U.S. Securities and Exchange Commission
Washington, D.C. 20549
----------------------
Form 10-KSB
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the year ended December 31, 1999.
-----------------
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from ______ to ______.
Commission file number 0-23905
thatlook.com, Inc.
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(Exact Name of Small Business Issuer in its Charter)
Nevada 87-0447497
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(State or other juris- IRS Employer
diction of incorporation) I.D. No.)
5003 Rt. 611 Stroudsburg, PA 18360
(Address of Principal Executive Offices)
570-420-0318
Registrant's Telephone Number
Cookie Cup International
First Target Acquisition, Inc.
(Former Name or Former Address, if changed since last Report)
Securities Registered under Section 12(b) of the Exchange Act: None
Securities Registered under Section 12(g) of the Exchange Act:$.0001 par value
common voting stock
Indicate by check mark whether the Registrant (1) has filed all reports
required to be file by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
(1) Yes X No (2) Yes X NO
--- --- --- ---
Indicate by check mark whether there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B is not contained in this form, and no
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. [ ]
State Registrant's revenues for its most recent fiscal year: December 31, 1999
$5,412,398
For the Exhibit Index see Item 13 of this Report page x
State the aggregate market value of the common voting stock held by
non-affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date
within the past 60 days.
March 28, 2000 - $11,482,337. There are approximately 3,909,546 shares
of common voting stock of the Registrant held by non-affiliates.
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Not Applicable
APPLICABLE ONLY TO CORPORATE REGISTRANTS
State the number of shares outstanding of each of the Registrant's classes of
common equity, as of the latest practicable date:
March 28, 2000
15,986,205
DOCUMENTS INCORPORATED HEREIN BY REFERENCE
- ------------------------------------------
A description of "Documents Incorporated by Reference" is contained in Item 13
of this Report.
Transitional Small Business Issuer Format Yes NO X
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<PAGE>
thatlook.com, Inc.
INDEX TO FORM 10-KSB
ITEM
NO.
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PART I
1. Business
2. Properties
3. Legal Proceedings
4. Submission of Matters to a Vote of Security Holders
PART II
5. Market for Registrant's Common Equity and Related Stockholder
Matters
6. Management's Discussion and Analysis or Plan of Operation
7. Financial Statements
8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
PART III
9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
10. Executive Compensation
11. Security Ownership of Certain Beneficial Owners and Management
12. Certain Relationships and Related Transactions
PART IV
13. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K
SIGNATURES
Part I
Item 1 Description of Business
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thatlook.com, Inc.(TLC), formerly known as Cooperative Images, Inc. TLC was
incorporated in New Jersey on December 5, 1994 and is in the business of
direct response marketing through radio, television and the Internet. TLC's
marketing efforts generate patients who seek elective cosmetic surgery.
After it pre-screens patients interested in cosmetic surgery for
creditworthiness, TLC refers the patients generated from its marketing
programs to participating physicians who pay TLC a monthly marketing fee.
Elective Investments, Inc., (EII), was incorporated on November 26, 1996.
EII prepares financing packages for creditworthy patients of physicians. A
substantial portion of the resulting receivables between the physicians and
the patients are purchased by EII from the physicians. It also pre-screens
patients interested in cosmetic surgery for creditworthiness for physicians
who generate their own patients separately from TLC's marketing programs.
On January 25, 1999 Cooperative Images, Inc. changed its name to thatlook.com,
Inc. by filing an amendment to its certificate of incorporation. In April,
1999, Elective Investments, Inc. (EII), a Pennsylvania corporation, became a
wholly-owned subsidiary of TLC when all its shareholders contributed their
respective shares of capital stock to TLC.
On April 29, 1999 TLC completed a reverse merger (the "Plan") with a public
entity, whereby a 100% interest in TLC was acquired by First Target
Acquisition, Inc.(formerly Cookie Cup International), in exchange for
9,999,000 "restricted" shares of TLC. The Plan was filed with the Commission
on May 12, 1999 on Form 8-K, and amended May 24, 1999 and July 14, 1999. The
Plan is an exhibit to the Company's Current Report and is incorporated herein
by reference.
TLC became a wholly-owned subsidiary of FTA. TLC is deemed to be the
accounting acquirer. The financial statements were retroactively restated
for TLC, and EII its wholly-owned subsidiary, for all periods presented. The
reverse merger was accounted for as a recapitalization. Prior to the reverse
merger FTA had been dormant and operationally inactive for many years.
Following the reverse merger, FTA, a Nevada corporation and TLC's parent
company, changed its name to thatlook.com, Inc. (the "Company"), to reflect
the name of the principal operating business. The name change became
effective July 23, 1999 after filing an amendment to its certificate of
incorporation.
Business Summary:
- -----------------
The Company is currently focused almost entirely on the elective cosmetic
surgery market. However, the Company plans to expand its efforts into the
orthodontics and cosmetic dentistry, hair replacement and elective corrective
eye surgery markets as resources are available to do so.
The Company generates revenue in three principal ways:
* Marketing Management fees paid by physicians to the Company for its
marketing services;
* The financing spreads, or loan commissions, the Company earns from lenders
who provide take-out financing for elective cosmetic procedures; and
* Interest income from the portfolio of loans of which it has retained
ownership.
During 1999, the breakdown of the Company's revenues was as follows:
Marketing Management Fees 54%
Financing Spreads 21%
Interest Income 20%
Other 5%
While the Company allows physicians to participate in a Finance-only program,
revenues from this source represented only approximately 8% of the Company's
revenues in 1999. Further, and as discussed later, with the Company's
resources focused on its Marketing Management Program, Management expects
Finance-only program revenues to decline over time, certainly as a proportion
of the total, as well as in absolute amount.
At the same time, the Company acts as a conduit for financial institutions in
originating medium-term (3-4 years), monthly payment based consumer loans used
to finance cosmetic procedures. Down payments are kept low, currently about
10% or less, to increase the patient population for whom these procedures are
affordable. The average face value per procedure the Company generated was
$5,344 during 1999.
The portion of the Company's revenue contributed by interest income is
declining, and is expected to continue declining for two reasons. First, the
Company generally no longer retains ownership of the loans it originates. A
substantial portion of the Company's loan portfolio (approximately 75% by
value, net of allowances for doubtful accounts) was sold in the fourth quarter
of 1999. Thus, to the extent to which ownership of loans is not retained, the
existing loan portfolio will gradually mature over time. Second, as the
Company revenues grow, such growth is expected to come entirely from Marketing
Management Fees and Financing Spreads, thus further reducing the proportion of
revenues represented by Interest Income.
Marketing Management Program Structuring Background
- ---------------------------------------------------
The right of physicians to market their services is now well established,
subject to appropriate ethical considerations. The Company contracts with
participating member physicians to provide marketing and other administrative
services on behalf of the participating member physician, in a relationship
analogous to companies that provide billing and collection and other services
on behalf of physicians. In addition to actual marketing services, the
Company also serves its participating physicians by providing the initial
contact point for prospective patients, financial screening of prospective
patients and rotation of referrals when there are two or more participating
physicians in the geographic marketplace.
Development of the actual marketing program is a service that participating
physicians would not likely be able to perform on their own. Providing an
initial contact point for prospective patients and performing the initial
financial screening of those prospective patients reduces both the overhead
costs of the participating physicians and their lost opportunity cost of
seeing patients who cannot really afford the services. The market niche
chosen by the Company is specifically designed to work with those physicians
whose practices can benefit from marketing in the media utilized by the
Company more so than other physicians. The services provided by the
participating physicians are seldom covered by a third party payor such that
the financial capability of the prospective patient is of importance. Since
the credit approval process sets the credit limit at $7,000 per each
prospective patient, the participating physicians perceive the Company as a
value added service.
The Company generally enters into a two year marketing agreement with its
participating physicians. While these agreements specify a two year term,
the Company chooses to be flexible in its administration of the terms in order
to maintain its goodwill with the physicians. In addition, the Company has
developed a sufficient operating history as to be willing to provide
assurances to the participating physicians that its marketing efforts will be
of value. In this regard, the Company is willing to subject its services to
performance standards. Recognizing that participating physicians are no
different than other consumers in wanting to ensure their expenditures meet
certain performance standards, the Company has increased the flexibility of
its program by allowing the physicians to participate at one of the levels
shown below, with the minimum performance standards indicated:
Monthly Performance Standard
Fee Monthly Consultations
Silver $2,500 2.32
Gold $5,000 4.64
Platinum $9,990 13.42
In the event the minimum performance standard is not met in a given calendar
quarter, the participating physician receives either a pro-rata refund of the
Marketing Management Fee for that quarter or increases the performance
standard for the following quarter, at his or her option. Market related
revenues in the accompanying financial statements are recognized as earned,
not as billed. As of December 31, 1999, the Company has 73 participating
physicians in its Marketing Management Program.
Substantial changes to the Company's Marketing Management Program were
instituted in the Fall and Winter of 1998. The most important changes were:
* The fee to participate in the program was modified from a fixed $10,000 per
month to the three-tiered program described above. Thus, the physicians are
now allowed to choose the level of participation with which they are most
comfortable.
* The Company's marketing program to the physicians was refocused to emphasize
that it adds incremental income to their practices; it is not intended to
generate the primary practice income. I.e., the physician cannot easily build
a practice around the Company's program. Rather, he or she can fill unused
surgical capacity, thus covering overhead more efficiently and adding
incremental profits to the base practice
Until these changes were instituted, the Company had experienced greater
turnover among its participating physicians than more recently. Specifically,
the average monthly number of physicians leaving the program was 14.0 in the
December 1998 to February 1999 period, while it was 4.5 during the last six
months of 1999.
In addition to the factors previously discussed, the financial limitations the
Company experienced beginning in the Fall of 1998, caused it to reduce its
physician base in the first half of 1999 to one where it could be assured of
meeting its performance standards. The number of physicians participating
peaked at 101 at November 30, 1998. At December 31, 1998 and 1999, there were
84 and 73 physicians participating in the Company's program, respectively.
>From the low reached in March-April 1999, the company began gradually
expanding its physician base as financial resources were available during the
remainder of the year.
As a result of the factors in the foregoing discussion, Management does not
believe there is an appropriate measure of the historical contract renewal
rate among its participating physicians.
As of December 31, 1999, the 73 physicians participating in the Company's
Marketing Management Program were located in the following 21 states and
Washington D.C.:
# of Participating
State Physicians
California 17
New York 7
Texas 7
Florida 6
Pennsylvania 5
Washington, D.C. 1
Massachusetts 3
Connecticut 1
Georgia 2
Illinois 4
Missouri 1
Ohio 3
Tennessee 3
Colorado 2
Hawaii 1
Louisiana 1
Michigan 2
Rhode Island 1
Nevada 1
Wisconsin 1
Utah 1
New Jersey 3
Marketing Program Physician Selection
- -------------------------------------
All of the Company's participating physicians are Certified by a Medical Board
of one particular specialty or another. These certifications are in their
area of specialization, and include, for example, plastic surgery, general
surgery, dermatology, ear/nose/throat, facial plastic surgery, otolaryngology,
etc.
The majority (90%) of the Company's participating physicians are American
Board of Plastic Surgery certified, although this is not a requirement. The
Company-imposed requirements on physicians that wish to participate in the
Marketing Program are:
* The physician be Board certified in his or her area of specialty and have a
current medical license;
* Malpractice insurance of at least $250,000. However, the average
malpractice insurance carried by the Company's participating physicians is
currently just over $1 million per claim, and $2.7 million in aggregate. The
insurance companies providing malpractice insurance have a strong interest in
doing detailed underwriting, and have access to information not generally
available to the Company. Therefore, Management believes that the relatively
high coverage by its physician participants helps to maintain a high quality
physician base; and
* A clean or readily explainable record regarding patient complaints with his
or her local medical board.
Physicians are recruited into the Company's Marketing Management Program
largely via a direct, personal selling effort by a dedicated sales staff,
physician members of the Company's Advisory Board, as well as Company
officers. In addition, the Company features exhibits at national and regional
medical conferences to inform potential physician participants of the benefits
of its program.
Marketing Program Consultation Generation
- -----------------------------------------
Consumer leads are generated from the Internet, television, radio, print, and
direct mail. Prior to mid-year 1999, these leads had been almost entirely in
the form of incoming calls into the Company's Teleservices Center. The
addition of the Company's Internet marketing activities in late April of 1999
also resulted in leads arriving via either email or registration on the
Company's Web site. Leads generated from the Internet are followed up by the
Company's Teleservices Representatives (TSRs) via telephone.
A new lead is credit-qualified and either approved or rejected while on the
telephone with the TSR. The credit qualification process is a function of the
Company's own criteria, including minimum FICA (Fair-Isaac Credit Assessment)
scores, open credit, employment tenure, debt ratio etc. However, since the
Company does not usually retain final ownership of the loans, it also includes
the evaluation criteria of the financial institutions it sells loans to.
If a prospect fails the credit qualification process on his or her own merits,
he or she is asked if they can get a co-signer for the loan, and the
qualification process is repeated based upon the combined merits of the
applicant and co-signer.
Upon credit approval, the prospective patient is then connected (via
telephone) by the TSR directly to the nearest participating physician's
office, which then schedules an initial, free consultation.
In order to improve and shorten the time from inquiry to performance of a
procedure, as well as to maintain control over the number of contractually-
bound consultations with the participating physicians, the prospect is
initially scheduled into only one physician at a time for consultation.
The selection of the physician's office for a specific prospective patient is
done via a Physician Locator screen on the TSR's computer terminal. This
computer-aided device is intended to:
* Ensure that the prospective patient is referred to a physician with
qualifications appropriate to the prospect's area of interest;
* Balance out patient consultations among the participating physicians; and
* Ensure that the Company's performance standards are being met.
Consumers are not required to participate in the Company's financing program
to have access to the Company's free consultation program. Consumers that
avail themselves of the Company's free consultation program, but have their
own financing abilities, are referred and followed up in the normal manner.
Such consultations count toward the Company's contractual performance
standards with its participating physicians.
The TSRs receive both initial and ongoing training on the Company's services,
credit qualification requirements, and procedures for helping maintain or
improve the conversions of incoming inquiries into procedures. At no time
does a TSR offer or give medical advice.
Prior to the fourth quarter of 1999, the bulk of the incoming leads were
generated via conventional media, particularly television. Based upon tests
the Company had been running previously, during the fourth quarter of 1999
Management shifted substantially its emphasis away from its principal use of
television to a more balanced use of multiple media types, including the
Internet.
This shift resulted in a temporary decline in patient flows during the fourth
quarter of 1999 while the new efforts were taking effect. However, although
the average media cost per consultation generated for the entire year was
approximately $243, the shift in emphasis described above has resulted in
material cost improvements in this important metric.
Internet-Related Activities
- ---------------------------
The Company established its Web presence in the middle of the second quarter
of 1999. Since that time, the Company has driven traffic to its Web Site via
numerous efforts, including:
* Affiliate and co-marketing arrangements with other Web entities, such as Be
Free, Cyber Gold and Commission Junction;
* Television, radio and print advertising; and
* Co-marketing arrangements with women's wear catalogue merchants, general
merchandise catalogue merchants and women's wear manufacturers. These
particular activities are relatively recent, and it is too early to determine
their overall effectiveness..
The following table shows the monthly average number "hits" on the Company's
Web site:
thatlook.com, Inc.
Average Monthly Web Site Statistics
(Activity began in April of 1999)
First Second Third Fourth
Quarter Quarter Quarter Quarter
Hits 0 184,370 3,683,481 3,682,445
As a result of these activities, the percentage of the Company's leads and
physician consultations that originated via its Internet activities has been
increasing since these activities began, as shown in the table below:
Percent of Selected Activity
Originated Via Internet Activities in 1999
First Second Third Fourth
Quarter Quarter Quarter Quarter
Percent of Total Leads 0% 17% 66% 62%
Percent of Total Scheduled
Patient Consultations 0% 17% 43% 70%
The percent of actual patient consultations coming from the Internet
significantly lags the number of leads for two reasons:
1. It is relatively easy for people to "window shop" in an idle manner when
browsing the Internet. As a result, leads from this source are, typically,
from people who are less far along in their decision-making process than
directly called-in inquiries, regardless of origination source. As a result,
the Company's experience to date has been that inquiries originated via the
Internet typically have a longer gestation period, as individuals consider
their choices prior to taking action.
2. Any sharp increase in inquiries takes time to work through the scheduling
of appointments with the physicians in the Company's marketing network.
Financing Spread or Loan Commission Generation:
- -----------------------------------------------
Under the current operating structure, the Company buys a patient loan from a
physician, net of a purchase discount from face value, and resells the loan to
a financial institution. The Company warehouses (temporarily owns, typically
for 7-10 days) the loans only on a short-term basis, prior to a sale to a
financial institution.
The individual patient's credit quality affects the discount at which a loan
is purchased from the physician and its institutional resale price.
Additionally, different institutions may, over time, vary the rates at which
they are willing to purchase loans of a given quality.
Purchase discounts, on sold loans, are recognized as income in the month in
which the sale is recorded. Physicians sell loans to the Company, subject to
limited recourse. The recourse typically is limited to first payment
defaults, fraud, or malpractice by the performing physician.
Finance-Only Program Discussion:
- --------------------------------
The Company also offers physicians a finance-only program. As of December 31,
1999, the Company had 33 physicians participating in its finance-only program.
Management believes the finance-only market is substantially more competitive,
in terms of both numbers of competitors and interest rates, than the market
for its Marketing Management Program. Further, management believes the
Company's growth opportunities are fewer in the finance-only market because
there is little or no concerted or effective effort being expended to drive
patient flow to the physicians' offices under these programs. It is for these
reasons that Management has withdrawn from actively pursuing this program, and
expects its finance-only business to decline to an immaterial part of its
overall business.
Financing Commitments:
- ----------------------
Since the Company generally does not intend to retain ownership of loans, the
ability to place loans is critical to its future success.
The Company currently sells loans to two institutional lenders Monterey
Financial in Oceanside, California, and Leasecomm in Waltham, Massachusetts.
The commitment from Monterey Financial began in October 1999 and is for a
maximum of $1 million per month.
The commitment from Leasecomm began in June, 1998, is for a maximum of $1.5
million per month, a minimum of $500,000 per month, and expired on February 8,
2000. Although the contractual agreements for Leasecomm to purchase loans have
expired as of this filing date, Leasecomm continues to purchase loans on a
month-to-month basis. All loan agreements give the purchasing institutions the
ability to reject loans that do not meet their lending criteria.
The $2.5 million per month commitments described above are three and four
times the Company's current loan generation rate. Management believes,
therefore, that the Company has adequate loan placement arrangements for the
immediate future.
The Company also has a $1 million dollar line of credit with Sterling
Financial Services Company in New York, New York. While the outstanding
balance on the line-of-credit at December 31, 1999 was approximately $885,000,
the Company is unable to borrow the additional balance up to the $1 million
dollar limit. The underlying patent notes receivable which represent the
collateral for the line-of-credit, are below the formula amounts required by
the line-of-credit agreement. The Company needs to collect on certain
delinquent loans so that the loans count in the "availability" formula. The
Company needs to supply Sterling with $110,000 in patient notes receivable,
net of the Company's purchase discount, to be in compliance with the
line-of-credit covenants. Note, Sterling provided a waiver of this covenant
violation through March 31, 2000.
Should any of the financial institutions described above terminate these
relationships, the Company may experience serious difficulty placing its loans
until alternative purchasers could be found. In recognition of this risk,
Management is actively engaged in discussions with other lenders in order to
broaden the base of institutions to which it sells loans, and thereby reduce
this risk.
Interest Income
- ---------------
While the Company originally retained ownership of loans it originated, this
practice was largely discontinued in the fourth quarter of 1998 when the
Company refocused its efforts on being entirely a marketing-based company.
The Company sold approximately 75%, by face value, of the loans in its
portfolio during the fourth quarter of 1999. Until or unless the remainder
of this portfolio is sold, the Company's income statement will continue to
show interest income and interest expense (from the hypothecation of these
loans) as this portfolio matures. The interest income and expense to the
Company from this portfolio balance each other out, resulting in little or no
net revenue or expense to the Company.
As of December 31,1999, management estimates that the average loan life left
of the portfolio was 2.6 years.
Employees
- ---------
As of December 31, 1999 the Company had 48 full-time employees and 10 part-
time employees, including its corporate officers. The Company has no
collective bargaining agreements with any unions and believes that its
overall relations with its employees are good.
The success of the Company, at its current stage of development, depends
greatly upon the continued employment of Gerard A. Powell, the Company's
President and Chief Executive Officer. While the loss of Mr. Powell's
employment would have a material, adverse effect upon the Company, the
Company has not purchased "key man" insurance policies on the life of Mr.
Powell. However, Management believes the Company's dependency on Mr.
Powell's entrepreneurial skills will decline as the business model and
systems are refined further.
Competition
- -----------
Management is unaware of a business model that is directly competitive to its
own. Competition by segment includes Web-based physician referral sites and
several finance-only companies.
We can find no single company whose business model is exactly like ours. We
do have competitors who provide physician referrals (mostly web based) and we
do have competitors who provide short-term monthly payment options. We
believe we uniquely provide a constantly renewed stream of financially
qualified, willing and able patients to cosmetic physicians.
Physician Referral Web Sites
- ----------------------------
The Company does not believe Web sites of individual physicians provide
material competition to its business model. There are, however, several Web
sites that provide listings of plastic surgeons, much like, in Management's
opinion, that done in Telephone Company Yellow Pages.
Such Web site listings of plastic surgeons that Management is aware of are:
American's Cosmetic Surgery Specialists(www.acss.com); Plastic Surgery/
Cosmetic Surgery Network(www.plastic-surgery.net,www.cosmetic-surgery.net);
Surgery.com(www.plasticsurgery.com); Topphysician.com(www.topphysician.com).
Cosmetic Surgery Financing
- --------------------------
Competition for cosmetic surgery financing is constantly changing, and remains
relatively fragmented.
Competition includes the use of credit cards, personal loans at local banks,
various consumer finance companies, and a limited number of national
providers. These national providers include Unicorn Financial, HealthReady,
and MBNA, which provides financing under the auspices of the American Society
of Plastic Surgeons (ASPS).
Outsourced Marketing Management Competition
- -------------------------------------------
The only material company Management is aware of in this category is
USmed.com. Management believes that USmed.com(www.usmed.com): is not an
experienced direct response marketer; does not have an established, trained
telemarketing sales operation designed to bring qualified 'foot traffic' to
the physician's office; and doesn't use a multi-media Internet, radio, TV and
direct mail approach to generate leads.
Intellectual Property and Proprietary Rights
- --------------------------------------------
The Company believes that its business model, business name, and policies and
procedures are proprietary and the Company relies on a combination of
contracts and other trade secrets and trademark laws that protect this
property. In addition, all employee contracts contain non-disclosure and
non-compete clauses.
While the Company owns certain Internet domain names, which the Company
believes are protected, the Company is also taking steps to protect its
proprietary Internet programs.
Government Regulation
- ---------------------
Breast Implants
- ---------------
An estimated 130,000 women in the United States elected to have breast
augmentation surgery with saline-filled implants in 1999, despite the lack of
a declaration from the United States Food and Drug Administration (FDA) that
the implants were safe. Recent press releases included the following
information about the FDA and its Medical Devices Advisory Committee:
In 1988, the FDA decided that breast implants needed tougher preclinical and
clinical testing prior to marketing. Thus, implants were reclassified from
Class II devices to Class III devices. The FDA's Medical Devices Advisory
Committee, makes recommendations that the FDA typically follows, but is not
bound by the committee's recommendations. On March 2, 2000, the Advisory
committee recommended that women getting saline implants be warned that the
implants can deflate and require repeated operations. On the same day, the
Advisory committee voted unanimously that a small implant maker, PIP/USA of
Miami, did not prove its brand of saline implants were safe and effective. The
committee rejected PIP's implants largely because the company's study was
incomplete. The Advisory committee recommended that the two largest implant
manufacturers, McGhan Medical Corporation and Mentor Corporation, both of
Santa Barbara, California, be allowed to continue selling their brands of
saline implants. The FDA will review the Advisory Committee's recommendations
and make decisions on the three manufacturer's products by May 2000.
More than 50% of patients generated from the Company's marketing activities
seek breast augmentation surgery. At any time, government regulations could
limit the number of manufacturers of implants, or types of implants that can
be used. In addition, customer concerns about pending governmental reviews or
negative publicity could deter patients, possibly only temporarily, from
having breast augmentation surgery.
Internet Privacy
- ----------------
The Federal Trade Commission (FTC) appears to be emerging as the chief
enforcer of Internet regulations, particularly issues related to Internet
privacy. A major part of the FTC's statute relates to unfairness and
deception, which it believes can be implicated directly in invasions of
privacy. The FTC has launched probes of several on-line retailers. Critics
have taken issue with on-line retailers plans to match consumers' names and
demographic information with anonymous online activity. In addition,
Management is aware that the FTC has launched a review of other health-care
sites to determine if personal information about their visitors are
improperly shared with third parties. While it can give no guarantee,
Management does not believe, but remains unsure, if these governmental probes
or reviews about privacy will have a material adverse effect on the Company.
Our business model does not rely on the sale of information about visitors to
our Internet site. Furthermore, the Company has never sold information about
its site visitors, nor does it intend to.
The Company plans to sign an agreement in April 2000 with a Verisign, Inc. a
leading Internet security company, which will make the Company's web-site, a
secure site to protect visitors' information, such as health and credit
information.
State Licensing and Federal and State Lending Regulations
- ---------------------------------------------------------
Elective Investments, Inc. currently purchases patient notes receivable from
physicians who perform surgeries on patients that reside in various states. In
some cases, a patient may reside in one state and have surgery by a physician
in a neighboring state. Based upon our counsel's advice, we require the
lending documents to be prepared according to the laws of the patient's state
of residency. In addition to Federal lending regulations, the purchase of
notes receivable in various states is subject to each states laws and
licensing statutes. The Company filed a licensure plan with the Plan of
Reorganization filed on Form 8-K filed with the Commission on May 12, 1999,
and as amended May 24, 1999 and July 14, 1999, which is incorporated herein by
reference.
Item 2. Properties:
- -------------------
In March 2000, the Company signed a new lease for approximately 8,000 square
feet of office space in Stroudsburg, Pennsylvania for three years until March
2003, with an option to extend the lease for two additional years. The
Company plans to complete its relocation in April 2000. Management estimates
that the new office space can accommodate approximately 50% more employees
than the Company currently employs. Previously, the Company leased 5,831
square feet of office space at approximately $10.60 per square foot in East
Stroudsburg, Pennsylvania.
The Company leased space beginning July 1998 for Elective Investments, Inc. in
Marshalls Creek, Pennsylvania. This office was approximately three miles from
the East Stroudsburg office. In August of 1999, the Company reduced its head
count, and simultaneously moved the Elective Investments, Inc. personnel back
to East Stroudsburg. The space has been re-leased and the Company has no
further lease obligations for the Marshalls Creek office.
Item 3 Legal Proceedings:
- -------------------------
Active Litigation; Defendant
- ----------------------------
On May 5, 1998, the Company entered into an agreement with Tenenbaum's Travel
Service, Inc. to borrow $200,000 with an interest rate of 15% per annum,
payable in full on November 30, 1998. The note was delivered by the payee to
provide inbound teleservices as defined. At December 31, 1999 the balance due
on this note was $180,000. The note is personally guaranteed by a principal
shareholder. At December 31, 1999, the Company was in default under this note
and the payee instituted a lawsuit for repayment of the balance plus interest.
The Company has countersued claiming inadequate performance in providing
inbound teleservices. There is a Complaint in Confession of Judgment and
Confession of Judgment were filed by Tenenbaum's Travel Service, Inc. d/b/a
Kingdom Vacations against thatlook.com (f/k/a Cooperative Images, Inc.), in
the Court of Common Pleas of Luzerne County, Pennsylvania (Case #250-L-1999).
The judgment was entered in favor of Tenenbaum's Travel Service, Inc., and
against thatlook.com (f/k/a Cooperative Images, Inc.) on February 19, 1999, in
the amount of $202,550.00, plus interest and costs until paid. Thatlook.com
has filed a Petition to Open and/or Strike Judgment by Confession and to Stay
Execution on March 19, 1999 (Case #250-L-1999). This petition raises defenses
to the confessed judgment and alleges a potential Counterclaim against
Tenenbaum's Travel Service, Inc. Consequential damages in the potential
Counterclaim are in excess of the liability. A hearing has been scheduled
during the second quarter of 2000.
A Complaint in Confession of Judgment and Confession of Judgment in Ejectment
(Case #9077-Civil-1999) were filed by Pocono Services for Families and
Children against thatlook.com, Inc. in the Court of Common Pleas of Monroe
County, Pennsylvania, on December 16, 1999 for possession of the leased
premises known as The Flick Building, located at 210 West Fourth Street, East
Stroudsburg, Pennsylvania. thatlook.com, Inc. filed a petition to Strike Off
and/or Open Judgment by Confession (Case # 8547-Civil-1999) on January
18,2000. Subsequently, the cases were withdrawn and the landlord agreed to
extend the lease until April 2000. The Company signed a lease at a new
location and plans to complete its relocation in April 2000. See "Properties."
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
No matters came up for a vote of stockholders in the fourth quarter of 1999.
Part II.
- --------
Item 5. Market for Common Equity and Related Stockholders Matters
- ------------------------------------------------------------------
Market Information
- ------------------
The Company's Common Stock is quoted on the Over-The-Counter Bulletin Board
market under the symbol "THAT" (and "LOOK" from April 29, 1999 the date of the
recapitalization until July 2, 1999, when the symbol was changed).
The following table sets forth the approximate high and low closing sales
prices per share as reported by the Over-The-Counter Bulletin Board market for
the Company's Common Stock for the calendar periods indicated. The quotations
do not reflect retail markups, markdowns or commissions and may not reflect
actual transactions.
STOCK QUOTATIONS (*)
Fiscal Quarter High Low
- -------------- ----- -----
Quarter Ended March 31, 1998 ** **
Quarter Ended June 30, 1998 ** **
Quarter Ended September 30, 1998 ** **
Quarter Ended December 31, 1998 25.00 1.00
Quarter Ended March 31, 1999 1.00 1.00
Quarter Ended June 30, 1999 11.00 1.00
Quarter Ended September 30, 1999 4.19 2.50
Quarter Ended December 31, 1999 2.65 2.19
* - The future sale of presently outstanding "unregistered" and "restricted"
common stock of the Company by present members of management and persons who
own more that five percent of the outstanding voting securities of the Company
may have an adverse effect on any "established trading market" of common stock
of the Company. A significant portion of the "restricted" shares will be
eligible for resale under Section 144 rules, beginning April 29, 2000, which
is one year after the April 29, 1999 recapitalization.
** - Prior to the April 29, 1999 recapitalization, the Company's common stock
last traded July, 1989 in the "Pink Sheets" published by the National
Quotation Bureau, Inc. These amounts reflect a retroactive restatement for a
1 for 150 reverse stock split.
Holders
- -------
The number of record holders of the Company's securities as of March 29, 2000
is approximately 450.
Sales of Unregistered Securities
- --------------------------------
Prior to the April 29, 1999 Agreement and Plan of Reorganization (the "Plan"),
which was accounted for as a recapitalization, there were no sales of any
securities of the Company prior to September 30, 1998 for the past three
years. The Plan was filed with the Commission on May 12, 1999 on Form 8-K,
and amended May 24, 1999 and July 14, 1999. The Plan is an exhibit to the
Company's Current Report and is incorporated herein by reference.
Following the recapitalization until the date of this report, the Company sold
4,828,845 shares of common stock and 2,796,000 warrants for cash and
conversions of debt obligations. In addition, the Company executed
convertible debt agreements, which allow the payee to convert the debt
obligation to shares of unregistered, restricted common stock.
The following table reflects the sales of unregistered, restricted shares of
the Company's common stock following the recapitalization:
Date Number of Aggregate
Name(4) Acquired Shares Consideration
---- -------- ------ -------------
Allen Stern 4-29-99 458,032 $1,500,000
Gerard A. Powell (1) 4-29-99 7,541 38,000
Saul Epstein (1) 6-29-99 60,682 78,571
Richard H. Gwinn (1) 6-29-99 110,332 142,858
Harvey Kimmel 6-29-99 60,682 78,571
Creative Business Planning, Inc. 8-01-99 25,000 26,950
Howard Sutkin, M.D. 8-12-99 3,252 3,150
APUS Capital Corporation 8-13-99 12,500 18,750
Ronald K. Gilmer, M.D. 08-26-99 2,305 3,345
Lawrence T. Simon (1) 08-30-99 400,000 600,000
Ronald K. Gilmer, M.D. 09-02-99 2,304 2,150
Ronald K. Gilmer, M.D. 09-09-99 1,608 1,500
Richard A. Joseph, M.D. 09-15-99 3,752 3,500
Richard A. Joseph, M.D. 09-15-99 3,618 3,375
Ronald K. Gilmer, M.D. 09-17-99 2,304 2,150
Ronald K. Gilmer, M.D. 09-23-99 2,304 2,150
Ronald K. Gilmer, M.D. 09-28-99 1,286 1,200
Gina Prisinzano 10-04-99 2,000 3,000
Neil Crisci 10-04-99 2,000 3,000
Mary Ann Freeby 10-04-99 2,000 3,000
John A. Coyle 10-04-99 2,000 3,000
Julian Henley M.D. 10-07-99 4,245 5,850
Ronald K. Gilmer, M.D. 10-21-99 3,185 2,150
Ronald K. Gilmer, M.D. 11-19-99 2,444 1,650
Gerard A. Powell (1)(3) 12-31-99 796,000 199,000
Lawrence T. Simon (1)(3) 12-31-99 2,000,000 500,000
MicroFinancial, Inc. 12-31-99 503,723 503,723
Gerard A. Powell (1) 12-31-99 226,118 226,118
Vincent J. Trapasso (1) 12-31-99 27,628 27,628
Stuart Guskind (2) 03-09-00 100,000 150,000
(1) Beneficial owner reported in Item 11.
(2) Purchased shares after December 31, 1999.
(3) Includes one warrant for each share of common stock.
(4) Management believes each of the foregoing persons or entities was either
an "accredited investor", or a "sophisticated investor" as defined in Rule 506
of Regulation D of the Securities and Exchange Commission. Each had access to
all material information regarding the Company prior to the offer, sale or
issuance of these "restricted securities". The Company believes these shares
were exempt from the registration requirements of the Securities Act of 1933,
as amended(the "1933 Act"), pursuant to Section 4(2) and/or 3(b)thereof.
Dividends
- ---------
The Company has not declared any cash dividends with respect to its common
stock and does not intend to declare dividends in the foreseeable future.
There are no material restrictions, other than cash flow, limiting the
Company's ability to pay dividends on its securities.
Item 6. Management's Discussion and Analysis or Plan of Operation.
- -------------------------------------------------------------------
Background
- ----------
thatlook.com, Inc.(TLC), formerly known as Cooperative Images, Inc. TLC was
incorporated in New Jersey on December 5, 1994 and is in the business of
direct response marketing through radio, television and the Internet. TLC's
marketing efforts generate patients who seek elective cosmetic surgery. After
it pre-screens patients interested in cosmetic surgery for creditworthiness,
TLC refers the patients generated from its marketing programs to participating
physicians who pay TLC a monthly marketing fee.
Elective Investments, Inc., (EII), was incorporated on November 26, 1996. EII
prepares financing packages for creditworthy patients of physicians. A
substantial portion of the resulting receivables between the physicians and
the patients are purchased by EII from the physicians. It also pre-screens
patients interested in cosmetic surgery for creditworthiness for physicians
who generate their own patients separately from TLC's marketing programs.
On January 25, 1999 Cooperative Images, Inc. changed its name to thatlook.com,
Inc. by filing an amendment to its certificate of incorporation. In April,
1999, Elective Investments, Inc. (EII), a Pennsylvania corporation, became a
wholly-owned subsidiary of TLC when all its shareholders contributed their
respective shares of capital stock to TLC.
On April 29, 1999 TLC completed a reverse merger with a public entity, whereby
a 100% interest in TLC was acquired by First Target Acquisition, Inc., in
exchange for 9,999,000 "restricted" shares of TLC. TLC became a wholly-owned
subsidiary of FTA. TLC is deemed to be the accounting acquirer. The
financial statements were retroactively restated for TLC, and EII its
wholly-owned subsidiary, for all periods presented. The reverse merger was
accounted for as a recapitalization. Prior to the reverse merger FTA had been
dormant
and operationally inactive for many years. Following the reverse merger, FTA,
a Nevada corporation and TLC's parent company, changed its name to
thatlook.com, Inc. (the "Company") on July 23, 1999, to reflect the name of
the principal operating business.
Overview
- --------
Management believes that it has made significant progress during 1998 and
1999, particularly since the Fall of 1999, to improve the Company's results of
operations and financial position. First, to generate patients for physicians
more cost effectively, the Company switched from primarily television
advertising to print advertising (e.g. magazines), Internet marketing, and
co-marketing arrangements with women's wear catalogues. Second, the Company
added a three-tiered pricing structure for the marketing program. This new
pricing structure enabled the Company to tailor its marketing efforts to a
physician's expectations and the physician's individual geographical market.
Third, a new lender started to purchase patient notes receivable in the Fall
of 1999, which increased revenue dollars and yield on loans sold. Fourth, the
Company reduced its staff size and other operating expenses, through
cost-reduction programs and improvements in operational efficiencies. For
example,
a predictive-dialer was installed, which improved the efficiency of our in-
bound and out-bound call management systems. Fifth, the Company restructured
its balance sheet, which significantly reduced high, interest-rate, debt.
Plan of Operation - Comparison of Years Ended December 31, 1999 and 1998
- ----------------------------------------------------------------------------
Revenue
- -------
Marketing fee revenues were $2,934,307 and $3,599,051 in 1999 and 1998
respectively, which represented a decrease of 18%. The decrease relates
primarily to the Company's decision to reduce the number of physicians in its
marketing program and the switch to a three-tiered pricing structure. These
reductions and pricing changes were made to optimize the number of patients
that were generated for the physicians, compared to the advertising expenses
incurred. These changes enabled the Company to implement a more flexible
marketing program that could be implemented more effectively for physicians
new to the program and physicians located in smaller media markets. The
number of physicians decreased from a high of 101 at November 30, 1998 to 73
at December 31, 1999, which represented a 27% decline from its peak.
Gains on sale of notes receivable were $1,110,978 and $609,037 in 1999 and
1998 respectively, which represented an increase of 82%. In August 1998, the
Company started to sell the majority of its loans rather than borrow on
lines-of-credit, which were collateralized by the loans. Loan volume
decreased in
the Fall of 1999 due to changes in the number of physicians and the transition
to new marketing media. This volume reduction was offset, in part, by a
higher yields on loans sales, as a percentage of face value. The yield, as a
percentage of face value, decreased to 11.8% in 1999 from 23.8% in 1998.
Management believes that the yield for the upcoming year will be similar to
1999.
Interest income was $1,100,817 and $1,334,988 for 1999 and 1998 respectively,
which represented a decrease of 18%. Two issues explain the decrease. First,
the Company's decision to sell loans, as previously discussed, means that the
underlying loan portfolio decreases over time, since few loans are added to
the portfolio. Second, as part of a restructuring agreement, approximately
$3.3 million dollars of patient loans were taken back on November 30, 1999 by
a finance company. The finance company had previously advanced funds on a
line of credit to purchase the loans. Had these patient loans remained in the
Company's portfolio, December's 1999 interest income would have been higher by
approximately $55,000.
Other revenue increased $195,592, to $266,296 from $70,704 in 1999 and 1998,
respectively. A non-recourse fee program, which started in March of 1998,
generated the additional revenue. Physicians that participate in this
non-recourse fee program pay $95 per loan to protect against loan chargebacks
to
the physicians. Without the non-recourse program, a physician's contract
obligates the physician for a loan where a patient fails to make a first
payment, or if a patient claims malpractice. Recourse fees were $228,689 and
$41,491 in 1999 and 1998, respectively.
Expenses
- --------
Media, advertising and promotional fees were $1,539,911 and $2,624,005 in 1999
and 1998 respectively, which represented a decrease of 41%, because the
Company placed less media in 1999 for two primary reasons. First, from
January to June of 1999, the Company's financial resources were limited, which
restricted the amount of total media expenditures. When the Company switched
to new media brokers in the second quarter of 1999, the Company was forced to
try to establish credit with new television stations. Previously, the Company
had six-month credit terms with its primary media broker. The new brokers and
stations required cash-in-advance, or significantly less favorable credit
terms. In short, the switch to untested time slots at new stations, and
restrictive credit terms further limited the Company's ability to place media.
Starting in August 1999, a new investor began providing capital, in part, to
support the media program. Second, during the third quarter, the Company
shifted its media focus to the Internet and other more cost effective media
sources. In the first quarter of 2000, management has been encouraged by the
response rates from new print media, for example, magazines. In some cases,
the media cost, to generate patients for office visits with the physicians is
50% below past television expenses, on a per patient basis.
Payroll expenses for sales and marketing personnel was $991,248 and $1,302,324
in 1999 and 1998 respectively, which represented a decrease of $311,076, or
24% lower. Staff reductions in the second half of 1999 led to this decrease.
The Company made the reductions because it was over staffed based upon its
volume of business and gains in operational efficiencies. For example, the
Company installed a predictive dialer to improve the efficiency of its in-
bound and out-bound call management systems and related payroll expenses.
The Company continues to save approximately 40% of payroll costs for telephone
service representatives. In addition, fewer physicians in the marketing
program required less staff members.
Telephone expenses for sales and marketing decreased to $201,418 from $366,194
in 1999 and 1998 respectively. The decrease relates primarily to the
installation of the predictive dialer and approximately 40% more efficient
telephone talk and hold times. These telephone expenses also declined due to
less advertising and patients generated.
Credit bureau expense was $125,742 and $222,670 in 1999 and 1998 respectively,
which represented a decrease of $96,928. First, the Company negotiated a
lower cost per credit report with the credit bureau, and eliminated extra
charges for special features on the credit reports, which were only needed for
select applicants. Second, in June of 1999, the Company started to use a
finance company's credit-scoring model, which retrieves credit information
from three credit bureaus, which is referred to as a merged report. Using the
finance company's credit scoring model significantly reduced the Company's
credit bureau cost. However, in September 1999, the finance company decided
to reduce its own credit expenses by limiting our use of its credit reports.
They now allow us to retrieve credit reports after a patient schedules an
appointment with a physician. We no longer use the finance company's credit
scoring reports as a pre-screening tool when a patient first responds to an ad
or commercial. We use our own credit report, which costs the Company more.
Based on these new restrictions, we anticipate that the credit bureau expenses
will increase as a percentage of revenue in the future. In addition, if the
Company decided to purchase a merged report, credit expenses will increase
even more.
Rent and utilities expenses were $121,966 and $94,136 in 1999 and 1998
respectively, a $27,830 increase. A new lease for Elective Investments, Inc.
personnel caused the increase. Elective Investments, temporarily rented a
separate location from August of 1998 until November 1999, which cost
approximately $3,400 per month. While the Company is no longer responsible
for the $3,400 per month lease, it signed a new lease which starts April 1,
2000. The new office space has approximately 40% more square feet of work
space. Rent expense will increase an estimated $3,000 per month depending on
utility costs, compared to the old building lease.
Payroll expenses for general and administrative personnel remained relatively
flat, at $1,040,299 and $1,055,055 for 1999 and 1998 respectively. In
December 1999, the Company reduced its staffing levels to more cost effective
levels. Less doctors in the marketing program and a smaller loan portfolio
require less support staff such as loan collections and servicing personnel.
Other general and administrative expenses were approximately the same during
1999 and 1998. Management believes that this category, which includes
depreciation expense, will increase in the upcoming year. The second half of
the predictive dialer project included the installation of a new database to
manage the data that the employees collect from patient applications. In
January 2000, the capitalized amount of the database project was almost
$129,000. In addition, the new database replaced older databases used in
other departments, and provided better access across various departments.
Management expects to make additional capital investments and incur related
depreciation expense for enhancements to its web site in the upcoming year.
Interest expense increased because of the higher outstanding balance on the
Company's lines of credit and new debt incurred by the Company. Interest
expense related to the line of credit will decrease significantly in calendar
2000, due to the restructuring of the notes receivable and line-of-credit
previously discussed.
Liquidity and Capital Resources
- -------------------------------
During 1999 and the first quarter of 2000, investors contributed approximately
$1.7 million in cash for shares of the Company's common stock, and an
additional $275,000 in short and intermediate term convertible debt. These
investments helped to fund the transition from our prior primary media broker
to new media brokers in 1999, and the transition to print media in 2000.
While the prior broker provided six-month credit terms, the Company could
obtain only small amounts of credit from other media brokers or from
television stations directly. In short, the Company had to pay cash in
advance. The new capital also funded the transition to print media, which
typically must be paid six weeks before the ads hit the newsstands.
Debt to equity conversions of $2.8 million dollars reduced the Company's
principal and interest obligations as well as amounts owed to physicians for
loan purchases, attorneys and consultants. The restructuring of the notes
receivable and the line-of-credit with a finance company, combined with other
debt conversions of shareholder loans, will save more than $90,000 per month
in high interest rate debt.
The Company's corporate strategy is to sell loans and record the purchase
discount as a gain on sale in the month sold. If the Company held a loan
until maturity, the purchase discount would be earned ratably over the term of
the loan. The Company's desire to show positive operating results and cash
flow constraints require the Company to sell loans. Should the Company not be
able to sell the loans, earnings would be adversely affected.
Two finance companies currently purchase the majority of the Company's loans.
In 1998 and 1999, the Company also placed loans on a line-of-credit with a
bank, based mostly upon the availability of the line-of-credit. Should the
Company not be able to sell all of its loans or place the loans on a
line-of-credit, marketing revenues would also be adversely affected.
As part of a December 31, 1999 restructuring agreement, the Company and a
finance company agreed that the finance Company would take back and service
the underlying patients' notes receivable that collateralized their
line-of-credit. On December 31, 1999, the finance company applied the value
of the notes receivable, (net of the allowance for doubtful accounts) of
approximately $3.3 million to the outstanding balance of their line-of-credit.
A shortfall in the value of the collateral of $1,873,297 was converted into a
convertible subordinated debenture (Note 9).
In addition, the finance company agreed to convert $503,723(accrued interest
of $255,000 and recourse obligations of $248,723) of other obligations of the
Company to equity at one dollar per share. Additionally, as a required part
of the restructuring, two major shareholders of the Company agreed to convert
their $240,941 of shareholders' loans and accrued interest to common shares at
one dollar per share. One of these shareholders also agreed to purchase, and
convert to equity at one dollar per share, a $12,805 note payable and accrued
interest from the finance company. The finance company was granted full
piggyback registration rights on the shares issued to satisfy the above
obligations, along with the shares underlying the Convertible Subordinated
Debenture, if the Company executed a substantial, underwritten secondary
offering. Substantial means an offering resulting in net proceeds to the
Company of $10 million or more.
The Company also has a $1 million dollar line of credit with Sterling
Financial Services Company in New York, New York. While the outstanding
balance on the line-of-credit at December 31, 1999 was approximately $885,000,
the Company is unable to borrow the additional balance up to the $1 million
dollar limit, since the underlying patient notes receivable which represent
the collateral for the line-of-credit, are below the formula amounts required
by
the line-of-credit agreement. The Company needs to collect on certain
delinquent loans so that the loans count in the "availability" formula. The
Company needs to supply Sterling with $110,000 in patient notes receivable,
net of the Company's purchase discount, to be in compliance with the
line-of-credit covenants. Note, Sterling provided a waiver of this covenant
violation through March 31, 2000.
Management is currently seeking additional finance companies that want to
purchase loans. We believe that additional finance companies will create a
more competitive environment that will maintain or improve the yield on loan
sales. Typically, the finance companies due diligence includes the analysis
of the Company's financial statements. Even if the finance companies are
interested in purchasing loans, often, the stockholders' deficit is a
deterrent.
To satisfy the need for a stronger balance sheet and additional operating
capital, in February 2000, the Company signed a three-year agreement with an
investment banker to raise a minimum of $5 million dollars of additional
equity, and to increase the number of lenders that purchase loans from the
Company. The investment banker's agreement includes an initial fee of $12,000
and $12,000 per calendar quarter commencing March 1, 2000, payable following
the $5 million dollar minimum equity raise. As an inducement to enter into the
agreement, the Company also agreed to issue 750,0000 warrants to purchase the
Company's common stock to the investment banker. In addition, the Company
agreed on a pro-rata basis for each dollar raised of the aggregate $5 million
dollars, to issue up to a maximum of 2,250,000 warrants.
In addition to capital investments, the Company's working capital depends
greatly on generating the contractually obligated number of patients for
physicians and recent cost reduction programs. Positive results from new
print media have reduced the per patient costs to generate patient responses
by 50%.
While better short-term operating results are beneficial, Management believes
that the Company needs additional capital to develop the critical mass that
will present a barrier to entry for other competitors. Equally important,
additional capital will provide the resources to improve the efficiency of
the business systems and business model for the Company, and the physicians.
Additionally, capital investments will provide the resources that will enable
the Company to pursue orthodontics and cosmetic dentistry, hair replacement,
and elective corrective eye surgery.
Cautionary Statement on Forward-Looking Statements:
- ---------------------------------------------------
Except for the historical information contained herein, certain of the matters
discussed in this annual report on Form 10-KSB are "forward-looking
statements," as defined in Section 21E of the Securities Exchange Act of 1934,
which involve certain risks and uncertainties, which could cause actual
results to differ materially from those discussed herein including, but not
limited to, risks relating to changing economic conditions, maintaining and
increasing both our consumer base and network of physicians, changes in Food
and Drug Administration regulations for breast implants, changes in the
Federal Trade Commissions regulations on Internet privacy, competing
effectively with existing and potential competitors and changes in interest
rates.
Item 6a Quantitative And Qualitative Disclosures about Market Risk:
- -------------------------------------------------------------------
Elective Investments, Inc. currently purchases notes receivable contracts from
cosmetic physicians. The contracts include the highest statutory interest
rate allowed by the governing state laws.
The Company is subject to market risk for changes in interest rates and could
be subjected to increased or decreased competition from other finance
companies, which could have a material adverse effect on the Company's
financial results.
Item 7. Financial Statements
- ----------------------------
Management's Responsibility for Financial Reporting
Independent Auditors' Report
Financial Statements:
Consolidated Balance Sheet at December 31, 1999
Consolidated Statement of Operations for year ending
December 31, 1999 and December 31, 1998
Consolidated Statement of Stockholders' Deficiency for
year ending December 31, 1999 and December 31, 1998
Consolidated Statement of Cash Flows for year ending
December 31, 1999 and December 31, 1998
Notes to Financial Statements
Management's Responsibility for Financial Reporting
- --------------------------------------------------
The Company's management is responsible for the preparation of the Consolid-
ated Financial Statements in accordance with generally accepted accounting
principles and for the integrity of all the financial data included in this
form 10-KSB. In preparing the Consolidated Financial Statements, management
makes informed judgements and estimates of the expected effects of events and
transactions that are currently being reported.
Management maintains a system of internal accounting controls that is designed
to provide reasonable assurance that assets are safeguarded and that
transactions are executed and recorded in accordance with management's
policies for conducting its business. This system includes policies which
require adherence to ethical business standards and compliance with all laws
to which the Company is subject. The internal controls process is
continuously monitored by direct management review.
The Board of Directors, through its Audit Committee, is responsible for
determining that management fulfills its responsibility with respect to the
Company's Consolidated Financial Statements and this system of internal
accounting controls.
The Audit Committee, comprised solely of directors who are not officers or
employees of the Company, meets annually with representatives of management
and the Company's independent accountants to review and monitor the financial,
accounting, and auditing procedures of the Company in addition to reviewing
the Company's financial reports. The Company's independent accountants have
full access to the Audit Committee.
/s/ Gerard A. Powell /s/ Marvin P. Metzger
- -------------------- ---------------------
Gerard A. Powell Marvin P. Metzger
Chief Executive Officer Chief Financial Officer
<PAGE>
F-1.
INDEPENDENT AUDITOR'S REPORT
----------------------------
Board of Directors
thatlook.com, Inc. and Subsidiaries
East Stroudsburg, Pennsylvania
We have audited the accompanying consolidated balance sheet of thatlook.com,
Inc. and Subsidiaries("the Company") as of December 31, 1999 and the related
consolidated statements of operations, stockholders' deficit and cash flows
for the two years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the
Company as of December 31, 1999 and the results of its operations and cash
flows for the two years then ended in conformity with generally accepted
accounting principles.
As discussed in Note 2 to the financial statements, certain conditions
indicate that the Company may be unable to continue as a going concern.
Management plans in regard to these matters are also described in Note 2. The
accompanying financial statements do not include any adjustments that might be
necessary should the Company be unable to continue as a going concern.
LAZAR LEVINE & FELIX LLP
New York, New York /s/ LAZAR LEVINE & FELIX LLP
February 4, 2000, Except for Note 14,
which is dated March 9, 2000.
F-2.
<PAGE>
thatlook.com, Inc.
and Subsidiaries
------------------
-CONTENTS-
Page (s)
--------
Management's Responsibility for Financial Reporting F-1.
Independent Auditors' Report F-2.
Financial Statements:
Consolidated Balance Sheet F-3.
Consolidated Statement of Operations F-4.
Consolidated Statement of Stockholders' Deficiency F-5.
Consolidated Statement of Cash Flows F-6.-7.
Notes to Financial Statements F-8.-22.
<PAGE>
<TABLE>
thatlook.com, Inc. and Subsidiaries
-----------------------------------
Consolidated Balance Sheet
--------------------------
December 31, 1999
-----------------
<CAPTION>
-ASSETS-
<S> <C>
Cash $ 63,471
Accounts receivable - finance company 73,827
Accounts receivable, net of allowance for
bad debts of $25,465 75,672
Notes receivable, net of allowance for uncollectible
notes of $200,932 (Notes 4 and 8) 1,094,122
Interest receivable 22,903
Loan receivable, shareholder (Note 12) 14,000
Subscription receivable (Note 5) 300,000
Prepaid expenses and other assets 337,611
Fixed assets - net (Notes 6 and 10) 370,506
----------
$2,352,112
==========
- LIABILITIES AND STOCKHOLDERS' DEFICIT -
Notes payable (Note 7) $ 203,000
Lines-of-credit payable (Note 8) 885,367
Convertible subordinated debenture (Note 9) 1,873,297
Accounts payable 688,143
Accrued expenses (Note 7) 285,473
Capital lease obligations (Note 10) 61,064
Payroll and payroll taxes payable 45,600
Provisions for recourse obligation (Note 13) 113,052
Other liabilities 150,443
----------
4,305,439
----------
COMMITMENTS AND CONTINGENCIES (Notes 7, 8 and 13)
STOCKHOLDERS' (DEFICIT) (Notes 11 and 12):
Common stock, $.001 par value, 50,000,000 shares
authorized, and 15,880,874 shares
issued and outstanding 15,881
Additional paid-in-capital 4,258,276
Accumulated deficit (6,227,484)
----------
(1,953,327)
----------
$2,352,112
==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page F-3.
<PAGE>
<TABLE>
thatlook.com, Inc. and Subsidiaries
-----------------------------------
Consolidated Statements of Operations
-------------------------------------
For Years Ended December 31, 1999 and 1998
------------------------------------------
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
REVENUE:
Marketing fees $ 2,934,307 $ 3,599,051
Gain on sale of notes receivable 1,110,978 609,037
Interest from patient financing 1,100,817 1,334,988
Other 266,296 70,704
----------- -----------
TOTAL REVENUE 5,412,398 5,613,780
----------- -----------
SALES AND MARKETING EXPENSES:
Media, advertising and promotion 1,539,911 2,624,005
Payroll and payroll taxes 991,248 1,302,324
Telephone 201,418 366,194
Credit reporting services 125,742 222,670
Other 118,298 193,079
----------- -----------
TOTAL SALES AND MARKETING EXPENSES 2,976,617 4,708,272
----------- -----------
GENERAL AND ADMINISTRATIVE EXPENSES:
Rent and utilities 121,966 94,136
Payroll and payroll taxes 1,040,299 1,055,055
Professional and consulting 600,968 597,409
Other 606,308 557,306
----------- -----------
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES 2,369,541 2,303,906
----------- -----------
OTHER EXPENSES:
Interest 1,561,386 1,242,057
Bad debts 286,322 321,710
----------- -----------
TOTAL OTHER EXPENSES 1,847,708 1,563,767
----------- -----------
TOTAL EXPENSES 7,193,866 8,575,945
----------- -----------
NET LOSS (Note 3g) $(1,781,468) $(2,962,165)
============ ===========
BASIC LOSS PER SHARE $ (0.13) $ (0.27)
============ ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 13,445,360 11,009,846
============ ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page F-4.
<PAGE>
<TABLE>
thatlook.com, Inc. and Subsidiaries
-----------------------------------
Consolidated Statements Of Stockholders' Deficit
-----------------------------------------------
For Years Ended December 31, 1999 and 1998
------------------------------------------
<CAPTION>
Common Stock (1)
----------------------
Stated/Par Paid-in Accumulated
Shares Value Capital Deficit Total
---------- ------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance at
Jan. 1, 1998 11,009,846 $11,010 $290,002 $(1,483,851) $(1,182,839)
Net loss - - - (2,962,165) (2,962,165)
---------- ------- --------- ----------- -----------
Balance at
Dec. 31, 1998 11,009,846 $11,010 $290,002 $(4,446,016) $(4,145,004)
Issuance of
common stock
for cash 2,086,154 2,087 1,013,913 - 1,016,000
Recapitalization
costs - - (153,297) - (153,297)
Conversions of
debt for
common stock 1,584,874 1,584 2,823,858 - 2,825,442
Subscription
receivable(2) 1,200,000 1,200 283,800 - 285,000
Net loss - - - (1,781,468) (1,781,468)
---------- ------- ---------- ----------- -----------
Balance at
Dec. 31, 1999 15,880,874 $15,881 $4,258,276 $(6,227,484) $(1,953,327)
========== ======= ========== =========== ===========
</TABLE>
(1) - Reflects retroactive restatement for periods presented prior to
the April 29, 1999 recapitalization (Note 1).
(2) - Net of issuance costs of $15,000.
The accompanying notes are an integral part of these consolidated financial
statements.
Page F-5.
<PAGE>
<TABLE>
thatlook.com, Inc. and Subsidiaries Page 1 of 2
-----------------------------------
Consolidated Statements of Cash Flows
-------------------------------------
For Years Ended December 31, 1999 and 1998
------------------------------------------
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,781,468) $(2,962,165)
Adjustments to reconcile net loss to net
cash (used) in operating activities:
Depreciation 100,284 55,294
Loss on sale of fixed assets 512 -
Bad debts 286,322 321,710
Changes in assets and liabilities:
Decrease (Increase) in accounts and
interest receivable 98,735 (240,496)
(Increase) in other assets (105,535) (239,532)
Increase in accounts payable 205,392 325,459
(Decrease) in accrued expenses (5,715) (207,138)
(Decrease) Increase in payroll and payroll
taxes payable (77,327) 18,120
Increase in other liabilities 185,119 1,733,957
---------- -----------
Net cash (used in) operating activities (1,093,681) (1,194,791)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Notes receivable purchased (7,300,213) (6,836,669)
Notes receivable sold 6,831,077 -
Proceeds from collection of notes receivable 2,376,090 1,976,597
Proceeds from sale of fixed assets 650 -
Acquisition of fixed assets (58,396) (241,557)
---------- -----------
Net cash provided by (used in) investing
activities 1,849,208 (5,101,629)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings(repayments)on lines-of-credit (2,108,788) 6,005,808
Borrowings from shareholders 228,947 200,000
Borrowings of other debt 45,000 383,198
Repayments of notes payable (75,555) (137,478)
Issuance of common stock 1,016,000 -
---------- -----------
Net cash (used in) provided by financing
activities (894,396) 6,451,528
---------- -----------
NET(DECREASE)INCREASE IN CASH AND CASH EQUIVALENTS (138,869) 155,108
Cash and cash equivalents, beginning of year 202,340 47,232
---------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 63,471 $ 202,340
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page F-6
<PAGE>
<TABLE>
thatlook.com, Inc. and Subsidiaries Page 2 of 2
-----------------------------------
Consolidated Statements of Cash Flows
-------------------------------------
For Years Ended December 31, 1999 and 1998
------------------------------------------
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $1,572,643 $1,192,558
========== ==========
Taxes $ - $ -
========== ==========
Acquisition of equipment under
capital leases $ - $ 60,399
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page F-7
<PAGE>
thatlook.com, Inc. and Subsidiaries
-----------------------------------
Notes to Consolidated Financial Statements
------------------------------------------
December 31, 1999 and 1998
--------------------------
NOTE 1 - DESCRIPTION OF BUSINESS:
thatlook.com, Inc.(TLC), formerly known as Cooperative Images, Inc. TLC was
incorporated in New Jersey on December 5, 1994 and is in the business of
direct response marketing through radio, television and the Internet. TLC's
marketing efforts generate patients who seek elective cosmetic surgery. After
it pre-screens patients interested in cosmetic surgery for creditworthiness,
TLC refers the patients generated from its marketing programs to participating
physicians who pay TLC a monthly marketing fee.
Elective Investments, Inc., (EII), was incorporated on November 26, 1996. EII
prepares financing packages for creditworthy patients of physicians. A
substantial portion of the resulting receivables between the physicians and
the patients are purchased by EII from the physicians. It also pre-screens
patients interested in cosmetic surgery for creditworthiness for physicians
who generate their own patients separately from TLC's marketing programs.
On January 25, 1999 Cooperative Images, Inc. changed its name to thatlook.com,
Inc. by filing an amendment to its certificate of incorporation. In April,
1999, Elective Investments, Inc. (EII), a Pennsylvania corporation, became a
wholly-owned subsidiary of TLC when all its shareholders contributed their
respective shares of capital stock to TLC.
On April 29, 1999 TLC completed a reverse merger with a public entity, whereby
a 100% interest in TLC was acquired by First Target Acquisition, Inc., in
exchange for 9,999,000 "restricted" shares of TLC. TLC became a wholly-owned
subsidiary of FTA. TLC is deemed to be the accounting acquirer. The
financial statements were retroactively restated for TLC, and EII its
wholly-owned subsidiary, for all periods presented. The reverse merger was
accounted for as a recapitalization. Prior to the reverse merger FTA had been
dormant
and operationally inactive for many years. Following the reverse merger, FTA,
a Nevada corporation and TLC's parent company, changed its name to
thatlook.com, Inc. (the "Company") on July 23, 1999, to reflect the name of
the principal operating business.
NOTE 2 - GOING CONCERN UNCERTAINTY:
The accompanying consolidated financial statements have been prepared on a
going concern basis which contemplates the realization of assets and
liquidation of liabilities in the ordinary course of business. During the
year ended December 31, 1999 the Company incurred significant losses, which
increased the accumulated deficit. The Company's cash decreased by $138,869
during 1999, and liabilities at December 31, 1999 exceed assets by $1,953,327.
In addition, the Company was not in compliance with certain of the restrictive
covenants in its line-of-credit agreement with a bank and was in default on
one of its notes payable.
Page F-8.
<PAGE>
thatlook.com, Inc. and Subsidiaries
-----------------------------------
Notes to Consolidated Financial Statements
------------------------------------------
December 31, 1999 and 1998
--------------------------
NOTE 2 - GOING CONCERN UNCERTAINTY (Continued):
The consolidated financial statements do not include any adjustments that may
be necessary if the Company is unable to continue as a going concern. Should
certain unforseen negative events occur, such as the loss of funding for loan
purchases by a lender or accelerated payment terms for loan covenant
violations, existing capital constraints may limit the ability of the Company
to pay its obligations timely to vendors and lenders and lead to possible loss
of services or funding.
Management believes that it has made significant progress since the Fall of
1999 to enhance its financial position. First, the Company raised
approximately $1.5 million from August 1999 through February 2000 in equity
financing. Second, financing negotiations led to the conversion of
approximately $5.6 million of high interest rate debt, to equity or 5%
interest rate debt, which will reduce interest expense approximately $90,000
per month, or over $1 million per year. Offsetting this interest expense
savings, will be a reduction of patient loan interest income, net of other
associated expenses, of approximately $33,000 per month. Third, late in 1999,
the Company switched the majority of its advertising budget from television
advertising to magazine advertising. Initial results reflect greater than 50%
reduction in current per patient cost to generate patient responses. In
addition, the credit quality of the patient's has increased. Fourth,
additional staff reductions saved more than $30,000 per month, and other
operating expenses were trimmed by more than $15,000 per month. Fifth, the
Company added a new lender in 1999, bringing the total lenders to three.
Sixth, in February 2000, the Company signed an agreement with a broker and an
investment banker to raise a minimum of $5 million dollars of additional
equity and to increase the number of lenders that purchase loans from the
Company (See Note 14).
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) Principles of Consolidation:
The consolidated financial statements include the accounts of thatlook.com,
Inc., a Nevada corporation and parent company, and its wholly-owned
subsidiary, TLC a New Jersey corporation, and Elective Investments, Inc.,
its wholly-owned Subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Due to the nature of the Company's business, financing elective surgery, the
balance sheet is reflected on an unclassified basis. Accordingly, current
assets and current liabilities are not reflected separately on the face of the
balance sheets.
Certain reclassifications have been made to the 1998 financial statements to
conform to the presentation used in 1999.
Page F-9
<PAGE>
thatlook.com, Inc. and Subsidiaries
-----------------------------------
Notes to Consolidated Financial Statements
------------------------------------------
December 31, 1999 and 1998
--------------------------
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(b) Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
for the reporting period and as of the financial statement date. These
estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent liabilities and the reported amounts
of revenues and expenses. Actual results could differ from these estimates.
(c) Concentration of Credit Risk:
The Company's accounts receivable are from numerous physicians and are not
concentrated in any specific geographic region. However, for notes
receivable, the primary concentration of credit risk relates to loans
purchased from physicians whose patients may not be able to obtain traditional
bank financing. The Company purchases loans at a substantial discount to
offset anticipated patient defaults on these loans.
The Company maintains cash with various banks. At times such amounts may
exceed the FDIC federally insured limits. The Company limits the credit
exposure with any one financial institution by periodically reviewing the
financial statements of the institution.
(d) Notes Receivable:
Notes receivable are purchased from cosmetic physicians at a discount to the
remaining principal balance. The purchase discount is credited to the
allowance for uncollectible notes receivable, for the estimated losses on the
portfolio of loans, which has historically been the full purchase discount.
Additional amounts added to the allowance for uncollectible notes receivable
are charged to expense. Interest income from financing is accrued, but stops
accruing when a patient's payments are delinquent 60 or more days. Notes
receivable are written off when patient's payments are delinquent 180 days.
(e) Fixed Assets:
Owned fixed assets are valued at cost. Depreciation is provided on the
straight-line method at rates based on the estimated useful lives of
individual assets or classes of assets. Improvements to leased properties
or fixtures are amortized over their estimated useful lives or lease period,
whichever is shorter.
Leased property meeting certain criteria are capitalized. The assets and
liabilities under capital leases are recorded at the lower of the present
value of the minimum lease payments or the fair value of the asset.
Depreciation of capitalized leased assets is computed on the straight-line
method over the lower of the term of the leases or their estimated productive
lives.
Page F-10.
<PAGE>
thatlook.com, Inc. and Subsidiaries
-----------------------------------
Notes to Consolidated Financial Statements
------------------------------------------
December 31, 1999 and 1998
--------------------------
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(e) Fixed Assets (Continued):
Normal repairs and maintenance are expensed as incurred. Expenditures which
materially increase values, change capacities or extend useful lives are
capitalized. Replacements are capitalized and the property and equipment
accounts are relieved of the items being replaced. The related costs and
accumulated depreciation of disposed assets are eliminated and any gain or
loss on disposition is included in income.
(f) Revenue Recognition:
The Company recognizes marketing fees earned from participating physicians in
return for generating credit-qualified patients that have an in-office
consultation with the physician.
The Company recognizes gains and losses on the sale of patient notes
receivable for the amount received from loan purchasers, less the amount paid
to physicians.
For loans not sold, the Company records interest income using the stated
interest rate on the note.
(g) Income Taxes:
The Company records income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" (SFAS No. 109). Under this standard, deferred tax assets or
liabilities are computed based on the difference between the financial
statement and income tax bases of assets and liabilities using the enacted
marginal tax rate. The tax benefits of the net operating loss since the
recapitalization (Note 1) may be realized over the next 20 years. However,
based upon historical losses, it is management's belief that it is not "more
likely than not" that the deferred tax asset will be realized, and therefore,
a valuation allowance has been created to offset the entire deferred tax
asset.
(h) Cash and Cash Equivalents:
For the purpose of cash flow reporting, cash and cash equivalents include all
highly liquid funds with maturities of three months or less.
Page F-11.
<PAGE>
thatlook.com, Inc. and Subsidiaries
-----------------------------------
Notes to Consolidated Financial Statements
------------------------------------------
December 31, 1999 and 1998
--------------------------
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(i) Media, Advertising and Promotion:
Costs incurred for producing and communicating advertising are generally
expensed as incurred, except for production costs and some costs of
direct-response advertising. Television and radio commercials are expensed
when
aired. Magazine advertising costs for customers who could be shown to have
responded specifically to the advertising and result in probable future
benefits, are reported as prepaid assets, which are amortized over the
estimated period of benefits. Production costs are expensed the first time
the advertising takes place. For the years ended December 31, 1999 and 1998,
advertising costs aggregated $1,539,911 and $2,624,005, respectively.
(j) Valuation of Long Lived Assets:
The Company's policy is to review long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. The Company establishes guidelines for
determining fair value based on future net cash flows for the use of the
assets and for the measurement of an impairment loss. Any impairment loss is
recorded in the period in which the recognition criteria are first applied and
met.
(k) Statement of Comprehensive Income:
SFAS 130 "Reporting Comprehensive Income" is effective for years beginning
after December 15, 1997. This statement prescribes standards for reporting
other comprehensive income and its components. Since the Company currently
does not have any items of other comprehensive income, a statement of
comprehensive income is not required.
(l) Segment Reporting:
SFAS 131 "Disclosures about Segments of an Enterprise and Related
Information," is effective for years beginning after December 15, 1997. This
statement establishes the standards for the manner in which public enterprises
are required to report financial and descriptive information about their
operating segments. The statement defines operating segments as components of
an enterprise for which separate financial information is available and
evaluated regularly as a means of assessing segment performance and allocating
resources to segments. A measure of profit or loss, total assets, and other
related information are required to be disclosed for each operating segment.
In addition, this statement requires the annual disclosure of information
concerning revenues derived from the enterprise's products or services,
countries in which it earns revenue or holds assets, and major customers. The
Company does not have any operating segments as defined by this Statement, and
accordingly, no separate information is reported.
Page F-12.
<PAGE>
thatlook.com, Inc. and Subsidiaries
-----------------------------------
Notes to Consolidated Financial Statements
------------------------------------------
December 31, 1999 and 1998
--------------------------
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(m) Loss per Common Share:
Loss per common share is computed based on net loss divided by the weighted
average number of common shares outstanding during the respective years
presented. Diluted loss per share is not presented since stock options,
warrants and convertible subordinated debenture are anti-dilutive.
NOTE 4 - NOTES RECEIVABLE:
Notes receivable have historically been purchased from plastic physicians at
50% and 80% of the face amount of the note receivable, and bear interest at 8%
to 25% per annum. Repayment terms generally range from 24 to 48 months.
Scheduled repayments on the notes are:
2000 $ 698,383
2001 636,017
2002 271,563
2003 56,021
2004 34,747
----------
1,696,731
Less:
Interest 401,677
Allowance for uncollectible notes 200,932
----------
$1,094,122
==========
Although these are the scheduled collections, based upon past experience,
these amounts are not necessarily indicative of the actual cash flows.
NOTE 5 - SUBSCRIPTION RECEIVABLE:
In December 1999, a principal shareholder subscribed to invest $500,000 for
two million shares of common stock. The shareholder invested $200,000 of the
subscribed amount in December 1999. The remaining $300,000 was invested in
January 2000. The Company accrued $15,000 for stock issuance costs for this
transaction.
Page F-13.
<PAGE>
thatlook.com, Inc. and Subsidiaries
-----------------------------------
Notes to Consolidated Financial Statements
------------------------------------------
December 31, 1999 and 1998
--------------------------
NOTE 6 - FIXED ASSETS, NET:
At December 31, fixed assets were comprised of the following:
Furniture and fixtures $ 58,530
Equipment 86,874
Computer equipment 395,060
Leasehold improvements 11,419
--------
551,883
Less accumulated depreciation 181,377
--------
Fixed Assets, net $370,506
========
Depreciation for the years ended December 31, 1999 and 1998 aggregated
$100,284 and $55,294, respectively.
NOTE 7 - NOTES PAYABLE:
Note Payable - Teleservices Company:
- ------------------------------------
On May 5, 1998, the Company entered into an agreement with a teleservices
company to borrow $200,000 with a 15% annual interest rate, payable in full on
November 30, 1998. The note was delivered by the payee to provide inbound
teleservices as defined. At December 31, 1999 the balance due on this note
was $180,000. The note is personally guaranteed by a principal shareholder of
the Company. At December 31, 1999, the Company was in default under this note
and the payee has instituted a lawsuit for repayment of the balance plus
interest. The Company has countersued claiming inadequate performance in
providing inbound teleservices. A judgment in the amount of $202,550 plus
accrued interest has been entered against the Company for outstanding
principal payments, interest and teleservices invoices. The judgement has
been stayed, pending a hearing in the second quarter of 2000. The difference
between the $180,000 principal balance and $202,550 judgment and additional
accrued interest has been recorded as a liability by the Company and is
included in accrued expenses in the financial statements for 1999. The
additional expense was reflected in 1998.
Note Payable - Other
- --------------------
On June 21, 1999, the Company signed a promissory note for $45,000 that bears
interest at 7% per annum. Minimum payments of $7,000 are payable monthly. The
balance on the note at December 31, 1999 was $23,000 plus accrued interest.
This note was fully paid in January 2000.
Page F-14.
<PAGE>
thatlook.com, Inc. and Subsidiaries
-----------------------------------
Notes to Consolidated Financial Statements
------------------------------------------
December 31, 1999 and 1998
--------------------------
NOTE 8 - LINES-OF-CREDIT:
The Company utilized lines-of-credit with a bank and a finance company to fund
notes receivable purchases during 1999 and 1998. The agreement for the line-
of-credit with a finance company was restructured on December 31, 1999.
Line-of-Credit with Bank
- ------------------------
Line-of-credit with a bank obtained in July 1998 permitting maximum borrowings
of $1,000,000, due on demand, with interest payable at the bank's base rate
(8.75% at December 31, 1999) plus 4%, totaling an annual rate of 12.75% at
December 31, 1999. This line-of-credit is collateralized by certain notes
receivable and is guaranteed by the Company's principal shareholder.
Subsequent to December 31, 1999, the Company was not in compliance with
certain of the restrictive covenants and received a waiver through March 31,
2000. The bank reserved the right to enforce the covenants after March 31,
2000. The amount outstanding under this line-of-credit as of December 31,
1999 was $885,367.
Line-of-Credit and Restructuring with Finance Company
- -----------------------------------------------------
As part of a restructuring agreement, the finance company decided to take back
and service the underlying patients' notes receivable that collateralized
their line-of-credit. On December 31, 1999, the finance company applied the
value of the notes receivable, (net of the allowance for doubtful accounts) of
approximately $3.3 million to the outstanding balance of their line-of-credit.
A shortfall in the value of the collateral of $1,873,297 was converted into a
convertible subordinated debenture (Note 9).
In addition, the finance company agreed to convert $503,723(accrued interest
of $255,000 and recourse obligations of $248,723) of other obligations of the
Company to equity at one dollar per share. Additionally, as a required part
of the restructuring, two major shareholders of the Company agreed to convert
their $240,941 of shareholders' loans and accrued interest to common shares at
one dollar per share. One of these shareholders also agreed to purchase, and
convert to equity at one dollar per share, a $12,805 note payable and accrued
interest from the finance company. The finance company was granted full
piggyback registration rights on the shares issued to satisfy the above
obligations, along with the shares underlying the Convertible Subordinated
Debenture, if the Company executed a substantial, underwritten secondary
offering. Substantial means an offering resulting in net proceeds to the
Company of $10 million or more.
The line-of-credit with this finance company permitted maximum borrowings of
$6,000,000, due on demand, which was increased to $8,000,000 in August 1998,
with interest payable at an annual rate of 20%. The amounts outstanding under
this line-of-credit, net of the holdback, as of December 31, 1999 were $0,
after the restructuring.
Page F-15.
<PAGE>
thatlook.com, Inc. and Subsidiaries
-----------------------------------
Notes to Consolidated Financial Statements
------------------------------------------
December 31, 1999 and 1998
--------------------------
NOTE 9 - CONVERTIBLE SUBORDINATED DEBENTURE:
A Convertible Subordinated Debenture for $1,873,297 was created as part of a
restructuring agreement with a finance company (Notes 8 & 9). The debenture
bears interest at 5% per annum, with a maturity date of December 31, 2004. The
interest is payable monthly. The debenture may be voluntarily converted by
the holder into the Company's common stock at $1.00 per share. The Company
as the right to prepay any outstanding principal, provided it gives the holder
of the debenture 20 days to exercise its voluntary conversion rights. Any
shares received as a result of a voluntary conversion are restricted from
resale for two years. The debenture includes provisions to adjust the
conversion ratio proportionately to avoid dilution, as a result of changes in
the Company's par value of its stock, stock dividends, capital reorganization,
or other capital events, such as a merger or acquisition.
NOTE 10 - CAPITAL LEASE OBLIGATIONS:
During the year December 31, 1998, the Company obtained property and equipment
under capital leases maturing from 1999 through 2002 which are collateralized
by the underlying property and equipment. The assets and liabilities under
capital leases are recorded at the lower of the present values of the minimum
lease payments or the fair values of the assets. Assets under capital leases
are included in fixed assets. Lease interest rates range from 12% to 21%.
Minimum future lease payments under these capital leases are:
Years ending December 31,
2000 $46,096
2001 22,072
2002 5,521
-------
Total 73,689
Less: amounts representing interest 12,625
-------
Net minimum lease payments $61,064
=======
Page F-16.
<PAGE>
thatlook.com, Inc. and Subsidiaries
-----------------------------------
Notes to Consolidated Financial Statements
------------------------------------------
December 31, 1999 and 1998
--------------------------
NOTE 11 - STOCK COMPENSATION PLAN AND WARRANTS:
Stock Compensation Plan:
In August 1999, the Company adopted the 1999 Stock Incentive Plan to provide
employees, officers, directors and consultants an opportunity to acquire a
proprietary interest in the Company as an incentive to remain in such service.
The Company reserved 1,250,000 shares for the incentive plan. The following
table summarizes the status of options in the plan to purchase
"unresticed,""registered" shares of common stock:
Weighted Average
Shares Exercise Price
Granted 476,875 $3.44
Exercised - -
Forfeited (96,625) 3.83
Outstanding at 12/31/99 380,250 3.41
Weighted Average remaining contractual
life of options outstanding and exercisable 8 years
The exercise price of each option equals the market price of the Company's
stock on the date of grant, and an option's maximum term is ten years. At
December 31, 1999 there were 317,250 options outstanding for employees and
officers, which vest 25% on the first anniversary after the grant date, and
2.0833% per month thereafter. At December 31, 1999, there were 63,000 options
outstanding for directors, but none were vested. Directors' options vest
ratably over three years, after each six-month period of service.
If any change is made to the common stock by reason of any stock split, stock
dividend, recapitalization, combination of shares, exchange of shares or other
change affecting the outstanding common stock as a class without the Company's
receipt of consideration, appropriate adjustments shall be made by the Plan
Administrator to protect the interests of the option holders. In the event of
any corporate transaction that leads to a change in control, each outstanding
option shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the corporate transaction, become
fully exercisable for the total number of shares of common stock at the time
subject to such option and may be exercised for any or all of those shares as
fully vested shares of common stock
Warrants:
Two principal shareholders invested $700,000 for 2.8 million shares of
unregistered, restricted common stock and 2.8 million warrants, with an
exercise price of $0.25 per share, to purchase an additional 2.8 million
shares of unregistered, restricted common stock. The warrants include
provisions for adjustments for certain capital events, anti-dilution
protection for securities sales below the trigger price of $0.25 per share,
and registration rights.
Page F-17.
<PAGE>
thatlook.com, Inc. and Subsidiaries
-----------------------------------
Notes to Consolidated Financial Statements
------------------------------------------
December 31, 1999 and 1998
--------------------------
NOTE 11 - STOCK COMPENSATION PLAN AND WARRANTS (Continued):
Pro Forma Net Loss and Loss Per Share:
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its plans. Accordingly, no compensation cost has been
recognized for its stock option plan or warrants. Had compensation cost for
the stock-based compensation plan and warrants been determined consistent with
SFAS No. 123, the Company's net loss and loss per share would have been
increased to the pro forma amounts indicated below.
1999 As Reported Pro Forma
Net loss $(1,781,468) $(1,959,638)
Basic loss per share $(0.13) $(0.15)
The fair value of each option grant is estimated on the grant date using the
Black-Scholes option-pricing model with the following weighted-average
assumptions: risk-free interest rate 6.4%, limited marketability discount 40%,
weighted average remaining term 8 years, and no dividends. The fair value of
the warrants was determined using the following weighted-average assumptions:
risk-free rate 6.4%, limited marketability discount 40%, and weighted average
remaining term 5 years.
NOTE 12 - RELATED PARTY TRANSACTIONS:
Senior Promissory Notes Payable - Shareholders:
- ----------------------------------------------
A $300,000 note payable to a company controlled by three shareholders was
converted to equity in June 1999 for 231,696 restricted, unregistered shares
of the Company's common stock. The note included interest at 12% per annum.
Interest expense for this note for the years ended December 31, 1999 and 1998
was $18,148 and $34,000, respectively.
Demand Notes Payable - Shareholders:
- ------------------------------------
On March 13, 1999, a principal shareholder loaned $25,000 to the Company. The
note was payable on demand and called for interest at the rate of 13% per
annum. On the same date, another shareholder loaned the Company $25,000 with
the same terms as above. On April 7, 1999 an entity owned by a principal
shareholder of the Company loaned $170,000 to the Company. The note was
payable on demand and also called for interest at the rate of 13% per annum.
Interest expense incurred for these three demand notes was $20,941 in 1999.
These three demand notes payable were converted to equity as part of the
restructuring agreement with the finance company (Note 8).
In May 1999, a $38,000 demand note payable to a principal shareholder was
converted to equity for 7,541 unregistered, restricted shares of the Company's
common stock. No interest expense was calculated at 12% per annum.
Page F-18.
<PAGE>
thatlook.com, Inc. and Subsidiaries
-----------------------------------
Notes to Consolidated Financial Statements
------------------------------------------
December 31, 1999 and 1998
--------------------------
NOTE 12 - RELATED PARTY TRANSACTIONS (Continued):
Note Payable - Finance Company:
- -------------------------------
In April 1998, the Company signed a demand note with a finance company for
$50,000, with interest calculated at 20% per annum. Interest expense incurred
for this note was $3,005 in 1999. As part of the restructuring agreement with
the finance company (Note 8), a principal shareholder agreed to purchase the
outstanding balance payable on the note (principal and interest)of $12,805,
and to convert the note payable into 12,805 unregistered, restricted shares of
the Company's common stock, effective December 31, 1999.
Notes Receivable - Shareholder:
- -------------------------------
The Company is owed $14,000 from one its shareholders. The note bears
interest at 13% and is payable upon demand.
Loan Guarantee Fees:
- -------------------
A principal shareholder personally guaranteed recourse obligations related to
advances received on loan sales with limited recourse, and amounts advanced
from lines-of-credit for loan purchases. In exchange for the personal
guarantee, the Company agreed to pay a guarantee fee of 1% on all amounts
received on loan sales and advances on lines-of-credit. These fees aggregate
$61,764 and $103,182 during 1999 and 1998, respectively. This agreement
terminated August 1, 1999 and the principal shareholder forgave $25,458 in
outstanding fees, which were contributed to equity (Note 8).
Management Agreements:
- ----------------------
The Company incurred management fees and other related costs to certain
officers and shareholders or to entities in which certain officers and
shareholders are principals of $158,961 and $196,600 in 1999 and 1998,
respectively. The management fees are primarily for marketing consulting
services based upon a contract that was terminated November 30, 1999. The
management fees earned by three shareholders are for assisting with special
projects and specific management decisions. This agreement for three
shareholders was terminated, effectively with the issuance the conversion of
notes payable to equity.
NOTE 13 - COMMITMENTS AND CONTINGENCIES:
Office Lease:
- ----------------
The Company's office lease expired in December 1999. The Company signed a new
office lease at a new location and plans to complete its relocation during
April 2000 (Note 14). Rent expense for the years ended December 31, 1999 and
1998 aggregated $121,966 and $94,136, respectively.
Page F-19.
<PAGE>
thatlook.com, Inc. and Subsidiaries
-----------------------------------
Notes to Consolidated Financial Statements
------------------------------------------
December 31, 1999 and 1998
NOTE 13 - COMMITMENTS AND CONTINGENCIES(Continued):
Notes Receivable - Sold
- -----------------------
The Company purchases notes receivable from physicians because it generally
plans to sell the notes. The Company sold notes receivable of $7,942,055 to a
finance company subject to limited recourse. The Company restructured its
line-of credit with this finance company on December 31, 1999, which included
the transfer of patient note receivable to the finance company to pay down the
line-of-credit (Note 8). Additionally, as part of the restructuring, a
portion of the recourse obligation was converted to equity. The remaining
estimated recourse obligation aggregated $113,052.
The Company also sold $86,383 of patient notes receivable to a new finance
company, whose agreement was executed in October 1999. While the sales are
subject to limited recourse, the Company recorded the sales net of the
recourse obligation, since the Company does not anticipate a return of any of
the funds held in reserve for the recourse obligation. The recourse
obligation is limited to the funds held in reserve.
Financing Commitments:
- ----------------------
Since the Company generally does not intend to retain ownership of loans, the
ability to place loans is critical to its future success.
The Company currently sells loans to two institutional lenders Monterey
Financial in Oceanside, California, and Leasecomm in Waltham, Massachusetts.
The commitment from Monterey Financial began in October 1999 and is for a
maximum of $1 million per month.
The commitment from Leasecomm began in June, 1998, is for a maximum of $1.5
million per month, a minimum of $500,000 per month, and expired on February 8,
2000. Although the contractual agreements for Leasecomm to purchase loans have
expired as of this filing date, Leasecomm continues to purchase loans on a
month-to-month basis. All loan agreements give the purchasing institutions the
ability to reject loans that do not meet their lending criteria.
Page F-20.
<PAGE>
thatlook.com, Inc. and Subsidiaries
-----------------------------------
Notes to Consolidated Financial Statements
------------------------------------------
December 31, 1999 and 1998
--------------------------
NOTE 13 - COMMITMENTS AND CONTINGENCIES(Continued):
Legal Proceedings:
- ------------------
There is a Complaint in Confession of Judgement and a Confession of Judgement
was filed by Tenenbaum's Travel Service, Inc. d/b/a Kingdom Vacations, against
thatlook.com (f/k/a Cooperative Images, Inc.), in the Court of Common Pleas of
Luzerne County, Pennsylvania (Note 7). The judgement was entered in favor of
Tenenbaum's Travel Service, Inc., and against thatlook.com (f/k/a Cooperative
Images, Inc.) on February 19, 1999, in the amount of $202,550, plus interest
and costs until paid. Thatlook.com filed a Petition to Open and/or Strike
Judgment by Confession and to Stay Execution on March 19, 1999. This petition
raises defenses to the confessed judgment and alleges a potential Counterclaim
against Tenenbaum's Travel Service, Inc. Consequential damages in the
potential Counterclaim are in excess of the liability. A hearing has been
scheduled during the second quarter of 2000. Management intends to vigorously
pursue its counterclaim.
In addition to the above, the Company is party to several pending and/or
threatened legal proceedings and claims. Although the outcome of such items
cannot be determined with certainty at this time, the Company's general
counsel and management are of the opinion that provisions made for potential
losses are adequate and any further liabilities and costs should not have a
material adverse effect on the Company's results of operations or financial
position.
NOTE 14 -SUBSEQUENT EVENTS:
Investment Banker and Broker:
- -----------------------------
In February 2000, the Company signed a three-year agreement with an investment
banker to raise a minimum of $5 million dollars of additional equity, and to
increase the number of lenders that purchase loans from the Company. The
investment banker's agreement includes an initial fee of $12,000 and $12,000
per calendar quarter commencing March 1, 2000, payable following the $5
million dollar minimum equity raise. As an inducement to enter into the
agreement, the Company also agreed to issue 750,0000 warrants to purchase the
Company's common stock to the investment banker. In addition, the Company
agreed on a pro-rata basis for each dollar raised of the aggregate $5 million
dollars, to issue up to a maximum of 2,250,000 warrants.
These warrants are exercisable at $2 per common share for a five-year period
following the date of the agreement. The agreement includes anti-dilution
provisions, registration rights, and cashless exercise provisions. Upon
consummation of the $5 million equity raise, the investment banker is also
entitled to designate a member of the Board of Directors of the Company.
Page F-21.
<PAGE>
thatlook.com, Inc. and Subsidiaries
-----------------------------------
Notes to Consolidated Financial Statements
------------------------------------------
December 31, 1999 and 1998
--------------------------
NOTE 14 - SUBSEQUENT EVENTS (Continued):
Investment Banker and Broker (Continued):
- -----------------------------------------
The Company also signed an agreement with the broker who introduced the
investment banker, referred to above. The broker is entiltled to receive fees
equal to 2.5% of those fees received by the investment banker, and 280,000
warrants to purchase shares of the Company's common stock with identical terms
as the investment banker's agreement.
Intermediate and Short-Term Convertible Debt:
- ---------------------------------------------
In January and February 2000, a principal shareholder agreed to invest
$200,000 as intermediate-term convertible debt, in two separate $100,000
transactions. Each note bears interest at 12% per annum, and is payable with
accrued interest in 18 months from the issuance date. The first $100,00 note
may be converted, at the holder's option, into unregistered, restricted common
shares at the lowest of 50% of the trailing 10-day trading average closing
price of the Company's publicly-traded stock as of the date of issuance, as of
the date of conversion, or at the lowest rate at which new equity investors
invest. The second $100,000 note may be converted, at the holder's option,
into common shares at the lower of 50% of the trailing 10-day trading average
closing price of the Company's publicly-traded stock as of the date of
conversion or the lowest rate at which new equity investors invest, with a
minimum conversion price of $1.50 per share. Each note is callable by the
Company after six months from the date of its issuance.
In February 2000, three shareholders agreed to invest a total of $75,000 as
short-term debt that bears interest at 12% per annum for a period of 100 days.
If the Company is unable to redeem these notes at maturity, the holders may
convert, at their option, the short-term notes into intermediate-term
convertible notes on the same basis and terms as described immediately above
for the second of the two notes issued.
New Office Lease
- ----------------
In March 2000, the Company signed a new lease for office space for three years
until March 2003, with an option to extend the lease for two additional years.
The minimum annual rent is $83,200 for the first three years, and $86,528
annually if the extension option is exercised, plus utilities. The Company's
office space will increase from approximately 5,300 square feet to
approximately 8,000 square feet in the new location. The Company plans to
complete its relocation in April 2000.
Additional Investor:
- -------------
In March 2000, an investor purchased for $150,000 a total of 100,000 shares of
unregistered, restricted shares of common stock.
Page F-22.
<PAGE>
Item 8. Change in and Disagreements with Accountants on Accounting and
Financial Disclosures
- ---------------------
Jones, Jensen & Company, LLC, Certified Public Accountants, of Salt Lake City,
Utah, audited the financial statements of the Registrant for the fiscal years
ended June 30, 1998 and 1997. Lazar, Levine & Felix, L.L.P., of New York, New
York, were engaged on May 25, 1999, by the Board of Directors of the
Registrant to audit the consolidated financial statements of the Registrant
for the calendar year ended December 31, 1999.
There were no disagreements between the Registrant and Jones, Jensen &
Company, whether resolved or not resolved, on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure, which, if not resolved, would have caused them to make reference to
the subject matter of the disagreement in connection with their reports.
This change in accountants was filed with the Commission in a Current Report
on Form 8-K dated, May 28, 1999, and as amended June 21, 1999, and which is
incorporated herein by reference.
Part III.
- ---------
Item 9 Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16 (a) of the Exchange Act.
- ---------------------------------------------------
Identification of Directors and Executive Officers
- --------------------------------------------------
The following table sets forth information on the Executive Officers and
Directors of the Company:
Date of Date of
Election or Resignation
Name Position(s) Designation or Termination
- ---- ----------- ----------- --------------
Gerard A. Powell President, Director, 4/29/99 *
Chief Executive Officer
Lawrence T. Simon Director 9/17/99 *
Chairman of the Board 12/24/99 *
Richard H. Gwinn Director 4/29/99 *
Saul S. Epstein Director 4/29/99 *
J. Peter Gaskins Director 5/25/99 12/24/99
Chairman of the Board 8/26/99 12/24/99
Terry Hardman Director 4/29/99 9/17/99
Harold T. Jenson Director 4/29/99 5/25/99
Charles Johnson Director 5/11/95 4/29/99
Vincent J. Trapasso Vice President 4/29/99 *
Charlie Lynn Trapasso Secretary/Treasurer 4/29/99 *
Marvin P. Metzger Chief Financial Officer 4/29/99 *
William R. White Chief Operations Officer 12/10/99 12/15/99
* - These persons presently serve in the capacities indicated.
Directors and Executive Officers are elected annually and hold office until
their successors are elected and qualified or until their earlier resignation
or removal. Directors are not compensated for their service.
Gerard A. Powell, President, Director, Chief Executive Officer
Mr. Powell, age 36, has been the President and Chief Executive Officer of
thatlook.com. Inc.(a New Jersey Corporation) since its inception in December
1994. Immediately following the reverse merger on April 29, 1999, he was
elected as President and Chief Executive Officer and Director of thatlook.com,
Inc. (formerly known as First Target Acquisition, Inc. - a Nevada
corporation). From 1989 to 1996, Mr. Powell helped found and build the Chapel
Creek group of companies (Land, Homes, and Mortgage) that developed, marketed
and financed homes in the eastern Pennsylvania area. Mr. Powell's principal
responsibility with this group was to develop and execute the marketing
program that produced in excess of 100 house and land contracts yearly.
Operations were substantially profitable prior to his selling his interests in
this group of companies. Mr. Powell is Mr. and Mrs. Trapasso's brother-in-
law.
Vincent J. Trapasso, Vice President
Mr. Trapasso, age 47, has been the Vice President of thatlook.com. Inc.(a New
Jersey Corporation) since its inception in December 1994, with responsibility
for directing that part of the Company's marketing and servicing program
focused on the physicians. Immediately following the reverse merger on April
29, 1999, he was elected as Vice President of thatlook.com, Inc. (formerly
known as First Target Acquisition, Inc. - a Nevada corporation). From 1992 to
1994, Mr. Trapasso was a General Manager of Byran Holdings of Palm Beach
County, Florida, where he developed the concept and design for a 36,000 square
foot, upscale restaurant and entertainment complex. Mr. Trapasso is the
husband of Ms. Trapasso and brother-in-law to Mr. Gerard A. Powell.
Charlie Lynn Trapasso, Secretary/Treasurer
Mrs. Trapasso, age 40, has served as a Secretary/Treasurer of thatlook.com.
Inc.(a New Jersey Corporation) since its inception in December 1994, with
responsibility of serving as the public spokesperson with the media and in
its advertising for the Company. Immediately following the reverse merger
on April 29, 1999, she was elected as Secretary/Treasurer of thatlook.com,
Inc. (formerly known as First Target Acquisition, Inc. - a Nevada
corporation). Mrs. Trapasso is Mr. Trapasso's wife and Mr. Powell's
sister-in-law.
Lawrence T. Simon, Director, Chairman of the Board
Mr. Simon, age 53, has served as a director of the Company since September of
1999. He attended Brown University in the Behavioral Sciences area and the
transferred to Temple University and graduated with a Bachelors of Science in
communications in the area of advertising/marketing and film production.
After graduation he moved to Manhattan and joined Elektra Films where he
became a film advertising art directing producer. He received several Clio
Awards presented to Elektra Films for such successful campaigns as Alka
Seltzer and Armour Products as well as for Proctor and Gamble.
In 1975, Mr. Simon opened LTS Builders. LTS is now one of the largest
residential building companies in the northeast. Mr. Simon is Chief Executive
Officer and the only shareholder in LTS.
Richard H. Gwinn, Director
Mr. Gwinn, age 60, has been a Director of thatlook.com. Inc.(a New Jersey
Corporation) since May 1997. Immediately following the reverse merger on
April 29, 1999, he was elected as a Director of thatlook.com, Inc. (formerly
known as First Target Acquisition, Inc. - a Nevada corporation). He is a 1960
graduate of Yale University, and attended the Wharton Graduate Division of the
University of Pennsylvania from 1963 to 1964. Mr. Gwinn served in the U.S.
Navy from 1956 to 1971. Since 1989, he has been employed by the Abbotts
Organization of Radnor, Pennsylvania. Mr. Gwinn is also a principal of
Crossway Ventures, Inc.
Saul S. Epstein, Director
Mr. Epstein, age 51, has been a Director of thatlook.com. Inc.(a New Jersey
Corporation) since May 1997. Immediately following the reverse merger on
April 29, 1999, he was elected as a Director of thatlook.com, Inc. (formerly
known as First Target Acquisition, Inc. - a Nevada corporation). He is a 1969
graduate of Lehigh University. He received his law degree from the University
of Pennsylvania in 1973, and a Master of Laws degree in taxation from New York
University in 1976. Since 1994, he has been Senior Vice President and
Director of Corporate Development for Opinion Research Corporation located in
Princeton, New Jersey, responsible for such company's strategic planning and
for various financial and legal matters. From 1995 to 1996, he also served as
President of Robinson Alarm Company, a Philadelphia based burglar and fire
alarm enterprise. Mr. Epstein is also a principal of Crossway Ventures, Inc.
Marvin Metzger, C.P.A, Chief Financial Officer
Mr. Metzger, age 35, has served as Chief Financial Officer of thatlook.com.
Inc.(a New Jersey Corporation) since January 1998. Immediately following the
reverse merger on April 29, 1999, he was appointed Chief Financial Officer of
thatlook.com, Inc. (formerly known as First Target Acquisition, Inc. - a
Nevada corporation). He graduated from Bloomsburg University in 1986 with a
Bachelor of Science degree in Business Administration, and Lehigh University
in 1996 with a Masters of Business Administration degree, with a concentration
in Finance. Prior to joining thatlook.com, Inc. he worked from 1996 to 1998
at Wise Foods, Inc. in Berwick, PA as the Manager of Reporting and Analysis.
From 1989 to 1996 he was employed by Tenenbaum's Travel Service, Inc., where
he served as Controller prior to his promotion to Vice President of Finance.
The travel company had seven divisions, which included two national wholesale
travel divisions and five retail divisions. From 1986 to 1989 he was employed
by Laventhol & Horwath, Certified Public Accountants in Wilkes-Barre, PA.
Involvement in Certain Legal Proceedings
- ----------------------------------------
Mr. Powell was a 30% shareholder of two private sister companies, Y-Rent, Inc.
and Homes by Vintage, as well as the President of one and the Secretary of the
other. Both companies filed for bankruptcy on September 6, 1995 in the state
of Virginia pursuant to Chapter 7 of the United States Bankruptcy Code in the
United States Bankruptcy Court for the Eastern district of Virginia, Richmond.
During the past five years, no present of former director:
1) was convicted in a criminal proceeding or named subject to a pending
criminal proceeding (excluding traffic violations and other minor offenses):
2) was subject to any order, judgment or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently or
temporarily enjoinig, barring suspending or otherwise limiting his involvement
in any type of business, securities or banking activities; or
3) was found by a court of competent jurisdiction (in a civil action), the
Commission of the Commodity Futures Trading Commission to have violated a
federal or state securities or commodities law, and the judgment has not been
reversed, suspended or vacated.
Compliance with Section 16(a) of the Exchange Act
- -------------------------------------------------
The following Executive Officers filed Forms 3, 4 and 5 Statement of Changes
in Beneficial Ownership, required filing date.
Reporting Person Form Date Due Date Filed
- ---------------- ---- -------- ----------
Gerard A. Powell 4 10/10/99 01/13/00
Vincent J. Trapasso 4 10/10/99 01/13/00
Charlie Lynn Trapasso 4 10/10/99 01/13/00
Gerard A. Powell 4 02/10/00 01/20/00
J. Peter Gaskins 5 01/31/00 01/28/00
Gerard A. Powell 4 03/10/00 03/10/00
Vincent J. Trapasso 3 03/10/00 03/10/00
Lawrence T. Simon 3 10/02/99 03/10/00
Saul S. Epstein 4 07/10/99 03/30/00
Richard H. Gwinn 4 07/10/99 03/30/00
Lawrence T. Simon 4 04/10/00 03/30/00
Item 10 Executive Compensation
- ------------------------------
The following table sets forth information regarding compensation paid for all
services rendered to the Company in all capacities during the last two
completed fiscal years by the Company's Chief Executive Officer. No other
officers of the Company received compensation in excess of $100,000 during the
fiscal year ended December 31, 1999.
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) ( c) (d) (e) (f) (g) (h) (i)
Name and Years or Other All
Principal Periods Annual Restricted Option/ LTIP Other
Position Ended $ $ Compen- Stock SAR's Payouts Compen-
Salary Bonus sation Awards$ # sation$
- ------------------------------------------------------------------------------
Gerard A.
Powell 1998 $0 $0 $0 $0 0 $0 $0
1999 $34,231 $0 $0 $0 75,000 $0 $169,148(1)
(1). Consist entirely of reimbursement of consulting fees, automobile
allowances health insurance benefits and other expenses. The consulting fee
agreement terminated November 30, 1999. The consulting agreement is attached
as an Exhibit. In addition, and the automobile allowance and other expenses
also ceased November 30, 1999. Health insurance benefits continue.
Options Granted to Directors and Executive Officers (*)
- --------------------------------------------------------
Granted Forfeited Held(V)
------- --------- ----
Gerard A. Powell, President, Director, CEO(O) 75,000 0 75,000
Lawrence T. Simon, Director (D1) 21,000 0 21,000
Richard H. Gwinn, Director(D) 21,000 0 21,000
Saul S. Epstein, Director (D) 21,000 0 21,000
J. Peter Gaskins, Director (D)(R) 21,000 21,000 0
Terry Hardman, Director (R) 0 0 0
Harold T. Jenson (R) 0 0 0
Vincent J. Trapasso, Vice President (O) 25,000 0 25,000
Charlie Lynn Trapasso, Secretary/Treasurer 0 0 0
Marvin P. Metzger, Chief Financial Officer (O) 25,000 0 25,000
William R. White, Chief Operations Officer(R) 25,000 25,000 0
* - These options were granted pursuant to the 1999 Incentive Stock Option
Plan filed on Form S-8 on November 11, 1999 with the Commission, which is
incorporated herein by reference.
(D) - Non-officer Director options granted on August 16, 1999. These options
vest ratably over three years, after each six-month period of service after
the options were granted.
(D1)- Non-officer Director granted options on September 17, 1999. These
options vest ratably over three years, after each six-month period of service
after the grant date.
(O) - Officers' options granted September 30, 1999.
(R) - resigned during 1999. See caption Part III Item 9 "Identification of
Directors and Executive Officers."
(V) - none of the options held at December 31, 1999 were vested.
Compensation of Directors
- -------------------------
There are no standard arrangements pursuant to which the Company's Directors
are compensated for any services provided as director. No additional amounts
are payable to the Company's directors for committee participation or special
assignments as directors.
Termination of Employment and Change of Control Arrangement
- -----------------------------------------------------------
Except for accelerated vesting provisions of the above stock options, there
are no employment contracts, compensatory plans or arrangements, including
payments to be received from the Company, with respect to any director or
executive officer of the Company which would in any way result in payments to
any such person because of his or her resignation, retirement or other
termination of employment with the Company or its subsidiaries, any change in
control of the Company, or a change in the person's responsibilities following
a change in control of the Company.
In the event of any corporate transaction that leads to a change in control,
each outstanding option shall automatically accelerate so that each such
option shall, immediately prior to the effective date of the corporate
transaction, become fully exercisable for the total number of shares of common
stock at the time subject to such option and may be exercised for any or all
of those shares as fully vested shares of common stock. If any change is made
to the common stock by reason of any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding common stock as a class without the Company's
receipt of consideration, appropriate adjustments shall be made by the Plan
Administrator to protect the interests of the option holders.
Item 11 Security Ownership of Certain Beneficial Owners and Management
- ----------------------------------------------------------------------
The following table sets forth the shareholdings of those persons who own more
than five percent of the Company's common stock as of December 31, 1999, and
to the date hereof, to wit:
Security Ownership of Certain Beneficial Owners
- -----------------------------------------------
The following table sets forth the shareholdings of Certain Beneficial Owners
of 5% or more of the Company's common stock as of December 31, 1999, and to
the date hereof, to wit:
Number of Shares(1) Percentage
Name and Address Beneficially Owned of Class
- ---------------- ------------------ --------
Gerard A. Powell(2) 4,742,413 29.9
33 E. Chatham Hill Road
Stroudsburg, PA 18360
Larry T. Simon 2,390,000 15.0
P.O. Box 160
Shawnee-on-the-
Delaware, PA 18356
Richard H. Gwinn 1,011,875 6.3
The Abbotts Organization
5 Radnor Corporate Center
100 Matson Ford Center
Suite 520
Radnor, PA 19087
Vincent J. Trapasso(2) 1,542,766 9.7
41 Mountainview Dr
Tannersville, PA 18372
Charlie Lynn Trapasso(2) 1,542,766 9.7
41 Mountainview Dr
Tannersville, PA 18372
---------- -----
All Beneficial Owners
as a Group 11,229,820 70.6
========== ======
Options, Warrants, and Convertible Debt Not included in
Beneficial Ownership Table Above
- -------------------------------
Vested Unvested Convertible
Name Options Options Warrants Debt
- ---- ------- ------- -------- ----
Gerard A. Powell(2) 0 75,000 800,000 16,667(4)
Larry T. Simon 3,500 17,500 2,000,000 133,334(3)
Richard H. Gwinn 3,500 17,500 0 16,667(4)
Vincent J. Trapasso(2) 0 25,000 0 0
Charlie Lynn Trapasso(2) 0 0 0 0
Security Ownership of Management
- --------------------------------
The following table sets forth the shareholdings of the Company's directors
and executive officers as of December 31, 1999, and to the date hereof, to
wit:
Number of Shares(1) Percentage
Name and Address Beneficially Owned of Class
- ---------------- ------------------ --------
Gerard A. Powell(2) 4,742,413 29.9
33 E. Chatham Hill Road
Stroudsburg, PA 18360
Larry T. Simon 2,390,000 15.0
P.O. Box 160
Shawnee-on-the-
Delaware, PA 18356
Richard H. Gwinn 1,011,875 6.3
The Abbotts Organization
5 Radnor Corporate Center
100 Matson Ford Center
Suite 520
Radnor, PA 19087
Saul S. Epstein 556,531 3.5
21 E. Dartmouth Road
Bala Cynwyd, PA 19004
J. Peter Gaskins (R) 110,000 0.7
8119 Kloshe Court South
Salem, OR 97306
Terry Hardman (R) 0 0.0
Jenson Services, Inc.
5525 South 900 East, Suite 110
Salt Lake, UT 84117
Vincent J. Trapasso (2) 1,542,766 9.7
41 Mountainview Dr
Tannersville, PA 18372
Charlie Lynn Trapasso(2) 1,542,766 9.7
41 Mountainview Dr
Tannersville, PA 18372
Marvin P. Metzger 90,154 0.6
14 Bow Creek Drive
Mountaintop, PA 18707
William R. White, Jr. (R) 90,154 0.6
P.O. Box 168
Shawnee-on-the-
Delaware, PA 18356
---------- -----
All Directors and
Officers as a Group 12,076,659 76.0
========== =====
Options, Warrants, and Convertible Debt Not included in
Beneficial Ownership Table Above
- -------------------------------
Vested Unvested Convertible
Name Options Options Warrants Debt
- ---- ------- ------- -------- ----
Gerard A. Powell(2) 0 75,000 800,000 16,667(4)
Larry T. Simon 3,500 17,500 2,000,000 133,334(3)
Richard H. Gwinn 3,500 17,500 0 16,667(4)
Saul S. Epstein 3,500 17,500 0 16,667(4)
J. Peter Gaskins (R) 0 0 0 0
Terry Hardman (R) 0 0 0 0
Vincent J. Trapasso (2) 0 25,000 0 0
Charlie Lynn Trapasso(2) 0 0 0 0
Marvin P. Metzger 0 25,000 0 0
William R. White, Jr.(R) 0 25,000 0 0
(1)- Excludes vested and unvested options, warrants, and convertible debt to
purchase shares of the Company's common stock.
(2)- Vincent J. Trapasso and Charlie Lynn Trapasso are husband and wife.
Gerard A. Powell is Charlie Lynne Trapasso's brother-in-law.
(3) Intermediate-term convertible debt:
(a). A $100,000 intermediate-term convertible note issued in January 2000
bears interest at 12% per annum, and is payable with accrued interest in 18
months from the issuance date. The note may be converted, at the holder's
option, into unregistered, restricted common shares at the lowest of 50% of
the trailing 10-day trading average closing price of the Company's
publicly-traded stock as of the date of issuance, as of the date of
conversion, or at
the lowest rate at which new equity investors invest. Note is callable by the
Company after six months from the date of its issuance. Management estimated
the conversion rate at $1.50 per share, or 66,666 shares of common stock.
(b). The second $100,000 note issued in February 2000 may be converted,
at the holder's option, into common shares at the lower of 50% of the trailing
10-day trading average closing price of the Company's publicly-traded stock as
of the date of conversion or the lowest rate at which new equity investors
invest, with a minimum conversion price of $1.50 per share. Note is callable
by the Company after six months from the date of its issuance. At $1.50 per
share, the note is convertible into 66,666 shares of common stock.
(4) $25,000 short-term note issued in March 2000 that bears interest at 12%
per annum for a period of 100 days. If the Company is unable to redeem these
notes at maturity, the holders may convert, at their option, the short-term
notes into intermediate-term convertible notes on the same basis and terms as
described immediately above for the second of the two notes issued.
(5) Resigned position during 1999.
See the caption "Identification of Directors and Executive Officers," above,
Part III, Item 9, for information concerning the offices in which the above
management members serve the Company.
Changes In Control
- ------------------
There are no present arrangements or pledges of the Company's securities which
may result in a change in control of the Company.
Item 12 Certain Relationships and Related Transactions
- ------------------------------------------------------
The Company incurred management fees and other related costs to Gerard A.
Powell, Vincent J. Trapasso, Charlie Lynn Trapasso, and a company of which
Richard H. Gwinn and Saul S. Epstein are principal shareholders. Mr. Powell
provided consulting services', however, the management contract was terminated
November 30, 1999. Mr. Powell also earned guarantee fees of $61,764 and
$103,182 during 1999 and 1998, respectively, related to his personal guarantee
of the Company's lines-of-credit.
Mr. Gwinn's and Mr. Epstein's company earned management fees of $46,025 and
$72,000 for 1999 and 1998, respectively for assisting with special projects
and management decisions.
J. Peter Gaskins is the Managing Director of Clarion Associates, Inc. a
strategic and consulting firm. The Company incurred consulting fees and
expenses of $52,008 during 1999. The Company remains a client of his firm.
Vincent J. Trapasso is indebted to the Company for a demand note of
$14,000, which bears interest at 13% per annum.
Part IV
Item 13 Exhibits and Reports on Form 8-K
- ----------------------------------------
No reports on Form 8-K were filed in the fourth quarter.
Exhibit Index
Exhibit
Number Description
------- -----------
10.1.1 MicroFinancial Business Loan Agreement
10.1.2 MicroFinancial Vendor Agreement
10.1.3 MicroFinancial Secured Revolving Credit Note
10.1.4 MicroFinancial Security Agreement
10.1.5 MicroFinancial Exhibit A (Form of Security Agreement)
10.1.6 MicroFinancial Exhibit A to UCC-1
10.1.7 MicroFinancial Unlimited Guaranty
10.1.8 MicroFinancial July 15 1997, (Secured Revolving Line Of
Credit)
10.1.9 MicroFinancial May 20 1998, (Line of Credit)
10.1.10 MicroFinancial May 22 1998, (Sale of Receivables)
10.1.11 MicroFinancial June 10 1998 (Sale of Receivables)
10.1.12 MicroFinancial January 29 1999 (Sale of Receivables)
10.1.13 MicroFinancial December 31 1999 (Agreement in principal)
10.1.14 MicroFinancial Settlement Agreement and Release
10.2.1 Sterling Financial Loan, Security and Service Agreement
10.2.2 Sterling Financial Schedule 1
10.2.3 Sterling Financial Schedule 2
10.2.4 Sterling Financial Schedule 3
10.2.5 Sterling Financial Schedule 4
10.2.6 Sterling Financial Schedule 5
10.2.7 Sterling Financial Continuing Guaranty-Unlimited
10.3.1 Monterey Financial Receivable Purchase Agreement
10.3.2 Monterey Financial Form of Irrevocable Assignments
10.3.3 Monterey Financial Form of Full Recourse Assignments
10.3.4 Monterey Financial Schedule A to Receivable Purchase
Agreement
10.3.5 Monterey Financial Corporate Guaranties
10.4.1 Marquise Management Consulting Agreement
10.4.2 Marquise Management Guaranty Agreement
10.5.1 King Media Advertising Agreement
10.5.2 King Media Addendum 1
10.5.3 King Media Addendum 2
10.5.4 King Media Addendum 3
11 Computation of Per Share Earnings
27 Financial Data Schedule
EXHIBITS INCORPORATED HEREIN BY REFERENCE
A Current Report on Form 8-K dated, April 29, 1999 was filed on May 12, 1999,
reporting in Item I thereof the changes in control of Registrant, and amended
reports dated May 24, 1999 and July 14, 1999.
A Current Report on Form 8-K dated May 25, 1999 was filed May 28, 1999,
reporting in Item 4 changes in Registrant's Certifying Accountant, reporting
in Item 6 Resignation of Registrant's Directors and in Item 8 Change in Fiscal
Year.
Effective April 29, 1999, FTA acquired 100% of the outstanding securities of a
New Jersey corporation, thatlook.com, in exchange for 9,990,000 restricted
shares of FTA through a reverse merger. thatlook.com which is the surviving
operating entity, became a wholly owned subsidiary of FTA. The reverse merger
was accounted for as a recapitalization.
A Registration Statement on Form S-8 dated November xx, 1999 was filed on
November xx, 1999, reporting in Item x registration shares of common stock,
pursuant to adoption of The 1999 Stock Incentive Plan.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
thatlook.com, Inc.
Date: March 30, 2000 /s/ Lawrence T. Simon
---------------------
Lawrence T. Simon
Chairman of the Board
of Directors, Director
Date: March 30, 2000 /s/ Gerard A. Powell
---------------------
Gerard A. Powell
President, Director,
Chief Executive Officer
Date: March 30, 2000 /s/ Richard H. Gwinn
---------------------
Richard H. Gwinn
Director
Date: March 30, 2000 /s/ Marvin P. Metzger
----------------------
Marvin P. Metzger
Chief Financial Officer
BUSINESS LOAN AGREEMENT
TO: Boyle Leasing Technologies, Inc. (BLT)
950 Winter Street
Waltham, MA 02154
The undersigned, Cooperative Images, Inc., a New Jersey corporation, and
Elective Investments, Inc., a Pennsylvania corporation, both with a principal
place of business at 210 West Fourth Street, Suite 101, East Stroudsburg, PA
18301 (collectively known hereafter as the Borrower) hereby applies to BLT
(the Lender) for a revolving term loan of up to Six Million ($6,000,000.00)
Dollars (the Revolving Loan or the Loan) to be advanced as hereinafter
provided and to be evidenced by a Secured Revolving Credit Note (the Revolving
Note) of even date. The Lender may, in its discretion, from, time to time,
make advances comprising the Revolving Loan to the Borrower upon the
Borrower's request; provided, however, that:
(a) No advance will be made if, after giving effect to the Borrower's
request for such advance, the outstanding principal balance of the Revolving
Loan would exceed the lesser of
(i) $6,000,000.00, or
(ii) the sum of ninety-five (95%) percent of the present value of the amount
of payments due under the Eligible Collateral (as defined in the Security
Agreement executed with this Agreement), net of any deposit held by Borrower,
deemed eligible by Lender in its sole discretion, discounted at the rate equal
to 20%.
Notwithstanding the foregoing, if, for any reason, the principal amount of
aggregate advances outstanding under the Revolving Loan exceeds $6,000,000.00,
the Borrower shall immediately repay any such excess.
(b) No advance will be made (i) after July 31, 1998 (the Expiration Date),
(ii) upon the occurrence of an event of default under the Revolving Note that
is not timely cured or (iii) upon Borrower's Default under any of its
contracts, agreements, representations, warranties or other obligations under
or contained in this agreement or in the security agreement entered into in
connection herewith; and the entire unpaid balance of the Revolving Loan,
together with all unpaid interest accrued thereon and all accrued and unpaid
fees, if any, shall be due and payable in full ON DEMAND and if not sooner
demanded on August 1, 1998 (the Termination Date).
(c) Prior to the close of the Lender's business on the Expiration Date, the
Borrower may repay, in whole or in part, the principal amount of the Revolving
Loan provided that the borrower is not then in default under any of the terms
or provisions of this agreement, the Revolving Note, or any of the other
documents entered into by Borrower in connection therewith or pursuant
thereto; and may reborrow sums repaid in accordance with the terms of this
Agreement.
(d) For purposes of the borrowing eligible note payments are those which are
owing to the Borrower which (at all times from creation until collection in
full):
(i) arose fro::, a usual business transaction (in the ordinary course of
business and not to any employee or affiliate of the Borrower) of services by
the Borrower which have been performed for the account debtor;
(ii) are not subject to any assignment, claim, attachment or security interest
of any hind whatsoever, except ire favor of Lender and except for security
interests specifically subordinated to the bender's security interest;
(iii) are not subject to set off, credit, allowance or adjustment by the
account debtor (except for security deposits held by Borrower); and
(iv) do not involve; (a) any account debtor as to which the Borrower has
knowledge of any existing, pending, threatened or stayed bankruptcy or
insolvency proceeding, or (b) any note or account debtor which, in the opinion
of the Lender, is considered by the Lender to be unacceptable for any reason.
(e) The Borrower shall maintain an operating demand deposit: account and lock
box with an agreed upon. Lending Institution and hereby authorizes the Lender
to debit that account for any payments required to be made under the Revolving
Note.
(f) interest and principal on the Loan shall be repaid at the rate and in the
manner set forth in the Revolving Note. The principal balance of the Loan
shall be payable when due or in the event of default, provided, however, that
Lender reserves the tight, in its sole and absolute discretion, to "term out"
some or all of the principal balance, in lieu of making demand, upon terms and
conditions satisfactory to the Lender in all respects.
(g) Borrower will not:
(i) (Minimum Cash Flow Coverage) permits its cash flow on the collateral
portfolio, at the end of any fiscal monthly period, to be less than 75% of all
expected cash flow generated on said collateral portfolio. The term Expected
Cash Flow shall mean Borrower's monthly receivable and associated fees on any
given consumer note agreement.
(ii) For purposes of this section and section (iii) below, (A) tangible net
worth (TNW) shall mean stockholders equity determined in accordance with
generally accepted accounting principles consistently applied, subtracting
therefrom: (1) intangibles (as determined in accordance with such principles
so applied); and (2) accounts and indebtedness owing to Borrower- from any
director, officer, employee or parent, subsidiary, or other affiliate of
Borrower; and (B) subordinated debt shall means debt which is expressly stated
to be subordinated or junior in right of payment to Borrower's obligations to
Lender.
(iii) (Minimum Tangible Net Worth) at any time during the Borrower's fiscal
year ending December 31, 1997, permit its TNW to be less than Seventy-Five
Thousand Dollars ($75,000); and at any time during each subsequent fiscal
year, the Borrower will not permit the TNW to be less than Sixty Thousand
Dollars ($60,000.00) plus an amount equal to One-Hundred Percent (100%) of the
net income of Borrower for each of the preceding quarters beginning with the
Borrower's fiscal year ending September 30, 1997.
(iv) Net Losses the Borrowers will not suffer net losses for any two
consecutive fiscal quarters,
(h) Borrower shall furnish the Lender monthly, within thirty (30) days after
the end of each monthly period, with. a Covenant Compliance Certificate
indicating its compliance or lack thereof with each of the financial covenants
set forth in section (g) above.
(i) 5% Holdback Pool. Lender shall withhold 5% of the funded amount on each
advance of Consumer Note Pools. Each amount so withheld shall be designated as
the Cash Holdback Pool for that particular funding advance. Each Cash Holdback
Pool will be released upon full payment of said loan. All loans must be
current and fully collateralized for any Cash Holdback pool to be released.
The Revolving Note is incorporated herein to the same extent as if set forth
in full in this Agreement.
Borrower, in consideration of the Loan to Borrower, hereby warrants,
represents and agrees as follows:
1. Borrower will continue its business, will not use Revolving Loan proceeds
to engage in any other unrelated business without the prior written consent of
the Lender and will use the proceeds of the Loan only for working capital
purposes.
2. The Borrower is duly organized, validly existing and in good standing as a
corporation under the laws of the States of New organized, and Pennsylvania
respectively and is duly qualified and authorized to do business in, and is in
good standing in, each other jurisdiction in which the conduct of its business
requires it to be so qualified.
3. The execution and delivery of the Revolving Note and this Agreement, -and
the execution and delivery of the Security Agreement entered into pursuant
hereto, and the performance by the Borrower of its obligations hereunder and
thereunder and the consummation by the Borrower of the transactions
contemplated hereby end thereby have been duly authorized by all requisite
action on the part of the Borrower and its members/managers and no other
proceedings on the part of the Borrower or its members/managers are necessary
to authorize this Agreement or to consummate the transactions contemplated
hereby.
4. The Borrower has ail necessary power and authority to .enter into the
Revolving Note and this Agreement, and the Security Agreement entered into
pursuant hereto, and to carry out and perform its obligations hereunder and
thereunder and to consummate the transactions contemplated hereby and thereby.
5. The Revolving Note and this Agreement, and the Revolving Note and the
Security Agreement entered into pursuant hereto, have been duly executed and
delivered by the Borrower and (assuming due authorization, execution and
delivery by the other parties thereto) constitute the legal, valid and binding
obligations of the Borrower enforceable against the Borrower in accordance
with their terms.
6. The execution and delivery of the Revolving Note and this Agreement and the
execution and delivery of the Security Agreement entered into pursuant hereto,
do not, and the performance hereof and thereof by the Borrower will not, (i)
conflict with or violate the articles of organization or operating agreement
of the Borrower, (ii) conflict with or violate any law, regulation, directive,
decision or governmental or judicial order or decree applicable to the
Borrower or by which the Borrower or any of its assets, properties or business
is bound, or (iii) conflict with, result in any breach of, constitute a
default (or an event that with the giving of notice or the lapse of time, or
both, would become a default) under, or give to others any rights of
termination, amendment, acceleration, suspension, revocation or cancellation
of, or result in the creation of any lien or encumbrance of any kind on any of
the assets or properties of the Borrower pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or arrangement to which the Borrower is a party or by which
the Borrower, or any of its assets or properties, is bound.
7. Except for such as have already been obtained by the Borrower and which are
in full force and effect, no consent of any third party and no consent,
approval, license or authorization of, or declaration or filing with, or
exemption by, any governmental or judicial authority, bureau or agency is
required in connection with the execution, and delivery by the Borrower, or in
connection. with the validity or enforceability, of the Revolving Note or this
Agreement, or the Security Agreement entered into pursuant hereto, or the
performance by the Borrower of its obligations hereunder and thereunder or the
consummation of any of the transactions contemplated hereby or thereby.
8. Borrower's balance sheet as of December 31, 1996, and the related statement
of income and retained earnings for the fiscal period ending on such date,
both of which have been delivered to Lender, are complete and correct and have
been prepared in accordance with generally accepted accounting principles
consistently applied throughout the period involved. There are no liabilities
of Borrower contingent or otherwise not disclosed in said balance sheet and
since the date of such balance sheet there has been no change in the assets,
liabilities, financial condition or business of Borrower shown thereon other
than changes in the ordinary course of business, the effect of which has not
been in the aggregate materially adverse
9. Borrower will furnish to Lender (on a consolidated and consolidating basis)
within ninety (90) days after the close of each fiscal year of Borrower, a
balance sheet as of the close of such year and an income statement and
statement of retained earnings for such year for Borrower audited by an
independent certified public accountant selected by Borrower and satisfactory
to Lender; will furnish to Lender (on a consolidated and consolidating basis)
a balance sheet and operating figures for each monthly fiscal period within
thirty (30) days after the end of such month, certified by the chief financial
officer of Borrower; and will furnish a borrowing base certificate and a note
aging on or prior to the fifteenth (15th) day of each monthly period (and at
the time of any request for an advance), and such other data as Lender may
from time to time request; and will at all reasonable times permit
representatives of Lender to inspect and make extracts from Borrower's books
and records
10. Borrower will maintain its books dad records relating to its financial
affairs at all times in accordance with, and all financial statements provided
for herein shall be prepared is accordance with generally accepted accounting
principles consistently applied.
11. Borrower will not pay any dividends on any class of capital stock or make
any other distribution or payment on account of or in redemption of capital
stock, or permit any withdrawals from or distributions of the assets of
Borrower, except cash dividends paid by the Borrower not to exceed, in the
aggregate in any fiscal year, an amount equal to thirty-eight (38%) of
Consolidated Net Income (GAAP) for the immediately preceding fiscal year
provided that no Default shall have occurred and be continuing and, that the
borrower may pay reasonable salaries or compensation to employees and
contractors for services rendered by them to the Borrower,
12. Borrower will maintain insurance with financially sound and reputable
insurers, insuring Borrower's properties and business against such casualties
and contingencies and in such types and such amounts as shall be in accordance
with sound business practices.
13. Without the prior written consent of Lender, Borrower will not;
(a) Create or permit to exist any mortgage, pledge, security interest or other
lien or encumbrance on any of Borrower's property assigned to Lender as
collateral for the Loan except (i) those arising from attachments or similar
proceedings, pending litigation, judgments or taxes or assessments whose
validity or amount is currently being contested in good faith by appropriate
proceedings and for which adequate reserves have been established and
maintained in accordance with generally accepted accounting principles, or
taxes and assessments which are not due and delinquent; (ii) liens of
carriers, warehousemen, mechanics and material men and other like liens, (iii)
pledges or deposits made in connection with workmen's compensation,
unemployment or other insurance, old age pensions or other social security
benefits, and good faith deposits in connection with tenders, contracts or
leases to which Borrower is a party, or deposits to secure, or in lieu of,
surety, penalty or appeal bonds, performance bonds and other similar
obligations; (iv) security interests specifically subordinated to the Lender's
security interest; and (v) in favor of Lender.
(b) Purchase or acquire any securities of or .make any loans or advances to or
investments in any firm or corporation, except obligations of the United
States government or any agency of the United States government or obligations
of United States commercial lending institutions with total assets of not less
than One Billion Dollars(S1,000,000,000.00) and a net worth of not less than
Forty :Million Dollars ($40,000,000.00);
(c) Merge or consolidate or sell or dispose of all or a portion of Borrower's
assets other than in the ordinary course of business, or in any way or manner
alter Borrowers capital structure, including the sale, transfer or redemption
of any shares of the Borrower.
14. Without in any way effecting the nature of the Revolving Note or in any
manner making the following prerequisites for the Lender's requiring
repayment, the advances constituting the Revolving Loan and any and all other
obligations of Borrower to Lender, direct or indirect, absolute or contingent,
due or to become due, now existing or hereafter arising (collectively, the
Obligations) shall at Lender's option become immediately due and payable
without notice or demand at any time after: (a) default in the payment or
performance of any Obligation; (b) default in the observance by Borrower of
any of the terms of this Agreement, or in the revolving note or any other
document or other agreement entered into pursuant hereto or in connection with
the transactions contemplated hereby. including, without limitations the
financial covenants contained herein or therein; (c) dissolution, termination
of existence, insolvency, business failure, appointment of a receiver of any
part of the property of, assignment for the benefit of creditors by, or the
commencement of any proceedings under any bankruptcy or insolvency laws by or
against Borrower or any party secondarily liable under any of the obligations;
or (d) termination of any guaranty by any guarantor of any of the obligations.
15. Any deposits or other sums at any time credited by or due from Lender to
Borrower and any securities or other property of Borrower in Lender's
possession may at ail times be held and treated as security for payment of the
Obligations. In the event any one or more of the events of default set forth
in Paragraph 8 shall have occurred or be continuing, then regardless of the
adequacy of any collateral, any deposits or other sums credited by or due from
Lender to Borrower may be set off against any and all of the Obligations.
l6. The Lender shall have the right review and/or to audit Borrower's books
and records annually, or at such greater frequency as Lender may reasonably
deem appropriate, at Borrower's expense.
17. No failure or delay on Lender's part in exercising, any right hereunder
shall operate as a waiver thereof of any other right. No waiver hereunder
shall be effective unless in writing and a waiver on any one occasion shall
not be a waiver of any right or remedy on any future occasion.
I8. In case of a default in the performance of the Obligations, Borrower will
pay to Lender such, further amount as shall be sufficient to cover the cost
end expense of collection including (without limitation), attorney's fees and
expenses.
19. Governing Law. This Agreement has been made in, and shall be construed in
accordance with the laws of the Commonwealth of Massachusetts and the
obligations, rights and remedies of the parties hereunder shall be determined
in accordance with the internal laws of the Commonwealth of Massachusetts,
without regard to any conflicts of laws provisions and shall take effect as an
instrument under seal. ANY LEGAL ACTIONS OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT SHALL BE BROUGHT IN ANY STATE OR FEDERAL COURT LOCATED IN THE
COMMONWEALTH OF MASSACHUSETTS EXCLUSIVELY AND BY EXECUTION AND DELIVERY OF
THIS AGREEMENT, THE PARTIES IRREVOCABLY CONSENT EACH FOR ITSELF AND IN RESPECT
OF ITS PROPERTY, TO THE JURISDICTION OF THOSE COURTS. THE PARTIES IRREVOCABLY
WAIVE ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED
ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH EITHER MAY NOW OR HEREAFTER HAVE
TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF
THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO, AND AGREE THAT ANY FINAL
JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN ANY OTHER JURISDICTION BY SUIT ON THE JUDGMENT OR IN ANY OTHER
MANNER PROVIDED BY LAW. THE PARTIES WAIVE THE RIGHT TO TRIAL BY JURY IN ANY
ACTION ARISING OUT OF THIS AGREEMENT.
IN WITNESS WHEREOF, Borrower has executed and delivered this Business Loan
Agreement on the date below written.
EXECUTED this 5TH day of August, 1997.
WITNESS: COOPERATIVE IMAGES, INC. and ELECTIVE INVESTMENTS, INC.
By: /s/ Gerard A. Powell
--------------------
Gerard A, Powell, Chief Executive Officer
By: /s/ Charlie Lynn Trapasso
-------------------------
Charlie Lynn Trapasso, Secretary
BOLE LEASING TECHNOLOGIES, INC.
By: /s/ J. Gregory Hines
--------------------
J. Gregory Hines, Vice-President
Vendor Agreement
Vendor/Dealer Name Cooperative Images Inc./Elective Investments
Contact Name Gerry Powell
Street Address 210 West Fourth St. Ste 101
City East Stroudsburg State PA Zip 18301
Phone No. Fax No.
Products: Elective Surgery Date
This document states our agreement (Agreement) concerning the lease programs
to be furnished by Leasecomm Corporation, referred to below as "LC" and the
above named Vendor/Dealer referred to below as "you" or "your company". We
agree as follows:
1. From time to time you will submit to LC applications for lease credit
approval covering equipment and/or software licenses (hereinafter "Product")
your company sells. You shall perform such services on behalf of your customer
and not as an agent of LC. Nothing to this agreement shall be deemed to create
a partnership or joint venture between you and LC or constitute you as the
agent of LC. You agree not to act as or represent yourself as an agent,
partner or joint venture: of LC.
2. You must present LC with a complete lease package within 30 days of
authorization to receive funding. A completed lease package must include a
lease application and agreement with the appropriate signatures and
information requested (including your signed bill of sale on the reverse side
of the lease agreement), an advance payment check from the Lessee made payable
to LC (advance payment checks in the amount of $500.00 or more must be bank
cheeks; personal or company check, will not be accepted), your invoice for the
Product equal to the funded amount of the lease, verification of the lessee's
signature and an insurance binder covering the value of the Product that names
LC as the loss payee. For funded amounts of $7.500.00 or more LC also requires
a filing of a UCC form naming LC as the owner of the Product, prior to
funding.
3. You warrant that each least you submit: will be properly executed by the
lessee and guarantor(s); no promises or representations have been made by you,
your employees or your agents, to the lessee which are not contained in or
contradict the written Lease; the lease is not in default by you or the
Lessee: the lease as executed by the lessee will be the only lease executed
covering the Product to be leased; you have good and marketable title to the
Product which is subject to the lease, free and clear of ;any and all liens,
charges, encumbrances, mortgages, pledges. security Interests and claims of
any kind: following the transfer of the lease and Product to LC, LC will have
good title to the Product. feee and clear of any such liens and encumbrances:
the lease, the assignment by you and the bill of sale are valid and binding
obligations, enforceable in accordance with the stated terms without
alteration; you have not agreed to any modification or waiver of the lease
terms without the express written consent of an authorized officer of LC; and
your business activiees in the preparation, and execution or all lease
documents are in compliance with all applicable laws, ordinance, rules and
regulations (whether federal. state or local) and you possess any and all
permits, licenses and consents as may be necessary in connection therewith.
4. You shall not accept collections from lessees or repossess or consent to
the return of leased Products. Any payment you receive from a Lessee with
respect to a lease transaction will be received in trust for LC and will be
promptly remitted to LC In the same form received,
5. You will perform or cause to be performed, at no cost to LC, all
maintenance and service on the Product required under warranties or
maintenance contracts. After the expiration of such warranties and/or any
maintenance contracts, you will perform or cause to be performed all
maintenance and servlce on the Product reasonably requested by LC at
reasonable cost. You agree to provide LC with product from your product lines,
at your cost for the purpose of fulfilling Loss or Damage Waiver claims.
6. In the event any Lessee defaults is its obligations to LC (for the purpose
or this -agreement a lease shall be deemed to be in default if the Lessee
violates any material covenant of the lease), you agree to an arrangement
whereby at LC's request you will assist in recovery of the Product and repair
and recondition of same and remarketing saidproduct on terms to be netotiated
at that time. Should the Lessee fail to make at least one full monthly payment
beyond any advance or down payment and/or if the Lessee's first authorized ACH
debit is declined by the Bank (provided the reason for the decline was not due
to LC's error), LC will notify you and you will have 5 months to assist in
getting the lesse to pay LC. If after the 5 months LC has not received the
first full monthly payment LC will charge you back the original funded amount
of the Lease.
7. You agree to indemnify and hold LC harmless from all losses, damages,
liabilities and expenses (including reasonable attorney's fees and court
costs) which may result any claim or action against LC by any Lessee arising
out of any action. or omission by you in connection with the execution of the
lease, any representation or warranty made to the Lessee, or any other claim
of any nature arising out of the leasing of the Product by you to the Lessee.
8. LC reserves the right to charge you back for funded amounts damages and/or
reasonable expenses it may incur for your violations of the provisions of
Paragraphs 3.4.5.6.or 7 of this agreement. Any, such chargebacks may at LC'S
option. be offset from current fundings and shall be separate from transfers
pursuant to Goldplan. reserve or loss/destruction reimbursements. Should
current fundings be insufficient to cover the amount of any chargebacks. LC
shall notify you of the amount of the chargeback and you shall forthwith remit
the necessary funds for same. LC will thereupon assign the lease to you
without recourse.
9. Either you or LC may terminate this agreement at any time by written notice
to the other. No termination will affect the obligations of either party with
respect to lease transactions entered before the date of termination.
10. If you elect to participate in Leasecomm DirectTM you agree to safeguard
your password and access to your account and to indemnify and hold LC harmless
from any and all damages, losses and 1iabilities incurred or suffered as a
result of, or incident to, any action by persons other than LC employees. You
further agree to use the system only for it's stated purpose. Failure to do so
may result in the immediate termination of your access to Leasecomm DirectTM.
11. This Agreement is the only and entire Agreement between LC and you and
supersedes, terminates and voids all other agreements, whether oral or written
between the parties with respect to the subject matter hereof. This Agreement
is for the sole use and benefit of your company, may not be assigned or
transferred by you, and any attempted assignment or transfer by you shall be
void.
l2. This Agreement shall be considered to be MASSACHUSETTS contract and shall
be deemed to have been made in Middlesex County, Massachusetts, regardless of
the order in which the signatures of the order in which the signatures of the
parties shall be affixed hereto, and shall be interpreted and the rights and
liabilities of the parties hereon determined, in accordance with the law and
any suit brought shall be brought exclusively in the court of the Commonwealth
of Massachussets. The undersigned hereby consents and submits to the
jurisdiction of the courts of the Commonwealth of Massachussets for the
purposes of any suit action or other proceeding arising out of the undersigned
obligations hereunder, and expressly waives any objection to venue in any such
courts.
I have read and agree to the terms and conditions of this Agreement. I certify
that I am an authorized signer for the Vendor listed above.
Signature
Print Name and Title
Accepted for Leasecomm Vendor Code
SECURED REVOLVING CREDIT NOTE
$6,000,000.00
For value received, the undersigned promises to pay, on the Expiration Date
(as defined in the Business Lean Agreement executed herewith), to the order of
Boyle Leasing Technologies, Inc. (BLT) (the "Lender") at the main office of
the Lender in Waltham, Massachusetts, the principal sum of Six Million
($6,000,000.00) Dollars, or such lesser amount as may be advanced hereunder
and remain outstanding at such time, and to pay interest (calculated on the
basis of a 360-day year for the actual number of days elapsed) from the date
hereof on the outstanding principal balance at a rate of twenty percent (20%)
per annum. Such interest to be payable in arrears on the 30th day each month
commencing August 30, 1997. Overdue principal and, to the extent permitted by
law, overdue interest, shall bear interest, payable on demand, at the rate of
twenty-two percent (22%) per annum. All advances under this Note and all
repayments of principal shall be endorsed by the holder on the schedule to
this Note or otherwise noted in Lender's books and records. Until demand, all
amounts repaid may be reborrowed as and to the extent permitted in a Business
Loan Agreement between the undersigned and the Lender of even date (the "Loan
Agreement").
If the Lender shall not have offered to extend the Expiration Date and if no
material default shall have occurred and be continuing on the Expiration Date,
then at the option of the Borrower the unpaid principal balance of the
Revolving Credit Loans shall be payable in eighteen (18) equal consecutive
monthly installments on the first day of each month, commencing on the First
day of the month following the Expiration Date, with the unpaid principal
balance, together with all unpaid interest thereon and all fees and other
amounts due with respect thereto, due and payable in full on the Conversion
Term Loan Maturity Date.
Any deposits or other sums at any time credited by or due from the Lender to
the undersigned and any securities or other property of the undersigned now or
hereafter in the possession of the Lender for any purpose shall constitute
collateral security for payment of the Note. Regardless of the adequacy of any
other collateral, any deposits or other sums credited or due from the Lender
may be applied to or set off against the obligations of the undersigned under
this Note.
The undersigned and every endorser anal guarantor waives presentment, demand;
notice, protest, and all other demands and notices in connection with the
delivery, acceptance, performance, default or enforcement of this Note or of
any collateral, and assents to any extension or postponement of the time of
payment or any other indulgence under this Note, or with respect to any
collateral, to any substitution, exchange or release of any collateral, or the
addition or release of any other party primarily or secondarily liable
hereunder.
No delay or omission of the holder in exercising any right hereunder shall
operate as a waiver of such right or any other right under this Note. No
waiver of any right shall be effective unless in writing and signed by the
holder. A waiver on one occasion shall not be construed as a bar or waiver of
any such right on any future occasion.
The undersigned shall pay on demand all costs and expenses (including
reasonable attorneys' fees and disbursements) paid or incurred by the holder
in enforcing this Note on default.
This Note is secured pursuant to a Security Agreement, of even date, as
amended and supplemented from time to time, and is subject to the terms of the
Loan Agreement.
This Note has been made in, and shall be construed in accordance with the laws
of the Commonwealth of Massachusetts and the obligations, rights and remedies
of the parties hereunder shall be determined in accordance with the internal
laws of the Commonwealth of Massachusetts, without regard to any conflicts of
laws provisions and shall take effect as an instrument under seal. ANY LEGAL
ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT SHALL BE BROUGHT IN ANY
STATE OR FEDERAL COURT LOCATED IN THE COMMONWEALTH OF MASSACHUSETTS
EXCLUSIVELY AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE PARTIES
IRREVOCABLY CONSENT EACH FOR ITSELF AND LV RESPECT OF ITS PROPERTY, TO THE
JURISDICTION OF THOSE COURTS. THE PARTIES IRREVOCABLY WAIVE ANY OBJECTION.
INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF
FORUM N0N CONVENIENS, WHICH EITHER MAY NOW OR HEREAFTER HAVE TO THE BRINGING
OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS NOTE OR
ANY DOCUMENT RELATED HERETO, AND AGREE THAT ANY FINAL JUDGMENT IN ANY SUCH
ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER
JURISDICTION BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.
THE PARTIES WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION ARISING OUT OF THIS
NOTE OR THE AGREEMENTS RELATED THERETO.
WITNESS COOPERATIVE IMAGES, INC. and ELECTIVE INVESTMENTS, INC.
BY: /s/ Gerard A. Powell
Gerard A. Powell Chief Executive Officer
Address: 210 West Fourth St., Suite 101
East Stroudsburg, PA 18301
SECURITY AGREEMENT
Cooperative Images Inc. and Elective Investments, Inc., jointly and severally,
having their executive offices at 210 West Fourth Street, Suite 101, East
Stroudsburg, PA 18301 (hereinafter collectively known as the "Borrower") and
Boyle Leasing Technologies, Inc., having its executive offices at 950 Winter
Street, Suite 4100, Waltham, M4 02154 (hereinafter the "Leader" or "BLT"),
hereby agree as follows:
1. In consideration of the Lender's extending credit and ether financial
accommodations to the Borrower under and pursuant to the terms of a Business
Loan Agreement (the "Business Loan Agreement") and a secured revolving note
(the "Revolving Note"), each dated the date hereof, the Borrower hereby grants
to the Lender a security interest in (including, without limitation, a lien on
and pledge of all the Borrower's collateral (as hereinafter defined).
2. As used herein the following words and phrases shall have the following
meanings:
(a) "Consumer Note Agreements" shall mean and refer to those individual loan
contracts with consumer debtors owned and financed by the Borrower, which loan
contracts were properly executed and are valid and enforceable debt contracts
with the consumer debtors party thereto within the jurisdiction where each
such loan contract originated.
(b) "Obligations" shall include, without limitation, all loans, advances,
indebtedness, notes, liabilities and amounts, liquidated or unliquidated,
owing from the Borrower to the Lender at any time, each of every kind, nature
and description, whether arising under this Agreement, the Business Loan
Agreement, the Revolving Note, or otherwise, and whether secured or unsecured,
direct or indirect (that is, whether the same are due directly from the
Borrower to the Lender; or are due indirectly from the Borrower to the Lender
as endorser or guarantor; or as obligor of Obligations due to third persons
which have been endorsed or assigned to the Lender; or otherwise), absolute or
contingent, due or to become due, now existing or hereafter contracted. Said
term shall also include all interest and other charges chargeable to the
Borrower or due from the Borrower to the Lender from time to time and all
costs and expenses referred to in 13(f) of this Agreement.
(c) "Collateral" shall mean and refer to all of the Consumer Note Agreements
(by which is meant those Consumer Note Agreements assigned to the Lender
pursuant to an Assign- of Consumer Note Agreements of even date herewith); all
rights to payment, chattel paper, instruments, documents, rights, remedies,
powers and privileges relating to the foregoing; all collateral lateral,
guarantees and endorsements given to secure any of the foregoing, and all
proceeds thereof. Proceeds shall specifically include all insurance (if any),
accounts, chattel paper and instruments pertaining to any of the aforesaid.
(d) "Code" shall mean and refer to the Massachusetts Uniform Commercial Code
(Mass G.L. c.106) as in effect from time to time.
(e) "Eligible Collateral". A Note:
(1) Which is in full force and effect;
(2) Which is non-cancelable and provides that the. debtor's obligations
thereunder are absolute and unconditional, and not subject to defense,
deduction, set-of, or claim and as to which no defenses, set-offs, claims or
counterclaims exist or have been asserted;
(3) Which is not subject to any Encumbrance other than that in favor of the
Agent for the benefit of the Lender and in which the Agent has a duly
perfected first priority security interest under the UCC;
(4) Which is a Consumer Note Agreement;
(5) The Obligee under which has not been determined by the Agent to be
unacceptable;
(6) Which is in a form approved by the Agent;
(7) Under which no payment is more than 90 days past due;
(8) Under which no default has occurred other than to the extent permissible
under clause (7) immediately above.
3. The Borrower hereby warrants to, represents to and covenants with the
Lender:
(a) The Borrower is the owner of the Consumer Note Agreements free and clear
of all security interests, liens and encumbrances other than certain Consumer
Note Agreements more particularly described in Exhibit A annexed hereto, which
Consumer Note Agreements are being concurrently assigned by Borrower to the
Lender, and the Borrower will warrant and defend the same and the Lender's
security interest therein against the claims and demands of all persons.
(b) The Consumer Note Agreements shall always remain personal property and do
not relate to or involve mortgages or realty.
(c) Except for the Consumer Note Agreements, the Borrower will keep the
Collateral free and clear of all attachments, claims, liens, security
interests and encumbrances of any kind and nature.
(d) The Borrower will not sell, transfer or otherwise dispose of any of the
Consumer Note Agreements or any interest therein.
(e) The Consumer Note Agreements were properly executed and are valid and
enforceable debt contracts with the consumer debtors party thereto within the
jurisdiction where each such loan contract originated. Borrower is in the
business of consumer lending and is knowledgeable of the laws and practices
within the jurisdictions where it conducts its business. Borrower warrants it
has complied with all local, state and federal laws applicable to its business
activities and holds airy and all necessary licenses and permits to conduct
same. Should any Consumer Note Agreement be found which is in violation of
this warranty, Borrower agrees to accept the return of and to replace any such
agreements with agreements in compliance with this paragraph.
(f) The Borrower will indemnify and save the Lender harmless from all loss,
cost, damage, liability or expense, including reasonable attorneys' fees,
which the Lender may sustain or incur by reason of defending or protecting the
security interest hereby granted, the priority thereof, the enforcement of any
of the Obligations, or in the prosecution or defense of any action or
proceeding concerning any matter growing out of or connected with this
Agreement, the Obligations or the Collateral.
4. The Borrower will promptly pay when due all taxes and assessments on or
relating to the Consumer Note Agreements, or upon this Security Agreement or
any note, instrument or other agreement evidencing or given in connection with
or as security for any of the Obligations.
5. The Lender may, at its option: (a) pay any sum required to discharge any
taxes, liens, security interests or encumbrances at any time levied or placed
on the Collateral; and (b) pay any sum necessary in the reasonable judgment of
the Lender for the maintenance or preservation of the Consumer Note
Agreements. On demand, the Borrower will reimburse the Lender for any
reasonable payment made or reasonable expense incurred by the Lender
hereunder, with interest at the rate charged with respect to the Obligations.
6. Without in any way effecting the nature of the Revolving Note, or in any
manner making the following prerequisites for the Lender's requiring
repayment, the occurrence of any of the following events shall be a default by
the Borrower hereunder and under the Revolving Note:
(a) failure of the Borrower to pay or perform any of the Obligations when due;
(b) any warranty, representation or statement made or furnished to the Lender
by the Borrower or in the Borrower's behalf (whether herein, in the Business
Loan Agreement, in the Revolving Note or otherwise), proves to have been false
in any material respect when made or furnished;
(c) any failure to replace a Consumer Note Agreements pursuant to the
provisions of 13(e);
(d) any attachment against the interest of the Borrower in any of the
Collateral (not discharged within thirty(30)days)or any levy upon or seizure
of any of the Collateral;
(e) dissolution, termination of existence, insolvency, business failure,
appointment of a receiver of any property of, assignment for the benefit of
creditors by, or the commencement of any proceeding under any bankruptcy or
insolvency laws by the Borrower or any endorser or guarantor of any of the
Obligations;
(f) commencement of any proceeding against the Borrower under any bankruptcy
or insolvency laws which proceeding is riot discussed within thirty (30) days
of the commencement thereof;
(g) the calling or sufferance by the Borrower of a meeting of the creditors of
the Borrower or the occurrence of a meeting by the Borrower or a
representative thereof with a formal or informal committee of creditors of the
Borrower;
(h) breach by the Borrower of any warranty, representation, covenant or
agreement contained in this Agreement in tie Business Loan Agreement, in the
Revolving Note, or in any other instrument document or agreement executed
pursuant hereto or in connection with the transaction contemplated herein or
in the Business Loan Agreement or the Revolving Note.
7. Upon any default by the Borrower hereunder, all. Obligations shall, at the
Lender's option, without notice or demand and notwithstanding any terms for
payment set forth in any note or instrument evidencing any of the Obligations,
become immediately due and payable; and then and thereafter the Lender shall
have all rights arid remedies specified herein said all rights and remedies of
a Secured Party under the Code. The Lender may take and maintain possession of
the Collateral upon the Borrower's premises or may remove the same to such
other place or places as Lender may determine. Upon the Lender's demand, the
Borrower shall assemble the Consumer Note Agreements and make same available
to the Lender at a place designated by the Lender and reasonably convenient to
the Lender and the Borrower. The Leader will give the Borrower reasonable
notice of the time and place of any public sale thereof or of the tune after
which any private sale or other intended disposition is to be made. The
requirement of reasonable notice shall be met if such notice is mailed,
postage prepaid, to the address of the Borrower herein above set forth at
least fifteen (15) days before the time of sale or other intended disposition.
Expenses of retaking, holding, preparing for sale, selling or similarly
relating to realization on the Collateral shall include reasonable attorneys'
fees and other legal costs and expenses incurred by the Lender.
8. Subject to the rights of any debtor thereof and of, the relevant Consumer
Note Agreements relating thereto the Lender, at Lender's expense, shall have
the right, from time to time, to inspect the Collateral.
9. No delay or failure on the part of the Lender in exercising any right,
privilege remedy or option hereunder shall operate as a waiver thereof. No
waiver whatever shall be valid and binding on the Lender unless contained in a
writing duly executed by the Lender and then only to the extent therein set
forth.
10. The Lender may exercise or enforce any one or more remedies available to
it successively, alternatively or concurrently.
11. The Borrower shall join with the Lender in executing financing statements
and at the Borrower's expense cause the same to be fled in rich public offices
as may be required to perfect the security interest hereby granted. To the
extent permitted by law, the Lender may file one or more financing statements
relating to the security interest hereby granted without the Borrowers
signature thereon. The Borrower will further, front time to time, execute and
deliver and take all such other reasonable action which the Lender may
reasonably require to assure more fully to the Lender or to vest more securely
in the Lender all rights and interests contemplated in this Agreement. A
carbon, photographic or other reproduction of this Agreement or any financial
statement executed pursuant to the terms hereof shall be sufficient as a
financing statement for the purpose of filing with the appropriate public
authorities.
12. This Agreement cannot be amended except by an instrument in writing duly
executed by both the Borrower and the Lender.
13. All rights of the Lender hereunder shall inure to the benefit of its
successors and assigns and this Agreement shall be binding upon the Borrower
and the Borrower's successors or assigns. If there be more than one Borrower,
their obligations hereunder shall be joint and several.
14. Governing Law. This Agreement has been made in, and shall be construed in
accordance with the laws of the Commonwealth of Massachusetts and the
obligations, rights and remedies of the parties hereunder shall be determined
in accordance with the internal laws of the Commonwealth of Massachusetts,
without regard to any conflicts of laws provisions and shall take effect as an
instrument under seal.. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT SHALL BE BROUGHT IN ANY STATE OR FEDERAL COURT LOCATED) IN. THE
COMMONWEALTH OF:MASSACHUSETTS EXCLUSIVELY AND BY EXECUTION RIND DELIVERY OF
THIS AGREEMENT, THE PARTIES IRREVOCABLY CONSENT EACH FOR ITSELF AND IN RESPECT
OF ITS PROPERTY, TO THE JURISDICTION OF THOSE COURTS. THE PARTIES IRREVOCABLY
WAIVE ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED
ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH EITHER MAY NOW OR HEREAFTER HAVE
TO THE BRINGING OF ANY ACTION OR PROCEEDING IN -SUCH JURISDICTION IN RESPECT
OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO, AND AGREE THAT ANY FINAL
JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN ANY OTHER JURISDICTION BY SUIT ON THE JUDGMENT OR IN ANY OTHER
MANNER PROVIDED BY LAW. THE PARTIES WAIVE THE RIGHT TO TRIAL BY JURY IN ANY
ACTION ARISING OUT OF' THIS AGREEMENT.
EXECUTED this 5th day of August, 1997.
WITNESS: COOPERATIVE IMAGES, INC. and ELECTIVE INVESTMENTS, INC
By:/s/ Gerard A. Powell
Gerard A. Powell, Chief Executive Officer
BOYLE LEASING TECHNOLOGIES, INC.
By: /s/ J. Gregory Hines
J.Gregory Hines, Vice President
EXHIBIT A
---------
FORM OF SECURITY AGREEMENT SUPPLEMENT
-------------------------------------
SUPPLEMENT NO. TO SECURITY AGREEMENT DATED AS OF
BETWEEN
COOPERATIVE IMAGES, INC. and ELECTIVE INVESTMENTS, INC. (the BORROWER)
AND
BOYLE LEASING TECHNOLOGIES, INC. (the LENDER)
WHEREAS, the Borrower and the Lender entered into a certain Revolving
Credit Agreement, dated as of (which agreement, as the same may have been or
thereafter may be amended, supplemented, restated or otherwise, the LOAN
AGREEMENT) pursuant to which the Lender agreed to make Loans to the Borrower
in an amount not be exceed Six Million Dollars ($6,000,000.00);
WHEREAS, pursuant to the Loan Agreement, the Borrower and the Lender
entered into a certain Security Agreement dated as of (the SECURITY
AGREEMENT);
WHEREAS, pursuant to the Loan Agreement, the Borrower is obligated with
the making of each Loan to the Borrower to deliver to the Lender supplements
to the Security Agreement (which agreement, as the same may have been or
hereafter may be amended, supplemented, restated or otherwise, each, a
Security Agreement Supplement and collectively the Security Agreement
Supplements) and describing the Consumer Note Agreements which shall
constitute the Collateral for such Loan, and it is therefore a condition
precedent to the obligation of the Lender to make or maintain the Loans that
the Borrower shall execute and deliver to the Lender this Security Agreement
Supplement;
NOW, THEREFORE, the parties hereto hereby agree as follows (capitalized
terms which are not defined therein shall have the meanings given to them in
the Loan Agreement).
The Security Agreement is hereby amended and supplemented by the addition
thereto (in addition to any other Collateral added by previous Security
Agreement Supplements) of the Consumer Note Agreements listed on Exhibit T
annexed hereto.
Except as supplemented by this Supplement, the Security Agreement shall
continue unchanged and remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Supplement to be
duly executed this day of 1997,
WITNESS: COOPERATIVE IMAGES, INC. and ELECTIVE INVESTMENTS, INC.
By: /s/ Gerard A. Powell
--------------------
Gerard A. Powell, Chief Executive Officer
BOYLE LEASING TECHNOLOGIES,INC.
By: /s/ J. Gregory Hines
--------------------
J. Gregory Hines, Vice-President
EXHIBIT A TO UCC-1 FINANCING STATEMENT
DEBTOR: SECURITY PARTY:
Cooperative Images, Inc and Boyle Leasing Technologies, Inc.
Elective Investments, Inc. 950 Winter Street, Suite 4100
210 West Fourth Street, Suite 101 Waltham, MA 02154-8716
East Stroudsburg, PA 18301
All right, title and interest of Debtor in and to:
1. All Consumer Note Agreements (as defined in the Security Agreement executed
between the above parties) assigned to Secured Party pursuant to an Assignment
of Consumer Note Agreements between the parties; all rights to payment,
chattel paper, instruments, documents, rights, remedies, powers and privileges
relating to the foregoing; all collateral, guarantees and endorsements given
to secure any of the foregoing, and all proceeds thereof (proceeds shall
include all insurance (of any), accounts, chattel paper and instruments
pertaining to any of the aforesaid).
2. All Consumer Note schedules regarding assigned Consumer Note Agreements,
agreements as they relate to such Consumer Note schedules, notes, and chattel
paper (including. without limitation, the notes listed on the Security
Agreement Supplements executed from time to time, and any and all renewals,
extensions, modifications and substitutions thereof and therefore (all such
Consumer Notes Schedules, Agreements, notes and chattel paper, now or
hereafter in effect or executed from time to time, and tiny and ail renewals,
extensions, modifications and substitutions thereof and therefore, are
hereinafter referred to, along with the documents identified in Paragraph 1
above, collectively as the Collateral), all of its rights to all other
payments due or to become due to the extent applicable to the Collateral,
including, without limitation, payments representing principal, interest,
taxes; insurance premiums, delinquency charges, together with rights evidenced
by an account, note, contract, security agreement, chattel paper or other
evidence of indebtedness or security, all guaranties, warranties and
indemnities in respect thereof; and all of its accounts, contract rights and
general intangibles arising thereunder;
3. All security pledged, assigned, hypothecated or granted to or held by the
Debtor to secure the obligations of any obligors under any Collateral;
4. All powers of attorney for the execution of any evidence of indebtedness or
security or other writing in connection with any Collateral;
5. All books, records, ledger cards, invoices and other instruments related to
the Collateral;
6. All evidences of the filing of financing statements and other statements,
if any, and all amendments thereto, notices to other creditors or secured
parties, and certificates from filing offices;
7. All credit information, reports and memoranda relating to the Collateral;
8. All electronically processed or recorded in-formation relating to or
pertaining to any of the foregoing, whether in the possession or control of
Debtor or any third party.
UNLIMITED GUARANTY
TO: Boyle Leasing Technologies, Inc.
950 Winter Street
Walt ham, MA 0215
In consideration of Boyle Leasing Technologies, Inc.(hereinafter called
BLT)extending credit or otherwise in its discretion giving time. financial or
other accommodations to Cooperative Images, Inc., and Elective Investments,
Inc. (hereinafter) collectively called tile "Borrower"), the undersigned
(hereinafter called the "Guarantor") hereby unconditionally guarantees to BLT
that: (a) the Borrower will duly and punctually pay or perform, at the place
specified therefore, all indebtedness, obligation; and liabilities, direct or
indirect, matured or unmatured, primary or secondary, certain or contingent,
of the Borrower to BLT now or hereafter cowing or incurred (including without
limitation costs and expenses incurred by BLT in attempting to collect or
enforce any of the foregoing) which are chargeable to the Borrower either by
law or under the terms or BLT's arrangements with the Borrower accrued in each
case to the date of payment hereunder (collectively the "Obligations" and
individually an "Obligation"); and (b) if there is an agreement or instrument
evidencing or executed and delivered in connection with any Obligation, the
Borrower will perform in all other respect strictly in accordance with the
terms thereof.
This Guaranty is an absolute, unconditional and continuing guaranty of the
full and punctual payment and performance by the Borrower of the Obligations
and not of their collectibility only and is in no way conditioned upon any
requirement that BLT first attempt to collect any of the Obligations from the
Borrower or any other party primarily or secondarily liable with respect
thereto or resort to any security or other means of obtaining payment of any
of the Obligations which BLT now has or may acquire after the date hereof, or
upon any other
contingency whatsoever.
Upon any default by the Borrower in the full and punctual payment and
performance of any of the Obligations, the liabilities and obligations of the
Guarantor hereunder shall, at the option of BLT, become forthwith due and
payable to BLT without demand or notice of any nature, all of which are
expressly waived by the Guarantor. Payments by the Guarantor hereunder may be
required by BLT on any number of occasions.
The Guarantor further agrees, as the principal obligor and not as a guarantor
only, to pay to BLT forthwith upon demand, in funds immediately available to
BLT, all costs and expenses (including court costs and legal expenses)
incurred or expended by BLT in connection with this Guaranty and the
enforcement hereof, together with interest on amounts recoverable under this
Guaranty from the time such amounts become due until payment at the usual rate
charged by BLT in similar circumstances.
The liability of the Guarantor hereunder shall be unlimited in amount.
The obligations of the Guarantor under this Guaranty shall continue in full,
force and effect /until BLT shall have received from the Guarantor written
notice of the Guarantors intention to discontinue this Guaranty,
notwithstanding any intermediate or temporary payment or settlement of the
whole or any part of the Obligations. No such notice shall affect the
liability of the Guarantor hereunder with respect to any Obligations incurred
by Borrower to BLT or with respect to which BLT has become committed prior to
the receipt of such notice. In the event of any such discontinuance of this
Guaranty, all checks, drafts, notes, instruments (negotiable or otherwise) and
writings drawn or made by or for the account of the Borrower on BLT or any of
its agents purporting to be dated on or before t he date such discontinuance
is received by BLT, although presented to and paid or accepted by BLT after
that date, shall form part of the Obligations. No such notice shall be
effective unless sent postage pre-paid to an officer of BLT at its
Headquarters.
The Guarantor grants to BLT, as security for the full and punctual payment
rend performance of the Guarantor's obligations hereunder, a continuing lien
on tend security interest in all securities or other property belonging to the
Guarantor now or hereafter held by BLT
BLT shall be at liberty, without giving notice to or obtaining the assent of
the Guarantor, and without relieving the Guarantor of any liability hereunder,
to deal with the Borrower and with each other party who now is or after the
date hereof becomes liable in any manner for any of the obligations, in such
manner as BLT in its sole discretion deems fit, and to this end the Guarantor
gives to BLT full authority in its sole discretion to do any or all of the
following things: (a) extend credit, make loans and afford other financial
accommodations to the Borrower at such time, in such amount; and on such terms
as BLT may approve; (b) vary the terms and grant extensions or renewals of any
present or future indebtedness or obligation, to BLT of the Borrower or of any
such party; (c) grant time, waivers and other indulgences in respect thereto;
(d) vary, exchange, release or discharge, wholly or partially, or delay in or
abstain from perfecting and enforcing any security or guaranty or other means
of obtaining payment of any of the Obligations which BLT now has acquires
after the date hereof; (e) accept partial payments from the Borrower or any
such party; (f) release or discharge, wholly or partially, any endorser or
guarantor; and (g) compromise or make any settlement or other arrangement with
the Borrower or any such other party.
If for any reason the Borrower has no legal existence or is under no legal
obligation to discharge any of the Obligations undertaken or purported to be
undertaken by it or on its behalf, or if any of the moneys included in the
Obligations have become unrecoverable from the Borrower by operation of law or
for any other reason, this Guaranty shall nevertheless be binding on tile
Guarantor to the same extent as if tile Guarantor at all times had been the
principal debtor on all such Obligations. This Guaranty shall be in addition
to any other guaranty or other security for the Obligations and it shall not
be prejudiced or rendered unenforceable by the invalidity of any such other
guaranty or security. Notwithstanding any payment by the Borrower to BLT of
the whole or any portion of the Obligations, if BLT be required to pay any
amount so paid to BLT to a Trustee in Bankruptcy of the Borrower, the
Guarantor shall remain liable for any sums so paid to said Trustee.
The Guarantor waives notice of acceptance hereof, notice of any action taken
or omitted by BLT in reliance hereon, and any requirement that BLT be diligent
or prompt in making demands hereunder, giving notice to any default by the
Borrower or asserting any other right of BLT hereunder. The Guarantor also
irrevocably waives, to the fullest extent permitted by law, all defenses which
at any time may be available in respect of the Guarantor's Obligations
hereunder by virtue of any homestead exception, statute of limitations,
valuation, stay, moratorium law or other similar law now or hereafter in
effect.
The Guarantor will not, by paying any sum recoverable hereunder (whether or
not demanded by BLT) or by any means or on any other ground, claim any set-off
or counterclaim against the Borrower in respect of any liability of the
Guarantor to the Borrower or. in proceedings under the Bankruptcy Code or
insolvency proceedings of any nature, prove in competition with BLT in respect
of any payment hereunder or be entitled to have the benefit of any
counterclaim or proof of claim or dividend or payment by or on behalf of the
Borrower or the benefit of any other security for any Obligation which. now or
hereafter, BLT may hold or in which it may have any share or have any right.
of subrogation, reimbursement or indemnity or right of recourse to any
security which BLT may have or hold with respect to the Obligations
Guarantor agrees that Guarantor shall not have, and hereby expressly waives:
(1) any right to subrogation or indemnification, and other right to payment
from or reimbursement by Borrower in connection with or as a consequence of
any payment made by Guarantor hereunder, (2) any right to enforce any right or
remedy which BLT has or may hereafter have against Borrower, and (1) any
benefit of, and any right to participate in: (a) any collateral now or
hereafter held by BLT, or (b) any payment to BLT by, or collection by BLT from
Borrower.
Any demand on or notice to the Guarantor shall be in writing and shall be
effective when handed to the Guarantor or left at or mailed to the Guarantor's
usual or last-known address.
No provision of this Guaranty can be changed, waived or discharge except by an
instrument in writing signed by BLT and the Guarantor expressly referring to
the provision of this Guaranty to which such instrument relates, and no such
waiver shall extent to, affect, or impair any right with respect to any
Obligation which is not expressly dealt with therein. No course of dealing or
delay or omission on the part of BLT in exercising any right shall operate as
a waiver thereof or otherwise be prejudicial thereto.
This Guaranty has been made in, and shall be construed in accordance with the
laws of the Commonwealth of Massachusetts and the obligations, rights and
remedies of the parties hereunder shrill be determined in accordance with the
internal laws of the Commonwealth of Massachusetts without regard to any
conflicts of laws provisions and shall take effect as an instrument under
seal.. ANY LEGAL ACTION 0R PROCEEDING WITH RESPECT TO THIS GUARANTY SHALL BL
BROUGHT IN ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COMMONWEALTH OF
MASSACHUSETTS EXCLUSIVELY AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE
PARTIES IRREVOCABLY CONSENT EACH FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO
THE JURISDICTION OF THOSE, COURTS.
THE PARTIES IRREVOCABLY WAIVE ANY OBJECTION, INCLUDING ANY OBJECTION TO THE
LAYING OF VENUE OR BASED ON THE GROUNDS Of FORUM NON CONVENIENS WHICH EITHER
MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH
JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO, AND
AGREE THAT ANY FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER JURISDICTION BY SUIT ON THE
JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. THE PARTIES WAIVE THE RIGHT
TO TRIAL BY JURY IN ANY ACTION ARISING OUT OF THIS GUARANTY. This Guaranty and
shall inure to the benefit of BLT and its successors in title and assigns, and
shall be binding on the Guarantor and the Guarantor's heirs, assigns and legal
representatives.
IN WITNESS WHEREOF, the Guarantor has executed this Guaranty or has caused
this Guaranty to be executed on its behalf by an officer or other person
thereunto duly authorized on the 5th day of August , 1997.
WITNESS By: /S/ Gerard A. Powell
---------------------
Gerard A. Powell, Individually
Boyle Leasing Technologies, Inc.
July 15, 1997
Mr. Gerard Armond Powell, CEO
Cooperative Images Inc./Elective Investments
210 West Fourth Street Suite 101
East Stroudsburg, PA 18301
Dear Mr. Powell:
On behalf of Boyle Leasing Technologies, Inc. ("BLT"), we are pleased to
inform you of BLT `s commitment to provide financing to Cooperative Images
Inc./ Elective Investments (the "Borrower") upon the terms and subject to the
conditions set forth below.
The principal terms and conditions of the proposed financing are as follows:
Borrower: Cooperative Images Inc./Elective Investments ("CIEI")
Guarantor: Mr. Gerard Armond Powell (to be capped at $1,000,000 after 12
months of satisfactory Consumer Note portfolio performance).
Amount: $6,000,000.
Facility: Secured Revolving/Term Line of Credit:
Purpose: Support of Consumer Note Portfolio.
Security: First lien on Consumer Note agreements and an assignment of those
Consumer Note agreement receivables: Lock-Box facility for cash receipts on
secured portfolio; cash holdback pool.
Line Maturity: One year from closing.
Satisfactory shall mean in accordance with Article 'B' of the covenants of
this agreement.
Collateral: Individual Consumer Notes; Cash.
Eligible Consumer Notes: Individual Notes must be current on borrowing date;
Notes must be under 90 days past due to be eligible thereafter; initial term
must be no more than 48 months (with no more than 10% of portfolio with
original term greater than 36 months at any time); amount financed per
individual Note not to exceed $10,000.
Collateral Base: 95% of remaining payments on Eligible Consumer Note Pool
discounted at 20% annual interest rate compounded monthly (Net Present Value
(NPV)); Collateral Base value not to fall below outstanding loan balance
calculated on a monthly basis - if this occurs CIEI must pledge additional
Note contracts or repay principal to fill shortfall.
CIEI Repayment: CIEI term equal to average remaining term of Consumer Note
portfolio presented for funding (rounded to the Nearest whole number), less
three months.
Interest Rate/Fees: 20%
Advance Rate: 95% of NPV; 5% cash holdback on each individual Consumer Note
"batch' borrowing (holdback to be released upon each individual "batch" of
Consumer Notes paid off).
Optional Prepayment: Without penalty at any time.
Covenants: Those covenants which are customary to this type of transaction,
including, but not limited to, the following:
(A) Minimum Tangible Net Worth of $75,000, as a base amount, stepping up by
100% of net income per quarter after 9/30/97, not to be reduced for losses;
(B) Minimum cash flow coverage of 75% of all expected Note payments to
lock-box generated on pledged portfolio in any such fiscal month;
(C) Borrower will notify BLT promptly of any event of default or material
adverse change in its business or financial position;
(D) Provision of Consolidated monthly (unaudited) and annual (audited - BLT
approved CPA) financial statements (including cash flows), monthly covenant
compliance certificates, monthly agings, annual projections and budgets and
other information as reasonably requested;
(E) Inspection of the Borrower's properties, books and records as requested,
including periodic reviews by BLT;
(F) Indemnification from Borrower;
(G) Payment of all expenses, including, without limitation, filings,
inspection exams, and attorneys' fees and disbursements. Except in a case
where BLT causes the loan not to close. In such case BLT will be responsible
for all fees.
Conditions: Those conditions which are customary to this type of transaction,
including, but not limited to, the following:
(B) All matters which BLT would deem material to its Credit decision will have
been disclosed to BLT and all exceptions to the representations and warranties
in the Business Loan Agreement shall be acceptable to BLT in Its sole
discretion;
C) Review of Consumer Note documents underlying the Borrower's receivables and
of documents evidencing existing indebtedness, which review shall be
satisfactory to BLT in its sole discretion;
D) Reference checking of the Borrower satisfactory to BLT in its sole
discretion;
(E) No change in the capital structure of the Borrower;
F) The Business Loan Agreement shall have been executed and delivered, the
conditions set forth herein and therein shall have been satisfied and the
transactions contemplated hereby and thereby shall have been consummated by
August 15, 1997;
G) GLT shall have received a legal opinion from Borrower's counsel in form and
substance satisfactory To BLT and covering such matters (including due
authorization, enforceability and perfection) as BLT shall require;
(H) No material adverse change in the assets, business or financial condition
of the Borrower;
I) No litigation pending or threatened which in BLT's judgment would adversely
affect the proposed financing or business of the Borrower after the
transaction;
J) All necessary filings and recordings against the collateral shall have been
completed in a manner mutually acceptable to BLT and the Borrower;
K) The Borrower shall have received all necessary Federal, State and Local
regulatory approvals, if any, and shall be in compliance with all applicable
laws and regulations;
L) BLT shall have received such other information, documents, opinions and
certificates as it shall reasonably request;
M) Jurisdiction is the State of Massachusetts.
This letter does not constitute a binding offer, agreement or commitment to
lend. Such a commitment will exist only after negotiation, execution and
delivery of a Business Loan Agreement and related documents and satisfaction
of the conditions to be specified in the Business Loan Agreement and related
documents as well as the conditions set forth above in this letter.
The Borrower agrees to indemnify and hold harmless BLT and its directors,
officers, agents, subsidiaries and affiliates from and against any and all
damages, losses, claims and liabilities (including attorneys' fees and
expenses) to which any such person may become subject arising out of or in
connection with this letter or the transactions contemplated hereby (whether
or not such transactions are :consummated), provided that the foregoing
indemnity person to the extent its losses, claims, damages or liabilities are
found by a final judgment of a court to have resulted from the willful
misconduct or gross negligence of such indemnified person.
The Borrower agrees to pay or reimburse BLT for all of BLT's reasonable
expenses incurred in connection with this letter and the transactions
contemplated hereby (whether or not such transactions are consummated),
including, without limitation, the fees and expenses of BLT's counsel,
examination expenses, and reasonable miscellaneous expenses incurred in
connection with the drafting, negotiation, and delivery of loan documents and
necessary filings. See Article
G of Covenants.
If the foregoing is satisfactory to you, please evidence your acceptance of
this letter by signing and returning the enclosed copy of this letter to us
not later than July 31, 1997.
Sincerely yours, Accepted:
Cooperative Images,
Inc./
Elective Investment
/s/ J. Gregory Hines
J. Gregory Hines By: /s/ Gerard A. Powell
Vice President Gerard A. Powell, CEO
May 20, 1998
Mr. Gerard Armond Powell, CEO
Cooperative Images Inc./Elective Investments
210 West Fourth Street Suite 101
East Stroudsburg, PA 18301
Dear Mr. Powell:
Per our conversation the following is a summation of the financing available
to Cooperative Images Inc./Elective Investments (the "Borrower") from Boyle
Leasing Technologies, Inc./Leasecomm Corporation upon the terms and subject to
the conditions set forth below.
The principal terms and conditions of the proposed financing are as follows:
LINE OF CREDIT
Borrower: Cooperative Images Inc./Elective Investments ("CIEI").
Guarantor: Mr. Gerard Armond Powell
Amount: $8,000,000.
Facility: Secured Revolving/Term Line of Credit.
Purpose: Support of Consumer Note Portfolio.
Security: First lien on Consumer Note agreements and an Assignment of those
Consumer Note agreement receivables: Lock-Box facility for cash
receipts on secured portfolio; cash holdback pool.
Line Maturity: August 1, 1998.
Collateral: Individual Consumer Notes; Cash.
Eligible Consumer Notes: Individual Notes must be current on borrowing date;
Notes must be under 90 days past due to be eligible thereafter; initial term
must be no more than 48 months (with no more than 20% of portfolio with
original term greater than 36 months at any time); amount financed per
individual Note not to exceed $10,000.
Collateral Base: 95% of remaining payments on Eligible Consumer Note Pool
discounted at 20% annual interest rate compounded monthly (Net Present Value
(NPV)); Collateral Base value not to fall below outstanding loan balance
calculated on a monthly basis - if this occurs CIEI must pledge additional
Note contracts or repay principal to fill shortfall.
CIEI Repayment: CIEI term equal to average remaining term of Consumer Note
portfolio presented for funding (rounded to the nearest whole number).Interest
Rate/Fees: 20%
Advance Rate: 95% of NPV; 5% cash holdback on each individual Consumer Note
batch' borrowing (holdback to be released upon each individual `batch' of
Consumer Notes paid off).
Optional Prepayment: Without penalty at any time.
Additional Covenants: Those covenants that are customary to this type of
transaction, including, but not limited to, the following: Sale of a minimum
of $3MM of existing paper under BLT financed Line of Credit to an outside
source of funding.
Of note, our Business Loan Agreement dated August 5, 1997 is in full force and
effect.
The Borrower agrees to indemnify and hold harmless BLT and its directors,
officers, agents, subsidiaries and affiliates from and against any and all
damages, losses, claims and liabilities (including attorneys' fees and
expenses) to which any such person may become subject arising out of or in
connection with this letter or the transactions contemplated hereby (whether
or not such transactions are consummated), provided that the foregoing
indemnity person to the extent its losses, claims, damages or liabilities are
found by a final judgment of a court to have resulted from the willful
misconduct or gross negligence of such indemnified person.
If the foregoing is satisfactory to you, please evidence your acceptance of
this letter by signing and returning the enclosed copy of this letter to us
not later than May 31, 1998.
Sincerely yours, Accepted:
Cooperative Images, Inc./
Elective Investments
/s/ J. Gregory Hines
- --------------------
J. Gregory Hines By: /s/ Gerard A. Powell
Vice President Gerard A. Powell, CEO
Cc: PRB, RFL
May 22, 1998
Mr. Gerard Armond Powell, CEO
Cooperative Images Inc./Elective Investments
210 West Fourth Street Suite 101
East Stroudsburg Pa 18301
Dear Mr. Powell:
Per our conversation the following is a summation of the parameters in the
purchase of contracts from Cooperative Images Inc-/Elective Investments (CIEI)
to Boyle Leashing Technologies, Inc./Leasecomm Corporation (BLT) upon the
terms and subject to the: conditions act forth below.
The principal terms and conditions of the proposed purchase are as follows:
Seller: Cooperative Images Inc./Elective Investments
Amount: Approximately $1,000,000 per month with a minimum of $500,000 per
month.
Agreement Length: Three years from closing date.
Eligible Consumer Notes: Individual Notes must be current on sole date; BLT
mute approve all documentation and State Venue prior to purchase
Purchase Price: Equal to the Net Present Value of the remaining stream of
Payments discounted at 18.5% (assuming 22.5% average interest rate on notes).
Holdback: 5.5% holdback to be released to Seller after individual pools of
transactions are paid.
Recourse: 2.0% additional recourse above the $.5% Holdback.
Charge Back: Contracts will be repurchased by CIEI after 120 days past due;
Charge Back amount will be equal to remaining Account Balance Due plus
uninvoiced future payments discounted at 18.5%.
Underwriting Criteria: Individuals must score 640 or above on 70% of the
portfolio with the remaining transactions scoring 620 and above using the Fair
Isaac or other BLT approved scoring system. BLT has right of refusal on any
transaction submitted for funding
Of note, the purchase of contracts from CIEI does not take the place of our
Business Loan Agreement dated August 5, 1997. This is a separate and distinct
agreement.
The Seller agrees to enter to a standard Dealer/Vendor Agreement and agrees to
indemnify and hold harmless BLT and its directors, officers, agents,
subsidiaries and affiliates from and against any and all damages, losses,
claims and liabilities (including attorneys' fees and expenses) to which any
such person may become subject arising out of or in connection with this
letter or the transactions contemplated hereby (whether or not such
transactions are consummated), provided that the foregoing indemnity person
try the extent its losses, claims, damages or liabilities are found by a final
judgment of a court to have resulted from the willful misconduct or gross
negligence of such indemnified person.
If the foregoing is satisfactory to you, please evidence your acceptance of
this letter by signing and returning the enclosed copy of this letter to us
not later than May 31, 1998.
Sincerely yours, Accepted:
Cooperative images, Inc./
Elective c Investments
/s/ J. Gregory Hines
J. Gregory Hines By: /s/ Gerard A. Powell
Vice. President Gerard A. Powell, CEO
Cc: FRB, RFL.
Additional Items
1) Credit line for 3 million no holdback 90% advance rate 15% interest rate.
2) Will buy 1 million additional in paper (FICO) scores 560-619 for 75% of
face value, this is one million a month in addition to the million previously
provided.
3) Will recast the portion of the old line that is left outstanding after we
well the balance to a 3rd party (extend loan by three months).
BLT Boyle Leasing Technologies. Inc.
June 10, 1998
Mr. Gerard Armond Powell, CEO
Cooperative Images Inc./Elective Investments
210 West Fourth Street Suite 101
East Stroudsburg, PA 18301
RE: Purchase Line
Dear Mr. Powell:
Per our conversation the following is a summation of the parameters in the
purchase of contracts from Cooperative Images Inc./Elective Investments (CIEI)
to Boyle Leasing Technologies, Inc./Leasecomm Corporation (BLT) upon the terms
and subject to the conditions set forth below.
The principal terms and conditions of the proposed purchase are as follows:
Seller. Cooperative Images Inc./Elective Investments
Amount: A minimum of $1,000,000 of fundings per month.
Servicer: BLT
Agreement Length: Two years from closing date.
Eligible Consumer Notes: Individual Notes must be current on sale date; BLT
must approve submitted procedure, all documentation and State Venue prior to
purchase.
Purchase Price: Equal to the Net Present Value of the remaining stream of
payments discounted at 18.5% (assuming 22.5% average interest rate on notes).
Holdback: 5.5% holdback to be released to Seller after individual pools of
transactions are paid.
Recourse: 2.0% additional recourse above the 5.5% Holdback.
Charge Back: Contracts will be repurchased by CIEI after 120 days past due;
Charge Back amount will be equal to remaining. Account Balance Due plus
uninvoiced future payments discounted at 18.5%.
Underwriting Criteria: Individuals must score 640 or above on 70% of the
portfolio with the remaining transactions scoring 620 and above using the Fair
Isaac or other BLT approved scoring system. Maximum terms equal to 48 months
(liposuction maximum 36 months). BLT has right of refusal on the first
$500,000 submitted for funding monthly under this criteria. In addition, BLT
may choose not to fund any transaction that does not meet BLT approval
specifications.
Additional transactions with scores below 620 may be purchased at a minimum
23% discount. Maximum terms equal to 36 months. Again, BLT has the right of
refusal on any transaction submitted for funding.
Of note, the purchase of contracts from CIEI does not take the place of our
Business Loan Agreement dated August 5, 1997. This is a separate and distinct
agreement.
The Seller agrees to enter into a standard Dealer/Vendor Agreement and agrees
to indemnify and hold harmless BLT and its directors, officers, agents,
subsidiaries and affiliates from and against any and all damages, losses,
claims and liabilities (including attorneys' fees and expenses) to which arty
such person may become subject arising out of or in connection with this
letter or the transactions contemplated hereby (whether or not such
transactions are consummated), provided that the foregoing indemnity person to
the extent its losses, claims, damages or liabilities are found by a final
judgment of a court to have resulted from the willful misconduct or gross
negligence of such indemnified person.
If the foregoing is satisfactory to you, please evidence your acceptance of
this letter by signing and returning the enclosed copy of this letter to us
not later than June 15, 1998.
Sincerely yours Accepted:
Cooperative Images, Inc./
Elective Investments
/s/ J. Gregory Hines
J.Gregory Hines By: /s/ Gerard A. Powell
Vice President Gerard A. Powell, CEO
Cc: PRB, RFL
January 29, 1999
Mr. Gerard Armond Powell, CEO
ThatLook.com (fka Cooperative Images Inc.)/Elective Investments Inc.
210 West Fourth Street Suite 101
East Stroudsburg, PA 18301
Dear Mr. Powell:
Per our conversation earlier this week I'd like to take the opportunity to
summarize and document the result of this discussion.
1) Purchase of transactions of a go forward basis
Leasecomm corporation will purchase contracts originated through thatlook.com
(fka Cooperative Images)/ Elective Investments (TL.COM/EI) under its' normal
credit guidelines. Leasecomm will grade applications into four groups;
P,S,T,R. We will no longer have a Holdback on any purchase and will increase
our discounts to purchase transactions as a percentage of Face Value (Loan
Balance) as follows:
P rated credit 96.5%
S rated credit 78.0%
T rated credit 68.0%
R rated credit Rejected
All other perimeters set forth in the Loan Documents entered into between
MicroFinancial Inc. (fka Boyle Leasing Technologies Inc.) and TL.COM/EI are in
full effect.
2) Loan summary
Leasecomm Corporation is in the process of un-batching the batched
transactions sent to us over the past year and a half. The essence of this
process is to better ascertain and monitor the collateral value of the pledged
assets and match the amortization of these assets with the actual cash flow
driven from these assets. It is imperative that we get timely reporting on the
performance and status of each of these transactions so we may better track
the status of each transaction on our system. This process dovetails with
Leasecomm modifying our system to handle simple interest consumer
transactions. This system will also be used to monitor purchased transactions
on a go forward basis.
3) TL.COM/EI has agreed to release to Leasecomm Corporation all
Holdback funds, from Loan and Purchase Line transactions. This does
not release TL.COM/EI from any obligation and is done in good faith to
account for the less than expected performance of the contracts
purchased or pledged to Leasecomm.
Please call with any questions.
Sincerely yours, Accepted:
/s/ J. Gregory Hines
J. Gregory Hines By: /s/ Gerard A. Powell
Vice President Gerard A. Powell, CEO
MFI/Leasecomm and thatlook.com
Agreement in Principle
This agreement in principal (the "Agreement") is by and between
MicroFinancial ("MFI") and any of its involved subsidiaries or affiliates
(e.g., Leasecomm) and thatlook.com ("THAT") and any of its involved
subsidiaries or affiliates (e.g., Elective Investments). It is intended by
all parties to this Agreement that it be global in nature and redefine all
of the rights and obligations that each of the involved parties have to one
another. This Agreement is an Agreement in Principle that is subject to the
final drafting and documentation of a Definitive Agreement. All
transactions contemplated herein will be effective as of December 31, 1999,
unless an earlier date is specified in the Definitive Agreement, even
though the Definitive Agreement may be executed at a date after December 3
1, 1999.
All dollar values specified herein are stipulated values that both parties
have agreed to, and are not subject to further adjustment or change unless
otherwise noted. Further, this document may be signed in counterparts with
full effect as if both parties signed a single original.
Upon Gerard Powell, Larry Simon and/or other such THAT Board members as may
do so agreeing to put additional capital into THAT (including, for purposes
of this Agreement, capital put into THAT since December 1, 1999), MFI and
THAT agree that the following will occur simultaneously:
I .MFI takes over all billing and collection responsibility for loans
pledged against the Credit Line, and releases THAT from all further
obligations relating to these loans and the Credit Line, including
further payments of principal or interest.
2.MFI and THAT agree that the collateral shortfall on the Credit Line is
$1,873,297 (the "Shortfall").
3 .The Shortfall will be converted to Convertible Subordinated Debt ("CSD")
of $1,873,297 with the following characteristics:
Term: 5 years from effective date of documents
Interest Rate: 5% annual rate
Interest Payments: Made monthly, in arrears, no later than the 10th
calendar
day of the month immediately following.
Principal Repayment: Balloon payment upon maturity, if no converted or
repaid
previously.
Conversion Rights: At MFI's sole option, MFI can convert any amount or all
of
the CSD to common equity of THAT at the rate of $ 1. 00
per share("Conversion Price") during the Term of the
loan.
Prepayment Rights: THAT may prepay the CSD at any time with no penalties.
In
order to exercise this Prepayment Right, THAT must give
MFI advance notice of intent to prepay of at least 20
business days, during which time MFI can, at its sole
choosing, exercise any or all of its Conversion Rights.
Registration Rights: See below for separate discussion.
Anti-Dilution Rights: See below for separate discussion.
MFI/THAT Agreement in Principal Page 1 of 4
4. THAT has an outstanding note payable ("Demand Note") to MFI, in which the
principal amount owed, plus accrued interest unpaid totals $12,805.
Gerard A. Powell, President of THAT, ("Powell") agrees to buy this
note for $12,805 from MFI paid in good funds at closing. This purchase
in no way relieves Powell of any or all personal guarantees he may have
made to MFI from time to time.
5. All remaining obligations and debts from THAT to MFI ("Other Debts") are
agreed to be as follows:
Past due interest on Credit Line $255,000
2% Recourse Provision on purchased loans $210,923
Recourse Provision on full-recourse purchased loans $37,800
--------
Total Other Debts $503,723
6. The Other Debts are converted to common equity at the same rate as the
Conversion Price for the Convertible Subordinated Debt, or $1.00 per
share. These shares carry the registration rights and anti-dilution
protection as discussed below.
7. MFI is granted full piggyback registration rights it may exercise on the
shares issued in lieu of satisfaction of the Other Debts and on the
shares underlying the Convertible Subordinated Debt in the event,
without regard to when, THAT executes a substantial, underwritten
secondary offering. In this case, substantial shall mean one resulting in
net proceeds to THAT of $10 million or more ("Offering").
Further, MFI is granted priority and first position as a selling
shareholder, should such Offering occur, to the extent it owns either
shares or CSD at such time. Such priority rights are subject to the
Underwriter's agreement and ability to include such shares in the Offering.
Further, MFI's priority rights under this paragraph are limited to
receiving $2,377,020 (the total of the Shortfall and Other Debts, as
herein defined) in net proceeds from such Offering.
To the extent that the Underwriter is able and to the extent that MFI
wishes to participate further as a selling shareholder in any such
Offering, MFI is granted a priority over shares owned directly,
indirectly, beneficially or deemed to be controlled by Gerard A. Powell,
Vincent Trapasso, and/or Charlie Lynn Trapasso.
8. The shares to be issued for the Other Debts, as well as the shares
underlying the Convertible Subordinated Debt, are restricted from
resale for a period of two (2) years from the date of this Agreement.
After this period of two years has elapsed, MFI has full demand
registration rights on both sets of shares in the amount to be
determined solely by MFI, with such demands to be limited to once per
year during the remaining term of the CSD.
By point of clarification, the rights described in paragraph #7 above
take priority over the restrictions described in this paragraph #8 to
the extent that an Offering occurs prior to two years from the date of
this Agreement.
9. MfI is to be protected from dilution by stock splits or stock dividends.
MFI is granted additional dilution protection as follows:
MFI/THAT Agreement in Principal Page 2 of 4
a.In the event THAT is sold to another entity or sells substantially
all of its assets at a price per share, actual or implied, lower
than the Conversion Price, as defined in Paragraph #3 above, then
the Conversion Price on both the CSD and the Other Debts shall be
retroactively adjusted downward to equal the actual or implied price
attending any such sale.
b.To the extent THAT sells common or preferred stock, or any form of
debt carrying a conversion to common stock feature to an Insider
after March 31, 2000 wherein the price per share, actual or
implied, is less than the Conversion Price, as defined in Paragraph 93
above, then the Conversion Price shall be adjusted to equal this new,
lower figure. For purposes of this Agreement, "Insider" shall be
defined to mean Gerard A. Powell, Vincent Trapasso, Charlie Lynn Trapasso,
Saul Epstein, Richard Gwinn, Lawrence. T. Simon, any of their families and/or
any entity in which they have a direct, indirect or beneficial interest.
10. All payments, interest and principal, received from Pilot Financial
regarding the purchase and sale agreement dated _______, that THAT has
received or may receive in the future shall be immediately paid t) MFI. As of
the date of this Agreement, it is agreed that such payments to date total
$2,540.28, with such sum to be paid by THAT to MFI upon closing.
11. The purchase and sale agreement between THAT and Pilot Financial is
assigned to MFI.
12. Powell and Charlie Lynn and/or Vincent Trapasso (the "Trapassos") have
lent monies to THAT from time to time in the past. The principal and
accrued interest outstanding owed to Powell as of December 31, 1999 is
approximately $225,000, exclusive of the Demand Note purchased from
MFI, and the principal and accrued interest outstanding owed to the
Trapassos, individually or collectively, as of the same date is
approximately $25,000.
Prior to closing on the Definitive Agreement, Marvin Metzger, the THAT CFO,
will give to the parties involved in drafting the Definitive Agreement the
exact figures for inclusion therein.
Powell and the Trapassos agree to convert such monies owed to them by
THAT, including the Demand Note (valued at $12,805, including accrued
interest) that Powell is buying from MFI at closing, into equity at
closing at the rate of $1.00 per share. This equity so converted will
not carry any registration, selling shareholder (in the event of an
Offering, as previously defined) or anti-dilution rights.
13. THAT agrees that it will notify MFI within five (5) business days of any
Board of Directors meeting wherein a vote is taken, whether or not
such vote results in a formal Board Resolution, regarding actions THAT
management is directed or empowered to take regarding any
capital-related transaction. "Capital-related transaction" shall be
construed to include any form of debt, equity or hybrid combination
thereof For purposes herein, "notify" shall mean transmission to MFI
via facsimile, hard copy delivered via US Postal or other messenger
service, or electronic transmission via e-mail of the section(s) of the
Board Meeting minutes relating solely to any capital-related
transactions, and a copy of the corresponding Board Resolution if such
resolution is done.
MFI/THAT Agreement in Principal Page 3 of 4
Further, THAT agrees to notify MFI of any and all cash compensation, grants
or other payments totaling more than $5,000 in any given quarter made to
any of the THAT outside Board members, their families or other entities
over which such members or their families have direct or indirect control.
Such notification is to be made no later than ten(10)business days after the
close of each calendar quarter. Also, THAT will issue such a statement to MFI
on
this time schedule indicating no such payments have been made, if such has
been the case during the preceding calendar quarter.
Signed, this 29th day of December, 1999
/s/ Gerard A. Powell, /s/ Peter von Bleyleben
President, thatlook.com, inc. President, MicroFinancial,
Inc.
MFI/THAT Agreement in Principal Page 4 of
4
SETTLEMENT AGREEMENT AND RELEASE
TI-HS SETTLEMENT AGREEMENT AND RELEASE (this "Agreement") is
dated as of December 31, 1999 by and among thatlook.com, a Nevada
corporation (the "Company"); MicroFinanciaL Inc., a Massachusetts corporation
("MicroFinancial"); Leasecomm Corp., a wholly-owned subsidiary of
MicroFinancial "Leasecomm"); Gerard A. Powell ("Powell"); and Vincent Trapasso
and Charlie Lynn Trapasso (together, the "Trapassos"). As used herein, the
term "Company" shall include Elective Investments, unless the context
otherwise requires, and the term MicroFinancial shall include Leasecomm,
unless the context otherwise requires.
WHEREAS, the Company has a collateral shortfall under a credit fine
("Credit Line") extended by MicroFinancial (the "Shortfall");
WHEREAS, pursuant to an outstanding note payable to MicroFinancial
dated April 14, 1998, the Company owes MicroFinancial certain amounts as of
December 31, 1999 (the "Demand Note");
WHEREAS, pursuant to the terms of the Credit Line, the Company owes
MicroFinancial certain other amounts as of December 31, 1999 (the "Other
Debt");
WHEREAS, pursuant to various loans, the Company owes Powell and the
Trapassos certain amounts of December 31, 1999; and
WHEREAS, the parties hereto desire to settle fully and finally all
claims and outstanding obligations upon the terms and subject to the
conditions set forth herein.
NOW THEREFORE, in consideration of the foregoing premises, and
for other good and variable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto, intending to be legally
bound, hereby agree as follows:
A.Settlement
I . MicroFinancial hereby expressly assumes and agrees to
perform, and the Company assigns to MicroFinanciaL all of the Company's
rights, relating to the underlying contracts/collateral among under the
Credit Line; MicroFinancial shall assume any and all billing, accounting and
collection obligations with respect to any such contracts/collateral, and
irrevocably release the Company from any obligation or liability to make
any payment of principal or interest with respect thereto. The Company
hereby assigns to MicroFinancial all of its right, title and interest in
and to any proceeds of any such contracts/collateral. The Company represents
and warrants that the contracts relating to the undergo collateral are
valid, legally enforceable and are in accordance with all local, state and
federal laws.
S\3W958\4
2. Powell hereby agrees to pay $12,805 to MicroFinancial and to
assume, and MicroFinancial agrees to assign to Powell all its right, title and
interest under the Demand Note, without recourse. Not withstanding the mutual
releases set forth below, the purchase of the Demand Note by Powell, or any
other provision hereof shall not relieve Powell of any personal guarantees
that he may have made, from time to time, to MicroFinancial.
3. MicroFinancial expressly assumes and agrees to perform and
the Company hereby assigns to MicroFinancial, the purchase and sale
agreement, dated August 20, 1999, between the Company and Pilot Financial
without recourse to the Company. MicroFinancial shall perform any and all
obligations of the Company related to any of the foregoing. The Company hereby
pays to MicroFinancial $3,789.60, representing all payments received by the
Company after September 15, 1999 and before the date hereof with respect to
such agreement.
4. ALL of the re debt obligations owed by the Company to
Leasecomm or MicroFinancial shall be converted in full, final and complete
settlement of such obligations as follows:
a. The Company hereby issues to MicroFinancial its
Convertible Subordinated Debenture, in the form attached hereto, in the
initial principal amount of $1,873,297 (the "Debenture").
b. The Company hereby issues to MicroFinancial 503,723
shares of its Common Stock. To the extent that the Company is required to
adjust the number of shares of its Common Stock issuable under the
Debenture, the Company shall issue to MicroFinancial an additional number of
shares equal to the additional number of shares for which the Debenture
would be convertible by reason of such adjustments, calculated on the
assumption that the initial principal amount of the Debenture was $503,723.
All such shares, when issued, will be duly authorized, fully paid and
non-assessable by the Company.
5. The Company hereby issues to Powell 226,118 shares of its
Common Stock, in exchange for the forgiveness and release of all of the
Company's indebtedness to Powell including, without limitation, all interest,
principal and other amounts due pursuant to the Demand Note, any other term or
demand notes the Company to Powell and any other obligations the Company
may have to Powell with respect to borrowed money as of December 31, 1999.
Powell acknowledges that such shares are not registered, do not carry any
registration rights and shall bear a restrictive legend as set forth in
Section C(l)(h).
6. The Company hereby issues to Vincent Traspasso 27,628
shares of its Common Stock, in exchange for the forgiveness and release of
all of the Company's indebtedness to him, including, without limitation all
interest, principal and other amounts due pursuant to any term or demand
notes the Company issued to him, and any other obligation the Company may
have to him with respect to borrowed money as of December 31, 1999. Vincent
Traspasso acknowledges that such shares are not registered, do not carry any
registration rights and shall bear a restrictive legend as set forth in
Section C(l)(h).
7. The Company shall notify MicroFinancial within five (5)
business days following a vote of the Board of Directors with respect to
any Capital-Related Transaction (as defined below). Such notification shall
include a copy of the minutes from the Board meeting
Settlement Agreement and Release Page 2 of 13
wherein a vote was taken upon such transaction. In addition, the Company
shall notify MicroFinancial within ten (IO) business days following any cash
payments in excess of $5,000 made by the Company in any fiscal quarter to any
member of
the Company's Board of Directors, their immediate families or other
entities over which such member or their families have control whether
direct or indirect. The term "Capital-Related Transaction" shall mean the
issuance of any equity or debt securities by the Company (other than
pursuant to the exercise of options previously granted).
B. Release
I . Subject to and upon the date of this Agreement,
MicroFinancial and Leasecomm hereby release, remise, and forever discharge
the Company, Powell and the Trapassos and their respective current and
former administrators, assigns, predecessors, successors, employees,
shareholders, agents, servants, officers, directors, parents, affiliates
and subsidiaries, of and from any and all debts, demands, actions, causes of
action, suits, damages, costs, claims and liabilities whatsoever of every
name and nature, whether known or unknown, fixed or contingent, accrued or
unaccrued, that MicroFinancial and Leasecomm or any of their subsidiaries,
affiliates, officers, directors or shareholders now have or ever had or may
in the future have against any of the foregoing arising out of or relating to
any action or omission occurring prior to the date hereof including,
without limitation, all obligations under the Credit Line, Demand Note, Other
Debt and the Shortfall (but excluding any claims arising out of or pursuant
to this Settlement Agreement and the Debenture).
2. Subject to and upon the date of this Agreement, the
Company, Powell and the Trapassos hereby release,remise, and forever discharge
MicroFinancial and Leasecomm and their respective current and former
administrators, assigns, predecessors, successors, employees, shareholders,
agents, servants, officers, directors, parents, affiliates and
subsidiaries, of and from any and all debts, demands, actions, causes of
action, damages, costs, claims and liabilities whatsoever of every form and
nature, whether known or unknown, fixed or contingent, accrued or unaccrued
that the Company, Powell and the Trapassos or any of their subsidiaries,
affiliates, officers, directors or shareholders now have or ever had or may
in the future have against MicroFinancial and Leasecomm arising out of or
relating to any action or omission occurring prior to the date hereof (but
excluding any claims arising out of or pursuant to this Settlement Agreement
and the Debenture).
3. Notwithstanding the mutual releases contained herein,
MicroFinancial and Leasecomm do not release the Company from and the Company
shall remain obligated to MicroFinancial and Leasecomm with respect to its
obligations under the Dealer Agreement dated August 1998 to repurchase
consumer loans sold to MicroFinancial and or Leasecomm in the past or future
specifically but not limited to wherein the borrower to make the first
payment on the loans ("First Payment Default"), and the Company does not
release MicroFinancial and Leasecomm with respect to such agreement. The
rights and obligations of the parties under the Dealer Agreement shall
remain in full force and effect.
Representations and Warranties
Settlement Agreement and Release Page 3 of 13
1. MicroFinancial, Leasecomm Powell and the Trapassos
(collectively, the "Investors") acknowledge that the issuance of the
Debenture and the shares of the Company's Common Stock (the "Securities")
pursuant to this Agreement is intended to be exempt from registration under
the 1933 Act by virtue of Section 4(2) of the 1933 Act and a comparable
exemption from qualification under the applicable state securities laws. In
accordance therewith and in furtherance thereof the Investors makes the
following representations to the Company and acknowledge that the Company's
reliance on federal and state securities law exemptions from registration
and qualification is predicated, in substantial part, upon the accuracy of
these representations. The Investors severally and not jointly represent
and warrant to the Company that:
a. The Investors are acquiring Securities solely for
their respective accounts, for investment purposes only, and not with a
view to or for sale in connection with any unregistered distribution.
b. In evaluating the merits and risks of an investment
in the Securities, the Investors have and will rely upon the advice of
their own legal counsel tax advisors and/or investment advisors.
C. The Investors are knowledgeable about the Company and
have a preexisting personal or business relationship with the Company. As a
result of this relationship, the Investors are with, among other things,
the Company's business and financial circles and have access on a regular
basis to or may request information material to the Company's business,
financial condition and operations. By accepting the Securities, the Investors
agree to maintain the confidentiality of any and all information of the
Company in connection with either the services rendered by the Investors or
the Securities.
d. The Investors understand and acknowledge that the
Securities are non-transferable and may be of no practical value. The
Investors other understand and acknowledge that their investment in the
Company involves a high degree of risk and is suitable only for investors
of substantial means who have no immediate need for liquidity of the amount
invested, and that such investment involves a risk of loss of all or a
substantial part of such investment.
e. The Investors under that, under existing laws and
circumstances, the Securities acquired are "restricted securities under
the federal securities laws and that under such laws and applicable
regulations the Securities may not be resold without registration under the
1933 Act except as provided herein and in certain limited, other circumstances
and after satisfaction of a minimum holding period requirement. The
Investors acknowledge receiving a copy of Rule 144 promulgated under the
1933 Act, as presently in effect, and represent that they are familiar with
and will comply with the conditions of Rule 144 and the resale limitations
imposed thereby, by the 1933 Act and by applicable Pennsylvania or other
securities laws, as well as other restrictions in this Agreement.
f At no time was an oral representation made to the
Investors relating to the issuance of the Securities hereunder or the value
of the Securities, and the
Settlement Agreement and Release Page 4 of 13
investors were not presented with any promotional material or solicited at
any promotional meeting relating to the Securities.
9- The Investors have no need for liquidity in this
investment and have the ability bear the economic risk of this investment.
h. The Investors understand and acknowledge that any
certificate evidencing the Securities (or evidencing any other securities
issued with respect thereto pursuant to any stock split, stock dividend,
merger or other form of reorganization or recapitalization)if and when
issued shall bear, in addition to any other legends which may be required by
any other applicable securities laws, the following legends:
"OWNERSHIP OF TI-HS CERTIFICATE, THE SHARES EVIDENCED BY THIS
CERTIFICATE AND ANY INTEREST THEREIN ARE SUBJECT TO SUBSTANTIAL
RESTRICTIONS ON TRANSFER UNDER APPLICABLE LAW AND UNDER AGREEMENTS WITH THE
COMPANY, INCLUDING RESTRICTIONS ON SALE, ASSIGNMENT, TRANSFER, PLEDGE OR
OTHER DISPOSITION."
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED OR
QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS AMENDED "ACT"), NOR HAVE
THEY BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE.
NO TRANSFER OF SUCH SECURITIES WILL BE PERMITTED UNLESS A REGISTRATION
STATEMENT UNDER THE ACT IS IN EFFECT AS TO SUCH TRANSFER, THE TRANSFER IS
MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR IN THE OPINION OF
COUNSEL TO THE COMPANY, REGISTRATION UNDER THE ACT IS UNNECESSARY IN ORDER
FOR SUCH TRANSFER TO COMPANY WITH THE ACT AND WITH APPLICABLE STATE
SECURITIES LAWS."
2. The Investors further severally and not jointly represent
and warrant to the Company that:
a. The Investors have the absolute and unrestricted
right, power, authority and capacity to execute and deliver this Agreement
and perform their obligations hereunder and to transfer and convert the
outstanding debts owed to them by the Company as contemplated by this
Agreement.
b. This Agreement has been duly authorized, executed and
delivered by the Investors and constitutes as their legal valid and binding
obligation, enforceable against each of them in accordance with its terms.
C. This Agreement and the transactions contemplated
hereby do not conflict with or constitute a breach of or a default under
(i) any applicable Certificate of Incorporation or By-Laws of the Investors,
(ii) any applicable law or any applicable rule, judgment, order, writ,
injunction or decree of any court, (iii) any applicable rule or regulation
of any administrative agency or other governmental authority or (iv) any
applicable agreement, indenture, contract or instrument to which the Investors
are a party or by which they are bound.
Settlement Agreement and Release Page 5 of 13
3. The Company represents and warrants to the Investors that:
a. The Company has the corporate power and authority to
execute,
deliver and perform this Agreement and to execute, deliver and perform all
other documents and instruments required to be delivered by the Company.
b. This Agreement and the Debenture have been duly
authorized, executed and delivered by the Company. This Agreement and the
Debenture are, and when executed and delivered by the Company will be, the
legal valid and binding obligations of the Company, enforceable against the
Company in accordance with their respective terms.
C. Neither the execution or delivery of this Agreement
or the Debenture by the Company, nor the performance by the Company of the
transactions contemplated hereby and thereby, conflicts with, or constitutes a
breach of or a default under (i) the Certificate of Incorporation or
By-Laws of the Company, (ii) any applicable law or any applicable rule,
judgment, order, writ, injunction or decree of any court, (iii) any
applicable rule or regulation of any administrative agency or other
governmental authority or (iv) any applicable agreement, indenture,
contract or not to which the Company is a party or by which it is bound.
d. The shares of Common Stock to be issued by the Company
pursuant to this Agreement, when issued as contemplated herein, shall be
duly and validly authorized, fully paid and non-assessable.
D. Transfer Restrictions: Registration Rights
I. MicroFinancial shall have the following registration rights:
a. If the Company shall at any time prepare and file a
registration statement under the Securities Act of 1933, as amended (the
"1933 Act"), with respect to the public offering of any shares of Common
Stock Share:) which is intended to yield the Company net proceeds of $ 1
0,000,000 or more and which is not a registration to implement an employee
benefit plan, dividend reinvestment plan or a transaction to which Rule 145
(as promulgated under the 1933 Act) is applicable, the Company shall give 30
days prior written notice thereof to MicroFinancial and shall upon the written
request of MicroFinancial and subject to the other provisions of this
Agreement, include in the registration statement such number of Shares as
MicroFinancial may request. In the event the Company fails to receive a
written inclusion request from MicroFinancial within 20 days after the mailing
of its written notice, then the Company shall have no obligation to include
any such Shares in the offering. Any offering pursuant to this paragraph D(l)
shall be in accordance with the terms and procedures of subparagraphs
D(l)(c)-(h) below; provided however, these provisions shall be inoperative
to the extent provided in subparagraph D(l)(i) herein.
b. At any time, after December 31, 2001, MicroFinancial
may request that the Company effect a registration under the 1933 Act of
Shares then beneficially owned by MicroFinancial. Company shall not be
required
to register any Shares pursuant to this subparagraph D(l)(b) on more than
one occasion within any twelve-month period. A request for registration
pursuant to this subparagraph D(l)(b) shall specify the approximate number of
Shares
Settlement Agreement and Release Page 6 of 13
requested to be registered and the anticipated per share price range for such
offering. If MicroFinancial intends to distribute such shares by number of an
underwriting, it shall so advise the Company in its request; provided that
the underwriter selected shall be acceptable to the Company. In the event
such registration is underwritten, the right of any other persons who have
"piggybacked" registration rights to participate shall be conditioned on
such persons participation in such underwriting. Thereupon, the Company
shall: (i) file a registration statement and related documents with the
Securities and Exchange Commission, and all other applicable securities
agencies or exchanges, for the public offering and sale of all or a portion
of the Shares as requested; and (ii) use reasonable commercial efforts to
cause such registration statements to be decided effective as soon as
practicable after the request is received from MicroFinancial. Any offer
pursuant to this subparagraph D(l)(b) shall be in accordance with the terms
and procedures of subparagraphs D(l)(c)-(h) below.
C. The Company will keep such registration statement(s)
effective and current under the 1933 Act permitting the sale of
MicroFinancial's shares included therein for the same period that the
registration is maintained effective in respect of Shares of other persons
(including the Company), but not less than 180 days in the case of
subparagraph D(l)(b) if requested by MicroFinanciaL In any underwritten
offering
of Common Stock, such Shares to be included will be sold at the same time
and the same per-share price as the Company's Shares. In connection with
any registration statement or subsequent amendment or similar document filed
and
subject hereto, the Company shall take all reasonable steps to make
MicroFinancial's Shares covered thereby eligible for public offering and sale
under the securities or Blue Sky laws of such jurisdictions as may be
specified
by MicroFinancial by the effective date of such registration statement;
provided that in no event shall the Company be obligated to qualify to do
business in any jurisdiction where it is not so qualified at the time of
filing such documents, or to take any action which would subject it to service
of process in any jurisdiction where it is not so subject at such time. The
Company shall keep such Blue Sky filings current for the length of time it
must keep any registration statement, post-effective amendment, prospectus or
offering circular effective pursuant hereto.
d. In connection with any registration statement or
other filing described herein, and in connection with making and keeping such
filings effective as provided herein, the Company shall bear all the
expenses and professional fees of the Company of the registration,
including printing, filing and registration fees. The Company shall also
provide MicroFinancial with such number of printed copies of the prospectus,
offering circulars and/or supplemental or amended prospectuses in final and
preliminary form as MicroFinancial may reasonably request. The Company
consents to the use of each such prospectus or offering circular in connection
with the
sale of the Shares.
e. The Board of Directors may postpone or terminate any
registration under subparagraph D(l)(a) in its sole discretion. If the
Board of Directors of the Company, in its good faith judgment, determines that
any registration of Shares under subparagraph D(l)(b) should not be made or
continued because it would materially interfere with any material
financing, acquisition, corporation reorganization, or merger, involving
the Company or any of its subsidiaries (a Valid Business Reason), (i) the
Company may postpone filing a registration statement relating to a
registration
under subparagraph D(l)(b) until such Valid Business Reason no longer
exists, and (ii) in case a registration statement has been filed relating
to a registration
Settlement Agreement and Release Page 7 of 13
under subparagraph D(l)(b), the Company may cause such registration
statement to be withdrawn and its effectiveness terminated or tiny postpone
amending or supplementing such registration statement until the earlier of
90 days or when such Valid Business Reason no longer exists; provided that
in the event of a postponement or withdrawal under this subparagraph
D(l)(e), MicroFinancial shall not be charged with a piggyback registration
request or demand registration request, as applicable.
f It shall be a condition precedent to the obligations of
the Company to take any action under this paragraph D(l) with respect to
MicroFinancial's Shares that MicroFinancial shall furnish to the Company such
information regarding itself, the Shares held by it, and the intended method
of disposition of such Shares as shall be reasonably requested to effect the
registration of such securities. MicroFinancial agrees that, upon receipt
of any notice from the Company that the registration materials must be
supplemented or amended, MicroFinancial will forthwith discontinue
disposition of such Shares pursuant to such registration statement until
Microfinancial's receipt of copies of a supplemented or amended prospectus
covering such Shares, and, if so directed by the Company, MicroFinancial
will deliver to the Company (at the Company's expense and as soon as
possible) all copies, other than permanent file copies then in
MicroFinancial's possession, of the prospectus covering such Shares current
at the time of its receipt of such notice. MicroFinancial also agrees, upon
request of the Companyany, not to sell any unregistered securities of the
Company for a period of 14 days before and 180 days following the effective
date of registration statement of the Company.
9- Certain offerings revolving an underwriter shall be
subject to the following conditions:
(i) If requested by the underwriters for any
underwritten offering by MicroFinancial pursuant to a registration
requested under subparagraph D(l)(b), the Company agrees to enter into an
underwriting agreement with such underwriters for such offering, such
agreement
to be reasonably customary in substance and form, and to contain such
representations and warranties by the Company and MicroFinancial and such
other terms as are customary in agreements of that type, including without
limitation, customary provisions with respect to indemnification by the
Company
of the underwriters of such offering. MicroFinancial will cooperate with
the Company in the negotiation of the underwriting agreement and will give
consideration to the reasonable suggestions of the Company regarding the
form and substance thereof MicroFinancial shall be a party to such
underwriting agreement. MicroFinancial shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters other than representations, warranties or agreements regarding
itself, its Shares, its intended method of destination and any other
representations or warranties required by law or custom given by selling
shareholders in an underwritten public offering;
(ii) If (A) the Company proposes to register any of
its Shares of Common Stock under the 1933 Act as contemplated by
subparagraph D(l)(a), (B) MicroFinancial is permitted by subparagraph I (a) to
participate in such registered offering of securities and is not prohibited
from doing so by subparagraph D(l)(1), and (C) such shares are to be
distributed by or through one or more underwriters, subject to the provisions
of subparagraph
I (h) the Company will if requested by MicroFinancial for such underwriters
to include all of the Shares to be offered and sold by MicroFinancial among
the securities of the Company to
Settlement Agreement and Release Page 8 of 13
be distributed by such underwriters. MicroFinancial shall become a party to
the underwriting agreement negotiated between the Company and such
underwriters. MicroFinancial shall not be required to make any representations
or warranties to or agreements with the Company or the underwriters other
than representations, warranties or agreements regarding MicroFinanciaL its
Shares and its intended method of dilution or any other representations or
warranties required by law or customarily given by selling shareholders in
an underwritten public offering.
h. If any registration under subparagraph D(l)(a)
involves an underwritten offering and the imaging underwriter of such
offering shall advise the Company that, in its view, the number of
securities requested to be included in such registration exceeds the
largest number (the "Amount") that can be sold in an orderly number in
such offerings, within a price range acceptable to the Company, the Company
shall include in such registration: first, all Shares that the Company
proposes to register for its own account (the "Company Securities"); and,
thereafter, to the extent that the number of Company Securities is less
than the Maximum Amount, MicroFinancial's Shares requested by MicroFinancial
to be included in the registration statement provided that if MicroFinancial
has
requested registration of a number of Shares with respect to which the
anticipated net proceeds exceed $2,377,020, the Shares requested to be
registered in excess of such number shall only be included, pro rata,
together with Shares proposed to be registered by the Holder(s) of the
Company's Warrants to Purchase Common Stock originally issued as of
December 31, 1999, subject to the limitations stated therein, based on the
number of such other Shares requested to be registered. Without
MicroFinancial's prior written consent, there shall not be included in any
registration statement filed pursuant to subparagraph D(l)(a) any Shares owned
by Powell or the Trapassos if such inclusion would reduce the number of
Shares sought to be registered by MicroFinancial hereunder. If any regulations
under subparagraph D(l)(b) involves an underwritten offering and the
managing underwriter of such offer shall advise MicroFinancial that, in its
view, the number of securities requested to be included in such
registration exceeds the Maximum Amount that can be sold in an orderly manner
in
such offering within a price range acceptable to MicroFinancial the Company
shall include in such registration: first, all Shares requested to be included
in the registration by MicroFinancial; and second, to the extent that the
number of such Shares to be included by MicroFinancial is less than the
Maximum Amount, Shares that the Company proposes to register.
i. As to any particular Shares, such securities shall
cease to be subject to registration under the Debenture when (i) a
registration statement with respect to the sale of such securities shall have
become effective under the 1933 Act and such securities shall have
been offered in accordance with such registration statement, (ii) they
shall have been sold as permitted by Rule 144 (or any successor provision)
under the 1933 Act, or (iii) they shall have ceased to be outstanding.
2. Except as provided herein, MicroFinancial shall not
directly or indirectly transfer assign, pledge, mortgage or convey the Shares,
the Debenture or any Shares issuable pursuant to the Debenture prior to the
second anniversary of the date hereof without the Company's prior written
consent.
E. Miscellaneous
Settlement Agreement and Release Page 9 of 13
l. The representations and warranties made by the parties to
this Agreement and the Debenture delivered hereto shall survive the
consummation of the transactions contemplated herein. Anything in this
Agreement to the contrary notwithstanding, the representations and
warranties of the Company and the Investors shall not be affected by any
investigation made by or on behalf of any party hereto.
2. All notices or other communications permitted or required
under this Agreement shall be in writing and shall be sufficiently given if
and when hand-delivered to the persons set forth below or if sent by
document overnight delivery service or registered or certified mail
postage prepaid, receipt acknowledged, or by facsimile, addressed as set forth
below or to such other person or persons and/or at such other address or
addresses as shall be furnished in writing by any party hereto to the
others. Any such notice or communication shall be deemed to have been given
as of the date received, in the case of personal delivery, or on the date
shown on the receipt or confirmation there for in all other cases.
If to MicroFinancial or Leasecomm:
MicroFinanciaL Inc.
950 Winter Street
Waltham MA 02451
Attn: Dr. Peter R von Bleyleben
If to the Company
thatlook.com Inc.
210 W. Fourth Street
Suite 101
East Stroudsburg, PA 18301
Attn: Gerard A. Powell
)With copies to: F. Douglas Raymond, Esq.
Drinker Biddle & Reath LLP
One Logan Square
18th and Cherry Streets
Philadelphia, PA 19103
If to Powell:
Gerard A. Powell
c/o thatlook.com, Inc.
21 0 W. Fourth Street
Suite 101
East Stroudsburg, PA 18301
If to the Trapasso:
Vincent Trapasso
Settlement Agreement and Release Page 10 of 13
Charlie Lynn Trapasso
c/o thatlook.com, Inc.
2 1 0 W. Fourth Street
Suite 101
East Stroudsburg, PA 18301
3. Any party hereto shall not assign this Agreement, or any
rights hereunder, or delegate any obligations hereunder, without the prior
written consent of all parties hereto.
4. This Agreement shall not be construed as giving any
person, other than the parties hereto and their permitted successors and
assigns, any legal or equitable right, remedy or claim under or in respect
of this Agreement or any of the provisions herein contained, this Agreement
and all provisions and conditions hereof being intended to be, and being,
for the sole and exclusive benefit of such parties, and permitted successors
and assigns for the benefit of no other person or entity.
5. The parties hereto may amend or modify this Agreement in
any respect only with the prior written consent of each party hereto. Any such
amendment, modification, extension or waiver shall be in writing. The waiver
by a party of any breach of any provision of this Agreement shall not
constitute or operate as a waiver of any other breach of such provision or of
any provision hereof nor shall any failure to enforce any provision hereof
operate as a waiver of such provision or of any other provision hereof
6. Each party hereto shall use best efforts to comply with
all requirements used hereby on such party and to cause the transactions
contemplated hereby to be consummated as contemplated hereby and shall,
from time to time and without further consideration, either before or after
the execution and delivery of this Agreement, the closing, execute such
further instruments and take such other actions as any other party hereto
shall reason request in order to fulfill its obligations under this
Agreement and to effectuate the purposes of this Agreement. Each party
shall promptly notify the other parties of any event or circumstance known
to such party that could prevent or delay the consummation of the
transactions contemplated hereby or which would indicate a breach or
non-compliance with any of the terms, conditions, representations, warranties
or
agreements of any of the parties to this Agreement.
7. The parties agree that this Agreement shall be considered to
be a Massachusetts contract and shall be deemed to have been made in the
Middlesex County, Waltham Massachusetts, regardless of the order in which the
signatures of the parties shall be affixed hereto, and shall be interpreted,
and the rights and liabilities of the parties hereto determined, in accordance
with Massachusetts law, and any suit brought shall be brought exclusively in
the federal or state courts within the Commonwealth of Massachusetts. The
undersigned hereby consents and submits to the jurisdiction of the courts
of the Commonwealth of Massachusetts for the purpose of any suit, action or
other proceeding arising out of the undersigned obligations hereunder, and
expressly waives any objection to venue in any such courts. The parties
further agree that MicroFinancial and Leasecomm Corporation are located within
the venue of Middlesex County. However, prior to any legal suits being
filed, the Chief
Settlement Agreement and Release
Page II of 13
Executive Officers of each company or their authorized designee will confer
and make reasonable efforts to resolve the problem.
8.The section headings contained herein are for reference purposes
only and shall not in any way affect the meaning and interpretation of this
Agreement. Except as otherwise indicated, an agreements defined herein refer
to the same as from time to time amended or supplied or the terms thereof
waived
or modified in accordance herewith and therewith.
9. The invalidity or unenforceability of any particular
provision, or part of any provision, of this Agreement shall not affect the
other provisions or parts hereof and this Agreement shall be construed in
all respects as if such invalid or unenforceable provisions or parts were
omitted.
10. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an ongoing; and any person may
become a party hereto by executing a counterpart hereof but all of such
counterparts together shall be deemed to be one and the same instrument It
shall not be necessary in making proof of this Agreement or any counterpart
hereof to produce or account for any of the other counterparts.
11. This Agreement constitutes the entire agreement between the
parties hereto and supersedes all prior writings and understandings between
or among the parties.
Settlement Agreement and Release
Page 12 of 13
IN WITNESS WHEREOF, and intending to be legally bound hereby, the
parties have executed the foregoing Settlement Agreement and Release this 31
st day of December, 1999.
THATLOOK.COM INC
By: /s/ Gerard A. Powell
Gerard A. Powell
MICROFINANCIAL
By: /s/Peter R. von Bleyleben
Dr. Peter R. von Bleyleben
LEASECOMM
By: /s/Peter R. von Bleyleben
Dr. Peter R. von Bleyleben
/s/ Gerard A. Powell
Gerard A. Powell
/s/ Vincent Trapasso
Vincent Trapassp
/s/ Charlie Lynn Trapasso
Charlie Lynn Trapasso
Settlement Agreement and Release Page 13 of
13
LOAN, SECURITY AND SERVICE AGREEMENT
Loan, Security and Service Agreement ("Agreement") made this 12th day of June
1998 between STERLING FINANCIAL SERVICES CO. ("Lender"), having an address at
500 Seventh Avenue, New York, NY 10018 and COOPERATIVE IMAGES, INC. and
ELECTIVE INVESTMENTS, INC (individually and collectively referred to as
"Borrower"), having their principal place of business at 210 West 4th Street,
East Stroudsburg, Pennsylvania 18301.
RECITAL
Borrower desires to obtain loans from Lender from time to time on a secured
basis, and Lender has agreed to do so, subject to and upon the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the Recital and the mutual covenants
herein contained, Lender and Borrower agree as follows:
1.REVOLVING LOAN
1.1 Amount of Revolving Loan.
(a) During the term of this Agreement, provided there has not occurred an
Event of Default hereunder (as hereinafter defined) or an event which, with
the giving of notice or the lapse of time, or both, would become an Event of
Default hereunder, Lender will provide in its sole and absolute discretion, at
one time or from time to time, at the request of Borrower, loans to Borrower
on a revolving basis (the "Revolving Loan") in an aggregate amount up to
Borrower's Advance Limit (as hereinafter defined) from time to time in effect,
which Revolving Loan shall be payable at the earlier of (i) fifteen (15)
calendar days from demand by Lender or (ii) such other time as provided in
this Agreement. If the outstanding amount of the Revolving Loan shall exceed
the Advance Limit at any time, such excess shall be deemed secured by the
Collateral (as hereinafter defined) and shall be subject to the terms of this
Agreement.
(b)(i) Definition of Advance Limit. The term "Advance Limit" shall mean the
amount of the Revolving Loan which the Lender may, in its sole and absolute
discretion, from time to time make to Borrower, up to the lesser of One
Million Dollars ($1,000,000) or 85% of the principal amount of the Borrower's
"Eligible Receivables" (as hereinafter defined).
(ii) Lender shall have the right, from time to time, in its sole and absolute
discretion, to increase or decrease the amount of the Advance Limit; and the
Revolving Loan advanced on the basis thereof shall nevertheless be secured by
the Collateral and subject to the terms of this Agreement.
(iii) If at any time the Obligations (as hereinafter defined) exceed the
dollar amount specified in section 1.1(b)(i) above or if the ratio of Eligible
Receivables (as hereinafter defined) exceeds the percentage specified in
section 1.1(b)(i) above, Borrower shall, upon notification of such fact by
Lender, forthwith pay to Lender such amount as will reduce the Obligations to
the foregoing dollar amount or percentage of Eligible Receivables.
(c) Definitions of "Receivables", "Eligible Receivables" "Goods", "Military
Allotment Accounts", "Account Debtor", and "Military Account Debtor".
(i) The term "Receivables" shall mean all accounts, accounts receivable,
contract rights, chattel paper, and general intangibles as defined in the
Uniform Commercial Code of New York or of such other state the law of which
may be applicable, and, in addition, any and all obligations of any kind at
any time due and/or owing to Borrower and all rights of Borrower to receive
payment or any other consideration, including without limitation, consumer
obligations, consumer installment contracts, revolving credit obligations and
agreements, invoices, contract rights, choses-in-action, notes, drafts,
acceptances, instruments, and all other debts, obligations and liabilities in
whatever form owing to Borrower from any person, firm, governmental or taxing
authority, corporation or any other entity, including intercompany accounts
and notes receivable, all documents, contracts, invoices and instruments
evidencing or constituting the same, all security therefore, and all
Borrower's rights to goods, sold or unsold (whether delivered, undelivered, in
transit, returned, rejected by, or repossessed from customers), which may be
represented thereby, whether now existing or hereafter arising, together with
all proceeds and products of any and all of the foregoing. Receivables shall
include any of the foregoing now existing or hereafter created by Borrower or
acquired by Borrower from others.
(ii) The term "Eligible Receivables" shall mean the Receivables (a) as to
which Borrower has furnished to Lender adequate information at such times and
in such form as has been or, from time to time may be requested by Lender to
permit Lender to accept the Receivable as an Eligible Receivable, and (b)
which meet all of the following criteria on the origination date of the said
Receivables and continuing thereafter until collected, and (c) which are in
all other respects acceptable to Lender in its sole and unrestricted
discretion:
(a) Borrower is the sole owner of the Receivables, and has not sold, assigned,
mortgaged or hypothecated, nor released from Lender's security interest, all
or any portion thereof, nor are they subject to any claim, lien or security
interest of any persons or entities, including without limitation the United
States of America, any state, city, town, county, or other local governing
unit, or any agencies, authorities, or instrumentalities thereof, except as
disclosed on Schedule 5 annexed hereto and made part hereof;
(b) The Receivables shall be valid and legally enforceable, owing to Borrower
for the performance of services or the sale of goods arising in the ordinary
course of business, whether by Borrower or by others, for which Borrower has
delivered, or, at the time of origination of the said Receivables, if required
by Lender, will deliver to Lender invoices, billings and shipping documents
and other documents evidencing the obligation to pay the Receivables;
(c) No financing statement covering any Receivables or the proceeds thereof is
on file in any public office except in favor of Lender, and neither Borrower
nor Lender has received any notice of any proposed acquisition of a Receivable
or security interest therein, except as disclosed in Schedule 5 annexed hereto
and made part hereof;
(d) The Account Debtors (as hereinafter defined) obligated thereon shall
remain less than two (2) payments contractually delinquent.
(e) The Receivables are not subject to any offsets, credits, allowances,
counterclaims or adjustments due the Account Debtor except usual and customary
prompt payment discounts, nor has the Account Debtor returned the goods or
indicated any dispute or complaint concerning the goods;
(f) Borrower has not received any notice, nor has it any knowledge of any
facts, which adversely affect the credit of the account debtor; and
(g) Lender has not notified Borrower that either the Receivable or the Account
Debtor is not an Eligible Receivable.
(iii) The term "Goods" shall mean, in addition to the definition thereof
contained in the Uniform Commercial Code of the State of New York, consumer
goods, machinery and equipment, furniture, furnishings and fixtures, farm
products and inventory (including without limitation, all goods intended for
sale or lease, or to be furnished under contracts of service, work in process
and raw materials, and all materials and supplies of every nature used or
usable in connection with the packing, shipping, advertising, selling, leasing
for furnishing of such goods), all substitutions, accretions, component parts,
replacement parts, replacement thereof and additions thereto, as well as all
accessories, motors, engines, auxiliary parts used in connection with or
attached thereto and any packing material in which such Goods may be
contained, now owned or hereafter created or acquired and wherever located;
(iv) The term "Military Allotment Account" shall mean the account of a
Military Account Debtor (as hereinafter defined) for which a payroll allotment
is initiated by the Military Account Debtor to provide for the payment of the
Military Account Debtor's monthly obligation to Borrower.
(v) The term "Account Debtor" shall mean a person (other than Borrower or a
guarantor of the Obligations of Borrower) who is obligated on a Receivable.
(vi) The term "Military Account Debtor" shall mean an Account Debtor who is a
member of the United States Armed Forces and whose remaining enlistment term
in the armed forces exceeds the term of said Account Debtor's obligations to
Borrower on the date such obligations are incurred.
1.2 Interest Rate. The Revolving Loan shall bear interest during each calendar
month at a fluctuating interest rate per annum equal at all times to four
percentage points (4%) above the Base Rate (as hereinafter defined) of
interest in effect from time to time, each change in such fluctuating rate to
take effect simultaneously with the corresponding change in such Base Rate,
without notice to Borrower. In no event shall the interest be higher than the
maximum lawful rate. Interest shall be calculated on a daily basis upon the
unpaid balance with each day representing 1 /360th of a year.
1.3 Base Rate. For the purposes of this Agreement, the "Base Rate" is the base
rate of interest announced from time to time by Sterling National Bank. The
"Base Rate" in effect as of the date of this Agreement is 8.50%.
1.4 Payment of Interest. Lender shall send Borrower an invoice for interest on
the Revolving Loan at the end of each calendar month. Interest shall be due
and payable upon Borrower's receipt of said invoice. Any failure or delay by
Lender in presenting invoices for interest payments shall not discharge or
relieve Borrower of the obligation to make such interest payments. Lender may,
at its option compute the interest due from Borrower and (a) debit Borrower's
account with Lender for the amount of interest due, or (b) add the amount of
interest due to the Revolving Loan balance as of the last day of the preceding
month, or at any time thereafter, and said interest shall become part of the
principal balance owing.
1.5 Services of Lender and Service Charges.
(a) Lender shall provide installment payment books or periodic statements to
Account Debtors and shall post all payments received from Account Debtors to
Borrower's account. Lender shall provide Borrower with periodic reports
regarding assigned Collateral and the aging thereof, Account Debtor
delinquencies, advances made to Borrower and interest thereon, and the
application of collections of Receivables.
(b) Borrower shall pay to Lender a one-time $10.00 set up fee for each
Receivable and shall thereafter pay a monthly service charge to Lender of
$2.75 for each Receivable. Any Receivable which has a balance which is not
equal to zero shall be considered an active account for the purpose of
computing the service charge.
2. SECURITY INTEREST
2.1 Security Interest.
(a) As collateral security for (i) the due and punctual payment of the
Revolving Loan, all interest thereon, and any and all extensions, renewals,
substitutions and changes in form thereof; (ii) all Obligations (as
hereinafter defined); and (iii) all costs and expenses incurred or paid by
Lender to enforce its rights pursuant to this Agreement, the Relevant
Documents (as hereinafter defined) or otherwise (including without limitation
outside or in-house attorneys' fees), Borrower hereby pledges, transfers,
assigns, sets over and grants to Lender a first priority and continuing
security interest in the Collateral (as hereinafter defined) wherever located
and whether now existing or hereafter created or acquired-by Borrower, except
as may be set forth on Schedule 5 annexed hereto and made part hereof.
(b) Lender shall be under no obligation to proceed against any or all of the
Collateral before proceeding to collect the Revolving Loan and Obligations
directly from Borrower or any guarantor of Borrower.
2.2 Continuation of Security Interest. The security interest granted in this
Agreement shall continue in full force and effect until the Borrower has fully
paid and discharged all of the sums referred to in Subsection 2.1(a) hereof
and until this Agreement is terminated.
2.3 Definitions of "Obligations" Relevant Documents" and "Collateral".
(a) The term "Obligations" shall mean all indebtedness, obligations,
liabilities, and agreements of every kind and nature of Borrower to or with
Lender (including but not limited to the Revolving Loan) and to or with any
affiliate of Lender, or of any guarantor of Borrower's indebtedness,
obligations, liabilities and agreements to or with Lender, or to, or with any
affiliate of Lender, now existing or hereafter arising or acquired, and now or
hereafter contemplated, pursuant to this Agreement, the Relevant Documents (as
hereinafter defined) or otherwise, whether in the form of financing, letters
of credit, bankers acceptances, guarantees, loans, interest, charges,
overdrafts, expenses or otherwise, direct or indirect including without
limitation any participation or interest of Lender or of an affiliate of
Lender in any obligations of Borrower to others, acquired outright,
conditionally or as collateral security from another, absolute or contingent,
joint or several, matured or unmatured, primary or secondary, due or to become
due, liquidated or unliquidated, secured or unsecured, arising by operation of
law or otherwise, including without limitation any future advances, renewals,
extensions or changes in form of, or substitutions for, any of said
indebtedness, obligations or liabilities, the other sums and charges to be
paid to Lender pursuant to any other sections of this Agreement, and all
interest and late charges on any of the foregoing. "Obligations" shall further
include all charges and fees that Lender may have incurred in filing public
notices and any local taxes relating
thereto, all costs and expenses (including outside or in-house attorneys'
fees) incurred by Lender in efforts made to enforce payment or to otherwise
effect collection of any Receivables, in protecting, maintaining, preserving,
enforcing or foreclosing the pledge, lien and security interest in Receivables
of Lender hereunder, and in defending or prosecuting any actions or
proceedings arising out of or relating to Lender's transactions with Borrower,
through judicial proceedings or otherwise, all of which Borrower agrees to pay
as provided herein. If the Lender shall become liable to the United States of
America in relation to wages of employees of Borrower by virtue of Section
3505 of the Internal Revenue Code of 1954 (as added by Section 105 of the
Federal Tax Lien Act of 1966), whether or not such amount has been paid by
Lender, such amount shall be an Obligation by Borrower to Lender hereunder.
Borrower authorizes Lender to pay any such amount to the United States of
America on behalf of Borrower, but Lender shall not be obligated to do so or
continue to do so. Borrower authorizes Lender to pay to any landlord on behalf
of Borrower the amount of any statutory landlord's lien on premises on which
or in the contents of which Lender has an interest.
(b) The term "Relevant Documents" shall mean any and all documents arid
instruments now or hereafter executed or delivered by Borrower or any
guarantor of Borrower to Lender pursuant or incident to this Agreement or
otherwise.
(c) The term "Collateral" shall mean the following, whether now or hereafter
existing or created or now or hereafter acquired by Borrower:
(i) The Borrower's Receivables, as defined herein;
(ii) The Borrower's Goods, as defined herein;
(iii) Any claims of Borrower against third parties for
payment of any Receivable or for loss or damage thereto, or destruction
thereof, and all documents of title, insurance policies, certificates of
insurance, insurance proceeds, securities, chattel paper, and other documents
and instruments evidencing or pertaining to any of the foregoing; and all
files, correspondence, computer programs, tapes, discs and related data
processing software owned by Borrower, or in which Borrower has an interest,
which contain information identifying, referring to or relating to any one or
more of the items referred to in this Section 2.3(c), or to any account
debtor, which information shows the amounts owed by each, payments made
thereon, or otherwise is necessary or helpful in the realization thereon or
the collection thereof;
(iv) Any and all moneys, securities, drafts, notes, items, contract rights,
leases, personal property and general intangibles (including, without
limitation, all customer lists, credit files, supplier lists, catalogs,
formulations, manufacturing procedures, quality control procedures, product
specifications, sales materials, records and service marks, brand names,
patents, patent rights, patent applications, corporate names, franchises,
copyrights, licenses, permits, processes, trademarks, trademark rights, trade
names, trade name rights, trade styles, and trade secrets, together with the
goodwill of Borrower thereby represented);
(v) All other property of Borrower, now or hereafter held or received by or in
transit to Lender from or for Borrower, or which may now or hereafter be in
the possession of Lender, or as to which Lender may now or hereafter control
possession, by documents of title or otherwise, whether for safekeeping,
custody, pledge, transmission, collection or otherwise, and any and all
deposits, general or special, balances, sums, proceeds and credits of
Borrower, on the books of Lender or on the books of any affiliate of Lender,
and all rights and remedies which the Borrower might exercise with respect to
any of the foregoing but for the execution of this Agreement;
(vi) All renewals, substitutions, profits, accessions, accessories,
replacements, additions, proceeds and products of, to or for the Collateral,
including without limitation, the proceeds of any Receivable, without regard
to whether it is an Eligible Receivable; and
(vii) All property securing the obligations of any guarantor of the Borrower.
2.4 Further Assurances. Borrower shall take such steps and execute and deliver
such financing statements and other documents all in form and substance
satisfactory to Lender relating to the creation, validity, assignment or
perfection of the security interests provided for herein, under the Uniform
Commercial Code or other laws of the State of New York or of another state or
states as Lender may from time to time request. Borrower hereby constitutes
Lender and each of its officers, agents or designees as Borrower's Attorney in
Fact, with power to execute in Borrower's name and well as in Lender's name
and to file such financing statements and other documents. This power, being
coupled with an interest, is irrevocable while any Obligations shall remain
unpaid. Borrower authorizes Lender to file in its own name as secured party
any financing statement under-the Uniform Commercial Code which Lender deems
necessary or advisable to perfect the security interest which it is intended
that Lender have under this Agreement.
2.5 Delivery of Collateral. Upon written notice to Borrower, Borrower shall,
at its expense promptly deliver any or all Collateral not otherwise in the
possession or control of Lender to such place as Lender may designate.
3. REPRESENTATIONS AND WARRANTIES
Borrower, knowing and intending that Lender shall rely thereon in making the
loans contemplated by this Agreement, hereby represents, covenants and
warrants to Lender (which representations, covenants and warranties shall be
deemed to be incorporated by reference in each confirmatory assignment
submitted by Borrower to Lender and shall in any event be deemed to be
repeated and confirmed with respect to each Receivable as it is created or
otherwise acquired by Borrower) that:
3.1 Organization and Qualification.
(a) Borrower is and will continue to be duly organized and validly existing
and in good standing under the laws of the State in which Borrower is
incorporated, and is and will continue to be qualified and in good standing in
all jurisdictions wherein the character of the property owned or the nature of
the business transacted by Borrower makes licensing or qualification as a
foreign entity necessary.
(b) A true, accurate and complete copy of Borrower's valid resolution
authorizing the transactions contemplated herein, and Borrower's certificate
of incorporation and by-laws all as in effect on the date hereof and certified
by the Secretary of the Borrower, has been delivered to Lender.
3.2 Due Authorization; No Default; Compliance with Law.
(a) The execution, delivery and performance by Borrower of this
Agreement and the Relevant Documents have been duly authorized by all
necessary action on the part of Borrower; are not inconsistent with its
certificate of incorporation, by-laws and other governing documents; do not
contravene any law, governmental rule, regulation or order applicable to
Borrower; and do not and will not contravene any provision of, or constitute a
default under, any indenture, mortgage, contract or other instrument or any
order, writ, injunction or decree to which Borrower is a party or by which it
or its properties or assets are bound.
(b) This Agreement and the Relevant Documents, upon their execution and
delivery will constitute the legal, valid and binding agreements of Borrower,
enforceable in accordance with their terms.
(c) Borrower's conduct of its business, and all documents and procedures used
by Borrower in the conduct of its business, comply in all respects with any
and all federal, state or local laws and regulations applicable thereto. At
Lender's request, Borrower shall provide to Lender an opinion letter from
counsel in each jurisdiction where Borrower enters into retail installment
contracts for which payment is made, that such contract and method of payment
are valid and enforceable, and do not violate any federal, state or local laws
or regulations. The substance of each opinion letter shall be satisfactory to
Lender's counsel in its sole discretion.
3.3 No Governmental Consent Necessary. No consent or approval of, giving of
notice to, registration with or taking of any other action in respect of, any
governmental authority or agency is required with respect to the execution,
delivery and performance by Borrower of this Agreement and the Relevant
Documents.
3.4 No Proceedings. There are no actions, suits, or proceedings pending or
threatened against or affecting Borrower in any court or before any
governmental commission, board or authority.
3.5 Financial Statements.
(a) Subject to any limitation stated therein, all balance sheets, income
statements and other financial data which have been or shall hereafter be
furnished to Lender to induce it to enter into this Agreement, and to continue
to provide financing under this Agreement or otherwise in connection herewith,
now do and hereafter will truly and accurately represent the financial
condition of Borrower as at the respective dates thereof and the results of
its operations for the periods for which the same are furnished to Lender. All
other information, reports and other papers and data furnished to Lender are,
or will be at the time the same are so furnished, true, accurate and complete
in all material respects. All such financial statements and other information
have been prepared, or will have been prepared at the time of issuance, in
accordance with generally accepted accounting principles consistently applied
during all periods by certified public accountants acceptable to Lender.
(b) Except as shown on the most recent financial statements which have been
delivered to Lender and as set forth on Schedule 1 attached hereto and made
part hereof, Borrower and any guarantors of Borrower have no other liabilities
as of the date hereof.
3.6 Borrower's Solvency: Changes in Financial Condition. Borrower and all
guarantors of Borrower's Obligations are solvent and will remain so and have
induced Lender to make advances hereunder upon the written representations of
Borrower arid the guarantors of Borrowers concerning their financial
responsibility, which they agree to renew in writing to Lender upon request
from time to time, but in any event not less than once each year. No federal
tax lien has been assessed against Borrower or a guarantor of Borrower which
remains unpaid and undischarged. Borrower is not and will not be during the
term of this Agreement in default to the United States of America or to any
state in payment or deposit of any withholding taxes or F.I.C.A. taxes, and
will furnish proof in respect thereto on request. There has been no material
change in the financial condition of Borrower or of any guarantors of
Borrowers of Borrower since the date of their last financial statements which
have been delivered to Lender and are listed on Schedule 1 attached hereto and
made part hereof.
3.7 Receivables.
(a) Any list or schedule of Receivables delivered by Borrower to Lender at any
time shall be complete and shall contain an accurate aging of the Receivables
listed.
(b) At the time any Receivable becomes subject to a security interest in favor
of Lender. Said Receivable shall be a good and valid account representing an
undisputed, unconditional bona fide indebtedness incurred by the Account
Debtor named therein for merchandise sold and delivered, or if so indicated in
the papers delivered to Lender, sold and shipped, or sold and held subject to
delivery instructions, or for services theretofore fully performed by the
Borrower for said Account Debtor. There are and shall be no set-offs or
counterclaims or rights of recoupment against any such Receivable; no
agreement under which any deduction or discount may be claimed shall have been
made with Borrower on any such Receivable except as indicated in a written
list, statement, or invoice furnished to Lender; and Borrower shall be the
lawful owner of each such Receivable and shall have the right to subject the
same to a first and prior security interest in favor of Lender, without
limitation by any agreement or document to which Borrower is a party or by
which it is bound. No such Receivable shall have been or shall thereafter be
sold, assigned or transferred to any person other than Lender or in any way
encumbered except to Lender and no other person shall have proceeds claims
thereto, and the Borrower shall defend the same against the claims and demands
of all persons.
(c) All statements made and all unpaid balances appearing in the invoices,
documents and instruments representing or constituting any Receivable or in
the title retention or security agreement accompanying such Receivable, and
the
nature of the transaction as indicated, are true and correct and are in all
respects what they purport to be. All signatures and endorsements appear
thereon are genuine and all signatories and endorsers have full capacity to
contract.
3.8 Value of Goods. Borrower's Goods now are and shall continue to be usable
or saleable in the ordinary course of its business. Obsolete Goods, Goods
below standard quality and Goods in the process of repair have been written
down to realizable market value on Borrower's balance sheet, or adequate
reserves have been provided therefore, and the values carried on the balance
sheet are set at the lower of cost or market, in accordance with generally
accepted accounting principles consistently applied.
3.9 Taxes and Assessments. Borrower has paid and discharged when due, and
shall continue to pay and discharge when due, all taxes, assessments and other
governmental charges which may lawfully be levied or assessed upon its income
and profits, or upon all or any portion of any property belonging to it,
whether real, personal or mixed, to the extent that such taxes, assessments
and other charges have become due. Borrower has filed all tax returns,
federal, state, and local, and all related information, required to be filed
by it.
3.10 Location of Collateral. Schedule 2 to this Agreement accurately lists (a)
all lessors of property leased. by Borrower; (b) all mortgages of property
owned by Borrower; and (c) all premises where Collateral is or will be
located. Borrower will not remove any Collateral, or cause or suffer any
Collateral to be removed, from the premises listed on Schedule 2 except in the
ordinary course of Borrower's business or with Lender's prior written consent.
3.11 Other Liens. Borrower has good and marketable title to and owns all of
the Collateral free and clear of any and all liens, encumbrances or security
interests whatsoever, except (i) those encumbrances created pursuant to this
Agreement; and (ii) those encumbrances set forth on Schedule 5 annexed hereto
and made part hereof. None of the Collateral is subject to any prohibition
against encumbering, pledging, hypothecating or assigning the same or requires
notice or consent pursuant to Borrower's doing of the same to Lender.
3.12 Books and Records. Borrower maintains its books and records at the
address set forth in Schedule 4 annexed hereto and made part hereof.
3.13 Representations Covenants Warranties, and Statements True. Accurate and
Complete.
(a) None of the representations, covenants, warranties or statements made to
Lender in, or in connection with, this Agreement or the transactions
contemplated thereby, contains or will contain any untrue statement of a
material fact, or omits or will omit to state a material fact necessary in
order to make such statements true and correct in light of the circumstances
in which they are or will be made.
(b) All representations, covenants, warranties, representations, and
statements made herein or in the Relevant Documents by Borrower are, and will
be true, and accurate at all times.
3.14 Names: Locations of Offices. Schedule 4 annexed hereto and part hereof
sets forth a complete and accurate list of:
(a) All names by which the Borrower now is known or under which the Borrower
now is conducting business, including without limitation, all trade names, and
all names by which the Borrower has been known or under which the Borrower has
conducted business during the past ten years, including without limitation,
all trade names; and
(b) All offices and locations from which the Borrower conducts any of its
business or operations and its chief executive office if it has more than one
place of business.
4. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that it will pay all Obligations when due. Until
payment in full of all Obligations and the termination of this Agreement,
Borrower covenants and agrees that it will:
4.1 Notify Lender. Promptly notify Lender if any one or more of the
representations and warranties made by Borrower in this Agreement or in any
Relevant Documents shall no longer be entirely true, accurate and complete or
upon the occurrence of, an Event of Default (as hereinafter defined).
4.2 Pay Taxes and Liabilities Comply with Agreements. Promptly pay when due
all indebtedness, sums and liabilities of any kind now or hereafter owing by
Borrower to any party however created, incurred, evidenced, acquired, arising
or payable, including income and excise taxes with respect to any of the
Collateral, or any wages or salaries paid or payable by Borrower or otherwise.
4.3 Observe Covenants etc. Observe, perform and comply with the covenants,
terms and conditions of this Agreement, the Relevant Documents and any other
agreement or document entered into between Borrower and Lender or any
affiliate of Lender
4.4 Maintain Corporate Existence and Qualifications Maintain preserve, in full
force and effect, its existence and rights, franchises, licenses
qualifications necessary to continue its business, and comply with all
applicable statutes, rules and regulations pertaining to the operation,
conduct and maintenance of its existence and business.
4.5 Information and Documents to be Furnished to Lender.
(a) Borrower shall notify Lender if any Receivable includes tax due to any
governmental taxing authority. If a Receivable includes a charge for any tax
payable to any governmental taxing authority, Lender is authorized, in
discretion, to pay the amount thereof for the account of Borrower and to
charge the amount of such payment to the Revolving Loan.
(b) Lender shall have the right at any time and from time to time to request
from obligors indebted on Receivables, in the name of Borrower or in the name
of Lender's or Borrower's accountants, information concerning any Receivable
and the amounts owing thereon. Borrower agrees to maintain books and records
pertaining to Collateral in such detail, form, and scope as Lender shall
require and to promptly notify Lender of any change of name or address of
Borrower or of the legal entity of Borrower, or of the partnership structure
of the Borrower or of the location of Collateral. Borrower shall mark
Borrower's ledger cards, books of account and other records relating to
Collateral with appropriate notations satisfactory to Lender disclosing that
they are subject to Lender's security interest. All records, ledger sheets,
correspondence, invoices, delivery receipts, documents and instruments
relating to Collateral shall be delivered to Lender, and until delivered to
Lender, be kept by Borrower, without cost to Lender, in appropriate containers
and in safe places the same locations as they were located at the time this
Agreement is entered into and shall bear suitable legends identifying them as
being under Lender's dominion and control. Lender shall at all reasonable
times have full access to and the right to any and all of, Borrower's books
and records, including but not limited to books and records pertaining to
Collateral and including all files and correspondence with creditors and
customers and to confirm and verify the amounts owing on Receivables and the
value and collectibility of other Collateral and to do whatever else Lender
reasonably may deem necessary to protect its interest.
(c) Borrower hereby irrevocably authorizes and directs all accountants and
auditors employed or engaged by Borrower at any time during the term of this
Agreement and all data processing centers or other persons holding materials
herein mentioned relating to Borrower to exhibit to Lender and to deliver to
it copies of any of Borrower's financial statements, trial balances or other
accounting records of any sort in their possession, or data processing cards,
disks, tapes, programs, tabulating runs, or similar material and to disclose
to Lender any information they may have concerning Borrower's financial status
and business operations, whether relating to Receivables or otherwise, and
authorizes Lender to rely thereon. Borrower will at the request of Lender
execute confirmatory letters of direction in accordance with this paragraph.
(d) Borrower shall furnish confirmatory assignments and schedules of
Collateral to Lender with each transmittal of Collateral at the time the
initial Revolving Loan is made hereunder and from time to time thereafter, or
as requested by Lender, in form and substance satisfactory to Lender,
confirming Lender's continuing security interest in all present and future
Collateral owned by Borrower, and together with each such confirmatory
assignment and schedule to deliver to Lender the original consumer
obligations, consumer contracts, revolving credit obligations, notes, chattel
paper, evidences of indebtedness, leases, mortgages, certificates of title and
such other instruments, contracts and documents evidencing, constituting or
relating to Collateral or any security therefore as Lender may request, all of
which shall bear or be accompanied by such endorsements, signatures, transfers
or specific assignments as Lender shall require. Lender or any of Lender's
agents or employees may, in the name and on behalf of Borrower execute any
missing endorsements, signature, transfer or assignment or correct any defects
therein, and Borrower hereby appoints Lender and any of agents or employees as
attorneys-in-fact for Borrower to do any of the foregoing. To the extent such
information is not otherwise known or available to Lender, Borrower agrees to
furnish to Lender from time to time such reports in such detail and in such
form as is satisfactory to Lender showing the amount of the outstanding
Collateral, the amounts collected thereon, and such other information relating
to Collateral as Lender may require. Borrower agrees to cause each of its
present and future subsidiaries, if any, to execute such confirmatory
assignments and schedules and to deliver such instruments and to furnish such
reports relating to any and all Collateral in the same manner and with the
same frequency as is required of Borrower under this Agreement. ,
(e) Borrower agrees to furnish to Lender the following:
(i) Annual Financial Statements. As soon as delivered to any other creditor or
regulatory body, but in no event later than one hundred twenty (120) days
after the end of each fiscal year, its balance sheet as at the end of such
year, and its statement of income and retained earnings for such fiscal year,
all in reasonable detail, all prepared in accordance with generally accepted
accounting principles consistently applied, and all audited by independent
certified public accountants whose opinion thereon shall be unqualified. The
certified public
accountants shall be of recognized standing selected by Borrower and
satisfactory to Lender.
(ii) Semiannual Financial Statements. As soon as delivered to any other
creditor or regulatory body, but in no event later than ninety (90) days after
the first six months of each fiscal year, its balance sheet as at the end of
that six month period, and its statement of income and related earnings for
that period, all in reasonable detail, all prepared in accordance with
generally accepted accounting principles consistently applied, and all
reviewed without qualification by independent certified public accountants of
recognized standing selected by Borrower and satisfactory to Lender.
(iii) Quarterly Financial Statements. As soon as delivered to any other
creditor or regulatory body, but in no event later than sixty (60) days after
the end of each of its first, second and third fiscal quarters, its balance
sheet as at the end of each such period and its cumulative statement of income
for the applicable three, six or nine month period ended on the date of such
balance sheet, all in reasonable detail, all prepared in accordance with
generally accepted accounting principles consistently applied, compiled by
independent certified public accountants and certified by the Borrower's chief
executive and chief financial officers. The certified public accountants shall
be of recognized standing selected by Borrower and satisfactory to Lender.
(iv) Omitted.
4.6 Collections.
(a) Borrower will render such assistance to Lender in billing Account Debtors,
as set forth in section 1.5(a) above as Lender shall request. Lender shall
send letters to Account Debtors who default on payments and shall forward any
communications received from Account Debtors to Borrower, but except as set
forth in section 6.2 below, Borrower will at its own cost and expense adjust
all claims and disputes with Account Debtors.
(b) All collections from Receivables shall be remitted directly to Lender. Any
remittance received by Borrower from Account Debtors shall be presumed to
constitute collections on Receivables, shall be subject to the security
interest granted to Lender hereunder, and shall be remitted by Borrower to
Lender in the form received by Borrower. All amounts remitted on Receivables
shall be credited to Borrower's current account with Lender. No check, draft
or other instrument received by Lender shall constitute payment to Lender
unless and until such instrument has actually been collected and credited as
collected to Lender's account. At Lender's option, up to three business days
shall be allowed subsequent to receipt of remittance is checks of Account
Debtors or Borrower to permit bank clearance and collection of such checks
before the amount thereof shall be deemed collected by Lender. Lender shall
have the right at all times to receive, receipt for, endorse, assign, deposit
and deliver in Lender's name or in the name of Borrower any and all checks,
notes, drafts and other instruments for the payment of money which may at any
time be delivered to or otherwise received by Lender. Borrower hereby
authorizes Lender to affix, by facsimile signature or otherwise, the general
or special endorsement of Borrower, in such manner as Lender shall deem
advisable, to any such check, note, draft or other instrument in the event the
same has been delivered to Lender without appropriate endorsement, and Lender
and any bank in which Lender may deposit any such instrument is hereby
authorized to consider such endorsement to be a sufficient, valid and
effective endorsement by Borrower to the same extent as though it were
manually executed by the duly authorized officer of Borrower, regardless of
whom or under what circumstances or by what authority such facsimile signature
or other endorsement is actually affixed, without duty of inquiry or
responsibility as to such matters, and Borrower and each guarantor of Borrower
and endorser of the Obligations hereby waives demand, presentment, protest and
notice of protest or dishonor and all other notices of every kind and nature
with respect to any such instrument.
(c) Borrower shall pay to Lender on demand the unpaid portion of any
Receivable which was formerly an Eligible Receivable and which has been
assigned or transferred to Lender or in which Lender otherwise has an interest
(i) if such Receivable was not paid promptly at its maturity; (ii) if the
services out of which the Receivable arises have not been performed to the
satisfaction of the Account Debtor, or the goods out of which the Receivable
arises have not been delivered to or accepted by the Account Debtor, or if
Account Debtor has returned or sought to return the goods or made any
complaint or claimed any adjustment with respect thereto; (iii) if any
petition under the Bankruptcy Act or any similar Federal or State statute or a
petition for receivership has been filed by or against the Account Debtor or
its property or if it has made an assignment for the benefit of creditors or
(iv) if the Lender shall at any time reasonably have rejected the Receivable
as no longer eligible.
4.7 Omitted.
4.8 Condition of Collateral; No Liens. Borrower shall maintain all Collateral
in good condition and repair at all times, preserve it against any loss,
damage, or destruction of any nature whatsoever relating to said Collateral or
its use, and keep said Collateral free and clear of any liens and encumbrances
whatsoever, except those liens and encumbrances created pursuant hereto or
disclosed herein.
4.9 Payment of Proceeds. Borrower shall forthwith upon receipt of all proceeds
of Collateral, pay such proceeds over to Lender, and such proceeds shall
thereupon be credited to Borrower's current account with Lender.
4.10 Further Assurances. Borrower shall at any time or from time to time upon
request of Lender, execute and deliver such further documents and do such
other acts and things as Lender may reasonably request in order to effectuate
more fully the purposes of this Agreement, the Relevant Documents and any
other instruments, documents and agreements which shall be executed
simultaneously herewith, or which may hereafter be executed by Borrower with
regard to the transactions contemplated hereby.
4.11 Pay Legal Fees and Expenses. Borrower shall pay to Lender, upon demand,
together with interest at the rate set forth in Section 1.2 hereof, from the
date when incurred or advanced by Lender until repaid by Borrower all costs,
expenses or other sums incurred or advanced by Lender (including legal fees
and disbursements) to preserve, collect, protect its interest in or realize on
the Collateral, and to enforce Lender's rights as against Borrower, any
Account Debtor, or guarantor of Borrower, or in the prosecution or defense of
any action or proceeding related to the matter of this Agreement or the
Relevant Documents including without limitation legal fees, expenses and
disbursements and those expenses referred to in Sections 6.5, 6.7 and 8.5
hereof. All such expenses, costs and other sums shall be deemed Obligations
secured by the Collateral
4.12 Records. Borrower shall at all times keep accurate and complete records
of the Collateral and the status of each Receivable.
4.13 Delivery of Documents. If any proceeds of Receivables shall include or
any Receivable shall be. evidenced by notes, trade acceptances or instruments
or documents, or if any Inventory is covered by documents of title or chattel
paper, whether or not negotiable, Borrower shall-immediately deliver them to
Lender appropriately endorsed. Borrower waives protest regardless of the form
of the endorsement. If Borrower fails to endorse any instrument or document,
Lender is authorized to endorse the same on Borrowers behalf.
4.14 United States Contract. If any Receivables arise out of contracts with
the United States or any of its departments, agencies or instrumentalities,
Borrower will notify Lender and execute any necessary instruments in order
that all money due or to become due under such contract shall be assigned to
Lender and proper notice of the assignment given under the Federal Assignment
of Claims Act or other applicable law.
4.15 Name Changes; Location Changes.
(a) Immediately notify Lender if Borrower is known by or conducting business
under any names other than those set forth on Schedule 4 annexed hereto and
made part hereof, and
(b) Immediately notify Lender if Borrower is conducting any of its business or
operations at or from offices or locations other than set forth on Schedule 4
annexed hereto and made part hereto, or if it changes the location of its
chief executive office.
5 NEGATIVE COVENANTS
Until the termination of this Agreement or payment in full of all Obligations,
Borrower covenants and agrees that it will not:
5.1 No Consolidation Merger, Acquisition. Consolidate with, merge with, be
acquired by, or acquire the stock or assets of any person, firm, joint
venture, partnership, corporation, or other entity, whether by merger,
consolidation, purchase of stock or otherwise.
5.2 Disposition of Assets or Collateral. Sell, lease, transfer, convey or
otherwise dispose of any or all of its assets or Collateral, other than the
sale or lease of inventory in the ordinary course of business.
5.3 Other Liens. Incur, create or permit to exist any mortgage, assignment,
pledge, hypothecation, security interest, lien or other encumbrance on the
Collateral or any of its assets, whether now owned or hereafter created or
acquired, except (a) liens for taxes not delinquent; (b) those liens in favor
of Lender created by this Agreement and Relevant Documents; and (c) those
liens existing on the date hereof and as set forth on Schedule 5 annexed
hereto and made part hereof.
5.4 Other Liabilities. Incur, create, assume or permit to exist any
indebtedness or liability on account of borrowed money, the deferred purchase
price of property, or leases except (a) Obligations to Lender; (b)
indebtedness subordinated to payment of the Obligations on terms approved by
Lender in writing; or (c) those liabilities existing on the date hereof and
appearing in financial statements of Borrower delivered to Lender.
5.5 Loans. Except as otherwise allowed herein Borrower shall not make loans to
any person, firm or entity.
5.6 Guaranties. Assume, guarantee, endorse, contingently agree to purchase or
otherwise become liable upon the obligation of any person, firm or entity
except (a) by the endorsement of negotiable instruments for deposit or
collection or similar transactions with Lender in the ordinary course of
business; or (b) contingent obligations under letters of credit entered into
in the ordinary course of business for the purchase of merchandise for resale
by Borrower.
5.7 Remove Collateral. Except as otherwise provided in this Agreement, remove,
or cause or permit to be removed, without Lender's prior written consent, any
Collateral or assets of Borrower from those premises set forth on Schedule 2
annexed hereto and made part hereof except in the ordinary course of business.
5.8 Transfers of Notes or Receivables. Sell, assign, transfer, discount or
otherwise dispose of any Receivable or any promissory note payable to it with
or without recourse, except for collection with Lender in the ordinary course
of business.
5.9 Dividends and Distributions. It will not purchase, redeem or otherwise
acquire for value any shareholder or partnership interests of Borrower or
return any capital to the shareholders or partners of Borrower and during the
term of this Agreement, Borrower will not pay dividends to shareholders or
make distributions of profits to partners of Borrower.
5.10 Modification of Documents. Change, alter or modify, or permit any change,
alteration or modification of its certificate of incorporation, by-laws or
other governing documents without Lender's prior written consent.
5.1 1 Change Business. Change or alter the nature of its business.
5.12 Settlements. Compromise, settle or adjust any claims in a material amount
relating to any of the Collateral, without the prior-written consent of
Lender.
5.13 Change Location or Name. Change the place where its books and records are
maintained or change its name or transact business under any other name
without the prior written consent of the Lender.
6 MISCELLANEOUS RIGHTS AND DUTIES OF LENDER
6.1 Charges Against Credit Or Deposit Balances. Lender, without demand and
acting in its sole and absolute discretion, in each instance, may charge and
withdraw from any credit or deposit balance which Borrower may then have with
Lender or with any affiliate of Lender, any amount which shall become due from
Borrower to Lender under this Agreement. Lender, within a reasonable time
thereafter, shall advise Borrower of each such charge.
6.2 Collections; Modification of Terms. Lender may, in its sole and absolute
discretion and at any time, demand, sue for, collect or receive any money or
property, at any time payable or receivable on account of or in exchange for,
or make any compromises with respect to any Collateral it deems desirable
including without limitation extending the time of payment, arranging for
payment in installments, or otherwise modifying the terms with respect to
payment or rights with respect to the Collateral, all of which may be effected
without notice to or consent by Borrower and without otherwise discharging or
affecting the Obligations, the Collateral or the security interests granted
hereunder.
6.3 Notification of Account Debtors. At any time, whether or not an Event of
Default (as hereinafter defined) has occurred or is continuing, Lender, if it
has not already done so, may notify the Account Debtors or obligors on any of
the Collateral to make payment directly to Lender, and Lender may endorse all
items of payment received by it which are payable to Borrower. Borrower, at
the request of Lender, shall notify the Account Debtors or other obligors of
Lender's security interest in the Collateral.
6.4 Uniform Commercial Code. At all times during the term of this Agreement or
until all sums due hereunder have been paid, and whether or not an Event of
Default has occurred or is continuing, Lender shall be entitled to all the
rights and remedies of a secured party under the Uniform Commercial Code as
enacted in New York, as the same may be amended from time to time.
6.5 Preservation of Collateral. At all times during the term of this Agreement
or until all sums due hereunder have been paid, and whether or not an Event of
Default has occurred or is continuing, Lender may take any and all action
which in its sole and absolute discretion is necessary or proper to preserve
its interest in the Collateral, including without limitation the payment of
debts of Borrower which might, in Lender's sole and absolute discretion,
impair the Collateral or Lender's security interest therein, purchase
insurance on the Collateral, repair the Collateral, or pay taxes or
assessments thereon, and the sums so expended by Lender shall be secured by
the Collateral, shall constitute a portion of the Obligations and shall be
payable on demand with interest at the rate set forth in Section 1.2 hereof
from the date expended by Lender until repaid by Borrower.
6.6 Mails. Lender is authorized to (and Borrower shall, upon request of
Lender) notify the postal authorities to deliver all mail, correspondence or
parcels addressed to Borrower to Lender at such address as Lender may direct.
Lender will return to Borrower mail received by it that does not represent
collections of Receivables or matters relating to the Collateral after the
Lender has examined same.
6.7 Lender's Right to Cure. In the event Borrower shall fail to perform any of
its obligations hereunder or under any of the Relevant Documents, then Lender,
in addition to all of its rights and remedies hereunder, may perform the same
at the cost and expense, or for the account, of Borrower, but shall not be
obligated to do so. In any such event, Borrower shall promptly reimburse
Lender together with interest at the rate set forth in Section 1 .2 hereof
from the date such sums are expended until repaid by Borrower.
6.8 Test Verifications. Lender shall have the right to make test verifications
of any and all Collateral in any manner and through any medium Lender
considers advisable, and Borrower shall render any necessary assistance to
Lender in such regard.
6.9 Power of Attorney. Borrower hereby irrevocably appoints Lender as its
lawful attorney and agent in fact to execute financing statements and other
documents and agreements as Lender may deem necessary for the purpose of
perfecting any security interests, mortgages or liens under any applicable
law. Further, Lender is hereby authorized to file on behalf of Borrower, in
its name, and at its expense, such financing statements, documents or
agreements in any appropriate governmental office. Lender shall give Borrower
notice of any filing made hereunder. Borrower hereby grants a power of
attorney to Lender to endorse Borrower's name on checks, notes, acceptances,
drafts and any other instruments requiring Borrower's endorsement, to change
the address where Borrower's mail pertaining to the collection and
administration of Collateral should be sent and to open all such mail and to
do such other acts and things necessary to effectuate the purposes of this
Agreement. All acts by Lender, its agents, employees, and attorneys are hereby
ratified and approved, and neither the Lender, nor its agents, employees, and
attorneys, shall be liable for any acts of omission or commission, or for any
error of judgment or mistake. Borrower hereby grants a power of attorney to
Lender to file proofs of loss respecting the Collateral with the appropriate
insurers and to endorse any checks or drafts constituting insurance proceeds.
The powers of attorney granted to Lender in this Agreement are coupled with an
interest and are irrevocable so long as this Agreement is in force. Lender
will provide Borrower with copies of any documentation which the Lender
creates or files hereunder.
6.10 Omitted.
7. DEFAULT.
The occurrence of any of the following shall constitute an event of default
("Event of Default"):
7.1 Failure to Pay. Failure to pay any Obligation or part thereof, including
any installment of principal or interest or other charges due and owing to
Lender when due;
7.2 Failure to Perform. Failure to perform or abide by any covenant contained
in this Agreement or the Relevant Documents;
7.3 Cross Default; Default on Other Debt. The occurrence of any default on any
other obligation or indebtedness of Borrower or any guarantor of Borrower to
any third parties so that the holder of such obligation or indebtedness
declares such obligation or indebtedness due prior to its date of maturity;
7.4 False Representation or Warranty. Borrower shall have made any
representation or warranty in this Agreement, the Relevant Documents, or in
any document or certificate executed by Borrower incident to this Agreement,
which is at any time found to have been false in any material respect at the
time such representation or warranty was made or thereafter;
7.5 Petition Bar or Against Borrower. Borrower ceases to do business
as a going concern or makes an assignment for the benefit of creditors, or any
proceeding shall have been commenced by or against Borrower under any
bankruptcy
law or any amendment thereto (including without limitation a petition for
reorganization, arrangement or extension) or under any other insolvency laws
providing for the relief of debtors, or Borrower shall be adjudicated
bankrupt, insolvent or in need of any relief provided to debtors by any-court,
or if a meeting of Borrower's creditors shall have been called;
7.6 Appointment of Receiver. A receiver, custodian, trustee, conservator or
liquidator is appointed for Borrower, or all or a substantial part of its
assets;
7.7 Judgments; Levies. If any final judgment or judgments (except those
covered by insurance), or any levy, sequestration, or attachment, which in the
aggregate exceed $5,000.00, against Borrower or its property, remains unpaid,
undischarged, unsatisfied, unbonded or undismissed;
7.8 Change in Condition. There occurs any change in the condition or affairs,
financial or otherwise, of Borrower or of any endorser, guarantor of Borrower
or surety for the liability of Borrower to Lender which in the opinion of
Lender impairs Lender's security or increases its risk;
7.9 Change in Ownership. At any time fifty-one percent(51 %) or more of the
beneficial ownership of the Borrower shall not be owned by Gerard A Powell;
7.10 Insecurity. At any time the Lender deems itself insecure;
7.11 Liquidation or Dissolution. The liquidation and/or dissolution of
Borrower.
8. REMEDIES.
8.1 Acceleration; Right To Proceed Against Collateral.
(a) Upon notice by Lender of the occurrence of an Event of Default, the total
amount (the "Default Amount") of (i) the aggregate amount of the unpaid
balance of principal and interest of the Revolving Loan and all other sums
which are then due and unpaid; and (ii) any other amount of principal and
interest remaining to be repaid on all Obligations together with interest on
the Default Amount at the rate provided for in Subsection 1.2 hereof, from
said occurrence until paid in full shall, at the option of Lender, become
immediately due and payable without further notice or demand; and
(b) Borrower shall, at its expense, promptly deliver any or all Collateral not
otherwise in the possession or control of Lender to such place as Lender may
designate. In addition, and not as an alternative to the preceding sentence,
Lender shall have the right to enter upon the premises where the Collateral is
located and (a) utilize any premises owned or leased by Borrower for the
purpose of selling the Collateral, or (b) take immediate possession of and
remove the Collateral, all without liability to Borrower except such as is
occasioned by the gross negligence of Lender, its employees or agents. Lender
may sell, or cause to be sold, on Borrower's premises or elsewhere, any or all
of the Collateral in one or more public or private sales or other
dispositions, on such terms and at such price as Lender may deem advisable,
for cash or on credit, for immediate or future delivery, in bulk or in
parcels, without assumption of any credit risk, without demand of performance
(which demand is hereby expressly waived), all on three (3) days notice to
Borrower (if any notice is required by law) of any public sale or the time
after which a private sale or other disposition may be made, which Borrower
hereby agrees shall be reasonable notice of such sale or other disposition,
and in connection therewith Lender may grant options and may impose reasonable
conditions thereon, and the purchasers of any Collateral so sold shall
thereafter hold the same absolutely, free from any claim or right of any kind,
including any equity of redemption of Borrower (any such equity being hereby
expressly waived and released), and Lender or any of its nominees or agents
may buy the Collateral at any public sale. Lender may also elect to retain the
Collateral or any part thereof and may apply the proceeds from the liquidation
of the Collateral to Borrower's Obligations. The proceeds, if any, of any such
sale or liquidation by Lender shall be applied: First
to the payment of all fees and expenses incurred by Lender as a result of such
Event of Default, including without limitation any legal fees and expenses
incurred in obtaining possession of the Collateral, preparing the Collateral
for sale or lease, and selling and/or liquidating it; Second, to pay the
Default Amount to the extent not previously paid by Borrower; and Third, to
pay any excess remaining thereafter to Borrower. Borrower agrees that any
action taken by Lender in accordance with this section 8.1(b) shall be deemed
to be commercially reasonable.
(c) In addition to and notwithstanding any other rights granted by law or this
Agreement (or any limitations contained in this Agreement on any such rights),
Lender shall have the rights and remedies with respect to the Collateral of a
secured party under the Uniform Commercial Code of the State of New York.
8.2 Set-Offs.
(a) Upon the occurrence of an Event of Default, Lender shall have the right,
immediately and without notice or other action to set-off against any
Obligations any money owed by Lender (or any affiliate of Lender) in any
capacity to Borrower, including, without limitation money in any credit or
deposit account, whether or not then due, and Lender shall deemed to have
exercised such right of set off and to have made a charge against any such
money immediately upon the occurrence of such Event of Default even though the
actual book entries may be made at a time subsequent thereto.
(b) If other lenders, including without limitation, affiliates of Lender, have
participated with Lender with respect to loans to Borrower pursuant to the
terms hereof, then, Borrower hereby authorizes such other participating
lenders, upon the occurrence of an Event of Default, immediately and without
notice or other action, at the request of Lender, to set off against any of
Borrower's liabilities to Lender any money owed by such participating lenders
in any capacity to Borrower, whether or not due, and to remit the monies
set-off to Lender.
8.3 Cumulative Remedies: Waivers. No remedy referred to herein is intended to
be exclusive, but each shall be cumulative and in addition to any other remedy
referred to above or otherwise available to Lender at law or in equity. No
express or implied waiver by Lender of any default or Event of Default
hereunder shall in any way be, or be construed to be, a waiver of any future
or subsequent default or Event of Default. The failure or delay of Lender in
exercising any rights granted it hereunder upon any occurrence of any of the
contingencies set forth herein shall not constitute a waiver of any such right
upon the continuation or recurrence of any such contingencies or similar
contingencies and any single or partial exercise of any particular right by
Lender shall not exhaust the same or constitute a waiver of any other right
provided herein. The Events of Default and remedies provided herein are in
addition to and are not restrictive of and shall be in addition to any and all
other rights and remedies of Lender provided under the Uniform Commercial Code
or other applicable law.
8.4 Waive Jury Trial Lender and Borrower hereby waive all right to a trial by
jury in any litigation relating to this Agreement, the Relevant Documents or
other agreements or instruments between them.
8.5 Costs and Expenses. Borrower shall be liable for all costs, charges and
expenses, including in-house and outside .attorneys' fees equal to 15 percent
of the Obligations plus disbursements, incurred by Lender by reason of the
occurrence of any Event of Default or the exercise of the Lender's remedies
with respect thereto.
8.6 No Marshaling. Lender shall be under no obligation whatsoever to proceed
first against any of the Collateral before proceeding against any other of the
Collateral. It is expressly understood and agreed that all of the Collateral
stands as equal security for all Obligations, and that Lender shall have the
right to proceed against any or all of the Collateral in any order, or
simultaneously, as in its sole and absolute discretion it shall determine. It
is further understood and agreed that Lender shall have the right, as it in
its sole and absolute discretion shall determine to sell any or all of the
Collateral in any order or simultaneously.
9. WAIVERS, CONSENTS
9.1 Waivers. Borrower waives demand, presentment, notice of dishonor or
protest of any instruments either of Borrower or others which may be included
in the Collateral.
9.2 Consents. Borrower consents:
(a) To any extension, postponement of time of, payment, indulgence or to any
substitution, exchange or release of Collateral.
(b) To the addition or release of any party or persons primarily or
secondarily liable, or acceptance of partial payments due with respect to
Collateral and the settlement, compromising or adjustment of the Obligations
hereunder.
10. SURVIVAL
All representations and warranties made herein or in any certificate or
instrument contemplated hereby shall survive any independent investigation
made by Lender and the execution and delivery of this Agreement, and said
certificates or instruments and shall continue so long as any Obligations are
outstanding and unsatisfied, applicable statutes of limitation to the contrary
notwithstanding. Lender's knowledge or notice of facts or circumstances that
would render any representation or warranty untrue or misleading shall not
discharge Borrower from liability arising by reason of such misrepresentation
or breach of warranty.
11. EFFECT OF HOLIDAY
If any payment pursuant to this Agreement or the Relevant Documents becomes
due and payable on a Saturday, Sunday or legal holiday under the laws of the
State of New York, the maturity thereof shall be extended to the next
succeeding banking day.
12. NOTICES
12.1 Written. Effective Date. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given when sent by
registered or certified mail, return receipt requested, facsimile
transmission, overnight delivery service such as Federal Express, or hand
delivery.
12.2 To Lender.
Notices to Lender shall be directed to:
STERLING FINANCIAL SERVICES CO.
500 Seventh Avenue
New York, New York 10018
12.3 To Borrower.
Notices of Borrower shall be directed to:
COOPERATIVE IMAGES, INC.
210 West 4th Street
East Stroudsburg, Pennsylvania 18301.
13. TERMINATION OF AGREEMENT
13.1 Upon the effective date of termination of this Agreement, all Obligations
shall be due and payable by Borrower to Lender.
13.2. Termination By Lender. Lender shall have the right, at any time, in its
sole and absolute discretion, to terminate this Agreement.
13.3 Termination By Borrower.
(a) Borrower may terminate this Agreement, without penalty, upon any
anniversary date of the execution hereof by giving Lender no less than
sixty(60) days prior written notice. This Agreement shall terminate upon the
anniversary date if and only if the Borrower has on the anniversary date paid
to the Lender in full all of the Obligations.
(b) Notwithstanding the provisions of Subsection (a) hereof, Borrower may
terminate this Agreement at any time upon:
(i) giving sixty (60) days prior written notice to Lender
of its intention to do so; and
(ii) paying to Lender, in full all of Borrower's Obligations;
and
(iii) paying to Lender, as liquidated damages, an amount equal to six (6)
times the average monthly interest owed by Borrower to Lender on the
Obligations during the Twelve (12) month period immediately preceding the
Borrower's notice. The average monthly interest computation shall exclude any
month for which no interest is owed by Borrower to Lender.
(c) For purposes of Subsection (b) hereof, Lender may, at its option, deem
this agreement terminated by Borrower if, (i)within a ninety day period, more
than 50% of the average of the preceding six month's balances of Borrower's
Obligations to Lender are repaid, without Lender's express written consent,
from funds arising from sources other than payments made directly by Account
Debtors or other obligors on their respective obligations included in the
Collateral; or (ii) there has occurred an Event of Default or an event which,
with the giving of notice or the lapse of time, or both, would become an Event
of Default hereunder, the occurrence of which would permit Lender to exercise
any of its remedies under Section 8 of this Agreement (without regard to
whether such remedies have been exercised).
(d) Liquidated damages payable under Subsection (c) shall be an amount equal
to six (6) times the average monthly interest owed by Borrower to Lender on
the Obligations during the Twelve (12) month period, excluding any month for
which no interest is owed by Borrower to Lender, immediately preceding the
first day of the ninety day period under Subsection (c)(i) or the date of
occurrence under Subsection (c)(ii). The average monthly interest calculation
shall not exclude any month for which interest would have been owed by
Borrower to Lender but for Borrower's acts that caused termination hereunder.
13.4 Rights Upon Termination. Notwithstanding Lender's termination of this
Agreement as herein provided, Lender's security interest, rights and remedies
herein set forth shall remain in full force and effect until all of Borrower's
Obligations to Lender are paid in full. Upon full payment of all Obligations
and termination of this Agreement, Lender shall, upon request of Borrower,
reassign all Receivables to Borrower without recourse and without warranties
express or implied.
14. AMENDMENTS AND MISCELLANEOUS
14.1 Amendments. The terms of this Agreement shall not be waived, altered,
modified, amended, or supplemented in any manner whatsoever except by a
written instrument signed by Lender and Borrower.
14.2 Assignment. This Agreement and all rights of Lender hereunder shall be
assignable by Lender without Borrower's consent. Without the prior written
consent of Lender, Borrower shall not assign this Agreement or its obligations
hereunder.
14.3 Binding on Successors. This Agreement shall be binding upon and insure to
the benefit of the parties hereto and their respective successors and
permitted assigns.
14.4 Invalidity. Any provision of this Agreement which may be determined b~
competent authority to be prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof, and any such prohibition or unenforceability in any jurisdiction shall
not invalidate or render unenforceable such provision in any other
jurisdiction.
14.5 Gender. Throughout this Agreement, the masculine shall include the
feminine and vice versa and the singular shall include the plural and vice
versa, unless the context of this Agreement indicates otherwise.
14.6 Joint Borrowers. If more than one entity executes this Agreement as
Borrower, then for the purpose of this Agreement the term Borrower shall mean
each entity and each entity shall be jointly and severally liable as Borrower
for the Obligation as defined herein without regard to which entity receives
the proceeds of the loans and advances made hereunder. Each such entity hereby
acknowledges that it expects to derive economic advantages from each such loan
or advance made hereunder.
14.7 Cross Default/Cross Collateral. All other agreements between Borrower and
Lender and/or any of Lender's affiliates are hereby amended so that (a) a
default under this Agreement is a default under all other agreements and a
default under any one of the other agreements is a default under this
Agreement; and (b) the Collateral under this Agreement secures the Obligations
now or hereafter outstanding under all other agreements with Lender and/or its
affiliates and the collateral pledged under any other agreement with Lender
and/or its affiliates secures the Obligations under this Agreement.
14.8 Expenses of Lender. Borrower agrees to pay all costs and expenses of the
Lender in connection with the preparation, execution, delivery, and
administration of this Agreement and other instruments and documents to be
executed contemporaneously herewith.
14.9 Section and Paragraph Headings. Section and paragraph headings are for
convenience only and shall not be construed as part of this Agreement.
14.10 Law. This Agreement together with all assignments made hereunder shall
be deemed made in New York and subject to the laws of the State of New York
and Borrower consents to the jurisdiction of any State or Federal Court
located within the State of New York, and if Borrower is now, or in the future
becomes, a non-resident of the State of New York, Borrower hereby waives
personal service of any and all process and consents that all such service of
process shall be made by certified or registered mail, return receipt
requested, directed to Borrower at its address appearing on the records of
Lender and service so made shall be complete ten (10)-days~after the same has
been posted as aforesaid.
IN WITNESS WHEREOF, the undersigned have caused these presents to be executed
the day and year first above written.
BORROWER COOPERATIVE IMAGES, INC.
BY:/s/ Gerard A. Powell
--------------------
Its-President
BORROWER ELECTIVE INVESTMENTS, INC.
BY:/s/ Gerard A. Powell
Its President
LENDER STERLING FINANCIAL SERVICES CO
BY:
Its President
Schedule 1
Most recent financial statements delivered by Borrower to Lender:
1996 Corporate Income Tax Returns
Schedule 2
----------
Location of Collateral
----------------------
All Collateral of the Borrower, unless and until such Collateral is
transferred to Lender's possession, is to be maintained at Borrower's places
of business located at:
210 West 4th Street
East Stroudsburg, Pennsylvania 18301.
Schedule 3
----------
Other Items
-----------
1. None
Schedule 4
----------
Names and Locations of Offices
------------------------------
Other names under which Borrower conducts business:
Locations where Borrower maintains Books and Records:
210 West 4th Street
East Stroudsburg, Pennsylvania 18301.
Locations where Borrower conducts business or operations:
210 West 4th Street
East Stroudsburg, Pennsylvania 18301.
Schedule 5
----------
Financing Statements
--------------------
Existing financing statements on file against the Borrower naming the
following secured parties:
Leasecomm Corporation
950 Winter Street
Waltham, MA 02154
Continuing Guaranty - Unlimited
Guaranty of Payment
To Sterling Financial Services Co.
For valuable considerations, and to induce you to loan money and extend credit
in reliance hereon, I hereby guaranty, unconditionally, the payment, when due,
of each and every obligation, direct or contingent, now existing or hereafter
arising, owing to you or any of your affiliates by Cooperative Images, Inc.
and or Elective Investments, Inc., hereinafter individually and collectively
called the Borrower.
This guaranty is a continuing guaranty, and shall remain in force until
revoked by notice in writing to you, and revocation hereof shall not prejudice
your claim hereunder with respect to any obligation arising prior to
revocation.
This guaranty shall extend to and cover every extension or renewal of, and
every obligation accepted in substitution for any obligation guaranteed
hereby, and I shall be bound hereby irrespective of any collateral security
you may at any time hold.
I hereby waive notice of acceptance of this guaranty, and also presentment,
demand, protest and notice of dishonor of any note or other obligation hereby
guaranteed.
I hereby consent and agree that you may, without prejudice to any claim
against me hereunder, at any time, or from time to time,. in your discretion,
and without notice to me, (1) extend or change the time of payment, and the
manner, place or terms of payment of any obligation hereby guaranteed; (2)
exchange, release or surrender all or any collateral security which you may at
any time hold in connection with any obligation hereby guaranteed; (3) sell,
and yourself purchase, any such collateral at public or private sale or at any
.broker's board, crediting net proceeds upon any obligation secured thereby;
and (4) settle or compromise with the Borrower, any obligation hereby
guaranteed, or subordinate the payment of any such obligation of the Borrower
or other person to the payment of any other debt which may be owing to you.
No delay on your part in exercising any right hereunder, or in taking any
action to collect or enforce payment of any obligation hereby guaranteed,
either as against the Borrower or any other person primarily or secondarily
liable with the Borrower, shall operate as a waiver of any such right or in
any manner prejudice your rights against me.
I agree that, if the maturity of any obligation hereby guaranteed is
accelerated, by bankruptcy or otherwise, as against the Borrower, such
maturity shall also be deemed accelerated for the purpose of this guaranty,
any without demand upon or notice to me.
As security for the performance of my obligations hereunder, I hereby give you
a general lien upon or right of setoff of, any balance of deposit account at
any time to my credit with you or any of your affiliates and any other of my
funds or assets at any time in your custody or control.
1
If the obligations of the Borrower are also guaranteed by any other person, by
continuing guaranty or by endorsement of any note by the Borrower or
otherwise, the obligation of such other person and my obligation hereunder
shall be deemed to be several; and the release by you of any such other
guarantor , or settlement with him, or the revocation or impairment of his
guaranty, shall not operate to prejudice your rights against me hereunder.
In witness whereof, have hereunto set my hand seal as of June 26, 1998.
Gerard A. Powell
State of
County of
On June 21st 1998, before me, the subscriber, a notary public of the State of
PA., personally appeared Gerard A. Powell who, I am satisfied is the person
who signed this Guaranty; and I having first made known to him the contents
thereof, he-acknowledged that he signed, sealed, and delivered the same as his
voluntary act and deed for the uses and purposes therein expressed.
Notary Public
Notarial seat
/S/ F Rogers Notary Public
Middle Smithfield Twp. Monroe County
My commission Expires Jan. 10, 2000
Member, Pennsylvania Association of Notaries
RECEIVABLES PURCHASE AGREEMENT
This Receivables Purchase Agreement (the "Agreement") is entered into as of
October 14, 1999 by and between MONTEREY FINANCIAL SERVICES., INC. (MFS), a
California Corporation ("MFS"), with its address at 4095 Avenida de la Plata,
Oceanside, California 92056 and ELECTIVE INVESTMENTS, INC., a(n) Pennsylvania
Corporation ("SELLER"), with its address at 210 West 4th Street, East
Stroudsburg, Pennsylvania 18301 , with respect to the following facts:
RECITALS
A. SELLER is in the business of providing certain products and services to
various individuals from time to time and SELLER finances the cost of such
products and services by entering into retail installment contracts,
promissory notes, security agreements, membership agreements and/or other
instruments (each, a "Contract" and collectively, the "Contracts") with such
individuals. Seller's services and/or products are described on Schedule "A"
attached hereto and incorporated herein by this reference.
B. MFS is in the business of purchasing instruments such as the Contracts in
its ordinary course of business.
NOW, THEREFORE, in consideration of the above premises and of the
representations, warranties and agreements contained herein, the parties
hereby covenant and agree as follows:
1. DEFINITIONS. The following terms shall have the following meaning as used
in this Agreement.
(a) "Assignment" means an Irrevocable Assignment in a form approved by MFS,
transferring and assigning to MFS all of SELLER's right, title and interest in
and to a Purchased Contract, all payments thereunder and all related
guaranties and collateral therefore on a form prescribed by MFS.
(b) "Collected Funds," with respect to a Servicing Contract, means all monies
collected on such Servicing Contract due to SELLER or any of SELLER's
affiliates.
(c) "Contract" has the meaning set forth in Recital A above and must be on a
form approved by MFS.
(d) "Contract/Credit Application" means an executed original Contract, an
original credit application, and/or an original credit report or statement
concerning the Customer and any related documents and information from time to
time required by MFS in accordance with MFS's standard procedures.
(e) "Customer" means an individual who enters into a Contract with SELLER.
(f) "Default" means (i) a breach by SELLER, which has not been cured during
any applicable cure period, of any representation, warranty, covenant, term or
condition of this Agreement or of any documents to which SELLER is obligated
or by which it is bound in connection with a Contract, (ii) a default under
any guaranty of the obligations of SELLER hereunder which has not been cured
during any applicable cure period, (iii) a default by SELLER under any other
agreement by and between SELLER or any affiliate thereof and MFS and any
affiliate thereof which has not been cured during any applicable cure period,
or (iv) a Material Adverse Change in Financial Condition with respect to
SELLER.
(g) "Defaulted Contract" has the meaning set forth in Section 5 hereof.
(h) "Event of Cancellation" shall, with respect to a Contract, refer to (i) a
Material Adverse Change in Financial Condition, business or operations of
SELLER since the date of this Agreement or of the Customer since the date of
the related Offer Documentation Package; or (ii) the occurrence of an event
which causes a representation made by the Customer, SELLER
or any other party in connection with the Contract or under this Agreement to
be or become false or misleading in any material respect when made or,
although true when made, will not be true and correct at the time the products
and/or services related to such Contract are rendered to the Customer; or
(iii) a breach of any term of such Contract, or of any related guaranty or
credit support agreement, or (iv) any Default; or (v) notification by a
Customer to SELLER or to MFS of its intent to cancel all or any part of the
Contract.
(i) "Final Contract/Credit Application" means such documents as MFS shall from
time to time require in accordance with its standard procedures in order to
complete the purchase of a Contract and to pay the Purchase Price of the
Contract to SELLER including, without limitation, (i) an Assignment; (ii) the
one and only executed original of the Purchased Contract; (iii) a Uniform
Commercial Code financing statement necessary to perfect MFS's interest in the
Purchased Contract; and (iv) any other document or instrument required by the
terms of MFS's written notice to SELLER pursuant to Section 2 below including,
without limitation any guaranties or security agreements.
(j) "Material Adverse Change in Financial Condition" means a significant
negative change in the balance sheet or profit and loss statements of SELLER
or a Customer from time to time, insolvency, inability to pay debts as they
mature, failure to operate as a going concern, filing bankruptcy, making an
assignment for the benefit of creditors, appointment of a receiver,
dissolution, change in the corporate structure or in a material portion of the
stock ownership or, as to a Customer, the death or incapacity of the Customer.
(k) "Origination Fee" means the one-time fee payable from SELLER to MFS in the
amount set forth on Schedule "A," attached hereto, to cover the expenses of
MFS in reviewing SELLER and this transaction including, without limitation,
expenses in obtaining credit reports concerning SELLER, in obtaining a Dun and
Bradstreet rating concerning SELLER, in performing and title or Uniform
Commercial Code searches concerning SELLER and in the filing of Uniform
Commercial Code financing statements.
(1) "Purchased Contract" means a Contract, the Customer of which meets all of
the credit and income requirements of MFS at the time it is purchased and
which MFS elects, in its sole discretion, to purchase pursuant to the terms
hereof.
"Purchase Price," with respect to each Contract, means the amount set forth on
the attached Schedule "A".
(m) "Repurchased Contract" means a Purchased Contract which has been
repurchased by SELLER pursuant to the terms hereof.
(n) "Repurchase Price" means the price at which SELLER is obligated to
repurchase a Purchased Contract from MFS and shall be an amount equal to (i)
the Purchase Price paid by MFS to SELLER less all payments attributable to
principal received on such Purchased Contract; plus (ii) a Repurchase Fee in
an amount set forth on Schedule "A" attached hereto.
(o) "Reserve Amount," with respect to each Contract, means the amount to be
withheld by MFS from the Purchase Price for each Purchased Contract as set
forth on Schedule "A" attached hereto, which Reserve Amount shall be withheld
as a reserve against losses which may be incurred by MFS on any of the
Purchased Contracts.
(p) "Reserve Account" means the balance of all Reserve Amounts for all
Purchased Contracts withheld by MFS from time to time.
(q) "Reserve Rebate" means the amount set forth on Schedule "A" attached
hereto which will be paid by MFS to SELLER from time to time pursuant to
Section 3(b) of this Agreement.
(r) "Servicing Contract" means any Contract which MFS has elected not to
purchase for any reason and any Repurchased Contracts, which MFS elects, in
its sole discretion, to administer and service pursuant to the terms of this
Agreement.
(s) "Servicing Fee," with respect to each Servicing Contract, means the
amount set forth on Schedule "A" attached hereto which will be paid by SELLER
to MFS as compensation for MFS's administration and servicing of the Servicing
Contracts.
(t) "Term," with respect to this Agreement, means the period of time
set forth on Schedule "A" attached hereto; provided, however, that MFS may
terminate this Agreement immediately upon notice to SELLER in the event of a
Default.
2. PURCHASE OF CONTRACTS.
During the Term, MFS shall have the option, but not the obligation, in its
sole discretion, to purchase Contracts submitted by SELLER to MFS. Upon the
execution of a Contract, SELLER shall provide to MFS the Contract/Credit
Application. Upon receipt thereof, MFS shall review the Contract/Credit
Application and shall notify SELLER whether it elects to exercise its option
to purchase such Contract by delivery of written notice to SELLER within ten
(10) days after MFS's receipt of the Contract/Credit Application. If MFS
exercises its right to purchase a Contract, SELLER shall submit a Final
Contract/Credit Application to MFS. MFS's obligation to purchase any Contracts
shall be conditioned upon MFS's receipt of a complete Final Contract/Credit
Application with respect thereto in form and substance acceptable to MFS. In
no event shall MFS assume or be delegated any of SELLER's duties,
responsibilities, liabilities or obligations to the Customer under any
Contract and SELLER shall remain liable therefore notwithstanding an
assignment of a Purchased Contract to MFS.
3. FUNDING OF PURCHASE PRICE; RESERVE ACCOUNT.
(a) Provided that no Event of Cancellation has occurred with respect to
a Contract that MFS has elected to purchase, MFS shall, within five (5)
business days after SELLER's submission of a complete Final Contract/Credit
Application to MFS, pay to SELLER the Purchase Price for each Purchased
Contract less(i) the Reserve Amount which shall be retained by MFS in the
Reserve Account (noninterest bearing account) and may be commingled with MFS's
other funds, and (ii) the amount of the Origination Fee which shall be
withheld by MFS from the Purchase Price and/or Servicing Fee of the first
Contract(s) purchased or serviced hereunder until the full Origination Fee has
been paid.
(b) The amount of the Reserve Account shall, at all times, be at least
equal to the Minimum Reserve as such term is defined in Schedule "A" attached
hereto. The reserve account, which is a pooled reserve, shall be held for a
minimum of twelve months. MFS shall deliver to SELLER by no later than the
last day of January and July of each year a report which identifies the
remaining amount of the Reserve Account as of January 1 and July 1 of each
year following the initial twelve (12) month minimum period. By no later than
the last day of January and July of each year during the Term of this
Agreement beginning on the first of such dates to occur. MFS shall pay to
SELLER the Reserve Rebate calculated as set forth on Schedule "A" and as
follows: The minimum as stated in schedule "A" will always be kept in the
Reserve Account. Other than the Reserve Rebate, no interest or other sum will
ever be paid by MFS to SELLER on amounts held in the Reserve Account. Except
with respect to the Reserve Rebate, the Reserve Account shall be held by MFS
until the later of the date on which (i) all sums due to MFS on all Purchased
Contracts have been paid in full, (ii) this Agreement has been terminated and
MFS has been paid in full for all amounts due hereunder, or (iii) MFS no
longer has any contingent liability to return any amounts which it may have
received pursuant to any Purchased Contract under applicable laws.
4. REPRESENTATIONS AND WARRANTIES.
(a) SELLER hereby represents, warrants and covenants to MFS, its
successors and assigns, as of the date hereof and as of the date of submission
of each Contract/Credit Application, Final Contract/Credit Application and
Assignment in respect of each Contract, that:
(1) If a corporation, partnership or limited liability company,
SELLER is duly organized and validly existing as such, and has full power to
carry on its business as it is presently conducted including, without
limitation, the sale of the Contracts, to enter into this Agreement and to
carry out the transactions contemplated hereby;
(2) the execution and delivery of this Agreement and the performance
by SELLER of the transactions contemplated hereby have been duly authorized by
all necessary action, including and action required under Seller's governing
instruments;
(3) this Agreement constitutes a legal, valid and binding obligation
of SELLER enforceable in accordance with its terms, without any offsets or
counterclaims;
(4) all of SELLER's business operations are duly licensed and
permitted under all federal, state and local laws, rules and regulations of
any governmental authority;
(5) SELLER has duly paid any and all license, franchise, corporation
or other taxes, fees, imposts, duties or charges levied, assessed or imposed
upon it or upon any of its properties of whatsoever kind or description;
(6) neither the execution of this Agreement nor the consummation of
the transactions contemplated hereby will constitute a violation or default of
any statute, rule or decree of any court, administrative agency or
governmental body to which SELLER is or may be subject;
(7) there are and will be no agreements between SELLER or its agents
and any Customer in connection with any Purchased Contract and no express or
implied warranties have been or will be made by SELLER or its agents to such
Customer, except as set forth in the Contract;
(8) SELLER and its agents have not participated in and have no
knowledge of any fraudulent and/or misleading act in connection with any
Contract or with respect to any Customer;
(9) each Customer is bona fide and has legal capacity to enter into
such Contract and the signature of the named Customer is genuine;
(10) each Contract is and shall be valid, genuine and
noncancellable, enforceable according to its terms and in compliance with
applicable laws, rules and regulations of any governmental authority whether
federal, state, county, municipal or otherwise including, without limitation,
usury laws, the Federal Truth-in-Lending Act, the Equal Credit Opportunity
Act, the Fair Credit Billing Act, the Fair Credit Reporting Act, the Fair Debt
Collection Practices Act, the Federal Trade Commission Act, the Magnuson-Moss
Warranty Act, Federal Reserve Board Regulations B, M and Z, state adaptions of
the National Consumer Act and of the Uniform Consumer Credit Code and any
other consumer credit, equal opportunity, disclosure or repossession laws or
regulations applicable with respect to a particular Contract.
(11) each Contract is a valid deferred payment obligation for the
amount therein set forth and such Contract shall not be subject to any
disputes, offsets or counterclaims and the property, goods or services
described in the Contract have never been the subject of any other Contract
between SELLER and the Customer and the Contract has not been rescinded by
SELLER or Customer for any reason whatsoever;
(12) all credit or other information reasonably relevant to a credit
determination concerning the Customer known to SELLER will have been disclosed
to MFS and shall be true, complete and correct as of the date submitted;
SELLER shall supplement such information as necessary so that such information
remains true, complete and correct; SELLER has no knowledge of any facts,
which presently or upon the occurrence of certain events in the future, may
result in the uncollectability and/or unenforceability of the Contract;
(13) SELLER owns each Contract submitted to MFS hereunder free and
clear of any liens, charges, security interests, encumbrances or other
restrictions which may adversely affect MFS's rights with respect thereto,
SELLER has the absolute right to sell, assign and transfer the contracts free
and clear of all rights of third parties, and upon assignment MFS will obtain
good title to such Purchased Contract free and clear of any liens, charges,
encumbrances or other restrictions whatsoever;
(14) the execution and delivery by SELLER of this Agreement does not
conflict with or constitute a material default with respect to any indenture,
loan agreement, mortgage, lease, deed or other agreement to which it is a
party
or by which it is bound and there are no suits or proceedings pending or, to
the knowledge of SELLER, threatened in any court or before any regulatory
commission, board or other administrative or governmental agency against or
affecting SELLER which could materially impair SELLER's ability to perform its
obligations hereunder; and
(15) the financial statements of SELLER delivered to MFS from time
to time fairly present the financial position of SELLER as of the date thereof
in conformity with generally accepted accounting principles consistently
applied and the results of operations of SELLER for the periods covered
thereby, and since the date of the latest such financial statements, there has
been no Material Adverse Change in the Financial Condition of SELLER.
(b) The representations and warranties contained herein shall be deemed to be
continuing representations, warranties and covenants of Seller and shall
continue beyond the term of this Agreement and until all obligations of Seller
hereunder have been performed and all payments have been made to Monterey
under all Purchase Contracts.
5. SELLER'S REPURCHASE OBLIGATIONS; MFS'S PROTECTION AGAINST LOSSES UPON
DEFAULT.
(a) If (i) any of SELLER's representations or warranties contained in
this Agreement shall be materially untrue or incorrect; (ii) any of SELLER's
covenants and agreements contained herein shall be breached by SELLER with
respect to any particular Purchased Contract(s) and, if capable of being
cured, SELLER fails to cure such breach within thirty (30) days after written
notice thereof; (iii) the Customer does not receive the products and/or
services contracted for in the Contract; (iv) the Customer cancels the
Contract pursuant to the terms of such Contract; or (v) the Customer is due a
tuitional refund pursuant to applicable state law, SELLER unconditionally
agrees that it will, within thirty (30) days after MFS's written notice and
demand to SELLER, either (x) repurchase the Purchased Contract(s) affected by
such breach for a price equal to the Repurchase Price; or (y) replace the
Purchased Contract affected by such breach by assigning to MFS all of its
right, title and interest in and to Contract(s) owned by SELLER with a
principal balance(s) identical to the Repurchase Price, which substituted
Contracts shall be subject to review and approval of MFS in its sole
discretion. In such event, MFS agrees to reassign the applicable Purchased
Contract to SELLER, AS IS, WHERE IS, WITHOUT RECOURSE OR WARRANTY OF ANY KIND
(except that MFS shall represent and warrant that it owns the applicable
Purchased Contract an it has not transferred it to a third party).
(b) In addition to Section 5(a), if (i) any installment on a Contract
becomes due and remains unpaid for more than ninety (90) days; (ii) if a
Customer dies or becomes incapacitated; (iii) if a Customer becomes insolvent
or makes an assignment for the benefit of creditors, or (iv) if a petition for
a receiver or a bankruptcy is filed by or against any Customer (each, a
"Defaulted Contract" and collectively, the "Defaulted Contracts"), then in any
of such events, SELLER shall, within thirty (30) days after MFS's written
notice of the Defaulted Contract, either (x) repurchase the Defaulted
Contract; or (y) replace the Defaulted Contract(s) on the terms set forth in
Section 5(a) above. Notwithstanding the foregoing, SELLER's obligation to
repurchase or replace Purchased Contracts pursuant to this section 5(b) shall
be limited to the amounts held in the Reserve Account.
6. SECURITY AGREEMENT IN COLLATERAL. To secure the accuracy and full
performance of each of SELLER's representations, warranties, covenants and
obligations hereunder, SELLER hereby grants to MFS a security interest (the
"Security Interest") in (i) all of the Purchased Contracts, (ii) all amounts
held in the Reserve Account, (iii) all of the Servicing Contracts, and (iv)
all proceeds of the foregoing. The Purchased Contracts, the Reserve Account,
the Servicing Contracts and all proceeds of the foregoing are sometimes
hereinafter collectively referred to as the "Collateral." SELLER shall execute
and deliver to MFS one or more Uniform Commercial Code financing statements
describing the Collateral to be filed in all offices where appropriate as may
be necessary or advisable to perfect SELLER's security interest in the
Collateral.
7. RIGHT OF OFFSET. Although the first course of action relating to Section
5(b) of this agreement will be to withdraw defaulted contracts balances from
the reserve account, MFS has the right, with 30 day notice to SELLER, to
offset amounts owed by SELLER to MFS hereunder against amounts held by MFS in
the Reserve Account. Without limiting the generality of the foregoing, if
SELLER is obligated to repurchase a Purchased Contract for any reason and does
not provide MFS with cash or an acceptable replacement Contract within thirty
(30) days following notice by MFS to SELLER of the Customer's default, then
MFS has the right, without notice to SELLER to offset amounts owed by SELLER
to MFS hereunder against (i) amounts held by MFS in the Reserve Account, (ii)
the Reserve Rebate, (iii) the amount of any Collected Funds otherwise payable
to SELLER by MFS hereunder, and/or (iv) any other amounts payable by MFS to
SELLER. Nothing herein shall require MFS to first seek or exhaust any remedy
against the Customer, its successors and assigns, or any other person
obligated with respect to the Contract, or to first foreclose, exhaust or
otherwise proceed against any collateral or security which may be given in
connection with the Contract, if any.
8. RIGHT TO INSPECT. MFS (through any of its officers, employees, or
agents) shall have the right from time to time hereafter at (BUYERS) sole cost
and expense to audit and inspect (SELLERS) books and to check, test and
appraise the collateral in order to verify (SELLERS) financial condition or
the amount, quality, value, condition of, or any other matter relating to
collateral.
9. INDEMNIFICATION. SELLER and MFS each hereby agree to defend, indemnify
and hold harmless each other, and the other party's affiliates, subsidiaries,
employees, officers, directors, shareholders, attorneys and agents, from and
against any and all losses, claims, liabilities, demands and expenses
whatsoever, including without limitation reasonable attorneys' fees and costs
arising out of or in connection with any breach by the indemnifying party of
its representations, warranties, covenants or obligations hereunder. Further,
SELLER hereby agrees to defend, indemnify and hold harmless MFS, and its
affiliates, subsidiaries, employees, officers, directors, shareholders,
attorneys and agents, from and against any and all losses, claims,
liabilities, demands and expenses whatsoever, in contract or tort, including
without limitation reasonable attorneys' fees and costs arising out of or in
connection with (i) the selection, manufacture, purchase, acceptance or
rejection by a Customer of any of the products or services, as applicable,
relating to any Purchased Contract, and the delivery, possession, maintenance,
use, condition, return or operation of any of such products or services, as
applicable, (including, without limitation, latent and other defects in any
product, whether or not discoverable by MFS or the Customer), and (ii) any and
all of the Servicing Contracts, unless caused by the gross negligence or
willful misconduct of MFS. SELLER shall, upon request, immediately defend any
and all actions based on, or arising out of, any of the foregoing. All
indemnities and obligations contained herein shall survive the expiration or
termination of the Agreement and the expiration or termination of any
Purchased Contract or any Servicing Contract.
10. MFS'S RIGHTS TO DEAL WITH CONTRACTS. MFS shall have the right to deal
with all Contracts and Customers in the sole exercise of its business
judgment, and without limiting the generality of the foregoing, may do the
following without notice to or consent by SELLER: (a) amend any Contract or
renew or extend the time for payment or performance or grant any other
indulgence to any Customer; (b) make any settlements or compromises therewith;
(c) demand additional collateral or release any collateral securing such
Contract; (d) restructure, defer or otherwise alter payment terms of such
Contract; and (e) transfer or assign any of its rights or obligations in
regard of any Contract. MFS'S and SELLER's rights and obligations hereunder
shall remain unaffected by any such activities.
11. COVENANTS OF SELLER. During the Term hereof, SELLER agrees to: (a)
cooperate with MFS in giving notice to the Customer of the assignment of the
Purchased Contract; (b) comply with all of SELLER's representations,
warranties and other statutory and contractual obligations to the Customer;
(c) in the event SELLER receives any payment on a Contract, SELLER shall
promptly forward such payment to MFS and SELLER hereby irrevocably appoints
MFS its attorney-in-fact to act in its name and stead in regard of the
Contracts, including without limitation, the right to endorse or sign SELLER's
name on all checks, collections, receipts or other documents with regard to
the Contracts, as MFS deems necessary or appropriate to protect MFS'S right,
title and interest in and to the Contract and any security intended to be
afforded thereby, (e) give MFS written notice of any Default hereunder or any
claim which might adversely affect the rights of MFS hereunder; (f) conduct
its business in accordance with sound business practices and standards and
perform and fulfill all obligations to Customers under Contracts and related
marketing materials, brochures and/or agreements delivered to Customers; (g)
maintain all licenses and authorizations required by all applicable regulatory
authorities; (h) secure, maintain and provide evidence of liability insurance
in amounts as may be required by MFS; and (i) promptly deliver to MFS such
information concerning the financial or other condition of SELLER as MFS may
reasonably request.
12. DEFAULT AND REMEDIES. Upon the occurrence of a Default by or with respect
to SELLER, MFS may exercise any or all of the following remedies in addition
to any other remedies available to MFS under applicable law: (a) declare all
amounts payable hereunder to MFS to be immediately due and payable (including
the Servicing Fees and any amounts due with respect to the repurchase of
Purchased Contracts) and withdraw and offset such amount from and against the
Reserve Account, the Collected Funds and/or any other amounts due to SELLER
hereunder; (b) require the repurchase of any or all of the Purchased
Contracts; (c) terminate this Agreement; or (d) exercise all remedies provided
to a secured party by this Agreement and/or by the Uniform Commercial Code in
effect from time to time or any other applicable law, including, without
limitation, the right to take possession of any collateral and to use such
collateral in the operation of Seller's business pursuant to the appointment
of a receiver or trustee for Seller's business.
13. ORIGINATION FEE. A one-time Origination Fee in the amount set forth on
Schedule "A" must accompany application for financing the SELLERS receivables.
This fee covers the credit check of the SELLER and to perfect MFS interest in
the Purchased receivables, with the filing of a UCC-1.
14. MISCELLANEOUS.
(a) MFS and SELLER acknowledge that they are separate entities, each of which
has entered into this Agreement for independent business reasons. There shall
be no restriction on MFS's or SELLER's independent business judgment,
including, but not limited to, decisions regarding selection of a Customer,
pricing, market decisions or credit decisions hereunder.
(b) SELLER further acknowledges and agrees that an assignment, transfer or
sale to a third party of a controlling ownership and/or voting interest in
SELLER shall be deemed to be an assignment under this Agreement, which shall
require the consent of MFS. SELLER further acknowledges and agrees that MFS
may condition any consent to an assignment on both SELLER and the proposed
assignee continuing to be jointly and severally bound by all obligations of
SELLER hereunder. In addition, MFS may withhold its consent to such
assignment, in its sole and absolute discretion, in light of SELLER's unique
ability to provide services and/or products to its Customers who enter into
Contracts purchased hereunder.
(c) The provisions of this Agreement and the representations, rights and
obligations of the parties hereto shall survive the execution and delivery
hereof, and except as they relate to entering into further Contracts, shall
survive the termination of this Agreement.
(d) Any notice required to be given hereunder shall be delivered personally,
shall be sent by first class mail, postage prepaid, return receipt requested,
by overnight courier, or by facsimile, to the respective parties at the
addresses given in the preamble of this Agreement, which addresses may be
changed by the parties by notice conforming to the requirements of this
Agreement. Any such notice deposited in the mail shall be conclusively deemed
delivered to and received by the addressee four (4) days after deposit in the
mail, if all of the foregoing conditions of notice shall have been satisfied.
All facsimile communications shall be deemed delivered and received on the
date of the facsimile, if (1) the transmittal form showing a successful
transmittal is retained by the sender, and (b) the facsimile communication is
followed by mailing a copy thereof to the addressee of the facsimile in
accordance with this paragraph. Any communication sent by overnight courier
shall be deemed delivered on the earlier of proof of actual receipt or the
first day upon which the overnight courier will guarantee delivery.
(e) The parties agree that this Agreement has been executed and delivered in,
and shall be construed in accordance with the internal laws of the State of
California as applied to contracts between California residents entered into
and to be performed wholly within California. SELLER hereby consents to the
jurisdiction of any local, state or federal court located within the County of
San Diego, State of California; provided, however, nothing contained herein
shall preclude MFS from commencing any action hereunder in any Court having
jurisdiction thereof.
- -7-
(f) If at any time any provision of this Agreement shall be held by any court
of competant Jurisdiction to be illegal void or unenforceable, such provision
shall be of no force and effect, but the illegality or unenforcability of such
provision shall have no effect upon and shall not impair the enforceabilty of
any other provision of this Agreement.
(g.) This Agreement constitutes the entire agreement between the parties
concerning the subject matter hereof and incorporates all representatations
made in connection with negotiation of the same. The terms hereof may not be
terminated, amended, supplemented or modified orally, but only by an
instrument duly executed by each of the parties hereto. The recitals set forth
above are incorporated herein by this reference.
(h) Subject to the provisions of Section 16(b), this Agreement and any
amendments hereto shall be binding on and inure to the benefit of the parties
hereto end their respective permitted successors and assigns.
(i) In the event there is any conflict between this Agreement and any
ancillary agreements with respect to any Contract, the terms and conditions of
this Agreement shall control.
(j) Additional terms of this Agreement, all of which are hereby incorporated
herein by this reference are set forth in the following schedules, addenda,
exhibits or riders (list):
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by there respective duly authorized representatives on the date text
above written
SELLER MFS:
ELECTIVE INVESTMENTS, INC MONTEREY FINANCIAL SERVICES,
INC.
a Pennsylvania Corporation a California Corporation
By: /s/ Gerard A Powell By: /s/Robert C. Steinke
Title: President Title: President
FORM OF IRREVOCABLE ASSIGNMENT
FOR, VALUE RFC, the undersigned ELECTIVE INVESTMENTS, a(n) Pennsylvania
Corporation (the 'Assignor") hereby sells. assigns and transfers unto MONTEREY
FINANCIAL. SERVICES,INC.,(MFS) a California corporation ("Assignee"), its
successors and assigns all of Assignor's right, title and interest in and to
the contracts, promissory notes security agreements, membership agreements,
instruments aced accounts receivable (each, a 'Contract' and collectively, the
'Contracts") described on the attached Annex A. together with the property
described therein, if any, and all rights and remedies thereunder, including
all guaranties thereof or collateral security therefore, without recourse or
warranty except as provided herein. Assignor authorizes Assignee to collect
any and all installments and payments due on each Contract and to take action
thereunder which Assignor might otherwise take with respect to each Contra
This Assignment is being delivered pursuant to and upon all of the
representations, warranties, covenants and agreements on the part of the
undersigned Assignor contained in that certain Receivables Purchase Agreement,
dated as of October 14, 1999(the "Agreement" between Assignor and Assignee
which Agreement contains certain representations, warranties and covenants
from Assignor to Assignee, including without limitation, certain obligations
on behalf of the Assignor to repurchase the Contracts or to replace the
Contracts upon the terms and conditions set forth therein. This Assignment
shall be governed by and interpreted in accordance with the terms of the
Agreement and the laws of the State of California. Capitalized terms used
herein which are not defined herein shall have the meanings set forth in this
Agreement.
Assignee may, without notice to Assignor, enter into any settlement,
forbearance or other variation is terms in connection with any Contract, or
discharge or release the obligations of the Obligor or other person, by
operation of law or otherwise, without affecting Assignor's liability here
under, except that any settlement, forbearance, or other variation by Assignee
or it's assigns a shall not cause Assignor's Repurchase Price to be greater
than would have been in the absence of the settlement, forbearance, or other
variation. Assignee's failure or delay in enforce any right hereunder does not
constitute a waiver of that right. Assignor shall not make any collections or
repossessions with respect to the Contracts.
Assignor hereby certifies on and as at the date hereof (a) that each and
every representation to and warranty of the undersigned contained in the
Agreement is true and correct on and as of the data hereof in all material
respects with the same force and effect as if originally expressed on and as
of the data' hereof and (b) that each of the conditions set forth is the
Agreement with respect to the purchase ad the Contracts hereunder has bean
fulfilled or waived on the date hereof.
Assignor does not delegate and Assignee shall not be required to assume any of
the duties, responsibilities, liabilities or obligations of Assignor under any
Contract assigned hereunder and Assignor shall remain liable therefore
notwithstanding the assignment contained herein.
IN WITNESS WHEREOF, the undersigned has executed this Limited Recourse
Assignment to be duly executed this 14th day of October, 1999.
ELECTIVE INVESTMENTS,INC.a(n)
Pennsylvania Corporation
By;/s/ Gerard A. Powell
Title: President
FORM OF FULL RECOURSE ASSIGNMENT
FOR VALUE RECEIVED, the undersigned ELECTIVE INVESTMENTS, INC, a(n)
Pennsylvania Corporation (the "Assignor") hereby sells, assigns and transfers
unto MONTEREY FINANCIAL SERVICES, INC., (MFS) a California corporation
("Assignee"), its successors and assigns, all of Assignor's right, title and
interest in and to the contracts, promissory notes, security agreements,
membership agreements, instruments and accounts receivable (each, a "Contract"
and collectively, the "Contracts"), together with the property described
therein, if any, and all rights and remedies thereunder, including all
guaranties thereof or collateral security therefor, without recourse or
warranty except as provided herein. Assignor authorizes Assignee to collect
any and all installments and payments due on each Contract and to take action
thereunder which Assignor might otherwise take with respect to each Contract.
This Assignment is being delivered pursuant to and upon all of the
representations, warranties, covenants and agreements on the part of the
undersigned Assignor contained in that certain Receivables Purchase Agreement,
dated as of October 11, 1999 (the "Agreement") between Assignor and Assignee,
which Agreement contains certain representations, warranties and covenants
from Assignor to Assignee, including, without limitation, certain obligations
on behalf of the Assignor to repurchase the Contracts or to replace the
Contracts upon the terms and conditions set forth therein. This Assignment
shall be governed by and interpreted in accordance with the terms of the
Agreement and the laws of the State of California. Capitalized terms used
herein which are not defined herein shall have the meanings set forth in the
Agreement.
In addition to the foregoing, Assignor agrees that if any installment on a
Contract becomes due and remains unpaid for more than ninety (90) days, or if
a Customer otherwise fails to perform in accordance with the Contract terms,
or if a Customer becomes insolvent or makes an assignment for the benefit of
creditors, or if a petition for a receiver or in bankruptcy is filed by or
against any Customer, then in any of such events, Assignor will, within thirty
(30) days after Assignor's written notice of the applicable Contract and
demand to Assignor, either (i) repurchase the Purchased Contract to which the
default or bankruptcy relates in lawful money of the United States of America
for a price equal to the Repurchase Price; or (ii) to replace the Purchased
Contract to which the default relates by assigning to Assignee an undivided
interest in and to a Contract owned by Assignor with a principal balance
identical to the Repurchase Price. In such event, Assignee agrees to reassign
the Purchased Contract to Assignor, AS IS, WHERE IS, WITHOUT RECOURSE OR
WARRANTY OF ANY KIND (except that Assignee shall represent and warrant that it
owns the applicable Purchased Contract and it has not transferred the
applicable Purchased Contract to a third party).
Assignee may, without notice to Assignor, enter into any settlement,
forbearance or other variation in terms in connection with any Contract, or
discharge or release the obligations of the Obligor or other person, by
operation of law or otherwise, without affecting Assignor's liability
hereunder, except that any settlement, forbearance, or other variation by
Assignee, or its assigns shall not cause Assignor's Repurchase Price to be
greater than it would have been in the absence of the settlement, forbearance,
or other variation. Assignee's failure or delay in enforcing any right
hereunder does not constitute a waiver of that right. Assignor shall not make
any collections or repossessions with respect to the Contracts.
Assignor hereby certifies on and as of the date hereof (a) that each and
every representation and warranty of the undersigned contained in the
Agreement is true and correct on and as of the date hereof in all material
respects with the same force and effect as if originally expressed on and as
of the date hereof and (b) that each of the conditions set forth in the
Agreement with respect to the purchase of the Contracts hereunder has been
fulfilled or waived on the date hereof.
SCHEDULE "A"
TO RECEIVABLES PURCHASE AGREEMENT
DATED October 14, 1999
BETWEEN MONTEREY FINANCIAL SERVICES, INC.
AND
ELECTIVE INVESTMENTS, INC.
DESCRIPTION OF SELLERS SERVICES/PRODUCTS:
PURCHASE PRICE.
The Purchase Price of a Purchased "A" credit Contract shall be a percentage
of the total balance, excluding any interest charges (the "Contract Balance")
owed by the Customer named therein calculated as follows:
a. Ninety-four and one-half percent (94.50 %) of the
Contract Balance for purchased Contracts payable in zero (0) months to
twenty-four (24) months from the date of assignment to MFS;
and
b. Ninety-two percent (_92 %) of the Contract Balance for
Purchased Contracts payable in twenty-five (25) months to thirty-six (36)
months from the date of assignment to MFS; and
c. Ninety percent ( 90 %) of the Contract Balance for
Purchased Contracts payable in thirty-seven (37) months to forty-eight (48)
months from the date of assignment to MFS; and
The interest rate of the Membership Contracts purchased
must be twenty-one and seven tenths percent (21.7%), or greater. For each one
percent (1%) drop below this percentage the purchase price will be reduced by
one percent (1%).
The Purchase Price of a Purchased "B" credit Contract shall
be a percentage of the total balance, excluding any interest charges (the
"Contract Balance") owed by the Customer named therein calculated as follows:
d. Ninety-one percent (91 %) of the Contract Balance for
purchased Contracts payable in zero(0) months to twenty-four (24) months from
the date of assignment to MFS; and
e. Eighty-nine percent 89 %) of the Contract Balance for
Purchased Contracts payable in twenty-five (25) months to thirty-six (36)
months from the date of assignment to MFS; and
f. Eighty-six percent ( 86 %) of the Contract Balance for
Purchased Contracts payable in thirty-seven (37) months to forty-eight (48)
months from the date of assignment to MFS; and
g. The interest rate of the Membership Contracts purchased
must be twenty-one and seven-tenths (21.7%), or greater. For each one percent
(1%) drop below this percentage the purchase price will be reduced by one
percent (1%).
ADJUSTMENT TO PURCHASE PRICE.
The foregoing Purchase Price percentages may be adjusted inversely
either up or down on the date of purchase of a Contract by an amount equal to
one-half (1/2) of the change in the Prime Rate from the first day of each
month if the Prime Rate (as defined below) is above nine percent (9%).
However, in no case will the Prime Rate Adjustment be made below the Prime
Rate of nine percent (9%). For the purpose of this Agreement, the "Prime Rate"
shall means the highest rate of interest announced by the main branch of the
Union Bank, San Diego, California as its "prime" or "reference" rate for
commercial loans of short term maturities in effect as of the commencement of
business on the first business day of each month throughout the term of this
Agreement. On the date of this Agreement, the "Prime Rate" is eight and one
quarter percent (8.25%).
RESERVE AMOUNT.
Purchased Contracts shall be purchased by MFS withholding from the
Purchase Price a Reserve Amount equal to:
a. Ten percent (10%) of the principal balance of each
Purchased Contract payable in zero (0) to forty-eight (48) months for
Customers with acceptable credit ("Plan A Credits") as determined by MFS in
its sole discretion; and
b. Fifteen percent (15%) of the principal balance of each
Purchased Contract payable in zero (0) to forty-eight (48) months for
Customers with acceptable credit ("Plan B Credits") as determined by MFS in
its sole discretion: and
RESERVE REBATE.
The "Reserve Rebate" means all amounts, if any, held in the Reserve
Account on January 1 and July 1 of each year in excess of the Minimum Reserve
plus the percentage of delinquent accounts (delinquent accounts defined as
more than 60 days past due). The Minimum Reserve shall be equal to the total
of:
a. Ten percent (10%) with respect to "Plan A Credits" times
the total aggregate contract balance owed on all Purchased Contracts that are
payable in zero (0) to forty-eight (48) months on such date.
b. Fifteen percent (15%) with respect to "Plan B Credits"
times the total aggregate contract balance owed on all Purchased Contracts
that are payable in zero (0) to forty-eight (48) months on such date.
c. Before any reserve rebate is paid, MFS has the right to
take any excess reserves from either Plan A or Plan B and apply it to either
reserve if the reserve is less than the required amount.
REPURCHASE FEE.
The Repurchase Fee for each Repurchased Contract shall be twenty-five
Dollars ($25.00).
TERM.
The Term of this Agreement is a period of one (1) year(s) following
the date hereof and for each succeeding one ( 1 ) year period thereafter
unless sooner terminated as follows:
a. Upon the bankruptcy, the winding up or dissolution of
either party this Agreement shall be terminated effective upon the filing of
such bankruptcy or the effective date of the winding up
or dissolution of such party, as applicable;
b. Upon the written agreement of the parties hereto this
Agreement may be terminated in accordance with the terms of such agreement; or
c. If MFS determines in good faith, that there has been a
material adverse change in the business or financial condition of SELLER or
that the prospect of SELLER's performance pursuant to the terms of this
Agreement has been impaired for any reason, MFS may terminate this Agreement
effective immediately upon giving written notice of such termination to
SELLER.
ORIGINATION FEE.
The non-refundable Origination Fee shall be a one time five hundred
Dollars ($500.00).
NSF FEES
AGENT shall collect and retain allowable fees associated with the
return of a dishonored check, negotiable order of withdrawal, or share draft
issued in connection with this Agreement.
THE REST OF THIS PAGE IS LEFT BLANK INTENTIONALLY
A-3
Assignor does not delegate and Assignee shall not be required to assume
any of the duties, responsibilities, liabilities or obligations of Assignor
under any Contract assigned hereunder and Assignor shall remain liable
therefore notwithstanding the assignment contained herein.
This Full Recourse shall apply only to the "Six Months Same-as-Cash"
contracts. This is defined as follows:
Any consumer who elects to pay cash within six (6) months, then Elective
Investments will buyback these contracts on the same percentage as originally
advanced either by check or replacing with a new qualified contract or at
Monterey's option, deducting from any billing payouts or reserve refunds.
IN WITNESS WHEREOF, the undersigned has executed this Limited Recourse
Assignment to be duly executed this _______day of__________,19__.
MONTEREY FINANCIAL SERVICES, INC. ELECTIVE INVESTMETS INC.
By: /s/ Robert C. Steinke By:/s/ Gerard A. Powell
Title: President Title: President
Dated: 10/25/99 Dated:_________________
CORPORATE GUARANTIES
These GUARANTIES("Guaranties") are executed effective as of October 11, 1999
by Elective Investments, Inc., a Pennsylvania Corporation("Guarantors") and
Cooperative Images, Inc., a New Jersey Corporation("Guarantors"), and
"thatlook.com", a Nevada Corporation,("Guarantors") in favor of Monterey
Financial Services, Inc., a California Corporation("Monterey").
1. Monterey and Elective Investments, Inc.("Client") have entered into a
Purchase Agreement dated October 11, 1999("Purchase Agreement"). As a material
inducement for Monterey to enter into this agreement and the accuracy of all
of Client's representations and warranties under the Purchase Agreement, as
the same may be amended, modified or supplemented from time to time, as set
forth herein below. Terms not otherwise defined in these Guaranties shall have
the same meaning as set forth in the Purchase Agreement.
2. For and in consideration of the recitations contained herein and for the
consideration set forth in the Purchase Agreement, and to induce Monterey to
enter into the Purchase Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which we hereby acknowledged
Guarantors hereby unconditionally, irrevocably and absolutely guarantees to
and for the benefit of Monterey, or its successors and assigns, the full
performance and/or correctness of, each and every representation, warranty,
covenant and/or obligation made by or on behalf of the Client pursuant to the
Purchase Agreement, as the same may be amended, modified or supplemented form
time to time. Said obligations, representation, warranties covenants, and
required performance are sometimes collectively referred to herein as the
"Obligations." Guarantors hereby acknowledges receipt of a copy of each and
every one of the Obligations, including but not limited to a copy of the
Purchase Agreement.
3. For purposes of these Guaranties, the term "performance" as used herein
shall be defined in its most comprehensive sense and includes any and all
obligations and liabilities of the Client arising out of the Purchase
Agreement, whether die or not due, absolute or contingent, determined or
undetermined and whether the Client maybe liable individually or jointly with
others, or whether such performance may be or hereafter become otherwise
unenforceable.
4. These Guaranties are, and are intended to be, a guaranty of the
Obligations, in addition to any other guaranty, endorsement or collateral held
by Monterey therefore, whether or not furnished by Guarantors. Guarantors
shall have no right or subrogation with respect to any payments made by
Guarantors hereunder until all of the Obligations are performed in full.
5. The Guarantors authorizes Monterey, without notice or demand and without
affecting Guarantors's obligations hereunder, from time to time: (i) to
review, extend, increase, accelerate or otherwise change the time for
performance of the Obligations or any part thereof; (ii) to take from any
party and hold collateral for the performance of the Obligations or any part
thereof, and to exchange, enforce or release such collateral or any part
thereof; (iii) to accept and hold any endorsement or guaranty of performance
of the Obligations or any part thereof and to release or substitute any such
endorser or guarantor, or any party who has given any security interest in any
collateral as security for the performance of the Obligations, or any part
thereof, or any other party in any way obligated to perform the Obligations or
any part thereof; and (iv) to direct the order or manner of the disposition of
any and all collateral and the enforcement of any and all endorsements and
guaranties relating to the Obligations or any part thereof as Monterey, in its
sole discretion, may determine.
6. If Guarantors consist of more than one person or entity, then:
(i) Monterey shall have the right to discharge or release one or more
Guarantors from any Obligation hereunder, in whole or in part, without in any
way releasing, impairing or affecting its right against the others of the
Guarantors;
(ii) The obligations and liabilities of the Guarantors hereunder shall be
joint and several;
(iii) A separate action or actions may be brought and prosecuted against any
or all Guarantors whether or not any action or actions are brought against the
Client or whether or not the Client is joined in any such action or actions;
and
(iv) Reference to the Guarantors and/or the undersigned herein shall refer to
any one or more, or all, of the Guarantors, as the context so requires or as
Monterey may elect.
7. No delay or omission by Monterey in exercising any right or remedy
hereunder shall operate as a waiver thereof or of any other right or remedy,
and no single or partial exercise thereof shall preclude any other or further
exercise thereof or the exercise of any other right or remedy. All rights and
remedies of Monterey hereunder are cumulative.
8. Guarantors represents that the Obligations and the Purchase Agreement as
originally delivered, and as the same may be amended, extended, modified or
renewed, have been or will by duly executed by the Client and are the valid
obligations of the Client in accordance with their terms. No invalidity,
illegality or unenforceability of the Obligations shall release, diminish or
extinguish the liability of Guarantors hereunder.
9. Guarantors represents that Monterey's books and records containing the
Purchase Agreement and accounts between Monterey and the Client shall be
admissible in any action or proceedings against the Guarantors and shall be
binding upon Guarantors for the purpose of establishing the items therein set
forth therein and shall constitute prima facia proof thereof.
10. These Guaranties shall remain in full force and effect as to Guarantors
until terminated by written agreement of Monterey. Any such termination shall
be applicable only to transactions having their inception after the effective
date of such termination and shall not affect Guarantors's guaranty of
Obligations arising out of transactions having their inception prior to such
date. Any payment or performance by Guarantors shall not reduce any future
obligation or liability hereunder.
11. Guarantors hereby waives any defense to the obligations and liabilities of
the Guarantors hereunder and any and all rights with respect thereto that the
Guarantors may otherwise have under the provisions of the applicable statutes
or other governing law as a result of Monterey's election of any remedy which
impairs or alters the rights of the Guarantors against the Client or any
collateral held by Monterey.
12. The Guarantors waives any and all rights to exoneration from any and all
of their liabilities hereunder pursuant to the provisions of the California
Civil Code and/or under any other applicable law. Without limiting the
generality of the foregoing, the Guarantors hereby expressly waives the
benefit of any provisions contained in Sections 2809, 2810, 2819, 2845, 2849
and 2850 of the California Civil Code.
13. Guarantors waives any and all right to require Monterey to: (a) proceed
against any or all of the Client; (b) proceed against or exhaust any security
held from any or all of the Client; (c) pursue any other remedy that Monterey
may have whatsoever. Until the Obligations shall have been performed in full,
Guarantors shall have no right of Client, and waives any benefit of and any
right to participate in any security now or hereinafter held by Monterey.
Guarantors waives all presentments, demands for performance, notices of
non-performance, protests, notices of protest, notices of dishonor, notices of
acceptance of the Guaranties, notices of default given to the Client, notices
of the existence or creation of new or additional obligations, notices of any
or all favorable and unfavorable information, financial or other, about the
Client, heretofore, now, or hereafter learned or acquired by Monterey and all
other notices to which Guarantors might otherwise be entitled and the right to
a jury trial in any action hereunder or arising out of Monterey transactions
with Client.
14. Guarantors's obligations and liabilities hereunder shall be separate and
distinct from those of the Client. If the Client defaults under any of the
Obligations, Monterey, at its option, may proceed directly against Guarantors,
without having commenced any action or obtained any judgement or any other
guarantor, and without applying any property of the Client (or any other
person) held as security for the performance of the Client's obligations under
any of the Obligations. The liability of Guarantors hereunder shall not be
released, diminished, or extinguished by Monterey's failure or delay in
enforcing any of its rights.
15. In addition to all liens upon and rights of set off against the monies,
securities or other property of Guarantors given to Monterey by law, Monterey
shall have a lien upon and a right of set off against all monies, securities
and other property of Guarantors now or hereafter in the possession of or on
deposit with Monterey, whether held in a general or special account or
deposit, or for safekeeping or otherwise; in every such lien and right of set
off may be exercised without demand upon or notice to Guarantors. No lien or
set off shall be deemed to have been waived by any act or conduct on the part
of Monterey, or by any delay in so doing; and every right of set off or lien
is specifically waived.
16. Any indebtedness of the Client now or hereafter held by Guarantors is
hereby subordinated to the indebtedness of the Client to Monterey. Guarantors
agrees that Monterey is entitled to rely on the powers of the Client or their
officers, directors, partners, or agents acting or purporting to act on their
behalf to assume and accept the Obligations and Monterey shall have no duty of
inquiry into such powers.
17. These Guaranties are absolute and unconditional and shall not be affected
by any act or thing whatsoever, except as expressly provided herein. The
obligations of Guarantors under these Guaranties shall not be altered, limited
or affected by any proceeding, voluntary or involuntary, involving the
bankruptcy, insolvency, receivership, reorganization, liquidation or
arrangement of Client or by any defense which Client may have by reason of the
order, decree or decision of any Guaranty shall be effective unless in writing
signed by Monterey. Guarantors further agrees to pay all costs and expenses,
including, without limitation, attorney's fees, at any time paid or incurred
by Monterey in endeavoring to enforce the Obligations of the Client or these
Guaranties.
18. These Guaranties and the transactions evidenced hereby shall be construed
and interpreted under the laws of California, as applied to contracts between
California residents entered into and to be performed wholly within
California. Nothing herein shall be construed to constitute the Guarantors as
a maker, co-maker or principal debtor. Any married person who is a Guarantors
hereunder hereby expressly agrees that recourse may be had against his or her
separate property. The death of any Guarantors shall not terminate these
Guaranties as to such deceased Guarantors. These Guaranties shall be binding
upon the heirs, executors, administrators, successors and assigns of the
Guarantors and shall inure to the benefit of Monterey's successors and
assigns.
19. If any provision of these Guaranties or portion of such provision, or the
application thereof to any person or circumstance, shall, to any extent, be
held invalid or unenforceable, the remainder of these Guaranties or the
remainder of such provision and the application thereof to other persons or
circumstances, other than those as to which it is held invalid or the fullest
extent permitted by the law. Unless the context otherwise requires, the
masculine, feminine and neuter genders and the singular and the plural shall
each be deemed to include one another, as appropriate.
20. Monterey may, without notice, assign these Guaranties in whole or in part.
Guarantors hereby consents to the personal jurisdiction of any local, state or
federal court located within the County of San Diego, State of California and
acknowledges and agrees that any proceedings arising from, out of, or in any
way related to these Guaranties brought by Guarantors shall be brought in San
Diego County, California: provided however, nothing contained herein shall
preclude Monterey from commencing any action hereunder in any other court
having jurisdiction thereof.
These Guaranties are specifically intended to The Receivables Purchase
Agreement dated October 18, 1999 and Article 5(a) of said agreement. These
Guaranties do not apply to Article 5(b) of the Receivables Purchase Agreement
dated October 18, 1999
IN WITNESS WHEREOF, these Guaranties have been executed by the undersigned at
____________ as of the date first above written.
GUARANTORS
/s/ Gerard A. Powell
ELECTIVE INVESTMENTS, INC. Gerard A. Powell, President
COOPERATIVE IMAGES, INC. Gerard A. Powell, President
"thatlook.com", Gerard A. Powell, President
STATE OF PENNSYLVANIA
COUNTY OF MONROE
On October 14, 1999 before me, the undersigned, a Notary Public in and for
said state, personally appeared Gerard A. Powell, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person(s)whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the dame in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
Witness my hand and offical seal.
Notary Seal
/s/Christina Cooke
Notary Public
Allentown, Lehigh County
My Commission Expires Oct. 2, 2000
CONSULTING SERVICES AGREEMENT
Parties to this Agreement are the following:
Consultant: Marquise Management Company Inc.
Client: Cooperative Images, Inc
The Consultant will consult with advise on the following manner:
1. He will create unique marketing programs for the client.
2. He will give advise on how to best manage client's marketing and
advertising program.
3. He will continually come up with new and unique ideas for selling client's
product.
Fees and expenses:
The consultant's fee for the above services is $7,800 monthly based upon an
estimated duration of four (4) years. All payments will be made upon the first
of each month for the previous month's activity. Expenses will be reimbursed
upon receipt of the invoice.
Signed under seal this 10th day of November 1996.
/s/ Gerard A. Powell Vincent Trapasso
CONSULTANT CLIENT
GUARANTEE AGREEMENT
This Agreement dated this 10th day of October 1997, between Marquise Building
and Management Company, hereinafter referred to as "Guarantor" and Cooperative
Images, Inc. and Elective Investments, Inc., hereinafter referred to as
"Borrower",
The parties agree to these terms and conditions:
1. Guarantor will use it's designee, Gerard Armond Powell, to personally
guarantee debts of the Borrower. Those debts of the Borrower will be limited
specifically to a transaction with Boyle Leasing Technologies.
2. In exchange for Guarantor's designee signing a personal guarantee, the
Guarantor will receive a 1 % guarantee fee on all individual loans that
originated by the Borrower that are hypothecated on the LeaseComm/Boyle
Leasing Technologies credit facility.
3. This Agreement is the total of the agreements between the parties relating
to the above mentioned guarantee.
4. The term of this Agreement will be for as long as Guarantor and/or his
designee are asked to guarantee obligations by the Borrower.
5. This Agreement is construed under the Laws of the Commonwealth of
Pennsylvania.
Marquise Building and Management Cooperative Images, Inc/
Company Elective Investment, Inc.
GUARANTOR BORROWER
/s/ Gerard A Powell /s/ Vincent Trapass
KING MEDIA, INC.
ADVERTISING AGREEMENT
This advertising agreement ("the Advertising Agreement") made the 30 day of
Dec
1996 between King Media, Inc. ("KMI") with its principal location at 656 East
Swedesford Road, Suite 325, Wayne, Pennsylvania 19087 and Cooperative Images,
Inc("Client") with its principal location at 210 West Fourth Street, East
Stroudsburg, PA 18301. KMI and Client are sometimes collectively referred to
as the (Party or Parties). This Advertising Agreement relates to the
advertising services provided to Client by KMI in accordance with the
following terms and provisions.
I Services
(A) KMI, as the sole and exclusive agency with respect to any and all the
short-form and long-form commercial advertising, will place broadcast and
cable advertising for Client on cable, network, and spot T. V. /s/Gerard
A.Powell
(B) KMI shall provide the following advertising, media, research, and
account supervisory Services("Services") to client relating to television, and
cable advertising. This list of services is not exclusive and the Parties
agree that there may be other Services which are reasonably necessary to carry
out those Services listed below:
(1) Media research and planning
(2) Rate negotiations
(3) Placement of Advertising
(4) Broadcast orders and billing
(5) Sales and budget monitoring
(6) Order transmission coordination
(7) Daily/Weekly CPO (order) analysis
(8) Commercial editing or duplication as required for broadcast
II. Payment
(A) Media Services
(1) Media services will be pre-paid to KMI at least 10 business days in
advance by Client. All payments are to be in U.S. funds payable at a U.S.
bank. Credit may be extended at KMI's sole and exclusive discretion, the
additional terms and conditions to be in writing as an addendum to this
agreement.
(2) KMI shall be paid the standard agency commission of 15% on media
volume up yo $19,999 gross weekly billings, 12% on media volume
$20,000-$29,999 and 10% on media volume of $30,000 and greater weekly.
Commission to be
determined by the difference between gross amount billed by the station and
the net amount paid to the station. Commission percentages and volumes may be
adjusted from time to time by mutual written agreement as an addendum to this
contract.
(3) KMI agrees to use funds paid by Client, less commission, solely to
purchase media or other services outlined by this agreement or required in
order for KMI to fulfill its obligations under this agreement.
(B) Media and Related Expenditures
Client agrees that all media expenditures and related expenses are the sole
responsibility of Client. Client agrees to pay interest at 1.5% monthly on any
unpaid balance due KMI. If suit or action by KMI is necessary to collect funds
due KMI from Client, Client agrees to pay reasonable attorney fees in said
suit or action.
III. Term and Expiration
The term of this agreement shall begin upon its execution by both Parties and
shall continue for five (5) years or until terminated by mutual written
agreement. Thereafter, this agreement will automatically renew for additional
two (2) year terms unless written notice is received 120 days prior to
expiration of its initial five (5) year term or any subsequent two (2) year
terms.
IV. Exclusivity
KMI will operate as the sole and exclusive agency with Client with respect to
any and all short-form and long-form commercial advertising and paid programs
on cable, network and spot TV and radio as long as this agreement remains in
force.
V. Cancellation
Both parties may cancel this agreement by mutual written agreement. OR
KMI may, upon 45 day written notice, cancel this agreement. All purchases
placed on behalf of the Client by KMI prior to the effective date of the
cancellation of this Advertising Agreement shall be consummated. KMI will
continue to service such advertising and receive applicable compensation.
Client will pay for all such advertising prior to the effective cancellation
date. OR
Client may terminate the exclusivity provision of this agreement (paragraph
I.V.) upon the following terms and conditions. KMI shall receive payment
monthly equal to two-thirds (2/3) of the applicable commission, as defined by
this contract, until the expiration date of this contract for any and all
advertising placed in the prior month with or by the client or any agent,
agency or vendor for or of the client, its assignees or successors for any
cosmetic surgery, dental or eye surgery or treatment programs or advertising
campaigns in whole or in part, whether such assignments or successions be in
whole or in part.
VI. Indemnification
Client will indemnify KMI against any loss KMI may sustain as a result of any
claims, suits, or proceedings brought against KMI due to advertising placed on
behalf of Client.
VII. Arbitration
Any dispute between the parties concerning any matter related to this
agreement or the advertising as referenced herein, and/or any right,
obligation and/or warranty arising hereunder shall be settled by arbitration.
Arbitration shall take place as provided under the Pennsylvania Uniform
Arbitration Acts of 1927 and 1980. The arbitrators shall be selected as
follows: the party demanding arbitration shall do so in writing, and, as part
of his demand, shall select an arbitrator. The party receiving the demand will
select his arbitrator and notify the party demanding arbitration in writing of
said selection within 10 days of service of the demand for arbitration. The
two arbitrators will select a third arbitrator. If the two arbitrators chosen
by the parties cannot agree on a third arbitrator within 14 days of the
selection of the second arbitrator, the Court of Common Pleas of Montgomery
County Pennsylvania shall elect the third arbitrator upon the filing of a
petition by either party. Each party will bear the cost of the arbitrator it
selects. . The expense of the third arbitrator and all other expenses of
arbitration will be shared equally by the parties. The rules of evidence in
effect for the Court of Common Pleas shall govern the arbitration hearing. A
decision agreed to by two of the three arbitrators will be binding and may be
entered as a judgment in the Court of Common Pleas.
VIII. Waiver
The failure by either Party of this Advertising Agreement to object or to take
affirmative action with respect to any conduct by the other which is in
violation of the terms of this Advertising Agreement shall not be construed as
a waiver thereof.
IX. Miscellaneous Provisions
(A) Notices
Any notices required or permitted hereunder shall be in writing and shall be
delivered personally or sent by registered or certified mail, return receipt
requested, addressed to the Party entitled to receive same at the address for
such Party set forth herein or at such other address as a Party may hereafter
give by written notice. All such notices shall be deemed given when received
by, or delivered to, the addressee.
(B) Relationship of the Parties
Nothing contained herein shall be deemed as creating a partnership, joint
venture, or similar business relationship between the Parties.
(C) Entire Agreement
This Advertising Agreement sets forth the entire understanding between the
Parties with respect to the subject matter contained herein. This Agreement
supersedes any and all previous agreements between the Parties and may not be
altered, amended or discharged except by a subsequent writing signed by the
Parties hereto.
(D) Governing Law
This Advertising Agreement shall be governed by, construed and enforced in
accordance with, the laws of the Commonwealth of Pennsylvania, in the United
States of America.
IN WITNESS WHEREOF, the Parties hereto have set their hands and seals the date
first written above.
CLIENT KING MEDIA
By: /s/ Gerard A. Powell C.E.O. By: Allen Stern President
Date: 12-30-96 Date: 12/30/96
Addendum to Advertising Agreement made between King Media, Inc. and
Cooperative Images, Inc.
Addendum # 1
Credit and terms.
King Media, Inc. agrees to extend credit to Cooperative Images for short-form
direct response advertising on the following terms.
Payments for monthly media expenditures shall be made in four (4) equal weekly
installments, beginning the twelfth(12) week following the end of the
broadcast month.
All late payments will be charged interest at a rate of 1.5%.
King Media, Inc, at its sole discretion may cancel or modify these credit
terms as any time upon written notice. Should King Media, Inc. cancel or
modify credit terms, all amounts due in accordance with the new terms will be
paid to KMI by Cooperative in full within 10 business days of written notice
of the changes.
In whitness whereof, the Parties hereto have set their hands and seals,
Client King Media, Inc.
By:/s/Gerard A. Powell,CEO date 12-30-96 By:/s/Allen Stern,President
date 12/30/96
Addendum to Advertising Agreement made between King Media, Inc. and
Cooperative Images, Inc.
Addendum #2.
Exclusivity
King Media, Inc. agrees to allow Cooperative Images to secure another agency
for the purposes of buying short-form radio direct response for the calendar
years 1997 and 1998
King Media, Inc. releases Cooperative Images from the requirement of paying
2/3 of the appropriate commission on any such media purchases made through the
other agency or agencies for radio direct response for 1997 and 1998.
Nothing in this addendum shall be construed as a permenant modificaiton of the
exclusive of KMI's agency relationship.
In whitness whereof, the Parties hereto have set their hands and seals,
Addendum to Advertising Agreement made between King Media, Inc. and
Cooperative Images, Inc.
Client King Media, Inc.
By:/s/Gerard A. Powell,CEO date 11-12-97 By:/s/Allen Stern,President
date 11/12/97
Addendum #3
Credit terms and commission.
King Media, Inc. agrees to extend additional credit to Cooperative Images for
short-form direct response on the following terms.
For the period beginning with the June 1998 Broadcast month and ending with
the September 1998 Broadcast month, Payments for monthly media expenditures
shall be made in four (4) equal weekly installments, beginning the twenty
first(21st) week following the end of the broadcast month.
Commission rate payable to KMI for media on which this additional credit is
extended shall be at a full standard 15% commission.
All late payments will be charged interest at a rate of 1.5% per month.
King Media, Inc, at its sole discretion may cancel or modify these credit
terms as any tim notice. Should King Media, Inc. cancel or modify credit
terms, all amounts due in accord new terms will be paid to KMI by Cooperative
in full within 10 business days of written changes.
In whitness whereof, the Parties hereto have set their hands and seals,
Client King Media, Inc.
By:/s/Gerard A. Powell,CEO date 8-3-98 By:/s/Allen Stern,President date
8/3/98
thatlook.com, Inc. and
SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
---- ----
BASIC LOSS PER SHARE:
Net Loss $(1,781,468) $(2,962,165)
Weighted Average Shares Outstanding 13,445,360 11,009,846
Basic Loss Per Share $(0.13) $(0.27)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 63,471
<SECURITIES> 0
<RECEIVABLES> 1,470,018
<ALLOWANCES> (226,397)
<INVENTORY> 0
<CURRENT-ASSETS> 1,981,606
<PP&E> 551,883
<DEPRECIATION> 181,377
<TOTAL-ASSETS> 2,352,112
<CURRENT-LIABILITIES> 1,282,711
<BONDS> 3,022,728
0
0
<COMMON> 15,881
<OTHER-SE> (1,969,208)
<TOTAL-LIABILITY-AND-EQUITY> 2,352,112
<SALES> 0
<TOTAL-REVENUES> 5,412,398
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,346,158
<LOSS-PROVISION> 286,322
<INTEREST-EXPENSE> 1,561,386
<INCOME-PRETAX> (1,781,468)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,781,468)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,781,468)
<EPS-BASIC> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
