As filed with the Securities and Exchange Commission on January 21, 1997
Registration No. 333-______
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
--------------------
USA FINANCE, INC.
(Exact name of registrant as specified in its charter)
Delaware 6141 23-2767307
-------- ---- ----------
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Classification Code Identification Number)
incorporation Number)
or organization)
1111 Park Centre Road
Miami, Florida 33169
(305) 625-0900
- --------------------------------------------------------------------------------
(Address, including zip code, and telephone number,
including area code, of registrant's principal
executive office and principal place of business)
Stephen E. Michaelson
1111 Park Centre Road
Miami, Florida 33169
(305) 625-0900
- --------------------------------------------------------------------------------
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
with copy to:
Stephen M. Cohen, Esquire
Buchanan Ingersoll Professional Corporation
1200 Two Logan Square, 12th Floor
Philadelphia, PA 19103
(215) 665-3873
--------------------
Approximate date of proposed sale to the public: As soon as practicable
following the date on which this Registration Statement becomes effective.
--------------------
<PAGE>
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, as amended, check the following box. [x]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===============================================================================================================
Title of Amount Proposed Proposed
Shares to be to be Maximum Offering Maximum Aggregate Amount of
Registered Registered Price per Share(1) Offering Price Registration Fee
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par
value per share(2) 2,678,219 $1.44 $3,856,635 $1,168.68
- ---------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par
value per share(3) 271,000 $5.00 $1,355,000 $410.61
- ---------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par
value per share(3) 250,000 $4.00 $1,000,000 $303.03
- ---------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par
value per share(4) 171,675 $4.00 $686,700 $208.09
- ---------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par
value per share(4) 100,000 $5.00 $500,000 $151.52
- ---------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par
value per share(4) 100,000 $8.00 $800,000 $242.42
- ---------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par
value per share(4) 15,000 $6.00 $90,000 $27.27
- ---------------------------------------------------------------------------------------------------------------
Total 3,585,894 $8,288,335 $2,511.62
===============================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
Since the Registrant will not be receiving any proceeds from the
distribution of its securities and since there is no market therefor, the
registration fee is calculated on the basis of (i) with respect to the
outstanding shares of Common Stock, the book value of a share of Common
Stock of the Registrant as of September 30, 1996 (see financial statements
and notes thereto); and (ii) with respect to shares of Common Stock
issuable upon the exercise or conversion of outstanding warrants and
convertible debentures, the associated exercise or conversion prices
pursuant to Rules 457(f)(2) and 457(g), respectively, of the Securities
Act of 1933, as amended.
(2) Represents (i) 1,656,928 outstanding shares of Common Stock; (ii) 384,625
outstanding shares of Series A $4.00 Preferred Stock which will
automatically convert into shares of Common Stock upon the effective date
of this Registration Statement; and (iii) 636,666 outstanding shares of
Series B $3.00 Preferred Stock which will automatically convert into
shares of Common Stock upon the effective date of this Registration
Statement.
(3) Represents shares of Common Stock that are issuable upon conversion of
certain of the Registrant's outstanding convertible debentures.
(4) Represents shares of Common Stock that are issuable upon exercise of
certain of the Registrant's outstanding common stock purchase warrants.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the registration statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
<PAGE>
USA FINANCE, INC.
CROSS REFERENCE SHEET
Registration Statement
Item Number and Caption Location in Prospectus or Page
- ----------------------- ------------------------------
1. Forepart of the Registration
Statement and Outside Front Cover Forepart of the Registration Statement;
Page of Prospectus................. Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Inside Front and Outside Back Cover
Cover Pages of Prospectus.......... Pages of Prospectus
3. Summary Information and Risk Prospectus Summary; Summary Financial
Factors............................ Information; Risk Factors
4. Use of Proceeds.................... Use of Proceeds
5. Determination of Offering Price.... Cover Page of Prospectus; Plan of
Distribution
6. Dilution........................... N/A
7. Selling Security Holders........... Selling Security Holders
8. Plan of Distribution............... Cover Page of Prospectus; Plan of
Distribution
9. Legal Proceedings.................. Business of the Company - Legal
Proceedings
10. Directors, Executive Officers,
Promoters and Control Persons...... Management; Certain Transactions
11. Security Ownership of Certain
Beneficial Owners and Management... Principal Stockholders
12. Description of Securities.......... Description of Securities
13. Interest of Named Experts
and Counsel........................ N/A
14. Disclosure of Commission Position Statement on Indemnification; Part II
on Indemnification for Item 24 - Indemnification of Directors
Securities Act Liabilities......... and Officers
15. Organization within Last
Five Years......................... Business of the Company
16. Description of Business............ Business of the Company
17. Management's Discussion and Management's Discussion and Analysis of
Analysis or Plan of Operation...... Financial Condition and Results of
Operations
18. Description of Property............ Business of the Company - Facilities
19. Certain Relationships and
Related Transactions............... Certain Transactions
20. Market for Common Equity and
Related Stockholder Matters........ Market for Common Stock
21. Executive Compensation............. Management - Executive Compensation
Arrangements
22. Financial Statements............... Summary Financial Information;
Capitalization; Financial Statements
23. Changes In and Disagreements
with Accountants on Accounting
and Financial Disclosure........... N/A
<PAGE>
Subject to Completion January 21, 1997
PRELIMINARY PROSPECTUS
USA FINANCE, INC.
-------------------------
3,585,894 Shares of Common Stock Offered
by Certain Selling Security Holders
(Subject to Adjustment)
-------------------------
This Prospectus relates to the sale by certain selling security holders
identified in this Prospectus ("Selling Security Holders") of 3,586,894 shares
of Common Stock, $.001 par value per share, of USA Finance, Inc. (the "Company")
consisting of: (i) 1,656,928 shares previously issued by the Company; (ii)
384,625 shares issuable on the date hereof upon conversion of outstanding shares
of Series A $4.00 Convertible Preferred Stock; (iii) 636,666 shares issuable on
the date hereof upon conversion of outstanding shares of Series B $3.00
Convertible Preferred Stock; (iv) 386,675 shares issuable, if at all, upon the
exercise of certain outstanding common stock purchase warrants; and (v) 521,000
or more shares issuable, if at all, upon conversion of the principal due under
certain outstanding convertible debentures. The shares issuable, if at all, upon
conversion of the convertible debentures are subject to increase to accommodate
possible adjustments in the conversion feature based upon the trading price of
the Common Stock and to pay accrued interest due upon maturity, at the election
of the holder. See "DESCRIPTION OF SECURITIES" and "SELLING SECURITY HOLDERS."
The Series A $4.00 Convertible Preferred Stock, Series B $3.00 Convertible
Preferred Stock, warrants and convertible debentures were issued by the Company
to sophisticated and accredited investors during 1996 in private placement
transactions. Of the shares of Common Stock offered for resale by the Selling
Security Holders, 1,579,427 shares will be offered by certain officers,
directors and principal stockholders of the Company. See "SELLING SECURITY
HOLDERS," "DESCRIPTION OF SECURITIES" and "CERTAIN TRANSACTIONS."
The Company will not receive any proceeds from the sale of shares of
Common Stock by the Selling Security Holders. The Company will, however, bear
all expenses in connection with the preparation and filing of a Registration
Statement of which this Prospectus forms a part. Sales of shares of Common Stock
may be made in negotiated private or public transactions, or otherwise, at
market prices prevailing at the time of sale or at negotiated prices. See "PLAN
OF DISTRIBUTION."
-------------------------
The Company's Common Stock is not currently publicly traded. Application
will be made to list the Common Stock on the OTC Bulletin Board and, thereafter,
if the Company qualifies to do so, on The NASDAQ SmallCap Market. There can be
no assurance that a public market will develop. See "DESCRIPTION OF SECURITIES"
and "PLAN OF DISTRIBUTION."
<PAGE>
-------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGES 10 TO 17 FOR A DISCUSSION OF CERTAIN
MATERIAL FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY.
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
AVAILABLE INFORMATION
The Company is not subject to the information reporting requirements of
the Securities Exchange Act of 1934 (the "Exchange Act"). The Company will
provide a report to stockholders, at least annually, which will include audited
financial statements of the Company.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information and financial statements (including the notes thereto) appearing
elsewhere in this Prospectus. Investors should carefully consider the
information set forth under the caption "Risk Factors."
THE COMPANY
Through its wholly owned subsidiaries, Gold Coast Finance, Inc. ("Gold
Coast") and National-Wide Premium Finance Co. ("National-Wide"), USA Finance,
Inc. (the "Company") is licensed as a premium finance company that offers
purchasers of property and casualty insurance policies (the "Insureds") an
opportunity to finance the payment of their annual premiums through installment
loans provided by the Company. Approximately 90% of the Company's business
involves the financing of automobile insurance premiums. The remainder of the
Company's business consists of offering financing to buyers of commercial
insurance policies, consumer homeowner policies and other property and casualty
policies.
A substantial portion of the Company's premium finance activities relate
to non-standard automobile insurance policies which typically cover Insureds who
have been classified by the insurance company as presenting higher than average
insurable risks for a variety of reasons including age, driving record, a lapse
in or absence of coverage, or ownership of high value or high performance
vehicles.
Non-standard policies are typically offered by smaller insurance carriers
that require payment in advance for annual premiums and generally do not offer
captive financing programs similar to those offered by certain of the larger
national carriers. By offering Insureds an opportunity to finance the payment of
their annual premiums on an installment basis, the Company believes that it can
gain access to a significant demographic mix of individuals who are either
unable or unwilling to pay their insurance premiums in advance. In a typical
financing transaction, the Company collects a cash down payment from the Insured
of approximately fifteen percent (15%) to thirty percent (30%) of the annual
premium, and finances the balance, plus certain fees, interest and taxes,
pursuant to the terms of an installment note in the form of a finance contract
(the "Finance Contract"). The Company remits the full amount of the premium to
the insurance company, which under applicable state law, earns the premium
thereafter on a pro rata basis during the term of the policy. Generally, the
Finance Contract is due over a period of shorter duration than the underlying
policy. Thus, Finance Contracts relating to annual premiums are generally due
over a period of eight to ten months. The economic security for the repayment of
the principal obligation evidenced by the Finance Contract is the pro rata
portion of the insurance premium paid to, but not yet earned by, the insurance
company (the "unearned premium").
3
<PAGE>
The Finance Contract permits the Company to cancel a policy in the event
of a default by the Insured. Upon cancellation, the insurance company remits the
unearned premium to the Company, which in turn utilizes this amount to satisfy
any amounts due and owing under the Finance Contract. The balance, if any, is
returned to the Insured.
As a premium finance company, the Company does not assume any of the
underwriting risks of an insurance carrier. Rather, the Company's business
involves the management of credit risk associated with providing consumer
financing to individuals who purchase automobile insurance. If the Finance
Contracts have been properly established (so that at any point during the term
of the policy, the pro rata portion of the unearned premium exceeds the unpaid
principal due under the Finance Contract), the Company does not rely upon the
credit-worthiness of the Insured, but rather upon the insurance company for
repayment. In this respect, the Company recognizes that in order to achieve
profitable operations, if at all, it will have to profitably manage credit risk
by attempting to (i) reduce, where possible, existing over-concentration of
policies with insurance companies that are below certain industry ratings and
present greater risks of insolvency than more highly rated carriers; (ii)
conduct business, where feasible, in states that have guaranty funds to protect
against losses due to failure of insurance companies; and (iii) reduce, where
possible, situations in which additional premiums are assessed that result in an
under-collateralization of the Company's Finance Contracts.
Insurance companies are rated according to their financial strength and
claims payment ability by A.M. Best Company ("A.M. Best"), a provider of
independent rating services accepted within the industry. To mitigate against
the risk of insurance company failure, the Company attempts, to the best extent
possible, to finance policies written by insurance companies rated "B" or better
by A.M. Best. Towards that end, as of the date of this Prospectus, 53% of the
policies financed by the Company are written by insurance companies with an A.M.
Best rating of "B" or better. To further mitigate against the risk of insurance
company failure, the Company generally attempts to operate only in states with
insurance guaranty funds.
Under-collateralization, which occurs when the pro rata portion of the
unearned premium is less than the unpaid principal owed on the Finance Contract,
remains one of the most significant operating risks confronting the Company. The
current policies and internal guidelines of the Company are designed to ensure
that the return portion of the unearned premium (i.e., the premium paid to, but
not yet earned by, the insurance company) is within ten percent (10%) of the
unpaid principal due under substantially all of the Finance Contracts generated
by the Company.
Under-collateralization often occurs when an insurance company
retroactively re-rates an Insured's premium after initial issuance of the policy
and assesses an additional premium not contemplated by the original Finance
Contract. This typically occurs when the Insured erroneously omits from his
initial insurance application information about his automobile, past driving
record or insurance claims history that is likely to yield higher premiums when
discovered. Unless it is able to secure a larger down payment from the Insured,
the original down payment received by the Company, as an effective percentage of
the entire premium, will generally be insufficient to provide an unearned
premium to protect the Company from the risk of Insured defaults. Thus, the risk
of credit exposure in the event of a default by the Insured increases
significantly.
4
<PAGE>
Under-collateralization also occurs when insurance companies, following
cancellation of the underlying policy, return unearned premiums on a short-rated
as opposed to a full pro-rata basis. Florida and South Carolina, where the
Company conducts in excess of 95% of its operations, permit insurance companies
to return unearned premiums on a 90% short-rated basis. This requires the
Company to receive a larger down payment in order to provide it with an unearned
premium upon cancellation of the policy. The following chart demonstrates how
the Company can become under-collateralized in a typical policy (premium amount
$800) where only the down payment is received, the policy is canceled 60 days
after issuance and the insurance company is permitted to pro-rate the return of
premiums following cancellation.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Unearned Premium Returned Over/(Under) Collateralization
Down Principal -----------------------------------------------------------------------
Payment Balance 90% short-rated 100% pro-rata 90% short-rated 100% pro-rata
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
20.0% $640.00 $601.64 $668.49 ($38.36) $28.49
25.0% $600.00 $601.64 $668.49 $ 1.64 $68.49
28.4% $572.80 $601.64 $668.49 $28.84 $95.69
- -----------------------------------------------------------------------------------------------
</TABLE>
Management believes that it can mitigate the risk of
under-collateralization through the purchase and installation of computer
systems that will provide its independent agents with up-to-date information
relative to the Insured's driving record. Pending the adequacy of capital
resources for this project, the acquisition and installation of systems for this
purpose remain a high corporate priority.
The Company's marketing efforts are undertaken by approximately one
hundred fifty (150) independent insurance agents ("Agents") and approximately
nine (9) marketing representatives on a non-exclusive basis.
Since inception, the Company has funded the purchase of its Finance
Contracts through proceeds from operations, the private placement of
approximately $5.8 million in equity and debt securities and a $25 million
receivables purchase facility with SunAmerica Financial Resources, Inc. (the
"SunAmerica Facility"). The Company's continued growth is dependent upon
maintaining this facility, as well as securing additional proceeds from
financing transactions, increasing the eligibility for coverage under its
existing facility, and eventually, either increasing the outstanding coverage of
its existing facility or securing additional credit facilities.
At September 30, 1996, the Company's portfolio of Finance Contracts, which
are owned by a third-party financial institution under the SunAmerica Facility
but serviced by the Company, (the "Managed Portfolio") consisted of 46,064
Finance Contracts with an aggregate principal balance outstanding of $9,748,490.
This reflects an increase from the combined operations of Gold Coast and
National-Wide at December 31, 1995, at which time Finance Contracts owned and
serviced by the Company totaled $6,025,667.
For the nine month period ended September 30, 1996, the Company's
unaudited results of operations reflected a loss of $1,102,258. During this
period, the Company's Managed Portfolio increased 62% from $6,025,667 to
$9,748,490.
The Company's principal executive office is located at 1111 Park Centre
Road, Miami, Florida 33169 and its telephone number is 305-625-0900. Unless
otherwise specified herein, references to the "Company" shall include Gold Coast
and National-Wide.
5
<PAGE>
THE OFFERING
Securities Being Offered: This Prospectus relates to the sale by
certain selling security holders
identified in this Prospectus ("Selling
Security Holders") of 3,585,894 shares of
Common Stock, $.001 par value per share,
of USA Finance, Inc. (the "Company")
consisting of: (i) 1,656,928 shares
previously issued by the Company; (ii)
384,625 shares issuable on the date hereof
upon conversion of outstanding shares of
Series A $4.00 Convertible Preferred
Stock; (iii) 636,666 shares issuable on
the date hereof upon conversion of
outstanding shares of Series B $3.00
Convertible Preferred Stock; (iv) 386,675
shares issuable, if at all, upon the
exercise of certain outstanding common
stock purchase warrants; and (v) 521,000
or more shares issuable, if at all, upon
conversion of the principal due under
certain outstanding convertible
debentures. The shares issuable, if at
all, upon conversion of the convertible
debentures are subject to increase to
accommodate possible adjustments in the
conversion feature based upon the trading
price of the Common Stock and to pay
accrued interest due upon maturity, at the
election of the holder. See "SELLING
SECURITY HOLDERS" and "DESCRIPTION OF
SECURITIES."
The shares of Common Stock offered by the
Selling Security Holders may be offered
for sale from time to time by the holders
in regular brokerage transactions, either
directly or through brokers or to dealers,
in private sales or negotiated
transactions, or otherwise, at prices
related to then prevailing market prices.
The Company will not receive any proceeds
from the sale of shares of Common Stock by
the Selling Security Holders. All expenses
of the registration of such securities
are, however, being borne by the Company.
The Selling Security Holders, and not the
Company, will pay or assume such brokerage
commissions as may be incurred in the sale
of their securities. See "SELLING SECURITY
HOLDERS" and "PLAN OF DISTRIBUTION."
The Company's Common Stock is not
currently publicly traded. Application
will be made to list the Common Stock on
the OTC Bulletin Board, and, thereafter,
if the Company qualifies to do so, on the
NASDAQ SmallCap Market. There can be no
assurance that a public market will
develop. See
6
<PAGE>
"DESCRIPTION OF SECURITIES" and "PLAN OF
DISTRIBUTION."
Number of shares of Common Stock
currently outstanding(1)... ....................................... 2,646,928
Number of shares of Common Stock
which may be issued upon the
conversion or exercise, as
applicable, of outstanding shares
of Series A $4.00 Convertible
Preferred Stock, Series B $3.00
Convertible Preferred Stock, common
stock purchase warrants,
convertible debentures and
currently exercisable options(2) .................................. 2,249,466
---------
Total.............................................................. 4,896,394
Number of shares of Common Stock being
offered by Selling Security Holders(2)............................. 3,585,894
- ----------
(1) As of January 13, 1997
(2) This may be increased based on the number of shares issuable upon the
conversion, if at all, of the outstanding convertible debentures. See
"DESCRIPTION OF SECURITIES" and "SELLING SECURITY HOLDERS."
- ----------
Use of Proceeds: The Company will not receive any proceeds
from the sale of shares of Common Stock by
the Selling Security Holders.
Risk Factors: The shares of Common Stock offered in this
Prospectus are speculative in nature and
involve a high degree of risk. Prior to
making an investment decision, prospective
investors should carefully review the risk
factors enumerated in this Prospectus. See
"RISK FACTORS" beginning at page 10,
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" beginning at page 19 and
"BUSINESS OF THE COMPANY" beginning at
page 31.
7
<PAGE>
SUMMARY FINANCIAL INFORMATION
Set forth below is the historical summary financial information with
respect to the Company for each of the two years ended December 31, 1995, and
1994 and the nine months ended September 30, 1996 and 1995. The financial
statements for the two years ended December 31, 1995 and December 31, 1994
consist of the combined financial statements of Gold Coast and National-Wide.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Proforma Proforma
Nine Months Ended Nine Months Ended Year Ended
September 30,(1) September 30,(2) December 31,(3)
- -----------------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
Unaudited Unaudited Unaudited
<S> <C> <C> <C> <C> <C> <C>
Income Statement Information:
Revenue $ 1,782,186 $ 25 $ 2,540,899 $ 1,016,630 $ 1,509,168 $ 1,177,582
Income (Loss) Before Provision for
Taxes and Extraordinary Loss (662,445) (44) (757,944) 73,850 17,167 184,350
Net Income (Loss) (1,102,258) (44) (1,197,757) 15,901 9,745 114,880
Net Income (Loss) per Share
Primary Net Income (Loss) per Share:
Income (Loss) Before
Extraordinary Loss (.33) -- (.36) .01 -- .05
Extraordinary Loss per Share (.21) -- (.21) -- -- --
Net Income (Loss) per Share (.54) -- (.57) .01 -- .05
Fully Diluted Net Income (Loss) per
Share:
Income (Loss) Before
Extraordinary Loss (.33) -- (.36) -- -- .03
Extraordinary Loss per Share (.21) -- (.21) -- -- --
Net Income (Loss) per Share (.54) -- (.57) -- -- .03
Weighted Average Shares Outstanding:
Primary 2,104,336 2,104,336 2,104,336 2,104,336 2,104,336 2,104,336
Fully Diluted(4) 2,104,336 2,104,336 2,104,336 3,392,627 3,392,627 3,392,627
Balance Sheet Information (at end
of period):
Total Assets $ 5,873,164 $ 19,822 $ 5,847,087 $ 5,843,553 $ 6,636,816 $ 2,521,922
Total Liabilities 2,091,677 15,000 2,161,099 5,684,177 6,740,080 1,414,305
Stockholders' Equity/(Deficit) 3,781,487 4,822 3,685,988 159,376 (103,264) 1,107,617
</TABLE>
- ----------
(1) Actual results of operations reflect only the combined operations of Gold
Coast and National-Wide subsequent to March 28, 1996.
(2) Proforma information presented to reflect the combined operations of Gold
Coast and National-Wide as if the acquisitions by the Company had occurred
on January 1, 1995.
(3) Proforma information presented to reflect the combined operations of Gold
Coast and National-Wide as if the acquisitions by the Company had occurred
on January 1, 1994. Net Income (Loss) has been presented on the basis of
Gold Coast and National Wide operating as C Corporations for the years
ended December 31, 1994 and December 31, 1995
(4) Includes 1,288,291 shares issuable upon conversion of all outstanding
shares of Series A $4.00 Convertible Preferred Stock, Series B $3.00
Convertible Preferred Stock and all outstanding convertible debentures as
of September 30, 1996. Does not include shares issuable upon
exercise of outstanding common stock purchase warrants, or options.
8
<PAGE>
MANAGED PORTFOLIO DATA FOR NINE MONTH PERIOD
ENDED SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
January 1, 1996-
Portfolio Data: September 30, 1996
- --------------------------------------------------------------------------------
Number of Contracts Originated 32,341
- --------------------------------------------------------------------------------
Total Dollars Financed in Period $ 22,573,666
- --------------------------------------------------------------------------------
Contracts Serviced(1) 46,064
- --------------------------------------------------------------------------------
Average Amount Financed per Contract $ 698
- --------------------------------------------------------------------------------
States (Operations) Florida
Tennessee
South Carolina
- --------------------------------------------------------------------------------
Active Agent locations(2) 194
- --------------------------------------------------------------------------------
- ----------
(1) Number of Active Contracts in Portfolio.
(2) Number of Agents with Contracts Being Serviced.
9
<PAGE>
RISK FACTORS
The securities offered hereby are speculative in nature, involve a high
degree of risk and an investment in the Common Stock should not be made by any
investor who cannot afford the loss of his entire investment. Prior to making an
investment decision with respect to the Common Stock offered by this Prospectus,
prospective investors should carefully consider the following risk factors along
with the other matters discussed in this Prospectus.
When used in this Prospectus, the words "may," "will," "expect,"
"anticipate," "continue," "estimate," "project," "intend" and similar
expressions are intended to identify forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Exchange Act regarding events,
conditions and financial trends which may affect the Company's future plans of
operations, business strategy, operating results and financial position.
Prospective investors are cautioned that any forward-looking statements are not
guarantees of future performance and are subject to risks and uncertainties and
that actual results may differ materially from those included within the
forward-looking statements as a result of various factors. Such factors are
described under the headings "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS," "BUSINESS OF THE COMPANY" and in the risk
factors set forth below.
1. Maintenance of Existing Financing and Need for Additional Financing.
The Company is dependent upon existing and additional sources of financing in
order to fund the Finance Contracts it generates. The Company presently derives
a substantial portion of its funding through the SunAmerica Facility. The
SunAmerica Facility has a term of three (3) years; however, it may be terminated
sooner upon the occurrence of certain events, including, but not limited to, any
event which could materially adversely affect the collectibility of the Finance
Contracts or certain changes in the current management of the Company. It may
also be terminated by SunAmerica Financial Resources, Inc. in the event that its
principal funding sources for the sale of new or additional receivables are
terminated. The termination of the SunAmerica Facility would have a material
adverse affect upon the operations of the Company. In the event that such a
termination were to occur, the Company would need to obtain a substitute source
of financing, either through a borrowing or receivables purchase program, and
there can be no assurance that the Company would be able to secure such
financing. In addition, to fund any further expansion of the origination of
Finance Contracts beyond that provided by the existing SunAmerica Facility, the
Company will be required to secure additional sources of financing. There can be
no assurance that the Company will be able to obtain such additional financing.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
2. Substantial Indebtedness. The operations of the Company have
historically incurred substantial indebtedness and are, therefore, subject to
the risks associated with significant leverage, including the risks that
interest rates may fluctuate and cash flow may not be adequate to make required
payments on indebtedness. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."
10
<PAGE>
3. Operating Risks. The Company's business activities require the Company
to lend substantial sums of money to policyholders in order to finance the
payment by such persons of insurance premiums. The Company will not have use of
such funds while they constitute outstanding loans and will be dependent upon
the efforts of borrowers, who have not undergone any credit risk analysis by the
Company and over whom the Company will not have any control, for the repayment
of such indebtedness. To the extent the unearned premium returned by the
insurance company does not cover the outstanding principal and interest due on
the Finance Contract at the time the policy is canceled, the Company will
realize a loss on that particular loan.
Although the repayment of such indebtedness will be secured in part by the
Insured's unearned premiums, which typically involves the down payment of
approximately 15-30% for a one-year insurance premium, the Company is at risk
with respect to the repayment of any such indebtedness which may be subject to
significant delays. In the event of a default in repayment of such indebtedness,
the Company must seek payment from the insurance carrier for the refund of any
unearned premium, the payment of which could exceed 90 days from the
cancellation date. Inasmuch as the Company's principal funding facility does not
provide for funding on receivables in excess of 60 days past due, the Company
could experience cash flow difficulties in the event funds available under its
funding facility are insufficient to meet any working capital shortfalls.
The return of unearned premiums by an insurance carrier may be adversely
affected by the insolvency or liquidation of the insurance carrier. Most states
administer guaranty programs which provide for the return of a portion of
unearned premiums upon the insolvency of an insurance carrier. Although most
insurance carriers participate in such programs, such repayments are subject to
significant delays and deductibles.
The Company is also at risk that an insurance carrier, after receipt of an
Insured's application and Company draft in payment of the full amount of
coverage applied for, re-rates an Insured's policy to require payment of an
additional premium. In these circumstances, an insurance carrier will bill the
Insured for the entire amount of the additional premium. At this point, the
Insured's initial down payment, which was based on the initial lower premium,
represents a smaller percentage of the higher additional premium. This reduces
or likely eliminates the amount of unearned premium associated with that
particular policy resulting in an under-collateralization of the Finance
Contract. This places the Company at risk that the Insured will not be able to
pay the additional premium and upon cancellation, the Company will likely
realize a loss on such a Finance Contract. The Company is also subject to risks
that an insurance agent or policyholder may commit a fraudulent act. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" and "BUSINESS OF THE COMPANY."
4. Losses from Operations. For the nine month period ended September 30,
1996, the Company incurred a net loss of $1,102,258. The Company incurred net
losses during each of its three calendar quarters through September 30 during
1996. There can be no assurance as to when, if ever, the Company may be able to
achieve profits from operations. To the extent its losses continue, the Company
will experience a continued depletion of its liquidity and capital resources,
which on a cumulative basis may adversely affect the Company's ability to
maintain its operations as a going concern.
11
<PAGE>
5. Reliance on Independent Insurance Agents; Limited Marketing Capability.
The Company has been, and will continue to be, dependent on independent
insurance agents for referrals which may lead to the financing of insurance
premiums. To date, substantially all of the Company's revenues have been
attributable to referrals from independent agents. Since the Company has no
contractual relationship with or control over any of these agents, there can be
no assurance that agents presently directing business to the Company will
continue to do so. Moreover, as the Company expands its operations into
additional states, it will be necessary to develop relationships with a new
market of independent agents. This will likely require the Company to retain
additional independent contractors familiar with these markets. Accordingly,
there can be no assurance that the Company will be able to retain such
contractors or develop any meaningful business in any other states See "BUSINESS
OF THE COMPANY - Business Strategy" and " - Marketing."
6. Intense Competition. The Company encounters intense competition from
numerous other premium finance companies, insurance carriers and independent
insurance brokers who offer premium finance services, as well as banks and other
lending institutions. Competition comes from other premium finance companies, as
well as insurance companies that offer captive financing programs and certain of
the larger insurance agencies that provide financing to their customers. Some of
the Company's competitors are larger and have greater financial and other
resources and are better known to consumers than the Company. With regard to
other premium finance companies, there are few, if any barriers to entry and the
Company expects additional companies to enter the market. To the extent these
competitors offer more attractive payment plans to Insureds or better
commissions to agents, the Company's competitive position will be adversely
affected. There can, therefore, be no assurance that the Company will be able to
continue to compete successfully in its markets. See "BUSINESS OF THE COMPANY -
Competition."
7. No Public Market. There is currently no public trading market for the
Company's Common Stock. Although the Company intends to make an application to
list the Company's Common Stock on the OTC Bulletin Board, there can be no
assurances that such an application will be approved and, if approved, that a
regular trading market will develop for anything other than the short-term.
There can be no assurances that a trading market that develops without the
assistance of an offering underwritten by an institutional brokerage firm, will
provide any material longer term liquidity for the Company's stockholders.
8. Government Regulation. The operations of the Company are heavily
regulated by laws, rules and regulations in each of the states in which it
operates. The Company is licensed in four (4) states. Applicable statutes and
regulations provide for the licensing, administration and supervision of premium
finance companies. These regulations impose significant restrictions on the
conduct of such operations, particularly with respect to the interest rates
charged policyholders, minimum capital requirements, collections of unearned
premiums, cancellation of policies and the remedies available with regard to
delinquent accounts.
As a result of such licensure, the Company is subject to regular and
random supervisory examinations regarding compliance with state regulations. A
failure to comply with applicable regulations could result in fines or a
suspension or revocation of the Company's license.
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<PAGE>
Although the Company believes it is in material compliance with all applicable
regulations, there can be no assurance that any state regulatory agency would
agree with the Company's assessment of its compliance.
Insurance regulations and state usury laws govern the amount and type of
interest and non-interest fees which the Company may charge. Consequently, there
may be periods during which high prevailing interest rates on institutional
indebtedness, or high yields required under receivables purchase programs such
as the SunAmerica Facility, will combine with fixed statutory ceilings on the
rates the Company may charge policyholders to adversely affect the Company's
profit margin. In addition, relevant statutory law does not provide for
automatic adjustments in the rates a premium finance company may charge. Changes
in the regulation of such activities, such as increased rate regulation, could
have an adverse effect on the Company's operation. Since approximately 95% of
the Company's finance contracts are originated in and governed under the laws of
Florida, the Company is at particular risk of adverse changes in applicable
Florida law. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION" and "BUSINESS OF THE COMPANY."
9. No Underwriter Participation. No underwriter has participated in the
preparation of this Prospectus. Generally, in an underwritten offering, an
underwriter would conduct certain investigations relative to the issuer, its
business and the terms of the offering in order to establish a reasonable basis
for the pricing of the securities to be sold and for the accuracy and
completeness of the disclosures set forth in any offering documents. Inasmuch as
no underwriter has participated in the preparation of these offering materials,
such an investigation has not been conducted in connection with this offering.
10. Dividends. No dividends have been paid by the Company on its Common
Stock since inception and the payment of dividends on the Company's Common Stock
is not contemplated in the foreseeable future. The payment of future dividends
will be directly dependent upon the earnings of the Company, its financial needs
and other similarly unpredictable factors. Earnings, if any, are expected to be
retained to finance and develop the Company's business
11. Control by Insiders. Upon conversion of all outstanding shares of
Series A $4.00 and Series B $3.00 Convertible Preferred Stock, Mark Margolis,
the Company's President and a director, and principal stockholders Andrew Panzo
and the Estate of Steven Margolis, and their affiliates, will own approximately
2,394,428 shares of Common Stock or 65% of the outstanding shares. The foregoing
does not give effect to the issuance of any securities issuable upon conversion
or exercise, as applicable of outstanding convertible debentures, common stock
purchase warrants or vested options held by these persons.
Additionally, Mark Margolis, Andrew Panzo, American Maple Leaf Financial
Corporation ("AMLF") and Steven Margolis entered into a stockholders' agreement
concerning, among other things, the election of directors which will continue in
effect until March 28, 2001 (the "Stockholders' Agreement"). Pursuant to the
Stockholders' Agreement, these stockholders have agreed to vote their shares for
at least four directors, three of whom shall be designated by Messrs. Panzo and
AMLF and one of whom shall be Mark Margolis. By virtue of the concentration of a
substantial block of shares
13
<PAGE>
in the hands of a few stockholders, the absence of cumulative voting rights, and
the Stockholders' Agreement regarding the election of directors, these
stockholders will be in a position to elect all of the Company's directors and
control the outcome of corporate matters without the approval or concurrence of
the Company's other stockholders for the foreseeable future. See "PRINCIPAL
STOCKHOLDERS" and "CERTAIN TRANSACTIONS."
12. Additional Dilution. The Company is presently authorized to issue
25,000,000 shares of Common Stock, $.001 par value per share, of which 3,668,219
shares are outstanding as of the date of this Prospectus. This includes
1,021,291 shares issuable as of the date of this Prospectus upon conversion of
384,625 shares of Series A $4.00 Convertible Preferred Stock and 636,666 shares
of Series B $3.00 Convertible Preferred Stock. Between March and December 1996,
the Company sold an aggregate of $2,355,000 principal amount of convertible
subordinated 10% debentures (the "Convertible Debentures") and 386,675 common
stock purchase warrants (the "Warrants"), in various private placement
transactions. In addition, there are currently outstanding options (the
"Options") to purchase 905,250 shares of Common Stock of which 320,500 are
currently vested and exercisable. Accordingly, the Company may be caused to
issue at least 521,000 additional shares upon the conversion, if at all, of the
principal due under the Convertible Debentures, 386,675 shares upon the
exercise, if at all, of the Warrants, and 320,500 shares issuable, if at all,
upon exercise of vested Options, thereby increasing the number of shares of
Common Stock outstanding from 3,668,219 to 4,896,394.
Convertible Debentures in the principal amount of $1,000,000 are
convertible at $4.00 per share and the remainder are convertible at $5.00 per
share. Assuming conversion prices of $4.00 and $5.00 at maturity, principal due
under the Convertible Dentures is convertible into 521,000 shares of the
Company's Common Stock. The issuance of shares upon conversion, if at all, of
the Convertible Debentures is subject to increase based upon a decrease in the
trading price of the Common Stock below $5.00 per share. For example, if on the
date of conversion the Common Stock is trading at $2.50 per share, 1,148,780
shares would be issuable and if the Common Stock is trading at $1.00 per share
on the date of conversion, 2,871,951 shares would be issuable upon conversion of
the principal due under the Convertible Debentures. If all Convertible
Debentures are held until maturity, conversion of accrued interest would
increase the shares issuable by an additional 10%. This will cause substantial
additional dilution. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS," "SELLING SECURITY HOLDERS" and
"DESCRIPTION OF SECURITIES."
Conversion of the Convertible Debentures would, however, have the effect
of releasing the Company from its obligation to repay $2,355,000 of principal
plus all accrued interest due thereunder and recharacterizing such indebtedness
as equity on the Company's financial books and records. In addition, exercise of
all of the Warrants and currently vested and exercisable Options would have the
effect of securing for the Company additional working capital of up to
$1,986,700 and $1,662,000, respectively.
As its rate of growth continues, the Company must continue to secure
increasing amounts of financing to fund additional Finance Contracts. This may
entail the sale of additional shares of Common Stock or Common Stock equivalents
which would have the effect of further increasing the number of shares
outstanding.
14
<PAGE>
In connection with other business matters deemed appropriate by the
Company's management, there can be no assurances that the Company will not, in
fact, undertake the issuance of more shares of Common Stock without notice to
then existing stockholders. This may be done in order to, among others,
facilitate a business combination, acquire assets or stock of another business,
compensate employees or consultants or for other valid business reasons in the
discretion of the Company's Board of Directors.
13. Effect of Outstanding Convertible Debentures, Warrants and Options.
For the respective terms of the outstanding Convertible Debentures, Warrants and
Options, the holders thereof are given an opportunity to profit from a rise in
the trading price of the Company's Common Stock with a resulting dilution in the
interest of the other stockholders. The holders of such Convertible Debentures
may exercise their right of conversion, and the holders of such Warrants or
Options may choose to exercise such Warrants or Options, each at prices below
the current trading price of the Company's Common Stock and at a time when the
Company might be able to obtain additional capital through a new offering of
securities at prevailing market prices. The terms on which the Company may
obtain additional financing during this period may be adversely affected by the
existence of such below market Convertible Debentures, Warrants and Options.
14. Authorization of Preferred Stock. The Company's Certificate of
Incorporation authorizes the issuance of "blank check" Preferred Stock with such
designation, rights and preferences as may be determined from time to time by
the Board of Directors. Accordingly, the Board of Directors is empowered,
without stockholder approval, to issue Preferred Stock with dividend,
liquidation, conversion, voting or other rights which could adversely affect the
voting power or other rights of the holders of the Company's Common Stock. In
the event of issuance, the Preferred Stock could be utilized, under certain
circumstances, as a method of discouraging, deterring, delaying or preventing
unsolicited changes in control of the Company by discouraging open market
purchases of the Company's Common Stock or a non-negotiated tender or exchange
offer for such stock, which may be disadvantageous to a majority of the
Company's stockholders who may otherwise desire to participate in such a
transaction and receive a premium for their shares. Although the Company has no
present intention to issue any additional shares of its Preferred Stock, there
can be no assurance that the Company will not do so in the future. See
"DESCRIPTION OF SECURITIES."
15. Sensitivity to Interest Rates and General Economic Conditions. The
Company's business is affected by a number of factors beyond its control,
including prevailing interest rates, which may be affected by the general
condition of the economy. The Company's profitability is directly related to its
ability to obtain funding (whether by receivables sales similar to the
SunAmerica Facility or borrowings) at effectively lower interest rates than it
charges and collects from Insureds on Finance Contracts which are generally
regulated by state insurance departments. There can be no assurance that the
Company's cost of funds will not rise to a level that adversely affects its
ability to achieve or maintain a level of profitability. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
15
<PAGE>
16. Unaudited Financial Statements. The Company's unaudited financial
statements for the nine month period ended September 30, 1996 are contained
herein. Although management believes that the unaudited financial statements
included herein fairly present the financial position of the Company as of such
date, no assurance can be given that the Company's independent auditors in
connection with the preparation of an audit of such period may not recommend
adjustments to such financial statements which adjustments may be material.
17. Possible Limitations upon Trading Activities; Restrictions Imposed
upon Broker-Dealers Effecting Transactions in Certain Securities. Trading of the
Company's securities may be subject to material limitations as a consequence of
amendments to the Exchange Act which limit the activities of broker-dealers
effecting transactions in "designated securities" and "penny stocks."
To the extent the Company's securities constitute "penny stocks,"
Rule 15g-9 promulgated under the Exchange Act will impose limitations upon
trading activities which would make sale of the shares more difficult than in
the case of securities which were not "penny stocks." Rule 15g-9 restricts the
solicitation of sales of "penny stocks" by broker-dealers unless first the
broker: (i) obtains from the purchaser information concerning his financial
situation, investment experience and investment objectives; (ii) reasonably
determines that the purchaser has sufficient knowledge and experience in
financial matters that the person is capable of evaluating the risks of
investing in "penny stocks," and (iii) delivers and receives back from the
purchaser a manually signed written statement acknowledging the purchaser's
investment experience and financial sophistication.
Furthermore, Rules 15g-2 through 15g-6 promulgated under the
Exchange Act provide a series of additional rules requiring broker-dealers
engaging in transactions in "penny stocks" to first provide to their customers a
series of disclosures and documents, including: (i) a standardized risk
disclosure document identifying the risks inherent in investing in "penny
stocks;" (ii) all compensation received by the broker-dealer in connection with
the transaction; (iii) current quotation prices and other relevant market data;
and (iv) monthly account statements reflecting the fair market value of the
securities.
"Penny stocks" are defined at Rule 3a51-1 as a security other than a
security that: (i) is listed on any national securities exchange or The NASDAQ
Stock MarketTM; (ii) has a price of $5.00 or more per share or whose issuer is
not a "blank check" company; or (iii) whose issuer has net tangible assets in
excess of $2,000,000, (if the issuer has been in business for at least three (3)
years) or $5,000,000 (if the issuer has been in business for less than three (3)
years).
Under the Securities Act, and the regulations thereunder, any person
engaged in a distribution of the shares offered hereby may not simultaneously
engage in market making activities with respect to the Common Stock of the
Company during the applicable "cooling off" periods prior to the commencement of
such distribution. In addition, and without limiting the foregoing, each
stockholder will be subject to applicable provisions of the Exchange Act and the
rules and regulations thereunder including, without limitation, Rule 15g-9, and
Rules 10b-6 and 10b-7, which provisions may limit the timing of purchases and
sales of Common Stock by stockholders.
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<PAGE>
If the Company's Common Stock were to be classified as a "penny stock,"
trading activities for the Company's Common Stock would be made more difficult
for broker-dealers than in the case of securities not defined as "penny stocks."
This may have the result of depressing the market for the Company's securities
and an investor may find it difficult to dispose of such securities.
18. Benefits of Offering to Certain Affiliates. This Prospectus permits
the resale of shares held by the Selling Security Holders which include certain
affiliates of the Company including principal stockholder Andrew Panzo and
director David Alperin both of whom acquired their shares for nominal
consideration upon inception of the Company in 1994. This Prospectus also covers
resales of shares held by certain other directors, executive officers and/or
principal stockholders including Mark Margolis, President and a Director of the
Company, and principal stockholders AMLF and the Estate of Steven Margolis, a
former director and executive officer of the Company. These affiliates acquired
their shares upon the Company's completion of its acquisitions of Gold Coast and
National-Wide in March 1996. By virtue of the creation of a public market for
the shares, these affiliates may be able to sell such shares in the future at a
price which exceeds their purchase price.
USE OF PROCEEDS
The Company will not realize any proceeds from the sale of shares of
Common Stock by the Selling Security Holders. See "SELLING SECURITY HOLDERS."
MARKET FOR COMMON STOCK
The Company's Common Stock is currently not publicly traded. The Company
intends to file an application to list the Common Stock on the OTC Bulletin
Board, and, thereafter, if the Company qualifies, application will be made for
listing on The NASDAQ SmallCap Market.
As of January 13, 1997, the Company had 18 record holders of its Common
Stock. On the date of this Prospectus, all outstanding shares of Series A $4.00
and Series B $3.00 Convertible Preferred Stock will automatically convert into
shares of Common Stock. At that time the Company will have approximately 120
record holders of its Common Stock.
As of January 13, 1997, an aggregate of 2,646,928 shares of Common Stock
are issued and outstanding and an aggregate of at least 2,249,466 shares of
Common Stock are issuable upon the exercise or conversion, as applicable, of the
Warrants, vested Options, Series A $4.00 and Series B $3.00 Convertible
Preferred Stock and Convertible Debentures. With regard to the Common Stock
currently issued and outstanding, the Company has agreed to register for sale
pursuant to the Registration Statement of which this Prospectus is a part,
1,656,928 shares. The remaining 990,000 shares may not be sold pursuant to Rule
144 under the Securities Act until two years from their purchase date (March 28,
1998). See "DESCRIPTION OF SECURITIES - Shares Eligible for Future Sale." With
regard to the shares of Common Stock issuable upon exercise or conversion, as
applicable, of outstanding Warrants, vested Options, Preferred Stock or
Convertible Debentures, the Company has agreed to register for resale pursuant
to the
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<PAGE>
Registration Statement of which this Prospectus is a part, 1,878,966 shares of
Common Stock. The remaining 320,500 shares may not be sold pursuant to Rule 144
until two years from their respective purchase dates which, with respect to any
of these shares, is no earlier than March 28, 1998. The Company has, however,
agreed to register these shares for public resale in the future. See
"DESCRIPTION OF SECURITIES - Registration Rights."
The Company has not paid any cash dividends on its Common Stock to date,
and does not anticipate or contemplate paying cash dividends in the foreseeable
future. The payment of future dividends will be directly dependent upon the
earnings, if any, of the Company, its financial needs and other similarly
unpredictable factors. It is the present intention of management to utilize any
and all earnings from operations for working capital of the Company.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of September
30, 1996 (unaudited).
Borrowings:
Convertible Subordinated Debt $ 1,335,000
Other Borrowings $ 116,061
-----------
Total Borrowings $ 1,451,061
-----------
Stockholders' Equity:
Common Stock, $.001 par value per share,
25,000,000 shares authorized, 2,632,708 shares
issued and outstanding: $ 2,633
Preferred Stock 5,000,000 shares authorized:
Series B $3.00 Convertible Preferred Stock, $.001 par
value per share, 636,666 shares issued and
outstanding: $ 637
Series A $4.00 Convertible Preferred Stock, $.001 par
value per share 384,625 shares issued and
outstanding: $ 385
Additional paid-in capital $ 4,905,827
Accumulated Deficit $(1,127,995)
-----------
Total stockholders' equity $ 3,781,487
-----------
Total capitalization $ 5,232,548
===========
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following information should be read in conjunction with the
Consolidated Financial Statements (including the notes thereto) and other
financial data included elsewhere in this Prospectus.
Overview
The Company provides premium financing for purchasers of property and
casualty insurance policies. Approximately 90% of the Company's business
involves the financing of insurance premiums for consumers who purchase
non-standard automobile insurance policies. The remainder of the Company's
business consists of offering financing to buyers of commercial insurance
policies, consumer homeowner policies and other property and casualty policies.
Insurance companies classify certain Insureds as non-standard for a variety of
reasons, including age, driving record, a lapse in or absence of prior insurance
coverage, or ownership of high value or high performance vehicles. Many of the
insurance companies that write non-standard automobile liability policies
require advance payment in full of the annual or semi-annual insurance premium.
Insureds may choose to finance their automobile insurance premium because they
are unable or unwilling to pay the entire premium in advance. The Company
focuses on the non-standard segment of the insurance premium finance market by
marketing to and servicing the needs of independent insurance agents ("Agents")
and insurance companies that sell and underwrite non-standard automobile
insurance to consumers.
Background
The Company was originally incorporated in Delaware as "LMI Acquisition
Corp." on May 12, 1994 and remained principally inactive from its inception
until March 28, 1996, when it completed the acquisition of Gold Coast and
National-Wide. Subsequently, the Company changed its name to "USA Finance, Inc."
Gold Coast was acquired in a stock-for-stock exchange transaction that was
completed on March 28, 1996. Pursuant to the exchange, the Company acquired 100%
of the outstanding capital stock of Gold Coast in return for 920,000 shares of
the Common Stock of the Company. In the transaction, the Company entered into
three-year employment agreements with Mark Margolis (the Company's President)
and Steven Margolis (the Company's former Chief Operating Officer) and granted
options to each of them to purchase 100,000 shares of the Company's Common
Stock. In addition, in the transaction, Mark Margolis and Steven Margolis
received, in the aggregate, 100,000 shares of Series B $3.00 Convertible
Preferred Stock in exchange for the conversion of pre-acquisition indebtedness
of $300,000. Steven Margolis is no longer employed by the Company. See "CERTAIN
TRANSACTIONS."
On March 28, 1996, the Company also acquired 100% of the outstanding
capital stock of National-Wide in primarily a cash transaction for the purchase
price of approximately $2.1 million. The purchase price was calculated to
encompass the payment of: (i) $200,000; (ii) the
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outstanding balance due under National-Wide's credit facility; and (iii) the net
accounts receivable of National-Wide. $300,000 of the purchase price was
accepted in the form of 100,000 shares of Series B $3.00 Convertible Preferred
Stock.
In the transaction, the Company entered into a three-year employment
agreement with Jeanette Waserstein which included the grant of options to
purchase 100,000 shares of the Company's Common Stock. Ms. Waserstein is no
longer employed by the Company. See "CERTAIN TRANSACTIONS."
Concurrent with the acquisitions of Gold Coast and National-Wide, the
Company closed upon the private placement of 384,625 shares of Series A $4.00
Convertible Preferred Stock, 636,366 shares of Series B $3.00 Convertible
Preferred Stock and 23,400 Warrants exercisable at $4.00 per share in
consideration of a cash investment of $953,500 and the conversion of existing
Gold Coast indebtedness in the principal amount of approximately $2,495,000.
The acquisitions of Gold Coast and National-Wide were accounted for under
the purchase method of accounting which accounted for the Gold Coast and
National-Wide assets at their fair market values as of the acquisition date. The
amount by which the aggregate fair market value of the assets acquired exceeded
the purchase price paid is reflected as goodwill on the financial statements of
the Company.
Although presented on a consolidated basis, the Company's financial
statements for the nine months ended September 30, 1996, include the operations
of Gold Coast and National-Wide as the acquired businesses beginning March 28,
1996. Financial statements for prior periods have also been presented reflecting
the combined operations of Gold Coast and National-Wide. No audited prior period
financial statements have been presented for USA Finance, Inc. since prior to
March 28, 1996, it was principally inactive with no material assets or
liabilities.
Contract Acquisition
The Company generates new Finance Contracts primarily through a network of
Agents. For the quarter ending September 30, 1996, the Company had approximately
130 Agents within its network across the states of Florida, Tennessee, and South
Carolina. These independent Agents are not contractually bound to do business
with the Company and thus there can be no assurance that these Agents will
continue to do business with the Company in the future. The Company compensates
Agents for the origination of new business on a per contract basis. The
following table provides certain material information relative to the
origination of new business for each of the last seven quarters.
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<TABLE>
<CAPTION>
For the Quarter Ended
--------------------------------------------------------------------------
Sep 30, Jun 30, Mar 31, Dec 31, Sept 30, Jun 30, Mar. 30,
1996 1996 1996 1995 1995 1995 1995
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Contracts Originated During
the Period:
Florida 10,009 10,498 10,650 8,308 7,908 4,261 3,933
Tennessee 321 166 160 -- -- -- --
South Carolina 20 -- -- -- -- -- --
------ ------ ------ ----- ----- ----- -----
Total Contracts Originated: 10,350 10,664 10,810 8,308 7,908 4,261 3,933
</TABLE>
The Company has experienced significant growth in the volume of Finance
Contracts originated and serviced. New originations increased to $7.8 million
for the quarter ended September 30, 1996 from $4.6 million for the quarter ended
September 30, 1995, representing an increase of 69.6%. The growth in contract
volume is attributable primarily to the increase in the number of Agents
participating in the Company's network and an expansion of the sources and
amounts of financing available to originate Finance Contracts.
Agents increased to approximately 130 at September 30, 1996 from 95 agents
at December 31, 1995, an increase of 36.8% over the nine month period. Of the
approximately 130 Agents at September 30, 1996, 28 were located in states other
than Florida. Prior to January 1996, the Company did not have any operations
outside of the state of Florida.
The Company's business requires substantial cash to support the growth in
Finance Contracts originated and serviced. The Company finances the origination
of new Finance Contracts through its SunAmerica Facility. On average, the
Company funds between 75% and 95% of the gross receivable generated by each new
Finance Contract through this facility. The remainder of the Finance Contract is
financed through the Company's own capital. Since its inception and through the
quarter ended September 30, 1996, the Company has relied upon the private
placement of several convertible debt and equity instruments. As the Company
continues to increase its loan portfolio, additional capital will be required to
support its growth. See "Liquidity and Capital Resources."
Summary Results of Operations
Prior to the acquisitions of Gold Coast and National-Wide on March 28,
1996, the Company was inactive and did not have any material operations. Thus,
management believes that meaningful year-over-year comparisons can only be made
on a proforma basis as if the acquisitions had occurred on January 1, 1995. The
proforma adjustments include the addition of goodwill amortization and income
taxes (as if the Company had operated as a C Corporation) in each of the
reported periods. The proforma results that follow have been prepared for
comparative purposes only and do not purport to be indicative of the results of
operations which actually would have resulted had the acquisitions occurred on
the date indicated.
The following table estimates the Company's operating results as if Gold
Coast and National-Wide had operated on a combined basis as of January 1, 1995:
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USA Finance, Inc.
(Formerly LMI Acquisition Corp.)
Proforma income statements
(Unaudited)
Nine Months Ended Year Ended
30-Sep-96 30-Sep-95 31-Dec-95
--------- --------- ---------
Revenue
Interest and Fees $ 2,472,462 $ 999,390 $ 1,466,647
Other Income 68,437 17,240 45,128
----------- ----------- -----------
$ 2,540,899 $ 1,016,630 $ 1,511,775
Expenses
Interest $ 603,003 $ 193,478 $ 357,717
Provision for uncollectible accounts 700,481 131,444 212,441
Direct marketing fees 351,383 74,668 134,004
General and administrative expenses 1,134,342 450,674 766,405
Depreciation and Amortization 24,101 14,286 21,703
Amortization of Goodwill 78,230 78,230 104,308
Cost of contract purchase agreement 407,303 -- --
----------- ----------- -----------
$ 3,298,843 $ 942,780 $ 1,596,578
----------- ----------- -----------
Net Income/(Loss) before
extraordinary items and income taxes $ (757,944) $ 73,850 $ (84,803)
Provision for income taxes -- $ (57,949) $ (8,301)
----------- ----------- -----------
Net Income/(Loss) before
extraordinary items, net of
income taxes $ (757,944) $ 15,901 $ (93,104)
Costs of extinguishment of debt $ (439,813) -- --
----------- ----------- -----------
Net Income/(Loss) $(1,197,757) $ 15,901 $ (93,104)
=========== =========== ===========
The Company's revenue and income growth, as well as the certain costs and
expenses, are often directly related to the growth of its Finance Contracts
which are owned by a third party financial institution under the SunAmerica
Facility but serviced by the Company (the "Managed Portfolio"). As a result,
management of the Company uses these relationships to analyze its business and
believes that a comparison of revenues and expenses as a percentage of the
average Managed Portfolio provides a meaningful analysis of its financial
condition and results of operations. The following table sets forth for the
periods indicated certain items from the Company's consolidated financial
statements expressed as a percentage of the average Managed Portfolio.
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<PAGE>
9 Months Ended Year Ended
September 30 December 31
------------ -----------
1996 1995 1995
---- ---- ----
Average Portfolio $8,125,311 $2,920,971 $3,588,214
Total Revenue 31.3% 34.8% 42.1%
Total Operating Expenses:
Interest 7.4% 6.6% 10.0%
Bad Debt 8.6% 4.5% 5.9%
Salaries and Wages 5.8% 5.9% 8.9%
Depreciation & Amortization .3% .5% .6%
Goodwill Amortization 1.0% 2.7% 2.9%
Other Expenses 17.5% 12.1% 16.2%
Total Expenses 40.6% 32.3% 44.5%
Results of Operations for the Nine Months Ended September 30, 1996 and 1995
(unaudited) (proforma)
Net Income. The Company experienced a loss of $1,197,797 for the nine months
ended September 30, 1996, versus net income of $15,901 for the comparative
period during 1995. This equates to a loss per share on a fully diluted basis of
($0.57) compared to net income per share of $0.01, respectively.
Revenue. The Company originated 31,824 Finance Contracts with an aggregate
principal amount of approximately $22.6 million during the nine months ended
September 30, 1996, an increase of 97.6% and 186.1% respectively, from the
16,102 Finance Contracts with an aggregate principal amount of $7.9 million
originated during the nine months ended September 30, 1995. The primary source
of this growth was continued market penetration throughout the states of Florida
and Tennessee. Total revenue for the nine months ended September 30, 1996 was
$2,540,899, an increase of 149.9% over $1,016,630 for the nine months ended
September 30, 1995. The increase in total revenues resulted primarily from a
178% increase in the average outstanding portfolio balance to $8,125,311 during
the nine month period ended September 30, 1996, from $2,920,971 during the
comparable period of 1995. Total revenue as a percent of the average outstanding
portfolio balance decreased to 31.3% for the nine months ended September 30,
1996, from 34.8% for the comparable period in 1995. This change was driven by an
decrease in the annual percentage rate ("APR") earned on the average contract
held in the Managed Portfolio. This decrease in average APR was due primarily to
the mix of contracts in the Managed Portfolio and not due to competitive
pressures on the Company's pricing. Most states' interest rate ceilings and
limits are a function of the principal amount of the loan. In these states, the
larger the principal amount, the lower the maximum interest rate a lender can
charge. In states with such
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<PAGE>
graduated rate ceilings, as the average Finance Contract size in that state
increases, the average APR on those Finance Contracts declines. Further, as the
average portfolio receivable base increases, the origination fee that is earned
becomes a smaller percentage of the average portfolio balance.
Costs and Expenses. Interest expense increased to $603,003 for the nine months
ended September 30, 1996, from $193,478 for the comparable period in 1995. The
increase was primarily due to growth of the Company's Managed Portfolio and
management's decision to increase the Company's financial leverage.
The provision for bad debt expense increased to $700,481 for the nine
months ended September 30, 1996, from $131,444 for the comparable period in
1995. The increase was the result of both a sharp increase in the total amount
of new business originated in 1996 versus the same period in 1995 and a larger
percentage of the portfolio being written off in 1996 versus 1995. As a
percentage of the average net receivable balance, bad debt expense increased to
8.6% for the nine months ended September 30, 1996, from 4.5% for the comparable
period of 1995. The percentage increase in bad debt expense was largely a result
of the Company's relaxation of certain loan terms as it expanded into new
geographic regions. This policy was later changed in favor of a more stringent
loan acceptance policy which management believes will result in a future bad
debt expense of approximately 8% of the average net receivable balance.
Direct marketing fees increased to $351,383 for the nine months ended
September 30, 1996, from $74,668 for the comparable period in 1995 primarily as
a result of an increase in the use of independent marketing representatives, the
Company's expansion into new states and a significant increase in the number of
new Finance Contracts originated. The Company usually pays a direct marketing
fee only upon the successful origination of new business; however, the Company
may pay its contracted marketing representatives in advance of new business for
the purpose of marketing in a state that the Company has not historically
conducted operations. There can be no guarantee that the marketing
representatives will successfully generate new business under this plan and
current contractual arrangements do not provide for a refund to the Company
should these representatives fail to open new business. Management has
determined that the origination fees earned upon the successful execution of new
Finance Contracts are largely offset by the origination expense associated with
completing the same transactions. Thus, the net origination fees associated with
each transaction have been determined to be immaterial, and are therefore booked
in the current period as opposed to being amortized over the contractual lives
of the related Finance Contracts, pursuant to SFAS No. 91.
General and administrative expenses increased to $1,134,342 for the nine
months ended September 30, 1996, from $450,674 for the comparable period in
1995. The increase was primarily related to the expansion of the Company's
business in terms of the number of Finance Contracts originated and managed.
Approximately half of the additional expense was due to an increase in salaries
and wages as professional management and additional employees were hired to help
manage the Company's rapid growth. Variable costs such as postage, printing, and
communications expense also increased sharply as a result of the increase in
volume.
24
<PAGE>
Depreciation and amortization increased to $102,331 for the nine months
ended September 30, 1996, from $92,516 for the comparable period in 1995. In
each of these periods, the amortization of goodwill expense makes up $78,230 of
the total depreciation and amortization expense.
The Company also experienced a one-time operating expense of $407,303
during the nine months ended September 30, 1996 related to the origination of
the SunAmerica Facility. These expenses included finder's fees, legal, printing,
and other administrative costs.
No income taxes have accrued for the Company for the nine months ended
September 30, 1996. For the same period in 1995, the Company would have accrued
taxes of approximately $57,949 for an effective tax rate of 78.46%.
Delinquency and Credit Loss Experience
The Company's profitability depends largely upon its ability to
effectively manage delinquency and credit losses. The Company maintains a
reserve available to absorb future credit losses on contracts held within the
Managed Portfolio. On a monthly basis, the Company evaluates historical
charge-off experience against the reserve and performs analysis of portfolio
performance and delinquency trends to determine if the reserve is adequate to
absorb future losses.
Collection and Charge-Off Procedure. In general, when an account becomes 5 days
past due, a computer generated past due notice is printed and mailed to the
Insured. The notice informs the Insured that the Company will begin cancellation
procedures on their policy if payment is not received within the next 10 days.
If payment is not received within the next ten (10) days, a cancellation notice
is generated and mailed to the Insured and Agent. A list of customer
cancellations by Agent is also faxed to the appropriate Agent on the same day
that this second notice is mailed. On the 20th day after the due date, the
actual cancellation notice is sent to the insurance company and the appropriate
Agents are notified of the requested cancellation. Typically, 30 days after
requesting cancellation, any unearned premium and/or unearned commission that
may be due from the insurance company or Agent, as applicable, is returned to
the Company and the outstanding balance that remains due is written-off. The
account is then turned over to a collection agency for further disposition. Any
amount received after a Finance Contract has been written-off is recorded as a
recovery and an increase in the reserve available for credit losses.
Reserve Available for Credit Losses. In the event of a payment default, the
unearned premium that is returned to the Company may not cover the outstanding
Finance Contract balance. The Company maintains a reserve for these credit
losses in an amount which management believes is adequate to absorb future
losses on Finance Contracts. Each month, the Company evaluates the adequacy of
the reserve available for credit losses by analyzing historical write-offs and
by evaluating the quality of new originations against the make-up of the
existing portfolio. The Company then charges against income a general allowance
for uncollectible amounts on Finance Contracts receivable based upon projections
of future write-offs. Should management deem the level of the reserve for credit
losses to be inadequate, an additional provision for credit losses
25
<PAGE>
would be recorded to increase the allowance for credit losses and, therefore,
the overall level of the reserve available for credit losses.
26
<PAGE>
The following table sets forth information concerning the Company's
allowance for uncollectible amounts on Finance Contracts receivable and its
write-off experience for the periods indicated.
- --------------------------------------------------------------------------------
Proforma Proforma
Nine Months Ended(1) Year Ended(1)
- --------------------------------------------------------------------------------
30-Sept-96 30-Sept-95 31-Dec-95
- --------------------------------------------------------------------------------
Allowance for uncollectible
amounts--Beginning Balance $ 110,543 $ 65,000 $ 65,000
Bad debt expense $ 700,481 $ 131,444 $ 212,441
Net write-offs $(590,647) $ (98,635) $(166,898)
--------- --------- ---------
Allowance for uncollectible
amounts--Ending Balance $ 220,377(2) $ 97,809 $ 110,543
========= ========= =========
Net write-offs as a percentage of
the Average Managed Portfolio 7.3% 3.4% 4.7%
- ----------
(1) Proforma Information presented to reflect the combined operations of Gold
Coast and National-Wide as if the acquisitions by the Company had occurred on
January 1, 1995.
(2) Includes $156,302 accrued liability for recourse on accounts sold under
the SunAmerica Facility.
Seasonality
Historically, the Company has experienced seasonal fluctuations in both
revenue and the number of Finance Contracts originated as a result of population
shifts within the state of Florida. Thus, the summer months of July and August,
as well as the month of December are often characterized by lighter volume.
Likewise, the Company has historically experienced an increase in volume during
the first quarter of each calendar year. As the Company expands its operations
into other states which have different seasonal trends, this effect will be
minimized. The Company's management believes that these seasonal fluctuations
will not have a material adverse impact on the Company.
Liquidity and Capital Resources
The ability of the Company to generate profits is directly related to its
ability to obtain funding at effectively lower interest rates than it charges
policy holders. Accordingly, an increase in the Company's cost of funds could
have a material adverse impact on the Company. Because the interest rate the
Company can charge to policy holders is regulated by state statute, the Company
is at particular risk in times of increasing interest rates.
27
<PAGE>
Historically, the Company has secured its principal sources of funding
through receivable purchase and sale agreements and/or a revolving credit
facility, as well as the private placement of subordinated indebtedness
consisting of convertible unsecured debentures. Significant liquidity has also
been provided through the sale of shares of the Company's Series A $3.00 and
Series B $4.00 Convertible Preferred Stock for cash proceeds and for the
conversion of existing indebtedness.
Receivable Purchase and Sale Agreement. On September 19, 1996, the Company's
wholly-owned subsidiaries, Gold Coast, National-Wide and Contract Funding
Corporation ("Contract Funding") entered into a three (3) year receivable
purchase and sale agreement (the "SunAmerica Facility") with SunAmerica
Financial Resources, Inc. ("SunAmerica"). The SunAmerica Facility provides for
the purchase of up to $25 Million of receivables which, under certain
circumstances, may be increased by an additional $10 million by mutual consent
of the parties. Under the terms of the SunAmerica Facility, Finance Contracts
originated by the Company are sold to Contract Funding, a single purpose entity,
and are then in turn sold to SunAmerica. Contract Funding has no business other
than the purchase and sale of Finance Contracts under the SunAmerica Facility.
These Finance Contracts are purchased by SunAmerica at an effective funding rate
(the "Effective Funding Rate") from 75% to 95% of principal amount based on a
number of factors, including among others, the quality of the insurance carrier
that issued the policy underlying the Finance Contract and the concentration of
receivables among different carriers. Under the terms of the SunAmerica
Facility, the Finance Contracts are classified into four different levels based
upon the A.M. Best rating of the insurance carrier that issued the policy
underlying the Finance Contract. These levels are instrumental in determining
the Effective Funding Rate (with 95% being assigned to the highest rated
carriers and 75% being assigned to the lowest rated carriers).
The Effective Funding Rate at which SunAmerica purchases Finance Contracts
under the SunAmerica Facility is further reduced by the application of
eligibility criteria and restrictions, including those relating to
concentrations of Finance Contracts within different assigned levels of
insurance carriers, concentrations with any one insurance carrier, payment
delinquency, the elapsed time between the execution of the Finance Contract and
the due date of the first payment, the minimum time required by law to request
the cancellation of the Finance Contract and other factors. Depending on the
constitution of a particular pool of Finance Contracts, these factors could
reduce the Effective Funding Rate to or below 75%. To the extent Finance
Contracts do not meet the criteria described above, they are ineligible for
funding under the SunAmerica Facility and must be funded entirely with the
Company's own equity. As a result, the Company must actively manage its business
to minimize the amount of ineligible Finance Contracts within its Managed
Portfolio. On average, the Effective Funding Rate of sale for the Company's
Finance Contracts is approximately 78%. Accordingly, on the date of purchase,
the Company receives an average of 22% less than the principal amount of the
Finance Contracts (the "Purchase Discount"). A portion of the Purchase Discount
is subsequently recovered by the Company after collections on the Finance
Contracts exceed the amount initially advanced under the SunAmerica Facility,
inclusive of certain fees, expenses and after providing SunAmerica with a
designated return on investment (generally equal to 2.75% over the commercial
paper rate.)
Under the terms of the SunAmerica Facility, the Company must adhere to a
number of financial covenants. Included in these covenants are the following
restrictions: (i) all collections
28
<PAGE>
made by the Company must be deposited within two days to SunAmerica's local bank
account; (ii) all payments on debt of greater than $50,000 must be paid when
due; (iii) the Company must remain solvent; (iv) specific guidelines for
portfolio default and delinquency ratios must be maintained and the Portfolio
yield percentage must be greater than 18%; (v) the Company must continue to own
100% of the seller, Contract Funding; and (vi) the Company must maintain an
adjusted tangible net worth of $3,000,000.
The Company is also obligated to comply with certain operating covenants.
The major elements fall into three areas: reporting, automation and insurance.
There are specific reports required to be provided to SunAmerica on a daily,
weekly or monthly basis. For example, the Company must provide daily a cash
receipts journal and an aggregate amount of receivables as of the close of the
prior day's business. Weekly reports include a purchaser report, an insurance
carrier exposure report, and an aged receivables report. Monthly reports include
detail on the top ten obligors of the Seller. The Company is obligated to
provide direct access to its computer systems and maintain adequate backup and
recovery policies and procedures. This includes a daily backup of all computer
data and the storage of this data in an off site facility which can be accessed
by SunAmerica. The Company must also maintain an errors and omissions policy
with a minimum of $1,000,000 of coverage. Management of the Company believes
that it is in material compliance with all applicable operating and financial
covenants.
SunAmerica's commitment to purchase any receivables under the SunAmerica
Facility may be terminated by SunAmerica under certain circumstances including,
but not limited to, any event which could materially affect the collectability
of the Finance Contracts sold under the SunAmerica Facility; certain changes in
the quality of the receivables such as the default ratio connected therewith;
the suspension, cancellation, withdrawal, or revocation of the Company's
insurance premium finance license in any state where the outstanding balance of
the receivables owing by Insureds residing in such jurisdiction exceeds
$500,000; the Company ceasing to own 100% of the outstanding capital stock of
Contract Funding, Gold Coast, or National-Wide; or certain changes in the
current management of the Company. The SunAmerica Facility may also be
terminated by SunAmerica in the event that its principal funding sources for the
purchase of new or additional receivables are terminated. The early termination
of the SunAmerica Facility would have a material adverse affect upon the
operation of the Company.
The Company accounts for the sale of its Finance Contracts in accordance
with Statement of Financial Accounting Standards No. 77, "Reporting by
Transferors for Transfers of Receivables with Recourse." Accordingly, Finance
Contracts sold are removed from the Company's balance sheet. The sales price of
the Finance Contracts is generally equal to the gross contract amount at the
Effective Funding Rate plus accrued interest less unearned finance and service
charges and an estimate of bad debt losses related to the Finance Contracts. As
such, no gain or loss is generally recognized upon sale. The Finance Contracts
that remain on the balance sheet are the residual amount representing the
percentage of the receivables not funded by SunAmerica.
Interest income on owned Finance Contracts is recorded using the interest
method. Interest is originally credited to unearned interest and, as payments
are received on Finance Contracts, unearned interest is transferred to income
for that portion of the payment that
29
<PAGE>
represents interest on the previous month's principal balance. Unearned interest
is recorded as a reduction of the Finance Contracts receivable balance.
SunAmerica Liquidity Facility. SunAmerica has also provided a $500,000 revolving
credit facility to provide liquidity pending the completion of funded purchases
of Finance Contracts (the "Liquidity Facility"). The Liquidity Facility is
evidenced by a secured promissory note due on demand having a face amount of
$500,000. Defaults under this note can constitute an "Event of Investment
Ineligibility" under the SunAmerica Facility. As of the date of this Prospectus,
there was no principal outstanding under the Liquidity Facility.
Former Revolving Credit Facility. Prior to September 19, 1996, the Company's
primary financing vehicle was a line of credit/receivables purchase facility
with First Western Bank ("First Western") for an amount up to $6 million. The
First Western facility was terminated upon the effective date of the SunAmerica
Facility. In conjunction with the termination, the Company granted First Western
warrants to purchase 15,000 shares of Common Stock at a nominal exercise price.
The Company further guaranteed that the fair market value of the shares issuable
upon exercise of these warrants would be at least $90,000 by July 2, 1997. To
secure this guarantee, the Company provided $90,000 of cash collateral to First
Western. The Company continues to maintain a cash balance at First Western to
cover the payment of any outstanding drafts.
Private Placement of Convertible Subordinated Debentures, Warrants, and Common
Stock. The Company has secured a significant amount of its capital through the
private placement of equity and debt securities. Effective with the acquisitions
of Gold Coast and National-Wide on March 28, 1996 (the "Acquisition Date'), the
Company issued 384,625 shares of Series A $4.00 Convertible Preferred Stock,
23,400 Warrants and 636,666 shares of Series B $3.00 Convertible Preferred Stock
in exchange for cash and the forgiveness of debt. The proceeds from these
transactions yielded net proceeds of approximately $3,200,000 to the Company.
Subsequent to the Acquisition Date, the Company issued $2,355,000 principal
amount of Convertible Debentures and an additional 363,275 Warrants with
exercise prices ranging from $4.00 to $8.00 per share. The Warrants were
primarily issued to purchasers of the Convertible Debentures, and to certain
consultants and advisors in consideration for financial advisory services.
As of the date of this Prospectus, the Company had $2,355,000 principal
amount of Convertible Debentures outstanding, all of which mature in 1997.
Should the holders of these Convertible Debentures choose to receive the
principal and interest due upon maturity, as opposed to converting them into
Common Stock, the Company's capital resources could be adversely impacted.
Conversion of these Convertible Debentures into Common Stock is largely a
function of the spread between the trading price of the Company's Common Stock
and the conversion price of the Convertible Debentures. Thus, there can be no
assurances that the future trading prices of the Company's Common Stock will be
sufficient to encourage the conversion of a material number of Convertible
Debentures.
The Company may secure certain amounts of capital in the future from the
exercise of existing Warrants. As of the date of this Prospectus, the Company
had 386,675 Warrants outstanding at exercise prices ranging between $4.00 and
$8.00 per share. Exercise of the
30
<PAGE>
Warrants is largely a function of the spread between the trading price of the
Company's Common Stock and the exercise price of the Warrants. Thus, there can
be no assurances that the future trading prices of the Company's Common Stock
will be sufficient to encourage the exercise of a material number of Warrants.
If exercised, the Company would receive aggregate gross proceeds of
approximately $2.0 million.
In August 1996, Sands Brothers & Co., Ltd. ("Sands Brothers") was engaged
as the Company's financial advisor and given the right of first refusal on
future financings for a period of one year. In exchange for rendering such
services, in October 1996, the Company paid Sands Brothers a one time fee of
$35,000 and issued to Sands Brothers or its designees 200,000 shares of Common
Stock and 200,000 Warrants with exercise prices ranging from $5.00 to $8.00 per
share. Between October and December 1996, Sands Brothers acted as exclusive
placement in connection with the issuance of $1,000,000 principal amount of the
Convertible Debentures and 55,000 of the Warrants.
RECENT ACCOUNTING PRONOUNCEMENTS
On October 23, 1995, the FASB issued Statement No. 123, "Accounting for
Stock-Based Compensation" ("FAS 123"). This Statement applies to all
transactions in which an entity acquires goods or services by issuing equity
instruments or by incurring liabilities where the payment amounts are based on
the entity's common stock price. The Statement covers transactions with
employees and non-employees and is applicable to both public and nonpublic
entities. Entities are allowed (1) to continue to use the Accounting Principles
Board Opinion No. 25 method ("APB 25"), or (2) to adopt the FAS 123 fair value
based method. Once the method is adopted, an entity cannot change and the method
selected applies to all of an entity's compensation plans and transactions. For
entities not adopting the FAS 123 fair value based method, FAS 123 requires
proforma net income and earnings per share information as if the fair valued
based method has been adopted. For entities not adopting the fair value based
method, the disclosure requirements of FAS 123, including the proforma
information, are effective for financial statements for fiscal years beginning
after December 15, 1995 (calendar year 1996). The proforma disclosures are to
include all awards granted in fiscal years that begin after December 15, 1994
(calendar year 1995). However, the disclosures, including the proforma net
income and earnings per share disclosures, for the fiscal year beginning after
December 15, 1994 (calendar year 1995) will not be included in that year's
financial statements but will be included in the following year-end (calendar
year 1996) financial statements if the first fiscal year is presented for
comparative purposes. Management has not yet determined the impact of FAS 123 on
the Company.
In June 1996, the FASB issued Statement of Financial Accounting Standards
No. 125, "Accounting for Transfers of Servicing of Financial Assets and
Extinguishments of Liabilities" ("FAS 125"). FAS 125 provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities based on a financial-components approach that
focuses on control. FAS 125 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996 and is to be prospectively applied. The Company's assessment of the
adoption of FAS No. 125 indicates that the accounting for the sales of Finance
Contracts will not change materially from the present accounting.
31
<PAGE>
BUSINESS OF THE COMPANY
Overview of Operations
Through the operations of Gold Coast and National-Wide, the Company is
engaged in the business of originating and servicing Finance Contracts. Although
the predominant portion of the Company's business has historically been
undertaken in Florida, more recently, in an attempt to diversify and broaden its
base of business, operations have begun in Tennessee, Kentucky and South
Carolina and expansion is planned into other states.
The Company is engaged primarily in the financing of "non-standard"
automobile insurance policies. "Non-standard" insurance policies which typically
cover Insureds who have been classified by the insurance company as presenting a
higher than average insurable risk for a variety of reasons, including age,
driving record, a lapse in or absence of coverage, or ownership of a high value
or high performance vehicle.
Through its subsidiaries, the Company is licensed as a property and
casualty insurance premium finance company in Florida, Tennessee, Kentucky and
South Carolina. The Company's target consumers are those Insureds who seek
financing in order to pay their annual insurance premiums. A standard rated
Insured seeking financing to pay his insurance premium normally has several
alternatives, including obtaining financing offered on a captive basis through
many of the large nationally recognized highly-rated insurance carriers.
However, Insureds that are required to obtain coverage under non-standard
policies typically do not have this alternative since these policies are
generally underwritten by carriers that often do not have captive financing
available. Financing for insurance premiums can also be secured through
commercial bank loans or other means of consumer financing, such as insurance
premium finance companies.
As a premium finance company, the Company does not assume any of the
underwriting risk of an insurance carrier. Rather, the Company's business
involves the management of credit risk associated with loans to Insureds that
are secured, in part, by the unearned premium that has been paid, but not yet
earned, by the insurance company. In a typical financing transaction, the
Company generally requires a cash down payment of between 15% and 30% of the
annual premium and finances an average of 70% to 85% of the entire annual
premium with up to ten monthly installment payments. The Company also offers
financing of six month policy premiums, which generally require 40% cash down
and up to 60% financed with four monthly installment payments. The Company funds
the full insurance premium to the insurance carrier, adding interest, taxes and
an origination fee to form the basis of the Finance Contract.
As of the date of this Prospectus, the Company deals with approximately
150 insurance Agents, 250 insurance companies and, during the previous 12
months, had an average amount financed of approximately $700 per Finance
Contract.
Approximately 90% of the Company's business involves the financing of
automobile insurance premiums. The remainder of the Company's business consists
of offering financing to buyers of commercial insurance policies, consumer
homeowner policies and other property and casualty policies.
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The Company is presently organized according to the following schematic
chart:
- --------------------------------------------------------------------------------
USA Finance, Inc.
A Delaware Corporation
- --------------------------------------------------------------------------------
100% 100% 100%
- --------------------------------------------------------------------------------
Contract Funding Gold Coast National-Wide
A Delaware Corporation A Florida Corporation A Florida Corporation
- --------------------------------------------------------------------------------
Gold Coast and National-Wide have been engaged in the insurance premium
finance business since their respective formations in 1989 and 1985. Contract
Funding was formed in 1996 as a special purpose company for the sole purpose of
facilitating the purchase and sale of the Company's premium finance contracts
under the SunAmerica Facility. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
The Company was principally inactive from its inception on May 12, 1994
until March 28, 1996, when it completed the acquisitions of Gold Coast, on a
stock-for-stock basis and National-Wide, for a combination of cash and stock.
Concurrent with these acquisitions, the Company completed the private placement
of 384,625 shares of Series A $4.00 Convertible Preferred Stock, 23,400 Warrants
and 636,366 shares of Series B $3.00 Convertible Preferred Stock. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS." Part of this funding was utilized to finance the acquisitions, with
the remainder allocated towards working capital.
Operations and Credit Management Issues
The Company generates Finance Contracts through its referral network of
independent insurance agents ("Agents"). Each of the approximately 150 Agents in
the Company's referral network is provided with bank drafts drawn against the
Company's account. When an Insured seeks premium financing, the Agent completes
the Finance Contract, collects a down payment which averages approximately
15%-30% of the total insurance premium, and has the Insured sign the Finance
Contract. The Agent also signs the Finance Contract to certify that the
insurance policy has been issued and delivered, that the Insured is of legal age
to execute a contract, that a down payment has been paid by or on behalf of the
Insured, and that upon a cancellation of the policy, all unearned premiums and
commissions retained by the Agent will be paid to the Company.
Upon the Insured's and Agent's execution of a Finance Contract, the Agent
submits the insurance application, a copy of the Finance Contract and a bank
draft written on the Company's account to the insurance carrier. The draft is
typically for the amount of the premium due the insurance carrier less the
amount of the Agent's commission. The Agent then forwards the original Finance
Contract and a copy of the bank draft to the Company. The Company is under no
obligation to provide financing until it accepts the Finance Contract.
Acceptance of a Finance
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Contract occurs upon payment of the draft issued by the Agent to the insurance
carrier. All drafts must be appropriately endorsed by the payee and approved by
an officer of the Company before they are honored by the Company's bank.
Although the Company rarely rejects an executed Finance Contract, it may do so
if the accompanying draft is (a) made payable to an agency not authorized by an
insurance carrier; or (b) made payable to an unknown insurance carrier or one
the Company does not do business with. Under these circumstances, the Company
declines to honor the draft, no Finance Contract is created and the Company has
no further obligation to the Insured.
Upon acceptance of the Finance Contract, credit and contract information
is entered into the Company's computer system. The Agent is obligated by both
applicable law and the Finance Contract to forward a check to the Company
representing the down payment collected from the Insured less the Agent's
commission within 30 days of his receipt of the down payment.
Since the entire annual premium pays for a full 365 days of insurance
coverage in advance, and since the premium is earned by the insurance carrier
each day the policy is in force, the down payment paid to the Company, depending
on its size, may create equity in the insurance policy in the form of unearned
premiums which are in excess of the loan made by the Company. For example, in
Florida, an annual premium of $730 pays for 365 days of coverage at a rate of
$2.00 per day on a pro rata basis. The Company's current policy is to require a
down payment equal to 25% of the annual premium on Finance Contracts generated
in Florida. This requires the Insured to make a down payment of approximately
$182.50 on the date of inception, providing for coverage for 25% of 365 days, or
approximately 91 days. If the Company agrees to provide financing for the
remaining 75% of the annual premium ($547.50), it will pay the insurance carrier
the full amount due under the policy. Payment of the monthly installments are
payable 30 days from the inception of the policy. The amount owed to the
Company, assuming the Insured elected the eight month payment option, consists
of the amount financed ($547.50), interest ($43.90), the loan origination fee
($20) and documentary stamps ($2.10), totaling $613.50. Under Florida law, in
the event that the Insured fails to make the first payment, mandatory insurance
can be canceled for non-payment once the policy has been in effect for 60 days
which would result in a refund of unearned premium totaling $549 (90% of 10/12
of $730) or $610 if 100% of the unearned premium is refunded. After the first
installment payment is made, a policy can be canceled once it becomes fifteen
(15) days past due which results in a situation more favorable to the Company
than the above example. Since the Insured is making eight (8) monthly payments
for a one year insurance policy, the Insured builds up increasing amounts of
equity in the policy. Management estimates that 14% of policy holders do not
make a first payment, an additional 7% do not make the second, an additional 40%
do not make all of the remaining payments, and that 39% make all of the required
payments.
Under Florida law, the Company has the authority to cancel an insurance
policy at any time after it has been issued for 60 days if payments due to it
from the Insured are more than 15 days late. After a payment is five (5) days
late, the Company mails out a late notice to the Insured and generally charges
the Insured for the delinquent payment. If payment is not received within ten
(10) days thereafter, a notice of cancellation may be mailed to the insurance
carrier, the Insured, and the Agent. Such cancellation notice is generally
mailed by the Company within ten
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(10) days of its eligibility date. Applicable laws in Tennessee and Kentucky
permit a policy to be canceled after 45 days and South Carolina permits
cancellation after 60 days.
Any monies paid for insurance coverage for periods extending past the
cancellation date constitute unearned premiums and must be refunded to the
Insured; however, since the Insured is required to sign a power of attorney for
the benefit of the Company, all such refunds must be remitted to the Company for
forwarding to the Insured or the Agent on behalf of the Insured. Before it
forwards the refund to the Insured, the Company is entitled to deduct all
origination and late charges due it, all principal due under the Finance
Contract, plus earned interest on the monies lent for financing the contract.
The Company may also charge additional interest at the rate of one percent (1%)
per month on any balance outstanding after the original expiration of the
contract until such monies are collected by it. Based upon management's
experience, the time period between the cancellation date and receipt of the
refund of unearned premiums averages between 30 and 90 days with approximately
15% being collected over 90 days later. In addition, the Finance Contract
obligates the Agent to return any unearned commission to the Company.
Although the Insured is primarily liable on the Finance Contract, the
Company does not look solely to the Insured's creditworthiness for payment.
Rather, the Insured assigns to the Company any unearned premium he may attain in
the financed insurance policy as security for his loan and grants to the Company
the power to cancel the insurance policy and collect the unearned premium if
there is a default in payment on the Finance Contract. Thus, the insurance
carrier, and not the Insured, is the primary source of payment on a delinquent
Finance Contract. For this reason, the Company does not perform any
investigation, inquiry, or diligence regarding the creditworthiness of an
individual Insured. The Company does, however, keep statistics and information
regarding the Agents that generate Finance Contracts for the Company. This
provides the Company with a "loss per contract" figure for each of the Agents in
its network.
Because insurance premium financing depends upon the ability to obtain a
refund of unearned premiums, the Company's current policy is to finance premiums
on policies that have a term of one year or less, do not become fully earned in
the event of a total loss and are cancelable in accordance with standard pro
rata or short rate cancellation tables. The Company's current downpayment
requirements and payment schedules on Finance Contracts generated in Florida are
designed to provide it with at least some level of advanced payments to provide
for an unearned premium upon cancellation of the underlying insurance policy
equal to the amount outstanding on the associated Finance Contract.
Notwithstanding this practice, there can be no guarantee, and the Company does
not expect, that all financed premiums will have such an unearned premium
associated with them. For example, insurance carriers that return less than the
full amount of the unearned premium upon the cancellation of a policy require
the Company to receive a larger down payment in order to create a fully
collateralized Finance Contract. When the Company cancels the policy due to a
default of the Insured, Florida and South Carolina permit the insurance carrier
to return 90% of the unearned premium. As of the date of this Prospectus,
substantially all of the Finance Contracts included within the Company's Managed
Portfolio are protected by the economic security of unearned premiums equal to
90% or more of the outstanding principal balance due under the particular
Finance Contract.
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Although the Company's loan to the Insured is protected in part by the
economic security of the unearned premium, there are numerous operational risks
that, if not adequately addressed, can cause the Company to incur a full or
partial loss on its Finance Contract as follows: (i) loss of all or a portion of
the unearned premium due to a failure to cancel a Finance Contract on a timely
basis; (ii) insolvency of the insurance company holding the unearned premium not
otherwise covered by a state guaranty fund; (iii) inadequacy of the unearned
premium to cover interest and other charges in excess of the outstanding
principal amount; (iv) costs of collection and administration which exceed the
principal, interest and other charges due under the Finance Contract; and (v)
the assessment of additional premiums in those situations when an insurance
company re-rates an Insured's policy.
One of the principal risks involved in financing non-standard insurance
premiums is the possible insolvency of an insurance carrier. Another risk is
that an insurance company's financial circumstances may cause it to delay its
refunds of unearned premiums. Either event can adversely affect the yield to the
Company on its Finance Contracts even when there are unearned premiums
associated with the policies effected. Insurance company insolvencies and
weakened financial circumstances can result from a number of occurrences
including mismanagement, poor capitalization or extraordinary claims resulting
from a natural disaster or catastrophe, such as a hurricane. To reduce its risk
resulting from the insolvency of an insurance company, the Company has
established certain internal guidelines that although not yet in effect, will be
transitioned into effect during 1997 and thereafter. First, the Company will
attempt to discourage the issuance of Finance Contracts covering policies
written by an insurance company rated B- by A.M. Best once that insurance
company represents a concentration in excess of 6% of the Company's Managed
Portfolio. Similarly, the Company will attempt to discourage the issuance of
Finance Contracts covering policies written by an insurance carrier that is
rated below "B-" by A.M. Best once that carrier represents a concentration in
excess of 3% of the Company's Managed Portfolio. Second, the Company intends to
regularly review insurance company financial statements and/or its rating by
A.M. Best to determine risk of insolvency. Third, the Company will attempt to
limit the total concentration of Finance Contracts covering policies written by
insurance carriers rated "B-" or lower by A.M. Best to no more than 30% of the
Managed Portfolio. However, as of the date of this Prospectus, Finance Contracts
covering policies issued by such insurance carriers accounted for approximately
47% of the Company's Managed Portfolio. Management expects to be able to
decrease this percentage by approximately 1% per month, thereby reaching the
goal of 30% by mid-1998. The Company reserves the right not to make loans which
would be used for the purpose of purchasing policies from insurance companies
which, in the Company's opinion, are undercapitalized. However, regardless of
the vigilance of the Company and the limitation of concentration of its
portfolio, there can be no assurances that the Company will not suffer losses as
a result of insurance company insolvencies.
The Company further attempts to mitigate against the risk of insurance
company failure and the associated principal loss by attempting to operate only
in states with insurance guaranty funds. These guaranty funds serve to protect
their residents and premium finance companies in the event that a licensed
insurance company becomes insolvent. These quasi-governmental entities return
unearned premiums, subject to certain limitations, and pay the losses on
property damage and liability claims for residents who obtained coverage from an
insurance company
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which subsequently becomes insolvent. To fund the payment of claims against
failed insurance companies and related expenses, the state guaranty funds
typically assess a tax on the premiums written by all of the insurance companies
licensed to do business in the state. All guaranty funds in states in which the
Company operates, include the refund of unearned premiums in their coverage. The
Company will attempt to limit its operations to only those states that have a
guaranty fund.
When an insurance company becomes insolvent and unable to pay its claims
or refund unearned premiums upon cancellation of a policy, the state guaranty
fund will pay such refunds less a per claim deductible which ranges up to 25% of
the unearned premium. Furthermore, some time may elapse before the state
guaranty funds make these refunds, and there can be no assurance that the state
guaranty funds will remain solvent. It has been the Company's experience that it
takes approximately six (6) months to recover unearned premiums from a guaranty
fund. Accordingly, in the event of bankruptcy or insolvency of a carrier, the
Company may experience some delay in receiving any unearned premiums. If a
substantial number of insurance companies become insolvent due to generally
deteriorating economic conditions or natural catastrophe, the Company could
incur substantial losses as a result of the depletion of all funds in a
particular state guaranty fund. To date the Company has not lost any material
amount of money as a result of an insurance company's insolvency.
Insurance carriers rated B- or lower by A.M. Best create additional
operating risks for the Company. For instance, such carriers are sometimes
viewed by financial institutions as having a greater chance of becoming
insolvent. As a result, Finance Contracts covering policies issued by these
carriers may not be valued as highly as those covering policies issued by more
highly rated carriers. The terms of the SunAmerica Facility effectively limit
the number of Finance Contracts covering policies issued by carriers B- or lower
by A.M. Best which may be sold under the facility and such Finance Contracts are
sold at much greater discounts than contracts covering policies issued by more
highly rated carriers. This requires the Company to commit more capital to fund
these Finance Contracts. Accordingly, financing an excessive amount of such
Finance Contracts will require the Company to obtain more capital than in the
case of financing policies issued by standard carriers.
Even if no losses occur as a result of an Insured's default, due to the
overall size of each Finance Contract, the Company can nonetheless be
unprofitable if its costs of acquiring and servicing Finance Contracts are too
high or if too much time is lost in the collection process. The Company intends
to develop management information systems to assist in providing greater
processing and operational efficiency, however, to date, many of these functions
are still undertaken on a manual basis.
One of the most significant operating risks confronting the Company occurs
when an additional premium is assessed upon an Insured ("Additional Premium").
An insurance carrier may charge an Insured an Additional Premium upon receipt of
the Insured's completed application. This situation typically arises when an
Insured fails to fully disclose his driving record or claims history to his
insurance agent when applying for insurance. After the insurance carrier
re-rates the policy, it raises the premium applicable to that particular Insured
and sends a bill to the Insured for the full amount of the Additional Premium.
At this point the Insured's initial down payment represents a percentage of the
lower original premium without inclusion of the higher Additional Premium,
thereby reducing or eliminating the unearned premium associated with that
particular Finance Contract. In the event that
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the Insured fails to pay the Additional Premium, the insurance carrier will
cancel the policy and earn premiums based on the higher Additional Premium
rather than the lower initial premium. In these situations, the unearned premium
associated with the canceled policy will be insufficient to repay the Company
the total amount due under the Finance Contract and will result in a loss to the
Company. Since the Company does not perform any investigation regarding an
Insured's driving record or insurability, the Company cannot eliminate this risk
prior to accepting a Finance Contract. The Company does, however, keep
statistics regarding the "loss per contract" associated with each of the Agents
in its network which is primarily the result of the imposition of Additional
Premiums. Although this will not eliminate this risk, it allows the Company to
direct its marketing efforts at those Agents who generate the least amount of
contracts which are assessed Additional Premiums. By contrast, South Carolina
requires the submission of a motor vehicle report upon application which allows
the Agent to provide a more accurate rate quotation to the potential Insured.
Accordingly, the imposition of Additional Premiums is not as material a business
risk in South Carolina.
The imposition of an Additional Premium creates a greater risk in
jurisdictions that have prohibitions upon the Company's ability to cancel an
Insured's insurance policy. In Florida, the Company can not cancel a policy for
the first sixty (60) days. Thus, the Company's risk of not having its Finance
Contract covered by the unearned premium is greater than in states where earlier
cancellations are possible.
Marketing
The marketing of insurance policies to consumers is generally performed by
a multitude of independent Agents. For example, in Florida alone there are
approximately 6,000 registered Agents. All of the Company's Finance Contracts
are generated through the efforts of its network of approximately 150 Agents
throughout Florida, Tennessee, South Carolina and Kentucky. The majority of
these Agents are small independent Agents selling non-standard insurance
policies issued by smaller non-standard insurance carriers. This is the result
of two factors inherent in the marketing of non-standard insurance policies.
First, most large insurance agencies either offer their own financing or are
associated with large standard insurance carriers that provide financing
directly to their insureds. Secondly, the non-standard insurance carriers that
issue the majority of non-standard automobile policies are typically smaller
insurance companies that do not offer financing to their Insureds. Accordingly,
the Company's marketing efforts are directed at these smaller independent
agencies.
Agents generally utilize insurance premium finance companies on behalf of
their clients (the Insureds) for a number of reasons. First, it allows the Agent
to offer financing to Insureds who purchase policies from insurance carriers
that do not offer financing directly to their customers. Second, a finance
company is often able to provide additional flexibility to the Insured in
connection with the financing of insurance premiums such as providing one
finance contract to policy holders who purchase multiple insurance policies
written by multiple insurance carriers (split policies). For example, an Insured
may obtain auto collision coverage from one insurance carrier and comprehensive
from another or obtain his automobile policy and homeowner's policy from two
different carriers. Even assuming that one or both of the carriers offer
financing, neither will finance the other carrier's policy. As a result, the
Insured will have two separate payments, or be obligated to pay one or both
policies in full. The Company allows such Insureds to combine
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both policies into one finance contract and make one payment. The Company also
offers flexibility with regard to late payments and policy cancellations. It is
the Company's policy to notify the Agent immediately when any payment is past
due which allows the Agent to arrange with the Insured for payment. Under
certain circumstances the grace period can be extended, thereby avoiding
cancellation of the policy and the loss of part of the Agent's commission which
may result from such cancellation.
During the past year the Company utilized the services of nine (9)
unaffiliated marketing representatives on a non-exclusive basis to market its
services to Agents. These contractors have extensive experience in the
non-standard auto insurance industry in their respective markets and may
represent other premium finance companies, insurance carriers, and companies
which provide ancillary services to the industry. These contractors' fees
average between $5 and $15 for each contract originated by their referral
networks. The agreements with these contractors include, but are not limited to,
prequalifying Agents for creditworthiness, meetings with the Company to discuss
industry trends and the promotion of their territories, collection of accounts
receivable from Agents with respect to unearned commissions, completing
applications with new Agents, correcting existing applications with existing
Agents, complying with all qualifying procedures as are set forth from time to
time by the Company, monitoring the creditworthiness of Agents and compliance by
the Agents with applicable state insurance laws and regulations and with the
operating procedures of the Company.
The continued origination of Finance Contracts is dependent upon the
Company building and maintaining its relationship with its network of
independent Agents. This requires personal service and attention by both the
Company and its team of third party contractors. The Company's failure to
cultivate and maintain these business relationships could have a material
adverse effect on the business of the Company. Moreover, since the Company has
no contracts with any Agents to continue to refer financing business, there can
be no assurance that Agents presently directing financing business to the
Company will continue to do so or that the Company will be able to locate and
establish relationships with additional Agents. See " Competition."
Business Strategy
The Company's overall business strategy is to attempt to enhance its
results of operations and volume through securing additional sources of
financing and attempting to increase its opportunities to originate new Finance
Contracts by expanding the scope of its relationships with Agents throughout
Florida, Tennessee, Kentucky and South Carolina. The Company believes that it
can enhance results of operations through either or both of the following means:
(i) reducing over-concentrations with carriers that are rated B- or lower by
A.M. Best; and (ii) implementing and installing computer and other systems that
would better enable Agents to gain access to motor vehicle records in order to
reduce the Company's exposure to Additional Premiums.
Expansion Into Other States. The business of the Company is heavily
regulated by state government insurance or banking commissions. See "Government
Regulation." In order to do business in a particular state, the Company must be
registered as an insurance premium finance company and comply with a particular
state's statutory and administrative regulations. Changes in
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such regulations could have a material adverse effect on the business of the
Company. Since approximately 95% of the Company's Finance Contracts are
originated in and governed by Florida law, the Company is at particular risk of
adverse changes in applicable Florida law. In order to minimize this risk, the
Company intends to expand its operations into other states with favorable
regulatory environments. The Company focuses its resources on states that allow
a wider range of non-standard insurance carriers to do business in their states
as the presence of these carriers provides the greatest opportunity for the
Company. The Company is currently doing business in Florida, Kentucky, South
Carolina and Tennessee and evaluating other potentially attractive states for
expansion including Georgia, Oklahoma and Texas.
Although the monetary costs of registering and complying with each state's
laws are relatively modest, expansion into new states requires intense marketing
efforts to introduce the Company's services to a new market of independent
Agents. Since the Company currently has no independent contractors assigned to
any states other than Florida, Tennessee, Kentucky and South Carolina nor any
relationship with any independent Agents in any other states, there can be no
assurance that it will be able to compete effectively or develop any meaningful
business in these markets. See "Marketing."
Competition
The Company encounters intense competition from numerous sources. The
Company competes with a significant number of other companies that provide
premium finance services. Competition is also encountered from Agents who offer
premium finance services, banks and other lending institutions, as well as large
national insurance carriers that offer financing to their customers. Although
such carriers are prohibited by applicable law from imposing interest charges,
they can collect limited service charges and offer financing as a service to
their Insureds. Some of the competitors are larger, have greater financial and
other resources, and are better known to consumers and Agents than the Company.
The Company's competitive position is dependent upon its building and
maintaining relationships with numerous Agents and offering flexibility with
regard to late payments, policy cancellations, and the financing of split
policies. To the extent insurance carriers add greater flexibility to their own
financing practices, the Company's future operations could be adversely
affected. Additionally, there are few if any barriers to entry into the
marketplace and the Company expects additional companies to enter the premium
finance business. To the extent these companies offer more attractive payment
plans to Insureds or better commissions to Agents, the Company's competitive
position will be adversely affected.
The Company has strong repeat business with many different Agents and
believes that its continued emphasis on servicing and personally contacting
these Agents through the Company's independent contractors will allow the
Company to achieve its desired market position. The Company's success is,
however, ultimately dependent upon maintaining these relationships and there can
be no assurance that the Company will be able to maintain these relationships or
continue to compete successfully in the market. See "Marketing."
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Government Regulation
The operations of the Company are subject to state regulation governing
the licensing, administration, and supervision of premium finance companies. The
Company is licensed to do business in the states of Florida, Tennessee, Kentucky
and South Carolina. Applicable state statutes generally require the Company to
obtain a license to operate as a premium finance company and regulate procedures
regarding the cancellation of policies and charging of interest and fees. The
detailed description of the regulatory provisions of Florida set forth below is
substantially similar to the laws of the other states in which the Company is
licensed or in which the Company intends to obtain a license.
The Florida Department of Insurance requires a license which must be
renewed annually and subjects licensees to periodic examinations and
investigations. The statute places certain limitations on service and other
charges the Company may impose, governs the form and content of contracts used
in connection with financing arrangements and generally prohibits the Company
from accelerating the maturity of any loan, without an event of default having
occurred, and further prohibits the Company from obtaining a power of attorney
to perform any act other than to request cancellation of a policy for
non-payment. The statute also provides that the Company may charge interest of
no more than 1% per month on the total amount financed and may not charge a
non-refundable service charge in excess of $20. The Florida Department of
Insurance must also approve any changes in ownership control or management of
the Company, including changes in the Board of Directors.
Applicable Florida statutes govern delinquency, collection, cancellation
and late charges, including the collection of attorneys' fees. In November 1993,
Florida enacted a law restricting the financing of supplemental coverage
combined with minimum mandatory coverage. A premium financing agreement may
provide for a delinquency and collection charge of $10 on each installment in
default for a period of not less than five days and attorneys' fees not
exceeding 20% of the amount due, provided that the Company mails a notice of
default to the Insured after five days from the due date, giving the Insured ten
days within which to remedy such default. Policies may be canceled ten days
after notice of intent to cancel has been mailed to the Insured. After the
expiration of such period, the premium finance company may mail to the insurer a
request for cancellation, specifying the effective date of cancellation and the
unpaid premium balance due under the premium finance contract, with a copy to
the Insured and the Agent. Upon cancellation by the Company, the insurer is
required to promptly return no less than 90% of the unearned premium of the
policy which secures the Finance Contract to the Company and the Agent is
required to return the unearned commission to the Company. The Company returns
any surplus exceeding the loan balance to the Insured or the Agent for the
benefit of the Insured. The Company charges for its use of funds during
post-contract periods at the rate of 1% per month on the outstanding balance.
The Company is subject to regular and random supervisory examinations by
regulatory authorities regarding compliance with applicable regulations. A
failure to comply with such regulations can result in the imposition of fines, a
suspension of the Company's license and, in some instances, a revocation of the
Company's license.
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Changes in the regulation of the activities of the Company, such as
increased rate regulation, could have an adverse effect on operations.
Applicable Florida law does not provide for automatic adjustments in the rates a
premium finance company may charge. Consequently, there may be periods during
which high prevailing interest rates on institutional indebtedness may combine
with fixed statutory ceilings on the rates the Company may charge its
policyholders to adversely affect the ability of the Company to operate
profitably. Since approximately 95% of the Company's finance contracts are
originated in and governed by the laws of Florida, the Company is at particular
risk of adverse changes in Florida law. Such changes could have a material
adverse effect on the Company. To minimize this risk, the Company intends to
expand its operations into other states.
Employees
The personnel of the Company consists of three (3) executive officers,
three (3) managers and vice presidents and approximately 20 other administrative
and clerical personnel.
Facilities
The Company does not own any real estate. The Company leases 7,500 square
feet of office space at 1111 Park Centre Road, Miami, Florida 33169. This
facility is the Company's only office and its principal place of business.
Legal Proceedings
The Company is not a party to any material legal proceedings.
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MANAGEMENT
Directors and Executive Officers
The present members of the Board of Directors and Executive Officers,
their respective ages and positions with the Company are set forth below. Each
of the directors is serving a one year term which expires at the next annual
meeting of stockholders and until their successors are duly elected and
qualified.
Name Age Position
---- --- --------
Mark Margolis 32 President; Director
Stephen E. Michaelson 49 Chief Executive Officer; Director;
Assistant Secretary
Robert R. Bartolini 51 Director
David Alperin 33 Director; Secretary
Robert Cohen 27 Chief Financial Officer
MARK MARGOLIS has been the President and a Director of the Company since March
28, 1996. Prior to its acquisition by the Company, Mr. Margolis was a Vice
President and director of sales at Gold Coast since 1987. Mr. Margolis is the
son of Roberta Margolis, executor of the Estate of Steven Margolis, a principal
stockholder of the Company. Steven Margolis previously served as a director and
executive officer of the Company.
STEPHEN E. MICHAELSON has served as a Director and the Chief Executive Officer
of the Company since May 1, 1996. He currently serves as a director of CMR, Inc.
a temporary staffing company specializing in the computer industry throughout
Connecticut, Massachusetts and Rhode Island. From 1992 to May 1996 he served as
President and Chief Executive Officer of CMR, Inc. From 1984 until 1992 he
served as Executive Vice President, Chief Financial Officer and Secretary of
CMR, Inc.
ROBERT R. BARTOLINI has served as a Director of the Company since July 9, 1996.
He has been Chairman and Chief Executive Officer of NAL Financial Group Inc.,
which finances non-prime automobile loans throughout the United States, since
its inception in 1991. Prior to founding NAL Financial Group Inc., he was
President and Chief Operating Officer of Financial Federal Savings & Loan
Association ("FinFed" - Miami, Florida), a $1.8 billion mutual savings and loan.
From 1984 to 1987, Mr. Bartolini was Executive Vice President at CenTrust
Savings Bank, an $11 billion institution based in Miami, Florida, with 60
branches. Prior to that, Mr. Bartolini was with First Pennsylvania Bank, NA
(assets of $6 billion; 75 branches), where he served as Senior Vice President.
DAVID ALPERIN has served as a Director and Secretary of the Company since its
inception in May 1994. He was the Company's Treasurer from inception through
March 28, 1996. Mr. Alperin is an associate at American Maple Leaf Financial
Corporation where he specializes in the
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analysis of development stage companies and determines their suitability for the
public equity markets. Since 1987 he has been the President of Enertia Sport, a
sports clothing retailer in Philadelphia, Pennsylvania. Mr. Alperin earned his
BS in Industrial Engineering from Lehigh University in 1986.
ROBERT COHEN has served as the Company's Chief Financial Officer since September
27, 1996. Prior to obtaining this position, since July 1995, he served as a
Senior Financial Analyst for American Airlines where he was responsible for
competitive analysis, cash flow and expense forecasts. From 1992 until July 1995
he served in various financial positions with the Procter & Gamble Company.
Prior to that he was a research analyst for Edward D. Jones & Co. Mr. Cohen
earned his MBA in Finance/Accounting from the John M. Olin School of Business of
Washington University in 1993.
Nomination to the Board of Directors
In connection with a certain private financing arranged by Sands Brothers
as placement agent on behalf of the Company, the Company has agreed to permit
Sands Brothers to nominate a designee to the Board of Directors for a two (2)
year term. As of the date of this Prospectus, no designee has been nominated.
Additionally, for so long as the designee of Sands Brothers remains on the
Board, the Company has agreed to create and maintain a Financial Advisory
Committee consisting of two current directors of the Company, the Sands
Brothers' designee to the Board and one additional person to be chosen by Sands
Brothers. The Financial Advisory Committee will periodically review and monitor
the Company's internal financial controls as well as the Company's capital
structure and financing needs and issue reports for the review and consideration
of the entire Board. The Company has not yet formed the Financial Advisory
Committee.
Executive Compensation Arrangements
Mark Margolis
Mr. Margolis is employed as the Company's President pursuant to the terms
of an Employment Agreement that expires March 28, 1999. The agreement provides
for a current base salary of $94,000 per year which will be increased to
$114,000 under certain circumstances related to the Company's available
financing, an annual cost of living adjustment of five percent (5%) and an
annual bonus in the form of (a) bonus options to purchase shares of the
Company's Common Stock; and (b) bonus shares of the Company's Common Stock.
Bonus options are granted annually at the rate of 5,000 for every $1,000,000 of
Pre-Tax Net Operating Income (as defined therein) above $2,900,000 in each of
the Company's fiscal years during the term of the agreement commencing with the
1996 fiscal year. The bonus options are exercisable at a price of $4.00 per
share over a term of five (5) years commencing on the date of grant and will be
immediately exercisable. Bonus shares are issuable annually at the rate of 250
for every $100,000 of Pre-Tax Net Operating Income over $3,496,000. The
Agreement also provides for the grant by the Company of options to purchase
100,000 shares of the Company's Common Stock at the average bid price of the
Company's stock for the first sixty (60) days of public trading. These options
are exercisable for five (5) years commencing on the sixty-first (61st) day of
public
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trading of the Company's Common Stock. The Agreement provides for vacation and
reimbursement of certain expenses, contains confidentiality and non-compete
clauses in favor of the Company and provides that Mr. Margolis may only be
terminated for a material breach of the Agreement or willful misconduct having a
material adverse effect on the Company. The terms of the Agreement may be
extended at the option of Mr. Margolis by three one year options as long as the
Company's pre-tax income in the most current four quarter period is at least ten
percent (10%) higher than it had been in the four quarters immediately
preceding.
Stephen E. Michaelson
Mr. Michaelson is employed as the Company's Chief Executive Officer
pursuant to the terms of an Employment Agreement that expires on May 1, 1999.
The agreement provides for a current base salary of $94,000 per year to be
increased to $114,000 under certain circumstances related to the Company's
available financing, and an annual cost of living adjustment of five percent
(5%). Pursuant to the agreement, Mr. Michaelson may be terminated for any reason
by the affirmative vote of at least 75% of the directors of the Company and for
cause at any time and without notice upon the affirmative vote of the Board of
Directors. The agreement provides for vacation and reimbursement of certain
expenses and contains confidentiality and non-compete clauses in favor of the
Company in addition to a no-raid clause in favor of the Company which prohibits
Mr. Michaelson from inducing or attempting to influence any current or future
employees of the Company to terminate his or her employment with the Company.
The agreement provides for a bonus in the form of stock options to purchase a
total of 410,000 shares of the Company's Common Stock pursuant to the terms of a
Stock Option Agreement between the Company and Mr. Michaelson. The Stock Option
Agreement provides that 110,000 options are exercisable immediately at an
exercise price of $4.00 per share and an additional 100,000 options are
exercisable on each of the first, second and third anniversaries of
Mr. Michaelson's employment date, at exercise prices of $5.00, $6.00 and $7.00
per share, respectively. All options expire May 1, 2001. Pursuant to the Stock
Option Agreement, in the event that Mr. Michaelson is terminated for any reason
other than for cause or if a "change in control" of the Company occurs, all
options granted to Mr. Michaelson will immediately become vested. A "change in
control" is defined to include those circumstances in which: (i) any person
becomes a beneficial owner of 25% or more of the combined voting power of the
Company's outstanding stock following the date of such agreement; (ii) a proxy
solicitation results in the contesting party obtaining the ability to vote
securities representing 25% of the combined voting power of the Company; or
(iii) the sale of substantially all of the assets of the Company, or a merger,
consolidation or other reorganization of the Company in which the Company is not
the surviving entity. Notwithstanding the occurrence of any of these events, a
"change of control" will not be deemed to have occurred if a majority of the
Board of Directors of the Company continues in such capacity after any of such
events or if Mr. Michaelson continues to hold substantially similar positions
with the surviving entity.
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Robert Cohen
Mr. Cohen is employed as the Company's Chief Financial Officer at a base
salary of $80,000 per year subject to five percent (5%) annual cost of living
increases. In the event that he is terminated during the first year of
employment other than "for cause," he will be entitled to receive his base
salary during the remainder of this period. In connection with his employment,
Mr. Cohen has been granted 71,875 options, 11,875 of which are exercisable at
$4.00 per share, and vest on the first anniversary of his employment date. The
remainder of the options vest in ratable installments over the next four
anniversaries of his employment date and are exercisable at $5.00, $6.00, $7.00
and $8.00 per share, respectively. In the event the Company sells substantially
all of its assets or is involved in a merger, reorganization or consolidation in
which the Company is acquired, all unvested options granted to Mr. Cohen shall
immediately become vested.
Stock Option Plan
The Company has adopted a 1997 Stock Option Plan (the "1997 Plan") which
covers 500,000 shares of the Company's Common Stock. Under its terms, officers,
directors, key employees and consultants of the Company are eligible to receive
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code, as well as non-qualified stock options and stock appreciation
rights ("SARs"). The 1997 Plan is administered by the Board of Directors or a
committee consisting of no less than two members designated by the Board of
Directors. Incentive stock options granted under the 1997 Plan are exercisable
for a period of up to 10 years from the date of grant at an exercise price which
is not less than the fair market value of the Common Stock on the date of the
grant, except that the term of an incentive stock option granted under the 1997
Plan to a stockholder owning more than 10% of the outstanding Common Stock may
not exceed five years and the exercise price of an incentive stock option
granted to such stockholder may not be less than 110% of the fair market value
of the Common Stock on the date of the grant. As of the date of this Prospectus,
no grants have been made under the 1997 Plan.
Directors' Fees
The directors of the Company receive no fees or other compensation in
connection with their service as directors.
CERTAIN TRANSACTIONS
Transactions with Principal Stockholder and its Affiliates.
On March 28, 1996, in conjunction with the acquisitions of Gold Coast and
National-Wide and the closing of a private placement of Company's securities,
the Company entered into an investment banking advisor agreement with American
Maple Leaf Financial Corporation ("AMLF"), a principal stockholder of the
Company. The agreement is for a term of three (3) years. Pursuant to the
agreement, AMLF will provide the Company with investment counseling services and
certain financial and public relations services. These services will include
introducing the Company to institutions, brokers and other investment bankers
interested in participating in a
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public offering, or assisting or facilitating in additional public or private
placements of the Company's securities and the identification and structuring of
strategic acquisition. In this regard, AMLF was responsible for introducing the
Company to Sands Brothers and, in connection therewith, surrendered 200,000
shares of Common Stock to the Company which were subsequently issued to Sands
Brothers in consideration for financial advisory services. AMLF was also
instrumental in assisting the Company in structuring the acquisitions of Gold
Coast and National-Wide in consideration for which it received 622,708 shares of
Common Stock of the Company. Upon the filing of a Registration Statement with
the Securities and Exchange Commission of which this Prospectus is a part, the
Company will commence paying AMLF an investment banking fee of $3,000 per month
payable for the balance of the term of the agreement. AMLF has a right of first
refusal with regard to assisting the Company in securing any future debt or
equity financing. The agreement includes a confidentiality provision in favor of
the Company and provides for the reimbursement of certain expenses.
Andrew Panzo, a principal stockholder and former officer and director of
the Company, is a principal stockholder, officer and director of AMLF. Mr. Panzo
has provided loans and purchased securities from the Company in various private
financings. Mr. Panzo purchased 25,000 shares of Series A $4.00 Convertible
Preferred Stock and 4,000 Warrants in connection with the acquisitions of Gold
Coast and National Wide. Thereafter, between April and September 1996, Mr. Panzo
purchased Convertible Debentures in the aggregate principal amount of $150,000,
and 8,250 Warrants. In November 1996, Mr. Panzo made interest-free loans to the
Company in the aggregate principal amount of $75,000 which have been repaid in
full.
Employment Agreements and Grant of Options to Executive Officers and Other
Employees
The Company has employment contracts with executive officers, Mark
Margolis, Stephen E. Michaelson and Robert Cohen which are described in detail
above. See "Executive Compensation Arrangements." In addition, the Company
entered into an employment agreement with David Michaelson, brother of Stephen
E. Michaelson, to serve as the Vice President of Operations for the Company at
an annual salary of $80,000. In connection therewith, the Company granted David
Michaelson 71,875 options, 11,875 of which are exercisable at $4.00 per share
and vest on the first anniversary of his employment date. The remainder of the
options vest in ratable installments over the next four (4) anniversaries of his
employment date and are exercisable at $5.00, $6.00, $7.00 and $8.00 per share
respectively. In the event that the Company sells substantially all of its
assets or is involved in a merger, reorganization or consolidation in which the
Company is acquired, all unvested options granted to David Michaelson shall
immediately become vested.
Sale of Securities to Director
Robert R. Bartolini purchased, through his self-directed IRA account,
$50,000 principal amount of Convertible Debentures and 2,750 Warrants from the
Company in a private placement transaction in July 1996.
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Transactions with Fred Margolis
Fred Margolis, the brother of Mark Margolis, serves as an independent
marketing representative of the Company for which he received $40,020 in 1996.
In August, 1996, the Company accepted an assignment of promissory notes ("the
Notes") issued by Fred Margolis in the aggregate principal amount of $150,000 in
partial payment of monies owed to the Company by Just Insurance, Inc. which, at
the time, was indebted to the Company in the amount of approximately $200,000.
The notes bear an interest rate of 12% and are payable in monthly installments
over thirty-six (36) months. As of the date of this Prospectus, approximately
$140,000 of principal is outstanding under the Notes and all payments are
current. Fred Margolis also owns a number of insurance agencies which originate
Finance Contracts for the Company.
Separation Agreements with Former Executive Officers
Upon the Company's completion of its acquisition of Gold Coast on March
28, 1996, Steven Margolis became an executive officer of the Company pursuant to
the terms of a three-year employment agreement. Prior to his death on December
18, 1996, Mr. Margolis had been a principal shareholder, director and officer of
Gold Coast.
On December 5, 1996, the Company entered into an agreement with
Mr. Margolis (the "Margolis Separation Agreement") pursuant to which he resigned
his position as a director and terminated his employment agreement with the
Company. The Margolis Separation Agreement provided for the continuation of his
salary for a period of six (6) months, the repayment of a $25,000 loan owed to
Mr. Margolis, the execution of an Amended and Restated Stockholder's Agreement
and the provision of group medical benefits for Mr. Margolis through December
31, 1997. The Margolis Separation Agreement contains standard confidentiality
and non-compete covenants in favor of the Company and, for a period of six (6)
months, prohibited Mr. Margolis from soliciting any employee of the Company to
terminate his or her employment with the Company. The Margolis Separation
Agreement also contains a mutual release by and between the Company and
Mr. Margolis. Pursuant to the terms of a separate stock option agreement,
Mr. Margolis retained options to purchase 100,000 shares of the Common Stock of
the Company at an exercise price of $8.00 per share which are immediately
exercisable.
Upon the Company's acquisition of National-Wide on March 28, 1996,
Jeanette Waserstein became an executive officer of the Company pursuant to the
terms of a three-year employment agreement. Ms. Waserstein was formerly a
director, officer and sole shareholder of National-Wide.
On July 16, 1996, the Company and Ms. Waserstein entered into an agreement
(the "Waserstein Separation Agreement") whereby Ms. Waserstein resigned her
position as a director of the Company and terminated her employment agreement.
The Waserstein Separation Agreement provided for the payment of Ms. Waserstein's
salary through December 31, 1996 and the grant of 20,000 shares of Common Stock
which the Company agreed to register with the Securities and Exchange Commission
and include in this Prospectus. Ms. Waserstein further agreed (i) not to acquire
any additional securities of the Company; (ii) to vote all of her shares in
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accordance with the recommendation of the majority of the Board of Directors;
(iii) not to solicit or become a participant in any solicitation of proxies in
opposition to the recommendation of the majority of the Board of Directors; and
(iv) not to enter into any partnership or act in concert with any person
regarding the voting or disposition of any of the Company's securities.
The Waserstein Separation Agreement contains a confidentiality covenant in
favor of the Company, prohibited Ms. Waserstein from engaging in the insurance
premium finance business until December 31, 1996 and, for a period of one (1)
year, prohibits Ms. Waserstein from soliciting employment from any employee of
the Company. The agreement also provides for a mutual release by and between the
Company and Ms. Waserstein. Pursuant to the terms of a separate option
agreement, Ms. Waserstein retained options to purchase 100,000 shares of Common
Stock of the Company at an exercise price of $3.00 per share which are
exercisable immediately. The Company agreed to register the resale of the shares
issuable upon exercise of these options by November 15, 1997.
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PRINCIPAL STOCKHOLDERS
The following table sets forth, as of January 13, 1997, information with
respect to the securities holdings of all persons which the Company has reason
to believe may be deemed the beneficial owners of more than 5% of the Company's
outstanding Common Stock and the beneficial ownership of all shares of the
Company's outstanding Common Stock, as of such date, of all officers and
directors, individually and as a group.
================================================================================
Amount and Nature Percentage of
of Beneficial Ownership
Ownership(1)(2) Interest(1)
- --------------------------------------------------------------------------------
Andrew Panzo(3) 1,416,678 38.18%
401 City Avenue
Suite 725
Bala Cynwyd, PA 19004
- --------------------------------------------------------------------------------
David Alperin 50,000 1.36%
401 City Avenue
Suite 725
Bala Cynwyd, PA 19004
- --------------------------------------------------------------------------------
Mark Margolis(4) 493,333 13.33%
- --------------------------------------------------------------------------------
Estate of Steven Margolis(5) 626,666 16.34%
- --------------------------------------------------------------------------------
Stephen E. Michaelson(6) 110,000 2.91%
- --------------------------------------------------------------------------------
Robert Cohen -- --
- --------------------------------------------------------------------------------
American Maple Leaf Financial 436,928 11.91%
Corporation(7)
401 City Avenue
Suite 725
Bala Cynwyd, PA 19004
- --------------------------------------------------------------------------------
Robert R. Bartolini(8) 12,750 *
500 Cypress Creek Road
West, Suite 590
Fort Lauderdale, FL 33309
================================================================================
All Directors and Officers as a 666,083 17.57%
group(9)
================================================================================
- ----------
* Represents less than 1%.
(1) Based upon 3,668,219 outstanding shares of Common Stock which includes
2,646,928 shares outstanding as of January 13, 1997, plus an additional
1,021,291 shares issuable as of the date of this Prospectus upon the
conversion of 384,625 shares of Series A $4.00 Convertible Preferred Stock
and 636,666 shares of Series B $3.00 Convertible Preferred Stock.
(2) Includes the number of shares of Common Stock which each person has the
right to acquire within sixty days through the exercise or conversion, as
applicable, of options, warrants or convertible securities, pursuant to
Item 403 of Regulation S-B and Rule 13d-3(d)(1) promulgated under the
Exchange Act.
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(3) Represents 912,500 shares of Common Stock, 25,000 shares issuable upon
conversion of Series A $4.00 Convertible Preferred Stock, 12,250 shares
issuable upon exercise of Warrants, 30,000 or more shares issuable upon
conversion of Convertible Debentures, and 436,928 shares held by AMLF, of
which Mr. Panzo is a principal stockholder and President and as to which
Mr. Panzo may be deemed a "control person" and beneficial owner. See
footnote 7.
(4) Represents 460,000 shares of Common Stock and 33,333 shares issuable upon
conversion of Series B $3.00 Convertible Preferred Stock. Does not include
100,000 Options issued under Mr. Margolis' employment agreement which have
not vested.
(5) Represents 460,000 shares of Common Stock, 66,666 shares issuable upon
conversion of Series B $3.00 Convertible Preferred Stock and 100,000
shares issuable upon the exercise of vested Options.
(6) Represents 110,000 shares issuable upon the exercise of vested Options
granted under Mr. Michaelson's employment agreement. Excludes 300,000
Options which have not vested.
(7) Mr. Panzo, as a "control person" of AMLF may be deemed to be beneficial
owner of these shares and, therefore, these shares are also included as
being beneficially owned by Mr. Panzo. See footnote 3.
(8) Represents 10,000 or more shares of Common Stock issuable upon conversion
of Convertible Debentures and 2,750 shares issuable upon exercise of
Warrants.
(9) Represents five (5) persons.
Material Voting Arrangements
AMLF, Andrew Panzo, Mark Margolis and the Estate of Steven Margolis are
parties to a Stockholders' Agreement (the "Stockholders' Agreement") that was
entered into in conjunction with the acquisitions of Gold Coast and
National-Wide on March 28, 1996 and subsequently amended and restated as of
December 5, 1996. The Stockholders' Agreement provides that the parties thereto
will vote their shares of Common Stock for the election of at least four
directors, three of whom will be nominated by AMLF and Mr. Panzo and one of whom
shall be Mark Margolis.
The Stockholders' Agreement also contains corporate governance provisions
which require that the Board designees of stockholders Andrew Panzo and AMLF
will not vote in favor of certain transactions or events unless Mark Margolis
votes in favor of such transaction or event. These events include any merger,
acquisition or disposition of assets in excess of 10% of the Company's existing
assets, the declaration of cash dividends, the issuance of any securities, the
assumption of indebtedness in excess of $50,000, the election and appointment of
directors and executive officers, the establishment of executive salaries and
any transaction between the Company and any of its subsidiaries, affiliates,
directors or officers.
The Stockholders' Agreement terminates on March 28, 2001; provided,
however, that in the event that AMLF and Mr. Panzo no longer continue to own at
least twenty-five percent (25%) of the shares they owned on the date of the
Stockholders' Agreement (December 5, 1996), then the Stockholders' Agreement is
terminable by Mark Margolis and the Estate of Steven
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Margolis on thirty (30) days written notice. Likewise, in the event that Messrs.
Mark Margolis and Steven Margolis, or their heirs or assigns, no longer continue
to own at least twenty-five percent (25%) of the shares they owned on December
5, 1996, then the Stockholder's Agreement is terminable by AMLF and Mr. Panzo on
thirty (30) days written notice.
Jeanette Waserstein, a former executive officer and director of the
Company, has agreed to vote her shares in accordance with the recommendation of
the majority of the Board of Directors. See "CERTAIN TRANSACTIONS."
DESCRIPTION OF SECURITIES
Common Stock
The Company is authorized to issue 25,000,000 shares of Common Stock,
$.001 par value per share, of which 2,646,928 issued and outstanding.
Additionally, upon the date of this Prospectus, all issued and outstanding
shares of Series A $4.00 and Series B $3.00 Convertible Preferred Stock will
automatically convert into 1,021,291 shares of Common Stock; thus increasing the
number of shares of common stock outstanding to 3,668,219.
Holders of Common Stock have equal rights to receive dividends when, as
and if declared by the Board of Directors, out of funds legally available
therefor. Holders of Common Stock have one vote for each share held of record
and do not have cumulative voting rights.
Holders of Common Stock are entitled upon liquidation of the Company to
share ratably in the net assets available for distribution, subject to the
rights, if any, of holders of any Preferred Stock then outstanding. Shares of
Common Stock are not redeemable and have no preemptive or similar rights. All
outstanding shares of Common Stock are, and the shares of Common Stock issuable
upon conversion of the outstanding shares of Series A $4.00 and Series B $3.00
Convertible Preferred Stock will upon issuance be, fully paid and nonassessable.
Preferred Stock
Following the conversion of the outstanding shares of Series A $4.00
Convertible Preferred Stock and Series B $3.00 Convertible Preferred Stock
concurrent with the date of this Prospectus, the Company will be authorized to
issue 5,000,000 shares of preferred stock, $.001 par value, of which no shares
will be outstanding. Pursuant to the Company's Certificate of Incorporation, the
Board of Directors has the authority, without further action by the
stockholders, to issue up to 5,000,000 shares of Preferred Stock in one or more
series and to fix , as to any such series, the dividend rate, redemption prices,
preferences on liquidation or dissolution, sinking fund terms, conversion
rights, voting rights and any other preference or special rights and
qualifications. See "Certain Provisions of the Certificate of Incorporation,
By-Laws and Delaware Law."
Outstanding Convertible Debentures
From April through December, 1996, the Company issued and sold in private
placement transactions to sophisticated and accredited investors $2,355,000
principal amount of the Company's ten percent (10%) convertible subordinated
debentures (the "Convertible
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Debentures"). The Convertible Debentures bear a maturity date of one (1) year
with interest due at maturity. In the event the Company obtains a line of credit
of at least $15,000,000 prior to the maturity of certain of the Convertible
Debentures, holders thereof will have the right to seek immediate repayment of
all principal and interest due thereunder. In the event that the Company becomes
obligated to repay these holders at least $25,000 of principal due under such
Convertible Debentures, holders of all Convertible Debentures will have the
right to accelerate payment of outstanding principal and interest.
The indebtedness evidenced by the Convertible Debentures is subordinated
to the prior payment when due of the principal and interest on all senior
indebtedness of the Company. Senior indebtedness consists of all present and
future bank and financial institutional indebtedness. Therefore, upon any
distribution of its assets in a liquidation or dissolution of the Company, or in
bankruptcy, reorganization, insolvency, receivership or similar proceedings
relating to the Company, the holders of the Convertible Debentures will not be
entitled to receive payment until the holders of the Company's senior
indebtedness are paid in full. Upon the occurrence of any event of default with
respect to any senior indebtedness of the Company, no payments may be made
thereafter to the holders of the Convertible Debentures until the Company has
cured such event of default.
The principal and interest due under the Convertible Debentures is
convertible, at the option of the holder, into shares of the Company's Common
Stock. Convertible Debentures in the principal amount of $1,000,000 are
convertible at $4.00 per share and the remainder are convertible at $5.00 per
share. In the event that shares of the Company's Common Stock are publicly
traded at the time of conversion, the conversion price shall be equal to the
lower of (i) $4.00 or $5.00, as applicable and (ii) 18% less than the average
closing bid price of the Company's Common Stock as reported by The NASDAQ Stock
Market (or the last sales price of the Common Stock listed on a national
securities exchange) for the thirty (30) consecutive trading days immediately
preceding the date of conversion. To date, none have been converted. Assuming
conversion prices of $4.00 and $5.00 per share at maturity, principal due under
the Convertible Debentures is convertible into 521,000 shares of the Company's
Common Stock. At a market price less than $5.00, additional shares would be
issued upon conversion of the Convertible Debentures. See "RISK FACTORS" and
"SELLING SECURITY HOLDERS."
Common Stock Purchase Warrants and Options
From March 28, 1996 to the date hereof, the Company has issued a total of
386,675 Warrants and 905,250 Options.
The Warrants were issued in conjunction with various financing
transactions, have terms ranging from one (1) to five (5) years, exercise prices
ranging from $4.00 to $8.00 per share, and are subject to certain vesting
provisions. As of the date of this Prospectus, 186,675 Warrants are currently
exercisable. At any time from the date of issuance, certain of the Warrants are
subject to redemption by the Company at a redemption price of $.001 per Warrant
on thirty (30) days written notice if (i) a registration statement covering the
resale of the shares of Common Stock of the Company issuable upon exercise of
the Warrant is effective as of that date; and (ii) the average of the closing
bid or sales prices, as applicable, of the Company's Common Stock for
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<PAGE>
twenty (20) consecutive trading days ending within fifteen (15) days of the
notice of redemption exceeds $6.50, $8.125 or $13.00, respectively for Warrants
with exercise prices of $4.00, $5.00 and $8.00, respectively. 15,000 Warrants
were issued to First Western Bank at a nominal exercise price in conjunction
with the repayment of the Company's former revolving credit facility with First
Western Bank. See "MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION."
The Options were issued in connection with the employment of the current
and former executive officers and other employees of the Company. The Options
have terms ranging from approximately three (3) to five (5) years with various
vesting provisions. 100,000 of the Options have an exercise price equal to the
average bid price of the Company's Common Stock for the first sixty (60) days of
public trading. The remaining Options have exercise prices ranging from $3.00 to
$8.00 per share. As of the date of this Prospectus, 320,500 Options are
currently exercisable.
Reservation of Shares
The Company has reserved a sufficient number of shares of Common Stock for
issuance upon conversion of the Series A $4.00 Convertible Preferred Stock,
Series B $3.00 Convertible Preferred Stock, and Convertible Debentures and
exercise of all outstanding Warrants and Options. When issued in accordance with
the terms of the applicable Preferred Stock, Convertible Debentures, Warrants or
Options, as the case may be, the shares will be fully paid and non-assessable.
Registration Rights
Exclusive of the shares whose resale is covered by this Prospectus, the
Company has granted registration rights in connection with the resale of up to
310,000 shares issuable upon exercise of certain outstanding and currently
exercisable Options. Pursuant to such registration rights, the Company has
agreed to file a registration statement with the Securities and Exchange
Commission covering 100,000 of these shares no later than November 15, 1997,
covering an additional 110,000 shares no later than two (2) years following the
date on which the Company's Common Stock is listed for trading upon the NASDAQ
Stock Market and covering the remaining 100,000 shares no later than December 5,
1998. The Company has also granted registration rights in connection with the
resale of shares issuable upon the exercise of certain Options which have not
yet vested.
Transfer Agent
The transfer agent for the Company's securities is StockTrans, Inc., 7
East Lancaster Avenue, Ardmore, Pennsylvania 19003, (610) 649-7300.
Shares Eligible For Future Sale
Upon the effective date of the Registration Statement of which this
Prospectus is a part, the Company will have 3,668,219 shares of Common Stock
outstanding. Of these shares, 2,678,219 shares will be freely tradable without
restriction under the Securities Act. The
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<PAGE>
remaining 990,000 shares are restricted securities as that term is defined in
Rule 144 under the Securities Act. An additional 1,228,175 or more shares of
Common Stock are issuable upon exercise or conversion, as applicable, of certain
outstanding Warrants, Convertible Debentures and currently exercisable Options.
Of these shares, 907,675 will be freely tradable without restriction under the
Securities Act.
The 990,000 shares of restricted common stock may be sold in the future
without registration upon compliance with Rule 144. A person (including a group
of persons whose shares are aggregated) who has satisfied a two year holding
period for restricted securities, including an affiliate of the Company, may
sell an amount of restricted securities up to 1% of the Company's outstanding
Common Stock in each three month period thereafter. Persons who are not
affiliated with the Company and who have owned the restricted securities for at
least three years are not subject to the 1% limitation. Of the 990,000 shares
which constitute restricted securities, 920,000 are presently held by Mark
Margolis and the Estate of Steven Margolis, both of whom are deemed to be
"affiliates" of the Company. These individuals acquired their shares on or about
March 28, 1996. Accordingly, resales may occur as early as on or about March 28,
1998. Provided these individuals remain "affiliates," their resales would be
limited to 1% of the Company's outstanding Common Stock in each three month
period thereafter. The remaining 70,000 shares are presently held by
non-affiliates and were also acquired on or about March 28, 1996. Accordingly,
resales can occur as early as on or about March 28, 1998 (limited to 1% of the
Company's outstanding Common Stock per quarter) and unlimited resales may occur
as early as March 28, 1999. Any substantial sale of restricted securities under
Rule 144 in the future may have a depressive effect upon the price of the
Company's Common Stock in any market that may develop therefor.
Certain Selling Security Holders who have the right to acquire 391,667 or
more shares of Common Stock upon the exercise, if at all, of certain Warrants
and conversion, if at all, of certain Convertible Debentures and preferred
shares, have agreed not to effect sales of these shares for a period of time
following the date of this Prospectus. Additionally, 200,000 of the shares
covered by this Prospectus are issuable, if at all, in connection with the
exercise Warrants which do not vest until February 14, 1998. See "PLAN OF
DISTRIBUTION."
Certain Provisions of the Certificate of Incorporation, By-Laws and Delaware Law
Pursuant to the Company's Certificate of Incorporation, assuming full
exercise of all of the outstanding Warrants, conversion of all Convertible
Debentures, Series A and Series B Preferred shares and exercise of all currently
exercisable Options, 20,113,606 shares of Common Stock, and 5,000,000 shares of
Preferred Stock will remain authorized but unissued. The shares of Preferred
Stock will be available for future issuance with such rights and designations as
determined by the Board of Directors. These shares may be utilized for a variety
of corporate purposes including future public offerings to raise additional
capital or to facilitate corporate acquisitions.
One of the effects of the existence of unissued and unreserved Common
Stock and Preferred Stock may be to enable the Board of Directors to issue
shares to persons friendly to current management which could render more
difficult or discourage an attempt to obtain control
55
<PAGE>
of the Company by means of a merger, tender offer, proxy contest or otherwise,
and thereby protect the continuity of the Company's management. Such additional
shares also could be issued to dilute the stock ownership of persons seeking to
obtain control of the Company.
Pursuant to the Company's Certificate of Incorporation, the Board of
Directors is authorized without any future action by the stockholders, to
determine the rights, preferences, privileges and restrictions of the
undesignated and unissued Preferred Stock. The purpose of authorizing the Board
of Directors to determine such rights and preferences is to eliminate delays
associated with a stockholder vote on specific issuance. The Board of Directors
may issue preferred stock with voting and conversion rights which could
adversely affect the voting powers of the holders of Common Stock, and which
could, among other things, have the effect of delaying, deferring or preventing
a change in control of the Company.
Upon listing of the Common Stock on NASDAQ, the Company will be governed
by the provisions of Section 203 of the General Corporation Law of the State of
Delaware (the "GCL"), an anti-takeover law. In general, the law prohibits a
public Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. "Business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the stockholder. An "interested stockholder" is a person who,
together with its affiliates and associates, owns (or within three years, did
own) 15% or more of the corporation's voting stock.
The provisions regarding certain business combinations under the GCL could
have the effect of delaying, deferring or preventing a change in control of the
Company or the removal of existing management. A takeover transaction frequently
affords stockholders the opportunity to sell their shares at a premium over
current market prices.
SELLING SECURITY HOLDERS
All of the shares of Common Stock of the Company covered by this
Prospectus are being sold for the account of the selling security holders
identified in the following table (the "Selling Security Holders").
The Selling Security Holders are offering for sale an aggregate of up to
3,585,894 shares of Common Stock which consist of: (i) 1,646,928 shares
previously issued by the Company; (ii) 384,625 shares issuable on the date
hereof upon conversion of the outstanding shares of Series A $4.00 Convertible
Preferred Stock; (iii) 636,666 shares issuable on the date hereof upon
conversion of the outstanding shares of Series B $3.00 Convertible Preferred
Stock; (iv) 386,625 shares issuable, if at all, upon the exercise of certain
outstanding Warrants; and (v) 521,000 shares issuable, if at all, upon
conversion of the principal due under certain outstanding Convertible
Debentures. The shares issuable, if at all, upon conversion of the Convertible
Debentures are subject to increase to accommodate possible adjustments in the
conversion feature based upon the trading price of the Common Stock and to pay
accrued interest due upon maturity, at the election of the holder. See
"Adjustment Feature of Convertible Debentures" below.
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<PAGE>
The following table sets forth the number of shares being held of record
or beneficially (to the extent known by the Company) by such Selling Security
Holders and provides (by footnote reference) any material relationship between
the Company and such Selling Security Holder during the past three (3) years,
all of which is based upon information currently available to the Company.
The shares of Common Stock offered by the Selling Security Holders may be
offered for sale from time to time at market prices prevailing at the time of
sale or at negotiated prices, and without payment of any underwriting discounts
or commissions except for usual and customary selling commissions paid to
brokers or dealers.
<TABLE>
<CAPTION>
Number of Number of
Number of Shares of Shares of
Shares of Common Common
Common Stock to be Stock Percentage Percentage
Stock Before Sold in After Before After
Name Offering(1) Offering Offering Offering(2) Offering(2)
- ---- ----------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Peter Abatiello 3,333 3,333 0 * 0
Henry Adleman 5,800 5,800 0 * 0
David Alldian(3) 7,625 7,625 0 * 0
David Alperin(4) 50,000 50,000 0 1.36% 0
Trustees for the JM
Alperin Pension Benefits
Trust 6,667 6,667 0 * 0
American Maple Leaf
Financial Corp.(5) 436,928 436,928 0 11.91% 0
Irwin & Bernice Baron 6,000 6,000 0 * 0
IRA for Robert R. Bartolini(3) 12,750 12,750 0 * 0
Lawrence Bass(3) 5,688 5,688 0 * 0
Stuart Baumel 4,000 4,000 0 * 0
Paul Berman 2,500 2,500 0 * 0
Tonya Bleier 6,667 6,667 0 * 0
Charles Block(3) 15,250 15,250 0 * 0
Alan Bluestine 36,667 36,667 0 * 0
Boston Provident Ptrs. 25,000 25,000 0 * 0
Scott Brenner 3,750 3,750 0 * 0
David Brown(3) 7,625 7,625 0 * 0
Myles A. Cane(3) 22,875 22,875 0 * 0
Mark Chessen 6,000 6,000 0 * 0
Cliff Associates 10,000 10,000 0 * 0
Arlene Cohen 13,333 13,333 0 * 0
Fred Cohen and
Debra Bloomberg 8,333 8,333 0 * 0
Frederick Cohen(3) 2,550 2,550 0 * 0
Gisella Cohen 6,667 6,667 0 * 0
Herb Cohen(3) 12,750 12,750 0 * 0
Jeffrey & Charlene Cohen 7,500 7,500 0 * 0
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
Number of Number of
Number of Shares of Shares of
Shares of Common Common
Common Stock to be Stock Percentage Percentage
Stock Before Sold in After Before After
Name Offering(1) Offering Offering Offering(2) Offering(2)
- ---- ----------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Mitchell Cohen 6,667 6,667 0 * 0
Susan Cohen(3) 53,833 53,833 0 1.46% 0
Sidney Covich(3) 12,750 12,750 0 * 0
Doug Cox(3) 6,375 6,375 0 * 0
Dr. Arnold Curnyn(3) 15,250 15,250 0 * 0
D&D Bloomberg 6,667 6,667 0 * 0
Linda Davis 1,250 1,250 0 * 0
Jacquelyn DeMirjian 2,500 2,500 0 * 0
Roland DeSilva 12,500 12,500 0 * 0
Richard Drath 7,000 7,000 0 * 0
Jere Dumanic 12,500 12,500 0 * 0
Gordon Fallone 36,667 36,667 0 * 0
Carol Ann Federman 2,500 2,500 0 * 0
Dale Filhaber 5,000 5,000 0 * 0
Ed Filhaber, Cust. For
Scott Filhaber 3,333 3,333 0 * 0
Edward Filhaber 7,500 7,500 0 * 0
First Western Bank 15,000 15,000 0 * 0
Michael Forman(3) 14,233 14,233 0 * 0
Mark Freedman 3,333 3,333 0 * 0
Harry Frei 2,500 2,500 0 * 0
Terry Fried(3) 3,187 3,187 0 * 0
William Fried 15,000 15,000 0 * 0
Steve Funk 12,500 12,500 0 * 0
Frances Gertsman 3,750 3,750 0 * 0
Global Equity Partners 14,500 14,500 0 * 0
Robert T. Goldberg 12,500 12,500 0 * 0
Granite Associates, LLC(3) 91,500 91,500 0 2.43% 0
Linda Greenspan 5,000 5,000 0 * 0
Sid Greenspan(3) 12,750 12,750 0 * 0
Jeffrey Grinspoon 29,000 29,000 0 * 0
Karen & Leslie Groffman(3) 3,188 3,188 0 * 0
Lennart Hagegard(3) 12,750 12,750 0 * 0
Arnold Hantverk 6,667 6,667 0 * 0
Milton Hantverk 6,667 6,667 0 * 0
Manfred Hoffman 2,500 2,500 0 * 0
IHN Partners(6)(3) 70,142 70,142 0 1.89% 0
Richard Jacobs 5,000 5,000 0 * 0
Slobodan Jovcic 5,800 5,800 0 * 0
Katie and Adam Bridge
Partners, L.P.(3)(7) 30,500 30,500 0 * 0
Elliot Kaufman 1,250 1,250 0 * 0
Richard Kaufman 2,500 2,500 0 * 0
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
Number of Number of
Number of Shares of Shares of
Shares of Common Common
Common Stock to be Stock Percentage Percentage
Stock Before Sold in After Before After
Name Offering(1) Offering Offering Offering(2) Offering(2)
- ---- ----------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Marsha Kesh 5,000 5,000 0 * 0
Lee Kort 2,500 2,500 0 * 0
Arlene Kraines 16,667 16,667 0 * 0
Martin Krimsky 3,000 3,000 0 * 0
Henry Leace 14,500 14,500 0 * 0
Peter Lesser 2,500 2,500 0 * 0
Steve Levin 12,500 12,500 0 * 0
Howard Levine 10,583 10,583 0 * 0
Rita Linsker 33,333 33,333 0 * 0
Lorne House Nominees Ltd.(3) 15,250 15,250 0 * 0
Doug Love 6,250 6,250 0 * 0
Theodore Lutins 2,500 2,500 0 * 0
Mark Margolis(8) 493,333 33,333 460,000 13.33% 12.43%
Estate of Steven Margolis(9) 626,666 66,666 560,000 16.34% 14.60%
Douglas Martin 33,333 33,333 0 * 0
Sandy Martin 3,333 3,333 0 * 0
Norman Millan 14,500 14,500 0 * 0
Richard Millan 7,250 7,250 0 * 0
Marc Miller 12,500 12,500 0 * 0
Pasquale Nestico 12,500 12,500 0 * 0
Philip Nicozisis 2,500 2,500 0 * 0
Carletta Nonziato(3) 6,375 6,375 0 * 0
Sharon Novak(3) 50,500 50,500 0 1.37% 0
Odyssey Capital Group, L.P. 18,750 18,750 0 * 0
Richard Olstein(3) 3,187 3,187 0 * 0
Andrew Panzo(10)(3) 979,750 979,750 0 38.18% 0
Rick Parker(3) 12,750 12,750 0 * 0
Boris Pavic 14,500 14,500 0 * 0
Lawrence Perelman 7,000 7,000 0 * 0
Mark Perelman(3) 25,500 25,500 0 * 0
Robert Perelman 6,667 6,667 0 * 0
Professional Investment Group,
L.L.C.(3) 12,750 12,750 0 * 0
Seth Potter 625 625 0 * 0
Prevor Marketing Intl 6,000 6,000 0 * 0
Michael Prevor 5,000 5,000 0 * 0
Isaac Raijman 33,333 33,333 0 * 0
Ronald Rasch(3) 7,625 7,625 0 * 0
Rawhide Partners, L.P.(7) 200,000 200,000 0 5.30% 0
Marylyn Rose 3,750 3,750 0 * 0
Jeffrey Rosenberg 8,700 8,700 0 * 0
Larry Rotenberg 2,500 2,500 0 * 0
Alan Rothberg 2,500 2,500 0 * 0
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
Number of Number of
Number of Shares of Shares of
Shares of Common Common
Common Stock to be Stock Percentage Percentage
Stock Before Sold in After Before After
Name Offering(1) Offering Offering Offering(2) Offering(2)
- ---- ----------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Dr. & Mrs. Alan Rothberg 7,333 7,333 0 * 0
Nancy Rothman(3) 3,188 3,188 0 * 0
Matthew Russo 625 625 0 * 0
SAGAX Fund II Ltd.(3) 15,250 15,250 0 * 0
Sands Brothers & Co., Ltd.(11) 85,000 85,000 0 * 0
Hal Satnick(3) 15,250 15,250 0 * 0
Roy Scheinbaum 7,250 7,250 0 * 0
Aaron Scott 3,750 3,750 0 * 0
Richard Seidenberg(3) 30,500 30,500 0 * 0
Melvyn Sherman 4,000 4,000 0 * 0
Spencer Sherman 1,750 1,750 0 * 0
Morris Small 8,750 8,750 0 * 0
Anna Smith(3) 5,100 5,100 0 * 0
William Smith 5,000 5,000 0 * 0
Eric Smolen 6,250 6,250 0 * 0
Nancy Sneider 3,333 3,333 0 * 0
Robert Sobanski 2,500 2,500 0 * 0
Craig Sobel 5,800 5,800 0 * 0
Elizabeth A. Solms 3,333 3,333 0 * 0
Jerry Solovay 6,667 6,667 0 * 0
Jerry and Joan Solovay(3) 18,437 18,437 0 * 0
Aaron Some 3,125 3,125 0 * 0
Ben Sonkin 2,500 2,500 0 * 0
Nancy Sondow 6,667 6,667 0 * 0
Robert Spiegel 36,666 36,666 0 * 0
Georgie Stanley 7,500 7,500 0 * 0
Michael Stanley 5,000 5,000 0 * 0
Kathryn & Michael Stati(3) 3,188 3,188 0 * 0
Gilbert Stein(3) 12,750 12,750 0 * 0
Margaretta Stewart 2,000 2,000 0 * 0
William Stewart 1,500 1,500 0 * 0
Straub Family Trust 16,667 16,667 0 * 0
John N. Straub 41,083 41,083 0 1.12% 0
John Vincent Straub 5,000 5,000 0 * 0
Philip Thompson(3) 7,625 7,625 0 * 0
Burton R. Turk 6,000 6,000 0 * 0
Ronald Vara 3,333 3,333 0 * 0
Dianne Vaughn(3) 7,625 7,625 0 * 0
Michael Wachs 2,500 2,500 0 * 0
David Walters 2,500 2,500 0 * 0
Hugh J. Ward III(3) 3,550 3,550 0 * 0
Jeanette Waserstein(12) 186,667 86,667 100,000 * 0
Barbara Weiner 6,000 6,000 0 * 0
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
Number of Number of
Number of Shares of Shares of
Shares of Common Common
Common Stock to be Stock Percentage Percentage
Stock Before Sold in After Before After
Name Offering(1) Offering Offering Offering(2) Offering(2)
- ---- ----------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Robert Weiner 6,000 6,000 0 * 0
Stanley & Carol Weinstock(3) 3,187 3,187 0 * 0
Bart Yachbes 8,333 8,333 0 * 0
Gertrude Yachbes 8,333 8,333 0 * 0
Edward Zobian 2,500 2,500 0 * 0
Simon Zunamon(3) 30,500 30,500 0 * 0
</TABLE>
* represents less than 1%.
- ----------
(1) The number of shares calculated includes, in addition to shares of Common
Stock presently owned, shares of Series A $4.00 Convertible Preferred
Stock and Series B $3.00 Convertible Preferred Stock which will
automatically convert into shares of Common Stock on the date of this
Prospectus, as well as all shares which may be acquired, if at all, upon
the conversion of principal and interest due under the outstanding
Convertible Debentures and upon exercise of all outstanding Warrants.
(2) Calculated on the basis of 3,668,219 shares of outstanding Common Stock
which includes 2,646,928 shares outstanding as of January 13, 1997 and
1,021,291 shares issuable upon the conversion of an equal number of shares
of Series A $4.00 and Series B $3.00 Convertible Preferred Stock on the
date of this Prospectus. The percentage ownership is calculated pursuant
to Item 403 of Regulation S-B and Rule 13d-3(d)(1) promulgated under the
Act.
(3) Includes shares issuable upon the conversion, if at all, of the principal
and accrued interest due under Convertible Debentures. The shares issuable
upon such conversion may be increased based on the "Adjustment Feature of
Debentures" described below.
(4) Mr. Alperin is a Director and Secretary of the Company. He served as the
Company's Treasurer from its inception on May 12, 1994 until March 28,
1996. He is also an associate with AMLF which beneficially owns in excess
of 5% of the outstanding Common Stock of the Company.
(5) AMLF provides financial banking advisory services to the Company pursuant
to an investment banking agreement between the Company and AMLF. See
"CERTAIN TRANSACTIONS."
(6) Mr. Linsker, the general partner of IHN Partners, served as the Chairman
of the Board of Directors and President of the Company and was a principal
stockholder of the Company from its inception on May 12, 1994 until
December 12, 1995.
(7) The general partner of this limited partnership is an affiliate of Sands
Brothers, a financial advisor to the Company. See footnote 11 below.
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<PAGE>
(8) Mr. Margolis is an executive officer and member of the Board of Directors
of the Company. Mr. Margolis is also a principal stockholder of the
Company. He was a principal shareholder of Gold Coast and served as its
Chief Operating Officer and Vice President.
(9) Mr. Margolis was Chairman of the Board of Directors, and an executive
officer of the Company from March 28, 1996 until his resignation from
those positions on December 5, 1996. The Estate of Steven Margolis is a
principal stockholder of the Company. He was a principal shareholder of
Gold Coast and served as its Chief Executive Officer and President prior
to its acquisition by the Company.
(10) Mr. Panzo served as President of the Company from inception on May 12,
1994 until March 28, 1996 and served as director from May 12, 1994 until
July 9, 1996. He is also the principal stockholder of AMLF which
beneficially owns in excess of 5% of the outstanding Common Stock of the
Company. Mr. Panzo may be deemed a "control person" and beneficial owner
of AMLF's shares.
(11) Sands Brothers is a financial advisor to the Company and acted as
placement agent for the Company in connection with the sale of certain
Convertible Debentures and Warrants. Sands Brothers has a right of first
refusal to act as placement agent for the Company on future financings
through August 14, 1996 and has the right to nominate one (1) person to be
a member of the Company's Board of Directors.
(12) Ms. Waserstein served as an executive officer and Director of the Company
from March 28, 1996 until her resignation from those positions on July 16,
1996. Ms. Waserstein was an officer, director and sole stockholder of
National-Wide prior to its acquisition by the Company.
Adjustment Feature of Convertible Debentures
The principal and interest due under the Convertible Debentures is
convertible, at the option of the holder, into shares of the Company's Common
Stock at conversion prices of $4.00 and $5.00 per share. In the event that
shares of the Company's Common Stock are publicly traded at the time of
conversion, the conversion price shall be equal to the lower of (i) $4.00 or
$5.00, as applicable and (ii) 18% less than the average closing bid price of the
Company's Common Stock as reported by The NASDAQ Stock Market (or the last sales
price of the Common Stock listed on a national securities exchange) for the
thirty (30) consecutive trading days immediately preceding the date of
conversion.
Assuming conversion prices equal to $4.00 and $5.00 at maturity, principal
due under the Convertible Debentures is convertible into 521,000 shares of the
Company's Common Stock. The issuance of shares upon conversion, if at all, of
the Convertible Debentures is subject to increase based upon a decrease in the
trading price of the Common Stock below $5.00 per share and the accrued interest
due as of the date of conversion. For example, if on the date of conversion the
Common Stock is trading at $2.50 per share, 1,148,780 shares would be issuable
and if the Common Stock is trading at $1.00 per share on the date of conversion,
2,871,951 shares would be issuable upon conversion of the principal due under
the Convertible Debentures. If all Convertible Debentures are held until
maturity, conversion of accrued interest would increase the shares issuable by
an additional 10%.
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<PAGE>
PLAN OF DISTRIBUTION
The Selling Security Holders are offering for sale, exchange or transfer,
shares of Common Stock that have previously been issued to such holders in
private placement transactions, and shares of Common Stock issuable, if at all,
upon the conversion of outstanding Convertible Debentures, or exercise of
Warrants which were also issued in private placement transactions. Such shares
are being offered for their own account, and not for the account of the Company.
The Company will not receive any proceeds from the sale of the shares of Common
Stock by the Selling Security Holders.
Each Selling Security Holder will, prior to any sales, agree (a) not to
effect any offers or sales of the Common Stock in any manner other than as
specified in this Prospectus, (b) to inform the Company of any sale of Common
Stock at least one business day prior to such sale and (c) not to purchase or
induce others to purchase Common Stock in violation of Rule 10b-6 under the
Exchange Act.
The shares of Common Stock may be sold from time to time to purchasers
directly by the Selling Security Holders acting as principal for their own
account in one or more transactions in the over-the-counter market or in
negotiated transactions at market prices prevailing at the time of sale or at
prices otherwise negotiated. Alternatively, the shares of Common Stock may be
offered from time to time through agents, brokers, dealers or underwriters
designated from time to time, and such agents, brokers, dealers or underwriters
may receive compensation in the form of commissions or concessions from the
Selling Security Holders or the purchasers of the Common Stock.
Under the Exchange Act and the regulations thereunder, any person engaged
in a distribution of the shares of Common Stock of the Company offered by this
Prospectus may not simultaneously engage in market making activities with
respect to the Common Stock of the Company during the applicable "cooling off"
periods prior to the commencement of such distribution. In addition, and without
limiting the foregoing, Selling Security Holders will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder
including without limitation Rules 10b-6 and 10b-7, which provisions may limit
the timing of purchases and sales of Common Stock by the Selling Security
Holder.
The Company will use its best efforts to file, during any period in which
offers or sales are being made, one or more post-effective amendments to the
Registration Statement of which this Prospectus is a part to describe any
material information with respect to the plan of distribution not previously
disclosed in this Prospectus or any material change to such information in this
Prospectus.
Selling Security Holders having the right to acquire 305,000 or more of
the shares being offered hereunder upon the conversion, if at all, of the
principal and interest due under certain Convertible Debentures and exercise, if
at all, of certain Warrants have agreed not to effect sales of these shares
until four (4) months after the date of this Prospectus (the "Effective Date").
In addition, Selling Security Holder Jeanette Waserstein has agreed not to
effect sales of 20,000 shares covered by this Prospectus until six (6) months
after the Effective Date. With regard to the
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<PAGE>
remaining 66,667 shares being offered by Ms. Waserstein, she has agreed not to
effect sales of these shares until three (3) months after the Effective Date and
thereafter, to limit sales to 25% of these shares in each three (3) month period
until one (1) year after the Effective Date. Finally, 200,000 of the shares
covered by this Prospectus are issuable, if at all, in connection with the
exercise of Warrants which do not vest until February 14, 1998.
LEGAL MATTERS
The validity of the Common Stock offered hereby has been passed upon for
the Company by Buchanan Ingersoll Professional Corporation, 1200 Two Logan
Square, 12th Floor, 18th and Arch Streets, Philadelphia, Pennsylvania 19103.
STATEMENT OF INDEMNIFICATION
The Company has adopted the provisions of Section 102(b)(7) of the GCL
which eliminate or limit the personal liability of a director to the Company or
its stockholders for monetary damages for breach of fiduciary duty under certain
circumstances. Furthermore, under Section 145 of the GCL, the Company may
indemnify each of its directors and officers against his expenses (including
reasonable costs, disbursements and counsel fees) in connection with any
proceeding involving such person by reason of his having been an officer or
director to the extent he acted in good faith and in a manner reasonably
believed to be in, or not opposed to the best interest of the Company, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful. The determination of whether indemnification is proper
under the circumstances, unless made by a court, shall be determined by the
Board of Directors.
Insofar as indemnification for liabilities under the Securities Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions or otherwise, the Company has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in a successful
defense of any action, suit or proceeding) is asserted by a director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issuer.
EXPERTS
The combined financial statements of Gold Coast Finance, Inc. and
National-Wide Premium Finance Corporation as of December 31, 1995, and for each
of the years in the two year period ended December 31, 1995, have been included
herein and in the Registration Statement and Prospectus in reliance upon the
report of KPMG Peat Marwick LLP, independent certified
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<PAGE>
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement on Form SB-2 with respect to the Common
Stock being registered hereby. This Prospectus does not contain all the
information contained in such Registration Statement, as permitted by the Rules
and Regulations of the Commission. The Registration Statement, including
exhibits thereto, may be inspected and copied at the Public Reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street N.W., Washington,
DC. 20549, and at the Commission's regional offices at 7 World Trade Center,
Suite 1300, New York, New York 10048, and at Northwest Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
can be obtained upon written request addressed to the Commission, Public
Reference Section, 450 Fifth Street, N.W., Washington, DC 20549, at prescribed
rates. In addition, the Commission maintains a WebSite at http://www.sec.gov
containing reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission, including
the Company's Registration Statement. For further information with respect to
the Company, the Common Stock being registered hereby and the contents of any
contract or document referred to herein, reference is made to the Registration
Statement and the exhibits filed as a part thereof.
65
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page Reference
--------------
Report of Independent Certified Public Accountants....................... F-2
Combined Balance Sheet of Gold Coast
Finance, Inc. and National-Wide Premium
Finance Corporation as of December 31, 1995.............................. F-3
Combined Statements of Income of Gold Coast
Finance, Inc. and National-Wide Premium
Finance Corporation for the Years Ended
December 31, 1995 and 1994............................................... F-4
Combined Statement of Stockholders' Equity
(Deficit) of Gold Coast Finance, Inc. and
National-Wide Premium Finance Corporation
for the Years Ended December 31, 1995
and 1994................................................................. F-5
Combined Statements of Cash Flows of Gold
Coast Finance, Inc. and National-Wide
Premium Finance Corporation for the Years
Ended December 31, 1995 and 1994......................................... F-6
Notes to Combined Financial Statements of
Gold Coast Finance, Inc. and National-Wide
Premium Finance Corporation for the Years
Ended December 31, 1995 and 1994......................................... F-7
Consolidated Balance Sheet (Unaudited) of
USA Finance, Inc. as of September 30, 1996............................... F-14
Consolidated Statements of Operations
(Unaudited) of USA Finance, Inc. for the Nine-
Month Periods Ended September 30, 1996
and 1995................................................................. F-15
Consolidated Statements of Stockholders' Equity
(Unaudited) of USA Finance, Inc. for the Nine-
Month Periods Ended September 30, 1996
and 1995................................................................. F-16
Consolidated Statements of Cash Flows
(Unaudited) of USA Finance, Inc. for the
Nine-Month Periods Ended September 30, 1996
and 1995................................................................. F-17
Notes to Consolidated Financial Statements for
the (Unaudited) of USA Finance, Inc. for the
Nine-Month Periods Ended September 30, 1996
and 1995................................................................. F-18
F-1
<PAGE>
KPMG Peat Marwick LLP
110 East Broward Boulevard
Fort Lauderdale, FL 33301
Independent Auditors' Report
The Board of Directors
Gold Coast Finance, Inc.
National-Wide Premium Finance Corporation:
We have audited the accompanying combined balance sheet of Gold Coast Finance,
Inc. and National-Wide Premium Finance Corporation (the "Companies") as of
December 31, 1995, and the related combined statements of income, stockholders'
equity (deficit), and cash flows for the years ended December 31, 1995 and 1994.
These financial statements are the responsibility of the Companies' management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Gold Coast Finance,
Inc. and National-Wide Premium Finance Corporation at December 31, 1995, and the
results of their operations and their cash flows for the years ended December
31, 1995 and 1994 in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
June 14, 1996
F-2
<PAGE>
GOLD COAST FINANCE, INC.
NATIONAL-WIDE PREMIUM FINANCE CORPORATION
Combined Balance Sheet
December 31, 1995
<TABLE>
Assets
------
<S> <C>
Finance contracts, net of deferred interest of $401,805 and allowance for credit
losses of $110,543 $ 6,025,667
Cash and cash equivalents 150,429
Other receivables 215,676
Property and equipment, net 58,783
Other assets 83,591
Due from affiliates 102,670
-----------
$ 6,636,816
===========
Liabilities and Stockholders' Equity (Deficit)
Borrowings under financing agreement 4,828,858
Notes payable 1,760,177
Accounts payable and accrued expenses 86,708
Drafts payable to insurance companies 64,337
-----------
Total liabilities 6,740,080
Common stock, $1 par value. Authorized, issued and outstanding 500 shares 500
Additional paid-in capital 334,500
Treasury stock (740,000)
Retained earnings 301,736
-----------
Total stockholders' equity (deficit) (103,264)
Commitments and contingencies
-----------
$ 6,636,816
===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
GOLD COAST FINANCE, INC.
NATIONAL-WIDE PREMIUM FINANCE CORPORATION
Combined Statements of Income
Years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Revenues:
Interest and fees $1,464,040 1,173,402
Other income 45,128 4,180
---------- ---------
Total revenue 1,509,168 1,177,582
Interest expense 357,717 167,957
---------- ---------
Net finance contract income 1,151,451 1,009,625
Provision for credit losses 212,441 234,816
---------- ---------
Net finance contract income after provision for
credit losses 939,010 774,809
General and administrative expenses:
Salaries and benefits 320,026 263,204
Professional and consulting fees 200,982 52,559
Office occupancy 157,349 111,955
Postage 95,224 61,971
Management fees 47,000 35,492
Other 101,262 65,278
---------- ---------
Total general and administrative expenses 921,843 590,459
---------- ---------
Income before provision for income taxes 17,167 184,350
Provision for income taxes -- --
---------- ---------
Net income $ 17,167 184,350
========== =========
Pro forma earnings per share (unaudited):
Historical income before income taxes $ 17,167 184,350
Pro forma provision for income taxes 7,422 69,470
---------- ---------
Pro forma net income $ 9,745 114,880
========== =========
Pro forma income per share - primary $ .00 .05
========== =========
Pro forma weighted average shares outstanding - primary 2,104,336 2,104,336
========== =========
Pro forma income per share - fully diluted $ .00 .03
========== =========
Pro forma weighted average shares outstanding - fully diluted 3,392,627 3,392,627
========== =========
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE>
GOLD COAST FINANCE, INC.
NATIONAL-WIDE PREMIUM FINANCE CORPORATION
Combined Statements of Stockholders' Equity (Deficit)
Years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
Additional
Common paid-in Treasury Retained
stock capital stock earnings Total
----- ------- ----- -------- -----
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $ 500 334,500 -- 738,279 1,073,279
Net Income -- -- -- 184,350 184,350
Distributions -- -- -- (150,012) (150,012)
---------- ------- -------- -------- ---------
Balance at December 31, 1994 500 334,500 -- 772,617 1,107,617
Net Income -- -- -- 17,167 17,167
Purchase of treasury stock -- -- (740,000) -- (740,000)
Distributions -- -- -- (488,048) (488,048)
---------- ------- -------- -------- ---------
Balance at December 31, 1995 $ 500 334,500 (740,000) 301,736 (103,264)
========== ======= ======== ======== =========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
GOLD COAST FINANCE, INC.
NATIONAL-WIDE PREMIUM FINANCE CORPORATION
Combined Statements of Cash Flows
Years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 17,167 184,350
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for credit losses 212,441 234,816
Depreciation 16,308 17,268
Loss on disposal of assets 1,327 --
Changes in other assets and liabilities:
Other receivables (47,636) 90,496
Other assets (75,658) 4,976
Deferred interest on finance contracts 240,561 (144,374)
Accounts payable and accrued expenses (22,325) (11,978)
Drafts payable to insurance companies 10,258 17,408
----------- ----------
Net cash provided by operating activities 352,443 392,962
----------- ----------
Cash flows from investing activities:
Net change in finance contracts (4,258,608) 1,472,562
Capital expenditures (43,028) (930)
----------- ----------
Net cash provided by (used in) investing activities (4,301,636) 1,471,632
----------- ----------
Cash flows from financing activities:
Distributions to stockholders (488,048) (150,012)
Due from affiliates (102,670) --
Purchase of treasury stock (740,000) --
Net borrowings (repayments) under financing agreements 4,300,460 (1,723,300)
Borrowings under notes payable to stockholders 1,037,382 233,017
Repayment of notes payable to stockholders -- (150,000)
----------- ----------
Net cash provided by (used in) financing activities 4,007,124 (1,790,295)
----------- ----------
Net increase in cash 57,931 74,299
Cash at beginning of year 92,498 18,199
----------- ----------
Cash at end of year $ 150,429 92,498
=========== ==========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
GOLD COAST FINANCE, INC.
NATIONAL-WIDE PREMIUM
FINANCE CORPORATION
Notes to Combined Financial Statements
(1) Description of Business
Gold Coast Finance, Inc. ("Gold Coast") and National-Wide Premium Finance
Corporation ("National-Wide") (collectively the "Companies") provide
financing of insurance premiums, primarily auto insurance premiums to
individuals, mainly in Florida.
The Companies collect a down payment from a borrower and generally finance
an average of 75% of annual insurance premiums. The Finance Companies fund
the full insurance premium to the insurance carrier, adding interest and
taxes to form the basis for a finance contract. The Finance Companies'
loans are secured by the portion of the premium paid in advance to the
carrier which has not been earned by the carrier. A substantial portion of
the premium financing activities of the Finance Companies relate to
"non-standard" automobile insurance, which typically covers an insured who
is not suited to standard insurance carriers. Premium financing operations
are subject to regulation by the Florida Department of Insurance under the
Office of the Treasurer and include limitations on interest rates, service
and late charges, and liquidation of collateral. To date, the Finance
Companies have relied primarily on equity, the proceeds of a financing
agreement and other borrowings to fund their loan portfolios.
In May, 1995 the Companies entered into an Agreement and Plan of
Reorganization and a Stock Purchase Agreement. See subsequent events in
note 9 describing the completion of this transaction.
(2) Summary of Significant Accounting Policies
(a) Principles of Combination
Gold Coast and National-Wide are presented on a combined basis as the
Companies are under common ownership as of March 28, 1996 (see note 9). All
intercompany transactions have been eliminated.
Stockholders' equity reflects the combined retained earnings and additional
paid-in capital of the Companies and the par value of the common stock of
Gold Coast. The par value of the outstanding shares of National-Wide has
been included in additional paid-in capital.
(b) Cash and Cash Equivalents
Cash and cash equivalents include cash in banks and certificates of deposit
with an original maturity of three months or less for the purposes of
analyzing cash flows.
F-7
<PAGE>
GOLD COAST FINANCE, INC.
NATIONAL-WIDE PREMIUM
FINANCE CORPORATION
Notes to Combined Financial Statements
(c) Finance Contracts
Finance contracts represent the unpaid principal and interest on
installment loans for insurance policy premiums. Finance contracts are
secured by the unearned insurance premium related to the financial
insurance policies. If the insured fails to make timely payments under the
finance contract, the insured's coverage may be canceled by the Companies
and the proceeds from the canceled policy, representing the unearned
insurance premium, can be recovered from the insurance carrier to pay off
the unpaid balance of the finance contracts.
(d) Revenue Recognition
Interest income, resulting from the financing of insurance premiums, is
recognized using the rule of 78's, which approximates the interest method.
Late charges are recognized as income when collected. Interest income is
recognized on defaulted loans until a refund of the unearned portion of the
insurance premium is received by the Companies from the insurance carrier.
(e) Credit Losses
Provisions for credit losses are chargeable to operations in amounts
sufficient to maintain the allowance at a level considered adequate to
cover the losses of principal and accrued interest in the existing
portfolio.
(f) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Equipment under capital leases is stated at the present value of minimum
lease payments.
Depreciation on property and equipment is calculated on the straight-line
method over the estimated useful lives of the assets. Equipment held under
capital leases is amortized straight-line over the estimated useful life of
the asset.
(g) Income Taxes
The Companies have elected to be taxed under the provisions of subchapter S
of the Internal Revenue Code. Under those provisions, the Companies do not
F-8
<PAGE>
GOLD COAST FINANCE, INC.
NATIONAL-WIDE PREMIUM
FINANCE CORPORATION
Notes to Combined Financial Statements
pay Federal corporation income taxes on their taxable income. Instead, the
stockholders are liable for individual federal income taxes on their
respective shares of the Companies' taxable income.
In conjunction with acquisition of the Companies by LMI Acquisition Corp.
on March 28, 1996 (see note 9), the Companies terminated their election to
be taxed as S corporations.
Had the termination of the S corporation status been in effect during 1995
and 1994 and the Companies were treated as C corporations, the pro forma
effect would have been that the Companies would have recorded income tax
expense of $7,422 and $69,470, respectively.
(h) Earnings Per Share
Historical earnings per share amounts are not presented because they are
not indicative of the ongoing entity. Pro forma earnings per share includes
the pro forma income tax effect and effect of the acquisition transaction
and related issuance of stock (see note 9).
(i) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. The most significant of such estimates relates to the allowance
for credit losses.
F-9
<PAGE>
GOLD COAST FINANCE, INC.
NATIONAL-WIDE PREMIUM
FINANCE CORPORATION
Notes to Combined Financial Statements
(3) Allowance For Credit Losses
The allowance for credit losses is summarized as follows:
Year ended
December 31,
----------------------
1995 1994
---- ----
Balance at beginning of year $ 65,000 117,584
Provision for credit losses 212,441 234,816
Charge-offs (166,898) (287,400)
-------- --------
Balance at end of year $110,543 65,000
======== ========
(4) Property and Equipment
The components of property and equipment as of December 31, 1995, are as
follows:
Furniture, fixtures and equipment $ 76,948
Leasehold improvements --
Equipment under capital leases 60,557
--------
137,505
Less accumulated depreciation 78,722
--------
Total $ 58,783
========
(5) Borrowings Under Financing Agreement
The Companies have entered into a premium finance contract purchase and
servicing agreement ("Financing Agreement") with a bank which is
collateralized by the finance contracts. The Financing Agreement provides
for transfer of finance contracts to the bank based on the present value of
the finance contract payments, discounted at the bank's prime rate plus
1.75%. The Companies provide servicing for the finance contracts, the bank
has full recourse to the Companies in the event of default, and the
Companies earn interest on contracts sold at the finance contract rate less
the bank's prime rate plus 1.75%. Such arrangement has been accounted for
as a financing transaction. Advances under the Financing Agreement were
originally limited to $5,000,000 of finance contracts, and were
subsequently
F-10
<PAGE>
GOLD COAST FINANCE, INC.
NATIONAL-WIDE PREMIUM
FINANCE CORPORATION
Notes to Combined Financial Statements
increased to $6,000,000. The Financing Agreement expires August 2005.
Interest expense related to the Financing Agreement totaled approximately
$180,000 in 1995. The Companies had other financing arrangements in 1994.
(6) Notes Payable
Notes payable represent liabilities for funds advanced by various
individuals to Gold Coast Finance. Such amounts bear interest at either the
prime rate plus 4% per annum or a 12% fixed rate and are due upon demand.
At December 31, 1995, approximately $390,000 included in notes payable is
payable to stockholders. Interest expense related to these notes was
approximately $178,000 and $60,000 in 1995 and 1994, respectively.
(7) Related Party Transactions
Other receivables include amounts receivable from various insurance
agencies affiliated with stockholders of Gold Coast Finance, Inc. Due from
affiliates represents amounts receivable from LMI Acquisition Corp. for
reimbursement of various expenses (see note 9 "Subsequent Events").
(8) Fair Value of Financial Instruments
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at December 31, 1995. FASB Statement
No. 107, Disclosures about Fair Value of Financial Instruments, defines the
fair value of a financial instrument as the amount at which the instrument
could be exchanged in a current transaction between willing parties.
Carrying Fair
Amount Value
------ -----
Financial assets
Cash $ 150,429 150,429
Finance contracts 6,025,667 6,025,667
Other receivables 215,676 215,676
Financial liabilities
Borrowings under financial agreement 4,828,858 4,828,858
Notes payable 1,760,177 1,760,177
Accounts payable and accrued expenses 86,708 86,708
Drafts payable 64,337 64,337
F-11
<PAGE>
GOLD COAST FINANCE, INC.
NATIONAL-WIDE PREMIUM
FINANCE CORPORATION
Notes to Combined Financial Statements
The carrying amounts shown in the table are included in the statement of
financial position under the indicated captions.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash and cash equivalents, other receivables, accounts payable and accrued
expenses and drafts payable to insurance companies.
The carrying amounts approximate fair value because of the short maturity
of those instruments.
Finance contracts: The carrying amounts approximate fair value because of
the short average maturity of the contracts and the contracts' yield
approximating current market rates for new contracts.
Borrowings under financing arrangement and notes payable: The fair values
of the Company's financing arrangements and notes payable is estimated by
discounting the future cash flows of each instrument at rates currently
offered to the Company for similar instruments of comparable maturities.
(9) Subsequent Events
In order to provide additional capital and flexibility in obtaining
financing for the Companies, during May 1995, LMI Acquisition Corp. (LMI),
an inactive Company, entered into an Agreement and Plan of Reorganization
with Gold Coast Finance, Inc. and a Stock Purchase Agreement with
National-Wide Premium Finance Corp. pursuant to which LMI was to acquire
100% of such companies (the "Transactions"). In 1995, in order to affect
the Transactions and prior to the completion of the Transactions,
National-Wide repurchased the outstanding common stock of two of its three
stockholders for $740,000. In 1996, the remaining historic stockholders of
Gold Coast and National-Wide ("Historic Stockholders") received 920,000
shares of common stock, 200,000 shares of Series B preferred stock and
options to purchase 200,000 shares of common stock of LMI in exchange for
their investment in Gold Coast and National-Wide. In conjunction with the
Transactions, the Historic Stockholders also acquired options to purchase
300,000 additional shares of LMI's Common Stock. In addition, pursuant to
the Transactions, the note holders of Gold Coast were given an option to
convert their notes to Series B preferred stock. On March 28, 1996, upon
completion of the
F-12
<PAGE>
GOLD COAST FINANCE, INC.
NATIONAL-WIDE PREMIUM
FINANCE CORPORATION
Notes to Combined Financial Statements
Transactions, LMI assumed the historic operations of Gold Coast and
National-Wide, which became subsidiaries of LMI. On a prospective basis,
the financial statements of Gold Coast and National-Wide will be presented
as part of the consolidated financial statements of LMI and will no longer
be presented on a combined basis. In addition, $3,448,500 was contributed
to stockholders' equity of LMI by new shareholders for issuance of
additional common and preferred shares.
F-13
<PAGE>
USA FINANCE. INC.
(formerly LMI Acquisition Corp.)
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(Unaudited)
Assets
Residual interest in finance contracts, net $ 2,137,459
Cash and cash equivalents 175,621
Other receivables 1,029,472
Property and equipment, net 251,609
Other assets 245,028
Goodwill, net 2,033,975
-----------
$ 5,873,164
===========
Liabilities and Stockholders' Equity
Convertible debentures 1,335,000
Notes payable 116,061
Accounts payable and accrued expenses 484,314
Accrued liability for recourse on finance contracts sold 156,302
-----------
Total liabilities 2,091,677
Commitments and contingencies
Common stock, $.001 par value, 25,000,000 shares
authorized 2,632,708 shares issued and outstanding 2,633
Preferred stock, 5,000,000 authorized:
Preferred stock, Series A, $.001 par value,
384,625 shares issued and outstanding 385
Preferred stock, Series B, $.001 par value,
636,666 shares issued and outstanding 637
Additional paid-in capital 4,905,827
Accumulated deficit (1,127,995)
-----------
Total stockholders' equity 3,781,487
-----------
$ 5,873,164
===========
See accompanying independent accountants' review report
F-14
<PAGE>
USA FINANCE. INC.
(formerly LMI Acquisition Corp.)
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Revenues:
Interest and fees $ 1,727,290 $ --
Other income 54,896 25
----------- -----------
Total revenues 1,782,186 25
Expenses:
Interest expense 381,915 --
----------- -----------
Net finance contract income 1,400,271 25
Provision for credit losses 500,202 --
----------- -----------
Net finance contract income
after provision for credit losses 900,069 25
----------- -----------
Other expenses
Amortization of goodwill 52,153 --
Office occupancy 165,963 --
Salaries and benefits 387,345 --
Professional and consulting fees 322,755 --
Postage 93,095 --
Other general and administrative expenses 133,900 69
Expenses associated with implementation of contract purchase agreement 407,303 --
----------- -----------
Total other expenses 1,562,514 69
----------- -----------
Loss before provision for
income taxes and extraordinary loss (662,445) (44)
Provision for income taxes -- --
----------- -----------
Loss before extraordinary item (662,445) (44)
Extraordianary item
Loss related to early extinguishment of debt, net of $0 income taxes (439,813) --
----------- -----------
Net loss $(1,102,258) $ (44)
=========== ===========
Net loss $(1,102,258) $ (44)
Preferred stock dividends (25,641) --
----------- -----------
Net loss on common stock $(1,127,899) $ (44)
=========== ===========
Loss per share:
Primary and fully diluted:
Loss before extraordinary item per common and common equivalent share $ (0.33) $ --
Extraordinary item per share (0.21) --
----------- -----------
Loss per common and common equivalent share $ (0.54) $ --
=========== ===========
Weighted average number of common shares and
common equivalent shares assumed outstanding
during the period 2,104,336 1,000,000
=========== ===========
</TABLE>
See accompanying independent accountants' review report.
F-15
<PAGE>
USA FINANCE. INC.
(formerly LMI Acquisition Corp.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
Preferred Preferred Additional
Common stock, stock, paid-in Accumulated
stock Series A Series B capital deficit Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $ -- $ -- $ -- $ -- $ -- $ --
Net loss -- -- -- -- (44) (44)
Issuance of common stock 1,000 -- -- 3,866 -- 4,866
----------- ----------- ----------- ----------- ----------- -----------
Balance at September 30, 1995 $ 1,000 $ -- $ -- $ 3,866 $ (44) 4,822
=========== =========== =========== =========== =========== ===========
Balance at December 31, 1995 $ 1,000 $ -- $ -- $ 3,866 $ (96) $ 4,770
Net loss -- -- -- -- (1,102,258) (1,102,258)
Issuance of common stock, net of
accrued stock registration costs 1,310 -- -- 1,471,890 -- 1,473,200
Issuance of preferred stock, series A,
net of issuance cost 323 238 -- 935,855 -- 936,416
Conversion of notes payable to
preferred stock, series A -- 147 -- 584,853 -- 585,000
Conversion of notes payable to
preferred stock, series B -- -- 637 1,909,363 -- 1,910,000
Payment of dividends on preferred
stock, Series A -- -- -- -- (25,641) (25,641)
----------- ----------- ----------- ----------- ----------- -----------
Balance at September 30, 1996 $ 2,633 $ 385 $ 637 $ 4,905,827 $(1,127,995) $ 3,781,487
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying independent accountants' review report.
F-16
<PAGE>
USA FINANCE. INC.
(formerly LMI Acquisition Corp.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,102,258) $ (44)
Adjustments to reconcile net loss to
net cash provided by (used for) operating activities
Depreciation and amortization 66,253 --
Provision for credit losses 500,202 --
Non cash compensation expense 23,200 --
Changes in assets and liabilities, net of effects from acquisitions
of Gold Coast and National-Wide:
Increase in other receivables (636,149) --
Increase in other assets (142,832) (4,692)
Increase (decrease) in accounts payable and accrued expenses (534,836) 15,000
----------- -----------
Net cash provided by (used for) operating activities (1,826,420) 10,264
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of finance contracts 7,611,031 --
Increase in residual interest in finance contracts, net (2,253,052)
Purchase of property and equipment (204,440) --
----------- -----------
Net cash provided by investing activities 5,153,539 --
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net payment of borrowings under financing agreement (5,362,014) --
Proceeds from issuance of convertible debentures 1,335,000 --
Net payments on notes payable (270,837) --
Payment of dividends (25,641) --
Proceeds from issuance of preferred stock 936,416 --
Issuance of common stock -- 4,866
----------- -----------
Net cash provided by (used for) financing activities (3,387,076) 4,866
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS (59,957) 15,130
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 235,578 --
=========== ===========
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 175,621 $ 15,130
=========== ===========
Cash paid during the period for:
Interest $ 381,915 $ --
=========== ===========
Income taxes $ -- $ --
=========== ===========
Supplemental disclosure of noncash investing and financing activities:
Conversion of notes payable to preferred stock $ 2,495,000 $ --
=========== ===========
Accrued stock registration costs $ 50,000 $ --
=========== ===========
Issuance of common stock $ 23,200 $ --
=========== ===========
Transfer of allowance for credit losses to accrued liability
for recourse on contracts sold $ 156,302 $ --
=========== ===========
Acquisitions of Gold Coast and National-Wide:
Fair value of assets acquired $ 8,450,203 $ --
Fair value of liabilities assumed 8,986,909 --
----------- -----------
(536,706) --
Issuance of common stock 1,500,000 --
Acquisition costs 49,422 --
-----------
Goodwill $ 2,086,128 $ --
=========== ===========
</TABLE>
See accompanying independent accountants' review report.
F-17
<PAGE>
USA Finance, Inc.
(formerly LMI Acquisition Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(unaudited)
Note 1 - Description of the Business
Through its wholly owned subsidiaries, Gold Coast Finance, Inc. ("Gold
Coast") and National-Wide Premium Finance Co. ("National-Wide"), USA
Finance, Inc., a Delaware corporation, formerly known as "LMI
Acquisition Corp." (the "Company"), is licensed as a property and
casualty premium finance company under the laws of the states of
Florida, Tennessee, South Carolina and Kentucky. Unless otherwise
specified, references to the "Company" shall include USA Finance, Inc.,
Gold Coast and National-Wide.
The Company offers collateralized loans primarily to purchasers of
automobile insurance policies including policies with collision,
comprehensive and liability coverage. A substantial portion of the
Company's premium finance activities relate to non-standard automobile
insurance policies which typically cover insureds who have previously
been rejected or refused renewal by one or more insurance carriers for
failure to make premium payments, poor driving records, age or other
demographic factors.
The interim financial statements include all adjustments which, in the
opinion of management, are necessary to make the consolidated financial
statements not misleading. All such adjustments were of a normal and
recurring nature.
Note 2 - Commencement of Business Operations - Acquisition of Subsidiaries
Gold Coast and National-Wide have been engaged in the insurance premium
finance business since their respective formations in 1989 and 1985.
LMI Acquisition Corp. was principally inactive and had no significant
assets or liabilities from inception on May 12, 1994 until March 28,
1996, when it completed the acquisition of Gold Coast on a
stock-for-stock basis and National-Wide for a combination of cash and
stock. Concurrent with these acquisitions, the Company completed the
private placement of 384,625 Shares of Series A $.001 Convertible
Preferred Stock (the "Series A Shares") at $4.00 per share and 636,666
Shares of Series B $.001 Convertible Preferred Stock (the "Series B
Shares") at $3.00 per share. See Note 13.
The acquisition of Gold Coast was completed on March 28, 1996 pursuant
to the terms of an Agreement and Plan of Reorganization dated May 19,
1995. Pursuant to this Agreement, 100% of the issued and outstanding
capital stock of Gold Coast was acquired in exchange for 920,000 shares
of the Company's Common Stock. In addition, the two former stockholders
of Gold Coast, became executive officers of the Company in accordance
with the terms of three (3) year employment agreements.
F-18
<PAGE>
USA Finance, Inc.
(formerly LMI Acquisition Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(unaudited
Note 2 - Commencement of Business Operations - Acquisition of Subsidiaries
(continued)
The acquisition of National-Wide was completed on March 28, 1996
pursuant to the terms of a Stock Purchase Agreement dated May 5, 1996.
The Stock Purchase Agreement provided for the purchase of 100% of the
issued and outstanding capital stock of National-Wide for the sum of
(a) $200,000, (b) an amount equaling the net book value of the accounts
receivable of National-Wide; and (c) that amount necessary to satisfy
the outstanding balance due under the outstanding credit facilities of
National-Wide.
The acquisitions of Gold Coast and National-Wide were accounted for
under the purchase method of accounting. The cost of the acquisitions
were valued at $1,500,000 based upon a valuation performed by an
investment banking group which has a financial interest in the Company.
See Notes 7, 13 and 14.
Note 3 - Summary of Significant Accounting Policies
A. Principles of Consolidation
The purchase of Gold Coast and National-Wide by USA Finance, Inc.
occurred on March 28, 1996. The financial statements of USA
Finance, Inc. are presented on a consolidated basis and include
the accounts of its three wholly-owned subsidiaries, Gold Coast,
National-Wide, and a special purpose corporation, Contract Funding
Corp., formed September, 1996 (see note 9). Consequently, the
operations of Gold Coast and National-Wide, prior to the date of
acquisition (January 1, 1996 to March 28, 1996) are not included
in the consolidated statements of operations. All significant
intercompany accounts and transactions have been eliminated.
B. Residual Interest in Finance Contracts
In September, 1996, the Company entered into a Contract purchase
agreement whereby all finance contracts are sold to a financial
institution, through a special purpose corporation (see note 9).
The contracts are purchased at the net contract value, with a
portion of the purchase price withheld. The residual interest in
finance contracts represents the unfunded principal of the
withheld portion retained by the Company.
Finance contracts and the related residual interest are secured
by unearned insurance premiums. Should the borrower fail to make
timely payments under the finance contract, the insurance
coverage may be canceled by the Company, and the proceeds
F-19
<PAGE>
USA Finance, Inc.
(formerly LMI Acquisition Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(unaudited)
Note 3 - Summary of Significant Accounting Policies (continued)
from the canceled policy, representing the unearned insurance
premium, can be recovered from the insurance carrier to the
extent of the unpaid balance and fees.
C. Cash and cash equivalents
Cash and cash equivalents include cash in banks and certificates
of deposit with original maturity of three months or less for the
purposes of analyzing cash flows.
D. Revenue Recognition
Interest income, resulting from the financing of insurance
premiums, is recognized using the "rule of 78's", which, given the
short-term nature of the receivables, approximates the interest
method. Late charges are recognized as income when collected.
Interest income is recognized on defaulted loans until a refund of
the unearned portion of the insurance premium is received from the
insurance carrier at which time uncollected interest is charged
off.
Contracts sold subject to the purchase agreement are sold at par,
and income and servicing fees are recognized when earned over the
lives of the contracts.
E. Credit losses
The Company maintains an allowance for credit losses and an
accrued liability for recourse on finance contracts sold pursuant
to the provisions of the purchase agreement (see note 9).
Provisions for both the allowance for credit losses and the
accrued liability for recourse on finance contracts sold are
provided through the provision for credit losses.
Management believes that both the allowance for credit losses and
the accrued liability for recourse on finance contracts sold are
adequate to cover losses of principal and interest.
F. Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation. Equipment under capital leases is stated at the
present value of minimum lease payments.
F-20
<PAGE>
USA Finance, Inc.
(formerly LMI Acquisition Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(unaudited)
Note 3 - Summary of Significant Accounting Policies (continued)
Depreciation on property and equipment is calculated on the
straight-line method over the estimated useful lives of the
assets. Equipment held under capital leases is amortized on the
straight-line method over the estimated useful lives of the
assets.
C. Goodwill
Goodwill,which represents the excess of purchase price over fair
value of net assets acquired, is amortized on a straight-line
basis over the expected 20 year period to be benefited. The
Company assesses the recoverability of this intangible asset by
determining whether the amortization of the goodwill balance over
its remaining life can be recovered through undiscounted future
operating cash flows of the acquired operation. The amount of
goodwill impairment, if any, is measured based on projected
discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds. The assessment of
the recoverability of goodwill will be impacted if estimated
future operating cash flows are not achieved.
H. Income Taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
I. Use of Estimates
The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
amounts reported. Actual results could differ from those
estimates. The most significant of such estimates relates to the
allowance for credit losses, the accrued liability for recourse
on finance contracts sold and the valuation of the acquired
companies.
F-21
<PAGE>
USA Finance, Inc.
(formerly LMI Acquisition Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(unaudited)
Note 3 - Summary of Significant Accounting Policies (continued)
J. Earnings Per Share
Primary earnings per common and common equivalent share is
computed by dividing net income available for common shares by
the average number of common shares and equivalents outstanding
for each period. Common share equivalents include the dilutive
effect of stock options and warrants. Earnings per common share,
assuming full dilution, assume the maximum dilutive effect on the
average number of shares from stock options and warrants and the
conversion equivalents of the preferred stocks.
K. New Accounting Pronouncements
1. Accounting for Stock-Based Compensation
On October 23, 1995, the FASB issued Statement No. 123,
"Accounting for Stock-Based Compensation" ("FAS 123"). This
Statement applies to all transactions in which an entity acquires
goods or services by issuing equity instruments or by incurring
liabilities where the payment amounts are based on the entity's
common stock price. The Statement covers transactions with
employees and nonemployees and is applicable to both public and
nonpublic entities. Entities are allowed (1) to continue to use
the Accounting Principles Board Opinion No. 25 method ("APB 25"),
or (2) to adopt the FAS 123 fair value based method. Once the
method is adopted, an entity cannot change and the method
selected applies to all of an entity's compensation plans and
transactions. For entities not adopting the FAS 123 fair value
based method, FAS 123 requires pro forma net income and earnings
per share information as if the fair valued based method has been
adopted. For entities not adopting the fair value based method,
the disclosure requirements of FAS 123, including the pro forma
information, are effective for financial statements for fiscal
years beginning after December 15, 1995 (calendar year 1996). The
pro forma disclosures are to include all awards granted in fiscal
years that begin after December 15, 1994 (calendar year 1995).
However, the disclosures, including the pro forma net income and
earnings per share disclosures, for the fiscal year beginning
after December 15, 1994 (calendar year 1995) were not included in
that
F-22
<PAGE>
USA Finance, Inc.
(formerly LMI Acquisition Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(unaudited)
Note 3 - Summary of Significant Accounting Policies (continued)
year's financial statements but will be included in the following
year-end (calendar year 1996) financial statements if the first
fiscal year is presented for comparative purposes. Management has
not yet determined the impact of FAS 123 on the Company. The
Company continues to apply the provision of Account Principles
Board Opinion No. 25 "Accounting for Stock Issued to Employees"
to applicable transactions with employees.
2. Accounting for Transfers of Servicing of Financial Assets and
Extinguishments of Liabilities.
In June 1996, the FASB issued Statement of Financial Accounting
Standards No. 125 ("FAS 125"). "Accounting for Transfers of
Servicing of Financial Assets and Extinguishments of
Liabilities." FAS 125 provides accounting and reporting standards
for transfers and servicing of financial assets and
extinguishments of liabilities based on a financial-components
approach that focuses on control. FAS 125 is effective for
transfers and servicing of financial assets and extinguishments
of liabilities occurring after December 31, 1996 and is to be
prospectively applied. The Company's assessment of the adoption
of FAS No. 125 indicates that the accounting for the sales of
finance contracts will not change materially from the present
accounting.
Note 4 - Allowance for Credit Losses
The allowance for credit losses for the nine month period ended
September 30, 1996 is summarized as follows:
Balance, at beginning of period $ -
Allowance acquired 307,253
Provisions for credit losses 500,202
Charge-offs (587,078)
Transfer to accrued liability for
recourse on finance contracts (See note 9) (156,302)
---------
Balance, at end of period $ 64,075
=========
There was no allowance for credit losses at September 30, 1995,
or any provisions
F-23
<PAGE>
USA Finance, Inc.
(formerly LMI Acquisition Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(unaudited)
Note 4 - Allowance for Credit Losses (continued)
recorded during the nine month period then ended as the Company
was inactive until the acquisitions of Gold Coast and
National-Wide were completed during March 1996.
Note 5 - Property and Equipment
The components of property and equipment as of September 30, 1996
are as follows
Furniture, fixtures and equipment $292,446
Leasehold improvements 1,700
Equipment under capital leases 51,486
--------
345,632
Less accumulated depreciation 94,023
--------
$251,609
========
Note 6 - Other Receivables
The components of other receivables as of September 30, 1996 are
as follows:
Agent statement receivables $254,689
Notes receivable 347,281
Down payment receivables 261,615
Other 165,887
----------
$1,029,472
==========
Note 7 - Goodwill
A value of $2,086,128 was established for goodwill in the
purchase of the operating companies. The amount will be amortized
over 20 years, with $52,153 amortized in the current period.
Note 8 - Borrowings Under Financing Agreement
The operating companies had entered into a premium finance
contract purchase and servicing agreement ("Financing Agreement")
with a bank which is collateralized by the finance contracts. The
Financing Agreement provided for transfer of finance contracts to
the bank based on the present value of the finance contract
payments, discounted at the bank's prime rate plus 1.75%. The
operating companies provided servicing for the
F-24
<PAGE>
USA Finance, Inc.
(formerly LMI Acquisition Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(unaudited)
Note 8 - Borrowings Under Financing Agreement (continued)
finance contracts and received all collection fees. The bank had
full recourse to the operating companies in the event of default.
The arrangement was accounted for as a financing transaction.
Advances under the Financing Agreement were originally limited to
$5,000,000 of finance contracts, and were increased to
$6,000,000. The Financing Agreement was scheduled to expire
effective August, 2005. Interest expense related to the Financing
Agreement totaled approximately $269,084 for the nine months
ended September 30, 1996.
On September 19, 1996, the Company concurrently terminated the
Financing Agreement and entered into a revolving purchase
agreement with another entity. Accordingly, the Company has
recorded an extraordinary loss of $439,813 related to the
termination, principally relating to early termination penalties
and legal fees.
Note 9 - Contract Purchase Agreement
On September 19, 1996 the Company entered into a revolving
purchase agreement with SunAmerica Financial Resources, Inc.
("SunAmerica") providing for the purchase of up to $25 million of
receivables (the "SunAmerica Facility"). Under the SunAmerica
Facility, premium finance contract receivables originated by the
Company are sold to Contract Funding Corp. (a special purpose
wholly owned subsidiary of the Company formed during September
1996) which, in turn will sell the receivables to SunAmerica. The
Company incurred costs of approximately $407,000 related to the
consummation of the contract purchase agreement. Such costs were
expensed during the nine month period ended September 30, 1996.
All contracts are endorsed to the ownership of SunAmerica.
SunAmerica withholds certain amounts of the par value of the
receivables based on the industry rating of the premium carrier
and other criteria. The residual interest in finance contracts
represents the receivables not funded by SunAmerica. The Company
receives monthly payments for servicing the accounts based on
collections.
At September 30, 1996, the Company had sold to SunAmerica and was
servicing $7,611,031 of receivables at par, resulting in no gain
or loss, which are subject to recourse provisions principally
requiring the Company to repurchase defaulted contracts. An
accrued liability for losses on defaulted receivables has been
established amounting to $156,302. Such liability was established
based upon historical loss experience for similar receivables.
F-25
<PAGE>
USA Finance, Inc.
(formerly LMI Acquisition Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(unaudited)
Note 9 - Contract Purchase Agreement (continued)
An analysis of the accrued liability for losses as defaulted
receivables is as follows:
Balance, at beginning of period $ -
Transfer from allowance for
credit losses (see note 4) 156,302
---------
Balance, at end of period $156,302
=========
Note 10 - Convertible Debentures
The Company issued convertible debenture notes in the aggregate
principal amount of $1,335,000 at an interest rate of 10% per
annum. The notes are payable within one year, however, if USA
Finance, Inc. secures a line of credit of at least $15,000,000,
investors have the right to demand immediate repayment. The notes
are convertible at the option of the holder into shares of
Company Common Stock at a conversion price of $5.00 per share. In
the event the shares of the Company's Common Stock are publicly
traded, the conversion price shall be the lesser of $5.00 per
share or an 18% discount to market. The notes were issued in
conjunction with common stock purchase warrants exercisable at
$4.00 per share at the rate of 5,500 Warrants for each $100,000
principal amount of debenture notes.
Note 11 - Fair Value of Financial Instruments
The following presents the carrying amounts and estimated fair
values of the Company's financial instruments at September 30,
1996. FASB Statement No. 107, Disclosures about Fair Value of
Financial Instruments, defines the fair value of a financial
instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties.
Carrying Fair
Amount Value
----------- -----------
Financial assets
Cash $ 175,621 $ 175,621
Residual interest
in finance contracts 2,137,459 2,137,459
Other receivables 1,029,472 1,029,472
F-26
<PAGE>
USA Finance, Inc.
(formerly LMI Acquisition Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(unaudited)
Note 11 - Fair Value of Financial Instruments (continued)
Financial liabilities
Convertible debentures $1,335,000 $1,335,000
Notes payable 116,061 116,061
The carrying amounts shown in the table are included in the
consolidated balance sheet under the indicated captions.
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments:
Cash and cash equivalents, and other receivables: The carrying
amounts approximate fair value because of the short maturity of
those instruments.
Residual interest in finance contracts: The carrying amounts
approximate fair value because of the short average maturity of
the contracts and the contracts' yield approximating current
market rates for new contracts.
Convertible debentures and notes payable: The fair values of the
Company's convertible debentures and notes payable are estimated
by discounting the future cash flows of each instrument at rates
currently offered the Company for similar maturities.
Note 12 - Rental Expense and Lease Commitment
On June 1, 1996 the Company entered into a lease agreement for
office facilities ending on November 30, 2002. The following
amounts will approximate the payments for the lease for the
periods subsequent to September 30,1996:
Years ending December 31:
1997 $100,936
1998 119,072
1999 125,339
2000 130,946
2001 134,904
F-27
<PAGE>
USA Finance, Inc.
(formerly LMI Acquisition Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(unaudited)
Note 13 - Issuance of Preferred Stock
Concurrent with the acquisition of Gold Coast and National-Wide,
on March 28, 1996, the Company completed the private placement of
636,666 Series B Shares and 384,625 Series A Shares. The private
placement transaction, in the aggregate, resulted in realization
by the Company of $953,500 cash proceeds and the conversion and
cancellation of approximately $2.5 million of existing Gold Coast
indebtedness. The funding provided by these transactions was
utilized to finance the working capital of the combined
companies.
Holders of the Series A preferred stock, and Series B preferred stock,
are entitled to receive a cumulative dividend of ten (10%) percent per
annum payable semi-annually. Series A preferred stockholders have been
paid a dividend totaling $25,641 during the current period. A
cumulative dividend for Series B preferred stockholders of $81,633 was
declared subsequent to September 30, 1996. The holders of Series B
preferred stock are entitled to one (1) vote per share. The holders of
Series A preferred stock have no voting rights. Upon the effectiveness
of a registration statement to be filed with the Securities and
Exchange Commission for the purpose of permitting the resale of certain
of the outstanding shares of common stock of the Company, all issued
and outstanding Series A preferred stock and Series B preferred stock,
will automatically convert into an equal number of shares of common
stock. Holders of the Series A preferred stock and Series B preferred
stock can, however, convert their shares into an equal number of shares
of common stock at any time.
Note 14 - Issuance of Common Stock
In connection with certain investment banking services provided
relative to the organization of the Company, the acquisitions of Gold
Coast and National-Wide and the completion of the private placement
transactions, the Company issued 622,708 shares of common stock to
American Maple Leaf Financial Corporation ("AMLF"), an affiliate of
certain of the principal stockholders and of a director of the Company.
To the extent such shares (300,000 shares of common stock) related to
the acquisitions of Gold Coast and National-Wide, such issuance was
considered a part of the acquisition costs. To the extent such shares
(322,708 of common stock) related to the issuance of preferred stock,
such issuance was considered a stock issuance cost.
F-28
<PAGE>
USA Finance, Inc.
(formerly LMI Acquisition Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(unaudited)
Note 15 - Outstanding Common Stock Purchase Warrants and Options
From March 28, 1996 through September 30, 1996, the Company has issued
a total of 132,678 common stock purchase warrants (the "Warrants") and
781,875 options to purchase shares of common stock (the "Options"). The
Warrants were issued in conjunction with various financing
transactions, have terms ranging from one (1) to five (5) years and
exercise prices ranging from $4.00 to $8.00 per share. The Options were
issued in connection with the employment of the current and former
executive officers of the Company. The options have terms ranging from
approximately three (3) to five (5) years with various vesting
provisions. 200,000 of the Options will have an exercise price equal to
the average bid of the Company's Common Stock for the first Sixty (60)
days of public trading. The remaining Options have exercise prices
ranging from $3.00 to $7.00 per share. The weighted average price of
these options is $5.28 per share. As of September 30, 1996, 210,000
Options are vested and excercisable.
Note 16 - Income Taxes
The provisions for income taxes for the nine-month periods ended
September 30, 1996 and 1995 consist of:
Current: 1996 1995
---- ----
Federal $ - $ -
State - -
-------- --------
- -
-------- --------
Deferred:
Federal - -
State - -
-------- --------
Total $ - $ -
======== ========
F-29
<PAGE>
USA Finance, Inc.
(formerly LMI Acquisition Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(unaudited)
Note 16 - Income Taxes (continued)
Reasons for differences between income tax expense and the amount
computed by applying the statutory federal income tax rate of 34% to
loss before income taxes were:
Income tax benefit at applicable 1996 1995
statutory tax rate of income before ---- ----
income taxes ($225,200) $ (15)
Add:
State income tax benefit
net of Federal benefit ( 24,000) -
Change in valuation allowance 228,600 -
Other 20,600 15
--------- --------
Income tax provision (benefit) $ - $ -
========= ========
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at September 30, 1996 is presented
below.
Deferred tax assets:
Net operating loss carryforward 341,000
Allowance for credit losses 83,000
Other 23,000
---------
Total gross deferred tax assets 447,000
Less valuation allowance (447,000)
---------
Net deferred tax assets $ -
=========
There were no significant deferred tax assets or liabilities at
September 30, 1995.
At September 30, 1996, the Company has a net operating loss
carryforward for federal income tax purposes of $905,000 which is
available to offset future federal taxable income, if any, through
2011.
A valuation allowance is provided to reduce deferred tax assets to a
level which more likely than not, will be realized. The net deferred
assets reflect management's estimate of the amount of which will be
realized from future profitability which can be predicted with
reasonable certainty.
F-30
<PAGE>
USA Finance, Inc.
(formerly LMI Acquisition Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(unaudited)
Note 17 - Proforma information
The following proforma financial information for the Company gives
effect to the Gold Coast Finance, Inc. and National-Wide Premium
Finance Corp. acquisitions as if they occurred on January 1, 1995. The
pro forma results of operations include an adjustment to reflect a
provision for income taxes to give effect to the change in the
Company's tax status to a C Corporation. These proforma results have
been prepared for comparative results only and do not purport to be
indicative of the results of operations which actually would have
resulted had the acquisitions occurred on the date indicated.
The following reflects the results of operations on the stated basis:
Nine months
ended Year ended
September 30, 1996 December 31,1995
------------------ ----------------
Revenues:
Interest and fees $ 2,472,462 $1,466,647
Other income 68,437 45,128
------------ -----------
Total revenues 2,540,899 1,511,775
Expenses:
Interest expense 603,003 357,717
------------ -----------
Net finance contract income 1,937,896 1,154,058
Provision for credit losses 700,481 212,441
------------ -----------
Net finance contract
income after provision
for credit losses 1,237,415 941,617
General and administrative
expenses 1,509,826 922,114
Amortization of goodwill 78,230 104,306
Costs associated with
implementation of contract
purchase agreement 407,303 -
------------ -----------
Loss before provision for
income taxes and
extraordinary item (757,944) (84,803)
Provision for income taxes - (8,301)
------------ -----------
F-31
<PAGE>
USA Finance, Inc.
(formerly LMI Acquisition Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(unaudited)
Note 17 - Proforma Information (continued)
Loss before extraordinary item (757,944) (93,104)
Extraordinary item,
net of income taxes (439,813) -
------------ -----------
Net loss $ (1,197,757) $ (93,104)
============ ===========
Net loss $ (1,197,757) $ (93,104)
Preferred stock dividend (25,641) -
------------ -----------
Net loss on common stock $ (1,223,398) $ (93,104)
============ ===========
Loss per share:
Primary and fully diluted
Loss before extraordinary
item per common and
common equivalent share $ (.36) $ (.04)
Extraordinary item
per share (.21) -
------------ ------------
Loss per common and
common equivalent
share $ (.57) $ (.04)
============ ===========
Weighted average number
of common shares and
common equivalent shares
assumed outstanding
during the period 2,104,336 2,104,336
============ ===========
Note 18- Related Party Transactions
Notes receivable include $150,000 due from various insurance agencies
owned by the brother of the President of the Company. The notes are at
a 12% annual interest rate, paid monthly, over three years.
Note 19 - Subsequent Events
In October and November 1996, Sands Brothers & Co. Ltd was engaged as
the Company's exclusive placement agent in connection with the offer
of $1,000,000 convertible subordinated debentures at 10% per annum.
The principal amount and interest due under the debenture is
convertible into common stock of the Company at any
F-32
<PAGE>
USA Finance, Inc.
(formerly LMI Acquisition Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(unaudited)
Note 19 - Subsequent Events (continued)
time prior to maturity. If the Company's stock is publicly traded,
conversion may occur at the lesser of $4.00 per share or 18% less than
the average closing market price. These debentures were issued in
conjunction with common stock purchase warrants exercisable at $4.00
per share at a rate of 2,750 warrants for each $50,000 principal
amount of debenture note. 55,000 common stock purchase warrants were
issued relating to this issuance of these convertible debentures.
Additionally, Sands Brothers & Co. Ltd ("Sands Brothers") was selected
to be the financial advisors for the Company for a period of one year,
whereby, the Company issued to Sands Brothers and certain of its
designees 200,000 shares of the Company's Common Stock and 200,000
Common Stock purchase warrants, 100,000 of which are exercisable at
$5.00 per share and the remainder at $8.00 per share. These were
issued in October, 1996.
F-33
<PAGE>
No dealer, salesperson or other person has been authorized in connection with
this offering to give any information or to make any representations other than
those contained in this Prospectus. This Prospectus does not constitute an offer
or a solicitation in any jurisdiction to any person to whom it is unlawful to
make such an offer or solicitation. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create an implication
that there has been no change in the circumstances of the Company or the facts
herein set forth since the date hereof.
----------------------
TABLE OF CONTENTS
Page
----
Prospectus Summary..........................................................
The Company.................................................................
The Offering................................................................
Summary Financial Information...............................................
Risk Factors................................................................
Use of Proceeds.............................................................
Market for Common Equity and Related
Stockholder Matters......................................................
Capitalization..............................................................
Management's Discussion and Analysis of
Financial Condition and Results of Operations............................
Business of the Company.....................................................
Management..................................................................
Certain Transactions........................................................
Principal Stockholders......................................................
Description of Securities...................................................
Selling Security Holders....................................................
Plan of Distribution........................................................
Legal Matters...............................................................
Statement of Indemnification................................................
Experts.....................................................................
Additional Information......................................................
Financial Statements........................................................
Until [_____] (90 days after the date of the Prospectus), all dealers effecting
transactions in the registered securities, whether or not participating in this
distribution, may be required to deliver a Prospectus.
3,585,894 Shares of Common Stock
offered by certain
Selling Security Holders
USA FINANCE, INC.
-------------------
P R E L I M I N A R Y
P R O S P E C T U S
-------------------
-----------------
January 21, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
The Company has adopted the provisions of Section 102(b)(7) of the
Delaware General Corporation Law (the "GCL") which eliminate or limit the
personal liability of a director to the Company or its stockholders for monetary
damages for breach of fiduciary duty under certain circumstances. Furthermore,
under Section 145 of the GCL, the Company may indemnify each of its directors
and officers against his expenses (including reasonable costs, disbursements and
counsel fees) in connection with any proceeding involving such person by reason
of his having been an officer or director to the extent he acted in good faith
and in a manner reasonably believed to be in, or not opposed to the best
interest of the Company, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The determination
of whether indemnification is proper under the circumstances, unless made by a
court, shall be determined by the Board of Directors.
Reference is made to Item 28 for the undertakings of the Registrant with
respect to indemnification of liabilities arising under the Securities Act.
Item 25. Other Expenses of Issuance and Distribution
The following is a list of the estimated expenses to be incurred by the
Registrant in connection with the preparation and filing of this Registration
Statement.
S.E.C. Registration Fee............................... 2,511.62
Printing and Engraving................................
Accountants' Fees and Expenses........................
Blue Sky Filing Fees and Expenses.....................
Legal Fees and Expenses...............................
TOTAL:.............
Item 26. Recent Sales of Unregistered Securities
1. In May 1994, the Company issued 1,000,000 shares of Common Stock, $.001
par value per share, in consideration for the purchase price of $1,066
representing the initial capitalization of the Company. The shares were sold to
the initial directors of the Company and certain other persons all of whom are
listed below. This sale was undertaken as a private placement transaction exempt
under Section 4(2) of the Act as a transaction by an issuer not involving a
public offering to the following individuals.
<PAGE>
Number of Shares
Name of Common Stock
---- ---------------
Andrew Panzo 585,000
Leonard Linsker 327,500
David Alperin 50,000
Jere Dumanic 12,500
Steve Levin 12,500
Steve Funk 12,500
2. On March 28, 1996, the Company completed the acquisitions of Gold Coast
Finance, Inc. and National-Wide Premium Finance Co. pursuant to separate
agreements executed in May, 1995 (the "Acquisitions"). In conjunction with the
Acquisitions, the Company completed a series of private placement transactions
of its Series A $4.00 Convertible Preferred Stock, Series B $3.00 Convertible
Preferred Stock, Common Stock and Common Stock Purchase Warrants to certain
accredited and sophisticated investors pursuant to exemptions from registration
under the Securities Act provided by Rule 506 of Regulation D and Section 4(2)
of the Securities Act as transactions by an issuer not involving a public
offering. These transactions consisted of the issuance of (i) Series B Preferred
and Common shares to the Gold Coast shareholders; (ii) Series B Preferred shares
to the National-Wide shareholders; and (iii) Series A Preferred shares, Series B
Preferred shares and Common Stock Purchase Warrants exercisable at $4.00 per
share to certain creditors of Gold Coast and other Accredited Investors. The
Company raised gross proceeds of $3,448,498 in these transactions consisting of
the cancellation of $2,494,998 of outstanding indebtedness and $953,500 in cash
proceeds. The following persons purchased securities in these private placement
transactions.
Number and Type of
Name Securities Purchased(1) Consideration
---- ----------------------- -------------
Peter Abatiello 3,333 Series B $10,000(2)
Henry Adleman 5,000 Series A
800 Warrants $20,000
Trustees for the JM Alperin
Pension Benefits Trust 6,667 Series B $20,000(2)
American Maple Leaf
Financial Corp. 622,708 Common (3)
Irwin & Bernice Baron 6,000 Series B $18,000(2)
Lawrence Bass 2,500 Series A $10,000
Stuart Baumel 4,000 Series B $12,000(2)
Paul Berman 2,500 Series A $10,000
Tonya Bleier 6,667 Series B $20,000(2)
Charles Block 2,500 Series A $10,000
Boston Provident Ptrs. 25,000 Series A $100,000
Scott Brenner 3,750 Series A $15,000
Mark Chessen 6,000 Series A $24,000
Cliff Associates 10,000 Series A $40,000
<PAGE>
Number and Type of
Name Securities Purchased(1) Consideration
---- ----------------------- -------------
Arlene Cohen 13,333 Series B $40,000(2)
Fred Cohen and
Debra Bloomberg 8,333 Series B $25,000(2)
Gisella Cohen 6,667 Series B $20,000(2)
Jeffrey & Charlene Cohen 7,500 Series B $22,500(2)
Jonathan Cohen 35,000 Common (4)
Mitchell Cohen 6,667 Series B $20,000(2)
Susan Cohen 28,333 Series B $85,000(2)
D&D Bloomberg 6,667 Series B $20,000(2)
Linda Davis 1,250 Series A $5,000
Jacquelyn DeMirjian 2,500 Series A $10,000
Roland DeSilva 12,500 Series A $50,000
Richard Drath 7,000 Series B $21,000(2)
Carol Ann Federman 2,500 Series A $10,000
Dale Filhaber 5,000 Series A $20,000
Trustee, Ed Filhaber Cust.
For Scott Filhaber 3,333 Series B $10,000(2)
Edward Filhaber 7,500 Series A $30,000
Michael Forman 3,333 Series B $10,000(2)
5,000 Series A
800 Warrants $20,000
Mark Freedman 3,333 Series B $10,000(2)
Harry Frei 2,500 Series A $10,000
William Fried 15,000 Series B $45,000(2)
Frances Gertsman 3,750 Series A $15,000
Global Equity Partners 12,500 Series A
2,000 Warrants $50,000
Robert T. Goldberg 12,500 Series A $50,000
Linda Greenspan 5,000 Series B $15,000(2)
Jeffrey Grinspoon 25,000 Series A
4,000 Warrants $100,000
Arnold Hantverk 6,667 Series B $20,000(2)
Milton Hantverk 6,667 Series B $20,000(2)
Manfred Hoffman 2,500 Series A $10,000
IHN Partners 33,167 Series B $99,500(2)
Richard Jacobs 5,000 Series A $20,000
Slobodan Jovcic 5,000 Series A
800 Warrants $20,000
Elliot Kaufman 1,250 Series A $5,000
Richard Kaufman 2,500 Series A $10,000
Marsha Kesh 5,000 Series B $15,000(2)
Lee Kort 2,500 Series A $10,000
Arlene Kraines 16,667 Series B $50,000(2)
Martin Krimsky 3,000 Series A $12,000
Henry Leace 12,500 Series A
2,000 Warrants $50,000
<PAGE>
Number and Type of
Name Securities Purchased(1) Consideration
---- ----------------------- -------------
Peter Lesser 2,500 Series A $10,000
Howard Levine 6,250 Series A
1,000 Warrants $25,000
Howard Levine 3,333 Series B $10,000(2)
Rita Linsker 33,333 Series B $100,000(2)
Doug Love 6,250 Series A $25,000
Theodore Lutins 2,500 Series A $10,000
Mark Margolis 460,000 Common
33,333 Series B $100,000(5)
Steven Margolis 460,000 Common
66,666 Series B $200,000(6)
Douglas Martin 33,333 Series B $100,000(2)
Sandy Martin 3,333 Series B $10,000(2)
Norman Millan 12,500 Series A
2,000 Warrants $50,000
Richard Millan 6,250 Series A
1,000 Warrants $25,000
Marc Miller 12,500 Series A $50,000
Pasquale Nestico 12,500 Series A $50,000
Philip Nicozisis 2,500 Series A $10,000
Sharon Novak 25,000 Series B $75,000(2)
Andrew Panzo 25,000 Series A
4,000 Warrants $100,000
Boris Pavic 12,500 Series A
2,000 Warrants $50,000
Lawrence Perelman 4,000 Series B $12,000(2)
3,000 Series A $12,000
Robert Perelman 6,667 Series B $20,000(2)
Prevor Marketing Intl 6,000 Series A $24,000
Michael Prevor 5,000 Series A $20,000
Isaac Raijman 33,333 Series B $100,000(2)
Marylyn Rose 3,750 Series A $15,000
Jeffrey Rosenberg 7,500 Series A
1,200 Warrants $30,000
Steven Rosner 35,000 Common (4)
Larry Rotenberg 2,500 Series A $10,000
Alan Rothberg 2,500 Series A $10,000
Dr. & Mrs. Alan Rothberg 7,333 Series B $22,000(2)
Roy Scheinbaum 6,250 Series A
1,000 Warrants $25,000
Melvyn Sherman 4,000 Series B $12,000(2)
Spencer Sherman 1,750 Series A $7,000
Morris Small 5,000 Series B $15,000(2)
3,750 Series A $15,000
William Smith 5,000 Series A $20,000
Eric Smolen 6,250 Series A $25,000
<PAGE>
Nancy Sneider 3,333 Series B $10,000(2)
Robert Sobanski 2,500 Series A $10,000
Craig Sobel 5,000 Series A
800 Warrants $20,000
Elizabeth A. Solms 3,333 Series B $10,000(2)
Jerry Solovay 6,667 Series B $20,000(2)
Jerry and John Solovay 2,500 Series A $10,000
Aaron Some 3,125 Series A $12,500
Ben Sonkin 2,500 Series A $10,000
Nancy Sondow 6,667 Series B $20,000(2)
Georgie Stanley 7,500 Series A $30,000
Michael Stanley 5,000 Series A $20,000
Margaretta Stewart 2,000 Series A $8,000
William Stewart 1,500 Series A $6,000
Straub Family Trust 16,667 Series B $50,000(2)
John N. Straub 28,333 Series B $85,000(2)
John Vincent Straub 5,000 Series B $15,000(2)
Burton R. Turk 6,000 Series A $24,000
Ronald Vara 3,333 Series B $10,000(2)
Michael Wachs 2,500 Series A $10,000
David Walters 2,500 Series A $10,000
Hugh J. Ward III 1,000 Series A $4,000
Jeanette Waserstein 66,667 Series B $200,000(2)
Barbara Weiner 6,000 Series B $18,000(2)
Robert Weiner 6,000 Series B $18,000(2)
Bart Yachbes 8,333 Series B $25,000(2)
Gertrude Yachbes 8,333 Series B $25,000(2)
Edward Zobian 2,500 Series A $10,000
(1) "Series A" refers to Series A $4.00 Convertible Preferred Shares; "Series
B" refers to Series B $3.00 Convertible Preferred Shares; "Common" refers
to Common Shares; and "Warrants" refers to Common Stock Purchase Warrants.
(2) Represents cancellation of equivalent amount of outstanding indebtedness
owed by Gold Coast to the purchaser.
(3) AMLF received 622,708 shares of Common Stock in consideration for
investment banking services rendered in connection with the Company's
acquisitions of Gold Coast and National-Wide.
(4) Received as a finder's fee in connection with the Company's acquisition of
Gold Coast.
(5) Represents cancellation of equivalent amount of outstanding indebtedness
owed by Gold Coast to Mr. Margolis in consideration for 33,333 shares of
Series B $3.00 Convertible
<PAGE>
Preferred Stock. The 460,000 shares of Common Stock were issued to Mr.
Margolis in connection with the Company's acquisition of Gold Coast in
exchange for his shares of common stock of Gold Coast.
(6) Represents cancellation of equivalent amount of outstanding indebtedness
owed by Gold Coast to Mr. Margolis in consideration for 66,666 shares of
Series B $3.00 Convertible Preferred Stock. The 460,000 shares of Common
Stock were issued to Mr. Margolis in connection with the Company's
acquisition of Gold Coast in consideration for his shares of common stock
of Gold Coast.
- ------------------------------------------------
3. Between April and October 1996, the Company sold Debenture Units
consisting of $1,355,000 of its one-year ten percent (10%) Convertible
Subordinated Debentures and 74,525 Common Stock Purchase Warrants with each Unit
consisting of a $50,000 principal amount Convertible Debenture and up to 2,750
Common Stock Purchase Warrants exercisable at $4.00 per share. The Debenture
Units were sold to accredited investors in private placement transactions exempt
from registration under the Securities Act pursuant to Rule 506 of Regulation D
thereunder as transactions by an issuer not involving a public offering to the
following persons:
Number of
Name Debenture Units Consideration
---- --------------- -------------
APP 3 $150,000
Lawrence Bass .25 $12,500
IRA account for Robert R. 1 $50,000
Bartolini
Charles Block 1 $50,000
Fredrick Cohen .2 $10,000
Herb Cohen 1 $50,000
Susan Cohen 2 $100,000
Sidney Covich 1 $50,000
Doug Cox .50 $25,000
Michael Forman .4 $20,000
Terry Fried .25 $12,500
Sid Greenspan 1 $50,000
Karen and Leslie Groffman .25 $12,500
Lennart Hagegard 1 $50,000
IHN Partners 2.9 $145,000
Carletta Nonziato .50 $25,000
Sharon Novak 2 $100,000
Richard Olstein .25 $12,500
Rick Parker 1 $50,000
Mark Perelman 2 $100,000
Professional Investment Group,
L.L.C. 1 $50,000
Nancy Rothman .25 $12,500
Anna Smith .4 $20,000
<PAGE>
Number of
Name Debenture Units Consideration
---- --------------- -------------
Jerry and Joan Solovay 1.25 $62,500
Kathryn & Michael Stati .25 $12,500
Gilbert Stein 1 $50,000
John N. Straub, Ltd. 1 $50,000
Hugh Ward .2 $10,000
Stanley & Carol Weinstock .25 $12,500
----- -------
27.1 $1,355,000
4. On June 19 and August 19, 1996, the Company issued a total of 18,750
Common Stock Purchase Warrants exercisable at $4.00 per share and a $250,000
promissory note to Odyssey Capital Group, L.P., an institutional investor, in a
private placement transaction exempt from registration under the Securities Act
pursuant to Rule 506 of Regulation D thereunder as a transaction not involving a
public offering. The Company realized gross proceeds of $250,000 in this
transaction.
5. On September 19, 1996, the Company issued 15,000 Common Stock Purchase
Warrants at a nominal exercise price to First Western Bank in consideration of
the termination of its credit facility with First Western Bank in a private
placement transaction exempt from registration under the Securities Act pursuant
to Section 4(2) thereof as a transaction not involving a public offering.
6. In October 1996, the Company issued 200,000 shares of Common Stock and
200,000 Common Stock Purchase Warrants, 100,000 exercisable at $5.00 per share
and the remainder at $8.00 per share, to Sands Brothers & Company, Ltd. and its
designees in consideration for financial advisory services. These securities
were sold to accredited and sophisticated investors in a private placement
transaction exempt from registration under the Securities Act pursuant to
section 4(2) thereof as a transaction not involving a public offering to the
following persons:
Amount and
Name Type of Securities
---- ------------------
Alan Bluestine 31,667 Common Shares
5,000 Warrants
Gordon Fallone 31,667 Common Shares
5,000 Warrants
Seth Potter 625 Common Shares
Rawhide Partners, L.P. 100,000 Common Shares
100,000 Warrants
Mathiew Russo 625 Common Shares
Sands Brothers, Co. & Ltd. 85,000 Warrants
Aaron Scott 3,750 Common Shares
Robert Spiegel 31,666 Common Shares
5,000 Warrants
<PAGE>
7. On October 31, November 25 and December 5, 1996, the Company sold
Debenture Units consisting of an aggregate of $1,000,000 principal amount of its
one-year ten percent (10%) Convertible Subordinated Debentures and 55,000 Common
Stock Purchase Warrants with each Unit consisting of a $50,000 principal amount
Convertible Debenture and 2,750 Common Stock Purchase Warrants exercisable at
$4.00 per share. The Company realized gross proceeds of $1,000,000 and paid
sales commissions in the aggregate amount of $100,000 to Sands Brothers & Co.,
Ltd. The Debenture Units were sold to accredited investors in a private
placement transaction exempt from registration under the Securities Act pursuant
to Rule 506 of Regulation D thereunder as transactions by an issuer not
involving a public offering to the following persons:
Number of
Name Debenture Units Consideration
---- --------------- -------------
David Alldian .5 $25,000
David Brown .5 $25,000
Myles A. Cane 1.5 $75,000
Dr. Arnold Curnyn 1 $50,000
Granite Associates, LLC 6 $300,000
Katie and Adam Bridge
Ptnrs, L.P. 2 $100,000
Lorne House Nominees Ltd. 1 $50,000
Ronald Rasch .5 $25,000
SAGAX Fund II Ltd. 1 $50,000
Hal Satnick 1 $50,000
Richard Seidenberg 2 $100,000
Philip Thompson .5 $25,000
Dianne Vaughn .5 $25,000
Simon Zunamon 2 $100,000
--- ----------
20 $1,000,000
<PAGE>
Item 27. Exhibits
The following Exhibits are filed as part of this Report:
Exhibit No. Description Method of Filing
- ----------- ----------- ----------------
2.1 Agreement and Plan of Reorganization by and between Filed herewith
LMI Acquisition Corp., Gold Coast Finance, Inc.,
Roberta Margolis, Steven Margolis and Mark Margolis
dated May 19, 1995
2.2 Amendment to the Agreement and Plan of Filed herewith
Reorganization by and between LMI Acquisition Corp.
and Gold Coast et. al. dated July 17, 1995
2.3 Amendment to the Agreement and Plan of Filed herewith
Reorganization by and between LMI Acquisition Corp.
and Gold Coast et al. dated January 26, 1996
2.4 Amendment to the Agreement and Plan of Filed herewith
Reorganization between LMI Acquisition Corp. and
Gold Coast et. al. dated March 28, 1996
2.5 Stock Purchase Agreement by and between LMI Filed herewith
Acquisition Corp. and Jeanette Waserstein and
National-Wide Premium Finance Company dated May 5,
1995
3.1 Certificate of Incorporation of Registrant dated May Filed herewith
12, 1994
3.2 Certificate of Amendment to the Registrant's Filed herewith
Certificate of Incorporation dated June 14, 1996
3.3 By-Laws of the Registrant Filed herewith
4.1 Specimen Common Stock Certificate Filed herewith
4.2 Specimen Series A $4.00 Preferred Stock Certificate Filed herewith
4.3 Specimen Series B $3.00 Preferred Stock Certificate Filed herewith
4.4 Certificate of Designation of Series A $4.00 Filed herewith
Convertible Preferred Stock
4.5 Certificate of Designation of Series B $3.00 Filed herewith
Convertible Preferred Stock
<PAGE>
4.6 Form of 10% Subordinated Convertible Debenture Filed herewith
issued between April 25 and October 19, 1996
4.7 Form of 10% Subordinated Convertible Debenture Filed herewith
issued between October 31 and December 5, 1996
4.8 Form of Common Stock Purchase Warrant exerciseable Filed herewith
at $4.00 per Share issued March 28, 1996
4.9 Form of Common Stock Purchase Warrant exerciseable Filed herewith
at $4.00 per Share issued between April 25 and
October 19, 1996
4.10 Form of Common Stock Purchase Warrant exerciseable Filed herewith
at $4.00 per Share issued between October 31 and
December 5, 1996
4.11 Form of Common Stock Purchase Warrant exerciseable Filed herewith
at $5.00 per Share issued October 31, 1996
4.12 Form of Common Stock Purchase Warrant exerciseable Filed herewith
at $8.00 per Share issued October 31, 1996
4.13 Form of Common Stock Purchase Warrant exerciseable Filed herewith
at $4.00 per Share issued to Odyssey Capital Group,
L.P. on June 20 and August 19, 1996
4.14 Common Stock Purchase Warrant Issued to First Filed herewith
Western Bank on September 19, 1996
5.1 Opinion of Buchanan Ingersoll Professional To be filed by
Corporation Amendment
10.1 Amended and Restated Stockholders' Agreement by and Filed herewith
among Steven Margolis, Mark Margolis, Andrew Panzo
and American Maple Leaf Financial Corp.
10.2 Employment Agreement by and between the Registrant Filed herewith
and Mark Margolis dated March 28, 1996
10.3 Employment Agreement by and between the Registrant Filed herewith
and Stephen E. Michaelson dated May 1, 1996
10.4 Employment Arrangement by and between the Filed herewith
Registrant and Robert Cohen dated September 27,
1996
<PAGE>
10.5 Option Agreement by and between the Registrant and Filed herewith
Stephen E. Michaelson dated May 1, 1996
10.6 Option Agreement by and between the Registrant and Filed herewith
Jeanette Waserstein dated July 16, 1996
10.7 Option Agreement by and between the Registrant and Filed herewith
Steven Margolis dated December 5, 1996
10.8 Separation Agreement by and between the Registrant Filed herewith
and Jeanette Waserstein dated July 16, 1996
10.9 Separation Agreement by and between the Registrant Filed herewith
and Steven Margolis dated December 5, 1996
10.10 Placement Agent Agreement by and between the Filed herewith
Registrant and Sands Brothers & Co., Ltd. dated
October 15, 1996
10.11 Investment Banking Advisor Agreement by and between Filed herewith
the Registrant and American Maple Leaf Financial
Corporation dated March 28, 1996
10.12 Financial Advisory Agreement by and between the Filed herewith
Registrant and Sands Brothers & Co., Ltd. dated
August 14, 1996
10.13 Receivables Purchase and Sale Agreement by and among Filed herewith
Contract Funding Corp., Gold Coast Finance Inc., and
SunAmerica Financial Resources, Inc. dated September
19, 1996
10.14 Pledge Agreement by and between the Registrant and Filed herewith
SunAmerica Financial Resources, Inc. dated September
19, 1996.
10.15 Demand Promissory Note in the Principal Amount of Filed herewith
$500,000 payable to SunAmerica Financial Resources,
Inc. dated September 19, 1996
10.16 1997 Stock Option Plan of the Registrant To be filed by
Amendment
21 Subsidiaries of the Registrant Filed herewith
23.1 Consent of Buchanan Ingersoll Professional Included within
Corporation Exhibit 5.1
Filed herewith
23.2 Consent of Peat Marwick, KPMG
<PAGE>
Item 28. Undertakings
The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to: (i) include any
prospectus required by Section 10(a)(3) of the Securities Act; (ii) reflect in
the prospectus any facts or events arising after the effective date of the
registration statement which individually or together represent a fundamental
change in the information set forth in the registration statement; and (iii)
include any additional or changed material information on the plan of
distribution.
2. For the purpose of determining liability under the Securities Act, each
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
3. To file a post-effective amendment to remove from registration any of
the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in a successful defense of any action, suit or proceeding) is asserted by a
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form SB-2 and has authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of Miami,
State of Florida on January 13, 1997.
USA FINANCE, INC.
By:_____________________________________
Stephen E. Michaelson
Chief Executive Officer
By:_____________________________________
Robert Cohen
Chief Financial Officer
(Principal Financial and
Accounting Officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints STEPHEN E. MICHAELSON his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities to sign any
or all amendments to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully for all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form SB-2 was signed by the following persons in the
capacities and on the dates stated.
Signature Title Date
- --------- ----- ----
_________________________ Chief Executive Officer January 13, 1997
Stephen E. Michaelson and Director
__________________________ President and Director January 13, 1997
Mark Margolis
__________________________ Director January 13, 1997
Robert R. Bartolini
_________________________ Director and Secretary January 13, 1997
David Alperin
<PAGE>
Registration No. 333-_____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- --------------------------------------------------------------------------------
EXHIBITS
Filed with
Form SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
- --------------------------------------------------------------------------------
USA FINANCE, INC.
(Exact name of registrant as specified in its charter)
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Method of Filing
- ----------- ----------- ----------------
2.1 Agreement and Plan of Reorganization by and between Filed herewith
LMI Acquisition Corp., Gold Coast Finance, Inc.,
Roberta Margolis, Steven Margolis and Mark Margolis
dated May 19, 1995
2.2 Amendment to the Agreement and Plan of Filed herewith
Reorganization by and between LMI Acquisition Corp.
and Gold Coast et. al. dated July 17, 1995
2.3 Amendment to the Agreement and Plan of Filed herewith
Reorganization by and between LMI Acquisition Corp.
and Gold Coast et al. dated January 26, 1996
2.4 Amendment to the Agreement and Plan of Filed herewith
Reorganization between LMI Acquisition Corp. and
Gold Coast et. al. dated March 28, 1996
2.5 Stock Purchase Agreement by and between LMI Filed herewith
Acquisition Corp. and Jeanette Waserstein and
National-Wide Premium Finance Company dated May 5,
1995
3.1 Certificate of Incorporation of Registrant dated May Filed herewith
12, 1994
3.2 Certificate of Amendment to the Registrant's Filed herewith
Certificate of Incorporation dated June 14, 1996
3.3 By-Laws of the Registrant Filed herewith
4.1 Specimen Common Stock Certificate Filed herewith
4.2 Specimen Series A $4.00 Preferred Stock Certificate Filed herewith
4.3 Specimen Series B $3.00 Preferred Stock Certificate Filed herewith
4.4 Certificate of Designation of Series A $4.00 Filed herewith
Convertible Preferred Stock
4.5 Certificate of Designation of Series B $3.00 Filed herewith
Convertible Preferred Stock
4.6 Form of 10% Subordinated Convertible Debenture Filed herewith
issued between April 25 and October 19, 1996
<PAGE>
Exhibit No. Description Method of Filing
- ----------- ----------- ----------------
4.7 Form of 10% Subordinated Convertible Debenture Filed herewith
issued between October 31 and December 5, 1996
4.8 Form of Common Stock Purchase Warrant exerciseable Filed herewith
at $4.00 per Share issued March 28, 1996
4.9 Form of Common Stock Purchase Warrant exerciseable Filed herewith
at $4.00 per Share issued between April 25 and
October 19, 1996
4.10 Form of Common Stock Purchase Warrant exerciseable Filed herewith
at $4.00 per Share issued between October 31 and
December 5, 1996
4.11 Form of Common Stock Purchase Warrant exerciseable Filed herewith
at $5.00 per Share issued October 31, 1996
4.12 Form of Common Stock Purchase Warrant exerciseable Filed herewith
at $8.00 per Share issued October 31, 1996
4.13 Form of Common Stock Purchase Warrant exerciseable Filed herewith
at $4.00 per Share issued to Odyssey Capital Group,
L.P. on June 20 and August 19, 1996
4.14 Common Stock Purchase Warrant Issued to First Filed herewith
Western Bank on September 19, 1996
5.1 Opinion of Buchanan Ingersoll Professional To be filed by
Corporation Amendment
10.1 Amended and Restated Stockholders' Agreement by and Filed herewith
among Steven Margolis, Mark Margolis, Andrew Panzo
and American Maple Leaf Financial Corp.
10.2 Employment Agreement by and between the Registrant Filed herewith
and Mark Margolis dated March 28, 1996
10.3 Employment Agreement by and between the Registrant Filed herewith
and Stephen E. Michaelson dated May 1, 1996
10.4 Employment Arrangement by and between the Filed herewith
Registrant and Robert Cohen dated September 27,
1996
10.5 Option Agreement by and between the Registrant and Filed herewith
Stephen E. Michaelson dated May 1, 1996
<PAGE>
Exhibit No. Description Method of Filing
- ----------- ----------- ----------------
10.6 Option Agreement by and between the Registrant and Filed herewith
Jeanette Waserstein dated July 16, 1996
10.7 Option Agreement by and between the Registrant and Filed herewith
Steven Margolis dated December 5, 1996
10.8 Separation Agreement by and between the Registrant Filed herewith
and Jeanette Waserstein dated July 16, 1996
10.9 Separation Agreement by and between the Registrant Filed herewith
and Steven Margolis dated December 5, 1996
10.10 Placement Agent Agreement by and between the Filed herewith
Registrant and Sands Brothers & Co., Ltd. dated
October 15, 1996
10.11 Investment Banking Advisor Agreement by and between Filed herewith
the Registrant and American Maple Leaf Financial
Corporation dated March 28, 1996
10.12 Financial Advisory Agreement by and between the Filed herewith
Registrant and Sands Brothers & Co., Ltd. dated
August 14, 1996
10.13 Receivables Purchase and Sale Agreement by and among Filed herewith
Contract Funding Corp., Gold Coast Finance Inc., and
SunAmerica Financial Resources, Inc. dated September
19, 1996
10.14 Pledge Agreement by and between the Registrant and Filed herewith
SunAmerica Financial Resources, Inc. dated September
19, 1996.
10.15 Demand Promissory Note in the Principal Amount of Filed herewith
$500,000 payable to SunAmerica Financial Resources,
Inc. dated September 19, 1996
10.16 1997 Stock Option Plan of the Registrant To be filed by
Amendment
21 Subsidiaries of the Registrant Filed herewith
23.1 Consent of Buchanan Ingersoll Professional Included within
Corporation Exhibit 5.1
Filed herewith
23.2 Consent of Peat Marwick, KPMG
AGREEMENT AND PLAN OF REORGANIZATION
BETWEEN
LMI ACQUISITIONS CORP.
AND
GOLD COAST FINANCE, INC.
AND
ROBERTA MARGOLIS
AND
STEVEN MARGOLIS
AND
MARK MARGOLIS
<PAGE>
TABLE OF CONTENTS
Page
----
1. Plan of Reorganization 2
2. Issuance of Acquiror Shares.......................................... 2
2.1 Issuance of Common Shares at the Closing................... 2
2.2 Issuance of Common Shares Post-Closing..................... 2
2.3 Issuance of Preferred Stock Upon the Closing............... 3
3. Delivery of Shares .................................................. 4
4. Closing Date ........................................................ 5
5. Documents at Closing ................................................ 5
6. Representations and Warranties of the Acquiree and the
Shareholders ........................................................ 7
6.1 Organization of Acquiree................................... 7
6.2 Binding Agreement.......................................... 8
6.3 Authority ................................................. 9
6.4 Capitalization of the Acquiree............................. 9
6.5 Financial Statements of Acquiree........................... 10
6.6 Liabilities ............................................... 11
6.7 Taxes ..................................................... 12
6.8 Obligations; Authorization................................. 13
6.9 Compliance ................................................ 15
6.10 Contracts and Other Obligations............................ 15
6.11 Benefit Plans ............................................. 15
6.12 Adverse Events ............................................ 16
6.13 Title ..................................................... 17
6.14 Assets .................................................... 17
6.15 Insurance ................................................. 18
6.16 Trademarks and Intellectual Property....................... 18
6.17-6.18 Labor; Employees........................................... 19
6.19 Consents .................................................. 19
6.20 Disclosure ................................................ 19
7. Representations and Warranties of Acquiror........................... 20
7.1 Organization .............................................. 20
7.2 Binding Agreement.......................................... 20
7.3 Authority ................................................. 21
7.4 Shares to be Issued........................................ 22
7.5 Capitalization of Acquiror................................. 22
7.6 Legal Proceedings.......................................... 23
7.7 Contracts and Other Obligations............................ 23
7.8 Consents .................................................. 24
7.9 Disclosure ................................................ 24
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<PAGE>
8. Additional Agreements ............................................... 25
8.1 Insurance Department Approval.............................. 25
8.2 Equity Funding ............................................ 25
8.3 Surrender of Shares........................................ 25
8.4 Further Assurances......................................... 26
8.5 Investment Banking Agreement............................... 27
8.6 Registration of Shares..................................... 27
8.7 Access; Confidentiality.................................... 27
8.8 Conduct of Business........................................ 28
8.9 Shares to be Issued to the Shareholders.................... 29
8.10 Release of Information..................................... 31
8.11 Exclusivity ............................................... 31
9. Conditions Precedent to the Obligations of Acquiree
and the Shareholders ................................................ 31
10. Conditions Precedent to the Obligations of Acquiror.................. 33
11. Delivery of Exhibits and Schedules .................................. 35
12. Termination ............................................................. 36
13. Remedies and Indemnification ............................................ 37
11. Remedies and Indemnification......................................... 37
11.1 Remedies .................................................. 37
11.2 Remedies of Acquiror....................................... 37
11.3 Indemnification............................................ 38
11.3.1 The Acquiree and Shareholders....................... 38
11.3.2 The Acquiror........................................ 38
11.3.3 Methods of Asserting Claims for Indemni-
fication..................................... 39
11.3.4 Non-Third Party Claims.............................. 40
12. Nature and Survival of Representations............................... 40
13. Miscellaneous ....................................................... 41
13.1 Notices ................................................... 41
13.2 Waiver .................................................... 42
13.3 Brokers ................................................... 42
13.4 Expenses .................................................. 42
13.5 Headings .................................................. 43
13.6 Counterparts .............................................. 43
13.7 Governing Law ............................................. 43
13.8 Binding Effect and Assigns................................. 43
13.9 Entire Agreement........................................... 43
13.10 No Third Party Rights...................................... 44
13.11 Severability .............................................. 44
13.12 Enforcement Costs.......................................... 44
iii
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION is entered into this 19th day
of May, 1995, by and among LMI ACQUISITION CORP., a Delaware corporation
(hereinafter "Acquiror"), GOLD COAST FINANCE, INC., a Florida corporation
(hereinafter "Acquiree"), and ROBERTA MARGOLIS, an individual residing at 505
Isle of Capri, Ft. Lauderdale, Florida 33316, STEVEN MARGOLIS, an individual
residing at 505 Isle of Capri, Ft. Lauderdale, Florida 33316, and MARK MARGOLIS,
an individual residing at 6855 N.W. 74th Court, Parkland, Florida 33067,
(hereinafter individually, each a "Shareholder" and collectively, the
"Shareholders").
W I T N E S S E T H:
WHEREAS, Acquiror is a newly formed Delaware corporation;
WHEREAS, the Shareholders own in the aggregate One Hundred Percent (100%)
of the issued and outstanding common stock of Acquiree;
WHEREAS, the Acquiree has since 1989 been engaged in the business of
financing property/casualty insurance premiums;
WHEREAS, for good and valid consideration, the receipt and sufficiency of
which is hereby acknowledged, Acquiree and Acquiror seek to engage in a Plan of
Reorganization whereby Acquiror, pursuant to the terms hereof, shall acquire all
of the issued and outstanding common stock of Acquiree owned by the
Shareholders, thus making Acquiree a wholly-owned subsidiary of Acquiror; and
WHEREAS, in pursuance of such Plan of Reorganization, the Shareholders
have, pursuant to the terms hereof, agreed to exchange their shares of
Acquiree's common stock for shares of Acquiror's common stock (as more
particularly described hereafter).
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter set forth, intending to be legally bound hereby, the parties hereto
do covenant and agree as follows:
1. Plan of Reorganization. The undersigned Shareholders of Acquiree set
forth on Schedule 1, attached hereto and made a part hereof, are the owners of
One Hundred Percent (100%) of the issued and outstanding common stock of
Acquiree (hereinafter the "Acquiree Shares"). It is the intention of the parties
hereto that the Acquiree Shares shall be acquired by Acquiror in exchange solely
for Acquiror voting common stock, in a reorganization which may be tax-free to
all United States residents pursuant to the provisions of Section 368(a)(1)(B)
of the Internal Revenue Code of 1986, as amended (the "Code").
<PAGE>
2. Issuance of Acquiror Shares.
2.1 Issuance of Common Shares at the Closing. In pursuance of this
Plan of Reorganization, Acquiror shall at the "Closing Date" (as hereinafter
defined) issue 600,000 shares of its common stock which shall constitute
"restricted securities" within the meaning of Rule 144 of the Securities Act of
1933, as amended (the "1933 Act") (collectively, the "Acquiror Shares") to the
Shareholders, and 320,000 shares of its restricted common stock to the
Shareholders pursuant to Section 2.2 (the Earn-Out Shares, as defined below) and
the Shareholders agree to accept the Acquiror Shares and the Earn-Out Shares in
full, complete and final exchange for the Acquiree Shares.
2.2 Issuance of Earn-Out Shares at the Closing.
(a) In addition, at the Closing, Acquiror shall also issue to the
Shareholders 320,000 shares of restricted Common Stock of Acquiror (the
"Earn-Out Shares"), which shares shall be delivered to the firm of Nason,
Gildan, Yeager, Gerson & White, P.A., as Escrow Agent. While the Shareholders
may exercise voting rights with respect to the Earn-Out Shares and be entitled
to receive dividends paid thereon, all or a portion of the Earn-Out Shares shall
be subject to divestiture pursuant to the terms of this Section 2.2 and shall be
held in escrow under the terms of the Escrow Agreement in the form attached
hereto as Schedule 2.2. At the end of the Earn-Out Period (as defined below),
the Escrow Agent shall deliver to the Shareholders that number of Earn-Out
Shares, if any and up to all, earned pursuant to this Section 2.2.
(b) The number of shares to be delivered by the Escrow Agent to the
Shareholders shall be based upon an Earn-Out formula over a period of eight (8)
months (the "Earn-Out Period") following the Closing Date as follows: .026 of a
share of Common Stock for each dollar of the excess of the "Net Accounts
Receivable" of Acquiror and its subsidiaries at the end of such Earn-Out Period
over the Net Accounts Receivable as of the Closing Date. "Net Accounts
Receivables" shall mean contract receivables less unearned finance income, less
any bad debt or loss reserve as set forth on the financial statements of
Acquiror and its subsidiaries (or if no such financial statements have been
prepared, on their financial books and records of original entry). Net Accounts
Receivables shall not include any receivables generated by or arising out of
bulk or portfolio purchases of receivables subsequent to the Closing Date, but
will include purchases of Override Business (as hereinafter defined) from other
premium finance companies. Override Business shall be comprised of finance
receivables originated less than 30 days prior to purchase by Acquiror or its
5
<PAGE>
subsidiaries. It shall include receivables sold to First Western Bank or any
other banks during such Earn-Out period. The Earn-Out Period shall be extended
to the extent that bank or institutional financing sufficient to increase
accounts receivable is not available.
(c) Any shares earned pursuant to this Section 2.2 shall be
delivered to the Shareholders by the Escrow Agent promptly after the end of the
Earn-0ut Period. Any shares that are not earned shall be returned to the
Acquiror by the Escrow Agent promptly after the end of the Earn-Out Period and
cancelled.
2.3 Issuance of Preferred Stock Upon the Closing. Pursuant to the terms of
Section 9.11 hereafter, and upon satisfaction of such terms as contained
therein, upon the Closing, Acquiror shall issue to those persons identified on
Schedule 9.11, in the aggregate 200,000 shares of newly issued Series B $3.00
convertible voting preferred stock (the "Preferred Stock"). In addition,
pursuant to the terms of Section 9.12 hereafter, and upon satisfaction of such
terms as contained therein, upon the Closing, Acquiror shall issue to those
persons identified on Schedule 9.12 who have elected to convert their existing
debt into Preferred Stock, one share of Preferred Stock for each $3.00 of debt
converted. The shares of common stock underlying the Preferred Stock issued
pursuant to this Section 2.3 shall be included in the Registration Statement
filed pursuant to Section 8.6. A summary of the terms of the Preferred Stock is
attached hereto as Schedule 2.3(a), which terms shall be substantially similar
to the terms of the securities issued by Acquiror in connection with the Equity
Funding (as hereafter defined), except that the Equity Funding securities will
be a non-voting Preferred Stock. The Preferred Stock shall be more fully
described in the "Certificate of Designation" which shall be attached hereto and
made a part hereof of closing as Schedule 2.3(b).
3. Delivery of Shares.
(a) On or before the Closing Date, the Shareholders will deliver
certificates representing the Acquiree Shares, duly endorsed or accompanied by
duly executed stock powers with signatures guaranteed, so as to render Acquiror
the sole holder thereof, free and clear of all liens, levies, pledges, claims,
encumbrances, warrants, options, mortgages, security interests and rights of
others. The Acquiree Shares to be delivered to Acquiror shall be restricted as
to transfer, such shares having not been subject to registration in the United
States or elsewhere.
(b) On the Closing Date, the Acquiror shall deliver to the
Shareholders, the Acquiror Shares and to the Escrow Agent, the Earn-Out Shares,
free and clear of all liens, levies, pledges, claims, encumbrances, warrants,
options, mortgages, security interests and rights of others, except as set forth
in this Agreement. The Acquiror Shares shall be restricted as to transfer, such
shares having not been subject to registration in the United States or elsewhere
as set forth in Section 8.10 hereof.
4. Closing Date. The Closing of the transactions contemplated by this Plan
or Reorganization shall take place at 10:00 A.M., Eastern Standard Time, at the
offices of Nason, Gildan, Yeager, Gerson & White, P.A., 1645 Palm Beach Lakes
Boulevard, Suite 1200, West Palm Beach, Florida 33401, within 30 days after
satisfaction of all conditions precedent, or at such other time and place as the
parties may agree (the "Closing Date").
5. Documents at Closing. At the Closing, the following transactions shall
occur, all of such transactions being deemed to occur simultaneously:
(a) Shareholders and Acquiree will deliver, or cause to be
delivered, to Acquiror the following:
(1) stock certificates for the Acquiree Shares being tendered
hereunder, duly endorsed in blank, or accompanied by duly executed stock powers.
(2) a certificate executed by the President and Treasurer of
Acquiree to the effect that all of the representations and warranties made in
this Plan of Reorganization are true and correct as of the Closing, the same as
though originally given to Acquiror on said date.
(3) a certificate from the Secretary of State of the State of
Florida dated within ten (10) days of the date of the Closing to the effect that
Acquiree is in corporate good standing under the laws of said State;
(4) Investment letters executed by the Shareholders;
6
<PAGE>
(5) Certified copies of the Acquirer's Articles of
Incorporation, By-Laws and resolutions by each of the Board of Directors and
Shareholders authorizing the consummation of the transactions set forth herein.
(6) The Employment agreements with each of Mr. Steven Margolis
and Mr. Mark Margolis, substantially in the form attached hereto as Exhibits
"5(6)(a)" and "5(6)(b)" (the "Employment Agreements").
(7) A Stockholders' Agreement among the Historic Acquiror
Stockholders and the Shareholders, substantially in the form attached hereto as
Exhibit "5(7)" (the "Stockholders' Agreement").
(8) Release Agreement executed by those persons identified on
Schedule 9.11.
(9) Such other instruments as are required to be delivered
pursuant to the provisions of this Agreement.
(b) Acquiror will deliver or cause the following documents to be
delivered to Shareholders and Acquiree (or the Escrow Agent, as the case may
be);
(1) stock certificates representing Acquiror Shares and
Earn-Out Shares to be issued as a part of this Plan of Reorganization;
(2) a certificate of the President and Secretary of Acquiror
to the effect that: (i) all representations and warranties of Acquiror made
under this Plan or Reorganization are reaffirmed on the Closing Date, the same
as though originally given to the Shareholders on said date; and (ii) upon the
Closing the sum of no less than $800,000 has been raised as a result of the sale
of securities contemplated in Section 8.2 hereof.
(3) certified copies of the Acquiror's Certificate of
Incorporation, By-Laws and resolutions by each of Acquiror's Board of Directors
and stockholders authorizing this transaction;
(4) a certificate from the Secretary or State of Delaware
dated within ten (10) days of the date of Closing that Acquiror is in good
standing under the laws of said State;
(5) resignations, effective not later than the Closing of such
of the officers and directors of Acquiror as have been agreed upon;
(6) the Employment Agreements;
(7) the Stockholders' Agreement; and
(8) such other instruments and documents as are required to be
delivered pursuant to the provisions of this Agreement.
6. Representations and Warranties of the Acquiree and the Shareholders.
The Acquiree and Shareholders do hereby individually, collectively,
jointly and severally represent, warrant and covenant to the Acquiror, as an
inducement for the Acquiror to enter into this Plan of Reorganization and to
consummate the transactions contemplated hereby, that, as of the date hereof:
6.1 Organization of Acquiree. The Acquiree is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Florida; is duly qualified to do business and in good standing in each other
jurisdiction in which such qualification is necessary; and, has the requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as conducted in the past, and as now being conducted.
6.2 Binding Agreement. This Plan of Reorganization constitutes the
valid and binding obligation of Acquiree and Shareholders hereto, enforceable
against them in accordance with its terms. The Acquiree has all requisite power
and authority to execute and deliver this Plan of Reorganization and to
consummate the transactions contemplated hereby. Neither the execution and
delivery of this Plan or Reorganization nor the consummation of the transactions
contemplated hereby will: (a) violate any provision of the Articles of
Incorporation and By-Laws of the
7
<PAGE>
Acquiree; (b) violate, conflict with, or result in the breach or termination of,
or otherwise give any other contracting party the right to terminate, or
constitute a default (by way of substitution, novation or otherwise) under the
terms of any contract, franchise, lease, license, agreement or instrument to
which the Acquiree or a Shareholder is a party or to which their respective
assets are subject, all of which shall continue to remain in full force and
effect in accordance with their respective terms following the consummation of
the transactions contemplated hereby; (c) result in the creation of any lien,
charge or encumbrance upon the properties, assets or other securities of the
Acquiree or a Shareholder; (d) violate any judgment, order, inunction, decree or
award against, binding upon, or effecting the securities, assets, properties,
operations or business of the Acquiree or a Shareholder; or (e) violate any
local, state or federal law or regulation as such law or regulation relates to
the securities, assets, properties, operations or business of the Acquiree or a
Shareholder. 6.3 Authority. The execution and delivery of this Plan of
Reorganization and the documents and instruments to be delivered and executed
pursuant hereto and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by the Board of Directors of Acquiree, and no
other action or proceedings on the part of Acquiree or the Shareholders is
necessary to authorize the execution and delivery of this Plan of Reorganization
or such other documents and instruments necessary or required to consummate the
transactions contemplated hereby and thereby.
6.4 Capitalization of the Acquiree. The authorized capital stock of the
Acquiree consists of 60 shares of common stock, no par value per share, of which
30 shares of common stock are issued and outstanding on the date hereof, all of
which are owned by the Shareholders. The names and addresses of the record
owners of all issued and outstanding securities of Acquiree are set forth in
Schedule 1. The Shareholders own, in the aggregate, One Hundred Percent (100%)
of the issued and outstanding capital stock of Acquiree, free and clear of any
liens, levies, pledges, claims, encumbrances, warrants, options, mortgages,
security interests and rights of others. There are no warrants, options, phantom
or stock appreciation rights or any other rights outstanding to subscribe for
securities of Acquiree. The Acquiree Shares are duly authorized, have been
validly issued and fully paid and are non-assessable.
6.5 Financial Statements of Acquiree.
(a) Acquiree has delivered to Acquiror unaudited financial
statements for the fiscal year ended December 31, 1994, and the interim period
ended February 28, 1995 (the "Financial Statements"). The Financial Statements
are accurate and complete and present fairly the financial position and results
of operations of Acquiree in all material respects for the periods therein
indicated in accordance with generally accepted accounting principles ("GAAP"),
applied on a consistent basis.
(b) Since the date of the Financial Statements, there have been no
material adverse changes in the business, assets, properties, operations or
condition (financial or otherwise) of Acquiree.
(c) All of the accounts receivable of Acquiree reflected on the
Financial Statements and otherwise outstanding on the Closing Date, are bona
fide accounts receivable of Acquiree representing the value of (or other sums or
fees receivable for or in respect of) contracts or services sold or performed by
Acquiree in valid transactions in the regular course of their business to or for
the benefit of its customers, except to the extent of any bad debt reserve
reflected on the Financial Statements. Except for such bad debt reserve, such
accounts receivable are collectible and not subject to offset or counterclaim or
otherwise in controversy.
6.6 Liabilities.
(a) Except as, and to the extent reflected or reserved against in
the Financial Statements, the Acquiree had no material liabilities, debts or
obligations, or claims asserts against it, whether accrued, absolute, contingent
or otherwise, and whether due or to become due, including, but not limited to,
liabilities on account of taxes, other governmental charges or lawsuits brought
subsequent to the date hereof. Schedule 6.6 contains a complete and accurate
list and description of:
(i) all suits, actions and administrative, arbitration or other
similar proceedings (including, without limitation, proceedings concerning labor
disputes or grievances, civil rights discrimination cases and affirmative action
proceedings) and all investigations pending before or, to the knowledge of the
Shareholders, threatened by, any federal, state, municipal or other governmental
department, commission, board, agency or instrumentality to which the Acquiree
is a party or by which its properties, assets or businesses may be affected, and
each judgment, order, injunction, decree or award (whether rendered by a court,
administrative agency or by arbitration
8
<PAGE>
pursuant to a grievance or other procedure) to which the Acquiree is a party or
against its properties, assets or businesses which is unsatisfied or requires
continuing compliance therewith (such suits, actions, judgments and orders are
hereinafter referred to as "Legal Proceedings"); and
(ii) the names of all persons holding powers of attorney from the
Acquiree, if any, and a summary statement of the terms of each such power of
attorney.
(b) Subsequent to the date hereof, the Acquiree, has incurred no
liabilities, obligations or debts of any nature whatsoever other than those
incurred in the ordinary course of its business.
6.7 Taxes. Except as, and to the extent reflected or reserved against in
the Financial Statements and disclosed in Schedule 6.7 attached hereto and made
a part hereof, the Acquiree has filed all federal tax returns in accordance with
the rules and regulations of the Internal Revenue Code of 1986, as amended (the
"Code") and all state and local tax returns (whether relating to income, sales,
franchise, withholding, real or personal property or other types of taxes)
required to be filed, and have paid in full all taxes which have become due
pursuant to such returns or claimed to be due by any taxing authority or
otherwise shall be due and owing. No penalties or other charges are,or will
become, due with respect to the late filing of any such return. Each of such tax
returns heretofore filed by Acquiree, correctly and accurately reflects the
amount of its tax liability thereunder; the Acquiree has withheld, collected and
paid all other levies, assessments, license fees and taxes to the extent
required and, with respect to payments, to the extent that the same have become
due and payable; and the reserve on the Financial Statements of Acquiree, for
accrued and unpaid taxes is sufficient for the payment of all federal, state,
local, county and foreign taxes, assessments and license fees, whether disputed
or undisputed, which may hereafter be found to be, or to have been, due with
respect to the conduct of the business of the Acquiree, or the ownership of its
assets up to and through the date hereof. The federal income tax returns of the
Acquiree have never been audited. There are not in force any extensions of time
with respect to the dates on which any tax return were or will be due to be
filed by the Acquiree, or any waivers or agreements by it for the extension of
time or for the assessment or payment of any tax.
6.8 Obligations; Authorization. Neither the Acquiree nor the Shareholders
are: (i) in violation of any judgment, order, injunction, award or decree which
is binding on them or any of their assets, properties, operations, securities or
business; or (ii) in violation of any law or regulation or any other requirement
of any governmental body, court or arbitrator relating to them,or to any of
their securities, assets, operations, properties or businesses which violation
by itself or in conjunction with other violations of any other law, regulation
or other requirement could reasonably be expected to materially adversely affect
the Acquiree or any of its securities, assets, operations, properties or
business or result in a cost, expense, liability or other damage or loss to the
Acquiree, or any of its securities, assets, operations, properties or
businesses. Except as disclosed in Schedule 6.8 attached hereto and made a part
hereof, the Acquiree has in all material respects performed all obligations
required to be performed by it, is not in default or violation in any material
respect and is not aware of any material default or violation that has occurred
or imminent to occur under any of the agreements of the Acquiree. Furthermore,
no default has occurred, or is likely to occur under any of the contracts and
other obligations set forth at Section 6.8 hereafter, which default or breach
will be initiated or caused by a party to such agreements other than the
Acquiree. There is no pending claim that operations pursuant to any of the
agreements set forth at Section 6.8 have been improperly conducted or maintained
or which would materially and adversely lessen the rights, or increase the
obligations or costs, of the Acquiree. All licenses, permits, and other
governmental authorizations that are required for the conduct of the business of
the Acquiree as now conducted or the ownership or location of the assets of the
Acquiree have been obtained and are in full force and effect. The Acquiree has
not taken any action, or failed to take any action, or permitted or allowed to
exist any condition which, with notice or lapse of time or both, would result in
the termination, cancellation, forfeiture of, or cause a default under, any such
license, permit or other governmental authorization. Such license, permits and
authorizations are valid and sufficient for all business now conducted, and the
ownership and operation of all assets now owned by the Acquiree in the manner so
conducted and operated.
6.9 Compliance. The Acquiree has at all times complied, and is currently
complying, with all applicable federal state and municipal laws, and the rules
and regulations thereunder, in the conduct of its business and the ownership of
its assets, including without limitation, laws relating to the employment,
health and safety of its personnel.
6.10 Contracts and Other Obligations. Except for contracts and agreements
listed on Schedule 6.10 attached hereto and made a part hereof, the Acquiree is
not a party to (in its own name or as successor in interest to any predecessor),
nor are any of its assets, properties or securities bound by, any written or
oral: (i) agreement or contract whether in the ordinary course of business or
otherwise; (ii) employment, advisory or consulting agreement or contract
9
<PAGE>
extending for more than 30 days; (iii) agreement or contract with any labor or
trade union or association; (iv) bonus, pension, profit-sharing, retirement,
stock purchase, hospitalization, insurance or other plan providing for employee
benefits; (v) lease with respect to any property, real, personal or mixed,
whether as lessor or lessee; (vi) continuing obligation for the future purchase,
sale or provision of material, supplies, equipment or services; (vii) single
agreement or contract for expenditures or commitment for expenditures in excess
of $2,500 or (viii) loans, agreements, promissory notes, security agreements,
pledges or any other form of debt instrument.
6.11 Benefit Plans. Except as set forth on Schedule 6.11 attached hereto
and made a part hereof, there is no employee benefit plan established or
maintained for employees of Acquiree or to which contributions have been made by
Acquiree.
6.12 Adverse Events. Since the date hereof, there has not been (i) any
destruction, taking in condemnation or eminent domain, damage by fire, accident
or other casualty or Act of God of or to any of the properties or assets of
Acquiree, affecting in a material adverse way the operation of its business as
it was conducted on the date hereof, whether or not covered by insurance; (ii)
any labor strike, or other occurrence, event, or condition of any similar
character affecting employees of Acquiree any action undertaken with respect to
Acquiree which would in any material manner lessen the rights of Acquiree or
which would materially adversely affect the assets, properties, business,
operations or condition (financial or otherwise), of Acquiree. Furthermore,
since the date of the Financial Statements, the Shareholders (a) have not become
aware of any event or occurrence within Acquiree's particular industry that will
directly or indirectly affect Acquiree's competitive position in the industry or
ability to carry on the business of the Acquiree in the same manner as
heretofore conducted, or (b) have not been notified by any substantial customer
(defined as a customer whose business accounts for 5% or more of the gross
revenues of Acquiree that any such customer will no longer be retaining,
utilizing or contracting with and/or for services of the Acquiree as it has in
the past.
6.13 Title. Schedule 6.13 attached hereto and made a part hereof correctly
and accurately lists substantially all of the assets, properties, interests and
rights used by Acquiree in, or otherwise related to, the operation of the
business of Acquiree or owned by Acquiree on the date hereof. Except as
disclosed on Schedule 6.13 the Acquiree has, or on the Closing Date will have, a
good and marketable title to all of the assets, properties, interests and rights
listed on Schedule 6.13 as owned by it, free and clear of any liens, claims
security interests, encumbrances and rights of others. Schedule 6.13 also
correctly lists all of the material assets and properties used by the Acquiree
in its business which are leased by it; the Acquiree has valid leasehold
interests in all of such leased assets and properties free and clear of any
liens, claims, security interests and rights of others. Each such lease is
valid, binding and existing; and the Acquiree is not in default or in arrears in
the performance or satisfaction of any agreement or condition on its part to be
performed or satisfied thereunder; and no waiver of indulgence has been granted
by any of the lessors under any such leases.
6.14 Assets. All of the assets and properties owned by, or leased to,
Acquiree and used or usable in connection with its business and operations
listed on Schedule 6.14 are in good working order and repair, free from any
known defects and suitable and usable for the purposes for which they were
intended. Acquiree has maintained all of such assets and properties in
accordance with all applicable manufacturer's recommendations and good business
practices.
6.15 Insurance. Schedule 6.15 attached hereto and made a part hereof
correctly lists all insurance policies of the Acquiree now in effect; such
insurance policies are valid, binding and enforceable policies in full force and
effect as to which premiums have been currently paid. The Acquiree is not in
default with respect to any provisions contained in any such insurance policies
nor has it failed to give any notice or present any claim under any such
insurance policies in due and timely fashion. No insurer under any of such
insurance policies has refused, or threatened to refuse, to pay any claim
currently pending under any thereof. The Acquiree has maintained, and will
continue hereafter, to maintain insurance coverage standard or typical of its
industry and of the type reasonably contemplated to adequately cover the
operations of its business.
6.16 Trademarks and Intellectual Property. Schedule 6.16 attached hereto
and made a part hereof lists all registered trademarks (including service
marks), trademark registrations and copyrights and applications therefor, trade
names, patents and applications therefor owned by the Acquiree or licensed to
the Acquiree. There are no registered trademarks, service marks, copyrights or
patents, or any applications therefor, or trade names, material to the business
of the Acquiree, which are not listed on Schedule 6.16. The Acquiree is not
infringing upon, or otherwise violating the rights of, any third party with
respect to, any trademark, service mark, copyright, trade name or patent. No
proceedings have been instituted, threatened, nor has any claim been made,
against the Acquiree alleging any such infringement or violation.
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6.17 Labor. Acquiree is not at the date hereof, nor during the past 12
months has it been, involved in any labor discussion with any unit or group
seeking to become the bargaining unit for any of its employees.
6.18. Employees. Schedule 6.18 attached hereto and made a part hereof
lists all of the present employees of Acquiree, their titles and present rates
of compensation and the dates on which they became employees of Acquiree.
Acquiree has made no commitment, oral or written and whether or not enforceable,
concerning the future employment of any of such employees.
6.19 Consents. All requisite consents of third parties, including, but not
limited to, governmental or other regulatory agencies, federal, state or
municipal, including the Specialty Finance Division of the Department of
Insurance of the State of Florida, required to be received by or on the part of
the Acquiree for or in connection with the execution and delivery of any of this
Plan of Reorganization and the performance of the obligations of the
Shareholders hereunder have been or, prior to the Closing Date, will be obtained
and are, or will be in full force and effect. The Shareholders and Acquiree have
fully complied, or will, on or prior to the Closing Date, fully comply with all
conditions of such consents.
6.20 Disclosure. No representations or warranties contained within this
Plan of Reorganization, and no statements contained in any of the schedules
attached hereto, or any instrument, list, certificate or right delivered by any
of the parties hereto to the Acquiror pursuant to this Plan of Reorganization
contains or will contain any untrue statement of a material fact or will omit or
fail to state any material fact necessary to make these statements herein or
therein not misleading. No fact is known to Acquiree or the Shareholders which
materially or adversely affects or in the future may materially or adversely
affect the businesses, financial conditions, results of operations or prospects
of Acquiree which has not been set forth in the Schedules attached hereto, or
otherwise disclosed to Acquiror in writing.
7. Representations and Warranties of Acquiror. The Acquiror represents,
warrants and covenants as an inducement for the Acquiree and the Shareholders to
enter into this Plan of Reorganization and to consummate the transactions
contemplated hereby, that, as of the date hereof:
7.1 Organization. The Acquiror is a corporation duly organized,
validly existing and in good stating under the laws of the State of Delaware; is
duly qualified to do business and in good standing in each other jurisdiction in
which such qualification is necessary; and has the requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as not being conducted.
7.2 Binding Agreement. This Plan of Reorganization constitutes the
valid and binding obligation of the Acquiror, enforceable in accordance with its
terms. The Acquiror has all requisite power and authority to execute and deliver
this Plan of Reorganization and to consummate the transactions contemplated
hereby. Neither the execution and delivery of this Plan of Reorganization nor
the consummation of the transactions contemplated hereby will: (a) violate any
provision of the Certificate of Incorporation or By-Laws of the Acquiror; (b)
violate, conflict with or result in the breach or termination of, or otherwise
give any other contracting party the right to terminate, or constitute a default
(by way of substitution, novation or otherwise) under the terms of any contract,
franchise, lease, licenses, agreement or instrument to which the Acquiror is a
party, all of which shall continue to remain in full force and effect in
accordance with their respective terms following the consummation of the
transactions contemplated hereby; (c) result in the creation of any lien, charge
or encumbrance upon the shares of common stock of Acquiror or the properties,
assets or other securities of the Acquiror; (d) violate any judgment, order,
injunction, decree or award against, binding upon, or affecting the shares of
common stock of Acquiror, or upon the securities, assets, properties, operations
or business of the Acquiror; or (e) violate any law or regulation as such law or
regulation relates to the shares of common stock of Acquiror, or to the
securities, assets, properties, operations or business of the Acquiror.
7.3 Authority. The execution and delivery of this Plan of
Reorganization and the documents and instruments to be delivered and executed by
Acquiror pursuant hereto and the consummation by the Acquiror of the
transactions contemplated hereby and thereby have been duly authorized by the
Board of Directors of Acquiror and no other corporate or other proceedings on
the part of Acquiror are necessary to authorize the execution and delivery of
this Plan of Reorganization or such other documents or instruments necessary or
required to consummate the transaction contemplated hereby and thereby.
7.4 Shares to be Issued. The shares of the common stock of the
Acquiror to be issued to the Shareholders pursuant to this Plan of
Reorganization will, when issued, be validly issued, fully paid, non-assessable
and free and clear of all liens, levies, pledges, claims, encumbrances,
warrants, options, mortgages, security interests and
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rights of others, except as set forth at Paragraph 8.9 hereof.
7.5 Capitalization of Acquiror. Except as provided in Sections 8.5
and 8.11, the authorized capital stock of the Acquiror as of the date hereof,
consists of 25,000,000 shares of common stock, $.01 par value per share, of
which 1,000,000 shares are issued and outstanding on the date hereof, and
5,000,000 shares of Preferred Stock, $.001 par value of which none are issued
and outstanding on the date hereof. The names and addresses of the record owners
("Historic Acquiror Stockholders") of the 1,000,000 shares of common stock
presently outstanding ("Historic Acquiror Shares"), the number of shares each
owns, are set forth in Schedule 7.5 attached hereto and made a part hereof. The
shares of common stock presently outstanding are duly authorized, have been
validly issued and fully paid and are non-assessable. Except as provided in
Sections 8.5 and 8.11, there are no outstanding warrants, options or rights to
acquire common stock of the Acquiror.
7.6 Legal Proceedings. The Acquiror is not subject to any pending
or, to the best of its knowledge and belief, threatened suits, actions and
administrative, arbitration or other similar proceedings (including, without
limitation, proceedings concerning labor disputes or grievances, civil rights
discrimination cases and affirmative action proceedings).
7.7 Contracts and Other Obligations. Except for contracts and
agreements listed on Schedule 7.7 attached hereto and made a part hereof, the
Acquiror is not a party to, nor is the Acquiror or any of its assets, properties
or securities bound by, any written or oral: (i) agreement or contract not made
in the ordinary course of business; (ii) employment, advisory or consulting
agreement or contract extending for more than 30 days; (iii) agreement or
contract with any labor or trade union or association; (iv) bonus, pension,
profit-sharing, retirement, stock purchase, hospitalization, insurance or other
plan providing for employee benefits; (v) lease with respect to any property,
real, personal or mixed, whether as lessor or lessee, requiring payment over its
term in excess of the aggregate of $5,000; (vi) continuing obligation for the
future purchase, sale or provision of material, supplies, equipment or services
which requires, or which in the aggregate require the payment of $5,000 or more
which is not cancelable without penalty; (vii) single agreement or contract for
expenditures or commitment for expenditures in excess of $5,000 or agreements or
contracts for expenditures in excess of $2,500 or agreements or contracts for
expenditures or commitments for expenditures in excess of $10,000 in the
aggregate or, in any case, extending beyond the Closing; (viii) loan, pledge of
security agreement; or (ix) other contract or agreement for the purchase, sale
or provision of any assets involving payments exceeding $5,000 which is not
cancelable without penalty.
7.8 Consents. All requisite consents of third parties, including,
but not limited to, governmental or other regulatory agencies, federal, state or
municipal, including the Specialty Finance Division of the Department of
Insurance of the State of Florida, required to be received by or on the part of
the Acquiror for or in connection with the execution and delivery of any of this
Plan of Reorganization and the performance or the obligations of the Acquiror
hereunder have been or, prior to the Closing Date, will be obtained and are, or
will be in full force and effect. The Acquiror has fully complied, or will, on
or prior to the Closing Date, fully comply with all conditions of such consents.
7.9 Disclosure. No representations or warranties contained within
this Plan of Reorganization, and no statements contained in any of the Schedules
attached hereto, or in any instrument, list, certificate or right delivered by
Acquiror to the Acquiree pursuant to this Plan of Reorganization contains or
will contain any untrue statement of a material fact or omits or will omit to
state any material fact necessary to make these statements herein or therein not
misleading. No fact is known to Acquiror which materially or adversely affects
or in the future may materially and adversely affect the businesses, financial
conditions, results of operations or prospects of Acquiror which has not been
set forth in the Schedules attached hereto, or otherwise disclosed to Acquiree
in writing.
8. Additional Agreements.
8.1 Insurance Department Approval. Commencing on the date hereof,
all of the parties hereto shall make such necessary applications to the
Insurance Department and take all requisite further steps to obtain approvals of
the Insurance Department of the transactions herein. (the "Insurance Department
Approvals")
8.2 Equity Funding. Acquiror will use its best efforts to raise a
minimum of $800,000 (or such lesser amount as provided in this section) or
maximum of $2,300,000 ("Equity Funding") of net proceeds from the proposed
issuance of convertible preferred stock and Common Stock. No more than 1,000,000
shares of Common Stock shall be issued or reserved for issuance in connection
with the offering and the per share price of Common Stock shall be no less than
$3.00 a share. Any preferred stock sold shall bear a per annum dividend rate of
no greater than 10 3/4%. In the event that one or more of the debt holders
listed on Schedule 9.12 elects to convert his or her debt into Preferred Stock
at the closing, then the $800,000 minimum shall be reduced by the amount of debt
converted pursuant
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to Section 9.12.
8.3 Surrender of Shares. The Historic Acquiror Stockholders shall
have 1,000,000 shares of Acquiror Common Stock as of the Closing Date. Provided
that a minimum of $800,000 (or such lesser sum permitted by Section 8.2) of the
Equity Funding has been raised as of the Closing, they will retain 266,666
shares of the Acquiror's Common Stock. As of the "Final Closing Date" of the
Equity Funding, the Historic Acquiror Stockholders will surrender to Acquiror
for cancellation a pro-rata portion of their 733,334 shares, if any, based upon
the extent to which the additional $1,500,000 of Equity Funding is not raised by
the Final Closing Date. For the purposes of this provision, "Final Closing Date"
shall be within ninety (90) days from the Closing Date.
8.4 Further Assurances. The parties hereto will use their best
efforts to comply with all legal requirements imposed upon them with respect to
the transactions contemplated by this Agreement. Each party agrees to execute
and deliver any and all further agreements, documents or instruments necessary
to effectuate this Agreement and the transactions referred to herein,
contemplated hereby or reasonably requested by the other party. Each party
hereto will use its best efforts to effectuate this Agreement and take, or cause
to be taken, all action and to do or cause to be done, all things necessary to
consummate and make effective this Agreement, including, without limitation,
obtaining, as soon as practicable, all permits, authorizations, consents,
waivers and approvals from third parties or governmental authorities necessary
to consummate the transactions contemplated in this Agreement, and to complete
the transactions contemplated by this Agreement as promptly as practicable and
will promptly notify the other party. Each party hereto will use its best
efforts to effectuate this Agreement as promptly as practicable and will
promptly notify the other party of any information that would prevent or
materially affect the consummation of the transaction contemplated by this
Agreement, or would indicate or constitute a breach of the terms, conditions,
representations, warranties or agreement of any of the parties to this
Agreement.
8.5 Investment Banking Agreement. Acquiror shall no later than the
Closing enter into an Investment Banking Agreement with American Maple Leaf
Financial Corporation ("AMLF") a copy of which is attached hereto as Schedule
8.5, pursuant to which, among other things, AMLF shall have a right of first
refusal to act as investment banker on all financings undertaken by Acquiror and
any Subsidiaries after the date of this Agreement.
8.6 Registration of Shares. Acquiror shall file a registration
statement (the "Registration Statement") with the Securities and Exchange
Commission the purpose of which is to register certain of the outstanding shares
of Acquiror under the Securities Act of 1933, as amended (the "Act") at such
time as the Acquiror's Board of Directors, upon the advice of its investment
bankers, auditors or other consultants, deems such filing to be in the best
interests of the Acquiror. Acquiror shall pay the expenses of preparing and
filing such Registration Statement.
8.7 Access; Confidentiality. Acquiror and Acquiree shall, between
the date hereof and the Closing Date, give, and cause each other's
representatives, including, without limitation, such advisors, accountants and
attorneys as may be designated by each, full access during normal business hours
to all of their respective assets, properties, books, records, agreements and
commitments; furnish, and cause each other's representatives to be furnished
with all such information concerning their respective business affairs as such
representatives may reasonably request in connection with the transactions
contemplated hereby and cause each other's employees to render to such
representatives reasonable access to each of their properties and assets, all
contracts, agreements and other commitments, and all books, records, and other
information, all at the sole cost and expense of the party requesting such
information; provided however, that any such representatives shall not remove
any original books, records or other documents from the premises of Acquiree or
Acquiror (although such representatives may make and remove copies of any of
such originals). All information obtained in connection with this transaction
shall be held in strict confidence and shall not be used for any purpose other
than evaluating and/or consummating the proposed transactions hereunder. If the
transactions contemplated by this Plan of Reorganization shall not be
consummated, such confidences shall be maintained and all such documents shall
immediately thereafter be returned to their source. No investigation by any such
representatives shall affect the continuing validity or effect of the
representations, warranties or obligations of the parties contained in this Plan
of Reorganization.
8.8 Conduct of Business. The Acquiror and Acquiree shall conduct
their businesses and operations and maintain all of their properties and assets
between the date hereof and the Closing Date in a manner consistent with
maintaining the continued accuracy of the representations and warranties
contained in this Plan of Reorganization as of the Closing Date subject to
changes therein which occur in the ordinary course of business. Each party
hereto shall use its best efforts to fulfill or cause to be fulfilled all
conditions required to be fulfilled by it pursuant to Sections 9 and 10
hereunder on or prior to the Closing Date.
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8.9 Shares to be Issued to the Shareholders.
(a) The Acquiror Shares and the Earn-Out Shares issuable to
the Shareholders in exchange for the Acquiree Shares will, when issued and
delivered in accordance with the terms and conditions of this Plan of
Reorganization, be validly issued, fully paid and nonassessable, free and clear
of all liens, levies, pledges, claims, encumbrances, warrants, options,
mortgages, security interests and rights of others. The Shareholders acknowledge
and agree (a) that they have such knowledge and experience in financial and
business matters that they are capable of obtaining and utilizing the
information necessary to evaluate the risks of investing in the Acquiror; (b)
that they have been advised that the Acquiror Shares and the Earn-Out Shares to
be issued to them by the Acquiror will not be registered under the Act, and
accordingly, subject to the registration of such shares pursuant to Sections 9.8
and 10.16 hereof, they may not be able to sell or otherwise dispose of Acquiror
Shares and the Earn-Out Shares when they wish to do so; (c) that the Acquiror
Shares and the Earn-Out Shares so issued are being acquired by for their own
benefit and on account for investment and not with a view to, or resale in
connection with a public offering or distribution thereof; (d) that the Acquiror
Shares and the Earn-Out Shares so issued will not be resold (i) without
registration thereof under the Act (unless in the opinion of counsel to the
Acquiror, an exemption from such registration is available), or (ii) in
violation of any law; (e) that the certificate or certificates representing the
Acquiror Shares and the Earn-Out Shares to be issued will be imprinted with a
legend in form and substance as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED
OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION,
OR THE AVAILABILITY OF AN EXEMPTION FROM REGISTRATION,
UNDER THE SECURITIES ACT OF 1933, BASED ON AN OPINION
LETTER OF COUNSEL FOR THE CORPORATION OR A NO-ACTION
LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION".
and the Acquiror is hereby authorized to notify its transfer agent of the status
of the Acquiror Shares and the Earn-Out Shares and to take such other action
including, but not limited to, the placing of a "stop-transfer" order on the
transfer agent's books and records to ensure compliance with the Act.
(b) The Acquiror has agreed to issue 600,000 shares of common
stock to the Shareholders and 320,000 to the Escrow Agent upon the Closing Date.
In the event that prior to the Closing Date the capitalization of the Acquiror
is changed so as to reflect the effects of a stock dividend, forward stock split
or reverse stock split, the Acquiror and Shareholders agree that the number of
Acquiror Shares and Earn-Out Shares to be distributed to the Shareholders will
be adjusted to take into account any such recapitalization.
8.10 Release of Information. Prior to the Closing hereof, the
Acquiror and Acquiree agree to provide each other with at least 24 hours' notice
and a copy of any press release or other information to be disclosed to the
public regarding the transactions contemplated within this Plan of
Reorganization. The party providing such information shall give the party
reviewing such information at least 24 hours to review same, and shall accept
any and all reasonable comments relative thereto.
8.11 Issuance of Other Acquiror Shares. The parties acknowledge and
agree that certain shares of Acquiror will be issued pursuant to the terms of an
acquisition agreement with National-Wide Premium Finance Co. ("National-Wide").
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8.12 Exclusivity. The terms of this Plan of Reorganization reflect
an arrangement between Acquiror, Acquiree and the Shareholders that shall remain
exclusive among the parties for the term of this Plan of Reorganization.
Accordingly, during the term hereof, neither of the parties hereto may contact
any third parties for the purpose of soliciting or arranging for the
solicitation of any proposals involving a business combination, debt or equity
financing, sale of more than ten (10%) percent of its outstanding capital stock
or assets, issuance of additional securities, merger, consolidation, or other
capital transaction out of the ordinary course.
9. Conditions Precedent to the Obligations of Acquiree and the Shareholders.
All of the obligations of the Shareholders and Acquiree under this
Plan of Reorganization are subject to the fulfillment, prior to or as of the
Closing Date, of each of the following conditions:
9.1 The representations and warranties by or on behalf of Acquiror
contained in this Plan of Reorganization, or in any certificate or document
delivered pursuant to the provisions hereof, shall be true in all material
respects at and as of the time of Closing as though such representations and
warranties were made at and as of such time.
9.2 Acquiror shall have performed and complied with all covenants,
agreements, and conditions required by this Plan of Reorganization to be
performed or complied with by it prior to or on the Closing Date.
9.3 The present Board of Directors of Acquiror shall have, as of the
Closing Date, tendered their resignations in favor of a newly constituted Board
of Directors consisting of designees of the Shareholders and the Historic
Acquiror Stockholders as provided in the Stockholders' Agreement.
9.4 All instruments and documents delivered to the Acquiree and the
Shareholders, pursuant to the provisions hereof, shall be reasonably
satisfactory to legal counsel for Acquiree.
9.5 The concurrent closing of the acquisition by Acquiror of
National-Wide upon terms and conditions acceptable to the Shareholders and
Acquiree.
9.6 A minimum of $800,000 (or such lesser sum as permitted by
Section 8.2) of the Equity Funding has been raised and invested in Acquiror.
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9.7 Acquiror shall close on a certain $5,000,000 credit facility
with First Western Bank or such other bank acceptable to the parties and upon
the terms and conditions acceptable to the parties (the "Credit Facility").
9.8 Acquiror shall enter into the Employment Agreements.
9.9 Except as contemplated in Sections 8.5 and 8.11, that prior to
Closing, without the prior written consent of Acquiree, Acquiror shall not (i)
make any distributions of any kind whatsoever, including, but not limited to,
(a) stock- splits, (b) stock dividends and (c) cash dividends; or (ii) engage in
a material corporate transaction, including, but not limited to, a merger,
consolidation, business combination, share exchange or sale of material assets.
9.10 The Parties shall have entered into the Stockholders'
Agreement.
9.11 Concurrently with the Closing, the persons identified on
Schedule 9.11 shall convert existing debt of Acquiree in the aggregate amount of
$600,000 into 200,000 shares of newly issued Preferred Stock issuable as of the
Closing Date.
9.12 Acquiror shall have offered to the persons identified under
Schedule 9.12 the right to convert their existing debt into newly issued
Preferred Stock issuable as of the Closing Date at a price of $3.00 per share.
9.13 The Insurance Department Approvals shall have been obtained.
10. Conditions Precedent to the Obligations of Acquiror. All obligations
of Acquiror under this Plan or Reorganization are subject to the fulfillment,
prior to or at the Closing on the Closing Date, of each of the following
conditions:
10.1 The representations and warranties by or on behalf of Acquiree
and the Shareholders contained in this Plan of Reorganization, or in any
certificate or document delivered to Acquiror pursuant to the provisions hereof,
shall be true at and as of the time of Closing as though such representations
and warranties were made at and as of such time.
10.2 Acquiree and Shareholders shall have performed and complied
with all covenants, agreements, and conditions required by this Plan of
Reorganization to be performed or complied with by them prior to or at the
Closing; including the delivery of the stock of Acquiree being exchanged
hereunder.
10.3 Shareholders shall deliver to Acquiror an "investment letter"
in form and substance set forth in Schedule 10.3, attached hereto and made a
part hereof, agreeing that Acquiror Shares are being acquired for investment
purposes.
10.4 Delivery by the persons identified in Schedule 9.11 of certain
releases.
10.5 All instruments and documents delivered to Acquiror pursuant to
the provisions of this Plan of Reorganization shall be reasonably satisfactory
to legal counsel for Acquiror.
10.6 That prior to Closing, without the prior written consent of
Acquiror, Acquiree shall not (i) make any distributions of any kind whatsoever,
including but not limited to (a) stock splits, (b) stock dividends, and (c) cash
dividends; or (ii) engage in a material corporate transaction, including but not
limited to a merger, consolidation, business combination, share exchange or sale
of material assets.
10.7 Acquiree shall have delivered to Acquiror the Financial
Statements.
10.8 Acquiror shall enter into the Employment Agreements.
10.9 The concurrent closing of the acquisition by Acquiror of
National-Wide Premium Finance Co. upon terms and conditions acceptable to the
Acquiror.
10.10 A minimum of $800,000 (or such lesser sum as permitted by
Section 8.2) of the Equity Funding has been raised and invested in Acquiror.
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10.11 Acquiror shall close on the Credit Facility.
10.12 Concurrently with the Closing, the persons identified on
Schedule 9.11 shall convert existing debt of Acquiror in the aggregate amount of
$600,000 into 200,000 shares of newly issued Preferred Stock issuable as of the
Closing Date.
10.13 There shall have been no material adverse change in the
business or affairs of Acquiree from the date of this Agreement at the Closing.
10.14 The Parties shall have entered into the Stockholders'
Agreement.
10.15 The Insurance Department Approvals shall have been obtained.
11. Delivery of Exhibits and Schedules. The Parties acknowledge that
certain exhibits and schedules to this Agreement must be prepared and delivered.
In particular, Acquiree and Shareholders must deliver all of the exhibits
referred to in Article 6 as well as the exhibit referred to in Sections 9.11 and
9.12 (collectively "Acquiree's Exhibits"). Acquiror needs to deliver Schedule
2.3(b), the Release Agreement referred to in Section 5(a)(8), the Schedules
referred to in Section 7.5 and Section 7.7 and Schedule 8.5 ("Acquiror's
Exhibits"). Acquiree's Exhibits and Acquiror's Exhibits shall be delivered to
the other party within five (5) business days after the date of this Agreement.
12. Termination.
(a) This Agreement may be terminated by Acquiror if it does not
receive Acquiree's Exhibits within the time set forth in Section 11 and such
exhibits are not completely satisfactory to Acquiror.
(b) This Agreement may be terminated by Acquiree and Shareholders if
they do not receive Acquiror's Exhibits within the time period set forth in
Section 11 and such exhibits are not completely satisfactory to Acquiree and
Shareholders.
(c) This Agreement may be terminated by either of the parties hereto
in the event that a definitive agreement, satisfactory to the party, is not
entered into with National-Wide within sixty (60) days of the date hereof.
(d) This Agreement may be terminated by Acquiree and Shareholders in
the event that the $800,000 minimum of the Equity Funding has not been raised
within a period of forty-five (45) days from the date that Acquiror has entered
into definitive purchase agreement with National-Wide.
(e) Either party may terminate this Agreement if, for any reason the
Closing hereunder does not occur within a period of six (6) months from the date
hereof.
13. Remedies and Indemnification.
13.1 Remedies. In the event that: (i) Acquiror fails to complete the
Equity Funding in accordance with Section 8.2; or (ii) breaches any of the
terms, conditions, covenants or representations and warranties contained within
this Agreement, the consequence of which is that a Closing hereunder does not
occur, then Acquiree and the Shareholders shall have the option to pursue either
of the following remedies:
(a) To recover reimbursement of all legal, accounting, travel
and other expenses incurred by them in connection with any of the transactions
contemplated by this Agreement; or
(b) To seek injunctive or other equitable relief seeking to
enforce any covenant or agreement made by Acquiror, which action shall, if
successful, require the payment of costs and reasonable counsel fees by
Acquiror.
13.2 Remedies of Acquiror. In the event Acquiree or Shareholders
have breached any of the terms, conditions, covenants or representations and
warranties contained within this Agreement, the consequence of which is that a
Closing hereunder does not occur, the Acquiror shall have the option to pursue
either of the following remedies:
(a) To recover all legal, accounting, travel or other expenses
incurred in connection with
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any of the transactions contemplated by this Agreement; or
(b) To seek injunctive or other equitable relief seeking to
enforce any covenant or agreement made by Acquiree or the Shareholders which
action shall, if successful, require the payment of costs and reasonable counsel
fees by Acquiree or the Shareholders.
13.3 Indemnification.
13.3.1 The Acquiree and Shareholders. After the Closing, the
Acquiree and Shareholders shall jointly and severally indemnify, defend and hold
harmless the Acquiror from and against any and all demands, claims, actions or
causes of action, judgments, assessments, losses, liabilities, damages or
penalties and reasonable attorneys' fees and related disbursements
(collectively, "Claims") incurred by the Acquiror which arise out of or result
from a misrepresentation, breach of warranty, or breach of any covenant of the
Acquiree or Shareholders contained herein or in the Schedules annexed hereto or
in any exhibit, closing certificate, schedule or any ancillary certificates or
other documents or instruments furnished by the Acquiree or Shareholders
pursuant hereto or in connection with the transactions contemplated hereby or
thereby.
13.3.2 The Acquiror. The Acquiror shall indemnify, defend and
hold harmless the Acquiree and Shareholders from and against any and all Claims
incurred by the Acquiree or Shareholders which arise out of or result from a
misrepresentation, breach of warranty or breach of any covenant of the Acquiror
contained herein or in any ancillary certificates or other documents or
instruments furnished by the Acquiror pursuant hereto.
13.3.3 Methods of Asserting Claims for Indemnification. All
claims for indemnification under this Agreement shall be asserted as follows:
Third Party Claims. In the event that any Claim for which a party (the
"Indemnitee") would be entitled to indemnification under this Agreement is
asserted against or sought to be collected from the Indemnitee by a third party,
the Indemnitee shall promptly notify the other party (the "Indemnitor") of such
Claim, specifying the nature thereof, the applicable provision in this Agreement
or other instrument under which the Claim arises, and the amount of the
estimated amount thereof (the "Claim Notice"). The Indemnitor shall have thirty
(30) days (or, if shorter, a period to a date not less than ten (10) days prior
to when a responsive pleading or other document is required to be filed but in
no event less than ten (10) days from delivery or mailing of the Claim Notice
(the "Notice Period") to notify the Indemnitee (a) whether or not it disputes
the Claim, and (b) if liability hereunder is not disputed, whether or not it
desires to defend the Indemnitee. If the Indemnitor elects to defend by
appropriate proceedings, such proceedings shall be promptly settled or
prosecuted to a final conclusion in such a manner as to avoid any risk of damage
to the Indemnitee; and all costs and expenses of such proceedings and the amount
of any judgment shall be paid by the Indemnitor.
If the Indemnitee desires to participate in, but not control,
any such defense or settlement, it may do so at its sole cost and expense. If
the Indemnitor has disputed the Claim, as provided above, and shall not defend
such Claim, the Indemnitee shall have the right to control the defense or
settlement of such Claim, in its sole discretion, and shall be reimbursed by the
Indemnitor for its reasonable costs and expenses of such defense if it shall
thereafter be found that such Claim was subject to indemnification by the
Indemnitor hereunder.
13.3.4 Non-Third Party Claims. In the event that the
Indemnitee should have a Claim for indemnification hereunder which does not
involve a Claim being asserted against it or sought to be collected by a third
party, the Indemnitee shall promptly send a Claim Notice with respect to such
Claim to the Indemnitor. If the Indemnitor does not notify the Indemnitee within
the Notice Period that it disputes such Claim, the Indemnitor shall pay the
amount thereof to the Indemnitee.
14. Nature and Survival of Representations. All representations,
warranties and covenants made by any party to this Plan of Reorganization shall
survive the Closing hereunder and the consummation of the transactions
contemplated hereby for two (2) years from the date of the Closing. All of the
parties hereto are executing and carrying out the provisions of this Plan of
Reorganization in reliance solely on the representations, warranties and
covenants and agreements contained in this Plan of Reorganization or at the
Closing of the transactions herein provided for and not upon any investigation
upon which it might have made or any representation, warranty, agreement,
promise or information, written or oral, made by the other party or any other
person other than as specifically set forth herein.
18
<PAGE>
15. Miscellaneous.
15.1 Notices. All notices given hereunder shall be in writing and
shall be effective if personally delivered or if sent by registered or certified
mail, postage prepaid, addressed to the appropriate party at the following
address: If to Acquiror:
LMI Acquisition Corp.
401 City Avenue, Suite 725
Bala Cynwyd, PA 19004-1122
Attention: Mr. L. Linsker
With copies to:
Stephen M. Cohen, Esquire
Clark, Ladner, Fortenbaugh & Young
One Commerce Square
2005 Market Street, 22nd Floor
Philadelphia, PA 19103
If to Acquiree:
Gold Coast Finance, Inc.
P.O. Box 21787
Fort Lauderdale, FL 33335
Attention: Mark Margolis, President
With copies to:
Mark Pachman, Esq.
Nason, Gildan, Yeager, Gerson & White, P.A.
United National Bank Tower
1645 Palm Beach Lakes Boulevard
Suite 1200
West Palm Beach, Florida 33401
If to the Shareholders:
(At the address indicated on
the transfer ledger of Acquiree,
unless otherwise provided)
Any party hereto may change the address to which any notice
hereunder is to be sent to it by giving notice of such change of address as
provided in this Paragraph 13.1.
15.2 Waiver. Any failure on the part of any party hereto to comply
with any of its obligations, agreements or conditions hereunder will not
constitute a waiver, however, may be waived in writing by the party to whom such
compliance is owed.
15.3 Brokers. Other than Jonathan Cohen and Steven Rosner, neither
party has employed any brokers or finders with regard to this Plan of
Reorganization. Messrs. Cohen and Rosner will each receive 35,000 shares of
Acquiror's Common Stock. The shares shall be restricted securities under Rule
144 of the 1933 Act. If any additional shares are required to be issued to
Steven Rosner, these additional shares shall be transferred to him by the
Historic Acquiror Shareholders out of the shares they own as of the date hereof.
19
<PAGE>
15.4 Expenses. Except as otherwise provide herein, the parties
hereto shall each pay their respective expenses and costs incurred or to be
incurred by them in negotiating and preparing this Plan of Reorganization and in
closing and carrying out the transactions contemplated by this Plan of
Reorganization, including, without limitation, all of their attorney's fees and
accounting fees. Legal fees and other fees and expenses in connection with the
obtaining of the Credit Facility, as well as fees and expenses of obtaining the
Insurance Department Approvals shall be borne by Acquiror.
15.5 Headings. The section and subsection headings in this Plan of
Reorganization are inserted for convenience only and shall not affect in any way
the meaning or interpretation of this Plan of Reorganization.
15.6 Counterparts. This Plan of Reorganization may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
15.7 Governing Law. This Plan of Reorganization shall be governed by
the laws of the State of Delaware.
15.8 Binding Effect and Assigns. This Agreement shall be binding
upon the parties hereto and inure to the benefit of the parties, their
respective heirs, administrators, executors, successors and assigns. Neither
party hereto shall assign its respective rights nor delegate its respective
obligations hereunder to any other party without the prior written consent of
all other parties hereto.
15.9 Entire Agreement. This Plan of Reorganization represents the
entire agreement of the parties hereto with respect to the transactions
contemplated hereby, and shall not be amended or terminated except by written
instrument duly executed by all of the parties hereto. Any and all previous
agreements, correspondence, letters of intent or understandings between the
parties regarding the subject matter hereof are superseded in their entirety by
this Plan of Reorganization.
15.10 No Third Party Rights. Nothing in this Agreement, expressed or
implied, shall be construed to confer upon any person, other than the parties
hereto and their successors and assigns, any legal or equitable rights,
remedies, claims, obligations or liabilities under or by reason of this
Agreement.
15.11 Severability. If any part of this Plan of Reorganization is
deemed to be unenforceable, the balance of the Plan of Reorganization shall
remain in full force and effect.
15.12 Enforcement Costs. If any legal action or other proceeding is
brought for the enforcement of this Agreement, or because of an alleged dispute,
breach, default or misrepresentation in connection with any provision of this
Agreement, the successful or prevailing party or parties shall be entitled to
recover reasonable attorneys' fees, court costs and disbursements.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above written.
ATTEST: LMI ACQUISITION CORP.
/s/ David Alperin By: /s/ Len Linkser
- ----------------------- ----------------------
ATTEST: GOLD COAST FINANCE, INC.
/s/ Roberta Margolis By: /s/ Steven Margolis
- ----------------------- ----------------------
WITNESSES SHAREHOLDERS:
20
<PAGE>
/s/ /s/ Steven Margolis
- ------------------------ -------------------------
/s/ /s/ Mark Margolis
- ------------------------ -------------------------
/s/ /s/ Roberta Margolis
- ------------------------ -------------------------
- ------------------------ -------------------------
21
<PAGE>
SCHEDULE 2.3(a)
PRINCIPAL TERMS OF SERIES B PREFERRED STOCK
@ Dividends - 10% payable in cash on an annual basis, based upon a
liquidation value of $3.00 per share.
@ Voting Rights - The holders of the Series B Preferred Stock shall
have voting rights (one vote per share).
@ Liquidation - The holders of the Series B Preferred Stock are
entitled to a liquidation preference of $3.00 per share upon liquidation of
Acquiror.
@ Rights of Conversion - Following issuance of the Series B
Preferred Stock, the holders thereof may convert such shares into shares of
Acquiror's common stock at a conversion rate of one share of common stock
converted for each share of preferred stock converted. The outstanding shares of
Series B Preferred Stock shall automatically convert into shares of the
Acquiror's common stock at the above conversion rate concurrently with the
effective date of Acquiror's Registration Statement (as defined in Section 8.6
hereof), if any, filed with the Securities and Exchange Commission for the
purposes of registering certain outstanding shares of Acquiror's common stock.
22
AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION
THIS AMENDMENT made this 17th day of July, 1995 by and among LMI
ACQUISITION CORP., a Delaware corporation (hereinafter "Acquiror"), GOLD COAST
FINANCE, INC., a Florida corporation (hereinafter "Acquiree"), and ROBERTA
MARGOLIS, an individual residing at 505 Isle of Capri, Ft. Lauderdale, Florida
33316, STEVEN MARGOLIS, an individual residing at 505 Isle of Capri, Ft.
Lauderdale, Florida 33316, and MARK MARGOLIS, an individual residing at 6855
N.W. 74th Court, Parkland, Florida 33067, (hereinafter individually, each a
"Shareholder" and collectively, the "Shareholders").
WHEREAS, Acquiror, Acquiree and Shareholders entered into an Agreement
and Plan of Reorganization dated May 15, 1995 (the "Agreement"); and
WHEREAS, the parties to the Agreement now desire to amend the
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and the
agreements contained herein, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Section 8.2 of the Agreement is hereby deleted in its entirety and
the following Section 8.2 is inserted in its place:
"8.2 Equity Funding. Acquiror will use its best efforts
to raise a minimum of $800,000 (or such lesser amount as
provided in this section) or maximum of $2,300,000
('Equity Funding') of net proceeds from the proposed
issuance of convertible preferred stock and Common
Stock. No more than 1,000,000 shares of Common Stock
shall be issued or reserved for issuance in connection
with the offering and the per share price of Common
Stock shall be no less than $3.00 a share. Any preferred
stock sold shall bear a per annum dividend rate of no
greater than 10-3/4%. In the event that one or more of
<PAGE>
the debt holders listed on Schedule 9.12 elects to
convert his or her debt into Preferred Stock at the
closing, then the Equity Funding requirements
shall be reduced by the amount of debt converted
pursuant to Section 9.12."
2. Section 8.3 of the Agreement is hereby deleted in its entirety and
the following Section 8.3 is inserted in its place:
"8.3 Surrender of Shares. The Historic Acquiror
Stockholders shall have 1,000,000 shares of Acquiror
Common Stock as of the Closing Date. Provided that a
minimum of $800,000 (or such lesser sum permitted by
Section 8.2) of the Equity Funding has been raised as of
the Closing, they will retain 266,666 shares of the
Acquiror's Common Stock. As of the 'Final Closing Date'
of the Equity Funding, the Historic Acquiror
Stockholders will surrender to Acquiror for cancellation
a pro-rata portion of their 733,334 shares, if any,
based upon the extent to which the additional $1,500,000
(or such lesser sum as permitted by Section 8.2) of
Equity Funding is not raised by the Final Closing Date.
For the purposes of this provision, 'Final Closing Date'
shall be within ninety (90) days from the Closing Date."
3. Section 9.7 of the Agreement is hereby deleted in its entirety and
the following Section 9.7 is inserted in its place:
"9.7 Acquiror shall close on a certain $5,000,000
premium finance contract purchase and servicing
agreement with First Western Bank or such other bank
acceptable to the parties and upon the terms and
2
<PAGE>
conditions acceptable to the parties (the 'Purchase and
Servicing Agreement')."
4. Section 10.11 of the Agreement is hereby deleted in its entirety and
the following Section 10.11 is inserted in its place:
"10.11 Acquiror shall close on the Purchase and
Servicing Agreement."
5. Section 12(d) of the Agreement is hereby deleted in its entirety and
the following Section 12(d) is inserted in its
place:
"This Agreement may be terminated by Acquiree and
Shareholders in the event that the $800,000 minimum of
the Equity Funding has not been raised within a period
of twenty-one (21) days from the date that Acquiror
shall obtain the Insurance Department Approvals."
6. Section 15.4 of the Agreement is hereby deleted in its entirety and
the following Section 15.4 is inserted in its place:
"15.4 Expenses. Except as otherwise provided herein, the
parties hereto shall each pay their respective expenses
and costs incurred or to be incurred by them in
negotiating and preparing this Plan of Reorganization
and in closing and carrying out the transactions
contemplated by this Plan of Reorganization, including,
without limitation, all of their attorney's fees and
accounting fees.
Legal fees and other fees and expenses in connection
with the obtaining of the Purchase and Servicing
Agreement, as well as fees and expenses of
3
<PAGE>
obtaining the Insurance Department Approvals shall be
borne by Acquiror."
7. The Agreement is hereby ratified and confirmed in all other
respects.
IN WITNESS WHEREOF, this Amendment has been executed by the duly
authorized representatives of the parties hereto on the day and year first above
written.
Attest: LMI ACQUISITION CORP.
______________________________ By:___________________________
Attest: GOLD COAST FINANCE, INC.
______________________________ By:___________________________
SHAREHOLDERS:
Witness:______________________ ______________________________
Witness:______________________ ______________________________
Witness:______________________ ______________________________
4
GOLD COAST FINANCE, INC.
16853 Northeast Second Avenue, Suite 401
North Miami Beach, Florida 33162
January 26, 1996
LMI Acquisition Corp.
401 City Avenue, Suite 725
Bala Cynwyd, Pennsylvania 19004
RE: Agreement and Plan of Merger by and between
LMI Acquisition Corp. and Gold Coast Finance, Inc.
dated May 19, 1995, as amended from time to time
(the "Agreement")
Gentlemen:
This will confirm that any shares of Series A $4 Convertible Preferred
Stock of LMI purchased upon conversion of the Debentures sold pursuant to the
Securities Purchase Agreement dated January _____, 1996 shall be treated for all
purposes under the Agreement as if the shares were part of the "Equity Funding"
as defined in Section 8.2 of the Agreement. In addition, the shares shall be
also deemed to be part of the "Private Placement," as defined in Section 3(ii)
of the Investment Banking Advisor Agreement.
Very truly yours,
GOLD COAST FINANCE, INC.
By: /s/ Mark Margolis
AGREED TO:
LMI ACQUISITION CORP.
By: /s/ David Alperin
AMENDMENT TO THE AGREEMENT AND PLAN OF REORGANIZATION
This Amendment, made this 28th day of March, 1996, by and among LMI
ACQUISITION CORP., a Delware corporation (hereinafter, "Acquiror"), GOLD COAST
FINANCE, INC., a Florida corporation (hereinafter, "Acquiree"), and ROBERTA
MARGOLIS, STEVEN MARGOLIS, AND MARK MARGOLIS (hereinafter, individually, each a
"Shareholder" and collectively the "Shareholders").
WHEREAS, Acquiror, Acquiree and Shareholders entered into an Agreement and
Plan of Reorganization dated May 15, 1995, as subsequently amended on July 17,
1995 and January 26, 1996 (the "Agreement"); and
WHEREAS, the parties to the Agreement now desire to further amend the
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Section 2.2 of the Agreement shall be deleted in its entirety and
instead be replaced with the following:
"2.2 Issuance of Additional Shares at the Closing. In addition, at
the Closing, Acquiror shall also issue to the Shareholders 320,000 shares of
restricted Common Stock of Acquiror, 160,000 of which shall be issued to Steven
Margolis and 160,000 issued to Mark Margolis.
2. The form of employment agreements to be issued to Steven Margolis and
Mark Margolis at the Closing shall be in the form attached hereto as Exhibits A
and B respectively.
3. Except as amended and modified herein, the Agreement is hereby ratified
and confirmed in all other respects.
<PAGE>
IN WITNESS WHEREOF, this Amendment has been executed by the duly
authorized representatives hereto on the day above written.
Attest: LMI ACQUISITION CORP.
/s/ Ted Zobian By: /s/ Andrew Panzo
- ------------------------ -------------------
GOLD COAST FINANCE, INC.
By: /s/ Mark Margolis
- ------------------------ -------------------
WITNESSES: SHAREHOLDERS:
/s/ Steven Margolis
- ------------------------ -------------------
STEVEN MARGOLIS
/s/ Mark Margolis
- ------------------------ -------------------
MARK MARGOLIS
/s/ Roberta Margolis
- ------------------------ -------------------
ROBERTA MARGOLIS
STOCK PURCHASE AGREEMENT
THIS AGREEMENT made this 5th day of May, 1995 by and among Jeanette
Waserstein, an individual residing at 740 71st Street, Miami, Florida 33141
individually and collectively hereinafter referred to as "Sellers") of
National-Wide Premium Finance Co., a Florida corporation (the "Company"); and
LMI Acquisition Corporation, a Delaware corporation ("LMI").
WHEREAS, the Sellers own in the aggregate one hundred percent (100%) of
the issued and outstanding common stock of the Company (the "Shares");
WHEREAS, the Company has since 1985 been engaged in the business of
originating and servicing insurance premium finance contracts;
WHEREAS, Sellers desire to sell the Shares and LMI desires to purchase
the Shares upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Sale of Shares; Purchase Price.
1.1 Sale of Shares. For and in consideration of the payment of the
purchase price set forth below, at the Closing, Sellers shall sell, convey,
transfer and assign to LMI, and LMI shall purchase, acquire and accept from
Sellers, 500 shares of common stock of the Company which constitutes one hundred
percent (100%) of the outstanding shares of common stock (the "Shares"). The
Shares shall be free and clear of all claims, liens, charges and encumbrances.
At the Closing, Sellers shall deliver the Shares as represented by the Company's
stock certificates, properly endorsed for transfer by Sellers, along with an
assignment separate from certificate executed by Sellers.
1.2 Purchase Price. Subject to the terms and conditions of this
Agreement, the purchase price paid by LMI for the Shares (the "Purchase Price")
shall be as follows:
(i) cash accounts, plus contract (premium finance accounts)
receivables, plus down payment receivables, plus agents receivables, plus
prepaid drafts, plus prepaid insurance, plus
<PAGE>
prepaid taxes, plus security deposits, plus miscellaneous receivables, minus
notes payable to banks, minus unearned finance income, minus documentary stamp
amounts, minus drafts in transit, minus amounts due to insureds, minus unearned
origination fee income, minus accounts payable and accrued expenses, minus
drafts payable, minus refunds payable, minus amounts payable to insurance
agencies, minus withholding tax payable, minus accrued interest, minus all
supplemental payables ("Net Value") as of the Closing Date; plus
(ii) Two Hundred Thousand Dollars ($200,000); plus
(iii) An amount equal to the outstanding balance on the credit
facility provided by Capital Bank to the Company as of the Closing Date, which,
by way of illustration and not limitation, was $513,398 as of March 31, 1995.
For the purposes of determining "Net Value," the terms set forth in
Section 1.2 (i) shall have the meaning set forth on the balance sheet contained
within the financial statements (or if no such financial statements have been
prepared, on the Company's financial books and records of original entry) of the
Company, as of the Closing Date. The determination of Net Value as set forth on
Schedule 1.2.1 hereto shall express the intent of the parties as to the
calculation of the Purchase Price utilizing the Closing Date Balance Sheet (as
hereinafter defined). For the purposes of determining "Net Value", the premium
finance accounts receive shall be calculated without deduction for "allowance
for credit losses."
For the purposes of determining the Purchase Price, the amount which
insurance agencies owe to the Company and "miscellaneous receivables" will be
credited toward the Purchase Price; provided, however, that any such amount
which are not collected and received by LMI within 60 days of the Closing Date,
at LMI's election, shall be immediately remitted by Sellers to LMI in
consideration for assignment of such receivables to Sellers. All bad debts in
collection or bad debts as to which Sellers shall be otherwise responsible as of
the Closing Date shall be assigned to Sellers; provided, however, that such bad
debts to be assigned shall not have been included in the calculation of the
Purchase Price. Seller shall reimburse LMI for those amounts owed by insurance
companies to the Company which on the Closing Date are in excess of 120 days
old; provided that Seller shall not be otherwise responsible for any amounts
owed by insurance companies to the Company.
2
<PAGE>
The Purchase Price shall be paid to each Seller in accordance with
Schedule 1.2(a) to be attached hereto as of the Closing Date.
1.2.1 Purchase Price Adjustment.For the purposes of payments of the
Purchase Price to be made on the Closing Date, the parties will calculate Net
Value utilizing the Company's balance sheet as of March 31, 1995 as set forth on
Schedule 1.2.1. The parties hereby agree that the Net Value is $1,159,228 and
the aggregate Purchase Price for the purposes of Closing payments is $1,872,626.
The Purchase Price will be finally determined based upon a Closing Date Balance
Sheet (as hereinafter defined) and adjusted accordingly (the "Purchase Price
Adjustment") in the same manner as set forth on Schedule 1.2.1.
Within thirty (30) days after Closing, Sellers shall deliver a
Closing Date Balance Sheet to LMI as of the close of business on the Closing
Date prepared in accordance with generally accepted accounting principles (the
"Closing Date Balance Sheet") and a Net Value based thereon. LMI shall have the
right to audit the Closing Date Balance Sheet and shall have thirty (30) days
from the date of receipt of the Closing Date Balance Sheet within which to
notify Sellers of any objections to the Closing Date Balance Sheet or the Net
Value. If LMI fails to notify Sellers of any such objections, the Net Value
shall be deemed to have been finally determined. If LMI timely notifies Sellers
of objections to the Closing Date Balance Sheet or the Net Value, LMI and the
Sellers will endeavor to resolve such objections. If LMI and Sellers are unable
to resolve such objections within fifteen (15) days, either party may submit the
issue to arbitration under the rules of the American Arbitration Association,
and any award thereunder shall be final and binding upon the parties in
accordance with Section 9.2 hereof. The Parties will share the expense of such
arbitration equally. Once the Net Value is finally determined, Sellers will
promptly remit to LMI any overpayment if the parties determine that the Sellers
were overpaid at Closing and LMI shall promptly pay to Sellers any increase if
the parties determine that the Sellers were underpaid at Closing. Any downward
adjustment in the Purchase Price shall be paid by Sellers in the first instance
with the surrender of Preferred Stock at a rate of $3.00 per share. The portion
of the Purchase Price escrowed at Closing in accordance with Section 1.3.1 shall
be released pursuant to such Purchase Price Adjustment.
1.3 Manner of Payment. The Purchase Price shall be paid as follows:
3
<PAGE>
1.3.1 Series A Preferred Stock. $200,000 of the Purchase Price
shall be paid to the Sellers and $100,000 to Isaac Raijman by delivery at
Closing of 83,333 shares of LMI's newly designated Series A $3.00 Preferred
Stock ("Preferred Stock") to Seller and delivery into escrow of 16,667 shares of
Preferred Stock to be released in accordance with the Purchase Price Adjustment.
A summary of the terms of the Preferred Stock is attached hereto as Schedule
1.3.1(a). Such Preferred Stock shall be more fully described in the "Certificate
of Designation" which shall be attached hereto and made a part hereof as
Schedule 1.3(b) as of the Closing.
1.3.2 Immediately Available Funds. The balance of the Purchase
Price shall be paid to the Sellers by delivery at Closing of cash, check, wire
transfer or other immediately available funds to the following persons in the
following order of priority:
(i) Pursuant to Section 1.2(iii) hereof, to Capital Bank
an amount equal to the outstanding balance on the credit facility provided by
Capital Bank to the Company as of the Closing Date as set forth on Schedule
1.3.2 to be attached hereto and made a part hereof as of the Closing Date.
(ii) To certain third party creditors identified on
Schedule 1.3.2(ii).
(iii) The balance of the Purchase Price to the Sellers in
accordance with Schedule 1.2.
At Closing, the deposit(s) paid by LMI to Sellers shall be
credited against the Purchase Price. At Closing, LMI shall place the sum $40,000
into escrow pursuant to the terms of this Agreement with an escrow agent agreed
upon by the parties ("Escrow Agent") to be disbursed in accordance with an
upward adjustment to the Purchase Price, if any, pursuant to the Purchase Price
Adjustment.
1.3.3 Deposit(s). Within 5 business days after LMI obtains a
written commitment to secure the financing referenced at Section 5.7 hereafter
(the "Commitment"), LMI shall deposit into escrow pursuant to the terms of this
Agreement with the Escrow Agent the sum of $25,000. These funds are to be
retained in escrow in accordance with the terms of the Escrow Agreement attached
hereto and made a part hereof as Exhibit 1.3.3. If the Closing shall not have
occurred by June 15, 1995 for any reason other than as permitted in this
Agreement, such deposit, with accrued interest, shall be retained by Sellers. If
the Closing shall not have occurred by June 15, 1995 for reasons that are
4
<PAGE>
permitted in this Agreement then the deposit with accrued interest shall be
returned to LMI. LMI may elect to extend the Closing Date until July 15, 1995 in
consideration for the deposit into escrow of an additional sum of $25,000 on
July 15, 1995. If the Closing Date is so extended, all deposits shall remain in
escrow pursuant to this Section 1.3.3 and the Escrow Agreement. In the event
that the Closing shall not have occurred by July 15, 1995, for any reason other
than as permitted in this Agreement, the deposit with accrued interest shall be
retained by Sellers. In the event that the Closing shall not have occurred by
July 15, 1995 for any reason as permitted in this Agreement, the deposit with
accrued interest shall be returned with interest to LMI.
2. Closing. At 10:00 a.m. on June 15, 1995, unless extended by LMI as
provided at Paragraph 1.3.3 above, the Closing of the sale and purchase of the
Shares shall take place in the offices of Richard Waserstein at 913 Normandy
Drive, Miami Beach, Florida or at such other place and time as the parties
mutually agree (the "Closing" or "Closing Date").
3. Representations and Warranties of Sellers. Sellers, intending to be
obligated hereunder jointly and severally, hereby represent and warrant to LMI,
intending for it to rely thereon, as follows:
3.1 Title to Shares. Except as set forth on Schedule 3.1, each of
Sellers own that number of the Shares shown on Schedule 3.1 beneficially and of
record, free and clear of any lien, pledge, charge, encumbrance, covenant,
restriction, option agreement or claim.
3.2 Execution and Enforceability. This Agreement and the other
agreements to which Sellers are a party pursuant hereto have been duly executed
and delivered by, and constitute valid and binding obligations of Sellers
enforceable against them in accordance with their respective terms.
3.3 Due Authorization. The execution, delivery and performance by
Sellers of this Agreement are within their full legal right, power and authority
and do not contravene, permit the termination of or constitute a default (or an
event which, with or without the giving of notice or the passage of time, or
both, will constitute a default) under any agreement or other instrument binding
upon them, excluding any contravention, termination or default which does not
affect Sellers' ability to consummate the transactions contemplated by this
Agreement and does not result in the creation or imposition of any lien, charge
or encumbrance upon any of the Shares.
5
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3.4 Organization and Standing of the Company. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the state of Florida and has the corporate power to own its property and
assets and to carry on its business as now being conducted. Copies of the
Articles of Incorporation and By-laws of the Company as amended and currently in
effect are attached as Schedule 3.4. The Company is qualified to do business in
all jurisdictions in which the conduct of its business requires such
qualification. There presently are no proceedings pending or threatened wherein
any state has asserted that the Company's activities require it to qualify as a
foreign corporation in such state.
3.5 Capitalization. The capital stock of the Company consists solely
of 500 shares of common stock, $100 par value, of which 500 shares are issued
and outstanding. The Shares are validly issued, fully paid and nonassessable.
3.6 No Options, Warrants, Rights, Etc. Except as set forth on
Schedule 3.6, there are no authorized or outstanding any options, warrants,
agreements, calls, rights, plans or other commitments of any character providing
for the issuance, delivery, purchase or sale of any shares of capital stock of
the Company.
3.7 Subsidiaries. The Company has no subsidiaries.
3.8 Sufficiency of Assets. The Company owns or leases all of the
properties and assets necessary for the conduct of its business.
3.9 Financial Statements. Attached as Schedule 3.9 are copies of the
audited financial statements of the Company for the past three years and
unaudited financial statements for the interim period ending, March 31, 1995, in
the aggregate (the "Financial Statements") including statements of income and
retained earnings, statements of cash flow, balance sheets, supplemental
schedules and footnotes, all of which, are true and correct, have been prepared
in conformity with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated and fairly present the results
of its operations and condition of the Company for the periods indicated.
3.10 No Undisclosed Liabilities. Except as set forth in Schedule
3.10, the Company has no liabilities or obligations accrued, absolute or
contingent, except as disclosed in the Financial Statements of the Company as
set forth in Schedule 3.9.
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3.11 Absence of Certain Changes. Except as disclosed in Schedule
3.11, since December 31, 1994, the Company has conducted and until the Closing
Date will conduct, its business only in the ordinary course and has not and will
not have:
3.11.1 incurred any material adverse change in its financial
condition, results of operations, business or property;
3.11.2 incurred any obligation or liability affecting its
operations or business except normal trade obligations and taxes incurred in the
ordinary course of business and consistent with its prior practices;
3.11.3 purchased, sold, assigned, transferred, mortgaged,
pledged or subjected to any lien, charge, security interest or any other
encumbrance or restriction any of its assets except in the ordinary course of
its business (and except for any lien for unpaid property taxes not yet due);
3.11.4 suffered any labor trouble, or any damage, destruction or
loss which has materially adversely affected any of its assets or business;
3.11.5 made, or obligated itself in any way to make, any
increase in the compensation payable to any officer, director or employee, or
incurred any further employment obligations or commitments;
3.11.6 terminated, transferred or granted any rights under any
leases, licenses, trademarks or trade names except in the ordinary course of
business;
3.11.7 made any changes in its capital stock or declared or paid
any dividend or declared or made any distribution on, or authorized the creation
or issuance of, or issued or otherwise effected any split-up or other
reclassification or reorganization of any of its securities of any class, or
directly or indirectly redeemed, purchased or otherwise acquired any of its
outstanding securities, or agreed to take any such action;
3.11.8 issued or sold any Shares or any options, warrants, or
other rights to purchase any Shares or any securities convertible into or
exchangeable for Shares;
3.11.9 incurred any indebtedness for borrowed money or issued or
sold any debt securities; or
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3.11.10 forgiven or cancelled any debts or claims, or waived any
rights.
3.12 Material Changes. Except as disclosed in Schedule 3.12, no
hidden fact or hidden condition exists or is contemplated or threatened other
than existing market conditions, which might cause a material change in the
assets, liabilities, financial condition or results of operations of the Company
in the future. No representation or warranty is made with respect to the future
impact of pending or future federal, state or local laws.
3.13 Taxes. The Company has filed all income, sales, excise,
corporate, franchise, property, payroll and other tax returns and reports which,
as of the date hereof, it is required to file by the United States of America
and any state or other political subdivision and has paid all taxes or
assessments relating to the periods covered by such returns or reports, or
resulting from any assessment, proposed deficiency, settlement or resettlement
of such taxes, returns or reports. All such income, excise, corporate,
franchise, property, payroll and other taxes properly chargeable with respect to
the Company or its earnings as of the Closing will be properly accrued and
provided for on the Company's internal financial statements as of the Closing
Date. On the Closing Date, the Company will not have any liability for any such
income, sales, excise, corporation, franchise, property, payroll or other taxes
except as set forth upon Schedule 3.13. There are no present disputes or
outstanding audits as to taxes of any nature payable by the Company.
3.14 Leases. The Company is not a party, either as lessor or lessee,
to any lease of any property except for the leases listed in Schedule 3.14
attached hereto. A copy of each such written lease or a description of any such
oral lease has been delivered to LMI, and each is complete and correct. All such
leases are in full force and effect and all rents or other amounts required to
be paid by the Company under such leases, which have become due, have been paid.
There exists no default under any such lease, and no event, occurrence,
condition or act which, with the giving of notice, the lapse of time or the
happening of any further condition would become a default under any such lease,
and no waiver or indulgence has been granted by the lessor under any such lease.
3.15 Personal Property. The Company has good and marketable title to
all the inventory, fixtures, office equipment, raw material, machinery,
equipment, leasehold improvements and all other personal property and assets
reflected in the balance sheet
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included within the financial statements as of December 31, 1994, or thereafter
acquired by it, free and clear of all claims, liens, charges and encumbrances
except as set forth in Schedule 3.15. All such property and assets are in good
working condition and have been operated and maintained in accordance with
applicable manufacturer's manuals or guidelines.
3.16 Intellectual Property rights and other Intangibles. Schedule
3.16 is a complete list of the "Intellectual Property Rights" and other
intangibles of the Company owned, licensed or used by or registered in the name
of the Company or other persons which are used in connection with the Company's
business. For the purposes of this Agreement "Intellectual Property Rights"
shall mean all patents, patents pending, trademarks, tradenames, service marks,
logos, computer programs, software, practices, copyright registrations or
applications, trade secrets, customer lists, know-how, data bases and any other
proprietary rights and applications thereof. Except as listed in Schedule 3.16,
there are no Intellectual Property rights owned, licensed or used by or
registered in the name of the Company or other persons, which the Company owns
or is licensed under such Intellectual Property Rights that Sellers or the
Company believes are necessary to operate the business as now being operated and
is not currently in receipt of any notice nor has it any knowledge of conflict
with the asserted rights of others in such Intellectual Property Rights or
similar property rights and no proceedings have been instituted which challenge
any of the rights of the Company in respect thereto.
3.17 Accounts and Notes Receivable. The accounts receivable and
notes receivable of the Company reflected on the Financial Statements as of the
Closing Date ("Accounts Receivable"), have been collected or are collectible at
the aggregate recorded amounts thereof, including a bad debt reserve not to
exceed in the aggregate thirty-five thousand dollars ($35,000), except to the
extent that the collection thereof is affected by the insolvency or bankruptcy
of the insurance companies underwriting such Finance Contracts. Sellers shall
reimburse LMI for any Accounts Receivable which are not collected or collectible
in the ordinary course without the institution of collection proceedings;
provided that LMI shall be paid by Sellers in the first instance with the
surrender of Preferred Stock at a rate of $3.00 per share.
3.18 Insurance. The Company has currently in force policies of
insurance of the types and in the amounts shown on Schedule 3.18.
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3.19 Contracts, Commitments, Etc. Schedule 3.19 is a list of all
contracts relating to the Company's business. These contracts include, but are
not limited to:
3.19.1 all finance contracts and endorsements thereto ("Finance
Contracts"). Sellers hereby represent as follows:
(i) The Company has good and marketable title to all
Finance Contracts. There are no liens or encumbrances against any Finance
Contract, except in favor of Capital Bank, which shall be removed on or before
the Closing Date;
(ii) As to the Finance Contracts, all applicable federal
and state laws, rules and regulations, as may exist from time to time, have been
complied with in all respects, including as to the origination, financing,
servicing, or sale or purchase of such Finance Contracts; and
(iii) The information reflected in the records of the
Company is true, accurate, complete and current, including, without limitation,
with respect to the customers and any endorsers, and the origination servicing
and collection of each Finance Contract.
3.19.2 all contracts, agreements, purchase commitments,
licenses, undertakings or other arrangements affecting the Company's business,
to which the Company is a party or by which it is bound.
Except as disclosed in Schedule 3.19, the Company has no obligation,
contingent or otherwise, under any contract, license, undertaking or other
arrangement affecting its business. Except as disclosed on Schedule 3.19, the
Company has no all collective bargaining agreements, employment agreements,
consulting agreements, executive compensation plans or employee benefit plans
relating to employee benefits with respect to which the Company has or may incur
any future or contingent obligations, including, without limitation, all plans,
agreements, arrangements, or policies relating to deferred compensation,
pensions, profit sharing, retirement income or other benefits, stock purchase
and stock option plans, bonuses, severance arrangements, health benefits,
insurance benefits and all other employee benefits or fringe benefits, including
any employee welfare benefit plans and employee pension benefit plans within the
meaning of Sections 3(1) and 3(2) of the Employee Retirement Income Security Act
of 1974, as amended, ("ERISA").
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Sellers have delivered to LMI a copy of all written agreements or a
description of all oral agreements which are listed in Schedule 3.19, except
Finance Contracts. Each of the agreements listed on Schedule 3.19 is in full
force and effect and is valid and binding in accordance with its terms upon the
Company and, to the best of Sellers' knowledge, upon the other parties to said
agreements.
3.20 Absence of Defaults. The Company is not in payment or technical
default under or in breach or violation, in any material respect, of the terms
of its Articles of Incorporation, By-laws or any judgment, order, decree,
mortgage, contract, license, agreement, deed of trust, indenture or other
instrument to which it is a party or by which it is bound or to which its
property is subject or any federal, state or local statute or regulation
applicable to it. The execution and delivery of this Agreement do not, and the
transactions contemplated hereby will not, violate any provisions of, or in a
any manner adversely effect the rights of the Company or LMI, or result in the
acceleration of any obligation, under the Company's Articles of Incorporation or
By-laws or any mortgage, contract, license, agreement, or other instrument or
order, arbitration award, judgment or decree to which the Company is a party or
by which it is bound.
3.21 Litigation. Except as disclosed in Schedule 3.21 attached
hereto: (i) there is no material claim, legal action, administrative,
arbitration or other proceeding, suit or governmental investigation pending, or,
threatened, against the Company, (ii) the Company has not been charged with and,
it is not in violation of, or in default with respect to, any order, law, rule
or regulation of, or any report required to be filed with any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, (iii) the Sellers are not aware of any condition, occurrence,
event or circumstance upon which any claim, legal action, administrative,
arbitration or other proceeding, suit or governmental investigation adversely
affecting the Company, might reasonably be predicated and (iv) there have never
been any material product liability claims against the Company, there are none
now and Sellers are aware of no circumstances that may give rise to such a
claim.
3.22 Compliance with Laws. Except as disclosed in Schedule 3.22, the
Company has complied with all laws, regulations and orders and has obtained all
governmental permits or licenses required by its business. No notice or warning
from any governmental authority in respect of any failure or alleged
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failure by the Company to comply with any law, regulation or order has been
received by the Company.
3.23 Employees. Attached hereto as Schedule 3.23 is a list of all of
the key employees of the Company which reflects his or her current salary and
eligibility for bonus entitlements. Sellers have no information or facts
indicating that any of the persons so listed intends to terminate his employment
relationship with the Company. The Company is not liable for damages to any
employee or former employee as a result of any violation of any state or federal
laws directly or indirectly relating to such employee or former employee.
3.24 Minute Books. The minute books of the Company contain complete
and accurate records of any and all meetings of the directors and shareholders
of the Company.
3.25 Labor Relations. Attached hereto as Schedule 3.25 is a list of
all unions which has any bargaining rights applicable to the Company's
employees. There is no labor strike, dispute, slowdown or stoppage pending or
threatened by any group of the Company's employees.
3.26 Customers. Schedule 3.26 reflects a list of all customers who
for periods reflected within the financial statements accounted for 10% or more
of the Company's gross revenues. Since the dates of the financial statements,
there has not been any material adverse change in the business relationship of
the Company with any significant customer.
3.27 Licenses and Permits. Schedule 3.27 lists all permits, licenses
and other approvals and authorizations which are necessary to conduct the
business of the Company. All such permits, licenses and other approvals are
possessed or held by the Company and the Company is in compliance therewith.
3.28 Real Estate. The Company does not own or lease any real
property other than as set forth on Schedule 3.14.
3.29 OSHA Violations; Workers' Compensation. The Company is not
operating its business in violation of the Occupational Safety and Health Act of
1970, or the regulations promulgated thereunder. The Company is not, and will
not become, liable for any retroactive workers' compensation insurance premiums
relating to the period of time prior to the date of this Agreement in excess of
the estimated premium plus One Thousand Dollars ($1,000). The Company is not
operating its business in
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violation of any applicable state, federal or municipal laws, regulations or
ordinances.
3.30 Banking. Schedule 3.30 to this Agreement is a complete and
accurate listing of each bank or other financial institution in which the
Company has an account, deposit or safe deposit box, with the names of all
persons authorized to draw upon these accounts or to have access to these boxes.
3.31 Infringement of Intellectual Property Rights. Except as
disclosed in Schedule 3.31, the operation of the Company's business does not
violate any patent rights, copyrights, or other intellectual property rights of
any third party.
3.32 Environmental Matters. Except as set forth in Schedule 3.32,
the Company is in compliance with all laws, rules and regulations relating to
environmental protection and conservation (including, but not limited to, the
Comprehensive Environmental Response, Compensation and Liability Act and the
Superfund Amendments and Reauthorization Act of 1986, as amended and all
applicable state laws pertaining to the environment), and neither the Company
nor Sellers have received any notification of any asserted present or past
failure to so comply with such laws, rules or regulations.
3.33 Powers of Attorney and Suretyships. Except as set forth on
Schedule 3.33, neither the Sellers nor the Company have any general or special
powers of attorney outstanding (whether as grantor or grantee thereof) or have
any obligation or liability (whether actual, accrued, accruing, contingent or
otherwise) as guarantor, surety, co-signor, endorser, co-maker, indemnitor or
otherwise in respect of the obligation of any person, corporation, partnership,
joint venture, association, organization or other entity, except as endorser or
maker of checks or letters of credit, respectively, endorsed or made in the
ordinary course of business.
3.34 Accuracy and Completeness of Representations and Warranties.
Neither this Agreement nor any exhibit or other instrument, document or material
furnished to LMI pursuant to this Agreement (whether furnished before or after
the execution of this Agreement up to and including the Closing Date) contains
or will contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary in order to make the statements contained herein
or therein not misleading. The Sellers know of no fact which materially
adversely affects the present or future condition (material or otherwise) of the
Company or any of its assets which has not been set forth in this
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Agreement or in any schedule attached to this Agreement. The representations and
warranties contained in Sections 3.1 through 3.34 of this Agreement shall be
true on and as of the Closing Date with the same force and effect as though such
representations and warranties had been made on and as of the Closing Date. Such
representations and warranties have been made by Sellers with the knowledge and
expectation that LMI is relying thereon. Each of the representations and
warranties shall survive the Closing and the Closing Date and shall remain
operative and in full force and effect for the time periods specified in Section
7 hereof regardless of any investigation at any time made by or on behalf of LMI
and shall not be deemed merged in any document or instrument so executed and
delivered by Sellers.
4. Representations and Warranties of LMI. LMI hereby represents and
warrants to Sellers as follows:
4.1 Organization, Existence and Authorization. LMI is duly
organized, validly existing and in good standing under the laws of the State of
Delaware. The execution, delivery and performance by LMI of this Agreement are
within its corporate power and authority, have been duly authorized by all
necessary corporate action and do not contravene, permit the termination of or
constitute a default under its Articles of Incorporation or Bylaws, or of any
agreement, judgment, injunction, order, decree or other instrument binding upon
LMI or to which any of its assets are bound.
4.2 Execution and Enforceability. This Agreement and the other
agreements to which LMI is a party pursuant to this Agreement have been duly
executed and delivered by, and constitute the valid and binding obligation of,
LMI enforceable against it in accordance with their respective terms, except to
the extent such enforcement may be limited by bankruptcy, insolvency,
reorganization or similar laws or equitable principles relating to or limiting
creditors' rights generally.
5. Conditions to Closing for the Benefit of LMI. The obligation of LMI
pursuant to this Agreement shall be subject to the satisfaction, at or before
the Closing Date, of the following conditions (any of which may be waived, in
whole or in part, by LMI):
5.1 Representations and Warranties. The representations and
warranties of the Sellers contained in Article 3 hereof shall be true and
correct as of the Closing Date, and Sellers have complied with all other
covenants required under this Agreement to be undertaken by them prior to the
Closing Date.
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Sellers shall deliver to LMI a certificate to such effect on the Closing Date.
5.2 Material Adverse Change. Sellers shall deliver to LMI a
certificate to the effect that, except as disclosed in any schedule delivered
pursuant to Article 3 hereof, during the period from December 31, 1994 to the
Closing Date, there shall not have been any material adverse change in the
financial condition or results of operations or prospects of the Company; the
Company shall not have sustained any material loss or damage to its property;
there shall not have come to the attention of the Sellers or any officer of the
Company any event which may materially adversely affect the business of the
Company; the Company shall have carried on its business in the ordinary course;
the Company shall not have entered into any contract, commitment or transaction
other than in the ordinary course of business consistent with past practice; the
Company shall not have sold or disposed of any capital assets; the Company has
not created any indebtedness or other liability except as incurred in the
ordinary course of business consistent with past practice or pursuant to
existing contracts; the Company has not amended its Articles of Incorporation or
Bylaws; the Company has maintained all present life insurance policies with
respect to its key employees and all property insurance policies with respect to
its assets and has not borrowed against any of such life insurance policies; the
Company has used its best efforts to preserve its business and employment
relationships, including with its insurers, customers, suppliers, employees and
others having business relations with it; and the Company has not changed its
present compensation or bonuses paid to its employees.
5.3. Release. Sellers shall deliver to LMI a release satisfactory to
LMI executed by Carlos C. Lopez-Aguiar favor of LMI and the Company, which shall
be attached hereto at Closing as Schedule 5.3.
5.4 No Restraints. No action or proceeding shall have been
instituted or threatened prior to or at the Closing Date before any court or
governmental body or authority pertaining to the acquisition by LMI of the
Shares.
5.5 Consents. All necessary agreements and consents of any third
parties, including, but not limited to, governmental or other regulatory
agreements, federal, state or municipal required in connection with the transfer
of Shares to LMI shall have been obtained, including any approvals or consents
of the Florida Department of Insurance and/or Special Finance Division of the
State of Florida.
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5.6 Documentation. The form and substance of all opinions,
certificates, instruments of transfer and all other documents shall be
satisfactory in all reasonable respects to LMI's counsel.
5.7 Financing. Concurrent with the Closing Date, LMI shall have
secured and closed upon a debt facility of no less than $5,000,000 secured in
whole or in part by the assets of the Company, on terms and conditions
reasonably satisfactory to LMI.
5.8 No Liabilities. Taking into account any payments pursuant to
Section 1.3.2(i) and (ii), all outstanding liabilities of the Company shall have
been satisfied, paid and discharged on or before the Closing Date, including,
but not limited to, all accounts payable, accrued business expenses, accrued
interest and other liabilities or obligations reflected or not reflected on the
Company's balance sheet contained within the financial statements as of the
Closing Date.
5.9 Employment Agreement. On or before the closing, LMI shall enter
into a written employment agreement with Jeanette Waserstein acceptable to the
parties.
6. Conditions to Closing for the Benefit of Sellers. The obligations of
Sellers pursuant to this Agreement shall be subject to the satisfaction, at or
before the Closing Date, of the following conditions (any of which may be
waived, in whole or in part, by Sellers):
6.1 Representations and Warranties. The representations and
warranties of the Sellers contained in Article 4 hereof shall be true and
correct as of the Closing Date and Sellers have complied with all other
covenants required under this Agreement to be undertaken by them prior to the
Closing Date. Sellers shall deliver to LMI a certificate to such effect on the
Closing Date.
6.2 Documentation. The form and substance of all opinions,
certificates, instruments of transfer, and other documentation required to be
delivered to Sellers shall be satisfactory in all reasonable respects to Sellers
and their counsel.
6.3 No Restraints. No action or proceeding shall have been
instituted prior to or at the Closing Date before any court or other
governmental body, or instituted or threatened by any
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public authority pertaining to the acquisition by LMI of the Shares to be
transferred pursuant to this Agreement to LMI.
6.4 Consents. All necessary agreements and consents of any third
parties, including, but not limited to, governmental or other regulatory
agreements, federal, state or municipal required in connection with the transfer
of Shares to LMI shall have been obtained, including any approvals or consents
of the Florida Department of Insurance and/or Special Finance Division of the
State of Florida.
6.5 Financing. Concurrent with the Closing Date, LMI shall have
secured and closed upon a debt facility of no less than $5,000,000 secured in
whole or in part by the assets of the Company, on terms and conditions
reasonably satisfactory to LMI.
6.6 Employment Agreement. On or before the closing, LMI shall enter
into a written employment agreement with Jeanette Waserstein acceptable to the
parties.
7. Indemnification of LMI.
7.1 Sellers shall, jointly and severally, defend, indemnify and hold
harmless LMI from and against any and all claims, causes of action, losses,
costs, damages, deficiencies or expenses (including reasonable attorneys' fees)
(collectively "Damages") to LMI or the Company arising from or related to: (a)
any and all misrepresentations or breaches of representations, warranties or
covenants of Sellers set forth in this Agreement or in any exhibit or other
instrument, document or material furnished to LMI pursuant to this Agreement
(whether furnished before or after execution of this Agreement up to and
including the Closing Date); (b) the litigation disclosed on Schedule 3.21; (c)
any suit, claim, action, or breach of warranty, negligence, or strict tort
asserted against the Company relating to or in connection with or arising out of
an occurrence or condition existing or arising on or before the Closing Date;
(d) any amounts of tax, interest or penalties relating to the non-reporting or
non-payment of any federal, state or local taxes; and (e) any suit, claim or
action by any former stockholder of the Company as to the sale of his shares of
the Company's stock to the Sellers.
7.2 Sellers shall be liable for all Damages arising from or related
to any claim of which LMI or the Company notifies Sellers during the following
time periods:
7.2.1 The applicable statute of limitations with respect to
Damages arising from or related to (a) any
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misrepresentations or breach of warranties or representations set forth in
Section 3.13 relating to "Taxes", (with the exception of any Damages relating to
any such breach arising from or related to any fraudulent act on the part of
Sellers occurring on or before the Closing Date, it being understood that
Sellers' liability hereunder for such Damages shall continue indefinitely);
Section 3.31 relating to "Infringement of Intellectual Property Rights,"; or
clause (iv) of Section 3.21 relating to "Litigation," or (b) any product
liability claim of breach of warranty, negligence or strict tort asserted
against the Company relating to an occurrence arising on or before the Closing
Date and
7.2.2 Three (3) years from the Closing Date, with respect to
Damages arising from or related to any misrepresentation or breach of any
warranty, representation, or covenant set forth in this Agreement, except as
otherwise provided in Section 7.2.1; and
7.2.3 Without any limitation with respect to damages arising
from or related to any defect in the title to the Shares conveyed hereunder by
Sellers to LMI.
7.3 The Company or LMI, as the case may be ("Indemnitee"), shall
give written notice to the Sellers ("Indemnitors") promptly upon receipt by
Indemnitee of any claim for which Indemnitees have a duty of indemnification
under this Section 7. Indemnitee shall control the defense or settlement of such
claim or any litigation arising therefrom, and the Indemnitors may elect, at
their expense, to participate therein. In any event, upon the reasonable request
of the party controlling such defense, the other party shall cooperate with said
controlling party in the preparation of such defense.
7.4 LMI or the Company, as the case may be, at its option, may
utilize the right of set-off against any amounts due to the Sellers, under this
Agreement, with respect to any claim for indemnification it has under this
Article 7 against the Sellers.
8. Additional Agreements.
The parties agree to the following matters:
8.1 Registration of Shares. LMI shall file a registration statement
(the "Registration Statement") with the Securities and Exchange Commission the
purpose of which is to register certain of the outstanding shares of LMI under
the Securities Act of 1933, as amended (the "Act") at such time as the
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Company's Board of Directors, upon the advice of its investment bankers,
auditors or other consultants, deems such filing to be in the best interests of
the Company. LMI shall pay the expenses of preparing and filing such
Registration Statement.
8.2 Restrictive Covenant. Notwithstanding Section 8.1 above,
Jeanette Waserstein hereby agrees that she will not sell, convey, furnish,
assign or dispose of securities of LMI prior to the earlier of (i) the two year
anniversary of the effective date of such Registration Statement, if any, or
(ii) the 42 month anniversary of the date of issuance of such securities. Ms.
Waserstein hereby agrees to have a restrictive legend placed on such securities
to such effect.
8.3 Liquidated Damages. The retention of the deposit(s) by Sellers
pursuant to Section 1.3.3 hereof shall be Sellers' only remedy against LMI or
its agents, officers, directors or affiliates as liquidated damages and LMI
shall have no other obligations with respect to Sellers. Notwithstanding the
foregoing, the parties shall have the right to seek injunctive relief in
connection with a breach of Section 8.5 hereof.
8.4 Exclusivity. Sellers individually and collectively, agree that
they will not negotiate with or enter into any agreement with, any other party
for the combination, reorganization, merger, acquisition or sale of the Shares,
the Company or the assets of the Company. During the term of this Agreement,
Sellers further represent and warrant that neither they nor the Company is party
to such an agreement.
8.5 Confidentiality. LMI and the Company and the Sellers have
furnished to each other data, financial statements, records, reports and other
information, regarding their respective businesses which is either non-public,
confidential or propriety in nature (collectively, "Information"). LMI and
Sellers each agree that all Information furnished is provided in reliance upon
each party's express representation that such Information will be used only for
the purpose of evaluating a possible merger or other combination of their
businesses and for no other purpose. Each party agrees to maintain and hold all
Information received by it in trust and as strictly confidential. Each party
agrees that it will not, under any circumstances, allow or permit any such
Information to be disclosed to or to come into the possession of any third party
other than their respective attorneys or accountants, except as may be required
by federal or state securities laws.
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8.6 Access. Prior to the Closing Date, the Sellers agree to provide
LMI and its representatives with reasonable access to the records and facilities
of the Company for the purpose of conducting further due diligence and to
further provide such additional assistance to LMI in connection with its due
diligence as it shall reasonably require.
8.7 Securities to be issued to the Sellers. The shares of common
stock issuable upon conversion of the Preferred Stock, will, when issued and
delivered in accordance with the terms and conditions of this Agreement and the
Preferred Stock be validly issued, fully paid and non-assessable. The Sellers
have acknowledged and agreed (a) that they have such knowledge and experience in
financial and business matters that they are capable of obtaining and utilizing
the information necessary to evaluate the risk of investing in the Preferred
Stock and the common stock issuable upon conversion of such Preferred Stock; (b)
that they have been advised that such shares of common stock to be issued to
them upon conversion of the Preferred Stock will not be registered under the
Act, and accordingly, subject to the registration of such shares pursuant to
Section 8.1 hereof, they may not be able to sell or otherwise dispose of such
shares when they wish to do so; (c) that the shares of common stock so issued
are being acquired by or for their own benefit and account for investment and
not with a view to or for resale with a public offering or distribution thereof;
(d) that the shares of common stock so issued will not be resold (i) without
registration thereof under the Act (unless in the opinion of counsel to the
holder thereof, an exemption from such registration is available), or (ii) in
violation of any law; (e) that the certificate or certificates representing the
shares to be so issued will be imprinted with a restrictive legend; and (f) that
LMI is hereby authorized to notify its transfer agent of the status of such
shares and to take such other action including, but not limited to, placing of a
"stop transfer" order on the transfer agent's books and records to insure
compliance with the Act.
8.8 No Guaranty of Obligations. It is hereby agreed by the parties
that Jeanette Waserstein shall not be required by the Company or LMI to become
personally obligated as guarantor or otherwise in connection with any promissory
notes, guarantees or other third party financing obligations incurred by LMI or
the Company after the Closing Date.
8.9 Delivery of Exhibits and Schedules. The parties hereto
acknowledge that certain exhibits and schedules to this Agreement must be
prepared and delivered. Such exhibits and schedules shall be delivered within
five (5) business days after
20
<PAGE>
the date of this Agreement. This Agreement may be terminated by either party in
the event that either party does not receive the exhibits and schedules to be
delivered to such party which are satisfactory to such party within such five
(5) business days after the date of this Agreement.
9. Miscellaneous.
9.1 Further Assurances. Each of the parties will, at the request of
any other party from time to time, execute and deliver such further instruments
and will take such other action reasonably required to consummate the
transactions contemplated by this Agreement.
9.2 Arbitration. If a dispute arises as to interpretation of this
Agreement, it shall be decided finally by three arbitrators in an arbitration
proceeding conforming to the Rules of the American Arbitration Association
applicable to commercial arbitration. The arbitrators shall be appointed as
follows: one by the Sellers, one by the LMI and the third by the said two
arbitrators, or, if they cannot agree, then the third arbitrator shall be
appointed by the American Arbitration Association. The third arbitrator shall be
chairman of the panel and shall be impartial. The arbitration shall take place
in Philadelphia, Pennsylvania. The decision of a majority of the Arbitrators
shall be conclusively binding upon the parties and final, and such decision
shall be enforceable as a judgment in any court of competent jurisdiction. Each
party shall pay the fees and expenses of the arbitrator appointed by it, its
counsel and its witnesses. The parties shall share equally the fees and expenses
of the impartial arbitrator.
9.3 Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the state of Delaware.
9.4 Assignment. This Agreement shall not be assignable by any party
without the prior written approval of the other parties, provided that LMI may
assign this Agreement to an affiliate. To the extent assignable, this Agreement
shall be binding upon, and inure to the benefit of, the LMI and Sellers and
their respective successors, heirs, executors, administrators and assigns.
9.5 Headings for Reference Only. The section and paragraph headings
in this Agreement are for convenience of reference only and shall not be deemed
to modify or limit the provisions of this Agreement.
21
<PAGE>
9.6 Notices. Any notice, communication, demand or other writing (a
"notice") required or permitted to be given, made or accepted by any party to
this Agreement shall be given by personal delivery (including overnight delivery
by a nationally recognized overnight carrier) or by depositing the same in the
United States mail, properly addressed, postage prepaid and registered or
certified with return receipt requested. A notice given by personal delivery
shall be effective upon delivery and a notice given by registered or certified
mail shall be deemed effective on the second day after such deposit. For
purposes of notice, the addresses of the parties shall be, until changed by a
notice given in accordance herewith, as follows:
If to Sellers:
If to LMI:
LMI Acquisition Corp.
401 City Avenue, Suite 725
Bala Cynwyd, PA 19004-1122
Attention: Mr. Leonard Linsker
With copies to:
Stephen M. Cohen, Esquire
Clark, Ladner, Fortenbaugh & Young
2005 Market Street, 22nd Floor
Philadelphia, PA 19103
9.7 Entire Agreement and Amendment. This Agreement states the entire
agreement reached between the parties hereto with respect to the transactions
contemplated hereby and supersedes all prior or contemporaneous agreements,
understandings, representations and warranties between the parties, and may not
be amended except by written instrument executed by the parties hereto.
9.8 Survival of Representations and Warranties. The parties hereto
acknowledge and agree that as of the Closing Date they shall not be deemed to
have made any representations and warranties other than as set forth in this
Agreement and the documents delivered in connection herewith or pursuant hereto.
The representations and warranties made in this Agreement and in any
certificate, exhibit or document delivered in connection
22
<PAGE>
therewith shall survive the Closing Date, but each of the representations and
warranties of each party shall expire simultaneously with the expiration of the
duty of indemnification relating to each such warranty and representation, as
set forth in Section 7. Notwithstanding the foregoing, the covenant set forth in
Section 8.2 shall survive the Closing and thereafter.
9.9 Expenses. LMI and Sellers will each pay all of its or their own
legal and other expenses incurred in the preparation of this Agreement and the
performance of the terms and conditions hereof.
9.10 Brokerage Fees. Sellers represent and warrant that neither of
them has engaged any broker or finder in connection with the transactions
contemplated in this Agreement. LMI agrees to be responsible for all investment
banking, brokerage or finders' fees arranged for and incurred by it in
connection with the transactions contemplated in this Agreement.
9.11 Severability of Invalid Provision. If any one or more covenants
or agreements provided in this Agreement should be contrary to law, then such
covenant or covenants, agreement or agreements shall be null and void and shall
in no way affect the validity of the other provisions of this Agreement.
9.12 Waiver. Waiver by Sellers or LMI of any breach of or failure to
comply with any provision of this Agreement by the other party shall not be
construed as, or constitute a continuing waiver of, or a waiver of any other
breach of, or failure to comply with, any other provision of this Agreement.
9.13 Non-Exclusivity. The rights, remedies, powers and privileges
provided in this Agreement are cumulative and not exclusive and shall be in
addition to any and all other rights, remedies, powers and privileges granted by
law, rule, regulation or instrument, provided that any action for damages for
breach of contract, warranty, representations or covenants shall be subject to
the time limitations and the limitations on amount of Damages set forth in
Sections 7 with respect to the duties of indemnification.
9.14 Counterparts. This Agreement may be executed in one or more
counterparts, and shall become effective when one or more counterparts have been
signed by each of the parties.
IN WITNESS WHEREOF, this Agreement has been executed by the duly
authorized representatives of the parties hereto on the day and year first above
written.
23
<PAGE>
SELLERS
By: /s/ Jeanette Waserstein
---------------------------
Jeanette Waserstein
By: _____________________
Isaac Raijman
LMI ACQUISITION CORPORATION
By: /s/ Leonard Linsker
---------------------------
Name: Leonard Linsker
Title: President
24
<PAGE>
SCHEDULE 1.2.1
CALCULATION OF NET VALUE
Assets
Cash $21,811
Contract Receivables $1,796,888
Down Payment Receivables $15,789
Agents Receivable $9,646
Prepaid Drafts $76,929
Prepaid Insurance $2,549
Prepaid Taxes $4,047
Security Deposits $1,540
Miscellaneous Receivables $983
----------
Total Assets $1,930,182
Liabilities
Accounts payable $1,500
Documentary Stamps $1,748
Drafts Payable $69,603
Drafts in Transit $0
Due to Insured $0
Supplemental Payable $12,127
Payable to Banks $513,398
Withholding Taxes Payable $0
Accrued Interest $3,928
Unearned Finance Income $110,184
Unearned Origination Fee $58,466
--------
Total Liabilities $770,954
"Net Value" = Total Assets - Total Liabilities $1,159,228
25
<PAGE>
SCHEDULE 1.3.1(a)
PRINCIPAL TERMS OF SERIES A PREFERRED STOCK
o Dividends - 10% payable in cash on an annual basis, based upon a
liquidation value of $3.00 per share.
o Voting Rights - The holders of the Series A Preferred Stock shall
have no voting rights.
o Liquidation - The holders of the Series A Preferred Stock are
entitled to a liquidation preference of $3.00 per share upon liquidation of LMI.
o Rights of Conversion - Following issuance of the Series A Preferred
Stock, the holders thereof may convert such shares into shares of the Company's
common stock at a conversion rate of one share of common stock converted for
each share of preferred stock converted. The outstanding shares of Series A
Preferred Stock shall automatically convert into shares of the Company's common
stock at the above conversion rate concurrently with the effective date of the
Company's Registration Statement (as defined in Section 8.1 hereof), if any,
filed with the Securities and Exchange Commission for the purposes of
registering the outstanding shares of the Company's common stock.
26
CERTIFICATE OF INCORPORATION
OF
LMI ACQUISITION CORP.
THE UNDERSIGNED, in order to form a corporation for the purposes
hereinafter stated, under and pursuant to the provisions of the General
Corporation Law of the State of Delaware, does hereby certify as follows:
1. The name of the corporation is:
LMI ACQUISITION CORP.
2. That the name and address of its registered agent in said State of
Delaware upon whom service of process may be had is Barros, McNamara, Scanlon,
Malkiewicz & Taylor, P.A., 2 West Loockerman Street, Dover, Kent County, DE
19903.
3. The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
4. The corporation is authorized to issue capital stock to the
extent of:
Twenty-Five Million (25,000,000) Shares Common Stock
Par Value $.001 Per Share
Five Million (5,000,000) Shares Preferred Stock
Par Value $.001 Per Share
The board of directors shall have the authority to fix by resolution
the designations, powers, preferences, qualifications, limitations, or
restrictions in respect of any class or classes of stock or any series of any
class which the corporation shall have the authority to issue.
5. The Board of Directors is authorized and empowered to make, alter,
amend and rescind the By-Laws of the corporation, but By-Laws made by the Board
may be altered or repealed, and new By-Laws made, by the stockholders.
6. No contract or transaction between the corporation and one or more
of its directors or officers, or between the Corporation and any other
corporation, partnership, association, or other organization in which one or
more of its directors or officers are directors or officers, or have a financial
interest, shall be void or voidable solely for this reason, or solely because
the director or officer is present at or participates in the meeting of the
board or committee thereof which authorizes the contract or transaction, or
solely because his or their votes are counted for such purpose, if:
<PAGE>
The material facts as to his interest and as to the contract or
transaction are disclosed or are known to the Board of Directors or the
committee, and the Board or committee in good faith authorizes the contract or
transaction by a vote sufficient for such purpose without counting the vote of
the interested director or directors; or
The material facts as to his interest and as to the contract or
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved in good faith
by vote of the stockholders; or
The contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified, by the Board of Directors, a
committee thereof, or the stockholders.
Interested directors may be counted in determining the presence of a
quorum at a meeting of the Board of Directors or of a committee which authorizes
the contract or transaction.
7. INDEMNIFICATION AND INSURANCE:
(a) RIGHT TO INDEMNIFICATION. Each person who was or is made a party
or is threatened to be made a party or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer,
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid
in settlement) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
his or her heirs, executors and administrators; provided, however, that, except
as provided in paragraph (b) hereof, the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Section shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition: provided,
however, that, if the Delaware General Corporation Law requires, the payment of
such expenses incurred by a director or officer in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the corporation
of an undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such director or
officer is not entitled to be indemnified under this Section or otherwise. The
<PAGE>
Corporation may, by action of its Board of Directors, provide indemnification to
employees and agents of the Corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
(b) RIGHT OF CLAIMANT TO BRING SUIT:
If a claim under paragraph (a) of this Section is not paid in full by
the Corporation within thirty days after a written claim has been received by
the Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the Corporation) that the claimant has
not met the standards of conduct which make it permissible under the Delaware
General Corporation law for the Corporation to indemnify the claimant for the
amount claimed, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant has
not met such applicable standard or conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard or
conduct.
(c) Notwithstanding any limitation to the contrary contained in
sub-paragraphs 8(a) and 8(b), the corporation shall, to the fullest extent
permitted by Section 145 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented, indemnify any and all
persons whom it shall have power to indemnify under said section from and
against any and all of the expenses, liabilities or other matters referred to in
or covered by said section, and the indemnification provided for herein shall
not be deemed exclusive of any other rights to which those indemnified may be
entitled under any By-Law, agreement, vote of stockholders or disinterested
Directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be director, officer, employee or agent and shall inure
to the benefit of the heirs, executors and administrators of such a person.
(d) INSURANCE:
The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law.
<PAGE>
8. Under Section 102(b)(7) of the Delaware General Corporation Law, and
other provisions of the Delaware General Corporation Law, no director shall be
personally liable to the Corporation or its stockholders for monetary damages
for any breach of fiduciary duty by such director as a director. Notwithstanding
the foregoing sentence, a director shall be liable to the extent provided by
applicable law (i) for breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
pursuant to Section 174 of the Delaware General Corporation Law or (iv) for any
transaction from which the director derived an improper personal benefit. No
amendment to or repeal of this Article 9 shall apply to or have any effect on
the liability or alleged liability of any director of the Corporation for or
with respect to any acts or omissions of such director occurring prior to such
amendment.
9. Election of directors need not be by written ballot unless so
provided in the By-Laws of the corporation.
10. Except as otherwise required by statute, the books and records of
the corporation may be kept outside of the State of Delaware, at such place or
places as provided in the By-Laws of the Corporation or from time to time
designated by the Board of Directors.
11. The name and address of the incorporator is as follows:
NAME ADDRESS
Robert Worthington 105 North Watts Street, Philadelphia, PA 19107
12. The powers of the incorporator shall terminate upon the execution
by said incorporator of a resolution designating and electing the Board of
Directors of this Corporation to hold office for the ensuing year and until
successors are chosen and qualified.
IN WITNESS WHEREOF, the incorporator has hereunder set his hand and
seal this 12th day of May, A.D. 1994.
/s/ Robert Worthington
-------------------------------
Robert Worthington
State of Delaware
Office of the Secretary of State
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "LMI ACQUISITION CORP.", CHANGING ITS NAME FROM "LMI ACQUISITION
CORP." TO "USA FINANCE, INC.", FILED IN THIS OFFICE ON THE FOURTEENTH DAY OF
JUNE, A.D. 1996, AT 12 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT
COUNTY RECORDER OF DEEDS FOR RECORDING.
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
LMI ACQUISITION CORP.
LMI ACQUISITION CORP., a corporation existing under the laws of the
State of Delaware (the "Corporation"), hereby certifies as follows:
FIRST: By Unanimous Written Consent dated the 11th day of June, 1996
the Board of Directors of the Corporation duly adopted resolutions proposing and
declaring advisable, to the stockholders of the Corporation, the following
amendment to the Corporation's Certificate of Incorporation:
That Article First of the Corporation's Certificate of
Incorporation be amended to read in its entirety:
FIRST: The name of the Corporation is:
USA FINANCE, INC.
SECOND: By Written Consent of the Stockholders of the Corporation,
dated the 11th day of June, 1996, the stockholders of the Corporation approved
the aforesaid amendment in accordance with the applicable provisions of Section
228 of the General Corporation Law of the State of Delaware and Section 8 of the
Bylaws of the Corporation.
THIRD: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Section 242 of the General Corporation Law of the
State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by Mark Margolis, its President, and attested to by David Alperin, its
Secretary, this 11th day of June, 1996.
[corporate seal] LMI ACQUISITION CORP.
By: /s/ Mark Margolis
-------------------------------
Mark Margolis, President
ATTEST:
/s/ David Alperin
- ------------------------
David Alperin, Secretary
<PAGE>
BYLAWS
OF
LMI ACQUISITION CORP.
ARTICLE I
Identification
Section 1. Name. The name of the Corporation is LMI Acquisition Corp.
Section 2. Registered Office. The address of the registered office of the
Corporation shall be such as the Board of Directors, from time to time, may
designate within the State of Delaware.
Section 3. Seal. The seal of the Corporation shall be circular in form and
mounted upon a metal die, suitable for impressing the same upon paper. About the
periphery of the seal shall appear the words "LMI ACQUISITION CORP.". In the
center of the seal shall appear the word "Delaware" and the year of
incorporation of the Corporation. The seal shall be kept in the Office of the
Secretary of the Corporation.
Section 4. Fiscal Year. The Board of Directors shall have the power by
resolution to fix the fiscal year of the Corporation. If the Board of Directors
shall fail to do so, the Chairman shall fix the fiscal year.
ARTICLE II
Capital Stock
Section 1. Certificates Representing Shares. Every share certificate shall
be signed by the Chairman, President or a Vice- President and by the Treasurer,
Assistant Treasurer, Secretary or Assistant Secretary and sealed with the
corporate seal, which may be a facsimile, engraved or printed, but where such
certificate is signed by a transfer agent or by a transfer clerk and a
registrar, the signature of any corporate officer upon such certificate may be a
facsimile, engraved or printed.
Section 2. Transfer of Shares. Transfer of shares shall be made on the
books of the Corporation only upon surrender of the share certificate, duly
endorsed and otherwise in proper form for
<PAGE>
transfer, which certificate shall be cancelled at the time of transfer.
Section 3. Lost, Stolen or Destroyed Certificates. The Corporation may
issue a new certificate for shares of stock in the place of any certificate
theretofore issued and alleged to have been lost, stolen or destroyed, but the
Board of Directors may require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to furnish an affidavit as to such
loss, theft, or destruction and to give a bond in such form and substance, and
with such surety or sureties, with fixed or open penalty, as it may direct, to
indemnify the Corporation against any claim that may be made against it on
account of the alleged loss, theft or destruction of such certificate.
ARTICLE III
The Stockholders
Section 1. Place of Meetings. Meetings of the stockholders of the
Corporation may be held at such place, either within or without the State of
Delaware, as may be designated in the respective notices, or waivers of notice,
thereof, or proxies to represent stockholders thereat.
Section 2. Stockholders' Meetings.
(a) Annual Meeting. The annual meeting of the stockholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held in each calendar year on such day
as shall be fixed by the Board of Directors from time to time. If the annual
meeting shall not be called and held during a calendar year, any stockholder may
call such meeting at any time thereafter.
(b) Special Meetings. Special meetings of the stockholders may be
called by the Chairman of the Board, the President, the Board of Directors, or
the holders of not less than a majority of all the shares entitled to vote at
the meeting. At any time upon written request of any person or persons entitled
to call a special meeting, it shall be the duty of the Secretary to call a
special meeting of the stockholders to be held at such time
2
<PAGE>
as the Secretary may fix, not less than ten nor more than sixty days after the
receipt of the request. If the Secretary shall neglect or refuse to issue such
call, the person or persons making the request may do so.
(c) Adjournments. Adjournment or adjournments of any annual or
special meeting may be taken, but any meeting at which directors are to be
elected shall be adjourned only from day to day, or for such longer periods not
exceeding fifteen days each, as the holders of a majority of the shares present
in person or by proxy shall direct, until such directors have been elected.
Section 3. Corporate Records; Inspection.
(a) Obligation to Maintain. The Corporation shall keep at its
registered office or at its principal place of business an original or duplicate
record of the proceedings of the stockholders and of the Board of Directors, the
original or a copy of its Bylaws, certified by the Secretary of the Corporation,
the Corporation's stock ledger, and a list of its stockholders, giving the names
of the stockholders in alphabetical order, and showing their respective
addresses, the number and classes of shares held by each, the number and date of
certificates issued for the shares, and the number and date of cancellation of
every certificate surrendered for cancellation. The Corporation shall also keep
appropriate, complete and accurate books or records of account, which may be
kept at its registered office, or at its principal place of business.
(b) Right of Inspection. Every stockholder of record shall have a
right to examine, upon demand under oath stating the purpose thereof, in person
or by agent or attorney, during usual business hours, for any proper purpose,
the stock ledger, the list of stockholders, the Corporation's books or records
of account, and records of the proceedings of the stockholders and directors,
and make copies or extracts therefrom.
Section 4. Notice of Meetings - Waiver. Written or printed notice, stating
the place, date and hour of the meeting and, in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not less
than ten, or in case of a merger or consolidation to which the Corporation is a
party, or in the case of the sale of substantially all of its assets, not less
than twenty, nor more than sixty, days before the date of the meeting, either
personally or by mail, by or at the direction of the President, the Secretary,
or the officer or person calling the
3
<PAGE>
meeting, to each stockholder of record entitled to vote at such meeting and to
each holder of other securities having voting power. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail,
postage prepaid, directed to the stockholder or such other security holder at
his address as it appears on the records of the Corporation. An affidavit of the
Secretary or an Assistant Secretary or of the transfer agent of the Corporation
that the notice has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. Waiver by a stockholder of notice in
writing of a stockholders' meeting, signed by him, whether before or after the
time stated therein, shall be equivalent to the giving of such notice, and
neither the business to be transacted at, nor the purpose of, such meeting need
be specified in such waiver. Attendance by a stockholder, whether in person or
by proxy, at a stockholders' meeting shall constitute a waiver of notice of such
meeting, except where a person attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting was not lawfully called or convened.
Section 5. Fixing Record Date. For the purpose of determining stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or entitled to receive payment of any dividend, or in order
to make a determination of stockholders entitled to consent to corporate action
in writing without a meeting, the Board of Directors may fix a record date, such
date in any case to be not more than sixty days, and in case of a meeting of
stockholders not less than ten days, prior to the date on which the particular
action, requiring such determination of stockholders, is to be taken. If no
record date is fixed: (a) the record date for the determination of stockholders
entitled to notice of or to vote at a meeting of stockholders, shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held; (b) the record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto. When a
determination of stockholders entitled to notice of or to vote at any meeting of
stockholders has been made as provided in this Section, such determination shall
apply to any adjournment thereof; provided, however, that the Board of Directors
may fix a new record date for the adjourned meeting.
Section 6. Voting List. The officer who has charge of the stock ledger of
the Corporation shall prepare and make, at least ten days
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before every meeting of stockholders, a complete list of the stockholders
entitled to vote at such meeting, arranged in alphabetical order, with the
address of and the number of shares held by each, which list shall be open to
the examination of any stockholder, for any purpose germane to the meeting
during the ordinary business hours, for a period of at least ten days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified at the place where the meeting is to be held. Such list shall also be
produced and kept at the time and place of the meeting during the whole time of
the meeting, and shall be subject to the inspection of any stockholder who is
present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the stockholder's list, or
the books of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
Section 7. Quorum. The holders of a majority of the shares outstanding and
entitled to vote shall constitute a quorum at a meeting of stockholders. The
stockholders present at a duly organized meeting may continue to do business
until adjournment, notwithstanding the withdrawal of enough of the stockholders
to leave less than a quorum. If a meeting cannot be organized because a quorum
has not attended, those present may, except as otherwise provided by law,
adjourn the meeting to such time and place as they may determine.
Section 8. Voting at Meetings.
(a) Voting Stock. Except as otherwise provided by law or by the
Certificate of Incorporation, every holder of the common stock of the
Corporation shall be entitled to one vote for each share of common stock
standing in his name on the books of the Corporation. Any action which may be
taken at a meeting of the stockholders may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted which number shall, in no event, be less than two thirds of
the shares outstanding and shall be filed with the Secretary of the Corporation.
(b) Proxies. A stockholder, or the holder of any other security
having voting power, may vote either in person or by proxy
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executed in writing by the stockholder, or by his duly authorized
attorney-in-fact. No unrevoked proxy shall be voted or acted upon after three
years from the date of its execution, unless the proxy provides for a longer
period. A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only so long as, it is coupled with an interest
sufficient in law to support an irrevocable power.
(c) Voting of Shares Owned by Other Corporations. Shares standing in
the name of another corporation may be voted by such officer, agent or proxy as
the Bylaws of such other corporation may prescribe, or, in the absence of such
provision, as the board of directors of such other corporation may determine;
or, in the absence of such provision or determination, as the President or Vice
President and Secretary or Assistant Secretary of such other corporation may by
proxy, duly executed and sealed (but not necessarily acknowledged or verified),
designate.
(d) Voting of Shares Owned by Fiduciaries. Shares held by an
administrator, executor, guardian or conservator may be voted by him, either in
person or by proxy, without a transfer of such shares into his name. Shares
standing in the name of a trustee may be voted by him, either in person or by
proxy, but no trustee shall be entitled to vote shares held by him without a
transfer of such shares into his name. It shall not be necessary for such
fiduciary to obtain a court order authorizing him to vote such shares. The
general proxy of a fiduciary shall be given the same weight and effect as the
general proxy of an individual or corporation.
(e) Voting of Securities Owned by Two or More Persons. If shares or
other securities having voting power stand of record in the names of two or more
persons, the right to vote such securities and the effect of such vote shall be
determined as provided in Section 217 of the General Corporation Law of
Delaware, effective July 3, 1967, or any law amending or supplementing the same.
(f) Voting of Shares Owned by Receivers. Shares standing in the name of a
receiver may be voted by such receiver without the transfer thereof into his
name if authority so to do be contained in an appropriate order of the court by
which such receiver was appointed.
(g) Voting of Pledged Shares. A stockholder whose shares are pledged
shall be entitled to vote such shares unless the shares have been transferred
into the name of the pledgee, and in the transfer by the pledgor on the books of
the Corporation he has
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expressly empowered the pledgee to vote thereon, in which case only the pledgee,
or his proxy, may represent such stock and vote thereon.
(h) Order of Business. The order of business at annual meetings, and
so far as practicable at all other meetings, of stockholders, shall be as
follows:
(i) Proof of due notice of meeting.
(ii) Call of roll - examination of proxies.
(iii) Reading and disposal of any unapproved minutes.
(iv) Annual reports of officers and committees.
(v) Unfinished business.
(vi) New business.
(vii) Election of directors.
(viii) Adjournment.
Section 9. Judges of Election.
(a) Appointment of Judges. In advance of any meeting of
stockholders, the Board of Directors may appoint judges of election, who need
not be stockholders, to act at such meeting or any adjournment thereof. If
judges of election be not so appointed, the chairman of any such meeting may,
and on the request of any stockholder or his proxy, shall make such appointment
at the meeting. The number of judges shall be one or three. If appointed at a
meeting on the request of one or more stockholders or proxies, the majority of
shares present and entitled to vote shall determine whether one or three judges
are to be appointed. No person who is a candidate for office shall act as a
judge.
(b) Failure to Act. In case any person appointed as judge fails to
appear or fails or refuses to act, the vacancy may be filled by appointment made
by the Board of Directors in advance of the convening of the meeting, or at the
meeting by the person or officer acting as chairman.
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(c) Duties of Judges. The judges of election shall determine the
number of shares outstanding and the voting power of each, the shares
represented at the meeting, the existence of a quorum, the authenticity,
validity, and effect of proxies, receive votes or ballots, hear and determine
all challenges and questions in any way arising in connection with the right to
vote, count, and tabulate all votes, determine the result, and do such acts as
may be proper to conduct the election. If there be three judges of election, the
decision, act or certificate of a majority shall be effective in all respects as
the decision, act or certificate of all.
(d) Judges' Certificate. On request of the chairman of the meeting,
or of any stockholder or his proxy, the judges shall make a report in writing of
any challenge or question or matter determined by them, and execute a
certificate of any fact found by them. Any report or certificate made by them
shall be prima facie evidence of the facts stated therein.
ARTICLE IV
The Board of Directors
Section 1. Number and Qualifications. The business and affairs of the
Corporation shall be managed by a Board of Directors (who need not be residents
of the State of Delaware, nor stockholders of the Corporation), and may consist
of such number as may be determined from time to time by the stockholders, or,
in the absence of such determination by the stockholders, as may be determined
from time to time by the Board of Directors, but no decrease in the number of
directors shall have the effect of shortening the term of any incumbent
director.
Section 2. Election. At each annual stockholders' meeting, the
stockholders by plurality vote shall elect directors to hold office until the
next succeeding annual meeting, unless sooner removed as provided in these
Bylaws. Elections for directors shall be by written ballot if any stockholder so
requests. Each director shall hold office for the term for which he is elected,
and until his successor shall be elected and qualified.
Section 3. Vacancies. Any vacancy occurring in the Board of Directors and
any newly created directorships resulting from an increase in the authorized
number of directors may be filled by the
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affirmative vote of a majority of the remaining directors though less than a
quorum. A director elected to fill a vacancy shall be elected for the unexpired
term of his predecessor in office.
Section 4. Place of Meetings. Meetings of the Board of Directors of the
Corporation, annual, regular or special, may be held either within or without
the State of Delaware.
Section 5. Directors' Meetings.
(a) Annual Meeting. The Board of Directors shall meet each year
immediately after the annual meeting of the stockholders, at the place where
such meeting of the stockholders has been held for the purpose of organization,
election of officers, and consideration of any other business that may properly
be brought before the meeting. No notice of any kind to either old or new
members of the Board of Directors for such annual meeting shall be necessary.
(b) Regular Meetings. Regular meetings of the Board of Directors
shall be held without notice at such time and place as may, from time to time,
be fixed by resolution of the Board or as may be specified in the call of the
meeting.
(c) Special Meetings. Special meetings of the Board of Directors may
be called by the Chairman or by any member of the Board of Directors, and shall
be held upon notice by mail or telegram, delivered for transmission not later
than during the fifth day immediately preceding the day for such meeting, or by
word of mouth or telephone received not later than during the third day
immediately preceding the day for such meeting. Notice of any special meeting of
the Board of Directors may be waived in writing signed by the person or persons
entitled to such notice, whether before or after the time stated therein, and
shall be equivalent to the giving of such notice. Neither the business to be
transacted at, nor the purpose of, any special meeting of the Board of
Directors, need be specified in the notice or waiver of notice of such meeting.
Notice of such special meeting shall include the place, day and hour of such
special meeting.
(d) Adjournment. When a meeting is adjourned, it shall not be
necessary to give any notice of the adjourned meeting, or of the business to be
transacted at an adjourned meeting, other than by announcement at the meeting at
which such adjournment is taken.
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Section 6. Quorum. A majority of the number of directors fixed by the
Bylaws shall constitute a quorum for the transaction of business. The act of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors; Provided, that if all of the
directors shall severally or collectively consent in writing to any action to be
taken by the Corporation, and the writing or writings are filed with the minutes
of the proceedings of the Board of Directors, such action shall be as valid
corporate action as though it had been authorized at a duly convened meeting of
the Board of Directors; Provided, further, that one or more directors may
participate in a meeting of the Board by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other.
Section 7. Removal. The entire Board of Directors or any individual
director may be removed from office without assigning any cause, by an unanimous
vote of stockholders entitled to vote at any annual election of directors. In
case the entire Board or any one or more of the directors are so removed, new
directors may be elected at the same meeting for the unexpired term of the
director or directors so removed. Failure to elect directors to fill the
unexpired terms of the directors so removed shall be deemed to create a vacancy
or vacancies in the Board of Directors.
Section 8. Interest of Directors and Officers in Contracts
(a) No contract or transaction between the Corporation and one or
more of its directors or officers, or between the Corporation and any other
corporation, partnership, association, or other organization in which one or
more of its directors or officers are directors or officers, or have a financial
interest, shall be void or voidable solely for this reason, or solely because
the director or officer is present at or participates in the meeting of the
board or committee thereof which authorizes the contract or transaction, or
solely because his or their votes are counted for such purpose, if:
(i) The material facts as to his interest and as to the
contract or transaction are disclosed or are known to the Board of Directors or
the committee and the Board or committee in good faith authorizes the contract
or transaction by a vote sufficient for such purpose without counting the vote
of the interested director or directors; or
(ii) The material facts as to his interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or
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(iii) The contract or transaction is fair as to the
Corporation as of the time it is authorized, approved or ratified by the Board
of Directors, a committee thereof, or the stockholders.
(b) Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
Section 9. Financial Report to Stockholders. The directors of the
Corporation shall cause to be sent to the stockholders, within ninety days after
the close of its fiscal year, or as soon thereafter as possible, a financial
report as of the closing date of the preceding fiscal year. Such reports shall
give a summary of the assets and liabilities of the Corporation, the amount of
dividends paid or declared during the past year, the condition, as to surplus or
deficit and how acquired or created, the number of shares issued and
outstanding, together with any such particulars as are necessary to disclose the
general nature of the liabilities and assets of the Corporation. The report
shall also set forth a balance sheet as of the closing date of the preceding
fiscal or calendar year, together with a statement of income and profit and loss
for the year ended on that date. The statement of income and profit and loss, if
prepared, shall be in the form ordinarily used by accountants employed by the
Corporation.
Section 10. Compensation of Directors. The members of the Board of
Directors may pursuant to a resolution of the Board be paid a fee and expenses
of attendance for attendance at all annual, regular, special and adjourned
meetings of the Board. Any director of the Corporation may also serve the
Corporation in any other capacity, and receive compensation there for in any
form.
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ARTICLE V
Committees
The Board of Directors may, at any time and from time to time, appoint one
or more committees, consisting of directors or others, to perform such duties
and make such investigations and reports as the Board of Directors shall by
resolution determine. Such committees shall determine their own organization and
times and places of meeting, unless otherwise directed by such resolution.
ARTICLE VI
The Officers
Section 1. Number. The principal officers of the Corporation shall consist
of the Chairman, President, a Secretary and a Treasurer; and may include one or
more Vice Presidents and such subordinate officers and assistant officers and
agents as may be deemed necessary and elected or appointed by the Board of
Directors, in such manner and for such terms as the Board of Directors may
prescribe. Any two or more principal offices may be held by the same person,
except the offices of Chairman or President and Secretary.
Section 2. General Duties. All officers and agents of the Corporation, as
between themselves and the Corporation, shall have such authority and perform
such duties in the management of the Corporation as may be provided in these
Bylaws, or as may be determined by resolution of the Board of Directors not
inconsistent with these Bylaws.
Section 3. Election, Term of Office and Qualification. The officers shall
be chosen annually by the Board of Directors at its annual meeting, or as soon
after such annual meeting as may conveniently be possible. Each officer shall
hold office until his successor is chosen and qualified; or until his death, or
until he shall have resigned, or shall have been removed in the manner provided
in Section 4.
Section 4. Removal. Any officer or agent elected or appointed by the Board
of Directors may be removed, with or without cause, by the Board of Directors
whenever in its judgment the best interests of
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the Corporation will be served thereby, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed.
Section 5. Resignations. Any officer may resign at any time by giving
written notice to the Board of Directors, or to the Chairman, if one is elected,
the President, or Secretary. Such resignation shall take effect at the time
specified therein, and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
Section 6. Vacancies. Any vacancy in any office because of death,
resignation, removal, or any other cause shall be filled for the unexpired
portion of the term in the manner prescribed in these Bylaws for election or
appointment to such office.
Section 7. The Chairman. The Chairman, if elected or appointed, shall be
the chief executive officer of the Corporation, shall have active management of
the operations of the Corporation, subject, however, to the control of the Board
of Directors. The Chairman shall preside at all meetings of the Board of
Directors if present. He shall present to the annual meeting of stockholders a
report of business of the Corporation for the preceding fiscal year and shall
perform such other duties as, from time to time, may be assigned to him by the
Board of Directors.
Section 8. The President. The President, in the absence of the Chairman,
shall preside at all meetings of the stockholders and Board of Directors of the
Corporation. He shall, from time to time, make such reports of the affairs of
the Corporation as the Board may require and shall generally perform such other
duties as may be assigned or delegated to him by the Board of Directors or
Chairman.
Section 9. The Vice President. The Vice President or Vice Presidents, if
elected, shall have such powers and perform such duties as the Board of
Directors may from time to time prescribe or as the Chairman or President may,
from time to time delegate. At the request of the Chairman or President, a Vice
President may, in the case of the absence or inability to act of the President,
temporarily act in his place. In the case of the death of the President, or in
the case of his absence or inability to act, a Vice President shall act
temporarily in his place until such time as the Board of Directors shall elect a
new President.
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Section 10. The Secretary. The Secretary shall keep or cause to be kept in
books provided for the purpose the minutes of the meetings of the stockholders
and of the Board of Directors; shall see that all notices are duly given in
accordance with the provisions of these Bylaws and as required by law; shall be
custodian of the records and of the seal of the Corporation and see that the
seal is affixed to all documents, the execution of which on behalf of the
Corporation under its seal is duly authorized in accordance with the provisions
of these Bylaws; and, in general, shall perform all duties incident to the
office of Secretary and such other duties as may, from time to time, be assigned
to him by the Board of Directors or by the President.
Section 11. The Treasurer. The Treasurer shall be the chief financial
officer of the Corporation; shall have charge and custody of, and be responsible
for, all funds of the Corporation, and deposit all such funds in the name of the
Corporation in such banks, trust companies or other depositories as shall be
selected by the Board of Directors; shall receive, and give receipts for, moneys
due and payable to the Corporation from any source whatsoever; and, in general,
shall perform all the duties incident to the office of Treasurer and such other
duties as, from time to time, may be assigned to him by the Board of Directors
or by the President. The Treasurer shall render to the President and the Board
of Directors, whenever the same shall be required, an account of all his
transactions as Treasurer and of the financial condition of the Corporation. He
shall, if required so to do by the Board of Directors, give the Corporation a
bond, the premiums for which shall be paid by the Corporation, the bond to be in
such amount and with such surety or sureties as may be ordered by the Board of
Directors, for the faithful performance of the duties of his office and for the
restoration to the Corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
Corporation.
Section 12. Compensation. The salaries or other compensation of the
officers shall be fixed, from time to time, by the Board of Directors. No
officer shall be prevented from receiving such salary by reason of the fact he
is also a director of the Corporation.
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ARTICLE VII
Indemnification of Directors,
Officers, Agents and Employees
(a) The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgment, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
Corporation unless
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and only to the extent that the Court of Chancery or the court in which such
action or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b), or in defense
of any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
(d) Any indemnification under subsections (a) and (b) (unless ordered by a
court) shall be made by the Corporation only as authorized in the specific case
upon a determination that indemnification of the director, officer, employee or
agent is proper in the circumstances because he has met the applicable standard
of conduct set forth in subsections (a) and (b).
Such determination shall be made (1) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel In a written- opinion, or (3) by the stockholders.
(e) Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the Corporation in advance of the final disposition of
such action, suit or proceeding as authorized by the Board of Directors in the
manner provided in subsection (d) upon receipt of an undertaking by or on behalf
of the director, officer, employee or agent to repay such amount unless it shall
ultimately be determined that he is entitled to be indemnified by the
Corporation as authorized in this section.
(f) The indemnification provided by this section shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure
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to the benefit of the heirs, executors and administrators of such a person.
(g) The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of this Section.
(h) For purposes of this Section, references to "the Corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under the provisions of this Section with respect to the resulting or
surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
(i) For purposes of this Section, reference to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonable believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this
Section.
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ARTICLE VIII
Special Corporate Acts
Negotiable Instruments, Deeds,
Contracts and Stockholders' Meetings
Section 1. Deposit of Funds. The moneys of the Corporation shall be
deposited in the name of the Corporation, in such depositories as the Board of
Directors shall designate or otherwise authorize, and shall be drawn out only in
such manner as the Board of Directors shall prescribe.
Section 2. Execution of Deeds, Contracts, Etc. Subject always to the
specific directions of the Board of Directors, all deeds and mortgages made by
the Corporation and all other written contracts and agreements to which the
Corporation shall be a party shall be executed in its name by the Chairman, the
President or a Vice President and attested to by the Secretary or Assistant
Secretary; and the Secretary, or Assistant Secretary, when necessary or
required, shall affix the corporate seal thereto.
Section 3. Endorsement of Stock Certificates. Subject always to the
specific directions of the Board of Directors, any share or shares of stock
issued by any corporation and owned by the Corporation (including reacquired
shares of stock of the Corporation) may, for sale or transfer, be endorsed in
the name of the Corporation by the Chairman, the President or a Vice President,
and attested to by the Secretary or an Assistant Secretary either with or
without affixing thereto the corporate seal.
Section 4. Voting of Shares Owned by Corporation. Subject always to the
specific directions of the Board of Directors, any share or shares of stock
issued by any other corporation and owned or controlled by the Corporation may
be voted at any stockholders' meeting of such other corporation by the Chairman
of the Corporation if he be present, or in his absence by the President or a
Vice President of the Corporation who may be present. Whenever, in the judgment
of the Chairman, or, in his absence, the President or a Vice President, it is
desirable for the Corporation to execute a proxy or give a stockholders' consent
in respect to any share or shares of stock issued by any other corporation and
owned by the Corporation, such proxy or consent shall be executed in the name of
the Corporation by the Chairman, the President or a Vice President of the
Corporation and shall be attested to by the Secretary or Assistant Secretary of
the Corporation under the corporate seal
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without necessity of any authorization by the Board of Directors. Any person or
persons designated in the manner above stated as the proxy or proxies of the
Corporation shall have full right, power and authority to vote the share or
shares of stock issued by such other corporation and owned by the Corporation
the same as such share or shares might be voted by the Corporation.
ARTICLE IX
Amendments
The Board of Directors, by a majority vote of the members thereof, shall
have the power to make, alter, amend or repeal the Bylaws of the Corporation, at
any regular or special meeting duly convened after notice of such purpose,
subject always to the power of an affirmative vote of a majority of the
stockholders to modify such action.
ARTICLE X
Miscellaneous
Whenever the provisions of these Bylaws shall contradict the provisions of
the Corporation's Certificate of Incorporation, the provisions of the
Certificate of Incorporation shall control.
19
INCORPORATED UNDER THE LAWS OF
THE STATE OF DELAWARE
RESTRICTED STOCK - SEE LEGEND ON REVERSE SIDE
Number Shares
C-
USA FINANCE, INC.
25,000,000 Shares Common Stock 5,000,000 Shares Preferred Stock
Par Value $.001 Par Value $.001
SPECIMEN
This Certifies that __________________________________________________ is the
registered holder of _________________________________________________ Shares
of Common Stock of USA Finance, Inc.
transferable only on the books of the Corporation by the holder hereof in
person or by Attorney upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this_____________________ day of __________________ A.D. __________
____________________________ _________________________
Secretary President
<PAGE>
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, (THE "ACT") OR UNDER ANY STATE SECURITIES
OR BLUE SKY LAWS AND MAY NOT BE PLEDGED, SOLD, TRANSFERRED, HYPOTHECATED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER SUCH ACT OR UNDER
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR AN EXEMPTION THEREFROM.
For Value Received, _______________ hereby sell, assign and transfer
unto _______________________________________________________________
_____________________________________________________________ Shares
represented by the within Certificate, and do hereby irrevocably
constitute and appoint
___________________________________________________________ Attorney
to transfer the said Shares on the books of the within named Corporation
with full power of substitution in the premises.
Dated _______________________ _________
In presence of _______________________________________
_____________________________
NOTICE. THE SIGNATURE OF THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME WRITTEN UPON THE
FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
INCORPORATED UNDER THE LAWS OF
THE STATE OF DELAWARE
RESTRICTED STOCK - SEE LEGEND ON REVERSE SIDE
Number Shares
P-A
USA FINANCE, INC.
25,000,000 Shares Common Stock 5,000,000 Shares Preferred Stock
Par Value $.001 Par Value $.001
SPECIMEN
This Certifies that __________________________________________________ is the
registered holder of _________________________________________________ Shares
of Series A $4.00 Convertible Preferred Stock of USA Finance, Inc.
transferable only on the books of the Corporation by the holder hereof in
person or by Attorney upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this_____________________ day of __________________ A.D. __________
____________________________ _________________________
Secretary President
<PAGE>
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, (THE "ACT") OR UNDER ANY STATE SECURITIES
OR BLUE SKY LAWS AND MAY NOT BE PLEDGED, SOLD, TRANSFERRED, HYPOTHECATED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER SUCH ACT OR UNDER
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR AN EXEMPTION THEREFROM.
For Value Received, _______________ hereby sell, assign and transfer
unto _______________________________________________________________
_____________________________________________________________ Shares
represented by the within Certificate, and do hereby irrevocably
constitute and appoint
___________________________________________________________ Attorney
to transfer the said Shares on the books of the within named Corporation
with full power of substitution in the premises.
Dated _______________________ _________
In presence of _______________________________________
_____________________________
NOTICE. THE SIGNATURE OF THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME WRITTEN UPON THE
FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
INCORPORATED UNDER THE LAWS OF
THE STATE OF DELAWARE
RESTRICTED STOCK - SEE LEGEND ON REVERSE SIDE
Number Shares
P-B
USA FINANCE, INC.
25,000,000 Shares Common Stock 5,000,000 Shares Preferred Stock
Par Value $.001 Par Value $.001
SPECIMEN
This Certifies that __________________________________________________ is the
registered holder of _________________________________________________ Shares
of Series B $3.00 Convertible Preferred Stock of USA Finance, Inc.
transferable only on the books of the Corporation by the holder hereof in
person or by Attorney upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this_____________________ day of __________________ A.D. __________
____________________________ _________________________
Secretary President
<PAGE>
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, (THE "ACT") OR UNDER ANY STATE SECURITIES
OR BLUE SKY LAWS AND MAY NOT BE PLEDGED, SOLD, TRANSFERRED, HYPOTHECATED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER SUCH ACT OR UNDER
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR AN EXEMPTION THEREFROM.
For Value Received, _______________ hereby sell, assign and transfer
unto _______________________________________________________________
_____________________________________________________________ Shares
represented by the within Certificate, and do hereby irrevocably
constitute and appoint
___________________________________________________________ Attorney
to transfer the said Shares on the books of the within named Corporation
with full power of substitution in the premises.
CERTIFICATE OF DESIGNATION
of
SERIES A $4.00 CONVERTIBLE PREFERRED STOCK
of
LMI ACQUISITION CORP.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
LMI Acquisition Corp., a Delaware corporation (the "Company"),
certifies that pursuant to the authority contained in its Certificate of
Incorporation, and in accordance with the provisions of Section 151 of the
General Corporation Law of the State of Delaware, its Board of Directors (the
"Board of Directors") has adopted the following resolution designating a series
of its Preferred Stock, $.001 par value, as "Series A $4.00 Convertible
Preferred Stock":
WHEREAS, the Company's Certificate of Incorporation dated May 12, 1994,
establishes the authorization of 5,000,000 shares of Preferred Stock, and
empowers the Board of Directors to issue, from time to time, shares of Preferred
Stock in series and to fix the number of shares in each series and the
designations, powers, preferences and rights of such shares of Preferred Stock;
WHEREAS, the Board of Directors deems it to be in the best interests of
the Company to designate and establish the powers, preferences and rights of a
series of Preferred Stock.
NOW THEREFORE, be it:
RESOLVED, that a series of the class of authorized Preferred Stock,
$.001 par value, of the Company be hereby created, and that the designation and
amount thereof and the voting powers, preferences and relative participating,
optional and other special rights of the shares of such series, and the
qualifications, limitations or restrictions thereof are as follows:
1. Designation and Amount.
The shares of such series shall be designated as the "Series A $4.00
Convertible Preferred Stock" (the "Series A $4.00 Convertible Preferred Stock")
and the number of shares initially constituting such series shall be 1,000,000,
which number may be decreased or increased by the Board of Directors without a
vote of shareholders, subject to the overall limitations of the Company's
Certificate of Incorporation.
2. Dividends and Distributions.
The holders of record of the Series A $4.00 Convertible Preferred
Stock shall be entitled to receive a cumulative dividend of ten (10%) percent
per annum payable semi-annually on June 1, 1996 and December 1, 1996 and each
June 1 and December 1 thereafter while the shares of Series A $4.00 Convertible
Preferred Stock are outstanding.
<PAGE>
3. Voting Rights.
The holders of shares of Series A $4.00 Convertible Preferred Stock
shall have no voting rights.
4. Liquidation, Dissolution or Winding Up.
If the Company shall adopt a plan of liquidation or of dissolution,
or commence a voluntary case under the federal bankruptcy laws or any other
applicable state or federal bankruptcy, insolvency or similar law, or consent to
the entry of an order for relief in any involuntary case under such law or to
the appointment of a receiver, liquidator, assignee, custodian, trustee or
sequestrator (or similar official) of the Company or of any substantial part of
its property, or make an assignment for the benefit of its creditors, or admit
in writing its inability to pay its debts generally as they become due and on
account of such event the Company shall liquidate, dissolve or wind up, or upon
any other liquidation, dissolution or winding up of the Company, the holders of
Series A $4.00 Convertible Preferred Stock shall have a liquidation preference
of $4.00 per share. No distribution shall be made to the holders of the
Company's Common Stock or holders of the Company's Series B $3.00 Convertible
Preferred Stock unless prior thereto, after payment to all creditors, holders of
Series A $4.00 Convertible Preferred Stock have received the sum of $4.00 per
share of Series A $4.00 Convertible Preferred Stock.
5. Conversion.
(a) Subject to the provisions for adjustment hereinafter set forth,
each share of Series A $4.00 Convertible Preferred Stock shall be convertible at
anytime by the holder thereof in the manner hereinafter set forth into fully
paid and nonassessable shares of the Company's Common Stock. Each share of
Series A $4.00 Convertible Preferred Stock shall automatically be converted into
one (1) share of the Company's Common Stock upon effectiveness of a Registration
Statement, if any, filed with the Securities and Exchange Commission for the
purposes of registering the Company's outstanding shares of Common Stock.
(b) The number of shares of the Company's Common Stock into which
each share of Series A $4.00 Convertible Preferred Stock is convertible shall be
subject to adjustment from time to time as follows:
(i) In case the Company shall at any time or from time to time
declare a dividend, or make a distribution, on its outstanding shares of Common
Stock in shares of Common Stock or subdivide or reclassify its outstanding
shares of Common Stock into a greater number of shares or combine or reclassify
the outstanding shares of Common Stock into a smaller number of shares of Common
Stock, then, and in each case,
(A) the number of shares of Common Stock into which each
share of Series A $4.00 Convertible Preferred Stock is convertible shall be
adjusted so that the holder of each share thereof shall be entitled to receive,
upon the conversion thereof, the number of shares of Common Stock which the
2
<PAGE>
holder of a share of Series A $4.00 Convertible Preferred Stock would have been
entitled to receive after the happening of any of the events described above had
such share been converted immediately prior to the happening of such event or
the record date therefor, whichever is earlier; and
(B) an adjustment made pursuant to this clause (i) shall
become effective (I) in the case of any such dividend or distribution undertaken
by the Company, immediately after the close of business on the record date for
the determination of holders of shares of Common Stock entitled to receive such
dividend or distribution, or (II) in the case of any such subdivision,
reclassification or combination undertaken by the Company, at the close of
business on the day upon which such corporate action becomes effective.
(ii) In case the Company shall be a party to any transaction
(including, without limitation, a merger, consolidation, sale of all or
substantially all of its assets, liquidation or recapitalization of its Common
Stock and excluding (X) any transaction to which clause (i) of this paragraph
(b) applies, and (Y) a merger or consolidation in which the Company is the
surviving corporation in which its previously outstanding Common Stock shall be
changed into or, pursuant to the operation of law or the terms of the
transaction to which it is a party, exchanged for different securities of the
Company or common stock or other securities of another corporation or interests
in a noncorporate entity or other property (including cash) or any combination
of any of the foregoing, then, as a condition of the consummation of such
transaction, lawful and adequate provision shall be made so that each holder of
shares of Series A $4.00 Convertible Preferred Stock shall be entitled, upon
conversion, to an amount per share equal to (A) the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or which each share of Common Stock of the Company is changed or
exchanged times (B) the number of shares of Common Stock of the Company into
which a share of Series A $4.00 Convertible Preferred Stock is convertible
immediately prior to the consummation of such transaction.
(c) In case the Company shall be a party to a transaction described
in subparagraph (b)(ii) above resulting in the change or exchange of its Common
Stock then, from and after the date of announcement of the pendency of such
subparagraph (b)(ii) transaction until the effective date thereof, each share of
Series A $4.00 Convertible Preferred Stock may be converted, at the option of
the holder thereof, into shares of Common Stock of the Company on the terms and
conditions set forth in this Section 5, and if so converted during such period,
such holder shall be entitled to receive such consideration in exchange for such
holder's shares of Common Stock of the Company as if such holder had been the
holder of such shares of Common Stock of the Company as of the record date for
such change or exchange of the Common Stock of the Company.
(d) Except with respect to the automatic conversion of the shares of
Series A $4.00 Convertible Preferred Stock pursuant to paragraph 5(a) above, the
holder of any shares of Series A $4.00 Convertible Preferred Stock may exercise
his right to convert such shares into shares of Common Stock by surrendering for
such purpose to the Company, a certificate or certificates representing the
shares of Series A $4.00 Convertible Preferred Stock to be converted with the
3
<PAGE>
form of election to convert (the "Election to Convert") on the reverse side of
the stock certificate completed and executed as indicated, thereby stating that
such holder elects to convert all or a specified whole number of such shares in
accordance with the provisions of this Section 5 and specifying the name or
names in which such holder wishes the certificate or certificates for shares of
Common Stock to be issued. In case the Election to Convert shall specify a name
or names other than that of such holder, it shall be accompanied by payment of
all transfer taxes payable upon the issuance of shares of Common Stock of the
Company, in such name or names. Other than such taxes, the Company will pay any
and all taxes (other than taxes based on income) that may be payable in respect
of any issue or delivery of shares of Common Stock of the Company on conversion
of Series A $4.00 Convertible Preferred Stock pursuant hereto. As promptly as
practicable, and in any event within three Business Days after the surrender of
such certificate or certificates and the receipt of the Election to Convert and,
if applicable, payment of all transfer taxes (or the demonstration to the
satisfaction of the Company that such taxes have been paid), the Company shall
deliver or cause to be delivered (i) certificates representing the number of
validly issued, fully paid and nonassessable full shares of Common Stock to
which the holder of shares of Series A $4.00 Convertible Preferred Stock so
converted shall be entitled and (ii) if less than the full number of shares of
Series A $4.00 Convertible Preferred Stock evidenced by the surrendered
certificate or certificates are being converted, a new certificate or
certificates, of like tenor, for the number of shares evidenced by such
surrendered certificate or certificates less the number of shares converted.
Such conversion shall be deemed to have been made at the close of business on
the Effective Date or the date of giving of the Election to Convert and of such
surrender of the certificate or certificates representing the shares of Series A
$4.00 Convertible Preferred Stock to be converted, as applicable, so that the
rights of the holder thereof as to the shares being converted shall cease except
for the right to receive shares of Common Stock in accordance herewith, and the
person entitled to receive the shares of Common Stock shall be treated for all
purposes as having become the record holder of such shares of Common Stock at
such time. The Company shall not be required to convert, and no surrender of
shares of Series A $4.00 Convertible Preferred Stock shall be effective for that
purpose, while the transfer books of the Company for the Common Stock are closed
for any purpose (but not for any period in excess of 15 calendar days); but the
surrender of shares of Series A $4.00 Convertible Preferred Stock for conversion
during any period while such books are so closed shall become effective for
conversion immediately upon the reopening of such books, as if the conversion
had been made on the date such shares of Series A $4.00 Convertible Preferred
Stock were surrendered, and at the conversion rate in effect at the date of such
surrender.
(e) In connection with the conversion of any shares of Series A
$4.00 Convertible Preferred Stock, at the election of the Company no fractions
of shares of Common Stock shall be issued, but in lieu thereof the Company shall
pay a cash adjustment in respect of such fractional interest in an amount equal
to such fractional interest multiplied by the average of the high bid prices of
its Common Stock as reported on NASDAQ or last sale prices if the Common Stock
is listed on a national securities exchange or included in the NASDAQ National
Market System for a period of ten (10) consecutive trading days prior to the
date such shares of Series A $4.00 Convertible Preferred Stock are deemed to
have been converted.
4
<PAGE>
(f) In computing the adjustment which a holder of Series A $4.00
Convertible Preferred Stock shall receive pursuant to paragraph (b) of this
Section 5, the fact that shares of Series A $4.00 Convertible Preferred Stock
may not be presently convertible shall be ignored and such computation shall be
made as if such shares were presently convertible.
6. Reports as to Adjustments.
Whenever the number of shares of Common Stock into which each share
of Series A $4.00 Convertible Preferred Stock is convertible is adjusted as
provided in Section 5 hereof, the Company shall promptly mail to the holders of
record of the outstanding shares of Series A $4.00 Convertible Preferred Stock
at their respective addresses as the same shall appear in the Company's stock
records a notice stating that the number of shares of Common Stock into which
the shares of Series A $4.00 Convertible Preferred Stock are convertible has
been adjusted and setting forth the new number of shares of Common Stock (or
describing the new stock, securities, cash or other property) into which each
share of Series A $4.00 Convertible Preferred Stock is convertible, as a result
of such adjustment, a brief statement of the facts requiring such adjustment and
the computation thereof, and when such adjustment became effective.
7. Certain Definitions.
For the purposes of the Certificate of Designation of Series A $4.00
Convertible Preferred Stock which embodies this resolution:
"Business Day" means any day other than a Saturday, Sunday, or a day
on which banking institutions in the state in which the Transfer Agent is
located are authorized or obligated by law or executive order to close.
"Trading Day" means a day on which the principal national securities
exchange on which the Common Stock is listed or admitted to trading is open for
the transaction of business or, if the Common Stock is not listed or admitted to
trading on any national securities exchange, any day other than a Saturday,
Sunday, or a day on which banking institutions in the State of New York are
authorized or obligated by law or executive order to close.
IN WITNESS WHEREOF, the Company has caused this Certificate of
Designation of Series A $4.00 Convertible Preferred Stock to be duly executed by
its Treasurer and attested to by its Secretary, this 18th day of March, 1996.
ATTEST:
LMI ACQUISITION CORP.
BY: /s/ David Alperin BY: /s/ Andrew Panzo
------------------------ --------------------------------
Secretary, David Alperin Authorized Executive Officer
5
Dated _______________________ _________
In presence of _______________________________________
_____________________________
NOTICE. THE SIGNATURE OF THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME WRITTEN UPON THE
FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
CERTIFICATE OF DESIGNATION
of
SERIES B $3.00 CONVERTIBLE PREFERRED STOCK
of
LMI ACQUISITION CORP.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
LMI Acquisition Corp., a Delaware corporation (the "Company"),
certifies that pursuant to the authority contained in its Certificate of
Incorporation, and in accordance with the provisions of Section 151 of the
General Corporation Law of the State of Delaware, it's Board of Directors (the
"Board of Directors") has adopted the following resolution designating a series
of its Preferred Stock, $.001 par value, as "Series B $3.00 Convertible
Preferred Stock":
WHEREAS, the Company's Certificate of Incorporation dated May 12, 1994,
establishes the authorization of 5,000,000 shares of Preferred Stock, and
empowers the Board of Directors to issue, from time to the time shares of
Preferred Stock in series and to fix the number of shares in each series and the
designations, powers, preferences and rights of such shares of Preferred Stock;
WHEREAS, the Board of Directors deems it to be in the best interests of
the Company to designate and establish the powers, preferences and rights of a
series of Preferred Stock.
NOW THEREFORE, be it:
RESOLVED, that a series of the class of authorized Preferred Stock,
$.001 par value, of the Company be hereby created, and that the designation and
amount thereof and the voting powers, preferences and relative participating,
optional and other special rights of the shares of such series, and the
qualifications, limitations or restrictions thereof are as follows:
Section 1. Designation and Amount.
The shares of such series shall be designated as the "Series B $3.00
Convertible Preferred Stock" (the "Series B $3.00 Convertible Preferred Stock")
and the number of shares initially constituting such series shall be 1,200,000,
which number may be decreased or increased by the Board of Directors without a
vote of shareholders, subject to the overall limitations of the Company's
Certificate of Incorporation.
<PAGE>
Section 2. Dividends and Distributions.
The holders of record of the Series B $3.00 Convertible Preferred Stock
shall be entitled to receive a cumulative dividend of ten (10%) percent per
annum payable semi-annually on March 1, 1996 and September 1, 1996 and each
March 1 and September 1 thereafter while the shares of Series B $3.00
Convertible Preferred Stock are outstanding.
Section 3. Voting Rights.
Except as required by law, the holders of shares of Series B $3.00
Convertible Preferred Stock shall be entitled to one (1) vote per share of
Series B $3.00 Convertible Preferred Stock.
Section 4. Liquidation, Dissolution or Winding Up.
If the Company shall adopt a plan of liquidation or of dissolution, or
commence a voluntary case under the federal bankruptcy laws or any other
applicable state or federal bankruptcy, insolvency or similar law, or consent to
the entry of an order for relief in any involuntary case under such law or to
the appointment of a receiver, liquidator, assignee, custodian, trustee or
sequestrator (or similar official) of the Company or of any substantial part of
its property, or make an assignment for the benefit of its creditors, or admit
in writing its inability to pay its debts generally as they become due and on
account of such event the Company shall liquidate, dissolve or wind up, or upon
any other liquidation, dissolution or winding up of the Company, the holders of
Series B $3.00 Convertible Preferred Stock shall have a liquidation preference
of $3.00 per share. The liquidation preference of the Series B $3.00 Convertible
Preferred Stock is subordinated to the Company's Series A $4.00 Convertible
Preferred Stock. Accordingly, no distribution shall be made to holders of Series
B $3.00 Convertible Preferred Stock unless prior thereto, after payment to all
creditors, holders of Series A $4.00 Convertible Stock have received the sum of
$4.00 per share of Series A Convertible Preferred Stock. No distribution shall
be made to the holders of the Company's Common Stock unless prior thereto, after
payment to all creditors, holders of Series A $4.00 Convertible Preferred Stock
receive the sum of $4.00 per share and holders of Series B $3.00 Convertible
Preferred Stock have received the sum of $3.00 per share of Series B $3.00
Convertible Preferred Stock
Section 5. Conversion.
(a) Subject to the provisions for adjustment hereinafter set
forth, each share of Series B $3 00 Convertible Preferred Stock shall be
convertible at anytime by the holder thereof in the manner hereinafter set forth
into fully paid and nonassessable shares of the Company's Common Stock. Each
share of Series B $3.00 Convertible Preferred Stock shall automatically be
converted into one (1) share of the Company's Common Stock upon effectiveness of
a Registration Statement, if any, filed with the Securities and Exchange
Commission for the purposes of registering the Company's outstanding shares of
Common Stock.
(b) The number of shares of the Company's Common Stock into
which each share of Series B $3.00 Convertible Preferred Stock is convertible
shall be subject to adjustment from time to time as follows:
2
<PAGE>
(i) In case the Company shall at any time or from time to
time declare a dividend, or make a distribution, on its outstanding shares of
Common Stock in shares of Common Stock or subdivide or reclassify its
outstanding shares of Common Stock into a greater number of shares or combine or
reclassify the outstanding shares of Common Stock into a smaller number of
shares of Common Stock, then, and in each case,
(A) the number of shares of Common Stock into which
each share of Series B $3.00 Convertible Preferred Stock is convertible shall be
adjusted so that the holder of each share thereof shall be entitled to receive,
upon the conversion thereof, the number of shares of Common Stock which the
holder of a share of Series B $3.00 Convertible Preferred Stock would have been
entitled to receive after the happening of any of the events described above had
such share been converted immediately prior to the happening of such event or
the record date therefor, whichever is earlier; and
(B) an adjustment made pursuant to this clause (i)
shall become effective (I) in the case of any such dividend or distribution
undertaken by the Company, immediately after the close of business on the record
date for the determination of holders of shares of Common Stock entitled to
receive such dividend or distribution, or (II) in the case of any such
subdivision, reclassification or combination undertaken by the Company, at the
close of business on the day upon which such corporate action becomes effective.
(ii) In case the Company shall be a party to any
transaction (including, without limitation, a merger, consolidation, sale of all
or substantially all of its assets, liquidation or recapitalization of its
Common Stock and excluding (X) any transaction to which clause (i) of this
paragraph (b) applies, and (Y) a merger or consolidation in which the Company is
the surviving corporation in which its previously outstanding Common Stock shall
be changed into or, pursuant to the operation of law or the terms of the
transaction to which it is a party, exchanged for different securities of the
Company or common stock or other securities of another corporation or interests
in a noncorporate entity or other property (including cash) or any combination
of any of the foregoing, then, as a condition of the consummation of such
transaction, lawful and adequate provision shall be made so that each holder of
shares of Series B $3.00 Convertible Preferred Stock shall be entitled, upon
conversion, to an amount per share equal to (A) the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or which each share of Common Stock of the Company is changed or
exchanged times (B) the number of shares of Common Stock of the Company into
which a share of Series B $3.00 Convertible Preferred Stock is convertible
immediately prior to the consummation of such transaction.
(c) In case the Company shall be a party to a transaction
described in subparagraph (b) (ii) above resulting in the change or exchange of
its Common Stock then, from and after the date of announcement of the pendency
of such subparagraph (b) (ii) transaction until the effective date thereof, each
share of Series B $3.00 Convertible Preferred Stock may be converted, at the
option of the holder thereof, into shares of Common Stock of the Company on the
terms and conditions set forth in this Section 5, and if so converted during
such period, such holder shall be entitled to receive such consideration in
exchange for such holder's shares of Common
3
<PAGE>
Stock of the Company as if such holder had been the holder of such shares of
Common Stock of the Company as of the record date for such change or exchange of
the Common Stock of the Company.
(d) Except with respect to the automatic conversion of the
shares of Series B $3.00 Convertible Preferred Stock pursuant to paragraph 5(a)
above, the holder of any shares of Series B $3.00 Convertible Preferred Stock
may exercise his right to convert such shares into shares of Common Stock by
surrendering for such purpose to the Company, a certificate or certificates
representing the shares of Series B $3.00 Convertible Preferred Stock to be
converted with the form of election to convert (the "Election to Convert") on
the reverse side of the stock certificate completed and executed as indicated,
thereby stating that such holder elects to convert all or a specified whole
number of such shares in accordance with the provisions of this Section 5 and
specifying the name or names in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. In case the Election to
Convert shall specify a name or names other than that of such holder, it shall
be accompanied by payment of all transfer taxes payable upon the issuance of
shares of Common Stock of the Company, in such name or names. Other than such
taxes, the Company will pay any and all taxes (other than taxes based on income)
that may be payable in respect of any issue or delivery of shares of Common
Stock of the Company on conversion of Series B $3 00 Convertible Preferred Stock
pursuant hereto. As promptly as practicable, and in any event within three
Business Days after the surrender of such certificate or certificates and the
receipt of the Election to Convert and, if applicable, payment of all transfer
taxes (or the demonstration to the satisfaction of the Company that such taxes
have been paid), the Company shall deliver or cause to be delivered (i)
certificates representing the number of validly issued, fully paid and
nonassessable full shares of Common Stock to which the holder of shares of
Series B $3.00 Convertible Preferred Stock so converted shall be entitled and
(ii) if less than the full number of shares of Series B $3 00 Convertible
Preferred Stock evidenced by the surrendered certificate or certificates are
being converted, a new certificate or certificates, of like tenor, for the
number of shares evidenced by such surrendered certificate or certificates less
the number of shares converted. Such conversion shall be deemed to have been
made at the close of business on the Effective Date or the date of giving of the
Election to Convert and of such surrender of the certificate or certificates
representing the shares of Series B $3.00 Convertible Preferred Stock to be
converted, as applicable, so that the rights of the holder thereof as to the
shares being converted shall cease except for the right to receive shares of
Common Stock in accordance herewith, and the person entitled to receive the
shares of Common Stock shall be treated for all purposes as having become the
record holder of such shares of Common Stock at such time. The Company shall not
be required to convert, and no surrender of shares of Series B $3.00 Convertible
Preferred Stock shall be effective for that purpose, while the transfer books of
the Company for the Common Stock are closed for any purpose (but not for any
period in excess of 15 calendar days); but the surrender of shares of Series B
$3.00 Convertible Preferred Stock for conversion during any period while such
books are so closed shall become effective for conversion immediately upon the
reopening of such books, as if the conversion had been made on the date such
shares of Series B $3.00 Convertible Preferred Stock were surrendered, and at
the conversion rate in effect at the date of such surrender.
(e) In connection with the conversion of any shares of Series
B $3.00 Convertible Preferred Stock, at the election of the Company no fractions
of shares of Common Stock shall be issued, but in lieu thereof the Company shall
pay a cash adjustment in respect of
4
<PAGE>
such fractional interest in an amount equal to such fractional interest
multiplied by the average of the high bid prices of its Common Stock as reported
on NASDAQ or last sale prices if the Common Stock is listed on a national
securities exchange or included in the NASDAQ National Market System for a
period of ten (10) consecutive trading days prior to the date such shares of
Series B $3.00 Convertible Preferred Stock are deemed to have been converted.
(f) In computing the adjustment which a holder of Series B
$3.00 Convertible Preferred Stock shall receive pursuant to paragraph (b) of
this Section 5, the fact that shares of Series B $3.00 Convertible Preferred
Stock may not be presently convertible shall be ignored and such computation
shall be made as if such shares were presently convertible.
Section 6. Reports as to Adjustments.
Whenever the number of shares of Common Stock into which each share of
Series B $3.00 Convertible Preferred Stock is convertible is adjusted as
provided in Section 5 hereof, the Company shall promptly mail to the holders of
record of the outstanding shares of Series B $3.00 Convertible Preferred Stock
at their respective addresses as the same shall appear in the Company's stock
records a notice stating that the number of shares of Common Stock into which
the shares of Series B $3.00 Convertible Preferred Stock are convertible has
been adjusted and setting forth the new number of shares of Common Stock (or
describing the new stock, securities, cash or other property) into which each
share of Series B $3.00 Convertible Preferred Stock is convertible, as a result
of such adjustment, a brief statement of the facts requiring such adjustment and
the computation thereof, and when such adjustment became effective.
Section 7. Certain Definitions.
For the purposes of the Certificate of Designation of Series B $3.00
Convertible Preferred Stock which embodies this resolution:
"Business Day" means any day other than a Saturday, Sunday, or a day on
which banking institutions in the state in which the Transfer Agent is located
are authorized or obligated by law or executive order to close.
5
<PAGE>
"Trading Day" means a day on which the principal national securities
exchange on which the Common Stock is listed or admitted to trading is open for
the transaction of business or, if the Common Stock is not listed or admitted to
trading on any national securities exchange, any day other than a Saturday,
Sunday, or a day on which banking institutions in the State of New York are
authorized or obligated by law or executive order to close.
IN WITNESS WHEREOF, the Company has caused this Certificate of
Designation of Series B $3.00 Convertible Preferred Stock to be duly executed by
its Treasurer and attested to by its Secretary, this 18th day of March, 1996.
LMI ACQUISITION CORP.
By: /s/ Andrew Panzo
-------------------------------
Authorized Executive Officer
ATTEST:
By: /s/ David Alperin
------------------------
Secretary, David Alperin
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR UNDER ANY STATE SECURITIES OR BLUE SKY LAWS
AND MAY NOT BE PLEDGED, SOLD, TRANSFERRED, HYPOTHECATED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER
SUCH ACT OR UNDER APPLICABLE STATE SECURITIES OR BLUE SKY
LAWS OR AN EXEMPTION THEREFROM.
10% SUBORDINATED CONVERTIBLE DEBENTURE
$_______ DATED: ________________
FOR VALUE RECEIVED, the undersigned, LMI ACQUISITION CORP., a Delaware
corporation ("Borrower" or the "Company"), hereby promises to pay to the order
of ___________________________________ (the "Lender") the principal sum of
$50,000 as described in a Securities Purchase Agreement dated __________, 1996
(the "Agreement"), made by the Lender to the Borrower, together with interest
(computed on the basis of a 360-day year of twelve 30-day months) from the date
of advancement on the outstanding principal balance, to be fixed at a rate equal
to 10% per annum, in accordance with the following terms:
1. The principal and all unpaid interest which accrues thereon shall be
due and payable, subject to the applicable notice provisions below, upon the
earlier of (a) the date the Company obtains a line of credit of at least
$15,000,000 (the "Loan") or (b) one (1) year from the Closing Date. The earlier
of these two dates is hereinafter referred to as the "Maturity Date". If the
Maturity date is determined by the date the Company obtains the Loan, the
following notice provisions shall apply. Immediately upon obtaining the Loan,
the Company will notify the Lender who will then have five (5) calendar days to
notify the Company of its demand for payment of the Debenture and the Company
shall repay the Debenture on or as soon as reasonably practicable after receipt
of Lender's timely notice. If the Lender does not notify the Company within this
five (5) day time period, the Debenture will be due and payable within sixty
(60) days of the Company's receipt of the Lender's written notice of demand for
payment, however, this notice must be received by the Company at least sixty
(60) days prior to the expiration of the one (1) year period referenced above.
In the event that the Company does not receive Lender's written notice at least
sixty (60) days prior to the expiration of the one (1) year period referenced
above, Lender will have waived the right to elect to convert the Debenture and
the Company shall repay the Debenture one (1) year from the date of this
Agreement by either (x) payment to the Lender of the outstanding principal and
interest due on the Debenture or (y) issuance of Common Stock pursuant to the
Conversion feature which the Company shall determine in its sole and absolute
discretion. See Paragraph 7 below. Interest on the outstanding principal balance
of this Debenture accrues at the rate of 10% per annum.
3. This Debenture may not be offered for sale or sold, or otherwise
transferred in any transaction which would
<PAGE>
constitute a sale thereof within the meaning of the Securities Act of 1933, as
amended (the "1933 Act"), for a period of four (4) months from the "Closing
Date" as defined in the Agreement. Thereafter, this Debenture may not be offered
for sale or sold, or otherwise transferred in any transaction which would
constitute a sale thereof within the meaning of the Securities Act of 193, as
amended (the "1933 Act"), unless: (i) such security has been registered for sale
under the 1933 Act and registered or qualified under applicable state securities
laws relating to the offer and sale of securities; or (ii) exemptions from the
registration requirements of the 1933 Act and the registration or qualification
requirements of all such state securities laws are available and the Borrower
shall have received an opinion of counsel satisfactory to the Borrower that the
proposed sale or other disposition of such securities may be effected without
registration under the 1933 Act and would not result in any violation of any
applicable state securities laws relating to the registration or qualification
of securities for sale, such opinion to be satisfactory to counsel to the
Borrower.
4. The indebtedness evidenced in this Debenture is subordinated to the
prior payment when due of the principal of, premium, if any, and interest on all
"Senior Indebtedness" (as defined below) of the Borrower. Therefore, upon any
distribution of its assets in a liquidation or dissolution of the Borrower, or
in bankruptcy, reorganization, insolvency, receivership or similar proceedings
relating to the Borrower, the Lender will not be entitled to receive payment
until the holders of Senior Indebtedness are paid in full. Upon the occurrence
of any event of default with respect to any Senior Indebtedness which permits
the holders of such Senior Indebtedness to accelerate the maturity thereof
("Event of Default"), then upon written notice thereof given to the Company by
any holder of such Senior Indebtedness or their representative, no payment shall
be made by the Company in respect of this Debenture until the Company has cured
such Event of Default, if permissible, to the satisfaction of the holders of
such Senior Indebtedness. "Senior Indebtedness" means all direct or indirect,
contingent or certain indebtedness of any type, kind or nature (present or
future) created, incurred, assumed or guaranteed by the Company or its
"Subsidiaries" (as defined below) with respect to the Company's arrangement with
or indebtedness to First Western Bank (the "Bank") including, without
limitation, by virtue of the Company's Purchase Agreement with the Bank (and any
substitute lender), and any present or future bank or institutional indebtedness
of the Company or its subsidiaries including, without limitation, any
obligations under repurchase and/or service arrangements. "Subsidiaries" means
Gold Coast Finance, Inc., a Florida corporation, National-Wide Premium Finance
Co., Inc. a Florida corporation, and any and all other subsidiaries of the
Company whether currently in existence or existing in the future.
5. An "Event of Default" under this Debenture means any of the following
events (whether the reason for such Event of
2
<PAGE>
Default shall be voluntary or involuntary or be or be effected by operation of
law or pursuant to any judgment, decree or order of any court or any order, rule
or regulation of any administrative or governmental body): (i) nonpayment of all
principal and interest due upon Maturity; (ii) any other material breach of the
terms hereof; and (iii) an event of bankruptcy or insolvency of the Borrower.
The Company shall receive written notice upon the occurrence of an Event of
Default and provided the default is not cured within thirty (30) days of the
stated Event of Default, the entire principal and accrued interest hereunder
shall accelerate and become immediately due and payable.
6. Without the consent of the Lender, the Borrower may amend or supplement
this Debenture to cure any ambiguity, defect or inconsistency that does not
adversely affect the rights of the Lender. This Debenture is issued in
connection with a private placement of Debenture Units issued by the Borrower
pursuant to the terms of the Agreement.
7. At the option of its holder, from the time commencing from the Closing
Date, as defined in the Agreement, and ending one (1) year from the Closing
Date, and subject to the notice provisions set forth in the Agreement, the
principal and interest due under the Debenture is convertible into restricted
shares of Common Stock of the Company based on the "Conversion Price" as defined
below. The "Conversion Price" shall be equal to $5.00 per share. In the event
that shares of the Company's common stock are publicly traded, the "Conversion
Price" shall be equal to the lesser of (a) $5.00 per share and (b) an amount
equal to 18% less than the average closing bid price of the Company's Common
Stock as reported on NASDAQ (or the last sales price of the Common Stock listed
on a National Securities Exchange or included in the NASDAQ SmallCap Market(TM),
or the average of the mean between the last bid and asked prices per share as
reported by the National Quotational Bureau, Inc. or an equivalent generally
accepted reporting services if the shares are traded on the over-the-counter
market and not on the NASDAQ reporting system) over the thirty (30) days
preceding Subscriber's written notice of conversion. Upon such conversion, all
principal and interest due under the Debenture shall be discharged and the
Company released from all obligations thereunder. Company shall receive Lender's
notice of intent to convert the Debenture at least sixty (60) days prior to the
expiration of the one (1) year period set forth above. In the event that the
Company does not receive Lender's written notice at least sixty (60) days prior
to the expiration of the one (1) year period referenced above, Lender will have
waived the right to elect to convert the Debenture and the Company shall repay
the Debenture one (1) year from the date of this Agreement by either (x) payment
to the Lender of the outstanding principal and interest due on the Debenture or
(y) issuance of Common Stock pursuant to the Conversion feature which the
Company shall determine in its sole and absolute discretion.
3
<PAGE>
The shares of Common Stock issuable upon the exercise of the
conversion feature shall be "restricted securities" as that term is defined
under Rule 144 of the Securities Act, as amended (the "1933 Act") and, as a
consequence, may not be sold or otherwise transferred except pursuant to
registration under the 1933 Act or an available exemption therefrom. Further,
Lender shall not sell or offer to sell or otherwise transfer in any transaction
that would constitute a sale thereof within the meaning of the Act any Shares of
Common Stock issuable upon conversion of this Debenture for a period of four (4)
months commencing from the Closing Date.
The shares of Common Stock, when issued, will be fully paid and
non-assessable.
8. This Debenture is not transferable by the Lender.
9. This Debenture shall be construed and enforced in accordance and
governed by the laws of the State of Florida without regard to that state's
conflict of laws provisions.
Intending to be legally bound, the Borrower has caused this Debenture to
be executed in its corporate name, by its duly authorized representative and to
be dated as of the date and year first above written.
LMI ACQUISITION CORP.
By:___________________________
Authorized Executive Officer
4
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES
REPRESENTED HEREBY HAVE BEEN TAKEN BY THE REGISTERED OWNER FOR
INVESTMENT, AND WITHOUT A VIEW TO RESALE OR DISTRIBUTION
THEREOF, AND MAY NOT BE TRANSFERRED OR DISPOSED WITHOUT AN
OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH
TRANSFER OR DISPOSITION DOES NOT VIOLATE THE SECURITIES ACT OF
1933, AS AMENDED, OR THE RULES AND REGULATIONS THEREUNDER.
USA FINANCE, INC.
10% SUBORDINATED CONVERTIBLE DEBENTURE
$__________ DATED: ________________
FOR VALUE RECEIVED, the undersigned, USA FINANCE, INC., a Delaware
corporation ("Borrower" or the "Company"), hereby promises to pay to the order
of ___________________________________ (the "Lender") the principal sum of
$__________ as described in a Securities Purchase Agreement dated __________,
1996 (the "Agreement"), made by the Lender to the Borrower, together with
interest (computed on the basis of a 360-day year of twelve 30-day months) from
the Closing Date (as defined in the Agreement) to be fixed at a rate equal to
10% per annum, in accordance with the following terms:
1. The principal and all unpaid interest which accrues hereon shall be due
and payable, one (1) year from the Closing Date (the "Maturity Date"). Interest
shall accrue and be payable upon the Maturity Date at the rate of ten (10%)
percent per annum. The Maturity Date may be accelerated by the Lender in
accordance with the following terms and conditions:
(a) Within five (5) calendar days after the Company becomes
obligated, during any calendar quarter within the term of this Debenture, to pay
in excess of Twenty-Five Thousand Dollars ($25,000) of the outstanding principal
of any "Prior Convertible Indebtedness" (as hereafter defined), the Company
shall notify the Lender of its obligation to pay such Prior Convertible
Indebtedness (a "Payment Notice"), specifying the approximate date on which such
Prior Convertible Indebtedness is to be paid, in which event Lender shall have
the option to accelerate payment of principal and all outstanding interest due
under this Debenture, by delivering to the Company, within twenty (20) calendar
days after the date of a Payment Notice, written notice ("Acceleration Notice")
of its demand for accelerated payment of this Debenture. Lender's failure to
provide an Acceleration Notice to the Company within this twenty (20) day period
will result in a waiver of Lender's right to accelerate payment under this
Debenture. Obligations to repay Prior Convertible Indebtedness shall not
cumulate from one calendar quarter to the next calendar quarter.
<PAGE>
(b) If the Company receives an Acceleration Notice in accordance
with the terms and conditions of paragraph 1(a), the outstanding principal and
interest of this Debenture which is subject to the Acceleration Notice shall be
due and payable within five (5) calendar days after receipt of the Acceleration
Notice.
(c) For the purposes hereof, "Prior Convertible Indebtedness" shall
mean those certain obligations of the Company, existing prior to the date
hereof, to pay principal in the aggregate amount of approximately One Million
Two Hundred Fifty-Five Thousand Dollars ($1,255,000) plus interest thereon, to
holders of certain outstanding convertible debentures.
2. The principal and interest due under this Debenture that remains
outstanding one (1) year after the Closing Date shall be paid in full by either:
(i) payment to the Lender of the outstanding principal and interest due on this
Debenture in United States Dollars; or (ii) at the option of and upon prior
notice by the Lender, by delivery to the Lender of a certain number of shares of
Common Stock of the Company based on the "Conversion Price", upon conversion of
the principal and interest outstanding hereunder. Upon any such repayment as set
forth above, all principal and interest due under this Debenture shall be
discharged and the Company released from all obligations hereunder. See
Paragraph 7 below.
3. This Debenture shall not be transferable at any time on or prior to the
Maturity Date except for transfers to affiliates, family members, or by the laws
of inheritance or descent that are in compliance with all Federal and State
Securities laws in the opinion of counsel satisfactory to the Company.
4. The indebtedness evidenced by this Debenture is subordinated to the
prior payment when due of the principal of, premium, if any, and interest on all
"Senior Indebtedness" (as defined below) of the Company. Therefore, upon any
distribution of its assets in a liquidation or dissolution of the Company, or in
bankruptcy, reorganization, insolvency, receivership or similar proceedings
relating to the Company, the holders of the Debentures will not be entitled to
receive payment until the holders of Senior Indebtedness are paid in full. Upon
the occurrence of any event of default with respect to any Senior Indebtedness
which permits the holders of such Senior Indebtedness to accelerate the maturity
thereof, then upon written notice thereof given to the Company by any holder of
such Senior Indebtedness or his or her representative, no payment shall be made
by the Company in respect of this Debenture until the Company has cured such
event of default, if permissible, to the satisfaction of the holders of such
Senior Indebtedness. "Senior Indebtedness" means all direct or indirect,
contingent or certain indebtedness of any type, kind or nature (present or
future) created, incurred, assumed or guaranteed by the Company or its
"Subsidiaries" (as defined below) with respect to the Company's arrangements or
indebtedness in connection with: (i) the remaining balance of a line of
credit/receivables purchase facility with First Western Bank in the principal
amount of $90,000; (ii) the revolving receivables purchase program facility with
SunAmerica Financial Resources, Inc. ("SunAmerica") providing for the purchase
of up to $25,000,000 of receivables (the "SunAmerica Facility") or similar
program; (iii) a line of credit with SunAmerica in the principal amount of
$500,000 (the "SunAmerica Loan"); and (iv) any present or future bank or
financial institutional indebtedness or obligation of the Company or its
Subsidiaries including, without limitation, any obligations under any asset
purchase, receivables purchase and/or service arrangements. Upon any
distribution of assets in a
2
<PAGE>
liquidation or dissolution of the Company, this Debenture shall rank pari passu
with the Prior Convertible Indebtedness and any subsequent subordinated
debenture financing secured by the Company which may be incurred without
notification to or approval of Lender. "Subsidiaries" means Gold Coast Finance,
Inc., a Florida corporation, National-Wide Premium Finance Co., Inc., a Florida
corporation, Contract Funding Corp., a Delaware corporation, and any and all
other subsidiaries of the Company whether currently in existence or existing in
the future.
5. An "Event of Default" under this Debenture means any of the following
events (whether the reason for such Event of Default shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body): (i) nonpayment of all principal and
interest when and as due under the terms of this Debenture; (ii) any other
material breach of the terms of this Debenture; (iii) an event of bankruptcy or
insolvency of the Company; (iv) the stockholders' equity of the Company is
reported below $1,500,000 in any quarterly unaudited or year end audited
financial statement prepared by the Company or its auditors; (v) any default by
the Company under the SunAmerica Facility which default continues after
expiration of any applicable notice and grace period and which permits the
acceleration of payment thereunder; (vi) any default by the Company under the
SunAmerica Loan which default continues after expiration of any applicable
notice and grace period and which permits the acceleration of payment
thereunder; and (vii) any event of default by the Company under Prior
Convertible Indebtedness which default continues after expiration of any
applicable notice and grace period and which permits any holder of such
indebtedness to accelerate payment of such indebtedness. The Company shall
receive written notice upon the occurrence of an Event of Default and provided
the default is not cured within five (5) days, with respect to any Event of
Default based on non-payment of principal or interest, or within ten (10) days,
with respect to any other Event of Default, of the stated Event of Default, the
entire principal and accrued interest under this Debenture shall accelerate and
become immediately due and payable.
6. Without the consent of the Lender, the Borrower may amend or supplement
this Debenture to cure any ambiguity, defect or inconsistency that does not
adversely affect the rights of the Lender. This Debenture is issued in
connection with a private placement of Debenture Units issued by the Borrower
pursuant to the terms of the Agreement.
7. At the option of the Lender, from the time commencing from the Closing
Date and ending upon the Maturity Date of this Debenture, the principal and
interest due under this Debenture is convertible into shares of Common Stock,
$.001 par value per share, of the Company. Thereafter, the right to convert this
Debenture into Common Stock will lapse.
(a) Upon the Company's receipt of Lender's notice of conversion, the
Company shall promptly thereafter deliver to Lender that number of shares of
Common Stock of the Company equal in price to the amount of outstanding
principal and interest due on this Debenture based on the "Conversion Price" as
defined below. The "Conversion Price" shall be equal to $5.00 per share. In the
event that at the time of conversion the shares of the Company's Common Stock
are publicly traded, the "Conversion Price" shall be equal to the lesser of (i)
$5.00 per share or (ii) a price equal to 18% less than the average closing bid
price of the Company's Common Stock as reported on NASDAQ (or the last sales
price of the Common Stock listed on a
3
<PAGE>
National Securities Exchange or included in the NASDAQ SmallCap Market or the
average of the mean between the last bid and asked prices per share as reported
by the National Quotation Bureau, Inc. or an equivalent generally accepted
reporting service if the shares are traded on the over-the-counter market and
not on the NASDAQ reporting system) over the thirty (30) days preceding the
Company's receipt of Lender's written notice of conversion. Upon such
conversion, all principal and interest due under this Debenture shall be
discharged and the Company released from all obligations hereunder.
(b) The shares of Common Stock issuable upon the exercise of the
conversion feature shall be "restricted securities" as that term is defined
under Rule 144 of the Securities Act, as amended (the "1933 Act") and, as a
consequence, may not be sold or otherwise transferred except pursuant to
registration under the 1933 Act or an available exemption therefrom in the
opinion of counsel satisfactory to the Company. The Company has granted
registration rights to Lender pursuant to that certain Registration Rights
Agreement between the Company and Lender dated as of even date herewith.
(c) The shares of Common Stock, when issued, will be fully paid and
non-assessable.
8. This Debenture shall be construed and enforced in accordance and
governed by the laws of the State of Delaware without regard to that state's
conflict of laws provisions.
Intending to be legally bound, the Borrower has caused this Debenture to
be executed in its corporate name, by its duly authorized representative and to
be dated as of the date and year first above written.
USA FINANCE, INC.
By:___________________________
Authorized Executive Officer
4
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT") OR UNDER ANY STATE SECURITIES OR BLUE SKY LAWS
AND MAY NOT BE PLEDGED, SOLD, TRANSFERRED, HYPOTHECATED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER
SUCH ACT OR UNDER APPLICABLE STATE SECURITIES OR BLUE SKY
LAWS OR AN EXEMPTION THEREFROM.
WARRANT TO PURCHASE
COMMON STOCK OF
LMI ACQUISITION CORP.
Void after 5:00 p.m. Eastern Standard Time on March 28, 1999.
This is to verify that, FOR VALUE RECEIVED,__________________________
________________________________________________ (hereinafter referred to as the
"Holder"), with a principal address as indicated on the books and records of LMI
Acquisition Corp. (the "Company") is entitled to purchase, subject to the terms
and conditions hereof, from the Company __________ shares of Common Stock (the
"Common Stock") during the period commencing at 9:00 a.m., Eastern Standard Time
on March 28, 1996, (the "Commencement Date") and ending at 5:00 p.m. Eastern
Standard Time on March 28, 1999, (the "Termination Date") at an exercise price
of $4.00 per share of Common Stock. The number of shares of Common Stock
purchasable upon exercise of this Warrant (the "Warrant(s)") and the exercise
price per share shall be subject to adjustment from time to time upon the
occurrence of certain events as set forth below.
The shares of Common Stock or any other shares or other units of stock or
other securities or property, or any combination thereof then receivable upon
exercise of this Warrant, as adjusted from time to time, are sometimes referred
to hereinafter as "Exercise Shares". The exercise price per share as from time
to time in effect is referred to hereinafter as the "Exercise Price".
1. Exercise of Warrant; Issuance of Exercise Shares.
(a) Exercise of Warrant. This Warrant may be exercised in whole or in part
at any time or from time to time on or after the Commencement Date and until and
including the Termination Date. This Warrant may be surrendered on any business
day to the Company at its principal office, presently located at the address of
the Company set forth in Paragraph 9 hereof, (or such other office of the
Company, if any, as shall theretofore have been designated by the Company by
written notice to the Holder), together with: (i) a completed and executed
Notice of Warrant Exercise in the form set forth in Appendix A hereto and made a
part hereof and (ii) payment of the full Exercise Price for the amount of
Exercise Shares set forth in the Notice of Warrant Exercise, in lawful money of
the
<PAGE>
United States of America by certified check or cashier's check, made payable
to the order of the Company.
In the event that this Warrant shall be duly exercised in part prior to
the Termination Date, the Company shall issue a new Warrant or Warrants of like
tenor evidencing the rights of the Holder thereof to purchase the balance of the
Exercise Shares purchasable under the Warrant so surrendered that shall not have
been purchased.
No adjustments shall be made for any cash dividends on Exercise Shares
issuable upon exercise of the Warrant. The Company shall cancel Warrant
Certificates surrendered upon exercise of Warrants.
(b) Issuance of Exercise Shares; Delivery of Warrant Certificate. The
Company shall, within ten (10) business days or as soon thereafter as is
practicable of the exercise of this Warrant, issue in the name of and cause to
be delivered to the Holder (or such other person or persons, if any, as the
Holder shall have designated in the Notice of Warrant Exercise) one or more
certificates representing the Exercise Shares to which the Holder (or such other
person or persons) shall be entitled upon such exercise under the terms hereof.
Such certificate or certificates shall be deemed to have been issued and the
Holder (or such other person or persons so designated) shall be deemed to have
become the record holder of the Exercise Shares as of the date of the due
exercise of this Warrant.
(c) Exercise Shares Fully Paid and Non-assessable. The Company agrees and
covenants that all Exercise Shares issuable upon the due exercise of the Warrant
represented by this Warrant Certificate will, upon issuance in accordance with
the terms hereof, be duly authorized, validly issued, fully paid and
non-assessable and free and clear of all taxes (other than taxes which, pursuant
to Paragraph 2 hereof, the Company shall not be obligated to pay) or liens,
charges, and security interests created by the Company with respect to the
issuance thereof.
(d) Reservation of Exercise Shares. At the time of or before taking any
action which would cause an adjustment pursuant to Paragraph 6 hereof increasing
the number of shares of capital stock constituting the Exercise Shares, the
Company will take any corporate action which may, in the opinion of its counsel,
be necessary in order that the Company have remaining, after such
2
<PAGE>
adjustment, a number of shares of such capital stock unissued and unreserved for
other purposes sufficient to permit the exercise of all the then outstanding
Warrants of like tenor immediately after such adjustment; the Company will also
from time to time take action to increase the authorized amount of its capital
stock constituting the Exercise Shares if at any time the number of shares of
capital stock authorized but remaining unissued and unreserved for other
purposes shall be insufficient to permit the exercise of the Warrants then
outstanding. The Company may but shall not be limited to reserve and keep
available, out of the aggregate of its authorized but unissued shares of capital
stock, for the purpose of enabling it to satisfy any obligation to issue
Exercise Shares upon exercise of Warrants, through the Termination Date, the
number of Exercise Shares deliverable upon the full exercise of this Warrant and
all other Warrants of like tenor then outstanding.
At the time of or before taking any action which would cause an adjustment
pursuant to Paragraph 6 hereof, reducing the Exercise price below the then par
value (if any) of the Exercise Shares issuable upon exercise of the Warrants,
the Company will take any corporate action which may, in the opinion of its
counsel, be necessary in order to assure that the par value per share of the
Exercise Shares is at all times equal to or less than the Exercise Price per
share and so that the Company may validly and legally issue fully paid and
non-assessable Exercise Shares at the Exercise Price, as so adjusted; the
Company will also from time to time take such action if at any time the Exercise
Price is below the then par value of the Exercise Shares.
(e) Fractional Shares. The Company shall not be required to issue
fractional shares of capital stock upon the exercise of this Warrant or to
deliver Warrant Certificates which evidence fractional shares of capital stock.
In the event that any fraction of an Exercise Share would, except for the
provisions of this subparagraph (e), be issuable upon the exercise of this
Warrant, the Company shall pay to the Holder exercising the Warrant an amount in
cash equal to such fraction multiplied by the Current Market Value of the
Exercise Share. For purposes of this subparagraph (e), the current Market Value
shall be determined as follows:
(i) if the Exercise Shares are traded in the over-the-counter market
and not on any national securities exchange and not in the NASDAQ Reporting
System, the average of the mean between
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the last bid and asked prices per share, as reported by the National Quotation
Bureau, Inc., or an equivalent generally accepted reporting service, for the
last business day prior to the date on which this Warrant is exercised, or if
not so reported, the average of the closing bid and asked prices for an Exercise
Share as furnished to the Company by any member of the National Association of
Securities Dealers, Inc., selected by the Company for that purpose.
(ii) if the Exercise Shares are listed or traded on a national
securities exchange or in the NASDAQ National Market System, the closing price
on the principal national securities exchange on which they are so listed or
traded or in the NASDAQ National Market System, as the case may be, on the last
business day prior to the date of the exercise of this Warrant. The closing
price referred to in this clause (ii) shall be the last reported sales price or,
in case no such reported sale takes place on such day, the average of the
reported closing bid and asked prices, in either case on the national securities
exchange on which the Exercise Shares are then listed or in the NASDAQ Reporting
System; or
(iii) if no such closing price or closing bid and asked prices are
available, as determined in any reasonable manner as may be prescribed by the
Board of Directors of the Company.
2. Payment of Taxes. The Company will pay all documentary stamp taxes, if any,
attributable to the initial issuance of Exercise Shares upon the exercise of
this Warrant; provided, however, that the Company shall not be required to pay
any tax or taxes which may be payable in respect of any transfer involved in the
issue of any Warrant Certificates or any certificates for Exercise Shares in a
name other than that of the Holder of a Warrant Certificate surrendered upon the
exercise of a Warrant, and the Company shall not be required to issue or deliver
such certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
3. Mutilated or Missing Warrant Certificates. In case any Warrant Certificate
shall be mutilated, lost, stolen or destroyed, the Company may in its discretion
issue, in exchange and substitution for and upon cancellation of the mutilated
Warrant Certificate, or in lieu of and in substitution for the Warrant
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<PAGE>
Certificate lost, stolen or destroyed, a new Warrant Certificate or Warrant
Certificates of like tenor and in the same aggregate denomination, but only (i)
in the case of loss, theft or destruction, upon receipt of evidence satisfactory
to the Company of such loss, theft or destruction of such Warrant Certificate
and indemnity or bond, if requested, also satisfactory to them and (ii) in the
case of mutilation, upon surrender of the mutilated Warrant. Applicants for such
substitute Warrant Certificates shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Company or its counsel
may prescribe.
4. Rights of Holder. The Holder shall not, by virtue of anything contained in
this Warrant Certificate or otherwise, be entitled to any right whatsoever,
either in law or equity, of a stockholder of the Company, including without
limitation, the right to receive dividends or to vote or to consent or to
receive notice as a shareholder in respect of the meetings of shareholders or
the election of directors of the Company or any other matter.
5. Registration of Transfers and Exchanges. The Warrant shall be transferable,
subject to the provisions of Paragraph 7 hereof, only upon the books of the
Company if any, to be maintained by it for that purpose, upon surrender of the
Warrant Certificate to the Company at its principal office accompanied (if so
required by it) by a written instrument or instruments of transfer in form
satisfactory to the Company and duly executed by the Holder thereof or by the
duly appointed legal representative thereof or by a duly authorized attorney and
upon payment of any necessary transfer tax or other governmental charge imposed
upon such transfer. In all cases of transfer by an attorney, the original letter
of attorney, duly approved, or an official copy thereof, duly certified, shall
be deposited and remain with the Company. In case of transfer by executors,
administrators, guardians or other legal representatives, duly authenticated
evidence of their authority shall be produced, and may be required to be
deposited and remain with the Company in its discretion. Upon any such
registration of transfer, a new Warrant Certificate shall be issued to the
transferee named in such instrument of transfer, and the surrendered Warrant
Certificate shall be canceled by the Company.
Any Warrant Certificate may be exchanged, at the option of the Holders
thereof and without change, when surrendered to the Company at its principal
office, or at the office of its transfer agent, if any, for another Warrant
Certificate or other Warrant Certificates of like tenor and representing in the
aggregate the right to
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<PAGE>
purchase from the Company a like number and kind of Exercise Shares as the
warrant Certificate surrendered for exchange or transfer, and the Warrant
Certificate so surrendered shall be canceled by the Company or transfer agent,
as the case may be.
6. Adjustment of Exercise Shares and Exercise Price. The Exercise price and the
number and kind of Exercise Shares purchasable upon the exercise of this Warrant
shall be subject to adjustment from time to time upon the happening of certain
events as hereinafter provided. The Exercise Price in effect at any time and the
number and kind of securities purchasable upon exercise of each Warrant shall be
subject to adjustment as follows:
(a) In the case the Company shall (i) pay a dividend or make a
distribution on its shares of Common Stock in shares of Common Stock, (ii)
subdivide or classify its outstanding Common Stock into a greater number of
shares, or (iii) combine or reclassify its outstanding Common Stock into a
smaller number of shares, the Exercise Price in effect at the time of the record
date for such dividend or distribution or of the effective date of such
subdivision, combination or reclassification shall be proportionally adjusted so
that the Holder of this Warrant exercised after such date shall be entitled to
receive the aggregate number and kind of shares which, if this Warrant had been
exercised by such Holder immediately prior to such date, he would have owned
upon such exercise and been entitled to receive upon such dividend, subdivision,
combination or reclassification. For example, if the Company declares a 2 for 1
stock dividend or stock split and the Exercise Price immediately prior to such
event was $5.00 per share, the adjusted Exercise Price immediately after such
event would be $2.50 per share. Such adjustment shall be made successively
whenever any event listed above shall occur.
(b) In case the Company shall hereafter issue rights or warrants to all
holders of its Common Stock entitling them to subscribe for or purchase shares
of Common Stock (or securities convertible into Common Stock) at a price (or
having a conversion price per share) less than the current market price of the
Common Stock (as defined in Subparagraph (d) below) on the record date mentioned
below, the Exercise Price shall be adjusted so that the same shall equal the
price determined by multiplying the Exercise Price in effect immediately prior
to the date of such issuance by a fraction, the numerator of which shall be the
sum of the number of shares of Common Stock outstanding on the record date
mentioned below and the number of additional shares of Common Stock which the
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<PAGE>
aggregate offering price of the total number of shares of Common Stock so
offered (or the aggregate conversion price of the convertible securities so
offered) would purchase at such current market price per share of the Common
Stock, and the denominator of which shall be the sum of the number of shares of
Common Stock outstanding on such record date and the number of additional shares
of Common Stock offered for subscription or purchase (or into which the
convertible securities so offered are convertible). Such adjustment shall be
made successively whenever such rights or warrants are issued and shall become
effective immediately after the record date for the determination of
shareholders entitled to receive such rights or warrants; and to the extent that
shares of Common Stock are not delivered (or securities convertible into Common
Stock are not delivered) after the expiration of such rights or warrants the
Exercise Price shall be readjusted to the Exercise Price which would then be in
effect had the adjustments made upon the issuance of such rights or warrants
been made upon the basis of delivery of only the number of shares of Common
Stock (or securities convertible into Common Stock) actually delivered.
(c) Whenever the Exercise Price payable upon exercise of each Warrant is
adjusted pursuant to Subparagraphs (a) and (b) above, the number of Exercise
Shares purchasable upon exercise of this Warrant shall simultaneously be
adjusted by multiplying the number of Exercise Shares initially issuable upon
exercise of this Warrant by the Exercise Price in effect on the date hereof and
dividing the product so obtained by the Exercise Price, as adjusted.
(d) For the purpose of any computation under Subparagraph (b) above, the
current market price per share of Common Stock at any date shall be deemed to be
the average of the daily closing prices for 30 consecutive business days before
such date. The closing price for each day shall be the last sale price regular
way or, in case no such reported sale takes place on such day, the average of
the last reported bid and lowest reported asked prices as reported by NASDAQ, or
other similar organization if NASDAQ is no longer reporting such information, or
if not so available, the fair market price as determined by the Board of
Directors.
(e) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least ten cents ($0.10)
in such price; provided, however, that any adjustments which by reason of this
Subparagraph (e) are not required to be made shall be carried forward and taken
into account
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<PAGE>
in any subsequent adjustment required to be made hereunder. All calculations
under this Paragraph (6) shall be made to the nearest cent or to the nearest
one-hundredth of a share, as the case may be. Anything in this Paragraph (6) to
the contrary notwithstanding, the Company shall be entitled, but shall not be
required, to make such changes in the exercise Price, in addition to those
required by this Paragraph (6), as it, in its sole discretion, shall determine
to be advisable in order that any dividend or distribution in shares of Common
Stock, subdivision, reclassification or combination of Common Stock, issuance of
Warrants to Purchase Common Stock or distribution of evidences of indebtedness
or other assets (excluding cash dividends) referred to hereinabove in this
Paragraph (6) hereafter made by the Company to the holders of its Common Stock
shall not result in any tax to the holders of its Common Stock or securities
convertible into Common Stock.
(f) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly cause a notice setting forth the adjusted Exercise Price
and adjusted number of Shares issuable upon exercise of each Warrant to be
mailed to the Holders, at their last addresses appearing in the Warrant
Register, and shall cause a certified copy thereof to be mailed to its transfer
agent, if any. The Company may retain a firm of independent certified public
accountants selected by the Board of Directors (who may be the regular
accountants employed by the Company) to make any computation required by this
Paragraph (6), and a certificate signed by such firm shall be conclusive
evidence of the correctness of such adjustment.
(g) In the event that at any time, as a result of an adjustment made
pursuant to Subparagraph (a) above, the Holder of this Warrant thereafter shall
become entitled to receive any exercise Shares of the Company, other than Common
Stock, thereafter the number of such other shares so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
common Stock contained in Subparagraphs (a) to (e), inclusive above.
(h) Irrespective of any adjustments in the Exercise Price or the number or
kind of Exercise Shares purchasable upon exercise of this Warrant, Warrants
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as
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<PAGE>
are stated in the similar Warrants initially issuable pursuant to this
Agreement.
(i) Whenever the Exercise Price shall be adjusted as required by the
provisions of the foregoing Paragraph, the Company shall forthwith file in the
custody of its secretary or an Assistant Secretary at its principal office and
with its stock transfer agent, if any, an officer's certificate showing the
adjusted Exercise Price determined as herein provided, setting forth in
reasonable detail the facts requiring such adjustment, including a statement of
the number of additional shares of Common Stock, if any, and such other facts as
shall be necessary to show the reason for and the manner of computing such
adjustment. Each such officer's certificate shall be made available at all
reasonable times for inspection by the holder and the Company shall, forthwith
after each such adjustment, mail a copy by certified mail of such certificate to
the Holder.
7. Restrictions on Transferability; Restrictive Legend. Neither this Warrant nor
the Exercise Shares shall be transferable except in accordance with the
provisions of this paragraph.
(a) Restrictions on Transfer; Indemnification. Neither this Warrant nor
any Exercise Share may be offered for sale or sold, or otherwise transferred or
sold in any transaction which would constitute a sale thereof within the meaning
of the Securities Act of 1933, as amended (the "1933 Act"), unless (i) such
security has been registered for sale under the 1933 Act and registered or
qualified under applicable state securities laws relating to the offer and sale
of securities, or (ii) exemptions from the registration requirements of the 1933
Act and the registration or qualification requirements of all such state
securities laws are available and the Company shall have received an opinion of
counsel satisfactory to the Company that the proposed sale or other disposition
of such securities may be effected without registration under the 1933 Act and
would not result in any violation of any applicable state securities laws
relating to the registration or qualification of securities for sale, such
counsel and such opinion to be satisfactory to the Company.
The Holder agrees to indemnify and hold harmless the Company against any
loss, damage, claim or liability arising from the disposition of this Warrant or
any Exercise Share held by such holder or any interest therein in violation of
the provisions of this Paragraph 7.
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<PAGE>
(b) Securities Purchase Agreement. This Warrant and the underlying shares
of Common Stock are subject to the terms contained within that certain
Securities Purchase Agreement by and among the Company and Gold Coast Finance
Corporation and the Holder (the "Agreement").
(c) Restrictive Legends. Unless and until otherwise permitted by this
Paragraph 7 or in the Agreement, this Warrant Certificate, each Warrant
Certificate issued to the Holder or to any transferee or assignee of this
Warrant Certificate, and each Certificate representing Exercise Shares issued
upon exercise of this Warrant or to any transferee of the person to whom the
Exercise Shares were issued, shall bear a legend setting forth the requirements
of paragraph (a) of this Paragraph 7, together with such other legend or legends
as may otherwise be deemed necessary or appropriate by counsel to the Company.
(d) Notice of Proposed Transfers. Prior to any transfer, offer to transfer
or attempted transfer of this Warrant or any Exercise Share, the holder of such
security shall give written notice to the Company of such holder's intention to
effect such transfer. Each such notice shall (x) describe the manner and
circumstances of the proposed transfer in sufficient detail, and shall contain
an undertaking by the person giving such notice to furnish such other
information as may be required, to enable counsel to render the opinions
referred to below, and shall (y) designate the counsel for the person giving
such notice, such counsel to be satisfactory to the Company. The person giving
such notice shall submit a copy thereof to the counsel designated in such notice
and the Company shall submit a copy thereof to its counsel, and the following
provisions shall apply:
(i) If, in the opinion of each such counsel, the proposed transfer
of this Warrant or Exercise Share, as appropriate, may be effected pursuant to
the terms of the Agreement of Sale and without registration of such security
under the 1933 Act, the Company shall, as promptly as practicable, so notify the
holder of such security and such holder shall thereupon be entitled to transfer
such security in accordance with the terms of the notice delivered by such
holder to the Company. Each certificate evidencing the securities thus to be
transferred (and each certificate evidencing any untransferred balance of the
securities evidenced by such certificate) shall bear the restrictive legends
referred to in subparagraph (b) above, unless in the opinion of
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<PAGE>
each such counsel such legend is not required in order to insure compliance with
the 1933 Act.
(ii) If, in the opinion of either of such counsel, the proposed
transfer of securities may not be effected without registration under the 1933
Act, the Company shall, as promptly as practicable, so notify the holder
thereof. However, the Company shall have no obligation to register such
securities under the 1933 Act, except as otherwise provided herein or in the
Agreement of Sale.
The holder of the securities giving the notice under this subparagraph (c)
shall not be entitled to transfer any of the securities until receipt of notice
from the Company under paragraph (i) of this subparagraph (c) or registration of
such securities under the 1933 Act has become effective.
(e) Removal of Legend. The Company shall, at the request of any registered
holder of a Warrant or Exercise Share, exchange the certificate representing
such security for a certificate representing the same security not bearing the
restrictive legend required by subparagraph (b) if, in the opinion of counsel to
the Company, such restrictive legend is no longer necessary.
8. Redemption
(a) At any time from the date of issuance, the Warrants are subject to
redemption by LMI at a redemption price of $.001 per Warrant on thirty (30) days
written notice upon the following condition: (i) if a Registration Statement
covering the resale of the shares of Common Stock of LMI issuable upon exercise
of the Warrants is effective as of that date; and (ii) if the average of the
closing bid prices of LMI's Common Stock as reported on NASDAQ (or the last
sales price of the Common Stock listed on a national securities exchange or
included in The NASDAQ Smallcap MarketTM or the average of the mean between the
last bid and asked prices per share as reported by the National Quotation
Bureau, Inc. or an equivalent generally accepted reporting service if the shares
are traded on the over-the-counter market and not on the NASDAQ Reporting
System), exceeds $6.50 for twenty (20) consecutive trading days ending within
fifteen (15) days of the notice of redemption. All Warrants must be redeemed if
any are redeemed.
(b) In the event the Company shall desire to exercise its right to so
redeem the Warrants, it may request the Warrant Agent
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<PAGE>
to mail a notice or redemption to each of the Registered Holders of the Warrants
to be redeemed, first class, postage prepaid, not later than the thirtieth
(30th) day before the date fixed for redemption, at their last address as shall
appear on the records of the Warrants. Any notice mailed in the manner provided
herein shall be conclusively presumed to have been duly given whether or not the
Registered Holder receives such notice.
(c) The notice of redemption shall specify (i) the redemption price; (ii)
the date fixed for redemption; (iii) the place where the Warrant Certificates
shall be delivered and the redemption price paid; and (iv) that the right to
exercise the Warrant shall terminate at 5:00 P.M. (New York City time) on the
business day immediately preceding the date fixed for redemption. The date fixed
for the redemption of the Warrants shall be the Redemption Date. No failure to
mail such notice nor any defect therein or in the mailing thereof shall affect
the validity of the proceedings for such redemption except as to a holder (a) to
whom notice was not mailed or (b) whose notice was defective. An affidavit of
the Warrant Agent or the Company that notice of redemption has been mailed
shall, in the absence of fraud, be prima facie evidence of the facts stated
therein.
(d) Any right to exercise a Warrant shall terminate at 5:00 P.M. (New York
City time) on the business day immediately preceding the Redemption Date. On or
after the Redemption Date, Holders of the Warrants shall have no further rights
except to receive, upon surrender of the Warrant, the Redemption Price.
(e) From and after the date specified for redemption, the Company shall,
at the place specified in the notice of redemption, upon presentation and
surrender to the Company by or on behalf of the Registered Holder thereof of one
or more Warrants to be redeemed, deliver or cause to be delivered to or upon the
written order of such Holder a sum in cash equal to the redemption price of each
such Warrant. From and after the date fixed for redemption and upon the deposit
or setting aside by the Company of a sum sufficient to redeem all the Warrants
called for redemption, such Warrants shall expire and become void and all rights
hereunder and under the Warrant Certificates, except the right to receive
payment of the redemption price, shall cease.
9. Notices. All notices or other communications under this Warrant Certificate
shall be in writing and shall be deemed to have
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<PAGE>
been given if delivered by hand or mailed by certified mail, postage prepaid,
return receipt request, addressed as follows:
If to the Company:
LMI Acquisition Corp.
401 City Avenue
Suite 725
Bala Cynwyd, PA 19004
Attention: President
With a Copy:
Stephen M. Cohen, Esquire
Clark, Ladner, Fortenbaugh & Young
One Commerce Square
2005 Market Street, 22nd Floor
Philadelphia, PA 19103
and to the Holder:
at the address of the Holder appearing on the books of
the Company or the Company's transfer agent, if any.
Either of the Company or the Holder may from time to time change the
address to which notices to it are to be mailed hereunder by notice in
accordance with the provisions of this Paragraph 9.
10. Supplements and Amendments. The Company may from time to time supplement or
amend this Warrant Certificate without the approval of any holders of Warrants
in order to cure any ambiguity or to correct or supplement any provision
contained herein which may be defective or inconsistent with any other
provision, or to make any other provisions in regard to matters or questions
herein arising hereunder which the Company may deem necessary or desirable and
which shall not materially adversely affect the interests of the Holder.
11. Successors and Assigns. This Warrant shall inure to the benefit of and be
binding on the respective successors, assigns and legal representatives of the
Holder and the Company.
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<PAGE>
12. Severability. If for any reason any provision, paragraph or terms of this
Warrant Certificate is held to be invalid or unenforceable, all other valid
provisions herein shall remain in full force and effect and all terms,
provisions and paragraphs of this Warrant shall be deemed to be severable.
13. Governing Law. This Warrant shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of said State.
14. Headings. Paragraph and subparagraph headings, used herein are included
herein for convenience of reference only shall not affect the construction of
this Warrant Certificate nor constitute a part of this Warrant Certificate for
any other purpose.
IN WITNESS WHEREOF, the Company has caused these presents to be duly
executed the day and year defined herein as the "Commencement Date."
LMI ACQUISITION CORP.
By:_____________________________________
(Authorized Executive Officer)
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<PAGE>
APPENDIX A
NOTICE OF WARRANT EXERCISE
Pursuant to a Warrant by and between the undersigned and LMI Acquisition
Corp., a Delaware corporation (the "Company"), dated as of March 28, 1996, and
subject to the vesting periods set forth therein, the undersigned hereby
irrevocably elects to exercise its warrant to the extent of purchasing
______________ shares of Common Stock (the "Warrant Shares"), of the Company as
provided for therein.
The undersigned hereby represents and agrees that the Warrant Shares
purchased pursuant hereto are being purchased for investment and not with a view
to the distribution or resale thereof, and that the undersigned understands that
said Warrant Shares have not been registered under the Securities Act of 1933,
as amended.
Payment of the full Purchase Price of the Warrant Shares is enclosed
herewith, in the form of a check made payable to the Company.
The undersigned requests that a certificate for the Warrant Shares be
issued in the name of:
_______________________________________
_______________________________________
_______________________________________
(Please print name, address and social security number)
Dated:_______________________________________, ______
Address:______________________________________________
______________________________________________
______________________________________________
Signature:____________________________________________
or the Collection Agent or the Facility
Agent hereunder or from the ex
15
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT") OR UNDER ANY STATE SECURITIES OR BLUE SKY LAWS
AND MAY NOT BE PLEDGED, SOLD, TRANSFERRED, HYPOTHECATED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER
SUCH ACT OR UNDER APPLICABLE STATE SECURITIES OR BLUE SKY
LAWS OR AN EXEMPTION THEREFROM.
WARRANT TO PURCHASE
COMMON STOCK OF
LMI ACQUISITION CORP.
Void after 5:00 p.m. Eastern Standard Time on ______________ 1999.
This is to verify that, FOR VALUE RECEIVED, (hereinafter referred to as the
"Holder"), with a principal address as indicated on the books and records of LMI
Acquisition Corp. (the "Company") is entitled to purchase, subject to the terms
and conditions hereof, from the Company __________ shares of Common Stock (the
"Common Stock") during the period commencing at 9:00 a.m., Eastern Standard Time
on ___________, 1996 (the "Commencement Date") and ending at 5:00 p.m. Eastern
Standard Time on _____________, 1999 (the "Termination Date") at an exercise
price of $4.00 per share of Common Stock. The number of shares of Common Stock
purchasable upon exercise of this Warrant (the "Warrant(s)") and the exercise
price per share shall be subject to adjustment from time to time upon the
occurrence of certain events as set forth below.
The shares of Common Stock or any other shares or other units of stock or
other securities or property, or any combination thereof then receivable upon
exercise of this Warrant, as adjusted from time to time, are sometimes referred
to hereinafter as "Exercise Shares". The exercise price per share as from time
to time in effect is referred to hereinafter as the "Exercise Price".
1. Exercise of Warrant; Issuance of Exercise Shares.
(a) Exercise of Warrant. This Warrant may be exercised in whole or in part
at any time or from time to time on or after the Commencement Date and until and
including the Termination Date. This Warrant may be surrendered on any business
day to the Company at its principal office, presently located at the address of
the Company set forth in Paragraph 9 hereof, (or such other office of the
Company, if any, as shall theretofore have been designated by the Company by
written notice to the Holder), together with: (i) a completed and executed
Notice of Warrant Exercise in the form set forth in Appendix A
<PAGE>
hereto and made a part hereof and (ii) payment of the full Exercise Price for
the amount of Exercise Shares set forth in the Notice of Warrant Exercise, in
lawful money of the United States of America by certified check or cashier's
check, made payable to the order of the Company.
In the event that this Warrant shall be duly exercised in part prior to the
Termination Date, the Company shall issue a new Warrant or Warrants of like
tenor evidencing the rights of the Holder thereof to purchase the balance of the
Exercise Shares purchasable under the Warrant so surrendered that shall not have
been purchased.
No adjustments shall be made for any cash dividends on Exercise Shares
issuable upon exercise of the Warrant. The Company shall cancel Warrant
Certificates surrendered upon exercise of Warrants.
(b) Issuance of Exercise Shares; Delivery of Warrant Certificate. The
Company shall, within ten (10) business days or as soon thereafter as is
practicable of the exercise of this Warrant, issue in the name of and cause to
be delivered to the Holder (or such other person or persons, if any, as the
Holder shall have designated in the Notice of Warrant Exercise) one or more
certificates representing the Exercise Shares to which the Holder (or such other
person or persons) shall be entitled upon such exercise under the terms hereof.
Such certificate or certificates shall be deemed to have been issued and the
Holder (or such other person or persons so designated) shall be deemed to have
become the record holder of the Exercise Shares as of the date of the due
exercise of this Warrant.
(c) Exercise Shares Fully Paid and Non-assessable. The Company agrees and
covenants that all Exercise Shares issuable upon the due exercise of the Warrant
represented by this Warrant Certificate will, upon issuance in accordance with
the terms hereof, be duly authorized, validly issued, fully paid and
non-assessable and free and clear of all taxes (other than taxes which, pursuant
to Paragraph 2 hereof, the Company shall not be obligated to pay) or liens,
charges, and security interests created by the Company with respect to the
issuance thereof.
(d) Reservation of Exercise Shares. At the time of or before taking any
action which would cause an adjustment pursuant to Paragraph 6 hereof increasing
the number of shares of capital
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<PAGE>
stock constituting the Exercise Shares, the Company will take any corporate
action which may, in the opinion of its counsel, be necessary in order that the
Company have remaining, after such adjustment, a number of shares of such
capital stock unissued and unreserved for other purposes sufficient to permit
the exercise of all the then outstanding Warrants of like tenor immediately
after such adjustment; the Company will also from time to time take action to
increase the authorized amount of its capital stock constituting the Exercise
Shares if at any time the number of shares of capital stock authorized but
remaining unissued and unreserved for other purposes shall be insufficient to
permit the exercise of the Warrants then outstanding. The Company may but shall
not be limited to reserve and keep available, out of the aggregate of its
authorized but unissued shares of capital stock, for the purpose of enabling it
to satisfy any obligation to issue Exercise Shares upon exercise of Warrants,
through the Termination Date, the number of Exercise Shares deliverable upon the
full exercise of this Warrant and all other Warrants of like tenor then
outstanding.
At the time of or before taking any action which would cause an adjustment
pursuant to Paragraph 6 hereof, reducing the Exercise price below the then par
value (if any) of the Exercise Shares issuable upon exercise of the Warrants,
the Company will take any corporate action which may, in the opinion of its
counsel, be necessary in order to assure that the par value per share of the
Exercise Shares is at all times equal to or less than the Exercise Price per
share and so that the Company may validly and legally issue fully paid and
non-assessable Exercise Shares at the Exercise Price, as so adjusted; the
Company will also from time to time take such action if at any time the Exercise
Price is below the then par value of the Exercise Shares.
(e) Fractional Shares. The Company shall not be required to issue
fractional shares of capital stock upon the exercise of this Warrant or to
deliver Warrant Certificates which evidence fractional shares of capital stock.
In the event that any fraction of an Exercise Share would, except for the
provisions of this subparagraph (e), be issuable upon the exercise of this
Warrant, the Company shall pay to the Holder exercising the Warrant an amount
in cash equal to such fraction multiplied by the Current Market Value of the
Exercise Share. For purposes of this subparagraph (e), the current Market Value
shall be determined as follows:
(i) if the Exercise Shares are traded in the over-the-counter market
and not on any national securities exchange and not in the NASDAQ Reporting
System, the average of the mean between the last bid and asked prices per share,
as reported by the National Quotation Bureau, Inc., or an equivalent generally
accepted reporting service, for the last business day prior to the date on which
this Warrant is exercised, or if not so reported, the average of the closing bid
and asked prices for an Exercise Share as furnished to the Company by any member
of the National Association of Securities Dealers, Inc., selected by the
Company for that purpose.
(ii) if the Exercise Shares are listed or traded on a national
securities exchange or in the NASDAQ National Market System, the closing price
on the principal national securities exchange on which they are so listed or
traded or in the NASDAQ National Market System, as the case may be, on the last
business day prior to the date of the exercise of this Warrant. The closing
price referred to in this clause (ii) shall be the last reported sales price or,
in case no such reported sale takes place on such day, the average of the
reported closing bid and asked prices, in either case on the national
securities exchange on which the Exercise Shares are then listed or in the
NASDAQ Reporting System; or
(iii) if no such closing price or closing bid and asked prices are
available, as determined in any reasonable manner as may be prescribed by the
Board of Directors of the Company.
2. Payment of Taxes. The Company will pay all documentary stamp taxes, if any,
attributable to the initial issuance of Exercise Shares upon the exercise of
this Warrant; provided, however, that the Company shall not be required to pay
any tax or taxes which may be payable in respect of any transfer involved in the
issue of any Warrant Certificates or any certificates for Exercise Shares in a
name other than that of the Holder of a Warrant Certificate surrendered upon the
exercise of a Warrant, and the Company shall not be required to issue or deliver
such certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
4
<PAGE>
3. Mutilated or Missing Warrant Certificates. In case any Warrant Certificate
shall be mutilated, lost, stolen or destroyed, the Company may in its discretion
issue, in exchange and substitution for and upon cancellation of the mutilated
Warrant Certificate, or in lieu of and in substitution for the Warrant
Certificate lost, stolen or destroyed, a new Warrant Certificate or Warrant
Certificates of like tenor and in the same aggregate denomination, but only (i)
in the case of loss, theft or destruction, upon receipt of evidence satisfactory
to the Company of such loss, theft or destruction of such Warrant Certificate
and indemnity or bond, if requested, also satisfactory to them and (ii) in the
case of mutilation, upon surrender of the mutilated Warrant. Applicants for such
substitute Warrant Certificates shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Company or its counsel
may prescribe.
4. Rights of Holder. The Holder shall not, by virtue of anything contained in
this Warrant Certificate or otherwise, be entitled to any right whatsoever,
either in law or equity, of a stockholder of the Company, including without
limitation, the right to receive dividends or to vote or to consent or to
receive notice as a shareholder in respect of the meetings of shareholders or
the election of directors of the Company or any other matter.
5. Registration of Transfers and Exchanges. The Warrant shall be transferable,
subject to the provisions of Paragraph 7 hereof, only upon the books of the
Company if any, to be maintained by it for that purpose, upon surrender of the
Warrant Certificate to the Company at its principal office accompanied (if so
required by it) by a written instrument or instruments of transfer in form
satisfactory to the Company and duly executed by the Holder thereof or by the
duly appointed legal representative thereof or by a duly authorized attorney and
upon payment of any necessary transfer tax or other governmental charge imposed
upon such transfer. In all cases of transfer by an attorney, the original letter
of attorney, duly approved, or an official copy thereof, duly certified, shall
be deposited and remain with the Company. In case of transfer by executors,
administrators, guardians or other legal representatives, duly authenticated
evidence of their authority shall be produced, and may be required to be
deposited and remain with the Company in its discretion. Upon any such
registration of transfer, a new Warrant Certificate shall be issued to the
transferee named in
5
<PAGE>
such instrument of transfer, and the surrendered Warrant Certificate shall be
canceled by the Company.
Any Warrant Certificate may be exchanged, at the option of the Holders
thereof and without change, when surrendered to the Company at its principal
office, or at the office of its transfer agent, if any, for another Warrant
Certificate or other Warrant Certificates of like tenor and representing in the
aggregate the right to purchase from the Company a like number and kind of
Exercise Shares as the Warrant Certificate surrendered for exchange or transfer,
and the Warrant Certificate so surrendered shall be canceled by the Company or
transfer agent, as the case may be.
6. Adjustment of Exercise Shares and Exercise Price. The Exercise price and the
number and kind of Exercise Shares purchasable upon the exercise of this Warrant
shall be subject to adjustment from time to time upon the happening of certain
events as hereinafter provided. The Exercise Price in effect at any time and
the number and kind of securities purchasable upon exercise of each Warrant
shall be subject to adjustment as follows:
(a) In the case the Company shall (i) pay a dividend or make a distribution
on its shares of Common Stock in shares of Common Stock, (ii) subdivide or
classify its outstanding Common Stock into a greater number of shares, or (iii)
combine or reclassify its outstanding Common Stock into a smaller number of
shares, the Exercise Price in effect at the time of the record date for such
dividend or distribution or of the effective date of such subdivision,
combination or reclassification shall be proportionally adjusted so that the
Holder of this Warrant exercised after such date shall be entitled to receive
the aggregate number and kind of shares which, if this Warrant had been
exercised by such Holder immediately prior to such date, he would have owned
upon such exercise and been entitled to receive upon such dividend, subdivision,
combination or reclassification. For example, if the Company declares a 2 for 1
stock dividend or stock split and the Exercise Price immediately prior to such
event was $5.00 per share, the adjusted Exercise Price immediately after such
event would be $2.50 per share. Such adjustment shall be made successively
whenever any event listed above shall occur.
6
<PAGE>
(b) In case the Company shall hereafter issue rights or warrants to all
holders of its Common Stock entitling them to subscribe for or purchase shares
of Common Stock (or securities convertible into Common Stock) at a price (or
having a conversion price per share) less than the current market price of the
Common Stock (as defined in Subparagraph (d) below) on the record date mentioned
below, the Exercise Price shall be adjusted so that the same shall equal the
price determined by multiplying the Exercise Price in effect immediately prior
to the date of such issuance by a fraction, the numerator of which shall be the
sum of the number of shares of Common Stock outstanding on the record date
mentioned below and the number of additional shares of Common Stock which the
aggregate offering price of the total number of shares of Common Stock so
offered (or the aggregate conversion price of the convertible securities so
offered) would purchase at such current market price per share of the Common
Stock, and the denominator of which shall be the sum of the number of shares of
Common Stock outstanding on such record date and the number of additional shares
of Common Stock offered for subscription or purchase (or into which the
convertible securities so offered are convertible). Such adjustment shall be
made successively whenever such rights or warrants are issued and shall become
effective immediately after the record date for the determination of
shareholders entitled to receive such rights or warrants; and to the extent that
shares of Common Stock are not delivered (or securities convertible into Common
Stock are not delivered) after the expiration of such rights or warrants the
Exercise Price shall be readjusted to the Exercise Price which would then be in
effect had the adjustments made upon the issuance of such rights or warrants
been made upon the basis of delivery of only the number of shares of Common
Stock (or securities convertible into Common Stock) actually delivered.
(c) Whenever the Exercise Price payable upon exercise of each Warrant is
adjusted pursuant to Subparagraphs (a) and (b) above, the number of Exercise
Shares purchasable upon exercise of this Warrant shall simultaneously be
adjusted by multiplying the number of Exercise Shares initially issuable upon
exercise of this Warrant by the Exercise Price in effect on the date hereof and
dividing the product so obtained by the Exercise Price, as adjusted.
(d) For the purpose of any computation under Subparagraph (b) above, the
current market price per share of Common Stock at any date shall be deemed to be
the average of the
7
<PAGE>
daily closing prices for 30 consecutive business days before such date. The
closing price for each day shall be the last sale price regular way or, in case
no such reported sale takes place on such day, the average of the last reported
bid and lowest reported asked prices as reported by NASDAQ, or other similar
organization if NASDAQ is no longer reporting such information, or if not so
available, the fair market price as determined by the Board of Directors.
(e) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least ten cents ($0.10)
in such price; provided, however, that any adjustments which by reason of this
Subparagraph (e) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment required to be made hereunder. All
calculations under this Paragraph (6) shall be made to the nearest cent or to
the nearest one-hundredth of a share, as the case may be. Anything in this
Paragraph (6) to the contrary notwithstanding, the Company shall be entitled,
but shall not be required, to make such changes in the exercise Price, in
addition to those required by this Paragraph (6), as it, in its sole discretion,
shall determine to be advisable in order that any dividend or distribution in
shares of Common Stock, subdivision, reclassification or combination of Common
Stock, issuance of Warrants to Purchase Common Stock or distribution of
evidences of indebtedness or other assets (excluding cash dividends) referred to
hereinabove in this Paragraph (6) hereafter made by the Company to the holders
of its Common Stock shall not result in any tax to the holders of its Common
Stock or securities convertible into Common Stock.
(f) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly cause a notice setting forth the adjusted Exercise Price
and adjusted number of Shares issuable upon exercise of each Warrant to be
mailed to the Holders, at their last addresses appearing in the Warrant
Register, and shall cause a certified copy thereof to be mailed to its transfer
agent, if any. The Company may retain a firm of independent certified public
accountants selected by the Board of Directors (who may be the regular
accountants employed by the Company) to make any computation required by this
Paragraph (6), and a certificate signed by such firm shall be conclusive
evidence of the correctness of such adjustment.
8
<PAGE>
(g) In the event that at any time, as a result of an adjustment made
pursuant to Subparagraph (a) above, the Holder of this Warrant thereafter shall
become entitled to receive any exercise Shares of the Company, other than Common
Stock, thereafter the number of such other shares so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in Subparagraphs (a) to (e), inclusive above.
(h) Irrespective of any adjustments in the Exercise Price or the number or
kind of Exercise Shares purchasable upon exercise of this Warrant, Warrants
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the similar Warrants initially
issuable pursuant to this Agreement.
(i) Whenever the Exercise Price shall be adjusted as required by the
provisions of the foregoing Paragraph, the Company shall forthwith file in the
custody of its secretary or an Assistant Secretary at its principal office and
with its stock transfer agent, if any, an officer's certificate showing the
adjusted Exercise Price determined as herein provided, setting forth in
reasonable detail the facts requiring such adjustment, including a statement of
the number of additional shares of Common Stock, if any, and such other facts as
shall be necessary to show the reason for and the manner of computing such
adjustment. Each such officer's certificate shall be made available at all
reasonable times for inspection by the holder and the Company shall, forthwith
after each such adjustment, mail a copy by certified mail of such certificate to
the Holder.
7. Restrictions on Transferability; Restrictive Legend. Neither this Warrant
nor the Exercise Shares shall be transferable except in accordance with the
provisions of this paragraph.
(a) Restrictions on Transfer; Indemnification. Neither this Warrant nor any
Exercise Share may be offered for sale or sold, or otherwise transferred or sold
in any transaction which would constitute a sale thereof within the meaning of
the Securities Act of 1933, as amended (the "1933 Act"), for a period of four
(4) months commencing from the Closing Date, as defined in the Securities
Purchase Agreement by and among the Company and Holder (the "Agreement").
Thereafter, neither this Warrant nor
9
<PAGE>
any Exercise Shares may be offered for sale or sold, or otherwise transferred or
sold in any transaction which would constitute a sale thereof within the meaning
of the Securities Act of 1933, as amended (the "1933 Act"), unless (i) such
security has been registered for sale under the 1933 Act and registered or
qualified under applicable state securities laws relating to the offer and sale
of securities, or (ii) exemptions from the registration requirements of the 1933
Act and the registration or qualification requirements of all such state
securities laws are available and the Company shall have received an opinion of
counsel satisfactory to the Company that the proposed sale or other disposition
of such securities may be effected without registration under the 1933 Act and
would not result in any violation of any applicable state securities laws
relating to the registration or qualification of securities for sale, such
counsel and such opinion to be satisfactory to the Company.
The Holder agrees to indemnify and hold harmless the Company against any
loss, damage, claim or liability arising from the disposition of this Warrant or
any Exercise Share held by such holder or any interest therein in violation of
the provisions of this Paragraph 7.
(b) Securities Purchase Agreement. This Warrant and the underlying shares
of Common Stock are subject to the terms contained within that certain
Securities Purchase Agreement by and among the Company and the Holder (the
"Agreement").
(c) Restrictive Legends. Unless and until otherwise permitted by this
Paragraph 7 or in the Agreement, this Warrant Certificate, each Warrant
Certificate issued to the Holder or to any transferee or assignee of this
Warrant Certificate, and each Certificate representing Exercise Shares issued
upon exercise of this Warrant or to any transferee of the person to whom the
Exercise Shares were issued, shall bear a legend setting forth the requirements
of paragraph (a) of this Paragraph 7, together with such other legend or legends
as may otherwise be deemed necessary or appropriate by counsel to the Company.
(d) Notice of Proposed Transfers. Prior to any transfer, offer to transfer
or attempted transfer of this Warrant or any Exercise Share, the holder of such
security shall give written notice to the Company of such holder's intention to
effect such transfer. Each such notice shall (x) describe the manner and
circumstances of the proposed transfer in sufficient
10
<PAGE>
detail, and shall contain an undertaking by the person giving such notice to
furnish such other information as may be required, to enable counsel to render
the opinions referred to below, and shall (y) designate the counsel for the
person giving such notice, such counsel to be satisfactory to the Company. The
person giving such notice shall submit a copy thereof to the counsel designated
in such notice and the Company shall submit a copy thereof to its counsel, and
the following provisions shall apply:
(i) If, in the opinion of each such counsel, the proposed transfer of
this Warrant or Exercise Share, as appropriate, may be effected pursuant to the
terms of the Agreement of Sale and without registration of such security under
the 1933 Act, the Company shall, as promptly as practicable, so notify the
holder of such security and such holder shall thereupon be entitled to transfer
such security in accordance with the terms of the notice delivered by such
holder to the Company. Each certificate evidencing the securities thus to be
transferred (and each certificate evidencing any untransferred balance of the
securities evidenced by such certificate) shall bear the restrictive legends
referred to in subparagraph (b) above, unless in the opinion of each such
counsel such legend is not required in order to insure compliance with the 1933
Act.
(ii) If, in the opinion of either of such counsel, the proposed
transfer of securities may not be effected without registration under the 1933
Act, the Company shall, as promptly as practicable, so notify the holder
thereof. However, the Company shall have no obligation to register such
securities under the 1933 Act, except as otherwise provided herein or in the
Agreement of Sale.
The holder of the securities giving the notice under this subparagraph (c)
shall not be entitled to transfer any of the securities until receipt of notice
from the Company under paragraph (i) of this subparagraph (c) or registration of
such securities under the 1933 Act has become effective.
(e) Removal of Legend. The Company shall, at the request of any registered
holder of a Warrant or Exercise Share, exchange the certificate representing
such security for a certificate representing the same security not bearing the
restrictive legend required by subparagraph (b) if, in the opinion of counsel
to the Company, such restrictive legend is no longer necessary.
11
<PAGE>
8. Redemption
(a) At any time from the date of issuance, the Warrants are subject to
redemption by the Company at a redemption price of $.001 per Warrant on thirty
(30) days written notice upon the following condition: (i) if a Registration
Statement covering the resale of the shares of Common Stock of the Company
issuable upon exercise of the Warrants is effective as of that date; and (ii) if
the average of the closing bid prices of the Company's Common Stock as reported
on NASDAQ (or the last sales price of the Common Stock listed on a national
securities exchange or included in The NASDAQ Smallcap Mark(TM) or the average
of the mean between the last bid and asked prices per share as reported by the
National Quotation Bureau, Inc. or an equivalent generally accepted reporting
service if the shares are traded on the over-the-counter market and not on the
NASDAQ Reporting System), exceeds $6.50 for twenty (20) consecutive trading
days ending within fifteen (15) days of the notice of redemption. All Warrants
must be redeemed if any are redeemed.
(b) In the event the Company shall desire to exercise its right to so
redeem the Warrants, it may request the Warrant Agent to mail a notice or
redemption to each of the Registered Holders of the Warrants to be redeemed,
first class, postage prepaid, not later than the thirtieth (30th) day before
the date fixed for redemption, at their last address as shall appear on the
records of the Warrants. Any notice mailed in the manner provided herein shall
be conclusively presumed to have been duly given whether or not the Registered
Holder receives such notice.
(c) The notice of redemption shall specify (i) the redemption price; (ii)
the date fixed for redemption; (iii) the place where the Warrant Certificates
shall be delivered and the redemption price paid; and (iv) that the right to
exercise the Warrant shall terminate at 5:00 P.M. (New York City time) on the
business day immediately preceding the date fixed for redemption. The date fixed
for the redemption of the Warrants shall be the Redemption Date. No failure to
mail such notice nor any defect therein or in the mailing thereof shall affect
the validity of the proceedings for such redemption except as to a holder (a) to
whom notice was not mailed or (b) whose notice was defective. An affidavit of
the Warrant Agent or the Company that notice of redemption has been mailed
shall, in the absence of fraud, be prima facie evidence of the facts stated
therein.
12
<PAGE>
(d) Any right to exercise a Warrant shall terminate at 5:00 P.M. (New York
City time) on the business day immediately preceding the Redemption Date. On or
after the Redemption Date, Holders of the Warrants shall have no further rights
except to receive, upon surrender of the Warrant, the Redemption Price.
(e) From and after the date specified for redemption, the Company shall, at
the place specified in the notice of redemption, upon presentation and surrender
to the Company by or on behalf of the Registered Holder thereof of one or more
Warrants to be redeemed, deliver or cause to be delivered to or upon the written
order of such Holder a sum in cash equal to the redemption price of each such
Warrant. From and after the date fixed for redemption and upon the deposit or
setting aside by the Company of a sum sufficient to redeem all the Warrants
called for redemption, such Warrants shall expire and become void and all rights
hereunder and under the Warrant Certificates, except the right to receive
payment of the redemption price, shall cease.
9. Notices. All notices or other communications under this Warrant Certificate
shall be in writing and shall be deemed to have been given if delivered by hand
or mailed by certified mail, postage prepaid, return receipt request, addressed
as follows:
If to the Company:
LMI Acquisition Corp.
16853 N.E. Second Avenue
North Miami Beach, FL 33162
Attention: President
With a Copy:
Stephen M. Cohen, Esquire
Buchanan Ingersoll P.C.
Two Logan Square
18th and Arch Streets
Philadelphia, PA 19103-6933
and to the Holder:
at the address of the Holder appearing on the books of the Company or
the Company's transfer agent, if any.
13
<PAGE>
Either of the Company or the Holder may from time to time change the
address to which notices to it are to be mailed hereunder by notice in
accordance with the provisions of this Paragraph 9.
10. Supplements and Amendments. The Company may from time to time supplement or
amend this Warrant Certificate without the approval of any holders of Warrants
in order to cure any ambiguity or to correct or supplement any provision
contained herein which may be defective or inconsistent with any other
provision, or to make any other provisions in regard to matters or questions
herein arising hereunder which the Company may deem necessary or desirable and
which shall not materially adversely affect the interests of the Holder.
11. Successors and Assigns. This Warrant shall inure to the benefit of and be
binding on the respective successors, assigns and legal representatives of the
Holder and the Company.
12. Severability. If for any reason any provision, paragraph or terms of this
Warrant Certificate is held to be invalid or unenforceable, all other valid
provisions herein shall remain in full force and effect and all terms,
provisions and paragraphs of this Warrant shall be deemed to be severable.
13. Governing Law. This Warrant shall be deemed to be a contract made under the
laws of the State of Florida and for all purposes shall be governed by and
construed in accordance with the laws of said State.
14. Headings. Paragraph and subparagraph headings, used herein are included
herein for convenience of reference only shall not affect the construction of
this Warrant Certificate nor constitute a part of this Warrant Certificate for
any other purpose.
IN WITNESS WHEREOF, the Company has caused these presents to be duly
executed the day and year defined herein as the "Commencement Date."
LMI ACQUISITION CORP.
By: _________________________________
(Authorized Executive Officer)
14
<PAGE>
APPENDIX A
----------
NOTICE OF WARRANT EXERCISE
--------------------------
Pursuant to a Warrant by and between the undersigned and LMI Acquisition
Corp., a Delaware corporation (the "Company"), dated as of _____________, _____,
and subject to the vesting periods set forth therein, the undersigned hereby
irrevocably elects to exercise its warrant to the extent of purchasing ________
shares of Common Stock (the "Warrant Shares"), of the Company as provided for
therein.
The undersigned hereby represents and agrees that the Warrant Shares
purchased pursuant hereto are being purchased for investment and not with a view
to the distribution or resale thereof, and that the undersigned understands that
said Warrant Shares have not been registered under the Securities Act of 1933,
as amended.
Payment of the full Purchase Price of the Warrant Shares is enclosed
herewith, in the form of a check made payable to the Company.
The undersigned requests that a certificate for the Warrant Shares be
issued in the name of:
---------------------------------------------------
---------------------------------------------------
---------------------------------------------------
(Please print name, address and social security number)
Dated: ___________________________________________, _________
Address: ____________________________________________________
____________________________________________________
____________________________________________________
Signature: __________________________________________________
15
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES REPRESENTED BY
THIS CERTIFICATE HAVE BEEN TAKEN BY THE REGISTERED OWNER FOR INVESTMENT,
AND WITHOUT A VIEW TO RESALE OR DISTRIBUTION THEREOF, AND MAY NOT BE
TRANSFERRED OR DISPOSED OF WITHOUT AN OPINION OF COUNSEL SATISFACTORY TO
THE ISSUER THAT SUCH TRANSFER OR DISPOSITION DOES NOT VIOLATE THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE RULES AND REGULATIONS
THEREUNDER.
WARRANT TO PURCHASE
COMMON STOCK OF
USA FINANCE, INC.
Void after 5:00 p.m. Eastern Standard Time on _________________ 1999.
This is to verify that, FOR VALUE RECEIVED, ______________________________
(hereinafter referred to as the "Holder"), with a principal address as indicated
on the books and records of USA FINANCE, INC. (the "Company") is entitled to
purchase, subject to the terms and conditions hereof, from the Company ________
shares of Common Stock (the "Common Stock") during the period commencing at 9:00
a.m., Eastern Standard Time on ________, 1996 (the "Commencement Date") and
ending at 5:00 p.m. Eastern Standard Time on ________, 1999 (the "Termination
Date") at an exercise price of $4.00 per share of Common Stock. The number of
shares of Common Stock purchasable upon exercise of this Warrant (the
"Warrant(s)") and the exercise price per share shall be subject to adjustment
from time to time upon the occurrence of certain events as set forth below.
The shares of Common Stock or any other shares or other units of stock or
other securities or property, or any combination thereof then receivable upon
exercise of this Warrant, as adjusted from time to time, are sometimes referred
to hereinafter as "Exercise Shares". The exercise price per share as from time
to time in effect is referred to hereinafter as the "Exercise Price".
1. Exercise of Warrant; Issuance of Exercise Shares.
(a) Exercise of Warrant. This Warrant may be exercised in whole or in part
at any time or from time to time on or after the Commencement Date and until and
including the Termination Date. This Warrant may be surrendered on any business
day to the Company at its
<PAGE>
principal office, presently located at the address of the Company set forth in
Paragraph 9 hereof, (or such other office of the Company, if any, as shall
theretofore have been designated by the Company by written notice to the
Holder), together with: (i) a completed and executed Notice of Warrant Exercise
in the form set forth in Appendix A hereto and made a part hereof; and (ii)
payment of the full Exercise Price for the amount of Exercise Shares set forth
in the Notice of Warrant Exercise, in lawful money of the United States of
America by certified check or cashier's check, made payable to the order of the
Company.
In the event that this Warrant shall be duly exercised in part prior to the
Termination Date, the Company shall issue a new Warrant Certificate of like
tenor evidencing the rights of the Holder thereof to purchase the balance of the
Exercise Shares purchasable under the Warrant so surrendered that shall not have
been purchased.
No adjustments shall be made for any cash dividends on Exercise Shares
issuable upon exercise of the Warrant. The Company shall cancel Warrant
Certificates surrendered upon exercise of Warrants.
(b) Issuance of Exercise Shares; Delivery of Certificates. The Company
shall, within ten (10) business days or as soon thereafter as is practicable of
the exercise of this Warrant, issue in the name of and cause to be delivered to
the Holder (or such other person or persons, if any, as the Holder shall have
designated in the Notice of Warrant Exercise) one or more certificates
representing the Exercise Shares to which the Holder (or such other person or
persons) shall be entitled upon such exercise under the terms hereof. Such
certificate or certificates shall be deemed to have been issued and the Holder
(or such other person or persons so designated) shall be deemed to have become
the record holder of the Exercise Shares as of the date of the due exercise of
this Warrant.
(c) Exercise Shares Fully Paid and Non-assessable. The Company agrees and
covenants that all Exercise Shares issuable upon the due exercise of the Warrant
represented by this Warrant Certificate will, upon issuance in accordance with
the terms hereof, be duly authorized, validly issued, fully paid and
non-assessable and free and clear of all taxes (other than taxes which, pursuant
to Paragraph 2 hereof, the Company shall not be obligated to pay) or liens,
charges, and security interests created by the Company with respect to the
issuance thereof.
(d) Reservation of Exercise Shares. At the time of or before taking any
action which would cause an adjustment pursuant to Paragraph 6 hereof increasing
the number of shares of capital stock constituting the Exercise Shares, the
Company will take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Company have remaining, after such
adjustment, a number of shares of such capital stock unissued and unreserved for
other purposes sufficient to permit the exercise of all the then outstanding
Warrants of like tenor immediately after such adjustment; the Company will also
from time to time take action to increase the authorized amount of its capital
stock constituting the Exercise Shares if at any time the number of shares of
capital stock authorized but remaining unissued and unreserved for other
purposes shall be insufficient to permit the exercise of the Warrants then
outstanding. The Company may but shall not be required to reserve and keep
available, out of the aggregate of its
2
<PAGE>
authorized but unissued shares of capital stock, for the purpose of enabling it
to satisfy any obligation to issue Exercise Shares upon exercise of Warrants,
through the Termination Date, the number of Exercise Shares deliverable upon the
full exercise of this Warrant and all other Warrants of like tenor then
outstanding.
At the time of or before taking any action which would cause an adjustment
pursuant to Paragraph 6 hereof, reducing the Exercise Price below the then par
value (if any) of the Exercise Shares issuable upon exercise of the Warrants,
the Company will take any corporate action which may, in the opinion of its
counsel, be necessary in order to assure that the par value per share of the
Exercise Shares is at all times equal to or less than the Exercise Price per
share and so that the Company may validly and legally issue fully paid and
non-assessable Exercise Shares at the Exercise Price, as so adjusted. The
Company will also from time to time take such action if at any time the Exercise
Price is below the then par value of the Exercise Shares.
(e) Fractional Shares. The Company shall not be required to issue
fractional shares of capital stock upon the exercise of this Warrant or to
deliver Warrant Certificates which evidence fractional shares of capital stock.
In the event that any fraction of an Exercise Share would, except for the
provisions of this subparagraph (e), be issuable upon the exercise of this
Warrant, the Company shall pay to the Holder exercising the Warrant an amount in
cash equal to such fraction multiplied by the Current Market Value of the
Exercise Share. For purposes of this subparagraph (e), the Current Market Value
shall be determined as follows:
(i) if the Exercise Shares are traded on the over-the-counter market
and not on any national securities exchange and not on the NASDAQ Reporting
System, the average of the mean between the last bid and asked prices per share,
as reported by the National Quotation Bureau, Inc., or an equivalent generally
accepted reporting service, for the last business day prior to the date on which
this Warrant is exercised, or if not so reported, the average of the closing bid
and asked prices for an Exercise Share as furnished to the Company by any member
of the National Association of Securities Dealers, Inc., selected by the Company
for that purpose;
(ii) if the Exercise Shares are listed or traded on a national
securities exchange or on the NASDAQ National Market System, the closing price
on the principal national securities exchange on which they are so listed or
traded or on the NASDAQ National Market System, as the case may be, on the last
business day prior to the date of the exercise of this Warrant. The closing
price referred to in this clause (ii) shall be the last reported sales price or,
in case no such reported sale takes place on such day, the average of the
reported closing bid and asked prices, in either case on the national
securities exchange on which the Exercise Shares are then listed or in the
NASDAQ Reporting System; or
(iii) if no such closing price or closing bid and asked prices are
available, as determined in any reasonable manner as may be prescribed by the
Board of Directors of the Company.
2. Payment of Taxes. The Company will pay all documentary stamp taxes, if any,
attributable to the initial issuance of Exercise Shares upon the exercise of
this Warrant; provided, however, that the
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Company shall not be required to pay any tax or taxes which may be payable in
respect of any transfer involved in the issue of any Warrant Certificates or any
certificates for Exercise Shares in a name other than that of the Holder of a
Warrant Certificate surrendered upon the exercise of a Warrant, and the Company
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
3. Mutilated or Missing Warrant Certificates. In case any Warrant Certificate
shall be mutilated, lost, stolen or destroyed, the Company may in its discretion
issue, in exchange and substitution for and upon cancellation of the mutilated
Warrant Certificate, or in lieu of and in substitution for the Warrant
Certificate lost, stolen or destroyed, a new Warrant Certificate or Warrant
Certificates of like tenor and in the same aggregate denomination, but only (i)
in the case of loss, theft or destruction, upon receipt of evidence satisfactory
to the Company of such loss, theft or destruction of such Warrant Certificate
and indemnity or bond, if requested, also satisfactory to it; and (ii) in the
case of mutilation, upon surrender of the mutilated Warrant Certificate.
Applicants for such substitute Warrant Certificates shall also comply with such
other reasonable regulations and pay such other reasonable charges as the
Company or its counsel may prescribe.
4. Rights of Holder. The Holder shall not, by virtue of anything contained in
this Warrant Certificate or otherwise, be entitled to any right whatsoever,
either in law or equity, of a stockholder of the Company, including without
limitation, the right to receive dividends or to vote or to consent or to
receive notice as a shareholder in respect of the meetings of shareholders or
the election of directors of the Company or any other matter.
5. Registration of Transfers and Exchanges. The Warrant shall be transferable,
subject to the provisions of Paragraph 7 hereof, only upon the books of the
Company if any, to be maintained by it for that purpose, upon surrender of the
Warrant Certificate to the Company at its principal office accompanied (if so
required by it) by a written instrument or instruments of transfer in form
satisfactory to the Company and duly executed by the Holder thereof or by the
duly appointed legal representative thereof or by a duly authorized attorney and
upon payment of any necessary transfer tax or other governmental charge imposed
upon such transfer. In all cases of transfer by an attorney, the original letter
of attorney, duly approved, or an official copy thereof, duly certified, shall
be deposited and remain with the Company. In case of transfer by executors,
administrators, guardians or other legal representatives, duly authenticated
evidence of their authority shall be produced, and may be required to be
deposited and remain with the Company in its discretion. Upon any such
registration of transfer, a new Warrant Certificate shall be issued to the
transferee named in such instrument of transfer, and the surrendered Warrant
Certificate shall be canceled by the Company.
Any Warrant Certificate may be exchanged, at the option of the Holders
thereof and without change, when surrendered to the Company at its principal
office, or at the office of its transfer agent, if any, for another Warrant
Certificate or other Warrant Certificates of like tenor and representing in the
aggregate the right to purchase from the Company a like number and kind of
Exercise Shares as the Warrant Certificate surrendered for exchange or transfer,
and the
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Warrant Certificate so surrendered shall be canceled by the Company or transfer
agent, as the case may be.
6. Adjustment of Exercise Shares and Exercise Price. The Exercise Price and the
number and kind of Exercise Shares purchasable upon the exercise of this Warrant
shall be subject to adjustment from time to time upon the happening of certain
events as hereinafter provided. The Exercise Price in effect at any time and
the number and kind of securities purchasable upon exercise of each Warrant
shall be subject to adjustment as follows:
(a) In the case the Company shall (i) pay a dividend or make a distribution
on its shares of Common Stock in shares of Common Stock; (ii) subdivide or
classify its outstanding Common Stock into a greater number of shares; or (iii)
combine or reclassify its outstanding Common Stock into a smaller number of
shares, the Exercise Price in effect at the time of the record date for such
dividend or distribution or of the effective date of such subdivision,
combination or reclassification shall be proportionally adjusted so that the
Holder of this Warrant exercised after such date shall be entitled to receive
the aggregate number and kind of shares which, if this Warrant had been
exercised by such Holder immediately prior to such date, he would have owned
upon such exercise and been entitled to receive upon such dividend, subdivision,
combination or reclassification. For example, if the Company declares a 2 for 1
stock dividend or stock split and the Exercise Price immediately prior to such
event was $5.00 per share, the adjusted Exercise Price immediately after such
event would be $2.50 per share. Such adjustment shall be made successively
whenever any event listed above shall occur.
(b) In case the Company shall hereafter issue rights or warrants to all
holders of its Common Stock entitling them to subscribe for or purchase shares
of Common Stock (or securities convertible into Common Stock) at a price (or
having a conversion price per share) less than the current market price of the
Common Stock (as defined in Subparagraph (d) below) on the record date mentioned
below, the Exercise Price shall be adjusted so that the same shall equal the
price determined by multiplying the Exercise Price in effect immediately prior
to the date of such issuance by a fraction, the numerator of which shall be the
sum of the number of shares of Common Stock outstanding on the record date
mentioned below and the number of additional shares of Common Stock which the
aggregate offering price of the total number of shares of Common Stock so
offered (or the aggregate conversion price of the convertible securities so
offered) would purchase at such current market price per share of the Common
Stock, and the denominator of which shall be the sum of the number of shares of
Common Stock outstanding on such record date and the number of additional shares
of Common Stock offered for subscription or purchase (or into which the
convertible securities so offered are convertible). Such adjustment shall be
made successively whenever such rights or warrants are issued and shall become
effective immediately after the record date for the determination of
shareholders entitled to receive such rights or warrants; and to the extent that
shares of Common Stock are not delivered (or securities convertible into Common
Stock are not delivered) after the expiration of such rights or warrants the
Exercise Price shall be readjusted to the Exercise Price which would then be in
effect had the adjustments made upon the issuance of such rights or warrants
been made upon the basis of delivery of only the number of shares of Common
Stock (or securities convertible into Common Stock) actually delivered.
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<PAGE>
(c) Whenever the Exercise Price payable upon exercise of each Warrant is
adjusted pursuant to Subparagraphs (a) and (b) above, the number of Exercise
Shares purchasable upon exercise of this Warrant shall simultaneously be
adjusted by multiplying the number of Exercise Shares initially issuable upon
exercise of this Warrant by the Exercise Price in effect on the date hereof and
dividing the product so obtained by the Exercise Price, as adjusted.
(d) For the purpose of any computation under Subparagraph (b) above, the
current market price per share of Common Stock at any date shall be deemed to be
the average of the daily closing prices for 30 consecutive business days before
such date. The closing price for each day shall be the last sale price regular
way or, in case no such reported sale takes place on such day, the average of
the last reported bid and lowest reported asked prices as reported by NASDAQ, or
other similar organization if NASDAQ is no longer reporting such information, or
if not so available, the fair market price as determined by the Board of
Directors.
(e) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least ten cents ($0.10)
in such price; provided, however, that any adjustments which by reason of this
Subparagraph (e) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment required to be made hereunder. All
calculations under this Paragraph (6) shall be made to the nearest cent or to
the nearest one-hundredth of a share, as the case may be. Anything in this
Paragraph (6) to the contrary notwithstanding, the Company shall be entitled,
but shall not be required, to make such changes in the Exercise Price, in
addition to those required by this Paragraph (6), as it, in its sole discretion,
shall determine to be advisable in order that any dividend or distribution in
shares of Common Stock, subdivision, reclassification or combination of Common
Stock, issuance of warrants to purchase Common Stock or distribution of
evidences of indebtedness or other assets (excluding cash dividends) referred to
hereinabove in this Paragraph (6) hereafter made by the Company to the holders
of its Common Stock shall not result in any tax to the holders of its Common
Stock or securities convertible into Common Stock.
(f) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly cause a notice setting forth the adjusted Exercise Price
and adjusted number of Shares issuable upon exercise of each Warrant to be
mailed to the Holders, at their last addresses appearing in the Warrant
Register, and shall cause a certified copy thereof to be mailed to its transfer
agent, if any. The Company may retain a firm of independent certified public
accountants selected by the Board of Directors (who may be the regular
accountants employed by the Company) to make any computation required by this
Paragraph (6), and a certificate signed by such firm shall be conclusive
evidence of the correctness of such adjustment.
(g) In the event that at any time, as a result of an adjustment made
pursuant to Subparagraph (a) above, the Holder of this Warrant thereafter shall
become entitled to receive any Exercise Shares of the Company, other than Common
Stock, thereafter the number of such other shares so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in Subparagraphs (a) to (e), inclusive above.
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<PAGE>
(h) Irrespective of any adjustments in the Exercise Price or the number or
kind of Exercise Shares purchasable upon exercise of this Warrant, Warrants
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the similar Warrants initially
issuable pursuant to this Agreement.
(i) Whenever the Exercise Price shall be adjusted as required by the
provisions of the foregoing Paragraph, the Company shall forthwith file in the
custody of its Secretary or an Assistant Secretary at its principal office and
with its stock transfer agent, if any, an officer's certificate showing the
adjusted Exercise Price determined as herein provided, setting forth in
reasonable detail the facts requiring such adjustment, including a statement of
the number of additional shares of Common Stock, if any, and such other facts as
shall be necessary to show the reason for and the manner of computing such
adjustment. Each such officer's certificate shall be made available at all
reasonable times for inspection by the Holder and the Company shall, forthwith
after each such adjustment, mail a copy by certified mail of such certificate to
the Holder.
7. Restrictions on Transferability; Restrictive Legend. Neither this Warrant
nor the Exercise Shares shall be transferable except in accordance with the
provisions of this paragraph.
(a) Restrictions on Transfer; Indemnification. Neither this Warrant nor any
Exercise Share may be offered for sale or sold, or otherwise transferred or sold
in any transaction which would constitute a sale thereof within the meaning of
the Securities Act of 1933, as amended (the "1933 Act"), unless (i) such
security has been registered for sale under the 1933 Act and registered or
qualified under applicable state securities laws relating to the offer and sale
of securities; or (ii) exemptions from the registration requirements of the 1933
Act and the registration or qualification requirements of all such state
securities laws are available and the Company shall have received an opinion of
counsel satisfactory to the Company that the proposed sale or other disposition
of such securities may be effected without registration under the 1933 Act and
would not result in any violation of any applicable state securities laws
relating to the registration or qualification of securities for sale, such
counsel and such opinion to be satisfactory to the Company.
Notwithstanding the Company's grant of piggy back registration rights to
Holder pursuant to the terms of that certain Registration Rights Agreement dated
as of even date herewith by and between the Company and Holder (the
"Registration Rights Agreement"), Holder shall not effect sales of the Exercise
Shares for a period of no less than four (4) months following the effectiveness
of any registration statement filed with the Securities Exchange Commission to
register the resale of the Exercise Shares.
The Holder agrees to indemnify and hold harmless the Company against any
loss, damage, claim or liability arising from the disposition of this Warrant or
any Exercise Share held by such holder or any interest therein in violation of
the provisions of this Paragraph 7.
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<PAGE>
(b) Securities Purchase Agreement. This Warrant and the underlying shares
of Common Stock are subject to the terms contained within that certain
Securities Purchase Agreement by and between the Company and the Holder dated as
of even date herewith.
(c) Restrictive Legends. Unless and until otherwise permitted by this
Paragraph 7 or in the Agreement, this Warrant Certificate, each Warrant
Certificate issued to the Holder or to any transferee or assignee of this
Warrant Certificate, and each Certificate representing Exercise Shares issued
upon exercise of this Warrant or to any transferee of the person to whom the
Exercise Shares were issued, shall bear a legend setting forth the requirements
of paragraph (a) of this Paragraph 7, together with such other legend or legends
as may otherwise be deemed necessary or appropriate by counsel to the Company.
(d) Notice of Proposed Transfers. Prior to any transfer, offer to transfer
or attempted transfer of this Warrant or any Exercise Share, the holder of such
security shall give written notice to the Company of such holder's intention to
effect such transfer. Each such notice shall (x) describe the manner and
circumstances of the proposed transfer in sufficient detail, and shall contain
an undertaking by the person giving such notice to furnish such other
information as may be required, to enable counsel to render the opinions
referred to below, and shall (y) designate the counsel for the person giving
such notice, such counsel to be satisfactory to the Company. The person giving
such notice shall submit a copy thereof to the counsel designated in such notice
and the Company shall submit a copy thereof to its counsel, and the following
provisions shall apply:
(i) If, in the opinion of each such counsel, the proposed transfer of
this Warrant or Exercise Share, as appropriate, may be effected pursuant to the
terms of the Agreement of Sale and without registration of such security under
the 1933 Act, the Company shall, as promptly as practicable, so notify the
holder of such security and such holder shall thereupon be entitled to transfer
such security in accordance with the terms of the notice delivered by such
holder to the Company. Each certificate evidencing the securities thus to be
transferred (and each certificate evidencing any untransferred balance of the
securities evidenced by such certificate) shall bear the restrictive legends
referred to in subparagraph (c) above, unless in the opinion of each such
counsel such legend is not required in order to insure compliance with the 1933
Act.
(ii) If, in the opinion of either of such counsel, the proposed
transfer of securities may not be effected without registration under the 1933
Act, the Company shall, as promptly as practicable, so notify the holder
thereof. However, the Company shall have no obligation to register such
securities under the 1933 Act, except as otherwise provided herein or in the
Registration Rights Agreement.
The holder of the securities giving the notice under this subparagraph (d)
shall not be entitled to transfer any of the securities until receipt of notice
from the Company under paragraph (i) of this subparagraph (d) or registration of
such securities under the 1933 Act has become effective.
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<PAGE>
(e) Removal of Legend. The Company shall, at the request of any registered
holder of a Warrant or Exercise Share, exchange the certificate representing
such security for a certificate representing the same security not bearing the
restrictive legend required by subparagraph (c) if, in the opinion of counsel to
the Company, such restrictive legend is no longer necessary.
8. Redemption.
(a) At any time from the date of issuance, the Warrants are subject to
redemption by the Company at a redemption price of $.001 per Warrant (the
"Redemption Price") on thirty (30) days written notice upon the following
condition: (i) if a Registration Statement covering the resale of the shares of
Common Stock of the Company issuable upon exercise of the Warrants is effective
as of that date; and (ii) if the average of the closing bid prices of the
Company's Common Stock as reported on NASDAQ (or the last sales price of the
Common Stock listed on a national securities exchange or included in The NASDAQ
SmallCap Market or the average of the mean between the last bid and asked prices
per share as reported by the National Quotation Bureau, Inc. or an equivalent
generally accepted reporting service if the shares are traded on the
over-the-counter market and not on the NASDAQ Reporting System), exceeds $6.50
for twenty (20) consecutive trading days ending within fifteen (15) days of the
notice of redemption. All Warrants must be redeemed if any are redeemed.
(b) In the event the Company shall desire to exercise its right to so
redeem the Warrants, it or any of its agents may mail a notice of redemption to
each of the Registered Holders of the Warrants to be redeemed, first class,
postage prepaid, not later than the thirtieth (30th) day before the date fixed
for redemption, at their last address as shall appear on the records of the
Warrants. Any notice mailed in the manner provided herein shall be conclusively
presumed to have been duly given whether or not the Registered Holder receives
such notice.
(c) The notice of redemption shall specify (i) the redemption price; (ii)
the date fixed for redemption; (iii) the place where the Warrant Certificates
shall be delivered and the redemption price paid; and (iv) that the right to
exercise the Warrant shall terminate at 5:00 P.M. (New York City time) on the
business day immediately preceding the date fixed for redemption. The date fixed
for the redemption of the Warrants shall be the Redemption Date. No failure to
mail such notice nor any defect therein or in the mailing thereof shall affect
the validity of the proceedings for such redemption except as to a Holder (a) to
whom notice was not mailed or (b) whose notice was defective. An affidavit of
the Company or any of its agents that notice of redemption has been mailed
shall, in the absence of fraud, be prima facie evidence of the facts stated
therein.
(d) Any right to exercise a Warrant shall terminate at 5:00 P.M. (New York
City time) on the business day immediately preceding the Redemption Date. On or
after the Redemption Date, Holders of the Warrants shall have no further rights
except to receive, upon surrender of the Warrant, the Redemption Price.
(e) From and after the date specified for redemption, the Company shall, at
the place specified in the notice of redemption, upon presentation and surrender
to the Company by or on
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behalf of the Registered Holder thereof of one or more Warrants to be redeemed,
deliver or cause to be delivered to or upon the written order of such Holder a
sum in cash equal to the redemption price of each such Warrant. From and after
the date fixed for redemption and upon the deposit or setting aside by the
Company of a sum sufficient to redeem all of the Warrants called for redemption,
such Warrants shall expire and become void and all rights hereunder and under
the Warrant Certificates, except the right to receive payment of the Redemption
Price, shall cease.
9. Notices. All notices or other communications under this Warrant Certificate
shall be in writing and shall be deemed to have been given if delivered by hand
or mailed by certified mail, postage prepaid, return receipt request, addressed
as follows:
If to the Company:
USA Finance, Inc.
1111 Park Centre Road
Miami, FL 33169
Attention: Chief Executive Officer
With a Copy to:
Stephen M. Cohen, Esquire
Buchanan Ingersoll Professional Corporation
Two Logan Square - 12th Floor
18th and Arch Streets
Philadelphia, PA 19103-6933
and to the Holder:
at the address of the Holder appearing on the books of the Company or
the Company's transfer agent, if any.
Either of the Company or the Holder may from time to time change the
address to which notices to it are to be mailed hereunder by notice in
accordance with the provisions of this Paragraph 9.
Such notices and other communications shall for all purposes of this
Agreement be treated as being effective upon being delivered personally or, if
sent by mail, five (5) days after the same has been deposited in a regularly
maintained receptacle for the deposit of United States mail, addressed as set
forth above, and postage prepaid.
10. Registration Rights. The Holder shall be entitled to the registration rights
set forth in that certain Registration Rights Agreement dated as of even date
herewith by and between the Company and such Holder.
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<PAGE>
11. Supplements and Amendments. The Company may from time to time supplement or
amend this Warrant without the approval of any holders of Warrants in order to
cure any ambiguity or to correct or supplement any provision contained herein
which may be defective or inconsistent with any other provision, or to make any
other provisions in regard to matters or questions herein arising hereunder
which the Company may deem necessary or desirable and which shall not materially
adversely affect the interests of the Holder.
12. Successors and Assigns. This Warrant shall inure to the benefit of and be
binding on the respective successors, assigns and legal representatives of the
Holder and the Company.
13. Severability. If for any reason any provision, paragraph or term of this
Warrant is held to be invalid or unenforceable, all other valid provisions
herein shall remain in full force and effect and all terms, provisions and
paragraphs of this Warrant shall be deemed to be severable.
14. Governing Law. This Warrant shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of said State.
15. Headings. Paragraph and subparagraph headings, used herein are included
herein for convenience of reference only shall not affect the construction of
this Warrant nor constitute a part of this Warrant for any other purpose.
IN WITNESS WHEREOF, the Company has caused these presents to be duly
executed the day and year defined herein as the "Commencement Date."
USA FINANCE, INC.
By: ____________________________________
(Authorized Executive Officer)
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APPENDIX A
----------
NOTICE OF WARRANT EXERCISE
--------------------------
Pursuant to a Warrant by and between the undersigned and USA FINANCE, INC.,
a Delaware corporation (the "Company"), dated as of ________________, _______,
and subject to the vesting periods set forth therein, the undersigned hereby
irrevocably elects to exercise its warrant to the extent of purchasing ________
shares of Common Stock (the "Exercise Shares"), of the Company as provided for
therein.
The undersigned hereby represents and agrees that the Exercise Shares
purchased pursuant hereto are being purchased for investment and not with a view
to the distribution or resale thereof, and that the undersigned understands that
said Exercise Shares have not been registered under the Securities Act of 1933,
as amended.
Payment of the full Purchase Price of the Exercise Shares is enclosed
herewith, in the form of a check made payable to the Company.
The undersigned requests that a certificate for the Exercise Shares be
issued in the name of:
___________________________________________________
___________________________________________________
___________________________________________________
(Please print name, address and social security number)
Dated: ___________________________________________, ________
Address: ___________________________________________________
___________________________________________________
___________________________________________________
Signature: _________________________________________________
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES REPRESENTED
BY THIS CERTIFICATE HAVE BEEN TAKEN BY THE REGISTERED OWNER FOR
INVESTMENT, AND WITHOUT A VIEW TO RESALE OR DISTRIBUTION THEREOF, AND MAY
NOT BE TRANSFERRED OR DISPOSED OF WITHOUT AN OPINION OF COUNSEL
SATISFACTORY TO THE ISSUER THAT SUCH TRANSFER OR DISPOSITION DOES NOT
VIOLATE THE SECURITIES ACT OF 1933, AS AMENDED, OR THE RULES AND
REGULATIONS THEREUNDER.
WARRANT TO PURCHASE
COMMON STOCK OF
USA FINANCE, INC.
Void after 5:00 p.m. Eastern Standard Time on October 30, 2001.
This is to verify that, FOR VALUE RECEIVED, _______________, (hereinafter
referred to as the "Holder"), with a principal address at ___________________
_________________________ is entitled to purchase, subject to the terms and
conditions hereof, from USA Finance, Inc. (the "Company"), _________ shares of
Common Stock (the "Common Stock") commencing at 9:00 a.m., Eastern Standard Time
on the "Commencement Date", as that term is defined in paragraph 1(a) hereof,
and ending at 5:00 p.m. Eastern Standard Time on October 30, 2001 (the
"Termination Date") at an exercise price of $5.00 per share of Common Stock. The
number of shares of Common Stock purchasable upon exercise of this Warrant (the
"Warrant(s)") and the exercise price per share shall be subject to adjustment
from time to time upon the occurrence of certain events as set forth below.
The shares of Common Stock or any other shares or other units of stock or
other securities or property, or any combination thereof then receivable upon
exercise of this Warrant, as adjusted from time to time, are sometimes referred
to hereinafter as "Exercise Shares". The exercise price per share as from time
to time in effect is referred to hereinafter as the "Exercise Price".
<PAGE>
1. Exercise of Warrant; Issuance of Exercise Shares.
(a) Exercise of Warrant. This Warrant may be exercised in whole or in part
at any time or from time to time on or after the Commencement Date, as defined
below, and until and including the Termination Date. The "Commencement Date"
shall be the earlier of (i) February 14, 1998; or (ii) one (1) year from the
effective date of a registration statement filed with the Securities and
Exchange Commission (the "SEC") permitting the public resale of the Exercise
Shares. Prior to the Commencement Date, Holder shall have no right to exercise
this Warrant either in whole or in part. This Warrant may be surrendered on any
business day to the Company at its principal office, presently located at the
address of the Company set forth in Paragraph 9 hereof, (or such other office of
the Company, if any, as shall theretofore have been designated by the Company by
written notice to the Holder), together with: (i) a completed and executed
Notice of Warrant Exercise in the form set forth in Appendix A hereto and made a
part hereof; and (ii) payment of the full Exercise Price for the amount of
Exercise Shares set forth in the Notice of Warrant Exercise, in lawful money of
the United States of America by certified check or cashier's check, made payable
to the order of the Company.
In the event that this Warrant shall be duly exercised in part prior to
the Termination Date, the Company shall issue a new Warrant Certificate of like
tenor evidencing the rights of the Holder thereof to purchase the balance of the
Exercise Shares purchasable under the Warrant so surrendered that shall not have
been purchased.
No adjustments shall be made for any cash dividends on Exercise Shares
issuable upon exercise of the Warrant. The Company shall cancel Warrant
Certificates surrendered upon exercise of Warrants.
(b) Issuance of Exercise Shares; Delivery of Certificates. The Company
shall, within ten (10) business days or as soon thereafter as is practicable of
the exercise of this Warrant, issue in the name of and cause to be delivered to
the Holder (or such other person or persons, if any, as the Holder shall have
designated in the Notice of Warrant Exercise) one or more certificates
representing the Exercise Shares to which the Holder (or such other person or
persons) shall be entitled upon such exercise under the terms hereof. Such
certificate or certificates shall be deemed to have been issued and the Holder
(or such other person or persons so designated) shall be deemed to have become
the record holder of the Exercise Shares as of the date of the due exercise of
this Warrant.
(c) Exercise Shares Fully Paid and Non-assessable. The Company agrees and
covenants that all Exercise Shares issuable upon the due exercise of the Warrant
represented by this Warrant Certificate will, upon issuance in accordance with
the terms hereof, be duly authorized, validly issued, fully paid and
non-assessable and free and clear of all taxes (other than taxes which, pursuant
to Paragraph 2 hereof, the Company shall not be obligated to pay) or liens,
charges, and security interests created by the Company with respect to the
issuance thereof.
(d) Reservation of Exercise Shares. At the time of or before taking any
action which would cause an adjustment pursuant to Paragraph 6 hereof increasing
the number of shares of capital stock constituting the Exercise Shares, the
Company will take any corporate action which
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<PAGE>
may, in the opinion of its counsel, be necessary in order that the Company have
remaining, after such adjustment, a number of shares of such capital stock
unissued and unreserved for other purposes sufficient to permit the exercise of
all the then outstanding Warrants of like tenor immediately after such
adjustment; the Company will also from time to time take action to increase the
authorized amount of its capital stock constituting the Exercise Shares if at
any time the number of shares of capital stock authorized but remaining unissued
and unreserved for other purposes shall be insufficient to permit the exercise
of the Warrants then outstanding. The Company may but shall not be required to
reserve and keep available, out of the aggregate of its authorized but unissued
shares of capital stock, for the purpose of enabling it to satisfy any
obligation to issue Exercise Shares upon exercise of Warrants, through the
Termination Date, the number of Exercise Shares deliverable upon the full
exercise of this Warrant and all other Warrants of like tenor then outstanding.
At the time of or before taking any action which would cause an adjustment
pursuant to Paragraph 6 hereof, reducing the Exercise Price below the then par
value (if any) of the Exercise Shares issuable upon exercise of the Warrants,
the Company will take any corporate action which may, in the opinion of its
counsel, be necessary in order to assure that the par value per share of the
Exercise Shares is at all times equal to or less than the Exercise Price per
share and so that the Company may validly and legally issue fully paid and
non-assessable Exercise Shares at the Exercise Price, as so adjusted. The
Company will also from time to time take such action if at any time the Exercise
Price is below the then par value of the Exercise Shares.
(e) Fractional Shares. The Company shall not be required to issue
fractional shares of capital stock upon the exercise of this Warrant or to
deliver Warrant Certificates which evidence fractional shares of capital stock.
In the event that any fraction of an Exercise Share would, except for the
provisions of this subparagraph (e), be issuable upon the exercise of this
Warrant, the Company shall pay to the Holder exercising the Warrant an amount in
cash equal to such fraction multiplied by the Current Market Value of the
Exercise Share. For purposes of this subparagraph (e), the Current Market Value
shall be determined as follows:
(i) if the Exercise Shares are traded on the over-the-counter market
and not on any national securities exchange and not on the NASDAQ Reporting
System, the average of the mean between the last bid and asked prices per share,
as reported by the National Quotation Bureau, Inc., or an equivalent generally
accepted reporting service, for the last business day prior to the date on which
this Warrant is exercised, or if not so reported, the average of the closing bid
and asked prices for an Exercise Share as furnished to the Company by any member
of the National Association of Securities Dealers, Inc., selected by the Company
for that purpose;
(ii) if the Exercise Shares are listed or traded on a national
securities exchange or on the NASDAQ National Market System, the closing price
on the principal national securities exchange on which they are so listed or
traded or on the NASDAQ National Market System, as the case may be, on the last
business day prior to the date of the exercise of this Warrant. The closing
price referred to in this clause (ii) shall be the last reported sales price or,
in case no such reported sale takes place on such day, the average of the
reported closing bid and asked prices, in either case on the national securities
exchange on which the Exercise Shares are then listed or in the NASDAQ Reporting
System; or
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(iii) if no such closing price or closing bid and asked prices are
available, as determined in any reasonable manner as may be prescribed by the
Board of Directors of the Company.
2. Payment of Taxes. The Company will pay all documentary stamp taxes, if any,
attributable to the initial issuance of Exercise Shares upon the exercise of
this Warrant; provided, however, that the Company shall not be required to pay
any tax or taxes which may be payable in respect of any transfer involved in the
issue of any Warrant Certificates or any certificates for Exercise Shares in a
name other than that of the Holder of a Warrant Certificate surrendered upon the
exercise of a Warrant, and the Company shall not be required to issue or deliver
such certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
3. Mutilated or Missing Warrant Certificates. In case any Warrant Certificate
shall be mutilated, lost, stolen or destroyed, the Company may in its discretion
issue, in exchange and substitution for and upon cancellation of the mutilated
Warrant Certificate, or in lieu of and in substitution for the Warrant
Certificate lost, stolen or destroyed, a new Warrant Certificate or Warrant
Certificates of like tenor and in the same aggregate denomination, but only (i)
in the case of loss, theft or destruction, upon receipt of evidence satisfactory
to the Company of such loss, theft or destruction of such Warrant Certificate
and indemnity or bond, if requested, also satisfactory to it; and (ii) in the
case of mutilation, upon surrender of the mutilated Warrant Certificate.
Applicants for such substitute Warrant Certificates shall also comply with such
other reasonable regulations and pay such other reasonable charges as the
Company or its counsel may prescribe.
4. Rights of Holder. The Holder shall not, by virtue of anything contained in
this Warrant Certificate or otherwise, be entitled to any right whatsoever,
either in law or equity, of a stockholder of the Company, including without
limitation, the right to receive dividends or to vote or to consent or to
receive notice as a shareholder in respect of the meetings of shareholders or
the election of directors of the Company or any other matter.
5. Registration of Transfers and Exchanges. The Warrant shall be transferable,
subject to the provisions of Paragraph 7 hereof, only upon the books of the
Company if any, to be maintained by it for that purpose, upon surrender of the
Warrant Certificate to the Company at its principal office accompanied (if so
required by it) by a written instrument or instruments of transfer in form
satisfactory to the Company and duly executed by the Holder thereof or by the
duly appointed legal representative thereof or by a duly authorized attorney and
upon payment of any necessary transfer tax or other governmental charge imposed
upon such transfer. In all cases of transfer by an attorney, the original letter
of attorney, duly approved, or an official copy thereof, duly certified, shall
be deposited and remain with the Company. In case of transfer by executors,
administrators, guardians or other legal representatives, duly authenticated
evidence of their authority shall be produced, and may be required to be
deposited and remain with the Company in its discretion. Upon any such
registration of transfer, a new Warrant Certificate shall be issued to
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the transferee named in such instrument of transfer, and the surrendered Warrant
Certificate shall be canceled by the Company.
Any Warrant Certificate may be exchanged, at the option of the Holder
thereof and without change, when surrendered to the Company at its principal
office, or at the office of its transfer agent, if any, for another Warrant
Certificate or other Warrant Certificates of like tenor and representing in the
aggregate the right to purchase from the Company a like number and kind of
Exercise Shares as the Warrant Certificate surrendered for exchange or transfer,
and the Warrant Certificate so surrendered shall be canceled by the Company or
transfer agent, as the case may be.
6. Adjustment of Exercise Shares and Exercise Price. The Exercise Price and the
number and kind of Exercise Shares purchasable upon the exercise of this Warrant
shall be subject to adjustment from time to time upon the happening of certain
events as hereinafter provided. The Exercise Price in effect at any time and the
number and kind of securities purchasable upon exercise of each Warrant shall be
subject to adjustment as follows:
(a) In the case the Company shall (i) pay a dividend or make a
distribution on its shares of Common Stock in shares of Common Stock; (ii)
subdivide or classify its outstanding Common Stock into a greater number of
shares; or (iii) combine or reclassify its outstanding Common Stock into a
smaller number of shares, the Exercise Price in effect at the time of the record
date for such dividend or distribution or of the effective date of such
subdivision, combination or reclassification shall be proportionally adjusted so
that the Holder of this Warrant exercised after such date shall be entitled to
receive the aggregate number and kind of shares which, if this Warrant had been
exercised by such Holder immediately prior to such date, he would have owned
upon such exercise and been entitled to receive upon such dividend, subdivision,
combination or reclassification. For example, if the Company declares a 2 for 1
stock dividend or stock split and the Exercise Price immediately prior to such
event was $5.00 per share, the adjusted Exercise Price immediately after such
event would be $2.50 per share. Such adjustment shall be made successively
whenever any event listed above shall occur.
(b) In case the Company shall hereafter issue rights or warrants to all
holders of its Common Stock entitling them to subscribe for or purchase shares
of Common Stock (or securities convertible into Common Stock) at a price (or
having a conversion price per share) less than the current market price of the
Common Stock (as defined in Subparagraph (d) below) on the record date mentioned
below, the Exercise Price shall be adjusted so that the same shall equal the
price determined by multiplying the Exercise Price in effect immediately prior
to the date of such issuance by a fraction, the numerator of which shall be the
sum of the number of shares of Common Stock outstanding on the record date
mentioned below and the number of additional shares of Common Stock which the
aggregate offering price of the total number of shares of Common Stock so
offered (or the aggregate conversion price of the convertible securities so
offered) would purchase at such current market price per share of the Common
Stock, and the denominator of which shall be the sum of the number of shares of
Common Stock outstanding on such record date and the number of additional shares
of Common Stock offered for subscription or purchase (or into which the
convertible securities so offered are convertible). Such adjustment shall be
made successively whenever such rights or warrants are issued and shall become
effective
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immediately after the record date for the determination of shareholders entitled
to receive such rights or warrants; and to the extent that shares of Common
Stock are not delivered (or securities convertible into Common Stock are not
delivered) after the expiration of such rights or warrants the Exercise Price
shall be readjusted to the Exercise Price which would then be in effect had the
adjustments made upon the issuance of such rights or warrants been made upon the
basis of delivery of only the number of shares of Common Stock (or securities
convertible into Common Stock) actually delivered.
(c) Whenever the Exercise Price payable upon exercise of each Warrant is
adjusted pursuant to Subparagraphs (a) and (b) above, the number of Exercise
Shares purchasable upon exercise of this Warrant shall simultaneously be
adjusted by multiplying the number of Exercise Shares initially issuable upon
exercise of this Warrant by the Exercise Price in effect on the date hereof and
dividing the product so obtained by the Exercise Price, as adjusted.
(d) For the purpose of any computation under Subparagraph (b) above, the
current market price per share of Common Stock at any date shall be deemed to be
the average of the daily closing prices for 30 consecutive business days before
such date. The closing price for each day shall be the last sale price regular
way or, in case no such reported sale takes place on such day, the average of
the last reported bid and lowest reported asked prices as reported by NASDAQ, or
other similar organization if NASDAQ is no longer reporting such information, or
if not so available, the fair market price as determined by the Board of
Directors.
(e) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least ten cents ($0.10)
in such price; provided, however, that any adjustments which by reason of this
Subparagraph (e) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment required to be made hereunder. All
calculations under this Paragraph (6) shall be made to the nearest cent or to
the nearest one-hundredth of a share, as the case may be. Anything in this
Paragraph (6) to the contrary notwithstanding, the Company shall be entitled,
but shall not be required, to make such changes in the Exercise Price, in
addition to those required by this Paragraph (6), as it, in its sole discretion,
shall determine to be advisable in order that any dividend or distribution in
shares of Common Stock, subdivision, reclassification or combination of Common
Stock, issuance of warrants to purchase Common Stock or distribution of
evidences of indebtedness or other assets (excluding cash dividends) referred to
hereinabove in this Paragraph (6) hereafter made by the Company to the holders
of its Common Stock shall not result in any tax to the holders of its Common
Stock or securities convertible into Common Stock.
(f) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly cause a notice setting forth the adjusted Exercise Price
and adjusted number of Shares issuable upon exercise of each Warrant to be
mailed to Holder, at its last addresses appearing in the Warrant Register, and
shall cause a certified copy thereof to be mailed to its transfer agent, if any.
The Company may retain a firm of independent certified public accountants
selected by the Board of Directors (who may be the regular accountants employed
by the Company) to make any computation required by this Paragraph (6), and a
certificate signed by such firm shall be conclusive evidence of the correctness
of such adjustment.
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(g) In the event that at any time, as a result of an adjustment made
pursuant to Subparagraph (a) above, the Holder of this Warrant thereafter shall
become entitled to receive any Exercise Shares of the Company, other than Common
Stock, thereafter the number of such other shares so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in Subparagraphs (a) to (e), inclusive above.
(h) Irrespective of any adjustments in the Exercise Price or the number or
kind of Exercise Shares purchasable upon exercise of this Warrant, Warrants
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the similar Warrants initially
issuable pursuant to this Agreement.
(i) Whenever the Exercise Price shall be adjusted as required by the
provisions of the foregoing Paragraph, the Company shall forthwith file in the
custody of its Secretary or an Assistant Secretary at its principal office and
with its stock transfer agent, if any, an officer's certificate showing the
adjusted Exercise Price determined as herein provided, setting forth in
reasonable detail the facts requiring such adjustment, including a statement of
the number of additional shares of Common Stock, if any, and such other facts as
shall be necessary to show the reason for and the manner of computing such
adjustment. Each such officer's certificate shall be made available at all
reasonable times for inspection by the Holder and the Company shall, forthwith
after each such adjustment, mail a copy by certified mail of such certificate to
the Holder.
7. Restrictions on Transferability; Restrictive Legend. Neither this Warrant nor
the Exercise Shares shall be transferable except in accordance with the
provisions of this paragraph.
(a) Restrictions on Transfer; Indemnification. Neither this Warrant nor
any Exercise Share may be offered for sale or sold, or otherwise transferred or
sold in any transaction which would constitute a sale thereof within the meaning
of the Securities Act of 1933, as amended (the "1933 Act"), unless (i) such
security has been registered for sale under the 1933 Act and registered or
qualified under applicable state securities laws relating to the offer and sale
of securities; or (ii) exemptions from the registration requirements of the 1933
Act and the registration or qualification requirements of all such state
securities laws are available and the Company shall have received an opinion of
counsel satisfactory to the Company that the proposed sale or other disposition
of such securities may be effected without registration under the 1933 Act and
would not result in any violation of any applicable state securities laws
relating to the registration or qualification of securities for sale, such
counsel and such opinion to be satisfactory to the Company.
The Holder agrees to indemnify and hold harmless the Company against any
loss, damage, claim or liability arising from the disposition of this Warrant or
any Exercise Share held by such holder or any interest therein in violation of
the provisions of this Paragraph 7.
(b) Financial Advisor Agreement. This Warrant and the Exercise Shares have
been granted pursuant to the terms contained within that certain letter
agreement dated as of August 14, 1996 by and between the Company and the Holder
(the "Financial Advisor Agreement")
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pursuant to which the Holder agreed to provide certain investment banking
services to the Company.
(c) Restrictive Legends. Unless and until otherwise permitted by this
Paragraph 7 or in the Agreement, this Warrant Certificate, each Warrant
Certificate issued to the Holder or to any transferee or assignee of this
Warrant Certificate, and each Certificate representing Exercise Shares issued
upon exercise of this Warrant or to any transferee of the person to whom the
Exercise Shares were issued, shall bear a legend setting forth the requirements
of paragraph (a) of this Paragraph 7, together with such other legend or legends
as may otherwise be deemed necessary or appropriate by counsel to the Company.
(d) Notice of Proposed Transfers. Prior to any transfer, offer to transfer
or attempted transfer of this Warrant or any Exercise Share, the holder of such
security shall give written notice to the Company of such holder's intention to
effect such transfer. Each such notice shall (x) describe the manner and
circumstances of the proposed transfer in sufficient detail, and shall contain
an undertaking by the person giving such notice to furnish such other
information as may be required, to enable counsel to render the opinions
referred to below, and shall (y) designate the counsel for the person giving
such notice, such counsel to be satisfactory to the Company. The person giving
such notice shall submit a copy thereof to the counsel designated in such notice
and the Company shall submit a copy thereof to its counsel, and the following
provisions shall apply:
(i) If, in the opinion of each such counsel, the proposed transfer
of this Warrant or Exercise Share, as appropriate, may be effected pursuant to
the terms of the Agreement of Sale and without registration of such security
under the 1933 Act, the Company shall, as promptly as practicable, so notify the
holder of such security and such holder shall thereupon be entitled to transfer
such security in accordance with the terms of the notice delivered by such
holder to the Company. Each certificate evidencing the securities thus to be
transferred (and each certificate evidencing any untransferred balance of the
securities evidenced by such certificate) shall bear the restrictive legends
referred to in subparagraph (c) above, unless in the opinion of each such
counsel such legend is not required in order to insure compliance with the 1933
Act.
(ii) If, in the opinion of either of such counsel, the proposed
transfer of securities may not be effected without registration under the 1933
Act, the Company shall, as promptly as practicable, so notify the holder
thereof. However, the Company shall have no obligation to register such
securities under the 1933 Act, except as otherwise provided herein or in the
Registration Rights Agreement.
The holder of the securities giving the notice under this subparagraph (d)
shall not be entitled to transfer any of the securities until receipt of notice
from the Company under paragraph (i) of this subparagraph (d) or registration of
such securities under the 1933 Act has become effective.
(e) Removal of Legend. The Company shall, at the request of any registered
holder of a Warrant or Exercise Share, exchange the certificate representing
such security for a certificate
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representing the same security not bearing the restrictive legend required by
subparagraph (c) if, in the opinion of counsel to the Company, such restrictive
legend is no longer necessary.
8. Redemption.
(a) At any time from the date of issuance, the Warrants are subject to
redemption by the Company at a redemption price of $.001 per Warrant (the
"Redemption Price") on thirty (30) days written notice upon the following
condition: (i) if a Registration Statement covering the resale of the shares of
Common Stock of the Company issuable upon exercise of the Warrants is effective
as of that date; and (ii) if the average of the closing bid prices of the
Company's Common Stock as reported on NASDAQ (or the last sales price of the
Common Stock listed on a national securities exchange or included in The NASDAQ
SmallCap Market or the average of the mean between the last bid and asked prices
per share as reported by the National Quotation Bureau, Inc. or an equivalent
generally accepted reporting service if the shares are traded on the
over-the-counter market and not on the NASDAQ Reporting System), exceeds $8.125
for twenty (20) consecutive trading days ending within fifteen (15) days of the
notice of redemption. All Warrants must be redeemed if any are redeemed.
(b) In the event the Company shall desire to exercise its right to so
redeem the Warrants, it or any of its agents may mail a notice of redemption to
the Holders of the Warrants to be redeemed, first class, postage prepaid, not
later than the thirtieth (30th) day before the date fixed for redemption, at
their last address as shall appear on the records of the Warrants. Any notice
mailed in the manner provided herein shall be conclusively presumed to have been
duly given whether or not the Registered Holder receives such notice.
(c) The notice of redemption shall specify (i) the redemption price; (ii)
the date fixed for redemption; (iii) the place where the Warrant Certificates
shall be delivered and the redemption price paid; and (iv) that the right to
exercise the Warrant shall terminate at 5:00 P.M. (New York City time) on the
business day immediately preceding the date fixed for redemption. The date fixed
for the redemption of the Warrants shall be the Redemption Date. No failure to
mail such notice nor any defect therein or in the mailing thereof shall affect
the validity of the proceedings for such redemption except as to a Holder (a) to
whom notice was not mailed or (b) whose notice was defective. An affidavit of
the Company or any of its agents that notice of redemption has been mailed
shall, in the absence of fraud, be prima facie evidence of the facts stated
therein.
(d) Any right to exercise a Warrant shall terminate at 5:00 P.M. (New York
City time) on the business day immediately preceding the Redemption Date. On or
after the Redemption Date, Holder shall have no further rights except to
receive, upon surrender of the Warrant, the Redemption Price.
(e) From and after the date specified for redemption, the Company shall,
at the place specified in the notice of redemption, upon presentation and
surrender to the Company by or on behalf of the Holder thereof of one or more
Warrants to be redeemed, deliver or cause to be delivered to or upon the written
order of such Holder a sum in cash equal to the redemption price of each such
Warrant. From and after the date fixed for redemption and upon the deposit or
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setting aside by the Company of a sum sufficient to redeem all of the Warrants
called for redemption, such Warrants shall expire and become void and all rights
hereunder and under the Warrant Certificates, except the right to receive
payment of the Redemption Price, shall cease.
9. Notices. All notices or other communications under this Warrant Certificate
shall be in writing and shall be deemed to have been given if delivered by hand
or mailed by certified mail, postage prepaid, return receipt request, addressed
as follows:
If to the Company:
USA Finance, Inc.
1111 Park Centre Road
Miami, FL 33169
Attention: Chief Executive Officer
With a Copy to:
Stephen M. Cohen, Esquire
Buchanan Ingersoll Professional Corporation
Two Logan Square - 12th Floor
18th and Arch Streets
Philadelphia, PA 19103-6933
or, in the case of the Holder, at such address as each such Holder shall have
furnished in writing to the Company; or at such other address as any of the
parties shall have furnished in writing to the other parties hereto.
Either of the Company or the Holder may from time to time change the
address to which notices to it are to be mailed hereunder by notice in
accordance with the provisions of this Paragraph 9.
Such notices and other communications shall for all purposes of this
Agreement be treated as being effective upon being delivered personally or, if
sent by mail, five (5) days after the same has been deposited in a regularly
maintained receptacle for the deposit of United States mail, addressed as set
forth above, and postage prepaid.
10. Registration Rights. The Holder shall be entitled to the registration rights
set forth in that certain Registration Rights Agreement dated as of even date
herewith by and between the Company and Holder.
11. Supplements and Amendments. The Company may from time to time supplement or
amend this Warrant without the approval of any holders of Warrants in order to
cure any ambiguity or to correct or supplement any provision contained herein
which may be defective or inconsistent with any other provision, or to make any
other provisions in regard to matters or
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questions herein arising hereunder which the Company may deem necessary or
desirable and which shall not materially adversely affect the interests of the
Holder.
12. Successors and Assigns. This Warrant shall inure to the benefit of and be
binding on the respective successors, assigns and legal representatives of the
Holder and the Company.
13. Severability. If for any reason any provision, paragraph or term of this
Warrant is held to be invalid or unenforceable, all other valid provisions
herein shall remain in full force and effect and all terms, provisions and
paragraphs of this Warrant shall be deemed to be severable.
14. Governing Law. This Warrant shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of said State.
15. Headings. Paragraph and subparagraph headings, used herein are included
herein for convenience of reference only shall not affect the construction of
this Warrant Certificate nor constitute a part of this Warrant Certificate for
any other purpose.
IN WITNESS WHEREOF, the Company has caused these presents to be duly
executed this 31st day of October, 1996.
USA FINANCE, INC.
By:______________________________
(Authorized Executive Officer)
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APPENDIX A
NOTICE OF WARRANT EXERCISE
Pursuant to a Warrant by and between the undersigned and USA Finance,
Inc., a Delaware corporation (the "Company"), dated as of
_______________________, ____, and subject to the vesting periods set forth
therein, the undersigned hereby irrevocably elects to exercise its warrant to
the extent of purchasing ______________ shares of Common Stock (the "Exercise
Shares"), of the Company as provided for therein.
The undersigned hereby represents and agrees that the Exercise Shares
purchased pursuant hereto are being purchased for investment and not with a view
to the distribution or resale thereof, and that the undersigned understands that
said Exercise Shares have not been registered under the Securities Act of 1933,
as amended.
Payment of the full Purchase Price of the Exercise Shares is enclosed
herewith, in the form of a check made payable to the Company.
The undersigned requests that a certificate for the Exercise Shares be
issued in the name of:
_______________________________________________
_______________________________________________
_______________________________________________
(Please print name, address and social security number)
Dated:________________________________________, ______
Address:______________________________________________
______________________________________________
______________________________________________
Signature:_____________________________________________
Title:_________________________________________________
12
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES REPRESENTED
BY THIS CERTIFICATE HAVE BEEN TAKEN BY THE REGISTERED OWNER FOR
INVESTMENT, AND WITHOUT A VIEW TO RESALE OR DISTRIBUTION THEREOF, AND MAY
NOT BE TRANSFERRED OR DISPOSED OF WITHOUT AN OPINION OF COUNSEL
SATISFACTORY TO THE ISSUER THAT SUCH TRANSFER OR DISPOSITION DOES NOT
VIOLATE THE SECURITIES ACT OF 1933, AS AMENDED, OR THE RULES AND
REGULATIONS THEREUNDER.
WARRANT TO PURCHASE
COMMON STOCK OF
USA FINANCE, INC.
Void after 5:00 p.m. Eastern Standard Time on October 30, 2001.
This is to verify that, FOR VALUE RECEIVED, _____________, (hereinafter
referred to as the "Holder"), with a principal address at __________________
_________________________ is entitled to purchase, subject to the terms and
conditions hereof, from USA Finance, Inc. (the "Company"), _______ shares of
Common Stock (the "Common Stock") commencing at 9:00 a.m., Eastern Standard Time
on the "Commencement Date", as that term is defined in paragraph 1(a) hereof,
and ending at 5:00 p.m. Eastern Standard Time on October 30, 2001 (the
"Termination Date") at an exercise price of $8.00 per share of Common Stock. The
number of shares of Common Stock purchasable upon exercise of this Warrant (the
"Warrant(s)") and the exercise price per share shall be subject to adjustment
from time to time upon the occurrence of certain events as set forth below.
The shares of Common Stock or any other shares or other units of stock or
other securities or property, or any combination thereof then receivable upon
exercise of this Warrant, as adjusted from time to time, are sometimes referred
to hereinafter as "Exercise Shares". The exercise price per share as from time
to time in effect is referred to hereinafter as the "Exercise Price".
<PAGE>
1. Exercise of Warrant; Issuance of Exercise Shares.
(a) Exercise of Warrant. This Warrant may be exercised in whole or in part
at any time or from time to time on or after the Commencement Date, as defined
below, and until and including the Termination Date. The "Commencement Date"
shall be the earlier of (i) February 14, 1998; or (ii) one (1) year from the
effective date of a registration statement filed with the Securities and
Exchange Commission (the "SEC") permitting the public resale of the Exercise
Shares. Prior to the Commencement Date, Holder shall have no right to exercise
this Warrant either in whole or in part. This Warrant may be surrendered on any
business day to the Company at its principal office, presently located at the
address of the Company set forth in Paragraph 9 hereof, (or such other office of
the Company, if any, as shall theretofore have been designated by the Company by
written notice to the Holder), together with: (i) a completed and executed
Notice of Warrant Exercise in the form set forth in Appendix A hereto and made a
part hereof; and (ii) payment of the full Exercise Price for the amount of
Exercise Shares set forth in the Notice of Warrant Exercise, in lawful money of
the United States of America by certified check or cashier's check, made payable
to the order of the Company.
In the event that this Warrant shall be duly exercised in part prior to
the Termination Date, the Company shall issue a new Warrant Certificate of like
tenor evidencing the rights of the Holder thereof to purchase the balance of the
Exercise Shares purchasable under the Warrant so surrendered that shall not have
been purchased.
No adjustments shall be made for any cash dividends on Exercise Shares
issuable upon exercise of the Warrant. The Company shall cancel Warrant
Certificates surrendered upon exercise of Warrants.
(b) Issuance of Exercise Shares; Delivery of Certificates. The Company
shall, within ten (10) business days or as soon thereafter as is practicable of
the exercise of this Warrant, issue in the name of and cause to be delivered to
the Holder (or such other person or persons, if any, as the Holder shall have
designated in the Notice of Warrant Exercise) one or more certificates
representing the Exercise Shares to which the Holder (or such other person or
persons) shall be entitled upon such exercise under the terms hereof. Such
certificate or certificates shall be deemed to have been issued and the Holder
(or such other person or persons so designated) shall be deemed to have become
the record holder of the Exercise Shares as of the date of the due exercise of
this Warrant.
(c) Exercise Shares Fully Paid and Non-assessable. The Company agrees and
covenants that all Exercise Shares issuable upon the due exercise of the Warrant
represented by this Warrant Certificate will, upon issuance in accordance with
the terms hereof, be duly authorized, validly issued, fully paid and
non-assessable and free and clear of all taxes (other than taxes which, pursuant
to Paragraph 2 hereof, the Company shall not be obligated to pay) or liens,
charges, and security interests created by the Company with respect to the
issuance thereof.
(d) Reservation of Exercise Shares. At the time of or before taking any
action which would cause an adjustment pursuant to Paragraph 6 hereof increasing
the number of shares of capital stock constituting the Exercise Shares, the
Company will take any corporate action which
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may, in the opinion of its counsel, be necessary in order that the Company have
remaining, after such adjustment, a number of shares of such capital stock
unissued and unreserved for other purposes sufficient to permit the exercise of
all the then outstanding Warrants of like tenor immediately after such
adjustment; the Company will also from time to time take action to increase the
authorized amount of its capital stock constituting the Exercise Shares if at
any time the number of shares of capital stock authorized but remaining unissued
and unreserved for other purposes shall be insufficient to permit the exercise
of the Warrants then outstanding. The Company may but shall not be required to
reserve and keep available, out of the aggregate of its authorized but unissued
shares of capital stock, for the purpose of enabling it to satisfy any
obligation to issue Exercise Shares upon exercise of Warrants, through the
Termination Date, the number of Exercise Shares deliverable upon the full
exercise of this Warrant and all other Warrants of like tenor then outstanding.
At the time of or before taking any action which would cause an adjustment
pursuant to Paragraph 6 hereof, reducing the Exercise Price below the then par
value (if any) of the Exercise Shares issuable upon exercise of the Warrants,
the Company will take any corporate action which may, in the opinion of its
counsel, be necessary in order to assure that the par value per share of the
Exercise Shares is at all times equal to or less than the Exercise Price per
share and so that the Company may validly and legally issue fully paid and
non-assessable Exercise Shares at the Exercise Price, as so adjusted. The
Company will also from time to time take such action if at any time the Exercise
Price is below the then par value of the Exercise Shares.
(e) Fractional Shares. The Company shall not be required to issue
fractional shares of capital stock upon the exercise of this Warrant or to
deliver Warrant Certificates which evidence fractional shares of capital stock.
In the event that any fraction of an Exercise Share would, except for the
provisions of this subparagraph (e), be issuable upon the exercise of this
Warrant, the Company shall pay to the Holder exercising the Warrant an amount in
cash equal to such fraction multiplied by the Current Market Value of the
Exercise Share. For purposes of this subparagraph (e), the Current Market Value
shall be determined as follows:
(i) if the Exercise Shares are traded on the over-the-counter market
and not on any national securities exchange and not on the NASDAQ Reporting
System, the average of the mean between the last bid and asked prices per share,
as reported by the National Quotation Bureau, Inc., or an equivalent generally
accepted reporting service, for the last business day prior to the date on which
this Warrant is exercised, or if not so reported, the average of the closing bid
and asked prices for an Exercise Share as furnished to the Company by any member
of the National Association of Securities Dealers, Inc., selected by the Company
for that purpose;
(ii) if the Exercise Shares are listed or traded on a national
securities exchange or on the NASDAQ National Market System, the closing price
on the principal national securities exchange on which they are so listed or
traded or on the NASDAQ National Market System, as the case may be, on the last
business day prior to the date of the exercise of this Warrant. The closing
price referred to in this clause (ii) shall be the last reported sales price or,
in case no such reported sale takes place on such day, the average of the
reported closing bid and asked prices, in either case on the national securities
exchange on which the Exercise Shares are then listed or in the NASDAQ Reporting
System; or
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(iii) if no such closing price or closing bid and asked prices are
available, as determined in any reasonable manner as may be prescribed by the
Board of Directors of the Company.
2. Payment of Taxes. The Company will pay all documentary stamp taxes, if any,
attributable to the initial issuance of Exercise Shares upon the exercise of
this Warrant; provided, however, that the Company shall not be required to pay
any tax or taxes which may be payable in respect of any transfer involved in the
issue of any Warrant Certificates or any certificates for Exercise Shares in a
name other than that of the Holder of a Warrant Certificate surrendered upon the
exercise of a Warrant, and the Company shall not be required to issue or deliver
such certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
3. Mutilated or Missing Warrant Certificates. In case any Warrant Certificate
shall be mutilated, lost, stolen or destroyed, the Company may in its discretion
issue, in exchange and substitution for and upon cancellation of the mutilated
Warrant Certificate, or in lieu of and in substitution for the Warrant
Certificate lost, stolen or destroyed, a new Warrant Certificate or Warrant
Certificates of like tenor and in the same aggregate denomination, but only (i)
in the case of loss, theft or destruction, upon receipt of evidence satisfactory
to the Company of such loss, theft or destruction of such Warrant Certificate
and indemnity or bond, if requested, also satisfactory to it; and (ii) in the
case of mutilation, upon surrender of the mutilated Warrant Certificate.
Applicants for such substitute Warrant Certificates shall also comply with such
other reasonable regulations and pay such other reasonable charges as the
Company or its counsel may prescribe.
4. Rights of Holder. The Holder shall not, by virtue of anything contained in
this Warrant Certificate or otherwise, be entitled to any right whatsoever,
either in law or equity, of a stockholder of the Company, including without
limitation, the right to receive dividends or to vote or to consent or to
receive notice as a shareholder in respect of the meetings of shareholders or
the election of directors of the Company or any other matter.
5. Registration of Transfers and Exchanges. The Warrant shall be transferable,
subject to the provisions of Paragraph 7 hereof, only upon the books of the
Company if any, to be maintained by it for that purpose, upon surrender of the
Warrant Certificate to the Company at its principal office accompanied (if so
required by it) by a written instrument or instruments of transfer in form
satisfactory to the Company and duly executed by the Holder thereof or by the
duly appointed legal representative thereof or by a duly authorized attorney and
upon payment of any necessary transfer tax or other governmental charge imposed
upon such transfer. In all cases of transfer by an attorney, the original letter
of attorney, duly approved, or an official copy thereof, duly certified, shall
be deposited and remain with the Company. In case of transfer by executors,
administrators, guardians or other legal representatives, duly authenticated
evidence of their authority shall be produced, and may be required to be
deposited and remain with the Company in its discretion. Upon any such
registration of transfer, a new Warrant Certificate shall be issued to
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the transferee named in such instrument of transfer, and the surrendered Warrant
Certificate shall be canceled by the Company.
Any Warrant Certificate may be exchanged, at the option of the Holder
thereof and without change, when surrendered to the Company at its principal
office, or at the office of its transfer agent, if any, for another Warrant
Certificate or other Warrant Certificates of like tenor and representing in the
aggregate the right to purchase from the Company a like number and kind of
Exercise Shares as the Warrant Certificate surrendered for exchange or transfer,
and the Warrant Certificate so surrendered shall be canceled by the Company or
transfer agent, as the case may be.
6. Adjustment of Exercise Shares and Exercise Price. The Exercise Price and the
number and kind of Exercise Shares purchasable upon the exercise of this Warrant
shall be subject to adjustment from time to time upon the happening of certain
events as hereinafter provided. The Exercise Price in effect at any time and the
number and kind of securities purchasable upon exercise of each Warrant shall be
subject to adjustment as follows:
(a) In the case the Company shall (i) pay a dividend or make a
distribution on its shares of Common Stock in shares of Common Stock; (ii)
subdivide or classify its outstanding Common Stock into a greater number of
shares; or (iii) combine or reclassify its outstanding Common Stock into a
smaller number of shares, the Exercise Price in effect at the time of the record
date for such dividend or distribution or of the effective date of such
subdivision, combination or reclassification shall be proportionally adjusted so
that the Holder of this Warrant exercised after such date shall be entitled to
receive the aggregate number and kind of shares which, if this Warrant had been
exercised by such Holder immediately prior to such date, he would have owned
upon such exercise and been entitled to receive upon such dividend, subdivision,
combination or reclassification. For example, if the Company declares a 2 for 1
stock dividend or stock split and the Exercise Price immediately prior to such
event was $5.00 per share, the adjusted Exercise Price immediately after such
event would be $2.50 per share. Such adjustment shall be made successively
whenever any event listed above shall occur.
(b) In case the Company shall hereafter issue rights or warrants to all
holders of its Common Stock entitling them to subscribe for or purchase shares
of Common Stock (or securities convertible into Common Stock) at a price (or
having a conversion price per share) less than the current market price of the
Common Stock (as defined in Subparagraph (d) below) on the record date mentioned
below, the Exercise Price shall be adjusted so that the same shall equal the
price determined by multiplying the Exercise Price in effect immediately prior
to the date of such issuance by a fraction, the numerator of which shall be the
sum of the number of shares of Common Stock outstanding on the record date
mentioned below and the number of additional shares of Common Stock which the
aggregate offering price of the total number of shares of Common Stock so
offered (or the aggregate conversion price of the convertible securities so
offered) would purchase at such current market price per share of the Common
Stock, and the denominator of which shall be the sum of the number of shares of
Common Stock outstanding on such record date and the number of additional shares
of Common Stock offered for subscription or purchase (or into which the
convertible securities so offered are convertible). Such adjustment shall be
made successively whenever such rights or warrants are issued and shall become
effective
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immediately after the record date for the determination of shareholders entitled
to receive such rights or warrants; and to the extent that shares of Common
Stock are not delivered (or securities convertible into Common Stock are not
delivered) after the expiration of such rights or warrants the Exercise Price
shall be readjusted to the Exercise Price which would then be in effect had the
adjustments made upon the issuance of such rights or warrants been made upon the
basis of delivery of only the number of shares of Common Stock (or securities
convertible into Common Stock) actually delivered.
(c) Whenever the Exercise Price payable upon exercise of each Warrant is
adjusted pursuant to Subparagraphs (a) and (b) above, the number of Exercise
Shares purchasable upon exercise of this Warrant shall simultaneously be
adjusted by multiplying the number of Exercise Shares initially issuable upon
exercise of this Warrant by the Exercise Price in effect on the date hereof and
dividing the product so obtained by the Exercise Price, as adjusted.
(d) For the purpose of any computation under Subparagraph (b) above, the
current market price per share of Common Stock at any date shall be deemed to be
the average of the daily closing prices for 30 consecutive business days before
such date. The closing price for each day shall be the last sale price regular
way or, in case no such reported sale takes place on such day, the average of
the last reported bid and lowest reported asked prices as reported by NASDAQ, or
other similar organization if NASDAQ is no longer reporting such information, or
if not so available, the fair market price as determined by the Board of
Directors.
(e) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least ten cents ($0.10)
in such price; provided, however, that any adjustments which by reason of this
Subparagraph (e) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment required to be made hereunder. All
calculations under this Paragraph (6) shall be made to the nearest cent or to
the nearest one-hundredth of a share, as the case may be. Anything in this
Paragraph (6) to the contrary notwithstanding, the Company shall be entitled,
but shall not be required, to make such changes in the Exercise Price, in
addition to those required by this Paragraph (6), as it, in its sole discretion,
shall determine to be advisable in order that any dividend or distribution in
shares of Common Stock, subdivision, reclassification or combination of Common
Stock, issuance of warrants to purchase Common Stock or distribution of
evidences of indebtedness or other assets (excluding cash dividends) referred to
hereinabove in this Paragraph (6) hereafter made by the Company to the holders
of its Common Stock shall not result in any tax to the holders of its Common
Stock or securities convertible into Common Stock.
(f) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly cause a notice setting forth the adjusted Exercise Price
and adjusted number of Shares issuable upon exercise of each Warrant to be
mailed to Holder, at its last addresses appearing in the Warrant Register, and
shall cause a certified copy thereof to be mailed to its transfer agent, if any.
The Company may retain a firm of independent certified public accountants
selected by the Board of Directors (who may be the regular accountants employed
by the Company) to make any computation required by this Paragraph (6), and a
certificate signed by such firm shall be conclusive evidence of the correctness
of such adjustment.
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(g) In the event that at any time, as a result of an adjustment made
pursuant to Subparagraph (a) above, the Holder of this Warrant thereafter shall
become entitled to receive any Exercise Shares of the Company, other than Common
Stock, thereafter the number of such other shares so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in Subparagraphs (a) to (e), inclusive above.
(h) Irrespective of any adjustments in the Exercise Price or the number or
kind of Exercise Shares purchasable upon exercise of this Warrant, Warrants
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the similar Warrants initially
issuable pursuant to this Agreement.
(i) Whenever the Exercise Price shall be adjusted as required by the
provisions of the foregoing Paragraph, the Company shall forthwith file in the
custody of its Secretary or an Assistant Secretary at its principal office and
with its stock transfer agent, if any, an officer's certificate showing the
adjusted Exercise Price determined as herein provided, setting forth in
reasonable detail the facts requiring such adjustment, including a statement of
the number of additional shares of Common Stock, if any, and such other facts as
shall be necessary to show the reason for and the manner of computing such
adjustment. Each such officer's certificate shall be made available at all
reasonable times for inspection by the Holder and the Company shall, forthwith
after each such adjustment, mail a copy by certified mail of such certificate to
the Holder.
7. Restrictions on Transferability; Restrictive Legend. Neither this Warrant nor
the Exercise Shares shall be transferable except in accordance with the
provisions of this paragraph.
(a) Restrictions on Transfer; Indemnification. Neither this Warrant nor
any Exercise Share may be offered for sale or sold, or otherwise transferred or
sold in any transaction which would constitute a sale thereof within the meaning
of the Securities Act of 1933, as amended (the "1933 Act"), unless (i) such
security has been registered for sale under the 1933 Act and registered or
qualified under applicable state securities laws relating to the offer and sale
of securities; or (ii) exemptions from the registration requirements of the 1933
Act and the registration or qualification requirements of all such state
securities laws are available and the Company shall have received an opinion of
counsel satisfactory to the Company that the proposed sale or other disposition
of such securities may be effected without registration under the 1933 Act and
would not result in any violation of any applicable state securities laws
relating to the registration or qualification of securities for sale, such
counsel and such opinion to be satisfactory to the Company.
The Holder agrees to indemnify and hold harmless the Company against any
loss, damage, claim or liability arising from the disposition of this Warrant or
any Exercise Share held by such holder or any interest therein in violation of
the provisions of this Paragraph 7.
(b) Financial Advisor Agreement. This Warrant and the Exercise Shares have
been granted pursuant to the terms contained within that certain letter
agreement dated as of August 14, 1996 by and between the Company and the Holder
(the "Financial Advisor Agreement")
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pursuant to which the Holder agreed to provide certain investment banking
services to the Company.
(c) Restrictive Legends. Unless and until otherwise permitted by this
Paragraph 7 or in the Agreement, this Warrant Certificate, each Warrant
Certificate issued to the Holder or to any transferee or assignee of this
Warrant Certificate, and each Certificate representing Exercise Shares issued
upon exercise of this Warrant or to any transferee of the person to whom the
Exercise Shares were issued, shall bear a legend setting forth the requirements
of paragraph (a) of this Paragraph 7, together with such other legend or legends
as may otherwise be deemed necessary or appropriate by counsel to the Company.
(d) Notice of Proposed Transfers. Prior to any transfer, offer to transfer
or attempted transfer of this Warrant or any Exercise Share, the holder of such
security shall give written notice to the Company of such holder's intention to
effect such transfer. Each such notice shall (x) describe the manner and
circumstances of the proposed transfer in sufficient detail, and shall contain
an undertaking by the person giving such notice to furnish such other
information as may be required, to enable counsel to render the opinions
referred to below, and shall (y) designate the counsel for the person giving
such notice, such counsel to be satisfactory to the Company. The person giving
such notice shall submit a copy thereof to the counsel designated in such notice
and the Company shall submit a copy thereof to its counsel, and the following
provisions shall apply:
(i) If, in the opinion of each such counsel, the proposed transfer
of this Warrant or Exercise Share, as appropriate, may be effected pursuant to
the terms of the Agreement of Sale and without registration of such security
under the 1933 Act, the Company shall, as promptly as practicable, so notify the
holder of such security and such holder shall thereupon be entitled to transfer
such security in accordance with the terms of the notice delivered by such
holder to the Company. Each certificate evidencing the securities thus to be
transferred (and each certificate evidencing any untransferred balance of the
securities evidenced by such certificate) shall bear the restrictive legends
referred to in subparagraph (c) above, unless in the opinion of each such
counsel such legend is not required in order to insure compliance with the 1933
Act.
(ii) If, in the opinion of either of such counsel, the proposed
transfer of securities may not be effected without registration under the 1933
Act, the Company shall, as promptly as practicable, so notify the holder
thereof. However, the Company shall have no obligation to register such
securities under the 1933 Act, except as otherwise provided herein or in the
Registration Rights Agreement.
The holder of the securities giving the notice under this subparagraph (d)
shall not be entitled to transfer any of the securities until receipt of notice
from the Company under paragraph (i) of this subparagraph (d) or registration of
such securities under the 1933 Act has become effective.
(e) Removal of Legend. The Company shall, at the request of any registered
holder of a Warrant or Exercise Share, exchange the certificate representing
such security for a certificate
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representing the same security not bearing the restrictive legend required by
subparagraph (c) if, in the opinion of counsel to the Company, such restrictive
legend is no longer necessary.
8. Redemption.
(a) At any time from the date of issuance, the Warrants are subject to
redemption by the Company at a redemption price of $.001 per Warrant (the
"Redemption Price") on thirty (30) days written notice upon the following
condition: (i) if a Registration Statement covering the resale of the shares of
Common Stock of the Company issuable upon exercise of the Warrants is effective
as of that date; and (ii) if the average of the closing bid prices of the
Company's Common Stock as reported on NASDAQ (or the last sales price of the
Common Stock listed on a national securities exchange or included in The NASDAQ
SmallCap Market or the average of the mean between the last bid and asked prices
per share as reported by the National Quotation Bureau, Inc. or an equivalent
generally accepted reporting service if the shares are traded on the
over-the-counter market and not on the NASDAQ Reporting System), exceeds $13.00
for twenty (20) consecutive trading days ending within fifteen (15) days of the
notice of redemption. All Warrants must be redeemed if any are redeemed.
(b) In the event the Company shall desire to exercise its right to so
redeem the Warrants, it or any of its agents may mail a notice of redemption to
the Holders of the Warrants to be redeemed, first class, postage prepaid, not
later than the thirtieth (30th) day before the date fixed for redemption, at
their last address as shall appear on the records of the Warrants. Any notice
mailed in the manner provided herein shall be conclusively presumed to have been
duly given whether or not the Registered Holder receives such notice.
(c) The notice of redemption shall specify (i) the redemption price; (ii)
the date fixed for redemption; (iii) the place where the Warrant Certificates
shall be delivered and the redemption price paid; and (iv) that the right to
exercise the Warrant shall terminate at 5:00 P.M. (New York City time) on the
business day immediately preceding the date fixed for redemption. The date fixed
for the redemption of the Warrants shall be the Redemption Date. No failure to
mail such notice nor any defect therein or in the mailing thereof shall affect
the validity of the proceedings for such redemption except as to a Holder (a) to
whom notice was not mailed or (b) whose notice was defective. An affidavit of
the Company or any of its agents that notice of redemption has been mailed
shall, in the absence of fraud, be prima facie evidence of the facts stated
therein.
(d) Any right to exercise a Warrant shall terminate at 5:00 P.M. (New York
City time) on the business day immediately preceding the Redemption Date. On or
after the Redemption Date, Holder shall have no further rights except to
receive, upon surrender of the Warrant, the Redemption Price.
(e) From and after the date specified for redemption, the Company shall,
at the place specified in the notice of redemption, upon presentation and
surrender to the Company by or on behalf of the Holder thereof of one or more
Warrants to be redeemed, deliver or cause to be delivered to or upon the written
order of such Holder a sum in cash equal to the redemption price of each such
Warrant. From and after the date fixed for redemption and upon the deposit or
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setting aside by the Company of a sum sufficient to redeem all of the Warrants
called for redemption, such Warrants shall expire and become void and all rights
hereunder and under the Warrant Certificates, except the right to receive
payment of the Redemption Price, shall cease.
9. Notices. All notices or other communications under this Warrant Certificate
shall be in writing and shall be deemed to have been given if delivered by hand
or mailed by certified mail, postage prepaid, return receipt request, addressed
as follows:
If to the Company:
USA Finance, Inc.
1111 Park Centre Road
Miami, FL 33169
Attention: Chief Executive Officer
With a Copy to:
Stephen M. Cohen, Esquire
Buchanan Ingersoll Professional Corporation
Two Logan Square - 12th Floor
18th and Arch Streets
Philadelphia, PA 19103-6933
or, in the case of the Holder, at such address as each such Holder shall have
furnished in writing to the Company; or at such other address as any of the
parties shall have furnished in writing to the other parties hereto.
Either of the Company or the Holder may from time to time change the
address to which notices to it are to be mailed hereunder by notice in
accordance with the provisions of this Paragraph 9.
Such notices and other communications shall for all purposes of this
Agreement be treated as being effective upon being delivered personally or, if
sent by mail, five (5) days after the same has been deposited in a regularly
maintained receptacle for the deposit of United States mail, addressed as set
forth above, and postage prepaid.
10. Registration Rights. The Holder shall be entitled to the registration rights
set forth in that certain Registration Rights Agreement dated as of even date
herewith by and between the Company and Holder.
11. Supplements and Amendments. The Company may from time to time supplement or
amend this Warrant without the approval of any holders of Warrants in order to
cure any ambiguity or to correct or supplement any provision contained herein
which may be defective or inconsistent with any other provision, or to make any
other provisions in regard to matters or
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questions herein arising hereunder which the Company may deem necessary or
desirable and which shall not materially adversely affect the interests of the
Holder.
12. Successors and Assigns. This Warrant shall inure to the benefit of and be
binding on the respective successors, assigns and legal representatives of the
Holder and the Company.
13. Severability. If for any reason any provision, paragraph or term of this
Warrant is held to be invalid or unenforceable, all other valid provisions
herein shall remain in full force and effect and all terms, provisions and
paragraphs of this Warrant shall be deemed to be severable.
14. Governing Law. This Warrant shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of said State.
15. Headings. Paragraph and subparagraph headings, used herein are included
herein for convenience of reference only shall not affect the construction of
this Warrant Certificate nor constitute a part of this Warrant Certificate for
any other purpose.
IN WITNESS WHEREOF, the Company has caused these presents to be duly
executed this 31st day of October, 1996.
USA FINANCE, INC.
By:______________________________
(Authorized Executive Officer)
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APPENDIX A
NOTICE OF WARRANT EXERCISE
Pursuant to a Warrant by and between the undersigned and USA Finance,
Inc., a Delaware corporation (the "Company"), dated as of
_______________________, ____, and subject to the vesting periods set forth
therein, the undersigned hereby irrevocably elects to exercise its warrant to
the extent of purchasing ______________ shares of Common Stock (the "Exercise
Shares"), of the Company as provided for therein.
The undersigned hereby represents and agrees that the Exercise Shares
purchased pursuant hereto are being purchased for investment and not with a view
to the distribution or resale thereof, and that the undersigned understands that
said Exercise Shares have not been registered under the Securities Act of 1933,
as amended.
Payment of the full Purchase Price of the Exercise Shares is enclosed
herewith, in the form of a check made payable to the Company.
The undersigned requests that a certificate for the Exercise Shares be
issued in the name of:
_______________________________________________
_______________________________________________
_______________________________________________
(Please print name, address and social security number)
Dated:________________________________________, ______
Address:______________________________________________
______________________________________________
______________________________________________
Signature:_____________________________________________
Title:_________________________________________________
12
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED, RESOLD OR OTHERWISE DISPOSED OF UNTIL OCTOBER 21, 1996.
THEREAFTER THEY MAY NOT BE TRANSFERRED, RESOLD OR OTHERWISE DISPOSED OF EXCEPT
AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION THEREFROM BASED ON AN OPINION
OF LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT
THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS.
USA FINANCE, INC.
COMMON STOCK PURCHASE WARRANT
Wayne, Pennsylvania
August 20, 1996
USA Finance, Inc. (the "Company"), a Delaware corporation, for value
received, hereby certifies that Odyssey Capital Group, L.P. ("Odyssey"), or
registered assigns, is entitled to purchase from the Company, prior to the
expiration as provided in Section 16 hereof, 7,500 duly authorized, validly
issued, fully paid and nonassessable shares of Common Stock, par value $.001 per
share (the "Common Stock"), of the Company at the purchase price per share of
$4.00, subject to adjustment pursuant to Section 2 (the "Exercise Price") and,
further, subject to the terms, conditions and adjustments set forth below in
this Warrant.
This Warrant is being issued by the Company in connection with Odyssey's
purchase of a $250,000 Note pursuant to the Securities Purchase Agreement dated
as of June 21, 1996 by and between the Company and Odyssey (the "Purchase
Agreement"), the terms of which are incorporated herein by reference. Certain
capitalized terms used in this Warrant are defined in Section 11.
1. Exercise of Warrant.
1.1 Manner of Exercise. This Warrant may be exercised by the holder
hereof, in whole or in part, during normal business hours on any business day,
by surrender of this Warrant to the Company at its principal office, accompanied
by a subscription substantially in the form attached to this warrant (or a
reasonable facsimile thereof) duly executed by such holder and accompanied by
payment, in cash, by certified or official bank check payable to the order of
<PAGE>
the Company, or in the manner provided in Section 1.5, in the amount obtained by
multiplying (a) the number of shares of Common Stock designated in such
subscription by (b) the Exercise Price.
1.2 When Exercise Effective. Each exercise of this Warrant shall be
deemed to have been effected immediately prior to the close of business on the
business day on which this warrant shall have been surrendered to the Company as
provided in Section 1.1, and at such time the person or persons in whose name or
names any certificate or certificates for shares of Common Stock (or Other
Securities) shall be issuable upon such exercise as provided in section 1.3
shall be deemed to have become the holder or holders of record thereof.
1.3 Delivery of Stock Certificates, etc. As soon as practicable after
each exercise of this Warrant, in whole or in part, and in any event within five
business days thereafter, the Company at its expense (including the payment by
it of any applicable issue taxes) will cause to be issued in the name of and
delivered to the holder hereof or, subject to Section 5, as such holder (upon
payment by such holder of any applicable transfer taxes) may direct,
(a) a certificate or certificates for the number of duly
authorized, validly issued, fully paid and nonassessable shares of Common Stock
(or Other Securities) to which such holder shall be entitled upon such exercise
plus, in lieu of any fractional share to which such holder would otherwise be
entitled, cash in an amount equal to the same fraction of the Market Price per
share on the business day next preceding the date of such exercise, and
(b) in case such exercise is in part only, a new Warrant or
Warrants of like tenor, calling in the aggregate on the face or faces thereof
for the number of shares of Common Stock equal to the number of such shares
called for on the face of this Warrant minus the number of such shares
designated by the holder to be exercised as provided in Section 1.1.
1.4 Company to Reaffirm Obligations. The Company will, at the time of
each exercise of this Warrant, upon the request of the holder hereof,
acknowledge in writing its continuing obligation to afford to such holder all
rights (including, without limitation, any rights to registration, pursuant to
the Purchase Agreement, of Common Stock or Other Securities issued upon such
exercise) to which such holder shall continue to be entitled after such exercise
in accordance with the terms of this Warrant, provided that if the holder of
this Warrant shall fail to make any such request, such failure shall not affect
the continuing obligation of the Company to afford such rights to such holder.
1.5 Net Issuance Payment by Surrender of Shares Otherwise Issuable.
Upon any exercise of this Warrant, the holder hereof may, at its option,
instruct the Company, by written notice accompanying the surrender of this
Warrant at the time of such exercise, to apply to the payment required by
Section 1.1 such number of the shares of Common Stock valued at the Current
Market Price otherwise issuable to such holder upon such exercise as shall be
specified in such notice, in which case an amount equal to the excess of the
aggregate Current Market Price of such specified number of shares on the date of
exercise over the payment required by Section 1.1 attributable to such shares
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shall be deemed to have been paid to the Company and the number of shares
issuable upon such exercise shall be reduced by such specified number.
2. Protection Against Dilution.
The Exercise Price and the number of shares deliverable hereunder
shall be adjusted as hereinafter set forth:
2.1 Stock Dividends, Subdivisions and Combinations. In case after the
date hereof the Company shall:
(a) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend payable in, or other
distribution of, Common Stock, or
(b) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock,
then the Exercise Price shall be adjusted to that price determined by
multiplying the Exercise Price in effect immediately prior to such event by a
fraction (i) the numerator of which shall be the total number of outstanding
shares of Common Stock of the Company immediately prior to such event, and (ii)
the denominator of which shall be that total number of outstanding shares of
Common Stock of the Company immediately after such event.
2.2 Issuance of Additional Shares of Common Stock. In case after the
date hereof the Company shall issue any Additional Shares of Common Stock for a
consideration less than the then effective Exercise Price, then the Exercise
Price upon each such issuance shall be adjusted to that price determined by
multiplying the Exercise Price in effect immediately prior to such event by a
fraction:
(a) the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to the issuance of such Additional
Shares of Common Stock plus the number of shares of Common Stock which the
aggregate consideration for the total number of such Additional Shares of Common
Stock so issued would purchase at the then effective Exercise Price, and
(b) the denominator of which shall be the number of shares of
Common Stock outstanding immediately prior to the issuance of such Additional
Shares of Common Stock plus the number of such Additional Shares of Common Stock
so issued.
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The provisions of this subparagraph shall not apply to any
Additional Shares of Common Stock which are distributed to holders of Common
Stock as a stock dividend, distribution or subdivision, for which an adjustment
is provided for under Section 2.1 above. No adjustment of the Exercise Price
shall be made under this Section 2.2 upon the issuance of any Additional Shares
of Common Stock which are issued pursuant to the exercise of any warrants or
other subscription or purchase rights or pursuant to the exercise of any
conversion or exchange rights in any Convertible Securities, if any such
adjustment shall previously have been made upon the issuance of such warrants or
other rights or upon the issuance of such Convertible Securities (or upon the
issuance of any warrants or other rights therefor) pursuant to Section 2.3 or
was not required pursuant to Section 2.3.
2.3 Issuance of Warrants or Other Rights, Convertible Securities. In
case, after the date hereof, the Company shall issue any warrants or other
rights to subscribe for or purchase any Additional Shares of Common Stock or
issue Convertible Securities and the consideration per share for which
Additional Shares of Common Stock may at any time thereafter be issuable
pursuant to such warrants or other rights or pursuant to the terms of such
Convertible Securities shall be less than the Exercise Price as of the date of
issuance of such warrants, rights or Convertible Securities, then the Exercise
Price shall be adjusted as provided in Section 2.2 above on the basis that:
(a) the maximum number of Additional Shares of Common Stock
issuable pursuant to all such warrants or other rights or necessary to effect
the conversion or exchange of all such Convertible Securities shall be deemed to
have been issued as of the date of actual issuance of such warrants, other
rights or Convertible Securities, and
(b) the aggregate consideration of such maximum number of
Additional Shares of Common Stock shall be deemed to be the minimum
consideration received and receivable by the Company for the issuance of such
Additional Shares of Common Stock pursuant to such warrants or other rights or
pursuant to the terms of such Convertible Securities.
No adjustment of the Exercise Price shall be made under this
Section 2.3 upon the issuance of any Convertible Securities which are issued
pursuant to the exercise of any warrants or other subscription or purchase
rights therefor, if any such adjustment shall previously have been made upon the
issuance of such warrants or other rights or was not required pursuant to this
Section 2.3.
2.4 Other Provisions Applicable to Adjustments Under this Section.
The following provisions shall be applicable to the making of adjustments in the
Exercise Price hereinbefore provided in this Section 2:
(a) Computation of Consideration. To the extent that any
Additional Shares of Common Stock or any Convertible Securities or any warrants
or other rights to subscribe for or purchase any Additional Shares of Common
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Stock or any Convertible Securities shall be issued for a cash consideration,
the consideration received by the Company therefor shall be deemed to be the
amount of the cash received by the Company therefor, or, if such Additional
Shares of Common Stock or Convertible Securities or warrants or other rights are
offered by the Company for subscription, the subscription price, or, if such
Additional Shares of Common Stock or Convertible Securities or warrants or other
rights are sold to underwriters or dealers for public offering without a
subscription offering, the public offering price, in any such case excluding any
amounts paid or receivable for accrued interest or accrued dividends and without
deduction of any compensation, discounts or expenses paid or incurred by the
Company for and in the underwriting thereof, or otherwise in connection with the
issuance thereof. To the extent that such issuance shall be for a consideration
other than cash, then, except as herein otherwise expressly provided, the amount
of such consideration shall be deemed to be the fair value of such consideration
at the time of such issuance as determined in good faith by the Board of
Directors of the Company. The consideration for any Additional Shares of Common
Stock issuable pursuant to any warrants or other rights to subscribe for or
purchase the same shall be the consideration received by the Company for issuing
such warrants or other rights plus the additional consideration payable to the
Company upon the exercise of such warrants or other rights. The consideration
for any Additional Shares of Common Stock issuable pursuant to the terms of any
Convertible Securities shall be the consideration received by the Company for
issuing any warrants or other rights to subscribe for or purchase such
Convertible Securities plus the consideration paid or payable to the Company in
respect of the subscription for or purchase of such Convertible Securities plus
the additional consideration, if any, payable to the Company upon the exercise
of the right of conversion or exchange of such Convertible Securities. In case
of the issuance at any time of any Additional Shares of Common Stock or
Convertible Securities in payment or satisfaction of any dividend upon any class
of equity securities other than Common Stock, the Company shall be deemed to
have received for such Additional Shares of Common Stock or Convertible
Securities a consideration equal to the amount of such dividend so paid or
satisfied.
(b) Readjustment of Exercise Price. Upon expiration of the right
of conversion or exchange of any Convertible Securities, or upon the expiration
of any rights, options or warrants, or upon any increase in the minimum
consideration receivable by the Company for the issuance of Additional Shares of
Common Stock pursuant to such Convertible Securities, rights, options or
warrants, if any such Convertible Securities shall not have been converted or
exchanged, or if any such rights, options or warrants shall not have been
exercised, the number of shares of Common Stock deemed to be issued and
outstanding by reason of the fact that they were issuable upon conversion or
exchange of any such Convertible Securities or upon exercise of any such rights,
options or warrants shall no longer be computed as set forth above, and the
Exercise Price shall forthwith be readjusted and thereafter be the price which
it would have been (but reflecting any other adjustments in the Exercise Price
made pursuant to the provisions of this Section 2 after the issuance of such
Convertible Securities, rights, options or warrants) had the adjustment of the
Exercise Price made upon the issuance or sale of such Convertible Securities or
the issuance of such rights, options or warrants been made on the basis of the
issuance only of the number of Additional Shares of Common Stock actually issued
upon conversion or exchange of such Convertible Securities or upon the exercise
of such rights, options or warrants, or upon the basis of such increased minimum
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<PAGE>
consideration, as the case may be, and thereupon only the number of Additional
Shares of Common Stock actually so issued or the number thereof issuable upon
the basis of such increased minimum consideration shall be deemed to have been
issued and only the consideration actually received or such increased minimum
consideration receivable by the Company (computed in accordance with Section
2.4(a)) shall be deemed to have been received by the Company.
2.5 Extraordinary Dividends. In case the Company shall declare a
dividend upon its Common Stock (except a dividend payable in shares of Common
Stock referred to in Section 2.1(a) or a dividend payable in warrants, rights or
Convertible Securities referred to in Section 2.3) payable otherwise than out of
earnings or surplus, the Exercise Price in effect immediately prior to the
declaration of such dividend shall be reduced by an amount equal, in the case of
a dividend in cash, to the amount thereof payable per share of Common Stock or,
in the case of any other dividend, to the fair value thereof per share of Common
Stock or, as determined in good faith by the Board of Directors of the Company.
For the purposes of the foregoing, a dividend payable other than in cash shall
be considered payable out of earnings or surplus only to the extent that such
earnings or surplus are charged an amount equal to the fair value of such
dividend as determined by the Board of Directors of the Company. Such reduction
shall take effect as of the date on which a record is taken for the purpose of
such dividend, or if a record is not taken, the date as of which the holders of
the Common Stock of record entitled to such dividend are to be determined.
Appropriate readjustment of the Exercise Price shall be made in the event that
any dividend referred to in this Section 2.5 shall be lawfully abandoned.
2.6 Adjustment of Number of Shares Purchasable. Upon each adjustment
of the Exercise Price pursuant to this Section 2, the number of shares of Common
Stock purchasable hereunder shall be adjusted to equal the result obtained by
dividing the aggregate Exercise Price of this Warrant prior to the adjustment by
the per share Exercise Price in effect immediately following such adjustment.
2.7 Minimum Adjustment. Except as hereinafter provided, no adjustment
of the Exercise Price hereunder shall be made if such adjustment results in a
change of the Exercise Price then in effect of less than $.10. Any adjustment of
less than $.10 shall be carried forward and shall be made at the time of and
together with any subsequent adjustment which, together with the adjustment or
adjustments so carried forward, amounts to $.10 or more of the Exercise Price
then in effect. However, upon the exercise of this Warrant, the Company shall
make all necessary adjustments not theretofore made to the Exercise Price up to
and including the date upon which this Warrant is exercised.
2.8 Officers' Certificate. Whenever the Exercise Price shall be
adjusted as required by the provisions of Section 2, the Company shall forthwith
file in the custody of its Secretary or an Assistant Secretary at its principal
office an officer's certificate showing the adjusted Exercise Price and adjusted
number of Shares of Common Stock issuable hereunder determined as herein
provided, setting forth in reasonable detail the facts requiring such adjustment
and the manner of computing such adjustment. Each such officer's certificate
shall be signed by the chairman, president or chief financial officer of the
Company and by the secretary or any assistant secretary of the Company. Each
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such officer's certificate shall be made available at all reasonable times for
inspection by the holder of a Warrant.
3. Reclassification, Reorganization, Consolidation or Merger. In the
event of any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the Company (other than a subdivision or
combination of the outstanding Common Stock and other than a change in the par
value of the Common Stock) or in the event of any consolidation or merger of the
Company with or into another corporation (other than a merger in which the
Company is the continuing corporation and that does not result in any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the class issuable upon exercise of this Warrant) or in the
event of any sale, lease, transfer or conveyance to another corporation of the
property and assets of the Company as an entirety or substantially as an
entirety, the Company shall, as a condition precedent to such transaction, cause
effective provisions to be made so that the Holder shall have the right
thereafter, by exercising this Warrant, to purchase the kind and amount of
shares of stock and other securities and property (including cash) receivable
upon such reclassification, capital reorganization and other change,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock that might have been received upon exercise of this Warrant
immediately prior to such reclassification, capital reorganization, change,
consolidation, merger, sale or conveyance. Any such provision shall include
provisions for adjustments in respect of such shares of stock and other
securities and property that shall be as nearly equivalent as may be practicable
to the adjustments provided for in this Warrant. The foregoing provisions of
this Section 3 shall similarly apply to successive reclassifications, capital
reorganizations and changes of shares of Common Stock and to successive
consolidations, mergers, sales or conveyances. In the event that in connection
with any such capital reorganization, or reclassification, consolidation,
merger, sale or conveyance, additional shares of Common Stock shall be issued in
exchange, conversion, substitution or payment, in whole or in part, for, or of,
a security of the Company other than Common Stock, any such issuance shall be
treated as an issuance of Common Stock covered by the provisions of Section 2.1.
4. Notices of Corporate Action.
4.1 In the event of any taking by the Company of a record of the
holders of any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend (other than a regular periodic
dividend payable in cash out of earned surplus in an amount not exceeding the
amount of the immediately preceding cash dividend for such period) or other
distribution, or any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or property, or to receive
any other right, or
4.2 any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any consolidation or
merger involving the Company and any other person or any transfer of all or
substantially all the assets of the Company to any other person, or
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4.3 any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
the Company shall promptly mail to each holder of a Warrant a notice specifying
(i) the date or expected date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and the amount and character of
such dividend, distribution or right, and (ii) the date or expected date on
which any such reorganization, reclassification, recapitalization,
consolidation, merger, transfer, dissolution, liquidation or winding-up is to
take place and the time, if any such time is to be fixed, as of which the
holders of record of Common Stock (or Other Securities) shall be entitled to
exchange their shares of Common Stock (or Other Securities) for the securities
or other property deliverable upon such reorganization, reclassification,
recapitalization, consolidation, merger, transfer, dissolution, liquidation or
winding-up. Such notice shall be mailed at least 45 days prior to the date
therein specified.
5. Restrictions on Transfer.
5.1 Restrictive Legends. Except as otherwise permitted by this Section
5, each Warrant (including each Warrant issued upon the transfer of any Warrant)
shall be stamped or otherwise imprinted with a legend in substantially the
following form:
"THE WARRANT REPRESENTED BY THIS CERTIFICATE (AND THE SHARES OF COMMON
STOCK OR OTHER SECURITIES ISSUABLE UPON EXERCISE OF SUCH WARRANT) HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE IN RELIANCE ON CERTAIN EXEMPTIONS FROM
REGISTRATION THEREUNDER. THE SALE, PLEDGE, HYPOTHECATION OR OTHER TRANSFER
OF SUCH WARRANT (AND OF SUCH SHARES OF COMMON STOCK OR OTHER SECURITIES) IS
SUBJECT TO COMPLIANCE WITH APPLICABLE SECURITIES LAWS AND REGULATIONS AND
CERTAIN RESTRICTIONS AND CONDITIONS CONTAINED IN A CERTAIN SECURITIES
PURCHASE AGREEMENT DATED AS OF JUNE 21, 1996."
Except as otherwise permitted by this Section 5, each certificate for Common
Stock (or Other Securities) issued upon the exercise of any Warrant, and each
certificate issued upon the transfer of any such Common Stock (or other
Securities), shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAWS OF ANY STATE IN RELIANCE ON CERTAIN EXEMPTIONS FROM REGISTRATION
THEREUNDER. THE SALE, PLEDGE, HYPOTHECATION OR OTHER TRANSFER OF SUCH
SHARES IS SUBJECT TO COMPLIANCE WITH APPLICABLE SECURITIES LAWS AND
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REGULATIONS AND CERTAIN RESTRICTIONS AND CONDITIONS CONTAINED IN A CERTAIN
SECURITIES PURCHASE AGREEMENT DATED AS OF JUNE 21, 1996. A COPY OF THE
SECURITIES PURCHASE AGREEMENT IS ON FILE WITH THE SECRETARY OF THE
COMPANY."
6. Availability of Information.
The Company is not currently required to file reports under Section 13
or 15(d) of the Exchange Act. Upon being required to do so, it shall timely file
the reports required to be filed by it under the securities Act and the Exchange
Act (including but not limited to the reports under sections 13 and 15(d) of the
Exchange Act referred to in subparagraph (c) of Rule 144 adopted by the
Commission under the Securities Act) and the rules and regulations adopted by
the Commission thereunder (or, if the Company is not required to file such
reports, will, upon the request of any holder of Registrable Securities, make
publicly available other information) and will take such further action as any
holder of Registrable Securities may reasonably request, all to the extent
required from time to time to enable such holder to sell Registrable Securities
without registration under the securities Act within the limitation of the
exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may
be amended from time to time, or (b) any similar rule or regulation hereafter
adopted by the Commission. Upon the request of any holder of Registrable
Securities, the Company will deliver to such holder a written statement as to
whether it has complied with the requirements of this Section 6.
7. Reservation of Stock, etc.
The Company shall at all times reserve and keep available, solely for
issuance and delivery upon exercise of the Warrants, the number of shares of
Common Stock (or Other Securities) from time to time issuable upon exercise of
all Warrants at the time outstanding. All shares of Common Stock (or Other
Securities) issuable upon exercise of any Warrants shall be duly authorized and,
when issued upon such exercise, shall be validly issued and, in the case of
shares, fully paid and nonassessable with no liability on the part of the
holders thereof.
8. Transfer and Exchange of Warrants.
Upon surrender of any Warrant for registration of transfer or for
exchange to the Company at its principal office, the Company at its expense will
execute and deliver in exchange therefor a new Warrant or Warrants of like
tenor, in the name of such holder or as such holder (upon payment by such holder
of any applicable transfer taxes) may direct, calling in the aggregate on the
face or faces thereof for the number of shares of Common Stock called for on the
face or faces of the Warrant or Warrants so surrendered.
9. Replacement of Warrants.
Upon receipt of evidence reasonably satisfactory to the Company of the
loss, theft, destruction or mutilation of any Warrant and, in the case of any
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such loss, theft or destruction of any Warrant, upon delivery of an indemnity
bond in such reasonable amount as the Company may determine or, in the case of
any such mutilation, upon the surrender of such Warrant for cancellation to the
Company at its principal office, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
10. Registration Rights.
The Purchaser or any assignee of this Warrant shall be entitled to all
rights and benefits regarding the registration of the shares of Common Stock
issuable upon exercise of this Warrant, as set forth in the Registration Rights
Agreement between the Company and Odyssey dated June 21, 1996.
11. Definitions.
As used herein, unless the context otherwise requires, the following
terms have the following respective meanings:
"Additional Shares of Common Stock" All shares (including treasury
shares) of Common Stock issued or sold (or, pursuant to Section 2.3 or 2.4,
deemed to be issued) by the Company after the date hereof, whether or not
subsequently reacquired or retired by the Company, other than
(a) shares issued upon the exercise of the Warrant,
(b) shares (subject to equitable adjustment in the event of any
combination, reclassification, stock split, dividend or recapitalization of the
Company) issued upon the exercise of options granted and currently outstanding
under the Company's stock option plans as in effect on the date hereof and all
warrants and Convertible Securities outstanding on the date hereof, as set forth
in Exhibit A hereto,
(c) such additional number of shares as may become issuable upon
the exercise of any of the securities referred to in the foregoing clauses (a)
and (b) by reason of adjustments required pursuant to anti-dilution provisions
applicable to such securities as in effect on the date hereof, but only if and
to the extent that such adjustments are required as the result of the original
issuance of this Warrant, and
(d) such additional number of shares as may become issuable upon
the exercise of any of the securities referred to in the foregoing clauses (a)
or (b) by reason of adjustments required pursuant to anti-dilution provisions
applicable to such securities as in effect on the date hereof, in order to
reflect any subdivision or combination of Common Stock, by reclassification or
otherwise, or any dividend on Common Stock payable in Common Stock.
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"Commission" The Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Convertible Securities" Any evidences of indebtedness, shares of
stock (other than Common Stock) or other securities directly or indirectly
convertible into or exchangeable for Additional Shares of Common Stock.
"Current Market Price" On any date specified herein, the average
daily Market Price during the period of the most recent 10 days, ending on such
date, on which the national securities exchanges were open for trading, except
that if no Common Stock is then listed or admitted to trading on any national
securities exchange or quoted in the over-the-counter market, the Current Market
Price shall be the Market Price on such date.
"Exchange Act" The Securities Exchange Act of 1934, or any similar
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time.
"Market Price" On any date specified herein, the amount per share of
the Common Stock, equal to (a) the last sale price of such Common Stock, regular
way, on such date or, if no such sale takes place on such date, the average of
the closing bid and asked prices thereof on such date, in each case as
officially reported on the principal national securities exchange on which such
Common Stock is then listed or admitted to trading, or (b)if such Common Stock
is not then listed or admitted to trading on any national securities exchange
but is designated as a national market system security by the NASD, the last
trading price of the Common Stock on such date, or (c) if there shall have been
no trading on such date or if the Common Stock is not so designated, the average
of the closing bid and asked prices of the Common Stock on such date as shown by
the NASD automated quotation system, or (d) if such Common Stock is not then
listed or admitted to trading on any national exchange or quoted in the
over-the-counter market, the value as determined in any reasonable manner by the
Board of Directors of the Company.
"NASD" The National Association of Securities Dealers, Inc.
"Other Securities" Any stock (other than Common Stock) and other
securities of the Company or any other person (corporate or otherwise) which the
holders of the Warrant at any time shall be entitled to receive, or shall have
received, upon the exercise of the Warrant, in lieu of or in addition to Common
Stock, or which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or Other Securities pursuant to
Section 3 or otherwise.
"Purchase Agreement" The Securities Purchase Agreement, dated as of
June 21, 1996, by and between the Company and Odyssey Capital Group, L.P.
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"Securities Act" The Securities Act of 1933, or any similar federal
statute, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the time.
12. Remedies. The Company stipulates that the remedies at law of the
holder of this Warrant in the event of any default by the Company in the
performance of or compliance with any of the terms of this Warrant are not and
will not be adequate and that, to the fullest extent permitted by law, such
terms may be specifically enforced by a decree for the specific performance of
any agreement contained herein or by an injunction against a violation of any of
the terms hereof or otherwise.
13. No Rights or Liabilities as Stockholder. Nothing contained in this
Warrant shall be construed as conferring upon the holder hereof any rights as a
stockholder of the Company or as imposing any obligation on such holder to
purchase any securities or as imposing any liabilities on such holder as a
stockholder of the Company, whether such obligation or liabilities are asserted
by the Company or by creditors of the Company.
14. Notices. All notices and other communications under this Warrant
shall be in writing and shall be delivered, or mailed by registered or certified
mail, return receipt requested, by a nationally recognized overnight courier,
postage prepaid, addressed (a) of to any holder of any Warrant, at the
registered address of such holder as set forth in the register kept at the
principal office of the Company, or (b) if to the Company, to the attention of
its Chief Executive Officer at its principal office, provided that the exercise
of any Warrant shall be effective in the manner provided in Section 1.
15. Amendments. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought.
16. Expiration. The right to exercise this Warrant shall expire at
5:00 p.m., Philadelphia time, on August 19, 2001.
17. Description Headings. The headings in this Agreement are for
purposes of reference only and shall not limit or otherwise affect the meaning
hereof.
18. GOVERNING LAW. THIS WARRANT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF
THE STATE OF DELAWARE, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
19. Judicial Proceedings; Waiver of Jury. Any judicial proceeding
brought against the Company with respect to this Warrant may be brought in any
court of competent jurisdiction in the Commonwealth of Pennsylvania or of the
United States of America for the Eastern District of Pennsylvania and, by
execution and delivery of this Agreement, the Company (a) accepts, generally and
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unconditionally, the nonexclusive jurisdiction of such courts and any related
appellate court, and irrevocably agrees to be bound by any judgment rendered
thereby in connection with this Warrant, subject to any rights of appeal, and
(b) irrevocably waives any objection the Company may now or hereafter have as to
the venue of any such suit, action or proceeding brought in such a court or that
such court is an inconvenient forum. The Company hereby waives personal service
of process and consents, that service of process upon it may be made by
certified or registered mail, return receipt requested, at its address specified
or determined in accordance with the provisions of Section 14, and service so
made shall be deemed completed on the third business day after such service is
deposited in the mail or, if earlier, when delivered. Nothing herein shall
affect the right to serve process in any other manner permitted by law or shall
limit the right of any holder of any Warrant to bring proceedings against the
Company in the courts of any other jurisdiction. THE COMPANY HEREBY WAIVES TRIAL
BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY, OR INDIRECTLY, ANY
MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT
OF, RELATED TO, OR CONNECTED WITH THIS WARRANT OR THE RELATIONSHIP ESTABLISHED
HEREUNDER.
USA FINANCE, INC.
By:__________________________________
Print Name:__________________________
Title:_______________________________
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SUBSCRIPTION
USA FINANCE, INC.
THE UNDERSIGNED, __________________________ , pursuant to the
provisions of the within Warrant, hereby elects to purchase ________ shares of
Common Stock of USA Finance, Inc. covered by the within Warrant.
_____________________________________
By:__________________________________
Dated:______________________________ Print Name:__________________________
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ASSIGNMENT
FOR VALUE RECEIVED, ____________ hereby sells, assigns and transfers
unto ________ the within Warrant and all rights evidenced thereby and does
irrevocably constitute and appoint ____________, attorney, to transfer the said
Warrant on the books of the within named Company.
_____________________________________
By:__________________________________
Dated:______________________________ Print Name:__________________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED, ____________ hereby sells, assigns and transfers
unto that ________ portion of the within Warrant and the rights evidenced
thereby which will on the date hereof entitle the holder to purchase __________
shares of Common Stock of __________________, irrevocably constitute and appoint
_____________, attorney, to transfer that part of the said Warrant on the books
of the within named Company.
_____________________________________
By:__________________________________
Dated:______________________________ Print Name:__________________________
15
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES
REPRESENTED BY THIS CERTIFICATE HAVE BEEN TAKEN BY THE REGISTERED OWNER
FOR INVESTMENT, AND WITHOUT A VIEW TO RESALE OR DISTRIBUTION THEREOF,
AND MAY NOT BE TRANSFERRED OR DISPOSED OF.
WARRANT TO PURCHASE
COMMON STOCK OF
USA FINANCE, INC.
Void after 5:00 p.m. Eastern Standard Time on July 2, 1997.
This is to verify that FOR VALUE RECEIVED, First Western Bank, a
Florida Banking Corporation with its principal place of business at 5854 S.
Flamingo Road Cooper City, Florida 33330 (hereinafter referred to as the
"Holder"), is entitled to purchase, subject to the terms and conditions hereof,
from USA Finance, Inc., a Delaware Corporation (the "Company"), 15,000 shares of
Common Stock, $.001 par value per share, of the Company (the "Common Stock")
during the period commencing at 9:00 a.m., Eastern Standard Time on September
19, 1996 (the "Commencement Date") and ending at 5:00 p.m. Eastern Standard Time
on July 2, 1997 (the "Termination Date") at an exercise price of $.01 per share
of Common Stock. Holder's right to exercise this Warrant may expire prior to the
Termination Date as set forth in Section 1 below. The number of shares of Common
Stock purchasable upon exercise of this Warrant and the exercise price per share
shall be subject to adjustment from time to time upon the occurrence of certain
events as set forth below.
The shares of Common Stock or any other shares or other units of stock
or other securities or property, or any combination thereof then receivable upon
exercise of this Warrant, as adjusted from time to time, are sometimes referred
to hereinafter as "Exercise Shares". The exercise price per share as from time
to time in effect is referred to hereinafter as the "Exercise Price".
1. Issuance of Warrant.
In connection with the closing of that certain Revolving Receivables
Purchase Agreement between the Company and SunAmerica Financial Resources, Inc.,
the Company and Holder entered into a Payoff Letter Agreement dated September
19, 1996 (the "Agreement") a true and complete copy of which is attached hereto
and made a part hereof as Exhibit "A". Pursuant to paragraph one (1) of the
Agreement, the Company has delivered the sum of $90,000 (the
<PAGE>
"Funds") to Holder. Pursuant to paragraph one (1) of the Agreement, at any time
prior to the Termination Date, Holder has the option of retaining the Funds or
exercising this Warrant. In the event Holder elects to retain the Funds, this
Warrant and all of Holder's rights hereunder shall immediately terminate upon
Holder's election to retain the Funds and the payment by Company to Holder of an
additional $10,000 as provided for in the Agreement.
2. Exercise of Warrant; Issuance of Exercise Shares.
(a) Exercise of Warrant. Subject to Section 1 hereof, this Warrant may
be exercised in whole at any time on or after the Commencement Date and until
and including the Termination Date. This Warrant may be surrendered on any
business day to the Company at its principal office, presently located at the
address of the Company set forth in Paragraph 8 hereof, (or such other office of
the Company, if any, as shall theretofore have been designated by the Company by
written notice to the Holder), together with: (i) a completed and executed
Notice of Warrant Exercise in the form set forth in Appendix A hereto and made a
part hereof; (ii) delivery of the Funds in lawful money of the United States of
America by certified check or cashier's check, made payable to the order of the
Company; and (iii) payment of the full Exercise Price for the amount of Exercise
Shares set forth in the Notice of Warrant Exercise, in lawful money of the
United States of America by certified check or cashier's check, made payable to
the order of the Company.
No adjustments shall be made for any cash dividends on Exercise Shares
issuable upon exercise of the Warrant. The Company shall cancel Warrant
Certificates surrendered upon exercise of Warrants.
(b) Issuance of Exercise Shares; Delivery of Warrant Certificate. The
Company shall, within ten (10) business days or as soon thereafter as is
practicable of the exercise of this Warrant, issue in the name of and cause to
be delivered to the Holder one or more certificates representing the Exercise
Shares to which the Holder shall be entitled upon such exercise under the terms
hereof. Such certificate or certificates shall be deemed to have been issued and
the Holder shall be deemed to have become the record holder of the Exercise
Shares as of the date of the due exercise of this Warrant.
(c) Exercise Shares Fully Paid and Non-assessable. The Company agrees
and covenants that all Exercise Shares issuable upon the due exercise of the
Warrant represented by this Warrant Certificate will, upon issuance in
accordance with the terms hereof, be duly authorized, validly issued, fully paid
and non-assessable and free and clear of all taxes (other than taxes which,
pursuant to Paragraph 2 hereof, the Company shall not be obligated to pay) or
liens, charges, and security interests created by the Company with respect to
the issuance thereof.
(d) Reservation of Exercise Shares. At the time of or before taking any
action which would cause an adjustment pursuant to Paragraph 6 hereof increasing
the number of shares of capital stock constituting the Exercise Shares, the
Company will take any corporate action which may, in the opinion of its counsel,
be necessary in order that the Company have remaining, after such adjustment, a
number of shares of such capital stock unissued and unreserved for other
purposes sufficient to permit the exercise of all the then outstanding Warrants
of like tenor
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<PAGE>
immediately after such adjustment; the Company will also from time to time take
action to increase the authorized amount of its capital stock constituting the
Exercise Shares if at any time the number of shares of capital stock authorized
but remaining unissued and unreserved for other purposes shall be insufficient
to permit the exercise of the Warrants then outstanding. The Company may but
shall not be required to reserve and keep available, out of the aggregate of its
authorized but unissued shares of capital stock, for the purpose of enabling it
to satisfy any obligation to issue Exercise Shares upon exercise of Warrants,
through the Termination Date, the number of Exercise Shares deliverable upon the
full exercise of this Warrant and all other Warrants of like tenor then
outstanding.
At the time of or before taking any action which would cause an
adjustment pursuant to Paragraph 6 hereof, reducing the Exercise price below the
then par value (if any) of the Exercise Shares issuable upon exercise of the
Warrants, the Company will take any corporate action which may, in the opinion
of its counsel, be necessary in order to assure that the par value per share of
the Exercise Shares is at all times equal to or less than the Exercise Price per
share and so that the Company may validly and legally issue fully paid and
non-assessable Exercise Shares at the Exercise Price, as so adjusted; the
Company will also from time to time take such action if at any time the Exercise
Price is below the then par value of the Exercise Shares.
(e) Fractional Shares. The Company shall not be required to issue
fractional shares of capital stock upon the exercise of this Warrant or to
deliver Warrant Certificates which evidence fractional shares of capital stock.
In the event that any fraction of an Exercise Share would, except for the
provisions of this subparagraph (e), be issuable upon the exercise of this
Warrant, the Company shall pay to Holder exercising the Warrant an amount in
cash equal to such fraction multiplied by the Current Market Value of the
Exercise Share. For purposes of this subparagraph (e), the Current Market Value
shall be determined as follows:
(i) if the Exercise Shares are traded in the over-the-counter
market and not on any national securities exchange and not in the NASDAQ
Reporting System, the average of the mean between the last bid and asked prices
per share, as reported by the National Quotation Bureau, Inc., or an equivalent
generally accepted reporting service, for the last business day prior to the
date on which this Warrant is exercised, or if not so reported, the average of
the closing bid and asked prices for an Exercise Share as furnished to the
Company by any member of the National Association of Securities Dealers, Inc.,
selected by the Company for that purpose;
(ii) if the Exercise Shares are listed or traded on a national
securities exchange or in the NASDAQ National Market System, the closing price
on the principal national securities exchange on which they are so listed or
traded or in the NASDAQ National Market System, as the case may be, on the last
business day prior to the date of the exercise of this Warrant. The closing
price referred to in this clause (ii) shall be the last reported sales price or,
in case no such reported sale takes place on such day, the average of the
reported closing bid and asked prices, in either case on the national securities
exchange on which the Exercise Shares are then listed or in the NASDAQ Reporting
System; or
3
<PAGE>
(iii) if no such closing price or closing bid and asked prices are
available, as determined in any reasonable manner as may be prescribed by the
Board of Directors of the Company.
3. Payment of Taxes. The Company will pay all documentary stamp taxes,
if any, attributable to the initial issuance of Exercise Shares upon the
exercise of this Warrant; provided, however, that the Company shall not be
required to pay any tax or taxes which may be payable in respect of any transfer
involved in the issue of any Warrant Certificates or any certificates for
Exercise Shares in a name other than that of the Holder of a Warrant Certificate
surrendered upon the exercise of a Warrant, and the Company shall not be
required to issue or deliver such certificates unless or until the person or
persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
4. Mutilated or Missing Warrant Certificates. In case any Warrant
Certificate shall be mutilated, lost, stolen or destroyed, the Company may in
its discretion issue, in exchange and substitution for and upon cancellation of
the mutilated Warrant Certificate, or in lieu of and in substitution for the
Warrant Certificate lost, stolen or destroyed, a new Warrant Certificate or
Warrant Certificates of like tenor and in the same aggregate denomination, but
only (i) in the case of loss, theft or destruction, upon receipt of evidence
satisfactory to the Company of such loss, theft or destruction of such Warrant
Certificate and indemnity or bond, if requested, also satisfactory to them and
(ii) in the case of mutilation, upon surrender of the mutilated Warrant.
Applicants for such substitute Warrant Certificates shall also comply with such
other reasonable regulations and pay such other reasonable charges as the
Company or its counsel may prescribe.
5. Rights of Holder. The Holder shall not, by virtue of anything
contained in this Warrant Certificate or otherwise, be entitled to any right
whatsoever, either in law or equity, of a stockholder of the Company, including
without limitation, the right to receive dividends or to vote or to consent or
to receive notice as a shareholder in respect of the meetings of shareholders or
the election of directors of the Company or any other matter.
6. Adjustment of Exercise Shares and Exercise Price. The Exercise price
and the number and kind of Exercise Shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the happening of
the events described in this Paragraph 6. The Exercise Price in effect at any
time and the number and kind of securities purchasable upon exercise of each
Warrant shall be subject to adjustment as follows: in the case the Company shall
(i) pay a dividend or make a distribution on its shares of Common Stock in
shares of Common Stock, (ii) subdivide or classify its outstanding Common Stock
into a greater number of shares, or (iii) combine or reclassify its outstanding
Common Stock into a smaller number of shares, the Exercise Price in effect at
the time of the record date for such dividend or distribution or of the
effective date of such subdivision, combination or reclassification shall be
proportionally adjusted so that the Holder of this Warrant exercised after such
date shall be entitled to receive the aggregate number and kind of shares which,
if this Warrant had been exercised by such Holder immediately prior to such
date, he would have owned upon such exercise and been entitled to receive upon
such dividend, subdivision, combination or reclassification. For example, if the
4
<PAGE>
Company declares a 2 for 1 stock dividend or stock split and the Exercise Price
immediately prior to such event was $5.00 per share, the adjusted Exercise Price
immediately after such event would be $2.50 per share. Such adjustment shall be
made successively whenever any event listed above shall occur. In the event that
the Exercise Price payable upon exercise of each Warrant is so adjusted, the
number of Exercise Shares purchasable upon exercise of this Warrant shall
simultaneously be adjusted by multiplying the number of Exercise Shares
initially issuable upon exercise of this Warrant by the Exercise Price in effect
on the date hereof and dividing the product so obtained by the Exercise Price,
as adjusted.
7. Restrictions on Transferability; Restrictive Legend. This Warrant is
not transferable. The Exercise Shares are not transferable except in accordance
with the provisions of this paragraph.
(a) Restrictions on Transfer; Indemnification. This Warrant is not
transferable. The Exercise Shares may not be offered for sale or sold, or
otherwise transferred or sold in any transaction which would constitute a sale
thereof within the meaning of the Securities Act of 1933, as amended (the "1933
Act"), unless (i) such security has been registered for sale under the 1933 Act
and registered or qualified under applicable state securities laws relating to
the offer and sale of securities, or (ii) the exemptions from the registration
requirements of the 1933 Act and the registration or qualification requirements
of all such state securities laws are available and the Company shall have
received an opinion of counsel satisfactory to the Company that the proposed
sale or other disposition of such securities may be effected without
registration under the 1933 Act and would not result in any violation of any
applicable state securities laws relating to the registration or qualification
of securities for sale, such counsel and such opinion to be satisfactory to the
Company.
The Holder agrees to indemnify and hold harmless the Company against
any loss, damage, claim or liability arising from the disposition of this
Warrant or any Exercise Share held by such Holder or any interest therein in
violation of the provisions of this Paragraph 7.
(b) Restrictive Legends. Unless and until otherwise permitted by this
Paragraph 7, this Warrant Certificate, each Warrant Certificate issued to the
Holder, and each Certificate representing Exercise Shares issued upon exercise
of this Warrant or to any transferee of the person to whom the Exercise Shares
were issued, shall bear a legend setting forth the requirements of paragraph (a)
of this Paragraph 7, together with such other legend or legends as may otherwise
be deemed necessary or appropriate by counsel to the Company.
8. Notices. All notices or other communications under this Warrant
Certificate shall be in writing and shall be deemed to have been given if
delivered by hand or mailed by certified mail, postage prepaid, return receipt
request, addressed as follows:
If to the Company:
USA Finance, Inc.
1111 Park Centre Road
Miami, FL 33169
Attention: Chief Executive Officer
5
<PAGE>
With a Copy:
Stephen M. Cohen, Esquire
Buchanan Ingersoll Professional Corporation
Two Logan Square - 12th Floor
18th and Arch Streets
Philadelphia, PA 19103-6933
if to the Holder:
First Western Bank
5854 S. Flamingo Road
Cooper City, Florida 33330
Attn: Joanne Gaines
with copy to:
Neal R. Kalis, Esq.
Neal R. Kalis & Associates
7320 Griffin Road, Suite 109
Davie, Florida 33314
Either of the Company or the Holder may from time to time change the
address to which notices to it are to be mailed hereunder by notice in
accordance with the provisions of this Paragraph 8.
Such notices and other communications shall for all purposes of this
Warrant be treated as being effective upon being delivered personally or, if
sent by mail, five (5) days after the same has been deposited in a regularly
maintained receptacle for the deposit of United States mail, addressed as set
forth above, and postage prepaid.
9. Registration Rights. The Holder shall be entitled to incidental
("piggyback") registration rights permitting the inclusion of the Exercise
Shares in any registration statement filed by the Company with the Securities
and Exchange Commission for the purpose of registering the resale of any of its
securities under the 1933 Act (other than pursuant to a registration statement
on Form S-8, S-4 or similar or successor form). The Company shall have no
obligation (i) to assist or cooperate in the offering or disposition of such
Exercise Shares; (ii) to indemnify or hold harmless the holder of such Exercise
Shares being registered or any underwriter designated by such holder; (iii) to
obtain a commitment from an underwriter relative to the sale of such Exercise
Shares; or (iv) to include such Exercise Shares in an underwritten offering of
the Company.
10. Supplements and Amendments. The Company may from time to time
supplement or amend this Warrant Certificate without the approval of the Holder
in order to cure any ambiguity
6
<PAGE>
or to correct or supplement any provision contained herein which may be
defective or inconsistent with any other provision, or to make any other
provisions in regard to matters or questions herein arising hereunder which the
Company may deem necessary or desirable and which shall not materially adversely
affect the interests of the Holder.
11. Successors and Assigns. This Warrant shall inure to the benefit of
and be binding on the respective successors, assigns and legal representatives
of the Holder and the Company.
12. Severability. If for any reason any provision, paragraph or terms
of this Warrant Certificate is held to be invalid or unenforceable, all other
valid provisions herein shall remain in full force and effect and all terms,
provisions and paragraphs of this Warrant shall be deemed to be severable.
13. Governing Law. This Warrant shall be deemed to be a contract made
under the laws of the State of Delaware and for all purposes shall be governed
by and construed in accordance with the laws of said State.
14. Headings. Paragraph and subparagraph headings, used herein are
included herein for convenience of reference only shall not affect the
construction of this Warrant Certificate nor constitute a part of this Warrant
Certificate for any other purpose.
IN WITNESS WHEREOF, the Company has caused these presents to be duly executed
the day and year defined herein as the "Commencement Date."
USA FINANCE, INC.
By: /s/ Stephen E. Michaelson
-------------------------------
(Authorized Executive Officer)
ACCEPTED AND AGREED AS OF
THE COMMENCEMENT DATE
FIRST WESTERN BANK
By: /s/
------------------------------
(Authorized Executive Officer)
7
<PAGE>
APPENDIX A
NOTICE OF WARRANT EXERCISE
Pursuant to a Warrant by and between the First Western Bank and USA
Finance, Inc., a Delaware corporation (the "Company"), dated as of September 19,
1996 (the "Warrant") and subject to the vesting periods set forth therein, the
undersigned hereby irrevocably elects to exercise its warrant to the extent of
purchasing ______________ shares of Common Stock (the "Exercise Shares"), of the
Company as provided in the Warrant.
The undersigned hereby represents and agrees that the Exercise Shares
purchased pursuant hereto are being purchased for investment and not with a view
to the distribution or resale thereof, and that the undersigned understands that
said Exercise Shares have not been registered under the Securities Act of 1933,
as amended.
Payment of the full Purchase Price of the Exercise Shares is enclosed
herewith, in the form of a check made payable to the Company. Also enclosed
herewith is a certified check in the amount of $________ as required by
paragraph one (1) of the Payout Letter Agreement dated September 19, 1996 by and
between Holder and the Company and the Warrant.
The undersigned requests that a certificate for the Exercise Shares be
issued in the name of:
First Western Bank
5854 S. Flamingo Road
Cooper City, Florida 33330
Employer Identification Number___________________
Dated:___________________ FIRST WESTERN BANK
By:
-------------------------------
Authorized Executive Officer
USA FINANCE, INC.
AMENDED AND RESTATED
STOCKHOLDERS' AGREEMENT
THIS AGREEMENT amends and restates the Stockholders' Agreement dated
March 26, 1996 and is entered into as of December 5, 1996, by and among USA
Finance, Inc., formerly known as "LMI Acquisition Corp." ("USA Finance") and
those stockholders of USA Finance identified on Schedule 1 and Schedule 2
attached hereto and made part hereof (in the aggregate, the "Stockholders").
WHEREAS, the Stockholders identified in Schedule 1 and Schedule 2,
either directly or beneficially collectively, own a majority of the outstanding
shares of common stock of USA Finance (the "Shares") and, for their mutual
protection, desire to assure continuity in the management of the Corporation,
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions set forth herein, the Stockholders hereby agree as follows:
1. Election of Directors.
(a) Each Stockholder agrees that upon each election of directors of
USA Finance, he will vote his Shares for the election of at least four (4)
directors as follows: three (3) persons designated by the record owners set
forth on Schedule 1 hereto ("Historic LMI Stockholders") and MARK MARGOLIS shall
be designated as a director by the record owners set forth on Schedule 2 hereto
("Historic Gold Coast Stockholders"). Upon the resignation, removal or death of
a director, the Stockholder(s) responsible for the designation of that director
shall designate a person to fill the vacancy and the Stockholders agree to vote
their Shares for the election of that person to the vacancy. This Section shall
apply to all Shares beneficially owned by any Stockholder and as to which he has
voting power as determined in accordance with Regulation 13d-3 promulgated by
the Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended.
(b) The designee of Sands Brothers & Co., Ltd. ("Sands") pursuant to
the terms of the Financial Advisory Agreement entered into on August 14, 1996
with Sands is approved by all parties hereto as a director however, for the
purposes of this Agreement shall not be considered a designee of either the
Historic Gold Coast Stockholders or the Historic LMI Stockholders.
2. Voting Arrangements Regarding Certain Corporate Governance
Provisions. During the term of this Agreement, the Stockholders must either
vote, or refrain from voting, their Shares in connection with the following
transactions or events:
(a) The Directors designated by the Historic LMI Stockholders will
not vote in favor of any of the eight (8) transactions or events enumerated in
this paragraph 2(a) unless the designee of the Historic Gold Coast Stockholders
votes in favor of such transactions or events. These transactions or events
shall include: (i) any merger, consolidation, acquisition or disposition of
assets with a fair market value of more than ten percent (10%) of the existing
assets of USA Finance or any subsidiaries; (ii) the declaration of any cash,
property or stock dividends
<PAGE>
to the Stockholders of USA Finance and any subsidiaries; (iii) the issuance of
any securities of USA Finance or any subsidiaries (including for this purpose
the issuance of all derivative securities which may be exercised or converted
into shares of the common stock of USA Finance); (iv) the assumption or
incurring of indebtedness of greater than $50,000.00 or the entering into any
agreement or assumption of any obligation that imposes upon USA Finance or any
subsidiaries an aggregate responsibility to pay an amount of greater than
$50,000.00; (v) all elections or appointments of directors; (vi) appointment of
executive officers; (vii) establishment and payment of executive salaries; and
(viii) any transactions between USA Finance or any subsidiary and any affiliate,
director, officer or related party thereof.
(b) All management and executive employees of USA Finance shall be
required to sign a Confidentiality and Non-Competition Agreement in the usual
and customary form.
(c) Transactions between USA Finance or any subsidiaries and any
officers, directors, Stockholders, affiliates or related parties hereof shall
only be conducted on an arm's-length basis and on terms no less favorable to USA
Finance or its subsidiaries, as the case may be, than could be obtained from
non-related third parties.
(d) USA Finance and any subsidiaries shall maintain insurance
against hazards and risks and liabilities to persons and properties including
products liability to the persons and properties including products liability to
the extent customary for companies engaged in similar businesses.
3. Restrictive Legend. To effectuate this Agreement, all certificates
for the Shares shall bear the following restrictive legend:
"The Shares represented by this certificate are subject to an
Amended and Restated Stockholders Agreement dated December 5,
1996, among certain Stockholders of the Company."
4. Term of Agreement. This Agreement shall continue in full force and
effect until March 28, 2001. However, in the event that the Historic LMI
Stockholders (including for this purpose each of their heirs, administrators,
successors or assigns) no longer continue to own at least twenty-five percent
(25%) of the number of Shares owned by them in the aggregate as of even date
herewith, then the Historic Gold Coast Stockholders shall have option to
terminate this agreement upon thirty (30) days' notice.
In the event that the Historic Gold Coast Stockholders (including for
this purpose each of their heirs, administrators, successors or assigns) no
longer continue to own at least twenty-five percent (25%) of the number of
Shares owned by them in the aggregate as of even date herewith, then the
Historic LMI Stockholders shall have the option to terminate this Agreement upon
thirty (30) days' notice.
2
<PAGE>
5. Miscellaneous.
(a) This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of Delaware.
(b) This Agreement shall be binding upon, and shall operate solely
for the benefit of the Stockholders who hold Shares to which this Agreement
applies, and their respective successors. This Agreement shall not apply and
shall provide no rights, responsibilities or benefits to a transferee or of any
the Shares beneficially owned by any of the Stockholders.
(c) This Agreement contains the entire agreement of the parties
hereto and all prior understanding and agreements, whether written or oral,
between the parties are merged into this Agreement. This Agreement cannot be
altered, amended, supplemented, modified or terminated except by an instrument
in writing signed by all of the Stockholders.
(d) Should it become necessary for any Stockholder to institute
legal action to enforce the terms and conditions of this Agreement, the
successful Stockholder shall be awarded a reasonable attorneys' fee, which shall
include a reasonable attorneys' fee for any appellate proceedings, expenses,
including any accounting expenses, and costs.
(e) The invalidity or unenforceability of any particular provision
of this Agreement shall not effect the other provisions hereof, and the
Agreement shall be construed in all respects as if such invalid or unenforceable
provisions were omitted.
(f) This Agreement may be signed in one or more counterparts, each
of which shall be deemed an original and all of which together shall constitute
one agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth above.
STOCKHOLDERS:
/s/ Andrew Panzo /s/ Steven Margolis
- --------------------------------------------- -----------------------------
Andrew Panzo Steven Margolis
/s/ Mark Margolis
- --------------------------------------------- -----------------------------
American Maple Leaf Financial Corporation Mark Margolis
By: /s/ Andrew Panzo
-----------------------------------------
Andrew Panzo
3
<PAGE>
Number of Share
Schedule 1 Beneficially Owned
- ---------- ------------------
Historic LMI Stockholders:
Andrew Panzo 937,500
American Maple Leaf Finance Corporation 436,928
Schedule 2
- ----------
Historic Gold Coast Stockholders:
Steven Margolis 526,667
Mark Margolis 493,333
4
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 28th day of March, 1996, by and between Mark
Margolis (hereinafter referred to as the "EXECUTIVE" and LMI Acquisition
Corporation, a Delaware corporation, which principle executive offices located
at 401 City Avenue, Suite #725, Bala Cynwyd, Pennsylvania 19004-1122.
W I T N E S S E T H:
WHEREAS, the Company is engaged inter alia in the business of financing
insurance premiums; and
WHEREAS, the Company desires to retain and employ the Executive for the
purpose of securing to the Company the experience, ability and services of the
Executive; and
WHEREAS, the Executive desires to be employed by the Company.
NOW, THEREFORE, it is mutually agreed by and between the parties hereto
as follows:
ARTICLE I
EMPLOYMENT
The Company hereby employs the Executive as Chief Operating Officer and
Director of the Company. The Executive hereby accepts such employment and agrees
to serve on a full-time basis as an executive officer of the Company, subject to
and upon the terms and conditions set forth in this Agreement.
ARTICLE II
DUTIES
(A) The Executive shall, during the term of his employment with the
Company and subject to the direction and control of the Company's Board of
Directors, perform such executive duties and functions as he may be called upon
to perform, consistent with his employment hereunder as Chief Operating Officer.
(B) The Executive agrees to devote his full time and best efforts to
the performance of his duties for the Company; render such executive services
for any subsidiary or affiliated business of the Company; participate in the
direction of the Company's business and financial interests, and promote the
Company's relationships with its employees, customers, and others in the
business community.
<PAGE>
ARTICLE III
COMPENSATION
(A) The Company shall pay to the Executive for all services to be
rendered pursuant to the terms of this Agreement, a base salary at the rate of
$7,833 per month during the term of this Agreement, payable in equal weekly
payments in accordance with the Company's normal payroll procedures.
(B) Commencing on the 60th day after the Company has obtained
additional bank financing, in the sum of at least $15,000,000, the Executive's
base salary shall increase to the rate of $9,500 per month.
(C) As a cost of living adjustment, commencing on each anniversary date
of Executive's employment hereunder, the base salary then in effect shall be
increased by 5%.
(D) Executive shall be entitled to receive stock options to purchase
shares of the Company's common stock as a bonus (the "Bonus Option Shares") as
follows: He shall receive 5,000 Bonus Option Shares for every $1,000,000 of
Pre-Tax Net Operating Income (as hereinafter defined) above $2,900,000 of
Pre-Tax Net Operating Income in each of the Company's fiscal years during the
term of this Agreement, commencing with the 1996 fiscal year. In the event
Pre-Tax Net Operating Income exceeds $2,900,000, but the excess is less than
$1,000,000, then the number of Bonus Option Shares shall be reduced
proportionately. Pre-Tax Net Operating Income shall be the Company's net
operating income before taxes, and shall include, as expenses, interest charges
associated with financing operations, but not interest charges related to debt
incurred in making acquisitions at a premium to book value, and will not include
other acquisition related expenses, such as professional fees. The Bonus Option
Shares shall be exercisable at a price of $4.00 per share over a term of 5 years
commencing on the date of grant and be immediately exercisable.
(E) Executive shall also be entitled to bonus shares ("Bonus Shares")
during the term of this Agreement pursuant to the following formula: For every
$100,000 of Pre-Tax Net Operating Income over the $3,496,000, he shall be
entitled to 250 Bonus Shares. Bonus Shares shall be issued to him on an annual
basis.
(F) In addition, Executive shall be granted options to purchase 100,000
shares of common stock ("Option Shares") at the average bid price of the
Company's stock for the first 60 days of public trading. This option shall last
for 5 years, commencing on the 61st day of public trading of the Company's stock
and be immediately exercisable.
(G) Executive may not sell any of the Bonus Option Shares, the Option
Shares or the Bonus Shares in the public market without the company's consent
for a period of two years from the date public trading in the Company's common
stock commences. Upon expiration of this two year period, the Company will use
its best efforts, at its expense, to register the Bonus Option Shares, the
Option Shares and the Bonus Shares and keep effective a Registration Statement
<PAGE>
covering these shares to enable Executive to sell the shares in the public
market at such time or times as he desires.
WORKING CONDITIONS AND BENEFITS
(A) Executive shall receive four weeks of vacation with full pay for
each 12 month period during the term of this Agreement.
(B) The Executive shall be employed by the Company at executive offices
maintained by the Company. The Executive shall travel on the Company's behalf to
the extent reasonably necessary. The Company shall reimburse Executive at the
rate of $.27/mile for every commuting mile driven by Executive excess of 40
miles round trip per day. Company shall pay Executive's auto insurance not to
exceed $1,200 per year.
(C) The Company shall provide to the Executive to the full extent
provided for under the laws of the Company's state of incorporation and the
Company's By-laws, indemnification for any claim or lawsuit which may be
asserted against the Executive when acting in such capacity for the Company,
provided that said indemnification is not in violation of any of the following:
(a) Federal or state law or (b) rule or regulation of the Securities and
Exchange Commission.
(D) The Executive shall be reimbursed for all travel, entertainment,
seminars, trade conferences and all other expenses incurred by Executive in
performing his duties under this Agreement and in promoting the interest of the
Company.
(E) The Company shall use its best effort to cause the Executive to be
nominated for election to the Company's Board of Directors each year during the
term of this Agreement.
ARTICLE V
TERM
The term of this Agreement shall be for a term of three (3) years form
the date hereof with three on year options exercisable solely be Executive so
long as the Company's pre-tax income in the most current four quarter period is
at least 10% higher than it had been in the four quarters immediately preceding.
ARTICLE VI
TERMINATION
(A) The Company may terminate this agreement upon written notice to
Margolis, if Margolis becomes disabled, and as a result of such disability is
substantially unable to perform his duties hereunder for a period of three (3)
consecutive months; such notice shall be forwarded to Margolis by the Company
upon and after a notification.
(B) The Company may terminate this agreement upon written notice from
the Company to Margolis, if Margolis has materially violated the terms of this
<PAGE>
Agreement or committed acts of willful and material misconduct in the
performance of his duties, which have a material adverse effect on the business
of the Company. Such notice shall be forwarded to Margolis by the Company's
Board of Directors authorizing such notification.
ARTICLE VII
CONFIDENTIALITY AND NON-COMPETITION
(A) All advertising, sales, marketing and other materials or articles
of information, including without limitation customer sales analyses, invoices,
price lists or information, samples or any other materials or data of any kind
furnished to Margolis by Company or developed by Margolis or otherwise in
connection with Margolis' services hereunder, are and shall remain the sole and
confidential property of the Company. If Company requests the return of such
materials at any time during or at or after the termination of Margolis'
agreement, Margolis shall immediately deliver the same to the Company.
(B) During the term of this Agreement and two (2) years after the
termination of same for any reason whatsoever, Margolis shall not directly or
indirectly induce or attempt to influence any employee of Company to terminate
his employment with Company and shall not engage in (as a principal, partner,
director, officer, agent, employee, consultant or otherwise) or be financially
interested in any business that is primarily involved in automobile financing or
insurance premium financing. However, nothing contained in this paragraph shall
prevent Margolis from holding for investment no more than five (5%) percent of
any class of equity securities of a company whose securities are traded on a
national securities exchange.
(C) During the term of this Agreement and at all times thereafter,
Margolis shall not use for his personal benefit, or disclose, communicate or
divulge to, or use for the direct or indirect benefit of any person, firm,
association or company other than the Company, any material referred to in
paragraph (A) above or any information regarding the business methods, business
policies, procedures, techniques, research or processes used or developed by the
Company or any names and addresses of customers or clients or any other
confidential information relating to or dealing with business operation or
activities of Company, made known to Margolis or learned or acquired by Margolis
and/or while performing services on behalf of the Company.
ARTICLE VIII
SEVERABILITY
If any provision of this Agreement shall be held invalid or
unenforceable, the remainder of the agreement shall remain in full force and
effect. If any provision is held invalid or unenforceable with respect to
particular circumstances, it shall remain in full force and effect in all other
circumstances.
<PAGE>
ARTICLE IX
ARBITRATION
Any controversy, claim or dispute arising out of the terms of this
agreement, or the breach thereof, shall be settled by arbitration in Broward
County, State of Florida, under the rules of the American Arbitration
Association and the award rendered thereof shall be final, binding and
conclusive as to all parties and may be entered in any court of competent
jurisdiction.
ARTICLE X
NOTICE
All notices required to be given under the terms of this agreement
shall be in writing and shall be deemed to have been duly given if delivered to
the addressee in person or mailed by certified mail, return receipt requested,
as follows:
If to the Company, addressed to:
Andrew Panzo
LMI Acquisition Corporation
401 City Avenue, Suite 725
Bala Cynwyd, Pennsylvania 19004-1122
If to Margolis, addressed to:
Mr. Mark Margolis
Gold Coast Finance, Inc.
16853 N.E. 2nd Avenue
North Miami Beach, Florida 33162
or to any other address as the party to receive the notice shall advise by due
notice given in accordance with this paragraph.
ARTICLE XI
BENEFIT
This Agreement shall inure to and shall be binding upon the parties
hereto, the successors and assigns of the Company and the heirs and personal
representatives of Margolis.
ARTICLE XII
WAIVER
The waiver by either party of any breach or violation of any provision
of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
<PAGE>
ARTICLE XIII
GOVERNING LAW
This Agreement has been negotiated and executed in the State of Florida
and Florida law shall govern its construction and validity.
ARTICLE XIV
ENTIRE AGREEMENT
This Agreement contains the entire agreement between the parties
hereto; no change or amendment shall be made hereto except by written agreement
signed by the parties hereto. This Agreement supersedes all prior agreements and
understandings.
IN WITNESS WHEREOF, the parties hereto have executed this agreement and
affixed their hands and seal the day and year first above written.
/s/ MARK MARGOLIS
-----------------------------
Mark Margolis
L.M.I. ACQUISITION CORPORATION
By: /s/ ANDREW PANZO
--------------------------
Andrew Panzo, President
ATTEST:
/s/______________________________
<PAGE>
EMPLOYMENT AGREEMENT
This agreement (hereinafter the "Agreement") entered into as of the
1st day of May, 1996, by and between USA FINANCE, INC., a Delaware
corporation (the "Company"), and STEPHEN E. MICHAELSON, a resident of Florida
("Michaelson").
W I T N E S S E T H:
WHEREAS, the Company and Michaelson desire to enter into this
Agreement to establish the terms under which Michaelson will be employed by the
Company.
NOW, THEREFORE, in consideration of the mutual promises and
covenants herein contained and intending to be legally bound hereby, the parties
hereto agree as follows:
ARTICLE 1
EMPLOYMENT AND DUTIES
1.1 The Company agrees to and does hereby employ Michaelson as the Chief
Executive Officer of the Company and further agrees to appoint Michaelson to the
Board of Directors of the Company, and Michaelson agrees to and does hereby
accept employment from the Company in the capacity of Chief Executive Officer,
for the three (3) year period commencing on May 1, 1996, (the "Employment Date")
and ending on April 30, 1999, or the earlier termination of this Agreement as
provided for herein (the "Employment Period").
1.2 Michaelson shall devote his full time and best efforts, skill, and
attention to the business and affairs of the Company, and shall perform and
carry out for the Company such duties and responsibilities which are consistent
with his position as the Chief Executive Officer and otherwise as the board of
directors of the Company (the "Board") shall direct. Such duties shall include,
but shall not be limited to: (1) the supervision of other employees of the
Company, (2) promotion of the Company and its services, and (3) when necessary,
making recommendations to the Board concerning the operations of the Company.
Michaelson shall extend his best efforts to execute upon the Company's annual
business plan and budget, to the extent such a business plan and budget are
developed by the Company and adopted by the Board.
1.3 During the Employment Period, Michaelson shall not engage in any
commercial activities which in any way compete with the business of the Company
or which in any way interfere with the performance of his duties as assigned.
<PAGE>
ARTICLE 2
COMPENSATION
2.1 As compensation for the services to be rendered by Michaelson to the
Company hereunder, the Company agrees to compensate Michaelson at an annual base
salary in an amount equal to $94,000. Michaelson's salary shall be payable
biweekly or at such other regular intervals as the Company shall determine to
pay all of its other employees. Commencing on the 60th day after the Company has
obtained additional bank financing in the sum of at least $15,000,000 ,
Michaelson's annual base salary shall be increased to $114,000.
2.2 As additional compensation hereunder, the Company shall grant to
Michaelson stock options (the "Options") to purchase a total of 410,000 shares
of the Company's common stock (the "Option Shares") in accordance with the terms
and conditions as set forth in a certain Stock Option Agreement (the "Option
Agreement") by and between the Company and Michaelson dated even date herewith.
ARTICLE 3
WORKING CONDITIONS AND BENEFITS
3.1 During the Employment Period, Michaelson shall be entitled, subject to
the terms and conditions of the particular plan and programs, to all fringe
benefits programs generally made available to all other senior executives of the
Company, including, the right to participate in any pension, profit sharing,
retirement, major medical, group health, disability, accident and life
insurance. In view of Michaelson's need to frequently utilize his automobile for
Company business, the Company has also agreed to pay the insurance on the
automobile utilized by Michaelson for Company business which amount shall not
exceed $1,200 per annum.
3.2 Michaelson shall receive four weeks of vacation with full pay for each
12 month period during the term of this Agreement provided however, that no more
than two weeks of vacation shall be taken consecutively or within any two -month
period without approval by an affirmative vote of a majority of the Board.
3.3 Michaelson shall be employed by the Company at executive offices
maintained by the Company. Michaelson shall travel on the Company's behalf to
the extent reasonably necessary.
3.4 The Company shall provide to Michaelson, to the fullest extent
provided for under the laws of the Company's state of incorporation and the
Company's By-laws, indemnification for any claim or lawsuit which may be
asserted against Michaelson when acting in such capacity for the Company,
provided that said indemnification is not in violation of any of the following:
(a) Federal or state law or (b) rule or regulation of the Securities and
Exchange Commission.
3.5 The Company shall reimburse Michaelson upon submission of appropriate
receipts, for all moving expenses incurred by Michaelson in connection with the
relocation of his principal residence from Connecticut to Florida to begin
employment with the Company.
-2-
<PAGE>
3.6 The Company will pay or reimburse Michaelson for all reasonable and
necessary out-of-pocket expenses incurred by him in the performance of his
duties hereunder, including all of his travel, hotel, meal and other incidental
expenses during his travel on behalf of the Company. Michaelson shall keep
detailed and accurate records of expenses incurred in connection with the
performance of his duties hereunder and reimbursement therefor shall be in
accordance with policies and procedures to be established from time to time by
the Board.
3.7 The Company shall use its best efforts to cause Michaelson to be
nominated for election to the Company's Board of Directors at each annual
meeting of the Company's stockholders during the term of this Agreement.
ARTICLE 4
TERMINATION
4.1 At any time during the Employment Period, upon approval by the
affirmative vote of at least seventy-five percent of the members of the Board,
the Company shall have the right to terminate Michaelson's employment under this
Agreement for any reason by providing Michaelson with thirty (30) days notice.
Upon any termination of Michaelson's employment by the Company prior to April
30, 1999, other than for cause, death or disability, Michaelson shall be
entitled to: (i) received a severance payment equal to three (3) months salary
at the rate in effect on the date Michaelson receives notice of the termination;
and (ii) receive reimbursement of all moving expenses, upon submission of
appropriate receipts, for the relocation of his principal residence from Florida
to Connecticut, provided such relocation occurs within twelve months from the
date of termination.
4.2 At any time during the Employment Period, the Company may terminate
this Agreement for cause without notice upon the affirmative vote of a majority
of the Board. For purposes of this Agreement, "cause" shall include: (i) a
material breach of this Agreement, (ii) failing to substantially conform to a
material policy of the Company within 30 days after receiving written notice of
a violation thereof, (iii) committing a fraud or act of dishonesty which would
discredit or have an adverse effect or impact on the Company, and (iv) any act
of willful misconduct, malfeasance, misfeasance or nonfeasance while in the
Company's employ. However, "cause" shall not include disagreements with the
Company over business strategies, policies or procedures or innocent errors of
omission or commission. In the event of termination of this Agreement for cause,
the Company shall only be obligated to pay Michaelson's salary through the date
of such termination.
4.3 In the event of Michaelson's death during the Employment Period, this
Agreement shall terminate and Michaelson's right to receive compensation
hereunder shall cease, except that Michaelson's personal representative(s) shall
be entitled to receive Michaelson's salary in effect on the date of termination
pursuant to Paragraph 2.1 hereof pro-rated through the date of death.
4.4 In the event that Michaelson shall be determined to be "disabled" (as
hereinafter defined), the Company shall have the right to terminate Michaelson's
employment under this
-3-
<PAGE>
Agreement. In such event, the Company shall give written notice to Michaelson
specifying the reason for such termination and the date on which the termination
of Michaelson's employment shall be effective (which date shall not be less than
thirty (30) days after the date of notice). In the event that Michaelson's
employment shall be terminated as a result of his becoming disabled, Michaelson
shall continue to receive all of his salary as if Michaelson was terminated for
reasons other than for cause pursuant to Paragraph 4.1 hereof; provided,
however, that Michaelson's salary shall be reduced by any amounts received by
Michaelson under any policy or policies of disability income insurance the
premiums for which were paid by the Company. Michaelson shall be determined to
be "disabled" upon the date that Michaelson is declared legally incompetent
under the laws of the State of Florida, or on the date that the Company receives
a written opinion from a physician designated by the Company to the effect that
Michaelson has incurred a mental or physical condition that can reasonably be
expected to prevent him from carrying out his material duties under this
Agreement for a period of three months or longer from the date of such opinion.
Michaelson hereby covenants and agrees to cooperate with any physician so
designated by the Company to determine whether he is disabled, provided that any
physician so designated shall consult with any physician designated by (or on
behalf of) Michaelson.
4.5 Termination of Michaelson's employment shall not operate to relieve
him of any remaining obligations hereunder, including, but not limited to,
Article 5 hereof, and all such obligations are binding upon his heirs,
executors, administrators or other legal representatives. This Agreement is
personal to Michaelson and may not be assigned by him without the prior written
consent of the Company.
ARTICLE 5
CONFIDENTIALITY, NON-COMPETE AND NO RAID
5.1 During the Employment Period and at all times hereafter, Michaelson
shall not use for his personal benefit, or disclose, communicate or divulge to,
or use for the direct or indirect benefit of any person, firm, association or
company other than the Company, any subsidiary thereof, or any successors in
interest thereof (collectively, the "Company Group"), any confidential
information regarding the business methods, business policies, procedures,
techniques, research or development projects or results, trade secrets,
inventions, or other confidential knowledge or processes of or developed by a
member of the Company Group, or any names and addresses of customers or clients
or any data on or relating to past, present or prospective customers or clients
or any other information relating to or dealing with the business operations or
activities of a member of the Company Group, made known to Michaelson or learned
or acquired by Michaelson while employed by the Company. All advertising, sales,
marketing and other materials or articles of information, including without
limitation customer sales analyses, invoices, price lists or information,
samples or any other materials or data of any kind furnished to Michaelson by
Company or developed by Michaelson or otherwise in connection with Michaelson's
services hereunder are and shall remain the sole and confidential property of
the Company. If Company requests the return of such materials at any time during
or at or after the termination of Michaelson's employment, Michaelson shall
immediately deliver the same to the Company.
-4-
<PAGE>
5.2 During the Employment Period and for the two-year period thereafter,
Michaelson shall not enter into any employment, consulting arrangement, agency
or association with, or engage in as proprietor, partner, stockholder or other
like capacity of, any business or activity that engages in a business similar to
or competitive with any business undertaken by the Company except as a
stockholder in a publicly held corporation in which Michaelson does not own more
than 5% of any class of stock.
5.3 In consideration of the transactions contemplated by this Agreement,
Michaelson agrees that he shall not, during the two-year period immediately
following the date of his termination of employment for any reason, directly or
indirectly induce or attempt to influence any current or future employee of the
Company or any subsidiary thereof, or any successors in interest of the Company
(collectively the "Company Group") to terminate his or her employment with a
member of the Company Group. Michaelson hereby agrees that a breach of this
covenant will, among other remedies, require him to forfeit all severance and
other payments received or to be received by him as a result of his termination
of employment pursuant to Article 4 hereof.
5.4 It is the desire and intent of the parties to this Agreement that the
provisions of this Article 5 shall be enforced to the fullest extent permissible
under the laws of the State of Florida. If any particular provisions or portion
of this Article shall be adjudicated to be invalid or unenforceable, this
Article shall be deemed amended to delete therefrom or restrict the application
of such provision or portion adjudicated to be invalid or unenforceable to the
extent (but only to the extent) required to render such provision or portion
valid and enforceable, such amendment to apply only with respect to the
operation of such Article in the particular jurisdiction in which such
adjudication is made.
ARTICLE 6
NOTICES
as
6.1 All notices required or permitted under this Agreement shall be in
writing and delivered by any method providing for proof of delivery. Any notice
shall be deemed to have been given on the date of receipt. Notices shall be
delivered to the parties at the following addresses until a different address
has been designated by notice to the other party:
If to the Company:
USA Finance, Inc.
1111 Park Centre Road
Miami Beach, FL 33169
If to Michaelson:
Stephen E. Michaelson
1910 S.W. 6th Place
Boca Raton, FL 33486
-5-
<PAGE>
ARTICLE 7
MISCELLANEOUS
7.1 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
7.2 Entire Agreement. This Agreement contains the entire agreement among
the parties hereto with respect to the subject matter hereof, and no
modification hereof shall be effective unless in writing and signed by the party
against which it is sought to be enforced. This Agreement supersedes all prior
understandings, negotiations and agreements relating to the subject matter
hereof.
7.3 Expenses. Each of the parties hereto shall bear such party's own
expenses in connection with this Agreement and the transactions contemplated
hereby.
7.4 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida, applicable to agreements made
and to be performed entirely within such state.
7.5 Headings. The headings in this Agreement are solely for convenience of
reference and shall not affect the interpretation of any of the provisions
hereof.
7.6 Severability. If any provision herein contained shall be held to be
illegal, invalid or unenforceable, the remainder of this Agreement shall remain
in full force and effect and, such holding shall not affect the validity or
enforceability of the other provisions of this Agreement. If any provision shall
be held to be invalid, illegal or unenforceable with respect to particular
circumstances, it shall remain in full force and effect in all other
circumstances.
7.7 Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the Company and its successors and assigns, and upon Michaelson, and
his executors, administrators, legal representatives, heirs and assigns.
7.8 Arbitration. Any controversy, claim or dispute arising between the
parties hereto including, but not limited to, those arising out of or related to
this Agreement or Michaelson's employment with the Company shall be determined
by binding arbitration applying the laws of the State of Florida as set forth in
Section 7.4 hereof. Any arbitration pursuant to this Agreement shall be
conducted in the county in which the headquarters of the Company is located,
which as of the date hereof is Date County, State of Florida, under the rules of
the American Arbitration Association. The arbitration and any award rendered
therein shall be final and binding upon the parties and may be entered in any
court of competent jurisdiction. Nothing in this Section 7.8 will prevent either
party from resorting to judicial proceedings of interim injunctive relief under
the laws of the State of Florida from a court of competent jurisdiction is
necessary to prevent a serious and irreparable injury to one of the parties.
-6-
<PAGE>
7.9 Waiver. The waiver by either party of any breach or violation of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach. To be effective, any waiver must be contained in a written
instrument signed by the party waiving compliance by the other party of the term
or covenant as specified. The waiver by either party of the breach of any term
or covenant contained herein, whether by conduct or otherwise, in any one or
more instances, shall not be deemed to be, or construed as, a further or
continuing waiver of any such breach or a waiver of the breach of any other term
or covenant contained in this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be executed as of the day first above written.
USA FINANCE, INC.
By: /s/ Mark Margolis, President
------------------------------------
STEPHEN E. MICHAELSON
/s/ Stephen E. Michaelson
---------------------------------------
Signature
-7-
September 27, 1996
Mr. Robert Cohen
6123 Woodcrest Lane
Dallas, Texas 75214
Dear Robert:
We are pleased to extend to you an offer of employment to serve in the
position of Chief Financial Officer of USA Finance, Inc., a Delaware corporation
(the "Company"), reporting to the Chief Executive Officer, President and Chief
Operating Officer of the Company, and/or any other executive officer designated
by the Board of Directors of the Company and with all the duties and
responsibilities as are commensurate with and required by such position and such
other duties as may be assigned by the Chief Executive Officer or Board of
Directors of the Company from time to time. The terms of your employment with
the Company are as follows:
Base Salary. Your initial base salary will be $80,000 per annum and you
will receive an annual salary increase of 5% as a cost of living adjustment.
Your salary shall be payable at such regular intervals as the Company shall pay
its other employees.
Options. You shall receive non-statutory stock options to purchase
71,875 shares of Company common stock. The options shall vest in accordance with
the following timetable and shall have the respective exercise prices set forth
below:
<TABLE>
<CAPTION>
Anniversary of Number of Shares
Date of Hiring Vested Option Price per Share
-------------- ------ ----------------------
<S> <C> <C> <C>
1st 11,875 $4.00
2nd 15,000 $5.00
3rd 15,000 $6.00
4th 15,000 $7.00
5th 15,000 $8.00
</TABLE>
In the event your employment with the Company should terminate for any
reason prior to the next anniversary date of your employment with the Company,
all unvested options shall be automatically forfeited. The terms of the stock
options shall be more specifically set forth under the terms of the Stock Option
Agreement.
<PAGE>
Notwithstanding the foregoing, all unvested stock options shall become
immediately exerciseable in the event that following the first anniversary of
your date of employment any of the following events occur: (a) the Company sells
substantially all of its assets or (b) the Company becomes a party to a merger,
reorganization or consolidation in which the Company is acquired by another
person or entity.
Vacation/Benefits. You shall receive two weeks paid vacation per year
in your first year of employment and three weeks paid vacation per year for
every year thereafter, and you shall be entitled to such other holidays,
medical, health, pension, profit-sharing, disability, accident and life
insurance and other benefits as are generally available to senior executives of
the Company.
Relocation. You shall be reimbursed for out-of-pocket expenses incurred
in connection with your relocation from Dallas, Texas to Ft. Lauderdale, Florida
(including any early termination penalties, fees or costs associated with your
existing lease agreement for accommodations in Dallas) up to but not exceeding
$5,000.
Confidentiality. During and after your employment with the Company, you
will not (a) reveal to any other party confidential, trade secret or proprietary
information and material of the Company, whether or not developed by you
("Confidential Information"), except to another employee of the Company having a
bona fide need to know in the course of performing his or her duties to the
Company nor (b) make, use or allow to be used any Confidential Information or
notes, memoranda, reports, lists and similar materials relating to or embodying
such Confidential Information except as required in the performance of your
duties for the Company. Furthermore, you agree not to disclose any non-public
information you may learn about the Company to any person for any purpose (other
than authorized disclosures within the scope of your employment) and not to use
such information for your personal gain. Upon termination of your employment,
you promise to deliver any and all materials containing Confidential Information
and any such non-public information to the Company. You acknowledge and agree
that you are aware and will comply with the restrictions imposed by the U.S.
federal securities laws that prohibit any person who has received material,
non-public information from a company from purchasing or selling securities of
such company or from communicating such information to any other person.
Non-Compete. You shall not enter into any employment, consulting
arrangement, agency or association with, or engage in as proprietor, partner,
stockholder or other like capacity of, any business or activity that engages in
a business similar to or competitive with any business undertaken by the
Company (except as a stockholder in a publicly held corporation in which you do
not own more than 5% of any class of stock) both during your employment and for
the two-year period thereafter, in the latter case, however, your
non-competition obligations hereunder will be limited to the states in which the
Company does business at the time of the termination of your employment with the
Company.
2
<PAGE>
Termination. In the event that the Company terminates your employment
other than "for cause" during the first year and one day following your hiring
date, you shall continue to receive payments of your base salary as set forth
above for said period and shall be entitled to vesting of the stock options on
the first anniversary date of your hiring as set forth above. As used herein,
"for cause" shall mean (i) a breach of your obligations set forth in this letter
agreement, (ii) failing to substantially conform to a material policy of the
Company, (iii) committing a fraud or act of dishonesty which would discredit or
have an adverse effect or impact on the Company, and (iv) any act of willful
misconduct, malfeasance, misfeasance or nonfeasance while in the Company's
employ.
We trust that you will enjoy your work here and that we will be proud
to have you as a member of our team. The employment relationship between
employees and the Company is at the will of the Company and the employee, and
may be terminated by either the Company or the employee at any time, for any
reason. Any promise or agreement contrary to or in modification of this at-will
relationship must be made in writing and signed by the Chief Executive Officer
of the Company, subsequent to the approval of the Company's Board of Directors.
Please signify your acceptance of the terms of this letter by signing
the enclosed copy of this letter in the space provided below and returning the
copy to me.
Very truly yours,
USA FINANCE, INC.
By:/s/ Stephen E. Michaelson
------------------------------
Stephen E. Michaelson
Title: Chief Executive Officer
By:/s/ Mark Margolis
------------------------------
Mark Margolis
Title: President
By:/s/ Stephen P. Margolis
------------------------------
Stephen P. Margolis
Title: Chief Operating Officer
Accepted:
Date: 10/1/96
/s/ Robert Cohen
----------------------
Robert Cohen
3
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF REGISTRATION, OR THE AVAILABILITY OF EXEMPTION FROM REGISTRATION,
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, BASED ON AN OPINION LETTER OF
COUNSEL SATISFACTORY TO THE COMPANY OR A NO-ACTION LETTER FROM THE SECURITIES
AND EXCHANGE COMMISSION."
OPTION TO PURCHASE COMMON STOCK
OF
USA FINANCE, INC.
Void after May 1, 2001
This certifies that, for value received, Stephen E. Michaelson ("Holder"),
is entitled, subject to the terms set forth below, to purchase from USA Finance,
Inc. (the "Company"), a Delaware corporation, shares of the Common Stock of the
Company (the "Shares"), as constituted on May 1, 1996, the effective date hereof
(the "Option Issue Date"), with the Notice of Exercise attached hereto duly
executed, and simultaneous payment therefor in lawful money of the United
States, at the Exercise Price as set forth in Section 2 below. The number,
character and Exercise Price of the shares are subject to adjustment as provided
below. The options granted hereunder are intended to be treated as non-qualified
stock options and will not be treated as incentive stock options under Section
422 of the Internal Revenue Code of 1986, as amended.
1. Term of Option. Subject to compliance with the vesting provisions
identified at Paragraph 2.3 hereafter, this Option shall be exercisable, in
whole or in part, during the term commencing on the Option Issue Date and ending
at 5:00 p.m. on May 1, 2001, and shall be void thereafter.
2. Exercise Price, Number of Shares and Vesting Provisions.
2.1 Exercise Price. The Exercise Price at which this Option may be
exercised shall be in accordance with Section 2.3 below, as adjusted pursuant to
Section 11 hereof.
2.2 Number of Shares. Subject to compliance with the vesting
provisions identified at Paragraph 2.3 hereafter, the number of shares of the
Company's Common Stock, $.001 par value per share ("Common Stock") which may be
purchased pursuant to this Option shall be 410,000 shares, as adjusted pursuant
to Section 11 hereof.
2.3 Vesting. The Options granted hereunder shall vest in accordance
with the following schedule:
(i) 110,000 Options shall vest immediately upon the Option
Issue Date and have an Exercise Price of $4.00 per share of Common Stock;
<PAGE>
(ii) 100,000 Options shall vest on the first anniversary of
the Option Issue Date and have an exercise price of $5.00 per share of Common
Stock, provided Optionee remains continuously employed by the Company from the
Option Issue Date through the first anniversary of the Option Issue Date;
(iii) 100,000 Options shall vest on the second anniversary of
the Option Issue Date and have an exercise price of $6.00 per share of Common
Stock, provided Optionee remains continuously employed by the Company from the
Option Issue Date through the second anniversary of the Option Issue Date; and
(iv) 100,000 Options shall vest on the third anniversary of
the Option Issue Date and have an exercise price of $7.00 per share of Common
Stock, provided Optionee remains continuously employed by the Company from the
Option Issue Date through the third anniversary of the Option Issue Date.
2.4 Immediate Vesting. Notwithstanding the provisions of Paragraph
2.3 hereof, all of the Options shall immediately vest and become immediately
exercisable by Holder under any of the following circumstances:
(i) If a "change in control" of the Company occurs; or
(ii) If during the term hereof, Holder is terminated from the
employ of the Company for any reason whatsoever other than for "cause" as such
term is defined in the then effective Employment Agreement between the Company
and Holder ("Employment Agreement"). If a dispute arises between the Holder and
the Company as to the occurrence, or non-occurrence, as the case may be, of an
event of "cause", such dispute shall be settled by arbitration in accordance
with paragraph 16 of this Agreement.
For purposes of subparagraph 2.4(i), the term "change in control" shall be
deemed to have occurred if (i) any "Person" who is not an existing stockholder
of the Company as of the date hereof (as the term "Person" is used in Section
13(d) and Section 14(d) of the Securities Exchange Act of 1934), becomes, after
the date hereof, the beneficial owner, directly or indirectly of securities of
the Company representing twenty-five (25%) percent or more of the combined
voting power of the Company's then outstanding securities in a transaction not
approved by the Company's Board of Directors; (ii) there occurs a contested
proxy solicitation of the Company's shareholders that results in the contesting
party obtaining the ability to vote securities representing twenty-five (25%)
percent or more of the combined voting power of the Company's then outstanding
securities; or (iii) there occurs a sale, exchange, transfer or other
disposition of substantially all of the assets of the Company to another entity,
except to an entity controlled directly or indirectly by the Company, or a
merger, consolidation or other reorganization of the Company in which the
Company is not the surviving entity, or a plan of liquidation or dissolution of
the Company other than pursuant to bankruptcy or insolvency laws is adopted. For
the purposes of subparagraphs (i) and (ii) above, a "change in control" shall
not be deemed to have occurred provided: (a) at least a majority of the
Company's Board of Directors continue in such capacity immediately following
such transaction; and (b) the Holder (provided he is employed by
2
<PAGE>
the Company at that time) continues to hold substantially similar positions of
employment with the Company immediately following such transaction as existed
prior to the transaction.
2.5. Death or Disability of Holder; Termination of Employment.
(a) If the Holder shall die, or become "disabled" (as such
term is defined in the Employment Agreement), while in the employ of the
Company, he or his estate, personal representatives, or beneficiary shall have
the right, immediately following his death or disability, subject to the
provisions of this Paragraph 2 hereof, to exercise that number of Options which
he would have been entitled to exercise provided Holder had remained employed by
the Company until the next anniversary of the Option Issue Date.
(b) In the event Holder's employment by the Company is
terminated for "cause", as defined in the Employment Agreement, or Holder
voluntarily terminates his employment with the Company, Holder shall have 30
days in which to exercise the Option (only to the extent that the Holder would
have been entitled to do so as of the date of his termination) and thereafter,
Holder's right in and to the Option shall lapse and terminate.
3. Exercise of Option.
(a) Subject to compliance with the vesting provisions identified at
Paragraph 2.3 herein, the purchase rights represented by this Option are
exercisable by the Holder in whole or in part, at any time, or from time to
time, by the surrender of this Option and the Notice of Exercise annexed hereto
duly completed and executed on behalf of the Holder, at the office of the
Company (or such other office or agency of the Company as it may designate by
notice in writing to the Holder at the address of the Holder appearing on the
books of the Company).
(b) This Option shall be deemed to have been exercised immediately
prior to the close of business on the date of its surrender for exercise as
provided above, and the person entitled to receive the shares of Common Stock
issuable upon such exercise shall be treated for all purposes as the holder of
record of such shares as of the close of business on such date. As promptly as
practicable on or after such date and in any event within ten (10) days
thereafter, the Company at its expense shall issue and deliver to the person or
persons entitled to receive the same a certificate or certificates for the
number of shares issuable upon such exercise. In the event that this Option is
exercised in part, the Company at its expense will execute and deliver a new
Option of like tenor exercisable for the number of shares for which this Option
may then be exercised.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this Option.
In lieu of any fractional share to which the Holder would otherwise be entitled,
the Company shall make a cash payment equal to the Exercise Price multiplied by
such fraction.
5. Replacement of Option. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Option and,
in the case of loss, theft or destruction, on delivery of an indemnity agreement
reasonably satisfactory in form and
3
<PAGE>
substance to the Company or, in the case of mutilation, on surrender and
cancellation of this Option, the Company at its expense shall execute and
deliver, in lieu of this Option, a new Option of like tenor and amount.
6. Rights of Stockholder. Except as otherwise contemplated herein, the
Holder shall not be entitled to vote or receive dividends or be deemed the
holder of Common Stock or any other securities of the Company that may at any
time be issuable on the exercise hereof for any purpose, nor shall anything
contained herein be construed to confer upon the Holder, as such, any of the
rights of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of stock, change of par
value, or change of stock to no par value, consolidation, merger, conveyance or
otherwise) or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until the Option shall have been exercised as
provided herein.
7. Transfer of Option.
7.1. Non-Transferability. Prior to vesting in accordance with
paragraph 2 herein, the Option shall not be assigned, transferred, pledged or
hypothecated in any way, nor subject to execution, attachment or similar
process, otherwise than by will or by the laws of descent and distribution. To
the extent the Options have vested, transfers thereof which comply with the
remaining provisions of this paragraph 7 may be undertaken upon the prior
written consent of the Company, which consent shall not be unreasonably
withheld. Any attempted assignment, transfer, pledge, hypothecation or other
disposition of the Option contrary to the provisions hereof, and the levy of an
execution, attachment, or similar process upon the Option, shall be null and
void and without effect.
7.2. Exchange of Option Upon a Transfer. On surrender of this Option
for exchange, properly endorsed, the Company at its expense shall issue to or on
the order of the Holder a new Option or Options of like tenor, in the name of
the Holder or as the Holder (on payment by the Holder of any applicable transfer
taxes) may direct, of the number of shares issuable upon exercise hereof.
7.3. Compliance with Securities Laws; Restrictions on Transfers.
(a) The Holder of this Option, by acceptance hereof,
acknowledges that this Option and the Shares to be issued upon exercise hereof
are being acquired solely for the Holder's own account and not as a nominee for
any other party, and for investment (unless such shares are subject to resale
pursuant to an effective prospectus), and that the Holder will not offer, sell
or otherwise dispose of this Option or any Shares to be issued upon exercise
hereof except under circumstances that will not result in a violation of
applicable federal and state securities laws. Upon exercise of this Option, the
Holder shall, if requested by the Company, confirm in writing, in a form
satisfactory to the Company, that the shares of Common Stock so purchased are
being acquired solely for the Holder's own account and not as a nominee for any
other party, for investment (unless such shares are subject to resale pursuant
to an effective prospectus), and not with a view toward distribution or resale.
4
<PAGE>
(b) Neither this Option nor any share of Common Stock issued
upon exercise of this Option may be offered for sale or sold, or otherwise
transferred or sold in any transaction which would constitute a sale thereof
within the meaning of the Securities Act of 1933, as amended (the "1933 Act"),
unless (i) such security has been registered for sale under the 1933 Act and
registered or qualified under applicable state securities laws relating to the
offer an sale of securities, or (ii) exemptions from the registration
requirements of the 1933 Act and the registration or qualification requirements
of all such state securities laws are available and the Company shall have
received an opinion of counsel satisfactory to the Company that the proposed
sale or other disposition of such securities may be effected without
registration under the 1933 Act and would not result in any violation of any
applicable state securities laws relating to the registration or qualification
of securities for sale, such counsel and such opinion to be satisfactory to the
Company.
(c) All Shares issued upon exercise hereof shall be stamped or
imprinted with a legend in substantially the following form (in addition to any
legend required by state securities laws).
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE
SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF REGISTRATION, OR THE AVAILABILITY OF EXEMPTION
FROM REGISTRATION, UNDER THE SECURITIES ACT OF 1933, AS AMENDED, BASED ON AN
OPINION LETTER OF COUNSEL SATISFACTORY TO THE COMPANY OR A NO-ACTION LETTER FROM
THE SECURITIES AND EXCHANGE COMMISSION."
(d) Holder recognizes that investing in the Option and the
Common Stock involves a high degree of risk, and Holder is in a financial
position to hold the Option and the Common Stock indefinitely and is able to
bear the economic risk and withstand a complete loss of its investment in the
Option and the Common Stock. The Holder is a sophisticated investor and is
capable of evaluating the merits and risks of investing in the Company. The
Holder has had an opportunity to discuss the Company's business, management and
financial affairs with the Company's management, has been given full and
complete access to information concerning the Company, and has utilized such
access to its satisfaction for the purpose of obtaining information or verifying
information and has had the opportunity to inspect the Company's operation.
Holder has had the opportunity to ask questions of, and receive answers from the
management of the Company (and any person acting on its behalf) concerning the
Option and the Common Stock and the agreements and transactions contemplated
hereby, and to obtain any additional information as Holder may have requested in
making its investment decision.
(e) Holder acknowledges and represents that (i) as a director
and officer of the Company, he has reviewed such reports, documents and
memoranda relative to the operations, finances and business affairs of the
Company (all of such reports, documents and memoranda being referred to as the
"Reports"), and that he has such knowledge and experience in financial and
business matters that he is capable of utilizing the information set forth
within the Reports concerning the Company to evaluate the risk of investing in
the Company; (ii) that he has been advised that the Common Stock to be issued to
him upon exercise of the Option by the Company will not be registered under the
Act, except as otherwise provided in this Agreement,
5
<PAGE>
and accordingly, he may only be able to sell or otherwise dispose of such Common
Stock in accordance with Rule 144 or except as otherwise provided in this
Agreement; and (iii) that the Common Stock will be held for investment and not
with a view to, or for resale in connection with the public offering or
distribution thereof.
7.4 Restrictions Upon Transfer.
Notwithstanding anything to the contrary contained in this Paragraph
7, Holder may not, without the prior written consent of the Company, exercise
and thereafter sell, transfer or otherwise dispose of the Option Shares until
the "Registration Date" (as such term is defined at Paragraph 12.1 hereafter.)
8. Reservation and Issuance of Stock.
(a) The Company covenants that during the term that this Option is
exercisable, the Company will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of the shares
upon the exercise of this Option, and from time to time will take all steps
necessary to amend its Certificate of Incorporation to provide sufficient
reserves of shares of Common Stock issuable upon the exercise of the Option.
(b) The Company further covenants that all shares of Common Stock
issuable upon the due exercise of this Option will be free and clear from all
taxes or liens, charges and security interests created by the Company with
respect to the issuance thereof, however, the Company shall not be obligated or
liable for the payment of any taxes, liens or charges of Holder, or any other
party contemplated by paragraph 7, incurred in connection with the issuance of
this Option or the Common Stock upon the due exercise of this Option. The
Company agrees that its issuance of this Option shall constitute full authority
to its officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for the shares of Common Stock upon
the exercise of this Option. The Common Stock issuable upon the due exercise of
this Option, will, upon issuance in accordance with the terms hereof, be duly
authorized, validly issued, fully paid and non-assessable.
9. Notices.
(a) Whenever the Exercise Price or number of shares purchasable
hereunder shall be adjusted pursuant to Section 11 hereof, the Company shall
issue a certificate signed by its Chief Financial Officer setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated, and the Exercise
Price and number of shares purchasable hereunder after giving effect to such
adjustment, and shall cause a copy of such certificate to be mailed (by
first-class mail, postage prepaid) to the Holder of this Option.
(b) All notices, advices and communications under this Option shall
be deemed to have been given, (i) in the case of personal delivery, on the date
of such delivery and (ii) in the case of mailing, on the third business day
following the date of such mailing, addressed as follows:
6
<PAGE>
If to the Company:
USA Finance, Inc.
1111 Park Centre Road
Miami Beach, FL 33169
Attn: Mark Margolis
With a Copy to:
Stephen M. Cohen, Esquire
Buchanan Ingersoll, Professional Corporation
Two Logan Square, 12th Floor
18th & Arch Streets
Philadelphia, PA 19103-2771
and to the Holder:
at the address of the Holder appearing on the books of the
Company or the Company's transfer agent, if any.
Either of the Company or the Holder may from time to time change the
address to which notices to it are to be mailed hereunder by notice in
accordance with the provisions of this Paragraph 9.
10. Amendments.
(a) Any term of this Option may be amended with the written consent
of the Company and the Holder. Any amendment effected in accordance with this
Section 10 shall be binding upon the Holder, each future holder and the Company.
(b) No waivers of, or exceptions to, any term, condition or
provision of this Option, in any one or more instances, shall be deemed to be,
or construed as, a further or continuing waiver of any such term, condition or
provision.
11. Adjustments. The number of Shares of Common Stock purchasable
hereunder and the Exercise Price is subject to adjustment from time to time upon
the occurrence of certain events, as follows:
11.1. Reorganization, Merger or Sale of Assets. If at any time while
this Option, or any portion thereof, is outstanding and unexpired there shall be
(i) a reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (ii) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a reverse triangular merger in which the
Company is the surviving entity but the shares of the Company's capital stock
outstanding
7
<PAGE>
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise, or (iii) a sale
or transfer of substantially all of the Company's properties and assets as, or
substantially as, an entirety to any other person, then, as a part of such
reorganization, merger, consolidation, sale or transfer, lawful provision shall
be made so that the holder of this Option shall thereafter be entitled to
receive upon payment of the Exercise Price then in effect, the number of shares
of stock or other securities or property of the successor corporation resulting
from such reorganization, merger, consolidation, sale or transfer that a holder
of the shares deliverable upon exercise of this Option would have been entitled
to receive in such reorganization, consolidation, merger, sale or transfer if
this Option had been exercised immediately before such reorganization, merger,
consolidation, sale or transfer, all subject to further adjustment as provided
in this Section 11. The foregoing provisions of this Section 11.1 shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation that are
at the time receivable upon the exercise of this Option. If the per-share
consideration payable to the Holder hereof for shares in connection with any
such transaction is in a form other than cash or marketable securities, then the
value of such consideration shall be determined in good faith by the Company's
Board of Directors. In all events, appropriate adjustment (as determined in good
faith by the Company's Board of Directors) shall be made in the application of
the provisions of this Option with respect to the rights and interests of the
Holder after the transaction, to the end that the provisions of this Option
shall be applicable after that event, as near as reasonably may be, in relation
to any shares or other property deliverable after that event upon exercise of
this Option.
11.2. Reclassification. If the Company, at any time while this
Option, or any portion thereof, remains outstanding and unexpired, by
reclassification of securities or otherwise, shall change any of the securities
as to which purchase rights under this Option exist into the same or a different
number of securities of any other class or classes, this Option shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable as the result of such change with respect to the securities that
were subject to the purchase rights under this Option immediately prior to such
reclassification or other change and the Exercise Price therefor shall be
appropriately adjusted, all subject to further adjustment as provided in this
Section 11.
11.3. Split, Subdivision or Combination of Shares. If the Company at
any time while this Option, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the securities as to which purchase
rights under this Option exist, into a different number of securities of the
same class, the Exercise Price and the number of shares issuable upon exercise
of this Option shall be proportionately adjusted.
11.4. Adjustments for Dividends in Stock or Other Securities or
Property. If while this Option, or any portion hereof, remains outstanding and
unexpired the holders of the securities as to which purchase rights under this
Option exist at the time shall have received, or, on or after the record date
fixed for the determination of eligible Stockholders, shall have become entitled
to receive, without payment therefor, other or additional stock or other
securities or property (other than cash) of the Company by way of dividend, then
and in each case, this Option shall represent the right to acquire, in addition
to the number of shares of the security receivable upon exercise of this Option,
and without payment of any additional consideration therefor, the
8
<PAGE>
amount of such other or additional stock or other securities or property (other
than cash) of the Company that such holder would hold on the date of such
exercise had it been the holder of record of the security receivable upon
exercise of this Option on the date hereof and had thereafter, during the period
from the date hereof to and including the date of such exercise, retained such
shares and/or all other additional stock, other securities or property available
by this Option as aforesaid during such period.
11.5 The Company will not, by any voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Company, but will at all times in good faith assist
in the carrying out of all the provisions of this Section 11 and in the taking
of all such action as may be necessary or appropriate in order to protect the
rights of the Holders of this Option against impairment.
12. Registration Rights.
12.1 The Company has agreed to, by no later than the "Registration
Date" (as hereafter defined), file a Registration Statement on Form SB-2, or
equivalent form (the "Registration Statement") with the Securities and Exchange
Commission for the purpose of, among other things, registering for resale
purposes the shares issuable upon exercise of the Options (the "Option Shares").
The Company's obligation in this regard, however, shall extend only to the
inclusion of the Option Shares in a Registration Statement filed under the 1933
Act with the Securities and Exchange Commission ("SEC"). The Company shall have
no obligation to assure the terms and conditions of distribution, to obtain a
commitment from an underwriter relative to the sale of the Option Shares or to
otherwise assume any responsibility for the manner, price or terms of the
distribution or resale of the Option Shares. The Company will use its best
efforts to file the Registration Statement and have it declared effective as
soon after the Registration Date as is practicable, and to keep such
Registration Statement continuously effective for the term of the Options plus
six (6) months. For the purposes hereof, the "Registration Date" shall be that
date which occurs no later than two years following the date upon which the
shares of the Company's Common Stock are listed for trading upon The NASDAQ
Stock Market.
12.2 All expenses incurred by the Company in connection with
preparing and filing the Registration Statement shall be borne by the Company.
Fees and expenses associated with the sale of the Option Shares shall be borne
by Holder.
12.3 In connection with the Registration Statement filed hereunder,
Holder will furnish to the Company in writing such information with respect to
the securities held by such Holder, and the proposed distribution by him as
shall be reasonably requested by the Company in order to assure compliance with
federal and applicable state securities laws, as a condition precedent to
including such Holder's Option Shares in the Registration Statement. Holder also
shall agree to promptly notify the Company of any changes in such information
included in the Registration Statement or prospectus as a result of which there
is an untrue statement of material fact or an omission to state any material
fact required or necessary to be stated therein in order to make the statements
contained therein not misleading in light of the circumstances then existing.
Holder agrees to indemnify Company for any and all losses, fines, penalties,
legal fees and costs it
9
<PAGE>
becomes liable for in the event Holder provides the Company with false or
misleading information.
12.4 In connection with each registration pursuant to this
Agreement, Holder agrees not to effect sales thereof until notified by the
Company of the effectiveness of the Registration Statement, and thereafter will
suspend such sales after receipt of telegraphic or written notice from the
Company to suspend sales to permit the Company to correct or update a
prospectus. At the end of any period during which the Company is obligated to
keep a Registration Statement current, Holder shall discontinue sales of Option
Shares pursuant to such Registration Statement upon receipt of notice from the
Company of its intention to remove from registration the Option Shares, covered
by such Registration Statement which remain unsold, and Holder shall notify the
Company of the number of Option Shares registered which remain unsold
immediately upon receipt of such notice from the Company.
13. Severability. Whenever possible, each provision of this Option shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Option is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
the validity, legality or enforceability of any other provision of this Option
in such jurisdiction or affect the validity, legality or enforceability of any
provision in any other jurisdiction, but this Option shall be reformed,
construed and enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision had never been contained herein.
14. Governing Law. The corporate law of the State of Delaware shall govern
all issues and questions concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
interpretation and enforceability of this Option and the exhibits and schedules
hereto shall be governed by, and construed in accordance with, the laws of the
State of Delaware, without giving effect to any choice of law or conflict of law
rules or provisions (whether of the State of Delaware or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than the
State of Delaware.
15. Jurisdiction. The Holder and the Company agree to submit to personal
jurisdiction and to waive any objection as to venue in the federal or state
courts in the County in which the headquarters of the Company is located, which
as of the date hereof is Dade County, Florida. Service of process on the Company
or the Holder in any action arising out of or relating to this Option shall be
effective if mailed to such party at the address listed in Section 9 hereof.
16. Arbitration. If a dispute arises as to interpretation of this Option,
it shall be decided finally by three arbitrators in an arbitration proceeding
conforming to the Rules of the American Arbitration Association applicable to
commercial arbitration. The arbitrators shall be appointed as follows: one by
the Company, one by the Holder and the third by the said two arbitrators, or, if
they cannot agree, then the third arbitrator shall be appointed by the American
Arbitration Association. The third arbitrator shall be chairman of the panel and
shall be impartial. The arbitration shall take place in the County in which the
headquarters of the Company is located, which as of the date hereof is Dade
County, Florida. The decision of a majority of the Arbitrators shall be
conclusively binding upon the parties and final, and such decision shall be
10
<PAGE>
enforceable as a judgment in any court of competent jurisdiction. Each party
shall pay the fees and expenses of the arbitrator appointed by it, its counsel
and its witnesses. The parties shall share equally the fees and expenses of the
impartial arbitrator.
17. Corporate Power; Authorization; Enforceable Obligations. The
execution, delivery and performance by the Company of this Agreement: (i) are
within the Company's corporate power; (ii) have been duly authorized by all
necessary or proper corporate action; (iii) are not in contravention of the
Company's certificate of incorporation or by-laws; (iv) will not violate in any
material respect, any law or regulation, including any and all Federal and state
securities laws, or any order or decree of any court or governmental
instrumentality; and (v) will not, in any material respect, conflict with or
result in the breach or termination of, or constitute a default under any
agreement or other material instrument to which the Company is a party or by
which the Company is bound.
18. Successors and Assigns. This Option shall inure to the benefit of and
be binding on the respective successors, assigns and legal representatives of
the Holder and the Company.
IN WITNESS WHEREOF, the Company has caused this Option to be executed by
its officers thereunto duly authorized.
Effective Date: May 1, 1996
HOLDER USA FINANCE, INC.
/s/ Stephen E. Michaelson BY: /s/ Mark Margolis
- ------------------------- -------------------------------
Stephen E. Michaelson Executive Officer
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NOTICE OF EXERCISE
TO: [_____________________________]
(1) The undersigned hereby elects to purchase _______ shares of Common
Stock of [___________________________] pursuant to the terms of the attached
Option, and tenders herewith payment of the purchase price for such shares in
full.
(2) In exercising this Option, the undersigned hereby confirms and
acknowledges that the shares of Common Stock to be issued upon conversion
thereof are being acquired solely for the account of the undersigned and not as
a nominee for any other party, and for investment (unless such shares are
subject to resale pursuant to an effective prospectus), and that the undersigned
will not offer, sell or otherwise dispose of any such shares of Common Stock
except under circumstances that will not result in a violation of the Securities
Act of 1933, as amended, or any state securities laws.
(3) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
___________________________________
(Name)
___________________________________
(Name)
___________________________ ___________________________________
(Date) (Signature)
12
Waserstein Option
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF REGISTRATION, OR THE AVAILABILITY OF EXEMPTION FROM REGISTRATION,
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, BASED ON AN OPINION LETTER OF
COUNSEL SATISFACTORY TO THE COMPANY OR A NO-ACTION LETTER FROM THE SECURITIES
AND EXCHANGE COMMISSION."
OPTION TO PURCHASE COMMON STOCK
OF
USA FINANCE, INC.
(formerly known as LMI Acquisition Corp.)
Void after June 30, 1999
This certifies that, for value received, JEANETTE WASERSTEIN
("Holder"), is entitled, subject to the terms set forth below, to purchase from
USA FINANCE, INC., (formerly known as "LMI Acquisition Corp.") (the "Company"),
a Delaware corporation, shares of the Common Stock of the Company (the
"Shares"), as constituted on the date hereof (the "Option Issue Date"), with the
Notice of Exercise attached hereto duly executed, and simultaneous payment
therefor in lawful money of the United States, at the Exercise Price as set
forth in Section 2 below. The number, character and Exercise Price of the shares
are subject to adjustment as provided below.
1. Term of Option. Subject to compliance with the vesting provisions
identified at Paragraph 2.3 hereafter, this Option shall be exercisable, in
whole or in part, during the term commencing on the Option Issue Date and ending
at 5:00 p.m. on June 30, 1999, and shall be void thereafter.
2. Exercise Price, Number of Shares and Vesting Provisions.
2.1 Exercise Price. The Exercise Price at which this Option may be
exercised shall be $3.00 per share of common stock, as adjusted pursuant to
Section 11 hereof.
2.2 Number of Shares. The number of shares of the Company's Common
Stock, $.001 par value per share ("Common Stock") which may be purchased
pursuant to this Option shall be 100,000 shares, as adjusted pursuant to Section
11 hereof.
2.3 Vesting. The Options granted hereunder have vested pursuant to
the Employment Agreement Waserstein had with LMI Acquisition Corp.
3. Exercise of Option.
(a) The Exercise Price shall either be payable in cash or by bank or
certified check.
(b) Commencing sixteen (16) months from the date hereof, the
purchase rights represented by this Option are exercisable by the Holder in
whole or in part, at any time, or from
<PAGE>
time to time, by the surrender of this Option and the Notice of Exercise annexed
hereto duly completed and executed on behalf of the Holder, at the office of the
Company (or such other office or agency of the Company as it may designate by
notice in writing to the Holder at the address of the Holder appearing on the
books of the Company).
(c) This Option shall be deemed to have been exercised immediately
prior to the close of business on the date of its surrender for exercise as
provided above, and the person entitled to receive the shares of Common Stock
issuable upon such exercise shall be treated for all purposes as the holder of
record of such shares as of the close of business on such date. As promptly as
practicable on or after such date and in any event within ten (10) days
thereafter, the Company at its expense shall issue and deliver to the person or
persons entitled to receive the same a certificate or certificates for the
number of shares issuable upon such exercise. In the event that this Option is
exercised in part, the Company at its expense will execute and deliver a new
Option of like tenor exercisable for the number of shares for which this Option
may then be exercised.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this Option.
In lieu of any fractional share to which the Holder would otherwise be entitled,
the Company shall make a cash payment equal to the Exercise Price multiplied by
such fraction.
5. Replacement of Option. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Option and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and substance to the Company
or, in the case of mutilation, on surrender and cancellation of this Option, the
Company at its expense shall execute and deliver, in lieu of this Option, a new
Option of like tenor and amount.
6. Rights of Stockholder. Except as otherwise contemplated herein, the
Holder shall not be entitled to vote or receive dividends or be deemed the
holder of Common Stock or any other securities of the Company that may at any
time be issuable on the exercise hereof for any purpose, nor shall anything
contained herein be construed to confer upon the Holder, as such, any of the
rights of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of stock, change of par
value, or change of stock to no par value, consolidation, merger, conveyance or
otherwise) or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until the Option shall have been exercised as
provided herein.
2
<PAGE>
7. Transfer of Option.
7.1. Non-Transferability. Prior to vesting in accordance with
paragraph 2 herein, the Option shall not be assigned, transferred, pledged or
hypothecated in any way, nor subject to execution, attachment or similar
process, otherwise than by will or by the laws of descent and distribution. To
the extent the Options have vested, transfers thereof which comply with the
remaining provisions of this paragraph 7 may be undertaken upon the prior
written consent of the Company, which consent shall not be unreasonably
withheld. Any attempted assignment, transfer, pledge, hypothecation or other
disposition of the Option contrary to the provisions hereof, and the levy of an
execution, attachment, or similar process upon the Option, shall be null and
void and without effect.
7.2. Exchange of Option Upon a Transfer. On surrender of this Option
for exchange, properly endorsed, the Company at its expense shall issue to or on
the order of the Holder a new Option or Options of like tenor, in the name of
the Holder or as the Holder (on payment by the Holder of any applicable transfer
taxes) may direct, of the number of shares issuable upon exercise hereof.
7.3. Compliance with Securities Laws; Restrictions on Transfers.
(a) The Holder of this Option, by acceptance hereof,
acknowledges that this Option and the Shares to be issued upon exercise hereof
are being acquired solely for the Holder's own account and not as a nominee for
any other party, and for investment (unless such shares are subject to resale
pursuant to an effective prospectus), and that the Holder will not offer, sell
or otherwise dispose of this Option or any Shares to be issued upon exercise
hereof except under circumstances that will not result in a violation of
applicable federal and state securities laws. Upon exercise of this Option, the
Holder shall, if requested by the Company, confirm in writing, in a form
satisfactory to the Company, that the shares of Common Stock so purchased are
being acquired solely for the Holder's own account and not as a nominee for any
other party, for investment (unless such shares are subject to resale pursuant
to an effective prospectus), and not with a view toward distribution or resale.
(b) Neither this Option nor any share of Common Stock issued
upon exercise of this Option may be offered for sale or sold, or otherwise
transferred or sold in any transaction which would constitute a sale thereof
within the meaning of the Securities Act of 1933, as amended (the "1933 Act"),
unless (i) such security has been registered for sale under the 1933 Act and
registered or qualified under applicable state securities laws relating to the
offer an sale of securities, or (ii) exemptions from the registration
requirements of the 1933 Act and the registration or qualification requirements
of all such state securities laws are available and the Company shall have
received an opinion of counsel satisfactory to the Company that the proposed
sale or other disposition of such securities may be effected without
registration under the 1933 Act and would not result in any violation of any
applicable state securities laws relating to the registration or qualification
of securities for sale, such counsel and such opinion to be satisfactory to the
Company.
3
<PAGE>
(c) All Shares issued upon exercise hereof shall be stamped or
imprinted with a legend in substantially the following form (in addition to any
legend required by state securities laws).
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE
SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF REGISTRATION, OR THE AVAILABILITY OF EXEMPTION
FROM REGISTRATION, UNDER THE SECURITIES ACT OF 1933, AS AMENDED, BASED ON AN
OPINION LETTER OF COUNSEL SATISFACTORY TO THE COMPANY OR A NO-ACTION LETTER FROM
THE SECURITIES AND EXCHANGE COMMISSION."
Holder recognizes that investing in the Option and the Common Stock
involves a high degree of risk, and Holder is in a financial position to hold
the Option and the Common Stock indefinitely and is able to bear the economic
risk and withstand a complete loss of its investment in the Option and the
Common Stock. The Holder is a sophisticated investor and is capable of
evaluating the merits and risks of investing in the Company. The Holder has had
an opportunity to discuss the Company's business, management and financial
affairs with the Company's management, has been given full and complete access
to information concerning the Company, and has utilized such access to its
satisfaction for the purpose of obtaining information or verifying information
and have had the opportunity to inspect the Company's operation. Holder has had
the opportunity to ask questions of, and receive answers from the management of
the Company (and any person acting on its behalf) concerning the Option and the
Common Stock and the agreements and transactions contemplated hereby, and to
obtain any additional information as Holder may have requested in making its
investment decision. The Holder is an "accredited investor", as defined by
Regulation D promulgated under the Act.
8. Reservation and Issuance of Stock.
(a) The Company covenants that during the term that this Option is
exercisable, the Company will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of the shares
upon the exercise of this Option, and from time to time will take all steps
necessary to amend its Certificate of Incorporation to provide sufficient
reserves of shares of Common Stock issuable upon the exercise of the Option.
(b) The Company further covenants that all shares of Common Stock
issuable upon the due exercise of this Option will be free and clear from all
taxes or liens, charges and security interests created by the Company with
respect to the issuance thereof, however, the Company shall not be obligated or
liable for the payment of any taxes, liens or charges of Holder, or any other
party contemplated by paragraph 7, incurred in connection with the issuance of
this Option or the Common Stock upon the due exercise of this Option. The
Company agrees that its issuance of this Option shall constitute full authority
to its officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for the shares of Common Stock upon
the exercise of this Option. The Common Stock issuable upon the due exercise of
this Option, will, upon issuance in accordance with the terms hereof, be duly
authorized, validly issued, fully paid and non-assessable.
4
<PAGE>
9. Notices.
(a) Whenever the Exercise Price or number of shares purchasable
hereunder shall be adjusted pursuant to Section 11 hereof, the Company shall
issue a certificate signed by its Chief Financial Officer setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated, and the Exercise
Price and number of shares purchasable hereunder after giving effect to such
adjustment, and shall cause a copy of such certificate to be mailed (by
first-class mail, postage prepaid) to the Holder of this Option.
(b) All notices, advices and communications under this Option shall
be deemed to have been given, (i) in the case of personal delivery, on the date
of such delivery and (ii) in the case of mailing, on the third business day
following the date of such mailing, addressed as follows:
If to the Company:
USA Finance, Inc.
1111 Park Centre Blvd., Suite 300
Miami, FL 33169
Attention: Mr. Stephen Michaelson, Chief Executive Officer
With a Copy to:
Stephen M. Cohen, Esquire
Buchanan Ingersoll, Professional Corporation
Two Logan Square, 12th Floor
18th & Arch Streets
Philadelphia, PA 19103-2771
and to the Holder:
at the address of the Holder appearing on the books of the
Company or the Company's transfer agent, if any.
Either of the Company or the Holder may from time to time change the
address to which notices to it are to be mailed hereunder by notice in
accordance with the provisions of this Paragraph 9.
10. Amendments.
(a) Any term of this Option may be amended with the written consent
of the Company and the Holder. Any amendment effected in accordance with this
Section 10 shall be binding upon the Holder, each future holder and the Company.
5
<PAGE>
(b) No waivers of, or exceptions to, any term, condition or
provision of this Option, in any one or more instances, shall be deemed to be,
or construed as, a further or continuing waiver of any such term, condition or
provision.
11. Adjustments. The number of Shares of Common Stock purchasable
hereunder and the Exercise Price is subject to adjustment from time to time upon
the occurrence of certain events, as follows:
11.1. Reorganization, Merger or Sale of Assets. If at any time
while this Option, or any portion thereof, is outstanding and unexpired there
shall be (i) a reorganization (other than a combination, reclassification,
exchange or subdivision of shares otherwise provided for herein), (ii) a merger
or consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a reverse triangular merger in which the
Company is the surviving entity but the shares of the Company's capital stock
outstanding immediately prior to the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise, or (iii) a sale or transfer of substantially all of the Company's
properties and assets as, or substantially as, an entirety to any other person,
then, as a part of such reorganization, merger, consolidation, sale or transfer,
lawful provision shall be made so that the holder of this Option shall
thereafter be entitled to receive upon payment of the Exercise Price then in
effect, the number of shares of stock or other securities or property of the
successor corporation resulting from such reorganization, merger, consolidation,
sale or transfer that a holder of the shares deliverable upon exercise of this
Option would have been entitled to receive in such reorganization,
consolidation, merger, sale or transfer if this Option had been exercised
immediately before such reorganization, merger, consolidation, sale or transfer,
all subject to further adjustment as provided in this Section 11. The foregoing
provisions of this Section 11.1 shall similarly apply to successive
reorganizations, consolidations, mergers, sales and transfers and to the stock
or securities of any other corporation that are at the time receivable upon the
exercise of this Option. If the per-share consideration payable to the Holder
hereof for shares in connection with any such transaction is in a form other
than cash or marketable securities, then the value of such consideration shall
be determined in good faith by the Company's Board of Directors. In all events,
appropriate adjustment (as determined in good faith by the Company's Board of
Directors) shall be made in the application of the provisions of this Option
with respect to the rights and interests of the Holder after the transaction, to
the end that the provisions of this Option shall be applicable after that event,
as near as reasonably may be, in relation to any shares or other property
deliverable after that event upon exercise of this Option.
11.2. Reclassification. If the Company, at any time while this
Option, or any portion thereof, remains outstanding and unexpired, by
reclassification of securities or otherwise, shall change any of the securities
as to which purchase rights under this Option exist into the same or a different
number of securities of any other class or classes, this Option shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable as the result of such change with respect to the securities that
were subject to the purchase rights under this Option immediately prior to such
reclassification or other change and the Exercise
6
<PAGE>
Price therefor shall be appropriately adjusted, all subject to further
adjustment as provided in this Section 11.
11.3. Split, Subdivision or Combination of Shares. If the Company
at any time while this Option, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the securities as to which purchase
rights under this Option exist, into a different number of securities of the
same class, the Exercise Price and the number of shares issuable upon exercise
of this Option shall be proportionately adjusted.
11.4. Adjustments for Dividends in Stock or Other Securities or
Property. If while this Option, or any portion hereof, remains outstanding and
unexpired the holders of the securities as to which purchase rights under this
Option exist at the time shall have received, or, on or after the record date
fixed for the determination of eligible Stockholders, shall have become entitled
to receive, without payment therefor, other or additional stock or other
securities or property (other than cash) of the Company by way of dividend, then
and in each case, this Option shall represent the right to acquire, in addition
to the number of shares of the security receivable upon exercise of this Option,
and without payment of any additional consideration therefor, the amount of such
other or additional stock or other securities or property (other than cash) of
the Company that such holder would hold on the date of such exercise had it been
the holder of record of the security receivable upon exercise of this Option on
the date hereof and had thereafter, during the period from the date hereof to
and including the date of such exercise, retained such shares and/or all other
additional stock, other securities or property available by this Option as
aforesaid during such period.
11.5 The Company will not, by any voluntary action, avoid or seek
to avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Company, but will at all times in good faith assist
in the carrying out of all the provisions of this Section 11 and in the taking
of all such action as may be necessary or appropriate in order to protect the
rights of the Holders of this Option against impairment.
12. Registration Rights. The Holder shall be entitled to the
registration rights set forth in the Separation Agreement of even date herewith
by and between the Company and such Holder.
13. Severability. Whenever possible, each provision of this Option
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Option is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
the validity, legality or enforceability of any other provision of this Option
in such jurisdiction or affect the validity, legality or enforceability of any
provision in any other jurisdiction, but this Option shall be reformed,
construed and enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision had never been contained herein.
14. Governing Law. The corporate law of the State of Delaware shall
govern all issues and questions concerning the relative rights of the Company
and its stockholders. All other
7
<PAGE>
questions concerning the construction, validity, interpretation and
enforceability of this Option and the exhibits and schedules hereto shall be
governed by, and construed in accordance with, the laws of the State of
Delaware, without giving effect to any choice of law or conflict of law rules or
provisions (whether of the State of Delaware or any other jurisdiction) that
would cause the application of the laws of any jurisdiction other than the State
of Delaware.
15. Jurisdiction. The Holder and the Company agree to submit to
personal jurisdiction and to waive any objection as to venue in the federal or
state courts in the City of Miami, Florida. Service of process on the Company or
the Holder in any action arising out of or relating to this Option shall be
effective if mailed to such party at the address listed in Section 9 hereof.
16. Arbitration. If a dispute arises as to interpretation of this
Option, it shall be decided finally by three arbitrators in an arbitration
proceeding conforming to the Rules of the American Arbitration Association
applicable to commercial arbitration. The arbitrators shall be appointed as
follows: one by the Company, one by the Holder and the third by the said two
arbitrators, or, if they cannot agree, then the third arbitrator shall be
appointed by the American Arbitration Association. The third arbitrator shall be
chairman of the panel and shall be impartial. The arbitration shall take place
in the City of Miami, Florida. The decision of a majority of the Arbitrators
shall be conclusively binding upon the parties and final, and such decision
shall be enforceable as a judgment in any court of competent jurisdiction. The
prevailing party shall pay the fees and expenses of the arbitrator appointed by
it, its counsel and its witnesses. The parties shall share pay the fees and
expenses of the impartial arbitrator.
17. Corporate Power; Authorization; Enforceable Obligations. The
execution, delivery and performance by the Company of this Agreement: (i) are
within the Company's corporate power; (ii) have been duly authorized by all
necessary or proper corporate action; (iii) are not in contravention of the
Company's certificate of incorporation or by-laws; (iv) will not violate in any
material respect, any law or regulation, including any and all Federal and state
securities laws, or any order or decree of any court or governmental
instrumentality; and (v) will not, in any material respect, conflict with or
result in the breach or termination of, or constitute a default under any
agreement or other material instrument to which the Company is a party or by
which the Company is bound.
18. Successors and Assigns. This Option shall inure to the benefit of
and be binding on the respective successors, assigns and legal representatives
of the Holder and the Company.
8
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Option to be executed
by its officers thereunto duly authorized.
Dated: July 16, 1996
HOLDER: JEANETTE WASERSTEIN. USA FINANCE, INC.
BY: /s/ Jeanette Waserstein BY: /s/ Stephen Michaelson
------------------------------ -------------------------------
Executive Officer Stephen Michaelson,
Chief Executive Officer
9
<PAGE>
NOTICE OF EXERCISE
TO: USA FINANCE, INC.
(1) The undersigned hereby elects to purchase _______ shares of Common
Stock of USA FINANCE, INC. pursuant to the terms of the attached Option, and
tenders herewith payment of the purchase price for such shares in full.
(2) In exercising this Option, the undersigned hereby confirms and
acknowledges that the shares of Common Stock to be issued upon exercise hereof
are being acquired solely for the account of the undersigned and not as a
nominee for any other party, and for investment (unless such shares are subject
to resale pursuant to an effective prospectus), and that the undersigned will
not offer, sell or otherwise dispose of any such shares of Common Stock except
under circumstances that will not result in a violation of the Securities Act of
1933, as amended, or any state securities laws.
(3) Please issue a certificate or certificates representing said shares
of Common Stock in the name of the undersigned or in such other name as is
specified below:
-----------------------------------
(Name)
-----------------------------------
(Name)
- ---------------------------------- -----------------------------------
(Date) (Signature)
Margolis Option
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF REGISTRATION, OR THE AVAILABILITY OF EXEMPTION FROM REGISTRATION,
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, BASED ON AN OPINION LETTER OF
COUNSEL SATISFACTORY TO THE COMPANY OR A NO-ACTION LETTER FROM THE SECURITIES
AND EXCHANGE COMMISSION."
OPTION TO PURCHASE COMMON STOCK
OF
USA FINANCE, INC.
(formerly known as LMI Acquisition Corp.)
Void after December 5, 2001
This certifies that, for value received, STEVEN MARGOLIS ("Holder"), is
entitled, subject to the terms set forth below, to purchase from USA FINANCE,
INC., (formerly known as "LMI Acquisition Corp.") (the "Company"), a Delaware
corporation, shares of the Common Stock of the Company (the "Shares"), as
constituted on the date hereof (the "Option Issue Date"), with the Notice of
Exercise attached hereto duly executed, and simultaneous payment therefor in
lawful money of the United States, at the Exercise Price as set forth in Section
2 below. The number, character and Exercise Price of the shares are subject to
adjustment as provided below.
1. Term of Option. Subject to compliance with the vesting provisions
identified at Paragraph 2.3 hereafter, this Option shall be exercisable, in
whole or in part, during the term commencing on the Option Issue Date and ending
at 5:00 p.m. on December 5, 2001, and shall be void thereafter.
2. Exercise Price, Number of Shares and Restrictions Upon Resale.
2.1 Exercise Price. The Exercise Price at which this Option may be
exercised shall be $8.00 per share of common stock, as adjusted pursuant to
Section 11 hereof.
2.2 Number of Shares. The number of shares of the Company's Common
Stock, $.001 par value per share ("Common Stock") which may be purchased
pursuant to this Option shall be 100,000 shares, as adjusted pursuant to Section
11 hereof.
2.3 Restriction Upon Resale. Notwithstanding anything to the
contrary contained herein, Holder may not sell, transfer or dispose of any of
the Exercise Shares issuable upon exercise of this Option for a period of two
(2) years from the Option Issue Date.
3. Exercise of Option.
(a) The Exercise Price shall either be payable in cash or by bank or
certified check.
<PAGE>
(b) Commencing on the Option Issue Date hereof, the purchase rights
represented by this Option are exercisable by the Holder in whole or in part, at
any time, or from time to time, by the surrender of this Option and the Notice
of Exercise annexed hereto duly completed and executed on behalf of the Holder,
at the office of the Company (or such other office or agency of the Company as
it may designate by notice in writing to the Holder at the address of the Holder
appearing on the books of the Company).
(c) This Option shall be deemed to have been exercised immediately
prior to the close of business on the date of its surrender for exercise as
provided above, and the person entitled to receive the shares of Common Stock
issuable upon such exercise shall be treated for all purposes as the holder of
record of such shares as of the close of business on such date. As promptly as
practicable on or after such date and in any event within ten (10) days
thereafter, the Company at its expense shall issue and deliver to the person or
persons entitled to receive the same a certificate or certificates for the
number of shares issuable upon such exercise. In the event that this Option is
exercised in part, the Company at its expense will execute and deliver a new
Option of like tenor exercisable for the number of shares for which this Option
may then be exercised.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this Option.
In lieu of any fractional share to which the Holder would otherwise be entitled,
the Company shall make a cash payment equal to the Exercise Price multiplied by
such fraction.
5. Replacement of Option. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Option and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and substance to the Company
or, in the case of mutilation, on surrender and cancellation of this Option, the
Company at its expense shall execute and deliver, in lieu of this Option, a new
Option of like tenor and amount.
6. Rights of Stockholder. Except as otherwise contemplated herein, the
Holder shall not be entitled to vote or receive dividends or be deemed the
holder of Common Stock or any other securities of the Company that may at any
time be issuable on the exercise hereof for any purpose, nor shall anything
contained herein be construed to confer upon the Holder, as such, any of the
rights of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of stock, change of par
value, or change of stock to no par value, consolidation, merger, conveyance or
otherwise) or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until the Option shall have been exercised as
provided herein.
7. Transfer of Option.
7.1. Non-Transferability. The Option shall not be assigned,
transferred, pledged or hypothecated in any way, nor subject to execution,
attachment or similar process,
2
<PAGE>
otherwise than by will or by the laws of descent and distribution without the
consent of the Company. Any attempted assignment, transfer, pledge,
hypothecation or other disposition of the Option contrary to the provisions
hereof, and the levy of an execution, attachment, or similar process upon the
Option, shall be null and void and without effect.
7.2. Compliance with Securities Laws; Restrictions on Transfers.
(a) The Holder of this Option, by acceptance hereof,
acknowledges that this Option and the Shares to be issued upon exercise hereof
are being acquired solely for the Holder's own account and not as a nominee for
any other party, and for investment (unless such shares are subject to resale
pursuant to an effective prospectus), and that the Holder will not offer, sell
or otherwise dispose of this Option or any Shares to be issued upon exercise
hereof except under circumstances that will not result in a violation of
applicable federal and state securities laws. Upon exercise of this Option, the
Holder shall, if requested by the Company, confirm in writing, in a form
satisfactory to the Company, that the shares of Common Stock so purchased are
being acquired solely for the Holder's own account and not as a nominee for any
other party, for investment (unless such shares are subject to resale pursuant
to an effective prospectus), and not with a view toward distribution or resale.
(b) Neither this Option nor any share of Common Stock issued
upon exercise of this Option may be offered for sale or sold, or otherwise
transferred or sold in any transaction which would constitute a sale thereof
within the meaning of the Securities Act of 1933, as amended (the "1933 Act"),
unless (i) such security has been registered for sale under the 1933 Act and
registered or qualified under applicable state securities laws relating to the
offer an sale of securities, or (ii) exemptions from the registration
requirements of the 1933 Act and the registration or qualification requirements
of all such state securities laws are available and the Company shall have
received an opinion of counsel satisfactory to the Company that the proposed
sale or other disposition of such securities may be effected without
registration under the 1933 Act and would not result in any violation of any
applicable state securities laws relating to the registration or qualification
of securities for sale, such counsel and such opinion to be satisfactory to the
Company.
(c) All Shares issued upon exercise hereof shall be stamped or
imprinted with a legend in substantially the following form (in addition to any
legend required by state securities laws).
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE
SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF REGISTRATION, OR THE AVAILABILITY OF EXEMPTION
FROM REGISTRATION, UNDER THE SECURITIES ACT OF 1933, AS AMENDED, BASED ON AN
OPINION LETTER OF COUNSEL SATISFACTORY TO THE COMPANY OR A NO-ACTION LETTER FROM
THE SECURITIES AND EXCHANGE COMMISSION."
Holder recognizes that acquisition of the Option and the Common Stock
involves a high degree of risk, and Holder is in a financial position to hold
the Option and the Common Stock
3
<PAGE>
indefinitely and is able to bear the economic risk and withstand a complete loss
of its investment in the Option and the Common Stock. The Holder is a
sophisticated investor and is capable of evaluating the merits and risks of
investing in the Company. The Holder has had an opportunity to review the
Company's business, management and financial affairs with the Company's
management, has been given full and complete access to information concerning
the Company, and has utilized such access to its satisfaction for the purpose of
obtaining information or verifying information and have had the opportunity to
inspect the Company's operation. Holder has had the opportunity to ask questions
of, and receive answers from the management of the Company (and any person
acting on its behalf) concerning the Option and the Common Stock and the
agreements and transactions contemplated hereby, and to obtain any additional
information as Holder may have requested in making its investment decision. The
Holder is an "accredited investor", as defined by Regulation D promulgated under
the Act.
8. Reservation and Issuance of Stock.
(a) The Company covenants that during the term that this Option is
exercisable, the Company will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of the shares
upon the exercise of this Option, and from time to time will take all steps
necessary to amend its Certificate of Incorporation to provide sufficient
reserves of shares of Common Stock issuable upon the exercise of the Option.
(b) The Company further covenants that all shares of Common Stock
issuable upon the due exercise of this Option will be free and clear from all
taxes or liens, charges and security interests created by the Company with
respect to the issuance thereof, however, the Company shall not be obligated or
liable for the payment of any taxes, liens or charges of Holder, or any other
party contemplated by paragraph 7, incurred in connection with the issuance of
this Option or the Common Stock upon the due exercise of this Option. The
Company agrees that its issuance of this Option shall constitute full authority
to its officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for the shares of Common Stock upon
the exercise of this Option. The Common Stock issuable upon the due exercise of
this Option, will, upon issuance in accordance with the terms hereof, be duly
authorized, validly issued, fully paid and non-assessable.
9. Notices.
(a) Whenever the Exercise Price or number of shares purchasable
hereunder shall be adjusted pursuant to Section 11 hereof, the Company shall
issue a certificate signed by its Chief Financial Officer setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated, and the Exercise
Price and number of shares purchasable hereunder after giving effect to such
adjustment, and shall cause a copy of such certificate to be mailed (by
first-class mail, postage prepaid) to the Holder of this Option.
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(b) All notices, advices and communications under this Option shall
be deemed to have been given, (i) in the case of personal delivery, on the date
of such delivery and (ii) in the case of mailing, on the third business day
following the date of such mailing, addressed as follows:
If to the Company:
USA Finance, Inc.
1111 Park Centre Blvd., Suite 300
Miami, FL 33169
Attention: Mr. Stephen Michaelson, Chief Executive Officer
With a Copy to:
Stephen M. Cohen, Esquire
Buchanan Ingersoll, Professional Corporation
Two Logan Square, 12th Floor
18th & Arch Streets
Philadelphia, PA 19103-2771
and to the Holder:
at the address of the Holder appearing on the books of the
Company or the Company's transfer agent, if any.
Either of the Company or the Holder may from time to time change the
address to which notices to it are to be mailed hereunder by notice in
accordance with the provisions of this Paragraph 9.
10. Amendments.
(a) Any term of this Option may be amended with the written consent
of the Company and the Holder. Any amendment effected in accordance with this
Section 10 shall be binding upon the Holder, each future holder and the Company.
(b) No waivers of, or exceptions to, any term, condition or
provision of this Option, in any one or more instances, shall be deemed to be,
or construed as, a further or continuing waiver of any such term, condition or
provision.
11. Adjustments. The number of Shares of Common Stock purchasable
hereunder and the Exercise Price is subject to adjustment from time to time upon
the occurrence of certain events, as follows:
11.1. Reorganization, Merger or Sale of Assets. If at any time
while this Option, or any portion thereof, is outstanding and unexpired there
shall be (i) a reorganization
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(other than a combination, reclassification, exchange or subdivision of shares
otherwise provided for herein), (ii) a merger or consolidation of the Company
with or into another corporation in which the Company is not the surviving
entity, or a reverse triangular merger in which the Company is the surviving
entity but the shares of the Company's capital stock outstanding immediately
prior to the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise, or (iii) a sale or
transfer of substantially all of the Company's properties and assets as, or
substantially as, an entirety to any other person, then, as a part of such
reorganization, merger, consolidation, sale or transfer, lawful provision shall
be made so that the holder of this Option shall thereafter be entitled to
receive upon payment of the Exercise Price then in effect, the number of shares
of stock or other securities or property of the successor corporation resulting
from such reorganization, merger, consolidation, sale or transfer that a holder
of the shares deliverable upon exercise of this Option would have been entitled
to receive in such reorganization, consolidation, merger, sale or transfer if
this Option had been exercised immediately before such reorganization, merger,
consolidation, sale or transfer, all subject to further adjustment as provided
in this Section 11. The foregoing provisions of this Section 11.1 shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation that are
at the time receivable upon the exercise of this Option. If the per-share
consideration payable to the Holder hereof for shares in connection with any
such transaction is in a form other than cash or marketable securities, then the
value of such consideration shall be determined in good faith by the Company's
Board of Directors. In all events, appropriate adjustment (as determined in good
faith by the Company's Board of Directors) shall be made in the application of
the provisions of this Option with respect to the rights and interests of the
Holder after the transaction, to the end that the provisions of this Option
shall be applicable after that event, as near as reasonably may be, in relation
to any shares or other property deliverable after that event upon exercise of
this Option.
11.2. Reclassification. If the Company, at any time while this
Option, or any portion thereof, remains outstanding and unexpired, by
reclassification of securities or otherwise, shall change any of the securities
as to which purchase rights under this Option exist into the same or a different
number of securities of any other class or classes, this Option shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable as the result of such change with respect to the securities that
were subject to the purchase rights under this Option immediately prior to such
reclassification or other change and the Exercise Price therefor shall be
appropriately adjusted, all subject to further adjustment as provided in this
Section 11.
11.3. Split, Subdivision or Combination of Shares. If the Company
at any time while this Option, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the securities as to which purchase
rights under this Option exist, into a different number of securities of the
same class, the Exercise Price and the number of shares issuable upon exercise
of this Option shall be proportionately adjusted.
11.4. Adjustments for Dividends in Stock or Other Securities or
Property. If while this Option, or any portion hereof, remains outstanding and
unexpired the holders of the securities as to which purchase rights under this
Option exist at the time shall have received, or,
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on or after the record date fixed for the determination of eligible
Stockholders, shall have become entitled to receive, without payment therefor,
other or additional stock or other securities or property (other than cash) of
the Company by way of dividend, then and in each case, this Option shall
represent the right to acquire, in addition to the number of shares of the
security receivable upon exercise of this Option, and without payment of any
additional consideration therefor, the amount of such other or additional stock
or other securities or property (other than cash) of the Company that such
holder would hold on the date of such exercise had it been the holder of record
of the security receivable upon exercise of this Option on the date hereof and
had thereafter, during the period from the date hereof to and including the date
of such exercise, retained such shares and/or all other additional stock, other
securities or property available by this Option as aforesaid during such period.
11.5 The Company will not, by any voluntary action, avoid or seek
to avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Company, but will at all times in good faith assist
in the carrying out of all the provisions of this Section 11 and in the taking
of all such action as may be necessary or appropriate in order to protect the
rights of the Holders of this Option against impairment.
12. Registration Rights. Commencing no later than two (2) years from
the Option Issue Date, the Company agrees to file a Registration Statement (the
"Registration Statement") with the Securities and Exchange Commission for the
purpose of registering the resale of the Exercise Shares issuable upon exercise
of this Option, and use its best efforts to have the registration statement
become effective and remain current for the balance of the option term.
i. The Company's obligation in this regard shall extend only to the
inclusion of the Exercise Shares in a Registration Statement filed under the
Securities Act of 1933, as amended (the "Act") with the Securities and Exchange
Commission ("SEC"). The Company shall have no obligation to assure the terms and
conditions of distribution, to obtain a commitment from an underwriter relative
to the sale of the Exercise Shares or to otherwise assume any responsibility for
the manner, price or terms of the distribution or sale of the Exercise Shares
under the Act.
ii. All expenses incurred by the Company in connection with
preparing and filing the Registration Statement shall be borne by the Company.
Fees and expenses associated with the sale of the Exercise Shares shall be borne
by Margolis.
iii. In connection with the Registration Statement filed hereunder,
Margolis will furnish to the Company in writing such information with respect to
the securities held by him, and the proposed distribution by him as shall be
reasonably requested by the Company in order to assure compliance with federal
and applicable state securities laws, as a condition precedent to including such
seller's Shares in the Registration Statement. Margolis also shall agree to
promptly notify the Company of any changes in such information included in the
Registration Statement or prospectus as a result of which there is an untrue
statement of material fact or an omission to state any material fact required or
necessary to be stated therein in order to make the statements contained therein
not materially misleading in light of the circumstances then existing. Margolis
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shall indemnify and hold harmless the Company from and against any and all
losses, claims, damages and liabilities caused by any untrue statement of a
material fact contained in any registration statement or prospectus or any
omission to state in such registration statement or prospectus a material fact
that is required to be stated therein or that is necessary to make any statement
contained therein not materially misleading in light of the circumstances under
which they were made, that is based upon information furnished to the Company by
Margolis or on Margolis' behalf for use in such registration statement or
prospectus.
iv. In connection with each registration pursuant to this
Agreement, Margolis agrees not to effect sales thereof until notified by the
Company of the effectiveness of the Registration Statement, and thereafter will
suspend such sales after receipt of telegraphic or written notice from the
Company to suspend sales to permit the Company to correct or update a
prospectus. At the end of any period during which the Company is obligated to
keep a registration statement current, Margolis shall discontinue sales of
Shares pursuant to such registration statement upon receipt of notice from the
Company of its intention to remove from registration the Shares covered by such
Registration Statement which remain unsold, and Margolis shall notify the
Company of the number of shares registered which remain unsold immediately upon
receipt of such notice from the Company.
13. Severability. Whenever possible, each provision of this Option
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Option is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
the validity, legality or enforceability of any other provision of this Option
in such jurisdiction or affect the validity, legality or enforceability of any
provision in any other jurisdiction, but this Option shall be reformed,
construed and enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision had never been contained herein.
14. Governing Law. The corporate law of the State of Delaware shall
govern all issues and questions concerning the relative rights of the Company
and its stockholders. All other questions concerning the construction, validity,
interpretation and enforceability of this Option and the exhibits and schedules
hereto shall be governed by, and construed in accordance with, the laws of the
State of Delaware, without giving effect to any choice of law or conflict of law
rules or provisions (whether of the State of Delaware or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than the
State of Delaware.
15. Jurisdiction. The Holder and the Company agree to submit to
personal jurisdiction and to waive any objection as to venue in the federal or
state courts in the City of Miami, Florida. Service of process on the Company or
the Holder in any action arising out of or relating to this Option shall be
effective if mailed to such party at the address listed in Section 9 hereof.
16. Arbitration. If a dispute arises as to interpretation of this
Option, it shall be decided finally by three arbitrators in an arbitration
proceeding conforming to the Rules of the American Arbitration Association
applicable to commercial arbitration. The arbitrators shall be appointed as
follows: one by the Company, one by the Holder and the third by the said two
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<PAGE>
arbitrators, or, if they cannot agree, then the third arbitrator shall be
appointed by the American Arbitration Association. The third arbitrator shall be
chairman of the panel and shall be impartial. The arbitration shall take place
in the City of Miami, Florida. The decision of a majority of the Arbitrators
shall be conclusively binding upon the parties and final, and such decision
shall be enforceable as a judgment in any court of competent jurisdiction. The
prevailing party shall pay the fees and expenses of the arbitrator appointed by
it, its counsel and its witnesses. The parties shall share pay the fees and
expenses of the impartial arbitrator.
17. Corporate Power; Authorization; Enforceable Obligations. The
execution, delivery and performance by the Company of this Agreement: (i) are
within the Company's corporate power; (ii) have been duly authorized by all
necessary or proper corporate action; (iii) are not in contravention of the
Company's certificate of incorporation or by-laws; (iv) will not violate in any
material respect, any law or regulation, including any and all Federal and state
securities laws, or any order or decree of any court or governmental
instrumentality; and (v) will not, in any material respect, conflict with or
result in the breach or termination of, or constitute a default under any
agreement or other material instrument to which the Company is a party or by
which the Company is bound.
18. Successors and Assigns. This Option shall inure to the benefit of
and be binding on the respective successors, assigns and legal representatives
of the Holder and the Company.
IN WITNESS WHEREOF, the Company has caused this Option to be executed
by its officers thereunto duly authorized.
Dated: December 5, 1996
HOLDER: STEVEN MARGOLIS USA FINANCE, INC.
BY: /s/ Steven Margolis BY: /s/ Stephen Michaelson
------------------------------ -------------------------------
Steven Margolis Stephen Michaelson,
Chief Executive Officer
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NOTICE OF EXERCISE
TO: USA FINANCE, INC.
(1) The undersigned hereby elects to purchase _______ shares of Common
Stock of USA FINANCE, INC. pursuant to the terms of the attached Option, and
tenders herewith payment of the purchase price for such shares in full.
(2) In exercising this Option, the undersigned hereby confirms and
acknowledges that the shares of Common Stock to be issued upon exercise hereof
are being acquired solely for the account of the undersigned and not as a
nominee for any other party, and for investment (unless such shares are subject
to resale pursuant to an effective prospectus), and that the undersigned will
not offer, sell or otherwise dispose of any such shares of Common Stock except
under circumstances that will not result in a violation of the Securities Act of
1933, as amended, or any state securities laws.
(3) Please issue a certificate or certificates representing said shares
of Common Stock in the name of the undersigned or in such other name as is
specified below:
-----------------------------------
(Name)
-----------------------------------
(Name)
- ---------------------------------- -----------------------------------
(Date) Signature)
CONFIDENTIAL SEPARATION AGREEMENT,
WAIVER AND RELEASE OF CLAIMS
This Confidential Separation Agreement, Waiver and Release of Claims
("Agreement") is entered into on this 16th day of July, 1996, by and between
JEANETTE RAIJMAN WASERSTEIN, residing at 6325 Allison Road, Miami Beach,
Florida 33141 (hereinafter "Waserstein") and USA Finance, Inc. formerly known as
LMI Acquisition Corp., a Delaware corporation, with its principal place of
business located at USA Finance, Inc., 1111 Park Centre Boulevard, Suite 300,
Miami, Florida 33169 and its subsidiaries, National-Wide Premium Finance Corp.
and Gold Coast Finance, Inc.(hereinafter collectively referred to as "Company").
WHEREAS, Waserstein was formerly the owner of National-Wide Premium
Finance Company (a Florida corporation) who sold its stock to the Company
effective as of a closing that occurred on March 28, l996 (the "Closing") and
WHEREAS, in conjunction with the Closing, Waserstein entered into an
employment agreement to be Executive Vice President of Company, and
WHEREAS, by mutual agreement of the parties hereto, Waserstein has
separated from employment with Company effective with the date of this
Agreement, and
WHEREAS, the parties to this agreement desire to reach a mutually
satisfactory understanding and to fully and finally resolve any and all existing
controversies and claims between them:
NOW, THEREFORE, with the intent to be legally bound, and in
consideration for the provisions and mutual undertakings herein contained, plus
other good and valuable consideration, the parties agree as follows:
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1. The above recitals, including the recital of consideration, are true
and correct and are incorporated into this agreement.
2. Waserstein's employment will terminate effective with the close of
business on the date of this Agreement. At that time, Waserstein, shall resign
her position as Executive Vice President of Company. Waserstein acknowledges
that effective on the date of this Agreement, she has resigned from all
corporate offices and committee positions she holds with Company and any parent,
subsidiary or affiliate, including her position as a Director of the Company.
3. Waserstein shall receive, as consideration for the promises
contained in this agreement, a severance payment of $1,923.07 per week, payable
on each of the normal weekly payroll dates of National-Wide Premium Finance
Company commencing on the day following this Agreement for the period through
and including December 31, 1996. Waserstein shall receive fully paid medical
benefits on the same basis as which she participated while an employee of
Company. Such benefits shall continue through December 31, 1996, at which time
Waserstein shall be advised of her rights to continue said medical insurance
benefits pursuant to the Consolidated Omnibus Budget Reconciliation Act (COBRA).
In the event the Company fails to make timely payment to Waserstein, she shall
provide written notice to the Company of such failure, and if all payments owed
are not made current within five (5) business days, all future payments owed to
Waserstein shall immediately be due and payable to her.
4.a Upon the execution of this Agreement, the Company shall grant to
Waserstein as a severance payment twenty thousand 20,000 additional shares of
its Common Stock (the "Additional Shares") subject to the terms of the Investor
Representation Certificate attached hereto and made a part hereof as
Exhibit "A".
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4.b Waserstein acknowledges that as of the date of this Agreement she
is the beneficial and record owner of shares of the Company's Series B $3.00
Convertible Preferred Stock (the "Series B Preferred Stock") which convert into
66,667 shares of the Company's common stock pursuant to the terms of a
Certificate of Designation of Series B $3.00 Convertible Preferred Stock of LMI
Acquisition Corp. filed with the State of Delaware, Secretary of State on March
20, 1996 (the "Certificate of Designation") and Common Stock Purchase Options to
purchase 100,000 shares of the Company's Common Stock (the "Options"). The
Options were originally granted to Waserstein and vested under her Employment
Agreement with the Company, and in view of the termination of such Employment
Agreement, shall hereafter be subject to the terms and conditions of an Option
Agreement attached hereto and made a part hereof as Exhibit "B". With the
exception of the Additional Shares, Series B Preferred Stock and Options,
Waserstein represents and warrants that she neither owns nor has the right to
acquire any additional securities of the Company from the Company or from any
third party.
4.c The Company is in the process of preparing a Registration Statement
on Form SB-2 (the "Registration Statement") to file with the Securities and
Exchange Commission for the purpose of, among other things, registering for
resale purposes shares held by certain existing security holders of the Company.
The Company has agreed to grant registration rights to Waserstein in connection
with the Series B Preferred Stock, Additional Shares and Options in the manner
set forth hereafter:
i. The Company has agreed to include the resale of the shares
issuable upon the conversion of the Series B Preferred Stock (the
"Shares") and the Additional Shares in accordance with the Registration
Statement identified above. The Company's obligation in this regard
shall extend only to the inclusion of the Shares and the Additional
Shares in a Registration
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Statement filed under the Securities Act of 1933, as amended (the
"Act") with the Securities and Exchange Commission ("SEC"). The Company
shall have no obligation to assure the terms and conditions of
distribution, to obtain a commitment from an underwriter relative to
the sale of the Shares and Additional Shares or to otherwise assume any
responsibility for the manner, price or terms of the distribution or
sale of the Shares. The Company will, before December 31, l996, file
the Registration Statement which will include the Shares and Additional
Shares and use its best efforts to have it declared effective as soon
thereafter as is practicable, and to keep such Registration Statement
continuously effective for the period of distribution during which a
Prospectus is deemed "effective" by Section 10(a)(3) of the Act.
ii. The Company has also agreed to no later than November 15,
1997, file an additional Registration Statement (the "Additional
Registration Statement") for the purpose of facilitating the public
resale of the Shares issuable upon the exercise of the Options (the
"Option Shares"), provided that Waserstein has not been determined by
an Arbitrator appointed by and acting under the American Arbitration
Association's Rules for Expedited Arbitration to have engaged in a
material breach of any obligations or covenants to the Company
contained in Paragraphs 5, 7 & 8. The Company shall have no obligation
to assure the terms and conditions of distribution, to obtain a
commitment from an underwriter relative to the sale of the Option
Shares or to otherwise assume any responsibility for the manner, price,
or terms of the distribution or sale of the Option Shares. The Company
will file the Additional Registration Statement in the time identified
above and use its best efforts have it declared effective as soon
thereafter as is practicable, and to keep such Additional Registration
Statement continuously effective for the period of distribution during
which a Prospectus is deemed "effective" by Section 10(a)(3) of the
Act. In the event the Company fails to file the Additional Registration
Statement on a timely basis
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and upon notification to that effect from Waserstein ("the Notice"),
which notification must be shipped via overnight delivery via Fedex or
other overnight delivery service for next day delivery to the Company
no later than December 15, 1997, the Company agrees to repurchase the
Option Shares from Waserstein. If Waserstein complies with the above
requirements relative to providing the Notice, Waserstein shall not be
obligated to pay to the Company the Exercise Price and the Company
agrees to repurchase Waserstein's Option Shares by paying her the
difference between a price equal to the average closing price for the
past thirty (30) trading days of the Company's common stock on
whichever market or exchange such shares principally traded, minus the
exercise price associated with such options.
iii. All expenses incurred by the Company in connection with
preparing and filing the Registration Statement and Additional
Registration Statement shall be borne by the Company. Fees and expenses
associated with the sale of the Shares, Additional Shares and Option
Shares shall be borne by Waserstein.
iv. In connection with each Registration Statement and
Additional Registration Statement filed hereunder, Waserstein will
furnish to the Company in writing such information with respect to the
securities held by such seller, and the proposed distribution by her as
shall be reasonably requested by the Company in order to assure
compliance with federal and applicable state securities laws, as a
condition precedent to including such seller's Shares, Additional
Shares and Option Shares in the Registration Statement and Additional
Registration Statement. Waserstein also shall agree to promptly notify
the Company of any changes in such information included in the
Registration Statement and Additional Registration Statement or
prospectus as a result of which there is an untrue statement of
material fact or an omission to state any material fact required or
necessary to be stated therein in order to make the statements
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contained therein not materially misleading in light of the
circumstances then existing. Waserstein shall indemnify and hold
harmless the Company from and against any and all losses, claims,
damages and liabilities caused by any untrue statement of a material
fact contained in any registration statement or prospectus or any
omission to state in such registration statement or prospectus a
material fact that is required to be stated therein or that is
necessary to make any statement contained therein not materially
misleading in light of the circumstances under which they were made,
that is based upon information furnished to the Company by Waserstein
or on Waserstein's behalf for use in such registration statement or
prospectus.
v. In connection with each registration pursuant to this
Agreement, Waserstein agrees not to effect sales thereof until notified
by the Company of the effectiveness of the Registration Statement and
Additional Registration Statement, and thereafter will suspend such
sales after receipt of telegraphic or written notice from the Company
to suspend sales to permit the Company to correct or update a
prospectus. At the end of any period during which the Company is
obligated to keep a registration statement current, Waserstein shall
discontinue sales of Shares, Additional Shares and Option Shares
pursuant to such registration statement upon receipt of notice from the
Company of its intention to remove from registration the Shares,
Additional Shares or Option Shares covered by such Registration
Statement which remain unsold, and Waserstein shall notify the Company
of the number of shares registered which remain unsold immediately upon
receipt of such notice from the Company.
4.d Notwithstanding the filing of the Registration Statement and
Additional Registration Statement in accordance with the terms of subparagraph
4(c)(i) and(ii) above, Waserstein agrees not to sell, dispose, encumber or
otherwise transfer any of the Shares, Additional Shares or Option Shares except
in accordance with the following schedule:
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(i) Twenty-five (25%) percent of the Shares may be transferred, sold or
otherwise disposed of (a "Sale Transaction") no earlier than three (3) months
following the effective date of the Registration Statement; (ii) an additional
twenty-five (25%) percent of the Shares may be subject to a Sale Transaction no
earlier than six (6) months following the effective date of the Registration
Statement; and (iii) an additional twenty-five percent(25%)of the Shares may be
subject to a Sale Transaction no earlier than nine(9) months following the
effective date of the Registration Statement; (iv) the remainder of the Shares
may be subject to a Sales Transaction no earlier than twelve (12) months
following the effective date of the Registration Statement; and (v) none of the
Additional Shares may be subject to a Sale Transaction until six (6) months
after the effective date of the Registration Statement. In addition to the above
restrictions, in the event that Waserstein intends to sell, transfer, encumber
or otherwise dispose of more than Three Thousand (3,000) of the Shares of common
stock of the company in any month, subject always to the volume limitations and
holding periods set forth above, Waserstein shall provide the Company with
written notice of her intent to do so at least twenty (20) days prior to any
such intended sale, transfer or disposition.
The securities represented by the Shares, Additional Shares and Option
Shares will be imprinted with the legend in form and substance
substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE
SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF REGISTRATION, OR THE AVAILABILITY OF AN EXEMPTION FROM
REGISTRATION, UNDER THE SECURITIES ACT OF 1933, AS AMENDED, BASED ON AN
OPINION LETTER OF COUNSEL, SUCH OPINION AND SUCH COUNSEL TO BE
SATISFACTORY TO THE COMPANY OR A NO ACTION LETTER FROM THE SECURITIES
AND EXCHANGE
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COMMISSION. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO
SUBJECT TO THE PROVISIONS OF AN AGREEMENT DATED AS OF ( ) BETWEEN THE
COMPANY AND THE HOLDER HEREOF AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED EXCEPT IN ACCORDANCE THEREWITH. A COPY OF SAID AGREEMENT IS
ON FILE AT THE OFFICES OF THE CORPORATE SECRETARY OF THE COMPANY."
4.e For a period of two years following the date of this Agreement,
Waserstein agrees to the following:
i. Except for the Option Shares, or as otherwise provided in
this Agreement, she shall not acquire, announce an intention to
acquire, offer or propose to acquire, or agree to acquire, directly or
indirectly, by purchase or otherwise, beneficial or record ownership of
any securities of the Company, or direct or indirect rights to options
to acquire (through purchase, exchange, conversion or otherwise) any
securities of the Company, which would individually, or in the
aggregate, result in Waserstein becoming the beneficial owner of 10% or
more of the Company's securities, without the prior written consent of
the Company;
ii. She shall vote all voting securities owned by her in
connection with all matters to be voted on by the holders of voting
securities, in accordance with the recommendation of the majority of
the Board of Directors. As a holder of voting securities, she shall be
present, in person or by proxy, at all meetings of shareholders of the
Company so that all voting securities beneficially owned by her may be
counted for the purpose of determining the presence of a quorum at such
meetings;
iii. She shall not solicit proxies or become a "participant"
in a "solicitation" (as such terms are defined in Regulation 14A under
the Securities Exchange Act of 1934) in
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opposition to the recommendation of the majority of the Board of
Directors of the Company with respect to any matter; or
iv. She shall not join a partnership, limited partnership,
limited liability company, limited liability partnership, syndicate or
other group or otherwise act in concert with any person, for the
purpose of acquiring, holding, voting or disposing of voting
securities, or otherwise become a "person" within the meaning of
Section 13(d)(3) of the Securities Exchange Act of 1934.
5. In consideration for the severance payments, continued medical
insurance benefits and Additional Shares provided in this agreement by Company
to Waserstein, the adequacy of which she acknowledges, Waserstein, on behalf of
herself, her family, her heirs, representatives, estate, successors and assigns,
does hereby irrevocably and unconditionally remise, release and forever
discharge Company, and its parents, subsidiaries, affiliates, directors,
officers, agents, employees and any employee benefit plans sponsored by Company
or its subsidiaries or affiliates (hereinafter severally and collective referred
to as "Releasees") from any and all liabilities, demands, acts, causes of
action, damages or claims, known or unknown, that Waserstein has or may have
against any of the Releasees for any actions up to and including the date of
this Agreement, and the continuing effects thereof, being the intention of
Waserstein to affect a general release of all such claims except those relative
to any alleged breach of this Agreement by Company. This release pertains but is
not limited to any and all claims which were asserted, or could have been
asserted by Waserstein or on her behalf, arising out of her employment with the
Company or any subsidiary or affiliate, or termination thereof, including but
not limited to, claims arising under federal, state, and/or local laws
prohibiting employment discrimination, including but not limited to Title VII of
the Civil Rights Act of 1964, as amended; the Florida Civil Rights Act;
9
<PAGE>
the Metropolitan Dade County Ordinance on Human Relations; the Employee
Retirement Income Security Act of 1974; the Americans with Disabilities Act; and
all state or federal common law or statutory law governing contract, torts and
any claims for attorneys' fees under these acts or any other law.
6. Company, its parents, subsidiaries, affiliates, directors, officers,
agents and employees do hereby irrevocably and unconditionally remise, release
and forever discharge Waserstein from any and all liabilities, demands, acts,
causes of action, damages or claims, known or unknown, that they have or may
have against Waserstein for any and all liabilities, demands, acts, causes of
action, damages of claims which the Company may have against Waserstein for any
actions up to and including the date of this Agreement, and the continuing
effects thereof, it being the intention of the Company to affect a general
release of all such claims except those relating to any alleged breach of
Waserstein's obligations under this Agreement, including but not limited to
those contained in paragraphs 7, 8 and 9 and Waserstein's obligations under
section 7.1 of the Stock Purchase Agreement dated May 5, l995 between Waserstein
and the Company. Company will also indemnify and hold Waserstein harmless from
any and all losses she may suffer in connection with her guarantee under the
Premium Finance Contract Purchase and Service Agreement with First Western Bank
of August 11, 1995, as amended to date.
7. Waserstein acknowledges that during her association with Company she
has been brought into contact with business plans, methods of operation,
advertising, sales and marketing materials, marketing strategies, records,
product development plans, strategic plans, trade secrets, customer sales
analysis, invoices, price list information or samples (collectively referred to
as "confidential information") regarding Company which have been disclosed to
her and known to her as a consequence of her employment relationship with
Company. Waserstein agrees that she
10
<PAGE>
shall not in any manner, directly or indirectly, use, for her benefit or the
benefit of others, any confidential information nor will she disclose to any
third party whatsoever, or use for any purpose, any such confidential
information. Further, Waserstein agrees that she will not disparage or comment
negatively upon the Company, its parent, subsidiaries or affiliates, or any
officer, employee, shareholder, director or agent of any of these organizations.
Nothing contained in this paragraph is intended to restrict or limit
Waserstein's use of general knowledge or information in the public domain, or
knowledge or information she possessed prior to her employment with Company.
8. For a period of one (1) year from the date of this Agreement,
Waserstein shall not under any circumstances, directly or indirectly solicit any
employee of the Company, or indirectly induce or attempt to influence any
employee of Company to leave the employ of the Company. For a period of one
(1) year from the date of this Agreement, Waserstein shall not under any
circumstances, directly or indirectly, solicit any customers of the Company to
do business with any other business involved in insurance premium financing.
Waserstein further acknowledges that while employed with the Company, she was
exposed to trade secrets, valuable confidential business information, had
substantial relationships with specific existing and prospective customers of
the Company, and that in order to protect the legitimate business interests of
the Company, it is necessary for her to enter into the following restrictive
covenant: Waserstein agrees that for a period until and including December 31,
1996, Waserstein will not become engaged in either as a principal, partner,
director, officer, agent, employee, consultant, or independent contractor,
perform any services for remuneration or otherwise be financially interested in
any business located within the United States that is primarily involved in
insurance premium financing. However, nothing contained in this Agreement shall
prevent Waserstein from
11
<PAGE>
holding. for investment no more than five (5%) percent of any class of equity
securities of a company whose securities are traded on a national security
exchange. Waserstein warrants and represents that based upon her prior
experience with the Company and in the financial services industry the
restrictive covenant which she has entered into is reasonably necessary to
protect the legitimate business interests of the Company and that as of the date
in which she has entered into this Agreement she has not done any acts nor has
she any current intentions and has made no plans to do anything that is
proscribed by the non-competition and non-solicitation provisions contained
above.
9. Waserstein agrees that the terms set forth in this Agreement are
confidential and that she is not to disclose the terms and amounts paid to her
under this Agreement to any person with the exception of her attorneys,
accountants and immediate family members.
10. Waserstein acknowledges that a breach of or a violation of the
covenants contained in Paragraphs 7, 8 and 9 above will have an irreparable,
material and adverse effect upon the Company, that damages arising from any such
breach or violation may be difficult to ascertain and that the Company will lack
an adequate remedy at law. Therefore, Waserstein acknowledges that the Company
will be entitled to obtain an injunction from any court having jurisdiction over
her and the Company to enjoin Waserstein from any further violation of this
Agreement and to enforce her specific performance of the covenants contained
herein. In the event of a proven breach, Waserstein agrees to the entry of such
an injunction or order for specific performance and to pay all reasonable
attorneys' fees and costs incurred by the Company in obtaining said injunction.
11. In the event Waserstein breaches or files any lawsuit or
administrative action contrary to the release contained in Paragraph 5, such
conduct will constitute a breach of this
12
<PAGE>
Agreement, thereby terminating any further duty of Company to make the severance
payments and continuation of insurance as set forth in Paragraph 3 above, and
shall obligate Waserstein to repay any monies paid to her (including all
severance payments) and the value of any fringe benefits paid to her under this
Agreement.
12. Waserstein agrees to make herself readily available upon reasonable
notice to consult with and assist the Company in matters requiring her
experience and expertise or to answer questions regarding matters occurring
during her tenure at the Company. Waserstein agrees that she will, through
December 31, 1996, perform such consulting work without additional compensation.
The Company agrees that such consulting work shall not exceed more than
forty-two hours per month.
13. Waserstein acknowledges and agrees that the terms of this Agreement
were reached after extensive negotiations with her attorney, Richard Waserstein,
that she has had a full and complete opportunity to discuss this Agreement with
an attorney of her own choosing, that in executing this Agreement she does not
rely and has not relied upon any statement or representation made by or on
behalf of the Company by any of its officers, agents, employees or attorneys,
and that she is acting on her own free will. Waserstein further acknowledges and
agrees that she has entered into this Release knowingly and voluntarily,
intending to be legally bound, having had a full and compete opportunity to
consider the terms thereof.
14. Waserstein acknowledges that the amounts, benefits and
representations set forth in this Agreement constitute a full and complete
satisfaction of any and all claims by her of any kind and nature whatsoever from
the Company or any parent, affiliate or subsidiary, including but not limited to
any and all agreements or arrangements entered into in conjunction with or
related to the Closing, and that neither the Company nor any parent, affiliate,
subsidiary or successor will
13
<PAGE>
be obligated in any way to provide her with future employment, compensation,
benefits stock rights or stock options other than those specifically provided
herein.
15. If any provision of this Agreement is construed to be invalid,
illegal or unenforceable in any respect, the remainder of the Agreement shall
not be effected, and the remaining provisions of this Agreement shall be given
full force and effect without regard to the invalid, illegal or unenforceable
portions.
16. This Agreement shall be governed in all respects by the laws of the
State of Florida.
17. In any action for breach of this Agreement, the prevailing party
shall be entitled to recover its reasonable attorney's fees and costs.
18. The Company Agrees and Covenants that as of the date of this
Agreement, the Company has no knowledge that Waserstein has breached any of her
obligations under Paragraphs 5, 7 and 8 of this Agreement.
IN WITNESS WHEREOF, Waserstein and the Company have executed this
Agreement intending to be legally bound hereby.
WARNING: THIS DOCUMENT CONTAINS A RELEASE OF ALL CLAIMS KNOWN AND UNKNOWN.
14
<PAGE>
Witness:
/s/ Bechrr Guzman /s/ Jeanette Raijman Waserstein
- ---------------------------------- -----------------------------------------
JEANETTE RAIJMAN WASERSTEIN
Date: July 16, 1996
- ----------------------------------
Attest: /s/ Lori Lee Barimo USA FINANCE, INC.
- ----------------------------------
By: /s/ Stephen Michaelson
-------------------------------------
Signature Stephen Michaelson
-------------------------------
Name: Stephen Michaelson
-----------------------------------
Title: CEO
----------------------------------
Date: 7-17-96
- ----------------------------------
Attest: /s/ Lori Lee Barimo NATIONAL-WIDE PREMIUM FINANCE CORP.
- ----------------------------------
By: /s/
---------------------------------
Signature /s/ Stephen E. Michaelson,
/s/ Jeanette Raijman Waserstein
-------------------------------
Name: Stephen E. Michaelson,
Jeanette Raijman Waserstein
-----------------------------------
Title:
----------------------------------
Date: 7-17-96
- ----------------------------------
Attest: /s/ Lori Lee Barimo GOLD COAST FINANCE, INC.
- ----------------------------------
By: /s/ Steven Margolis
-------------------------------------
Signature Steven Margolis
-------------------------------
Name:
-----------------------------------
Title: President
----------------------------------
Date: 7-17-96
- ----------------------------------
15
<PAGE>
CONFIDENTIAL SEPARATION AGREEMENT,
WAIVER AND RELEASE OF CLAIMS
This Confidential Separation Agreement, Waiver and Release of Claims
("Agreement") is entered into on this 5th day of December, 1996, by and between
STEVEN MARGOLIS, residing at 5730 N.W. 38th Avenue, Boca Raton, Florida 33496
(hereinafter "Margolis") and USA Finance, Inc., formerly known as "LMI
Acquisition Corp.," a Delaware corporation, with its principal place of business
located at 1111 Park Centre Boulevard, Suite 300, Miami, Florida 33169, and its
subsidiaries, National-Wide Premium Finance Corp., Gold Coast Finance, Inc. and
Contract Funding Corp. (hereinafter collectively referred to as "Company").
WHEREAS, Margolis entered into an employment agreement to be Chief
Operating Officer of Company, and
WHEREAS, certain disputes have arisen between Margolis and the Company,
and
WHEREAS, by mutual agreement of the parties hereto, Margolis desires to
voluntarily resign from employment with Company, terminate the employment
agreement dated March 28, 1996, resign all offices and directorships he holds
with Company, and modify the Stockholders Agreement dated March 28, 1996,
effective with the date of this Agreement, and
WHEREAS, the parties to this agreement desire to reach a mutually
satisfactory understanding to execute mutual releases and to fully and finally
resolve any and all existing controversies and claims between them:
NOW, THEREFORE, with the intent to be legally bound, and in
consideration for the provisions and mutual undertakings herein contained, plus
other good and valuable consideration, the parties agree as follows:
<PAGE>
1. The above recitals, including the recital of consideration, are true
and correct and are incorporated into the substantive provisions of this
agreement.
2. Margolis' employment will terminate effective with the close of
business on the date he signs this Agreement. At that time, Margolis shall
resign his position as Chief Operating Officer of Company and resign from all
corporate offices, committee positions and directorships he holds with Company
and any parent, subsidiary or affiliate of Company.
3. Margolis shall receive, as consideration for the covenants not to
compete or solicit contained in paragraph 10 of this agreement, six payments of
$7,666, payable on the first working day of each month commencing on January 3,
1997, and continuing for the period through and including June 2, 1997. Margolis
shall receive fully paid group medical benefits (also covering his wife) on the
same basis as if he remained actively employed with the Company through December
31, 1997, at which time Margolis shall be advised of his rights to continue said
group medical insurance benefits pursuant to the Consolidated Omnibus Budget
Reconciliation Act (COBRA).
4. Upon the execution of this Agreement, Margolis acknowledges that the
Stockholders' Agreement dated March 28, l996 has been terminated and that he and
the other parties to that Agreement shall enter into an Amended and Restated
Stockholders' Agreement subject to the terms contained in Exhibit "A" attached
hereto and made a part hereof.
5. Upon the execution of this Agreement by the parties, Margolis will
be repaid the $25,000 he previously loaned to the Company.
6.a Upon the execution of this Agreement, Margolis acknowledges that
all of his rights to stock options under the Employment Agreement dated March
28, 1996 have terminated. The Company shall grant to Margolis the option to
purchase 100,000 shares of its Common Stock
2
<PAGE>
(the "Option Shares") subject to the terms of the Option Agreement attached
hereto and made a part hereof as Exhibit "B".
6.b Margolis acknowledges that as of the date of this Agreement he is
the beneficial and record owner of 460,000 shares of common stock (the "Common
Shares"), as well as shares of the Company's Series B $3.00 Convertible
Preferred Stock (the "Series B Preferred Stock") which convert into 66,667
shares of the Company's common stock pursuant to the terms of a Certificate of
Designation of Series B $3.00 Convertible Preferred Stock of LMI Acquisition
Corp. filed with the State of Delaware, Secretary of State on March 20, 1996
(the "Certificate of Designation") and those Common Stock Purchase Options to
purchase 100,000 shares of the Company's Common Stock (the "Options") as
identified in paragraph 6(a) above. With the exception of the Common Shares,
Series B Preferred Stock and Options granted herein, Margolis represents and
warrants that he neither owns nor has the right to acquire any additional
securities of the Company from the Company or from any third party.
6.c The Company is in the process of preparing a Registration Statement
on Form SB-2 (the "Registration Statement") to file with the Securities and
Exchange Commission for the purpose of, among other things, registering for
resale purposes shares held by certain existing security holders of the Company.
The Company has agreed to grant registration rights to Margolis in connection
with the resale of shares of common stock issuable upon conversion of the Series
B Preferred Stock in the manner set forth hereafter:
i. The Company has agreed to include the resale of the shares
issuable upon the conversion of the Series B Preferred Stock (the
"Shares") in accordance with the Registration Statement identified
above. The Company's obligation in this regard shall
3
<PAGE>
extend only to the inclusion of the Shares in a Registration Statement
filed under the Securities Act of 1933, as amended (the "Act") with the
Securities and Exchange Commission ("SEC"). The Company shall have no
obligation to assure the terms and conditions of distribution, to
obtain a commitment from an underwriter relative to the sale of the
Shares or to otherwise assume any responsibility for the manner, price
or terms of the distribution or sale of the Shares under the Act.
ii. All expenses incurred by the Company in connection with
preparing and filing the Registration Statement shall be borne by the
Company. Fees and expenses associated with the sale of the Shares shall
be borne by Margolis.
iii. In connection with the Registration Statement filed
hereunder, Margolis will furnish to the Company in writing such
information with respect to the securities held by him, and the
proposed distribution by him as shall be reasonably requested by the
Company in order to assure compliance with federal and applicable state
securities laws, as a condition precedent to including his Shares in
the Registration Statement. Margolis also shall agree to promptly
notify the Company of any changes in such information included in the
Registration Statement or prospectus as a result of which there is an
untrue statement of material fact or an omission to state any material
fact required or necessary to be stated therein in order to make the
statements contained therein not materially misleading in light of the
circumstances then existing. Margolis shall indemnify and hold harmless
the Company from and against any and all losses, claims, damages and
liabilities caused by any untrue statement of a material fact contained
in the Registration Statement or prospectus or any omission to state in
such Registration Statement or prospectus a
4
<PAGE>
material fact that is required to be stated therein or that is
necessary to make any statement contained therein not materially
misleading in light of the circumstances under which they were made,
that is based upon information furnished to the Company by Margolis or
on Margolis' behalf for use in such Registration Statement or
prospectus.
iv. In connection with such registration, Margolis agrees not
to effect sales thereof until notified by the Company of the
effectiveness of the Registration Statement, and thereafter will
suspend such sales after receipt of telegraphic or written notice from
the Company to suspend sales to permit the Company to correct or update
a prospectus. At the end of any period during which the Company is
obligated to keep a registration statement current, Margolis shall
discontinue sales of Shares pursuant to such registration statement
upon receipt of notice from the Company of its intention to remove from
registration the Shares covered by such Registration Statement which
remain unsold, and Margolis shall notify the Company of the number of
shares registered which remain unsold immediately upon receipt of such
notice from the Company.
7. In consideration for the stock options granted herein, continued
medical insurance benefits, release of claims and modification of the
non-competition convenants previously entered into by Margolis, the adequacy of
which he acknowledges, Margolis, on behalf of himself, his family, his heirs,
representatives, estate, successors and assigns, does hereby irrevocably and
unconditionally remise, release and forever discharge Company, and its parents,
subsidiaries, affiliates, directors, officers, agents, employees and any
employee benefit plans sponsored by Company or its subsidiaries or affiliates
(hereinafter severally and collective referred to as "Releasees") from any and
all liabilities, demands, acts, causes of action, damages or claims,
5
<PAGE>
known or unknown, that Margolis has or may have against any of the Releasees for
any actions up to and including the date of this Agreement, and the continuing
effects thereof, it being the intention of Margolis to affect a general release
of all such claims except those relative to any alleged breach of this Agreement
or the exhibits hereto by Company. This release pertains but is not limited to
any and all claims which were asserted, or could have been asserted by Margolis
or on his behalf, arising out of his employment and directorship with the
Company or any subsidiary or affiliate, or termination thereof, including but
not limited to, claims arising under federal, state, and/or local laws
prohibiting employment discrimination, including but not limited to Title VII of
the Civil Rights Act of 1964, as amended; Age Discrimination In Employment Act,
as amended; the Florida Civil Rights Act; the Metropolitan Dade County Ordinance
on Human Relations; the Employee Retirement Income Security Act of 1974 as
amended; the Americans with Disabilities Act; and all state or federal common
law or statutory law governing contract, torts and any claims for attorneys'
fees under these acts or any other law.
8. Company, its parents, subsidiaries, affiliates, directors, officers,
agents and employees do hereby irrevocably and unconditionally remise, release
and forever discharge Margolis from any and all liabilities, demands, acts,
causes of action, damages or claims, known or unknown, that they have or may
have against Margolis for any and all liabilities, demands, acts, causes of
action, damages or claims which the Company may have against Margolis for any
actions up to and including the date of this Agreement, and the continuing
effects thereof, it being the intention of the Company to affect a general
release of all such claims except those relating to any alleged breach of
Margolis' obligations under this Agreement, including but not limited to those
contained in paragraphs 9, 10 and 11.
6
<PAGE>
9. Margolis acknowledges that during his association with Company he
has been brought into contact with business plans, methods of operation,
advertising, sales and marketing materials, marketing strategies, records,
product development plans, strategic plans, trade secrets, customer sales
analysis, invoices, price list information or samples (collectively referred to
as "confidential information") regarding Company which have been disclosed to
him and known to him as a consequence of his employment relationship with
Company. Margolis agrees that he shall not in any manner, directly or
indirectly, use, for his benefit or the benefit of others, any confidential
information nor will he disclose to any third party whatsoever, or use for any
purpose, any such confidential information. Further, Margolis agrees that he
will not disparage or comment negatively upon the Company, its parent,
subsidiaries or affiliates, or any officer, employee, shareholder, director or
agent of any of these organizations. Nothing contained in this paragraph is
intended to restrict or limit Margolis' use of general knowledge or information
in the public domain, or knowledge or information he possessed prior to his
employment with Company.
10. For a period of six (6) months from the date of the last payment,
as described in Paragraph 3 herein, Margolis shall not under any circumstances,
directly or indirectly solicit any employee of the Company, or indirectly induce
or attempt to influence any employee of Company to leave the employ of the
Company. For a period of six (6) months from the date of the last payment, as
described in Paragraph 3 herein, Margolis shall not under any circumstances,
directly or indirectly, solicit any customers of the Company to do business with
any other business involved in insurance premium financing. Margolis further
acknowledges that while employed with the Company he was exposed to trade
secrets, valuable confidential business information, had substantial
relationships with specific existing and prospective customers of the Company,
7
<PAGE>
and that in order to protect the legitimate business interests of the Company,
it is necessary for him to enter into the following restrictive covenant:
Margolis agrees that for a period of six (6) months from the date of the last
payment, as described in Paragraph 3 herein, Margolis will not become engaged in
either as a principal, partner, director, officer, agent, employee, consultant,
or independent contractor, perform any services for remuneration or otherwise be
financially interested in any business located within the United States that is
primarily involved in insurance premium financing. However, nothing contained in
this Agreement shall prevent Margolis from holding for investment no more than
five (5%) percent of any class of equity securities of a company whose
securities are traded on a national security exchange. Margolis warrants and
represents that, based upon his prior experience with the Company and in the
financial services industry, the restrictive covenant which he has entered into
is reasonably necessary to protect the legitimate business interests of the
Company and that, as of the date in which he has entered into this Agreement, he
has not done any acts nor has he any current intentions and has made no plans to
do anything that are proscribed by the non-competition and non-solicitation
provisions contained above.
11. Margolis agrees that the terms set forth in this Agreement are
confidential and that he is not to disclose the terms and amounts paid to him
under this Agreement to any person with the exception of his attorneys,
accountants and immediate family members.
12. Margolis acknowledges that a breach of or a violation of the
covenants contained in Paragraphs 9, 10 and 11 above will have an irreparable,
material and adverse effect upon the Company, that damages arising from any such
breach or violation may be difficult to ascertain and that the Company will lack
an adequate remedy at law. Therefore, Margolis acknowledges that
8
<PAGE>
the Company will be entitled to obtain an injunction from any court having
jurisdiction over him and the Company to enjoin Margolis from any further
violation of this Agreement and to enforce his specific performance of the
covenants contained herein. In the event of a proven breach, Margolis agrees to
the entry of such an injunction or order for specific performance and to pay all
reasonable attorneys' fees and costs incurred by the Company in obtaining said
injunction.
13. Margolis further agrees, promises and covenants that neither he,
nor any person, organization or any other entity acting on his behalf or with
his consent, will charge, claim, sue or cause or permit to be filed, charged, or
claim, any action for damages or other relief (including injunctive,
declaratory, monetary relief or other) against Company, except for a default or
breach of this Agreement and the exhibits thereto, nor will Margolis voluntary
assist others in bringing such actions against Company, involving any matter
occurring in the past up to the date of this Agreement, whether or not it is
related to his employment with Company or involving and based upon any claims,
demands, causes of action, obligations, damages or liabilities which are the
subject of this Agreement. In the event Margolis breaches or files any lawsuit
or administrative action contrary to the release contained in Paragraph 4
herein, such conduct will constitute a breach of this Agreement, thereby
terminating any further duty of Company to make the severance payments and
continuation of insurance as set forth in Paragraph 3 herein, and shall obligate
Margolis to repay any monies paid to him (including all severance payments) and
the value of any fringe benefits paid to him under this Agreement.
14. Margolis agrees to make himself readily available, upon reasonable
notice to him, to assist the Company in matters requiring his experience and
expertise or to answer questions regarding matters occurring during his tenure
at the Company. Margolis agrees that he will,
9
<PAGE>
through June 30, 1997, make himself available on the above-stated basis to the
Company without any additional compensation.
15. Margolis acknowledges and agrees that the terms of this Agreement
were reached after extensive negotiations with his attorney, Mark Pachman, that
he has had a full and complete opportunity to discuss this Agreement with an
attorney of his own choosing, that in executing this Agreement he does not rely
and has not relied upon any statement or representation made by or on behalf of
the Company by any of its officers, agents, employees or attorneys, and that he
is acting on his own free will. Margolis further acknowledges and agrees that he
has entered into this Release knowingly and voluntarily, intending to be legally
bound, having had a full and complete opportunity to consider the terms thereof.
16. Margolis acknowledges that he has received this Separation
Agreement on December 5, 1996, and that he understands that he has twenty-one
(21) days after the foregoing date within which to consider this Release of
Claims before signing it. If Margolis signs and returns this document prior to
the twenty-first day, he does so voluntarily, waiving his right to the full
twenty-one (21) day period. Margolis acknowledges that he has been advised to
consult with an attorney of his choosing and that he has in fact consulted with
attorney Mark Pachman before signing this Release of Claims. Margolis
acknowledges and understands that for a period of seven (7) days after he signs
this Agreement that he may revoke or cancel it by written notification to Steve
Michaelson at the Company, and that this Release of Claims will not become
effective until that seven (7) day period has passed.
10
<PAGE>
17. Margolis acknowledges and agrees that his full-time employment and
directorship with Company has ended, that he waives all claims to be reinstated,
that he will never knowingly apply for employment with Company and that he will
not be so employed.
18. This Agreement shall not in any way be construed as an admission by
either party of any acts of wrong doing whatsoever against the other party or
any other person on the part of itself, its owners, managers, employees or
agents.
19. Margolis acknowledges that the amounts, benefits and
representations set forth in this Agreement constitute a full and complete
satisfaction of any and all claims by him of any kind and nature whatsoever from
the Company or any parent, affiliate or subsidiary, and that neither the Company
nor any parent, affiliate, subsidiary or successor will be obligated in any way
to provide his with future employment, compensation, benefits stock rights or
stock options other than those specifically provided herein.
20. If any provision of this Agreement is construed to be invalid,
illegal or unenforceable in any respect, the remainder of the Agreement shall
not be effected, and the remaining provisions of this Agreement shall be given
full force and effect without regard to the invalid, illegal or unenforceable
portions.
21. This Agreement shall be governed in all respects by the laws of the
State of Florida. Venue for all legal actions resulting from this Agreement, or
an alleged breach thereof, shall be in Dade County, Florida.
22. In any action for breech of this Agreement, the prevailing party
shall be entitled to recover its reasonable attorney's fees and costs.
11
<PAGE>
IN WITNESS WHEREOF, Margolis and the Company have executed this
Agreement intending to be legally bound hereby.
WARNING: THIS DOCUMENT CONTAINS A RELEASE OF ALL CLAIMS KNOWN AND UNKNOWN.
Witness:
/s/ Roberta Margolis /s/ Steven Margolis
- ---------------------------------- -----------------------------------
STEVEN MARGOLIS
Date: December 5, 1996
- ----------------------------------
Attest: /s/ Barry D. Zimmerman USA FINANCE, INC.
- ----------------------------------
By: /s/ Stephen Michaelson
-------------------------------
Signature Stephen Michaelson
----------------------
Name: Stephen Michaelson
--------------------------
Title: CEO
-------------------------
Date: 12/5/96
- ----------------------------------
12
<PAGE>
Attest: /s/ Barry D. Zimmerman NATIONAL-WIDE PREMIUM FINANCE CORP.
- ----------------------------------
By: /s/ Stephen Michaelson
-------------------------------
Signature Stephen Michaelson
----------------------
Name: Stephen Michaelson
--------------------------
Title: CEO
-------------------------
Date: 12/5/96
- ----------------------------------
Attest: /s/ Barry D. Zimmerman GOLD COAST FINANCE, INC.
- ----------------------------------
By: /s/ Stephen Michaelson
-------------------------------
Signature Stephen Michaelson
----------------------
Name: Stephen Michaelson
--------------------------
Title: V.P.
-------------------------
Date: 12/5/96
- ----------------------------------
Attest: /s/ Barry D. Zimmerman CONTRACT FUNDING CORP.
- ----------------------------------
By: /s/ Stephen Michaelson
-------------------------------
Signature Stephen Michaelson
----------------------
Name: Stephen Michaelson
--------------------------
Title: V.P.
-------------------------
Date: 12/5/96
- ----------------------------------
USA Finance, Inc.
1111 Park Center Road
Suite 300
Miami, FL 33169
October 15, 1996
Sands Brothers & Co., Ltd.
90 Park Avenue
New York, New York 10016
Gentlemen:
The undersigned, USA Finance, Inc., a Delaware corporation (the "Company"),
proposes to offer for sale, in a private placement, up to a maximum amount (the
"Maximum Amount") of (i) $1,000,000 principal amount 10% Convertible
Subordinated Debentures due one year from the date of issuance (each a
"Debenture" and collectively, the "Debentures") and (ii) three year warrants
(each a "Warrant" and collectively, the "Warrants") to purchase an aggregate of
55,000 shares of the Company's common stock, par value $.001 per share ("Common
Stock"); provided, however, that the initial closing hereunder (the "Initial
Closing") shall not occur until the Company has received and accepted
subscriptions for the total minimum of $250,000 principal amount of Debentures
and Warrants to purchase 13,750 shares of Common Stock (the "Minimum Amount").
The forms of Debenture and Warrant are annexed hereto respectively as Exhibit
A-1 and Exhibit A-2.
The Debentures and Warrants (collectively, the "Units") will be offered
pursuant to those terms and conditions acceptable to you and your counsel as
reflected in the final form of Confidential Term Sheet of the Company (together
with the exhibits and any supplements thereto, the "Term Sheet"). Each Unit
shall consist of (i) $50,000 principal amount of Debenture and (ii) a Warrant to
purchase 2,750 shares of Common Stock. The Units are being offered pursuant to
the Term Sheet in accordance with Regulation D promulgated under the Securities
Act of 1933 as amended (the "Securities Act").
Each prospective investor subscribing to purchase Units ("Investor") will
be required to deliver, among other things, a securities purchase agreement
("Securities Purchase Agreement") in the form to be provided to each offeree,
representing and warranting, among other things, that such Investor is an
"accredited investor" as such term is defined in Regulation D.
Sands Brothers & Co., Ltd. is sometimes referred to herein as "Sands
Brothers" or the "Placement Agent." The Term Sheet and the form of proposed
Securities Purchase Agreement between the Company and each Investor and the
exhibits which are part of the Term Sheet including, without limitation, the
Registration Rights Agreement between the Company and each of the Investors are
referred to herein collectively as the "Offering Documents." The offering of
Units described in the Offering Documents is referred to herein as the
"Offering."
The Units will be offered at a minimum investment of $50,000 on a "best
efforts, all-or-none" basis as to the Minimum Amount and on a "best efforts"
basis as to any amounts above the Minimum Amount exclusively by the Placement
Agent. The Company may, in its sole discretion, establish a limit on the
purchase of Units by a particular purchaser and may sell less than the minimum
investment of $50,000 of Units to investors who otherwise meet the suitability
standards set forth in the Memorandum. Purchases may be made by the Placement
Agent and its officers, directors, employees and affiliates or by officers,
directors, employees and affiliates of the Company. All such purchases may be
used to satisfy the Minimum Amount. Additionally, the Maximum Amount may be
increased at the mutual agreement of the Company and the Placement Agent.
The Company will prepare and deliver to the Placement Agent a reasonable
number of copies of the Offering Documents in form and substance satisfactory to
the Placement Agent and its counsel, which Offering Documents shall include
certified consolidated financial statements for the fiscal year ended December
31, 1995.
Capitalized terms used herein, unless otherwise defined or unless the
context otherwise indicates, shall have the same meanings provided in the Term
Sheet.
1. Appointment of Placement Agent. You are hereby appointed exclusive Placement
Agent of the Company for the purposes of assisting the Company on a "best
efforts" basis in finding qualified Investors pursuant to the Offering. The
Offering Period shall commence on the date of delivery and acceptance by the
Placement Agent of the Term Sheet (the "Commencement Date") and shall continue
until the earlier to occur of (i) the sale of the Maximum Amount; or (ii)
November 30, 1996 (as the same may be extended by the Placement Agent for an
additional 30 days or another period to be determined by mutual consent of the
Placement Agent and the Company). If the Minimum Amount is not sold prior to the
end of the Offering Period, the Offering will be terminated and all funds
received from Investors and held in a special non-interest bearing account (the
"Account") at Republic National Bank, New York, New York (the "Bank") will be
returned, without deduction or accrued interest thereon. You hereby accept such
agency and agree to assist the Company in finding qualified Investors
<PAGE>
pursuant to the Offering described in the Offering Documents. Your agency
hereunder is not terminable by the Company except upon termination of the
Offering.
As part of the Placement Agent's exclusive representation of the Company
with respect to the Offering, the Placement Agent shall assist the Company in
identifying potential investors and shall on behalf of the Company, contact such
potential investors and other potential investors as the Company may designate.
The Company agrees that, during the course of the Offering Period, neither it,
nor any of its management, nor any of its affiliates, shall initiate any
discussions with third parties with respect to the Offering and to the extent
any of such persons receives an inquiry from any third parties concerning the
Offering or any other convertible debt or equity financing related to the
Company, they will promptly identify to the Placement Agent the name of such
person and the date of such initial contact. Notwithstanding the foregoing, the
Company shall have the right to issue a convertible debt instrument ranking pari
passu with the Debentures to Angelo, Gordon & Co. or its affiliated entities
("AG & Co.") in principal amounts as follows: (i) during the Offering Period, a
principal amount not to exceed $1 million and (ii) following the Offering
Period, a principal amount equal to the difference, if any, between $2 million
and (X) any amounts sold to AG & Co. pursuant to (i) above and (Y) any amounts
raised in this Offering.
2. Representations and Warranties of the Company. The Company represents and
warrants as follows:
(a) Securities Law Compliance. The Offering Documents conform in all
respects with the requirements of the Securities Act and Regulation D
promulgated thereunder and with the requirements of all other published rules
and regulations of the United States Securities and Exchange Commission (the
"Commission") currently in effect relating to "private offerings" and/or
"accredited investors" of the type contemplated by the Company. The Offering
Documents will not contain an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. The
Offering Documents will not be amended or supplemented and no amendment or
supplement thereto will be made without the prior consent of the Placement
Agent.
(b) Organization. The Company, and each of the companies under its control
(each a "Subsidiary", and collectively, the "Subsidiaries"), is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all requisite corporate power and
authority to own and lease its properties, to carry on its business as currently
conducted and as proposed to be conducted. The Company and each Subsidiary is
duly qualified to do business in the states or jurisdictions described in the
Term Sheet. There is no jurisdiction in which the conduct of the Company's or
Subsidiary's business or ownership or leasing of its properties requires it to
be qualified to do business as a foreign corporation, except where such
qualifications have been obtained or the failure to be so qualified would not
have a material adverse effect on the business, financial condition or prospects
of the Company or such Subsidiary. The Company has all requisite power and
authority to execute and deliver this Agreement and to carry out the
transactions contemplated by this Agreement.
(c) Capitalization. All material aspects of the capitalization of the
Company are fully disclosed in the Term Sheet.
(d) Subsidiaries and Investments. Except as set forth in the Term Sheet,
the Company does not own, directly or indirectly, any capital stock, or other
equity ownership or proprietary interest, in any other corporation, association,
trust, partnership, joint venture or other entity. Each Subsidiary is wholly
owned directly by the Company.
(e) Financial Statements. The audited consolidated balance sheet of the
Company as of December 31, 1995 (the "December Balance Sheet") and the related
consolidated statements of operations, shareholders' equity and statements of
cash flow for the fiscal year ended December 31, 1995 certified by KPMG Peat
Marwick LLP and the unaudited consolidated balance sheet (the "June Balance
Sheet") of the Company as of June 30, 1996 (the "Balance Sheet Date"), and the
related unaudited consolidated statements of operations, stockholders' equity
and cash flows for the six-month period then ending, along with the review
report of KPMG Peat Marwick LLP (collectively, the "Financial Statements"), have
heretofore been delivered to the Placement Agent. Except as may be otherwise
indicated therein, the Financial Statements have been prepared in conformity
with Generally Accepted Accounting Principles consistently applied and present
fairly the financial position and results of operations of the Company as of the
dates and for the periods indicated. Except as may be otherwise indicated
herein, the Financial Statements of the Company as of the dates indicated, and
for the periods then ended, present fairly the financial position and results of
operations of the Company (and its Subsidiaries) as of the dates and for the
periods indicated.
(f) Absence of Undisclosed Liabilities. The Company has no material
outstanding claims, liabilities, obligations or
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<PAGE>
indebtedness, contingent or otherwise, whether asserted or unasserted, except as
disclosed in the Term Sheet or as set forth in the December Balance Sheet, the
June Balance Sheet, or referred to in any of the notes thereto. Except as set
forth in the Term Sheet, all liabilities of the Company and its Subsidiaries
incurred subsequent to the Balance Sheet Date have been incurred in the ordinary
course of business not involving borrowings which individually exceed $50,000
and which do not exceed $100,000 in the aggregate. Neither the Company nor any
Subsidiary is in default in respect of the terms or conditions of any
indebtedness.
(g) Absence of Changes. Subsequent to the respective dates as of which
information is given in the Term Sheet, the Company has operated its business
diligently and only in the ordinary course as theretofore conducted and, except
as may otherwise be set forth in the Term Sheet, there has been no: (i) material
adverse change in the condition (financial or otherwise), of the Company or any
Subsidiary; (ii) transaction otherwise than in the ordinary course of business;
(iii) issuance of any securities (debt or equity) or any rights to acquire any
such securities; (iv) damage, loss or destruction, whether or not covered by
insurance, with respect to any asset or property of the Company or any
Subsidiary; or (v) agreement to permit any of the foregoing.
(h) Patents, Trademarks and Copyrights, Etc. The Company and its
Subsidiaries own or are licensed or otherwise entitled to use all patents,
trademarks, trade names, service marks, copyrights, technology, know-how,
processes and other intellectual property used in the conduct of its business as
currently conducted and as proposed to be conducted. The Company and its
Subsidiaries have received no oral or written notice of any claims, have no
actual knowledge of any threatened claims, and know of no facts which would form
the basis of any claim, asserted by any person, to the effect that the sale or
use of any product or process now used or offered by the Company or any
Subsidiary infringes on any patents or infringes upon the use of any such
trademarks, trade names, service marks, copyrights, technology, know-how,
processes or other intellectual property of another person or challenges or
questions the validity or effectiveness of any such license or agreement. The
sale and use of any such products and processes by the Company and its
Subsidiaries, and the use of any such patents, trademarks, trade names, service
marks, copyrights, technology, know-how, processes or other intellectual
property by the Company and its Subsidiaries, does not infringe on the rights of
any person.
(i) Litigation. Except as described in the Term Sheet, there is no action,
suit, investigation, customer complaint, claim or proceeding at law or in equity
by or before any arbitrator, governmental instrumentality or other agency now
pending or threatened against the Company or any Subsidiary, nor, to the best of
the Company's knowledge, does there exist any basis therefor which, in either
case, if adversely determined could in any one case or in the aggregate, have a
material adverse effect on the business of the Company or any Subsidiary.
Neither the Company nor any Subsidiary is subject to any judgment, order, writ,
injunction or decree of any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign. The Company agrees to promptly notify the Placement Agent of the
commencement of any litigation or proceedings against the Company or any
Subsidiaries or any of its/their respective officers or directors in connection
with the sale of the transaction contemplated in the Offering Documents.
(j) Non-Defaults; Non-Contravention. Except as described in the Term Sheet,
neither the Company nor its Subsidiaries is in default in the performance or
observance of any obligation (i) under its Certificate of Incorporation, as
amended, or its By-laws, or any indenture, mortgage, contract, purchase order or
other agreement or instrument to which the Company is a party or by which it or
any of its property is bound or affected; or (ii) with respect to any order,
writ, injunction or decree of any court of any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign and there exists no condition, event or act
which constitutes, nor which after notice, the lapse of time or both, would
constitute, a default under any of the foregoing.
(k) Taxes. The Company and its Subsidiaries have filed all federal, state,
local and foreign tax returns which are required to be filed by them, and all
such returns are true and correct in all material respects. The Company and its
Subsidiaries have paid all taxes pursuant to such returns or pursuant to any
assessments received by them and have withheld all amounts which they are
obligated to withhold from amounts owing to any employee, creditor or third
party. The tax returns of the Company and of its Subsidiaries have never been
audited by any state, local or federal authorities. The Company and its
Subsidiaries have not waived any statute of limitations with respect to taxes or
agreed to any extension of time with respect to any tax assessment or
deficiency. All tax elections have been made by the Company and its Subsidiaries
in accordance with generally accepted practices. No deficiency assessment with
respect to or proposed adjustment of the Company's and its Subsidiaries'
federal, state, county or local taxes is pending or, to the best of the
Company's knowledge, threatened. There is no tax lien, whether imposed by any
federal, state, county or local taxing authority, outstanding against the
assets, properties or business of the Company or of its Subsidiaries. Neither
the Company nor any of its Subsidiaries nor any of its/their respective present
or former stockholders has ever filed an election pursuant to Section 1362 of
the Internal Revenue Code of 1986, as amended (the "Code"), that the Company or
any of its Subsidiaries be taxed as an S corporation.
(l) Agreements. Each material contract of the Company and its Subsidiaries
is valid and binding on the Company and its Subsidiaries, as applicable and the
Company has not received any oral or written notice that any such contract is
not binding on any party thereto. The Company and its Subsidiaries have
performed in all material respects all obligations to have been performed on
such contracts through the date hereof and neither the Company nor its
Subsidiaries is in default in any material respect under any such contract.
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<PAGE>
(m) Compliance with Laws, Licenses, Etc. The Company and its Subsidiaries
have received no oral or written notice of any violation of, or noncompliance
with, any federal, state, local or foreign laws, ordinances, regulations,
licenses or orders (including, without limitation, those relating to, insurance,
occupational safety and health and other labor laws, ERISA, federal securities
laws, equal employment opportunity, consumer protection, credit reporting,
"truth-in-lending," and warranties and trade practices) applicable to its
business or the business of any Subsidiary, the violation of, or noncompliance
with which, would have a material adverse effect on the Company's business or
operations, or that of any Subsidiary, and the Company knows of no facts or set
of circumstances which would give rise to such a notice. The Company and its
Subsidiaries have all licenses and permits and other governmental certificates,
authorizations and permits and approvals (collectively, "Licenses") required by
every federal, state and local government or regulatory body for the operation
of their business and the use of their properties. The Licenses are in full
force and effect and no violations are or have been recorded in respect of any
License and no proceeding is pending or threatened to revoke or limit any
thereof. The Company and its Subsidiaries have not received any written opinion
or memorandum from legal counsel providing that it/they has taken any action
which has resulted in, or is reasonably likely to result in, the Company or any
of its Subsidiaries incurring any liability which may be material to its/their
respective business, prospects, financial condition, operations, property or
affairs. The Company and its Subsidiaries shall comply with all applicable laws,
rules, regulations and orders, the noncompliance with which could materially
adversely affect its/their respective business or condition, financial or
otherwise.
(n) Authorization of Agreement, Etc. Each of this Agreement, the Offering
Documents and all other agreements or documents required to be executed and
delivered by the Company in connection with the Offering (collectively the
"Ancillary Documents") has been or will be duly executed and delivered by the
Company and the execution, delivery and performance by the Company of this
Agreement and the Ancillary Documents has been duly authorized by all requisite
corporate action by the Company; and each constitutes, or will constitute, the
legal, valid and binding obligation of the Company, enforceable in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, usury or other similar laws affecting the
enforcement of creditors' rights generally. The (i) execution, delivery and
performance of this Agreement; (ii) the issuance, sale and delivery of the
Debentures and (iii) the issuance and delivery of the shares of Common Stock
issuable upon conversion of the Debentures and exercise of the Warrants
(collectively, the "Reserved Shares") will not (X) violate any provision of law
or statute or any order of any court or other agency of government binding on
the Company or its Subsidiaries; or (Y) conflict with or result in any breach of
any of the terms, conditions or provisions of, or constitute (with due notice or
lapse of time or both) a default under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets of
the Company or of its Subsidiaries under the Certificate of Incorporation, as
amended, or By-Laws of the Company or of its Subsidiaries or any indenture,
mortgage, lease agreement or other agreement or instrument to which the Company
or any of its Subsidiaries is a party or by which it or any of its property is
bound or affected, except for such conflict, breach or default as to which
requisite waivers or consents shall have been obtained by the Company or by its
Subsidiaries and delivered to the Investors by the time of Closing.
(o) Authorization of Debentures and Warrants. The issuance, sale and
delivery of the Debentures and the Warrants have been duly authorized by all
requisite corporate action of the Company, and when so issued, sold and
delivered, (i) the Debentures will be duly executed and delivered, binding
obligations of the Company and enforceable in accordance with their terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, usury or other similar laws affecting the enforcement of
creditors' rights generally and the Company shall have paid all taxes, if any,
in respect of the issuance thereof and (ii) the Warrants will be duly executed
and delivered, validly issued and outstanding and fully paid and nonassessable
and will be free and clear of all liens, charges, claims, encumbrances,
restrictions or preemptive or any other similar rights imposed by or through the
Company, except as waived prior to the Initial Closing, as disclosed herein or
as shall be disclosed in the Offering Documents and the Company shall have paid
all taxes, if any, in respect of the issuance thereof. The offer and sale of the
Units is exempt from the registration requirements of the Securities Act and the
rules and regulations promulgated thereunder and the Securities will be issued
in compliance with all applicable federal securities laws.
(p) Authorization of Reserved Shares. The issuance, sale and delivery by
the Company of the Reserved Shares have been duly authorized by all requisite
corporate action of the Company, and the Reserved Shares have been duly reserved
for issuance upon conversion of the Debentures and exercise of all or any of the
Warrants, and when so issued, sold and delivered, the Reserved Shares will be
validly issued and outstanding, duly executed, issued and delivered, fully paid
and nonassessable, free and clear of all liens, charges, claims, encumbrances,
restrictions or preemptive or any other similar rights and the Company shall
have paid all taxes, if any, in respect of the issuance thereof and the Reserved
Shares will not be subject to any preemptive or any other similar rights of the
shareholders of the Company or others which rights shall not have been waived
prior to the time of acceptance by the Company of the first Investor's
Securities Purchase Agreement
(q) No Consents. No permit, consent, approval, authorization, order or
filing with any court or governmental authority is required to consummate the
transactions contemplated by this Agreement, except that the offer and sale of
the Units in certain jurisdictions may be subject to the provisions of the
securities or Blue Sky laws of such jurisdictions.
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<PAGE>
(r) Disclosure. Neither this Agreement nor any other document, certificate
or written statement to be furnished to the Investors by or on behalf of the
Company in connection with the transactions contemplated hereby, including the
Offering Documents, contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact necessary in order to make
the statements contained herein and therein not misleading. There is no fact
known to the Company which materially adversely affects the business operations,
affairs, prospects, conditions, properties or assets of the Company or of its
Subsidiaries (hereinafter "Material Facts") which has not been disclosed in the
Term Sheet. To the extent Material Facts become known to the Company subsequent
to the date hereof, such facts will be set forth in the Term Sheet and/or in the
other documents, certificates or statements furnished to the Investors by or on
behalf of the Company pursuant hereto.
3. Representations, Warranties, and Covenants of the Placement Agent. The
Placement Agent represents, warrants and covenants as of the date hereof as
follows, with such representations, warranties and covenants to be true and
correct in all material respects as of the date of any Closing hereunder:
(a) Authorization of Agreement Etc. This Agreement has been duly and
validly authorized, executed and delivered by or on behalf of the Placement
Agent and the execution, delivery and performance by the Placement Agent of this
Agreement has been duly authorized by all requisite corporate action by the
Placement Agent; and each constitutes, or will constitute, the legal, valid and
binding obligation of the Placement Agent, enforceable in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, usury or other similar laws affecting the enforcement of
creditors' rights generally.
(b) Compliance with the Securities Act. The Placement Agent will not
knowingly take any action which will result in the Units being offered or sold
in a manner which does not comply with the provisions of Regulation D under the
Securities Act.
(c) Compliance with Offering Documents. The Placement Agent will offer the
Units in accordance with the Offering Documents and will deliver the Offering
Documents to each Investor before accepting a signed copy of the Securities
Purchase Agreement or payment for any Units.
(d) Compliance with Laws of Jurisdictions. The Placement Agent will offer
the Units only in those jurisdictions in which it is permitted to sell the Units
pursuant to the laws of said jurisdiction.
(e) Escrow Arrangements. The Placement Agent will promptly deposit funds
received from Investors in the Account with the Bank and hold the funds in
accordance with the terms of this Agreement and hold the Offering Documents for
the benefit of the Investors and the Company. The Bank shall release funds from
such Account only upon receipt of instruction executed by each of the Placement
Agent and the Company. If the Initial Closing does not take place before the
termination of the Offering Period, the Placement Agent will instruct the Bank
to return the funds to the Investors without any deduction or interest thereon.
(f) Broker/Dealer. The Placement Agent is licensed as a broker/dealer with
the Securities & Exchange Commission and is in good standing with the National
Association of Securities Dealers, Inc. Additionally, the Placement Agent is
licensed as a broker/dealer or is otherwise qualified to offer and sell the
Units in all jurisdictions in which the Units will be offered for sale.
4. Closing: Placement and Fees
(a) Closing. Upon receipt from Investors, in a form acceptable to the
Company and the Placement Agent, of Securities Purchase Agreements for the
Minimum Amount and other relevant documentation in form and substance
satisfactory to the Company and the Placement Agent, the Initial Closing of the
purchase and sale of such Units shall take place at the offices of counsel for
the Placement Agent, 90 Park Avenue, New York, New York, at a time and date
agreed upon between the Placement Agent and the Company. At the Initial Closing,
payment for the Units shall be made against delivery of certificates and
instruments representing the Units sold. After the Initial Closing, all proceeds
received from the sale of the Units sold after the Initial Closing date will
continue to be deposited in the Account maintained with the Bank. Following the
Initial Closing date, the Placement Agent will continue to assist the Company in
locating qualified Investors during the remainder of the Offering Period. If a
subsequent Closing does not take place within the Offering Period pursuant to
the terms of the Offering, the Placement Agent will return the funds to the
additional Investors, without deduction or interest thereon. Any Subsequent
Closing will be made on the same terms as the Initial Closing, as set forth in
this Section 4(a).
(b) Procedures at Closing. At the Closing:
(i) The Placement Agent on behalf of itself and the Investors shall
receive the opinion of Buchanan Ingersoll ("Company Counsel"), dated the Closing
date, in such form as may be reasonably acceptable to the Placement Agent and
its counsel.
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(ii) Intentionally Omitted.
(iii) Counsel for the Placement Agent and Company Counsel shall
receive certificates from the Company, signed by the President or a Vice
President thereof, certifying (A) that the representations and warranties
contained in Section 2 hereof are true and accurate at the Initial Closing (and
each Subsequent Closing) with the same effect as though expressly made at the
Initial Closing (and each Subsequent Closing); and (B) that attached thereto is
(1) a true and correct copy of resolutions adopted by the Company's Board of
Directors authorizing (i) the execution, delivery and performance of this
Agreement and the Ancillary Documents, and (ii) the issuance of the Debentures,
the Warrants, and the Reserved Shares, and certifying that such resolutions have
not been modified, rescinded or amended and are in full force and effect; and
(2) a true and correct copy of a resolution adopted by the Company's Board of
Directors and by each of the Company's Subsidiaries, authorizing the execution,
delivery and performance of each document to which it is a party, and that such
resolutions have not been modified, rescinded or amended and are in full force
and effect.
(iv) There shall be delivered on behalf of each Investor one copy of
the Securities Purchase Agreement and Registration Rights Agreement signed by
each Investor.
(v) The Placement Agent shall have received certificates of good
standing of the Company, dated as of a recent date, from the Secretary of State
of the State of and certificates of good standing of each of the Company's
Subsidiaries, dated as of a recent date, by the Secretary of State of the
jurisdictions of incorporation of the Subsidiaries.
(vi) At the Initial Closing, the Placement Agent shall instruct the
Bank to pay to the Company out of the funds on deposit in the Account, as such
funds are received from Investors whose Securities Purchase Agreements have been
accepted.
(vii) At each Subsequent Closing, the Placement Agent shall receive
certificates of the Company signed by the Chief Executive Officer and the Chief
Financial Officer thereof, in form and substance satisfactory to its counsel,
substantially the same in scope and substance as the certificates furnished to
the Placement Agent and the Company at the Initial Closing date pursuant to this
Section, except that such certificates, where appropriate, shall cover the Units
purchased and sold at each Subsequent Closing.
(c) Blue Sky. Where appropriate, counsel for the Placement Agent shall
prepare a summary blue sky survey stating the extent to which and the conditions
upon which offers and sales of the Units may be made in certain jurisdictions.
Blue Sky applications shall be made in such states and jurisdictions as shall be
requested by the Placement Agent. It is understood that such survey may be based
on or rely upon (i) the representations of each Investor set forth in the
Securities Purchase Agreement delivered by such Investor; (ii) the
representations, warranties and agreements of the Company and of its
Subsidiaries set forth herein; (iii) the representations and warranties of the
Placement Agent set forth herein; and (iv) the representations of the Company
and of its Subsidiaries set forth in the certificate to be delivered at the
Closing pursuant to paragraph 4(b)(iii) hereof.
(d) Placement Fee and Expenses. Simultaneously with payment for and
delivery of the Units at the Initial Closing (and each Subsequent Closing) as
provided in paragraph 4(a) above, the Company shall at such Closing pay to the
Placement Agent a commission equal to ten (10%) percent of the aggregate
purchase price of the Units sold. Additionally, from the proceeds of the Initial
Closing, the Company shall pay all Placement Agent's reasonable counsel
expenses, disbursements and fees, not to exceed the sum of $10,000 (exclusive of
the blue sky legal expenses hereinafter described). Additionally, at the Initial
Closing, the Company shall pay the Placement Agent the sum of $25,000 in
consideration of its delivery of a "fairness" opinion respecting the fair market
value of the Company's purchase of Gold Coast Finance, Inc. and National-Wide
Premium Finance Co. The Company shall also pay filing fees, printing costs,
postage and mailing expenses with respect to the transmission of the Offering
and Ancillary Documents, registrar and transfer agent fees, issue and transfer
taxes, if any, and counsel fees of the Placement Agent in connection with the
qualification of the Units under the securities or blue sky laws of the states
which the Placement Agent shall designate at a fee of Seven Thousand Five
Hundred ($7,500.00) Dollars, plus expenses and disbursements. The Company also
shall pay for the costs of placing "tombstone advertisements" in any
publications which may be selected by the Placement Agent, all costs and
expenses in connection with the establishment and maintenance of the Account
referred to in paragraph I of this Agreement, and all other costs and expenses
incident to the performance of its obligations hereunder which are not otherwise
specifically provided for in this paragraph 4(d), including the reasonable cost
of transaction memorabilia determined at the reasonable discretion of the
Placement Agent.
(e) Delivery of Documents. At each Subsequent Closing after the Initial
Closing, there shall be delivered an update of the documents delivered pursuant
to this Section 4.
5. Covenants of the Company.
(a) Intentionally Omitted.
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(b) Use of Proceeds. The net proceeds of the Offering of the Units will be
used by the Company, as more fully described in the Term Sheet, for the purposes
to be set forth in the Term Sheet. In no event shall any of such proceeds be
used to reduce or satisfy the Company's indebtedness in favor of Odyssey Capital
Group, L.P.
(c) Expenses of Offering. The Company shall be responsible for, and shall
bear all expenses directly and necessarily incurred in connection with the
proposed financing, including, but not limited to, the costs of preparing,
printing and filing the Offering and Ancillary Documents to be used in
connection with the Offering contemplated hereby and all amendments and
supplements thereto; preparing, printing and delivering exhibits to the Offering
and Ancillary Documents; preparing, printing and delivering all Placement Agent
and selling documents, including, but not limited to, this Agreement and the
blue sky memorandum, the Debentures, the Warrant certificates, blue sky legal
fees not to exceed $7,500 (excluding fees and disbursements), filing fees and
the reasonable fees and disbursements of the Placement Agent's counsel not to
exceed $10,000 (exclusive of blue sky counsel fees) and the other fees and
expenses set forth above. As promptly as practicable after the Closing date, the
Company shall prepare, at its own expense, hard cover "bound volumes" relating
to the Offering and will distribute such two (2) bound volumes to the
individuals designated by counsel to the Placement Agent.
(d) Intentionally Omitted.
(e) Financial Advisory Agreement. Reference is hereby made to that certain
letter agreement, dated August 14, 1996, between the Company and the Placement
Agent ("Financial Advisory Agreement"), which is specifically incorporated
herein by this reference. The Company hereby acknowledges that all terms and
conditions of the Financial Advisory Agreement shall continue in effect
following the execution, as well as any early termination, of this Agreement,
including, without limitation, the right of first refusal provisions with
respect to subsequent equity financings and fees payable to the Placement Agent
upon consummation of certain debt financings.
(f) Intentionally Omitted.
(g) Early Termination by the Company. Anything contained herein to the
contrary notwithstanding, in the event that, following the date of this
Agreement until the termination of the Offering Period, the Company desires to
terminate this Agreement for any reason, Sands Brothers has the right, but not
the obligation, to agree to such early termination upon the payment by the
Company to Sands Brothers of a sum equal to the placement fees and expenses
(which expenses shall be limited to Sands Brothers' legal fees and blue sky
legal fees) that Sands Brothers would have received pursuant to paragraph 4(d)
of this Agreement had the Maximum Amount been sold but for the early termination
of this Agreement.
(h) No Closing. Anything set forth herein to the contrary notwithstanding,
in the event that, for any reason other than termination hereof by the Company
in accordance with the terms of Section 5(g) above, a Closing does not occur in
accordance with the terms provided herein, no amounts shall be payable further
to Sands Brothers hereunder, except for Sands Brothers' legal fees and blue sky
legal fees as in such amounts as heretofore provided. In no event shall Sands
Brothers be responsible for any of the Company's fees, costs or expenses and the
Company shall pay all expenses of the Offering and the preparation of the
Offering and Ancillary Documents. The Company shall reimburse Sands Brothers for
any out-of-pocket expenses (including, but not limited to, reasonable counsel
fees and expenses) which Sands Brothers may incur in connection with the
enforcement of its rights hereunder.
(i) Placement Agent's Board Representative; Financial Advisory Committee.
Subject to the sale of at least ten (10) Units, the Placement Agent and its
successors shall have the right to designate one nominee for election, at its or
their option, either as a member of or non-voting advisor to the Board of
Directors of the Company and the Company will use its best efforts to cause such
nominee to be elected and continued in office as a director of the Company or
as such advisor until the expiration of two (2) years from the consummation of
the Offering. Following the election of such nominee as a director or advisor,
such person shall attend meetings of the Board and receive no more or less
compensation than is paid to other non-officer directors of the Company for
attendance at meetings of the Board of Directors of the Company and shall be
entitled to receive reimbursement for all reasonable costs incurred in attending
such meetings including, but not limited to, food, lodging and transportation.
The Company agrees to indemnify and hold Sands Brothers and its designee
harmless, to the maximum extent permitted by law, against any and all claims,
actions, awards and judgments arising out of its/his service as a director or
advisor (except for claims arising out of its/his gross negligence or wilful
misconduct) and, in the event the Company maintains a liability insurance policy
affording coverage for the acts of its officers and directors, to include Sands
Brothers, its designee and such director or advisor as an insured under such
policy. The rights and benefits of such indemnification and the benefits of such
insurance shall, to the extent possible, extend to such designee and the
Placement Agent insofar as it may be, or may be alleged to be, responsible for
such director or advisor.
If the Placement Agent does not exercise its option to designate a member of or
advisor to the Board of Directors of the Company, the Placement Agent shall
nonetheless have the right to send a representative (who need not be the same
individual from
7
<PAGE>
meeting to meeting) to observe each meeting of the Board of Directors. The
Company agrees to give Placement Agent notice of each such meeting and to
provide Placement Agent with an agenda and minutes of the meeting no later than
it gives such notice and provides such items to the directors.
Additionally, subject to the sale of at least ten (10) Units, the Company
shall organize a Financial Advisory Committee at Closing consisting of four (4)
individuals, three of whom shall be directors of the Company (of which one of
such directors shall be the Sands nominee) and one of whom shall be a
non-director Sands Brothers' nominee. The Financial Advisory Committee shall
advise the Company from time to time on general financial matters and strategic
planning and shall remain in effect throughout such period as the Placement
Agent retains a designee on the Board of Directors of the Company.
6. Indemnification.
(a) Terms of Indemnification. The Company agrees to indemnify and hold
harmless the Placement Agent and its agents, stockholders, officers and
directors, and each person, if any, who controls the Placement Agent, as
follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever arising out of any untrue statement or alleged untrue statement of a
fact contained in the Offering Documents or the omission or alleged omission
therefrom of a fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, unless
such untrue statement or omission was made in the Offering or Ancillary
Documents in reliance upon and in conformity with information furnished in
writing to the Company in connection therewith by the Placement Agent expressly
referenced therein.
(ii) against any and all loss, liability, claim, damage and expense
whatsoever to the extent of the aggregate amount paid in settlement of any
litigation, commenced or threatened, or any claim whatsoever based upon any such
untrue statement or omission or any such alleged untrue statement or omission;
and
(iii) against any and all expense whatsoever incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or any
claim whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, to the extent that any such expense is not
paid under clause (i) or (ii) above.
(b) Indemnity under Securities Laws. The Company agrees to indemnify and
hold harmless the Placement Agent and its agents, and each person, if any, who
controls the Placement Agent, to the same extent as the foregoing Indemnity,
against any and all loss, liability, claim, damage and expense whatsoever
directly arising out of the exercise by any person of any right under the
Securities Act or the Exchange Act or the securities or blue sky laws of any
state on account of violations of the representations, warranties or agreements
set forth herein.
(c) If any action is brought against the Placement Agent or any of its
officers, directors, stockholders, employees, agents, advisors, consultants and
counsel or any controlling persons of the Placement Agent (each, an "Indemnified
Party" and collectively, "Indemnified Parties"), in respect of which indemnity
may be sought against the Company pursuant to Sections 6(a) or 6(b) above, each
such Indemnified Party shall promptly notify the Company (the "Indemnifying
Party") in writing of the institution of such action (but the failure to so
notify shall not relieve the Indemnifying Party from any liability it may have
under this Section 6 unless such failure results in the imposition of a default
judgment which cannot be reopened) and the Indemnifying Party shall promptly
assume the defense of such action, including the employment of counsel
reasonably satisfactory to each such Indemnified Party and payment of expenses.
Each such Indemnified Party shall have the right to employ its own counsel in
any such case, but the fees and expenses of such counsel shall be at the expense
of each such Indemnified Party unless the employment of such counsel shall have
been authorized in writing by the Indemnifying Party in connection with the
defense of such action or the Indemnifying Party shall have not have promptly
employed counsel reasonably satisfactory to each such Indemnified Party to have
charge of the defense of such action or each such Indemnified Party shall have
reasonably concluded that there may be one or more legal defenses available to
it or them or to other Indemnified Parties which are different from or
additional to those available to one or more of the Indemnifying Parties and it
would be inappropriate for the same counsel to represent both parties due to
actual or potential differing interests between them, in any of which events
such fees and expenses shall be borne by the Indemnifying Party and the
Indemnifying Party shall not have the right to direct the defense of such action
on behalf of each Indemnified Party. Anything in this Section 6(c) to the
contrary notwithstanding, the Indemnifying Party shall not be liable for any
settlement of any such claim or action effected without its written consent,
which consent shall not be unreasonably withheld. The Company agrees to promptly
notify the Placement Agent of the commencement of any litigation or proceedings
against the Company or any of its officers or directors in connection with the
sale of the Units or the Term Sheet
(d) Contribution. In order to provide for just and equitable contribution
in any case in which (i) an indemnified party makes a claim for indemnification
pursuant to this Section 6, but it is judicially determined (by the entry of a
final judgment or decree by a court
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<PAGE>
of competent jurisdiction and the expiration of time to appeal or the denial of
the last right of appeal) that such indemnification may not be enforced in such
case; notwithstanding the fact that the express provisions of this Section 6
provide for indemnification in such case; or (ii) contribution under the
Securities Act may be required on the part of any indemnified party, then each
indemnifying party shall contribute to the amount paid as a result of such
losses, claims, damages, expenses or liabilities (or actions in respect thereof)
(A) in such proportion as is appropriate to reflect the relative benefits
received by each of the contributing parties, on the one hand, and the party to
be indemnified on the other hand, from the Offering of the Units; or (B) if the
allocation provided by clause (A) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of each of the
contributing parties, on the one hand, and the party to be indemnified on the
other hand, in connection with the statements or omissions that resulted in such
losses, claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. In any case where the Company is a contributing party
and the Placement Agent is the indemnified party, the relative benefits received
by the Company on the one hand, and the Placement Agent, on the other, shall be
deemed to be in the same proportion as the total net proceeds from the Offering
of the Units (before deducting expenses) bear to the total Placement Agent
commissions received by the Placement Agent hereunder, in each case as set forth
in the table on the cover page of the Term Sheet. Relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company, or by the
Placement Agent, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, expenses or liabilities (or actions in respect thereof)
referred to above in this subsection (c), shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating, preparing or defending any such action or claim.
Notwithstanding the provisions of this subsection (c), the Placement Agent shall
not be required to contribute any amount in excess of the Placement Agent
commissions applicable to the Units placed by the Placement Agent hereunder. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. For purposes of this
Section 6, each person, if any, who controls the Company within the meaning of
the Securities Act, each officer of the Company who has signed the Term Sheet,
and each director of the Company shall have the same rights to contribution as
the Company, subject in each case to this subsection (c). Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect to which a claim for
contribution may be made against another party or parties under this subsection
(c), notify such party or parties from whom contribution may be sought, but the
omission so to notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any obligation it or they may
have hereunder or otherwise than under this subsection (c), or to the extent
that such party or parties were not adversely affected by such omission. The
contribution agreement set forth above shall be in addition to any liabilities
which any indemnifying party may have at common law or otherwise.
7. Miscellaneous.
(a) General. Sands Brothers' obligation to proceed with the Offering is
conditioned upon Sands Brothers' due diligence investigation of the Company. The
Company shall supply Sands Brothers' with such financial statements, contracts
and other corporate records and documents as may be requested of it. In
addition, Sands Brothers shall be fully informed by the Company of any events
which might have a material affect on the financial condition of the Company or
of any of its Subsidiaries. If, in the opinion of Sands Brothers, the condition
of the Company, or the condition of any of its Subsidiaries, financial or
otherwise, and its/their prospects are affected in a material and/or adverse
manner and do not fulfill the expectation of Sands Brothers, it shall have the
sole discretion to review and determine its continued interest in the Offering.
(b) Survival. Any termination of the Offering without consummation thereof
shall be without obligation on the part of any party except that the provisions
of Sections 5(c), 5(e), 5(g) and 5(h) hereof and the indemnification provisions
provided in Section 6 hereof shall survive any termination and shall survive
each Closing. Notwithstanding anything provided herein to the contrary, the
provisions of Section 4(d) hereof shall survive the termination of the Offering
Period and shall remain in full force and effect with respect to all sources of
potential financing that Placement Agent directly or indirectly introduced to
the Company who invest, or commit to invest, in the Company at any time during
the twelve month period commencing the day that the Offering Period terminates.
(c) Representations, Warranties and Covenants to Survive Delivery. The
respective representations, warranties, indemnities, agreements, covenants and
other statements of the Company and its Subsidiaries, and where appropriate,
its/their respective principal stockholders, shall survive execution of this
Agreement and delivery of the Units and the termination of this Agreement.
(d) No Other Beneficiaries. This Agreement is intended for the sole and
exclusive benefit of the parties hereto and their respective successors and
controlling persons, and no other person, firm or corporation shall have any
third-party beneficiary or other rights hereunder.
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<PAGE>
(e) Governing Law. This Agreement shall be governed by and construed in
accordance with the law of the State of New York. The parties hereby agree:
(i) in any legal proceeding brought in connection with this Agreement or the
transactions contemplated hereby, to irrevocably submit to the nonexclusive in
personam jurisdiction of (A) any state or federal court of competent
jurisdiction sitting in the State of New York, County of New York; or (B) in the
event that any party is a defendant in any legal proceeding in which it seeks to
join the other as a third party defendant, then, any state or federal court in
which such proceeding has properly been brought, and consents to suit therein;
and (ii) to waive any objection they may now or hereafter have to the venue of
such proceeding in any such court or that such proceeding was brought in an
inconvenient court.
(f) Notices. All notices, requests, demands and other communications which
are required or may be given under this Agreement shall be in writing and shall
be deemed to have been duly given when delivered personally, receipt
acknowledged, or five (5) days after being sent by registered or certified mail,
return receipt requested, postage prepaid. All notices shall be made to the
parties at the addresses designated above, or at such other or different
addresses which a party may subsequently provide with notice thereof, and to
their respective legal counsel, as follows:
(i) If to the Placement Agent, to:
Sands Brothers & Co., Ltd.
90 Park Avenue
New York, NY 10016
Attn: Mr. Alan Bluestine
V.P. - Corporate Finance
- - with a copy to -
Littman Krooks & Roth, P.C.
120 West 45th Street
New York, NY 10036
Attn: Mitchell C. Littman, Esq.
or to such other person or address as the Placement Agent shall furnish the
Company in writing;
(ii) If to the Company, to:
USA Finance, Inc.
1111 Park Center Road
Suite 300
Miami, FL 33169
- - with a copy to -
Buchanan Ingersoll
Two Logan Square; 12th Floor
18th and Arch Streets
Philadelphia, PA 19193-2771
Attn: Stephen Cohen, Esq.
or to such other person or address as the Company shall furnish the Placement
Agent in writing.
(g) Counterparts. This Agreement may be signed in counterparts with the
same effect as if both parties had signed one and the same instrument.
(h) Reimbursement. Notwithstanding the non-occurrence of a Closing, or any
other condition, in no event shall the Placement Agent be responsible for any of
the Company's fees, costs or expenses; however, the Company shall reimburse the
Placement Agent for any out-of-pocket expenses (including, but not limited to,
reasonable counsel fees and expense) which the Placement Agent may incur in
connection with the enforcement of its rights hereunder.
(i) Form of Signature. The parties hereto agree to accept a facsimile
transmission copy of their respective signatures as evidence of their respective
actual signatures to this Agreement; provided, however, that each party who
produces a facsimile signature
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<PAGE>
agrees, by the express terms hereof, to place, immediately after transmission of
his or her signature by fax, a true and correct original copy of his or her
signature in overnight mail to the address of the other party.
(j) Modification. This Agreement (i) may only be modified by a written
instrument which is executed by both parties thereto, (ii) constitutes the
entire agreement between the parties, and (iii) shall be binding upon and inure
to the benefit of both parties hereto and their respective successor and
assignees.
(k) Non-Circumvention. Each of the Company and the Placement Agent each
agree that no effort shall be made to circumvent the terms and conditions of
this Agreement or gain a fee, commission, remuneration, consideration or benefit
whatsoever. With respect to any attempt at circumvention of this Agreement, the
injured party is entitled to seek any and all legal remedies, fees or
compensation equal to those received or committed or agreed to be paid pursuant
to the terms of this Agreement as the same are due and payable to the
circumvented party under the terms of this Agreement.
(l) Waiver of Breach. The waiver by either the Placement Agent or the
Company of any provision of this Agreement shall not be construed as a waiver of
any subsequent breach hereof.
If you find the foregoing is in accordance with our understanding, kindly
sign and return to us a counterpart hereof, whereupon this instrument along with
all counterparts will become a binding agreement between us.
Very truly yours,
USA FINANCE, INC.
By: /s/ Stephen E. Michaelson
------------------------------------
Name: Stephen E. Michaelson
Title: Chief Executive Officer
Agreed:
SANDS BROTHERS & CO., LTD.
By: /s/ Alan Bluestine
--------------------------------
Name: Alan Bluestine
Title: Vice President -- Corp. Finance
EXHIBITS
Exhibit A-l Form of Debenture
Exhibit A-2 Form of Warrant
11
INVESTMENT BANKING ADVISOR AGREEMENT
Agreement dated as of March 28, 1996 by and between LMI ACQUISITION CORP.,
a Delaware corporation (the "Company") and AMERICAN MAPLE LEAF FINANCIAL
CORPORATION ("AMLF").
BACKGROUND
The Company is a privately held company whose primary business is the
origination and servicing of insurance premium finance contracts. The Company
seeks to become a publicly held reporting company with the Securities and
Exchange Commission at some time within the intermediate term. AMLF is a
financial services firm in the business of advising its clients relative to
public finance issues, going public transactions, and providing its private and
publicly-traded corporate clients with investor/broker relations and investment
banking advice. The Company desires to engage AMLF to perform financial
consulting and investment banking services and AMLF desires to perform such
services pursuant to the terms hereof.
AGREEMENT
1. Services.
(a) Investment Banking Services. AMLF shall provide investment
counseling services with respect to the material aspects of becoming a publicly
held company. These services shall also include using its best efforts to
introduce the Company to institutions, brokers, and other investment bankers
that may be interested in either participating in a public offering for the
Company, or assisting or facilitating in a public or private placement of
securities on behalf of the Company.
(b) Organizational Efforts. AMLF has been instrumental in organizing
and structuring the various acquisitions and business combinations pursuant to
which the Company has recently acquired Gold Coast Finance, Inc., National-Wide
Premium Finance Corp. and Traffic Violations Legal Services Protection
Corporation (in the aggregate, the "Target Companies"). AMLF is also being
engaged to use its best efforts to introduce the Company to entities,
individuals and/or institutions which may from time to time be engaged to
provide financing in connection with a private
<PAGE>
placement transaction to be undertaken in connection with the acquisition of the
Target Companies.
(c) Financial Relation Services. AMLF shall, on a non-exclusive
basis, perform financial and public relations services including but not limited
to the preparation and distribution of information concerning the Company to its
stockholders and the general introduction of the Company to the financial
brokerage community.
2. Authorization. The Company authorizes AMLF on a non-exclusive basis to
act as an agent of the Company for the purpose of performing the services
provided for hereunder.
3. Consideration. In consideration for the services rendered and to be
rendered hereunder, AMLF shall receive the following securities and other
payments from the Company:
(i) Upon the closing of the acquisition by the Company of the
outstanding capital stock in the "Target Companies", 300,000 shares of the
common stock of the Company;
(ii) that number of shares of the common stock of the Company as
shall equal the difference between 1,000,000 and that number of shares of common
stock to be issued by the Company upon conversion of the convertible preferred
stock that is to be issued in accordance with Section 8.2 (up to a maximum of
$2,300,000 of net proceeds as set forth in Section 8.2) of the Plan of
Reorganization between the Company and Gold Coast Finance, Inc. ("Plan of
Reorganization"). By way of further explanation, the Company is undertaking the
concurrent acquisition of the Target Companies pursuant to which the Company has
agreed to undertake a private placement offering of up to $2.3 million of
convertible preferred stock (the "Private Placement"). Included within the $2.3
million of convertible preferred stock to be offered will be shares of
convertible preferred stock offered to accredited and other third party
investors (that bear a sales price and conversion rate of approximately $4.00
per share). Also included within the Private Placement will be shares of
convertible preferred stock that may be exchanged by the Company with existing
non-affiliated creditors. These shares of preferred stock are anticipated to
bear a sales price and conversion rate of approximately $3.00 per share. It is
intended by the parties hereto that AMLF shall in consideration for its efforts
in connection with such private placement, be entitled upon completion of the
Private Placement to
2
<PAGE>
that number of shares of the Company's common stock as are equal to the
difference between 1,000,000 and that number of shares of common stock into
which the convertible preferred stock sold in the Private Placement and offered
to non-affiliated creditors will be convertible;
(iii) once a registration statement has been filed with the
Securities and Exchange Commission the purpose of which is to register shares of
the Company, AMLF shall receive an investment banking fee of $3,000 per month
for the balance of the term of this Agreement.
In the event that the Historic Acquiror Stockholders surrender a
pro-rata amount of shares under paragraph 8.3 of the Plan of Reorganization, the
number of shares to be received under each of subsections 3(i) and 3(ii) above
shall similarly be reduced on a pro-rata basis.
Inasmuch as AMLF is an independent contractor and not an employee of
the Company, it shall pay all federal, state and local taxes with respect to the
compensation received hereunder.
4. Rights of First Refusal on Financings During Term. During the term
hereof, AMLF shall have a preferential right of refusal to secure any future
debt or equity financings on behalf of the Company. Should the Company seek to
undertake any debt or equity financings during the term hereof, then the Company
must first provide AMLF with written notification to that effect (the
"Notification"), which Notification must specify the proposed terms of the debt
or equity financings desired and the compensation anticipated to be paid to the
third party providing such financing. AMLF shall then have sixty (60) days in
which to secure such debt or equity financings on terms acceptable to the
Company. If AMLF is unable to do so, then the Company shall have the right to
secure the debt or equity financings from any third party. In the event,
however, that the debt or equity financings to be secured from a third party are
on terms materially different than those proposed in the Notification, then, and
in that event, the Company shall, prior to securing any such debt or equity
financings from such third party, provide a written explanation of the terms
thereof to AMLF and provide AMLF with an additional period of sixty (60) days in
which to secure debt or equity financings on those terms. If AMLF is unable to
do so within said sixty day period, then the Company is free of any restrictions
of this subparagraph to pursue the debt or equity financings proposed
accordingly. To the extent
3
<PAGE>
that AMLF is able to secure for the Company any such debt or equity financings,
AMLF shall receive the compensation in substantially the same amount and
character as was identified within the Notification.
5. Registration Right. The Company will grant AMLF "piggyback registration
rights" for shares issuable pursuant to Section 3 of this Agreement in the
manner set forth below. If the Company at any time proposes for any reason to
register any of its securities under the Securities Act of 1933 (the "Securities
Act") (other than pursuant to a registration statement on Form S-8, S-4 or
similar or successor form), it shall each such time promptly give written notice
to AMLF of its intention to do so, and, upon written request, given within
thirty (30) days after receipt of any such notice, use its best efforts to cause
all shares of common stock of the Company currently held by AMLF, (the
"Shares"), to be registered under the Securities Act promptly upon receipt of
the written request of AMLF for such registration, all to the extent requisite
to permit the sale or other disposition by AMLF of the Shares so registered. In
the event that the proposed registration by the Company is, in whole or in part,
an underwritten public offering of such securities of the Company, any request
pursuant to this Section to register the Shares may specify that such Shares are
to be included in the underwriting on the same terms and conditions as the
shares of common stock held by Stockholders other than AMLF (the "Other
Shares"), if any, otherwise being sold through underwriters under such
registration or provided, however, that if the managing underwriter determines
and advises in writing that the inclusion of all Shares proposed to be included
in the underwritten public offering the Other Shares would interfere with the
successful marketing (including pricing) of such securities, then the number of
Shares and Other Shares to be included in such underwritten public offering
shall be reduced first, pro rata among the holders of other Shares, and second,
if necessary, pro rata by the Shares, based upon the number of Shares requested
by AMLF thereof to be registered in such underwritten public offering.
6. Standard of Conduct. AMLF shall at all times conduct itself, both
respect to its activities under this Agreement and with respect to its business
activities generally, in compliance with all applicable federal and state
securities laws.
7. Term. The term of this Agreement shall be for three year from the date
of this Agreement.
4
<PAGE>
8. Expenses. The Company shall reimburse AMLF for all reasonable
out-of-pocket expenses, including but not limited to printing, travel, long
distance telephone charges, postage and press release costs; any expense
exceeding $1,000 shall require the prior approval of the Company. The Company
agrees to reimburse AMLF within 30 days from the date that AMLF presents the
Company with any expense invoice and supporting documentation.
9. Confidential Information. During the course of providing its services
to the Company, AMLF will have access to information concerning the Company and
its prospects that the Company considers to be of a confidential nature. AMLF
agrees to keep such information confidential and further agrees not to engage
either directly or indirectly in any buying or selling of the Company's
securities while in possession of such confidential information. Without the
prior consent of the Company, neither AMLF nor any of its representatives will
disclose to any person any confidential information except to the extent that
disclosure of this information may be made in a filing required by the
Securities Exchange Act of 1934 or, in the written opinion of counsel to the
Company, it is required to make such disclosure pursuant to the Exchange Act and
the rules and regulations promulgated thereunder, provided that prior to any
such disclosure, AMLF shall first give the Company a reasonable opportunity to
review the proposed disclosure and to comment thereon.
10. Independent Contractor. AMLF acts hereunder as an independent
contractor to the Company and shall not be considered an agent of the Company
for any purposes other than those expressly set forth in this Agreement. Neither
party to this Agreement is granted any right or authority to assume or create
any obligation or liability, expressed or implied, on behalf of the other or to
bind the other in any manner whatsoever.
11. Indemnification. AMLF agrees to indemnify and hold harmless the
Company from and against any and all lawsuits, claims, cost, damages,
liabilities, expenses, judgements and settlements in connection with or arising
from any of its acts which are in violation of any of the provisions contained
within this Agreement.
The Company shall conversely indemnify AMLF and its agents and
employees from and against any and all losses, claims, cost, damages,
liabilities, expenses, judgments and settlements in connection with or arising
from any information provided by the Company to AMLF upon which AMLF relied in
the performance of its
5
<PAGE>
duties under this Agreement, and such information is not accurate at the time it
was provided, or subject to subsequent modification without notification being
provided to AMLF to that effect.
12. Assignment. Neither party may assign its rights or obligations
hereunder without the written consent of the other party.
13. Entire Agreement. This Agreement contains the entire agreement of the
parties as to the subject matter hereof. This Agreement may be amended only in
writing signed by the party against whom enforcement of any waiver, change,
modification, extension or discharge is sought.
14. Notices. All notices, requests, demands, consents or other
communications under this Agreement shall be in writing and sent by registered
or certified mail, return receipt requested, or by personal delivery (including
delivery by a nationally recognized courier service) as follows:
To the Company prior to the acquisition of the Target Companies:
LMI ACQUISITION CORP.
401 City Avenue, Suite 725
Bala Cynwyd, PA 19004
Attention: Mr. David Alperin
To the Company after the acquisition of the Target Companies:
LMI ACQUISITION CORP.
16853 N.E. Second Ave.
N. Miami Beach, FL 33162
Attention: Mr. Mark Margolis
With copies to:
Mark Pachman, Esquire
NASON, GILDAN, YEAGER,
GERSON & WHITE, P.A.
United National Bank Tower
1645 Palm Beach Lakes Blvd.
Suite 1200
6
<PAGE>
West Palm Beach, FL 33401
To AMLF:
AMERICAN MAPLE LEAF FINANCIAL
CORPORATION
401 City Avenue, Suite 725
Bala Cynwyd, PA 19004
Attention: Mr. Andrew Panzo
With copies to:
Nina L.S. Burnaford, Esquire
BUCHANAN INGERSOLL, P.C.
Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103
or to such other addresses as may be specified by notice given in accordance
with this Section.
15. Governing Law. This Agreement shall be interpreted, governed by and
construed in accordance with the laws of the State of Delaware without
application of the principles of conflicts of law thereunder.
IN WITNESS WHEREOF, the parties, intending to be legally bound
hereunder, have executed this Agreement as of the date first above written.
AMERICAN MAPLE LEAF FINANCIAL
CORPORATION
By: /s/ Andrew Panzo
------------------------------------
Andrew Panzo
(An Authorized Officer)
LMI ACQUISITION CORP.
By: /s/ David Alperin
------------------------------------
David Alperin,
Secretary, Treasurer
(An Authorized Officer)
7
SANDS BROTHER & CO., LTD.
INVESTMENT BANKERS
90 PARK AVENUE, NEW YORK, NY 10016
(212) 697-5200 Toll Free (800) 866-6116 Fax (212) 297-0670
August 14, 1996
USA Finance, Inc.
1111 Park Center Road
Suite 300
Miami, FL 33169
Attn: Stephen E. Michaelson
Chief Executive Officer
Dear Mr. Michaelson:
This is to confirm our understanding that Sands Brothers & Co., Ltd.
("Sands Brothers") has been engaged as a financial advisor to USA Finance, Inc.,
its successors, subsidiaries and affiliates (collectively, the "Company"), with
respect to financial advisory matters for the one year period commencing the
date hereof. In this regard, Sands Brothers shall devote such business, time and
attention to matters on which the Company shall request its services as shall be
determined by Sands Brothers. All services shall be rendered by Sands Brothers
in New York City.
A. Financial Advisory Services
During the term of this agreement, Sands Brothers shall provide the
Company with such regular and customary financial advisory services as are
reasonably requested by the Company, provided that Sands Brothers shall not be
required to undertake duties not reasonably within the scope of the financial
advisory services in which it is generally engaged. In performance of its
duties, Sands Brothers shall provide the Company with the benefits of its best
judgment and efforts. It is understood and acknowledged by the parties that the
value of Sands Brothers' advice is not measurable in a quantitative manner and
Sands Brothers shall be obligated to render advice, upon the request of the
Company, in good faith, as shall be determined by Sands Brothers. Sands
Brothers's duties may include, but will not necessarily be limited to:
(i) advice regarding the formation of corporate goals and their
implementation;
(ii) advice regarding the financial structure of the Company
or its divisions or any programs and projects undertaken by
any of the foregoing;
<PAGE>
Stephen E. Michaelson
August 14, 1996
Page -2-
(iii) advice regarding obtaining financing;
(iv) advice regarding corporate organization, personnel and
selection of needed specialty skills;
(v) subject to satisfactory due diligence investigation of the
Company, the provision of analyst coverage on the Company's
stock; and
(vi) market making activities in compliance with all rules and
regulations of the Securities Exchange Act of 1934, as
amended.
The Company acknowledges that Sands Brothers and its affiliates are in
the business of providing financial advisory services (of all types contemplated
by this agreement) to others. Nothing herein contained shall be construed to
limit or restrict Sands Brothers or its affiliates in conducting such business
with respect to others or in rendering such advice to others.
In consideration of such financial advisory services, the Company
agrees to (i) pay Sands Brothers a non-refundable fee of $35,000, payable upon
the consummation by the Company of any debt financing from a banking,
institutional or similar lender following the date of this letter agreement
resulting in gross proceeds to the Company of at least $1 million and (ii) issue
to Sands Brothers (or its designees), upon the execution and delivery of this
letter agreement, 200,000 shares of its common stock which shall be registered
under the Registration Statement (as hereinafter defined) and five-year warrants
to acquire 200,000 shares of the Company's common stock, 100,000 of which shall
be exercisable at a price of $5 (the "First Warrants") and 100,000 of which
shall be exercisable at a price of $8 ("Second Warrants" and with the First
Warrants, the "Warrants"), which Warrants shall vest upon the earlier of (i)
eighteen (18) months from issuance or (ii) one (1) year from the effective date
of the Company's registration statement expected to be filed with the Securities
and Exchange Commission promptly hereafter (the "Registration Statement"). The
Warrants shall contain standard provisions concerning demand, piggy-back
registration and anti-dilution rights, including coverage under the Registration
Statement. Such payment shall be in addition to any other compensation and
reimbursement of expenses described herein.
B. Future Financings - Right of First Refusal
The Company hereby grants Sands Brothers the right of first refusal to
underwrite or place any future public or private sales of equity securities
whatsoever of the Company (excluding sales to employees of the Company), or any
such sale by any of the principal shareholders of the Company, either of which
would otherwise be underwritten or privately placed by another investment
banking firm, broker-dealer or placement agent, during a one (1) year period
from the date of this letter agreement. It is understood that if such a proposed
financing is offered to Sands Brothers, Sands Brothers shall have thirty (30)
days in the event of a proposed public financing, and ten (10) business days in
<PAGE>
Stephen E. Michaelson
August 14, 1996
Page -3-
the event of a proposed private financing, which to determine whether or not to
accept such offer and, if Sands Brothers refuses, and provided that such a
financing is consummated (a) with another investment banking firm, broker-dealer
or placement agent upon the same terms and conditions as those offered to Sands
Brothers and (b) within six months after the end of the aforesaid thirty (30)
day or ten (10) day period, as the case may be, this right of first refusal
shall thereafter be forfeited and terminated; provided, however, if the
financing is not consummated under the conditions of clauses (a) and (b) above,
then the right of first refusal shall once again be reinstated under the same
terms and conditions set forth in this paragraph.
C. General
In addition to all other charges payable to Sands Brothers as per the
terms hereof, the Company agrees to reimburse Sands Brothers, upon requests made
from time to time, for all of its reasonable out-of-pocket expenses up to Five
Thousand ($5,000) Dollars (of which any one or series of related expenses in
excess of $1,000 shall be pre-approved by the Company) incurred in connection
with its activities under this agreement.
If, in connection with any services or matters that are the subject of
this agreement, Sands Brothers becomes involved in any capacity, except as
plaintiff directly against the Company, in any action or legal proceeding, the
Company agrees to reimburse Sands Brothers for the reasonable legal fees and
disbursements of counsel and other expenses (including the cost of investigation
and preparation) incurred by Sands Brothers. The Company also agrees to
indemnify and hold Sands Brothers harmless against any losses, claims, damages
or liabilities, joint or several, asserted by any party other than the Company,
to which Sands Brothers may become subject in connection with the services which
are the subject of this agreement; provided, however, that the Company shall not
be liable under the foregoing indemnity agreement in respect of any loss, claim,
damage or liability to the extent that a court having jurisdiction shall have
determined by a final judgment that such loss, claim, damage or liability
primarily resulted from the willful misfeasance or gross negligence of Sands
Brothers. The provisions of this paragraph shall survive the expiration of the
period of this agreement set forth in the first paragraph hereof. The Company's
agreements in this paragraph shall, upon the same terms and conditions, extend
to and inure to the benefit of each person, if any, who may be deemed to control
Sands Brothers.
<PAGE>
Stephen E. Michaelson
August 14, 1996
Page -4-
This letter constitutes the entire understanding of the parties with
respect to the subject matter hereof and may not be altered or amended except in
a writing signed by both parties. This agreement shall be governed by and
construed under the laws of the State of New York without regard to principles
of conflicts of law thereof. Neither the execution and delivery of this letter
by the Company nor the consummation of the transactions contemplated hereby
will, directly or indirectly, with or without the giving of notice or lapse of
time, or both: (i) violate any provisions of the Certificate of Incorporation or
By-laws of the Company; or (ii) violate, or be in conflict with, or constitute a
default under, any agreement, lease, mortgage, debt or obligation of the company
or require the payment, any pre-payment or other penalty with respect thereto.
If the foregoing correctly sets forth the terms of our agreement,
kindly so indicate by signing and returning the enclosed copy of this letter.
Very truly yours
SANDS BROTHERS & CO., LTD.
By: /s/ Alan Bluestine
---------------------------------
Alan Bluestine
V.P.-Corporate Finance
ACCEPTED AND AGREED AS OF
THE DATE FIRST ABOVE WRITTEN:
USA Finance, Inc.
By: /s/ Stephen E. Michaelson
-----------------------------
Stephen E. Michaelson,
Chief Executive Officer
<PAGE>
Stephen E. Michaelson
August 14, 1996
Page -5-
ARTICLE C HEREOF ACCEPTED AND AGREED AS OF
THE DATE FIRST ABOVE WRITTEN:
American Maple Leaf Financial Corp.
By: /s/ Andrew Panzo
-------------------------------------
Andrew Panzo, Authorized Officer
/s/ Andrew Panzo
- -----------------------------------------
Andrew Panzo
/s/ Stephen E. Michaelson
- -----------------------------------------
Stephen E. Michaelson
/s/ Steve Margolis
- -----------------------------------------
Steve Margolis
/s/ Mark Margolis
- -----------------------------------------
Mark Margolis
EXECUTION COPY
================================================================================
Contract Funding Corp.
Seller
Gold Coast Finance, Inc.
Collection Agent
and
SunAmerica Financial Resources, Inc.
Facility Agent and Purchaser
RECEIVABLES PURCHASE AND SALE AGREEMENT
Dated as of September 18, 1996
================================================================================
S-3
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS.......................................................1
Section 1.1 Certain Defined Terms.....................................1
Section 1.2 Other Terms...............................................16
Section 1.3 Computation of Time Periods...............................17
ARTICLE II AMOUNTS AND TERMS OF THE PURCHASES...............................17
Section 2.1 Facility; Assignment......................................17
Section 2.2 Making Purchases..........................................17
Section 2.3 Increase of the Commitment................................18
Section 2.4 Purchased Interest........................................18
Section 2.5 Settlement Procedures During Revolving Period.............18
Section 2.6 Settlement Procedures During Amortization Period..........19
Section 2.7 General Settlement Procedures.............................20
Section 2.8 Payments and Computations, Etc............................21
Section 2.9 Seller's Payment of Yield, Capital and Fees...............21
Section 2.10 Increased Costs...........................................22
Section 2.11 Increased Capital.........................................22
Section 2.12 Taxes.....................................................23
Section 2.13 Extensions of Stated Termination Date.....................24
Section 2.14 Grant of Security Interest................................24
ARTICLE III CONDITIONS OF PURCHASES.........................................25
Section 3.1 Condition Precedent to Initial Purchase...................25
Section 3.2 Conditions Precedent to All Purchases and Reinvestments...28
ARTICLE IV REPRESENTATIONS AND WARRANTIES...................................29
i
<PAGE>
Section 4.1 Representations and Warranties of the Seller..............29
ARTICLE V GENERAL COVENANTS OF THE SELLER...................................31
Section 5.1 Affirmative Covenants of the Seller.......................31
Section 5.2 Reporting Requirements of the Seller......................34
Section 5.3 Negative Covenants of the Seller..........................36
ARTICLE VI ADMINISTRATION AND COLLECTION....................................37
Section 6.1 Establishment of Accounts.................................37
Section 6.2 Designation of Collection Agent...........................38
Section 6.3 Standard of Care; Inspection; Audits......................38
Section 6.4 Duties of Collection Agent................................39
Section 6.7 Further Action Evidencing Purchases.......................43
Section 6.8 Cost and Expenses of Collection Agent.....................44
Section 6.9 Collection Agent Not to Resign............................44
Section 6.10 Representations and Warranties of the Collection Agent....44
ARTICLE VII EVENTS OF INVESTMENT INELIGIBILITY..............................45
Section 7.1 Events of Investment Ineligibility........................45
ARTICLE VIII COLLECTION AGENT DEFAULTS......................................49
Section 8.1 Collection Agent Defaults.................................49
ARTICLE IX THE FACILITY AGENT...............................................51
Section 9.1 Authorization and Action..................................51
Section 9.2 Facility Agent's Reliance, Etc............................51
Section 9.3 Indemnification...........................................52
ARTICLE X ASSIGNMENTS OF PURCHASED INTERESTS................................53
Section 10.1 Assignment................................................53
ii
<PAGE>
Section 10.2 Annotation of Assignment..................................53
ARTICLE XI GRANT OF SECURITY INTEREST.......................................53
Section 11.1 Grant of Security Interest................................53
Section 11.2 Security for Obligations..................................53
Section 11.3 Seller Remains Liable.....................................53
Section 11.4 Further Assurances........................................54
Section 11.5 Payments With Respect to Collateral.......................54
Section 11.6 Facility Agent May Perform................................54
Section 11.7 The Facility Agent's Duties...............................55
Section 11.8 Remedies..................................................55
ARTICLE XII INDEMNIFICATION................................................55
Section 12.1 Indemnities by the Seller.................................55
Section 12.2 Indemnities by the Collection Agent.......................57
ARTICLE XIII MISCELLANEOUS..................................................57
Section 13.1 Amendments, Etc...........................................57
Section 13.2 Notices, Etc..............................................58
Section 13.3 No Waiver; Remedies.......................................58
Section 13.4 Binding Effect; Assignability.............................58
Section 13.4 Binding Effect; Assignability.............................58
Section 13.6 Costs, Expenses and Taxes.................................58
Section 13.7 Confidentiality...........................................59
Section 13.8 Execution in Counterparts; Severability...................60
Section 13.9 Release...................................................60
Section 13.10 Consent to Jurisdiction; Waiver of Jury Trial.............60
iii
<PAGE>
EXHIBITS
Exhibit A Assignment
Exhibit B Purchaser Report
Exhibit C Approved Insurer List
Exhibit D Insurance Carrier Exposure Report
Exhibit E Opinion of Counsel
Exhibit F Receivables Origination Agreement
Exhibit G USA Guaranty
Exhibit H Consent and Agreement
SCHEDULES
Schedule I Form of Contract
Schedule II Approved Indebtedness
Schedule III Procedures
iv
This RECEIVABLES PURCHASE AND SALE AGREEMENT (this "Agreement")
dated as of September 18, 1996 is among CONTRACT FUNDING CORP., a Delaware
corporation (the "Seller"), GOLD COAST FINANCE, INC., a Florida corporation
("Gold Coast"), and SUNAMERICA FINANCIAL RESOURCES, INC., a Delaware corporation
("Purchaser" and, in its capacity as agent for Purchaser, together with its
successors, "Facility Agent").
PRELIMINARY STATEMENTS:
(1) Certain terms which are capitalized and used throughout this
Agreement (in addition to those defined above) are defined in Article I of this
Agreement.
(2) The Seller owns Receivables which the Seller intends to sell to
Purchaser from time to time.
(3) Purchaser desires to purchase Pool Receivables from the Seller
as provided herein.
(4) In consideration of the reinvestment in Receivables of daily
Collections, the Seller will sell to Purchaser additional Receivables as part of
the Purchased Interest until such reinvestment is terminated. It is intended
that such daily reinvestment of Collections be effected by an automatic daily
adjustment to the Purchased Interest.
(5) Gold Coast is willing to act as initial Collection Agent.
(6) SunAmerica Financial Resources, Inc. is willing to act as
Facility Agent.
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"Adjusted Rate" for any Fixed Period means an interest rate per
annum equal to 2.85% per annum above the LIBO Rate for such Fixed Period;
provided, however, that if either (i) the introduction of or any change in or in
the interpretation of any law or regulation shall make it unlawful, or any
central bank or other governmental authority asserts that it is unlawful for
Purchaser or any successive Assignee to obtain funds in the London interbank
market during such Fixed Period or (ii) Citibank is unable for any reason to
establish its LIBO Rate for such Fixed Period or (iii) the LIBO Rate will not
adequately reflect the cost to such Purchaser
<PAGE>
or any successive Assignee of making a Purchase of or maintaining the Purchased
Interest during such Fixed Period, then the "Adjusted Rate" for such Fixed
Period shall be an interest rate per annum equal the Alternate Base Rate plus
2.25% in effect from time to time; provided, further, however, that the Facility
Agent and the Seller may agree in writing from time to time upon a different
"Adjusted Rate".
"Adjusted Tangible Net Worth" means total assets excluding goodwill
and other intangibles minus total liabilities, as determined in accordance with
generally accepted accounting principles, plus any Permitted Subordinated Debt.
"Adverse Claim" means a lien, security interest or other charge or
encumbrance, or other type of preferential arrangement having the practical
effect of a lien or security interest.
"Affiliate" means as to any Person, any other Person that (x)
directly or indirectly, is in control of, is controlled by or is under common
control with such Person or (y) is a director or officer of such Person or of
any other Person that, directly or indirectly, is in control of, is controlled
by or is under common control with such Person.
"Affiliated Obligor" means any Obligor which is an Affiliate of
another Obligor.
"Alternate Base Rate" means, for any period, a fluctuating interest
rate per annum as shall be in effect from time to time, which rate per annum
shall at all times be equal to the higher of:
(a) the rate of interest announced publicly by Citibank in New York,
New York, from time to time as Citibank's base rate; or
(b) 1/2 of one percent above the latest three-week moving average of
secondary market morning offering rates in the United States for three-month
certificates of deposit of major United States money market banks, such
three-week moving average being determined weekly on each Monday (or, if such
day is not a Business Day, on the next succeeding Business Day) for the
three-week period ending on the previous Friday by Citibank on the basis of such
rates reported by certificate of deposit dealers to and published by the Federal
Reserve Bank of New York or, if such publication shall be suspended or
terminated, on the basis of quotations for such rates received by Citibank from
three New York certificate of deposit dealers of recognized standing selected by
Citibank, in either case adjusted to the nearest 1/4 of one percent or, if there
is no nearest 1/4 of one percent, to the next higher 1/4 of one percent.
"Amortization Period" means the period from, and including, the
Termination Date to, and including, the Collection Date.
"Approved Insurer" means (i) an insurance company approved by
Purchaser in its discretion and listed on the Approved Insurer List and (ii) an
insurance company (or related group of insurers) (other than insurance companies
organized outside of the United States of America, Canada or Europe) as to which
the Outstanding Balance of all Receivables relating thereto as a percentage of
the Outstanding Balance of all Pool Receivables is less than 0.5%.
2
<PAGE>
"Approved Insurer List" means a list prepared by the Facility Agent
listing all Approved Insurers from time to time and designating each Approved
Insurer as a Level 1, Level 2, Level 3 or Level 4 Insurer, the initial list of
which is attached as Exhibit C, as such list may be amended, modified or
supplemented from time to time pursuant to Section 6.5(c). Each related group of
insurers will be designated the same Level and each Approved Insurer described
in clause (ii) of the definition of "Approved Insurer" will be designated as a
Level 3 Insurer (unless otherwise specified from time to time by the Facility
Agent).
"Assignee" means an assignee of Purchaser's rights and obligations
hereunder (or any portion thereof) including without limitation the Purchased
Interest (or any portion thereof).
"Assignment" means an assignment by the Seller to the Facility Agent
for the benefit of Purchaser, in substantially the form of Exhibit A hereto,
evidencing the sale of the Receivables and the Purchased Interest.
"Auditor" means a firm of nationally recognized independent
certified public accountants selected by the Seller and approved by the Facility
Agent in the exercise of its reasonable discretion.
"Business Day" means any day on which banks are not authorized or
required to close in New York City or Los Angeles, California and, if the
applicable Business Day relates to any computation made with respect to the LIBO
Rate, any day on which dealings are carried on in the London interbank market.
"Capital" means, with respect to the Purchased Interest, the
original amount paid to the Seller for Pool Receivables at the time of their
acquisition by Purchaser pursuant to Sections 2.1 and 2.2 reduced from time to
time by Collections received and distributed on account of such Capital pursuant
to Section 2.6; provided, however, that if such Capital shall have been reduced
by any distribution of any portion of Collections and thereafter such
distribution is rescinded or must otherwise be returned to any Selling Party,
any Obligor or any other Person for any reason, such Capital shall be increased
by the amount of such distribution, all as though such distribution had not been
made.
"Citibank" means Citibank, N.A., a national banking association.
"Collateralized Portion" means, as at any date of determination with
respect to any Receivable, the amount equal to the Outstanding Balance of such
Receivable minus the Uncollateralized Portion of such Receivable.
"Collection Account" means the special account (account number
0601001020540) of the Facility Agent for the benefit of Purchaser maintained at
the office of SunTrust Bank, Miami, N.A.
"Collection Agent" means at any time the Person (including the
Facility Agent) then authorized pursuant to Article VI to service, administer
and collect Pool Receivables.
3
<PAGE>
"Collection Agent Default" has the meaning specified in Section 8.1.
"Collection Agent Fee" has the meaning specified in Section 2.9.
"Collection Date" means the date following the Termination Date on
which the aggregate outstanding Capital shall have been reduced to zero and each
of the Facility Agent, the Collection Agent, Purchaser and the Indemnified
Parties shall have received all Yield, Capital, Collection Agent Fee and other
fees and other amounts payable to it hereunder with respect to the Purchased
Interest or otherwise.
"Collections" means, with respect to any Pool Receivable, all cash
collections and other cash proceeds of or related to such Pool Receivable,
including, without limitation, all cash proceeds of Related Security with
respect to such Pool Receivable, and any Collection of such Pool Receivable
deemed to have been received pursuant to Section 2.7 or 2.9(b).
"Commitment" means $25,000,000 as such amount may be increased
pursuant to Section 2.3.
"Concentration Limit" means at any time, for any Obligor, 0.25%;
provided, however, that in the case of an Obligor with any Affiliated Obligor,
the Concentration Limit shall be calculated as if such Obligor and such
Affiliated Obligor are one Obligor.
"Consent and Agreement" means the Consent and Agreement dated the
date hereof among the Originators and the Seller, substantially in the form of
Exhibit H hereto.
"Contract" means an agreement between an Originator and an Obligor,
in substantially the form of one of the forms of written contract set forth in
Schedule I hereto or otherwise approved from time to time by the Facility Agent
and in each case is approved for use in the applicable jurisdiction by the
applicable governmental authority, if required by law or such governmental
authority and complies with all applicable laws of the applicable jurisdiction
pursuant to or under which such Obligor shall be obligated to repay the
Originator's financing of such Obligor's insurance premiums.
"CP Rate" for any Fixed Period means the rate per annum, as
determined on each day of such Fixed Period by Purchaser, equal to the sum of
(i) the rate applicable to 30-day commercial paper (high-grade unsecured notes
sold by dealers) as reported in The Wall Street Journal plus (ii) 2.75%. For any
Saturday, Sunday or other day on which The Wall Street Journal is not published,
the rate described in clause (i) shall be the last rate so reported.
"Credit and Collection Policy" means the Seller's credit and
collection policies and practices in effect on the date of the initial Purchase
and as modified and supplemented by the credit and collection policies and
practices listed on Schedule III hereto relating to Contracts and Receivables of
the Seller, as modified in compliance with Section 5.3(g).
"Debt" means (i) indebtedness for borrowed money, (ii) obligations
evidenced by bonds, debentures, notes or other similar instruments, (iii)
obligations to pay the deferred purchase price of property or services, (iv)
obligations as lessee under leases which shall have
4
<PAGE>
been or should be, in accordance with generally accepted accounting principles,
recorded as capital leases, (v) obligations under direct or indirect guaranties
in respect of, and obligations (contingent or otherwise) to purchase or
otherwise acquire, or otherwise to assure a creditor against loss in respect of,
indebtedness or obligations of others of the kinds referred to in clauses (i)
through (iv) above, and (vi) any other indebtedness which would be classified as
debt under generally accepted accounting principles including asset sales with
recourse.
"Default Ratio" means the ratio (expressed as a percentage) computed
as of the last day of each calendar month by dividing (i) the aggregate
Outstanding Balance of all Pool Receivables that were Defaulted Receivables on
such date or would have been Defaulted Receivables on such date had they not
been written off the books of the Seller during such month by (ii) the aggregate
Outstanding Balance of all Pool Receivables on such date.
"Defaulted Receivable" means a Receivable:
(i) as to which any payment, or part thereof, remains unpaid for 121
days or more from the date of cancellation of the Related Policy;
(ii) as to which any payment, or part thereof, remains unpaid for
151 days or more from the date due where the Related Policy has not been
cancelled;
(iii) as to which the Obligor thereof has taken any action, or
suffered any event to occur, of the type described in Section 7.1(g),
unless such Receivable arose after such action was taken or such event
occurred; or
(iv) which, consistent with the Credit and Collection Policy, has
been or would be written off the Seller's books as uncollectible.
"Delinquency Ratio" means the ratio (expressed as a percentage)
computed as of the last day of each calendar month by dividing (i) the aggregate
Outstanding Balance of all Pool Receivables that were Delinquent Receivables at
the end of such month by (ii) the aggregate Outstanding Balance of all Pool
Receivables on such date.
"Delinquent Receivable" means a Receivable that is not a Defaulted
Receivable and:
(i) as to which any payment, or part thereof, remains unpaid after
the date of cancellation of the Related Policy;
(ii) as to which any payment, or part thereof, remains unpaid for 31
days or more from the date due where the Related Policy has not been
cancelled; or
(iii) which, consistent with the Credit and Collection Policy, has
been or would be classified as delinquent by the Seller.
"Designated Obligor" means, at any time, each Obligor; provided,
however, that any Obligor shall cease to be a Designated Obligor upon at least
three Business Days' notice by
5
<PAGE>
the Facility Agent to the Seller based upon credit or other considerations
applicable to such Obligor which could materially adversely affect the
collectibility of any Receivable owed by such Obligor.
"Eligible Receivable" means, at any time, a Receivable:
(i) the Obligor of which is a United States resident, is not an
Affiliate of any of the parties hereto or of any Selling Party, and is not
a federal government or a federal governmental subdivision or agency;
(ii) the Obligor of which at the time of the initial creation of an
interest therein hereunder is a Designated Obligor;
(iii) the Outstanding Balance of which, when combined with the
aggregate Outstanding Balance of all other Pool Receivables owed by the
Obligor of such Receivable at such time, does not exceed the Special
Concentration Limit, if any, at such time for such Obligor or, if none,
the product of the Concentration Limit multiplied by the aggregate
Outstanding Balance of the Pool Receivables which are Eligible Receivables
at such time;
(iv) which is not a Defaulted Receivable, and which at the time of
the initial creation of an interest therein hereunder is not a Delinquent
Receivable;
(v) the Related Policy of which (A) is a valid (i.e., policy number
issued or insurer bound to issue), short-term (not more than one year)
insurance policy written by an Approved Insurer and (B) permits
cancellation on not more than 30 days' notice (except where longer notice
is required by law);
(vi) the Uncollateralized Portion of which, when combined with the
Uncollateralized Portion of all other Receivables, does not exceed the
lesser of (i) 25% of the Adjusted Tangible Net Worth of USA Finance on a
consolidated basis and (ii) 10% of the aggregate Outstanding Balance of
the Pool Receivables which are Eligible Receivables at such time;
(vii) in respect of which, according to the Contract related
thereto, the first installment payment is due no more than 30 days after
the effective date of the Related Policy;
(viii) a purchase of which with the proceeds of notes would
constitute a "current transaction" within the meaning of Section 3(a)(3)
of the Securities Act of 1933, as amended;
(ix) which is an "account," a "general intangible" or "chattel
paper" within the meaning Section 9-105 or 9-106, as applicable, of the
UCC of the jurisdiction the law of which governs the perfection of the
interest created by a Purchased Interest;
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(x) which is denominated and payable only in United States dollars
in the United States, and is payable by an Obligor under a Contract;
(xi) which arises under a Contract which has been duly authorized
and which, together with such Receivable, is in full force and effect and
constitutes the legal, valid and binding obligation of the Obligor of such
Receivable enforceable against such Obligor in accordance with its terms
and is not subject to any dispute, offset, counter-claim or defense
whatsoever (except the discharge in bankruptcy of such Obligor);
(xii) which, together with the Contract related thereto, does not
contravene any laws, rules or regulations applicable thereto (including,
without limitation, laws, rules and regulations relating to insurance,
usury, consumer protection, truth in lending, fair credit billing, fair
credit reporting, equal credit opportunity, fair debt collection practices
and privacy) and with respect to which no party to the Contract related
thereto is in violation of any such law, rule or regulation;
(xiii) which is, immediately prior to the time of the initial
creation of an interest therein hereunder, legally and beneficially owned
by the Seller free and clear of any Adverse Claim except as created or
permitted hereunder, and the assignment of which hereunder is not
prohibited by the applicable Contract or any Related Security with respect
thereto or applicable law;
(xiv) which satisfies in all material respects the Credit and
Collection Policy, including without limitation all requirements as to the
selection of the agency and underwriter for all insurance policies issued
to Obligors;
(xv) which is secured by a first priority perfected security
interest in unearned and return insurance premiums payable by an Approved
Insurer relating to such Receivable; provided (A) in the case of a Related
Insurer that is a Level 1 Insurer, that the Outstanding Balance of such
Receivable, when combined with the aggregate Outstanding Balance of all
other Receivables which are so secured by such unearned and return
premiums payable by such Level 1 Insurer, does not exceed 20% of the
aggregate Outstanding Balance of the Pool Receivables which are Eligible
Receivables at such time, (B) in the case of a Related Insurer that is a
Level 2 Insurer, that the Outstanding Balance of such Receivable, when
combined with the aggregate Outstanding Balance of all other Receivables
which are so secured by such unearned and return premiums payable by such
Level 2 Insurer, does not exceed 12% of the aggregate Outstanding Balance
of the Pool Receivables which are Eligible Receivables at such time, (C)
in the case of a Related Insurer that is a Level 3 Insurer, that the
Outstanding Balance of such Receivable, when combined with the aggregate
Outstanding Balance of all other Receivables which are so secured by such
unearned and return premiums payable by such Level 3 Insurer, does not
exceed 10% of the aggregate Outstanding Balance of the Pool Receivables
which are Eligible Receivables at such time, and (D) in the case of a
Related Insurer that is a Level 4 Insurer, that the Outstanding Balance of
such Receivable, when combined with the aggregate
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Outstanding Balance of all other Receivables which are so secured by such
unearned and return premiums payable by such Level 4 Insurer, does not
exceed 2% of the aggregate Outstanding Balance of the Pool Receivables
which are Eligible Receivables at such time; and provided, further, until
March 31, 1997, Receivables arising from loans for other than personal,
family or household purposes shall be deemed Eligible Receivables if they
would otherwise qualify as Eligible Receivables (but for this clause(xv))
and do not exceed, in the aggregate, 5% of the aggregate Outstanding
Balance of all Pool Receivables;
(xvi) as to which, at or prior to the time of the initial creation
of an interest therein hereunder, the Facility Agent has not notified the
Seller that the Facility Agent has determined in its sole reasonable
discretion based on reasonable credit considerations reasonably applied
that such Receivable (or class of Receivables) is not acceptable for
purchase by Purchaser hereunder;
(xvii) (A) where the Related Insurer relating to such Receiveable is
not incorporated in any state of the United States of America or the
District of Columbia (an "alien insurer"), and the proceeds of the
financing giving rise to such Receivable have been paid solely to a
licensed surplus lines broker who is the direct contact with the foreign
broker representing the alien insurer, or (B) (i) where the Related
Insurer relating to such Receiveable incorporated in any state of the
United States of America or the District of Columbia and the proceeds of
the financing giving rise to such Receivable have been paid solely to the
Related Insurer, its authorized agent or any other Person authorized in
writing by the Related Insurer to receive payment on behalf of such
Related Insurer or (ii) evidencing a financing of premiums for insurance
policies for other than personal, family or household purposes, where the
proceeds of the financing giving rise to such Receivables have been paid
to a Person not authorized to receive payments of premiums on behalf of a
Related Insurer, applicable notices are sent to all parties as specified
in item 2 of Schedule III and the Related Insurer, its agent or a person
authorized by such Related Insurer to receive payments on behalf of such
insurer has actually received such financing proceeds; and
(xviii) which arises from the financing of a single premium of
$50,000 or more with respect to a Related Policy issued by a Related
Insurer or of multiple premiums aggregating $50,000 or more with respect
to Related Policies issued by Related Insurers in the same affiliated
group as long as written verification from such Related Insurer(s)
verifying the existence of such polic(ies), the amount of such premium(s),
the name and address of the insured and other relevant policy details has
been obtained by the applicable Originators.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the regulations promulgated and rulings issued
thereunder.
"Estimated Unearned Premium" means, as at any date of determination
with respect to any Eligible Receivable, (i) in the case of a Related Insurer
that is not in conservatorship, liquidation or similar proceedings and where no
action has been initiated to
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place such Related Insurer in conservatorship, liquidation or similar
proceedings, the amount of the unearned or returned premium securing payment of
the loan or other financing which gave rise to such Receivable (based on a pro
rata return) that would exist on the date that is (a) 15 days after the date on
which the next installment of such loan or other financing is due (in other
words, the number of days from the applicable date of determination to the date
the applicable Related Insurer would be expected to receive a request for
cancellation of the Related Policy(ies) assuming the next installment of such
loan or other financing is not paid (or, if later, the date that is the
requested cancellation date) plus the average number of days before such Related
Insurer is expected to actually cancel such Related Policy(ies) plus (b) if the
Related Policy(ies) require that any third party be notified of any cancellation
of such Related Policy(ies), the number of days notice required to be given to
such third party before such Related Policy(ies) may be cancelled plus 10 days
(such 10 days being the current average estimated time for issuance of such
third party notices by the Related Insurer after receipt of the cancellation
request) or (ii) in the case of all other Related Insurers the present value
(calculated as of the date determined pursuant to the clause (i) above) of the
amount of any right, if any, to receive state guaranty fund reimbursements in
respect of the Related Policy(ies).
"Eurodollar Reserve Percentage" of Citibank means, for any Fixed
Period, the reserve percentage applicable during such Fixed Period under
regulations issued from time to time by the Board of Governors of the Federal
Reserve System (or, if more than one such percentage shall be so applicable, the
daily average of such percentages for those days in such Fixed Period during
which any such percentage shall be so applicable) for determining the maximum
reserve requirement (including, but not limited to, any emergency, supplemental
or other marginal reserve requirement), for Citbank in respect of liabilities or
assets consisting of or including Eurocurrency liabilities (as that term is
defined in Regulation D of the Board of Governors of the Federal Reserve System
as in effect from time to time) having a term equal to such Fixed Period.
"Event of Investment Ineligibility" has the meaning specified in
Section 7.1.
"Event of Purchase Ineligibility" means any failure to satisfy the
condition set forth in Section 3.2(b)(iii).
"Facility" means the agreement of Purchaser to make Purchases
pursuant to Article II.
"Facility Agent" has the meaning specified in the preamble to this
Agreement.
"Facility Fee" has the meaning specified in Section 2.9.
"Facility Termination Date" means the earliest to occur of (i) the
Stated Termination Date, (ii) the date of termination of the Facility pursuant
to Section 7.1, or (iii) the date of termination of the principal funding
sources of Purchaser for the sale of new or additional Receivables by Purchaser
and its Affiliates.
"Fixed Period" means, with respect to the Purchased Interest, (A)
(i) when Yield is computed by reference to the CP Rate (1) initially the period
commencing on the date of a
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Purchase and ending on the last day of the calendar month in which the Purchase
was made and (2) thereafter a calendar month or (ii) when Yield is computed by
reference to the Adjusted Rate one month or such lesser period selected by the
Facility Agent provided, however, that: (I) the first Fixed Period shall begin
on the day the initial Purchase is made and end on the last day of the calendar
month in which such Purchase was made; and (II) in the case of any Fixed Period
for the Purchased Interest which commences before the Termination Date and would
otherwise end on a date occurring after the Termination Date, such Fixed Period
shall end on the Termination Date and the duration of each Fixed Period which
commences on or after the Termination Date shall be of such duration as shall be
selected by the Facility Agent, or (B) such other period not exceeding sixty
days, unless mutually agreed, as selected by the Facility Agent.
"Gold Coast" has the meaning specified in the Preliminary Statements
to this Agreement.
"Indemnified Party" means any one of Purchaser, any Assignee thereof
(and such Assignee's assignees), any participant of any Assignee (or such
Assignee's assignee), the Facility Agent, its assignees or any Affiliate of any
thereof, and "Indemnified Parties" means all of Purchaser, such Assignee(s) (and
assignee(s) thereof), participants, the Facility Agent and such Affiliates and
their respective assignees.
"Insurance Carrier Exposure Report" means a report, in substantially
the form of Exhibit D hereto, furnished by the Collection Agent to the Facility
Agent and Purchaser pursuant to Section 6.4.
"Interest Account" has the meaning specified in Section 6.1.
"Interest Collections" means, with respect to any Pool Receivable, any
Collections in respect of any interest, late fees or other charges accrued on
the loan giving rise to such Pool Receivable as determined pursuant to the
procedures set forth in Section 2.7.
"Level 1 Insurer," "Level 2 Insurer," "Level 3 Insurer," and "Level
4 Insurer," as applicable, means an Approved Insurer which Purchaser in its sole
reasonable discretion, based upon A.M. Best Company, Inc. or other applicable
ratings and credit and other considerations deemed relevant or appropriate from
time to time by Purchaser, designates (as evidenced by the Approved Insurer
List) as a "Level 1 Insurer," "Level 2 Insurer," "Level 3 Insurer," or "Level 4
Insurer," as the case may be. As a general principle, for purposes of this
Agreement, subject to other applicable ratings, credit and other considerations
referred to above, insurance companies with A.M. Best ratings of "A+" and "A"
will be designated as Level 1 Insurers, insurance companies with A.M. Best
ratings of "A-" and "B+" will be designated as Level 2 Insurers, insurance
companies with A.M. Best ratings of "B" and "B-" will be designated as Level 3
Insurers, and insurance companies with A.M. Best ratings below "B-" will be
designated as Level 4 Insurers. The Seller acknowledges that, as a result of the
application of such other ratings and considerations by Purchaser, insurance
companies may be designated above or below the Level that would generally apply
to such insurance companies based on A.M. Best ratings.
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"LIBO Rate" means, for any Fixed Period in respect of which Yield is
computed by reference to the Adjusted Rate, an interest rate per annum equal to
the rate per annum obtained by dividing (i) the rate at which deposits in U.S.
dollars are offered by the principal office of Citibank in London, England to
prime banks in the London interbank market at 11:00 a.m. (London time) two
Business Days before the first day of such Fixed Period for a period equal to
such Fixed Period by (ii) a percentage equal to 100% minus Citibank's Eurodollar
Reserve Percentage for such Fixed Period.
"Liquidation Day" for the Purchased Interest means either (i) each
day during any Settlement Period on which the conditions set forth in Section
3.2 are not satisfied (and such failure of conditions is not waived by
Purchaser), provided that such conditions are also not satisfied (and such
failure of conditions is not waived by Purchaser) on any succeeding day during
such Settlement Period, or (ii) each day which occurs on or after the
Termination Date.
"Liquidation Fee" means, for the Purchased Interest for any Fixed
Period during which any Liquidation Day or Termination Date occurs, the amount,
if any, by which (i) the additional Yield (calculated without taking into
account any Liquidation Fee) which would have accrued on the reductions of
Capital during such Fixed Period (as so computed) if such reductions had
remained as Capital, exceeds (ii) the income, if any, received by Purchaser from
Purchaser's investing the proceeds of such reductions of Capital.
"Loss-to-Liquidation Ratio" means the ratio (expressed as a
percentage) computed as of the last day of each calendar month by dividing (i)
an amount equal to the aggregate Outstanding Balance of all Pool Receivables
written off by the Seller, or which should have been written off by the Seller,
in accordance with the Credit and Collection Policy during the 6-month period
ending on such date, such aggregate Outstanding Balance having been reduced by
the aggregate amount of Collections in respect of such Pool Receivables during
such 6-month period, by (ii) the aggregate amount of Collections of principal
received during such 6-month period with respect to Pool Receivables. The amount
written off or which should have been written off shall equal the sum of the
principal, earned income and late charges with respect to the applicable
Receivable.
"National-Wide" means National-Wide Premium Finance Corporation, a
Florida corporation.
"Net Receivables Pool Balance" means at any time the product equal
to the Outstanding Balance of the Pool Receivables in the Receivables Pool at
such time multiplied by the applicable Receivables Purchase Rate reduced by the
sum of (i) the aggregate Outstanding Balance of the Defaulted Receivables in the
Receivables Pool at such time, (ii) if at such time the product of (A) the most
recent Portfolio Yield Percentage multiplied by (B) the percentage obtained by
dividing the dollar weighted average of the respective lengths of the remaining
terms of the respective Pool Receivables at such time expressed in number of
months (but in no event to exceed 12) by 12 is a percentage that is less than
6%, an amount equal to (1) the difference between 6% and such product multiplied
by (2) the aggregate Outstanding Balance of Pool Receivables at such time, (iii)
unearned income on the Pool Receivables, (iv) unfunded amounts under Contracts
relating to Pool Receivables and (v) the aggregate
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Uncollateralized Portion of all Pool Receivables in excess of 1% of the
aggregate Outstanding Balance of all Pool Receivables at such time, and
increased by 50% of the aggregate amount of drafts funded by an Originator
within 10 days prior to the date of determination and for which Contracts have
not yet been received by the applicable Originator.
"Obligor" means a Person obligated to make payments pursuant to a
Contract.
"Originator" means Gold Coast or National-Wide and "Originators"
mean Gold Coast and National-Wide.
"Origination Agreement" means the Receivables Origination Agreement
dated the date hereof among the Originators and the Seller, substantially in the
form of Exhibit F hereto.
"Other Taxes" has the meaning specified in Section 2.12(b).
"Outstanding Balance" of any Receivable at any time means the then
outstanding principal balance thereof.
"Permitted Subordinated Debt" means (A) indebtedness of USA Finance
listed on Schedule II hereto and as to which the holder of such indebtedness has
executed and delivered to Facility Agent an acknowledgement of subordination in
a form acceptable to Facility Agent and (B) indebtedness of USA Finance, Gold
Coast or National-Wide which (i) matures no earlier than one year from its date
of issuance, (ii) requires no principal payments of any kind prior to one year
from date of issuance, (iii) has an interest rate not in excess of 15% and (iv)
contains subordination provisions no less favorable to Purchaser than the
subordination provisions in the indebtedness listed on Schedule II hereto as
modified and supplemented by the acknowledgement of subordination referred to in
clause (A).
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association, joint
venture or other entity, or a government or any political subdivision or agency
thereof.
"Pool Receivable" means a Receivable in the Receivables Pool.
"Portfolio Yield Percentage" means the percentage computed as of the
last day of each calendar month by dividing (i) the product of (A) the aggregate
amount of the Interest Collections during such month multiplied by (B) 12, by
(ii) the aggregate Outstanding Balance of all Pool Receivables on such date.
"Principal Account" has the meaning specified in Section 6.1.
"Principal Collections" means all Collections other than Interest
Collections.
"Provisional Liquidation Day" means any day which could be a
Liquidation Day but for the proviso in clause (i) of the definition of
"Liquidation Day."
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"Purchase" means a purchase by Purchaser of Pool Receivables from
the Seller pursuant to Article II.
"Purchase Documents" means this Agreement, the Assignment, the
Consent and Agreement, the Origination Agreement, the Rights Agreement, the USA
Guaranty and any other agreement, document or instrument at any time furnished
or delivered pursuant hereto or in connection herewith or in furtherance of this
Agreement, in each case as amended, supplemented or otherwise modified from time
to time.
"Purchased Interest" means, at any time, the interest at such time
of Purchaser or any successive Assignee thereof, in (i) all Receivables now
existing and hereafter arising, (ii) all Related Security with respect to such
Receivables and (iii) all Collections with respect to, and other proceeds of,
such Receivables. The Purchased Interest shall be determined from time to time
pursuant to the provisions of Section 2.4.
"Purchaser Rate" for any Fixed Period means the CP Rate for such
Fixed Period; provided, however, that if Purchaser shall not, at any time and
for any reason, directly or indirectly, fund its Purchase or maintenance of such
Purchased Interest for such Fixed Period by reference to short-term commercial
paper rates the "Purchaser Rate" for such Fixed Period shall then be the
Adjusted Rate.
"Purchaser Report" means a report, in substantially the form of
Exhibit B hereto, furnished by the Collection Agent to the Facility Agent and
Purchaser pursuant to Section 6.4.
"Receivable" means the indebtedness of any Obligor under a Contract
arising from the making of loans by an Originator to purchasers or prospective
purchasers of insurance from any insurer and includes the right to payment of
any interest, late charges or finance charges and other obligations of such
Obligor with respect thereto.
"Receivables Pool" means at any time the aggregation of each then
outstanding Receivable in respect of which the Obligor is a Designated Obligor
or, as to any Receivable in existence on such date, was a Designated Obligor on
the date of any Purchase or reinvestment pursuant to Section 2.5.
"Receivables Purchase Rate" means (i) with respect to any Receivable
as to which the Related Policy is issued by a Level 1 Insurer, 95%, (ii) with
respect to any Receivable as to which the Related Policy is issued by a Level 2
Insurer, 90%, (iii) with respect to any Receivable as to which the Related
Policy is issued by a Level 3 Insurer, 85%, and (iv) with respect to any
Receivable as to which the Related Policy is issued by a Level 4 Insurer, 75%.
"Reinvestment Termination Date" means that Business Day which the
Seller designates or, if the conditions precedent in Section 3.2 are not
satisfied such Business Day which the Facility Agent designates, as the
Reinvestment Termination Date for such Purchased Interests by notice to the
Facility Agent and Purchaser (if the Seller so designates) at least three
Business Days prior to such Business Day, or to the Seller and Purchaser (if the
Facility Agent so designates) at least one Business Day prior to such Business
Day; provided, that if the Seller
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so designates such Reinvestment Termination Date as a direct result of
Purchaser's rejection of a bona fide request by the Seller to increase the
Commitment pursuant to and in accordance with Section 2.3, then the Reinvestment
Termination Date shall occur on the earliest of: (1) the date any Selling Party
enters into an agreement to finance or sell Receivables; (2) the date which is
120 days after the date Purchaser rejects such request; and (3) the date on
which any other Termination Date occurs.
"Related Insurer" means, in relation to any Pool Receivable, any
insurer that issued or is to issue insurance with respect to which the loan
giving rise to such Pool Receivable was made.
"Related Policy" means with respect to any Receivable the insurance
policy the unearned and return insurance premiums under which secure the payment
of such Receivable.
"Related Security" means with respect to any Receivable:
(i) all of the interest of the Seller in any right to receive
payment from a Related Insurer in respect of unearned or return insurance
premiums, and in respect of loss payments which reduce such premiums,
securing payment of the loan or other financing which gave rise to such
Receivable, and any right to receive state guaranty fund reimbursements in
respect of any Related Insurer;
(ii) all other security interests or liens and property subject
thereto from time to time purporting to secure payment of such Receivable,
whether pursuant to the Contract related to such Receivable or otherwise,
together with all financing statements signed by an Obligor describing any
collateral securing such Receivable; and
(iii) all guarantees, insurance and other agreements or arrangements
of whatever character from time to time supporting or securing payment of
such Receivable whether pursuant to the Contract related to such
Receivable or otherwise, and all rights of the Seller under the
Origination Agreement.
"Responsible Officer" means any of the following officers of any
Selling Party: the chairman, the chief executive officer, the president, the
chief financial officer, the chief operating officer, the chief investment
officer, the controller or the treasurer, or any officer performing
substantially the same function as any of the officers listed above.
"Restricted Payment" means:
(i) any dividend or other distribution, direct or indirect, on
account of any shares of any class of capital stock of the Seller now or
hereafter outstanding, except a dividend payable solely in shares of that
class of capital stock to the holders of that class;
(ii) any redemption, conversion, exchange, retirement, sinking fund
or similar payment, purchase or other acquisition for value, direct or
indirect, of any shares of any class of capital stock of the Seller now or
hereafter outstanding;
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(iii) any payment or prepayment of principal of, premium, if any, or
interest on, redemption, conversion, exchange, purchase, retirement,
defeasance, sinking fund or similar payment with respect to, any Debt of
the Seller; and
(iv) any payment made to retire, or to obtain the surrender of, any
outstanding warrants, options or other rights to acquire shares of any
class of capital stock of the Seller now or hereafter outstanding.
"Revolving Period" means the period from, and including, the date of
the initial Purchase to, but not including, the Termination Date.
"Rights Agreement" means that certain Rights Agreement dated as of
September 18, 1996 among Gold Coast, National-Wide, USA Finance and the
Purchaser. "Selling Party" means the Seller or any Originator or USA Finance and
"Selling Parties" means all of the Seller, the Originators and USA Finance.
"Service Termination Notice" has the meaning specified in Section
8.1.
"Service Transfer" has the meaning specified in Section 8.1.
"Settlement Period" means each period commencing on the first day of
each Fixed Period and ending on the last day of such Fixed Period, and, on and
after the Termination Date, such period (including, without limitation, a period
of one day) as shall be selected from time to time by the Facility Agent or, in
the absence of any such selection, each period of thirty days from the last day
of the immediately preceding Settlement Period.
"Special Concentration Limit" for any Obligor means at any time such
dollar amount specified for such Obligor by the Facility Agent, collectively, in
writing delivered to the Seller; provided, however, that the Facility Agent may
cancel or modify any Special Concentration Limit upon at least three Business
Days' notice to the Seller.
"Standard Amortization Period" means an Amortization Period which
results solely from (i) the Seller's designation of a Reinvestment Termination
Date as a direct result of Purchaser's rejection of a bona fide request by the
Seller to increase the Commitment pursuant to and in accordance with Section 2.3
or (ii) a notice from the Facility Agent pursuant to Section 3.2(b)(iii) which
notice is delivered as a result of Purchaser's institutional decision to no
longer purchase assets such as the Receivables.
"Stated Termination Date" means September 30, 1999, as the same may
be extended pursuant to Section 2.13.
"Tangible Net Worth" means total assets excluding goodwill and other
intangibles minus total liabilities, as determined in accordance with generally
accepted accounting principles.
"Taxes" has the meaning specified in Section 2.12(a).
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"Termination Date" means the earlier of (i) the Reinvestment
Termination Date and (ii) the Facility Termination Date.
"UCC" means the Uniform Commercial Code as from time to time in
effect in the specified jurisdiction.
"Uncollateralized Portion" means, as at any date of determination
with respect to any Receivable, the amount, if any, by which the Outstanding
Balance of such Receivable is less than the Estimated Unearned Premium.
"USA Finance" means USA Finance, Inc., a Delaware corporation.
"USA Guaranty" means the USA Guaranty dated the date hereof made by
USA Finance in favor of the Facility Agent, Purchaser and the Indemnified
Parties, substantially in the form of Exhibit G hereto.
"Yield" means for the Purchased Interest for any Fixed Period, the
product of
PR x C x ED + LF
----------------
BI
where:
PR = the Purchaser Rate for the Purchased Interest for such Fixed
Period;
C = the Capital of the Purchased Interest during such Fixed Period;
BI = 360;
ED = the actual number of days elapsed during such Fixed Period; and
LF = the Liquidation Fee, if any, for the Purchased Interest for
such Fixed Period; provided that to the extent any calculation of
Yield includes a Liquidation Fee, the Facility Agent shall give
notice to the Seller of such inclusion together with a calculation
in reasonable detail of the Liquidation Fee (which calculation shall
be conclusive and binding for all purposes, absent manifest error);
provided, however, that no provision of any Purchase Document shall require the
payment or permit the collection of Yield in excess of the maximum permitted by
applicable law; and provided, further, that Yield shall not be considered paid
by any distribution if at any time such distribution is rescinded or must
otherwise be returned for any reason.
Section 1.2 Other Terms All accounting terms not specifically
defined herein shall be construed in accordance with generally accepted
accounting principles. All terms used in Article 9 of the UCC in the State of
New York, and not specifically defined herein, are used herein as defined in
such Article 9.
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Section 1.3 Computation of Time Periods Unless otherwise stated in
this Agreement, in the computation of a period of time from a specified date to
a later specified date, the word "from" means "from and including" and the words
"to" and "until" each means "to but excluding."
ARTICLE II
AMOUNTS AND TERMS OF THE PURCHASES
Section 2.1 Facility; Assignment On the terms and conditions
hereinafter set forth, Purchaser shall make Purchases from time to time during
the Revolving Period. Under no circumstances shall Purchaser make any Purchase
or the Seller request any Purchase if, after giving effect to such Purchase, the
aggregate outstanding Capital would exceed the Commitment. In addition, under no
circumstances shall Purchaser make any Purchase if, after giving effect to such
Purchase, the aggregate outstanding Capital would equal or exceed the Net
Receivables Pool Balance at such time. Purchaser shall, with the proceeds of
Collections attributable to the Purchased Interest, reinvest pursuant to Section
2.5 in additional Receivables by making an appropriate readjustment of such
Purchased Interest.
On the date of the initial Purchase, the Seller hereby sells,
assigns, transfers, and conveys to Facility Agent for the account of Purchaser
and each successive Assignee pursuant to the Assignment, and the Purchased
Interest shall include, (i) each and every Receivable now existing as well as
each and every Receivable which may arise at any time after the date hereof,
(ii) all Related Security with respect to each such Receivable, (iii) each and
every Collection with respect to each such Receivable and (iv) all proceeds,
products or any other distributions of, from or in respect of any of the
foregoing, including, without limitation, whatever is receivable or received
when any of the foregoing is sold, exchanged, collected or otherwise disposed
of, whether such disposition is voluntary or involuntary.
Section 2.2 Making Purchases The Seller may request Purchases no
more than twice a week. Each Purchase by Purchaser shall be made on notice from
the Seller to the Facility Agent, given not later than 2:00 P.M. (Los Angeles
time) on the third Business Day before the date of such Purchase. Each such
notice of a proposed Purchase shall be by telephone, telecopier, telex or cable
(in the case of telephonic notice confirmed immediately in writing) and
specifying (i) the aggregate Outstanding Balance of the Pool Receivables
requested to be Purchased, (ii) the requested aggregate amount of Purchase
(which shall be $250,000 or integral multiples of $100,000 in excess thereof) to
be paid to the Seller and (iii) the requested Business Day of such Purchase. On
the date of each Purchase, Purchaser shall, upon satisfaction of the applicable
conditions set forth in Article III, make available to the Facility Agent an
amount equal to such Purchase by deposit of such amount in same day funds to the
Collection Account, and, after receipt by the Facility Agent of such funds, the
Facility Agent will cause such funds to be made immediately available to the
Seller by intrabank transfer to account number 060100102-0061 at SunTrust Bank,
Miami, N.A. or by wire transfer of immediately available funds to such other
account designated in writing by Seller to the Facility Agent.
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Each notice of a Purchase from the Seller delivered pursuant to this
Section 2.2 shall be irrevocable and binding on the Seller. The Seller shall
indemnify Purchaser against any actual loss or expense incurred by Purchaser as
a result of any failure to fulfill on or before the date of any Purchase the
applicable conditions set forth in Article III which loss or expense arises as a
result of any actual loss or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by Purchaser to fund such
Purchase when such Purchase, as a result of such failure, is not made on such
date.
Section 2.3 Increase of the Commitment The Seller may from time to
time request Purchaser to increase the Commitment in increments of $5,000,000 up
to an aggregate amount not to exceed $35,000,000 by delivering to the Facility
Agent at least 30 calendar days' prior written notice of such request specifying
the requested date and amount of such increase, accompanied by financial
projections and other information supporting the requested increase, and
Purchaser may, in its sole discretion, agree to such increase. Purchaser shall
promptly notify the Facility Agent in writing whether it has determined to
increase the Commitment and the conditions for such increase. If Purchaser
determines to increase the Commitment, then upon the satisfaction of such
conditions, each such increase shall automatically become effective without any
further action by any party hereto or any other Person.
Section 2.4 Purchased Interest Purchased Interest.
The Purchased Interest shall be initially computed as of the opening
of business of the Collection Agent on the date of the initial Purchase.
Thereafter until the Termination Date, the Purchased Interest shall be
automatically recomputed as of the close of business of the Collection Agent on
each day (other than a Liquidation Day). The Purchased Interest shall remain
constant from the time as of which any such computation or recomputation is made
until the time as of which the next such recomputation, if any, shall be made.
The Purchased Interest, as computed as of the day immediately preceding the
Termination Date, shall remain constant at all times on and after such
Termination Date. The Purchased Interest shall become zero at such time as
Purchaser shall have received all accrued Yield and shall have recovered all
Capital and all other amounts owed hereunder by the Seller to Purchaser, and the
Collection Agent shall have received the accrued Collection Agent Fee.
Section 2.5 Settlement Procedures During Revolving Period During
Revolving Period.
(a) Daily Settlement. On each day (other than a Liquidation Day or a
Provisional Liquidation Day) during each Settlement Period in the Revolving
Period for the Purchased Interest, the Collection Agent shall: (i) deposit or
cause to be deposited in the Collection Account Collections of all Pool
Receivables received on the immediately preceding day, and (ii) direct the
Facility Agent to (A) reinvest an amount equal to the amount of the estimated
Principal Collections from such deposit, for the benefit of Purchaser, by
recomputation of the Purchased Interest pursuant to Section 2.4 as of the end of
such day, (B) transfer an amount equal to any remaining amount of the estimated
Principal Collections to the Seller; provided, however, that, to the extent that
the Facility Agent or Purchaser shall be required for any reason to pay over any
amount of Collections which shall have been previously reinvested for the
account of Purchaser pursuant hereto, such amount shall be
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deemed not to have been so applied but rather to have been retained by the
Seller and paid over for the account of Purchaser and, notwithstanding any
provision hereof to the contrary, Purchaser shall have a claim for such amount
and (C) retain the amount of the Interest Collections from such deposit in the
Interest Account.
(b) Periodic Settlement. On the first day following each Settlement
Period in the Revolving Period, the Collection Agent shall direct the Facility
Agent to make the following distributions in the listed order of priority from
amounts on deposit in the Interest Account and, to the extent not sufficient, in
the Principal Account: (i) for the account of Purchaser the amount of the
accrued Yield for such Settlement Period; (ii) the amount of any indemnities,
costs, fees and other amounts owing to the Facility Agent, any Indemnified
Party, Purchaser or the Collection Agent (if other than a Selling Party); (iii)
to the Collection Agent, the amount of the accrued Collection Agent Fee; and
(iv) an amount equal to the amount of any remaining funds to the Seller;
provided that, after the making of the distributions in clauses (i) and (ii)
above, to the extent Capital exceeds the Net Receivables Pool Balance, amounts
on deposit in the Principal Account and, to the extent such amounts in the
Principal Account are not sufficient, in the Interest Account will be applied to
reduce Capital to an amount equal to the Net Receivables Pool Balance.
Section 2.6 Settlement Procedures During Amortization Period ing
Amortization Period.
(a) Daily Settlement. On each day (including a Liquidation Day and a
Provisional Liquidation Day) during each Settlement Period in the Amortization
Period for the Purchased Interest, the Collection Agent shall: (i) deposit or
cause to be deposited in the Collection Account Collections of all Pool
Receivables received on the immediately preceding day, and (ii) direct the
Facility Agent to (A) retain the amount of the Principal Collections from such
deposit in the Principal Account and (B) retain the amount of the Interest
Collections from such deposit in the Interest Account; provided, however, if
amounts are so retained pursuant to this Section 2.6(a) on any Provisional
Liquidation Day which is subsequently determined not to be a Liquidation Day,
such amounts shall be applied pursuant to Section 2.5(a) on the day of such
subsequent determination.
(b) Periodic Settlement. On the first day following each Settlement
Period for the Purchased Interest during the Amortization Period, the Collection
Agent shall direct the Facility Agent to make the following distributions in the
listed order of priority from amounts on deposit in the Interest Account and the
Principal Account:
(i) to Purchaser, in reduction of Capital in an amount equal to the
aggregate outstanding principal balance of Defaulted Receivables;
(ii) to Purchaser, in payment of the accrued Yield;
(iii) to Purchaser, Facility Agent and the Indemnified Parties, in
payment of any other amounts (including indemnities, costs, fees and other
amounts) owing to Purchaser, Facility Agent or the Indemnified Parties,
including fees and expenses
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payable to any substitute Collection Agent and indemnities and fees and
disbursements of counsel;
(iv) to the Collection Agent, in payment of the accrued Collection
Agent Fee and/or the fees of any substitute Collection Agent;
(v) (A) in the case of an Amortization Period other than a Standard
Amortization Period, (1) so long as no Collection Agent Default has
occurred and is continuing and no Event of Investment Ineligibility has
occurred, all remaining funds in the Principal Account and 50% of
remaining funds in the Interest Account to Purchaser, in reduction of
Capital, or (2) if a Collection Agent Default has occurred and is
continuing or an Event of Investment Ineligibility has occurred, to
Purchaser, all remaining funds in reduction (to zero) of Capital, and
(B) in the case of a Standard Amortization Period, (1) so long as no
Collection Agent Default has occurred and is continuing and no Event of
Investment Ineligibility has occurred, 90% of remaining funds in the Principal
Account to Purchaser, in reduction of Capital, or (2) if a Collection Agent
Default has occurred and is continuing or an Event of Investment Ineligibility
has occurred, to Purchaser all remaining funds in reduction (to zero) of
Capital; and
(vi) an amount equal to any remaining funds to the Seller.
Section 2.7 General Settlement Procedures If on any day the
Outstanding Balance of a Pool Receivable is either reduced or cancelled as a
result of (i) any cancellation of a Contract prior to the date on which the
Seller has made funds available to or for the account of any related Obligor, or
(ii) any prepayment by any Obligor of amounts payable to the Seller under a
Contract, or (iii) any adjustment, or any other modification to, termination of,
or rejection of, any Contract by any Selling Party or any Affiliate thereof
(other than in the case of any adjustment or modification, in respect of a Pool
Receivable which shall have remained unpaid for 26 days or more from the
original due date therefor, made in accordance with the provisions of Section
6.4 by the Collection Agent), or (iv) a setoff in respect of any claim by the
Obligor thereof against any Selling Party or any Affiliate thereof (whether such
claim arises out of the same or a related transaction or an unrelated
transaction), the Seller shall be deemed to have received on such day a
Collection of such Receivable in the amount of such reduction or cancellation
and shall make the deposit required in connection therewith pursuant to Section
5.1(h) unless a different date is specified by the Facility Agent in which case
such payment shall be made on such date specified by the Facility Agent. If on
any day any of the representations or warranties in Section 4.1(h) is no longer
true with respect to a Pool Receivable, the Seller shall be deemed to have
received on such day a Collection in full of such Pool Receivable and shall make
the deposit required in connection therewith pursuant to Section 5.1(h). Except
as stated in the preceding sentences of this Section 2.7 or as otherwise
required by law or the underlying Contract, all Collections received from an
Obligor of any Receivable shall be applied (A) to Receivables then outstanding
of such Obligor in the order of the age of such Receivables, starting with the
oldest such Receivable, except if payment is designated by such Obligor for
application to specific Receivables, and (B) first, to principal
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and other amounts owed by such Obligor in respect of such Receivable other than
accrued interest and late fees, and, second, to accrued interest and late fees
in respect of such Receivable.
Section 2.8 Payments and Computations, Etc All amounts to be paid or
deposited by the Seller or the Collection Agent hereunder shall be paid or
deposited in accordance with the terms hereof no later than 3:00 P.M. (Los
Angeles time) on the day when due in lawful money of the United States of
America in same day funds to the Collection Account, except for daily deposits
of Collections by the Collection Agent pursuant to Section 6.4 which shall be
deposited in the Collection Account no later than the Business Day of receipt in
the form so received (with any necessary endorsement). The Seller shall, to the
extent permitted by law, pay to the Facility Agent interest on all amounts not
paid or deposited when due hereunder at the Alternate Base Rate plus 2.0%,
payable on demand, provided, however, that such interest rate shall not at any
time exceed the maximum rate permitted by applicable law. Such interest shall be
retained by the Facility Agent except to the extent that such failure to make a
timely payment or deposit has continued beyond the date for distribution by the
Facility Agent of such overdue amount to Purchaser or to any other Indemnified
Party, in which case such interest accruing after such date shall be for the
account of, and distributed by the Facility Agent to, Purchaser or to such
Indemnified Party, as applicable. All computations of interest and all
computations of Yield and fees hereunder shall be made on the basis of a year of
360 days for the actual number of days (including the first but excluding the
last day) elapsed.
Section 2.9 Seller's Payment of Yield, Capital and Fees Yield,
Capital and Fees.
(a) If the funds on deposit in the Collection Account on the first
Business Day following any Settlement Period are insufficient for the Facility
Agent to distribute such funds, in the order required, in payment in full of the
accrued Yield on the Purchased Interest, the Seller shall on such first day pay
to the Facility Agent for the account of Purchaser the amount of such
insufficiency.
(b) If the funds on deposit in the Collection Account on the first
Business Day following any Settlement Period pursuant to Section 2.6 are
insufficient for the Facility Agent to distribute such funds, in the order
required in such Section, in payment in full of Capital, the Seller shall be
deemed to have received Collections of the Defaulted Receivables described in
clause (iii) below and shall on such first day pay to the Facility Agent for the
account of Purchaser an amount equal to the least of (i) such insufficiency,
(ii) the aggregate amount of Interest Collections and Collection Agent Fee paid
from time to time to the Seller (as Collection Agent, in the case of any
Collection Agent Fee) by the Collection Agent pursuant to Section 2.6 (and not
previously paid by the Seller to the Facility Agent pursuant to this Section
2.9(b)), and (iii) an amount equal to the aggregate outstanding principal
balance of Defaulted Receivables (such outstanding balance being reduced by the
amount thereof with respect to which Capital shall have been reduced on the last
day of any prior Settlement Period as a result of the Facility Agent's
distribution of funds attributable to Interest Collections pursuant to Section
2.6 or payments by the Seller pursuant to this Section 2.9(b)).
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(c) Purchaser shall pay to the Collection Agent a collection fee
(the "Collection Agent Fee") of 1.00% per annum on the average daily amount of
Capital of Purchaser, from the date of the initial Purchase hereunder until the
Collection Date, payable on the first Business Day following each Settlement
Period; provided, however, that, upon at least three Business Days' notice to
the Facility Agent, the Collection Agent (if not a Selling Party or any
Affiliate thereof) may elect to be paid, as such fee, another percentage per
annum on the average daily amount of Capital or such other amount as may be
agreed among the Facility Agent, Purchaser and such Collection Agent, such
amount not to exceed 4.00% per annum of the average daily amount of Capital of
Purchaser; and provided, further, that such fee shall be payable only from
Collections pursuant to, and subject to the priority of payments set forth in,
Sections 2.5 and 2.6.
(d) During the Revolving Period, the Seller shall pay to the
Facility Agent, a facility fee (the "Facility Fee") equal to the average daily
amount by which the Commitment exceeds the amount of Capital multiplied by (i)
for the period from the date of execution of this Agreement to the 3-month
anniversary of such execution date, .125% per annum, (ii) for the period from
the 3-month anniversary of such execution date to the 6-month anniversary of
such execution date, .25% per annum, and (iii) thereafter, .375% per annum;
provided, however, no Facility Fee shall accrue or be payable for the period
commencing on the date on which Capital first equals or exceeds $24,500,000 and
ending on the date thereafter on which Capital is $17,500,000 or less. The
Facility Fee is payable in arrears monthly on the first Business Day of each
month.
Section 2.10 Increased Costs If, due to either (i) any change in
Regulation D of the Board of Governors of the Federal Reserve System, (ii) the
introduction of or any change in or in the interpretation of any law or
regulation or (iii) the compliance with any guideline or request from any
central bank or other governmental authority made after the date hereof (whether
or not having the force of law), there shall be any increase in the cost to (or,
in the case of Regulation D of the Board of Governors of the Federal Reserve
System, there shall be imposed a cost on) any Indemnified Party of agreeing to
make or making the Purchases or purchasing or maintaining the Purchased Interest
or portions thereof or interests therein, then the Seller shall from time to
time, within ten days after demand, and delivery to the Seller of the
certificate referred to in the last sentence of this Section 2.10, by such
Indemnified Party (or by the Facility Agent for the account of such Indemnified
Party) (with a copy of such demand and certificate to the Facility Agent, unless
delivered thereby), pay to the Facility Agent for the account of such
Indemnified Party additional amounts sufficient to compensate such Indemnified
Party for such increased or imposed cost. Each Indemnified Party party hereto
agrees to use its best efforts promptly to notify the Seller of any event
referred to in clause (i), (ii) or (iii) above, provided that the failure to
give such notice shall not affect the rights of any Indemnified Party under this
Section 2.10. A certificate in reasonable detail as to the basis for and the
amount of such increased cost, submitted to the Seller and the Facility Agent by
such Indemnified Party (or by the Facility Agent for the account of such
Indemnified Party) shall be conclusive and binding for all purposes, absent
manifest error.
Section 2.11 Increased Capital If any Indemnified Party determines
that the introduction of or any change in any law or regulation or any guideline
or request from any
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central bank or other governmental authority made after the date hereof (whether
or not having the force of law) affects or would affect the amount of capital
required or expected to be maintained by such Indemnified Party or any
corporation controlling such Indemnified Party and that the amount of such
capital is increased by or based upon the existence of such Indemnified Party's
commitment to purchase the Purchased Interest or portions thereof or interests
therein, or to maintain the Purchased Interest or portions or interests, then,
within ten days after demand, and delivery to the Seller of the certificate
referred to in the last sentence of this Section 2.11, by such Indemnified Party
(or by the Facility Agent for the account of such Indemnified Party) (with a
copy of such demand and certificate to the Facility Agent, unless delivered
thereby) the Seller shall pay to such Indemnified Party from time to time, as
specified by such Indemnified Party, additional amounts sufficient to compensate
such Indemnified Party in light of such circumstances, to the extent that such
Indemnified Party reasonably determines such increase in capital to be allocable
to the existence of any such commitment. Each Indemnified Party hereto agrees to
use its best efforts promptly to notify the Seller of any event referred to in
the first sentence of this Section 2.11, provided that the failure to give such
notice shall not affect the rights of any Indemnified Party under this Section
2.11. A certificate in reasonable detail as to the basis for, and the amount of,
such compensation submitted to the Seller and the Facility Agent by such
Indemnified Party (or by the Facility Agent for the account of such Indemnified
Party) shall, in the absence of manifest error, be conclusive and binding for
all purposes.
Section 2.12 Taxes (a) Any and all payments by the Seller or
deposits from Collections hereunder shall be made, in accordance with Section
2.9, free and clear of and without deduction for any and all present or future
taxes, levies, imposts, deductions, charges or withholdings, and all liabilities
with respect thereto, excluding, in the case of each Indemnified Party, (i)
taxes or other charges imposed on its income, and franchise taxes imposed on it,
by the jurisdiction under the laws of which such Indemnified Party is organized
or any political subdivision thereof or by any jurisdiction or any political
subdivision thereof in which such Indemnified Party holds any asset in
connection with this Agreement, and (ii) any taxes or other charges imposed by
the United States by means of withholding at the source to the extent in effect,
and applicable on the date hereof to payments to be made hereunder to such
Indemnified Party (after taking into account the forms to be provided in
accordance with subsection (e) below) (all such non-excluded taxes, levies,
imposts, deductions, charges, withholdings and liabilities being hereinafter
referred to as "Taxes"). If the Seller or the Collection Agent or the Facility
Agent shall be required by law to deduct any Taxes from or in respect of any sum
payable hereunder to any Indemnified Party, (i) the sum payable by the Seller
shall be increased as may be necessary so that after the Seller or the
Collection Agent or the Facility Agent has made all required deductions
(including deductions applicable to additional sums payable under this Section
2.12) such Indemnified Party receives an amount equal to the sum it would have
received had no such deductions been made, (ii) the Seller or the Collection
Agent or the Facility Agent shall make such deductions and (iii) the Seller or
the Collection Agent or the Facility Agent shall pay the full amount deducted to
the relevant taxation authority or other authority in accordance with applicable
law.
(b) In addition, the Seller agrees to pay any present or future
sales, stamp or documentary taxes or any other excise or property taxes, charges
or similar levies which arise
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from any payment made by the Seller or the Collection Agent or the Facility
Agent hereunder or from the execution, delivery or performance of, or otherwise
with respect to, any Purchase Document (hereinafter referred to as "Other
Taxes").
(c) The Seller will indemnify each Indemnified Party for the full
amount of Taxes or Other Taxes (including, without limitation, any Taxes or
Other Taxes imposed by any jurisdiction on amounts payable under this Section
2.12) paid by such Indemnified Party and any liability (including penalties,
interest and expenses) arising therefrom or with respect thereto except as a
result of the gross negligence or willful misconduct of such Indemnified Party,
whether or not such Taxes or Other Taxes were correctly or legally asserted.
This indemnification shall be made within ten days from the date such
Indemnified Party makes written demand therefor.
(d) Within 30 days after the date of any payment by the Seller of
Taxes, the Seller will furnish to the Facility Agent, at its address referred to
in Section 11.2, the original or a certified copy of a receipt evidencing
payment thereof.
Section 2.13 Extensions of Stated Termination Date The Seller may
from time to time request extensions of the Stated Termination Date for
additional one-year periods upon at least 90 days written notice from the Seller
to the Facility Agent. Such extensions may be granted or not granted in the
Facility Agent's sole discretion. Any failure to respond shall be a rejection of
the requested extension.
Section 2.14 Grant of Security Interest It is the express intent of
the parties hereto that the transfer of the Receivables and their respective
Related Security and Collections by the Seller to the Facility Agent for the
benefit of the Purchaser, as contemplated by this Agreement be, and be treated
as, sales and not secured loans secured by the Receivables and their respective
Related Security and Collections, and that Facility Agent for the benefit of the
Purchaser shall acquire, pursuant to the terms of this Agreement, ownership of
all of Seller's right, title and interest in and to the items referred in
clauses (i), (ii) and (iii) of the definition of "Purchased Interest." If,
however, notwithstanding the intent of the parties, such transactions are deemed
to be loans to the Seller, the Seller hereby assigns and grants to the Facility
Agent for the benefit of itself and the Purchaser and each Indemnified Party a
first priority security interest in all of such Seller's right, title and
interest in, to and under all of the following, whether now or hereafter
existing: (a) all Receivables, all their respective Related Security and all
Collections related thereto, (b) the Collection Account, all funds on deposit
therein and all certificates and instruments, if any, from time to time
evidencing such account and funds on deposit therein, all investments made with
such funds, all claims thereunder or in connection therewith, all contract
rights (including under insurance policies) and other rights relating thereto
and all interest, dividends, moneys, instruments, securities and other property
from time to time received, receivable or otherwise distributed in respect or in
exchange for any or all of the foregoing and anything else constituting part of
the Purchased Interest, and (c) all proceeds and amounts received or receivable
by the Collection Agent or the Seller under any or all of the foregoing, to
secure the prompt payment and performance of all obligations of Seller arising
in connection with this Agreement and each other Purchase Document, whether now
or hereafter existing, due or to become due, direct or indirect, or absolute or
contingent, including, without
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limitation, all indemnified amounts, all payments on account of Collections
received or deemed to be received and all fees. This Agreement shall constitute
a security agreement under applicable law with regard to the security interest
granted pursuant to this Section 2.14.
ARTICLE III
CONDITIONS OF PURCHASES
Section 3.1 Condition Precedent to Initial Purchase The initial
Purchase hereunder is subject to the prior or concurrent satisfaction of all of
the following conditions:
I. The Facility Agent shall have received on or before the earlier of
September 20, 1996 and the date of the initial Purchase hereunder the following,
each (unless otherwise indicated) dated such date, in form and substance
satisfactory to, and in sufficient copies for, the Facility Agent:
(a) The Assignment, duly executed by the Seller.
(b) (i) Acknowledgment copies or stamped receipt copies of (or other
evidence satisfactory to Facility Agent of the filing of) proper financing
statements, duly filed on or before the date of the initial Purchase, naming the
Seller as debtor and the Facility Agent, as agent for Purchaser, as secured
party, or other similar instruments or documents, as may be necessary or, in the
opinion of the Facility Agent, desirable under the UCC of all appropriate
jurisdictions or any comparable law to perfect Purchaser's ownership interests
created or purported to be created hereby; and
(ii) Acknowledgment copies or stamped receipt copies of proper
financing statements, if any, necessary to release all Adverse Claims of any
Person in the Receivables, Related Security, Collections or Contracts previously
granted by the Seller.
(c) Officially certified recent evidence of the due incorporation
and good standing of the Seller under the laws of the State of Delaware and
evidence of the Seller's good standing and authority to conduct business under
the laws of Florida, and copies of its by-laws certified by its Secretary or an
Assistant Secretary.
(d) Certified copies of the resolutions of the Board of Directors of
the Seller approving this Agreement, the other Purchase Documents and the other
documents to be delivered by it hereunder and the transactions contemplated
hereby and thereby.
(e) A certificate of the Secretary or Assistant Secretary of the
Seller certifying the names and true signatures of the officers of the Seller
authorized to sign this Agreement, the other Purchase Documents and the other
documents to be delivered by it hereunder.
(f) A favorable opinion of Buchanan Ingersoll Professional
Corporation, counsel for the Seller, the Originators and USA Finance on the date
of the initial Purchase,
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substantially in the form of Exhibit E hereto and as to such other matters as
the Facility Agent may reasonably request.
(g) A certificate from a Responsible Officer of the Seller to the
effect that the Seller, as of the date of the initial Purchase, has no
outstanding Debt or existing commitments to extend credit.
(h) Officially certified recent evidence of the due incorporation
and good standing of each of the Originators and USA Finance under the laws of
their respective states of incorporation, and evidence of each Originator's good
standing and authority to conduct business under the laws of Florida and
Tennessee, and of USA Finance's good standing and authority to conduct business
under the laws of Florida.
(i) A certificate of a Responsible Officer of the Collection Agent
certifying that each Contract has been properly identified as an asset of
Purchaser in the Collection Agent's records and the file relating thereto is
complete in all material respects and acknowledging that the Collection Agent is
holding such Contracts as custodian for Purchaser.
(j) The Origination Agreement, duly executed by the Seller and each
Originator.
(k) The Assignment (Origination Agreement), duly executed by the
Originators.
(l) Acknowledgment copies or stamped receipt copies of (or other
evidence satisfactory to Facility Agent of the filing of) UCC-1 Financing
Statements, duly filed on or before the date of the initial Purchase, naming
each Originator, as debtor, and the Seller, as secured party, or other similar
instruments or documents, as may be necessary or, in the opinion of the Facility
Agent, desirable under the UCC of all appropriate jurisdictions or any
comparable law to perfect Seller's ownership interests created or purported to
be created by the Origination Agreement.
(m) Acknowledgment copies or stamped receipt copies of proper
financing statements, if any, necessary to release all Adverse Claims of any
Person in the Receivables, Related Security, Collections or Contracts previously
granted by the Originators.
(n) Certified requests for information, dated on or a recent date
prior to the date of the initial Purchase, listing the financing statements
referred to in subsection (l) above and all other effective financing statements
filed in the jurisdictions referred to in subsection (l) above that name any
Originator (under its present name and any previous name) as debtor, together
with copies of such financing statements (none of which (except those filed
pursuant to subsection (l) above) shall cover any Receivables, Related Security,
Collections or Contracts).
(o) A certificate of a Responsible Officer of each Originator and
USA Finance to the effect that such Originator and USA Finance have no
outstanding Debt or
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existing commitments to extend credit except for certain subordinated
indebtedness approved in writing by Purchaser and listed on Schedule III.
(p) Copies of all consents, approvals and related documents required
in connection with the transaction including (i) the consent of First Western
Bank with respect to the termination of the Premium Finance Contract Purchase
and Servicing Agreement dated as of August 11, 1995, (ii) a duly executed payout
letter from First Western Bank regarding termination of such agreement and
satisfactory evidence of the repurchase by Gold Coast of all Contracts from
First Western Bank, (iii) a duly executed bill of sale transferring all
Contracts purchased by First Western Bank under such Purchase Agreement to Gold
Coast, (iv) duly executed termination statements necessary to terminate all
interest of First Western Bank in the Receivables, (v) evidence satisfactory of
the delivery to the Collection Agreement of all Contracts relating to
Receivables from First Western Bank, and (vi) such other documents as Facility
Agreement may require.
(q) The USA Guaranty, duly executed by USA Finance.
(r) The Rights Agreement, duly executed by each Selling Party.
(s) A certificate of the Secretary or an Assistant Secretary of USA
Finance certifying (a) its charter and by-laws, (b) the resolutions adopted by
its Board of Directors, and (c) the names and true signatures of its officers
executing the Purchase Documents.
(t) The Consent and Agreement, duly executed by the Seller and each
Originator.
(u) The initial Purchaser Report, Insurance Carrier Exposure Report,
a Receivables aging report for the immediately preceding month and such other
reports regarding the Pool Receivables and the initial Purchase as may be
specified by the Facility Agent.
(v) A license and custody agreement or other agreement enabling the
Facility Agent and Purchaser to operate Selling Parties' premium finance
receivable accounting and operations systems on an IBM AS/400 computer system
including an assignment of the Escrow Agreement among USA Finance, Unicorp Data
Processing, Inc. and SunTrust Bank, Miami, N.A., as Escrow Agent.
(w) A pro forma balance sheet of the Seller giving effect to the
transactions occurring on the date of the initial Purchase.
(x) A demand promissory note in aggregate principal amount of
$500,000 duly executed by USA Finance in favor of SunAmerica Financial
Resources, Inc. (the "USA Finance Note") and a pledge agreement securing the USA
Finance Note duly executed and delivered by USA Finance together with stock
certificate(s) evidencing 100% of the capital stock of the Seller with undated
stock powers in blank duly executed by USA Finance.
(y) Evidence satisfactory to Facility Agent and Purchaser that the
Collection Agent has obtained the insurance required by Section 6.4(f).
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(z) Confirmation from Unicorp Data Processing, Inc. of the transfer
of the Unicorp software license to USA Finance and its subsidiaries.
(aa) An Archival Services and Storage Order between Pierce Leahy
Archives and USA Finance concerning the storage of daily backup tapes and
providing access to the Facility Agent.
(bb) A certificate of a Responsible Officer of the Seller regarding
the Credit and Collection Policy of the Seller as of the date of the initial
Purchase.
Such other documents, instruments, agreements, certificates and informations as
the Facility Agent or Purchaser may request.
II. The Facility Agent and Purchaser shall have completed their due
diligence investigation of the Selling Parties, and shall be satisfied with the
results thereof.
Section 3.2 Conditions Precedent to All Purchases and Reinvestments
Each Purchase (including the initial Purchase) hereunder and the right of the
Collection Agent to reinvest in Pool Receivables those Collections attributable
to the Purchased Interest pursuant to Section 2.5 or 2.6 shall be subject to the
further conditions precedent that:
(a) with respect to any such Purchase, on or prior to the date of
such Purchase, the Collection Agent shall have delivered to the Facility Agent,
in form and substance satisfactory to the Facility Agent and each Agent, a
completed Purchaser Report, dated as of the last day of the week immediately
preceding the date of such Purchase, together with such additional information
as may be reasonably requested by the Facility Agent;
(b) on the date of such Purchase or reinvestment the following
statements shall be true (and the acceptance by the Seller of the proceeds of
such Purchase or reinvestment shall constitute a representation and warranty by
the Seller that on the date of such Purchase or reinvestment such statements are
true):
(i) The representations and warranties contained in Sections 4.1 and
6.10 of this Agreement are correct in all material respects on and as of the
date of such Purchase or reinvestment, before and after giving effect to such
Purchase or reinvestment and to the application of the proceeds therefrom, as
though made on and as of such date except to the extent that they expressly
relate to a date prior to such date,
(ii) No event has occurred and is continuing, or would result from
such Purchase or reinvestment or from the application of the proceeds therefrom,
which constitutes an Event of Investment Ineligibility or would constitute an
Event of Investment Ineligibility but for the requirement that notice be given
or time elapse or both, and
(iii) The Facility Agent shall not have delivered to the Seller a
notice that Purchaser shall not make any further Purchases hereunder and/or that
the Collection Agent shall not reinvest in any Pool Receivables on behalf of
Purchaser as a result of Purchaser's institutional decision to no longer
purchase assets such as the Receivables and none of the
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following have occurred: (1) the Seller or any of its Affiliates shall have
entered into an agreement to finance or sell Receivables; (2) 120 days shall
have elapsed from the giving of such notice by the Facility Agent; or (3) a
Termination Date; and
(c) the Facility Agent shall have received such other approvals,
opinions or documents as the Facility Agent may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 Representations and Warranties of the Seller The Seller
represents and warrants as follows:
(a) The Seller is a corporation duly incorporated, validly existing
and in good standing under the laws of the jurisdiction indicated at the
beginning of this Agreement and is duly qualified to do business, and is in good
standing, in every jurisdiction where the nature of its business requires it to
be so qualified.
(b) The execution, delivery and performance by the Seller of the
Purchase Documents, and all other instruments and documents to be delivered by
it hereunder, and the transactions contemplated hereby and thereby, and the
Seller's use of the proceeds of Purchases and reinvestments, are within the
Seller's corporate powers, have been duly authorized by all necessary corporate
action, do not contravene (i) the Seller's charter or by-laws or (ii) law or any
Contract or Related Security or any other contractual restriction binding on or
affecting the Seller, and do not result in or require the creation of any
Adverse Claim (other than pursuant hereto) upon or with respect to any of its
properties; and no transaction contemplated hereby requires compliance with any
bulk sales act or similar law. No consent of any stockholder of any Selling
Party is required in connection with the execution, delivery and performance of
the Purchase Documents.
(c) No authorization or approval or other action by, and no notice
to or filing with, any governmental authority or regulatory body is required for
the due execution, delivery and performance by the Seller of any Purchase
Document or any other instrument or document to be delivered by it hereunder, or
for the perfection of or the exercise by the Facility Agent or any Indemnified
Party of their respective rights and remedies under the Purchase Documents and
such other instruments and documents, except for the filings of the financing
statements referred to in Article III, all of which, on or prior to the date of
the initial Purchase, will have been duly made and be in full force and effect.
(d) This Agreement is, and each other Purchase Document when
delivered hereunder will be, the legal, valid and binding obligation of the
Seller enforceable against the Seller in accordance with their respective terms,
except to the extent that enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, and other similar laws affecting
creditors' rights generally or by general principles of equity.
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(e) The consolidated balance sheets of USA Finance and its
consolidated subsidiaries as at December 31, 1995, and the related consolidated
statements of income and cash flows of USA Finance and its consolidated
subsidiaries for the fiscal year then ended, copies of which have been furnished
to the Facility Agent fairly present the consolidated financial condition of USA
Finance and its consolidated subsidiaries as at such date and the consolidated
results of the operations of USA Finance and its consolidated subsidiaries for
the period ended on such date, all in accordance with generally accepted
accounting principles consistently applied, and since December 31, 1995, there
has been no material adverse change in such consolidated condition or
operations.
(f) There is no pending or threatened action or proceeding affecting
any Selling Party before any court, governmental agency or arbitrator (i) which
is reasonably likely to materially adversely affect (A) the consolidated
financial condition or operations of any Selling Party or (B) the ability of any
Selling Party to perform its obligations under any Purchase Document or any
other instrument or document to be delivered by it hereunder, or (ii) which
purports to affect the legality, validity or enforceability of any Purchase
Document or any such other instrument or document.
(g) No proceeds of any Purchase or reinvestment will be used to
acquire any equity security of a class which is registered pursuant to Section
12 of the Securities Exchange Act of 1934.
(h) Immediately prior to the initial creation of an interest in any
Pool Receivable hereunder, the Seller is the legal and beneficial owner of such
Pool Receivable and the Related Security with respect thereto free and clear of
any Adverse Claim except as created by this Agreement. Each Pool Receivable is
an Eligible Receivable on the date of the initial creation of an interest
therein hereunder. No event has occurred which may adversely affect the
collectibility of any material amount of the Pool Receivables. Upon each
Purchase or reinvestment, Purchaser (and if applicable, its Assignees) will
acquire a valid and perfected first priority ownership interest in each Pool
Receivable then existing or thereafter arising and in the Related Security and
Collections with respect thereto free and clear of any Adverse Claim. No
effective financing statement or other instrument similar in effect covering any
Contract or any Pool Receivable or Related Security or Collections with respect
thereto is on file in any recording office, except those filed in favor of the
Facility Agent and its Assignees relating to this Agreement.
(i) Each Purchaser Report and each Insurance Carrier Exposure
Report, information, exhibit, financial statement, document, book, record or
report furnished or to be furnished at any time by or on behalf of any Selling
Party to the Facility Agent or any other Indemnified Party in connection with
any Purchase Document is or will be accurate in all material respects as of its
date or (except as otherwise disclosed to the Facility Agent or such Indemnified
Party, as the case may be, at such time) as of the date so furnished, and no
such document contains or will contain any untrue statement of a material fact
or omits or will omit to state a material fact necessary in order to make the
statements contained therein, in the light of the circumstances under which they
were made, not misleading.
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(j) The chief place of business and chief executive office of the
Seller and the office where the Seller keeps its records concerning the Pool
Receivables are located at the address of the Seller specified in Section 13.2
hereto (or at such other locations, notified to the Facility Agent in accordance
with Section 5.1(f), in jurisdictions where all action required by Section 6.7
has been taken and completed).
(k) Neither the Seller nor any Affiliate of the Seller has any
direct or indirect ownership or other financial interest in Purchaser or the
Facility Agent.
(l) Each Purchase and each reinvestment of Collections in Pool
Receivables will constitute a "current transaction" within the meaning of
Section 3(a)(3) of the Securities Act of 1933, as amended.
(m) USA Finance owns 100% of the outstanding shares of capital stock
of the Seller free and clear of any Adverse Claim other than the Adverse Claim
in favor of SunAmerica Financial Resources, Inc.
(n) No transaction contemplated by this Agreement requires
compliance with, or will be subject to avoidance under, any bulk sales act or
similar law.
(o) For reporting and accounting purposes, the Seller will treat the
transfer of the Receivables pursuant to this Agreement as an absolute assignment
or sale of the Receivables, and the Seller has not accounted for or treated the
transactions in any other manner inconsistent with such treatment.
(p) None of the Selling Parties is an "investment company" or a
company "controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended.
(q) The Seller is solvent and will not become insolvent after giving
effect to the transactions contemplated by this Agreement; the Seller has not
incurred Debt beyond its ability to pay; and the Seller, after giving effect to
the transactions contemplated by this Agreement, will have an adequate amount of
capital to conduct its business in the foreseeable future.
ARTICLE V
GENERAL COVENANTS OF THE SELLER
Section 5.1 Affirmative Covenants of the Seller Until the Collection
Date, the Seller will:
(a) Compliance with Laws, Etc. Comply in all material respects with
all applicable laws, rules, regulations and orders with respect to it, its
business and properties and all Pool Receivables and related Contracts, Related
Security and Collections with respect thereto, including without limitation the
payment before the same becomes delinquent of all material taxes, assessments
and governmental charges imposed upon the Seller or its property except to the
extent contested in good faith and by proper proceedings and for which it is
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maintaining adequate reserves in accordance with generally accepted accounting
principles (unless such non-payment could subject the Facility Agent or any
other Indemnified Party to civil or criminal penalty or liability or involve any
material risk of the sale, forfeiture or loss of any of the property, rights or
interests covered hereunder).
(b) Preservation of Corporate Existence. Preserve and maintain its
corporate existence, rights, franchises and privileges in the jurisdiction of
its incorporation, and qualify and remain qualified in good standing as a
foreign corporation in each jurisdiction where the conduct of its business
requires it to be so qualified.
(c) Audits. (i) At any time and from time to time during regular
business hours, permit the Facility Agent or its agents or representatives, (A)
to examine and make copies of and abstracts from all books, records and
documents (including, without limitation, computer tapes and disks) in the
possession or under the control of the Seller or its agents or designees
relating to Pool Receivables and the Related Security, including, without
limitation, the related Contracts, and (B) to visit the offices and properties
of the Seller and its agents and designees for the purpose of examining such
materials described in clause (A) above, and to discuss matters relating to Pool
Receivables and the Related Security or performance of any Selling Party
hereunder or under the Contracts with any of the officers or employees of the
Seller having knowledge of such matters, (ii) permit the Facility Agent or its
agents or representatives to audit a significant portion of the Receivables and
the Related Policies on a monthly or more frequent basis, and (iii) upon the
request of the Facility Agent, at least annually, at the expense of the
Collection Agent (if a Selling Party), cause the Auditor to perform and deliver
to the Facility Agent an audit with respect to the Pool Receivables and the
Credit and Collection Policy and the performance of the Seller of its
obligations, covenants and duties under this Agreement, on a scope and in a form
reasonably requested by the Facility Agent for such audit.
(d) Keeping of Records and Books of Account. Maintain and implement
administrative and operating procedures (including, without limitation, an
ability to recreate records evidencing Pool Receivables in the event of the
destruction of the originals thereof), and keep and maintain, all documents,
books, records and other information reasonably necessary or advisable for the
collection of all Pool Receivables (including, without limitation, records
adequate to permit the daily identification of each new Pool Receivable and all
Collections of and adjustments to each existing Pool Receivable).
(e) Performance and Compliance with Receivables, Contracts and
Related Security. At its expense timely and fully perform and comply with all
material provisions, covenants and other promises required to be observed by it
under the Contracts related to the Pool Receivables or under any Related
Security.
(f) Location of Records. Keep its chief place of business and chief
executive office and the office where it keeps the originals of its records
concerning the Pool Receivables at the address of the Seller referred to in
Section 4.1(j) or specified in writing to the Facility Agent or upon 30 days'
prior written notice to the Facility Agent, at any other locations in a
jurisdiction where all action required by Section 6.7 shall have been taken.
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(g) Credit and Collection Policies. Comply in all material respects
with the Credit and Collection Policy in regard to each Pool Receivable and the
related Contract and Related Security.
(h) Collections. Segregate and hold in trust or cause to be
segregated and held in trust any Collections received by or on behalf of the
Seller and deposit such Collections directly to the Collection Account on the
Business Day of the Seller's receipt or deemed receipt thereof.
(i) Computer Access. At all times provide the Facility Agent or its
agents or representatives with access (via a license and custody agreement or
otherwise) to software which will enable the Facility Agent to operate the
Selling Parties' premium finance receivable accounting and operations systems
utilized by the Selling Parties on the date of the initial Purchase or any other
system and related software acceptable to the Facility Agent.
(j) Endorsement of Contracts. With respect to Receivables arising
after the date of the initial Purchase, cause, within two Business Days of its
origination, the Contract relating to each Pool Receivable to be endorsed
(conspicuously on the front or back thereof) by a stamp containing the following
legend and which is otherwise acceptable to the Facility Agent:
"THIS CONTRACT AND ALL SECURITY THEREFOR HAS BEEN SOLD
AND ASSIGNED TO SUNAMERICA FINANCIAL RESOURCES, INC.
(AND ITS ASSIGNEES) PURSUANT TO THE RECEIVABLES PURCHASE
AND SALE AGREEMENT DATED AS OF SEPTEMBER 18, 1996, AMONG
CONTRACT FUNDING CORP., AS SELLER, GOLD COAST FINANCE,
INC. AS COLLECTION AGENT AND SUNAMERICA FINANCIAL
RESOURCES INC., AS FACILITY AGENT AND PURCHASER."
(k) Delivery of Contracts. Upon request of the Facility Agent, cause
the original Contracts relating to the Pool Receivables to be delivered to
Purchaser or a bailee designated by the Facility Agent.
(l) Purchase of Receivables from an Originator. With respect to each
outstanding Pool Receivable, purchase such Pool Receivable from the Originator
to which it was owed, and pay to such Originator, an amount in cash at least
equal to the fair market value of such Receivable as determined by the Seller
and such Originator and computed by subtracting from the face amount of such
Receivable a discount that reflects (among other things) the cost to the Seller
of owning such Receivable (including, without limitation, the Seller's cost of
funding its purchase of such Receivable) and the estimated costs (taking into
account collection risks) of collection of such Receivable.
(m) Origination Agreement. Timely perform in all material respects
its obligations under and comply with the Origination Agreement, maintain or
cause to be
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maintained the Origination Agreement in full force and effect, enforce the
Origination Agreement in accordance with its terms, and promptly take all action
thereunder as may from time to time be reasonably requested by the Facility
Agent or Purchaser.
(n) Additional Covenants. Comply with the following covenants:
(i) At all times, at least two of the directors of the Seller shall
be independent directors who shall at no time be a shareholder or an
officer, employee of the Seller or a shareholder or a director, officer or
employee of any shareholder or Affiliate of the Seller, or a natural
person related by affinity or consanguinity to any of the foregoing.
(ii) The Seller shall maintain separate, identifiable office space
and will observe all customary formalities of independent corporate
existence.
(iii) The Seller shall maintain separate corporate records and books
of account from those of any Selling Party or any other Person and the
Seller shall not commingle its funds or other assets with those of any
other Person.
(iv) The Seller will hold appropriate meetings of its Board of
Directors and stockholders, or take actions by unanimous written consent
if permitted by applicable law, to authorize the Seller's corporate
actions.
(v) The Seller will at all times hold itself out to the public under
the Seller's own name, as a separate and distinct entity from its
Affiliates.
(vi) The Seller will not engage in business transactions with any
Affiliate unless it is approved by the Board of Directors (including
approval by all independent directors) as a transaction with terms and
conditions available at the time to the Seller at least as favorable to
the Seller as for comparable transactions on an arm's length basis with
unaffiliated Persons.
(o) Initial Contracts. Within seven days of the date of the initial
Purchase, cause each Contract relating to each Pool Receivable existing on the
date of the initial Purchase to be endorsed (conspicuously on the front or back
thereof) by a stamp containing the legend set forth in Section 5.1(j) and which
is otherwise acceptable to the Facility Agent.
Section 5.2 Reporting Requirements of the Seller Until the
Collection Date, the Seller will furnish to the Facility Agent:
(a) as soon as available and in any event within 30 days after the
end of each month of each fiscal year of the Seller, consolidated and
consolidating balance sheets of USA Finance and its consolidated subsidiaries as
of the end of such month and consolidated and consolidating statements of income
and cash flows of USA Finance and its consolidated subsidiaries for the period
commencing at the end of the previous fiscal year and ending with the end of
such month, certified by any Responsible Officer of the Seller;
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(b) as soon as available and in any event within 45 days after the
end of each of the first three quarters of each fiscal year of the Seller,
consolidated and consolidating balance sheets of USA Finance and its
consolidated subsidiaries as of the end of such quarter and consolidated and
consolidating statements of income and cash flows of USA Finance and its
consolidated subsidiaries for the period commencing at the end of the previous
fiscal year and ending with the end of such quarter, certified by any
Responsible Officer of the Seller;
(c) as soon as available and in any event within 90 days after the
end of each fiscal year of the Seller, audited consolidated and consolidating
financial statements of USA Finance and its consolidated subsidiaries for such
year certified by the Auditor;
(d) as soon available and in any event within 45 days after the end
of each quarter of each fiscal year of the Seller, consolidated and
consolidating balance sheets of USA Finance and its consolidated subsidiaries as
of the end of such quarter and consolidated and consolidating statements of
income and cash flows of USA Finance and its consolidated subsidiaries for the
period commencing at the end of the previous fiscal year and ending with the end
of such quarter, certified by any Responsible Officer of the Seller;
(e) as soon as possible and in any event within two Business Days
after any Responsible Officer obtains knowledge of the occurrence of each Event
of Investment Ineligibility and each event which, with the giving of notice or
lapse of time, or both, would constitute an Event of Investment Ineligibility,
continuing on the date of such statement, a statement of any Responsible Officer
setting forth details of such Event of Investment Ineligibility or event and the
action which the Seller has taken and proposes to take with respect thereto;
(f) promptly after the sending or filing thereof, copies of all
reports which any Selling Party sends to any of its securityholders or
creditors, and copies of all reports and registration statements which any
Selling Party or any subsidiary files with the Securities and Exchange
Commission or any national securities exchange;
(g) promptly after the filing or receiving thereof, copies of all
reports and notices which the Seller or any subsidiary files under ERISA with
the Internal Revenue Service or the Pension Benefit Guaranty Corporation or the
U.S. Department of Labor or which the Seller or any subsidiary receives from
such Corporation;
(h) on or before January 31 of each year, beginning in 1997, a
certificate of a Responsible Officer stating that the Seller has, during the
preceding year, observed all of the requisite corporate formalities and
conducted its business and operations in such a manner as required for the
Seller to maintain its separate corporate existence from any other entity; and
(i) such other information, documents, records or reports respecting
the Receivables, the Related Security or the Contracts or the condition or
operations, financial or otherwise, of the Seller or any of its subsidiaries as
the Facility Agent may from time to time reasonably request.
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Section 5.3 Negative Covenants of the Seller Until the Collection
Date, the Seller will not, without the written consent of Facility Agent:
(a) Debt. Create, incur, assume, guaranty, or otherwise become or
remain liable with respect to any Debt.
(b) Adverse Claims. Except as otherwise provided herein, create,
incur, assume or suffer to exist any Adverse Claim on or with respect to any
property or asset (including any document or instrument with respect to goods or
accounts receivable) of the Seller, whether now owned or hereafter acquired, or
any income or profits therefrom.
(c) Guaranties. Guarantee or become liable in any way as surety,
endorser (other than as endorser of negotiable instruments for deposit or
collection in the ordinary course of business), accommodation endorser or
otherwise for, any liabilities or obligation of any other Person.
(d) Restricted Payments. Declare, order, pay, make or set apart any
sum for any Restricted Payment if an Event of Investment Ineligibility has
occurred and is continuing.
(e) Restriction on Fundamental Changes. Take any of the following
actions: (i) amend, modify or waive any term or provision of its certificate of
incorporation, by-laws or other organizational document or any term or provision
of any material contract, lease, agreement or other arrangement; (ii) enter into
any transaction of merger or consolidation; (iii) liquidate, wind-up or dissolve
itself (or suffer any liquidation or dissolution); (iv) convey, sell, lease,
sublease, transfer or otherwise dispose of, in one transaction or a series of
transactions, all or any part of its business or assets, except as contemplated
by the Purchase Documents; or (v) acquire by purchase or otherwise all or any
substantial part of the business or assets of, or stock or other evidence of
beneficial ownership of, any Person, except as contemplated by the Purchase
Documents.
(f) Extension or Amendment of Receivables. Except as otherwise
permitted in Section 6.4, extend, amend or otherwise modify the terms of any
Pool Receivable, or amend, modify or waive any term or condition of any Contract
or Related Security related thereto.
(g) Change in Business or Credit and Collection Policy. (i) Engage
in any business or activity other than in connection with or relating to, or the
carrying out of the activities described in, this Agreement and the other
Purchase Documents or (ii) make any change in the Credit and Collection Policy,
which change would be reasonably likely to impair the collectibility of any Pool
Receivable.
(h) Change in Payment Instructions to Obligors or Related Insurers.
Give any instructions to Obligors or Related Insurers regarding payments to be
made which are inconsistent with the terms of this Agreement and the other
Purchase Documents.
(i) Deposits to the Collection Account. Deposit or otherwise credit,
or cause or permit to be so deposited or credited, to the Collection Account
cash or cash proceeds other than Collections of Pool Receivables.
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(j) Change of Name, Etc. Change its name or identity, or its chief
executive office, unless at least 30 days prior to the effective date of any
such change the Seller delivers to the Facility Agent UCC financing statements,
executed by the Seller to such financing statements, necessary to reflect such
change and to continue the perfection of the ownership interests created by the
Purchase Documents.
(k) No Subsidiaries. Form, create or acquire any subsidiary.
(l) Amendments. Amend the Origination Agreement or the Consent and
Agreement.
(m) Collateralization. Permit the aggregate Uncollateralized Portion
of all Receivables to exceed the lesser of (i) 25% of the Adjusted Tangible Net
Worth of USA Finance on a consolidated basis and (ii) 10% of the aggregate
Outstanding Balance of the Pool Receivables on any date.
ARTICLE VI
ADMINISTRATION AND COLLECTION
Section 6.1 Establishment of Accounts tablishment of Accounts
(a) Collection Account. The Facility Agent, for the benefit of
Purchaser, shall establish and maintain or cause to be established and
maintained the Collection Account. The Facility Agent shall have the power to
withdraw funds from the Collection Account on the basis of the data provided to
it by the Collection Agent pursuant to this Article VI, as otherwise provided
herein and as directed by Purchaser.
(b) The Interest and Principal Accounts. The Facility Agent, for the
benefit of Purchaser, shall establish and maintain two separate sub-accounts of
the Collection Account designated as the "Interest Account" and the "Principal
Account," respectively. The Facility Agent shall have the power to withdraw
funds from the Interest Account and the Principal Account on the basis of the
data provided to it by the Collection Agent pursuant to this Article VI for the
purpose of carrying out the Facility Agent's duties hereunder, as otherwise
provided herein and as directed by Purchaser. The Principal Account and the
Interest Account shall be book entry accounts; provided that the Facility Agent
at all times shall maintain accurate records reflecting each transaction in the
Principal Account and the Interest Account and that the funds held therein at
all times shall be held for the benefit of Purchaser.
(c) Administration of the Accounts. Funds on deposit in the Interest
Account shall at all times be interest-bearing or, at the Facility Agent's
option, invested by the Facility Agent in accordance with the investment
instructions of Purchaser and interest and other earnings thereon will be added
to funds on deposit in the Interest Account. The Facility Agent shall be fully
protected in following the investment instructions of Purchaser, and shall have
no obligation to keep the funds fully invested at all times or to make any
investments other than in accordance with such written investment instructions.
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Section 6.2 Designation of Collection Agent The Pool Receivables
shall be serviced, administered and collected by the Person (the "Collection
Agent") designated to do so from time to time in accordance with this Section
6.2 and the other provisions of this Agreement. Until the Facility Agent
designates a new Collection Agent, Gold Coast is hereby designated as, and
hereby agrees to perform the duties and obligations of, the Collection Agent
pursuant to the terms hereof. The Facility Agent may at its election at any time
upon the occurrence and during the continuance of an Event of Investment
Ineligibility or a Collection Agent Default designate as Collection Agent any
Person (including the Facility Agent) to succeed Gold Coast or any successor
Collection Agent, if such Person (other than itself) shall agree in writing to
perform the duties and obligations of the Collection Agent pursuant to the terms
hereof. The Collection Agent may (i) with the prior written consent of the
Facility Agent, subcontract with any of its Affiliates (other than the Seller)
to service, administer or collect the Pool Receivables, and (ii) with the prior
written consent of the Facility Agent, subcontract with any other Person to
service, administer or collect the Pool Receivables, provided in the case of
each of clauses (i) and (ii) that the Person with whom the Collection Agent so
subcontracts shall not become the Collection Agent hereunder and the Collection
Agent shall remain liable for the performance of the duties and obligations of
the Collection Agent pursuant to the terms hereof, and any failure of such
subcontractor to perform any duty or obligation shall be a failure of the
Collection Agent to perform such duty or obligation.
Section 6.3 Standard of Care; Inspection; Audits (a) In managing,
administering, servicing, and making collections on the Receivables pursuant to
this Agreement, the Collection Agent will exercise that degree of skill and care
consistent with the highest degree of skill and care that the Collection Agent
exercises with respect to similar Receivables serviced by the Collection Agent
for its own account, and if higher, which first class personal lines insurance
premium finance servicers customarily utilize.
(b) The Facility Agent and Purchaser and their respective
representatives shall at all times upon reasonable prior notice have full and
free access during normal business hours to all books, correspondence, and
written and computer records of the Collection Agent as appropriate to verify
the Collection Agent's compliance with this Agreement, and the Facility Agent
and Purchaser and their respective representatives may examine and audit the
same, and make photocopies thereof, and the Collection Agent agrees to render to
the Facility Agent and the Purchaser and their respective representatives, at
such party's cost and expense, such clerical and other assistance as may be
reasonably requested with regard thereto. Until the Collection Date, the
Collection Agent (if a Selling Party or any Affiliate thereof) further agrees
that it will (i) furnish to the Facility Agent as soon as available and in any
event within 90 days after the end of each fiscal year of the Collection Agent,
audited consolidated financial statements of the Collection Agent and its
consolidated subsidiaries for such year certified by the Auditor, (ii) permit
the Facility Agent or its agents or representatives, at the Collection Agent's
expense, to audit a significant portion of the Receivables and the Related
Policies on a monthly or more frequent basis, and (iii) upon the request of the
Facility Agent, at least annually, at the expense of the Collection Agent (if a
Selling Party), cause the Auditor to perform and deliver to the Facility Agent
or allow the Facility Agent to perform an audit with respect to the Pool
Receivables and the Credit and Collection Policy and the performance of the
Collection Agent of its obligations, covenants and duties under this Agreement,
on a scope and
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in a form reasonably requested by the Facility Agent for such audit; provided
that the maximum amount of fees and expenses to be paid by the Collection Agent
for audits conducted by employees of the Facility Agent shall not exceed $5,000
in any calendar year.
Section 6.4 Duties of Collection Agent ies of Collection Agent
(a) Collections. The Collection Agent shall send or cause to be sent
to each Obligor a coupon book or monthly invoice instructing such Obligor to
make all payments to the applicable Originator for deposit in the Collection
Account and, in the case of the delivery of coupon books by a Person other than
the Collection Agent, shall obtain a written warranty directly from such Obligor
to the effect that such Obligor has received a coupon book. The Collection Agent
shall take or cause to be taken all such actions as may be necessary or
advisable to collect each Pool Receivable from time to time, all in accordance
with applicable laws, rules and regulations, with reasonable care and diligence,
and in accordance with the applicable Credit and Collection Policy and in order
to maximize collections of Receivables at all times. In furtherance thereof, the
Collection Agent shall (i) send a notice of "intent to cancel" to any Obligor on
the earliest date permitted by applicable law, plus a reasonable grace period
not to exceed 15 days, (ii) send a cancellation notice to any Obligor on the
earliest date permitted by applicable law, plus a reasonable grace period not to
exceed 5 days (after taking into account the grace period for the notice of
"intent to cancel"), if payment in full has not been received from such Obligor
by such date and (iii) send a notice of financed premiums to the Related Insurer
(or insurance agent authorized in writing by the Related Insurer) within two
days of acceptance of the related Contract. Each of the Seller, Purchaser and
the Facility Agent hereby appoints as its agent the Collection Agent, from time
to time designated pursuant to Section 6.1, to enforce its respective rights and
interests in and under the Pool Receivables, the Related Security and the
related Contracts. All Collections received by the Collection Agent shall be
segregated and held in trust for the account of Purchaser and deposited in the
Collection Account no later than the Business Day of receipt by the Collection
Agent of such Collections.
(b) Records. The Collection Agent shall, during the period it is
Collection Agent hereunder, maintain such books of account and other records as
will enable the Facility Agent to determine the status of each Pool Receivable
and related Contract and will enable the Pool Receivables to be serviced, in
accordance with the terms of this Agreement, by a successor Collection Agent
following a Service Transfer. At all times the Collection Agent shall utilize
procedures acceptable to Purchaser in order to document and verify the right of
the Originators, Seller and/or Purchaser to receive payment from a Related
Insurer in respect of unearned or return insurance premiums regarding a Related
Policy financed by a Receivable, including without limitation, documentation
that with respect to the origination of Receivables establishes the existence
and authority level of all insurance intermediaries (i.e. managing general
agents, surplus lines brokers or other insurance entities involved in the
insurance placement process) between the applicable Related Insurer and the
retail insurance producer selling such Related Policy.
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(c) Allocation of Collections. The Collection Agent shall, prior to
the close of business on the day any Collections are deposited in the Collection
Account, allocate such Collections between:
(i) the aggregate amount of Interest Collections processed on such
date of processing; and
(ii) the aggregate amount of Principal Collections processed on such
date of processing.
(d) Extensions. If no Event of Investment Ineligibility or Event of
Purchase Ineligibility shall have occurred and be continuing, the Collection
Agent, may, in accordance with the applicable Credit and Collection Policy,
extend the maturity or adjust the Outstanding Balance of any Pool Receivable
which shall have remained unpaid for 26 days or more from the original due date
therefor as the Collection Agent may determine to be appropriate to maximize
Collections thereof so long as not more than .25% of the Outstanding Balance of
all Pool Receivables are not past due more than 45 days from the original due
date and not cancelled. The Seller shall deliver to the Collection Agent, and
the Collection Agent shall hold in trust for Purchaser all documents,
instruments and records (including, without limitation, computer tapes or disks)
which evidence or relate to Pool Receivables or Related Security. Upon request
of the Facility Agent, the Collection Agent shall deliver the original Contracts
related to the Pool Receivables and such other documents as may be specified by
the Facility Agent to Purchaser or a bailee designated by the Facility Agent or
its Assignee.
(e) Reports.
(i) Daily. On each Business Day, the Collection Agent will (A) send
to the Facility Agent (or to an off-site storage facility designated by
the Facility Agent and to which the Facilty Agent shall at all times have
access) a backup tape with all data on the Collection Agent's accounting
and operations systems relating to the Receivables and (B) prepare and
forward to the Facility Agent a daily cash receipts journal setting forth
(1) the aggregate amount of Collections processed by the Collection Agent
on the preceding Business Day and the allocation of such Collections
between the Interest Account and the Principal Account and (2) the
aggregate amount of Receivables as of the close of business on the
preceding Business Day.
(ii) Weekly. On or before the Tuesday of each week (or, if such day
is not a Business Day, the next succeeding Business Day), the Collection
Agent shall prepare and forward to the Facility Agent and Purchaser (A) a
Purchaser Report as of the close of business of the Collection Agent on
the last day of the immediately preceding week, (B) a summary and analysis
as to the aging of the aggregate Pool Receivables as of such last day, (C)
an Insurance Carrier Exposure Report relating to each Related Insurer
related to any Pool Receivable as of such last day, (D) a Purchase Report
setting forth the amount of new Purchases and reinvestments during the
prior week, and (E) a listing by Obligor of all Pool Receivables as of
such last day and specifying with respect to each Receivable, the date of
the related Contract, the Related Insurer, the total premium,
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the down payment amount, the amount financed, the finance charge, the
monthly payment amount, the total number of payments and the annual
percentage rate.
(iii) Monthly. The Collection Agent shall prepare and forward to the
Facility Agent by the fifth Business Day each month, (A) a detailed
Receivables aging report for the immediately preceding month and (B) a
list identifying the top ten Obligors of the Seller measured by
outstanding Pool Receivables and the outstanding amount of Pool
Receivables owing from such Obligors as of the last day of the preceding
month.
(iv) Other. On or prior to the day the Facility Agent is required to
make a distribution with respect to a Settlement Period pursuant to
Section 2.5 or 2.6, the Seller will advise the Facility Agent of each
Liquidation Day and each Provisional Liquidation Day occurring during such
Settlement Period; provided, however, that, if the Seller is not the
Collection Agent, the Seller shall advise the Collection Agent of the
occurrence of each such Liquidation Day and each Provisional Liquidation
Day occurring during such Settlement Period on or prior to such day.
(f) Errors and Omissions Insurance. The Collection Agent shall
maintain, at its own expense, an errors and omissions insurance policy, with
broad coverage on all officers, employees or other Persons (including any
subcontractor) acting on behalf of the Collection Agent in any capacity with
regard to the Receivables to handle funds, money, documents and papers relating
to the Receivables. Any such errors and omissions insurance shall protect and
insure the Collection Agent against losses, including forgery, theft,
embezzlement, fraud, errors and omissions and negligent acts of such Persons,
shall be maintained in a form that would meet the requirements of prudent
institutional insurance premium finance servicers and shall be in the amount of
$1,000,000 per occurrence with a deductible no greater than $10,000. No
provision of this Section 6.4(f) requiring such errors and omissions insurance
shall diminish or relieve the Collection Agent from its duties and obligations
as set forth in this Agreement. The errors and omissions policy will be provided
by insurers rated no less than "A" by Standard & Poor's Corporation or "A2" by
Moody's Investors, Inc. or as otherwise approved by the Facility Agent. In the
event any such insurer is downgraded, the Collection Agent will replace the
provider no later than the next renewal date of the policy. Any such insurance
policy shall (i) not be cancelled without the insurer giving prior written
notice to the Facility Agent immediately following the giving or receipt of such
notice as is required or allowed under the terms of such insurance policy and
(ii) not be modified without ten days' prior written notice by the insurer to
the Facility Agent.
(g) Direct Computer Access. The Collection Agent shall provide the
Facility Agent at least ten (10) hours per week of direct computer access to the
Collection Agent's premium finance receivable accounting and operations systems
by peer-to-peer communications or other communication method or computer access
system acceptable to Facility Agent.
Section 6.5 Rights of the Facility Agent and Purchaser
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(a) The Facility Agent and Purchaser and their respective designees
and assignees will be entitled, among other things, to (i) monitor the
collection and posting of all deposits related to the Receivables including
payments of principal, interest, fees and refunds (including the review of daily
deposit, receipt and application reports generated by the Collection Agent),
(ii) monitor the servicing of the Receivables by the Collection Agent, (iii)
review the premium finance agreement files relating to the Receivables and (iv)
at the election of either, notify at any time at the Seller's expense the
Obligors of, and the Related Insurers relating to, Pool Receivables, or any of
them, of the ownership thereof and of the Purchased Interest by Purchaser.
(b) At any time following the designation of a Collection Agent
other than a Selling Party pursuant to Section 6.2:
(i) The Facility Agent may direct the Obligors of, and the Related
Insurers relating to, Pool Receivables, or any of them, to make payment of
all amounts due or to become due to the Seller under any Pool Receivable
directly to the Facility Agent or its designee.
(ii) The Seller shall, at the Facility Agent's request, and at the
Seller's expense, give notice of such ownership to such Obligors and
Related Insurers and direct them to make such payments directly to the
Facility Agent or its designee.
(iii) The Seller shall, at the Facility Agent's request, (A)
assemble all of the documents, instruments and other records (including,
without limitation, computer tapes and disks) which evidence the Pool
Receivables, and the related Contracts and Related Security, or which are
otherwise necessary or desirable to collect such Pool Receivables or
Related Security, and shall make the same available to the Facility Agent
at a place selected by the Facility Agent or its designee, and (B)
segregate all cash, checks and other instruments received by it from time
to time constituting Collections of Pool Receivables in a manner
acceptable to the Facility Agent and shall, promptly upon receipt, remit
all such cash, checks and instruments, duly endorsed or with duly executed
instruments of transfer, to the Facility Agent or its designee.
(iv) The Facility Agent may take any and all steps in the Seller's
name and on behalf of the Seller and Purchaser necessary or desirable, in
the determination of the Facility Agent, to collect all amounts due under
any and all Pool Receivables, including, without limitation, endorsing the
Seller's name on checks and other instruments representing Collections,
enforcing such Pool Receivables and the related Contracts and Related
Security, and adjusting, settling or compromising the amount or payment
thereof, in the same manner and to the same extent as the Seller might
have done.
(c) The Facility Agent shall prepare and maintain the Approved
Insurer List. The Facility Agent may at any time and from time to time review
the Approved Insurer List to determine if any insurers should be added or
removed or limited or if any designation should change, in each case in the
Facility Agent's sole reasonable discretion based upon A.M. Best Company, Inc.
or other applicable ratings and credit and other considerations deemed relevant
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or appropriate from time to time by the Facility Agent in its sole discretion.
The Seller may request additions to the Approved Insurer List or redesignation
of assigned Levels not more than once in any week. The Facility Agent will use
reasonable efforts to respond to any such request within seven Business Days,
provided that the Facility Agent and Purchaser will not incur any liability for
failure to respond within such time period.
In the event the Facility Agent changes the designation of any
Approved Insurer to a lower Level (i) Pool Receivables relating to such Approved
Insurer originated after such change in designation shall be subject to the new
concentration limit and Receivables Purchase Rate for such Approved Insurer
resulting from such change and (ii) in all reports and other information and for
all other purposes under this Agreement, the Seller and the Collection Agent
shall statistically segregate the Receivables relating to such Approved Insurer
originated after such change in designation from those originated before such
change; provided that in no event shall the aggregate Eligible Receivables
relating to such Approved Insurer exceed the concentration limit applicable to
such Approved Insurer prior to such change in designation.
Section 6.6 Responsibilities of the Seller. Anything herein to the
contrary notwithstanding:
(a) The Seller shall perform all of its obligations under the
Contracts related to the Pool Receivables and with respect to the Related
Security to the same extent as if the Purchased Interest had not been sold
hereunder and the exercise by the Facility Agent of its rights hereunder shall
not relieve the Seller from such obligations or its obligations with respect to
Pool Receivables and Related Security; and
(b) Neither the Facility Agent nor any other Indemnified Party shall
have any obligation or liability with respect to any Pool Receivables or related
Contracts or Related Security, nor shall any of them be obligated to perform any
of the obligations of the Seller thereunder.
Section 6.7 Further Action Evidencing Purchases (a) The Seller
agrees that from time to time, at its expense, it will promptly execute and
deliver all further instruments and documents, and take all further action, that
may be necessary or desirable, or that the Facility Agent may reasonably
request, in order to perfect, protect or more fully evidence the Purchased
Interest, or to enable Purchaser or the Facility Agent to exercise and enforce
any of their respective rights and remedies hereunder or under the Assignment or
as is necessary or appropriate to maximize collections by Purchaser of the
Receivables. Without limiting the generality of the foregoing, the Seller will
upon the request of the Facility Agent: (i) execute and file such financing or
continuation statements, or amendments thereto or assignments thereof, and such
other instruments or notices, as may be necessary or desirable, or as the
Facility Agent may so request, in order to perfect, protect or evidence the
Purchased Interest; (ii) in accordance with applicable law and pursuant to the
instructions of the Facility Agent, exercise any power of attorney granted in
favor of the Seller by any Obligor under any Contract or otherwise; and (iii)
during any period during which any Event of Investment Ineligibility shall have
occurred and is continuing, mark its master data processing records evidencing
such
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Pool Receivables and related Contracts and Related Security with the legend set
forth in Section 5.1(j).
(b) The Seller hereby authorizes the Facility Agent to file one or
more financing or continuation statements, and amendments thereto and
assignments thereof, relating to all or any of the Contracts, or Pool
Receivables and the Related Security and Collections with respect thereto now
existing or hereafter arising without the signature of the Seller where
permitted by law. A photocopy or other reproduction of this Agreement or any
financing statement covering all or any of the Contracts, or Pool Receivables
and the Related Security and Collections with respect thereto shall be
sufficient as a financing statement where permitted by law.
(c) If the Seller fails to perform any agreement contained herein,
the Facility Agent may itself perform, or cause performance of, such agreement,
and the expenses of the Facility Agent incurred in connection therewith shall be
payable by the Seller under Section 11.1 or Section 12.6, as applicable.
Section 6.8 Cost and Expenses of Collection Agent The cost and
expenses incurred by the Collection Agent in carrying out its duties hereunder,
including, without limitation, the fees and expenses incurred in connection with
the enforcement of Receivables, shall be paid by the Collection Agent and the
Collection Agent shall not be entitled to any reimbursement hereunder.
Section 6.9 Collection Agent Not to ResignThe Collection Agent shall
not resign from the obligations and duties hereby imposed on it hereunder except
upon determination that (i) the performance of its duties hereunder is no longer
permissible under applicable law, and (ii) there is no reasonable action which
can be taken to make the performance of its duties hereunder permissible under
applicable law. Any such determination permitting the resignation of the
Collection Agent pursuant to clause (i) hereof shall be evidenced by an opinion
of counsel to such effect delivered to the Facility Agent. No such resignation
shall be effective until a successor Collection Agent shall have assumed the
responsibilities and obligations of the Collection Agent in accordance herewith.
Section 6.10 Representations and Warranties of the Collection Agent
The Collection Agent represents and warrants as follows:
(a) The Collection Agent is a corporation duly incorporated, validly
existing and in good standing under the laws of the state of its incorporation
and has full corporate power, authority, and legal right to own its property and
conduct its business as such properties are presently owned and such business is
presently conducted, and to execute, deliver and perform its obligations under
this Agreement and the other Purchase Documents. The Collection Agent is duly
qualified to do business and is in good standing as a foreign corporation, in
every jurisdiction where the nature of its business requires it to be so
qualified.
(b) The execution, delivery and performance by the Collection Agent
of the Purchase Documents, and all other instruments and documents to be
delivered by it hereunder,
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and the transactions contemplated hereby and thereby, are within the Collection
Agent's corporate powers, have been duly authorized by all necessary corporate
action, and do not contravene (i) the Collection Agent's charter or by-laws or
(ii) law or any Contract or Related Security or any other contractual
restriction binding on or affecting the Collection Agent, and do not result in
or require the creation of any Adverse Claim (other than pursuant hereto) upon
or with respect to any of its properties.
(c) No authorization or approval or other action by, and no notice
to or filing with, any governmental authority or regulatory body is required for
the due execution, delivery and performance by the Collection Agent of any
Purchase Document or any other instrument or document to be delivered by it
hereunder, or for the perfection of or the exercise by the Facility Agent,
Purchaser or any Indemnified Party of their respective rights and remedies under
the Purchase Documents and such other instruments and documents, except for
those referred to in Article III, all of which, on or prior to the date of the
initial Purchase, will have been duly made and be in full force and effect.
(d) This Agreement is, and each other Purchase Document when
delivered hereunder will be, the legal, valid and binding obligation of the
Collection Agent enforceable against the Collection Agent in accordance with
their respective terms, except to the extent that enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, and other similar laws
affecting creditors' rights generally or by general principles of equity.
(e) There is no pending or threatened action or proceeding affecting
the Collection Agent before any court, governmental agency or arbitrator which
is reasonably likely to materially adversely affect (i) the consolidated
financial condition or operations of the Collection Agent or (ii) the ability of
the Collection Agent to perform its obligations under any Purchase Document or
any other instrument or document to be delivered by it hereunder, or which
purports to affect the legality, validity or enforceability of any Purchase
Document or any such other instrument or document.
(f) The collection practices used by the Collection Agent with
respect to the Receivables have been and will be, in all material respects,
legal, proper, prudent and customary in the servicing of insurance premium
finance receivables.
(g) The servicing of Receivables contemplated by this Agreement is
in the ordinary course of business of the Collection Agent.
ARTICLE VII
EVENTS OF INVESTMENT INELIGIBILITY
Section 7.1 Events of Investment Ineligibility If any of the
following events ("Events of Investment Ineligibility") shall occur and be
continuing:
(a) (i) The Collection Agent (if a Selling Party or any other
Affiliate of the Seller) shall fail to perform or observe any term, covenant or
agreement hereunder (other than as referred to in clauses (ii) and (iii) of this
Section 7.1(a)) and such failure shall remain unremedied for five Business Days
or (ii) the Collection Agent (if a Selling Party or any other
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Affiliate of the Seller) or the Seller shall fail to make any deposit of
Collections for, or to make any payment in respect of, reduction of Capital when
such deposit or payment is due to be made hereunder or (iii) the Collection
Agent (if a Selling Party or any other Affiliate of the Seller) or the Seller
shall fail to make any payment or deposit of interest, fees, indemnities or
expenses or other amounts (other than as referred to in clause (ii) of this
Section 7.1(a)) to be made by it hereunder or under any other Purchase Document
within two Business Days following the date when due, or shall fail to make any
other payment or deposit to be so made by it when due; or
(b) The Seller shall fail to perform or observe any term, covenant
or agreement contained in Section 5.1(n), 5.1(o), 5.2(d) or 5.3; or
(c) Any representation or warranty or statement made by any Selling
Party (or any of their respective officers) under or in connection with this
Agreement, any other Purchase Document or any other document delivered in
connection herewith (including without limitation any Purchaser Report or
Insurance Carrier Exposure Report) shall prove to have been incorrect in any
material respect when made or renewed; or
(d) Any Selling Party shall fail to perform or observe any other
term, covenant or agreement contained in this Agreement, any other Purchase
Document or any other document delivered in connection herewith on its part to
be performed or observed and any such failure shall remain unremedied for 10
days after written notice thereof shall have been given to such Selling Party by
the Facility Agent or a Responsible Officer becomes aware; or
(e) Any Selling Party shall fail to pay any principal of or premium
or interest on any Debt which is outstanding in a principal amount of at least
$50,000 in the aggregate when the same becomes due and payable (whether by
scheduled maturity, required prepayment, acceleration, demand or otherwise), and
such failure shall continue after the applicable grace period, if any, specified
in the agreement or instrument relating to such Debt; or any other event shall
occur or condition shall exist under any agreement or instrument relating to any
such Debt and shall continue after the applicable grace period, if any,
specified in such agreement or instrument, if the effect of such event or
condition is to accelerate, or to permit the acceleration of, the maturity of
such Debt; or any such Debt shall be declared to be due and payable, or required
to be prepaid (other than by a regularly scheduled required prepayment),
redeemed, purchased or defeased, or an offer to prepay, redeem, purchase or
defease such Debt shall be required to be made, in each case prior to the stated
maturity thereof; or any default shall occur under the USA Finance Note; or
(f) Any Purchase or any reinvestment pursuant to Section 2.5 shall
for any reason (other than pursuant to the terms hereof) cease to create, or the
Purchased Interest shall for any reason cease to be, a valid and perfected first
priority ownership interest in each Pool Receivable and the Related Security and
Collections with respect thereto or the Assignment shall for any reason cease to
evidence in Purchaser legal and equitable title to, and ownership of, an
ownership interest in Pool Receivables and Related Security; or
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(g) Any Selling Party shall generally not pay its debts as such
debts become due, or shall admit in writing its inability to pay its debts
generally, or shall make a general assignment for the benefit of creditors; or
any proceeding shall be instituted by or against any Selling Party seeking to
adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or composition of
it or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking the entry of an order for relief
or the appointment of a receiver, trustee, custodian or other similar official
for it or for any substantial part of its property and, in the case of any such
proceeding instituted against it (but not instituted by it), either such
proceeding shall remain undismissed or unstayed for a period of 60 days, or any
of the actions sought in such proceeding (including, without limitation, the
entry of an order for relief against, or the appointment of a receiver, trustee,
custodian or other similar official for, it or for any substantial part of its
property) shall occur; or any Selling Party shall take any corporate action to
authorize any of the actions set forth above in this subsection (g); or
(h) (i) The average Default Ratio as at the last day of any two
consecutive calendar months shall exceed 3%; or (ii) the average Delinquency
Ratio as at the last day of any two consecutive calendar months shall exceed
15%; (iii) or the Loss-to-Liquidation Ratio (A) as at the last day of any
calendar month ending on or prior to December 31, 1996 shall exceed 3.125%, (B)
as at the last day of any calendar month beginning after December 31, 1996 and
ending on or prior to March 31, 1997 shall exceed 2.6%, or (C) as at the last
day of any calendar month beginning after March 31, 1997 shall exceed 2%; or
(iv) as at the last day of any calendar month, the ratio (expressed as a
percentage) computed as of the last day of such calendar month by dividing (i)
the aggregate amount of unearned interest on all Pool Receivables by (ii) the
aggregate Outstanding Balance of all Pool Receivables on such date is less than
5%; or
(i) The Net Receivables Pool Balance shall be less than the
outstanding Capital and such event shall continue for two consecutive Business
Days after the date Seller knows of such event or the date on which written
notice of such event shall have been given to the Seller by the Facility Agent
or Purchaser; or
(j) The Portfolio Yield Percentage as at the last day of any
calendar month shall be less than 18%; or
(k) There shall have occurred, in the opinion of the Facility Agent,
any material adverse change in the financial condition or operations of any
Selling Party since December 31, 1995, or there shall have occurred any event or
condition which could materially adversely affect the collectibility of the Pool
Receivables, or there shall have occurred any other event or condition which
could materially adversely affect the ability of the Seller or any Originator to
collect Pool Receivables or the ability of any Selling Party to perform its
obligations under this Agreement or any other Purchase Document, or any
Originator shall have its insurance premium finance license suspended,
cancelled, withdrawn or revoked in any jurisdiction where the Outstanding
Balance of Pool Receivables owing by Obligors residing in such jurisdiction
exceeds $500,000 or there shall be imposed on any Selling Party a fine or
administrative penalty of $15,000 or more; or
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(l) (i) USA Finance shall at any time cease to own, directly 100% of
the outstanding shares of capital stock of the Seller or such stock shall become
subject to any lien other than a lien in favor of Purchaser or the Facility
Agent; (ii) USA Finance shall at any time cease to own directly 100% of the
outstanding shares of capital stock of Gold Coast or National-Wide or such stock
shall become subject to any lien; (iii) Steve Michaelson ceases to be the Chief
Executive Officer of USA Finance; (iv) Steven P. Margolis ceases to be Chairman
of the Board of USA Finance and Mark Margolis ceases to be President and Chief
Operating Officer of USA Finance; or (v) Stephen P. Margolis ceases to be the
Chairman of the Board of USA and is not replaced within 30 days with a person
reasonably acceptable to Purchaser or Mark Margolis ceases to be President and
Chief Operating Officer of USA Finance and is not replaced within 30 days with a
person reasonably acceptable to Purchaser; or
(m) A Collection Agent Default shall have occurred; or
(n) The errors and omissions insurance required by Section 6.4(f) is
terminated or not renewed; or
(o) (i) Adjusted Tangible Net Worth of USA Finance is less than
$3,000,000 plus 50% of the consolidated net income of USA Finance from the date
of the initial Purchase; (ii) Tangible Net Worth of Gold Coast or National-Wide
is less than the greater of $35,000 and the amount of statutory net worth
required by any state in which Gold Coast or National-Wide, as the case may be,
is licensed to do business; or (iii) Tangible Net Worth of the Seller is less
than zero; or
(p) Any deficiency noted in any audit performed in connection with
or relating to this Agreement shall not have been cured to the Facility Agent's
satisfaction within thirty days of the issuance of the audit report noting such
deficiency; or
(q) A final judgment is rendered against any Selling Party in an
amount greater than $100,000 which is not covered by insurance and, within
thirty days after entry thereof, such judgment is not discharged or execution
thereof stayed pending appeal, or within thirty days after the expiration of any
such stay, such judgment is not discharged; or
(r) Any material provision of the Origination Agreement, the Rights
Agreement or the USA Guaranty after delivery thereof pursuant to Section 3.1
shall for any reason cease to be valid and binding on any Selling Party party
thereto, or any such Selling Party shall so state in writing or USA Finance
shall revoke the USA Guaranty or deny or disaffirm its obligations thereunder;
or
(s) (i) any litigation (including, without limitation, any
derivative action), arbitration proceedings or governmental proceedings not
disclosed to Purchaser prior to the date of the execution and delivery of this
Agreement is pending against any Selling Party, or (ii) any material development
not so disclosed has occurred in any litigation (including, without limitation,
derivative actions), arbitration proceedings or governmental proceedings so
disclosed, which, in the case of clause (i) or (ii) above, has a reasonable
likelihood of causing a
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material adverse effect on the collectibility of the Receivables or the ability
of any Selling Party to perform hereunder or under the Purchase Documents; or
(t) failure of USA Finance and its subsidiaries to establish and
implement any policy, practice, system or procedure set forth in Schedule III by
the applicable date set forth in Schedule III or the failure thereafter to
maintain such policy, practice system or procedure; or
(u) any default shall occur under the Demand Promissory Note dated
as of September 18, 1996 made by USA Finance in favor or Purchaser,
then, and in any such event, the Facility Agent may, with the consent of
Purchaser, by notice to the Seller declare the Facility Termination Date to have
occurred, whereupon the Facility Termination Date shall forthwith occur, without
demand, protest or further notice of any kind, all of which are hereby expressly
waived by the Seller; provided, however, that in the event of an actual or
deemed entry of an order for relief with respect to the Seller under the Federal
Bankruptcy Code, the Facility Termination Date shall automatically occur,
without demand, protest or any notice of any kind, all of which are hereby
expressly waived by the Seller. Upon any such termination of the Facility, the
Facility Agent and Purchaser shall have, in addition to all other rights and
remedies under this Agreement or otherwise, all other rights and remedies
provided under the UCC of the applicable jurisdiction and other applicable laws,
which rights shall be cumulative. Without limiting the foregoing or the general
applicability of Article X hereof, Purchaser may elect to assign the Purchased
Interest or any portion thereof to an Assignee following the occurrence of any
Event of Investment Ineligibility.
ARTICLE VIII
COLLECTION AGENT DEFAULTS
Section 8.1 Collection Agent Defaults If any of the following events
(a "Collection Agent Default") shall occur and be continuing:
(a) any failure by the Collection Agent to deliver any Collection
Agent's report to the Facility Agent pursuant to Section 6.4 or to make any
payment, transfer or deposit hereunder or to give instructions or notice to the
Facility Agent to make any payment, transfer, or deposit hereunder; or
(b) failure on the part of the Collection Agent duly to observe or
perform in any material respect any other covenants or agreements of the
Collection Agent set forth in any Purchase Document, which continues unremedied
for a period of 10 days after the date on which written notice of such failure,
requiring the same to be remedied, shall have been given to the Collection Agent
by the Facility Agent; or the Collection Agent shall assign its duties under
this Agreement, except as permitted by Section 6.2; or
(c) any representation, warranty, or certification made by the
Collection Agent in any Purchase Document or in any certificate delivered
pursuant to this Agreement shall prove to have been incorrect when made, which
has a material adverse effect on the rights of Purchaser or the ability of
Collection Agent to perform its obligations hereunder, and which
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continues to be incorrect in any material respect for a period of 15 days after
the date on which written notice of such failure shall have been given to the
Collection Agent by the Facility Agent; or
(d) The Collection Agent shall generally not pay its debts as such
debts become due, or shall admit in writing its inability to pay its debts
generally, or shall make a general assignment for the benefit of creditors; or
any proceeding shall be instituted by or against the Collection Agent seeking to
adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or composition of
it or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking the entry of an order for relief
or the appointment of a receiver, trustee, custodian or other similar official
for it or for any substantial part of its property and, in the case of any such
proceeding instituted against it (but not instituted by it), either such
proceeding shall remain undismissed or unstayed for a period of 60 days, or any
of the actions sought in such proceeding (including, without limitation, the
entry of an order for relief against, or the appointment of a receiver, trustee,
custodian or other similar official for, it or for any substantial part of its
property) shall occur; or the Collection Agent shall take any corporate action
to authorize any of the actions set forth above in this subsection (d); or
(e) a final judgment is rendered against Gold Coast while acting as
Collection Agent in an amount greater than $100,000 or any other Collection
Agent not an Affiliate of Seller in an amount greater than $250,000 which is not
covered by insurance and, within 30 days after entry thereof, such judgment is
not discharged or execution thereof stayed pending appeal, or within 30 days
after the expiration of any such stay, such judgment is not discharged; or
(f) the declaration of an event of default by the lender under any
loan or credit agreement given by Collection Agent in connection with any single
credit facility extended to Collection Agent which has at the time of the
declaration of such default an outstanding principal balance of $50,000 or more;
or
(g) or a Termination Date occurs;
then, the Facility Agent, by notice then given in writing to the Collection
Agent (a "Service Termination Notice"), may terminate all of the rights and
obligations of the Collection Agent as Collection Agent under this Agreement
(such termination being herein called a "Service Transfer"). After receipt by
the Collection Agent of such Service Termination Notice, all authority and power
of the Collection Agent under this Agreement shall pass to and be vested in
successor Collection Agent (which may be the Facility Agent or a Person
designated by the Facility Agent and, without limitation, the Facility Agent is
hereby irrevocably authorized and empowered (such authorization coupled with an
interest) by Collection Agent (upon the failure of the Collection Agent to
cooperate) to execute and deliver, on behalf of the Collection Agent, as
attorney-in-fact or otherwise, all documents and other instruments upon the
failure of the Collection Agent to execute or deliver such documents or
instruments, and to do and accomplish all other acts or things necessary or
appropriate to effect the purposes of such Service Transfer.
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The Collection Agent agrees to cooperate with the Facility Agent and
such successor Collection Agent in effecting the Service Transfer hereunder,
including, without limitation, the transfer to such successor Collection Agent
of all authority of the Collection Agent to service the Pool Receivables
provided for under this Agreement and all authority over all Collections which
shall on the date of transfer be held by the Collection Agent for deposit, or
which have been deposited by the Collection Agent or the Facility Agent in the
Collection Account or which shall thereafter be received with respect to the
Pool Receivables, and in assisting the successor Collection Agent and in
enforcing all rights under this Agreement including, without limitation,
allowing the successor Collection Agent personnel access to the Collection
Agent's premises for the purpose of collecting payments on the Pool Receivables
made at such premises. The Collection Agent shall promptly transfer its
electronic records relating to the Contracts to the successor Collection Agent
in such electronic form as the successor Collection Agent may reasonably request
and shall promptly transfer to the successor Collection Agent all other records,
correspondence, and documents necessary for the continued servicing of the Pool
Receivables in the manner and at such times as the successor Collection Agent
shall reasonably request. The Collection Agent shall deliver the files relating
to the Pool Receivables to the successor Collection Agent.
ARTICLE IX
THE FACILITY AGENT
Section 9.1 Authorization and Action Purchaser hereby appoints and
authorizes the Facility Agent to take such action as agent on its behalf and to
exercise such powers under this Agreement, the other Purchase Documents and each
other instrument or document furnished pursuant hereto as are delegated to the
Facility Agent by the terms hereof or thereof, together with such powers as are
reasonably incidental thereto, and is hereby authorized and empowered to make
the withdrawals and payments from the Collection Account, the Principal Account
and the Interest Account in accordance with this Agreement. As to any matters
not expressly provided for by this Agreement (including, without limitation,
enforcement of the Assignment, the other Purchase Documents and such other
instruments and documents), the Facility Agent shall not be required to exercise
any discretion or take any action, but shall be required to act or to refrain
from acting (and shall be fully protected in so acting or refraining from
acting) upon the instruction of Purchaser, and such instructions shall be
binding upon all parties hereto and all Assignees; provided, however, that the
Facility Agent shall not be required to take any action which exposes the
Facility Agent to personal liability or which is contrary to this Agreement, the
Assignment, the other Purchase Documents or any other instrument or document
furnished pursuant hereto or applicable law. The Facility Agent agrees to give
to Purchaser prompt notice of each notice given to it by the Seller, or by it to
the Seller, pursuant to the terms of this Agreement, the Assignment, the other
Purchase Documents or any other instrument or document furnished pursuant
hereto.
Section 9.2 Facility Agent's Reliance, Etc Neither the Facility
Agent nor any of its directors, officers, agents or employees shall be liable
for any action taken or omitted to be taken by it or them as Facility Agent
under or in connection with this Agreement, the Assignment, the other Purchase
Documents or any other instrument or document furnished pursuant hereto
(including, without limitation, the Facility Agent's servicing, administering or
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collecting Pool Receivables as Collection Agent pursuant to Section 6.2), except
for its or their own gross negligence or willful misconduct. Without limiting
the generality of the foregoing, except as otherwise agreed by the Facility
Agent and Purchaser, the Facility Agent: (i) may consult with legal counsel
(including counsel for the Seller), independent public accountants and other
experts selected by it and shall not be liable for any action taken or omitted
to be taken in good faith by it in accordance with the advice of such counsel,
accountants or experts; (ii) makes no warranty or representation to Purchaser or
any other Indemnified Party and shall not be responsible to Purchaser or any
other Indemnified Party for any statements, warranties or representations
(whether written or oral) made in or in connection with this Agreement, the
Assignment, the other Purchase Documents or any other instrument or document
furnished pursuant hereto; (iii) shall not have any duty to ascertain or to
inquire as to the performance or observance of any of the terms, covenants or
conditions of this Agreement, the Assignment, the other Purchase Documents or
any other instrument or document furnished pursuant hereto on the part of the
Seller or to inspect the property (including the books and records) of the
Seller; (iv) shall not be responsible to Purchaser or other Indemnified Party
for the due execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement, the Assignment, the other Purchase
Documents or any other instrument or document furnished pursuant hereto; and (v)
shall incur no liability under or in respect of this Agreement, the Assignment,
the other Purchase Documents or any other instrument or document furnished
pursuant hereto by acting upon any notice (including notice by telephone),
consent, certificate or other instrument or writing (which may be by
telecommunication) believed by it to be genuine and signed or sent by the proper
party or parties.
Section 9.3 Indemnification Purchaser agrees to indemnify the
Facility Agent (to the extent not reimbursed by the Seller), from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by, or asserted against the
Facility Agent, in any way relating to or arising out of this Agreement, the
Assignment, the other Purchase Documents or any other instrument or document
furnished pursuant hereto or any action taken or omitted by the Facility Agent
under this Agreement, the Assignment, the other Purchase Documents or any such
instrument or document, provided that Purchaser shall not be liable for any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from the Facility
Agent's gross negligence or willful misconduct. Without limitation of the
foregoing but subject to the provisos to the preceding sentence, Purchaser
agrees to reimburse the Facility Agent promptly upon demand for any
out-of-pocket expenses (including counsel fees) incurred by the Facility Agent,
respectively, in connection with the administration, modification, amendment or
enforcement (whether through negotiations, legal proceedings or otherwise) of,
or legal advice in respect of rights or responsibilities under, this Agreement,
the Assignment, the other Purchase Documents or any other instrument or document
furnished pursuant hereto, to the extent the Facility Agent is not reimbursed
for such expenses by the Seller.
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ARTICLE X
ASSIGNMENTS OF PURCHASED INTERESTS
Section 10.1 Asignment This Agreement may not be assigned by the
Seller. The Facility Agent and Purchaser may at any time assign all or any
portion of their respective rights and obligations under this Agreement to any
Person. The Seller consents and agrees that Purchaser intends to and is entitled
to assign the Purchased Interest (or any portion thereof) to any Person. The
Seller agrees to perform its obligations hereunder for the benefit of any
Assignee and that any Assignee may and is entitled to (but shall have no
obligation to) enforce the provisions of this Agreement and exercise the rights
of Purchaser to enforce the obligations of the Seller hereunder without the
consent or joinder of Purchaser.
Section 10.2 Annotation of Assignment Purchaser may annotate the
Assignment to reflect any assignments made pursuant to Section 10.1 or
otherwise.
ARTICLE XI
GRANT OF SECURITY INTEREST
Section 11.1 Grant of Security Interest The Seller hereby assigns
and pledges to the Facility Agent for the benefit of itself, Purchaser and each
other Indemnified Party from time to time, and hereby grants to the Facility
Agent for the benefit of itself, Purchaser and each other Indemnified Party from
time to time, a security interest in and to, all of the Seller's right, title
and interest in and to the following (collectively the "Collateral"):
(a) the Origination Agreement;
(b) all rights to receive moneys due and to become due under or
pursuant to the Origination Agreement;
(c) the right to perform under the Origination Agreement and to
compel performance and otherwise exercise all remedies thereunder; and
(d) all proceeds of any and all of the foregoing Collateral
(including, without limitation, proceeds which constitute property of the types
described in clauses (a) through (c) of this Section 11.1).
Section 11.2 Security for Obligations The assignment, pledge and
security interest granted under this Article XI secures the payment of all
obligations of the Seller now or hereafter existing from time to time under this
Agreement and the other Purchase Documents, whether for Collections received or
deemed to have been received by the Seller, interest, fees, costs, expenses,
taxes, indemnification or otherwise (all such obligations being the
"Obligations.").
Section 11.3 Seller Remains Liable Anything herein to the contrary
notwithstanding, (a) the Seller shall remain liable under the Origination
Agreement to the extent set forth therein to perform all of its duties and
obligations thereunder to the same extent as if this Agreement had not been
executed, (b) the exercise by the Facility Agent of any of the
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rights hereunder shall not release the Seller from any of its duties or
obligations under the Origination Agreement, and (c) neither the Facility Agent
nor Purchaser nor any other Indemnified Party shall have any obligation or
liability under the Origination Agreement by reason of this Article XI, nor
shall the Facility Agent or Purchaser or any other Indemnified Party be
obligated to perform any of the obligations or duties of the Seller thereunder.
Section 11.4 Further Assurances (a) The Seller agrees that from time
to time, at the expense of the Seller, the Seller will promptly execute and
deliver all further instruments and documents, and take all further action, that
may be necessary, or that the Facility Agent may reasonably request, in order to
perfect, protect or more fully evidence the assignment and security interest
granted or purported to be granted hereby or to enable the Facility Agent to
exercise and enforce its rights and remedies hereunder with respect to any
Collateral. Without limiting the generality of the foregoing, the Seller will
upon the request of the Facility Agent execute and file such financing or
continuation statements, or amendments thereto, and such other instruments or
notices, as may be necessary, or as the Facility Agent may reasonably request,
in order to perfect, protect or evidence the assignment and security interest
granted or purported to be granted hereby.
(b) The Seller hereby authorizes the Facility Agent to file one or
more financing or continuation statements, and amendments thereto, relating to
all or any part of the Collateral without the signature of the Seller where
permitted by law, and the Facility Agent shall notify the Seller of each such
filing. A photocopy or other reproduction of this Agreement or any financing
statement covering the Collateral or any part thereof shall be sufficient as a
financing statement where permitted by law.
Section 11.5 Payments With Respect to Collateral (a) The Seller
agrees, and has effectively so instructed each other party to the Origination
Agreement, that all payments due or to become due by any Originator under
Section 9 of the Origination Agreement shall be made directly to the Facility
Agent by direct deposit to the Collection Account and that all other payments
(including, without limitation, payments under Section 3 of the Origination
Agreement) shall be made in accordance with the provisions of the Origination
Agreement. If the Seller receives any such payments which would otherwise be
payable to the Facility Agent, within three Business Days following its receipt
thereof it will deposit such payments to the Collection Account.
(b) Except as set forth in Section 11.8, all moneys received
pursuant to subsection (a) above shall be applied to the payment of any
Obligations payable, and remaining unpaid, by the Seller at the time of such
receipt, and all remaining moneys shall be released by the Facility Agent to the
Seller or at its order.
Section 11.6 Facility Agent May Perform If the Seller fails to
perform any agreement contained herein, the Facility Agent may itself perform,
or cause performance of, such agreement, and the reasonable expenses of the
Facility Agent incurred in connection therewith shall be payable by the Seller
under Section 13.6.
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Section 11.7 The Facility Agent's Duties The powers conferred on the
Facility Agent hereunder are solely to protect its interest in the Collateral
and shall not impose any duty upon it to exercise any such powers. Except for
the safe custody of any Collateral in its possession and the accounting for
moneys actually received by it hereunder, the Facility Agent shall have no duty
as to the taking of any necessary steps to preserve rights against any parties
or any other rights pertaining to any Collateral or as against any parties or
any other rights pertaining to any Collateral. The Facility Agent shall be
deemed to have exercised reasonable care in the custody and preservation of any
Collateral in its possession if such Collateral is accorded treatment
substantially equal to that which it accords its own property.
Section 11.8 Remedies If any Event of Investment Ineligibility shall
have occurred and be continuing:
(a) The Facility Agent may exercise any and all rights and remedies
of the Seller under or in connection with the Origination Agreement or otherwise
in respect of the Collateral, including, without limitation, any and all rights
of the Seller to demand or otherwise require performance of any provision of the
Origination Agreement.
(b) The Facility Agent may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise available
to it, all the rights and remedies of a secured party on default under the UCC
in effect in the State of California (whether or not such UCC applies to the
affected Collateral).
(c) All payments received by the Seller in respect of the Collateral
shall be received in trust for the benefit of the Facility Agent, shall be
segregated from other funds of the Seller and shall be forthwith paid over to
the Facility Agent in the same form as so received (with any necessary
endorsement).
(d) All payments made in respect of the Collateral, and all cash
proceeds in respect of any sale of, collection from, or other realization upon
all or any part of the Collateral, received by the Facility Agent will be
promptly applied (after payment of any amounts payable to the Facility Agent
pursuant to Section 13.6) in whole or in part by the Facility Agent for
Purchaser or the applicable Indemnified Parties against all or any part of the
Obligations in such order as the Facility Agent shall elect. Any surplus of such
payments or cash proceeds held by the Facility Agent and remaining after payment
in full of all the Obligations shall be paid over to the Seller or to whomsoever
may be lawfully entitled to receive such surplus.
ARTICLE XII
INDEMNIFICATION
Section 12.1 Indemnities by the Seller Without limiting any other
rights which any Indemnified Party may have hereunder or under applicable law,
the Seller hereby agrees to indemnify each Indemnified Party from and against
any and all claims, losses and liabilities (including reasonable attorneys'
fees) (all of the foregoing being collectively referred to as "Indemnified
Amounts") growing out of or resulting from this Agreement or any
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document related hereto or the use of proceeds of Purchases or reinvestments or
the ownership of the Purchased Interest or in respect of any Receivable or any
Contract or Related Security, excluding, however, (a) Indemnified Amounts to the
extent resulting from gross negligence or willful misconduct on the part of such
Indemnified Party, (b) recourse (except as otherwise specifically provided in
this Agreement) for uncollectible Receivables or (c) any income taxes incurred
by such Indemnified Party arising out of or as a result of this Agreement or any
document related hereto or the ownership of the Purchased Interest or in respect
of any Receivable or any Contract or Related Security. Without limiting or being
limited by the foregoing, the Seller shall pay on demand to each Indemnified
Party any and all amounts necessary to indemnify such Indemnified Party from and
against any and all Indemnified Amounts relating to or resulting from:
(i) any Receivable becoming a Pool Receivable which is not at the
date thereof an Eligible Receivable or which thereafter ceases to be an
Eligible Receivable;
(ii) reliance on any representation or warranty or statement made or
deemed made by the Seller (or any of its officers) under or in connection
with this Agreement, or any other Purchase Document (including without
limitation any Purchaser Report or Insurance Carrier Exposure Report)
which shall have been incorrect when made;
(iii) the failure by the Seller or the Collection Agent to comply
with any applicable law, rule or regulation with respect to any Pool
Receivable or the related Contract or any Related Security, or the
nonconformity of any Pool Receivable or the related Contract or any
Related Security with any such applicable law, rule or regulation;
(iv) the failure to vest in Purchaser a valid and perfected
ownership interest in the Receivables in, or purporting to be in, the
Receivables Pool and the Related Security and Collections in respect
thereof, free and clear of any Adverse Claim;
(v) the failure to have filed, or any delay in filing, financing
statements or other similar instruments or documents under the UCC of any
applicable jurisdiction or other applicable laws with respect to any
Receivables in, or purporting to be in, the Receivables Pool and the
Related Security and Collections in respect thereof, whether at the time
of any Purchase or reinvestment or at any subsequent time;
(vi) any dispute, claim, offset or defense (other than discharge in
bankruptcy of the Obligor) of the Obligor to the payment of any Receivable
in, or purporting to be in, the Receivables Pool (including, without
limitation, a defense based on such Receivable or the related Contract not
being a legal, valid and binding obligation of such Obligor enforceable
against it in accordance with its terms), or any other claim resulting
from any insurance policy related to such Receivable or the furnishing or
failure to furnish such insurance policy;
(vii) any failure of the Seller to perform its duties or obligations
in accordance with the provisions of Article VI, or any failure of the
Seller to perform its duties or
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obligations under any Contract or under this Agreement or any other
Purchase Document;
(viii) any investigation, litigation or proceeding related to this
Agreement or any other document or the use of proceeds of Purchases or
reinvestments or the ownership of the Purchased Interest or in respect of
any Receivable, Related Security or Contract;
(ix) the commingling of Collections of Pool Receivables at any time
with other funds;
(x) any claim by any Assignee; or
(xi) during any period during which any Selling Party is the
Collection Agent, any cancellation of any insurance policy in such a
manner (due to timing or otherwise) that would cause the unearned or
return premiums related thereto to be less than those premiums otherwise
returnable upon proper and timely cancellation of such policy in
accordance with the Credit and Collection Policy.
Any amount payable under the indemnification provisions of this
Section 12.1 shall be paid by the Seller to the Facility Agent for the account
of the appropriate Indemnified Party within twenty Business Days following such
Indemnified Party's demand therefor given in writing to the Seller with a copy
to the Facility Agent.
Section 12.2 Indemnities by the Collection Agent The Collection
Agent hereby agrees to indemnify each Indemnified Party from all Indemnified
Amounts in respect of any action taken, or failure to take any action by the
Collection Agent (but with respect to any successor Collection Agent not an
Affiliate of the Seller, not by any predecessor Collection Agent) with respect
to any Receivable. This indemnity shall survive any Service Transfer (but a
Collection Agent's obligations under this Section 12.2 shall not relate to any
actions of any successor Collection Agent after a Service Transfer) and any
payment of the amount owing under any Receivable; provided, however, that in the
case of a successor Collection Agent not an Affiliate of the Seller, such
indemnity shall apply only in respect of any negligent action taken, negligent
failure to take any action, reckless disregard of duties hereunder, bad faith,
or willful misconduct by such successor Collection Agent in any way relating to
or arising out of this Agreement or the obligations created hereby. The
Collection Agent's obligations under this Section 12.2 shall survive termination
of this Agreement.
ARTICLE XIII
MISCELLANEOUS
Section 13.1 Amendments, Etc No amendment or waiver of any provision
of this Agreement or any other Purchase Document, and no consent to any
departure by the Seller or the Collection Agent herefrom, shall in any event be
effective unless the same shall be in writing and signed by Purchaser, and then
such amendment, waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
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Section 13.2 Notices, Etc All notices and other communications
provided for hereunder shall, unless otherwise stated herein, be in writing
(including telecommunication) and mailed, telecommunicated or delivered, as to
each party hereto, at its address set forth under its name on the signature
pages hereof or at such other address as shall be designated by such party in a
written notice to the other parties hereto. All such notices and communications
shall, when mailed or telecommunicated, be effective when deposited in the mails
or telecommunicated, respectively, except that notices and communications to the
Facility Agent pursuant to Article II shall not be effective until received by
the Facility Agent.
Section 13.3 No Waiver; Remedies No failure on the part of the
Facility Agent, Purchaser or any other Indemnified Party to exercise, and no
delay in exercising, any right hereunder or under any other Purchase Document
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right hereunder preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
Section 13.4 Binding Effect; Assignability This Agreement shall be
binding upon and inure to the benefit of the Seller, the Collection Agent, the
Facility Agent, Purchaser and each other Indemnified Party and their respective
successors and assigns (subject to the limitations on assignment contained
herein), except that the Seller shall not have the right to assign its rights or
obligations hereunder or any interest herein without the prior written consent
of Purchaser. This Agreement shall create and constitute the continuing
obligation of the parties hereto in accordance with its terms, and shall remain
in full force and effect until the Collection Date; provided, however, that
rights and remedies with respect to the indemnification provisions of Article
XII and Section 13.6 shall be continuing and shall survive any termination of
this Agreement.
Section 13.4 Binding Effect; Assignability This Agreement and the
Assignment shall be governed by, and construed in accordance with, the laws of
the State of New York, except to the extent that perfection or the effect of
non-perfection of the interests of Purchaser, or remedies hereunder, in respect
of the Receivables, any Related Security or any Collections in respect thereof
are governed by the laws of a jurisdiction other than the State of New York.
Section 13.6 Costs, Expenses and Taxes (a) In addition to the rights
of indemnification granted to the Indemnified Parties under Article XII hereof,
(i) the Seller agrees to pay on demand all out-of-pocket expenses (including
travel, lodging, meal and car expenses) of Facility Agent and Purchaser relating
to consulting and other services provided by a senior operations officer of the
Facility Agent to the Seller and the other Selling Parties for a period of
approximately one month and (ii) the Seller agrees to pay on demand all other
costs and expenses in connection with the preparation, execution, delivery,
administration (including periodic auditing), modification and amendment of this
Agreement, the Assignment, and the other Purchase Documents, including, without
limitation, the reasonable fees and out-of-pocket expenses of counsel for the
Facility Agent and Purchaser with respect thereto and with respect to advising
the Facility Agent and Purchaser as to its rights and remedies under this
Agreement or any other Purchase Document; provided, however, that, with respect
to clause (ii), in connection with the preparation, execution and delivery of
the documents required in
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connection with the initial Purchase under Section 3.1 hereof the Seller shall
only be obligated to pay out-of-pocket fees and expenses (including reasonable
fees of Facility Agent's counsel plus disbursements incurred before and after
the delivery of the letter agreement relating hereto) not exceeding $100,000.
The Seller further agrees to pay on demand all costs and expenses, if any
(including, without limitation, reasonable counsel fees and expenses), in
connection with the enforcement (whether through negotiations, legal proceedings
or otherwise) of this Agreement, the Assignment, and the other Purchase
Documents, including, without limitation, reasonable counsel fees and expenses
in connection with the enforcement of rights under this Section 13.6(a).
(b) In addition, the Seller shall pay any and all stamp and other
taxes and fees payable or determined to be payable in connection with the
execution, delivery, filing and recording of this Agreement, the Assignment or
any other Purchase Document, and agrees to save each Indemnified Party harmless
from and against any and all liabilities with respect to or resulting from any
delay in paying or omission to pay such taxes and fees.
Section 13.7 Confidentiality (a) Except to the extent otherwise
required by applicable law, each of the Seller and the Collection Agent agrees
to maintain the confidentiality of this Agreement, the Assignment and the other
Purchase Documents delivered hereunder (and all drafts thereof) and not to
disclose this Agreement, the Assignment or any other Purchase Documents or such
drafts to third parties (other than to its Affiliates and to its and its
Affiliates' respective directors, officers, employees, accountants or counsel);
provided, however, that this Agreement may be disclosed to third parties to the
extent such disclosure is (i) required in connection with a sale of securities
of the Seller, the Originators or USA Finance, (ii) made solely to persons who
are legal counsel for the purchaser or underwriter of such securities, (iii)
limited in scope to the provisions of Articles V, VII, XII and, to the extent
defined terms are used in Articles V, VII and XII, such terms defined in Article
I of this Agreement and (iv) made pursuant to a written agreement of
confidentiality in form and substance reasonably satisfactory to the Facility
Agent; and provided, further, however, that Seller or the Collection Agent may
disclose any such information (A) as has become generally available to the
public, (B) as may be required or appropriate in any report, statement or
testimony submitted to any municipal, state or Federal regulatory body having or
claiming to have jurisdiction over the Seller or its Affiliates (whether in the
United States or elsewhere), (C) as may be required or appropriate in response
to any summons or subpoena or in connection with any litigation or regulatory
proceeding or (D) in order to comply with any law, order, regulation or ruling
applicable to the Seller, the Collection Agent or its Affiliates.
(b) Each of the Facility Agent and Purchaser agrees to maintain the
confidentiality of, and not to disclose (other than to employees, auditors,
accountants, counsel or other representatives of the Facility Agent, Purchaser
and their respective Affiliates, whether existing at the date of this Agreement
or any subsequent time, or to another Person if such Person or such Person's
holding or parent company or the Facility Agent or Purchaser in its sole
discretion determines that any such Person needs to have access to such
information in connection with the business or operations of the Facility Agent
or Purchaser, who shall in each case be instructed to maintain such
confidentiality), any information with respect the Seller which is furnished
pursuant to this Agreement, provided that each of the Facility Agent and
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Purchaser may disclose any such information (i) as has become generally
available to the public, (ii) as may be required or appropriate in any report,
statement or testimony submitted to any municipal, state or Federal regulatory
body having or claiming to have jurisdiction over the Facility Agent or
Purchaser or to the Federal Reserve Board or the Federal Deposit Insurance
Corporation or similar organizations (whether in the United States or elsewhere)
or their successors, (iii) as may be required or appropriate in response to any
summons or subpoena or in connection with any litigation or regulatory
proceeding, (iv) in order to comply with any law, order, regulation or ruling
applicable to the Facility Agent or Purchaser, or (v) to any Assignee or
prospective Assignee.
Section 13.8 Execution in Counterparts; Severability This Agreement
may be executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement. In case any provision in or obligation under this
Agreement or any Assignment shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby. The
acknowledgements attached to the signature pages of this Agreement are
incorporated in and made a part of this Agreement by this reference.
Section 13.9 Release If during or upon the commencement of a
Standard Amortization Period, any Selling Party enters into an agreement to
finance or sell Receivables, the Facility Agent agrees to release, without
recourse or warranty, any interest in any Receivable originated after the
commencement of such Standard Amortization Period, such release to be at the
expense of Seller.
Section 13.10 Consent to Jurisdiction; Waiver of Jury Trial Waiver
of Jury Trial.
(a) THE SELLER, THE COLLECTION AGENT, THE FACILITY AGENT AND
PURCHASER HEREBY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR
FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF NEW YORK, AND EACH
WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL
SUCH SERVICE OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO THE ADDRESS SET
FORTH UNDER ITS NAME ON THE SIGNATURE PAGES HEREOF AND SERVICE SO MADE SHALL BE
DEEMED TO BE COMPLETED FIVE DAYS AFTER THE SAME SHALL HAVE BEEN DEPOSITED IN THE
U.S. MAILS, POSTAGE PREPAID. THE SELLER, THE COLLECTION AGENT, THE FACILITY
AGENT AND PURCHASER EACH HEREBY WAIVES ANY OBJECTION BASED ON FORUM NON
CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER AND
CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY THE COURT. NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT OF THE
SELLER, THE COLLECTION AGENT, THE FACILITY AGENT AND PURCHASER TO SERVE LEGAL
PROCESS IN ANY OTHER MANNER
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PERMITTED BY LAW OR AFFECT ANY PARTY'S RIGHT TO BRING ANY ACTION OR PROCEEDING
IN THE COURTS OF ANY OTHER JURISDICTION.
(b) EACH OF THE PARTIES HERETO HEREBY WAIVES ANY RIGHT TO HAVE A
JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT,
OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR IN CONNECTION WITH
THIS AGREEMENT. INSTEAD, ANY DISPUTE RESOLVED IN COURT WILL BE RESOLVED IN A
BENCH TRIAL WITHOUT A JURY.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
CONTRACT FUNDING CORP.,
as Seller
By: /s/ Stephen E. Michaelson
--------------------------------
Stephen E. Michaelson
Vice President
Address: One Commerce Center
Suite 726
12th & Orange Streets
Wilmington, Delaware 19801
Attention:______________________________
Telecopy No: (302)
GOLD COAST FINANCE, INC.,
as Collection Agent
By: /s/ Stephen E. Michaelson
--------------------------------
Stephen E. Michaelson
Vice President
Address: 1111 Park Centre Road
Suite 300
Miami, Florida 33169
Attention: Stephen E. Michaelson
Telecopy No.:(305) 624-8770
S-1
<PAGE>
SUNAMERICA FINANCIAL RESOURCES, INC.
as Facility Agent and Purchaser
By: /s/ Carl J. Finzer
--------------------------------
Carl J. Finzer
Executive Vice President
Address: 15303 Ventura Blvd., Suite 1600
Sherman Oaks, California 91403
Attention: Thomas N. Hansen
Telecopy No.: (818) 783-6815
With copy to: Lawrence M. Goldman
15303 Ventura Boulevard
Sherman Oaks, California 91403
Telecopy No.: (818)783-6815
S-2
<PAGE>
EXHIBIT A
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, in accordance with the Receivables Purchase and Sale
Agreement (as amended, supplemented or otherwise modified from time to time, the
"Purchase Agreement"; capitalized terms used but not defined herein are used
with the meanings ascribed thereto in the Purchase Agreement) dated as of
September 18, 1996, among Contract Funding Corp., as Seller, Gold Coast Finance,
Inc., as Collection Agent, and SunAmerica Financial Resources, Inc., as
Purchaser and, in its capacity as agent for Purchaser, Facility Agent, the
undersigned does hereby sell, transfer, assign, set over and otherwise convey
without recourse (except as expressly provided in the Purchase Agreement) to
Facility Agent for the account of Purchaser and each successive Assignee thereof
all right, title, and interest of the undersigned, whether now owned or
hereafter acquired, in, to and under the following: (i) all Receivables, (ii)
all Related Security with respect to such Receivables including, without
limitation, (A) all of the interest of the undersigned in any right to receive
payment from a Related Insurer in respect of unearned or return insurance
premiums, and in respect of loss payments which reduce such premiums, securing
payment of the loan or other financing which gave rise to such Receivables, and
any right to receive state guaranty fund reimbursements in respect of any
Related Insurer, (B) all other security interests or liens and property subject
thereto from time to time purporting to secure payment of such Receivables,
whether pursuant to the Contract related to such Receivables or otherwise,
together with all financing statements signed by an Obligor describing any
collateral securing such Receivables, (C) all guarantees, insurance and other
agreements or arrangements of whatever character from time to time supporting or
securing payment of such Receivables whether pursuant to the Contract relating
to such Receivables or otherwise and all rights of the undersigned under the
Origination Agreement, (iii) all cash collections and other proceeds of or
related to such Receivables including, without limitation, all cash proceeds of
Related Security with respect to such Receivables, and any collections of such
Receivables deemed to have been received pursuant to the Purchase Agreement and
(iv) all proceeds in any way derived from any of the foregoing. The foregoing
sale does not constitute and is not intended to result in the creation, or any
assumption by the Facility Agent, Purchaser or any Assignee of any obligation of
the Seller, any Originator, insurers or any other Person in connection with the
Receivables, any insurance policy or any agreement or instrument relating to any
of them.
This Assignment is made pursuant to and upon the representations,
warranties and agreements on the part of the undersigned contained in the
Purchase Agreement and is to be governed by the Purchase Agreement.
This Assignment shall be governed by, and construed in accordance with the
laws of the State of New York. The acknowledgment attached hereto is
incorporated in and made a part of this Assignment by this reference.
IN WITNESS WHEREOF, the undersigned has caused this Assignment to be duly
executed this ____ day of September, 1996.
CONTRACT FUNDING CORP.,
a Delaware corporation
By
--------------------------------
Stephen E. Michaelson
Vice President
<PAGE>
EXHIBIT F
FORM OF RECEIVABLES ORIGINATION AGREEMENT
This RECEIVABLES ORIGINATION AGREEMENT dated as of September 18, 1996 is
among GOLD COAST FINANCE, INC., a Florida corporation ("Gold Coast"),
NATIONAL-WIDE PREMIUM FINANCE CORPORATION, a Florida corporation
("National-Wide" and, collectively with Gold Coast, as sellers, the "Sellers"),
and CONTRACT FUNDING CORP., a Delaware corporation, as purchaser ("Funding").
PRELIMINARY STATEMENTS:
(1) The Sellers and Funding wish to set forth the terms pursuant to which
the Receivables (as defined in the Purchase Agreement (as hereinafter defined))
and related property are to be sold by the Sellers to Funding, which Receivables
and related property will be transferred by Funding, pursuant to the Receivables
Purchase and Sale Agreement dated as of September 18, 1996 (said Agreement, as
it may be amended, modified or supplemented from time to time, being the
"Purchase Agreement"), among Contract Funding Corp., as seller, Gold Coast
Finance, Inc., as collection agent, and SunAmerica Financial Resources, Inc., as
facility agent and purchaser, to SunAmerica Financial Resources, Inc.
(2) Terms not defined in this Agreement shall have the meanings assigned to
such terms in the Purchase Agreement.
(3) It is a condition precedent to the making of Purchases by Purchaser
under the Purchase Agreement that the Sellers and Funding shall have executed,
delivered and become bound by this Agreement.
NOW, THEREFORE, the parties agree as follows:
Section 1. Purchase and Sale of Receivables. (a) Each Seller will, from
time to time until the Termination Date, forthwith sell to Funding, and Funding
will, from time to time until the Termination Date, forthwith purchase from such
Seller, to be included in the Receivables Pool, all right, title and interest of
such Seller in and to all (i) present and future Receivables, (ii) Collections
and other proceeds and (iii) Related Security (collectively, the "Transferred
Property"), if any, with respect thereto, which Receivables are owed from time
to time to such Seller by Designated Obligors for a purchase price at least
equal to the fair market value of such Receivables computed as set forth in
Section 5.1(l) of the Purchase Agreement (the "Purchase Price"). Funding and
each Seller further agree that each such purchase and sale of each such
Receivable, and the Collections and other proceeds and Related Security with
respect thereto, is
<PAGE>
made hereby and shall be effective the later of the date such Receivable is
created or the date of this Agreement.
(b) In consideration for the Receivables, Funding shall on the effective
date of each purchase and sale pay to the Sellers in cash an amount equal to the
Purchase Price.
(c) In connection with the foregoing conveyance, each Seller agrees to
record and file, at its own expense, a financing statement with respect to the
Receivables now existing and hereafter created meeting the requirements of
applicable state law in such manner as is necessary to perfect the sale of the
Receivables to Funding, and the proceeds thereof (and any continuation
statements as are required by applicable state law), and to deliver a
file-stamped copy of each such financing statement (or continuation statement)
or other evidence of such filings (which may, for purposes of this Section,
consist of telephone confirmation of such filing with the file-stamped copy of
each such filing to be provided to Funding in due course), as soon as is
practicable after receipt by such Seller thereof. Each Seller further agrees, at
its own expense, on or prior to the date of this Agreement to execute an
Assignment substantially in the form of Exhibit A hereto.
The parties hereto intend that each conveyance hereunder be a sale of the
Receivables and the other Transferred Property from each Seller to Funding and
not a financing secured by such assets; and the beneficial interest in and title
to the Receivables and the other Transferred Property shall not be a part of
such Seller's estate in the event of the filing of a bankruptcy petition by or
against Seller under any bankruptcy law. In the event that any conveyance
hereunder is for any reason not considered a sale, the parties intend that this
Agreement constitute a security agreement (as defined in the UCC as in effect in
the State of California) under the UCC, and each Seller hereby grants to Funding
a first priority perfected security interest in, to and under the Receivables
and the other Transferred Property, and other property conveyed hereunder and
all proceeds of any of the foregoing for the purpose of securing payment and
performance of all obligations of such Seller to Funding, and that this
Agreement constitute a security agreement under applicable law.
Section 2. Covenants of Sellers. Each Seller hereby agrees as follows:
(a) Such Seller shall make each sale hereunder of Receivables to be
transferred by such Seller to Funding hereunder in accordance with Section
5.1(l) of the Purchase Agreement.
(b) Such Seller will comply in all material respects with all
applicable laws, rules, regulations and orders with respect to it, its
business and properties and all Receivables transferred or to be
transferred by it to Funding hereunder and related Contracts, Related
Security and Collections with respect thereto, including without limitation
the payment before the same becomes delinquent of all taxes, assessments
and governmental charges imposed upon such Seller or its property except to
the extent contested in good faith and by proper proceedings and for
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<PAGE>
which it is maintaining adequate reserves in accordance with generally
accepted accounting principles.
(c) Such Seller will preserve and maintain its corporate existence,
rights, franchises and privileges in the jurisdiction of its incorporation,
and qualify and remain qualified in good standing as a foreign corporation
in each jurisdiction where the nature of its business requires it to be so
qualified.
(d) Such Seller will, at any time and from time to time during regular
business hours, permit the Facility Agent and Purchaser, individually or
collectively, or their respective agents or representatives, (i) to examine
and make copies of and abstracts from all books, records and documents
(including, without limitation, computer tapes and disks) in the possession
or under the control of such Seller relating to Pool Receivables and the
Related Security, including, without limitation, the related Contracts, and
(ii) to visit the offices and properties of such Seller for the purpose of
examining such materials described in clause (i) above, and to discuss
matters relating to Pool Receivables and the Related Security or any
Selling Party's performance hereunder or under the Purchase Agreement or
any other Purchase Document or the Contracts with any of the officers or
employees of such Seller having knowledge of such matters.
(e) Such Seller will maintain and implement administrative and
operating procedures (including, without limitation, an ability to recreate
records evidencing Receivables transferred or to be transferred by it to
Funding hereunder in the event of the destruction of the originals
thereof), and keep and maintain, all documents, books, records and other
information reasonably necessary for the collection of all Receivables
transferred or to be transferred by it to Funding hereunder (including,
without limitation, records adequate to permit the daily identification of
each new such Receivable and all Collections of and adjustments to each
existing such Receivable).
(f) Such Seller will timely perform and comply in all material
respects with all provisions, covenants and other promises required to be
observed by it under the Contracts related to the Pool Receivables or under
any Related Security.
(g) Such Seller will keep its chief place of business and chief
executive office at the address of such Seller referred to in Section 6(h)
hereof or, upon 30 days' prior written notice to the Facility Agent, at any
other locations in a jurisdiction where all action required by Section 8
hereof shall have been taken.
(h) Such Seller will comply in all material respects with each
applicable Credit and Collection Policy in regard to any of the Receivables
transferred or to be transferred by it to Funding hereunder and the related
Contracts and Related Security with respect thereto.
3
<PAGE>
(i) Such Seller will hold in trust all Collections received by such
Seller (including, without limitation any Collections deemed to have been
received by such Seller pursuant to Section 3 hereof) and deposit such
Collections directly (that is, without any interim deposit to any deposit
account) to the Collection Account on the Business Day of such Seller's
receipt or deemed receipt thereof.
(j) Such Seller will furnish to Funding:
(i) as soon as possible and in any event within two Business Days
after any Responsible Officer of such Seller obtains knowledge of the
occurrence of each Event of Investment Ineligibility and each event
which, with the giving of notice or lapse of time, or both, would
constitute an Event of Investment Ineligibility, continuing on the
date of such statement, a statement of any Responsible Officer of such
Seller (unless a statement with respect to such Event of Investment
Ineligibility or event has previously been so furnished by any
Responsible Officer of Funding pursuant to Section 5.2(d) of the
Purchase Agreement) setting forth details of such Event of Investment
Ineligibility or event and the action which such Seller has taken and
proposes to take with respect thereto; and
(ii) such other information, documents, records or reports
respecting the Receivables, the Related Security or the Contracts or
the condition or operations, financial or otherwise, of such Seller or
any of its subsidiaries as the Facility Agent or Purchaser may from
time to time reasonably request.
(k) Such Seller will not sell, assign (by operation of law or
otherwise) or otherwise transfer, or grant any option with respect to, or
create or suffer to exist any Adverse Claim upon or with respect to, any
Receivable transferred or to be transferred by such Seller to Funding
hereunder or any Related Security or Collections in respect thereof, or
upon or with respect to any related Contract or any account to which any
Collections of any such Receivable are sent, or assign any right to receive
income in respect thereof.
(l) Except as otherwise permitted in Section 6.4 of the Purchase
Agreement, such Seller will not extend, amend or otherwise modify the terms
of any Receivable transferred or to be transferred by such Seller to
Funding hereunder, or amend, modify or waive any term or condition of any
Contract or Related Security related thereto.
(m) Such Seller will not, except as required by law or regulation or
regulatory authorities (as notified in writing to the Facility Agent at
least ten Business Days prior to such change), make any change in the
character of its business or in any Credit and Collection Policy, which
change would be reasonably likely to impair the collectibility of any
Receivable transferred or to be transferred by such Seller to Funding
hereunder.
4
<PAGE>
(n) Such Seller will not deposit or otherwise credit, or cause or
permit to be so deposited or credited, to the Collection Account cash or
cash proceeds other than Collections of Pool Receivables and Related
Security.
(o) Such Seller will not merge or consolidate with or into, or convey,
transfer, lease or otherwise dispose of (whether in one transaction or in a
series of transactions) all or substantially all of its assets (except as
contemplated hereby) to any Person.
(p) Such Seller will not change its name or identity, or its chief
executive office, unless at least 30 days prior to the effective date of
any such change such Seller delivers to the Facility Agent UCC financing
statements, executed by Funding and such Seller, necessary to reflect such
change and to continue the perfection of the ownership interests created by
the Purchase Documents.
(q) Each Seller agrees to treat this conveyance for all purposes
(including without limitation tax and financial accounting purposes) as a
sale on all relevant books, records, tax returns, financial statements and
other applicable documents.
(r) Each Seller shall at all times provide the Facility Agent or its
agents or representatives with access (via a license and custody agreement
or otherwise) to software which will enable the Facility Agent to operate
such Seller's premium finance receivable accounting and operations systems
on an IBM AS/400 computer or other system acceptable to the Facility Agent.
Section 3. Collections; Yield Maintenance. Each Seller hereby agrees that
if on any day the Outstanding Balance of a Receivable transferred by such Seller
to Funding hereunder is either reduced or cancelled as a result of (a) any
cancellation of a Contract prior to the date on which Funding has made funds
available to or for the account of any related Obligor, or (b) such Seller's
receipt of any prepayment by any Obligor of amounts payable under a Contract, or
(c) any adjustment, or any other modification to, termination of, or rejection
of, any Contract by any Selling Party or any Affiliate thereof (other than any
adjustment or modification made in accordance with the provisions of Section 6.4
of the Purchase Agreement by Gold Coast as Collection Agent), or (d) a setoff in
respect of any claim by the Obligor thereof against any Selling Party or any
Affiliate thereof (whether such claim arises out of the same or a related
transaction or an unrelated transaction), such Seller shall be deemed to have
received on such day a Collection of such Receivable in the amount of such
reduction or cancellation and shall make the deposit required in connection
therewith pursuant to Section 2(i) hereof. If on any day any of the
representations or warranties in Section 6(g) hereof proves not to have been
true when made or deemed made hereunder with respect to a Receivable transferred
by any Seller to Funding hereunder, such Seller shall be deemed to have received
on such day a Collection in full of such Receivable and shall make the deposit
required in connection therewith pursuant to Section 2(i) hereof. All
Collections received from an Obligor of any Receivable shall be applied (A) to
Receivables then outstanding of such Obligor in the order of the age of such
Receivables, starting
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with the oldest such Receivable, except if payment is designated by such Obligor
for application to specific Receivables, and (B) first, to principal and other
amounts owed by such Obligor in respect of such Receivable other than accrued
interest and late fees, and second, to accrued interest and late fees in respect
of such Receivable. If the funds on deposit in the Collection Account on the
first Business Day following any Settlement Period are insufficient for the
Facility Agent to distribute such funds, in the order required, in payment in
full of the accrued Yield on the Purchased Interest, the Sellers, as joint and
several obligors, shall on such first day pay directly to the Facility Agent for
the account of Purchaser the amount of such insufficiency.
Section 4. Performance of Agreements. Each Seller consents to, and agrees
to perform all actions required to be, or contemplated as being, performed by it
under, and to do all other actions required for the performance and observance
of, the terms and provisions of Articles V and VI of the Purchase Agreement with
respect to such Seller or the Transferred Property.
Section 5. Payments. Each Seller agrees that all payments and deposits to
be made by it under this Agreement will be made in accordance with Sections 2.8
and 2.12 of the Purchase Agreement.
Section 6. Representations and Warranties of the Sellers. Each Seller
hereby represents and warrants as follows:
(a) Such Seller is a corporation duly incorporated, validly existing
and in good standing under the laws of the jurisdiction indicated at the
beginning of this Agreement and is duly qualified to do business, and is in
good standing, in every jurisdiction where the nature of its business
requires it to be so qualified.
(b) The execution, delivery and performance by such Seller of this
Agreement, and the transactions contemplated hereby, and such Seller's use
of the proceeds of Purchases and reinvestments, are within such Seller's
corporate powers, have been duly authorized by all necessary corporate
action, do not contravene (i) such Seller's charter or by-laws or (ii) law
or any Contract or Related Security or any other contractual restriction
binding on or affecting such Seller, and do not result in or require the
creation of any Adverse Claim (other than pursuant hereto) upon or with
respect to any of its properties; and no transaction contemplated hereby
requires compliance with any bulk sales act or similar law.
(c) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body is required
for the due execution, delivery and performance by such Seller of this
Agreement, or for the perfection of or the exercise by Funding, the
Facility Agent, Purchaser, or any Indemnified Party of their respective
rights and remedies under this Agreement or the other Purchase Documents,
except for the filings of the financing statements referred to in Article
III of the Purchase Agreement, all of which, on or prior to
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<PAGE>
the date of the initial Purchase, will have been duly made and be in full
force and effect.
(d) This Agreement is the legal, valid and binding obligation of such
Seller enforceable against such Seller in accordance with its terms, except
to the extent that its enforceability may be limited by the applicable
bankruptcy, insolvency, reorganization, and other similar laws affecting
creditors' rights generally or by general principles of equity.
(e) There is no pending or, to the knowledge of such Seller,
threatened action or proceeding affecting such Seller or any of its
subsidiaries before any court, governmental agency or arbitrator (i) which
is reasonably likely to materially adversely affect (A) the consolidated
financial condition or operations of such Seller and its consolidated
subsidiaries taken as a whole or (B) the ability of such Seller or Funding
to perform its obligations under this Agreement, the Purchase Agreement, or
the other Purchase Documents, or (ii) which purports to affect the
legality, validity or enforceability of the Purchase Agreement or the other
Purchase Documents.
(f) No proceeds of any Purchase or reinvestment will be used by such
Seller to acquire any equity security of a class which is registered
pursuant to Section 12 of the Securities Exchange Act of 1934.
(g) Immediately prior to the transfer hereunder to Funding of any
Receivable by such Seller, such Seller is the legal and beneficial owner of
such Receivable and the Related Security with respect thereto free and
clear of any Adverse Claim except as created by this Agreement or the
Purchase Agreement. Upon each transfer hereunder to Funding of any
Receivable by such Seller, Funding will acquire a valid and perfected first
priority ownership interest in such Receivable and in the Related Security
and Collections with respect thereto free and clear of any Adverse Claim
except as created by this Agreement or by the Purchase Agreement. No
effective financing statement or other instrument similar in effect
covering any Receivable transferred or to be transferred by such Seller to
Funding hereunder or any Contract or Related Security or Collections with
respect thereto is on file in any recording office, except those filed in
favor of the Facility Agent relating to the Purchase Agreement.
(h) The chief place of business and chief executive office of such
Seller are located at 1111 Park Centre Road, Suite 300, Miami, Florida
33169.
(i) Neither such Seller nor any Affiliate of such Seller has any
direct or indirect ownership or other financial interest in the Facility
Agent or Purchaser.
(j) Funding has purchased each outstanding Receivable to be
transferred hereunder by such Seller and shall have paid to such Seller in
cash, on
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<PAGE>
the date of effectiveness of such purchase, an amount at least equal to the
fair market value of such Receivable as determined by Funding and such
Seller computed by subtracting from the face amount of such Receivable, a
discount that reflects (among other things) the cost to Funding of owning
such Receivable (including, without limitation, Funding's cost of funding
its purchase of such Receivable) and the estimated costs (taking into
account collection risks) of collection of such Receivable. Each such
purchase shall not have been made for or on account of an antecedent debt
owed by such Seller to Funding and no such transfer is or may be voidable
or subject to avoidance under any section of the Bankruptcy Reform Act of
1978 (11 U.S.C. (section) 101 et seq.), as amended, or any successor
statute.
Section 7. Rights of Funding. (a) In addition to the obligations of the
Sellers under Section 2(i), Each Seller shall at Funding's request segregate all
cash, checks and other instruments received by it from time to time constituting
Collections of Pool Receivables in a manner acceptable to Funding and shall
remit, promptly upon receipt, all such cash, checks and instruments, duly
endorsed or with duly executed instruments of transfer, to the Facility Agent or
its designee.
(b) Each Seller shall at Funding's request, at such Seller's expense,
notify at any time the Obligors of, or Related Insurers relating to, Pool
Receivables, or any of them, of the ownership of the Transferred Property and
direct such Obligors, or any of them, that payments of amounts payable under
Pool Receivables be made directly to the Facility Agent or its designee.
(c) Each Seller hereby authorizes Funding to take any and all steps in such
Seller's name and on behalf of such Seller, Funding and Purchaser, necessary or
desirable in the determination of Funding, and in compliance with all applicable
laws, rules and regulations, to collect all amounts due under Pool Receivables
transferred by such Seller to Funding hereunder, including, without limitation,
endorsing such Seller's name on checks and other instruments representing
Collections, enforcing such Pool Receivables and the Related Security and the
related Contracts, and adjusting, settling or compromising the amount or payment
thereof, in the same manner and to the same extent as such Seller might have
done.
Section 8. Further Assurances. Each Seller agrees that from time to time,
at its expense, it will promptly execute and deliver all further instruments and
documents, and take all further action, that may be necessary, or that the
Facility Agent may at its election, reasonably request in order to perfect,
protect or more fully evidence the sales of Receivables by such Seller to
Funding hereunder, or to enable any of them or the Facility Agent or any Agent
to exercise or enforce any of their respective rights under the Purchase
Agreement or the other Purchase Documents or hereunder. Without limiting the
generality of the foregoing, each Seller will, upon the request of the Facility
Agent: (i) execute and file such financing or continuation statements, or
amendments thereto or assignments thereof, and such other instruments or
notices, as may be necessary, or as the Facility Agent may reasonably request,
in order to perfect, protect or evidence such sales hereunder; (ii) in
accordance with applicable law and pursuant to the instructions of the Facility
Agent, exercise any power of attorney granted in favor of such Seller (or
Funding, whether or not
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<PAGE>
through such Seller) by any Obligor under any Contract or otherwise; and (iii)
mark its master data processing records evidencing Receivables transferred by
such Seller to Funding hereunder and related Contracts and Related Security with
a legend similar to the legend set forth in Section 5.1(j) of the Purchase
Agreement (treating Funding as Purchaser and substituting this Agreement for the
Purchase Agreement). Each Seller hereby authorizes Funding to file one or more
financing or continuation statements, and amendments thereto and assignments
thereof, relating to all or any of the Receivables transferred or to be
transferred by it to Funding hereunder and the Contracts, Related Security and
Collections with respect thereto now existing or hereafter arising without the
signature of such Seller where permitted by law. A photocopy or other
reproduction of this Agreement or any financing statement covering all or and of
such Receivables and the Contracts, Related Security and Collections with
respect thereto shall be sufficient as a financing statement where permitted by
law. If any Seller fails to perform any agreement contained herein, Funding may
itself perform, or cause performance of, such agreement, and the expenses of
Funding incurred in connection therewith shall be payable by such Seller.
Section 9. Indemnification. Without limiting any other rights which Funding
may have hereunder or under the Purchase Agreement or under applicable law, each
Seller hereby agrees to indemnify Funding from and against any and all claims,
losses and liabilities actually incurred by Funding as a result of a demand for
a comparable amount from Funding by any Indemnified Party or Parties under
Section 12.1 of the Purchase Agreement (including reasonable attorneys' fees)
(all of the foregoing being collectively referred to as "Indemnified Amounts")
growing out of or resulting from or relating to this Agreement or the Purchase
Agreement or such Seller's use of proceeds of Purchases or reinvestments or in
respect of any Receivable transferred or to be transferred by such Seller to
Funding hereunder or any Contract or Related Security in respect thereof,
excluding, however, in the case of Indemnified Amounts resulting from any such
demand by any such Indemnified Party, (a) Indemnified Amounts to the extent
resulting from gross negligence or willful misconduct on the part of such
Indemnified Party, (b) recourse (except as otherwise specifically provided in
this Agreement or the Purchase Agreement) for uncollectible Receivables or
Related Security, or (c) any income taxes incurred by such Indemnified Party
arising out of or as a result of this Agreement, the Purchase Agreement, or any
other Purchase Documents or in respect of any Receivable or any Contract or
Related Security. Without limiting or being limited by the foregoing, each
Seller shall pay on demand to Funding any and all amounts necessary to indemnify
Funding from and against any and all Indemnified Amounts relating to or
resulting from:
(i) any Receivable transferred by such Seller to Funding hereunder
which is not on the date of such transfer an Eligible Receivable or which
thereafter ceases to be an Eligible Receivable:
(ii) reliance on any representation or warranty made (including
without limitation pursuant to Section 3.2 of the Purchase Agreement) by or
on behalf of such Seller (or any of its officers) under or in connection
with this Agreement or the Purchase Agreement or any other document
delivered under this Agreement or the Purchase Agreement (including without
limitation any Purchaser Report or Insurance Carrier Exposure Report) which
shall have been incorrect when made;
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<PAGE>
(iii) the failure by such Seller to comply with any applicable law,
rule or regulation with respect to any Receivable transferred or to be
transferred by it to Funding hereunder or the related Contract or any
Related Security in respect thereof, or the nonconformity of any such
Receivable or the related Contract or any such Related Security with any
such applicable law, rule or regulation;
(iv) the failure to vest in Funding a first priority perfected
ownership interest in the Receivables transferred or to be transferred by
such Seller to Funding hereunder and the Related Security and Collections
in respect thereof, free and clear of any Adverse Claim;
(v) the failure to have filed, or any delay in filing, financing
statements or other similar instruments or documents under the UCC of any
applicable jurisdiction or other applicable laws with respect to any
Receivables transferred or to be transferred by such Seller to Funding
hereunder and the Related Security and Collections in respect thereof,
whether at the time of any Purchase or reinvestment or at any subsequent
time;
(vi) any dispute, claim, offset or defense (other than discharge in
bankruptcy of the Obligor) of the Obligor to the payment of any Receivable
transferred or to be transferred by such Seller to Funding hereunder and
in, or purporting to be in, the Receivables Pool (including, without
limitation, a defense based on such Receivable or the related Contract not
being a legal, valid and binding obligation of such Obligor enforceable
against it in accordance with its terms), or any other claim resulting from
any insurance policy related to such Receivable or the furnishing or
failure to furnish such insurance policy;
(vii) any failure of such Seller, if applicable at such time, as
Collection Agent or otherwise, to perform its duties or obligations in
accordance with the provisions of Article VI of the Purchase Agreement, or
any failure of such Seller to perform its duties or obligations under any
Contract or under this Agreement or any other document furnished under this
Agreement or the Purchase Agreement;
(viii) any third party investigation, litigation or proceeding related
to this Agreement or the Purchase Agreement or any other document furnished
under this Agreement or the Purchase Agreement or such Seller's use of
proceeds of Purchases or reinvestments or the ownership of the Purchased
Interest or in respect of any Receivable transferred or to be transferred
by such Seller to Funding hereunder or any Related Security or Contract in
respect thereof;
(ix) the commingling of Collections of Receivables transferred or to
be transferred by such Seller to Funding or the Collection Agent hereunder
at any time with other funds;
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(x) any claim by any Assignee;
(xi) during any period during which, and to the extent, such Seller is
the Collection Agent, or a subcontracting agent of the Collection Agent,
any cancellation of any insurance policy in such a manner (due to timing or
otherwise) that would cause the unearned or return premiums related thereto
to be less than those premiums otherwise returnable upon proper and timely
cancellation of such policy in accordance with the applicable Credit and
Collection Policy; or
(xii) any civil or criminal penalty or other liability, or any sale,
forfeiture or loss of any of the property, rights or interests covered
hereunder, arising out of or in connection with the non-payment of taxes,
assessments or other governmental charges imposed upon such Seller or its
property.
Section 10. Amendment. No amendment or waiver of any provision of this
Agreement, and no consent to any departure by any Seller herefrom, shall in any
event be effective unless the same shall be in writing and signed by Funding and
the Facility Agent, and then such amendment, waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. No amendment shall be effective against any Seller unless the same shall
be in writing and signed by such Seller.
Section 11. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of each Seller and Funding, and their respective
successors and assigns, except that no Seller shall have the right to assign its
rights hereunder or any interest herein without the prior written consent of the
Facility Agent. This Agreement shall create and constitute the continuing
obligation of the parties hereto in accordance with its terms, and shall remain
in full force and effect until the Collection Date. All representations and
warranties and covenants shall survive the conveyance of the Transferred
Property hereunder and Funding's conveyance of the Transferred Property to the
Facility Agent.
Section 12. No Waiver; Remedies. No failure on the part of Funding or the
Facility Agent to exercise, and no delay in exercising, any right hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right hereunder preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
Section 13. Entire Agreement. This Agreement comprises the complete and
integrated agreement of the parties on the subject matters hereof and, except as
otherwise provided herein, supersedes all prior agreements, written or oral, in
the subject matters hereof.
Section 14. Conveyance of Receivables and Transferred Property by Funding.
Each Seller acknowledges that Funding intends, pursuant to the Purchase
Agreement, to convey the Receivables and the other Transferred Property,
together with its rights under this Agreement, to the Facility Agent for the
benefit of itself, Purchaser and the other Indemnified Parties. Each Seller
acknowledges and consents to such conveyance and waives any further notice
thereof and
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covenants and agrees that the representations, warranties and covenants of the
Sellers contained in this Agreement and the rights of Funding hereunder are
intended to benefit the Facility Agent, Purchaser and the other Indemnified
Parties. In furtherance of the foregoing, the Sellers covenant and agree to
perform their respective duties and obligations hereunder for the benefit of the
Facility Agent and that, notwithstanding anything to the contrary in this
Agreement, the Sellers shall be directly liable to the Facility Agent (without
regard to any failure by the Collection Agent or Funding to perform their
respective duties and obligations hereunder or under the Purchase Agreement) and
that the Facility Agent may enforce directly the duties and obligations of the
Sellers under this Agreement against the Sellers for the benefit of itself,
Purchaser and the other Indemnified Parties without the consent or joinder of
Funding.
Section 15. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, except to the
extent that the perfection or the effect of non-perfection of the interests of
Funding, or remedies hereunder, in respect of the Receivables, any Related
Security or any Collections in respect thereof, are governed by the laws of a
jurisdiction other than the State of New York. The acknowledgment attached
hereto is incorporated in and made a part of this Note by this reference.
Section 16. Costs and Expenses. The Sellers will pay all expenses incident
to the performance of its obligations under this Agreement and the Sellers, as
joint and several obligors, agree to pay all reasonable out-of-pocket costs and
expenses of Funding and the Facility Agent, including fees and expenses of
counsel, in connection with the perfection as against third parties of Funding's
or the Facility Agent's right, title and interest in and to the Transferred
Property and the enforcement of any obligations of the Sellers hereunder.
Section 17. Counterparts; Severability. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement. In case any provision in or obligation under this
Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
Section 18. Nonpetition Covenant. Each Seller agrees that it shall not
petition or otherwise invoke the process of any court or government authority
for the purpose of commencing or sustaining a case against Funding under any
federal or state bankruptcy, insolvency or similar law or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator, or other similar
official of Funding or any substantial part of its property, or ordering the
winding up or liquidation of the affairs of Funding.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Receivables Origination
Agreement to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
Very truly yours,
GOLD COAST FINANCE, INC.
By:
-------------------------------
Stephen E. Michaelson
Vice President
NATIONAL-WIDE PREMIUM
FINANCE CORPORATION
By:
-------------------------------
Stephen E. Michaelson
Vice President
CONTRACT FUNDING CORP.
By:
-------------------------------
Stephen E. Michaelson
Vice President
ACKNOWLEDGED AND AGREED:
SUNAMERICA FINANCIAL RESOURCES, INC.
By:
----------------------------------
Lawrence M. Goldman
Senior Vice President
S-1
<PAGE>
EXHIBIT G
[FORM OF USA GUARANTY]
USA GUARANTY
THIS GUARANTY ("Guaranty") is executed as of September 18, 1996 by USA
Finance, Inc., a Delaware corporation ("Guarantor") in favor of SunAmerica
Financial Resources, Inc. ("SAFR"), a Delaware corporation, as Purchaser and, in
its capacity as agent for Purchaser, Facility Agent, and the Indemnified Parties
(the Purchaser, Facility Agent and Indemnified Parties are collectively referred
to as the "Guaranteed Persons" and individually as a "Guaranteed Person").
PRELIMINARY STATEMENTS
A. Contract Funding Corp., as Seller, Gold Coast Finance, Inc. ("Gold
Coast") and SAFR are entering into a Receivables Purchase and Sale Agreement (as
amended, supplemented or otherwise modified from time to time, the "Purchase
Agreement") dated as of September 18, 1996, pursuant to which, subject to the
terms and conditions thereof, Purchaser will purchase Receivables and Gold Coast
will act as initial Collection Agent (for purposes of this Guaranty, "Collection
Agent" shall mean Gold Coast or any affiliate of Gold Coast which may succeed
Gold Coast as Collection Agent).
B. Seller, Gold Coast and National-Wide Premium Finance Corporation
("National-Wide") are entering into a Receivables Origination Agreement (the
"Origination Agreement") dated as of September 18, 1996, pursuant to which,
subject to terms and conditions thereof, Originators will sell Receivables to
Seller and perform other duties with respect to the Receivables.
C. Guarantor is the owner of 100% of the capital stock of each of Gold
Coast and National-Wide and will receive substantial direct and indirect
benefits from the transactions contemplated by the Purchase Agreement and other
Purchase Documents.
D. It is a condition precedent to the purchase of the Receivables that
Guarantor executes this Guaranty and delivers it to the Facility Agent for the
benefit of the Guaranteed Persons.
In consideration of the execution of the Purchase Agreement by SAFR,
and the purchase of the Receivables by the Purchaser, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by Guarantor, Guarantor agrees as follows:
<PAGE>
1. Definitions. Unless otherwise defined in this Guaranty, all
capitalized terms used in this Guaranty, including the opening paragraph and
Preliminary Statements hereof, shall have the meanings ascribed to such terms in
the Purchase Agreement.
2. Guaranty of Obligations. Guarantor absolutely, irrevocably and
unconditionally guarantees the full and timely payment and performance of: (a)
all of the obligations of Collection Agent under the Purchase Agreement
including without limitation (i) the servicing, administering and collecting of
the Receivables pursuant to the Purchase Agreement on behalf of the Purchaser
and any Assignees and the making of deposits and remittances required by
Collection Agent to the Collection Account, and (ii) the payment of all amounts
and indemnities payable by the Collection Agent pursuant to the Purchase
Agreement; and (b) all of the obligations of Gold Coast and National-Wide under
the Origination Agreement and other Purchase Documents (collectively, the
"Obligations").
3. Validity of Obligations; Irrevocability. Guarantor agrees that its
obligations under this Guaranty shall be unconditional, irrespective of (i) the
validity, enforceability, discharge, disaffirmance, settlement or compromise (by
any Person including a trustee in bankruptcy or other similar official) of the
Obligations or of the Purchase Agreement, (ii) the absence of any attempt to
collect the Obligations from Collection Agent, Gold Coast, National-Wide or any
guarantor or other Person, (iii) the waiver or consent by any Guaranteed Person
with respect to any provision of any instrument or agreement evidencing the
Obligations, (iv) any change of the time, manner or place of payment or
performance, or any other term of any of the Obligations, (v) any law,
regulation or order of any jurisdiction affecting any term of any of the
Obligations or rights of any Guaranteed Person with respect thereto, (vi) the
failure by Facility Agent or any Person to take any steps to perfect and
maintain perfected its interest in the Receivables or other property acquired by
the Facility Agent from the Seller or any security or collateral related to the
Obligations, (vii) the commencement of any bankruptcy, insolvency or similar
proceeding with respect to Collection Agent, Gold Coast or National-Wide or
(viii) any legal or equitable discharge or defense of a guarantor. Guarantor
agrees that no Guaranteed Person shall be under any obligation to marshall any
assets in favor of or against or in payment of any or all of the Obligations.
Guarantor further agrees that, to the extent that Collection Agent, Gold Coast
or National-Wide makes a payment or payments to any Guaranteed Person, which
payment or payments or any part thereof are subsequently invalidated, declared
to be fraudulent or preferential, set aside and/or required to be repaid to such
payor, its estate, a trustee, receiver or any other party, including without
limitation, Guarantor, under any bankruptcy, insolvency or similar state or
federal law, or otherwise, then to the extent of such payment or repayment, the
Obligations or part thereof which has been paid, reduced or satisfied by such
amount shall be automatically reinstated and continued in full force and effect,
without further action or notice, as of the date such initial payment, reduction
or satisfaction occurred. Guarantor waives all presentments, demands for
performance, notices of dishonor and notices of acceptance of this Guaranty.
Guarantor agrees that its obligations under this Guaranty shall be irrevocable.
4. Representations and Warranties. Guarantor hereby represents and
warrants to each of the Guaranteed Persons as follows:
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(a) Organization, etc. Guarantor is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation and has full corporate power, authority and legal right to own or
lease all of its properties and assets, to carry on its business as it is now
being conducted and to execute, deliver and perform this Guaranty. Guarantor is
duly qualified as a foreign corporation in good standing under the laws of each
other jurisdiction in which the nature of its business requires such
qualification and in which failure to so qualify would render this Guaranty
unenforceable or would have an adverse effect on such Guarantor's ability to
perform its obligations under this Guaranty.
(b) Authorization; Valid Agreement. The execution, delivery and
performance of this Guaranty have been duly authorized by all required corporate
or other action on the part of Guarantor, and this Guaranty constitutes the
legal, valid and binding obligation of Guarantor, enforceable in accordance with
its terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, conservatorship, receivership, liquidation or other similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles.
(c) No Conflicts. The execution, delivery and performance by
Guarantor of this Guaranty does not and will not (a) contravene its charter or
by-laws, (b) violate any provision of, or require any filing, registration,
consent or approval under, any law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award presently in effect having
applicability to Guarantor; (c) result in a breach of or constitute a default or
require any consent under any indenture or loan or credit agreement or any other
agreement, lease or instrument to which Guarantor is a party or by which it or
its properties may be bound or affected or (d) result in, or require, the
creation or imposition of any lien upon or with respect to any of the properties
now owned or hereafter acquired by Guarantor.
(d) No Proceedings. There are no proceedings or investigations
pending, or, to the best knowledge of Guarantor, threatened against Guarantor
before any governmental authority (i) asserting the invalidity of this Guaranty,
(ii) seeking to prevent the consummation of the transactions contemplated by
this Guaranty, (iii) seeking any determination or ruling that would adversely
affect the performance by Guarantor of its obligations under this Guaranty or
(iv) seeking any determination or ruling that would adversely affect the
validity or enforceability of this Guaranty.
5. Covenants. Guarantor shall not and shall not permit any of its
subsidiaries to (i) directly or indirectly, order, pay, make or set apart any
sum for any prepayment or redemption of any kind of any Permitted Subordinated
Debt, except regularly scheduled interest and principal payments as and when
due, or (ii) upon the occurrence of a default under the Note or any event which
permits any Guaranteed Person to demand payment hereunder make any payment of
any kind, whether for principal, interest or otherwise, with respect to any of
the Permitted Subordinated Debt. Guarantor shall deliver to SAFR upon execution
of this Guaranty, a complete list of the names and addresses of each holder of
Permitted Subordinated Debt and within 10 days of any issuance of Permitted
Subordinated Debt or notice of any change in the name or address of any holder
or representative of Permitted Subordinated Debt, shall deliver to SAFR an
updated and complete list of holders (and any representative of any holder) of
Permitted Subordinated Debt.
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6. Independent Obligations. The obligations of Guarantor hereunder are
undertaken as primary obligor, jointly and severally with, and independently of,
the obligations of Collection Agent, Gold Coast, National-Wide or any other
obligor, guarantor or Person, and action or actions may be brought or prosecuted
directly against Guarantor whether or not action is brought first or at all
against Collection Agent, Gold Coast, National-Wide or any other obligor,
guarantor or Person, against any collateral security or any other circumstance
whatsoever, and whether or not Collection Agent, Gold Coast, National-Wide or
any other obligor, guarantor or Person is joined in any such action or actions,
or any claims or demands are made or are not made, or any action is taken on or
against Collection Agent, Gold Coast, National-Wide any other obligor, guarantor
or Person or any collateral security or otherwise.
7. Waivers. Without limiting any other provision hereof, to the fullest
extent permitted by applicable law, Guarantor hereby waives: (i) any defense
arising by reason of any invalidity or unenforceability of Collection Agent's,
Gold Coast's, or National-Wide's obligations in respect of the Purchase
Agreement and the Purchase Documents, any manner in which any Guaranteed Person
has exercised (or not exercised) its rights and remedies under the Purchase
Agreement and the Purchase Documents, or any cessation from any cause whatsoever
of the liability of the Collection Agent, Gold Coast, National-Wide or any other
obligor, guarantor or Person; (ii) all presentments, demands for performance,
notices of nonperformance, protests, notices of protest, notices of dishonor and
notices of acceptance of the Purchase Agreement and the Purchase Documents;
(iii) any release of collateral security provided under the Purchase Agreement
or other Purchase Documents; (iv) notice of any indulgences, extensions,
consents or waivers given to Collection Agent, Gold Coast, National-Wide or any
other obligor, guarantor or Person, notice of the occurrence of any potential
default or Event of Default under the Purchase Agreement or default or event of
default (or the like) under any of the Purchase Documents, or other notice of
any kind whatsoever; (v) any right or claim of right to cause any Guaranteed
Person to proceed against Collection Agent, Gold Coast, National-Wide or any
other obligor, guarantor or Person in any particular order, to proceed against
or exhaust any collateral security held by any Guaranteed Person at any time or
to pursue any other right or remedy whatsoever at any time; (vi) any requirement
of diligence or promptness on any Guaranteed Person's part in (X) making any
claim or demand on or commencing suit against Collection Agent, Gold Coast,
National-Wide or any other obligor, guarantor or Person, and (Y) otherwise
enforcing any Guaranteed Person's rights in respect of the Purchase Agreement or
the Purchase Documents; and (vii) any duty of any Guaranteed Person to advise
Guarantor of any information known to any Guaranteed Person regarding the
financial condition of Collection Agent, Gold Coast, National-Wide or any other
circumstance, it being agreed that Guarantor assumes responsibility for being
and keeping informed of such condition or any such circumstance.
Without limiting the generality of the foregoing, to the fullest extent
permitted by applicable law, Guarantor specifically waives all defenses
Guarantor may have based upon any election of remedies by any Guaranteed Person
which destroys Guarantor's rights to proceed against Collection Agent, Gold
Coast, National-Wide or any other obligor, guarantor or Person for
reimbursement, contribution or otherwise, including any loss of rights that it
may suffer by reason of any rights, powers, remedies or defenses of Collection
Agent, Gold Coast or National-Wide in connection with any laws limiting,
qualifying or discharging indebtedness of or remedies against Collection Agent,
Gold Coast or National-Wide, and Guarantor hereby agrees not to exercise or
pursue, so long as any of the
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<PAGE>
Obligations remain unsatisfied, any right to reimbursement, subrogation, or
contribution from Collection Agent, Gold Coast or National-Wide in respect of
payments hereunder.
8. Significance of Waivers. Guarantor represents, warrants and agrees
that each of the waivers set forth herein are made with such Guarantor's full
knowledge of their significance and consequences, with the understanding that
events giving rise to any defense waived may diminish, destroy or otherwise
adversely affect rights which such Guarantor otherwise may have against
Collection Agent, Gold Coast, National-Wide or any other obligor, guarantor or
Person, or against collateral, and that under the circumstances the waivers are
reasonable.
9. Nonpetition Covenant. Guarantor shall not petition or otherwise
invoke the process of any court or government authority for the purpose of
commencing or sustaining a case against the Seller under any federal or state
bankruptcy, insolvency or similar law or appointing a receiver, liquidator,
assignee, trustee, custodian, sequestrator or other similar official of the
Seller or any substantial part of its property, or ordering the winding up or
liquidation of the affairs of the Seller.
10. Governing Law. This Guaranty shall be governed by, and construed in
accordance with, the laws of the State of New York.
11. Jurisdiction; Jury Trial Waiver; Agent for Service of Process.
Guarantor hereby irrevocably consents that any legal action or proceeding
against it or any of its property arising out of or in any way connected
herewith may be instituted in any state or United States federal court located
in the State of New York, and by execution and delivery hereof, Guarantor hereby
irrevocably submits to the non-exclusive jurisdiction of the aforesaid courts in
any such legal action or proceeding, and to service of process out of such
courts by registered mail. Guarantor hereby waives trial by jury.
12. Counterparts. This Guaranty may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be an original, but all such
counterparts together shall constitute but one and the same instrument.
5
<PAGE>
IN WITNESS WHEREOF, this Guaranty has been duly executed by Guarantor
as of the date and year first above written.
USA FINANCE, INC.,
as Guarantor
By:_______________________________
Stephen E. Michaelson
Chief Executive Officer
Acknowledged and accepted:
SUNAMERICA FINANCIAL RESOURCES, INC.
By:_________________________________________
Lawrence M. Goldman
Senior Vice President
6
<PAGE>
EXHIBIT H
FORM OF CONSENT AND AGREEMENT
Dated: ________________, 1996
GOLD COAST FINANCE, INC.
1111 Park Centre Road
Suite 300
Miami, Florida 33169
NATIONAL-WIDE PREMIUM FINANCE CORP.
1111 Park Centre Road
Suite 300
Miami, Florida 33169
Ladies and Gentlemen:
We hereby notify you that we have assigned and pledged to SunAmerica
Financial Resources, Inc. as facility agent (together with its successors and
assigns from time to time, the "Facility Agent") for the benefit of itself,
affiliates, assigns and participants from time to time, and certain other
beneficiaries from time to time (collectively the "Purchaser"), and have granted
to the Facility Agent for the benefit of itself and the Purchaser from time to
time a security interest in and to, all of our right, title and interest in and
to the following (collectively the "Collateral"):
(1) the Receivables Origination Agreement dated as September 18, 1996,
as the same may be amended, supplemented or otherwise modified from time to
time (the "Origination Agreement," the terms defined therein being used
herein as therein defined), from each of you to us (together with our
successors and assigns, "Funding");
(2) all rights to receive moneys due and to become due under or
pursuant to the Origination Agreement;
(3) the right to perform under the Origination Agreement and to compel
performance and otherwise exercise all remedies thereunder; and
(4) all proceeds of any and all of the foregoing Collateral
(including, without limitation, proceeds which constitute property of the
types described in clauses (1) through (3) above).
<PAGE>
In connection with the assignment, pledge and grant described above, we
hereby irrevocably instruct you, and by your execution in the space provided on
the last page hereof you hereby agree for the benefit of the Facility Agent and
the Purchaser, as follows:
(a) You shall make (i) all payments to be made by you to Funding under
paragraph 9 of the Origination Agreement directly to the Facility Agent by
payment to the account (account number 0601001020540) of the Facility Agent
maintained at the office of SunTrust Bank, Miami, N.A. or otherwise in
accordance with the instructions of the Facility Agent and (ii) all other
payments to be made by you under the Origination Agreement (including,
without limitation, payments under paragraph 3 of the Origination
Agreement) in accordance with the provisions of the Origination Agreement.
(b) All payments to be made by you to Funding or Facility Agent under
or in connection with the Origination Agreement shall be made by you
irrespective of, and without deduction for, any counterclaim, defense,
recoupment or set-off, and shall be final, and you will not seek to recover
from Funding, the Facility Agent or Purchaser for any reason any such
payment once made.
(c) The Facility Agent shall be entitled, as and to the extent agreed
among the Purchaser and the Facility Agent, to exercise any and all of our
rights and remedies under the Origination Agreement, including without
limitation our rights, if any, to make requests, demands for payment and
other demands, determinations and designations, to amend, supplement or
modify, to give consents or waivers, and to deliver notices to you, and to
receive notices, requests, reports and other information to be delivered by
you, from time to time thereunder; and you shall in all respects comply
with and perform in respect of such exercise. Neither the Facility Agent
nor Purchaser shall have any obligation or liability with respect to any of
our obligations under the Origination Agreement.
In order to induce Purchaser to purchase interests from time to time in
Receivables, by execution of this letter you hereby acknowledge and agree:
(i) You hereby reaffirm for the benefit of the Facility Agent and the
Purchaser the representations and warranties made by you in paragraph 6 of
the Origination Agreement.
(ii) The Origination Agreement is (A) the legal, valid and binding
obligation of each party thereto enforceable against you and each other
party thereto in accordance with its terms, in each case except to the
extent that its enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, and other similar laws affecting creditors'
rights generally or by general principles of equity, and (B) in full force
and effect, and payments by you that are payable at any time to the
Facility Agent are not subject to any dispute, offset, counterclaim or
defense whatsoever.
<PAGE>
Upon your execution in the space provided below, this letter shall be
binding upon you and your successors, and shall inure to the benefit of the
Facility Agent and the Purchaser and their respective successors, transferees
and assigns from time to time. This letter shall be governed by and construed in
accordance with the laws of the State of New York.
Please consent to the pledge, assignment and grant described in the first
paragraph hereof, and agree to the provisions of this letter, by signing in the
space provided below on two of the enclosed copies hereof and send both signed
copies to the Facility Agent at its address at 15303 Ventura Blvd., Suite 1600,
Sherman Oaks, California 91403, Attention: Thomas N. Hansen.
Very truly yours,
CONTRACT FUNDING CORP.
By:
-------------------------------
Stephen E. Michaelson
Vice President
Each of the undersigned
consents to the pledge,
assignment and grant and
agrees to the above provisions
as of the date first above written:
GOLD COAST FINANCE, INC.
By:
------------------------------
Stephen E. Michaelson
Vice President
NATIONAL-WIDE PREMIUM FINANCE CORPORATION
By:
------------------------------
Stephen E. Michaelson
Vice President
THIS PLEDGE AGREEMENT (this "Pledge Agreement") is made and entered into as
of September 18, 1996, by USA FINANCE, INC., a Delaware corporation ("Pledgor"),
having an office at 1111 Park Centre Road, Suite 300, Miami, Florida 33169, in
favor of SUNAMERICA FINANCIAL RESOURCES, INC., a Delaware corporation (together
with its successors and assigns, "Pledgee"), having an address at 15303 Ventura
Boulevard, Suite 1600, Sherman Oaks, California 91403.
W I T N E S S E T H:
WHEREAS, Pledgor is the legal and beneficial owner of all of the shares of
stock described on Part I of Schedule I hereto and issued by the corporation
named on such Part I of Schedule I.
WHEREAS, Contract Funding Corp ("Funding"), as Seller, Gold Coast Finance,
Inc. ("Gold Coast"), as Collection Agent, and SunAmerica Financial Resources,
Inc., as Facility Agent and Purchaser, are entering into a Receivables Purchase
and Sale Agreement (as amended, supplemented or otherwise modified from time to
time, the "Purchase Agreement") dated as of September 18, 1996, pursuant to
which Purchaser will purchase and Seller will sell Receivables subject to the
terms and conditions thereof. Capitalized terms used in this Pledge Agreement
but not defined herein shall have the meanings ascribed to such terms in the
Purchase Agreement.
WHEREAS, Pledgor is the owner of 100% of the capital stock of each of Gold
Coast, National-Wide Premium Finance Corporation ("National-Wide") and Funding
and will receive substantial direct and indirect benefits from the transactions
contemplated by the Purchase Agreement and Purchase Documents.
WHEREAS, Pledgor has guaranteed the obligations of Gold Coast and
National-Wide under the Purchase Documents pursuant to the USA Guaranty executed
by Pledgor in favor of Pledgee.
WHEREAS, Pledgee has agreed to make certain loans, from time to time, to
Pledgor as evidenced by that certain demand promissory note dated as of
September 18, 1996 executed by Pledgor in favor of Pledgee (as amended,
supplemented, extended or otherwise modified from time to time, the "Note").
WHEREAS, Pledgor is willing irrevocably and unconditionally to grant
certain security interests in favor of Pledgee as herein provided.
<PAGE>
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises and other good
and valuable consideration, receipt of which is hereby acknowledged, and in
order to induce Pledgee to extend credit under the Note and enter into the
Purchase Documents, Pledgor hereby agrees as follows:
1. Pledge. Pledgor hereby pledges to Pledgee, and grants to Pledgee a
security interest in, the following collateral to secure the Secured Obligations
(as defined in Section 2) (the "Pledged Collateral"):
(a) the shares of stock of the issuers identified on Schedule I hereto
held by it (the "Pledged Shares") and the certificates representing the Pledged
Shares, and all stock dividends, cash dividends, all other dividends, cash,
instruments, chattel paper, warrants, options and other rights, property or
proceeds and products from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the Pledged Shares;
(b) all additional shares of stock of the issuers identified on Schedule
I hereto at any time acquired by Pledgor in any manner, and all securities
convertible into and warrants, options and other rights to purchase any shares
of stock and the certificates or other instruments representing such additional
shares, securities, warrants, options or other rights (and any such additional
shares shall constitute part of the Pledged Shares under this Pledge Agreement),
and all stock dividends, cash dividends, cash, instruments, chattel paper,
warrants and any other rights, property or proceeds and products from time to
time received, receivable or otherwise distributed in respect of or in exchange
for any or all such shares, securities, warrants, options or other rights;
(c) all other claims of any kind or nature, and any instruments,
certificates, chattel paper or other writings evidencing such claims, whether in
contract or tort and whether arising by operation of law, consensual agreement
or otherwise, at any time acquired by Pledgor against any issuer of the Pledged
Shares; and
(d) all proceeds of any of the foregoing. The term "proceeds" shall have
the meaning assigned to that term under the Uniform Commercial Code as in effect
in any relevant jurisdiction.
2. Security for Obligations. This Pledge Agreement and all of the Pledged
Collateral secure the payment and performance when due of all obligations,
liabilities and indebtedness of every nature of Pledgor to Pledgee, whether at
stated maturity, on mandatory prepayment, by acceleration or otherwise, now or
hereafter existing under or arising out of or in connection with the Note or the
USA Guaranty and all renewals, extensions, restructurings and refinancings of
the foregoing, whether for principal, interest (including, without limitation,
interest
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which, but for the filing of a petition in bankruptcy, would accrue on such
obligations whether or not such interest is an allowed claim), fees, expenses or
otherwise, and all obligations or liabilities of Pledgor now or hereafter
existing under this Pledge Agreement (all such debts, obligations and
liabilities being collectively called the "Secured Obligations").
3. Delivery of Pledged Collateral. All certificates or instruments
representing or evidencing the Pledged Collateral shall be delivered to and held
by or on behalf of Pledgee pursuant hereto and shall be in suitable form for
transfer by delivery, or shall be accompanied by duly executed indorsements or
undated instruments of transfer or assignment in blank with signatures
guaranteed, all in form and substance acceptable to Pledgee. Pledgee shall have
the right, at any time in its discretion and without notice to Pledgor following
the occurrence of an Event of Default, to transfer to or to register in the name
of Pledgee or any of its nominees any or all of the Pledged Collateral.
4. Representations and Warranties. In order to induce Pledgee to make loans
under the Note and to enter into the Purchase Documents and this Pledge
Agreement, Pledgor represents and warrants that the following statements are,
true, correct and complete as follows:
(a) Schedule I hereto completely and accurately sets forth the number of
shares of the issued and outstanding stock of Contract Funding Corp., a Delaware
corporation, held, beneficially or of record, by Pledgor as of the Closing Date.
The Pledged Shares constitute the percentage of the issued and outstanding
shares of stock of the applicable issuer set forth on Schedule I. All shares of
such stock owned by Pledgor have been, or will be upon issuance, duly authorized
and validly issued in compliance with all applicable securities laws and are or
will be, as the case may be, fully paid and nonassessable. There are no
outstanding warrants, options, subscriptions or other contractual arrangements
for the purchase of any other shares of stock or any securities convertible into
shares of stock of any of the issuers of the Pledged Shares, and there are no
preemptive rights with respect to the shares of stock of any such issuer.
(b) Pledgor is the legal, record and beneficial owner of the Pledged
Collateral.
(c) The delivery of the Pledged Shares to Pledgee pursuant to this
Pledge Agreement creates a valid and perfected first priority security interest
in the Pledged Collateral, free of any adverse claim, securing the payment of
the Secured Obligations.
(d) No consent of any other party (including, without limitation, any
stockholder or creditor of Pledgor) and no consent, authorization, approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body is required either (i) for the pledge by Pledgor of the Pledged
Collateral pursuant to this Pledge Agreement or for the execution, delivery or
performance of this Pledge Agreement by Pledgor, or (ii) for the exercise by
Pledgee of the voting or other rights provided for in this Pledge Agreement or
the remedies in respect of the Pledged Collateral pursuant to this Pledge
Agreement (except as may
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<PAGE>
be required in connection with such disposition of any Pledged Collateral by
laws affecting the offering and sale of securities generally).
(e) None of the Pledged Shares constitutes margin stock, as defined in
Regulation U of the Board of Governors of the Federal Reserve System.
(f) This Pledge Agreement is the legal, valid and binding obligation of
Pledgor, enforceable against it in accordance with its terms.
(g) All information heretofore, herein or hereafter supplied to Pledgee
by or on behalf of Pledgor with respect to the Pledged Collateral is and will be
accurate and complete in all material respects.
(h) The chief executive office of Pledgor is located at the address set
forth in the preamble of this Pledge Agreement.
5. Further Assurances.
(a) Pledgor will, from time to time, at its expense, promptly execute
and deliver all further instruments and documents and take all further action
that may be necessary or desirable, or that Pledgee may request, in order to
perfect and protect any security interest granted or purported to be granted
hereby, to enable Pledgee to exercise and enforce the rights and remedies of
Pledgee hereunder with respect to any Pledged Collateral or to carry out the
provisions and purposes hereof. Without limiting the generality of the
foregoing, Pledgor will: (i) execute and file such financing or continuation
statements, or amendments thereto, and such other instruments or notices, as may
be necessary or desirable, or as Pledgee may request, in order to perfect and
preserve the security interests granted or purported to be granted hereby under
the laws of any applicable jurisdiction; (ii) upon Pledgee's request, appear in
and defend any action or proceeding that may affect Pledgor's title to or
Pledgee's security interest in the Pledged Collateral; and (iii) immediately
after the purchase or other acquisition of Pledged Collateral after the date
hereof, deliver to Pledgee all such Pledged Collateral hereunder.
(b) Pledgor will, promptly upon request, provide to Pledgee all
information and evidence it may reasonably request concerning the Pledged
Collateral to enable Pledgee to enforce the provisions of this Pledge Agreement.
(c) Pledgor will, immediately upon the purchase or acquisition of any
additional shares of stock of the issuers identified on Schedule I hereto,
deliver to Pledgee such Pledged Shares or such instruments, as the case may be,
as required by Section 3 above, together with a proxy substantially in the form
attached hereto as Exhibit A, and a pledge amendment, duly executed by Pledgor,
in substantially the form of Exhibit B hereto (a "Pledge Amendment"), in respect
of the additional shares or instruments which are to be pledged pursuant to this
Pledge Agreement. Pledgor hereby authorizes Pledgee to attach each Pledge
Amendment to this Pledge Agreement and agrees that all shares and instruments
listed on any Pledge
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<PAGE>
Amendment delivered to Pledgee shall for all purposes hereunder be considered
Pledged Collateral.
6. Negative Covenants. So long as any Secured Obligation shall remain
unpaid or outstanding, Pledgor shall not:
(a) create, incur, assume or suffer to exist any security interest, lien
or other encumbrance on any of the Pledged Collateral now owned or hereafter
acquired other than pursuant to this Pledge Agreement;
(b) permit any issuer of any Pledged Shares to merge or consolidate;
(c) engage, directly or indirectly, in any business other than the
business conducted by Pledgor on the Closing Date and similar and related
businesses; or
(d) convert any of the Pledged Collateral into other stock or securities
(including any warrants, options, subscriptions or other contractual
arrangements for the purchase of stock or securities convertible into stock).
7. Voting Rights; Dividends; Etc.
(a) For purposes of this Pledge Agreement, "Event of Default" shall mean
any default or failure to perform any obligation of Pledgor under the Note or
USA Guaranty. So long as no Event of Default shall have occurred and be
continuing (and in the case of subsection 7(a)(i) hereof, so long as Pledgee
shall not have made the election to exercise the rights set forth in subsection
(c) below):
(i) Pledgor shall be entitled to exercise any and all voting and
other consensual rights pertaining to the Pledged Collateral or any part thereof
for any purpose not inconsistent with the terms of this Pledge Agreement, the
Note or the USA Guaranty, provided, however, that, after the occurrence and
during the continuance of an Event of Default and so long as Pledgee shall not
have made the election to exercise the rights set forth in subsection (c) below,
Pledgor shall not exercise or refrain from exercising any such right if, in
Pledgee's reasonable judgment, such action or inaction would have a material
adverse effect on the value of the Pledged Collateral or any part thereof; and
provided, further, that Pledgor shall give Pledgee at least ten (10) days prior
written notice of the manner in which it intends to exercise, and the reasons
therefor, or the reasons for refraining from exercising, any such right.
(ii) Pledgor shall be entitled to receive and retain any cash
dividends and distributions paid or payable with respect to any of the Pledged
Collateral. Any and all instruments, chattel paper and other rights, property or
proceeds and products (other than cash or checks) received, receivable or
otherwise distributed in respect of, or in exchange for, any Pledged Collateral,
shall be, and shall be forthwith,
5
<PAGE>
delivered to Pledgee to hold as Pledged Collateral, and shall, if received by
Pledgor, be received in trust for the benefit of Pledgee, be segregated from the
other property or funds of Pledgor, and be forthwith delivered to Pledgee as
Pledged Collateral in the same form as so received (with any necessary
indorsement).
(iii) Pledgee shall execute and deliver (or cause to be executed and
delivered) to Pledgor all such proxies and other instruments as Pledgor may
reasonably request for the purpose of enabling Pledgor to exercise the voting
and other rights which it is entitled to exercise pursuant to paragraph (i)
above.
(b) Upon the occurrence and during the continuance of an Event of
Default:
(i) All rights of Pledgor to receive and retain any cash dividends
and distributions pursuant to subsection 7(a)(ii) shall cease and become vested
solely in Pledgee, who shall thereupon have the sole right to receive and hold
as Pledged Collateral such dividends and distributions (and apply them to
payment of the Secured Obligations).
(ii) Upon the election by Pledgee in accordance with subsection 7(c)
below, all rights of Pledgor to exercise the voting and other consensual rights
pursuant to subsection 7(a)(i) above shall cease and be vested solely in
Pledgee, who shall thereupon have the exclusive right to exercise such voting
and other consensual rights. In order to effect such transfer of rights, Pledgee
shall have the right, upon such notice, to date and present to the issuer of the
Pledged Shares the irrevocable proxy executed by Pledgor substantially in the
form attached hereto as Exhibit A (the "Proxy");
(iii) All dividends and distributions which are received by Pledgor
contrary to the provisions of this subsection 7(b)(i) shall be received in trust
for the benefit of Pledgee, shall be segregated from other funds of Pledgor and
shall be forthwith paid over to Pledgee as Pledged Collateral in the same form
as so received (with any necessary indorsement).
(c) Notwithstanding anything to the contrary contained in this Section
7, the rights of Pledgee to exercise voting and other consensual rights pursuant
to subsection 7(b)(ii) hereof without regard to directions from Pledgor shall
arise only upon the election by Pledgee from and after the occurrence and during
the continuance of any Event of Default to exercise such rights; provided that
Pledgee shall not be obligated to notify Pledgor of any such election, which
election shall be effective when made, and may be evidenced by Pledgee or its
designee or nominee exercising such voting or other consensual rights. The
exercise by Pledgee of its rights hereunder shall not constitute an election by
Pledgee to retain the Pledged Collateral in satisfaction of the Secured
Obligations, or affect Pledgee's rights to any other collateral or against any
other party.
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<PAGE>
8. Subsequent Changes Affecting Collateral; Transfers and Other Liens;
Additional Shares.
(a) Pledgor represents to Pledgee that Pledgor has made its own
arrangements for keeping informed of changes or potential changes affecting the
Pledged Collateral (including, but not limited to, rights to convert, rights to
subscribe, payment of dividends, reorganization or other exchanges, tender
offers and voting rights), and Pledgor agrees that Pledgee shall not have any
responsibility or liability for informing Pledgor of any such changes or
potential changes or for taking any action or omitting to take any action with
respect thereto.
(b) Pledgor agrees that Pledgor will not (i) sell, assign (by operation
of law or otherwise) or otherwise dispose of, or grant any option with respect
to, any of the Pledged Collateral or (ii) enter into any other contractual
obligations which could reasonably be expected to restrict or inhibit Pledgee's
rights or ability to sell or otherwise dispose of the Pledged Collateral or any
part thereof after the occurrence of an Event of Default.
(c) Pledgor agrees that it will (i) not cause any issuer of the Pledged
Shares to issue any stock or other securities (including any warrants, options,
subscriptions or other contractual arrangements for the purchase of stock or
securities convertible into stock) in addition to or in substitution for the
Pledged Shares except to Pledgor, and (ii) deliver hereunder, immediately upon
its acquisition (directly or indirectly) thereof, any and all writings
evidencing any additional Pledged Collateral. Pledgor hereby authorizes Pledgee
to modify this Pledge Agreement by unilaterally amending Schedule I to include
such shares of stock or other securities.
9. Pledgee Appointed Attorney-in-Fact. Pledgor hereby irrevocably appoints
Pledgee as Pledgor's attorney-in-fact effective upon the occurrence of an Event
of Default, with full authority in the place and stead of Pledgor and in the
name of Pledgor, Pledgee or otherwise, from time to time in Pledgee's discretion
to take any action (including completion and presentation of the Proxy) and to
execute any instrument that Pledgee may deem necessary or advisable to
accomplish the purposes of this Pledge Agreement, including, without limitation,
to (i) receive, indorse and collect all instruments made payable to Pledgor
representing any dividend, distribution or other payment in respect of the
Pledged Collateral or any part thereof and (ii) to exercise the voting and other
consensual rights pertaining to the Pledged Collateral; and (iii) sell,
transfer, pledge, make any agreement with respect to or otherwise deal with any
of the Pledged Collateral as fully and completely as though Pledgee were the
absolute owner thereof for all purposes, and to do, at Pledgee's option and
Pledgor's expense, at any time and from time to time, all acts and things that
Pledgee deems necessary to protect, preserve or realize upon the Pledged
Collateral. Pledgor hereby ratifies and approves all acts of Pledgee made or
taken pursuant to this Section 9. Except as specifically set forth in Section 11
hereof, neither Pledgee nor any person designated by Pledgee shall be liable for
any acts or omissions or for any error of judgment or mistake of fact or law.
This power of attorney is coupled with an interest and shall be irrevocable
until all Secured Obligations shall have been fully satisfied and paid in full
in cash and the Note and USA Guaranty shall have been terminated.
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<PAGE>
10. Pledgee May Perform. If Pledgor fails to perform any agreement
contained herein, Pledgee may itself perform, or cause performance of, such
agreement, and the expenses of Pledgee incurred in connection therewith shall be
payable by Pledgor under Section 16 hereof, and be a part of the Secured
Obligations.
11. Limitation on Duty of Pledgee with Respect to the Pledged Collateral.
The powers conferred on Pledgee hereunder are solely to protect its interests in
the Pledged Collateral and shall not impose any duty on it to exercise any such
powers. Except for the safe custody of any Pledged Collateral in its possession
and the accounting for monies actually received by it hereunder, Pledgee shall
have no duty with respect to any Pledged Collateral. Pledgee shall be deemed to
have exercised reasonable care in the custody and preservation of the Pledged
Collateral in its possession if the Pledged Collateral is accorded treatment
that is substantially equivalent to that which Pledgee accords its own property,
it being expressly agreed that Pledgee shall not have responsibility for (i)
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relative to any Pledged Collateral, whether
or not Pledgee has or is deemed to have knowledge of such matters, or (ii)
taking any necessary steps to preserve rights against any parties with respect
to any Pledged Collateral, but Pledgee may do so and all expenses incurred in
connection therewith shall be payable by and for the sole account of Pledgor and
shall be part of the Secured Obligations.
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<PAGE>
12. Remedies upon Event of Default. If any Event of Default shall have
occurred:
(a) Pledgee may exercise in respect of the Pledged Collateral, in
addition to other rights and remedies provided for herein or otherwise available
to it, all the rights and remedies of a secured party under the Uniform
Commercial Code (the "UCC") in effect in the State of New York at that time,
whether or not the UCC applies to the affected Pledged Collateral, and Pledgee
may also, without notice except as specified below, sell the Pledged Collateral
or any part thereof in one or more parcels at a public or private sale, at any
exchange, broker's board or at any of Pledgee's offices or elsewhere, for cash,
on credit, or for future delivery, at such price or prices and upon such other
terms as Pledgee deems commercially reasonable. Pledgor acknowledges and agrees
that such a private sale may result in prices and other terms which may be less
favorable to the seller than if such sale were a public sale. Pledgor agrees
that, to the extent notice of sale shall be required by law, at least five days'
notice to Pledgor of the time and place of any public sale or the time after
which any private sale is to be made shall constitute reasonable notification.
At any sale of the Pledged Collateral, if permitted by law, Pledgee may bid
(which bid may be, in whole or in part, in the form of cancellation of
indebtedness) for the purchase of the Pledged Collateral or any portion thereof.
Pledgee shall not be obligated to make any sale of Pledged Collateral regardless
of notice of sale having been given. Pledgee may adjourn any public or private
sale from time to time by announcement at the time and place fixed therefor, and
such sale may, without further notice, be made at the time and place to which it
was so adjourned. Pledgee shall be under no obligation to delay a sale of any of
the Pledged Collateral for the period of time necessary to permit the issuing
corporation of such securities to register such securities for public sale under
the Securities Act of 1933, as from time to time amended (the "Securities Act"),
or under any other applicable securities laws, even if the issuing corporation
would agree to do so. To the extent permitted by law, Pledgor hereby
specifically waives all rights of redemption, stay or appraisal which it has or
may have under any law now existing or hereafter enacted.
(b) Pledgor recognizes that, by reason of certain prohibitions
contained in the Securities Act of 1933, as from time to time amended (the
"Securities Act"), and other applicable securities laws, Pledgee may be
compelled, with respect to any sale of all or any part of the Pledged Collateral
conducted without prior registration or qualification of such Pledged Collateral
under the Securities Act and/or such securities laws, to limit purchasers to
those who will agree, among other things, to acquire the Pledged Collateral for
their own account, for investment and not with a view to the distribution or
resale thereof. Pledgor acknowledges that any such private sales may be at
prices and on terms less favorable to Pledgee than those obtainable through a
public sale without such restrictions (including, without limitation, a public
offering made pursuant to a registration statement under the Securities Act)
and, notwithstanding such circumstances Pledgor agrees that any such private
sale shall be deemed to have been made in a commercially reasonable manner and
that Pledgee shall have no obligation to engage in public sales and no
obligation to delay the sale of any Pledged Collateral for the period of time
necessary to permit the issuer thereof to register it for a form of public sale
requiring registration under the Securities Act or under any other applicable
securities laws. Pledgor
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waives any claims against Pledgee arising by reason of the fact that the price
at any private sale was less than the price that might have been obtained at a
public sale, or was less than the Secured Obligations, even if Pledgee shall
accept the first offer received and does not offer the Pledged Collateral to
more than one prospective purchaser. If Pledgee determines to exercise its right
to sell any or all of the Pledged Collateral, upon written request, Pledgor
shall and shall cause each issuer of the Pledged Shares from time to time to
furnish to Pledgee all such information Pledgee may request in order to
determine the number of shares and other instruments included in the Pledged
Collateral which may be sold by Pledgee as exempt transactions under the
Securities Act and the rules of the Securities and Exchange Commission
thereunder, as the same are from time to time in effect, and any other
applicable laws.
(c) Any cash held by Pledgee as Pledged Collateral and all cash proceeds
received by Pledgee in respect of any sale of, collection from, or other
realization upon all or any part of the Pledged Collateral may, in the
discretion of Pledgee, be held by Pledgee as collateral for, and/or then or at
any time thereafter applied (after payment of any amounts payable to Pledgee
pursuant to Section 16) in whole or in part by Pledgee against, all or any part
of the Secured Obligations in such order as Pledgee shall elect. Any surplus of
such cash or cash proceeds held by Pledgee and remaining after payment in full
of all the Secured Obligations shall be paid over to Pledgor or to whomsoever
may be lawfully entitled to receive such surplus or as a court of competent
jurisdiction may direct; provided, that in the event that all of the conditions
to the termination of this Pledge Agreement pursuant to Section 18 shall not
have been fulfilled, such balance shall be held and applied from time to time as
provided in this subsection 12(c) until all such conditions shall have been
fulfilled.
13. Registration Rights. If Pledgee shall determine to exercise its right
to sell all or any of the Pledged Collateral pursuant to Section 12, Pledgor
agrees that it will, at its own expense:
(a) execute and deliver, and cause each issuer of the Pledged
Collateral contemplated to be sold and the directors and officers thereof to
execute and deliver, all such instruments and documents, and do or cause to be
done all such other acts and things, as may be necessary or, in the opinion of
Pledgee, advisable to register such Pledged Collateral under the provisions of
the Securities Act, and to cause the registration statement relating thereto to
become effective and to remain effective until such time as all of the Pledged
Collateral included in such registration statement has been sold, and to make
all amendments and supplements thereto and to the related prospectus which, in
the opinion of Pledgee, are necessary or advisable, all in conformity with the
requirements of the Securities Act and the rules and regulations of the
Securities and Exchange Commission applicable thereto;
(b) use its best efforts to qualify the Pledged Collateral under the
state securities or "Blue Sky" laws and to obtain all necessary governmental
approvals for the sale of the Pledged Collateral, as requested by Pledgee;
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(c) cause the issuer of the Pledged Collateral to make available to its
security holders, as soon as practicable, an earnings statement which will
satisfy the provisions of Section 11(a) of the Securities Act; and
(d) do or cause to be done all such other acts and things as may be
necessary to make such sale of the Pledged Collateral or any part thereof valid
and binding and in compliance with applicable law.
Pledgor further acknowledges the impossibility of ascertaining the amount
of damages which would be suffered by Pledgee by reason of the failure by
Pledgor to perform any of the covenants contained in this Section and,
consequently, agrees that, if Pledgor shall fail to perform any of such
covenants contained in this Section it shall pay, as liquidated damages and not
as a penalty, an amount equal to the fair market value of the Pledged Collateral
(assuming it were sold pursuant to the request hereunder) on the date Pledgee
shall demand compliance with this Section.
Notwithstanding the foregoing, Pledgor recognizes that Pledgee may be
unable to effect a public sale of all or part of the Pledged Collateral and may
be compelled to resort to one or more private sales to a restricted group of
purchasers who will be obligated to agree, among other things, to acquire such
Pledged Collateral for their own account, for investment and not with a view to
the distribution or resale thereof. Pledgor acknowledges that any such private
sales may be at prices and on terms less favorable to the seller than if sold at
public sales and agrees that such private sales shall be deemed to have been
made in a commercially reasonable manner, and that Pledgee has no obligation to
delay the sale of any such Pledged Collateral for the period of time necessary
to permit the issuer of such Pledged Collateral to register such Pledged
Collateral for public sale under the Securities Act.
14. Remedies Cumulative. No failure on the part of Pledgee to exercise, and
no delay in exercising and no course of dealing with respect to, any power,
privilege or right under this Pledge Agreement, the Note, the USA Guaranty or
the other Purchase Documents shall operate as a waiver thereof; nor shall any
single or partial exercise by Pledgee of any power, privilege or right under
this Pledge Agreement, the Note, the USA Guaranty or the other Purchase
Documents preclude any other or further exercise thereof or the exercise of any
other such power, privilege or right. The powers, privileges and rights in this
Pledge Agreement, the Note, the USA Guaranty and the other Purchase Documents
are cumulative and are not exclusive of any other remedies provided by law.
15. Application of Proceeds. Upon the occurrence of an Event of Default,
the proceeds of any sale of, or other realization upon, all or any part of the
Pledged Collateral shall be applied: first to all reasonable fees, costs and
expenses incurred by Pledgee with respect to the Note, USA Guaranty or the
Pledged Collateral, including, without limitation, those described in Section 16
herein; second, to accrued and unpaid interest on the Secured Obligations
(including any interest which but for the provisions of the Bankruptcy Code,
would have accrued on such amounts whether or not such interest is an allowed
claim); third, to the principal amounts of the Secured Obligations outstanding
and any other outstanding Secured
11
<PAGE>
Obligations; fourth, to any other indebtedness or obligations of Pledgor owing
to Pledgee or to whomever may be lawfully entitled thereto; and fifth, to the
Pledgor.
16. Expenses. Pledgor shall promptly pay to Pledgee all reasonable
out-of-pocket costs and expenses of Pledgee (both before and after the execution
hereof) in connection with protecting or perfecting Pledgee's security interest
in the Pledged Collateral or in connection with any matters contemplated by or
arising out of this Pledge Agreement, the Note or USA Guaranty, whether (a) to
prepare, negotiate or execute any amendment to, modification of or extension of
this Pledge Agreement, the Note or USA Guaranty, (b) to commence, defend, or
intervene in any litigation or to file a petition, complaint, answer, motion or
other pleadings necessary to protect the rights of Pledgee under this Pledge
Agreement, the Note or USA Guaranty (c) to take any other action in or with
respect to any suit or proceeding (bankruptcy or otherwise) necessary to protect
the rights of Pledgee under this Pledge Agreement, the Note or USA Guaranty, (d)
to protect, collect, sell, take possession of, release or liquidate any of the
Pledged Collateral or (e) to attempt to enforce or to enforce any security
interest in any of the Pledged Collateral, or to enforce any rights of Pledgee
to collect any of the Secured Obligations, including all reasonable fees and
expenses of attorneys (including allocated costs of internal counsel) and
paralegals, and in the case of enforcement, pay such reasonable costs and
expenses for Pledgee.
17. Indemnity. In addition to the payment of expenses pursuant to Section
16, Pledgor agrees to indemnify, pay and hold Pledgee and its officers,
directors, employees, agents, affiliates and attorneys (collectively called the
"Indemnitees") harmless from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, claims, costs, expenses
and disbursements of any kind or nature whatsoever (including the fees and
disbursements of counsel for such Indemnitees in connection with any
investigative, administrative or judicial proceeding commenced or threatened,
whether or not such Indemnitee shall be designated a party thereto) that may be
imposed on, incurred by, or asserted against that Indemnitee, in any manner
relating to or arising out of this Pledge Agreement, the Note or USA Guaranty or
the exercise of any right or remedy hereunder or under the other Note or USA
Guaranty (the "Indemnified Liabilities"); provided that Pledgor shall have no
obligation to an Indemnitee hereunder with respect to Indemnified Liabilities
arising from the gross negligence or willful misconduct of that Indemnitee as
determined by a court of competent jurisdiction. To the extent that the
undertaking to indemnify, pay and hold harmless set forth in the preceding
sentence may be unenforceable because it is violative of any law or public
policy, Pledgor shall contribute the maximum portion that it is permitted to pay
and satisfy under applicable law to the payment and satisfaction of all
Indemnified Liabilities incurred by the Indemnitees or any of them. The
agreements of Pledgor set forth in this Section 17 shall survive the termination
of this Pledge Agreement and the satisfaction and payment in full of all Secured
Obligations.
18. Termination of Security Interests; Release of Collateral. Upon payment
in full in cash and performance of all Secured Obligations and the termination
of the Note and the USA Guaranty, the security interests shall terminate and all
rights to the Pledged Collateral shall revert to Pledgor. Upon such termination
of the security interests or release of any Pledged Collateral, Pledgee will, at
the expense of Pledgor, and subject to Section 23 herein,
12
<PAGE>
execute and deliver to Pledgor such documents as Pledgor shall reasonably
request to evidence the termination of the security interests or the release of
such Pledged Collateral which has not yet theretofore been sold or otherwise
applied or released. Such release shall be without recourse or warranty to
Pledgee.
19. Amendments, Waivers and Consents. No amendment, modification,
termination or waiver of any provision of this Pledge Agreement, or consent to
any departure by Pledgor therefrom, shall in any event be effective without the
written concurrence of Pledgee and Pledgor.
20. Notices. Any notice, approval, request, demand, consent or other
communication hereunder, including any notice of default or notice of sale,
shall be in writing (including telecommunication) and mailed, telecommunicated
or delivered, as to each party hereto, at the address set forth above (or to
such other address previously designated by written notice to the serving
party). All such notices and communications shall, when mailed or
telecommunicated, be effective when deposited in the mails or telecommunicated,
respectively.
21. Continuing Security Interest; Successors and Assigns. This Pledge
Agreement shall create a continuing security interest in the Pledged Collateral
and shall (i) remain in full force and effect until the performance and payment
in full in cash of the Secured Obligations and termination of the Note and USA
Guaranty, (ii) be binding upon Pledgor, its successors and assigns, and (iii)
inure, together with the rights and remedies of Pledgee hereunder, to the
benefit of Pledgee and its successors and assigns. Without limiting the
generality of the foregoing clause (iii), Pledgee may assign or otherwise
transfer the Note or any interest therein held by it to any other Person, and
such other Person shall thereupon become vested with all the benefits in respect
thereof granted to Pledgee herein or otherwise. Until Pledgor receives written
notice of such assignment or transfer, Pledgor may continue to deal solely and
directly with the existing Pledgee in connection with this Pledge Agreement.
Pledgor may not assign or transfer any of its interests or obligations hereunder
without the prior consent of Pledgee.
13
<PAGE>
22. Waiver.
(a) In addition to any other waivers herein, Pledgor waives to the
greatest extent it may lawfully do so, and agrees that it shall not at any time
insist upon, plead or in any manner whatever claim or take the benefit or
advantage of, any appraisal, valuation, stay, extension, marshalling of assets,
redemption or similar law, or exemption, whether now or at any time hereafter in
force, which may delay, prevent or otherwise affect the performance by Pledgor
of its obligations under, or the enforcement by Pledgee of, this Pledge
Agreement. Pledgor hereby waives diligence, presentment and demand (whether for
nonpayment or protest or of acceptance, maturity, extension of time, change in
nature or form of the Secured Obligations, acceptance of further security,
release of further security, or composition or agreement arrived at as to the
amount of, or their terms of the Secured Obligations) with respect to any of the
Secured Obligations or all other demands whatsoever and waives the benefit of
all provisions of law which are or might be in conflict with the terms of this
Pledge Agreement. Pledgor hereby waives any requirement on the part of any
holder of the Note or any of the Secured Obligations to mitigate the damages
resulting from any default under the Note or any of the Secured Obligations.
Pledgor represents, warrants and agrees that, as of the date of this Pledge
Agreement, its obligations under this Pledge Agreement are not subject to any
offsets or defenses against Pledgee of any kind. Pledgor further agrees that its
obligations under this Pledge Agreement shall not be subject to any
counterclaims, offsets or defenses against Pledgee of any kind which may arise
in the future.
(b) In the event Pledgee shall bid at any foreclosure or trustee's sale
or at any private sale permitted by law, Pledgee may bid all or less than the
amount of the Secured Obligations.
23. Reinstatement. This Pledge Agreement shall continue to be effective or
be reinstated, as the case may be, if at any time any amount received by Pledgee
in respect of the Secured Obligations is rescinded or must otherwise be restored
or returned by Pledgee upon the insolvency, bankruptcy, dissolution, liquidation
or reorganization of Pledgor or any of its Affiliates upon the appointment of
any intervenor or conservator of, or trustee or similar official for, Pledgor or
any of its Affiliates or any substantial part of its assets, or otherwise, all
as though such payments had not been made.
24. Severability. The provisions of this Pledge Agreement are severable,
and if any clause or provision shall be held invalid or unenforceable in whole
or in part in any jurisdiction, then such invalidity or unenforceability shall
affect only such clause or provision, or part thereof, in such jurisdiction and
shall not in any manner affect such clause or provision in any other
jurisdiction, or any other clause or provision of this Pledge Agreement in any
jurisdiction.
25. Interpretation. Time is of the essence of each provision of this Pledge
Agreement of which time is an element. All terms not defined herein or in the
Purchase
14
<PAGE>
Agreement shall have the meanings set forth in the UCC, except where the context
otherwise requires.
26. Survival of Provisions. All agreements, representations and warranties
made herein shall survive the payment in full of the Secured Obligations and the
cancellation and termination of the Note and USA Guaranty.
27. Statute of Limitations. Pledgor hereby waives the right to plead any
statute of limitations as a defense to any indebtedness or obligation hereunder
or secured hereby to the full extent permitted by law.
28. Headings Descriptive. The headings in this Pledge Agreement are for
convenience of reference only and shall not constitute a part of this Pledge
Agreement for any other purpose or be given any substantive effect.
29. Entire Agreement. This Pledge Agreement is intended by the parties as a
final expression of their agreement with respect to the matters covered hereby
and is intended as a complete and exclusive statement of the terms and
conditions thereof.
30. Counterparts. This Pledge Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which shall
together constitute one and the same agreement. The acknowledgment attached
hereto is incorporated in and made a part of this Note by this reference.
31. Governing Law. THIS PLEDGE AGREEMENT IS GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW
YORK WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT
THE VALIDITY OR PERFECTION OF THE SECURITY INTERESTS GRANTED HEREBY, OR THE
REMEDIES HEREUNDER, IN RESPECT OF ANY PLEDGED COLLATERAL ARE GOVERNED BY THE
LAWS OF ANOTHER JURISDICTION.
32. Consent to Jurisdiction. PLEDGOR HEREBY CONSENTS TO THE JURISDICTION OF
ANY STATE OR FEDERAL COURT LOCATED WITHIN THE STATE OF NEW YORK AND IRREVOCABLY
AGREES THAT, SUBJECT TO PLEDGEE'S ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING
OUT OF OR RELATING TO THIS PLEDGE AGREEMENT SHALL BE LITIGATED IN SUCH COURTS.
PLEDGOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND
WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND
BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS PLEDGE AGREEMENT.
15
<PAGE>
33. Waiver of Jury Trial. PLEDGOR AND PLEDGEE HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS PLEDGE AGREEMENT. PLEDGOR AND PLEDGEE ACKNOWLEDGE THAT THIS WAIVER IS A
MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY
RELIED ON THE WAIVER IN ENTERING INTO THIS PLEDGE AGREEMENT AND THAT EACH WILL
CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. PLEDGOR AND
PLEDGEE FURTHER WARRANT AND REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH
ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL
RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
16
<PAGE>
IN WITNESS WHEREOF, Pledgor has caused this Pledge Agreement to be duly
executed and delivered as of the day and year first above written.
USA FINANCE, INC.
a Delaware corporation
By: /s/ Stephen E. Michaelson
---------------------------------
Stephen E. Michaelson
Chief Executive Officer
By acceptance hereof as of the day and year first above written, Pledgee agrees
to be bound by the provisions hereof.
SUNAMERICA FINANCIAL RESOURCES, INC.,
a Delaware corporation
By: /s/ Lawrence M. Goldman
---------------------------------
Lawrence M. Goldman
Senior Vice President
S-1
<PAGE>
SCHEDULE I
TO
PLEDGE AGREEMENT
Part I
Pledged Shares
<TABLE>
<CAPTION>
Stock
Class of Certificate Number of
Issuer Stock Numbers Par Value Shares Percentage
------ -------- ----------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Contract Funding
Corp. Common 1 .01 1,000 100%
</TABLE>
<PAGE>
EXHIBIT A
IRREVOCABLE PROXY
The undersigned hereby appoints SUNAMERICA FINANCIAL RESOURCES, INC.
("Pledgee") as Proxy with full power of substitution, and hereby authorizes
Pledgee to represent and vote all of the shares of the capital stock of Contract
Funding Corp. held of record by the undersigned on the date of exercise hereof
or at any meeting or at any other time chosen by Pledgee in its sole discretion.
USA FINANCE, INC.
a Delaware corporation
Date: By:
------------------------ -------------------------------
Name:
Title:
<PAGE>
EXHIBIT B
PLEDGE AMENDMENT
This Pledge Amendment, dated ___________________ is delivered
pursuant to Section 5(c) of the Pledge Agreement referred to below. The
undersigned hereby agrees that this Pledge Amendment may be attached to the
Pledge Agreement, dated as of September 18, 1996, between the undersigned and
SunAmerica Financial Resources, Inc., as Pledgee (the "Pledge Agreement";
capitalized terms defined therein being used herein as therein defined) and that
the shares/instruments listed on this Pledge Amendment shall be deemed to be
part of the Pledged Collateral and shall secure all Secured Obligations.
USA FINANCE, INC.
a Delaware corporation
By:
-------------------------------
Name:
Title:
<TABLE>
<CAPTION>
====================== ================ ==================== ============= =============== ==================
Stock Number
Class Certificate Par of
Stock Issuer of Stock No(s). Value Shares Percentage
====================== ================ ==================== ============= =============== ==================
<S> <C> <C> <C> <C> <C>
</TABLE>
$500,000
September 19, 1996
Demand Promissory Note
FOR VALUE RECEIVED, the undersigned ("Maker") promises to pay to SunAmerica
Financial Resources, Inc., a Delaware corporation ("Lender"), or order, the
lesser of (i) Five Hundred Thousand Dollars ($500,000) (the "Maximum Amount")
and (ii) the aggregate unpaid principal amount of all loans or advances made by
Lender to Maker from time to time. Subject to the terms hereof, Maker may borrow
(in an aggregate outstanding principal amount not exceeding the Maximum Amount),
repay and reborrow under this Note from time to time such amounts as Maker
requests and Lender agrees to, and Maker shall be obligated hereunder to
immediately pay to Lender on demand the aggregate amount outstanding on the date
of any such demand together with all accrued and unpaid interest. Maker also
promises to pay interest on the unpaid principal amount of this Note at a
floating rate per annum equal to the Applicable Rate from the funding date of
each loan or advance to the date of repayment of such loan or advance. As used
herein, the "Applicable Rate" means the Alternate Base Rate plus 2.50% per
annum. Maker may request loans or advances no more than twice a week; provided
that concurrently with the making of any such request, Lender shall have
received from Contract Funding Corp. a request for purchase of receivables under
the Receivables Purchase and Sale Agreement among Contract Funding Corp., Gold
Coast Finance, Inc. and Lender accompanied by a satisfactory Purchaser Report
(as defined therein), which purchase request shall be in an amount at least
equal to the requested loan or advance under this Note. Each such request shall
be from Maker to Seller, given not later than 2:00 p.m. (Los Angeles time) on
the first Business Day before the date of the requested funding date. Each such
request shall be by telephone, telecopier, telex or cable (in the case of
telephonic notice immediately confirmed in writing) signed by an appropriate
officer of Maker and specifying (i) the principal amount of the requested loan
or advance, (ii) the requested funding date which shall be a Business Day and
(iii) the account into which the requested funds should be transferred.
Without in any way limiting Maker's promise to pay all amounts hereunder on
demand, upon (i) the occurrence of any Termination Date or (ii) the commencement
of any bankruptcy, reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar proceeding of any
jurisdiction relating to Maker, the unpaid principal amount hereof and all
accrued interest and all other amounts owing hereunder shall become immediately
due and payable without presentment, demand, protest or notice of any kind in
connection with this Note.
Unless otherwise defined herein, capitalized terms used herein have the
same meanings as defined in that certain Receivables Purchase and Sale
Agreement, dated as of September 18, 1996, among Contract Funding Corp., as
Seller, Gold Coast Finance, Inc., as
1
<PAGE>
initial Collection Agent, and SunAmerica Financial Resources, Inc., as Facility
Agent and Purchaser, as amended, supplemented or otherwise modified from time to
time.
This Note may be prepaid in whole or in part at any time without penalty or
premium.
The right to plead any and all statutes of limitations as a defense to
demand hereunder is hereby waived to the extent permitted by law. Maker, for
itself and its successors and assigns, waives presentment, demand (other than
demand for payment under the terms of this Note), protest and notice thereof or
of dishonor, and waives the right to be released by reason of any extension of
time or change in the terms of payment or any change, alteration or release of
any security given for the payment hereof. Maker agrees to pay all costs and
expenses, including, without limitation, reasonable attorneys' fees and costs,
in connection with the enforcement of this Note.
Lender is hereby authorized to record all loans and advances made by it to
Maker (all of which shall be evidenced by this Note), and all repayments
thereof, in its books and records, such books and records constituting prima
facie evidence of the accuracy of the information contained therein, but any
failure to record such event shall not limit or otherwise affect the obligations
of Maker hereunder.
All payments under this Note shall be made without offset, counterclaim or
deduction of any kind.
This Note shall be secured by that certain Pledge Agreement executed by
Maker in favor of Lender dated as of even date herewith (the "Pledge
Agreement"), and any default or failure to pay or repay by Maker any outstanding
principal or accrued interest due hereunder shall be deemed an Event of Default
for purposes hereunder and under the Pledge Agreement.
This Note shall be governed by and construed in accordance with the laws of
the State of New York. The acknowledgment attached hereto is incorporated in and
made a part of this Note by this reference.
Notwithstanding anything to the contrary contained herein, in no event
shall any interest be payable under this Note which exceeds the maximum amount
permitted by applicable law and any interest received by Lender from Maker under
this Note in excess of such maximum amount permitted by applicable law shall be
refunded to Maker.
Maker: USA FINANCE, INC.,
a Delaware Corporation
By: /s/ Stephen E. Michaelson
-------------------------------
Stephen E. Michaelson
Chief Executive Officer
EXHIBIT 21
Subsidiaries of Registrant
--------------------------
Subsidiary State of Incorporation
- ---------- ----------------------
Contract Funding Corp. Delaware
Gold Coast Finance Inc. Florida
National-Wide Premium Finance Company Florida
The Board of Directors
Gold Coast Finance, Inc. and
National-Wide Premium Finance
Corporation (wholly owned subsidiaries
of USA Finance, Inc.):
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the Prospectus.
/s/ KPMG Peat Marwick LLP
Miami, Florida
January ___, 1997
