UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to _________________________
Commission file no. 0-20863
CAPITAL FACTORS HOLDING, INC.
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(Exact name of Registrant as Specified in its Charter)
FLORIDA 65-0500757
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(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number)
1799 West Oakland Park Boulevard, Fort Lauderdale, Florida 33311
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(Address of Principal Executive Offices) (Zip Code)
(954) 730-2900
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(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each exchange on which registered:
NONE NONE
Securities registered pursuant to section 12(g) of the Act:
COMMON STOCK, $0.01 PAR VALUE
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 25, 1997, the aggregate market value of the shares of the
registrant's Common Stock held by non-affiliates of the registrant was
$33,820,500. (This number is based on reported beneficial ownership by all
directors and executive officers of the registrant and holders of 5% or more of
the registrant's Common Stock. This determination, however, does not constitute
an admission of affiliate status for any of these individual shareholders.)
As of March 25, 1997 the registrant had outstanding 12,300,000 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
The Company intends to file the Registrant's Definitive Proxy Statement for its
1997 Annual Meeting of Shareholders with the Securities and Exchange Commission
not later than 120 days after the end of the fiscal year covered by this Form
10-K pursuant to Rule G(3) of the General Instructions for Form 10-K.
Information from such Definitive Proxy Statement will be incorporated by
reference into Part III, Items 10, 11, 12 and 13 hereof.
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PART I
ITEM 1. BUSINESS
GENERAL
Capital Factors Holding, Inc. and its subsidiaries (the "Company") are a
specialized financial services company principally engaged in providing
receivables-based commercial financing and related fee-based credit, collections
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. Beginning in 1994, the Company provided services to
clients involved in the healthcare industry. The Company operates through four
regional offices located in New York City, Los Angeles, Charlotte, and its
headquarters in South Florida, in addition to its recently opened asset-based
lending office in Atlanta, Georgia. In late 1994, the Company began to expand
its asset-based lending business. The Company currently has over 400 clients who
generate annual sales of $500,000 to $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 customers to make all payments on the receivable directly to
the Company. In most cases, a client's customers are other commercial entities,
not individuals. In healthcare financing, the client's customers are
individuals, but the client's receivables are mostly from third-party obligors
(usually insurance companies).
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. For 1996, the
Company's operating revenues, net income and factored sales volume increased by
31.3%, 27.9% and 32.5%, respectively, over 1995. 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.
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BACKGROUND OF THE COMPANY
Capital Factors Holding, Inc. ("Holding") is a majority owned subsidiary of
Capital Bank (the "Bank"), a Florida commercial bank. The Bank is a wholly-owned
subsidiary of Capital Bancorp. Holding has two wholly-owned subsidiaries,
Capital Factors, Inc. ("Factors") and CF One, Inc. ("CF One"). Factors has two
wholly-owned subsidiaries, CF Funding Corp. and Capital TempFunds, Inc.
Throughout this discussion, Holding, Factors and their subsidiaries are
collectively referred to as the "Company".
Factors was acquired by Capital Bank in May 1985, at which time Factors had one
office in South Florida. Factors acquired a Los Angeles regional office in
August 1989 and opened a New York regional office in April 1990. The Company
established a healthcare division in September 1994 and, in late 1994, the
Company also began asset-based lending. The Charlotte regional office was opened
in May 1995 and the Atlanta asset-based lending office in January 1997.
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 securitization of factored advances (the "Securitized
Financings") which have been issued pursuant to several private placements.
Additionally in 1994, Holding formed another subsidiary, CF One, and Factors
formed a subsidiary, CF Funding Corp. Both CF One and CF Funding Corp. were
created to accommodate the issuance of the asset-backed certificates. CF One
holds subordinated certificates issued by the trust (the "Trust") created in
connection with the Securitized Financings, which it purchased with funds
contributed to it by Holding. Pursuant to the Securitized Financings, advances
made by Factors that were collateralized by third party accounts receivable and,
in certain cases, by cash, letters of credit, inventory or other collateral
provided to Factors were sold to CF Funding Corp., which subsequently
transferred the advances to the Trust. The Trust issued three series of
asset-backed certificates (the "Certificates"), which were sold to institutional
buyers through several private placements. The aggregate amount of Certificates
presently outstanding is $175 million, of which $100 million was issued in June
1994, $25 million was issued in December 1994 and $50 million was issued in July
1995. Each Certificate evidences an interest in the Trust's assets and the right
to receive the payment of principal on the face amount of the certificate and
interest from the Trust. The Trust's assets consist principally of the advances,
as well as funds collected or to be collected in respect of the advances and the
collateral therefor. Factors is responsible for servicing the advances owned by
the Trust. Subordinated certificates were also issued by the Trust to CF One in
connection with each of the Securitized Financings ($15 million in June 1994,
$3.75 million in December 1994 and $7.50 million in July 1995).
On July 16, 1996, Holding completed an initial public offering of 2,000,000
shares of its Common Stock at a public offering price of $8.50 per share. Prior
to this offering, all of the Common Stock was owned by the Bank. On August 2,
1996, the underwriting syndicate exercised its option to acquire an additional
300,000 shares of Common Stock. The net proceeds from the offering, which
totaled approximately $17.6 million, were used to reduce the Company's
indebtedness to the Bank under an outstanding line of credit. As a result of the
offering, the Bank's ownership of Holding has been reduced to approximately 81%
of the outstanding Common Stock. The Common Stock is listed for trading on the
Nasdaq National Market under the symbol "CAPF."
On August 9, 1996, the Company closed on the acquisition of substantially all of
the assets of TempFunds America, Inc. and its affiliate, TempFunds America
Funding Corporation of South Carolina, Inc. (collectively "TempFunds").
TempFunds is a specialized financial service company principally engaged in
providing receivables-based commercial financing and related fee-based credit,
collection and management information services to temporary employment and home
health care agencies. The acquisition was completed through Capital TempFunds,
Inc., a newly formed subsidiary of Factors. Capital TempFunds provides certain
services, including billing, payroll processing, payroll tax, payroll reporting
and other
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payroll services and insurance reporting. The purchase price paid by the Company
was approximately $5.9 million (approximately $5.0 million equal to the net book
value of the assets plus an additional $900,000). An additional amount up to
$900,000 is payable over a three year period if certain contingencies are met.
In connection with the acquisition, all rights, title and interest to the
nationally registered service mark of "TempFunds America" were assigned to
Capital TempFunds, Inc. who intends to conduct business in said name. The
purchase was funded under the Company's revolving line of credit with Capital
Bank.
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 71.5% of the Company's clients are in the textile and apparel
industry and 11.2% 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 form 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 1996 (approximately $1.0 billion of 2.6
billion annual factored sales), 1995 (approximately $757 million of $2 billion
annual factored sales) and 1994 (approximately $605 million of $1.5 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 three year period ended December 31, 1996, as set
forth below:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH FULL
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1996 Factored Sales Volume....... $563,989 $614,614 $708,930 $763,909 $2,651,442
Net Income.................. $1,903 $2,558 $3,271 $3,383 $11,115
1995 Factored Sales Volume....... $441,211 $460,407 $561,222 $538,523 $2,001,364
Net Income.................. $1,883 $2,069 $2,524 $2,217 $8,693
1994 Factored Sales Volume....... $328,855 $365,176 $423,884 $419,045 $1,536,960
Net Income.................. $1,128 $1,110 $1,769 $2,085 $6,092
</TABLE>
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One fast-growing market is healthcare financing, which the Company has 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 entities 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, collections 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
1996 of $63.8 billion, an increase of 55% over reported volume in 1988. The
Company had a 4.1% share of this reported volume for 1996.
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 in all regional offices, including the Atlanta office opened
in 1997.
Management believes that the Company's growth has been primarily attributable to
the following operating strategies:
/bullet/ 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 the written guidelines set forth in a
Loan and Credit
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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.
/bullet/ 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.
/bullet/ 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.
/bullet/ 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 receivable.
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
(usually insurance companies).
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
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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 account 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
clients 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
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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. This flexibility is primarily due to the fact that a
bank, in making a determination as to the amount that it would advance a
borrower, will customarily be more inclined to review the borrower's net worth,
capital and general financial condition, while a factor will place greater
emphasis on the borrower's collateral, particularly its receivables, and,
correspondingly, the creditworthiness of its customers. 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. Such guidelines provide that advances shall be (i)
under a duly authorized line approved at the time an arrangement is established,
taking into account the funding needs and financial strength of the client and
other credit factors and the anticipated performance of the collateral and (ii)
within an advance formula applied to eligible accounts receivable taking into
account anticipated dilution. 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 a client's inventory, other assets and/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. Capital Bank provided approximately $135.5 million,
$130.1 million and $79.5 million during 1996, 1995 and 1994, 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 $373,688, $462,013 and $389,571 for the years ended December 31, 1996, 1995
and 1994, respectively.
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.
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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. The manual establishes
guidelines governing credit criteria, lending limits and required approvals, as
well as documentation requirements related to such matters as UCC filings,
guarantees, subordinations, shipping documents and financial reporting. 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 an advance 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.
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<PAGE>
Pursuant to the Company's Loan and Credit Policy Manual, the Company follows
certain credit guidelines. 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. The Company's internal written guidelines
contain certain formulas used by the Company in determining whether to establish
a credit line, and which take into account ratings scales utilized by various
credit rating agencies, as well as the length of time a customer has been in
business. If these formulas 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 receivable
turnover rate was 53 days for 1994 and 1995 and 52 days for 1996. 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
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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 for 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. Factors such as 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
significant consideration in determining the adequacy of the Company's allowance
for credit losses. The Company's methodology for calculating its reserve for
doubtful accounts has remained consistent for the period commencing in 1991 and
continuing through 1996, 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 reserve
represents 0.75% of those receivables (other than healthcare receivables, which
have a lower general reserve) that are not specifically reserved for but for
which the Company has provided credit guarantees.
The provision for credit losses as a percentage of factored sales decreased from
0.30% in 1992 to 0.14% in 1996, reflecting the Company's improved loss
experience over that period and positive economic trends that benefited the
Company's clients and their customers. The provision as a percentage of factored
sales increased to 0.14% in 1996 from 0.11% in 1995, reflecting a higher net
charge-off rate. The provision for credit losses as a percentage of average
receivables decreased from 1.89% in 1992 to 0.85% in 1996, and the provision for
credit losses as a percentage of average funds employed decreased from 2.91% in
1992 to 1.31% in 1996, also reflecting the Company's improved loss experience
over that period. The provision for credit losses as a percentage of average
receivables and the provision for
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<PAGE>
credit losses as a percentage of average funds employed increased to 0.85% and
1.31%, respectively, in 1996 from 0.72% and 1.06%, respectively, in 1995,
reflecting a higher net charge-off rate. The provision for credit losses during
1996 was higher than during 1995 and was more consistent with the Company's
historical experience.
Net charge-offs as a percentage of factored sales ranged from 0.05% to 0.30% in
the 1991-1996 period, reflecting normal credit losses consistent with historical
experience. Net charge-offs as a percentage of factored sales declined to 0.05%
in 1995 as a result of higher recoveries and fewer bankruptcies that affected
the Company. The net charge-off percentage increased to 0.14% in 1996 as a
result of the charge-off of several large items, including $600,000 related to
the bankruptcy of a large Northeastern regional chain store and $200,000 related
to a single client loan, $93,000 of which was recovered. Consistent with net
charge-offs as a percentage of factored sales, during the period 1991 to 1996,
net charge-offs as a percentage of average receivables and net charge-offs as a
percentage of average funds employed reflected normal credit losses consistent
with historical experience, ranging from 0.33% to 1.90% and 0.49% to 2.92%,
respectively. Net charge-offs as a percentage of average receivables and net
charge-offs as a percentage of average funds employed decreased to 0.33% and
0.49%, respectively, in 1995, primarily as a result of higher receivable
recoveries and fewer bankruptcies affecting the Company in that year. Net
charge-offs as a percentage of average receivables and net charge-offs as a
percentage of average funds employed increased to 0.87% and 1.34%, respectively,
in 1996, as a result of the charge-offs described above.
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, 1996 and 1995,
approximately $6.4 million and $8.9 million, respectively, of credit-approved
receivables, representing 2.4% and 4.7%, respectively, of outstanding
credit-approved 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, 1996, 1995 and
1994, the Company had discontinued its accrual of interest income on
approximately $660,000, $2.2 million and $739,000, respectively, of client
advances. In addition, at December 31, 1996, 1995 and 1994, approximately
$30,000, $134,000 and $48,000, 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, 1996
and 1995, the Company had approximately $29.3 million and $22.6 million,
respectively, 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.
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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, 1996 and 1995, the Company had approximately $22.7
million and $16.3 million, respectively, in healthcare factored receivables
outstanding, in addition to approximately $9.9 million and $11.0 million of
healthcare asset-based loans outstanding at December 31, 1996 and December 31,
1995, respectively. 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. At
December 31, 1996 the Company's asset-based loans ranged from $200,000 to $7.2
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,
Florida, and beginning in 1997, Atlanta, offices. At December 31, 1996 and 1995,
the Company had asset-based loans outstanding aggregating approximately $36.0
million and $38.3 million, respectively, including loans to healthcare clients
of approximately $9.9 million and $11.0, million, respectively, at the end of
such periods.
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."
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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 inquiries. The Company continues to add
enhancement 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 61.4% of the factored sales volume in the United States, as
compared to 4.1% of United States factored sales volume for the Company in 1996,
according to a recent survey. The Company competes with the largest national
factors, as well as other national factors and also competes with other regional
factoring companies, all of whom target similar clients as the Company and most
of whom 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, even with respect
to higher volume clients to whom the Company may provide lower fee structures
than to the Company's typical clients. The Company generally does not seek to
compete when price is the sole or primary criterion for potential clients'
selection of a factor. 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 Federal Deposit Insurance
Corporation ("FDIC") and the Federal Reserve Board. 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.
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Federal bank regulations require 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. 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.
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 at least 1% to 2% above the 3% minimum.
The following table sets forth Capital Bank's and Bancorp's regulatory capital
ratios as of December 31, 1996 and 1995:
BANCORP CAPITAL BANK
12/31/96 12/31/95 12/31/96 12/31/95
-------- -------- -------- --------
Tier One Capital Ratio 10.84% 9.99% 10.37% 9.58%
Total Capital Ratio 11.75% 11.24% 11.28% 10.83%
Leverage Ratio 8.38% 7.25% 8.03% 6.97%
EMPLOYEES
At December 31, 1996, the Company had 275 full-time employees, including 143 in
its Fort Lauderdale office, 56 in its California office, 45 in its New York
office, and 31 in its North Carolina office. None of the Company's employees are
covered by a collective bargaining agreement and the Company considers its
employee relations to be good.
EXECUTIVE OFFICERS
The executive officers of Holding and Factors are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C> <C>
John W. Kiefer................. 50 President, Chief Executive Officer and Director
Stephen J. Donohue............. 52 Executive Vice President-New York Regional Manager
James L. Morrison.............. 53 Executive Vice President-California Regional Manager
Michael J. Sullivan............ 48 Senior Vice President-North Carolina Regional Manager
Dennis A. McDermott............ 46 Senior Vice President-Chief Financial Officer
John B. Apgar.................. 43 Senior Vice President-Healthcare
Javier J. Holtz................ 36 Executive Vice President and Chairman of the Board
</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 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.
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<PAGE>
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 Chairman of the Board of Capital Bank, N.A., Rockville, Maryland. 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 37% of Bancorp Common Stock,
and Abel Holtz, the beneficial owner of approximately 9.1% of Bancorp Common
Stock.
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<PAGE>
ITEM 2. 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. In October 1996,
the Company entered into a ten-year lease for approximately 14,200 square feet
of office space in Boca Raton. The lease provides for annual base rent of
approximately $312,000 for the first five years and $341,000 for the remaining
term. Commencement of the lease is contingent upon substantial completion of the
tenant build-out, scheduled for May 1997. The Company's corporate headquarters
and the Florida regional office will re-locate to the Boca Raton office and the
Fort Lauderdale office will remain as the Company's operations center. 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. In March 1997, the Company signed a five-year lease for
3,000 square feet of office space in Atlanta, Georgia. The annual base rental
payment for the Atlanta office equals $57,750.
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." In 1996, Bancorp made application to register the name
"Capital Business Credit" with the United States Patent and Trademark Office.
Bancorp has authorized the Company's uninterrupted and unrestricted use of the
name "Capital Business Credit". No agreement regarding the Company's use of such
service marks exists between Bancorp and the Company and no fee is paid by the
Company in connection with such uses. The "Capital Factors" 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.
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<PAGE>
ITEM 3. LEGAL 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
Capital Bancorp and the Bank are currently parties to two related litigation
matters, which are described below. Neither the Company nor Capital Factors has
been named as a defendant in such matters.
NATHAN J. ESFORMES, STANLEY I. WORTON, M.D., AND LEONARD WEIN, 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).
On February 8, 1995, certain shareholders of Capital Bancorp commenced a
derivative action against Capital Bancorp, Daniel M. Holtz, the Chairman of the
Board, President and Chief Executive Officer of Capital Bancorp and a director
of the Company, Fana Holtz, the Vice Chairman of the Board, Javier Holtz, a
director of the Bank and Chairman of the Board of the Company, and Abel Holtz,
the former Chairman of the Board, President and Chief Executive Officer of
Capital Bancorp and Chairman of the Board of the Company (the "Derivative
Action"). The Derivative Action was subsequently amended to add, among other
things, the remaining members of the Board of Directors of Capital Bancorp as
defendants. Through the Derivative Action, the plaintiffs alleged that certain
defendants engaged in a series of illegal activities causing harm to Capital
Bancorp and the Bank, including (i) the settlement of a sexual harassment claim,
(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 the 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, Capital Bancorp, including (i) the unlawful use of proxies, (ii) the
prevention of investigations and shareholder meetings, (iii) the unlawful
alteration of the composition of Capital Bancorp's Board of Directors and (iv)
the failure to obtain approval for a change in control.
The Board of Directors of Capital Bancorp established an independent committee
(the "Committee") to investigate the allegations contained in the Derivative
Action and to retain independent legal counsel. The members of the Committee are
Russell Galbut, who serves as Chairman of the Committee, and Hugh Culverhouse,
Jr., both of whom are outside directors of Capital Bancorp. Thereafter, the
plaintiffs alleged that the Committee was not independent because members were
invalidly elected by the Board and because such members knew or should have
known about the alleged illegal proxy solicitation and alleged fraudulent
actions by the other defendants. 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 Committee had a reasonable period of time to
complete its review. The plaintiff's appeal of the Court's decision to stay the
proceedings was denied. In May 1996, the plaintiffs moved for a rehearing or,
alternatively, for clarification of the Court's denial of such appeal. In June
1996, the plaintiff's motion for rehearing was denied.
18
<PAGE>
An amended complaint was filed in December 1995 containing substantially the
same allegations. The plaintiffs in the Derivative Action are seeking, on behalf
of Capital 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 a
February 27, 1995 shareholders' meeting, (iii) reinstating two former directors,
(iv) precluding the current Board from taking any action and (v) returning
certain shares to Capital Bancorp. No motions seeking such relief have been
filed. No monetary relief is sought from Capital Bancorp and no count
specifically seeks relief from Capital Bancorp.
The Committee issued a report dated May 29, 1996 concluding, based on its
investigation and the investigation of its counsel and accounting firm, that the
"derivative litigation is not in the best interest of Capital Bancorp or Capital
Bank and, as such, should be dismissed". In December 1996, Capital Bancorp
entered into an agreed order with the plaintiffs to lift the stay entered by the
Court and, in January 1997, Capital Bancorp filed a motion to dismiss the
Derivative Action. A hearing on such motion is pending.
The Chairman of the Committee, and two companies in which he is a principal and
a director (neither of which are affiliates of Capital Bancorp or the Bank),
were recently named as defendants in a complaint filed in the United States
District Court for the Southern District of Florida by a former female employee
of such companies, alleging sex discrimination, sexual harassment and exposure
to a sexually hostile work environment through the actions of such director as
the managing director of the defendant companies. The complaint also alleges
intentional infliction of emotional distress and violation of the Florida
Whistleblower Statute. In connection with the latter claim, the employee
alleges, among other things, that in 1995, the director requested that she
provide perjured testimony in connection with "private civil litigation and an
investigation by the Federal Deposit Insurance Corporation involving Capital
Bancorp," which testimony would have included, but not been limited to, "the
fact that certain shares of stock of Capital Bancorp were being fraudulently
held in trust for [the director] under the names of certain other third
parties." The former employee also alleges that the director requested that she
assist the law firm hired by Capital Bancorp to conduct a purportedly
"independent investigation." The plaintiff alleges that the director made this
request even though he was named as a defendant in the lawsuit and that he
promised her a large bonus if she became involved and provided him with details
of any findings of wrongdoing before officially reported. Although no answer is
yet due or has been filed, the director has advised Capital Bancorp that in his
judgment, there is no substance to any of the allegations. The director's motion
to dismiss, or in the alternative, for summary judgment is pending. No other
allegations in this complaint relate to Bancorp or the Bank.
The director has filed an action against the former employee in the Circuit
Court for the Eleventh Judicial Circuit in and for Dade County, Florida, seeking
permanent injunctive relief and damages for conspiracy and extortion, as well as
defamation and intentional infliction of emotional distress. The director
alleges that the former employee schemed to extort $1.2 million from the
director by the use of defamation and blackmail.
STANLEY I. WORTON, M.D., NATHAN J. 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).
Also on February 8, 1995, a shareholder of Capital Bancorp commenced an
individual action against Capital Bancorp, Daniel Holtz, Javier Holtz, Fana
Holtz and Abel Holtz (the "Individual Action"). Such action alleged that the
defendants, other than Capital Bancorp, breached fiduciary duties owed to the
plaintiff by, among other things, improperly using proxies to vote shares of
Capital 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. In support of the complaint, the plaintiff asserted many of the same
allegations contained in the Derivative Action. Thereafter, the plaintiff filed
an amended
19
<PAGE>
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 Capital 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 such meeting, including the reduction in the size of the Board, were
invalid. The amended complaint also sought a court order directing Capital
Bancorp to hold a shareholders' meeting on or before May 28, 1995 to elect a
board of directors (although the required papers to have a hearing on the matter
have not been filed).
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 had 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 Capital Bancorp other than costs. Capital 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.
Capital Bancorp has advised the Company that it has not determined whether, if
asked, it would indemnify directors and former directors named in this action 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 Capital Bancorp for all or any portion of such advances
which they are ultimately found not to be entitled to pursuant to applicable
law.
Neither the Company, Factors nor any of their subsidiaries are parties 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.
Regulatory Matters
Fana Holtz, the Vice-Chairman of the Board of Capital Bancorp, Daniel Holtz,
Chairman of the Board, President and Chief Executive Officer of Capital Bancorp
and a director of the Company, and Javier Holtz, Senior Vice President of
Capital Bancorp, a director of the Bank and Chairman of the Board of the
Company, have advised Capital 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 the Bank through their ownership and control of
Capital Bancorp. Fana Holtz, Daniel Holtz and Javier Holtz have advised Capital
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 Capital Bancorp, although they do not believe such an
application is legally required. Daniel Holtz, Fana
20
<PAGE>
Holtz and Javier Holtz also have had discussions with the Board of Governors of
the Federal Reserve (the "FRB") as to whether a change of control notice is
required under federal law. As of February 14, 1997, Daniel Holtz, Fana Holtz
and Javier Holtz, owned and/or had the power to vote, approximately 6.4%, 36.8%
and 3.8% (47.0% in the aggregate), respectively, of Capital Bancorp's Common
Stock (including shares of Common Stock subject to options exercisable by such
individuals within 60 days).
The plaintiffs and another shareholder in the above-described litigations 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 opposing the change in control notice and application and raising
many of the same issues raised in the Derivative and Individual Actions. A
hearing commenced in August 1996 and ended in November 1996 but, to the
Company's knowledge, no decision has been reached on the application. It cannot
be presently determined what effect, if any, the discussions with the FRB and
the FDBF's action on the application will have on the Company, although if
control applications ultimately were determined to be required and such
applications were denied, regulatory authorities could take various actions,
including requiring that one or more members of the Holtz family divest
sufficient shares of Capital Bancorp so as not to have legal control of Capital
Bancorp as defined by regulatory authorities.
Abel Holtz, the former Chairman of the Board, President and Chief Executive
Officer of Capital Bancorp and former Chairman of the Board of the Company, and
currently a shareholder of Capital Bancorp, is subject to the restrictions of
Section 19 of the Federal Deposit Insurance Act which preclude him from
controlling or otherwise participating in the affairs of Capital Bancorp or the
Bank without regulatory approval. Federal bank regulatory authorities have been
examining and investigating whether Abel Holtz and some or all of the persons
discussed in the paragraphs above, including the Company and its subsidiaries,
and possibly other persons, are in compliance with applicable change in control
laws and Section 19. In December 1996, the Federal Deposit Insurance Corporation
(the "FDIC") issued a cease and desist order, which prohibits Abel Holtz from,
among other things, (i) assisting, participating or engaging in the solicitation
of proxies from Capital Bancorp shareholders; (ii) influencing or attempting to
influence the voting or disposition of any shares of Common Stock of Capital
Bancorp, excepting only the disposition of those shares owned directly by him;
(iii) requesting or receiving performance reports or other internal data
relating to the activities, operations or financial condition of Capital Bancorp
or the Bank; or (iv) communicating with any officer, director or employee of
Capital Bancorp or the Bank on matters regarding the conduct of the operations
or affairs of Capital Bancorp or the Bank. The cease and desist order also
required, among other things, that Abel Holtz, who as of February 14, 1997 owned
9.1% of Capital Bancorp's Common Stock, enter into an irrevocable proxy (the
"Proxy") with respect to such shares. Capital Bancorp has been advised that on
December 24, 1996, Abel Holtz entered into such proxy, which transferred the
sole right and power to vote the shares of Capital Bancorp he currently owns
(and any shares he may acquire in the future) to a third party. Pursuant to the
Proxy, such third party is required to vote the shares proportionately with all
other outstanding shares of Capital Bancorp on any matter brought before the
shareholders of Capital Bancorp for a vote.
The Company also was advised that, in a January 1997 letter, the FDIC informed
Fana Holtz, Daniel Holtz and Javier Holtz that the FDIC did not anticipate
recommending any enforcement action against any of such individuals as a result
of the FDIC'S investigation. The FDIC'S decision was based on information known
to the FDIC at such time, and the FDIC reserved the right to change its position
in the event that additional facts and circumstances warrant reconsideration.
To date, the Company, Bancorp and Capital Bank are unaware of any other
conclusions related to the above described inquiries.
21
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders during the
fourth quarter of the fiscal year ended December 31, 1996.
22
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Trading Market
Effective July 11, 1996, Capital Factors Holding, Inc.'s Common Stock was listed
for trading on the Nasdaq National Market under the symbol "CAPF." Prior to that
date, there was no established trading market for the Common Stock. The high and
low sales prices of the Company's Common Stock since the commencement of public
trading are set forth below for the periods indicated:
QUARTER ENDED QUARTER ENDED
SEPTEMBER 30, 1996 DECEMBER 31, 1996
------------------ -----------------
High $10.375 $13.25
Low $ 8.25 $ 9.875
Close $10.25 $12.50
As of March 25, 1997, there were approximately 550 holders of record,
including individual participants in security position listings of the
Company's Common Stock and the closing price as quoted on the Nadsaq National
Market was $15.00.
Dividends
The Company has not paid any dividends on the Common Stock as of December 31,
1996. The Company presently 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 on 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.
23
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
Summary Consolidated Financial Data
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Factoring fees...................... $ 26,066 $ 19,519 $ 17,371 $ 15,376 $ 12,482
Interest income..................... 35,835 28,211 17,628 13,511 11,450
Interest expense.................... (20,403) (16,361) (10,329) (7,842) (7,005)
----------- ---------- ---------- ---------- ----------
Net interest income................. 15,432 11,850 7,299 5,669 4,445
Letter of credit and other fees..... 3,099 2,040 1,238 1,128 665
Other income........................ 1,708 1,849 1,541 1,303 905
----------- ---------- ---------- ---------- ----------
Operating revenues............. 46,305 35,258 27,449 23,476 18,497
Provision for credit losses......... 3,750 2,235 2,235 2,645 3,150
Operating expenses.................. 23,516 18,457 14,137 13,072 11,316
----------- ---------- ---------- ---------- ----------
Total expenses................. 27,266 20,692 16,372 15,717 14,466
Income before income taxes(1)....... 19,039 14,566 11,077 7,759 4,031
Net income.......................... 11,115 8,693 6,092 4,305 2,304
Primary earnings per share.......... $ 1.01 $ 0.87 $ 0.61 $ 0.43 $ 0.23
Fully diluted earnings per share.... $ 0.99 $ 0.87 $ 0.61 $ 0.43 $ 0.23
Operating Ratios and Other Data(2):
Factored sales...................... $ 2,651,442 $2,001,364 $1,536,960 $1,326,802 $1,057,846
Factoring fees to factored sales.... 0.98% 0.98% 1.13% 1.16% 1.18%
Net interest income to factored
sales............................. 0.58% 0.59% 0.47% 0.43% 0.42%
Letter of credit and other fees to
factored sales.................... 0.12% 0.10% 0.08% 0.09% 0.06%
Other income to factored sales...... 0.06% 0.09% 0.10% 0.09% 0.09%
----------- ---------- ---------- ---------- ----------
Operating revenues to factored
sales............................. 1.74% 1.76% 1.79% 1.77% 1.75%
Provision for credit losses to
factored sales.................... 0.14% 0.11% 0.15% 0.20% 0.30%
Operating expenses to factored
sales............................. 0.89% 0.92% 0.92% 0.99% 1.07%
----------- ---------- ---------- ---------- ----------
Total expenses to factored sales.... 1.03% 1.03% 1.07% 1.18% 1.37%
Income before income taxes to
factored sales.................... 0.72% 0.73% 0.72% 0.58% 0.38%
Return on equity(3)................. 24.01% 30.20% 28.80% 26.57% 17.78%
Return on assets(3)................. 2.36% 2.71% 2.35% 1.99% 1.32%
Average funds employed(4)........... $ 286,200 $ 210,900 $ 153,600 $ 131,800 $ 108,300
Net interest income to average
funds employed.................... 5.39% 5.62% 4.75% 4.30% 4.10%
Net charge-offs to factored
sales volume...................... 0.14% 0.05% 0.17% 0.20% 0.30%
Accounts receivable turnover
in days(5)........................ 52 53 53 52 54
Average number of employees......... 242 193 162 153 140
Avg. factored sales per employee.... $ 10,956 $ 10,370 $ 9,487 $ 8,672 $ 7,246
</TABLE>
24
<PAGE>
DECEMBER 31,
1996 1995
Balance Sheet Data: --------- ---------
Receivables, net....................... $ 485,548 $ 354,821
Total assets........................... 530,567 399,471
Due to factoring clients............... 191,489 128,578
Borrowings............................. 271,031 227,260
Due to Affiliates and other liabilities 5,959 10,293
Shareholders' equity................... 62,088 33,340
- ----------------------------
(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 majority shareholder, allocates income
taxes to the Company calculated on a separate return basis.
(2) For purposes of the ratios and data below for 1994 and 1995, factored sales
include certain receivables which are pledged as collateral for those
asset-based loans for which the Company provides factoring-type services.
(3) Computed using average monthly balances
(4) Computed using average monthly balances of funds employed (receivables less
amounts due to factoring clients).
(5) 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.
25
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
INTRODUCTION
- ------------
Capital Factors Holding, Inc. ("Holding") is a majority owned subsidiary of
Capital Bank (the "Bank"), a Florida commercial bank. The Bank is a wholly-owned
subsidiary of Capital Bancorp. Holding has two wholly-owned subsidiaries,
Capital Factors, Inc. ("Factors") and CF One, Inc. Factors has two wholly-owned
subsidiaries, CF Funding Corp. ("Funding") and Capital TempFunds, Inc.
("TempFunds"). Throughout this discussion, Holding, Factors and their
subsidiaries are collectively referred to as the "Company."
The following discussion and analysis presents the significant changes in the
financial condition and results of operations for the periods indicated. In
addition, this Form 10-K contains certain "forward-looking statements" which
represent the Company's expectations or beliefs, including, but not limited to,
statements concerning industry performance and the Company's operations,
performance, financial condition, growth and strategies. For this purpose, any
statements contained in the Form 10-K that are not statements of historical fact
may be deemed to be forward-looking statements. Without limiting the generality
of the foregoing, words such as "may," "will," "expect," "believe,"
"anticipate," "intend," "could," "estimate," or "continue" or the negative or
other variation thereof or comparable terminology are intended to identify
forward-looking statements. These statements by their nature involve substantial
risks and uncertainties, such as credit losses, dependence on availability of
funding sources, dilution of receivables, concentration of client base and
client customer base, dependence on management and key personnel, seasonality
and variability of quarterly results, ability of the Company to continue its
growth strategy, competition, inability to directly collect healthcare
receivables from Medicare and Medicaid, dilution of healthcare receivables,
control by majority shareholder, and regulatory restrictions relating to
potential new activities, Bancorp and Capital Bank litigation (see "Legal
Proceedings"), certain of which are beyond the Company's control, and actual
results may differ materially depending on a variety of important factors which
are noted herein. The discussion should be read in conjunction with the
consolidated financial statements and notes included in this report.
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 account
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.
26
<PAGE>
The Company operated through four regional offices (including the Florida
office) in 1996, and, in January 1997, it opened an office in Atlanta which will
specialize in asset based loans. The Company 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, 1996, the largest amount due from any one customer, a national
department store chain, was approximately $20.7 million.
The Company's factored sales volume can be affected in several ways, including
new clients, client retention or loss 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 1994, 1995 and 1996.
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.
27
<PAGE>
Set forth below are those ratios and statistics utilized by management in
monitoring asset quality for the twelve months ended December 31, 1996 and
December 31, 1995:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Provision for credit losses $ 3,750 $ 2,235 $ 2,235 $ 2,645 $ 3,150
Charge-offs net of recoveries $ 3,837 $ 1,028 $ 2,618 $ 2,663 $ 3,164
Allowance for credit losses-specific $ 531 $ 1,203 $ 160 $ 600 $ 967
Allowance for credit losses-general $ 2,462 $ 1,778 $ 1,614 $ 1,557 $ 1,208
-------- -------- -------- -------- --------
Total allowance for credit losses $ 2,993 $ 2,981 $ 1,774 $ 2,157 $ 2,175
Accounts receivable turnover in days 52 53 53 52 54
Accounts receivable past due more
than 60 days as a percentage of
total factored receivables 7.96% 3.49% 5.17% 4.85% 6.08%
Accounts receivable past due more
than 90 days as a percentage of
total factored receivables 4.09% 2.37% 2.35% 1.95% 2.66%
Credit-approved accounts receivable
past due more than 60 days as a
percentage of credit approved
receivables(1) 2.36% 4.71% N/A N/A N/A
Credit-approved accounts receivable
past due more than 90 days as a
percentage of credit approved
receivables(1) 0.86% 2.79% N/A N/A N/A
Provision for credit losses as a
percentage of factored sales 0.14% 0.11% 0.15% 0.20% 0.30%
Net charge-offs to factored sales 0.14% 0.05% 0.17% 0.20% 0.30%
Average receivables $438,815 $312,124 $241,815 $204,664 $166,506
Provision for credit losses as a
percentage of average receivables 0.85% 0.72% 0.92% 1.29% 1.89%
Net charge-offs as a percentage of
average receivables 0.87% 0.33% 1.08% 1.30% 1.90%
Non-accruing advances $ 660 $ 2,184 $ 739 $ 385 $ 1,083
Non-accruing advances as a percentage
of receivables 0.13% 0.60% 0.28% 0.17% 0.60%
Average funds employed $286,200 $210,900 $153,600 $131,800 $108,300
Provision for credit losses as
a percentage of average funds
employed(2)(3) 1.31% 1.06% 1.46% 2.01% 2.91%
Net charge-offs as a percentage
of average funds employed(2)(4) 1.34% 0.49% 1.70% 2.02% 2.92%
Non-accruing advances as a
percentage of funds
employed(2)(5) 0.22% 0.94% 0.44% 0.28% 1.01%
<FN>
- ----------------------
(1) Management considers the aging of credit-approved receivables a more
meaningful measure of exposure to credit risk than the aging of total
receivables. Such ratios are not available prior to 1995.
(2) Funds employed are receivables less amounts due to factoring clients.
(3) Computed by dividing provision for credit losses by average funds employed
for each period presented. The provision for credit losses as a percentage
of average advances for each of the periods presented was lower than the
provision for credit losses as a percentage of average funds employed.
28
<PAGE>
(4) Computed by dividing net charge-offs by average funds employed for each
period presented. Net charge-offs as a percentage of average advances for
each of the periods presented was lower than net charge-offs as a
percentage of average funds employed.
(5) Computed by dividing non-accruing advances by funds employed at the end of
each respective period indicated. Non-accruing advances as a percentage of
advances during each period presented was lower than non-accruing advances
as a percentage of funds employed.
</FN>
</TABLE>
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. Factors such as 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
significant consideration in determining the adequacy of the Company's allowance
for credit losses. The Company's methodology for calculating its reserve for
doubtful accounts has remained consistent for the periods shown above, 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 reserve represents 0.75% of those
receivables (other than healthcare receivables, which have a lower general
reserve) that are not specifically reserved for but for which the Company has
provided credit guarantees.
The provision for credit losses as a percentage of factored sales increased from
0.11% in 1995 to 0.14% in 1996. The provision for credit losses as a percentage
of average receivables and the provision for credit losses as a percentage of
average funds employed increased to 0.85% and 1.31%, respectively, for 1996,
from 0.72% and 1.06%, respectively, in 1995, reflecting a higher net charge-off
rate. Ratios for 1996 are more consistent with the Company's historical
experience.
Net charge-offs as a percentage of factored sales ranged from 0.05% to 0.30% in
the 1992-1996 period reflecting normal credit loss consistent with historical
experience. Net charge-offs as a percentage of factored sales increased from
0.05% in 1995 to 0.14% in 1996. The net charge-offs percentage increased in 1996
due to the charge-off in the first quarter of $600,000 related to the bankruptcy
of a large Northeastern regional chain store and $200,000 related to a single
client loan, $93,000 of which was recovered, but net charge-offs remained well
within the Company's historical experience. Net charge-offs as a percentage of
average receivables and net charge-offs as a percentage of average funds
employed increased 0.54% and 0.85%, respectively, in 1996 as compared to 1995,
due primarily to the charge-offs described above.
Non-accruing advances as a percentage of funds employed have historically
remained below 1.00% and during 1996 and 1995, were at 0.22% and 0.94%,
respectively. Non-accruing advances as a percentage of receivables decreased
from 0.60% for 1995 to 0.13% for 1996. Management believes that non-accruing
advance fluctuations below 1.00% are a normal part of the Company's ongoing
business and are not significant.
Credit-approved accounts receivable past due more than 60 days as a percentage
of credit-approved factored receivables and credit-approved accounts receivable
past due more than 90 days as a percentage of credit-approved factored
receivables equaled 2.36% and 0.86%, respectively, at December 31, 1996 as
compared to 4.71% and 2.79%, respectively, at December 31, 1995. Management
considers these levels acceptable. Accounts receivable past due more than 60
days as a percentage of total factored receivables and accounts receivable past
due more than 90 days as a percentage of total factored receivables equaled
7.96% and 4.09%,
29
<PAGE>
respectively, at 1996 as compared to 3.49% and 2.37%, respectively, at 1995. The
increase in these ratios was primarily due to an increase in healthcare factored
receivables from $16.3 million at December 31, 1995 to $22.7 million at December
31, 1996, that in general are slower paying with higher delinquency ratios.
Healthcare factored receivables are not credit-approved, thus the Company does
not guarantee payment of these receivables.
FINANCIAL CONDITION - DECEMBER 31, 1996 AS COMPARED TO DECEMBER 31, 1995
Total assets increased to $530.6 million at December 31, 1996 from $399.5
million at December 31, 1995. The $131.1 million increase was due primarily to a
$130.7 million increase in net receivables.
Factored accounts receivables increased $130.5 million primarily as a result of
increased factored sales. The increase is due primarily to engagement of larger
factoring clients, increases in volumes experienced by existing clients from
1995 to 1996, and increases in the number of clients serviced by the Company in
1996 as compared to 1995. The Company's factored accounts receivable are due
from clients' customers geographically located throughout the United States,
principally retailers, manufacturers and distributors. Asset based loans, which
represent loans provided to clients principally collateralized by accounts
receivable, decreased slightly by $2.3 million from December 31, 1995 to
December 31, 1996 due primarily to the loss of a large healthcare client with a
loan balance of $9.9 million at December 31, 1995. Restricted cash decreased
primarily as a result of the final draw down of $10.0 million of cash maintained
in a pre-funding account related to the third series of variable rate
asset-backed certificates collateralized by factored advances, but was offset by
an increase in non-restricted cash which is subject to fluctuations in daily
deposit volumes.
The increase in assets was principally funded by an increase in the Company's
debt outstanding under its debt facility with the Bank and two new credit
facilities closed by the Company during the twelve months ended December 31,
1996. Outstanding debt under the Capital Bank facility increased from
approximately $52.3 million at December 31, 1995 to approximately $70.1 million
at December 31, 1996. In April 1996, the Company closed a revolving credit
facility in the amount of $40 million with an unaffiliated bank. At December 31,
1996 the Company had $15.9 million outstanding under this facility, which bears
interest at LIBOR plus 2.15%. In May 1996, the Company, through its wholly-owned
subsidiary, CF One, Inc., raised an additional $10 million through the issuance
of 5 year notes, due and payable in July 2001, which bear interest at a fixed
rate of 7.95%.
Stockholders' equity increased approximately $28.7 million during 1996 as a
result of $17.6 million in net proceeds received from the sale of approximately
19% of the Company's common stock and $11.1 million of net income earned by the
Company. On July 10, 1996, the Company completed an initial public offering of
2,000,000 shares of common stock and on August 5, 1996, sold an additional
300,000 pursuant to the Underwriters' over-allotment option.
RESULTS OF OPERATIONS
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net income increased 27.9% to approximately $11.1 million for 1996 as compared
to $8.7 million for 1995, due primarily to an increase in operating revenues
offset by an increase in the provision for credit losses and operating expenses.
Operating revenues (total revenues less interest expense) increased 31.3% to
approximately $46.3 million in 1996 from $35.3 million in 1995. These increases
were primarily a result of a 32.5% increase in the Company's factored sales
volume from $2.0 billion for 1995 to $2.7 billion for 1996. This increase in
factored sales was attributable to the opening of the Charlotte office which
30
<PAGE>
increased factored sales volume by $159.6 million in the twelve month period,
combined with continued growth of the Company's New York and California offices.
The Company's healthcare division, which commenced operations in September 1994,
contributed $124.5 million in factored sales, a 41.0% increase over its
contribution over the prior comparable period. The New York office accounted for
43.1% of the Company's factored sales volume in 1996, compared to 48.0% in 1995.
The Company experienced a 33.5% increase in factoring fee income for 1996 as
compared to 1995 as a result of a 32.5% increase in factored sales. Factoring
fee income as a percentage of factored sales for the twelve month periods
remained flat at 0.98% in 1995 and 1996.
Net interest income (interest income less interest expense) increased to
approximately $15.4 million for 1996 from approximately $11.8 million for 1995,
a 30.2% increase, principally as a result of an increase of $75.3 million, or a
35.7% increase, in average outstanding funds employed for 1996 as compared to
1995. Additionally, the $17.6 million of net proceeds raised by the Company's
issuance of common stock in July 1996 which were used to reduce the debt
outstanding under the debt facility with Capital Bank favorably impacted net
interest income. Net interest income for 1996 also benefited from interest
expense reductions achieved through the issuance of $50.0 million of additional
Certificates under the Securitized Financings agreement in July 1995, entering
into a $40.0 million revolving loan agreement with an unaffiliated bank in April
1996, and the issuance of $10.0 million in subordinated notes in May 1996.
Average borrowings from the revolving loan during the year ended December 31,
1996 equaled approximately $17.1 million and had an effective interest rate of
8.2% for the twelve month period. The $10.0 million notes bear interest at a
fixed annual rate of 7.95%.
Letter of credit and other fee income increased to approximately $3.1 million
for 1996 from $2.0 million for 1995, a 51.9% increase. Letter of credit fees
increased approximately 32.7% or $277,000 during the year. Other fee income
includes fees charged for wires and client audits.
The provision for credit losses increased to $3.8 million for 1996 from $2.2
million for 1995. This increase is primarily attributable to an increase in
outstanding accounts receivable. The provisions for credit losses as a
percentage of factored sales for the year ended December 31, 1996 increased to
.14% as compared to .11% for the comparable period in 1995, reflecting a higher
net charge-off rate (see "Monitoring Asset Quality and Credit Losses").
Operating expenses (total expenses less interest expense) increased from $18.5
million for 1995 to $23.5 million for 1996. This $5.1 million or 27.4% increase
is primarily the result of opening the North Carolina regional office and
expansion of the existing regional offices and the healthcare division.
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 during 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 28.5% increase, primarily attributable
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
31
<PAGE>
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. 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 funds employed 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 Financings 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 debt outstanding under its line of credit with the Bank,
which bears a higher interest rate (approximately 8.75% at December 31, 1995).
At December 31, 1995, there were $175 million of certificates issued under the
Securitized Financings outstanding bearing interest at LIBOR plus 1.25%
(approximately 7.19% at December 31, 1995, excluding annualized transaction
costs of 0.37%). (See "Liquidity and Capital Resources")
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 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 provisions 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
32
<PAGE>
$739,000 at December 31, 1994. This increase was primarily attributable to
advances to a single client, most of which were collected in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of funding is its asset securitization program,
the Securitized Financings. This funding is supplemented by the Company's line
of credit with the Bank and a revolving credit facility with an unaffiliated
bank.
Through December 31, 1996, the trust created in connection with the Securitized
Financings had issued three series of asset-backed certificates (each, a
"Certificate") aggregating $175 million, including $100 million in June 1994,
$25 million in December 1994 and $50 million in July 1995. 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 bear interest
at LIBOR plus 1.25% (6.86% at December 31, 1996, 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 principal financial covenants contained in the Securitized
Financing agreements that the Company must satisfy include, (i) consolidated net
worth in excess of $18.5 million, (ii) tangible equity ratio of at least 6%,
(iii) accounts receivable non-payment percentage of no more than 18%, (iv)
60-day accounts receivable percentage of no more than 10% of total accounts
receivable, (v) 90-day accounts receivable percentage of no more than 4.5% of
total accounts receivable, (vi) weighted average factoring fee of at least
0.75%, (vii) weighted average accounts receivable turnover of less than 70 days,
(viii) accounts receivable dilution of no more than 11%, (ix) accounts
receivable payment ratio for three consecutive periods of more than 40%, (x)
aggregate amount of subordnated certificates of no more than 25% of senior
certificates, (xi) subordinated certificates equal to or greater than 7% of
total certificates and (xii) value of accounts receivable transferred to a
trust created to accommodate the Securitized Financings (the "Trust") of no less
than 135% of aggregate certificates. In addition, there are other covenants
relating to the collateral, including required capital levels, maximum dilution
and delinquency ratios and minimum subordination levels. The Company is in
material compliance with these and all other covenants contained in the
Securitized Financing agreements. The Company may continue to use the
Securitized Financings for funding, provided eligible advances are available for
transfer to the Trust. As of December 31, 1996, the Company had transferred to
the Trust client advances aggregating nearly $233.5 million.
The Company intends to increase its usage of Securitized Financings through the
issuance of a fourth series of asset-backed certificates to be issued by the
Trust. The fourth series is expected to be a $100,000,000 Variable Funding
Certificate with a minimum initial draw of $25,000,000. Management expects this
transaction to close during the second quarter of 1997. Unlike the previously
issued Certificates which were fixed as to principal amount, the Variable
Funding Certificate will provide for a monthly settlement of principal, which
may increase or decrease the outstanding amount. Management believes that this
type of Certificate will provide a more efficient means of funding the seasonal
fluctuations in the Company's overall funding requirements. 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. Generally, all of the
client 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.
33
<PAGE>
In March 1996, the Company entered into a $40.0 million revolving credit
facility with an unaffiliated bank which was closed in April 1996. The
indebtedness under this facility is 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 this facility to
be fully funded, the Company would have to pledge an amount in excess of $57
million in advances. The indebtedness under this facility may not exceed 70% of
the value of the advances pledged by the Company as collateral for such
indebtedness. At December 31, 1996, the Company had outstanding borrowings of
$15.9 million. The indebtedness under this revolving facility bears interest at
a rate of LIBOR plus 2.15% (7.76% at December 31, 1996), payable monthly. The
indebtedness under this facility matures upon termination in March 1999,
although it will be automatically renewed for additional one year periods unless
the Company or the lender terminates it. This facility contains certain
financial covenants and ratios, including those relating to the Company's debt
to net worth (no less than 1 to 1), profitability ($5.2 million of annual
consolidated net income) and positive net cash flows (more than $1 per quarter).
Funds borrowed under this facility were used by the Company to pay down
indebtedness under the Company's line of credit with the Bank and to fund
certain of the Company's healthcare financing activities and asset-based lending
activities.
The Company also has a $125.0 million unsecured revolving line of credit with
Capital Bank, pursuant to which the Company had outstanding borrowings of
approximately $70.1 million at December 31, 1996. This facility was increased to
$150.0 million in January of 1997. Amounts borrowed under this facility are
subject to the Banks overall statutory limitation on investments in and advances
to subsidiaries of 10% of assets. Based on the statutory limitation, the maximum
amount which could be outstanding under this line was approximately $91 million
at December 31, 1996. Indebtedness under this facility bears interest at the
prime rate, as published in The Wall Street Journal (8.25% at December 31,
1996), is subject to annual review by the 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 is payable monthly. The Company
generally has used the Facility with the Bank to make advances to its clients.
In May 1996, CF One sold the $10 million of subordinated notes (the "CF One
Notes"), which are collateralized by subordinated certificates that were
issued in connection with the Company's Securitized Financings. The CF One
Notes, which are due and payable in July 2001, bear interest at an annual fixed
rate of 7.95% and are rated "BBB" by both Duff & Phelps Credit Rating Company
and Fitch Investors Services, Inc. The principal purpose for the issuance of the
CF One Notes was to allow CF One to obtain additional financing by taking
advantage of the favorable financing terms resulting from an increase in the
value of the subordinated certificates held by CF One which are collateralized
by assets held by the Trust. The increase in the value of the subordinated
certificates held by CF One was the result of the favorable performance of the
receivables and other assets held in the Trust's portfolio.
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 receivable purchased from its clients. Of the Company's approximately
$491.0 million of accounts receivable outstanding at December 31, 1996,
approximately $192.9 million have balances exceeding $1 million. These customers
are primarily large national or regional department store chains or specialty
retailers. At December 31, 1996, the largest amount due from any one customer, a
national chain store, was approximately $20.7 million. In addition, the
Company's accounts receivable turned over in an average of 52 days during 1996
and 53 days during 1995.
The Company had no material commitments for capital expenditures as of December
31, 1996. 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 future
working capital requirements.
34
<PAGE>
EFFECTS OF INFLATION
The Company believes that inflation has not had a material impact on its results
of operations.
35
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, DECEMBER 31,
1996 1995
------------- -------------
ASSETS
Cash $ 28,101,237 $ 20,326,814
Restricted Cash 6,562,500 16,187,500
Receivables 490,977,592 361,205,965
Unearned discounts (2,436,301) (3,404,016)
Allowance for credit losses (2,993,534) (2,980,778)
------------- -------------
Receivables, net 485,547,757 354,821,171
Property and equipment, net 3,095,157 3,285,049
Other Assets 7,260,672 4,850,831
------------- -------------
TOTAL $ 530,567,323 $ 399,471,365
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Due to affiliates $ 1,310,304 $ 6,452,964
Capital Factors variable rate asset backed
certificates 175,000,000 175,000,000
Note payable to affiliate 70,131,000 52,260,000
Other borrowings 25,900,000
Due to factoring clients 191,488,668 128,577,577
Other liabilities 4,648,892 3,840,425
------------- -------------
Total liabilities 468,478,864 366,130,966
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value, 25,000,000
shares authorized; issued and outstanding
12,300,000 in 1996, 10,000,000 in 1995 123,000 100,000
Additional paid-in capital 27,151,932 9,542,096
Retained earnings 34,813,527 23,698,303
------------- -------------
Total stockholders' equity 62,088,459 33,340,399
------------- -------------
TOTAL $ 530,567,323 $ 399,471,365
============= =============
See accompanying notes to consolidated financial statements.
36
<PAGE>
CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
1996 1995 1994
------------ ----------- -----------
REVENUES
Factoring fees $ 26,066,382 $ 19,518,541 $ 17,370,626
Interest income 35,835,351 28,210,599 17,628,230
Letter of credit and other fees 3,098,596 2,040,383 1,237,611
Other 1,707,995 1,849,466 1,540,712
------------ ------------ ------------
Total revenues 66,708,324 51,618,989 37,777,179
------------ ------------ ------------
EXPENSES
Interest expense 15,137,924 11,629,391 4,238,942
Interest expense to affiliates 5,265,025 4,731,668 6,090,174
Salaries and benefits 14,674,483 11,240,046 8,698,858
Provision for credit losses 3,750,000 2,234,721 2,235,000
Occupancy and other office
expenses 3,628,446 2,588,459 2,135,319
Depreciation and amortization 656,384 632,739 591,554
Professional fees 1,006,441 991,535 1,180,861
Other 3,550,441 3,004,570 1,529,925
------------ ------------ ------------
Total expenses 47,669,144 37,053,129 26,700,633
------------ ------------ ------------
INCOME BEFORE INCOME TAXES 19,039,180 14,565,860 11,076,546
PROVISION FOR INCOME TAXES 7,923,956 5,872,763 4,984,450
------------ ------------ ------------
NET INCOME $ 11,115,224 $ 8,693,097 $ 6,092,096
============ ============ ============
Earnings per common and common
equivalent share:
Primary $ 1.01 $ 0.87 $ 0.61
============ ============ ============
Fully diluted $ .99 $ 0.87 $ 0.61
============ ============ ============
See accompanying notes to consolidated financial statements.
37
<PAGE>
CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
--------------------------------------------
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS
--------- ------------ ------------
BALANCE, DECEMBER 31, 1993 $ 100,000 $ 9,542,096 $ 8,913,110
Net Income 6,092,096
--------- ------------ ------------
BALANCE, DECEMBER 31, 1994 100,000 9,542,096 15,005,206
Net Income 8,693,097
--------- ------------ ------------
BALANCE, DECEMBER 31, 1995 100,000 9,542,096 23,698,303
Net proceeds from the sale
of common stock 23,000 17,609,836
Net Income 11,115,224
--------- ------------ ------------
BALANCE, DECEMBER 31, 1996 $ 123,000 $ 27,151,932 $ 34,813,527
========= ============ ============
See accompanying notes to consolidated financial statements.
38
<PAGE>
<TABLE>
<CAPTION>
CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
YEAR ENDED DECEMBER 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 11,115,224 $ 8,693,097 $ 6,092,096
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 656,384 632,739 591,554
Deferred income taxes (76,610) (399,986) 209,383
Provision for credit losses 3,750,000 2,234,721 2,235,000
Increase in restricted cash (375,000) (1,500,000) (4,687,500)
Loss on sale of assets 14,495 3,873 12,399
Due to (from) affiliates (5,142,660) 1,617,266 3,936,578
Other assets (2,103,811) (430,465) 343,208
Other liabilities 808,467 690,179 1,052,788
------------- ------------- -------------
Net cash provided by operating activities 8,646,489 11,541,424 9,785,506
------------- ------------- -------------
INVESTING ACTIVITIES:
Loan to clients, net (1,913,535) (3,053,589) (7,448,868)
Decrease (increase) in asset based loans 2,295,896 (27,841,907) (10,473,533)
Net increase in factoring accounts receivable,
net of due to factoring clients (79,560,531) (32,940,825) (5,230,704)
Sales of participations 11,432,386 1,238,287 334,570
Payments on participations (3,919,712) (751,947) (12,180,506)
Purchase of property and equipment (456,749) (914,342) (621,391)
Disposal of property and equipment 25,033 18,836 2,821
------------- ------------- -------------
Net cash used in investing activities (72,097,212) (64,245,487) (35,617,611)
------------- ------------- -------------
FINANCING ACTIVITIES:
Issuance of senior certificates 50,000,000 125,000,000
Restricted proceeds from senior certificates 10,000,000 (10,000,000)
Net proceeds from sale of common stock 17,632,836
Proceeds from borrowings 127,528,000 53,522,033 51,900,000
Payments on borrowings (83,757,000) (35,802,033) (140,360,000)
Payments of deferred financing costs (980,825) (744,802) (2,700,761)
Amortization of deferred costs 802,135 608,844 228,189
------------- ------------- -------------
Net cash provided by financing activities 71,225,146 57,584,042 34,067,428
------------- ------------- -------------
NET INCREASE IN CASH 7,774,423 4,879,979 8,235,323
CASH, BEGINNING OF PERIOD 20,326,814 15,446,835 7,211,512
------------- ------------- -------------
CASH, END OF PERIOD $ 28,101,237 $ 20,326,814 $ 15,446,835
============= ============= =============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for interest $ 18,338,991 $ 14,784,541 $ 9,375,978
============= ============= =============
Cash payments for income taxes $ 13,648,128 $ 4,929,303 $
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
39
<PAGE>
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 majority-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
this 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. On July 1, 1996, the Parent Company effected a
10,000-for-1 stock split resulting in 10,000,000 common shares issued. The stock
split is retroactively reflected in the consolidated financial statements.
On July 16, 1996, the Parent Company completed an initial public offering of
2,000,000 shares of common stock at a public offering price of $8.50 per share.
On August 2, 1996, the underwriting syndicate exercised its option to acquire an
additional 300,000 shares of common stock. As a result of the public offering,
the Bank's ownership of the Parent Company has been reduced to approximately 81%
of the outstanding 12,300,000 shares of common stock.
The Parent Company has two wholly-owned subsidiaries, Factors and CF One, Inc.
("CF One"). Factors has two wholly-owned subsidiaries, CF Funding Corp.
("Funding") and Capital TempFunds, Inc. ("TempFunds"), a newly formed North
Carolina corporation. On August 9, 1996, Factors acquired substantially all of
the assets of TempFunds America, Inc. and its affiliate, TempFunds America
Funding Corporation of South Carolina, Inc. The purchase price paid by Factors
was approximately $5.9 million (approximately $5.0 million equal to the net book
value of the assets plus an additional $900,000.) An additional amount up to
$900,000 is payable over a three year period if certain contingencies are met.
Goodwill resulting from the acquisition is being amortized using the
straight-line method over a 10 year period. The effect on operations for 1996
assuming that the acquisition had been consummated as of the beginning of the
year would not be material. TempFunds is a specialized financial services
company principally engaged in providing receivables-based commercial financing
and related fee-based credit, collection and management information services to
temporary employment and home health care agencies.
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 regional 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, 1996 and 1995, the Company
had factored accounts receivable aggregating approximately $192.9 million and
$130.0 million, respectively, due from 38 and 37 customers, respectively, each
with balances
40
<PAGE>
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, 1996 was
approximately $20.7 million.
The Company's asset based loans represent loans provided to clients principally
collateralized by accounts receivables. The Company does not service the
accounts receivable nor does it provide credit protection of the receivables.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates - 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.
Principles of Consolidation - The consolidated financial statements of Capital
Factors Holding, Inc. and Subsidiaries (the "Company") include the accounts of
the Parent Company, Factors, TempFunds, Funding, and CF One. All significant
intercompany transactions and balances have been eliminated in consolidation.
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.
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.
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. The difference between the Company's
income recognition policy and amortization of such fee over the service period
is immaterial.
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 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.
Income Taxes - There are two components of the income tax provision, current and
deferred. Current income tax provisions approximate taxes to be paid or refunded
for the applicable period. Balance sheet amounts of deferred taxes are
recognized on the temporary differences between the bases of assets and
liabilities as measured by tax laws and their bases as reported in the financial
statements. Deferred tax expense or benefit is then recognized for the change in
deferred tax liabilities or assets between periods. Recognition of deferred tax
balance sheet amounts is based on management's belief that it is more likely
than not that the tax benefit associated with certain temporary differences, tax
operating loss carryforwards, and tax credits will be realized. A valuation
allowance is recorded for those deferred tax items for which it is more likely
than not that realization will not occur. 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.
41
<PAGE>
Earnings per Share - Primary earnings per share amounts are based on the average
number of common shares outstanding for each period. Fully diluted earnings per
share amounts assume that proceeds from the assumed exercise of options were
used to purchase common shares outstanding at the higher of market value per
share as of the end of each period or the average market value during each
period, unless such exercise is anti-dilutive.
Accounting for Stock Options - In October 1995, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation" which is effective
for awards granted in fiscal years beginning after December 15, 1995. This
standard defines a fair value-based method of measuring employee stock options
or similar equity instruments. In lieu of recording the value of such options as
compensation expense, companies may provide pro forma disclosures quantifying
the difference between compensation cost included in net income as prescribed by
current accounting standards and the related cost measured by such fair
value-based method. The Company will measure cost for stock-based compensation
as prescribed by the Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees."
3. RECEIVABLES
Receivables consist of the following:
DECEMBER 31,
1996 1995
---- ----
Nonrecourse $ 269,812,980 $ 215,243,095
Recourse 157,178,312 81,232,416
-------------- --------------
Factored accounts receivables 426,991,292 296,475,511
Loans to factoring client 27,966,757 26,415,014
Asset based loans 36,019,543 38,315,440
-------------- --------------
$ 490,977,592 $ 361,205,965
============== ==============
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. Average funds employed
(receivables less amounts due to factoring clients) were $286.2 million and
$210.9 million at December 31, 1996 and 1995, respectively.
Changes in the Company's allowance for credit losses were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Beginning balance $ 2,980,778 $ 1,774,101 $ 2,157,333
Allowance related to acquisition
of TempFunds America, Inc. 100,000
Provision for credit losses 3,750,000 2,234,721 2,235,000
Charge-offs (4,402,745) (1,625,148) (3,148,281)
Recoveries 565,501 597,104 530,049
----------- ----------- -----------
Ending balance $ 2,993,534 $ 2,980,778 $ 1,774,101
=========== =========== ===========
</TABLE>
The Company specifically considered $660,124 and $2,184,046 of its client
advances impaired at December 31, 1996 and 1995, respectively, and has
discontinued the accrual
42
<PAGE>
of interest income. The allowance for credit losses related to these impaired
loans for the same periods was $30,234 and $133,847, respectively.
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
DECEMBER 31,
1996 1995
---- ----
Land $ 479,581 $ 479,581
Building 1,518,538 1,518,538
Building improvements 749,568 744,909
Furniture and equipment 2,752,850 3,007,122
Computer software 288,930 267,666
Leasehold improvements 76,874 59,140
----------- -----------
$ 5,866,341 $ 6,076,956
Less accumulated depreciation (2,771,184) (2,791,907)
----------- -----------
$ 3,095,157 $ 3,285,049
=========== ===========
5. VARIABLE RATE ASSET-BACKED 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, 1996 was 6.86%. Interest is
payable monthly. The senior certificates are collateralized by interest-earning
advances to factoring clients which totaled approximately $233,474,000 at
December 31, 1996. 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. Remaining
deferred issuance costs of $2.3 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 $6,562,500
at December 31, 1996.
Of the $50,000,000 of senior certificates issued on July 28, 1995, CF Funding
Corp. utilized $40,000,000 in 1995, and a Pre-Funding account was created at
Bankers Trust Company for the remaining $10,000,000. This remaining amount was
included in restricted cash at December 31, 1995. On March 29, 1996 CF Funding
Corp. utilized these remaining funds which were supported by interest earning
advances to clients.
43
<PAGE>
<TABLE>
<CAPTION>
6. OTHER BORROWINGS
Notes payable are summarized as follows:
DECEMBER 31,
1996 1995
AFFILIATE: ---- ----
<S> <C> <C>
A $125 million revolving line-of-credit
payable to the Bank at prime(8.25% and 8.75%
at December 31, 1996 and 1995, respectively)
with interest payable monthly. The loan
matures on demand. $ 70,131,000 $ 52,260,000
NON-AFFILIATE:
A $40,000,000 revolving loan payable to an
unaffiliated bank at LIBOR plus 2.15% (7.76%
at December 31, 1996) with interest payable
monthly. The loan matures in March 1999, with
automatic 1 year renewal periods. $ 15,900,000
7.95% subordinated note issued in connection
with the Company's Securitized Financings.
Interest is payable monthly. The loan is due
in July 2001. $ 10,000,000
------------ ------------
Total Other Borrowings $ 96,031,000 $ 52,260,000
============ ============
</TABLE>
The Bank facility was increased to $150.0 million in January of 1997. Amounts
borrowed under this facility are subject to the Bank's overall statutory
limitation on investments in and advances to subsidiaries of 10% of
consolidated Bank assets.
Under the revolving loan payable to an unaffiliated bank, the Company has
certain financial covenants and ratios, including those relating to the
Company's debt to net worth, profitability and net cash flows.
Supplemental information for the Company's borrowings, including the Variable
Rate Asset Backed Certificates (Note 5), follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Maximum amount outstanding at
any month-end $295,566,000 $221,871,000 $171,000,000
Average borrowings $258,342,000 $191,264,000 $142,959,000
Interest expense for the period $ 18,843,230 $ 15,140,324 $ 9,990,305
Average interest rate 7.29% 7.92% 6.99%
Average interest rate, end of period 7.31% 7.57% 7.67%
</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 the Bank the amount of its estimated annual current tax provisions. The
Company paid approximately $13,620,000, $4,929,000, and $0, for income taxes in
the years ended December 31, 1996, 1995 and 1994, respectively, for income taxes
related to its fiscal years ended December 31, 1996 through 1994.
44
<PAGE>
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, 1996 and 1995 are as follows:
1996 1995
Deferred tax assets: ---- ----
Bad debts $ 1,154,756 $ 1,149,834
Difference between book and tax basis
of property 214,115 126,393
Deferred compensation 89,347 92,580
----------- -----------
Deferred asset 1,458,218 1,368,807
----------- -----------
Deferred tax liability:
Pension costs (29,750) (29,750)
Other (18,900) (6,099)
----------- -----------
Deferred liability (48,650) (35,849)
----------- -----------
Net deferred asset $ 1,409,568 $ 1,332,958
=========== ===========
The components of the provision for income taxes are as follows:
YEAR ENDED DECEMBER 31,
1996 1995 1994
---- ---- ----
Current taxes:
Federal $ 6,996,887 $ 4,898,648 $ 3,436,645
State 1,003,679 1,374,101 1,338,422
----------- ----------- -----------
8,000,566 6,272,749 4,775,067
----------- ----------- -----------
Deferred taxes (benefit):
Federal and State (76,610) (399,986) 209,383
----------- ----------- -----------
$ 7,923,956 $ 5,872,763 $ 4,984,450
=========== =========== ===========
45
<PAGE>
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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
------------------- ------------------- --------------------
% of % of % of
PRE-TAX PRE-TAX PRE-TAX
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
---------- ------- ----------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Computed provision at
statutory rate $ 6,663,713 35.0% $ 5,098,051 35.0% $ 3,876,791 35.0%
Benefit of graduated
tax rate (110,765) (1.0%)
State taxes, net of
Federal benefit 678,883 3.6 774,712 5.3% 889,379 8.0%
Other 581,360 3.0 329,045 3.0%
----------- ----- ----------- ----- ----------- -----
$7,923,956 41.6% $ 5,872,763 40.3% $ 4,984,450 45.0%
=========== ===== =========== ===== =========== =====
</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, 1996 are as follows:
Years ending December 31,
1997.................................................... $ 829,049
1998.................................................... 829,049
1999.................................................... 829,049
2000.................................................... 247,883
2001.................................................... 243,653
Thereafter.............................................. 1,040,780
-----------
$ 4,019,463
===========
Rental expense for the years ended December 31, 1996, 1995 and 1994 was
approximately $745,000, $624,000, and $487,000, 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
46
<PAGE>
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, 1996 and 1995, the Company had approximately $29,294,000 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 $5,265,000, $4,732,000 and
$6,090,000 on its $125 million revolving line of credit facility with the Bank
during the periods ended December 31, 1996, 1995 and 1994 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 1996, 1995 and 1994, the Company paid insurance premiums of $605,277,
$527,669 and $533,843, respectively, for its actual portion of such insurance
premiums.
Capital Bank provided approximately $135.5 million, $130.1 million and $79.5
million during 1996, 1995 and 1994, 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 $373,688, $462,013
and $389,571 during 1996, 1995 and 1994, respectively.
The Company reimburses the Bank for its portion of commercial insurance
expenses. Payments to the Bank for insurance expenses during 1996, 1995 and 1994
equaled $465,513, $149,302 and $97,384, respectively. In addition, the Company
paid the Bank $224,332, $148,900 and $17,700, during the periods ended December
31, 1996, 1995 and 1994, respectively, for bank service charges. The Bank
charged the Company for services rendered by the Bank's legal department in 1995
and 1994 of approximately $80,000 and $102,500, respectively, based upon
estimates prepared by the Bank.
Due to affiliate represents balances owed to the Bank, principally for income
taxes and unpaid interest on the line of credit with the Bank.
47
<PAGE>
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 or results of
operations.
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 1.2% 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 $283,000, $172,090 and $134,390, for the
years ended December 31, 1996, 1995 and 1994, respectively.
The following items are components of the net periodic pension cost of the Plan:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service cost-benefits earned during the year $ 975,308 $700,348 $704,851
Interest cost-projected benefits obligation 688,910 525,785 370,261
Actual return on plan assets (858,454) (1,403,127) (102,875)
Net amortization and deferral 407,263 1,384,221 (300,215)
---------- ---------- --------
Net periodic pension cost $1,213,027 $1,207,227 $672,022
========== ========== ========
</TABLE>
The funded status of the Plan is shown in the table below:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
Actuarial present value of accumulated benefit
obligation:
Vested $ 7,746,135 $ 6,454,419
Nonvested 490,009 642,309
----------- -----------
Total $ 8,236,144 $ 7,096,728
=========== ===========
Plan assets at fair value $ 8,613,511 $ 7,176,298
Projected benefit obligation for
services rendered (10,865,116) (8,635,263)
----------- -----------
Plan assets less than
projected benefit obligation (2,251,605) (1,458,965)
Unrecognized prior service cost 283,962 407,424
Unrecognized net loss 745,427 336,923
------------ ------------
Accrued pension cost (Bancorp) $(1,222,216) $ (714,618)
=========== ===========
</TABLE>
48
<PAGE>
At December 31, 1996 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, 1996 and 1995 was
approximately $8,236,000 and $7,097,000, respectively. Included in these amounts
were vested benefits of approximately $7,746,000 and $6,454,000 at December 31,
1996 and 1995, respectively.
The assumed weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.25% and 7.00% in 1996
and 1995, respectively. The assumed expected long-term rate of return on assets
was 8.50% in 1996 and 1995. The assumed rate of salary progression was 5.50% in
1996 and 1995.
12. STOCK OPTION PLAN
In July 1996, the Company adopted a stock option plan under which 800,000 shares
of Common Stock were reserved for issuance upon exercise of stock options. The
Plan provides for the granting of both incentive stock options and nonqualified
stock options. Options granted vest 20% a year over five years and expire at the
end of the tenth year. The plan also provides for the granting of stock
appreciation rights.
Stock option activity in the plan is summarized as follows:
AVAILABLE OPTION PRICE
FOR GRANT OUTSTANDING PER SHARE
--------- ----------- ------------
Balance, January 1, 1996 0 0
Adoption of Plan 800,000
Granted (572,500) 572,500 $ 8.50
Canceled 0 0
--------- ----------- ------------
Balance, December 31, 1996 227,500 572,500 $ 8.50
========= =========== ============
The weighted-average exercise price and the weighted-average remaining
contractual life for options outstanding at December 31, 1996 is $8.50 and
approximately 9.5 years.
The Company measures compensation cost for stock based compensation as
prescribed by APB 25, "Accounting for Stock Issued to Employees." Options
granted in 1996 included 372,500 options granted with restrictions as to their
exercise as long as Capital Bank owns 80% or more of the Company's outstanding
shares. These options are accompanied by stock appreciation rights. In
accordance with APB 25, the Company has recorded compensation expense of
$149,000, based on the market value of the Company's stock at December 31, 1996.
and the vesting schedule of such options. However, SFAS No. 123, "Accounting for
Stock Based Compensation" requires pro forma disclosures of net income and
earnings per share as if the fair value method of accounting had been applied.
The fair value of the options granted in 1996 is estimated on the date of grant
using the binomial option-pricing model with the following weighted average
assumptions: dividend yield of 00.0%, expected volatility of 30.00%, risk-free
interest rate of 6.66% and expected option life of 5.0 years. The weighted
average fair value of options granted in 1996 was $3.34 per share.
49
<PAGE>
Under the fair value method, compensation cost for stock options granted in 1996
would have been $178,150. The after tax effect would have been to reduce net
income in 1996 by $16,907. The following table presents the pro forma
calculation of earnings per share for the year ended December 31, 1996:
Pro forma net income $11,098,317
-----------
Pro forma primary earnings per share $ 1.00
-----------
Pro forma fully diluted earnings per share $ 0.99
-----------
13. 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, Asset Based Loans, 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. All but one of the notes payable carry variable interest rates which
reprice at least every 30 days. The Company holds one $10,000,000 note payable
at a fixed interest rate of 7.95%. 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, 1996 and 1995 the Company had approximately
$29,294,000 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.
50
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Capital Factors Holding, Inc.:
We have audited the accompanying consolidated balance sheets of Capital Factors
Holding, Inc. (a majority owned subsidiary of Capital Bank) and subsidiaries as
of December 31, 1996 and 1995 and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. 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 consolidated financial statements present fairly, in all
material respects, the financial position of Capital Factors Holding, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
Deloitte & Touche, LLP
Ft. Lauderdale, Florida
March 10, 1997
51
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
52
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information contained under the caption "Election of Directors" to appear in
the Company's definitive proxy statement relating to the Company's 1997 Annual
Meeting of Shareholders, which definitive proxy statement will be filed with the
Securities and Exchange Commission not later than 120 days after the end of the
Company's fiscal year covered by this Report on Form 10-K (hereinafter referred
to as the "Annual Meeting Proxy Statement"), is incorporated herein by
reference. Information concerning the executive officers of the Company is
included in Part 1 of this Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained under the caption "Executive Compensation" to appear
in the Annual Meeting Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained under the caption "Security Ownership of Certain
Beneficial Owners and Management" to appear in the Annual Meeting Proxy
Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained under the caption "Certain Relationships and Related
Transactions" to appear in the Annual Meeting Proxy Statement is incorporated
herein by reference.
53
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
(1) Financial Statements.
The following financial statements of the Company and its subsidiaries and the
independent certified public accountant's report thereon appear in Item 8
hereof.
Report of Independent Certified Public Accountants
Statements of Consolidated Balance Sheet as of December 31, 1996 and 1995
Statements of Consolidated Income for the years ended December 31, 1996, 1995
and 1994
Statements of Consolidated Cash Flows for the years ended December 31,
1996, 1995 and 1994
Statements of Consolidated Stockholders' Equity for the
years ended December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules.
Schedules are omitted because the conditions requiring their filing are not
applicable or because the required information is provided in the Consolidated
Financial Statements, including the Notes thereto.
(3) Exhibits.*
(3.1) Amended and Restated Articles of Incorporation (Exhibit 3.1 to the
Company's Registration Statement [Registration No. 333-3419] on Form
S-1 as filed with the Securities and Exchange Commission on May 9, 1996
[the "Registration Statement"]).
(3.2) Amended and Restated Bylaws (Exhibit 3.2 to the Company's Registration
Statement).
(4.1) Form of Common Stock Certificate (Exhibit 4.1 to the Company's
Registration Statement).
(10.1) Form of Stock Option Plan (Exhibit 10.1 to the Company's Registration
Statement).**
(10.2) Capital Bancorp Employees Pension Plan (Exhibit 10.2 to the Company's
Registration Statement).**
(10.3) Form of Indemnification Agreement between the Company and each of its
directors and certain executive officers (Exhibit 10.3 to the Company's
Registration Statement).
(10.4) Capital Factors Financing Trust Pooling and Servicing Agreement dated
June 1, 1994, among CF Funding Corp., the Company and Bankers Trust
Company (Exhibit 10.4 to the Company's Registration Statement).
(10.5) Contribution and Sale Agreement related to the Capital Factors
Financing Trust Pooling and Servicing Agreement (Exhibit 10.5 to the
Company's Registration Statement).
(10.6) Series 1994-1 Supplement dated as of June 1, 1994 to Capital Factors
Financing Trust Pooling and Servicing Agreement (Exhibit 10.6 to the
Company's Registration Statement).
54
<PAGE>
(10.7) Series 1994-2 Supplement, dated as of December 1, 1994, to Capital
Factors Financing Trust Pooling and Servicing Agreement (Exhibit 10.7
to the Company's Registration Statement).
(10.8) Series 1995-1 Supplement, dated as of July 1, 1995, to Capital Factors
Financing Trust Pooling and Servicing Agreement (Exhibit 10.8 to the
Company's Registration Statement).
(10.9) Promissory Note evidencing Credit Facility with Capital Bank (Exhibit
10.9 to the Company's Registration Statement).
(10.10) Credit Facility with Fleet Capital Corporation (Exhibit 10.10 to the
Company's Registration Statement).
(10.11) Lease Agreement dated as of April 30, 1990, between Hachette Filipacchi
Magazines, Inc. (Formerly Diamandis Communications, Inc.) and Factors,
as amended (Exhibit 10.11 to the Company's Registration Statement).
(10.12) Lease Agreement dated April 19, 1995, between Factors and H-C REIT,
Inc.(Exhibit 10.12 to the Company's Registration Statement).
(10.13) Lease Agreement dated as of March 1, 1995, between Hope & Flowers B.P.
Partnership and Factors (Exhibit 10.13 to the Company's Registration
Statement).
(10.14) Tax Sharing and Indemnity Agreement (Exhibit 10.14 to the Company's
Registration Statement).
(10.15) Employment Agreement dated January 1, 1996 among John W. Kiefer, the
Registrant and Capital Factors, Inc. (Exhibit 10.15 to the Company's
Registration Statement).**
(10.16) Employment Agreement between Stephen J. Donohue and Capital Factors,
Inc. (Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996 [the "September 1996 10-Q"]).**
(10.17) Employment Agreement between James L. Morrison and Capital Factors,
Inc. (Exhibit 10.1 to the September 1996 10-Q).**
(10.18) Note Purchase Agreement, dated as of May 15, 1996, between CF One,
Inc. And Connecticut General Life Insurance Company (Exhibit 10.18 to
the Company's Registration Statement).
(10.19) Collateral Pledge and Account Agreement, dated as of May 15, 1996,
among CF One, Inc., Bankers Trust Company and Connecticut General Life
Insurance Company (Exhibit 10.19 to the Company's Registration
Statement).
(10.20) Form of Agreement among Capital Bank, the Registrant and Capital
Factors, Inc.(Exhibit 10.20 to the Company's Registration Statement).
(10.21) Intercreditor Agreement by and among Capital Factors, Inc., Fleet
Capital Corporation, CF Funding Corp. and Bankers Trust Company
(Exhibit 10.21 to Amendment No. 2 to the Company's Registration
Statement).
(10.22) Form of Amendment No. 1 to Employment Agreement among John W. Kiefer,
the Registrant, and Capital Factors, Inc. (Exhibit 10.22 to Amendment
No. 2 to the Company's Registration Statement).**
(10.23) Lease Agreement dated as of October 30, 1996 between Parkwood
Properties Corp. and Capital Factors Holding, Inc.
(10.24) Purchase Agreement dated July 31, 1996 by and among Capital Factors,
Inc. and TempFunds America and TempFunds America Funding Corporation
of South Carolina, Inc.
(10.25) Amendment dated at September 9, 1996 to Purchase Agreement by and
among Capital Factors, Inc. and TempFunds America and TempFunds
America Funding Corporation of South Carolina, Inc.
(10.26) Second Amendment dated September 30, 1996 to Purchase Agreement by and
among Capital Factors, Inc. and TempFunds America and TempFunds America
Funding Corporation of South Carolina, Inc.
(10.27) Third Amendment dated February 28, 1997 to Purchase Agreement by and
among Capital Factors, Inc. and TempFunds America and TempFunds America
Funding Corporation of South Carolina, Inc.
(11.1) Statement re:computation of per share earnings.
(21.1) Subsidiaries of the Registrant.
55
<PAGE>
(27.1) Financial Data Schedule. ***
- --------------------
* Exhibits followed by a parenthetical reference are incorporated herein by
reference from the document described therein.
** These Exhibits are management contracts or compensatory plans or
arrangements.
*** Filed electronically only.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the fourth quarter
of 1996.
56
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: March 28, 1997 By: /s/ DENNIS A. MCDERMOTT
--------------------------
Dennis A McDermott
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
57
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ JOHN W. KIEFER
- -------------------------- Director,
John W. Kiefer President and Principal
Executive Officer March 28, 1997
/s/ JAVIER J. HOLTZ
- --------------------------- Chairman of the Board March 28, 1997
Javier J. Holtz
/s/ STEPHEN N. ASHMAN
- --------------------------- Director March 28, 1997
Stephen N. Ashman
/s/ RONALD S. CHASE
- --------------------------- Director March 28, 1997
Ronald S. Chase
/s/ CYNTHIA COHEN
- --------------------------- Director March 28, 1997
Cynthia Cohen
/s/ NORMAN G. EINSPRUCH
- --------------------------- Director March 28, 1997
Norman G. Einspruch
/s/ DANIEL M. HOLTZ
- --------------------------- Director March 28, 1997
Daniel M. Holtz
/s/ JACK LISTANOWSKY
- --------------------------- Director March 28, 1997
Jack Listanowsky
/s/ HAROLD L. OSHRY
- --------------------------- Director March 28, 1997
Harold L. Oshry
/s/ BRUCE RAIFFE
- --------------------------- Director March 28, 1997
Bruce Raiffe
58
<PAGE>
CAPITAL FACTORS HOLDING, INC.
FORM 10-K
INDEX TO EXHIBITS
-----------------
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.23 Lease Agreement dated as of October 30, 1996 between Parkwood
Properties Corp. and Capital Factors Holding, Inc.
10.24 Purchase Agreement dated July 31, 1996 by and among Capital Factors,
Inc. and TempFunds America and TempFunds America Funding Corporation
of South Carolina, Inc.
10.25 Amendment dated at September 9, 1996 to Purchase Agreement by and
among Capital Factors, Inc. and TempFunds America and TempFunds
America Funding Corporation of South Carolina, Inc.
10.26 Second Amendment dated September 30, 1996 to Purchase Agreement by and
among Capital Factors, Inc. and TempFunds America and TempFunds America
Funding Corporation of South Carolina, Inc.
10.27 Third Amendment dated February 28, 1997 to Purchase Agreement by and
among Capital Factors, Inc. and TempFunds America and TempFunds America
Funding Corporation of South Carolina, Inc.
11.1 Statement re:computation of per share earnings.
21.1 Subsidiaries of the Registrant.
27.1 Financial Data Schedule**
- ----------
* All other exhibits listed under Item 14 of Part IV of the Form 10-K are
incorporated be reference to documents previously filed, as indicated
therein.
** Filed electronically only.
Exhibit 10.23
OFFICE LEASE AGREEMENT
LANDLORD: PARKWOOD PROPERTIES CORP.
TENANT: CAPITAL FACTORS HOLDING, INC.
RENTABLE SQ.FT.: 14,196
SPACE: ENTIRE FIFTH FLOOR
INITIAL TERM: TEN (10) YEARS AND THREE (3) MONTHS
<PAGE>
TABLE OF CONTENTS
PAGE
1. THE PREMISES AND TERM...........................1
2. POSSESSION......................................2
3. MONTHLY RENT....................................3
4. ADDITIONAL RENT.................................3
5. USE; EXCLUSIVITY................................10
6. ACCEPTANCE OF PREMISES..........................11
7. TENANT'S CARE...................................11
8. BUILDING HOURS OF OPERATION.....................13
9. LANDLORD SERVICES...............................13
10. DESTRUCTION OR DAMAGE TO THE PREMISES AND
WAIVER OF SUBROGATION........................15
11. DEFAULT BY TENANT- LANDLORD'S REMEDIES..........17
12. LANDLORD'S LIABILITY............................19
13. ASSIGNMENT AND SUBLETTING.......................19
14. CONDEMNATION....................................22
15. INSPECTIONS AND ACCESS TO PREMISES..............23
16. SUBORDINATION...................................23
17. INDEMNITY.......................................24
18. INSURANCE.......................................25
19. FINANCIAL REPORTS...............................25
20. HOLDING OVER....................................25
21. ENTIRE AGREEMENT - NO WAIVER....................26
22. WAIVER OF JURY TRIAL............................26
23. HEADINGS........................................26
24. NOTICES.........................................26
25. HEIRS AND ASSIGNS - PARTIES.....................27
26. ATTORNEYS' FEES.................................27
27. TIME OF ESSENCE...................................27
<PAGE>
28. SECURITY DEPOSIT................................27
29. TENANT BUILDOUT; BUILDOUT ALLOWANCE.............28
30. PARKING ARRANGEMENTS AND COMMON AREAS...........29
31. RULES AND REGULATIONS...........................30
32. BROKER..........................................30
33. PUBLIC AREAS....................................31
34. QUIET ENJOYMENT.................................31
35. FORCE MAJEURE...................................31
36. RELATIONSHIP OF THE PARTIES.....................31
37. AUTHORITY.......................................31
38. RADON GAS.......................................32
39. HAZARDOUS WASTE.................................32
40. SAVING PROVISION................................33
41. REMEDIES CUMULATIVE.............................33
42. EFFECTIVENESS OF LEASE..........................33
43. RIGHT OF FIRST OFFER............................33
44. MONUMENT SIGNAGE................................34
45. LANDLORD DEFAULT................................35
46. GOVERNING LAW...................................35
47. COUNTERPARTS....................................35
LIST OF EXHIBITS
EXHIBIT A: Floor Plan
EXHIBIT B: Rent Schedule
EXHIBIT C: Description of Project/Common Area Spine
EXHIBIT D: Description of Property
EXHIBIT E: Rules and Regulations
EXHIBIT F: Tenant Buildout Allowance
EXHIBIT G: Description of Securities Brokerage
EXHIBIT H: Monument Sign
EXHIBIT I: General Location of Canopied Parking Spaces
<PAGE>
OFFICE LEASE AGREEMENT
THIS OFFICE LEASE AGREEMENT ("Lease") is made this 30th day of October,
1996 (the "Effective Date"), by and between PARKWOOD PROPERTIES CORP., a New
York corporation (the "Landlord"), whose address is c/o Southcoast Partners,
Inc., as agents for Parkwood Properties Corp., 150 East Palmetto Park Road,
Suite 750, Boca Raton, Florida 33432, and CAPITAL FACTORS HOLDING, INC., a
Florida corporation (the "Tenant"), whose address is: (subsequent to the
Commencement Date) 120 East Palmetto Park Road, 5th Floor, Boca Raton, Florida
33432.
1. THE PREMISES AND TERM.
A. INITIAL TERM. Landlord, for and in consideration of the rents
hereinafter reserved and of the covenants, agreements and conditions hereinafter
set forth, to be kept and performed on the part of Tenant, hereby leases to
Tenant, and Tenant hereby rents and leases from Landlord the following described
space (the "Premises") as outlined in red on the floor plans attached hereto and
made a part hereof as Exhibit A:
Rentable Square Feet: 14,196
Useable Square Feet: 12,838
Space: Entire Fifth (5th Floor)
located in the building hereinafter described which is located on the Property
(defined below) (the "Building"):
Building: Merrill Lynch Building
Address: 120 East Palmetto Park Road
City: Boca Raton
County: Palm Beach
State: Florida
together with the continuous right, subject to applicable rules and regulations,
to use the Common Areas (defined below), Project Common Areas (defined below),
Parking Areas (defined below) and the Common Area Spine (defined below) and the
improvements and facilities located thereon which are designated for the
nonexclusive use of occupants of the Building in common with Landlord and the
tenants and occupants of the Building and the Project (defined below) and their
respective agents, employees, and invitees, for a term to commence on the
Commencement Date (defined below) and end at midnight on the day immediately
prior to the ten (10) year and three (3) month anniversary of the first day of
the first full month after the Commencement Date unless the Commencement Date
shall be the first day of the month, in which event the term shall end on the
ten (10) year and three (3) month anniversary of the Commencement Date, such
period being the term of this Lease (the "Initial Term"). For purposes of this
Lease, the term Commencement Date shall mean the date that the Tenant Buildout
(defined below) are substantially complete (the "Commencement Date"). For
purposes of this Lease, the term "substantially complete" when used in
connection with the term Tenant Buildout shall mean that the Tenant Buildout are
completed substantially in accordance with the plans and specifications for the
Tenant Buildout. The Tenant Buildout shall be deemed substantially completed
notwithstanding the fact that minor or insubstantial details of the work,
mechanical adjustment, or decoration remain to be performed. The estimated date
for substantial completion of the Tenant Buildout and the estimated Commencement
Date is January 1, 1997. However, should Landlord fail to substantially complete
the Tenant Buildout within one hundred eighty (180) days of the said estimated
date of substantial completion of the Tenant Buildout,
<PAGE>
extended for delays caused by Force Majeure (defined below) or by Tenant, then
Tenant shall have the right to terminate this Lease by Notice (defined below)
to Landlord given on or before the end of such one hundred eighty (180) day
period, as extended as hereinbefore provided.
B. RENEWAL TERM(S): Provided this Lease shall not have been cancelled
pursuant to the other provisions of this Lease, and provided further that at the
time Tenant exercises its renewal option Tenant shall not then be in default of
this Lease beyond any applicable notice and cure period, then Tenant shall have
an option to renew the term of this Lease as to all of the Premises then leased
hereunder for two (2) additional renewal terms of five (5) years each
(collectively the "Renewal Terms" and each separately a "Renewal Term"),
commencing on the date immediately following the last day of the preceding term.
To be effective, Tenant shall exercise this option for the first Renewal Term by
delivering to Landlord no less than ten (10) months' Notice of such election
prior to the expiration of the Initial Term. Provided that Tenant has exercised
the first Renewal Term and is not then in default of this Lease beyond any
applicable notice and cure period, Tenant shall have the right to renew the term
of this Lease for an additional five (5) year term by delivering to Landlord no
less than ten (10) months' Notice of such election prior to the expiration of
the first Renewal Term. The Renewal Term(s) shall be on the same terms as the
Initial Term, except that the Base Rent (defined below) shall be as reflected on
Exhibit B, there shall be no free Rent period, no Buildout Allowance, no
exception for latent defects under Paragraph 6 hereof, and no additional Renewal
Terms. Provided Tenant exercises its option for the first Renewal Term, Base
Rent for the first Lease Year of the first Renewal Term has been determined in
accordance with Exhibit B hereto, and Tenant is not in default hereunder,
Landlord agrees to contribute no more than $5.00 per rentable square foot of the
Premises initially demised hereunder toward the cost of redecorating and
refurbishing the initially demised Premises by Tenant. Provided that Tenant
expends no less than $4.00 per rentable square foot of the initially demised
Premises on redecorating and refurbishing the initially demised Premises during
the first Lease Year of the first Renewal Term, Landlord will pay to Tenant an
amount equal to the lesser of (i) $5.00 per rentable square foot of the Premises
initially demised hereunder or (ii) such lesser amount as is actually expended
by Tenant in redecorating and refurbishing the initially demised Premises during
the first Lease Year of the first Renewal Term, within thirty (30) days after
Landlord's receipt of paid invoices indicating that Tenant has spent not less
than $4.00 per rentable square foot of the Premises initially demised hereunder
toward the cost of redecorating and refurbishing the initially demised Premises
during the first Lease Year of the first Renewal Term. There shall be no
refurbishment allowance for the second Renewal Term.
If Tenant fails or omits to give Landlord Notice of its election to
renew this Lease upon the terms set forth herein and within the prescribed time
or if Tenant is in default of the Lease beyond applicable notice and cure
periods at the time Tenant attempts to exercise its Renewal Option, then it
shall be deemed without further notice and without further agreement, that
Tenant elected not to exercise the option to extend the term of this Lease and
the Renewal Option(s) shall be null and void and of no further force or effect.
Either party, if requested, agrees to enter into a Lease amendment reflecting
the leasing of the Premises for the Renewal Term.
2. POSSESSION.
Notwithstanding the estimated Commencement Date of the Initial Term as
set forth in Paragraph 1 herein, if for any reason Landlord cannot deliver
possession of the Premises to Tenant on said date because the Premises are not
ready for occupancy, or for any other reason or cause, Landlord and its agents
shall not be subject to any liability therefor, nor shall such failure affect
the validity of this Lease or the obligations of Tenant, except as provided in
Paragraph 1 herein. In the event of any delay in the Commencement Date, the
Initial Term shall begin on the so-delayed Commencement Date and end on the date
provided for in Paragraph 1 herein. After the determination of the Commencement
Date, Tenant agrees, upon demand of Landlord, to execute, acknowledge and
deliver to Landlord an instrument, in form satisfactory to Landlord, which sets
forth the Commencement Date and the end of the Initial Term.
<PAGE>
3. MONTHLY RENT.
Tenant shall pay to Landlord, or to any successor thereto named by
Landlord, at the address described above or at such other place as Landlord may
designate by Notice, without notice or demand and without deduction, abatement,
counterclaim, or setoff whatsoever, except as may be expressly noted and
authorized under the terms of this Lease, annual rent at the rate set forth on
Exhibit B attached hereto and incorporated herein by reference (the "Base Rent")
payable in lawful money of the United States in equal monthly installments (the
"Monthly Rent"). The first Monthly Rent, together with Additional Rent (defined
below), and Sales Tax (defined below) thereon installment, payable for the
"Fourth Month" (defined below) of the Initial Term shall be paid by Tenant to
Landlord simultaneously with Tenant's delivery to Landlord of the Tenant
executed counterparts of this Lease. All subsequent Monthly Rents shall be due
in advance on the first day of each calendar month during the Initial Term,
beginning with the month next succeeding the Fourth Month, together with payment
of all Additional Rent, and together with Sales Tax. Tenant shall not be
required to pay Base Rent or Monthly Rent for the first three (3) months of the
Initial Term; however, Additional Rent and all other sums due hereunder shall be
payable for the first three (3) months of the Initial Term and shall be paid in
monthly installments beginning on the first day of the Initial Term. The term
"Lease Year", as used herein, (i) shall mean the twelve (12) month period
beginning with the first day of the Fourth Month, and each twelve (12) month
period thereafter occurring during the Initial Term of this Lease, and (ii) in
the event this Lease expires or terminates on a date other than the date
determined pursuant to Paragraph 1 hereof, then the term "Lease Year" shall also
mean the period from the end of the preceding Lease Year to the date of said
expiration or termination of this Lease. Notwithstanding anything to the
contrary contained herein, in the event the Commencement Date is other than the
first day of a calendar month, then Tenant shall pay to Landlord on the date
that is three (3) months from the Commencement Date a sum equal to the per diem
Monthly Rent for the number of days from the date which is three (3) months from
the Commencement Date to the last day of that month. The month following the
month in which the date occurs that is three (3) months from the Commencement
Date is referred to as the "Fourth Month." In the event this Lease terminates on
a day other than the date determined in accordance with Paragraph 1 hereof, the
Monthly Rent shall be equitably adjusted. Any Rent not paid within seven (7)
days after its due date shall be subject to a late charge of One Hundred Dollars
($100.00) plus Twenty-Five and No/100 Dollars ($25.00) per day for each day
after the seventh (7th) day of delinquency until the Rent payment is received.
For example, if the Rent payment is twelve (12) days late, a late charge of
$225.00 shall be due and payable.
4. ADDITIONAL RENT.
A. DEFINITIONS. As used herein:
(i) "COMMON AREAS" shall mean all portions of the
Building and the Property not intended as leasable area, including, but not
limited to, (if any) public lobbies, elevators, doorways leading into the
Building, loading areas, pedestrian walkways and ramps, landscaped areas,
stairways, corridors, mechanical rooms, washrooms, toilets, and other public
facilities, and other areas of the Building and the Property which are provided
by Landlord for the general use, in common, of tenants, their officers, agents,
employees, servants, invitees, licensees, visitors, patrons, and customers.
(ii) "COST OF OPERATION AND MAINTENANCE" shall mean,
subject to the exclusions and limitations set forth in this Subsection 4A(ii),
all costs and expenses incurred by Landlord in operating, repairing, maintaining
and Improving (defined below) to the Building, Property, Common Areas, Common
Area Spine, Parking Areas and Project Common Areas, as determined in accordance
with generally accepted accounting principles consistently applied on a cash
basis, including without limitation, all Improvements (defined below),
equipment, systems and Parking Areas designated to service occupants of the
Building, whether now existing or hereafter constructed and including, without
limitation, as they relate to the Building, Property, Common Areas, Common Area
Spine, Parking Areas and Project Common Areas, (1) costs in providing rubbish
and waste pickup and disposal, if any; (2) costs of janitorial services and
window cleaning (including materials, supplies, lightbulbs and ballasts,
equipment and tools therefor, and rental costs.
<PAGE>
related to any of the foregoing) and contracts with third parties to provide
such services or supplies; (3) costs of providing all forms of security;
(4) insurance premiums for, without limitation, property, rental interruption,
liability and any other types of insurance carried by Landlord, the costs of
which may include a reasonable allocation of a portion of the premium of a
blanket insurance policy maintained by Landlord; (5) costs of electricity,
water, sewer, and other utility charges, but excluding any utility charges paid
directly by any tenant of the Building (including Tenant) to any utility
provider; (6) costs of operation, maintenance, and repair including, without
limitation, the roof, all floor, wall and window coverings and personal
property, systems such as heat, ventilation and air conditioning, fire
prevention sprinkler systems, elevators, escalators, and all other mechanical or
electrical systems serving such facilities and service agreements for all such
systems and equipment; (7) license, permit and inspection fees; (8) wages,
salaries, employee benefits and taxes (or a reasonable allocation of the
foregoing) for on-site personnel working full or part time in connection with
operation, maintenance and management; (9) reasonable accounting and legal
services associated with the Building and/or the Project; (10) management fees
(including fees paid to Landlord if Landlord manages the Building and/or the
Project) not to exceed the customary or reasonable management fee charged in the
southeast Florida market, and Landlord's administrative costs, such as postage,
stationery, photocopy expenses, and other management office supplies; (11) costs
of indoor and outdoor landscaping including, without limitation, planting,
replacing, and replanting of flowers and bushes, and the maintenance thereof;
(12) expenses and fees, including reasonable legal fees and costs, reasonably
incurred contesting the validity or applicability of any governmental
enactments, including taxes; (13) costs of any parking validation program
enacted by Landlord in which Tenant has a right to participate; (14) cost of
operation,, maintenance and repairs of any equipment to supply music or to
provide intercom capability; (15) cost of compliance with any fire, safety or
other governmental rules, regulations, laws, statutes, ordinances or
requirements imposed by any governmental authority or insurance company; (16)
the cost of any Study (defined below); (17) the current amortization portion of
Required Capital Improvements (defined below) and Cost Saving Improvements
(defined below), amortized on a straight-line basis for ten (10) years or over
the useful life of such improvement, as determined in accordance with generally
accepted accounting principles, whichever is less; (18) the cost of all
replacements or capital repairs (hereinafter "Replacements") made in lieu of
repairs when such Replacement is reasonably necessary in accordance with sound
management and operating principles, notwithstanding that the Replacement item
is of superior quality, design or utility to the item being replaced, but only
to the extent such quality, design or utility shall not exceed the standard for
the same currently prevailing for comparable first-class office buildings
located in the southeast Florida market, such cost to be amortized or
depreciated, as the case may be, on a straight-line basis over the useful life
of the Replacement in question, but in no event more than ten (10) years, as
commercially reasonably determined by Landlord, and included in the Cost of
Operation and Maintenance until such cost has been fully amortized or
depreciated. "Required Capital Improvements" shall mean any capital improvements
or any replacements made in or to any portion of the Project or improvements
located thereon, including, without limitation, the Building, the Property, the
Common Areas, the Common Area Spine, the Parking Areas and the Project Common
Areas, in order to conform to any law, ordinance, rule, regulation or order of
any governmental authority having jurisdiction over the Building, the Property,
the Common Areas, the Common Area Spine, the Parking Areas and the Project
Common Areas, as the case may be, and replacements of capital improvements at
the end of their useful life, "Cost Saving Improvements" shall mean any capital
improvements or replacements which are intended, in Landlord's reasonable
judgment, to reduce, stabilize or limit increases in the Cost of Operation and
Maintenance; for Cost Saving Improvements costing more than $100,000.00,
Landlord's reasonable judgment shall be based upon a study and analysis made by
or on behalf of Landlord of the projected cost savings to be realized from
making such capital improvements (the "Study"). "Improvements" shall mean any
improvement that is a Required Capital Improvement or a Cost Saving Improvement.
"Improving" shall mean the construction of any Improvement.
The Taxes and Cost of Operation and Maintenance of the
Common Areas, Project Common Areas, Common Area Spine and Parking Areas shall be
reasonably apportioned among the buildings located within the Project whose
tenants have the non-exclusive right to utilize such Common Areas, Project
Common Areas, Common Area Spine or Parking Areas, as the case may be, taking
into account which and to what extent tenants or occupants of
<PAGE>
improvements located within the Project benefit from the Common Areas, Common
Area Spine, Project Common Areas and Parking Areas. Tenant shall pay Tenant's
Proportionate Share (defined below) of Taxes and the Cost of Operation
and Maintenance as hereinafter provided.
Notwithstanding any other provisions of this Lease to
the contrary, the Cost of Operation and Maintenance shall be deemed to
specifically exclude the following:
(a) costs and expenses incurred in connection with
lease, sublease and/or lease assignment negotiations and transactions with
present or prospective tenants or other occupants of the Building, including,
without limitation, leasing commissions, attorneys' fees, consulting fees and
space planning costs; (b) tenant allowances, monetary inducements and other
costs of installation of tenant improvements and decorations (including permit,
licensing and inspection fees) incurred in connection with preparing space for
a new tenant or the cost of renovating or otherwise improving, decorating,
painting or redecorating space of existing tenants or vacant space available
for lease;
(c) accountants' fees and costs, attorneys' fees and
court costs and other such professional expenses incurred by Landlord in
connection with (1) negotiations or disputes with existing tenants (unless such
disputes are with a majority of all tenants in the Building [based upon rentable
square footage] in which case such legal expenses will be included to the extent
Landlord prevails in any such dispute) or prospective tenants, management
agents, brokers, purchasers, or mortgagees of the Building or in enforcing
remedies in the event of tenant defaults and/or (2) any mortgaging, financing,
refinancing, development, sale, or change of ownership of the Project or
Building, or the modification of any ground lease, air rights lease, or any
other lease or sublease to, or assumed, directly or indirectly by, Landlord;
(d) amounts for which Landlord is entitled to be
reimbursed by tenants, or insurers (other than through payment of its
proportionate share of Cost of Operation and Maintenance) or for which any
tenant pays or is to pay third persons;
(e) interest, principal, points and fees on debt or
amortization payments on any mortgages or any other debt instruments encumbering
the Building and rental under any ground lease;
(f) expenses paid by Landlord for the advertising and
promotion of rental space in the Building and Project and the cost of signage
within or on the Project identifying the owner and/or managing agent of the
Building;
(g) depreciation expense on the Building;
(h) Landlord's general overhead and general
administrative expenses which would not be chargeable to operating expenses of
the Building in accordance with generally accepted accounting principles,
consistently applied on a cash basis;
(i) costs arising from Landlord's charitable or
political contributions;
(j) the cost of sculpture, paintings or other objects
of art;
(k) costs related to maintaining Landlord's legal
existence, including by way of example but not limitation, trustee's fees,
annual fees, organizational and administrative expenses and accounting fees
(other than with respect to the Building's operations);
(l) fees and costs paid to subsidiaries or affiliates
of Landlord for providing services or products to the Building (other than
management services) to the extent such fees and costs exceed the customary fees
of non-affiliated entities rendering comparable services or
<PAGE>
providing comparable products on competitive terms in other first-class office
buildings located in the southeast Florida market;
(m) 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 above (excluding, however, equipment not affixed to the Building which
is used in providing janitorial or similar services);
(n) tax penalties incurred as a result of Landlord's
negligence, inability, or unwillingness to make payments and/or to file any
income tax or informational returns when due;
(o) the costs incurred by Landlord to cure any code
violations or patent defects in the original construction of the Building, or
latent defects in the original construction of the Building as to which Tenant
has given Notice to Landlord prior to the first anniversary of the Commencement
Date; and
(p) electric power costs for which any tenant directly
contracts with the local public service company.
(iii) "GARAGE(S)" shall mean any parking garage subsequently
constructed within the Project and designated for non-exclusive use by Tenant
and its employees, guests and invitees. The term "Garage(s)" shall not include
any Parking Area not available for use by Tenant or its invitees, employees or
customers.
(iv) "LANDLORD'S STATEMENT" shall mean an instrument
containing a reasonable computation of any Additional Rent due, itemized by
expense category in reasonable detail, pursuant to the provisions of this
Paragraph 4.
(v) "OPERATIONAL YEAR" shall mean a calendar year.
(vi) "PARKING AREAS" shall mean the Garage(s) and any other
parking areas designated to service occupants of the Building, whether now
existing or hereafter constructed, including parking areas that contain reserved
parking spaces for tenants of the Project. Paragraph 30 hereof contains
provisions relating to the use of Parking Areas.
(vii) "PROJECT" shall mean the parcel of land situated in
Palm Beach County, Florida, more particularly described on Exhibit C attached
hereto of which the Property is a portion, together with any additional land
located adjacent to the land depicted on Exhibit C that is subsequently acquired
or disposed of by Landlord. The Project is comprised of approximately 9.5 acres
of land generally bordered on the north by Palmetto Park Road, the east by
Mizner Boulevard, the west by Federal Highway and the south by S.E. First
Street. At Landlord's election the Project may be divided into eastern and
western halves, with a Common Area Spine as generally described on Exhibit C. If
and when the Common Area Spine is constructed, at Landlord's or a third party's
sole cost and expense, the Common Area Spine and westerly portion of the Project
as created by the Common Area Spine will be separately assessed for tax
purposes, and separately accounted for expense purposes. Excluding initial
construction expenses, all Cost of Operation and Maintenance for the Common Area
Spine, including Taxes, will be shared equally by the properties located east
and west of the Common Area Spine. Expenses of the western half will be further
allocated on a reasonable basis among the tenants of all improvements located on
the western side of the Common Area Spine. The basis for such allocation shall
be supplied by Landlord to Tenant in writing. Notwithstanding the foregoing,
Landlord and Tenant agree that the allocation of expenses based on leased
rentable square feet to total rentable square feet of the western half of the
Project, which in no event will be less than 78,969 rentable square feet, shall
be a reasonable manner of allocation. The square footage of the Garage(s) will
not be included in calculations of total rentable square feet of buildings on
the western half of the Project.
<PAGE>
(viii) "PROJECT COMMON AREAS" shall mean all improved
portions of the Project not intended as leasable areas (including the Common
Area Spine) which are provided by Landlord for the general non-exclusive use of
tenants, their officers, agents, employees, servants, invitees, licensees,
visitors, patrons and customers of any leasable improvements located in the
Project and expressly excluding any Common Areas and Parking Areas and any
common areas or common facilities located in another building constructed in the
Project or dedicated for the use of tenants of other improvements located in the
Project and not available for use by Tenant or its employees, invitees or
customers.
(ix) "PROPERTY" shall mean the parcel of land situated in
Palm Beach County, Florida, more particularly described on Exhibit D attached
hereto on which is situated the Building together with any additional land
located adjacent to the land depicted on Exhibit D that is subsequently acquired
or disposed of by Landlord. The definition of "Property" shall be revised to
exclude any land lying beneath any Garage(s) and other buildings (other than the
Building) constructed upon the portion of the Project lying west of the Common
Area Spine. The foregoing adjustment shall be made once a Certificate of
Occupancy is issued for any such improvements.
(x) "TAXES" shall mean all real estate taxes, assessments,
special or otherwise, sewer rents, rates and charges, water rents, rates and
charges, or any other charge of a governmental authority of a similar or
dissimilar nature, of any kind, which may be levied or assessed upon or with
respect to the Building, Parking Areas, the Property, Project Common Areas,
Common Area Spine and Common Areas, and all taxes or charges levied on the
Monthly Rent and/or Additional Rent or the gross receipts from the Building
and/or Garage(s) which are in lieu of or a substitute for, any other tax or
assessment or charge upon or with respect to the Building, Property, Parking
Areas, Project Common Areas, Common Area Spine and Common Areas. If assessments
are paid in annual or other installments, there shall be deemed included in
Taxes for each Lease Year (and for that period of the Initial Term hereunder
which precedes the beginning of the first Lease Year hereunder) the annual
installment or total number of other installments of such assessment becoming
payable during such Lease year (or that period of the Initial Term hereunder
which precedes the beginning of the first Lease Year hereunder, as the case may
be), together with interest payable during such period, on such installment and
all installments thereafter becoming due as provided by law, all as if such
assessments had been so divided. Taxes shall not be deemed to include: (a)
franchise or similar taxes of Landlord, or (b) income, excess profits or other
taxes, if any, of Landlord, except to the extent such taxes are in lieu of or a
substitute for any other tax, assessment or charge upon the Building, Property,
Parking Areas, Project Common Areas, Common Area Spine and Common Areas which,
if such other tax, assessment or charge were in effect, would be payable by
Tenant as provided above, in which event such taxes shall be computed as if the
Building, Property, Parking Areas, Project Common Areas, Common Area Spine and
Common Areas were the only property of Landlord, and the rent hereunder the only
income of Landlord. Notwithstanding anything contained herein to the contrary,
Taxes shall not include any Sales Tax payable by Tenant pursuant to any other
provision of this Lease. Further, Taxes do not include interest, fines or other
penalties due or payable by Landlord as a result of Landlord's failure to make
payments and/or file any tax or informational returns when due. Landlord shall
calculate Taxes on the basis of the maximum discount available for early
payment, provided Tenant is not in default in the payment of Base Rent.
(xi) "TAX YEAR" shall mean the period of 12 months
commencing on January 1st of each year or such other 12 month period as may
hereafter be duly adopted as the fiscal year from real estate tax purposes for
Palm Beach County or other applicable governmental authority.
(xii) "TENANT'S PROJECTED SHARE" shall mean Tenant's
Proportionate Share multiplied by Landlord's written estimate of the Cost of
Operation and Maintenance for the ensuing Operational Year.
(xiii) "TENANT'S PROPORTIONATE SHARE" shall mean twenty-one
and twenty-three one-hundredths percent (21.23%), which is the percentage which
the rentable square feet of the Premises bears to one hundred percent (100%) of
the rentable square feet contained within the
<PAGE>
Building. For purposes of this calculation, one hundred percent (100%) of the
rentable square feet contained in the Building equals 66,855 square feet.
B. CAP ON COST OF OPERATION AND MAINTENANCE.
Notwithstanding anything to the contrary contained herein,
beginning with the Operational Year 1997, Tenant's Proportionate Share of the
Cost of Operation and Maintenance in the aggregate shall not exceed $5.00 per
rentable square foot of the Premises per annum (the "Expense Cap"); provided,
however, the Expense Cap shall not apply to the costs of utility services,
insurance or to Taxes. Further provided the Expense Cap shall escalate each
Operational Year over the prior Operational Year at a rate of five percent (5%)
per annum (compounded annually). Thus, for example, the Expense Cap for
Operational Year 1998 will be $5.25 in the aggregate per rentable square foot of
the Premises, and the Expense Cap for Operational Year 1999 will be $5.51 in the
aggregate per rentable square foot of the Premises. Tenant shall pay the lesser
of (i) Tenant's Proportionate Share of the Cost of Operations and Maintenance or
(ii) $5.00 per rentable square foot of the Premises per annum, as escalated in
accordance with the foregoing provisions of this Paragraph 4B, commencing in
Operational Year 1997, provided that the Commencement Date and issuance of a
certificate of occupancy for the Building occurs prior to July 1, 1997. If
issuance of the certificate of occupancy occurs and the Commencement Date occurs
subsequent to July 1, 1997, the Expense Cap of $5.00 per rentable square foot of
the Premises shall apply to the 1998 Operational Year and shall increase
thereafter at the rate of five percent (5%) per annum (compounded annually).
C. TAXES.
(i) Tenant shall pay as Additional Rent accruing from the
Commencement Date a sum equal to Tenant's Proportionate Share of the Taxes for
each Tax Year during the term of this Lease for the Building and the Property.
Tenant shall also pay as Additional Rent a sum equal to Tenant's Proportionate
Share of the Taxes for Project Common Areas, the Common Area Spine and Parking
Areas that are allocable to tenants of the Building pursuant to the terms of
this Lease. Subsequent to the issuance of the bill for Taxes, Landlord shall
give Notice of such Taxes to Tenant which Notice shall include a copy of such
bill, together with Landlord's Statement for Taxes, and Tenant shall pay the
Additional Rent set forth on such Statement within thirty (30) days such Notice
is given. Landlord, at its option, may require Tenant to make monthly payments
on account of Tenant's Proportionate Share of Taxes payable for the Tax Years
immediately following delivery of the first Landlord's Statement for Taxes.
Landlord's Statement of Taxes shall set forth the amount of said monthly
payments, which shall be credited to Tenant's obligation to pay Additional Rent
under this Subsection 4C(i) for the applicable succeeding Tax Year. Landlord
agrees to regularly review Taxes for the Building, Parking Areas, Common Area
Spine, Project Common Area, and Property and to contest or negotiate the amount
thereof with the appropriate governmental or regulatory authority if Landlord
determines it is reasonably prudent to contest the Taxes. The cost of any such
contest or negotiation shall be a Cost of Operation and Maintenance regardless
of Landlord's success. In the event that after a Landlord's Statement for Taxes
has been sent to Tenant and Tenant has paid Additional Rent for such Taxes, an
assessed valuation which had been utilized in computing the Taxes is reduced (as
a result of settlement, final determination of legal proceedings or otherwise)
and as a result thereof a refund of Taxes is received by or on behalf of
Landlord, then, promptly after receipt of such refund, Landlord shall reimburse
Tenant in the amount of Tenant's Proportionate Share of such refund.
(ii) Any payment of Additional Rent or refunds due to Tenant
hereunder for any period of less than a full Tax Year, or any adjustment
required due to Tenant hereunder for any period of less than a full Tax Year, or
any adjustment required due to the change in the area of the Premises, shall be
equitably prorated to reflect any such event.
<PAGE>
D. OPERATING EXPENSES.
(i) Commencing with the first Operational Year and
accruing from the Commencement Date, Tenant shall pay to Landlord, as Additional
Rent, Tenant's Projected Share of the Cost of Operation and Maintenance for the
Building and Property and Tenant's Proportionate Share of the Cost of Operation
and Maintenance for Project Common Areas, the Common Area Spine and Parking
Areas that are allocable to tenants of the Building pursuant to the terms of
this Lease during such Operational Year. During the month of December preceding
each Operational Year, Landlord shall furnish Tenant by Notice a written
statement, itemized in reasonable detail, of the estimated Cost of Operation and
Maintenance for such year setting forth Tenant's Projected Share of the Cost of
Operation and Maintenance for the Building and Property and of the Costs of
Operation and Maintenance for Project Common Areas, the Common Area Spine and
Parking Areas that are allocable to tenants of the Building pursuant to the
terms of this Lease during such Operational Year and Tenant shall pay same to
Landlord as Additional Rent. Tenant's Projected Share shall be divided by 12 and
shall be payable on the first day of each month, beginning on the first day of
such ensuing Operational Year. If said statement is furnished to Tenant after
the commencement of such Operational Year, Tenant shall nonetheless be obligated
to pay, as part of its next installment of Monthly Rent and Additional Rent,
Tenant's Projected Share for the period which shall have elapsed prior to the
first day of the calendar month next succeeding the calendar month in which said
Statement is furnished to Tenant.
(ii) Within six (6) months from the end of each
Operational Year, Landlord shall furnish to Tenant by Notice a written
statement, itemized in reasonable detail, of the actual Cost of Operation and
Maintenance incurred for such Operational Year and Tenant's Proportionate Share
of the Cost of Operation and Maintenance of the Building and Property and
Tenant's Proportionate Share of the Cost of Operation and Maintenance for
Project Common Areas, the Common Area Spine and Parking Areas that are allocable
to tenants of the Building pursuant to the terms of this Lease during such
Operational Year ("Landlord's Statement of Operation and Maintenance"). If the
Landlord's Statement of Operation and Maintenance shall indicate that Tenant's
Projected Share paid by Tenant for such Operational Year exceeded Tenant's
Proportionate Share for such Operational Year, Landlord, at Landlord's option,
shall forthwith either (1) pay the amount of excess directly to Tenant within
thirty (30) days of Tenant's receipt of such Statement or (2) permit Tenant to
credit the amount of such excess against the subsequent payment of Additional
Rent due hereunder. If Landlord's Statement of Operation and Maintenance shall
indicate that Tenant's Proportionate Share exceeds Tenant's Projected Share for
that Operational Year, Tenant shall forthwith pay Landlord within thirty (30)
days after Tenant's receipt of such Statement, the amount of such excess.
E. APPORTIONMENT OF ADDITIONAL RENT. If the Term of this
Lease shall begin on a date other than January 1 or end on a date other than
December 31st, any Additional Rent for the year in which the Commencement Date
or the date of expiration of the term shall occur, as the case may be, shall be
apportioned in that percentage which the number of days in the period from the
Commencement Date to December 31st or from the first day of such Lease Year to
such date of expiration, both inclusive, as the case may be, shall bear to the
total number of days in the calendar year in which such expiration occurs.
F. LANDLORD'S STATEMENTS.
(i) Landlord's failure to render Landlord's Statement of
Taxes or Landlord's Statement of Operation and Maintenance (each a "Landlord's
Statement"), with respect to any Operational Year or Tax Year, or Landlord's
delay in rendering such Statement beyond a date specified herein, shall not
prejudice Landlord's right to render a Landlord's Statement with respect to that
or any subsequent Operational Year or Tax Year. The obligations of Landlord and
Tenant under the provisions of Paragraph 4 with respect to any Additional Rent
shall survive the expiration or any sooner termination of this Lease.
(ii) Each Landlord's Statement of Taxes and Landlord's
Statement of Operation and Maintenance shall be conclusive and binding upon
Tenant, unless within three (3)
<PAGE>
months after receipt of such Landlord's Statement, Tenant shall give Notice to
Landlord that it disputes the correctness of Landlord's Statement, specifying
the respects in which Landlord's Statement is claimed to be incorrect (the "
Three Month Notice"). If the Three Month Notice is sent, Tenant, its authorized
agents, representatives and accountants, shall have the right within the sixty
(60) days following the giving of the Three Month Notice to audit Landlord's
Statement and Landlord's books and records relating to the same to verify that
Landlord's Statement has been determined in accordance with the terms of this
Lease. Any such audit shall be conducted during normal business hours at
Landlord's convenience, so long as the audit is permitted to commence within
thirty (30) days of Tenant's request. In conducting its audit, Tenant and its
authorized agents, representatives, and accountants shall have full access to
Landlord's books and records. Any such audit shall be at Tenant's sole cost and
expense unless the audit reveals an overcharge of more than five percent (5%) of
Tenant's Proportionate Share of Cost of Operation and Maintenance or of Taxes,
as the case may be, in which event Landlord shall, upon Notice from Tenant
demanding payment, pay the reasonable costs of the audit. If the audit reveals
an undercharge or an overcharge, then the amount due from Tenant shall be
appropriately adjusted to the extent indicated in accordance with the results of
the audit. Pending the determination of such dispute, Tenant shall pay
Additional Rent in accordance with the applicable Landlord's Statement, and such
payment shall be without prejudice to Tenant's position in any legal proceeding
commenced by Tenant and shall be without prejudice to Tenant's right to audit as
herein provided.
F. COLLECTION. Except as otherwise provided herein, any
Additional Rent payable pursuant to Paragraph 4 shall be collectible by
Landlord in the same manner asMonthly Rent, and Landlord shall have the same
remedies for nonpayment thereof as Landlord has hereunder for nonpayment of
Monthly Rent.
G. SALES TAX. Tenant further agrees to pay, in addition to,
but not in lieu of, the Monthly Rent and the Additional Rent, any and all sales
and use tax now or hereafter imposed by any governmental entity upon, applicable
to, or measured by or on the Monthly Rent and Additional Rent, or any other
charges payable to Landlord under this Lease ("Sales Tax"). Tenant shall pay to
Landlord, concurrently with each such payment of Monthly Rent or Additional Rent
or such other charges hereunder, the amount of Sales Tax attributable to the
payment being made to Landlord. If any Sales Tax is required to be paid to the
governmental taxing authority directly by Landlord, whether during the term of
this Lease or subsequent to the termination of this Lease (if such Sales Tax is
levied on the Monthly Rent or Additional Rent paid by Tenant), then Landlord
shall, upon demand, be fully reimbursed by Tenant for such payment.
5. USE; EXCLUSIVITY.
Tenant, its successors and assigns, shall use the Premises exclusively
for the purpose of a general business office including, without limitation, as a
general business office where a factoring and asset based lending business is
conducted, and such related activities and for no other use or purpose
whatsoever. Landlord represents that it has not, nor will it, enter into any
other lease or agreement, the effect of which would be to prohibit the use of
the Premises as a general business office where a factoring and asset based
lending business is conducted. Tenant shall comply with all laws, ordinances,
rules and regulations of applicable governmental authorities respecting the use,
operation and activities of the Premises (including the Common Areas, Project
Common Areas, the Common Area Spine, and Parking Areas) and Tenant shall not
make, suffer or permit any unlawful, improper or offensive use of the Premises,
Building or Project, or any part thereof, or permit any nuisance thereon. Tenant
shall not make any use of the Premises, Building or Project which would make
void or voidable any policy of fire or extended coverage insurance covering the
Premises, Building or Project. Tenant shall use the Premises only for the
purpose stated in this Lease and shall not permit any waste or mistreatment of
the Premises. Tenant agrees to abide by any reasonable rules or regulations
promulgated by Landlord, from time to time, including the Rules and Regulations
attached hereto as Exhibit E and made a part of this Lease. Landlord agrees that
the Rules and Regulations, as attached hereto as Exhibit "E" and as enacted from
time to time, shall be reasonable, nondiscriminatory and uniformly enforced.
<PAGE>
Without the prior written consent of Landlord, which consent may be
granted or withheld in Landlord's sole discretion, Tenant shall not utilize the
Premises nor allow any occupant of the Premises (including subtenants) to engage
in the business of securities brokerage. The term "securities brokerage" shall
mean for the purposes of this Lease the primary business described as SIC #6211
"Securities Brokers, Dealers and Flotation Companies" as described on Exhibit G
attached hereto and made a part hereof.
6. ACCEPTANCE OF PREMISES.
Taking possession of the Premises by Tenant shall be conclusive
evidence that the Premises were in good and satisfactory condition when
possession was so taken except for latent defects; provided, however, unless
Tenant shall give Notice to Landlord of any latent defects prior to the first
anniversary of the Commencement Date, the exception for latent defects shall be
deemed omitted from this sentence. Unless expressly stated herein to the
contrary, Landlord has no obligation to repair, improve, or add to the Premises
subsequent to Tenant's taking possession thereof and Tenant shall, at its sole
cost and expense and in compliance with the provisions of this Lease, be
responsible for any changes, alterations, repairs, replacements, maintenance,
and decorations to the Premises. Neither Landlord nor Landlord's agents have
made any representations or promises with respect to the physical condition of
the Building or the Premises, the rents, leases, expenses of operation, or any
other matter or thing affecting or relating to the Premises except as herein
expressly set forth, and no rights, easements or licenses are acquired by Tenant
by implication or otherwise except as expressly set forth in the provisions of
this Lease. Landlord represents and warrants to Tenant that it has not received
any notice that the Building is currently in violation of any laws, regulations,
or ordinances and that it has corrected any such violations for which it was
given notice prior to the Commencement Date.
7. TENANT'S CARE
A. STANDARD OF CARE. Tenant will, at Tenant's sole expense, take good
care of the Premises and the fixtures and appurtenances therein, reasonable wear
and tear, and damage by fire, the elements, casualty, or Acts of God excepted,
and will suffer no active or permissive waste or injury thereof. Tenant shall,
at Tenant's expense, but under the direction of Landlord, promptly repair any
injury or damage whether structural or nonstructural to the Premises or the
Building or Parking Areas or Common Areas , Common Area Spine or Project Common
Areas and facilities caused by the negligence or intentional acts of Tenant, or
its agents, invitees or employees, or Tenant moving in or out of the Premises,
but only to the extent that such injury or damage is not compensated for by
Landlord's insurance coverage. All the aforesaid repairs shall be of quality or
class equal to the original work or construction, and shall be made in
accordance with the provisions of Subparagraph 7B hereof. If Tenant fails after
thirty (30) days' Notice thereof to proceed with due diligence to make the
repairs required to be made by Tenant, the repairs may be made by Landlord, at
the expense of Tenant and the expenses thereof incurred by Landlord plus fifteen
percent (15%) to reimburse Landlord for its overhead and construction management
services associated herewith, after rendition of a bill or statement therefor,
shall be reimbursed by Tenant to Landlord within thirty (30) days of such
billing. There shall be no abatement of Rent or rent allowance to Tenant for
diminution of rental value and no liability on the part of Landlord by reason of
inconvenience, annoyance or injury to business arising from Tenant making, or
failing to make, any repairs, alterations, additions or improvements in or to
any portion of the Building or the Premises, or in or to fixtures,
appurtenances, or equipment thereof.
B. ALTERATIONS. Tenant will not, without Landlord's prior written
consent, make alterations, additions or improvements in or about the Premises
and will not do anything to or on the Premises which will increase the rate of
fire insurance on the Building. Landlord's consent to such alterations,
additions or improvements shall not be unreasonably withheld or delayed, but may
be conditioned, for example, upon Tenant's removal of the proposed alteration,
addition or improvement upon the termination or expiration of this Lease, at
Tenant's sole cost and expense and Tenant's obligation to repair any damage to
the Building or the Premises caused by said removal. It is expressly understood
and agreed that, other than the Tenant Buildout, Landlord is not requiring
Tenant to make such improvements to the Premises, and Landlord and Tenant agree
that no
<PAGE>
improvements by Tenant shall be deemed "Improvements," within the meaning of the
Florida Construction Lien Law. All contractors, subcontractors, mechanics,
laborers, materialmen, and others who perform any work, labor or services, or
furnish any materials, or otherwise participate in the improvement of the
Premises shall be and are hereby given notice that Tenant is not authorized to
subject Landlord's interest in the Building or the Property to any claim for
construction, mechanics', laborers' and materialmen's liens, and all persons
dealing directly or indirectly with Tenant may not look to the Premises as
security for payment. Landlord has recorded a notice of the foregoing in the
Public Records of Palm Beach County, Florida, pursuant to the provisions of
Section 713.10, Florida Statutes. Tenant shall save Landlord harmless from and
against all expenses, liens, claims or damages to either property or person
which may or might arise by reason of the making of any such additions,
improvements, alterations and/or installations by Tenant. Tenant shall with
regard to all improvements and alterations made to or about the Premises,
excluding the Tenant Buildout, comply with the building codes, regulations and
laws now or hereafter to be made or enforced in the municipality, county and/or
state which have jurisdiction over such work. All alterations, additions or
improvements of a permanent nature made or installed by Tenant to the Premises
shall become the property of Landlord at the expiration of this Lease.
Prior to making any alterations, including the Tenant Buildout, Tenant
(i) shall submit to Landlord detailed plans and specifications (including
layout, architectural, mechanical and structural drawings) for each proposed
alteration drawn in compliance with all applicable codes, ordinances and laws
and shall not commence any such alteration without first obtaining Landlord's
written approval of such plans and specifications, it being understood that
Landlord's approval of such plans and specifications shall not be deemed a
warranty or representation by Landlord that the plans and specifications for
such Tenant Buildout and alterations comply with applicable codes, ordinances
and laws, (ii) shall, at its expense, obtain all permits, approvals and
certificates required by any government or quasi-governmental bodies and, for
all such alterations other than the Tenant Buildout which shall be supervised by
Landlord, ensure that all work is performed in strict accordance with the plans
and specifications approved by Landlord, and (iii) shall furnish to Landlord
evidence of insurance for worker's compensation (covering all persons to be
employed by Tenant, and Tenant's contractors and subcontractors in connection
with such alteration) and comprehensive public liability (including property
damage coverage) insurance in such form, with such companies, for such periods
and in such amounts as Landlord may require, naming Landlord and its agents as
additional insureds. Upon completion of any such alteration other than Tenant
Buildout, Tenant, at Tenant's expense, and with respect to Tenant Buildout,
Landlord, at Tenant's expense, shall obtain certificates of final approval of
such alteration required by any governmental or quasi-governmental bodies, if
applicable, and shall furnish Landlord or Tenant, as the case may be, with
copies thereof. All alterations shall be constructed in a good, workmanlike
manner and strictly conform to the plans and specifications approved by
Landlord; shall be of a quality that equals or exceeds the then current standard
for the Building; all materials and equipment to be incorporated in the Premises
as a result of all alterations shall be new and first quality; and no such
materials or equipment shall be subject to any lien, encumbrance, chattel
mortgage or title retention or security agreement except as provided in
Paragraph 11F hereof. Landlord, at its option, may require Tenant to remove any
additions installed by Tenant and/or repair any alterations made by Tenant to
the Premises, at Tenant's sole cost and expense, if such physical additions
and/or alteration (i) were not pre-approved by Landlord in accordance with the
provisions of this Subparagraph B; or (ii) the contractor performing such work
was not approved of by Landlord in accordance with the provisions of
Subparagraph 7D below; or (iii) with respect to alterations other than the
Tenant Buildout, the quality of workmanship and/or quality of materials utilized
in connection with such work do not comply with the standards set forth in this
Subparagraph B; or (iv) with respect to such alterations other than the Tenant
Buildout such work was not performed substantially in accordance with the plans
and specifications approved by Landlord.
If Landlord elects to require that Tenant remove any such additions or
repair any such alterations in accordance with the prior paragraph, Tenant shall
do so within thirty (30) days of the date Landlord gives Tenant Notice of
Landlord's election. If Tenant fails to correct such matters within said thirty
(30) day period, Landlord, may, but shall not be obligated to, remove such
additions and/or repair such alterations and Tenant shall reimburse Landlord for
all costs therefor, plus fifteen percent (15%) to reimburse Landlord for its
overhead and construction management services associated therewith.
<PAGE>
Tenant shall not, at any time prior to or during the Term, directly or
indirectly employ, or permit the employment of, any contractor, mechanic or
laborer in the Premises, whether in connection with any alteration or otherwise,
if such employment will unreasonably interfere or cause any material conflict
with other contractors, mechanics, or laborers engaged in the construction,
maintenance or operation of the Building by Landlord, Tenant or others. In the
event of any such unreasonable interference or material conflict, Tenant, upon
demand of Landlord, shall cause all contractors, mechanics or laborers causing
such interference or conflict to leave the Building immediately. All alterations
to which Landlord has consented shall be at Tenant's sole cost and expense,
unless such alterations are Tenant Buildout for which a Buildout Allowance
(defined below) shall be paid.
C. REMOVAL OF PERSONALTY. No later than the last day of the Initial
Term or Renewal Term, as applicable, Tenant will remove all of Tenant's personal
property and repair all injury done by or in connection with installation or
removal of said property and surrender the Premises (together with all keys to
Premises) in good order and working condition, reasonable wear and tear and
damage by fire, the elements, Acts of God, or casualty excepted. All property of
Tenant remaining on the Premises after expiration of the Initial Term or Renewal
Term, as applicable, shall be deemed conclusively abandoned and may be removed
by Landlord and Tenant shall reimburse Landlord for the cost of removing the
same, subject however, to Landlord's right to require Tenant to remove any
improvements or additions made to the Premises by Tenant pursuant to the
preceding Subparagraph B.
D. APPROVAL OF CONTRACTORS. In doing any work related to the
installation of Tenant's furnishings, fixtures, or equipment in the Premises or
in making any alterations pursuant to Subparagraph B above, Tenant will use only
contractors or workmen approved by Landlord, which approval shall not be
unreasonably withheld or delayed. Tenant shall promptly remove any lien for
material or labor claimed against the Premises by such contractors or workmen if
such claim should arise and hereby indemnifies and holds Landlord harmless from
and against any and all costs, expenses or liabilities incurred by Landlord as a
result of such liens filed by contractors or workmen hired by Tenant or its
agents.
E. RISK OF LOSS. Tenant agrees that all personal property
brought into the Premises by Tenant, its employees, licensees and invitees shall
be at the sole risk of Tenant, and Landlord shall not be liable for theft
thereof of money deposited therein or for any damages thereto, such theft or
damage being the sole responsibility of Tenant, unless such theft or damage is
caused by Landlord's defaults under the Lease or the negligence or intentional
acts of Landlord or its agents, contractors, or employees.
8. BUILDING HOURS OF OPERATION.
The normal business hours of the Building shall be from 8:00 a.m. to
6:00 p.m. on Monday through Friday and 8:00 a.m. to 1:00 p.m. on Saturday (the
"Building Hours of Operation"). Landlord reserves the right to alter the
Building Hours of Operation to meet tenant needs; provided the normal business
hours shall never be less than the hours set forth in the prior sentence.
Landlord shall not be obligated to operate the Building on any day which is
defined as a legal holiday under Section 683.01, Florida Statutes, as it may be
amended from time to time. Tenant and its employees shall be permitted access to
the Building seven (7) days a week, twenty-four (24) hours a day, subject to
Landlord's reasonable security procedures. Tenant access at all other times
shall be accommodated by the Building security system. Should Tenant desire to
have the Building in operation in addition to the Building Hours of Operation,
Tenant shall give Landlord twenty-four (24) hours' notice thereof and shall
reimburse Landlord for all reasonable costs incurred by Landlord in connection
therewith.
9. LANDLORD SERVICES.
A. DESCRIPTION OF SERVICES. Landlord shall furnish the
following services:
(i) Heat and air conditioning (but excluding any
supplemental heating and air conditioning units
installed for the sole use of Tenant) during
<PAGE>
the Building Hours of Operation, which is
reasonably required for the comfortable
occupation of the Premises, subject to any
governmental laws, regulations or restrictions
pertaining to the furnishing or use of such heat
and air conditioning.
(ii) Seven (7) days a week, twenty-four (24) hours a
day, passenger and freight elevator service;
provided, however that Tenant acknowledges that
such freight elevator service shall be provided
through one of the passenger elevators and Tenant
shall give the Building Manager not less than
three (3) hours' advance notice during Building
Hours of Operation of such freight elevator use so
that Landlord may install appropriate protective
padding in such passenger elevator. The freight
elevator may not be available during peak usable
hours when it is being used as a passenger
elevator.
(iii) Toilet room supplies.
(iv) Window washing with reasonable frequency.
(v) Daily janitorial service during the time and in
the manner that such janitorial service is
customarily furnished in first class office
buildings in the southeast Florida market.
(vi) Seven (7) days a week, twenty-four (24) hours a
day, water, fire sprinklers (solely to the
Premises) and sewage disposal.
(vii) Seven (7) days a week, twenty-four (24) hours a
day, electrical service for normal office use made
available to the boundaries of the Premises. The
Premises shall be separately metered and Tenant
shall pay the utility furnishing electric service
directly for electricity used in the Premises.
(viii) Seven (7) days a week, twenty-four (24) hours a
day security for the Building at a level
consistent with that generally provided by other
landlords of first-class office buildings of
comparable size and comparable circumstances
(i.e., part of a larger project rather than
stand-alone) located in the southeast Florida
market. Tenant acknowledges and agrees that due to
the limited size of the Building, such security
may be in the form of card-key access and that
there are no current plans to have a lobby
concierge or other security personnel stationed in
or around the Building.
Services to be provided by Landlord hereunder shall be subject to the
reasonable Rules and Regulations of the Building established by the Landlord.
B. INTERRUPTION OF SERVICES. If Landlord fails to provide heat and air
conditioning service or any passenger elevator service for a period in excess of
five (5) consecutive days, Base Rent shall abate for the period of such
interruption.
C. WAIVER OF LIABILITY. Landlord shall not be liable for any damages
directly or indirectly resulting from, nor shall the Rent as herein set forth be
abated by reason of (i) installation, use or interruption of use, of any
equipment in connection with the furnishing of any of the foregoing services, or
(ii) failure to furnish, or delay in furnishing, any such services when such
failure or delay is caused by accident or any condition beyond the reasonable
control of the Landlord or by the making of necessary repairs or improvements to
the Premises or to the Building. The temporary failure to furnish any such
services shall not be construed as an eviction of Tenant or relieve Tenant from
the duty of observing and performing any of the provisions of this Lease.
<PAGE>
D. TENANT EXPENSES. Tenant shall be responsible for all costs
associated with the maintenance, repair, and replacement of Tenant's personal
property and fixtures located within the Premises and the following: (a) the
cost of painting interior walls, (b) the cost of replacing wallpaper on interior
walls, (c) the cost to decorate or redecorate the Premises and (d) the cost of
shampooing and replacing carpeting within the Premises. If Tenant uses services
in an amount or for a period in excess of that provided for herein, then
Landlord reserves the right to charge Tenant and Tenant shall pay Landlord as
Additional Rent a sum equal to the actual costs incurred by Landlord in
providing such added services.
E. MAINTENANCE. Other than Tenant's expenses described in Subparagraph
D above, Landlord shall keep the (i) foundation, exterior, windows, walls,
elevators, stairs, structural components, and roof of the Building; (ii) Common
Areas and Project Common Areas; (iii) Parking Areas; (iv) Common Area Spine; and
(v) plumbing, heating, air conditioning, mechanical, and electrical systems, and
other Building systems, in good order, repair and condition, unless any such
work is necessary because of any negligent or intentional act of Tenant as
described in Subparagraph 7A hereof, in which event the cost shall be borne by
Tenant to the extent that such work is not paid for by Landlord's insurance
coverage. Should Tenant discover that any portion of the Premises or Premises
systems require any repairs or maintenance as set forth in the preceding
sentence, Tenant shall use reasonable efforts to notify the Building management
of such discovery. This Subparagraph E shall not apply to any damage caused by
fire or other casualty or condemnation as described in this Lease, which events
shall be controlled by Paragraphs 10 and 14 of this Lease.
10. DESTRUCTION OR DAMAGE TO THE PREMISES AND WAIVER OF SUBROGATION
A. If the Building, the Premises, or the Parking Areas shall be
partially or totally damaged or destroyed by fire or other casualty (and if this
Lease shall not be terminated as hereinafter provided in this Paragraph 10),
then: (1) Landlord shall repair the damage to and restore and rebuild the
Building, the core and shell of the Premises and the Parking Areas including
Tenant Buildout, but excluding Tenant's improvements and betterments and
Tenant's Property diligently and in a workmanlike manner after the collection of
the insurance proceeds attributable to such damage, and (2) Tenant shall repair
the damage to and restore and repair Tenant's improvements and betterments and
Tenant's personal property diligently and in a workmanlike manner after the
substantial completion of Landlord's repairs and restoration of the core and
shell of the Premises and the Tenant Buildout provided for in clause (1) above,
provided that Tenant shall not have been given Notice by Landlord or Landlord
shall not have been given Notice by Tenant that this Lease has been terminated
pursuant to the provisions of this Paragraph 10. Such repair work by Tenant
shall be deemed to constitute alterations for the purposes hereof. Provided that
this Lease shall not have been terminated by Landlord or Tenant, the proceeds of
Tenant's policies providing coverage for Tenant's improvements and betterments
shall be paid to Tenant. In the event that this Lease is terminated by Landlord
or Tenant, Landlord shall be entitled to retain from the insurance proceeds paid
to it those portions of such proceeds allocated to Tenant Buildout. Tenant shall
be solely responsible for (i) the amount of any deductible under the policy
insuring Tenant's improvements and betterments and (ii) the amount, if any, by
which the cost of repairing and restoring Tenant's improvements and betterments
exceeds Tenant's available insurance proceeds therefor.
B. If all or part of the Premises shall be damaged or destroyed or
rendered completely or partially untenantable on account of fire or other
casualty, Rent shall be abated in the proportion that the untenantable area of
the Premises bears to the total area of the Premises, for the period from the
date of the damage or destruction to (i) the date the damage to the core and
shell of the Premises and Tenant Buildout (exclusive of Tenant's improvements
and betterments and Tenant's Property) shall be substantially repaired by
Landlord (provided, however, that if in Landlord's reasonable judgment based
upon the estimate of Landlord's independent contractors such repairs would have
been substantially completed at an earlier date but for Tenant's having failed
to reasonably cooperate with Landlord in effecting such repair, then the core
and shell of the Premises and the Tenant Buildout shall be deemed to have been
repaired substantially on such earlier date and any reduction or abatement shall
then cease) or (ii) if the Building and not the Premises is so damaged or
destroyed, the date on which the Premises shall be made tenantable and access
thereto shall be available substantially to the same extent existing immediately
prior to the occurrence of
<PAGE>
such fire or casualty; provided, however, should Tenant or any of its
subtenants reoccupy a portion of the Premises for the conduct of business during
the period the repair work is taking place prior to the date that the Premises
are substantially repaired or made tenantable, the Rent allocable to such
reoccupied portion, based upon the proportion which the area of the reoccupied
Premises bears to the total area of the Premises, shall be payable by Tenant
from the date of such occupancy. If Parking Areas containing more than fifty
percent (50%) of Tenant's Parking Spaces (defined above) shall be damaged or
destroyed so as to be rendered unuseable for a period in excess of thirty (30)
days, Landlord shall provide Tenant with replacement spaces or valet parking as
provided in Paragraph 30 hereof on or in reasonable proximity to the Project or
Rent shall be abated for the period during which the said Tenant's Parking
Spaces are not available for Tenant's use, or valet parking is not so provided,
or such replacement spaces are not available for Tenant's use, in the proportion
that Tenant's Parking Spaces not available for Tenant's use bears to the total
number of Tenant's Parking Spaces which this Lease provides shall be made
available for Tenant's use. The foregoing Rent abatement provisions shall not
apply to the circumstance of Landlord's construction of a Parking Garage(s) to
contain Tenant's Parking Spaces.
C. If (i) the Building shall be totally damaged or destroyed by fire
or other casualty, or if the Building shall be so damaged or destroyed by fire
or other casualty (whether or not the Premises are damaged or destroyed) that
its repair or restoration requires more than one (1) year or the expenditure of
more than thirty-five percent (35%) of the full insurable value of the Building
immediately prior to the casualty or (ii) if the Premises shall be totally or
substantially (i.e., for this purpose, more than fifty percent (50%)) damaged or
destroyed during the last two (2) years of the term of this Lease, as same may
have been extended, or (iii) if Parking Areas containing more than fifty percent
(50%) of Tenant's Parking Spaces shall be so damaged or destroyed so that they
cannot be repaired or restored within one (1) year, and Landlord shall not be
able to provide replacement spaces or valet parking as provided in Paragraph 30
hereof, on or in reasonable proximity to the Project within said one (1) year
period (as estimated in any such case by a reputable, licensed and qualified
contractor, registered architect or licensed professional engineer designated by
Landlord), then in any such case Landlord may terminate this Lease by giving
Tenant Notice to such effect ("Landlord's Casualty Termination Notice") as soon
as practicable under the circumstances and in any event within ninety (90) days
after the date of the casualty. For the purpose of this Subparagraph C only,
"full insurable value" shall mean replacement cost less the cost of footings,
foundations and other structures below the ground floor of the Building.
D. (1) In the case of any damage or destruction mentioned in this
Paragraph 10, Tenant may terminate this Lease by Notice given to Landlord in
accordance with the last sentence of this Subparagraph 10D(1) if there has been
substantial damage or destruction to any portion or portions of the Building, or
the Parking Areas containing more than fifty percent (50%) of Tenant's Parking
Spaces and Landlord shall not have completed the making of the required repairs
and restored and rebuilt the Building core, the shell of the Premises, the
Tenant Buildout, or the Parking Areas, or provided replacement parking spaces or
valet parking as provided in Paragraph 30 hereof on or in reasonable proximity
to the Project, as the case may be, within one (1) year from the date of such
damage or destruction (herein called the "Restoration Completion Date"), or
within such period after such date as shall equal the aggregate period Landlord
may have been delayed in doing so by reasons of Force Majeure (not, however, to
exceed sixty (60) days), delays which may be caused by reason of adjustment of
Landlord's insurance policies (not, however, to exceed sixty (60) days), or
delays caused by Tenant. Except as expressly provided in this Subparagraph 10D,
Tenant shall not be entitled to terminate this Lease and no damages,
compensation or claim shall be payable by Landlord for inconvenience, loss of
business or annoyance arising from any repair or restoration of any portion of
the core and shell of the Premises, the Tenant Buildout, or of the Building or
of said Parking Areas pursuant to this Paragraph 10. Landlord shall use all
reasonable efforts to make such repair or restoration diligently and in a
workmanlike manner and in such manner as to not, to the extent practicable,
unreasonably interfere with Tenant's use and occupancy of the Premises;
provided, however, that: (i) Landlord shall not be required to do such repair or
restoration work on an overtime basis except to the extent that the cost of such
overtime work would be covered by Landlord's insurance and (ii) upon Tenant's
written request and agreement to bear the incremental additional cost of same,
Landlord shall perform the repair and restoration of the Building core, the
shell of the Premises, and the Tenant Buildout on an overtime basis. In the
event that Tenant becomes entitled to terminate this Lease and the term and
estate hereby granted pursuant to
<PAGE>
the provisions of the first sentence of this Subparagraph 10D(1), Tenant may do
so by giving Notice to such effect to Landlord within thirty (30) days following
the date on which Tenant becomes so entitled, and upon the giving of such Notice
this Lease and the term and estate hereby granted shall terminate as of the date
set forth in such Notice, which shall not in any event be more than ninety (90)
days after the giving of such Notice, with the same force and effect as if such
date were the expiration date specified herein.
(2) Within ninety (90) days after the occurrence of any such damage or
destruction, Landlord shall give Tenant Notice of the date that, in Landlord's
good faith judgment, it estimates it shall be able to substantially complete the
required repairs and restorations (herein called the "Anticipated Completion
Date") subject to delays by reason of Force Majeure, delays caused by Tenant, or
delays which may be caused by reason of adjustment of Landlord's insurance
policies. If the Anticipated Completion Date shall be after the Restoration
Completion Date, Tenant shall have the right, within thirty (30) days after the
Notice of the Anticipated Completion Date is given, to terminate the Lease by
giving Notice of such termination to Landlord, and on the date set forth in such
Notice, which shall not in any event be more than ninety (90) days after the
giving of such Notice, this Lease will terminate as if such date were the
expiration date specified herein. If Tenant does not give such termination
Notice within said thirty-day period, then the Restoration Completion Date
provided for herein shall automatically be deemed extended to the date which is
ninety (90) days following the Anticipated Completion Date. In no event shall
Landlord be liable to Tenant in the event the restoration is not completed on
the Anticipated Completion Date (as extended for any of the causes described
above) and Tenant's sole remedy shall be the termination right herein provided.
(3) Landlord and Tenant shall fully cooperate with each other in
connection with the collection of any insurance proceeds payable in respect of
any casualty to the Building and shall comply with all reasonable requests made
by each other in connection therewith, including, without limitation, the
execution of any affidavits required by the applicable insurance companies.
(4) Except to the extent expressly set forth in this Paragraph 10,
Tenant shall not be entitled to terminate this Lease and Landlord shall have no
liability to Tenant for inconvenience, loss of business or annoyance arising
from any repair or restoration of any portion of the Premises or of the Building
pursuant to this Paragraph 10.
(5) Landlord shall not be obligated to repair any damage to or replace
any Tenant's improvements and betterments or Tenant's property and Tenant agrees
to look solely to its insurance for recovery of any damage to or loss of
Tenant's improvements and betterments, and Tenant's property. If Tenant shall
fail to maintain such insurance, and such failure shall continue for ten (10)
days after Notice by Landlord to Tenant specifying same, Landlord, at Landlord's
election, shall have the right (in its sole discretion and without any liability
whatsoever if Landlord elects not to do so) to obtain insurance on Tenant's
property and Tenant's improvements and betterments and the cost thereof shall be
Additional Rent under this Lease and payable by Tenant to Landlord on demand.
11. DEFAULT BY TENANT - LANDLORD'S REMEDIES.
A. EVENTS OF DEFAULT; REMEDIES. The following shall constitute events
of default: (i) Tenant's failure for seven (7) days after Notice from Landlord
in paying any and all Rent as set forth herein; provided, however, in the event
Landlord is required to deliver Notice to Tenant to pay the Rent twice in any
consecutive twelve (12) month period, thereafter, Landlord shall not be
obligated to provide Notice to Tenant and it shall be an event of default for
Tenant to fail to pay Rent on or before the seventh (7th) day of the month; or
(ii) Tenant's failure to observe or perform any item, covenant, or condition of
this Lease on Tenant's part to be observed and performed (other than the
covenant to pay any and all Rent) and Tenant shall fail to remedy such default
within thirty (30) days after Notice by Landlord to Tenant of such default; or
(iii) the entry against Tenant of a decree or order for relief which remains
undismissed for a period of ninety (90) days or more after the date of entry in
an involuntary case under the federal bankruptcy laws (as now or hereafter
constituted) or any other applicable federal or state bankruptcy, insolvency or
other similar law, or the
<PAGE>
appointment of a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or similar official) for Tenant or for any substantial part of
Tenant's property, or an order for the winding-up or liquidation of Tenant's
affairs; or (iv) the commencement by Tenant of a voluntary case under the
federal bankruptcy laws (as now constituted or hereafter amended) or any other
applicable federal or state bankruptcy, insolvency, or other similar law, or the
consent by Tenant to the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar official) for
Tenant or for any substantial part of Tenant's property, or the making by Tenant
of any assignment for the benefit of creditors, or the failure of Tenant
generally to pay its debts as such debts become due, or the taking of corporate
action by Tenant in furtherance of any of the foregoing; or (v) levy upon or
attachment under process against the Premises or Tenant's effects or interest
therein. Upon the occurrence of any event of default beyond applicable notice
and cure period, Landlord, at its option, may, during continuance of such
default, terminate this Lease. Upon such termination by Landlord, Tenant will at
once surrender possession of the Premises to Landlord and remove all of Tenant's
effects therefrom; and Landlord may forthwith re-enter the Premises and
repossess the Premises by any applicable action or procedure and, subject to
applicable law, remove all persons and effects therefrom.
B. RIGHT TO RE-LET. Landlord, on Tenant's behalf, without termination
of this Lease, upon Tenant's default or breach of this Agreement, as set forth
in Subparagraph A above, may at Landlord's option, evidenced by Notice to
Tenant, terminate Tenant's right to possession and enter upon and re-let the
Premises at the price obtainable by reasonable effort, without advertisement,
and by private negotiations and for any term Landlord deems proper. If Landlord
retakes possession of the Premises for its own account or for the account of
Tenant, Landlord shall exercise good faith efforts in attempting to re-let the
Premises to mitigate damages. Tenant shall upon receipt of such Notice surrender
possession of the Premises to Landlord and remove all of Tenant's effects
therefrom and Landlord may forthwith re-enter the Premises and repossess itself
thereof and remove all persons and effects therefrom in accordance with
applicable law. Tenant shall be liable to Landlord for the deficiency, if any,
between the amount of all Rent "reserved" in this Lease and the Net Rent
(defined below), if any, collected by Landlord in reletting the Premises, which
deficiency shall be due and payable by Tenant for the period in which Rent
reserved in the Lease would have been due and payable. "Net Rent" is gross rents
collected less all reasonable expenses or costs of whatsoever nature incurred by
Landlord in reletting the Premises, including, but not limited to attorneys'
fees incurred in retaking possession of the Premises and/or negotiating a new
lease for the Premises, broker's commissions with respect to the reletting of
the Premises only, rent concessions with respect to the Premises only and the
cost of renovating or remodeling the Premises. The term "reserved" as applied to
Rent shall mean any and all payments to which Landlord is entitled hereunder
during the entire term (Initial Term or Renewal Term, as the case may be) of
this Lease.
C. COSTS. In the event Landlord elects to terminate this Lease as
hereinabove provided and Tenant does not pay the accelerated rent pursuant to
Subparagraph D below, Landlord may, in addition to other remedies it may have,
recover from Tenant all damages Landlord may incur by reason of such default,
including the cost of recovering the Premises, reasonable attorneys' fees,
together with the unamortized (amortized over the Initial Term of this Lease on
a straight-line basis and determined as of the first date on which Rent was due
but not paid) portion of a pro rata portion of (i) the Buildout Allowance, (ii)
leasing commissions, and any other cash concession in connection with this Lease
(which shall be amortized over the Initial Term of this Lease) and including the
value at the time of such determination of the excess, if any, of the amount of
Rent reserved in this Lease for the remainder of the Term over the then
reasonable rental value of the Premises for the remainder of the Term, all of
which amounts shall be immediately due and payable from Tenant to Landlord.
D. ACCELERATION OF RENT. Upon Tenant's default, Landlord may declare
immediately due and payable all Monthly Rent and all Additional Rent and any
other charges and assessments against Tenant due or to become due under this
Lease for a period of two (2) years from the date of Tenant's said default,
which aggregate amount shall be discounted to present value at a discount rate
of three percent (3%) per annum. After the two (2) year period provided for in
the preceding sentence shall have run, Landlord may then likewise accelerate
Rent, as described in said sentence, for the next following two (2) year period,
and likewise thereafter for and during the entire remaining Term of this Lease.
<PAGE>
E. REMEDIES NON-EXCLUSIVE. Pursuit of any of the foregoing remedies
shall not preclude pursuit of any of the other remedies herein provided or any
other remedies provided by law, whether at law or in equity.
F. LANDLORD'S LIEN. Landlord shall have, upon default in payment of
Rent by Tenant, a lien in the principal amount of Rent in default, upon the
furniture, machinery, equipment and fixtures usually kept on the Premises,
regardless of whether Tenant or another has possession of the property
mentioned. If in accordance with the provisions of this Lease, Tenant assigns or
sublets all or any part of the Premises, Landlord also shall have a lien for
rent on the described property of the assignee or sublessee. Notwithstanding the
foregoing, Landlord agrees to subordinate its Landlord's lien to bona fide
purchase money and lease financings.
G. RIGHT TO CURE DEFAULT. All agreements, covenants, conditions and
provisions to be performed or observed by Tenant under this Lease shall be at
its sole cost and expense and without any abatement of Rent, except as otherwise
specifically provided herein. If Tenant shall fail to pay any sum of money other
than Rent, required to be paid by it hereunder or shall fail to perform any
other act on its part to be performed hereunder, Landlord may, after providing
the required notice and after expiration of the applicable cure period, but
shall not be obligated so to do, and without waiving or releasing Tenant from
any obligations of Tenant, make any such payment or perform any such other act
on Tenant's part to be made or performed as its lease provided. All sums so paid
by Landlord and all necessary incidental costs shall be deemed Additional Rent
hereunder and shall be payable to Landlord within thirty (30) days of Landlord's
Notice demanding payment, together with interest thereon at a rate equal to the
Prime Rate of Bankers Trust Company, New York, New York (or if Bankers Trust
Company fails to publish such a rate, a comparable New York, New York based
bank) PLUS five percent (5%) per annum, or, if such rate exceeds the maximum
rate permitted by applicable law, at a rate equal to the maximum interest rate
permitted by applicable law. Interest shall accrue from the date of expenditure
by Landlord to the date of repayment by Tenant, and Landlord shall have (in
addition to any other right or remedy of Landlord) the same rights and remedies
in the event of nonpayment thereof by Tenant as in the case of default by Tenant
in the payment of Rent.
12. LANDLORD'S LIABILITY.
The term "Landlord" as used in this Lease shall mean only the owner or
mortgagee in possession for the time being of the Building or the owner of a
leasehold interest in the Building or the land directly thereunder so that in
the event of sale of said Building or leasehold interest or an assignment of
this Lease, upon Notice to Tenant of such transfer and written assumption by
such successor in writing of all obligations arising subsequent to such
transfer, the selling or assigning Landlord shall be and is hereby entirely
freed and relieved of all obligations of Landlord subsequently accruing, except
for uncured Landlord defaults which exist on the date of transfer and Landlord's
indemnification obligations hereunder which relate to matters arising during
that part of the term of this Lease during which Landlord owned the Building,
for which Landlord shall continue to be liable notwithstanding the transfer of
its interest in the Building or Premises. It is specifically understood and
agreed that there shall be no personal liability of Landlord in respect of any
covenant, condition or provisions of this Lease; in the event of a breach or
default by Landlord or any of its obligations under this Lease, Tenant shall
look solely to Landlord's right, title and interest in the Building, including,
but not limited to the sale proceeds therefrom, insurance proceeds, condemnation
proceeds, rent proceeds and insurance proceeds maintained by Landlord as
provided herein with respect to Landlord's contractual indemnity obligations
contained herein, for the satisfaction of Tenant's remedies.
13. ASSIGNMENT AND SUBLETTING.
Tenant shall not, without the prior written consent of Landlord, which
consent may not be unreasonably withheld or delayed, assign this Lease or any
interest thereunder, or sublet the Premises or any part thereof, or permit the
use of the Premises by any party other than Tenant, Tenant's wholly owned
subsidiaries, Tenant's parent, or other entities wholly owned by Tenant's parent
(collectively, "Related Parties). As used herein the term Parent shall mean an
entity owning
<PAGE>
not less than 51% of its subsidiary and the term subtenant shall include any
assignee of the Lease or any interest therein. Tenant shall submit to Landlord
a written request for the consent of the Landlord to such assignment or
subletting which request shall be accompanied by the name of the subtenant, a
copy of the fully executed assignment or sublease which assignment or sublease
shall be solely conditioned upon Landlord's consent thereof, the nature and
character of the business of the proposed subtenant, the proposed use of the
Premises, current financial information on the subtenant, and such additional
information as Landlord may reasonably request, or in the case of a Related
Party, evidence that the proposed assignee or subtenant is a Related Party.
Consent by Landlord to one assignment or sublease shall not constitute a waiver
of the requirement for Landlord's consent in the future, and all later
assignments and subleases shall likewise be made only upon the prior written
consent of Landlord. Subtenants or assignees shall become liable directly to
Landlord for all obligations of Tenant hereunder without, however, relieving
Tenant of its liability under this Lease.
Tenant agrees that the instrument by which any assignment or
subletting consented to by Landlord is accomplished shall expressly provide that
the assignee or subtenant will perform and observe all the agreements,
covenants, conditions and provisions to be performed and observed by Tenant
under this Lease as and when performance and observance is due and that Landlord
shall have the right to enforce such agreements, covenants, conditions and
provisions directly against such assignee or subtenant. Tenant shall in all
cases remain primarily responsible for the performance by any subtenant or
assignee of all such agreements, covenants, conditions and provisions. Any
assignment or subletting without an instrument containing the foregoing
provision shall be void and shall, at the option of the Landlord, constitute a
default hereunder entitling Landlord, among its remedies, to terminate this
Lease.
A sublease of any such space shall be subject to all of the terms
hereof, but no subtenant shall have the right to exercise any option to renew or
extend the term hereof, either in whole or in part. Tenant shall continue to
have the right to exercise any then existing option to renew and extend the term
of this Lease.
Any subtenant's use of such space shall be in conformance with the
terms of this Lease including, without limitation, the use requirements and
prohibitions contained herein. Additionally, Tenant shall not sublease any of
such space to any subtenant who is or might become engaged in any activity which
does or could, in the opinion of Landlord, generate excessive flow of customers
or invitees to or from such space, nor to any subtenant that is or could become
engaged in any activity the conduct of which would be considered by reasonably
prudent operators of office buildings in the area of the Premises to be
inconsistent with the operation of a first-class office building in such area or
inconsistent with this Lease.
Tenant shall give Landlord Notice of its desire and intention to
assign this Lease or sublease all or some portion of such space to a party other
than a Related Party, not less than thirty (30) days prior to the commencement
of the term of any sublease or the effective date of such assignment, as the
case may be, and shall, at the same time, furnish Landlord the items required by
the first paragraph of this Paragraph 13, and, in those instances when
Landlord's consent is required hereunder, Landlord shall have twenty (20) days
following the receipt of such Notice and items within which to give Notice to
Tenant of its withholding of consent to such sublease. With respect to an
assignment or sublease to a Related Party, Tenant shall give such Notice to
Landlord, accompanied by the items required by the first paragraph of this
Paragraph 13, within fifteen (15) days after the effective date of such
assignment or sublease. Failure by Landlord to timely advise Tenant of its
objection to an assignment or sublease shall be a waiver of any such permitted
objections thereto by Landlord.
The following are additional conditions and restrictions upon
assignment or subletting by Tenant:
A. Any sublease shall be expressly subject and subordinate to all of
the terms and provisions of the Lease;
<PAGE>
B. Tenant agrees not to list or otherwise publicly advertise the
Premises for assignment or subletting at a rental rate less than (a) the rate of
the Rent then payable hereunder for the Premises or (b) the rate at which
Landlord is then offering comparable space in the Building (and Landlord agrees,
upon written request from Tenant, to advise Tenant of such rate), whichever is
lower, but may negotiate a lesser rate;
C. Except when Landlord has indicated to Tenant in writing that
Landlord does not have and will not have for the ensuing one (1) year period,
space in the Building available for lease, Tenant agrees not to offer to assign
or sublet to a party which is already a tenant of the Project or to a
subsidiary, an affiliate, or a parent of a tenant of the Project;
D. Every six (6) months during any period in which Tenant seeks to
assign this Lease or to sublet the Premises, in whole or in part, Tenant shall
request from Landlord, current information as to the matters provided for in B
and C above.
E. If Tenant shall sublet or assign all or a portion of the Premises
for a rental in excess of the total Rent stipulated herein, which is or may
become due and owing, then Tenant shall pay to Landlord as Additional Rent fifty
percent (50%) of such excess amount.
F. Such subletting or assignment shall not cause Landlord any cost,
and if Landlord incurs any cost whatsoever including, without limitation, legal
fees and costs, then Tenant agrees to pay the same as Additional Rent provided
such cost is a reasonable cost or expense;
G. Tenant shall not sublease or assign any portion of the Premises to
any party, including without limitation to any related Related Party, if such
sublease or assignment would violate the exclusivity clause contained in any
lease affecting any portion of the Project; notwithstanding the foregoing, no
such exclusivity clause shall restrict the Premises from use as the offices of
an asset based lending business;
H. With respect to subletting less than all the Premises, Tenant at
its sole cost and expense, shall provide and permit reasonable means of ingress
to and egress from the space sublet by Tenant; and
I. If Landlord consents to an assignment of the Lease or a sublease of
the Premises, Tenant shall not be released from its obligations under this Lease
but shall remain primarily liable for all sums payable under this Lease.
If Tenant is a corporation, or if Tenant is a general or limited
partnership having a corporation as a general partner, then a sale, assignment,
transfer, exchange or other disposition of stock in such corporation, or a
merger, consolidation or other combination of such operation with another,
wherein operating control of the corporation is acquired by another, shall be
deemed an assignment which is subject to the provisions of this Paragraph 13;
notwithstanding the foregoing, if Tenant is a corporation whose shares are
traded on a United States national stock exchange, then a sale, assignment,
transfer, exchange or other disposition of its stock, or a merger, consolidation
of such operation with another, shall not be deemed as assignment subject to the
provisions of this Paragraph 13. If Tenant is a general or limited partnership,
then the sale, assignment, transfer, exchange or other disposition of a general
partner's interest in the Tenant, the substitution of a general partner in the
Tenant, the addition of a general partner in the Tenant, or the transfer of a
majority of the partners' interests in the partnership shall be deemed an
assignment which is subject to the provisions of this Paragraph 13. For purposes
of this Lease, a joint venture shall be deemed to be a partnership and a joint
venturer a partner.
If Tenant's interest in this Lease is assigned or if the Premises or
any part thereof are sublet to, or occupied by, or used by, anyone other than
Tenant, whether in violation of this Paragraph 13 or not, Landlord may, after
default by Tenant, accept from any assignee, sublessee or any one who claims a
right to the interest of Tenant under this Lease or who occupies any part or the
whole of the Premises the payment of Rent and/or the performance of any of the
other obligations of Tenant under this Lease, but such acceptance shall not be
deemed to be a waiver by Landlord of the breach by
<PAGE>
Tenant of the provisions of this Paragraph 13, nor a recognition by Landlord
that any such assignee, sublessee, claimant or occupant has succeeded to the
rights of Tenant hereunder, nor a release by Landlord of Tenant from further
performance by Tenant of the covenants on Tenant's part to be performed under
this Lease; provided, however, that the net amount of rent collected fromany
such assignee, sublessee, claimant or occupant shall be applied by Landlord to
the Rent to be paid hereunder.
Notwithstanding anything in this Paragraph 13 to the contrary, within
twenty (20) days of the date that Landlord receives Notice from Tenant that
Tenant desires to sublet more than sixty per cent (60%) of the usable or
Rentable Square Footage of the Premises to a party other than a Related Party,
Landlord shall have the right to terminate this Lease effective as of the date
that Tenant proposes to so sublet. Said right to terminate this Lease shall be
exercised by Landlord giving Notice of termination within twenty (20) days of
the date that Landlord received Tenant's Notice regarding Tenant's proposed
sublet.
14. CONDEMNATION.
A. If the whole of the Building or the Premises shall be taken by
condemnation or in any other manner for any public or quasi-public use or
purposes, if all of Tenant's Parking Spaces are taken by condemnation or in any
manner for any public or quasi-public use or purposes and Landlord is unable to
provide replacement spaces at the Project or in reasonable proximity thereto,
this Lease and the term and estate hereby granted shall terminate as of the date
of vesting of title on such taking (herein called "Date of the Taking"), and the
Rent shall be prorated and adjusted as of such date.
B. If any part of the Building, the Premises, or Tenant's Parking
Spaces less than the whole shall be so taken, this Lease shall be unaffected by
such taking, except that (a) if thirty percent (30%) or more of the Building
shall be so taken, Landlord may, at its option, terminate this Lease by giving
Tenant Notice to that effect within ninety (90) days after the Date of the
Taking, or (b) if fifty percent (50%) or more of the rentable square feet of the
Premises shall be so taken and the remaining rentable square feet of the
Premises shall not be reasonably sufficient for Tenant to continue feasible
operation of its business, or (c) if fifty percent (50%) or more of Tenant's
Parking Spaces shall be so taken and Landlord is unable to provide replacement
spaces at the Project or in reasonable proximity thereto and the remaining
Tenant Parking Spaces are not reasonably sufficient for Tenant to continue
feasible operation of its business, Tenant may terminate this Lease by giving
Landlord Notice to that effect within ninety (90) days after the Date of the
Taking. This Lease shall terminate on the date specified in such Notice from
Landlord or Tenant to the other, provided that such date shall be not more than
ninety (90) days after the giving of such Notice, and the Rent shall be prorated
and adjusted as of such termination date. Upon such partial taking and this
Lease continuing in force as to any part of the Premises, Monthly Rent and the
Tenant's Proportionate Share shall be equitably adjusted.
C. Landlord shall be entitled to receive the entire award or payment
in connection with any taking without reduction therefrom for any estate vested
in Tenant by this Lease or any value attributable to the unexpired portion of
the term of this Lease and Tenant shall receive no part of such award except as
hereinafter expressly provided in this Subparagraph. Tenant hereby expressly
assigns to Landlord all of its right, title and interest in and to every such
award or payment and waives any right to the value of the unexpired portion of
the term of this Lease; provided, however, Tenant may make a separate claim
against the condemning authority for the value of Tenant's property lost,
interruption of Tenant's business, depreciation to and removal of Tenant's
personal property, and moving expenses incurred, by reason of such taking, if
Landlord's award is not reduced thereby.
D. If the temporary use or occupancy of all or any part of the
Premises shall be taken by condemnation or in any other manner for any public or
quasi-public use or purpose during the term of this Lease, Tenant shall be
entitled, except as hereinafter set forth, to receive that portion of the award
or payment for such taking which represents compensation for the use and
occupancy of the Premises, for the taking of Tenant's property and for moving
expenses, and Landlord shall be
<PAGE>
entitled to receive that portion, if any, which represents reimbursement for
the cost of restoration of the Premises. This Lease shall be and remain
unaffected by such taking and Tenant shall continue to be responsible for all
of its obligations hereunder insofar as such obligations are not affected by
such taking and shall continue to pay in full the Monthly Rent and Additional
Rent when due. If the period of temporary use or occupancy shall extend beyond
the expiration date of this Lease, that part of the award which represents
compensation for the use and occupancy of the Premises (or a part thereof)
shall be divided between Landlord and Tenant so that Tenant shall receive so
much thereof as represents the period up to and including such expiration date
and Landlord shall receive so much thereof as represents the period after such
expiration date.
E. In the event of a taking of less than the whole of the Building
and/or the Property which does not result in termination of this Lease, or in
the event of a taking for a temporary use or occupancy of all or any part of the
Premises which does not result in a termination of this Lease, Landlord, at its
expense, and whether or not any award or awards shall be sufficient for the
purpose, shall proceed with reasonable diligence to repair any remaining parts
of the Building and the Premises (other than Tenant's property) to substantially
their former condition to the extent that the same may be feasible (subject to
reasonable changes which Landlord shall deem desirable) and so as to constitute
a complete and rentable Building and Premises.
15. INSPECTIONS AND ACCESS TO PREMISES.
Landlord or Landlord's agents shall have the right to enter the
Premises at all times subsequent to reasonable notice to Tenant (except that no
such notice shall be required in the case of an emergency) to examine the
Premises, to survey the Premises, to show the prospective purchasers, mortgagees
or lessees of the Building or space therein, and to make such reasonable
repairs, alterations, improvements or additions as Landlord may deem necessary
or desirable to the Premises or to any other portion of the Building or which
Landlord may elect to perform following Tenant's failure to make repairs or
perform any work which Tenant is obligated to perform under this Lease, or for
the purpose of complying with laws, regulations or other requirements of
government authorities. Landlord shall be allowed to take all material into and
upon the Premises that may be required in connection with said activity without
the same constituting an eviction or constructive eviction of Tenant in whole or
in part and the Rent shall not otherwise abate while said activity is being
conducted, by reason of loss or interruption of business of Tenant, or
otherwise, so long as Landlord's activities do not unreasonably interfere with
the operation of Tenant's business. If Tenant shall not be personally present to
open and permit an entry into the Premises, at any time when entry therein shall
be necessary for emergency reasons, Landlord or Landlord's agents may enter by a
master key, or may forcibly enter, without rendering Landlord or such agents
liable therefor (if during such entry Landlord or Landlord's agents shall accord
reasonable care to Tenant's property), and without in any manner affecting the
obligations and covenants of this Lease. Nothing herein contained, however,
shall be deemed or construed to impose upon Landlord any obligation,
responsibility or liability whatsoever for the care, supervision or repair of
the Building or any part thereof, other than as herein provided.
16. SUBORDINATION.
This Lease shall be subject and subordinate to any underlying land
leases and/or mortgages which may now or hereafter affect this Lease or the
Property and to all renewals, extensions, supplements, amendments,
modifications, consolidations and/or replacement of the underlying land leases
and/or mortgages. This clause shall be self-operative and no further instrument
of subordination shall be required to make the interest of any lessor under an
underlying land lease or mortgagee of any mortgage superior to the interest of
Tenant hereunder. However, in confirmation of the subordination set forth in
this Paragraph 16, Tenant shall, at Landlord's request, execute and deliver such
further instruments as may be reasonably desired by any holder of a mortgage or
by any lessor under any such underlying land leases within five (5) days of
Landlord's request. Landlord agrees to use commercially
<PAGE>
reasonable efforts to give Notice to Tenant of mortgages or land leases executed
after the date of this Lease which affect this Lease or the Property; provided,
however, that Landlord's failure to do so shall not constitute a default
hereunder by Landlord. Upon Tenant's request by Notice to Landlord, Landlord
agrees to use commercially reasonable efforts to obtain a non-disturbance
agreement from any future mortgage holder or lessor of such underlying land
lease on such mortgage holder's or lessor's standard forms; provided that
commercially reasonable efforts shall not include payment of consideration to
such holders or lessors and Landlord's failure to obtain such a non-disturbance
agreement shall not constitute a default by Landlord hereunder.
At any time and from time to time but on not less than seven (7) days'
Notice by Landlord, Tenant will execute, acknowledge and deliver to Landlord,
promptly upon request, an estoppel certificate certifying:
A. That this Lease is unmodified and in full force and effect (or, if
there have been modifications, that this Lease is in full force and effect as
modified, and stating the date and nature of each modification);
B. The date, if any, to which Rent and other sums payable hereunder
have been paid, and the amount of security deposit and prepaid Rent, if any;
C. That no notice has been received by Tenant of any default which has
not been cured except as to default specified in such certificate;
D. That Landlord is not in default hereunder, except as to default
specified in such certificate, nor is there now any fact or condition which,
with notice or lapse of time or both, will become a default;
E. Such other matters as may be reasonably requested by Landlord or
any actual or prospective purchaser or mortgage lender. Any such certificate may
be relied upon by any actual or prospective purchaser, mortgagee or beneficiary
under any deed or mortgage of the Building or any part thereof; and
If at any time prior to the expiration of the Initial Term or Renewal
Term, as applicable, any underlying land lease shall terminate or be terminated
for any reason, Tenant agrees, at the election and upon written demand of any
owner of the land or the Building, or of the lessor under any such underlying
land lease, or of any mortgagee in possession of the land or the Building, to
attorn, from time to time, to any such owner, lessor or mortgagee, upon the then
executory terms and conditions of this Lease, for the remainder of the term
originally demised in this Lease, provided that such owner, lessor or mortgagee,
as the case may be, or receiver caused to be appointed by any of the foregoing,
shall then be entitled to possession of the Premises. Notwithstanding the
foregoing, this Lease shall not terminate by reason of the termination of any
underlying land lease without the prior written consent of the holder of any
mortgages on the land. The provisions of this paragraph shall inure to the
benefit of any such owner, lessor or mortgagee, shall apply notwithstanding
that, as a matter of law, this Lease may terminate upon the termination of any
such underlying land lease, and shall be self-operative upon any such demand,
and no further instrument shall be required to give effect to said provisions.
Tenant, however, upon demand of any such owner, lessor or mortgagee, agrees to
execute, from time to time, instruments in confirmation of the foregoing
provisions of this paragraph, satisfactory to any such owner, lessor or
mortgagee, acknowledging such attornment and setting forth the terms and
conditions of its tenancy. Nothing contained in this paragraph shall be
construed to impair any right otherwise exercisable by any such owner, lessor or
mortgagee.
17. INDEMNITY.
Tenant covenants and agrees to indemnify and save Landlord and its
agents harmless from and against any and all claims, liabilities, fines, actual
nonconsequential damages, penalties, suits, and expenses of all kinds or nature,
including reasonable attorneys' fees, disbursements and costs, including those
for appellate matters, which may be imposed upon or incurred by or asserted
against Landlord, but excluding those for which Landlord receives full and
adequate compensation by way of insurance proceeds, by reason of or arising out
of (i) any occurrences within the Premises (except when such injury, loss or
damage results from the negligence or intentional acts of Landlord, its agents
or employees); (ii) any negligent or intentional acts of Tenant, its agents,
employees,
<PAGE>
guests, invitees or contractors; or (iii) Tenant's default in the observance or
performance of any obligations set forth in this Lease to be observed or
performed by Tenant. The provisions of this Paragraph shall survive the
expiration or sooner termination of this Lease.
18. INSURANCE.
The Tenant covenants to provide on or before the Commencement Date and
keep in force during the Term of this Lease, a comprehensive general liability
insurance policy insuring the Landlord and Tenant against bodily injury,
property damage and personal injury. This policy shall be in the amount of Two
Million Dollars ($2,000,000.00) with respect to bodily injury and One Million
Dollars ($1,000,000.00) with respect to property damage. The policy shall be
written by a good and solvent insurance company qualified to do business in the
State of Florida and approved by Landlord and shall include the Landlord and
Landlord's agent as additional named insureds. The original policies or
certificates thereof, together with evidence of payment therefor, shall be
delivered to Landlord prior to the Commencement Date. Tenant shall renew said
policy not less than one (1) business day prior to the expiration date thereof,
from time to time, and, upon Notice from Landlord, furnish said renewals and
evidence of payment therefor to Landlord. Such policy or certificates shall
contain a provision that the insurer will not cancel or materially change the
policy without first giving Landlord thirty (30) days' prior written notice.
Tenant, at its expense, shall maintain at all times during the term of
this Lease, "all risk" property insurance covering all of Tenant's personal
property and improvements and betterments installed by or on behalf of Tenant
within the Premises whether now or in the future for the full insurable value
thereof, to include a replacement cost endorsement, written by a good and
solvent insurance company qualified to do business in the State of Florida,
naming Tenant as the insured. The original policies or certificates thereof,
together with evidence of payment therefor, shall be delivered to Landlord prior
to the Commencement Date. Tenant shall renew said policy not less than one (1)
business day prior to the expiration date thereof from time to time, and, upon
Notice from Landlord, furnish said renewals and evidence of payment therefor to
Landlord. Each such policy shall be non-cancelable for any cause and not be
materially changed without first giving Landlord thirty (30) days' Notice.
Tenant hereby waives any rights of action against Landlord for loss or damage to
Tenant improvements, fixtures and personal property in Premises.
Landlord shall at all times during the term of this Lease insure the
Building, Tenant Buildout, Property, and Project against risk of physical loss
under standard fire and extended coverage policies of insurance in an amount at
least equal to the full replacement cost of the Building and Tenant Buildout.
Landlord shall not be obligated to insure any personal property of Tenant upon
or within the Premises, or any improvements which Tenant may construct on the
Premises. Landlord shall, at its own expense, keep in full force and effect
comprehensive general liability insurance with "personal injury" coverage, with
minimum limits of $1,000,000.00 on account of bodily injuries to, or death of,
one or more persons per occurrence and $500,000.00 on account of damage to
property. Landlord's maintaining insurance as required under this Lease shall
not diminish Landlord's obligations under this Lease.
19. FINANCIAL REPORTS.
Unless Tenant's stock is publicly traded on a United States national
stock exchange with publicly available financial reporting requirements, or
unless Tenant is subject to SEC filings containing publicly available financial
information, Tenant shall, at the request of Landlord, but no more than two (2)
times in each calendar year, deliver to Landlord financial statements prepared
in form and substance acceptable to landlord, audited by a certified public
accountant of recognized standing satisfactory to Landlord, itemizing all
material information with respect to the operation of Tenant's business,
including, but not limited to, sources of income and expenses; the financial
statements shall be prepared in accordance with generally accepted accounting
principles applied on a consistent basis and shall set forth in comparative form
figures for the most recent fiscal year and the preceding fiscal year.
20. HOLDING OVER.
<PAGE>
Tenant acknowledges that possession of the Premises must be
surrendered to Landlord at the expiration or sooner termination of the Term of
this Lease. Tenant agrees to indemnify and save Landlord harmless against all
costs, claims, loss or liability resulting from delay by Tenant in so
surrendering the Premises, including, without limitation, any claims made by any
succeeding tenant founded on such delay. The parties recognize and agree that
the damage to Landlord resulting from any failure by Tenant to timely surrender
possession of the Premises as aforesaid will be extremely substantial, will
exceed the amount of the Monthly Rent and Additional Rent theretofore payable
hereunder, and will be impossible to accurately measure. Tenant therefore agrees
that if possession of the Premises is not surrendered to Landlord on the date of
the expiration or sooner termination of the Term of this Lease, then Tenant
shall pay to Landlord for each month and for each portion of any month during
which Tenant holds over in the Premises after the expiration or sooner
termination of the Term of this Lease, without the express written consent and
approval of Landlord, a sum equal to two times the aggregate of that portion of
the Monthly Rental and Additional Rental which was payable under this Lease
during the last month of the Term hereof. Nothing herein contained shall be
deemed to permit Tenant to retain possession of the Premises after /the
expiration or sooner termination of the Term of this Lease. The provisions of
this Paragraph shall survive the expiration or sooner termination of the term of
this Lease.
21. ENTIRE AGREEMENT - NO WAIVER.
This Lease contains the entire agreement of the parties hereto and no
representations, inducements, promises or agreements, oral or otherwise, between
the parties not embodied herein, shall be of any force or effect. The failure of
either party to insist in any instance on strict performance of any covenants or
condition hereof, or to exercise any option herein contained, shall not be
construed as a waiver of such covenant, condition or option in any other
instance. This Lease cannot be changed or terminated orally but only by an
agreement in writing signed by both parties hereto.
22. WAIVER OF JURY TRIAL.
LANDLORD AND TENANT EACH HEREBY WAIVES ALL RIGHT TO TRIAL BY JURY IN
ANY CLAIM, ACTION, PROCEEDING OR COUNTERCLAIM BY EITHER PARTY AGAINST THE OTHER
ON ANY MATTERS ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, THE
RELATIONSHIP OF LANDLORD AND TENANT AND/OR TENANT'S USE OR OCCUPANCY OF THE
PREMISES.
23. HEADINGS.
The headings in this Lease are included for convenience only and shall
not be taken into consideration in any construction or interpretation of this
Lease or any of its provisions.
24. NOTICES.
Any notice required or permitted hereunder to be given by either party
to the other and denominated a "Notice" herein shall be valid only if in writing
and shall be deemed to be duly given only if delivered personally, sent by
overnight courier or sent by registered or certified, postage prepaid U.S.
Postal Service mail addressed
(i) If to Tenant, at: the address set forth in the preamble of the
Lease; and
(ii) If to Landlord, at: c/o Southcoast Partners, Inc., as agent for
Parkwood Properties Corp.
Suite 750
150 East Palmetto Park Road
Boca Raton, Florida 33432
with a copy to: Parkwood Properties Corp.
280 Park Avenue, 23W
<PAGE>
New York, New York 10017
Attn: Gregory D. Sposito
or at such other address for either party as that party may designate by Notice
to the other; Notice shall be deemed given, if delivered personally, upon
delivery thereof, or if mailed, upon the posting thereof with sufficient postage
affixed.
Tenant hereby appoints as its agent to receive service of all
dispossessory or distraint proceedings, the person in charge of the Premises at
the time occupying the Premises; if there is no person occupying the Premises,
then such service may be made by attachment thereof on the main entrance of
Premises.
25. HEIRS AND ASSIGNS - PARTIES.
A. The provisions of this Lease shall bind and inure to the benefit of
the Landlord and Tenant, and their respective successors, heirs, legal
representatives, and assigns (subject to the provisions hereof relating to
restrictions on Tenant's ability to assign), it being understood that the term
"Landlord" as used in this Lease, means only the owner of the Property and the
Building of which the Premises are a part. Should the Building be severed as to
ownership by sale and/or lease, then the owner of the entire Building or less of
the entire Building that has the right to lease space in the Building to tenants
shall be deemed the "Landlord." Tenant shall be bound to any such succeeding
party landlord for performance by Tenant of all the terms, covenants, and
conditions of this Lease and agrees to execute any commercially reasonable
attornment agreement not in conflict with the terms and provisions of this Lease
at the request of any such succeeding Landlord.
B. The parties "Landlord" and "Tenant", and pronouns relating thereto,
as used herein, shall include male, female, singular and plural, corporation,
partnership or individual, as may fit the particular parties.
26. ATTORNEYS' FEES.
If any action is brought by either Landlord or Tenant against the
other relative to the enforcement of the terms, provisions, covenants and
conditions of this Lease or in regard to any other matter relating to the Lease,
the party in whose favor a final unappealable judgment shall be entered shall be
entitled to recover court costs incurred and reasonable attorneys' and legal
assistants' fees, including, without limitation, such fees in trial,
post-judgment, appellate and bankruptcy proceedings.
27. TIME OF ESSENCE.
Time is of the essence of this Lease.
28. SECURITY DEPOSIT.
A. Simultaneously with its execution of this Lease Tenant has
delivered to Landlord an irrevocable standby letter of credit for U.S.
$250,000.00 in a form reasonably acceptable to Landlord and issued by Capital
Bank, a Florida banking corporation, or such other banking institution having
total assets of not less than U.S. $5,000,000.000.00 reasonably acceptable to
Landlord (collectively, "Approved LC Issuer"), as the security deposit (the
"Security Deposit"). The Security Deposit shall be security for the full and
faithful performance and observance by Tenant of the covenants, terms and
conditions of this Lease, including, without limitation, the payment of Monthly
Rent, Additional Rent and any other charges payable under this Lease. It is
agreed and acknowledged by Tenant that the Security Deposit is not an advance
payment of Rent or a measure of Landlord's damages in the case of default by
Tenant. Upon the occurrence of an event of default under this Lease, Landlord
may draw upon the Security Deposit in the full face amount thereof, disburse any
portion of the drawn proceeds required for the payment of all or any part or
component of any payments due to Landlord by Tenant hereunder, or any other sum
as to which Tenant is in default, or for the payment of any other injury,
expense or liability resulting from any event of
<PAGE>
default, and retain the balance as a partial Security Deposit. Following any
such draw on the Security Deposit, Tenant shall within ten (10) days of the date
of such drawing deliver to Landlord a replacement letter of credit in the same
face amount of the letter of credit drawn upon and in a form reasonably
acceptable to Landlord and issued by an Approved LC Issuer, or the cash
replacement therefor; in such event, and provided that Tenant shall not then be
in default hereunder, Landlord shall refund to Tenant any cash then held by
Landlord over and above the amount of the then required Security Deposit. Upon
every sale or lease of the Building, Tenant shall, on the date of such sale or
lease (provided, however, that Tenant is given no less than ten (10) days' prior
Notice of such sale or lease) replace the letter of credit with a letter of
credit in the same amount, from and issued by the same bank (or another Approved
LC Issuer), except that the beneficiary thereof shall be the purchaser or
lessee, as the case may be; thereafter, Tenant shall look to the new landlord
for return of the Security Deposit and Landlord shall have no liability with
respect thereto. The Security Deposit shall not be assigned or encumbered by
Tenant, and any such assignment or encumbrance shall be void. Any letter of
credit Security Deposit may be replaced at any time by a cash deposit of an
equal amount at Tenant's sole option. Any cash Security Deposit shall not be
escrowed and no interest shall be paid on the Security Deposit.
B. Provided Tenant is not in default hereunder beyond any applicable
notice and cure period, on each of the first five (5) anniversaries of the first
day of the first Lease Year hereunder, Tenant shall have the right to reduce the
Security Deposit by twenty percent (20%) of the original amount thereof. If the
Security Deposit is a letter of credit, Tenant shall deliver to Landlord at
least five (5) days prior to the expiry date of the letter of credit then held
by Landlord, a replacement letter of credit in the appropriate amount, and in a
form reasonably acceptable to Landlord and issued by an Approved LC Issuer,
whereupon the expiring letter of credit then held by Landlord shall be returned
by Landlord to Tenant.
C. Provided Tenant is not in default hereunder beyond any applicable
notice and cure periods, within five (5) days of the fifth (5th) anniversary of
the first day of the First Lease Year hereunder, Landlord shall return the
Security Deposit to Tenant and Tenant's obligation to post a Security Deposit
for its performance hereunder shall end.
D. If, at any time when a Security Deposit is required hereunder, and
the Security Deposit then posted is in the form of a letter of credit, such
letter shall be for a period of no less than one (1) year running from the first
day of the First Lease Year hereunder, or an anniversary of the first day of the
first Lease Year, as the case may be, to the day preceding the next anniversary
to the first day of the first Lease Year. If the issuer of a Security Deposit
letter of credit does not intend to renew its Security Deposit letter of credit,
no less than thirty (30) days prior to the expiry date of said Security Deposit
letter of credit, the issuer or Tenant shall give Landlord Notice of its intent
not to renew. No less than thirty (30) days prior to the expiry date of a
Security Deposit letter of credit, Tenant shall deliver to Landlord a
replacement letter of credit in the appropriate amount, and in a form reasonably
acceptable to Landlord and issued by an Approved LC Issuer, which shall be
exchanged after the new letter of credit's effective date for the expired or
expiring letter of credit, and if Tenant shall fail to do so, Landlord shall be
permitted to draw upon the expiring letter of credit in the full face amount
thereof and the drawn proceeds thereof shall thereupon constitute the Security
Deposit hereunder. In such event Tenant shall still be entitled to the
reductions in the Security Deposit permitted under Subparagraph B above,
provided Tenant has satisfied the conditions for each such reduction.
29. TENANT BUILDOUT; BUILDOUT ALLOWANCE.
Landlord shall provide a tenant buildout allowance ("Buildout
Allowance") of $454,272.00, which is $32.00 per each Rentable Square Foot of the
Premises, which shall be used exclusively for the purposes set forth on Exhibit
F and shall be disbursed in accordance with the provisions of Exhibit F. Tenant
shall be responsible for all costs associated with the design and construction
of the Tenant Buildout to the Premises over and above the Buildout Allowance. To
the extent the cost of the Tenant Buildout is less than the Buildout Allowance,
the difference shall be retained by Landlord. If Landlord sells the Building
prior to the completion of the Tenant Buildout,
<PAGE>
Landlord shall escrow the undisbursed portion of the Buildout Allowance with an
escrow agent in the State of Florida under an escrow agreement reasonably
acceptable to Landlord and Tenant.
30. PARKING ARRANGEMENTS AND COMMON AREAS
A. USE OF PARKING AREAS (OTHER THAN GARAGE(S)), COMMON AREAS AND
PROJECT COMMON AREAS. In addition to the Premises, other than the Garage(s),
Tenant and its customers and employees shall have the right to non-exclusive
use, in common with Landlord, other tenants, and the guests, employees and
invitees of same of (a) automobile parking areas, driveways and footways, and
(b) such loading and other facilities as may be designated from time to time by
Landlord, subject to the terms and conditions of this Lease and to the Rules and
Regulations for the use thereof as prescribed from time to time by Landlord.
Subject to the provisions of this Paragraph 30, Landlord shall provide Tenant
with 43 parking spaces ("Tenant's Parking Spaces"), of which 38 shall be free of
charge and uncovered and 5 shall be reserved, covered by a canopy, and available
to Tenant on a month-to-month basis at market rental rates (currently $45.00
plus Sales Tax per month each). The general location of the 18 total canopied
parking spaces, which include the 5 canopied Tenant Parking Spaces, is as shown
on Exhibit I hereto. Landlord reserves the right to change which of the 18
canopied parking spaces are designated as the 5 canopied Tenant Parking Spaces
and, if Landlord shall construct the Garage(s), Landlord may, at Landlord's sole
discretion, eliminate the 5 canopied Tenant Parking Spaces and provide in lieu
thereof 6 reserved parking spaces in the Garage(s) for Tenant's use, at such
market rental rates per space. If Landlord removes 9 or more of the 18 total
canopied parking spaces on the Property, which Landlord may do at Landlord's
sole discretion, Tenant shall no longer be entitled to any canopied parking
spaces and, in lieu thereof, Landlord shall provide Tenant with 6 reserved,
free, uncovered, surface parking spaces. The Parking Area(s) containing Tenant's
Parking Spaces shall be provided with adequate lighting and shall be maintained
in good condition by Landlord, consistent with the maintenance of other parking
facilities of first-class office buildings in the southeast Florida market;
provided that, Landlord shall have the right at any time and from time to time
to change or modify the design and layout of the Parking Area(s).
The Common Areas and Project Common Areas subject to the exclusive
control and management of Landlord and Landlord shall have the right to
establish, modify and change and enforce from time to time Rules and Regulations
with respect to the Common Areas and Project Common Areas so long as such rules
are not discriminatory against Tenant. Tenant agrees to abide by and conform
with such rules and regulations.
Neither the Parking Area(s) (inclusive of Garage(s)) nor any Common
Area or Project Common Area shall be used by Tenant, or any agent or employee of
Tenant, for any advertising, political campaigning or other similar use,
including without limitation, the dissemination of advertising or campaigning
leaflets or flyers.
Landlord reserves the right to allocate areas for parking (both inside
and outside the Garage(s)) to or for the benefit of one or more tenants without
any obligation of allocating the same for all tenants or any other tenants.
In the event Landlord deems it necessary to prevent public access to
the Building, Landlord may from time to time temporarily close portions of the
Common Areas and Project Common Areas, and may erect private boundary markers or
take such steps as deemed appropriate for that purpose but in so doing Landlord
agrees to use its best efforts to prevent any such action from having a material
adverse effect upon the business of Tenant.
B. USE OF GARAGE(S). In the event Landlord elects to construct the
Garage(s), Landlord may designate one or more Garages as the location of
Tenant's Parking Spaces, in which event, subject to the provisions of this
Paragraph 30, Tenant's Parking Spaces that are unreserved shall continue to be
free spaces and Tenant's Parking Spaces that are reserved shall be subject to
charges consistent to those charged by similar garages in projects similar to
the Project located in the southeast Florida market. During the Building Hours
of Operation, Tenant shall have the right to park standard size automobiles in
Tenant's Parking Spaces in the Garage(s) during the term of this Lease
excluding, however, trucks, commercial vehicles and campers in excess of one ton
capacity
<PAGE>
or possessing more than four (4) wheels, and vehicles with a height of
greater than 6'8", a length greater than 17'6" or a width greater than 8'. The
taxes and cost of the operation of the Garage(s) or other parking facilities for
the Building, which may hereafter become available for use by the occupants of
the Building, shall be considered a Cost of Operation and Maintenance as defined
in Paragraph 4A(ii) and such costs shall be reasonably apportioned between any
other buildings benefitted by the Garage(s), in accordance with Paragraph 4
above. Landlord shall have the right to assign or not assign the free Tenant
Parking Spaces to specific parking spaces. Landlord shall have the right to
change any assigned or reserved Tenant's Parking Space assignments from time to
time upon Notice to Tenant. To the extent Landlord assigns specific spaces to
Tenant, Tenant shall park only in its assigned spaces. To the extent that
Landlord shall not assign specific spaces to Tenant, then Tenant shall park in
available spaces only, and shall not park in spaces assigned or reserved to
other parties. Notwithstanding any other provision of this Paragraph, Landlord
reserves the right to convert all or portions of the Garage(s) to a "valet"
style parking program, and to stack vehicles in order to maximize parking
capacity, and Tenant agrees to comply with any reasonable requirements of
Landlord in connection therewith so long as the number of parking spaces
allocated for exclusive use by Tenant's employees and customers is not reduced.
"Parking Space" as used in this Lease shall refer to Tenant's right to park a
vehicle in a paved parking space or to house or to park or have a vehicle housed
or parked in the Garage(s) or other parking facilities serving the Building
during the Building Hours of Operation. Tenant agrees to cause all parties using
parking spaces, including Tenant's visitors, to comply with the terms of this
Lease including without limitation parking on a "first-come, first-served"
basis.
Tenant shall also have the right to use other Parking Spaces that
become available (as determined by Landlord) from time to time subject to
payment of Landlord's customary charges to the general public therefor (as
described below), the availability of such Parking Spaces from time to time and
Landlord's right to recapture the use of such Parking Spaces at any time if
Landlord determines that it shall require them for other purposes.
31. RULES AND REGULATIONS.
Tenant shall observe and comply with the Rules and Regulations annexed
hereto as Exhibit E and made a part hereof, and such further reasonable rules
and regulations as Landlord may prescribe on Notice to Tenant for the safety,
care and cleanliness of the Building, and the comfort, quietness and convenience
of other occupants of the Building. Landlord shall enforce the Rules and
Regulations in a consistent manner without discrimination against or in favor of
any particular tenant and the Rules and Regulations shall apply to all tenants
of the Building. If there is any conflict between the terms of this Lease and
the Rules and Regulations, the terms of this Lease shall control.
32. BROKER.
Tenant warrants and represents that it has negotiated this Lease
directly with Landlord and Codina Bush Klein--ONCOR International ("Landlord's
Broker") and has not authorized or employed, or acted by implication to
authorize or to employ, any other real estate broker or salesman to act for
Tenant in connection with this Lease other than John Thomas Amend Partners of
Florida, Inc. (the "Broker"). Landlord warrants and represents that it has not
authorized or employed, or acted by implication to authorize or to employ, any
other real estate broker or salesman to act for Landlord in connection with this
Lease other than Landlord's Broker. Landlord agrees to pay Broker a commission
pursuant to a separate written agreement dated October __, 1996 between Landlord
and Broker, and Landlord shall be responsible for any commissions due and owing
to Landlord's Broker. If Landlord sells the Building prior to the date when it
has paid all of the commissions to become due to Broker, excluding commissions
(if any) which may be incurred in connection with any extensions or expansions,
Landlord shall escrow the remaining Broker commissions with an escrow agent in
the State of Florida pursuant to an escrow agreement reasonably acceptable to
Landlord and Broker. Tenant shall hold Landlord harmless from and indemnify and
defend Landlord against any and all claims by any real estate broker or
salesman, other than Landlord's Broker and any other brokers dealt with by
Landlord, if any, including any claim made by Broker in excess of the commission
to be paid by Landlord pursuant to such separate written agreement. Landlord
shall indemnify and hold Tenant harmless against any and all claims by Broker
with regard to the
<PAGE>
commission to be paid by Landlord pursuant to the separate written agreement
with Broker, Landlord's Broker and any other real estate broker or salesman
dealt with by Landlord, other than brokers dealt with by Tenant, for a
commission or finder's fee as a result of Tenant entering into this Lease.
33. PUBLIC AREAS.
Landlord shall have the right at any time, without the same
constituting an eviction of Tenant or entitling Tenant to any abatement of Rent,
and without otherwise incurring any liability to Tenant, to change the
arrangement and/or location of (including the closing of) public entrances,
passageways, parking areas, stores, doorways, corridors, lobbies, elevators,
escalators, stairs, toilets or other public parts of the Building of the
Project, provided that in so doing, Landlord does not deny Tenant and Tenant's
agents, invitees and licensees of reasonable means of access to the Premises and
provided such actions by Landlord or its agents shall not unreasonably interfere
with Tenant's use of the Premises for the conduct of its business therein,
materially and adversely affect Tenant's or its employees' or customers' rights
under this Lease, or materially and adversely affect Tenant's parking or signage
rights granted hereunder.
34. QUIET ENJOYMENT.
Provided Tenant has performed all of the terms, covenants, agreements
and conditions of this Lease, including the payment of Rent and all other sums
due hereunder, Tenant shall peaceably and quietly hold and enjoy the Premises
against Landlord and all persons claiming by, through or under Landlord, for the
term herein described, subject to the provisions and conditions of this Lease.
Landlord agrees to make reasonable efforts to protect the Tenant from
interference or disturbance by third persons; however, the Landlord shall not be
liable for any such interference or disturbance, whether caused by other tenants
of the Landlord or other persons, nor shall the Tenant be released from any of
the obligations of this Lease because of such interference or disturbances;
provided, however, that the foregoing shall not apply if such disturbance or
interference with Tenant's possession of the Premises is due to Landlord's
default under this Lease or if it is due to Landlord's or its agent's or
employees' negligent or intentional acts.
35. FORCE MAJEURE.
Neither Landlord nor Tenant shall be required to perform any term,
condition or covenant in this Lease so long as such performance is delayed or
prevented by "Force Majeure," which shall mean labor controversies, strikes and
lockouts (whether lawful or not) either industry-wide or with third parties
other than Landlord and Tenant, respectively, acts of God, material or labor
unavailability, inability to obtain fuel or power, catastrophes, national or
local emergencies, restrictions by any governmental authority, civil riots,
floods, and any other causes not reasonably within the control of Landlord or
Tenant and which by the exercise of due diligence, Landlord, or Tenant,
respectively, is unable, wholly or in part, to prevent or overcome. Lack of
money shall not be deemed Force Majeure.
36. RELATIONSHIP OF THE PARTIES.
Nothing contained herein shall be deemed or construed by the parties
hereto, nor by any third party, as creating the relationship of principal and
agent or of partnership or of joint venture between the parties hereto, it being
understood and agreed that neither the method of computation of Rent, nor any
other provision contained herein, nor any acts of the parties herein, shall be
deemed to create any relationship between the parties hereto other than the
relationship of Landlord and Tenant.
37. AUTHORITY.
<PAGE>
Each person executing this Lease on behalf of Tenant does hereby
covenant and warrant that (i) Tenant is a Florida corporation; (ii) the
execution and delivery of this Lease is within the authority of the person doing
so on behalf of Tenant; (iii) Tenant is duly organized and validly existing
under the laws of, and is authorized to transact business in, the State of
Florida, with full legal power and authority to perform its obligations as
contemplated by this Lease. Each person executing this Lease on behalf of
Landlord does hereby covenant and warrant that (i) Landlord is duly incorporated
and validly existing under the laws of the State of New York; (ii) Landlord is
qualified to do business in the State of Florida; (iii) Landlord has full
corporate right and authority to enter into this Lease and to perform all of its
obligations hereunder; (iv) Landlord is the fee simple owner of the Property and
has the right to lease the Premises; and (v) each person signing this Lease on
behalf of the corporation is duly and validly authorized to do so; and (vi) the
execution of this Lease by Landlord and the performance of the obligations of
Landlord under and by virtue of this Lease will not result in a breach of, or
constitute a default under, any agreement or other instrument to which Landlord
is a party or by which Landlord may be bound or affected.
38. RADON GAS.
Pursuant to Florida law Landlord notifies Tenant of the following:
RADON IS A NATURALLY OCCURRING RADIOACTIVE GAS THAT, WHEN IT HAS
ACCUMULATED IN A BUILDING IN SUFFICIENT QUANTITIES, MAY PRESENT HEALTH
RISKS TO PERSONS WHO ARE EXPOSED TO IT OVER TIME. LEVELS OF RADON THAT
EXCEED FEDERAL AND STATE GUIDELINES HAVE BEEN FOUND IN BUILDINGS IN
FLORIDA. ADDITIONAL INFORMATION REGARDING RADON AND RADON TESTING MAY
BE OBTAINED FROM YOUR COUNTY PUBLIC HEALTH UNIT.
39. HAZARDOUS WASTE.
DEFINITIONS. The following terms as used in this Paragraph 39 shall
have the meanings set forth below:
(a) "Hazardous Substances" shall mean any hazardous or toxic
substances, materials or wastes, including, but not limited to any flammable
explosives, radioactive materials, friable asbestos, PCB's, electrical
transformers, batteries, paints, solvents, chemicals, petroleum products, or
other man-made materials with hazardous, carcinogenic or toxic characteristics,
and such other solid, semi-solid, liquid or gaseous substances which are toxic,
ignitable, corrosive, carcinogenic or otherwise dangerous to human, plant, or
animal health or well-being, and those substances, materials, and wastes listed
in the United States Department of Transportation Table (49 CFR 972.101) or by
the Environmental Protection Agency, as hazardous substances (40 CFR Part 302,
and amendments thereto) or such substances, materials and wastes which are or
become regulated under any applicable local, state or federal law including,
without limitation, any material, waste or substance which is (a) petroleum, (b)
asbestos, (c) polychlorinated biphenyls, (d) designated as a "hazardous
substance", "hazardous waste", "hazardous materials", "toxic substances",
"contaminants", or other pollution under any applicable Environmental Laws.
(b) "Environmental Laws" shall mean any applicable present or future
federal, state or local laws, ordinances, rules or regulations pertaining to
Hazardous Substances, industrial hygiene, indoor air quality, OSHA regulations
or environmental conditions, including, but not limited to, the following
statutes and regulations as amended from time to time: (i) the Federal Clean Air
Act, 42 U.S.C. Section 7401 ET. SEQ.; (ii) the Federal Clean Water Act, 33
U.S.C. Section 1151 ET. SEQ.; (iii) the Resource Conservation and Recovery Act,
42 U.S.C. Section 6901 ET. SEQ.; (iv) the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 ET. SEQ., as
amended by Superfund Amendments and Reauthorization Act of 1986 ("SARA"), Pub.
L. No. 99-499, 99 Stat. 1613; (v) the Hazardous Materials Transportation Act, 49
U.S.C. Section 1802; (vi) the National Environment Policy Act, 42 U.S.C. Section
1857 ET. SEQ.; (vii) The Toxic Substance Control Act of 1976, 15 U.S.C. Section
2601 ET. SEQ.; (viii) the regulations of the Environmental Protection Agency, 33
CFR and 40 CFR; and (ix) Chapters 373, 376, 380, and
<PAGE>
403 Florida Statutes, and rules relating thereto, including Chapters 17, 27 ,
and 40, Florida Administrative Code.
(c) "Claims" shall mean, individually and collectively, any claims,
actions, administrative proceedings, judgments, damages, punitive damages,
penalties, fines, costs, liabilities, sums paid in settlement, interest, losses
or expenses incurred by Landlord (including reasonable attorneys' and legal
assistants' fees, whether incurred in enforcing this Agreement, collecting any
sums due hereunder, settlement negotiations, at trial, appeal or in bankruptcy
proceedings), consultant fees and expert fees, together with all other costs and
expenses of any kind or nature, that arise directly or indirectly from or in
connection with Tenant's disposal, handling, use, storage, or transportation of
Hazardous Substances within the Premises, Building, Property or Project in
violation of the Environmental Laws, whether occurring or suspected to have
occurred before, on or after the date of this Lease.
Tenant shall indemnify and hold Landlord harmless from all Claims
resulting from any violations or alleged violations by Tenant, Tenant's
employees, licensees, invitees or agents of any Environmental Laws. This
indemnity shall survive the expiration or early termination of the Lease.
Notwithstanding the foregoing, Tenant shall not be responsible or liable for the
presence or storage of Hazardous Substances, including but not limited to,
asbestos, which exist in the Building or the Project (exclusive of the
Premises), unless any such responsibility or liability arises as a result of
Tenant's or its employees', agents' or contractors' acts or omissions or the
construction of the Tenant Buildout. Landlord hereby represents and warrants to
Tenant that there are no Hazardous Substances in the Building (exclusive of the
Tenant Buildout) in violation of any Environmental Laws. If the Building
(exclusive of the Premises) is in violation of the Environmental Laws as a
result of acts or omissions of Landlord or Landlord's agents, employees, or
contractors, Landlord, at its sole cost and expense, shall be responsible for
removal, remediation, and/or encapsulation of the same as required by the
Environmental Laws. Landlord shall indemnify, defend and hold Tenant harmless
from and against any and all claims, liabilities, injuries, damages, costs and
expenses (including reasonable attorneys' and legal assistants' fees, whether
incurred in enforcing this paragraph, collecting any sums due hereunder,
settlement negotiations, at trial, appeal or in bankruptcy proceedings )
incurred by Tenant and directly arising out of or related to any breach by
Landlord of Landlord's representations and warranties or covenants contained in
this paragraph, which indemnity shall survive the expiration or early
termination of the Lease.
40. SAVING PROVISION.
If any provision of this Lease, or its application to any situation
shall be invalid or unenforceable to any extent, the remainder of this Lease, or
the application thereof to situations other than that as to which it is invalid
or unenforceable, shall not be affected thereby, and every provision of this
Lease shall be valid and enforceable to the fullest extent permitted by law.
41. REMEDIES CUMULATIVE.
The rights given to Landlord herein are in addition to any rights that
may be given to Landlord by a statute or under law.
42. EFFECTIVENESS OF LEASE.
This Lease shall have no binding force or effect and shall neither
confer any rights nor ignore any obligations, including brokerage obligations,
on either Landlord or Tenant unless and until both Landlord and Tenant shall
execute this Lease and executed counterparts of this Lease shall have been
delivered to both Landlord and Tenant.
43. RIGHT OF FIRST OFFER.
A. Subject to the rights of Merrill Lynch, Pierce, Fenner & Smith
Incorporated and of any fourth (4th) floor tenants of the Building, and their
successors and assigns, and provided that Tenant is not in default hereunder,
beginning on the first anniversary of the Commencement Date
<PAGE>
and ending on the date which is the seventh (7th) anniversary of the
Commencement Date, if Landlord becomes engaged in Substantive Discussions
(defined below) with a potential tenant for rentable space on the fourth (4th)
floor of the Building, Landlord shall give Notice to Tenant (the "Offer Notice")
informing Tenant of the potential tenant, the location and rentable square feet
of the space ("Additional Space") and offering to rent the Additional Space to
Tenant as provided in this Paragraph 43. Tenant shall have ten (10) days from
the date of receipt of the Offer Notice to accept by Notice to Landlord the
offer to rent under the terms set forth in this Paragraph 43 ("Acceptance
Notice"), but if Tenant shall fail to timely give the Acceptance Notice, Tenant
shall be deemed to have rejected Landlord's offer and Landlord shall be free to
enter into a lease with the potential tenant. "Substantive Discussions" means
(1) (i) the potential tenant or its agent has submitted a request for proposal
to Landlord, (ii) Landlord or its broker or agent has responded to such request
for proposal, and (iii) the potential tenant or its broker or agent has replied
in writing to Landlord's response, or (2) the potential tenant or its broker or
agent has submitted a written offer to lease to Landlord which Landlord wishes
to accept.
B. If Tenant timely accepts Landlord's offer as provided in
Subparagraph A, and provided that Tenant is not in default hereunder, Landlord
and Tenant shall within thirty (30) days of the Acceptance Notice enter into an
amendment to this Lease adding the Additional Space to the Premises upon the
same terms and conditions set forth herein except that:
(i) The Buildout Allowance shall be reduced one-seventh (1/7th)
for each Improvement Year (defined below) of the term hereof which shall have
elapsed until the date the lease amendment has been fully executed. "Improvement
Year" is the one (1) year period beginning on the Commencement Date, or an
anniversary of the Commencement Date, as the case may be, and ending on the day
preceding the next anniversary of the Commencement Date. The first Improvement
Year shall begin on the Commencement Date. Tenant Buildout shall be constructed
pursuant to Exhibit F;
(ii) Tenant's Proportionate Share shall be recalculated by adding
the rentable square feet of the Additional Space to the rentable square feet of
the initial Premises;
(iii) If a Security Deposit is still required hereunder for the
initial Premises, an additional Security Deposit shall be posted for the
Additional Space in the amount of $17.61 for each rentable square foot of the
Additional Space reduced proportionately to the reductions in the original
Security Deposit under Paragraph 28;
(iv) Tenant's Parking Spaces shall be increased by 3.3 spaces for
each 1,000 usable square feet contained in the Additional Space;
(v) Base Rent, Monthly Rent and Additional Rent shall be
increased based upon Exhibit B and the additional rentable square feet contained
in the Additional Space;
(vi) There shall be no free Rent period; and
(vii) Tenant's right of first offer under this Paragraph 43 may
not be assigned nor shall any assignee or subtenant of Tenant succeed to
Tenant's rights under this Paragraph.
44. MONUMENT SIGNAGE.
Landlord shall construct at its expense a monument sign near the
Building for the purpose of advising the public of the names of the tenants of
the Building. Tenant or its permitted assignee or subtenant of all of its space
in the Building shall have the non-exclusive right, at Tenant's sole cost and
expense, to install and maintain signage on the monument, in a space designated
by Landlord which shall, in any event, not be the space at the top or the bottom
of the monument, and the size, graphics and maximum letter size and placement of
such signage subject to Landlord's approval, which signage shall be as large as
the largest Tenant sign appearing on such monument sign, shall be as generally
described on Exhibit H. Notwithstanding anything to the contrary herein, the
size, location and the right to install such monument signage are subject to the
<PAGE>
prior approval of all governmental authorities having jurisdiction thereover,
and Landlord shall use its commercially reasonable efforts to obtain such
approvals at Landlord's expense. Tenant shall obtain any required approvals for
its signage to be affixed to the monument sign at Tenant's expense. Landlord
agrees, subject to the provisions of this Paragraph, that such monument sign
shall be erected on or before the Commencement Date.
45. LANDLORD DEFAULT.
If Landlord should fail to perform or observe any covenant, term,
provision or condition of this Lease and such default should continue beyond a
period of thirty (30) days (or such longer period as is reasonably necessary to
remedy such default, provided Landlord shall diligently pursue such remedy until
such default is cured) after Notice (the "Default Notice") thereof is given by
Tenant to Landlord, then Tenant shall have the right (i) to cure such default,
and Landlord shall reimburse Tenant for all reasonable sums expended in so
curing said default.
46 GOVERNING LAW.
This Lease shall be governed by and construed in accordance with the
laws of the State of Florida and venue for any suit, action or other proceeding
in regard to or arising out of this Lease shall be exclusively in Palm Beach
County, Florida, unless prohibited by applicable law.
47. COUNTERPARTS.
This Lease may be executed in several counterparts, each of which
shall be an original, but all of which shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties have hereunto set their hands and
seals, as of the day and year first above written.
Signed, sealed and delivered
in the presence of: TENANT:
CAPITAL FACTORS HOLDING, INC., a
Florida corporation
(1)/s/ JENNIFER B. MOTLEY By:/s/ JOHN KIEFER (SEAL)
----------------------- ------------------------
Print Name:Jennifer B. Motley Name: J. Kiefer
Title: President & CEO
(2)/s/ MICHAEL G. LEVINE
-----------------------
Print Name:Michael G. Levine
LANDLORD:
PARKWOOD PROPERTIES CORP.,
a New York corporation
(1)/s/ JOYCE ROSSI By:/s/ GREGORY D. SPOSITO (SEAL)
--------------------- -------------------------
Print Name:Joyce Rossi Name: Gregory D. Sposito
Title: Vice President
(2 /s/ THOMAS T. O'BRIEN
---------------------
Print Name:Thomas T. O'Brien
<PAGE>
EXHIBIT B
BASE RENT SCHEDULE
BASE RENT SCHEDULE FOR INITIAL TERM:
First 3 months = $0.00
Lease Years 1 - 5 = Monthly Rent of $26,026.00 which is Base
Rent of $22.00 per rentable square foot of
the Premises per annum.
Lease Years 6 - 10 = Monthly Rent of $28,392.00 which is Base
Rent of $24.00 per rentable square foot
of the Premises per annum.
BASE RENT SCHEDULE FOR RENEWAL TERMS:
FIRST RENEWAL TERM:
Lease Years 1 - 5 = 95% of "Fair Market Rental Rate" for a five
(5) year lease extension (but the Base Rent
shall be no less than Base Rent for the
10th Lease Year of the Initial Term) per
rentable square foot of the Premises per
annum.
SECOND RENEWAL TERM:
Lease Years 1 - 5 = 95% of "Fair Market Rental Rate" for a five
(5) year lease extension (but the Base Rent
shall be no less than Base Rent for the 5th
Lease Year of the First Renewal Term) per
rentable square foot of the Premises per
annum.
"Fair Market Rental Rate" for a five (5) year lease extension shall be
determined as of the date that is three hundred (300) days prior to the
commencement of the First Renewal Term or Second Renewal Term, as the case may
be ("Determination Date"), as follows:
(a) Within thirty (30) days following Notice of Tenant's exercise of
its option to renew, Landlord shall give Tenant Notice of Landlord's proposed
fair market rental rate for a five (5) year lease extension for the Premises.
Within thirty (30) days following said Notice to Tenant, Tenant by Notice to
Landlord shall either (i) accept the fair market rental rate proposed by
Landlord, or (ii) elect to submit to binding arbitration to determine the Fair
Market Rental Rate pursuant to (b) below or (iii) rescind the exercise of its
option to renew. Failure of Tenant to give timely Notice under this paragraph
(a) shall be deemed an election by Tenant of (i) above.
(b) In the event Tenant timely elects (ii) in the preceding paragraph
(a), the Fair Market Rental Rate for a five (5) year lease extension for the
Premises shall be determined as follows:
(i) Landlord and Tenant shall have ten (10) days from the date of
delivery of Tenant's Notice of its election to arbitrate within which to select
one arbitrator acceptable to both parties. If the parties fail to agree on such
selection during the ten-day period, either party may promptly request the
American Arbitration Association (or its successor) to appoint an arbitrator for
the matter. The appointed arbitrator shall have as a minimum the following
qualifications: MAI certification, ten (10) years experience in appraising
office building real estate in
<PAGE>
Palm Beach County, Florida, generally recognized competence in the valuation of
office building real estate in Palm Beach County, Florida, and never having been
a direct or indirect employee or agent of either Landlord or Tenant.
(ii) Not later than the thirtieth (30th) day following the
selection or appointment, as the case may be, of the arbitrator, Landlord and
Tenant shall each submit to the arbitrator, in writing, a good faith
determination of the fair market rental rate of the Premises for a five (5) year
lease extension as of the Determination Date in its then existing "As Is"
condition. If a party fails to submit its good faith determination as required,
the arbitrator shall adopt as its determination of the Fair Market Rental Rate
for a five (5) year lease extension the higher of (1) the good faith
determination submitted by the other party, or (2) the Base Rent under this
Lease for the Lease Year immediately preceding the first Lease Year of the First
or Second Renewal Term, as the case may be.
(iii) The arbitrator shall choose either Landlord's or Tenant's
good faith determination of the fair market rental rate for a five (5) year
lease extension for the Premises and the arbitrator's selection shall be final
and binding on the parties; provided, however, if the arbitrator's choice of
Landlord's or Tenant's good faith determination would result in (A) a Base Rent
rate less than the Base Rent rate in effect during the Lease Year immediately
preceding the first Lease Year of the First or Second Renewal Term, as the case
may be, the arbitrator's final determination shall be a Fair Market Rental Rate
which will produce a Base Rent equal to the Base Rent in effect during the Lease
Year immediately preceding the first Lease Year of the First or Second Renewal
Term, as the case may be or (B) a Base Rent of more than 115% of the Base Rent
that would result from using Landlord's proposed fair market rental rate for the
Premises provided pursuant to paragraph (a) of this Exhibit B, then the
arbitrator's final determination shall be a Fair Market Rental Rate which will
produce a Base Rent equal to 115% of the Base Rent which would result from using
Landlord's proposed fair market rental rate for the Premises provided pursuant
to paragraph (a) of this Exhibit B. In determining the Fair Market Rental Rate
of the Premises and which of Landlord's or Tenant's determinations to select,
the arbitrator shall give primary consideration to the market rents on the
Determination Date in comparable office buildings in downtown Boca Raton,
Florida, for renewal tenants occupying space similar in size, condition and
location to that of the Premises pursuant to leases having terms and conditions
similar to those of this Lease; the arbitrator shall not consider any potential
savings to Landlord by reason of Landlord not having to secure a new tenant for
the Premises (including, without limitation, any potential savings in leasing
commissions, leasehold improvements, rent concessions or abatements, or lost
rental income during any period of vacancy). From the date of the later
submission to the arbitrator of Landlord's or Tenant's determination of the fair
market rental rate, or from thirty (30) days after the selection or appointment
of the arbitration if a party shall have failed to submit a good faith
determination as required above, as the case may be, the arbitrator shall have
thirty (30) days within which to render a written decision as to the Fair Market
Rental Rate of the Premises. If the arbitrator fails to render a decision within
said 30-day period, either party shall have the right to apply to the American
Arbitration Association for a decision. The arbitration shall be held in Boca
Raton, Florida.
<PAGE>
(iv) The cost of the arbitration shall be shared equally by
Landlord and Tenant.
<PAGE>
EXHIBIT F
TENANT BUILDOUT ALLOWANCE
(Merrill Lynch Building)
This Exhibit F sets forth the respective obligations of, and the procedures to
be followed by, Landlord and Tenant in the design and construction of those
improvements which will prepare the Premises for Tenant's use and occupancy (the
"Tenant Buildout"), including the payment of design and construction costs.
Capitalized terms not otherwise defined herein shall have the meaning set forth
in that certain Office Lease Agreement to which this exhibit is attached (the
"Lease"). Paragraph 29 of the Lease sets forth the amount and other details
regarding the Buildout Allowance.
I. DEFINITIONS.
1.0 As used in the Lease and this Exhibit F:
1.0.1 The term "Building Standard Improvements" refers to
those improvements set forth in Section 3.4 of this Exhibit.
1.0.2 The term "Building Standard" refers to those brands,
designs, finishes or techniques selected by Landlord for construction of the
Building Standard Improvements.
1.0.3 The term "Non-Building Standard" means brands, designs,
finishes and techniques other than those selected by Landlord.
1.0.4 The term "Non-Building Standard Improvements" means
improvements to the Premises in addition to those improvements set forth in
Section 3.4 of this Exhibit.
II. GENERAL PROCEDURES FOR PREPARING PLANS AND SPECIFICATIONS.
2.0 Tenant's Space Planner will prepare a Space Plan for the Premises.
Tenant agrees, within ten (10) days of the date Tenant executes the Lease, for
Tenant's Space Planner to meet with Landlord's agent or Landlord's Space Planner
to establish criteria for preparation of a Space Plan. Criteria shall include:
2.0.1 Approximate location of all partitions, doors,
electrical and telephone outlets and switches. Special requirements for
electrical and telephone circuits.
2.0.2 Type and color of wall and floor covering.
2.0.3 Details of all millwork, corridor entrances, water and
drain supply requirements and Non-Building Standard electrical outlets.
2.0.4 Information on Non-Building Standard Improvement
HVAC requirements.
2.0.5 Weight, dimension and location of exceptionally
heavy equipment.
2.0.6 Dimensions of all equipment to be built in.
2.0.7 Lighting arrangement.
Tenant agrees that within thirty (30) days of its Space Planner's meeting with
Landlord's agent or Landlord's Space Planner to provide Landlord with Tenant's
proposed Space Plan.
<PAGE>
Within ten (10) days of Landlord's receipt of Tenant's proposed Space Plan,
Landlord will provide Tenant with Landlord's approval of Tenant's proposed Space
Plan or Landlord's specific objections thereto. Tenant shall have five (5) days
thereafter to submit its corrected Space Plan to Landlord.
2.1 Within thirty (30) days of Landlord's approval of Tenant's Space
Plan, the Florida licensed architect engaged by Tenant ("Tenant's Architect")
shall provide the following construction plans and drawings to Landlord:
2.1.1 Complete finished and detailed construction drawings and
specifications for Tenant's partition layout, reflected ceiling, telephone and
electrical outlets and switches, finish schedule, toilets and other plumbing,
and other work required for Tenant's Buildout. Tenant Buildout does not include
network wiring or data communication links.
2.1.2 Complete mechanical and electrical drawings and
specifications (for installation of air conditioning system and duct work, and
heating and electrical facilities) for the work required for Tenant Buildout.
2.1.3 Complete plans and specifications for all the Tenant
Buildout contemplated.
2.1.4 All of Tenant's plans and specifications shall
satisfy the requirements of all applicable governmental authorities.
2.2 All Non-Building Standard work or Tenant Buildout desired by Tenant
shall in Landlord's opinion, equal or exceed the quality established by the
Building Standard Improvements as listed herein.
2.3 All plans and specifications are expressly subject to Landlord's
written approval, which Landlord covenants it will not unreasonably withhold or
delay.
2.4 Following approval by Landlord, any changes, modifications or
alterations of or to Tenant's drawings and specifications requested by Tenant
shall be subject to Landlord's prior written approval, which approval shall not
be unreasonably withheld or delayed. Any reasonable charges, expenses or costs,
incurred by Landlord in approving said changes, modifications or alterations
shall be paid by Tenant out of the Buildout Allowance to the extent there are
sufficient funds available in the Buildout Allowance, or directly by Tenant, if
there are not sufficient funds in the Buildout Allowance. No changes,
modifications or alterations of or to any approved drawings shall be made
without the prior written consent of Landlord after written request therefor by
Tenant.
2.5 Landlord will cause Tenant's plans and specifications to be filed
with the appropriate governmental agencies. Tenant shall be responsible for all
application and permit fees and for all corrections required by such
governmental authorities to such plans and specifications, and for all costs
relating to same.
III. LANDLORD'S OBLIGATIONS TO CONSTRUCT AND PAY FOR TENANT BUILDOUT.
3.0 Section 3.3 contains a general description of the Building
construction, and limitations of same, which will be provided by Landlord, at
Landlord's expense. Selection of structural systems, materials and finishes will
be by Landlord. A detailed description of Landlord's construction will be set
forth in Landlord's plans and specifications for the Building which will be
available for review by Tenant and Tenant's space planner, Tenant's Architect
and engineer.
3.1 If the work described in Tenant's drawings and specifications
requires additions or changes to Landlord's plans and specifications or
additions or changes to Landlord's construction obligations under this Article
III, such changes shall be subject to Landlord's approval, which Landlord may
give at its sole discretion; for such changes approved by Landlord, Tenant
agrees to pay Landlord any increased cost resulting from the additions or
changes including construction expenses and architectural and engineering costs.
<PAGE>
3.2 Landlord's construction and standard finishes are designed for
normal office use. Any reference to construction by Landlord to code
requirements shall be deemed to mean code requirements for normal office use.
3.3 Landlord shall provide a shell office building at Landlord's
expense to contain the Premises as hereinafter set forth:
3.3.1 All structural wall, floor and roof support systems to
support office floor live loads including partitions, ceilings, etc., of eighty
(80) pounds per square foot.
3.3.2 All exterior glass, unfinished walls and unfinished
columns.
3.3.3 Ground floor lobby and all stairs and elevators per
code.
3.3.4 Electrical service shall be distributed to the
electrical room on the fifth floor including main panels with step-down
transformer, and run to the VAV boxes provided for in 3.3.5 below.
3.3.5 Main air conditioning, including air handling equipment,
is a split system feeding VAV boxes. VAV boxes (in no event to exceed 20 per
floor) will be installed in accordance with Tenant's plans. However,
distribution ductwork, dampers, diffusers and thermostats, and connections to
the Building automation system are Tenant's expense.
3.3.6 Fire sprinkler system distributed throughout the space
with upright heads ready for expansion and adjustment when ceiling is installed.
3.3.7 Mechanical equipment room with air handler per floor
shall be provided and completed by Landlord.
3.3.8 Construction of the fifth floor restrooms based upon
Building standard finishes. However, the construction of the fifth floor lobby
area to be the responsibility and expense of Tenant; and
3.3.9 All other work in the Premises shall be completed under
the Tenant Buildout Allowance at Tenant's expense.
3.4 Landlord has established components designated as Tenant Buildout
which shall be considered the Building Standards for Tenant finish, materials
and equipment. Tenant has agreed to accept the Buildout Allowance provided for
in the Lease. Tenant's Buildout specified by Tenant shall equal or exceed the
Building Standard Improvements in terms of quality, function and cost.
3.4.1 The Building Standard Improvements include:
A. Partition
1. Building Standard interior space partitions,
3 5/8" metal studs with 1/2" drywall at 24"
on center, to 6" above finished ceiling
height.
2. Building Standard perimeter walls for the
Premises, 3 5/8" metal studs, 24" on center
with 5/8" type "x" gypsum board, partition
to slab with insulation.
B. Ceiling System
1. Minimum finished interior ceiling height to
be 9' above finished floor.
2. Ceiling grid and tile to be Armstrong Cirrus
Ceiling Systems, 2' x 2' tegular acoustical
tile, white with 9/16" fineline ceiling
grid, acoustical suspension system, color
white.
<PAGE>
C. Light Fixtures
1. Building Standard 2 x 4 parabolic 3 - lamp
lay-in fluorescent fixtures. Electric
ballast T-8 lamps.
D. Window Treatment
1. Building Standard brushed aluminum finish
Levelor blindsin all exterior windows within
the Premises.
E. Doors and Hardware
1. Interior doors to be solid core 3'0" x 8'0"
stain grade doors.
2. a) Suite entry/exit doors to be solid
core 3'0" x 8'0" stain grade "C"
label oak doors, with door closer
to comply with building codes.
b) Ground Floor - 1/2" tempered glass,
stainless steel, top and bottom rail,
push/pull bar, minimum 9' height.
3. Door hardware to be Schlage Elite Series,
STRADA lever handle, chrome finish with
matching hinges. Provide lockset on all
entry/exit doors. Entry doors to be mortise
locks, Tenant doors to be cylinder locks.
4. Door frames to be 2" hollow metal frames,
painted finish.
5. Building standard signs for Tenant
(excluding the monument sign plaque).
F. Mechanical/Electrical Systems
1. All mechanical, electrical and plumbing
systems to conform to existing building
systems.
G. Building Standard Finish Materials
1. Building Standard carpet to be 30 oz. cut
pile over pad. Alternate: 26 oz. loop direct
glue down (color to be selected by Tenant).
2. Building Standard base to be 3.5" paint
grade wood.
3. Walls to receive two coats of flat latex
enamel by Benjamin Moore or equal (color to
be selected by Tenant).
4. Vinyl tile flooring to be 12" x 12" x 3/8"
composition tile, Armstrong Standard Excelon
(color to be selected by Tenant).
5. Rubber base to be provided in vinyl tile
areas, by Roppe 4" cove style (color to be
selected by Tenant).
H. Above Standard and Non-Building Standard Improvements
1. All Non-Building Standard Improvements shall
be considered the Tenant's responsibility
and shall be at the Tenant's sole cost and
expense. Such items shall include, but are
not limited to, the following: custom
millwork, upgraded ceiling and lighting
treatments, special mechanical and/or
electrical requirements, any plumbing items,
i.e.: coffee bars, rest rooms, etc., as well
as upgraded finish selections.
<PAGE>
3.4.2 Landlord reserves, in its sole and absolute discretion the right
to determine the Building Standards for the Building. Tenant does not have the
right to cancel this Lease because the Building Standard specifications were not
fully available at the time of execution of the Lease.
IV. CONSTRUCTION OF TENANT BUILDOUT
4.0 Landlord agrees to construct Tenant Buildout in accordance with the
drawings and specifications prepared by Tenant's Architect and approved by
Landlord under Article II and Landlord agrees to enter into a construction
contract with the contractor selected by the process herein set forth. Except as
may be provided in 4.4 below, Landlord is responsible for Landlord's costs of
supervision and management of the Tenant Buildout.
4.1 All mechanical, structural, electrical or plumbing modifications to the
Building (and not the Premises) required by Tenant shall be performed by
Landlord's contractor or contractors approved by Landlord. Furthermore, Landlord
shall not be obligated to specify subcontractors.
4.2 Landlord and Tenant's Architect shall prepare bid specifications and
Landlord shall competitively bid Tenant's construction plans and specifications
to the following general contractors approved by Landlord and Tenant, to wit:
Miller Construction Company, GSD Contractors, Inc., and City Construction Group.
Copies of each bid response shall be furnished to Tenant's Architect by
Landlord. Landlord shall contract with the lowest bidder to construct the Tenant
Buildout.
4.3 Tenant shall have the right to utilize the construction management firm
of its choice ("Tenant's Construction Manager") to oversee and manage all
construction and design related aspects of the Tenant Buildout and to act as
Tenant's construction coordination representation. Tenant's Construction
Manager's activities shall be subject to the provisions of the Lease and the
exhibits hereto.
4.4 For purposes of reconciling any amounts due from the Tenant to Landlord
under this Exhibit F, the Buildout Allowance granted Tenant under the Lease
shall be deducted from the sum of (i) any governmental or permitting fees
incurred by Landlord under Article II of this Exhibit F; (ii) architectural fees
of Tenant's Architect and architectural and engineering fees and construction
costs incurred by Landlord under Section 3.1 of this Exhibit F; (iii) Landlord's
contract price for construction of Tenant Buildout under Article IV of this
Exhibit F together with Tenant's requested changes thereto (including, without
limitation, labor, materials, overhead, general conditions, sales tax, bonds and
permits and plan check fees); (iv) the cost of any other Tenant's work
(including preparation of drawings and specifications for Tenant Buildout) done
by Landlord for Tenant (v) the cost of Tenant's Space Planner, Tenant's
Architect, engineer, and Tenant's Construction Manager incident to the Tenant
Buildout, (vi) any reasonable charges, expenses or costs incurred by Landlord in
receiving and/or approving any of Tenant's requested changes, modifications or
alterations of or to Tenant's drawings and specifications, and (vii) the cost of
providing or upgrading water, heating, cooling, air or electrical facilities for
the remainder of the Building should Tenant Buildout require Excess Consumption
(defined below) from existing facilities, but only to the extent necessary to
compensate for Tenant's Excess Consumption. "Excess Consumption" is defined as
consumption of electrical current (in excess of 110 volts), water, heat, cooling
or compressed air (if compressed air is furnished by Landlord) in excess of that
which would be provided to the Premises were the Premises to be (A) built with
Building Standard Improvements only; (B) used as general office space during
normal hours; and (C) equipped only with word processors, personal computers,
typewriters, desk calculators, dictation equipment and copy machines each with
power requirements of 15 amperes or less. Tenant agrees to pay Landlord any
excess of the sum of (i) through (vii) minus the Tenant Buildout Allowance
within ten (10) days after receipt of a statement therefor from Landlord. If the
Tenant Buildout Allowance exceeds the sum of (i) through (vii), Landlord shall
retain the surplus and Tenant shall not be entitled to any portion of such
surplus. Any failure of Tenant to pay said costs when due shall constitute a
default under the terms of the Lease in like manner as the failure to pay rental
when due.
4.5 If the estimated total Tenant Buildout costs exceed the Buildout
Allowance, Landlord may estimate the amount of any excess amounts to be paid by
Tenant under this Article IV and require Tenant to prepay the estimated excess
costs prior to performance of any work or authorization of any service. Any
failure of Tenant to pay said costs within ten (10) days after
<PAGE>
Landlord has given Tenant Notice therefor shall constitute a material
default by Tenant under the terms of the Lease.
V. COMPLETION OF TENANT BUILDOUT.
5.1 Landlord agrees to obtain any Certificate of Occupancy required by the
local building department or other governmental agency.
5.2 The term "Substantial Completion" as used in this Exhibit F or in the
Lease means that state of completion of the Premises which will allow Tenant to
begin Tenant's occupation of the Premises without material interference from
Landlord's contractor or material delay caused by Landlord's failure to have
completed Landlord's work under Sections 3.3 and/or 4.0 of this Exhibit.
5.3 Notwithstanding any time period established herein for the submission
and approval of Tenant's plans or for the construction of improvements, the
Lease Term and Tenant's obligation to pay Rent shall commence as set forth in
Section 1 of the Lease; provided, however, if the Commencement Date is
determined under Section 1 of the Lease by the date of Substantial Completion,
said Commencement Date will be accelerated one day for each day Substantial
Completion is delayed by reason of:
5.3.1 Tenant's failure to provide the Space Plan, the construction
drawings and specifications and any changes thereto within the time periods
required hereby.
5.3.2 Tenant's changes in Tenant's Space Plan or construction plans
and specifications after initial approval by Landlord.
5.3.3 The performance by a person, firm or corporation employed by
Tenant and the completion of said work by said person, firm or corporation
including delays to Landlord's contractor caused by Tenant's contractor.
5.3.4 It is Landlord's and Tenant's intention that Substantial
Completion shall be deemed to have occurred upon that date which would be the
date of Substantial Completion were the Premises to be constructed with the
Building Standard Improvements.
EXHIBIT 10.24
PURCHASE AGREEMENT
This PURCHASE AGREEMENT is made as of the 31st day of July, 1996 by and
among TEMPFUNDS AMERICA, INC., a Florida corporation and TEMPFUNDS AMERICA
FUNDING CORPORATION OF SOUTH CAROLINA, INC., a South Carolina corporation
(collectively "Sellers" or individually "Seller") and CAPITAL FACTORS, INC., a
Florida corporation ("Purchaser").
W I T N E S S E T H:
WHEREAS, Sellers are engaged in the business of administering and financing
payroll accounts for certain temporary employment and home care agencies.
Sellers and Purchaser have entered into that certain Letter of Intent dated June
7, 1996, regarding Purchaser's interest in purchasing certain assets of Sellers
("Letter of Intent"). Purchaser has concluded its due diligence pursuant to the
Letter of Intent. Accordingly, Purchaser wishes to acquire and Sellers wish to
sell certain assets used in the business of Sellers on the terms and conditions
hereinafter set forth
NOW, THEREFORE, for good and valuable consideration, the parties hereto
agree as follows:
1. PURCHASE AND SALE: The Purchaser shall purchase and acquire from Sellers
and Sellers shall sell, transfer, assign and convey to Purchaser at Closing
(except as set forth in subparagraph (b) below) the following assets used in
connection with Sellers' business (the "Assets"):
1
<PAGE>
a. ACCRUING ASSETS. All of Sellers' interest in and under all loans,
contracts and contract rights identified in Schedule "All attached hereto and
made a part hereof and all accounts receivables owed to Sellers pursuant to such
loans, contracts and contract rights which are accruing as of the date of
Closing ("Accruing Assets"). Purchaser shall assume all of Sellers' obligations
as set forth in the loan documents and contracts evidencing the Accruing Assets
as of Closing.
b. FIXED ASSETS. Those fixed assets which are essential to the operation of
Sellers' business as deemed by Purchaser in its sole discretion ("Fixed Assets")
Any Fixed Assets not deemed to be essential shall be returned by Purchaser
within 180 days from Closing.
c. INTANGIBLE ASSETS. All of Sellers' trademarks, tradenames, patents,
copyrights, brandmarks, brandnames, service marks, customer lists, invoices,
brochures, letterhead, catalogues and telephone numbers and other similar terms
used in connection with Sellers, business, including all of Sellers' interest in
any business records and client accounting records pertaining to Sellers"
business and the name "TempFunds," together with all registrations and filings
regarding any of the foregoing as set forth in Schedule "B" (collectively, the
"Intangible Assets").
d. PREPAID EXPENSES AND PREPAID INSURANCE. Any prepaid expenses, prepaid
insurance from which Purchaser will realize the benefit of such prepayment in
connection with its acquisition of the Accruing Assets (the "Prepaid Items").
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2. EXCLUDED ASSETS. Notwithstanding the foregoing, the Assets shall not
include any of (i) Sellers' cash and cash equivalents, bank deposits and other
deposits, (ii) any loans, contracts, contract rights, receivables and related
Intangible Assets with respect to the matters identified in Schedule "A"
attached hereto and made a part hereof; (iii) all accounting records of Sellers,
although Purchaser shall be entitled to make copies of any such accounting
records, at its expense, from time to time after the Closing; and (iv) any of
Sellers' rights arising under this Agreement.
3. PURCHASE-PRICE. The purchase price shall be paid by Purchaser to Sellers
as follows:
a. A cash payment at Closing in the amount of NINE HUNDRED THOUSAND
DOLLARS ($900,000.00) in lawful money of the United States, together with an
additional cash payment at Closing in lawful money of the United States in an
amount equal to the net book value of the Accruing Assets at Closing. The net
book value of the Accruing Assets at Closing shall be the value of the Accruing
Assets as set forth on Sellers' internally prepared financial statements and as
mutually determined by Sellers and Purchaser for the date of Closing.
Notwithstanding the foregoing, Purchaser may offset against the actual
amount of cash payments to be made to Sellers at Closing, the outstanding
amounts owed to Purchaser by Sellers under that certain Loan and Security
Agreement dated December 18, 1995 and promissory note of even date therewith in
the original
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principal amount of $3,200,000.00. The outstanding principal balance owed to
Purchaser as Of July 31, 1996 is $3,200,000.00 with $26,936.52 of accrued and
unpaid interest. Such payoff shall be made without any prepayment penalty or
other charge imposed by Purchaser
b. Deferred cash payments shall be made by Purchaser to Sellers in
lawful money of the United States as follows:
(1) The sum of THREE HUNDRED FIFTY THOUSAND DOLLARS ($350,000.00)
plus interest from Closing at Purchaser's Cost of Funds as defined below,
payable on July 31, 1997, provided that there exists at least a ninety percent
(90%) Retention (as hereinafter defined) of Original Clients (as hereinafter
defined) of Sellers;
(2) The sum of THREE HUNDRED FIFTY THOUSAND DOLLARS ($350,000.00)
plus interest from Closing at Purchaser's Cost of Funds as defined below payable
on July 31, 1998, provided that there exists at least an eighty percent (80%)
Retention (as hereinafter defined) of Original Clients (as hereinafter defined)
of Sellers;
(3) The sum of TWO HUNDRED THOUSAND DOLLARS ($200,000.00) plus
interest from Closing at Purchaser's Cost of Funds payable on July 31, 1999,
provided that the annualized gross revenue received by Purchaser during the
three months immediately preceding August 1, 1999 from Factors' Related Clients
(as hereinafter defined), is One Hundred Seventy Two Percent (172%) of
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the annualized gross revenue received by sellers from Accruing Assets for the
three months immediately prior to AUGUST 1, 1996.
For purposes hereof, the percent of "Retention" shall be determined by
dividing the average balance of outstanding loans and factored accounts made by
Purchaser to Original Clients for the three months prior to August 1, 1997 and
August 1, 1998, respectively, by the balance of outstanding loans and factored
accounts by Sellers to original Clients as of July 31, 1996. The average balance
of outstanding loans and factored accounts by Purchaser to original Clients for
the referenced three month period prior to the respective August 1, 1997 and
August 1, 1998 dates shall be determined by dividing the sum of the balance of
outstanding loans and factored accounts by Purchaser to Original Clients for
each week during the three month period by the number of calendar weeks during
such three month period.
"Original Clients" shall be defined to include all current clients or
customers of Sellers as of Closing as listed on Schedule "All and the successors
and assigns of such clients or customers, plus those clients or customers listed
on Schedule "A" which constitute potential clients or customers who are being
solicited by Sellers and with whom Sellers are in substantive discussions, but
who are not listed on Schedule "All and the successors and assigns of such
clients or customers less those clients or customers listed in Schedule "A-3"
that as of the date of Closing have informed Sellers that they will not be
continuing their relationship with Sellers.
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"Factors' Related Clients" shall be defined to include (i) those clients or
customers of Sellers listed on Schedule "A"; (ii) Purchaser's clients in the
temporary employment and home healthcare industry during the three months
immediately preceding August 1, 1999; and (iii) any new clients or customers of
Purchaser that exist during the three months immediately preceding August 1,
1999 and in which sellers' former employees are instrumental in either a direct
or supervisory capacity for Purchaser being retained by such new clients.
"Purchaser's Cost of Funds" shall be defined to be equal to Purchaser's
weighted average cost of funds, (including debt and securitized funding, but not
including equity, equity equivalents, preferred stock, obligations convertible
into common stock, or obligations that were sold to investors as a unit with a
common stock equivalent) during the relevant time period, as adjusted below.
Purchaser's Cost of Funds shall be calculated on July 31, 1996 and on October
lst, January 1st, April 1st and July 1st of each calendar year. Purchaser's Cost
of Funds as determined at Closing shall be the effective interest rate through
September 30, 1996 and the effective interest rate shall be adjusted for each
subsequent quarterly period based on the October 1st, January 1st, April 1st and
July 1st calculations through July 31, 1999.
Notwithstanding anything herein to the contrary, the deferred payments to
be made on July 31, 1997 and July 31, 1998, as described above, shall be
adjusted on a prorata basis if the actual Retention percentage is less or
greater than the Retention
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percentages referenced in subparagraphs 3 (b)(1) and (2) above. For example, if
the actual Retention percentage for the deferred payment to be made on July 31,
1997 is eighty percent (80%), the Purchaser shall pay and Sellers shall receive
an amount equal to eight-ninths (8/9) of Three Hundred and Fifty Thousand
Dollars ($350,000.00). Similarly, if the actual Retention percentage is ninety
percent (90%) for the July 31, 1998 payment date, the payment would be equal
to nine-eighths (9/8) of Three Hundred Fifty Thousand Dollars ($350,000.00).
Notwithstanding anything herein to the contrary, the payments to be made on
July 31, 1999 shall be adjusted on a prorata basis if the actual annualized
gross revenues from Factors' Related Clients is less or greater than the minimum
annualized gross revenue percentage referenced in subparagraph 3(b)(3) above.
For example, if the actual annualized gross revenue received from Factors,
Related Clients is one-hundred fifty percent (150%) of the annualized gross
revenue received by Sellers from Accruing Assets for the three months
immediately prior to August 1, 1996, the payment to be made by Purchaser and
received by Seller on July 31, 1999 shall be determined by multiplying a
fraction, the numerator of which is 150 and the denominator of which is 172
times $200,000. If such actual percentage is one hundred eighty percent (180%),
then the payment would be equal to 180/172 times $200,000.00.
Notwithstanding the foregoing adjustments of the deferred payments as set
forth in the two preceding paragraphs, the total principal amount of the
deferred payments to be made on July 31,
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1997, July 31, 1998 and July 31, 1999 shall not exceed $900,000 plus interest as
set forth above.
All payments to be made by Purchaser to Sellers hereunder shall be by
same-day wire transfer to an account as directed by Sellers.
The amount of the payments to be made at Closing and on July 31, 1997, July
31, 1998 and July 31, 1999 shall be estimated based on financial information
available as of a date which is five (5) business days prior to the Closing or
the respective deferred payment date. Purchaser and Sellers shall re-calculate
the amount of the actual payments due as of the Closing and on each respective
deferred payment date no later than thirty (30) days from the date of Closing or
the respective deferred payment date. Sellers shall either refund to the
Purchaser any overpayment, or Purchaser shall pay to Sellers any remaining sums
due upon expiration of such thirty (30) day period following date of Closing or
the respective deferred payment date.
At Closing, Sellers and Purchaser shall execute a mutual estoppel statement
setting forth the calculation of Purchaser's Cost of Funds as of Closing, and no
later than thirty (30) days from the date of Closing, a mutual estoppel
statement setting forth the outstanding balance of loans and factored accounts
by Seller to Original Clients as of Closing and the annualized gross revenues
received by Sellers for the three months immediately prior to August 1, 1996.
For purposes of any mutual determination to be made by Sellers and Purchaser,
Sellers hereby agree to elect Tom
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Huston as President of each Seller at Closing to oversee that process. In the
event that either Tom Huston or Paul C. Steinfurth are not serving as President
of each Seller and it is necessary to make a calculation under this Agreement
which is to be mutually determined, the determination shall be made by audit
performed by BDO Seidman or any other certified public accountant designated by
Purchaser, the cost of which shall be paid one-half by Sellers and one-half by
Purchaser.
4. REPRESENTATIONS AND WARRANTIES OF SELLERS. Each of the Sellers hereby
represent and warrant to Purchaser that:
a. TITLE. Sellers have good and marketable title to all of the
Assets. Sellers will convey the Assets to Purchaser free and clear of any
mortgage, pledge, lien, encumbrance or other security interest.
b. AUTHORIZATION. Sellers have by proper corporate proceedings duly
authorized the execution, delivery and performance of this Agreement and have
duly executed and delivered this Agreement. This Agreement is a legal, valid and
binding obligation of Sellers, enforceable against Sellers in accordance with
its terms. The consummation of the transactions contemplated by this Agreement
shall not conflict with any applicable federal, state or local law, rule,
regulation, writ, decree or order to which any Seller is a party and shall not
conflict with or violate any term, provision or covenant of any indenture,
contract, agreement, instrument or judgment applicable to any Seller, except
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for those consents of Sellers, lenders as set forth in Schedule "C".
c. GOVERNMENTAL ORDER. Neither Seller is subject to any order,
judgment or decree, or any other restriction of a material nature which would
prevent or hinder the transactions contemplated by this Agreement.
d. LITIGATION. There are no legal proceedings or governmental
investigations pending before any court or other governmental body or any other
tribunal, or, to the best knowledge of Sellers, threatened against or relating
to the Assets to be transferred to Purchaser hereof, the results of which, if
adversely determined, could materially or adversely affect the transactions
contemplated by this Agreement.
e. CONDUCT OF BUSINESS. Upon the date of execution of this Agreement
through Closing, Sellers will conduct their business in the usual and ordinary
course and will use their best efforts to maintain and preserve its good will
and property. Except with the prior written consent of Purchaser (which shall
not be unreasonably withheld) Sellers will not dispose of any Assets or incur
any liabilities except in the usual and ordinary course of business, nor make
any significant organizational or personnel changes.
f. STATUS OF ACCRUING ASSETS. To the best of Sellers' knowledge, the
underlying loan documents and contracts comprising the Accruing Assets
constitute valid and enforceable obligations of the clients and customers of
Sellers subject to no
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off-sets, defenses or counterclaims and Sellers have a perfected, first priority
security interest in the accounts receivable of such clients Or customers as set
forth in the loan documents and contracts and pursuant to UCC-1 filings made by
Sellers. To the best of Sellers' knowledge, all of the Accruing Assets are in
compliance with all federal, state and local laws and regulations, including all
applicable usury laws, except that Sellers have not qualified to do business in
the States Of New Jersey, Minnesota, or Indiana to the extent that such
qualification may be deemed necessary to institute enforcement proceedings with
respect to any of the Accruing Assets against a client or customer located in
New Jersey, Minnesota or Indiana.
For purposes hereof, the term "to the best of Sellers' knowledge", shall be
based upon the books and records of Sellers and any verbal communications
received by the principal officers of Sellers from any outside third party or
employee of Sellers.
5. PURCHASER'S REPRESENTATIONS AND WARRANTIES. Purchaser hereby
represents and warrants to Sellers that all necessary and appropriate action has
been taken by Purchaser with respect to the execution and delivery of this
Agreement and the performance by Purchaser of its obligations hereunder, that
this Agreement has been duly authorized, executed and delivered by Purchaser and
that this Agreement constitutes the valid and binding obligation of Purchaser in
accordance with its terms and the consummation of the transactions contemplated
by this Agreement shall not conflict with any applicable, federal, state or
local
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law, rule, regulation, writ, decree or order to which any Purchaser is a party
and shall not conflict with or violate any term, provision or covenant of any
indenture, contract, agreement, instrument or judgment applicable to Purchaser.
6. CONDITIONS TO OBLIGATION OF PURCHASER TO CLOSE. The obligations to be
performed by Purchaser under this Agreement prior to and at Closing, and (except
for those obligations set forth in Section 9 below) shall be subject to the
satisfaction at or prior to Closing of the following conditions:
a. REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Sellers shall have been true and correct in all material respects when
made, and shall be true and correct in all material respects at and as of
Closing as though such representations and warranties were made on and as of
such date.
b. PERFORMANCE OF AGREEMENT. All covenants, conditions and other
obligations under this Agreement which are to be performed or complied with by
the Sellers, at or prior to the Closing shall have been fully performed and
complied with.
c. NO ADVERSE PROCEEDINGS. No suit or proceeding shall have been
commenced by any party seeking to enjoin or prohibit the consummation of the
transactions contemplated hereby, which suit or proceeding shall not have been
successfully defended or dismissed with prejudice as of the Closing date.
d. DISSENTERS' RIGHTS. Holders of no more than five percent (5%) of
the validly issued, fully assessed and
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outstanding shares of common stock of Sellers shall have elected to exercise
dissenters, rights with respect to the transaction contemplated by this
Agreement.
e. NO MATERIAL ADVERSE CHANGE. There shall have been no material
adverse changes in the operations or financial condition of Sellers since the
execution of this Agreement, including, without limitation thereto, with respect
to the portfolio comprising Accruing Assets or the appropriate level of reserved
deposits held with respect to such Accruing Assets.
f. DELIVERY OF CERTAIN ITEMS. The Sellers shall have delivered
to Purchaser the following items:
(1) An Assignment and Assumption Agreement in form acceptable to
Purchaser and Sellers;
(2) Delivery of all promissory notes, if any, constituting the
Accruing Assets endorsed to the order of Purchaser without recourse;
(3) UCC-3 Financing Statements assigning Sellers' UCC-1 Financing
Statements in the receivables comprising the Accruing Assets to Purchaser;
(4) originals of each of the contracts and loan documents
underlying the Accruing Assets which shall be delivered to Purchaser's
representative in the State of North Carolina.
(5) A Bill of Sale and Assignment conveying Sellers' interests in
the Fixed Assets and Intangible Assets in form acceptable to Purchaser and
Sellers, a separate federal
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assignment regarding the matters set forth in Schedule "B", and a separate
assignment of Sellers' lock-box account at First Union National Bank in
Charlotte, North Carolina.
(6) The mutual estoppel statement described in Section 3(b).
(7) An opinion from Sellers' counsel opining as to the following
matters:
(a) authorization of the Sellers to execute this Agreement and
to complete the transactions contemplated thereunder (the "Transaction");
(b) validity and enforceability of this Agreement and all
other documents to be executed by Sellers in connection with the Transaction;
(c) good standing and qualification of Sellers in the states
of Florida and South Carolina;
(d) reasoned usury opinion regarding the choice of law
provisions set forth in the underlying documents and contracts comprising the
Accruing Assets.
g. MATTERS REGARDING SELLERS' AFFILIATES. The Purchaser shall have
satisfied itself as to matters regarding those affiliates and subsidiaries of
the Sellers who now own or previously owned any of the Accruing Assets,
including, without limitation, TFA Funding, Inc. and Genesis TFA Funding, Inc.
In addition, Purchaser shall have satisfied itself as to the title to those
Accruing Assets now or previously owned by such affiliates or subsidiaries and
any prior or contemplated assignment of any of
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such Accruing Assets and UCC-1 Financing Statements from such affiliates or
subsidiaries of Sellers. If requested by Purchaser, such parties shall be added
as parties to this Agreement by addendum to enable Purchaser to take direct
assignments and transfers of any of such Accruing Assets from such affiliates or
subsidiaries.
7. CONDITIONS TO OBLIGATION OF SELLERS TO CLOSE. The obligations of the
Sellers to be performed under this Agreement prior to and at Closing shall be
subject to satisfaction at or prior to Closing of the following conditions:
a. REPRESENTATIONS AND WARRANTIES. Purchaser's representations
and warranties set forth in this Agreement shall have been true and correct in
all material respects when made, and shall be true and correct in all material
respects at and as of the Closing as though such representations and warranties
were made on and as of such date.
b. PERFORMANCE OF AGREEMENT. All covenants, conditions and other
obligations of this Agreement which are to be performed or complied with by
Purchaser, at or prior to Closing shall have been fully performed and complied
with.
c. DELIVERY OF CERTAIN ITEMS. Purchaser shall deliver to the Sellers
the Purchase Price in accordance with Paragraph 3 of this Agreement, and the
documents reflected in subparagraph 6(f)(1) and (5).
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d. LENDER CONSENTS AND ESTOPPELS. Consents and estoppels from
Sellers, lenders identified in schedule "C" in form satisfactory to Sellers and
Purchaser.
e. OPINION OF COUNSEL. Opinion of Purchaser's counsel opining as to
the following matters:
(1) authorization of the Purchaser to execute this Agreement and
to complete the Transaction contemplated hereunder;
(2) validity and enforceability of this Agreement and all of the
documents to be executed by Sellers in connection with the Transaction;
(3) good standing and qualification of Purchaser.
8. CLOSING. The closing of the transactions contemplated by this
Agreement ("Closing") shall occur at such place and time as the parties may
agree, provided, however, that the Closing shall have occurred by 5:00 p.m.
eastern daylight time, on August 9, 1996. The term "Closing" as used in this
Agreement shall also refer to the date of Closing. TIME IS OF THE ESSENCE TO
THIS AGREEMENT. Each party shall bear his own expenses in connection with the
transaction contemplated by this agreement, provided that purchaser shall bear
the cost of recording or filing any document to be delivered by sellers to
purchaser at closing.
9. CONFIDENTIALITY. All information furnished by Sellers to Purchaser
under this Agreement shall be treated as confidential and Purchaser shall take
normal and reasonable
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precautions to preserve the confidentiality of such information until the
Closing of this Agreement and, if this Agreement is terminated, Purchaser shall
return to Sellers all documents and other materials containing, reflecting or
referring to such information. Purchaser's obligation hereunder shall not apply
to any information which (i) was already in its possession prior to the
disclosure thereof by Sellers, (ii) was already in its possession prior to the
disclosure thereof by Sellers and as may hereafter be disclosed and required by
Purchaser to be disclosed in connection with that certain Loan and Security
Agreement entered into between Sellers and Purchaser dated December 18, 1995 as
same may be modified, extended or amended from time to time and that certain
Loan and Security Agreement entered into between TFA Funding, Inc. and Purchaser
dated December 18, 1995 as same may be modified, extended or amended from time
to time including any other loan documentation and guaranties executed in
connection with either of said loans, (iii) was then generally known to the
public (iv) became known to the public through no fault of Purchaser or any of
its agents or representatives, (v) was disclosed to Purchaser by a third party
unaffiliated with Purchaser who was not bound by an obligation of
confidentiality to Sellers. Notwithstanding the foregoing, Purchaser may
disclose such information as Purchaser, its underwriters and/or its outside
counsel may deem appropriate or necessary to disclose in connection with
applicable law including Purchaser's Registration Statement filed with the
Securities and Exchange commission as same may be
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amended, from time to time and any notice or application to any regulatory
authority which Purchaser may make regarding the acquisition, subject to advance
notification to Sellers. The terms and provisions of paragraph 2 of that certain
letter dated April 24, 1996 by and between Sellers and Purchaser shall continue
in full force and effect in the event the Closing does not occur.
10. BROKERAGE. Sellers and Purchaser hereby represent and warrant to each
other that there are no brokerage commissions, finders fees or other like
payments due any party in connection with the transaction contemplated by this
Agreement, as a result of any action taken by Sellers or by Purchaser, except
that Sellers have engaged Westwood Capital, LLC ("Westwood") to act as Sellers
exclusive financial advisor and exclusive agent in connection with the
transaction contemplated by this Agreement, and Sellers shall hold Purchaser
harmless from and against any claim, fee, or expense asserted by Westwood
against Purchaser in connection with the consummation of the transaction
contemplated by this Agreement.
11. EMPLOYEES OF SELLERS. Purchaser shall be free to determine which, if
any, personnel of Sellers it would desire to retain and which key personnel it
would elect to offer employment contracts to, and Sellers shall cooperate with
Purchaser in implementing Purchaser's decisions regarding such retention and
hiring. Notwithstanding the foregoing, it is understood and agreed that
Purchaser's and Sellers, obligations to consummate the transactions contemplated
under this Agreement are expressly
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conditioned upon Purchaser reaching a satisfactory written employment agreement
with Austin Stubblefield. Effective as of the Closing, Austin Stubblefield
shall resign as President of each Seller.
12. INDEMNIFICATION REGARDING EXCLUDED ASSETS:
a. OBLIGATION TO INDEMNIFY. The Sellers hereby jointly and severally
indemnify and hold harmless the Purchaser, and its officers and directors from
and against any and all losses, damages, deficiencies, settlements, assessments,
charges, costs and expenses (including without limitation, reasonable attorneys'
fees, paralegals' fees, investigation expenses, court costs, interest and
penalties) arising out of or in connection with, or caused by, directly or
indirectly, any litigation, pending or threatened, regarding any of the Excluded
Assets (the "Proceeding").
b. DEFENSE OF ACTIONS. The Sellers shall be solely responsible, at
its expense, for litigating, defending or otherwise attempting to resolve any
Proceeding against which the Purchaser is indemnified under this provision,
except that: (i) the Purchaser shall have the right to participate in the
defense of any such Proceeding at the Purchaser's expense and through counsel of
the Purchaser's choice; and (ii) the Sellers shall not agree to any settlement
without the Purchaser's express prior written consent which shall not be
unreasonably withheld.
c. NOTICES AND PAYMENTS. With respect to each separate matter or
series of matters against which the Purchaser is indemnified hereunder:
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(1) Upon the Purchaser's receipt of written documents pertaining
to the Proceeding underlying such matter or series of matters, or, if such
matter or series of matters does not involve a third party demand claim, after
the Purchaser's first learning of such matter or series of matters and the
amount demanded or claimed in connection therewith, the Purchaser shall give
notice to the Sellers of such documents and information as it shall have so
received.
(2) After a final agreement is reached or a final judgment is
rendered with respect to such matter or series of matters or the amount owing by
the Sellers pursuant to this provision as a result of such matter or series of
matters, is otherwise determinable in whole or in part, the Purchaser shall give
notice to the Sellers of the amount owing by the Sellers ("Indemnification
Amount") with respect to such matter or series of matters ("Indemnification
Payment Notice") and the Sellers shall make payment of the indemnification
Amount within five (5) days of the receipt of the Indemnification Payment
Notice.
d. OTHER RIGHTS AND REMEDIES NOT AFFECTED. The indemnification
rights of the Purchaser under this provision are independent of and in addition
to such rights and remedies as the Purchaser may have at law or in equity or
otherwise for any misrepresentations, breach of warranty or failure to fulfill
any agreement or covenant hereunder on the part of any party hereto.
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13. MISCELLANEOUS PROVISIONS.
a. NOTICES. All notices, requests, demands and other communications
required or permitted under this Agreement shall be deemed to have been duly
given and made if in writing and served either by personal delivery or to the
party for whom it is intended or by being deposited, postage prepaid, certified
or registered mail, return receipt requested (or such form of mail as may be
substituted therefore by postal authorities), in the United States mail, bearing
the address shown in this Agreement for, or such other address as may be
designated in writing hereafter by such party:
If to any Seller:
TempFunds America, Inc.
TempFunds America Funding Corporation of South Carolina, Inc.
7406 S.W. 48th Street
Miami, Florida 33155
Attention: Austin Stubblefield
With Copy to:
Frank M. Mock, Esquire
Baker & Hostetler
200 South Orange Avenue
SunTrust Center, Ste. 2300
Orlando, Florida 32801
If to Purchaser:
Capital Factors, Inc.
Capital Square Building
1799 West Oakland Park Blvd.
Ft. Lauderdale, FL 33311
Attention: John W. Kiefer
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With Copy to:
Michael G. Levine, Esq.
Sr. Vice President
Capital Square Building
1799 West Oakland Park Blvd.
Ft. Lauderdale, Florida 33311
Each party shall immediately notify the other party of any change of address.
b. ENTIRE AGREEMENT. This Agreement and the exhibits and schedules
referred to herein embody the entire agreement and understanding of the parties
hereto with respect to the subject matter hereof, and supersede all prior and
contemporaneous agreements and understanding with respect thereto, including the
Letter of Intent.
c. BINDING EFFECT; ASSIGNMENT. This Agreement and the various rights
and obligations arising hereunder shall inure to the benefit of and be binding
upon Purchaser, its legal representatives, successors and permitted assign, and
each Seller, its respective legal representative, successor and permitted
assigns. Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be transferred or assigned (by operation of law or otherwise) by
any of the parties hereto without the prior written consent of other party or
parties (which consent shall not be unreasonably withheld or delayed) except
that Purchaser may assign this Agreement and any of the rights, interests or
obligations hereunder to a subsidiary of the Purchaser or subsidiary of
Purchaser's parent or affiliate so long as Purchaser continues to be primarily
obligated for the obligations
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of the purchaser under this Agreement, including those obligations which survive
Closing.
d. NO THIRD PARTY BENEFICIARY. Subject to the preceding paragraph,
nothing herein, express or implied, is intended or shall be construed to confer
upon or give to any person, firm, corporation or legal entity, other than the
parties hereto, any rights, remedies or other benefits under or by reason of
this Agreement.
e. COUNTERPARTS. This Agreement may be executed simultaneously in
identical counterparts, each of which shall be deemed an original but all of
which taken together shall constitute one and the same instrument.
f. CAPTIONS. The section headings and other captions in this
Agreement and the exhibits hereto are inserted for convenience only and shall
not constitute a part of this Agreement in construing or interpreting any
provision hereof.
g. WAIVER; CONSENT. This Agreement may not be changed, amended,
terminated, augmented, rescinded or discharged (other than in accordance with
its terms), in whole or in part, except by writing executed by the parties
hereto, and no waiver of any of the provisions or conditions of this Agreement
or any of the rights of a party hereto shall be effective or binding unless such
waiver shall be in writing and signed by the party claiming to have given or
consented thereto. Except to the extent that a party hereto may otherwise agree
in writing, no waiver by that party of any condition of this Agreement, or
breach by the other party of
23
<PAGE>
any of his or its obligations or representations hereunder shall be deemed to be
a waiver of any other condition or subsequent breach of the same or any other
obligation or representation by the other party or parties, nor shall any
forbearance by the first party or parties to seek a remedy for any noncompliance
or breach by the other party be deemed to be a waiver by the first party or
parties of his, its or their rights and remedies with respect to such
noncompliance or breach.
h. OTHER AND FURTHER COVENANTS. The parties shall, in good faith,
execute such other and further instruments, assignments or documents as may be
necessary for the consummation of the transactions contemplated by this
Agreement. Without limiting the generality of the foregoing, each party hereto
shall assist and cooperate with each and every other party in connection with
these activities. During the period from the date of this Agreement to the
Closing, Sellers shall afford Purchaser's representatives free access to
Sellers, offices, records, files and books of account, and shall allow the
Purchaser and its representatives to make copies of the same at Purchaser's
expense, provided that Purchaser's review and use of any such items shall not
unreasonably interfere with Sellers' normal operations. In addition, the
officers and employees of Sellers shall be available to meet with' the Purchaser
and its representatives during such period, and to provide information to
Purchaser and its representatives.
24
<PAGE>
i. GOVERNING LAW. This Agreement shall in all respects be construed
in accordance with and governed by the laws of the State of Florida.
j. ATTORNEY'S FEES. In the event of any litigation arising out of the
transactions contemplated herein, the cost of litigation and reasonable
attorney's fees or paralegals fees of the prevailing party (whether or not suit
be brought, incurred at or before trial, on appeal or in bankruptcy) shall be
paid by the losing party.
k. SURVIVAL. The representations and warranties of Sellers and
Purchaser shall survive the Closing for a period of three (3) years.
1. SCHEDULES "A" THROUGH "A-3". Schedule "A" has been prepared on an
unaudited basis as of July 26, 1996. Schedules "A-1" through "A-3" have been
prepared as of July 31, 1996 and shall be updated through Closing.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
Signed, sealed and delivered TEMPFUNDS AMERICA, INC.
in the presence of:
/s/ SABINA MOHAMED BY: /s/ D. AUSTIN STUBBLEFIELD
- ---------------------------- ---------------------------
/s/ JAMES ROTHMAN Title: President
- ---------------------------- ------------------------
25
<PAGE>
TEMPFUNDS AMERICA FUNDING
CORPORATION OF SOUTH CAROLINA, INC.
/s/ SABINA MOHAMED By: /s/ AUSTIN STUBBLEFIELD
- --------------------------- ----------------------------
/s/ NEIL NEUSCHATZ Title: President
- --------------------------- -------------------------
CAPITAL FACTORS, INC.
/s/ MICHAEL LEVINE BY: /s/ JOHN W. KIEFER
- -------------------------- ----------------------------
/s/ ANDREA J. LUTFEY Title: President
- -------------------------- ------------------------
26
<PAGE>
ADDENDUM TO PURCHASE AGREEMENT
This Addendum to Purchase Agreement is entered into as of this 31st day of
July, 1996, by and among TEMPFUNDS AMERICA, INC., a Florida corporation and
TEMPFUNDS AMERICA FUNDING CORPORATION OF SOUTH CAROLINA, INC., a South Carolina
corporation ("Sellers") and CAPITAL FACTORS, INC., a Florida corporation
("Purchaser").
WITNESSETH:
WHEREAS, Sellers and Purchaser entered into that certain Purchase Agreement
(the "Agreement") dated July 31, 1996; and
WHEREAS, Sellers and Purchaser desire to add this addendum to the
Agreement.
NOW, THEREFORE, Sellers and Purchaser, for good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged by all parties, do
hereby agree to amend and modify the Agreement as set forth herein.
1. A paragraph 14 is added to the Agreement as follows:
14. ALLOCATION OF LITIGATION, COSTS, DAMAGES OR OFFSETS/PURCHASER RIGHT OF
OFFSET.
(a) Sellers and Purchaser hereby agree that in the event that Purchaser
initiates a collection or enforcement action against a customer or client with
respect to the Accruing Assets ("Purchaser Action") and the customer or client
raises a counterclaim or defense to the Purchaser Action, or in the event that a
customer or client with respect to such Accruing Assets initiates an action
against Purchaser or Purchaser and Sellers seeking damages or seeking to limit
such client or customer's liability with respect to the Accruing Assets, or
challenges the enforceability or collectibility of such Accruing Assets
("Customer Action"), the parties shall allocate the legal fees, costs and any
damages or offsets thereof as follows:
(1) In the event that a court of competent jurisdiction renders a
final non-appealable judgment ("Final Ruling"), pursuant to which such court
has determined that Sellers and Purchaser have no liability with respect to such
Customer Action, or such customer has no right of offset by virtue of such
defense or counterclaim in connection with a Purchaser Action, then Sellers and
Purchaser shall each bear their respective costs and attorneys' fees.
1
<PAGE>
(2) In the event that the court determines that one-hundred percent
(100%) of the damages or offset as set forth in the Final Ruling is allocated
against either Sellers or Purchaser, the responsible party shall bear all costs
and attorneys' fees of both Sellers and Purchaser in connection with the
prosecution of the Purchaser Action or the defense of such counterclaim or
defense raised by such customer or client.
(3) In the event that the court allocates responsibility between
Sellers and Purchaser for the damages or offset set forth in the Final Ruling,
the total attorneys' fees and costs of Sellers and Purchaser and the amount of
such damages or offset shall be allocated in accordance with such allocation
determined by the court. For example, if the court determines that Sellers are
forty percent (40%) responsible for such damages or offset and Purchaser is
sixty percent (60%) responsible for such liability or offset, and the total
attorneys' fees of Sellers and Purchaser are $100,000.00, evidencing the sum of
Sellers' attorneys' fees of $25,000.00 and Purchaser's attorneys' fees of
$75,000.00, Sellers shall pay to Purchaser $15,000.00 in reimbursement of
Purchaser's attorneys, fees and costs.
(4) Reference to customer or client with respect to any Accruing
Asset shall be deemed to include any guarantor of the obligations of such client
or customer.
(b) For purposes of implementing the foregoing allocations and to secure
Sellers, performance of its obligations hereunder, the parties further agree as
follows:
(1) Sellers agree to submit to jurisdiction in any court, federal or
state, in which the Purchaser Action is commenced or the Customer Action is
commenced.
(2) The parties shall seek to obtain the court's determination of
allocation of responsibility for damages or offset set forth in the Final Ruling
within the Purchaser Action or Customer Action and not by separate judicial
proceeding. If the court will not render a determination regarding allocation of
responsibility, Purchaser and Sellers shall submit the allocation of
responsibility for damages or offset as set forth in the Final Ruling to
arbitration in accordance with the American Arbitration Association Rules, such
arbitration to be held in Broward County, State of Florida or Mecklenburg
County, State of North Carolina, as determined by Purchaser.
(3) Purchaser shall have the right to offset any sums due and owing
to it from Sellers for attorneys' fees and costs hereunder, as well as the
amount of any damages or offset set forth
2
<PAGE>
in the Final Ruling to the extent of the allocation of Sellers' responsibility
determined by the court or pursuant to the proceeding against the
sums due and owing to Sellers under subparagraphs 3(b)(1)(2) or (3) of the
Agreement.
(4) Sellers and Purchaser agree to seek to impose upon the customer
or client in any Purchaser Action or Customer Action an award of the attorneys,
fees of Sellers and Purchaser incurred in connection therewith and any such sums
recovered by Sellers or Purchaser shall reduce the aggregate legal fees and
costs of Sellers and Purchaser to be allocated between Sellers and Purchaser as
set forth in subparagraph, (a)(3), above.
(5) The right of offset referenced in subparagraph (b)(3) above
shall be independent of and in addition to any other rights and remedies that
Purchaser may have at law or in equity under the Agreement; provided, however,
that any sums recoverable by Purchaser pursuant to any such additional right or
remedy shall be reduced by the amount of any offset by Purchaser under this
paragraph 14.
2. Except as modified hereby, the Agreement shall remain in full
force and effect.
3. This Addendum may be executed in any one or more counterparts,
each of which shall be deemed to constitute an original of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Addendum to Purchase
Agreement as of the day and year first above written.
Signed, sealed and delivered TEMPFUNDS AMERICA, INC.
in the presence of:
/s/ SABINA MOHAMED BY: /s/ D. AUSTIN STUBBLEFIELD
- ------------------------------- --------------------------
/s/ NEIL NEUSCHATZ Title: President
- ------------------------------- ----------------------
TEMPFUNDS AMERICA FUNDING
CORPORATION OF SOUTH CAROLINA,
INC.
/s/ MICHAEL LEVINE By: /s/ JOHN W. KIEFER
- ------------------------------ -------------------------
/s/ ANDREA J. LUTFEY Title: President
- ------------------------------ -----------------------
3
<PAGE>
CAPITAL FACTORS, INC.
/s/ ELLOMA REID BY: /s/ DENNIS A. MCDERMOTT
- ----------------------------- --------------------------
/s/ CHRISTINA CHALKLEY Title: Senior Vice President
- ----------------------------- ----------------------
4
EXHIBIT 10.25
AMENDMENT TO PURCHASE AGREEMENT
THIS AMENDMENT, dated as of September 9, 1996, is entered into by and
between TEMPFUNDS AMERICA, INC., a Florida corporation, TEMPFUNDS AMERICA
FUNDING CORPORATION OF SOUTH CAROLINA, INC., a South Carolina corporation
(herein collectively called "Sellers") and CAPITAL FACTORS, INC., a Florida
corporation (herein called "Purchaser").
R E C I T A L S:
a) Sellers and Purchaser are parties to a Purchase Agreement dated July 31,
1996 and an Addendum to the Purchase Agreement dated July 31, 1996 (the Purchase
Agreement as supplemented by the Addendum shall hereinafter collectively be
referred to as the "Purchase Agreement").
b) Sellers and Purchaser have agreed to certain modifications
of the Purchase Agreement as set forth herein.
AGREEMENT
IN CONSIDERATION of the above recitals and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. Each of the terms defined in the Purchase Agreement unless otherwise
defined herein, shall have the same meaning when used herein.
2. Sellers and Purchaser have agreed that the re-calculation of the amount
of the actual payments due as of the Closing and a mutual estoppel statement
setting forth the outstanding balance of loans and factored accounts by Sellers
to Original Clients as of the Closing and the annualized gross revenues received
by Sellers for the three months immediately prior to August 1, 1996, all or
which was to be made no later than thirty (30) days from the date of Closing (on
September 9, 1996) pursuant to paragaraph 3 of the Purchase Agreement, was not
made by mutual agreement of Sellers and Purchaser. Sellers and Purchaser hereby
mutually agree to extend the performance of the above-referenced re-calculation
and preparation of the above-referenced mutual estoppel statement to a later
date which in no event shall be later than September 30, 1996.
3. Upon the effectiveness of this Amendment, each reference in the Purchase
Agreement to the "Agreement", "hereunder", "herein", "hereof", or words of like
import referring to the Purchase Agreement, shall mean and be a reference to the
Purchase Agreement as amended by this Amendment.
<PAGE>
4. This Amendment shall be deemed to be a contract under and subject to and
shall be construed for all purposes and in accordance with the laws of the State
of Florida.
5. This Amendment may be executed in two or more counterparts, each of
which shall be deemed an original and all of which together shall constitute one
and the same instrument.
IN WITNESS WHEREOF, the parties have executed and delivered this Amendment
which shall be effective on the date first set forth above.
"SELLERS"
Witnesses: TEMPFUNDS AMERICA, INC.,
a Florida corporation
/s/ L. RODRIQUEZ By: /s/ TOM HUSTON JR.
- -------------------------------- ----------------------------
Tom Huston, President
- -------------------------------
TEMPFUNDS AMERICA FUNDING
CORPORATION OF SOUTH CAROLINA,
INC., a South Carolina corporation
/s/ L. RODRIQUEZ By: /s/ TOM HUSTON JR.
- -------------------------------- ----------------------------
Tom Huston, President
- --------------------------------
"PURCHASER"
CAPITAL FACTORS, INC.,
a Florida corporation
/s/ ELLOMA REID By: /s/ DENNIS A. MCDERMOTT
- -------------------------------- -----------------------------
/s/ CHRISTINA CHALKLEY Dennis A. McDermott
- -------------------------------- Senior Vice President
2
EXHIBIT 10.26
SECOND AMENDMENT TO PURCHASE AGREEMENT
THIS SECOND AMENDMENT, dated as of September 30, 1996, is entered into by
and between TEMPFUNDS AMERICA, INC., a Florida corporation, TEMPFUNDS AMERICA
FUNDING CORPORATION OF SOUTH CAROLINA, INC., a South Carolina corporation
(herein collectively called "Sellers") and CAPITAL FACTORS, INC., a Florida
corporation (herein called "Purchaser").
R E C I T A L S:
a) Sellers and Purchaser are parties to a Purchase Agreement dated July 31,
1996, an Addendum to the Purchase Agreement dated July 31, 1996 and an Amendment
to the Purchase Agreement dated September 9, 1996 (the Purchase Agreement as
supplemented by the Addendum and amended by the Amendment shall hereinafter
collectively be referred to as the "Purchase Agreement").
b) Sellers and Purchaser have agreed to certain modifications of the
Purchase Agreement as set forth herein.
AGREEMENT
IN CONSIDERATION of the above recitals and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. Each of the terms defined in the Purchase Agreement unless otherwise
defined herein, shall have the same meaning when used herein.
2. Sellers and Purchaser have agreed that the re-calculation of the amount
of the actual payments due as of the Closing and a mutual estoppel statement
setting forth the outstanding balance of loans and factored accounts by Sellers
to Original Clients as of the Closing and the annualized gross revenues received
by Sellers for the three months immediately prior to August 1, 1996, all or
which was to be made no later than September 30, 1996 pursuant to the Purchase
Agreement, was not made by mutual agreement of Sellers and Purchaser. Sellers
and Purchaser hereby mutually agree to extend the performance of the
above-referenced re-calculation and preparation of the above-referenced mutual
estoppel statement to a later date which in no event shall be later than October
15, 1996.
3. Upon the effectiveness of this Second Amendment, each reference in the
Purchase Agreement to the "Agreement", "hereunder", "herein", "hereof", or words
of like import referring to the Purchase Agreement, shall mean and be a
reference to the Purchase Agreement as amended by this Second Amendment.
<PAGE>
4. This Second Amendment shall be deemed to be a contract under and subject
to and shall be construed for all purposes and in accordance with the laws of
the State of Florida.
5. This Second Amendment may be executed in two or more counterparts, each
of which shall be deemed an original and all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties have executed and delivered this Second
Amendment which shall be effective on the date first set forth above.
"SELLERS"
Witnesses: TEMPFUNDS AMERICA, INC.,
a Florida corporation
/s/ SABINA MOHAMED By: /s/ TOM HUSTON JR.
- -------------------------------- -------------------------------
Tom Huston, President
/s/ PAT RUSSO
- --------------------------------
TEMPFUNDS AMERICA FUNDING
CORPORATION OF SOUTH CAROLINA,
INC., a South Carolina corporation
/s/ SABINA MOHAMED By: /s/ TOM HUSTON
- -------------------------------- -------------------------------
Tom Huston, President
/s/ PAT RUSSO
- --------------------------------
"PURCHASER"
CAPITAL FACTORS, INC.,
a Florida corporation
/s/ ELLOMA REID By: /s/ DENNIS A. MCDERMOTT
- -------------------------------- -------------------------------
/s/ PAT MARCH Dennis A. McDermott
- -------------------------------- Senior Vice President
2
EXHIBIT 10.27
THIRD AMENDMENT TO PURCHASE AGREEMENT
THIS THIRD AMENDMENT, dated as of February 28, 1997, is entered into by and
between TEMPFUNDS AMERICA, INC., a Florida corporation, TEMPFUNDS AMERICA
FUNDING CORPORATION OF SOUTH CAROLINA, INC., a South Carolina corporation
(herein collectively called "Sellers") and CAPITAL FACTORS, INC., a Florida
corporation (herein called "Purchaser").
R E C I T A L S:
a) Sellers and Purchaser are parties to a Purchase Agreement dated July 31,
1996, an Addendum to the Purchase Agreement dated July 31, 1996, an Amendment to
the Purchase Agreement dated September 9, 1996 and a Second Amendment to the
Purchase Agreement dated September 30, 1996 (the Purchase Agreement as
supplemented by the Addendum and amended by the Amendment and the Second
Amendment shall hereinafter collectively be referred to as the "Purchase
Agreement").
b) Sellers and Purchaser have agreed to certain modifications of the
Purchase Agreement as set forth herein.
AGREEMENT
IN CONSIDERATION of the above recitals and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. Each of the terms defined in the Purchase Agreement unless otherwise
defined herein, shall have the same meaning when used herein.
2. On October 15, 1996, in accordance with the terms and conditions of the
Purchase Agreement, Sellers and Purchaser held a meeting and agreed upon the
re-calculation of the amount of the actual payments due as of the Closing and a
mutual estoppel statement setting forth the outstanding balance of loans and
factored accounts by Sellers to Original Clients as of the Closing and the
annualized gross revenues received by Sellers for the three months immediately
prior to August 1, 1996. The above-referenced meeting and agreed upon
re-calculation and mutual estoppel statement is evidenced by a letter from
Purchaser to Sellers dated November 4, 1996 (the "Estoppel Letter"), a copy of
which is attached hereto as Exhibit "A".
3. Based upon the information and calculations set forth in the Estoppel
Letter, Sellers and Purchaser agreed that Purchaser was due $300,400.62 from
Sellers as
<PAGE>
of August 9, 1996 and that interest on said amount would continue to accrue at
Purchaser's cost-of-funds rate in effect on August 9, 1996 at 7.1735% commencing
August 10, 1996 (the $300,400.62 due Purchaser from Sellers as of August 9, 1996
or any outstanding and unpaid portion thereof plus any accrued interest thereon
at Purchaser's cost-of-funds rate in effect on August 10, 1996 until fully paid
by Sellers shall hereinafter collectively be referred to as the "Outstanding
Closing Settlement Amount").
4. A new paragraph 3c. is hereby added to the Purchase Agreement to read as
follows:
"Notwithstanding anything contained herein to the contrary, any deferred
payments to be made to Sellers by Purchaser pursuant to this Agreement
shall be reduced and offset by Purchaser by any sum due Purchaser which
constitutes the Outstanding Closing Settlement Amount until fully paid by
Sellers."
5. Paragraph 13a. of the Purchase Agreement is hereby amended to reflect
that all notices, requests, demands and other communications required or
permitted under the Purchase Agreement to any Seller should be addressed as
follows:
If to any Seller: TempFunds America, Inc.
TempFunds America Funding Corporation of
South Carolina, Inc.
1001 Manati Avenue
Coral Gables, Florida 33146
Attn: Tom Huston Jr., President
With Copy to: Frank M. Mock, Esquire
Baker & Hostetler
200 South Orange Avenue
SunTrust Center, Ste. 2300
Orlando, Florida 32801
6. Upon the effectiveness of this Third Amendment, each reference in the
Purchase Agreement to the "Agreement", "hereunder", "herein", "hereof", or words
of like import referring to the Purchase Agreement, shall mean and be a
reference to the Purchase Agreement as amended by this Third Amendment.
7. This Third Amendment shall be deemed to be a contract under and subject
to and shall be construed for all purposes and in accordance with the laws of
the State of Florida.
2
<PAGE>
8. This Third Amendment may be executed in two or more counterparts, each
of which shall be deemed an original and all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties have executed and delivered this Third
Amendment which shall be effective on the date first set forth above.
"SELLERS"
Witnesses: TEMPFUNDS AMERICA, INC.,
a Florida corporation
/s/ PAT RUSSO By: /s/ TOM HUSTON JR.
- -------------------------------- ----------------------------
Tom Huston, Jr., President
/s/ SABINA MOHAMED
- --------------------------------
- --------------------------------
TEMPFUNDS AMERICA FUNDING
CORPORATION OF SOUTH CAROLINA,
INC., a South Carolina corporation
/s/ PAT RUSSO By: /s/ TOM HUSTON JR.
- -------------------------------- ----------------------------
Tom Huston, Jr., President
/s/ SABINA MOHAMED
- --------------------------------
"PURCHASER"
CAPITAL FACTORS, INC.,
a Florida corporation
/s/ MICHELLE BURLESON By: /s/ JOHN W. KIEFER
- -------------------------------- ----------------------------
John W. Kiefer
/s/ CAROL CAPELLAN President
- --------------------------------
3
Exhibit 11.1
CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
CALCULATION OF EARNINGS PER SHARE
Primary 1996 1995 1994
- ------- ----------- ---------- ----------
Weighted average number of
common shares outstanding 11,044,809 10,000,000 10,000,000
Common equivalent shares
outstanding - options 0 0 0
----------- ---------- ----------
Total common and common equivalent
shares outstanding 11,044,809 10,000,000 10,000,000
=========== ========== ==========
Net income 11,115,224 8,693,097 6,092,096
----------- ---------- ----------
Primary earnings per share $ 1.01 $ 0.87 $ 0.61
=========== ========== ==========
Fully diluted
- -------------
Weighted average number of
common shares outstanding 11,044,809 10,000,000 10,000,000
Common equivalent shares
outstanding - options 183,200 0 0
----------- ---------- ----------
Total common and common equivalent
shares outstanding 11,228,009 10,000,000 10,000,000
=========== ========== ==========
Net income 11,115,224 8,693,097 6,092,096
----------- ---------- ----------
Fully diluted earnings per share $ 0.99 $ 0.87 $ 0.61
=========== ========== ==========
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
1. Capital Factors, Inc. (subsidiary of Capital Factors Holding, Inc.),
incorporated in the State of Florida, doing business under the name of
Capital Factors, Inc. (Florida) and CB Factors, Inc. (California), and
Capital Factors Northeast, Inc. (New York).
2. CF One, Inc. (subsidiary of Capital Factors Holding, Inc.) incorporated in
the State of Delaware, doing business under the name of Capital Factors
One, Inc.
3. CF Funding Corp. (subsidiary of Capital Factors, Inc.) incorporated in the
State of Delaware, doing business under the name of Capital Factors Funding
Corp.
4. Capital TempFunds, Inc. (subsidiary of Capital Factors, Inc.) incorporated
in the State of North Carolina, doing business under the name of TempFunds
America.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 34,663,737
<SECURITIES> 0
<RECEIVABLES> 488,541,291
<ALLOWANCES> (2,993,534)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,095,157
<DEPRECIATION> 614,395
<TOTAL-ASSETS> 530,567,323
<CURRENT-LIABILITIES> 0
<BONDS> 271,031,000
0
0
<COMMON> 123,000
<OTHER-SE> 61,965,459
<TOTAL-LIABILITY-AND-EQUITY> 530,567,323
<SALES> 0
<TOTAL-REVENUES> 66,708,324
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 23,516,195
<LOSS-PROVISION> 3,750,000
<INTEREST-EXPENSE> 20,402,949
<INCOME-PRETAX> 19,039,180
<INCOME-TAX> 7,923,956
<INCOME-CONTINUING> 11,115,224
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,115,224
<EPS-PRIMARY> 1.01
<EPS-DILUTED> 0.99
</TABLE>
