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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
Commission file number 000-22681
MEDLEY CREDIT ACCEPTANCE CORP.
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(Name of Small Business Issuer in Its Charter)
DELAWARE 13-3571419
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
1100 PONCE DE LEON BOULEVARD
CORAL GABLES, FLORIDA 33134
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(Address of Principal Executive Offices) (Zip Code)
(305) 443-5002
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(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE
SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT:
None
SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT:
Common Stock, $.01 par value
(Title of Class)
Common Stock Purchase Warrants
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and non disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $292,536
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was sold, or the average bid and asked price of such common
equity, as of a specified date within the past 60 days:
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 3,157,579 shares of Common
Stock, $.01 par value per share, at May 31,1998.
Transitional Small Business Disclosure Format (Check One):
YES [ ] NO [X]
DOCUMENTS INCORPORATED BY REFERENCE:
None
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PART I
ITEM 1. BUSINESS
GENERAL
The Company is a specialty finance company engaged, principally, in
accounts receivable financing (factoring), equipment leasing and traditional
financing business lines. Since the consummation, in late December 1997, of the
Company's initial public offering of approximately $6.8 million of securities
(the "IPO"), the Company's operations have focused primarily on growing an
operation base and establishing a market presence in each of the aforementioned
businesses. The Company's primary strategy for achieving its necessary growth
and market presence has been, among other things, to pursue acquisitions of
existing enterprises which, in the Company's opinion, have immediate earnings
potential and long-term growth possibilities.
While the Company has only a limited operating history in the accounts
receivable financing and traditional financing business lines, the Company has
more seasoned experience in the equipment leasing business. Prior to the
consummation of the Company's IPO, the Company's business and affairs focused
on the financing of (i) dry cleaning equipment to small dry cleaning business
throughout the eastern United States and (ii) refrigeration equipment sold or
leased by an affiliate. The Company has made a business decision to orderly
wind down, commencing during the fiscal year ended December 31, 1997 ("Fiscal
1997"), its dry cleaning and refrigeration equipment financing operations.
In an effort to grow its accounts receivable financing and traditional
financing business lines, while establishing a market presence for the same,
the Company, since the closing of the IPO, has consummated several significant
transactions. Principal among these were (i) the Company's formation of its
American Factors Group, Inc. subsidiary ("AFG"), an entity specializing in
accounts receivable financing, (ii) the Company's acquisition of a majority
interest in Americal Investment Management ("AIM"), a marketer and manager of a
variety of financial and insurance related services, and (iii) the Company's
acquisition of Medical Billing Service Systems, Inc. ("Medical Billing) and
Premier Provider Services, Inc. ("Premier"; Medical Billing and Premier are
sometimes hereinafter collectively referred to as the "Medical Billing
Subsidiaries"), companies engaged, generally, in providing back office auditing
and other financial administrative services principally to the medical
industry.
AFG's factoring business, i.e., the discounted purchase of approved
accounts receivable, will be limited, principally, to credit insured and other
extremely low-risk accounts receivable. In connection with the formation of
AFG, the Company entered into employment agreements with two seasoned finance
professionals who have covenanted to the Company that they will generate, in
the aggregate, significant factored accounts receivable for AFG per annum. For
purposes of providing AFG with the capital necessary to initiate full-time
factoring operations, AFG has entered into a $4 million credit facility (the
"AFG Facility") with FINOVA Capital Corporation ("FINOVA"). Advances under the
AFG Facility are secured by the pledge to FINOVA of AFG's factored receivables
and the limited guaranty of the Company. In addition, these two seasoned
finance professionals have been granted the right to exchange their 20%
interest in AFG (the Company owns
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the remaining 80% of AFG) for shares of the Company's Common Stock (aggregating
approximately 3% of the Company's outstanding shares) upon AFG's achieving
certain financial performance levels. These two individuals are also entitled
to established cash bonuses based upon AFG's future financial performance.
The Company's AIM subsidiary, which operated independently for over 20
years prior to its acquisition by the Company, markets a variety of financial
and insurance related services. In consideration for the Company's purchase of
AIM, the Company agreed to issue to the principal of AIM shares of the
Company's Common Stock on the first, second and third anniversaries of the AIM
acquisition (representing, in the aggregate, less than 1% of the outstanding
shares of Common Stock of the Company) in exchange for the remaining 20% of AIM
capital stock not originally acquired by the Company, and incentive stock
options pursuant to the Company's 1997 Stock Option Plan (the "Option Plan") to
acquire additional shares of Common Stock of the Company based upon AIM's
future operating performance. In addition, the principal of AIM was issued a
three year employment contract. This principal also has been granted the right,
exercisable at any time on or prior to March 13, 2000, to repurchase all of the
outstanding capital stock of AIM. The purchase price payable by this principal
to the Company should he exercise this right by March 13, 1999 will equal 65%
of the net paid in capital of AIM at the time of exercise. If this right is
exercised after March 13,1999, the purchase price will be the product of (i) an
amount equal to AIM's gross sales during the 12 months immediately preceding
the exercise of this right multiplied by (ii) .10 multiplied by (iii) 2.3.
The Company's Medical Billing Subsidiaries, which each operated
independently for more than two years prior to their acquisition by the
Company, provide back office auditing and other financial administrative
services principally to the medical industry. These entities enable the
Company, among other things, to save the costs and expenses associated with
either building internally, or outsourcing, such back office and administrative
services. In consideration for the Company's purchase of the Medical Billing
Subsidiaries, the Company agreed to issue to the principals of the Medical
Billing Subsidiaries an aggregate of 585,000 shares of Common Stock, each share
valued at $4.50, one-half of which were issued upon the closing of the
acquisitions, with the remaining one-half of such shares being issuable on the
first anniversary of such acquisitions. In addition, the Company agreed to
issue to the principals of the Medical Billing Subsidiaries incentive stock
options pursuant to the Company's Option Plan to acquire, through December 31,
2001, under certain circumstances, up to an aggregate of 150,000 additional
shares of Common Stock based upon the Medical Billing Subsidiaries' future
financial performance. Further, the principals of the Medical Billing
Subsidiaries were issued three year employment contracts.
Since the consummation of its IPO, the Company's traditional financing
business has closed four significant loans, one, a general purpose secured loan
in the principal amount of $500,000, the second, a secured debt refinancing
facility in the approximate principal amount of $400,000, the third, a motion
picture completion loan in the approximate principal amount of $350,000 secured
by the assignment to the Company of the borrower's film distribution rights,
revenue stream and capital stock, and the fourth, a general purpose secured
loan in the principal amount of $110,000. The Company anticipates continuing to
provide similar financing services as its cash flow permits.
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The $500,000 general purpose loan was made to an unaffiliated
borrower, matures on December 26, 1998, bears interest at the rate of 10% per
annum, and is secured by the pledge to the Company of 1.5 million shares of the
borrower's capital stock. Shares of the borrower's capital stock currently are
traded on the Nasdaq SmallCap Market System.
The $400,000 debt refinancing was extended to an unaffiliated
borrower, matures on January 8, 1999, bears interest at the rate of 10% per
annum, and is secured by the pledge to the Company of 65,000 shares of the
Company's Common Stock owned by the borrower (which shares represent
approximately 2% of the outstanding Common Stock of the Company) and the pledge
of all of the borrower's capital stock.
The $350,000 motion picture completion loan, which was part of a
$600,000 syndicated facility (repayment of the $250,000 principal portion of
the loan not advanced by the Company has been guaranteed by the Company), was
extended to an unaffiliated borrower, matures on September 23, 1998, bears
interest at the rate of 10% per annum (which, when added with other financial
arrangements, results in an 18% per annum yield to the Company) and is secured
by the assignment to the Company of the borrower's film distribution rights,
revenue stream and capital stock. In addition, in March 1998, the Company
entered into a Distribution Receivables Purchase Program with the borrower
pursuant to which the Company agreed to purchase at a discount (with full
recourse against the borrower), up to $100,000 per month of approved
distribution rights or accounts receivable of the borrower not otherwise
encumbered or assigned to any third party.
The $110,000 general purpose loan was made to an unaffiliated
borrower, matures on October 1, 1999, bears interest at the rate of 18% per
annum, and is secured by the pledge of the borrower's stock, a lien covering
all of the borrower's assets and the personal guaranty of the Borrower's
principal.
In addition, since the consummation of the IPO, the Company has
provided a financial accommodation to an affiliate for a fee equal to $150,000
per annum, which fee is payable each year the Company continues to extend such
financial accommodation. Specifically, the Company posted a $1.7 million
standby letter of credit on behalf of the affiliate. This letter of credit was
posted for the purpose of securing the performance of certain equipment leases
sold by the affiliate to an unrelated party. The Company's financial exposure
under this letter of credit has been collateralized by the pledge by the
affiliate to the Company of 750,000 shares of the Company's Common Stock owned
by the affiliate, which Common Stock, for purposes of the pledge, has an agreed
upon value of $2.50 per share.
The Company was incorporated under the laws of the State of Delaware
on May 2, 1990 under the name Premier Lease Concepts, Inc. In September 1993,
Premier Lease Concepts, Inc. was merged into a subsidiary of Medley Group,
Inc., a Delaware corporation and the Company's principal stockholder ("Group").
As part of this merger, the Company's name was changed to Medley Credit
Acceptance Corp. Group is controlled by Robert D. Press, the Chairman of the
Board, President and Chief Executive Officer of the Company, and Steven L.
Edelson, a principal stockholder, and the former Chairman of the Board, of the
Company. The Company's principal executive offices are located at 1100 Ponce de
Leon Boulevard, Coral Gables, Florida 33134.
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FACTORING BUSINESS
The Company currently anticipates that its factoring business,
presently comprised of its AFG subsidiary, will be responsible for generating a
substantial portion of the Company's revenue during the immediate future. In
addition to its AFG operations, which focuses on the purchase of credit insured
receivables, the Company anticipates expanding its operations to include
traditional factoring, i.e., providing small-to-medium sized, high risk growth
companies with capital through the discounted purchase of their accounts
receivable. The Company also expects to make advances to its factoring clients
collateralized by inventory, equipment, real estate and other assets
(collectively, "Collateralized Advances").
The Company believes that this facet of its factoring business will
consist, generally, of the Company entering into an accounts receivable
factoring and security agreement with a client which will (i) obligate the
client to sell the Company a minimum amount of accounts receivable each month
(or a minimum amount of receivables during the term of the agreement); (ii)
usually have a term of not less than six months and, more likely, one year and
(iii) be automatically renewable. When making a Collateralized Advance, the
Company will enter into such additional agreements with the client, and, if
appropriate, third parties, as the Company deems necessary or desirable, based
on the type(s) of collateral securing the Collateralized Advance. The Company
will purchase accounts receivable from its factoring clients at a discount from
face value and usually require the client's customers to make payment on the
receivables directly to the Company. To secure all of a client's obligations to
the Company, the Company will also take a lien on all accounts receivable of
the client (to the extent not purchased by the Company) and, whenever
available, blanket liens on all of the client's other assets (some or all of
which liens may be subordinate to other liens). Since the Company, generally,
will have no recourse against its clients for receivables of such client sold
to the Company, substantially all factored receivables to be acquired by the
Company will be pre-approved and covered by credit insurance underwritten by
credible insurance companies. When making a Collateralized Advance, the Company
will almost always take a first lien on the specific collateral securing the
Collateralized Advance. The Company may, on occasion, make Collateralized
Advances secured by a subordinate position, but only if management of the
Company determines that the equity available to the Company in a subordinate
position would be adequate to secure the Collateralized Advance. The Company
will almost always require personal guaranties (either unlimited or limited to
the validity and collectibility of purchased accounts receivable) from each
client's principals. Although the Company will obtain as much collateral as
possible and usually retain full recourse rights (subject to fraud) against its
clients, clients (and account debtors) may fail and accordingly, there can be
no assurance that the collateral obtained and the recourse rights retained
(together with any personal guaranties) will be sufficient to protect the
Company against loss.
DISCONTINUED OPERATIONS
Prior to the IPO, the Company's operations focused primarily on the
dry cleaning and refrigeration equipment leasing businesses. Dry cleaning
equipment leasing would typically involve a total cost of between $60,000 to
$70,000 per lease for a five-year term, with the lessee having the option to
buy the equipment at the end of the lease term for the fair market value
thereof. The internal rate of return of such leases was generally attractive to
the Company. Such leases could be
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refinanced or sold at discount rates substantially less than the return
implicit in the lease itself. Such finance discounting was, in most instances,
accomplished on a full nonrecourse basis. Due to the decrease, commencing in
1995, of dry cleaning equipment financing opportunities, and the general
reduction in risk associated with the financing of refrigeration equipment as
compared to dry cleaning equipment (primarily due to the significantly reduced
cost of refrigeration equipment as compared to dry cleaning equipment), the
Company, during 1996, began de-emphasizing its dry cleaning equipment business
and began concentrating marketing efforts on the refrigeration equipment
leasing business.
The Company's refrigeration equipment leasing business focused on the
Company's financing refrigeration equipment sold or leased by affiliates of
Group collectively doing business under the name "Medley Refrigeration"
("Refrigeration"). Refrigeration was principally engaged in the provision of
refrigeration equipment and services to the food service and hospitality
industries and other businesses throughout central and southeastern Florida.
During December 1996, Refrigeration assigned to the Company (the "Assignment")
all of Refrigeration's rights to receive revenues from, and rights of
collection with respect to, a majority of the refrigeration equipment leases
entered into by Refrigeration with its customers. Prior to the Assignment, the
Company historically would lend Refrigeration the capital necessary for
Refrigeration to either purchase or manufacture refrigeration equipment for its
customers. Refrigeration, in turn, would lease this refrigeration equipment to
its customers who, as a condition to the lease, would grant the Company a
security interest in the leased equipment to collateralize the customer's
payment obligations under the equipment lease. As a result of the Assignment,
lease payments with respect to a majority of the equipment leases extended to
Refrigeration's customers became payable directly to the Company.
The Company has made a business decision, effective during Fiscal
1997, to orderly wind down its dry cleaning and refrigeration equipment
financing operations.
COMPETITION
The factoring, finance and equipment leasing businesses are highly
fragmented. The Company competes, and in the future, will compete, for
customers with a number of national, regional and local finance and factoring
companies, including those which, like the Company, specialize in particular
segments of the overall market. In addition, the Company's competitors include,
and will include, those equipment manufacturers which finance the sale or lease
of their products themselves, other traditional types of financial services
companies, such as commercial banks and savings and loan associations, and
conventional leasing and factoring companies. Although the Company believes
that it currently maintains a competitive advantage on the basis of its
convenience-oriented financing and value-added services, many of the Company's
competitors and potential competitors possess substantially grater financial,
marketing and operational resources. Moreover, the Company's future
profitability will be directly related to the Company's ability to access
capital funding and to obtain favorable funding rates as compared to the
capital and costs of capital available to its competitors. Accordingly, there
can be no assurance that the Company will be able to continue to compete
successfully in its targeted markets.
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EMPLOYEES
The Company, on a consolidated basis, currently employs approximately
40 full-time employees. The Company believes that this workforce is adequate to
meet the Company's reasonably foreseeable requirements.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company currently owns no real property and conducts its business
from facilities leased to the Company by an affiliate of Maynard Hellman, a
director of the Company. The Company pays this affiliate of Mr. Hellman
approximately $38,000 per year to cover the Company's allocated rental and
common expense charges with respect to the facility encompassing the Company's
offices. The Company believes this facility is well maintained and adequate to
meet the Company's needs for the foreseeable future.
The Company's subsidiaries do not own any real property and conduct
their respective businesses from facilities leased to them, at market rates, by
unaffiliated persons. The Company believes that such leased facilities are
adequate for its subsidiaries' reasonably foreseeable operations.
ITEM 3. LEGAL PROCEEDINGS
At this time, the Company is not involved in any pending or threatened
legal proceeding involving it or any of its assets.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
through the solicitation of proxies or otherwise during the fourth quarter of
Fiscal 1997.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since late December 1997, the Company's Common Stock and Common Stock
Purchase Warrants (the "Warrants") have been quoted on the Electronic Bulletin
Board maintained by NASDAQ under the symbols "MCAC" and "MCACW", respectively.
The following table set forth the monthly high and low bid quotations
on the Electronic Bulletin Board for the Common Stock of the Company. These
quotations represent prices between dealers and do not include retail mark-up,
mark-down or commissions or necessarily represent actual transactions.
COMMON STOCK HIGH LOW
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1998
January $6.88 $4.88
February 7.25 4.00
March 5.50 2.75
April 5.13 4.00
May 2.25 1.01
At May 31, 1998, there were 152 holders of record of the Company's
Common Stock and 33 holders of record of Warrants. Since the Company's Common
Stock and Warrants are held in street name, it believes that there are
substantial additional beneficial holders of the Common Stock and Warrants.
The Company has never declared any cash dividends with respect to its
shares of Common Stock and does not anticipate that dividends will be declared
in the foreseeable future, as all available cash will be utilized for use in
the Company's business.
The Company consummated its IPO on December 24, 1997. The IPO was
self-underwritten by the Company. The securities sold by the Company in its IPO
were offered and sold pursuant to Post-Effective Amendment No. 2 to the
Company's Registration Statement on Form SB-2, File No. 333-24937 (the
"Registration Statement"), declared effective by the Securities and Exchange
Commission (the "SEC") on December 24, 1997. Pursuant to the Registration
Statement, an aggregate of 1,600,000 shares of Common Stock and 1,600,000
Warrants were registered for sale by the Company. The Company commenced sales
in connection with the IPO concurrently with the SEC's declaring the
Registration Statement effective.
In connection with the IPO, the Company sold 1,217,382 shares of
Common Stock at $5.50 per share (of which 1,017,283 shares were sold directly
by the Company; the remaining 200,000 shares were sold by Group and the
proceeds from such sale ($1,100,000) were remitted to the Company by Group on
behalf of Refrigeration to satisfy all intercompany indebtedness then owing to
the Company by Refrigeration), and 1,223,250 Warrants at $.15 per Warrant. Each
Warrant
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entitles the holder thereof to purchase one share of Common Stock at a price of
$5.75 at any time commencing July 22, 1998 until July 22, 2002. The remaining
382,618 shares of Common Stock and 376,750 Warrants registered for sale by the
Company in the IPO remain unsold. The Company anticipates filing a further
Post-Effective Amendment to the Registration Statement shortly to terminate the
offer and sale of shares of Common Stock and Warrants in the IPO.
The Company received cash and subscriptions for approximately
$6,893,000 of securities in the IPO. Of this amount, approximately $5,659,000
represented subscriptions for securities satisfied in cash, with the remaining
approximate $1,234,000 in subscriptions satisfied by the Company's issuance,
out of shares of Common Stock registered for sale in the IPO, of approximately
224,360 shares of Common Stock (the "Conversion Shares"). Each Conversion Share
was valued at $5.50 and issued to satisfy $5.50 of then existing obligations
owing by the Company to subscribers in the IPO. Of the approximate $6,893,000
in cash and subscriptions received by the Company, approximately $334,000 in
cash was applied to satisfy legal and accounting expenses incurred in the IPO
and approximately $430,000 in cash was paid to unaffiliated consultants for
advice rendered in connection with the consummation of the IPO, which advice
management of the Company believed was necessary given the fact that the IPO
was being self-underwritten by the Company and not offered and sold in the
traditional manner through experienced investment bankers, brokers and dealers.
Further, the Company could not rely upon the efforts and services of clearing
firms traditionally engaged in IPO's that are not self-underwritten. In
addition, approximately $8,700 in cash was paid in satisfaction of escrow agent
fees and expenses and approximately $265,000 in cash was paid to unaffiliated
persons in satisfaction of IPO offering and marketing expenses.
Moreover, approximately $56,000 of the cash proceeds raised in the IPO
were utilized, and approximately 66,632 Conversion Shares were issued, by the
Company to satisfy approximately $366,475 of declared but unpaid dividends
owing with respect to shares of the Company's Series A 10% Convertible
Preferred Stock (the "Preferred Stock"). Of these Conversion Shares,
approximately 13,740 Conversion Shares were issued to Robert D. Press, Chairman
of the Board, President and Chief Executive Officer of the Company, in
satisfaction of approximately $75,590 of declared but unpaid Preferred Stock
dividends owing to Mr. Press, approximately 41,785 Conversion Shares were
issued to Carol Edelson, a principal stockholder and the wife of the former
Chairman of the Board of the Company, in satisfaction of approximately $230,000
of declared but unpaid Preferred Stock dividends owing to Ms. Edelson and
approximately 2,880 Conversion Shares were issued to an affiliate of Arthur J.
Press, a director of the Company and the father of Robert D. Press, in
satisfaction of approximately $15,860 of declared but unpaid Preferred Stock
dividends owing to the affiliate of Mr. Press.
In addition, approximately 127,270 other Conversion Shares were issued
by the Company in the IPO to satisfy approximately $700,000 of other
indebtedness (including interest) of the Company. Of these other Conversion
Shares, approximately 23,950 Conversion Shares were issued to Robert D. Press
in satisfaction of approximately $131,700 of indebtedness owing to Mr. Press,
approximately 8,860 Conversion Shares were issued to Ms. Edelson in
satisfaction of approximately $48,750 of indebtedness owing to Ms. Edelson,
approximately 12,525 Conversion Shares were issued to the affiliate of Arthur
J. Press in satisfaction of approximately $69,000 of indebtedness owing to such
affiliate, 10,000 Conversion Shares were issued to an affiliate of Maynard
Hellman, a director of the Company, in satisfaction of $55,000 of indebtedness
owing to Mr. Hellman's
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affiliate and 9,555 Conversion Shares were issued to an affiliate of Steven
Dreyer, a former director of the Company in satisfaction of $52,552 of
indebtedness owing to such affiliate. Further, 15,000 other Conversion Shares
were issued to each of Robert D. Press and Carol Edelson in satisfaction of
certain redemption obligations owing to each of them with respect to 15,000
other shares of Common Stock owned by each of Mr. Press and Ms. Edelson.
Following the application of cash proceeds from the IPO, the Company
was left with approximately $4,620,000 in net proceeds from the IPO.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is a specialty finance company engaged, principally, in
accounts receivable financing (factoring), equipment leasing and traditional
financing business lines. Since the consummation, in late December 1997, of the
Company's IPO, the Company's operations have focused primarily on growing an
operation base and establishing a market presence in each of the aforementioned
businesses. The Company's primary strategy for achieving its necessary growth
and market presence has been, among other things, to pursue acquisitions of
existing enterprises which, in the Company's opinion, have immediate earnings
potential and long-term growth possibilities.
While the Company has only a limited operating history in the accounts
receivable financing and traditional financing business lines, the Company has
more seasoned experience in the equipment leasing business. Prior to the
consummation of the Company's IPO, the Company's business and affairs focused
on the financing of (i) dry cleaning equipment to small dry cleaning business
throughout the eastern United States and (ii) refrigeration equipment sold or
leased by Refrigeration. The Company has made a business decision to orderly
wind down, commencing during Fiscal 1997, its dry cleaning and refrigeration
equipment financing operations.
In an effort to grow its accounts receivable financing and traditional
financing business lines, while establishing a market presence for the same,
the Company, since the closing of the IPO, has consummated several significant
transactions. Principal among these were the Company's formation of its AFG
factoring subsidiary, the Company's acquisition of a majority interest in AIM,
a marketer and manager of financial and insurance related services, and the
Company's acquisition of the Medical Billing Subsidiaries, companies engaged,
generally, in providing back office auditing and other financial administrative
services principally to the medical industry.
In connection with the formation of AFG, the Company entered into
employment agreements with two seasoned finance professionals who have
covenanted to the Company that they will generate, in the aggregate,
significant factored accounts receivable for AFG per annum. For purposes of
providing AFG with the capital necessary to initiate full-time factoring
operations, AFG entered into the $4 million AFG Facility with FINOVA. Advances
under the AFG Facility are secured by the pledge to FINOVA of AFG's factored
receivables and the limited guaranty of the Company. In addition, AFG's two
seasoned finance professionals have been granted the right to exchange their
20% interest in AFG (the Company owns the remaining 80% of AFG) for shares of
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the Company's Common Stock (aggregating approximately 3% of the Company's
outstanding shares) upon AFG's achieving certain financial performance levels.
These two individuals are also entitled to established cash bonuses based upon
AFG's future financial performance.
In consideration for the Company's purchase of a majority interest in
AIM, the Company agreed to issue to the principal of AIM shares of the
Company's Common Stock on the first, second and third anniversaries of the AIM
acquisition, which shares represent, in the aggregate, less than 1% of the
outstanding shares of Common Stock of the Company, in exchange for the 20% of
AIM capital stock not originally acquired by the Company, and incentive stock
options pursuant to the Company's Option Plan to acquire additional shares of
Common Stock of the Company based upon AIM's future financial performance. In
addition, the principal of AIM was issued a three year employment contract.
This principal also has been granted the right, exercisable at any time on or
prior to March 13, 2000, to repurchase all of the outstanding capital stock of
AIM. The purchase price payable by this principal to the Company should he
exercise this right by March 13, 1999 will equal 65% of the net paid in capital
of AIM at the time of exercise. If this right is exercised after March 13,1999,
the purchase price will be the product of (i) an amount equal to AIM's gross
sales during the 12 months immediately preceding the exercise of this right
multiplied by (ii) .10 multiplied by (iii) 2.3.
In consideration for the Company's purchase of the Medical Billing
Subsidiaries, the Company agreed to issue to their principals an aggregate of
585,000 shares of Common Stock, each share valued at $4.50, one-half of which
were issued upon the closing of the acquisitions, with the remaining one-half
of such shares being issuable on the first anniversary of such acquisitions. In
addition, the Company agreed to issue to the principals of the Medical Billing
Subsidiaries incentive stock options pursuant to the Company's Option Plan to
acquire, through December 31, 2001, under certain circumstances, up to an
aggregate of 150,000 additional shares of Common Stock based upon the Medical
Billing Subsidiaries' future financial performance. In addition, the principals
of the Medical Billing Subsidiaries were issued three year employment
contracts.
In addition, since the consummation of the IPO, the Company's
traditional financing business has closed four significant loans, one, a
general purpose secured loan in the principal amount of $500,000, the second, a
secured debt refinancing facility in the approximate principal amount of
$400,000, the third, a motion picture completion loan in the approximate
principal amount of $350,000 secured by the assignment to the Company of the
borrower's film distribution rights, revenue stream and capital stock, and the
fourth, a general purpose secured loan in the principal amount of $110,000. The
Company anticipates continuing to provide similar financing services as its
cash flow permits.
The $500,000 general purpose loan was made to an unaffiliated borrower,
matures on December 26, 1998, bears interest at the rate of 10% per annum, and
is secured by the pledge to the Company of 1.5 million shares of the borrower's
capital stock. Shares of the borrower's capital stock currently are traded on
the Nasdaq SmallCap Market System.
The $400,000 debt refinancing was extended to an unaffiliated
borrower, matures on January 8, 1999, bears interest at the rate of 10% per
annum, and is secured by the pledge to the Company of 65,000 shares of the
Company's Common Stock owned by the borrower (which shares represent
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approximately 2% of the outstanding Common Stock of the Company) and the pledge
of all of the borrower's capital stock.
The $350,000 motion picture completion loan, which was part of a
$600,000 syndicated facility (repayment of the $250,000 principal portion of
the loan not advanced by the Company has been guaranteed by the Company), was
extended to an unaffiliated borrower, matures on September 23, 1998, bears
interest at the rate of 10% per annum (which, when added with other financial
arrangements, results in an 18% per annum yield to the Company) and is secured
by the assignment to the Company of the borrower's film distribution rights,
revenue stream and capital stock. In addition, in March 1998, the Company
entered into a Distribution Receivables Purchase Program with the borrower
pursuant to which the Company agreed to purchase at a discount (with full
recourse against the borrower), up to $100,000 per month of approved
distribution rights or accounts receivable of the borrower not otherwise
encumbered or assigned to any third party.
The $110,000 general purpose loan was made to an unaffiliated
borrower, matures on October 1, 1999, bears interest at the rate of 18% per
annum, and is secured by the pledge of the borrower's stock, a lien covering
all of the borrower's assets and the personal guaranty of the Borrower's
principal.
In addition, since the consummation of its IPO, the Company has
provided a financial accommodation to an affiliate for a fee equal to $150,000
per annum, which fee is payable each year the Company continues to extend such
financial accommodation. Specifically, the Company posted a $1.7 million
standby letter of credit on behalf of the affiliate. This letter of credit was
posted for the purpose of securing the performance of certain equipment leases
sold by the affiliate to an unrelated party. The Company's financial exposure
under this letter of credit has been collateralized by the pledge by the
affiliate to the Company of 750,000 shares of the Company's Common Stock owned
by the affiliate, which Common Stock, for purposes of the pledge, has an agreed
upon value of $2.50 per share.
RESULTS OF OPERATIONS
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
For Fiscal 1997, the Company generated revenues of $292,536, a
decrease of $156,763, or approximately 35%, from revenues of $449,299 for the
fiscal year ended December 31, 1996 ("Fiscal 1996"). This decrease in revenues
was primarily attributable to the Company's decision to orderly wind down its
dry cleaning and refrigeration equipment leasing operations beginning in Fiscal
1997, and the Company's expending significant time and resources to consummate
the IPO.
During Fiscal 1997, the Company incurred an approximate $180,000, or
approximately 25%, increase in general and administrative expenses over Fiscal
1996 figures, principally as a result of satisfying obligations incident to the
consummation of the IPO. As a consequence thereof, coupled with the
aforementioned decrease in revenues during Fiscal 1997, the Company generated
losses from operations during Fiscal 1997 of $655,490, a $378,850, or
approximate 135%, increase in losses from operations from Fiscal 1996. When
combined with the one-time $600,000 reversal of estimate for uncollectible
advances to an affiliate recorded during Fiscal 1996, and the provision for
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dividends with respect to shares of the Company's Preferred Stock, the Company
generated net losses applicable to common shareholders for Fiscal 1997 of
$992,179, or losses of $.58 per common share, as compared to net income
applicable to common shareholders of $90,638, or income of $.05 per common
share, for Fiscal 1996.
Fiscal 1996 Compared to Fiscal 1995
For Fiscal 1996, the Company generated revenues of $356,235, an
approximate 8% reduction from revenues of $388,008 for the fiscal year ended
December 31, 1995 ("Fiscal 1995"). Revenues for Fiscal 1996 and Fiscal 1995
represented, principally, payments received against dry cleaning equipment
leases financed by the Company. During Fiscal 1996, however, the Company began
de-emphasizing its dry cleaning equipment financing business and primarily
concentrated its marketing efforts in the refrigeration equipment financing
area. Consequently, during Fiscal 1996, the Company entered into approximately
41 new financing agreements with customers of Refrigeration while it did not
enter into any new dry cleaning equipment financing agreements.
For Fiscal 1996, the Company generated net income of $323,360, as
compared to a net loss of $896,607 for Fiscal 1995. This significant change in
operating results was primarily due to the reversal, during Fiscal 1996, of a
$600,000 provision for uncollectible advances to an affiliate (Refrigeration)
recorded during Fiscal 1995. This $600,000 provision was taken essentially
because at December 31, 1995, total advances by the Company to Refrigeration
approximated $1.3 million. This intercompany receivable was generated and had
grown as a result of the Company's advancing monies to Refrigeration to enable
Refrigeration to manufacture or otherwise acquire refrigeration equipment which
Refrigeration would then lease to its customers. Refrigeration historically
would then receive the lease payments relating to this equipment directly from
its customers, but, in lieu of remitting these payments to the Company to
reduce the outstanding intercompany balance, Refrigeration contributed these
amounts to operate and expand its business. Since Refrigeration had not, prior
to the September 1996 audit date for the Company's Fiscal 1995 financial
statements, satisfied any meaningful portion of the outstanding advances made
to it by the Company, the independent public accountants auditing the Company's
Fiscal 1995 financial statements determined that recording the $600,000
provision was appropriate.
A reversal of the $600,000 provision was taken during Fiscal 1996
essentially because the Company was able to adequately demonstrate that the
uncollectible advances in question were, in fact, collectible.
For Fiscal 1996, the Company generated net income per common share of
$.05 as compared to a net loss per common share of $.98 for Fiscal 1995. This
change in net income per common share was primarily the result of the reversal
of the $600,000 provision for uncollectible advances made to Refrigeration.
LIQUIDITY AND CAPITAL RESOURCES
On December 24, 1997, the Company consummated its IPO of 1,217,382
shares of Common Stock (of which 1,017,382 shares were sold directly by the
Company; the remaining 200,000 shares were sold for the benefit of Group, but
the proceeds from such sale ($1,100,000) were remitted by
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Group on behalf of Refrigeration to the Company to satisfy all intercompany
indebtedness then owing to the Company by Refrigeration), and 1,223,250
Warrants. The Company received cash and subscriptions for approximately
$6,893,000 of securities in the IPO. Of this amount, approximately $5,659,000
represented subscriptions for securities satisfied in cash, with the remaining
approximate $1,234,000 in subscriptions satisfied by the Company's issuance,
out of shares of Common Stock registered for sale in the IPO, of approximately
224,360 Conversion Shares. Each Conversion Share was valued at $5.50 and issued
to satisfy $5.50 of then existing obligations owing by the Company to
subscribers in the IPO. As a consequence of the consummation of the IPO, the
Company received net proceeds, after giving effect to the payment of all
offering and related expenses, the satisfaction of certain indebtedness owing
by the Company to various current and former affiliates and their respective
family members and others and the satisfaction of declared but unpaid dividends
with respect to the Preferred Stock of approximately $4,620,000. The Company
intends to utilize the net proceeds from the IPO to implement and expand, as
mentioned above, its new accounts receivable financing and traditional
financing business lines, and expand its equipment leasing business by
broadening and intensifying its marketing efforts.
In connection with the IPO, Group advanced approximately $580,000 to
two employees of one of its affiliates to enable such employees to purchase an
aggregate of 106,000 shares of Common Stock in the IPO. These loans were
secured by the pledge of the shares of Common Stock acquired with the proceeds
of such loans. These loans were payable (in the form of additional
compensation) in equal, annual installments over five years, provided the
employees in question remained in the employ of the affiliate of Group for such
five year period. Otherwise, these loans would become immediately due and
payable. Subsequent to the consummation of the IPO, the two employees in
question left the employ of Group's affiliate. Consequently, the 106,000 shares
of Common Stock pledged to Group to secure the employees' obligations to Group
under their loans were transferred to Group in satisfaction of all indebtedness
owing to Group pursuant to these loans.
In addition, Group loaned approximately $1.15 million to four persons
unaffiliated with the Company to enable such persons to acquire approximately
205,000 shares of Common Stock in the IPO. These loans mature in five years,
bear interest at the rate of 5% per annum and are secured by the pledge of the
shares of Common Stock acquired with the proceeds of such loans. These loans
are otherwise non-recourse obligations of the borrowers.
At December 31, 1997, the Company had total assets of $4,955,831 as
compared to total assets of $1,794,820 at December 31, 1996. This increase in
total assets is primarily due to the Company's receipt of approximately $4.6
million of net cash proceeds from the IPO, which amount includes the proceeds
from the repayment by Group, on behalf of Refrigeration, of $1.1 million of the
then outstanding intercompany receivable owing by Refrigeration to Group. In
addition, following the closing of the IPO and prior to the end of Fiscal 1997,
the Company's traditional financing business made the aforementioned $500,000
general purpose secured loan to an unaffiliated borrower. This loan is
reflected on the Company's balance sheet at December 31, 1997 as a $500,000
finance receivable.
In addition, prior to the end of Fiscal 1997, the Company provided a
financial accommodation to an affiliate for a fee equal to $150,000 per annum,
which fee is payable each year the Company continues to extend such financial
accommodation. Specifically, the Company posted a $1.7 million
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standby letter of credit on behalf of the affiliate. This letter of credit was
posted for the purpose of securing the performance of certain equipment leases
sold by the affiliate to an unrelated party. The Company's financial exposure
under the letter of credit has been collateralized by the pledge by the
affiliate to the Company of 750,000 shares of the Company's Common Stock owned
by the affiliate, which Common Stock, for purposes of the pledge, has an agreed
upon value of $2.50 per share.
At December 31, 1997, the Company had total liabilities of $751,211,
as compared to total liabilities of $1,232,799 at December 31, 1996. This
decrease in liabilities was primarily due to the satisfaction by the Company,
as a result of the issuance of Conversion Shares in the IPO, of various
liabilities owing by the Company, including all liabilities for declared but
unpaid dividends with respect to the Preferred Stock.
At December 31, 1997, the Company had total stockholders' equity of
$4,204,620, as compared to total stockholders' deficit of $258,260 at December
31, 1996. The significant increase in stockholders' equity is attributable
directly to the Company's receipt of subscription proceeds in the IPO.
The Company's experience in the specialty finance business has
historically been conducted with a smaller capital base than currently is
available to the Company. As a consequence of the consummation of the IPO, the
Company believes that it is positioned to secure additional lines of credit and
traditional bank financings for the purpose of expanding and developing its
business lines. The Company further believes that its expanded business will
enable it to pursue service oriented financing activities such as accounts
receivable financing and locating potential equipment lessees and referring
them to the Company's financing sources on a fee basis. In addition to such
factoring and brokering activities, the Company anticipates expanding into more
traditional loan origination business segments, i.e., traditional financing
services, including the provision of credit review services, documentation
services and loan servicing activities. There can be no assurance, however,
that the Company will successfully implement all or a portion of this
anticipated expansion.
The Company is dependent on the proceeds of the IPO to finance its
ongoing specialty finance business, to commence its accounts receivable
financing and traditional financing businesses and to finance its other working
capital requirements. The Company anticipates, based on its current proposed
plans and assumptions relating to its operations and expansion, that the
proceeds of the IPO will be sufficient to satisfy the contemplated cash
requirements of the Company for approximately the next 12 months. In the event
that the Company's plans change or its assumptions prove to be inaccurate, or
the proceeds of the IPO prove to be insufficient to fund the Company's
operations and expansion (due to unanticipated expenses, delays, problems or
otherwise), the Company would be required to seek additional funding. Depending
upon the Company's financial strength and the state of the capital markets, the
Company may also determine that it is advisable to raise additional equity
capital. The Company has no current arrangements with respect to, or sources
of, any additional capital, and there can be no assurance that such additional
capital will be available to the Company, if needed, on commercial reasonable
terms or at all. The inability of the Company to obtain additional capital
would have a material adverse effect on the Company and could cause the Company
to be unable to implement its business strategy or proposed expansion or to
otherwise significantly curtail or cease its operations.
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ITEM 7. SELECTED FINANCIAL DATA
The selected historical financial information of the Company set forth
below should be read in conjunction with the audited financial statements of
the Company and notes thereto contained elsewhere in this Annual Report on Form
10-KSB.
The statement of operations data for the year ended December 31, 1997
and 1996, and the balance sheet data as of December 31, 1997 and 1996, are
derived from, and are qualified by reference to, the audited financial
statements of the Company which are included elsewhere in this Annual Report on
Form 10-KSB. No cash dividends have ever been declared or paid on shares of the
Company's Common Stock.
The required financial statements of the Company are included as part
of this Annual Report on Form 10-KSB beginning on page F-1.
STATEMENT OF OPERATIONS DATA :
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996
---- ----
Total Revenues...................... $ 292,536 $449,299
Total Costs and Expenses............ 948,026 725,939
Loss from Operations................ (655,490) (276,640)
Total Other Income (Expenses)....... (40,580) 600,000
Net Income (Loss) .................. (696,070) 323,360
Net Income (Loss) Applicable
to Common Shareholders............. (992,170) 90,638
Net Income (Loss) Per
Common Share...................... (.58) .05
BALANCE SHEET DATA:
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996
---- ----
Working Capital (Deficit)........... $4,108,166 $ (90,320)
Total Assets........................ 4,955,831 1,794,820
Total Liabilities................... 751,211 1,232,799
Stockholders' Equity (Deficit)...... 4,204,620 (258,620)
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The directors and executive officers of the Company are as follows:
NAME AGE POSITION(S) WITH THE COMPANY
---- --- ----------------------------
Robert D. Press 34 President, Chief Executive Officer and Chairman
of the Board
Maynard Hellman 52 Director
Arthur J. Press 69 Director
Robert D. Press has served as Chairman of the Board of the Company
since August 1997 and as President, Chief Executive Officer and a Director of
the Company since its inception in September 1993. Mr. Press devotes all of his
business time and efforts to the affairs of the Company. From June 1990 to
August 1993, Mr. Press served as President of Premier Lease Concepts, Inc., the
Company's predecessor. In addition, from 1989 to 1997, Mr. Press served as
President of Performance Capital Management, Inc., a holding company controlled
by Messrs. Press and Steven L. Edelson, a principal stockholder, and the former
Chairman of the Board, of the Company, which had interests in brokerage and
investment management, and as President of Group since October 1992. Mr. Press
also served, from 1991 to July 1997, as a licensed registered representative of
PCM Securities Limited, L.P., an NASD registered broker-dealer. Mr. Press holds
a B.A. degree in Economics from Brandeis University. From 1984 to 1986, Mr.
Press worked as a full-time trading systems consultant to several major Wall
Street firms, including The Longview Group. In 1986, Mr. Press joined Chemical
Bank, N.A. ("Chemical Bank") as an internal consultant in trading and capital
markets, and later in 1986, Mr. Press joined in the formation of Chemical
Bank's Interest Rate Arbitrage trading group, of which Mr. Press became the
principal trader responsible for the global trading and investment decisions of
a multi-billion dollar portfolio. Mr. Press holds a Series 7 and 63
professional securities licenses. Mr. Press is the son of Arthur J. Press, a
director of the Company.
Maynard J. Hellman has served as a Director of the Company since
January 1997. Since January 1988, Mr. Hellman has served as managing partner of
the Coral Gables, Florida based law firm of Hellman & Mass. From 1983 until
1988, Mr. Hellman was engaged in the private practice of law and prior thereto,
Mr. Hellman served as a partner in the Miami, Florida law firm of Gilbert,
Silverstein and Hellman. Mr. Hellman holds a J.D. degree from the University of
Miami School of Law and a B.B.A degree in Accounting from the University of
Miami School of Business Administration.
Arthur J. Press has served as a Director of the Company since January
1998. Prior to his retirement in 1987, Mr. Press served as the Vice President
of Commercial Lending for Chemical Bank. Mr. Press is the father of Robert D.
Press, the Chairman of the Board, President and Chief Executive Officer of the
Company.
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The Company's Directors held office until the next annual meeting of
stockholders and until their successors have been duly elected and qualified.
Non-employee Directors of the Company receive a $500 fee for attendance at each
Board of Directors (or committee) meeting, together with reimbursement of
reasonable expenses incurred in attending such meetings. The Company's officers
are elected annually by the Board of Directors and serve at the discretion of
the Board.
Robert D. Press has been granted an irrevocable proxy from Steven L.
Edelson to vote all shares of Group capital stock beneficially owned by Mr.
Edelson. Except as set forth above, no arrangement or understanding exists
between any of the Company's Directors and officers and any other person
pursuant to which and Director or officer was elected as a Director or officer
of the Company.
During Fiscal 1997, none of the Company's officers, directors or
beneficial owners of more than 10% of the Company's outstanding shares of
Common Stock failed to file on a timely basis reports required by Section 16(a)
of the Securities Exchange Act of 1934, as amended.
ITEM 10. EXECUTIVE COMPENSATION
During Fiscal 1997, the Company paid to Robert D. Press, the Company's
Chairman of the Board, President and Chief Executive Officer, cash remuneration
of $45,711. Mr. Press is the sole executive officer of the Company. In
addition, the Company paid Mr. Press, during the first quarter of the fiscal
year ending December 31, 1998, a cash bonus of $60,000 relating to Fiscal 1997.
No other form of remuneration was paid by the Company to Mr. Press during, or
on account of, Fiscal 1997. The Company is party to an employment contract with
Mr. Press. The following table summarizes the aggregate annual compensation
payable by the Company to Mr. Press effective March 1, 1998:
NAME OF INDIVIDUAL CAPACITY IN WHICH SERVED AGGREGATE COMPENSATION
- ------------------ ------------------------ ----------------------
Robert D. Press President, Chairman of the $225,000
Board and Chief Executive Officer
Pursuant to Mr. Press' employment agreement with the Company, Mr.
Press has agreed to serve as President, Chairman of the Board and Chief
Executive Officer of the Company. This employment agreement expires on February
28, 2001 (subject to earlier termination for cause). Mr. Press' employment
agreement further provides for Mr. Press's salary to increase to $275,000 and
$350,000 per annum, respectively, during the second and third years of the
agreement and for Mr. Press to receive minimum cash bonuses of $45,000, $60,000
and $75,000, respectively, for the first, second and third years of the
agreement. In addition, Mr. Press is entitled to receive 30,000 shares of
Common Stock of the Company following the close of each calendar quarter of the
Company during the first year of the agreement, 40,000 shares of Common Stock
following the close of each calendar quarter during the second year of the
agreement and 50,000 shares of Common Stock following the close of each
calendar quarter during the third year of the agreement. Mr. Press is also
entitled to the grant of incentive stock options pursuant to the Company's
Option Plan based upon the future financial performance of the Company. Mr.
Press is entitled to participate in all medical,
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stock option, pension and other benefit plans that the Company may establish
from time to time for the benefit of its senior management generally.
Mr. Press' employment agreement is terminable by the Company for cause
(i.e., conviction of a felony, willful misconduct, dishonesty or material
breach of the agreement) at any time or in the event that Mr. Press becomes
disabled and, as a result, is unable to perform his duties under his employment
agreement for more than 60 consecutive days or for more than 90 days during any
12-month period.
In connection with the formation of AFG , the Company, through AFG,
entered into three-year employment agreements (which automatically renew for
additional one-year periods unless AFG provides 30 days' prior notice of
cancellation) with each of Frederick Horwin and Tom Wheatley, seasoned finance
professionals. Pursuant to these agreements, Messrs. Horwin and Wheatley agreed
to serve as the operating officers of AFG in consideration for base salaries of
$105,000 and $87,000 per annum, respectively. Messrs. Horwin's and Wheatley's
base salaries increase to $120,000 and $96,000 per annum, respectively,
commencing on July 1, 1998. Messrs. Horwin and Wheatley have agreed not to
compete with the Company or AFG during the term of their employment with AFG
and for the two-year period immediately thereafter.
In connection with the acquisition of AIM, the Company, through AIM,
entered into a three year employment agreement (which automatically renews for
additional one year periods unless AIM provides 30 days' prior notice of
cancellation) with Irwin Gross, the principal of AIM. Pursuant to this
agreement, Mr. Gross agreed to serve as the operating officer of AIM in
consideration for a draw against commissions of $125,000 per annum, increasing
over the term of the agreement to $150,000 per annum, a base salary during the
second and third year of the agreement in the amount of $50,000 per annum and
commissions equal to 70% of all net commission income generated and paid to AIM
from accounts developed by Mr. Gross and 50% of all net commission income
generated and paid to AIM from accounts referred to AIM from sources other than
Mr. Gross. Mr. Gross has agreed not to compete with the Company or AIM during
the term of his employment with AIM.
In connection with the acquisition of Medical Billing, the Company,
through Medical Billing, entered into three year employment agreements with
each of Joanne Telmosse, Jennifer Makula and Jamie Silva, the principals of
Medical Billing. Pursuant to these agreements, Mss. Telmosse, Makula and Silva
agreed to serve as the operating officers of Medical Billing in consideration
for base salaries of $125,000, $75,000 and $75,000, respectively. Mss.
Telmosse, Makula and Silva have each agreed not to compete with the Company or
Medical Billing during the term of her employment with Medical Billing.
In connection with the acquisition of Premier, the Company, through
Premier, entered into three year employment agreements with each of W. Dennis
Prouty and Laura C. Sotera, the principals of Premier. Pursuant to these
agreements, Mr. Prouty and Ms. Sotera agreed to serve as the operating officers
of Premier in consideration for base salaries of $110,000 and $72,000,
respectively. Mr. Prouty and Ms. Sotera have each agreed not to compete with
the Company or Premier during the term of his or her employment, as the case
may be, with Premier.
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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of May 31, 1998,
based on information obtained from the persons named below, with respect to the
beneficial ownership of shares of the Company's Common Stock by (i) each person
known by the Company to be the beneficial owner of more than five percent (5%)
of the outstanding shares of Common Stock, (ii) each director, (iii) each
executive officer and (iv) all directors and executive officers of the Company
as a group:
PERCENTAGE OF
NAME AND ADDRESS AMOUNT AND NATURE OF OUTSTANDING
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) SHARES OWNED
- ------------------- ------------------------ ------------
Medley Group, Inc.
1100 Ponce de Leon Blvd.
Coral Gables, FL 33134 1,384,000(2) 43.83%
Robert D. Press
1100 Ponce de Leon Blvd.
Coral Gables, FL 33134 1,688,951(2)(3) 49.25%
Arthur J. Press
1268 Hemlock Farms
Hawley, PA 18428 37,336(4) 1.17%
Maynard Hellman
1100 Ponce de Leon Blvd.
Coral Gables, FL 33134 160,000(5) 5.07%
Carol Edelson
421 West 54th Street
New York, NY 10019 555,876(2)(6) 15.32%
Steven L. Edelson
421 West 54th Street
New York, NY 10019 1,384,000(2)(7) 43.83%
All directors and officers
as a group (three persons) 1,886,287(2)(3)(4)(5) 54.65%
- --------------
* Represent less than 1%.
(1) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of this Report upon
the exercise or conversion of options, warrants or other convertible
securities. Each beneficial owner's percentage ownership is determined by
assuming that options, warrants or other convertible securities that are
held by such person (but not those held by any other person) and that are
exercisable or convertible within 60 days from the date of this Report
have been exercised or converted. Unless otherwise noted, the Company
believes that all persons named in the table have sole
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<PAGE>
voting and investment power with respect to all shares of Common Stock
beneficially owned by them.
(2) Mr. Press, the President, Chairman of the Board and Chief Executive
Officer of the Company, and Steven L. Edelson, a principal stockholder,
and the former Chairman of the Board, of the Company, respectively, may
be deemed to be the control persons of Group. As such, each of Messrs.
Press and Edelson may be deemed to own beneficially all Common Stock of
the Company beneficially owned by Group. Mr. Edelson has granted Mr.
Press an option to purchase, exercisable until December 31, 2002, all of
Mr. Edelson's right, title and interest in and to Mr. Edelson's shares of
capital stock of Group for $750,000. In connection with Mr. Edelson's
grant of this option, Mr. Press has received an irrevocable proxy to vote
all shares of capital stock of Group beneficially owned by Mr. Edelson on
all matters submitted to Group's stockholders for a vote.
(3) Includes 129,351shares of Common Stock issuable upon the conversion of
604,717 shares of Preferred Stock owned by Mr. Press. Also includes
142,500 shares of Common Stock issuable upon the exercise of certain
warrants; these warrants are exercisable at any time on or prior to
September 30, 2000 at an exercise price of $1.50 per share.
(4) These shares are owned by an affiliate of Mr. Press. Includes 21,925
shares of Common Stock issuable upon the conversion of 102,500 shares of
Preferred Stock owned by an affiliate of Mr. Press. Peggy Press, the wife
of Arthur J. Press and the mother of Robert D. Press, beneficially owns
29,168 shares of Common Stock. Each of Mr. Arthur J. Press and Robert D.
Press disclaims beneficial ownership over all shares of Common Stock of
the Company owned by Mrs. Press. Arthur J. Press is the father of Robert
D. Press. Mr. Press disclaims beneficial ownership over all shares of
Common Stock beneficially owned by Robert D. Press.
(5) Includes 10,000 shares of Common Stock beneficially owned by an affiliate
of Mr. Hellman. Does not include 1,000,000 shares of Common Stock
issuable upon the exercise of certain warrants owned by Mr. Hellman.
These warrants are identical to the Warrants sold by the Company in the
IPO, except that the exercise price of the warrants owned by Mr. Hellman
is $5.00 per share.
(6) Includes 327,728 shares of Common Stock issuable upon the conversion of
1,532,127 shares of Preferred Stock owned by Ms. Edelson. Also includes
142,500 shares of Common Stock issuable upon the exercise of certain
warrants; these warrants are exercisable at any time on or prior to
September 30, 2000 at an exercise price of $1.50 per share. Ms. Edelson
is the wife of Steven L. Edelson, a principal stockholder, and the former
Chairman of the Board, of the Company. Ms. Edelson disclaims beneficial
ownership over all shares of Common Stock of the Company beneficially
owned by Mr. Edelson.
(7) Mr. Edelson is the husband of Carol Edelson, a principal stockholder of
the Company. Mr. Edelson disclaims beneficial ownership over all shares
of Common Stock of the Company beneficially owned by Ms. Edelson.
- 22 -
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to December 1996, the Company, generally, provided equipment
lease financing to customers of Refrigeration. Essentially, the Company would
lend Refrigeration the capital necessary for Refrigeration to lease equipment
owned by it to its customers. These customers, in turn, would make lease
payments to Refrigeration. These advances were historically recorded on the
Company's financial statements as an intercompany receivable due from
Refrigeration. As an accommodation to the Company, Refrigeration would cause
its customers to grant the Company a security interest in the equipment leased
to them to secure lease payments from customers.
During December 1996, Refrigeration assigned to the Company all of
Refrigeration's rights to receive from, and rights of collection with respect
to, a majority of Refrigeration's equipment leases with its customers.
During January 1997, the Refrigeration intercompany receivable was
reduced by $237,000 as a result of Refrigeration paying the company $200,000 in
cash and transferring to the Company $37,000 of refrigeration equipment. The
Company used this refrigeration equipment to directly enter into new
refrigeration equipment leases with customers of Refrigeration. This direct
lease financing was essentially accomplished by the Company purchasing the
equipment to be leased from Refrigeration. The Company, in turn, then leased
this equipment to creditworthy Refrigeration customers who were required to
make lease payments with respect to such equipment directly to the Company.
In connection with the closing of the Company's IPO, Group remitted to
the Company, on behalf of Refrigeration, the $1,100,000 in proceeds generated
from Group's sale of 200,000 shares of Common Stock in the IPO to satisfy, in
their entirety, all intercompany receivables then outstanding from
Refrigeration to the Company.
On July 31, 1997, Steven L. Edelson, a principal stockholder of the
Company, resigned as Chairman of the Board of the Company. Simultaneously
therewith, Mr. Edelson transferred to his wife, Carol Edelson, all of Mr.
Edelson's right, title, and interest in and to all securities of the Company
then owned by Mr. Edelson. Mr. Edelson's resignation was not the result of any
disagreement between Mr. Edelson and the Company on any matter relating to the
Company's operations, policies or practices.
During June 1996, the Company offered Robert Press, the President and
Chairman of the Board of the Company, and Steven L. Edelson, the then Chairman
of the Board of the Company, the opportunity to exchange their shares of 131/2%
preferred stock of the Company then owned by them, having an aggregate
liquidation value of $1,643,726, into shares of Preferred Stock. Messrs. Press
and Edelson exchanged all of their shares of 131/2% preferred stock for an
aggregate of 2,136,844 shares of Preferred Stock (604,717 shares to Mr. Press
and 1,532,127 shares to Mr. Edelson). Mr. Edelson subsequently transferred
these shares to Carol Edelson.
From June 1, 1996 through December 20, 1997, Messrs. Press and Edelson
loaned the Company $131,738 and $48,745, respectively, in order to permit the
Company to satisfy its operating expenses in connection with, and in
anticipation of, the IPO. Interest accrued on these loans at the
- 23 -
<PAGE>
rate of 12% per annum and required balloon payments of principal and accrued
interest by August 2, 1999. (Mr. Edelson transferred his right to receive
payment under his loan to Carol Edelson.) The Company repaid these loans as
part of the IPO by issuing Mr. Press and Ms. Edelson approximately 23,952 and
8,863 Conversion Shares, respectively. These Conversion Shares were valued at
the IPO price of $5.50 per Share. In connection with these loans, the Company
issued to each of Messrs. Press and Edelson warrants to purchase up to 142,500
shares of Common Stock (Mr. Edelson transferred these warrants to Carol
Edelson). These warrants are exercisable at any time on or prior to September
30, 2000 at an exercise price of $1.50 per share.
In December 1996, the Company sold Maynard Hellman, a director of the
Company, in consideration for $100,000, warrants to purchase up to 1,000,000
shares of Common Stock of the Company. These warrants are identical to the
Warrants sold by the Company in the IPO except that the exercise price of the
warrants owned by Mr. Hellman is $5.00 per share.
In connection with the IPO, the Company issued 15,000 Conversion
Shares to each of Mr. Press and Ms. Edelson in satisfaction of certain
redemption obligations of the Company owing to them with respect to 15,000
other shares of Common Stock owned by each of them. These shares of Common
Stock were originally transferred and assigned by Group to Messrs. Press and
Edelson (who subsequently transferred them to Carol Edelson) in January 1996 in
consideration for services performed by Messrs. Press and Edelson on behalf of
the Company. Also, in connection with the IPO, the Company issued Mr. Robert D.
Press, Ms. Carol Edelson and an affiliate of Mr. Arthur J. Press approximately
13,740, 41,785 and 2,880 Conversion Shares, respectively, in satisfaction of
approximately $75,590, $230,000 and $15,860 of declared but unpaid Preferred
Stock dividends owing them.
In late December 1997, following the consummation of the IPO, the
Company provided a financial accommodation to Group for a fee equal to $150,000
per annum. This fee is payable each year the Company continues to extend such
financial accommodation. Specifically, the Company posted a $1.7 million
standby letter of credit on behalf of Group. This letter of credit was posted
for the purpose of securing the performance of certain equipment leases sold by
Group to an unrelated party. The Company's financial exposure under this letter
of credit has been collateralized by the pledge by Group to the Company of
750,00 shares of the Company's Common Stock owned by Group, which Common Stock,
for purposes of the pledge, has an agreed upon value of $2.50 per share.
- 24 -
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following are filed as part of this Report:
(i) FINANCIAL STATEMENTS
PAGE
Independent Auditor's Report F-1
Balance Sheets at December 31, 1997 and 1996 F-2
Statements of Operations for the Years Ended
December 31, 1997 and 1996 F-4
Statements of Changes in Stockholders' Equity (Deficit)
for the Years Ended December 31, 1997 and 1996 F-5
Statements of Cash Flows for the Years Ended
December 31, 1997 and 1996 F-6
Notes to Financial Statements F-8
(ii) FINANCIAL STATEMENT SCHEDULES
None
(iii) EXHIBITS
3.1 Amended and Restated Certificate of Incorporation of the Company
(Incorporated by reference to Exhibit 3.1 to Post-Effective
Amendment No. 2 to the Company's Registration Statement on Form
SB-2 (File No. 333-24937)).
3.2 Certificate of Designation, Rights and Preferences relating to
shares of the Company's Series A 10% Convertible Preferred Stock
(Incorporated by reference to Exhibit 3.2 to Post-Effective
Amendment No. 2 to the Company's Registration Statement on Form
SB-2 (File No. 333-24937)).
3.3 By-Laws of the Company (Incorporated by reference to Exhibit 3.3
to Post-Effective Amendment No. 2 to the Company's Registration
Statement on Form SB-2 (File No. 333-24937)).
4.1 Specimen Common Stock Certificate (Incorporated by reference to
Exhibit 4.1 to Post-Effective Amendment No. 2 to the Company's
Registration Statement on Form SB-2 (File No. 333-24937)).
- 25 -
<PAGE>
4.2 Specimen Warrant Certificate (included as Exhibit A to Exhibit
4.3) (Incorporated by reference to Exhibit 4.2 to Post-Effective
Amendment No. 2 to the Company's Registration Statement on Form
SB-2 (File No. 333-24937)).
4.3 Warrant Agency Agreement, dated December 1997, between the
Company and American Stock Transfer & Trust Company (Incorporated
by reference to Exhibit 4.3 to Post-Effective Amendment No. 2 to
the Company's Registration Statement on Form SB-2 (File No.
333-24937)).
10.1 Employment Agreement, dated as of March 1, 1998 between Robert D.
Press and the Company.
10.2 Agreement, dated March 4, 1998, among the Company, Frederick
Horwin and Tom Wheatley.
10.3 Employment Agreement, dated as of March 4, 1998, between AFG and
Frederick Horwin.
10.4 Employment Agreement, dated as of March 4, 1998, between AFG and
Tom Wheatley.
10.5 Stock Purchase Agreement, dated March 13, 1998, between the
Company and Irwin Gross.
10.6 Employment Agreement, dated March 13, 1998, between AIM and Irwin
Gross.
10.7 Stock Purchase Agreement, dated March 30, 1998, among the
Company, Joanne Telmosse, Jamie Silva, Jennifer Makula and
Medical Billing.
10.8 Employment Agreement, dated March 30, 1998, between Medical
Billing and Joanne Telmosse.
10.9 Employment Agreement, dated March 30, 1998, between Medical
Billing and Jennifer Makula.
10.10 Employment Agreement, dated March 30, 1998, between Medical
Billing and Jamie Silva.
10.11 Stock Purchase Agreement, dated March 30, 1998, among the
Company, W. Dennis Prouty, Laura C. Sotera, Garry R. Spear, Esq.,
YNC General Partnership and Premier.
10.12 Employment Agreement, dated April 1, 1998, between Premier and W.
Dennis Prouty.
10.13 Employment Agreement, dated April 1, 1998, between Premier and
Laura C. Sotera.
- 26 -
<PAGE>
10.14 Promissory Note, dated December 26, 1997 issued by Advantage Life
Products, Inc. to the Company in the principal amount of
$500,000.
10.15 Stock Pledge Agreement, dated December 26, 1997, between
Advantage Life Products, Inc. and the Company.
10.16 Loan Agreement, dated January 23, 1998, among Cutting Edge
Entertainment, Inc. ("Cutting Edge"), the Company and David C.
Glasser.
10.17 Promissory Note, dated January 23, 1998, issued by Cutting Edge
to the Company in the principal amount of $600,000.
10.18 Assignment of Accounts Receivable Distribution Agreements,
Trailing Royalties, Contract Rights, Permits, Licenses and
Deposits, Etc. and Security Agreement, dated January 23, 1998,
issued by Cutting Edge to the Company.
10.19 Stock Pledge Agreement, dated January 23, 1998, between David C.
Glasser and the Company.
10.20 Unconditional and Continuing Guaranty of David C. Glasser, dated
January 23, 1998, issued to the Company.
10.21 Modification of Loan Documents, dated April 3, 1998, among
Cutting Edge, the Company and David C. Glasser.
10.22 Agreement, dated March 11, 1998, between the Company and Cutting
Edge.
10.23 Syndication Agreement, dated February 1, 1998, among the Company,
Barry Goldstein and Randy Wool.
10.24 Increased and Restated Promissory Note, dated January 30, 1998,
issued by Metro Dade Community Mental Health Center, Inc. to the
Company in the principal amount of $110,000.
10.25 Unconditional and Continuing Guaranty, dated January 30, 1998,
issued by Fabian Diaz to the Company.
10.26 Stock Pledge Agreement, dated January 30, 1998, between Fabian
Diaz and the Company.
10.27 Assignment of Security Agreement, dated January 27, 1998, issued
by Med-Funding, Inc. to the Company.
10.28 Loan and Security Agreement, dated May 8, 1998, between AFG and
FINOVA.
- 27 -
<PAGE>
10.29 Continuing Corporate Guaranty, dated May 8, 1998 issued by the
Company to FINOVA.
10.30 Stock Pledge Agreement, dated December 24, 1997, between Group
and the Company.
10.31 Letter Agreement, dated December 24, 1997, between Group and the
Company.
10.32 The Company's 1997 Stock Option Plan (Incorporated by reference
to Exhibit 10.6 to Post-Effective Amendment No. 2 to the
Company's Registration Statement on Form SB-2 (File No.
333-24937)).
21 Subsidiaries of the Company
23 Consent of Daszkal, Bolton & Manela
27 Financial Data Schedule
- 28 -
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, as amended, the Registrant caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MEDLEY CREDIT ACCEPTANCE CORP.
Date: June 9, 1998 By: /s/ Robert D. Press
----------------------------
Robert D. Press, President
In accordance with the Securities Exchange Act of 1934, as amended, this
Report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Robert D. Press President, Chairman of the June 9, 1998
- ----------------------- Board of Directors and Chief
Robert D. Press Executive Officer
/s/ Maynard Hellman Director June 9, 1998
- -----------------------
Maynard Hellman
/s/ Arthur J. Press Director June 9, 1998
- -----------------------
Arthur J. Press
- 29 -
<PAGE>
DASZKAL, BOLTON & MANELA
CERTIFIED PUBLIC ACCOUNTANTS
A PARTNERSHIP OF PROFESSIONAL ASSOCIATIONS
240 W. PALMETTO PARK ROAD, SUITE #300, BOCA RATON, FLORIDA 33432
TELEPHONE (561) 367-1040 FAX (561) 750-3236
JEFFREY A. BOLTON, CPA, P.A. MEMBER OF THE AMERICAN INSTITUTE
MICHAEL I. DASZKAL, CPA, P.A. OF CERTIFIED PUBLIC ACCOUNTANTS
ROBERT A. MANELA, CPA, P.A.
TIMOTHY R. DEVLIN, CPA, P.A.
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
Medley Credit Acceptance Corp.
We have audited the accompanying balance sheets of Medley Credit Acceptance
Corp., as of December 31, 1997 and 1996, and the related statements of
operations, changes in stockholders' equity (deficit), and cash flows for the
years then ended. These financial statements are the responsibility of the
management of Medley Credit Acceptance Corp. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Medley Credit Acceptance
Corp., as of December 31, 1997 and 1996, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
Boca Raton, Florida
February 20, 1998
F-1
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
BALANCE SHEETS
DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Current Assets:
Cash $4,106,803 $ -
Accounts receivable, net of allowance for
doubtful accounts of $3,000 in 1997 and 1996 45,661 73,727
Finance receivable 500,000 29,816
Due from affiliates - 585,288
Prepaid offering costs - 73,015
Consulting agreement 120,000 -
---------- ----------
Total Current Assets 4,772,464 761,846
---------- ----------
Rental equipment, at cost, net 69,959 234,619
---------- ----------
Property and equipment, at cost, net 7,995 19,154
---------- ----------
Other Assets:
Due from affiliates 75,413 711,837
Rental equipment not in service - 65,565
Deposits and consulting agreement 30,000 1,799
---------- ----------
Total Other Assets 105,413 779,201
---------- ----------
Total Assets $4,955,831 $1,794,820
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Current Liabilities:
Notes payable $ 140,525 $ 210,000
Current portion of long-term debt 107,495 250,937
Current portion of obligations to finance companies 50,754 91,027
Accounts payable and accrued expenses 364,246 172,534
Dividends payable - preferred stock 1,278 127,668
---------- ----------
Total Current Liabilities 664,298 852,166
---------- ----------
Other Liabilities:
Long-term debt, net of current portion 60,000 167,286
Obligations to finance companies, net of current portion 26,913 100,996
Notes payable - officers - 105,236
Customer deposits - 7,115
---------- ----------
Total Other Liabilities 86,913 380,633
---------- ----------
Total Liabilities 751,211 1,232,799
---------- ----------
Commitments and Contingencies - -
Redeemable Convertible 10% Preferred Stock:
Series A 10% convertible preferred stock, $.01 par value,
5,000,000 authorized, 2,958,817 shares, issued and outstanding - 820,281
Stockholders' Equity (Deficit):
Series A 10% redeemable convertible preferred stock, $.01 par value, 5,000,000
authorized, 2,958,817 shares, issued and outstanding (liquidation value of
$2,958,817 plus
accumulated dividends) 29,588 -
Common stock, $.01 par value, 10,000,000 shares
authorized, 2,667,382 and 1,680,000 shares issued
and outstanding 26,674 16,800
Additional paid-in capital 6,947,803 1,532,206
Accumulated deficit (2,799,445) (1,807,266)
---------- ----------
Total Stockholders' Equity (Deficit) 4,204,620 (258,260)
---------- ----------
Total Liabilities and Stockholders' Equity (Deficit) $4,955,831 $1,794,820
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Revenues:
Leasing income $ 148,589 $ 356,235
Factoring income 46,579 -
Interest income 97,368 93,064
--------- ---------
Total Revenues 292,536 449,299
--------- ---------
Cost and Expenses:
Depreciation 83,115 95,483
Interest expense 76,050 146,914
Loss on sale/disposal of leased equipment 162,567 35,687
General and administrative expense 626,294 447,855
--------- ---------
Total Costs and Expenses 948,026 725,939
--------- ---------
Loss from operations (655,490) (276,640)
--------- ---------
Other Income (Expenses):
Reversal of estimate for uncollectible
advances to affiliate - 600,000
Loss on sale of securities available for sale (40,580) -
--------- ---------
Total Other Income (Expenses) (40,580) 600,000
--------- ---------
Net (Loss) Income: $(696,070) $ 323,360
========= =========
Net (loss) income applicable to common shareholders $(992,179) $ 90,638
========= =========
Net (loss) income per common share (basic and
(diluted) $ (.58) $ .05
========= =========
Weighted average number of shares outstanding
(basic and diluted) 1,698,607 1,680,000
========= =========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
TOTAL
CONVERTIBLE ADDITIONAL STOCKHOLDERS
'
PREFERRED STOCK COMMON STOCK PAID-IN ACCUMULATED EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT (DEFICIT)
------ ------ ------ ------ --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, at January 1, 1996 $ 1,000 $ 200,000 $ 979,146 $(1,793,044) $(613,898)
Reclassification of S-corp
undistributed earnings - - - - 104,860 (104,860) -
Restatement of common stock par value - - (199,990) 199,990 - -
--------- ------- --------- --------- ---------- ----------- ----------
Beginning balance as restated - - 1,000 10 1,283,996 (1,897,904) (613,898)
Stock split - 1,120 to 1 - - 1,119,000 11,190 (11,190) - -
Issuance of warrants - - - - 100,000 - 100,000
Compensation value of common stock - - - - 165,000 - 165,000
Stock split - 3 for 2 - - 560,000 5,600 (5,600) - -
Preferred stock dividends - - - - - (232,722) (232,722)
Net income - - - - - 323,360 323,360
--------- ------- --------- --------- ---------- ----------- ----------
Balance, at December 31, 1996 - - 1,680,000 16,800 1,532,206 (1,807,266) (258,260)
Issuance of warrants - - - - 153,488 - 153,488
Preferred stock dividends - - - - - (296,109) (296,109)
Net loss - - - - - (696,070) (696,070)
Sale of stock, net of issuance costs - - 1,017,382 10,174 4,636,116 - 4,646,290
Purchase and retirement of
treasury stock - - (30,000) (300) (164,700) - (165,000)
Restatement of preferred stock 2,958,817 29,588 - - 790,693 - 820,281
--------- ------- --------- --------- ---------- ----------- ----------
Total 2,958,817 $29,588 2,667,382 $ 26,674 $6,947,803 $(2,799,445) $4,204,620
========= ======= ========= ========= ========== ============ ==========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash Flows from Operating Activities
Net income (loss) $ (696,070) $ 323,360
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 83,115 95,483
Reversal of estimate for uncollectible
advances to affiliate -- (600,000)
Loss on sale of leased equipment 162,567 35,687
Loss on sale of securities available-for-sale 40,570 --
Compensation value of common stock -- 165,000
Changes in assets and liabilities:
Accounts receivable 28,066 (43,907)
Prepaid expenses (150,000) 7,592
Prepaid offering costs 73,015 (73,015)
Accounts payable and accrued expenses 191,712 130,118
Customer deposits (7,115) (20,229)
----------- -----------
Net cash (used) provided by operating activities (274,140) 20,089
----------- -----------
Cash Flows from Investing Activities
Net proceeds from affiliate 47,662 42,083
Payment from affiliate 1,130,000
Purchase of rental equipment -- (111,544)
Notes acquired for cash (500,000) --
Purchase of securities available-for-sale (75,010) --
Proceeds from sale of securities available-or-sale 34,440 --
----------- -----------
Net cash provided (used) by investing activities 637,092 (69,461)
----------- -----------
Cash Flows from Financing Activities
Short-term borrowings 525 10,000
Proceeds from long-term debt 382,426 276,000
Repayments of short-term borrowings (70,000) (145,000)
Repayments of long-term debt and obligations (216,577)
to finance companies (81,223)
Payment of preferred stock dividends (56,023) (105,054)
Net proceeds from shareholders loans -- 111,200
Issuance of common stock, net 3,414,658 --
Issuance of preferred stock -- 15,000
Issuance of warrants 153,488 100,000
----------- -----------
Net cash provided by financing activities 3,743,851 45,569
----------- -----------
Net increase (decrease) in cash and equivalents 4,106,803 (3,803)
Cash and equivalents - beginning of period -- 3,803
----------- -----------
Cash and equivalents - end of period $ 4,106,803 $ --
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Supplemental Disclosures of Cash Flow
Information:
Interest paid $ 104,178 $ 59,628
========== ==========
Supplemental Noncash Investing and Financial
Activities:
Long-term debt and related accrued interest
converted into convertible preferred stock $ -- $ 788,844
Long-term debt and related interest converted
into common stock and warrants 1,068,882 --
Purchase of treasury stock 165,000 --
Leased equipment received from affiliated
company as payment on intercompany
receivable 58,888 --
---------- ----------
$1,292,770 $ 788,844
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Medley Credit Acceptance Corp., (the "Company"), is a Delaware corporation. The
Company is a specialty finance company operating in Florida and currently
engaged in the lending of funds through financing agreements. The Company also
leases refrigeration and dry-cleaning equipment under non-cancelable operating
leases. The Company will be phasing out these types of equipment leasing.
Medley Group, Inc. was an 89% owner of the Company in 1997 and 1996. Medley
Group, Inc.'s ownership percentage decreased to approximately 48% upon the
completion of the initial public offering in December 1997. Medley Group, Inc.
also owns 100% of Medley Refrigeration Central Florida, Inc. and Miami Ice
Machine, Inc. d/b/a Medley Refrigeration, formerly a 100% owned subsidiary of
Medley Group, Inc., which ceased operations in September 1997.
Cash and Cash Equivalents
The Company considers highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
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 disclosures 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.
Revenue Recognition
The Company leases equipment to others under non-cancelable operating leases,
whereby revenue is recognized as lease payments are due from customers and the
related equipment costs are depreciated using the straight-line method over the
rental equipment's expected life. Dry cleaning and refrigeration equipment is
not generally subject to obsolescence, however, the Company periodically
evaluates the realizable value of such assets to determine whether any
impairment has occurred in the value based on the provisions of Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets."
F-8
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property, Equipment and Depreciation
Property and equipment are stated at cost. Major expenditures for property and
those which substantially increase useful lives are capitalized. Maintenance,
repairs, and minor renewals are expensed as incurred. When assets are retired
or otherwise disposed of, their costs and related accumulated depreciation are
removed from the accounts and resulting gains or losses are included in income.
Depreciation is provided by the straight-line method over the estimated useful
lives of the assets.
Securities
In accordance with Statements of Financial Accounting Standards No. 115,
"Accounting for Certain Debt and Equity Securities" (SFAS 115), securities are
classified into three categories: held-to- maturity, available-for-sale, and
trading.
Securities classified as held-to-maturity, which are those the Company has the
positive intent and ability to hold to maturity, are reported at amortized
cost. Securities classified as available-for-sale may be sold in response to
changes in interest rates, liquidity needs, and for other purposes.
Available-for-sale securities are reported at fair value and include securities
not classified as held-to- maturity or trading. Trading securities are those
held principally for the purpose of selling in the near future and are carried
at fair value.
Realized gains and losses are reported in earnings based on the adjusted cost
of the specific security sold. There are no securities held by the Company at
December 31, 1997.
Finance Receivables
Finance receivables that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at their
outstanding unpaid principal balances reduced by any charge off or specific
valuation accounts and net of any deferred fees or costs on originated loans,
or unamortized premiums or discounts on purchased loans.
Loan origination fees and certain direct origination costs are capitalized and
recognized as an adjustment of the yield of the related loan.
Allowance for loan losses is increased by charges to income and decreased by
charge offs (net of recoveries). Management's periodic evaluation of the
adequacy of the allowance is based on the Company's past loan loss experience,
known and inherent risks in the portfolio, adverse situations that may affect
the borrower's ability to repay, the estimated value of any underlying
collateral and current economic conditions.
F-9
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Finance Receivables (Continued)
The Company calculates its provision for credit losses based on changes in the
present value of expected future cash flows of its loans discounted at the
loan's effective interest rate in accordance with Financial Accounting
Standards Board (FASB) Statement of Financial Accounting Standards
No. 114.
Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in estimating
fair values of financial instruments as disclosed herein:
Cash and cash equivalents. The carrying amounts of cash and short-term
instruments approximate the fair value.
Finance receivables. Fair values for commercial receivables are estimated using
discounted cash flow analyses, using interest rates currently being offered for
loans with similar terms to borrowers of similar credit quality.
NOTE 2 - FINANCE RECEIVABLE
On December 26, 1997, the Company entered a financing agreement whereby it
loaned $500,000 to an unrelated corporation. The loan is secured by 1,500,000
shares of common stock, which represents approximately 10.3% of the outstanding
shares of the borrower. The note plus 10% interest is due December 28, 1998.
NOTE 3 - CONSULTING AGREEMENT
On December 31, 1997, the Company entered into an agreement for the services of
a lease financing specialist whereby consulting services would be provided to
the Company which will allow it to expand its leasing business. The agreement,
which sets the consultant fees at $150,000 for a two year period covers the
calender year's 1998 and 1999. The Company has paid these fees in advance.
F-10
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - RENTAL EQUIPMENT AND DEPRECIATION
Rental equipment consists of the following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
----------------------------------------- ------------------------------------------
IN SERVICE IDLE TOTAL IN SERVICE IDLE TOTAL
---------- ---- ----- ---------- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Equipment, at cost $ 106,094 $ -- $ 106,094 $ 465,375 $ 562,140 $ 1,027,515
Less, accumulated
depreciation (36,135) -- (36,135) (230,756) (496,575) (727,331)
----------- ----------- ----------- ----------- ----------- -----------
Net rental equipment $ 69,959 $ -- $ 69,959 $ 234,619 $ 65,565 $ 300,184
=========== =========== =========== =========== =========== ===========
</TABLE>
The depreciation expense on rental equipment for the years ended December 31,
1997 and 1996 was $74,108 and $85,415, respectively. At December 31, 1997, the
Company recognized losses of $162,567 on the disposal of in service and idle
equipment.
Rents receivable under non-cancelable operating lease commitments for the next
five years are as follows:
1998 $36,518
1999 36,518
2000 9,469
2001 -
2002 -
-------
$82,505
F-11
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - PROPERTY, EQUIPMENT AND DEPRECIATION
Major classes of property and equipment consist of the following at December
31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Office equipment $ 48,571 $ 48,571
Automobile - 6,955
-------- --------
48,571 55,526
Less: accumulated depreciation (40,576) (36,372)
-------- --------
Net Property and Equipment $ 7,995 $ 19,154
======== ========
</TABLE>
Depreciation expense on property and equipment for the years ended December 31,
1997 and 1996 was $9,007 and $10,068, respectively.
NOTE 6 - NOTES PAYABLE
Notes payable of $140,525 at December 31, 1997 and $210,000 at December 31,
1996 are comprised of the following:
Note Payable to Bank
The Company previously established a revolving credit line agreement with a
commercial bank which was used to finance working capital requirements. At
December 31, 1997 and December 31, 1996, the amounts outstanding under this
line were $135,000 and $195,000, respectively. Borrowings under the note are
collateralized by certain of the Company's assets not otherwise pledged and the
debt is personally guaranteed by the Company's principal officers and Medley
Group, Inc., an affiliated company.
Notes Payable to Individuals
Included in notes payable to individuals is $5,525 at December 31, 1997 and
$15,000 at December 31, 1996, bearing interest at 10% per annum.
F-12
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - LONG-TERM DEBT
The Company has received funds from individuals and issued notes for these
loans. In June 1996, the Company offered to convert these individual notes to
10% convertible preferred stock at a conversion ratio of approximately 1.03
shares to $1.00 of debt. Certain note holders elected to convert their debt,
amounting to $551,932 for 1997 and $765,657 for 1996, with accrued interest of
$23,936 for 1997 and $23,187 for 1996 to convertible preferred stock.
At December 31, 1997 and December 31, 1996, the Company remained obligated to
various individuals, not electing to convert their debt, for amounts
aggregating $167,495 and $418,223, respectively. These notes are for various
amounts and maturities through January 1999. Interest is payable at rates
ranging from 10% to 13.5% per annum. The unsecured portion of these notes at
December 31, 1997 and December 31, 1996 is $107,495 and $358,223, respectively.
As of December 31, 1997, annual maturities of long-term debt (excluding
converted notes) are as follows:
1998 $107,495
1999 60,000
--------
Total $167,495
========
NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments and related-party
transactions:
The fair value of financial instruments classified as current assets or
liabilities including cash and cash equivalents, finance and accounts
receivables and accounts payable approximate carrying value due to the
short-term maturity of the instruments. The fair value of short-term and
long-term debt approximate carrying value based on their effective interest
rates compared to current market rates. The estimates are not necessarily
indicative of the amounts the Company could realize in a current market
exchange, and the use of different market assumptions or methodologies could
have a material effect of the estimated fair value amounts.
F-13
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - OBLIGATIONS TO FINANCE COMPANIES
Obligations to finance companies, secured by rental equipment and related
rental agreements, consist of the following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------ -----
<S> <C> <C>
18.7% obligation, payable in monthly installments
of $2,260, including interest, through April 1998 $10,791 $ 33,527
23.6% obligation, payable in varying monthly
installments, including interest, through November
1999 19,156 40,341
21.2% obligation, payable in varying monthly
installments, including interest, through November
1999 36,722 62,223
18.3% obligation, payable in varying monthly
installments, including interest, through November
1999 10,998 26,678
21.4% obligation, payable in monthly installments
of $996, including interest, through June 2000 - 29,254
---------- ----------
77,667 192,023
Less: current maturities (50,754) (91,027)
---------- ----------
Long-term Obligations $26,913 $100,996
========== ==========
</TABLE>
As of December 31, 1997, the annual maturities of obligations to finance
companies for the next five years are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 50,754
1999 26,913
---------
Total $ 77,667
=========
</TABLE>
F-14
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 10 - RELATED-PARTY TRANSACTIONS
The Company has transactions with related companies whose management is
substantially the same as that of the Company. Included in the statements of
operations are the following items of income and expense for the year.
<TABLE>
<CAPTION>
1997 1996
------ -----
<S> <C> <C>
Rental revenues $ 65,459 $ 92,144
Allocated 15% of rent, utilities and insurance based
upon square footage (7,960) (13,650)
Allocated 12% of office salaries based upon
company's determination of labor hours incurred (2,540) ( 4,350)
Management expense - (15,000)
-------- --------------
Net $ 54,959 $ 59,144
======== ==============
</TABLE>
The balance of $75,413, due from affiliate, resulted principally from a
non-interest-bearing advance with no definitive due date to Medley
Refrigeration Central Florida, Inc.
At December 31, 1996, the balance due from Medley Refrigeration, Inc., an
affiliate, resulted principally from advances with interest at 10% per annum
with no definite due date of approximately $1,200,000. Concurrent with the
issuance of common stock and warrants, as more fully described in the
stockholders' equity note, the Company received approximately $1,130,000 from
Medley Refrigeration, Inc., as payment on their balance due.
A $10,000 note due to a company owned by one of the stockholders at December
31, 1996 and subsequently increased to $30,000 during the year 1997 was
converted to common stock in the initial public offering.
Note payable-officers at December 31, 1996 totaled $105,236 and bear interest
at 12% per annum. In connection with the making of these loans on June 1, 1996,
the Company issued to certain shareholders warrants to purchase up to 285,000
shares of common stock. These warrants are exercisable at any time on or prior
to September 30, 2000, at an exercise price of $1.50 per share. The stockholder
loans were satisfied by their conversion into stock from the initial public
offering.
On January 9, 1997, the Company entered into an employment agreement with its
President in the amount of $60,000, which renews each year effective December
31. This agreement is effective for a period of one year. (See Note 18.)
NOTE 11 - CONCENTRATION OF CREDIT RISK
The Company maintains its cash in bank deposit accounts at two financial
institutions. The balances, at times, exceed federally insured limits. At
December 31, 1997, the Company accounts exceeded the insured limit by
$3,900,333.
F-15
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 12 - STOCKHOLDERS' EQUITY
Preferred Stock
In June 1996, the Company authorized and issued an aggregate of 2,958,817
shares designated as Series A 10% convertible preferred stock. At the time the
preferred stock was issued, the Company offered to certain note holders the
option to exchange their notes, approximating $972,000, to convertible
preferred stock of Medley Credit Acceptance Corp. at a ratio of approximately
1.03 shares to $1.00. Note holders elected to convert $788,844 of notes and
accrued interest to convertible preferred stock in 1996. Dividends on the
preferred stock are payable quarterly and are cumulative. The preferred stock
is convertible to common stock of the Company at a 15% discount to the public
offering price of $5.50. Under the terms of the convertible preferred stock
issue, the Company, at its sole discretion, may redeem the stock commencing on
or after the fifth anniversary of its issuance if the average trading price of
the common stock, if any, in the 20 trading days immediately preceding such
anniversary, exceeds the conversion price by 20%. At anytime after the fifth
anniversary, the Company has the right to redeem the convertible preferred
stock, in whole or in part, upon 30 days notice to the holders. The preferred
stock agreement required the Company to redeem the preferred stock if a public
offering was not completed within 18 months after the issuance. The public
offering was completed in 1997 and the preferred stock was reclassified to
permanent equity.
Common Stock - Stock Splits
On June 30, 1996, the Company declared a 1,120 to 1 common stock split, which
increased the issued and outstanding shares from 1,000 to 1,120,000 shares. On
December 31, 1996, the Company declared a 3 for 2 stock split, which increased
the issued and outstanding shares to 1,680,000 shares. Per share amounts in the
accompanying financial statements have been adjusted for the stock splits.
Additional Paid-in Capital
In January 1996, approximately 30,000 shares of common stock owned by the
parent Company, Medley Group, Inc., were transferred to the officers for
services performed by them on behalf of the Company. These shares were
purchased by the Company in December 1997 for $165,000 and were subsequently
retired. See Treasury Stock caption below.
At December 31, 1996, $165,000, representing the fair value of the officer's
compensation was recorded as an expense and included in additional paid-in
capital.
Warrants Issued
During December 1996, the Company sold 1,000,000 warrants at $.10 each. Each
warrant is exercisable for the purchase of one share of common stock at a price
of $5.00 per share for a period of four years commencing one year after July
10, 1997, the effective date of the Company's registration statement.
F-16
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 12 - STOCKHOLDERS' EQUITY (CONTINUED)
Stock Option Plan
On January 9, 1997, the Company established an incentive compensation stock
option plan (the "Plan"). The Plan has 500,000 shares of Common Stock reserved
for issuance upon the exercise of options designated as either (i) incentive
stock options ("ISOs") under the Internal Revenue Code of 1986, or (ii)
non-qualified options. ISOs may be granted under the Plan to employees and
officers of the Company. Non-qualified options may be granted to consultants,
directors (whether or not they are employees), employees or officers of the
Company. In certain circumstances, the exercise of stock options may have an
adverse effect on the market price of the Company's common stock and/or
warrants. No options have been granted under the stock option plan. (See Note
18.)
Treasury Stock
In December 1997, the Company acquired 15,000 shares of common stock from
Robert D. Press, Chairman of the Board, and 15,000 shares of common stock from
Carol Edelson, a principal stockholder, and created a loan payable in the
amount of $165,000. The loan payable was satisfied with the issuance of IPO
stock to each of them. The Treasury stock shares were canceled by the Company.
See further discussion under Initial Public Offering caption below.
Initial Public Offering
The Company has completed an initial public offering at December 24, 1997,
selling 1,217,382 shares of common stock and 1,223,250 warrants. Included in
this offering was 200,000 shares of common stock and 200,000 warrants sold by
the parent company, Medley Group, Inc.
The proceeds from the sale of the parent's company stock was used to pay off an
affiliate's loan payable to Medley Credit Acceptance Corp. (See Note 11.)
The stock sold for $5.50 per share with a $0.01 par value per share. The
warrants sold for $0.15 each and consist of one redeemable warrant to purchase
one share of common stock for $5.75. The common shares and warrants were
purchased separately and are transferable separately.
The Company received cash and subscriptions of approximately $6,893,000 for
securities and warrants sold from the Initial Public Offering (IPO). Of this
amount, there was a non-cash portion approximating $1,234,000 in subscriptions,
representing 223,933 shares, that was issued to satisfy existing obligations
owing by the Company to the subscribers of the IPO. Included in this amount was
approximately $290,000 due to Robert D. Press, Chairman of the Board of the
Company and $361,000 due to Carol Edelson, a principal stockholder.
Prepaid offering costs of approximately $958,000 were charged to additional
paid-in capital upon completion of the offering.
F-17
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 13 - RECLASSIFICATION
As discussed above, the preferred stock redemption requirement was terminated
with the completion of the public offering and the preferred stock has been
reclassified to permanent equity.
The common stock par value in the 1996 financial statements has been
reclassified to the proper par value amount of $.01 per share. The resultant
reclassification increased additional paid in capital by $199,990 and reduced
common stock by a corresponding amount.
At the time the Company changed its status from an S Corporation to a C
Corporation, undistributed S Corporation earnings of $104,860 were reclassified
from retained earnings to additional paid-in capital. This treatment assumes a
constructive distribution to the owners followed by a contribution to paid-in
capital.
NOTE 14 - COMMITMENTS AND CONTINGENCIES
Lease Agreements
In 1992, an affiliate of the Company entered into a lease for the premises
which were occupied by the Company and affiliates. This lease expired October
1997. The lease required a minimum annual base rent of $25,000 plus real estate
taxes and operating costs. The Company has included in the statement of
operations its allocated portion of $1,895 and $3,250 as an expense for 1997
and 1996, respectively.
In addition, the Company rents warehouse space on a month-to-month basis for
storage purposes at a cost of approximately $371 per month. Starting December
1997, a new larger storage facility was rented on a month-to-month basis at a
cost of $700 per month.
Management Agreement
In 1997, the Company canceled its management agreement with a related company
for management services. During the year ended December 31, 1996, the Company
paid $15,000 in management fees under this agreement.
Litigation
The Company is involved in litigation in the normal course of business. This
litigation is not expected to have a material effect on the Company's results
of operations or financial condition.
F-18
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 15 - INCOME TAXES
In 1996, the Company was included in the consolidated federal tax return of its
parent, Medley Group, Inc. Federal and state income taxes were provided for on
a stand-alone basis as if the Companies filed their own tax returns. In 1997,
the Company will not file a consolidated tax return.
The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
1997 1996
--------------- --------------
<S> <C> <C>
Taxes currently payable $ - $ -
Deferred income taxes - -
Change in beginning valuation allowance - -
--------------- --------------
Provision for income taxes $ - $ -
--------------- ==============
</TABLE>
Reconciliation of the Federal statutory income tax rate to the Company's
effective income tax rate is as follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Completed at the Statutory rates (238,404) 102,500
(Increase) decrease resulting from:
Non-deductible expenses 10,863 -
State income taxes, net (26,501) 17,500
Change in deferred tax asset
valuation allowance 254,042 (120,000)
-------------- -------------
Actual provision $ - $ -
============== =============
</TABLE>
The components of the deferred tax asset were as follows at December 31, 1997
and 1996:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Deferred tax asset:
Net operating loss carryforward $471,553 $ 229,200
Allowance for bad debts 1,139 -
Other 15,061 -
---------- ---------
Total deferred tax asset 487,753 229,200
Deferred tax liabilities:
Depreciation (4,511) -
----------- ---------
Net deferred tax asset 483,242 229,200
--------- ---------
Valuation allowance:
Beginning of year (229,200) (349,200)
Increase during year (254,042) 120,000
--------- ---------
Ending balance (483,242) (229,200)
--------- ---------
Net Deferred Taxes $ - $ -
========= =========
</TABLE>
F-19
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 15 - INCOME TAXES (CONTINUED)
At December 31, 1997 and 1996, the Company has unused net operating loss
carryforwards of approximately $1,242,000 and $573,000, respectively, expiring
primarily in 2011 and 2012, which is available for use on its future corporate
Federal and State tax returns.
NOTE 16 - DEPENDENCE ON AFFILIATES AND OTHERS
Through December 31, 1997, the Company has relied primarily on the customer
relationships generated by its affiliates for a significant source of its
business.
NOTE 17 - SUBSEQUENT EVENTS
Notes Executed and Funded
The Company has received notes and loaned funds to unrelated companies in
amounts approximating $350,000, $400,000 and $110,000 through February 2, 1998
as a part of expanding its financing line of business. The notes bear interest
from 10 - 18% per annum with various due dates of ninety days to one year. The
notes are secured by various personal guarantees, common stock pledges,
assignments of property and accounts receivable.
Line-of-Credit
On December 29, 1997, the Company provided a financial accommodation to an
affiliate for a fee equal to $150,000 per annum while the Company continues to
extend such financial accommodation. Specifically, the Company posted a $1.7
million standby letter-of-credit on behalf of an affiliate. This
letter-of-credit was posted for the purpose of securing the performance of
certain equipment leases sold by the affiliate to an unrelated party. The
Company's financial exposure under the letter- of-credit has been
collateralized by the pledge by the affiliate to the Company of 750,000 shares
of the Company's common stock, which common stock, for purposes of the pledge,
has an agreed upon value of $2.50 per share.
Employment Agreement
On March 1, 1998, the Company entered into a three-year employment agreement
with its President for future compensation, bonuses, stock options and grants
as follows:
<TABLE>
<CAPTION>
COMPENSATION BONUSES STOCK GRANTS
------------ ------- ------------
<S> <C> <C> <C>
1998 $225,000 $45,000 120,000 shares
1999 $275,000 $60,000 160,000 shares
2000 $350,000 $75,000 200,000 shares
</TABLE>
The agreement also calls for the grant of incentive stock options to be
determined during the first month following the completion of each twelve month
period of employment based upon the Company's rate of return on equity and
capital.
F-20
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 17 - SUBSEQUENT EVENTS (CONTINUED)
Acquisitions
The Company, during the calendar quarter ended March 31, 1998, formed American
Factors Group, Inc., ("AFG"), a 80% owned subsidiary specializing in accounts
receivable financing. In connection with the formation of AFG, the Company
entered into employment agreements with two seasoned finance professionals who
own the remaining 20% interest. These individuals have covenanted to the
Company that they can generate, in the aggregate, significant factored accounts
receivable for AFG per annum. In addition, these two individuals have been
granted the right to exchange their 20% interest in AFG for shares of the
Company's Common Stock upon AFG's achieving certain financial performance
levels. For purposes of providing AFG with the capital necessary to initiate
full-time factoring operations, the Company has commenced discussions with
various institutional lenders regarding the creation of a credit facility to
assist AFG's acquisition of factored accounts receivable. No assurance can be
given, however, that the Company will successfully establish such a credit
facility, or that such facility, if provided, will be on terms acceptable to
the Company.
In addition, the Company acquired Medical Billing Services Systems, Premier
Provider Systems and PPS Staffing Systems, a conglomerate of companies engaged,
generally, in providing back office, auditing and other financial
administrative services principally to the medical industry. These acquisitions
enabled the Company, among other things, to save the costs and expenses
associated with either building internally or outsourcing, such back office and
administrative services. On a combined basis, these three companies are
anticipated initially, to generate approximately $3 million in revenues for the
Company per annum. In consideration for these acquisitions, the Company agreed
to issue to the stockholders of these companies an aggregate of 585,000 shares
of the Company's common stock, each share valued at $4.50, one-half of such
shares issuable immediately, payable, with the remaining one-half of such
shares being payable one year following the acquisitions.
During the First Quarter of 1998, the Company consummated certain transactions
designed to grow the Company's accounts receivable financing and traditional
financing business lines, while establishing a market presence for the same. In
addition to the formation of AFG and the closing of various traditional
financing business loans, all as discussed above, the Company acquired 80% of
American Investment Management ("AIM"), a marketer and manager of a variety of
financial and insurance-related services, including annuities, employee
benefits, pensions, securities, asset and trust management and estate planning.
In consideration for the Company's purchase of AIM, the Company agreed to issue
to the principal of AIM shares of the Company's Common Stock on the first,
second and third anniversaries of the AIM acquisition in exchange for the
remaining 20% of AIM capital stock not originally acquired by the Company, and
incentive stock options pursuant to the Company's 1997 Stock Option Plan to
acquire additional shares of Common Stock of the Company based upon AIM's
future operating performance.
Note Payable to Bank
The Company has finalized a settlement with the bank on their balance due of
$135,000. The Company has agreed to pay $50,000 upon execution of the agreement
and make eleven monthly payments of $10,000 commencing June 1, 1998 with a
final payment of $5,000. The Company has recorded $150,000 of this obligation
at December 31, 1997.
F-21
<PAGE>
EXHIBIT INDEX
EXHIBIT.
NO. DESCRIPTION
3.1 Amended and Restated Certificate of Incorporation of the
Company (Incorporated by reference to Exhibit 3.1 to
Post-Effective Amendment No. 2 to the Company's Registration
Statement on Form SB-2 (File No. 333-24937)).
3.2 Certificate of Designation, Rights and Preferences relating
to shares of the Company's Series A 10% Convertible Preferred
Stock (Incorporated by reference to Exhibit 3.2 to
Post-Effective Amendment No. 2 to the Company's Registration
Statement on Form SB-2 (File No. 333-24937)).
3.3 By-Laws of the Company (Incorporated by reference to Exhibit
3.3 to Post- Effective Amendment No. 2 to the Company's
Registration Statement on Form SB-2 (File No. 333-24937)).
4.1 Specimen Common Stock Certificate (Incorporated by reference
to Exhibit 4.1 to Post-Effective Amendment No. 2 to the
Company's Registration Statement on Form SB-2 (File No.
333-24937)).
4.2 Specimen Warrant Certificate (included as Exhibit A to
Exhibit 4.3) (Incorporated by reference to Exhibit 4.2 to
Post-Effective Amendment No. 2 to the Company's Registration
Statement on Form SB-2 (File No. 333-24937)).
4.3 Warrant Agency Agreement, dated December 1997, between the
Company and American Stock Transfer & Trust Company
(Incorporated by reference to Exhibit 4.3 to Post-Effective
Amendment No. 2 to the Company's Registration Statement on
Form SB-2 (File No. 333-24937)).
10.1 Employment Agreement, dated as of March 1, 1998 between
Robert D. Press and the Company.
10.2 Agreement, dated March 4, 1998, among the Company, Frederick
Horwin and Tom Wheatley.
10.3 Employment Agreement, dated as of March 4, 1998, between AFG
and Frederick Horwin.
10.4 Employment Agreement, dated as of March 4, 1998, between AFG
and Tom Wheatley.
10.5 Stock Purchase Agreement, dated March 13, 1998, between the
Company and Irwin Gross.
<PAGE>
EXHIBIT.
NO. DESCRIPTION
10.6 Employment Agreement, dated March 13, 1998, between AIM and
Irwin Gross.
10.7 Stock Purchase Agreement, dated March 30, 1998, among the
Company, Joanne Telmosse, Jamie Silva, Jennifer Makula and
Medical Billing.
10.8 Employment Agreement, dated March 30, 1998, between Medical
Billing and Joanne Telmosse.
10.9 Employment Agreement, dated March 30, 1998, between Medical
Billing and Jennifer Makula.
10.10 Employment Agreement, dated March 30, 1998, between Medical
Billing and Jamie Silva.
10.11 Stock Purchase Agreement, dated March 30, 1998, among the
Company, W. Dennis Prouty, Laura C. Sotera, Garry R. Spear,
Esq., YNC General Partnership and Premier.
10.12 Employment Agreement, dated April 1, 1998, between Premier
and W. Dennis Prouty.
10.13 Employment Agreement, dated April 1, 1998, between Premier
and Laura C. Sotera.
10.14 Promissory Note, dated December 26, 1997 issued by Advantage
Life Products, Inc. to the Company in the principal amount of
$500,000.
10.15 Stock Pledge Agreement, dated December 26, 1997, between
Advantage Life Products, Inc. and the Company.
10.16 Loan Agreement, dated January 23, 1998, among Cutting Edge
Entertainment, Inc. ("Cutting Edge"), the Company and David
C. Glasser.
10.17 Promissory Note, dated January 23, 1998, issued by Cutting
Edge to the Company in the principal amount of $600,000.
10.18 Assignment of Accounts Receivable Distribution Agreements,
Trailing Royalties, Contract Rights, Permits, Licenses and
Deposits, Etc. and Security Agreement, dated January 23,
1998, issued by Cutting Edge to the Company.
10.19 Stock Pledge Agreement, dated January 23, 1998, between David
C. Glasser and the Company.
- 2 -
<PAGE>
EXHIBIT.
NO. DESCRIPTION
10.20 Unconditional and Continuing Guaranty of David C. Glasser,
dated January 23, 1998, issued to the Company.
10.21 Modification of Loan Documents, dated April 3, 1998, among
Cutting Edge, the Company and David C. Glasser.
10.22 Agreement, dated March 11, 1998, between the Company and
Cutting Edge.
10.23 Syndication Agreement, dated February 1, 1998, among the
Company, Barry Goldstein and Randy Wool.
10.24 Increased and Restated Promissory Note, dated January 30,
1998, issued by Metro Dade Community Mental Health Center,
Inc. to the Company in the principal amount of $110,000.
10.25 Unconditional and Continuing Guaranty, dated January 30,
1998, issued by Fabian Diaz to the Company.
10.26 Stock Pledge Agreement, dated January 30, 1998, between
Fabian Diaz and the Company.
10.27 Assignment of Security Agreement, dated January 27, 1998,
issued by Med- Funding, Inc. to the Company.
10.28 Loan and Security Agreement, dated May 8, 1998, between AFG
and FINOVA.
10.29 Continuing Corporate Guaranty, dated May 8, 1998 issued by
the Company to FINOVA.
10.30 Stock Pledge Agreement, dated December 24, 1997, between
Group and the Company.
10.31 Letter Agreement, dated December 24, 1997, between Group and
the Company.
10.32 The Company's 1997 Stock Option Plan (Incorporated by
reference to Exhibit 10.6 to Post-Effective Amendment No. 2
to the Company's Registration Statement on Form SB-2 (File
No. 333-24937)).
21 Subsidiaries of the Company
23 Consent of Daszkal, Bolton & Manela
27 Financial Data Schedule
- 3 -
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into
this 1st day of March 1998, by and between MEDLEY CREDIT ACCEPTANCE CORP., a
Delaware corporation (the "Company"), and ROBERT D. PRESS ("Employee").
(Throughout this Agreement Company and Employee may be referred to collectively
as Parties for convenience.
W I T N E S S E T H:
WHEREAS, Employee has substantial experience in the development,
implementation and sale of financial services, including but not limited to
insurance and annuities, and
WHEREAS, the Company desires to retain, engage and employ Employee,
and Employee desires to be so retained, engaged and employed by the Company as
the Company's President and Chief Executive Officer for the purpose of creating
and establishing a financial services business.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency is hereby acknowledged, the Parties agree as follows:
1. RECITALS: The above and foregoing recitals are true and correct and
are incorporated herein by reference.
2. ENGAGEMENT AND RELATIONSHIP OF PARTIES: The Company hereby employs,
hires and engages Employee as an employee and the Employee hereby accepts and
agrees to such hiring, engagement and employment, subject to the general
supervision and pursuant to the orders, advise and direction of the Company.
The Employee shall perform such duties as are specifically set forth in this
Agreement, as well as such other duties as are customarily performed by one
holding such position in similar businesses or enterprises as that engaged in
by the Company and shall additionally render such other unrelated services and
duties as may be assigned to Employee from time to time by the Company.
3. DUTIES: The Company hereby employs Employee and Employee hereby
accepts employment effective as of the date hereof, as the Company's President,
Chief Executive Officer and Chairman of the Board of Directors, for the terms
set forth herein. During the term of the Employee's employment with the
Company, the Employee shall be the President and principal officer of the
Company responsible for the development, refinement and implementation of a
financial services business.
4. TERM: The term of Employee's employment hereunder shall commence on
the date hereof, and continue thereafter for a term of three (3) years, unless
terminated sooner pursuant to the provisions contained in this Agreement for
early termination.
<PAGE>
5. COMPENSATION: In consideration of the services performed and to be
performed hereunder, Company will pay to Employee during the term of Employee's
employment under this Agreement, at the Company's regular and customary
intervals for payment of compensation to Employee's salary as follows:
Year 1: $225,000.00
Year 2: $275,000.00
Year 3: $350,000.00
6. PERQUISITES AND OTHER BENEFITS: In addition to the salary set forth
above in the preceding section, Employee shall be entitled to the following
perquisites and other benefits.
A. Employee shall be entitled, in accordance with the
Company's general policies for senior management, to participation in paid
vacation leave, health, casualty, disability and life insurance, and other
employment benefits.
B. During the term of Employee's employment, Employee shall
be entitled to reimbursement of all reasonable expenses actually paid or
incurred by Employee in the course of, and pursuant to the performance of his
duties hereunder, for travel, entertainment and out-of-pocket expenses.
C. Employee shall be entitled to a yearly bonus in the
following minimum amounts:
Year 1: $45,000.00
Year 2: $60,000.00
Year 3: $75,000.00
D. Incentive Stock Options: During the term of the Employee's
employment with the Company, the Company shall provide incentive stock options
for the Employee. The grant of options shall be determined during the first
month following the completion of each twelve (12) calendar month period
following the commencement of the Employee's employment based upon the
Company's rate of return on Equity and Rate of Return on Capital as follows:
<TABLE>
<CAPTION>
Return on Equity Return on Capital
- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
Year 1: 15% - 25,000 Year 1: 10% - 25,000
20% - 50,000 15% - 50,000
20% - 75,000
Year 2: 15% - 25,000 Year 2: 10% - 15,000
20% - 50,000 15% - 65,000
20% - 90,000
-2-
<PAGE>
Year 3: 15% - 25,000 Year 3: 10% - 10,000
20% - 50,000 15% - 75,000
20% - 100,000
</TABLE>
E. Stock Grants: The Company shall grant to the Employee
common stock in the Company for the completion of each twelve (12) months of
employment granted quarterly as follows:
First Year: 30,000 shares per quarter
Second Year: 40,000 shares per quarter
Third Year: 50,000 shares per quarter
7. DISABILITY: In the event the Employee shall be incapacitated by
reason of mental or physical disability during the term of his Employment such
that he is substantially prevented from performing his principal duties and
services hereunder for a period, the Company thereafter shall have the right to
terminate Employee's employment under this Agreement by sending written notice
of such termination to Employee or his legal representative and thereupon his
employment shall immediately terminate. Upon such termination, the Employee
shall be entitled to receive and shall be paid by the Company his salary in
effect on the date of termination paid by the Company's customary intervals for
the payment of salaries based upon the base reflected in the Employee's draw
for the lessor of three (3) months or the remaining term of the Agreement. Upon
such termination, the Employee shall also be entitled to receive and shall be
paid by the Company all commissions which have been actually earned or accrued
through the date of termination. The Employee shall accept such payments and
benefits in full discharge and release of the Company of and from any further
obligations under this Agreement. Such discharge and release shall not affect
any rights or remedies which may be available to Employee or the Company
otherwise than under this Agreement.
8. TERMINATION FOR CAUSE: The Company shall have the right to
terminate the employment of Employee hereunder at any time for cause (as used
herein, "cause") if:
(i) Employee shall be convicted by a court of competent and
final jurisdiction of any crime which constitutes a felony in the jurisdiction
involved or shall be habitually drunk or intoxicated in public or otherwise
commit acts of moral turpitude in such a manner as to adversely reflect the
reputation of the Company; or
(ii) Employee shall commit any act of embezzlement or similar
material dishonest or injurious conduct against the Company; or
(iii) Employee shall demonstrate willful and injurious
misconduct in connection with the performance of his duties and
responsibilities under or pursuant to this Agreement; or
-3-
<PAGE>
(iv) Employee shall demonstrate reckless or grossly negligent
and injurious conduct in connection with the performance of, or a gross
disregard for his duties and responsibilities under or pursuant to this
Agreement.
In the event the employment of Employee shall be terminated by the
Company for cause pursuant to this section, the Employee shall be entitled to
receive his salary earned, accrued and payable through the date of such
termination. The Employee shall accept the payment pursuant to the terms hereof
in full discharge and release of the Company of and from any further
obligations under this Agreement. Nothing contained in this section shall
constitute a waiver or release by the Company of any rights or claims it may
have against Employee, including but not limited to any claims or rights
pursuant to this Agreement arising from actions or omissions which may give
rise to an event causing termination of this Agreement.
9. NOTICES: Except as otherwise stated, all notices, requests ,
demands and other communications required or permitted to be given hereunder
shall be in writing and shall be deemed to have been duly given if delivered
personally, given by prepaid first class mail, registered or certified, or by
duly recognized overnight carrier as follows:
To the Employee: ROBERT D. PRESS
C/o Medley Credit Acceptance Corp.
1100 Ponce de Leon Boulevard
Coral Gables, Florida 33134
To the Company: MEDLEY CREDIT ACCEPTANCE CORP.
Attention: Robert Press, President
1100 Ponce de Leon Boulevard
Coral Gables, Florida 33134
10. MISCELLANEOUS PROVISIONS:
A. Construction: This Agreement shall be construed and
enforced under the laws of the State of Florida. In the event any provision of
this Agreement shall be declared invalid by a court of competent jurisdiction,
said invalidity shall not invalidate the Agreement as a whole, but said
Agreement shall be construed as if the invalidated provision was omitted from
the Agreement.
B. Entire Agreement: This Agreement supersedes and cancels
any and all other contracts referring to the subject matter herein. No
modifications, alterations or waivers of this Agreement shall be effective,
unless in writing, executed by the Parties hereto.
C. Assignability: This Agreement shall inure to the benefit
of the Parties, their successors and assigns.
-4-
<PAGE>
D. Counterparts: This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
counterparts collectively shall constitute one instrument representing the
Agreement between the Parties hereto.
E. Captions. Captions of the various sections contained in
this Agreement are intended to be used solely for convenience of the Parties
and are not intended, nor are they deemed to modify or explain, or to be used
as an aid in the construction of any of the provisions of this Agreement.
IN WITNESS WHEREOF, the Parties have hereunto set their hands and
seals.
DATED as to the Company this 1st day of March, 1998
MEDLEY CREDIT ACCEPTANCE CORP.
By:__________________________________
DATED as to the Employee this 1st day of March, 1998
-------------------------------------
ROBERT D. PRESS
-5-
<PAGE>
AGREEMENT
THIS AGREEMENT is made and entered into by and between MEDLEY CREDIT
ACCEPTANCE CORP., a Delaware corporation ["Medley"] FREDERICK HORWIN ["Horwin"]
and TOM WHEATLEY ["Wheatley"] [throughout this Agreement Medley, Horwin and
Wheatley may be referred to collectively as "Parties" for convenience].
WITNESSETH:
WHEREAS, Medley is a corporation organized and existing under the laws
of the State of Delaware and having its principal office located in Miami, Dade
County, Florida, and
WHEREAS, Medley is engaged in the financing business and desires to
expand its current business into the field of accounts receivable factoring,
and
WHEREAS, Horwin and Wheatley are well known authorities and have
substantial experience in the factoring of commercial account receivables, and
WHEREAS, Medley is desirous of establishing a subsidiary for the
purpose of engaging in the business of account receivable factoring and desires
to employ Horwin as the President and Chief Executive Officer of said
subsidiary to have the responsibility of managing the day to day operations of
said subsidiary, and Wheatley as its Vice President, and
WHEREAS, Horwin and Wheatley are desirous of becoming employed by the
subsidiary to be formed.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained and for other good and valuable consideration, the parties
agree as follows:
1. Recitals: The above and foregoing recitals are true and correct and
are incorporated herein.
2. Establishment of Subsidiary: Following the execution of this
Agreement Medley shall cause to be formed a corporation having the name
American Factors Group, Inc. or such other name as would be acceptable to the
Parties ["Subsidiary"]. The corporation shall be formed as follows:
A. The corporation shall be organized pursuant to the laws of
the State of Florida.
B. The corporation shall be authorized to issue one million
shares of common stock with each share having a par value of $.001 per share.
<PAGE>
C. Distribution of Stock in Subsidiary: The Subsidiary shall
upon its
formation issue its common capital stock as follows:
Medley . . . . . . . . . . . . . . . . . . . . 480,000 shares
Horwin ........................................100,000 shares
Wheatley .......................................20,000 shares
D. Board of Directors of Subsidiary: The Subsidiary shall have a Board
of Directors consisting of five (5) persons. The initial Board of Directors
shall be as
follows: Frederick Horwin
Tom Wheatley
Robert D. Press
Maynard J. Hellman
Alyce Schreiber
E. Officers of Subsidiary: The Subsidiary shall have the
following initial
officers: President: Fred Horwin
Vice President: Tom Wheatley
Secretary: Robert D. Press
Treasurer: Robert D. Press
3. Employment of Wheatley: Horwin shall be employed by the Subsidiary
pursuant to a written Employment Agreement containing the following terms and
conditions in addition to such other terms as may be required by Medley:
A. Duties: Horwin will be employed as the Company's President
and Chief Executive Officer responsible for the development, refinement and
implementation of the Subsidiary's account receivable factoring business
including the compliance of such program with all applicable laws, rules and
regulations within the jurisdictions that it shall operate.
B. Term: Three Years.
C. Compensation: Horwin shall receive as compensation the sum
of $5,000.00 per month during the first three months of his employment and
thereafter the sum of $120,000.00 per annum together with such other benefits
as may be established from time to time by Medley.
4. Employment of Wheatley: Wheatley shall be employed by the
Subsidiary pursuant to a written Employment Agreement containing the following
terms and conditions in addition to such other terms as may be required by
Medley:
- 2 -
<PAGE>
A. Duties: Wheatley will be employed as the Company's Vice
President.
B. Term: Three Years.
C. Compensation: Wheatley shall receive as compensation the
sum of $96,000.00 per annum.
5. Horwin's and Wheatley's Right to Exchange Common Shares in
Subsidiary for Common Shares in Medley:
A. First Year: Commencing sixty (60) days following the
establishment of the Subsidiary, at the election of Horwin and Wheatley, Medley
will exchange two thousand (2,000) shares of its Common Shares for two thousand
(2,000) shares of the Common Shares of the Subsidiary Prorata owned by Horwin
and Wheatley in any month that the Subsidiary's net sales volume exceeds One
Million Dollars per month. For the purpose of this Agreement the term Net Sales
Volume shall be defined as: the total amount of accounts receivable purchased
in any calendar month. In addition, during the first year following the first
sixty (60) days, should the net sales volume of the Subsidiary exceed One
Million Five Hundred Thousand Dollars ~n any month, Horwin and Wheatley Prorata
shall have the right to exchange an additional three thousand (3,000) shares of
the Common Stock of the Subsidiary for three thousand (3,000) shares of Medley
Common Stock.
B. Commencing fourteen (14) months following the
establishment of the Subsidiary and for a period of twelve (12) months
thereafter, Horwin and Wheatley Prorata may exchange four thousand (4,000)
shares of the Subsidiary's Common Stock for four thousand (4,000) shares of
Medley's Common Stock in each month where the nets sales volume of the
Subsidiary exceeds Two Million Dollars per month
C. Commencing twenty seven (27) months following the
establishment of the Subsidiary Horwin and Wheatley Prorata, shall have the
right to exchange up to four thousand (4,000) shares per month of any Common
Shares ~n the Subsidiary still owned by him which have not previously been
exchanged in any month where the net volume of the Subsidiary exceeds Three
Million Dollars ($3,000,000.00) per month. The exchanges described above shall
be made on a non-cumulative quarterly basis until such time as Horwin and
Wheatley have exchanged all of the Common Shares in the Subsidiary for Common
Shares in Medley.
6. Additional Compensation to Horwin and Wheatley: Following
Commencement of the Employment of Horwin and Wheatley they will receive
collectively a bonus in the total sum of Sixty Thousand Dollars ($60,000.00)
within seven (7) days of the close of the first month that they achieve a net
sales volume of Seven Hundred Thousand Dollars ($700,000.00) per month for the
Subsidiary. Provided Horwin and Wheatley are still in the employ of the
Subsidiary fourteen (14) months from its establishment and the net sales volume
of the Subsidiary in the first fourteen
- 3 -
<PAGE>
(14) months was the sum of Twenty Five Million Dollars ($25,000,000.00) or more
Horwin and Wheatley shall collectively receive an additional bonus in the sum
of Forty Thousand Dollars ($40,000.00).
7. Establishment of Credit Committee for Subsidiary: Upon the
formation of the Subsidiary, the Subsidiary shall form a Credit Committee to
establish underwriting criteria and guidelines with respect to credit and
factoring policies to be utilized in factoring client account receivables. The
initial Credit Committee shall consist of:
Robert D. Press
Fred Horwin
Maynard J. Hellman
Tom Wheatley
Medley Designee
8. Attendance at Medley's Board Meetings and Election to Board:
Following the establishment of the Subsidiary, Horwin shall be authorized to
attend all Board meetings of Medley as an invited guest. At such time as the
Board of Medley is expanded to nine (9) or more members, Horwin shall be
elected to the Board of Directors of Medley.
9. Medley's Incentive Stock Option Prouram: Medley shall establish for
the Employees of the Subsidiary a Cash Bonus and Incentive Stock Option Program
["ISOP"] whereby the Employees of the Subsidiary shall be entitled to a
collective distribution of Medley's Common Shares based upon the Subsidiary's
return on capital in excess of its cost of capital as follows:
<TABLE>
<CAPTION>
Return Number of Shares Bonus
------ ---------------- -----
<S> <C> <C>
In excess of 20% 20,000 - 0 -
In excess of 25% 25,000 $ 6,250.00
In excess of 30% 30,000 $15,000.00
In excess of 35% 35,000 $17,500.00
In excess of 40% 40,000 $30,000.00
In excess of 45% 45,000 $45,000.00
In excess of 50% 50,000 $62,500.00
In excess of 55% 55,000 $68,750.00
In excess of 60% 60,000 $90,000.00
</TABLE>
The distribution of the Incentive Stock Option Shares shall be
determined based upon the performance of the individual officers of the
Subsidiary during the year for which the return was calculated based upon an
objective standard determined by the Subsidiary's Board of Directors. Each
option shall be exercisable to the Employee within four (4) years from its
issuance at a price equal to Fair Market Value.
- 4 -
<PAGE>
10. Conditions Precedent: Each of the following shall constitute a
condition precedent to the obligations of Medley under the terms of this
Agreement:
A. The establishment of the Subsidiary
B. The execution of an Employment Agreement by Horwin and
Wheatley in a form acceptable to Medley.
C. All of the representations of Horwin shall be true and
correct and accurate as of the date of the execution of this Agreement.
In the event any of the aforesaid conditions precedent shall not have
occurred then, unless Medley shall have waived the occurrence or existence of
any such conditions precedent in writing, Medley may terminate this Agreement
and all parties to this Agreement shall be relieved of any further liability or
obligation hereunder.
11. Line of Credit: Medley agrees to use its best efforts to obtain
the necessary lines of credit for the Subsidiary in order for the Subsidiary to
achieve the net sales volume set forth in this Agreement.
12. Notices: All notices, requests, demands, waivers, consents,
approvals or other communications required or permitted hereunder shall be in
writing and shall be deemed to have been given when received if delivered
personally or by recognized overnight carrier, or three (3) days after being
sent if sent by certified or registered mail, postage prepaid, return receipt
requested, to the following addresses:
If to the Company: Medley Credit Acceptance Corp.
Attention: Robert D. Press
1 100 Ponce de Leon Boulevard
Coral Gables, Florida 33134
If to the Employees: Frederick Horwin
4920 Sarazen Dr.
Hollywood, Florida 33021
Tom Wheatley
17816 71st Lane North
Loxahatchee, Florida 33470
- 5 -
<PAGE>
13. Miscellaneous Provisions:
A. Captions and Paragraph Headings: Captions and paragraph
headings contained in this Contract are for convenience and reference only and
in no way define, describe, extend or limit the copy or intent of this Contract
nor the intent of any provision hereof.
B. Counterparts: This Contract may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same Contract.
C. Binding Effect: This Contract shall enure to the benefit
of and shall be binding upon the parties hereto and their respective heirs,
personal representatives, successors and assigns. However, under no
circumstances shall this Contract be assignable by Horwin.
D. Entire Agreement: This Contract constitutes the entire
understanding agreement between the parties and may not be changed, altered or
modified, except by an instrument in writing signed by all parties against whom
and enforcement of such Contract would be sought. In the event any provision of
this Contract shall be determined by appropriate judicial authority to be
illegal or otherwise invalid, such provision, shall be given its nearest legal
meaning or be construed or deleted as such authority determines. The remainder
of this Contract shall be construed to be in full force and effect. This
Contract shall not be modified unless said modification is in writing and
signed by the party to be charged.
E. Governing Law and Venue: This Contract shall be construed
and interpreted according to the laws of the State of Florida. Venue for any
litigation hereunder shall be in Dade County, Florida.
F. Joint Preparation: The preparation of this Contract has
been a joint effort of the parties and the resulting documents shall not,
solely as a matter of judicial construction, be construed ,more severely
against one of the parties than the other.
- 6 -
<PAGE>
G. Attorney's Fees: In the event of any litigation arising
out of or relating to this Contract, the unsuccessful party in such litigation
shall pay to the successful party all costs and expenses incurred therein by
the successful party, including, without limitation, reasonable attorney's fees
and costs at the trial and appellate court level.
IN WITNESS WHEREOF, the parties have hereunto set theirs hands and
seals this 4th day of March, 1998.
Witnesses: MEDLEY CREDIT ACCEPTANCE CORP.
___________________ By:________________________________
Robert D. Press, President
___________________
___________________ ___________________________________
Fred Horwin
___________________
___________________________________
___________________ Tom Wheatley
___________________
- 7 -
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into
this 4th day of March 1998, by and between AMERICAN FACTORS GROUP, INC., a
Florida corporation (the "Company"), and FREDERICK HORWIN ("Employee").
W I T N E S S E T H:
WHEREAS, Employee has more than twenty years of experience in the
development, marketing and operating an account receivable factoring business,
and
WHEREAS, the Company desires to retain, engage and employ Employee,
and Employee desires to be so retained, engaged and employed by the Company as
the Company's President and Chief Executive Officer upon the terms and
conditions set forth in this Agreement, and.
WHEREAS, Employee by reason of the nature of Employee's duties and
responsibilities will be provided access to the Company's trade secrets and
other confidential and proprietary information which the Company desires to
maintain confidential.
NOW, THEREFORE, in consideration of the mutual premises, covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency is hereby acknowledged, the Parties agree as follows:
1. The above and foregoing recitals are true and correct and are
incorporated herein.
2. Relationship of the Parties: The Employer hereby employs, hires and
engages Employee as an employee and the Employee hereby accepts and agrees to
such hiring, engagement and employment subject to the supervision and pursuant
to the orders, advice and discretion of the Employer's Board of Directors. The
Employee shall also perform such other duties as are customarily performed by
one holding such position in other, same or similar
<PAGE>
businesses as that engaged in by the Employer and shall also perform such
further duties as may be assigned to Employee from time to time by the
Employer's Board of Directors.
3. Duties: The Company hereby employs Employee as the Company's
President, Chief Executive Officer for the terms set forth herein. During the
term of the Employee's employment, the Employee shall be the principal officer
of the Company responsible for the development, refinement and implementation
of the Company's account receivable factoring program and the compliance of
such program with applicable laws, rules and regulations which responsibility
includes (i) the development of factoring documents, (ii) the hiring and
supervision of the Company's clients and (iii) insuring that the Company's
account receivable factoring program is in compliance with all applicable laws,
rules and regulations of the jurisdictions wherein the Company does business.
During the term of his employment, the Employee agrees to work on a full time
basis and to carry out his employment in a good and professional manner and to
the reasonable satisfaction of the Company's Board of Directors.
4. Term: The term of Employee's employment shall be from April 1, 1998
through March 31, 2001, subject to the termination provisions set forth in this
Agreement, provided however, that the term of this Agreement shall be
automatically extended for additional one year terms unless the Company in its
sole discretion, upon written notice to the Employee no later than thirty (30)
days prior to the expiration of any term elects to decline such extension.
5. Compensation:
A. The Company covenants and agrees that in consideration of
the services performed and to be performed hereunder, it will pay to Employee,
during the term of
- 2 -
<PAGE>
Employee's employment under this Agreement, at the Company's regular and
customary intervals for payment of compensation to employees, salary as
follows:
(1) Commencing on April 1, 1998 through June 30,
1998 the sum of Five Thousand and 00/100 ($5,000.00) Dollars per month.
(2) Commencing on July 1, 1998 and each month
thereafter during the term of this Agreement the sum of Ten Thousand and 00/100
($10,000.00) Dollars per month.
6. Benefits: The Employee shall be entitled to the following benefits
during the period of his employment hereunder.
A. Employee shall be entitled, in accordance with the
Company's general policies for senior management, to participate in paid
vacation leave, health, casualty, disability and life insurance programs and
any other benefits as are made available from time to time by the Company.
B. During the term of his employment the Employee shall be
entitled to reimbursement of all reasonable expenses actually paid or incurred
by Employee in the course of, and pursuant to the performance of his duties
hereunder. Any single expense in excess of Five Hundred and 00/100 ($500.00)
Dollars shall be verbally approved in advance by the Board Chairman.
C. Employee shall be entitled to three (3) weeks paid
vacation in the first twelve (12) month period during the term of this
Agreement and four (4) weeks in each twelve (12) month term thereafter. Paid
vacation shall be prorated in any calendar year during which the Employee is
employed under this Agreement for less than an entire year. The Employee shall
also be entitled to all paid holidays given by the Company to its senior
management.
- 3 -
<PAGE>
7. Incentive Stock Option Program: Employee shall be entitled to
participate in the Incentive Stock Option Program which will be based upon the
Company's return on its capital in excess of the cost of its capital. The
Incentive Stock Option Program shall be funded with shares of the Company's
parent, Medley Credit Acceptance Corp., pursuant to the terms of that certain
agreement between Employee and Medley Credit Acceptance Corp. Dated March ___,
1998.
8. Disability: In the event the Employee shall be incapacitated by
reason of mental or physical disability during the term of his Employment such
that he is substantially prevented from performing his principal duties and
services hereunder for a period of sixty (60) consecutive days or for shorter
periods, aggregating ninety (90) days during any twelve (12) month period, the
Company thereafter shall have the right to terminate Employee's employment
under this Agreement by sending written notice of such termination to Employee
or his legal representative and thereupon his employment shall hereunder
immediately terminate. Upon such termination, the Employee shall be entitled to
receive and shall be paid by the Company's customary intervals for the payment
of salaries based upon the base the Agreement. Upon such termination, the
Employee shall also be entitled to receive and shall be paid by the Company his
salary in effect on the date of termination paid at the Company's regular and
customary intervals for the payment of salaries for the lesser of three (3)
months or the remaining terms of this Agreement, whichever is shorter. In
addition, during such period, Employee shall continue to receive his benefits
described in this Agreement as in effect at the date of termination.
Immediately following the expiration of such applicable period the Employee
shall no longer be entitled to further Company benefits. The Employee agrees to
accept the payment described
- 4 -
<PAGE>
herein in full discharge and release of the Company of and from any further
obligations under this Agreement. Such discharge and release shall not effect
any rights or remedies which may be available to Employee or the Company
otherwise than under this Agreement.
9. Termination for Cause:
A. The Company shall have the right to terminate the
employment of Employee hereunder at any time for cause (as used herein,
"cause") if:
(1) Employee shall be convicted by a court of competent and
final jurisdiction of any crime (whether or not involving the Company) which
constitutes a felony in the jurisdiction involved or shall be habitually drunk
or intoxicated in public or otherwise commit acts of moral turpitude in such a
manner as to adversely reflect the reputation of the Company; or
(2) Employee shall commit any act of embezzlement or similar
material dishonest or injurious conduct against the Company; or
(3) Employee shall demonstrate willful and injurious
misconduct in connection with the performance of his duties and
responsibilities under or assigned pursuant to, this Agreement; or
(4) Employee shall demonstrate reckless or grossly negligent
and injurious conduct in connection with the performance of, or a gross
disregard for, his duties and responsibilities under, or assigned pursuant to
this Agreement; or.
(5) After the first six (6) months following the Commencement
Date of this Agreement, in the event the net monthly sales volume (total amount
of all accounts receivable purchased in any calendar month) of the Company is
less than One Million Dollars
- 5 -
<PAGE>
($1,000,000.00) per month in any consecutive two (2) month period or in a three
(3) month aggregate in any twelve (12) month period.
B. In the event that the employment of Employee shall
terminate by the Company for cause pursuant to paragraph 9A hereof, Employee
shall be entitled to receive his salary then in effect through the date of such
termination. Employee shall accept the payments pursuant to this paragraph in
full discharge and release of the Company of and from any further obligations
under this Agreement. Nothing contained in this paragraph shall constitute a
waiver or release by the Company of any rights or claims it may have against
Employee, including, but not limited to, any claims or rights pursuant to the
provisions set forth in this Agreement.
10. Best Efforts of Employee: The Employee agrees that Employee will,
at all times, faithfully, industriously and to the best of his ability,
experience and talents, perform all of the express and implicit terms hereof,
to the reasonable satisfaction of the Company. The duties to be rendered by the
Employee shall be rendered at the principal address of the Company or at such
other place or places as the Company shall require. It is understood that the
Employee must devote his full time and effort to the business of the Company
with the exception that the Company will allow Employee to continue to give
seminars on the business of factoring. Employee shall also be entitled to all
revenue received by him on the sale of his books and audio tapes.
11. Employee's Limitations on Ability to Make Company Commitments: The
Employee by virtue of his position as President and Chief Executive Officer of
the Company shall have the legal authority to enter into contracts and
commitments for and on behalf of the Company. However, the Employee shall not
enter into any contract or commitment on behalf of
- 6 -
<PAGE>
the Company which would violate the parameters of the Company's underwriting
guidelines or be in derogation of the express requirements of the Company's
credit committee with respect to the factoring of client receivables or an
expenses in excess of Five Thousand Dollars ($5,000.00) for non-business
related expenditures without the express written consent of the Company's Board
of Directors or the Credit Committee.
12. Trust Funds: All monies which come into the possession of Employee
shall be received by Employee in trust for the Company and Employee shall
immediately deliver said funds to the Company for deposit. All of such funds
shall be considered "Trust Funds".
13. Covenants, Representations and Warranties of Employee: The
Employee represents and warrants to the Company as follows:
A. Employee has the power and authority to enter into this
Agreement and perform its duties hereunder.
B. Employee shall be in furtherance of the Company's
business, Employee shall use his best efforts to comply with all laws,
regulations, rules and ordinances pertaining to the Company's business.
C. Employee shall weekly, deliver to the Chairman of the
Board sales reports which shall identify all clients and their sales activity.
14. Restrictive Covenants:
A. Employee recognizes and acknowledges that as a consequence
of his duties hereunder, Employee will be provided access to or will come in
contact with confidential information of or regarding the Company and its
parent, Medley Credit Acceptance Corp., from time to time. Accordingly,
Employee agrees that he will not, during or after the term of his
- 7 -
<PAGE>
engagement except with prior written consent of the Company, disclose any
confidential information relating to the Company or its Parent. The Provisions
of this section shall not apply to information which Employee is required to
disclose by law or by order a court of competent jurisdiction but only to the
extent required by law or by order and when reasonably possible, only if
Employee shall give the Company prior notice of such intended disclosure so
that the Company has the opportunity to seek a protective order if it deems
such appropriate.
B. As used in this Agreement, "confidential information"
shall mean and include studies, plans, reports, records, promotional materials,
agreements, memoranda, documents, information related to Company activities,
systems, finances, client lists, research data, personnel data, financing
sources, and such other related information not of a public knowledge.
C. For so long as the Employee is employed hereunder,
Employee shall not engage either as principal, agent or consultant, or through
any corporation, firm or organization in which he is or may be an officer,
director, employee, shareholder, partner, member or with which he is otherwise
affiliated in any business for profit which is engaged in any activity or
business similar to that of the Employer.
D. The Employee covenants and agrees that for a period of two
(2) years from the date of his termination of employment with the Employer,
either voluntary or involuntary, that he will not directly or indirectly
solicit, circularize or aid in the solicitation of any business from any client
who dealt with the Employer during the period which the Employee first brought
to Employer at the commencement of his employment. Said clients are described
on Exhibit "A" attached hereto.
- 8 -
<PAGE>
E. It is agreed by the Employee that should he violate the
provisions of this section, the Company shall have the right to obtain an Order
from a court of competent jurisdiction enjoining him from violating any and all
of the provisions of this section or of this Agreement and the Company's
application for such a writ in injunction shall be deemed without prejudice to
any all other rights, remedies or actions which may accrue in favor of the
Company as a result of the Employee's breach of this provision or of the terms
of this Agreement. In the event the Company is required to institute any
litigation concerning the terms and conditions of this section or of this
Agreement, the prevailing party shall be entitled to reimbursement of all
reasonably attorney's fee and costs at both the trial and the appellate court
level. The Employee further agrees that in the event of litigation venue shall
only be proper in Dade County, Florida.
15. Notices: All notices, requests, demands, waivers, consents,
approvals or other communications required or permitted hereunder shall be in
writing and shall be deemed to have been given when received if delivered
personally or by recognized overnight carrier, or three (3) days after being
sent if sent by certified or registered mail, postage prepaid, return receipt
requested, to the following addresses::
If to the Company:: Medley Credit Acceptance Corp.
Attention: Robert D. Press
1100 Ponce de Leon Boulevard
Coral Gables, Florida 33134
To the Company: Frederick Horwin
4920 Sarazen Drive
Hollywood, Florida 33021
Any party may by notice change the address to which notice or
other communications to it are to be delivered or mailed.
- 9 -
<PAGE>
16. Miscellaneous Provisions:
A. Captions and Paragraph Headings: Captions and paragraph
headings contained in this Contract are for convenience and reference only and
in no way define, described, extend or limit the copy or intent of this
Contract nor the intent of any provision hereof.
B. Counterparts: This Contract may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same Contract.
C. Binding Effect: This Contract shall enure to the benefit
of and shall be binding upon the parties hereto and their respective heirs,
personal representatives, successors and assigns. However, under no
circumstances shall this Contract be assignable by Horwin.
D. Entire Agreement: This Contract constitutes the entire
understanding agreement between the parties and may not be changed, altered or
modified, except by an instrument in writing signed by all parties against whom
ands enforcement of such Contract would be sought. In the event any provision
of this Contract shall be determined by appropriate judicial authority to be
illegal or otherwise invalid, such provision, shall be given its nearest legal
meaning or be construed or deleted as such authority determines. The remainder
of this Contract shall be construed to be in full force and effect. This
Contract shall not be modified unless said modification is in writing and
signed by the party to be charged.
E. Governing Law and Venue: This Contract shall be construed
and interpreted according to the laws of the State of Florida. Venue for any
litigation hereunder shall be in Dade County, Florida.
- 10 -
<PAGE>
F. Joint Preparation: The preparation of this Contract has
been a joint effort of the parties and the resulting documents shall not,
solely as a matter of judicial construction, be construed more severely against
one of the parties than the other.
G. Attorney's Fees: In the event of any litigation arising
out of or relating to this Contract, the unsuccessful party in such litigation
shall pay to the successful party all costs and expenses incurred therein by
the successful party, including, without limitation, reasonably attorney's fees
and costs at the trial and appellate court level.
IN WITNESS WHEREOF, the Parties have hereunto set their hands
and seals this 4th day of March, 1998.
Witnesses:
AMERICAN FACTORS GROUP, INC.
______________________
______________________ By:__________________________________
______________________ _____________________________________
Frederick Horwin
______________________
- 11 -
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into
this 4th day of March 1998, by and between AMERICAN FACTORS GROUP, INC., a
Florida corporation (the "Company"), and TOM WHEATLEY ("Employee").
W I T N E S S E T H:
WHEREAS, Employee is experienced in the business of commercial account
receivable factoring, and
WHEREAS, the Company desires to retain, engage and employ Employee,
and Employee desires to be so retained, engaged and employed by the Company as
the Company's Vice President upon the terms and conditions set forth in this
Agreement, and.
WHEREAS, Employee by reason of the nature of Employee's duties and
responsibilities will be provided access to the Company's trade secrets and
other confidential and proprietary information which the Company desires to
maintain confidential.
NOW, THEREFORE, in consideration of the mutual premises, covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency is hereby acknowledged, the Parties agree as follows:
1. The above and foregoing recitals are true and correct and are
incorporated herein.
2. Relationship of the Parties: The Employer hereby employs, hires and
engages Employee as an employee and the Employee hereby accepts and agrees to
such hiring, engagement and employment subject to the supervision and pursuant
to the orders, advice and discretion of the Employer's Board of Directors. The
Employee shall also perform such other duties as are customarily performed by
one holding such position in other, same or similar businesses as that engaged
in by the Employer and shall also perform such further duties as may be
assigned to Employee from time to time by the Employer's Board of Directors.
<PAGE>
3. Duties: The Company hereby employs Employee as the Company's Vice
President, for the terms set forth herein. During the term of the Employee's
employment, the Employee shall be responsible for assisting in the date to day
operation of the Company's business including but not limited to development of
the Company's account receivable factoring programs.
During the term of his employment, the Employee agrees to
work on a full time basis and to carry out his employment in a good and
professional manner and to the reasonably satisfaction of the Company's Board
of Directors.
4. Term: The term of Employee's employment shall be from April 1, 1998
through March 31, 2001, subject to the termination provisions set forth in this
Agreement, provided however, that the term of this Agreement shall be
automatically extended for additional one year terms unless the Company in its
sole discretion, upon written notice to the Employee no later than thirty (30)
days prior to the expiration of any term elects to decline such extension.
5. Compensation:
A. The Company covenants and agrees that in consideration of
the services performed and to be performed hereunder, it will pay to Employee,
during the term of Employee's employment under this Agreement, at the Company's
regular and customary intervals for payment of compensation to employees,
salary as follows:
(1) Commencing on April 1, 1998 through June 30,
1998 the sum of Five Thousand and 00/100 ($5,000.00) Dollars per month.
(2) Commencing on July 1, 1998 and each month
thereafter during the term of this Agreement the sum of Eight Thousand and
00/100 ($8,000.00) Dollars per month.
- 2 -
<PAGE>
6. Benefits: The Employee shall be entitled to the following benefits
during the period of his employment hereunder.
A. Employee shall be entitled, in accordance with the
Company's general policies for senior management, to participate in paid
vacation leave, health, casualty, disability and life insurance programs and
any other benefits as are made available from time to time by the Company.
B. During the term of his employment the Employee shall be
entitled to reimbursement of all reasonable expenses actually paid or incurred
by Employee in the course of, and pursuant to the performance of his duties
hereunder. Any single expense in excess of Three Hundred and 00/100 ($300.00)
Dollars shall be verbally approved in advance by the Board Chairman.
C. Employee shall be entitled to three (3) weeks paid
vacation each twelve (12) month period during the term of this Agreement. Paid
vacation shall be prorated in any calendar year during which the Employee is
employed under this Agreement for less than an entire year. The Employee shall
also be entitled to all paid holidays given by the Company to its senior
management.
7. Incentive Stock Option Program: Employee shall be entitled to
participate in the Incentive Stock Option Program which will be based upon the
Company's return on its capital in excess of the cost of its capital. The
Incentive Stock Option Program shall be funded with shares of the Company's
parent, Medley Credit Acceptance Corp., pursuant to the terms of that certain
agreement between Employee and Medley Credit Acceptance Corp. Dated March 4th,
1998.
- 3 -
<PAGE>
8. Disability: In the event the Employee shall be incapacitated by
reason of mental or physical disability during the term of his Employment such
that he is substantially prevented from performing his principal duties and
services hereunder for a period of sixty (60) consecutive days or for shorter
periods, aggregating ninety (90) days during any twelve (12) month period, the
Company thereafter shall have the right to terminate Employee's employment
under this Agreement by sending written notice of such termination to Employee
or his legal representative and thereupon his employment shall hereunder
immediately terminate. Upon such termination, the Employee shall be entitled to
receive and shall be paid by the Company his salary in effect on the date of
termination paid at the Company's regular and customary intervals for the
payment of salaries for the lesser of three (3) months or the remaining terms
of this Agreement, whichever is shorter. In addition, during such period,
Employee shall continue to receive his benefits described in this Agreement as
in effect at the date of termination. The Employee agrees to accept the
payments described herein in full discharge and release of the Company of and
from any further obligations under this Agreement. Such discharge and release
shall not affect any rights or remedies which may be available to Employee or
the Company otherwise than under this Agreement.
9. Termination for Cause:
A. The Company shall have the right to terminate the
employment of Employee hereunder at any time for cause (as used herein,
"cause") if:
(1) Employee shall be convicted by a court of competent and
final jurisdiction of any crime (whether or not involving the Company) which
constitutes a felony in the jurisdiction involved or shall be habitually drunk
or intoxicated in public or otherwise commit acts of moral turpitude in such a
manner as to adversely reflect the reputation of the Company; or
- 4 -
<PAGE>
(2) Employee shall commit any act of embezzlement or similar
material dishonest or injurious conduct against the Company; or
(3) Employee shall demonstrate willful and injurious
misconduct in connection with the performance of his duties and
responsibilities under or assigned pursuant to, this Agreement; or
(4) Employee shall demonstrate reckless or grossly negligent
and injurious conduct in connection with the performance of, or a gross
disregard for, his duties and responsibilities under, or assigned pursuant to
this Agreement; or.
(5) After the first six (6) months following the Commencement
Date of this Agreement, in the event the net monthly sales volume (total amount
of all accounts receivable purchased in any calendar month) of the Company is
less than One Million Dollars ($1,000,000.00) per month in any consecutive two
(2) month period or in a three (3) month aggregate in any twelve (12) month
period.
B. In the event that the employment of Employee shall
terminate by the Company for cause pursuant to paragraph 9A hereof, Employee
shall be entitled to receive his salary then in effect through the date of such
termination. Employee shall accept the payments pursuant to this paragraph in
full discharge and release of the Company of and from any further obligations
under this Agreement. Nothing contained in this paragraph shall constitute a
waiver or release by the Company of any rights or claims it may have against
Employee, including, but not limited to, any claims or rights pursuant to the
provisions set forth in this Agreement.
10. Best Efforts of Employee: The Employee agrees that Employee will,
at all times, faithfully, industriously and to the best of his ability,
experience and talents, perform all of the express and implicit terms hereof,
to the reasonable satisfaction of the Company. The duties
- 5 -
<PAGE>
to be rendered by the Employee shall be rendered at the principal address of
the Company or at such other place or places as the Company shall require. It
is understood that the Employee must devote his full time and effort to the
business of the Company with the exception that the Company will allow Employee
to continue to give seminars on the business of factoring. Employee shall be
entitled to all revenue received by him on the sale of his books and audio
tapes.
11. Employee's Limitations on Ability to Make Company Commitments: The
Employee by virtue of his position as Vice President of the Company shall have
the legal authority to enter into contracts and commitments for and on behalf
of the Company unless approved by the Company's Board of Directors. The
Employee shall not enter into any contract or commitment on behalf of the
Company which would violate the parameters of the Company's underwriting
guidelines or be in derogation of the express requirements of the Company's
credit committee with respect to the factoring of client receivables.
12. Trust Funds: All monies which come into the possession of Employee
shall be received by Employee in trust for the Company and Employee shall
immediately deliver said funds to the Company for deposit. All of such funds
shall be considered "Trust Funds".
13. Covenants, Representations and Warranties of Employee: The
Employee represents and warrants to the Company as follows:
A. Employee has the power and authority to enter into this
Agreement and perform its duties hereunder.
B. Employee shall be in furtherance of the Company's
business, Employee shall use his best efforts to comply with all laws,
regulations, rules and ordinances pertaining to the Company's business.
- 6 -
<PAGE>
C. Employee shall weekly, deliver to the Chairman of the
Board sales reports which shall identify all clients and their sales activity.
14. Restrictive Covenants:
A. Employee recognizes and acknowledges that as a consequence
of his duties hereunder, Employee will be provided access to or will come in
contact with confidential information of or regarding the Company and its
parent, Medley Credit Acceptance Corp., from time to time. Accordingly,
Employee agrees that he will not, during or after the term of his engagement
except with prior written consent of the Company, disclose any confidential
information relating to the Company or its Parent. The Provisions of this
section shall not apply to information which Employee is required to disclose
by law or by order a court of competent jurisdiction but only to the extent
required by law or by order and when reasonably possible, only if Employee
shall give the Company prior notice of such intended disclosure so that the
Company has the opportunity to seek a protective order if it deems such
appropriate.
B. As used in this Agreement, "confidential information"
shall mean and include studies, plans, reports, records, promotional materials,
agreements, memoranda, documents, information related to Company activities,
systems, finances, client lists, research data, personnel data, financing
sources, and such other related information not of a public knowledge.
C. For so long as the Employee is employed hereunder,
Employee shall not engage either as principal, agent or consultant, or through
any corporation, firm or organization in which he is or may be an officer,
director, employee, shareholder, partner, member or with which he is otherwise
affiliated in any business for profit which is engaged in any activity or
business similar to that of the Employer.
- 7 -
<PAGE>
D. The Employee covenants and agrees that for a period of two
(2) years from the date of his termination of employment with the Employer,
either voluntary or involuntary, that he will not directly or indirectly
solicit, circularize or aid in the solicitation of any business from any client
who dealt with the Employer during the period which the Employee first brought
to Employer at the commencement of his employment. Said clients are described
on Exhibit "A" attached hereto.
E. It is agreed by the Employee that should he violate the
provisions of this section, the Company shall have the right to obtain an Order
from a court of competent jurisdiction enjoining him from violating any and all
of the provisions of this section or of this Agreement and the Company's
application for such a writ in injunction shall be deemed without prejudice to
any all other rights, remedies or actions which may accrue in favor of the
Company as a result of the Employee's breach of this provision or of the terms
of this Agreement. In the event the Company is required to institute any
litigation concerning the terms and conditions of this section or of this
Agreement, the prevailing party shall be entitled to reimbursement of all
reasonably attorney's fee and costs at both the trial and the appellate court
level. The Employee further agrees that in the event of litigation venue shall
only be proper in Dade County, Florida.
15. Notices: All notices, requests, demands, waivers, consents,
approvals or other communications required or permitted hereunder shall be in
writing and shall be deemed to have been given when received if delivered
personally or by recognized overnight carrier, or three (3) days after being
sent if sent by certified or registered mail, postage prepaid, return receipt
requested, to the following addresses::
- 8 -
<PAGE>
If to the Company:: Medley Credit Acceptance Corp.
Attention: Robert D. Press
1100 Ponce de Leon Boulevard
Coral Gables, Florida 33134
To the Company: Tom Wheatley
17816 71st Lane North
Loxahatchee, Florida 33470
Any party may by notice change the address to which notice or
other communications to it are to be delivered or mailed.
16. Miscellaneous Provisions:
A. Captions and Paragraph Headings: Captions and paragraph
headings contained in this Contract are for convenience and reference only and
in no way define, described, extend or limit the copy or intent of this
Contract nor the intent of any provision hereof.
B. Counterparts: This Contract may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same Contract.
C. Binding Effect: This Contract shall enure to the benefit
of and shall be binding upon the parties hereto and their respective heirs,
personal representatives, successors and assigns. However, under no
circumstances shall this Contract be assignable by Horwin.
D. Entire Agreement: This Contract constitutes the entire
understanding agreement between the parties and may not be changed, altered or
modified, except by an instrument in writing signed by all parties against whom
ands enforcement of such Contract would be sought. In the event any provision
of this Contract shall be determined by appropriate
- 9 -
<PAGE>
judicial authority to be illegal or otherwise invalid, such provision, shall be
given its nearest legal meaning or be construed or deleted as such authority
determines. The remainder of this Contract shall be construed to be in full
force and effect. This Contract shall not be modified unless said modification
is in writing and signed by the party to be charged.
E. Governing Law and Venue: This Contract shall be construed
and interpreted according to the laws of the State of Florida. Venue for any
litigation hereunder shall be in Dade County, Florida.
F. Joint Preparation: The preparation of this Contract has
been a joint effort of the parties and the resulting documents shall not,
solely as a matter of judicial construction, be construed more severely against
one of the parties than the other.
G. Attorney's Fees: In the event of any litigation arising
out of or relating to this Contract, the unsuccessful party in such litigation
shall pay to the successful party all costs and expenses incurred therein by
the successful party, including, without limitation, reasonably attorney's fees
and costs at the trial and appellate court level.
IN WITNESS WHEREOF, the Parties have hereunto set their hands and
seals this 4th day of March, 1998.
Witnesses:
TOM WHEATLEY
______________________
______________________ By:__________________________________
______________________ AMERICAN FACTORS GROUP, INC.
______________________ By:__________________________________
- 10 -
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (Agreement) dated this 13th of March,
1998, made and entered into by and between Medley Credit Acceptance Corp., a
Delaware corporation (hereinafter referred to as Buyer) and Irwin Gross
(hereinafter referred to as Seller). (Throughout this Agreement, the Buyer and
Seller may be referred to collectively as "PARTIES" for convenience.)
WITNESSETH:
WHEREAS, the Seller is the owner of 200,000 shares of the authorized,
issued and outstanding common stock of Americal Investment Management, Inc., a
Florida Corporation (Corporation), which stock ownership interest represents
One Hundred (100%) percent of all of the authorized, issued and outstanding
common stock of Corporation, and
WHEREAS, Corporation is engaged in the business of marketing and
selling financial services of ail kinds and descriptions including but not
limited to insurance annuities, and securities, and
WHEREAS, Buyer is desirous of purchasing from Seller 80% of the
authorized common stock of the Corporation (the "Shares") and the Seller is
desirous of selling same to the Buyer, and
WHEREAS, Seller is a key employee of Corporation and the Buyer desires
for Seller to remain in the employ of Corporation as it's president in order to
develop the corporation as a financial services subsidiary of the Buyer, and
WHEREAS, the Parties are desirous of documenting their
representations, warranties, covenants, agreements and conditions relating to
the purchase and sale into a written agreement.
NOW, THEREFORE, in consideration a mutual promises and covenants
herein contained and for such other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Parties agree as
follows:
1. RECITALS: The above and foregoing and true and correct and
are incorporated herein.
2. SALE AND TRANSFER OF STOCK: The Seller shall sell, transfer and
convey to the Buyer, and the Buyer shall purchase and acquire from the Seller
80% of the authorized, issued and outstanding common stock of the Corporation,
consisting of 160,000 shares having .001 par value per share.
<PAGE>
3. CLOSING DATE: The closing of the purchase and sale contemplated by
this Agreement shall take place on March 15, 1998 ("CLOSING DATE"), at the
offices of MAYNARD J. HELLMAN, ESQ., 1100 Ponce de Leon Blvd., Coral Gables, FL
33134, or at such other time and place as shall be set forth in a writing
signed by the parties hereto, provided that all of the conditions precedent as
hereinafter set forth have been met.
4. PURCHASE PRICE AND METHOD OF PAYMENT: The purchase price for the
Shares shall be the sum of One Thousand Dollars ($1000.00). The purchase price
shall be paid in a cashier's check or attorney's trust account check or such
other method as is acceptable by the Seller at the time of closing.
5. BUYER'S OBLIGATION TO ACQUIRE BALANCE OF THE SELLER'S SHARES IN
EXCHANGE FOR STOCK: Provided Seller has not exercised his right to reacquire
from the Buyer the Shares as described in Paragraph 6 hereof and the Seller is
still in the employ of the Corporation, the Buyer shall be obligated upon the
written request of the Seller to exchange common shares of the Buyer for the
common shares of the Seller as follows:
13th Month 13,000 Shares
25th Month 13,000 Shares
37th Month 14,000 Shares
6. SELLER'S RIGHT TO REACQUIRE SHARES:
A. In the Twelfth Month: At any time before the end of the
twelfth month following the closing of this transaction, the Seller shall have
the right upon written notice to the Buyer to reacquire the Shares in the
Corporation upon the payment to the Buyer of an amount equal to sixty-five
percent (65%) of the net paid in capital reflected upon the books of the
Corporation, through the date of Closing. Upon receipt of the Seller's written
notice to reacquire, the closing shall take place within thirty (30) days
thereafter and the provisions set forth in Paragraph 5 shall become void and of
no further force and effect.
B. In the 24th Month: At anytime before the end of the 24th
month following the closing of this transaction, the Seller shall have the
right to reacquire all of the Shares owned by the Buyer in the Corporation upon
the following terms:
(1) The Seller shall give written notice to the
Buyer that he desires to reacquire the Shares owned by the Buyer.
(2) The closing shall take place within thirty (30)
days of the Buyer's receipt of notice.
- 2 -
<PAGE>
(3) The Seller shall return to the Buyer the
Seller's common shares previously exchanged pursuant to Paragraph 5 above.
(4) The Seller shall pay to the Buyer a sum of money
computed pursuant to the following formula:
Gross sales during the preceding 12 months
X 10% X 3.2 = Cash Payment
7. REPRESENTATIONS AND WARRANTIES OF SELLER: The Seller
represents and warrants to the Buyer as follows:
A. The Corporation is a validly existing corporation in your
standing under the laws of the State of Florida and is validly conducting
business pursuant to the laws of the State of Florida.
B. The Seller has the power to enter into and carry out its
obligations under this agreement.
C. The Corporation holds all licenses necessary to conduct
the business of the Corporation and complies with all laws, rules and
regulations presently established by any governmental agency in connection with
same.
D. The shares of capital stock being sold by the Seller to
the Buyer are fully paid and non-accessible capital stock of the Corporation.
E. The aggregate number of shares that the corporation is
authorized to have issued and outstanding at the present time is the sum of
200,000 shares of Common Stock and that all of said shares are issued and
presently outstanding and held in the name of the Seller and said shares are
the only class of shares authorized.
F. The Seller is and will be on the closing date the owner of
all of the authorized, issued and outstanding shares of common stock of the
Corporation free and clear of any and all liens and encumbrances.
G. That as of the date of executing this Agreement as well as
on the date of closing the Corporation shall have no debts, liabilities cr
obligation for which payment needs to be made unless otherwise set forth on
Exhibit "A", attached to this Agreement.
H. Seller does not have any knowledge of any basis for the
assertion of any material liability against the Corporation.
- 3 -
<PAGE>
I. The Seller is not subject to any Order, Judgment, Decree,
Stipulation or any other Agreement with any other governmental body or agency
with respect to the Corporation unless set forth in this Agreement.
J. The Corporation is not a party to any long term contract
or commitment unless specifically set forth in this Agreement on Exhibit "B"
attached hereto.
K. The Corporation has not received notice nor have any
claims been made against the Corporation by any governmental authority to the
effect that the Corporation or the business of the Corporation fails to comply
in any material respect with any law, rule, regulation or ordinance or that a
licensed, permit or order which is not in the possession of the Corporation is
necessary for the Corporation to conduct its business.
L. On the day of closing the Seller will have the full and
unrestricted legal and equitable title to the shares of the capital stock of
the Corporation.
M. Any action required to be taken by the Corporation in
order to complete the transaction contemplated in this Agreement has been or
will be by the closing date duly approved by the Board of Directors of the
Corporation and it's shareholders, if required.
N. The Seller represents that there are no liabilities,
including but not limited to liabilities for Federal, State and local taxes,
penalties, assessments, lawsuits or claims against the Corporation or Seller
whether such liabilities, suits or claims are contingent or absolute, direct or
indirect, matured or unmatured, which could in any way effect the shares being
conveyed hereunder, the assets of the Corporation or the Corporation in its
ability to conduct business.
O. The Articles of Incorporation, By-Laws and minute book of
the Corporation are complete and accurate and reflect all proceeding of the
shareholders and directors of the Corporation through the date cf this
agreement.
P. The books of account of the business have been maintained
in accordance with generally accepted accounting principles and accurately
reflect in all material respects all items of income and expenses, and all of
the assets and liabilities of the Corporation.
The representations and warranties set forth above shall survive the
closing.
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<PAGE>
8. CONDITIONS PRECEDENT TO CLOSING: The Buyer's obligation to close
the transaction contemplated by this Agreement is subject to the following
conditions:
A. The representations and warranties of the Seller contained
in this Agreement shall be true and correct in all material respects on the
closing date, with the same effect as though such representations and
warranties had been made on and as of the closing date.
B. Any and all agreements to be performed by the Seller prior
to the closing date have been performed.
9. INDEMNIFICATION BY SELLER: Subject to the items disclosed in this
Agreement the Seller agrees to indemnify and hold harmless the Buyer against
any and all damages resulting from any material breach of any representation,
warranty or agreement set forth in this Agreement, or any untruth or inaccuracy
thereof. In addition, the Seller shall indemnify and hold the Corporation
harmless against any and all damages resulting from any act of the Corporation,
it's officers, shareholders and directors occurring prior to the closing of the
transaction contemplated by this Agreement. This indemnity shall survive the
closing of this transaction.
10. INSTRUMENTS AND DOCUMENTS TO BE DELIVERED AT CLOSING: The Seller
agrees to provide to the Buyer at the time of closing the following:
A. Certificates representing the Shares purchased duly
endorsed by the Seller in favor of the Buyer with all required transfer tax
stamps affixed.
B. All books and records of the Corporation.
C. A list of all licenses maintained by the Corporation to
conduct Corporation business together with a list of all licenses the
Corporation may require to conduct its business in the future.
D. An Affidavit of the Seller affirming the fact that
warranties and representations of the Seller are true and correct on the date
of closing.
11. COVENANTS AND FURTHER ASSURANCES: From time to time after the
closing date, at either parties reasonable request and without expense to the
other party, each parties agrees to execute and deliver such other instruments
and take such other actions as the
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<PAGE>
requesting party may reasonably require to more effectively carry out the
intent of this Agreement.
12. EMPLOYMENT OF SELLER: The Corporation simultaneously with the
closing of this transaction shall enter into a written employment agreement
with the Seller upon the terms and conditions set forth in Exhibit "C" attached
hereto.
13. SELLER'S RIGHT TO ATTEND BOARD MEETINGS OF BUYER: The Seller as
the chief executive officer of a subsidiary of the Buyer shall have the right
to attend all Board of Directors meetings of the Buyer. Further, when the Board
of the Buyer is enlarged, the Seller will be given consideration for a seat on
the Board.
14. NOTICES: Except as otherwise stated, ail notices, requests,
demands and other communications required or permitted to be given hereunder
shall be in writing and shall be deemed to have been duly given if delivered
personally, given by prepaid first class mail, registered or certified or by
duly recognized overnight carrier as follows:
To the Seller: IRWIN GROSS
2100 Ponce de Leon Boulevard
Suite 1050
Coral Gables, Florida 33134
To the Buyer: MEDLEY CREDIT ACCEPTANCE, CORP.
Attn: Robert Press, President
1100 Ponce de Leon Blvd.
Coral Gables, FL 33134
with copies to MAYNARD J. HELLMAN, ESQ.
1100 Ponce de Leon Blvd.
Coral Gables, FL 33134
13. MISCELLANEOUS PROVISIONS:
A. Construction: This Agreement shall be construed and
enforced under the laws of the State of Florida. In the event any provision of
this Agreement shall be declared invalid by a court of competent jurisdiction,
said invalidity shall not invalidate the Agreement as a whole, but said
Agreement shall be construed as if the invalidated provision was omitted from
the Agreement.
B. Entire Agreement: This Agreement supersedes and cancels
any and all other contracts referring to the subject matter herein. No
modifications, alteration or waiver of this Agreement shall be effective unless
in writing, executed by the parties hereto.
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<PAGE>
C. Assignability: This Agreement shall inure to the
benefit of the Parties, their successors and assigns
D. Counterparts: This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
counterparts collectively shall constitute one instrument representing the
Agreement between the Parties hereto.
E. Captions: Captions of the various sections contained in
this Agreement are intended to be used solely for convenience of the Parties
and are not intended, nor are they deemed to modify, or explain or to be used
as an aid in the construction of any of the provision of this Agreement.
IN WITNESS WHEREOF, the Parties have hereunto set their hands and
seals.
DATED as to the BUYER, this 13th day of March, 1998.
MEDLEY CREDIT ACCEPTANCE CORP.
BY: Robert Press
---------------------------------
DATED as to the SELLER, this 13th day of March, 1998.
IRWIN GROSS
Irwin Gross
-------------------------------------
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<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into
this 13th day of March 1998, by and between AMERICAL INVESTMENT MANAGEMENT,
INC., a Florida corporation (the "Company"), and IRWIN GROSS ("Employee").
(Throughout this Agreement Company and Employee may be referred to collectively
as Parties for convenience.
W I T N E S S E T H:
WHEREAS, Employee has substantial experience in the development,
implementation and sale of financial services, including but not limited to
insurance and annuities, and
WHEREAS, the Company desires to retain, engage and employ Employee,
and Employee desires to be so retained, engaged and employed by the Company as
the Companies President and Chief Executive Officer for the purpose of creating
and establishing a financial services business.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency is hereby acknowledged, the Parties agree as follows:
1. RECITALS: The above and foregoing recitals are true and correct and
are incorporated herein by reference.
2. ENGAGEMENT AND RELATIONSHIP OF PARTIES: The Company hereby employs,
hires and engages Employee as an employee and the Employee hereby accepts and
agrees to such hiring, engagement and employment, subject to the general
supervision and pursuant to the orders, advise and direction of the Company.
The Employee shall perform such duties as are specifically set forth in this
Agreement, as well as such other duties as are customarily performed by one
holding such position in similar businesses or enterprises as that engaged in
by the Company.
3. DUTIES: The Company hereby employs Employee and Employee hereby
accepts employment effective as of the date hereof, as the Company's President
for the terms set forth herein. During the term of the Employee's employment
with the Company, the Employee shall be the President and principal officer of
the Company responsible for the development, refinement and implementation of a
financial services business, including but not limited to the sale and
marketing of insurance, annuities and such other products as mandated by the
Company's Board of Directors. The Employee shall also be charged with the
responsibility to oversee that the Company is in compliance with all applicable
laws, rules and regulations in connection with the business being conducted by
the Company. In addition, the Board of Directors may assign Employee such other
and additional duties as it may determine appropriate.
4. TERM: The term of Employee's employment hereunder shall commence on
March 4, 1998, and continue thereafter for a term of three (3) years, unless
terminated sooner pursuant to the provisions contained in this Agreement for
early termination. This Agreement
<PAGE>
shall automatically renew itself for additional one (1) year terms upon the
same terms and conditions unless one party gives the other party written notice
of their intent not to renew thirty (30) days prior to the expiration date of
the expiring term.
5. COMPENSATION: In consideration of the services performed and to be
performed hereunder, Company will pay to Employee during the term of Employee's
employment under this Agreement, at the Company's regular and customary
intervals for payment of compensation to Employee's salary as follows:
A. An amount equal to seventy percent (70%) of all net
commission income generated and paid to the Company from accounts developed by
Employee and an amount equal to fifty percent (50%) of the net commission
income from accounts that are generated by the Company through referrals from
sources other than the Employee.
Notwithstanding the foregoing, Employee shall not be entitled to commission in
excess of his draw in the second and third year unless the Company's gross
commissions received are in excess of $450,000.00 in year two and $500,000.00
in year three.
B. DRAW AGAINST COMMISSIONS TO BE ADVANCED: During the first
one year following the commencement date of this Agreement, Employee shall
receive a draw against his commissions to be earned in the sum of One Hundred
Fifty Thousand Dollars ($150,000.00), said draw payable at the Company's
regular and customary intervals for payment. Commencing on the first day of the
second year following the commencement date of this Agreement, in addition to
the Employee's Base Compensation as set forth in paragraph C. below, the
Employee shall receive a draw against commission in the sum of One Hundred
Twenty-Five Thousand Dollars ($125,000.00) per annum, said draw payable at the
Company's regular and customary intervals for payment. Commencing on the first
day of the third year following the commencement date of this Agreement, in
addition to the Employee's Base Compensation asset forth in paragraph C. below,
the Employee shall be entitled to a draw against commission in the sum of One
Hundred Fifty Thousand Dollars ($150,000.00) per annum, said draw payable at
the Company's regular and customary intervals for payment. The Company and
Employee agree that every quarter commencing on the first day of the first
quarter following the commencement date of this Agreement, they will perform an
accounting so as to compute the actual amount of compensation to which the
Employee is entitled. In the event the balance reflected on the accounting
indicates that commissions are due the Employee, the Company shall immediately
pay said commissions to the Employee. Beginning in the Second Year should the
accounting indicate that the Employee has received by way of his draws, more
money than that to which he was entitled by way of commission, the Company
shall have the right to require the Employee to immediately repay to the
Company such overpayment or to make such other arrangements with the Employee
for the repayment of said sums as the Company and Employee may agree.
C. Base Compensation in Years 2 and 3: During Years 2 and 3
Employee shall receive a salary a base compensation in the sum of Fifty
Thousand Dollars
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<PAGE>
($50,000.00) each year which shall be paid at the Company's regular and
customary intervals for payment of compensation.
6. PERQUISITES: In addition to the salary set forth above in the
preceding section, Employee shall be entitled to the following perquisites and
other benefits.
A. Employee shall be entitled, in accordance with the
Company's general policies for senior management, to participation in pension,
saving, stock option, Employee stock option ownership and profit sharing plans,
incentive, performance awards, paid vacation leave, health, casualty,
disability and life insurance, and other employment benefits as are made
available from time to time by the Company.
B. During the term of Employee's employment, Employee shall
be entitled to reimbursement of all reasonable expenses actually paid or
incurred by Employee in the course of, and pursuant to the performance of his
duties hereunder, for travel, entertainment up to a maximum amount of Eight
Hundred Dollars ($800.00) per month.
C. Employee shall be entitled to two weeks paid vacation
during each year of the Employee's employment with the Company.
7. Incentive Stock Options: During the term of the Employee's
employment with the Company, the Company shall secure from its parent, Medley
Credit Acceptance Corp., incentive stock options for the Employee. The Company
and Employee agree that sales growth shall be calculated from a historical
revenue base in the sum of $400,000.00. The grant of options shall be
determined during the first month following the completion of each twelve (12)
calendar month period following the commencement of the employee's employment
as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Year 1: Sales Growth 100%: 10,000 150%: 15,000 200%: 25,000
Growth by Acquisition 100%: 10,000 150%: 15,000 200%: 25,000
Return on Capital 15%: 5,000 20%: 10,000 25%: 15,000
Year 2: Sales Growth 40%: 7,500 60%: 10,000 80%: 20,000
Growth by Acquisition 60%: 7,500 150%: 10,000 100%: 20,000
Return on Capital 15%: 10,000 20%: 15,000 25%: 25,000
Year 3: Same as Year 2
</TABLE>
8. DISABILITY: In the event the Employee shall be incapacitated by
reason of mental or physical disability during the term of his Employment such
that he is substantially prevented from performing his principal duties and
services hereunder for a period of sixty (60) consecutive days or for shorter
periods, aggregating ninety (90) days during any twelve (12) month period, the
Company thereafter shall have the right to terminate Employee's employment
under this Agreement by sending written notice of such termination to Employee
or his legal representative and thereupon his employment shall immediately
terminate. Upon such termination, the Employee shall be entitled to receive and
shall be paid by the Company his
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<PAGE>
salary in effect on the date of termination paid by the Company's customary
intervals for the payment of salaries based upon the base reflected in the
Employee's draw for the lessor of three (3) months or the remaining term of the
Agreement. Upon such termination, the Employee shall also be entitled to
receive and shall be paid by the Company all commissions which have been
actually earned or accrued through the date of termination. The Employee shall
accept such payment and benefits in full discharge and release of the Company
of and from any further obligations under this Agreement. Such discharge and
release shall not affect any rights or remedies which may be available to
Employee or the Company otherwise than under this Agreement.
9. TERMINATION FOR CAUSE: The Company shall have the right to
terminate the employment of Employee hereunder at any time for cause (as used
herein, "cause") if:
(i) Employee shall be convicted by a court of competent and
final jurisdiction of any crime which constitutes a felony in the jurisdiction
involved or shall be habitually drunk or intoxicated in public or otherwise
commit acts of moral turpitude in such a manner as to adversely reflect the
reputation of the Company; or
(ii) Employee shall commit any act of embezzlement or similar
material dishonest or injurious conduct against the Company; or
(iii) Employee shall demonstrate willful and injurious
misconduct in connection with the performance of his duties and
responsibilities under or pursuant to this Agreement; or
(iv) Employee shall demonstrate reckless or grossly negligent
and injurious conduct in connection with the performance of, or a gross
disregard for his duties and responsibilities under or pursuant to this
Agreement.
In the event the employment of Employee shall be terminated by the
Company for cause pursuant to this section, the Employee shall be entitled to
receive his salary earned, accrued and payable through the date of such
termination. The Employee shall accept the payment pursuant to the terms hereof
in full discharge and release of the Company of and from any further
obligations under this Agreement. Nothing contained in this section shall
constitute a waiver or release by the Company of any rights or claims it may
have against Employee, including but not limited to any claims or rights
pursuant to this Agreement arising from actions or omissions which may give
rise to an event causing termination of this Agreement.
10. TERMINATION OF AGREEMENT UPON EMPLOYEE'S
EXERCISE OF OPTION TO REPURCHASE: In the event of the
Employee exercises his right to reacquire the Company pursuant to Section 6 of
the Stock Purchase Agreement between the Employee and Medley Credit Acceptance
Corp. of event date, the Employee's employment shall terminate upon the date of
Closing.
- 4 -
<PAGE>
11. RESTRICTIVE COVENANTS:
A. Employee recognizes and acknowledges that as a consequence
of his duties hereunder, Employee will be provided access to information
concerning the Company's parent, Medley Credit Acceptance Corp. Accordingly,
the Employee agree that he will not, during or after the term of his
engagement, disclose any confidential information relating to Medley Credit
Acceptance Corp. to any individual or entity. The Provisions of this paragraph
shall not apply to information which is or shall become generally known to the
public, the trade or similarly employed persons, or information which the
Employee is required to disclose by law or by order of a court of competent
jurisdiction. As used in this Agreement, confidential information shall mean
and include materials, agreements, memoranda, documents and all other
non-public information relating to Medley Credit Acceptance Corp.'s activities,
operations and finances.
B. Employee acknowledges that in the event of a violation of
the restrictive covenant described above, Medley Credit Acceptance Corp. Could
sustain irreparable harm and therefore, in addition to any remedies available
to Medley Credit Acceptance Corp., the Company shall be entitled to apply to
any court of competent jurisdiction for an injunction restraining Employee from
committing or continuing any such violation under this Agreement.
12. NOTICES: Except as otherwise stated, all notices, requests ,
demands and other communications required or permitted to be given hereunder
shall be in writing and shall be deemed to have been duly given if delivered
personally, given by prepaid first class mail, registered or certified, or by
duly recognized overnight carrier as follows:
To Seller: IRWIN GROSS
2100 Ponce de Leon Boulevard
Coral Gables, Florida 33134
To Buyer: MEDLEY CREDIT ACCEPTANCE CORP.
Attention: Robert Press, President
1100 Ponce de Leon Boulevard
Coral Gables, Florida 33134
13. MISCELLANEOUS PROVISIONS:
A. Construction: This Agreement shall be construed and
enforced under the laws of the State of Florida. In the event any provision of
this Agreement shall be declared invalid by a court of competent jurisdiction,
said invalidity shall not invalidate the Agreement as a whole, but said
Agreement shall be construed as if the invalidated provision was omitted from
the Agreement.
- 5 -
<PAGE>
B. Entire Agreement: This Agreement supersedes and cancels
any and all other contracts referring to the subject matter herein. No
modifications, alterations or waivers of this Agreement shall be effective,
unless in writing, executed by the Parties hereto.
C. Assignability: This Agreement shall inure to the benefit
of the Parties, their successors and assigns.
D. Counterparts: This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
counterparts collectively shall constitute one instrument representing the
Agreement between the Parties hereto.
E. Captions. Captions of the various sections contained in
this Agreement are intended to be used solely for convenience of the Parties
and are not intended, nor are they deemed to modify or explain, or to be used
as an aid in the construction of any of the provisions of this Agreement.
IN WITNESS WHEREOF, the Parties have hereunto set their hands and
seals.
DATED as to the Company this 13th day of March, 1998
MEDLEY CREDIT ACCEPTANCE CORP.
By:__________________________________
DATED as to the Employee this 13th day of March, 1998
_____________________________________
IRWIN GROSS
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<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement"), dated March 30, 1998, by
and among MEDLEY CREDIT ACCEPTANCE CORPORATION ("Buyer"), a Florida
corporation, whose address is P.O. Box 143096, Coral Gables, Florida
33114-3096, JOANNE TELMOSSE ("Telmosse"), an individual, whose address is 7450
Wiles Road, Coral Springs, Florida 33065, JAMIE SILVA ("Silva"), an individual,
whose address is 7450 Wiles Road, Coral Springs, Florida 33065, JENNIFER MAKULA
("Makula"), an individual, whose address is 7450 Wiles Road, Coral Springs,
Florida 33065, and MEDICAL BILLING SERVICE SYSTEMS, INC. ("Corporation"), a
Florida corporation, whose address is 7450 Wiles Road, Coral Springs, Florida
33065.
W I T N E S S E T H:
WHEREAS, the Sellers own collectively (Telmosse-50%, Silva-25% and
Makula25%), all of the authorized, issued and outstanding shares ("Shares") of
the Corporation, a Florida corporation which owns and operates a billing and
collection business and does other business in the state of Florida; and
WHEREAS, the Buyer desires to purchase and receive from the Sellers,
and the Sellers desire to sell, assign, transfer and deliver to the Buyer, all
of the Sellers' right, title and interest in the Shares, under the terms and
conditions of this Agreement;
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged. the parties. intending to be
legally bound hereby, agree as follows:
ARTICLE 1
SALE AND PURCHASE OF INTEREST
1.01 Interest to be Purchased, Transferred or Assigned by the Sellers.
On and as of the date of the closing contemplated by this Agreement ("Closing
Date"), and under the terms and conditions of this Agreement, the Sellers agree
to sell, assign, transfer and deliver to the Buyer, and the Buyer agrees to
purchase and accept from the Sellers, all of the Sellers' right, title and
interest in the Shares.
1.02 No Liens. Encumbrances, Etc. The Shares shall be conveyed to the
Buyer free and clear of all liens, encumbrances, conditions, and restrictions
of any kind.
1.03 Liabilities of the Buyer. On and as of the Closing Date, the
Buyer shall assume and agree to pay, perform and discharge, all liabilities
relating to the Shares arising as of and following the Closing Date.
1.04 Liabilities Retained by the Sellers. The Sellers will be
obligated to pay, perform and discharge the debts, obligations and liabilities
of the Sellers from:
<PAGE>
(a) any and all liabilities of the individual Sellers
relating in any way to the Sellers' individual ownership of the Shares prior to
the Closing Date;
(b) all federal, state, local or other income taxes of the
Sellers.
ARTICLE 2
PURCHASE PRICE
2.01 Price. The purchase price ("Purchase Price") for the Shares shall
be as set forth in Exhibit A hereto.
2.02 Manner of Payment. The Buyer will pay the Purchase Price to the
Sellers as set forth in Exhibit A hereto.
ARTICLE 3
APPORTIONMENT OF EXPENSES AND INCOME
3.01 Accounting Apportionment. For accounting purposes, all loss and
income attributable to the Shares (determined on a cash basis) on or before
11:59 P.M. on December 31, 1997, shall be for the account of the Sellers.
Thereafter, such expense and income shall be for the account of the Buyer. The
parties agree that, if possible, the S-Corporation status of the Corporation
shall be terminated as of December 31, 1997, and that the parties shall make
all necessary notifications to the Internal Revenue Service to effectuate such
termination as of such date.
ARTICLE 4
THE SELLERS' AND CORPORATION'S REPRESENTATIONS, WARRANTIES AND COVENANTS
The Sellers and the Corporation represent, warrant and covenant to the
Buyer as follows:
4.01 Sellers' Title to Shares. The Sellers have good, absolute and
marketable title to the Shares, free and clear of all liens, encumbrances,
conditions and restrictions of any kind. The Sellers have the complete and
unrestricted right, power and authority to sell, transfer and assign the
Shares, and the transfer and delivery of the Shares to the Buyer pursuant to
this Agreement will be valid and will vest title to the Shares in the Buyer
free and clear of all liens, encumbrances, conditions and restrictions of any
kind.
4.02 Status. The Corporation is a corporation, duly organized, validly
existing, and in good standing under the laws of the state of Florida, with
full power and authority to own and lease its properties. and to carry on its
business as now being conducted. The Corporation is qualified to do business
and is in good standing in each jurisdiction in which the character of its
business or interests makes such qualification necessary.
- 2 -
<PAGE>
4.03 Approval of Sale. The execution, delivery and performance of this
Agreement, have been duly approved by all requisite corporate action, if any,
on the part of the Corporation and is within the Sellers' powers. The joinder
of no person or entity with the Sellers will be necessary to convey the Shares
to the Buyer, however the parties acknowledge that notification of, and or
consent of, the transfer of the Shares may need to be made to certain third
parties prior to or following Closing, including, but not necessarily limited
to, the State of Florida, the Internal Revenue Service, and certain regulatory
agencies. The execution, delivery and performance of this Agreement will not,
to the best of the Corporation's or the Sellers' knowledge and belief, (a)
cause any default in or breach of any provisions of any applicable law, rule or
regulation, or (b) result in the creation of any lien, security interest,
charge or encumbrance upon any of the Shares.
4.04 Capitalization. The Corporation is authorized by its Articles of
Incorporation to issue one hundred (100) shares of common stock all of which
are duly and validly issued and outstanding, nonassessable and owned by the
Sellers; and the Corporation will not issue any additional shares of its stock
prior to the Closing.
4.05 Stock Rights. There are no outstanding options, contracts,
commitments, warrants or other rights of any character affecting or relating in
any manner to the Shares.
4.06 No Litigation or Adverse Events. To the Sellers' knowledge, there
is no suit, claim, action or legal, administrative, arbitration, or other
proceeding or governmental investigation pending or threatened, by or against
the Sellers, Shares or the Corporation.
4.07 Accuracy of Documents. To the Sellers' knowledge, all copies of
contracts, agreements, and documents heretofore delivered or hereafter to be
delivered by the Sellers in connection with the transactions contemplated
hereby are or will be (as the case may be) complete and accurate in all
material respects, and will not have been amended or modified by any oral
agreements.
4.08 Financial Statements. The Corporation has furnished the Buyer
with financial statements of the Corporation as of February 28, 1998. All
financial statements fairly present the financial condition of the Corporation
at such date. To the best of the Sellers' knowledge there are no matters
pending which would have an adverse or material effect on the financial
statements of the Corporation from February 28, 1998, through the date of
Closing.
4.09 Insurance. The Corporation has maintained, and will maintain
through the Closing on this transaction, insurance coverage against liability,
loss or casualty on all aspects of the Corporation's operations.
4.10 Tax Returns. The Corporation and the Sellers have duly filed all
federal, state and local tax returns and have paid all federal, state and local
taxes required to be paid with respect to the periods covered by the returns.
- 3 -
<PAGE>
4.11 No Orders. Judgments, Decrees. Etc. The Corporation is not
subject to any order, judgment or decree, stipulation or consent or any
agreement with any governmental body or agency which would have a material
adverse effect on the financial position of the Corporation.
4.12 Ordinary Course of Business. Subsequent to the date of the
Corporation's last financial statements, the business of the Corporation has
been conducted as usual in the ordinary course of business and to the best of
the Sellers' knowledge there has been no material loss of any of the
Corporation's customers and clients which would have an adverse effect on the
Corporation's future profitability.
4.13 License, Permits. Etc. The Corporation possesses all of the
necessary license and permits to conduct the business of the Corporation and is
in compliance with all applicable federal, state and municipal laws, rules and
regulations.
ARTICLE 5
THE BUYER'S REPRESENTATIONS AND WARRANTIES
The Buyer represents and warrants to the Sellers as follows:
5.01 Status. The Buyer is a corporation, duly organized, validly
existing, and in good standing under the laws of the state of Delaware, with
full power and authority to own and lease its properties, and to carry on its
business as now being conducted. The Buyer is qualified to do business and is
in good standing in each jurisdiction in which the character of its business or
interests makes such qualification necessary.
5.02 Approval of Sale. The execution, delivery and performance of this
Agreement, have been duly approved by all requisite corporate action, if any,
on the part of the Buyer and is within the Buyer's powers. The joinder of no
person or entity with the Buyers will be necessary to purchase the Shares by
the Buyer, however the parties acknowledge that notification of, and or consent
of, the transfer of the Shares may need to be made to certain third parties
prior to or following Closing, including, but not necessarily limited to, the
State of Florida, the State of Delaware, the Internal Revenue Service, and
certain regulatory agencies.
5.03 No Breach of Statute or Contract. To the Buyer's knowledge, the
Buyer's execution, delivery and performance of this Agreement will not breach
any statute or regulation of any governmental authority, and will not conflict
with or result in a breach of or default under any of the terms, conditions or
provisions of any order, writ, injunction, decree, agreement or instrument to
which the Buyer is a party, or by which the Buyer is or may be bound.
- 4 -
<PAGE>
5.04 Retention and Access to Records. After the Closing, the Buyer
shall provide to the Sellers reasonable access to any Corporation records and
information acquired by the Buyer pursuant to the terms hereof, to enable the
Sellers (a) to perform any acts reasonably related to the Sellers' transfer of
the Sellers' interest in the Corporation; (b) to enable the Sellers to carry
out any and all of the Sellers' obligations pursuant to the requirements of
law; and (c) to access such information for any other reason which the Sellers
may reasonably request. The Buyer agrees that the Buyer shall maintain all such
records and information for a period ending the fourth anniversary of the
Closing Date.
ARTICLE 6
CLOSING, POST-CLOSING
6.01 Closing. Closing shall take place on a date mutually agreeable to
the parties, and may take place simultaneously with, or immediately following
the execution of this Agreement. The parties shall make every reasonable effort
to complete the Closing on or before March 31, 1998, but in no case shall the
Closing occur after April 30, 1998, unless the time of Closing is extended
through mutual written agreement of the parties.
6.02 The Sellers' and Corporation's Deliveries. At the Closing, the
Sellers and the Corporation shall execute and deliver to the Buyer or, as
applicable, the Buyer shall have received from the Corporation or the Sellers:
(a) A resolution of the Board of Directors of the Corporation
authorizing the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby, certified as of the Closing Date by an
officer of the Corporation as having been duly adopted and being in full force
and effect and unmodified on the Closing Date.
(b) A certificate of the Board of Directors of the
Corporation to the effect that all representations and warranties of the
Corporation set forth in Article 4 are true and correct in all material
respects as of the Closing Date and that all covenants of the Corporation set
forth herein have been duly performed by the Corporation in all material
respects.
(c) An affidavit from the respective Sellers to the effect
that all representations and warranties of the Sellers set forth in Article 4
are true and correct in all material respects as of the Closing Date and that
all covenants of the Sellers set forth herein have been duly performed by the
Sellers in all material respects.
(d) A duly executed stock power and stock certificate from
the respective Sellers, in form and content acceptable to the Buyer, selling,
assigning or otherwise transferring and delivering the Shares to the Buyer,
free and clear of all liens, encumbrances, conditions and restrictions.
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6.03 The Buyer' Deliveries. At the Closing, the Buyer shall deliver to
the Sellers, or, as applicable, the Sellers shall have received from the Buyer:
(a) The full Purchase Price due at Closing tor the Shares.
(b) A resolution of the Board of Directors of the Buyer
authorizing the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby, certified as of the Closing Date by an
officer of the Buyer as having been duly adopted and being in full force and
effect and unmodified on the Closing Date.
(c) A certificate of the Board of Directors of the Buyer to
the effect that all representations and warranties of the Buyer set forth in
Article 5 are true and correct in all material respects as of the Closing Date
and that all covenants of the Buyer set forth herein have been duly performed
by the Buyer in all material respects.
(d) Within five (5) business days following the Closing, the
Buyer agrees to hold the appropriate corporate meeting and cause the
Corporation to adopt, certify and deliver to the Sellers a corporate resolution
effectuating the indemnification of the Buyer and Sellers set forth in Section
7.03 hereto.
6.04 Post-Closing Deliveries. After the Closing, each party to this
Agreement shall, at the request of the other and without further consideration,
furnish, execute and deliver such documents, instruments, certificates, notices
of other further assurances as the requesting party shall reasonably request as
necessary or desirable to effect complete consummation of this Agreement and
the transaction contemplated hereby.
ARTICLE 7
INDEMNIFICATION
7.01 Indemnification of the Buyer by the Sellers. The Sellers shall
defend, indemnify and hold the Buyer and any of the Buyer's assigns, heirs,
agents and representatives harmless against, all damages, loss, costs or
expenses (including reasonable attorney's fees at all levels of trial or appeal
incurred in defending any claim for such damages, loss, costs or expenses)
incurred by the Buyer resulting from or in respect to:
(a) any breach in the Sellers' representations, warranties or
covenants in this Agreement;
(b) any claim by a broker, agent or finder alleged to be
employed by, representing or otherwise involved with the Corporation or the
Sellers relating to this transaction.
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7.02 Indemnification of the Sellers by the Buyer. The Buyer shall
defend, indemnify and hold the Sellers and any of the Sellers' assigns, heirs,
agents and representatives harmless against, all damages, loss, costs or
expenses (including reasonable attorney's fees at all levels of trial or appeal
incurred in defending any claim for such damages, loss, costs or expenses)
incurred by the Sellers resulting from:
(a) any breach in the Buyer's representations, warranties or
covenants in this Agreement;
(b) any claim by a broker, agent or finder alleged to be
employed by, representing or otherwise involved with the Buyer relating to this
transaction.
7.03 Defense and Indemnification of the Sellers and Buyer by the
Corporation. The Corporation shall defend, indemnify and hold harmless the
Sellers, Buyer and any of Sellers' or Buyer's assigns, heirs, agents and
representatives harmless against, all damages, loss, costs or expenses
(including reasonable attorney's fees at all levels of trial or appeal incurred
in defending any claim for such damages, loss, costs or expenses) incurred by
the Sellers or Buyer resulting from any and all actions, suits, investigations,
proceedings, demands, assessments, fines, audits, judgments and claims arising
from the normal day-to-day performance, conduct or operations of the
Corporation. The Corporation shall have no obligation to indemnify the Buyer or
Sellers relating to the breach of any such party's individual warranties or
representations in this Agreement, and the parties agree that such
indemnification shall be the sole responsibility of the Buyer and Sellers
pursuant to Sections 7.01 and 7.02 above.
7.04 Limitations on Indemnity. In determining the extent of any
liability, damage, claim, deficiency, assessment, loss, penalty, interest, cost
or expense which any indemnified party suffers or becomes subject to as a
result of matters for which it is entitled to indemnification, (a) appropriate
deductions shall be made for any insurance proceeds which inure to or are
available for the benefit of any indemnified party, and (b) the tax benefits
recognized by the Corporation, the Sellers, or the Buyer, if any, related to
the liability, damage, claim, deficiency, assessment, loss, penalty interest,
cost or expense shall be taken into account and the indemnification payment
shall be net of such tax effects.
7.05 Notice of Claims. In the event that any party hereunder shall
receive any written notice of any claim or proceeding against said party (the
"Indemnitee"), the Indemnitee shall give the party upon whom a claim could be
made under this Section 7 (the "Indemnitor") written notice of any such loss,
liability, claim, damage or expense, and the Indemnitor shall have the right to
contest and defend any action brought against the Indemnitee based thereon, and
shall have the right to contest and defend any such action in the name of the
Indemnitee at the Indemnitor's own expense; provided, that if the Indemnitor
shall fail to notify the Indemnitee of the assumption of the defense of any
such action within twenty (20) days of giving such notice by the Indemnitee,
then the Indemnitee shall have the right to take any such
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action as it seems reasonable to defend, contest, settle or compromise any such
action or assessment and claim indemnification as provided herein. If the
Indemnitor defends any action for which indemnification is claimed, the
Indemnitee shall be entitled to participate at its own expense in the defense
of such action; provided, however, that the Indemnitor shall bear the fees and
expenses of the Indemnitee's counsel if (i) the employment of such counsel is
specifically authorized in writing by the Indemnitor or (ii) the named parties
to such action include both the Indemnitor and the Indemnitee, and there exists
a conflict of interest between such parties which renders it inappropriate for
counsel selected by the Indemnitor to represent both of such parties. The
Indemnitor shall not be liable for any settlement of any claim, action or
proceeding affected without its written consent, except as expressly provided
in the first sentence of this Section 7. Failure of the Indemnitee to notify
the Indemnitor(s) of any such claim for which it is entitled to indemnity
hereunder shall not impair, limit or affect the indemnification provided herein
so long as the ability of the Indemnitor to contest, defend or dispute such
claim has not been materially and adversely affected.
ARTICLE 8
NOTICES
All notices, requests, demands and other communications hereunder
shall be in writing and will be deemed to have been duly given if personally
delivered, or when transmitted by facsimile with confirmation of receipt from
the other party, or when received if mailed by the United States First-Class
Certified or Registered Mail, postage pre-paid, with return receipt requested
and marked delivered or refused, or via an overnight delivery service (such as
Federal Express) with proof of delivery or refusal of delivery, to the other
parties at the following addresses (or at such other address as to which the
parties hereto have been notified as provided herein):
if to Buyer: Medley Credit Acceptance Corporation
P.O. Box 143096
Coral Gables, Florida 33114-3096
if to Sellers: Joanne Telmosse, Jamie Silva
and Jennifer Makula
7450 Wiles Road
Coral Springs, Florida 33065
if to the Corporation: Medical Billing Service Systems, Inc.
7450 Wiles Road
Coral Springs, Florida 33065
ARTICLE 9
MISCELLANEOUS PROVISIONS
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9.1 Assignment. No party may assign its rights or obligations under
this Agreement without the consent of the others.
9.2 Modification. There are no other agreements, promises, or
undertakings between the parties relating directly to the sale of the Shares,
except as specifically set forth herein. No alterations, changes, modifications
or amendments shall be made to this Agreement except in writing and signed or
initialed by the parties hereto. Notwithstanding the above. Sections 3. 4, 5
and 6 of the letter of intent between the parties executed March 20, 1998,
which formed the basis of this Agreement relating to the sale of the Shares
shall survive the execution and closing of this Agreement and be binding upon
the parties.
9.3 Severability. If any provision or paragraph of this Agreement is
deemed to be unlawful or unenforceable by any court, administrative agency or
statute, law or ordinance, the said provision or paragraph shall be severed
from the Agreement without affecting the enforceability of the remainder of the
Agreement. The parties shall make a good faith effort to redraft the severed
provision or paragraph consistent with the parties' original intention but in
such a way as to be lawful and enforceable.
9.4 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the respective successors and assigns and is applicable to the
heirs and legal representatives of the parties hereto.
9.5 Survivability. The covenants, representations and warranties of
the respective parties hereto shall survive the Closing. No performance or
execution of this Agreement in whole or in part by any party hereto, no course
of dealing between or among the parties hereto or any delay or failure on the
part of any party in exercising any rights hereunder or at law or in equity,
and no investigation by any party hereto shall operate as a waiver of any
rights of such party, except to the extent expressly waived in writing by such
party.
9.6 Florida Contract. This Agreement shall be deemed a Florida
contract and shall be construed in accordance with the laws of such state,
regardless of whether or not this Agreement is being executed by any of the
parties hereto in other states or otherwise.
9.7 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original.
9.8 Compliance Dates. In the event that any date specified in this
Agreement shall be on a Saturday, Sunday or nationally declared holiday, then
the date so specified shall be deemed to be the next business day following
such date, and compliance by such business day hereunder shall not be deemed a
default by any of the parties under this Agreement.
9.9 Headings. The headings of each section or subsection in this
Agreement are for convenience of reference only, and shall in no manner or way
whatsoever affect the interpretation or meaning of such section or subsection.
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<PAGE>
9.10 Entire Agreement. This constitutes the entire agreement between
the parties relating to the subject thereof, and prior agreements pertaining
thereto, whether oral or written, have been merged and integrated into this
Agreement. Notwithstanding the above, Sections 3, 4, 5 and 6 of the letter of
intent between the parties executed March 20, 1998, which formed the basis of
this Agreement relating to the sale of the Shares shall survive the execution
and closing of this Agreement and be binding upon the parties.
9.11 Exhibits. The Exhibits attached hereto, together with all
documents incorporated by reference herein, form an integral part of this
Agreement and are hereby incorporated herein wherever reference is made to
them, to the same extent as if they were set out in full at the point at which
such reference is made.
IN WITNESS WHEREOF, the parties have executed this Agreement this ____
day of March, 1998.
BUYER:
MEDLEY CREDIT ACCEPTANCE CORPORATION:
By:_________________________
By: Robert Press, President
SELLERS:
JONNE TELMOSSE JAMIE SILVA
_____________________ _______________________
Joanne Telmosse Jamie Silva
JENNIFER MAKULA
_____________________
Jennifer Makula
CORPORATION:
MEDICAL BILLING SERVICE SYSTEMS, INC.
___________________________
By:
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EXHIBIT A
PURCHASE PRICE AND MANNER OF PAYMENT
The Purchase Price and manner of payment for the Shares shall be as
follows:
1. PURCHASE PRICE. The Buyer shall pay to the Sellers a total base purchase
price of Eight Hundred Thousand Dollars ($800,000.00) worth of Medley common
stock (valued at $4.50 per share for purposes of this Agreement), and certain
other incentive stock bonuses as follows:
a. The $800,000.00 worth of Medley base purchase price stock divided
by $4.50 (the value of Medley stock solely for the purposes of this Agreement)
entitles the Sellers collectively to 177,778 shares of Medley common stock.
Fifty percent (50%) of such base purchase price stock (88,889 shares) shall be
issued to the Sellers within fifteen (15) days of the Closing Date of this
transaction. Fifty percent (50%) of such base purchase price stock (88,889
shares) shall be issued to the Sellers on the first anniversary of the Closing
Date of this transaction.
b. If the 1998 net income before taxes of MBSS equals or exceeds the
1997 net income before taxes of MBSS, the Sellers or their designees shall
receive additional incentive stock options for 30,000 shares of Medley common
stock, with an exercise price equal to the closing price of Medley common stock
on the date of the issuance of the stock options. Such stock options shall be
issued within thirty (30) days of the completion of the 1998 fiscal year audit
of MBSS, and exercisable for six (6) months from the date of issuance.
c. If the 1999 net income before taxes of MBSS exceeds the 1998 net
income before taxes of MBSS by five percent (5%), the Sellers or their
designees shall receive additional incentive stock options for 15,000 shares of
Medley common stock, with an exercise price equal to the closing price of
Medley common stock on the date of the issuance of the stock options. Such
stock options shall be issued within thirty (30) days of the completion of the
1999 fiscal year audit of MBSS, and exercisable for six (6) months from the
date of issuance.
d. If the 1999 net income before taxes of MBSS exceeds the 1998 net
income before taxes of MBSS by ten percent (10%), the Sellers or their
designees shall receive additional incentive stock options for 30,000 shares of
Medley common stock, with an exercise price equal to the closing price of
Medley common stock on the date of the issuance of the stock options. Such
stock options shall be issued within thirty (30) days of the completion of the
1999 fiscal year audit of MBSS, and exercisable for six (6) months from the
date of issuance.
2. ASSUMPTION OF LIABILITIES At Closing, the Buyer shall assume all liabilities
relating to the Corporation, other than as expressly set forth herein to the
contrary.
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
this 1st day of April 1998, by and between MEDICAL BILLING SYSTEMS, INC., (the
"Company"), a Florida corporation, whose address is 7450 Wiles Road, Coral
Springs, Florida 33065, and JOANNE TELMOSSE ("Executive"), an individual, whose
address is 7450 Wiles Road, Coral Springs, Florida 33065.
WITNESSETH:
WHEREAS, the Company recognizes the experience and knowledge of the
Executive in the accounting and factoring industry, and wishes to retain the
valuable services of the Executive,
WHEREAS, the Executive wishes to accept employment with the Company
under the terms and conditions set forth herein; and
WHEREAS, Executive is uniquely experienced and qualified to perform
certain employment services for Company, and the value of the services to be
provided by the Executive are considered to be so unique and vital to the
Company's business, that the parties are entering into this Agreement which
provides generous consideration for the Executive, performance obligations for
the Executive and protective covenants for the Company and Executive; and
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements herein contained, and intending to be legally bound hereby, Company
and Executive agree as follows:
1. OFFICE AND DUTIES:
1.1 For the term of this Agreement as herein defined, Company hereby
employs, engages and hires Executive to serve as President of the Company. The
Executive shall have the powers and shall perform the specific duties as set
forth on the job description attached hereto as Attachment "A", and such other
duties as delegated to Executive by President and C.E.O. of the Company. The
Executive hereby agrees to such employment. It is hereby agreed between the
parties that primary responsibility for the supervision of the Executive shall
rest with the C.E.O of the Company, who shall review the Executive's
performance annually, make upward adjustment's to Executive's compensation and
award such other bonuses and employee benefits as he shall deem appropriate and
as set forth in this Agreement.
1.2 To assist Executive in performing Executive's duties, the Company
shall ensure that Executive is provided, in a timely manner, all reasonable
resources necessary for the accomplishment of Executive's duties.
2. TERM AND TERMINATION. This Agreement shall be effective April 6, 1998
("Effective Date"), and shall remain in full force and effect for three (3)
years from the Effective Date, unless the Agreement is terminated sooner by the
parties pursuant to subsection 2.1 or 2.2 below.
<PAGE>
2.1 Termination With Cause. This Agreement may be terminated by the
Company of the Executive for the following:
(a) upon the other party's material default or breach of any
of its obligations hereunder, if such default or breach remains uncorrected for
a period of fifteen (15) days after the receipt by the defaulting party of
written notice of such default or breach;
(b) upon the gross negligence or willful misconduct of the
other party during the term of this Agreement, which is materially damaging to
the Company or Executive, if such gross negligence or misconduct remains
uncorrected for a period of fifteen (15) days after the receipt by the Company
or Executive of written notice of such negligence or misconduct;
(c) upon the conviction of the Company or the Executive
during the term of this Agreement of a crime involving breach of trust or moral
turpitude;
In the event that the Company discharges the Executive alleging
"cause" under this Section 2.1, such notice of discharge shall be accompanied
by a written and specific description of the circumstances alleging such
"cause". Further, in the event that the Company discharges the Executive
alleging "cause" under this Section 2.1, and it is subsequently determined
judicially that the termination was "without cause", then such discharge shall
be deemed a discharge without cause subject to the provisions of Section 2.2
hereof.
2.2 Termination Without Cause. The Company or the Executive may, upon
sixty (60) days prior written notice to the other party, terminate this
Agreement without cause at any time during the term of this Agreement. If the
Company terminates the Executive without cause, the Company shall pay the
Executive, as liquidated damages in lieu of all other claims arising directly
out of the Executive's employment, an amount equal to the Base Salary which
would otherwise be payable to Executive for the remaining term of the
Agreement, plus any bonuses which the Executive would have earned if the
Executive had remained employed by the Company through the end of the bonus
period then in effect, based upon a reasonable extrapolation of the financial
statements of the Company at the time of such termination. Any such payments
shall, at the option of the Company, be made either in equal bi-weekly
installments over the remaining term of this Agreement, or in a lump sum cash
payment on the date of termination. Further, upon termination of the Executive
without causes, all benefits of the Executive which are in effect at the time
of such termination shall remain in full force and effect through the end of
the original term of this Agreement.
The Liquidated damages payments and benefits due to the Executive if
terminated without cause as set forth above, are hereby unconditionally
guaranteed in full by Medley Credit Acceptance Corporation, the parent
corporation to the Company.
2.3 Effect of Termination. In the event of any expiration or
termination of this Agreement, such expiration or termination shall not effect
any of the obligations of any party
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arising prior to the date of such expiration or termination, nor shall such
expiration or termination effect any allegations, representations, promises or
covenants contained herein which are expressly made to extend beyond the term
of this Agreement. The Executive shall resign from any office that the
Executive may hold in the Company, and shall cooperate in the transfer of
Executive's work responsibilities to such consultants or employees of Company
as may be designated by the Company.
3. COMPENSATION.
3.1 Base Salary. For all services rendered hereunder during the term
of this Agreement, the Executive shall be paid an annual base salary ("Base
Salary") of One Hundred and Twenty-Five Thousand Dollars ($125,000.00) per
year. The Company and the Executive agree that such base salary is reasonable
and is based upon the fair market rate in the marketplace for similar services
by similarly qualified executives. The Base Salary shall be paid in bi-weekly
installments in accordance with the Company's usual payroll practices. The
Executive shall also be eligible to receive an annual bonus based upon specific
Company financial performance criterion to be mutually developed by the
parties.
3.2 Benefits. During the term of this Agreement, the Executive will be
entitled to those executive benefits as set forth on Attachment "B" to this
Agreement, plus any other benefits consistent with personnel policies and
procedures which now exist or which may be developed for similar executive
employees during the term of this Agreement.
3.3 Vacation. Executive shall be entitled to three (3) weeks annual
vacation leave with pay. Vacation shall be scheduled at reasonable times not in
conflict with Executive's duties hereunder.
4. EXECUTIVE REPRESENTATIONS. Executive represents to Company that:
4.1 There are no restrictions, agreements or understandings whatsoever
to which Executive is a party that would prevent or make unlawful the
Executive's execution of this Agreement or the Executive's employment
hereunder.
4.2 Executive's execution of this Agreement and Executive's employment
hereunder shall not constitute a breach of any contract, agreement or
understanding, oral or written, to which Executive is a party or by which
Executive is bound.
4.3 Executive will at all times faithfully, industriously and to the
best of Executive's ability, experience and talents perform all of the duties
that may be required of Executive pursuant to the express and implied terms of
this Agreement.
5. CONTEMPORANEOUS BUSINESS ACTIVITY. In order to assure the consistency of
services provided by Executive, Executive agrees, during the effective terms of
this Agreement, that
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<PAGE>
Executive shall devote such full-time attention to the performance of the
Executive's duties under this Agreement as necessary to ensure Executive's full
and complete compliance with Executive's covenants under this Agreement.
6. NON-COMPETITION/DISCLOSURE.
6.1 Non-Competition. During the term of this Agreement, the Executive
shall not without the prior written permission of the Company:
(a) Directly or indirectly induce or attempt to influence any
of Company's employees or other staff, including but not limited to Company's
agent, representatives and independent contractors, to terminate their
relationship with the Company;
(b) Directly or indirectly induce or attempt to influence any
of the Company's business associates, clients, customers, consultants or
referral sources to terminate their relationship with the Company;
(c) Divert or take away any corporate business or
professional opportunity of Company that the Executive may become aware of
during the term of this Agreement, whether competitive or not competitive;
(d) Engage in or have any interest in any sole
proprietorship, partnership, corporation or other business or be employed by or
work for any other person or business entity (whether as employee, officer,
director, partner, agent, security holder, consultant or otherwise) that
directly or indirectly engages primarily in a business in competition with the
Company.
6.2 Non-disclosure. Executive, by virtue of Executive's employment,
has been and will continue to be introduced to confidential and/or proprietary
information concerning the Company and its operations. Because unauthorized
disclosure of such confidential and/or proprietary information will harm the
Company, the Executive shall not, except with the Company's express, prior,
written consent, directly or indirectly, communicate, disclose, divulge or use,
for the benefit of any person or entity other than the Company, any information
regarding the business, customer and/or client lists of Company or any other
knowledge or information whether confidential or proprietary of or about the
Company acquired by the Executive during the term of this Agreement.
This Executive further agrees that all work product produced by the
Executive during the term of Executive's employment shall remain the property
of the Company, and may not reproduced or communicated, disclosed or divulged
to any person or entity other than the Company.
6.3 Remedies. The Executive agrees that the Company's remedies at law
for the Executive's breach of any of these non-competition/non-disclosure
provisions are inadequate and
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that the Company may seek relief in equity by way of an injunction restraining
any violation of the non-competition/non-disclosure provisions by the
Executive.
If any period of time or geographic area relative to these
non-competition/non-disclosure provisions should be adjudged to be unreasonable
in any proceedings, then the period of time or geographic area shall be reduced
by such amount of time or distance so that such restrictions may be enforced
for such time or geographic area as is adjudged to be reasonable by a court of
competent jurisdiction.
7. MISCELLANEOUS.,
7.1 Indulgences, Etc. The failure or any delay on the part of the
Executive or Company to exercise any right, remedy, power or privilege under
this Agreement shall not operate as a waiver thereof. A single or partial
exercise of any right, remedy, power or privilege shall not preclude any
further exercise of the same or of any other right, remedy, power or privilege.
A waiver of any right, remedy, power or privilege with respect to any
occurrence shall not be construed as a waiver of such right, remedy, power or
privilege with respect to any other occurrence.
7.2 Controlling Law. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement shall be governed by and
construed in accordance with the laws of the State of Florida.
7.3 Notice. All notices, requests, demands and other communications
required or permitted under this Agreement and transactions contemplated herein
shall be in writing and shall be deemed to have been duly given, made and
received when delivered against receipt or when sent by United States certified
or registered mail, return receipt requested, postage prepaid, addressed as set
forth below in subparagraphs (a) and (b). In addition, notice by mail shall be
air mail if posted outside the continental United States. Executive and Company
may alter the address to which communications of copies are to be sent by
giving notice of such change of address in conformity with the provisions of
this paragraph for the giving of notice.
(a) If to Company:
Medical Billing Service Systems, Inc.
7450 Wiles Road
Coral Springs, Florida 33065
Attn: C.E.O.
(b) If to Executive:
Joanne Telmosse
7450 Wiles Road
Coral Springs, Florida 33065
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7.4 Binding Nature of Agreement. This Agreement shall be binding upon
and inure to the benefit of Company and its successors and assigns and shall be
binding upon and inure to the benefit of Executive, and Executive's heirs and
legal representatives.
7.5. Provisions Separable. The provisions of this Agreement are
independent of and separable from each other. No provision shall be rendered
invalid or unenforceable by virtue of the fact that for any reason, any one or
more of them may be invalid or unenforceable in whole or in part.
7.6 Entire Agreement. This Agreement contains the entire understanding
between Company and Executive with respect to the subject matter hereof, and
supersedes all prior and contemporaneous agreements and understandings,
inducements or conditions, express or implied, oral or written, except as
herein contained. The express terms hereof control and supersede any course of
performance or usage of the trade or professions inconsistent with any of the
terms hereof. This Agreement may not be modified or amended other than by any
agreement in writing.
7.7 Section Headings. The section headings in this Agreement are for
convenience only and form no part of this Agreement and shall not affect its
interpretation.
7.8. Gender, Etc. Words used in this Agreement, regardless of the
number and gender specifically used, shall be deemed and construed to include
any other number, singular or plural, and any other gender, masculine, feminine
or neuter, as the context requires.
7.9 Number of Days. In computing the number of days for purposes of
this Agreement, all days shall be counted, including Saturdays, Sunday or
holidays; provided, however, that if the final day of any time period falls on
a Saturday, Sunday or holiday, then the final day shall be deemed to be the
next day which is not a Saturday, Sunday or holiday.
7.10 Counterparts. This Agreement may be executed two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute but one and the same Agreement.
7.11 Assignment. No assignment by Executive of this Agreement or the
rights and obligations hereunder shall be valid without the specific written
consent of Company, which consent may be arbitrarily withheld. This Agreement
may be assigned by the Company to an entity under its control, directly or
indirectly, or the control of its principals without the consent of the
Executive, provided Executive's security herein is not impaired by the
assignment.
7.12 Construction. This Agreement shall be construed without regard to
any presumption or other rule requiring construction against the party causing
this Agreement to be drafted.
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IN WITNESS WHEREOF, the parties hereto have executed this agreement or
caused their duly authorized representatives to execute this Agreement on the
day first stated above.
COMPANY: EXECUTIVE:
MEDICAL BILLING SERVICE JOANNE TELMOSSE
SYSTEMS, INC.
- ------------------------------------ --------------------------
ROBERT D. PRESS JOANNE TELMOSSE
C.E.O.
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ATTACHMENT "A"
JOB DESCRIPTION
(To Be developed)
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ATTACHMENT "B"
BENEFITS
MAXIMUM COMPANY CONTRIBUTION TO 401(K)
FULL COMPANY-PAID HEALTH INSURANCE FOR EXECUTIVE AND FAMILY
REASONABLE COMPANY EXPENSE ALLOWANCE
COMPANY-PAID LIFE INSURANCE
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
this 1st day of April 1998, by and between MEDICAL BILLING SYSTEMS, INC., (the
"Company"), a Florida corporation, whose address is 7450 Wiles Road, Coral
Springs, Florida 33065, and JENNIFER MAKULA ("Executive"), an individual, whose
address is 7450 Wiles Road, Coral Springs, Florida 33065.
WITNESSETH:
WHEREAS, the Company recognizes the experience and knowledge of the
Executive in the accounting and factoring industry, and wishes to retain the
valuable services of the Executive,
WHEREAS, the Executive wishes to accept employment with the Company
under the terms and conditions set forth herein; and
WHEREAS, Executive is uniquely experienced and qualified to perform
certain employment services for Company, and the value of the services to be
provided by the Executive are considered to be so unique and vital to the
Company's business, that the parties are entering into this Agreement which
provides generous consideration for the Executive, performance obligations for
the Executive and protective covenants for the Company and Executive; and
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements herein contained, and intending to be legally bound hereby, Company
and Executive agree as follows:
1. OFFICE AND DUTIES:
1.1 For the term of this Agreement as herein defined, Company hereby
employs, engages and hires Executive to serve as Vice President of the Company.
The Executive shall have the powers and shall perform the specific duties as
set forth on the job description attached hereto as Attachment "A", and such
other duties as delegated to Executive by President and C.E.O. of the Company.
The Executive hereby agrees to such employment. It is hereby agreed between the
parties that primary responsibility for the supervision of the Executive shall
rest with the C.E.O of the Company, who shall review the Executive's
performance annually, make upward adjustment's to Executive's compensation and
award such other bonuses and employee benefits as he shall deem appropriate and
as set forth in this Agreement.
1.2 To assist Executive in performing Executive's duties, the Company
shall ensure that Executive is provided, in a timely manner, all reasonable
resources necessary for the accomplishment of Executive's duties.
2. TERM AND TERMINATION. This Agreement shall be effective April 6, 1998
("Effective Date"), and shall remain in full force and effect for three (3)
years from the Effective Date, unless the Agreement is terminated sooner by the
parties pursuant to subsection 2.1 or 2.2 below.
<PAGE>
2.1 Termination With Cause. This Agreement may be terminated by the
Company of the Executive for the following:
(a) upon the other party's material default or breach of any
of its obligations hereunder, if such default or breach remains uncorrected for
a period of fifteen (15) days after the receipt by the defaulting party of
written notice of such default or breach;
(b) upon the gross negligence or willful misconduct of the
other party during the term of this Agreement, which is materially damaging to
the Company or Executive, if such gross negligence or misconduct remains
uncorrected for a period of fifteen (15) days after the receipt by the Company
or Executive of written notice of such negligence or misconduct;
(c) upon the conviction of the Company or the Executive
during the term of this Agreement of a crime involving breach of trust or moral
turpitude;
In the event that the Company discharges the Executive alleging
"cause" under this Section 2.1, such notice of discharge shall be accompanied
by a written and specific description of the circumstances alleging such
"cause". Further, in the event that the Company discharges the Executive
alleging "cause" under this Section 2.1, and it is subsequently determined
judicially that the termination was "without cause", then such discharge shall
be deemed a discharge without cause subject to the provisions of Section 2.2
hereof.
2.2 Termination Without Cause. The Company or the Executive may, upon
sixty (60) days prior written notice to the other party, terminate this
Agreement without cause at any time during the term of this Agreement. If the
Company terminates the Executive without cause, the Company shall pay the
Executive, as liquidated damages in lieu of all other claims arising directly
out of the Executive's employment, an amount equal to the Base Salary which
would otherwise be payable to Executive for the remaining term of the
Agreement, plus any bonuses which the Executive would have earned if the
Executive had remained employed by the Company through the end of the bonus
period then in effect, based upon a reasonable extrapolation of the financial
statements of the Company at the time of such termination. Any such payments
shall, at the option of the Company, be made either in equal bi-weekly
installments over the remaining term of this Agreement, or in a lump sum cash
payment on the date of termination. Further, upon termination of the Executive
without causes, all benefits of the Executive which are in effect at the time
of such termination shall remain in full force and effect through the end of
the original term of this Agreement.
The Liquidated damages payments and benefits due to the Executive if
terminated without cause as set forth above, are hereby unconditionally
guaranteed in full by Medley Credit Acceptance Corporation, the parent
corporation to the Company.
2.3 Effect of Termination. In the event of any expiration or
termination of this Agreement, such expiration or termination shall not effect
any of the obligations of any party
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<PAGE>
arising prior to the date of such expiration or termination, nor shall such
expiration or termination effect any allegations, representations, promises or
covenants contained herein which are expressly made to extend beyond the term
of this Agreement. The Executive shall resign from any office that the
Executive may hold in the Company, and shall cooperate in the transfer of
Executive's work responsibilities to such consultants or employees of Company
as may be designated by the Company.
3. COMPENSATION.
3.1 Base Salary. For all services rendered hereunder during the term
of this Agreement, the Executive shall be paid an annual base salary ("Base
Salary") of Seventy-Five Thousand Dollars ($75,000.00) per year. The Company
and the Executive agree that such base salary is reasonable and is based upon
the fair market rate in the marketplace for similar services by similarly
qualified executives. The Base Salary shall be paid in bi-weekly installments
in accordance with the Company's usual payroll practices. The Executive shall
also be eligible to receive an annual bonus based upon specific Company
financial performance criterion to be mutually developed by the parties.
3.2 Benefits. During the term of this Agreement, the Executive will be
entitled to those executive benefits as set forth on Attachment "B" to this
Agreement, plus any other benefits consistent with personnel policies and
procedures which now exist or which may be developed for similar executive
employees during the term of this Agreement.
3.3 Vacation. Executive shall be entitled to three (3) weeks annual
vacation leave with pay. Vacation shall be scheduled at reasonable times not in
conflict with Executive's duties hereunder.
4. EXECUTIVE REPRESENTATIONS. Executive represents to Company that:
4.1 There are no restrictions, agreements or understandings whatsoever
to which Executive is a party that would prevent or make unlawful the
Executive's execution of this Agreement or the Executive's employment
hereunder.
4.2 Executive's execution of this Agreement and Executive's employment
hereunder shall not constitute a breach of any contract, agreement or
understanding, oral or written, to which Executive is a party or by which
Executive is bound.
4.3 Executive will at all times faithfully, industriously and to the
best of Executive's ability, experience and talents perform all of the duties
that may be required of Executive pursuant to the express and implied terms of
this Agreement.
5. CONTEMPORANEOUS BUSINESS ACTIVITY. In order to assure the consistency of
services provided by Executive, Executive agrees, during the effective terms of
this Agreement, that
- 3 -
<PAGE>
Executive shall devote such full-time attention to the performance of the
Executive's duties under this Agreement as necessary to ensure Executive's full
and complete compliance with Executive's covenants under this Agreement.
6. NON-COMPETITION/DISCLOSURE.
6.1 Non-Competition. During the term of this Agreement, the Executive
shall not without the prior written permission of the Company:
(a) Directly or indirectly induce or attempt to influence any
of Company's employees or other staff, including but not limited to Company's
agent, representatives and independent contractors, to terminate their
relationship with the Company;
(b) Directly or indirectly induce or attempt to influence any
of the Company's business associates, clients, customers, consultants or
referral sources to terminate their relationship with the Company;
(c) Divert or take away any corporate business or
professional opportunity of Company that the Executive may become aware of
during the term of this Agreement, whether competitive or not competitive;
(d) Engage in or have any interest in any sole
proprietorship, partnership, corporation or other business or be employed by or
work for any other person or business entity (whether as employee, officer,
director, partner, agent, security holder, consultant or otherwise) that
directly or indirectly engages primarily in a business in competition with the
Company.
6.2 Non-disclosure. Executive, by virtue of Executive's employment,
has been and will continue to be introduced to confidential and/or proprietary
information concerning the Company and its operations. Because unauthorized
disclosure of such confidential and/or proprietary information will harm the
Company, the Executive shall not, except with the Company's express, prior,
written consent, directly or indirectly, communicate, disclose, divulge or use,
for the benefit of any person or entity other than the Company, any information
regarding the business, customer and/or client lists of Company or any other
knowledge or information whether confidential or proprietary of or about the
Company acquired by the Executive during the term of this Agreement.
This Executive further agrees that all work product produced by the
Executive during the term of Executive's employment shall remain the property
of the Company, and may not reproduced or communicated, disclosed or divulged
to any person or entity other than the Company.
6.3 Remedies. The Executive agrees that the Company's remedies at law
for the Executive's breach of any of these non-competition/non-disclosure
provisions are inadequate and
- 4 -
<PAGE>
that the Company may seek relief in equity by way of an injunction restraining
any violation of the non-competition/non-disclosure provisions by the
Executive.
If any period of time or geographic area relative to these
non-competition/non-disclosure provisions should be adjudged to be unreasonable
in any proceedings, then the period of time or geographic area shall be reduced
by such amount of time or distance so that such restrictions may be enforced
for such time or geographic area as is adjudged to be reasonable by a court of
competent jurisdiction.
7. MISCELLANEOUS.,
7.1 Indulgences, Etc. The failure or any delay on the part of the
Executive or Company to exercise any right, remedy, power or privilege under
this Agreement shall not operate as a waiver thereof. A single or partial
exercise of any right, remedy, power or privilege shall not preclude any
further exercise of the same or of any other right, remedy, power or privilege.
A waiver of any right, remedy, power or privilege with respect to any
occurrence shall not be construed as a waiver of such right, remedy, power or
privilege with respect to any other occurrence.
7.2 Controlling Law. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement shall be governed by and
construed in accordance with the laws of the State of Florida.
7.3 Notice. All notices, requests, demands and other communications
required or permitted under this Agreement and transactions contemplated herein
shall be in writing and shall be deemed to have been duly given, made and
received when delivered against receipt or when sent by United States certified
or registered mail, return receipt requested, postage prepaid, addressed as set
forth below in subparagraphs (a) and (b). In addition, notice by mail shall be
air mail if posted outside the continental United States. Executive and Company
may alter the address to which communications of copies are to be sent by
giving notice of such change of address in conformity with the provisions of
this paragraph for the giving of notice.
(a) If to Company:
Medical Billing Service Systems, Inc.
7450 Wiles Road
Coral Springs, Florida 33065
Attn: C.E.O.
(b) If to Executive:
Jennifer Makula
7450 Wiles Road
Coral Springs, Florida 33065
- 5 -
<PAGE>
7.4 Binding Nature of Agreement. This Agreement shall be binding upon
and inure to the benefit of Company and its successors and assigns and shall be
binding upon and inure to the benefit of Executive, and Executive's heirs and
legal representatives.
7.5. Provisions Separable. The provisions of this Agreement are
independent of and separable from each other. No provision shall be rendered
invalid or unenforceable by virtue of the fact that for any reason, any one or
more of them may be invalid or unenforceable in whole or in part.
7.6 Entire Agreement. This Agreement contains the entire understanding
between Company and Executive with respect to the subject matter hereof, and
supersedes all prior and contemporaneous agreements and understandings,
inducements or conditions, express or implied, oral or written, except as
herein contained. The express terms hereof control and supersede any course of
performance or usage of the trade or professions inconsistent with any of the
terms hereof. This Agreement may not be modified or amended other than by any
agreement in writing.
7.7 Section Headings. The section headings in this Agreement are for
convenience only and form no part of this Agreement and shall not affect its
interpretation.
7.8. Gender, Etc. Words used in this Agreement, regardless of the
number and gender specifically used, shall be deemed and construed to include
any other number, singular or plural, and any other gender, masculine, feminine
or neuter, as the context requires.
7.9 Number of Days. In computing the number of days for purposes of
this Agreement, all days shall be counted, including Saturdays, Sunday or
holidays; provided, however, that if the final day of any time period falls on
a Saturday, Sunday or holiday, then the final day shall be deemed to be the
next day which is not a Saturday, Sunday or holiday.
7.10 Counterparts. This Agreement may be executed two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute but one and the same Agreement.
7.11 Assignment. No assignment by Executive of this Agreement or the
rights and obligations hereunder shall be valid without the specific written
consent of Company, which consent may be arbitrarily withheld. This Agreement
may be assigned by the Company to an entity under its control, directly or
indirectly, or the control of its principals without the consent of the
Executive, provided Executive's security herein is not impaired by the
assignment.
7.12 Construction. This Agreement shall be construed without regard to
any presumption or other rule requiring construction against the party causing
this Agreement to be drafted.
- 6 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this agreement or
caused their duly authorized representatives to execute this Agreement on the
day first stated above.
COMPANY: EXECUTIVE:
MEDICAL BILLING SERVICE JENNIFER MAKULA
SYSTEMS, INC.
- ------------------------------------ --------------------------
ROBERT D. PRESS JENNIFER MAKULA
C.E.O.
- 7 -
<PAGE>
ATTACHMENT "A"
JOB DESCRIPTION
(To Be developed)
- 8 -
<PAGE>
ATTACHMENT "B"
BENEFITS
MAXIMUM COMPANY CONTRIBUTION TO 401(K)
FULL COMPANY-PAID HEALTH INSURANCE FOR EXECUTIVE AND FAMILY
REASONABLE COMPANY EXPENSE ALLOWANCE
COMPANY-PAID LIFE INSURANCE
- 9 -
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
this 1st day of April 1998, by and between MEDICAL BILLING SYSTEMS, INC., (the
"Company"), a Florida corporation, whose address is 7450 Wiles Road, Coral
Springs, Florida 33065, and JAMIE SILVA ("Executive"), an individual, whose
address is 7450 Wiles Road, Coral Springs, Florida 33065.
WITNESSETH:
WHEREAS, the Company recognizes the experience and knowledge of the
Executive in the accounting and factoring industry, and wishes to retain the
valuable services of the Executive,
WHEREAS, the Executive wishes to accept employment with the Company
under the terms and conditions set forth herein; and
WHEREAS, Executive is uniquely experienced and qualified to perform
certain employment services for Company, and the value of the services to be
provided by the Executive are considered to be so unique and vital to the
Company's business, that the parties are entering into this Agreement which
provides generous consideration for the Executive, performance obligations for
the Executive and protective covenants for the Company and Executive; and
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements herein contained, and intending to be legally bound hereby, Company
and Executive agree as follows:
1. OFFICE AND DUTIES:
1.1 For the term of this Agreement as herein defined, Company hereby
employs, engages and hires Executive to serve as Vice President of the Company.
The Executive shall have the powers and shall perform the specific duties as
set forth on the job description attached hereto as Attachment "A", and such
other duties as delegated to Executive by President and C.E.O. of the Company.
The Executive hereby agrees to such employment. It is hereby agreed between the
parties that primary responsibility for the supervision of the Executive shall
rest with the C.E.O of the Company, who shall review the Executive's
performance annually, make upward adjustment's to Executive's compensation and
award such other bonuses and employee benefits as he shall deem appropriate and
as set forth in this Agreement.
1.2 To assist Executive in performing Executive's duties, the Company
shall ensure that Executive is provided, in a timely manner, all reasonable
resources necessary for the accomplishment of Executive's duties.
2. TERM AND TERMINATION. This Agreement shall be effective April 6, 1998
("Effective Date"), and shall remain in full force and effect for three (3)
years from the Effective Date, unless the Agreement is terminated sooner by the
parties pursuant to subsection 2.1 or 2.2 below.
<PAGE>
2.1 Termination With Cause. This Agreement may be terminated by the
Company of the Executive for the following:
(a) upon the other party's material default or breach of any
of its obligations hereunder, if such default or breach remains uncorrected for
a period of fifteen (15) days after the receipt by the defaulting party of
written notice of such default or breach;
(b) upon the gross negligence or willful misconduct of the
other party during the term of this Agreement, which is materially damaging to
the Company or Executive, if such gross negligence or misconduct remains
uncorrected for a period of fifteen (15) days after the receipt by the Company
or Executive of written notice of such negligence or misconduct;
(c) upon the conviction of the Company or the Executive
during the term of this Agreement of a crime involving breach of trust or moral
turpitude;
In the event that the Company discharges the Executive alleging
"cause" under this Section 2.1, such notice of discharge shall be accompanied
by a written and specific description of the circumstances alleging such
"cause". Further, in the event that the Company discharges the Executive
alleging "cause" under this Section 2.1, and it is subsequently determined
judicially that the termination was "without cause", then such discharge shall
be deemed a discharge without cause subject to the provisions of Section 2.2
hereof.
2.2 Termination Without Cause. The Company or the Executive may, upon
sixty (60) days prior written notice to the other party, terminate this
Agreement without cause at any time during the term of this Agreement. If the
Company terminates the Executive without cause, the Company shall pay the
Executive, as liquidated damages in lieu of all other claims arising directly
out of the Executive's employment, an amount equal to the Base Salary which
would otherwise be payable to Executive for the remaining term of the
Agreement, plus any bonuses which the Executive would have earned if the
Executive had remained employed by the Company through the end of the bonus
period then in effect, based upon a reasonable extrapolation of the financial
statements of the Company at the time of such termination. Any such payments
shall, at the option of the Company, be made either in equal bi-weekly
installments over the remaining term of this Agreement, or in a lump sum cash
payment on the date of termination. Further, upon termination of the Executive
without causes, all benefits of the Executive which are in effect at the time
of such termination shall remain in full force and effect through the end of
the original term of this Agreement.
The Liquidated damages payments and benefits due to the Executive if
terminated without cause as set forth above, are hereby unconditionally
guaranteed in full by Medley Credit Acceptance Corporation, the parent
corporation to the Company.
2.3 Effect of Termination. In the event of any expiration or
termination of this Agreement, such expiration or termination shall not effect
any of the obligations of any party arising prior to the date of such
expiration or termination, nor shall such expiration or termination effect any
allegations, representations, promises or covenants contained herein which
- 2 -
<PAGE>
are expressly made to extend beyond the term of this Agreement. The Executive
shall resign from any office that the Executive may hold in the Company, and
shall cooperate in the transfer of Executive's work responsibilities to such
consultants or employees of Company as may be designated by the Company.
3. COMPENSATION.
3.1 Base Salary. For all services rendered hereunder during the term
of this Agreement, the Executive shall be paid an annual base salary ("Base
Salary") of Seventy-Five Thousand Dollars ($75,000.00) per year. The Company
and the Executive agree that such base salary is reasonable and is based upon
the fair market rate in the marketplace for similar services by similarly
qualified executives. The Base Salary shall be paid in bi-weekly installments
in accordance with the Company's usual payroll practices. The Executive shall
also be eligible to receive an annual bonus based upon specific Company
financial performance criterion to be mutually developed by the parties.
3.2 Benefits. During the term of this Agreement, the Executive will be
entitled to those executive benefits as set forth on Attachment "B" to this
Agreement, plus any other benefits consistent with personnel policies and
procedures which now exist or which may be developed for similar executive
employees during the term of this Agreement.
3.3 Vacation. Executive shall be entitled to three (3) weeks annual
vacation leave with pay. Vacation shall be scheduled at reasonable times not in
conflict with Executive's duties hereunder.
4. EXECUTIVE REPRESENTATIONS. Executive represents to Company that:
4.1 There are no restrictions, agreements or understandings whatsoever
to which Executive is a party that would prevent or make unlawful the
Executive's execution of this Agreement or the Executive's employment
hereunder.
4.2 Executive's execution of this Agreement and Executive's employment
hereunder shall not constitute a breach of any contract, agreement or
understanding, oral or written, to which Executive is a party or by which
Executive is bound.
4.3 Executive will at all times faithfully, industriously and to the
best of Executive's ability, experience and talents perform all of the duties
that may be required of Executive pursuant to the express and implied terms of
this Agreement.
5. CONTEMPORANEOUS BUSINESS ACTIVITY. In order to assure the consistency of
services provided by Executive, Executive agrees, during the effective terms of
this Agreement, that Executive shall devote such full-time attention to the
performance of the Executive's duties under this Agreement as necessary to
ensure Executive's full and complete compliance with Executive's covenants
under this Agreement.
- 3 -
<PAGE>
6. NON-COMPETITION/DISCLOSURE.
6.1 Non-Competition. During the term of this Agreement, the Executive
shall not without the prior written permission of the Company:
(a) Directly or indirectly induce or attempt to influence any
of Company's employees or other staff, including but not limited to Company's
agent, representatives and independent contractors, to terminate their
relationship with the Company;
(b) Directly or indirectly induce or attempt to influence any
of the Company's business associates, clients, customers, consultants or
referral sources to terminate their relationship with the Company;
(c) Divert or take away any corporate business or
professional opportunity of Company that the Executive may become aware of
during the term of this Agreement, whether competitive or not competitive;
(d) Engage in or have any interest in any sole
proprietorship, partnership, corporation or other business or be employed by or
work for any other person or business entity (whether as employee, officer,
director, partner, agent, security holder, consultant or otherwise) that
directly or indirectly engages primarily in a business in competition with the
Company.
6.2 Non-disclosure. Executive, by virtue of Executive's employment,
has been and will continue to be introduced to confidential and/or proprietary
information concerning the Company and its operations. Because unauthorized
disclosure of such confidential and/or proprietary information will harm the
Company, the Executive shall not, except with the Company's express, prior,
written consent, directly or indirectly, communicate, disclose, divulge or use,
for the benefit of any person or entity other than the Company, any information
regarding the business, customer and/or client lists of Company or any other
knowledge or information whether confidential or proprietary of or about the
Company acquired by the Executive during the term of this Agreement.
This Executive further agrees that all work product produced by the
Executive during the term of Executive's employment shall remain the property
of the Company, and may not reproduced or communicated, disclosed or divulged
to any person or entity other than the Company.
6.3 Remedies. The Executive agrees that the Company's remedies at law
for the Executive's breach of any of these non-competition/non-disclosure
provisions are inadequate and that the Company may seek relief in equity by way
of an injunction restraining any violation of the
non-competition/non-disclosure provisions by the Executive.
If any period of time or geographic area relative to these
non-competition/non-disclosure provisions should be adjudged to be unreasonable
in any proceedings, then the period of time or geographic area shall be reduced
by such amount of time or distance so that such restrictions may
- 4 -
<PAGE>
be enforced for such time or geographic area as is adjudged to be reasonable by
a court of competent jurisdiction.
7. MISCELLANEOUS.
7.1 Indulgences, Etc. The failure or any delay on the part of the
Executive or Company to exercise any right, remedy, power or privilege under
this Agreement shall not operate as a waiver thereof. A single or partial
exercise of any right, remedy, power or privilege shall not preclude any
further exercise of the same or of any other right, remedy, power or privilege.
A waiver of any right, remedy, power or privilege with respect to any
occurrence shall not be construed as a waiver of such right, remedy, power or
privilege with respect to any other occurrence.
7.2 Controlling Law. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement shall be governed by and
construed in accordance with the laws of the State of Florida.
7.3 Notice. All notices, requests, demands and other communications
required or permitted under this Agreement and transactions contemplated herein
shall be in writing and shall be deemed to have been duly given, made and
received when delivered against receipt or when sent by United States certified
or registered mail, return receipt requested, postage prepaid, addressed as set
forth below in subparagraphs (a) and (b). In addition, notice by mail shall be
air mail if posted outside the continental United States. Executive and Company
may alter the address to which communications of copies are to be sent by
giving notice of such change of address in conformity with the provisions of
this paragraph for the giving of notice.
(a) If to Company:
Medical Billing Service Systems, Inc.
7450 Wiles Road
Coral Springs, Florida 33065
Attn: C.E.O.
(b) If to Executive:
Jamie Silva
7450 Wiles Road
Coral Springs, Florida 33065
7.4 Binding Nature of Agreement. This Agreement shall be binding upon
and inure to the benefit of Company and its successors and assigns and shall be
binding upon and inure to the benefit of Executive, and Executive's heirs and
legal representatives.
7.5. Provisions Separable. The provisions of this Agreement are
independent of and separable from each other. No provision shall be rendered
invalid or unenforceable by virtue of the fact that for any reason, any one or
more of them may be invalid or unenforceable in whole or in part.
- 5 -
<PAGE>
7.6 Entire Agreement. This Agreement contains the entire understanding
between Company and Executive with respect to the subject matter hereof, and
supersedes all prior and contemporaneous agreements and understandings,
inducements or conditions, express or implied, oral or written, except as
herein contained. The express terms hereof control and supersede any course of
performance or usage of the trade or professions inconsistent with any of the
terms hereof. This Agreement may not be modified or amended other than by any
agreement in writing.
7.7 Section Headings. The section headings in this Agreement are for
convenience only and form no part of this Agreement and shall not affect its
interpretation.
7.8. Gender, Etc. Words used in this Agreement, regardless of the
number and gender specifically used, shall be deemed and construed to include
any other number, singular or plural, and any other gender, masculine, feminine
or neuter, as the context requires.
7.9 Number of Days. In computing the number of days for purposes of
this Agreement, all days shall be counted, including Saturdays, Sunday or
holidays; provided, however, that if the final day of any time period falls on
a Saturday, Sunday or holiday, then the final day shall be deemed to be the
next day which is not a Saturday, Sunday or holiday.
7.10 Counterparts. This Agreement may be executed two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute but one and the same Agreement.
7.11 Assignment. No assignment by Executive of this Agreement or the
rights and obligations hereunder shall be valid without the specific written
consent of Company, which consent may be arbitrarily withheld. This Agreement
may be assigned by the Company to an entity under its control, directly or
indirectly, or the control of its principals without the consent of the
Executive, provided Executive's security herein is not impaired by the
assignment.
7.12 Construction. This Agreement shall be construed without regard to
any presumption or other rule requiring construction against the party causing
this Agreement to be drafted.
IN WITNESS WHEREOF, the parties hereto have executed this agreement or
caused their duly authorized representatives to execute this Agreement on the
day first stated above.
COMPANY: EXECUTIVE:
MEDICAL BILLING SERVICE JAMIE SILVA
SYSTEMS, INC.
- ------------------------------------ --------------------------
ROBERT D. PRESS JAMIE SILVA
C.E.O.
- 6 -
<PAGE>
ATTACHMENT "A"
JOB DESCRIPTION
(To Be developed)
- 7 -
<PAGE>
ATTACHMENT "B"
BENEFITS
MAXIMUM COMPANY CONTRIBUTION TO 401(K)
FULL COMPANY-PAID HEALTH INSURANCE FOR EXECUTIVE AND FAMILY
REASONABLE COMPANY EXPENSE ALLOWANCE
COMPANY-PAID LIFE INSURANCE
- 8 -
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement"), dated March 30, l99S, by
and among MEDLEY CREDIT ACCEPTANCE CORPORATION ("Buyer"), a Florida
corporation, whose address is P.O. Box 143096, Coral Gables, Florida
33114-3096, W. DENNIS PROUTY ("Prouty"), an individual, whose address is 9091
Vineyard Drive, Plantation, Florida 33324, LAURA C. SOT ERA ("Sotera"), an
individual, whose address is 11450 N.W. 36th Place, Sunrise, Florida 33323,
GARRY R. SPEAR, ESQ, ("Spear"), an individual, whose address is 20797 Cabrillo
Way, Boca Raton, Florida 33428, YNC GENERAL PARTNERSHIP ("YNC"), a Florida
general partnership, whose address is 7501 W. Oakland Park Boulevard, Suite
301, Lauderhill, Florida 33319 (Prouty, Sotera, Spear and YNC are,
collectively, the "Sellers"), and PREMIER PROVIDER SERVICES, INC.
("Corporation"), a Florida corporation, whose address is 7501 W. Oakland Park
Boulevard, Suite 301, Lauderhill, Florida 33319.
W I T N E S S E T H:
WHEREAS, the Sellers own collectively (Prouty-39.6%, Sotera-39.6%,
Spear-19.8% and YNC-1%), all of the authorized, issued and outstanding shares
("Shares") of the Corporation, a Florida corporation which owns and operates an
accounting business, owns and operates a staffing company and does other
business in the state of Florida;
WHEREAS, the Buyer desires to purchase and receive from the Sellers,
and the Sellers desire to sell, assign, transfer and deliver to the Buyer, all
of the Sellers' right, title and interest in the Shares, under the terms and
conditions of this Agreement;
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties, intending to be
legally bound hereby, agree as follows:
ARTICLE 1
SALE AND PURCHASE OF INTEREST
1.01 Interest to be Purchased, Transferred or Assigned by the Sellers.
On and as of the date of the closing contemplated by this Agreement ("Closing
Date"), and under the terms and conditions of this Agreement, the Sellers agree
to sell, assign, transfer and delivered to the Buyer, and the Buyer agrees to
purchase and accept from the Sellers, all of the Sellers' right, title and
interest in the Shares.
1.02 No Liens. Encumbrances. Etc. The Shares shall be conveyed to the
Buyer free and clear of all liens, encumbrances, conditions, and restrictions
of any kind.
1.03 Liabilities of the Buyer. On and as of the Closing Date, the
Buyer shall assume and agree to pay, perform and discharge, all liabilities
relating to the Shares arising as of and following the Closing Date.
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1.04 Liabilities Retained by the Sellers. The Sellers will be
obligated to pay, perform and discharge the debts, obligations and liabilities
of the Sellers from:
(a) any and all liabilities of the individual Sellers
relating in any way to the Sellers' individual ownership of the Shares prior to
the Closing Date:
(b) all federal, state, local or other income taxes of the
Sellers.
ARTICLE 2
PURCHASE PRICE
2.01 Price. The purchase price ("Purchase Price") for the Shares shall
be as set forth in Exhibit A hereto.
2.02 Manner of Payment. The Buyer will pay the Purchase Price to the
Sellers as set forth in Exhibit A hereto.
ARTICLE 3
APPORTIONMENT OF EXPENSES AND INCOME
3.01 Accounting Apportionment. For accounting purposes, all loss and
income attributable to the Shares (determined on a cash basis) on or before
11:59 P.M. on December 31, 1997, shall be for the account of the Sellers.
Thereafter, such expense and income shall be for the account of the Buyer. The
parties agree that, if possible7 the S-Corporation status of the Corporation
shall be terminated as of December 31, 1997, and that the parties shall make
all necessary notifications to the Internal Revenue Service to effectuate such
termination as of such date.
ARTICLE 4
THE SELLERS' AND CORPORATION'S REPRESENTATIONS, WARRANTIES AND COVENANTS
The Sellers and the Corporation represent, warrant and covenant to the
Buyer as follows:
4.01 Sellers' Title to Shares. The Sellers have good, absolute and
marketable title to the Shares, free and clear of all liens, encumbrances,
conditions and restrictions of any kind. The Sellers have the complete and
unrestricted right. power and authority to sell, transfer and assign the
Shares, and the transfer and delivery of the Shares to the Buyer pursuant to
this Agreement will be valid and will vest title to the Shares in the Buyer
free and clear of all liens, encumbrances, conditions and restrictions of any
kind.
4.02 Status. The Corporation is a corporation, duly organized, validly
existing, and in good standing under the laws of the state of Florida, with
full power and authority to own and
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lease its properties, and to carry on its business as now being conducted. The
Corporation is qualified to do business and is in good standing in each
jurisdiction in which the character of its business or interests makes such
qualification necessary.
4.03 Approval of Sale. The execution, delivery and performance of this
Agreement, have been duly approved by all requisite corporate action, if any,
on the part of the Corporation and is within the Sellers' powers. The joinder
of no person or entity with the Sellers will be necessary to convey the Shares
to the Buyer, however the parties acknowledge that notification of, and or
consent of, the transfer of the Shares may need to be made to certain third
parties prior to or following Closing, including, but not necessarily limited
to, the State of Florida, the internal Revenue Service, and certain regulatory
agencies. The execution, delivery and performance of this Agreement will not,
to the best of the Corporation's or the Sellers' knowledge and belief, (a)
cause any default in or breach of any provisions of any applicable law, rule or
regulation, or (b) result in the creation of any lien, security interest,
charge or encumbrance upon any of the Shares.
4 04 Capitalization. The Corporation is authorized by its Articles of
Incorporation to issue two hundred (200) shares of common stock all of which
are duly and validly issued and outstanding, nonassessable and owned by the
Sellers, and the Corporation will not issue any additional shares of its stock
prior to the Closing.
4.05 Stock Rights. There are no outstanding options, contracts,
commitments, warrants or other rights of any character affecting or relating in
any manner to the Shares.
4.06 No Litigation or Adverse Events. To the Sellers' knowledge, there
is no suit. claim, action or legal, administrative, arbitration, or other
proceeding or governmental investigation pending or threatened, by or against
the Sellers, Shares or the Corporation.
4.07 Accuracy of Documents. To the Sellers' knowledge, all copies of
contracts, agreements, and documents heretofore delivered or hereafter to be
delivered by the Sellers in connection with the transactions contemplated
hereby are or will be (as the case may be) complete and accurate in all
material respects, and will not have been amended or modified by any oral
agreements.
4.08 Financial Statements. The Corporation has furnished the Buyer
with financial statements of the Corporation as of February 28, 1998. All
fmancia1 statements fairly present the financial condition of the Corporation
at such date. To the best of the Sellers' knowledge there are no matters
pending which would have an adverse or material effect on the financial
statements of the Corporation fro~n February 28, 199S, through the date of
Closing.
4.09 Insurance. The Corporation has maintained, and will maintain
through the Closing on this transaction, insurance coverage against liability,
loss or casualty on all aspects of the Corporation's operations.
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4.10 Tax Returns. The Corporation and the Sellers have duly filed all
federal, state and local tax returns and have paid all federal, state and local
taxes required to be paid with respect to the periods covered by the returns.
4.11 No Orders, Judgments, Decrees. Etc. The Corporation is not
subject to any order, judgment or decree, stipulation or consent or any
agreement with any governmental body or agency which would have a material
adverse effect on the financial position of the Corporation.
4.12 Ordinary Course of Business. Subsequent to the date of the
Corporation's last financial statements, the business of the Corporation has
been conducted as usual in the ordinary course of business and to the best of
the Sellers' knowledge material loss of any of the Corporation's customers and
clients which would have an adverse effect on the Corporation's future
profitability.
4.13 License. Permits. Etc. The Corporation possesses all of the
necessary license and permits to conduct the business of the Corporation and is
in compliance with all applicable federal, state and municipal laws, rules and
regulations.
ARTICLE 5
THE BUYER'S REPRESENTATIONS AND WARRANTIES
The Buyer represents and warrants to the Sellers as follows:
5.01 Status. The Buyer is a corporation, duly organized, validly
existing, and in good standing under the laws of the state of Delaware, with
full power and authority to own and lease its properties, and to carry on its
business as now being conducted. The Buyer is qualified to do business and is
in good standing in each jurisdiction in which the character of its business or
interests makes such qualification necessary.
5.02 Approva1 of Sale. The execution, delivery and performance of this
Agreement, have been duly approved by all requisite corporate action, if any,
on the part of the Buyer and is within the Buyer's powers. The joinder of no
person or entity with the Buyers will be necessary to purchase the Shares by
the Buyer, however the parties acknowledge that notification of, and or consent
of, the transfer of the Shares may need to be made to certain third parties
prior to or following Closing, including, but nor necessarily limited to, the
State of Florida, the State of Delaware, the Internal Revenue Service, and
certain regulatory agencies.
5.03 No Breach of Statute or Contract. To the Buyer's knowledge, the
Buyer's execution, delivery and performance of this Agreement will not breach
any statute or regulation of any governmental authority, and will not conflict
with or result in a breach of or default under any of the terms' conditions or
provisions of any order, writ, injunction, decree,
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agreement or instrument to which the Buyer is a party, or by which the Buyer is
or may be bound.
5.04 Retention and Access to Records. After the Closing, the Buyer
shall provide to the Sellers reasonable access to any Corporation records and
information acquired by the Buyer pursuant to the terms hereof, to enable the
Sellers (a) to perform any acts reasonably related to the Sellers' transfer of
the Sellers' interest in the Corporation; (b) to enable the Sellers to carry
out any and all of the Sellers' obligations pursuant to the requirements of
law; and (c) to access such information for any other reason which the Sellers
may reasonably request. The Buyer agrees that the Buyer shall maintain all such
records and information for a period ending the fourth anniversary of the
Closing Date.
ARTICLE 6
CLOSING, POST-CLOSING
6.01 Closing. Closing shall take place on a date mutually agreeable to
the parties and may take place simultaneously with, or immediately following
the execution of this Agreement. The parties shall make every reasonable effort
to complete the Closing on or before March 31, 1998, but in no case shall the
Closing occur after April 30, 1998, unless the time of Closing is extended
through mutual written agreement of the parties.
6.02 The Sellers' and Corporation's Deliveries. At the Closing, the
Sellers and the Corporation shall execute and deliver to the Buyer or, as
applicable, the Buyer shall have received from the Corporation or the Sellers:
(a) A resolution of the Board of Directors of the Corporation
authorizing the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby, certified as of the Closing Date by an
officer of the Corporation as having been duly adopted and being in full force
and effect and unmodified on the Closing Date.
(b) A certificate of the Board of Directors of the
Corporation to the effect that all representations and warranties of the
Corporation set forth in Article 4 are true and correct in all material
respects as of the Closing Date and that all covenants of the Corporation set
forth herein have been duly performed by the Corporation in all material
respects.
(c) An affidavit from the respective Sellers to the effect
that all representations and warranties of the Sellers set forth in Article 4
are true and correct in all material respects as of the Closing Date and that
all covenants of the Sellers set forth herein have been duly performed by the
Sellers in all material respects.
(d) A duly executed stock power and stock certificate from
the respective Sellers, in form and content acceptable to the Buyer, selling,
assigning or otherwise
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<PAGE>
transferring and delivering the Shares to the Buyer, free and clear of all
liens, encumbrances, conditions and restrictions.
6.03 The Buyer' Deliveries. At the Closing, the Buyer shall deliver to
the Sellers, or, as applicable, the Sellers shall have received from the Buyer:
(a) The full Purchase Price due at Closing for the Shares.
(b) A resolution of the Board of Directors of the Buyer
authorizing the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby, certified as of the Closing Date by an
officer of the Buyer as having been duly adopted and being in full force and
effect and unmodified on the Closing Date.
(c) A certificate of the Board of Directors of the Buyer to
the effect that all representations and warranties of the Buyer set forth in
Article 5 are true and correct in all material respects as of the Closing Date
and that all covenants of the Buyer set forth herein have been duly performed
by the Buyer in all material respects.
(d) Within five (5) business days following the Closing, the
Buyer agrees to hold the appropriate corporate meeting and cause the
Corporation to adopt, certify and deliver to the Sellers a corporate resolution
effectuating the indemnification of the Buyer and Sellers set forth in Section
7.03 hereto.
6.04 Post-Closing Deliveries. After the Closing, each party to this
Agreement shall, at the request of the other and without further consideration,
furnish, execute and deliver such documents, instruments, certificates, notices
of other further assurances as the requesting party shall reasonably request as
necessary or desirable to effect complete consummation of this Agreement and
the transaction contemplated hereby.
ARTICLE 7
INDEMNIFICATION
7.01 Indemnification of the Buyer by the Sellers. The Sellers shall
defend, indemnify and hold the Buyer and any of the Buyer's assigns, heirs,
agents and representatives harmless against, all damages, loss, costs or
expenses (including reasonable attorney's fees at all levels of trial or appeal
incurred in defending any claim for such damages, loss, costs or expenses)
incurred by the Buyer resulting from or in respect to:
(a) any breach in the Sellers' representations. warranties or
covenants in this Agreement;
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(b) any claim by a broker, agent or finder alleged to be
employed by, representing or otherwise involved with the Corporation or the
Sellers relating to this transaction.
7.02 Indemnification of the Sellers by the Buyer. The Buyer shall defend,
indemnify and hold the Sellers and any of the Sellers' assigns, heirs, agents
and representatives harmless against, all damages, loss, costs or expenses
(including reasonable attorney's fees at all levels of trial or appeal incurred
in defending any claim for such damages, loss, incurred by the Sellers
resulting from:
(a) any breach in the Buyer's representations, warranties or
covenants in this Agreement;
(b) any claim by a broker, agent or finder alleged to be
employed by, representing or otherwise involved with the Buyer relating to this
transaction.
7.03 Defense and Indemnification of the Sellers and Buyer by the
Corporation. The Corporation shall defend, indemnify and hold harmless the
Sellers, Buyer and any of Sellers' or Buyer's assigns, heirs, agents and
representatives harmless against, all damages, loss, costs or expenses
(including reasonable attorney's fees at all levels of trial or appeal incurred
in defending any claim for such damages, loss, costs or expenses) incurred by
the Sellers or Buyer resulting from any and all actions, suits, investigations,
proceedings, demands, assessments, tines, audits, judgments and claims arising
from the normal day-to-day performance, conduct or operations of the
Corporation. The Corporation shall have no obligation to indemnify the Buyer or
Sellers relating~g to the breach of any such party's individual warranties or
representations in this Agreement, and the parties agree that such
indemnification shall be the sole responsibility of the Buyer and Sellers
pursuant to Sections 7.01 and 7.02 above.
7.04 Limitations on Indemnity. In determining the extent of any
liability, damage, claim, deficiency, assessment, loss, penalty, interest, cost
or expense which any indemnified party suffers or becomes subject to as a
result of matters for which it is entitled to indemnification, (a) appropriate
deductions shall be made for any insurance proceeds which inure to or are
available for the benefit of any indemnified party, and (b) the tax benefits
recognized by the Corporation, the Sellers. or the Buyer, if any, related to
the liability, damage, claim, deficiency, assessment, loss, penalty interest,
cost or expense shall be taken into account and the indemnification payment
shall be net of such tax effects.
7.05 Notice of Claims. In the event that any party hereunder shall
receive any written notice of any claim or proceeding against said party (the
"Indemnitee"), the Indemnitee shall give the party upon such a claim could be
made under this Section 7 (the "Indemnitor") written notice of any such loss,
liability, claim, damage or expense, an~l the Indemnitor shall have the right
to contest and defend any action brought against the Indemnitee based thereon,
and shall
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have the right to contest and defend any such action in the name of the
Indemnitee at the Indemnitor's own expense; provided, that if the Indemnitor
shall fail to notify the Indemnitee of the assumption of the defense of any
such action within twenty (20) days of giving such notice by the Indemnitee,
then the Indemnitee shall have the right to take any such action as it seems
reasonable to defend, contest, settle or compromise any such action or
assessment and claim indemnification as provided herein. If the Indemnitor
defends any action for which indemnification is claimed, the Indemnitee shall
be entitled to participate at ins own expense in the defense of such action;
provided, however, that the Indemnitor shall bear the fees and expenses of the
Indemnitee's counsel if (i) the employment of such counsel is specifically
authorized in writing by the Indemnitor or (ii) the named parties to such
action include both the Indemnitor and the Indemnitee, and there exists a
conflict of interest between such parties which renders it inappropriate for
counsel selected by the Indemnitor to represent both of such parties. The
Indemnitor shall not be liable for any settlement of any claim, action or
proceeding affected without its written consent, except as expressly provided
in the first sentence of this Section 7. Failure of the Indemnitee to notify
the Indemnitor(s) of any such claim for which it is entitled to indemnity
hereunder shall not impair, limit or affect the indemnification provided herein
so long as the ability of the Indemnitor to contest, defend or dispute such
claim has not been materially and adversely affected.
ARTICLE 8
NOTICES
All notices, requests, demands and other communications hereunder
shall be in writing and will be deemed to have been duly given if personally
delivered, or when transmitted by facsimile with confirmation of receipt from
the other party, or when received if mailed by the United States First-Class
Certified or Registered Mail, postage pre-paid, with return receipt requested
and marked delivered or refused, or via an overnight delivery service (such as
Federal Express) with proof of delivery or refusal of delivery, to the other
parties at the following addresses (or at such other address as to which the
parties hereto have been notified as provided herein):
<TABLE>
<CAPTION>
<S> <C> <C>
if to Buyer: Medley Credit Acceptance Corporation
P.O. Box 143096
Coral Gables, Florida 33114-3096
if to Sellers: W. Dennis Prouty Laura C. Sotera
9091 Vineyard Drive 11450 N.W. 36th Place
Plantation, Florida 33324 Sunrise, Florida 33323
YNC General Partnership
Garry R. Spear, Esq. 7501 W. Oakland Park Blvd.
20797 Cabrillo Way Suite 301
Boca Raton, Florida 33428 Lauderhill, Florida 33319
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if to the Corporation: Premier Provider Services, Inc.
7S01 W. Oakland Park Boulevard
Suite 301
Lauderhill, Florida 33319
</TABLE>
ARTICLE 9
MISCELLANEOUS PROVISIONS
9.1 Assignment. No party may assign its rights or obligations under
this Agreement without the consent of the others.
9.2 Modification. There are no other agreements, promises, or
undertakings between the parties relating directly to the sale of the Shares,
except as specifically set forth herein. No alterations, changes, modifications
or amendments shall be made to this Agreement except in writing and signed or
initialed by the parties hereto. Notwithstanding the above, Sections 3, 4 and 5
of the letter of intent between the parties executed March 20, 1998, which
formed the basis of this Agreement relating to the sale of the Shares shall
survive the execution and closing of this Agreement and be binding upon the
parties.
9.3 Severability. lf any provision or paragraph of this Agreement is
deemed to be unlawful or unenforceable by any court, administrative agency or
statute, law or ordinance, the said provision or paragraph shall be severed
from the Agreement without affecting the enforceability of the remainder of the
Agreement. The parties shall make a good faith effort to redraft the severed
provision or paragraph consistent with the parties' original intention but in
such a way as to be lawful and enforceable.
9 4 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the respective successors and assigns and is applicable to the
heirs and legal representatives of the parties hereto.
9.5 Survivability. The covenants' representations and warranties of
the respective parties hereto shall survive the Closing. No performance or
execution of this Agreement in whole or in part by any party hereto, no course
of dealing between or among the parties hereto or any delay or failure on the
part of any party in exercising any rights hereunder or at law or in equity,
and no investigation by any party hereto shall operate as a waiver of any
rights of such party, except to the extent expressly waived in writing by such
party.
9.6 Florida Contract. This Agreement shall be deemed a Florida
contract and shall be construed in accordance with the laws of such state,
regardless of whether or nor this Agreement is being executed by any of the
parties hereto in other states or otherwise.
9.7 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original.
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9.8 Compliance Dates. ln the event that any date specified in this
Agreement shall be on a Saturday, Sunday or nationally declared holiday, then
the date so specified shall be deemed to be the next business day following
such date, and compliance by such business day hereunder shall not be deemed a
default by any of the parties under this Agreement.
9.9 Headings. The headings of each section or subsection in this
Agreement are for convenience of reference only, and shall in no manner or way
whatsoever affect the interpretation or meaning of such section or subsection.
9.10 Entire Agreement. This constitutes the entire agreement between
the parties relating to the subject thereof, and prior agreements pertaining
thereto, whether oral or written, have been merged and integrated into this
Agreement. Notwithstanding the above, Sections 3, 4 and 5 of the letter of
intent between the parties executed March 20, 1998, which formed the basis of
this Agreement relating to the sale of the Shares shall survive the execution
and closing of this Agreement and be binding upon the parties.
9.11 Exhibits. The Exhibits attached hereto, together with all
documents incorporated by reference herein, form an integral part of this
Agreement and are hereby incorporated herein wherever reference is made to
them, to the same extent as if they were set out in full at the point at which
such reference is made.
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IN WITNESS WHEREOF, the parties have executed this Agreement this ___
day of March, 1998.
BUYER:
MEDLEY CREDIT ACCEPTANCE
CORPORATION
By:________________________
Robert D. Press, President
SELLERS:
W. DENNIS PROUTY LAURA C. SOTERA
- ----------------------- -------------------------
GARRY R. SPEAR, ESQ. YNC GENERAL PARTNERSHIP
- ------------------------ --------------------------
CORPORATION:
PREMIER PROVIDER SERVICES, INC.
- -------------------------------
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<PAGE>
EXHIBIT A
PURCHASE PRICE AND MANNER OF PAYMENT
The Purchase Price and manner of payment for the Shares shall be as follows:
1. The Buyer shall pay to the Sellers a total base purchase price of Medley
common stock equivalent to four (4) times the average net income before taxes
of PPS for the fiscal year of 1997, and certain other incentive stock bonuses
as follows:
a. The Medley base purchase price stock will be issued to d~e
Sellers or their designees based upon the 1997 net income before taxes
of PPS. Such income will be multiplied by 4.0 and then divided by
$4.50 (the value of Medley stock solely for the purposes of this
Agreement) to arrive at the amount of Medley common stock to be issued
to the Sellers. Fifty percent (50%) of such base purchase price stock
shall be issued within thirty (30) days of the completion of the 1997
fiscal year audit of PPS by Medley. Fifty percent (50%) of such base
purchase price stock shall be issued to the Sellers on the first
anniversary of the Closing Date of this transaction.
b. If the 1998 net income before taxes of PPS equals or
exceeds the 1997 net income before taxes of PPS, the Sellers or their
designees shall receive additional incentive stock options for 30,000
shares of Medley common stock, with an exercise price equal to the
closing price of Medley common stock on the date of the of issuance of
the stock options. Such stock options shall be issued within thirty
(30) days of the completion of the 1998 fiscal year audit of PPS, and
exercisable~r-~ from the date of issuance.
c. If the 1999 net income before taxes of PPS exceeds the
1998 net income before taxes of PPS by five percent (5 %), the Sellers
or their designees shall receive additional incentive stock options
for 15,000 shares of Medley common stock, with an exercise price equal
to the closing price of Medley common stock on the date of the of
issuance of the stock options. Such stock option shall be issued
within thirty (30) days of the completion of the 1999 fiscal year
audit of PPS, and exercisable for six (6) months from the date of
issuance.
d. If the 1999 net income before taxes of PPS exceeds the
1998 net income before taxes of PPS by ten percent (10%), the Sellers
or their designees shall receive additional incentive stock options
for 30,000 shares of Medley common stock, with an exercise price equal
to the closing price of Medley common stock on the date of the of
issuance of the stock options. Such stock options shall be issued
within thirty (30) days of the completion of the 1999 fiscal year
audit of PPS, and exercisable for six (6) months from the date of
issuance.
2. Assumption of Liabilities At Closing, the Buyer shall assume all liabilities
relating to the Corporation, other than as expressly set forth herein to the
contrary.
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
this 1st day of April 1998, by and between PREMIER PROVIDER SERVICES, INC.,
(the "Company"), a Florida corporation, whose address is 7501 W. Oakland Park
Boulevard, Suite 301, Lauderhill, Florida 33319, and W. DENNIS PROUTY
("Executive"), an individual, whose address is 9091 Vineyard Drive, Plantation,
Florida 33324.
WITNESSETH:
WHEREAS, the Company recognizes the experience and knowledge of the
Executive in the accounting and factoring industry, and wishes to retain the
valuable services of the Executive,
WHEREAS, the Executive wishes to accept employment with the Company
under the terms and conditions set forth herein; and
WHEREAS, Executive is uniquely experienced and qualified to perform
certain employment services for Company, and the value of the services to be
provided by the Executive are considered to be so unique and vital to the
Company's business, that the parties are entering into this Agreement which
provides generous consideration for the Executive, performance obligations for
the Executive and protective covenants for the Company and Executive; and
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements herein contained, and intending to be legally bound hereby, Company
and Executive agree as follows:
1. OFFICE AND DUTIES:
1.1 For the term of this Agreement as herein defined, Company hereby
employs, engages and hires Executive to serve as President of the Company. The
Executive shall have the powers and shall perform the specific duties as set
forth on the job description attached hereto as Attachment "A", and such other
duties as delegated to Executive by the C.E.O. of the Company. The Executive
hereby agrees to such employment. It is hereby agreed between the parties that
primary responsibility for the supervision of the Executive shall rest with the
C.E.O. of the Company, who shall review the Executive's performance annually,
make upward adjustment's to Executive's compensation and award such other
bonuses and employee benefits as he shall deem appropriate and as set forth in
this Agreement.
1.2 To assist Executive in performing Executive's duties, the Company
shall ensure that Executive is provided, in a timely manner, all reasonable
resources necessary for the accomplishment of Executive's duties.
2. TERM AND TERMINATION. This Agreement shall be effective April 6, 1998
("Effective Date"), and shall remain in full force and effect for three (3)
years from the Effective Date, unless the Agreement is terminated sooner by the
parties pursuant to subsection 2.1 or 2.2 below.
<PAGE>
2.1 Termination With Cause. This Agreement may be terminated by the
Company of the Executive for the following:
(a) upon the other party's material default or breach of any
of its obligations hereunder, if such default or breach remains uncorrected for
a period of fifteen (15) days after the receipt by the defaulting party of
written notice of such default or breach;
(b) upon the gross negligence or willful misconduct of the
other party during the term of this Agreement, which is materially damaging to
the Company or Executive, if such gross negligence or misconduct remains
uncorrected for a period of fifteen (15) days after the receipt by the Company
or Executive of written notice of such negligence or misconduct;
(c) upon the conviction of the Company or the Executive
during the term of this Agreement of a crime involving breach of trust or moral
turpitude;
In the event that the Company discharges the Executive alleging
"cause" under this Section 2.1, such notice of discharge shall be accompanied
by a written and specific description of the circumstances alleging such
"cause". Further, in the event that the Company discharges the Executive
alleging "cause" under this Section 2.1, and it is subsequently determined
judicially that the termination was "without cause", then such discharge shall
be deemed a discharge without cause subject to the provisions of Section 2.2
hereof.
2.2 Termination Without Cause. The Company or the Executive may, upon
sixty (60) days prior written notice to the other party, terminate this
Agreement without cause at any time during the term of this Agreement. If the
Company terminates the Executive without cause, the Company shall pay the
Executive, as liquidated damages in lieu of all other claims arising directly
out of the Executive's employment, an amount equal to the Base Salary which
would otherwise be payable to Executive for the remaining term of the
Agreement, plus any bonuses which the Executive would have earned if the
Executive had remained employed by the Company through the end of the bonus
period then in effect, based upon a reasonable extrapolation of the financial
statements of the Company at the time of such termination. Any such payments
shall, at the option of the Company, be made either in equal bi-weekly
installments over the remaining term of this Agreement, or in a lump sum cash
payment on the date of termination. Further, upon termination of the Executive
without causes, all benefits of the Executive which are in effect at the time
of such termination shall remain in full force and effect through the end of
the original term of this Agreement.
The Liquidated damages payments and benefits due to the Executive if
terminated without cause as set forth above, are hereby unconditionally
guaranteed in full by Medley Credit Acceptance Corporation, the parent
corporation to the Company.
2.3 Effect of Termination. In the event of any expiration or
termination of this Agreement, such expiration or termination shall not effect
any of the obligations of any party
- 2 -
<PAGE>
arising prior to the date of such expiration or termination, nor shall such
expiration or termination effect any allegations, representations, promises or
covenants contained herein which are expressly made to extend beyond the term
of this Agreement. The Executive shall resign from any office that the
Executive may hold in the Company, and shall cooperate in the transfer of
Executive's work responsibilities to such consultants or employees of Company
as may be designated by the Company.
3. COMPENSATION.
3.1 Base Salary. For all services rendered hereunder during the term
of this Agreement, the Executive shall be paid an annual base salary ("Base
Salary") of One Hundred and Ten Thousand Dollars ($110,000.00) per year. The
Company and the Executive agree that such base salary is reasonable and is
based upon the fair market rate in the marketplace for similar services by
similarly qualified executives. The Base Salary shall be paid in bi-weekly
installments in accordance with the Company's usual payroll practices. The
Executive shall also be eligible to receive an annual bonus based upon specific
Company financial performance criterion to be mutually developed by the
parties.
3.2 Benefits. During the term of this Agreement, the Executive will be
entitled to those executive benefits as set forth on Attachment "B" to this
Agreement, plus any other benefits consistent with personnel policies and
procedures which now exist or which may be developed for similar executive
employees during the term of this Agreement.
3.3 Vacation. Executive shall be entitled to three (3) weeks annual
vacation leave with pay. Vacation shall be scheduled at reasonable times not in
conflict with Executive's duties hereunder.
4. EXECUTIVE REPRESENTATIONS. Executive represents to Company that:
4.1 There are no restrictions, agreements or understandings whatsoever
to which Executive is a party that would prevent or make unlawful the
Executive's execution of this Agreement or the Executive's employment
hereunder.
4.2 Executive's execution of this Agreement and Executive's employment
hereunder shall not constitute a breach of any contract, agreement or
understanding, oral or written, to which Executive is a party or by which
Executive is bound.
4.3 Executive will at all times faithfully, industriously and to the
best of Executive's ability, experience and talents perform all of the duties
that may be required of Executive pursuant to the express and implied terms of
this Agreement.
5. CONTEMPORANEOUS BUSINESS ACTIVITY. In order to assure the consistency of
services provided by Executive, Executive agrees, during the effective terms of
this Agreement, that
- 3 -
<PAGE>
Executive shall devote such full-time attention to the performance of the
Executive's duties under this Agreement as necessary to ensure Executive's full
and complete compliance with Executive's covenants under this Agreement.
6. NON-COMPETITION/DISCLOSURE.
6.1 Non-Competition. During the term of this Agreement, the Executive
shall not without the prior written permission of the Company:
(a) Directly or indirectly induce or attempt to influence any
of Company's employees or other staff, including but not limited to Company's
agent, representatives and independent contractors, to terminate their
relationship with the Company;
(b) Directly or indirectly induce or attempt to influence any
of the Company's business associates, clients, customers, consultants or
referral sources to terminate their relationship with the Company;
(c) Divert or take away any corporate business or
professional opportunity of Company that the Executive may become aware of
during the term of this Agreement, whether competitive or not competitive;
(d) Engage in or have any interest in any sole
proprietorship, partnership, corporation or other business or be employed by or
work for any other person or business entity (whether as employee, officer,
director, partner, agent, security holder, consultant or otherwise) that
directly or indirectly engages primarily in a business in competition with the
Company.
6.2 Non-disclosure. Executive, by virtue of Executive's employment,
has been and will continue to be introduced to confidential and/or proprietary
information concerning the Company and its operations. Because unauthorized
disclosure of such confidential and/or proprietary information will harm the
Company, the Executive shall not, except with the Company's express, prior,
written consent, directly or indirectly, communicate, disclose, divulge or use,
for the benefit of any person or entity other than the Company, any information
regarding the business, customer and/or client lists of Company or any other
knowledge or information whether confidential or proprietary of or about the
Company acquired by the Executive during the term of this Agreement.
This Executive further agrees that all work product produced by the
Executive during the term of Executive's employment shall remain the property
of the Company, and may not reproduced or communicated, disclosed or divulged
to any person or entity other than the Company.
6.3 REMEDIES. The Executive agrees that the Company's remedies at law
for the Executive's breach of any of these non-competition/non-disclosure
provisions are inadequate and
- 4 -
<PAGE>
that the Company may seek relief in equity by way of an injunction restraining
any violation of the non-competition/non-disclosure provisions by the
Executive.
If any period of time or geographic area relative to these
non-competition/non-disclosure provisions should be adjudged to be unreasonable
in any proceedings, then the period of time or geographic area shall be reduced
by such amount of time or distance so that such restrictions may be enforced
for such time or geographic area as is adjudged to be reasonable by a court of
competent jurisdiction.
7. MISCELLANEOUS.,
7.1 Indulgences, Etc. The failure or any delay on the part of the
Executive or Company to exercise any right, remedy, power or privilege under
this Agreement shall not operate as a waiver thereof. A single or partial
exercise of any right, remedy, power or privilege shall not preclude any
further exercise of the same or of any other right, remedy, power or privilege.
A waiver of any right, remedy, power or privilege with respect to any
occurrence shall not be construed as a waiver of such right, remedy, power or
privilege with respect to any other occurrence.
7.2 Controlling Law. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement shall be governed by and
construed in accordance with the laws of the State of Florida.
7.3 Notice. All notices, requests, demands and other communications
required or permitted under this Agreement and transactions contemplated herein
shall be in writing and shall be deemed to have been duly given, made and
received when delivered against receipt or when sent by United States certified
or registered mail, return receipt requested, postage prepaid, addressed as set
forth below in subparagraphs (a) and (b). In addition, notice by mail shall be
air mail if posted outside the continental United States. Executive and Company
may alter the address to which communications of copies are to be sent by
giving notice of such change of address in conformity with the provisions of
this paragraph for the giving of notice.
(a) If to Company:
Premier Provider Services, Inc.
7501 W. Oakland Park Boulevard
Suite 301
Lauderhill, Florida 33319
Attn: C.E.O.
(b) If to Executive:
W. Dennis Prouty
9091 Vineyard Drive
Plantation, Florida 33324
- 5 -
<PAGE>
7.4 Binding Nature of Agreement. This Agreement shall be binding upon
and inure to the benefit of Company and its successors and assigns and shall be
binding upon and inure to the benefit of Executive, and Executive's heirs and
legal representatives.
7.5. Provisions Separable. The provisions of this Agreement are
independent of and separable from each other. No provision shall be rendered
invalid or unenforceable by virtue of the fact that for any reason, any one or
more of them may be invalid or unenforceable in whole or in part.
7.6 Entire Agreement. This Agreement contains the entire understanding
between Company and Executive with respect to the subject matter hereof, and
supersedes all prior and contemporaneous agreements and understandings,
inducements or conditions, express or implied, oral or written, except as
herein contained. The express terms hereof control and supersede any course of
performance or usage of the trade or professions inconsistent with any of the
terms hereof. This Agreement may not be modified or amended other than by any
agreement in writing.
7.7 Section Headings. The section headings in this Agreement are for
convenience only and form no part of this Agreement and shall not affect its
interpretation.
7.8. Gender, Etc. Words used in this Agreement, regardless of the
number and gender specifically used, shall be deemed and construed to include
any other number, singular or plural, and any other gender, masculine, feminine
or neuter, as the context requires.
7.9 Number of Days. In computing the number of days for purposes of
this Agreement, all days shall be counted, including Saturdays, Sunday or
holidays; provided, however, that if the final day of any time period falls on
a Saturday, Sunday or holiday, then the final day shall be deemed to be the
next day which is not a Saturday, Sunday or holiday.
7.10 Counterparts. This Agreement may be executed two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute but one and the same Agreement.
7.11 Assignment. No assignment by Executive of this Agreement or the
rights and obligations hereunder shall be valid without the specific written
consent of Company, which consent may be arbitrarily withheld. This Agreement
may be assigned by the Company to an entity under its control, directly or
indirectly, or the control of its principals without the consent of the
Executive, provided Executive's security herein is not impaired by the
assignment.
7.12 Construction. This Agreement shall be construed without regard to
any presumption or other rule requiring construction against the party causing
this Agreement to be drafted.
- 6 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this agreement or
caused their duly authorized representatives to execute this Agreement on the
day first stated above.
COMPANY: EXECUTIVE:
PREMIER PROVIDER SERVICES, INC. W. DENNIS PROUTY
- ------------------------------------ --------------------------
ROBERT D. PRESS W. DENNIS PROUTY
C.E.O.
- 7 -
<PAGE>
ATTACHMENT "A"
JOB DESCRIPTION
(To Be developed)
- 8 -
<PAGE>
ATTACHMENT "B"
BENEFITS
MAXIMUM COMPANY CONTRIBUTION TO 401(K)
FULL COMPANY-PAID HEALTH INSURANCE FOR EXECUTIVE AND FAMILY
REASONABLE COMPANY EXPENSE ALLOWANCE
COMPANY-PAID LIFE INSURANCE
- 9 -
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
this 1st day of April 1998, by and between PREMIER PROVIDER SERVICES, INC.,
(the "Company"), a Florida corporation, whose address is 7501 W. Oakland Park
Boulevard, Suite 301, Lauderhill, Florida 33319, and LAURA C. SOTERA
("Executive"), an individual, whose address is 11450 N.W. 36th Place, Sunrise,
Florida 33323.
WITNESSETH:
WHEREAS, the Company recognizes the experience and knowledge of the
Executive in the accounting and factoring industry, and wishes to retain the
valuable services of the Executive,
WHEREAS, the Executive wishes to accept employment with the Company
under the terms and conditions set forth herein; and
WHEREAS, Executive is uniquely experienced and qualified to perform
certain employment services for Company, and the value of the services to be
provided by the Executive are considered to be so unique and vital to the
Company's business, that the parties are entering into this Agreement which
provides generous consideration for the Executive, performance obligations for
the Executive and protective covenants for the Company and Executive; and
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements herein contained, and intending to be legally bound hereby, Company
and Executive agree as follows:
1. OFFICE AND DUTIES:
1.1 For the term of this Agreement as herein defined, Company hereby
employs, engages and hires Executive to serve as Vice President of the Company.
The Executive shall have the powers and shall perform the specific duties as
set forth on the job description attached hereto as Attachment "A", and such
other duties as delegated to Executive by President and C.E.O. of the Company.
The Executive hereby agrees to such employment. It is hereby agreed between the
parties that primary responsibility for the supervision of the Executive shall
rest with the President and C.E.O of the Company, who shall review the
Executive's performance annually, make upward adjustment's to Executive's
compensation and award such other bonuses and employee benefits as he shall
deem appropriate and as set forth in this Agreement.
1.2 To assist Executive in performing Executive's duties, the Company
shall ensure that Executive is provided, in a timely manner, all reasonable
resources necessary for the accomplishment of Executive's duties.
2. TERM AND TERMINATION. This Agreement shall be effective April 6, 1998
("Effective Date"), and shall remain in full force and effect for three (3)
years from the Effective Date, unless the Agreement is terminated sooner by the
parties pursuant to subsection 2.1 or 2.2 below.
<PAGE>
2.1 Termination With Cause. This Agreement may be terminated by the
Company of the Executive for the following:
(a) upon the other party's material default or breach of any
of its obligations hereunder, if such default or breach remains uncorrected for
a period of fifteen (15) days after the receipt by the defaulting party of
written notice of such default or breach;
(b) upon the gross negligence or willful misconduct of the
other party during the term of this Agreement, which is materially damaging to
the Company or Executive, if such gross negligence or misconduct remains
uncorrected for a period of fifteen (15) days after the receipt by the Company
or Executive of written notice of such negligence or misconduct;
(c) upon the conviction of the Company or the Executive
during the term of this Agreement of a crime involving breach of trust or moral
turpitude;
In the event that the Company discharges the Executive alleging
"cause" under this Section 2.1, such notice of discharge shall be accompanied
by a written and specific description of the circumstances alleging such
"cause". Further, in the event that the Company discharges the Executive
alleging "cause" under this Section 2.1, and it is subsequently determined
judicially that the termination was "without cause", then such discharge shall
be deemed a discharge without cause subject to the provisions of Section 2.2
hereof.
2.2 Termination Without Cause. The Company or the Executive may, upon
sixty (60) days prior written notice to the other party, terminate this
Agreement without cause at any time during the term of this Agreement. If the
Company terminates the Executive without cause, the Company shall pay the
Executive, as liquidated damages in lieu of all other claims arising directly
out of the Executive's employment, an amount equal to the Base Salary which
would otherwise be payable to Executive for the remaining term of the
Agreement, plus any bonuses which the Executive would have earned if the
Executive had remained employed by the Company through the end of the bonus
period then in effect, based upon a reasonable extrapolation of the financial
statements of the Company at the time of such termination. Any such payments
shall, at the option of the Company, be made either in equal bi-weekly
installments over the remaining term of this Agreement, or in a lump sum cash
payment on the date of termination. Further, upon termination of the Executive
without causes, all benefits of the Executive which are in effect at the time
of such termination shall remain in full force and effect through the end of
the original term of this Agreement.
The Liquidated damages payments and benefits due to the Executive if
terminated without cause as set forth above, are hereby unconditionally
guaranteed in full by Medley Credit Acceptance Corporation, the parent
corporation to the Company.
2.3 Effect of Termination. In the event of any expiration or
termination of this Agreement, such expiration or termination shall not effect
any of the obligations of any party
- 2 -
<PAGE>
arising prior to the date of such expiration or termination, nor shall such
expiration or termination effect any allegations, representations, promises or
covenants contained herein which are expressly made to extend beyond the term
of this Agreement. The Executive shall resign from any office that the
Executive may hold in the Company, and shall cooperate in the transfer of
Executive's work responsibilities to such consultants or employees of Company
as may be designated by the Company.
3. COMPENSATION.
3.1 Base Salary. For all services rendered hereunder during the term
of this Agreement, the Executive shall be paid an annual base salary ("Base
Salary") of Seventy-Two Thousand Dollars ($72,000.00) per year. The Company and
the Executive agree that such base salary is reasonable and is based upon the
fair market rate in the marketplace for similar services by similarly qualified
executives. The Base Salary shall be paid in bi-weekly installments in
accordance with the Company's usual payroll practices. The Executive shall also
be eligible to receive an annual bonus based upon specific Company financial
performance criterion to be mutually developed by the parties.
3.2 Benefits. During the term of this Agreement, the Executive will be
entitled to those executive benefits as set forth on Attachment "B" to this
Agreement, plus any other benefits consistent with personnel policies and
procedures which now exist or which may be developed for similar executive
employees during the term of this Agreement.
3.3 Vacation. Executive shall be entitled to three (3) weeks annual
vacation leave with pay. Vacation shall be scheduled at reasonable times not in
conflict with Executive's duties hereunder.
4. EXECUTIVE REPRESENTATIONS. Executive represents to Company that:
4.1 There are no restrictions, agreements or understandings whatsoever
to which Executive is a party that would prevent or make unlawful the
Executive's execution of this Agreement or the Executive's employment
hereunder.
4.2 Executive's execution of this Agreement and Executive's employment
hereunder shall not constitute a breach of any contract, agreement or
understanding, oral or written, to which Executive is a party or by which
Executive is bound.
4.3 Executive will at all times faithfully, industriously and to the
best of Executive's ability, experience and talents perform all of the duties
that may be required of Executive pursuant to the express and implied terms of
this Agreement.
5. CONTEMPORANEOUS BUSINESS ACTIVITY. In order to assure the consistency of
services provided by Executive, Executive agrees, during the effective terms of
this Agreement, that
- 3 -
<PAGE>
Executive shall devote such full-time attention to the performance of the
Executive's duties under this Agreement as necessary to ensure Executive's full
and complete compliance with Executive's covenants under this Agreement.
6. NON-COMPETITION/DISCLOSURE.
6.1 Non-Competition. During the term of this Agreement, the Executive
shall not without the prior written permission of the Company:
(a) Directly or indirectly induce or attempt to influence any
of Company's employees or other staff, including but not limited to Company's
agent, representatives and independent contractors, to terminate their
relationship with the Company;
(b) Directly or indirectly induce or attempt to influence any
of the Company's business associates, clients, customers, consultants or
referral sources to terminate their relationship with the Company;
(c) Divert or take away any corporate business or
professional opportunity of Company that the Executive may become aware of
during the term of this Agreement, whether competitive or not competitive;
(d) Engage in or have any interest in any sole
proprietorship, partnership, corporation or other business or be employed by or
work for any other person or business entity (whether as employee, officer,
director, partner, agent, security holder, consultant or otherwise) that
directly or indirectly engages primarily in a business in competition with the
Company.
6.2 Non-disclosure. Executive, by virtue of Executive's employment,
has been and will continue to be introduced to confidential and/or proprietary
information concerning the Company and its operations. Because unauthorized
disclosure of such confidential and/or proprietary information will harm the
Company, the Executive shall not, except with the Company's express, prior,
written consent, directly or indirectly, communicate, disclose, divulge or use,
for the benefit of any person or entity other than the Company, any information
regarding the business, customer and/or client lists of Company or any other
knowledge or information whether confidential or proprietary of or about the
Company acquired by the Executive during the term of this Agreement.
This Executive further agrees that all work product produced by the
Executive during the term of Executive's employment shall remain the property
of the Company, and may not reproduced or communicated, disclosed or divulged
to any person or entity other than the Company.
6.3 Remedies. The Executive agrees that the Company's remedies at law
for the Executive's breach of any of these non-competition/non-disclosure
provisions are inadequate and
- 4 -
<PAGE>
that the Company may seek relief in equity by way of an injunction restraining
any violation of the non-competition/non-disclosure provisions by the
Executive.
If any period of time or geographic area relative to these
non-competition/non-disclosure provisions should be adjudged to be unreasonable
in any proceedings, then the period of time or geographic area shall be reduced
by such amount of time or distance so that such restrictions may be enforced
for such time or geographic area as is adjudged to be reasonable by a court of
competent jurisdiction.
7. MISCELLANEOUS.,
7.1 Indulgences, Etc. The failure or any delay on the part of the
Executive or Company to exercise any right, remedy, power or privilege under
this Agreement shall not operate as a waiver thereof. A single or partial
exercise of any right, remedy, power or privilege shall not preclude any
further exercise of the same or of any other right, remedy, power or privilege.
A waiver of any right, remedy, power or privilege with respect to any
occurrence shall not be construed as a waiver of such right, remedy, power or
privilege with respect to any other occurrence.
7.2 Controlling Law. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement shall be governed by and
construed in accordance with the laws of the State of Florida.
7.3 Notice. All notices, requests, demands and other communications
required or permitted under this Agreement and transactions contemplated herein
shall be in writing and shall be deemed to have been duly given, made and
received when delivered against receipt or when sent by United States certified
or registered mail, return receipt requested, postage prepaid, addressed as set
forth below in subparagraphs (a) and (b). In addition, notice by mail shall be
air mail if posted outside the continental United States. Executive and Company
may alter the address to which communications of copies are to be sent by
giving notice of such change of address in conformity with the provisions of
this paragraph for the giving of notice.
(a) If to Company:
Premier Provider Services, Inc.
7501 W. Oakland Park Boulevard
Suite 301
Lauderhill, Florida 33319
Attn: C.E.O.
(b) If to Executive:
Laura C. Sotera
11450 N.W. 36th Place
Sunrise, Florida 33323
- 5 -
<PAGE>
7.4 Binding Nature of Agreement. This Agreement shall be binding upon
and inure to the benefit of Company and its successors and assigns and shall be
binding upon and inure to the benefit of Executive, and Executive's heirs and
legal representatives.
7.5. Provisions Separable. The provisions of this Agreement are
independent of and separable from each other. No provision shall be rendered
invalid or unenforceable by virtue of the fact that for any reason, any one or
more of them may be invalid or unenforceable in whole or in part.
7.6 Entire Agreement. This Agreement contains the entire understanding
between Company and Executive with respect to the subject matter hereof, and
supersedes all prior and contemporaneous agreements and understandings,
inducements or conditions, express or implied, oral or written, except as
herein contained. The express terms hereof control and supersede any course of
performance or usage of the trade or professions inconsistent with any of the
terms hereof. This Agreement may not be modified or amended other than by any
agreement in writing.
7.7 Section Headings. The section headings in this Agreement are for
convenience only and form no part of this Agreement and shall not affect its
interpretation.
7.8. Gender, Etc. Words used in this Agreement, regardless of the
number and gender specifically used, shall be deemed and construed to include
any other number, singular or plural, and any other gender, masculine, feminine
or neuter, as the context requires.
7.9 Number of Days. In computing the number of days for purposes of
this Agreement, all days shall be counted, including Saturdays, Sunday or
holidays; provided, however, that if the final day of any time period falls on
a Saturday, Sunday or holiday, then the final day shall be deemed to be the
next day which is not a Saturday, Sunday or holiday.
7.10 Counterparts. This Agreement may be executed two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute but one and the same Agreement.
7.11 Assignment. No assignment by Executive of this Agreement or the
rights and obligations hereunder shall be valid without the specific written
consent of Company, which consent may be arbitrarily withheld. This Agreement
may be assigned by the Company to an entity under its control, directly or
indirectly, or the control of its principals without the consent of the
Executive, provided Executive's security herein is not impaired by the
assignment.
7.12 Construction. This Agreement shall be construed without regard to
any presumption or other rule requiring construction against the party causing
this Agreement to be drafted.
- 6 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this agreement or
caused their duly authorized representatives to execute this Agreement on the
day first stated above.
COMPANY: EXECUTIVE:
PREMIER PROVIDER SERVICES, INC. LAURA C. SOTERA
- ------------------------------------ --------------------------
ROBERT D. PRESS LAURA C. SOTERA
C.E.O.
- 7 -
<PAGE>
ATTACHMENT "A"
JOB DESCRIPTION
(To Be developed)
- 8 -
<PAGE>
ATTACHMENT "B"
BENEFITS
MAXIMUM COMPANY CONTRIBUTION TO 401(K)
FULL COMPANY-PAID HEALTH INSURANCE FOR EXECUTIVE AND FAMILY
REASONABLE COMPANY EXPENSE ALLOWANCE
COMPANY-PAID LIFE INSURANCE
- 9 -
<PAGE>
PROMISSORY NOTE
$500,000 December 26, 1997
FOR receipt of Five Hundred Thousand Dollars ($500,000.00), the
undersigned ("Maker") promises to pay to the order of Medley Credit Acceptance
Corp. (the "Holder") the sum of Five Hundred Thousand Dollars ($500,000.00).
Principal shall be due and payable in 365 days from the above referenced date.
While in default this note shall bear interest at the rate of 18% per
annum or such maximum rate of interest allowable under the laws of the State of
Florida.
Payments shall be made in lawful money of the United States, at 1100
Ponce de Leon Boulevard, Coral Gables, Florida 33134 or at such other place as
may be designed in writing by the Holder.
This Note shall be considered in default at the option of the Holder
when payment required to be made hereunder shall not have been made on any
payment due date. Said Note shall remain in default until said payment shall
have been made. In the event of default, the entire principal balance shall at
once become due and payable without notice at the option of the holder hereof.
Upon such default, Maker hereby waives any and all protection provided by
Florida Law, to the extent permissible by such law, and specifically grants
Holder full rights and remedies to garnish the salary, wages or other
remuneration due Maker as afforded by Florida Statute 222.11(2)(b) as may be
amended from time to time. Failure at any time of the Holder to exercise said
option shall not constitute a waiver of the right to exercise the same at any
time.
All makers and endorsers not or hereafter becoming parties hereto
jointly and severally waive demand, presentment, notice of non-payment and
protest and, if this Note becomes in default and is placed into the hands of an
attorney for collection, to pay attorney's fees and all other costs incurred in
connection with such collection provided the Holder is the prevailing party.
"Attorney's fees are defined to include, but are not limited to, all fees
incurred in all matters of collection and enforcement, construction and
interpretation, before, during and after suit, proceedings and appeals, as well
as appearances in and connected with any bankruptcy proceedings or creditors,
reorganization, or similar proceedings. "Attorney's fees" shall also include
paralegal and law clerk fees.
This Note may not be changed or terminated orally, but only with an
agreement in writing, signed by the parties against whom enforcement of any
waiver, change, modification, or discharge is sought with such agreement being
effective and binding only upon attachment hereto.
<PAGE>
In the event any parts of this Note are found to be void, the
remaining provision s of this Note shall nevertheless be binding with the same
effect as though the void parts were deleted.
This Note and the rights and obligations of the Holder and of the
undersigned shall be governed and construed in accordance with the laws of the
State of Florida.
Executed this 26th day of December 1997
ADVANTAGE LIFE PRODUCTS, INC.
By_______________________________
Joseph Romano, President
- 2 -
<PAGE>
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT made and entered into by and between Advantage Life
Products, Inc. ( hereinafter referred to as PLEDGOR)'to Medley Credit
Acceptance Corp., a Delaware corporation (hereinafter referred to as "PLEDGEE")
(Collectively throughout this Agreement PLEDGOR and PLEDGEE may be referred to
as "Parties" for convenience.)
WITNESSETH:
'WHEREAS, the PLEDGOR is indebted to the PLEDGEE in the sum of $550,000
(the"Obligation").
WHEREAS, the debt is to be secured by a Pledge and Assignment of
PLEDGOR's stock in Advantage Life Products, Inc. (hereinafter referred to as
"Corporation") which stock shall consist of 1,500,000 shares of the authorized,
issued and outstanding shares in said Corporation, and
WHEREAS. the Parties desire to reduce their understanding concerning
the pledging of the security described in this Agreement to a written
instrument.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein the Parties agree as follows:
1. Recitals: The above and foregoing recitals are true and correct and
are incorporated herein.
2. PLEDGOR's Grant of Security Interest in Pledged Stock:
A. For value received the PLEDGOR hereby pledges tot he
PLEDGEE a first priority security interest in the PLEDGOR's authorized, issued
and outstanding common stock of Advantage Life Products, Inc., consisting of
1,500,000 shares, (hereinafter referred to as "PLEDGED STOCK"), together with
all proceeds and dividends, if any, produced thereby. The Certificate
evidencing such PLEDGED STOCK and stock power shall be executed by the PLEDGOR
in blank and held by PLEDGEE until all of the obligations of the PLEDGOR to the
PLEDGEE have been paid or performed in full.
3. Representations, Warranties and Covenants Regarding Pledge: The
PLEDGOR represents, warrants, covenants and agrees and so long as this
Agreement is in effect shall be deemed continuously to represent, warrant,
covenant and agree that:
A. The PLEDGOR is the owner of the PLEDGED STOCK. free and
clear of all liens, except the lien created by this Agreement.
<PAGE>
B. The PLEDGOR is authorized to enter into this Agreement and
has the full and lawful power and authority to pledge the PLEDGED STOCK as
provided for herein.
C. This Agreement and the pledge of the PLEDGED STOCK do not
violate or contravene any applicable federal or state law or regulation
applicable to the PLEDGOR or the corporation or any agreement or instrument
binding on the PLEDGOR, the PLEDGED STOCK or the corporation.
D. Except as otherwise specifically provided for herein, the
corporation will not sell or offer to sell, lease, assign, convey, transfer any
assets owned by the corporation or any interest therein which would reduce or
decrease the net worth of the corporation.
4. Voting Rights: For so long as the PLEDGOR is not in default under
the terms and conditions of the Promissory Note secured by this instrument and
the other instruments of security, the PLEDGOR shall be entitled to vote the
PLEDGED STOCK for the purpose of conducting the business of the corporation.
However, in no event will the PLEDGED STOCK be voted in favor of or be counted
for the purpose of a quorum in a meeting held to consider, the merger,
consolidation, sale of all or substantially all of the assets of, the
dissolution, liquidation, reorganization, reclassification or recapitalization
of the corporation or an amendment to its Articles of Incorporation or By Laws
without the written consent of the Pledgee, which consent shall not be
unreasonably withheld.
From and after the occurrence of a default, the PLEDGEE shall
be entitled but not have the obligation to vote the PLEDGED STOCK in respect of
such matters and for such purposes as the PLEDGEE shall deem appropriate in its
sole discretion and the PLEDGOR shall have not right to vote the PLEDGED STOCK
or take any action with respect thereto.
5. General Covenants: For so long as any of the obligations of the
PLEDGOR to the PLEDGEE remain outstanding, whether under a note or otherwise,
the corporation shall, unless the PLEDGEE shall otherwise consent in writing:
A. Pay and discharge all taxes, assessments and governmental
charges or levies imposed upon the corporation or upon any of its income or
profits, or upon any properties belonging to said corporation, prior to the
date on which penalties attached thereto, and all lawful claims which, if
unpaid, might become a lien or charge upon any properties of the PLEDGOR.
B. Preserve and maintain the corporate existence, rights
franchises and privileges of the corporation in the State of Florida, and
qualify and remain qualified as a foreign corporation in each jurisdiction in
which such qualification is necessary or desirable in view of the business of
the corporation.
C. Comply with the requirements of ail applicable laws,
rules, regulations and order of any governmental authority, noncompliance with
which could adversely affect the
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<PAGE>
business or credit of the corporation.
D. Keep adequate records and books of account, in which
complete entries will be made in accordance with generally accepted accounting
principles consistently applied, reflecting all financial transactions of the
corporation.
E. Maintain and preserve all of the assets and property of
the corporation necessary or useful in the proper conduct of its business in
good working order and condition, ordinary wear and tear excepted, to the
extent that the failure to do so would adversely affect the financial condition
or results of operation of the corporation.
F. The corporation will promptly comply with all present and
future laws, ordinances, rules and regulations of any governmental authority
affecting the business of the corporation of the assets owned by the
corporation
G. The PLEDGOR shall have the right without the necessity of
obtaining the consent of the PLEDGEE, to sell his stock in the Corporation
prior to payment in full of the obligation, so long as the PLEDGOR substitutes
a collateral in an amount not less than the amount outstanding on the
obligation on the date of sale.
6. Further Assurances: The PLEDGOR agrees to take such actions and to
execute such stock powers and such other or different writings as the PLEDGEE
may request, to further protect, confirm and assure the PLEDGEE's first
priority security interest in the PLEDGED STOCK and to assets the PLEDGEE's
realization thereon.
7. Default: The PLEDGOR shall be in default of this Agreement upon the
occurrence of any one or more of the following events:
A. The failure or refusal of the PLEDGOR to pay the
obligation secured by this Agreement or any part thereof, as the same becomes
due in accordance with the term hereof or the Promissory Note.
B. The failure of the PLEDGEE to have granted hereunder a
first and prior lien and security interest against the PLEDGED STOCK. subject
to no other liens or security interests.
C. The failure of the PLEDGOR to make any payment due on any
indebtedness it may owe PLEDGEE and any default in any one obligation will
create a default under the terms of this Agreement.
8. Rights and Remedies of PLEDGEE upon Default: In the event a default
has occurred by the PLEDGOR, the PLEDGEE shall have the following rights and
remedies:
A. The PLEDGEE's rights and remedies with respect to the
PLEDGED
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<PAGE>
STOCK shall be those of a secured party under the Uniform Commercial Code as in
effect in the State of Florida and under any other applicable law, as the same
may from time to time be in effect, in addition to those rights granted herein
and in any other agreement now or hereafter in effect between the PLEDGOR and
the PLEDGEE.
9. Notices: Any communication, notice of demand to be given hereunder
shall be duly given if in writing and delivered, mailed or telefax as follows:
(1) To the PLEDGOR:
ADVANTAGE LIFE PRODUCTS, INC.
10006 N. Dele Mabry Highway, Ste 210
Tampa, Florida 33618
(2) To the PLEDGEE:
MEDLEY CREDIT ACCEPTANCE CORP.
1 100 Ponce de Leon Boulevard
Coral Gables, Florida 33134
10. Miscellaneous Provisions: This Agreement, together with the
Exhibits hereto, all of which are incorporated herein and made a part hereof by
this reference, and the Certificates and other instruments delivered by the
respective Parties pursuant thereto, constitutes the entire agreement between
the Parties hereto with respect to the subject matter hereof and supersedes all
prior agreements, understandings and discussions, both written and oral,
between the Parties hereto. This Agreement may not be amended or modified in
any way except by a written instrument executed by all of the Parties hereto.
A. Benefits; Binding Effect: This Agreement shall be for the
benefit of and shall be binding upon the Parties hereto and their respective
successors. The PLEDGEE shall be entitled to assign its respective rights to
any holder or holders of the Note.
B. Survival: The representations, warranties, and agreements
made in this Agreement shall be deemed to apply as of the date of the execution
of this Agreement and shall be construed as continuing warranties,
representations and agreements. The representations and warranties made by the
PLEDGOR and the corporation are made with the knowledge and expectation that
notwithstanding any investigation conducted by or on behalf of the PLEDGEE, the
PLEDGEE is placing complete reliance thereon and that such representations and
warranties are to be treated as material to the PLEDGEE.
C. Waiver and Remedies: The waiver by the PLEDGEE of any
obligors' prompt and complete performance, or breach or violation, of any
provision of this Agreement
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<PAGE>
shall not operate nor be construed as a waiver of any subsequent breach or
violation, and the waiver by the PLEDGEE to exercise any right or remedy which
the PLEDGEE may possess hereunder shall not operate nor be construed as a bar
to the exercise of such rights or. remedies by the PLEDGEE upon the occurrence
of any subsequent breach or violation. Except as set forth herein, no right or
remedy conferred upon or reserved to the PLEDGEE by this Agreement shall
exclude any other right or remedy, or each right or remedy shall be cumulative
and shall be in addition to every other right or remedy hereunder or available
at law or in equity
D. Severability The invalidity of any one or more of the
words, phrases, sentences, clauses, sections. or subsections contained in this
Agreement shall not affect the enforceability of the remaining portions of this
Agreement or any part hereof, all of which are inserted conditionally on their
being valid in law, and in the event that any one or more the words, phrases
sentences, clauses, sections or subsections contained in this Agreement, shall
be declared invalid by a court of competent jurisdiction, this Agreement shall
be construed as if such invalid word or words, phrase or phrases, sentence or
sentences, clause or clauses, section or sections, or subsection or subsections
have not been inserted.
E. Governing Law. This Agreement shall be governed by and
construed in accordance with, the laws of the State of Florida. Venue
concerning any dispute or litigation which may be filed pursuant to the terms
of this Agreement shall be in Dade County, Florida.
F. Counterparts: This Agreement shall be governed by and
construed in accordance with, the laws of the State of Florida. Venue
concerning any dispute or litigation which may be filed pursuant to the terms
of this Agreement shall be in Dade County, Florida .
G. Headings: The headings of the articles and sections of
this Agreement are inserted for convenience only and shall not constitute a
part hereof nor be used in interpreting the meaning contained herein.
IN WITNESS WHEREOF, the Parties have hereunto set their hands and seals. DATED
as to the PLEDGOR this ________ day of _____________, 1997.
MEDLEY CREDIT ACCEPTANCE CORP.
Witness
By:___________________________
Witness ROBERT PRESS
DATED as to the PLEDGEE this _________ day of _______________, 1997
_____________________ ______________________________
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<PAGE>
Witness Mr. Joseph Rowans
President
________________________ Advantage Life Products, Inc.
Witness
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<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT ("Loan Agreement") is made this 23rd day of
January, 1998, by and between CUTTING EDGE ENTERTAINMENT, INC., a California
corporation, hereinafter referred to as "Borrower" and MEDLEY CREDIT ACCEPTANCE
CORP., a Delaware corporation, hereinafter referred to as "Lender" and DAVID C.
GLASSER, hereinafter referred to as "Guarantor".
WITNESSETH:
WHEREAS, the Borrower is the owner of all rights to a movie to be
produced under the name of "TWO SHADES OF BLUE" ("The Project") including but
not limited to the ownership of the script, all tradenames, trademarks and
copyrights associated therewith and all contract rights in association
therewith including but not limited to talent contracts, and
WHEREAS, Borrower has requested a loan from Lender for the purpose of
obtaining working capital to finance The Project including but not limited to
the payment of funds due and to become due on talent contracts, and
WHEREAS, Lender has agreed to make and Borrower has agreed to accept a
loan in the maximum amount of $600,000.00, subject to the terms, conditions and
covenants set forth herein and in all other loan documents executed in
furtherance of said loan, and
WHEREAS, the Lender and Borrower desire to document their agreements
and understandings into a written instrument.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the Parties agree as follows:
ARTICLE ONE
THE LOAN AND COLLATERAL:
1. Description of Loan: Subject to all of the terms, representations,
warranties, covenants and conditions in this Agreement, Lender agrees to lend
the Borrower and Borrower agrees to borrow from Lender up to the sum of
$600,000.00 to be used by Borrower as working capital for the payment of
expenses incurred in the production of The Project including but not limited to
talent salaries and production expenses. The loan will be disbursed $300,000.00
at the time of closing and the balance on or before January 30, 1998, at 3:00
p.m., provided all conditions precedent to the second funding are satisfied.
2. Evidence of and Security for the Loan:
1.1 The loan shall be evidenced by a Promissory Note ("The
Note"). The Note shall bear interest at ten percent (10%) per annum and shall
be payable interest only,
<PAGE>
monthly, commencing thirty (30) days following the execution of The Note and on
the same day each month thereafter. The Note shall mature and be due and
payable in full on or before nine (9) months from the date upon which The Note
is executed. The Borrower shall have the right to extend the maturity date of
The Note for an additional sixty (60) days upon payment to the Lender of an
amount equal to five percent (5%) of the outstanding principal balance on the
date the loan is extended (Extension Fee).
1.2 The Note shall be secured by the following instruments:
(1) Stock Pledge Agreement of Guarantors Stock
in Borrower.
(2) Personal Guaranty of the Shareholder of the
Borrower
(3) Assignment of accounts receivable including
but not limited to presale distribution
contracts and trailing royalties on The
Project and for the movie "From Which it
Stands"
(4) Assignment of Contract Rights
(5) Financing Statements (UCC-1)
ARTICLE TWO
REPRESENTATIONS AND WARRANTIES OF BORROWER:
The Borrower and Guarantor represent and warrant as follows:
(1) The Borrower is a corporation incorporated and organized under the
laws of the State of California, duly licensed and qualified to transact
business and is in good standing.
(2) The Borrower has the corporate power and authority to own and hold
its properties and to carry-on its business as now conducted and to execute,
deliver and perform its obligations under this Loan Agreement.
(3) The delivery and execution of this Agreement and the execution and
delivery of any of the loan documents contemplated by this Agreement has been
duly authorized by all requisite corporate action and will not violate any
provision of law or any order of any court or any agency of government or the
Articles of incorporation or By-Laws of the Borrower.
(4) This Agreement has been duly executed and delivered by the
Borrower and constitutes the legal, valid and binding obligation of the
Borrower, enforceable in accordance with its terms.
(5) The Borrower has furnished to the Lender unaudited financial
statements which have been prepared in accordance with generally accepted
accounting principals consistently applied and said financial statements fairly
present the financial position of the Borrower as of such dates.
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<PAGE>
(6) There are no actions, suits, claims, proceedings or investigations
pending or to the best of the Borrowe5r's knowledge, threatened against or
affecting the Borrower at law or in equity or before any federal, state,
municipal or other governmental agency which would have an adverse financial
effect on the borrower.
(7) The Borrower has complied in all material respect with all laws,
rules, regulations and orders which are material and applicable to its
business, operations, properties and assets, and the Borrower maintains all
necessary permits, licenses and authorizations to conduct its business.
(8) The Borrower has good and marketable title to all of its assets
reflected on its balance sheet delivered to Lender and that said assets are
currently owned by the Borrower free and clear of any mortgages, pledges,
security interests, liens, charges or other encumbrances except as described in
the financial statements.
(9) The Borrower has filed all federal, state and local tax returns
required to be filed by and through 12/31/98. The federal income tax returns of
the Borrower have been filed timely and there are no delinquent returns as of
the4 date hereof, nor are there outstanding taxes due with respect to same.
(10) That all contracts furnished by the Borrower to the Lender in
furtherance of the Lender's due diligence of the Borrower and The Project, are
in full force and effect as of the date hereof without default.
(11) The Borrower is the owner of the script for the movie to be known
as TWO SHADES OF BLUE, together with all associated trademarks, tradenames and
copyrights and has the right to produce and make said movie. The Borrower owns
or possesses adequate licenses or other rights to use the script and associated
trademarks and copyrights free and clear of all liens, claims and restrictions
of others.
(12) The Borrower agrees that the proceeds of The Note will only be
used to satisfy obligations of The Project.
(13) The execution, delivery and performance by the Borrower of the
loan documents on its part are within the Borrower's powers and purposes, have
been duly authorized by all requisite action of the Borrower and do not violate
any governmental requirement or other agreement to which the Borrower may be a
part, be in conflict with, or result in a breach of or constitute a default
under, any indenture, agreement or other instrument to which the borrower is a
party.
(14) The Borrower is the owner of the movie "From Which it Stands" and
has the right to assign all future royalties as collateral for this loan.
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<PAGE>
ARTICLE THREE
AFFIRMATIVE COVENANTS:
(1) The Borrower will provide Lender with annual financial statements
for both the Borrower and Guarantors not later than thirty (30) days from the
end of each calendar during the term of this loan.
(2) The Borrower shall cause its policy of business interruption
insurance to be pledged to the Lender up to the amount of the Lender's loan.
(3) The Borrower will execute all additional documents required by the
Lender within four (4) days following the closing.
ARTICLE FOUR
CONDITIONS PRECEDENT TO CLOSING:
(1) All corporate and other proceedings to be taken by the Borrower in
connection with the transaction contemplated in this Agreement shall have been
taken.
(2) The Borrower shall have executed all of the loan documents to the
satisfaction of the Lender.
(3) All of the representations and warranties of the Borrower shall be
true and correct on the closing date.
(4) The Lender shall be satisfied with all documentation furnished to
it by the Borrower.
ARTICLE FIVE
CONDITION PRECEDENT TO SECOND FUNDING:
The funding of the second installment of The Note in the sum of
$300,000.00 is subject to the Borrower receiving additional funds from another
source prior to January 30, 1998, in order to satisfy its additional
obligations for The Project to continue.
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<PAGE>
ARTICLE SIX
CLOSING DATE:
Provided that all the conditions precedent have been satisfied, this
Loan will close on January 23, 1998.
ARTICLE SEVEN
BROKERAGE COMMISSION:
The Borrower will pay a brokerage commission to Olympus Mortgage
Corporation monthly in an amount equal to .00667 percent of the outstanding
principal of the loan during the preceding month or any portion thereof.
ARTICLE EIGHT
NOTICES:
Any communication, notice of demand to be given hereunder shall be
duly given if in writing and demand, mailed certified mail or telefaxed as
follows:
(1) To the Guarantor:
David C. Glasser
16255 Ventura Blvd. Suite 1250
Encino, California 91436
______________________
______________________
______________________
(2) To the Borrower:
Cutting Edge Entertainment, Inc.
16255 Ventura Blvd., Suite 1250
Encino, California 91436
(3) To the Lender:
Medley Credit Acceptance Corp.
1100 Ponce de Leon Boulevard
Coral Gables, Florida 33134
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<PAGE>
MISCELLANEOUS PROVISIONS
1. Construction: This Agreement shall be construed and enforced under
the laws of the State of Florida. In the event any provision of this Agreement
shall be declared invalid by a court of competent jurisdiction, said invalidity
shall not invalidate the Agreement as a whole, but said Agreement shall be
construed as if the invalidated provision was omitted from the Agreement.
2. Entire Agreement: This Agreement supersedes and cancels any and all
other contracts referring to the subject matter herein. No modifications,
alteration or waiver of this Agreement shall be effective unless in writing,
executed by the parties hereto.
3. Assignability: This Agreement shall inure to the benefit of the
Parties, their successors and assigns.
4. Counterparts: This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
counterparts collectively shall constitute one instrument representing the
Agreement between the Parties hereto.
5. Captions: Captions of the various sections contained in this
Agreement are intend4d to be used solely for convenience of the Parties and are
not intended, nor are they deemed to modify, or explain or to be used as an aid
in the construction of any of the provisions of this Agreement.
6. Completion of Documentation: The Borrower and Guarantor acknowledge
that they need to supply to the Lender additional documentation concerning the
collateral and other matters so that the balance of the collateral documents
can be drafted and executed. The Borrower and Guarantor agree to supply said
documentation no later than Tuesday, January 27, 1998, and to complete the
execution of all original documents furnished to them by Friday, January 30,
1998, or they will be considered in default under the terms of this Agreement
and all loan documents executed to date including but not limited to the Pledge
Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have hereunto set their hands and
seals.
DATED as to the Borrower, this 23 Day of January, 1998.
CUTTING EDGE ENTERTAINMENT, INC.
a California corporation
BY: David C. Glasser
-----------------------------
DAVID C. GLASSER, PRESIDENT
DATED as to the Guarantors, this 23 Day of January, 1998.
David C. Glasser
-----------------------------
DAVID C. GLASSER, GUARANTOR
DATED as to the Lender, this 23 Day of January, 1998.
MEDLEY CREDIT ACCEPTANCE CORP.,
a Delaware corporation
BY: /s/ Robert Press
----------------------------
ROBERT PRESS, PRESIDENT
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<PAGE>
PROMISSORY NOTE
$600,000.00 DATED: January 23rd, 1998
FOR VALUE RECEIVED, the undersigned CUTTING EDGE ENTERTAINMENT, INC.,
a California Corporation, (hereinafter referred to as "Maker"), promises to pay
to the order of MEDLEY CREDIT ACCEPTANCE CORP., a Delaware Corporation, or its
successors or assigns, (hereinafter referred to as "Holder") at 1100 Ponce de
Leon Blvd., Coral Gables, Florida 33134 or at such place as the Holder hereof
may from time to time designate in writing, the principal sum of $600,000.00,
or so much as has been funded with interest thereon, at the rate of 10% annum,
all to be repaid in lawful money of the United States of America, as follows:
Interest on this Note shall be paid monthly commencing on the
23rd day of February, 1998 and the 23rd day of each month
thereafter. The entire principal balance, together with
accrued interest shall be due and payable in full on or
before nine months from the date hereof.
The Maker, provided this Note is not in default, shall have
the opinion to extend the maturity date of this Note for an
additional 60 days upon the payment to the Holder of an
extension fee in an amount equal to 5% of the then
outstanding principal balance of the Note.
Payments made pursuant to this Note shall be applied first to accrued
and unpaid interest, and balance, if any, to principal.
This Note may be prepaid in whole or in part at any time without
penalty.
It is agreed hereby that if any payment of the principal sum above
mentioned or any installment thereof, or any interest thereon, not be made when
due, or if default be made in the performance of, or compliance with any of the
other covenants and conditions of this Note, or in any Agreement now or
hereafter in effect securing payment of this Note; or upon the insolvency or
bankruptcy of the Maker or Guarantor hereof; or upon the direct or indirect
sale, conveyance or pledge or all of any part of the Property securing this
Note or any interest therein, without the prior written consent of Holder in
each instance; or the stopping of the Production of the Movie, "Two Shades of
Blue", then in any and all such events, the entire amount of principal of this
Note, with all interest then accrued, shall, at the option of the Holder and
without notice (the Maker hereby expressly waiving notice of such default) be
due and collectible time being of the essence of this Note.
<PAGE>
If this Note shall not be pad at maturity or according to the tenor
thereof, and strictly as above provided, it may be placed in the hands of any
attorney at law for collection, and in that event each Party liable for the
payment thereof, as Maker Endorser, Guarantor or otherwise, hereby agrees to
pay the Holder hereof, in addition to the sums above stated, a reasonable sum
as an attorney's fee, which shall include attorney's fees at the trial level
and on appeal, together with all reasonable costs incurred.
After maturity or default, this Note shall bear interest at the
highest rate permitted under the then applicable law, further provided,
however, that in no event shall such rate exceed the highest rate permissible
under the applicable law.
As to this Note, and any instrument securing the indebtedness
represented by this Note, the Maker, Endorser and any Guarantor severally waive
all applicable exemption rights, whether under the State Constitution,
Homestead laws or otherwise, and also severally waive valuation and
appraisement, presentment, protest and demand, demand notice of protest, demand
and dishonor, and expressly agree that the maturity date of this Note or any
payment hereunder, may be extended from time to time without in any way
affecting the liability of the Maker, Endorsers or Guarantors.
Nothing herein contained, nor in any instrument or transaction related
hereto, shall be construed or so operate as to require the Maker or any person
liable for the payment of the loan made pursuant to this Note, to pay interest
in an amount, or at a rate greater than the highest rate permissible under
applicable law. Should any interest or other charges paid by the Maker, or any
Parties liable for the payment of the loan made pursuant to this Note, result
in the computation or earning of interest in excess of the highest rate
permissible under applicable law, then any and all such excess shall be and the
same is hereby waived by the Holder hereof, and all such excess shall be
automatically credited against, and in reduction of the principal, and any
portion of said excess which exceed the principal balance shall be paid by the
Holder hereof to the Maker, and any parties liable for payment of the loan made
pursuant to this Note, it being the intent of the Parties that under no
circumstances shall the Maker be required to pay interest in excess of the
highest rate permissible under the applicable law.
Time is of the essence as to the Maker's obligations under this Note.
If any provision or portion of this Note is declared or found by a
Court of competent jurisdiction to be unenforceable or null and void, such
provision or portion of this Note shall be deemed stricken and severed from
this Note, and the remaining provisions and portions of this Note shall
continue in full force and effect.
This Note may not be amended, extended, renewed or modified, and no
waiver of any provision of this Note shall be effective, except by an
instrument in writing executed by the Holder. Any waiver of any of the
provisions of this Note shall be effective only in the specific instance and
for the specific purpose for which it is given.
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<PAGE>
EXCEPT AS PROHIBITED BY LAW, NEITHER THE HOLDER NOR MAKER SHALL SEEK A
JURY TRIAL IN ANY LAW SUIT, PROCEEDING OR COUNTER CLAIM, BASED UPON, OR ARISING
OUT OF THIS NOTE, THE COLLATERAL OR THE RELATIONSHIP BETWEEN THE HOLDER AND THE
MAKER. IF THE SUBJECT MATTER OF ANY SUCH LAW SUIT IS ONE IN WHICH THE WAIVER OF
A JURY TRIAL IS PROHIBITED, NEITHER THE HOLDER NOR MAKER SHALL SEEK TO
CONSOLIDATE ANY ACTION IN WHICH A JURY HAS BEEN WAIVED WITH ANY OTHER ACTION IN
WHICH A JURY TRIAL CANNOT BE WAIVED.
This Note is to be construed according to the applicable laws of the
State of Florida and the United States of America.
CUTTING EDGE ENTERTAINMENT, INC.
a California Corporation
By:__________________________________
DAVID C. GLASSER, PRESIDENT
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<PAGE>
ASSIGNMENT OF ACCOUNTS RECEIVABLE,
DISTRIBUTION AGREEMENTS, TRAILING ROYALTIES,
CONTRACT RIGHTS, PERMITS, LICENSES AND
DEPOSITS, ETC. AND SECURITY AGREEMENT
WHEREAS, MEDLEY CREDIT ACCEPTANCE CORP., a Delaware corporation.
("Lender") is making a working capital loan to CUTTING EDGE ENTERTAINMENT. INC.
a California corporation, (the "Assignor") in the principal amount of
$600,000.00 (the "Loan"), which Loan shall be evidenced by a Promissory Note
(the "Note"). Loan Agreement and the Assignment of various collaterals owned by
the Assignor including, but not limited to accounts receivable, presale
distribution contracts and the proceeds of same and trailing royalties due and
to become due in connection with the movies From Which it Stands and Two Shades
of Blue (the "Collateral"), and.
WHEREAS, to encumber the Collateral to secure the Lender's loan, the
Assignor shall assign to Lender, free and clear of any and all claims, liens
and encumbrances whatsoever. the Assignor's right, title and interest in the
Collaterals. and.
WHEREAS, the Borrower and Lender desire to memorialize their
Assignment into a written instrument.
NOW, THEREFORE, for the purpose of securing the payment of the Loan
and other good and valuable consideration paid to the Assignor the receipt
whereof is hereby acknowledged. the Assignor does hereby assign, grant. bargain
and convey to Lender all of the Assignor's right, title and interest in and to
the following property cf Assignor, whether now owned or existing or hereafter
acquired or arising:
1. All accounts. accounts receivable, other receivables,
contract rights, chattel paper, instruments and documents and
any other obligations or indebtedness owed to Assignor from
whatever source arising. including but not limited to
trailing royalties and distribution proceeds arising from the
films produced by the Assignor entitled Two Shades or Blue
and From Which it Stands. and all proceeds and revenues
arising out of the multiple rights and distribution
agreements described on Schedule "A" attached hereto.
2. All right, title and interest of the Assignor in and to the
scripts and screenplays for Two Shades or Blue and From Which
it Stands.
3. Distribution Agreement and Motion Picture Licensing Agreement
between Assignor and Calypso Global Entertainment. Inc. and
Two Shades of Blue. Inc.
4. All of the Assignor s right, title and interest in the
Multiple Rights Distribution Agreements described on Exhibit
A.
<PAGE>
5. All of Assignor's right, title and interest in the films Tow
Shares of Blue and From Which it Stands.
6. All goods, including without limitation, all machinery.
equipment. furniture. furnishings and appliances owned by the
Assignor.
7. All general intangibles, including without limitation,
corporate or other business records and books, computer
records, tradenames. trademarks, good will, telephone
numbers, licenses, permits, prepaid fees and deposits of the
Assignor.
8. All judgments. awards of damages and settlements arising from
or out of the Assignor pursuing any of its rights under any
of the collateral described herein or in the Loan Agreement
between the Assignor and Lender.
The Assignor shall perform, observe and comply with all of the
provisions of this Assignment and of the Note secured hereby and will pay to
the Assignee the sum of money expressed in the Note with interest thereon and
all other sums required to be paid by the Assignor pursuant to the provisions
of the Note, this Assignment. the Loan Agreement and other loan instruments and
documents executed in furtherance of the Loan.
The Assignor acknowledges that this Assignment shall become operative
and shall vest full title and interest in the Lender immediately, and shall be
in full force and effect as of the date hereof.
Until the occurrence of an event of default, the Assignor shall have
the right to receive all income and other amounts from the Collateral. However,
notwithstanding the foregoing, any payments received by the Assignor for
payment due on the distribution agreements and trailing royalties accruing from
the movies From Which it Stands and Two Shares of Blue shall be immediately
paid by the Assignor to the Lender in order to reduce the amount due by
Assignor to Lender on the Note. Monthly. following the closing date as set
forth in the Loan Agreement between the Assignor and the Lender. the Assignor
shall furnish to the Lender on the first day of each month, a complete
accounting of all payments received by the Assignor on its distribution
agreements and trailing royalties. Upon an event of default as hereinafter
described by the Assignor. the Lender shall have the right to collect all
payments due under any of the Collateral described in this instrument and to
apply said payments to the Note.
The Assignor shall be in default upon the happening of any one or more
of the following events:
(a) Failure of the Assignor to pay any installment of
principal or interest due under the Note.
- 2 -
<PAGE>
(b) Failure of the Assignor to keep, perform and observe
every covenant. condition and agreement in the Note,
Loan Agreement. this instrument or any other loan
document entered into by the Assignor in furtherance
of the Loan.
(c) Failure by the Assignor to pay any tax or assessment
due by it prior to same becoming delinquent.
(d) Any material misstatement in the representations and
warranties made by the Assignor in any of the loan
documents
(e) Upon the insolvency or bankruptcy of the Assignor or
Guarantor of the Loan.
(f) The stopping of the production of the movie Two
Shades of Blue for a period of two weeks without
recommencing production.
Upon the happening of any event of default, the Lender may collect all
proceeds due the Assignor from the Collateral and shall have such additional
rights as that of a secured party under the Uniform Commercial Code and under
any other applicable law from time to time in effect.
This Assignment shall be considered in addition to a present
assignment, a Security Agreement under the Florida Uniform Commercial Code for
the purposes of creating a lien on the Collateral described herein.
This Assignment shall be construed, interpreted and enforced in
accordance with the laws of the State of Florida, excluding the principals
thereof governing conflicts of law.
Assignor will make. execute and deliver to Lender and where
appropriate shall cause to be recorded and or filed, and from time to time
thereafter to be re-recorded and or refiled at such time and at such offices
and places as shall be deemed desirable by the Lender any and all such further
assignments. instruments of further assurance certificates and other documents
as may, in the opinion of the Lender. be necessary of desirable in order to
effectuate, complete, perfect or continue and preserve the Lender's rights in
the collateral described in this instrument.
Lender and Assignor hereby knowingly, voluntarily and intentionally
waive the right either may have to a trial by jury in respect to any litigation
based thereon or arising out of, under or in connection with this Assignment,
the loan documents and any agreement contemplated to be executed in conjunction
herewith, or any course of conduct, course of dealing, statements (whether
verbal or written) or action of either party.
- 3 -
<PAGE>
This Agreement shall be construed and enforced under the laws of the State of
Florida. In the event any provision of this Agreement shall be declared invalid
by a court of competent jurisdiction, said invalidity shall not invalidate the
Agreement as a whole but said Agreement shall be construed as if the
invalidated provision was omitted from the Agreement.
This Agreement supersedes and cancels any and all other contracts
referring to the subject matter herein. No modifications, alteration or waiver
of this Agreement shall be effective unless in writing. executed by the parties
hereto.
This Agreement shall inure to the benefit of the Parties, their
successors and assigns.
This Agreement may be executed in several counterparts, each of which
shall be deemed an original, but all of which counterparts collectively shall
constitute one instrument representing the Agreement between the Parties
hereto.
In the event of any disputes arising under this instrument or should
it become necessary for the Lender to enforce its rights, the prevailing party
shall be entitled to reimbursement of reasonable attorneys fees and costs at
the trial and appellate court level.
IN WITNESS WHEREOF, the Assignor has duly executed this Assignment the
23rd day of January, 1998.
SIGNED, SEALED AND DELIVERED IN CUTTING EDGE ENTERTAINMENT, INC.,
THE PRESENCE OF: a California corporation
____________________________ BY.________________________________
Witness David C. Glasser, President
___________________________
Witness
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<PAGE>
STATE OF CALIFORNIA
COUNTY OF LOS ANGELES
The foregoing instrument was acknowledged before me this 23rd day of
January 1998, by DAVID C. GLASSER, President of CUTTING EDGE ENTERTAINMENT.
INC.. a California corporation, on behalf of the Corporation, who is personally
known to me or who has produced______________________ as identification and who
did not take an oath.
__________________________________
NOTARY PUBLIC, STATE OF
CALIFORNIA
My Commission Expires:
Commission Number
- 5 -
<PAGE>
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT made and entered into by and between DAVID
C. GLASSER (hereinafter referred to as "PLEDGOR"), to MEDLEY CREDIT ACCEPTANCE
CORP. (hereinafter referred to as "PLEDGEE"). (Collectively throughout this
Agreement PLEDGOR and PLEDGEE may be referred to as "Parties" for convenience
W I T N E S S E T H:
WHEREAS, the PLEDGOR has guaranteed the indebtedness of Cutting Edge
Entertainment, Inc. ("DEBTOR") to PLEDGEE in the amount of $600,000.00, a copy
of said Guarantee being attached as Exhibit"A", and
WHEREAS, said debt is evidenced by a Promissory Note, a copy of which
is attached hereto and made a part hereof as Exhibit "B", and
WHEREAS, the debt in part is to be secured by a Pledge and Assignment
of the PLEDGOR's stock in Cutting Edge Entertainment, Inc., a California
corporation. (hereinafter referred to as "Corporation"), which stock will
constitute at the time of closing all of the authorized, issued and outstanding
shares in said corporation, and
WHEREAS, the PLEDGOR has a financial interest in the DEBTOR, and
WHEREAS, the Parties desire to document their understanding concerning
the pledging of the security described in this Agreement to a written
instrument.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein the Parties agree as follows:
1. Recitals: The above and foregoing recitals are true and correct and
are incorporated herein.
2. PLEDGOR's Grant of Security Interest in Pledged Stock:
A. For value received and to induce PLEDGEE to lend to DEBTOR, the sum
of SIX HUNDRED THOUSAND DOLLARS (5600,000.00), the PLEDGOR hereby pledges to
the PLEDGEE a first priority security interest in all of the authorized, issued
and outstanding common stock of DEBTOR (hereinafter referred to as "PLEDGED
STOCK"). consisting of 650 shares of common stock having a par value of $0.00
per share: together with all proceeds and dividends, if any, produced thereby.
All Certificates evidencing such PLEDGED STOCK and stock powers shall be
executed by the PLEDGOR in blank and held by the PLEDGEE until all of the
obligations of the PLEDGOR to the PLEDGEE have been paid or performed in full.
<PAGE>
3. Representations, Warranties and Covenants Regarding Pledge: The
PLEDGOR represents, warrants, covenants and agrees and so long as this
Agreement is in effect shall be deemed continuously to represent, warrant,
covenant and agree that:
A. The PLEDGOR is the owner or shall be at the time of closing, the
owner of the PLEDGED STOCK, free and clear of all liens, except the lien
created by this Agreement.
B. The PLEDGOR is authorized to enter into this Agreement and has the
full and lawful power and authority to pledge the PLEDGED STOCK as provided for
herein.
C. This Agreement and the pledge of the PLEDGED STOCK do not violate
or contravene any applicable federal or state law or regulation applicable to
the PLEDGOR or the corporation or any agreement or instrument binding on the
PLEDGOR, the PLEDGED STOCK or the corporation.
D. The execution and delivery and the performance of this Agreement
shall not be in contravention of any indenture, agreement or undertaking to
which the corporation or the PLEDGOR may be a party.
E. As long as any amount remains unpaid on the obligation secured by
this pledge, the corporation will not enter into or execute any security
agreement or financing statement covering any of the assets of the corporation
without the specific prior written consent and approval of the PLEDGEE.
F. The PLEDGOR agrees to procure, pay for, affix to any and all
documents and cancel any documentary tax stamps required by, and in accordance
with, applicable law and the PLEDGOR hereby indemnifies and holds the PLEDGEE
harmless against any liability in respect of such documentary stamp taxes.
G. Except as specifically provided for herein, the assets of the
corporation as of the date of closing shall remain in the corporation's
possession and control. All assets consisting of real and or personal property
owned by the corporation shall be kept insured by the corporation and the
PLEDGEE shall be named on all of said insurance policies as a party insured
thereby in the event of loss. Copies of said policies shall be furnished to the
PLEDGEE prior to or at the closing.
H. Except as otherwise specifically provided for herein, the
corporation will not sell or offer to sell, lease, assign, convey, transfer or
otherwise encumber or dispose of any assets owned by the corporation or any
interest therein which would reduce or decrease the net worth of the
corporation.
4. Voting Rights: For so long as the PLEDGOR is not in default under
the terms and conditions of the Promissory Note secured by this instrument and
the other instruments of
- 2 -
<PAGE>
security, the PLEDGOR shall be entitled to vote the PLEDGED STOCK for the
purpose of conducting the business of the corporation. However, in no event
will the PLEDGED STOCK be voted in favor of or be counted for the purpose of a
quorum in a meeting held to consider. the merger. consolidation, sale of all or
substantially all of the assets of, the dissolution, liquidation,
reorganization, reclassification or recapitalization of the corporation or an
amendment to its Articles of Incorporation or By Laws without the written
consent of the Pledgee, which consent shall not be unreasonably withheld.
From and after the occurrence of a default, the PLEDGEE shall be
entitled but not have the obligation to vote the PLEDGED STOCK in respect of
such matters and for such purposes as the PLEDGEE shall deem appropriate in its
sole discretion and the PLEDGOR shall have not right to vote the PLEDGED STOCK
or take any action with respect thereto.
5. General Covenants: For so long as any of the obligations cf the
PLEDGOR to the PLEDGEE remain outstanding whether under a note or otherwise,
tne corporation shall, unless the PLEDGEE shall otherwise consent in writing:
A. Pay and discharge all taxes. assessments and governmental charges
or levies imposed upon the corporation or upon any of its income or profits, or
upon any properties belonging to said corporation, prior to the date on which
penalties attached thereto, and all lawful claims which, if unpaid, might
become a lien or charge upon any properties of the PLEDGOR
B. Maintain insurance with responsible and reputable insurance
companies in such amounts and covering such risks as is acceptable to PLEDGEE.
C. Preserve and maintain the corporate existence, rights franchises
and privileges of the corporation in the State of Florida, and qualify and
remain qualified as a foreign corporation in each jurisdiction in which such
qualification is necessary or desirable in view of the business of the
corporation.
D. Comply with the requirements of all applicable laws, rules,
regulations and order of any governmental authority, noncompliance with which
could adversely affect the business or credit of the corporation.
E . Keep adequate records and books of account, in which complete
entries will be made in accordance with generally accepted accounting
principles consistently applied reflecting all financial transactions of the
corporation.
F. Maintain and preserve all of the assets and property of the
corporation necessary or useful in the proper conduct of its business in good
working order and condition, ordinary wear and tear excepted, to the extent
that the failure to do so would adversely affect the financial condition or
results of operation of the corporation.
- 3 -
<PAGE>
G. The corporation will promptly comply with all present and future
laws. ordinances, rules and regulations of any governmental authority affecting
the business of the corporation of the assets owned by the corporation.
6. Negative Covenants: For so long as the obligations of the PLEDGOR
to the PLEDGEE shall remain outstanding, the corporation shall not, without the
prior written consent of the PLEDGEE:
A. Create, incur, assume or suffer to exist any lien, mortgage,
pledge, security interest, or encumbrance of any nature upon or with respect to
any of the assets now owned or hereafter acquired by the corporation or assign
or otherwise convey any right to receive income, which would reduce or decrease
the net worth of the corporation.
B. The corporation will not merge or consolidate with. sell. assign,
lease or otherwise dispose of its assets without the express written consent of
the Pledgee.
C. The corporation shall not declare or pay any dividends, purchase,
redeem, retire or otherwise acquire for value any of its capital stock now or
hereafter outstanding. return any capital to its stockholders. or make any
distribution of assets to its stockholders.
D. Issue any additional capital stock or any securities convertible
into or exchangeable for capital stock
E. The corporation will not allow its Articles of Incorporation .o be
amended in any respect.
F. Cease actively to transact business, or make, or permit the making
of, any material change in the nature of the business now being conducted by
the corporation
G. Enter into any agreement containing any provision which would be
violated or breached by the performance of its obligations hereunder or under
any instrument or document delivered or to be delivered hereunder.
7. Reporting Covenants: For so long as any of the obligations of the
PLEDGOR shall remain outstanding to the PLEDGEE. the PLEDGOR and the
corporation shall furnish the PLEDGEE the following:
A. As soon as available and in any event within thirty (30) days after
December 31st of each year: copes of all U.S. Income Tax Returns filed by the
corporation in each year subsequent to the execution of this Pledge Agreement.
B. Such other information respecting the assets or the condition or
operations financial or otherwise of the corporation as the PLEDGEE may from
time to time request.
- 4 -
<PAGE>
8. Further Assurances: The PLEDGOR agrees to take such actions and to
execute such stock powers and such other or different writings as the PLEDGEE
may request, to further protect, confirm and assure the PLEDGEE's first
priority security interest in the PLEDGED STOCK and to assets the PLEDGEE's
realization thereon.
9. Default: The PLEDGOR shall be in default of this Agreement upon the
occurrence of any one or more of the following events:
A. The failure or refusal of the Corporation or the PLEDGOR to obey
the principal or interest due on the Promissory Note secured by this Agreement
or any part thereof as the same becomes due in accordance with the term hereof
or the Promissory Note
B. The failure or refusal of the PLEDGOR or the corporation under any
of the loan documents to punctually and properly perform, observe, and comply
with any covenant, agreement or condition contained in any of the loan
documents (other than the covenant to pay the principal and interest on the
Promissory Note) and such failure or refusal continues for a period of fifteen
(15) days after the PLEDGOR has, or with the exercise of reasonable
investigation, should have. notice thereof:
C. The discovery by the PLEDGEE that any statement, representation, or
warranty in any of the loan documents is false, misleading, or erroneous in any
material respect:
D. The failure of the PLEDGEE to have granted hereunder a first and
prior lien and security interest against the PLEDGED STOCK. subject to no other
liens or security, interests.
E. The failure of the PLEDGOR or corporation to make any payment due
on an indebtedness it may owe PLEDGEE and any default in any one indebtedness
will create a default under the terms of this Agreement.
F. The failure of the PLEDGOR or the corporation to satisfy any final
judgment or order entered against them either individually or jointly.
G. In the event either the PLEDGOR or the corporation shall become
insolvent within the meaning of the Bankruptcy Act, as amended, make an
assignment for the benefit of creditors or make a proposal to its creditors
under any debtor relief law, admit in writing its inability to pay or otherwise
fail to pay its debts generally as they become due, voluntarily seek, consent
to, or acquiesce in the benefit or benefits of any debtor relief law, become a
debtor party to any proceeding provided for by any debt relief law that could
suspend or otherwise affect any of the rights of the PLEDGEE granted herein or
in any other loan document. consent to the appointment of a receiver, trustee,
liquidator, conservator, or similar person for all or any substantial part of
their assets:
- 5 -
<PAGE>
H. The PLEDGOR or the corporation shall involuntarily have an order,
judgment or decree entered against it pursuant to any debtor relief law that
could suspend or otherwise affect any of the rights granted to the PLEDGEE
herein or in any other loan document, and such order. judgment or decree is not
permanently stayed or reversed within sixty (60) days after the entry thereof;
I. The PLEDGOR or the corporation shall have a petition filed against
it seeking the benefit or benefits provided for by any debtor relief law that
could suspend or otherwise affect any cf the rights granted to the PLEDGEE
herein or in any other loan document, and such petition is not discharged
within thirty (30) days after the filing thereof;
J. Any default under the Promissory Note given to MEDLEY CREDIT
ACCEPTANCE CORP.
K. The Corporation shall cease or stop production of the movie.
10. Rights and Remedies of PLEDGEE upon Default: In the even a default
has occurred by the PLEDGOR. and said default shall continue for more than
seven (7) days, the PLEDGEE shall have the following rights and remedies:
A. The PLEDGEE's rights and remedies with respect to the PLEDGED STOCK
shall be those of a secured party under the Uniform Commercial Code as in
effect in the State of Florida and under any other applicable law, as the same
may from time to time be in effect, in addition to those rights granted herein
and in any other agreement now or hereafter in effect between the PLEDGOR and
the PLEDGEE.
B. Without in any way requiring notice to be given in the following
time and manner, the PLEDGOR agrees that any notice by PLEDGEE of sale,
disposition or other intended auction hereunder in connection therewith,
whether required by the Uniform Commercial Code as in effect in the State of
Florida or otherwise, shall constitute reasonable notice to the PLEDGOR if such
notice is mailed by regular or certified mail, postage prepaid. at least five
(5) calendar days prior to such action, to the PLEDGOR's address referred to in
this Agreement or to any other address which the PLEDGOR has specified in
writing to the PLEDGEE as the address to which notice hereunder shall be given
to the PLEDGOR.
C. Upon notice by the PLEDGEE to the PLEDGOR. the PLEDGEE, its assigns
or their nominees shall have the sole and exclusive right to exercise all
voting anc consensual powers pertaining to the PLEDGED STOCK or any part
thereof and may exercise such powers in such manner as they may elect.
D. To institute legal proceedings with respect the collection of the
debt and to employ agents and attorneys at the sole expense of the PLEDGOR.
- 6 -
<PAGE>
E. To cause the collateral to be transferred to the Secured Parties
name provided nothing set forth herein shall serve to relieve the PLEDGEE from
liability.
11. Application of Proceeds: In the Event the PLEDGEE sells or
otherwise disposes of the PLEDGED STOCK in the course of exercising the
remedies provided for in this Agreement in the event of default, any amounts
held, realized or received by PLEDGEE pursuant to the provisions hereof,
including the proceeds of sale of any of the PLEDGED STOCK or any part thereof,
shall be applied by the PLEDGEE first towards the payment of any cost and
expenses incurred by the PLEDGEE in enforcing this Agreement or the Promissory
Note, in realizing on or protecting any PLE3GED STOCK and in enforcing or
collecting any obligation or any guarantee thereof, including, without
limitation, attorneys' fees and expenses incurred by the PLEDGEE (all of which
costs and expenses are secured by the PLEDGED STOCK), all of which cost and
expenses the PLEDGOR agrees to pay and then the interest and principal on the
Note in the method and manner called for by said Note Any amounts and any
PLEDGED STOCK remaining after such application and after payment to PLEDGEE of
all of the obligations in full shall be paid or delivered to the PLEDGOR or a
court of competent jurisdiction as the PLEDGEE may elect.
12. Notices: Any communication, notice of demand to be given hereunder
shall be duly given if in writing and delivered. mailed certified mail or
telefaxed as follows:
(1) To the PLEDGOR:
David C. Glasser
________________________
________________________
(2) To the PLEDGEE:
Medley Credit Acceptance Corp.
1100 Ponce de Leon Boulevard
Coral Gables, Florida 33134
13. Miscellaneous Provisions: This Agreement, together with the
Exhibits hereto all of which are incorporated herein and made a part hereof by
this reference, and the Certificates and other instruments delivered by the
respective Partes pursuant thereto, constitutes the entire agreement between
the Parties hereto with respect to the subject matter hereof and supersedes all
prior agreements, understandings and discussions, both written and oral,
between the Parties hereto. This Agreement may not be amended or modified in
any way except by a written instrument executed by all of the Parties hereto.
A. Benefits; Binding Effect: This Agreement shall be for the benefit
of and shall be binding upon the Parties hereto and their respective
successors. The PLEDGEE shall be entitled to assign its respective rights to
any holder or holders of the Note.
- 7 -
<PAGE>
B. Survival: The representations, warranties, and agreements made in
this Agreement shall be deemed to apply as of the date of the execution of this
Agreement and shall be construed as continuing warranties, representations and
agreements. The representations and warranties made by the PLEDGOR and the
corporation are made with the knowledge and expectation that notwithstanding
any investigation conducted by or on behalf of the PLEDGEE, the PLEDGEE is
placing complete reliance thereon and that such representations and warranties
are to be treated as material to the PLEDGEE.
C. Waiver and Remedies: The waiver by the PLEDGEE of any obligors'
prompt and complete performance, or breach or violation, of any provision of
this Agreement shall not operate nor be construed as a waiver of any subsequent
breach or violation, and the waiver by the PLEDGEE to exercise any right or
remedy which the PLEDGEE may possess hereunder shall not operate nor be
construed as a bar to the exercise of such rights or remedies by the PLEDGEE
upon the occurrence of any subsequent breach or violation. Except as set forth
herein, no right or remedy conferred upon or reserved to the PLEDGEE by this
Agreement shall exclude any other right or remedy, or each right or remedy
shall be cumulative and shall be in addition to every other right or remedy
hereunder or available at law or in equity.
D. Severability: The invalidity of any one or more of the words,
phrases, sentences, clauses, sections, or subsections contained in this
Agreement shall not affect the enforceability of the remaining portions of this
Agreement or any part hereof, all of which are inserted conditionally on their
being valid in law, and in the event that any one or more the words, phrases,
sentences. clauses, sections or subsections contained in this Agreement. shall
be declared invalid by a court of competent jurisdiction, this Agreement shall
be construed as if such invalid word or words. phrase or phrases. sentence or
sentences, clause or clauses. section or sections. or subsection or subsections
have not been inserted.
E. Expenses: The PLEDGOR agrees to pay on demand all out of pocket
expenses, including but without limitation, the fees and expenses of the
PLEDGEE's counsel, in any way relating to the enforcement or protection of the
rights of the PLEDGEE hereunder and further agrees that the PLEDGED STOCK
secures such payment.
F. Governing Law This Agreement shall be governed by and construed in
accordance with. the laws of the State of Florida. Venue concerning any dispute
or litigation which may be filed pursuant to the terms of this Agreement shall
be in Dade County, Florida.
G. Counterparts: This Agreement shall be governed by and construed in
accordance with, the laws of the State of Florida. Venue concerning any dispute
or litigation which may be filed pursuant to the terms of this Agreement shall
be in Dade County, Florida .
H. Headings: The headings of the articles and sections of this
Agreement are inserted for convenience only and shall not constitute a part
hereof nor be used in interpreting the meaning contained herein.
- 8 -
<PAGE>
I. Upon payment in full of the Note. the PLEDGEE shall forthwith
release this Pledge Agreement and reassign all rights thereunder and the
original stock certificate together with the original assignment.
IN WITNESS WHEREOF, the Parties have hereunto set their hands and
seals.
DATED as to the PLEDGOR this day of January, 1998.
___________________________ _________________________
Witness DAVID C. GLASSER
___________________________
Witness
- 9 -
<PAGE>
STATE OF CALIFORNIA )
) SS
COUNTY OF )
BEFORE ME, the undersigned authority, personally appeared DAVID C.
GLASSER, to me well known to be the person described in and who executed the
foregoing instrument, and acknowledged to and before me that he executed said
instrument for the purposes therein expressed.
WITNESS my hand and official seal, this 23 day of January, 1998.
__________________________________
Notary Public, State of California
at Large
My Commission Expires:
DATED as to the PLEDGEE this 23rd day of January, 1998
__________________________ MEDLEY CREDIT ACCEPTANCE CORP.
Witness
BY: Robert Press
------------------------------
ROBERT D. PRESS, PRESIDENT
__________________________
Witness
- 10 -
<PAGE>
STATE OF FLORIDA )
) SS
COUNTY OF DADE )
BEFORE ME, the undersigned authority. personally appeared ROBERT D.
PRESS. President of MEDLEY CREDIT ACCEPTANCE CORP., to me well known and known
to me to be the person described in and who executed the foregoing instrument
and acknowledged to and before me that she executed said instrument for the
purposes therein expressed.
WITNESS my hand and official seal, this 23rd day of January, 1998.
----------------------------------
Notary Public, State of California
at Large
My Commission Expires: [seal]
- 11 -
<PAGE>
UNCONDITIONAL AND CONTINUING GUARANTY
For valuable consideration, the undersigned, DAVID C. GLASSER (the
"Guarantor"), unconditionally guarantees to MEDLEY CREDIT ACCEPTANCE CORP., a
Delaware corporation, its successors, endorsees and/or assigns, ("The Secured
Party"), the due performance, and full and prompt payment, whether at maturity,
by acceleration, or otherwise. of the obligations and indebtedness of CUTTING
EDGE ENTERTAINMENT, INC., a California Corporation, ("The Borrower"), to
Secured Party, as evidenced by that certain Promissory Note of even date
herewith, from The Borrower, in favor of Secured Party, in the amount of
$600,000.00.
The obligations hereunder are independent of the obligations of The
Borrower, and a separate action or actions may be brought and prosecuted
against Guarantor, whether or not action is brought against Borrower. This is a
guaranty of payment and performance, and not collection.
Guarantor authorizes Secured Party and the Borrower to Jointly,
without notice or demand and without affecting the liability hereunder, from
time to time, and on any number of occasions, to (a) renew. amend, compromise,
extend, reinstate, or otherwise change the time for payment of the indebtedness
or any part thereof; (b) take and hold security for the payment of this
Continuing Guaranty or the indebtedness, and exchange, enforce, waive and
release any such security; (c) apply such security and direct the order or
manner of sale thereof as Secured Party in its discretion may elect from time
to time; and (d) release or substitute any one or more of the endorsers.
Guarantor acknowledges and agrees that no act or omission of any kind by
Secured Party including, but not limited to, the failure to take or perfect a
security interest in any security for the indebtedness shall affect or impair
this Continuing Guaranty, and the Secured Party shall have no duties with
respect thereof to Guarantor. Secured Party may without notice assign this
Continuing Guaranty in whole or in part at any time.
Guarantor waives any right to require Secured Party to (a) proceed
against Borrower (b) proceed against or exhaust any security held from
Borrower; or (c) any other remedy whatsoever available to Secured Party
Guarantor waives any defense arising by reason of any disability or other
defense of Borrower or by reason of the cessation from any cause whatsoever of
Borrower's liability or by reason of Secured Party releasing any security held
from Borrower. Until all of Borrower's indebtedness to Secured Patty shall have
been paid in full. Guarantor shall have no right or subrogation, and Guarantor
waives any right to enforce any remedy that Secured Party now has or may
hereafter have against Borrower, and shall waive any benefit of, and any right
to participate in, any security now or hereafter held by Secured Party.
Guarantor waives all presentments, demands for performance, notices of
nonperformance, protests, notices of dishonor, and notices of acceptance of
this Continuing Guaranty and of the existence, creation, or incurrence of new
or additional indebtedness and all other defenses to any action or proceeding
to enforce this Continuing Guaranty, except the single defense that the sum
claimed has actually been paid to Secured Party. No delay on the part or
Secured Party tn the exercise of any right, power or privilege under the terms
of any documentation between Secured Party and borrower or under this
<PAGE>
Continuing Guaranty shall operate as a waiver of any such privilege, power or
right. However, this shall not operate to prevent the Guarantor from raising
any and all defenses that could be raised by the Borrower.
Guarantor agrees to pay all attorneys' fees and all other costs and
expenses that may be incurred or expended by Secured Party in the enforcement
of Borrower's obligations and of this Continuing Guaranty, whether suit be
brought or not, and if suit is brought, then for all services in trial and
appellate courts.
Upon default of Borrower in any of its obligations or liabilities to
Secured Party, or if Borrower or the Guarantor shall become insolvent or make
an assignment for the benefit of creditors, or if a petition in bankruptcy or
for corporate reorganization or for an arrangement be filed by or against
Borrower or the Guarantor, or if there is the appointment of a receiver for
Borrower or for the Guarantor or their property, or if a judgment is obtained
or warrant of attachment issued against Borrower or the Guarantor, all of the
indebtedness, shall, without notice or demand, at the option of Secured Party,
become immediately due and payable and shall be paid forthwith by Guarantor.
Guarantor hereby submits to the Jurisdiction of the state and federal
courts in the State of Florida for purposes of any action arising from or
growing out of this Continuing Guaranty, and further agrees that the venue of
any action may be laid in Dade County. Nothing contained in this Continuing
Guaranty, however, shall be deemed to constitute, or to imply the existence of
any agreement by Secured party to bring any action only in said courts or to
restrict in any way any cf the Secured Party's remedies or rights to enforce
the terms of this Continuing Guaranty as, when and where Secured Party shall
deemed appropriate, in its sole discretion.
Notwithstanding any provision herein or in any instrument now or
hereafter evidencing said indebtedness, the total liability for payments in the
nature of interest under this Continuing Guaranty shall not exceed the limits
imposed from time to time by applicable usury laws. This Continuing Guaranty
shall for all purposes, be governed by and construed in accordance with the
laws of the State of Florida.
Guarantor acknowledges that Secured Party has been induced by this
Continuing Guaranty to consummate the Loan transaction with Borrower creating
the indebtedness. and that Secured Party would not have extended said credit
without this Continuing Guaranty and this Continuing Guaranty shall. without
further reference or assignment. pass to. and may be relied upon and enforced
by. any successor or assignee of Secured Party.
- 2 -
<PAGE>
This Continuing Guaranty may be executed in any number of counterparts
each of which shall be deemed an original, but all of which together shall
constitute but one instrument
IN WITNESS WHEREOF, the Guarantor has executed this Continuing
Guaranty this ____ day of January, 1998.
Signed, sealed and delivered in the presence of:
_____________________ _________________________
DAVID C. GLASSER
_____________________
STATE OF CALIFORNIA
COUNTY OF
BEFORE ME, the undersigned authority, duly authorized to administer
oaths and take acknowledgments, personally appeared DAVID C GLASSER, and he
acknowledged that he executed the foregoing instrument for the purposes herein
described this _____ day of January 1998, upon producing a driver's license for
identification.
_________________________
NOTARY PUBLIC
My Commission Expires:
- 3 -
<PAGE>
MODIFICATION OF LOAN DOCUMENTS
This Modification of Loan Documents is made and entered into this 3rd
day of April, 1998 by and between CUTTING EDGE ENTERTAINMENT, INC., a
California corporation, hereinafter referred to as "Cutting Edge" and MEDLEY
CREDIT ACCEPTANCE CORP., a Delaware corporation, hereinafter referred to as
"Medley" and DAVID C. GLASSER, individually, hereinafter referred to as
"Glasser" [throughout this agreement Cutting Edge, Medley and Glasser may be
referred to collectively as "Parties" for convenience.].
W I T N E S S E T H :
WHEREAS, the Parties entered into a Loan Agreement on January 23, 1998
providing for Medley lending to Cutting Edge the sum of Six Hundred Thousand
Dollars ($600,000.00), which loan was personally guaranteed by Glasser, and
WHEREAS, in furtherance of said loan Cutting Edge executed a
Promissory Note dated January 23, 1998 in the sum of Six Hundred Thousand
Dollars ($600,000.00) in favor of Medley, which Promissory Note was secured by
various security instruments described in Section 2 of Article I of the Loan
Agreement between the parties, and
WHEREAS, Cutting Edge has entered into an agreement with Medley to
factor specific Multiple Rights Distributorship Agreements, the proceeds of
which had previously been encumbered by Medley, and
WHEREAS, in consideration of Medley's factoring Specific Multiple
Rights Distribution Agreements for Cutting Edge, Cutting Edge has agreed to
assign specific Multiple Rights Agreements to Medley in order to accelerate the
payment of the monies due Medley by Cutting Edge under the Promissory Note, and
WHEREAS, the Parties desire to memorialize their agreements into a
written instrument.
NOW, THEREFORE, in consideration of the sum of Ten Dollars ($10.00)
and other valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Parties agree as follows:
1. Recitals: The above and foregoing recitals are true and correct and
are incorporated herein.
2. Modification of Maturity Date: The Loan Agreement, Promissory Note
and all other loan documents executed by Cutting Edge in favor of Medley in
connection with the loan and loan documents executed on January 23, 1998 are
hereby amended to provide for the maturity of all sums outstanding and due
under the Promissory Note dated January 23, 1998 in the principal amount of Six
Hundred Thousand Dollars ($600,000.00) to September 23, 1998 and that the
option to extend for an additional sixty (60) days is hereby deleted.
<PAGE>
3. Specific Sources of Repayment: Simultaneously with the execution of
this modification, Cutting Edge shall execute in favor of Medley assignment of
contract proceeds due under all Distributorship Agreements described on Exhibit
"A" attached hereto. The assignment shall be evidenced by individual assignment
of contract proceeds under the Multiple Rights Distribution agreements
described therein. In addition, Cutting Edge shall deliver Notice of
Assignments to each Distributor whose contract and contract proceeds has been
assigned to Medley advising said Distributor that payments due under the
Agreement are to be made to Medley as directed.
4. Irrespective of the specific sources of repayment described in
paragraph 3 above, Cutting Edge shall be responsible for payment in full by the
modified maturity date of all sums due Medley including accrued interest under
the Promissory Note. In the event there are any outstanding contract proceeds
not paid following payment in full at the maturity date by Cutting Edge to
Medley, Medley shall immediately thereafter reassign all contracts and contract
proceeds remaining unpaid on Exhibit "A" to Cutting Edge.
5. Except to the extent specifically and expressly modified herein,
the terms and provisions of the Note, Loan Agreement and other loan documents
executed between the Parties or delivered in connection with the loan shall
remain unmodified and in full force and effect.
6. Cutting Edge and Glasser acknowledge that there are no defenses,
counterclaims, setoffs, claims or demands over or against Medley arising from
the Note, Loan Agreement or other loan documents or any transactions and
negotiations relating to such documents.
- 2 -
<PAGE>
IN WITNESS WHEREOF, the Parties have hereunto set their hands and
seals.
Dated as to Cutting Edge this 3rd day of April, 1998.
Witnesses:
_____________________________ CUTTING EDGE ENTERTAINMENT, INC.,
a California corporation
By: /s/ David Glasser Pres.
--------------------------
David Glass, President
Dated as to Glasser this 3rd day of April, 1998.
_______________________________
/s/ David Glasser
--------------------------------
_______________________________ David Glasser, Individually
Dated as to Medley this 3rd day of April, 1998.
MEDLEY CREDIT ACCEPTANCE CORP.
/s/ Malinda Green a Delaware corporation
- ----------------------------
/s/ Kathy Dampman
- ----------------------------
By: /s/ Robert Press
--------------------------
Robert Press, President
- 3 -
<PAGE>
STATE OF CALIFORNIA )
) ss.:
COUNTY OF LOS ANGELES )
I HEREBY CERTIFY that on this 3rd day of April, 1998, before me, an officer
duly authorized to take oaths and acknowledgments in the State and County
aforesaid, personally appeared David C. Glasser, as President of Cutting Edge
Entertainment, Inc., a California corporation, known to me to be the person
described in and who executed the foregoing, and who acknowledged before me
that he executed same for the purposes described therein and are personally
known to me or have produced _____________________________ as identification.
/s/ Jennifer Nussbaum
----------------------------------
NOTARY PUBLIC, STATE OF CALIFORNIA
At large
My Commission Expires:
[Stamp]
Jennifer Nussbaum
Comm. #1145432
[Seal] Notary Public - California
Los Angeles County
Comm. Exp. July 3, 2001
STATE OF CALIFORNIA )
) ss.:
COUNTY OF )
I HEREBY CERTIFY that on this 3rd day of April, 1998, before me, an officer
duly authorized to take oaths and acknowledgments in the State and County
aforesaid, personally appeared David C. Glasser, individually, known to me to
be the person described in and who executed the foregoing, and who acknowledged
before me that he executed same for the purposes described therein and are
personally known to me or have produced _______________________________________
__as identification.
---------------------------
NOTARY PUBLIC, STATE OF FLORIDA
At large
My Commission Expires:
- 4 -
<PAGE>
STATE OF FLORIDA )
) ss.:
COUNTY OF DADE )
I HEREBY CERTIFY that on this 3rd day of April, 1998, before me, an officer
duly authorized to take oaths and acknowledgments in the State and County
aforesaid, personally appeared Robert President, as President of Medley Credit
Acceptance Corp., a Delaware corporation, known to me to be the person
described in and who executed the foregoing, and who acknowledged before me
that he executed same for the purposes described therein and are personally
known to me or have produced ___________________________ as identification.
/s/ Malinda Green
---------------------------------
NOTARY PUBLIC, STATE OF FLORIDA
At large
My Commission Expires:
[Stamp]
Malinda Green
[Seal] Mr. Commission # CC 729396
EXPIRES: March 30, 2002
Bonded Thru Notary Public Underwriters
- 5 -
<PAGE>
AGREEMENT
This Agreement, entered into this 11th day of March 1998, is by and between
Medley Credit Acceptance Corp., ("Medley"), a Delaware Corporation, and Cutting
Edge Entertainment, Inc.
("Cutting Edge"), a California corporation.
Whereas Medley is a finance company and has the expertise in structured
financing, leasing and accounts receivable financing and;
Whereas Cutting Edge is desirous of using both Medley's expertise on a
consulting basis as well as entering into a financing arrangement with Medley.
THE PARTIES HEREBY AGREE AS FOLLOWS:
1 CONSULTING CONTRACT. Cutting Edge agrees to pay to Medley a fee of
$3,500.00 per month for ongoing financial consulting advice. For this
fee, Medley agrees to provide up to one and one half days per month of
its Chief Executive Officer, Robert Press' time, in order to
facilitate the financing needs of Cutting Edge. This contract shall be
non-cancelable and shall be for a term of one year. Cutting Edge
agrees to pay all out of pocket expenses of Medley including but not
limited to travel expenses.
2 1.2 MILLION DOLLAR DISTRIBUTION/RECEIVABLE PURCHASE PROGRAM
Medley agrees to purchase for twelve months up to $100,000 per month
in "approved distribution rights or accounts receivable or other
assets of Cutting Edge according to the following terms and
conditions.
PROGRAM TERM: 12 Months, however, Cutting Edge may terminate the
agreement after 120 days (4 months), upon 30 days
notice.
APPROVED ASSETS: Medley, in its sole discretion, will determine if
assets presented for purchase are acceptable and at
what advance rate.
ADVANCE RATE: Medley will "advance" 70% to 80% of approved
assets. Upon collection of the money owed under the
purchase, Medley will remit the difference between
collected amount and the advanced amount less any
fees due to Cutting Edge within 10 days.
FEES: 0-30 days. 3.00% of Asset Face Value
31-45 days. 2.25% of Asset Face Value
46 to 60 days 1.50% of Asset Face Value
<PAGE>
REPURCHASE OPTION: After 60 days, Medley shall have the right to sell
the Asset back to Cutting Edge at the Advance Amount
plus any applicable fees then due and owing. Payment
for this repurchase is due on the 61st day. Medley
may, at its option, accept an alternative asset in
exchange for one that is past the 60-day date.
MINIMUM FEE: Cutting Edge acknowledges that Medley is
setting aside capital in order to enter into this
purchase program. As such, it agrees to pay the
minimum fee per month for the program term in the
event Medley has not approved sufficient assets for
purchase.
The foregoing sets forth the terms and conditions of both the Consulting
Agreement as well as the Asset Purchase Program. This Agreement is subject to
the parties entering into formal agreements at their earliest possible
convenience but prior to the purchase of any assets or any further financial
consulting work by Medley.
AGREED AND ACCEPTED, this 11th day of March 1998.
CUTTING EDGE ENTERTAINMENT, INC. MEDLEY CREDIT ACCEPTANCE CORP.
by: /s/ David Glasser by: /s/ Robert D. Press
-------------------------- --------------------------
David Glasser Robert D. Press
President Chairman and C.E.O.
- 2 -
<PAGE>
SYNDICATION AGREEMENT
THIS SYNDICATION AGREEMENT is made and entered into by and between
MEDLEY CREDIT ACCEPTANCE CORP., a Delaware corporation (hereinafter referred to
as "Lender"), and BARRY GOLDSTEIN and RANDY WOOL (hereinafter referred to as
"Participants").
WHEREAS Lender is the owner and holder of a certain Promissory Note in
the principal amount of $600,000.00 (the "Note") executed by CUTTING EDGE
ENTERTAINMENT, INC., a California corporation ("Borrower"), and,
WHEREAS, the Note is secured by a pledge of a portion of the capital
stock of the Borrower by its majority shareholder, together with an assignment
of proceeds of movie distribution agreements and trailing royalties from two
films produced and to be produced by the Borrower. and,
WHEREAS, Lender desires to syndicate and participate a portion of the
Note with Participants and Participants desire to acquire a portion of the Note
from Lender upon the terms and conditions contained herein. and,
WHEREAS. Lender will collect the payments due under the Note from
Borrower and make payment to Participants of their proportionate share pursuant
to the terms of this Agreement, and,
WHEREAS, the Parties desire to document their syndication into a
written instrument.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained and for such other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Parties agree as
follows:
1. Recitals The above and foregoing recitals are true and correct
and are incorporated herein.
2. Representations of Lender:
(a) The Lender is the owner and holder of a Promissory Note
executed by Borrower in the principal amount of $600,000.00.
(b) The Promissory Note is free and clear of all defaults as
of the date hereof and the next payment due under said Note is February 1, 1998.
<PAGE>
3. Participants: The Participants of this loan and their interest in
the principal of the Note are as follows:
PARTICIPANT AMOUNT
BARRY GOLDSTEIN $ 175,000.00
RANDY WOOL $ 75,000.00
4. Monthly Payments to be Made to Participant: Commencing on March 1,
1998, and the first day of each succeeding month thereafter during the term
hereof, provided payment is made to Lender by Borrower, Lender shall pay to
Participant a payment of interest on the Participant's portion of the Note in
amount equal to thirteen percent (13%) of the Participant's participation as
follows:
PARTICIPANT AMOUNT
BARRY GOLDSTEIN $ 11,895.83
RANDY WOOL $ 812.50
5. Maturity Date of Note: The Note being syndicated pursuant to this
Agreement becomes due and payable in full on October 23, 1998. Upon receipt of
payment in full by Lender from Borrower, Lender shall pay to Participant the
original amount invested by Participant together with any accrued and unpaid
interest as of the date of Lender's receipt of payment.
6. Review of Documents: Participant has been given an opportunity to
review the loan documents between Lender and Borrower together with any other
documents of Borrower Participant deemed necessary. Participant is purchasing a
portion of the Note based upon Participant's review of the documentation and is
not relying upon any representation of Lender.
7. Miscellaneous Provisions:
(a) Construction: This Agreement shall be construed and
enforced under the laws of the State of Florida. In the event any provision of
this Agreement shall be declared invalid by a court of competent jurisdiction,
said invalidity shall not invalidate the Agreement as a whole, but said
Agreement shall be construed as if the invalidated provision was omitted from
the Agreement.
- 2 -
<PAGE>
(b) Entire Agreement: This Agreement supersedes and cancels
any and all other contracts referring to the subject matter herein. No
modifications, alteration or waiver of this Agreement shall be effective unless
in writing, executed by the parties hereto.
(c) Assignability: This Agreement shall inure to the benefit
of the Parties, their successors and assigns.
(d) Counterparts: This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
counterparts collectively shall constitute one instrument representing the
Agreement between the Parties hereto.
(e) Captions: Captions of the various sections contained in
this Agreement are intended to be used solely for convenience of the Parties
and are not intended, nor are they deemed to modify, or explain or to be used
as an aid in the construction of any of the provision of this Agreement.
IN WITNESS WHEREOF, the Parties have hereunto set their hands and
seals.
DATED as to the Lender, this 1st day of February, 1998.
MEDLEY CREDIT ACCEPTANCE CORP.,
a Delaware corporation
By:___________________________________
Robert D. Press, President
DATED as to the Participants, this 11th day of February, 1998.
By:___________________________________
Barry Goldstein
By:___________________________________
Randy Wool
- 3 -
<PAGE>
GUARANTY OF PAYMENT
FOR AND IN CONSIDERATION OF the sum of Ten Dollars and No/100 ($10.00)
and receipt of the Participants payment of their prorate portion of the Note,
Medley Credit Acceptance Corp. does hereby guaranty the repayment of
Participants portion of the Note at maturity.
DATED this 30th day of January, 1998.
MEDLEY CREDIT ACCEPTANCE CORP.
By_________________________________
Robert D. Press, President
- 4 -
<PAGE>
INCREASED AND RESTATED PROMISSORY NOTE
This Consolidated and Restated Promissory Note is made this 30th day
of January, 1998, by METRO DADE COMMUNITY MENTAL HEALTH CENTER, INC., a Florida
corporation ("Maker") to MEDLEY CREDIT ACCEPTANCE CORPORATION, a Delaware
corporation, its successors and assigns ("Holder").
W I T N E S S E T H:
WHEREAS, the Maker has made, executed and delivered to Med-Funding,
Inc. that certain Promissory Note dated October 21, 1997, ("Note"), in the sum
of $75,000.00, which Note has been assigned to MEDLEY CREDIT ACCEPTANCE
CORPORATION, INC. ("Holder"), and
WHEREAS, Holder is lending Maker the additional sum of $35,000.00, so
as to increase the Loan to Maker to the sum of $110,00.00, and
WHEREAS, Maker and Holder are desirous of Increasing and Restating The
First Note into a single Increased indebtedness of $110,000.00, to be paid with
interest at the rate and in the time and manner hereinafter set forth.
NOW, THEREFORE, in consideration of the sum of Ten Dollars ($10.00)
and other good and valuable considerations, and the covenants and promises
hereinafter set forth, the receipt and sufficiency of which is hereby
acknowledged, the Parties agree that the following constitutes the Increased
and Restate Promissory Note:
PROMISSORY NOTE
$110,000.00 MIAMI, FLORIDA
DATED: January 30, 1998
FOR VALUE RECEIVED the undersigned, METRO DADE COMMUNITY MENTAL HEALTH
CENTER, INC., a Florida corporation, (hereinafter referred to as "Maker")
promises to pay to the order of MEDLEY CREDIT ACCEPTANCE CORPORATION, INC., a
Delaware corporation, or its successors or assigns (hereinafter referred to as
the "Holder"), at 1100 Ponce de Leon Blvd., Coral Gables, Florida 33134, or
such place as the Holder hereof may from time to time designate in writing, the
principal sum of $110,000.00, with interest thereon from the date hereof paid
in lawful money of the United States of America, which shall be legal tender in
the payment of all debts and dues, public and private at the time of payment.
Interest:Commencing on the first (1st) day of February, 1998, and the
first (1st) day of each month thereafter until maturity, the Maker shall pay
the Holder, interest only on this Promissory Note ("NOTE") at the Rate of
eighteen (18%) percent per4 annum. Interest on this Note shall be computed on
the basis of a Three Hundred Sixty Five (365) day year for the actual number of
days outstanding. Payments shall be applied first to accrued and unpaid
interest, and the balance, if any, to principal.
<PAGE>
Maturity Date: This Note shall mature and the principal sum remaining
together with the accrued and unpaid interest thereon shall become due and
payable in full on the 1st day of October, 1998. ("MATURITY DATE").
This Note is secured by a Security Agreement dated October 21, 1997
together with Financing Statements (UCC-1's) duly recorded among the public
records of Dade County, Florida, and with the Secretary of State of the State
of Florida, which encumber the property described therein, (the "Property"),
and a Stock Pledge Agreement the terms and conditions of which are incorporated
herein.
Provided that the Holder has not exercised its right to accelerate
this Note as set forth herein; in the event any required payment is not
received by the Holder within five (5) days after said payment is due, the
Maker shall pay the Holder a late charge of five percent (5%) of the payment
not so received. The Parties agreeing that said charge is a fair and reasonable
charge for the late payment and shall not be considered a penalty.
Maker may make prepayment(s) hereunder at nay time and from time to
time without premium or penalty. The amount of any partial prepayment shall be
applied to principal to become due thereon.
It is agreed hereby that if any payment of the principal sum above
mentioned, or any installment thereof, or any interest thereon, not be made
within ten (10) days of when due, or if default be made in the performance of
or compliance with any of the other covenants and conditions of the Note, or
any security instrument now or hereafter in effect securing payment of this
Note and said default not be cured within ten (10) days after written notice;
or upon the insolvency or bankruptcy of the Maker or Guarantor hereof; or a
sale of any of the Property, outside of the ordinary course of business without
the Holder's written consent, then in any or all such events, the entire amount
of principal of this Note with all interest then accrued, shall, at the option
of the Holder of this Note and without notice (the Maker hereby expressly
waives notice of such default), become and be due and collectible, time being
of the essence of this Note.
If this Note shall not be paid at maturity or according to the tenor
thereof and strictly as above provided, it may be placed in the hands of any
attorney t law for collection, and in that event, each party liable for the
payment thereof, as Maker, Guarantor or otherwise, hereby agrees to pay the
Holder hereof in addition to the sums above stated, a reasonable sum as an
attorney's fee, which shall include attorney's fees at the trial level and on
appeal, together with all reasonable costs incurred. After maturity or default,
this Note shall bear interest at the highest rate permissible under the
applicable law.
As to this Note and any other instrument securing the indebtedness,
the Maker and any endorsers severally waive all applicable exemption rights,
whether under the State Constitution, Homestead Laws or otherwise, and also
severally waive valuation and appraisement, presentment, protest and demand,
demand, notice of protest, demand and dishonor and expressly agree that the
Maturity Date of this Note or any payment hereunder, may be extended from time
- 2 -
<PAGE>
to time, only with the express consent of the Holder, without in any way
affecting the liability of the Maker, or any endorsers.
In addition to other rights and remedies (including, without
limitation, other rights of setoff), the holder shall have a lien upon and
right of setoff against all monies, securities and other property of the maker
now or hereafter in the possession of or on deposit with the holder, whether
held in a general or special account or deposit, or for safekeeping or
otherwise, and every such lien and right of setoff may be exercised without
demand upon or notice to the maker. No lien or right of setoff shall be deemed
to have been waived by any act or conduct on the part of the Holder, or by any
neglect to exercise such right of setoff or to enforce such lien, or by any
delay in so doing, and every right of setoff and lien shall continue in full
force and effect until such right of setoff or lien is specifically waived or
released by an instrument in writing executed by the Holder.
Nothing herein contained, nor in any instrument or transaction related
thereto, shall be construed or so operate as to require the Maker, or any
person liable for the payment of the loan made pursuant to this Note, to pay
interest in an amount or at a rate greater than the highest rate permissible
under applicable law. Should any interest or other charges paid by the Maker,
or any parties liable for the payment of the loan made pursuant to this Note,
result in the computation or earning of interest in excess of the highest rate
permissible under applicable law, then any and all such excess shall be and the
same is hereby waived by the Holder hereof, and all such excess shall be
automatically credited against and in reduction of the principal balance, and
any portion of said excess which exceeds the principal balance shall be paid by
the Holder hereof to the Maker and any parties liable for the payment of the
loan made pursuant to this Note, it being the intent of the parties hereto that
under no circumstances shall the Maker, or any parties liable for the payment
of the loan hereunder, be required to pay interest in excess of the highest
rate permissible under applicable law.
Time shall be of the essence as to the Maker's obligations under this
Note.
If any provision or portion of this Note is declared or found by a
court of competent jurisdiction to be unenforceable or null and void, such
provision or portion of this Note shall be deemed stricken and severed from
this Note, and the remaining provisions and portions of this Note shall
continue in full force and effect.
This Note may not be amended, extended, renewed, or modified, and no
waiver of any provision of this Note shall be effective except by an instrument
in writing executed by the Holder. Any waiver of any provision of this Note
shall be effective except by an instrument in writing executed by the Holder.
Any waiver of any provision of this Note shall be effective only in the
specific instance and for the specific purpose for which given.
This Note is to be construed according to the applicable laws of the
State of Florida and the United States of America.
- 3 -
<PAGE>
THE MAKER AND THE HOLDER HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT EITHER HAVE TO A TRIAL BY JURY IN RESPECT TO ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
NOTE, AND ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH, OR
ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR
WRITTEN) OR ACTIONS OF EITHER PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT
FOR THE MAKER EXTENDING CREDIT TO THE HOLDER.
METRO DATE COMMUNITY MENTAL
HEALTH CENTER, INC., a Florida Corporation
BY: /s/ Fabian Diaz
-----------------------------------
FABIAN DIAZ, PRESIDENT
(CORPORATE SEAL)
THE FLORIDA DOCUMENTARY STAMP TAX HAS BEEN PAID
AND THE PROPER DOCUMENTARY STAMPS HAVE BEEN AFFIXED TO
THE FINANCING STATEMENTS SECURING THIS NOTE
- 4 -
<PAGE>
UNCONDITIONAL AND CONTINUING GUARANTY
For valuable consideration, the undersigned, FABIAN DIAZ ("The
Guarantor"), unconditionally guarantees to MEDLEY CREDIT ACCEPTANCE
CORPORATION, a Delaware corporation, its successors, endorsees and/or assigns,
("The Secured Party), the due performance, and full and prompt payment whether
at maturity, by acceleration, or otherwise, of the obligations and indebtedness
of METRO DADE COMMUNITY MENTAL HEALTH CENTER, INC., a Florida corporation,
("The Borrower"), to Secured Party, as evidenced by that certain Promissory
Note of even date herewith, from The Borrower, in favor of Secured Party, in
the amount of $110,000.00.
The obligations hereunder are independent of the obligations of The
Borrower, and a separate action or actions may be brought and prosecuted
against Guarantor, whether or not action is brought against Borrower. This is a
guaranty of payment and performance, and not collection.
Guarantor authorizes Secured Party and the Borrower to jointly,
without notice or demand, and without affecting the liability hereunder, from
time to time, and on any number of occasions, to (a) renew, amend, compromise,
extend, reinstate, or otherwise change the time for payment of the indebtedness
or any part thereof; (b) take and hold security for the payment of this
Continuing Guaranty or the indebtedness, and exchange, enforce, waive and
release any such security; (c) apply such security and direct the order or
manner of sale thereof as Secured Party in its discretion may elect from time
to time; and (d) release or substitute any one or more of the endorsers.
Guarantor acknowledges and agrees that no act or omission of any kind by
Secured Party, including but not limited to, the failure to take or perfect a
security interest in any security for the indebtedness shall affect or impair
this Continuing Guaranty, and the Secured Party shall have no duties with
respect thereof to Guarantor. Secured Party may without notice assign this
Continuing Guaranty in whole or in part at any time.
Guarantor waived any right to require Secured Party to (a) proceed
against Borrower: or (c) pursue any other remedy whatsoever available to
Secured Party. Guarantor waives any defense arising by reason of any disability
or other defense of Borrower or by reason of the cessation from any cause
whatsoever of Borrower's liability or by reason of Secured Party releasing any
security held from Borrower. Until all of Borrower's indebtedness to Secured
Party shall have been paid in full, Guarantor shall have no right or
subrogation, and Guarantor waives any right to enforce any remedy that Secured
Party now has or may hereafter have against Borrower, and shall waive any
benefit of, and any right to participate in, any security now or hereafter held
by Secured Party. Guarantor waives all presentments, demands for performance,
notices of nonperformance, protests, notices of dishonor, and notices of
acceptance of this Continuing Guaranty and of the existence, creation, or
incurrence of new or additional indebtedness and all other defenses to any
action or proceeding to enforce this Continuing Guaranty, except the single
defense that the sum claimed has actually been paid to Secured Party. No delay
on the part of Secured Party in the exercise of any right, power or privilege
under the terms of any documentation between Secured Party and Borrower or
under this Continuing
<PAGE>
Guaranty shall operate as a waiver of any such privilege, power or right.
However, this shall not operate to prevent the Guarantor from raising any and
all defenses that could be raised by the Borrower.
Guarantor agrees to pay all reasonable attorneys' fees and all other
costs and expenses that may be incurred or expended by Secured Party in the
enforcement of Borrower's obligations and of this Continuing Guaranty, whether
suit be brought or not, and if suit is brought, then for all services in trial
and appellate courts.
Upon default of Borrower in any of its obligations or liabilities to
Secured party, and said default is not cured within ten (10) day from the date
of default of a monetary obligation, and ten (10) days from written notice of
default if a non-monetary default, or if Borrower or the Guarantor shall become
insolvent or make an assignment for the benefit of creditors, or if a petition
in bankruptcy or for corporate reorganization or for an arrangement be filed by
or against Borrower or the Guarantor, or if there is the appointment of a
receiver for Borrower or for the Guarantor or their property, or if a judgment
is obtained or warrant of attachment issued against Borrower or the Guarantor,
all of the indebtedness, shall, without notice or demand, at the option of
Secured Party, become immediately due and payable and shall be paid forthwith
by Guarantor.
Guarantor hereby submits to the jurisdiction of the state and federal
courts in the State of Florida for purposes of any action arising from or
growing out of this Continuing Guaranty, and further agrees that the venue of
any action may be laid in Dade County. Nothing contained in this Continuing
Guaranty, however, shall be deemed to constitute, or to imply the existence of,
any agreement by Secured party to bring any action only in said courts or to
restrict in any way any of the Secured Party's remedies or rights to enforce
the terms of this Continuing Guaranty as, when and where Secured Party shall
deem appropriate, in its sole discretion.
Notwithstanding any provision herein or in any instrument now or
hereafter evidencing said indebtedness, the total liability for payments in the
nature of interest under this Continuing Guaranty shall not exceed the limits
imposed from time to time by applicable usury laws. This Continuing Guaranty
shall for all purposes, be governed by and construed in accordance with the
laws of the State of Florida.
Guarantor acknowledges that Secured Party has been induced by this
Continuing Guaranty to consummate the loan transaction with Borrower creating
the indebtedness, and that Secured Party would not have extended said credit
without this Continuing Guaranty, and this Continuing Guaranty shall, without
further reference or assignment, pass to, and may be relied upon the enforced
by, any successor or assignee of Secured Party.
This Continuing Guaranty may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one instrument.
- 2 -
<PAGE>
IN WITNESS WHEREOF, the Guarantor has executed this Continuing
Guaranty this 30th day of January, 1998.
Signed, sealed and delivered
in the presence of:
/s/ Fabian Diaz
- ------------------------ ------------------------
- ------------------------
STATE OF FLORIDA )
) ss
COUNTY OF DADE )
BEFORE ME, the undersigned authority, duly authorized to administer
oaths and take acknowledgments, personally appeared FABIAN DIAZ, and she
acknowledged that he executed the foregoing instrument for the purposes herein,
described this 309th day of January, 1998, upon producing a driver's license
for identification.
-------------------------------
Notary Public, State of Florida
My Commission Expires:
- 3 -
<PAGE>
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT made and entered into by and between
FABIAN DIAZ (hereinafter referred to as "PLEDGOR"), to MEDLEY CREDIT ACCEPTANCE
CORP. (hereinafter referred to as "PLEDGEE"). (Collectively throughout this
Agreement PLEDGOR and PLEDGEE may be referred to as "Parties" for convenience.
W I T N E S S E T H:
WHEREAS, the PLEDGOR has guaranteed the indebtedness of METRO DADE
COMMUNITY MENTAL HEALTH CENTER, INC. ("DEBTOR") to PLEDGEE in the amount of
$110,000.00, a copy of said Guarantee being attached as Exhibit "A", and
WHEREAS, said debt is evidenced by a Promissory Note, a copy of which
is attached hereto and made a part hereof as Exhibit"B", and
WHEREAS, the debt in part is to be secured by a Pledge and Assignment
of the PLEDGOR's stock in Debtor, (hereinafter referred to as "Corporation"),
which stock will constitute on the date hereof all of the authorized, issued
and outstanding shares in said corporation, and
WHEREAS, the PLEDGOR has a financial interest in the DEBTOR, and
WHEREAS, the Parties desire to document their understanding concerning
the pledging of the security described in this Agreement to a written
instrument.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein the Parties agree as follows:
1. Recitals: The above and foregoing recitals are true and correct and
are incorporated herein.
2. PLEDGOR's Grant of Security Interest in Pledged Stock:
A. For value received and to induce PLEDGEE to lend to
DEBTOR, the sum of ONE HUNDRED TEN THOUSAND DOLLARS ($110,000.00), the PLEDGOR
hereby pledges to the PLEDGEE a first priority security interest in all of the
authorized, issued and outstanding common stock of DEBTOR (hereinafter referred
to as "PLEDGED STOCK"), consisting of 100 shares of common stock having a par
value of $0.00 per share; together with all proceeds and dividends, if any,
produced thereby. Al1 Certificates evidencing such PLEDGED STOCK and stock
powers shall be executed by the PLEDGOR in blank and held by Maynard J.
Hellman, Esq., in escrow, until all of the obligations of the PLEDGOR to the
PLEDGEE have been paid or performed in full.
<PAGE>
3. Representations, Warranties and Covenants Regarding Pledge: The
PLEDGOR represents, warrants, covenants and agrees and so long as this
Agreement is in effect shall be deemed continuously to represent, warrant,
covenant and agree that:
A. The PLEDGOR is the owner or shall be at the time of
closing, the owner of the PLEDGED STOCK, free and clear of all liens, except
the lien created by this Agreement.
B. The PLEDGOR is authorized to enter into this Agreement and
has the full and lawful power and authority to pledge the PLEDGED STOCK as
provided for herein.
C. This Agreement and the pledge of the PLEDGED STOCK do not
violate or contravene any applicable federal or state law or regulation
applicable to the PLEDGOR or the corporation or any agreement or instrument
binding on the PLEDGOR, the PLEDGED STOCK or the corporation.
D. The execution and delivery and the performance of this
Agreement shall not be in contravention of any indenture, agreement or
undertaking to which the corporation or the PLEDGOR may be a party
E. As long as any amount remains unpaid on the obligation
secured by this pledge, the corporation will not enter into or execute any
security agreement or financing statement covering any of the assets of the
corporation without the specific prior written consent and approval of the
PLEDGEE.
F. The PLEDGOR agrees to procure, pay for, affix to any and
all documents and cancel any documentary tax stamps required by, and in
accordance with, applicable law and the PLEDGOR hereby indemnifies and holds
the PLEDGEE harmless against any liability in respect of such documentary stamp
taxes.
G. Except as specifically provided for herein, the assets of
the corporation as of the date of closing shall remain in the corporation's
possession and control. All assets consisting of real and or personal property
owned by the corporation shall be kept insured by the corporation and the
PLEDGEE shall be named on all of said insurance policies as a party insured
thereby in the event of loss. Copies of said policies shall be furnished to the
PLEDGEE prior to or at the closing.
H. Except as otherwise specifically provided for herein, the
corporation will not sell or offer to sell, lease, assign, convey, transfer or
otherwise encumber or dispose of any assets owned by the corporation or any
interest therein which would reduce or decrease the net worth of the
corporation.
4. Voting Rights: For so long as the PLEDGOR is not in default under
the terms and conditions of the Promissory Note secured by this instrument and
the other instruments of
- 2 -
<PAGE>
security, the PLEDGOR shall be entitled to vote the PLEDGED STOCK for the
purpose of conducting the business of the corporation. However, in no event
will the PLEDGED STOCK be voted in favor of or be counted for the purpose of a
quorum in a meeting held to consider, the merger, consolidation, sale of all or
substantially all of the assets of, the dissolution, liquidation,
reorganization, reclassification or recapitalization of the corporation or an
amendment to its Articles of Incorporation or By Laws without the written
consent of the PLEDGEE, which consent shall not be unreasonably withheld.
From and after the occurrence of a default, the PLEDGEE shall be
entitled but not have the obligation to vote the PLEDGED STOCK in respect of
such makers and for such purposes as the PLEDGEE shall deem appropriate in its
sole discretion and the PLEDGOR shall have not right to vote the PLEDGED STOCK
or take any action with respect thereto.
5. General Covenants: For so long as any of the obligations of the
PLEDGOR to the PLEDGEE remain outstanding, whether under a note or otherwise,
the corporation shall, unless the PLEDGEE shall otherwise consent in writing:
A. Pay and discharge all taxes, assessments and governmental
charges or levies imposed upon the corporation or upon any of its income or
profits, or upon any properties belonging to said corporation, prior to the
date on which penalties attached thereto, and all lawful claims which, if
unpaid, might become a lien or charge upon any properties of the PLEDGOR.
B. Maintain insurance with responsible and reputable
insurance companies in such amounts and covering such risks as is acceptable to
PLEDGEE.
C. Preserve and maintain the corporate existence, rights
franchises and privileges of the corporation in the State of Florida, and
qualify and remain qualified as a foreign corporation in each jurisdiction in
which such qualification is necessary or desirable in view of the business of
the corporation.
D. Comply with the requirements of all applicable laws,
rules, regulations and order of any governmental authority, noncompliance with
which could adversely affect the business or credit of the corporation.
E. Keep adequate records and books of account, in which
complete entries will be made in accordance with generally accepted accounting
principles consistently applied, reflecting all financial transactions of the
corporation.
F. Maintain and preserve all of the assets and property of
the corporation necessary or useful in the proper conduct of its business in
good working order and condition, ordinary wear and tear excepted, to the
extent that the failure to do so would adversely affect the financial condition
or results of operation of the corporation.
- 3 -
<PAGE>
G. The corporation will promptly comply with all present and
future laws, ordinances, rules and regulations of any governmental authority
affecting the business of the corporation of the assets owned by the
corporation.
6. Negative Covenants For so long as the obligations of the PLEDGOR to
the PLEDGEE shall remain outstanding, the corporation shall not, without the
prior written consent of the PLEDGEE:
A. Create, incur, assume or suffer to exist any lien,
mortgage, pledge, interest, or encumbrance of any nature upon or with respect
to any of the assets now owned or hereafter acquired by the corporation or
assign or otherwise convey any right to receive income, which would reduce or
decrease the net worth of the corporation.
B. The corporation will not merge or consolidate with, sell,
assign, lease or otherwise dispose of its assets without the express written
consent of the PLEDGEE
C. The corporation shall not declare or pay any dividends,
purchase, redeem, retire or otherwise acquire for value any of its capital
stock now or hereafter outstanding, return any capital to its stockholders, or
make any distribution of assets to its stockholders.
D. Issue any additional capital stock or any securities
convertible into or exchangeable for capital stock.
E. The corporation will not allow its Articles of
Incorporation to be amended in any respect.
F. Cease actively to transact business, or make, or permit
the making of, any . material change in the nature of the business now being
conducted by the corporation.
G. Enter into any agreement containing any provision which
would be violated or breached by the performance of its obligations hereunder
or under any instrument or document delivered or to be delivered hereunder.
7. Reporting Covenants: For so long as any of the obligations of the
PLEDGOR shall remain outstanding to the PLEDGEE, the PLEDGOR and the
corporation shall furnish the PLEDGEE the following:
A. As soon as available and in any event within thirty (30)
days after December 31st of each year: copies of all U.S. Income Tax Returns
filed by the corporation in each year subsequent to the execution of this
Pledge Agreement.
B. Such other information respecting the assets or the
condition or operations, financial or otherwise. of the corporation as the
PLEDGEE may from time to time request.
- 4 -
<PAGE>
8. Further Assurances: The PLEDGOR agrees to take such actions and to
execute such stock powers and such other or different writings as the PLEDGEE
may request, to further protect, confirm and assure the PLEDGEE's first
priority security interest in the PLEDGED STOCK and to assets the PLEDGEE's
realization thereon.
9. Default: The PLEDGOR shall be in default of this Agreement upon the
occurrence of any one or more of the following events:
A. The failure or refusal of the Corporation or the PLEDGOR
to pay the principal or interest due on the Promissory Note secured by this
Agreement or any part thereof, within ten (10) days of when the same becomes
due in accordance with the term hereof or the Promissory Note.
B. The failure or refusal of the PLEDGOR or the corporation
under any of the loan documents to punctually and properly perform, observe,
and comply with any covenant, agreement or condition contained in any of the
loan documents (other than the covenant to pay the principal and interest on
the Promissory Note) and such failure or refusal continues for a period of
fifteen (15) days after the PLEDGOR has received notice thereof from the
PLEDGEE.
C. The discovery by the PLEDGEE that any statement,
representation, or warranty in any of the loan documents is false, misleading,
or erroneous in any material respect.
D. The failure of the PLEDGEE to have granted hereunder a
first and prior lien and security interest against the PLEDGED STOCK, subject
to no other liens or security interests.
E. The failure of the PLEDGOR or corporation to make any
payment due on any indebtedness it may owe PLEDGEE and any default in any one
indebtedness will create a default under the terms of this Agreement.
F. The failure of the PLEDGOR or the corporation to satisfy
any final judgment or order entered against them either individually or
jointly.
G. In the event either the PLEDGOR or the corporation shall
become insolvent within the meaning of the Bankruptcy Act, as amended, make an
assignment for the benefit of creditors or make a proposal to its creditors
under any debtor relief law, admit in writing its inability to pay or otherwise
fail to pay its debts generally as they become due, voluntarily seek, consent
to, or acquiesce in the benefit or benefits of any debtor relief law, become a
debtor party to any proceeding provided for by any debt relief law that could
suspend or otherwise affect any of the rights of the PLEDGEE granted herein any
other loan document,
- 5 -
<PAGE>
consent to the appointment of a receiver, trustee, liquidator, conservator, or
similar person for all or any substantial part of their assets.
H. The PLEDGOR or the corporation shall involuntarily have an
order, judgment or decree entered against it pursuant to any debtor relief law
that could suspend or otherwise affect any of the rights granted to the PLEDGEE
herein or in any other loan document, and such order, judgment or decree is not
permanently stayed or reversed within sixty (60) days after the entry thereof;
I. The PLEDGOR or the corporation shall have a petition filed
against it seeking the benefit or benefits provided for by any debtor relief
law that could suspend or otherwise affect any of the rights granted to the
PLEDGEE herein or in any other loan document, and such petition is not
discharged within thirty (30) days after the filing thereof,
J. Any default under the Promissory Note given to MEDLEY
CREDIT ACCEPTANCE CORP.
K. The Corporation shall cease or stop production of the
movie.
10. Rights and Remedies of PLEDGEE Upon Default: In the event a
default has occurred by the PLEDGOR, and said default shall continue for more
than seven (7) days, the PLEDGEE shall have the following rights and remedies:
A. The PLEDGEE's rights and remedies with respect to the
PLEDGED STOCK shall be those of a secured party under the Uniform Commercial
Code as in effect in the State of Florida and under any other applicable law,
as the same may from time to time be in effect, in addition to those rights
granted herein and in any other agreement now or hereafter in effect between
the PLEDGOR and the PLEDGEE.
B. Without in any way requiring notice to be given in the
following time and manner, the PLEDGOR agrees that any notice by PLEDGEE of
sale, disposition or other intended auction hereunder in connection therewith,
whether required by the Uniform Commercial Code as in effect in the State of
Florida or otherwise, shall constitute reasonable notice to the PLEDGOR if such
notice is mailed by regular or certified mail, postage prepaid, at least five
(5) calendar days prior to such action, to the PLEDGOR's address referred to in
this Agreement or to any other address which the PLEDGOR has specified in
writing to the PLEDGEE as the address to which notice hereunder shall be given
to the PLEDGOR.
C. Upon notice by the PLEDGEE to the PLEDGOR, the PLEDGEE.
its assigns or their nominees shall have the sole and exclusive right to
exercise all voting and consensual powers pertaining to the PLEDGED STOCK or
any part thereof and may exercise such powers in such manner as they may elect.
- 6 -
<PAGE>
D. To institute legal proceedings with respect to the
collection of the debt and to employ agents and attorneys at the sole expense
of the PLEDGOR.
E. To cause the collateral to be transferee to the Secured
Parties name, provided nothing set forth herein shall serve to relieve the
PLEDGEE from liability.
11. Application of Proceeds: In the Event the PLEDGEE sells or
otherwise disposes of the PLEDGED STOCK in the course of exercising the
remedies provided for in this Agreement in the event of default, any amounts
held, realized or received by PLEDGEE pursuant to the provisions hereof,
including the proceeds of sale of any of the PLEDGED STOCK or any part thereof,
shall be applied by the PLEDGEE first towards the payment of any cost and
expenses incurred by the PLEDGEE in enforcing this Agreement or the Promissory
Note, in realizing on or protecting any PLEDGED STOCK and in enforcing or
collecting any obligation or any guarantee thereof, including, without
limitation, attorneys' fees and expenses incurred by the PLEDGEE (all of which
costs and expenses are secured by the PLEDGED STOCK), all of which cost and
expenses the PLEDGOR agrees to pay and then the interest and principal on the
Note in the method and manner called for by said Note. Any amounts and any
PLEDGED STOCK remaining after such application and after payment to PLEDGEE of
all of the obligations in full shall be paid or delivered to the PLEDGOR or a
court of competent jurisdiction as the PLEDGEE may elect.
12. Notices: Any communication, notice of demand to be given hereunder
shall be duly given if in writing and delivered, mailed certified mail or
telefaxed as follows:
(1 ) To the PLEDGOR: Fabian Diaz
1490 W. 49th Place, Suite 315
Hialeah, FL 33012
(2) To the PLEDGEE: Medley Credit Acceptance Corp.
1100 Ponce de Leon Boulevard
Coral Gables, Florida 33134
13. Miscellaneous Provisions: This Agreement, together with the
Exhibits hereto, all of which are incorporated herein and made a part hereof by
this reference, and the Certificates and other instruments delivered by the
respective Parties pursuant thereto constitutes the entire agreement between
the Parties hereto with respect to the subject matter hereof and supersedes all
prior agreements understandings and discussions, both written and oral, between
the Parties hereto. This Agreement may not be amended or modified in any way
except by a written instrument executed by all of the Parties.
A. Benefits: Binding Effect: This Agreement shall be for the
benefit of and shall be binding upon the Parties hereto and their respective
successors. The PLEDGEE shall be entitled to assign its respective rights to
any holder or holders of the Note.
- 7 -
<PAGE>
B. Survival: The representations, warranties, and agreements
made in this Agreement shall be deemed to apply as of the date of the execution
of this Agreement and shall be construed as continuing warranties,
representations and agreements. The representations and warranties made by the
PLEDGOR and the corporation are made with the knowledge and expectation that
notwithstanding any investigation conducted by or on behalf of the PLEDGEE, the
PLEDGEE is placing complete reliance thereon and that such representations and
warranties are to be treated as material to the PLEDGEE.
C. Waiver and Remedies: The waiver by the PLEDGEE of any
obligers' prompt and complete performance, or breach or violation, of any
provision of this Agreement shall not operate nor be construed as a waiver of
any subsequent breach or violation, and the waiver by the PLEDGEE to exercise
any right or remedy which the PLEDGEE may possess hereunder shall not operate
nor be construed as a bar to the exercise of such rights or remedies by the
PLEDGEE upon the occurrence of any subsequent breach or violation. Except as
set forth herein, no right or remedy conferred upon or reserved to the PLEDGEE
by this Agreement shall exclude any other right or remedy, or each right or
remedy shall be cumulative and shall be in addition to every other right or
remedy hereunder or available at law or in equity.
D. Severability: The invalidity of any one or more of the
words, phrases, sentences, clauses, sections, or subsections contained in this
Agreement shall not affect the enforceability of the remaining portions of this
Agreement or any part hereof, all of which are inserted conditionally on their
being valid in law, and in the event that any one or more the words, phrases,
sentences, clauses, sections or subsections contained in this Agreement, shall
be declared invalid by a court of competent jurisdiction, this Agreement shall
be construed as if such invalid word or words, phrase or phrases, sentence or
sentences, clause or clauses. section or sections, or subsection or subsections
have not been inserted.
E. Expenses: The PLEDGOR agrees to pay on demand all out of
pocket expenses, including but without limitation, the reasonable fees and
expenses of the PLEDGEE's counsel, in any way relating to the enforcement or
protection of the rights of the PLEDGEE hereunder and further agrees that the
PLEDGED STOCK secures such payment.
F. Governing Law: This Agreement shall be governed by and
construed in accordance with, the laws of the State of Florida. Venue
concerning any dispute or litigation which may be filed pursuant to the terms
of this Agreement shall be in Dade County, Florida.
G. Counterparts: This Agreement shall be governed by and
construed in accordance with, the laws of the State of Florida Venue concerning
any dispute or litigation which may be filed pursuant to the terms of this
Agreement shall be in Dade County, Florida
- 8 -
<PAGE>
H. Headings: The headings of the articles and sections of
this Agreement are inserted for convenience only and shall not constitute a
part hereof nor be used in interpreting the meaning contained herein.
I. Release: Upon payment in full of the Note, the PLEDGEE
shall forthwith release this Pledge Agreement and reassign all rights
thereunder and t\he original stock certificate together with the original
assignment.
J. Attorneys' Fees: In the event of any litigation arising
out of the terms of the Agreement, the prevailing party shall be entitled to
reimbursement of reasonable attorneys' fees and costs at the trial and
appellate level.
IN WITNESS WHEREOF, the Parties have hereunto set their hands and
seals.
DATED as to the PLEDGOR this 30th day of January, 1998.
- --------------------- -----------------------------------
Witness Fabian Diaz
- ---------------------
Witness
STATE OF FLORIDA )
:) SS
COUNTY OF DADE )
BEFORE ME, the undersigned authority, personally appeared FABIAN DIAZ,
to me well known to be the person described in and who executed the foregoing
instrument, and acknowledged to and before me that he executed said instrument
for the purposes therein expressed.
WITNESS my hand and official seal, this 30th day of January, 1998.
-----------------------------------
Notary Public, State of California at Large
My Commission Expires:
- 9 -
<PAGE>
ASSIGNMENT OF SECURITY AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
THAT MED-FUNDING, INC., a Florida corporation ("Assignor"), the-owner
and holder of that certain Security Agreement executed by METRO DADE COMMUNITY
MENTAL HEALTH CENTER, INC., a Florida corporation ("Debtor,'), bearing the date
the 21st day of October, 1997, in favor of MED-FUNDING, INC. and encumbering
the property described therein, in consideration of the sum of Seventy-three
Thousand Five Hundred Dollars ($73,500.00) to it in hand paid by MEDLEY CREDIT
ACCEPTANCE CORP., a Delaware corporation ("Assignee"), the receipt whereof is
hereby acknowledged, has sold, assigned, transferred and set over and by these
presents does sell, assign, transfer and set over unto the Assignee the above
described Security Agreement together with the Note or obligation described
therein.
TO HAVE AND TO HOLD the same unto the Assignee, its successors and
assigns forever.
The Assignor does hereby covenant and agree with the Assignee that it
is the owner of the Security Agreement described above free and clear of any of
any nature and agrees to defend same against all persons whomsoever.
IN WITNESS WHEREOF, the Assignor has hereunto set its hand and seal
this 27th day of January 1998.
Signed, sealed and delivered MED-FUNDING, INC., a Florida corporation in the
presence of:
_________________________ By:__________________________________
Witness Warren Freistat, President
_________________________
Witness
(Corporate Seal)
<PAGE>
STATE OF FLORIDA
COUNTY OF DADE
The foregoing instrument was acknowledged before me this 27th day of
January, 1998, by Warren Freistat as President of MED-FUNDING, INC. a Florida
corporation, on behalf of the corporation, who is personally known to me or has
produced ________________________ as identification.
------------------------------
Notary Public, State of Florida
M Commission Expires:
Commission Number:
- 2 -
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (the "Security Agreement"), dated as of
October 21, 1997, is from METRO DADE COMMUNITY MENTAL HEALTH CENTER, INC., a
Florida corporation (the "Debtor"), whose mailing address is 1490 West 49th
Place, Suite 315, Hialeah, Florida 33012, to MED-FUNDING, INC., a Florida
corporation (the "Secured Party"), whose address is 16211 NE 18th Avenue, North
Miami Beach, Florida 33162.
In consideration of loans or advances made or to be made by the
Secured Party to the Debtor, and for other value received by the Debtor, and in
further consideration of other financial accommodations extended by the Secured
Party to the Debtor or to other persons and guaranteed by the Debtor, the
Debtor hereby grants a continuing security interest in, and assigns to the
Secured Party, the Collateral to secure payment and performance of all of the
Obligations of the Borrower and the Debtor to the Secured Party.
Section 1. Definitions: Definitions in the Code apply to words and
phrases in this Security Agreement and, if Code definitions conflict,
definitions in Article 9 (chapter 679, Florida Statutes of the Code shall
apply. In addition to terms defined in the Code or elsewhere in this Security
Agreement, the following terms have the meanings indicated below, which
meanings shall be equally applicable to both the singular and the plural forms
of such terms:
"Code" means the Uniform Commercial Code as in effect from time to
time in the State o(pound) Florida (Chapters 671 through 680, inclusive,
Florida Statutes).
"Collateral" means and includes any and all of the following owned by
the Debtor or in which the Debtor has an interest, whether now owned or
existing or hereafter created or acquired and wherever located:
(a) Accounts;
(b) Chattel Paper;
(c) Documents;
(d) General Intangibles
(e) Instruments and Securities;
(f) All cash or non-cash proceeds of any of the
foregoing, including insurance proceeds and all
products thereof;
(g) all ledger sheets, files, records, documents and
instruments (including, but not limited to, computer
programs, tapes and related electronic data
processing software) evidencing an interest in or
relating to the above; and
(h) any and all property of the Debtor now or hereafter
delivered to or left in or coming into the
possession, control or custody of the Secured Party,
whether expressly as collateral security or for any
other purpose (including cash, stock and other
securities, and all rights to subscribe for
- 3 -
<PAGE>
securities incident to, declared, or granted in
connection with such property), and property
described in collateral receipts or other documents
signed or furnished by the Debtor, and any and all
replacements of any of the foregoing, whether or not
in the possession of the Secured Party, and all
deposit accounts of the Debtor (or in which the
Debtor may have an interest as a joint tenant)
maintained with the Secured Party or with any
affiliate of the Secured Party.
(i) Any and all stock in the company name of Debtor,
represented by Stock Certificates which shall be
held in the possession of the Secured Party.
"Credit Agreement" shall mean that certain Credit Agreement, dated as
of October 21, 1997, between the Debtor and Secured Party, together with any
and all renewals, modifications, amendments and replacements thereof.
"Obligations" shall include:
(a) the promissory note or notes of the Debtor in the
aggregate principal amount of SEVENTY FIVE THOUSAND AND No/100 DOLLARS
($75,000.00) issued from time to time under the Credit Agreement, and any and
all renewals, modifications, amendments and replacements thereof, together with
any and all other indebtedness, obligations and liabilities of the debtor to
the Secured Party now or hereafter existing, incurred or created under the
Credit Agreement;
(b) all other liabilities (primary, secondary, direct,
contingent, sole, joint or several), due or which may be hereafter contracted
or acquired, or the Debtor to the Secured Party, whether such liabilities arise
in the ordinary course of business or not (including, without limitation,
liabilities for overdrafts and as guarantor, indorser and surety);
(c) all costs incurred by the Secured Party to obtain,
preserve and enforce this Security Agreement and the security interest created
hereunder, collect the obligations and to maintain and preserve the Collateral,
including, without limitation, taxes, assessments, insurance premiums, repairs,
reasonable attorneys' fees and legal expenses, rend storage costs and expenses
of sale; and
(d) interest on the above amounts, as agreed between the
Debtor and the Secured Party, or if no such agreement exists as to any such
amounts, at the Default Rate (as defined in the Credit Agreement).
"Receivables" shall mean all Accounts, Chattel Paper, Instruments,
Documents, General Intangibles (including, without limitation, tax refunds and
insurance proceeds) and any and all other obligations and indebtedness owed to
the Debtor from whatever source arising and whether now existing or hereafter
arising.
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<PAGE>
"Receivables" shall also include any and all guarantees of Receivables
and security therefor and any and all proceeds thereof.
Section 2. List of Collateral. Contemporaneous with the execution
hereof the Debtor has furnished to the Secured Party a listing of all of the
Collateral presently owned by it; provided, however, the Secured Party shall
have a security interest in any and all Collateral whether or not such
Collateral is described generally or specifically on such list. The Debtor
warrants and agrees that it is the owner of the Collateral free and clear of
all liens and security interests except the security interest granted by this
Security Agreement or as set forth on Exhibit B hereto (herein called
"Permitted Encumbrances")
Section 3. No Other Security Interests. So long as any Obligation to
the Secured Party is outstanding, the Debtor will not without the prior written
consent of the Secured Party grant to any third party a security interest in
any of the Collateral or permit any lien or encumbrance to attach to any part
of the Collateral (except for taxes not yet due and payable) or suffer or
permit any levy to be made on any part of the Collateral, or permit any
financing statement except that of Secured Party to be on file with respect
thereto except with respect to Permitted Encumbrances. The Debtor will not
sell, transfer, lease or otherwise dispose of any of the Collateral or any
interest therein, or offer to do so or permit anything to be done to impair the
value of the Collateral or the security interest.
Section 4. Representations, Warranties and Covenants Regarding the
Collateral. The Debtor represents, warrants and covenants that:
4.1. The Collateral (other than Collateral which is delivered
to the Secured Party in order to Perfect the security interest contemplated
herein) shall be kept at the address specified above or specified on Schedule I
attached hereto. If any of the Collateral is located on property which is not
owned by the Debtor, the debtor will, on demand of the Secured Party,
reasonably make a good faith effort to obtain landlord~s waivers of liens in
forms satisfactory to the Secured Party as to each such location. The Debtor
will not permit any of the Collateral to be moved without the prior written
consent of the Secured Party.
4 2. It any of the Equipment is attached to real property,
the legal description for said real property is attached hereto as Exhibit A
and the Debtor will, on demand of the Secured Party, reasonably make a good
faith effort to furnish the Secured Party with a disclaimer or disclaimers,
signed by all persons having an interest in said real estate at the time of
such attachment, of any interest in the Equipment. The Debtor is the record
owner of the real property where the Equipment is kept or, if the Debtor is not
the record owner, the name or names of the record owner or owners is shown on
Exhibit A hereto.
4.3. To the extent that the Collateral is of a nature which,
in the ordinary course of business of a person or entity similarly situated as
the Debtor, is insured or insurable, the Debtor will at all times keep such
Collateral insured against loss, damage, theft, and such other
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<PAGE>
risks as the Secured Party may require in such amounts (in any event, not less
than the full insurable value thereof), with such insurance companies, under
such policies, in such form and for such periods as shall be satisfactory to
the Secured Party, and each such policy shall provide that loss thereunder and
proceeds payable thereunder shall be payable to the Secured Party under
standard mortgagee endorsement, if available, or, if not available, as an
additional loss payee (and the Secured Party may apply any proceeds of such
insurance which may be received by the Secured Party toward payment of the
Obligations whether due or not due, in such order of application as the Secured
Party may determine). Each such policy shall provide for ten (10) days written
minimum cancellation notice to the Secured Party. Each such policy shall, if
the Secured Party so requests, be deposited with the Secured Party, and the
Secured Party may act as attorney for the Debtor in obtaining, adjusting,
settling, and canceling such insurance and indorsing any drafts. Such policies
shall provide that no act or default of the Debtor shall affect the right of
the Secured Party to recover.
4.4. The Debtor will at all times keep the Collateral in good
order and repair and will not waste or destroy the Collateral or any part
thereof.
4.5. The Debtor warrants that no financing statement covering
any Collateral or any proceeds thereof is on file in any public office, other
than financing statements naming the Secured Party and financing statements
filed with respect to Permitted Encumbrances. The Debtor will promptly, if
requested by the Secured Party, mark its records evidencing its accounts and
chattel paper in a manner satisfactory to the Secured Party so as to show the
same having been assigned to the Secured Party. The Debtor authorizes the
Secured Party to file financing statements with respect to the Collateral
signed only by the Secured Party. The Debtor will join with The Secured Party
in executing financial statements. notices, affidavits or similar instruments
in forms satisfactory to the Secured Party and such other documents as The
Secured Party may from time to time request, and will pay the cost of filing
the same in any public office deemed advisable by the Secured Party. The Debtor
will do such other acts and things, all as the Secured Party may request to
maintain a valid, first perfected security interest in the Collateral (free of
all other liens and claims whatsoever other than Permitted Encumbrances) to
secure the payment of the obligations secured hereby. The Secured Party is
hereby appointed the Debtor's attorney-in-fact to do all acts and things which
the Secured Party may deem necessary to perfect and to continue the perfection
of the security interest created hereby and to protect the Collateral. Without
limiting the foregoing, the Debtor hereby authorizes the Secured Party
following the occurrence of an Event of Default, at its option and without any
obligation to do so, to transfer or register in the name of the Secured Party
or its nominee or nominees all or any part of the securities that constitute a
portion of the Collateral, and to do so with or without notice to the Debtor.
4.6. The Debtor will not use the Collateral or permit the
same to be used in violation of any statute or ordinance. The Secured Party may
examine and inspect the Collateral at any time, wherever located. The Debtor
will pay promptly when due all taxes and
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<PAGE>
assessments upon the Collateral or for its use or operation or upon this
Security Agreement or other writing evidencing the Obligations, or any of them.
4.7. The Debtor keeps the bulk of its Inventory a address
specified at the beginning of this Security Agreement and/or at the address or
addresses specified on Schedule I hereto. The chief executive office where
Debtor keeps its records concerning its Receivables and General Intangibles is
at the address specified at the beginning of this Security Agreement unless a
different address is specified on Schedule I hereto. The Debtor shall give the
Secured Party written notice of each additional location at which Inventory
will be kept and of any change in the chief executive office of the Debtor at
which records of the Debtor pertaining to Receivables and General Intangibles
are kept at least thirty (30) days prior to the location of Inventory at such
address or the change of the chief executive office.
Section 5. Special Covenants Regarding. Receivables. Until the Secured
Party requests that account debtors on Receivables of the Debtor be notified of
the Secured Party's security interest, the Debtor shall continue to collect
them, subject to the direction and control of the Secured Party at all times.
upon the event of an uncured default, any proceeds of Receivables collected by
the Debtor shall not be commingled with other funds of the Debtor and shall'
upon the request of the Secured Party, be immediately delivered to the Secured
Party in the form received except for necessary endorsements to permit
collection. The Debtor shall, at the request of the Secured Party, (a) furnish
to the Secured Party a copy of the invoice applicable to each Account being
assigned to the Secured Party or arising out of a contract, bearing a statement
that such Account has been assigned to the Secured Party and such additional
statements as the Secured Party may require, and (b) notify the account debtors
of The security interest of the Secured Party in any Receivable and that
payment thereof is to be made directly to the Secured Party, and the Secured
Party may itself at any time, without notice to or demand upon the Debtor, so
notify account debtors. The making of any such a request or the giving of any
such notification shall not affect the duties of the Debtor described above
with respect to proceeds of collection of Receivables received by the Debtor.
Unless the Secured Party notifies the Debtor that it dispenses with
any one or more of the following requirements, the Debtor shall (a) mark its
records evidencing its Receivables in a manner satisfactory to the Secured
Party so as to show the same having been assigned to the Secured Party, (b)
make no change in any assigned Accounts or in any Account arising out of a
contract assigned to the Secured Party and make no material change in the terms
of any such contract, (c) furnish to the Secured Party all information received
by the Debtor affecting the financial standing of any "Purchaser" whose Account
has been assigned to the Secured Party, {d) pay the Secured Party the amount
advanced against any Account assigned to the Secured Party where the goods are
returned by the Purchaser, or where the contract is cancelled or terminated,
and (e) immediately notify the Secured Party if any of the Debtor's contracts
arise out of contracts with the United States or any department, agency or
instrumentality thereof, and execute any instruments and take any steps
required by the Secured Party in order that all monies due and to become due
under any such contract shall be assigned to the Secured Party
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<PAGE>
and notice thereof given to the Government under the Federal Assignment of
Claims Act The Debtor will at any time upon the Secured Party's request deliver
to the Secured Party the original documents in the Debtor's possession for any
chattel paper, documents or instruments, held or owned by the Debtor. For the
Purposes hereof, "Purchaser" includes the buyer of goods from the Debtor, the
customer for which services have been rendered or materials furnished by the
Debtor, or any party with whom the Debtor has contracted.
Section 6. Defaults and Remedies. If any one of the following ..Events
of Default.. shall occur and shall not have been remedied:
(a) The occurrence of any "Event of Default" under the Credit
Agreement; or
(b) Any default by the Debtor with respect to the payment of
any of the Obligations; or
(c) Any representation or warranty made by the debtor herein
or in any certificate or report furnished by the Debtor hereunder shall prove
to have been incorrect in any material respect; or
(d) The Debtor shall default in the performance of any
agreement, covenant or obligation contained herein, then the Secured Party, may
in addition to any other rights and remedies which it may have, immediately and
without demand exercise any and all of the rights and remedies granted to a
secured party upon default under the Code; and upon request or demand of the
Secured Party, the Debtor shall at its expense assemble all or any part of the
Collateral and make it available to the Secured Party at a convenient place
designated by the Secured Party. The Secured Party and its agents are
authorized to enter into or onto any premises where the Collateral may be
located for the purpose of taking possession of such Collateral. Any notice of
sale, disposition or other intended action by the secured Party, sent to the
Debtor at the address specified at the beginning of this Security Agreement or
at such other address of the Debtor as may from time to time be shown on the
Secured Party's records, at least ten (10 days prior to such action, shall
constitute reasonable notice to the Debtor. Any proceeds of any disposition of
any of the Collateral may be applied by the Secured Party toward payment of
such o f the Obligations and in such order of application as the Secured Party
may from time to time elect.
Section 7. Miscellaneous
.
7.1. No waiver by the Secured Party of any default shall
operate as a waiver of any other default or of the same default on a future
occasion. No delay or omission on the part of the Secured Party in exercising
any right or remedy shall operate as a waiver thereof, and no single or partial
exercise by the Secured Party of any right or remedy shall preclude any other
or further exercise thereof or the exercise of any other right or remedy. Time
is of
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<PAGE>
the essence of this Security Agreement. The provisions of this Security
Agreement are cumulative and in addition to the provisions of any liability of
the Debtor under any note, any guaranty or any other writing, and the Secured
Party shall have all the benefits, rights and remedies of a secured party under
this Security Agreement and any other document.
7.2. All rights of the Secured Party hereunder shall inure to
the benefit of its successors and assigns, and all Obligations of the Debtor
shall bind the successors and assigns of the Debtor.
7.3. This Security Agreement has been delivered in the State
of Florida and shall be construed in accordance with the laws of Florida.
7.4. The Debtor shall pay on demand all expenses and
expenditures of the Secured Party, including reasonable attorneys' fees and
legal expenses, incurred or paid by the Secured Party in protecting, enforcing
or exercising its security interest, rights or remedies created by, connected
with or provided in this Security Agreement or performance pursuant to this
Security Agreement.
7.5. At its option, the Secured Party may discharge taxes,
liens or security interests or other encumbrances at any time levied or placed
on the Collateral, may pay for insurance on the Collateral, and may pay for the
maintenance and preservation of the Collateral. The Debtor agrees to reimburse
the Secured Party on demand for any payment made, or any expense incurred, by
the Secured Party, pursuant to the foregoing authorization. Except as otherwise
expressly provided in this Security Agreement, until default, the Debtor may
have possession of the Collateral and use it in any lawful manner not
inconsistent with this Security Agreement and not inconsistent with any policy
of insurance thereon.
7.6. The Secured Party shall have no duty of care with
respect to the Collateral except that is shall exercise reasonable care with
respect to the Collateral in its custody The Secured Party shall be deemed to
have exercised reasonable care if such property is accorded treatment
substantially equal to that which the Secured Party accords its own property,
or if the Secured Party takes such action with respect to the Collateral shall
request in writing, but no failure to comply with any such request nor any
omission to do any such act requested by the Debtor shall be deemed a failure
to exercise reasonable care, nor shall the Secured Party's failure to take
steps to preserve rights against any parties or property be deemed a failure to
have exercised reasonable care with respect to Collateral in the Secured
Party's custody.
7.7. If any of the provisions of this Security Agreement
shall contravene or be held invalid under the laws of any jurisdiction, the
Security Agreement shall be construed as if not containing such provision and
the remainder of this Security Agreement shall be construed and enforced
accordingly.
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<PAGE>
7.8. The Secured Party's rights under the Credit Agreement
and the Loan Documents (as defined in the Credit Agreement) are cumulative.
Without limiting the generality of the foregoing, the Secured Party may enforce
its rights hereunder in all or part of the Collateral or in any other security
in the order selected by Secured Party.
7.9 In the event the Borrower (i) files with any bankruptcy
court of competent jurisdiction or is the subject of any petition under Title
Eleven of the U.S. Code, as amended, (ii) is the subject of any order for
relief issued under such Title Eleven of the U.S. Code, as amended, (ii) files
or is the subject of any petition seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution, or similar relief under
and present or future federal or state act or law relating to debtors, (iv)
have sought or acquiesces in the appointment of any trustee, receiver,
conservator or liquidator, (v) is the subject of any order, judgment, or decree
entered by any court of competent jurisdiction approving a petition filed
against such party for any reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or similar relief under any present or
future federal or state act or law relating to bankruptcy, insolvency, or
relief for debtors, the Secured Party will thereupon be entitled to relief from
any automatic stay imposed by Section 362 of Title Eleven of the U.S. Code, as
amended or otherwise, on or against the exercise of the rights and remedies
otherwise available to the Secured Party as provided in the Credit Agreement
and the other Loan n at law, in equity or otherwise.
7.10. THE DEBTOR HEREBY, AND THE SECURED PARTY BY ITS
ACCEPTANCE OF THIS SECURITY AGREEMENT, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY TN RESPECT OF ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS SECURITY
AGREEMENT AND ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH
OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER YER8AL OR
WRITTEN) OR ACTIONS OF EITHER PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT
FOR THE SECURED PARTY ACCEPTING THIS SECURITY AGREEMENT.
IN WITNESS WHEREOF, this Security Agreement has been executed as of
the date first written above.
DEBTOR:
METRO DADE COMMUNITY MENTAL
HEALTH CENTER, INC., a Florida corporation
_______________________ BY:___________________________________
Fabian Diaz, President
________________________ Corporate Seal
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<PAGE>
[FINOVA LOGO]
LOAN AND SECURITY AGREEMENT
AMERICAN FACTORS GROUP, INC.
BORROWER
1800 CORPORATE BOULEVARD
SUITE 101
BOCA RATON, FL 33431
ADDRESS
65-0821333
BORROWER FED ID TAX NO.
$2,000,000.00 DURING THE FIRST SIX MONTHS FROM THE DATE HEREOF INCREASING BY
$500,000 EVERY MONTH THEREAFTER UP TO A MAXIMUM AMOUNT OF $4,000,000
CREDIT LIMIT
MAY __ , 1998
DATE
FINOVA BUSINESS CREDIT
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<PAGE>
THIS LOAN AND SECURITY AGREEMENT (collectively with the Schedule to Loan
Agreement (the "SCHEDULE") attached hereto, the "AGREEMENT") dated the date set
forth on the cover page, is entered into by and between the borrower named on
the cover page (jointly and severally, the "Borrower"), whose address is set
forth on the cover page and FINOVA CAPITAL CORPORATION ("FINOVA"), whose
address is 111 West 40th Street, 14th Floor, New York, NY 10018.
1. DEFINITIONS.
1.1 Defined Terms. As used in this Agreement, the following terms have
the definitions set forth below:
"ADA" has the meaning set forth in Section 4.1(aa) hereof.
"Additional Sums" has the meaning set forth in Section 2.8(a) hereof.
"Affiliate" means any Person controlling, controlled by or under
common control with Borrower. For purposes of this definition, "control" means
the possession, directly or indirectly, of the power to direct or cause
direction of the management and policies of any Person, whether through
ownership of common or preferred stock or other equity interests, by contract
or otherwise. Without limiting the generality of the foregoing, each of the
following shall be an Affiliate: any officer, director, employee or other agent
of Borrower, any shareholder, member or subsidiary of Borrower, and any other
Person with whom or which Borrower has common shareholders, officers or
directors.
"Agreement" has the meaning set forth in the preamble.
"Applicable Law" has the meaning set forth in Section 8.2(a) hereof.
"Applicable Usury Law" has the meaning set forth in Section 2.8(b)
hereof.
"Blocked Account" has the meaning set forth in Section 2.10(c) hereof.
"Business Day" means any day on which commercial banks in both New
York, New York and Phoenix, Arizona are open for business.
"Capital Expenditures" means all expenditures made and liabilities
incurred for the acquisition of any fixed asset or improvement, replacement,
substitution or addition thereto which has a useful life of more than one year
and including, without limitation, those arising in connection with Capital
Leases.
"Capital Lease" means any lease of property by Borrower that, in
accordance with GAAP, should be capitalized for financial reporting purposes
and reflected as a liability on the balance sheet of Borrower.
"Closing Fee" has the meaning set forth in the Schedule.
"Closing Date" means the date of the initial advance made by FINOVA
pursuant to this Agreement.
"Code" means the Uniform Commercial Code as adopted and in effect in
the State of Arizona from time to time.
"Collateral" has the meaning set forth in Section 3.1 hereof.
"Collateral Monitoring Fee" has the meaning set forth in the Schedule.
"Deposit Accounts" has the meaning set forth in Section 9105 of the
Code.
"Dominion Account" has the meaning set forth in Section 2.9(c) hereof.
"Eligible Receivables" means Receivables sold to Borrower by, and
purchased by Borrower from , its Factored Clients under the factoring
agreements between Borrower and its clients, arising in the ordinary course of
Borrower's business from the sale of goods or rendition of services by the
Factored Clients, which are covered by credit insurance with an insurer
acceptable to FINOVA and which FINOVA, in its Permitted Discretion, shall deem
eligible based on such considerations as FINOVA may from time to time deem
appropriate. Without limiting the foregoing, a Receivable shall not be deemed
to be an Eligible Receivable if (i) the account debtor has failed to pay the
Receivable within the latter of a period of ninety (90) days after the invoice
date or sixty (60) days from the date the Borrower purchases the Receivable
from a Factored Client who gave rise to the Receivable but such purchase may
not take place more than thirty (30) days after the invoice date, to the extent
of any amount remaining unpaid after such period; (ii) the account debtor has
failed to pay more than 25% of all outstanding Receivables owed by it to
Borrower within the latter of sixty (60) days from the invoice date or sixty
(60) days after the date the Borrower purchases the invoice from a Factored
Client who gave rise to the Receivable but such purchase may not take place
more than thirty (30) days after the invoice date; (iii) the account debtor is
an Affiliate of the Borrower or the Factored Client who gave rise to the
Receivable; (iv) the goods relating thereto are placed on consignment,
guaranteed sale, "bill and hold," "COD" or other terms
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<PAGE>
pursuant to which payment by the account debtor may be conditional; (v) the
account debtor is not located in the United States, unless the Receivable is
supported by a letter of credit or other form of guaranty or security, in each
case in form and substance satisfactory to FINOVA; (vi) the account debtor is
the United States or any department, agency or instrumentality thereof; (vii)
Borrower or the Factored Client who gave rise to the Receivable is or may
become liable to the account debtor for goods sold or services rendered by the
account debtor to Borrower; (viii) the account debtor's total obligations to
Borrower exceed 10% of all Eligible Receivables or the Eligible Receivables
from any one Factored Client exceed 10% of all Eligible Receivable, the
Receivable shall be ineligible to the extent of such excess; (ix) the account
debtor disputes liability or makes any claim with respect thereto (up to the
amount of such liability or claim), or is subject to any insolvency or
bankruptcy proceeding, or becomes insolvent, fails or goes out of a material
portion of its business; (x) the amount thereof consists of late charges or
finance charges; (xi) the amount thereof consists of a credit balance more than
sixty (60) days past due; (xii) the face amount thereof exceeds $30,000.00,
unless accompanied by evidence of shipment of the goods or completion of
services relating thereto satisfactory to FINOVA in its Permitted Discretion;
(xiii) the invoice constitutes a progress billing on a project not yet
completed, except that the final billing at such time as the matter has been
completed and delivered to the customer may be deemed an Eligible Receivable;
or (xiv) the amount thereof is not yet represented by an invoice or bill issued
in the name of the applicable account debtor; (xv) The Borrower has failed to
submit to Lender copies of the factoring agreement under which the Receivable
was purchased (which Factoring Agreement must be substantially in the form of
exhibit "A" attached hereto), filed UCC financing statements, UCC searches and
other documentation in form and substance satisfactory to Lender, with respect
to the Factored Client whose sale of goods or rendition of services gave rise
to the Receivable.
"Environmental Costs" has the meaning set forth in Section 8.2(b)
hereof.
"Equipment" means all of Borrower's present and hereafter acquired
machinery, molds, machine tools, motors, furniture, equipment, furnishings,
fixtures, trade fixtures, motor vehicles, tools, parts, dyes, jigs, goods and
other tangible personal property (other than Inventory) of every kind and
description used in Borrower's operations or owned by Borrower and any interest
in any of the foregoing, and all attachments, accessories, accessions,
replacements, substitutions, additions or improvements to any of the foregoing,
wherever located.
"ERISA" means the Employment Retirement Income Security Act of 1974,
as amended, and the regulations thereunder.
"ERISA Affiliate" means each trade or business (whether or not
incorporated and whether or not foreign) which is or may hereafter become a
member of a group of which Borrower is a member and which is treated as a
single employer under ERISA Section 4001(b)(1), or IRC Section 414.
"Event of Default" means any of the events set forth in Section 7.1 of
this Agreement.
"Examination Fee" has the meaning set forth in the Schedule.
"Facility Fee" has the meaning set forth in the Schedule.
"Factored Client" means a client of Borrower with whom Borrower has an
operational and enforceable factoring agreement and related documentation,
including without limitation, UCC financing statements recorded (in the
appropriate governmental offices), conveying clear title to such Client's
accounts receivables purchased by Borrower and covering a first, prior and
perfected Security interest in such client's accounts receivable and related
collateral all in form and substance acceptable to FINOVA.
"FINOVA Affiliate" has the meaning set forth in Section 9.22 hereof.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect from time to time as set forth in the opinions
and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Boards which are applicable to the
circumstances as of the date of determination consistently applied, except
that, for the financial covenants set forth in this Agreement, GAAP shall be
determined on the basis of such principles in effect on the date hereof and
consistent with those used in the preparation of the audited financial
statements delivered to Lender prior to the date hereof.
"General Intangibles" means all general intangibles of Borrower,
whether now owned or hereafter created or acquired by Borrower, including,
without limitation, all choses in action, causes of action, corporate or other
business records, Deposit Accounts, inventions, designs, drawings, blueprints,
Trademarks, Licenses and Patents, names, trade secrets, goodwill, copyrights,
registrations, licenses, franchises, customer lists, security and other
deposits, rights in all litigation presently or hereafter pending for any cause
or claim (whether in contract, tort or
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<PAGE>
otherwise), and all judgments now or hereafter arising therefrom, all claims of
Borrower against FINOVA, rights to purchase or sell real or personal property,
rights as a licensor or licensee of any kind, royalties, telephone numbers,
proprietary information, purchase orders, and all insurance policies and claims
(including without limitation credit, liability, property and other insurance)
tax refunds and claims, computer programs, discs, tapes and tape files, claims
under guaranties, security interests or other security held by or granted to
Borrower to secure payment of any of the Receivables by an account debtor, all
rights to indemnification and all other intangible property of every kind and
nature (other than Receivables).
"Guarantor(s)" has the meaning set forth in the Schedule.
"Hazardous Substance" has the meaning set forth in Section 8.2(a)
hereof.
"Indebtedness" means all of Borrower's present and future obligations,
liabilities, debts, claims and indebtedness, contingent, fixed or otherwise,
however evidenced, created, incurred, acquired, owing or arising, whether under
written or oral agreement, operation of law or otherwise, and includes, without
limiting the foregoing (i) the Obligations, (ii) obligations and liabilities of
any Person secured by a lien, claim, encumbrance or security interest upon
property owned by Borrower, even though Borrower has not assumed or become
liable therefor, (iii) obligations and liabilities created or arising under any
lease (including Capital Leases) or conditional sales contract or other title
retention agreement with respect to property used or acquired by Borrower, even
though the rights and remedies of the lessor, seller or lender are limited to
repossession, (iv) all unfunded pension fund obligations and liabilities and
(v) deferred taxes.
"Initial Payment Amount" means the percentage of the net amount of a
Receivable which is paid by the Borrower to a Factored Client as the initial
payment of the purchase price of such Receivable, which percentage shall under
no circumstances be greater than the percentage set forth in the factoring
agreement between Borrower and any such Factored Client as the "initial
payment", "advance" or other like or equivalent terminology which may be used
in Borrower's factoring agreements with its Factored Clients.
"Initial Term" has the meaning set forth on the Schedule.
"Inventory" means all of Borrower's now owned and hereafter acquired
goods, merchandise or other personal property, wherever located, to be
furnished under any contract of service or held for sale or lease, all raw
materials, work in process, finished goods and materials and supplies of any
kind, nature or description which are or might be used or consumed in
Borrower's business or used in connection with the manufacture, packing,
shipping, advertising, selling or finishing of such goods, merchandise or other
personal property, and all documents of title or other documents representing
them.
"Inventory Loans" has the meaning set forth in the Schedule.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"Loans" has the meaning set forth in Section 2.2 hereof.
"Loan Documents" means, collectively, this Agreement, any note or
notes executed by Borrower and payable to FINOVA, and any other present or
future agreement entered into in connection with this Agreement, together with
all alterations, amendments, changes, extensions, modifications, refinancings,
refundings, renewals, replacements, restatements, or supplements, of or to any
of the foregoing.
"Loan Party" means Borrower, each Guarantor, each Subordinating
Creditor and each other party (other than FINOVA) to any Loan Document.
"Loan Reserves" means, as of any date of determination, such amounts
as FINOVA may from time to time establish and revise in good faith reducing the
amount of Revolving Credit Loans which would otherwise be available to Borrower
under the lending formula(s) provided in the Schedule: (a) to reflect events,
conditions, contingencies or risks which, as determined by FINOVA in good
faith, do or may affect either (i) the Collateral or any other property which
is security for the Obligations or its value, (ii) the assets, business or
prospects of Borrower or any Guarantor or (iii) the security interests and
other rights of FINOVA in the Collateral (including the enforceability,
perfection and priority thereof) or (b) to reflect FINOVA's good faith belief
that any collateral report or financial information furnished by or on behalf
of Borrower or any Guarantor to FINOVA is or may have been incomplete,
inaccurate or misleading in any material respect or (c) in respect of any state
of facts which FINOVA determines in good faith constitutes an Event of Default
or may, with notice or passage of time or both, constitute an Event of
Default."
"Loan Year" means each twelve month period commencing on the Closing
Date.
"Maximum Interest Rate" has the meaning set forth in Section 2.8(b)
hereof.
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"Minimum Interest Charge" has the meaning set forth in the Schedule.
"Multiemployer Plan" means a "multiemployer plan" as defined in ERISA
Sections 3(37) or 4001(a)(3) or IRC Section 414(f) which covers employees of
Borrower or any ERISA Affiliate.
"Net Worth" at any date means the Borrower's net worth as determined
in accordance with GAAP.
"Obligations" means all present and future loans, advances, debts,
liabilities, obligations, covenants, duties and indebtedness at any time owing
by Borrower to FINOVA, whether evidenced by this Agreement, any note or other
instrument or document, whether arising from an extension of credit, opening of
a letter of credit, banker's acceptance, loan, guaranty, indemnification or
otherwise, whether direct or indirect (including, without limitation, those
acquired by assignment and any participation by FINOVA in Borrower's debts
owing to others), absolute or contingent, due or to become due, including,
without limitation, all interest, charges, expenses, fees, attorney's fees,
expert witness fees, Examination Fee, letter of credit fees, Collateral
Monitoring Fee, Closing Fee, Facility Fee, Termination Fee, Minimum Interest
Charge and any other sums chargeable to Borrower hereunder or under any other
agreement with FINOVA.
"Operating Cash Flow/Actual" means, for any period, Borrower's net
income or loss (excluding the effect of any extraordinary gains or losses),
determined in accordance with GAAP, plus or minus each of the following items,
to the extent deducted from or added to the revenues of Borrower in the
calculation of net income or loss: (i) depreciation; (ii) amortization and
other non-cash charges; (iii) interest expense paid or accrued; (iv) total
federal and state income tax expense determined as the accrued liability of
Borrower in respect of such period, regardless of what portion of such expense
has actually been paid by Borrower during such period; and (v) Management Fees
paid, to the extent permitted hereunder, and after deduction for each of (a)
federal and state income taxes, to the extent actually paid during such period;
(b) any non-cash income; and (c) all actual Capital Expenditures made during
such period and not financed.
"Overadvance" has the meaning set forth in Section 2.3.
"Overline" has the meaning set forth in Section 2.3.
"PBGC" means the Pension Benefit Guarantee Corporation.
"Permitted Discretion" means FINOVA's judgment exercised in good faith
based upon its consideration of any factor which FINOVA believes in good faith:
(i) will or could adversely affect the value of any Collateral, the
enforceability or priority of FINOVA's liens thereon or the amount which FINOVA
would be likely to receive (after giving consideration to delays in payment and
costs of enforcement) in the liquidation of such Collateral; (ii) suggests that
any collateral report or financial information delivered to FINOVA by any
Person on behalf of the Borrower is incomplete, inaccurate or misleading in any
material respect; (iii) materially increases the likelihood of a bankruptcy,
reorganization or other insolvency proceeding involving the Borrower, any Loan
Party or any of the Collateral, or (iv) creates or reasonably could be expected
to create an Event of Default. In exercising such judgment, FINOVA may consider
such factors already included in or tested by the definition of Eligible
Receivables or Eligible Inventory, as well as any of the following: (i) the
financial and business climate of the Borrower's industry and general
macroeconomic conditions, (ii) changes in collection history and dilution with
respect to the Receivables, (iii) changes in demand for, and pricing of,
Inventory, (iv) changes in any concentration of risk with respect to
Receivables and/or Inventory, and (v) any other factors that change the credit
risk of lending to the Borrower on the security of the Receivables and
Inventory. The burden of establishing lack of good faith hereunder shall be on
the Borrower.
"Permitted Encumbrance" means each of the liens, mortgages and other
security interests set forth on the Schedule.
"Person" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation, limited
liability company, government, or any agency or political division thereof, or
any other entity.
"Plan" means any plan described in ERISA Section 3(2) maintained for
employees of Borrower or any ERISA Affiliate, other than a Multiemployer Plan.
"Prepared Financials" means the balance sheets of Borrower as of the
date set forth in the Schedule in the section entitled 'Reporting Requirements'
, and as of each subsequent date on which audited balance sheets are delivered
to FINOVA from time to time hereunder, and the related statements of
operations, changes in stockholder's equity and changes in cash flow for the
periods ended on such dates.
"Prime Rate" has the meaning set forth in the Schedule.
"Prohibited Transaction" means any transaction described in Section
406 of ERISA which is not exempt by reason of Section 408 of ERISA, and any
transaction described in Section 4975(c) of the
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IRC which is not exempt by reason of Section 4975(c)(2) of the IRC.
"Property" has the meaning set forth in Section 8.2(a) hereof.
"Receivable Loans" has the meaning set forth on the Schedule.
"Receivables" means all of Borrower's now owned and hereafter acquired
accounts (whether or not earned by performance, sold and assigned to Borrower
from Factored Clients, or otherwise), proceeds of any letters of credit naming
Borrower as beneficiary, contract rights, chattel paper, instruments, documents
and all other forms of obligations at any time owing to Borrower, all
guaranties and other security therefor, whether secured or unsecured, all
merchandise returned to or repossessed by Borrower, and all rights of stoppage
in transit and all other rights or remedies of an unpaid vendor, lienor secured
party.
"Renewal Term" has the meaning set forth on the Schedule.
"Reportable Event" means a reportable event described in Section 4043
of ERISA or the regulations thereunder, a withdrawal from a Plan described in
Section 4063 of ERISA, or a cessation of operations described in Section
4068(f) of ERISA.
"Revolving Credit Loans" has the meaning set forth in the Schedule.
"Revolving Credit Limit" has the meaning set forth in the Schedule.
"Revolving Interest Rate" has the meaning set forth in the Schedule.
"Schedule" has the meaning set forth in the preamble.
"Senior Contractual Debt Service" means, for any period, the sum of
payments made or required to be made by Borrower during such period for
interest only payments due on the Revolving Credit Loans facility plus the
Collateral Monitoring Fee and the Facility Fee.
"Start Date" has the meaning set forth in the Schedule.
"Subordinated Debt" means liabilities of Borrower the repayment of
which is subordinated, to the payment and performance of the Obligations,
pursuant to a subordination agreement acceptable to FINOVA in its sole
discretion.
"Subordinating Creditor" has the meaning set forth in the Schedule.
"Termination Fee" has the meaning set forth in Section 9.2(d) hereof.
"Total Contractual Debt Service" means, for any period, the sum of
payments made (or, as to clause (i) of this sentence, required to be made) by
Borrower during such period for (i) Senior Contractual Debt Service, (ii)
pursuant to the Seller Note and/or Noncompete Agreement, and (iii) interest and
scheduled principal payments due on any and all other Indebtedness of Borrower,
including without limitation the Subordinated Indebtedness.
"Total Facility" has the meaning set forth in Section 2.1 hereof.
"Trademarks, Copyrights, Licenses and Patents" means all of Borrower's
right, title and interest in and to, whether now owned or hereafter acquired:
(i) trademarks, trademark registrations, trade names, trade name registrations,
and trademark or trade name applications, including without limitation such as
are listed on the Schedule attached hereto and made a part hereof, as the same
may be amended from time to time, and (a) renewals thereof, (b) all income,
royalties, damages and payments now and hereafter due and/or payable with
respect thereto, including without limitation, damages and payments for past or
future infringements thereof, (c) the right to sue for past, present and future
infringements thereof, (d) all rights corresponding thereto throughout the
world, and (e) the goodwill of the business operated by Borrower connected with
and symbolized by any trademarks or trade names; (ii) copyrights, copyright
registrations and copyright applications, including without limitation such as
are listed on the Schedule attached hereto and made a part hereof, as the same
may be amended from time to time, and (a) renewals thereof, (b) all income,
royalties, damages and payments now and hereafter due and/or payable with
respect thereto, including without limitation, damages and payments for past or
future infringements thereof, (c) the right to sue for past, present and future
infringements thereof, and (d) all rights corresponding thereto throughout the
world; (iii) license agreements, including without limitation such as are
listed on the Schedule attached hereto and made a part hereof, and the right to
prepare for sale, sell and advertise for sale any Inventory now or hereafter
owned by Borrower and now or hereafter covered by such licenses; and (iv)
patents and patent applications, registered or pending, including without
limitation such as are listed on the Schedule attached hereto, together with
all income, royalties, shop rights, damages and payments thereto, the right to
sue for infringements thereof, and all rights thereto throughout the world and
all reissues, divisions, continuations, renewals, extensions and
continuations-in-part thereof.
1.2 Other Terms. All accounting terms used in this Agreement, unless
otherwise indicated, shall have the meanings given to such terms in accordance
with GAAP. All other terms contained in this Agreement, unless otherwise
indicated, shall have
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the meanings provided by the Code, to the extent such terms are defined therein.
2. LOANS; INTEREST RATE AND OTHER CHARGES.
2.1 Total Facility. Upon the terms and conditions set forth herein and
provided that no Event of Default or event which, with the giving of notice or
the passage of time, or both, would constitute an Event of Default, shall have
occurred and be continuing, FINOVA shall, upon Borrower's request, make
advances to Borrower from time to time in an aggregate outstanding principal
amount not to exceed the Total Facility amount (the "TOTAL FACILITY") set forth
on the Schedule hereto, subject to deduction of reserves for accrued interest
and such other reserves as FINOVA deems proper from time to time, and less
amounts FINOVA may be obligated to pay in the future on behalf of Borrower. The
Schedule is an integral part of this Agreement and all references to "herein",
"herewith" and words of similar import shall for all purposes be deemed to
include the Schedule.
2.2 Loans. Advances under the Total Facility ("LOANS" and
individually, a "LOAN") shall be comprised of the amounts shown on the
Schedule.
2.3 Overlines; Overadvances. If at any time or for any reason the
outstanding amount of advances (including all Letters of Credit) extended or
issued pursuant hereto exceeds any of the dollar limitations ("OVERLINE") or
percentage limitations ("OVERADVANCE") in the Schedule, then Borrower shall,
upon FINOVA's demand, immediately pay to FINOVA, in cash, the full amount of
such Overline or Overadvance which, at FINOVA's option, may be applied to
reduce the outstanding principal balance of the Loans and/or cash collateralize
all or any part of any outstanding Letters of Credit. Without limiting
Borrower's obligation to repay to FINOVA on demand the amount of any Overline
or Overadvance, Borrower agrees to pay FINOVA interest on the outstanding
principal amount of any Overline or Overadvance, on demand, at the rate set
forth on the Schedule and applicable to the Revolving Credit Loans.
2.4 Loan Account. All advances made hereunder (including without
limitation all advances made by FINOVA under or in connection with any Letter
of Credit) shall be added to and deemed part of the Obligations when made.
FINOVA may from time to time charge all Obligations of Borrower to Borrower's
loan account with FINOVA.
2.5 Interest; Fees. Borrower shall pay FINOVA interest on the daily
outstanding balance of the Obligations at the per annum rate set forth on the
Schedule. Borrower shall also pay FINOVA the fees set forth on the Schedule.
2.6 Default Interest Rate. Upon the occurrence and during the
continuation of an Event of Default, Borrower shall pay FINOVA interest on the
daily outstanding balance of the Obligations at a rate per annum which is two
percent (2%) in excess of the rate which would otherwise be applicable thereto
pursuant to the Schedule.
2.7 Examination Fee. Borrower agrees to pay to FINOVA the Examination
Fee in the amount set forth on the Schedule in connection with each audit or
examination of Borrower performed by FINOVA prior to or after the date hereof.
Without limiting the generality of the foregoing, Borrower shall pay to FINOVA
an initial Examination Fee in an amount equal to the amount set forth on the
Schedule. Such initial Examination Fee shall be deemed fully earned at the time
of payment and due and payable upon the closing of this transaction, and shall
be deducted from any good faith deposit paid by Borrower to FINOVA prior to the
date of this Agreement.
2.8 Excess Interest.
(a) The contracted for rate of interest of the loan contemplated
hereby, without limitation, shall consist of the following: (i) the interest
rate set forth on the Schedule, calculated and applied to the principal balance
of the Obligations in accordance with the provisions of this Agreement; (ii)
interest after an Event of Default, calculated and applied to the amount of the
Obligations in accordance with the provisions hereof; and (iii) all Additional
Sums (as herein defined), if any. Borrower agrees to pay an effective
contracted for rate of interest which is the sum of the above-referenced
elements. The Examination Fee, attorneys fees, expert witness fees, letter of
credit fees, collateral monitoring fees, closing fees, facility fees,
Termination Fees, Minimum Interest Charges, other charges, goods, things in
action or any other sums or things of value paid or payable by Borrower
(collectively, the "ADDITIONAL SUMS"), whether pursuant to this Agreement or
any other documents or instruments in any way pertaining to this lending
transaction, or otherwise with respect to this lending transaction, that under
any applicable law may be deemed to be interest with respect to this lending
transaction, for the purpose of any applicable law that may limit the maximum
amount of interest to be charged with respect to this lending transaction,
shall be payable by Borrower as, and shall be deemed to be, additional interest
and for such purposes only, the agreed upon and "contracted for rate of
interest" of this lending transaction shall be deemed to be increased by the
rate of interest resulting from the inclusion of the Additional Sums.
(b) It is the intent of the parties to comply with the usury laws of
the State of Arizona (the "APPLICABLE USURY LAW"). Accordingly, it is agreed
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that notwithstanding any provisions to the contrary in this Agreement, or in
any of the documents securing payment hereof or otherwise relating hereto, in
no event shall this Agreement or such documents require the payment or permit
the collection of interest in excess of the maximum contract rate permitted by
the Applicable Usury Law (the "MAXIMUM INTEREST RATE"). In the event (a) any
such excess of interest otherwise would be contracted for, charged or received
from Borrower or otherwise in connection with the loan evidenced hereby, or (b)
the maturity of the Obligations is accelerated in whole or in part, or (c) all
or part of the Obligations shall be prepaid, so that under any of such
circumstances the amount of interest contracted for, shared or received in
connection with the loan evidenced hereby, would exceed the Maximum Interest
Rate, then in any such event (1) the provisions of this paragraph shall govern
and control, (2) neither Borrower nor any other Person now or hereafter liable
for the payment of the Obligations shall be obligated to pay the amount of such
interest to the extent that it is in excess of the Maximum Interest Rate, (3)
any such excess which may have been collected shall be either applied as a
credit against the then unpaid principal amount of the Obligations or refunded
to Borrower, at FINOVA's option, and (4) the effective rate of interest shall
be automatically reduced to the Maximum Interest Rate. It is further agreed,
without limiting the generality of the foregoing, that to the extent permitted
by the Applicable Usury Law; (x) all calculations of interest which are made
for the purpose of determining whether such rate would exceed the Maximum
Interest Rate shall be made by amortizing, prorating, allocating and spreading
during the period of the full stated term of the loan evidenced hereby, all
interest at any time contracted for, charged or received from Borrower or
otherwise in connection with such loan; and (y) in the event that the effective
rate of interest on the loan should at any time exceed the Maximum Interest
Rate, such excess interest that would otherwise have been collected had there
been no ceiling imposed by the Applicable Usury Law shall be paid to FINOVA
from time to time, if and when the effective interest rate on the loan
otherwise falls below the Maximum Interest Rate, to the extent that interest
paid to the date of calculation does not exceed the Maximum Interest Rate,
until the entire amount of interest which would otherwise have been collected
had there been no ceiling imposed by the Applicable Usury Law has been paid in
full. Borrower further agrees that should the Maximum Interest Rate be
increased at any time hereafter because of a change in the Applicable Usury
Law, then to the extent not prohibited by the Applicable Usury Law, such
increases shall apply to all indebtedness evidenced hereby regardless of when
incurred; but, again to the extent not prohibited by the Applicable Usury Law,
should the Maximum Interest Rate be decreased because of a change in the
Applicable Usury Law, such decreases shall not apply to the indebtedness
evidenced hereby regardless of when incurred.
2.9 Principal Payments; Proceeds of Collateral.
(a) Principal Payments. Except where evidenced by notes or other
instruments issued or made by Borrower to FINOVA specifically containing
payment provisions which are in conflict with this Section 2.9 (in which event
the conflicting provisions of said notes or other instruments shall govern and
control), that portion of the Obligations consisting of principal payable on
account of Loans shall be payable by Borrower to FINOVA immediately upon the
earliest of (i) the receipt by FINOVA or Borrower of any proceeds of any of the
Collateral, to the extent of said proceeds, (ii) the occurrence of an Event of
Default in consequence of which FINOVA elects to accelerate the maturity and
payment of such loans, or (iii) any termination of this Agreement pursuant to
Section 9.2 hereof; provided, however, that any Overadvance or Overline shall
be payable on demand pursuant to the provisions of Section 2.3 hereof.
(b) Collections. Until FINOVA notifies Borrower to the contrary,
Borrower may make collection of all Receivables for FINOVA and shall receive
all such payments or sums as trustee of FINOVA and immediately deliver all such
payments or sums to FINOVA in their original form, duly endorsed in blank or
cause the same to be deposited into a Blocked Account or Dominion Account.
FINOVA or its designee may, at any time, notify account debtors that the
Receivables have been assigned to FINOVA and of FINOVA's security interest
therein, and may collect the Receivables directly and charge the collection
costs and expenses to Borrower's loan account. Borrower agrees that, in
computing the charges under this Agreement, all items of payment shall be
deemed applied by FINOVA on account of the Obligations three (3) Business Days
after receipt by FINOVA of good funds which have been finally credited to
FINOVA's account, whether such funds are received directly from Borrower or
from the Blocked Account bank or the Dominion Account bank, pursuant to Section
2.9(c) hereof, and this provision shall apply regardless of the amount of the
Obligations outstanding or whether any Obligations are outstanding; provided,
that if any such good funds are received after 12:00 p.m. noon New York time on
any Business Day or at any time on any day not constituting a Business Day,
such funds shall be deemed received on the immediately following Business Day.
FINOVA is not, however, required to credit Borrower's account for the amount of
any item of payment which is unsatisfactory to FINOVA in its Permitted
Discretion and FINOVA may charge
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Borrower's loan account for the amount of any item of payment which is returned
to FINOVA unpaid.
(c) Establishment of a Lockbox Account or Dominion Account. Unless
Borrower shall be otherwise directed by FINOVA in writing, Borrower shall cause
all proceeds of Collateral to be deposited into a lockbox account, or such
other "blocked account" as FINOVA may require (each, a "BLOCKED ACCOUNT")
pursuant to an arrangement with such bank as may be selected by Borrower and be
acceptable to FINOVA which proceeds, unless otherwise provided herein, shall be
applied in payment of the Obligations in such order as FINOVA determines in its
sole discretion. Borrower shall issue to any such bank an irrevocable letter of
instruction directing said bank to transfer such funds so deposited to FINOVA,
either to any account maintained by FINOVA at said bank or by wire transfer to
appropriate account(s) of FINOVA. All funds deposited in a Blocked Account
shall immediately become the sole property of FINOVA and Borrower shall obtain
the agreement by such bank to waive any offset rights against the funds so
deposited. FINOVA assumes no responsibility for any Blocked Account
arrangement, including without limitation, any claim of accord and satisfaction
or release with respect to deposits accepted by any bank thereunder.
Alternatively, FINOVA may establish depository accounts in the name of FINOVA
at a bank or banks for the deposit of such funds (each, a "DOMINION ACCOUNT")
and Borrower shall deposit all proceeds of Receivables and all cash proceeds of
any sale of Inventory or, to the extent permitted herein, Equipment or cause
same to be deposited, in kind, in such Dominion Accounts of FINOVA in lieu of
depositing same to Blocked Accounts, and, unless otherwise provided herein, all
such funds shall be applied by FINOVA to the Obligations in such order as
FINOVA determines in its sole discretion.
(d) Payments Without Deductions. Borrower shall pay principal,
interest, and all other amounts payable hereunder, or under any other Loan
Document, without any deduction whatsoever, including, but not limited to, any
deduction for any setoff or counterclaim.
(e) Collection Days Upon Repayment. In the event Borrower repays the
Obligations in full at any time hereafter, such payment in full shall be
credited (conditioned upon final collection) to Borrower's loan account three
(3) Business Days after FINOVA's
receipt thereof.
(f) Monthly Accountings. FINOVA shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by FINOVA), unless Borrower
notifies FINOVA in writing to the contrary within thirty (30) days after each
account is rendered, describing the nature of any alleged errors or omissions.
2.10 Application of Collateral. Except as otherwise provided herein,
FINOVA shall have the continuing and exclusive right to apply or reverse and
re-apply any and all payments to any portion of the Obligations in such order
and manner as FINOVA shall determine in its sole discretion. To the extent that
Borrower makes a payment or FINOVA receives any payment or proceeds of the
Collateral for Borrower's benefit which is subsequently invalidated, declared
to be fraudulent or preferential, set aside or required to be repaid to a
trustee, debtor in possession, receiver or any other party under any bankruptcy
law, common law or equitable cause, or otherwise, then, to such extent, the
Obligations or part thereof intended to be satisfied shall be revived and
continue as if such payment or proceeds had not been received by FINOVA.
2.11 Application of Payments. The amount of all payments or amounts
received by FINOVA with respect to the Loan shall be applied to the extent
applicable under this Agreement: (i) first, to accrued interest through the
date of such payment, including any Default Interest; (ii) then, to any late
fees, overdue risk assessments, Examination Fee and expenses, collection fees
and expenses and any other fees and expenses due to FINOVA hereunder; and (iii)
last, the remaining balance, if any, to the unpaid principal balance of the
Loan; provided however, while an Event of Default exists under this Agreement,
or under any other Loan Document, each payment hereunder shall be (x) held as
cash collateral to secure Obligations relating to any Letters of Credit or
other contingent obligations arising under the Loan Documents and/or (y)
applied to amounts owed to FINOVA by Borrower as FINOVA in its sole discretion
may determine. In calculating interest and applying payments as set forth
above: (a) interest shall be calculated and collected through the date a
payment is actually applied by FINOVA under the terms of this Agreement; (b)
interest on the outstanding balance shall be charged during any grace period
permitted hereunder; (c) at the end of each month, all accrued and unpaid
interest and other charges provided for hereunder shall be added to the
principal balance of the Loan; and (d) to the extent that Borrower makes a
payment or FINOVA receives any payment or proceeds of the Collateral for
Borrower's benefit that is subsequently invalidated, set aside or required to
be repaid to any other Person, then, to such extent, the Obligations intended
to be satisfied shall be revived and continue as if such payment or proceeds
had not been received by FINOVA and FINOVA may adjust the Loan balances
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as FINOVA, in its sole discretion, deems appropriate under the circumstances.
3. SECURITY.
3.1 Security Interest in the Collateral. To secure the payment and
performance of the Obligations when due, Borrower hereby grants to FINOVA a
first priority security interest (subject only to Permitted Encumbrances) in
all of Borrower's now owned or hereafter acquired or arising Inventory,
Equipment, Receivables, life insurance policies and the proceeds thereof,
Trademarks, Copyrights, Licenses and Patents, Investment Property (as defined
in Section 9-115 of the Code) and General Intangibles, including, without
limitation, all of Borrower's Deposit Accounts, money, any and all property now
or at any time hereafter in FINOVA's possession (including claims and credit
balances), and all proceeds (including proceeds of any insurance policies,
proceeds of proceeds and claims against third parties), all products and all
books and records and computer data related to any of the foregoing (all of the
foregoing, together with all other property in which FINOVA may be granted a
lien or security interest, is referred to herein, collectively, as the
"COLLATERAL").
3.2 Perfection and Protection of Security Interest. Borrower shall, at
its expense, take all actions requested by FINOVA at any time to perfect,
maintain, protect and enforce FINOVA's first priority security interest and
other rights in the Collateral and the priority thereof from time to time,
including, without limitation, (i) executing and filing financing or
continuation statements and amendments thereof and executing and delivering
such documents and titles in connection with motor vehicles as FINOVA shall
require, all in form and substance satisfactory to FINOVA, (ii) delivering to
FINOVA warehouse receipts covering any portion of the Collateral located in
warehouses and for which warehouse receipts are issued, and transferring
Inventory to warehouses designated by FINOVA, (iii) placing notations on
Borrower's books of account to disclose FINOVA's security interest therein and
(iv) delivering to FINOVA all letters of credit on which Borrower is named
beneficiary. FINOVA may file, without Borrower's signature, one or more
financing statements disclosing FINOVA's security interest under this
Agreement. Borrower agrees that a carbon, photographic, photostatic or other
reproduction of this Agreement or of a financing statement is sufficient as a
financing statement. If any Collateral is at any time in the possession or
control of any warehouseman, bailee or any of Borrower's agents or processors,
Borrower shall notify such Person of FINOVA's security interest in such
Collateral and, upon FINOVA's request, instruct them to hold all such
Collateral for FINOVA's account subject to FINOVA's instructions. From time to
time, Borrower shall, upon FINOVA's request, execute and deliver confirmatory
written instruments pledging the Collateral to FINOVA, but Borrower's failure
to do so shall not affect or limit FINOVA's security interest or other rights
in and to the Collateral. Until the Obligations have been fully satisfied and
FINOVA's obligation to make further advances hereunder has terminated, FINOVA's
security interest in the Collateral shall continue in full force and effect.
3.3 Preservation of Collateral. FINOVA may, in its Permitted
Discretion, at any time discharge any lien or encumbrance on the Collateral or
bond the same, pay any insurance, maintain guards, pay any service bureau,
obtain any record or take any other action to preserve the Collateral and
charge the cost thereof to Borrower's loan account as an Obligation.
3.4 Insurance. Borrower will maintain and deliver evidence to FINOVA
of such insurance as is required by FINOVA, written by insurers, in amounts,
and with lender's loss payee, additional insured, and other endorsements,
satisfactory to FINOVA. All premiums with respect to such insurance shall be
paid by Borrower as and when due. Accurate and certified copies of the policies
shall be delivered by Borrower to FINOVA. If Borrower fails to comply with this
Section, FINOVA may (but shall not be required to) procure such insurance and
endorsements at Borrower's expense and charge the cost thereof to Borrower's
loan account as an Obligation.
3.5 Collateral Reporting; Inventory.
(a) Invoices. Neither Borrower nor its Factored Client shall re-date
any invoice or sale from the original date thereof or make sales on extended
terms beyond those customary in Borrower's industry, or otherwise extend or
modify the term of any Receivable. If Borrower or its Factored Client becomes
aware of any matter affecting any Receivable, including information affecting
the credit of the account debtor thereon, Borrower shall promptly notify FINOVA
in writing.
(b) Instruments. In the event any Receivable is or becomes evidenced
by a promissory note, trade acceptance or any other instrument for the payment
of money, Borrower shall immediately deliver such instrument to FINOVA
appropriately endorsed to FINOVA and, regardless of the form of any
presentment, demand, notice of dishonor, protest and notice of protest with
respect thereto, Borrower shall remain liable thereon until such instrument is
paid in full.
(c) Returns. For so long as no Event of Default has occurred and is
continuing and subject to the provisions of Section 3.6(b), if any account
debtor returns any Inventory to Borrower or to a Factored Client in the
ordinary course of its business, Borrower shall promptly determine the reason
for such return
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and promptly issue a credit memorandum to the account debtor (sending a copy to
FINOVA) in the appropriate amount. In the event any attempted return occurs
after the occurrence of any Event of Default, Borrower shall (i) hold the
returned Inventory in trust for FINOVA, (ii) segregate all returned Inventory
from all of Borrower's other property, (iii) conspicuously label the returned
Inventory as FINOVA's property, and (iv) immediately notify FINOVA of the
return of any Inventory, specifying the reason for such return, the location
and condition of the returned Inventory, and on FINOVA's request deliver such
returned Inventory to FINOVA.
(d) Neither Borrower nor its Factored Clients shall consign any
Inventory.
3.6 Receivables.
(a) Eligibility. (i) Borrower represents and warrants that each Receivable
covers and shall cover a bona fide sale or lease and delivery by it of goods or
the rendition by it of services in the ordinary course of its business, and
shall be for a liquidated amount and FINOVA's security interest shall not be
subject to any offset, deduction, counterclaim, rights of return or
cancellation, lien or other condition. If any representation or warranty herein
is breached as to any Receivable or any Receivable ceases to be an Eligible
Receivable for any reason other than payment thereof, then FINOVA may, in
addition to its other rights hereunder, designate any and all Receivables owing
by that account debtor as not Eligible Receivables; provided, that FINOVA shall
in any such event retain its security interest in all Receivables, whether or
not Eligible Receivables, until the Obligations have been fully satisfied and
FINOVA's obligation to provide loans hereunder has terminated.
(ii) FINOVA at any time shall be entitled to (i) establish and
increase or decrease reserves against Eligible Receivables, (ii) reduce the
advance rates in the Schedule or restore such advance rates to any level equal
to or below the advance rates set forth in the Schedule or (iii) impose
additional restrictions (or eliminate the same) to the standards of eligibility
set forth in the definitions of "Eligible Receivables" in the exercise of its
Permitted Discretion. FINOVA may but shall not be required to rely on the
schedules an/or reports delivered to FINOVA in connection herewith in
determining the then eligibility of Receivables and Inventory. Reliance thereon
by FINOVA from time to time shall not be deemed to limit the right of FINOVA to
revise advance rates or standards of eligibility as provided above.
(b) Disputes. Borrower shall notify FINOVA promptly of all disputes or
claims and settle or adjust such disputes or claims at no expense to FINOVA,
but no discount, credit or allowance shall be granted to any account debtor and
no returns of merchandise shall be accepted by Borrower without FINOVA's
consent, except for discounts, credits and allowances made or given in the
ordinary course of Borrower's business. FINOVA may, at any time after the
occurrence of an Event of Default, settle or adjust disputes or claims directly
with account debtors for amounts and upon terms which FINOVA considers
advisable in its reasonable credit judgment and, in all cases, FINOVA shall
credit Borrower's loan account with only the net amounts received by FINOVA in
payment of any Receivables.
3.7 Equipment. Borrower shall keep and maintain the Equipment in good
operating condition and repair and make all necessary replacements thereto to
maintain and preserve the value and operating efficiency thereof at all times
consistent with Borrower's past practice, ordinary wear and tear excepted.
Borrower shall not permit any item of Equipment to become a fixture (other than
a trade fixture) to real estate or an accession to other property.
3.8 Other Liens; No Disposition of Collateral. Borrower represents,
warrants and covenants that except for FINOVA's security interest, Permitted
Encumbrances, and such other liens, claims and encumbrances as may be permitted
by FINOVA in its sole discretion from time to time in writing, (a) all
Collateral is and shall continue to be owned by it free and clear of all liens,
claims and encumbrances whatsoever and (b) Borrower shall not, without FINOVA's
prior written approval, sell, encumber or dispose of or permit the sale,
encumbrance or disposal of any Collateral or all or any substantial part of any
of its other assets (or any interest of Borrower therein), except for the sale
of Inventory in the ordinary course of Borrower's business. In the event FINOVA
gives any such prior written approval with respect to any such sale of
Collateral, the same may be conditioned on the sale price being equal to, or
greater than, an amount acceptable to FINOVA. The proceeds of any such sales of
Collateral shall be remitted to FINOVA pursuant to this Agreement for
application to the Obligations.
3.9 Collateral Security. The Obligations shall constitute one loan
secured by the Collateral. FINOVA may, in its sole discretion, (i) exchange,
enforce, waive or release any of the Collateral, (ii) apply Collateral and
direct the order or manner of sale thereof as it may determine, and (iii)
settle, compromise, collect or otherwise liquidate any Collateral in any manner
without affecting its right to take any other action with respect to any other
Collateral.
3.10 Borrower's Factored Clients. Borrower recognizes and acknowledges
that there is no, and shall be no contractual relationship or other privity
between FINOVA and any of Borrower's Factored
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Clients and Borrower shall not communicate either orally, or in writing,
directly, or indirectly, explicitly, or by implication any privity or
obligation, of any nature running from FINOVA to any Factored Client.
4. CONDITIONS OF CLOSING.
4.1 Initial Advance. The obligation of FINOVA to make the initial
advance hereunder or to issue or arrange for the issuance of the initial Letter
of Credit hereunder is subject to the fulfillment, to the satisfaction of
FINOVA and its counsel, of each of the following conditions on or prior to the
date set forth on the Schedule:
(a) Loan Documents. FINOVA shall have received each of the following
Loan Documents: (i) the Agreement fully and properly executed by Borrower; (ii)
promissory notes in such amounts and on such terms and conditions as FINOVA
shall specify, executed by Borrower; (iii) Guaranties executed by each of the
Guarantors and/or Validity and Support Agreements executed by the applicable
parties; (iv) such security agreements, intellectual property assignments,
pledge agreements, mortgages and deeds of trust as FINOVA may require with
respect to this Agreement and any Guaranties, executed by each of the parties
thereto and, if applicable, duly acknowledged for recording or filing in the
appropriate governmental offices; (v) Subordination Agreements in form and
substance acceptable to FINOVA, executed by each of the Subordinating
Creditors, together with copies of all instruments subject thereto showing a
legend indicating such subordination; (vi) such Blocked Account or Dominion
Account agreements as it shall determine; and (vii) such other documents,
instruments and agreements in connection herewith as FINOVA shall require,
executed, certified and/or acknowledged by such parties as FINOVA shall
designate;
(b) Minimum Excess Availability. Borrower shall have Excess
Availability under the Revolving Credit Loans facility of not less than the
amount specified in the Schedule, after giving effect to the initial advance
hereunder and after giving effect to any applicable Loan Reserves against
borrowing availability under the Revolving Credit Loans.
(c) Terminations by Existing Lender. Borrower's existing lender(s)
shall have executed and delivered UCC termination statements and other
documentation evidencing the termination of its liens and security interests in
the assets of Borrower or a subordination agreement in form and substance
satisfactory to FINOVA in its sole discretion;
(d) Charter Documents. FINOVA shall have received copies of Borrower's
By-laws and Articles or Certificate of Incorporation, as amended, modified, or
supplemented to the Closing Date, certified by the Secretary of Borrower;
(e) Good Standing. FINOVA shall have received a certificate of
corporate status with respect to Borrower, dated within ten (10) days of the
Closing Date, by the Secretary of State of the state of incorporation of
Borrower, which certificate shall indicate that Borrower is in good standing in
such state;
(f) Foreign Qualification. FINOVA shall have received certificates of
corporate status with respect to Borrower and each other Loan Party, each dated
within ten (10) days of the Closing Date, issued by the Secretary of State of
each state in which such party's failure to be duly qualified or licensed would
have a material adverse effect on its financial condition or assets, indicating
that such party is in good standing;
(g) Authorizing Resolutions and Incumbency. FINOVA shall have received
a certificate from the Secretary of Borrower attesting to (i) the adoption of
resolutions of Borrower's Board of Directors, and shareholders or members if
necessary, authorizing the borrowing of money from FINOVA and execution and
delivery of this Agreement and the other Loan Documents to which Borrower is a
party, and authorizing specific officers of Borrower to execute same, and (ii)
the authenticity of original specimen signatures of such officers;
(h) Insurance. FINOVA shall have received the insurance certificates
and certified copies of policies required by Section 3.4 hereof, in form and
substance satisfactory to FINOVA and its counsel, together with an additional
insured endorsement in favor of FINOVA with respect to all liability policies
and a lender's loss payable endorsement in favor of FINOVA with respect to all
casualty and business interruption policies, each in form and substance
acceptable to FINOVA and its counsel;
(i) Title Insurance. FINOVA shall have received binding commitments to
issue such title insurance with respect to Collateral or security for
Guaranties which is comprised of real property as it shall determine;
(j) Searches; Certificates of Title. FINOVA shall have received
searches reflecting the filing of its financing statements and fixture filings
in such jurisdictions as it shall determine, and shall have received
certificates of title with respect to the Collateral which shall have been duly
executed in a manner sufficient to perfect all of the security interests
granted to FINOVA;
(k) Landlord, Bailee and Mortgagee Waivers. FINOVA shall have received
landlord, bailee and/or mortgagee waivers from the lessors, bailees
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and/or mortgagees of all locations where any Collateral
is located;
(l) Fees. Borrower shall have paid all fees payable by it on the
Closing Date pursuant to this Agreement;
(m) Opinion of Counsel. FINOVA shall have received an opinion of
Borrower's counsel covering such matters as FINOVA shall determine in its sole
discretion;
(n) Officer Certificate. FINOVA shall have received a certificate of
the President and the Chief Financial Officer or similar official of Borrower,
attesting to the accuracy of each of the representations and warranties of
Borrower set forth in this Agreement and the fulfillment of all conditions
precedent to the initial advance hereunder;
(o) Solvency Certificate. If requested, FINOVA shall have received a
signed certificate of the Borrower's duly elected Chief Financial Officer
concerning the solvency and financial condition of
Borrower, on FINOVA's standard form;
(p) Blocked Account. The Blocked Account referred to in Section
2.10(c) hereof shall have been established to the satisfaction of FINOVA in its
sole discretion;
(q) Environmental Assessment. If required by FINOVA, Borrower shall
have caused a Phase I Environmental Assessment to be conducted on the property
or properties owned or occupied by Borrower, all at Borrower's own expense and
the results of such assessment(s) shall have been in form and substance
satisfactory to FINOVA in its sole discretion. Such assessment(s) shall have
included, in FINOVA's discretion, core samplings, and shall have been conducted
by an environmental engineer acceptable to FINOVA;
(r) Environmental Certificate. FINOVA shall have received an
Environmental Certificate from Borrower, in form and substance satisfactory to
FINOVA in its discretion, with respect to all locations of Collateral;
(s) Search and References. FINOVA shall have received and approved the
results of UCC, tax lien, litigation, judgment, and bankruptcy searches
regarding Buyer, Borrower, Seller, Investors and such members of the senior
management of Seller as shall remain with Borrower, and shall have received
satisfactory customer, vendor and credit reference checks on Seller.
(t) Lease and Landlord's Consent. FINOVA shall require that the Lease
in favor of Borrower from Seller regarding Borrower's facility at the
location(s) listed in the Schedule shall be for a term (including renewal
options) through the Maturity Date. FINOVA shall further require that, prior to
the Closing Date, Seller enter in a Landlord's Consent Agreement and Estoppel
Certificate, in form and substance satisfactory to FINOVA to cure defaults
under such lease and continue in occupancy of such premises in the event of
defaults by Borrower pursuant either to the Lease or the Loan Documents.
(u) No Material Adverse Changes. Prior to the Closing Date, there
shall have occurred no material adverse change in the financial condition of
Seller or Borrower, or in the condition of the assets of Seller, from that
shown on the draft financial statements for Seller dated on the date set forth
in the Schedule. At the closing, Borrower shall deliver to FINOVA an officer's
certification confirming that Borrower is unaware of the existence of any such
material adverse change in Seller's financial condition.
(v) Material Agreements. FINOVA shall have received, reviewed and
approved all material agreements to which Borrower shall be a party, including
any such agreements of Seller which Borrower shall assume.
(w) Projections. If Finova so requests, Borrower shall submit cash
flow projections and pro forma balance sheet with adjusting entries (i) showing
that the proposed financing will provide sufficient funds for the Borrower's
projected working capital needs, and (ii) showing: (1) that the Borrower will
have reasonably sufficient capital for the conduct of its business following
the initial funding, and (2) that the Borrower will not incur debts beyond its
ability to pay such debts as they mature.
(x) Opinions. To the extent any Person other than Borrower shall be
parties to the Loan Documents, FINOVA reserves the right to require
satisfactory opinions of counsel for each such Person concerning the proper
organization of such Person and the due authorization, execution, delivery,
enforceability, validity and binding effect of the Loan Documents to which such
Person is a party. Each such opinion of counsel shall confirm, to the
satisfaction of FINOVA, that the opinion is being delivered to FINOVA at the
instruction of the party represented by such counsel, that FINOVA is entitled
to rely on such opinion and that for purposes of such reliance, FINOVA is
deemed to be in privity with the opining counsel.
(y) ADA Compliance. If necessary, as of the Closing Date, Borrower
shall be in compliance with the Americans with Disabilities Act of 1990
("ADA"), or, if any renovations of Borrower's facilities or modifications of
Borrower's employment practices shall be required to bring them into compliance
with the ADA, review and approval by FINOVA of Borrower's proposed plan to come
into such compliance. Borrower shall deliver
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representations and warranties to FINOVA concerning Borrower's compliance with
the ADA, and no evidence shall have come to the attention of FINOVA indicating
that Borrower is not in compliance with the ADA (except to the extent that
FINOVA has reviewed and approved Borrower's plan to come into compliance).
(y) Subordination and Intercreditor Agreements. FINOVA and each
Subordinating Creditor shall have entered into a Subordination Agreement, in
form and substance satisfactory to FINOVA. Without limiting the generality of
the foregoing, Seller shall enter into one or more Subordination Agreements
with FINOVA, in form and substance satisfactory to FINOVA, providing that
Seller's right to payments in respect of the Seller Subordinated Indebtedness
shall be subordinated in right of payment to the Loan.
(aa) Asset Appraisal. Borrower shall have provided to FINOVA, at
Borrower's sole cost and expense, an asset appraisal of all Borrower's fixed
assets upon which FINOVA shall be granted a first priority lien and security
interest, which appraisal must be acceptable to FINOVA in all respects.
(bb) Transaction Costs. Borrower shall provide to FINOVA a complete,
itemized summary of all transaction costs paid or incurred by any Person in
connection with the making of the Loan and the consummation of the Acquisition,
which transaction costs shall not exceed the amount set forth in the Schedule,
as well as appropriate documentation evidencing such costs and the payment
thereof. All such information must be acceptable to FINOVA, in FINOVA's sole
discretion, exercised in good faith.
(cc) Schedule Conditions. Borrower shall have complied with all
additional conditions precedent as set forth in the Schedule attached hereto.
(dd) Other Matters. All other documents and legal matters in
connection with the transactions contemplated by this Agreement shall have been
delivered, executed and recorded and shall be in form and substance
satisfactory to FINOVA and its counsel including, without limitation, each of
the items listed on the Closing Checklist attached as EXHIBIT 4.1 hereto.
4.2 Subsequent Advances. The obligation of FINOVA to make any advance
or issue or cause any Letter of Credit to be issued hereunder (including the
initial advance or Letter of Credit) shall be subject to the further conditions
precedent that, on and as of the date of such advance or Letter of Credit
issuance: (a) the representations and warranties of Borrower set forth in this
Agreement shall be accurate, before and after giving effect to such advance or
issuance and to the application of any proceeds thereof; (b) no Event of
Default and no event which, with notice or passage of time or both, would
constitute an Event of Default has occurred and is continuing, or would result
from such advance or issuance or from the application of any proceeds thereof;
(c) no material adverse change has occurred in the Borrower's business,
operations, financial condition, in the condition of the Collateral or other
assets of Borrower or in the prospect of repayment of the Obligations; and (d)
FINOVA shall have received such other approvals, opinions or documents as
FINOVA shall reasonably request.
5. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants that:
5.1 Due Organization. It is a corporation duly organized, validly
existing and in good standing under the laws of the State set forth on the
Schedule, is qualified and authorized to do business and is in good standing in
all states in which such qualification and good standing are necessary in order
for it to conduct its business and own its property, and has all requisite
power and authority to conduct its business as presently conducted, to own its
property and to execute and deliver each of the Loan Documents to which it is a
party and perform all of its Obligations thereunder, and has not taken any
steps to wind-up, dissolve or otherwise liquidate its assets;
5.2 Other Names. Borrower has not, during the preceding five (5)
years, been known by or used any other corporate or fictitious name except as
set forth on the Schedule, nor has Borrower been the surviving corporation of a
merger or consolidation or acquired all or substantially all of the assets of
any Person during such time;
5.3 Due Authorization. The execution, delivery and performance by
Borrower of the Loan Documents to which it is a party have been authorized by
all necessary corporate action and do not and shall not constitute a violation
of any applicable law or of Borrower's Articles or Certificate of Incorporation
or By-Laws or any other document, agreement or instrument to which Borrower is
a party or by which Borrower or its assets are bound;
5.4 Binding Obligation. Each of the Loan Documents to which Borrower
is a party is the legal, valid and binding obligation of Borrower enforceable
against Borrower in accordance with its terms;
5.5 Intangible Property. Borrower possesses adequate assets, licenses,
patents, patent applications, copyrights, trademarks, trademark applications
and trade names for the present and planned future conduct of its business
without any known conflict with the rights of others, and each is valid and has
been duly registered or filed with the appropriate governmental authorities;
each of Borrower's patents, patent applications, copyrights, trademarks and
trademark applications which have been registered or filed with any
governmental
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authority (including the U.S. Patent and Trademark Office and the Library of
Congress) are listed by name, date and filing number on the Schedule;
5.6 Capital. Borrower's capitalization (which for purposes of this
representation shall include in the calculation of equity Indebtedness which is
fully subordinated to FINOVA on terms satisfactory to FINOVA) on the Closing
Date shall be no less than $750,000.00 and Borrower shall at all times have
capital sufficient to conduct its business, is able to pay its debts as they
mature, and owns property having a fair salable value greater than the amount
required to pay all of its debts (including contingent debts);
5.7 Material Litigation. Borrower has no pending or overtly threatened
litigation, actions or proceedings which would materially and adversely affect
its business, assets, operations, prospects or condition, financial or
otherwise, or the Collateral or any of FINOVA's interests therein;
5.8 Title; Security Interests of FINOVA. Borrower has good,
indefeasible and merchantable title to the Collateral and, upon the execution
and delivery of the Loan Documents, the filing of UCC-1 Financing Statements,
delivery of the certificate(s) evidencing any pledged securities, the filing of
any collateral assignments or security agreements regarding Borrower,
Trademarks, Copyrights, Licenses and/or Patents, if any, with the appropriate
governmental offices and the recording of any mortgages or deeds of trust with
respect to real property, in each case in the appropriate offices, this
Agreement and such documents shall create valid and perfected first priority
liens in the Collateral, subject only to Permitted Encumbrances;
5.9 Restrictive Agreements; Labor Contracts. Borrower is not a party
or subject to any contract or subject to any charge, corporate restriction,
judgment, decree or order materially and adversely affecting its business,
assets, operations, prospects or condition, financial or otherwise, or which
restricts its right or ability to incur Indebtedness, and it is not party to
any labor dispute. In addition, no labor contract is scheduled to expire during
the Initial Term of this Agreement, except as disclosed to FINOVA in writing
prior to the date hereof;
5.10 Laws. Borrower is not in violation of any applicable statute,
regulation, ordinance or any order of any court, tribunal or governmental
agency, in any respect materially and adversely affecting the Collateral or its
business, assets, operations, prospects or condition, financial or otherwise;
5.11 Consents. Borrower has obtained or caused to be obtained or
issued any required consent of a governmental agency or other Person in
connection with the financing contemplated hereby;
5.12 Defaults. Borrower is not in default with respect to any note,
indenture, loan agreement, mortgage, lease, deed or other agreement to which it
is a party or by which it or its assets are bound, nor has any event occurred
which, with the giving of notice or the lapse of time, or both, would cause
such a default;
5.13 Financial Condition. The Prepared Financials fairly present
Borrower's financial condition and results of operations and those of such
other Persons described therein as of the date thereof in accordance with GAAP;
there are no material omissions from the Prepared Financials or other facts or
circumstances not reflected in the Prepared Financials; and there has been no
material and adverse change in such financial condition or operations since the
date of the initial Prepared Financials delivered to FINOVA hereunder;
5.14 ERISA. None of Borrower, any ERISA Affiliate, or any Plan is or
has been in violation of any of the provisions of ERISA, any of the
qualification requirements of IRC Section 401(a) or any of the published
interpretations thereunder, nor has Borrower or any ERISA Affiliate received
any notice to such effect. No notice of intent to terminate a Plan has been
filed under Section 4041 of ERISA, nor has any Plan been terminated under
ERISA. The PBGC has not instituted proceedings to terminate, or appointed a
trustee to administer, a Plan. No lien upon the assets of Borrower has arisen
with respect to a Plan. No prohibited transaction or Reportable Event has
occurred with respect to a Plan. Neither Borrower nor any ERISA Affiliate has
incurred any withdrawal liability with respect to any Multiemployer Plan.
Borrower and each ERISA Affiliate have made all contributions required to be
made by them to any Plan or Multiemployer Plan when due. There is no
accumulated funding deficiency in any Plan, whether or not waived;
5.15 Taxes. Borrower has filed all tax returns and such other reports
as it is required by law to file and has paid or made adequate provision for
the payment on or prior to the date when due of all taxes, assessments and
similar charges that are due and payable;
5.16 Locations; Federal Tax ID No. Borrower's chief executive office
and the offices and locations where it keeps the Collateral (except for
Inventory in transit) are at the locations set forth on the Schedule, except to
the extent that such locations may have been changed after notice to FINOVA in
accordance with Section 6.4 hereof; Borrower's federal tax identification
number is as shown on the Schedule;
5.17 Business Relationships. There exists no actual or threatened
termination, cancellation or limitation of, or any modification or change in,
the
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business relationship between Borrower and any customer or any group of
Factored Clients whose receivables individually or in the aggregate are
material to the business of Borrower, and there exists no present condition or
state of facts or circumstances which would materially and adversely affect
Borrower or prevent Borrower from conducting such business after the
consummation of the transactions contemplated by this Agreement in
substantially the same manner in which it has heretofore been conducted;
5.18 Factoring Agreements. All of Borrower's factoring agreements (which shall
be substantially in the form attached hereto as EXHIBIT A) with its Factored
clients are valid and enforceable and Borrower has free and clear title to all
Receivables purchased by Borrower from its Factored Clients and Borrower has a
duly recorded and perfected first and prior security interest in all of the
Receivables of the Factored Clients (and if not a prior security interest such
senior lienor has subordinated its lien in favor of Borrower and its secured
lender on terms fully satisfactory to FINOVA) and there are no offsets,
defenses or counterclaims against Borrower in favor of any Factored Clients.
Borrower will immediately advise FINOVA of any termination by a Factored Client
or by Borrower of a factoring agreement.
5.19 Reaffirmations. Each request for a loan made by Borrower pursuant
to this Agreement shall constitute (i) an automatic representation and warranty
by Borrower to FINOVA that there does not then exist any Event of Default and
(ii) a reaffirmation as of the date of said request of all of the
representations and warranties of Borrower contained in this Agreement and the
other Loan Documents.
6. COVENANTS.
6.1 Affirmative Covenants. Borrower covenants that, so long as any
Obligation remains outstanding and this Agreement is in effect, it shall:
6.1.1 Taxes. File all tax returns and pay or make adequate
provision for the payment of all taxes, assessments and other charges on or
prior to the date when due;
6.1.2 Notice of Litigation. Promptly notify FINOVA in writing of
any litigation, suit or administrative proceeding which may materially and
adversely affect the Collateral or Borrower's business, assets, operations,
prospects or condition, financial or otherwise, whether or not the claim is
covered by insurance;
6.1.3 ERISA. Notify FINOVA in writing (i) promptly upon the
occurrence of any event described in Paragraph 4043 of ERISA, other than a
termination, partial termination or merger of a Plan or a transfer of a Plan's
assets and (ii) prior to any termination, partial termination or merger of a
Plan or a transfer of a Plan's assets;
6.1.4 Change in Location. Notify FINOVA in writing forty-five (45)
days prior to any change in the location of Borrower's chief executive office
or the location of any Collateral, or Borrower's opening or closing of any
other place of business;
6.1.5 Corporate Existence. Maintain its corporate existence and
its qualification to do business and good standing in all states necessary for
the conduct of its business and the ownership of its property and maintain
adequate assets, licenses, patents, copyrights, trademarks and trade names for
the conduct of its business;
6.1.6 Labor Disputes. Promptly notify FINOVA in writing of any
labor dispute to which Borrower is or may become subject and the expiration of
any labor contract to which Borrower is a party or bound;
6.1.7 Violations of Law. Promptly notify FINOVA in writing of any
violation of any law, statute, regulation or ordinance of any governmental
entity, or of any agency thereof, applicable to Borrower which may materially
and adversely affect the Collateral or Borrower's business, assets, prospects,
operations or condition, financial or otherwise;
6.1.8 Defaults. Notify FINOVA in writing within five (5) Business
Days of Borrower's default under any note, indenture, loan agreement, mortgage,
lease or other agreement to which Borrower is a party or by which Borrower is
bound, or of any other default under any Indebtedness of Borrower or of a
default by a Factored Client under Factored Client's factoring agreement with
Borrower;
6.1.9 Capital Expenditures. Promptly notify FINOVA in writing of
the making of any Capital Expenditure materially affecting Borrower's business,
assets, prospects, operations or condition, financial or otherwise, except to
the extent permitted in the Schedule;
6.1.10 Books and Records. Keep adequate records and books of
account with respect to its business activities in which proper entries are
made in accordance with GAAP, reflecting all of its financial transactions;
6.1.11 Leases; Warehouse Agreements. Provide FINOVA with (i)
copies of all agreements between Borrower and any landlord, warehouseman or
bailee which owns any premises at which any Collateral may, from time to time,
be located (whether for processing, storage or otherwise), and (ii) without
limiting the landlord, bailee and/or mortgagee waivers to be provided pursuant
to Section 4.1(j) hereof, additional landlord, bailee and/or mortgagee waivers
in
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form acceptable to FINOVA with respect to all locations where any Collateral is
hereafter located;
6.1.12 Additional Documents. At FINOVA's request, promptly execute
or cause to be executed and delivered to FINOVA any and all documents,
instruments or agreements deemed necessary by FINOVA to facilitate the
collection of the Obligations or the Collateral or otherwise to give effect to
or carry out the terms or intent of this Agreement or any of the other Loan
Documents. Without limiting the generality of the foregoing, if any of the
Receivables arise out of a contract with the United States of America or any
department, agency, subdivision or instrumentality thereof, Borrower shall
promptly notify FINOVA of such fact in writing and shall execute any
instruments and take any other action required or requested by FINOVA to comply
with the provisions of the Federal Assignment of Claims Act; and
6.1.13 Financial Covenants. Comply with the financial covenants
set forth on the Schedule.
6.2 Negative Covenants. Without FINOVA's prior written consent, which
consent FINOVA may withhold in its sole discretion, so long as any Obligation
remains outstanding and this Agreement is in effect, Borrower shall not:
6.2.1 Mergers. Merge or consolidate with or acquire any other
Person, or make any other material change in its capital structure or in its
business or operations which might adversely affect the repayment of the
Obligations;
6.2.2 Loans. Make advances, loans or extensions of credit to, or
invest in, any Person, except for loans or cash advances to employees which are
permitted in the Schedule;
6.2.3 Dividends. Declare or pay cash dividends upon any of its
stock or distribute any of its property or redeem, retire, purchase or acquire
directly or indirectly any of its stock;
6.2.4 Adverse Transactions. Enter into any transaction which
materially and adversely affects the Collateral or its ability to repay the
Obligations in full as and when due;
6.2.5 Indebtedness of Others. Guarantee or become directly or
contingently liable for the Indebtedness of any Person, except by endorsement
of instruments for deposit and except for the existing guarantees made by
Borrower prior to the date hereof, if any, which are set forth in the Schedule;
6.2.6 Repurchase. Make a sale to any customer on a bill-and-hold,
guaranteed sale, sale and return, sale on approval, consignment, or any other
repurchase or return basis;
6.2.7 Name. Use any corporate or fictitious name other than its
corporate name as set forth in its Articles or Certificate of Incorporation on
the date hereof or as set forth on the Schedule;
6.2.8 Prepayment. Prepay any Indebtedness other than trade
payables and other than the Obligations;
6.2.9 Capital Expenditure. Make or incur any Capital Expenditure
if, after giving effect thereto, the aggregate amount of all Capital
Expenditures by Borrower in any fiscal year would exceed the amount set forth
on the Schedule;
6.2.10 Compensation. Pay total compensation, including salaries,
withdrawals, fees, bonuses, commissions, drawing accounts and other payments,
whether directly or indirectly, in money or otherwise, during any fiscal year
to all of Borrower's executives, officers and directors (or any relative
thereof) in an amount in excess of the amount set forth on the Schedule;
6.2.11 Indebtedness. Create, incur, assume or permit to exist any
Indebtedness (including Indebtedness in connection with Capital Leases) in
excess of the amount set forth on the Schedule, other than (i) the Obligations,
(ii) trade payables and other contractual obligations to suppliers and
customers incurred in the ordinary course of business, and (iii) other
Indebtedness existing on the date of this Agreement and reflected in the
Prepared Financials (except Indebtedness paid on the date of this Agreement
from proceeds of the initial advances hereunder), and (iv) Subordinated Debt;
6.2.12 Affiliate Transactions. Except as set forth below, sell,
transfer, distribute or pay any money or property to any Affiliate, or invest
in (by capital contribution or otherwise) or purchase or repurchase any stock
or Indebtedness, or any property, of any Affiliate (except that provided there
does not exist an event of default, Borrower may pay interest payments on that
Indebtedness to Medley Credit Acceptance Corporation which is subordinated to
FINOVA on terms satisfactory to FINOVA), or become liable on any guaranty of
the indebtedness, dividends or other obligations of any Affiliate.
Notwithstanding the foregoing, Borrower may pay compensation permitted by
Section 6.2.10 to employees who are Affiliates and, if no Event of Default has
occurred, Borrower may (i) engage in transactions with Affiliates in the normal
course of business, in amounts and upon terms which are fully disclosed to
FINOVA and which are no less favorable to Borrower than would be obtainable in
a comparable arm's length transaction with a Person who is not an Affiliate,
and (ii) make payments to a Subordinating Creditor that is an Affiliate,
subject to and only to the extent expressly permitted in the Subordination
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Agreement between such Subordinating Creditor and FINOVA;
6.2.13 Nature of Business. Enter into any new business or make any
material change in any of Borrower's business objectives, purposes or
operations;
6.2.14 FINOVA's Name. Use the name of FINOVA in connection with
any of Borrower's business or activities including without limitation with its
Factored Clients, except in connection with internal business matters or as
required in dealings with governmental agencies and financial institutions or
with trade creditors of Borrower, solely for credit reference purposes; or
6.2.15 Margin Security. Borrower will not (and has not in the
past) engaged principally, or as one of its important activities, in the
business of extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulation G or Regulation U issued by the Board
of Governors of the Federal Reserve System), and no proceeds of any Loan or
other advance will be used to purchase or carry any margin stock or to extend
credit to others for the purpose of purchasing or carrying any margin stock, or
in any manner which might cause such Loan or other advance or the application
of such proceeds to violate (or require any regulatory filing under) Regulation
G, Regulation T, Regulation U, Regulation X or any other regulation of the
Board of Governors of the Federal Reserve System, in each case as in effect on
the date or dates of such Loan or other advance and such use of proceeds.
Further, no proceeds of any Loan or other advance will be used to acquire any
security of a class which is registered pursuant to Section 12 of the
Securities Exchange Act of 1934.
6.2.16 Real Property. Purchase or acquire any real property
without FINOVA's prior written consent, a condition of which consent shall
include delivery of appropriate environmental reports and analysis, in form and
substance satisfactory to FINOVA and its counsel.
7. DEFAULT AND REMEDIES.
7.1 Events of Default. Any one or more of the following events shall
constitute an Event of Default under this Agreement:
(a) Borrower fails to pay when due and payable any portion of the
Obligations at stated maturity, upon acceleration or otherwise;
(b) Borrower or any other Loan Party fails or neglects to perform,
keep, or observe any Obligation including, but not limited to, any term,
provision, condition, covenant or agreement contained in any Loan Document to
which Borrower or such other Loan Party is a party;
(c) Any material adverse change occurs in Borrower's business, assets,
operations, prospects or condition, financial or otherwise;
(d) The prospect of repayment of any portion of the Obligations or the
value or priority of FINOVA's security interest in the Collateral is materially
impaired;
(e) Any portion of Borrower's assets is seized, attached, subjected to
a writ or distress warrant, is levied upon or comes into the possession of any
judicial officer;
(f) Borrower shall generally not pay its debts as they become due or
shall enter into any agreement (whether written or oral), or offer to enter
into any agreement, with all or a significant number of its creditors regarding
any moratorium or other indulgence with respect to its debts or the
participation of such creditors or their representatives in the supervision,
management or control of the business of Borrower;
(g) Any bankruptcy or other insolvency proceeding is commenced by
Borrower, or any such proceeding is commenced against Borrower and remains
undischarged or unstayed for forty-five (45) days;
(h) Any notice of lien or levy or an assessment in a material amount
is filed of record with respect to any of Borrower's assets;
(i) Any judgments which are not covered by adequate insurance are
entered against Borrower in an aggregate amount exceeding $25,000 in any fiscal
year;
(j) Any default shall occur under (i) any material agreement between
Borrower and any third party including, without limitation, any default which
would result in a right by such third party to accelerate the maturity of any
Indebtedness of Borrower to such third party, or (ii) any Subordinated Debt;
(k) Any representation or warranty made or deemed to be made by
Borrower, any Affiliate or any other Loan Party in any Loan Document or any
other statement, document or report made or delivered to FINOVA in connection
therewith shall prove to have been misleading in any material respect;
(l) Any Guarantor dies, terminates or attempts to terminate its
Guaranty or any security therefor or becomes subject to any bankruptcy or other
insolvency proceeding;
(m) Any Prohibited Transaction or Reportable Event shall occur with
respect to a Plan which could have a material adverse effect on the financial
condition of Borrower; any lien upon the assets of Borrower in connection with
any Plan shall
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arise; Borrower or any of its ERISA Affiliates shall fail to make full payment
when due of all amounts which Borrower or any of its ERISA Affiliates may be
required to pay to any Plan or any Multiemployer Plan as one or more
contributions thereto; Borrower or any of its ERISA Affiliates creates or
permits the creation of any accumulated funding deficiency, whether or not
waived; or
(n) Any transfer of more than ten percent (10%) of the issued and
outstanding shares of common stock or other evidence of ownership of Borrower
other than a transfer to Medley Credit Acceptance Corporation.
NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN, FINOVA RESERVES THE
RIGHT TO CEASE MAKING ANY LOANS DURING ANY CURE PERIOD STATED ABOVE, AND
THEREAFTER IF AN EVENT OF DEFAULT HAS OCCURRED.
7.2 Remedies. Upon the occurrence of an Event of Default, FINOVA may,
at its option and in its sole discretion and in addition to all of its other
rights under the Loan Documents, cease making Loans, terminate this Agreement
and/or declare all of the Obligations to be immediately payable in full.
Borrower agrees that FINOVA shall also have all of its rights and remedies
under applicable law, including, without limitation, the default rights and
remedies of a secured party under the Code, and upon the occurrence of an Event
of Default Borrower hereby consents to the appointment of a receiver by FINOVA
in any action initiated by FINOVA pursuant to this Agreement and to the
jurisdiction and venue set forth in Section 9.25 hereof, and Borrower waives
notice and posting of a bond in connection therewith. Further, FINOVA may, at
any time, take possession of the Collateral and keep it on Borrower's premises,
at no cost to FINOVA, or remove any part of it to such other place(s) as FINOVA
may desire, or Borrower shall, upon FINOVA's demand, at Borrower's sole cost,
assemble the Collateral and make it available to FINOVA at a place reasonably
convenient to FINOVA. FINOVA may sell and deliver any Collateral at public or
private sales, for cash, upon credit or otherwise, at such prices and upon such
terms as FINOVA deems advisable, at FINOVA's discretion, and may, if FINOVA
deems it reasonable, postpone or adjourn any sale of the Collateral by an
announcement at the time and place of sale or of such postponed or adjourned
sale without giving a new notice of sale. Borrower agrees that FINOVA has no
obligation to preserve rights to the Collateral or marshall any Collateral for
the benefit of any Person. FINOVA is hereby granted a license or other right to
use, without charge, Borrower's labels, patents, copyrights, name, trade
secrets, trade names, trademarks and advertising matter, or any similar
property, in completing production, advertising or selling any Collateral and
Borrower's rights under all licenses and all franchise agreements shall inure
to FINOVA's benefit. Any requirement of reasonable notice shall be met if such
notice is mailed postage prepaid to Borrower at its address set forth in the
heading to this Agreement at least five (5) days before sale or other
disposition. The proceeds of sale shall be applied, first, to all attorneys
fees and other expenses of sale, and second, to the Obligations in such order
as FINOVA shall elect, in its sole discretion. FINOVA shall return any excess
to Borrower and Borrower shall remain liable for any deficiency to the fullest
extent permitted by law.
7.3 Standards for Determining Commercial Reasonableness. Borrower and
FINOVA agree that the following conduct by FINOVA with respect to any
disposition of Collateral shall conclusively be deemed commercially reasonable
(but other conduct by FINOVA, including, but not limited to, FINOVA's use in
its sole discretion of other or different times, places and manners of noticing
and conducting any disposition of Collateral shall not be deemed unreasonable):
Any public or private disposition: (i) as to which on no later than the fifth
calendar day prior thereto written notice thereof is mailed or personally
delivered to Borrower and, with respect to any public disposition, on no later
than the fifth calendar day prior thereto notice thereof describing in general
nonspecific terms, the Collateral to be disposed of is published once in a
newspaper of general circulation in the county where the sale is to be
conducted (provided that no notice of any public or private disposition need be
given to the Borrower or published if the Collateral is perishable or threatens
to decline speedily in value or is of a type customarily sold on a recognized
market); (ii) which is conducted at any place designated by FINOVA, with or
without the Collateral being present; and (iii) which commences at any time
between 8:00 a.m. and 5:00 p.m. Without limiting the generality of the
foregoing, Borrower expressly agrees that, with respect to any disposition of
accounts, instruments and general intangibles, it shall be commercially
reasonable for FINOVA to direct any prospective purchaser thereof to ascertain
directly from Borrower any and all information concerning the same, including,
but not limited to, the terms of payment, aging and delinquency, if any, the
financial condition of any obligor or account debtor thereon or guarantor
thereof, and any collateral therefor.
8. EXPENSES AND INDEMNITIES.
8.1 Expenses. Borrower covenants that, so long as any Obligation
remains outstanding and this Agreement remains in effect, it shall promptly
reimburse FINOVA for all costs, fees and expenses incurred by FINOVA in
connection with the negotiation, preparation, execution, delivery,
administration and enforcement of each of the Loan Documents,
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including, but not limited to, the reasonable attorneys' and paralegals' fees
of in-house and outside counsel, expert witness fees, lien, title search and
insurance fees, appraisal fees, all charges and expenses incurred in connection
with any and all environmental reports and environmental remediation
activities, and all other costs, expenses, taxes and filing or recording fees
payable in connection with the transactions contemplated by this Agreement,
including without limitation all such costs, fees and expenses as FINOVA shall
incur or for which FINOVA shall become obligated in connection with (i) any
inspection or verification of the Collateral, (ii) any proceeding relating to
the Loan Documents or the Collateral, (iii) actions taken with respect to the
Collateral and FINOVA's security interest therein, including, without
limitation, the defense or prosecution of any action involving FINOVA and
Borrower or any third party, (iv) enforcement of any of FINOVA's rights and
remedies with respect to the Obligations or Collateral and (v) consultation
with FINOVA's attorneys and participation in any workout, bankruptcy or other
insolvency or other proceeding involving any Loan Party or any Affiliate,
whether or not suit is filed or the issues are peculiar to federal bankruptcy
or state insolvency laws. Borrower shall also pay all FINOVA charges in
connection with bank wire transfers, forwarding of loan proceeds, deposits of
checks and other items of payment, returned checks, establishment and
maintenance of lockboxes and other Blocked Accounts, and all other bank and
administrative matters, in accordance with FINOVA's schedule of bank and
administrative fees and charges in effect from time to time.
8.2 Environmental Matters.
(a) Definitions. The following definitions apply to the provisions of
this Section 8.2: (a) the term "APPLICABLE LAW" shall include, but shall not be
limited to, all local, state and/or federal laws, rules, regulations or
ordinances, whether currently in existence or hereafter enacted, which govern,
to the extent applicable to the Property or to Borrower, (i) the existence,
cleanup and/or remedy of contamination on real property; (ii) the protection of
the environment from soil, air or water pollution, or from spilled, deposited
or otherwise emplaced contamination; (iii) the emission or discharge of
hazardous substances into the environment; (iv) the control of hazardous
wastes; or (v) the use, generation, transport, treatment, removal or recovery
of Hazardous Substances; (b) the term "HAZARDOUS SUBSTANCE" shall mean (i) any
oil, flammable substance, explosives, radioactive materials, hazardous wastes
or substances, toxic wastes or substances or any other wastes, materials or
pollutants which either pose a hazard to the Property or to persons on or about
the Property or cause the Property to be in violation of any Applicable Law;
(ii) asbestos in any form which is or could become friable, urea formaldehyde
foam insulation, transformers or other equipment which contain dielectric fluid
containing levels of polychlorinated biphenyls, or radon gas; (iii) any
chemical, material or substance defined as or included in the definition of
"hazardous substances," "waste," "hazardous wastes," "hazardous materials,"
"extremely hazardous waste," "restricted hazardous waste," or "toxic
substances" or words of similar import under any Applicable Law; ; (iv) any
other chemical, material or substance, exposure to which is prohibited, limited
or regulated by any governmental authority which may or could pose a hazard to
the health or safety of the occupants of the Property or the owners and/or
occupants of property adjacent to or surrounding the Property, or any other
person coming upon the Property or adjacent property; and (v) any other
chemical, materials or substance which may or could pose a hazard to the
environment; and (c) the term "PROPERTY" shall mean all real property, wherever
located, in which Borrower or any Affiliate of Borrower has any right, title or
interest, whether now existing or hereafter arising, and including, without
limitation, as owner, lessor or lessee.
(b) Covenants and Representations. (1) Borrower represents and
warrants that there have not been during the period of Borrower's possession of
any interest in the Property and, to the best of its knowledge after reasonable
inquiry, there have not been at any other times, any activities on the Property
involving, directly or indirectly, the use, generation, treatment, storage or
disposal of any Hazardous Substances except in compliance with Applicable Law
(i) under, on or in the land included in the Property, whether contained in
soil, tanks, sumps, ponds, lagoons, barrels, cans or other containments,
structures or equipment, (ii) incorporated in the buildings, structures or
improvements included in the Property, including any building material
containing asbestos, or (iii) used in connection with any operations on or in
the Property. (2) Without limiting the generality of the foregoing and to the
extent not included within the scope of this Section 8.2(b), Borrower
represents and warrants that it is in full compliance with Applicable Law and
has received no notice from any Person or any governmental agency or other
entity of any violation by Borrower or its Affiliates of any Applicable Law.
(3) Borrower shall be solely responsible for and agrees to indemnify FINOVA,
protect and defend FINOVA with counsel reasonably acceptable to FINOVA, and
hold FINOVA harmless from and against any claims, actions, administrative
proceedings, judgments, damages, punitive damages, penalties, fines, costs,
liabilities (including sums paid in settlements of claims), interest or losses,
attorneys' fees (including any fees and expenses incurred in enforcing this
indemnity), consultant fees, expert fees, and other out-of-pocket costs or
expenses actually incurred by FINOVA (collectively, the "ENVIRONMENTAL
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COSTS"), that may, at any time or from time to time, arise directly or
indirectly from or in connection with: (i) the presence, suspected presence,
release or suspected release of any Hazardous Substance whether into the air,
soil, surface water or groundwater of or at the Property, or any other
violation of Applicable Law, or (ii) any breach of the foregoing
representations and covenants; except to the extent any of the foregoing result
from the actions of FINOVA, its employees, agents and representatives. All
Environmental Costs incurred or advanced by FINOVA shall be deemed to be made
by FINOVA in good faith and shall constitute Obligations hereunder.
9. MISCELLANEOUS.
9.1 Examination of Records; Financial Reporting.
(a) Examinations. FINOVA shall at all reasonable times during normal
working hours have full access to and the right to examine, audit, make
abstracts and copies from and inspect Borrower's records, files, books of
account and all other documents, instruments and agreements relating to the
Collateral and the right to check, test and appraise the Collateral. Borrower
shall deliver to FINOVA any instrument necessary for FINOVA to obtain records
from any service bureau maintaining records for Borrower. All instruments and
certificates prepared by Borrower showing the value of any of the Collateral
shall be accompanied, upon FINOVA's request, by copies of related purchase
orders and invoices. FINOVA may, at any time after the occurrence of an Event
of Default, remove from Borrower's premises Borrower's books and records (or
copies thereof) or require Borrower to deliver such books and records or copies
to FINOVA. FINOVA may, without expense to FINOVA, use such of Borrower's
personnel, supplies and premises as may be reasonably necessary for maintaining
or enforcing FINOVA's security interest.
(b) Reporting Requirements. Borrower shall furnish FINOVA, upon
request, such information and statements as FINOVA shall request from time to
time regarding Borrower's business affairs, financial condition, the results of
its operations, contracts and agreements and financial and other information
with respect to its Factored Clients. Without limiting the generality of the
foregoing, Borrower shall provide FINOVA with: (i) FINOVA's standard form
collateral and loan report, daily, and upon FINOVA's request, copies of sales
journals, cash receipt journals, and deposit slips; (ii) upon FINOVA's request,
copies of sales invoices, customer statements and credit memoranda issued,
remittance advices and reports; (iii) copies of shipping and delivery
documents, upon request; (iv) on or prior to the date set forth on the
Schedule, monthly agings (aged from invoice date) and reconciliations of
Receivables (with listings of concentrated accounts), payables reports,
inventory reports, compliance certificates and unaudited financial statements
with respect to the prior month prepared on a basis consistent with such
statements prepared in prior months and otherwise in accordance with GAAP; (v)
audited annual consolidated and consolidating financial statements, prepared in
accordance with GAAP applied on a basis consistent with the most recent
Prepared Financials provided to FINOVA by Borrower, including balance sheets,
income and cash flow statements, accompanied by the unqualified report thereon
of independent certified public accountants acceptable to FINOVA, as soon as
available, and in any event, within ninety (90) days after the end of each of
Borrower's fiscal years; and (vi) such certificates relating to the foregoing
as FINOVA may request, including, without limitation, a monthly certificate
from the president and the chief financial officer of Borrower showing
Borrower's compliance with each of the financial covenants set forth in this
Agreement, and stating whether any Event of Default has occurred or event
which, with giving of notice or the passage of time, or both, would constitute
an Event of Default, and if so, the steps being taken to prevent or cure such
Event of Default. All reports or financial statements submitted by Borrower
shall be in reasonable detail and shall be certified by the principal financial
officer of Borrower as being complete and correct.
(c) Guarantor's Financial Statements and Tax Returns. Borrower shall
cause each of the Guarantors to deliver to FINOVA such Guarantor's annual
financial statement (in form acceptable to FINOVA) and a copy of such
Guarantor's federal income tax return with respect to the corresponding year,
in each case on the date when such tax return is due or, if earlier, on the
date when available.
9.2 Term; Termination.
(a) Term. The Initial Term of the Revolving Credit Loans facility and
the obligation of FINOVA to made advances with respect thereto in accordance
with this Agreement shall be as set forth on the Schedule, and the Revolving
Credit Loans facility and this Agreement shall be automatically renewed for one
or more Renewal Term(s) as set forth in the Schedule, unless earlier terminated
as provided herein.
(b) Prior Notice. Each party shall have the right to terminate this
Agreement effective at the end of the Initial Term or at the end of any Renewal
Term by giving the other party written notice not less than sixty (60) days
prior to the effective date of such termination, by registered or certified
mail.
(c) Payment in Full. Upon the effective date of termination, the
Obligations shall become immediately due and payable in full in cash.
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(d) Early Termination; Termination Fee. In addition to the procedure
set forth in Section 9.2(b), Borrower may terminate this Agreement at any time
but only upon sixty (60) days' prior written notice and prepayment of the
Obligations. Upon any such early termination by Borrower or any termination of
this Agreement by FINOVA upon the occurrence of an Event of Default, then, and
in any such event, Borrower shall pay to FINOVA upon the effective date of such
termination a fee (the "TERMINATION FEE") in an amount equal to the amount
shown on the Schedule.
9.3 Recourse to Security; Certain Waivers. All Obligations shall be
payable by Borrower as provided for herein and, in full, at the termination of
this Agreement; recourse to security shall not be required at any time.
Borrower waives presentment and protest of any instrument and notice thereof,
notice of default and, to the extent permitted by applicable law, all other
notices to which Borrower might otherwise be entitled.
9.4 No Waiver by FINOVA. Neither FINOVA's failure to exercise any
right, remedy or option under this Agreement, any supplement, the Loan
Documents or other agreement between FINOVA and Borrower nor any delay by
FINOVA in exercising the same shall operate as a waiver. No waiver by FINOVA
shall be effective unless in writing and then only to the extent stated. No
waiver by FINOVA shall affect its right to require strict performance of this
Agreement. FINOVA's rights and remedies shall be cumulative and not exclusive.
9.5 Binding on Successor and Assigns. All terms, conditions, promises,
covenants, provisions and warranties shall inure to the benefit of and bind
FINOVA's and Borrower's respective representatives, successors and assigns.
9.6 Severability. If any provision of this Agreement shall be
prohibited or invalid under applicable law, it shall be ineffective only to
such extent, without invalidating the remainder of this Agreement.
9.7 Amendments; Assignments. This Agreement may not be modified,
altered or amended, except by an agreement in writing signed by Borrower and
FINOVA. Borrower may not sell, assign or transfer any interest in this
Agreement or any other Loan Document, or any portion thereof, including,
without limitation, any of Borrower's rights, title, interests, remedies,
powers and duties hereunder or thereunder. Borrower hereby consents to FINOVA's
participation, sale, assignment, transfer or other disposition, at any time or
times hereafter, of this Agreement and any of the other Loan Documents, or of
any portion hereof or thereof, including, without limitation, FINOVA's rights,
title, interests, remedies, powers and duties hereunder or thereunder. In
connection therewith, FINOVA may disclose all documents and information which
FINOVA now or hereafter may have relating to Borrower or Borrower's business.
To the extent that FINOVA assigns its rights and obligations hereunder to a
third party, FINOVA shall thereafter be released from such assigned obligations
to Borrower and such assignment shall effect a novation between Borrower and
such third party.
9.8 Integration. This Agreement, together with the Schedule (which is
a part hereof) and the other Loan Documents, reflect the entire understanding
of the parties with respect to the transactions contemplated hereby.
9.9 Survival. All of the representations and warranties of Borrower
contained in this Agreement shall survive the execution, delivery and
acceptance of this Agreement by the parties. No termination of this Agreement
or of any guaranty of the Obligations shall affect or impair the powers,
obligations, duties, rights, representations, warranties or liabilities of the
parties hereto and all shall survive such termination.
9.10 Evidence of Obligations. Each Obligation may, in FINOVA's
discretion, be evidenced by notes or other instruments issued or made by
Borrower to FINOVA. If not so evidenced, such Obligation shall be evidenced
solely by entries upon FINOVA's books and records.
9.11 Loan Requests. Each oral or written request for a loan by any
Person who purports to be any employee, officer or authorized agent of Borrower
shall be made to FINOVA on or prior to 11:00 a.m., NEW YORK time, on the
Business Day on which the proceeds thereof are requested to be paid to Borrower
and shall be conclusively presumed to be made by a Person authorized by
Borrower to do so and the crediting of a loan to Borrower's operating account
shall conclusively establish Borrower's obligation to repay such loan. Unless
and until Borrower otherwise directs FINOVA in writing, all loans shall be
wired to Borrower's operating account set forth on the Schedule.
9.12 Notices. Any notice required hereunder shall be in writing and
addressed to the Borrower and FINOVA at their addresses set forth at the
beginning of this Agreement. Notices hereunder shall be deemed received on the
earlier of receipt, whether by mail, personal delivery, facsimile, or
otherwise, or upon deposit in the United States mail, postage prepaid.
9.13 Brokerage Fees. Borrower represents and warrants to FINOVA that,
with respect to the financing transaction herein contemplated, no Person is
entitled to any brokerage fee or other commission other than (a) $20,000
payable on the closing date, and (b) $30,000 payable in six (6) equal
consecutive monthly installments commencing one month after the
- 22 -
<PAGE>
Closing Date, to Fresh Capital Financial Services, Inc., and, to the extent
available to Borrower hereunder, Borrower hereby irrevocably requests and
authorizes FINOVA to remit such Loan proceeds to Fresh Capital Financial
Services Inc. to effectuate the payment of such brokerage fees, and Borrower
agrees to indemnify and hold FINOVA harmless against any and all such claims.
9.14 Disclosure. No representation or warranty made by Borrower in
this Agreement, or in any financial statement, report, certificate or any other
document furnished in connection herewith contains any untrue statement of a
material fact or omits to state any material fact necessary to make the
statements herein or therein not misleading. There is no fact known to Borrower
or which reasonably should be known to Borrower which Borrower has not
disclosed to FINOVA in writing with respect to the transactions contemplated by
this Agreement which materially and adversely affects the business, assets,
operations, prospects or condition (financial or otherwise), of Borrower.
9.15 Publicity. FINOVA is hereby authorized to issue appropriate press
releases and to cause a tombstone to be published announcing the consummation
of this transaction and the aggregate amount thereof.
9.16 Captions. The Section titles contained in this Agreement are
without substantive meaning and are not part of this Agreement.
9.17 Injunctive Relief. Borrower recognizes that, in the event
Borrower fails to perform, observe or discharge any of its Obligations under
this Agreement, any remedy at law may prove to be inadequate relief to FINOVA.
Therefore, FINOVA, if it so requests, shall be entitled to temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages.
9.18 Counterparts; Facsimile Execution. This Agreement may be executed
in one or more counterparts, each of which taken together shall constitute one
and the same instrument, admissible into evidence. Delivery of an executed
counterpart of this Agreement by telefacsimile shall be equally as effective as
delivery of a manually executed counterpart of this Agreement. Any party
delivering an executed counterpart of this Agreement by telefacsimile shall
also deliver a manually executed counterpart of this Agreement, but the failure
to deliver a manually executed counterpart shall not affect the validity,
enforceability, and binding effect of this Agreement.
9.19 Construction. The parties acknowledge that each party and its
counsel have reviewed this Agreement and that the normal rule of construction
to the effect that any ambiguities are to be resolved against the drafting
party shall not be employed in the interpretation of this Agreement or any
amendments or exhibits hereto.
9.20 Time of Essence. Time is of the essence for the performance by
Borrower of the Obligations set forth in this Agreement.
9.21 Limitation of Actions. Borrower agrees that any claim or cause of
action by Borrower against FINOVA, or any of FINOVA's directors, officers,
employees, agents, accountants or attorneys, based upon, arising from, or
relating to this Agreement, or any other present or future agreement, or any
other transaction contemplated hereby or thereby or relating hereto or thereto,
or any other matter, cause or thing whatsoever, whether or not relating hereto
or thereto, occurred, done, omitted or suffered to be done by FINOVA, or by
FINOVA's directors, officers, employees, agents, accountants or attorneys,
whether sounding in contract or in tort or otherwise, shall be barred unless
asserted by Borrower by the commencement of an action or proceeding in a court
of competent jurisdiction by the filing of a complaint within one year after
the first act, occurrence or omission upon which such claim or cause of action,
or any part thereof, is based and service of a summons and complaint on an
officer of FINOVA or any other Person authorized to accept service of process
on behalf of FINOVA, within 30 days thereafter. Borrower agrees that such
one-year period of time is a reasonable and sufficient time for Borrower to
investigate and act upon any such claim or cause of action. The one-year period
provided herein shall not be waived, tolled, or extended except by a specific
written agreement of FINOVA. This provision shall survive any termination of
this Loan Agreement or any other agreement.
9.22 Liability. Neither FINOVA nor any FINOVA Affiliate shall be
liable for any indirect, special, incidental or consequential damages in
connection with any breach of contract, tort or other wrong relating to this
Agreement or the Obligations or the establishment, administration or collection
thereof (including without limitation damages for loss of profits, business
interruption, or the like), whether such damages are foreseeable or
unforeseeable, even if FINOVA has been advised of the possibility of such
damages. Neither FINOVA, nor any FINOVA Affiliate shall be liable for any
claims, demands, losses or damages, of any kind whatsoever, made, claimed,
incurred or suffered by the Borrower through the ordinary negligence of FINOVA,
or any FINOVA Affiliate. "FINOVA AFFILIATE" shall mean FINOVA's directors,
officers, employees, agents, attorneys or any other Person or entity affiliated
with or representing FINOVA.
- 23 -
<PAGE>
9.23 Notice of Breach by FINOVA. Borrower agrees to give FINOVA
written notice of (i) any action or inaction by FINOVA or any attorney of
FINOVA in connection with any Loan Documents that may be actionable against
FINOVA or any attorney of FINOVA or (ii) any defense to the payment of the
Obligations for any reason, including, but not limited to, commission of a tort
or violation of any contractual duty or duty implied by law. Borrower agrees
that unless such notice is fully given as promptly as possible (and in any
event within thirty (30) days) after Borrower has knowledge, or with the
exercise of reasonable diligence should have had knowledge, of any such action,
inaction or defense, Borrower shall not assert, and Borrower shall be deemed to
have waived, any claim or defense arising therefrom.
9.24 Application of Insurance Proceeds. The net proceeds of any
casualty insurance insuring the Collateral, after deducting all costs and
expenses (including attorneys' fees) of collection, shall be applied, at
FINOVA's option, either toward replacing or restoring the Collateral, in a
manner and on terms satisfactory to FINOVA, or toward payment of the
Obligations. Any proceeds applied to the payment of Obligations shall be
applied in such manner as FINOVA may elect. In no event shall such application
relieve Borrower from payment in full of all installments of principal and
interest which thereafter become due in the order of maturity thereof.
9.25 Power of Attorney. Borrower appoints FINOVA and its designees as
Borrower's attorney, with the power to endorse Borrower's name on any checks,
notes, acceptances, money orders or other forms of payment or security that
come into FINOVA's possession; to sign Borrower's name on any invoice or bill
of lading relating to any Receivable, on drafts against customers, on
assignments of Receivables, on notices of assignment, financing statements and
other public records, on verifications of accounts and on notices to customers
or account debtors; to send requests for verification of Receivables to
customers or account debtors; after the occurrence of any Event of Default, to
notify the post office authorities to change the address for delivery of
Borrower's mail to an address designated by FINOVA and to open and dispose of
all mail addressed to Borrower; and to do all other things FINOVA deems
necessary or desirable to carry out the terms of this Agreement. Borrower
hereby ratifies and approves all acts of such attorney. Neither FINOVA nor any
of its designees shall be liable for any acts or omissions nor for any error of
judgment or mistake of fact or law while acting as Borrower's attorney. This
power, being coupled with an interest, is irrevocable until the Obligations
have been fully satisfied and FINOVA's obligation to provide loans hereunder
shall have terminated
9.26 GOVERNING LAW; WAIVERS. THIS AGREEMENT, INCLUDING WITHOUT
LIMITATION ENFORCEMENT OF THE OBLIGATIONS, SHALL BE INTERPRETED IN ACCORDANCE
WITH THE INTERNAL LAWS (AND NOT THE CONFLICT OF LAWS RULES) OF THE STATE OF
ARIZONA GOVERNING CONTRACTS TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.
BORROWER HEREBY CONSENTS TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL
COURT LOCATED WITHIN THE COUNTY OF MARICOPA IN THE STATE OF ARIZONA OR, AT THE
SOLE OPTION OF FINOVA, IN ANY OTHER COURT IN WHICH FINOVA SHALL INITIATE LEGAL
OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE
MATTER IN CONTROVERSY. BORROWER WAIVES ANY OBJECTION OF FORUM NON CONVENIENS
AND VENUE. BORROWER FURTHER WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON
IT, AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE IN THE MANNER SET
FORTH IN SECTION 9.12 HEREOF FOR THE GIVING OF NOTICE. BORROWER FURTHER WAIVES
ANY RIGHT IT MAY OTHERWISE HAVE TO COLLATERALLY ATTACK ANY JUDGMENT ENTERED
AGAINST IT.
- 24 -
<PAGE>
9.27 MUTUAL WAIVER OF RIGHT TO JURY TRIAL. FINOVA AND BORROWER EACH
HEREBY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED
UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO: (I) THIS AGREEMENT; (II) ANY
OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN FINOVA AND BORROWER; OR
(III) ANY CONDUCT, ACTS OR OMISSIONS OF FINOVA OR BORROWER OR ANY OF THEIR
DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS
AFFILIATED WITH FINOVA OR BORROWER; IN EACH OF THE FOREGOING CASES, WHETHER
SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
BORROWER:
AMERICAN FACTORS GROUP, INC.
FED. TAX ID # 65-0821333
BY_______________________________
PRESIDENT OR VICE PRESIDENT
On this 8th day of May, 1998 before me personally came
Frederick Horwin who stated that he is the President of American Factors Group,
Inc. and who executed the foregoing Loan and Security Agreement in his capacity
as such officer by order of its Board of Directors.
----------------------------
Notary Public NOTARY PUBLIC, CLAYTON COUNTY,GEORGIA
MY COMMISSION EXPIRES FEB. 25, 2000
FINOVA:
FINOVA CAPITAL CORPORATION
BY_______________________________
TITLE______________________________
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<PAGE>
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWER: AMERICAN FACTORS GROUP, INC.
ADDRESS: 1800 CORPORATE BOULEVARD, SUITE 101
BOCA RATON, FL
DATE: MAY ____, 1998
This Schedule forms an integral part of the Loan and Security Agreement between
the above Borrower and FINOVA Capital Corporation dated the above date, and all
references herein and therein to "this Agreement" shall be deemed to refer to
said Agreement and to this Schedule.
===============================================================================
DEFINITIONS (SECTION 1):
"Guarantor" means MEDLEY CREDIT ACCEPTANCE CORPORATION.
"Subordinating Creditor" - None
===============================================================================
TOTAL FACILITY (SECTION 2.1):
$2,000,000.00 DURING THE FIRST SIX MONTHS FROM THE DATE HEREOF, WHICH AMOUNT
SHALL INCREASE BY $500,000.00 EVERY MONTH THEREAFTER UP TO A MAXIMUM AMOUNT OF
$4,000,000.00
===============================================================================
LOANS (SECTION 2.2):
REVOLVING CREDIT LOANS: A revolving line of
credit consisting of loans against Borrower's
Eligible Receivables ("RECEIVABLE LOANS") (the
Receivable Loans shall also be referred to as the
"REVOLVING CREDIT LOANS") in an aggregate
outstanding principal amount not to exceed the
lesser of (a) or (b) below:
(a) $2,000,000.00 DURING THE FIRST SIX
MONTHS FROM THE DATE HEREOF, WHICH AMOUNT
SHALL INCREASE BY $500,000.00 EVERY SIX (6)
MONTHS THEREAFTER UP TO A MAXIMUM AMOUNT OF
($4,000,000.00) (the "REVOLVING CREDIT
LIMIT"), less any Loan Reserves, or
(b) the difference of
<PAGE>
(i) an amount equal to (A) 90% of the
Initial Payment Amount of the net
amount of Eligible Receivables;
(ii) any Loan Reserves.
INTEREST AND FEES (SECTION 2.5):
Revolving Interest Rate. Borrower shall pay FINOVA
interest on the daily outstanding balance of
Borrower's Revolving Credit Loans at a per annum
rate of one and one-half of one percent (1 1/2%) in
excess of the rate of interest announced publicly by
Citibank, N.A., (or any successor thereto), from
time to time as its "prime rate" (the " PRIME RATE")
which may not be such institution's lowest rate. The
interest rate chargeable hereunder in respect of the
Revolving Credit Loans (herein, the "REVOLVING
INTEREST RATE") shall be increased or decreased, as
the case may be, without notice or demand of any
kind, upon the announcement of any change in the
Prime Rate. Each change in the Prime Rate shall be
effective hereunder on the first day following the
announcement of such change. Interest charges and
all other fees and charges herein shall be computed
on the basis of a year of 360 days and actual days
elapsed and shall be payable to FINOVA in arrears on
the first day of each month.
Minimum Interest Charge. With respect to each
calendar month or portion thereof during the term of
this Agreement (excluding the calendar month in
which this Agreement is executed), Borrower shall
also pay FINOVA, on the first day of the next month,
as a minimum charge, the amount by which accrued
interest pursuant to the Revolving Interest Rate
section above for such month or portion thereof is
less than the interest which would have been earned
by FINOVA had the average outstanding loan balance
during the entire month been equal to the lessor of
(a) the Credit Limit in effect in any such month or
(b) $2,500,000.00(the "Minimum Interest Charge").
Notwithstanding the occurrence of any Event of
Default hereunder or termination of this Agreement
by FINOVA as a result thereof, the Minimum Interest
Charge shall be paid by Borrower for the unexpired
portion of the Initial Term or any Renewal Term of
this Agreement.
Collateral Monitoring Fee. At the closing of this
transaction and on the first day of each calendar
month thereafter, Borrower shall pay FINOVA a
collateral monitoring fee of $1,500.00 ("COLLATERAL
MONITORING FEE"); provided however, that Borrower
agrees and acknowledges that each Loan Year a -+full
year's fee shall be deemed earned at the beginning
of the respective Loan Year.
Closing Fee. At the closing of this transaction,
Borrower shall pay to FINOVA a closing fee in an
amount equal to one percent (1%) of the Total
Facility which shall be earned on the Closing Date,
but shall be payable in the following manner:
$20,000 at closing and thereafter eleven consecutive
monthly installments commencing the first month
anniversary of the Closing Date and on each one
month anniversary thereafter, the first ten (10)
installments each in the amount of One Thousand
Eight Hundred Eighteen
- 2 -
<PAGE>
Dollars ($1,818.00) and the 11th installment in the
amount of One Thousand One Hundred Twenty Dollars
($1,820.00).
Facility Fee. Borrower shall pay to FINOVA a
facility fee equal to 1% per annum of the amount of
the Total Facility ("FACILITY FEE"). The Facility
Fee shall be deemed fully earned at the time when
due and shall be due and is otherwise due and
payable annually commencing on the first anniversary
of the date of this Agreement and continuing on each
subsequent anniversary thereof.
Examination Fee. Borrower agrees to pay to FINOVA an
examination fee in the amount of $600.00 per person
per day in connection with each audit or examination
of Borrower performed by FINOVA prior to or after
the date hereof, plus all costs and expenses
incurred in connection therewith (the "EXAMINATION
FEE"). Without limiting the generality of the
foregoing, Borrower shall pay to FINOVA an initial
Examination Fee in an amount equal to $600.00 per
person per day, plus all costs and expenses incurred
in connection therewith. Such initial Examination
Fee shall be deemed fully earned at the time of
payment and due and payable upon the closing of this
transaction, and shall be deducted from any good
faith deposit paid by Borrower to FINOVA prior to
the date of this Agreement.
===============================================================================
CONDITIONS OF CLOSING (SECTION 4.1):
The obligation of FINOVA to make the initial
advance hereunder is subject to the fulfillment,
to the satisfaction of FINOVA and its counsel, of
each of the following conditions, in addition to
the conditions set forth in Sections 4.1 and 4.2
above:
(a) Lease and Landlord's Consent (Section 4.1(t)).
Location(s): 1800 Corporate Boulevard, Suite 101,
Boca Raton, FL
(b) No Material Adverse Change (Section 4.1(u)).
Draft financial statements for Seller dated as of
August 31, 1997. Further, no material adverse
change has occurred in the Borrower's business,
operations, financial condition, or assets or in
the prospect of repayment of the Obligations
since April 7, 1998.
(d) Validity and Support Agreements. Frederick
Horwin, Thomas Wheatly, Jr. and Robert Press
shall each have delivered a Validity and Support
Agreement in favor of FINOVA, and in form and
substance satisfactory to FINOVA.
Borrower shall cause the conditions precedent set
forth in Section 4.1 of this Agreement and set
forth above in this Schedule to be satisfied, and
shall provide evidence to FINOVA that all such
conditions precedent have been satisfied, on or
before May 15, 1998.
- 3 -
<PAGE>
===============================================================================
BORROWER INFORMATION:
Borrower's State of Incorporation (Section 5.1): Florida
Borrower's copyrights, patents trademarks, and licenses (Section 5.5):
None.
Fictitious Names/Prior Corporate Names (Section 5.2): None
Prior Corporate Names: NONE
Fictitious Names: NONE
Borrower Locations (Section 5.16)
1800 Corporate Boulevard
Suite 101, Boca Raton, FL
Borrower's Federal Tax Identification Number (Section 5.16): 65-0821333
Permitted Encumbrances (Section 1.1) NONE
===============================================================================
FINANCIAL COVENANTS (SECTION 6.1.13):
Borrower shall comply with all of the
following covenants. Compliance shall be
determined as of the end of each month or
quarter (as determined by FINOVA in its
sole discretion), except as otherwise
specifically provided below:
Net Worth. Borrower shall at all times maintain Net
Worth (which for purposes of this
calculation shall include as equity
Indebtedness due to Medley Acceptance
Corporation which is subordinated to FINOVA
on terms acceptable to FINOVA) of not less
than $750,000.00 and which amount shall
increase by increments of no less than
$50,000.00 during each fiscal year end that
this Agreement is in effect (this covenant
shall be measured semi-annually).
===============================================================================
NEGATIVE COVENANTS (SECTION 6.2):
Employee Advances: Borrower shall not make any loans or
advances to Employees except in the ordinary course
of business and consistent with past practices of
Borrower in an aggregate amount not exceeding at any
time $5,000.
Existing Guaranties: None.
- 4 -
<PAGE>
Capital Expenditures: Borrower shall not make or incur any
Capital Expenditure if, after giving effect thereto,
the aggregate amount of all Capital Expenditures by
Borrower in any fiscal year (beginning with the 1998
fiscal year) would exceed $25,000 without FINOVA's
consent, which consent shall not be unreasonably
withheld.
Compensation: Borrower shall not pay total compensation,
including salaries, withdrawals, fees,
bonuses, commissions, drawing accounts and
other payments, whether directly or
indirectly, in money or otherwise, during
any fiscal year to those employees of
Borrower and their spouses who are employed
by Borrower, who are shareholders of
Borrower in excess of what is provided for
in the employment agreements (copies of
which have been delivered to FINOVA) and
which shall not be amended as to
compensation without FINOVA's written
consent) between Borrower and any such
employees.
Indebtedness: Borrower shall not create, incur, assume or
permit to exist any Indebtedness (including
Indebtedness in connection with Capital
Leases) in excess of $25,000.00 other than
(i) the Obligations, (ii) trade payables
and other contractual obligations to
suppliers and customers incurred in the
ordinary course of business and (iii) other
Indebtedness existing on the date of this
Agreement and reflected in Exhibit 6.2
attached hereto and (iv) Indebtedness owed
to Medley Credit Acceptance Corporation
which is subordinated to FINOVA on terms
acceptable to FINOVA.
===============================================================================
REPORTING REQUIREMENTS (SECTION 9.1):
1. Borrower shall provide FINOVA with monthly
agings aged by invoice date and reconciliations
of Receivables within ten (10) days after the
end of each month or as otherwise requested.
2. Borrower shall provide FINOVA with monthly
unaudited income statement and balance sheet
within thirty (30) days after the end of each
month.
3. Borrower shall provide FINOVA with audited
consolidated and consolidating fiscal financial
statements within ninety (90) days after the end
of each fiscal year, as more specifically
described in Section 9.1(b) hereof, and with an
opinion issued by a Certified Public Accountant
which is acceptable to FINOVA.
4. Borrower shall provide FINOVA with annual
operating budgets (including income statements,
balance sheets and cash flow statements, by
month) for the upcoming fiscal year of Borrower
within thirty (30) days prior to the end of each
fiscal year of Borrower.
5. Borrower's balance sheets for purposes of the
definition of Prepared Financials shall be as of
December 31.
- 5 -
<PAGE>
===============================================================================
TERM (SECTION 9.2):
The initial term of this Agreement shall be TWO
(2) year(s) from the date hereof (the "INITIAL
TERM") and shall be automatically renewed for
successive periods of one (1) year each (each, a
"RENEWAL TERM"), unless earlier terminated as
provided in Section 7 or 9.2 above or elsewhere
in this Agreement.
===============================================================================
TERMINATION FEE (SECTION 9.2):
(A) Revolving Credit Loans Facility. The
Termination Fee applicable to the Revolving
Credit Loans facility provided for in Section
9.2(d) shall be an amount equal to the following
percentage of the average daily outstanding
balance of the Obligations for the 180-day period
(or lesser period if applicable) preceding the
date of termination:
(i) Five percent (5%), if such early termination
occurs on or prior to the first year anniversary
of the date of this Agreement;
(ii) two percent (2%), if such early termination
occurs after the first year anniversary of the
date of this Agreement, but prior to the
eighteenth month anniversary of this Agreement;
and
(iii) one percent (1%) if such early termination
occurs after the eighteenth month anniversary but
prior to the second year anniversary of this
Agreement.
- 6 -
<PAGE>
DISBURSEMENT (SECTION 9.11):
Unless and until Borrower otherwise directs
FINOVA in writing, all loans shall be wired to
Borrower's following operating account:
ABA No. 063000021
A/C NO. 2020000574556
First Union National Bank, Jacksonville, Florida
===============================================================================
BORROWER: FINOVA:
AMERICAN FACTORS GROUP, INC. FINOVA CAPITAL
CORPORATION
BY_______________________________ BY____________________________
PRESIDENT OR VICE PRESIDENT TITLE_________________________
On this day of May, 1998 before me personally came Frederick Horwin
who stated that he is the President of American Factors Group, Inc. and who
executed the foregoing Loan and Security Agreement in his capacity as such
officer of said corporation by order of its Board of Directors.
- ------------------------------------
Notary Public NOTARY PUBLIC, CLAYTON COUNTY, GEORGIA
MY COMMISSION EXPIRES FEB. 25, 2000
- 7 -
<PAGE>
EXHIBIT A
<PAGE>
PURCHASE AND SALE AGREEMENT
(NONRECOURSE)
Date:______________
Seller:________________________________________________________________________
This Purchase and Sale Agreement (the "Agreement") is made and entered into
as of the above date (the "Contract Date") by the Seller and the Purchaser,
AMERICAN FACTORS GROUP, INC. a Florida Corporation ("AFG"). In consideration of
the mutual promises and covenants contained herein the Seller and AFG hereby
agree to the terms and conditions contained herein and in any Addendum and/or
Attachments to this Agreement. Unless otherwise provided, this Agreement shall
serve as a Master Agreement, under the same terms and conditions, for all
future purchases of invoices by AFG from Seller.
1. PURCHASE AND SALE OF INVOICES
(a) Assignment and Ownership of Accounts Receivable: Seller hereby sells,
transfers, conveys, assigns, endorses and delivers to AFG as absolute owner,
all of the Seller's right, title and interest in all the accounts receivables
and invoices which are subject thereof and evidence of same (and collection
rights thereto) individually identified on Attachment "A" to this Agreement or
on subsequently executed Bulk Assignments ("Accounts Receivable"). For purposes
of this Agreement, the purchase of multiple invoices by AFG at any one time
shall be considered the purchase of one (1) invoice in the aggregate amount of
all invoices purchased.
(b) Authority to collect Accounts Receivable: AFG as the sole and
absolute owner of the Accounts Receivable, shall have the sole and exclusive
power and authority to collect each Account Receivable through legal action or
otherwise, and may, in its sole determination, settle, compromise, or assign
(in whole or part) any of the Accounts Receivable. Seller shall make no
attempt to have the Accounts Receivable paid directly to it by an Account
Debtor. Seller hereby appoints AFG (and its agents and employees) as its lawful
attorney-in-fact (which appointment is coupled with an interest and cannot be
revoked by Seller so long as AFG is the owner of an unpaid Account Receivable)
for the purpose of collecting the Accounts Receivable. Seller agrees that it
will not negotiate any funds it may receive in payment of any invoices assigned
to AFG and shall forward all such payments within 48 hours to AFG in the same
form as received to the address set forth in this Agreement or as otherwise
instructed.
(c) Payment of Purchase Price: AFG shall pay Seller a purchase price
(the "Purchase Price") for the Accounts Receivable equal to the gross face
amount of the Accounts Receivable, less
1
<PAGE>
the discount earned by AFG (the "Discount") and less any payment discounts or
offsets taken by the account debtors (either revealed or concealed, known or
unknown, proper or improper). The Discount earned by AFG shall be based on the
Discount Schedule on Exhibit "B" which is attached hereto and made a part of
this Purchase and Sale Agreement. Upon the execution of this Agreement by Seller
and AFG the Purchase Price shall be paid by check as follows:
(1) An initial payment (the "Initial Payment") equal to % of
the gross face amount of the Accounts Receivable less any Adjustments (as
defined below) and less any retainage to be held by the account debtor. The
Initial Payment shall be made to Seller at the time of AFG's acceptance of
Seller's offer of the sale of the Accounts Receivable and the delivery by
Seller of all required documents including but not limited to properly executed
Assignments of invoices and acknowledgements of the assignment of said invoices
by the account debtors; and
(2) A final payment (the "Final Payment") drawn against the
reserve (the "Reserve") equal to: the Purchase Price less (i) the Initial
Payment: (ii) the Discount; and (iii) payment discounts or offsets taken by the
account debtors.
(d) As soon as AFG collects the aggregate amount of the Accounts
Receivable from the account debtors, AFG will deliver a check to Seller (drawn
against the Reserve) for the aggregate amount collected, less the initial
Payment, less the Discount earned by AFG and less any reimbursable expenses
("Adjustment") incurred by AFG for the purpose of compensating AFG for any sums
owing AFG pursuant to Section 2 of this or any other Purchase and Sale
Agreement by and between Seller and AFG.
2. SELLER'S REPRESENTATIONS: Seller represents, warrants and covenants to
AFG that:
(a) Seller is the sole owner of the Accounts Receivable and none of the
Accounts Receivable have been previously assigned or encumbered in any manner.
Seller has the full power and authority to sell each of the Accounts Receivable
and has duly authorized their sale to AFG through this Purchase and Sale
Agreement.
(b) Each Account Receivable is current and presently due to Seller;
and is for the amount stated in Attachment A. There are no set-offs,
deductions, disputes, contingencies or counterclaims against Seller on any of
the Accounts Receivable. Except for the customer's financial ability to pay or
bankruptcy each Account Receivable is due and collectible in full no later than
ninety (90) days after the date on each said Account Receivable.
(c) Each Account Receivable is current and presently due and owing to
Seller and payment is not contingent upon the fulfillment of any other
obligation at any time.
(d) AFG shall be the sole owner and holder of the Accounts Receivable,
together with any products, proceeds, contract rights and/or claims relating to
the Accounts Receivable, all of
2
<PAGE>
which are to be deemed a part of the Accounts Receivable; however, should Seller
receive payment of all or any portion of any of the Accounts Receivable, Seller
shall so notify AFG immediately and shall hold all checks and other instruments
received in trust for AFG and shall deliver to AFG such checks and other
instruments (or, at the direction of AFG the proceeds thereof) without delay.
(e) Seller presents that any payments received by it on Accounts
Receivable assigned to AFG shall be deemed "Trust Funds" and if not remitted to
AFG shall constitute a debt which can not be discharged in Bankruptcy or such
other laws intended to give debtor relief.
(f) Seller hereby ratifies and confirms each of the statements made in
its most current Corporate Resolution delivered to AFG authorizing the sale of
Accounts Receivable to AFG.
In deciding to purchase the Accounts Receivable, AFG has materially
relied upon the documents and other information provided by Seller and upon
Seller's representations contained in this section 2 herein. All
representations, warranties, indemnities and covenants of the Seller under this
Agreement shall survive the termination for any reason of this Agreement until
such time as AFG has collected in full any and all Accounts Receivable or
monies due it under this Agreement.
3. NO RECOURSE TO SELLER.
AFG warrants to Seller that if any Account Receivable is not paid by an
account debtor other than for a reason which would be a breach of the
provisions of Section 2 of this Purchase and Sale Agreement, then neither
Seller nor any guarantor shall be liable to return to AFG the amount of the
Initial Payment.
4. COLLECTION AND ATTORNEY'S FEES.
AFG shall have the full power and authority to collect each Account
Receivable, through legal action or otherwise, and may, in its sole
discretion, settle, compromise, or assign (in whole or in part) any of the
Accounts Receivable, or otherwise exercise any other right now existing or
hereafter arising with respect to any of the Accounts Receivable, if such
action will, facilitate collection. Seller and each guarantor shall jointly
and severally be liable for the full amount of the attorney's fees incurred
in collection, together with interest on the amount of the Accounts
Receivable from the date hereof to the date of satisfaction at the maximum rate
permitted by law. If AFG or Seller is required to enforce their rights
hereunder against the other party, by virtue of a breach by the other party of
the provisions of Section 2 hereof, then in addition to any other obligations
hereunder, the prevailing party shall be entitled to recover reasonable
attorney's fees and costs from the other party.
5. ADDENDUM.
An addendum is or is not attached to this
Agreement.
3
<PAGE>
6. REIMBURSABLE EXPENSES. ("Adjustments") In connection with the purchase
of the Accounts Receivable, AFG may incur expenses relating to providing reports
or services to Seller either inside or outside the scope of this Agreement.
AFG shall be entitled to reimbursement from Seller for expenses incurred for
overnight delivery services (e.g. Fed Ex) and wire transfer of funds. AFG shall
furnish to Seller, upon request, a schedule promulgated by AFG from time to
time setting forth the cost of such reimbursements.
7. DEFAULT BY SELLER.
(a) The following shall be an "Event of Default" under this Agreement:
(1) A misrepresentation by Seller, (intentional or otherwise)
of any representation, covenant, or warranty contained herein.
(2) A misstatement of a fact (other than a clerical error)
regarding any of the Accounts Receivables as to amount, validity, lack of
defenses, offsets, counterclaims or credits by the account debtor or liability
of the account debtor for payment of the invoice in accordance with its terms.
(3) Failure of AFG to receive payment in full of any Account
Receivable (in collected funds), due to the act or failure to act of the Seller
other than financial inability or bankruptcy of an account debtor. As used
herein, the term "bankruptcy" shall mean a judicially supervised insolvency or
bankruptcy proceeding seeking the discharge of an account debtor's debts which
proceeding is initiated after the sale of the particular Account Receivable to
AFG.
(4) A breach by Seller of any other provision of any written
agreement between Seller and AFG which breach is not cured within three (3)
days after receipt of faxed notice of such breach by Seller.
(b) In the event Seller commits an Event of Default hereunder, AFG
shall have, in addition to all remedies available to AFG at law or in equity,
the following specific remedies:
(1) AFG may take for AFG's account a credit against any
Reserve or any other payments received by AFG for or on the account of Seller.
(2) AFG may demand that Seller repurchase an Account
Receivable from AFG and pay to AFG the amount of the Initial Payment made by
AFG on the Account Receivable plus the Discount which would have been earned
by AFG.
(3) AFG may notify Seller, in writing, that it is requiring
Seller to repurchase all unpaid Accounts Receivable purchased by AFG from
Seller under this and all other agreements between Seller and AFG. The purchase
price to be paid by Seller within seven (7) days after receipt of said notice
from AFG shall be the sum of (i) the Initial Payment paid by AFG for the unpaid
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<PAGE>
Accounts Receivable, and (ii) the Discount which would have been earned by AFG
had all such unpaid Accounts Receivable been paid in full as of the date of the
written notice to Seller set forth above, plus any adjustments;
(4) Any and all rights and remedies available to a secured
party under the Florida Uniform Commercial Code;
(5) The right to deduct and offset from any amount due Seller
any loss, liability, damage or expense caused by such breach;
(6) The right to sue and recover from the Seller all direct,
special and consequential damages of AFG.
(c) Under no circumstances shall AFG be obligated to pursue collection
of the Accounts Receivable through litigation or otherwise before pursuing and
remedies set forth herein.
(d) The remedies set forth herein are not the exclusive remedies of
AFG and may be sought in any combination.
8. ATTORNEY IN FACT.
Seller hereby appoints AFG its attorney-in-fact (which appointment is
coupled with an interest and is therefore irrevocable by Seller so long as AFG
is the owner of an unpaid Account Receivable for the purpose of signing and
endorsing on behalf of Seller, all checks, drafts, and other forms of payment
received by AFG in connection with the payment of each Account Receivable and
payment of any other amounts due AFG by Seller.
9. SECURITY INTEREST.
In order to secure Seller's performance under this Agreement and the
truth and accuracy of the representations, warranties and covenants made by
Seller hereunder, Seller hereby grants to AFG a security interest in Seller's
existing and future accounts, contract rights, receivables and claims and all
proceeds and replacements thereof and all general intangibles in connection
therewith Seller further agrees to comply with all appropriate requests from
AFG in order to perfect AFG security interest in and to such collateral and to
execute any financing statement(s) or additional documents as AFG may require,
including a security agreement separate herefrom. Upon termination of this
Agreement by agreement of the parties or by fulfillment of all conditions
hereunder by all parties, AFG shall forward a properly executed UCC-3 to Seller
within five (5) days after receipt of written request from Seller and the
satisfactions of all the Seller's obligations and the delivery of all required
indemnities to the Lender.
5
<PAGE>
NOTICES
10. Any communication, delivery or notice to be given hereunder shall
be duly given if in writing and mailed certified mail, telefaxed or overnight
delivery as follows:
(1) To AFG: 1800 Corporate Blvd.
-----------------------
Suite 101
-----------------------
Boca Raton, FL 33431
-----------------------
-----------------------
-----------------------
-----------------------
(2) To Seller:
-----------------------
-----------------------
-----------------------
(3) To Guarantor :
-----------------------
-----------------------
-----------------------
11. Miscellaneous Provisions:
(a) Construction and Governing Law: This Agreement shall be construed
and enforced under the laws of the State of Florida. In the event any provision
of this Agreement shall be declared invalid by a court of competent
jurisdiction, said invalidity shall not invalidate the Agreement as a whole,
but said Agreement shall be construed as if the invalidated provision was
omitted from the Agreement.
(b) Entire Agreement: This Agreement supersedes and cancels any and
all other contracts referring to the subject matter herein. No modifications,
alteration or waiver of this Agreement shall be effective unless in writing and
executed by the parties hereto.
(c) Assignability: This Agreement shall inure to the benefit of AFG,
its successors and assigns. This Agreement and the rights conferred herein
shall be non-assignable by the Seller.
(d) Counterparts: This Agreement may be executed in several
counterparts, each of
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<PAGE>
which shall be deemed an original, but all of which counterparts collectively
shall constitute one instrument representing the Agreement between the parties
hereto.
(e) Captions: Captions of the various section contained in this
Agreement are intended to be used solely for convenience of the Parties and are
not intended, nor are they deemed to modify, or explain or to be used as an aid
in the construction of any of the provision of this Agreement.
(f) Attorney's Fees: In the event of any litigation arising out of the
terms of this Agreement, the prevailing party shall be entitled to
reimbursement of reasonable attorney's fees and costs at both the trial court
level and on appeal.
(g) Waiver of Trial by Jury: Seller and AFG hereby knowingly,
irrevocably, voluntarily and intentionally waive any right either may have to a
trial by jury in respect of any action, proceeding or counterclaim based on
this Agreement, or arising out of, under or in connection with this Agreement
or any Agreement contemplated to be executed in connection with this Agreement,
or any course of conduct, course of dealing, statements (whether verbal or
written) or actions of any party hereto.
AS TO PURCHASER: AS TO SELLER:
AMERICAN FACTORS GROUP, INC. __________________________
a Florida Corporation __________________________
By: ________________________ By: ______________________
Name: ______________________ Name: ____________________
Title: _____________________ Title: ___________________
PERSONAL GUARANTY AND JOINDER
The undersigned hereby personally, absolutely and unconditionally guarantees
the truth and accuracy of the representations and warranties of Seller herein
and the payment and performance of Seller's obligations under this Agreement.
The undersigned shall be primarily liable for such obligations and in the event
Seller commits an event of default, AFG may invoke the benefits of this
guaranty before pursuing any remedies against Seller and before proceeding
against any collateral for such obligation.
--------------------------
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<PAGE>
EXHIBIT 4.1
<PAGE>
FINOVA CAPITAL CORPORATION
BORROWER: AMERICAN FACTORS GROUP, INC.
DOCUMENT CHECKLIST
PART I: PARTIES
Borrower: American Factors, Group, Inc.
1800 Corporate Blvd.
Suite 101
Boca Raton, Florida 33431
-----------------------------------------
-----------------------------------------
-----------------------------------------
-----------------------------------------
Lender: FINOVA Capital Corporation ("FINOVA")
111 West 40th Street
New York, NY 10018
-----------------------------------------
-----------------------------------------
Attn: Bradford A. Mitch
-----------------------------------------
-----------------------------------------
Counsel to Lender: Paul B. Hahn
-----------------------------------------
Winick & Rich, P.C.
-----------------------------------------
919 Third Avenue
-----------------------------------------
New York, NY 10022
-----------------------------------------
Counsel to Borrower:
-----------------------------------------
-----------------------------------------
-----------------------------------------
-----------------------------------------
<PAGE>
PART II: DOCUMENTS
<TABLE>
<CAPTION>
Responsible Executed
Party Received
----- --------
<S> <C> <C>
Loan and Security Agreement with Lender ______
Schedule and Exhibits to Loan and Security Agreement
Secretary Certificate Borrower ______
Corporate Guaranty of Medley Credit Acceptance Corp. Lender ______
Secretary Certificate of Corp. Guarantor Lender ______
Validity and Support Agreement of Frederick Horwin Lender ______
Validity and Support Agreement of Thomas Wheatley, Jr. Lender ______
Validity and Support Agreement of Robert Press Lender ______
Form of Collateral Assignment of Credit Insurance Policy and Lender ______
copy of Policy
Landlord/Mortgagee Waivers: Lender ______
1800 Corporate Blvd., Suite 101, Boca Raton, Florida
Opinion of Borrower's Counsel Borrower ______
Copy of Articles of Incorporation of Borrower Borrower ______
Copy of Bylaws of Borrower Borrower ______
Certificate of Good Standing as a Domestic Corporation Lender ______
(Florida) and UCC search
UCC-1 Financing Statements Lender ______
Wire Instructions Borrower ______
Certificate of No Change Lender ______
Appointment of Agent - American Factors Group, Inc.
Note: Mark all Condition Subsequents with a *
2
<PAGE>
Appointment of Agent - Medley Credit Acceptance Corporation Lender ______
Subordination and Standstill Agreement ______ ______
Signature Authorization Lender ______
Evidence of Capitilization Borrower ______
Lock Box Agreement Lender ______
Certificate of Invoice ______ ______
Form of Factoring Agreement Borrower ______
Subordinated Note from American Factors to Medley Credit Borrower ______
Acknowledgement of Availability Lender ______
Disbursement Letter Lender ______
</TABLE>
Note: Mark all Condition Subsequents with a *
3
<PAGE>
EXHIBIT 6.2
<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS..........................................................2
1.1 Defined Terms...............................................2
1.2 Other Terms.................................................6
2. LOANS; INTEREST RATE AND OTHER CHARGES...............................7
2.1 Total Facility..............................................7
2.2 Loans.......................................................7
2.3 Overlines; Overadvances.....................................7
2.4 Loan Account................................................7
2.5 Interest; Fees..............................................7
2.6 Default Interest Rate.......................................7
2.7 Examination Fee.............................................7
2.8 Excess Interest.............................................7
2.9 Principal Payments; Proceeds of Collateral.................8
2.10 Application of Collateral...................................9
2.11 Application of Payments.....................................9
3. SECURITY............................................................10
3.1 Security Interest in the Collateral........................10
3.2 Perfection and Protection of Security Interest.............10
3.3 Preservation of Collateral.................................10
3.4 Insurance..................................................10
3.5 Collateral Reporting; Inventory............................10
3.6 Receivables................................................11
3.7 Equipment..................................................11
3.8 Other Liens; No Disposition of Collateral.................11
3.9 Collateral Security........................................11
3.10 Borrower's Factored Clients................................11
4. CONDITIONS OF CLOSING...............................................12
4.1 Initial Advance............................................12
4.2 Subsequent Advances........................................14
5. REPRESENTATIONS AND WARRANTIES......................................14
5.1 Due Organization...........................................14
5.2 Other Names................................................14
5.3 Due Authorization..........................................14
5.4 Binding Obligation.........................................14
5.5 Intangible Property........................................14
5.6 Capital....................................................15
5.7 Material Litigation........................................15
5.8 Title; Security Interests of FINOVA........................15
5.9 Restrictive Agreements; Labor Contracts....................15
5.10 Laws.......................................................15
5.11 Consents...................................................15
5.12 Defaults...................................................15
5.13 Financial Condition........................................15
5.14 ERISA......................................................15
5.15 Taxes......................................................15
5.16 Locations; Federal Tax ID No...............................15
5.17 Business Relationships.....................................15
5.18 Factoring Agreements.......................................16
5.19 Reaffirmations.............................................16
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<PAGE>
6. COVENANTS...........................................................16
6.1 Affirmative Covenants......................................16
6.2 Negative Covenants.........................................17
7. DEFAULT AND REMEDIES................................................18
7.1 Events of Default..........................................18
7.2 Remedies...................................................19
7.3 Standards for Determining Commercial Reasonableness........19
8. EXPENSES AND INDEMNITIES............................................19
8.1 Expenses...................................................19
8.2 Environmental Matters.....................................20
9. MISCELLANEOUS.......................................................21
9.1 Examination of Records; Financial Reporting................21
9.2 Term; Termination..........................................21
9.3 Recourse to Security; Certain Waivers......................22
9.4 No Waiver by FINOVA........................................22
9.5 Binding on Successor and Assigns...........................22
9.6 Severability...............................................22
9.7 Amendments; Assignments ...................................22
9.8 Integration................................................22
9.9 Survival...................................................22
9.10 Evidence of Obligations....................................22
9.11 Loan Requests..............................................22
9.12 Notices....................................................22
9.13 Brokerage Fees.............................................22
9.14 Disclosure.................................................23
9.15 Publicity..................................................23
9.16 Captions...................................................23
9.17 Injunctive Relief..........................................23
9.18 Counterparts; Facsimile Execution. ........................23
9.19 Construction...............................................23
9.20 Time of Essence............................................23
9.21 Limitation of Actions......................................23
9.22 Liability..................................................23
9.23 Notice of Breach by FINOVA.................................24
9.24 Application of Insurance Proceeds..........................24
9.25 Power of Attorney..........................................24
9.26 Governing Law; Waivers.....................................24
9.27 MUTUAL WAIVER OF RIGHT TO JURY TRIAL.......................25
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<PAGE>
CONTINUING CORPORATE GUARANTY
FOR VALUE RECEIVED, and in consideration of any loan or other
financial accommodation heretofore or hereafter at any time made or granted to
AMERICAN FACTORS GROUP, INC. ("Borrower"), by FINOVA CAPITAL CORPORATION
("Lender"), the undersigned, MEDLEY CREDIT ACCEPTANCE CORPORATION
("Guarantor"), hereby agrees as follows:
1. Guaranty of Obligations. Guarantor unconditionally, absolutely and
irrevocably guarantees the full and prompt payment and performance when due,
whether by acceleration or otherwise, and at all times thereafter, of all
obligations of Borrower to Lender, howsoever created, arising or evidenced,
whether direct or indirect, absolute or contingent, or now or hereafter
existing or due or to become due, including, without limitation, under or in
connection with that certain Loan and Security Agreement of even date, between
Borrower and Lender (the "Loan Agreement") and each of the documents,
instruments and agreements executed and delivered in connection therewith, as
each may be modified, amended, supplemented or replaced from time to time (all
such obligations are herein referred to collectively as the "Liabilities", and
all documents evidencing or securing any of the Liabilities are herein referred
to, collectively, as the "Loan Documents"). This Continuing Corporate Guaranty
(this "Continuing Guaranty") is a guaranty of payment and performance when due
and not of collection.
In the event of any default by Borrower in making payment of,
or default by Borrower in performance of, any of the Liabilities, Guarantor
agrees on demand by Lender to pay and perform all of the Liabilities as are
then or thereafter become due and owing or are to be performed under the terms
of the Loan Documents. Guarantor further agrees to pay all expenses (including
reasonable attorneys' fees and expenses) paid or incurred by Lender in
endeavoring to collect the Liabilities, or any part thereof, and in enforcing
this Continuing Guaranty.
2. Continuing Nature of Guaranty and Liabilities. This Continuing
Guaranty shall be continuing and shall not be discharged, impaired or affected
by:
a. the insolvency of Borrower or the payment in full of all
of the Liabilities at any time or from time to time;
b. the power or authority or lack thereof of Borrower to
incur the Liabilities;
<PAGE>
c. the validity or invalidity of any of the Loan Documents or
the documents securing the same;
d. the existence or non-existence of Borrower as a legal
entity;
e. any transfer by Borrower of all or any part of any
collateral in which Lender has been granted a lien or security interest
pursuant to the Loan Documents;
f. any statute of limitations affecting the liability of
Guarantor under this Continuing Guaranty or the Loan Documents or the ability
of Lender to enforce this Continuing Guaranty or any provision of the Loan
Documents; or
g. any right of offset, counterclaim or defense of Guarantor,
including, without limitation, those which have been waived by Guarantor
pursuant to Paragraph [9] hereof.
3. Insolvency of Borrower or Guarantor. Without limiting the
generality of any other provision hereof, Guarantor agrees that, in the event
of the dissolution or insolvency of Borrower or Guarantor or the inability of
Borrower or Guarantor to pay their respective debts as they mature, or an
assignment by Borrower or Guarantor for the benefit of creditors, or the
institution of any proceeding by or against Borrower or Guarantor alleging that
Borrower or Guarantor is insolvent or unable to pay their respective debts as
they mature, Guarantor will pay to Lender forthwith the full amount which would
be payable hereunder by Guarantor if all of the Liabilities were then due and
payable, whether or not such event occurs at a time when any of the Liabilities
are otherwise due and payable.
4. Payment of the Liabilities. Any amounts received by Lender from
whatever source on account of the Liabilities may be applied by Lender toward
the payment of such of the Liabilities, and in such order of application, as
Lender may from time to time elect, and notwithstanding any payments made by or
for the account of Guarantor pursuant to this Continuing Guaranty.
Guarantor agrees that, if at any time all or any part of any
payment theretofore applied by Lender to any of the Liabilities is or must be
rescinded or returned by Lender for any reason whatsoever (including, without
limitation, the insolvency, bankruptcy or reorganization of Borrower), such
Liabilities shall, for the purposes of this Continuing Guaranty and to the
extent that such payment is or must be rescinded or returned, be deemed to have
continued in existence
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<PAGE>
notwithstanding such application by Lender, and this Continuing Guaranty shall
continue to be effective or be reinstated, as the case may be, as to such
Liabilities, all as though such application by Lender had not been made.
5. Permitted Actions of Lender. Lender may from time to time, in its
sole discretion and without notice to Guarantor, take any or all of the
following actions:
a. retain or obtain a security interest in any assets of
Borrower or any third party to secure any of the Liabilities or any obligations
of Guarantor hereunder;
b. retain or obtain the primary or secondary obligation of
any obligor or obligors, in addition to Guarantor, with respect to any of the
Liabilities;
c. extend or renew for one or more periods (whether or not
longer than the original period), alter or exchange any of the Liabilities;
d. waive, ignore or forbear from taking action or otherwise
exercising any of its default rights or remedies with respect to any default by
Borrower under the Loan Documents;
e. release, waive or compromise any obligation of Guarantor
hereunder or any obligation of any nature of any other obligor primarily or
secondarily obligated with respect to any of the Liabilities;
f. release its security interest in, or surrender, release or
permit any substitution or exchange for, all or any part of any collateral now
or hereafter securing any of the Liabilities or any obligation hereunder, or
extend or renew for one or more periods (whether or not longer than the
original period) or release, waive, compromise, alter or exchange any
obligations of any nature of any obligor with respect to any such property; and
g. demand payment or performance of any of the Liabilities
from Guarantor at any time or from time to time, whether or not Lender shall
have exercised any of its rights or remedies with respect to any property
securing any of the Liabilities or any obligation hereunder or proceeded
against any other obligor primarily or secondarily liable for payment or
performance of any of the Liabilities.
6. Specific Waivers. Without limiting the generality of any other
provision of this Continuing Guaranty, Guarantor hereby expressly waives:
a. notice of the acceptance by Lender of this Continuing
Guaranty;
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<PAGE>
b. notice of the existence, creation, payment, nonpayment,
performance or nonperformance of all or any of the Liabilities;
c. presentment, demand, notice of dishonor, protest, notice
of protest and all other notices whatsoever with respect to the payment or
performance of the Liabilities or the amount thereof or any payment or
performance by Guarantor hereunder;
d. all diligence in collection or protection of or
realization upon the Liabilities or any thereof, any obligation hereunder or
any security for or guaranty of any of the foregoing;
e. any right to direct or affect the manner or timing of
Lender's enforcement of its rights or remedies;
f. any and all defenses which would otherwise arise upon the
occurrence of any event or contingency described in Paragraph 1 hereof or upon
the taking of any action by Lender permitted hereunder;
g. any defense, right of set-off, claim or counterclaim
whatsoever and any and all other rights, benefits, protections and other
defenses available to Guarantor now or at any time hereafter; and
h. all other principles or provisions of law, if any, that
conflict with the terms of this Continuing Guaranty, including, without
limitation, the effect of any circumstances that may or might constitute a
legal or equitable discharge of a guarantor or surety.
7. Irrevocability. Guarantor hereby further waives all rights to
revoke this Continuing Guaranty at any time, and all rights to revoke any
agreement executed by Guarantor at any time to secure the payment and
performance of Guarantor's obligations under this Continuing Guaranty.
8. Statutory Waiver of Rights and Defenses Regarding Election of
Remedies. Guarantor waives all rights and defenses arising out of an election
of remedies by Lender, even though that election of remedies, such as a
nonjudicial foreclosure with respect to security for a guaranteed obligation,
has destroyed Guarantor's rights of subrogation and reimbursement against
Borrower by the operation of any applicable law or otherwise.
9. Subordination. Guarantor hereby subordinates any and all
indebtedness of Borrower to Guarantor to the full and prompt payment and
performance of all of the Liabilities.
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<PAGE>
Guarantor agrees that Lender shall be entitled to receive payment of all
Liabilities prior to Guarantor's receipt of payment of any amount of any
indebtedness of Borrower to Guarantor. Any payments on such indebtedness to
Guarantor, if Lender so requests, shall be collected, enforced and received by
Guarantor, in trust, as trustee for Lender and shall be paid over to Lender on
account of the Liabilities, but without reducing or affecting in any manner the
liability of Guarantor under the other provisions of this Guaranty. Lender is
authorized and empowered, but not obligated, in its discretion, (a) in the name
of Guarantor, to collect and enforce, and to submit claims in respect of, any
indebtedness of Borrower to Guarantor and to apply any amounts received thereon
to the Liabilities, and (b) to require Guarantor (i) to collect and enforce,
and to submit claims in respect of, any indebtedness of Borrower to Guarantor,
and (ii) to pay any amounts received on such indebtedness to Lender for
application to the Liabilities.
10. Subrogation. Guarantor will not exercise any rights which it may
acquire by way of subrogation under this Continuing Guaranty, by any payment
hereunder or otherwise, until all of the Liabilities have been paid in full, in
cash, and Lender shall have no further obligations to Borrowers under the Loan
Documents or otherwise. If any amount shall be paid to Guarantor on account of
such subrogation rights at any other time, such amount shall be held in trust
for the benefit of Lender and shall be forthwith paid to Lender to be credited
and applied to the Liabilities, whether matured or unmatured, in such manner as
Lender shall determine in its sole discretion.
11. Assignment of Lender's Rights. Lender may, from time to time,
without notice to Guarantor, assign or transfer any or all of the Liabilities
or any interest therein and, notwithstanding any such assignment or transfer of
the Liabilities or any subsequent assignment or transfer thereof, the
Liabilities shall be and remain the Liabilities for the purpose of this
Continuing Guaranty. Each and every immediate and successive assignee or
transferee of any of the Liabilities or of any interest therein shall, to the
extent of such party's interest in the Liabilities, be entitled to the benefits
of this Continuing Guaranty to the same extent as if such assignee or
transferee were Lender; provided, however, that unless Lender shall otherwise
consent in writing, Lender shall have an unimpaired right, prior and superior
to that of any such
- 5 -
<PAGE>
assignee or transferee, to enforce this Continuing Guaranty for its own benefit
as to those of the Liabilities which Lender has not assigned or transferred.
12. Indulgences Not Waivers. No delay in the exercise of any right or
remedy shall operate as a waiver thereof, and no single or partial exercise by
Lender of any right or remedy shall preclude other or further exercise thereof
or the exercise of any other right or remedy; nor shall any modification or
waiver of any of the provisions of this Continuing Guaranty be binding upon
Lender, except as expressly set forth in a writing duly signed and delivered by
Lender. No action of Lender permitted hereunder shall in any way affect or
impair the rights of Lender or the obligations of Guarantor under this
Continuing Guaranty.
13. Financial Condition of Borrower. Guarantor represents and warrants
that it is fully aware of the financial condition of Borrower, and Guarantor
delivers this Continuing Guaranty based solely upon its own independent
investigation of Borrower's financial condition and in no part upon any
representation or statement of Lender with respect thereto. Guarantor further
represents and warrants that it is in a position to and hereby does assume full
responsibility for obtaining such additional information concerning Borrower's
financial condition as Guarantor may deem material to its obligations
hereunder, and Guarantor is not relying upon, nor expecting Lender to furnish
it any information in Lender's possession concerning Borrower's financial
condition or concerning any circumstances bearing on the existence or creation,
or the risk of nonpayment or nonperformance of the Liabilities.
Guarantor hereby waives any duty on the part of Lender to
disclose to Guarantor any facts it may now or hereafter know about Borrower,
regardless of whether Lender has reason to believe that any such facts
materially increase the risk beyond that which Guarantor intends to assume or
has reason to believe that such facts are unknown to Guarantor.
Guarantor hereby knowingly accepts the full range of risk
encompassed within a contract of "Continuing Guaranty" which includes, without
limitation, the possibility that Borrower will contract for additional
indebtedness for which Guarantor may be liable hereunder after Borrower's
financial condition or ability to pay its lawful debts when they fall due has
deteriorated.
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<PAGE>
14. Representations and Warranties. Guarantor represents and warrants
to Lender that each of the following statements is accurate and complete as of
the date of this Continuing Guaranty:
a. this Continuing Guaranty has been duly executed and
delivered by Guarantor and constitutes a legal, valid and binding obligation of
Guarantor, enforceable against Guarantor in accordance with its terms, except
as limited by bankruptcy, insolvency or other laws of general application
relating to or affecting the enforcement of creditors' rights generally;
b. the execution, delivery and performance of this Continuing
Guaranty do not (i) violate any provisions of law or any order of any court or
other agency of government (each, a "Requirement of Law"), (ii) contravene any
provision of any material contract or agreement to which Guarantor is a party
or by which Guarantor or Guarantor's assets are bound (each, a "Contractual
Obligation"), or (iii) result in the creation or imposition of any lien, charge
or encumbrance of any nature upon any property, asset or revenue of Guarantor;
c. all consents, approvals, orders and authorizations of, and
registrations, declarations and filings with, any governmental agency or
authority or other person or entity (including, without limitation, the
shareholders or partners of any entity), if any, which are required to be
obtained in connection with the execution and delivery of this Continuing
Guaranty or the performance of Guarantor's obligations hereunder have been
obtained, and each is in full force and effect;
d. Guarantor has paid all taxes and other charges imposed by
any governmental agency or authority due and payable by Guarantor other than
those which are being challenged in good faith by appropriate proceedings;
e. Guarantor is not in violation of any Requirement of Law or
Contractual Obligation other than any violation the consequences of which could
not have a material adverse effect on Guarantor's ability to perform its
obligations hereunder (a "Material Adverse Effect"); and
f. no action, proceeding, investigation or litigation is
pending or, to the knowledge of Grantor, overtly threatened against Guarantor
by any person or entity which, if adversely determined, could have a Material
Adverse Effect.
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<PAGE>
15. Guarantor Financial Information. Guarantor will provide Lender in
writing such financial and other information with respect to Guarantor's assets
and liabilities as Lender shall reasonably request from time to time, in form
satisfactory to Lender.
16. Binding Upon Successors; Death of Guarantor. This Continuing
Guaranty shall be binding upon Guarantor and Guarantor's successors and assigns
and shall inure to the benefit of Lender and its successors and assigns. This
Continuing Guaranty shall not terminate or be revoked upon the death of
Guarantor, notwithstanding any knowledge by Lender of Guarantor's death.
All references herein to Borrower shall be deemed to include
its successors and assigns, and all references herein to Guarantor shall be
deemed to include Guarantor and Guarantor's successors and assigns.
In addition and notwithstanding anything to the contrary
contained in this Continuing Guaranty or in any other document, instrument or
agreement between or among any of Lender, Borrower, Guarantor or any third
party, the obligations of Guarantor with respect to the Liabilities shall be
joint and several with any other person or entity that now or hereafter
executes a guaranty of any of the Liabilities separate from this Continuing
Guaranty.
17. Notices. All notices required or permitted to be given hereunder
shall be in writing and shall be either personally delivered, transmitted by
facsimile to the facsimile numbers provided herein or sent by United States
certified or registered mail, return receipt requested, addressed to Guarantor
or Lender at their respective addresses stated below or at such other address
as either party hereafter notifies the other party as herein provided. Notices
shall be deemed received on the earlier of (i) the date noted on the return
receipt as delivered if mail delivery of the notice is successful or the date
inscribed on a confirmation of successful transmission, if sent by facsimile;
(ii) the last date of attempted delivery, as noted by the United States Postal
Service on the envelope containing the notice, if mail delivery is
unsuccessful; or (iii) the date of the actual delivery if personally delivered.
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<PAGE>
18. Governing Law; Additional Waivers. This Continuing Guaranty has
been delivered and shall be governed by and construed in accordance with the
internal laws (as opposed to the conflicts of law provisions) of the State of
Arizona.
GUARANTOR HEREBY
(i) WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION TO
ENFORCE OR DEFEND ANY MATTER ARISING FROM OR RELATED TO THIS
CONTINUING GUARANTY, AND ACKNOWLEDGES THAT LENDER ALSO WAIVES SUCH
RIGHT;
(ii) IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY STATE OR
FEDERAL COURT LOCATED IN MARICOPA COUNTY, ARIZONA, OVER ANY ACTION OR
PROCEEDING TO ENFORCE OR DEFEND ANY MATTER ARISING FROM OR RELATED TO
THIS CONTINUING GUARANTY;
(iii) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT GUARANTOR
MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE
MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING;
(iv) agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in any other
jurisdictions by suit on the judgment or in any other manner provided
by law; and
(v) agrees not to institute any legal action or proceeding
against Lender or any of Lender's directors, officers, employees,
agents or property concerning any matter arising out of or relating to
this Continuing Guaranty in any court other than one located in
Maricopa County, Arizona.
Nothing herein shall affect or impair Lender's right to serve
legal process in any manner permitted by law or Lender's right to bring any
action or proceeding against Guarantor or its property in the courts of any
other jurisdiction. Wherever possible each provision of this Continuing
Guaranty shall be interpreted as to be effective and valid under applicable
law, but if any provision of this Continuing Guaranty shall be prohibited by or
invalid under such law, such provision shall be ineffective only to the extent
of such prohibition or invalidity, without
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<PAGE>
invalidating the remainder of such provision or the remaining provisions of
this Continuing Guaranty.
19. ADVICE OF COUNSEL. GUARANTOR ACKNOWLEDGES THAT GUARANTOR HAS
EITHER OBTAINED THE ADVICE OF COUNSEL OR HAS HAD THE OPPORTUNITY TO OBTAIN SUCH
ADVICE IN CONNECTION WITH THE TERMS AND PROVISIONS OF THIS CONTINUING GUARANTY.
20. Entire Agreement. This Continuing Guaranty contains the complete
understanding of the parties hereto with respect to the subject matter herein.
Guarantor acknowledges that Guarantor is not relying upon any statements or
representations of Lender not contained in this Continuing Guaranty and that
such statements or representations, if any, are of no force or effect and are
fully superseded by this Continuing Guaranty. This Continuing Guaranty may only
be modified by a writing executed by Guarantor and Lender.
IN WITNESS WHEREOF, Guarantor has executed this Continuing
Guaranty this ____ day of May, 1998
MEDLEY CREDIT ACCEPTANCE CORPORATION , "Guarantor"
____________________________________
Fed ID#]______________________
Guarantor's address
for notices:
____________________________________
____________________________________
____________________________________
Facsimile:
Lender's address for notices:
FINOVA Capital Corporation
111 West 40th Street, 14th Floor
New York, N.Y. 10018
Facsimile: (212) 403-0799
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<PAGE>
STOCK PLEDGE AGREEMENT
STOCK PLEDGE AGREEMENT dated as of December 24, 1997, by and between
MEDLEY GROUP, INC., a Delaware corporation having principal offices at 1100
Ponce de Leon Boulevard, Coral Gables, Florida 33134 ("Pledgor"), and MEDLEY
CREDIT ACCEPTANCE CORP., a Delaware corporation having principal offices at
1100 Ponce de Leon Boulevard, Coral Gables, Florida 33134 ("Secured Party").
W I T N E S S T H:
WHEREAS, Pledgor, concurrently herewith, is benefitting from a
financial accommodation provided by Secured Party; principally, Secured Party's
posting, on behalf of Pledgor, a $1.7 million letter of credit (the "Letter of
Credit") to secure the payment stream with respect to certain equipment leases
concurrently being sold by Pledgor to an unaffiliated third party, all in
accordance with the terms and conditions set forth in that certain letter
agreement of even date herewith between Pledgor and Secured Party (the "Letter
Agreement"); and
WHEREAS, Secured Party requires, and Pledgor is willing, as a
condition to Secured Party's posting the Letter of Credit, to pledge to Secured
Party the Pledged Shares (as defined below) as security for the prompt
reimbursement by Pledgor of all amounts drawn under the Letter of Credit (the
"Secured Obligations") by executing and delivering this Agreement.
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound hereby, agree as follows:
1. DEFINITIONS
"Agreement" shall mean this Stock Pledge Agreement, including
all amendments, modifications and supplements and any exhibits and schedules to
any of the foregoing, and shall refer to this Agreement as the same may be in
effect at the time such reference becomes operative.
"Event of Default" shall mean: (a) the failure or neglect of
Pledgor to observe or perform any covenant, agreement or obligation under this
Agreement or the Letter Agreement; or (b) if any representation or warranty
made under this Agreement by Pledgor shall be breached or shall be untrue or
incorrect in any material respect as of the date when made or deemed made.
"Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, institution, public benefit corporation, entity or government
(whether Federal, state, county, city, municipal or otherwise, including any
instrumentality, division, agency, body or department thereof).
"Pledged Collateral" shall have the meaning assigned to such
term in Section 2 hereof.
<PAGE>
"Pledged Shares" shall mean, initially, 750,000 shares of
common stock, par value $.01 per share, of Secured Party currently owned by
Pledgor, and all dividends, cash, instruments and other property or securities
or proceeds from time to time received, receivable or otherwise distributed or
distributable in respect of or in exchange for any or all of such Pledged
Shares, whether issued by the issuer of the Pledged Shares or otherwise,
whether in connection with any tender offer, exchange offer, merger,
recapitalization, reorganization or otherwise.
"Termination Date" shall have the meaning assigned to such
term in Section 10 hereof.
"Uniform Commercial Code" shall mean the Uniform Commercial
Code of the jurisdiction with respect to which such term is used, as in effect
from time to time.
Except as otherwise specifically provided in this Agreement,
the singular of any term shall include the plural, and vice versa, the use of
any term shall be equally applicable to any gender, "or" shall not be
exclusive, and "including" shall not be limiting or exclusive, and any
reference to a "Section" shall refer to the relevant Section of this Agreement.
2. PLEDGE AND GRANT OF SECURITY INTEREST.
Pledgor hereby pledges to Secured Party, and grants to
Secured Party a continuing security interest in, all of Pledgor's right, title
and interest in and to (and in all of Pledgor's rights to acquire any and all
right, title and interest in and to) the Pledged Shares, whether now owned or
hereafter acquired in any manner, or whether from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of such Pledged Shares (collectively, the "Pledged Collateral").
3. SECURITY FOR OBLIGATIONS.
This Agreement and the Pledged Collateral secures the prompt
payment and performance when due of each and every one of and all amounts that
constitute part of the Secured Obligations of Pledgor.
4. DELIVERY OF PLEDGED COLLATERAL.
Concurrently with the execution of this Agreement, all
certificates representing or evidencing the Pledged Shares shall be delivered
to the Secured Party accompanied by duly executed instruments of transfer or
assignment in blank, all in form and substance satisfactory to Secured Party.
Pledgor shall receive all certificates, cash, instruments and other property or
proceeds from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the Pledged Shares in trust for
Secured Party and shall immediately upon receipt deliver to Secured Party such
certificates, cash, instruments and other property and proceeds, together with
any
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<PAGE>
necessary endorsement. All dividends and all other distributions in respect of
any of the Pledged Shares, whenever paid or made, shall be delivered to the
Secured Party to hold as Pledged Collateral and shall, if received by Pledgor,
be received in trust for the benefit of Secured Party, be segregated from the
other property or funds of Pledgor, and be forthwith delivered to the Secured
Party as Pledged Collateral in the same form as so received (with any necessary
endorsement). Secured Party shall have the right, at any time after the
occurrence of an Event of Default, in its discretion and without notice to
Pledgor, to transfer to or to register in the name of Secured Party or any of
its nominees any or all of the Pledged Shares. In addition, Secured Party shall
have the right at any time to exchange certificates or instruments representing
or evidencing the Pledged Shares for certificates or instruments of smaller or
larger denominations.
5. REPRESENTATIONS AND WARRANTIES.
Pledgor represents and warrants to Secured Party as follows:
5.1 Ownership. Pledgor is, and at the time of delivery of the
Pledged Shares to Secured Party pursuant to Section 4 hereof, the sole owner of
the Pledged Collateral, free and clear of any lien, claim, encumbrance, pledge
or restriction of any kind, nature or description whatsoever, except for the
lien created by this Agreement.
5.2 Authorization. Pledgor has the full corporate right,
power and authority to pledge, assign, transfer, deliver, deposit and set over
the Pledged Collateral to Secured Party as provided herein.
5.3 No Consent or Notice. No consent, approval, authorization
or other order of any Person and no consent, authorization, approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body is required to be made or obtained by Pledgor either (a) for
the grant by Pledgor of the security interest granted hereby, for the pledge by
Pledgor of the Pledged Collateral pursuant hereto or for the execution,
delivery or performance of this Agreement by Pledgor, (b) for the perfection or
maintenance of the pledge and security interest granted hereby (including the
first priority nature of such pledge and security interest) or (c) for the
exercise by Secured Party of his rights provided for in this Agreement or the
remedies in respect of the Pledged Collateral pursuant to this Agreement.
5.4 Valid Lien. The pledge of, grant of a security interest
in, and delivery of the Pledged Collateral by Pledgor pursuant to this
Agreement will create a valid first priority lien on, and a first priority
perfected security interest in, the Pledged Collateral and the proceeds thereof
of Pledgor, securing the payment in full of the Secured Obligations of Pledgor.
5.5 Binding Obligation. This Agreement has been duly executed
and delivered by Pledgor and constitutes the legal, valid and binding
obligation of Pledgor, enforceable in accordance with its terms.
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<PAGE>
5.6 Pledgor Address. The principal business address of
Pledgor is as set forth in the preamble to this Agreement.
The representations and warranties set forth in this Section
5 shall survive the execution and delivery of this Agreement.
6. COVENANTS.
Pledgor covenants and agrees that as of the date hereof and
until the Termination Date:
6.1 Transfer and Other Liens. Unless Secured Party gives its
prior written consent, Pledgor will not (a) 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) create or suffer to exist any lien or grant
a security interest in or upon or with respect to, or encumber any of its
rights in or to, any of the Pledged Collateral, except for the pledge and
security interest created by this Agreement.
6.2 Further Assurances; Creation and Preservation of Lien.
Pledgor will, at its expense, promptly execute, acknowledge and deliver all
such instruments and take all such action as Secured Party, from time to time,
may reasonably request in order to ensure to Secured Party the benefits of the
liens in and to the Pledged Collateral intended to be created by this Agreement
and to protect any pledge or security interest granted or purported to be
granted hereby or to enable Secured Party to exercise and enforce its rights
and remedies hereunder with respect to the Pledged Collateral.
6.3 Title. Pledgor has and will defend the title to the
Pledged Collateral and the liens of Secured Party thereon against the claim of
any Person and will maintain and preserve such liens until such liens are
realized in accordance with the terms hereof or until the Termination Date
6.4 Legends. Each certificate evidencing the Pledged
Collateral states and shall state that it is subject to this Agreement.
7. PLEDGOR'S RIGHTS.
Until the occurrence of an Event of Default under this
Agreement or the Letter Agreement, Pledgor shall be entitled, pursuant to this
Agreement, to exercise all voting and other rights pertaining to the Pledged
Shares. After the occurrence of any such Event of Default, Secured Party or its
nominee shall have the sole right to vote any and all of the Pledged Shares and
give consents, waivers and ratifications in respect thereof, and Pledgor shall
deliver to Secured Party or its nominee such proxies and other documents as
Secured Party may request to further effectuate the foregoing.
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<PAGE>
8. DEFAULTS AND REMEDIES.
8.1 Defaults and Remedies. Upon the occurrence of an Event of
Default and during the continuance of such Event of Default, upon at least ten
days notice but without any other notice or demand, Secured Party (through an
agent) is hereby authorized and empowered to transfer and register in his name
or in the name of his nominee the whole or any part of the Pledged Collateral,
to exercise the voting rights with respect thereto, and to collect and receive
all dividends and other distributions made thereon; and, to sell in one or more
sales after at least ten days notice of the time and place of any public sale
or of the time after which a private sale is to take place (which notice
Pledgor agrees is commercially reasonable), but without any previous notice or
advertisement, the whole or any part of the Pledged Collateral and otherwise to
act with respect to the Pledged Collateral as though Secured Party were the
outright owner thereof, Pledgor hereby irrevocably constituting and appointing
Secured Party as the proxy and attorney-in-fact of Pledgor, with full power of
substitution to do so; provided, however, Secured Party shall not have any duty
to exercise any such right or to preserve the same and shall not be liable for
any failure to do so or for any delay in doing so. Secured Party shall exercise
reasonable care in preserving the certificates representing the Pledged
Collateral, but Secured Party shall have no obligation to preserve the value of
the Pledged Collateral. Subject to the limitations previously set forth in this
Section 8.1, any sale of the Pledged Collateral shall be made at a public or
private sale at the place named in the notice of sale, either for cash or upon
credit or for future delivery at such price as Secured Party may deem fair, and
Secured Party or Pledgor may be the purchaser of the whole or any part of the
Pledged Collateral so sold, and hold the same thereafter in his or its own
right free from any claim of Pledgor or any right of redemption. Each sale
shall be made to the highest bidder, but Secured Party reserves the right to
reject any and all bids at such sale which, in his discretion, he shall deem
inadequate. Demands of performance, notices of sale, advertisements and the
presence of property at sale are hereby waived, and any sale hereunder may be
conducted by an auctioneer or any officer or agent of Secured Party.
8.2 Sale of Collateral. If, at the original time or times
appointed for the sale of the whole or any part of the Pledged Collateral, the
highest bid shall be inadequate to discharge in full all the Secured
Obligations if there be but one sale, or if the Pledged Collateral be offered
for sale in lots, if at any of such sales the highest bid for the lot offered
for sale would indicate to Secured Party, in his discretion, the unlikelihood
of the proceeds of the sales of the whole of the Pledged Collateral being
sufficient to discharge all of the Secured Obligations, Secured Party may, on
one or more occasions and in his discretion, postpone any of said sales by
public announcement at the time of sale or the time of previous postponement of
sale, and no other notice of such postponement or postponements of sale need be
given, any other notice being hereby waived.
8.3 Proceeds. In the event of any sales hereunder, Secured
Party shall, after deducting all costs and expenses of every kind (including
reasonable attorneys' fees and disbursements) for care, safekeeping,
collection, sale, delivery or otherwise, apply the residue of the proceeds of
the sales to the payment or reduction, either in whole or in part, of the
Secured
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<PAGE>
Obligations in accordance with Section 9 and the agreements and instruments
governing and evidencing such Secured Obligations, returning the surplus, if
any, to Pledgor.
8.4 Pledgor Waivers. Pledgor agrees that following the
occurrence and during the continuance of an Event of Default, it will not at
any time plead, claim or take the benefit of any appraisal, valuation, stay,
extension, moratorium or redemption law now or hereafter in force in order to
prevent or delay the enforcement of this Agreement, or the absolute sale of the
whole or any part of the Pledged Collateral or the possession thereof by any
purchaser at any sale hereunder, and Pledgor waives the benefit of all such
laws to the extent it lawfully may do so.
8.5 Non-Interference. Pledgor agrees that it will not
interfere with any right, power or remedy of Secured Party provided for in this
Agreement or now or hereafter existing at law or in equity or by statute or
otherwise, or the exercise or beginning of the exercise by Secured Party of any
one or more of such rights, powers or remedies. No failure or delay on the part
of Secured Party to exercise any such right, power or remedy, and no notice or
demand which may be given to or made upon Pledgor by Secured Party with respect
thereto, shall operate as a waiver thereof, or limit or impair Secured Party's
right to take any action or to exercise any right, power or remedy hereunder,
without notice or demand, or prejudice his rights against Pledgor in any
respect.
8.6 Unencumbered Shares. Secured Party agrees,
notwithstanding any provision to the contrary set forth herein, that in
connection with any sale, transfer or other disposition by him of the Pledged
Collateral in accordance with this Section 8, Secured Party shall first remove
its lien against such Pledged Collateral so that the transferee of such Pledged
Collateral will acquire, in accordance with this Section 8, such Pledged
Collateral free and clear of all liens, encumbrances and other restrictions or
title defects.
9. APPLICATION OF PROCEEDS.
Any cash held by Secured Party as Pledged Collateral and all
cash proceeds received by Secured Party in respect of any sale of, liquidation
of or other realization upon all or any part of the Pledged Collateral shall be
applied by Secured Party as follows:
(a) First, to the payment of the costs and expenses of such
sale, including reasonable fees and expenses of Secured Party's agents and
counsel, and all expenses, liabilities and advances made or incurred by Secured
Party in connection therewith;
(b) Next, to the payment of the Secured Obligations; and
(c) Finally, to the payment to Pledgor, or his heirs,
successors or assigns of Pledgor, or to whomsoever may be lawfully entitled to
receive the same or as a court of competent jurisdiction may direct, of any
surplus then remaining from such proceeds.
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<PAGE>
10. TERMINATION.
Following the complete payment and satisfaction of all
Secured Obligations of Pledgor to Secured Party under this Agreement or the
cancellation, without having been drawn under, of the Letter of Credit (the
"Termination Date"), this Agreement shall terminate and Pledgor shall be
entitled to the return of all Pledged Collateral and all instruments of
assignment executed in connection therewith, and all of Pledgor's liabilities
hereunder shall at such time terminate.
11. INDEMNIFICATION
Pledgor agrees to indemnify and hold Secured Party harmless
from and against any and all taxes, liabilities, claims and damages, including
reasonable attorneys' fees and disbursements, and other expenses incurred or
arising by reason of the taking or the failure to take action by Secured Party,
in good faith, in respect of any transaction effected under this Agreement or
in connection with the lien provided for herein, including any taxes payable in
connection with the delivery of any of the Pledged Collateral as provided
herein. The liabilities of Pledgor under this Section shall survive the
termination of this Agreement.
12. LIEN ABSOLUTE.
(a) All rights of Secured Party hereunder, and all
obligations of Pledgor hereunder, shall be absolute and unconditional and shall
remain in full force and effect without regard to, and shall not be impaired or
affected by, or deemed to be satisfied by, nor shall Pledgor or any Pledged
Collateral be exonerated, discharged or released by, any of the following
events: Secured Party's exercise or enforcement of or failure or delay in
exercising or enforcing any legal proceedings to collect the Secured
Obligations or any power, right or remedy with respect to the Secured
Obligations, the Pledged Collateral or any other collateral held by Secured
Party, including any action or inaction of Secured Party to perfect, protect or
enforce any security interest in the Pledged Collateral or any other
collateral, any impairment or suspension of the Pledged Collateral or any other
collateral, Secured Party's compromise, exchange, release, settlement,
amendment or waiver with or of any other Person, or the Pledged Collateral or
any other collateral, or any change in the time, manner or place of payment of,
or in any other term of, all or any part of the Secured Obligations, or any
other amendment, impairment, renunciation, cancellation, surrender, suspension
or waiver of the Note or any other agreement or instrument governing or
evidencing any of the Secured Obligations;
(b) Any insolvency, bankruptcy, reorganization, arrangement,
adjustment, composition or assignment for the benefit of creditors of Secured
Party or Pledgor, appointment of a receiver or trustee for all or any part of
Secured Party's or Pledgor's assets or liquidation, winding up or dissolution
of the Pledgor;
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<PAGE>
(c) Any invalidity, voidability, unenforceability or
irregularity, or future change to or amendment of, in whole or in part, the
Secured Obligations, the Letter Agreement, this Agreement or any other
agreements, documents or instruments evidencing any Secured Obligations;
(d) Any merger, acquisition, consolidation or change in
structure of Pledgor, or any sale, lease, transfer or other disposition of any
or all of the assets of Pledgor;
(e) Any assignment, endorsement or other transfer, in whole
or in part, of Secured Party's interest in the Secured Obligations, the Pledged
Collateral or any other collateral;
(f) Any claim, defense, counterclaim or set-off, other than
that of prior performance, that Pledgor may have or assert, including, but not
limited to, any defense of incapacity, disability or lack of corporate or other
authority to execute any documents relating to the Secured Obligations, the
Pledged Collateral or any other collateral;
(g) Secured Party's vote, claim, distribution, election,
acceptance, action or inaction in any bankruptcy or reorganization case related
to the Pledged Collateral or the Secured Obligations; or
(h) Any cancellation, renunciation or surrender of any pledge
or any other debt instrument evidencing the Secured Obligations.
13. REINSTATEMENT.
This Agreement shall remain in full force and effect and
continue to be effective if at any time payment and performance of the Secured
Obligations of Pledgor, or any part thereof, is, pursuant to applicable law,
avoided, rescinded or reduced in amount, or must otherwise be restored or
returned by any obligee of the Secured Obligations, whether as a "voidable
preference," "fraudulent conveyance" or otherwise, all as though such payment
or performance had not been made. In the event that any payment, or any part
thereof, is avoided, rescinded. reduced. restored or returned. the Secured
Obligations, as the case may be, shall be reinstated and deemed reduced only by
such amount paid and not so avoided, rescinded, reduced, restored or returned.
14. MISCELLANEOUS.
14.1 Use of Agents. Secured Party may execute any of his
duties hereunder by or through agents and shall be entitled to advice of
counsel concerning all matters pertaining to his duties hereunder.
14.2 Reimbursement. Pledgor agrees to reimburse Secured Party
promptly for all expenses, including reasonable counsel fees, reasonably
incurred by Secured Party in connection with the administration and enforcement
of this Agreement.
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14.3 Limitations on Liability. Secured Party shall not be
liable for any action lawfully taken or omitted to be taken by Secured Party
hereunder or in connection herewith, except for his own gross negligence or
willful misconduct.
14.4 Binding Agreement. This Agreement shall be binding upon
Pledgor and its administrators, legal representatives and permitted successors
and assigns, and shall inure to the benefit of, and be enforceable by, Secured
Party and his heirs, legal representatives. successors and assigns.
14.5 Entire Agreement; Amendments. This Agreement, together
with the Letter Agreement: (a) constitutes the entire agreement between the
parties with respect to the subject matter hereof; and (b) may not be amended
or modified except by a writing signed by Pledgor and Secured Party.
14.6 Severability. If any provision of this Agreement shall
be held invalid or unenforceable, such invalidity or unenforceability shall
attach only to such provision and shall not in any manner affect or render
invalid or unenforceable any other severable provision of this Agreement, and
this Agreement shall be carried out as if any such invalid or unenforceable
provision were not contained herein.
14.7 Notices All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to be duly
given if personally delivered with receipt acknowledged, if mailed by
registered or certified mail, first class, postage prepaid, if delivered by a
nationally recognized overnight courier service to the parties at their
respective addresses set forth in the preamble hereof.
14.8 Section Titles. The Section titles contained in this
Agreement are and shall be without substantive meaning or content of any kind
whatsoever and are not a part of the agreement between the parties hereto.
14.9 Governing Law. This Agreement is being executed and
delivered by the parties hereto in the State of Florida and shall be construed
in accordance with, and governed by, the internal laws of the State of Florida,
without giving effect to the conflicts of laws principles thereto.
14.10 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which when taken together shall constitute one and the same agreement.
- 9 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first written above.
MEDLEY GROUP, INC.
By:___________________________
MEDLEY CREDIT ACCEPTANCE CORP.
By:_____________________________
- 10 -
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
1100 PONCE DE LEON BOULEVARD
CORAL GABLES, FLORIDA 33134
December 24, 1997
Medley Group, Inc.
1100 Ponce de Leon Boulevard
Coral Gables, FL 33134
Gentlemen:
This letter is being written to memorialize our agreement whereby
Medley Credit Acceptance Corp., a Delaware corporation ("MCAC"), will post, for
the benefit of Medley Group, Inc., a Delaware corporation ("Group"), a $1.7
million standby letter of credit (the "Letter of Credit"). MCAC has been
advised by Group that the Letter of Credit is being posted for the express
purpose of securing the performance of certain equipment leases concurrently
being sold by Group to an unrelated third party.
In consideration for the financial accommodation hereby being provided
to Group by MCAC, Group hereby agrees to pay to MCAC, on December 24 of each
year during which MCAC has financial exposure under the Letter of Credit, a
cash fee equal to $150,000 per annum. In addition, Group hereby agrees to
reimburse MCAC promptly for all amounts drawn under the Letter of Credit, the
intent of Group and MCAC being that MCAC shall incur no financial or economic
loss as a consequence of its providing Group with the financial accommodation
represented by the Letter of Credit. For purposes of securing the
aforementioned reimbursement obligations of Group, concurrently herewith, Group
and MCAC are entering into a Stock Pledge Agreement pursuant to which, among
other things, Group is pledging to, and granting MCAC a security interest in,
750,000 shares of Common Stock, $.01 par value per share, of MCAC (the "Pledged
Shares") currently owned by Group. For purposes of the consummation of the
transactions contemplated by this Letter Agreement and the Stock Pledge
Agreement, MCAC and Group have agreed that each Pledged Share shall have a cash
value of $2.50.
<PAGE>
Medley Group, Inc.
December 24, 1997
Page 2
Kindly confirm your acknowledgment and acceptance of the foregoing by
executing and returning the enclosed duplicate original of this Letter
Agreement.
Very truly yours,
MEDLEY CREDIT ACCEPTANCE CORP.
By:____________________________
ACKNOWLEDGED AND AGREED TO
THIS 24TH DAY OF DECEMBER, 1997:
MEDLEY GROUP, INC.
By:______________________________
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
American Factors Group, Inc. - 80% owned by the Company
Americal Investment Management - 80% owned by the Company
Medical Billing Services Systems, Inc. - 100% owned by the Company
Premier Provider Services, Inc. - 100% owned by the Company
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We consent to the incorporation by reference in this annual report on Form
10-KSB of Medley Credit Acceptance Corp., for the year ended December 31, 1997,
to our report dated February 20, 1998, which appears on Page 1 of the annual
report to shareholders for the year ended December 31, 1997.
Boca Raton, Florida /s/ Daszkal, Bolton & Manela CPAs
Dated June 9, 1998 Daszkal, Bolton & Manela CPAs
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,106,803
<SECURITIES> 0
<RECEIVABLES> 545,661
<ALLOWANCES> 3,000
<INVENTORY> 0
<CURRENT-ASSETS> 4,772,464
<PP&E> 77,954
<DEPRECIATION> 4,955,831
<TOTAL-ASSETS> 4,955,831
<CURRENT-LIABILITIES> 664,298
<BONDS> 0
0
29,588
<COMMON> 26,674
<OTHER-SE> 4,148,358
<TOTAL-LIABILITY-AND-EQUITY> 4,955,831
<SALES> 292,536
<TOTAL-REVENUES> 292,536
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 948,026
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 76,050
<INCOME-PRETAX> (696,070)
<INCOME-TAX> 0
<INCOME-CONTINUING> (696,070)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (992,179)
<EPS-PRIMARY> (0.58)
<EPS-DILUTED> (0.58)
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