceding
the current anniversary date for which the increase is being
determined. In no event shall Annual or Monthly Base Rent be
decreased due to any decrease in the CPI. The Landlord shall
notify Tenant in writing of the increase in Annual and Monthly
Base Rent. The Tenant agrees to begin paying the increased
Annual and Monthly Base Rent on the next rent payment date and
shall continue paying the increased amount until Tenant receives
notice of a further increase in the Annual and Monthly Base Rent.
Tenant shall also pay on the next rent payment date following
receipt of notice of the increase in effect for then current
Lease Year, the amount by which Annual and Monthly Base Rent has
been increased for each month of the then current Lease Year for
which Tenant has already paid the Annual and Monthly Base Rent in
effect for the immediately preceding Lease Year. The percentage
increase in CPI determined on each anniversary of the
Commencement Date, for the immediately preceding Lease Year as
provided above, shall be capped at no greater than six percent
(6%).
Section 3. ADDITIONAL MONTHLY RENT. Beginning on the first
day of the month during which the first anniversary of the
Commencement Date occurs, and thereafter as adjusted by Landlord
on each January 1, the Tenant shall pay to Landlord as additional
monthly rent (the "Additional Monthly Rent") an amount equal to
one-twelfth (1/12) of the product of (i) the Rentable Area of the
Premises and (ii) the amount by which the Landlord estimates the
Operating Cost (as hereinafter defined) per square foot of
Rentable Area of the Building for such calendar year will exceed
the Operating Cost per square foot of Rentable Area of the
Building for the Base Year. For the purposes of this Lease, the
Base Year shall be the calendar year during which the
Commencement Date occurs. Landlord shall advise Tenant of such
estimated amount at least fifteen (15) days prior to the
commencement of such first anniversary date or calendar year as
the case may be. Landlord's failure to so advise Tenant shall
not, however, affect Tenant's obligation to pay such Additional
Monthly Rent when so advised.
Within ninety (90) days after the end of each calendar year or
within such further time period reasonably required by Landlord,
Landlord shall determine the actual Operating Cost per square
foot of Rentable Area of the Building by dividing the actual
Operating Cost, after making the adjustment required by the next
following paragraph, by the Rentable Area of the Building as set
forth in Article I. If the actual Operating Cost per square foot
of Rentable Area of the Building for any such calendar year less
the Operating Cost per square foot of Rentable Area during the
Base Year (the "Excess Operating Cost per square foot of Rentable
Area") exceeds the amount per square foot paid by Tenant for the
preceding calendar year pursuant to Landlord's estimate, then
Tenant shall pay to Landlord an amount equal to the Excess
Operating Cost per square foot of Rentable Area of the Building
multiplied by the Rentable Area of the Premises ("Excess
Operating Cost of the Premises") less the amount paid during such
calendar year by Tenant in accordance with the estimate furnished
to Tenant by Landlord. In the event Tenant has paid for any
calendar year an amount per square foot of Rentable Area of
Premises pursuant to Landlord's estimate, which when added to the
Operating Cost per square foot of Rentable Area during the Base
Year, exceeds the actual Operating Cost per square foot of
Rentable Area of the Building for such calendar year, then such
excess amount multiplied by the Rentable Area of the Premises
shall be refunded to Tenant within thirty (30) days following the
date of such determination by Landlord. In no event shall Tenant
be entitled to any refund if the effect of such refund would be
to reduce the amount of the Annual and Monthly Base Rent. If the
Lease does not begin on January 1 or end on December 31 and
accordingly if the first adjustment period (from the first
anniversary of the Commencement Date to December 31 of such
calendar year) or the last adjustment period (from January 1 of
the last year of the Lease term to the Termination Date) do not
represent a full calendar year, then in such case the Excess
Operating Cost of the Premises for such calendar year at the
beginning and/or end of the Lease term shall be prorated by
multiplying the Excess Operating Cost of the Premises by a
fraction, the numerator of which is the number of days of such
adjustment period at the beginning and/or end of the Lease term
and the denominator of which is 365. Such amount shall be paid
by Tenant within thirty (30) days following receipt of a bill for
such amount from Landlord.
For the purpose of estimating Operating Cost per square foot
of Rentable Area and for the purpose of determining actual
Operating Cost per square foot of Rentable Area under the
provisions of this Section, all amounts shall be adjusted so that
estimated Operating Cost will be based upon what such cost would
reasonably be if ninety-five percent (95%) of the Building were
occupied, and actual Operating Cost will be calculated on the
basis of 95% assumed occupancy, or actual occupancy, whichever is
greater.
In connection with this Section 3, Landlord shall, upon notice
from Tenant, make available during Landlord's business hours for
Tenant's review those books and records utilized by Landlord in
computing the amount of Additional Monthly Rent payable by
Tenant.
The term "Operating Cost" shall mean and include all costs,
expenses, taxes, and disbursements of every kind and nature
reasonably incurred, which Landlord shall pay or become obligated
to pay in connection with the management, operation, maintenance,
replacement and repair of all building systems, components and
appurtenances according to first class management principles for
a building located in Charlotte, North Carolina and according to
what is best for the Building in the Landlord's judgement. Such
costs will include, but will not be limited to, maintenance,
operation, and repair of personal property, fixtures, machinery,
equipment, systems and apparatus used in connection with the
Building cleaning; ad valorem, personal and real property taxes
associated with the ownership and operation of the Building;
insurance; security; any assessments that may be payable to any
Owners or Merchants Association on the same basis as other
buildings in the area in which the Building is located;
management fees; utilities; seasonal decorations; redecoration of
public areas; contract services; amortization of non-permanent
equipment (example: trash containers) which otherwise might be
leased; and those items listed on Exhibit D which are not
identified in this paragraph.
Operating Cost shall not include costs for tenant
improvements, interest and principal payments on loans for the
Building, real estate leasing commissions, salaries and other
compensation for executive officers of the Landlord or Manager;
expenditures for which the Landlord has been reimbursed (other
than pursuant to Additional Rent provisions in tenant leases);
expenses incurred in enforcing obligations of other tenants; and
capital expenditures or capital leases (except for costs
associated with capital expenditures or capital leases by
Landlord which are for the purpose of reducing Operating Cost).
Section 4. LATE PAYMENT. If rent or any other payment due
hereunder from Tenant to Landlord remains unpaid ten (10) days
after said payment is due, the amount of such unpaid rent or
other payment shall be increased by a late charge to be paid to
Landlord by Tenant in an amount equal to five percent (5%) of the
amount of the delinquent rent or other payment. The amount of
the late charge to be paid for such month shall be computed on
the aggregate amount of delinquent rent and other payment then
outstanding for such month. Landlord and Tenant agree that such
late charge shall not be deemed to be a penalty, it being
understood between the parties that late payments by Tenant shall
result in additional administrative expense to Landlord which is
difficult and impractical to ascertain and that such late charge
is a reasonable estimate of the loss and expense to be suffered
by Landlord as a result of such late payment by Tenant.
If rent or any other sums due Landlord by Tenant hereunder
shall not be paid within thirty (30) days of its due date, then
in such case in addition to the late charge provided for
hereinabove, such rent or other sum shall bear interest beginning
on the thirty-first (31st) day after its due date at the rate of
eighteen percent (18%) per annum (or, if less, the highest rate
allowed by law).
If rent or any other sums due Landlord by Tenant hereunder is
collected by or through an attorney at law, Tenant agrees to pay
Landlord's actual and reasonable attorneys' fees incurred with
respect thereto not in excess of fifteen percent (15%), or if the
laws of the State of North Carolina in effect at the time of such
collection limit the amount so payable as attorneys' fees, then
the maximum percentage not in excess of fifteen percent (15%)
allowed by such laws, of the amount so collected.
Nothing herein shall relieve Tenant of the obligation to pay
rent or any other payment on or before the date on which any such
payment is due, nor in any way limit Landlord's remedies under
this Lease or at law in the event said rent or other payment is
unpaid after it is due. Amounts due hereunder shall be deemed to
be additional rent and the failure to pay the same within ten
(10) days after they are due shall constitute a default of this
Lease.
Section 5. APPLICATION OF PAYMENTS RECEIVED FROM TENANT.
Landlord, acting in its sole discretion, shall have the right to
apply any payments made by Tenant to the satisfaction of any debt
or obligation of Tenant to Landlord regardless of the
instructions of Tenant as to application of any sum whether such
instructions be endorsed upon Tenant's check or otherwise, unless
otherwise agreed upon by both parties in writing. The acceptance
by Landlord of a check or checks drawn by anyone other than
Tenant shall in no way effect Tenant's liability hereunder nor
shall it be deemed an approval of any assignment of this Lease by
Tenant.
Section 6. SECURITY DEPOSIT. Tenant shall deposit with
Landlord the amount shown as the security deposit set forth in
Article I, to be held as collateral security for the payment of
any rentals and other sums of money for which Tenant shall become
liable to Landlord, and for the faithful performance by Tenant of
all covenants and conditions herein contained. If at any time
during the Lease term any of the rent herein reserved shall be
overdue and unpaid, or any other sum payable by Tenant to
Landlord hereunder shall be overdue and unpaid, then Landlord
may, at its option, appropriate and apply any portion of said
deposit to the payment of any such overdue rent or other sum. In
the event of the failure of Tenant to keep and perform any of the
terms, covenants and conditions of this Lease to be kept and
performed by Tenant, then Landlord, at its option, may
appropriate and apply said entire deposit, or so much thereof as
may be necessary, to compensate the Landlord for loss or damage
sustained or suffered by Landlord due to such breach on the part
of Tenant. Should the entire deposit, or any portion thereof, be
appropriated and applied by Landlord for the payment of overdue
rent or other sums due and payable to Landlord by Tenant
hereunder, then Tenant shall, upon the written demand of
Landlord, forthwith remit to Landlord a sufficient amount in cash
to restore said security to the original sum deposited, and
Tenant's failure to do so within ten (10) days after receipt of
such demand shall constitute a breach of this Lease. Said
deposit, and any interest earned thereon, shall be returned to
Tenant at the end of the term of this Lease provided Tenant shall
have made all such payments and performed all such covenants and
agreements.
Landlord's obligation with respect to the security deposit are
those of a debtor and not a trustee. Landlord will maintain the
security deposit in an account at a national banking institution
located, in Charlotte, North Carolina, separate and apart from
Landlord's general funds and shall maintain said security deposit
in an interest bearing account, and all interest accruing thereon
shall be credited to Tenant's security deposit account and shall
be returned to Tenant at the end of the Lease under the same
circumstances as apply to the original security deposit.
ARTICLE V
UTILITIES, SERVICES AND MAINTENANCE
Section 1. LANDLORD'S SERVICES AND MAINTENANCE. Landlord shall
provide the following services: (1) provide for normal office use
heating and air conditioning in the Premises; (2) city water from
the Building fixtures for drinking, lavatory and toilet purposes;
(3) customary cleaning and janitorial services in the Premises
Monday through Friday, excluding Federal holidays; (4) customary
cleaning, mowing, grounds keeping, snow removal and trash removal
in the area of the Building; (5) window washing in the Premises,
inside and outside, at reasonable intervals; (6) adequate passenger
elevator service in common with other tenants of the Building; (7)
customary security services consistent with first-class office
buildings in Charlotte, North Carolina comparable to the Building;
(8) heating, air conditioning, customary cleaning and janitorial
services, and electricity for the Common Areas in the Building; (9)
replacement of lamps (both fluorescent and incandescent) only in
the Building standard lighting fixtures as specified by Landlord
for the Premises and Common Areas of the Building (any lamps for
non Building standard lighting fixtures shall be Tenant's
responsibility); (10) electricity service for the Premises for
normal office use, including electricity for heating and air
conditioning, during the normal business hours of the Building,
which are Monday through Friday from 7:00 a.m. until 7:00 p.m., and
on Saturday from 8:00 a.m. until 1:00 p.m., excluding federal
holidays; and (11) keep the Building open to guests, invitees,
employees and customers of Tenant Monday through Friday from 7:00
a.m. until 7:00 p.m. and on Saturday from 8:00 a.m. to 1:00 p.m.,
excluding federal holidays.
Landlord shall not be obligated to furnish any services or
utilities, other than those stated above. If Landlord elects to
furnish services or utilities requested by Tenant, in addition to
those listed above or at times other than those stated above,
Tenant shall pay to Landlord the prevailing charges for such
services and utilities within thirty (30) days after billing. If
Tenant fails to make any such payment, Landlord may, without notice
to Tenant and in addition to Landlord's other remedies under this
Lease, discontinue any or all of such additional or after-hours
services. No such discontinuance of any service shall result in
any liability of Landlord to Tenant or be considered an eviction or
a disturbance of Tenant's use of the Premises.
Landlord shall have no liability or responsibility to Tenant for
loss or damage should the furnishing of any of the utilities and
services as herein provided be prohibited or stopped for repairs,
alterations or improvements or by reason of causes beyond
Landlord's control including, without limitation, accidents,
strikes, storms, Acts of God, labor trouble or disturbances
lockouts or orders or regulations of the federal, state or
municipal government
The cost of Landlord's performing any maintenance, repair or
replacement caused by the negligence of Tenant, its employees,
agents, servants, licensees, subtenants, contractors or invitees,
or the failure of Tenant to perform its obligations under this
Lease shall be paid by Tenant, except to the extent of insurance
proceeds, if any, actually collected by Landlord with regard to the
damage necessitating such repairs.
Section 2. TENANT'S SERVICES AND MAINTENANCE. Tenant shall
make arrangements directly with the telephone company or companies
for all telephone service required by Tenant. Tenant shall pay for
all telephone service used or consumed in the Premises and any
other service not specifically delegated to Landlord hereinabove,
provided that Tenant shall first obtain Landlord's written consent,
not to be unreasonably withheld or delayed, prior to its procuring
any such additional services.
Landlord shall not be responsible for the maintenance, repair or
replacement of any systems which are located within the Premises
and are supplemental or special to the Building's standard systems,
whether installed pursuant to a work letter or otherwise, for any
lamps, whether fluorescent or incandescent, for any special or non
Building standard lighting fixtures, or for any floor or wall
coverings in the Premises. Tenant shall be responsible for all
services, maintenance and repairs not specifically delegated to
Landlord hereunder which are required to keep the interior of the
Premises in good condition and repair.
If heat generating machines or equipments are used in the
Premises by Tenant which affect the temperature otherwise
maintained by the Building heating and air conditioning system,
Landlord shall have the right to install supplemental air
conditioning units in the Premises and the cost of the units, and
the cost of installation, operation and maintenance thereof, shall
be paid by Tenant to Landlord within thirty (30) days of demand by
Landlord.
Section 3. EXTRA SERVICES. Whenever Landlord knows that any
tenant (including Tenant) is using extra services because of either
nonbusiness-hours use or high consumption, Landlord may directly
charge that tenant for the extra use and exclude those charges from
Operating Expenses. Extra services include:
(i) Non-Business Use. Landlord provided utilities and services
required by Tenant during nonbusiness hours shall be supplied upon
twenty-four (24) advance verbal notice. If more than one tenant
directly benefits from these services then the cost shall be
allocated proportionately between or among the benefiting tenants
based upon the amount of time each tenant benefits and the square
footage each leases.
(ii) Excess Utility Use. Tenant shall not place or operate in
the Premises any electrically operated equipment or other
machinery, other than typewriters, personal computers, adding
machines, reproduction machines, and other machinery and equipment
normally used in office, which will overload the Building's
electrical system. If Tenant uses any Landlord provided service or
utility in excess of that reasonably required for normal office
use, Landlord may require payment for such extra use.
(iii) Payment. Tenant's charges for the utilities and services
provided under (i) and (ii) above shall be one hundred and ten
percent (110%) of Landlord's actual cost of labor and utilities.
However, after hours HVAC usage shall be charged at the rate of
$24.00 per hour.
Tenant's failure to pay the charges in (i) and (ii) above within
thirty (30) days of receiving a proper and correct invoice shall
entitle Landlord to the same remedies it has upon Tenant's failure
to pay Base Rent, Additional Rent, or any other charges due under
this Lease.
ARTICLE VI
ALTERATIONS, REPAIRS AND MAINTENANCE
Section 1. ALTERATIONS. Tenant agrees that it will make no
alterations, additions or improvements to the Premises without the
prior written consent of the Landlord and that all alterations,
additions or improvements made by or for the Tenant, including,
without limitation, any and all subdividing partitions, walls or
railings of whatever type, material or height, excepting movable
office furniture installed at the expense of Tenant, shall, when
made, become the property of the Landlord and shall remain upon and
be surrendered with the Premises as a part thereof at the end of
the Lease term, unless Landlord shall notify Tenant to remove same,
in which latter event Tenant shall comply to the end that the
Premises shall be restored to the same condition in which they were
found prior to the Commencement Date, normal wear and tear
excepted. Tenant shall not core drill or in any other manner
attempt to penetrate or penetrate the floors of the Building
without obtaining permission of Landlord.
In the event that Tenant constructs any improvements to the
Premises, then those improvements must be constructed (a) using, at
least, finishes which are standard to the Building and according to
plans and specifications and using only contractors and
subcontractors approved by Landlord in advance, and (b) in
compliance with all applicable laws, ordinances, rules, building
codes, and regulations of Federal, State, municipal and county
authorities, including without limitation, the procurement of a
building permit, and (c) in a diligent, good and workmanlike
manner. Tenant, or Tenant's contractor, shall obtain a Builders'
Risk Insurance Policy in such amount as is reasonably requested by
Landlord, naming Landlord as an additional insured and providing
that it will not be canceled without giving Landlord at least 15
days prior written notice thereof. Any mechanical or electrical
work and any penetration of floors must be performed by Landlord's
contractors and subcontractors. Upon completion of any such
construction by Tenant, Tenant must furnish Landlord with a
complete set of as-built plans and specifications for the same.
Tenant will not permit and will indemnify Landlord and hold it
harmless from any mechanic's or materialmen's liens against the
Premises, in connection with any such improvements.
Section 2. RIGHT OF ENTRY. The Tenant agrees that Landlord
shall have the right to enter and to grant licenses to enter the
Premises at any time, upon reasonable prior notice, except in
emergency situations, when no notice is required, and except in
performing Landlord's normal services in this Lease, when notice is
not required, (a) to examine the Premises, (b) to make alterations
and repairs to the Premises or to the Building (including the
right, during the progress of such alterations or repairs, to keep
and store within the Premises all necessary materials, tools and
equipment), (c) to exhibit the Premises to prospective purchasers
or tenants, or (d) for any other reasonable purpose, and that no
such entry shall render the Landlord liable to any claim or cause
of action for loss of or damage to property of the Tenant by reason
thereof, nor in any manner affect the obligations and covenants of
this Lease.
Section 3. TENANT'S CARE OF PREMISES. Tenant shall:
(i) keep the Premises and fixtures in good order, including
without limitation, maintenance and repair, including replacement
if necessary, of all doors (exterior and interior), all interior
plate glass and window glass, and all wall and floor coverings,
effecting all such maintenance and repairs at its own expense and
employing materials and labor of a kind and quality equal to the
original installations;
(ii) make repairs and replacements to the Premises or Building
needed because of Tenant's misuse or primary negligence, or as
provided in any other provision of this Lease including without
limitation, Article VIII, Section 5, except to that extent that the
repairs or replacements are covered by Landlord's insurance or the
insurance Landlord is required to carry under Article VIII, Section
1, whichever is greater;
(iii) repair and replace special equipment or decorative
treatments above Building Standard installed by or at Tenant's
request and that serve the Premises only, or any trade fixtures of
Tenant, except to the extent the repairs or replacements are needed
because of Landlord's misuse or primary negligence, and are not
covered by Tenant's insurance or the insurance Tenant is required
to carry under Article VIII, Section 2, whichever is greater;
(iv) if Tenant fails to replace or repair equipment or other
installations in or about the Premises as above provided, then
immediately after advising Tenant in writing as to the necessity
therefor, Landlord may accomplish the required work and add the
cost thereof to the next due Monthly Base Rent, but Tenant shall
not be liable to Landlord for any failure to fulfill the
obligations of this Section until such time as the Tenant shall be
notified, as aforesaid, in writing of the requirements therefor.
Section 4. LANDLORD'S REPAIRS. Landlord shall make the repairs
and replacements to maintain the Building in a condition comparable
to other first class office building in the Charlotte, North
Carolina area. This maintenance shall include the roof,
foundation, exterior walls, interior structural walls, all
structural components, and all systems, such as mechanical,
electrical, HVAC, and plumbing.
Section 5. TIME FOR REPAIRS. Repairs or replacements required
under Section 3 or 4 shall be made within a reasonable time
(depending on the nature of the repair or replacement needed) after
receiving notice or having actual knowledge of the need for a
repair or replacement.
Section 6. SURRENDERING THE PREMISES. Upon the Termination
Date or the date the last extension term, if any, ends, whichever
is later, Tenant shall surrender the Premises to Landlord in the
same broom clean condition that the Premises were in on the
Commencement Date except for:
(i) ordinary wear and tear;
(ii) damage by the elements, fire, and other casualty unless
Tenant would be required to repair under Section 3;
(iii) condemnation;
(iv) damage arising from any cause not required to be repaired
or replaced by Tenant; and
(v) alterations as permitted by this Lease unless Landlord
notifies Tenant to remove the same.
On surrender Tenant shall remove from the Premises its personal
property, trade fixtures, and any alterations required to be
removed under Section 1 and repair any damage to the Premises
caused by the removal. Any items not removed by Tenant as required
above shall be considered abandoned. Landlord may dispose of
abandoned items as Landlord chooses and bill Tenant for the cost of
their disposal, minus any revenues received by Landlord for their
disposal.
ARTICLE VII
USE AND COVENANTS
Section 1. USE AND OCCUPANCY. Tenant agrees that the Premises
will be used only for general office purposes, that no unlawful use
of the Premises will be made, that no sign, name, legend, notice or
advertisement of any kind will be fixed, printed, painted or
displayed on any part of the Building without the prior written
approval of Landlord, except that the name and suite number of the
Tenant may be displayed in a manner prescribed by Landlord.
Landlord shall provide Tenant with a line on the Building lobby
directory at no charge to Tenant.
Section 2. PARKING. Tenant agrees for itself, its employees,
agents and invitees to comply with the parking rules contained in
the Parking Rules and Regulations attached hereto as Exhibit E
together with all reasonable modifications and additions thereto
which Landlord may from time to time make. Tenant shall use
parking spaces only in a manner which is compatible with the
day-to-day general use of the Building by its employees, visitors,
customers, invitees, guests and other tenants in the Building.
Tenant agrees that Landlord shall have the right to tow vehicles of
Tenant and its employees, agents, guests and visitors that are
parked in such a way as to be in violation of the Parking Rules and
Regulations.
Landlord reserves the right from time to time without notice to
Tenant to (a) change the location or configuration of the Parking
Areas, or any portion thereof; (b) change the number of parking
spaces located within the Parking Areas, or any portion thereof;
(c) install systems to control and monitor parking in the Parking
Areas, or any portions thereof, including without limitation, a
parking gate and identification card system; (d) utilize parking
guards or attendants to supervise and control parking within the
Parking Areas and to enforce the parking rules; (e) have full
access to the Parking Areas (including the right to close or alter
the means of access to the Parking Areas, or portions thereof) to
make repairs and alterations thereto, to prevent a taking by
adverse possession or prescription or to comply with applicable
legal and governmental requirements; (f) modify the parking rules;
(g) tow motor vehicles parked in violation of the parking rules;
and (h) enforce the parking rules by appropriate legal action.
Section 3. BUILDING RULES AND REGULATIONS. The Tenant has read
the rules and regulations attached hereto as Exhibit F and made a
part hereof and hereby agrees to abide by and conform to the same
and to such further reasonable rules and regulations as the
Landlord may from time to time make or adopt for the care,
protection and benefit of the Building or the general comfort and
welfare of its occupants. The Tenant further agrees that the
Landlord shall have the right to waive any and all of such rules in
the case of any one or more tenants without affecting the Tenant's
obligations under this Lease, and that Landlord shall not be
responsible to the Tenant for the nonconformance by any other
tenant to any rules or regulations.
Section 4. HAZARDOUS SUBSTANCES. Tenant shall not cause or
permit any Hazardous Substance to be used, stored, generated or
disposed of on or in the Premises by Tenant, Tenant's agents,
employees, contractors or invitees, without first obtaining
Landlord's written consent. If Hazardous Substances are used,
stored, generated or disposed of on or in the Premises whether with
or without Landlord's consent or if the Premises become
contaminated in any manner for which Tenant is legally liable,
Tenant shall indemnify and hold harmless the Landlord from any and
all claims, damages, fines, judgements, penalties, costs,
liabilities or losses (including, without limitation, a decrease in
value of the Premises, Building, or Property damages due to loss or
restriction of rentable or usable space, or any damages due to
adverse impact on marketing of the space, and any and all sums paid
for settlement of claims, attorney's fees, consultant and expert
fees) arising during or after the Lease Term and arising as a
result of such use, storage, generating or disposal of
contamination by Tenant. This indemnification includes, without
limitation, any and all costs incurred due to any investigation of
the site or any cleanup, removal or restoration mandated by a
federal, state or local agency or political subdivision. Without
limitation of the foregoing, if Tenant causes or permits the
presence of any Hazardous Substance on the Premises and such
results in contamination, Tenant shall promptly, at its sole
expense, take any and all necessary actions to return the Premises
to the condition existing prior to the presence of any such
Hazardous Substance on Premises. Tenant shall first obtain
Landlord's approval for any such remedial action.
As used herein, "Hazardous Substance" means any substance which
is toxic, ignitable, reactive, or corrosive and which is regulated
by any local government, the State of North Carolina, or the United
States government. "Hazardous Substance" includes any and all
material or substances which are defined as "hazardous waste",
"extremely hazardous waste" or a "hazardous substance" pursuant to
state, federal or local governmental law. "Hazardous Substance"
includes but is not restricted to asbestos, polychlorobiphenyls
("PCB's") and petroleum.
ARTICLE VIII
INSURANCE AND INDEMNITY
Section 1. LANDLORD'S INSURANCE. Landlord shall keep the
Building insured against damage and destruction by fire,
earthquake, vandalism, and other perils in the amount of at least
80% of the replacement value of the Building, as the value may
exist from time to time. In addition, Landlord shall maintain a
policy of commercial general public liability insurance with
respect to the Common Areas, covering bodily injury, death and
property damage, with a contractual liability endorsement, in the
amount of at least ($1,000,000.00) per occurrence and with an
aggregate limit of at least One Million Dollars ($1,000,000.00).
Landlord's responsibility to insure its Building shall not obligate
Landlord's to insure fixtures or other property of Tenant.
Section 2. TENANT'S INSURANCE. Tenant shall keep in force,
during the full term of this Lease or any renewal or extension
thereof, workmen's compensation insurance and commercial general
public liability insurance issued by a nationally recognized
insurance company, with contractual liability endorsement, with
such limits as may be reasonably requested by Landlord from time to
time, but with minimum limits not less than $1,000,000.00 in the
aggregate on account of bodily injury, including death, or property
damage, or both, in any one occurrence, for the Premises and
Property, exclusive of any other locations operated by Tenant.
Said policy shall name Landlord as an additional insured and
provide that it shall not be canceled for any reason unless and
until Landlord is given fifteen (15) days' notice in writing by the
insurance company. The insurance policy or other evidence of
coverage satisfactory to Landlord shall be deposited with Landlord
upon occupancy of Premises by Tenant.
Section 3. INSURANCE CRITERIA. Insurance policies required by
this Lease shall:
(i) be issued by insurance companies licensed to do business in
the state of North Carolina with general policyholders ratings of
at least A and the rating of at least XI in the most current BEST'S
INSURANCE REPORTS available on the Commencement Date. If the
Best's ratings are changed or discontinued, the parties shall agree
to an equivalent method of rating insurance companies. If the
parties cannot agree they shall submit the dispute to arbitration.
(ii) be primary policies - not as contributing with, or in
excess of, the coverage that the other party may carry;
(iii) be permitted to be carried through a "blanket policy" or
"umbrella" coverage;
(iv) have deductibles not greater than $1,000.00; and
(v) be maintained during the entire Term and any extension
Terms.
Section 4. INCREASE IN INSURANCE PREMIUM. If, because of
anything done, caused to be done, permitted or omitted by the
Tenant, the premium rate for any kind of insurance affecting the
Building shall be raised, the Tenant agrees that the amount of the
increase in premium which the Landlord shall thereby be obligated
to pay for such insurance shall be paid by the Tenant to the
Landlord, on demand, and that if the Landlord shall demand that the
Tenant remedy the condition which caused the increase in the
insurance premium rate, the Tenant will remedy such condition
within thirty (30) days after such demand. The Tenant agrees that
it shall not do or cause to be done or permit on the Premises,
anything deemed more hazardous than use as a normal business
office.
Section 5. TENANT'S INDEMNITY. The Tenant agrees to indemnify
and save harmless the Landlord and the agents, servants and
employees of the Landlord against and from any and all claims by or
on behalf of any person, firm or corporation arising by reason of
injury to any person, including death, or property occurring in the
Premises or the Building, occasioned in whole or in part by any act
or omission on the part of the Tenant or any employee (whether or
not acting within the scope of employment), agent, visitor,
licensee, invitee, contractor, subcontractor, assignee or tenant of
the Tenant, or by reason of nonperformance of any covenant in this
Lease on the part of the Tenant or anyone holding or claiming to
hold through or under the Tenant. Tenant agrees to pay for all
damage to the Building or Property, as well as all damage to
tenants or occupants thereof, caused by Tenant's misuse or neglect
of said Premises, its apparatus or appurtenances. Landlord shall
not be liable to Tenant for any damage by or from any act or
negligence of any co-tenant or other occupant of the Building or by
any owner or occupant of adjoining or contiguous property.
Section 6. LANDLORD'S INDEMNITY. The Landlord agrees to
indemnify and save harmless the Tenant and the agents, servants and
employees of the Tenant from any and all claims for personal
injury, death or property damage, for incidents occurring in or
about the Premises, Building or Property and caused by the
negligence or willful misconduct of Landlord, its agents or
employees (whether or not acting within the scope or employment).
Section 7. TENANT'S PERSONAL PROPERTY. Tenant shall keep its
personal property and trade fixtures in the Premises and Building
insured with "all risks" insurance in an amount to cover one
hundred percent (100%) of the replacement cost of the said property
and fixtures. Tenant shall also keep any non-Building standard
improvements made to the premises at Tenant's request insured to
the same degree as Tenant's personal property. Tenant agrees that
all personal property in the Premises shall be and remain at
Tenants sole risk, and Landlord shall not be liable for any damage
to, or loss of such personal property arising from any acts of
negligence of any persons or from fire or from the leaking of the
roof or from the bursting, leaking, or overflowing of water, sewer
or steam pipes or from any other cause whatsoever; Tenant expressly
agrees to indemnify and save Landlord harmless in all such cases.
Section 8. WAIVER OF SUBROGATION. Each party waives claims
arising in any manner in its (Injured Party's) favor and against
the other party for loss or damage to Injured Party's property
located within or constituting a part or all of the Building. This
waiver applies to the extent the loss or damage is covered by:
(i) the Injured Party's insurance; or
(ii) the insurance the Injured Party is required to carry under
Article VIII, whichever is greater. The waiver also applies to
each party's directors, officers, employees, shareholders, and
agents. The waiver does not apply to claims caused by a party's
willful misconduct.
If despite a party's best efforts it cannot find an insurance
company meeting the criteria in Section 3 that will give the waiver
of subrogation at reasonable commercial rates, then it shall give
notice to the other party within thirty (30) days after the Lease's
Commencement Date. The other party shall then have thirty (30)
days to find an insurance company that will issue the waiver at
reasonable commercial rates. If the other party also cannot and
such an insurance company, then both parties shall be released from
their obligation to obtain the waiver.
If an insurance company is found but it will give the waiver
only at rates greater than reasonable commercial rates, then the
parties can agree to pay for the waiver under any agreement they
can negotiate. If the parties cannot in good faith negotiate an
agreement, then both parties shall be released from their
obligation to obtain the waiver.
ARTICLE IX
DAMAGES TO PREMISES
Section 1. DEFINITION. "Relevant Space" means:
(i) the Premises as defined in Article II, excluding Tenant's
non-Building-Standard fixtures;
(ii) access to the Premises; and
(iii) any part of the Building that provides essential services
to the Premises.
Section 2. REPAIR OF DAMAGE. If the Relevant Space is damaged
in part or whole from any cause and the Relevant Space can be
substantially repaired and restored within one hundred and eighty
(180) days from the date of the damage using standard working
methods and procedures, Landlord shall at its expense promptly and
diligently repair and restore the Relevant Space to substantially
the same condition as existed before the damage. This repair and
restoration shall be made within one hundred and eighty (180) days
from the date of the damage unless the delay is due to causes
beyond Landlord's reasonable control.
If the Relevant Space cannot be repaired and restored within the
one hundred and eighty (180) day period, then either party may,
within ten (10) days after determining that the repairs and
restoration cannot be made within one hundred and eighty (180)
days, cancel the Lease by giving notice to the other party.
Nevertheless, if the Relevant Space is not repaired and restored
within one hundred and eighty (180) days from the date of the
damage, then Tenant may cancel the Lease at any time after the one
hundred and eightieth (180th) day and before the two hundred and
tenth (210th) day following the date of damage. Tenant shall not
be able to cancel this Lease if its willful misconduct caused the
damage unless Landlord is not promptly and diligently repairing and
restoring the Relevant Space.
Section 3. ABATEMENT. Unless the damage is caused by Tenant's
willful misconduct, the Base Rent and Additional Rent shall abate
in proportion to that part of the Premises that is unfit for use in
Tenant's business. The abatement shall consider the nature and
extent of interference to Tenant's ability to conduct business in
the Premises and the need for access and essential services. The
abatement shall continue from the date the damage occurred until
ten (10) business days after Landlord completes the repairs and
restoration to the Relevant Space or the part rendered unusable and
notice to Tenant that the repairs and restoration are completed, or
until Tenant again uses the Premises or the part rendered unusable,
whichever is first. In the event of a full abatement of rent as
aforesaid, the term of this Lease shall be extended automatically
for a period equal to the period of such abatement.
Section 4. TENANT'S PROPERTY. Notwithstanding any thing else
in Section 1, Landlord is not obligated to repair or,restore damage
to Tenant's trade fixtures, furniture, equipment, or other personal
property, or any Tenant improvements.
Section 5. DAMAGE TO BUILDING. If:
(i) more than forty percent (40%) of the Building is damaged and
the Landlord decides not to repair and restore the Building;
(ii) any mortgagee of the Building shall not allow adequate
insurance proceeds for repair and restoration;
(iii) the damage is not covered by Landlord's insurance required
by Article VIII, Section 1; or
(iv) the Lease is in the last twelve (12) months of its term;
then Landlord may cancel this Lease. To cancel, Landlord must give
notice to Tenant within thirty (30) days after the Landlord knows
of the damage. The notice must specify the cancellation date,
which shall be at least thirty (30) but not more than sixty (60)
days after the date notice is given.
Section 6. CANCELLATION. If either party cancels this Lease as
permitted by this Article, then this Lease shall end on the day
specified in the cancellation notice. The Base Rent, Additional
Rent, and other charges shall be payable up to the cancellation
date and shall account for any abatement. Landlord shall promptly
refund to Tenant any prepaid, unaccrued Rent and Additional Rent,
accounting for any abatement, plus security deposit, if any, less
any sum then owing by Tenant to Landlord.
ARTICLE X
EMINENT DOMAIN
If more than twenty percent (20%) of the floor area of the
Premises is taken for any public or quasi-public use under any
governmental law, ordinance or regulation or by right of eminent
domain or by private purchase in lieu thereof, then either party
hereto shall have the right to terminate this Lease effective on
the date physical possession is taken by the condemning authority
or private purchaser.
If less than twenty percent (20%) of the floor area of the
Premises is taken for any public or quasi-public use in said
manner, this Lease shall not terminate. However, in the event any
portion of the Premises is taken and the Lease not terminated, the
rental specified herein shall be reduced during the unexpired term
of this Lease in proportion to the area of the Premises so taken
and the reduction shall be effective on the date physical
possession is taken by the condemning authority or private
purchaser.
Any election to terminate this Lease following condemnation
shall be evidenced only by written notice of termination delivered
to the other party not later than fifteen (15) days after the date
on which physical possession is taken by the condemning authority
or private purchaser and shall be deemed effective as of the date
of said taking. If, however, the Lease is not terminated following
a partial condemnation, Landlord shall promptly make all necessary
repairs or alterations to the Building and Premises which are
required to make the Building usable by Tenant subsequent to such
taking.
All compensation awarded for any taking (or the proceeds of
private sale in lieu thereof) whether for the whole or a part of
the Premises, shall be the property of the Landlord whether such
award is compensation for damages to Landlord's or Tenant's
interest, provided Landlord shall have no interest in any award
made to Tenant for loss of business or for the taking of Tenant's
fixtures and other property within the Premises if a separate award
for such items is made to Tenant.
ARTICLE XI
DEFAULT AND WAIVER
Section 1. TENANT'S DEFAULT. Each of the following constitutes
a default:
(i) Tenant's failure to pay Base Rent, Additional Rent or any
other sum due hereunder within five (5) days after Tenant receives
notice from Landlord of Tenant's failure to pay Base Rent,
Additional Rent, or such other sum;
(ii) Tenant's failure to pay Base Rent or Additional Rent by the
due date, at any time during a calendar year in which Tenant has
already received two notices of its failure to pay Base Rent or
Additional Rent by the due date;
(iii) Tenant's failure to perform or observe any other Tenant
obligation after a period of thirty (30) days or the additional
time, if any, that is reasonably necessary to promptly and
diligently cure the failure, after it receives notice from Landlord
setting forth in reasonable detail the nature and extent of the
failure and identifying the applicable Lease provision;
(iv) Tenant's abandoning or vacating the Premises if Tenant
fails to timely pay the Base Rent, Additional Rent, and other
charges due under the Lease by the due date;
(v) Tenant's failure to vacate or stay any of the following
within thirty (30) days after they occur:
A. a petition in bankruptcy is filed by or against Tenant;
B. Tenant is adjudicated as bankrupt or insolvent;
C. a receiver, trustee, or liquidator is appointed for all or a
substantial part of Tenant's property; or
D. Tenant makes an assignment for the benefit of creditors.
Section 2. LANDLORD'S REMEDIES.
(i) Landlord, in addition to the remedies given in this Lease or
under the law, may do one or more of the following if Tenant
commits a Default under Section 1:
A. end this Lease, and Tenant shall then surrender the Premises
to Landlord;
B. enter and take possession of the Premises either with or
without process of law and remove Tenant, with or without having
ended the Lease; and
C. alter locks and other security devices at the Premises.
Tenant waives claims for damages by reason of Landlord's
reentry, repossession, or alteration of locks or other security
devices and for damages by reason of any legal process.
(ii) Landlord's exercise of any of its remedies or its receipt
of Tenant's keys shall not be considered an acceptance of surrender
or a surrender of the Premises by Tenant. A surrender must be
agreed to in writing by Landlord.
(iii) If Landlord ends this Lease or ends Tenant's right to
possess the Premises because of a default, Landlord may hold Tenant
liable for Base Rent, Additional Rent, and other indebtedness
accrued to the date the Lease ends. Tenant shall also be liable
for the Base Rent, Additional Rent and other indebtedness that
otherwise would have been payable by Tenant during the remainder of
the term had there been no default, reduced by any sums Landlord
receives by reletting the Premises during the term. If Landlord is
able to relet the Premises during any part of the remainder of the
term, at a rental in excess of that provided for under this Lease,
Tenant shall not be entitled to any such excess rental and Tenant
waives any claim thereto.
(iv) Tenant shall also be liable for that part of the following
sums paid by Landlord and attributable to that part of the term
ended due to Tenant's default:
A. reasonable broker's fees incurred by Landlord for reletting
part or all of the Premises prorated for the part of the reletting
term ending concurrently with the then current term of this Lease;
B. the cost of removing and storing Tenant's property;
C. the cost of minor repairs, alterations, and remodeling
necessary to put the Premises in a condition reasonably acceptable
to a new Tenant; and
D. other necessary and reasonable expenses incurred by Landlord
in enforcing its remedies.
(v) Landlord may sue and take any other action provided by law
to collect the amounts due hereunder at any time and from time to
time without waiving its rights to sue for and collect further
amounts due from Tenant hereunder.
Section 3. WAIVER. The waiver by Landlord of any breach of any
covenant or agreement herein contained shall not be deemed to be
waiver of such covenant or agreement or any subsequent breach of
the same or any other covenant or agreement herein contained. The
subsequent acceptance of rent hereunder by Landlord shall not be
deemed to be a waiver of any breach by Tenant of any covenant or
agreement of this Lease, other than the failure of Tenant to pay
the particular rental so accepted, regardless of Landlord's
knowledge of such breach at the time of acceptance of such rent.
Section 4. LANDLORD'S DEFAULT. Landlord's failure to perform
or observe any of its Lease obligations after a period of thirty
(30) days or the additional time, if any, that is reasonably
necessary to properly and diligently cure the failure after
receiving notice from Tenant, is a default. The notice shall be in
writing and give in reasonable detail the nature and extent of the
failure and identify the Lease provisions(s) containing the
obligations(s). If Landlord commits a default, Tenant may pursue
such remedies given to Tenant under the laws of the State of North
Carolina.
Section 5. EXCEPTION TO CURE PERIODS. The cure periods
provided for in Article XI, Section 1 shall not apply to:
(i) emergencies; and
(ii) failure to maintain the insurance required by Article VIII.
Section 6. SURVIVAL. The remedies provided in this Article XI
and the indemnities provided in Article VIII, Sections 5 and 6
shall survive the ending of this Lease. Any other provision of
this Lease which by its nature would require the survival of the
ending of this Lease, shall also survive the ending of this Lease.
ARTICLE XII
ASSIGNMENT AND SUBLETTING
Section 1. CONSENT REQUIRED. Tenant shall not transfer,
mortgage, encumber, assign, or sublease all or part of the Premises
without Landlord's advance written consent. Landlord's consent to
any assignment or sublease shall not be unreasonably withheld or
unduly delayed.
Section 2. REASONABLENESS. The Landlord's consent shall not be
considered unreasonably withheld if:
(i) the proposed subtenant's or assignee's financial
responsibility does not meet the same criteria Landlord uses to
select comparable Building tenants;
(ii) the proposed subtenant's or assignee's business is not
suitable for the Building considering the business of the other
tenants and the Building's prestige; or
(iii) the proposed use is inconsistent with the use permitted by
Article VII, Section 1.
Section 3. PROCEDURE. Tenant must provide Landlord in writing:
(i) the name and address of the proposed subtenant or assignee;
(ii) the nature of the proposed subtenant's or assignee's
business it will operate in the Premises;
(iii) the terms of the proposed sublease or assignment; and
(iv) reasonable financial information so that Landlord can
evaluate the proposed subtenant or assignee under this paragraph.
Landlord shall, within thirty (30) days after receiving the
information required under this Article, give notice to Tenant to
permit or deny the proposed sublease or assignment. If Landlord
denies consent, it must explain the reasons for the denial. If
Landlord does not give notice within the thirty (30) day period,
then Tenant may sublease or assign part or all of the Premises upon
the terms Tenant gave in the information under this Article.
Section 4. CONDITIONS. Subleases and Assignments by Tenant are
also subject to:
(i) The terms of this Lease;
(ii) The term shall not extend beyond the Lease term;
(iii) Tenant shall remain liable for all Lease obligations; and
(iv) Consent to one sublease or assignment does not waive the
consent requirement for future assignments or subleases.
ARTICLE XIV
SUBORDINATION
Tenant shall, upon request by Landlord, subject and subordinate
all or any of its rights under this Lease to any and all mortgages
and deeds of trust now existing or hereafter placed on the
Building; provided, however, that Tenant will not be disturbed in
the use or enjoyment of the Premises so long as it is not in
default hereunder. Tenant agrees that this Lease shall remain in
full force and effect notwithstanding any default or foreclosure
under any such mortgage or deed of trust and that it will attorn to
the mortgagee, trustee or beneficiary of such mortgage or deed of
trust, and the successor or assign of any of them, and to the
purchaser or assignee under any foreclosure. Tenant will, upon
request by Landlord, execute and deliver to Landlord, or to any
other person designated by Landlord, any instrument or instruments,
including but not limited to such subordination, attornment and
nondisturbance agreements as may be required by the beneficiary in
any first deed of trust on the Property required to give effect to
the provisions of this paragraph and shall execute and deliver to
Landlord such amendments to this Lease as may be required by a
proposed beneficiary in a first deed of trust on the Property;
provided, however, that such amendments do not materially increase
the obligations and duties of Tenant hereunder.
ARTICLE XV
GENERAL PROVISIONS
Section 1. TRANSFER OF LANDLORD'S INTEREST. The term
"Landlord" as used in this Lease means only the owner or the
mortgagee in possession for the time being of the Building or
Property the owner of the Lease of the Building or Property so that
in the event of any sale of said Building or Property of said
Lease, or in the event of a lease of said Building, Landlord shall
be and hereby is entirely freed and relieved of all covenants and
obligations of Landlord hereunder, and it shall be deemed and
construed without further agreement between the parties or their
successors in interest or between the parties and the purchaser at
any such sale or lease of the Building or Property, that the
purchaser or the lessee of the Building or Property has assumed and
agreed to carry out any and all covenants and obligations of
Landlord hereunder.
Notwithstanding anything to the contrary contained in this
Lease, it is specifically understood and agreed that the liability
of the Landlord hereunder shall be limited to the equity of the
Landlord in the Property in the event of a breach or the failure of
Landlord to perform any or the terms, covenants, conditions and
agreements of this Lease to be performed by Landlord. In
furtherance of the foregoing, the Tenant hereby agrees that any
judgment it may obtain against Landlord as a result of the breach
of this Lease as aforesaid shall be enforceable solely against the
Landlord's interest in the Property.
Any security given by Tenant to Landlord to secure performance
of Tenant's obligations hereunder may be assigned and transferred
by Landlord to the successor in interest to Landlord; and, upon
acknowledgement by such successor of receipt of such security and
its express assumption of the obligation to account to Tenant for
such security in accordance with the terms of this Lease, Landlord
shall thereby be discharged of any further obligation relating
thereto.
Landlord's assignment, sale or transfer of the Lease or of any
or all of its rights herein shall in no manner affect Tenant's
obligations hereunder. Tenant shall thereafter attorn and look to
such assignee, as Landlord, provided Tenant first has written
notice of such assignment of Landlord's interest.
Section 2. LANDLORD NOT PARTNER. It is expressly understood
and agreed that the Landlord is not a partner, joint venturer or
associate of Tenant in the conduct of Tenant's business, that the
provisions of this Lease with respect to the payment by Tenant of
rent are not sharing of profits and that the relationship between
the parties hereby is and shall remain at all times that of
landlord and tenant.
No provision of this Lease shall be construed to impose upon the
parties hereto any obligation or restriction not expressly set
forth herein.
Section 3. RECORDING. The recording of this Lease is
prohibited except as allowed in this section. However, at the
request of either party, the parties shall promptly execute and
record, at the cost of the requesting party, a short form
memorandum describing the Premises and stating the term of this
Lease, its Commencement and Termination Dates, and any other
information the parties agree to include.
Section 4. ADDITIONAL INSTRUMENTS. The parties agree to
execute and deliver any instruments in writing necessary to carry
out any agreement, terms, condition or assurance in this Lease
whenever occasion shall arise and reasonable request for such
instrument shall be made.
Section 5. LEASE NOT AN OFFER. Landlord has given this Lease
to Tenant for review. It is not an offer to lease. This Lease
shall not be binding unless signed by both parties.
Section 6. PRONOUNS. All pronouns and any variations thereof
shall be deemed to refer to the masculine, feminine, neuter,
singular or plural, as the identity of the person(s), firm(s), or
corporation(s) may require.
Section 7. COUNTERPARTS. This Lease may be executed in
counterparts, all of which taken together, shall be deemed one
original.
Section 8. AMENDMENT AND MODIFICATION. This Lease embodies the
full agreement of the parties and supersedes any and all prior
understandings or commitments concerning the subject matter of this
Lease. Any modification or amendment must be in writing and signed
by both parties.
Section 9. BINDING EFFECT. This Lease shall be binding upon
and inure to the benefit of the parties hereto, their assigns,
administrators, successors, estates, heirs and legatees
respectively, except as herein provided to the contrary.
Section 10. CONTROLLING LAW. This Lease and the rights of the
Landlord and Tenant hereunder shall be construed and enforced in
accordance with the law of the State of North Carolina.
Section 11. PARTIAL INVALIDITY. In the event that any part or
provision of this Lease shall be determined to be invalid or
unenforceable, the remaining parts and provisions of said Lease
which can be separated from the invalid, unenforceable provision
shall continue in full force and effect.
Section 12. CAPTIONS. The section titles, numbers and captions
contained in this Lease are inserted only as a matter of
convenience and for reference, and in no way define, limit, extend,
modify, or describe the scope or intent of this Lease nor any
provision herein.
Section 13. RELOCATION. In the event a Tenant occupies office
space amounting to less than fifty percent (50%) of the total area
of a floor, the Landlord shall have the right to relocate the
Tenant to another location within the Building. Landlord will pay
all actual costs of the relocation. Such a relocation is to be
preceded by the Landlord's giving the Tenant thirty (30) days
written notice of such a move.
Section 14. TIME OF ESSENCE. Time is of the essence in the
performance of the provisions of this Lease.
Section 15. WARRANTIES. Tenant warrants that it has had no
dealing with any broker or agent in connection with the negotiation
or execution of this Lease other than The Harris Group of the
Carolinas, Ltd. and Tenant agrees to indemnify and hold Landlord
harmless from and against any claims by any other broker, agent or
other person claiming a commission or other form of compensation by
virtue of having dealt with Tenant with regard to this leasing
transaction.
Section 16. AUTHORITY OF PARTIES. Each party warrants that it
is authorized to enter into this Lease, that the person signing on
its behalf is duly authorized to execute the Lease, and that no
other signatures are necessary.
Section 17. TEMPORARY SPACE. Landlord agrees to lease to
Tenant on a temporary basis, suitable space to be agreed upon by
Landlord and Tenant, on the first floor of One Morrocroft Centre at
a rental amount of Two Thousand ($2,000.00) Dollars per month, to
be utilized until the earlier of (a) the Commencement Date or (b)
the termination of this Lease.
IN WITNESS WHEREOF, the parties hereto have caused these
presents to be executed the date and year first above written.
WITNESS: H-C REIT, INC.
By: /s/ Not Readable By: /s/ Not Readable
Secretary President
CORPORATE SEAL
ATTEST: CAPITAL FACTORS, INC.
By: /s/ Not Readable By: /s/ John Kiefer
Secretary President
[CORPORATE SEAL]
EXHIBIT 10.13
700 SOUTH FLOWER STREET BUILDING
OFFICE LEASE
by and between
HOPE & FLOWER B.P. PARTNERSHIP
a California limited partnership
and
CAPITAL FACTORS, INC.
a Delaware corporation
Dated as of March 1, 1995
SOUTH FLOWER STREET BUILDING
OFFICE LEASE
THIS LEASE, dated as of March 1, 1995, is entered into by and
between HOPE & FLOWER B.P. PARTNERSHIP, a California limited
partnership ("Landlord"), and Capital Factors, Inc., a Delaware
corporation ("Tenant").
1. Lease of Premises.
Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, on the terms and conditions set forth in this Lease those
certain premises (the "Premises") to be commonly known as Suite
2000 and shown on Exhibit A on the 20th floor of the building (the
"Building") located at 700 South Flower Street, Los Angeles,
California. The Building and other improvements (including a
hotel, a department store, retail stores, a parking garage and an
enclosed mall) in the block bounded by Flower, Seventh, Hope and
Eighth Streets and the land (the "Land") on which these
improvements are located, and all other improvements now or later
on the Land, other than those which tenants may remove according to
the terms of their leases, are collectively referred to herein as
the "Project". Tenant shall have the non-exclusive right to use
the common areas in the Project. The parties agree that
notwithstanding any remeasurement of the Premises or the Building,
no provision of this Lease in which the parties' rights or
obligations depend on the size of the Building and/or the Premises,
including without limitation any provision with respect to Base
Rent or Tenant's Percentage (as those terms are defined below),
shall be subject to any change as a result of any such
remeasurement.
2. Term.
2.1. Commencement Date. The term (the "Term") of this Lease
shall commence on the date (the "Commencement Date") which is the
earlier of (a) the date which is up to thirty (30) days after the
date ("Landlord's Completion Date") the Premises are ready for
occupancy by Tenant as specified in Section 2.2 (such thirty (30)
day period being intended to allow Tenant as much time, up to
thirty (30) days, as it reasonably needs to install its furniture
and computers in the Premises and to complete its move into the
Premises, it being understood that this period will be reduced to
the extent that Tenant is given early possession of the Premises
pursuant to Paragraph 5 of Exhibit C and uses that period to start
to install its furniture and computers in the Premises and/or to
start its move into the Premises) or (b) the date on which Tenant
takes possession of and occupies any portion of the Premises for
the conduct of its business and, unless sooner terminated or
extended pursuant to the terms of this Lease, shall continue for
ten (10) years and one (1) month after the Commencement Date. The
Landlord's Completion Date is projected to occur on or about
August 1, 1995, or as soon thereafter as Tenant Improvements
(defined below) can be completed. Promptly following the
Commencement Date, Landlord and Tenant shall confirm the
Commencement Date and the expiration date by executing and
delivering a memorandum in the form of Exhibit B.
2.2. Occupancy Date. Landlord shall prepare the Premises
for occupancy by Tenant in accordance with the provisions of
Exhibit C. Landlord shall deliver to Tenant a written notice
stating the date on which the Premises will be ready for occupancy
by Tenant (the "Occupancy Date"), such notice to be given not less
than twenty (20) days prior to the occupancy Date indicated in the
notice. The occupancy Date shall not occur until (a) the Building
Systems (as defined in Section 5.2) are operational to the extent
necessary to service the Premises, (b) Landlord has provided
reasonable access to the Premises for Tenant, its agents,
employees, licensees and invitees so that the Premises may be used
without substantial interference, (c) Landlord has provided Tenant
with parking as set forth in Section 12, (d) Landlord has
substantially completed the work to be performed by Landlord in
accordance with Exhibit C except for minor details of construction,
decoration and mechanical adjustments which do not materially
interfere with Tenant's use of the Premises, and (e) a certificate
of occupancy or a temporary certificate of occupancy has been
obtained for the use and occupancy of the Premises by Tenant. This
Lease shall not be void, voidable or subject to termination, nor
shall Landlord be liable to Tenant for any loss or damage,
resulting from Landlord's failure to deliver the Premises to Tenant
on the date specified in Landlord's notice given pursuant to this
Section, but no rent shall be payable hereunder with respect to any
delay in delivery of the Premises to the extent caused by Landlord,
its officers, directors, partners, agents, employees, contractors,
or licensees. Notwithstanding anything to the contrary set forth
above, if the Occupancy Date is delayed as a result of any Tenant
Delay (as defined in Section 6 of Exhibit C), the Commencement Date
(and the commencement of Tenant's obligation to pay rent) shall be
accelerated by the number of days of such delay and the
Commencement Date shall be deemed to occur on the date the Premises
would have been ready for occupancy without such delay.
The operations which Tenant intends to conduct in the Premises
are presently being conducted in premises ("Tenant's Existing
Premises") located in the building at 3435 Wilshire Boulevard, Los
Angeles, California. If this Lease is executed by Tenant on or
before March 1, 1995, then to the extent that Landlord's Completion
Date is delayed until after August 1, 1995 for any reason which is
within Landlord's reasonable control, then Landlord shall be liable
to Tenant for all rent and other occupancy costs paid by Tenant
pursuant to Tenant's lease of Tenant's Existing Premises with
respect to the period that that delay causes Tenant (assuming that
Tenant makes commercially reasonable efforts to install its
furniture and computers in the Premises and to complete its move
into the Premise as soon as possible after Landlord's Completion
Date) to remain in Tenant's Existing Premises after September 1,
1995.
If for any reason the Commencement Date has not occurred on or
before January 1, 1996 (with such date being postponed by the
number of days by which the Commencement Date is delayed by any
Tenant Delay)(the "Upset Date"), Tenant may terminate this Lease by
notice of termination given to Landlord within ten (10) days after
the Upset Date.
2.3. Acceptance of Premises. By entering into possession of
the Premises or any part thereof Tenant shall be conclusively
deemed to have accepted the Premises and to have agreed that
Landlord has performed all of its obligations under Exhibit C and
that the Premises are in satisfactory condition and in full
compliance with the requirements of this Lease as of the date of
such possession, except for (a) such matters as Tenant shall
specify to Landlord in writing within ten (10) days thereafter,
(b) the minor details of construction, decoration and mechanical
adjustments referred to in Section 2.2, and (c) latent defects
which would not have been discovered by Tenant by a reasonably
diligent inspection within ten (10) days after Tenant takes
possession of the Premises. Landlord shall be responsible for
correcting defective workmanship in the Tenant Improvements and for
correcting defects in the Tenant Improvements which result from the
design of the Tenant Improvements or the selection of materials
included as part of the Tenant Improvements unless, at the time of
Landlord's approval thereof, Landlord has specified its objection
to the design or materials and given Tenant an opportunity to make
appropriate changes. Tenant acknowledges that neither Landlord nor
any agent of Landlord has made any representation or warranty,
except as expressly provided in this Lease, with respect to the
Premises, the Building or any other portion of the Project,
including without limitation any representation or warranty with
respect to the suitability or fitness of the Premises, the Building
or any other portion of the Project for the conduct of Tenant's
business.
3. Base Rent.
3.1. Base Rent. Tenant shall pay Landlord base rent ("Base
Rent") for the Premises, in advance on or before the Commencement
Date and on or before the first day of each successive calendar
month during the Term, in the following amounts:
[CAPTION]
<TABLE>
<S> <C>
Base Rent for: shall be:
Months 1 through 8 $ zero per month
Months 9 through 60 $21,018.00 per month
Months 61 through 66 $ zero per month
Months 67 through 121 $23,353.33 per month
</TABLE>
3.2. Partial Months. If the Term begins on a day other than
the first day of a calendar month, or ends on a day other than the
last day of a calendar month, Base Rent for such month shall be
prorated based upon the number of days in such month occurring
during the Term.
3.3. No Offset. Base Rent, together with all other
sums due under this lease ("Additional Rent"), shall be paid to
Landlord without deduction or offset and without demand (except as
otherwise herein expressly provided) in lawful money of the United
States at the Office of the Building or such other location and/or
to such other person as Landlord may from time to time designate in
writing. The Base Rent and Additional Rent may sometimes be
referred to herein as "rent".
4. Rent Adjustments.
4.1. Operating Expenses.
A. Tenant shall pay as Additional Rent for each Lease Year
(as defined in Section 4.5) after 1995 (the "Base Year") an amount
equal to two and six hundred fifty-three ten thousands percent
(%2.0653) ("Tenant's Percentage") of the amount by which the
Operating Expenses (as defined in Section 4.1(C)) for such Lease
Year exceed the Operating Expenses for the Base Year, but in no
event shall Tenant pay any such Additional Rent with respect to
months l through 8 and months 61 through 66 of the Term.
B. Any costs or expenses for services or utilities in
excess of those required by this Lease to be supplied by Landlord,
not otherwise included in Operating Expenses, and which are
attributable directly to Tenant's use or occupancy of the Premises
shall be paid in full by Tenant as Additional Rent when such costs
are incurred or, if Landlord makes such payments, within five (5)
days after being billed therefor by Landlord.
C. "Operating Expenses" shall mean the total of all costs
incurred by Landlord in the management, operation, maintenance and
repair of the Project, subject to the limitations contained herein.
Except as otherwise provided herein, Operating Expenses shall
include without limitation (i) the cost of providing, managing,
operating, maintaining and repairing air conditioning, electricity,
steam, heating, mechanical, ventilation, telecommunications wiring
and cabling, escalator, elevator and other systems and all other
utilities and the cost of supplies and equipment and maintenance
and service contracts in connection therewith, (ii) the cost of
repairs, general maintenance and cleaning, trash removal, telephone
service, janitorial service, light bulb and tube replacement, and
supplies, security and parking shuttle service, (iii) the cost of
fire, extended coverage, boiler, sprinkler, public liability,
property damage, rent, earthquake and other insurance, it being
understood that Landlord does not now carry earthquake insurance
and that if Landlord does carry earthquake insurance in the future,
Landlord's practices with respect to such insurance, including
without limitation the handling of any deductibles and the charges
passed on to tenants, shall be consistent with the handling of such
matters by landlords of comparable first-class institutional
quality office buildings in the downtown Los Angeles financial
district, (iv) wages, salaries and other labor costs including
taxes, insurance, retirement, medical and other employee benefits,
(v) fees, charges and other costs, including management fees,
consulting fees, legal fees and accounting fees, of all independent
contractors engaged by Landlord or reasonably charged by Landlord
if Landlord performs management services in connection with the
Project, (vi) the cost of supplying, replacing and cleaning
employee uniforms, (vii) the fair market rental value of Landlord's
and the Project manager's offices and storage areas in the
Building, provided said offices and storage areas are devoted
solely to the management, operation, maintenance or repair of the
Project, and provided that the size of those offices shall not
increase during the Term, (viii) the cost of business licenses and
similar taxes, (ix) fees imposed by any federal, state or local
government for fire and police protection, trash removal or other
similar services which do not constitute Real Property Taxes as
defined in Section 4.2(B), (x) any charges which are payable by
Landlord pursuant to a service agreement with the City of Los
Angeles, under a special assessment district or pursuant to any
other lawful means, (xi) the costs of contesting the validity or
applicability of any governmental enactment which would increase
Operating Expenses, provided that where the enactment would
increase Operating Expenses for a limited and determinable period
of time, these costs will be spread evenly over that period of
time, and where the enactment would increase Operating Expenses for
an unlimited or undeterminable period of time, these costs will be
spread evenly over a reasonable period but not less than five (5)
years, (xii) depreciation of the cost of acquiring or the rental
expense of personal property used in the management, operation,
maintenance and repair of the Building and Project, and (xiii) any
other expenses of any kind whatsoever reasonably incurred for
managing, operating, maintaining and repairing the Project. For
purposes of computing rent adjustments pursuant to this Section,
Operating Expenses for the entire Project shall be allocated and
charged to tenants (including Tenant) in accordance with generally
accepted accounting and management practices of Landlord and
landlords of comparable first-class institutional quality office
buildings in the downtown Los Angeles financial district
consistently applied in the Base Year and the applicable Lease Year
("GAAMP"). For any period in which the rentable area of the
Building is not one hundred percent (100%) occupied, those
Operating Expenses which vary with occupancy shall be adjusted
(that is, grossed up) by Landlord to the amount Landlord reasonably
estimates they would have been if one hundred percent (100%) of the
rentable area of the Building had been occupied during the period;
any reference in this Lease to "actual" or "estimated"
expenditures, Project Expenses or Additional Rent shall include
actual or estimated Operating Expenses for the period in question
as grossed up in accordance with this provision. Landlord shall
have the right, from time to time, to allocate some or all of the
Operating Expenses for the Project among different portions, such
as office or retail portions, of the Project ("Cost Pools"), in
accordance with GAAMP. (Consistent with the foregoing Landlord now
allocates to the Building forty-two and one-half percent (42.5%) of
the cost incurred by in Landlord in providing security for the
Project and ten percent (10%) of the cost incurred by Landlord in
the management, operation, maintenance and repair of the common
areas of the Project.) Notwithstanding the foregoing, Operating
Expenses shall not include the following, except to the extent
permitted by a specific provision of this Lease:
(1) The cost of repair to the Project including the
Premises, to the extent the cost of the repairs is reimbursed
by any source (it being understood for this purpose that
Landlord will be deemed to be reimbursed to the extent
Landlord would have been reimbursed if Landlord had used
commercially reasonable efforts to obtain reimbursement from
any source, that any infusion of capital by a partner of
Landlord would not be considered as a reimbursement for these
purposes and that Landlord will be deemed to carry such
insurance as is from time to time carried by landlords of
comparable first-class institutional quality office buildings
in the downtown Los Angeles financial district and Landlord
will bear the rising of underinsurance or poor selection of
its insurance carriers;
(2) Marketing costs including leasing commissions,
attorney's fees in connection with the negotiation and
preparation of letters, deal memos, letters of intent,
leases, subleases and/or assignments, space planning costs,
and other costs and expenses incurred in connection with
lease, sublease and/or assignment negotiations and
transactions with present or prospective tenants or other
occupants of the Building;
(3) Costs, including permit, license and inspection
costs, incurred with respect to the installation of tenants
or other occupant improvements made for tenants or other
occupants in the Building or incurred in renovating or
otherwise improving, decorating, painting or redecorating
vacant space for tenants or other occupants of the Building;
(4) Expenses in connection with services or other
benefits which are not offered to Tenant or for which Tenant
is charged for directly but which are provided to another
tenant or occupant of the Building the cost of which is
included as Operating Costs;
(5) The cost of painting and decorating the Premises
or premises of other tenants (including Tenant);
(6) The depreciation of the Building and other real
property structures in the Project;
(7) Interest, principal, points, legal, appraisal
and other costs and fees on or for any debts or amortization
on any mortgage or mortgages or any other debt instrument
encumbering the Building or the Project;
(8) Legal and other related expenses associated with
the defense of Landlord's title, entitlements, permits and
development rights with respect to the Land, the Building or
other portions of the Project;
(9) Landlord's general corporate overhead and
general administrative expenses not related to the operation
of the Project;
(10) Any compensation paid to clerks, attendants or
other persons and all other costs related to any commercial
concessions operated by Landlord;
(11) All items and services for which Tenant or any
other tenant in the Project reimburses Landlord, provided
that any item or service supplied selectively to any tenant
shall be paid for by that tenant;
(12) Capital expenditures relating to the Building
and other portions of the Project which, in accordance with
GAAMP, should not be expensed;
(13) Any ground lease rental;
(14) Rentals for items (except when needed in
connection with normal repairs and maintenance of permanent
systems) which if purchased, rather than rented, would
constitute a capital improvement which is specifically
excluded in Subsection (ii) above (excluding, however,
equipment not affixed to the Building which is used in
providing janitorial or similar services);
(15) Costs incurred by Landlord due to the violation
by Landlord or any tenant of the terms and conditions of any
lease of space in the Building;
(16) Except for expenses in making repairs or
keeping permanent systems in operation while repairs are
being made, rentals and other related expenses incurred in
leasing air conditioning systems, elevators or other
equipment ordinarily considered to be of a capital nature,
except equipment not affixed to the Building which is used in
providing janitorial or similar services;
(17) Advertising and promotional expenditures;
(18) Costs incurred in connection with upgrading the
Building to comply with laws in effect prior to the issuance
of the temporary certificate of occupancy for the Premises;
(19) Tax penalties incurred as a result of
Landlord's negligence, inability to unwillingness to make
payments or to file any return when due;
(20) Costs arising from Landlord's charitable or
political contributions;
(21) Costs for acquisition of sculpture, paintings
or other objects of art;
(22) Costs incurred in connection with the original
development or construction of the Building, including
without limitation costs incurred in correcting defects in or
inadequacies of the design or construction of the Building,
or in connection with any major change in the Building, such
as adding or deleting floors;
(23) Expenses resulting from the negligence of the
Landlord, its agents, servants or employees or another
tenant;
(24) Any bad debt loss, rent loss, or reserves for
bad debts or rent loss;
(25) Costs associated with the operation of the
business of the partnership or entity which constitutes the
Landlord, as distinguished from the costs of operation of the
Building, including partnership accounting and legal matters,
costs of defending any lawsuits with any mortgagees (except
as the actions of Tenant may be in issue), costs of selling,
syndicating, financing, mortgaging or hypothecating any of
Landlord's interest in the Building;
(26) The wages and benefits of any employee who does
not devote substantially all of his or her time to the
Building unless such wages and benefits are prorated to
reflect time spent on operating and managing the Building
vis-a-vis time spent on other matters;
(27) Fines, penalties, and interest;
(28) Costs of any insurance coverage in excess of
that carried by landlords of comparable first-class
institutional quality office buildings in the downtown Los
Angeles financial district;
(29) Costs incurred in connection with the
ownership, management or operation of the Parking Facilities,
except to the extent such costs are not recovered from
revenue derived from the Parking Facilities.
(30) Costs of goods or services furnished by
Landlord or subsidiaries of affiliates of Landlord to the
extent the same exceed the costs of such services rendered by
unaffiliated third parties on a competitive basis;
(31) Cost arising from defects in the Base Building,
shell or core of the Building or improvements installed by
Landlord or the repair thereof;
(32) Costs for which Landlord has been or is to be
compensated by a management fee;
(33) Costs arising from the negligence or fault of
any other tenant, or Landlord or its agents, or any vendor,
contractor or provider of materials or services selected,
hired or engaged by Landlord or its agents including but not
limited to, the selection of building materials;
(34) Costs arising from the presence of hazardous
materials or substances on or about the Premises, Building or
the site including without limitation hazardous substances in
the groundwater or soil, except to the extent any
contamination is attributable to the negligence or misconduct
of Tenant; and
(35) Any other costs which, under generally accepted
accounting principles consistently applied, would not
normally be treated as Operating Expenses by landlords of
comparable first-class institutional quality office buildings
in the downtown Los Angeles financial district.
4.2. Real Property Taxes.
A. Tenant shall pay as Additional Rent for each Lease Year
an amount equal to Tenant's Percentage (as defined in
Section 4.1(A)) of the amount by which Real Property Taxes for such
Lease Year which Landlord allocates to the Building from time to
time in accordance with GAAMP exceed the amount of Real Property
Taxes for the Base Year which Landlord allocates to the Building
from time to time in accordance with GAAMP. (Landlord now allocates
to the Building thirty-five (35%) of Real Property Taxes.) In no
event shall Tenant pay any such Additional Rent with respect to
months l through 8 and months 61 through 66 of the Term.
B. "Real Property Taxes" shall mean all taxes, assessments
(special or otherwise) and charges levied upon or with respect to
the Project and ad valorem taxes on personal property used in
connection therewith. Real Property Taxes shall include, without
limitation, any tax, fee or excise on the act of entering into this
Lease, on the occupancy of Tenant, the rent hereunder or in
connection with the business of owning and/or renting space in the
Project which are now or hereafter levied or assessed against
Landlord by the United States of America, the State of California
or any political subdivision, public corporation, district or other
political or public entity, and shall also include any other tax,
assessment, fee or excise, however described (whether general or
special, ordinary or extraordinary, foreseen or unforeseen), which
may be levied or assessed in lieu of, as a substitute for, or as an
addition to, any other Real Property Taxes. Landlord may pay any
such special assessments in installments when allowed by law, in
which case Real Property Taxes shall include any interest charged
thereon. Real Property Taxes shall also include reasonable legal
fees, costs and disbursements incurred in connection with
proceedings to contest, determine or reduce Real Property Taxes,
provided that where the Real Property Taxes being contested would
apply for a limited and determinable period of time, these fees,
costs and disbursements will be spread evenly over that period of
time, and where the Real Property Taxes being contested would apply
for an unlimited or undeterminable period of time, these fees,
costs and disbursements will be spread evenly over a reasonable
period but not less than five (5) years. Real Property Taxes shall
not include income, franchise, transfer, inheritance or capital
stock taxes, unless, due to a change in the method of taxation, any
of such taxes are levied or assessed against Landlord in lieu of,
as a substitute, in whole or in part, for or as an addition to, any
other tax which would otherwise constitute a Real Property Tax.
During the first five (5) years of the Term, Real Property Taxes
shall be calculated without taking into account any increase in
Real Property Taxes resulting under Proposition 13 from any sale or
other change of ownership of all or any part of the Project. For
the Base Year any assessment for Metro Rail or any light rail
system of public transportation shall be deemed to be the amount of
such assessment actually paid in the Base Year, and for each Lease
Year after the Base Year Real Property Taxes shall include the full
amount of any such assessment applicable to that Lease Year.
4.3. Cost Saving or Mandated Capital Improvements.
A. For any Lease Year which is included in the useful life
of a Capital Improvement, Tenant shall pay as Additional Rent an
amount equal to Tenant's Percentage (as defined in Section 4.1A))
of the amount by which Capital Improvement Amortization for such
Lease Year which Landlord allocates to the Building from time to
time in accordance with GAAMP exceeds the amount of Capital
Improvement Amortization for the Base Year which Landlord allocates
to the Building from time to time in accordance with GAAMP.
B. "Capital Improvement" shall mean (x) any equipment,
device or other improvement acquired or installed subsequent to the
completion of the construction of the Building or other relevant
portion of the Project (i) to achieve economies in the operation,
maintenance and repair of the Building or such relevant portion of
the Project, (ii) to comply with any control or guideline more
particularly described in Section 7.3, (iii) to comply with or made
necessary as a result of any present or future law, rule or
regulation of any governmental or quasi governmental authority with
respect to the Building or any such relevant portion of the
Project, including without limitation fire, health, safety or
construction requirements and the requirements of Title III of the
Americans with Disabilities Act, (iv) to enable Landlord to supply
services which Landlord might otherwise arrange for others to
supply, (v) to enhance the capability or performance of any of the
Building Systems, (vi) to provide carpeting and other furnishings
in public areas of the Building, or (vii) to provide exterior
window treatments throughout the Building, if the cost thereof is
capitalized on the books of Landlord in accordance with GAAMP and
(y) any repair of uninsured earthquake damage to the Building (or
the amount of any deductible under earthquake insurance) and any
retrofitting of the Building to meet seismic safety standards,
including engineering studies and tests, if the cost thereof is
capitalized on the books of Landlord in accordance with GAAMP.
C. "Capital Improvement Amortization" shall mean the
amount determined by multiplying the actual cost, including actual
financing costs, of each Capital Improvement acquired by Landlord
by the constant annual percentage required to fully amortize such
cost over the useful life of the Capital Improvement (as reasonably
determined by Landlord at the time of acquisition).
4.4. Payment. Prior to the commencement of each
Lease Year after the Base Year, or as soon thereafter as possible,
Landlord shall furnish to Tenant a statement containing Landlord's
reasonable estimate of the Operating Expenses, Real Property Taxes
and Capital Improvement Amortization (collectively, "Project
Expenses") for such Lease Year and for the Base Year and a
calculation of the Additional Rent, if any, payable by Tenant for
such Lease Year pursuant to Sections 4.1. 4.2 and 4.3 on the basis
of such estimate. If the Lease Year is a full year, Tenant shall
pay to Landlord one-twelfth (1/12th) of the amount of said
estimated Additional Rent on each monthly rent payment date during
such year (commencing on January 1) until further adjustment
pursuant to this Section 4.4. If the Lease Year is a partial year,
Tenant shall pay to Landlord on each monthly rent payment date in
such partial year an amount equal to said estimated Additional Rent
divided by the number of months in said partial Lease Year. If
Landlord's statement is furnished after the start of the Lease
Year, then on the next monthly rent payment date Tenant shall pay
the entire portion of the estimated Additional Rent attributable to
portions of the Lease Year prior to such date. Following each
Lease Year, Landlord shall furnish to Tenant a statement prepared
by a firm of accountants selected by Landlord showing the actual
Project Expenses during the previous Lease Year, and Landlord shall
compute any charge or credit to Tenant necessary to adjust rent
previously paid by Tenant to reflect the actual Project Expenses
for the previous Lease Year. If such statement and computation
reveal an underpayment, Tenant shall promptly pay to Landlord an
amount equal to such underpayment (whether or not this Lease has
expired or been terminated), and if such statement and computation
show an overpayment, Landlord shall credit the next monthly rental
payment(s) of Tenant with an amount equal to such overpayment and,
when the Term expires or terminated, promptly refund any remainder
of the overpayment to Tenant. Neither party may initiate any
adjustment in the amount of Additional Rent attributable to any
Lease Year later than three (3) years after the end of the Lease
Year, except in the case of fraud or a grossly negligent material
misstatement by the other party. Landlord's statements of
estimated and actual Project Expenses shall be subject to audit by
Tenant provided Tenant gives Landlord a written request therefor
within one (1) year after receipt of such statement. If Tenant so
requests an audit, Landlord shall provide Tenant with access to all
of its books and records of such costs so that Tenant may inspect
and copy them, and the audit shall be conducted at Landlord's
premises in the Building during Landlord's usual business hours.
Tenant shall pay for any audit but if it turns out that the Project
Expense statement was in error in Landlord's favor by more than
three percent (3%), Landlord shall promptly reimburse Tenant for
the cost thereof, provided that in no case shall Tenant be required
to pay or reimburse Landlord for any costs incurred by Landlord in
responding to Tenant's request for information or in responding to
any audit under this Section. All information in such books and
records shall be deemed confidential information of Landlord and
shall not be used or disclosed except for purposes of a
determination of such Project Expenses. In the event such audit
indicates that a Project Expense statement is incorrect, the
parties shall review and try to resolve such issue. If the parties
are unable to resolve the issue, either party may institute
arbitration proceedings governed by the rules of the American
Arbitration Association, which proceeding shall determine (i)
whether Tenant was overcharged or undercharged for any Operating
Expense and (ii) who shall pay the costs incurred by the parties
with respect to the arbitration proceeding. So long as Tenant
disputes the accuracy of any Project Expense statement, Tenant
shall continue to pay Additional Rent in accordance with the terms
of this Lease. If it turns out that Tenant has made an under-
payment, Tenant shall promptly pay to Landlord an amount equal to
such underpayment (whether or not this Lease has expired or been
terminated) and if it turns out that Tenant has made an over-
payment, Landlord shall credit the next monthly rental payment(s)
of Tenant with an amount equal to such overpayment and, when the
Term expires or terminates, promptly refund any remainder of the
overpayment to Tenant.
4.5 Lease Year; Proration. "Lease Year" shall mean the
whole or partial calendar year commencing on the Commencement Date
and ending on December 31 of the year in which the Commencement
Date occurs, and all subsequent calendar years within the Term.
The amount of Additional Rent payable under this Section shall be
proportionately abated in the case of a partial month or if the
Lease Year is less than three hundred sixty-five (365) days.
4.6. Proposition 8 Appeals. If, as a result of any
so-called Proposition 8 appeal filed by Landlord seeking a
reduction of Real Property Taxes, Real Property Taxes are for any
Lease Year reduced to an amount which, on a per rentable square
foot basis, is less than Real Property Taxes for the Base Year, on
a per rentable square foot basis, Tenant shall be entitled to a
credit against future Additional Rent attributable to increases in
Real Property Taxes, which credit shall equal the difference, on a
per rentable square foot basis, between the reduced Real Property
Taxes for the Lease Year in question and the Real Property Taxes
for the Base Year multiplied by the number of rentable square feet
then in the Premises. For example, if due to a Proposition 8
appeal Real Property Taxes for 1996 are reduced to $1.00 per
rentable square foot in the Building and Real Property Taxes for
the Base Year are $1.50 per rentable square foot in the Building,
then Tenant shall be entitled to a credit of ($1.50 - $1.00) x
13,410, or $6,705.00. For the purposes of this Lease, Real
Property Taxes for the Base Year shall be unaffected by any
Proposition 8 appeal filed by Landlord.
5. Purpose.
5.1. Use. The Premises shall be used only for general
office uses in keeping with the character of a first-class
institutional quality office building in the downtown Los Angeles
financial district and for no other purpose without the prior
written consent of Landlord.
5.2. Limitation of Uses. Tenant shall not do or permit to
be done in or about the Building or the Project anything which (a)
would violate any present or future law, rule or regulation of any
governmental or quasi-governmental authority, including without
limitation Title III of the Americans with Disabilities Act and any
such law, rule or regulation (each, a "Hazardous Materials Law")
dealing with, or imposing liability or standards of conduct
concerning, hazardous or toxic substances ("Hazardous Materials")
or otherwise intended to protect the environment, (b) would
adversely affect or render more expensive any fire or other
insurance maintained by Landlord for the Building or the Project or
any of its contents, (c) would exceed the floor load capacity of
the floor on which the Premises are located, (d) would impair or
interfere with any of the services and systems of the Building (the
"Building Systems"), including without limitation the Building's
electrical, mechanical, vertical transportation, telecommunication
wiring and cabling, sprinkler, fire and life safety, structural,
plumbing, security, heating, ventilation and air conditioning
systems or the janitorial, security and building maintenance
services (collectively, the "Service Facilities"), (e) would injure
or annoy, or interfere with the rights of, other tenants or
occupants of the Project or impair the appearance of the Project or
be prejudicial to the business or reputation of Landlord or the
Project, (f) would not be compatible with a first-class
institutional quality office building in the downtown Los Angeles
financial district or with the use of the Project by other tenants,
or (g) would result in Tenant's business machines and mechanical
equipment transmitting vibration or noise beyond the Premises. As
soon as Tenant knows of it, Tenant will give Landlord prompt notice
of (1) any enforcement, remedial or other action relating to the
Premises or Tenant's actual or alleged activities in or about any
part of the Building or the Project instituted or threatened by any
governmental or regulatory body pursuant to any Hazardous Materials
Law, (2) any actual or alleged "release" (as defined in any
Hazardous Materials Law) of any Hazardous Material in or about any
part of the Building or the Project and (3) any claim made or
threatened by any person against Landlord, Tenant or any part of
the Building or the Project relating to any Hazardous Materials
actually or allegedly in or about any part of the Building or the
Project. As soon as Tenant has it in Tenant's possession, Tenant
shall promptly deliver to Landlord a copy of each letter, report,
permit and other writing filed by Tenant with or received by Tenant
from any governmental or regulatory body or any other person
relating to Hazardous Materials actually or allegedly present or
released in or about any part of the Building or the Project.
Tenant shall give Landlord such written information about Hazardous
Materials in or about the Premises as Landlord may reasonably
request from time to time.
5.3. Safes and Heavy Equipment. Landlord may prescribe the
weight and position of all safes, files and heavy equipment in the
Premises or on the floor of the Premises so as to distribute their
weight properly. Tenant shall reimburse Landlord for the cost of
any structural engineering required to determine whether, or to
ensure that, the load capacity of the floor accommodates Tenant's
requirements.
5.4. Compliance with Permits. Tenant shall procure and
maintain any license or permit required for the lawful conduct of
its business or other activity in the Premises, shall submit such
license or permit for inspection by Landlord if so requested, and
shall comply at all times with all terms and conditions thereof.
Tenant's use of the Premises shall be subject to all present and
future laws, rules and regulations of any governmental or
quasi-governmental authority applicable from time to time to the
use, occupancy or possession of the Premises.
5.5. Compliance by Other Tenants. Landlord shall not be
liable to Tenant if any other tenant or occupant of the Project
does not comply with the use provision or any other provision of
the lease or other agreement under which they are a tenant or
occupant of the Project, provided that Landlord shall use
commercially reasonable efforts to secure such compliance if
Landlord's failure to do so would adversely affect Tenant or
Tenant's use or enjoyment of the Premises or the Building.
6. Security Deposit. (Intentionally omitted.)
7. Utilities and Services.
7.1. Landlord's Obligations. Landlord shall, during Normal
Working Hours or such other periods as are specified below and
subject to the rules and regulations of the Building and/or the
Project in effect from time to time, furnish services and utilities
as specified below. Except as specifically provided otherwise in
this Lease, the cost of these utilities and services shall be
included in Operating Expenses. "Normal Working Hours" shall mean
the periods from 8:00 a.m. to 6:00 p.m., Monday through Friday and
9:00 a.m. to 1:00 p.m. Saturday or such other hours on such days as
may from time to time be established by Landlord, except New Year's
Eve Day, New Year's Day, President's Day, Memorial Day, Indepen-
dence Day, Labor Day, Thanksgiving Day, Christmas Eve Day,
Christmas Day and other generally recognized holidays in Los
Angeles, California.
(a) HVAC. Landlord shall furnish heating, ventilation
and air conditioning ("HVAC") in amounts required for the use
and occupancy of the Premises for normal office purposes as
reasonably determined by Landlord. Material containing
specifications for and other information about the existing HVAC
system is attached as Exhibit D. Tenant shall not, without
Landlord's prior consent, use heat-generating machines or other
equipment which may affect the temperature otherwise maintained
by the HVAC system in any portion of the Premises, and if such
temperature is affected as a result of Tenant's activities in,
on or about the Premises, Landlord shall have the right to
install any machinery or equipment which Landlord reasonably
deems necessary to restore temperature balance, including
without limitation modifications to the standard air
conditioning equipment, and the cost thereof including the cost
of installation and any additional cost of operation and
maintenance incurred thereby, shall be paid by Tenant directly
to Landlord (instead as part of Operating Expenses) upon demand
by Landlord. Landlord makes no representation with respect to
the ability of the Building's HVAC system to maintain
temperatures which may be required for, or because of, any
other-than-normal office equipment of Tenant.
(b) Electricity. Landlord shall furnish to the Premises
electricity in amounts required for the use and occupancy for
normal office uses as reasonably determined by Landlord. Tenant
shall not install or operate in the Premises any electric
equipment which would exceed the capacity of the Building
Systems as determined by Landlord. Without the prior consent of
Landlord, Tenant shall not install or operate in the Premises
any electric equipment which will cause Tenant to use more than
one hundred ten percent (110%) of the electricity that is
typically used by other tenants in the Building. If Landlord
believes at any time that Tenant is using excess electricity,
Landlord may install a submeter in the Premises to measure the
amount of electricity used by Tenant from time to time. If such
submeter shows that Tenant is using more electricity than is
typically used by other tenants in the Building and that the
allocation of electricity costs to all tenants in the Building
through Operating Expenses is therefore materially distorted or
unfair, then Tenant shall pay Landlord the actual cost of the
installation of such submeter and shall pay directly to Landlord
(instead of as part of Operating Expenses) upon demand by
Landlord the actual cost of such excess electricity plus any
additional expense incurred in keeping account of the
electricity so used.
(c) Elevators. Landlord shall furnish freight and
passenger elevator services to the Premises during Normal
Working Hours. At other times, Landlord shall furnish passenger
elevator cab service in the elevator bank serving the Premises
on an as needed basis and shall furnish freight elevator service
by prior arrangement with Landlord's Building manager. If
Tenant requires extended or uninterrupted use of the freight
elevator for other than normal deliveries to the Premises (such
as for a special move or alterations), Landlord shall provide
freight elevator service by prior arrangement with Landlord's
Building manager, the cost of which shall be charged to Tenant
in accordance with Section 7.2. Tenant shall not be charged for
elevator use in connection with the construction of the Tenant
Improvements or Tenant's initial move into the Premises.
(d) Telecommunications Wiring and Cabling.
Notwithstanding any other provision of this Lease or Exhibit C,
the provisions of this clause shall apply to any
telecommunications wiring and cabling (including without
limitation any supporting structure such as conduits, trenches,
poles, backboards, slots, sleeves and riser systems)
(collectively, the "Non-Premises Wiring and Cabling") at any
time serving or intended to serve Tenant's telecommunications
system serving the Premises between (a) the Minimum Point of
Entry for the Building (as defined by and determined in
accordance with regulations of the California Public Utilities
Commission in effect from time to time, intended to be the point
where telecommunications wiring and cabling serving the Premises
may connect to telecommunications wiring and cabling owned and
operated by a telecommunications company serving tenants in the
Building) and (b) the telecommunications equipment room or rooms
from time to time designated by Landlord to serve as the
starting point for Tenant's individual telecommunications system
serving the Premises. With respect to any not already existing
Non-Premises Wiring and Cabling which Tenant might require,
Landlord shall from time to time, as soon as reasonably possible
after a request by of Tenant, install, maintain, repair and
replace all Non-Premises Wiring and Cabling in accordance with
plans and specifications from time to time provided by Tenant to
Landlord and approved by Landlord, provided that Landlord shall
not be the guarantor of, or responsible for, the correctness or
accuracy of those plans and specifications or for their
compliance with any applicable law, rule or regulation of any
governmental or quasi-governmental authority. Subject to the
limitations contained in Section 4.1C, all costs associated with
the installation, maintenance, repair, replacement and removal
of the Non-Premises Wiring and Cabling, including without
limitation all design and engineering costs, governmental
charges, Landlord's reasonable charges for overhead and
supervision, reasonable attorneys' fees and costs, and insurance
costs, shall be paid by Tenant to Landlord on demand or, to the
extent that Landlord reasonably determines that it is
administratively convenient and that it is not likely to be
unfair to any tenant in the Building, shall be paid by Landlord
and included in Operating Expenses. Subject to the provisions of
Section 7.3 (which give Tenant certain rights in the event of
certain interruptions of service), Landlord shall have no
liability, obligation or responsibility with respect to any
actual or alleged failure to perform any of its obligations
under this clause, or under comparable provisions of leases with
other tenants in the Building, unless Landlord shall have acted
with negligence or willful misconduct in connection therewith;
if Landlord employs an independent contractor to perform the
services to be performed by Landlord under this clause, or under
comparable provisions of leases with other tenants in the
Building, Landlord shall have no liability, obligation or
responsibility with respect to any service actually or allegedly
performed or not performed by the third person, unless Landlord
shall have acted with negligence or willful misconduct in
selecting the third person.
(e) Water. Landlord shall make available water for
lavatory and drinking purposes to be drawn from the public
lavatory in the core of the floor on which the Premises are
located. Tenant shall not use more water than is typically used
by other tenants in the Building or connect any appliance to the
water pipes.
(f) Janitorial. Landlord shall provide janitorial
service five (5) nights per week generally comparable to that
furnished in other first-class institutional quality office
buildings in the downtown Los Angeles financial district.
Landlord shall not be required to provide janitorial service for
areas used for storage, mailroom or similar purposes, or for
areas secured, obstructed or locked by Tenant.
(g) Access. Landlord shall furnish to Tenant's employees
and agents access to the Premises on a seven (7) day per week,
twenty-four (24) hour per day basis, subject to compliance with
such security measures as shall from time to time be in effect
for the Building and/or the Project and subject to the rules and
regulations for the Building and/or the Project in effect from
time to time.
(h) Relamping. Prior to the commencement of the Term
and continuing throughout the Term, Landlord shall lamp and
re-lamp the building standard 2' x 2' fluorescent light fixtures
in the Premises.
(i) Security. Landlord shall provide on-site security
for the Building, including equipment, personnel, procedures and
systems, on a seven (7) day per week, twenty-four (24) hour per
day basis, comparable to that furnished in other first-class
institutional quality office buildings in the downtown Los
Angeles financial district.
7.2. Extraordinary Services. Freight and passenger elevator
services, HVAC, electricity, and access to and use of the loading
dock facilities will be available twenty-four (24) hours a day,
subject to the provisions of this Section. Landlord may impose a
reasonable direct charge and establish reasonable rules and
regulations for any of the following: (a) the use of any HVAC or
electric current by Tenant at any time other than during Normal
Working Hours (except that Landlord's charges for such HVAC usage
shall be at Landlord's direct cost of providing such service, which
shall be determined by calculating the total kilowatt minimum load
multiplied by average electricity cost during the electricity
provider's billing period which includes the time of such HVAC
usage, plus hourly engineer salary and fringe benefits, costs
allocated to equipment maintenance and depreciation, and Landlord's
overhead), (b) the usage of any services provided to Tenant
(including without limitation passenger or freight elevator
service, or use of the loading dock facilities by Tenant) at any
time other than during Normal Working Hours, (c) additional or
unusual Janitorial services required because of any nonbuilding
standard improvements in the Premises, the carelessness of Tenant,
the nature of Tenant's business (including the operation of
Tenant's business other than during Normal Working Hours), and (d)
the removal of any refuse and rubbish from the Premises except for
discarded material placed in wastepaper baskets and left for
emptying as an incident to Landlord's normal cleaning of the
Premises. The charges for these services shall be paid by Tenant as
Additional Rent on the next rent payment date after Tenant's
receipt of Landlord's invoice therefor.
7.3. Interruption in Utility Services. Landlord shall use
commercially reasonable efforts to minimize any interruption in
utility services to the Premises, the Building and the Project, but
Landlord shall not be liable for damages or otherwise for failure,
stoppage or interruption of any services or utilities, nor shall
the same be construed either as an eviction of Tenant, or result in
an abatement of rent (provided, however, that Tenant shall be
entitled to an abatement of rent from the inception through the
conclusion of any such failure, stoppage or interruption which
continues for at least seventy-two (72) hours and renders the
Premises substantially unusable by Tenant), when such failure is
caused by acts of God, accidents, breakage, repairs, strikes,
lockouts, other labor disputes, or by the making of repairs,
alterations or improvements to the Premises or the Building, or the
limitation, curtailment, rationing or restriction on supply of
fuel, steam, water, electricity, labor or other supplies or for any
other condition beyond Landlord's reasonable control, including
without limitation any governmental energy conservation program or
legal requirement. If any governmental entity imposes mandatory or
voluntary controls or guidelines on Landlord, the Building or the
Project or any part thereof relating to the services provided by
Landlord, or the reduction of automobile or other emissions,
Landlord may make such alterations to the Building or any other
part of the Project related thereto and take such other steps as
are necessary to comply with such controls and guidelines, the cost
of such compliance and alterations shall be included in Operating
Expenses or deemed to be a Capital Improvement, as appropriate
according to GAAMP, and Landlord shall not be liable therefor, for
damages or otherwise, nor shall the same be construed either as an
eviction of Tenant or result in an abatement of rent.
8. Maintenance and Repairs.
8.1. Tenant's Obligations. Subject to the provisions of
Section 18 and except for Landlord's obligations specifically set
forth in this Lease, Tenant shall with reasonable diligence, at
Tenant's expense, keep the Premises and every part thereof clean
and in good condition and repair, except for reasonable wear and
tear and except for damage which is the result of a negligent or
willful act or omission of Landlord or Landlord's officers, agents,
directors, contractors or employees, and which is not covered by
insurance or required by the terms of this Lease to be insured by
Landlord or Tenant shall be at Landlord's sole cost and expense.
Subject to the provisions of Sections 18 and 22, Tenant shall
reimburse Landlord for all repairs to the Building or any other
portion of the Project which are required as a result of any misuse
or neglect of the same by Tenant or any of its officers, agents,
employees or contractors while in or about the Premises, the
Building or any other part of the Project.
8.2. Landlord's Obligations. Subject to the provisions of
Section 18, Landlord shall with reasonable diligence keep and
maintain the Building's plumbing, heating, ventilation, air
conditioning, sprinkler, security and electrical systems and other
structural systems and windows, elevators, lobbies, landscaped
areas, other common areas and garage facilities serving or located
on the Premises (collectively, the "Building Facilities") so that
they are suitable for a first-class institutional quality office
building in the downtown Los Angeles financial district. As a
material inducement to Landlord's entering into this Lease, Tenant
waives and releases its right to make repairs at Landlord's expense
under Section 1942 of the California Civil Code and the provisions
of Section 1932(1) of the California Civil Code or under any other
present or future law, rule or regulation of any governmental or
quasi-governmental authority now or hereafter in effect. Subject
to the provisions of Section 18, Landlord shall keep the Building
and the Building Facilities in compliance with applicable
governments codes, regulations, ordinances and permits. If (i)
Landlord has failed to perform its obligations under this Section,
(ii) that failure is not excused by the force majeure provisions of
this Lease (Section 44.12), (iii) that failure causes Landlord to
be in default (as defined in section 17.4) under this Lease and
(iv) that default continues for a consecutive period of forty-five
(45) days, then, subject to the foregoing provisions of this
Section, Tenant may, without limiting Tenant's other remedies under
this Lease or at law, terminate this Lease on ten (10) days written
notice to Tenant, but that termination will not be effective if
within that ten (10) day period Landlord commences to cure the
default and thereafter diligently prosecutes the cure to
completion.
9. Work Outside the Premises or Affecting Any Building System.
Notwithstanding any other provision of this Lease, any work to
be performed by Tenant under any provision of this Lease which is
outside the Premises or which could affect any Building System
shall, at Landlord's option, be done by Landlord either (i) in
accordance with plans and specifications from time to time provided
by Tenant to Landlord and approved by Landlord, provided that
Landlord shall not be the guarantor of, or responsible for, the
correctness or accuracy of plans and specifications provided by
Tenant and approved by Landlord or for their compliance with any
applicable law, rule or regulation of any governmental or
quasi-governmental authority or (ii) if the Lease so contemplates,
in accordance with plans and specifications from time to time
prepared by Landlord. All costs associated with such work shall be
paid by Tenant and without limiting the generality of the fore-
going, all such costs incurred by Landlord, including without
limitation all design and engineering costs, governmental charges,
Landlord's reasonable charges for overhead and supervision,
reasonable attorneys' fees and costs, and insurance costs, shall be
paid by Tenant to Landlord on demand.
10. Alterations, Additions and Improvements.
10.1. Restriction on Alterations. Tenant will not cause any
alterations, additions or improvements to the Premises
(collectively "Tenant Alterations") without the prior written
consent of Landlord, which consent shall not be unreasonably
withheld or delayed. Landlord may impose as a condition to such
consent such requirements as Landlord in its reasonable discretion
may deem necessary or desirable, including without limitation (a)
the right to approve the plans and specifications for any work, (b)
the right to require supplemental insurance satisfactory to
Landlord and naming Landlord as an additional insured, (c) the
right to require security for the full payment for any work and to
require unconditional lien releases for all work completed, (d)
requirements as to the manner in which or the time or times at
which work may be performed and (e) the right to designate, subject
to Tenant's reasonable approval, the contractor or contractors to
perform Tenant Alterations, provided that Tenant shall have the
right to seek competitive bids for any Tenant Alterations. All
Tenant Alterations shall be compatible with a first-class
institutional quality office building in the downtown Los Angeles
financial district and completed in accordance with Landlord's
requirements and all applicable rules, regulations and requirements
of governmental authorities and insurance carriers. Tenant shall
pay to Landlord Landlord's reasonable charges for reviewing and
inspecting all Tenant Alterations to assure full compliance with
all of Landlord's requirements, and if Landlord, at Tenant's
request, hire and supervise the contractor for such Tenant
Alterations, a fee of up to five percent (5%) of such total costs.
Landlord does not expressly or implicitly covenant or warrant that
any plans or specifications submitted by Tenant and approved by
Landlord are safe or comply with any applicable present and future
laws, rules or regulations of any governmental or
quasi-governmental authority. Further, Tenant shall indemnify,
protect, defend and hold Landlord harmless from any loss, cost or
expense, including attorneys' fees and costs, incurred by Landlord
as a result of any defects in design, materials or workmanship
resulting from Tenant Alterations, except to the extent such
defects are caused by Landlord, its agents, servants or employees.
If requested by Landlord, Tenant shall promptly provide Landlord
with copies of all contracts, receipts, paid vouchers, and any
other documentation (including without limitation "as-built"
drawings, air/water balancing reports, permits and inspection
certificates) in connection with the construction of any Tenant
Alterations. Tenant shall promptly pay all costs incurred in
connection with all Tenant Alterations. If a mechanic's lien or
other lien is filed against the Land, the Building or the Project,
Tenant shall discharge or cause to be discharged (by bond or
otherwise) such lien within five (5) days after Tenant receives
notice of the filing thereof and shall not allow any such lien to
be foreclosed upon. If a mechanic's lien or other lien is filed
against the Land, the Building or the Project and Tenant fails to
timely discharge such lien, Landlord may, without waiving its
rights and remedies based on such breach of Tenant and without
releasing Tenant from any of its obligations, cause any such lien
to be released by any means Landlord shall deem proper, including
payment in satisfaction of the claim giving rise to such lien.
Tenant shall on demand pay to Landlord any sum paid by Landlord to
remove any such lien, together with interest at the rate per annum
from time to time in effect under Section 26.1 from the date of
such payment by Landlord to the date of payment to Landlord. Any
increase in any tax, assessment or charge levied or assessed as a
result of any Tenant Alterations which exceed a building standard
level of improvement shall be payable by Tenant in accordance with
Section 16; no such increase as a result of the Tenant Improvements
shall be so payable by Tenant. Tenant shall be responsible for
paying the general contractor's overhead and fee in connection with
the work performed pursuant to this Section. Notwithstanding
anything in the foregoing to the contrary (i) the outside
appearance, character or use of the Building shall not be affected
by any Tenant Alteration, and no Tenant Alteration shall materially
weaken or impair the structural strength or, in the reasonable
opinion of Landlord, lessen the value of the Building or create the
potential for unusual expenses to be incurred upon the removal of
the Tenant Alterations and the restoration of the Premises upon the
termination of this Lease, (ii) no part of the Building outside of
the Premises shall be materially adversely affected by any Tenant
Alteration, (iii) the proper functioning of the Building Systems
and Service Facilities shall not be materially adversely affected
by any Tenant Alteration and there shall be no Tenant Alteration
which materially interferes with Landlord's free access to the
Building Systems, (iv) all work shall be done at such times and in
such manner as Landlord from time to time may reasonably designate,
and (v) Tenant shall not be permitted to install and make part of
the Premises any material, fixture or article which is subject to
any lien, conditional sales contract or chattel mortgage other than
trade fixtures, furniture and equipment.
10.2. Removal and Surrender of Fixtures and Tenant
Alterations. All Tenant Alterations and all tenant improvements
(the "Tenant Improvements") installed in the Premises pursuant to
Exhibit C which are attached to or built into the Premises,
including without limitation floor coverings, window coverings,
wall coverings, paneling, molding, doors, vaults (excluding vault
doors), plumbing systems, electrical systems, mechanical systems,
structural systems, lighting systems and cabling, wiring and
outlets for all sound, communication, telephone, computer, radio,
telegraph and television purposes, and any special flooring or
ceiling installations, shall become the property of Landlord and
shall be surrendered with the Premises, as a part thereof, at the
end of the Term; provided, however, Landlord may, by written notice
to Tenant at least thirty (30) days prior to the end of the Term,
require Tenant to remove any Tenant Alterations designated by
Landlord to be removed at the time of Landlord's approval thereof
and any other improvements not generally found in a first-class
institutional quality office building in the downtown Los Angeles
financial district, and to repair any damage to the Premises, the
Building and any other part of the Project caused by such removal,
all at Tenant's sole expense and to the satisfaction of Landlord.
Any articles of personal property including without limitation
business and trade fixtures not attached to or built into the
Premises, machinery and equipment, free-standing cabinet work, and
movable partitions which were installed by Tenant in the Premises
at Tenant's sole expense and which were not installed in connection
with a credit or allowance granted by Landlord or in replacement
for an item which Tenant would not have been entitled to remove,
shall be and remain the property of Tenant and may be removed by
Tenant at any time during the Term as long as Tenant is not in
default hereunder and provided that Tenant repairs to Landlord's
reasonable satisfaction any damage to the Premises, the Building
and any other part of the Project caused by such removal. For
purposes of the insurance requirements of Section 21, Tenant shall
be deemed to have an insurable interest in all of the Tenant
Improvements and Tenant Alterations in the Premises, as between
Landlord and Tenant, but the same shall be surrendered with the
Premises on termination of this Lease, as set forth above.
10.3. Standard Window Covering. Tenant shall use the
Building standard window covering as specified by Landlord and
Landlord reserves the right to approve or disapprove of interior
improvements visible from the ground level outside the Building on
wholly aesthetic grounds. Such improvements must be submitted for
Landlord's written approval prior to installation, or Landlord may
remove or replace such items at Tenant's sole expense.
11. Building Rules and Regulations.
Tenant and Tenant's employees, agents and visitors shall comply
with the rules and regulations for the Building adopted by Landlord
from time to time. Landlord shall not be responsible to Tenant or
any other person for the nonperformance by Tenant or any other
person of any such rules and regulations. A copy of the Building
rules and regulations now in effect is attached as Exhibit E.
12. Parking
Throughout the Term, Tenant shall pay for, at the rates set
forth below, and be entitled to parking for four (4) automobiles in
single reserved spaces on the subterranean valet level parking area
("Tenant's Valet Level Committed Parking").
During the first ten (10) months of the Term, Tenant shall also
be entitled to parking for up to thirty-six (36) automobiles, up to
eleven (11) of which shall be reserved spaces in the upper level
reserved parking area which Landlord shall from time to time select
and designate, and up to twenty-five (25) of which shall be in the
upper level unreserved parking area. Not later than the last
business day of the ninth month of the Term Tenant shall deliver to
Landlord a written notice ("Tenant's Parking Commitment Notice")
stating how many of the thirty-six (36) spaces which were available
to Tenant during the first ten (10) months of the Term that Tenant
commits to paying for and will be entitled to during the remainder
of the Term, provided that the total number committed to shall not
be less than sixteen (16). (If Tenant does not deliver Tenant's
Parking Commitment Notice to Landlord within ten (10) days after
notice from Landlord to Tenant that Tenant's Parking Commitment
Notice is about to be, is or was due, there shall be no Tenant's
Upper Level Committed Parking (as defined below).) Commencing on
the first day of the tenth month of the Term and continuing during
the remainder of the Term, Tenant shall pay for and be entitled to
the numbers of parking set forth in Tenant's Parking Commitment
Notice (the parking to which Tenant so commits being called
"Tenant's Upper Level Committed Parking", with Tenant's Valet Level
Committed Parking and Tenant's Upper Level Committed Parking being
collectively referred to as "Tenant's Committed Parking"), with
thirty and fifty-six hundredths percent (30.56%) being allocated to
the reserved spaces in the upper level reserved parking area and
sixty-nine and forty-four hundredths percent (69.44%) being
allocated to the unreserved spaces in the upper level unreserved
parking area, with fractional spaces of 0.5 or more being rounded
up to the next whole number.
During the first three (3) years of the Term, there shall be no
charge for Tenant's Committed Parking. During the fourth and fifth
years of the Term, Tenant shall be charged $110.00 per month
(inclusive of the applicable City tax) for each automobile Tenant
is entitled to park in the parking garage as part of Tenant's
Committed Parking. During the sixth through the tenth years of the
Term and during the 121st month of the Term, Tenant shall be
charged $125.00 per month (exclusive of the applicable City tax)
for each automobile Tenant is entitled to park in the parking
garage as part of Tenant's Committed Parking. During the remainder
of the Term, Tenant shall be charged for each type of parking
comprising Tenant's Committed Parking the same monthly rates as are
generally in effect from time to time in the parking garage for the
same types of parking, which shall not exceed rates for comparable
parking in other first-class institutional quality office buildings
in the downtown Los Angeles financial district. Payment by any of
Tenant's employees for monthly parking in the parking garage in the
Project in any one month shall be credited against Tenant's
obligation to pay for Tenant's Committed Parking for the same
month.
After the first ten (10) months of the Term and during the
remainder of the Term, Tenant shall also be entitled to parking for
up to thirty-six (36) automobiles, up to eleven (11) of which shall
be reserved spaces in the upper level reserved parking area which
Landlord shall from time to time select and designate, and up to
twenty-five (25) of which shall be in the upper level unreserved
parking area ("Tenant's Optional Parking"), provided that each type
of Tenant's Optional Parking shall be reduced by the corresponding
amount of Tenant's Committed Parking (so that, for example, if
Tenant's Committed Parking included three (3) reserved spaces in
the upper level reserved parking area, Tenant's Optional Parking
would include eight (8) reserved spaces in the upper level reserved
parking area).
If the Premises increase or decrease in size during the Term,
Tenant's Committed Parking and Tenant's Optional Parking shall
increase or decrease proportionally, allocated proportionally among
valet level reserved, upper level reserved, and upper level
unreserved.
Throughout the Term, Tenant may, from time to time, request
parking in addition to that provided for above and if Landlord or
its parking contractor shall provide the same, such parking and
Tenant's Optional Parking shall be provided and used on a
month-to-month basis, and Tenant shall be charged for each type of
such parking the same monthly rates as are generally in effect from
time to time in the parking garage for the same type of parking,
which shall not exceed rates for comparable parking in other
first-class institutional quality office buildings in the downtown
Los Angeles financial district.
All parking provided for in this Lease shall be subject to such
terms, conditions, rules and regulations as Landlord may from time
to time establish. Landlord shall not be responsible to Tenant or
any other person for the nonperformance by Tenant or any other
person of any such Rules and regulations. A copy of the Garage
Rules and Regulations now in effect is attached as Exhibit F.
13. Assignment and Subletting.
13.1. In General.
A. Except as otherwise provided in this Lease, Tenant
shall not directly or indirectly, voluntarily or involuntarily
assign, transfer, mortgage or otherwise encumber all or any portion
of its interest in this Lease (collectively, an "Assignment") or
sublet all or any portion of the Premises or permit all or part of
the Premises to be occupied or used by anyone other than Tenant or
Tenant's employees (collectively, a "Subletting", with "Transfer"
including an Assignment or a Subletting) without Landlord's prior
written consent, which shall not be unreasonably withheld or
delayed. Any purported Transfer without such consent, or not
otherwise permitted under this Lease, shall be void.
B. Notwithstanding clause A, Tenant shall have the right,
after notice to Landlord in accordance with Section 13.2, to effect
a Transfer to an entity (an "Affiliate") controlling, under common
control with, or controlled by Tenant, including an entity
resulting from a merger or consolidation by Tenant and any person
or entity which acquires all or substantially all of the stock of
Tenant or the assets or business of Tenant in Los Angeles, provided
that the Affiliate assumes in writing Tenant's obligations under
this Lease in the proportion that the number of square feet of
Rentable Area of the Premises transferred to the Affiliate of
Tenant bears to the total number of square feet of Rentable Area in
the Premises, without relieving Tenant of any liability under this
Lease. For purposes of this definition, "control" means with
respect to a corporation the right to exercise, directly or
indirectly, more than fifty percent (50%) of the voting rights
attributable to the shares of the controlled corporation and, with
respect to an individual, partnership or other entity, the power
directly or indirectly to direct the management or policies of the
controlled person or entity.
13.2. Notice of Intent to Effect a Transfer. If Tenant
intends at any time to effect a Transfer, Tenant shall give
Landlord notice (a "Transfer Notice") of its intention to do so at
least forty-five (45) days before Tenant intends to effect the
Transfer. The Transfer Notice shall include (a) the name of the
proposed transferee ("Transferee"), (b) the nature of the proposed
Transferee's intended use of the Premises, (c) the terms and
provisions of the proposed Transfer (unless the proposed Transferee
is an Affiliate), and (d) such financial information as Landlord
may reasonably request concerning the proposed Transferee (unless
the proposed Transferee is an Affiliate).
13.3. Landlord's Options. Except in the case of a Transfer
under Section 13.1(B), at any time within fifteen (15) days after
Landlord's receipt of the information required in the Transfer
Notice, Landlord may by written notice to Tenant elect to:
(a) approve the proposed Transfer, or
(b) disapprove the proposed Transfer.
If Landlord fails to so disapprove the proposed Transfer, Landlord
will be deemed to have approved the proposed Transfer. Any notice
of disapproval shall contain the specific reasons for Landlord's
disapproval.
13.4. Conditions for Landlord's Approval or Disapproval of
a Proposed Transfer.
A. Landlord's disapproval of a proposed Transfer shall be
deemed reasonable if among other things:
(1) the proposed Transferee is not reputable and of
good character;
(2) the proposed Transferee's intended use of the
Premises is incompatible with the existing use of the Building
by its tenants;
(3) the proposed Transferee or the proposed
Transferee's intended use of the Premises is not in keeping with
Landlord's standards for the Building;
(4) the proposed Transferee's intended use of the
Premises is in violation of the terms of this Lease or any other
lease in the Building or permits any occupant of the Building to
cancel its lease;
(5) the proposed Transferee is involved in bona fide
negotiations with Landlord for space in the Project;
(6) the portion of the Premises to be transferred or
the portion not to be transferred is not regular in shape, lacks
appropriate means of ingress and egress or is not in conformity
with all applicable building and safety codes;
(7) the proposed Transferee is not of adequate
financial strength;
(8) the proposed Transferee is a governmental entity
where the proposed occupant of the Premises does not meet
Landlord's standards for direct leases in the Building; or
(9) Tenant is in Default under this Lease.
B. If Landlord approves a Transfer under this Section,
Tenant may within ninety (90) days thereafter effect a Transfer on
the terms and conditions set forth in the applicable Transfer
Notice.
C. As a condition to Landlord's approval of any Sublease,
the Sublease shall provide that Landlord may enforce the provisions
of the Sublease, that on the termination of this Lease for any
reason, including without limitation a voluntary surrender by
Tenant, or in the event of any reentry or repossession of the
Premises by Landlord, Landlord may either (i) terminate the
Sublease or (ii) take over all of the right, title and interest of
Tenant, as sublessor, under the Sublease, in which case such
sublessee shall attorn to Landlord but Landlord shall not (1) be
liable for any previous act or omission of Tenant under the
Sublease, (2) be subject to any defense or offset previously
accrued in favor of the sublessee against Tenant, (3) be bound by
any previous modification of the Sublease made without Landlord's
written consent, or (4) be bound by any prepayment by sublessee of
more than one month's rent.
13.5. Profits.
A. Tenant shall upon receipt pay Landlord fifty per cent
(50%) of any Profits from any Transfer. The payment of Profits to
Landlord shall be made on a monthly basis as Additional Rent,
subject to an annual reconciliation on each anniversary date of the
Transfer. If the payments to Landlord under this Section during
the twelve (12) months preceding each annual reconciliation exceed
the amount of Profits determined on an annual basis, then Landlord
shall promptly credit the overpayment against Tenant's future
obligations under this Section. If Tenant has underpaid its
obligations hereunder during the preceding twelve (12) months,
Tenant shall promptly pay to Landlord the amount owing after the
annual reconciliation.
B. For purposes of this Section, "Profits" means the
consideration ("Transfer Consideration") which Tenant (including
any affiliate or successor of Tenant or other entity related to
Tenant) receives from any Transferee attributable to the Premises
or any portion thereof, less (i) reasonable leasing commissions
paid by Tenant in connection with the Transfer, (ii) any
improvement allowance or other economic concession (such as a space
planning or moving allowance) paid by Tenant to the Transferee,
(iii) reasonable attorneys fees, (iv) lease takeover costs, (v)
advertising costs, (vi) the Basic Rent and rent adjustments
pursuant to Section 4 payable by Tenant for the space in question,
(vi) costs paid by Tenant under Section 13.9, (vii) costs incurred
by Tenant in collecting rent or other amounts from the Transferee,
and (vii) any other litigation or other cost or expense incurred by
Tenant in connection with the Transfer (collectively, "Transfer
Costs"). Tenant shall be entitled to recover all Transfer Costs
before paying Landlord any Transfer Consideration. Any lump sum
payment received by Tenant from a Transferee shall be treated like
any other amount received by Tenant. All Profits and the components
thereof shall be subject to audit by Landlord at reasonable times.
13.6. No Release of Tenant's Obligations. No Transfer shall
relieve Tenant of its obligations under this Lease. The acceptance
of rent by Landlord from any other person shall not be deemed a
waiver by Landlord of any provision of this Lease or an approval of
a Transfer. Consent to one Transfer shall not be deemed consent to
any subsequent Transfer.
13.7. Transfer is Assignment. If Tenant is a corporation
whose shares are not traded in the over-the-counter market or on
any recognized stock exchange, or is an unincorporated association
or partnership, the transfer, assignment or hypothecation of any
stock or interest in such corporation, association or partnership
in the aggregate in excess of fifty percent (50%) shall be deemed
an Assignment hereunder.
13.8. Assumption of Obligations. Each Transferee, other than
Landlord, shall assume, as provided in this Section, and be liable
jointly and severally with Tenant for the performance of all
obligations of Tenant under this Lease with respect to the portion
(including all) of the Premises transferred to the Transferee,
provided that a Sublessee shall be liable to Landlord for rent only
in the amount set forth in the Sublease. No Assignment shall be
binding on Landlord unless Landlord receives a counterpart of the
Assignment and a recordable instrument of assumption consistent
with the requirements of this Section.
13.9. Costs. Except in the case of a Transfer to an
Affiliate, Tenant shall reimburse Landlord for all reasonable costs
incurred by Landlord in processing and documenting each requested
Transfer whether or not the Transfer is approved by Landlord or
consummated by Tenant.
14. Surrender of Premises and Removal of Property.
14.1. No Merger. The voluntary or other surrender of this
Lease by Tenant or a mutual cancellation or termination of this
Lease shall not constitute a merger and shall, at the option of
Landlord, terminate or operate as an assignment to Landlord of any
or all subleases affecting the Premises.
14.2. Surrender of Premises. Upon the expiration or other
termination of this Lease, Tenant shall quit and surrender the
Premises to Landlord and shall at Tenant's expense remove or cause
to be removed from the Premises all furniture, equipment, business
and trade fixtures, free-standing cabinet work, movable
partitioning and other articles of personal property owned by
Tenant or installed or placed by Tenant at its expense in the
Premises, and all similar articles of any other persons claiming
under Tenant unless Landlord exercises its option to have any
subleases or subtenancies assigned to Landlord, and Tenant shall
repair all damage to the Premises resulting from such removal.
14.3. Disposal of Property. Any property of Tenant not
removed by Tenant upon the expiration of the Term of this Lease, or
within forty-eight (48) hours after a termination by reason of
Tenant's default, shall be considered abandoned and Landlord may
remove and dispose of any such property in any manner or store the
same in a public warehouse or elsewhere for the account, and at the
expense and risk, of Tenant. If Tenant fails to pay the cost of
storing any such property within ten (10) days of Landlord's
demand, Landlord may sell any such property at public or private
sale, in such manner and at such place or places as Landlord may
deem proper, without notice to or demand upon Tenant. Landlord
shall apply the sales proceeds, first, to the cost of sale,
including reasonable attorneys' fees, second, to the repayment of
the cost of removal and storage, third, to the payment of any other
sum which may then or thereafter be due to Landlord from Tenant
under this Lease, and fourth, the balance, if any, to Tenant.
14.4. Fixtures and Improvements. All fixtures, equipment,
alterations, additions, improvements and/or appurtenances attached
to or built into the Premises, whether at Landlord's or Tenant's
expense, shall remain part of the Premises and shall not be removed
by Tenant at the end of the Term of this Lease unless such removal
is required by Landlord pursuant to the provisions of Section 10.
15. Holding Over.
If, with or without Landlord's consent, Tenant holds over after
the expiration or other termination of this Lease, such holding
over shall be a tenancy at sufferance only and shall be subject to
all the terms and conditions of this Lease, except that during such
tenancy Tenant shall pay Landlord Base Rent equal to the greater of
(a) one hundred twenty-five percent (125%) of the then Fair Market
Rental Value of the Premises (as defined in and determined
according to Section 40.2) or (b) one hundred twenty-five percent
(125%) of the Base Rent in effect immediately prior to Tenant's
holding over and, in addition, Tenant shall indemnify Landlord
against and hold Landlord harmless from all loss or liability
resulting from Tenant's holding over. Such tenancy may be
terminated by Landlord at any time by notice of termination to
Tenant, and by Tenant on the last day of any calendar month after
providing Landlord with at least 30 days' prior written notice of
termination.
16. Property Tax on Tenant's Trade Fixtures.
Tenant shall pay all taxes levied against Tenant's trade
fixtures placed by or for Tenant in or about the Premises, and if
any such taxes are levied against Landlord or Landlord's property,
or if the assessed value of the Building is increased by the
inclusion therein of value placed on such property of Tenant, and
if Landlord pays taxes based upon such levy or such increased
assessment (which Landlord shall have the right to do regardless of
the validity thereof) Tenant shall on demand pay to Landlord the
taxes so levied against Landlord or Landlord's property or the
proportion of such taxes resulting from such increase in the
assessment.
17. Defaults and Remedies.
17.1. Default by Tenant. The occurrence of any of the
following shall constitute a material default (a "Default") by
Tenant under this Lease:
(a) Tenant fails to pay any rent or other sum as and
when due under this Lease where such failure continues for ten
(10) days after notice thereof from Landlord to Tenant (such
notice being in lieu of that required by Section 1161 of the
California Code of Civil Procedure).
(b) Tenant abandons the Premises.
(c) Tenant fails to observe or perform the provisions of
Section 5 or 10 where such failure continues for twenty-four
(24) hours after notice thereof from Landlord to Tenant,
provided that if the default is curable but cannot be cured
within that twenty-four (24) hour period, Tenant shall not be in
default if within that period Tenant commences such cure and
thereafter diligently prosecutes the cure to completion.
(d) Tenant fails to provide any estoppel certificate as
called for in this Lease where such failure continues for three
(3) days after notice thereof from Landlord to Tenant.
(e) Tenant fails to vacate and surrender the Premises as
required by this Lease upon the expiration or other termination
of this Lease.
(f) Tenant fails to observe or perform any other
provision of this Lease to be observed or performed by Tenant,
where such failure continues for thirty (30) days after notice
thereof from Landlord to Tenant, provided that if the default is
curable but cannot be cured within that thirty (30) day period,
Tenant shall not be in default if within that period Tenant
commences such cure and thereafter diligently prosecutes the
cure to completion. Landlord's notice shall be in lieu of that
required by Section 1161 of the California Code of Civil
Procedure, or
(g) Any action is taken by or against Tenant or pursuant
to any statute pertaining to bankruptcy or insolvency or the
reorganization of Tenant (unless, in the case of a petition
filed against Tenant, it is dismissed within sixty (60) days);
Tenant makes any general assignment for the benefit of
creditors; a trustee or receiver is appointed to take possession
of all or any portion of Tenant's assets located at the Premises
or of Tenant's interest in this Lease, where possession is not
restored to Tenant within sixty (60) days.
17.2. Landlord's Remedies. On Default by Tenant under this
Lease, Landlord shall have the following remedies together with all
other rights or remedies from time to time allowed by law or in
equity, all of which shall be cumulative:
(a) Landlord may, by giving Tenant at least five (5)
days prior written notice of termination, whether or not
Landlord has then reentered and/or relet the Premises, terminate
this Lease, in which event Landlord shall be entitled to recover
from Tenant:
(1) the worth at the time of award of the unpaid rent
which had been earned at the time of termination;
(2) the worth at the time of award of the amount by
which the unpaid rent which would have been earned after
termination until the time of award exceeds the amount of
such rental loss that Tenant proves could have been
reasonably avoided;
(3) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the
time of award exceeds the amount of such rental loss that
Tenant proves could be reasonably avoided;
(4) any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure
to perform its obligations under this Lease or which in the
ordinary course of events would be likely to result
therefrom; and
(5) at Landlord's election any other amounts in
addition to or in lieu of the foregoing as may from time to
time be permitted by law.
As used in clauses (1) and (2) above "worth at the time of
award" shall be computed by allowing interest at the rate per
annum from time to time in effect under Section 26.1. As used in
clause (3) above, the "worth at the time of award" shall be
computed by discounting such amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of award plus
one percent (1%).
(b) Landlord may also with or without terminating this
Lease re-enter the Premises by summary proceedings or otherwise
and remove all persons and property therefrom by summary
proceedings or otherwise, storing any removed property in a
public warehouse or elsewhere at the cost and for the account of
Tenant or disposing of any removed property in a reasonable
manner.
(c) If Landlord does not elect to terminate this Lease,
then Landlord may from time to time, without terminating this
Lease, either recover all rent as it becomes due or relet the
Premises or any part thereof for such term or terms and at such
rent or rents and upon such other terms and conditions as
Landlord may reasonably deem advisable, with the right to make
alterations and repairs to the Premises.
(d) Rentals received by Landlord from such reletting
shall be applied: First, to the payment of any rent (other than
Base Rent or Additional Rent) due from Tenant to Landlord;
second, to the payment of any cost of such reletting (including
but not limited to leasing commissions, advertising and legal
costs, tenant improvement costs and rent concessions such as
free rent amortized over the term of the new lease, with the
applicable portion of such costs charged to Tenant); third, to
the payment of the cost of any alterations and repairs to the
Premises; fourth, to the payment of rent due and unpaid under
this Lease; and the remainder, if any, shall be held by Landlord
without interest and applied in payment of future rent as the
same may become due and payable hereunder. Should the portion of
such rentals received from such reletting during any month which
is applied to the payment of rent hereunder be less than the
rent payable during that month by Tenant hereunder, then Tenant
shall pay such deficiency to Landlord. Such deficiency shall be
calculated and paid monthly. Tenant shall also pay to Landlord,
as soon as ascertained by Landlord, any costs and expenses
incurred by Landlord in such reletting or in making such
alterations and repairs not covered by the rentals received from
such reletting.
(e) If Landlord does not terminate this Lease and if
Tenant requests Landlord's consent to an Assignment of this
Lease or a Sublease of the Premises while Tenant is in default,
Landlord shall not unreasonably withhold its consent to such
Assignment or Sublease.
(f) If Landlord elects to terminate this Lease as a
result of Tenant's Default, on the expiration of the time stated
in Landlord's notice to Tenant given under clause (a) above,
this Lease, and all of the right, title and interest of Tenant
under this Lease, shall terminate with the same force and effect
(except as to Tenant's liability) as if the date fixed in such
notice were the date herein specified for expiration of the Term
of this Lease. Upon such termination, Tenant shall immediately
quit and surrender the Premises to Landlord, and Landlord may
enter the Premises by summary proceedings or otherwise and
remove all persons and property therefrom by summary proceedings
or otherwise, storing any removed property in a public warehouse
or elsewhere at the cost and for the account of Tenant or
disposing of any removed property in a reasonable manner.
(g) Tenant hereby waives any right of redemption granted
by or under any present or future law.
(h) In addition, if Tenant fails to perform any act to
be performed by it under this Lease, Landlord may, but need not,
perform such act for the account of Tenant without waiving or
releasing Tenant from any of its obligations under this Lease.
All sums so paid by Landlord will be payable by Tenant to
Landlord on demand.
17.3. Re-Entry Not Termination. No re-entry or taking
possession of the Premises by Landlord pursuant to this Section
shall be construed as an election to terminate this Lease unless a
written notice of termination is given to Tenant or unless the
termination of this Lease is decreed by a court of competent
jurisdiction. Notwithstanding any reletting without termination by
Landlord because of any Default of Tenant, Landlord may at any time
after such reletting elect to terminate this Lease for any such
Default.
17.4. Default by Landlord. Landlord shall only be in
default under this Lease if Landlord fails to observe or perform
any provision of the Lease to be observed or performed by Landlord
where such failure continues for ten (10) days after notice thereof
from Tenant to Landlord and to each lender and ground lessor who
has a recorded interest in any part of the real property of which
the Premises, the Building and/or the Project form a part and who
has in writing requested that Tenant give such notice and provided
the address to which such notice is to be sent, provided that if
the default is curable but cannot be cured within that ten (10) day
period, Landlord shall not be in default if within that period
Landlord or any such lender or ground lessor commences such cure
and thereafter diligently prosecutes the cure to completion.
Nothing in this Lease shall be construed to prohibit Tenant from
seeking to recover damages from Landlord in the event that Landlord
is in default under this Lease.
18. Damage by Fire or Other Casualty.
18.1. Landlord's Notice. If the Premises, the Building or
the Project is damaged or destroyed by fire or other casualty,
Landlord shall as soon as reasonably possible, but in any event
within sixty (60) days after Landlord learns of such damage or
destruction, give Tenant notice ("Landlord's Notice") stating (x)
whether or not in Landlord's judgment the loss to Landlord is fully
covered (except for a normal deductible) by insurance maintained by
or for Landlord and (y) if in Landlord's judgment such loss is so
insured, whether or not in Landlord's judgment the damage or
destruction can be repaired within one (1) year of such damage or
destruction without payment of overtime or other premiums.
18.2. Loss Covered by Insurance. If Landlord's Notice states
that in Landlord's judgment the loss is fully covered (except for
a normal deductible) by insurance maintained by or for Landlord and
the casualty rendered the Premises totally or partially unusable or
inaccessible by Tenant, then:
(a) Repairs Which Can Be Completed Within One Year. If
Landlord's Notice states that such damage or destruction can in
Landlord's reasonable judgment be so repaired within one (1)
year of such damage or destruction, Landlord shall repair the
same, the Lease shall continue in full force and effect and Base
Rent and rent adjustments under Section 4 shall be reduced to
the extent, and during the period, that the Premises are
unusable or inaccessible by Tenant and not used by Tenant for
the conduct of Tenant's business. However, if, at any time
during the course of repairing the damage or destruction,
Landlord determines in Landlord's reasonable judgment that such
damage or destruction cannot be so repaired within fifteen (15)
months of such damage or destruction, Landlord shall promptly
give Tenant notice of that fact and Tenant may within thirty
(30) days after that notice from Landlord elect to terminate
this Lease on the date of such election.
(b) Repairs Which Cannot Be Completed Within One Year.
If Landlord's Notice states that such damage and destruction
cannot in Landlord's reasonable judgment be so repaired within
one (1) year of such damage or destruction, Landlord may within
sixty (60) days after Landlord's Notice elect to repair such
damage or destruction and in that event this Lease shall
continue in full force and effect but the Base Rent and rent
adjustments under Section 4 shall be reduced as provided in
clause (a). If Landlord does not so elect, then either Landlord
or Tenant may within thirty (30) days after Landlord's Notice
elect to terminate this Lease on the date of such election.
18.3. Loss Not Covered by Insurance. If Landlord's Notice
states that the loss to Landlord is not in Landlord's reasonable
judgment fully covered (except for a normal deductible) by
insurance maintained by or for Landlord, Landlord may within sixty
(60) days after Landlord's Notice elect to repair such damage or
destruction or to terminate this Lease as of the date of such
election. If Landlord elects to repair such damage or destruction,
this Lease shall continue in full force and effect and the Base
Rent and rent adjustments under Section 4 shall be reduced as
provided in Section 18.2(a). If Landlord so elects to repair such
damage or destruction, Landlord shall promptly (i) estimate the
amount which, pursuant to clause (y) of Section 4.3(B), Tenant will
be required to pay for each full Lease Year after such damage or
destruction has been repaired and paid for and (ii) give Tenant
notice ("Landlord's Cost Notice") of that amount. If that amount
for each such Lease Year exceeds twenty percent (20%) of the annual
Base Rent in effect under this Lease at the time of the damage or
destruction, then Tenant may, by notice ("Tenant's Termination
Notice") to Landlord within thirty (30) days after Landlord's Cost
Notice, terminate this Lease as of the date of Tenant's Termination
Notice, provided that if, within ten (10) days after Tenant's
Termination Notice, Landlord notifies Tenant that Tenant's costs
pursuant to clause (y) of Section 4.3(B) which are attributable to
the repair of such damage or destruction shall not for any Lease
Year exceed twenty percent (20%) of the annual Base Rent in effect
under this Lease at the time of the damage or destruction, Tenant's
Termination Notice shall be of no force or effect and this Lease
shall continue in effect.
18.4. Time for Repairs by Landlord. If Landlord is to
repair any damage and destruction pursuant to this Section 18,
Landlord shall do so as expeditiously as is reasonably possible.
18.5. Destruction During Final Year. Notwithstanding
anything to the contrary contained in Section 18.2 or 18.3, if the
Premises, the Building or the Project are wholly or partially
damaged or destroyed within the final twelve (12) months of the
Term of this Lease, and Tenant has not exercised any extension
option prior to such damage or destruction, and if as a result of
such damage or destruction Tenant is denied access or use of the
Premises for the conduct of its business operations for a period of
thirty (30) consecutive business days, Landlord or Tenant may, at
its option, by giving the other notice no later than sixty (60)
days after the occurrence of such damage or destruction, elect to
terminate the Lease.
18.6. Destruction of Personal Property of Tenant or Tenant's
Employees. In no event shall Landlord be required to repair any
damage to or destruction of any personal property of Tenant or
Tenant's employees, agents, contractors, licensees, directors,
officers, partners, trustees, visitors or invitees (collectively,
"Tenant's Employees"). However, as part of Operating Expenses,
Landlord shall insure Tenant Improvements and Tenant Alterations
and, where required by the terms of this Lease to repair damage or
destruction, Landlord shall repair such Tenant Improvements and
Tenant Alterations at Landlord's expense, except that Tenant shall
pay for the portion covered by a commercially reasonable deductible
for insurance on the Tenant Improvements and Tenant Alterations
only.
18.7. Exclusive Remedy. This Section 18 shall be Tenant's
sole and exclusive remedy in the event of damage or destruction to
the Premises, the Building or the Project, and Tenant as a material
inducement to Landlord's entering into this Lease irrevocably
waives and releases Tenant's rights under California Civil Code
Sections 1932(2) and 1933(4). No damages, compensation or claim
shall be payable by Landlord for any inconvenience, any
interruption or cessation of Tenant's business, or any annoyance,
arising from any damage to or destruction of all or any portion of
the Premises, the Building or the Project.
19. Eminent Domain.
19.1. When Lease Terminates. If so much of the Premises is
taken by right of eminent domain, or sold under threat of such
taking, as to render the remainder of the Premises unsatisfactory
for use by Tenant for the conduct of Tenant's business, and such
taking is a permanent taking or, if a temporary taking, is for a
period at least one (1) year during the Term of this Lease, this
Lease shall terminate as of the date of such taking.
If any portion of the Premises is so taken and this Lease does
not terminate in accordance with other provisions of this Section,
this Lease shall terminate with respect to the portion so taken as
of the date of such taking and the Base Rent and rent adjustments
under Section 4 shall thereafter be reduced proportionally on a per
square foot basis. No such taking which is a temporary taking for
a period of less of than one (1) year during the term of this Lease
shall terminate any part of this Lease or give Tenant any right to
any abatement of any payments owed to Landlord pursuant to this
Lease, but any award made by reason of such temporary taking shall
belong entirely to Tenant.
19.2. Condemnation Awards. No award for any partial or
entire taking shall be apportioned, and Tenant assigns to Landlord
any award which may be made in such taking, together with all
rights of Tenant to such award, including without limitation any
award for the value of all or any part of the leasehold estate
provided that nothing contained in this provision shall be deemed
to give Landlord any interest in or to require Tenant to assign to
Landlord any award made to Tenant for (a) the taking of Tenant's
personal property or fixtures which, under the terms of this Lease,
Tenant may remove from the Premises, (b) interruption of or damage
to Tenant's business, (c) Tenant's moving and relocation costs or
(d) Tenant's unamortized cost of any improvements paid for by
Tenant.
19.3. Exclusive Remedy. This Section 19 shall be Tenant's
sole and exclusive remedy in the event of a taking. Tenant hereby
waives the benefit of California Code of Civil Procedure Section
1265.130.
20. Indemnification and Limitation of Liability.
20.1. Indemnity by Tenant. Tenant shall indemnify, protect,
defend and hold harmless Landlord, its officers, directors,
partners, agents and employees from and against any and all claims,
suits, demands, liability, damages and expenses, including
attorneys' fees and costs, arising from or in connection with
Tenant's use or alteration of the Premises or the conduct of its
business or from any activity performed or permitted by Tenant in,
on or about the Premises, the Building or the Project, or arising
from Tenant's use of the Building Services in excess of their
capacity, or arising from any actual or alleged breach or default
in the performance of any obligation on Tenant's part to be
performed under the terms of this Lease or arising from any other
actual or alleged act, neglect, fault or omission of Tenant or any
of its officers, agents, directors, contractors or employees, but
excluding any loss or liability to the extent attributable to the
negligence or willful misconduct of Landlord, its officers, agents,
directors, contractors or employees. As a material part of the
consideration to Landlord for entering into this Lease, Tenant
hereby assumes all risk of and releases, discharges and holds
harmless Landlord from and against any and all liability to Tenant
for damage to property or injury to persons in, on or about the
Premises, the Building or the Project from any cause whatsoever
except to the extent caused by the negligence or willful act of
Landlord, its officers, agents, directors, contractors or
employees. Tenant's obligations under this Section shall survive
the expiration or other termination of this Lease.
20.2. Limitation on Landlord's Liability. In no event shall
Landlord be liable to Tenant for any injury to any person in, on or
about the Premises, the Building or the Project or damage to the
Premises or for any loss, damage or injury to any property therein
from any cause, including without limitation any malfunction of any
utility or other equipment, installation or system, or by the
rupture, leakage or overflow of any plumbing or other pipes,
including without limitation water, steam and refrigeration lines,
sprinklers, tanks, drains, drinking fountains or similar cause in,
on or about the Premises, the Building or the Project, except to
the extent such loss, damage or injury is caused by the negligence
or willful act of Landlord, its officers, agents, directors,
contractors or employees. In the absence of fraud or willful
misconduct, none of the general or limited partners in Landlord (or
in any partnership to which Landlord may assign this Lease) or any
of such partner's directors, officers, employees, agents,
shareholders, partners or affiliates shall be responsible for any
of the liabilities, obligations or agreements of Landlord under
this Lease, except to the extent of any direct or indirect interest
such party may have in Landlord.
21. Insurance.
21.1. Tenant covenants and agrees to provide on or before
the Commencement Date and to keep in force during the entire term
of this Lease, and to pay the premiums for, all of the following
insurance:
(a) Property insurance including fire, extended
coverage, vandalism, malicious mischief and all risks covered
upon property of every description and kind owned by Tenant and
located in the Building or for which Tenant is legally liable or
installed by or on behalf of Tenant, including without
limitation furniture, fittings, installations, including Tenant
improvements and betterment, fixtures and any other personal
property, in an amount not less than ninety percent (90%) of the
full replacement costs thereof.
(b) A policy of commercial general liability insurance
coverage to include personal injury, bodily injury, broad form
property damage, premises/operations, owner's protective
coverage, blanket contractual liability, products and completed
operations liability and owned/non-owned auto liability, in
limits not less than Three Million Dollars (63,000,000.00)
inclusive. Such policy shall name Landlord, Landlord's managing
agent and Landlord's mortgagees as additional insureds and shall
provide that the insurance afforded by such policy for the
benefit of Landlord shall be primary with respect to any claims,
losses or liabilities arising out of the use of the Premises by
Tenant or by Tenant's operation, and any insurance carried by
Landlord shall be excess and non-contributing.
(c) Any other form or forms of insurance as Tenant or
the mortgagees of Landlord may reasonably require from time to
time in amounts and for insurance risks against which a prudent
tenant would protect itself.
21.2. Tenant agrees to deliver to Landlord at least fifteen
(15) days prior to the time such insurance is first required to be
carried by Tenant, and thereafter at least fifteen (15) days prior
to the expiration of any such policy, either a duplicate original
or a certificate and true copy of all policies procured by Tenant
in compliance with its obligations under Section 21.1, together
with evidence of payment therefor.
21.3. Policies for such insurance will be in a form and with
an insurer reasonably acceptable to Landlord, will require at least
fifteen (15) days' written notice to Landlord of termination or
material alteration during the Term, and will waive any right of
subrogation against Landlord and all individuals and entities for
whom Landlord is responsible in law.
21.4. Tenant shall give prompt notice to Landlord of fire,
accident or damage affecting or in the Premises. The commercial
general liability coverage maintained by Tenant pursuant to Section
21.1(b) will specifically insure the contractual obligations of
Tenant set forth in Section 20.1.
22. Subordination.
22.1. Subordination. Tenant agrees that this Lease shall at
all times be subject and subordinate to all present and future
first deeds of trust, first mortgages, ground leases and other
first lien encumbrances (each, an "Underlying Encumbrance")
affecting Landlord's interest in the real property of which the
Premises, the Building, or the Project forms a part and to all
renewals, modifications, replacements or extensions thereof (except
to the extent that any Underlying Encumbrance expressly provides
that this Lease is superior to that Underlying Encumbrance),
provided that the beneficiary of each Underlying Encumbrance agrees
in writing (i) that, if Landlord's interest in the real property of
which the Premises, the Building or the Project forms a part is
sold or conveyed upon the exercise of any remedy under any
Underlying Encumbrance or provided by law, the new owner shall
agree in writing to recognize this Lease and all of the rights of
Tenant hereunder and (ii) that Tenant, upon the paying of all rent
hereunder and performing each of the covenants, agreements and
conditions of this Lease required to be performed by Tenant, shall
lawfully and quietly hold, occupy and enjoy the Premises during the
Term without hindrance or molestation of anyone lawfully claiming
by, through or under Landlord. This clause shall be self-operating
and no further instrument of subordination shall be required in
order to effect such subordination, but Tenant shall promptly
execute, acknowledge and deliver to Landlord any document that
Landlord may reasonably request to evidence or confirm such
subordination and the non-disturbance agreement and agreement to
recognize Tenant's rights as provided in the preceding sentence.
Notwithstanding the foregoing, Landlord or any beneficiary of any
Underlying Encumbrance may at any time subordinate any Underlying
Encumbrance to this Lease.
22.2. Attornment. If Landlord's interest in the real
property of which the Premises, the Building or the Project forms
a part is sold or conveyed upon the exercise of any remedy under
any Underlying Encumbrance or provided by law, then (a) this Lease
will not be affected in any way, Tenant will attorn to and
recognize the new owner as Tenant's Landlord under this Lease, and
Tenant shall promptly execute, acknowledge and deliver to the new
owner any document that the new owner may reasonably request to
evidence or confirm such attornment and tb) the new owner shall not
be (i) liable for any act or omission of Landlord under this Lease
occurring prior to such sale or conveyance (except to the extent
that such act or omission continues during the new owner's
ownership of the Premises, the Building or the Project), (ii)
subject to any offset, abatement or reduction of rent or other
claim because of any default of Landlord under this Lease occurring
prior to such sale or conveyance (except to the extent that such
act or omission continues during the new owner's ownership of the
Premises, the Building or the Project), (iii) liable for the return
of any security deposit paid by Tenant except to the extent that
the security deposit has actually been paid to the new owner, (iv)
bound by any payment of rent for more than one month in advance, or
(v) bound by any amendment of this Lease made without its written
consent. This Section shall survive any sale or conveyance
described above.
22.3. Notice from Tenant. Tenant shall give written notice
to any holder of any Underlying Encumbrance who has requested such
notice in writing of any act or omission by Landlord which Tenant
asserts as giving Tenant the right to terminate this Lease or any
other right or remedy under this Lease or provided by law. Each
such holder shall have the same right to cure any default, and the
same time period within which to cure any default, as Landlord has
under the terms of this Lease.
22.4. Non-Disturbance Agreement. Landlord represents and
warrants to Tenant that on the date of Landlord's execution of this
Lease, the only beneficiary under any existing Underlying
Encumbrance is The Yasuda Trust & Banking Co., Ltd. Concurrently
with Landlord's execution and delivery of this Lease to Tenant,
Landlord shall deliver to Tenant a nondisturbance agreement
substantially in the form of Exhibit G duly executed by The Yasuda
Trust & Banking Co., Ltd. Landlord shall use commercially
reasonable efforts to deliver to Tenant a non-disturbance agreement
in form reasonably acceptable to Tenant from the beneficiary of
each future Underlying Encumbrance.
23. Bankruptcy.
If, at any time prior to the Commencement Date, any action is
taken by or against Tenant in any court pursuant to any statute
pertaining to bankruptcy or insolvency or the reorganization of
Tenant, Tenant makes any general assignment for the benefit of
creditors, a trustee or receiver is appointed to take possession of
substantially all of Tenant's assets or of Tenant's interest in
this Lease, or there is an attachment, execution or other judicial
seizure of substantially all of Tenant's assets or of Tenant's
interest in this Lease, then this Lease shall ipso facto be
canceled and terminated and of no further force or effect. In such
event, neither Tenant nor any person claiming through or under
Tenant or by virtue of any statute or of any order of any court
shall be entitled to possession of the Premises or any interest in
this Lease and Landlord shall, in addition to any other rights and
remedies under this Lease, be entitled to retain as liquidated
damages any rent, security deposit or other monies received by
Landlord from Tenant.
24. Entry by Landlord.
Landlord shall at all times have the right without any abatement
of rent (except to the extent the Premises are, by any act or act
of Landlord permitted by this Section, rendered unsuitable for
Tenant's use and Tenant does not use the Premises) to enter the
Premises to inspect the same and to determine, to the extent an
inspection enables Landlord to do so, whether or not Tenant is in
compliance with Tenant's obligations under this Lease, to supply
janitorial service and any other service to be provided by Landlord
to Tenant hereunder, to exhibit the Premises to prospective
purchasers, tenants or lenders, to post notices of
nonresponsibility, to repair any portion of the Building, and to
erect scaffolding and other necessary structures where reasonably
required by the character of the work to be performed, provided the
entrance to the Premises shall not be blocked thereby, and further
provided that the business of Tenant shall not be interfered with
unreasonably, and Tenant shall be given reasonable prior notice of
such entry, except in case of emergency. Tenant hereby waives any
claim for damages for any injury or interference with Tenant's
business, any loss of occupancy or quiet enjoyment of the Premises,
and any other loss occasioned by the exercise of Landlord's rights
hereunder. For each of the aforesaid purposes, Landlord shall at
all times have the right to retain a key with which to unlock all
doors in the Premises, excluding Tenant's vaults and safes.
Landlord shall have the right to use any means which Landlord may
deem proper to open such doors in an emergency. Entry into the
Premises obtained by Landlord by any such means shall not be deemed
to be forcible or unlawful entry into, or a detainer of, the
Premises, or an eviction of Tenant from the Premises or any portion
thereof.
25. Waiver of Subrogation.
Each party waives any and all rights of recovery against the
other party for or arising out of damage to or destruction of any
property of the waiving party, from causes then included under
standard fire and extended coverage insurance policies or
endorsements, whether or not caused by the negligence of the other
party, its agents, servants, employees, contractors, visitors or
licensees, but only to the extent that the waiving party's
insurance policies then in force permit such waiver. Each party
represents that its present insurance policies now in force permit
such waiver.
If at any time during the term of this lease either party shall
give no less than five days prior notice to the other certifying
that any insurance carriers which shall have issued any such policy
covering any of the property above mentioned shall refuse to
consent to the aforesaid waiver of subrogation, or if such carrier
shall consent to the aforesaid waiver only upon the payment of an
additional premium (and such additional premium is to paid by the
other party hereto), or such carrier shall revoke a consent
previously given or shall cancel or threaten to cancel any policy
previously issued and then in force and effect, because of such
waiver of subrogation, then, in any such events, the waiver in this
Section shall thereupon be of no further force or effect as to the
loss, damage or destruction covered by such policy; provided,
however, that if at any time thereafter such consent shall be
obtained therefor without an additional premium from any existing
or substitute insurance carrier, the waiver hereinabove provided
for shall again become effective.
26. Interest on Tenant's Obligations; Late Charges.
26.1. Interest. Any amount due from Tenant to Landlord
which is not paid when due shall bear interest at the rate per
annum equal to the rate from time to time announced by Bank of
America in Los Angeles as its "prime" or "reference" rate as such
rate may change from time to time plus two percent (2%), but in no
event at a rate higher than the maximum interest rate per annum
from time to time permitted by law, from the date such payment is
due until paid, but the payment of such interest shall not excuse
or cure any Default by Tenant under this Lease. Amounts due from
Tenant to Landlord other than Base Rent and rent adjustments under
to Section 4 shall be deemed due thirty (30) days after notice from
Landlord.
26.2. Late Charge. If Tenant fails to pay any amount of
Base Rent or rental adjustments under Section within ten (10) days
after notice from Landlord that such amount was not paid when due,
Tenant shall pay Landlord a late charge equal to three percent (3%)
of each delinquent amount of rent. The parties agree that the
amount of such late charge represents a reasonable estimate of the
cost and expense (other than attorneys' fees and costs) that would
be incurred by Landlord in processing each delinquent payment of
rent by Tenant and that such late charge shall be paid to Landlord
as liquidated damages for each delinquent payment pursuant to
California Civil Code Section 1671, but the payment of such late
charge shall not excuse or cure any default by Tenant under this
Lease. The parties further agree that the payment of late charges
under this clause and the payment of interest under Section 26.1
are distinct and separate from one another in that the payment of
interest is to compensate Landlord for the use of Landlord's money
by Tenant, while the payment of a late charge is to compensate
Landlord for the additional administrative expense incurred by
Landlord in handling and processing delinquent payments.
27. Transfer of Landlord's Interest.
Upon any sale or other transfer of Landlord's interest in the
Building, other than a transfer for security purposes only,
Landlord shall be relieved of any and all obligations and
liabilities accruing under this Lease from and after the date of
the transfer, except that if Landlord did not transfer to the
transferee any deposit then held by Landlord as security for the
performance of Tenant's obligations under this Lease, the deposit
or any balance of it shall be returned to Tenant at the expiration
or other termination of this Lease.
28. Estoppel Certificates.
Tenant shall at any time and from time to time upon not less
than fifteen (15) days' prior notice from Landlord execute,
acknowledge and deliver to Landlord a written statement (to which
a copy of this Lease amended through the date of the statement
shall be attached) certifying:
(a) that the attached copy of this Lease is true and
correct,
(b) that this the Lease is in full force and effect and
has not been assigned, modified, supplemented or amended in any
way, except as set forth in the statement,
(c) the dates to which the Basic Rent, Additional Rent
and other charges have been paid in advance,
(d) that to the best knowledge of Tenant Landlord is not
in default under this Lease or each default of which Tenant has
knowledge,
(e) the date on which this Lease expires and
(f) such other matters as Landlord might reasonably
require.
Any such statement may be relied upon by any actual or prospective
transferee or encumbrancer of any interest in the Premises, the
Building or the Project, Landlord, any owner of any direct or
indirect interest in Landlord or any successor or assignee of any
such person.
29. Quiet Enjoyment.
Tenant, upon the paying of all rent hereunder and performing
each of the covenants, agreements and conditions of this Lease
required to be performed by Tenant, shall lawfully and quietly
hold, occupy and enjoy the Premises during the Term without
hindrance or molestation of anyone lawfully claiming by, through or
under Landlord, subject, however, to the provisions set forth in
this Lease.
30. Relocation. (Intentionally omitted.)
31. Definition of Tenant.
The term "Tenant" shall include all persons or entities named as
Tenant under this Lease and any one or more of them. If any of the
obligations of Tenant hereunder is guaranteed by another person or
entity, the term "Tenant" shall include all of such guarantors and
any one or more of such guarantors. If this Lease has been
assigned, the term "Tenant" shall include both the assignee and the
assignor.
32. Attorneys' Fees and Costs.
If any action or proceeding is brought by either party to
enforce any rights under this Lease, the unsuccessful party to such
action or proceeding shall pay to the successful party all costs
and expenses, including reasonable attorneys' fees and costs,
reasonably incurred by the successful party in connection with such
action or proceeding.
33. Brokers.
Tenant warrants that it has not had any contact or dealings with
any person or real estate broker other than Cushman & Wakefield of
California, Inc. that would give rise to any obligation to pay any
brokerage commission or fee in connection with this Lease, and
Tenant shall indemnify, hold harmless and defend Landlord from and
against any loss, liability or expense resulting from any actual or
claimed incorrectness of that warranty.
34. Examination of Lease.
The submission of this instrument for examination or signature
by Tenant, Tenant's agents or attorneys does not constitute a
reservation, option or offer to lease, and neither party shall have
any right or obligation under this instrument until it has been
executed and delivered by both Landlord and Tenant.
35. Directory Board and Signage.
35.1. Directory Board. Tenant shall have the right to have
its name, the names and titles of Tenant's officers and the names
of any subtenants placed on the directory board (which may be in
the form of a computerized directory with display screen) in the
lobby of the Building and any other directory designated by
Landlord, but only up to a maximum of two (2) lines per each 1,000
rentable square feet in the Premises.
35.2. Signage. Tenant may install, at its own expense,
appropriate signage containing Tenant's name and the names of any
subtenants on the entrance doors to the Premises and, provided that
at all times Tenant leases all of the Rentable Area on individual
floors of the Premises, on the walls of the elevator lobbies on
each floor of the Premises leased solely by Tenant. Any such
signage will be designed and constructed in a manner compatible
with Building standard signage and graphics criteria and shall be
subject to Landlord's prior approval, which shall not be
unreasonably withheld or delayed. If at any time Tenant ceases to
lease all of the Rentable Area on any floor of the Premises
hereunder, Tenant's rights under this Section to install and
maintain signage on the walls of the elevator lobbies within such
floor shall terminate and Tenant shall at Tenant's expense promptly
remove all such signage and repair and restore the walls to their
prior condition.
36. Modification for Lender.
Upon Landlord's request, Tenant shall agree to modify this Lease
to meet the requirements of any lender or ground lessor selected by
Landlord who requests such modification as a condition precedent to
providing any loan or financing or to entering into any ground
lease affecting or encumbering any part of the real property of
which the Premises, the Building and/or the Project form a part,
provided that such modification does not increase the rent, alter
the Term or adversely affect Tenant's rights or obligations under
this Lease.
37. Transportation System Management Program.
Tenant shall, at its expense, participate in and cooperate with
the requirements of any and all government promulgated or sponsored
transportation system management programs adopted for the Building
and/or the Project.
38. Tenant's Extension Option.
Landlord hereby grants to Tenant an option (the "Options") to
extend the Term of this Lease for a period of five (5) years. The
Option must be exercised if at all by written notice ("Option
Notice") delivered by Tenant to Landlord not less than fourteen
(14) months, but not more than fifteen (15) months, prior to the
end of the Term. If Tenant gives the Option Notice, the Base Rent
during the Option term shall be as provided below. In any event,
however, the Option shall not be exercisable unless as of the date
of the Option Notice and at the end of the Term prior to the
commencement of the Option term Tenant is not in Default under the
Lease. In the event the Term of this Lease shall be extended, then
all of the terms, covenants and conditions of the Lease shall
remain unmodified and in full force and effect, except that the
Base Rent under Section 3(a) shall be ninety-five percent (95%) of
the then-prevailing Fair Market Rental Value for the Premises (as
defined and determined in Section 40.1), provided that in no event
shall the Base Rent during the Option term be less than the Base
Rent in effect immediately preceding the commencement date of the
Option term.
39. Tenant's Expansion Option.
Provided that at the time of the exercise of the option set
forth in this Section Tenant is not in Default under this Lease,
Landlord hereby grants to Tenant an option (the "Expansion Option")
to lease, effective on the first day of the sixth year of the Term,
approximately 2,500 rentable square feet of space (the "Expansion
Space") adjacent to the Premises. The Expansion Option shall be
exercised, if at all, by notice (an "Option Notice") given by
Tenant to Landlord not later than the first day of the fifth year
of the Term. If Tenant gives the Option Notice, Landlord shall, not
later than the last day of the first month of the fifth year of the
Term, notify Tenant of the size, location and configuration of the
Expansion Space and the Base Rent for the Expansion Space for the
remainder of the initial Term shall be the Fair Market Rental Value
(as defined and determined in Section 40.1) and the Base Rent for
the Expansion Space for any extension Term shall be the same, on a
per rentable square foot basis, as the Base Rent for the initial
Premises, provided that Tenant shall be given a reasonable period
of time, to be agreed upon by the parties upon Tenant's exercise of
the Expansion Option, within which Tenant or, if the parties then
so agree, Landlord shall construct tenant improvements in the
Expansion Space, during which period Tenant shall not be obligated
to pay Base Rent or rent adjustments under Section 4 with respect
to the Expansion Space. Effective on the Expansion Option
Commencement Date, the Expansion Space shall be deemed added to the
Premises, and Landlord and Tenant shall execute an amendment to
this Lease to be effective on such date, amending the Lease where
appropriate to reflect such addition to the Premises, including,
but not limited to, revising the description of the Premises,
proportionately increasing Tenant's Percentage (for rent adjust-
ments pursuant to Section 4), proportionally increasing Tenant's
allocation of parking and making any other appropriate revisions.
The term for an Expansion Space shall be coterminous with the
remaining Term for the initial Premises. Except as provided below,
all of the terms and provisions of the Lease shall be applicable to
the Expansion Space. The Expansion Space shall be delivered by
Landlord to Tenant in its "as-is" condition. Landlord shall use
commercially reasonable efforts to deliver the Expansion Space to
Tenant by the Expansion Option Commencement Date but shall not be
liable in the event that an existing tenant fails to timely
surrender possession of such space; provided, however, Landlord
shall use commercially reasonable efforts to enforce its legal
remedies against any person or entity in possession of the
Expansion Space whose failure to timely surrender such space
prevents Landlord from delivering the space to Tenant by the
Expansion Option Commencement Date.
40. Fair Market Rental Value.
40.1. For any Option term, the term "Fair Market Rental
Value" means the annual amount of Base Rent per rentable square
foot that a willing, comparable, new, non-expansion, non-renewal,
non-equity tenant would pay and a willing, comparable landlord
would accept in an arm's length bona fide negotiation for a lease
during the Option term of space comparable to the Premises on the
terms and conditions set forth in this Lease and applicable during
the Option term. Fair Market Rental Value shall be determined by
Landlord considering the most recent new leases and market renewal
leases for comparable space and for comparable usage in the
Building or, if there is not a sufficient number of such leases in
the Building, in comparable buildings that are near to the
Building, whether or not owned or managed by Landlord or other
landlords. In determining the Fair Market Rental Value of the
Premises during the Extension term, any residual value of the then
existing Tenant Improvements shall be taken into account, but only
up to a maximum amount of $175,150.00. Appropriate allowances shall
be made for any special terms or conditions contained in or
pertaining to such leases (including without limitation any
provisions for a period of free rent, any rent free period for the
construction of tenant improvements (in the case of Expansion
Space)) and any real estate brokers' commission or commissions
payable in connection therewith, for Landlord to pay rent on other
premises of Tenant, any tenant improvement allowance, the base year
for calculating rent adjustments under Section 4, the parking rate
and other economic terms), it being recognized that the stated face
rental rate in a lease ordinarily reflects other economic terms
contained in the lease and so does not itself ordinarily reflect an
actual market rate, and it being intended that with respect to the
Option term this Lease be economically equivalent, for both
Landlord and Tenant, to the relevant comparable leases. Within ten
(10) business days after Landlord receives an Option Notice,
Landlord shall give Tenant notice ("Landlord's Rent Notice") of
Landlord's determination of the Fair Market Rental Value and the
basis on which Landlord made its determination. Within five (5)
business days after Tenant receives Landlord's Rent Notice, Tenant
shall give Landlord notice ("Tenant's Rent Notice") of Tenant's
determination of the Fair Market Rental Value and the basis on
which Tenant made its determination. During the twenty (20)
business days after Landlord receives Tenant's Rent Notice Landlord
and Tenant shall negotiate in good faith to reach agreement what
constitutes ninety-five percent (95%) of the Fair Market Rental
Value of the Premises. At or before the end of that twenty (20)
business day period Tenant shall give Landlord notice indicating
whether of not Tenant is, or is not, extending the term of this
Lease for the additional five (5) year period. If Tenant does not
so notify Landlord, Tenant shall be deemed to not be so extending
this Lease, and the Lease shall not be so extended. If Tenant so
notifies Landlord that Tenant is extending the Term for the
additional five (5) year period but the parties have not agreed on
the Base Rent for that period, then the parties' respective
determinations of the Fair Market Rental Value shall be submitted
to the appraisers upon their appointment as provided below, and the
Fair Market Rental Value figure shall be determined in accordance
with Section 40.3.
40.2. For any holdover period, the term "Fair Market Rental
Value" means the annual amount of Base Rent per rentable square
foot, as of the date on which any hold-over period commences, that
a willing, comparable tenant would pay and a willing, comparable
landlord would accept in an arm's length bona fide negotiation for
a lease on a month-to-month basis of space comparable to the
Premises on the terms and conditions set forth in this Lease and
applicable during the holdover period. Fair Market Rental Value
shall be determined by Landlord considering the most recent new
leases and market renewal leases for comparable space and for
comparable usage in the Building or, if there is not a sufficient
number of such leases in the Building, in comparable buildings that
are near to the Building, whether or not owned or managed by
Landlord or other landlords. Appropriate allowances shall be made
for any special terms or conditions contained in such leases, it
being recognized that the stated face rental rate in a lease
ordinarily reflects other economic terms contained in the lease and
so does not itself ordinarily reflect an actual market rate, and it
being intended that with respect to the holdover period this Lease,
before the adjustment in Base Rent contemplated in Article 15, be
economically equivalent, for both Landlord and Tenant, to the
relevant comparable leases. Within twenty (20) days after any
hold-over period commences, Landlord shall give Tenant notice of
Landlord's determination of the Fair Market Rental Value and the
basis on which Landlord made its determination. In the event
Landlord and Tenant are unable to agree on the Fair Market Rental
Value, after good faith deliberations, by that date (the "Final
Date") which is two (2) months after the date on which any
hold-over period commences and Tenant is not then willing to accept
Landlord's figure, then Tenant shall on or before the Final Date
give Landlord notice of Tenant's determination of the Fair Market
Rental Value and the basis on which Tenant made its determination,
the parties' respective figures shall be submitted to the
appraisers upon their appointment as provided below, and the Fair
Market Rental Value figure shall be determined in accordance with
Section 40.3.
40.3. The Fair Market Rental Value shall be determined as
follows:
(1) Landlord and Tenant shall each appoint an individual
who shall by profession be a real estate broker who shall have
been active over the five (5) year period ending on the date of
such appointment in the dealing with commercial properties
located in the downtown Los Angeles financial district. The
determination of the appraisers shall be limited solely to the
issue of whether Landlord's or Tenant's submitted figure for the
Fair Market Rental Value is closer to the actual value as
determined by the appraisers, taking into account the
requirements of this Section. Each such appraiser shall be
appointed within fifteen (15) days after the Final Date.
(2) The two appraisers so appointed shall within fifteen
(15) days of the date of the appointment of the last appointed
appraiser agree upon and appoint a third appraiser who shall be
qualified under the same criteria set forth above for
qualification of the initial two appraisers.
(3) The three appraisers shall within thirty (30) days
of the appointment of the third appraiser reach a decision as to
whether the parties shall use Landlord's or Tenant's submitted
value and shall notify Landlord and Tenant thereof.
(4) The decision of the majority of the three appraisers
shall be binding upon Landlord and Tenant.
(5) If either Landlord or Tenant fails to appoint an
appraiser within the time period specified above, the appraiser
appointed by one of them shall reach a decision, notify Landlord
and Tenant thereof, and such appraiser's decision shall be
binding upon Landlord and Tenant.
(6) If the two appraisers fail to agree upon and appoint
a third appraiser, both appraisers shall be dismissed and the
matter to be decided shall be decided by an appraiser qualified
under the same criteria set forth above for qualification of the
initial two appraisers and appointed by the Presiding Judge of
the Los Angeles Superior Court or, if he or she fails to act, by
any judge with jurisdiction over the parties.
(7) The cost of appraisal shall be paid by Landlord and
Tenant equally.
41. Tenant's Right of First Refusal.
Provided that Tenant is not then in Default under this Lease, in
the event that at any time during the first eight years of the Term
Landlord receives from any person (a "Third Party") any offer (a
"Third Party Offer") to lease any space (the "Available Space") on
the 20th floor of the Building and that offer is acceptable to
Landlord, then Landlord shall promptly give Tenant notice (an
"Availability Notice") of that fact, accompanied by a true, correct
and complete copy of the Third Party Offer. The Availability Notice
shall constitute an offer ("Landlord's Offer") by Landlord to Lease
the Available Space to Tenant for a term which is coterminous with
the initial Term or the Extension Term, as applicable. If the Third
Party Offer contains concessions from the Landlord to the Third
Party, such as a period of free rent or a tenant improvement
allowance, which are capable of being measured in dollars and of
being given by Landlord to Tenant with respect to the Available
Space, those concessions shall be adjusted on a "strait-line" basis
and, as so adjusted, included in Landlord's Offer; for example, if
the Third Party Offer included ten months of free rent for 3,000
rentable square feet of space at $1.80 per rentable square foot per
month, $100,000.00 tenant improvement allowance and a ten year term
and if four years of the initial Term of this Lease remained, then
Landlord's Offer would include four month of free rent and a
$40,000.00 tenant improvement allowance. If the Third Party Offer
contains concessions from the Landlord to the proposed third party
tenant, such as the Landlord's assuming the remaining rent
obligations on the Third Party's existing lease of other premises
or a renewal option which extends beyond the initial Term or the
Extension Term, as applicable, which are not readily capable of
being measured in dollars or are not capable of being given by
Landlord to Tenant with respect to the Available Space, Landlord
and Tenant shall seek to agree on an adjustment or adjustments to
the terms of the lease of the Available Space which will reflect
the present fair value of the concession or concessions in
question. In any event, Tenant shall have five (5) business days
after receipt of Landlord's Offer within which to give Landlord
notice ("Tenant's Acceptance") of Tenant's acceptance of Landlord's
Offer. If for any reason, including the failure of Landlord and
Tenant to agree on adjustments to the terms of the Third Party
Offer, Tenant does not so give Landlord Tenant's Acceptance, then
Landlord shall be free to accept the Third Party Offer or to accept
any variation of the Third Party Offer whose terms on an overall
basis are not more favorable to the Third Party than those of the
Third Party Offer. No failure by Tenant to accept Landlord's Offer
shall have any effect on Tenant's Extension Option under Article
38, on Tenant's Expansion Option under Article 39 or on Tenant's
rights under this Section if Landlord later receives a Third Party
Offer. If Tenant leases the Available Space pursuant to this
Section, the Available Space shall be added to and become part of
the Premises so that, except for the terms of the Third Party Offer
which are reflected, whether or not adjusted pursuant to this
Section, in Landlord's Offer, Tenant's lease of the Available Space
pursuant to this Section shall be on the same terms as are
applicable to the remainder of the Premises.
42. Tenant's Security System for the Premises. Subject to any
applicable provisions of this Lease, including without limitation
the provisions of Article 10, Tenant may install in the Premises a
security system for the Premises.
43. Hazardous Materials. Landlord and Tenant shall comply
with all federal, state or local laws, ordinances or regulations
relating to industrial hygiene, environmental conditions or
hazardous materials on, under or about the Project including, but
not limited to, soil and ground water conditions. The term
"hazardous materials" shall mean any chemical, substance, material
or waste or component thereof which is now or hereafter listed,
defined or regulated as a flammable explosive, radioactive
material, hazardous or toxic chemical, substance, material or waste
or component thereof (whether injurious by themselves or in
conjunction with other materials) by any federal, state or local
governing or regulatory body having jurisdiction, or which would
trigger any employee or community "right-to-know" requirements
adopted by any such body, or for which any such body has adopted
any requirements for the preparation or distribution of a material
safety data sheet. Without limiting the generality of the
foregoing, hazardous material shall include, but not be limited to
substances defined as "hazardous substances", "hazardous
materials", or "toxic substances" in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended, 42 U.S.C. Section 9601 et seq.; the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801 et seq.; the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq.; and
those substances defined as "hazardous wastes" in Section 25117 of
the California Health & Safety Code or as "hazardous substances" in
Section 25316 of the California Health & Safety Code; and in the
regulations adopted and publications promulgated from time to time
pursuant to said laws.
44. General Provisions.
44.1. Notices. Any notice or other communication required or
contemplated under this Lease shall be in writing and shall be
delivered by hand, sent by certified or registered mail, return
receipt requested, or sent by telecopier to the appropriate party
at the address or telecopier number set forth below (or to such
other address or telecopier number, as either party may from time
to time designate by notice to the other); any such notice shall be
deemed given upon its delivery or, if mailed, within three (3)
business days after the date of its mailing.
To Landlord:
Hope & Flower B.P. Partnership
c/o Cushman & Wakefield of
California, Inc.
700 South Flower Street
Los Angeles, California 90017
Attention: General Manager
Telecopier No.: (213) 627-5523
To Tenant:
Capital Factors, Inc.
1799 West Oakland Park Boulevard
Oakland Park, Florida 33311
Attention: Mr. John W. Kiefer, President
Telecopier No.: (305) 730-2918
With copy to
(before the
Commencement Date): Capital Factors, Inc.
3435 Wilshire Boulevard, 28th Floor
Los Angeles, California 91011
Attention: Mr. James L. Morrison
Executive Vice President
Telecopier No.: (213) 480-1430
With copy to
(after the
Commencement Date): Capital Factors, Inc.
700 South Flower Street, Suite 2000
Los Angeles, California 90017
Attention: Mr. James L. Morrison
Executive Vice President
Telecopier No.: (213) 480-1430
44.2. Non-Waiver. No provisions of this Lease will be
deemed to have been waived by Landlord unless such waiver is in
writing signed by Landlord. The waiver by Landlord or Tenant of
any term, covenant, agreement or condition contained in this Lease
shall not be deemed to be a waiver of any subsequent breach of the
same or of any other term, covenant, agreement, condition or
provision of this Lease, nor shall any custom or practice which may
develop between the parties in the administration of this Lease be
construed to waive or lessen the right of Landlord or Tenant to
insist upon the performance by the other in strict accordance with
all of the terms, covenants, agreements, conditions, and provisions
of this Lease. The subsequent acceptance by Landlord of any
payment owed by Tenant to Landlord under this Lease, or the payment
of rent by Tenant, shall not be deemed to be a wavier of any
preceding breach by Tenant of any term, covenant, agreement,
condition or provision of this Lease, other than the failure of
Tenant to make the specific payment so accepted by Landlord,
regardless of Landlord's or Tenant's knowledge of such preceding
breach at the time of the making or acceptance of such payment.
Landlord's failure to enforce against Tenant or any other tenant in
the Building any of the Rules and Regulations made hereunder will
not be deemed a waiver of such Rules and Regulations. No act or
thing done by Landlord, its agents or employees during the term
will be deemed an acceptance of a surrender of the Premises, and no
agreement to accept a surrender of the Premises will be valid,
unless in writing signed by Landlord. The delivery of keys to any
of Landlord's agents or employees will not operate as termination
of this Lease or a surrender of the Premises.
44.3. Name of Building and Project. Landlord may at any
time without liability to Tenant change the name, insignia, logo,
street address, architecture, design, construction, materials,
equipment, composition, occupancy and other aspects of the Building
and/or Project so long as such modifications do not substantially
interfere with Tenant's use and occupancy of the Premises.
44.4. Consent; Duty to Act Reasonably and in Good Faith.
Except as otherwise specifically provided herein, whenever either
party is asked to give any consent or approval in connection with
this Lease, such consent or approval will not unreasonably withheld
or delayed. If either party withholds any consent or approval, such
party will on written request deliver to the other party a written
statement giving the reasons therefor.
44.5. Governing Law. This Lease will be governed by and
construed in accordance with the law of the State of California.
44.6. Construction. The provisions of this Lease will
be construed as a whole according to their common meaning and not
strictly for or against Landlord or Tenant. The words "Landlord"
and "Tenant" will include the plural as well as the singular. If
this Lease is executed by more than one tenant, Tenant's
obligations hereunder will be joint and several obligations of such
tenants. The headings and titles in this Lease are for convenience
of reference only, and shall have no affect on the construction of
any provision of this Lease.
44.7. Time of the Essence. Time is of the essence of
this Lease, and of each provision of this Lease in which time of
performance is given.
44.8. Severability. If any term or provision of this
Lease, the deletion of which would not adversely affect the receipt
of any material benefit by either party hereunder, shall be held
invalid or unenforceable to any extent, the remaining terms,
conditions and covenants of this Lease shall not be affected
thereby and each of said terms, covenants and conditions shall be
valid and enforceable to the fullest extent permitted by law.
44.9. Entire Agreement. This instrument along with any
exhibits and attachments or other documents affixed hereto, or
referred to herein, constitutes the entire and exclusive agreement
between Landlord and Tenant with respect to the subject matter of
this Lease. This instrument and said exhibits and attachments and
other documents may be altered, amended, modified or revoked only
by an instrument in writing signed by both Landlord and Tenant.
Landlord and Tenant hereby agree that all prior or contemporaneous
oral or written understandings, agreements or negotiations relative
to the subject matter of this Lease are merged into and revoked by
this instrument.
44.10. Successors and Assigns. Subject to the
provisions of Section 13 relating to assignments and subleases, the
parties' respective rights and obligations under this Lease shall
be binding upon and shall inure to the benefit of the parties and
their successors and assigns.
44.11. No Light and Air Easement. Any diminution or
shutting off of light, air or view by any structure which may be
built on property adjacent or in the vicinity of the Building or
the Project shall not affect this Lease or impose any liability on
Landlord.
44.12. Force Majeure. Except as otherwise provided in
this Lease, neither party shall be liable for any failure to comply
or delay in complying with its obligations hereunder if such
failure or delay is due to acts of God, inability to obtain labor,
strikes, lockouts, lack of materials, governmental restrictions,
enemy actions, civil commotion, fire, earthquake, unavoidable
casualty or other similar causes beyond such party's reasonable
control (all of which events are herein referred to as force
majeure events). It is expressly agreed that neither party shall be
obliged to settle any strike to prevent a force majeure event from
continuing.
44.13. Waiver of Right to Trial by Jury. The parties
waive any right to trial by jury in any action brought by one party
against the other in any matter arising out of or connected with
this Lease or the transaction to which it relates.
44.14. Counterparts. This Lease may be executed in
counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, Landlord and Tenant have executed this
Lease as of the day and year first above written.
LANDLORD:
HOPE & FLOWER B.P. PARTNERSHIP,
a California limited partner-
ship
By: CUSHMAN & WAKEFIELD OF
CALIFORNIA, INC., its
Managing Agent
By: /s/ Not Readable
Its: Senior Managing Director
TENANT:
CAPITAL FACTORS, INC., a Delaware
corporation
By: /s/ James Morrison
Its: Executive Vice President
EXHIBIT 10.15
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered
into as of January 1, 1996 by and between CAPITAL FACTORS HOLDING,
INC., a Florida corporation (the "Company"), CAPITAL FACTORS, INC.,
a Florida corporation ("Factors"), and JOHN W. KIEFER (hereinafter
called the "Executive").
R E C I T A L S
A. The Executive is currently employed as President and
Chief Executive Officer of the Company and of its direct and
indirect subsidiaries, including Factors (collectively, the
"Subsidiaries").
B. The Executive possesses intimate knowledge of the
business and affairs of the Company and the Subsidiaries, their
policies, methods and personnel.
C. The Board of Directors of the Company (the "Board")
recognizes that the Executive has contributed to the growth and
success of the Company and the Subsidiaries, and desires to assure
the Company and the Subsidiaries of the Executive's continued
employment and to compensate him therefor.
D. The Board has determined that this Agreement will
reinforce and encourage the Executive's continued attention and
dedication to the Company and the Subsidiaries.
E. The Executive is willing to make his services available
to the Company and the Subsidiaries on the terms and conditions
hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual
covenants set forth herein, the parties agree as follows:
1. EMPLOYMENT.
1.1 EMPLOYMENT AND TERMS. The Company hereby agrees to
employ the Executive and the Executive hereby agrees to serve the
Company and its Subsidiaries, including Factors, on the terms and
conditions set forth herein.
1.2 DUTIES OF EXECUTIVE. During the term of this
Agreement, the Executive shall serve as the President and Chief
Executive Officer of the Company and of such of the Subsidiaries,
including Factors, as directed by the Board, shall diligently
perform all services as may be assigned to him by the Board
(provided that, such services shall not materially differ from the
services currently provided by the Executive), and shall exercise
such power and authority as may from time to time be delegated to
him by the Board. The Executive shall devote his full time and
attention to the business and affairs of the Company and the
Subsidiaries, render such services to the best of his ability, and
use his best efforts to promote the interests of the Company and
the Subsidiaries.
2. TERM. The term of this Agreement, and the employment of
the Executive hereunder, shall commence as of January 1, 1996 (the
"Commencement Date") and shall expire on December 31, 2000 (the
"Expiration Date"), unless sooner terminated prior to the
Expiration Date in accordance with the terms and conditions hereof
(the "Term").
3. COMPENSATION.
3.1 BASE SALARY. The Executive shall receive a base
salary at the annual rate of $300,000 (the "Base Salary") during
the term of this Agreement, with such Base Salary payable in
installments consistent with the Company's or Capital Factors,
Inc.'s normal payroll schedule, subject to applicable withholding
and other taxes. The Base Salary shall be reviewed, at least
annually, for merit increases and may, by action and in the
discretion of the Board or the Company's Compensation and Benefits
Committee, be increased at any time or from time to time. At a
minimum, the Base Salary shall be increased each year by $25,000.
3.2 SIGNING BONUS AND COMPANY LOAN. Upon execution of
this Agreement, the Company shall: (i) pay the Executive $250,000
in cash as a signing bonus, subject to applicable withholding and
other taxes; and (ii) loan the Executive $100,000 (the "Company
Loan"). The Company Loan shall bear interest at the "mid-term
applicable federal rate" as such term is defined in Section 1274(d)
of the Internal Revenue Code. The entire principal balance
together with all accrued interest thereon shall be due and payable
in full on the earlier of (i) the Expiration Date or (ii) the
termination of this Agreement. Notwithstanding the foregoing, the
Company shall, for each December 31st during the Term that
Executive continues to be employed by the Company, forgive 20
percent of the outstanding principal balance of the Company Loan
together with all accrued interest attributable to the forgiven
principal. In the event of the death or disability of the
Executive, the Company Loan shall be forgiven in full. The
Executive or his estate shall be responsible for all applicable
withholding and other taxes attributable to the forgiveness of
indebtedness and such forgiveness shall be expressly conditioned
upon the Executive satisfying all such withholding and other tax
obligations.
3.3 ANNUAL BONUSES. The Executive shall be entitled to
receive incentive compensation ("Incentive Compensation") for each
year during the Term of this Agreement, commencing with the 1996
year, as set forth below:
(a) Attached hereto as Exhibits "A" and "B" is
Executive's strategic plan (the "Plan") for the Company and the
Subsidiaries during the Term, including projections as to net
revenues ("Projected Net Revenues") and net earnings before income
taxes ("Projected EBT") as set forth on Exhibits "A" and "B."
Exhibit "A" assumes completion of a Public Offering (as defined in
Section 4.5 hereof). For purposes hereof, "Net Revenues" is the
sum of (i) the difference between interest income and interest
expense, (ii) factoring fees or commission income and (iii) other
income. For purposes hereof, "EBT" is net earnings before income
taxes or the difference between (i) Net Revenues and (ii) the sum
of total operating expenses and any provisions, and is otherwise
referred to in the Plan and on the Company's consolidated financial
statements as "Income Before Income Taxes."
(b) Not less than 45 days prior to the beginning
of each calendar year during the Term, the Executive shall propose
an annual budget for the forthcoming year (the "Annual Budget").
Approval of each Annual Budget shall be in the sole discretion of
the Board and the Company's Compensation and Benefits Committee.
After 1996, in no event shall Net Revenues and EBT in any Annual
Budget be less than Projected Net Revenues and Projected EBT as set
forth on Exhibit "A" or Exhibit "B" hereto, as applicable, for the
preceding calendar year, unless otherwise agreed by the Board and
the Company's Compensation and Benefits Committee in its sole
discretion. Exhibit "A" shall be used to determine Projected Net
Revenues and Projected EBT if the Company has completed a Public
Offering (as defined in Section 4.5 hereof) on or prior to the year
applicable. Otherwise, Exhibit "B" shall be used to determined
Projected Net Revenues and Projected EBT. For purposes of this
Agreement, the Net Revenues and EBT as set forth in any Annual
Budget shall be referred to as "Target Net Revenues" and "Target
EBT" for the calendar year with respect to which the Annual Budget
was prepared. Furthermore, Target Net Revenues and Target EBT for
1996 are $45,289,295 and $18,606,913, respectively, if an IPO is
completed in 1996 and $43,915,787 and $17,233,405, respectively, if
an IPO is not completed in 1996.
(c) Within 90 days after the end of each calendar
year during the Term, the Company shall calculate Net Revenues for
such preceding calendar year. In addition, the Company shall
calculate an amount equal to the quotient of Net Revenues for such
year divided by Target Net Revenues for such year (the "Net
Revenues Realization Ratio"). For each such year, the Executive
shall be entitled to a bonus (the "Net Revenues Bonus") equal to
the product of (i) Base Salary for the applicable year and (ii) the
applicable percentage (the "Applicable Percentage") set forth on
Exhibit "C" to this Agreement next to the Net Revenues Realization
Ratio that is equal to or, if not equal, closest to but less than
the Net Revenues Realization Ratio for that year. For example, the
Net Revenues Bonus shall be 20% of Base Salary if Net Revenues =
Target Net Revenues.
(d) Within 90 days after the end of each calendar
year during the Term, the Company shall calculate EBT for such
preceding calendar year. In addition, the Company shall calculate
an amount equal to the quotient of EBT for such year divided by
Target EBT for such year (the "EBT Realization Ratio"). For each
such year, the Executive shall be entitled to a bonus (the "EBT
Bonus") equal to the product of (i) Base Salary for the applicable
year and (ii) the Applicable Percentage set forth on Exhibit "D" to
this Agreement next to the EBT Realization Ratio that is equal to
or, if not equal, closest to but less than the EBT Realization
Ratio for that year. For example, the EBT Bonus shall be 80% of
Base Salary if EBT = Target EBT.
(e) Net Revenues and EBT for each year during the
Term shall be as reported on or calculated from the Company's
annual audited consolidated financial statements for the Company's
calendar year and shall be calculated in accordance with generally
accepted accounting principles, applied consistently with prior
periods.
(f) The Executive shall be entitled to receive
the estimated amount of the Incentive Compensation (the "Estimated
Incentive Compensation"), net of applicable withholding and other
taxes, within fifteen (15) days after the end of each year during
the Term, such Estimated Incentive Compensation to be based on the
Company's unaudited consolidated financial statements as reviewed
and approved by the Board. The Estimated Incentive Compensation
will be subject to upward or downward adjustment based on the
Company's annual audited consolidated financial statements from the
Company's independent certified public accountants (the
"Adjustment"). The Adjustment shall be paid by the Executive to
the Company, or shall be paid by the Company to the Executive, as
the case may be, within fifteen (15) days of receipt of the
Company's audited consolidated financial statements. In the event
the Executive does not reimburse the Company for any Adjustment
within such fifteen-day period, the Company shall have the right to
offset the Adjustment against any other payments due to the
Executive hereunder.
3.4 DEFERRED COMPENSATION. The Executive shall be
entitled to deferred compensation equal to .67 of his Base Salary
(the "Deferred Compensation"), vesting and payable as set forth
below, for each year during the Term that (i) both Net Revenues and
EBT are equal to or greater than applicable Projected Net Revenues
and Projected EBT as set forth in the applicable Plan (as
determined in accordance with Section 3.3(b)), (ii) Net Revenues
for such year have increased at least 13.5% over Net Revenues for
the prior year, and (iii) EBT for such year has increased at least
22.5% over EBT for the prior year.
The Executive's rights in and to the Deferred Compensation for
each year shall vest as follows:
(i) The Executive shall vest in 50% of the
Deferred Compensation payable for any year during the Term on
the January 1 first following the third anniversary of
December 31 of the year in which Deferred Compensation is
earned by the Executive, provided that the Executive is still
employed by the Company at such time;
(ii) The Executive shall vest in an additional 25%
of the Deferred Compensation payable for any year during the
Term on the January 1 first following the fourth anniversary
of December 31 of the year in which Deferred Compensation is
earned by the Executive, provided that the Executive is still
employed by the Company at such time;
(iii) The Executive shall vest in the final 25% of
the Deferred Compensation payable for any year during the Term
on the January 1 first following the fifth anniversary of
December 31 of the year in which Deferred Compensation is
earned by the Executive, provided that the Executive is still
employed by the Company at such time; and
(iv) Notwithstanding the foregoing, the Executive
shall not be required to remain employed by the Company after
the Expiration Date in order to vest in Deferred Compensation
vesting after the Expiration Date, provided that the Executive
is employed by the Company pursuant to this Agreement through
the Expiration Date. Furthermore, should the Company and the
Executive enter into another employment agreement or amend or
extend this Agreement for an additional period of five years
or more, then, immediately following the Expiration Date, the
remaining unvested portion of the Deferred Compensation shall
immediately become vested.
Subject to Section 3.6 hereof, upon or after the Executive's
vesting in any Deferred Compensation, whether during or after the
Term, such Deferred Compensation shall be paid to the Executive.
Subject to Section 3.6 hereof, payments shall be made on the date
on which the Executive's Deferred Compensation vests (the "Vesting
Date"), or on such later date elected in writing by the Executive
at least one year prior to the earlier of the Vesting Date or the
Expiration Date.
3.5 BOARD ELECTION ON PAYMENT OF COMPENSATION. At the
election of the Board, all or any portion of the compensation or
any other amounts due to the Executive pursuant to this Section 3
or any other section of this Agreement shall be paid by Factors.
3.6 EVENT OF NON-DEDUCTIBILITY.
SECTION 162(M) LIMITS. Notwithstanding any other
provision of this Agreement, if the Company becomes a separate
publicly-held corporation (a "Separate Publicly Held Corporation")
for purposes of Section 162(m) of the Internal Revenue Code of
1986, as amended, and the regulations thereunder (collectively,
"Section 162(m)"), then for each calendar year that ends after the
first regularly scheduled meeting of the Company's shareholders
that occurs more than 12-months after the Company becomes a
Separate Publicly Held Company, payment of the portion (the
"Section 162(m) Portion") of the Executive's Incentive Compensation
earned for that calendar year that would not otherwise be
deductible by reason of Section 162(m) (determined after taking
into account all other remuneration required to be taken into
account under Section 162(m) for the year), as well as payment of
any Deferred Compensation earned for such year, shall be subject to
the following conditions: (i) the performance goals set forth in
Sections 3.3 and 3.4 that must be satisfied in order for the
Section 162(m) Portion to be earned for that year shall be subject
to the approval of, and may be modified by, the Compensation
Committee of the Company, at such times as may be required for the
Section 162(m) Portion to be deductible under Section 162(m); (ii)
payment of the Section 162(m) Portion shall be subject to the
approval by the shareholders of the Company of the material terms
of the performance goals relating to the Section 162(m) Portion
before the Section 162(m) Portion is paid; and (iii) the maximum
amount of Incentive Compensation and Deferred Compensation payable
to the Executive is as set forth in Sections 3.3 and 3.4 and
Exhibits "C" and "D." If and to the extent that any remuneration
(including without limitation any Deferred Compensation) payable by
the Company to the Executive for any year would exceed the maximum
amount of such remuneration that the Company may deduct for that
year by reason of Section 162(m), payment of the portion of the
remuneration for that year that would not be so deductible under
Section 162(m) shall, in the sole discretion of the Compensation
and Benefits Committee of the Company, be deferred so that it shall
become payable at such time or times as the Compensation and
Benefits Committee of the Company reasonably determines that it
first would be deductible by the Company under Section 162(m), with
interest at the "short-term applicable federal rate" as such term
is defined in Section 1274(d) of the Code. In addition, the grant
of options to purchase shares of Common Stock pursuant to Section
4.5 hereof shall be subject to and conditioned upon (i) the
approval by either the Stock Option Committee of Capital Bancorp
before the Company becomes a separate publicly-held corporation or
the Compensation Committee of the Company after the Company becomes
a separate publicly-held corporation, and (ii) the approval by
shareholders of the Company after the Company becomes a separate
publicly-held corporation, of a stock option plan pursuant to which
the options shall be granted.
3.7 NO PAYMENT IN VIOLATION OF APPLICABLE LAW OR
REGULATION. Notwithstanding anything else contained herein, no
payment shall be made hereunder that constitutes a golden parachute
payment or prohibited indemnification payment in violation of 12
CFR Part 359.
4. EXPENSE REIMBURSEMENT AND OTHER BENEFITS.
4.1 REIMBURSEMENT OF EXPENSES. During the term of
Executive's employment hereunder, the Company or the Subsidiaries,
upon the submission of proper substantiation by the Executive,
shall reimburse the Executive for all reasonable expenses actually
paid or incurred by the Executive in the course of and pursuant to
the business of the Company or the Subsidiaries. The Executive
shall account to the Company or the relevant Subsidiary in writing
for all expenses for which reimbursement is sought and shall supply
to the Company or the relevant Subsidiary copies of all relevant
invoices, receipts or other evidence reasonably requested by the
Company or the relevant Subsidiary.
4.2 OTHER BENEFITS. The Executive shall be entitled to
participate in all medical and hospitalization, group life insur-
ance, and any and all other plans as are presently and hereinafter
offered by the Company to its executives. The Executive shall be
entitled to four weeks of vacation every year. During the term of
this Agreement, the Company shall continue to pay for the
Executive's membership in a country club on terms consistent with
past practices.
4.3 WORKING FACILITIES. The Company shall furnish the
Executive with an office, secretarial help and such other
facilities and services suitable to his position and adequate for
the performance of his duties hereunder.
4.4 AUTOMOBILE. The Company shall continue to provide
the Executive with the use of an automobile comparable to the
existing automobile provided to Executive, together with
reimbursement of the operating expenses thereof.
4.5 STOCK OPTIONS. In the event the Company sells its
common stock, par value $.01 per share (the "Common Stock"),
pursuant to any registration statement declared effective under the
Securities Act of 1933, as amended (the "Public Offering") during
the Term, then, subject to the terms and conditions of this Section
4.5, the Company shall grant to the Executive sufficient non-
qualified options to purchase the Company's Common Stock so that at
the end of the Term, the Executive will have been granted non-
qualified options to purchase one percent (1.0%) of the total
issued and outstanding shares of the Company's Common Stock, after
giving effect to the Public Offering. The number of shares of
Common Stock subject to the options granted hereunder shall be
adjusted for any subsequent stock splits, stock dividends or
similar recapitalizations of the Company's Common Stock which
results in an increase or decrease of the number of shares of
outstanding Common Stock of the Company. Such options will be
granted under (and therefore be subject to all terms and conditions
of) the Company's stock option plan in effect at that time and all
rules and regulations of the Securities and Exchange Commission
applicable to stock option plans then in effect, and will contain
such restrictions as required by the Board or applicable committee
thereof. The options will (i) be granted upon effectiveness of the
Public Offering, and (ii) have a per share exercise price equal to
the Public Offering price of the Common Stock. The options shall
vest as determined by the Board. The Executive may be considered
for the grant of options under the Capital Bancorp Stock Option
Plan pursuant to the terms thereof and subject to the restrictions
contained therein, including those as to eligibility.
5. TERMINATION.
5.1 TERMINATION FOR CAUSE. The Company shall at all
times have the right, upon written notice to the Executive, to
terminate the Executive's employment hereunder, for cause. For
purposes of this Agreement, the term "cause" shall mean (i) an
action or omission of the Executive which constitutes a willful and
material breach of this Agreement which is not cured within fifteen
(15) days after receipt by the Executive of written notice of same,
(ii) fraud, embezzlement, misappropriation of funds or breach of
trust, (iii) any criminal act which is a felony, (iv) gross
negligence in connection with the performance of the Executive's
duties hereunder, (v) material and willful or knowing failure or
refusal (other than as a result of a disability) by the Executive
to perform his duties hereunder, or (vi) the written request by any
regulatory agency that regulates Capital Bank or Capital Bancorp
that the Executive be removed from his duties hereunder, such
written request to set forth in detail the basis therefor. Any
termination for cause shall be made in writing to the Executive,
which notice shall set forth in detail all acts or omissions upon
which the Company is relying for such termination. The Executive
shall have the right to address the Company's Board regarding the
acts set forth in the notice of termination. Upon any termination
pursuant to this Section 5.1, the Executive shall be entitled to be
paid his Base Salary to the date of termination and the Company
shall have no further liability hereunder (other than for (i)
reimbursement for reasonable business expenses incurred prior to
the date of termination, subject, however, to the provisions of
Section 4.1, and (ii) payment of compensation for unused vacation
days that have accumulated during the calendar year in which such
termination occurs).
5.2 DISABILITY. The Company shall at all times have the
right, upon written notice to the Executive, to terminate the
Executive's employment hereunder, if the Executive shall, as the
result of mental or physical incapacity, illness or disability,
become unable to perform his obligations hereunder for a period of
90 consecutive days. Upon any termination pursuant to this Section
5.2, the Company shall (i) pay to the Executive any unpaid Base
Salary through the effective date of termination specified in such
notice, (ii) pay to the Executive the Incentive Compensation, if
any, not yet paid to the Executive for any year prior to such
termination, at such time as the Incentive Compensation would
otherwise have been payable to the Executive, (iii) pay to the
Executive a severance payment equal to three (3) months of the
Executive's Base Salary at the time of such disability, (iv) pay to
the Executive (within 45 days after such termination) a pro rata
portion of the Incentive Compensation, if any, for the year in
which such termination occurs, as calculated pursuant to the terms
of Section 3.3; provided that, for purposes of such calculation,
(x) Net Revenues and EBT shall be calculated for the portion of the
year through the end of the month prior to the month in which such
termination occurs, and based upon unaudited financial information
prepared in accordance with generally accepted accounting
principles, applied consistently with prior periods, as approved
and reviewed by the Board, (y) Target Net Revenues and Target EBT
shall be modified by multiplying each by a fraction, the numerator
of which is the number of months in the year through the month
prior to the month in which termination occurs and the denominator
of which is 12 and (z) in determining the Net Revenues Bonus and
EBT Bonus, Base Salary shall be the amount of Base Salary actually
paid to the Executive during the year of termination other than
pursuant to Section 5.2(iii), and (v) pay to the Executive, within
45 days after the termination date, any Deferred Compensation
earned in prior years during the Term, whether or not vested, and
a pro rata portion of the Deferred Compensation for the current
year, if any. Whether any Deferred Compensation is due for the
current year shall be determined pursuant to Section 3.4(i)-(iii)
after multiplying each of Net Revenues and EBT for the year through
the month prior to the month in which termination occurs by a
fraction, the numerator of which is 12 and the denominator of which
is the number of months in the year through the month prior to the
month in which termination occurs, and using the product of each in
performing the calculations under Section 3.4(i)-(iii). If
Deferred Compensation is due, the amount due shall be calculated by
multiplying .67 by the amount of Base Salary paid to the Executive
for the year other than pursuant to Section 5.2(iii). The Company
shall have no further liability hereunder (other than for (i)
reimbursement for reasonable business expenses incurred prior to
the date of termination, subject, however to the provisions of
Section 4.1, and (ii) payment of compensation for unused vacation
days that have accumulated during the calendar year in which such
termination occurs).
5.3 DEATH. In the event of the death of the Executive
during the term of his employment hereunder, the Company shall (i)
pay to the estate of the Executive any unpaid Base Salary through
the Executive's date of death, (ii) pay to the estate of the
deceased Executive the Incentive Compensation, if any, not yet paid
to the estate of the Executive for any year prior to the date of
death, at such time as the Incentive Compensation would otherwise
have been payable to the Executive, (iii) pay to the estate of the
Executive (within 45 days after such termination) a pro rata
portion of the Incentive Compensation, if any, for the year in
which such termination occurs, as calculated pursuant to the terms
of Section 3.3; provided that, for purposes of such calculation,
(x) Net Revenues and EBT shall be calculated for the portion of the
year through the end of the month prior to the month in which such
termination occurs, and based upon unaudited financial information
prepared in accordance with generally accepted accounting
principles, applied consistently with prior periods, as approved
and reviewed by the Board, (y) Target Net Revenues and Target EBT
shall be multiplied by multiplying each by a fraction, the
numerator of which is the number of months in the year through the
month prior to the month in which termination occurs and the
denominator of which is 12 and (z) in determining the Net Revenues
Bonus and EBT Bonus, Base Salary shall be the amount of Base Salary
actually paid to the Executive during the year of termination, and
(iv) pay to the estate of the Executive, within 45 days after the
termination date, any Deferred Compensation earned in prior years
during the Term, whether or not vested, and a pro rata portion of
the Deferred Compensation for the current year, if any. Whether
any Deferred Compensation is due for the current year shall be
determined pursuant to Section 3.4(i)-(iii) after multiplying each
of Net Revenues and EBT for the year through the month prior to the
month in which termination occurs by a fraction, the numerator of
which is 12 and the denominator of which is the number of months in
the year through the month prior to the month in which termination
occurs, and using the product of each in performing the
calculations under Section 3.4(i)-(iii). If Deferred Compensation
is due, the amount due shall be calculated by multiplying .67 by
the amount of Base Salary paid to the Executive for the year. The
Company shall have no further liability hereunder (other than for
(i) reimbursement for reasonable business expenses incurred prior
to the date of the Executive's death, subject, however to the
provisions of Section 4.1, and (ii) payment of compensation for
unused vacation days that have accumulated during the calendar year
in which such termination occurs).
5.4 TERMINATION WITHOUT CAUSE. At any time the Company
shall have the right to terminate the Executive's employment
hereunder by written notice to the Executive. Upon any termination
pursuant to this Section 5.4 (that is not a termination under any
of Sections 5.1, 5.2, 5.3, 5.5 or 5.6), the Company shall (i) pay
to the Executive any unpaid Base Salary through the effective date
of termination specified in such notice, (ii) subject to the last
sentence of this Section 5.4, continue to pay the Executive's Base
Salary through the Expiration Date, in the manner and at such time
as the Base Salary would otherwise have been payable to the
Executive, (iii) pay to the Executive the Incentive Compensation,
if any, not yet paid to the Executive for any year prior to such
termination, at such time as the Incentive Compensation would
otherwise have been payable to the Executive, (iv) pay to the
Executive (within 45 days after such termination) a pro rata
portion of the Incentive Compensation, if any, for the year in
which such termination occurs, as calculated pursuant to the terms
of Section 3.3; provided that, for purposes of such calculation,
(x) Net Revenues and EBT shall be calculated for the portion of the
year through the end of the month prior to the month in which such
termination occurs, and based upon unaudited financial information
prepared in accordance with generally accepted accounting
principles, applied consistently with prior periods, as approved
and reviewed by the Board, (y) Target Net Revenues and Target EBT
shall be multiplied by multiplying each by a fraction, the
numerator of which is the number of months in the year through the
month prior to the month in which termination occurs and the
denominator of which is 12 and (z) in determining the Net Revenues
Bonus and EBT Bonus, Base Salary shall be the amount of Base Salary
actually paid to the Executive during the year of termination other
than pursuant to Section 5.4(ii), and (v) pay to the Executive,
within 45 days after the termination date, any Deferred
Compensation earned in prior years during the Term, whether or not
vested, and a pro rata portion of the Deferred Compensation for the
current year, if any. Whether any Deferred Compensation is due for
the current year shall be determined pursuant to
Section 3.4(i)-(iii) after multiplying each of Net Revenues and EBT
for the year through the month prior to the month in which
termination occurs by a fraction, the numerator of which is 12 and
the denominator of which is the number of months in the year
through the month in which termination occurs, and using the
product of each in performing the calculations under Sections
3.4(i)-(iii). If Deferred Compensation is due, the amount due
shall be calculated by multiplying .67 by the amount of Base Salary
paid to the Executive for the year other than pursuant to
Section 5.4(ii). The Company shall have no further liability
hereunder (other than for (i) reimbursement for reasonable business
expenses incurred prior to the date of termination, subject,
however, to the provisions of Section 4.1, and (ii) payment of
compensation for unused vacation days that have accumulated during
the calendar year in which such termination occurs).
Notwithstanding the foregoing, if the Executive shall find other
employment prior to the Expiration Date, then the Executive shall
notify the Company in writing of the date and terms of such
employment and the Company shall be entitled to reduce the amount
payable to the Executive pursuant to Section 5.4(ii) during the
period from the commencement of such other employment until the
Expiration Date (the "Other Employment Period") by the compensation
payable to the Executive for services rendered in connection with
such other employment during the Other Employment Period. Nothing
contained in this Section 5.4 or elsewhere herein shall relieve
that Executive from any obligation to comply with any of the
provisions of Section 6 hereof, which shall remain binding on the
Executive.
5.5 RESIGNATION BY EXECUTIVE. The Executive shall at
all times have the right, upon 90 days written notice to the
Company, to terminate the Executive's employment hereunder. Upon
any termination pursuant to this Section 5.5, the Executive shall
be entitled to be paid his Base Salary to the date of termination
and the Company shall have no further liability hereunder (other
than for (i) reimbursement for reasonable business expenses
incurred prior to the date of termination, subject, however, to the
provisions of Section 4.1, and (ii) payment of compensation for
unused vacation days that have accumulated during the calendar year
in which such termination occurs).
5.6 CHANGE IN CONTROL OF THE COMPANY. In the event that
(x) a Change in Control (as hereafter defined) in the Company shall
occur during the Term, and (y) within one year of such Change in
Control, the Executive is (i) assigned any position, duties or
responsibilities that are significantly diminished or changed when
compared with the position, duties or responsibilities of the
Executive prior to such Change in Control, (ii) forced to relocate
to another location more than 50 miles from his location prior to
the Change in Control or (iii) no longer provided coverage under
benefit programs in existence prior to the Change in Control
(unless a comparable substitute is offered) (any of (i) to (iii)
being hereinafter referred to as an "Event"); then the Executive,
by written notice to the Company at any time within the thirty (30)
day period following the occurrence of an Event, shall have the
right to terminate his employment hereunder. For purposes of this
Agreement, the term "Change in Control" shall be deemed to have
occurred if (a) Capital Bank and any other direct or indirect
subsidiaries of Capital Bancorp ("Corporate Affiliates"), after
aggregating all the shares of the Company held by such entities, no
longer own enough shares of the Company to, in the aggregate, be
the largest single shareholder of the Company, (b) Capital Bank and
its Corporate Affiliates, in the aggregate, cease to own at least
25% of the outstanding Common Stock of the Company; or (c) there
occurs any transaction which shall include a series of transactions
occurring within 60 days or occurring pursuant to a plan
(collectively, "Transaction") that has the result that (i)
shareholders of Capital Bancorp immediately before such Transaction
cease to own at least 51% of the voting stock of Capital Bancorp or
of any entity that results from the participation of Capital
Bancorp in a reorganization, consolidation, merger, liquidation or
any other form of corporate transaction and (ii) any person or
group of persons acting in concert acquire in excess of 40% or more
of the outstanding voting stock of Capital Bancorp; provided,
however, that it shall not constitute a "Change in Control" if all
or part of the shares in the Company are distributed to
shareholders of Capital Bancorp, regardless of the manner in which
such shares are distributed. In the event that Capital Bank and
Capital Bancorp make such a distribution then, thereafter, a
"Change in Control" shall be deemed to have occurred only upon the
following: (a) the shareholders of the Company shall approve and
the Company shall consummate a plan of merger, consolidation,
reorganization, liquidation or any other form of corporate
transaction in which shareholders of the Company immediately before
such transaction cease to own at least 51% of the voting stock of
the Company or any other entity that results from the participation
of the Company in any of the foregoing; or (b) the shareholders of
the Company shall approve and the Company shall consummate a plan
for the sale, lease, exchange or other disposition of all or
substantially all of the property and assets of the Company.
Upon termination by the Executive pursuant to this Section
5.6, the Company shall (i) pay to the Executive any unpaid Base
Salary through the effective date of termination specified in such
notice, (ii) pay to the Executive the Incentive Compensation, if
any, not yet paid to the Executive for any year prior to such
termination, at such time as the Incentive Compensation would
otherwise have been payable to the Executive, (iii) pay to the
Executive (within 45 days after such termination) a pro rata
portion of the Incentive Compensation, if any, for the year in
which such termination occurs, as calculated pursuant to the terms
of Section 3.3; provided that, for purposes of such calculation,
(x) Net Revenues and EBT shall be calculated for the portion of the
year through the end of the month prior to the month in which such
termination occurs, and based upon unaudited financial information
prepared in accordance with generally accepted accounting
principles, applied consistently with prior periods, as approved
and reviewed by the Board, (y) Target Net Revenues and Target EBT
shall be multiplied by multiplying each by a fraction, the
numerator of which is the number of months in the year through the
month prior to the month in which termination occurs and the
denominator of which is 12 and (z) in determining the Net Revenues
Bonus and EBT Bonus, Base Salary shall be the amount of Base Salary
actually paid to the Executive during the year of termination other
than as a lump sum pursuant to Section 5.6, (iv) pay to the
Executive, within 45 days after the termination date, any Deferred
Compensation earned in prior years during the Term, whether or not
vested, and a pro rata portion of the Deferred Compensation for the
current year, if any (whether any Deferred Compensation is due for
the current year shall be determined pursuant to
Section 3.4(i)-(iii) after multiplying each of Net Revenues and EBT
for the year through the month prior to the month in which
termination occurs by a fraction, the numerator of which is 12 and
the denominator of which is the number of months in the year
through the month in which termination occurs, and using the
product of each in performing the calculations under Sections
3.4(i)-(iii). If Deferred Compensation is due, the amount due
shall be calculated by multiplying .67 by the amount of Base Salary
paid to the Executive for the year other than as a lump sum
pursuant to this Section 5.6); and (v) pay to the Executive a lump
sum equal to the sum of (a) two years' Base Salary at the date of
termination plus (b) the product of his Incentive Compensation for
the prior year multiplied by two. In the event that the
Executive's employment is terminated by the Company within one year
following a Change in Control and Without Cause, then, in lieu of
the compensation in clause (v) of this paragraph above, the Company
shall pay to the Executive a lump sum equal to the sum of (a) two
years' Base Salary at the date of termination and (b) the product
of the sum of his Incentive Compensation and Deferred Compensation
for the prior year multiplied by two. The Company shall also
continue to pay the premiums for the same or substantially similar
medical and hospitalization, life and other insurance coverage
provided to the Executive pursuant to Section 4.2 hereof for a
period of two years from the date of termination. In addition, all
options held by the Executive to purchase shares of Common Stock
shall immediately vest in the Executive, subject to any other
restrictions contained in the applicable option agreement or option
plan. The Company shall have no further liability hereunder (other
than for (i) reimbursement for reasonable business expenses
incurred prior to the date of termination, subject, however, to the
provisions of Section 4.1, and (ii) payment of compensation for
unused vacation days that have accumulated during the calendar year
in which such termination occurs).
6. RESTRICTIVE COVENANTS.
6.1 NON-COMPETITION. For the period through the
Expiration Date (except that, if the Executive's employment is
terminated pursuant to Sections 5.4 or 5.6 hereof, the period shall
be the greater of (i) one year after such termination date, but in
no event beyond the Expiration Date, or (ii) (A) if the termination
is pursuant to Section 5.4, the period of time that or for which
the Executive is receiving Base Salary payments or (B) if the
termination is pursuant to Section 5.6, the period of time with
respect to which the Executive receives a lump sum Base Salary
payment pursuant to Section 5.6 (identified as two years in Section
5.6), the Executive shall not, directly or indirectly, engage in or
have any interest in any sole proprietorship, partnership,
corporation or business or any other person or entity (whether as
an employee, officer, director, partner, agent, security holder,
creditor, consultant or otherwise) that directly or indirectly
engages in competition with the Company in any state in which the
Company operates or has a client or customer at the time of such
termination; provided that such provision shall not apply to the
Executive's ownership of Common Stock of the Company or the
acquisition by the Executive, solely as an investment, of
securities of any issuer that is registered under Section 12(b) or
12(g) of the Securities Exchange Act of 1934, as amended, and that
are listed or admitted for trading on any United States national
securities exchange or that are quoted on the National Association
of Securities Dealers Automated Quotations System, or any similar
system or automated dissemination of quotations of securities
prices in common use, so long as the Executive is not a member of
any control group (within the meaning of the rules and regulations
of the Securities and Exchange Commission) of any such issuer.
6.2 NONDISCLOSURE. The Executive shall not divulge,
communicate, use to the detriment of the Company or for the benefit
of any other person or persons, or misuse in any way, any confiden-
tial information pertaining to the business of the Company. Any
confidential information or data now or hereafter acquired by the
Executive with respect to the business of the Company (which shall
include, but not be limited to, information concerning the
Company's financial condition, prospects, customers, sources of
leads and methods of doing business) shall be deemed a valuable,
special and unique asset of the Company that is received by the
Executive in confidence and as a fiduciary, and Executive shall
remain a fiduciary to the Company with respect to all of such
information.
6.3 NONSOLICITATION OF EMPLOYEES AND CLIENTS. For the
period through the Expiration Date, and for a period of two years
following the Expiration Date (except that, the period shall be six
months after the Expiration Date if (i) the Executive is employed
by the Company on the Expiration Date, and (ii) the Company has not
offered, at or prior to the Expiration Date, to employ the
Executive after the Expiration Date on terms that provide for
payment of (x) a base salary equal to or greater than the Base
Salary (adjusted for cost-of-living increases) being paid to the
Executive on the Expiration Date, and (y) incentive compensation on
terms equal to or greater than the Incentive Compensation terms in
effect as of the Expiration Date); the Executive shall not,
directly or indirectly, for himself or for any other person, firm,
corporation, partnership, association or other entity (i) employ or
attempt to employ or enter into any contractual arrangement with
any employee or former employee of the Company, unless such
employee or former employee has not been employed by the Company
for a period in excess of six months, and/or (ii) call on or
solicit any of the actual or targeted prospective clients of the
Company on behalf of any person or entity in connection with any
business competitive with the business of the Company, nor shall
the Executive make known the names and addresses of such clients or
any information relating in any manner to the Company's trade or
business relationships with such customers, other than in
connection with the performance of Executive's duties under this
Agreement.
6.4 BOOKS AND RECORDS. All books, records and accounts
relating in any manner to the customers or clients of the Company,
whether prepared by the Executive or otherwise coming into the
Executive's possession, shall be the exclusive property of the
Company and shall be returned immediately to the Company on
termination of the Executive's employment hereunder or on the
Company's request at any time.
6.5 DEFINITION OF COMPANY. As used in this Section 6,
the term "Company" shall also include Factors and any existing or
future subsidiaries of the Company that are operating during the
time periods described herein.
6.6 ACKNOWLEDGEMENT BY EXECUTIVE. The Executive
acknowledges and confirms that the length of the term of the
provisions of this Section 6 and the geographical restrictions
contained in Section 6.1 are fair and reasonable and not the result
of overreaching, duress or coercion of any kind. The Executive
further acknowledges and confirms that his observance of each of
the covenants contained in this Section 6 will not cause him any
undue hardship, financial or otherwise, and that such covenants are
fair and reasonable and are reasonably required for the protection
of the interests of the Company, its affiliates, officers and
directors, and to prevent irreparable harm to the foregoing. The
Executive acknowledges and confirms that his special knowledge of
the business of the Company is such as would cause the Company
serious injury or loss if he were to use such ability and knowledge
to the benefit of a competitor or were to compete with the Company
in violation of the terms of this Section 6.
6.7 SURVIVAL. The provisions of this Section 6 shall
survive the termination of this Agreement, as applicable.
7. INJUNCTION. It is recognized and hereby acknowledged by
the parties hereto that a breach by the Executive of any of the
covenants contained in Section 6 of this Agreement will cause
irreparable harm and damage to the Company, the monetary amount of
which may be virtually impossible to ascertain. As a result, the
Executive recognizes and hereby acknowledges that the Company shall
be entitled to an injunction from any court of competent juris-
diction enjoining and restraining any violation of any or all of
the covenants contained in Section 6 of this Agreement by the
Executive or any of his affiliates, associates, partners or agents,
either directly or indirectly, and that such right to injunction
shall be cumulative and in addition to whatever other remedies the
Company may possess.
8. ASSIGNMENT. The Executive agrees that the Company and
Factors shall have the right to assign this Agreement. The
Executive shall not delegate his employment obligations hereunder,
or any portion thereof, to any other person.
9. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida.
10. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject
matter hereof and, upon its effectiveness, shall supersede all
prior agreements, understandings and arrangements, both oral and
written, between the Executive, the Company and Factors (or any of
their affiliates) with respect to such subject matter. This
Agreement may not be modified in any way unless by a written
instrument signed by the Company, Factors and the Executive.
11. NOTICES: Any notice required or permitted to be given
hereunder shall be deemed given when delivered by hand or when
deposited in the United States mail, by registered or certified
mail, return receipt requested, postage prepaid, (i) if to the
Company or Factors, to the address of the Company's principal
offices in Fort Lauderdale, Florida, with a copy to Capital Bank,
1221 Brickell Avenue, Miami, Florida 33133, Attention: President,
and (ii) if to the Executive, to his address as reflected on the
payroll records of the Company, or to such other address as either
party hereto may from time to time give notice of to the other.
12. BENEFITS; BINDING EFFECT. This Agreement shall be for
the benefit of and binding upon the parties hereto and their
respective heirs, personal representatives, legal representatives,
successors and, where applicable, assigns, including, without
limitation, any successor to the Company and Factors, whether by
merger, consolidation, sale of stock, sale of assets or otherwise.
13. SEVERABILITY. The invalidity of any one or more of the
words, phrases, sentences, clauses or sections contained in this
Agreement shall not affect the enforceability of the remaining
portions of this Agreement or any part thereof, all of which are
inserted conditionally on their being valid in law, and, in the
event that any one or more of the words, phrases, sentences,
clauses or sections contained in this Agreement shall be declared
invalid, this Agreement shall be construed as if such invalid word
or words, phrase or phrases, sentence or sentences, clause or
clauses, or section or sections had not been inserted. If such
invalidity is caused by length of time or size of area, or both,
the otherwise invalid provision will be considered to be reduced to
a period or area which would cure such invalidity.
14. WAIVERS. The waiver by either party hereto of a breach
or violation of any term or provision of this Agreement shall not
operate nor be construed as a waiver of any subsequent breach or
violation.
15. DAMAGES. Nothing contained herein shall be construed to
prevent the Company, Factors and/or the Executive from seeking and
recovering from the other damages sustained by either or both of
them as a result of its or his breach of any term or provision of
this Agreement. In the event that either party hereto brings suit
for the collection of any damages resulting from, or the injunction
of any action constituting, a breach of any of the terms or pro-
visions of this Agreement, then the party found to be at fault
shall pay all reasonable court costs and attorneys' fees of the
other.
16. SECTION HEADINGS. The section headings contained in this
Agreement are for reference purposes only and shall not affect in
any way the meaning or interpretation of this Agreement.
17. NO THIRD PARTY BENEFICIARY. Nothing expressed or implied
in this Agreement is intended, or shall be construed, to confer
upon or give any person other than the Company, the parties hereto
and their respective heirs, personal representatives, legal
representatives, successors and assigns, any rights or remedies
under or by reason of this Agreement.
18. INDEMNIFICATION. Subject to limitations imposed by law,
the Company shall indemnify the Executive to the fullest extent
permitted by law.
19. WAIVER OF JURY TRIAL. THE UNDERSIGNED EXPRESSLY (I)
WAIVE ANY RIGHT TO A TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION ARISING OUT OF THIS AGREEMENT OR IN ANY WAY RELATED
OR INCIDENTAL TO THE PERFORMANCE OF THE PARTIES' OBLIGATIONS
HEREUNDER, AND (II) AGREE THAT THE COMPANY, FACTORS OR THE
EXECUTIVE MAY FILE AN ORIGINAL COUNTERPART OR COPY OF THIS SECTION
19 WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT TO THE WAIVER
OF THE RIGHT TO TRIAL BY JURY.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first above written.
COMPANY:
CAPITAL FACTORS HOLDING, INC.
By:
FACTORS:
CAPITAL FACTORS, INC.
By:
EXECUTIVE:
JOHN W. KIEFER
EXHIBIT "A"
STRATEGIC PLAN WITH IPO
EXHIBIT "B"
STRATEGIC PLAN WITHOUT IPO
EXHIBIT "C"
NET REVENUES BONUS
[CAPTION]
<TABLE>
<S> <C>
Net Revenues Realization Ratio Applicable Percentage
.50 0.0
.55 2.0
.60 4.0
.65 6.0
.70 8.0
.75 10.0
.80 12.0
.85 14.0
.90 16.0
.95 18.0
1.00 20.0
1.01 20.6
1.02 21.2
1.03 21.8
1.04 22.4
1.05 23.0
1.06 23.4
1.07 23.8
1.08 24.2
1.09 24.6
1.10 25.0
1.11-1.40 increase of 0.2% for each .01%
increase in the Net Revenues
Realization Ratio until the
Applicable Percentage is 31%
for a Net Revenues Realization
Ratio of 1.40
1.41-2.00 increase of 0.1% for each .01%
increase in the Net Revenues
Realization Ratio until the
Applicable Percentage is 37%
for a Net Revenues Realization
Ratio of 2.00
2.00+ No further increases in
Applicable Percentage
</TABLE>
EXHIBIT "D"
EBT BONUS
[CAPTION]
<TABLE>
<S> <C>
EBT Realization Ratio Applicable Percentage
.50 0.0
.55 8.0
.60 16.0
.65 24.0
.70 32.0
.75 40.0
.80 48.0
.85 56.0
.90 64.0
.95 72.0
1.00 80.0
1.01 82.4
1.02 84.8
1.03 87.2
1.04 89.6
1.05 92.0
1.06 93.6
1.07 95.2
1.08 96.8
1.09 98.4
1.10 100.0
1.11-1.40 increase of 0.8% for each .01%
increase in the EBT Realization
Ratio until the Applicable
Percentage is 124% for an EBT
Realization Ratio of 1.40
1.41-2.00 increase of 0.4% for each .01%
increase in the EBT Realization
Ratio until the Applicable
Percentage is 148% for an EBT
Realization Ratio of 2.00
2.00+ No further increases
</TABLE>
EXHIBIT 10.16
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered
into as of January 1, 1993 by and between CAPITAL FACTORS, INC., a
Florida corporation (the "Company"), and STEPHEN J. DONOHUE
(hereinafter called the "Executive").
R E C I T A L S
A. The Executive is currently employed as Executive Vice
President and Regional Manager of the New York office of the
Company.
B. The Executive possesses intimate knowledge of the
business and affairs of the Company, its policies, methods and
personnel.
C. The Board of Directors of the Company (the "Board")
recognizes that the Executive has contributed to the growth and
success of the Company, and desires to assure the Company of the
Executive's continued employment and to compensate him therefor.
D. The Board has determined that this Agreement will
reinforce and encourage the Executive's continued attention and
dedication to the Company.
E. The Executive is willing to make his services available
to the Company and on the terms and conditions hereinafter set
forth.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual
covenants set forth herein, the parties agree as follows:
1. EMPLOYMENT.
1.1 EMPLOYMENT AND TERM. The Company hereby agrees to
employ the Executive and the Executive hereby agrees to serve the
Company on the terms and conditions set forth herein.
1.2 DUTIES OF EXECUTIVE. During the term of this
Agreement, the Executive shall serve as the Executive Vice
President and Regional Manager of the New York office of the
Company, shall diligently perform all services as may be assigned
to him by the Board or the President of the Company (provided that,
such services shall not materially differ from the services
currently provided by the Executive), and shall exercise such power
and authority as may from time to time be delegated to him by the
Board or the President of the Company. The Executive shall devote
his full time and attention to the business and affairs of the
Company, render such services to the best of his ability, and use
his best efforts to promote the interests of the Company.
2. TERM.
2.1 INITIAL TERM. The initial term of this Agreement,
and the employment of the Executive hereunder, shall commence on
January 1, 1993 (the "Commencement Date") and shall expire on
December 31, 1997 (the "Expiration Date"), unless sooner terminated
in accordance with the terms and conditions hereof (the "Initial
Term").
2.2 RENEWAL TERMS. The Initial Term of this Agreement,
and the employment of the Executive hereunder, may be renewed
and/or extended for such period or periods as may be mutually
agreed to by the Company and the Executive in a written supplement
to this Agreement signed by the Executive and the Company ("Written
Supplement"). If this Agreement is not so renewed and/or extended
prior to the expiration of the Initial Term, this Agreement, and
the employment of the Executive hereunder, shall automatically
terminate on the Expiration Date.
3. COMPENSATION.
3.1 BASE SALARY. The Executive shall receive a base
salary at the annual rate of $170,000 (the "Base Salary") during
the term of this Agreement, with such Base Salary payable in
installments consistent with the Company's normal payroll schedule,
subject to applicable withholding and other taxes. The Base Salary
shall be adjusted during each year of the Initial Term to reflect,
at a minimum, a six percent (6%) increase from the Base Salary paid
to the Executive in the previous year. The Base Salary shall also
be reviewed, at least annually, for merit increases and may, by
action and in the discretion of the Board, be increased at any time
or from time to time. If the term of this Agreement shall be
renewed and/or extended as provided in Section 2.2 hereof, then
during such renewal term of his employment hereunder, the Executive
shall be paid a base salary as set forth in the Written Supplement.
3.2 SIGNING BONUS. Upon execution of this Agreement,
the Executive shall be paid a cash bonus of $35,000, less
applicable withholding and other taxes.
3.3 INCENTIVE COMPENSATION.
(a) The Executive shall be entitled to receive
incentive compensation ("Incentive Compensation") during each year
of the Initial Term of this Agreement, commencing with the 1993
year, based upon the Company's net earnings before income taxes
attributable to the New York regional office ("EBT"), equal to the
amount set forth opposite the applicable year below:
[CAPTION]
<TABLE>
<S> <C>
Year Amount of Incentive Compensation
1993 3% of EBT for 1993
1994 2.75% of EBT for 1994
1995 2.5% of EBT for 1995
1996 2.5% of EBT for 1996
1997 2.5% of EBT for 1997
</TABLE>
EBT shall be derived from the Company's annual audited
financial statements for the Company's year and shall be calculated
in accordance with generally accepted accounting principles,
applied consistently with prior periods; provided that (i) EBT
shall exclude extraordinary gains or losses attributable to the New
York regional office of the Company, (ii) funding costs
attributable to the New York regional office shall be calculated in
accordance with funding costs of the Company at the date of this
Agreement, and (iii) the Incentive Compensation in any one year
shall never exceed an amount equal to two times the Executive's
Base Salary in that year. Absent fraud, or manifest or gross
error, the determination of EBT by the Company will be final and
shall not be subject to further review, challenge or adjustment by
the Executive.
(b) The Executive shall be entitled to receive the
estimated amount of the Incentive Compensation (the "Estimated
Incentive Compensation"), net of applicable withholding and other
taxes, within thirty (30) days after the end of the year, such
Estimated Incentive Compensation to be derived from the Company's
unaudited financial statements as reviewed and approved by the
Board. The Estimated Incentive Compensation will be subject to
upward or downward adjustment based on the Company's annual audited
financial statements from the Company's independent certified
public accountants (the "Adjustment"). The Adjustment shall be
paid by the Executive to the Company, or shall be paid by the
Company to the Executive, as the case may be, within fifteen (15)
days of receipt of the Company's audited financial statements. In
the event the Executive does not reimburse the Company for any
Adjustment within such fifteen-day period, the Company shall have
the right to offset the Adjustment against any other payments due
to the Executive hereunder.
3.4 ADDITIONAL BONUSES. In the event the Executive is
employed by the Company through the Expiration Date, then the
Executive shall be entitled to receive an additional cash bonus
(the "Additional Bonus") in the amount of $250,000, subject to
applicable withholding and other taxes, payable to the Executive on
the Expiration Date. The Executive may also be entitled to
additional bonuses at the sole discretion of the Board.
4. EXPENSE REIMBURSEMENT AND OTHER BENEFITS.
4.1 REIMBURSEMENT OF EXPENSES. During the term of
Executive's employment hereunder, the Company, upon the submission
of proper substantiation by the Executive, shall reimburse the
Executive for all reasonable expenses actually paid or incurred by
the Executive in the course of and pursuant to the business of the
Company. The Executive shall account to the Company in writing for
all expenses for which reimbursement is sought and shall supply to
the Company copies of all relevant invoices, receipts or other
evidence reasonably requested by the Company.
4.2 OTHER BENEFITS. The Executive shall be entitled to
participate in all medical and hospitalization, group life insur-
ance, and any and all other plans as are presently and hereinafter
offered by the Company to its executives. The Executive shall be
entitled to 15 business days of vacation every year. During the
term of this Agreement, the Company shall continue to pay for the
Executive's membership in a country club on terms consistent with
past practices.
4.3 WORKING FACILITIES. The Company shall furnish the
Executive with an office, secretarial help and such other
facilities and services suitable to his position and adequate for
the performance of his duties hereunder.
4.4 AUTOMOBILE. The Company shall pay the Executive an
automobile allowance of $400 per month during the Initial Term of
this Agreement.
4.5 STOCK OPTIONS. In the event the Company sells its
common stock (the "Common Stock") pursuant to any registration
statement declared effective under the Securities Act of 1933, as
amended (the "Public Offering") during the Initial Term of this
Agreement, then, subject to the terms and conditions of this
Section 4.5, the Company shall grant to the Executive sufficient
options to purchase the Company's Common Stock so that at the end
of the Initial Term of this Agreement, the Executive will have been
granted options to purchase one-half of one percent (.5%) of the
total outstanding shares of the Company's Common Stock, after
giving effect to the Public Offering. The number of shares of
Common Stock subject to the options granted hereunder shall be
adjusted for any subsequent stock splits, stock dividends or
similar recapitalizations of the Company's Common Stock which
results in an increase or decrease of the number of shares of
outstanding Common Stock of the Company. Such options will be
granted under (and therefore be subject to all terms and conditions
of) the Company's stock option plan in effect at that time and all
rules of regulation of the Securities and Exchange Commission
applicable to stock option plans then in effect. The options will
(i) be granted upon effectiveness of the Public Offering, and (ii)
have a per share exercise price equal to the Public Offering price
of the Common Stock. The options shall vest on a prorata basis
during the Initial Term of this Agreement (the exact vesting
schedule to be determined by the Board subject to the provisions
hereunder) such that all options will be fully vested as of the
Termination Date; provided that the Executive must be employed by
the Company on each vesting date. The Executive shall also be
eligible to be considered for the grant of options under the
Capital Bancorp Stock Option Plan pursuant to the terms thereof and
subject to the restrictions contained therein.
5. TERMINATION.
5.1 TERMINATION FOR CAUSE. The Company shall at all
times have the right, upon written notice to the Executive, to
terminate the Executive's employment hereunder, for cause. For
purposes of this Agreement, the term "cause" shall mean (i) an
action or omission of the Executive which constitutes a willful and
material breach of this Agreement which is not cured within fifteen
(15) days after receipt by the Executive of written notice of same,
(ii) fraud, embezzlement, misappropriation of funds or breach of
trust, (iii) any criminal act which is a felony, (iv) gross
negligence in connection with the performance of the Executive's
duties hereunder, (v) material and willful or knowing failure or
refusal (other than as a result of a disability) by the Executive
to perform his duties hereunder, or (vi) the request by any
regulatory agency that regulates Capital Bank or Capital Bancorp
that the Executive be removed from his duties hereunder. Any
termination for cause shall be made in writing to the Executive,
which notice shall set forth in detail all acts or omissions upon
which the Company is relying for such termination. The Executive
shall have the right to address the Company's Board regarding the
acts set forth in the notice of termination. Upon any termination
pursuant to this Section 5.1, the Executive shall be entitled to be
paid his Base Salary to the date of termination and the Company
shall have no further liability hereunder (other than for (i)
reimbursement for reasonable business expenses incurred prior to
the date of termination, subject, however, to the provisions of
Section 4.1, and (ii) payment of compensation for unused vacation
days that have accumulated during the calendar year in which such
termination occurs).
5.2 DISABILITY. The Company shall at all times have the
right, upon written notice to the Executive, to terminate the
Executive's employment hereunder, if the Executive shall, as the
result of mental or physical incapacity, illness or disability,
become unable to perform his obligations hereunder for a period of
90 consecutive days. Upon any termination pursuant to this Section
5.2, the Company shall (i) pay to the Executive any unpaid Base
Salary through the effective date of termination specified in such
notice, (ii) pay to the Executive the Incentive Compensation, if
any, not yet paid to the Executive for any year prior to such
termination, at such time as the Incentive Compensation would
otherwise have been payable to the Executive, (iii) pay to the
Executive a severance payment equal to three (3) months of the
Executive's Base Salary at the time of such disability, (iv) pay to
the Executive (within 45 days after such termination) a prorata
portion of the Incentive Compensation, if any, for the year in
which such termination occurs, as calculated pursuant to the terms
of Section 3.3 (including the provisos set forth in clauses (i) and
(ii) of such Section); provided that, for purposes of such
calculation, EBT for each period used in the calculation shall be
based on (x) the portion of the year through the end of the month
in which such termination occurs (or, in the event such termination
occurs on or after the fifteenth of the month, including the month
of termination), and (y) unaudited financial information prepared
in accordance with generally accepted accounting principles,
applied consistently with prior periods, as approved and reviewed
by the Board, and (v) pay to the Executive, within 45 days after
the termination date, a prorata portion of the Additional Bonus
equal to the product of (x) $4,166.67, times (y) the number of
months that the Executive was employed by the Company during the
Initial Term prior to such termination (including the month in
which such termination occurs if the termination occurred on or
after the fifteenth of such month). The Company shall have no
further liability hereunder (other than for (i) reimbursement for
reasonable business expenses incurred prior to the date of
termination, subject, however to the provisions of Section 4.1, and
(ii) payment of compensation for unused vacation days that have
accumulated during the calendar year in which such termination
occurs).
5.3 DEATH. In the event of the death of the Executive
during the term of his employment hereunder, the Company shall (i)
pay to the estate of the deceased Executive any unpaid Base Salary
through the Executive's date of death, (ii) pay to the estate of
the deceased Executive the Incentive Compensation, if any, not yet
paid to the Executive for any year prior to the date of death, at
such time as the Incentive Compensation would otherwise have been
payable to the Executive, (iii) pay to the Executive (within 45
days after such termination) a prorata portion of the Incentive
Compensation, if any, for the year in which such termination
occurs, as calculated pursuant to the terms of Section 3.3
(including the provisos set forth in clauses (i) and (ii) of such
Section); provided that, for purposes of such calculation, EBT for
each period used in the calculation shall be based on (x) the
portion of the year through the end of the month in which such
termination occurs (or, in the event such termination occurs on or
after the fifteenth of the month, including the month of
termination), and (y) unaudited financial information prepared in
accordance with generally accepted accounting principles, applied
consistently with prior periods, as approved and reviewed by the
Board, and (iv) pay to the estate of the Executive, within 45 days
after the termination date, a prorata portion of the Additional
Bonus equal to the product of (x) $4,166.67, times (y) the number
of months that the Executive was employed by the Company during the
Initial Term prior to such termination (including the month in
which such termination occurs if the termination occurred on or
after the fifteenth of such month). The Company shall have no
further liability hereunder (other than for (i) reimbursement for
reasonable business expenses incurred prior to the date of the
Executive's death, subject, however to the provisions of Section
4.1, and (ii) payment of compensation for unused vacation days that
have accumulated during the calendar year in which such termination
occurs).
5.4 TERMINATION WITHOUT CAUSE. At any time the Company
shall have the right to terminate the Executive's employment
hereunder by written notice to the Executive. Upon any termination
pursuant to this Section 5.4 (that is not a termination under any
of Sections 5.1, 5.2, 5.3, 5.5 or 5.6), the Company shall (i) pay
to the Executive any unpaid Base Salary through the effective date
of termination specified in such notice, (ii) subject to the last
sentence of this Section 5.4, continue to pay the Executive's Base
Salary for one year after such termination date, but in no event
beyond the Expiration Date, in the manner and at such time as the
Base Salary would otherwise have been payable to the Executive,
(iii) pay to the Executive the Incentive Compensation, if any, not
yet paid to the Executive for any year prior to such termination,
at such time as the Incentive Compensation would otherwise have
been payable to the Executive, (iv) pay to the Executive (within 45
days after such termination) a prorata portion of the Incentive
Compensation, if any, for the year in which such termination
occurs, as calculated pursuant to the terms of Section 3.3
(including the provisos set forth in clauses (i) and (ii) of such
Section); provided that, for purposes of such calculation, EBT for
each period used in the calculation shall be based on (x) the
portion of the year through the end of the month in which such
termination occurs (or, in the event such termination occurs on or
after the fifteenth of the month, including the month of
termination), and (y) unaudited financial information prepared in
accordance with generally accepted accounting principles, applied
consistently with prior periods, as approved and reviewed by the
Board, and (v) pay to the Executive, within 45 days after the
termination date, a prorata portion of the Additional Bonus equal
to the product of (x) $4,166.67, times (y) the number of months
that the Executive was employed by the Company during the Initial
Term prior to such termination (including the month in which such
termination occurs if the termination occurred on or after the
fifteenth of such month). The Company shall have no further
liability hereunder (other than for (i) reimbursement for
reasonable business expenses incurred prior to the date of
termination, subject, however, to the provisions of Section 4.1,
and (ii) payment of compensation for unused vacation days that have
accumulated during the calendar year in which such termination
occurs). Notwithstanding the foregoing, the Executive shall be
obligated to use his best efforts to seek employment (subject to
the restrictions on the Executive set forth in Section 6 hereof)
following such termination on terms comparable to those provided
hereunder and to mitigate to the fullest extent possible any and
all amounts due and payable under clause (ii) hereunder.
5.5 RESIGNATION BY EXECUTIVE. The Executive shall at
all times have the right, upon 90 days written notice to the
Company, to terminate the Executive's employment hereunder. Upon
any termination pursuant to this Section 5.5, the Executive shall
be entitled to be paid his Base Salary to the date of termination
and the Company shall have no further liability hereunder (other
than for (i) reimbursement for reasonable business expenses
incurred prior to the date of termination, subject, however, to the
provisions of Section 4.1, and (ii) payment of compensation for
unused vacation days that have accumulated during the calendar year
in which such termination occurs).
5.6 CHANGE IN CONTROL OF THE COMPANY. In the event that
(x) a Change in Control (as hereafter defined) in the Company shall
occur during the Initial Term, and (y) the Executive is (i)
assigned any position, duties or responsibilities that are
significantly diminished or changed when compared with the
position, duties or responsibilities of the Executive prior to such
Change in Control, (ii) forced to relocate to another location more
than 25 miles from his location prior to the Change in Control,
(iii) no longer provided coverage under benefit programs in
existence prior to the Change in Control (unless a comparable
substitute is offered), or (iv) employed, as a result of the Change
in Control, by an entity that is controlled by a person or persons
that have been convicted of a felony during the five-year period
prior to the Change in Control; then the Executive, by written
notice to the Company at any time within the thirty (30) day period
following the occurrence of such Change in Control, shall have the
right to terminate his employment hereunder. For purposes of this
Agreement, the term "Change in Control" shall be deemed to have
occurred if (a) Capital Bank is no longer the largest single
shareholder of the Company, or (b) Capital Bank ceases to own at
least 25% of the outstanding Common Stock of the Company. Upon
termination by the Employee pursuant to this Section 5.6, the
Company shall (i) pay to the Executive any unpaid Base Salary
through the effective date of termination specified in such notice,
(ii) subject to the last sentence of this Section 5.6, continue to
pay the Executive's Base Salary for one year after such termination
date, but in no event beyond the Expiration Date, in the manner and
at such time as the Base Salary would otherwise have been payable
to the Executive, (iii) pay to the Executive the Incentive
Compensation, if any, not yet paid to the Executive for any year
prior to such termination, at such time as the Incentive
Compensation would otherwise have been payable to the Executive,
(iv) pay to the Executive (within 45 days after such termination)
a prorata portion of the Incentive Compensation, if any, for the
year in which such termination occurs, as calculated pursuant to
the terms of Section 3.3 (including the provisos set forth in
clauses (i) and (ii) of such Section; provided that, for purposes
of such calculation, EBT for each year used in the calculation
shall be based on (x) the portion of the year through the end of
the month in which such termination occurs (or, in the event such
termination occurs on or after the fifteenth of the month,
including the month of termination), and (y) unaudited financial
information prepared in accordance with generally accepted
accounting principles, applied consistently with prior periods as
approved and reviewed by the Board, and (v) pay to the Executive,
within 45 days after the termination date, a portion of the
Additional Bonus equal to the product of (x) $4,166.67, times (y)
the number of months that the Executive was employed by the Company
during the Initial Term prior to such termination (including the
month in which such termination occurs if the termination occurred
on or after the fifteenth of such month). The Company shall have
no further liability hereunder (other than for (i) reimbursement
for reasonable business expenses incurred prior to the date of
termination, subject, however, to the provisions of Section 4.1,
and (ii) payment of compensation for unused vacation days that have
accumulated during the calendar year in which such termination
occurs). Notwithstanding the foregoing, the Executive shall be
obligated to use his best efforts to seek employment (subject to
the restrictions on the Executive set forth in Section 6 hereof)
following such termination on terms comparable to those provided
hereunder and to mitigate to the fullest extent possible any and
all amounts due and payable under clause (ii) hereunder.
6. RESTRICTIVE COVENANTS.
6.1 NON-COMPETITION. For the period through the
Expiration Date (except that, if the Executive's employment is
terminated pursuant to Sections 5.4 or 5.6 hereof, the period shall
be the greater of (i) one year after such termination date, but in
no event beyond the Expiration Date, or (ii) the period of time
that the Executive is receiving Base Salary payments pursuant to
Section 5.4 and 5.6), and at all times while the Executive is
employed by the Company; the Executive shall not, directly or
indirectly, engage in or have any interest in any sole
proprietorship, partnership, corporation or business or any other
person or entity (whether as an employee, officer, director,
partner, agent, security holder, creditor, consultant or otherwise)
that directly or indirectly engages in competition with the Company
in any state in which the New York regional office of the Company
operates or has a client at the time of such termination; provided
that such provision shall not apply to the acquisition by the
Executive, solely as an investment, of securities of any issuer
that is registered under Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended, and that are listed or admitted
for trading on any United States national securities exchange or
that are quoted on the National Association of Securities Dealers
Automated Quotations System, or any similar system or automated
dissemination of quotations of securities prices in common use, so
long as the Executive is not a member of any control group (within
the meaning of the rules and regulations of the Securities and
Exchange Commission) of any such issuer.
6.2 NONDISCLOSURE. The Executive shall not divulge,
communicate, use to the detriment of the Company or for the benefit
of any other person or persons, or misuse in any way, any confiden-
tial information pertaining to the business of the Company. Any
confidential information or data now or hereafter acquired by the
Executive with respect to the business of the Company (which shall
include, but not be limited to, information concerning the
Company's financial condition, prospects, customers, sources of
leads and methods of doing business) shall be deemed a valuable,
special and unique asset of the Company that is received by the
Executive in confidence and as a fiduciary, and Executive shall
remain a fiduciary to the Company with respect to all of such
information.
6.3 NONSOLICITATION OF EMPLOYEES AND CLIENTS. For the
period through the Expiration Date, and for a period of two years
following the Expiration Date (except that, the period shall be six
months after the Expiration Date if (i) the Executive is employed
by the Company on the Expiration Date, and (ii) the Company has not
offered, at or prior to the Expiration Date, to employ the
Executive after the Expiration Date on terms that provide for
payment of (x) a base salary equal to or greater than the Base
Salary (adjusted for cost-of-living increases) being paid to the
Executive on the Expiration Date, and (y) incentive compensation on
terms equal to or greater than the Incentive Compensation terms in
effect as of the Expiration Date) and at all times while the
Executive is employed by the Company; the Executive shall not,
directly or indirectly, for himself or for any other person, firm,
corporation, partnership, association or other entity (i) employ or
attempt to employ or enter into any contractual arrangement with
any employee or former employee of the Company, unless such
employee or former employee has not been employed by the Company
for a period in excess of six months, and/or (ii) call on or
solicit any of the actual or targeted prospective clients of the
Company on behalf of any person or entity in connection with any
business competitive with the business of the Company, nor shall
the Executive make known the names and addresses of such clients or
any information relating in any manner to the Company's trade or
business relationships with such customers, other than in
connection with the performance of Executive's duties under this
Agreement.
6.4 BOOKS AND RECORDS. All books, records, and accounts
relating in any manner to the customers or clients of the Company,
whether prepared by the Executive or otherwise coming into the
Executive's possession, shall be the exclusive property of the
Company and shall be returned immediately to the Company on
termination of the Executive's employment hereunder or on the
Company's request at any time.
6.5 DEFINITION OF COMPANY. As used in this Section 6,
the term "Company" shall also include any future subsidiaries of
the Company that are operating during the time periods described
herein.
6.6 ACKNOWLEDGEMENT BY EXECUTIVE. The Executive
acknowledges and confirms that the length of the term of the
provisions of this Section 6 and the geographical restrictions
contained in Section 6.1 are fair and reasonable and not the result
of overreaching, duress or coercion of any kind. The Executive
further acknowledges and confirms that his full, uninhibited and
faithful observance of each of the covenants contained in this
Section 6 will not cause him any undue hardship, financial or
otherwise, and that enforcement of each of the covenants contained
herein will not impair his ability to obtain employment
commensurate with his abilities and on terms fully acceptable to
him or otherwise to obtain income required for the comfortable
support of him and his family and the satisfaction of the needs of
his creditors. The Executive acknowledges and confirms that his
special knowledge of the business of the Company is such as would
cause the Company serious injury or loss if he were to use such
ability and knowledge to the benefit of a competitor or were to
compete with the Company in violation of the terms of this Section
6.
6.7 SURVIVAL. The provisions of this Section 6 shall
survive the termination of this Agreement, as applicable.
7. INJUNCTION. It is recognized and hereby acknowledged by
the parties hereto that a breach by the Executive of any of the
covenants contained in Section 6 of this Agreement will cause
irreparable harm and damage to the Company, the monetary amount of
which may be virtually impossible to ascertain. As a result, the
Executive recognizes and hereby acknowledges that the Company shall
be entitled to an injunction from any court of competent juris-
diction enjoining and restraining any violation of any or all of
the covenants contained in Section 6 of this Agreement by the
Executive or any of his affiliates, associates, partners or agents,
either directly or indirectly, and that such right to injunction
shall be cumulative and in addition to whatever other remedies the
Company may possess.
8. ASSIGNMENT. The Executive agrees that the Company shall
have the right to assign this Agreement. The Executive shall not
delegate his employment obligations hereunder, or any portion
thereof, to any other person.
9. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida.
10. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject
matter hereof and, upon its effectiveness, shall supersede all
prior agreements, understandings and arrangements, both oral and
written, between the Executive and the Company (or any of its
affiliates) with respect to such subject matter, including but not
limited to that certain Employment Agreement, dated April 7, 1990,
between the Company and the Executive. This Agreement may not be
modified in any way unless by a written instrument signed by both
the Company and the Executive.
11. NOTICES: Any notice required or permitted to be given
hereunder shall be deemed given when delivered by hand or when
deposited in the United States mail, by registered or certified
mail, return receipt requested, postage prepaid, (i) if to the
Company, to the address of the Company's principal offices in Fort
Lauderdale, Florida, with a copy to Capital Bank, 1221 Brickell
Avenue, Miami, Florida 33133, Attention: President, and (ii) if to
the Executive, to his address as reflected on the payroll records
of the Company, or to such other address as either party hereto may
from time to time give notice of to the other.
12. BENEFITS; BINDING EFFECT. This Agreement shall be for
the benefit of and binding upon the parties hereto and their
respective heirs, personal representatives, legal representatives,
successors and, where applicable, assigns, including, without
limitation, any successor to the Company, whether by merger,
consolidation, sale of stock, sale of assets or otherwise.
13. SEVERABILITY. The invalidity of any one or more of the
words, phrases, sentences, clauses or sections contained in this
Agreement shall not affect the enforceability of the remaining
portions of this Agreement or any part thereof, all of which are
inserted conditionally on their being valid in law, and, in the
event that any one or more of the words, phrases, sentences,
clauses or sections contained in this Agreement shall be declared
invalid, this Agreement shall be construed as if such invalid word
or words, phrase or phrases, sentence or sentences, clause or
clauses, or section or sections had not been inserted. If such
invalidity is caused by length of time or size of area, or both,
the otherwise invalid provision will be considered to be reduced to
a period or area which would cure such invalidity.
14. WAIVERS. The waiver by either party hereto of a breach
or violation of any term or provision of this Agreement shall not
operate nor be construed as a waiver of any subsequent breach or
violation.
15. DAMAGES. Nothing contained herein shall be construed to
prevent the Company or the Executive from seeking and recovering
from the other damages sustained by either or both of them as a
result of its or his breach of any term or provision of this
Agreement. In the event that either party hereto brings suit for
the collection of any damages resulting from, or the injunction of
any action constituting, a breach of any of the terms or provisions
of this Agreement, then the party found to be at fault shall pay
all reasonable court costs and attorneys' fees of the other.
16. SECTION HEADINGS. The section headings contained in this
Agreement are for reference purposes only and shall not affect in
any way the meaning or interpretation of this Agreement.
17. NO THIRD PARTY BENEFICIARY. Nothing expressed or implied
in this Agreement is intended, or shall be construed, to confer
upon or give any person other than the Company, the parties hereto
and their respective heirs, personal representatives, legal
representatives, successors and assigns, any rights or remedies
under or by reason of this Agreement.
18. INDEMNIFICATION. Subject to limitations imposed by law,
the Company shall indemnify the Executive to the fullest extent
permitted by law.
19. WAIVER OF JURY TRIAL. The undersigned expressly (i)
waive any right to a trial by jury of any claim, demand, action or
cause of action arising out of this Agreement or in any way related
or incidental to the performance of the parties' obligations
hereunder, and (ii) agree that the Company or the Executive may
file an original counterpart or copy of this Section 19 with any
court as written evidence of the consent to the waiver of the right
to trial by jury.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first above written.
COMPANY:
CAPITAL FACTORS, INC.
By: /s/ Abel Holtz
Abel Holtz, Chairman of the
Board
EXECUTIVE:
/s/ Stephen J. Donohue
STEPHEN J. DONOHUE
EXHIBIT 10.17
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered
into as of January 1, 1993 by and between CAPITAL FACTORS, INC., a
Florida corporation (the "Company"), and JAMES L. MORRISON
(hereinafter called the "Executive").
R E C I T A L S
A. The Executive is currently employed as Executive Vice
President and Regional Manager of the California office of the
Company.
B. The Executive possesses intimate knowledge of the
business and affairs of the Company, its policies, methods and
personnel.
C. The Board of Directors of the Company (the "Board")
recognizes that the Executive has contributed to the growth and
success of the Company, and desires to assure the Company of the
Executive's continued employment and to compensate him therefor.
D. The Board has determined that this Agreement will
reinforce and encourage the Executive's continued attention and
dedication to the Company.
E. The Executive is willing to make his services available
to the Company and on the terms and conditions hereinafter set
forth.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual
covenants set forth herein, the parties agree as follows:
1. EMPLOYMENT.
1.1 EMPLOYMENT AND TERM. The Company hereby agrees to
employ the Executive and the Executive hereby agrees to serve the
Company on the terms and conditions set forth herein.
1.2 DUTIES OF EXECUTIVE. During the term of this
Agreement, the Executive shall serve as the Executive Vice
President and Regional Manager of the California office of the
Company, shall diligently perform all services as may be assigned
to him by the Board or the President of the Company (provided that,
such services shall not materially differ from the services
currently provided by the Executive), and shall exercise such power
and authority as may from time to time be delegated to him by the
Board or the President of the Company. The Executive shall devote
his full time and attention to the business and affairs of the
Company, render such services to the best of his ability, and use
his best efforts to promote the interests of the Company.
2. TERM.
2.1 INITIAL TERM. The initial term of this Agreement,
and the employment of the Executive hereunder, shall commence on
January 1, 1993 (the "Commencement Date") and shall expire on
December 31, 1997 (the "Expiration Date"), unless sooner terminated
in accordance with the terms and conditions hereof (the "Initial
Term").
2.2 RENEWAL TERMS. The Initial Term of this Agreement,
and the employment of the Executive hereunder, may be renewed
and/or extended for such period or periods as may be mutually
agreed to by the Company and the Executive in a written supplement
to this Agreement signed by the Executive and the Company ("Written
Supplement"). If this Agreement is not so renewed and/or extended
prior to the expiration of the Initial Term, this Agreement, and
the employment of the Executive hereunder, shall automatically
terminate on the Expiration Date.
3. COMPENSATION.
3.1 BASE SALARY. The Executive shall receive a base
salary at the annual rate of $140,000 (the "Base Salary") during
the term of this Agreement, with such Base Salary payable in
installments consistent with the Company's normal payroll schedule,
subject to applicable withholding and other taxes. The Base Salary
shall be adjusted during each year of the Initial Term to reflect,
at a minimum, a six percent (6%) increase from the Base Salary paid
to the Executive in the previous year. The Base Salary shall also
be reviewed, at least annually, for merit increases and may, by
action and in the discretion of the Board, be increased at any time
or from time to time. If the term of this Agreement shall be
renewed and/or extended as provided in Section 2.2 hereof, then
during such renewal term of his employment hereunder, the Executive
shall be paid a base salary as set forth in the Written Supplement.
3.2 SIGNING BONUS. Upon execution of this Agreement,
the Executive shall be paid a cash bonus of $15,000, less
applicable withholding and other taxes.
3.3 INCENTIVE COMPENSATION.
(a) The Executive shall be entitled to receive
incentive compensation ("Incentive Compensation") during each year
of the Initial Term of this Agreement, commencing with the 1993
year, based upon the Company's net earnings before income taxes
attributable to the California regional office ("EBT"), equal to
the amount set forth opposite the applicable year below:
[CAPTION]
<TABLE>
<S> <C>
Year Incentive Compensation shall be:
1993 3% of EBT for 1993
1994 2.75% of EBT for 1994
1995 2.5% of EBT for 1995
1996 2.5% of EBT for 1996
1997 2.5% of EBT for 1997
</TABLE>
EBT shall be derived from the Company's annual audited
financial statements for the Company's year and shall be calculated
in accordance with generally accepted accounting principles,
applied consistently with prior periods; provided that (i) EBT
shall exclude extraordinary gains or losses attributable to the
California regional office of the Company, (ii) funding costs
attributable to the California regional office shall be calculated
in accordance with funding costs of the Company at the date of this
Agreement, and (iii) the Incentive Compensation in any one year
shall never exceed an amount equal to two times the Executive's
Base Salary in that year. Absent fraud, or manifest or gross
error, the determination of EBT by the Company will be final and
shall not be subject to further review, challenge or adjustment by
the Executive.
(b) The Executive shall be entitled to receive the
estimated amount of the Incentive Compensation (the "Estimated
Incentive Compensation"), net of applicable withholding and other
taxes, within thirty (30) days after the end of the year, such
Estimated Incentive Compensation to be derived from the Company's
unaudited financial statements as reviewed and approved by the
Board. The Estimated Incentive Compensation will be subject to
upward or downward adjustment based on the Company's annual audited
financial statements from the Company's independent certified
public accountants (the "Adjustment"). The Adjustment shall be
paid by the Executive to the Company, or shall be paid by the
Company to the Executive, as the case may be, within fifteen (15)
days of receipt of the Company's audited financial statements. In
the event the Executive does not reimburse the Company for any
Adjustment within such fifteen-day period, the Company shall have
the right to offset the Adjustment against any other payments due
to the Executive hereunder.
3.4 ADDITIONAL BONUSES. In the event the Executive is
employed by the Company through the Expiration Date, then the
Executive shall be entitled to receive an additional cash bonus
(the "Additional Bonus") in the amount of $150,000, subject to
applicable withholding and other taxes, payable to the Executive on
the Expiration Date. The Executive may also be entitled to
additional bonuses at the sole discretion of the Board.
4. EXPENSE REIMBURSEMENT AND OTHER BENEFITS.
4.1 REIMBURSEMENT OF EXPENSES. During the term of
Executive's employment hereunder, the Company, upon the submission
of proper substantiation by the Executive, shall reimburse the
Executive for all reasonable expenses actually paid or incurred by
the Executive in the course of and pursuant to the business of the
Company. The Executive shall account to the Company in writing for
all expenses for which reimbursement is sought and shall supply to
the Company copies of all relevant invoices, receipts or other
evidence reasonably requested by the Company.
4.2 OTHER BENEFITS. The Executive shall be entitled to
participate in all medical and hospitalization, group life insur-
ance, and any and all other plans as are presently and hereinafter
offered by the Company to its executives. The Executive shall be
entitled to 15 business days of vacation every year. During the
term of this Agreement, the Company shall continue to pay for the
Executive's membership in a country club on terms consistent with
past practices.
4.3 WORKING FACILITIES. The Company shall furnish the
Executive with an office, secretarial help and such other
facilities and services suitable to his position and adequate for
the performance of his duties hereunder.
4.4 AUTOMOBILE. The Company shall pay the Executive an
automobile allowance of $400 per month during the Initial Term of
this Agreement.
4.5 STOCK OPTIONS. In the event the Company sells its
common stock (the "Common Stock") pursuant to any registration
statement declared effective under the Securities Act of 1933, as
amended (the "Public Offering") during the Initial Term of this
Agreement, then, subject to the terms and conditions of this
Section 4.5, the Company shall grant to the Executive sufficient
options to purchase the Company's Common Stock so that at the end
of the Initial Term of this Agreement, the Executive will have been
granted options to purchase one-half of one percent (.5%) of the
total outstanding shares of the Company's Common Stock, after
giving effect to the Public Offering. The number of shares of
Common Stock subject to the options granted hereunder shall be
adjusted for any subsequent stock splits, stock dividends or
similar recapitalizations of the Company's Common Stock which
results in an increase or decrease of the number of shares of
outstanding Common Stock of the Company. Such options will be
granted under (and therefore be subject to all terms and conditions
of) the Company's stock option plan in effect at that time and all
rules of regulation of the Securities and Exchange Commission
applicable to stock option plans then in effect. The options will
(i) be granted upon effectiveness of the Public Offering, and (ii)
have a per share exercise price equal to the Public Offering price
of the Common Stock. The options shall vest on a prorata basis
during the Initial Term of this Agreement (the exact vesting
schedule to be determined by the Board subject to the provisions
hereunder) such that all options will be fully vested as of the
Termination Date; provided that the Executive must be employed by
the Company on each vesting date. The Executive shall also be
eligible to be considered for the grant of options under the
Capital Bancorp Stock Option Plan pursuant to the terms thereof and
subject to the restrictions contained therein.
5. TERMINATION.
5.1 TERMINATION FOR CAUSE. The Company shall at all
times have the right, upon written notice to the Executive, to
terminate the Executive's employment hereunder, for cause. For
purposes of this Agreement, the term "cause" shall mean (i) an
action or omission of the Executive which constitutes a willful and
material breach of this Agreement which is not cured within fifteen
(15) days after receipt by the Executive of written notice of same,
(ii) fraud, embezzlement, misappropriation of funds or breach of
trust, (iii) any criminal act which is a felony, (iv) gross
negligence in connection with the performance of the Executive's
duties hereunder, (v) material and willful or knowing failure or
refusal (other than as a result of a disability) by the Executive
to perform his duties hereunder, or (vi) the request by any
regulatory agency that regulates Capital Bank or Capital Bancorp
that the Executive be removed from his duties hereunder. Any
termination for cause shall be made in writing to the Executive,
which notice shall set forth in detail all acts or omissions upon
which the Company is relying for such termination. The Executive
shall have the right to address the Company's Board regarding the
acts set forth in the notice of termination. Upon any termination
pursuant to this Section 5.1, the Executive shall be entitled to be
paid his Base Salary to the date of termination and the Company
shall have no further liability hereunder (other than for (i)
reimbursement for reasonable business expenses incurred prior to
the date of termination, subject, however, to the provisions of
Section 4.1, and (ii) payment of compensation for unused vacation
days that have accumulated during the calendar year in which such
termination occurs).
5.2 DISABILITY. The Company shall at all times have the
right, upon written notice to the Executive, to terminate the
Executive's employment hereunder, if the Executive shall, as the
result of mental or physical incapacity, illness or disability,
become unable to perform his obligations hereunder for a period of
90 consecutive days. Upon any termination pursuant to this Section
5.2, the Company shall (i) pay to the Executive any unpaid Base
Salary through the effective date of termination specified in such
notice, (ii) pay to the Executive the Incentive Compensation, if
any, not yet paid to the Executive for any year prior to such
termination, at such time as the Incentive Compensation would
otherwise have been payable to the Executive, and (iii) pay to the
Executive a severance payment equal to three (3) months of the
Executive's Base Salary at the time of such disability, (iv) pay to
the Executive (within 45 days after such termination) a prorata
portion of the Incentive Compensation, if any, for the year in
which such termination occurs, as calculated pursuant to the terms
of Section 3.3 (including the provisos set forth in clauses (i) and
(ii) of such Section); provided that, for purposes of such
calculation, EBT for each period used in the calculation shall be
based on (x) the portion of the year through the end of the month
in which such termination occurs (or, in the event such termination
occurs on or after the fifteenth of the month, including the month
of termination), and (y) unaudited financial information prepared
in accordance with generally accepted accounting principles,
applied consistently with prior periods, as approved and reviewed
by the Board, and (v) pay to the Executive, within 45 days after
the termination date, a prorata portion of the Additional Bonus
equal to the product of (x) $2,500.00, times (y) the number of
months that the Executive was employed by the Company during the
Initial Term prior to such termination (including the month in
which such termination occurs if the termination occurred on or
after the fifteenth of such month). The Company shall have no
further liability hereunder (other than for (i) reimbursement for
reasonable business expenses incurred prior to the date of
termination, subject, however to the provisions of Section 4.1, and
(ii) payment of compensation for unused vacation days that have
accumulated during the calendar year in which such termination
occurs).
5.3 DEATH. In the event of the death of the Executive
during the term of his employment hereunder, the Company shall (i)
pay to the estate of the deceased Executive any unpaid Base Salary
through the Executive's date of death, and (ii) pay to the estate
of the deceased Executive the Incentive Compensation, if any, not
yet paid to the Executive for any year prior to the date of death,
at such time as the Incentive Compensation would otherwise have
been payable to the Executive, (iii) pay to the Executive (within
45 days after such termination) a prorata portion of the Incentive
Compensation, if any, for the year in which such termination
occurs, as calculated pursuant to the terms of Section 3.3
(including the provisos set forth in clauses (i) and (ii) of such
Section); provided that, for purposes of such calculation, EBT for
each period used in the calculation shall be based on (x) the
portion of the year through the end of the month in which such
termination occurs (or, in the event such termination occurs on or
after the fifteenth of the month, including the month of
termination), and (y) unaudited financial information prepared in
accordance with generally accepted accounting principles, applied
consistently with prior periods, as approved and reviewed by the
Board, and (iv) pay to the estate of the Executive, within 45 days
after the termination date, a prorata portion of the Additional
Bonus equal to the product of (x) $2,500.00, times (y) the number
of months that the Executive was employed by the Company during the
Initial Term prior to such termination (including the month in
which such termination occurs if the termination occurred on or
after the fifteenth of such month). The Company shall have no
further liability hereunder (other than for (i) reimbursement for
reasonable business expenses incurred prior to the date of the
Executive's death, subject, however to the provisions of Section
4.1, and (ii) payment of compensation for unused vacation days that
have accumulated during the calendar year in which such termination
occurs).
5.4 TERMINATION WITHOUT CAUSE. At any time the Company
shall have the right to terminate the Executive's employment
hereunder by written notice to the Executive. Upon any termination
pursuant to this Section 5.4 (that is not a termination under any
of Sections 5.1, 5.2, 5.3, 5.5 or 5.6), the Company shall (i) pay
to the Executive any unpaid Base Salary through the effective date
of termination specified in such notice, (ii) subject to the last
sentence of this Section 5.4, continue to pay the Executive's Base
Salary for one year after such termination date, but in no event
beyond the Expiration Date, in the manner and at such time as the
Base Salary would otherwise have been payable to the Executive,
(iii) pay to the Executive the Incentive Compensation, if any, not
yet paid to the Executive for any year prior to such termination,
at such time as the Incentive Compensation would otherwise have
been payable to the Executive, (iv) pay to the Executive (within 45
days after such termination) a prorata portion of the Incentive
Compensation, if any, for the year in which such termination
occurs, as calculated pursuant to the terms of Section 3.3
(including the provisos set forth in clauses (i) and (ii) of such
Section); provided that, for purposes of such calculation, EBT for
each period used in the calculation shall be based on (x) the
portion of the year through the end of the month in which such
termination occurs (or, in the event such termination occurs on or
after the fifteenth of the month, including the month of
termination), and (y) unaudited financial information prepared in
accordance with generally accepted accounting principles, applied
consistently with prior periods, as approved and reviewed by the
Board, and (v) pay to the Executive, within 45 days after the
termination date, a prorata portion of the Additional Bonus equal
to the product of (x) $2,500, times (y) the number of months that
the Executive was employed by the Company during the Initial Term
prior to such termination (including the month in which such
termination occurs if the termination occurred on or after the
fifteenth of such month). The Company shall have no further
liability hereunder (other than for (i) reimbursement for
reasonable business expenses incurred prior to the date of
termination, subject, however, to the provisions of Section 4.1,
and (ii) payment of compensation for unused vacation days that have
accumulated during the calendar year in which such termination
occurs). Notwithstanding the foregoing, the Executive shall be
obligated to use his best efforts to seek employment (subject to
the restrictions on the Executive set forth in Section 6 hereof)
following such termination on terms comparable to those provided
hereunder and to mitigate to the fullest extent possible any and
all amounts due and payable under clause (ii) hereunder.
5.5 RESIGNATION BY EXECUTIVE. The Executive shall at
all times have the right, upon 90 days written notice to the
Company, to terminate the Executive's employment hereunder. Upon
any termination pursuant to this Section 5.5, the Executive shall
be entitled to be paid his Base Salary to the date of termination
and the Company shall have no further liability hereunder (other
than for (i) reimbursement for reasonable business expenses
incurred prior to the date of termination, subject, however, to the
provisions of Section 4.1, and (ii) payment of compensation for
unused vacation days that have accumulated during the calendar year
in which such termination occurs).
5.6 CHANGE IN CONTROL OF THE COMPANY. In the event that
(x) a Change in Control (as hereafter defined) in the Company shall
occur during the Initial Term, and (y) the Executive is (i)
assigned any position, duties or responsibilities that are
significantly diminished or changed when compared with the
position, duties or responsibilities of the Executive prior to such
Change in Control, (ii) forced to relocate to another location more
than 25 miles from his location prior to the Change in Control,
(iii) no longer provided coverage under benefit programs in
existence prior to the Change in Control (unless a comparable
substitute is offered), or (iv) employed, as a result of the Change
in Control, by an entity that is controlled by a person or persons
that have been convicted of a felony during the five-year period
prior to the Change in Control; then the Executive, by written
notice to the Company at any time within the thirty (30) day period
following the occurrence of such Change in Control, shall have the
right to terminate his employment hereunder. For purposes of this
Agreement, the term "Change in Control" shall be deemed to have
occurred if (a) Capital Bank is no longer the largest single
shareholder of the Company, or (b) Capital Bank ceases to own at
least 25% of the outstanding Common Stock of the Company. Upon
termination by the Employee pursuant to this Section 5.6, the
Company shall (i) pay to the Executive any unpaid Base Salary
through the effective date of termination specified in such notice,
(ii) subject to the last sentence of this Section 5.6, continue to
pay the Executive's Base Salary for one year after such termination
date, but in no event beyond the Expiration Date, in the manner and
at such time as the Base Salary would otherwise have been payable
to the Executive, (iii) pay to the Executive the Incentive
Compensation, if any, not yet paid to the Executive for any year
prior to such termination, at such time as the Incentive
Compensation would otherwise have been payable to the Executive,
(iv) pay to the Executive (within 45 days after such termination)
a prorata portion of the Incentive Compensation, if any, for the
year in which such termination occurs, as calculated pursuant to
the terms of Section 3.3 (including the provisos set forth in
clauses (i) and (ii) of such Section; provided that, for purposes
of such calculation, EBT for each year used in the calculation
shall be based on (x) the portion of the year through the end of
the month in which such termination occurs (or, in the event such
termination occurs on or after the fifteenth of the month,
including the month of termination), and (y) unaudited financial
information prepared in accordance with generally accepted
accounting principles, applied consistently with prior periods as
approved and reviewed by the Board, and (v) pay to the Executive,
within 45 days after the termination date, a portion of the
Additional Bonus equal to the product of (x) $2,500, times (y) the
number of months that the Executive was employed by the Company
during the Initial Term prior to such termination (including the
month in which such termination occurs if the termination occurred
on or after the fifteenth of such month). The Company shall have
no further liability hereunder (other than for (i) reimbursement
for reasonable business expenses incurred prior to the date of
termination, subject, however, to the provisions of Section 4.1,
and (ii) payment of compensation for unused vacation days that have
accumulated during the calendar year in which such termination
occurs). Notwithstanding the foregoing, the Executive shall be
obligated to use his best efforts to seek employment (subject to
the restrictions on the Executive set forth in Section 6 hereof)
following such termination on terms comparable to those provided
hereunder and to mitigate to the fullest extent possible any and
all amounts due and payable under clause (ii) hereunder.
6. RESTRICTIVE COVENANTS.
6.1 NON-COMPETITION. For the period through the
Expiration Date (except that, if the Executive's employment is
terminated pursuant to Sections 5.4 or 5.6 hereof, the period shall
be the greater of (i) one year after such termination date, but in
no event beyond the Expiration Date, or (ii) the period of time
that the Executive is receiving Base Salary payments pursuant to
Section 5.4 and 5.6), and at all times while the Executive is
employed by the Company; the Executive shall not, directly or
indirectly, engage in or have any interest in any sole
proprietorship, partnership, corporation or business or any other
person or entity (whether as an employee, officer, director,
partner, agent, security holder, creditor, consultant or otherwise)
that directly or indirectly engages in competition with the Company
in any state in which the California regional office of the Company
operates or has a client at the time of such termination; provided
that such provision shall not apply to the acquisition by the
Executive, solely as an investment, of securities of any issuer
that is registered under Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended, and that are listed or admitted
for trading on any United States national securities exchange or
that are quoted on the National Association of Securities Dealers
Automated Quotations System, or any similar system or automated
dissemination of quotations of securities prices in common use, so
long as the Executive is not a member of any control group (within
the meaning of the rules and regulations of the Securities and
Exchange Commission) of any such issuer.
6.2 NONDISCLOSURE. The Executive shall not divulge,
communicate, use to the detriment of the Company or for the benefit
of any other person or persons, or misuse in any way, any confiden-
tial information pertaining to the business of the Company. Any
confidential information or data now or hereafter acquired by the
Executive with respect to the business of the Company (which shall
include, but not be limited to, information concerning the
Company's financial condition, prospects, customers, sources of
leads and methods of doing business) shall be deemed a valuable,
special and unique asset of the Company that is received by the
Executive in confidence and as a fiduciary, and Executive shall
remain a fiduciary to the Company with respect to all of such
information.
6.3 NONSOLICITATION OF EMPLOYEES AND CLIENTS. For the
period through the Expiration Date, and for a period of two years
following the Expiration Date (except that, the period shall be six
months after the Expiration Date if (i) the Executive is employed
by the Company on the Expiration Date, and (ii) the Company has not
offered, at or prior to the Expiration Date, to employ the
Executive after the Expiration Date on terms that provide for
payment of (x) a base salary equal to or greater than the Base
Salary (adjusted for cost-of-living increases) being paid to the
Executive on the Expiration Date, and (y) incentive compensation on
terms equal to or greater than the Incentive Compensation terms in
effect as of the Expiration Date) and at all times while the
Executive is employed by the Company; the Executive shall not,
directly or indirectly, for himself or for any other person, firm,
corporation, partnership, association or other entity (i) employ or
attempt to employ or enter into any contractual arrangement with
any employee or former employee of the Company, unless such
employee or former employee has not been employed by the Company
for a period in excess of six months, and/or (ii) call on or
solicit any of the actual or targeted prospective clients of the
Company on behalf of any person or entity in connection with any
business competitive with the business of the Company, nor shall
the Executive make known the names and addresses of such clients or
any information relating in any manner to the Company's trade or
business relationships with such customers, other than in
connection with the performance of Executive's duties under this
Agreement.
6.4 BOOKS AND RECORDS. All books, records, and accounts
relating in any manner to the customers or clients of the Company,
whether prepared by the Executive or otherwise coming into the
Executive's possession, shall be the exclusive property of the
Company and shall be returned immediately to the Company on
termination of the Executive's employment hereunder or on the
Company's request at any time.
6.5 DEFINITION OF COMPANY. As used in this Section 6,
the term "Company" shall also include any future subsidiaries of
the Company that are operating during the time periods described
herein.
6.6 ACKNOWLEDGEMENT BY EXECUTIVE. The Executive
acknowledges and confirms that the length of the term of the
provisions of this Section 6 and the geographical restrictions
contained in Section 6.1 are fair and reasonable and not the result
of overreaching, duress or coercion of any kind. The Executive
further acknowledges and confirms that his full, uninhibited and
faithful observance of each of the covenants contained in this
Section 6 will not cause him any undue hardship, financial or
otherwise, and that enforcement of each of the covenants contained
herein will not impair his ability to obtain employment
commensurate with his abilities and on terms fully acceptable to
him or otherwise to obtain income required for the comfortable
support of him and his family and the satisfaction of the needs of
his creditors. The Executive acknowledges and confirms that his
special knowledge of the business of the Company is such as would
cause the Company serious injury or loss if he were to use such
ability and knowledge to the benefit of a competitor or were to
compete with the Company in violation of the terms of this Section
6.
6.7 SURVIVAL. The provisions of this Section 6 shall
survive the termination of this Agreement, as applicable.
7. INJUNCTION. It is recognized and hereby acknowledged by
the parties hereto that a breach by the Executive of any of the
covenants contained in Section 6 of this Agreement will cause
irreparable harm and damage to the Company, the monetary amount of
which may be virtually impossible to ascertain. As a result, the
Executive recognizes and hereby acknowledges that the Company shall
be entitled to an injunction from any court of competent juris-
diction enjoining and restraining any violation of any or all of
the covenants contained in Section 6 of this Agreement by the
Executive or any of his affiliates, associates, partners or agents,
either directly or indirectly, and that such right to injunction
shall be cumulative and in addition to whatever other remedies the
Company may possess.
8. ASSIGNMENT. The Executive agrees that the Company shall
have the right to assign this Agreement. The Executive shall not
delegate his employment obligations hereunder, or any portion
thereof, to any other person.
9. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida.
10. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject
matter hereof and, upon its effectiveness, shall supersede all
prior agreements, understandings and arrangements, both oral and
written, between the Executive and the Company (or any of its
affiliates) with respect to such subject matter, including but not
limited to that certain Employment Agreement, dated June 11, 1989,
between the Company and the Executive. This Agreement may not be
modified in any way unless by a written instrument signed by both
the Company and the Executive.
11. NOTICES: Any notice required or permitted to be given
hereunder shall be deemed given when delivered by hand or when
deposited in the United States mail, by registered or certified
mail, return receipt requested, postage prepaid, (i) if to the
Company, to the address of the Company's principal offices in Fort
Lauderdale, Florida, with a copy to Capital Bank, 1221 Brickell
Avenue, Miami, Florida 33133, Attention: President, and (ii) if to
the Executive, to his address as reflected on the payroll records
of the Company, or to such other address as either party hereto may
from time to time give notice of to the other.
12. BENEFITS; BINDING EFFECT. This Agreement shall be for
the benefit of and binding upon the parties hereto and their
respective heirs, personal representatives, legal representatives,
successors and, where applicable, assigns, including, without
limitation, any successor to the Company, whether by merger,
consolidation, sale of stock, sale of assets or otherwise.
13. SEVERABILITY. The invalidity of any one or more of the
words, phrases, sentences, clauses or sections contained in this
Agreement shall not affect the enforceability of the remaining
portions of this Agreement or any part thereof, all of which are
inserted conditionally on their being valid in law, and, in the
event that any one or more of the words, phrases, sentences,
clauses or sections contained in this Agreement shall be declared
invalid, this Agreement shall be construed as if such invalid word
or words, phrase or phrases, sentence or sentences, clause or
clauses, or section or sections had not been inserted. If such
invalidity is caused by length of time or size of area, or both,
the otherwise invalid provision will be considered to be reduced to
a period or area which would cure such invalidity.
14. WAIVERS. The waiver by either party hereto of a breach
or violation of any term or provision of this Agreement shall not
operate nor be construed as a waiver of any subsequent breach or
violation.
15. DAMAGES. Nothing contained herein shall be construed to
prevent the Company or the Executive from seeking and recovering
from the other damages sustained by either or both of them as a
result of its or his breach of any term or provision of this
Agreement. In the event that either party hereto brings suit for
the collection of any damages resulting from, or the injunction of
any action constituting, a breach of any of the terms or provisions
of this Agreement, then the party found to be at fault shall pay
all reasonable court costs and attorneys' fees of the other.
16. SECTION HEADINGS. The section headings contained in this
Agreement are for reference purposes only and shall not affect in
any way the meaning or interpretation of this Agreement.
17. NO THIRD PARTY BENEFICIARY. Nothing expressed or implied
in this Agreement is intended, or shall be construed, to confer
upon or give any person other than the Company, the parties hereto
and their respective heirs, personal representatives, legal
representatives, successors and assigns, any rights or remedies
under or by reason of this Agreement.
18. INDEMNIFICATION. Subject to limitations imposed by law,
the Company shall indemnify the Executive to the fullest extent
permitted by law.
19. WAIVER OF JURY TRIAL. The undersigned expressly (i)
waive any right to a trial by jury of any claim, demand, action or
cause of action arising out of this Agreement or in any way related
or incidental to the performance of the parties' obligations
hereunder, and (ii) agree that the Company or the Executive may
file an original counterpart or copy of this Section 19 with any
court as written evidence of the consent to the waiver of the right
to trial by jury.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first above written.
COMPANY:
CAPITAL FACTORS, INC.
By:/s/ Abel Holtz
Abel Holtz, Chairman of the
Board
EXECUTIVE:
/s/ James Morrisson
James L. Morrision
EXHIBIT 23.2
INDEPENDENT AUDITORS CONSENT
We consent to the use in this Registration Statement of Capital
Factors Holding, Inc. on Form S-1 of our report dated February 28,
1996 (March 4, 1996 as to the second paragraph of Note 13 and May
__, 1996 as to the first paragraph of Note 13) appearing in the
Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the headings "Selected
Consolidated Financial Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Ft. Lauderdale, Florida
May 6, 1996
The above consent is in the form which will be signed by Deloitte
& Touche LLP upon the issuance of the Independent Auditors' Report
which is expected to be rendered upon consummation of the 10,000-
for-one stock split described in the first paragraph of Note 13 to
Consolidated Financial Statements.
DELOITTE & TOUCHE LLP
Ft. Lauderdale, Florida
May 6, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the audited
consolidated balance sheets as of December 31, 1995 and the audited
consolidated statements of income for the year ended December 31, 1995, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 36,514,314
<SECURITIES> 0
<RECEIVABLES> 357,801,949
<ALLOWANCES> (2,980,778)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 6,076,959
<DEPRECIATION> (2,791,910)
<TOTAL-ASSETS> 399,471,365
<CURRENT-LIABILITIES> 0
<BONDS> 227,260,000
0
0
<COMMON> 100,000
<OTHER-SE> 33,339,399
<TOTAL-LIABILITY-AND-EQUITY> 399,471,365
<SALES> 0
<TOTAL-REVENUES> 51,618,989
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 18,457,349
<LOSS-PROVISION> 2,234,721
<INTEREST-EXPENSE> 16,361,059
<INCOME-PRETAX> 14,565,860
<INCOME-TAX> 5,872,763
<INCOME-CONTINUING> 8,693,097
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,693,097
<EPS-PRIMARY> 0.87
<EPS-DILUTED> 0
</TABLE>
