<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Quarterly Period ended June 30, 1997
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.
------------------------------
(Exact name of Registrant as Specified in its Charter)
FLORIDA 65-0500757
------- ----------
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
120 EAST PALMETTO PARK ROAD, SUITE 500, BOCA RATON, FLORIDA 33432
---------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(561) 346-3511
--------------
(Registrant's Telephone Number, Including Area Code)
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.
X Yes No
----------- ----------
As of August 13, 1997 there were 12,301,600 shares of the registrant's Common
Stock outstanding.
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ITEM 1.
PART I. FINANCIAL INFORMATION
CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------------- ------------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash $30,436,645 $28,101,237
Restricted cash 8,130,000 6,562,500
Receivables 538,900,496 490,977,592
Unearned discounts (2,591,369) (2,436,301)
Allowance for credit losses (3,245,491) (2,993,534)
------------------- ------------------
Receivables, net 533,063,636 485,547,757
Property and equipment, net 4,199,817 3,095,157
Other assets 8,501,691 7,260,672
------------------- ------------------
TOTAL $584,331,789 $530,567,323
=================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Due to affiliates $3,977,251 $ 1,310,304
Capital Factors variable rate asset backed certificates 218,884,515 175,000,000
Note payable to affiliate 73,653,000 70,131,000
Other borrowings 37,200,000 25,900,000
Due to factoring clients 176,529,296 191,488,668
Other liabilities 6,539,718 4,648,892
------------------- ------------------
Total liabilities $516,783,780 $468,478,864
=================== ==================
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value, 25,000,000
shares authorized; 12,300,000 issued and
outstanding at 6/30/97 and 12/31/96 123,000 123,000
Additional paid-in capital 27,151,932 27,151,932
Retained earnings 40,273,077 34,813,527
------------------- ------------------
Total stockholders' equity 67,548,009 62,088,459
------------------- ------------------
TOTAL $584,331,789 $530,567,323
=================== ==================
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 3
CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
---------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
REVENUES
Factoring fees $ 7,053,027 $ 6,118,784 $ 13,877,404 $ 11,643,233
Interest income 10,836,702 8,359,757 20,230,857 16,015,455
Letter of credit and other fees 1,118,953 852,595 2,071,389 1,524,805
Other 603,161 357,699 1,027,963 648 742
---------------- ----------------- ----------------- ----------------
Total revenues 19,611,843 15,688,835 37,207,613 29,832,235
EXPENSES
Interest expense 4,704,882 3,920,749 8,553,259 7,061,860
Interest expense to affiliates 1,337,795 1,003,465 2,803,520 2,418,662
Salaries and benefits 4,666,900 3,411,341 9,172,244 6,662,178
Provision for credit losses 800,000 1,000,000 2,200,000 2,100,000
Occupancy and other office expenses 1,154,809 863,260 2,108,762 1,744,136
Depreciation 215,594 154,194 391,357 307,834
Professional fees 378,365 269,465 680,254 448,504
Other 1,095,338 766,620 2,110,999 1,590,838
---------------- ----------------- ----------------- ----------------
Total expenses 14,353,683 11,389,094 28,020,395 22,334,012
================ ================= ================= ================
INCOME BEFORE INCOME TAXES 5,258,160 4,299,741 9,187,218 7,498,223
PROVISION FOR INCOME TAXES 2,118,554 1,741,625 3,727,668 3,037,063
---------------- ----------------- ----------------- ----------------
NET INCOME $ 3,139,606 $ 2,558,116 $ 5,459,550 $ 4,461,160
================ ================= ================= ================
NET INCOME PER SHARE $ 0.26 $ 0.26 $ 0.44 $ 0.45
================ ================= ================= ================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 1996
---------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 5,459,550 $ 4,461,160
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 391,357 307,834
Deferred income taxes (609,853) (89,129)
Provision for credit losses 2,200,000 2,100,000
Increase in restricted cash (1,567,500) (375,000)
Loss on sale of assets - 11,405
Due to affiliates 2,666,947 (3,354,770)
Other assets (445,447) (759,079)
Other liabilities 1,890,826 447,721
---------------- ----------------
Net cash provided by operating activities 9,985,880 2,750,142
---------------- ----------------
INVESTING ACTIVITIES:
Loan to clients, net (21,273,833) 4,998,592
Increase in asset based loans (17,342,625) (6,072,733)
Net increase in factoring accounts receivable,
net of due to factoring clients (39,669,362) (55,725,875)
Sales of participations 16,825,635 3,312,828
Payments on participations (3,215,066) (1,851,214)
Purchase of property and equipment (1,442,983) (259,548)
Disposal of property and equipment - 9,560
---------------- ----------------
Net cash used in investing activities (66,118,234) (55,588,390)
---------------- ----------------
FINANCING ACTIVITIES:
Issuance of Senior Certificates 43,884,515 -
Restricted proceeds from Senior Certificates - 10,000,000
Proceeds from borrowing 91,036,000 72,543,000
Payments on borrowing (76,214,000) (34,348,000)
Payments of deferred financing costs (703,343) (652,622)
Amortization of deferred costs 464,590 367,169
---------------- ----------------
Net cash provided by financing activities 58,467,762 47,909,547
---------------- ----------------
NET INCREASE (DECREASE) IN CASH 2,335,408 (4,928,701)
CASH, BEGINNING OF PERIOD 28,101,237 20,326,814
---------------- ----------------
CASH, END OF PERIOD $ 30,436,645 $ 15,398,113
================ ================
SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for interest $ 10,788,348 $ 8,728,962
================ ================
Cash payments for income taxes $ 0 $ 6,025,000
================ ================
</TABLE>
See accompanying notes to consolidated financial statements.
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CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
NOTE 1: GENERAL
- ----------------
The accompanying unaudited consolidated financial statements of Capital Factors
Holding, Inc. and Subsidiaries (the "Company") have been prepared on a
consistent basis in conformity with the instructions to Form 10-Q and Article 10
of Regulation S-X and therefore do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the financial statements
reflect all adjustments (principally consisting of normal, recurring accruals)
necessary to present fairly the financial condition of the Company as of June
30, 1997 and December 31, 1996, the results of its operations for the three and
six month periods ended June 30, 1997 and 1996 and its cash flows for the six
months ended June 30, 1997 and 1996. All significant inter-company transactions
and balances have been eliminated. The statements are unaudited except for the
Consolidated Statements of Condition as of December 31, 1996.
The accounting policies followed for interim financial reporting are consistent
with the accounting policies set forth in Note 2 to the Consolidated Financial
Statements appearing in the Company's Form 10-K for the year ended December 31,
1996 as filed with the Securities and Exchange Commission.
NOTE 2: RECEIVABLES
- -------------------
Receivables consist of the following:
June 30, December 31,
1997 1996
---- ----
Nonrecourse $267,905,556 $ 269,812,980
Recourse 169,587,870 157,178,312
---------------- --------------
Factored accounts receivables 437,493,426 426,991,292
Loans to factoring clients 48,044,902 27,966,757
Asset based loans 53,362,168 36,019,543
---------------- --------------
$538,900,496 $ 490,977,592
================ ==============
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 $332.6 million and
$286.2 million at June 30, 1997 and December 31, 1996, respectively.
5
<PAGE> 6
Changes in the Company's allowance for credit losses were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
----------------------------------------------------- ------------------------------
% of % of % of
June 30, Factored June 30, Factored December 31, Factored
1997 Sales 1996 Sales 1996 Sales
------------- -------- ------------- -------- ------------- --------
<S> <C> <C> <C>
Beginning balance $ 2,993,534 $ 2,980,778 $ 2,980,778
Allowance related to acquisition of
TempFunds America, Inc 100,000
Provision for credit losses 2,200,000 .15 2,100,000 .18 3,750,000 .14
Charge-offs (2,256,698) .15 (2,547,855) .22 (4,402,745) .17
Recoveries 308,655 .02 270,004 .03 565,501 .02
----------------- ---------------- ---------------
Net charge-offs (1,948,043) .13 (2,277,851) .19 (3,837,244) .14
----------------- --- ---------------- --- --------------- ---
Ending balance $3,245,491 $2,802,927 $ 2,993,534
================= ================ ===============
</TABLE>
The Company specifically considered approximately $973,000 and $660,000 of its
client advances impaired at June 30, 1997 and December 31, 1996, respectively,
and has discontinued the accrual of interest income. The allowance for credit
losses related to these impaired loans for the same periods was $190,000 and
approximately $30,000, respectively.
The adequacy of the provision for credit losses recorded by the Company is
assessed by management based in part on the level of net charge-offs relative to
accounts receivable purchased. These statistics are believed to be significant
indicators of inherent losses because the receivables portfolio turns over
approximately seven times each year. Accounts receivable which are past due will
not be written off if, in the opinion of management, collection is likely from
the customer, client or collateral realization, if any. In making this
determination, management considers the quality of the collateral, the
creditworthiness of the customer and client, economic conditions and other
factors which may be relevant. This statistical assessment is supplemented by a
review of the recorded allowance for credit losses at each month end and
relative to total accounts receivable at month end, taking into consideration
specific potential problem accounts, accounts purchased with recourse where
payment has not been made by the Company to its client, and other factors which
may be relevant.
Historically, the provision for credit losses as a percentage of factored sales
and net charge-offs as a percentage of factored sales ranged from 0.11% to 0.30%
and 0.05% to 0.30%, respectively. The provision for credit losses as a
percentage of factored sales decreased from 0.18% for the six months ended June
30, 1996 to 0.15% for the six months ended June 30, 1997. Net charge-offs as a
percentage of factored sales also decreased from 0.19% to 0.13% for the same six
month periods, respectively. Based on these relationships, and a review of the
recorded allowance and accounts receivable at each period end, management
believes the provisions and allowance to be adequate to absorb known and
inherent losses in the accounts receivable portfolio. Because the assessment of
the adequacy of the allowance and provisions for credit losses involves a
significant degree of estimation and is subject to change, future provisions for
credit losses may be greater or less than actual charge-offs.
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<PAGE> 7
NOTE 3: BORROWINGS
- ------------------
Borrowings are summarized as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------------- -----------------
<S> <C> <C>
Variable rate asset backed certificates due 1999 through 2001 $218,884,515 $175,000,000
Variable rate revolving credit line due on demand 73,653,000 70,131,000
Variable rate revolver loan due 1999 27,200,000 15,900,000
7.95% subordinated notes due 2001 10,000,000 10,000,000
------------------- -----------------
Total borrowings $329,737,515 $ 271,031,000
=================== =================
</TABLE>
NOTE 4: SUBSEQUENT EVENT
- -------------------------
On August 12, 1997, Capital Bancorp ("Bancorp") entered into an Agreement and
Plan of Merger (the "Agreement") with Union Planters Corporation ("UPC"). Under
the Agreement, each share of common stock of Bancorp will be exchanged for .8525
share of UPC common stock. The Agreement is subject to due diligence,
regulatory approval, approval by BanCorp's shareholders and the satisfaction of
certain normal contractual closing conditions.
7
<PAGE> 8
ITEM 2
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 ("Bancorp"). Holding has three wholly-owned
subsidiaries, Capital Factors, Inc. ("Factors"), CF One, Inc. and CF Investor
Corp. 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".
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-Q may contain certain "forward-looking statements" which
represent the Company's expectations or beliefs, including, but not limited to,
statements concerning the Company's operations, performance, financial
condition, and growth. For this purpose, any statements contained in the Form
10-Q 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, certain of which are beyond the Company's
control, and actual results may differ materially depending on 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.
On August 12, 1997, Capital Bancorp ("Bancorp") entered into an Agreement and
Plan of Merger (the "Agreement") with Union Planters Corporation ("UPC"). Under
the Agreement, each share of common stock of Bancorp will be exchanged for .8525
share of UPC common stock. The Agreement is subject to due diligence,
regulatory approval, approval by Bancorp's shareholders and the satisfaction of
certain normal contractual conditions.
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 the client, a loan receivable
balance is created, and cash is disbursed. Although the Company loans funds to
the client based on
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<PAGE> 9
eligible collateral, the Company provides no credit protection and, accordingly,
does not assume the risk of loss from a client's customers' inability to pay,
although the Company may actually suffer a loss if all sources of repayment
fail, including other collateral and guarantees, if any. In connection with
asset-based loans, instead of a factoring fee, the Company earns a facility fee.
Both factored advances and asset-based loans bear interest at a rate tied to the
prime rate.
The Company operates through four regional offices, and in January 1997, it
opened an office in Atlanta which specializes in asset-based loans. In May 1997,
the Company's corporate headquarters and the Florida regional office re-located
to leased office space in Boca Raton. The Company's operations center remains in
Fort Lauderdale. 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 June 30, 1997, the
largest amount due from any one customer, a national department store chain, was
approximately $25.9 million.
The Company's factored sales volume can be affected in several ways, including
new clients, client retention or losses, inflation and other economic
conditions. Additionally, fluctuations in the sales dollar volume of the
Company's clients, both positive and negative, have a direct impact on the
Company's factored sales volume and factoring fees. In this regard, the Company
has historically experienced seasonal fluctuations in its factored sales volume
and factoring fees as a result of the seasonality of the sales of certain of the
Company's clients, especially those in the apparel industry, who typically ship
more goods during the four-month period of August through November in order to
fill increased customer orders in anticipation of "back to school" and the
ensuing holiday season. The Company realized approximately 40% of its annual
factored sales volume during this 4-month period in 1996 and 1995.
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.
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<PAGE> 10
Monitoring Asset Quality and Credit Losses
The monitoring of asset quality is a routine function performed by management to
control credit losses. Monitoring asset quality involves the periodic review,
sometimes daily, of such pertinent financial statistics as the aging of the
accounts receivable portfolio, accounts receivable turnover, dilution and
charge-offs. The Company's allowance for credit losses is determined after
evaluating the receivables portfolio, current market conditions, changes in the
nature and volume of the portfolio, past loss experience and other pertinent
factors.
Set forth below are those ratios and statistics utilized by management in
monitoring asset quality for the six months ended June 30, 1997 and June 30,
1996:
<TABLE>
<CAPTION>
As of June 30,
----------------------------------
1997 1996
---- ----
(Unaudited, Dollars in Thousands)
<S> <C> <C>
Provision for credit losses $2,200 $2,100
Charge-offs net of recoveries 1,948 2,278
Allowance for credit losses-specific 672 646
Allowance for credit losses-general 2,573 2,157
------------- --------------
Total allowance for credit losses $3,245 $2,803
Accounts receivable turnover in days 54 51
Accounts receivable past due more
than 60 days as a percentage of factored receivables 8.88% 10.47%
Accounts receivable past due more
than 90 days as a percentage of factored receivables 5.45% 9.08%
Credit-approved accounts receivable past due more
than 60 days as a percentage of credit approved
receivables (1) 3.77% 7.77%
Credit-approved accounts receivable past due more
than 90 days as a percentage of credit approved
receivables (1) 1.77% 4.85%
Net charge-offs to factored sales 0.13% 0.19%
Average receivables $513,811 $385,911
Provision for credit losses as a
percentage of factored sales 0.15% 0.18%
Provision for credit losses as a
percentage of average receivables 0.86% (6) 1.08% (6)
Net charge-offs as a percentage of
average receivables 0.76% (6) 1.18% (6)
Non-accruing advances $973 $ 766
Non-accruing advances as a percentage
of receivables 0.18% 0.18%
Average funds employed (2) $332,600 $258,400
Provision for credit losses as a percentage of average
funds employed (2) (3) 1.32% (6) 1.63% (6)
Net charge-offs as a percentage of
average funds employed (2) (4) 1.17% (6) 1.76% (6)
Non-accruing advances as a percentage
of funds employed (2) (5) 0.27% 0.27%
</TABLE>
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(1) Management considers the aging of credit-approved receivables a more
meaningful measure of exposure to credit risk than the aging of total
receivables. The Company guarantees payment of receivables which it credit
approves if the receivable was not paid based solely on the customers
financial inability to pay.
(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 funds advanced for each of the periods presented was lower than
the provision for credit losses as a percentage of average funds employed.
(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.
(6) Computed on an annualized basis.
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 and asset-based loans, 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
0.18% for the six months ended June 30, 1996 to 0.15% for the six months ended
June 30, 1997. The provision for credit losses as a percentage of average
receivables and the provision for credit losses as a percentage of average funds
employed decreased from 1.08% and 1.63%, respectively, for the six months ended
June 30, 1996, to 0.86% and 1.32%, respectively, for the six months ended June
30, 1997, reflecting a lower net charge-off rate.
Net charge-offs as a percentage of factored sales decreased from 0.19% for the
period ended June 30, 1996 to 0.13% for the period ended June 30, 1997. Charge
offs consisted primarily of $1,150,000 written off in the six month period due
to a client's bankruptcy filing during the first quarter, and $1,037,000 in
customer bad debts. In 1996, the Company charged off $1.1 million in customer
bad debts, including a charge-off of $600,000 related to the bankruptcy of a
large Northeastern regional chain store customer. Net charge-offs as a
percentage of average receivables and net charge-offs as a percentage of average
funds employed decreased 0.42% and 0.59%, respectively, for the six months ended
June 30, 1997 as compared to the same period in 1996 due primarily to the
$600,000 charge-off described above. Net charge-offs as a percentage of factored
sales ranged from 0.05% to 0.30% in the 1992-1996 period.
Non-accruing advances as a percentage of funds employed have historically
remained below 1.00% and at June 30, 1997 and 1996, were 0.27%. Non-accruing
advances as a percentage of receivables was 0.18% at June 30, 1996 and 1997,
respectively. Management believes that non-accruing advance fluctuations below
1.0% 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 3.77% and 1.57%, respectively, at June 30, 1997 as compared
to 7.77% and 4.85%, respectively, at June 30, 1996. 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
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<PAGE> 12
equaled 8.88% and 5.45%, respectively, for the six month period ended June 30,
1997 as compared to 10.47% and 9.08%, respectively, for the six month period
ended June 30, 1996.
Financial Condition - June 30, 1997 as compared to December 31, 1996
Total assets increased to $584.3 million at June 30, 1997 from $530.6 million at
December 31, 1996. The $53.7 million increase was due primarily to a $47.5
million dollar increase in net receivables.
Factored accounts receivables increased $10.5 million primarily as a result of
increased factored sales. 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, increased $17.3 million from $36.0 million at December 31, 1996 to
$53.4 million at June 30, 1997.
The increase in assets was principally funded by an increase in the debt
outstanding under the Company's variable rate asset backed certificates, the
Securitized Financings and its $40 million revolving credit facility with an
unaffiliated bank. Outstanding debt under the Securitized Financings increased
to $218.9 million at June 30, 1997 from $175.0 million at December 31, 1996 due
to the Company's issuance of a fourth series of variable rate asset-backed
certificates (the "Variable Funding Certificates"). Unlike the previously issued
certificates which were fixed as to principal amount, the Variable Funding
Certificates provide for a monthly settlement of principal, which may increase
or decrease the outstanding amount. Under this series, the senior Variable
Funding Certificates bear interest at LIBOR plus 0.75% and the senior
subordinated Variable Funding Certificates bear interest at LIBOR plus 1.50%,
6.44% and 7.18%, respectively, at June 30, 1997. (See Liquidity and Capital
Resources). At June 30, 1997 and December 31, 1996, the Company had $27.2
million and $15.9 million, respectively, outstanding under its $40 million
facility, which bears interest at LIBOR plus 2.15%. This increase in debt was
collateralized by increased asset-based loans and healthcare receivables.
Stockholders' equity increased approximately $5.5 million during the first six
months of 1997 as a result of net income earned by the Company.
Results of Operations - Three Months Ended June 30, 1997 Compared to Three
Months Ended June 30, 1996.
Net income increased 22.7% to approximately $3.1 million for the three month
period ended June 30, 1997 from approximately $2.6 million for the comparable
period in 1996 due to an increase in operating revenues and a decrease in the
provision for credit losses. Operating revenues increased from approximately
$10.8 million for the three month period ended June 30, 1996 to approximately
$13.6 million for the comparable period in 1997, a 26.1% increase. These
increases were primarily a result of a 21.4% increase in the Company's factored
sales volume from $614.6 million to $746.2 million for the three month period
ended June 30, 1996 and June 30, 1997, respectively, and the resulting increase
in interest income and factoring fees. The factored sales volume increases were
attributable to continued growth of the Company's four regional factoring
offices.
Factoring fee income increased to approximately $7.1 million for the three month
period ended June 30, 1997 as compared to approximately $6.1 million for the
three month period ended June 30, 1996. Factoring fee income as a percentage of
factored sales for the three month periods decreased from 1.00% in 1996 to .95%
in 1997. This decline was the result of lower factoring fees charged to high
volume clients. 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.
Net interest income (interest income less interest expense) increased to
approximately $4.8 million for the three months ended June 30, 1997 from
approximately $3.4 million for the comparable period in 1996, a 39.5% increase,
principally as a
12
<PAGE> 13
result of the $17.6 million of net proceeds raised by the Company's issuance of
common stock in July 1996 and an increase of $74.2 million in average
outstanding funds employed for the three months ended June 30, 1997 as compared
to the same period in the prior year. Net interest income was also favorably
impacted by continued interest expense reductions achieved through the use of
financing programs with lower interest rates. On April 30, 1997, the Company
issued the Variable Funding Certificates which provide for a monthly settlement
of principal, which may increase or decrease the outstanding amount. This fourth
series of variable rate asset backed certificates includes the issuance of
$95.25 million of senior Variable Funding Certificates and $4.75 million of
senior subordinated Variable Funding Certificates. Approximately $41.8 million
and $2.1 million, respectively, were outstanding at June 30, 1997 bearing
interest at LIBOR plus 0.75% and 1.50%, respectively, (6.44% and 7.19%,
respectively, at June 30, 1997). The Company entered into a $40,000,000
revolving loan agreement bearing interest at LIBOR plus 2.15% in April 1995 with
an unaffiliated bank. Average borrowings from the revolving loan during the
three month period ended June 30, 1997 equaled approximately $26.3 million and
had an effective interest rate of 8.1% for the three month period. Additionally,
the Company, through its wholly-owned subsidiary, CF One, issued $10,000,000 in
subordinated notes in May 1996, bearing a fixed annual interest rate of 7.95%.
The funds raised through the above transactions were used to reduce higher
interest debt (8.5% at June 30, 1997) outstanding under the debt facility with
Capital Bank.
Letter of credit and other fee income increased to approximately $1,119,000 for
the three months ended June 30, 1997 from $853,000 for the three months ended
June 30, 1996, a 31.2% increase. Letter of credit fees increased approximately
31.5% or $101,000 during the three month period while other fee income increased
by approximately $165,000 due to the increased, over advance fees, factoring
volume and asset based lending activities.
The provision for credit losses decreased to $800,000 for the three months ended
June 30, 1997 from $1,000,000 for the three months ended June 30, 1996.
Provisions for credit losses as a percentage of factored sales decreased to
0.11% for the three months ended June 30, 1997 as compared to 0.16% for the
comparable period in 1996, reflecting a lower net charge-off rate (see
"Monitoring Asset Quality and Credit Losses").
Operating expenses increased from $5,465,000 to $7,511,000 for the three month
period ended June 30, 1997 as compared to the three months ended June 30, 1996.
This $2.0 million or 37.4% increase is primarily the result of the move of the
corporate headquarters to Boca Raton, expansion in the regional offices and the
healthcare division, start-up costs in the Atlanta office, expenses related to
Capital TempFunds, Inc., which was acquired in August 1996 and compensation
expense related to the compensatory nature of the Company's stock option plan.
Results of Operations - Six Months Ended June 30, 1997 Compared to Six Months
Ended June 30, 1996.
Net income increased 22.4% to approximately $5.5 million for the six months
ended June 30, 1997 from approximately $4.5 million for the comparable period in
1996 due primarily to an increase in operating revenues. Operating revenues
(total revenues less interest expense) increased from approximately $20.4
million for the six month period ended June 30, 1996 to approximately $25.9
million for the comparable period in 1997, a 27% increase. These increases were
primarily a result of a 25.3% increase in the Company's factored sales volume
from $1,178.6 million to $1,476.4 million for the six month period ended June
30, 1996 and June 30, 1997, respectively, and the resulting increase in interest
income and factoring fees. The factored sales volume increases were attributable
to continued growth of the Company's client base, in all four regional offices.
Factoring fee income increased to approximately $13.9 million for the six month
period ended June 30, 1997 as compared to approximately $11.6 million for the
six month period ended June 30, 1996 as a result of a 25.3% increase in factored
sales. Factoring fee income as a percentage of factored sales for the six month
periods decreased from .99% in 1996 to 0.94% in 1997. This decrease was due to
lower factoring commission rates charged due to competitive pricing on larger
clients.
13
<PAGE> 14
Net interest income (interest income less interest expense) increased to
approximately $8.9 million for the six months ended June 30, 1997 from
approximately $6.5 million for the comparable period in 1996, a 35.8% increase.
The increase is principally a result of the $17.6 million of net proceeds
raised by the Company's issuance of common stock in July 1996 and the issuance
of a fourth series of variable rate asset-backed certificates on April 30, 1997
of which approximately $41.8 million of the senior Variable Funding Certificates
and $2.1 million of the senior subordinated Variable Funding Certificates were
outstanding at June 30, 1997 bearing interest at LIBOR plus 0.75% and LIBOR plus
1.50% respectively, (6.44% and 7.19%, respectively, at June 30, 1997). The
proceeds from both transaction were used to reduce the debt outstanding under a
debt facility with Capital Bank. The interest rate on this facility was 8.5% at
June 30, 1997. Additionally, the Company entered into a $40.0 million revolving
loan agreement bearing interest at LIBOR plus 2.15% in April 1996 with an
unaffiliated bank. Average borrowings from the revolving loan during the six
month period ended June 30, 1997 equaled approximately $21.7 million and had an
effective interest rate of 8.03% for the six month period. Interest income also
increased due to an increase of $74.2 million in average outstanding funds
employed for six months ended June 30, 1997 as compared to the same period in
the prior year.
Letter of credit and other fee income increased to approximately $2,071,000 for
the six months ended June 30, 1997 from $1,525,000 for the six months ended June
30, 1996, a 35.8% increase. Letter of credit fees increased approximately 41.1%
or $235,000 and overadvance fees increased 125.4% or $227,000 during the six
month period. Overadvances represent loans to clients in excess of the factored
accounts receivable, substantially all of which are collateralized by assets
other than receivables. Other fee income, such as wire and audit fees, increased
by approximately $84,000 due to the increased factoring volume and
asset-based lending activities.
The provision for credit losses equaled $2.2 million for the six month period
ended June 30, 1997 and $2.1 million for the six month period ended June 30,
1996. Of the year to date provision, $1,150,000 related to amounts charged-off
and reserves established due to a client's bankruptcy filing during the first
quarter. The remainder of the 1997 provision relates primarily to customer
accounts receivable, with net charge-offs of $1.0 million compared to $1.9
million in the second quarter of 1996. Provisions for credit losses as a
percentage of factored sales decreased to 0.15% for the six month period ended
June 30, 1997 as compared to 0.18% for the comparable period in 1996, reflecting
a slightly lower net charge-off rate for the quarter (see "Monitoring Asset
Quality and Credit Losses").
Operating expenses increased from $10.8 million to $14.5 million for the six
month period ended June 30, 1997 as compared to the six month period ended June
30, 1996. This $3.7 million or 34.5% increase is primarily the result of the
move of the Company's corporate headquarters to Boca Raton, expansion in the
regional offices and the healthcare division, start-up costs in the Atlanta
office, expenses related to Capital TempFunds, Inc. which was acquired in August
1996 and compensation expense related to the compensatory nature of the
Company's stock option plan.
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 March 31, 1997, the trust created in connection with the Securitized
Financings (the "Trust") 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 Investor 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% (6.94% at June 30, 1997, 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-
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<PAGE> 15
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 subordinated
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 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.
On April 30, 1997 the Trust issued a fourth series of variable rate asset-backed
certificates (the "Variable Funding Certificates") in connection with the
Securitized Financings. Unlike the previously issued Certificates which were
fixed as to principal amount, the Variable Funding Certificates provide for a
monthly settlement of principal, which may increase or decrease the outstanding
amount. The fourth series includes the issuance of $95.25 million of senior
Variable Funding Certificates and $4.75 million of senior subordinated Variable
Funding Certificates. The Certificates were rated "AAA" and "A", respectively
by Duff & Phelps Credit Rating Company and "AA" and "BBB", respectively by Fitch
Investors Services Inc. Approximately $41.8 million and $2.1 million,
respectively, were funded at June 30, 1997. 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. Under this series,
the senior Variable Funding Certificates bear interest at LIBOR plus 0.75% and
the senior subordinated Variable Funding Certificates bear interest at LIBOR
plus 1.50% (6.44% and 7.19%, respectively, at June 30, 1997). 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 these made by its healthcare
division, as well as certain asset-based loans, are eligible for transfer to the
Trust. As of June 30, 1997, the Company had transferred to the Trust client
advances aggregating nearly $299.6 million.
In connection with this transaction, the Company formed a new wholly-owned
subsidiary, CF Investor Corp. CF Investor Corp., through a limited liability
corporation, CF Two, LLC., acquired the junior subordinated certificate issued
by the Trust.
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 June 30, 1997, the Company had outstanding borrowings of $27.2
million. The indebtedness under this revolving facility bears interest at a rate
of LIBOR plus 2.15% (7.84% at June 30, 1997), 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 $150.0 million unsecured revolving line of credit with
Capital Bank, pursuant to which the Company had outstanding borrowings of
approximately $73.7 million at June 30, 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 assets.
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<PAGE> 16
Based on the statutory limitation, the maximum amount which could be outstanding
under this line was approximately $132.2 million at June 30, 1997. Indebtedness
under this facility bears interest at the prime rate, as published in The Wall
Street Journal (8.5% at June 30, 1997), 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 $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
$538.9 million of customer accounts receivable outstanding at June 30, 1997,
approximately $270.4 million of customer receivables balances exceeded $1
million. These customers are primarily large national or regional department
store chains or specialty retailers. At June 30, 1997, the largest amount due
from any one customer, a national chain store, was approximately $25.9 million.
In addition, the Company's accounts receivable turned over in an average of 54
days and 51 days during the six months ended June 30, 1997 and 1996,
respectively.
The Company had no material commitments for capital expenditures as of June 30,
1997. Management believes that it has the corporate infrastructure in place to
support its earnings growth for the foreseeable future. Management also believes
that funds available under the Company's current credit facilities (assuming
such facilities are renewed or replaced with similar facilities) and cash flow
from operations will be sufficient to satisfy the Company's working capital
requirements for the next 12 months.
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share," is effective for financial statements issued for periods ending after
December 15, 1997. This statement requires a dual presentation of basic and
diluted earnings per share on the face of the income statement. Adoption of
this statement is not expected to have a material adverse impact on the
Company's consolidated financial position or results of operations.
SFAS No. 130, "Reporting Comprehensive Income," is effective for fiscal years
beginning after December 15, 1997. This statement establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. Adoption of this statement is not
expected to have a material adverse impact on the Company's consolidated
financial position or results of operations.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," is effective for financial statements for periods beginning after
December 15, 1997. This statement establishes standards for the way that public
companies report selected information about operating segments. Adoption of
this statement is not expected to have a material adverse impact on the
Company's consolidated financial position or results of operations.
Effects of Inflation
The Company believes that inflation has not had a material impact on its results
of operations.
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<PAGE> 17
PART II. OTHER INFORMATION
Item 1. 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 was a party to one lawsuit that was dismissed
after trial. The plaintiff appealed the dismissal. The Court of Appeals affirmed
the dismissal and the Company awaits the finality of this judgment.
Bancorp and Capital Bank Regulatory Matters
On June 16, 1997, the Comptroller (the "Comptroller") of the State of Florida
issued an order denying the application filed by Daniel Holtz, Chairman of the
Board, Chief Executive Officer and President of Bancorp, Fana Holtz, the
Vice-Chairman of the Board, and Javier Holtz, an executive officer of Bancorp,
to acquire and/or maintain a controlling interest in Capital Bank through their
ownership and control of Bancorp. The Comptroller requires that, within 90 days,
the Applicants reduce their ownership of Bancorp below 25% in the aggregate, or
10% in the aggregate if any one of the Applicants remains as a officer of the
Bank. The Applicants beneficially owned approximately 46.4% of Bancorp Common
Stock at June 30, 1997. The Comptroller also requires that the Applicants "take
into appropriate consideration the ownership interest of Abel Holtz" in
determining their aggregate ownership position. Abel Holtz, the former Chairman
of the Board, Chief Executive Officer and President of Bancorp, is the husband
of Fana Holtz and father of Daniel and Javier Holtz. At June 30, 1997, Abel
Holtz beneficially owned approximately 8.9% of Bancorp Common Stock.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its 1997 Annual Meeting of Shareholders on May 23, 1997 (the
"Annual Meeting"), at which all of the Company's ten directors were reelected.
The following sets forth the voting results with respect to each nominee for
director, including votes cast for the nominee and the votes withheld:
Nominee Votes For Votes Withheld
Stephen N. Ashman 12,090,832 200
Ronald S. Chase 12,091,032 0
Cynthia R. Cohen 12,090,682 350
Norman G. Einspruch 12,091,032 0
Daniel M. Holtz 12,091,032 0
Javier J. Holtz 12,091,032 0
John W. Kiefer 12,091,032 0
Jack D. Listanowsky 11,679,132 411,900
Harold L. Oshry 12,091,032 0
Bruce S. Raiffe 11,679,132 411,900
In addition, at the Annual Meeting, the shareholders voted in favor of (i) the
proposal to approve the Capital Factors Holding, Inc. Stock Option Plan, as
amended (the "Plan"), and (ii) the proposal to approve the material terms of the
performance goals (the "Goals") relating to the incentive compensation and
deferred compensation provisions set forth in the Employment Agreement between
the Company and John W. Kiefer, Chief Executive Officer and President of the
Company. Voting on the Plan was 11,018,006 votes for and 413,500 votes against,
with 1,500 votes abstaining and 657,726 broker
17
<PAGE> 18
non-votes. Voting on the Goals was 11,231,165 votes for and 202,341 votes
against, with 1,500 votes abstaining and 655,726 broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 10.1 - Series 1997-1 Supplement, dated as of April 1, 1997,
to Capital Factors Financing Trust Pooling and Servicing Agreement
dated as of June 1, 1994
Exhibit 11.1 - Statement re: Calculation of Earnings Per Share
Exhibit 27.1 - Financial Data Schedule
(b) No Current Reports on Form 8-K were filed by the Company during the
quarter ended June 30, 1997.
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<PAGE> 19
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: August 14, 1997 By: /s/ Dennis A. McDermott
------------------------
DENNIS A. MCDERMOTT
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
19
<PAGE> 1
Exhibit 10.1
EXECUTION COPY
- -------------------------------------------------------------------------------
CF FUNDING CORP.,
Transferor,
CAPITAL FACTORS, INC.,
individually and as Servicer,
and
BANKERS TRUST COMPANY,
Trustee
on behalf of the Certificateholders
-------------------------
SERIES 1997-1 SUPPLEMENT
Dated as of April 1, 1997
to
CAPITAL FACTORS FINANCING TRUST
POOLING AND SERVICING AGREEMENT
Dated as of June 1, 1994
----------------------
$109,537,500
VARIABLE RATECVARIABLE FUNDING ASSET BACKED CERTIFICATES
SERIES 1997-1
$95,250,000 CLASS A,
$4,750,000 CLASS B
AND
$9,537,500 CLASS C
- -------------------------------------------------------------------------------
<PAGE> 2
Series 1997-1 SUPPLEMENT, dated as of April 1, 1997 (this "SUPPLEMENT")
among CF FUNDING CORP., a Delaware corporation, as Transferor (the
"TRANSFEROR"), CAPITAL FACTORS, INC., a Florida corporation, individually and as
Servicer (the "SERVICER"), and BANKERS TRUST COMPANY, a New York banking
corporation, as trustee (together with its successors in trust thereunder as
provided in the Pooling and Servicing Agreement referred to below, the
"TRUSTEE"), under the Pooling and Servicing Agreement, dated as of June 1, 1994
(the "AGREEMENT") among the Transferor, the Servicer and the Trustee.
PRELIMINARY STATEMENT
Section 6.09 of the Agreement provides, among other things, that the
Transferor and the Trustee may at any time and from time to time enter into a
supplement to the Agreement for the purpose of authorizing the issuance of the
Investor Certificates. The Transferor hereby enters into this Supplement with
the Servicer and the Trustee as required by Section 6.09(b) of the Agreement to
provide for the issuance, authentication and delivery of its Variable
Rate-Variable Funding Asset Backed Certificates, Series 1997-1, Class A with a
Beginning Invested Amount of $36,000,000, which amount may be increased through
one or more Borrowings to a Maximum Invested Amount of $95,250,000 (the "SERIES
1997-1 SENIOR CERTIFICATES"), Variable RateCVariable Funding Asset Backed
Certificates, Series 1997-1, Class B with a Beginning Invested Amount of
$1,795,276, which amount may be increased through one or more Borrowings to a
Maximum Invested Amount of $4,750,000 (the "SERIES 1997-1 SENIOR SUBORDINATED
CERTIFICATES") and Variable Rate-Variable Funding Asset Backed Certificates,
Series 1997-1, Class C with a Beginning Invested Amount of $3,604,724, which
amount may be increased through one or more Borrowings to a Maximum Invested
Amount of $9,537,500 and which amount may be further increased through the
issuance and sale of one or more Additional Series 1997-1 Junior Subordinated
Certificates (the "SERIES 1997-1 JUNIOR SUBORDINATED CERTIFICATES" and together
with the Series 1997-1 Senior Certificates and the Series 1997-1 Senior
Subordinated Certificates, the "SERIES 1997-1 INVESTOR CERTIFICATES"). In the
event that any term or provision contained herein shall conflict with or be
inconsistent with any term or provision contained in the Agreement, the terms
and provisions of this Supplement shall govern.
All capitalized terms not otherwise defined herein are defined in the
Agreement. All Article, Section or Subsection references herein shall mean
Article, Section or Subsections of the Agreement as modified by this Supplement,
except as otherwise provided herein.
Any reference to the Early Amortization Period, Scheduled Amortization
Period, Amortization Period or the Revolving Period in this Supplement shall
refer only to such periods as they relate to the Series 1997-1 Investor
<PAGE> 3
Certificates, except as otherwise provided herein.
SECTION 1. DESIGNATION.
The Series 1997-1 Investor Certificates shall be designated as the
Variable Rate-Variable Funding Asset Backed Certificates, Series 1997-1, Class
A, Variable Rate-Variable Funding Asset Backed Certificates, Series 1997-1,
Class B and Variable Rate-Variable Funding Asset Backed Certificates, Series
1997-1, Class C or, collectively, the Series 1997-1 Investor Certificates. No
other classes in respect of the Series 1997-1 Investor Certificates shall be
designated.
SECTION 2. AGREEMENT MODIFICATIONS.
The following terms of the Agreement are hereby modified only with
respect to this Supplement and the Series 1997-1 Investor Certificates as
follows:
Section 4.04 PAYMENTS OF INTEREST COLLECTIONS. Section 4.04 is modified
to add the following at the end thereof:
PAYMENTS AND DEPOSITS OF INTEREST COLLECTIONS WITH RESPECT TO THE SERIES 1997-1
INVESTOR CERTIFICATES.
DAILY SETTLEMENT
On each Business Day during a Settlement Period, the Servicer shall
instruct (which instruction shall be certified by the Servicer to be true and
accurate and shall be accompanied by a Daily Report and back-up information
required thereby) the Trustee to, and the Trustee shall, withdraw from the
Concentration Account an amount equal to the aggregate amount of Interest
Collections allocated to Series 1997-1 pursuant to Section 4.03 of the Agreement
and not previously withdrawn from the Concentration Account and allocate, apply,
deposit or pay, as the case may be, such amount in the following priority.
(a) TRUSTEE FEES AND SUCCESSOR SERVICER FEES.
To the payment to the Trustee of the sum of (x) the Daily
Trustee Fees (as defined in this Supplement) accrued for such Business
Day and for each non-Business Day, if any, since the immediately
preceding Business Day plus (y) the Series 1997-1 Investor
Certificate's pro rata share of the Documented Trustee Expenses
incurred and not previously paid that relate to such Series; for
purposes of this sub-clause (y), "pro rata share" shall be determined
based on the aggregate amount of the Invested Amounts of all Series to
which such Documented Trustee Expenses relate.
2
<PAGE> 4
If the Servicer is not Factors on such Business Day, to the
payment to the Servicer of the Daily Servicing Fees (as defined in this
Supplement) accrued for such Business Day and for each non-Business Day
on which Factors was not the Servicer, if any, since the immediately
preceding Business Day.
(b) SERVICER PRINCIPAL ADVANCE INTEREST.
If any Interest Collection for such Business Day relates to an
Advance that is the subject of a Servicer Principal Advance, to pay the
Servicer an amount equal to the lesser of (x) the Series 1997-1
Allocation Percentage of the Daily Servicer Principal Advance Interest
for each Servicer Principal Advance outstanding on such day accrued for
such Business Day and for each non-Business Day, if any, since the
immediately preceding Business Day and (y) the Series 1997-1 Allocation
Percentage of the amount of such Interest Collection in respect of such
Advance.
(c) SPECIAL AUDIT FEES.
If, on such Business Day, amounts are due and payable to a
firm of Independent Public Accountants in respect of a Special Audit,
then to pay such amounts to such firm.
(d) FUNDING DEFICIENCY INTEREST AMOUNTS.
If, on such Business Day, amounts are due and payable to any
Series 1997-1 Investor Certificateholders in respect of Funding
Deficiency Interest Amounts, then to pay such amounts to such
Certificateholders.
(e) SERIES 1997-1 CERTIFICATEHOLDER INTEREST COLLECTIONS.
To deposit into the Series 1997-1 Interest Funding Sub-Account
for the exclusive benefit of the Series 1997-1 Investor
Certificateholders an amount equal to the Series 1997-1 Floating
Allocation Percentage of the remainder for such Business Day.
(f) TRANSFEROR DAILY INTEREST AMOUNT.
Pay to the Transferor as interest on the Transferor
Certificate the Daily Transferor Interest Amount (as defined in this
Supplement) accrued for such Business Day and for each non-Business
Day, if any, since the immediately preceding Business Day and any such
amounts previously accrued but which remain unpaid.
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(g) SERIES 1997-1 JUNIOR SUBORDINATED CERTIFICATEHOLDER INTEREST
COLLECTIONS.
Pay to the Holder of the Series 1997-1 Junior Subordinated
Certificate the remainder, if any, as interest for such Business Day.
PAYMENTS AND DEPOSITS ON PAYMENT DATES
On or before the Determination Date immediately prior to each Payment
Date or Special Payment Date, in addition to the deposits and payments required
pursuant to the other provisions of this Article IV, the Servicer shall instruct
(which instruction shall be certified by the Servicer to be true and accurate
and shall be accompanied by a Settlement Statement and back-up information
required thereby) the Trustee to withdraw from the Series 1997-1 Interest
Funding Sub-Account certain amounts on deposit therein on such Payment Date or
Special Payment Date and, to the extent required by clause (h)(i) below, from
the Series 1997-1 Cash Collateral Sub-Account and pay or deposit on such Payment
Date or Special Payment Date, and the Trustee acting in accordance with such
instructions shall so withdraw and pay or deposit or cause to be so withdrawn
and paid or deposited, in the priority set forth below in clause (h), the
amounts referred to below in clause (h), all pursuant to such clause (h).
(h) MONTHLY INTEREST AND CASH COLLATERAL. The Trustee, acting in
accordance with instructions from the Servicer, shall pay, deposit or apply (as
the case may be) the following amounts in the following priority out of the
amounts deposited into the Series 1997-1 Interest Funding Sub-Account pursuant
to Sections 4.02, 4.03, 4.04(e) and 4.05(a)(ii):
(i) pay to the Series 1997-1 Senior
Certificateholders an amount equal to the Monthly Senior
Interest; to the extent such amounts on deposit in the Series
1997-1 Interest Funding Sub-Account are not sufficient to pay
such Monthly Senior Interest in full, the Trustee, acting in
accordance with instructions from the Servicer, shall withdraw
from the Series 1997-1 Cash Collateral Sub-Account an amount
sufficient to cover such deficiency and shall pay such amount
to the Series 1997-1 Senior Certificateholders;
(ii) during the Revolving Period, if the balance in
the Series 1997-1 Cash Collateral Sub-Account is less than the
Cash Collateral Maintenance Amount (as defined in this
Supplement), deposit into such Cash Collateral Sub-Account an
amount as shall cause the balance in such Cash Collateral
Sub-Account to equal the Cash Collateral Maintenance Amount;
(iii) pay to the Series 1997-1 Senior
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Subordinated Certificateholders an amount equal to the Monthly
Senior Subordinated Interest; and
(iv) (A) during the Revolving Period, pay FIRST if
there is a Subordination Deficiency Amount (as defined in this
Supplement), to the Transferor an amount equal to such
Subordination Deficiency Amount to purchase Advances from the
Transferor, SECOND if Factors is the Servicer, to the Servicer
in the amount of the sum of the Daily Servicing Fees (as
defined in this Supplement) for each day in such Settlement
Period and THIRD to the Series 1997-1 Junior Subordinated
Certificateholders in the amount of Monthly Junior
Subordinated Interest for the related Settlement Period,
(B) during the Scheduled Amortization Period,
pay FIRST if Factors is the Servicer, to the Servicer in the
amount of the sum of the Daily Servicing Fees (as defined in
this Supplement) for each day in such Settlement Period,
SECOND if the balance on deposit in the Series 1997-1
Principal Funding Sub-Account (after giving effect to Section
4.05(b) of this Supplement) is less than the Scheduled Deposit
Amount for the related Settlement Period, to deposit into such
Principal Funding Sub-Account an amount as shall cause the
balance therein to equal such Scheduled Deposit Amount and
THIRD to the Series 1997-1 Junior Subordinated
Certificateholders in the amount of Monthly Junior
Subordinated Interest for the related Settlement Period, and
(C) during an Early Amortization Period, FIRST
if Factors is the Servicer, to the Servicer in the amount of
the sum of the Daily Servicing Fees (as defined in this
Supplement) for each day in such Settlement Period, SECOND to
the Series 1997-1 Senior Certificateholders in respect of
principal on the Series 1997-1 Senior Certificates in an
aggregate amount up to the Class A Invested Amount, THIRD to
the Series 1997-1 Senior Subordinated Certificateholders in
respect of principal on the Series 1997-1 Senior Subordinated
Certificates in an aggregate amount up to the Class B Invested
Amount in respect of the Series 1997-1 Senior Subordinated
Certificates and FOURTH to the Series 1997-1 Junior
Subordinated Certificateholders in the amount of Monthly
Junior Subordinated Interest for the related Settlement
Period.
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Section 4.05 PAYMENT OF PRINCIPAL COLLECTIONS. Section 4.05 is modified
to add the following at the end thereof:
PAYMENT AND DEPOSIT OF PRINCIPAL COLLECTIONS WITH RESPECT TO THE SERIES 1997-1
INVESTOR CERTIFICATES.
DAILY PAYMENTS AND DEPOSITS
(a) On each Business Day, the Servicer shall instruct the Trustee
(which instruction shall be certified by the Servicer to be true and accurate
and shall be accompanied by a Daily Report and back-up information required
thereby) to withdraw from the Concentration Account an amount (the "Section 4.05
AMOUNT") equal to the sum of the (v) Daily Transferor Principal Collections PLUS
(w) amounts deposited in the Concentration Account pursuant to Sections 8(b)(v)
and 8(e)(ii) PLUS (x) amounts deposited in the Concentration Account by the
Series 1997-1 Junior Subordinated Certificateholder to purchase Additional
Series 1997-1 Junior Subordinated Certificates PLUS (y) during the Revolving
Period, Available Certificateholder Principal Collections PLUS (z) during the
Scheduled Amortization Period, the sum of (1) an amount equal to the LESSER of
(A) the amount required to be paid to the Servicer pursuant to clause (i) below
and (B) the Available Certificateholder Principal Collections and (2) the amount
of the Available Certificateholder Principal Collections remaining after giving
effect to the foregoing clause (1) and Section 4.05(b), and apply and pay or
deposit such Business Day's Section 4.05 Amount to the extent available in the
following order of priority (and the Trustee shall so withdraw, apply and pay or
deposit such amounts):
(i) if any Principal Collection for such Business Day relates
to an Advance that is or has been the subject of a Servicer Principal
Advance, pay from the Section 4.05 Amount to the Servicer an amount
equal to the lesser of (x) the Series 1997-1 Allocation Percentage of
the amount of such Principal Collection and (y) the Series 1997-1
Allocation Percentage of the sum of the balance remaining on such
Servicer Principal Advance plus any interest accrued thereon and
remaining unpaid (after giving effect to the application of Sections
4.04(b) and 4.06(a) to the Series 1997-1 Allocation Percentage of such
interest);
(ii) if the Servicer determines that a Negative Spread
Shortfall for Series 1997-1 exists on such Business Day, deposit into
the Series 1997-1 Interest Funding Sub-Account an amount equal to the
lesser of (x) the Section 4.05 Amount (after giving effect to
sub-clause (i) above) and (y) the amount of such Negative Spread
Shortfall;
(iii) if on such Business Day the Series 1997-1 Participation
Deficiency Amount exceeds zero, deposit into the Series 1997-1 Excess
Funding Sub-Account an
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amount equal to the lesser of (x) such Series 1997-1 Participation
Deficiency Amount and (y) the Section 4.05 Amount (after giving effect
to sub-clauses (i) and (ii) above); during an Early Amortization
Period, any amount to be deposited in the Series 1997-1 Excess Funding
Sub-Account shall be subject to redirection as provided in clause
(d)(ii) below;
(iv) if on such Business Day the Series 1997-1 Coverage
Deficiency Amount exceeds zero, deposit into the Series 1997-1 Excess
Funding Sub-Account an amount equal to the lesser of (x) such Series
1997-1 Coverage Deficiency Amount and (y) the Section 4.05 Amount
(after giving effect to sub-clauses (i), (ii) and (iii) above); during
an Early Amortization Period, any amount to be deposited in the Series
1997-1 Excess Funding Sub-Account shall be subject to redirection as
provided in clause (d)(ii) below;
(v) if, on such Business Day, an Accumulation Event but no
Early Amortization Event (other than an Early Amortization Event caused
by the continuation of an Accumulation Event described in clause (a) or
(b) of the definition of "Accumulation Event") shall have occurred and
be continuing (and, if such Accumulation Event was caused by the
occurrence on any one Determination Date of an event described in
clause (x) of Section 13(a) of this Supplement, an Accumulation
Continuation Event also shall be continuing), deposit in the Series
1997-1 Accumulation Sub-Account the remainder, if any, of the Section
4.05 Amount; and
(vi) pay to the Transferor the remainder, if any, of the
Section 4.05 Amount; pay to the Transferor the amounts under clause
(d)(i) below and pay to the Transferor the amounts under clause (e)
below.
(b)(i) Notwithstanding anything to the contrary in Section 4.05(a),
commencing on the first Business Day in a Scheduled Amortization Period with
respect to Series 1997-1 and on each Business Day thereafter until the end of
such Scheduled Amortization Period, the Servicer shall instruct (which
instructions shall be certified by the Servicer to be true and accurate and
shall be accompanied by a Settlement Statement and back-up information required
thereby) the Trustee to withdraw in the following order and until the balance in
the Series 1997-1 Principal Funding Sub- Account equals the Scheduled Deposit
Amount for the related Settlement Period
(w) from amounts on deposit in the Concentration Account, the
Available Certificateholder Principal Collections (after payment of
clause (a)(i) above), and
(x) any portion of the Section 4.05 Amount consisting of
moneys paid by the Series 1997-1 Junior Subordinated
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Certificateholders to purchase Additional Series 1997-1 Junior
Subordinated Certificates (allocations and/or utilizations of said
Section 4.05 Amount being deemed first to come from Principal
Collections allocated to Series 1997-1 and second from such moneys paid
by the Series 1997-1 Junior Subordinated Certificateholders to purchase
Additional Series 1997-1 Junior Subordinated Certificates),
and deposit such withdrawn amounts into the Series 1997-1 Principal Funding
Sub-Account. Any amounts referred to in clauses (w) and (x) in excess of those
amounts necessary to cause the Series 1997-1 Principal Funding Sub-Account to
equal the Scheduled Deposit Amount shall be applied in accordance with clauses
(i) through (vi) of Section 4.05(a).
(ii) Notwithstanding anything to the contrary in Section 4.05(a), on
the last Business Day of each Settlement Period during the Scheduled
Amortization Period with respect to Series 1997-1, the Servicer shall instruct
(which instructions shall be certified by the Servicer to be true and accurate
and shall be accompanied by a Settlement Statement and back-up information
required thereby) the Trustee to withdraw in the following order and to the
extent necessary to cause the balance in the Series 1997-1 Principal Funding
Sub-Account (after giving effect to all deposits required to be made under
clause (b)(i) above) to equal the Scheduled Deposit Amount for the related
Settlement Period:
(y) amounts on deposit in the Series 1997-1 Accumulation
Sub-Account, if any, and
(z) amounts on deposit in the Series 1997-1 Excess Funding
Sub-Account, if any.
Any amounts referred to in clauses (y) and (z) in excess of those amounts
necessary to cause the Series 1997-1 Principal Funding Sub-Account to equal the
Scheduled Deposit Amount shall remain on deposit in the Series 1997-1
Accumulation Sub-Account and Series 1997-1 Excess Funding Sub-Account,
respectively.
(c) Notwithstanding anything to the contrary in Section 4.05(a),
commencing on the first Business Day in an Early Amortization Period with
respect to Series 1997-1 and on each Business Day thereafter until the end of
such Early Amortization Period, the Servicer shall instruct (which instructions
shall be certified by the Servicer to be true and accurate and shall be
accompanied by a Settlement Statement and back-up information required thereby)
the Trustee to withdraw
(w) from amounts on deposit in the Concentration Account, the
Available Certificateholder Principal Collections (after payment of
clause (a)(i) above),
(x) all amounts on deposit in the Series 1997-1 Excess Funding
Sub-Account, if any,
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(y) all amounts on deposit in the Series 1997-1 Accumulation
Sub-Account, if any, and
(z) any portion of the Section 4.05 Amount consisting of
moneys paid by the Series 1997-1 Junior Subordinated Certificateholders
to purchase Additional Series 1997-1 Junior Subordinated Certificates
(allocations and/or utilizations of said Section 4.05 Amount being
deemed first to come from Principal Collections allocated to Series
1997-1 and second from such moneys paid by the Series 1997-1 Junior
Subordinated Certificateholders to purchase Additional Series 1997-1
Junior Subordinated Certificates),
and deposit all of such amounts in the Series 1997-1 Principal Funding
Sub-Account to the extent that such amounts in an aggregate amount do not exceed
the Invested Amount. Any such amount in excess of such Invested Amount will be
applied in accordance with clauses (i) through (vi) of Section 4.05(a).
(d) (i) On each Business Day during the Revolving Period, the Trustee,
at the Servicer's direction and certification, will withdraw amounts on deposit
in the Series 1997-1 Excess Funding Sub-Account and pay such amounts to the
Transferor to the extent that, prior to and immediately after giving effect to
such withdrawal and payment, both (A) the Transferor's Current Participation
Amount exceeds the Transferor's Required Participation Amount, and (B) the
Current Advance Coverage Amount exceeds the Required Advance Coverage Amount.
(ii) On each Business Day of an Early Amortization Period, the Trustee,
at the Servicer's direction and certification, will redirect amounts which would
otherwise be deposited in the Series 1997-1 Excess Funding Sub-Account pursuant
to Section 4.05(a)(iii) and/or Section 4.05(a)(iv), and deposit such redirected
amounts directly in the Series 1997-1 Principal Funding Sub-Account; PROVIDED,
HOWEVER, that such amounts will no longer be so redirected and deposited during
such Early Amortization Period after such time as an amount of funds equal to
the Senior Invested Amount for Series 1997-1 shall have been deposited in such
Series 1997-1 Principal Funding Sub-Account.
(e) If during the Revolving Period on any of the three immediately
succeeding Determination Dates after the date on which an Accumulation Event
shall have occurred, such Accumulation Event shall not be continuing, the
Trustee, at the Servicer's written direction and certification, shall withdraw
all amounts on deposit in the Series 1997-1 Accumulation Sub-Account in respect
of such Accumulation Event and if a Series 1997-1 Participation Deficiency
Amount and/or a Series 1997-1 Coverage Deficiency Amount exists, deposit all or
a
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portion of such amounts to the extent of such Series 1997-1 Participation
Deficiency Amount and/or Series 1997-1 Coverage Deficiency Amount in the Series
1997-1 Excess Funding Sub-Account and pay the remainder to the Transferor or, if
a Series 1997-1 Participation Deficiency Amount and a Series 1997-1 Coverage
Deficiency Amount do not exist, pay such amounts to the Transferor.
(f) Notwithstanding the foregoing, the Trustee shall, at the written
instruction of the Transferor, deposit into the Prepayment Account any amounts
otherwise payable to the Transferor under Sections 4.05(a)-(e) on any Business
Day prior to the commencement of an Amortization Period.
PAYMENTS ON EACH SPECIAL PAYMENT DATE
(g) On each Special Payment Date in an Amortization Period, after
giving effect to the payments and deposits required pursuant to Sections
4.04(h)(iv)(B), 4.05(a)-(e) and 4.06(c)(ii) (as applicable) the Trustee, acting
in accordance with instructions from the Servicer, shall pay the amounts on
deposit in the Series 1997-1 Principal Funding Sub-Account to the Holders of the
Series 1997-1 Investor Certificates in the following priority:
(i) to the Series 1997-1 Senior Certificateholders until the
Class A Invested Amount of Series 1997-1 equals zero;
(ii) to the Series 1997-1 Senior Subordinated
Certificateholders until the Class B Invested Amount of Series 1997-1
equals zero; and
(iii) to the Series 1997-1 Junior Subordinated
Certificateholders until the Class C Invested Amount of Series 1997-1
equals zero.
Section 4.06 PAYMENT OF RECOVERIES; ALLOCATION OF CHARGEOFFS. Section
4.06 is modified to add the following at the end thereof:
DAILY SETTLEMENT
On each Business Day on which a Chargeoff occurs, the Class C Invested
Amount shall be reduced by the full amount of the Series 1997-1 Allocation
Percentage of each such Chargeoff occurring on such Business Day and the Trustee
shall make a corresponding entry in its books to that effect.
On each Business Day, the Servicer shall instruct the Trustee to
withdraw the Series 1997-1 Allocation Percentage of Recoveries on deposit in the
Concentration Account and apply, pay or deposit them in the following priority.
(a) To the extent any such Recovery on
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deposit in the Concentration Account relates to an Advance
that is the subject of a Servicer Principal Advance, pay to
the Servicer an amount equal to the lesser of (x) the Series
1997-1 Allocation Percentage of the amount of such Recovery
relating to such Servicer Principal Advance and (y) the Series
1997-1 Allocation Percentage of the sum of the balance
remaining on such Servicer Principal Advance plus any accrued
and unpaid interest thereon.
(b) During the Revolving Period, if the balance in
the Cash Collateral Sub-Account for Series 1997-1 is less than
the Cash Collateral Maintenance Amount for Series 1997-1 after
application of Section 4.04(h)(ii), deposit into such Cash
Collateral Sub-Account an amount as shall cause the balance in
such Cash Collateral Sub-Account to equal such Cash Collateral
Maintenance Amount; and
(c) (i) during the Revolving Period, pay FIRST if
there is a Subordination Deficiency Amount, to the Transferor
an amount equal to such Subordination Deficiency Amount to
purchase Advances from the Transferor and SECOND to the Series
1997-1 Junior Subordinated Certificateholders in respect of
interest on the Series 1997-1 Junior Subordinated Certificates
to the extent of any remainder after application of the
foregoing clauses in this Section 4.06,
(ii) during the Scheduled Amortization Period,
FIRST if the balance on deposit in the Series 1997-1 Principal
Funding Sub-Account (after giving effect to Sections 4.05(b)
and 4.04(h)(iv)(B)) is less than the Scheduled Deposit Amount
for the related Settlement Period, to deposit into such
Principal Funding Sub-Account an amount as shall cause the
balance therein to equal such Scheduled Deposit Amount and
SECOND to the Series 1997-1 Junior Subordinated
Certificateholders in respect of interest on the Series 1997-1
Junior Subordinated Certificates to the extent of any
remainder after application of the foregoing clauses in this
Section 4.06, and
(iii) during an Early Amortization Period, FIRST
to the Series 1997-1 Senior Certificateholders in respect of
principal on the Series 1997-1 Senior Certificates in an
aggregate amount up to the Class A Invested Amount for Series
1997-1, SECOND to the Series 1997-1 Senior Subordinated
Certificateholders in respect of principal on the Series
1997-1 Senior Subordinated Certificates in an aggregate amount
up to the
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Class B Invested Amount for Series 1997-1 and THIRD to the
Series 1997-1 Junior Subordinated Certificateholders in
respect of interest on the Series 1997-1 Junior Subordinated
Certificates to the extent of any remainder after application
of the foregoing clauses in this Section 4.06.
Article IV is further amended by adding the following section:
Section 4.10 TRANSFEROR'S OR SERVICER'S FAILURE TO MAKE A DEPOSIT OR
PAYMENT. (a) If the Servicer or the Transferor fails to make, or give
instructions to make, any payment or deposit (other than as required by Section
2.04(d) or the last paragraph of Section 3.03) required to be made or given by
the Servicer or Transferor, respectively, at the time specified in the Agreement
(including applicable grace periods), the Trustee shall make such payment or
deposit from the applicable Series Account or the Excess Funding Account without
instruction from the Servicer or Transferor. The Trustee shall be required to
make any such payment or deposit hereunder only to the extent that the Trustee
has sufficient information in a Settlement Statement or other writing furnished
by the Servicer or the Majority Certificateholders of the Series affected to
allow the Trustee to determine the amount thereof; PROVIDED, HOWEVER, that, to
the extent that the Trustee has actual knowledge of the principal balance of the
Series 1997-1 Investor Certificates as of the close of business on the last day
of the preceding Settlement Period, the Trustee shall be deemed to have
sufficient information to determine the amount of Monthly Interest payable to
the Series 1997-1 Investor Certificateholders on such Payment Date. The Servicer
shall, upon request of the Trustee, promptly provide the Trustee with all
information necessary to allow the Trustee to make such payment or deposit. Such
funds or the proceeds of such withdrawal shall be applied by the Trustee in the
manner in which such payment or deposit should have been made by the Transferor
or the Servicer, as the case may be.
Section 6.03 REGISTRATION OF TRANSFER AND EXCHANGE OF CERTIFICATES.
Section 6.03 is modified to add the following at the end thereof:
(f) Notwithstanding anything to the contrary herein, (1) the Trustee
shall not in any way recognize any transfer of a Series 1997-1 Senior
Subordinated Certificate unless it shall have received an opinion of counsel in
form reasonably satisfactory to the Transferor to the effect that such transfer
would not create a material risk that the Trust would be treated as a publicly
traded partnership within the meaning of Section 7704 of the Internal Revenue
Code of 1986, as amended (the "CODE"), and (2) no beneficial interest in a
Series 1997-1 Senior Subordinated Certificate may be transferred and the Trustee
shall not in any way recognize the transfer of a Series 1997-1 Senior
Subordinated Certificate unless the proposed transferee has supplied the Trustee
with certification in form reasonably
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satisfactory to the Transferor to the effect that the proposed transferee is a
United States person within the meaning of Section 7701(a)(30) of the Code. Any
such opinion of counsel and certification shall be furnished by the Transferor,
and the Trustee shall not be obligated to obtain the same. The Transferor shall
pay the reasonable costs of obtaining any such opinion.
(g) Notwithstanding anything to the contrary herein, no Holder of a
Series 1997-1 Senior Certificate or a Series 1997-1 Senior Subordinated
Certificate shall be permitted to transfer such Certificate, and the Trustee
shall not register any such transfer, to any Person that is not an Eligible
Transferee unless such Person has delivered to the Trustee a certificate of an
officer of such Person to the effect that such Person is an Eligible Transferee
pursuant to the terms of this Supplement and the Trustee has received a written
approval of registration of any such transfer from the Transferor.
(h) The Trustee shall promptly notify the Transferor of each registered
transfer of any Series 1997-1 Investor Certificate and shall promptly respond to
inquires of the Transferor as to the registered Holder of each Series 1997-1
Investor Certificate.
Section 6.04 MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES. Section
6.04 is modified to add the following at the end thereof:
With respect to clause (b) of this Section 6.04, the delivery of an
unsecured agreement of indemnity, in form and substance reasonably
satisfactory to the Transferor, the Trustee or the Transfer Agent and
Registrar, by any Holder of a Series 1997-1 Certificate, which Holder
is an institutional holder with a claims paying ability or long-term
debt rating of at least investment grade or its equivalent, shall
satisfy the requirement under said Section of the delivery of security
or indemnity.
Section 6.09 NEW ISSUANCE. Section 6.09 is modified to add the
following at the end thereof:
(d) Any Holder of the Series 1997-1 Junior Subordinated Certificate may
from time to time give written notice to the Trustee, the Servicer and the
Transferor of its desire to purchase an additional Series 1997-1 Junior
Subordinated Certificate ("ADDITIONAL SERIES 1997-1 JUNIOR SUBORDINATED
CERTIFICATE"). Following receipt of such notice, the Transferor may direct the
Trustee, on behalf of the Trust, to issue an Additional Series 1997-1 Junior
Subordinated Certificate pursuant to the Series 1997-1 Supplement and this
Section 6.09(d). Any Additional Series 1997-1 Junior Subordinated Certificate
shall be equally and ratably entitled as provided herein and in the Series
1997-1 Supplement to the benefits of this Agreement accorded to the Series
1997-1 Junior Subordinated
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Certificates without preference, priority or distinction, all in accordance with
the terms and provisions of this Agreement and the Series 1997-1 Supplement. The
obligation of the Trustee to issue an Additional Series 1997-1 Junior
Subordinated Certificate is subject to the satisfaction of the following
conditions:
(i) on or before the fifth Business Day immediately preceding
the issuance date ("ADDITIONAL ISSUANCE DATE") of the Additional Series
1997-1 Junior Subordinated Certificate, the Transferor shall have
delivered to the Trustee, the Servicer and each Rating Agency written
notice of such issuance, including the Additional Issuance Date, the
principal amount thereof and the name of the person in whose name the
Additional Series 1997-1 Junior Subordinated Certificate shall be
registered (the "ADDITIONAL ISSUANCE NOTICE"), and
(ii) the Servicer shall have certified to the Trustee that the
Holder of the existing Series 1997-1 Junior Subordinated Certificate
has deposited in the Concentration Account immediately available funds
in the amount of the purchase price (at par) of the Additional Series
1997-1 Junior Subordinated Certificate. Any such funds so deposited by
such Holder in such Concentration Account shall be deemed to constitute
Principal Collections allocable solely to Series 1997-1 and shall be
applied in accordance with Section 4.05 as instructed by the Servicer.
Upon satisfaction of the above conditions, the Trustee shall deliver to the
Transferor the Additional Series 1997-1 Junior Subordinated Certificate for
execution and redelivery to the Trustee for authentication thereof. The Trustee
shall deliver such executed and authenticated Additional Series 1997-1 Junior
Subordinated Certificate to such Holder.
Section 10.01 SERVICER DEFAULTS. Section 10.01 of the Agreement is
modified by adding the following proviso after clause (k) thereof and before the
phrase "then, in the event", but with effect only from the date on which no
Investor Certificates of any Series issued prior to the Closing Date of Series
1997-1 are outstanding:
"PROVIDED that the event described in clause (i) shall not constitute a
Servicer Default if such event shall have occurred and be continuing at
a time when Capital Bank has a 0% direct or indirect interest in
Factors; PROVIDED FURTHER that the events described in clauses (j) and
(k) shall not constitute a Servicer Default if such event shall have
occurred and be continuing at a time when Capital Bank has a direct or
indirect interest in Factors of less than 50% unless such event has a
material adverse effect on the ability of Factors to act as Servicer
under this Agreement,"
Section 12.02 OPTIONAL PURCHASE AND SERIES TERMINATION DATE OF INVESTOR
CERTIFICATES OF ANY SERIES. Sections 12.02(a)
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and 12.02(b) of the Agreement shall not be applicable with respect to the Series
1997-1 Investor Certificates.
Section 12.05 DEFEASANCE. Section 12.05 of the Agreement shall not be
applicable with respect to the Series 1997-1 Investor Certificates.
Annex X. DEFINITIONS. In addition to the modifications to Annex X made
by Section 15 of this Supplement, the following modification and clarifications
are made to Annex X:
The definition of "Eligible Advance" is modified to delete the word
"and" at the end of clause (xiii) thereof and add the following at the
end of clause (xiv) thereof: ", and (xv) the Client of which is not
engaged primarily in the provision of temporary employee services or
the delivery or provision of health care services, including hospitals,
nursing homes, health agencies, durable medical equipment manufacturers
and distributors, physician groups and rehabilitation programs."
The definition of "Eligible Trust Account" is modified to add the
following at the end thereof: "; PROVIDED, HOWEVER, that "Eligible
Trust Account" shall not include any account maintained with Capital
Bank or any other Affiliate of Factors."
The definition of "Eligible Receivable" is modified to delete the word
"and" at the end of clause (ix) thereof and add the following at the
end of clause (x) thereof: ", and (xi) that is not a receivable owing
to a Client which is engaged primarily in the provision of temporary
employee services or the delivery or provision of health care services,
including hospitals, nursing homes, health agencies, durable medical
equipment manufacturers and distributors, physician groups and
rehabilitation programs."
For purposes of the definition of "Senior Certificate", such term, with
respect to Series 1997-1, shall include both a Series 1997-1 Senior
Certificate and a Series 1997-1 Senior Subordinated Certificate.
For purposes of the definition of "Subordinated Certificate", such
term, with respect to Series 1997-1, shall include only the Series
1997-1 Junior Subordinated Certificate and not the Series 1997-1 Senior
Subordinated Certificate.
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SECTION 3. INSPECTION RIGHTS; IN-DEPTH AUDITS; REPORTING REQUIREMENTS;
CONFIDENTIALITY.
(a) INSPECTION. At any time and from time to time during the
Transferor's, Factors' or the Servicer's regular business hours, on reasonable
prior notice and for a purpose reasonably related to the Agreement, the
Transferor, Factors and the Servicer shall, in response to any reasonable
request of any Series 1997-1 Certificateholder or the Trustee or in connection
with the Independent Public Accountants' preparation of any report required by
Section 3.06 of the Agreement, permit such Certificateholder or its agents or
representatives, the Trustee or its agents or representatives and such
Independent Public Accountants (i) to examine and make copies of and abstracts
from all books, records and documents (including computer tapes and disks) in
the possession or under the control of the Transferor, Factors or the Servicer
relating to the Advances, the related Receivables, the Related Property and the
related Factoring Agreements and Contracts, (ii) to visit the offices and
properties of the Transferor, Factors and the Servicer for the purpose of
examining such materials and to discuss matters relating to the Advances or
related Receivables or the Transferor's, Factors' and the Servicer's performance
under the Agreement with any of the officers or employees of the Transferor,
Factors and the Servicer having knowledge thereof and with the independent
public accountants of the Transferor, Factors and the Servicer (and by this
provision the Transferor, Factors and the Servicer each authorize their
respective accountants to discuss their respective finances and affairs).
(b) IN-DEPTH AUDITS. (1) Upon the delivery of an Audit Request to
Factors or the Transferor by any Series 1997-1 Senior Certificateholder holding
10% or more of the Invested Amount of such Series, and provided that no other
audit under this clause (b)(1) shall have been performed during the then current
fiscal quarter, the Servicer shall cause a firm of Independent Public
Accountants (who may also render other services to the Servicer, the Transferor
or Factors) to promptly perform a Special Audit and furnish to the Trustee, each
Series 1997-1 Senior Certificateholder and each Rating Agency a report thereon.
The Servicer hereby authorizes and directs such firm of Independent Public
Accountants to deliver a copy of such report directly to the Trustee. To the
extent that the Independent Public Accountants report to the Servicer any
material negative findings prior to the issuance of their report, the Servicer
shall inform, in writing, the Trustee of the same, and the Trustee shall forward
a copy of such writing to each Series 1997-1 Certificateholder and the
Transferor and shall not be required to furnish a copy to any other Person. The
Servicer will use its best efforts to cause the Independent Public Accountants
to complete their Special Audit within 60 days of the commencement of the same
and will otherwise cooperate and assist the Independent Public Accountants in
connection therewith.
(2) In addition, upon the delivery of an Audit Request to Factors or
the Transferor by any Series 1997-1 Senior
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Certificateholder, and provided that such Certificateholder shall not have
previously exercised its rights under this clause (b)(2) during the then current
fiscal quarter, such Series 1997-1 Senior Certificateholder shall be entitled,
at its own expense, to dispatch its own designated representative or
representatives to perform such investigations and review of such records of the
Servicer as such Certificateholder or such representative or representatives may
reasonably determine (the scope as well as the plan of such investigation and
review to be determined by such Certificateholder in its sole discretion); such
investigation and review to include, without limitation, the silent
participation by such representative or representatives in the telephonic
verifications performed by the Independent Public Accountants in respect of a
randomly selected sampling of at least 25 Clients representing at least 35% of
the Pool Balance and of 100 Customers whose Advances and Receivables constitute
Trust Assets.
(c) REPORTING REQUIREMENTS. Factors and the Transferor will deliver to
the Trustee, and the Trustee will deliver to each Holder of outstanding Series
1997-1 Senior Certificates and Series 1997-1 Senior Subordinated Certificates
and to each Rating Agency:
(i) CAPITAL BANK QUARTERLY CALL REPORTS -- within forty-five
days after the end of each quarterly fiscal period in each fiscal year
of Capital Bank, duplicate copies of the Quarterly Consolidated Reports
of Condition and Income as filed with the appropriate federal banking
regulatory agency;
(ii) HOLDING QUARTERLY STATEMENTS -- within fifty days after
the end of each quarterly fiscal period in each fiscal year of Holding
(other than the last quarterly fiscal period of each such fiscal year),
duplicate copies of
(A) a consolidated balance sheet of Holding and its
consolidated subsidiaries as at the end of such quarter, and
(B) consolidated statements of operations,
stockholders' equity and cash flows of Holding and its
consolidated subsidiaries for such quarter and (in the case of
the second and third quarters) for the portion of the fiscal
year ending with such quarter,
setting forth in each case in comparative form the figures for the
corresponding periods in the immediately preceding fiscal year, all in
reasonable detail, prepared in accordance with GAAP applicable to
quarterly financial statements generally, and accompanied by a
certificate signed by a principal financial officer of Holding stating
that such financial statements present fairly, in all material
respects, the financial position, results of operations and cash flows
of the companies being reported upon and have been prepared in
accordance with GAAP;
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PROVIDED that if the Form 10-Q of Holding as filed with the United
States Securities and Exchange Commission contains the financial
statements required by this Section 3(c)(ii), delivery of such Form
10-Q within the time period specified above shall satisfy the
requirements of this Section 3(c)(ii);
(iii) HOLDING ANNUAL STATEMENTS -- within ninety-five days
after the end of each fiscal year of Holding, duplicate copies of
(A) a consolidated balance sheet of Holding and its
consolidated subsidiaries as at the end of such year, and
(B) consolidated statements of operations,
stockholders' equity and cash flows of Holding its
consolidated subsidiaries for such year,
setting forth in each case in comparative form the figures for the
previous year and accompanied by an opinion of a firm of independent
certified public accountants of recognized national standing stating
that such financial statements present fairly, in all material
respects, the financial position, results of operations and cash flows
of the companies being reported upon and have been prepared in
accordance with GAAP; PROVIDED that if the Form 10-K of Holding as
filed with the United States Securities and Exchange Commission
contains the financial statements required by this Section 3(c)(iii),
delivery of such Form 10-K within the time period specified above shall
satisfy the requirements of this Section 3(c)(iii);
(iv) FACTORS QUARTERLY STATEMENTS -- within forty-five days
after the end of each quarterly fiscal period in each fiscal year of
Factors (other than the last quarterly fiscal period of each such
fiscal year), duplicate copies of
(A) a consolidated balance sheet of Factors and its
consolidated subsidiaries as at the end of such quarter,
accompanied by supplemental consolidating schedules, and
(B) consolidated statements of operations,
stockholders' equity and cash flows of Factors and its
consolidated subsidiaries for such quarter and (in the case of
the second and third quarters) for the portion of the fiscal
year ending with such quarter, accompanied by supplemental
consolidating schedules,
setting forth in each case in comparative form the figures for the
corresponding periods in the immediately preceding fiscal year, all in
reasonable detail, prepared in accordance with GAAP applicable to
quarterly financial statements generally, and accompanied by a
certificate signed by a principal financial officer of Factors stating
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that such financial statements present fairly, in all material
respects, the financial position, results of operations and cash flows
of the companies being reported upon and have been prepared in
accordance with GAAP;
(v) FACTORS ANNUAL STATEMENTS -- within ninety days after the
end of each fiscal year of Factors, duplicate copies of
(A) a consolidated balance sheet of Factors and its
consolidated subsidiaries as at the end of such year,
accompanied by supplemental consolidating schedules, and
(B) consolidated statements of operations,
stockholders' equity and cash flows of Factors its
consolidated subsidiaries for such year, accompanied by
supplemental consolidating schedules,
setting forth in each case in comparative form the figures for the
previous year and accompanied by an opinion of a firm of independent
certified public accountants of recognized national standing stating
that such financial statements present fairly, in all material
respects, the financial position, results of operations and cash flows
of the companies being reported upon and have been prepared in
accordance with GAAP;
(vi) AUDIT REPORTS -- promptly upon receipt thereof, one copy
of each other report submitted to Holding, Factors or the Transferor or
any of their respective subsidiaries by independent accountants in
connection with any annual, interim, or special audit made by such
accountants of the books of Holding, Factors or the Transferor or any
of their respective subsidiaries;
(vii) SEC AND OTHER REPORTS -- promptly upon their becoming
available, a copy of each financial statement, report (including,
without limitation, each Quarterly Report on Form 10-Q, each Annual
Report on Form 10-K and each Current Report on Form 8-K), notice or
proxy statement sent by Capital Bancorp, Capital Bank, Holding (to the
extent that such documents are not otherwise required to be delivered
by clauses (ii) and (iii) above), Factors or the Transferor or any of
their respective subsidiaries to stockholders generally and of each
regular or periodic report and any registration statement, prospectus
or written communication (other than transmittal letters), and each
amendment thereto, together in each case with a copy of any document
incorporated by reference therein, in respect thereof filed by Capital
Bancorp, Capital Bank, Holding, Factors or the Transferor or any of
their respective subsidiaries with, or received by, such Person in
connection therewith from, the National Association of Securities
Dealers, any securities exchange or the Securities and Exchange
Commission or any successor agency;
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(viii) REPORT ON PROCEEDINGS -- promptly upon Factors or the
Transferor becoming aware of (A) any proposed or pending investigation
of Capital Bancorp, Capital Bank, Holding, Factors or the Transferor or
any of their respective subsidiaries by any governmental authority or
agency or (B) any court or administrative proceeding, that in either
case involves the possibility of materially and adversely affecting the
ability of any of Factors, the Servicer or the Transferor to perform
their respective obligations under the Agreement, this Supplement or
the Contribution and Sale Agreement, a notice specifying its nature and
the action being taking with respect thereto;
(ix) NOTICES OF REGULATORY ACTION -- promptly upon receipt
thereof, copies of any notices received from any Federal or state
regulatory agencies relating to an order, ruling, statute, or other law
or information that might materially and adversely affect the ability
of any of Factors, the Servicer or the Transferor to perform their
respective obligations under the Agreement, this Supplement or the
Contribution and Sale Agreement; PROVIDED that delivery of such copies
shall not be prohibited by any Requirements of Law; and
(x) REQUESTED INFORMATION -- with reasonable promptness, any
other data and information that may be reasonably requested from time
to time by any Holder of Series 1997-1 Senior Certificates or the
Series 1997-1 Senior Subordinated Certificates;
PROVIDED, HOWEVER, that at a time when Factors is no longer a
majority-owned subsidiary of Capital Bank any of the foregoing
requirements relating to Capital Bank or Capital Bancorp shall be
satisfied by the delivery of the required information to the extent it
is publicly available or, if not publicly available, by the delivery of
such information to the extent it is obtainable by the best efforts of
Factors and the Transferor; PROVIDED FURTHER, that the foregoing
proviso shall not be given effect until such time as all Investor
Certificates of each Series issued prior to the Closing Date of Series
1997-1 are no longer outstanding.
(d) TRUSTEE DISCLOSURE. The Trustee may disclose to each holder of
Series 1997-1 Investor Certificates the information referred to in Section
2.02(b) of the Agreement.
(e) CONFIDENTIALITY. Each 1997-1 Certificateholder agrees that any
information furnished to it under this Section will be held in confidence and
not disclosed, all in accordance with and pursuant to its current procedures and
practices for maintaining the confidentiality of similar "confidential"
information (provided that such information neither (y) was previously publicly
known, or otherwise known to such Certificateholder, at the time of disclosure
nor (z) subsequently became publicly known other than through any act or
omission by such Holder), provided
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that such Certificateholder may disclose the aforesaid information (i) to its
officers, directors, trustees, internal counsel, internal investment advisers
and employees (and the officers, directors, trustees, internal counsel, internal
investment advisers and employees of any parent or holding company, if any, and
of any other of their affiliates) in the ordinary course of its respective
duties; (ii) when required by law or regulation or to the extent necessary to
comply with any summons, subpoena or notice of discovery or in connection with
any litigation or legal proceeding or in connection with any formal or informal
governmental investigative demand; (iii) to the extent necessary to comply with
the request of, or as otherwise customarily disclosed to, any regulatory body
having (or claiming to have) jurisdiction over them, to the United States
National Association of Insurance Commissioners or similar organizations or
their successors; (iv) to its independent auditors and accountants, counsel and
other professional advisers (or the independent auditors and accountants,
counsel and other professional advisers of its parent or holding company, if
any, and of any other of their affiliates) in the course of its respective
duties, provided that they consent to the provisions of this Section; (v) as may
be required or appropriate in connection with (a) the enforcement of its rights
under the Certificates, the Agreement, the Supplement or any related agreement
or (b) any contemplated transfer of any Certificates owned by it (provided that
any potential transferee agrees to be bound by the provisions of this Section);
and (vi) to any other Certificateholder, the Trustee, the Servicer, the
Transferor or the Paying Agent.
SECTION 4. SERIES 1997-1 SENIOR CERTIFICATE RATE AND SERIES 1997-1 SENIOR
SUBORDINATED CERTIFICATE RATE.
The "SERIES 1997-1 SENIOR CERTIFICATE RATE" for the Series 1997-1
Senior Certificates shall be equal to a per annum rate equal to LIBOR,
determined as of two LIBOR Business Days prior to the commencement of any
Interest Accrual Period, plus 0.75%. The "SERIES 1997-1 SENIOR SUBORDINATED
CERTIFICATE RATE" for the Series 1997-1 Senior Subordinated Certificates shall
be equal to a per annum rate equal to LIBOR, determined as of two LIBOR Business
Days prior to the commencement of any Interest Accrual Period, plus 1.50%. For
purposes of the first Interest Accrual Period in respect of the Series 1997-1
Senior Certificates and the Series 1997-1 Senior Subordinated Certificates,
LIBOR shall be determined two LIBOR Business Days prior to the Closing Date.
Interest shall be calculated monthly and shall accrue on the Series 1997-1
Senior Certificates and the Series 1997-1 Senior Subordinated Certificates at
the Series 1997-1 Senior Certificate Rate and the Series 1997-1 Senior
Subordinated Certificate Rate, respectively, as determined on the related LIBOR
Determination Date for each Interest Accrual Period.
"LIBOR" for each Interest Accrual Period shall be established by the
Trustee as follows:
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(i) on each LIBOR Determination Date, the Trustee shall
determine LIBOR for the next succeeding Interest Accrual Period on the
basis of the one-month offered LIBOR quotations, appearing on Telerate
Page 3750 as of 11:00 a.m., London Time, on such LIBOR Determination
Date. If such rate does not appear on Telerate Page 3750, the rate for
that day will be determined on the basis of the rates at which deposits
in U.S. Dollars are offered by the Reference Banks at approximately
11:00 a.m., London Time, on the LIBOR Determination Date to prime banks
in the London interbank market for a period of one month commencing on
that day. The Trustee will request the principal London office of each
of the Reference Banks to provide a quotation of its rate. If at least
two such quotations are provided, the rate for that day will be the
arithmetic mean of the quotations. If fewer than two quotations are
provided as requested, the rate for that day will be the arithmetic
mean of the rates quoted by major banks in New York City, selected by
the Servicer, at approximately 11:00 a.m., New York City time, on that
date for loans in U.S. Dollars to leading European banks for a period
of one month commencing on that day.
(ii) For purposes of this Section 4, the initial Reference
Banks shall be Bankers Trust Company, The Chase Manhattan Bank and
National Westminster Bank, PLC. If any of the foregoing Banks (or any
of their replacements as provided for in this clause (ii)) shall no
longer qualify as a Reference Bank, then the Servicer shall promptly
designate a replacement Reference Bank and shall notify the Trustee of
such replacement. The Trustee may conclusively rely and shall be
protected in relying upon the offered quotations (whether electronic,
written or oral) of the selected Reference Banks.
The establishment of LIBOR and the subsequent calculation of the
interest rate for each Interest Accrual Period by the Trustee, in the absence of
manifest error, will be final and binding. The Trustee shall telephone the
Servicer and send written notice to each Certificateholder within two Business
Days after each LIBOR Determination Date specifying the interest rate determined
on such LIBOR Determination Date and the Interest Accrual Period to which it
applies.
SECTION 5. SERVICING FEE PERCENTAGE AND DAILY TRUSTEE FEE.
The "SERVICING FEE PERCENTAGE" applicable to the Series 1997-1 Investor
Certificates shall be .50%. The "DAILY TRUSTEE FEE" applicable to the Series
1997-1 Investor Certificates shall be $68.50.
SECTION 6. NOTIFICATIONS.
The Trustee shall provide to each Certificateholder a copy of each
notice or other information listed in Exhibit 6 and any other notice or
information relating to the Trust received by the Trustee as any
Certificateholder may request.
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SECTION 7. SERIES TERMINATION DATE.
The "SERIES TERMINATION DATE" for the Series 1997-1 Investor
Certificates shall be the Special Payment Date in June, 2004.
SECTION 8. BORROWING AND REBORROWING.
(a) BORROWING. On the last Business Day of any Settlement Period during
the Revolving Period, the Transferor may cause the Trust to borrow or reborrow
amounts to be evidenced by the Series 1997-1 Investor Certificates or reborrow
amounts theretofore paid (a "BORROWING") so long as:
(i) no Early Amortization Event, Prospective Early
Amortization Event or Accumulation Event would occur by reason of such
Borrowing if the Borrowing occurred on the date the Transferor
delivered the notice provided for in Section 8(b)(i) below (the
"BORROWING NOTICE DATE");
(ii) no Early Amortization Event, Prospective Early
Amortization Event or Accumulation Event has occurred and is continuing
as of the close of business on the Business Day immediately preceding
the Borrowing Notice Date;
(iii) no Early Amortization Event, Prospective Early
Amortization Event or Accumulation Event (in each case as defined in
the related supplement) would occur with respect to any other Series by
reason of such Borrowing if the Borrowing occurred on the Borrowing
Notice Date;
(iv) no Early Amortization Event, Prospective Early
Amortization Event or Accumulation Event (in each case as defined in
the related supplement) has occurred with respect to any other Series
as of the close of business on the Business Day immediately preceding
the Borrowing Notice Date;
(v) after giving effect to such Borrowing, as if it occurred
on the Borrowing Notice Date, the sum of the Class B Invested Amount
PLUS the Class C Invested Amount would be at least equal to the
Required Subordinated Amount;
(vi) after giving effect to such Borrowing, as if it occurred
on the Borrowing Notice Date, (A) the Invested Amount of each Class of
Series 1997-1 Investor Certificates would not exceed the Maximum
Invested Amount of each such Class and (B) the proportion that the
Class A Invested Amount would bear to the Class B Invested Amount
(assuming no Investor Funding Deficiencies with respect to such
Borrowing or any prior Borrowing) shall be the same as the proportion
that the Maximum Invested Amount of Class A bears to the Maximum
Invested Amount of Class B;
(vii) the Aggregate Transferor's Current
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Participation Amount would not be less than the Aggregate Transferor's
Required Participation Amount, in each case as of such Borrowing Notice
Date and after giving effect to such Borrowing, as if the Borrowing
occurred on the Borrowing Notice Date; and
(viii) the Current Advance Coverage Amount would not be less
than the Required Advance Coverage Amount, in each case as of such
Borrowing Notice Date and after giving effect to such Borrowing, as if
the Borrowing occurred on the Borrowing Notice Date.
(b) MECHANICS.
(i) By 1:00 p.m., New York City time, on or before the fifth
Business Day (but not earlier than the seventh Business Day) preceding
each Borrowing Date the Transferor shall deliver a Borrowing Notice in
the form of Exhibit 8(b)(i) hereto (a "BORROWING NOTICE") to the
Trustee, the Servicer and each Holder of a Series 1997-1 Investor
Certificate indicating the amount to be borrowed or reborrowed with
respect to each Class of Series 1997-1 Investor Certificates and
certifying as to the conditions set forth in clauses (i) - (viii) of
Section 8(a) above. By the close of business not later than the second
Business Day preceding the Borrowing Date, the Trustee shall deliver a
notice to each Holder of a Series 1997-1 Investor Certificate stating
whether or not the Trustee has received the Borrowing Junior
Subordinated Amount from the Holder of the Series 1997-1 Junior
Subordinated Certificates.
(ii) Each Holder of a Series 1997-1 Investor Certificate
(other than the Holder of the Series 1997-1 Junior Subordinated
Certificate) will be deemed to agree by its acceptance of such Investor
Certificate to invest or reinvest (subject to the terms of this Section
8) an amount not exceeding at any time its PRO RATA portion of the
outstanding Maximum Invested Amount of such Class of Investor
Certificate by wiring to the Borrowing Account the amount of such
borrowing or reborrowing specified in a Borrowing Notice to the Trustee
by not later than 11:00 a.m., New York City time, on the related
Borrowing Date; PROVIDED HOWEVER, that the Holders of the Series 1997-1
Senior Certificates and Series 1997-1 Senior Subordinated Certificates
will have no obligation to so invest or reinvest in the event that the
Trustee does not receive the Borrowing Junior Subordinated Amount from
the Holder of the Series 1997-1 Junior Subordinated Certificates on or
prior to the second Business Day preceding the Borrowing Date specified
in the related Borrowing Notice. In the event that the Trustee has not
received the amount required to be delivered under this Section 8 from
any Series 1997-1 Senior Certificateholder or Series 1997-1 Senior
Subordinated Certificateholder by 11:00 a.m., New York City time, on a
Borrowing Date, the Trustee shall by not later than the close of
business on the Borrowing Date (i) use reasonable
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efforts to give telephonic notice and (ii) provide written notice by
telecopy of such failure to such Certificateholder and to the
Transferor.
(iii) On each Borrowing Date, by not later than 11:00 a.m.,
New York City time, the Transferor shall deliver a Confirmation Notice
substantially in the form of Exhibit 8(b)(iii) hereto (a "CONFIRMATION
NOTICE") to the Trustee, the Servicer and each Holder of a Series
1997-1 Investor Certificate certifying as to the conditions set forth
in Exhibit 8(b)(iii) hereto as of the close of business on the Business
Day preceding the Borrowing Date.
(iv) Subject to Sections 8(b)(v) and 8(e)(ii) below, amounts
received by the Trustee in respect of a Borrowing from Holders of the
Series 1997-1 Investor Certificates, from the Holder of the Series
1997-1 Junior Subordinated Certificates pursuant to Section 8(b)(v)
below or from the Transferor pursuant to Section 8(e)(ii) below will be
deposited in the Borrowing Account and will remain on deposit therein
until such time as the Trustee has received (a) the entire amount of
such Borrowing and (b) the Confirmation Notice from the Transferor
certifying as to the matters set forth therein, at which time all
amounts on deposit in the Borrowing Account shall be withdrawn and
applied as provided by the succeeding two sentences. The Trustee shall,
at the direction of the Transferor, withdraw from the Borrowing Account
such amounts as shall be necessary to make the deposit contemplated by
Section 8(c) below. The remainder shall be deposited into the
Concentration Account and be deemed to constitute Principal Collections
allocable solely to Series 1997-1 and shall be applied in accordance
with Section 4.05 at the written direction of the Servicer.
(v) In the event that, after giving effect to the Borrowing
occurring on a Borrowing Date, there would be a Subordination
Deficiency Amount on such Borrowing Date (based on figures from the
close of business on the Business Day immediately preceding such
Borrowing Date), the Holder of the Series 1997-1 Junior Subordinated
Certificates may, at its sole election and by 11:00 a.m., New York City
time, on the Borrowing Date, deposit an amount into the Borrowing
Account equal to such Subordination Deficiency Amount (an "ADDITIONAL
JUNIOR BORROWING AMOUNT "). If the sum of (t) the Additional Junior
Borrowing Amount, PLUS (u) the Class C Invested Amount (prior to the
Borrowing) PLUS (v) the Borrowing Junior Subordinated Amount with
respect to the related Borrowing Date would cause the Series 1997-1
Junior Subordinated Certificates to have an outstanding principal
amount in excess of their Maximum Invested Amount, the Holder of the
Series 1997-1 Junior Subordinated Certificates may, by written notice
to the Trustee, cause the Maximum Invested Amount of such Class of
Certificates to be increased to an amount equal to the amount produced
by the summation of clauses (t), (u) and (v) of this sentence
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(provided that at no time shall the Maximum Invested Amount of Class C
decrease once it has increased). If there is a Subordination Deficiency
Amount on the Borrowing Date (based on figures from the close of
business on the Business Day immediately preceding such Borrowing Date)
and the Holder of the Series 1997-1 Junior Subordinated Certificates
does not deposit the Additional Junior Borrowing Amount by the required
time, all amounts received by the Trustee in respect of the related
Borrowing from Holders of the Series 1997-1 Investor Certificates shall
be returned to the respective Holders by not later than the close of
business on the Borrowing Date.
(vi) The Trustee shall (a) keep accurate records of the
outstanding principal amount of each Series 1997-1 Investor Certificate
and (b) after any borrowing or reborrowing hereunder, promptly notify
the Transferor, the Servicer and each Holder of a Series 1997-1
Investor Certificate in writing of the outstanding principal amount of
each such Certificate.
(c) DEPOSIT INTO SERIES 1997-1 CASH COLLATERAL SUB-ACCOUNT. On each
Borrowing Date, the Trustee, at the written direction of the Transferor, will
deposit into the Series 1997-1 Cash Collateral Sub-Account, from the proceeds of
the related Borrowing, funds sufficient to cause the amount on deposit therein
to equal the Cash Collateral Maintenance Amount that will be required after
giving effect to such Borrowing.
(d) FULL BORROWING. To the extent that the Invested Amount of the
Series 1997-1 Investor Certificates may be increased on the last Business Day of
any Settlement Period during the Revolving Period, the Transferor will be
obligated to cause the Trust to make a Borrowing of at least 90% of the full
amount available (taking into account the conditions of this Section 8) for
borrowing or reborrowing as of the close of business on the Business Day
immediately preceding the date of the related Borrowing Notice. In the event
that any Series of variable funding certificates is subsequently issued, such
amounts available for borrowing or reborrowing will be apportioned among such
other Series and Series 1997-1 based on the proportion that each such Series'
aggregate Maximum Invested Amount bears to the aggregate of the aggregate
Maximum Invested Amounts of all Series of variable funding certificates, in each
case after giving effect to all borrowings or reborrowings with respect to each
such Series on the related Borrowing Date.
(e) FAILURE TO FUND.
(i) If, at a time when the conditions precedent set forth in
Section 8(a) hereof are satisfied, any Holder of a Series 1997-1 Senior
Certificate or Series 1997-1 Senior Subordinated Certificate fails to
deliver the amount required to be invested or reinvested pursuant to
this Section 8 (in immediately available funds) and such failure shall
continue for a period of three Business Days after the
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related Borrowing Date (a "FUNDING FAILURE"), and in the case of a
failure by a Holder of a Series 1997-1 Senior Subordinated Certificate,
the Transferor makes the election in clause (ii) below, there shall
exist an "INVESTOR FUNDING DEFICIENCY" equal to the excess of the
amount required to be invested or reinvested over the amount, if any,
actually invested or reinvested or deemed invested or reinvested as a
result of the following sentence. Anything in the Agreement or this
Supplement to the contrary notwithstanding, for so long as such
Investor Funding Deficiency exists, all amounts otherwise payable to
the Holder under the Agreement or this Supplement with respect to which
such Investor Funding Deficiency exists shall not be paid to such
Holder but shall be applied to reduce the Investor Funding Deficiency.
Amounts so withheld from the Holder of a Series 1997-1 Senior
Certificate shall be deposited into the Concentration Account and shall
be deemed to constitute Principal Collections allocable solely to
Series 1997-1 and shall be applied in accordance with Section 4.05.
Amounts so withheld from the Holder of a Series 1997-1 Senior
Subordinated Certificate shall be paid to the Transferor in
reimbursement of the amount advanced by the Transferor under clause
(ii) below. Amounts so applied shall be deemed to have been paid to
such Holder for all other purposes of this Supplement and the
Agreement.
(ii) In the event that there is a Funding Failure by any
Holder of a Series 1997-1 Senior Subordinated Certificate, the
Transferor may (at its sole election) deposit an amount into the
Borrowing Account equal to the Investor Funding Deficiency attributed
to such Series 1997-1 Senior Subordinated Certificate. If there is a
Funding Failure by a Holder of a Series 1997-1 Senior Subordinated
Certificate and the Transferor does not elect as aforesaid, all amounts
received by the Trustee in respect of the Borrowing from Holders of the
Series 1997-1 Investor Certificates shall, upon written direction of
the Transferor, be returned to the respective Holders by not later than
the close of business on the fourth Business Day after the related
Borrowing Date together with interest in an amount equal to the Funding
Deficiency Interest Amount.
(iii) For purposes of any provision in the Agreement
or in this Supplement relating to amendments, modifications, waivers or
consents or otherwise allowing or requiring the vote of any
Certificateholders under the Agreement, this Supplement or any other
document in connection with the transactions contemplated thereby and
hereby, any Series 1997-1 Senior Certificate or Series 1997-1 Senior
Subordinated Certificate in respect of which there exists or remains an
Investor Funding Deficiency shall, as applicable, be treated as not
outstanding, as having an Undivided Interest of zero and not counted in
the calculation of the Senior Invested Amount, Invested Amount, Class A
Invested Amount or any other similar calculation; PROVIDED that this
clause (iii) shall not be given effect
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with respect to any action relating to the matters referred to in the
second sentence of Section 13.01(b).
(iv) For the purposes of any distribution in respect of
principal, interest or commitment fees in respect of the Series 1997-1
Investor Certificates, the amount of such distribution payable to the
Holder of any Series 1997-1 Senior Certificate or Series 1997-1 Senior
Subordinated Certificate in respect of which there exists (or during
any relevant period there existed) an Investor Funding Deficiency shall
be adjusted accordingly to allocate the reductive effect of such
Investor Funding Deficiency in respect of such principal, interest or
commitment fees to such Holder.
(v) The rights, remedies, powers and privileges provided by
this Section 8 are in addition to, and not in lieu of, any rights,
remedies, powers and privileges otherwise provided by law.
(f) The failure of any Series 1997-1 Senior Certificateholder or Series
1997-1 Senior Subordinated Certificateholder to deliver the amount required to
be invested or reinvested pursuant to Section 8 on any Borrowing Date shall not
relieve any other Series 1997-1 Senior Certificateholder or Series 1997-1 Senior
Subordinated Certificateholder of its obligation under this Section 8 on such
Borrowing Date, but no Holder of any Series 1997-1 Investor Certificate shall be
responsible for the failure of any other Holder to deliver the amount required
to be invested or reinvested by such other Holder pursuant to this Section 8 on
such Borrowing Date.
(g) At any time when a Holder of any Series 1997-1 Investor Certificate
has reasonable grounds to believe that the conditions set forth in a Borrowing
Notice, Confirmation Notice or otherwise in this Section 8 have not been
satisfied, the obligations of such Holder under Section 8(b) shall be suspended
until such time as such Holder has received reasonable assurance that such
conditions have been satisfied.
(h) Notwithstanding anything to the contrary in the foregoing
provisions of this Section 8, the amounts to be borrowed by the Trust on the
Closing Date and to be evidenced by the Series 1997-1 Investor Certificates
shall be wired by the Series 1997-1 Certificateholders to such account (other
than the Borrowing Account) as is directed in writing to them by the Transferor.
SECTION 9. PREPAYMENT.
(a) PREPAYMENT. On the last Business Day of any Settlement Period
during the Revolving Period, the Transferor may cause the Trust to prepay, in
whole or in part, the Series 1997-1 Investor Certificates (a "PREPAYMENT") from
amounts on deposit in the Prepayment Account and/or the Series 1997-1 Excess
Funding Sub-Account so long as:
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(i) no Early Amortization Event, Prospective Early
Amortization Event or Accumulation Event would occur by reason of such
Prepayment if the Prepayment occurred on the date the Transferor
delivered the notice provided for in Section 9(b) below (the
"PREPAYMENT NOTICE DATE");
(ii) no Early Amortization Event, Prospective Early
Amortization Event or Accumulation Event has occurred and is continuing
as of the close of business on the Business Day immediately preceding
the Prepayment Notice Date;
(iii) after giving effect to such Prepayment, as if it
occurred on the Prepayment Notice Date, the proportion that the Class A
Invested Amount would bear to the Class B Invested Amount (assuming no
Investor Funding Deficiencies with respect to any Borrowing) shall be
the same as the proportion that the Maximum Invested Amount of Class A
bears to the Maximum Invested Amount of Class B;
(iv) after giving effect to such Prepayment, as if it occurred
on the Prepayment Notice Date, the sum of the Class B Invested Amount
PLUS the Class C Invested Amount will be at least equal to the Required
Subordinated Amount;
(v) if the Class A Invested Amount would equal zero after
giving effect to such Prepayment, as if it occurred on the Prepayment
Notice Date, no amount of such Prepayment shall be applied against the
Class C Invested Amount unless the Class B Invested Amount would also
equal zero after giving effect to such Prepayment; and
(vi) after giving effect to such Prepayment, as if it occurred
on the Prepayment Notice Date, the requirements of Section 8(d) will be
satisfied.
(b) MECHANICS. By 1:00 p.m., New York City time, on or before the fifth
Business Day (but not earlier than the seventh Business Day) preceding each
Prepayment Date the Transferor shall deliver a Prepayment Notice in the form of
Exhibit 9(b) hereto (a "PREPAYMENT NOTICE") to the Trustee, the Servicer and
each Holder of a Series 1997-1 Investor Certificate indicating the amount to be
withdrawn from the Prepayment Account and/or the Series 1997-1 Excess Funding
Sub-Account and prepaid in respect of each Class of Series 1997-1 Investor
Certificates and certifying as to the conditions set forth in clauses (i) - (vi)
of Section 9(a) above. The Trustee shall (i) keep accurate records of the
outstanding principal amount of each Series 1997-1 Investor Certificate and (ii)
after any prepayment hereunder, promptly notify the Transferor, the Servicer and
each Holder of a Series 1997-1 Investor Certificate in writing of the
outstanding principal amount of each such Certificate.
(c) DEPOSITS INTO PREPAYMENT ACCOUNT. In addition to the right to cause
deposits to be made by the Trustee into the
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Prepayment Account pursuant to Section 4.05(f), the Transferor (at its sole
election) may make or cause to be made a deposit of its own funds into the
Prepayment Account on any Business Day during the Revolving Period.
(d) WITHDRAWAL FROM SERIES 1997-1 CASH COLLATERAL SUB-ACCOUNT. On any
Prepayment Date, if the amounts on deposit in the Series 1997-1 Cash Collateral
Sub-Account are greater than the Cash Collateral Maintenance Amount required
after giving effect to the related Prepayment, the Trustee shall, at the
Transferor's direction, withdraw the amount of such excess from the Series
1997-1 Cash Collateral Sub-Account and pay such amount to the Transferor.
SECTION 10. DELIVERY AND PAYMENT FOR THE SERIES 1997-1 INVESTOR CERTIFICATES.
The Trustee shall deliver the Series 1997-1 Investor Certificates to
the Transferor when authenticated upon the written direction of the Transferor.
SECTION 11. MINIMUM AUTHORIZED DENOMINATIONS.
The Series 1997-1 Investor Certificates shall be issued in fully
registered, certificated form. Each Series 1997-1 Certificate shall be issued in
denominations of a minimum of $500,000, with the denomination representing such
Certificate's share of the Maximum Invested Amount of the respective Class.
SECTION 12. SUBORDINATION OF SUBORDINATED INVESTORS' INTEREST.
The Subordinated Investors' Interest in the Trust Assets will be
subordinated to the Senior Investors' Interest to the extent provided herein
and, together with the interest of the Series 1997-1 Senior Subordinated
Certificates, shall be required to be maintained at the Required Subordinated
Amount as contemplated by Section 4.04(h)(iv)(A). The portion of the Senior
Investors' Interest in the Trust Assets represented by the Series 1997-1 Senior
Subordinated Certificates will be subordinated to the interest represented by
the Series 1997-1 Senior Certificates to the extent provided herein. Unless
otherwise consented to by the Majority Certificateholders of Series 1997-1, no
Series 1997-1 Junior Subordinated Certificate shall be initially issued to any
Person other than CF One and the Trustee shall not authenticate any such Series
1997-1 Junior Subordinated Certificate if issued to a Person other than CF One.
The Series 1997-1 Senior Certificates shall be substantially in the form of
EXHIBIT 12-A hereto. The Series 1997-1 Senior Subordinated Certificates shall be
substantially in the form of EXHIBIT 12-B hereto. The Series 1997-1 Junior
Subordinated Certificates shall be substantially in the form of EXHIBIT 12-C
hereto.
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SECTION 13. ADDITIONAL EARLY AMORTIZATION EVENTS WITH RESPECT TO SERIES 1997-1;
WAIVER OF EARLY AMORTIZATION EVENTS.
(a) Without limiting the application of Section 9.01 of the Agreement
to Series 1997-1, if any one of the following events shall occur at such time as
there shall be at least one outstanding Series 1997-1 Senior Certificate or
Series 1997-1 Senior Subordinated Certificate:
(i) at any time Fitch shall then be rating the Series 1997-1 Senior
Certificates below "A" (or the equivalent thereof) or shall have
withdrawn its rating of the Series 1997-1 Senior Certificates;
(ii) any results of any audit prepared as a result of an Audit Request
shall demonstrate the existence of a material discrepancy from the Loan
and Credit Policy or from reports previously rendered pursuant to
Section 3.06;
(iii) the Transferor's Current Participation Amount is less than the
Transferor's Required Participation Amount for any three consecutive
Determination Dates;
(iv) the Series 1997-1 Allocation Percentage of the aggregate Unpaid
Balance of Series 1997-1 Secondary Eligible Advances shall be less than
90% of the Initial Invested Amount for Series 1997-1 for any three
consecutive Determination Dates;
(v) the Required Subordinated Percentage shall at any time exceed 25%;
(vi) during the Revolving Period, there shall be less than 125
Designated Accounts in the Trust; for purposes of this clause (vi), all
Designated Accounts of Clients that are Affiliates of each other shall
be deemed to be a single Designated Account;
(vii) (a) the Servicer is terminated pursuant to Section 10.01 of the
Agreement without the consent of the Majority Certificateholders of
Series 1997-1 or (b) the Servicer is not terminated pursuant to such
Section under circumstances constituting any Servicer Default in
respect of which such Majority Certificateholders have requested such
termination or (c) the Servicer is terminated pursuant to Section 10.01
of the Agreement with the consent of the Majority Certificateholders of
Series 1997-1 and a Successor Servicer (including, without limitation,
the Trustee acting as such Successor Servicer 30 days after a Servicer
Default) is appointed pursuant to Section 10.02 of the Agreement
without the consent of the Majority Certificateholders of Series 1997-1
or (d) the Servicer is terminated pursuant to Section 10.01 of the
Agreement with the
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consent of the Majority Certificateholders of Series 1997-1 and no
Successor Servicer is appointed pursuant to Section 10.02 of the
Agreement within 30 days of such termination;
(viii) the Required Receivable Coverage for Series 1997-1 shall exceed
the Series 1997-1 Actual Receivable Coverage for any three consecutive
Determination Dates;
(ix) the Settlement Statement due on any Determination Date reports
that, or facts shall exist such that, Series 1997-1 Actual Receivables
Nonpayment exceeds 18% for the related Settlement Period;
(x) the Series 1997-1 Allocation Percentage of the aggregate Unpaid
Balance of Series 1997-1 Secondary Eligible Receivables shall, for any
three consecutive Determination Dates, be less than 135% of the
difference of (a) the Class A Invested Amount for Series 1997-1 MINUS
(b) the sum of all amounts on deposit in the Series 1997-1 Excess
Funding Sub-Account, the Series 1997-1 Accumulation Sub-Account and the
Prepayment Account;
(xi) the Settlement Statement due on any Determination Date reports
that, or facts shall exist such that, as of the last day of the related
Settlement Period (A) the aggregate Unpaid Balance of Receivables that
are at least 60 days past due on such date exceeds 10% of the Unpaid
Balance of all Eligible Receivables on such date, (B) the average of
the aggregate Unpaid Balances of Receivables that are at least 60 days
past due on the last days of such Settlement Period and the two
immediately preceding Settlement Periods exceeds 7% of the average of
the Unpaid Balances of all Eligible Receivables on such dates, (C) the
aggregate Unpaid Balance of Receivables that are at least 90 days past
due on such date exceeds 4.5% of the Unpaid Balance of all Eligible
Receivables on such date or (D) the average of the aggregate Unpaid
Balances of Receivables that are at least 90 days past due on the last
days of such Settlement Period and the two immediately preceding
Settlement Periods exceeds 3.25% of the average of the Unpaid Balances
of all Eligible Receivables on such dates;
(xii) the sum of the Class B Invested Amount and Class C Invested
Amount for Series 1997-1 equals (a) less than 13% of the Class A
Invested Amount for Series 1997-1 for any three consecutive
Determination Dates or (b) less than 10% of the Class A Invested Amount
for Series 1997-1 on any Determination Date;
(xiii) on the next succeeding Payment Date after (A) any withdrawal
from the Series 1997-1 Cash
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Collateral Sub-Account or (B) any increase in the Cash Collateral
Maintenance Amount for Series 1997-1, the amount on deposit in such
Cash Collateral Sub-Account is less than the Cash Collateral
Maintenance Amount for Series 1997-1, after giving effect to any
refunding of such Cash Collateral Sub-Account on such Payment Date;
(xiv) the Aggregate Certificateholder Interest Collections for Series
1997-1 received during any two consecutive Settlement Periods shall be
in each case less than the Required Monthly Payment Amount due for
Series 1997-1 on the Payment Date immediately following each such
Settlement Period;
(xv) the Weighted Average Factoring Fee shall be less than .75%;
(xvi) any Settlement Statement due on any Determination Date shall
state that, or facts shall exist such that, the Weighted Average
Receivable Life of all Receivables in Designated Accounts at any time
during the three-month period ended on the last day of the immediately
preceding Settlement Period exceeds 70 days;
(xvii) the Settlement Statement due on any Determination Date reports
that, or facts shall exist such that, Series 1997-1 Actual Receivables
Dilution Nonpayment exceeds 11% for the related Settlement Period;
(xviii) the Accumulation Event described in clause (e) of the
definition of "Accumulation Event" shall have existed for 30
consecutive Business Days, or the Accumulation Event described in
clause (f) of such definition shall have existed for 60 consecutive
days;
(xix) on any Determination Date, the average of the Receivable Payment
Ratios for the three immediately preceding Settlement Periods shall be
less than 40%; or
(xx) on any Determination Date, the average of the sum of the Class B
Invested Amount and the Class C Invested Amount for Series 1997-1 as of
such Determination Date and the two immediately preceding Determination
Dates shall be less than 13% of the average of the Class A Invested
Amount for Series 1997-1 as of such Determination Dates;
PROVIDED that the event described in clause (xv) above shall not constitute a
declarable Early Amortization Event or Prospective Early Amortization Event
under this Section 13(a) unless such event shall have occurred on three
consecutive Determination Dates; and PROVIDED FURTHER that the events described
in clauses (iii), (iv), (viii), (x) and (xii)(a) above shall not constitute
Prospective Early Amortization Events unless such events shall
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have occurred on three consecutive Determination Dates, it being understood that
this proviso as to Prospective Early Amortization Events shall not limit the
status of the events in such clauses as declarable Early Amortization Events;
then, an "Early Amortization Event" shall exist,
in the case of any event described in subparagraphs (i) through (iii), (v)
through (ix) and (xi) through (xx) above, if the Trustee or the Majority
Certificateholders of Series 1997-1 give notice thereof in writing to the
Transferor, the Trustee and the Servicer and in such notice declare that an
Early Amortization Event has occurred as of the date of such notice with respect
to Series 1997-1, and in the case of any event described in subparagraphs (iv)
and (x), immediately upon the occurrence of such event and without any notice or
other action on the part of the Majority Certificateholders of Series 1997-1,
the Trustee or the Servicer.
(b) No Early Amortization Event with respect to the Series 1997-1
Certificates may be waived without the consent of the Majority
Certificateholders of Series 1997-1.
(c) With respect to Section 9.01(c) of the Agreement, this Supplement
hereby provides for the treatment of subparagraph (vii) of Section 9.01 of the
Agreement as set forth in such Section 9.01(c).
SECTION 14. FUNDING OF CASH COLLATERAL SUB-ACCOUNT.
On or prior to the Closing Date, the Transferor shall deposit into the
Series 1997-1 Cash Collateral Sub-Account an amount equal to $1,350,000. On each
Borrowing Date, the Trustee, at the direction of the Transferor as provided in
Section 8(c) of this Supplement, shall deposit proceeds of the related Borrowing
into the Series 1997-1 Cash Collateral Sub-Account in an amount sufficient to
cause the amounts on deposit in such Sub-Account to equal the Cash Collateral
Maintenance Amount that will be required after giving effect to the Borrowing
occurring on such Borrowing Date.
Notwithstanding anything to the contrary contained elsewhere in this
Supplement or in the Agreement and as provided in Section 9(d) of this
Supplement, on any Prepayment Date on which the amounts on deposit in the Series
1997-1 Cash Collateral Sub-Account are greater than the Cash Collateral
Maintenance Amount required after giving effect to the related Prepayment, the
Trustee, if so directed by the Transferor, shall withdraw from the Series 1997-1
Cash Collateral Sub-Account the amount of such excess and pay such amount to the
Transferor.
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SECTION 15. DEFINITIONS.
For the purposes of the Agreement and this Supplement, the following
terms shall be defined as follows and shall supersede, with respect to the
Series 1997-1 Investor Certificates, any definitions stated in Article I of the
Agreement or Annex X thereto:
"Section 4.05(A) AMOUNT" has the meaning set forth in Section 4.05(a).
"125TH ACCOUNT ADVANCE AMOUNT" for any Business Day shall have the
meaning set forth in the two immediately succeeding sentences. On each Business
Day, the Servicer shall list all Designated Accounts in descending order
according to the amount of outstanding Series 1997-1 Secondary Eligible Advances
in each Designated Account. The "125th Account Advance Amount" for such Business
Day shall be the amount of outstanding Series 1997-1 Secondary Eligible Advances
in the 125th Designated Account on such list. For purposes of this definition,
all Designated Accounts of Clients that are affiliated with each other shall be
deemed to be a single Designated Account.
"125TH ACCOUNT DAILY FRACTION" for any Business Day shall mean a
fraction (rounded to the fourth decimal place) the numerator of which is equal
to the 125th Account Advance Amount and the denominator of which is equal to
$50,000.
"125TH ACCOUNT MULTIPLIER" for any Business Day shall mean (a) 1.0000
if the 125th Account Rolling Average for such day is equal to or greater than
1.0000 or (b) the 125th Account Rolling Average for such day if the 125th
Account Rolling Average for such day is less than 1.0000.
"125TH ACCOUNT ROLLING AVERAGE" for any Business Day shall mean the
average (rounded to the fourth decimal place) of the 125th Account Daily
Fractions for such Business Day and each of the 9 immediately preceding Business
Days.
"ACCEPTABLE TRANSFEREE RATING" shall mean, for purposes of clause (b)
of the definition of the term "Eligible Transferee", a commercial bank having a
credit rating from any two of S&P, Moody's, Fitch and Duff & Phelps in respect
of (X) its long term bank deposits or (Y) if no such debt has a rating from any
two of such agencies which is then published and in effect, its long term debt
or (Z) if neither of the foregoing types of debt have ratings from any two of
such agencies which are then published and in effect, the long term debt of its
holding company, which credit rating shall be (a) BBB or better, in the case of
S&P, (b) Baa2 or better, in the case of Moody's, (c) BBB or better, in the case
of Fitch and (d) BBB or better, in the case of Duff & Phelps. Notwithstanding
the foregoing, if the foregoing debt of the relevant commercial bank or its
holding company, as the case may be, is rated only by one of S&P, Moody's, Duff
& Phelps and Fitch (but not by two or more of such
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agencies) and such rating is not worse than the rating described for such rating
agency in the immediately foregoing sentence, such commercial bank shall be
deemed to have an Acceptable Transferee Rating.
"ACCUMULATION CONTINUATION EVENT" means, solely for purposes of the
second parenthetical clause in Section 4.05(a)(v), that on any Business Day the
Series 1997-1 Allocation Percentage of the aggregate Unpaid Balance of Series
1997-1 Secondary Eligible Receivables shall be less than the difference of (a)
135% of the Class A Invested Amount for Series 1997-1 MINUS (b) the sum of all
amounts on deposit in the Series 1997-1 Excess Funding Sub-Account and Series
1997-1 Accumulation Sub-Account.
"ACCUMULATION EVENT", for Series 1997-1, shall mean (a) the occurrence
on any one Determination Date of any event described in clauses (x) or (xv) of
Section 13(a) of this Supplement or the occurrence on any day of any event
described in clauses (xi)(A) or (xi)(C) of Section 13(a) of this Supplement, (b)
the occurrence on any day of a withdrawal from the Series 1997-1 Cash Collateral
Sub-Account which reduces the amount on deposit in such Cash Collateral
Sub-Account below the Cash Collateral Maintenance Amount for Series 1997-1, (c)
the termination of Factors as the Servicer for any reason pursuant to Section
10.01 of the Agreement, (d) the occurrence of a breach of the Transferor's
covenants in Section 2.06(h) or (k) of the Agreement, (e) on any Business Day
there are not at least 300 Customers each with Receivables having an aggregate
Unpaid Balance of at least $50,000, or (f) a Servicer Default shall have
occurred and be continuing and the Majority Certificateholders of Series 1997-1
shall have notified the Servicer, the Transferor and the Trustee in writing of
their election under this clause (f) that such Servicer Default shall cause an
Accumulation Event.
"ADDITIONAL ISSUANCE DATE" has the meaning set forth in Section
6.09(d)(i).
"ADDITIONAL JUNIOR BORROWING AMOUNT" has the meaning set forth in
Section 8(b)(v) of this Supplement.
"ADDITIONAL SERIES 1997-1 JUNIOR SUBORDINATED CERTIFICATE" has the
meaning set forth in Section 6.09(d).
"AGGREGATE CERTIFICATEHOLDER INTEREST COLLECTIONS" means, for any
Settlement Period, the aggregate amount of Collections deposited into the Series
1997-1 Interest Funding Sub-Account pursuant to Sections 4.04(e) and 4.05(a)(ii)
during such Settlement Period.
"AUDIT REQUEST" shall mean a written request delivered by any Series
1997-1 Senior Certificateholder to Factors or the Transferor, as the case may
be, stating that such Certificateholder (i) is reasonably concerned about its
investment in its Certificates and (ii) requests the performance of a Special
Audit in accordance with Section 3(b)(1) or Section
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3(b)(2), as the case may be.
"AVAILABLE CERTIFICATEHOLDER PRINCIPAL COLLECTIONS" means for any
Business Day the product of (a) the Series 1997-1 Allocation Percentage of
Principal Collections for such Business Day times either (b) if such Business
Day is during the Revolving Period, the Series 1997-1 Floating Allocation
Percentage on such Business Day or (c) if such Business Day is during an
Amortization Period, the Series 1997-1 Principal Allocation Percentage on such
Business Day.
"AVERAGE DAILY OUTSTANDING PRINCIPAL AMOUNT" for purposes of any
Interest Accrual Period and with respect to the Series 1997-1 Senior
Certificates, means the sum of the Class A Invested Amount on each calendar day
during the related Interest Accrual Period DIVIDED by the number of calendar
days during such Interest Accrual Period and with respect to the Series 1997-1
Senior Subordinated Certificates, means the sum of the Class B Invested Amount
on each calendar day during the related Interest Accrual Period DIVIDED by the
number of calendar days during such Interest Accrual Period. For purposes of the
foregoing, the Class A Invested Amount and the Class B Invested Amount on any
calendar day that is a Business Day shall be calculated as of the close of
business on such day.
"BEGINNING INVESTED AMOUNT", with respect to any Class of the Series
1997-1 Investor Certificates, shall have the meaning with respect to such Class
set forth in the preliminary statement to this Supplement.
"BORROWING" has the meaning set forth in Section 8(a) of this
Supplement.
"BORROWING ACCOUNT" shall mean the Borrowing Account established by the
Trustee pursuant to this Supplement for the benefit of the Series 1997-1
Certificateholders in accordance with Section 23 of this Supplement.
"BORROWING DATE" shall mean the date, which may only occur on the last
Business Day of a Settlement Period, on which a Borrowing occurs.
"BORROWING JUNIOR SUBORDINATED AMOUNT" for any Borrowing means an
amount not exceeding the difference between the Maximum Invested Amount of the
Series 1997-1 Junior Subordinated Certificates and the Class C Invested Amount
then in effect and specified in the Borrowing Notice, which amount shall be
wired by the Holders of the Series 1997-1 Junior Subordinated Certificates to
the Trustee as directed in such notice.
"BORROWING NOTICE" has the meaning set forth in Section 8(b)(i) of this
Supplement.
"BORROWING NOTICE DATE" has the meaning set forth in Section 8(a)(i) of
this Supplement.
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"BORROWING SENIOR AMOUNT" for any Borrowing means an amount not
exceeding the difference between the Maximum Invested Amount of the Senior
1997-1 Senior Certificates and the Class A Invested Amount then in effect and
specified in the Borrowing Notice, which amount shall be wired by the Holders of
the Series 1997-1 Senior Certificates to the Trustee as directed in such notice.
"BORROWING SENIOR SUBORDINATED AMOUNT" for any Borrowing means an
amount not exceeding the difference between the Maximum Invested Amount of the
Series 1997-1 Senior Subordinated Certificates and the Class B Invested Amount
then in effect and specified in the Borrowing Notice, which amount shall be
wired by the Holders of the Series 1997-1 Senior Subordinated Certificates to
the Trustee as directed in such notice.
"CASH COLLATERAL MAINTENANCE AMOUNT" for Series 1997-1 shall at any
time be the greater of (x) 3.75% the Class A Invested Amount (without giving
effect to clause (f) of the definition thereof) and (y) three times the sum of
Monthly Senior Interest plus Monthly Servicing Fee.
"CERTIFICATE RATE" for the Series 1997-1 Senior Certificates and Series
1997-1 Senior Subordinated Certificates has the meaning specified for "Series
1997-1 Senior Certificate Rate" and "Series 1997-1 Senior Subordinated
Certificate Rate", respectively, in Section 4 of this Supplement. Interest on
the Series 1997-1 Junior Subordinated Certificates will not accrue at a
Certificate Rate, but the Holders of the Series 1997-1 Junior Subordinated
Certificates shall, in certain cases, be entitled on each Payment Date to
payment of the Monthly Junior Subordinated Interest for the related Settlement
Period.
"CLASS A COMMITMENT FEE", with respect to any Payment Date and any
related Interest Accrual Period during the Revolving Period, shall mean an
amount equal to (a) the actual number of days elapsed during such Interest
Accrual Period DIVIDED by (b) 360 MULTIPLIED by (c) 0.20% MULTIPLIED by (d) the
difference between the Maximum Invested Amount of the Series 1997-1 Senior
Certificates and the Average Daily Outstanding Principal Amount of such
Certificates during the related Interest Accrual Period (after giving effect to
any Prepayment or Borrowing during such period and to all repayments of
principal made to the Holders of such Certificates on the preceding Payment
Date, if any) and, with respect to any other Payment Date, shall mean an amount
equal to zero.
"CLASS B COMMITMENT FEE", with respect to any Payment Date and any
related Interest Accrual Period during the Revolving Period, shall mean an
amount equal to (a) the actual number of days elapsed during such Interest
Accrual Period DIVIDED by (b) 360 MULTIPLIED by (c) 0.40% MULTIPLIED by (d) the
difference between the Maximum Invested Amount of the Series 1997-1 Senior
Subordinated Certificates and the Average Daily Outstanding Principal Amount of
such Certificates during the related Interest Accrual Period (after giving
effect to any Prepayment or
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Borrowing during such period and to all repayments of principal made to the
Holders of such Certificates on the preceding Payment Date, if any) and, with
respect to any other Payment Date, shall mean an amount equal to zero.
"CLASS A INVESTED AMOUNT" shall mean for any day, an amount equal to
the sum of (a) the Beginning Invested Amount of the Series 1997-1 Senior
Certificates PLUS (b) all Borrowing Senior Amounts MINUS (c) the aggregate
amount of all Investor Funding Deficiencies with respect to the Series 1997-1
Senior Certificates MINUS (d) all amounts returned to Holders of the Series
1997-1 Senior Certificates pursuant to Sections 8(b)(v) and 8(e)(ii) of this
Supplement MINUS (e) all Prepayment Senior Amounts MINUS (f) the aggregate
amount of payments of principal paid with respect to the Series 1997-1 Senior
Certificates (other than payments in respect of a Prepayment Senior Amount and
other than amounts referred to in clause (d) of this definition).
"CLASS B INVESTED AMOUNT" shall mean for any day, an amount equal to
the sum of (a) the Beginning Invested Amount of the Series 1997-1 Senior
Subordinated Certificates PLUS (b) all Borrowing Senior Subordinated Amounts
MINUS (c) the aggregate amount of all Investor Funding Deficiencies with respect
to the Series 1997-1 Senior Subordinated Certificates MINUS (d) all amounts
returned to Holders of the Series 1997-1 Senior Subordinated Certificates
pursuant to Sections 8(b)(v) and 8(e)(ii) of this Supplement MINUS (e) all
Prepayment Senior Subordinated Amounts MINUS (f) the aggregate amount of
payments of principal paid with respect to the Series 1997-1 Senior Subordinated
Certificates (other than payments in respect of a Prepayment Senior Subordinated
Amount and other than amounts referred to in clause (d) of this definition).
"CLASS C INVESTED AMOUNT" shall mean the amount of the Subordinated
Invested Amount of Series 1997-1.
"CLOSING DATE", with respect to the Series 1997-1 Investor
Certificates, shall mean April 30, 1997.
"CONFIRMATION NOTICE" has the meaning set forth in Section 8(b)(iii) of
this Supplement.
"CURRENT ADVANCE COVERAGE AMOUNT" for any date shall mean an amount
equal to (a) the product of the Series 1997-1 Allocation Percentage multiplied
by the aggregate Unpaid Balance of Series 1997-1 Coverage Advances, plus (b) the
amount on deposit on such date in the Series 1997-1 Excess Funding Sub-Account.
"DAILY SERVICER PRINCIPAL ADVANCE INTEREST" means, for any day, in
respect of a Servicer Principal Advance, 1/365th of the product of (i) the rate
of interest applicable to the Advance to which such Servicer Principal Advance
relates and (ii) the balance of such Servicer Principal Advance on such day.
"DAILY SERVICING FEE" means for any day, 1/365th of the
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product of (i) the Servicing Fee Percentage and (ii) the amount of the Invested
Amount of the Series 1997-1 Certificates on such day.
"DAILY TRANSFEROR INTEREST AMOUNT" shall mean for any day, an amount
equal to 1/360th of the product of (i) LIBOR (as determined by the Trustee on
the immediately preceding LIBOR Determination Date) PLUS 2.50% and (ii) the
Transferor's Current Participation Amount on such day (after giving effect to
all deposits, withdrawals, payments or other transfers on such day).
"DAILY TRANSFEROR PRINCIPAL COLLECTIONS" means the product of (i) the
Series 1997-1 Transferor's Percentage on any Business Day times (ii) the Series
1997-1 Allocation Percentage of Principal Collections for such Business Day.
"DAILY TRUSTEE FEE", with respect to the Series 1997-1 Investor
Certificates, has the meaning set forth in Section 5 of this Supplement.
"DEFICIT SCHEDULED AMORTIZATION AMOUNT" means (a) on the first Special
Payment Date with respect to the Scheduled Amortization Period, the excess, if
any, of the Scheduled Amortization Amount for such Special Payment Date over the
amount on deposit in the Series 1997-1 Principal Funding Sub-Account on the last
day of the related Settlement Period and (b) on each subsequent Special Payment
Date during the Scheduled Amortization Period, the excess, if any, of the
Scheduled Deposit Amount payable on such Special Payment Date over the amount on
deposit in the Series 1997-1 Principal Funding Sub-Account on the last day of
the related Settlement Period.
"ELIGIBLE TRANSFEREE" shall mean (a) a finance company, insurance
company or other financial institution or fund (whether a corporation,
partnership, trust or other entity) that is organized under the laws of the
United States, or any State thereof, and engaged in purchasing or otherwise
investing in fixed income securities for its own account in the ordinary course
of its business and having total assets in excess of $250,000,000; (b) a
commercial bank organized under the laws of the United States, or any State
thereof, having total assets in excess of $2,000,000 and having an Acceptable
Transferee Rating; and (c) any other Person approved by the Transferor, such
approval not to be unreasonably withheld or delayed.
"FUNDING DEFICIENCY INTEREST AMOUNT" with respect to each Series 1997-1
Certificateholder that delivered an amount in respect of a Borrowing, which
amount was subsequently returned pursuant to Section 8(e)(ii) of this
Supplement, means the product of (w) the amount so delivered by such
Certificateholder MULTIPLIED by (x) the actual number of calendar days from and
including the related Borrowing Date to but excluding the date such amount was
returned to such Certificateholder MULTIPLIED by (y) in the case of a Holder of
a Series 1997-1 Senior Certificate, a Series 1997-1 Senior Subordinated
Certificate and a Series 1997-1 Junior Subordinated Certificate, the
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<PAGE> 42
Series 1997-1 Senior Certificate Rate, the Series 1997-1 Senior Subordinated
Certificate Rate and LIBOR + 2.25%, respectively and, in each case, in effect as
of the commencement of the Interest Accrual Period in which the Borrowing Date
fell DIVIDED by (z) 360.
"FUNDING FAILURE" has the meaning set forth in Section 8(e)(i) of this
Supplement.
"GROWTH TEST ADDITIONAL ACCOUNT" means an Additional Account as to
which both (a) the related Client shall not have been a Client of Factors for a
continuous period of at least three months immediately preceding the Addition
Date for such Additional Account and (b) Factors shall not have had in its
underwriting files on such Addition Date historical financial and receivables
performance data, including dilution and chargeoff data, covering a period of at
least one year immediately preceding such Addition Date.
"INITIAL INVESTED AMOUNT" means the sum of (a) the Initial Senior
Invested Amount and the Initial Subordinated Invested Amount PLUS (b) all
Borrowing Junior Subordinated Amounts PLUS (c) all Additional Junior Borrowing
Amounts MINUS (d) all amounts returned to the Holder of the Series 1997-1 Junior
Subordinated Certificates pursuant to Sections 8(b)(v) and 8(e)(ii) of this
Supplement MINUS (e) all Prepayment Junior Subordinated Amounts MINUS (f) the
aggregate amount of payments of principal paid with respect to the Series 1997-1
Junior Subordinated Certificates (other than payments in respect of a Prepayment
Junior Subordinated Amount and other than amounts referred to in clause (d) of
this definition).
"INITIAL SENIOR INVESTED AMOUNT" means, with respect to Series 1997-1,
the sum of (a) the Beginning Invested Amount of the Series 1997-1 Senior
Certificates PLUS (b) the Beginning Invested Amount of the Series 1997-1 Senior
Subordinated Certificates PLUS (c) all Borrowing Senior Amounts PLUS (d) all
Borrowing Senior Subordinated Amounts MINUS (e) the aggregate amount of all
Investor Funding Deficiencies with respect to the Series 1997-1 Senior
Certificates MINUS (f) the aggregate amount of all Investor Funding Deficiencies
with respect to the Series 1997-1 Senior Subordinated Certificates MINUS (g) all
amounts returned to Holders of the Series 1997-1 Senior Certificates and the
Series 1997-1 Senior Subordinated Certificates pursuant to Sections 8(b)(v) and
8(e)(ii) of this Supplement MINUS (h) all Prepayment Senior Amounts MINUS (i)
all Prepayment Senior Subordinated Amounts MINUS (j) the aggregate amount of
payments of principal paid with respect to the Series 1997-1 Senior Certificates
(other than payments in respect of a Prepayment Senior Amount and other than
amounts referred to in clause (g) of this definition) MINUS (k) the aggregate
amount of payments of principal paid with respect to the Series 1997-1 Senior
Subordinated Certificates (other than payments in respect of a Prepayment Senior
Subordinated Amount and other than amounts referred to in clause (g) of this
definition).
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"INITIAL SUBORDINATED INVESTED AMOUNT" means, with respect to the
Series 1997-1 Junior Subordinated Certificates, the Beginning Invested Amount of
such Certificates.
"INTEREST ACCRUAL PERIOD" means, for the Series 1997-1 Senior
Certificates and the Series 1997-1 Senior Subordinated Certificates, the period
from and including the Closing Date to and including the calendar day
immediately preceding the initial Payment Date, and each period from and
including a Payment Date to and including the calendar day immediately preceding
the next Payment Date.
"INVESTOR FUNDING DEFICIENCY" has the meaning set forth in Section
8(e)(i) of this Supplement.
"LIBOR" shall mean the London interbank offered quotations rate for
one-month U.S. dollar deposits as determined by the Trustee in accordance with
Section 4 of this Supplement.
"LIBOR BUSINESS DAY" shall mean any day other than (a) a Saturday or a
Sunday, (b) any other day on which the Servicer is closed, as specified on the
list furnished by the Servicer pursuant to Section 3.03(n) of the Agreement or
(c) another day on which dealings in deposits in United States Dollars are not
transacted in the London interbank market.
"LIBOR DETERMINATION DATE" for the Closing Date or for any Interest
Accrual Period, as the case may be, shall mean the second LIBOR Business Day
immediately preceding the commencement of such Interest Accrual Period.
"LIMITED RECOURSE PROMISSORY NOTE" shall mean a limited recourse
promissory note issued by the Transferor to a Series 1997-1 Senior
Certificateholder or a Series 1997-1 Senior Subordinated Certificateholder
pursuant to which the Transferor promises to pay to such Certificateholder the
amounts such Certificateholder is entitled to receive pursuant to the Agreement,
this Supplement and the Series 1997-1 Senior Certificates or Series 1997-1
Senior Subordinated Certificates, as the case may be.
"MAXIMUM INVESTED AMOUNT", with respect to any Class of the Series
1997-1 Investor Certificates, shall have the meaning with respect to such Class
set forth in the preliminary statement to this Supplement, as may be increased
with respect to the Series 1997-1 Junior Subordinated Certificates pursuant to
Section 8(b)(v) of this Supplement.
"MONTHLY JUNIOR SUBORDINATED INTEREST" for any Payment Date shall mean
an amount, which shall in no event be less than zero, equal to the difference
between the Aggregate Certificateholder Interest Collections for the related
Settlement Period minus the amounts, if any, paid on such Payment Date pursuant
to Sections 4.04(h)(i), (ii), (iii), (iv)(A) first and second, 4.04(h)(iv)(B)
first and second, and 4.04(h)(iv)(C) first, second and third.
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"MONTHLY SENIOR INTEREST" for any Payment Date and any related Interest
Accrual Period shall mean an amount equal to the sum of (a) (i) the actual
number of days elapsed during such Interest Accrual Period DIVIDED by (ii) 360
MULTIPLIED by (iii) the Series 1997-1 Senior Certificate Rate and MULTIPLIED by
(iv) the Average Daily Outstanding Principal Amount of the Series 1997-1 Senior
Certificates during the related Interest Accrual Period (after giving effect to
any Prepayment or Borrowing during such period and to all repayments of
principal made to the Holders of such Certificates on the preceding Payment
Date, if any) and (b) the Class A Commitment Fee; PROVIDED, HOWEVER, that, with
respect to the first Payment Date, Monthly Senior Interest shall be equal to
$101,496.70.
"MONTHLY SENIOR SUBORDINATED INTEREST" for any Payment Date and any
related Interest Accrual Period shall mean an amount equal to the sum of (a) (i)
the actual number of days elapsed during such Interest Accrual Period DIVIDED by
(ii) 360 MULTIPLIED by (iii) the Series 1997-1 Senior Subordinated Certificate
Rate MULTIPLIED by (iv) the Average Daily Outstanding Principal Amount of the
Series 1997-1 Senior Subordinated Certificates during the related Interest
Accrual Period (after giving effect to any Prepayment or Borrowing during such
period and to all repayments of principal made to the Holders of such
Certificates on the preceding Payment Date, if any) and (b) the Class B
Commitment Fee; PROVIDED, HOWEVER, that, with respect to the first Payment Date,
Monthly Senior Subordinated Interest shall be equal to $5,868.75.
"MONTHLY SERVICING FEE" for any Payment Date shall mean an amount equal
to the sum of the Daily Servicing Fees on each day in the immediately preceding
Settlement Period.
"MOODY'S" means Moody's Investors Service, Inc., and any successor
thereto.
"NEGATIVE SPREAD SHORTFALL" shall mean, with respect to the Series
1997-1 Senior Certificates, the shortfall occurring when the amount of Interest
Collections in the Series 1997-1 Interest Funding Sub-Account to be applied on
any Payment Date is less than the amount of the Monthly Senior Interest due on
such Payment Date, but only to the extent such shortfall is attributable to the
Certificate Rate for the Series 1997-1 Senior Certificates of such Series being
in excess of the weighted average interest rate on the underlying Eligible
Advances.
"PAYMENT DATE" shall mean, for each Settlement Period, the fifteenth
day of the next succeeding month (or if such day is not a Business Day, the next
succeeding Business Day) commencing May 15, 1997.
"PREPAYMENT" has the meaning set forth in Section 9(a) of this
Supplement.
"PREPAYMENT ACCOUNT" shall mean the Prepayment Account
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<PAGE> 45
established by the Trustee pursuant to this Supplement for the benefit of the
Series 1997-1 Certificateholders in accordance with Section 23 of this
Agreement.
"PREPAYMENT DATE" shall mean the date, which may only occur on the last
Business Day of a Settlement Period, on which a Prepayment occurs.
"PREPAYMENT NOTICE" has the meaning set forth in Section 9(b) of this
Supplement.
"PREPAYMENT NOTICE DATE" has the meaning set forth in Section 9(a)(i)
of this Supplement.
"PREPAYMENT SENIOR AMOUNT" for any Prepayment means the amount
specified in the Prepayment Notice to be withdrawn from the Prepayment Account
and paid to the Holders of the Series 1997-1 Senior Certificates.
"PREPAYMENT SENIOR SUBORDINATED AMOUNT" for any Prepayment means the
amount specified in the applicable Prepayment Notice to be withdrawn from the
Prepayment Account and paid to the Holders of the Series 1997-1 Senior
Subordinated Certificates.
"PREPAYMENT JUNIOR SUBORDINATED AMOUNT" for any Prepayment means the
amount specified in the applicable Prepayment Notice to be withdrawn from the
Prepayment Account and paid to the Holders of the Series 1997-1 Junior
Subordinated Certificates.
"RECEIVABLE PAYMENT RATIO", for any Settlement Period, shall mean a
fraction, expressed as a percentage, the numerator of which is the aggregate of
all Collections received during such Settlement Period and the denominator of
which is the aggregate Unpaid Balance of all Receivables on the first day of
such Settlement Period.
"RECORD DATE" shall mean, with respect to any Payment Date or Special
Payment Date, the last Business Day of the immediately preceding Settlement
Period, except that with respect to the first Payment Date the Record Date shall
be the Closing Date.
"REFERENCE BANKS" shall mean the three leading banks, selected by the
Servicer in accordance with Section 4 hereof, quoting London interbank offered
quotations rates for one-month U.S. dollar deposits in the City of New York, New
York.
"REQUIRED ADVANCE COVERAGE AMOUNT" at any time, shall mean a dollar
amount equal to 100% of the Initial Invested Amount of Series 1997-1 at such
time.
"REQUIRED MONTHLY PAYMENT AMOUNT" for any Settlement Period shall mean
the Monthly Senior Interest due on the following Payment Date or Special Payment
Date.
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"REQUIRED RECEIVABLE COVERAGE" shall mean, for Series 1997-1, a
percentage amount, initially 135%, that shall be increased by 2% for each 1%
that the Required Subordinated Percentage of Series 1997-1 is increased on any
Determination Date other than as a result of the purchase by any Series 1997-1
Junior Subordinated Certificateholder of additional Series 1997-1 Junior
Subordinated Certificates.
"REQUIRED SUBORDINATED AMOUNT" shall mean, with respect to Series
1997-1, the product of the Required Subordinated Percentage for such Series
times the Class A Invested Amount (without giving effect to any principal
payments described in clause (f) of the definition thereof made after the
commencement of an Early Amortization Period); PROVIDED, HOWEVER, that the
Required Subordinated Amount shall equal zero at any time that the Class A
Invested Amount is zero.
"REQUIRED SUBORDINATED PERCENTAGE", with respect to Series 1997-1,
shall be reset on each Determination Date and shall mean the sum of 15% plus the
greatest of (x) and (y) and (z), where (x) is the percentage amount by which the
average Series 1997-1 Actual Receivables Nonpayment for any three consecutive
Settlement Periods shall have exceeded 13% and (y) is the percentage amount by
which the average Series 1997-1 Actual Receivables Dilution Nonpayment for any
three consecutive Settlement Periods shall have exceeded 9% and (z) is the
percentage amount, if any, by which the average of the aggregate Unpaid Balances
of Receivables that are at least 60 days past due on the last days of such
Settlement Period and the two immediately preceding Settlement Periods exceeds
5% of the average of the Unpaid Balances of all Receivables that are not Aged
Receivables on such dates. In no case shall the Required Subordinated Percentage
decrease once it has increased.
"S&P" means Standard & Poor's Ratings Services, a division of
McGraw-Hill, Inc., and any successor thereto.
"SCHEDULED AMORTIZATION AMOUNT" shall mean, for each Settlement Period
during the Scheduled Amortization Period, an amount equal to the Senior Invested
Amount of Series 1997-1 as of the first day of the Scheduled Amortization Period
divided by 12.
"SCHEDULED AMORTIZATION PERIOD", with respect to Series 1997-1, means,
unless an Early Amortization Event shall have occurred simultaneously therewith
or prior thereto, the period beginning on the Scheduled Amortization Period
Commencement Date and ending upon the first to occur of (a) an Early
Amortization Event, (b) the date on which the Invested Amount of each Class of
Certificates has been paid in full and (c) the Scheduled Maturity Date.
"SCHEDULED AMORTIZATION PERIOD COMMENCEMENT DATE", with respect to the
Series 1997-1 Investor Certificates, means May 1, 2002.
"SCHEDULED DEPOSIT AMOUNT" shall mean, with respect to
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<PAGE> 47
any Settlement Period during the Scheduled Amortization Period, an amount equal
to the sum of the Scheduled Amortization Amount for such Settlement Period and
any Deficit Scheduled Amortization Amount remaining unpaid.
"SCHEDULED MATURITY DATE", with respect to the Series 1997-1 Investor
Certificates, means the Payment Date in December, 2003.
"SENIOR INVESTED AMOUNT", with respect to Series 1997-1, shall mean for
any day, an amount equal to the sum of the Class A Invested Amount and the Class
B Invested Amount; PROVIDED, HOWEVER, that for purposes of calculating the
Actual Receivables Coverage of any Series, the term "Senior Invested Amount" of
Series 1997-1 shall mean only the Class A Invested Amount and shall not include
the Class B Invested Amount.
"SERIES 1997-1 ACCUMULATION SUB-ACCOUNT" shall mean the Accumulation
Sub-Account established by the Trustee pursuant to this Supplement for the
benefit of the Series 1997-1 Certificateholders in accordance with Section
4.02(j).
"SERIES 1997-1 ACTUAL RECEIVABLE COVERAGE" shall be determined on each
Business Day and shall be a percentage amount determined by dividing the
aggregate Unpaid Balance of Series 1997-1 Secondary Eligible Receivables by the
difference of (a) the aggregate of the Senior Invested Amounts of all Series
then outstanding MINUS (b) the sum of all amounts on deposit on such Business
Day in the Excess Funding Account, the Accumulation Account (including in each
case the sub-accounts thereof for all Series) and the Prepayment Account.
"SERIES 1997-1 ACTUAL RECEIVABLES DILUTION NONPAYMENT" shall be
determined on any Determination Date for the immediately preceding Settlement
Period and shall be a percentage amount determined by dividing the aggregate
Unpaid Balance of Receivables that were charged back by Factors to the
applicable Client during such Settlement Period by the sum of such aggregate
Unpaid Balance and the aggregate Unpaid Balance of Receivables that were paid
during such Settlement Period but had not been so charged back when so paid.
"SERIES 1997-1 ACTUAL RECEIVABLES NONPAYMENT" shall be determined on
any Determination Date for the immediately preceding Settlement Period and shall
be a percentage amount determined by dividing the aggregate Unpaid Balance of
Receivables that became Aged Receivables during such Settlement Period by the
sum of such aggregate Unpaid Balance and the aggregate Unpaid Balance of
Receivables that were paid during such Settlement Period but were not Aged
Receivables when so paid.
"SERIES 1997-1 ALLOCATION PERCENTAGE" means, for any date, the
percentage equivalent of a fraction, the numerator of which is the Invested
Amount for Series 1997-1 as of the last day of the immediately preceding
Settlement Period (and in the event
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<PAGE> 48
a Prepayment or Borrowing shall have occurred on such day, after giving effect
thereto) and the denominator of which is the Aggregate Invested Amount as of
such last day (and in the event a Prepayment or Borrowing shall have occurred on
such day, after giving effect thereto).
"SERIES 1997-1 CASH COLLATERAL SUB-ACCOUNT" shall mean the Cash
Collateral Sub-Account established by the Trustee pursuant to this Supplement
for the benefit of the Series 1997-1 Certificateholders in accordance with
Section 4.02(g).
"SERIES 1997-1 COVERAGE ADVANCE" shall mean an Advance under a
Designated Account that is an Eligible Account:
(i) that is an Eligible Advance as defined in Annex X to the Agreement;
(ii) if such Designated Account is a Series 1997-1 CRP-Reliant
Designated Account, as to which the Trustee has a fully perfected first priority
security interest (as defined in the UCC) in the Certain Related Property
related to such Designated Account;
(iii) that complies with the Series 1997-1 Normal Concentration Limit
or, in the case of an Advance in a Series 1997-1 Higher Concentration Account,
complies with the Series 1997-1 Higher Concentration Limit (provided that any
Advance that partially complies with the Series 1997-1 Higher Concentration
Limit shall be a "Series 1997-1 Coverage Advance" in the amount of such
compliance);
(iv) that complies with the Series 1997-1 Dispersion Concentration
Limit;
(v) that is secured by Eligible Receivables not subject to a Lien or
security interest other than the Lien or security interest therein of the
Trustee, provided that a Lien or security interest lower in priority shall be
permitted for purposes of this clause (vi) if (y) such Lien or security interest
is in favor of a creditor or creditors of the related Client under Permitted
Intercreditor Agreements and (z) the aggregate Unpaid Balance of such Eligible
Advance and all other Eligible Advances secured by Receivables and subject to a
Permitted Intercreditor Agreement shall not exceed 19% of the Eligible Pool
Balance at any time; and
(vi) that meets the Series 1997-1 Growth Test.
"SERIES 1997-1 COVERAGE DEFICIENCY AMOUNT" shall mean, for any Business
Day, the amount (if any) by which the Required Advance Coverage Amount exceeds
the Current Advance Coverage Amount.
"SERIES 1997-1 CRP-RELIANT DESIGNATED ACCOUNT" shall mean any
Designated Account (that is an Eligible Account)
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<PAGE> 49
the Series 1997-1 Secondary Eligible Advance of which (after giving effect to
the first test of the Series 1997-1 Ratio Test) shall exceed the product of .9
and the sum of the Unpaid Balances of all Eligible Receivables in such
Designated Account.
"SERIES 1997-1 DISPERSION CONCENTRATION LIMIT" shall mean that (a) the
maximum aggregate Unpaid Balance for all Advances of the 5 Clients with the
largest Unpaid Balances of Advances that may be included in the calculation of
"Series 1997-1 Secondary Eligible Advances" shall not exceed an amount equal to
the product of the 125th Account Multiplier TIMES 25% of the Eligible Pool
Balance as of the applicable date of determination and (b) the maximum aggregate
Unpaid Balance for all Advances of the 10 Clients with the largest Unpaid
Balances of Advances that may be included in the calculation of "Series 1997-1
Secondary Eligible Advances" shall not exceed an amount equal to the product of
the 125th Account Multiplier TIMES 40% of the Eligible Pool Balance as of the
applicable date of determination and (c) the maximum aggregate Unpaid Balance
for all Advances of the 15 Clients with the largest Unpaid Balances of Advances
that may be included in the calculation of "Series 1997-1 Secondary Eligible
Advances" shall not exceed an amount equal to the product of the 125th Account
Multiplier TIMES 50% of the Eligible Pool Balance as of the applicable date of
determination and (d) the maximum aggregate Unpaid Balance for all Advances of
the 20 Clients with the largest Unpaid Balances of Advances that may be included
in the calculation of "Series 1997-1 Secondary Eligible Advances" shall not
exceed an amount equal to the product of the 125th Account Multiplier TIMES 60%
of the Eligible Pool Balance as of the applicable date of determination and (e)
the maximum aggregate Unpaid Balance for all Advances of the 50 Clients with the
largest Unpaid Balances of Advances that may be included in the calculation of
"Series 1997-1 Secondary Eligible Advances" shall not exceed an amount equal to
the product of the 125th Account Multiplier TIMES 80% of the Eligible Pool
Balance as of the applicable date of determination.
"SERIES 1997-1 EXCESS FUNDING SUB-ACCOUNT" shall mean the Excess
Funding Sub-Account established by the Trustee pursuant to this Supplement for
the benefit of the Series 1997-1 Certificateholders in accordance with Section
4.02(d).
"SERIES 1997-1 FIRST RECEIVABLES CONCENTRATION LIMIT" shall mean at any
time with respect to each Receivable, a maximum Unpaid Balance for all
Receivables of a single Customer that may be included in the calculation of
"Series 1997-1 Secondary Eligible Receivables" and shall be an amount equal to a
certain percentage (set forth in the next sentence) of the aggregate Unpaid
Balance of all Eligible Receivables in Designated Accounts as of the date of
determination. If the related Customer's senior unsecured debt rating as
published by the Rating Agencies shall be: (i) at least "AA" or the equivalent,
such percentage shall be 10%, (ii) at least "A" or the equivalent but below "AA"
or the equivalent, such percentage shall be 5%, (iii) at least "BBB" or the
equivalent but below "A" or the equivalent, such
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percentage shall be 3% and (iv) below BBB or unrated, such percentage shall be
1%, except that, at the option of the Servicer, (a) for an additional 5
Customers rated below "BBB" or the equivalent or unrated, such percentage shall
be 1.5%, (b) for an additional 10 Customers rated below "BBB" or the equivalent
or unrated, such percentage shall be 2% and (c) for any Customer rated below
"BBB" or the equivalent or unrated that is wholly owned by a company rated "BBB"
or the equivalent or above, such percentage shall be 2%, PROVIDED, HOWEVER, that
the maximum Unpaid Balance for all Series 1997-1 Secondary Eligible Receivables
of such Customer, when aggregated with the Series 1997-1 Secondary Eligible
Receivables of any of such Customer's direct or indirect parent companies, shall
not exceed the highest Series 1997-1 First Receivables Concentration Limit on
any of such Customer's direct or indirect parent companies.
"SERIES 1997-1 FLOATING ALLOCATION PERCENTAGE" for any day means the
percentage equivalent (which shall never exceed 100%) of a fraction, the
numerator of which is the Invested Amount of Series 1997-1 as of the end of the
last day of the immediately preceding Settlement Period (and in the event a
Prepayment or Borrowing shall have occurred on such day, after giving effect
thereto), and the denominator of which is the sum of (a) the product of the
Eligible Pool Balance as of the end of the last day of the immediately preceding
Settlement Period multiplied by the Series 1997-1 Allocation Percentage for such
date plus (b) amounts on deposit in the Series 1997-1 Excess Funding Sub-Account
as of the end of the last day of the immediately preceding Settlement Period
PROVIDED, HOWEVER, that, with respect to the first Settlement Period, the Series
1997-1 Floating Allocation Percentage shall mean 93.13%.
"SERIES 1997-1 GROWTH TEST" shall mean that, for each Business Day, if
the sum on such Business Day of all Eligible Advances in the Growth Test
Additional Accounts that were added to the Trust pursuant to Section 2.05 of the
Agreement in the preceding 90 days exceeds 7.5% of the Eligible Pool Balance on
such Business Day, then such excess Eligible Advances shall not constitute
"Series 1997-1 Secondary Eligible Advances" or "Series 1997-1 Coverage Advances"
on such Business Day.
"SERIES 1997-1 HIGHER CONCENTRATION ACCOUNT" shall mean no more than
ten Designated Accounts identified by the Transferor that shall not be subject
to the Series 1997-1 Normal Concentration Limit but shall be subject to the
Series 1997-1 Higher Concentration Limit and the Series 1997-1 Dispersion
Concentration Limit.
"SERIES 1997-1 HIGHER CONCENTRATION LIMIT" shall mean at any time with
respect to the Advance in each Series 1997-1 Higher Concentration Account, the
maximum Unpaid Balance for the Advance in such Series 1997-1 Higher
Concentration Account that may be included in the calculation of "Series 1997-1
Secondary Eligible Advances" and shall be an amount equal to the product of the
125th Account Multiplier TIMES 5% of the Eligible Pool Balance as of the
applicable date of determination.
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"SERIES 1997-1 INTEREST FUNDING SUB-ACCOUNT" shall mean the Interest
Funding Sub-Account established by the Trustee pursuant to this Supplement for
the benefit of the Series 1997-1 Certificateholders in accordance with Section
4.02(a).
"SERIES 1997-1 INVESTOR CERTIFICATES" shall have the meaning set forth
in the preliminary statement to this Supplement.
"SERIES 1997-1 JUNIOR SUBORDINATED CERTIFICATEHOLDER" shall mean a
Holder of a Series 1997-1 Junior Subordinated Certificate.
"SERIES 1997-1 JUNIOR SUBORDINATED CERTIFICATES" shall have the meaning
set forth in the preliminary statement to this Supplement.
"SERIES 1997-1 NORMAL CONCENTRATION LIMIT" shall mean at any time with
respect to each Advance, the maximum Unpaid Balance for the Advance of a single
Client Obligor that may be included in the calculation of "Series 1997-1
Secondary Eligible Advances" and shall be an amount equal to the product of the
125th Account Multiplier TIMES 3% of the Eligible Pool Balance as of the
applicable date of determination.
"SERIES 1997-1 PARTICIPATION DEFICIENCY AMOUNT" shall mean, for any
Business Day, the amount (if any) by which the Transferor's Required
Participation Amount exceeds the Transferor's Current Participation Amount.
"SERIES 1997-1 PRINCIPAL ALLOCATION PERCENTAGE" for any date means the
percentage equivalent (which shall never exceed 100%) of a fraction, the
numerator of which is the Invested Amount of Series 1997-1 as of the last day of
the Revolving Period, and the denominator of which is (a) the product of the
Eligible Pool Balance as of the end of the last day of the immediately preceding
Settlement Period multiplied by the Series 1997-1 Allocation Percentage for such
date plus (b) amounts on deposit in the Series 1997-1 Excess Funding Sub-Account
as of the end of the last day of the immediately preceding Settlement Period;
PROVIDED that the Series 1997-1 Principal Allocation Percentage shall be 100%
during any Early Amortization Period in respect of Series 1997-1.
"SERIES 1997-1 PRINCIPAL FUNDING SUB-ACCOUNT" shall mean the Principal
Funding Sub-Account established by the Trustee pursuant to this Supplement for
the benefit of the Series 1997-1 Certificateholders in accordance with Section
4.02(m).
"SERIES 1997-1 RATIO TEST" shall mean the following four tests that
determine the extent to which an Advance or Receivable is a "Series 1997-1
Secondary Eligible Advance" or "Series 1997-1 Secondary Eligible Receivable".
FIRST, the Series 1997-1 Ratio Test requires that the
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<PAGE> 52
Advance in each Designated Account that is an Eligible Account shall satisfy
this first test only to the extent that the aggregate amount of such Advance
does not exceed "EA" as calculated pursuant to the following formula for such
Designated Account (the aggregate amount of such Advance in excess of such "EA"
shall be excluded from the further determinations under the second, third and
fourth tests set forth below):
EA = (R X F) + {the lesser of (R X F) and CRP}
EA = the amount of the Advance in such
Designated Account that is available to
satisfy the second test;
R = the sum of the Unpaid Balances of all
Eligible Receivables in such Designated
Account;
F = .85 if such Designated Account is a Series
1997-1 Higher Concentration Account and .9
if such Designated Account is not a Series
1997-1 Higher Concentration Account, and
CRP = the sum of all of the following property
which constitutes Certain Related Property
in respect of such Designated Account for
which the Trustee has a first priority
security therein subject to no other Liens
except lower priority Liens in favor of a
creditor or creditors of Factors under
Permitted Intercreditor Agreements: 40% of
Presold Inventory constituting such Certain
Related Property + 100% of all cash and cash
equivalents constituting such Certain
Related Property + 80% of marketable debt
securities constituting such Certain Related
Property;
SECOND, the Series 1997-1 Ratio Test requires that the sum of all
Series 1997-1 Secondary Eligible Advances (after giving effect to the first test
of the Series 1997-1 Ratio Test) of all Series 1997-1 CRP-Reliant Designated
Accounts shall not exceed 30% of the Eligible Pool Balance. If such sum of all
Series 1997-1 Secondary Eligible Advances for such Series 1997-1 CRP-Reliant
Designated Accounts exceeds 30% of the Eligible Pool Balance on any date of
determination, Advances and Receivables in such Series 1997-1 CRP-Reliant
Designated Accounts with the highest ratios of {EA / ((R X .9) + CRP)} as of
such date shall be excluded from Series 1997-1 Secondary Eligible Advances and
Series 1997-1 Secondary Eligible Receivables respectively, until the aforesaid
sum does not exceed 30%. For purposes of this second test,
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<PAGE> 53
R = has the same definition as in the first
test of the Series 1997-1 Ratio Test;
EA = has the same definition as in the first
test of the Series 1997-1 Ratio Test, and
CRP = has the same definition as in the first
test of the Series 1997-1 Ratio Test.
The amounts of the Series 1997-1 Secondary Eligible Advance and Series 1997-1
Secondary Eligible Receivables remaining in each such Designated Account shall
be used in the third test below.
THIRD, after the calculation of EA for each Designated Account that is
an Eligible Account and after giving effect to the second test of the Series
1997-1 Ratio Test, a weighted ratio for each such Designated Account shall be
calculated as follows:
Weighted Ratio = {EA' / ((R X F) + CRP)} X EA' / Eligible Pool Balance
EA' = the amount of Series 1997-1 Secondary
Eligible Advance calculated for such
Designated Account after giving effect to
the first and second tests of the Series
1997-1 Ratio Test;
R = has the same definition as in the first
test of the Series 1997-1 Ratio Test;
F = .85 if such Designated Account is a Series
1997-1 Higher Concentration Account and .9
if such Designated Account is not a Series
1997-1 Higher Concentration Account, and
CRP = has the same definition as in the first
test of the Series 1997-1 Ratio Test.
The Weighted Ratios (each expressed as a percentage) for each Designated Account
shall be summed and if such sum for all such Designated Accounts exceeds 85% on
any date of determination, Series 1997-1 Secondary Eligible Advances and Series
1997-1 Secondary Eligible Receivables in Designated Accounts with the highest
ratios of {EA' / ((R X F) + CRP)} as of such date shall be excluded from Series
1997-1 Secondary Eligible Advances and Series 1997-1 Secondary Eligible
Receivables respectively, until the aforesaid sum of Weighted Ratios equals 85%.
FOURTH, after giving effect to the first three tests of the Series
1997-1 Ratio Test, the following ratio (expressed
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<PAGE> 54
as a percentage) shall be calculated for each Designated Account as follows:
Ratio = EA" / (R + CRP')
EA" = the amount of Series 1997-1 Secondary
Eligible Advance calculated for such
Designated Account after giving effect to
the first three tests of the Series 1997-1
Ratio Test;
R = has the same definition as in the first
test of the Series 1997-1 Ratio Test, and
CRP' = 100% of Certain Related Property for such
Designated Account.
To the extent such Ratio exceeds 85%, an amount of Series 1997-1 Secondary
Eligible Advances equal to such excess over 85% shall be summed with such excess
from all other Designated Accounts and if such total from all Designated
Accounts exceeds 3.5% of the Eligible Pool Balance before giving effect to this
fourth test, then Series 1997-1 Secondary Eligible Advances from the Designated
Accounts having the highest Ratios under this fourth test shall be excluded in
whole or in part from Series 1997-1 Secondary Eligible Advances until such total
for all Designated Accounts equals 3.5%.
"SERIES 1997-1 SECOND RECEIVABLES CONCENTRATION LIMIT" shall mean that
(a) the maximum aggregate Unpaid Balance for all Receivables of the five
Customers with the largest Unpaid Balances of Receivables that may be included
in the calculation of "Series 1997-1 Secondary Eligible Receivables" shall not
exceed 25% of the Unpaid Balance of all Eligible Receivables as of the
applicable date of determination and (b) the maximum aggregate Unpaid Balance
for all Receivables of the ten Customers with the largest Unpaid Balances of
Receivables that may be included in the calculation of "Series 1997-1 Secondary
Eligible Receivables" shall not exceed 40% of the Unpaid Balance of all Eligible
Receivables as of the applicable date of determination and (c) the maximum
aggregate Unpaid Balance for all Receivables of any three Customers that may be
included in the calculation of "Series 1997-1 Secondary Eligible Receivables"
shall not exceed 15% of the Unpaid Balance of all Eligible Receivables as of the
applicable date of determination. For purposes of each of the foregoing limits,
any resulting ineligibility shall, in the case of clause (c), be applied to the
Customer with the highest aggregate Unpaid Balance of Receivables, and in each
case be taken into account for subsequent calculations under this definition.
"SERIES 1997-1 SECONDARY ELIGIBLE ADVANCE" shall mean an Advance under
a Designated Account that is an Eligible Account:
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<PAGE> 55
(i) that is an Eligible Advance as defined in Annex X to the
Agreement;
(ii) if such Designated Account is a Series 1997-1 CRP-Reliant
Designated Account, as to which the Trustee has a fully perfected first
priority security interest (as defined in the UCC) in the Certain
Related Property related to such Designated Account;
(iii) that complies with the Series 1997-1 Normal
Concentration Limit or, in the case of an Advance in a Series 1997-1
Higher Concentration Account, complies with the Series 1997-1 Higher
Concentration Limit (provided that any Advance that partially complies
with the Series 1997-1 Higher Concentration Limit shall be a "Series
1997-1 Secondary Eligible Advance" in the amount of such compliance);
(iv) that complies with the Series 1997-1 Dispersion
Concentration Limit;
(v) that meets the Series 1997-1 Ratio Test; and
(vi) that is secured by Eligible Receivables not subject to a
Lien or security interest other than the Lien or security interest
therein of the Trustee, provided that a Lien or security interest lower
in priority shall be permitted for purposes of this clause (vi) if (y)
such Lien or security interest is in favor of a creditor or creditors
of the related Client under Permitted Intercreditor Agreements and (z)
the aggregate Unpaid Balance of such Eligible Advance and all other
Eligible Advances secured by Receivables and subject to a Permitted
Intercreditor Agreement shall not exceed 19% of the Eligible Pool
Balance at any time; and
(vii) that meets the Series 1997-1 Growth Test.
"SERIES 1997-1 SECONDARY ELIGIBLE RECEIVABLE" shall mean a Receivable
under a Designated Account that is an Eligible Account:
(i) that is an Eligible Receivable as defined in Annex X to
the Agreement;
(ii) that complies with the Series 1997-1 First Receivables
Concentration Limit (provided that any Receivable that partially
conforms with the Series 1997-1 First Receivables Concentration Limit
shall be a "Series 1997-1 Secondary Eligible Receivable" in the amount
of such conformance);
(iii) that complies with the Series 1997-1 Second Receivables
Concentration Limit (provided that any Receivable that partially
conforms with the Series 1997-1 Second Receivables Concentration Limit
shall be a "Series 1997-1 Secondary Eligible Receivable" in the amount
of such conformance);
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<PAGE> 56
(iv) that meets the Series 1997-1 Ratio Test; and
(v) that is not subject to a Lien or security interest other
than the Lien or security interest therein of the Trustee, provided
that a Lien or security interest lower in priority shall be permitted
for purposes of this clause (vi) if (y) such Lien or security interest
is in favor of a creditor or creditors of the related Client under
Permitted Intercreditor Agreements and (z) the aggregate Unpaid Balance
of the Eligible Advance secured by such Receivable and all other
Eligible Advances secured by Receivables and subject to a Permitted
Intercreditor Agreement shall not exceed 19% of the Eligible Pool
Balance at any time.
"SERIES 1997-1 SENIOR CERTIFICATEHOLDER" shall mean a Holder of a
Series 1997-1 Senior Certificate.
"SERIES 1997-1 SENIOR CERTIFICATE RATE" has the meaning set forth in
Section 4 of this Supplement.
"SERIES 1997-1 SENIOR CERTIFICATES" shall have the meaning set forth in
the preliminary statement to this Supplement.
"SERIES 1997-1 SENIOR SUBORDINATED CERTIFICATEHOLDER" shall mean a
Holder of a Series 1997-1 Senior Subordinated Certificate.
"SERIES 1997-1 SENIOR SUBORDINATED CERTIFICATE RATE" has the meaning
set forth in Section 4 of this Supplement.
"SERIES 1997-1 SENIOR SUBORDINATED CERTIFICATES" shall have the meaning
set forth in the preliminary statement to this Supplement.
"SERIES 1997-1 TRANSFEROR'S PERCENTAGE" for any date in the Revolving
Period means 100% minus the Series 1997-1 Floating Allocation Percentage for
such date and for any date in an Amortization Period means 100% minus the Series
1997-1 Principal Allocation Percentage for such date.
"SERIES TERMINATION DATE" has the meaning set forth in Section 7 of
this Supplement.
"SERVICING FEE PERCENTAGE" has the meaning set forth in Section 5 of
this Supplement.
"SPECIAL AUDIT" means an audit of the Servicer conducted by a firm of
Independent Public Accountants selected by the Servicer upon the issuance of an
Audit Request and consisting of the procedures set forth in EXHIBIT A hereto.
"SPECIAL PAYMENT DATE" means each Payment Date during an Amortization
Period or following the Scheduled Maturity Date.
"SUBORDINATED INVESTED AMOUNT" shall mean, with respect to Series
1997-1 for any day, an amount equal to the sum of
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(a) the Initial Subordinated Invested Amount PLUS (b) all Borrowing Junior
Subordinated Amounts PLUS (c) all Additional Junior Borrowing Amounts MINUS (d)
all amounts returned to the Holders of the Series 1997-1 Junior Subordinated
Certificates pursuant to Sections 8(b)(v) and 8(e)(ii) of this Supplement MINUS
(e) all Prepayment Junior Subordinated Amounts MINUS (f) the aggregate amount of
Principal Collections paid with respect to the Series 1997-1 Junior Subordinated
Certificates prior to such day (other than any such amounts paid in respect of a
Prepayment Junior Subordinated Amount and other than amounts referred to in
clause (d) of this definition) MINUS (g) the aggregate amount of Chargeoffs
allocated to the Series 1997-1 Junior Subordinated Certificates prior to such
day PLUS (h) the initial Unpaid Balance of any additional Advance purchased as a
result of the existence of any Subordination Deficiency Amount pursuant to
Sections 4.04(h)(iv) and 4.06(c)(i) prior to such day PLUS (i) the purchase
price (at par) of any Additional Series 1997-1 Junior Subordinated Certificates
purchased by any Holder of a Series 1997-1 Junior Subordinated Certificate
pursuant to Section 6.09(d).
"SUBORDINATION DEFICIENCY AMOUNT" shall mean, with respect to Series
1997-1 for any Business Day, the amount (if any) by which the Required
Subordinated Amount for Series 1997-1 exceeds the sum of the Class B Invested
Amount PLUS the Class C Invested Amount.
"TELERATE PAGE 3750" shall mean the display page so designed by the Dow
Jones Telerate Service, or any other page as may replace that page on that
service for the purpose of displaying comparable rates or prices.
"TRANSFEROR'S CURRENT PARTICIPATION AMOUNT" for any date shall mean an
amount equal to (a) the product of the Eligible Pool Balance multiplied by the
Series 1997-1 Allocation Percentage, minus (b) the Invested Amount of Series
1997-1 on such date, plus (c) the amount on deposit on such date in the Series
1997-1 Excess Funding Sub-Account.
"TRANSFEROR'S REQUIRED PARTICIPATION AMOUNT", at any time, shall mean a
dollar amount equal to 7% of the Initial Invested Amount of Series 1997-1 at
such time.
The words "HEREOF," "HEREIN" and "HEREUNDER" and words of similar
import when used in this Supplement shall refer to this Supplement or the
Agreement as a whole and not to any particular provision of this Supplement or
the Agreement, as the case may be; the word "INCLUDING" (and with correlative
meaning "INCLUDE") means including without limiting the generality of any
description preceding such term; and Section, Schedule and Exhibit references
contained in this Agreement or this Supplement are references to Sections,
Schedules and Exhibits in or to the Agreement or this Supplement unless
otherwise specified.
Unless otherwise specified in this Supplement, all accounting
terms used herein shall be interpreted, all accounting
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determinations hereunder shall be made, and all financial statements required to
be delivered hereunder shall be prepared in accordance with generally accepted
accounting principles as in effect from time to time, applied on a basis
consistent (except for immaterial changes or changes concurred in by the
independent public accountants of Factors) with the most recent audited
consolidated financial statements of Factors and its consolidated Subsidiaries.
SECTION 16. ACCRUAL OF INTEREST ON THE SERIES 1997-1 INVESTOR CERTIFICATES;
COMMITMENT FEE.
(a) Interest shall accrue on the Series 1997-1 Investor Certificates
from the Closing Date. Notwithstanding anything to the contrary in the Agreement
or this Supplement, no Series 1997-1 Senior Certificateholder or Series 1997-1
Senior Subordinated Certificateholder in its capacity as such shall have any
interest in Collections received prior to the Closing Date.
(b) A commitment fee will also be payable to the Holders of the Series
1997-1 Senior Certificates and Series 1997-1 Senior Subordinated Certificates on
each Payment Date occurring during the Revolving Period in an amount equal to
the Class A Commitment Fee and the Class B Commitment Fee, respectively.
(c) Notwithstanding Section 1.03 of the Agreement, all computations of
interest and commitment fees to be made under this Supplement shall be made on
the basis of a 360-day year and the actual number of days elapsed.
SECTION 17. DISTRIBUTIONS.
The Trustee shall send distributions to the Series 1997-1 Investor
Certificateholders under Section 5.01 of the Agreement to each Series 1997-1
Certificateholder by 12:00 P.M. (New York City time) on each Payment Date by
wire transfer of immediately available funds to an account or accounts
designated by such Series 1997-1 Certificateholders, by written notice to the
Trustee and the Paying Agent given at least five days prior to any Payment Date
(such notice to remain effective with respect to a Holder until different
instructions from such Holder are received by the Trustee and the Paying Agent),
or if no such notice is given, by check mailed as provided in Section 5.01 of
the Agreement.
SECTION 18. RATIFICATION OF AGREEMENT.
As supplemented by this Supplement, the Agreement is in all respects
ratified and confirmed and the Agreement as so supplemented by this Supplement
shall be read, taken, and construed as one and the same instrument.
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SECTION 19. THE TRUSTEE.
The Trustee shall not be responsible in any manner whatsoever for or in
respect of the validity or sufficiency of this Supplement or for or in respect
of the Preliminary Statement contained herein, all of which recitals are made
solely by the Transferor. The Trustee hereby represents and warrants that this
Supplement has been duly executed and delivered by it and that this Supplement
constitutes the legal, valid and binding obligation of the Trustee, enforceable
in accordance with its terms (subject to the effect of any applicable
bankruptcy, insolvency, reorganization, moratorium or similar law affecting
creditors' rights generally)
SECTION 20. INSTRUCTIONS IN WRITING.
All instructions given by the Servicer to the Trustee pursuant to this
Supplement shall be in writing, and may be included in a Daily Report or
Settlement Statement.
SECTION 21. COUNTERPARTS.
This Supplement may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all of such
counterparts shall together constitute but one and the same instrument.
SECTION 22. GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS.
(a) THIS SUPPLEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK.
(b) JURISDICTION. Each of the parties hereto hereby irrevocably and
unconditionally submits to the nonexclusive jurisdiction of New York State court
or federal court of the United States of America sitting in the Borough of
Manhattan in New York City, and any appellate court from any thereof, in any
action or proceeding arising out of or relating to this Supplement, and each of
the parties hereto hereby irrevocably and unconditionally agrees that all claims
in respect of any such action or proceeding may be heard and determined in such
New York State or, to the extent permitted by law, in such federal court. Each
of the parties hereto agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law.
(c) CONSENT TO SERVICE OF PROCESS. Each party to this Supplement
irrevocably consents to service of process in the manner provided for notices in
Section 13.05 of the Agreement. Nothing in this Supplement will affect the right
of any party to this Supplement to serve process in any other manner permitted
by law.
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SECTION 23. SERIES 1997-1 SUB-ACCOUNTS; PREPAYMENT ACCOUNT; BORROWING ACCOUNT.
(a) The Trustee shall establish within the Interest Funding Account,
Principal Funding Account, Excess Funding Account, Cash Collateral Account and
Accumulation Account an Interest Funding Sub-Account, Principal Funding
Sub-Account, Excess Funding Sub-Account, Cash Collateral Sub-Account and
Accumulation Sub-Account, respectively, in each case in accordance with Section
4.02 of the Agreement and for the benefit of the Certificateholders of Series
1997-1.
(b) Notwithstanding anything to the contrary in the Agreement or
elsewhere in this Supplement, (i) the Transferor shall have the power to
instruct the Trustee to make allocations, withdrawals and payments from or
within the Series 1997-1 Excess Funding Sub-Account for the purpose of making a
Prepayment pursuant to Section 9(a) of, and in accordance with the requirements
of Section 9(b) of, this Supplement and (ii) at such time as no Series 1997-1
Investor Certificate remains outstanding, the Trustee shall, at the written
direction of the Servicer, withdraw all amounts (if any) remaining on deposit in
the Series 1997-1 Excess Funding Sub-Account, Series 1997-1 Accumulation
Sub-Account and Prepayment Account and pay such amounts to the order of the
Transferor.
(c) The Trustee, for the benefit of the Series 1997-1 Investor
Certificateholders, shall establish or shall cause to be established and
maintained in the name of the Trustee, on behalf of the Trust, a segregated
trust account (the "PREPAYMENT ACCOUNT") that shall be an Eligible Trust
Account, bearing a designation clearly indicating that the funds deposited
therein are held for the benefit of the Series 1997-1 Certificateholders. The
Prepayment Account shall be under the sole dominion and control of the Trustee
for the benefit of the Series 1997-1 Certificateholders from time to time. If,
at any time, the Prepayment Account shall cease to be an Eligible Trust Account,
the Trustee shall within 10 Business Days of a Responsible Officer learning of
such event establish a new Prepayment Account meeting the conditions specified
above as an Eligible Trust Account, transfer any cash and/or any investments to
such new Prepayment Account and from the date such new Prepayment Account is
established, it shall be the "Prepayment Account". Neither the Transferor nor
the Servicer, nor any Person claiming by, through or under the Transferor or the
Servicer, shall have any right, title or interest in, or any right to withdraw
any amount from, the Prepayment Account except to the extent provided in this
Supplement. Notwithstanding the foregoing, the Transferor shall have the
revocable power to instruct the Trustee to make allocations, withdrawals and
payments from or within the Prepayment Account for the purposes of effecting a
Prepayment pursuant to Section 9 of this Supplement.
(d) Funds on deposit in the Prepayment Account shall be invested by the
Trustee at the direction of the Transferor in Eligible Investments that will
mature so that such funds will be
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available prior to the applicable Payment Date following such investment. Any
funds on deposit in the Prepayment Account to be so invested shall be invested
solely in Eligible Investments. Any request by the Transferor to invest funds on
deposit in the Prepayment Account shall be in writing and shall certify that the
requested investment is an Eligible Investment which matures at or prior to the
time required hereby. The Trustee shall maintain possession of the negotiable
instruments or securities, if any, evidencing the Eligible Investments described
in clause (a) of the definition thereof from the time of purchase thereof until
maturity. All interest and investment earnings (net of losses and investment
expenses) on funds on deposit in the Prepayment Account shall remain on deposit
therein and shall be applied as provided in Section 9 of this Supplement. Except
as provided in Section 9(c) of this Supplement and Section 4.05(f), neither the
Transferor nor the Servicer shall deposit any of their funds in the Prepayment
Account at any time.
(e) EXHIBIT 23(E) identifies the Prepayment Account by setting forth
the account number of such account, the account designation of such account and
the name and location of the institution with which such account has been
established.
(f) The Trustee, for the benefit of the Series 1997-1 Investor
Certificateholders, shall establish or shall cause to be established and
maintained in the name of the Trustee, on behalf of the Trust, a segregated
trust account (the "BORROWING ACCOUNT") that shall be an Eligible Trust Account,
bearing a designation clearly indicating that the funds deposited therein are
held for the benefit of the Series 1997-1 Certificateholders. The Borrowing
Account shall be under the sole dominion and control of the Trustee for the
benefit of the Series 1997-1 Certificateholders from time to time. If, at any
time, the Borrowing Account shall cease to be an Eligible Trust Account, the
Trustee shall within 10 Business Days of a Responsible Officer learning of such
event establish a new Borrowing Account meeting the conditions specified above
as an Eligible Trust Account, transfer any cash and/or any investments to such
new Borrowing Account and from the date such new Borrowing Account is
established, it shall be the "Borrowing Account". Neither the Transferor nor the
Servicer, nor any Person claiming by, through or under the Transferor or the
Servicer, shall have any right, title or interest in, or any right to withdraw
any amount from, the Borrowing Account except to the extent provided in this
Supplement. Notwithstanding the foregoing, the Transferor shall have the
revocable power to instruct the Trustee to make allocations, withdrawals and
payments from or within the Borrowing Account for the purposes of carrying out
the provisions of Section 8 of this Supplement.
(g) Funds on deposit in the Borrowing Account shall be invested by the
Trustee at the direction of the Transferor in Eligible Investments that will
mature so that such funds will be available on the Business Day following such
investment. Any funds on deposit in the Borrowing Account to be so invested
shall be invested solely in Eligible Investments. Any request by the
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Transferor to invest funds on deposit in the Borrowing Account shall be in
writing and shall certify that the requested investment is an Eligible
Investment which matures at or prior to the time required hereby. The Trustee
shall maintain possession of the negotiable instruments or securities, if any,
evidencing the Eligible Investments described in clause (a) of the definition
thereof from the time of purchase thereof until maturity. All interest and
investment earnings (net of losses and investment expenses) on funds on deposit
in the Borrowing Account shall remain on deposit therein and shall be applied as
provided in Section 8 of this Supplement. Except as provided in Section 8(e) of
this Supplement, neither the Transferor nor the Servicer shall deposit any of
their funds in the Borrowing Account at any time.
(h) EXHIBIT 23(H) identifies the Borrowing Account by setting forth the
account number of such account, the account designation of such account and the
name and location of the institution with which such account has been
established.
SECTION 24. DEBT SECURITIES.
Notwithstanding anything contained herein to the contrary (including,
without limitation, the form of the Series 1997-1 Investor Certificates), the
parties hereto agree, and by its acceptance of a Certificate each
Certificateholder shall be deemed to agree, that the Investor Certificates
evidence debt and such debt is further evidenced by the Limited Recourse
Promissory Notes. Nothing in this Section 24 or in any Limited Recourse
Promissory Note shall be deemed to diminish or otherwise adversely affect in any
way the rights of, and benefits to be afforded to, the Holder of any Certificate
as provided in the Agreement, this Supplement and such Certificate, regardless
of whether or not such Holder of such Certificate shall at any time also hold a
Limited Recourse Promissory Note.
SECTION 25. FEDERAL INCOME TAXATION.
The parties hereto agree, and by its acceptance of a Certificate each
Holder of any Certificate shall be deemed to agree, that none of them shall make
any election under Treasury Regulation Section 301.7701-3 that would have the
effect of causing the Trust to be treated as a corporation for U.S. Federal
income tax purposes.
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IN WITNESS WHEREOF, the parties hereto have caused this Supplement to
be duly executed by their respective officers thereunto duly authorized as of
the date first above written.
CF FUNDING CORP.,
as Transferor
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
CAPITAL FACTORS, INC.,
individually and as Servicer
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
BANKERS TRUST COMPANY,
as Trustee
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
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Exhibit A to
Series 1997-1 Supplement
Form of Accountants' Special Audit Report
This draft is furnished solely for the purpose of indicating the form
of letter that we would expect to be able to furnish Capital Factors,
Inc. and in response to their request, the matters expected to be
covered in the letter, and the nature of the procedures, that we would
expect to carry out with respect to such matters. Based on our
discussions with Capital Factors, Inc. and the Trustee and
Certificateholders, it is our understanding that the procedures
outlined in this draft letter are those they wish us to follow. Unless
Capital Factors, Inc. and the Trustee and Certificateholders inform us
otherwise, we shall assume that there are no additional procedures they
wish us to follow. The text of the letter itself will depend, of
course, on the results of the procedures, which we would not expect to
complete until shortly before the letter is issued.
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors
Capital Factors, Inc.
1799 West Oakland Park Blvd.
Ft. Lauderdale, FL 33311
We have performed the procedures requested by you, as described below, with
respect to the Pooling and Servicing Agreement dated as of June 1, 1994 (the
"Agreement"). Capitalized terms are used herein with the meanings specified in
the Agreement. This report is solely for your information and is not to be
referred to or distributed to anyone who is not (i) a member of the Board of
Directors or management of the Company or (ii) the Trustee or (iii) a
Certificateholder or (iv) a Rating Agency, in each case as defined in the
Agreement, for any purpose. The procedures that we performed and our findings
are as follows:
A. PROCEDURES PERFORMED WITH REGARDS TO AMOUNTS IN EACH SETTLEMENT
STATEMENT ISSUED FROM __________ __, ____ TO _________ __, ____:
- Recalculated each Series Allocation Percentage.
- Recalculated each Series Floating Allocation Percentage.
- Recalculated the Series Principal Allocation Percentage for
each Series in an Amortization Period.
- Agreed Collection amounts (Interest, Principal, Receivable,
and Recoveries) to summarized records or reports produced by
Factors' computer system.
- Agreed amount of Defaulted Advances, Chargeoffs, Aged
Receivables and Recoveries to summarized records or
<PAGE> 65
reports produced by Factors' computer system.
- Agreed account balances in each Interest Funding Sub-Account,
Cash Collateral Sub-Account, Principal Funding Sub-Account,
Excess Funding Sub-Account, Accumulation Sub-Account and the
Concentration Account to summarized records or reports
produced by Factors' computer system.
B. PROCEDURES REGARDING THE LOCK-BOX RECEIPTS:
Randomly selected six business days in the _____ quarter of 19__ and
performed the following:
- Agreed the transfer of funds from the Lock-Box Account to the
Concentration Account.
- Recalculated the amount of Principal Collections and Interest
Collections which were received by the Concentration Account.
C. IN ACCORDANCE WITH SECTION 4.02 OF THE AGREEMENT:
- Agreed that investments made in the Interest Funding
Sub-Account, Cash Collateral Sub-Account, Principal Funding
Sub-Account, Excess Funding Sub-Account, Accumulation
Sub-Account and the Concentration Account are Eligible
Investments in accordance with the Agreement.
- Agreed that investments made in the above referenced accounts
are invested at the request of the Servicer in writing.
D. FOR EACH DAY SELECTED IN B. ABOVE, PERFORMED THE FOLLOWING PROCEDURES:
- Recalculated the allocation of Interest Collections as
discussed in Section 4.03(b)(i) of the Agreement.
Additionally, recalculated the amount of Interest Collections
allocated to each Class of Investor Certificateholders of each
Series according to the Supplement for each such Series.
- Recalculated the allocation of Principal Collections as
discussed in Section 4.03(b)(ii) of the Agreement.
Additionally, recalculated the amount of Principal Collections
allocated to the Transferor and to each Class of Investor
Certificateholders of each Series according to the Supplement
for each such Series.
- Recalculated the allocation of Recoveries as discussed in
Section 4.03(b)(iii) of the Agreement. Additionally,
recalculated the amount of Recoveries
2
<PAGE> 66
allocated to each Class of Investor Certificateholders of each
Series according to the Supplement for each such Series.
- Recalculated the allocation of Chargeoffs as discussed in
Section 4.06 of the Agreement. Additionally, recalculated the
amount of Chargeoffs allocated to each Class of Investor
Certificateholders of each Series according to the Supplement
for each such Series.
- In regards to the "Early Amortization Events/ Accumulation
Events/Servicer Defaults" reports, dated __________________
__, 19__, ______________ __, 19__ and _____________ __, 19__
which were prepared by Capital Factors, Inc. and are attached
to this report, we recalculated the amounts included in
Sections _____, _____, and ____. Additionally, we agreed the
amounts included in Sections ____, ____, and ____ to
summarized records or reports produced by Factor's computer
system.
E. ANNUAL PROCEDURES (I.E., TO BE PERFORMED ONCE EACH FISCAL YEAR AND IN
THE EVENT OF EACH SPECIAL AUDIT):
(i) We randomly selected [25] Client accounts (representing at
least 35% of the total advances outstanding). The [25]
selections included the ten largest accounts at ___________
__, 19__ from Capital Factors' account current and any Client
added to the Trust from __________ __, 19__ to ___________ __,
19__. We performed procedures (ii) and (iii) below to those
accounts selected.
(ii) Recalculated the computations required by clauses (xi), (xii)
and (xiii) of the definition of "Eligible Advance" in Annex X
of the Agreement to the extent applicable to each Client
selected in (i) above as of _____________ __, 199_, and agreed
to summarized records or reports produced by Factors' computer
system. In addition, recalculated for all Designated Accounts
the computations required by clauses (xi), (xii) and (xiii) of
the definition of "Eligible Receivable" in Annex X of the
Agreement as of _________ __, 199_, and agreed to summarized
records or reports produced by Factors' computer system.
(iii) We mailed requests for positive confirmation of the recorded
amounts to the Clients. We obtained __ responses, of which __
were noted as indicating differences for which explanations
could not be obtained (see Exhibit __). We tested those
accounts for which we did not receive a confirmation reply by
agreeing the amounts for three advances, (the advances were
selected at random from those made during the previous 30 day
period) to management's
3
<PAGE> 67
support evidencing the advance. Noted that such support
indicated advance dates prior to _____________, 19__. No
unreconciled differences were noted.
(iv) We randomly selected 50 Customer remittances from Clients
selected in (i) above from the account current (such report
being a summarization of remittances received by the Lock-Box
Account) and performed the procedures in (v), (vi) and (vii).
(v) For those remittances selected in (iv) above, recalculated the
amount of such remittance which represented Principal and
Interest Collections.
(vi) Agreed total Collection amounts (Interest, Principal,
Receivable and Recoveries) for the day in which the remittance
was posted to posting from the account current to the Daily
Report.
(vii) Agreed the daily transfer of funds from the Lock-Box Account
to the Concentration Account, for those days encompassed by
the 50 selections above to summarized records or reports
produced by Factors' computer system.
(viii) We randomly selected and mailed 100 negative confirmations of
Customer accounts receivable invoices. Our selections were
made from the Customer trial balance dated ____________ __,
19__. No unreconciled differences were noted.
(ix) Reviewed the cash reconciliations performed by the Servicer
and found that there were no material unreconciled
differences.
(x) For those Daily Reports for which Collection amounts were
agreed to in (vi) above, footed and crossfooted amounts
appearing in such Daily Report. For those Daily Reports
selected, performed the additional following procedures:
- Agreed the beginning Pool Balance to the ending Pool
Balance in the immediately preceding Daily Report.
- Agreed each beginning Series Floating Allocation
Percentage to the respective ending Series Floating
Allocation Percentage in the immediately preceding
Settlement Statement.
(xi) For those Clients selected in (i) above performed the
following procedures with regards to Capital Factors Inc.
adherence to their "Loan and Credit Policy" dated ____________
__, 19__.
4
<PAGE> 68
- Ascertained the existence of a Client Factoring
Agreement.
- Randomly selected one Advance disbursement and
performed the following:
- Examined evidence of account executive
authorization of advance and ascertained
that advance was within available limits
based on Advance Rate.
- Ascertained that annual fiscal financial statements
of the Client had been provided to Factors no later
than four months after the date of the Client's last
fiscal year end.
Because the above procedures do not constitute an audit conducted in accordance
with generally accepted auditing standards, we do not express an opinion on any
account balance, individual record or report as of __________ __, 19__. Had we
performed additional procedures or had we conducted an audit of the financial
statements in accordance with generally accepted auditing standards, other
matters might have come to our attention that would have been reported to you.
This report relates only to the accounts and items specified above, and does not
extend to any financial statements of Capital Factors, Inc., taken as a whole.
DELOITTE & TOUCHE
- ---------- --, ----
cc: Trustee
5
<PAGE> 69
Exhibit 6 to
Series 1997-1 Supplement
Trustee Delivery of Written Materials to
Series 1997-1 Certificateholders
(1) All Settlement Statements delivered to the Trustee pursuant to
Section 3.04(c) of the Pooling and Servicing Agreement,
(2) all computer files, which shall be delivered as written
documents, updating Schedule 1 to the Pooling and Servicing
Agreement delivered to the Trustee pursuant to Section 2.05 of
the Pooling and Servicing Agreement or otherwise,
(3) all certificates delivered by the Servicer to the Trustee
pursuant to Section 3.05 of the Pooling and Servicing
Agreement,
(4) copies of all public accountant's reports under Section 3.06
of the Pooling and Servicing Agreement delivered to the
Trustee,
(5) all Removal Notices delivered to the Trustee under Section
2.05 of the Pooling and Servicing Agreement,
(6) all notices in respect of any changes of Lock-Box Banks or
Lock-Box Accounts delivered to the Trustee under Section 3.01
of the Pooling and Servicing Agreement,
(7) copies of all new Lock-Box Agreements entered into by Factors
or the Servicer and delivered to the Trustee pursuant to
Section 3.01 of the Pooling and Servicing Agreement,
(8) copies of any Lock-Box Account Transfer Letter delivered to
the Trustee,
(9) all Opinions of Counsel delivered by Factors or the Transferor
to the Trustee and each report delivered under Section
13.02(c)(iii), (iv) and (v) of the Pooling and Servicing
Agreement,
(10) all Officer's Certificates delivered by the Servicer, Factors
or the Transferor pursuant to Sections 2.06(f), 3.05, 6.03(e),
6.09(b)(v), 6.09(b)(vii), 7.02(a)(ii), 8.02(a)(ii), 10.01,
11.02(a), 12.02(a), 12.03(a), 12.05(c) of the Agreement to
Trustee,
(11) copies of all Supplements executed by the Trustee pursuant to
Section 6.09 of the Agreement, copies of all Tax Opinions
delivered to the Trustee pursuant to Sections 6.03(c) and
6.09(b)(vi) of the Agreement,
1
<PAGE> 70
(12) all notices of mergers or consolidations of the Transferor or
the Servicer delivered to the Trustee,
(13) any notice of resignation or termination of the Servicer
delivered to the Trustee under Section 8.05 or Article 10 of
the Pooling and Servicing Agreement,
(14) any notice regarding a Service Transfer delivered to the
Trustee pursuant to Article 10 of the Pooling and Servicing
Agreement,
(15) any notice of an Early Amortization Event, Prospective Early
Amortization Event or Accumulation Event delivered to the
Trustee pursuant to Section 9.01 of the Agreement or Section
13 of the Supplement,
(16) any notice of a Servicer Default delivered to the Trustee
pursuant to Article 10 of the Pooling and Servicing Agreement,
(17) any written notice of any waiver pursuant to Section 10.04 of
the Pooling and Servicing Agreement, and
(18) in connection with each Borrowing, a written notice
acknowledging receipt by the Trustee of the Borrowing Junior
Subordinated Amount from the Holder of the Series 1997-1
Junior Subordinated Certificates pursuant to Section 8(b) of
the Supplement.
2
<PAGE> 71
Exhibit 8(b)(i)
to Series 1997-1 Supplement
Form of Borrowing Notice
CF FUNDING CORP.
Borrowing Notice
--------------, ----
Bankers Trust Company
Corporate Trust and Agency
Group
4 Albany Street
New York, New York 10006
Attention: Structured Finance Group
10th Floor
Fax: 212-250-6439
Capital Factors, Inc.
1799 West Oakland Park Boulevard
Fort Lauderdale, FL 33311
Attention: John W. Kiefer
Fax: 954-730-2920
Each Holder on the list
attached hereto
Ladies and Gentlemen:
Reference is made to the Pooling and Servicing Agreement dated as of
June 1, 1994 (the "POOLING AND SERVICING AGREEMENT") among CF Funding Corp. (the
"COMPANY"), as transferor, Capital Factors, Inc., as servicer (the "SERVICER")
and Bankers Trust Company, as trustee (the "TRUSTEE ") and the Series 1997-1
Supplement thereto dated as of April 1, 1997 (the "SUPPLEMENT") among the
Company, the Servicer and the Trustee. All terms used herein and not otherwise
defined are used herein as defined in the Pooling and Servicing Agreement and
the Supplement. Pursuant to Section 8(b) of the Supplement, the Transferor
hereby (i) notifies you of the Borrowing to occur on ______________ __, ____
(the "BORROWING DATE") in the amounts specified in the table below and (ii)
certifies as to the satisfaction of all conditions precedent to such Borrowing
specified in Section 8(a) of the Supplement as of the date of this Borrowing
Notice.
1
<PAGE> 72
<TABLE>
<CAPTION>
================================================================================================
A B C D
================================================================================================
Series 1997-1 Series 1997-1 Series 1997-1
Senior Senior Junior
Certificates Subordinated Subordinated
Certificates Certificates
================================================================================================
<S> <C> <C> <C> <C>
1 Class Invested
Amount Prior
to Borrowing
- ------------------------------------------------------------------------------------------------
2 Borrowing
Senior Amount
- ------------------------------------------------------------------------------------------------
3 Borrowing
Senior
Subordinated
Amount
- ------------------------------------------------------------------------------------------------
4 Borrowing
Junior
Subordinated
Amount
- ------------------------------------------------------------------------------------------------
5 Class
Invested
Amount After
This
Borrowing
[B1 + B2] [C1 + C3] [D1 + D4]
- ------------------------------------------------------------------------------------------------
6 Maximum
Invested
Amount of
Class $95,250,000 $4,750,000 $9,500,000
- ------------------------------------------------------------------------------------------------
7 Invested
Amount of
each Class
must be less
than or equal
to Maximum
Invested
Amount of Is A5 less than Is B5 less than Is C5 less than
such Class or equal to A6? or equal to B6? or equal to C6?
---------------------------------------------------------
Yes No Yes No Yes No
---------------------------------------------------------
- ------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
8 Class B
Invested
Amount +
Class C
Invested
Amount (each
after this
Borrowing) [C5 +D5]
- ------------------------------------------------------------------------------------------------
9 Required
Subordinated
Amount
- ------------------------------------------------------------------------------------------------
10 Amount
in row 8
must be
more than
or equal
to amount
in row 9 Yes No
- ------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 73
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
11 Ratio of the
Class A
Invested
Amount to
the Class B
Invested
Amount prior
to this
Borrowing
[B1/C1]
- ------------------------------------------------------------------------------------------------
12 Ratio of the
Class A
Invested
Amount to
the Class B
Invested
Amount after
this Borrowing [B5/C5]
- ------------------------------------------------------------------------------------------------
13 Amount in
row 11 must
be equal to
the amount
in row 12 Yes No
- ------------------------------------------------------------------------------------------------
14 Amount in
Series
1997-1 Cash
Collateral
Sub-Account
prior to
this Borrowing
------------------------------------------------------------------------------------------------
15 Cash
Collateral
Maintenance
Amount
(after this
Borrowing)
- ------------------------------------------------------------------------------------------------
16 Amount to be
deposited into
Series 1997-1
Cash Collateral
Sub-Account from
proceeds of
the Borrowing [A15 - A14]
- ------------------------------------------------------------------------------------------------
17 Current
Advance
Coverage
Amount
(after this
Borrowing)
- ------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 74
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
18 Required
Advance
Coverage
Amount
(after this
Borrowing)
- ------------------------------------------------------------------------------------------------
19 Amount in row
18 must be
greater than
or equal to
amount in
row 19 Yes No
================================================================================================
</TABLE>
4
<PAGE> 75
The Borrowing Senior Amount shall be allocated between the Holders of
the Series 1997-1 Senior Certificates as follows:
<TABLE>
<CAPTION>
CERTIFICATE NO. HOLDER AMOUNT
- --------------- ------ ------
<S> <C> <C>
[_] [Name of registered $[_____________]
Holder]
[_] [Name of registered $[_____________]
Holder]
</TABLE>
The Borrowing Senior Subordinated Amount shall be allocated between the
Holders of the Series 1997-1 Senior Subordinated Certificates as follows:
<TABLE>
<CAPTION>
CERTIFICATE NO. HOLDER AMOUNT
- --------------- ------ ------
<S> <C> <C>
[_] [Name of registered $[_____________]
Holder]
[_] [Name of registered $[_____________]
Holder]
</TABLE>
The amounts specified above shall be wired by the respective
Certificateholders to the following account:
Bankers Trust Company
ABA #021001033
Account of Corporate Trust and Agency Group
Account #01419647
Reference: Account Number 23056
The undersigned, [Officer's title] of CF FUNDING CORP., a Delaware
corporation (the "COMPANY"), DOES HEREBY CERTIFY as follows:
1. I am familiar with the terms of the Pooling and Servicing Agreement
and the Supplement.
2. To the best of my knowledge, no Early Amortization Event,
Prospective Early Amortization Event or Accumulation Event has occurred and is
continuing as of the close of business on the Business Day immediately preceding
the date of this Borrowing Notice.
3. To the best of my knowledge, no Early Amortization Event,
Prospective Early Amortization Event or Accumulation Event (in each case as
defined in the related Supplement) has occurred with respect to any other Series
as of the close of business on the Business Day immediately preceding the date
of this Borrowing Notice.
5
<PAGE> 76
4. To the best of my knowledge, the Borrowing, if it occurred
on the date of this Borrowing Notice, would not result in an Early Amortization
Event, Prospective Early Amortization Event or Accumulation Event and is not
expected to result in the occurrence of an Early Amortization Event, Prospective
Early Amortization Event or Accumulation Event at any time in the future.
5. To the best of my knowledge, the Borrowing, if it occurred
on the date of this Borrowing Notice, would not result in an Early Amortization
Event, Prospective Early Amortization Event or Accumulation Event (in each case
as defined in the related Supplement) with respect to any other Series and is
not expected to result in the occurrence of an Early Amortization Event,
Prospective Early Amortization Event or Accumulation Event (in each case as
defined in the related Supplement) with respect to any other Series at any time
in the future.
6. After giving effect to the Borrowing, as if it occurred on the date
of this Borrowing Notice, the sum of the Class B Invested Amount PLUS the Class
C Invested Amount would be at least equal to the Required Subordinated Amount.
7. After giving effect to the Borrowing, as if it occurred on the date
of this Borrowing Notice, (A) the Invested Amount of each Class of Series 1997-1
Investor Certificates would not exceed the Maximum Invested Amount of each such
Class and (B) the proportion that the Class A Invested Amount would bear to the
Class B Invested Amount (assuming no Investor Funding Deficiencies with respect
to such Borrowing or any prior Borrowing) would be the same as the proportion
that the Maximum Invested Amount of Class A bears to the Maximum Invested Amount
of Class B.
8. To the best of my knowledge, after giving effect to the Borrowing,
as if it occurred on the date of this Borrowing Notice, the Aggregate
Transferor's Current Participation Amount will not be less than the Aggregate
Transferor's Required Participation Amount.
9. To the best of my knowledge, after giving effect to the Borrowing,
as if it occurred on the date of this Borrowing Notice, the Current Advance
Coverage Amount will not be less than the Required Advance Coverage Amount.
WITNESS my hand this ____ day of _________, ____.
-----------------------
[title]
of
CF FUNDING CORP.
6
<PAGE> 77
Exhibit 8(b)(iii)
to Series 1997-1 Supplement
Form of Confirmation Notice
CF FUNDING CORP.
Confirmation Notice
--------------, ----
Bankers Trust Company
Corporate Trust and Agency
Group
4 Albany Street
New York, New York 10006
Attention: Structured Finance Group
10th Floor
Fax: 212-250-6439
Capital Factors, Inc.
1799 West Oakland Park Boulevard
Fort Lauderdale, FL 33311
Attention: John W. Kiefer
Fax: 954-730-2920
Each Holder on the list
attached hereto
Ladies and Gentlemen:
Reference is made to the Pooling and Servicing Agreement dated as of
June 1, 1994 (the "POOLING AND SERVICING AGREEMENT") among CF Funding Corp. (the
"COMPANY"), as transferor, Capital Factors, Inc., as servicer (the "SERVICER")
and Bankers Trust Company, as trustee (the "TRUSTEE ") and the Series 1997-1
Supplement thereto dated as of April 1, 1997 (the "SUPPLEMENT") among the
Company, the Servicer and the Trustee. All terms used herein and not otherwise
defined are used herein as defined in the Pooling and Servicing Agreement and
the Supplement. Pursuant to Section 8(b)(iii) of the Supplement and in
connection with the Borrowing occurring on the date hereof, the Transferor
hereby certifies as follows as of the close of business on the Business Day
immediately preceding the date of this Confirmation Notice.
1
<PAGE> 78
The undersigned, [Officer's title] of CF FUNDING CORP., a
Delaware corporation (the "COMPANY"), DOES HEREBY CERTIFY as follows:
1. I am familiar with the terms of the Pooling and Servicing Agreement
and the Supplement.
2. To the best of my knowledge, no Early Amortization Event,
Prospective Early Amortization Event or Accumulation Event has occurred and is
continuing.
3. To the best of my knowledge, no Early Amortization Event,
Prospective Early Amortization Event or Accumulation Event (in each case as
defined in the related Supplement) has occurred with respect to any other
Series.
4. To the best of my knowledge, the Borrowing will not result in an
Early Amortization Event, Prospective Early Amortization Event or Accumulation
Event and is not expected to result in the occurrence of an Early Amortization
Event, Prospective Early Amortization Event or Accumulation Event at any time in
the future.
5. To the best of my knowledge, the Borrowing will not result in an
Early Amortization Event, Prospective Early Amortization Event or Accumulation
Event (in each case as defined in the related Supplement) with respect to any
other Series and is not expected to result in the occurrence of an Early
Amortization Event, Prospective Early Amortization Event or Accumulation Event
(in each case as defined in the related Supplement) with respect to any other
Series at any time in the future.
6. To the best of my knowledge, after giving effect to the Borrowing
and any payment by the Holder of the Series 1997-1 Junior Subordinated
Certificates pursuant to Section 8(b)(v) of the Supplement (if any), the sum of
the Class B Invested Amount PLUS the Class C Invested Amount will be at least
equal to the Required Subordinated Amount.
7. After giving effect to the Borrowing and any increase in the Maximum
Invested Amount of Class C pursuant to Section 8(b)(v) of the Supplement, the
Invested Amount of each Class of Series 1997-1 Investor Certificates will not
exceed the Maximum Invested Amount of each such Class
8. After giving effect to the Borrowing, the proportion that the Class
A Invested Amount will bear to the Class B Invested Amount (assuming no Investor
Funding Deficiencies with respect to such Borrowing or any prior Borrowing) will
be the same as the proportion that the Maximum Invested Amount of Class A bears
to the Maximum Invested Amount of Class B.
2
<PAGE> 79
WITNESS my hand this ____ day of _________, ____.
-----------------------
[title]
of
CF FUNDING CORP.
3
<PAGE> 80
Exhibit 9(b)
to Series 1997-1 Supplement
Form of Prepayment Notice
CF FUNDING CORP.
Prepayment Notice
--------------, ----
Bankers Trust Company
Corporate Trust and Agency
Group
4 Albany Street
New York, New York 10006
Attention: Structured Finance Group
10th Floor
Fax: 212-250-6439
Capital Factors, Inc.
1799 West Oakland Park Boulevard
Fort Lauderdale, FL 33311
Attention: John W. Kiefer
Fax: 954-730-2920
Each Holder on the list
attached hereto
Ladies and Gentlemen:
Reference is made to the Pooling and Servicing Agreement dated as of
June 1, 1994 (the "POOLING AND SERVICING AGREEMENT") among CF Funding Corp. (the
"COMPANY"), as transferor, Capital Factors, Inc., as servicer (the "SERVICER")
and Bankers Trust Company, as trustee (the "TRUSTEE ") and the Series 1997-1
Supplement thereto dated as of April 1, 1997 (the "SUPPLEMENT") among the
Company, the Servicer and the Trustee. All terms used herein and not otherwise
defined are used herein as defined in the Pooling and Servicing Agreement and
the Supplement. Pursuant to Section 9(b) of the Supplement, the Transferor
hereby (i) instructs the Trustee to withdraw amounts from the Prepayment Account
and/or Series 1997-1 Excess Funding Sub-Account (as detailed below) and to make
payment on __________ __, ____ (the "PREPAYMENT DATE") of the Prepayment Senior
Amount, Prepayment Senior Subordinated Amount and Prepayment Junior Subordinated
Amount (each as set forth in the table below) to the Certificateholders entitled
thereto and (ii) certifies to you as to the satisfaction of all conditions
precedent to such Prepayment specified in Section 9(a) of the Supplement as of
the date of this Prepayment Notice.
1
<PAGE> 81
<TABLE>
<CAPTION>
================================================================================================
A B C D
================================================================================================
Series 1997-1 Series 1997-1 Series 1997-1
Senior Senior Junior
Certificates Subordinated Subordinated
Certificates Certificates
================================================================================================
<S> <C> <C> <C> <C>
1 Class Invested
Amount Prior
to Prepayment
- ------------------------------------------------------------------------------------------------
2 Prepayment
Senior Amount
- ------------------------------------------------------------------------------------------------
3 Prepayment
Senior
Subordinated
Amount
- ------------------------------------------------------------------------------------------------
4 Prepayment
Junior
Subordinated
Amount
- ------------------------------------------------------------------------------------------------
5 Total
Amount of
Prepayment [B2 + C3 + D4]
- ------------------------------------------------------------------------------------------------
6 Amount in
Line 5 to
be withdrawn
from Prepayment
Account
- ------------------------------------------------------------------------------------------------
7 Amount in
Line 5 to be
withdrawn
from Excess
Funding
Account
- ------------------------------------------------------------------------------------------------
8 Class
Invested
Amount
After This
Prepayment [B1 + B2] [C1 + C3] [D1 + D4]
- ------------------------------------------------------------------------------------------------
9 Class B
Invested
Amount +
Class C
Invested
Amount
(each after
this
Prepayment) [C8 + D8]
- ------------------------------------------------------------------------------------------------
10 Required
Subordinated
Amount
- ------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 82
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
11 Amount
in row 9
must be
greater than
or equal to
amount
in row 10 Yes No
- ------------------------------------------------------------------------------------------------
12 Ratio of the
Class A
Invested
Amount to
the Class B
Invested
Amount before
this
Prepayment [B1 + C1]
- ------------------------------------------------------------------------------------------------
13 Ratio of the
Class A
Invested
Amount to
the Class B
Invested
Amount after
this Prepayment [B8/C8]
- ------------------------------------------------------------------------------------------------
14 Amount in
row 12 must
be equal to
the amount
in row 13 Yes No
- ------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 83
The undersigned, [Officer's title] of CF FUNDING CORP., a Delaware
corporation (the "COMPANY"), DOES HEREBY CERTIFY as follows:
1. I am familiar with the terms of the Pooling and Servicing Agreement
and the Supplement.
2. To the best of my knowledge, no Early Amortization Event,
Prospective Early Amortization Event or Accumulation Event has occurred and is
continuing as of the close of business on the Business Day immediately preceding
the date of this Prepayment Notice.
3. To the best of my knowledge, the Prepayment, if it occurred on the
date of this Prepayment Notice, would not result in an Early Amortization Event,
Prospective Early Amortization Event or Accumulation Event and is not expected
to result in the occurrence of an Early Amortization Event, Prospective Early
Amortization Event or Accumulation Event at any time in the future.
4. After giving effect to the Prepayment, as if it occurred on the date
of this Prepayment Notice, the sum of the Class B Invested Amount PLUS the Class
C Invested Amount will be at least equal to the Required Subordinated Amount.
5. After giving effect to the Prepayment, as if it occurred on the date
of this Prepayment Notice, the proportion that the Class A Invested Amount would
bear to the Class B Invested Amount (assuming no Investor Funding Deficiencies
with respect to any Borrowing) would be the same as the proportion that the
Maximum Invested Amount of Class A bears to the Maximum Invested Amount of Class
B.
6. After giving effect to the Prepayment, as if it occurred on the date
of this Prepayment Notice, if the Class A Invested Amount would equal zero, no
amount of the Prepayment will be applied against the Class C Invested Amount
unless the Class B Invested Amount would also equal zero after giving effect to
such Prepayment.
7. To the best of my knowledge, after giving effect to the Prepayment,
as if it occurred on the date of this Prepayment Notice, the requirements of
Section 8(d) of the Supplement will be satisfied.
WITNESS my hand this ____ day of _________, ____.
-----------------------
[title]
of
CF FUNDING CORP.
<PAGE> 84
Exhibit 12-A
to Series 1997-1 Supplement
Form of Senior Certificate
FORM OF FACE OF SENIOR CERTIFICATE
Maximum
REGISTERED Invested Amount:
$____________
Certificate No. PPN 140115 B@4
THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. NEITHER THIS CERTIFICATE NOR ANY PORTION HEREOF MAY BE OFFERED OR SOLD
EXCEPT IN COMPLIANCE WITH THE REGISTRATION PROVISIONS OF SUCH ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION PROVISIONS.
THIS CERTIFICATE IS NOT PERMITTED TO BE SOLD, TRANSFERRED, ASSIGNED, EXCHANGED,
PLEDGED OR OTHERWISE CONVEYED EXCEPT IN COMPLIANCE WITH THE TERMS OF THE POOLING
AND SERVICING AGREEMENT REFERRED TO HEREIN.
THIS CERTIFICATE MAY NOT BE ACQUIRED BY OR FOR THE ACCOUNT OF A BENEFIT PLAN (AS
PROVIDED BELOW).
CAPITAL FACTORS FINANCING TRUST
SERIES 1997-1
VARIABLE RATE-VARIABLE FUNDING
ASSET BACKED CERTIFICATE, CLASS A
evidencing a fractional undivided interest in
assets of
Capital Factors Financing Trust
the corpus of which consists primarily of Advances made to Clients of Capital
Factors, Inc. ("FACTORS") arising under certain designated accounts. This
certificate (this "CERTIFICATE") does not represent any recourse obligation of
and is not guaranteed by CF Funding Corp. (the "TRANSFEROR"), Factors, or any
affiliate thereof.
Unless the certificate of authentication hereon has been executed by or
on behalf of the Trustee, by manual signature, this Certificate shall not be
entitled to any benefit under the
1
<PAGE> 85
Agreement referred to on the reverse side hereof or be valid for any purpose.
THIS CERTIFICATE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW
PROVISIONS.
IN WITNESS WHEREOF, the Transferor has caused this Certificate to be
duly executed.
CF FUNDING CORP.
By:
----------------------------------
Name:
-----------------------------
Title:
----------------------------
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Senior Certificates referred to in the within-mentioned
Agreement.
BANKERS TRUST COMPANY,
as Trustee
By:
-----------------------
Authorized Signatory
Dated:
2
<PAGE> 86
FORM OF THE REVERSE OF SENIOR CERTIFICATE
This certifies that _________________ (the "CERTIFICATEHOLDER") is the
registered owner of a fractional undivided interest in assets of CAPITAL FACTORS
FINANCING TRUST (the "TRUST"), pursuant to a Pooling and Servicing Agreement
(the "POOLING AND SERVICING AGREEMENT") dated as of June 1, 1994, as
supplemented by the Series 1997-1 Supplement dated as of April 1, 1997 (the
"SUPPLEMENT"; the Supplement and the Pooling and Servicing Agreement, as each
may be amended, supplemented, restated or otherwise modified from time to time,
being referred to collectively as the "AGREEMENT "), each among CF Funding Corp.
(the "TRANSFEROR"), Capital Factors, Inc., as servicer (the "SERVICER"), and
Bankers Trust Company, as trustee (the "TRUSTEE"). Although a summary of certain
provisions of the Agreement is set forth below, this Certificate does not
purport to summarize the Agreement and is qualified in its entirety by reference
to the Agreement; without limiting the generality of the foregoing, reference is
made to the Agreement for information with respect to the interests, rights,
benefits, obligations, and duties evidenced hereby and the rights, duties and
obligations of the Trustee. A copy of the Agreement (without schedules) may be
requested from the Trustee by writing to the Trustee at Bankers Trust Company, 4
Albany Street, 10th Floor, New York, New York 10006, Attention: Corporate Trust
Department. Unless the context otherwise requires, capitalized terms used herein
without definition are defined in the Agreement or the Supplement.
This Certificate is one of the Series 1997-1 Senior Certificates issued
under, and is subject to the terms, provisions and conditions of, the Agreement,
to which Agreement the Certificateholder by virtue of its acceptance hereof
assents and is bound.
The Maximum Invested Amount of this Certificate is the amount stated
above. By its acceptance of this Certificate the Certificateholder hereof agrees
to invest or reinvest up to such Maximum Invested Amount in accordance with the
terms of the Series 1997-1 Supplement.
The Transferor has entered into the Agreement, and the Series 1997-1
Senior Certificates have been issued, with the intention that the Series 1997-1
Senior Certificates will qualify under applicable tax law as indebtedness,
secured by the Advances. The Transferor, the Certificateholder, by its
acceptance of this Certificate, and each Certificate Owner, by acquiring an
interest in this Certificate, agrees to treat the Series 1997-1 Senior
Certificates as indebtedness secured by the Advances for purposes of Federal,
state and local income or franchise taxes and for purposes of other taxes
imposed on or measured by income.
On each Payment Date, the Paying Agent shall distribute to each Holder
of the Series 1997-1 Senior Certificates at the close of business on the
preceding Record Date the amounts provided for in the Supplement. Final payment
of this
1
<PAGE> 87
Certificate will be made in the manner set forth in the Agreement.
This Certificate does not represent recourse obligations of and is not
guaranteed by the Transferor, Factors, or any affiliate thereof and is not
insured or guaranteed by any governmental agency or instrumentality. This
Certificate is limited in right of payment in respect of Collections as more
specifically set forth in the Agreement.
As provided in the Agreement and subject to certain limitations therein
set forth, the transfer of this Certificate is registrable in the Certificate
Register of the Transfer Agent and Registrar upon surrender of this Certificate
for registration of transfer at the office or agency maintained by the Transfer
Agent and Registrar in New York, New York, accompanied by a written instrument
of transfer in form satisfactory to the Trustee and the Transfer Agent and
Registrar (which, unless otherwise specified by the Trustee, shall be in the
form attached hereto as Exhibit A) duly executed by the Holder hereof or such
Holder's attorney duly authorized in writing, and thereupon one or more new
Series 1997-1 Senior Certificates of authorized denominations evidencing the
same aggregate Undivided Interest will be issued to the designated transferee or
transferees.
As provided in the Agreement and subject to certain limitations therein
set forth, a Series 1997-1 Senior Certificate may be exchanged for new Series
1997-1 Senior Certificates of authorized denominations evidencing the same
aggregate Undivided Interests as requested by the Series 1997-1 Senior
Certificateholder surrendering such Certificate. No service charge may be
imposed for any registration of transfer or exchange but the Transfer Agent and
Registrar may require payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection therewith.
Subject to the terms and conditions of the Agreement, the Transferor
may from time to time direct the Trustee, on behalf of the Trust, to issue one
or more new Series of Senior Certificates.
The Trustee, the Paying Agent, the Transfer Agent and Registrar and any
agent of any of them, may treat the Person in whose name this Certificate is
registered as the owner hereof for all purposes, and neither the Trustee, the
Paying Agent, the Transfer Agent and Registrar, nor any agent of any of them,
shall be affected by any notice to the contrary except as described in the
Agreement.
The holder of this Certificate shall not be permitted to transfer this
Certificate, and the Trustee shall not register any such transfer, unless the
Trustee has received an investor letter (an "INVESTOR LETTER") from the
transferee (1) representing and warranting that it is not a Benefit Plan and (2)
if it is acquiring this Certificate on behalf of more than one beneficial owner,
confirming on behalf of each such beneficial owner that each such beneficial
owner is not a Benefit Plan. As
2
<PAGE> 88
used herein, "BENEFIT PLAN" shall mean (i) an employee benefit plan (as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")) that is subject to the provisions of Title I of ERISA, (ii) a
plan described in Section 4975(e)(1) of the Internal Revenue Code of 1986, as
amended, or (iii) an entity whose underlying assets include plan assets by
reason of a plan's investment in such entity (as contemplated in 29 C.F.R. '
2510.3-101). By accepting and holding this Investor Certificate by transfer, the
holder of such Investor Certificate represents and warrants that it is not a
Benefit Plan. By acquiring any interest in this Certificate by transfer, the
applicable Certificate Owner or Owners shall be deemed to have represented and
warranted that it or they are not Benefit Plans.
By accepting and holding this Certificate, the holder hereof
acknowledges that (i) it understands that this Certificate has not been
registered under the Securities Act of 1933, as amended (the "Act"), or any
state securities laws and is being issued pursuant to an exemption from the
registration requirements of the Act and any such law, (ii) it is either (A) an
institutional investor which is an "accredited investor" within the meaning of
subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the Act or, if this
Certificate is to be purchased for one or more institutional accounts ("investor
accounts") for which it is acting as fiduciary or agent (except if it is a bank
as defined in Section 3(a)(2), or a savings and loan association or other
institution as described in Section 3(a)(5)(A), under the Act whether acting in
its individual or in a fiduciary capacity), each such account is an
institutional investor and an accredited investor on a like basis or (B) a
"qualified institutional buyer" within the meaning of Rule 144A under the Act;
(iii) if it is not a qualified institutional buyer, it is acquiring this
Certificate for its own account and not with a view to any distribution of this
Certificate or with any intention of distributing this Certificate, but subject,
nevertheless, to the disposition of this Certificate being at all times within
its control and (iv) this Certificate may not be sold or transferred unless (A)
such sale or transfer is made pursuant to an effective registration statement
under the Act or is exempt from such registration requirements and (B) each of
such holder and the transferee has complied with any conditions for transfer set
forth in the Agreement.
This Certificate is subject to additional restrictions on transfer as
set forth in Section 6.03 of the Pooling and Servicing Agreement (as modified by
the Supplement).
3
<PAGE> 89
Exhibit 12-B
to Series 1997-1 Supplement
Form of Senior Subordinated Certificate
FORM OF FACE OF SENIOR SUBORDINATED CERTIFICATE
Maximum
REGISTERED Invested Amount:
$
Certificate No. PPN 140115 B#2
THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. NEITHER THIS CERTIFICATE NOR ANY PORTION HEREOF MAY BE OFFERED OR SOLD
EXCEPT IN COMPLIANCE WITH THE REGISTRATION PROVISIONS OF SUCH ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION PROVISIONS.
THIS CERTIFICATE IS NOT PERMITTED TO BE SOLD, TRANSFERRED, ASSIGNED, EXCHANGED,
PLEDGED OR OTHERWISE CONVEYED EXCEPT IN COMPLIANCE WITH THE TERMS OF THE POOLING
AND SERVICING AGREEMENT REFERRED TO HEREIN.
THIS CERTIFICATE MAY NOT BE ACQUIRED BY OR FOR THE ACCOUNT OF A BENEFIT PLAN (AS
PROVIDED BELOW).
CAPITAL FACTORS FINANCING TRUST
SERIES 1997-1
VARIABLE RATE-VARIABLE FUNDING
ASSET BACKED CERTIFICATE, CLASS B
evidencing a fractional undivided interest in
assets of
Capital Factors Financing Trust
the corpus of which consists primarily of Advances made to Clients of Capital
Factors, Inc. ("FACTORS") arising under certain designated accounts. This
certificate (this "CERTIFICATE") does not represent any recourse obligation of
and is not guaranteed by CF Funding Corp. (the "TRANSFEROR"), Factors, or any
affiliate thereof.
Unless the certificate of authentication hereon has been executed by or
on behalf of the Trustee, by manual signature, this Certificate shall not be
entitled to any benefit under the Agreement referred to on the reverse side
hereof or be valid for any purpose.
4
<PAGE> 90
THIS CERTIFICATE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW
PROVISIONS.
IN WITNESS WHEREOF, the Transferor has caused this Certificate
to be duly executed.
CF FUNDING CORP.
By:
--------------------------------
Name:
---------------------------
Title:
--------------------------
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Senior Subordinated Certificates referred to in the
within-mentioned Agreement.
BANKERS TRUST COMPANY,
as Trustee
By:
--------------------------
Authorized Signatory
Dated:
5
<PAGE> 91
FORM OF THE REVERSE OF SENIOR SUBORDINATED CERTIFICATE
This certifies that ________________ (the "CERTIFICATEHOLDER") is the
registered owner of a fractional undivided interest in assets of CAPITAL FACTORS
FINANCING TRUST (the "TRUST"), pursuant to a Pooling and Servicing Agreement
(the "POOLING AND SERVICING AGREEMENT") dated as of June 1, 1994, as
supplemented by the Series 1997-1 Supplement dated as of April 1, 1997 (the
"SUPPLEMENT"; the Supplement and the Pooling and Servicing Agreement, as each
may be amended, supplemented, restated or otherwise modified from time to time,
being referred to collectively as the "AGREEMENT "), each among CF Funding Corp.
(the "TRANSFEROR"), Capital Factors, Inc., as servicer (the "SERVICER"), and
Bankers Trust Company, as trustee (the "TRUSTEE"). Although a summary of certain
provisions of the Agreement is set forth below, this Certificate does not
purport to summarize the Agreement and is qualified in its entirety by reference
to the Agreement; without limiting the generality of the foregoing, reference is
made to the Agreement for information with respect to the interests, rights,
benefits, obligations, and duties evidenced hereby and the rights, duties and
obligations of the Trustee. A copy of the Agreement (without schedules) may be
requested from the Trustee by writing to the Trustee at Bankers Trust Company, 4
Albany Street, 10th Floor, New York, New York 10006, Attention: Corporate Trust
Department. Unless the context otherwise requires, capitalized terms used herein
without definition are defined in the Agreement or the Supplement.
This Certificate is one of the Series 1997-1 Senior Subordinated
Certificates issued under, and is subject to the terms, provisions and
conditions of, the Agreement, to which Agreement the Certificateholder by virtue
of its acceptance hereof assents and is bound.
The Maximum Invested Amount of this Certificate is the amount stated
above. By its acceptance of this Certificate the Certificateholder hereof agrees
to invest or reinvest up to such Maximum Invested Amount in accordance with the
terms of the Series 1997-1 Supplement.
The Transferor has entered into the Agreement, and the Series 1997-1
Senior Subordinated Certificates have been issued, with the intention that the
Series 1997-1 Senior Subordinated Certificates will qualify under applicable tax
law as indebtedness, secured by the Advances. The Transferor, the
Certificateholder, by its acceptance of this Certificate, and each Certificate
Owner, by acquiring an interest in this Certificate, agrees to treat the Series
1997-1 Senior Subordinated Certificates as indebtedness secured by the Advances
for purposes of Federal, state and local income or franchise taxes and for
purposes of other taxes imposed on or measured by income.
On each Payment Date, the Paying Agent shall distribute to each Holder
of the Series 1997-1 Senior Subordinated
<PAGE> 92
Certificates at the close of business on the preceding Record Date the amounts
provided for in the Supplement. Final payment of this Certificate will be made
in the manner set forth in the Agreement.
This Certificate does not represent recourse obligations of and is not
guaranteed by the Transferor, Factors, or any affiliate thereof and is not
insured or guaranteed by any governmental agency or instrumentality. This
Certificate is limited in right of payment in respect of Collections as more
specifically set forth in the Agreement.
As provided in the Agreement and subject to certain limitations therein
set forth, the transfer of this Certificate is registrable in the Certificate
Register of the Transfer Agent and Registrar upon surrender of this Certificate
for registration of transfer at the office or agency maintained by the Transfer
Agent and Registrar in New York, New York, accompanied by a written instrument
of transfer in form satisfactory to the Trustee and the Transfer Agent and
Registrar (which, unless otherwise specified by the Trustee, shall be in the
form attached hereto as Exhibit A) duly executed by the Holder hereof or such
Holder's attorney duly authorized in writing, and thereupon one or more new
Series 1997-1 Senior Subordinated Certificates of authorized denominations
evidencing the same aggregate Undivided Interest will be issued to the
designated transferee or transferees.
As provided in the Agreement and subject to certain limitations therein
set forth, a Series 1997-1 Senior Subordinated Certificate may be exchanged for
new Series 1997-1 Senior Subordinated Certificates of authorized denominations
evidencing the same aggregate Undivided Interests as requested by the Series
1997-1 Senior Subordinated Certificateholder surrendering such Certificate. No
service charge may be imposed for any registration of transfer or exchange but
the Transfer Agent and Registrar may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
therewith.
Subject to the terms and conditions of the Agreement, the Transferor
may from time to time direct the Trustee, on behalf of the Trust, to issue one
or more new Series of Senior Subordinated Certificates.
The Trustee, the Paying Agent, the Transfer Agent and Registrar and any
agent of any of them, may treat the Person in whose name this Certificate is
registered as the owner hereof for all purposes, and neither the Trustee, the
Paying Agent, the Transfer Agent and Registrar, nor any agent of any of them,
shall be affected by any notice to the contrary except as described in the
Agreement.
The holder of this Certificate shall not be permitted to transfer this
Certificate, and the Trustee shall not register any such transfer, unless the
Trustee has received an investor letter (an "INVESTOR LETTER") from the
transferee (1)
2
<PAGE> 93
representing and warranting that it is not a Benefit Plan and (2) if it is
acquiring this Certificate on behalf of more than one beneficial owner,
confirming on behalf of each such beneficial owner that each such beneficial
owner is not a Benefit Plan. As used herein, "BENEFIT PLAN" shall mean (i) an
employee benefit plan (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) that is subject to the
provisions of Title I of ERISA, (ii) a plan described in Section 4975(e)(1) of
the Internal Revenue Code of 1986, as amended (the "CODE"), or (iii) an entity
whose underlying assets include plan assets by reason of a plan's investment in
such entity (as contemplated in 29 C.F.R. ' 2510.3-101). By accepting and
holding this Investor Certificate by transfer, the holder of such Investor
Certificate represents and warrants that it is not a Benefit Plan. By acquiring
any interest in this Certificate by transfer, the applicable Certificate Owner
or Owners shall be deemed to have represented and warranted that it or they are
not Benefit Plans.
By accepting and holding this Certificate, the holder hereof
acknowledges that (i) it understands that this Certificate has not been
registered under the Securities Act of 1933, as amended (the "Act"), or any
state securities laws and is being issued pursuant to an exemption from the
registration requirements of the Act and any such law, (ii) it is either (A) an
institutional investor which is an "accredited investor" within the meaning of
subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the Act or, if this
Certificate is to be purchased for one or more institutional accounts ("investor
accounts") for which it is acting as fiduciary or agent (except if it is a bank
as defined in Section 3(a)(2), or a savings and loan association or other
institution as described in Section 3(a)(5)(A), under the Act whether acting in
its individual or in a fiduciary capacity), each such account is an
institutional investor and an accredited investor on a like basis or (B) a
"qualified institutional buyer" within the meaning of Rule 144A under the Act;
(iii) if it is not a qualified institutional buyer, it is acquiring this
Certificate for its own account and not with a view to any distribution of this
Certificate or with any intention of distributing this Certificate, but subject,
nevertheless, to the disposition of this Certificate being at all times within
its control and (iv) this Certificate may not be sold or transferred unless (A)
such sale or transfer is made pursuant to an effective registration statement
under the Act or is exempt from such registration requirements and (B) each of
such holder and the transferee has complied with any conditions for transfer set
forth in the Agreement.
This Certificate is subject to additional restrictions on transfer as
set forth in Section 6.03 of the Pooling and Servicing Agreement (as modified by
the Supplement).
3
<PAGE> 94
Exhibit 12-C
to Series 1997-1 Supplement
Form of Junior Subordinated Certificate
FORM OF FACE OF JUNIOR SUBORDINATED CERTIFICATE
Maximum
REGISTERED Invested Amount:
$
------------------
Certificate No. ___ PPN 140115 C*5
THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. NEITHER THIS CERTIFICATE NOR ANY PORTION HEREOF MAY BE OFFERED OR SOLD
EXCEPT IN COMPLIANCE WITH THE REGISTRATION PROVISIONS OF SUCH ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION PROVISIONS, AND, IN EACH CASE IN
ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED
STATES AND OTHER JURISDICTIONS OF THE UNITED STATES.
THIS CERTIFICATE IS NOT PERMITTED TO BE SOLD, TRANSFERRED, ASSIGNED, EXCHANGED,
PLEDGED OR OTHERWISE CONVEYED EXCEPT IN COMPLIANCE WITH THE TERMS OF THE POOLING
AND SERVICING AGREEMENT REFERRED TO HEREIN.
THIS CERTIFICATE MAY NOT BE ACQUIRED BY OR FOR THE ACCOUNT OF A BENEFIT PLAN (AS
DEFINED BELOW).
CAPITAL FACTORS FINANCING TRUST
SERIES 1997-1
VARIABLE RATE-ARIABLE FUNDING
ASSET BACKED CERTIFICATE, CLASS C
evidencing a fractional undivided interest in
assets of
Capital Factors Financing Trust
the corpus of which consists primarily of Advances made to Clients of Capital
Factors, Inc. ("FACTORS") arising under certain designated accounts. This
certificate (this "CERTIFICATE") does not represent any recourse obligations of
and is not guaranteed by CF Funding Corp. (the "TRANSFEROR"), Factors, or any
affiliate thereof.
Unless the certificate of authentication hereon has been executed by or
on behalf of the Trustee, by manual signature, this Certificate shall not be
entitled to any benefit
1
<PAGE> 95
under the Agreement referred to on the reverse side hereof or be valid for any
purpose.
THIS CERTIFICATE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW
PROVISIONS.
IN WITNESS WHEREOF, the Transferor has caused this Certificate to be
duly executed.
CF FUNDING CORP.
By:
---------------------------
Name:
----------------------
Title:
---------------------
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Junior Subordinated Certificates referred to in the
within-mentioned Agreement.
BANKERS TRUST COMPANY,
as Trustee
By:
--------------------------
Authorized Signatory
Dated:
2
<PAGE> 96
FORM OF THE REVERSE OF JUNIOR SUBORDINATED CERTIFICATE
This certifies that _______________ (the "CERTIFICATEHOLDER") is the
registered owner of a fractional undivided interest in assets of CAPITAL FACTORS
FINANCING TRUST (the "TRUST"), pursuant to a Pooling and Servicing Agreement
(the "POOLING AND SERVICING AGREEMENT") dated as of June 1, 1994, as
supplemented by the Series 1997-1 Supplement dated as of April 1, 1997 (the
"SUPPLEMENT"; the Supplement and the Pooling and Servicing Agreement, as each
may be amended, supplemented, restated or otherwise modified from time to time,
being referred to collectively as the "AGREEMENT "), each among CF Funding Corp.
(the "TRANSFEROR"), Capital Factors, Inc., as servicer (the "SERVICER"), and
Bankers Trust Company, as trustee (the "TRUSTEE"). Although a summary of certain
provisions of the Agreement is set forth below, this Certificate does not
purport to summarize the Agreement and is qualified in its entirety by reference
to the Agreement; without limiting the generality of the foregoing, reference is
made to the Agreement for information with respect to the interests, rights,
benefits, obligations, and duties evidenced hereby and the rights, duties and
obligations of the Trustee. A copy of the Agreement (without schedules) may be
requested from the Trustee by writing to the Trustee at Bankers Trust Company, 4
Albany Street, 10th Floor, New York, New York 10006, Attention: Corporate Trust
Department. Unless the context otherwise requires, capitalized terms used herein
without definition are defined in the Agreement.
This Certificate is one of the Series 1997-1 Junior Subordinated
Certificates issued under, and is subject to the terms, provisions and
conditions of, the Agreement, to which Agreement the Certificateholder by virtue
of its acceptance hereof assents and is bound.
The Maximum Invested Amount of this Certificate is the amount stated
above (as such amount may be increased pursuant to Section 8(b) of the
Supplement).
On each Payment Date, the Paying Agent shall distribute to each Holder
of the Series 1997-1 Junior Subordinated Certificates at the close of business
on the preceding Record Date the amounts provided for in the Supplement.
Pursuant to the Agreement, the Subordinated Investors' Interest in the Trust
Assets will be subordinated to the Senior Investors' Interest thereunder.
Interest Collections will be first allocated to the Senior Certificateholders
and certain other allocations before the remaining balance will be allocated to
the Subordinated Certificateholders as provided in the Supplement. In certain
cases, Subordinated Interest Collections will not be distributed but rather used
to purchase additional Advances. Each such purchase will increase the
Subordinated Investors' Interest. During an Early Amortization Period such
amounts will be, and during a Scheduled Amortization Period may be, distributed
to the Senior Certificateholders rather than used to purchase additional
Advances until the Senior Certificates are paid in full. Interest and Principal
Collections may in certain cases be
3
<PAGE> 97
allocated to the Excess Funding Account which is held for the benefit of the
Senior Certificates only. Chargeoffs of Advances will reduce the Subordinated
Investors' Interest by a like amount. The Trustee shall send distributions to
the Holders of the Series 1997-1 Junior Subordinated Certificates under Section
5.01 of the Agreement to each Series 1997-1 Subordinated Certificateholder by
the close of business (New York City time) on each Payment Date by wire transfer
of immediately available funds to an account or accounts designated by such
Series 1997-1 Subordinated Certificateholders, by written notice to the Trustee
and the Paying Agent given at least five days prior to any Payment Date (such
notice to remain effective with respect to a Holder until different instructions
from such Holder are received by the Trustee and the Paying Agent), or if no
such notice is given, by check mailed as provided in Section 5.01 of the
Agreement. Final payment of this Certificate will be made only upon presentation
and surrender of this Certificate at the office or agency specified in the
notice of final distribution delivered by the Trustee to the Certificateholder
in accordance with the Agreement.
This Certificate does not represent recourse obligations of and is not
guaranteed by the Transferor, Factors, or any affiliate thereof and is not
insured or guaranteed by any governmental agency or instrumentality. This
Certificate is limited in right of payment in respect of Collections as more
specifically set forth in the Agreement.
As provided in the Agreement and subject to certain limitations therein
set forth, the transfer of this Certificate is registrable in the Certificate
Register of the Transfer Agent and Registrar upon surrender of this Certificate
for registration of transfer at the office or agency maintained by the Transfer
Agent and Registrar in New York, New York, accompanied by a written instrument
of transfer in form satisfactory to the Trustee and the Transfer Agent and
Registrar (which, unless otherwise specified by the Trustee, shall be in the
form attached hereto as Exhibit A) duly executed by the Holder hereof or such
Holder's attorney duly authorized in writing, and thereupon one or more new
Series 1997-1 Junior Subordinated Certificates of authorized denominations
evidencing the same aggregate Undivided Interest will be issued to the
designated transferee or transferees.
As provided in the Agreement and subject to certain limitations therein
set forth, a Series 1997-1 Junior Subordinated Certificate may be exchanged for
new Series 1997-1 Junior Subordinated Certificates of authorized denominations
evidencing the same aggregate Undivided Interests as requested by the Series
1997-1 Subordinated Certificateholder surrendering such Certificate. No service
charge may be imposed for any registration of transfer or exchange but the
Transfer Agent and Registrar may require payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in connection
therewith.
Subject to the terms and conditions of the Agreement,
4
<PAGE> 98
the Transferor may from time to time direct the Trustee, on behalf of the Trust,
to issue one or more new Series of Subordinated Certificates.
The Trustee, the Paying Agent, the Transfer Agent and Registrar and any
agent of any of them, may treat the Person in whose name this Certificate is
registered as the owner hereof for all purposes, and neither the Trustee, the
Paying Agent, the Transfer Agent and Registrar, nor any agent of any of them,
shall be affected by any notice to the contrary except as described in the
Agreement.
This Certificate may not be acquired by or for the account of a Benefit
Plan. As used herein, "BENEFIT PLAN" shall mean any Employee Benefit Plan (as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")) that is subject to the provisions of Title I of ERISA, a
Plan described in Section 4975(E)(l) of the Internal Revenue Code of 1986, as
amended, or an entity whose underlying assets include plan assets by reason of a
Plan's investment in such entity. By accepting and holding this Certificate, the
Holder hereof represents and warrants that it is not a Benefit Plan. By
acquiring any interest in this Certificate, the applicable Certificate Owner or
Owners shall be deemed to have represented and warranted that it or they are not
Benefit Plans.
By accepting and holding this Certificate, the holder hereof
acknowledges that (i) it understands that this Certificate has not been
registered under the Securities Act of 1933, as amended (the "Act"), or any
state securities laws and is being issued pursuant to an exemption from the
registration requirements of the Act and any such law, (ii) it is either (A) an
institutional investor which is an "accredited investor" within the meaning of
subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the Act or, if this
Certificate is to be purchased for one or more institutional accounts ("investor
accounts") for which it is acting as fiduciary or agent (except if it is a bank
as defined in Section 3(a)(2), or a savings and loan association or other
institution as described in Section 3(a)(5)(A), under the Act whether acting in
its individual or in a fiduciary capacity), each such account is an
institutional investor and an accredited investor on a like basis or (b) a
"qualified institutional buyer" within the meaning of Rule 144A under the Act;
(iii) if it is not a qualified institutional buyer, it is acquiring this
Certificate for its own account and not with a view to any distribution of this
Certificate or with any intention of distributing this Certificate, but subject,
nevertheless, to the disposition of this Certificate being at all times within
its control and (iv) this Certificate may not be sold or transferred unless (A)
such sale or transfer is made pursuant to an effective registration statement
under the Act or is exempt from such registration requirements and (B) each of
such holder and the transferee has complied with any conditions for transfer set
forth in the Agreement.
5
<PAGE> 99
EXHIBIT 23(e) to
Series 1997-1 Supplement
Prepayment Account
ACCOUNT NAME
Capital Factors Financing Trust Prepayment Account f/b/o the Series 1997-1
Certificateholders
LOCATION OF ACCOUNT
Bankers Trust Company
4 Albany Street
10th Floor
New York, New York 10006
Attention: Corporate Trust and Agency Group
ACCOUNT NUMBER
23057
1
<PAGE> 100
EXHIBIT 23(h) to
Series 1997-1 Supplement
Borrowing Account
ACCOUNT NAME
Capital Factors Financing Trust Borrowing Account f/b/o the Series 1997-1
Certificateholders
LOCATION OF ACCOUNT
Bankers Trust Company
4 Albany Street
10th Floor
New York, New York 10006
Attention: Corporate Trust and Agency Group
ACCOUNT NUMBER
23056
2
<PAGE> 1
Exhibit 11.1
CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
CALCULATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Six Months Ended June 30,
PRIMARY 1997 1996
--------------------- -----------------
<S> <C> <C>
Weighted average number of common shares outstanding 12,300,000 10,000,000
Common equivalent shares outstanding - options 0 0
--------------------- -----------------
Total common and common equivalent shares outstanding 12,300,000 10,000,000
--------------------- -----------------
Net income $ 5,459,550 $ 4,461,160
--------------------- -----------------
Primary earnings per share $ 0.44 $ 0.45
===================== =================
FULLY DILUTED
Weighted average number of common shares outstanding 12,300,000 10,000,000
Common equivalent shares outstanding - options 323,651 0
--------------------- -----------------
Total common and common equivalent shares outstanding 12,623,651 10,000,000
--------------------- -----------------
Net income $ 5,459,550 $ 4,461,160
--------------------- -----------------
Fully diluted earnings per share $ 0.43 $ 0.45
===================== =================
</TABLE>
20
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-01-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 38,566,645
<SECURITIES> 0
<RECEIVABLES> 536,309,127
<ALLOWANCES> (3,245,491)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 4,199,817
<DEPRECIATION> 338,323
<TOTAL-ASSETS> 584,331,789
<CURRENT-LIABILITIES> 0
<BONDS> 329,737,515
0
0
<COMMON> 123,000
<OTHER-SE> 67,425,009
<TOTAL-LIABILITY-AND-EQUITY> 584,331,789
<SALES> 0
<TOTAL-REVENUES> 37,207,613
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 14,463,616
<LOSS-PROVISION> 2,200,000
<INTEREST-EXPENSE> 11,356,779
<INCOME-PRETAX> 9,187,218
<INCOME-TAX> 3,727,668
<INCOME-CONTINUING> 5,459,550
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,459,550
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.43
</TABLE>
