SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
Commission file number 0-17832
Allstate Financial Corporation
(Exact name of registrant as specified in its charter)
Virginia 54-1208450
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2700 S. Quincy Street, Arlington, VA 22206
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (703)931-2274
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act: Common
Stock - No par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB. X
Revenues for year ended December 31, 1997, were $10,005,843.
The aggregate market value of the common stock held by non affiliates as of
March 20, 1998 was $5,169,746 computed by reference to the closing market price
at which the stock was traded on March 20, 1998.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date. 2,319,451 (March 20,
1998)
DOCUMENTS INCORPORATED BY REFERENCE.
NONE.
1
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PART I
This Form 10-KSB may contain certain "forward-looking statements" relating to
the Company (defined in Item 1(a) Business - Consolidation below) which
represent the Company's current expectations or beliefs, including, but not
limited to, statements concerning the Company's operations, performance,
financial condition and growth. For this purpose, any statements contained in
this Form 10-KSB that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the generality of the foregoing,
words such as "may", "will", "expect", "believe", "anticipate", "intend",
"could", "estimate", or "continue", or the negative or other variation thereof
or comparable terminology are intended to identify forward-looking statements.
These statements by their nature involve substantial risks and uncertainties,
such as credit losses, dependence on management and key personnel, seasonality,
and variability of quarterly results, ability of the Company to continue its
growth strategy, competition, and regulatory restrictions relating to potential
new activities, certain of which are beyond the Company's control. Should one or
more of these risks or uncertainties materialize or should the underlying
assumptions prove incorrect, actual outcomes and results could differ materially
from those indicated in the forward looking statements.
- --------------------------------------------------------------------------------
Item 1. Business
(a) Consolidation
This Form 10-KSB filing includes Allstate Financial Corporation, Allstate
Factors (a division of Allstate Financial Corporation) and its wholly owned
subsidiaries. Other than Lifetime Options, Inc., a Viatical Settlement Company,
which curtailed purchasing policies in 1997, none of the Company's subsidiaries
is currently engaged in any business which could have a material effect on the
Company's and its subsidiaries' consolidated operations or financial position.
Accordingly, unless the context requires or otherwise permits, references in
this Form 10-KSB to "Company" or "Allstate" shall be references only to Allstate
Financial Corporation.
(b) Nature of Business
The Company is a specialized commercial finance company principally
engaged in providing small- to medium-sized, high risk growth and turnaround
companies, including debtors-in-possession, with capital through the discounted
purchase of their accounts receivable. The Company also makes advances to its
clients collateralized by inventory, equipment, real estate and other assets
(collectively, "Collateralized Advances"). On occasion, the Company will also
provide other specialized financing structures which satisfy the unique
requirements of the Company's clients. In addition, the Company provides
financial assistance to clients in the form of guaranties, letters of credit,
credit information, receivables monitoring, collection service and customer
status information. The Company was incorporated on July 22, 1982 under the laws
of the Commonwealth of Virginia.
2
<PAGE>
In May 1997 the Company established a new division, Allstate Factors. The
Allstate Factors division is engaged in traditional "non-recourse" factoring of
accounts receivable in which the factor typically assumes the risk that an
account debtor may become insolvent. The Company expects that Allstate Factors'
clients typically will have lower risks of default and will generate higher
volumes of accounts receivable than the Company's traditional clients, and,
therefore, will broaden the Company's sources of revenue and diversify
significantly the risk profile of the Company's portfolio.
The Company typically enters into an accounts receivable factoring and
security agreement with each client. When making a Collateralized Advance, the
Company enters into such additional agreements with the client and, if
appropriate, third parties, as the Company deems necessary or desirable, based
on the type(s) of collateral securing the Collateralized Advance. The Company
purchases accounts receivable from its clients at a discount from face value and
usually requires the client's customer to make payment on the receivable
directly to the Company. The Company almost always reserves the right to seek
payment from the client in the event the client's customer fails to make the
required payment. To secure all of a client's obligations to the Company, the
Company also takes a lien on all accounts receivable of the client (to the
extent not purchased by the Company) and, whenever available, blanket liens on
all of the client's other assets (some or all of which liens may be subordinate
to other liens). When making a Collateralized Advance, the Company almost always
takes a first lien on the specific collateral securing the Collateralized
Advance. The Company may on occasion make Collateralized Advances secured by a
subordinate lien position, but only if management of the Company determines that
the equity available to the Company in a subordinate position is adequate to
secure the Collateralized Advance. The Company almost always requires personal
guaranties (either unlimited or limited to the validity and collectibility of
purchased accounts receivable) from each client's principals. Although the
Company obtains as much collateral as possible and usually retains full recourse
rights against its clients, clients (and account debtors) may fail and there can
be no assurance that the collateral obtained and the recourse rights retained
(together with personal guaranties) will be sufficient to protect the Company
against loss.
In addition to providing clients with capital, the Company believes its
services enable its clients to realize improved terms on, and broader access to,
the purchase of goods and services. The Company also believes its services
benefit its clients by reducing certain of their accounts receivable, credit,
collection and bookkeeping responsibilities. The Company believes that it can
generally achieve shorter average collection times than clients themselves and
that the Company's contacts with a client's customers can identify problems the
client would not have discovered and addressed until a later time. Through its
services, the Company can help clients to be more responsive to their customers
and to manage their businesses more efficiently. In addition, clients can devote
less manpower and resources to monitoring and collecting the accounts receivable
purchased by the Company, thus allowing them to redirect their efforts toward
the management, growth and profitability of their businesses.
Lifetime Options, Inc., a Viatical Settlement Company
During 1997, Lifetime Options, Inc. a Viatical Settlement Company
("Lifetime Options"), which provided financial assistance to individuals
3
<PAGE>
facing life threatening illness by purchasing their life insurance policies at a
discount from face value, curtailed purchasing policies.
See Management's Discussion and Analysis of Financial Condition and
Results of Operations - General.
Selected Financial Data
The following table sets forth selected financial data for the Company and
its subsidiaries as of, and for each of the last five years ended:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------
1997 1996 1995 1994 1993
-------- ------- -------- ------- -----
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C>
Total Revenue $10,006 $12,405 $12,997 $12,030 $10,850
Net Income (Loss) 1,034 (1,041) 481 148 457
Net Income (Loss)
per Share (basic) 1 .45 ( .45) .16 .05 .15
Net Income (Loss)
per Share (dilutive) 2 .44 ( .45) .16 .05 .15
Finance Receivables, net 33,847 35,407 32,671 27,503 24,674
Total Assets 46,919 45,979 44,881 41,851 36,583
Shareholders' Equity 3 23,564 22,527 25,730 28,121 27,974
<FN>
1 Calculated based on basic weighted average shares outstanding of
2,318,092 in 1997, 2,328,308 in 1996, 2,966,330 in 1995, 3,102,328 in 1994, and
3,116,460 in 1993.
2 Calculated based on dilutive weighted average shares outstanding of
2,324,624 in 1997, 2,328,308 in 1996, 2,966,337 in 1995, 3,104,728 in 1994 and
3,117,660 in 1993.
3 Shareholder's equity at December 31, 1995 was reduced by treasury stock
valued at $2,871,901 acquired by the Company in September 1995. Shareholder's
equity at December 31, 1996 was reduced by additional treasury stock valued at
approximately $2,100,000 acquired by the Company in January 1996. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources.
</FN>
</TABLE>
(c) The Company's Clients
The Company's clients are small- to medium-sized, high risk growth and
turnaround companies with annual revenues typically between $600,000 and
$100,000,000. The Company's clients do not typically qualify for traditional
bank or asset-based financing because they are either too new, too small,
undercapitalized (over-leveraged), unprofitable or otherwise unable to satisfy
the requirements of a bank or traditional asset-based lender. Accordingly, there
is a significant risk of default and client failure inherent in the Company's
business.
The following table indicates the composition of the Company's Gross
Finance Receivables (as defined below under "(d) The Company's Services") by
type of client business as of December 31, 1997 and 1996.
4
<PAGE>
<TABLE>
<CAPTION>
Gross Finance Gross Finance
Business of Client Receivables Percent Receivables Percent
------------------ ------------- ------- -------------- ---------
(In thousands) (In thousands)
<S> <C> <C> <C> <C> <C>
Importer and Distributor of:
Computer components and software 1 $11,564 26.7% $ 9,457 22.0%
Plastic bags 4,745 11.0 -- --
Tapes 2,094 4.8 -- --
Carpets 1,446 3.3 -- --
Food industry (ice cream sandwiches) 587 1.3 -- --
Motor engineers 394 0.9 -- --
Jewelry boxes 433 1.0 639 1.5
Importer, manufacturer and distri-
butor of apparel wear, accessories
and other durable goods 6,318 14.6 7,461 17.4
Provider of publishing, direct mail
and advertising 4,880 11.3 3,822 8.9
Life insurance contracts 3,456 8.0 5,368 12.5
Contractors for construction and
construction supply 3,200 7.4 3,623 8.4
Provider of trucking and air freight 1,040 2.4 3,098 7.2
Provider of uniform sales & rentals 1,036 2.4 3,676 8.6
Legal claims receivable 732 1.7 1,324 3.1
Recreational and health club
facilities 400 0.9 3,658 8.5
Provider of engineer and health temps 380 0.9 233 0.5
Other 606 1.4 605 1.4
--- --- --- ---
Total $43,311 100% $42,964 100%
======= === ======= ===
<FN>
1 Does not reflect participation of others of $2,208,957 and $1,000,000 at
December 31, 1997 and December 31, 1996, respectively.
</FN>
</TABLE>
The table above reflects the composition of the Company's Gross Finance
Receivables by client industry at the dates indicated. Because the Company's
major clients tend to change significantly over time (as more fully described
below), this table is not likely to reflect the composition of the Company's
Gross Finance Receivables by client industry at other future points in time.
From time to time, a single client or single industry may account for a
significant portion of the Company's Gross Finance Receivables. As of December
31, 1997 two clients (MGV International, Inc. ("MGV") and United Plastics
International, Inc. ("UPI")) each accounted for more than 10% of the Company's
Gross Finance Receivables. Computer components and software accounted for 26.6%
of Gross Finance Receivables at December 31, 1997 and 22.0% of Gross Finance
Receivables at December 31, 1996. One company (MGV) accounted for more than 10%
of the Company's total income in 1997. In order to reduce concentration, the
Company has arranged for a participant in the MGV facility. At December 31,
1997, the participation was $2,209,000 versus
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<PAGE>
$1,000,000 at December 31, 1996. Although the Company carefully monitors client
and industry concentration, there can be no assurance that the risks associated
with client or industry concentration could not have a material adverse effect
on the Company.
Historically, the Company has not expected to maintain a funding
relationship with a client for more than two years; the Company expected that
its client would ultimately qualify for more competitively priced bank or
asset-based financing within that time period. Therefore, the Company's major
clients have tended to change significantly over time. Today, however, because
the Company is, where necessary and appropriate, offering lower rates than it
has historically and making Collateralized Advances, it is possible that the
duration of the Company's funding relationships with its clients may be
extended. Although the Company has historically been successful in replacing
major clients, the loss of one or more major clients and an inability to replace
those clients could have a material adverse effect on the Company.
(d) The Company's Services
The Company offers an interrelated package of financial services that meets
a variety of the funding and business needs of its clients.
Gross Finance Receivables
The Company's principal funding activities consist of purchasing accounts
receivable ("Factored Accounts Receivable") and the making of Collateralized
Advances and Overadvances Secured by General Liens (as defined below). "Gross
Finance Receivables" consist of Factored Accounts Receivable, Collateralized
Advances, Overadvances Secured by General Liens, Life Insurance Contracts and
Non-Earning Receivables. See (f) Asset Quality.
Factored Accounts Receivable
The Company's primary funding activity is the discounted purchase of a
client's accounts receivable, typically at an initial advance to the client
equal to 70% to 90% of the face amount of the accounts receivable purchased. The
remaining 10% to 30% of the face amount of the accounts receivable purchased is
initially allocated to: (i) earned but unpaid discount or (with respect to
Allstate Factors) commission (recorded as income simultaneous with the purchase
of the account receivable); (ii) unearned discount (recorded as income at
periodic intervals after the purchase of the account receivable depending on the
timing of payment); (iii) (with respect to Allstate Factors) interest on
outstanding advances (recorded as income at the end of each month in which
advances are outstanding) and (iv) credit balances of factoring clients.
Collateralized Advances
6
<PAGE>
In addition to the purchase of accounts receivable, the Company makes
Collateralized Advances. Prior to making any such advance, the Company, the
client and, where appropriate, third parties, enter into such additional
agreements, and the Company makes such additional public filings (if any), as
the Company deems necessary or desirable based on the type(s) of collateral
securing the Collateralized Advance. The Company also conducts such additional
due diligence as is appropriate with respect to the client and the type of
collateral against which an advance is to be made. Collateral values are
determined by independent appraisers and are reviewed periodically to determine
whether loan-to-value ratios have been maintained. When making Collateralized
Advances against inventory and certain types of equipment, the Company
frequently engages a third party, at the client's expense, to assist in
monitoring the collateral. Collateralized Advances entail different, and
possibly greater, risks to the Company than the factoring of accounts
receivable. Management believes, however, that these risks can be mitigated and
the potential benefits to the Company therefore outweigh the potential risks.
See Management's Discussion and Analysis of Financial Condition and Results of
Operations - Provision for Credit Losses.
Overadvances Secured by General Liens
The Company may advance funds to selected clients in excess of the amounts
which would be available in accordance with the advance formulae set forth in
the agreements between the Company and its client. Such advances are usually
secured by equity (i.e., credit balances due the client and unearned discounts)
in the client's existing portfolio of Factored Accounts Receivable, equity in
other of the client's assets, and other forms of collateral, including property
pledged by the client's principal(s) or accounts receivable generated through
the use of the proceeds of such secured advances (such advances, collectively,
"Overadvances Secured by General Liens"). Earned discounts on Overadvances
Secured by General Liens are usually greater than on other types of advances and
are usually required to be paid in cash no less frequently than monthly in
arrears. The principal amount thereof is typically required to be repaid in full
(either in installments or in a single, lump sum payment) in as little as one
week or as long as six months in accordance with a written agreement between the
Company and its client.
Amounts outstanding for various categories of finance receivables at the
end of the last five years are set forth in the table below.
7
<PAGE>
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
------- ------- -------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Factored Accounts Receivable $30,417 $22,390 $25,170 $22,242 $22,275
Collateralized Advances 7,236 8,809 10,842 7,215 2,495
Overadvances Secured by
General Liens 1,373 1,850 1,407 279 1,340
Life Insurance Contracts 3,456 5,368 5,156 6,241 2,605
Non-Earning Receivables 829 4,547 1,589 3,587 3,411
--- ----- ----- ----- -----
Gross Finance Receivables 43,311 42,964 44,164 39,564 32,126
Less: Unearned Discount (5,275) (4,278) (4,847) (4,724) (3,044)
Less: Allowance for Credit Losses
(including $275,000 allocated
to life insurance contracts
at December 31, 1997) (1,980) (2,279) (2,351) (2,511) (2,120)
Less: Participation (2,209) (1,000) - - -
------ ------
Finance Receivables, Net $33,847 $35,407 $36,966 $32,329 $26,962
======= ======= ======= ======= =======
</TABLE>
As reflected in the table, Gross Finance Receivables include Non-Earning
Receivables. Non-Earning Receivables are classified as such when the Company
stops accruing earned discounts on Gross Finance Receivables (other than
Non-Earning Receivables). Under certain circumstances, the Company may classify
as "Other Receivables" (as defined below under "(f) Asset Quality") Gross
Finance Receivables on which the Company has stopped accruing earned discounts.
Non-Earning Receivables may be reclassified as "Other Assets" (as defined below
under "(f) Asset Quality") on the Company's balance sheet if the Company
repossesses (or is in the process of reposessing) the collateral securing such
receivables. See (f) Asset Quality.
Credit Services
For a fee, the Company may use its credit standing to assist a client by
obtaining a letter of credit from a bank or issuing its own letter of guaranty.
These forms of credit enhancement are typically used by clients to acquire
finished goods to fill pre-existing orders. The Company generally provides these
services when the client: (i) has a buyer for its products; (ii) has taken the
required steps to sell the resulting account receivable to the Company on agreed
upon terms; and (iii) has provided additional collateral to the Company to the
extent the Company deems necessary. In the typical credit enhancement
transaction, the Company maintains control over the goods from the time they are
shipped until the time they are delivered to the ultimate purchaser.
The table below sets forth the Company's outstanding commitments under
guaranties and letters of credit as of the end of each of the last five years.
8
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December 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
----- ---- ------ ---- -------
(In thousands)
Commitments under
guaranties and
letters of credit $220 $336 $727 $347 $1,794
Client/Customer Information Services
In addition to its funding activities, the Company: (i) advises its
clients as to potential problems with customers; (ii) provides its clients with
a monthly portfolio analysis which includes an aging of all open accounts
receivable by customer; and (iii) supplies its clients with information as to
the creditworthiness of customers. Although the Company's agreements with its
clients do not require the Company to furnish these services, the information
provided can make it easier for a client to develop an accurate picture of its
own financial position. In addition, this information assists the Company in its
accounts receivable monitoring activities.
(e) Management Information Systems
The Company has developed data processing capabilities tailored to the
requirements of the Company's accounting, receivables collection, monitoring and
oversight functions. The system permits the Company to generate payment
histories and analyses with respect to clients' customers, to accumulate
accounting information and other data useful for credit analysis, to produce
information used in marketing, and to respond to account and management
inquiries.
Year 2000 Compliance
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a two
digit year is commonly referred to as the Year 2000 Compliance issue. The
Company has identified all significant applications that will require
modifications to ensure Year 2000 Compliance. Internal and external resources
are being used to make the required modifications and test Year 2000 Compliance.
In addition, the Company is in the process of communicating with others with
whom it does significant business, namely its clients, to determine their Year
2000 Compliance readiness and the extent to which the Company is vulnerable to
any third party Year 2000 issues. The total cost to the Company of these Year
2000 compliance activities has not been and is not anticipated to be material to
its financial position or results of operations in any given year.
9
<PAGE>
(f) Asset Quality
Factored Accounts Receivable Portfolio
The quality of Factored Accounts Receivable is the Company's primary
security against credit losses from its accounts receivable purchasing
activities. The Company generally does not purchase accounts receivable that
have aged significantly, except when the Company first establishes a funding
relationship with a client. Even in those circumstances, the Company will not
purchase an account receivable that is more than 90 days old unless special
circumstances lead the Company to believe that the receivable will be paid
within a reasonable time, generally not more than 60 days.
As of December 31, 1997, the Company's Gross Finance Receivables included
$30,417,522 of Factored Accounts Receivable on which approximately 3,400
entities were obligated. There is considerable variation from period to period
in the composition of account debtors and the amount of their respective
obligations to the Company.
If the Company has not received payment on a Factored Account Receivable
within 90 days after its acquisition or if at any time prior to 90 days the
Company determines that it is unlikely to receive payment, the Company requires
the client to repay the amount the Company has advanced on the receivable plus
the amount of discount earned. If after 90 days follow up calls to account
debtors lead the Company to believe that a Factored Account Receivable will be
paid within a reasonable period of time, the Company may "repurchase" the
receivable. In that event, the earned discount owed on the original purchase of
the account receivable is collected from the client at the time of the
repurchase and earned discounts thereafter accrue as if the account receivable
were a new Factored Account Receivable.
From time to time, a single account debtor or several account debtors may
be obligated on a significant portion of the Company's Gross Factored Accounts
Receivable. As of December 31, 1997, one account debtor accounted for more than
10% of the Company's gross Factored Accounts Receivables. Although the Company
carefully monitors account debtor concentration and regularly evaluates the
creditworthiness of account debtors, there can be no assurance that account
debtor concentration could not have a material adverse effect on the Company.
Collateralized Advances Portfolio
As of December 31, 1997, the Company's Gross Finance Receivables included
$7,236,040 of Collateralized Advances. Collateralized Advances secured by fixed
assets (e.g., equipment or real estate) are scheduled to be repaid based
typically on a 36 month amortization schedule (although the amortization
schedule in certain circumstances may be significantly longer) with a final
balloon payment due not more than one year after the making of the
Collateralized Advance. If at the time the balloon payment is due the Company's
funding relationship with the client is extended, the Company will usually
continue the amortization with a new balloon payment due not more than one year
after the renegotiated contract date. Collateralized Advances secured by current
assets (e.g. inventory) are subject to a daily or weekly borrowing base formula
and come due in a single, lump sum payment not more than one year after the
making of the initial advance. If at the time such payment is due the Company's
funding relationship with the client is extended,
10
<PAGE>
the Company will typically extend the maturity of the lump sum payment. See
(d) The Company's Services - Collateralized Advances and Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Provision for Credit Losses.
Overadvances Secured by General Liens
As of December 31, 1997, the Company's Gross Finance Receivables included
$1,372,526 of Overadvances Secured by General Liens. See (d) The Company's
Services - Overadvances Secured by General Liens.
Life Insurance Contracts
As of December 31, 1997, the Company's Gross Finance Receivables included
Life Insurance Contracts in the face amount of $3,455,858 as compared to
$5,368,266 at December 31, 1996. The life insurance policies purchased by
Lifetime Options are underwritten by highly rated insurance companies (and, in
many cases, backed by state guaranty funds).
Non-Earning Receivables
As of December 31, 1997, the Company's Gross Finance Receivables included
$828,850 of Non-Earning Receivables. See (g) Credit Loss Policy and
Experience.
Other Receivables
As of December 31, 1997, included on the Company's balance sheet were
$2,988,927 of "Other Receivables" compared to $4,094,975 at December 31, 1996.
Other Receivables consist primarily of amounts receivable by the Company where
the source of payment is expected to be from legal proceedings or other
collection efforts instituted against a client's customer, guarantors and/or
other third parties. Other Receivables typically arise from the reclassification
of Gross Finance Receivables. At the time of reclassification, Other Receivables
are stated at a value estimated by management based on management's assessment
of the likelihood of payment or success on the merits, the ability of the third
party(ies) to pay and other discretionary factors. In addition, at the time of
reclassification, the accrual of earnings is usually suspended or discontinued
for financial statement purposes. Write-downs, if any, at the time of
reclassification are charged against the allowance for credit losses. The costs
of carrying and collecting Other Receivables are generally expensed in
operations during the period in which they are incurred. Management's estimates
of the value of Other Receivables are typically reviewed quarterly, and as
adjustments become necessary, the effects of the change in estimates are charged
against the allowance for credit losses. Other Receivables are subject to legal
and other collection processes and contingencies over which the Company does not
have exclusive control. Accordingly, the amounts which the Company ultimately
receives in payment of Other Receivables could differ significantly from
management's estimates. See (g) Credit Loss Policy and Experience below and
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Provision for Credit Losses.
11
<PAGE>
Other Assets
As of December 31, 1997, included on the Company's balance sheet were
$4,203,727 of other assets.
December 31,
--------------------------------
1997 1996
---------- -----------
Other Assets include:
Commercial property held for sale
and receivables secured by
mortgages $3,941,160 $1,883,768
Condominium not used in
trade or business 232,575 232,575
Deferred loan costs 29,992 -
------
$4,203,727 $2,116,343
========== ==========
At the date of acquisition, Other Assets are recorded at fair value less
estimated selling costs. Write-downs to fair value at the date of acquisition
are charged against the allowance for credit losses. Also at the date of
acquisition, the accrual of earnings is usually suspended or discontinued for
financial statement purposes. Subsequent to acquisition, Other Assets are
adjusted to the lower of cost or fair value less estimated costs to sell and
adjustments, if any, are charged against the allowance for credit losses.
Operating expenses pertaining to Other Assets are expensed in operations during
the period in which they are incurred.
The amounts ultimately recovered by the Company from Other Assets could
differ materially from the amounts used in arriving at the net carrying value of
the assets because of future market factors beyond the Company's control,
adversarial actions taken by the client or other owner of the property
foreclosed or changes in the Company's strategy for recovering its investment.
See (g) Credit Loss Policy and Experience and Management's Discussion and
Analysis of Financial Condition and Results of Operations - Provision for Credit
Losses and Consolidated Statements of Cash Flow - Supplement Schedule of Noncash
Activities.
(g) Credit Loss Policy and Experience
The Company regularly reviews its Gross Finance Receivables portfolio and
other extensions of credit to determine the adequacy of its allowance for credit
losses.
Credit loss experience, the adequacy of underlying collateral, changes in
the character and size of the Company's receivables portfolio and management's
judgement are factors used in determining the provision for credit losses and
the adequacy of the allowance for credit losses. Other factors given
consideration in determining the adequacy of the allowance are the level of
related credit balances of factoring clients and the current and anticipated
impact of economic conditions on the creditworthiness of the Company's clients
and account debtors. To mitigate the risk of credit loss, the Company, among
other things: (i) thoroughly evaluates the collateral to be made available by
each client; (ii) usually collects its Factored Accounts Receivable directly
from account debtors, which are frequently (though not always) large,
creditworthy companies or governmental entities; (iii) purchases, or takes a
first priority security interest in, all accounts receivable of each client;
12
<PAGE>
(iv) takes, whenever available, blanket liens on all of its clients' other
assets and, when making Collateralized Advances, it employs what management
believes to be conservative loan-to-value ratios based on auction or liquidation
value appraisals performed by independent appraisers; (v) almost always requires
personal guaranties (either unlimited guaranties or guaranties limited to the
validity and collectibility of Factored Accounts Receivable) from its clients'
principals; and (vi) actively monitors its portfolio of Factored Accounts
Receivable, including the creditworthiness of account debtors and periodically
evaluates the value of other collateral securing Collateralized Advances.
Collateralized Advances entail different, and possibly greater, risks to the
Company than the factoring of accounts receivable. Risks associated with the
making of Collateralized Advances (but not the factoring of accounts receivable)
include, among others, that (i) certain types of collateral securing
Collateralized Advances may diminish in value (possibly precipitously) over time
(sometimes short periods of time), (ii) repossessing, safeguarding and
liquidating collateral securing Collateralized Advances may require the Company
to incur significant fees and expenses some or all of which may not be
recoverable, (iii) clients may dispose of (or conceal) the collateral securing
Collateralized Advances and (iv) clients or natural disasters may destroy the
collateral securing Collateralized Advances. The Company attempts to manage
these risks, respectively, by (i) engaging independent appraisers to review
periodically the value of collateral securing Collateralized Advances at
intervals established by management based on the characteristics of the
underlying collateral, (ii) employing conservative loan-to-value ratios which
management believes should generally enable the Company to recover from
liquidation proceeds most of the fees and expenses incurred in connection with
repossessing, safeguarding and liquidating collateral, (iii) using its internal
field examiners to inspect collateral periodically and, when appropriate,
engaging independent collateral monitoring firms to implement appropriate
collateral control systems including bonding certain of the client's employees
and (iv) requiring clients to maintain appropriate amounts and types of
insurance issued by insurers acceptable to the Company naming the Company as the
party to whom loss is paid. Although management believes that the Company has
(or third parties acting on behalf of the Company have) the requisite skill to
evaluate, monitor and manage the risks associated with the making of
Collateralized Advances, there can be no assurance that the Company will in fact
be successful in doing so.
Notwithstanding the foregoing, clients (and account debtors) may fail and
the collateral available to the Company (together with personal guaranties) may
prove insufficient to protect the Company against loss. See Legal Proceedings
and Management's Discussion and Analysis of Financial Condition and Results of
Operations - Provision for Credit Losses.
(h) Competition
The Company competes (at least in part) against banks, traditional
asset-based lenders and small independent finance companies. The Company
anticipates that competition will remain intense through all of 1998 and may
continue to exert downward pressure on pricing, especially in the Company's core
factoring business. In order to remain competitive, the Company is, where
necessary and appropriate, offering lower rates than it has
13
<PAGE>
historically. The Company believes that its ability to respond quickly and to
provide specialized, flexible and comprehensive financial arrangements to its
clients enables it to compete effectively. Although the Company has historically
been successful in replacing major clients, competition resulting in the loss of
one or more major clients and an inability to replace those clients could have a
material adverse effect on the Company.
(i) Expansion Strategy
The Company's strategy for 1998 is to further penetrate its target market
by: (i) developing additional, active referral sources while continuing to
cultivate existing sources; (ii) identifying and marketing to new niche markets
that are currently under-serviced by competitors where the Company can obtain
higher yields on new business; (iii) expanding its marketing efforts by
establishing a direct presence in certain geographic areas of the country which
are under-serviced by either competitors or the Company; (iv) developing and
expanding its Allstate Factors division; and (v) developing new products and
programs to meet the changing needs of its targeted market. The Company also
intends to attempt to retain existing clients as long as possible by offering
new products and providing the best service possible at competitive prices.
(j) Employees
The Company currently has 47 full-time employees, of whom 25 are employed in
providing accounts receivable and credit services (including 3 certified public
accountants), 9 are employed in marketing (including 2 in administrative support
positions), 5 are in executive positions (including two CPA's and one attorney),
4 are in legal (including 2 attorneys) and 4 are in general office capacities.
The Company believes that a substantial increase in the volume of its business
would require only a relatively modest increase in personnel. None of the
Company's employees are unionized and management considers its relations with
employees to be excellent.
Item 2. Properties
The Company's offices occupy approximately 8,000 square feet of space in an
office building in Arlington, Virginia. The Company's lease on this property
expires in December 2001. The cost of renting this office space was $172,000 in
1997 compared to $191,000 in 1996. The Company believes that its present office
facilities are adequate but may need to be expanded in the near term to
accommodate the Company's continued growth. The Company has a right of first
refusal to acquire an additional, contiguous 1,500 square feet at its present
site when that space becomes available.
Commencing November 1, 1997, the Company also occupied approximately 2,500
square feet of space in an office building in New York City. The lease on this
property expires in October 2000. The cost of renting this space is $86,130
annually. The cost of renting this facility in 1997 was $14,355.
14
<PAGE>
Item 3. Legal Proceedings
See Notes to Consolidated Financial Statements - (L) Commitments and
Contingencies.
Item 4. Submission of Matters To A Vote Of Security Holders
The Company's annual meeting of shareholders was held on November 18, 1997.
The shareholders voted as follows:
Number of Number of Number
Votes for of Votes of Votes
Election Withheld Abstained
---------- ---------- ---------
David Campbell 2,148,828 9,890 -0-
Leon Fishman 1,660,460 498,258 -0-
Craig Fishman 1,660,460 498,258 -0-
Alan Freeman 1,660,460 498,258 -0-
Eugene Haskin 1,660,260 498,458 -0-
Edward McNally 2,148,828 9,890 -0-
William Savage 2,148,628 10,090 -0-
James Spector 1,660,460 498,258 -0-
Lindsay Trittipoe 2,148,828 9,890 -0-
Lawrence Vecker 2,148,828 9,890 -0-
[THIS SPACE INTENTIONALLY LEFT BLANK]
15
<PAGE>
Part II
Item 5. Market For The Registrant's Common Stock, Related
Stockholder Matters
The Company's common stock is traded on the NASDAQ National Market System
(Symbol ASFN).
The following table sets forth the range of representative high and low
bids for the Company's common stock in the over the counter market for the
period indicated, as furnished by the National Association of Securities
Dealers, Inc. These bids represent prices among dealers, do not include retail
markups, markdowns or commissions, and may not represent actual transactions.
Common Stock Bid Prices
Fiscal year ended December 31,
------------------------------
1997 1996 1995
------------ --------------- --------------
High Low High Low High Low
First Quarter 6 3/8 5 1/2 6 7/8 5 1/2 7 3/16 5 9/16
Second Quarter 6 1/8 5 5/8 6 1/2 5 1/2 8 6 1/4
Third Quarter 6 5 1/8 5 13/16 5 1/2 7 1/2 5 1/2
Fourth Quarter 7 4 7/8 7 5 1/2 6 5 6/16
On March 10, 1998 there were approximately 45 stockholders of record based
on information provided by the Company's transfer agent. The number of
stockholders of record does not reflect the actual number of individual or
institutional stockholders of the Company because a significant portion of the
Company's stock is held in street name. Based on the best information made
available to the Company by the transfer agent, there are approximately 555
holders of the Company's common stock.
The Company currently intends to retain earnings for future capital
requirements and growth. The Company has not paid a dividend and does not
anticipate paying cash dividends to holders of its common stock for the
foreseeable future.
In January 1996 the Company consummated an exchange offer to holders of its
common stock. See Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources.
Item 6. Management's Discussion And Analysis of Financial
Condition and Results of Operations
General
The Company's principal business is the discounted purchase of accounts
receivable, usually on a full notification, full recourse basis (except for
Allstate Factors which typically assumes the risk that an account debtor may
become insolvent). In addition, the Company also makes Collateralized Advances.
On occasion, the Company will also provide other specialized
16
<PAGE>
financing structures which satisfy the unique requirements of the Company's
clients. The Company also provides its clients with letters of guaranty,
arranges for the issuance of letters of credit for its clients and provides
other related financial services.
During the second quarter of 1997, the Company established a new division,
Allstate Factors, which is engaged in traditional "non-recourse" factoring in
which the factor typically assumes the risk that an account debtor may become
insolvent. The Company minimizes the exposure associated with assuming such risk
by refactoring the receivables purchased by Allstate Factors with a large
commercial factor that assumes the insolvency risk.
The Company's clients are small- to medium-sized businesses with annual
revenues typically ranging between $600,000 and $100,000,000. The Company's
clients do not typically qualify for traditional bank or asset-based financing
because they are either too new, too small, undercapitalized (or
over-leveraged), unprofitable or otherwise unable to satisfy the requirements of
a bank or traditional, asset-based lender. Accordingly, there is a significant
risk of default and client failure inherent in the Company's business. For a
description of ways in which the Company addresses these risks, see (g) Credit
Loss Policy and Experience.
Historically, the Company has not expected to maintain a funding
relationship with a client for more than two years; the Company expected that
its clients would ultimately qualify for more competitively priced bank or
asset-based financing within that time period. Therefore, the Company's major
clients have tended to change significantly over time. Today, however, because
the Company is, where necessary and appropriate, offering lower rates and making
Collateralized Advances, it is possible that the duration of the Company's
funding relationships with its clients may be extended. If the Company succeeds
in extending the duration of its funding relationship with its clients, there
will not be a corresponding increase in non-current assets on the Company's
balance sheet. This is because it is anticipated that the Company's funding
relationships with its clients will continue to renew no less frequently than
once a year. Although the Company has historically been successful in replacing
major clients, the loss of one or more major clients and an inability to replace
those clients could have a material adverse effect on the Company.
Lifetime Options, Inc., a Viatical Settlement Company ("Lifetime Options"),
a wholly-owned subsidiary of the Company, was engaged in the business of buying
life insurance policies at a discount from individuals facing life threatening
illnesses. During 1997, Lifetime Options curtailed purchasing policies. Lifetime
Options may elect to collect policies as they mature or to sell some or all of
its policies.
Other than Lifetime Options, none of the Company's subsidiaries is
currently engaged in business which could have a material effect on the Company.
17
<PAGE>
Results of Operations
The following table sets forth certain items of revenue and expense for the
period indicated and the percentage relationship of each item to total revenue.
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------------------
1997 1996 1995
------------------ ------------------- ---------------------
REVENUE PERCENT REVENUE PERCENT REVENUE PERCENT
--------- ------- --------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Earned Discounts ......................... $ 7,436,630 74.3% $ 10,025,779 80.8% $ 10,932,331 84.1%
Fees and Other Income .................... 2,569,213 25.7 2,378,782 19.2 2,065,015 15.9
--------- ---- --------- ---- --------- ----
TOTAL REVENUE ........................ 10,005,843 100.0 12,404,561 100.0 12,997,346 100.0
---------- ----- ---------- ----- ---------- -----
EXPENSES:
Compensation and Fringe Benefits ........ 3,087,085 30.9 3,318,609 26.8 3,198,497 24.6
General and Administrative Expenses ...... 2,165,396 21.7 2,804,643 22.6 2,758,285 21.2
Interest Expense ......................... 1,170,152 11.7 1,606,561 12.9 983,718 7.6
Provision of Credit Losses 1.............. 1,593,555 15.9 5,878,167 47.4 4,981,646 38.4
Commissions .............................. 349,157 3.5 449,225 3.6 263,100 2.0
------- --- ------- --- ------- ---
TOTAL EXPENSES ....................... 8,365,345 83.7 14,057,205 113.3 12,185,246 93.8
--------- ---- ---------- ----- ---------- ----
INCOME BEFORE TAXES ........................ 1,640,498 16.3 (1,652,644) (13.3) 812,100 6.2
INCOME TAXES ............................... 606,985 6.0 (611,500) (4.9) 331,000 2.5
------- --- -------- ---- ------- ---
NET INCOME ................................. $ 1,033,513 10.3% $ (1,041,144) (8.4)% $ 481,100 3.7%
============ ==== ============ ==== ============ ===
NET INCOME PER SHARE (BASIC) ............... $ .45 $ (0.45) $ 0.16
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES (BASIC) .......................... 2,318,092 2,328,308 2,966,330
========= ========= =========
NET INCOME PER SHARE (DILUTIVE) ............ $ .44 $ (0.45) $ 0.16
============ ============ ==========
WEIGHTED AVERAGE NUMBER OF
SHARES (DILUTIVE) ....................... 2,324,624 2,328,308 2,966,337
========= ========= =========
<FN>
1 For a discussion of this item of expense, see Management's Discussion
and Analysis of Financial Condition and Results of Operation Provision for
Credit Losses.
</FN>
</TABLE>
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Total Revenue. Total revenue consists of (i) earned discounts and (ii) fees
and other income. "Earned discounts" consist primarily of income from the
purchase of accounts receivable and income from Collateralized Advances. "Fees
and other income" consist primarily of closing or application fees, commitment
or facility fees, interest, other related financing fees and supplemental
discounts paid by clients who do not sell the minimum volume of accounts
receivable required by their contracts with the Company (including those clients
who prematurely terminate their agreements with the Company to move to a lower
cost source of funding).
18
<PAGE>
The following table breaks down total revenue by type of transaction for the
periods indicated and the percentage relationship of each type of transaction to
total revenue.
<TABLE>
<CAPTION>
For the Year Ended December 31,
----------------------------------------------------------------------------
1997 1996
------------------------------------ ---------------------------------
% of Total % of Total
Revenue Revenue Revenue Revenue
<S> <C> <C> <C> <C>
Discount on Factored
Accounts Receivable $5,103,750 51.0% $ 5,777,660 46.6%
Earnings on Collateralized
Advances 1,032,262 10.3 2,522,856 20.3
Earnings on Purchased Life
Insurance Policies 172,231 1.7 499,249 4.0
Other Earnings 1,128,387 11.3 1,226,014 9.9
Total 7,436,630 74.3 10,025,779 80.8
Fees and Other Income 2,569,213 25.7 2,378,782 19.2
Total Revenue $10,005,843 100.0% $12,404,561 100.0%
</TABLE>
Total revenue decreased 19.3% in 1997 versus 1996, from $12.4 million to
$10.0 million. Within total revenue, Earned discounts from Factored Accounts
Receivable decreased 11.7% in 1997 as compared to 1996, from $5.8 million to
$5.1 million. Average earned discounts from Factored Accounts Receivable in 1997
as a percentage of total Factored Accounts Receivable purchased in 1997 were
3.0%. The comparable average percentage in 1996 was 3.34%, a decrease of 10.18%
in 1997. This reduction reflects the downward pressure on pricing from
competition in the Company's core factoring business. In 1997 and 1996, earned
discounts from Factored Accounts Receivable comprised 51.0% and 46.6%,
respectively, of total revenue.
The balance of the reduction in total revenue in 1997 was attributable to a
lower volume of, and lower earnings from, Collateralized Advances. Earned
discounts from Collateralized Advances decreased 59.1% in 1997 versus 1996, from
$2.5 million to $1.0 million. While outstanding balance of Collateralized
Advances at December 31, 1997 ($7.2 million) decreased only [18.2%] from
December 31, 1996 ($8.8 million), a significant portion of the Collateralized
Advances outstanding at December 31, 1997 were made in the second half of 1997.
Accordingly, the Company only accrued earned discounts on such advances during
the second half of 1997. In contrast, the outstanding balance of Collateralized
Advances at December 31, 1996 more nearly reflects the average outstanding
balance of Collateralized Advances throughout 1996. Accordingly, throughout
1996, the company accrued earned discounts on a higher average outstanding
balance of Collateralized Advances. The lower volume of Collateralized Advances
in 1997 was due in large part to stricter underwriting standards established by
the company during 1997.
Collateralized Advances currently bear interest at a rate, on average, of
approximately 2% per month. Earned discounts from Collateralized Advances are
19
<PAGE>
required to be paid in cash monthly in arrears. In 1997 and 1996, earned
discounts from Collateralized Advances comprised 10.3% and 20.3%, respectively,
of total revenue. See Provisions for Credit Losses below.
Fees and other income increased 8.0% in 1997 as compared to 1996, from $2.4
million to $2.6 million, respectively. In 1997 and 1996 fees and other income
comprised of 25.7% of total revenue and 19.2%, respectively.
As of December 31, 1997 and 1996, Factored Accounts Receivable included on
the Company's balance sheet were $30.4 million and $22.4 million, respectively,
(70.2% and 52.1%, respectively) of Gross Finance Receivables. As of December 31,
1997 and 1996, Collateralized Advances included on the Company's balance sheet
were $7.2 million and $8.8 million, respectively, (16.7% and 20.5%,
respectively) of Gross Finance Receivables.
COMPENSATION AND FRINGE BENEFITS. Compensation and fringe benefits were $3.1
million (30.9% of total revenue) and $3.3 million (26.8% of total revenue) in
1997 and 1996, respectively. Almost all of the 1997 decrease in compensation and
fringe benefits (including executive compensation) is the result of expenses
during 1996 associated with the severance of a key employee.
GENERAL AND ADMINISTRATIVE EXPENSE. In 1997, general and administrative
expense was $2.2 million (21.7% of total revenue) as compared to $2.8 million
(22.6% of total revenue) in 1996. Overall general and administrative expenses
were comparable in 1997 and 1996, with the exception of professional fees. In
1997, professional fees decreased to $548 thousand (5.5% of total revenue) as
compared to $1.2 million (9.9% of total revenue) in 1996. Professional fees
decreased, in part, due to the favorable resolution of certain legal proceedings
instituted in prior years. Also contributing to the decrease in general and
administrative expense was a decrease in insurance expense offset by an increase
in depreciation. Insurance decreased $119 thousand due to the decision by the
Company's Board of Directors not to renew its directors' and officers' liability
insurance policy. Depreciation increased by $114 thousand due to the
implementation of a new computer system late in 1996 and the commencement of
depreciation thereof.
INTEREST EXPENSE. Interest expense was $1.17 million (11.7% of total
revenue) versus $1.6 million (13.0% of total revenue) in 1997 and 1996,
respectively. The decrease in interest expense is attributable to (i) a decrease
in the average daily balance outstanding on the Company's revolving line of
credit, (ii) a reduction in the rate of interest charged by the Company's
primary lenders and (iii) the collection of approximately $5.7 million of
non-performing receivables. The average daily outstanding balance on the
Company's revolving line of credit was $4.7 million and $11.3 million for 1997
and 1996, respectively, and the average interest rate paid on the Company's
revolving line of credit was 8.8% during 1997 as compared to 9.0% during 1996.
Interest expense related to the Company's Convertible Subordinated Notes was
$473 thousand (4.7% of total revenue) in 1997, compared to $465 thousand (3.8%
of total revenue) in 1996.
20
<PAGE>
PROVISION FOR CREDIT LOSSES. The provision for credit losses decreased $4.3
million in 1997, from $5.9 million (47.6% of total revenue) in 1996 to $1.6
million (15.9% of total revenue) in 1997. As disclosed in the Company's Form
10-QSB for the period ended June 30, 1996, following certain events in the
second quarter of 1996, management determined that it was necessary and
appropriate to write off or write down nine non-performing assets totalling $4.2
million. Prior to the write-offs and write downs, these assets were included in
Non-earning Receivables, Other Receivables and Other Assets on the Company's
balance sheet. The provision for credit losses in the second quarter of 1996
reflected the amount deemed necessary by management to enable the Company to
charge the allowance for credit losses for the foregoing write-offs and to leave
a balance in the allowance for credit losses deemed sufficient to cover
potential future write-offs.
The following table provides a summary of the Company's Non-Earning
Receivables, Other Receivables and Other Assets and information regarding the
allowance for credit losses for the periods indicated.
<TABLE>
<CAPTION>
As of December 31,
--------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Non-Earning Receivables, Other Receivables
and Other Assets Data:
- --------------------------------------------
Non-Earning Receivables .................... $ 829 $ 4,548 $ 1,589 $ 3,608 $ 3,411
Other Receivables .......................... 3,748 4,390 2,756 3,389 2,344
Other Assets (excluding miscellaneous) 1 ... 3,941 1,884 1,793 2,112 3,200
===== ===== ===== ===== =====
Allowance for Credit Losses:
- --------------------------------------------
Balance, January 1 ......................... $ 2,579 $ 2,351 $ 2,511 $ 2,120 $ 1,223
Provision for credit
losses ................................... 1,594 5,878 4,982 5,359 4,858
Receivables charged off .................... (1,776) (5,711) (5,194) (5,016) (4,144)
Recoveries ................................. 342 61 52 48 183
--- -- -- -- ---
Balance, December 31 (including $275,000
allocated to Life Insurance Contracts
at December 31, 1997) ................... $ 2,739 $ 2,579 $ 2,351 $ 2,511 $ 2,120
=== ==== ======= ======= ======= ======= =======
Allowance for Credit Losses as a percent of:
- --------------------------------------------
Gross Finance Receivables .................. 6.32% 6.00% 5.32% 6.34% 6.60%
Non-Earning Receivables .................... 330.40% 56.7% 148.00% 69.60% 62.15%
Non-Earning Receivables, Other
Receivables and Other Assets ............. 32.16% 23.8% 38.30% 27.57% 23.67%
As a percent of the sum of Gross
Finance Receivables, Other
Receivables and Other Assets:
- --------------------------------------------
Non-Earning Receivables .................... 1.63% 9.24% 3.26% 8.01% 9.05%
Other Receivables .......................... 7.35% 8.92% 5.66% 7.52% 6.22%
Other Assets ............................... 7.73% 3.83% 3.68% 4.69% 8.49%
<FN>
1 See Financial Statements - Consolidated Statements of Cash Flows -
Supplemental Schedule of Non-Cash Activities.
</FN>
</TABLE>
Certain reclassifications were made to the prior year amounts to conform
with the 1997 presentations. Of the balance in the allowance for credit
losses, the amount allocated to non-earning receivables, other receivables and
other assets was $1.055 million, $525 thousand, $1.459 million, $2.075 million
and $2.0 million on December 31, 1997, 1996, 1995, 1994 and 1993,
respectively. In addition, as of December 31, 1997 (as indicated in the
table), $275,000 has been allocated to life insurance contracts owned by
Lifetime Options.
21
<PAGE>
Although the Company maintains an allowance for credit losses in an amount
deemed by management to be adequate to cover potential losses, no assurance can
be given that the allowance will in fact be adequate or that an inadequacy, if
any, in the allowance could not have a material adverse effect on the Company's
earnings in future periods. Furthermore, although management believes that its
periodic estimates of the value of Other Receivables and Other Assets are
appropriate, no assurance can be given that the amounts which the Company
ultimately collects with respect to Other Receivables and Other Assets will not
differ significantly from management's estimates or that those differences, if
any, could not have a material adverse effect on the Company's earnings in
future periods. See (f) Asset Quality and (g) Credit Loss Policy and Experience.
COMMISSIONS. Commission expense was $349 thousand (3.5% of total revenue)
in 1997 as compared to $449 thousand (3.6% of total revenue) in 1996. The
decrease was largely due to the decrease of $2.6 million in earned discounts in
1997 from 1996. Additionally more business was generated by in-house
salespersons as compared to outside brokers. These salespersons earn a smaller
commission than outside brokers.
LIQUIDITY AND CAPITAL RESOURCES. The Company's principal funding sources
are the collection of purchased receivables, payments received on Collateralized
Advances, retained cash flow and external borrowings.
As of December 31, 1997 the Company had approximately $10.8 million
available under a $25.0 million secured revolving line of credit. (See notes to
Consolidated Financial Statements - Note F - Notes Payable).
As of December 31, 1997 and December 31, 1996, the Company had outstanding
approximately $4,974,000 and $4,978,000, respectively, in aggregate principal
amount of Convertible Subordinated Notes issued in exchange for shares of the
Company's common stock. The Convertible Subordinated Notes outstanding at
December 31, 1997 and 1996 were issued in exchange for 785,475 shares of common
stock. The Notes (i) mature on September 30, 2000; (ii) currently bear interest
at the rate of 9.5% per annum which rate may fluctuate in accordance with the
prime rate, but may not fall below 8% nor rise above 10% per annum; (iii) are
convertible into common stock of the Company at the rate of $7.50 per share;
(iv) are subordinated to Senior Indebtedness (as defined) of the Company and (v)
were issued pursuant to an indenture which contains certain covenants which are
less restrictive than those contained in the Company's secured revolving credit
facility. Upon the occurrence of certain change of control events, holders of
the Notes have the right to have their Notes redeemed at par.
At December 31, 1997, the Company had working capital of $23.9 million and
a ratio of current assets to current liabilities of 2.31 to 1 as compared to
December 31, 1996 working capital of $24.9 million and a ratio of current assets
to current liabilities of 2.35 to 1. As of December 31, 1997, the Company had
conditional commitments of $57.9 million to purchase accounts receivable and
make Collateralized Advances, subject to the Company's underwriting criteria.
Since many of those commitments may expire without being drawn upon, the figure
of $57.9 million does not necessarily represent future cash requirements.
22
<PAGE>
The Company believes that internally generated funds and borrowings under
its current credit facility will be sufficient to finance the Company's future
funding requirements for the near term. If, however, an unexpectedly high
portion of the Company's potential new business includes Collateralized Advances
(especially Collateralized Advances secured by assets other than equipment),
internally generated funds and borrowings under the Company's existing credit
facility may not be sufficient to fund such new business. Under such
circumstances the Company would attempt to negotiate the borrowing base in its
existing credit facility to allow the Company to borrow greater amounts from its
primary lender(s) and thereby support the growth in Collateralized Advances. If
those negotiations were unsuccessful, there is no assurance that the Company
could attract sufficient capital to enable the Company to pursue its strategy of
making additional Collateralized Advances.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
TOTAL REVENUE. Total revenue consists of (i) earned discounts and (ii)
fees and other income. "Earned discounts" consist primarily of revenue from the
purchase of accounts receivable and life insurance policies and income from
Collateralized Advances. "Fees and other income" consist primarily of closing or
application fees, commitment or facility fees, other related financing fees and
supplemental discounts paid by clients who do not sell the minimum volume of
accounts receivable required by their contracts with the Company (including as a
result of "graduating" to a lower cost source of funding).
The following table breaks down total revenue by type of transaction for
the periods indicated and the percentage relationship of each type of
transaction to total revenue.
<TABLE>
<CAPTION>
For the Year Ended December 31,
----------------------------------------------------------
1996 1995
-------------------------- -------------------------
% of Total % of Total
Revenue Revenue Revenue Revenue
<S> <C> <C> <C> <C>
Discount on Factored
Accounts Receivable .......... $ 5,777,660 46.6% $ 6,155,374 47.4%
Earnings on Collateralized
Advances ..................... 2,522,856 20.3 2,930,731 22.5
Earnings on Purchased Life
Insurance Policies ........... 499,249 4.0 947,731 7.3
Other Earnings ................... 1,226,014 9.9 898,495 6.9
Total ......................... 10,025,779 80.8 10,932,331 84.1
Fees and Other Income ............ 2,378,782 19.2 2,065,015 15.9
Total Revenue ................. $12,404,561 100.0% $12,997,346 100.0%
</TABLE>
Total revenue decreased 4.6% in 1996 over 1995, from $13.0 million to $12.4
million. Earned discounts from Factored Accounts Receivable decreased 6.1% in
1996 as compared to 1995, from $6.2 million to $5.8 million. Earned discounts
23
<PAGE>
from Factored Accounts Receivable in 1996 as a percentage of total Factored
Accounts Receivable purchased in 1996 were 3.39%. The comparable percentage in
1995 was 4.25%, a decrease of 20.2% from 1995 to 1996. This reduction reflects
the downward pressure on pricing from competition in the Company's core
factoring business. In 1996 and 1995, earned discounts from Factored Accounts
Receivable comprised 46.6% and 47.4%, respectively, of total revenue.
Earned discounts from Collateralized Advances decreased 13.9% in 1996 over
1995, from $2.9 million to $2.5 million. In 1996 and 1995, earned discounts from
Collateralized Advances comprised 20.3% and 22.5%, respectively, of total
revenue. These percentages reflect management's decision to pursue the making of
Collateralized Advances, in addition to the Company's core factoring business.
Collateralized Advances currently bear interest at a rate, on average, of
approximately 2% per month. Earned discounts from Collateralized Advances are
required to be paid in cash monthly in arrears. See Provisions for Credit Losses
below.
Fees and other income increased 15.2% in 1996 as compared to 1995, from $2.1
million to $2.4 million, respectively. In 1996 and 1995 fees and other income
comprised of 19.2% of total revenue and 15.9%, respectively.
As of December 31, 1996 and 1995, Factored Accounts Receivable included on
the Company's balance sheet were $22.4 million (60.0%) and $25.2 million
(64.5%), respectively, of Gross Finance Receivables. As of December 31, 1996 and
1995, Collateralized Advances included on the Company's balance sheet were $8.8
million (23.4%) and $10.8 million (27.8%), respectively, of Gross Finance
Receivables.
Compensation and Fringe Benefits. Compensation and fringe benefits were $3.3
million (26.8% of total revenue) and $3.2 million (24.6% of total revenue) in
1996 and 1995, respectively. The absolute dollar increase is chiefly the result
of small increases in several categories of compensation. Executive compensation
in 1996 was $1.1 million (8.9% of total revenue) versus $1.0 million (7.9% of
total revenue) in 1995. Almost all of the 1996 increase in compensation and
fringe benefits (including executive compensation) is the result of expenses
associated with the severance of a key employee and costs associated with
replacing that employee, including hiring a former Company executive on an
interim basis to help identify and train the severed employee's replacement.
General and Administrative Expense. In 1996, general and administrative
expense was $2.8 million (22.6% of total revenue) as compared to $2.8 million
(21.2% of total revenue) in 1995. Overall general and administrative expenses
were flat between 1996 and 1995, however, an increase in professional fees was
offset by decreases in licenses and taxes and duplicating expense. In 1996
professional fees rose to $1.2 million (9.9% of total revenue) as compared to
$1.1 million (8.3% of total revenue) in 1995. Professional fees increased, in
part, due to on-going litigation and, in part, to the final resolution of
certain legal proceedings instituted in prior years. Also contributing to the
increase in general and administrative expense was an increase in directors'
fees attributable to an increase in the size of the Board and an increase in the
number of scheduled meetings of the Board.
24
<PAGE>
Interest Expense. Interest expense was $1.6 million (13.0% of total revenue)
versus $984 thousand (7.6% of total revenue) in 1996 and 1995, respectively. The
increase in interest expense is attributable to (i) an increase in the average
daily balance outstanding on the Company's revolving line of credit and (ii)
interest expense related to the Company's Convertible, Subordinated Notes issued
in September 1995 and January 1996. The average daily outstanding balance on the
Company's revolving line of credit was $11.3 million and $8.5 million for 1996
and 1995, respectively and the average interest rate paid on the Company's
revolving line of credit was 9.0% during 1996 as compared to 9.7% during 1995.
Interest expense related to the Company's Convertible Subordinated Notes was
$465 thousand (3.8% of total revenue) in 1996, compared to $87 thousand (0.7% of
total revenue) in 1995. The increase in 1996 is attributable to the length of
time and dollar amount outstanding of the Convertible Subordinated Notes.
Provision for Credit Losses. The provision for credit losses increased in
1996 from $5.0 million (38.3% of total revenue) in 1995 to $5.9 million (47.4%
of total revenue) in 1996. As disclosed in the Company's Form 10-QSB for the
period ended June 30, 1996, following certain events in the second quarter of
1996, management determined that it was necessary and appropriate to write off
or write down nine non-performing assets totaling $4.2 million. Prior to the
write-offs and write downs, these assets were included in Non-earning
Receivables, Other Receivables and Other Assets on the Company's balance sheet.
The provision for credit losses in the second quarter of 1996 reflected the
amount deemed necessary by management to enable the Company to charge the
allowance for credit losses for the foregoing write-offs and to leave a balance
in the allowance for credit losses deemed sufficient to cover potential future
write-offs.
The table on Page 21 provides a summary of the Company's Non-Earning
Receivables, Other Receivables and Other Assets and information regarding the
allowance for credit losses for the periods indicated.
The increase in Non-Earning Receivables and Other Receivables at December 31,
1996 was attributable to two clients put on non-accrual status in late November
1996.
Although the Company maintains an allowance for credit losses in an amount
deemed by management to be adequate to cover potential losses, no assurance can
be given that the allowance will in fact be adequate or that an inadequacy, if
any, in the allowance could not have a material adverse effect on the Company's
earnings in future periods. Furthermore, although management believes that its
periodic estimates of the value of Other Receivables and Other Assets are
appropriate, no assurance can be given that the amounts which the Company
ultimately collects with respect to Other Receivables and Other Assets will not
differ significantly from management's estimates or that those differences, if
any, could not have a material adverse effect on the Company's earnings in
future periods. See (f) Asset Quality and (g) Credit Loss Policy and Experience.
Commissions. Commission expense was $449 thousand (3.6% of total revenue)
in 1996 as compared to $263 thousand (2.0% of total revenue) in 1995. The
25
<PAGE>
increase was the result of a larger portion of Gross Finance Receivables
acquired in 1996 being generated by commissioned brokers and other professionals
to whom the Company paid referral fees.
LIQUIDITY AND CAPITAL RESOURCES. The Company's principal funding sources
are the collection of purchased receivables, retained cash flow and external
borrowings.
As of December 31, 1996, the Company had approximately $10.1 million
available under a $25 million secured revolving line of credit. The credit
facility contains a $5.0 million sub-facility for the issuance of letters of
credit, a $2 million sub-facility (which under certain circumstances may
increase to $4 million) the proceeds of which may be used to make advances to
clients secured by machinery and equipment and a $2.5 million sub-facility the
proceeds of which may be used by the Company to make advances to clients secured
by inventory. Borrowings under the credit facility bear interest at a spread
over the bank's base rate. The current maturity date of this credit facility is
May 13, 1997. The Company is subject to covenants which are typical in revolving
credit facilities of this type. The Company is currently discussing the renewal
of this credit facility with its lenders.
As of December 31, 1996 and December 31, 1995, the Company had outstanding
approximately $4,978,000 and $2,838,000, respectively, in aggregate principal
amount of Convertible Subordinated Notes issued in exchange for shares of the
Company's common stock. The Convertible Subordinated Notes outstanding at
December 31, 1995 were issued in exchange for 447,200 shares of common stock and
the Convertible Subordinated Notes outstanding at December 31, 1996 were issued
in exchange for 785,475 shares of common stock (including the 447,200 shares of
common stock exchanged prior to December 31, 1995). The Notes (i) mature on
September 30, 2000; (ii) currently bear interest at the rate of 9.5% per annum
which rate may fluctuate in accordance with the prime rate, but may not fall
below 8% nor rise above 10% per annum; (iii) are convertible into common stock
of the Company at the rate of $7.50 per share; (iv) are subordinated to Senior
Indebtedness (as defined) of the Company and (v) were issued pursuant to an
indenture which contains certain covenants which are less restrictive than those
contained in the Company's secured revolving credit facility. Upon the
occurrence of certain change of control events, holders of the Notes have the
right to have their Notes redeemed at par.
At December 31, 1996, the Company had working capital of $24.9 million and
a ratio of current assets to current liabilities of 2.36 to 1 as compared to
December 31, 1995 working capital of $26.0 million and a ratio of current assets
to current liabilities of 2.60 to 1. As of December 31, 1996, the Company had
conditional commitments of $66.6 million to purchase accounts receivable and
make Collateralized Advances, subject to the Company's underwriting criteria.
Since many of those commitments may expire without being drawn upon, the figure
$66.6 million does not necessarily represent future cash requirements.
The Company believes that internally generated funds and borrowings under
its current or a replacement credit facility will be sufficient to finance the
Company's future funding requirements for the near term. If, however, an
26
<PAGE>
unexpectedly high portion of the Company's potential new business includes
Collateralized Advances (especially Collateralized Advances secured by assets
other than equipment), internally generated funds and borrowings under the
Company's existing credit facility may not be sufficient to fund such new
business. Under such circumstances the Company would attempt to negotiate the
borrowing base in its existing credit facility to allow the Company to borrow
greater amounts from its primary lender(s) and thereby support the growth in
Collateralized Advances. If those negotiations were unsuccessful, there is no
assurance that the Company could attract sufficient capital to enable the
Company to pursue its strategy of making additional Collateralized Advances.
IMPACT OF INFLATION
Management believes that inflation has not had a material effect on the
Company's income, expenses or liquidity during the past three years.
Changes in interest rate levels do not generally affect the income earned
by the Company in the form of discounts charged. Rising interest rates would,
however, increase the Company's cost of funds based on its current borrowing
arrangements which are base rate or LIBOR adjusted credit facilities.
ITEM 7. FINANCIAL STATEMENTS (PAGES 34-56)
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
27
<PAGE>
Part III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS: COMPLIANCE WITH SECTION 16(A) OF
THE EXCHANGE ACT
A definitive proxy statement is expected to be filed with the Securities
and Exchange Commission on or about April 13, 1998. The information required by
this item is set forth under the caption "Election of Directors", under the
caption "Executive Officers" and under the caption "Section 16(a) Beneficial
Ownership Reporting Compliance" in the definitive proxy statement, which
information is incorporated herein by reference thereto.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this item is set forth under the caption
"Executive Compensation" in the definitive proxy statement, which information is
incorporated herein by reference thereto.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is set forth under the caption
"Security Ownership of Certain Beneficial Owners and Management" in the
definitive proxy statement, which information is incorporated herein by
reference thereto.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information required by this item is set forth under the caption
"Certain Transactions" in the definitive proxy statement, which information is
incorporated herein by reference thereto.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements: Page Number
The following Financial statements are submitted in Item 7.
Independent Auditors' Report on Consolidated Financial
Statements and Schedules 30
Consolidated Balance Sheets as of December 31, 1997
and 1996 31-32
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996, and 1995 33
Consolidated Statements of Shareholders' Equity for
the years ended December 31, 1997, 1996 and 1995 34
Consolidated Statements of Cash Flows for the years
ended December 31, 1997, 1996 and 1995 35-36
Notes to Consolidated Financial Statements for the
year ended December 31, 1997 37-60
28
<PAGE>
2. Financial Statement Schedules
The following financial statement schedule is filed as part of this
report:
Schedule IV Indebtedness of and to Related Parties - Not
Current for the years ended December 31, 1997, 1996 and 1995 61
Schedules other than those listed above have been omitted since they are
either not required or the information is included elsewhere in the
financial statements or notes thereto.
(b) Reports on Form 8-K
None.
(c) Listing of Exhibits
EXHIBIT 3. ARTICLES OF INCORPORATION AND BY-LAWS
Documents incorporated by reference - See Registration Statement
on Form S-1 33-46748
EXHIBIT 4. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS
Documents incorporated by reference - See Registration Statement on
Form S-1 33-46748
Documents incorporated by reference - See the Company's Quarterly
Report on Form 10-QSB for the Quarter Ended September 30, 1995.
EXHIBIT 10. MATERIAL CONTRACTS
Documents incorporated by reference - See Registration Statement on
Form S-1 33-46748
Documents incorporated by reference - See the Company's Annual
Report on Form 10-KSB for the Fiscal Year Ended December 31, 1995
Amended and Restated Revolving Credit and Security Agreement dated
as of May 28, 1997 by and among IBJ Schroder Bank & Trust Company
(as Agent and Lender), National Bank of Canada (as lender) and
Allstate Financial Corporation.
First Amendment to Amended and Restated Revolving Credit and
Security Agreement dated as of June 20, 1997.
Agreement of Lease dated as of September 20, 1997 between Midtown
Realty Company, LLC and Allstate Financial Corporation.
Exhibit 10.9 Employment Contracts
Employment and Compensation Agreement with Francis B. Madden
incorporated by reference to the Company's filing on Form 10-QSB
for the Quarter Ended June 30, 1997.
Employment and Compensation Agreement with Wade Hotsenpiller
incorporated by reference to the Company's filing on form 10-QSB
for the Quarter Ended September 30, 1997.
Exhibit 21. Subsidiaries of the Company
29
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Allstate Financial Corporation
Arlington, Virginia
We have audited the accompanying consolidated balance sheets of Allstate
Financial Corporation and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997. Our
audits also included the financial statement schedule listed in the Index at
Item 13(a) 2. These financial statements and financial statement schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on the financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Allstate Financial Corporation
and subsidiaries as of December 31, 1997, and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
Deloitte & Touche, LLP
Washington, D.C.
February 20, 1998
30
<PAGE>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
---------------------------
1997 1996
----------- -----------
ASSETS
CURRENT ASSETS:
Cash ......................................... $ 4,200,050 $ 1,624,899
Finance Receivables - Net .................... 33,847,276 35,407,327
Receivables - Other - Net .................... 2,988,927 4,094,975
Prepaid expenses ............................. 127,741 154,434
Income tax receivable ........................ -- 1,150,289
Deferred income taxes ........................ 1,056,686 893,000
--------- -------
TOTAL CURRENT ASSETS .................. 42,220,680 43,324,924
FURNITURE, FIXTURES AND EQUIPMENT, Net ......... 494,240 538,164
OTHER ASSETS ................................... 4,203,727 2,116,343
--------- ---------
TOTAL ASSETS .......................... $46,918,647 $45,979,431
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses ........ $ 420,356 $ 446,360
Notes payable ................................ 14,373,724 14,954,582
Income Tax Payable ........................... 240,226 --
Credit balances of factoring clients ......... 3,285,974 3,004,873
--------- ---------
TOTAL CURRENT LIABILITIES ............. 18,320,280 18,405,815
NONCURRENT PORTION OF NOTES PAYABLE:
Convertible Subordinated Notes and Other
Non-Current Notes ....................... 5,034,327 5,047,079
--------- ---------
TOTAL LIABILITIES ..................... 23,354,607 23,452,894
---------- ----------
31
<PAGE>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)
COMMITMENTS AND CONTINGENCIES (See Note L.)
SHAREHOLDERS' EQUITY:
Preferred stock, authorized 2,000,000 shares with
no par value; no shares issued or outstanding - -
Common stock, authorized 10,000,000
shares with no par value; 3,102,328
issued; 2,318,451 outstanding at
December 31, 1997 and 2,317,919 outstanding
at December 31, 1996, exclusive of
shares held in treasury .............. 40,000 40,000
Additional paid-in-capital ............... 18,852,312 18,852,312
Treasury Stock 783,877 shares at
December 31,1997 and 784,409 at
December 31, 1996 ...................... (5,030,594) (5,034,584)
Retained Earnings ........................ 9,702,322 8,668,809
--------- ---------
TOTAL SHAREHOLDERS' EQUITY ........ 23,564,040 22,526,537
---------- ----------
$ 46,918,647 $ 45,979,431
============ ============
See Notes to Consolidated Financial Statements
32
<PAGE>
<TABLE>
<CAPTION>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
-------------------------------------------
1997 1996 1995
---------- ------------ ------------
<S> <C> <C> <C>
REVENUE:
Earned discounts ........................ $ 7,436,630 $ 10,025,779 $ 10,932,331
Fees and other revenue .................. 2,569,213 2,378,782 2,065,015
--------- --------- ---------
TOTAL REVENUE .................. 10,005,843 12,404,561 12,997,346
---------- ---------- ----------
EXPENSES:
Compensation and fringe benefits ........ 3,087,085 3,318,609 3,198,497
General and administrative .............. 2,165,396 2,804,643 2,758,285
Interest expense ........................ 1,170,152 1,606,561 983,718
Provision for credit losses ............. 1,593,555 5,878,167 4,981,646
Commissions ............................. 349,157 449,225 263,100
------- ------- -------
TOTAL EXPENSES ................. 8,365,345 14,057,205 12,185,246
--------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES ........... 1,640,498 (1,652,644) 812,100
INCOME TAXES (BENEFITS) ..................... 606,985 (611,500) 331,000
------- -------- -------
NET INCOME (LOSS) ........................... $ 1,033,513 $ (1,041,144) $ 481,100
============ ============ ============
NET INCOME (LOSS) PER COMMON SHARE
DILUTED ................................. $ .44 $ (.45) $ 0.16
============ ============ ============
BASIC ................................... $ .45 $ (.45) $ 0.16
============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
DILUTED ................................. 2,324,624 2,328,808 2,966,337
========= ========= =========
BASIC ................................... 2,318,092 2,328,308 2,966,330
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
33
<PAGE>
<TABLE>
<CAPTION>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Additional
Common Paid in Treasury Retained
Stock Capital Stock Earnings Total
----------- ---------------- ------------- --------------
<S> <C> <C> <C> <C>
Balance - January 1,
1995 $40,000 $18,852,312 $9,228,853 28,121,165
Exchange of
Convertible
Subordinated Notes
for 447,200 shares
of common stock (2,871,901) (2,871,901)
Net Income - - - 481,100 481,100
---------- ------------ ------------ ----------- ------------
Balance - December 31,
1995 $40,000 $18,852,312 $(2,871,901) $9,709,953 $25,730,364
Exchange of
Convertible
Subordinated Notes
for 338,275 shares
of common stock - - (2,170,683) - (2,170,683)
Conversion of
Convertible
Subordinated Notes
to 1,066 shares of
common stock - - 8,000 - 8,000
Net (Loss) - - - (1,041,144) (1,041,144)
---------- ------------ ------------ ----------- ------------
Balance - December 31,
1996 $40,000 $18,852,312 $(5,034,584) $8,668,809 $22,526,537
Conversion of
Convertible
Subordinated Notes
to 532 shares of
common stock - - 3,990 - 3,990
Net Income - - - 1,033,513 1,033,513
---------- ------------ ------------ ----------- ------------
Balance - December 31, $40,000 $18,852,312 $(5,030,594) $9,702,322 $23,564,040
=== ======= =========== =========== ========== ===========
1997
</TABLE>
See Notes to Consolidated Financial Statements
34
<PAGE>
<TABLE>
<CAPTION>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
---------------------------------------------------------
1997 1996 1995
------------ ------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (Loss) ............................................. $ 1,033,513 $ (1,041,144) $ 481,100
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation - net .......................................... 222,124 107,664 100,093
Provision for credit losses ................................. 1,593,555 5,878,167 4,981,646
Changes in operating assets and liabilities:
Decrease/(Increase) in other receivables ................... 1,106,048 (1,978,133) 463,457
Decrease/(Increase) in prepaid expenses .................... 26,693 50,389 (6,732)
Increase in Income Tax Payable ............................. 240,226 -- --
Decrease/(Increase) in other assets ........................ (2,087,384) 461,955 397,760
(Decrease)/Increase in accounts payable
and accrued expenses .................................... (26,004) 153,758 (11,236)
(Increase) in deferred income tax asset .................... (163,686) --
Decrease/(Increase) in income tax receivable ............... 1,150,289 (428,208) (93,958)
--------- -------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES ........................ 3,095,374 3,204,448 6,328,130
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of finance receivables,
including repurchases and life insurance
contracts .................................................. (201,026,991) (199,191,058) (172,311,795)
Collections of finance receivables,
including repurchases and life insurance
contracts .................................................. 200,993,487 195,019,127 162,572,708
Increase/(Decrease) in credit balances
of factoring clients ....................................... 281,101 631,144 668,691
Purchase of furniture, fixtures and equipment ................. (178,200) (108,199) (158,691)
-------- -------- --------
NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES ................. 69,397 (3,648,986) (9,229,087)
------ ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from line of credit
and other borrowings ....................................... 100,490,490 58,584,464 72,153,625
Principal payments on line of credit
and other borrowings ....................................... (101,080,100) (57,246,639) (70,228,402)
Treasury Stock Acquisition costs .............................. (10) (22,683) (33,901)
--- ------- -------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES ................. (589,620) 1,315,142 1,891,322
-------- --------- ---------
NET INCREASE (DECREASE) IN CASH .................................. 2,575,151 870,604 (1,009,635)
CASH, Beginning of year .......................................... 1,624,899 754,295 1,763,930
--------- ------- ---------
CASH, End of year ................................................ $ 4,200,050 $ 1,624,899 $ 754,295
============ =========== =============
</TABLE>
See Notes to Consolidated Financial Statements
35
<PAGE>
<TABLE>
<CAPTION>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
Years Ended December 31,
-------------------------------------------------------
1997 1996 1995
--------- ---------- ---------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid ................................................ $1,121,272 $1,605,196 $1,014,406
========== ========== ==========
Taxes paid ................................................... $ 460,000 $ 14,321 $ 408,958
========== ========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:
Transfer of finance and other
receivables to other assets ............................... $2,401,026 $2,004,423 $ 267,750
========== ========== ==========
Issuance of Convertible Subordinated
Notes in exchange for common stock ........................ $ -- $2,148,000 $2,838,000
========== ========== ==========
Issuance of Common Stock in Exchange
for Subordinated Notes .................................... $ 3,990 $ 8,000 $ --
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
36
<PAGE>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Allstate Financial Corporation and
its subsidiaries (collectively, the "Company") conform to generally accepted
accounting principles and the general practices within the financial services
industry. Those policies that materially affect the determination of financial
position, results of operations, and cash flows are summarized below. In
preparing its financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
dates shown in the consolidated balance sheet and the statement of income.
Actual results could differ significantly from those estimates. In the normal
course of business, the Company encounters economic risks. Economic risk is
comprised of interest rate risk, credit risk, and market risk. Interest rate
risk is the risk that unfavorable discrepancies will occur between the rates of
interest earned by the Company on its receivables portfolio at its own costs of
borrowing funds in the market. Credit risk is the risk of default on the
Company's loan portfolio that results from the borrowers' inability or
unwillingness to make contractually required payments. Market risk reflects
changes in the value of collateral underlying loans receivable and the valuation
of the Company's real estate owned.
The determination of the allowance for loan losses is based on estimates
that are susceptible to significant changes in the economic environment and
market conditions. Management believes that, as of December 31, 1997 and 1996,
the allowance for loan losses is adequate based on the information currently
available. A worsening or protracted economic decline could increase the
likelihood of losses due to credit and market risks and could create the need
for substantial additions to the allowance for loan losses.
CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries after elimination of all material intercompany
transactions. No segment of its business, other than factoring and general
financing is significant in relation to the Company's consolidated total assets
and revenues.
RECLASSIFICATIONS
Certain amounts related to 1996 have been reclassified to conform with the
1997 presentation.
Finance Receivables and Allowance for Credit Losses
37
<PAGE>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Finance Receivables consist of factored accounts receivable, Collateralized
Advances (as defined below), overadvances secured by general liens, life
insurance contracts and non-earning receivables. Factored accounts receivable
are stated at the face amount outstanding, net of unearned discounts, an
allowance for credit losses, and participations. Advances collateralized by
inventory, equipment, real estate and other property (collectively,
"Collateralized Advances") and overadvances secured by general liens are stated
at the aggregate principal amount outstanding plus accrued earnings, net of an
allowance for credit losses. Life insurance contracts are stated at the purchase
price paid for the contracts plus accrued earnings, net of an allowance based on
management's estimate of the present value of the discounted cash flow from the
portfolio of life insurance contracts. Non-earning receivables are stated at the
amount advanced by the Company plus earnings accrued to the time the accrual of
earnings is suspended, net of an allowance for credit losses. If the Company
determines that it is not likely to recover from any source the amount of its
initial advance and the earned but unpaid discount, then the Company increases
the allowance for credit losses or reduces the carrying value of the non-earning
receivable to its estimated fair value and makes a charge to its allowance for
credit losses in an amount equal to the difference between the Company's
investment in the non-earning receivable and its estimated fair value.
The allowance for credit losses is maintained at a level which, in
management's judgment, is sufficient to absorb losses inherent in the finance
receivable portfolio. The allowance for credit losses is based upon management's
review and evaluation of the finance receivables portfolio. Factors considered
in the establishment of the allowance for credit losses include management's
evaluation of specific finance receivables, the adequacy of underlying
collateral, historical loss experience, expectations of future economic
conditions and their impact on particular industries and individual clients, and
other discretionary factors. The allowance for credit losses is based on
estimates of potential future losses, and ultimate losses may vary from the
current estimates. These estimates are typically reviewed quarterly and as
adjustments become necessary, the effects of the change in estimates are charged
against the allowances for credit losses in the period in which they become
known. Finance receivables may be reclassified on the Company's balance sheet as
"other receivables" or "other assets" when, in management's opinion, such a
reclassification most accurately reflects the character of the asset. This
usually occurs within three to twelve months after the client stops factoring
with the Company. At the time of any such reclassification, the Company usually
suspends or discontinues the accrual of earnings for financial statement
purposes. If at any time the Company determines it is not likely to recover a
finance receivable in full, the receivable is appropriately written down against
the allowance. Finance Receivables are fully charged off against the allowance
when the Company has exhausted its
38
<PAGE>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
efforts against the client's customer, the client, guarantors, other third
parties and any additional collateral retained by the Company.
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 114, "Accounting By Creditors for Impairment of
a Loan." This statement required the Company to measure the value of each
impaired loan based on the present value of its expected future cash flows
discounted at the loan's effective interest rate or, as a practical expedient,
the loan's observable market price or the fair value of the collateral if the
loan is collateral dependent. Effective January 1, 1995, the Company adopted
SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures." This Statement amends SFAS No. 114, to allow
creditors to use existing methods for recognizing interest income on impaired
loans.
PURCHASED LIFE INSURANCE CONTRACTS
Lifetime Options, a wholly-owned subsidiary of the Company, provided
financial assistance to individuals facing life-threatening illness by
purchasing their life insurance policies at a discount from face value. Because
most of the life insurance policies purchased by Lifetime Options are
underwritten by highly rated insurance companies (and, in many cases, backed by
state guaranty funds), the management of Lifetime Options believes that credit
risk is not material. During 1997, Lifetime Options curtailed purchasing
policies. This decision enabled management to better focus on the Company's core
commercial finance business at a time when competition had reduced yields, and
medical advances have created a certain degree of uncertainty, in Lifetime
Options' business. In connection with curtailing its operations, Lifetime
Options sold some of the life insurance policies in its portfolio.
OTHER RECEIVABLES
Other receivables consist primarily of amounts due to the Company where the
source of payment is expected to be from legal proceedings or other collection
efforts instituted against a client's customer, guarantors and/or other third
parties. Other receivables typically arise from the reclassification of finance
receivables. At the time of reclassification, other receivables are stated at a
value estimated by management based on management's assessment of the likelihood
of payment or success on the merits, the ability of the third party to pay and
other discretionary factors. Also, at the time of reclassification, the accrual
of earnings is usually suspended or discontinued for financial statement
purposes. Write-downs, if any, at the time of
39
<PAGE>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
reclassification are charged against the allowance for credit losses.
Management's estimates of the fair value of other receivables are typically
reviewed quarterly and as adjustments become necessary, the effects of the
change in estimates are charged against the allowance for credit losses. The
costs of carrying and collecting other receivables are generally expensed in
operations during the period in which they are incurred. Other receivables are
subject to legal and other collection processes and contingencies over which the
Company does not have exclusive control. Accordingly, the amounts which the
Company ultimately receives in payment of other receivables could differ
significantly from management's estimates.
FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment are recorded at cost. Depreciation is
computed using straight line and accelerated methods over the estimated useful
lives of the related assets.
OTHER ASSETS
At the date of acquisition, other assets are recorded at fair value less
estimated selling costs. Also at the date of acquisition, the accrual of
earnings is usually suspended or discontinued for financial statement purposes.
Write-downs to fair value at the date of acquisition are charged against the
allowance for credit losses. Subsequent to acquisition, the asset is adjusted to
the lower of cost or fair value less estimated costs to sell and adjustments, if
any, are charged against the allowance for credit losses. Operating expenses
pertaining to other assets are expensed in operations in the period in which
they are incurred. Gains or losses on the disposition of other assets are first
reflected in the allowance for credit losses. Any gain which exceeds the amount,
if any, previously written-off is reflected in current income.
The amounts ultimately recovered by the Company from other assets could
differ materially from the amounts used in arriving at the net carrying value of
the assets because of future market factors beyond the Company's control,
adversarial actions taken by the client or other owners of the property
foreclosed or changes in the Company's strategy for recovering its investment.
FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with the requirements of SFAS No. 107, "Disclosure About Fair
Value of Financial Instruments", which requires the disclosure of fair value
40
<PAGE>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
information about financial instruments when it is practicable to estimate that
fair value and excessive costs would not be incurred, the following methods and
assumptions were used in estimating the fair value of financial instruments:
Cash and Cash Equivalents -- The carrying amounts for cash and cash
equivalents approximates fair value.
Finance Receivables, Commitments and Other Receivables -- The carrying
amount of receivables approximate fair value because of the short maturity
of these instruments.
Notes payable which are primarily adjustable rate notes, are recorded at
book values, which approximate the respective fair values.
UNEARNED AND EARNED DISCOUNTS ON FACTORED ACCOUNTS RECEIVABLE
At the time of purchase, the unearned discount is deducted from the face
amount of the account receivable purchased and is recorded as a reduction to
such receivable. Unearned discounts are recognized as income in accordance with
the respective terms of the accounts receivable factoring and security agreement
between the Company and each of its clients. The factoring agreement contains an
earnings schedule detailing the discount the Company is entitled to charge at
various time intervals (typically a uniform discount during the first 30 days
following the purchase and an incrementally higher discount every 15 days
thereafter). The Company recognizes discounts on the first day of each time
interval. The Company's method of recognizing earned discounts does not differ
materially from the interest method. At the time an account receivable is
purchased, a due date is set by management based on the anticipated payment
date. This anticipated payment date is used to identify past due receivables.
The accrual of earned discounts is discontinued when, in the opinion of
management, the collection of additional earnings from the client's customer,
the client, guarantors or collateral held, if any, is unlikely. Accounts
receivable which have been identified as past due may continue to accrue
earnings if, in the opinion of management, collection of the earnings from the
client's customer, the client, guarantors or collateral held, if any, is likely.
When accounts receivable are placed on non-accrual status, earned discounts
theretofore accrued in the current year are charged against current year's
earnings if, in the opinion of management, the collection of such earnings is
unlikely. Earned discounts accrued in prior years are charged to the allowance
for credit losses if, the opinion of management, the collection of such earnings
is unlikely.
41
<PAGE>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
EARNED DISCOUNTS ON COLLATERALIZED ADVANCES AND OVERADVANCES SECURED BY
GENERAL LIENS
Earned discounts on Collateralized Advances accrue typically on the average
outstanding amount of the advance during each calendar month (or fraction
thereof). Earned discounts on overadvances secured by general liens accrue
typically on the outstanding amount of the overadvance during successive 15- day
intervals. In both cases, accrued earnings are typically required to be paid in
full no less frequently than monthly in arrears.
FEES AND OTHER INCOME
Fee income includes application fees, letter of credit and guaranty fees,
and commitment or facility fees received from clients. Commitment and facility
fees are deferred and recognized over the term of the commitment or facility on
a straight line basis. Application fees are paid by clients to the Company to
cover the cost of performing credit investigations and field reviews and are
recognized when received. Letter of credit and guaranty fees are usually for a
sixty- to ninety-day period and are recognized when the letter of credit or
letter of guaranty is issued.
Other income includes supplemental discounts (i.e., early termination
fees), interest income and miscellaneous income.
INCOME TAXES
The Company recognizes the amount of taxes payable or refundable in the
current year and deferred tax liabilities and assets for the future tax
consequences of events that have been recognized in the Company's financial
statements or tax returns. In addition, the Company will reduce any deferred tax
assets by the amount of any tax benefit that more than likely will not be
realized.
RECENTLY IMPLEMENTED ACCOUNTING PRONOUNCEMENTS
In March 1997, the Financial Accounting Standards Board Issued SFAS No.
128, "Earnings Per Share". See Note K.
In September 1996, SFAS No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities" was issued. SFAS No.
125 provides accounting and reporting standards for transfers and servicing
42
<PAGE>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
of financial assets and extinguishments of liabilities, based on a
financial-components approach that focuses on control. Under this approach,
after a transfer of financial assets, financial and servicing assets are
recognized if controlled or liabilities are recognized if incurred. Financial
and servicing assets are removed from the balance sheet when control has been
surrendered and liabilities are removed when extinguished. SFAS No. 125 was
effective and adopted on January 1, 1997 and will be applied prospectively. The
adoption of this Statement did not have a material impact on the Company's
financial position or results of operations.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, The FASB issued SFAS No. 129, Disclosure of Information
about Capital Structure. SFAS No. 129 consolidates the existing guidance from
several other pronouncements relating to an entities capital structure.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
This pronouncement establishes standards for reporting and display of
comprehensive income and its components (revenue, expenses, gains and losses) in
a full set of general purpose financial statements. SFAS No. 130 is effective
for financial statements beginning after December 15, 1997.
Additionally, in June of 1997, the FASB issued SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information. SFAS No. 131
establishes standards for the way that public enterprises report information
about operating segments in the annual financial statements and requires that
those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. SFAS No. 131 is effective for financial statements beginning after
December 15, 1997.
The implementation of these statements will only impact the presentation of
certain components of the Company's financial statements and related footnote
disclosures.
43
<PAGE>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
B. RECEIVABLES
Finance receivables net consist of the following:
December 31,
-------------------------------
1997 1996
------------ -------------
Factored accounts receivable ............... $ 30,417,522 $ 22,390,229
Collateralized Advances .................... 7,236,040 8,808,455
Overadvances and accrued earnings
collateralized by general liens .......... 1,372,526 1,849,778
Life Insurance Contracts ................... 3,455,868 5,368,266
Non-Earning Receivables .................... 828,850 4,547,893
------- ---------
Gross Finance Receivables ............. 43,310,806 42,964,621
Less: Participation ....................... (2,208,959) (1,000,000)
Less: Unearned discount ................... (5,274,640) (4,278,322)
Less: Allowance for Credit Losses -
(including $275,000 allocated to
Lifetime Options at December 31,
1997 and $0 at December 31, 1996)... (1,979,931) (2,278,972)
---------- ----------
Finance receivables, net .............. $ 33,847,276 $ 35,407,327
============ ============
Factored accounts receivable usually become due within a maximum of 90 days.
After this time, the Company either requires the client to repay the amount
advanced on the receivable plus the earned discount under the full recourse
provisions of its agreements or, depending on an analysis of collectibility,
extends the payment terms of the receivable through a process referred to as
"repurchasing" the receivable. If at any time the Company determines that it is
unlikely to receive payment on a factored account receivable, the Company
retains the right to require its clients to repay the amount the Company has
advanced on the receivable plus the amount of discount earned.
Collateralized Advances secured by fixed assets (e.g., equipment or real
estate) are typically required to be repaid based on a 36 month amortization
schedule (although the amortization schedule in certain circumstances may be
significantly longer) with a final balloon payment due not more than one year
after the making of the Collateralized Advance. If at the time the balloon
payment is due the Company's funding relationship with the client is extended,
the Company will typically renegotiate the balloon payment. Collateralized
Advances secured by current assets (e.g. inventory) are subject to a daily or
weekly borrowing base formula and come due in a single, lump sum payment not
more than one year after the making of the initial such Collateralized
44
<PAGE>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Advance. If at the time such payment is due the Company's funding relationship
with the client is extended, the Company will typically extend the maturity of
the lump sum payment.
Overadvances secured by general liens are required to be repaid in full
(either in installments or in a single, lump sum payment) in as little as one
week or as long as six months in accordance with a written agreement between the
Company and its client.
Other receivables consist of the following:
December 31,
---------------------------
1997 1996
----------- -----------
Third party receivables in collection ........ $ 3,747,587 $ 4,389,580
Miscellaneous ................................ 340 5,395
Less: Allowance for credit losses ............ (759,000) (300,000)
-------- --------
$ 2,988,927 $ 4,094,975
=========== ===========
All receivables are pledged as collateral under a revolving line of credit (See
Footnote F).
Changes in the allowance for credit losses were as follows:
BALANCE, January 1, 1995 $ 2,510,778
Provision for credit losses 4,981,646
Receivables charged off (5,193,525)
Recoveries 52,069
------
BALANCE, December 31, 1995 2,350,968
Provision for credit losses 5,878,167
Receivables charged off (5,711,065)
Recoveries 60,902
------
BALANCE, December 31, 1996 2,578,972
Provision for credit losses 1,593,555
Receivables charged off (1,775,586)
Recoveries 341,990
-------
BALANCE, December 31, 1997 $ 2,738,931
===========
45
<PAGE>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The allowance for credit losses is classified in the balance sheet as
follows:
December 31,
----------------------------------
1997 1996
---------- -----------
Gross Finance Receivables $1,979,931 $2,278,972
Other Receivable 759,000 300,000
------- -------
$2,738,931 $2,578,972
========== ==========
Impairment of loans having recorded value of $4,759,528 and $3,396,661 at
December 31, 1997 and 1996 have been recognized in conformity with FASB
statements No. 114, Accounting by Creditors for Impairment of a Loan, as amended
by FASB statement No. 118, Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures. The average recorded investment in impaired
loans during 1997, 1996, and 1995 was $4,078,095, $3,396,661, and $3,307,474,
respectively. The allowance for credit losses related to these loans was
$1,055,294, $525,000, and $1,549,500 at December 31, 1997, 1996, and 1995,
respectively. The Company suspended the recording of income from these loans
once deemed impaired.
C. FURNITURE, FIXTURES AND EQUIPMENT
The Company's investment in property and equipment consists of the
following:
December 31,
-----------------------------
1997 1996
---------- ---------
Furniture , fixtures and equipment $1,145,785 $ 993,039
Automobiles 156,810 149,141
Less: Accumulated depreciation (808,355) (604,016)
-------- --------
$ 494,240 $ 538,164
========== =========
The furniture, fixtures and equipment are pledged as collateral under a
revolving line of credit (see Note F). Also, the Company pledged an automobile
as collateral under a capital lease.
46
<PAGE>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
D. OTHER ASSETS
Other assets consist of:
December 31,
-----------------------------
1997 1996
---------- -----------
Commercial property held for sale and
receivables secured by mortgages $3,941,160 $1,883,768
Condominium, not used in trade or
business 232,575 232,575
Deferred loan costs 29,992
------ -----------
$4,203,727 $2,116,343
========== ==========
Included in commercial property held for sale are certain properties for
which the Company does not hold title. Rather, the Company holds mortgages on
these assets in which the client or other obligor has no equity in the
collateral at its current estimated fair value. Proceeds for repayment are
expected to come only from the sale of the collateral, and either the client or
other obligor has abandoned control of the asset or it is doubtful the client or
other obligor will rebuild equity in the collateral or repay the receivable by
other means in the foreseeable future. At December 31, 1997, one property was
under contract for an aggregate selling price of $750,000.
E. CREDIT BALANCES OF FACTORING CLIENTS
At December 31, 1997 and 1996, credit balances of factoring clients
consist of: (i) a holdback reserve of $1,740,046 and $1,246,756, respectively,
which is payable to clients upon the collection of factored accounts receivable,
(ii) a factors reserve of $428,067 in 1997 and -0- in 1996 (which represents
amounts due to factoring clients subject to contractual limitation) and (iii)
cash collateral of $1,117,861 and $1,758,117 respectively.
47
<PAGE>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
F. NOTES PAYABLE
Notes payable consist of:
December 31,
--------------------------
1997 1996
---------- ----------
Notes payable - related parties;
interest payable at 1/4% over prime due
December 31, 1999 and on demand;
unsecured $156,216 $164,969
Notes payable; interest payable
at 1/4% over prime due December 31,
1999 and on demand, unsecured 21,827 21,827
Convertible Subordinated Notes
due September 30, 2000 - interest at 1.25%
over prime; unsecured; total authorized
amount - $5,000,000 4,974,000 4,978,000
Revolving line of credit - interest
at .25% over the base rate or 2.25%
over LIBOR; collateralized by finance
receivables and personal
property; total line - $25,000,000 14,250,081 14,825,012
Capitalized Lease - Payable over 24 months;
final payment due April, 1998,
collateralized by automobile. 5,927 11,853
----- ------
$19,408,051 $20,001,661
=========== ===========
At December 31, 1997, 1996 and 1995, the prime rate was 8.50%, 8.25% and 8.50%,
respectively.
These notes payable are classified on the balance sheet as follows:
December 31,
--------------------------------
1997 1996
----------- -----------
Current portion of notes payable $14,373,724 $14,954,582
Noncurrent portion of notes payable -
Convertible Subordinated Notes and
Other Notes 5,034,327 5,047,079
--------- ---------
$19,408,051 $20,001,661
=========== ===========
The majority of the notes payable to related parties arose from cash
advances made to the Company prior to 1990 and are due to individuals related to
the former principal owners of the Company. Interest expense on notes
48
<PAGE>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
payable to related parties for the years ended December 31, 1997, 1996 and 1995
was $15,187, $15,400, and $16,200, respectively.
Aggregate annual principal payments on notes payable for the five years
subsequent to December 31, 1997 are as follows:
Twelve Months Ending December 31,
---------------------------------
1998 $14,373,724
1999 60,327
2000 4,974,000
2001 -
2002 -
-----------
$19,408,051
===========
As of December 31, 1997 the Company had approximately $10.8 million
available under a $25.0 million secured revolving line of credit. The revolving
line of credit contains various sub facilities which limit its use. The entire
facility is available for the purchase of accounts receivable; however, the
Company may borrow only (i) $5.0 million secured by machinery and equipment,
(ii) $2.5 million secured by inventory, and (iii) issue up to $5.0 million of
Letters of Credit. Borrowings under the credit facility bear interest at a
spread over the bank's base rate or a spread over LIBOR, at the Company's
election. The Company is subject to covenants which are typical in revolving
credit facilities of this type. The current maturity date of this credit
facility is May 27, 2000.
Bank commitment fee expense for the years ended December 31, 1997, 1996
and 1995 was $27,828, $38,400, and $41,900, respectively.
As of December 31, 1997 and December 31, 1996, the Company had outstanding
approximately $4,974,000 and $4,978,000, respectively, in aggregate principal
amount of Convertible Subordinated Notes issued in exchange for shares of the
Company's common stock (currently held by the Company as treasury stock). The
Convertible Subordinated Notes were issued in exchange for 785,475 shares of
common stock. The Convertible Subordinated Notes (i) mature on September 30,
2000, (ii) currently bear interest at a rate of 9.5% per annum, which rate of
interest fluctuates with the prime rate, but may not fall below 8% nor rise
above 10% per annum, (iii) are convertible into common stock of the Company at
$7.50 per share, (iv) are subordinated in right of payment to the Company's
obligations under its secured revolving credit facility and (v) were issued
pursuant to an indenture which contains certain covenants which are less
restrictive than those contained in the Company's secured revolving credit
facility. Upon the occurrence of certain change of control events, the holders
of the Convertible Subordinated Notes have the right to have their notes
redeemed at par. During 1997 and 1996, $4,000 and $8,000 of Convertible
49
<PAGE>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Subordinated Notes were converted into 532 and 1,066 shares of common stock of
the Company, respectively.
G. STOCK OPTION AND BENEFIT PLANS
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." This Statement gives the Company
the option of either: 1) continuing to account for stock options and other forms
of stock compensation paid to employees under the current accounting rules (APB
No. 25, "Accounting for Stock Issued to Employees") while providing the
disclosures required under SFAS No. 123, or 2) adopting SFAS No. 123 accounting
for all stock compensation arrangements. The Company continues to account for
stock options under APB No. 25 and provides the additional disclosures as
required by SFAS No. 123.
The Company has reserved 275,000 shares of common stock for issuance under
its qualified stock option plan. Options to purchase common stock are granted at
a price equal to the fair market value of the stock at the date of grant or 110%
of fair market value of the stock at the date of grant for stockholders owning
10% or more of the combined voting stock of the Company. The following table
summarizes qualified stock option transactions from 1995 through 1997.
Total Option Price
Options Per Share
--------- ----------------
Outstanding, January 1, 1995 94,437 $5.75 to $14.00
Granted 1,200 $5.38 to $ 7.69
Forfeited (53,470) $5.88 to $14.00
-------
Outstanding, December 31, 1995 42,167 $5.37 to $14.00
Granted 116,100 $5.62 to $ 6.75
Forfeited (24,867) $5.43 to $14.00
-------
Outstanding, December 31, 1996 133,400 1 $5.37 to $14.00
Granted 1,200 $5.62 to $ 6.75
Forfeited (800) $5.43 to $14.00
----
Outstanding, December 31, 1997 133,800
=======
Exercisable, December 31, 1997 49,301
======
- --------
1 In December 1997, the expiration date on 15,000 stock options issued in
December 1992 was extended from December 1997 to June 15, 1998. No compensation
was recorded since the exercise price was in excess of the market price when
extended.
50
<PAGE>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The Company has reserved 150,000 shares of common stock for issuance
under its non-qualified stock option plan. Options to purchase shares of common
stock are granted at a price equal to the fair value of the stock at the date of
grant except in the case of options granted to directors, in which case the
minimum price is the greater of $7.00 and 110% of fair value at the time of
grant. The following table summarizes non-qualified stock option transactions
from 1995 through 1997:
Total Option Price
Options Per Share
--------- ---------------
Outstanding, January 1, 1995 8,668 $7.13 to $14.00
Granted 10,000 $5.60
Forfeited (6,668) $7.13
------
Outstanding, December 31, 1995 12,000 $5.60 to $14.00
Granted 23,000 $7.00
Forfeited (10,000) $5.60
-------
Outstanding, December 31, 1996 25,000 $7.00 to $14.00
Granted 44,000 $7.00
Forfeited - $5.60
-------
Outstanding, December 31, 1997 69,000 $5.60 to $14.00
======
Exercisable, December 31, 1997 69,000
======
The table below summarizes the stock option activity for both plans:
1997 1996 1995
------- ------- -------
Outstanding at January 1 158,400 54,167 103,105
Granted 45,200 139,100 11,200
Exercised -- -- --
Forfeited (800) (34,867) (60,138)
Outstanding at December 31 202,800 158,400 54,167
Exercisable at December 31 118,301 40,794 34,231
51
<PAGE>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The weighted average fair value at date of grant for options granted during
1997 and 1996 was $2.29 and $2.37, respectively. The fair value of options at
date of grant was estimated using the Black-Scholes model with an expected
option life of 3.1 years and 3.9 years in 1997 and 1996, and the following
weighted average assumptions, respectively, for 1997 and 1996: dividend yield -
none either year; interest rate - 6.86% and 6.25%; volatility 38.00% and 42.00%
for the respective year. Weighted average option exercise price information for
years 1997, 1996 and 1995:
Per Share 1997 1996 1995
------ ------- ------
Outstanding at January 1 $6.45 $8.64 $8.56
Granted $6.16 $5.96 $5.67
Exercised -- -- --
Forfeited $6.22 $7.79 $7.68
Outstanding at December 31 $6.24 $6.45 $8.64
Exercisable at December 31 $7.04 $10.50 $9.10
Proforma Disclosure
The Company's net income would have been reduced by $74,712 or $0.03 per
share basic and dilutive for 1997 in stock-based compensation cost for the
Company's qualified and non-qualified stock option plans if the plan had been
determined based on the fair value at the grant dates for awards under the
plans. The Company's net loss would have been increased by $49,000 or $0.02 per
share basic and dilutive for 1996 compared to a reduction of net income of
$2,000 with no change in the earnings per share in 1995. The proforma effect on
net income for 1996 and 1995 is not representative of the proforma effect on net
income in future years because it does not take into consideration proforma
compensation expense related to grants made prior to 1995.
Effective January 1, 1990, the Company adopted the "Allstate Financial
Corporation 401(k) Retirement Plan" (the Plan) for the benefit of the Company's
employees. The Plan provides for the deferral of up to 15% of a participating
employee's salary, subject to certain limitations, and a discretionary
contribution by the Company. The Company's contribution is allocated to
participating employees based on relative compensation. The Company's
contribution for the years ended December 31, 1997, 1996 and 1995 was $45,704,
$45,751, and $34,563, respectively.
52
<PAGE>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
H. INCOME TAXES
The tax provision consists of:
Years Ended December 31,
----------------------------------------
1997 1996 1995
Federal:
Current .......................... $ 765,405 $(591,200) $276,500
Deferred ......................... (160,100) (65,900) 16,000
-------- ------- ------
605,305 (657,100) 292,500
------- -------- -------
State:
Current .......................... 5,266 (20,300) 38,500
Deferred ......................... (3,586) 65,900 --
------ ------
1,680 45,600 38,500
----- ------ ------
TOTAL .......................... $ 606,985 $(611,500) $331,000
========= ========= ========
Tax Expense at Statutory Rate ...... $ 557,770 $(561,900) $276,100
Increase (Decrease)
Resulting from:
State Income Taxes,
Net of Federal Income
Tax Effect ..................... -- (15,800) 24,500
Non-deductible expense ........... 20,100 25,200 19,100
Other ............................ 29,115 (59,000) 11,300
------ ------- ------
$ 606,985 $(611,500) $331,000
========= ========= ========
Effective Tax Rate ................. 37.0% 37.0% 40.8%
==== ==== ====
December 31,
---------------------------
1997 1996
--------- --------
Deferred tax asset:
Allowance for credit losses $1,056,686 $893,000
========== ========
53
<PAGE>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
I. RELATED-PARTY TRANSACTIONS
Certain members of the immediate families of Eugene Haskin and Leon
Fishman, directly or through trusts, have provided financing to Lifetime Options
through unsecured loans with interest payable monthly at an annual interest rate
of 1/4% over the prime rate. One-quarter percent over the prime rate is the same
rate paid by the Company to its unaffiliated, bank lenders.
Lifetime Options' total indebtedness to members of Mr. Haskin's immediate
family was $15,146 at December 31, 1997 and 1996. During 1997 and 1996, Lifetime
Options paid aggregate interest on these loans of $1,451 and $1,427,
respectively.
Lifetime Options' total indebtedness to members of Leon Fishman's
immediate family was $38,071 at December 31, 1997, and $46,823 at December 31,
1996. During 1997 and 1996, Lifetime Options paid aggregate interest of $3,875
and $4,229, respectively.
Rental payments of $24,000 were received by the Company in 1997, 1996 and
1995, respectively, from Leon Fishman, the Company's current Vice Chairman and
former President, for the personal use of a condominium owned by a subsidiary of
the Company.
J. FINANCIAL OBLIGATIONS WITH OFF-BALANCE SHEET RISK AND CREDIT
CONCENTRATIONS
The Company is a party to financial obligations with off-balance sheet
risk in the normal course of business to meet the financing needs of its
clients. These financial obligations include conditional commitments to purchase
receivables, obligations under guaranties issued by the Company and
reimbursement obligations under letters of credit issued for the Company's
account. These obligations involve, to varying degrees, elements of credit risk
in excess of the amount recognized on the balance sheet.
The Company's maximum exposure to credit loss under financial obligations
with off-balance sheet risk is represented by the contractual or notional amount
of these obligations. The Company uses the same credit policies in making
conditional commitments and incurring contingent obligations as it does for
on-balance sheet obligations. These commitments have fixed expiration dates or
other termination clauses and usually require payment of a fee by the client.
Since many of the commitments may expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
Company receives collateral to secure letters of credit and guaranties.
54
<PAGE>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Financial obligations whose contract or notional amounts represent credit
risk are as follows:
December 31,
---------------------------
1997 1996
----------- -----------
Conditional Commitments to purchase
receivables $57,948,000 $66,641,000
Standby letters of credit and guaranties $ 219,927 $ 336,230
For the year ended December 31, 1997, gross earnings from one client
accounted for 35% of the Company's total earned discounts as compared to 1996
where two clients accounted for 31% of the Company's total earned discounts. At
December 31, 1997 and 1996, two clients each accounted for more than 10% of the
Company's outstanding gross finance receivables.
K. NET INCOME PER SHARE
In March 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 128, "Earnings Per Share". SFAS No. 128 supersedes APB No. 15 to conform
earnings per share with international standards as well as to simplify the
complexity of the computation under APB No. 15. SFAS No. 128 requires dual
presentation of basic and diluted earnings per share on the face of the income
statement. Basic earnings per share excludes dilution and is computed by
dividing income available to common shareholders by the weighted-average number
of common shares outstanding for the period. Diluted earnings per share reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock. SFAS No. 128
is effective for both interim and annual periods ending after December 15, 1997.
The basic and dilutive earnings per share are reflected in the statement of
operations.
The following table details the calculation of the basic and diluted
Earnings per share.
55
<PAGE>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Income (Loss) Shares Per-Share
(Numerator) (Denominator) Amount
Year Ended December 31, 1995:
Basic EPS:
Net Income available to common $ 481,100 2,966,330 $0.16
=====
Stockholders
Effect of Dilutive Securities:
Stock Options - 7
----------- ---------
Diluted EPS:
Net Income available to common
stockholders plus assumed
conversions $ 481,100 2,966,337 $0.16
=========== ========= =====
Year Ended December 31, 1996:
Basic EPS:
Net (Loss) $(1,041,144) 2,328,308 $(0.45)
=======
Effect of Dilutive Securities:
Stock Options - -
------------ ---------
Diluted EPS:
Net Loss plus assumed
conversions $(1,041,144) 2,328,308 $(0.45)
=======
Year Ended December 31, 1997:
Basic EPS:
Net Income available to common
Stockholders $1,033,513 2,318,092 $0.45
Effect of Dilutive Securities:
Stock Options - 6,532
---------- ---------
Diluted EPS:
Net Income available to common
stockholders plus assumed
conversions $1,033,513 2,324,624 $0.44
========== ========= =====
During 1997 and 1995, there were various options to purchase 84,349 and 1,095
shares of common stock which were not included in the computation of the diluted
EPS because the options' exercise price was greater than the average market
price of the common shares.
56
<PAGE>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The Company incurred a net loss for the year ended December 31, 1996. Since the
inclusion of stock options in the computation of diluted EPS would have had an
antidilutive effect, the common shares associated with the options were excluded
from the computation.
The convertible subordinated notes, which convert into the Company's common
stock at $7.50 per share, were also excluded from the computation of the diluted
EPS because the conversion price was greater than the market price at any given
point during the three years ended December 31, 1997.
L. COMMITMENTS AND CONTINGENCIES
The Company leases office space under operating leases with Consumer Price
Index escalations and rental escalations based on increases in base operating
expenses as defined in the agreements. The Company's headquarter's lease was
renegotiated during 1995 and extended for six years to December 1, 2001 at a
reduced rental. The Company also pays rent for subsidiaries and storage space.
Future minimum rental payments are as follows:
Twelve Months Ended December 31,
--------------------------------
1998 265,000
1999 270,000
2000 276,000
2001 267,000
-------
$1,078,000
==========
Rent expense was $210,126, $200,539, and $232,500, in 1997, 1996 and
1995, respectively.
The Company is a defendant in White, Trustee v. Allstate Financial
Corporation pending in the U.S. Bankruptcy Court for the Western District of
Pennsylvania. The Company provided receivables financing and advances for Lyons
Transportation Lines, Inc. ("Lyons"). Lyons was the subject of a leveraged
buy-out and subsequently filed a bankruptcy petition. In 1991, the Lyons'
trustee brought an action against the Company claiming, among other things,
fraudulent transfer and breach of contract. In late 1994, the Company reached a
settlement agreement with the Lyons' trustee, subject to approval by the
bankruptcy court, which would have released the Company from all claims upon the
payment of $300,000. In connection with the settlement, the Company paid and
added $300,000 to the provision for credit losses in 1994. A creditor in the
bankruptcy proceeding, Sherwin-Williams Company, objected to
57
<PAGE>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
the proposed settlement amount and, in March 1995, the objection was sustained
by the bankruptcy court. The $300,000 previously paid by the Company was
returned to the Company in April 1996; however, the Company continues to
maintain a liability for this amount. The matter is currently being litigated in
the District Court. Management does not believe at this time that the Company
has a material exposure significantly in excess of the previously agreed upon
settlement amount.
In connection with the same transaction, the Company was also named in
January 1994 as a defendant in Sherwin-Williams Company v. Robert Castello et.
al. pending in the United States District Court for the Northern District of
Ohio. Sherwin-Williams is suing all parties with any involvement in the
transaction to recover damages allegedly incurred by Sherwin-Williams in
connection with the leveraged buy-out and the bankruptcy litigation arising
therefrom. Sherwin-Williams asserts that it has or will incur pension fund
liabilities and other liabilities as a result of the transaction in the
approximate amount of $11 million and has asserted claims against the Company in
that amount. The complaint asserts, among other things, that the purchasers of
Lyons breached their purchase agreement with Sherwin-Williams by pledging the
assets of Lyons to the Company to obtain the down payment. The Company was not a
party to the purchase agreement. In response to the complaint, the Company filed
a motion to dismiss all claims. In March 1997, a Federal magistrate recommended
to the District court that the Company's motion to dismiss the six claims
contained in the original complaint be granted. However, the magistrate
recommended that the Company's motion to dismiss two new claims contained in an
amended complaint be denied. The District Court sustained the magistrate's
recommendation. The Company believes that it has meritorious defenses to the
Counterclaims and intends to vigorously defend all claims. However, the
litigation is in the preliminary stage and the probability of a favorable or
unfavorable outcome and the potential amount of loss, if any, cannot be
determined or estimated at this time.
The Company is a counterclaim defendant in Allstate Financial Corporation
v. A.G. Construction, Inc. (n/k/a A.G. Plumbing, Inc.), American General
Construction Corp., Adam Guziczek and Cheryl Lee Guziczek pending in the United
States Bankruptcy Court for the Southern District of New York. The Company
provided receivable financing to A.G. Construction, Inc. (n/k/a/ A.G. Plumbing,
Inc.) in 1988 and to American General Construction Corp. (hereinafter, A.G.
Construction, Inc. (n/k/a A.G. Plumbing) and American General Construction shall
be collectively referred to as "AG") in 1991. AG's primary business was
renovation of public housing for the City of New York. Adam and Cheryl Guziczek
(hereinafter collectively referred to as "Guziczek") personally guaranteed the
obligation due the Company under the financing arrangement. In 1993, AG
defaulted on its obligations under the financing
58
<PAGE>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
arrangement with the Company. Thereafter, the Company confessed judgment against
AG and Guziczek in Virginia and commenced actions in New York to enforce the
guaranties and to attempt recovery on the confessed judgments. In one of the
actions, an answer and counterclaim against the Company was filed. The
counterclaim asserted claims for usury, diversion of proceeds of public
improvement contracts, and overpayments to the Company by AG in excess of
$2,000,000 (hereinafter the "Counterclaims"). No specific damage claims amount
was set forth in the Counterclaims.
On August 1, 1994, Guziczek filed a voluntary Chapter 11 petition under
the United States Bankruptcy Code and on June 14, 1995 the case was converted to
a Chapter 7 proceeding. On January 3, 1996, AG filed a separate voluntary
Chapter 7 petition. No action was ever taken by the trustee in the Guziczek or
AG bankruptcy proceedings to pursue the Counterclaims. On June 2, 1997, the
trustee for the AG bankruptcy estate filed a motion to abandon certain claims
against the Company, including all claims that the Company diverted proceeds of
public improvement contracts. On October 7, 1997, New York Surety Company
(hereinafter referred to as the "Surety") filed pleadings objecting to the
abandonment of such claims against the Company. The Surety provided the payment
and performance bond to AG in connection with the construction jobs performed
for the City of New York. In its pleadings, the Surety asserts that it is
subrogated to AG's claims and thereby seeks to intervene and file an
intervenor's complaint against the Company. The proposed complaint adopts the
Counterclaims and seeks an accounting. The Surety asserts damages of
approximately $4,000,000. The Company believes it has meritorious defenses to
the Counterclaims and intends to vigorously defend all claims. However, the
litigation is in the preliminary stage and the probability of a favorable or
unfavorable outcome and the potential amount of loss, if any, cannot be
determined or estimated at this time.
Except as described above, the Company is not party to any litigation
other than routine proceedings incidental to its business, and the Company does
not expect that these proceedings will have a material adverse effect on the
Company. From time to time, the Company is required to initiate litigation to
collect amounts owed by former clients, guarantors or obligors. In connection
with such litigation, the Company periodically encounters counterclaims by
defendant(s) for material amounts. Such counterclaims are typically without any
factual basis and, management believes, are usually asserted for defensive
purposes by the litigant.
Additional Information Regarding Directors and Officers
On December 29, 1997, Value Partners (a shareholder with a 26.6%
beneficial ownership interest including Convertible Subordinated Notes held by
Value Partners) together with three other shareholders of the Company who
59
<PAGE>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
are also independent directors (collectively, the "Ewing Group"), filed a
petition in the Circuit court for Arlington County, Virginia against the Company
seeking to (i) invalidate the election of directors held at the annual meeting
of shareholders on November 18, 1997, (ii) order a new 1997 election of
directors and (iii) enjoin the Board of Directors of the Company from acting as
such without court approval pending a new election. In support of its petition,
the Ewing Group alleged that a majority of the Board of Directors had breached
an agreement reached at the September 24, 1997 meeting of the Board to elect
David W. Campbell Chairman of the board, create an Executive Committee, a
majority of whose members would be members of the Ewing Group, and retain Value
Partners' counsel, Elias, Matz, Tiernan and Herrick LLP, as counsel to the
Company. The Company denied the Ewing Group's allegations, asserting that, by
withholding authority to vote for five nominees at the November 1997 shareholder
meeting, the Ewing Group had breached an understanding to support all of the
Board's nominees for election. The Company also asserted that, in light of his
unsatisfactory performance between October and November, it would not be in the
best interests of the Company and its shareholders to elect Mr. Campbell
Chairman of the Board. After discovery and evidentiary and other hearings before
the court, the Ewing Group and the Company agreed to the entry of a decree by
the court ordering a meeting of shareholders on May 12, 1998, the date otherwise
specified in the Company's Amended By-Laws, as amended, as the date for the 1998
annual meeting of shareholders.
60
<PAGE>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
SCHEDULE IV
<TABLE>
<CAPTION>
INDEBTEDNESS OF AND TO RELATED PARTIES - NOT CURRENT
Balance at Balance End of Period
Beginning of Amounts ----------------------
Name of Debtor Period Additions Paid Current Not Current
- -------------- ------------ ---------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1997:
Various $164,968 $ 4,248 $ 13,000 $103,000 $ 53,216
======== ======= ========= ======== ========
Year Ended December 31, 1996:
Various $161,788 $ 3,180 $ - $103,000 $ 61,968
======== ======= ==== ======== ========
Year Ended December 31, 1995:
Various $161,788 $ - $ - $103,000 $ 58,788
======== === ===== ======== ========
</TABLE>
61
<PAGE>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
SIGNATURES
In accordance with 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.
ALLSTATE FINANCIAL CORPORATION
By:
Craig Fishman, President and CEO
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Craig Fishman
Date President, Chief Executive
Officer, Director
Lawrence M. Winkler
Date Secretary/Treasurer,
Principal Accounting,
Chief Financial Officer
Eugene R. Haskin
Date Director
James Spector
Date Director
Leon Fishman
Date Director
Alan Freeman
Date Director
Lawrence Vecker
Date Director
62
<PAGE>
- --------------------------------------------------------------------------------
AMENDED AND RESTATED REVOLVING CREDIT
AND
SECURITY AGREEMENT
- --------------------------------------------------------------------------------
IBJ SCHRODER BANK & TRUST COMPANY
(AS AGENT)
AND
IBJ SCHRODER BANK & TRUST COMPANY
AND
NATIONAL BANK OF CANADA
(AS LENDERS)
WITH
ALLSTATE FINANCIAL CORPORATION
(BORROWER)
- --------------------------------------------------------------------------------
AS OF MAY 28, 1997
- --------------------------------------------------------------------------------
<PAGE>
AMENDED AND RESTATED
REVOLVING CREDIT
AND
SECURITY AGREEMENT
Amended and Restated Revolving Credit and Security Agreement
("Agreement") dated as of May __, 1997 between ALLSTATE FINANCIAL CORPORATION, a
corporation organized under the laws of the Commonwealth of Virginia
("Borrower"), the undersigned financial institutions (collectively, the
"Lenders" and individually a "Lender") and IBJ SCHRODER BANK & TRUST COMPANY
("IBJS"), as agent for Lenders (IBJS, in such capacity, the "Agent").
BACKGROUND
Borrower is a party with Lenders and Agent to a Revolving
Credit and Security Agreement dated as of May 13, 1994 (as the same has been
amended, restated, supplemented or otherwise modified, from time to time, the
"Existing Agreement") pursuant to which Agent and Lenders provide Borrower with
certain financial accommodations.
By execution of this Agreement, Borrower, Lenders and Agent
intend to amend and restate the Existing Agreement in its entirety and, as so
amended and restated, the Existing Agreement shall read in full as set forth
herein on the Effective Date.
IN CONSIDERATION of the mutual covenants and undertakings
herein contained, Borrower and Lenders hereby agree as follows:
AMENDMENT AND RESTATEMENT
As of the date of this Agreement, the terms, conditions, covenants,
agreements, representations and warranties contained in the Existing Agreement
shall be deemed amended and restated in their entirety as follows; provided,
however, nothing contained in this Agreement shall impair, limit or affect the
Liens heretofore granted, pledged and/or assigned to Agent for the ratable
benefit of Lenders with respect to Collateral as security for the Obligations to
Agent and Lenders under the Existing Agreement.
I. DEFINITIONS.
1.1. Accounting Terms. As used in this Agreement, the Revolving
Credit Note, or any certificate, report or other document made or delivered
pursuant to this Agreement, accounting terms not defined in Section 1.2 or
elsewhere in this Agreement and accounting terms partly defined in Section 1.2
to the extent not defined, shall have the respective meanings given to them
under GAAP.
1.2. General Terms. For purposes of this Agreement the
following terms shall have the following meanings:
<PAGE>
"Account Debtor" shall mean any Person who may become
obligated under, with respect to, or on account of, a Receivable.
"Advances" shall mean and include, without
duplication, the Revolving Advances, the Inventory Value Advances,
the Equipment Value Advances and Letters of Credit.
"Advance Rates" shall have the meaning set forth in
Section 2.1(a) hereof.
"Affiliate" of any Person shall mean (a) any Person
(other than a Subsidiary) which, directly or indirectly, is in control of, is
controlled by, or is under common control with such Person, or (b) any Person
who is a director, officer, joint venturer or partner (i) of such Person, (ii)
of any Subsidiary of such Person or (iii) of any Person described in clause (a)
above. For purposes of this definition, control of a Person shall mean the
power, direct or indirect, (x) to vote 10% or more of the securities having
ordinary voting power for the election of directors of such Person, or (y) to
direct or cause the direction of the management and policies of such Person
whether by contract or otherwise.
"Agreement" shall have the meaning set forth in the
preamble hereof.
"Base Rate" shall mean the base rate of IBJS as
publicly announced by IBJS at its principal office from time to time, such rate
to be adjusted automatically, without notice, on the effective date of any
change in such rate. This rate of interest is determined from time to time by
IBJS as a means of pricing some loans to its customers and is neither tied to
any external rate of interest or index nor does it necessarily reflect the
lowest rate of interest actually charged by IBJS to any particular class or
category of customers of IBJS.
"Borrower" shall have the meaning set forth in the
preamble to this Agreement and shall extend to all permitted
successors and assigns.
"Borrowing Base" shall have the meaning set forth in
Section 2.1(a).
"Borrowing Base Certificate" shall mean a certificate
in the form attached hereto as Exhibit 1.2(a) provided by Borrower to Agent,
showing the calculation, as of the relevant period, of the Borrowing Base.
"Brasch Employment Agreement" shall mean the Severance
Agreement dated as of July 1, 1996 between Borrower and Richard Brasch.
"Business Day" shall mean with respect to Eurodollar
Rate Loans, any day on which commercial banks are open for domestic and
international business, including dealings in Dollar deposits in London, England
and New York, New York and with respect to all
-2-
<PAGE>
other matters, any day that is not a Saturday, a Sunday or a day on which banks
are required to be closed in the State of Virginia or New York.
"C. Fishman Employment Agreement" shall mean the
Employment and Compensation Agreement dated as of July 1, 1996 between Borrower
and Craig Fishman.
"Capital Expenditures" shall mean all payments for any
fixed assets or improvements or for replacements, substitutions or additions
thereto, that have a useful life of more than one year and that are required to
be capitalized under GAAP.
"Cash Collateral Account" shall have the meaning set
forth in Section 2.10(e).
"Cash Equivalents" shall mean (a) certificates of
deposit in dollars of any Lender or any commercial banks registered to do
business in any state of the United States (i) having capital and surplus in
excess of $1,000,000,000 and (ii) whose long-term debt rating is at least
investment grade as determined by either Standard & Poor's Corporation or
Moody's Investor Service, Inc., (b) readily marketable direct obligations of the
United States government or any agency thereof which are backed by the full
faith and credit of the United States, (c) commercial paper at the time of
acquisition having a rating of at least "A-l" from Standard & Poor's Corporation
or "Prime-1" from Moody's Investor Service, Inc., (d) repurchase agreements with
commercial banks of a type described in (a) above covering securities described
in (b) above, and (e) investments in money market funds substantially all of
whose assets are comprised of securities of the types described in clauses (a)
through (d) above.
"CERCLA" shall mean the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. ss.ss.9601 et seq.
"Change of Control" shall mean (a) the occurrence of
any event (whether in one or more transactions) which results in a transfer of
control of Borrower to a Person who is not an Original Owner or (b) any merger
or consolidation of or with Borrower or sale of all or substantially all of the
property or assets of Borrower, except as specifically provided in Section 7.1
herein. For purposes of this definition, "control of Borrower" shall mean the
power, direct or indirect (x) to vote 50% or more of the securities having
ordinary voting power for the election of directors of Borrower or (y) to direct
or cause the direction of the management and policies of Borrower by contract or
otherwise.
"Charges" shall mean all taxes, charges, fees,
imposts, levies or other assessments, including, without limitation, all net
income, gross income, gross receipts, sales, use, ad valorem, value added,
transfer, franchise, profits, inventory, capital stock, license, withholding,
payroll,
-3-
<PAGE>
employment, social security, unemployment, excise, severance, stamp, occupation
and property taxes, custom duties, fees, assessments, liens and charges of any
kind whatsoever, together with any interest and any penalties, additions to tax
or additional amounts, imposed by any taxing or other authority, domestic or
foreign (including, without limitation, the Pension Benefit Guaranty Corporation
or any environmental agency or superfund), upon the Collateral, the Obligations,
Borrower or any of its Subsidiaries.
"Claims" shall mean all security interests, Liens,
claims or encumbrances held or asserted by any Person against any or all of the
Collateral, other than (A) Charges and (B) Permitted Encumbrances.
"Class A Eligible Receivables Exposure" shall mean
Eligible Receivables which have formal due dates, and which remain unpaid ninety
(90) days or less from the original due date multiplied by the applicable Client
Stated Advance Rate for such Receivables.
"Class B Eligible Receivables Exposure" shall mean
Eligible Receivables which do not have formal due dates and which have been
owned by Borrower for one hundred twenty (120) days or less from the Purchase
Date, multiplied by the applicable Client Stated Advance Rate for such
Receivables.
"Class C Eligible Receivables Exposure" shall mean
Eligible Receivables which do not have formal due dates and which have been
owned by Borrower for more than one hundred twenty (120) days but less than two
hundred forty one (241) days from the Purchase Date, multiplied by the
applicable Client Stated Advance Rate for such Receivables.
"Client" shall mean any Person with whom Borrower is a
party to a Factoring Agreement, a Collateral Funding Repayment
Agreement and/or an Inventory Collateral Funding Repayment
Agreement.
"Client Funded Equipment" shall have the meaning set
forth in Section 2.2 hereof.
"Client Stated Advance Rate" shall mean the stated
advance rate to each Client under the applicable Factoring
Agreement.
"Code" shall mean the Internal Revenue Code of 1986,
as amended from time to time and the regulations promulgated
thereunder.
"Collateral" shall mean and include:
(a) all Receivables;
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(b) all Equipment;
(c) all General Intangibles;
(d) all Inventory;
(e) all Subsidiary Stock;
(f) all of Borrower's right, title and
interest in and to (i) its goods and other property including, but not limited
to all merchandise returned to Clients or rejected by Account Debtors, relating
to or securing any of the Receivables; (ii) all of Borrower's rights as a
consignor, a consignee, an unpaid vendor, mechanic, artisan, or other lienor,
including stoppage in transit, setoff, detinue, replevin, reclamation and
repurchase; (iii) all additional amounts due to Borrower from any Client
relating to the Receivables; (iv) other property, including warranty claims,
relating to any goods securing this Agreement; (v) all of Borrower's contract
rights, rights of payment which have been earned under a contract right,
instruments, documents, chattel paper, warehouse receipts, deposit accounts,
investment property, money and securities; (vi) if and when obtained by
Borrower, all personal property of third parties in which Borrower has been
granted a lien or security interest as security for the payment or enforcement
of Receivables; and (vii) any other goods, personal property or real property
now owned or hereafter acquired in which Borrower has expressly granted a
security interest or may in the future grant a security interest to Agent
hereunder, under any Other Document or in any amendment or supplement hereto or
thereto, or under any other agreement between Agent and Borrower;
(g) all of Borrower's ledger sheets, ledger
cards, files, correspondence, records, books of account, business papers,
computers, computer software (owned by Borrower or in which it has an interest),
computer programs, tapes, disks and documents relating to (a), (b), (c), (d),
(e), or (f) of this Paragraph; and
(h) all proceeds and products of (a), (b),
(c), (d), (e), (f) and (g) in whatever form, including, but not limited to:
cash, deposit accounts (whether or not comprised solely of proceeds),
certificates of deposit, insurance proceeds (including hazard, flood and credit
insurance), negotiable instruments and other instruments for the payment of
money, chattel paper, security agreements, documents, eminent domain proceeds,
condemnation proceeds and tort claim proceeds.
"Collateral Assignment of Security" shall mean the
agreement executed by Borrower in favor of Agent pursuant to which all rights of
Borrower under each Factoring Agreement and related documents (including all
UCC-1 Financing Statements) are collaterally assigned to Agent for the benefit
of itself and Lenders.
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"Collateral Funding Repayment Agreement" shall mean a
Collateral Funding Repayment Agreement and such other agreements in
substantially the forms attached hereto as Exhibit 1.2(b) entered into between
Borrower and a Client, together with such modifications thereto as Borrower may
from time to time deem appropriate or desirable and such other agreements to be
approved by Agent in its sole reasonable discretion; provided, however, that, no
such modifications can be made without Agent's approval following the occurrence
and during the continuance of an Event of Default, such approval not to be
unreasonably withheld.
"Commitment Percentage" of any Lender shall mean the
percentage set forth below such Lender's name on the signature page hereof as
same may be adjusted upon any assignment by a Lender pursuant to Section 15.3(b)
hereof.
"Commitment Transfer Supplement" shall mean a document
in the form of Exhibit 15.3 hereto, properly completed and otherwise in form and
substance satisfactory to Agent by which the Purchasing Lender purchases and
assumes a portion of the obligation of Lenders to make Advances under this
Agreement.
"Consents" shall mean all filings and all licenses,
permits, consents, approvals, authorizations, qualifications and orders of
governmental authorities and other third parties, domestic or foreign, necessary
to carry on Borrower's business, including, without limitation, any Consents
required under all applicable federal, state or other applicable law.
"Controlled Group" shall mean all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with Borrower, are treated as
a single employer under Section 414 of the Code.
"Convertible, Senior Subordinated Notes" shall mean up
to an aggregate principal amount of $5,000,000.00 in convertible, senior
subordinated notes issued by Borrower from time to time pursuant to an Indenture
of Trust dated as of September 11, 1995 between Borrower and Fleet National Bank
of Connecticut (successor by merger to Shawmut Bank Connecticut, National
Association) (as modified, supplemented or amended from time to time in
accordance with the terms thereof, the "Indenture"), which notes (i) shall bear
interest at a rate not to exceed 10% per annum payable quarterly in arrears,
(ii) shall not call for any scheduled repayment of principal prior to September
30, 2000, (iii) shall at all times be unsecured, (iv) shall be subordinated in
right of payment (as and to the extent provided in the indenture) to the payment
or repayment of the Obligations, and (v) may, as specified therein, be converted
from time to time into common Stock of Borrower.
"Credit Standards" shall have the meaning set forth in
Section 6.8.
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"Default" shall mean an event which, with the giving
of notice or passage of time or both, would constitute an Event of
Default.
"Default Rate" shall have the meaning set forth in
Section 3.1 hereof.
"Demas Employment Agreement" shall mean the Severance
Agreement dated as of July 1, 1996 between Borrower and George Demas.
"Depository Account" shall have the meaning set forth
in Section 4.16(a).
"Documents" shall have the meaning set forth in
Section 8.1(c) hereof.
"Dollar" and the sign "$" shall mean lawful money of
the United States of America.
"Domestic Rate Loans" shall mean any Advance that
bears interest based upon the Base Rate.
"EBIT" shall mean Borrower's and its Subsidiaries' net
income before interest and taxes on a consolidated basis.
"Effective Date" shall mean the date on which all of
the conditions precedent in Section 8.1 have been satisfied.
"Eligible Client Funded Inventory" shall have the
meaning set forth in Section 2.2A(a) hereof.
"Eligible Receivables" shall mean each Receivable set
forth on the most recent Schedule of Receivables delivered by Borrower to Agent
and on other considerations as Agent may from time to time deem appropriate;
provided, however, that under no circumstances shall a Receivable be an Eligible
Receivable unless Borrower has recorded on its books and records and actually
made advances or loans to a Client pursuant to the applicable Factoring
Agreement with respect to such Receivable. In determining whether a particular
Receivable constitutes an Eligible Receivable, Agent shall include only a
Receivable:
(a) purportedly purchased by Borrower in the ordinary
course of business pursuant to a Factoring Agreement of Receivables which arose
from the sale of goods or the performance of services by Clients in the ordinary
course of the Client's business;
(b) upon which (i) Borrower's right to receive
payment is absolute and not contingent upon the fulfillment of any condition
whatever and (ii) Borrower is able to bring suit or otherwise enforce its
remedies against the Client and (iii) Borrower has the right to enforce payment
against the Account Debtor through judicial process;
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(c) against which is asserted no defense,
counterclaim or setoff, whether well-founded or otherwise except for ordinary
course adjustments (Agent reserves the right to establish appropriate reserves);
(d) that is a true and correct statement of a bona
fide indebtedness incurred in the amount of the Receivable for merchandise sold
to and accepted by, or for services performed by a Client and accepted by, the
Account Debtor obligated upon such Receivable (whether or not such services were
performed for the Account Debtor);
(e) with respect to which an invoice or similar
statement has been sent by the Client or by Borrower;
(f) that is owned by Borrower and not subject to any
right, claim or interest of another (but only to the extent of such right, claim
or interest) other than (i) the security interest in favor of Agent for the
benefit of Lenders, (ii) Risk Participations granted by Borrower which are fully
disclosed on the books and records of Borrower and disclosed to Lenders in the
Schedule of Receivables delivered to Agent pursuant to Section 9.2 hereof and
(iii) Liens subordinated to the Lien of Borrower and as to which the holder of
any such Lien has agreed not to exercise any rights or remedies until all
obligations of the Client to Borrower have been paid in full;
(g) that does not arise from a sale to or performance
of services for an employee, affiliate, parent or subsidiary of
Borrower, or an entity which has common officers or directors with
Borrower;
(h) that is not the obligation of an Account Debtor
that is the federal government or a political subdivision thereof unless
Borrower has complied with the Federal Assignment of Claims Act of 1940, and any
amendments thereto, with respect to such obligation;
(i) that is not the obligation of an Account Debtor
located in a foreign country (other than Puerto Rico or Canada) unless such
obligation is secured by a letter of credit or a guaranty issued by the
Export-Import Bank of the United States acceptable to Agent in its sole
reasonable judgment;
(j) to the extent that the amount of the Receivable
is not subject to claims by an Account Debtor to whom Borrower or a Client is
liable for goods sold or services rendered by the Account Debtor to Borrower or
such Client;
(k) that does not arise with respect to goods which
are delivered on a cash-on-delivery basis or placed on consignment, guaranteed
sale or other terms by reason of which the payment by the Account Debtor may be
conditional;
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(l) that is not in default; provided, that a
Receivable shall be deemed in default upon the occurrence of any of the
following:
(i) The Receivable is not paid within the two
hundred forty day period starting on the date of acquisition
thereof by Borrower;
(ii) Any Account Debtor obligated upon such
Receivable suspends business, makes a general assignment for the
benefit of creditors, or fails to pay its debts generally as they
come due; or
(iii) Any petition is filed by or against any Account
Debtor obligated upon such Receivable under any bankruptcy law or any
other law or laws for the relief of debtors; provided, however, that
$1,000,000 in the aggregate at any one time outstanding of
Receivables representing post-petition obligations of Account Debtors
operating under Chapter 11 of Title 11 of the United States Code and
which otherwise constitute Eligible Receivables hereunder may be
deemed to be Eligible Receivables;
(m) that is not the obligation of an Account Debtor
that is in default (as defined in subparagraph (l) above) on fifty percent (50%)
or more of the Receivables upon which such Account Debtor is obligated;
(n) that does not arise from the sale of goods which
remain in Borrower's or a Client's possession or under Borrower's
or a Client's control;
(o) (i) Borrower shall have purchased pursuant to a
valid, binding and enforceable Factoring Agreement, (ii) with respect to which
Borrower shall have taken all actions (including, without limitation, the filing
of financing statements under the Uniform Commercial Code) necessary to create
in favor of Borrower a valid perfected first priority security interest in each
such Receivable, (iii) with respect to which there shall not exist any default
declared by Borrower against a Client with respect to such Client's recourse
obligations under or with respect to the Factoring Agreement and (iv) with
respect to which the Account Debtor shall have been notified to pay Borrower
directly or to a location under Borrower's control;
(p) with respect to which the applicable Client is
not the subject of a proceeding under Title 11 of the United States Code or had
a petition filed by or against it under any bankruptcy or insolvency law, except
for S.O.S. Enterprises, Ltd. and except for purchases of Receivables outstanding
at any time not in excess of 15% of the sum of Tangible Net Worth and the
aggregate principal amount of outstanding Convertible, Senior Subordinated Notes
based upon Borrower's most recent consolidated balance sheet delivered to Agent
in accordance with Section 9.6 or 9.7 hereof as to which
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Borrower has obtained an order (i) authorizing interim or final financing of
post-petition Receivables and a superpriority Lien on all post-petition
Receivables and unshipped goods, (ii) containing a finding that Borrower is
entitled to the protection of Section 364(e) of Title 11 of the United States
Code, and (iii) if Borrower owns any pre-petition Receivables of the Client,
permitting Borrower to collect and apply the proceeds of such pre-petition
Receivables;
(q) that does not relate to the Viatical Settlement
and Personal Injury Settlement Businesses;
(r) to the extent such Receivable is not subject to
the rights of a participant in a Risk Participation;
(s) that is not a Receivable relating to medicare,
medicaid, social security or medical billings to other governmental
authorities; and
(t) notwithstanding (a) through (s) above, that is
otherwise acceptable to Required Lenders as determined in good faith by Required
Lenders in the exercise of their discretion in a reasonable manner.
"Environmental Authority" shall have the meaning set
forth in Section 4.20(d).
"Environmental Complaint" shall have the meaning set
forth in Section 4.20(d) hereof.
"Environmental Laws" shall mean all federal, state and
local environmental, land use, zoning, health, chemical use, safety and
sanitation laws, statutes, ordinances and codes relating to the protection of
the environment and/or governing the use, storage, treatment, generation,
transportation, processing, handling, production or disposal of Hazardous
Substances and the rules, regulations, policies, guidelines, interpretations,
decisions, orders and directives of federal, state and local governmental
agencies and authorities with respect thereto.
"Equipment" shall mean and include all of Borrower's
goods (excluding Inventory) whether now owned or hereafter acquired and wherever
located including, without limitation, all equipment, machinery, apparatus,
motor vehicles, fittings, furniture, furnishings, fixtures, parts, accessories
and all replacements and substitutions therefor or accessions thereto.
"Equipment Collateral Assignment of Security" shall
mean the agreement executed by Borrower in favor of Agent pursuant to which all
rights of Borrower under each Collateral Funding Repayment Agreement and related
documents (including all UCC-1 Financing Statements) are collaterally assigned
to Agent for the benefit of itself and Lenders.
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"Equipment Value Advances" shall mean the Advances
made pursuant to Section 2.2 hereof.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974 (or any successor legislation thereto), as amended from
time to time and the rules and regulations promulgated thereunder.
"Eurodollar Rate Loan" shall mean an Advance at any
time that bears interest based on the Eurodollar Rate.
"Eurodollar Rate" shall mean for any Eurodollar Rate
Loan for the then current Interest Period relating thereto the rate per annum
(such Eurodollar Rate to be adjusted to the next higher 1/100 of one (1%)
percent) equal to the quotient of (a) LIBOR, divided by (b) a number equal to
1.00 minus the aggregate of the rates (expressed as a decimal) of reserve
requirements current on the day that is two Business Days prior to the beginning
of the Interest Period (including without limitation basic, supplemental,
marginal and emergency reserves) under any regulation promulgated by the Board
of Governors of the Federal Reserve System (or any other governmental authority
having jurisdiction over IBJS) as in effect from time to time, dealing with
reserve requirements prescribed for Eurocurrency funding including any reserve
requirements with respect to "Eurocurrency liabilities" under Regulation D of
the Board of Governors of the Federal Reserve System.
"Event of Default" shall mean the occurrence and
continuance of any of the events set forth in Article X hereof.
"Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.
"Factoring Agreement" shall mean an Accounts
Receivable Factoring and Security Agreement and such other agreements in
substantially the forms attached hereto as Exhibit 1.2(c) entered into between
Borrower and a Client, together with such modifications thereto as Borrower may
from time to time deem appropriate or desirable and such other agreements to be
approved by Agent in its sole reasonable discretion; provided, however, that, no
such modifications can be made without Agent's approval following the occurrence
and during the continuance of an Event of Default, such approval not to be
unreasonably withheld.
"Federal Funds Rate" shall mean, for any day, the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers, as
published for such day (or if such day is not a Business Day, for the next
preceding Business Day) by the Federal Reserve Bank of New York, or if such rate
is not so published for any day which is a Business Day, the average of
quotations for such day on such transactions received by IBJS from
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three Federal funds brokers of recognized standing selected by
IBJS.
"Fiscal Month" shall mean any of the monthly
accounting periods of Borrower.
"Fiscal Quarter" shall mean any of the quarterly
accounting periods of Borrower.
"Fiscal Year" shall mean the 12-month period of
Borrower ending December 31 of each year.
"GAAP" shall mean generally accepted accounting
principles in the United States of America in effect from time to
time.
"General Intangibles" shall mean and include all of
Borrower's general intangibles, whether now owned or hereafter acquired
including, without limitation, all choses in action, causes of action, corporate
or other business records, inventions, designs, patents, patent applications,
equipment formulations, manufacturing procedures, quality control procedures,
trademarks, trade secrets, goodwill, copyrights, registrations, licenses,
franchises, customer lists, tax refunds, tax refund claims, computer programs,
all claims under guaranties, security interests or other security held by or
granted to Borrower to secure payment of any of the Receivables by a Client, all
amounts due from each Client to Borrower, all rights of indemnification and all
other intangible property of every kind and nature (other than Receivables).
"Governmental Authority" shall mean any nation or
government, any state or other political subdivision thereof, and any agency,
department or other entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.
"Guaranteed Indebtedness" shall mean, as to any
Person, any obligation of such Person guaranteeing any indebtedness, lease,
dividend, or other obligation ("primary obligations") of any Person (the
"primary obligor") in any manner including, without limitation, any obligation
or arrangement of such Person (i) to purchase or repurchase any such primary
obligation, (ii) to advance or supply funds (a) for the purchase or payment of
any such primary obligation or (b) to maintain working capital or equity capital
of the primary obligor or otherwise to maintain the net worth or solvency or any
balance sheet condition of the primary obligor, (iii) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation, or (iv) to indemnify the owner of such primary
obligation against loss in respect thereof.
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"Guaranty" shall mean the joint and several guaranty
of the obligations of Borrower executed by Guarantors in favor of
Lenders.
"Guarantors" shall mean, collectively, LOI, SSI, AFC
Holding Corporation, Premium Sales Northeast, Inc., Business
Funding of America, Inc., Receivable Financing Corporation and
Business Funding of Florida, Inc.
"Hazardous Discharge" shall have the meaning set forth
in Section 4.19(d) hereof.
"Hazardous Substance" shall mean, without limitation,
any flammable explosives, radon, radioactive materials, asbestos, urea
formaldehyde foam insulation, polychlorinated byphenyls, petroleum and petroleum
products, methane, hazardous materials, Hazardous Wastes, hazardous or toxic
substances or related materials as defined in CERCLA, the Hazardous Materials
Transportation Act, as amended (49 U.S.C. Sections 1801, et seq.), RCRA, or any
other applicable Environmental Law and in the regulations adopted pursuant
thereto.
"Hazardous Wastes" shall mean all waste materials
subject to regulation under CERCLA, RCRA or applicable state law, and any other
applicable Federal and state laws now in force or hereafter enacted relating to
hazardous waste disposal.
"Hotsenpiller Employment Agreement" shall mean an
Employment and Compensation Agreement at any time entered into between Borrower
and Wade Hotesenpiller in a form similar to the Matthy Employment Agreement with
cash compensation not to exceed $175,000.
"IBJS" shall have the meaning set forth in the
preamble.
"Indebtedness" of a Person at a particular date shall
mean all obligations of such Person which in accordance with GAAP would be
classified upon a balance sheet as liabilities (except capital stock and surplus
earned or otherwise) and in any event, without limitation by reason of
enumeration, shall include all indebtedness, debt and other similar monetary
obligations of such Person whether direct or guaranteed, and all premiums, if
any, due at the required prepayment dates of such indebtedness, and all
indebtedness secured by a Lien on assets owned by such Person, whether or not
such indebtedness actually shall have been created, assumed or incurred by such
Person. Any indebtedness of such Person resulting from the acquisition by such
Person of any assets subject to any Lien shall be deemed, for the purposes
hereof, to be the equivalent of the creation, assumption and incurring of the
indebtedness secured thereby, whether or not actually so created, assumed or
incurred.
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"Interest Period" shall mean the period provided for
any Eurodollar Rate Loan pursuant to Section 2.12(b) hereof.
"Inventory" shall mean all of Borrower's now owned or
hereafter acquired goods, merchandise and other personal property, wherever
located, to be furnished under any contract of service or held for sale or
lease, all raw materials, work in process, finished goods and materials and
supplies of any kind, nature or description which are or might be used or
consumed in Borrower's business or used in selling or furnishing such goods,
merchandise and other personal property, and all documents of title or other
documents representing them.
"Inventory Borrowing Base" shall have the meaning set
forth in Section 2.2A(a).
"Inventory Collateral Assignment of Security" shall
mean the agreement executed by Borrower in favor of Agent pursuant to which all
rights of Borrower under each Inventory Collateral Funding Repayment Agreement
and related documents (including all UCC-1 Financing Statements) are
collaterally assigned to Agent for its benefit and the benefit of the Lenders.
"Inventory Collateral Funding Repayment Agreement"
shall mean an Inventory Collateral Funding Repayment Agreement and such other
agreements in substantially the forms attached hereto as Exhibit 1.2(d) entered
into between Borrower and a Client, together with such modifications thereto as
Borrower may from time to time deem appropriate or desirable and such other
agreements to be approved by Agent in its sole reasonable discretion; provided,
however, that, no such modifications can be made without Agent's approval
following the occurrence and during the continuance of an Event of Default, such
approval not to be unreasonably withheld.
"Inventory Value Advances" shall mean Advances made
pursuant to Section 2.2A(a) hereof.
"IRS" shall mean the Internal Revenue Service, or any
successor thereto.
"Lender and "Lenders" shall have the meaning ascribed
to such term in the Preamble and shall include each person which is a
transferee, successor or assign of any Lender.
"Letter of Credit Application" shall have the meaning
set forth in Section 2.9(a).
"Letter of Credit Fees" shall have the meaning set
forth in Section 3.2.
"Letter of Credit Obligations" means at any time with
respect to all Letters of Credit issued by and caused to be issued at the
request of the Agent in accordance with Section 2.8 the sum of (x) the aggregate
undrawn amount of all Letters of Credit
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outstanding at such time, plus (y) the aggregate amount of all Letters of Credit
for which the issuer and/or the Lenders have not been reimbursed and as to which
a Revolving Advance has not been made.
"Letter of Guaranty" shall mean an agreement,
instrument or other arrangement pursuant to which Borrower provides a guarantee
or similar undertaking with respect to obligations of any Client and, without
duplication, all additional Guaranteed Indebtedness (other than the Guaranty).
"Letters of Credit" shall have the meaning set forth
in Section 2.8.
"LIBOR" shall mean for any Eurodollar Rate Loan for
the then current Interest Period relating thereto, the rate per annum quoted by
Agent to Borrower two (2) Business Days prior to the first day of such Interest
Period as the rate available to Agent in the interbank market for offshore
Dollar deposits in immediately available funds for a period equal to such
Interest Period and in an amount equal to the amount of such Eurodollar Rate
Loan.
"Lien" shall mean any mortgage, deed of trust, pledge,
hypothecation, assignment, security interest, lien (whether statutory or
otherwise), Charge, Claim or encumbrance, or preference, priority or other
security agreement or preferential arrangement held or asserted in respect of
any asset of any kind or nature whatsoever including, without limitation, any
conditional sale or other title retention agreement, any lease having
substantially the same economic effect as any of the foregoing, and the filing
of, or agreement to give, any financing statement under the Uniform Commercial
Code or comparable law of any jurisdiction.
"Lockbox Account" shall have the meaning set forth in
Section 4.16(a).
"LOI" shall mean Lifetime Options, Inc., a Viatical
Settlement Company, a Maryland corporation.
"Madden Employment Agreement" shall mean the
Employment and Compensation Agreement dated as of May 5, 1997 between Borrower
and Frank Madden in substantially the form delivered to the Agent prior to the
Effective Date pursuant to a facsimile dated May 22, 1997.
"Material Adverse Effect" shall mean a material
adverse effect on (i) the business, assets, operations, prospects or financial
or other condition of Borrower and its Subsidiaries taken as a whole, (ii)
Borrower's and its Subsidiaries' collective ability to pay the Obligations in
accordance with the terms thereof, (iii) the Collateral or Agent's Liens on the
Collateral or the priority of any such Lien, or (iv) Agent's and Lenders' rights
and remedies under this Agreement and the Other Documents.
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"Matthy Employment Agreement" shall mean the
Employment and Compensation Agreement dated as of July 1, 1996 between Borrower
and Peter Matthy.
"Maximum Equipment Value Advance Amount" shall mean
$5,000,000.
"Maximum Inventory Value Advance Amount" shall mean
$2,500,000.
"Maximum Revolving Advance Amount" shall mean
$25,000,000.
"Multiemployer Plan" shall mean a plan described in
Sections 3(37) and Section 4001(a)(3) of ERISA to which Borrower has an
obligation to contribute.
"Obligations" shall mean all loans, advances, debts,
liabilities, and obligations, of every kind, nature and description, direct or
indirect, secured or unsecured, joint, several, joint and several, absolute or
contingent, due or to become due, now existing or hereafter arising, contractual
or tortious, liquidated or unliquidated, owing by Borrower or any of its
Subsidiaries or all of them to Agent or any Lender, at any time, whether or not
evidenced by any note, agreement or other instrument, arising in each case under
any of this Agreement or under any Other Document. This term includes, without
limitation, all principal, interest, fees, charges, reimbursement obligations in
respect of Letter of Credit Obligations, expenses, attorneys' fees and any other
sum chargeable to Borrower or any or all of its Subsidiaries under this
Agreement or under any of the Other Documents.
"Operating Account" shall have the meaning set forth
in Section 4.16(c).
"Original Closing Date" shall mean May 13, 1994.
"Original Owners" shall mean, collectively, Leon
Fishman, Barbara Fishman and Eugene R. Haskin.
"Other Documents" shall mean the Revolving Credit
Note, Stock Pledge Agreements, Guaranty, Security Agreement, Collateral
Assignment of Security, Equipment Collateral Assignment of Security, Inventory
Collateral Assignment of Security and any and all other agreements, instruments
and documents, including, without limitation, guaranties, pledges, powers of
attorney, consents, and all other writings heretofore, now or hereafter executed
by Borrower and/or delivered to Agent or any Lender in respect of the
transactions contemplated by this Agreement.
"Parent" of any Person shall mean a corporation or
other entity owning, directly or indirectly more than 50% of the
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shares of stock or other ownership interests having ordinary voting power to
elect a majority of the directors of the Person, or other Persons performing
similar functions for any such Person.
"Participant" shall mean each Person who shall be
granted the right by any Lender to participate in any of the Advances and who
shall have entered into a participation agreement in form and substance
satisfactory to such Lender.
"Payment Office" shall mean initially One State
Street, New York, New York; thereafter, such other office of Agent, if any,
which it may designate by notice to Borrower to be the Payment Office.
"Performance-Based Incentive Compensation Plan" shall
mean the performance-based incentive compensation plan for employees of the
Borrower and its Subsidiaries in the form delivered to the Agent prior to the
Effective Date, as same may be modified, supplemented or amended from time to
time by resolution of the Borrower's board of directors or the compensation
committee thereof.
"Permitted Encumbrances" shall mean (a) Liens in favor
of Agent for the benefit of Lenders; (b) Liens for taxes, assessments or other
governmental charges not delinquent, or, being contested in good faith and by
appropriate proceedings and with respect to which proper reserves have been
taken by Borrower; provided, that, the Lien shall have no effect on the priority
of the Liens in favor of Agent or the Lien shall not, in the sole discretion of
Agent, materially adversely affect the value of the assets in which Agent has
such a Lien; (c) Liens disclosed in the financial statements referred to in
Section 5.5; (d) deposits or pledges to secure obligations under worker's
compensation, social security or similar laws, or under unemployment insurance;
(e) deposits or pledges to secure bids, tenders, contracts (other than contracts
for the payment of money), leases, statutory obligations, surety and appeal
bonds (or in lieu of security or appeal bonds) and other obligations of like
nature arising in the ordinary course of Borrower's business; (f) judgment Liens
that have been stayed or bonded and mechanics', worker's, materialmen's or other
like Liens arising in the ordinary course of Borrower's business with respect to
obligations which are not due or which are being contested in good faith by
Borrower; (g) Liens placed upon fixed assets hereafter acquired to secure a
portion of the purchase price thereof, provided that (x) any such lien shall not
encumber any other property of Borrower and (y) the aggregate amount of
Indebtedness secured by such Liens incurred as a result of such purchases during
any fiscal year shall not exceed the amount provided for in Section 7.6; (h)
other Liens incidental to the conduct of Borrower's business or the ownership of
its property and assets which were not incurred in connection with the borrowing
of money or the obtaining of advances or credit, and which do not in the
aggregate materially detract from Agent's rights in and to the Collateral or the
value of Borrower's property or assets or which do not materially impair the use
thereof in the operation of
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Borrower's business; (i) Liens covering property of Borrower following the
exercise by Borrower of its rights and remedies against a Client or a guarantor
of a Client; (j) warehouseman's liens covering imported goods of Clients as to
which Borrower may from time to time own or be deemed to own such goods; (k)
Risk Participations, to the extent permitted under Section 7.1; (l) Liens on
Receivables (other than Receivables generated by Borrower) in favor of a party
other than Agent; provided, that, such Liens are subordinated to any Liens on
such Receivables in favor of Borrower pursuant to a written subordination
agreement pursuant to which, in each case, the subordinated lienor shall have
agreed not to exercise any rights or remedies prior to payment in full of all
amounts owing to Borrower; (m) Liens on Receivables generated by Borrower in
favor of a party other than Agent; provided, that, such Liens are subordinated
to any Liens on such Receivables in favor of Agent pursuant to a written
subordination agreement pursuant to which, in each case, the subordinated lienor
shall have agreed not to exercise any rights or remedies prior to payment in
full of all amounts owing to Agent and Lenders; and (n) Liens disclosed on
Schedule 1.2(a).
"Person" shall mean an individual, a partnership, a
corporation, a business trust, a joint stock company, a trust, an unincorporated
association, a joint venture, a governmental authority or any other entity of
whatever nature.
"Personal Injury Settlement Business" shall mean the
purchase by SSI of all or a portion of the proceeds of personal injury or other
legal or equitable claims at a discount from an injured party or other claimant.
"Plan" shall mean any employee benefit plan within the
meaning of Section 3(3) of ERISA, maintained for employees of Borrower or any
member of the Controlled Group or any such Plan to which Borrower or any member
of the Controlled Group is required to contribute on behalf of any of its
employees.
"Purchase Date" shall mean, with respect to any
Receivable purported to be purchased by Borrower, the original date Borrower
makes advances or loans to a Client with respect to such Receivable pursuant to
a Factoring Agreement.
"Purchasing Lender" shall have the meaning set forth
in Section 15.3(d).
"RCRA" shall mean the Resource Conservation and
Recovery Act, 42 U.S.C. ss.ss. 6901 et seq., as same may be amended
from time to time.
"Real Property" shall mean any real property owned or
leased by Borrower and set forth on Schedule 1.2(b) and all hereafter owned or
leased real property of Borrower.
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"Receivables" shall mean and include (a) all of
Borrower's accounts, contract rights, instruments (including those evidencing
indebtedness among Borrower and its Affiliates), documents, chattel paper,
general intangibles relating to accounts, drafts and acceptances, and all other
forms of obligations owing to Borrower arising out of or in connection with (i)
the sale or lease of Inventory by Borrower, (ii) the rendition of services by
Borrower, (iii) all accounts, contract rights, instruments, documents, chattel
paper, general intangibles relating to accounts, drafts and acceptances, and all
other forms of obligations which have been assigned to and/or purchased by
Borrower or (iv) any other transaction and (b) all guarantees and other security
therefor, whether secured or unsecured, now existing or hereafter created, and
whether or not specifically sold or assigned to Lender hereunder.
"Register" shall have the meaning set forth in Section
15.3(e).
"Related Person" shall mean as to any Person, any
other Person which, together with such Person, is treated as a single employer
under Section 414(c) of the Code.
"Release" shall have the meaning set forth in Section
5.7(c)(i) hereof.
"Required Lenders" shall mean, at any time for the
determination thereof, Lenders holding sixty-six and two-thirds percent (66
2/3%) or more of the outstanding Advances at such time or, if no Advances are
outstanding at such time, sixty-six and two-thirds percent (66 2/3%) or more of
the Commitment Percentages of all Lenders.
"Reserves" shall mean such reserves for doubtful
accounts, returns, allowances and the like as may be established by Borrower or
any Subsidiary or such additional or further reserves as may otherwise be
required in accordance with GAAP.
"Restricted Payment" shall mean (i) the declaration of
a payment of any dividend or the incurrence of any liability to make any payment
or distribution of cash or other property or assets in respect of Borrower's
Stock, (ii) any payment on account of the purchase, redemption or other
retirement of Borrower's Stock or any other payment or distribution made in
respect thereof, either directly or indirectly, or (iii) any payment, loan,
contribution, or other transfer of funds or other property to any Stockholder or
any Subsidiary of such Person except for reasonably equivalent value.
"Revolving Advances" shall mean Advances made other
than Letters of Credit, Equipment Value Advances and Inventory
Value Advances.
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"Revolving Credit Note" shall mean the promissory
note(s) referred to in Section 2.1(a) hereof and all replacements, substitutions
and amendments of such promissory note, including any promissory note(s) issued
to any Lender.
"Revolving Interest Rate" shall mean an interest rate
per annum equal to (a) the sum of the Base Rate plus twenty five (25) basis
points, with respect to Domestic Rate Loans or (b) the sum of the Eurodollar
Rate plus 225 basis points, with respect to Eurodollar Rate Loans.
"Risk Participation" shall mean a participation
agreement between Borrower and another Person as purchaser of an undivided
participation in Borrower's exposure under a Factoring Agreement, a Collateral
Funding Repayment Agreement and/or an Inventory Collateral Funding Repayment
Agreement, such participation to be on terms and conditions and pursuant to
agreements consistent with Borrower's historical practices, each of which
participations shall be disclosed in writing to Agent.
"Schedule of Receivables" shall have the meaning set
forth in Section 9.2.
"Security Agreement" shall mean the Security Agreement
executed jointly and severally by each Guarantor securing the
obligations under the Guaranty.
"SSI" shall mean Settlement Solutions, Inc., a
Virginia corporation.
"Settlement Date" shall mean any Wednesday.
"Stock" shall mean all shares, options, warrants,
general or limited partnership interests, participations or other equivalents
(regardless of how designated) of or in a corporation, partnership or equivalent
entity whether voting or nonvoting, including, without limitation, common stock,
preferred stock, or any other "equity security" (as such term is defined in Rule
3all-1 of the General Rules and Regulations promulgated by the Securities and
Exchange Commission under the Exchange Act).
"Stockholders" shall mean all of the holders of Stock
of Borrower from time to time.
"Stock Pledge Agreements" shall mean, collectively,
the (a) the pledge and security agreement between Agent and Borrower dated as of
the Original Closing Date relating to the pledge by Borrower of the Subsidiary
Stock and (b) the pledge and security agreement between Agent and LOI dated as
of the Original Closing Date relating to the pledge by LOI of the stock of SSI,
each such pledge agreement being in form and substance satisfactory to Lender
and each being accompanied by (i) original certificates evidencing all of the
Subsidiary Stock or the stock of SSI, as the
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case may be, and (ii) undated stock powers relating thereto endorsed in blank by
Borrower or LOI, as the case may be.
"Subsidiary" of any Person shall mean a corporation or
other entity of whose shares of stock or other ownership interests having
ordinary voting power (other than stock or other ownership interests having such
power only by reason of the happening of a contingency) to elect a majority of
the directors of such corporation, or other Persons performing similar functions
for such entity, are owned, directly or indirectly, by such Person.
"Subsidiary Stock" shall mean all of the issued and
outstanding shares of stock owned by Borrower of LOI, AFC Holding
Corporation, Premium Sales Northeast, Inc., Business Funding of
America, Inc., Receivable Financing Corporation and Business
Funding of Florida, Inc.
"Tangible Net Worth" shall mean the gross book value
of the assets of Borrower and its Subsidiaries on a consolidated basis
(exclusive of goodwill, patents, trademarks, trade names, organization expense,
treasury stock, unamortized debt discount and expense, deferred charges and
other like intangibles) minus (without duplication) (i) Reserves applicable
thereto, and (ii) all of Borrower's and its Subsidiaries' liabilities (including
accrued and deferred income taxes), in each case, as such items would appear on
a consolidated balance sheet of Borrower and its Subsidiaries prepared in
accordance with GAAP.
"Term" shall mean the Original Closing Date through
May 12, 2000, as same may be extended in accordance with the provisions of
Section 13.1.
"Termination Date" shall have the meaning set forth in
Section 13.1.
"Termination Event" shall mean (i) a Reportable Event
with respect to any Plan or Multiemployer Plan; (ii) the withdrawal of either
Borrower or any member of the Controlled Group from a Plan or Multiemployer Plan
during a plan year in which such entity was a "substantial employer" as defined
in Section 4001(a)(2) of ERISA; (iii) the providing of notice of intent to
terminate a Plan in a distress termination described in Section 4041(c) of
ERISA; (iv) the institution by the PBGC of proceedings to terminate a Plan or
Multiemployer Plan; (v) any event or condition (a) which might reasonably be
expected to constitute grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any Plan or Multiemployer
Plan, or (b) that may result in termination of a Multiemployer Plan pursuant to
Section 4041A of ERISA; or (vi) the partial or complete withdrawal within the
meaning of Sections 4203 and 4205 of ERISA, of either Borrower or any member of
the Controlled Group from a Multiemployer Plan.
"Total Liabilities" shall mean, as of any date of
calculation, the total liabilities of Borrower and its Subsidiaries
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at such date determined on a consolidated basis in accordance with GAAP plus,
without duplication, the sum of the Letter of Credit Obligations outstanding at
such time and the stated amount of all Letters of Guaranty outstanding at such
time in excess of $5,000,000.
"Toxic Substance" shall mean and include any material
present on the Real Property which has been shown to have significant adverse
effect on human health or which is subject to regulation under the Toxic
Substances Control Act (TSCA), 15 U.S.C. ss.ss. 2601 et seq., applicable state
law, or any other applicable Federal or state laws now in force or hereafter
enacted relating to toxic substances. "Toxic substance" includes but is not
limited to asbestos, polychlorinated biphenyls (PCBs) and lead-based paints.
"Transferee" shall have the meaning set forth in
Section 15.3(b) hereof.
"Undrawn Availability" at a particular date shall mean
an amount equal to (a) the lesser of (i) the Borrowing Base on such date or (ii)
the Maximum Revolving Advance Amount on such date, minus (b) the sum of (i) the
outstanding amount of Advances on such date plus (ii) all amounts due and owing
to Borrower's trade creditors which are outstanding beyond normal trade terms on
such date.
"Viatical Settlement Business" shall mean the entry
into an agreement by LOI with a Person owning a life insurance policy or who
owns or is covered under a group policy insuring the life of a person who has a
catastrophic or life threatening illness or condition and pursuant to which LOI,
as the viatical settlement provider, pays compensation which is less than the
expected death benefit of the insurance policy or certificate, in return for the
policyowner's assignment, transfer, sale, devise or bequest of the death benefit
or ownership of the insurance policy or certificate to LOI.
"Week" shall mean the time period commencing with a
Wednesday and ending on the following Tuesday.
"Winkler Employment Agreement" shall mean the
Employment and Compensation Agreement dated July 1, 1996 between
Borrower and Mr. Lawrence M. Winkler.
1.3. Uniform Commercial Code Terms. All terms used herein
and defined in the Uniform Commercial Code as adopted in the State
of New York shall have the meaning given therein unless otherwise
defined herein.
1.4. Certain Matters of Construction. The terms "herein",
"hereof" and "hereunder" and other words of similar import refer to
this Agreement as a whole and not to any particular section,
paragraph or subdivision. Any pronoun used shall be deemed to
cover all genders. Wherever appropriate in the context, terms used
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herein in the singular also include the plural and vice versa. All references to
statutes and related regulations shall include any amendments of same and any
successor statutes and regulations. All references to this Agreement, any other
instruments or agreements, including, without limitation, references to any of
the Other Documents entered into by or for the benefit of Agent or any Lender
shall include any and all modifications or amendments thereto and any and all
extensions or renewals thereof.
II. ADVANCES, PAYMENTS.
2.1. (a) Revolving Advances. Subject to the terms and
conditions set forth in this Agreement, each Lender, severally and
not jointly, will make Revolving Advances to Borrower in aggregate
amounts outstanding at any time equal to such Lender's Commitment
Percentage of the lesser of x) the Maximum Revolving Advance Amount
(less the sum of the aggregate amount of (I) outstanding Letters of
Credit, (II) outstanding Equipment Value Advances and (III)
outstanding Inventory Value Advances) or y) an amount equal to the
sum of:
(i) (A) 85%, subject to the provisions of Section 2.1(b)
hereof, of the lesser of (x) the value of Class A
Eligible Receivables Exposure or (y) the aggregate amount
from time to time outstanding of actual cash advances by
Borrower to Clients secured by Eligible Receivables
utilized in computing Class A Eligible Receivables
Exposure, plus (B) 75%, subject to the provisions of
Section 2.1(b) hereof, of the lesser of (x) value of
Class B Eligible Receivables Exposure or (y) the
aggregate amount from time to time outstanding of actual
cash advances by Borrower to Clients secured by Eligible
Receivables utilized in computing Class B Eligible
Receivables Exposure, plus (C) 65%, subject to the
provisions of Section 2.1(b) hereof, of the lesser of (x)
value of Class C Eligible Receivables Exposure or (y) the
aggregate amount from time to time outstanding of actual
cash advances by Borrower to Clients secured by Eligible
Receivables utilized in computing Class C Eligible
Receivables Exposure (collectively, the "Advance Rates")
less such reserves as Agent may reasonably deem proper
and necessary from time to time in connection with
charges, judgments, or other amounts which Agent may have
to pay to protect and preserve the Collateral or the
priority of the Lien of Agent therein, minus
(ii) the aggregate amount of outstanding Letters of
Credit.
The sum of the amounts derived from Section 2.1 (a)(y)(i) at any time
and from time to time shall be referred to as the "Borrowing Base". The
Revolving Advances shall be evidenced by a
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Revolving Credit Note in substantially the form attached hereto as EXHIBIT
2.1(A) issued by Borrower to each Lender in an amount equal to such Lender's
Commitment Percentage of the Maximum Revolving Advance Amount.
(b) Discretionary Rights. The Advance Rates may be
(i) decreased by Agent at any time and from time to time in the exercise of its
reasonable discretion or (ii) increased by Required Lenders at any time and from
time to time in the exercise of their reasonable discretion. Borrower consents
to any such increases or decreases and acknowledges that decreasing the Advance
Rates may limit or restrict Advances requested by Borrower. Agent shall give
Borrower five (5) days prior written notice of any decrease in the Advance
Rates.
2.2. Equipment Value Advances. (a) Subject to the terms and
conditions of this Agreement, each Lender, severally and not jointly, agrees to
make loans to Borrower ("Equipment Value Advances") to permit Borrower to make
loans or advances to Clients secured by the Clients' equipment ("Client Funded
Equipment") in aggregate amounts outstanding at any time equal to such Lender's
Commitment Percentage of the lesser of (i) the Maximum Equipment Value Advance
Amount, (ii) eighty-five percent (85%) of the aggregate amount from time to time
outstanding of actual cash advances by Borrower to Clients which is secured by
Client Funded Equipment or (iii) sixty percent (60%) of the liquidation value of
such Client Funded Equipment; provided, however, the maximum amount of Equipment
Value Advances is subject to the further limitations that: (A) from May 1, 1998
through and including April 30, 1999 Equipment Value Advances shall not exceed
the sum of (I) the difference between (x) $5,000,000 and (y) the amount of
outstanding Equipment Value Advances as of April 30, 1998 plus (II) principal
payments made by Borrower with respect to Equipment Value Advances outstanding
as of April 30, 1998 and (B) on and after May 1, 1999 Equipment Value Advances
shall not exceed the sum of (I) the difference between $5,000,000 and (II) the
amount of outstanding Equipment Value Advances as of April 30, 1999; provided,
further, that under no circumstances shall Equipment Value Advances be made
against Client Funded Equipment unless Borrower has recorded on its books and
records and actually made advances or loans to a Client pursuant to the
applicable Collateral Funding Repayment Agreement. Borrower may use the
Equipment Value Advances by borrowing, repaying and reborrowing, all in
accordance with the terms and conditions hereof. The proceeds of each Equipment
Value Advance requested by Borrower shall, to the extent Lenders make such
Equipment Value Advance, be made available to Borrower on the day so requested
by way of credit to Borrower's Operating Account, or such other bank as Borrower
may designate following notification to Agent, in immediately available federal
or other immediately available funds. The aggregate principal amount of
Equipment Value Advances (X) outstanding on April 30, 1998 will be amortized on
the basis of a thirty-six (36) month amortization schedule and shall be payable
in equal monthly installments commencing on May 1, 1998 and on the last day of
each month thereafter with the balance payable
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upon the expiration of the Term, and (Y) outstanding on April 30, 1999
(excluding any Equipment Value Advances that were outstanding on April 30, 1998)
will be amortized on the basis of a thirty-six (36) month amortization schedule
and shall be payable in equal monthly installments commencing May 1, 1999 and on
the last day of each month thereafter with the balance payable upon the
expiration of the Term, subject to acceleration upon the occurrence of an Event
of Default under this Agreement or termination of this Agreement. Any repayment
(other than regularly scheduled monthly amortization payments) or prepayment of
Equipment Value Advances shall be applied in the inverse order of maturity to
the then remaining monthly amortization of Equipment Value Advances.
(b) The agreement of Lenders to make each Equipment Value Advance is
subject to satisfaction of the following conditions precedent: (i) receipt by
Agent of (1) copies of all documentation and appraisals required to be delivered
by a Client to Borrower pursuant to the applicable Collateral Funding Repayment
Agreement, (2) evidence that such Client has obtained insurance covering the
theft, destruction or other loss of the Client Funded Equipment and (3) such
other documentation and evidence that Agent may reasonably request, including,
without limitation, copies of UCC-1 financing statements filed in accordance
with Section 6.10 hereof or evidence that such financing statements have been
filed in accordance therewith and (ii) after giving effect thereto (1) the
aggregate principal amount of Equipment Value Advances outstanding shall not
exceed the lesser of (i) the Maximum Equipment Value Advance Amount, (ii)
eighty-five percent (85%) of the aggregate amount from time to time outstanding
of actual cash advances made by Borrower to Clients which is secured by Client
Funded Equipment in accordance with the Collateral Funding Repayment Agreement
or (iii) sixty percent (60%) of the liquidation value of such Client Funded
Equipment, (2) the aggregate outstanding Advances shall not exceed the Maximum
Revolving Advance Amount, and (3) the sum of the aggregate principal amount of
Equipment Value Advances outstanding and the aggregate principal amount of
Inventory Value Advances outstanding shall not exceed $7,500,000 less regularly
scheduled monthly amortization payments on and after the Effective Date with
respect to Equipment Value Advances (but only to the extent that Borrower is not
permitted to incur additional Equipment Value Advances in amounts equal to such
payments).
2.2A Inventory Value Advances. (a) Subject to the terms and
conditions of this Agreement, each Lender, severally and not jointly, agrees to
make loans to Borrower ("Inventory Value Advances") to permit Borrower to make
loans or advances to Clients secured by Eligible Client Funded Inventory (as
defined below) in aggregate amounts outstanding at any time equal to such
Lender's Commitment Percentage of the lesser of (i) the Maximum Inventory Value
Advance Amount or (ii) (x) to the extent (but only to the extent) that the
aggregate amount from time to time outstanding of actual cash advances by
Borrower to Clients which is secured by Eligible Client Funded Inventory is
equal to or less than fifty percent (50%) of the liquidation value of such
Eligible Client
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Funded Inventory, thirty percent (30%) of the aggregate amount from time to time
outstanding of such actual cash advances by Borrower to Clients secured by such
Eligible Client Funded Inventory and (y) to the extent (but only to the extent)
that the aggregate amount from time to time outstanding of actual cash advances
by Borrower to Clients which is secured by Eligible Client Funded Inventory
exceeds 50% of the liquidation value of such Eligible Client Funded Inventory,
twenty-five percent (25%) of the aggregate amount from time to time outstanding
of such actual cash advances by Borrower to Clients secured by such Eligible
Client Funded Inventory (the sum of preceding clauses (ii)(x) and (y), the
"Inventory Borrowing Base"); provided, however, that under no circumstances
shall Inventory Value Advances be made against Eligible Client Funded Inventory
unless Borrower has recorded on its books and records and actually made advances
or loans to a Client pursuant to the applicable Inventory Collateral Funding
Repayment Agreement. "Eligible Client Funded Inventory" shall mean, with respect
to any Client, all of such Client's raw materials inventory and finished goods
inventory to the extent (i) Borrower provides Agent with a written description
thereof in reasonable detail and a written request that such inventory be
treated as Eligible Client Funded Inventory and (ii) Agent does not, within two
business days of its receipt of such description and request, notify Borrower in
writing that, in the exercise of Agent's sole, reasonable discretion, such
inventory (or a specified portion thereof) does not constitute Eligible Client
Funded Inventory. Notwithstanding the foregoing, Borrower acknowledges and
agrees that dynamic random access memory chips shall not constitute Eligible
Client Funded Inventory unless Agent (in the exercise of its sole and absolute
discretion) affirmatively consents thereto in writing.
Borrower may use the Inventory Value Advances by borrowing, repaying and
reborrowing, all in accordance with the terms and conditions hereof. The
proceeds of each Inventory Value Advance requested by Borrower shall, to the
extent Lenders make such Inventory Value Advance, be made available to Borrower
on the day so requested by way of credit to Borrower's Operating Account, or
such other bank as Borrower may designate following notification to Agent, in
immediately available federal or other immediately available funds. The
aggregate principal amount of Inventory Value Advances outstanding on the last
day of the Term shall be payable in full upon the expiration of the Term,
subject to acceleration upon the occurrence of an Event of Default under this
Agreement or termination of this Agreement.
(b) The agreement of Lenders to make each Inventory Value Advance is
subject to satisfaction of the following conditions precedent: (i) receipt by
Agent of (1) copies of all documentation and appraisals required to be delivered
by a Client to Borrower pursuant to the applicable Inventory Collateral Funding
Repayment Agreement, (2) evidence that such Client has obtained insurance
covering the theft, destruction or other loss of the Client Funded Inventory,
(3) a copy of a duly executed inventory management or inventory control
agreement among Borrower, the applicable Client
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and DiversiCorp, Inc. (or another third party collateral monitoring firm
selected by Borrower and reasonably satisfactory to Agent) or Borrower's
description of alternative inventory control or management procedures which
procedures must be satisfactory to Agent in its sole discretion and (4) such
other documentation and evidence that Agent may reasonably request, including,
without limitation, copies of UCC-1 financing statements filed in accordance
with Section 6.10 hereof or evidence that such financing statements have been
filed in accordance therewith and (ii) after giving effect thereto (1) the
aggregate principal amount of Inventory Value Advances outstanding shall not
exceed the lesser of (i) the Maximum Inventory Value Advance Amount or (ii) the
Inventory Borrowing Base, (2) the aggregate outstanding Advances shall not
exceed the Maximum Revolving Advance Amount and (3) the sum of the aggregate
principal amount of Inventory Value Advances outstanding and the aggregate
principal amount of Equipment Value Advances outstanding shall not exceed
$7,500,000 less regularly scheduled monthly amortization payments on and after
the Effective Date with respect to Equipment Value Advances (but only to the
extent that Borrower is not permitted to incur additional Equipment Value
Advances in amounts equal to such payments).
2.3. Disbursement of Revolving Advance Proceeds. All Revolving
Advances shall be disbursed from whichever office or other place Agent may
designate from time to time and, together with any and all other Obligations of
Borrower to Agent or Lenders, shall be charged to Borrower's account on Agent's
books. During the Term, Borrower may use the Revolving Advances by borrowing,
prepaying and reborrowing, all in accordance with the terms and conditions
hereof. The proceeds of each Revolving Advance requested by Borrower or deemed
to have been requested by Borrower under Section 2.12(a) hereof shall, with
respect to requested Revolving Advances to the extent Lenders make such
Revolving Advances, be made available to Borrower on the day so requested by way
of credit to Borrower's Operating Account, or such other bank as Borrower may
designate following notification to Agent, in immediately available federal or
other immediately available funds or, with respect to Revolving Advances deemed
to have been requested, be disbursed to Agent in payment of outstanding
Obligations.
2.4. Maximum Revolving Advances . The aggregate balance of Revolving
Advances outstanding at any time shall not exceed the lesser of (x) the Maximum
Revolving Advance Amount less the sum of (a) outstanding Equipment Value
Advances, (b) outstanding Inventory Value Advances, and (c) outstanding Letters
of Credit and (y) the Borrowing Base.
2.5. Maximum Equipment Value Advances. The aggregate balance of the
Equipment Value Advances outstanding at any time shall not exceed the lesser of
(i) the Maximum Equipment Value Advance Amount, (ii) eighty-five percent (85%)
of the aggregate amount from time to time outstanding of actual cash advances by
Borrower to Clients secured by Client Funded Equipment or (iii)
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sixty percent (60%) of the liquidation value of such Client Funded
Equipment.
2.5A Maximum Inventory Value Advances. The aggregate balance of the
Inventory Value Advances outstanding at any time shall not exceed the lesser of
(i) the Maximum Inventory Value Advance Amount or (ii) the Inventory Borrowing
Base.
2.6. Repayment of Excess Advances. The aggregate balance of Revolving
Advances, Equipment Value Advances and Inventory Value Advances, as the case may
be, outstanding at any time in excess of the maximum permitted under Section
2.4, Section 2.5 or Section 2.5A, as applicable, shall be immediately due and
payable without the necessity of any demand, at the Payment Office, whether or
not a Default or Event of Default has occurred.
2.7. Statement of Account. Agent shall maintain, in accordance with
its customary procedures, a loan account in the name of Borrower in which shall
be recorded the date and amount of each Advance made by Lenders and the date and
amount of each payment in respect thereof; provided, however, the failure by
Agent to record the date and amount of any Advance shall not adversely affect
Agent or any Lender. By the tenth day of each month, Agent shall send to
Borrower a statement showing the accounting for the Advances made, payments made
or credited in respect thereof, and other transactions between Lenders and
Borrower, during the preceding month. The monthly statements shall be deemed
correct and binding upon Borrower in the absence of manifest error and shall
constitute an account stated between Lenders and Borrower unless Agent receives
a written statement of Borrower's specific exceptions thereto within thirty (30)
days after such statement is received by Borrower. The records of Agent with
respect to the loan account shall be prima facie evidence of the amounts of
Advances and other charges thereto and of payments applicable thereto.
2.8. Letters of Credit. Subject to the terms and conditions hereof,
Agent shall issue or cause the issuance of Letters of Credit ("Letters of
Credit"); provided, however, that Agent will not be required to issue or cause
to be issued any Letters of Credit to the extent that the face amount of such
Letters of Credit would then cause the sum of (i) the outstanding Revolving
Advances plus (ii) outstanding Letters of Credit (with the requested Letter of
Credit being deemed to be outstanding for purposes of this calculation) to
exceed the lesser of (x) the sum of (a) Maximum Revolving Advance Amount less
(b) outstanding Equipment Value Advances less (c) outstanding Inventory Value
Advances or (y) the Borrowing Base. The maximum amount of Letter of Credit
Obligations shall not exceed $5,000,000.00 in the aggregate outstanding at any
time. All disbursements or payments related to Letters of Credit shall be deemed
to be Domestic Rate Loans consisting of Revolving Advances and shall bear
interest at the Revolving Interest Rate for Domestic Rate Loans. Once drawn
upon, a Letter of Credit shall be deemed not to be outstanding for all
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purposes hereof to the extent of such drawing; Letters of Credit that have not
been drawn upon shall not bear interest.
2.9. Issuance of Letters of Credit.
(a) Borrower may request Agent to issue or cause the
issuance of a Letter of Credit by delivering to Agent at the Payment Office,
Agent's or if a different issuing bank, such issuing bank's standard form of
Letter of Credit Application (collectively, the "Letter of Credit Application")
completed to the satisfaction of Agent; and, such other certificates, documents
and other papers and information as Agent may reasonably request.
(b) Each Letter of Credit shall, among other things,
(i) provide for the payment of drafts when presented for honor thereunder in
accordance with the terms thereof and when accompanied by the documents
described therein and (ii) have an expiry date not later than six (6) months
with respect to trade Letters of Credit and twelve (12) months with respect to
standby Letters of Credit after such Letter of Credit's date of issuance and in
no event later than the last day of the Term. Each Letter of Credit Application
and each Letter of Credit shall be subject to the Uniform Customs and Practice
for Documentary Credits (1993 Revision), International Chamber of Commerce
Publication No. 500, and any amendments or revision thereof and, to the extent
not inconsistent therewith, the laws of the State of New York.
2.10. Requirements For Issuance of Letters of Credit.
(a) In connection with the issuance of any Letter of
Credit, Borrower shall indemnify, save and hold Agent and each Lender harmless
from any loss, cost, expense or liability, including, without limitation,
payments made by Agent and any Lender, and expenses and reasonable attorneys'
fees incurred by Agent or any Lender arising out of, or in connection with, any
Letter of Credit to be issued or created for Borrower other than for Agent's or
any Lender's gross negligence or willful misconduct. Borrower shall be bound by
Agent's or any issuing or accepting bank's regulations and good faith
interpretations of any Letter of Credit issued or created for Borrower's
account, although this interpretation may be different from Borrower's own; and,
neither Agent nor any Lender, the bank which opened the Letter of Credit, nor
any of its correspondents shall be liable for any error, negligence, or
mistakes, whether of omission or commission, in following Borrower's written
instructions or those contained in any Letter of Credit, or of any
modifications, amendments or supplements thereto or in issuing or paying any
Letter of Credit, except for Agent's or any Lender's or such issuing bank's
willful misconduct or gross negligence.
(b) In connection with all Letters of Credit issued
or caused to be issued by Agent under this Agreement, Agent, or its designee,
shall, upon Borrower's written request, act as Borrower's attorney, with full
power and authority (i) to sign and/or endorse
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Borrower's name upon any warehouse or other receipts, letter of credit
applications and acceptances; (ii) to sign Borrower's name on bills of lading;
(iii) to clear Inventory through the United States of America Customs Department
("Customs") in the name of Borrower or Agent or Agent's designee, and to sign
and delivery to Customs officials powers of attorney in the name of Borrower for
such purpose; and (iv) to complete in Borrower's name or Agent's, or in the name
of Agent's designee, any order, sale or transaction, obtain the necessary
documents in connection therewith, and collect the proceeds thereof. Neither
Agent nor its attorneys will be liable for any acts or omissions nor for any
error of judgment or mistakes of fact or law, except for Agent's or its
attorney's willful misconduct or gross negligence.
(c) Each Lender shall to the extent of the percentage
amount equal to the product of such Lender's Commitment Percentage times the
aggregate amount of all disbursements made with respect to the Letters of Credit
be deemed to have irrevocably purchased an undivided participation in each
Revolving Advance made as a consequence of such disbursement. In the event that
at the time a disbursement is made the unpaid balance of Revolving Advances
exceeds or would exceed, with the making of such disbursement, the lesser of (a)
the sum of (i) Maximum Revolving Advance Amount less (ii) outstanding Equipment
Value Advances less (iii) outstanding Inventory Value Advances less (iv)
outstanding Letters of Credit or (b) the Borrowing Base, and such disbursement
is not reimbursed by Borrower within two (2) Business Days, Agent shall promptly
notify each Lender and upon Agent's demand each Lender shall pay to Agent such
Lender's proportionate share of such unreimbursed disbursement together with
such Lender's proportionate share of Agent's unreimbursed costs and expenses
relating to such unreimbursed disbursement. Upon receipt by Agent of a repayment
from Borrower of any amount disbursed by Agent for which Agent had already been
reimbursed by Lenders, Agent shall deliver to each of Lenders that Lender's pro
rata share of such repayment. Each Lender's participation commitment shall
continue until the last to occur of any of the following events: (A) Agent
ceases to be obligated to issue Letters of Credit hereunder; (B) no Letter of
Credit issued hereunder remains outstanding and uncancelled or (C) all Persons
(other than Borrower) have been fully reimbursed for all payments made under or
relating to Letters of Credit.
(d) In the event that any Letter of Credit
Obligation, whether or not then due and payable, shall for any reason be
outstanding on the Termination Date, Borrower will pay to Lenders cash or Cash
Equivalents in an amount equal to the maximum amount then available to be drawn
under all such Letters of Credit. Such funds or Cash Equivalents shall be held
by Agent in a cash collateral account (the "Cash Collateral Account"). The Cash
Collateral Account shall be in the name of Lenders or the Agent for the benefit
of Lenders (as a cash collateral account), and shall be under the sole dominion
and control of Agent and subject to the terms of this Section 2.10(d). Borrower
hereby pledges, and grants to the Agent for the benefit of the Lenders a
security interest in,
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all such funds or Cash Equivalents held in the Cash Collateral Account from time
to time and all proceeds thereof, as security for the payment of all Letter of
Credit Obligations, whether or not then due.
From time to time after funds are deposited in the
Cash Collateral Account, the Agent and/or the Lenders may apply such funds or
Cash Equivalents then held in the Cash Collateral Account to the payment of any
amounts, in such order as Lenders may elect, as shall be or shall become due and
payable by Borrower to Lenders with respect to such Letter of Credit
Obligations.
Neither Borrower nor any Person or entity claiming on
behalf of or through Borrower shall have any right to withdraw any of the funds
or Cash Equivalents held in the Cash Collateral Account, except that upon the
termination of any Letter of Credit Obligation in accordance with its terms and
the payment of all amounts payable by Borrower to Lenders in respect thereof, if
no Default or Event of Default exists and is continuing at such time, any funds
remaining in the Cash Collateral Account in excess of the then remaining Letter
of Credit Obligations shall be returned to Borrower.
The Agent and the Lenders shall not have any
obligation to invest the funds in the Cash Collateral Account or deposit such
funds in an interest-bearing account, and interest and earnings thereon, if any,
shall be the property of Lenders.
2.11. Additional Payments. Any sums expended by Agent or any Lender
due to Borrower's failure to perform or comply with its obligations under this
Agreement or any Other Document including, without limitation, Borrower's
obligations under Sections 4.2, 4.4, 4.12, 4.13, 4.14 and 6.1 hereof, may be
charged to Borrower's account as a Revolving Advance and added to the
Obligations.
2.12. Manner of Borrowing and Repayment of Advances.
(a) Borrower may notify Agent prior to 3:00 P. M. (New York time) on
a Business Day of its request to incur, on that day, a Revolving Advance,
Equipment Value Advance and/or Inventory Value Advance hereunder. Should any
amount required to be paid as interest hereunder, or as fees or other charges
under this Agreement or any Other Document, not be paid when due, same shall be
deemed a request for a Revolving Advance as of the date such payment is due, in
the amount required to pay in full such interest, fee, charge or Obligation
under this Agreement or any Other Document, and such request shall be
irrevocable.
(b) Notwithstanding the provisions of (a) above, in the event
Borrower desires to obtain a Eurodollar Rate Loan, Borrower shall give Agent at
least three (3) Business Days' prior written notice, specifying (i) the date of
the proposed borrowing (which shall be a Business Day), (ii) the type of
borrowing and the amount on the date of such Advance to be borrowed, which
amount shall not
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be less than $1,000,000 initially or an integral multiple of $100,000 in excess
thereof and (iii) the duration of the first Interest Period therefor. Interest
Periods for Eurodollar Rate Loans shall be for 30, 60 or 90 days. No Eurodollar
Rate Loan shall be made available to Borrower during the continuance of a
Default or an Event of Default. No more than three (3) Eurodollar Rate Loans
shall be outstanding at any time.
(c) Each Interest Period of a Eurodollar Rate Loan shall commence on
the date such Eurodollar Rate Loan is made and shall end on such date as
Borrower may elect as set forth in (b)(iii) above provided that the exact length
of each Interest Period shall be determined in accordance with the practice of
the interbank market for offshore Dollar deposits and no Interest Period shall
end after the last day of the Term.
Borrower shall elect the initial Interest Period applicable to a
Eurodollar Rate Loan by its notice of borrowing given to Agent pursuant to
Section 2.12(b) or by its notice of conversion given to Agent pursuant to
Section 2.12(d), as the case may be. Borrower shall elect the duration of each
succeeding Interest Period by giving irrevocable written notice to Agent of such
duration not less than three (3) Business Days prior to the last day of the then
current Interest Period applicable to such Eurodollar Rate Loan. If Agent does
not receive timely notice of the Interest Period elected by Borrower, Borrower
shall be deemed to have elected to convert to a Domestic Rate Loan in accordance
with Section 2.12(d) hereinbelow.
(d) Provided that no Event of Default shall have
occurred and be continuing, Borrower may, on the last Business Day of the then
current Interest Period applicable to any outstanding Eurodollar Rate Loan, or
on any Business Day with respect to Domestic Rate Loans, convert any such loan
into a loan of another type in the same aggregate principal amount provided that
any conversion of a Eurodollar Rate Loan shall be made only on the last Business
Day of the then current Interest Period applicable to such Eurodollar Rate Loan.
If a Borrower desires to convert a loan, Borrower shall give Agent not less than
three (3) Business Days' prior written notice to convert from a Domestic Rate
Loan to a Eurodollar Rate Loan or one (1) Business Day's prior written notice to
convert from a Eurodollar Rate Loan to a Domestic Rate Loan, specifying the date
of such conversion, the loans to be converted and if the conversion is from a
Domestic Rate Loan to any other type of loan, the duration of the first Interest
Period therefor.
(e) At its option and upon three (3) Business Days'
prior written notice, Borrower may prepay the Eurodollar Rate Loans in whole at
any time or in part from time to time, without premium or penalty, but with
accrued interest on the principal being prepaid to the date of such repayment.
Borrower shall specify the date of prepayment of Advances which are Eurodollar
Rate Loans and the amount of such prepayment. In the event that any prepayment
of a Eurodollar Rate Loan is required or permitted on a date other
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than the last Business Day of the then current Interest Period with respect
thereto, Borrower shall indemnify Agent and Lenders therefor in accordance with
Section 2.12(f) hereof.
(f) Borrower shall indemnify Agent and Lenders and
hold Agent and Lenders harmless from and against any and all losses or expenses
that Agent and Lenders may sustain or incur as a consequence of any prepayment,
conversion of or any default by Borrower in the payment of the principal of or
interest on any Eurodollar Rate Loan or failure by Borrower to complete a
borrowing of, a prepayment of or conversion of or to a Eurodollar Rate Loan
after notice thereof has been given, including, but not limited to, any interest
payable by Agent or Lenders to lenders of funds obtained by it in order to make
or maintain its Eurodollar Rate Loans hereunder. A certificate as to any
additional amounts payable pursuant to the foregoing sentence submitted by Agent
or any Lender to Borrower shall be conclusive absent manifest error.
(g) Notwithstanding any other provision hereof, if
any applicable law, treaty, regulation or directive, or any change therein or in
the interpretation or application thereof, shall make it unlawful for any Lender
(for purposes of this subsection (g), the term "Lender" shall include any Lender
and the office or branch where any Lender or any corporation or bank controlling
such Lender) makes or maintains any Eurodollar Rate Loans to make or maintain
its Eurodollar Rate Loans the obligation of Lenders to make Eurodollar Rate
Loans hereunder shall forthwith be cancelled and Borrower shall, if any affected
Eurodollar Rate Loans are then outstanding, promptly upon request from Agent,
either pay all such affected Eurodollar Rate Loans or convert such affected
Eurodollar Rate Loans into loans of another type. If any such payment or
conversion of any Eurodollar Rate Loan is made on a day that is not the last day
of the Interest Period applicable to such Eurodollar Rate Loan, Borrower shall
pay Agent, upon Agent's request, such amount or amounts as may be necessary to
compensate Lenders for any loss or expense sustained or incurred by Lenders in
respect of such Eurodollar Rate Loan as a result of such payment or conversion,
including (but not limited to) any interest or other amounts payable by Lenders
to lenders of funds obtained by Lenders in order to make or maintain such
Eurodollar Rate Loan. A certificate as to any additional amounts payable
pursuant to the foregoing sentence submitted by Lenders to Borrower shall be
conclusive absent manifest error.
(h) The Revolving Advances shall be due and payable in full and the
Letter of Credit Obligations shall be fully collateralized in each case to the
satisfaction of Agent on the last day of the Term subject to earlier prepayment
as herein provided.
(i) Borrower shall pay principal, interest, and all other amounts
payable hereunder, or under any Other Document, without any deduction
whatsoever, including, but not limited to, any deduction for any setoff or
counterclaim.
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(j) Each borrowing of Revolving Advances shall be advanced
according to the Commitment Percentages of Lenders.
(k) Each payment (including each prepayment) by Borrower on account
of the principal of and interest on the Revolving Credit Note, shall be applied
by the Agent to the Revolving Advances and, subject to Sections 2.2 and 2.2A
hereof, to Equipment Value Advances and Inventory Value Advances, as the case
may be, as applicable pro rata according to the Commitment Percentages of
Lenders. Except as expressly provided herein, all payments (including
prepayments) to be made by Borrower on account of principal, interest and fees
shall be made without set-off or counterclaim and shall be made to Agent on
behalf of Lenders to the Payment Office, in each case on or prior to 3:00 P.M.,
New York time, in Dollars and in immediately available funds. Agent shall have
the right to effectuate payment on any and all Obligations due and owing
hereunder by charging Borrower's account or by making Revolving Advances as
provided in this Section 2.12. In the event Agent fails to remit to any Lender
such Lender's pro rata share of interest or fees to which such Lender is
entitled in a prompt manner but in any event within one (1) Business Day of the
payment of same by Borrower to Agent, Agent shall pay to such Lender on demand
for each day there is a delay in payment an amount equal to the product of (i)
the Federal Funds Rate (computed on the basis of a year of 360 days), times (ii)
such amount.
(l) (i) Notwithstanding anything to the contrary contained in
Sections 2.12(a), (h), (i), (j) and (k) hereof, commencing with the first
Business Day following the Original Closing Date, each borrowing of Revolving
Advances, Equipment Value Advances and/or Inventory Value Advances (as the case
may be) shall be advanced by Agent and each payment by Borrower on account of
Revolving Advances Equipment Value Advances and/or Inventory Value Advances (as
the case may be) shall be applied first to those Revolving Advances, Equipment
Value Advances and/or Inventory Value Advances (as the case may be) made by
Agent. On or before 3:00 P.M., New York time, on each Settlement Date commencing
with the first Settlement Date following the Original Closing Date, Agent and
Lenders shall make certain payments as follows: (I) if the aggregate amount of
new Revolving Advances, Equipment Value Advances and/or Inventory Value Advances
(as the case may be) made by Agent during the preceding Week exceeds the
aggregate amount of repayments applied to outstanding Revolving Advances,
Equipment Value Advances and/or Inventory Value Advances (as the case may be)
during such preceding Week, then each Lender shall provide Agent with funds in
an amount equal to its Commitment Percentage of the difference between (w) such
new Revolving Advances, Equipment Value Advances and/or Inventory Value Advances
(as the case may be) and (x) such repayments and (II) if the aggregate amount of
repayments applied to outstanding Revolving Advances, Equipment Value Advances
and/or Inventory Value Advances (as the case may be) during such preceding Week
exceeds the aggregate amount of new Revolving Advances, Equipment Value Advances
and/or Inventory Value Advances (as the case may be) made during such Week, then
Agent shall
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provide each Lender with its Commitment Percentage of the difference between (y)
such repayments and (z) such new Revolving Advances, Equipment Value Advances
and/or Inventory Value Advances
(as the case may be).
(ii) Each Lender shall be entitled to earn
interest at the Revolving Interest Rate on outstanding Advances (other than
Letters of Credit) which it has funded.
(iii) Promptly following each Settlement Date,
Agent shall submit to each Lender a certificate with respect to payments
received and Advances (other than Letters of Credit) made during the Week
immediately preceding such Settlement Date. Such certificate of Agent shall be
conclusive in the absence of manifest error.
(m) If any Lender or Participant (a "benefitted
Lender") shall at any time receive any payment of all or part of its Revolving
Advances, Equipment Value Advances and/or Inventory Value Advances (as the case
may be) or interest thereon, or receive any Collateral in respect thereof
(whether voluntarily or involuntarily or by set-off) in a greater proportion
than any such payment to and Collateral received by any other Lender, if any, in
respect of such other Lender's Revolving Advances, Equipment Value Advances
and/or Inventory Value Advances (as the case may be) or interest thereon, and
such greater proportionate payment or receipt of Collateral is not expressly
permitted hereunder, such benefitted Lender shall purchase for cash from the
other Lenders such portion of each such other Lender's Revolving Advances,
Equipment Value Advances and/or Inventory Value Advances (as the case may be) or
shall provide such other Lender with the benefits of any such Collateral, or the
proceeds thereof, as shall be necessary to cause such benefitted Lender to share
the excess payment or benefits of such Collateral or proceeds ratably with each
of the other Lenders; provided, however, that if all or any portion of such
excess payment or benefits is thereafter recovered from such benefitted Lender,
such purchase shall be rescinded, and the purchase price and benefits returned,
to the extent of such recovery, but without interest. Each Lender so purchasing
a portion of another Lender's Revolving Advances, Equipment Value Advances
and/or Inventory Value Advances (as the case may be) may exercise all rights of
payment (including, without limitation, rights of set-off) with respect to such
portion as fully as if such Lender were the direct holder of such portion.
(n) Unless Agent shall have been notified by
telephone, confirmed in writing, by any Lender that such Lender will not make
the amount which would constitute its Commitment Percentage of the Revolving
Advances, Equipment Value Advances and/or Inventory Value Advances (as the case
may be) available to Agent, Agent may (but shall not be obligated to) assume
that such Lender shall make such amount available to Agent and, in reliance upon
such assumption, make available to Borrower a corresponding amount. Agent will
promptly notify Borrower of its receipt of any
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such notice from a Lender. If such amount is made available to Agent on a date
after a Settlement Date, such Lender shall pay to Agent on demand an amount
equal to the product of (i) the daily average Federal Funds Rate (computed on
the basis of a year of 360 days) during such period as quoted by Agent, times
(ii) such amount, times (iii) the number of days from and including such
Settlement Date to the date on which such amount becomes immediately available
to Agent. A certificate of Agent submitted to any Lender with respect to any
amounts owing under this paragraph (n) shall be conclusive, in the absence of
manifest error. If such amount is not in fact made available to Agent by such
Lender within three (3) Business Days after such Settlement Date, Agent shall be
entitled to recover such an amount, with interest thereon at the rate per annum
then applicable to Revolving Advances, Equipment Value Advances and/or Inventory
Value Advances (as the case may be) hereunder, on demand from Borrower;
provided, however, that Agent's right to such recovery shall not prejudice or
otherwise adversely affect Borrower's rights (if any) against such Lender.
2.13. Use of Proceeds. Borrower shall apply the proceeds of
the Revolving Advances to provide for the working capital and
general corporate needs of Borrower and for any investment
permitted under Section 7.4 hereof.
III. INTEREST AND FEES.
3.1. Interest. Interest on Advances (other than Letters of Credit)
shall be payable in arrears on the first day of each month with respect to
Domestic Rate Loans and, with respect to Eurodollar Rate Loans, at the end of
each Interest Period. Interest charges shall be computed on the daily unpaid
balance of Advances (other than Letters of Credit) outstanding at the end of
each day during the month at a rate per annum equal to the Revolving Interest
Rate. Whenever, subsequent to the date of this Agreement, the Base Rate is
increased or decreased, the Revolving Interest Rate for Domestic Rate Loans
shall be similarly changed without notice or demand of any kind by an amount
equal to the amount of such change in the Base Rate during the time such change
or changes remain in effect. Upon and after the occurrence of an Event of
Default, and during the continuation thereof, the Advances (other than Letters
of Credit) shall bear interest at the applicable Revolving Interest Rate plus
two (2%) percent (the "Default Rate").
3.2. Letter of Credit Fees.
In the event that Agent or Lenders shall incur any Letter of Credit
Obligations pursuant hereto at the request or on behalf of Borrower hereunder,
Borrower agrees to pay to Agent for the ratable benefit of Lenders, as
compensation to Lenders for such Letter of Credit Obligation, (i) all fees and
charges paid by Lenders on account of such Letter of Credit Obligation to the
issuer or like party (other than commissions paid by Agent or Lenders and
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negotiation charges) and (ii) commencing with the month in which such Letter of
Credit Obligation is incurred by Lenders and monthly thereafter for each month
during which such Letter of Credit Obligation shall remain outstanding, a fee
(the "Letter of Credit Fee") at a rate equal to (a) 175 basis points per annum
on all trade Letters of Credit and all standby Letters of Credit expiring 180
days or less from date of issuance and (b) 175 basis points per annum on all
standby Letters of Credit expiring more than 180 days but less than 360 days
from date of issuance, in each case based upon the daily outstanding amount of
such Letter of Credit Obligations on each day during the previous month,
determined on the basis of a year of 360 days. So long as any Event of Default
shall have occurred and be continuing, the Letter of Credit Fee shall be
increased by two percent (2%) per annum above the rate otherwise applicable and
the Letter of Credit Fee shall be payable on demand. Fees payable in respect of
Letter of Credit Obligations shall be paid to Agent for the ratable benefit of
Lenders, in arrears, on the first day of such calendar month.
3.3. Closing Fee. Upon the execution of this Agreement,
Borrower shall pay to Agent for the ratable benefit of Lenders a
closing fee of $50,000.
3.4. Unused Line Fee. If, for any month during the term of this
Agreement, the daily unpaid balance of the Advances outstanding at the end of
each day of such month does not equal the Maximum Revolving Advance Amount, then
Borrower shall pay to Agent for the ratable benefit of Lenders a fee at a rate
equal to one quarter of one percent (1/4%) multiplied by (x) the lesser of (i)
the Maximum Revolving Advance Amount or (ii) the Borrowing Base, minus (y) the
unpaid balance of Advances. Such fee shall be payable to Agent for ratable
benefit of Lenders in arrears on the first day of each month.
3.5. Collateral Evaluation Fee. Borrower shall pay Agent a collateral
evaluation fee equal to $1,500 per month commencing on the first day of the
month following the Effective Date and on the first day of each month thereafter
during the Term. The collateral evaluation fee shall be deemed earned in full on
the date when same is due and payable hereunder and shall not be subject to
rebate or proration upon termination of this Agreement for any reason.
3.6. Field Examinations. Borrower shall pay to Agent on the first day
of each month (following any month) in which Agent performs a field examination
a fee of $500.00 per day for each person employed to perform such monitoring
plus all out of pocket expenses incurred by Agent in the performance of such
examination. Field examinations shall be conducted no more than four times a
year provided that no Event of Default shall have occurred and be continuing.
3.7. Computation of Interest and Fees. Interest and fees
hereunder shall be computed on the basis of a year of 360 days and
for the actual number of days elapsed. If any payment to be made
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hereunder becomes due and payable on a day other than a Business Day, the due
date thereof shall be extended to the next succeeding Business Day and, with
respect to payments of principal, interest thereon shall be payable at the
Revolving Interest Rate for Domestic Rate Loans during such extension.
3.8. Maximum Charges. In no event whatsoever shall interest and other
charges charged hereunder exceed the highest rate permissible under law which a
court of competent jurisdiction shall, in a final determination, deem applicable
hereto. In the event that a court determines that Agent or any Lender has
received interest and other charges hereunder in excess of the highest rate
applicable hereto, such excess interest shall be first applied to any unpaid
principal balance owed by Borrower, and if the then remaining excess interest is
greater than the previously unpaid principal balance, Lenders shall promptly
refund such excess amount to Borrower and the provisions hereof shall be deemed
amended to provide for such permissible rate.
3.9. Increased Costs. In the event that any change in any applicable
law, treaty or governmental regulation, or in the interpretation or application
thereof, or compliance by any Lender (for purposes of this Section 3.9, the term
"Lender" shall include Agent or any Lender and any corporation or bank
controlling Agent or any Lender) and the office or branch where Agent or any
Lender (as so defined) makes or maintains any Eurodollar Rate Loans with any
request or directive (whether or not having the force of law) from any central
bank or other financial, monetary or other authority, occurring after the
Effective Date shall:
(a) subject Agent or any Lender to any tax of any
kind whatsoever with respect to this Agreement or change the basis of taxation
of payments to Agent or any Lender of principal, fees, interest or any other
amount payable hereunder or under any Other Documents (except for changes in any
tax measured or imposed on the overall net income of Agent or any Lender by the
jurisdiction in which it maintains its principal office);
(b) INTENTIONALLY OMITTED.
(c) impose on Agent or any Lender or the London
Interbank Eurodollar Market any other condition with respect to
this Agreement or any Other Documents;
and the result of any of the foregoing is to increase the cost to Agent or
Lender of making, renewing or maintaining any Advances hereunder by an amount
that Agent or such Lender deems to be material or to reduce the amount of any
payment (whether of principal, interest or otherwise) in respect of any of the
Advances by an amount that Agent or such Lender deems to be material, then, in
any case Borrower shall promptly pay Agent or such Lender, upon its demand, such
additional amount as will compensate Agent or such Lender for such additional
cost or such reduction, as the case may be, provided that the foregoing shall
not apply to increased costs
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which are reflected in the Eurodollar Rate. Agent or such Lender shall certify
the amount of such additional cost or reduced amount (which certification shall
be supported by calculations in reasonable detail) to Borrower, and such
certification shall be conclusive absent manifest error.
3.10. Capital Adequacy.
(a) In the event that any change after the Effective
Date in any applicable law, rule, regulation or guideline regarding capital
adequacy, or any change after the Effective Date in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by Agent or any Lender (for purposes of this Section 3.10, the term "Lender"
shall include Agent or any Lender and any corporation or bank controlling Agent
or any Lender) and the office or branch where Agent or any Lender (as so
defined) makes or maintains any Eurodollar Rate Loans with any request or
directive regarding capital adequacy (whether or not having the force of law) of
any such authority, central bank or comparable agency made after the Effective
Date, has the effect of reducing the rate of return on Agent or any Lender's
capital as a consequence of its obligations hereunder to a level below that
which Agent or such Lender could have achieved but for such adoption, change or
compliance (taking into consideration Agent's and each Lender's policies with
respect to capital adequacy) by an amount deemed by Agent or any Lender to be
material, then, from time to time, Borrower shall pay upon demand to Agent or
such Lender such additional amount or amounts as will compensate Agent or such
Lender for such reduction. In determining such amount or amounts, Agent or such
Lender may use any reasonable averaging or attribution methods. The protection
of this Section 3.10 shall be available to Agent and each Lender regardless of
any possible contention of invalidity or inapplicability with respect to the
applicable law, regulation or condition.
(b) A certificate of Agent or such Lender setting
forth such amount or amounts (which certificate shall be supported by
calculations in reasonable detail) as shall be necessary to compensate Agent or
such Lender with respect to Section 3.10(a) hereof when delivered to Borrower
shall be conclusive absent manifest error.
3.11. Survival. The obligations of Borrower under Sections
2.10, 3.9 and, 3.10 shall survive termination of this Agreement and
the Other Documents and payment in full of the Obligations.
3.12. Basis For Determining Interest Rate Inadequate or
Unfair. In the event that Agent or any Lender shall have
determined that:
(a) reasonable means do not exist for ascertaining
the Eurodollar Rate for any Interest Period; or
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(b) Dollar deposits in the relevant amount and for
the relevant maturity are not available in the London interbank Eurodollar
market, with respect to an outstanding Eurodollar Rate Loan, a proposed
Eurodollar Rate Loan, or a proposed conversion of a Domestic Rate Loan into a
Eurodollar Rate Loan,
then Agent shall give Borrower prompt written, telephonic or telegraphic notice
of such determination. If such notice is given, (i) any such requested
Eurodollar Rate Loan shall be made as a Domestic Rate Loan, unless Borrower
shall notify Agent no later than 10:00 a.m. (New York City time) two (2)
Business Days prior to the date of such proposed borrowing, that its request for
such borrowing shall be cancelled or made as an unaffected type of Eurodollar
Rate Loan, (ii) any Domestic Rate Loan or Eurodollar Rate Loan which was to have
been converted to an affected type of Eurodollar Rate Loan shall be continued as
or converted into a Domestic Rate Loan, or, if Borrower shall notify Agent, no
later than 10:00 a.m. (New York City time) two (2) Business Days prior to the
proposed conversion, shall be maintained as an unaffected type of Eurodollar
Rate Loan and (iii) any outstanding affected Eurodollar Rate Loans shall be
converted into a Domestic Rate Loan as of the last day of the then current
Interest Period, or, if Borrower shall notify Agent, no later than 10:00 a.m.
(New York City time) two (2) Business Days prior to the last Business Day of the
then current Interest Period applicable to such affected Eurodollar Rate Loan,
such affected Eurodollar Rate Loan shall be converted into an unaffected type of
Eurodollar Rate Loan on the last Business Day of the then current Interest
Period for such affected Eurodollar Rate Loans. Until such notice has been
withdrawn, Lenders shall have no obligation to make an affected type of
Eurodollar Rate Loan or maintain outstanding affected Eurodollar Rate Loans and
Borrower shall not have the right to convert a Domestic Rate Loan or an
unaffected type of Eurodollar Rate Loan into an affected type of Eurodollar Rate
Loan.
IV. COLLATERAL: GENERAL TERMS
4.1. Security Interest in the Collateral. To secure the prompt
payment and performance to Agent and each Lender of the Obligations, Borrower
hereby assigns, pledges and grants to Agent for its benefit and for the ratable
benefit of each Lender a continuing security interest in and to all of the
Collateral, whether now owned or existing or hereafter acquired or arising and
wheresoever located. Borrower shall mark its books and records as may be
necessary or appropriate to evidence, protect and perfect Agent's security
interest and shall cause its financial statements to reflect the existence of a
security interest.
4.2. Perfection of Security Interest. Borrower shall take
all action that may be necessary or desirable, or that Agent may
request, so as at all times to maintain the validity, perfection,
enforceability and priority of Agent's security interest in the
Collateral or to enable Agent to protect, exercise or enforce its
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rights hereunder and in the Collateral, including, but not limited to (i)
immediately discharging all Liens other than Permitted Encumbrances, (ii) using
its best efforts to obtain landlords' or mortgagees' lien waivers, (iii) making
available to Agent at the locations where same are kept, endorsed or accompanied
by such instruments of assignment as Agent may specify, and stamping or marking,
in such manner as Agent may specify, any and all chattel paper, instruments,
letters of credits and advices thereof and documents evidencing or forming a
part of the Collateral, (iv) entering into warehousing, lockbox and other
custodial arrangements satisfactory to Agent, and (v) executing and delivering
financing statements, instruments of pledge, mortgages, notices and assignments,
in each case in form and substance satisfactory to Agent, relating to the
creation, validity, perfection, maintenance or continuation of Agent's security
interest under the Uniform Commercial Code or other applicable law. All
reasonable charges, expenses and fees Agent may incur in doing any of the
foregoing, and any local taxes relating thereto, shall be charged to Borrower's
account as a Revolving Advance and added to the Obligations, or, at Agent's
option, shall be paid to Agent immediately upon demand.
4.3. Disposition of Collateral. Borrower will safeguard and protect
all Collateral for Agent's general account and make no disposition thereof
whether by sale, lease or otherwise except (a) the sale of Inventory in the
ordinary course of business, (b) the disposition or transfer of obsolete and
worn-out Equipment in the ordinary course of business during any fiscal year
having an aggregate fair market value of not more than $50,000 and (c) which is
otherwise permitted in Article VII of this Agreement.
4.4. Preservation of Collateral. Following the occurrence and during
the continuation of an Event of Default, in addition to the rights and remedies
set forth in Section 11.1 hereof, Agent: (a) may at any time take such steps as
Agent deems necessary to protect Agent's interest in and to preserve the
Collateral, including the hiring of such security guards or the placing of other
security protection measures as Agent may deem appropriate; (b) may employ and
maintain at any of Borrower's premises a custodian who shall have full authority
to do all acts necessary to protect Agent's interests in the Collateral; (c) may
lease warehouse facilities to which Agent may move all or part of the
Collateral; (d) may use any of Borrower's owned or leased lifts, hoists, trucks
and other facilities or equipment for handling or removing the Collateral; and
(e) shall have, and is hereby granted, a right of ingress and egress to the
places where the Collateral is located, and may proceed over and through any of
Borrower's owned or leased property. Borrower shall cooperate fully with all of
Agent's efforts to preserve the Collateral and will take such actions to
preserve the Collateral as Agent may direct. All of Agent's expenses of
preserving the Collateral, including any expenses relating to the bonding of a
custodian, shall be charged to Borrower's account as a Revolving Advance and
added to the Obligations.
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4.5. Ownership of Collateral. With respect to the Collateral, at the
time the Collateral becomes subject to Agent's security interest: (a) Borrower
shall be the sole owner of and fully authorized and able to sell, transfer,
pledge and/or grant a first security interest in each and every item of the
Collateral to Agent; and, except for Permitted Encumbrances the Collateral shall
be free and clear of all Liens whatsoever; (b) each document and agreement
executed by Borrower or delivered to Agent or any Lender by Borrower in
connection with this Agreement shall be true and correct in all material
respects at the time executed or delivered; (c) all signatures and endorsements
of Borrower that appear on such documents and agreements shall be genuine and
Borrower shall have full capacity to execute same; and (d) except for Inventory
relating to import financing by Borrower and except with respect to the sale of
Inventory in the ordinary course of business and Equipment to the extent
permitted in Section 4.3 hereof, Borrower's Equipment and Inventory shall be
located as set forth on Schedule 4.5 and shall not be removed from such
location(s) without the prior written consent of Agent, not to be unreasonably
withheld.
4.6. Defense of Agent's and Lender's Interests. Until (a) payment and
performance in full of all of the Obligations and (b) termination of this
Agreement, Agent's interests in the Collateral shall continue in full force and
effect. During such period Borrower shall not, without Agent's prior written
consent, pledge, sell (except Inventory in the ordinary course of business and
Equipment to the extent permitted in Section 4.3 hereof), assign, transfer,
create or suffer to exist a Lien upon or encumber or allow or suffer to be
encumbered in any way except for Permitted Encumbrances, any part of the
Collateral. Borrower shall defend Agent's interests in the Receivables against
any and all Persons whatsoever and shall defend Agent's interest in the
Collateral other than Receivables against any and all persons whatsoever other
than creditors of its Clients. At any time following the occurrence and during
the continuation of an Event of Default, Agent shall have the right to take
possession of the indicia of the Collateral and the Collateral in whatever
physical form contained, including without limitation: labels, stationery,
documents, instruments and advertising materials. If Agent exercises this right
to take possession of the Collateral, Borrower shall, upon demand, assemble it
in the best manner possible and make it available to Agent at a place reasonably
convenient to Agent. In addition, with respect to all Collateral, Agent and
Lenders shall be entitled to all of the rights and remedies set forth herein and
further provided by the Uniform Commercial Code or other applicable law.
Following the occurrence and during the continuation of an Event of Default
Borrower shall at Agent's request, and Agent may, at its option, instruct all
suppliers, carriers, forwarders, warehouses or others receiving or holding cash,
checks, Inventory, documents or instruments in which Agent holds a security
interest to deliver same to Agent and/or subject to Agent's order and if they
shall come into Borrower's possession, they, and each of them, shall be held by
Borrower in trust as Agent's trustee, and Borrower
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will immediately deliver them to Agent in their original form together with any
necessary endorsement.
4.7. Books and Records. Borrower (a) shall keep proper books of
record and account in which full, true and correct entries will be made of all
dealings or transactions of or in relation to its business and affairs; (b) set
up on its books accruals with respect to all taxes, assessments, charges, levies
and claims; and (c) on a reasonably current basis set up on its books, from its
earnings, allowances against doubtful Receivables, advances and investments and
all other proper accruals (including without limitation by reason of
enumeration, accruals for premiums, if any, due on required payments and
accruals for depreciation, obsolescence, or amortization of properties), which
should be set aside from such earnings in connection with its business. All
determinations pursuant to this subsection shall be made in accordance with, or
as required by, GAAP consistently applied in the opinion of such independent
public accountant as shall then be regularly engaged by Borrower.
4.8. Financial Disclosure. Borrower hereby irrevocably authorizes and
directs all accountants and auditors employed by Borrower at any time during the
term of this Agreement to exhibit and deliver to Agent and each Lender copies of
any of Borrower's financial statements, trial balances or other accounting
records of any sort in the accountant's or auditor's possession, and to disclose
to Agent and each Lender any information such accountants may have concerning
Borrower's financial status and business operations. Borrower hereby authorizes
all federal, state and municipal authorities to furnish to Agent and each Lender
copies of reports or examinations relating to Borrower, whether made by Borrower
or otherwise; however, Agent and each Lender will attempt to obtain such
information or materials directly from Borrower prior to obtaining such
information or materials from such accountants or such authorities and Agent and
each Lender shall provide Borrower with the opportunity to participate in any
meeting or communication with such accountants or such authorities.
4.9. Compliance with Laws. Borrower shall comply with all acts,
rules, regulations (including those relating to licensing and regulation of
Borrower's business, ERISA, those regarding the collection, payment and deposit
of sales, employees' income, unemployment and social security taxes, and those
relating to environmental matters) and orders of any legislative, administrative
or judicial body or official applicable to the Collateral or any part thereof or
to the operation of Borrower's business the non-compliance with which would have
a Material Adverse Effect.
4.10. Inspection of Premises. Subject to the limitation on
field examinations contained in Section 3.6, at all reasonable
times Agent or any Lender shall have full access to and the right
to audit, check, inspect and make abstracts and copies from
Borrower's books, records, audits, correspondence and all other
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papers relating to the Collateral and the operation of Borrower's business and
Agent, any Lender and their agents may enter upon any of Borrower's premises at
any time during business hours and at any other reasonable time, and from time
to time, for the purpose of inspecting the Collateral and any and all records
pertaining thereto and the operation of Borrower's business.
4.11. Insurance Policies. Schedule 4.11(a) lists all insurance of any
nature maintained for current occurrences by Borrower or its Subsidiaries, as
well as a summary of the terms of such insurance. Such insurance covers, without
limitation, environmental, fire, theft, burglary, public liability, property
damage, product liability, workers' compensation, and insurance on all of
Borrower's and each of its Subsidiaries tangible property and assets, wherever
located, all in amounts customary for Borrower's and such Subsidiary's industry
and under policies issued by insurers and pursuant to policies satisfactory to
Agent and in any event in compliance with any insurance requirements under this
Agreement or under any Other Document. Except as set forth on Schedule 4.11(b),
(a) all of such policies of insurance which are liability insurance policies
shall name Agent as additional insureds and (b) Borrower shall and shall cause
its Subsidiaries to use its best efforts to ensure that all such policies of
insurance which are casualty insurance policies shall contain an endorsement, in
form and substance acceptable to Agent, showing loss payable to Agent. The
endorsement referenced in clause (b) of the preceding sentence, or an
independent instrument furnished to Agent in lieu of such endorsement, shall
provide that the insurance companies will give Agent at least 30 days prior
written notice before any such policy or policies of insurance shall be altered
or cancelled and that no act or default of Borrower or any other Person shall
affect the right of Agent to recover under such policy or policies of insurance
in case of loss or damage. All of such policies (or replacements therefor) are
in full force and effect (except to the extent same relate to assets disposed of
as permitted in Article VII hereof) and provide coverage of such risks and for
such amounts as is customarily maintained for businesses of the scope and size
of Borrower.
4.12. Failure to Pay Insurance. If Borrower fails to obtain insurance
as hereinabove provided, or to keep the same in force, Agent, if Agent so
elects, may obtain such insurance and pay the premium therefor for Borrower's
account, and charge Borrower's account therefor and such expenses so paid shall
be part of the Obligations.
4.13. Payment of Taxes. Borrower will pay, when due, all
taxes, assessments and other Charges or Claims lawfully levied or
assessed upon Borrower or any of the Collateral including, without
limitation, real and personal property taxes, assessments and
charges and all franchise, income, employment, social security
benefits, withholding, and sales taxes except to the extent any of
the foregoing constitutes a Permitted Encumbrance. Subject to the
preceding sentence, if any tax by any governmental authority is or
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may be imposed on or as a result of any transaction between Borrower and Agent
or any Lender which Agent or any Lender may be required to withhold or pay or if
any taxes, assessments, or other Charges remain unpaid after the date fixed for
their payment, or if any Claim shall be made which, in Agent's or Lender's
opinion, may possibly create a valid Lien on the Collateral, Agent may without
notice to Borrower pay the taxes, assessments or other Charges and Borrower
hereby indemnifies and holds Agent and each Lender harmless in respect thereof.
Neither Agent nor any Lender will pay any taxes, assessments or Charges to the
extent that Borrower has contested or disputed those taxes, assessments or
Charges in good faith, by expeditious protest, administrative or judicial appeal
or similar proceeding provided that any related tax lien is stayed and
sufficient reserves are established to the reasonable satisfaction of Agent to
protect Agent's security interest in or Lien on the Collateral. The amount of
any payment by Agent under this Section 4.13 shall be charged to Borrower's
account as a Revolving Advance and added to the Obligations.
4.14. Payment of Leasehold Obligations. Borrower shall at all times
pay, when and as due, its rental obligations under all leases under which it is
a tenant, and shall otherwise comply, in all material respects, with all other
terms of such leases and keep them in full force and effect and, at Agent's
request will provide evidence of having done so.
4.15. Receivables.
(a) Nature of Receivables. At the time of the
purchase by Borrower of any Client's Receivables pursuant to the applicable
Factoring Agreement, based upon the representations of such Client to Borrower
under the applicable Factoring Agreement with Borrower having no actual
knowledge to the contrary, each of the Receivables shall be (i) a bona fide and
valid account representing a bona fide indebtedness incurred by the Account
Debtor therein named, for a fixed sum as set forth in the invoice relating
thereto (provided immaterial or unintentional invoice errors shall not be deemed
to be a breach hereof) with respect to an absolute sale or lease and delivery of
goods upon stated terms of the applicable Client, or work, labor or services
theretofore rendered by the applicable Client as of the date each Receivable is
created and (ii) due and owing in accordance with the applicable Client's
standard terms of sale without dispute, setoff or counterclaim except as may be
stated on the accounts receivable schedules, if any, delivered by the applicable
Client to Borrower.
(b) Solvency of Account Debtor. Each Account Debtor,
to the best of Borrower's knowledge, as of the date each Receivable is created,
is solvent and able to pay all Receivables on which the Account Debtor is
obligated in full when due or with respect to such Account Debtors of Client's
who are not solvent Borrower has set up on its books and in its financial
records bad debt reserves adequate in Borrower's opinion to cover such
Receivables.
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(c) Locations of Borrower. Borrower's chief
executive office is located at 2700 South Quincy Street, Arlington, Virginia
22206. Except as set forth in Schedule 4.15(c) attached hereto, until written
notice is given to Agent by Borrower of any other office at which it keeps its
records pertaining to Receivables, all such records shall be kept at such
executive office.
(d) Collection of Receivables. Until Borrower's
authority to do so is terminated by Agent by written notice (which notice Agent
may only give at any time following the occurrence and during the continuance of
an Event of Default), Borrower will, at Borrower's sole cost and expense, but on
Agent's behalf and for Agent's account, collect as Agent's property and in trust
for Agent all amounts received on Receivables, and shall not commingle such
collections with Borrower's funds. Borrower shall in accordance with Section
4.16 hereof deposit in the Lockbox Account, all checks, drafts, notes, money
orders, acceptances, cash and other evidences of Indebtedness collected by
Borrower.
(e) Notification of Assignment of Receivables. At
any time following the occurrence and during the continuation of an Event of
Default, Agent shall have the right to send notice of the assignment of, and
Agent's security interest in, the Receivables to any and all Clients or any
third party holding or otherwise concerned with any of the Collateral.
Thereafter (until such Event of Default has been cured or waived), Agent shall
have the sole right to collect the Receivables, take possession of the
Collateral, or both. Agent's actual collection expenses, including, but not
limited to, stationery and postage, telephone and telegraph, secretarial and
clerical expenses and the salaries of any collection personnel used for
collection, may be charged to Borrower's account and added to the Obligations.
(f) Power of Agent to Act on Borrower's Behalf.
(1) Borrower hereby irrevocably constitutes and appoints Agent and
any officer or agent thereof, with full power of substitution, as its true and
lawful attorney-in-fact with full irrevocable power and authority in the place
and stead of Borrower and in the name of Borrower or in its own name, from time
to time in Agent's discretion, for the purpose of carrying out the terms of this
Agreement, to take any and all appropriate action and to execute and deliver any
and all documents and instruments which may be necessary or desirable to
accomplish the purposes of this Agreement and, without limiting the generality
of the foregoing, hereby grants to Agent the power and right, on behalf of
Borrower, without notice to or assent by Borrower, and at any time, to do the
following:
(i) except as provided in Section 4.15(d) or (e), in the
name of Borrower, in its own name or otherwise, take possession of,
endorse and receive payment of any checks, drafts, notes,
acceptances, or
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other instruments for the payment of monies due under any Collateral;
and
(ii) upon the occurrence and during the continuation of
an Event of Default, receive payment of any and all monies, claims,
and other amounts due or to become due at any time arising out of or
in respect of any Collateral other than the Receivables.
(2) Borrower hereby irrevocably constitutes and appoints Agent and
any officer or agent thereof, with full power of substitution, as its true and
lawful attorney-in-fact with full irrevocable power and authority in the place
and stead of Borrower and in the name of Borrower or in its own name, from time
to time in Agent's discretion, for the purpose of carrying out the terms of this
Agreement, to take any and all appropriate action and to execute and deliver any
and all documents and instruments which may be necessary or desirable to
accomplish the purposes of this Agreement and, without limiting the generality
of the foregoing, hereby grants to Agent the power and right, on behalf of
Borrower, without notice to or assent by Borrower, upon the occurrence and
during the continuation of an Event of Default, to do the following:
(i) subject to the terms of the Factoring Agreements, the
Collateral Funding Repayment Agreements, if any, the Inventory
Collateral Funding Repayment Agreements, if any and the terms of the
Receivables, ask, demand, collect, receive and give acquittances and
receipts for any and all money due or to become due under any
Collateral, and take ownership and control of any and all lockboxes
and other depository accounts by written notice to any bank or other
institution maintaining such lockboxes or other depository accounts;
(ii) pay or discharge taxes, liens, security
interests, or other encumbrances levied or placed on or
threatened against the Collateral;
(iii) effect any repairs or obtain any insurance called
for by the terms of this Agreement and pay all or any part of the
premiums therefor and costs thereof;
(iv) direct any party liable for any payment under or in
respect of any of the Collateral to make payment of any and all
monies due or to become due thereunder, directly to Agent or as Agent
shall direct;
(v) sign and endorse any invoices, freight or express
bills, bills of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications, and notices in connection with
accounts and other documents constituting or related to the
Collateral;
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(vi) subject to the terms of the Factoring Agreements,
the Collateral Funding Repayment Agreements, if any, the Inventory
Collateral Funding Repayment Agreements, if any, and the terms of the
Receivables, settle, compromise or adjust any suit, action, or
proceeding described below and, in connection therewith, give such
discharges or releases as Agent may deem appropriate;
(vii) subject to the terms of the Factoring Agreements,
the Collateral Funding Repayment Agreements, if any, the Inventory
Collateral Funding Repayment Agreements, if any, and the terms of the
Receivables, file any claim or take or commence any other action or
proceeding in any court of law or equity or otherwise deemed
appropriate by Agent for the purpose of collecting any and all such
monies due under any Collateral whenever due and payable;
(viii) subject to the terms of the Factoring Agreements,
the Collateral Funding Repayment Agreements, if any, the Inventory
Collateral Funding Repayment Agreements, if any, and the terms of the
Receivables, commence and prosecute any suits, actions or proceedings
at law or equity in any court of competent jurisdiction to collect
the Collateral or any part thereof and to enforce any other right in
respect of any Collateral;
(ix) defend any suit, action or proceeding brought
against Borrower with respect to any Collateral if Borrower does not
defend such suit, action or proceeding or if Agent believes that
Borrower is not pursuing such defense in a manner that will maximize
the recovery with respect to such Collateral;
(x) license or, to the extent permitted by an applicable
license, sublicense whether general, specific or otherwise, and
whether on an exclusive or non-exclusive basis, any patent or
trademark throughout the world for such term or terms on such
conditions and in such manner as Agent shall, in its sole discretion,
determine;
(xi) subject to Section 11.1 hereof, sell, transfer,
pledge, make any agreement with respect to, or otherwise deal with
any of the Collateral as fully and completely as Borrower could, and
to do, at Agent's option and Borrower's expense, at any time, or from
time to time, all acts and things which Agent reasonably deems
necessary to perfect, preserve, or, subject to Section 11.l hereof
and the terms of the Factoring Agreements, the Collateral Funding
Repayment Agreements, if any, the Inventory Collateral Funding
Repayment Agreements, if any, realize upon the Collateral and Agent's
Lien therein in order to effect the intent of this Agreement, all as
fully and effectively as Borrower might do;
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(xii) contact, make any agreement with, or otherwise deal
with any governmental or regulatory agency in connection with the
operation of Borrower's business or the possession or liquidation of
any or all of the Collateral; and
(xiii) change the address for delivery of mail addressed
to Borrower to such address as Agent may designate and open and
dispose of all such mail.
(3) Borrower hereby ratifies, to the extent permitted by law, all
that said attorneys shall lawfully do or cause to be done by virtue hereof, and
said attorneys or designees shall not be liable for any acts of omission or
commission nor for any error of judgment or mistake of fact or of law, unless
done maliciously or with gross (not mere) negligence. The powers of attorney
granted pursuant to this Section 4.15(f) are powers coupled with an interest and
shall be irrevocable until the Obligations are paid or otherwise satisfied in
full.
(4) The powers conferred on Agent hereunder are solely to protect
Agent's interests in the Collateral and shall not impose any duty upon it to
exercise any such powers. Agent shall be accountable only for amounts that it
actually receives as a result of the exercise of such powers and neither Agent
nor any Lender nor any of their officers, directors, employees, agents or
representatives shall be responsible to Borrower for any act or failure to act,
except for their own gross negligence or willful misconduct.
(5) Borrower also authorizes Agent, at any time and from time to
time, upon the occurrence and during the continuation of an Event of Default, to
(i) communicate in its own name with any party to any contract with regard to
the assignment of the right, title and interest of Borrower in and under the
contracts and other matters relating thereto and (ii) execute any endorsements,
assignments or other instruments of conveyance or transfer with respect to the
Collateral.
(g) No Liability. Neither Agent nor any Lender
shall, under any circumstances or in any event whatsoever, have any liability
for any error or omission or delay of any kind occurring in the settlement,
collection or payment of any of the Receivables or any instrument received in
payment thereof, or for any damage resulting therefrom except for Agent's or any
Lender's gross negligence or willful misconduct. Following the occurrence and
during the continuance of an Event of Default and subject to the terms of the
applicable Factoring Agreements, the Collateral Funding Repayment Agreements, if
any, the Inventory Collateral Funding Repayment Agreements, if any, and the
terms of the Receivables, Agent may, without notice or consent from Borrower,
sue upon or otherwise collect, extend the time of payment of, compromise or
settle for cash, credit or upon any terms any of the Receivables or any other
securities, instruments or insurance applicable thereto and/or release any
obligor thereof. Agent is
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authorized and empowered to accept, following the occurrence and during the
continuance of an Event of Default, the return of the goods represented by any
of the Receivables to the extent Borrower would be empowered to accept same,
without notice to or consent by Borrower, all without discharging or in any way
affecting Borrower's liability hereunder.
4.16. Cash Management Systems
(a) Commencing on the Original Closing Date and for so long as
any Obligations are outstanding, Borrower shall deposit within three (3)
Business Days following the date of receipt thereof or cause to be deposited
directly all cash, checks, notes, drafts or other similar items of payment
relating to or constituting payments made in respect of any and all Receivables
into one collection account in Borrower's name at each bank set forth on
Schedule 4.16 hereto that have no rights of setoff or recoupment or any other
claim against such accounts (collectively, the "Lockbox Accounts"). To the
extent that any Lockbox Accounts are from time to time maintained at Agent or
any other Lender, all cash, checks, notes, drafts and other similar items of
payment from time to time deposited in such Lockbox Accounts shall be made
available to Borrower for all purposes hereof at the times and in a manner
consistent with IBJS's past practices with Borrower. At any time when an Event
of Default is not continuing, Borrower may pay down the Advances (other than
Letters of Credit) by (i) wiring funds from the Lockbox Account to Agent's
depository account as designated by Agent from time to time (the "Depository
Account"), and (ii) providing notice to Agent of such deposit. At any time when
an Event of Default is not continuing, Borrower may, in lieu of wiring funds to
the Depository Account, cause the transfer of funds in the Lockbox Accounts to
its Operating Accounts. Blocked account arrangements shall be established with
the banks at which the Lockbox Accounts are maintained. At any time when an
Event of Default is continuing, all amounts deposited in the Lockbox Accounts
shall on the same day that such amounts are available for transfer, unless the
Lockbox Account banks are otherwise instructed by Agent, be deposited via wire
transfer, in immediately available funds, into the Depository Account. Agent
shall give Borrower at least five (5) Business Days notice prior to changing the
Depository Account. So long as no Default has occurred, Borrower may open a
Lockbox Account with any bank in lieu of or in addition to those listed on
Schedule 4.16 hereto; provided, however, that (i) Agent shall have consented to
the opening of such Lockbox Account with such bank, and (ii) at the time of the
opening of such Lockbox Account Borrower shall deliver to Agent a blocked
account agreement duly executed by Borrower and such bank, in form and substance
satisfactory to Agent. The Lockbox Accounts shall be cash collateral accounts,
with all cash, checks and other similar items of payment in such accounts
securing payment of the Obligations, and in which Borrower will have granted a
Lien to Agent for the benefit of Lenders.
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(b) All amounts deposited in the Depository Account shall be
deemed received by Agent in accordance with Section 2.12(k) hereof and shall be
applied by Agent against any then due and payable interest and fees hereunder
and then against the outstanding balance of Revolving Advances, Inventory Value
Advances and Equipment Value Advances in such order as Agent shall determine,
provided, however, so long as no Event of Default shall have occurred and is
continuing (or would occur after giving effect to the application of such
amounts as requested by Borrower) Borrower may determine the order in which such
amounts shall be applied. In no event shall any amount be applied by Agent
against such interest and fees and the outstanding balance of the Revolving
Advance unless and until such amount shall have been credited in immediately
available funds to the Depository Account. Any funds deposited in the Depository
Account in excess of the amount applied to such interest and fees and the
outstanding balance of the Advances (the "excess funds") shall remain in and be
held in the Depository Account as collateral security securing the payment of
the Obligations and Borrower hereby grants to Agent for the benefit of the
Lenders a Lien on all cash, checks and other similar items of payment in such
account. Prior to the occurrence and during the continuance of an Event of
Default Borrower may request and obtain the return of any excess funds.
(c) Borrower shall maintain an account (the "Operating
Account") at a bank acceptable to Agent into which Agent or Lenders shall, from
time to time, (i) deposit proceeds of Revolving Advances made pursuant to
Section 2.1 hereof for use solely in accordance with the provisions of Section
2.13 hereof, (ii) deposit proceeds of Equipment Value Advances made pursuant to
Section 2.2 hereof for use in accordance with the provisions of Section 2.2
hereof, (iii) deposit proceeds of Inventory Value Advances made pursuant to
Section 2.2A hereof for use in accordance with Section 2.2A hereof, and (iv) in
accordance with Section 4.16(a), cause or permit transfers from the Lockbox
Account. The Operating Account shall be a cash collateral account, with all
cash, checks and other similar items of payment in such account securing payment
of the Obligations, and in which Borrower hereby grants a Lien to Agent for the
benefit of Lenders.
4.17. Inventory. All Inventory produced by Borrower (other than
Inventory purchased or acquired by Borrower from its Clients) has been, and will
be, produced by Borrower in accordance with the Federal Fair Labor Standards Act
of 1938, as amended, and all rules, regulations and orders thereunder.
4.18. Maintenance of Equipment. The Equipment used in the ordinary
course of Borrower's business shall be maintained in good operating condition
and repair (reasonable wear and tear excepted) and all necessary replacements of
and repairs thereto shall be made so that the value and operating efficiency of
the Equipment shall be maintained and preserved. Borrower shall not use or
operate such Equipment in violation of any law, statute, ordinance, code, rule
or regulation. Borrower shall have the right to sell
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Equipment to the extent set forth in Section 4.3 hereof or Article VII hereof.
4.19. Exculpation of Liability. Nothing herein contained shall be
construed to constitute Agent or any Lender as Borrower's agent for any purpose
whatsoever, nor shall Agent or any Lender be responsible or liable for any
shortage, discrepancy, damage, loss or destruction of any part of the Collateral
wherever the same may be located and regardless of the cause thereof except to
the extent of Agent's or any such Lender's gross negligence or willful
misconduct. Neither Agent nor any Lender, whether by anything herein or in any
assignment or otherwise, assumes any of Borrower's obligations under any
contract or agreement assigned to Agent or such Lender, and neither Agent nor
any Lender shall be responsible in any way for the performance by Borrower of
any of the terms and conditions thereof.
4.20. Environmental Matters. (a) Borrower will ensure that
the Real Property remains in compliance with all Environmental Laws
and it will not place or permit to be placed any Hazardous
Substances on any Real Property except as not prohibited by
applicable law or appropriate governmental authorities or except as
would not have a Material Adverse Effect.
(b) Borrower will, with respect to Real Property
owned by Borrower establish and maintain a system to assure and monitor
continued compliance with all applicable Environmental Laws which system shall
include periodic reviews of such compliance.
(c) Borrower will (i) employ in connection with its
use of the Real Property appropriate technology necessary to maintain compliance
with any applicable Environmental Laws and (ii) dispose of any and all Hazardous
Waste generated at the Real Property owned by Borrower only at facilities and
with carriers that maintain valid permits under RCRA and any other applicable
Environmental Laws. Borrower shall use its best efforts to obtain certificates
of disposal, such as hazardous waste manifest receipts, from all treatment,
transport, storage or disposal facilities or operators employed by Borrower in
connection with the transport or disposal of any Hazardous Waste generated at
the Real Property.
(d) In the event Borrower obtains, gives or receives
notice of any Release or threat of Release of a reportable quantity of any
Hazardous Substances at the Real Property (any such event being hereinafter
referred to as a "Hazardous Discharge") or receives any notice of violation,
request for information or notification that it is potentially responsible for
investigation or cleanup of environmental conditions at the Real Property,
demand letter or complaint, order, citation, or other written notice with regard
to any Hazardous Discharge or violation of Environmental Laws affecting the Real
Property (any of the foregoing is referred to herein as an "Environmental
Complaint") from any Person or entity, including any state agency responsible in
whole or in part
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for environmental matters in the state in which the Real Property is located or
the United States Environmental Protection Agency (any such person or entity
hereinafter the "Environmental Authority"), then Borrower shall, within five (5)
Business Days, give written notice of same to Agent detailing facts and
circumstances of which Borrower is aware giving rise to the Hazardous Discharge
or Environmental Complaint. Such information is to be provided to allow Agent to
protect its security interest in the Real Property and is not intended to create
nor shall it create any obligation upon Agent or any Lender with respect
thereto.
(e) Borrower shall promptly forward to Agent copies
of any request for information, notification of potential liability, demand
letter relating to potential responsibility with respect to the investigation or
cleanup of Hazardous Substances at any other site owned, operated or used by
Borrower to dispose of Hazardous Substances and shall continue to forward copies
of correspondence between Borrower and the Environmental Authority regarding
such claims to Agent until the claim is settled. Borrower shall promptly forward
to Agent copies of all documents and reports concerning a Hazardous Discharge at
the Real Property that Borrower is required to file under any Environmental
Laws. Such information is to be provided solely to allow Agent to protect
Agent's security interest in the Real Property and the Collateral.
(f) Borrower shall respond promptly to any Hazardous
Discharge or Environmental Complaint with respect to Real Property and take all
necessary action in order to safeguard the health of any Person and to avoid
subjecting the Collateral or Real Property to any Lien other than Permitted
Encumbrances. Except as provided in the preceding sentence, if Borrower shall
fail to respond promptly to any such Hazardous Discharge or Environmental
Complaint or Borrower shall fail to comply with any of the requirements of any
Environmental Laws, Agent on behalf of Lenders may, but without the obligation
to do so, for the sole purpose of protecting Agent's interest in Collateral: (A)
give such notices or (B) enter onto the Real Property (or authorize third
parties to enter onto the Real Property) and take such actions as Agent (or such
third parties as directed by Agent) deem reasonably necessary or advisable, to
clean up, remove, mitigate or otherwise deal with any such Hazardous Discharge
or Environmental Complaint. All reasonable costs and expenses incurred by Agent
and Lenders (or such third parties) in the exercise of any such rights,
including any sums paid in connection with any judicial or administrative
investigation or proceedings, fines and penalties, together with interest
thereon from the date expended at the Default Rate for Domestic Rate Loans
constituting Revolving Advances shall be paid upon demand by Borrower, and until
paid shall be added to and become a part of the Obligations secured by the Liens
created by the terms of this Agreement or any Other Document.
(g) If Agent has any reason to believe that a
Hazardous Discharge has occurred or exists with respect to any Real
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Property owned by Borrower, promptly upon the written request of Agent, Borrower
shall provide Agent, at Borrower's expense, with an environmental site
assessment or environmental audit report prepared by an environmental
engineering firm acceptable in the reasonable opinion of Agent, to assess with a
reasonable degree of certainty the existence of a Hazardous Discharge and the
potential costs in connection with abatement, cleanup and removal of any
Hazardous Substances found on, under, at or within the Real Property. Any report
or investigation of such Hazardous Discharge proposed and acceptable to an
appropriate Environmental Authority that is charged to oversee the clean-up of
such Hazardous Discharge shall be acceptable to Agent. If such estimates,
individually or in the aggregate, exceed $500,000, Agent shall have the right to
require Borrower to post a bond, letter of credit or other security reasonably
satisfactory to Agent to secure payment of these costs and expenses.
(h) Borrower shall defend and indemnify Agent and
Lenders and hold Agent, Lenders and their respective employees, agents,
directors and officers harmless from and against all loss, liability, damage and
expense, claims, costs, fines and penalties, including reasonable attorney's
fees, suffered or incurred by Agent or Lenders under or on account of any
Environmental Laws with respect to the Real Property, including, without
limitation, the assertion of any lien thereunder, with respect to any Hazardous
Discharge, the presence of any Hazardous Substances affecting the Real Property,
whether or not the same originates or emerges from the Real Property or any
contiguous real estate, including any loss of value of the Real Property as a
result of the foregoing except to the extent such loss, liability, damage and
expenses is attributable to Agent's or any Lender's or their employees', agents'
or officers' gross negligence or willful misconduct. Borrower's obligations
under this Section 4.20 shall arise upon the discovery of the presence of any
Hazardous Substances at the Real Property, whether or not any federal, state, or
local environmental agency has taken or threatened any action in connection with
the presence of any Hazardous Substances. Borrower's obligation and the
indemnifications hereunder shall survive the termination of this Agreement.
(i) For purposes of Section 4.20 and 5.7, all
references to Real Property shall not include any interest of Borrower in Real
Property which is a mortgagee's interest.
V. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants as follows:
5.1. Authority. Borrower has full power, authority and
legal right to enter into this Agreement and the Other Documents
and perform all Obligations hereunder. The execution, delivery and
performance hereof and of the Other Documents (a) are within
Borrower's corporate powers, have been duly authorized, are not in
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contravention of law or the terms of Borrower's by-laws, certificate of
incorporation or other applicable documents relating to Borrower's formation or
to the conduct of Borrower's business or of any material agreement or
undertaking to which Borrower is a party or by which Borrower is bound, and (b)
do not conflict with nor result in any breach in any of the provisions of or
constitute a default under or result in the creation of any Lien except
Permitted Encumbrances upon any asset of Borrower under the provisions of any
agreement, charter, by-law, or other instrument to which Borrower is a party or
by which it may be bound.
5.2. Formation and Qualification. (a) Borrower is duly incorporated
and in good standing under the laws of the Commonwealth of Virginia and is
qualified to do business and is in good standing in the states listed on
Schedule 5.2(a) which constitute all states in which qualification and good
standing are necessary for Borrower to conduct its business and own its property
and where the failure to so qualify would have a Material Adverse Effect.
Borrower has delivered to Agent true and complete copies of its certificate of
incorporation and by-laws and will promptly notify Agent of any amendment or
changes thereto.
(b) The only Subsidiaries of Borrower are listed on
Schedule 5.2(b), which sets forth such Subsidiaries, together with their
respective jurisdictions of organization, and the authorized and outstanding
capital Stock of each such Subsidiary, by class and number and percentage of
each class legally owned by Borrower or a Subsidiary of Borrower or any other
Person.
5.3. Survival of Representations and Warranties. All representations
and warranties of Borrower contained in this Agreement and the Other Documents
shall be true at the time of Borrower's execution of this Agreement and the
Other Documents, and shall survive the execution, delivery and acceptance
thereof by the parties thereto and the closing of the transactions described
therein or related thereto.
5.4. Tax Returns. Borrower's federal tax identification number is
54-1208450. Borrower has filed all federal, state and material local tax returns
and other material reports it is required by law to file and has paid all taxes,
assessments, fees and other governmental charges that are due and payable except
as provided in Section 4.13 hereof. As of the Effective Date, federal, state and
local income tax returns of Borrower have been examined and reported upon by the
appropriate taxing authority or closed by applicable statute and satisfied for
all fiscal years prior to and including the fiscal year ending December 31,
1989. The provision for taxes on the books of Borrower are adequate for all
years not closed by applicable statutes, and for its current fiscal year, and
Borrower has no knowledge of any deficiency or additional assessment in
connection therewith not provided for on its books. Borrower has no obligation
under any written tax sharing agreement.
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5.5. Financial Statements.
The consolidated and consolidating balance sheets of Borrower, its
Subsidiaries and such other Persons described therein (including the accounts of
all Subsidiaries for the respective periods during which a subsidiary
relationship existed) as of December 31, 1996, and the related statements of
income, changes in stockholder's equity, and changes in cash flow for the period
ended on such date, all accompanied by reports thereon containing opinions
without qualification by independent certified public accountants, copies of
which have been delivered to Agent, have been prepared in accordance with GAAP,
consistently applied (except for changes in application in which such
accountants concur) and present fairly in all material respects the financial
position of Borrower and its Subsidiaries at such date and the results of their
operations for such period. Since December 31, 1996 there has been no change in
the condition, financial or otherwise, of Borrower or its Subsidiaries as shown
on the consolidated balance sheet as of such date and no change in the aggregate
value of machinery, equipment and Real Property owned by Borrower and its
Subsidiaries, except changes in the ordinary course of business, none of which
individually or in the aggregate has a Material Adverse Effect.
5.6. Corporate Name. Borrower has not been known by any other
corporate name in the past five years and does not sell Inventory under any
other name except as set forth on Schedule 5.6, nor has Borrower been the
surviving corporation of a merger or consolidation or acquired all or
substantially all of the assets of any person during the preceding five (5)
years.
5.7. O.S.H.A..
(a) Borrower has duly complied with, and its
facilities, business, assets, property, leaseholds and Equipment are in
compliance in all material respects with, the provisions of the Federal
Occupational Safety and Health Act; there have been no outstanding citations,
notices or orders of non-compliance issued to Borrower or relating to its
business, assets, property, leaseholds or equipment under such law.
(b) (i) There are no visible signs of releases,
spills, discharges, leaks or disposal (collectively referred to as "Releases")
of Hazardous Substances at, upon, under or within any Real Property except to
the extent disclosed in writing from time to time by Borrower to Agent; (ii) to
the best of Borrower's knowledge there are no underground storage tanks or
polychlorinated biphenyls on the Real Property; (iii) to the best of Borrower's
knowledge the Real Property has never been used as a treatment, storage or
disposal facility of Hazardous Waste; and (iv) to the best of Borrower's
knowledge no Hazardous Substances are present on the Real Property, excepting
such quantities as are handled in accordance with all applicable manufacturer's
instructions and governmental regulations and in proper storage containers and
as
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are necessary for the operation of the commercial business of
Borrower or of its tenants.
5.8. Solvency; No Litigation, Violation, Indebtedness or
Default.
(a) Borrower is solvent, able to pay its debts as
they mature, has capital sufficient to carry on its business and all businesses
in which it is about to engage, and (i) as of the Effective Date, the fair
present saleable value of its assets, calculated on a going concern basis, is in
excess of the amount of its liabilities and (ii) subsequent to the Effective
Date, the fair saleable value of its assets (calculated on a going concern
basis) will be in excess of the amount of its liabilities.
(b) Except as disclosed in Schedule 5.8(b) or except
as disclosed in a public filing made by Borrower, a copy of which has been
provided to Agent, Borrower has (i) no pending or, to the best of Borrower's
knowledge, threatened litigation, actions or proceedings which would if
adversely determined have a Material Adverse Effect, or impair the ability of
Borrower to perform this Agreement, and (ii) no liabilities nor indebtedness
other than the Obligations and other liabilities or Indebtedness permitted under
Article VII.
(c) Borrower is not in violation of any applicable
statute, regulation or ordinance which would have a Material Adverse Effect, nor
is Borrower in violation of any order of any court, governmental authority or
arbitration board or tribunal.
(d) Neither Borrower nor any member of the Controlled
Group maintains or contributes to any Plan other than those listed on Schedule
5.8(d) hereto. Except as set forth in Schedule 5.8(d), (i) no Plan has incurred
any "accumulated funding deficiency," as defined in Section 302(a)(2) of ERISA
and Section 412(a) of the Code, whether or not waived, and Borrower and each
member of the Controlled Group has met all applicable minimum funding
requirements under Section 302 of ERISA in respect of each Plan, (ii) each Plan
which is intended to be a qualified plan under Section 401(a) of the Code as
currently in effect has been determined by the IRS to be qualified under Section
401(a) of the Code and the trust related thereto is exempt from federal income
tax under Section 501(a) of the Code, (iii) neither Borrower nor any member of
the Controlled Group has incurred any liability to the PBGC other than for the
payment of premiums, and there are no premium payments which have become due
which are unpaid, (iv) no Plan has been terminated by the plan administrator
thereof or by the PBGC, and there is no occurrence which would cause the PBGC to
institute proceedings under Title IV of ERISA to terminate any Plan, (v) at this
time, the current value of the assets of each Plan exceeds the present value of
the accrued benefits and other liabilities of such Plan and neither Borrower nor
any member of the Controlled Group knows of any facts or circumstances which
would materially change the value of such assets and accrued benefits and other
liabili-
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ties, (vi) neither Borrower nor any member of the Controlled Group has breached
any of the responsibilities, obligations or duties imposed on it by ERISA with
respect to any Plan, (vii) neither Borrower nor any member of a Controlled Group
has incurred any liability for any excise tax arising under Section 4972 or
4980B of the Code the effect of which would have a Material Adverse Effect, and
no fact exists to the best of Borrower's knowledge which could give rise to any
such liability, (viii) neither Borrower nor any member of the Controlled Group
nor any fiduciary of, nor any trustee to, any Plan, has engaged in a "prohibited
transaction" described in Section 406 of the ERISA or Section 4975 of the Code
nor taken any action which would constitute or result in a Termination Event
with respect to any such Plan which is subject to ERISA, (ix) Borrower and each
member of the Controlled Group has made all contributions due and payable with
respect to each Plan, (x) there exists no event described in Section 4043(b) of
ERISA, for which the thirty (30) day notice period contained in 29 CFR ss.2615.3
has not been waived, (xi) neither Borrower nor any member of the Controlled
Group has any fiduciary responsibility for investments with respect to any plan
existing for the benefit of persons other than employees or former employees of
Borrower and any member of the Controlled Group, and (xii) neither Borrower nor
any member of the Controlled Group has withdrawn, completely or partially, from
any Multiemployer Plan so as to incur liability under the Multiemployer Pension
Plan Amendments Act of 1980 the effect of which would have a Material Adverse
Effect.
5.9. Patents, Trademarks, Copyrights and Licenses. All patents, patent
applications, trademarks, trademark applications, service marks, service mark
applications, copyrights, copyright applications, design rights, tradenames,
assumed names, trade secrets and licenses owned or utilized by Borrower are set
forth on Schedule 5.9, are valid and to the extent set forth on Schedule 5.9
have been duly registered or filed with all appropriate governmental authorities
and constitute all of the intellectual property rights which are necessary for
the operation of its business; there is no objection to or pending challenge to
the validity of any such material patent, trademark, copyright, design rights,
tradename, trade secret or license and Borrower is not aware of any grounds for
any challenge, except as set forth in Schedule 5.9 hereto. Each patent, patent
application, patent license, trademark, trademark application, trademark
license, service mark, service mark application, service mark license,
copyright, copyright application and copyright license owned or held by Borrower
and all trade secrets used by Borrower consists of original material or property
developed by Borrower or was lawfully acquired by Borrower from the proper and
lawful owner thereof. Each of such items has been maintained so as to preserve
the value thereof from the date of creation or acquisition thereof. With respect
to all custom software used by Borrower, Borrower is in possession of all source
and object codes related to each piece of such software or is the beneficiary of
a source code escrow agreement, each such source code escrow agreement being
listed on Schedule 5.9 hereto.
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5.10. Licenses and Permits. Except as set forth in Schedule 5.10,
Borrower (a) is in compliance with and (b) has procured and is now in possession
of, all material licenses or permits required by any applicable federal, state,
or local law or regulation for the operation of its business in each
jurisdiction wherein it is now conducting or proposes to conduct business and
where the failure to comply with or procure such licenses or permits would have
a Material Adverse Effect.
5.11. Default of Indebtedness. Borrower is not in default in the
payment of the principal of or interest on any Indebtedness or under any
instrument or agreement under or subject to which any Indebtedness has been
issued in excess of $100,000 in the aggregate and no event has occurred under
the provisions of any such instrument or agreement which with or without the
lapse of time or the giving of notice, or both, constitutes or would constitute
an event of default thereunder.
5.12. No Default. Borrower is not in default in the payment
or performance of any of its contractual obligations which default
would have a Material Adverse Effect and no Default has occurred
and is continuing.
5.13. No Burdensome Restrictions. Borrower is not party to any
contract or agreement the performance of which would have a Material Adverse
Effect. Borrower has not agreed or consented to cause or permit in the future
(upon the happening of a contingency or otherwise) any of its property, whether
now owned or hereafter acquired, to be subject to a Lien which is not a
Permitted Encumbrance.
5.14. No Labor Disputes. Borrower is not involved in any labor
dispute which would have a Material Adverse Effect; to the best of Borrower's
knowledge there are no strikes or walkouts or union organization of any of
Borrower's employees threatened or in existence and no labor contract is
scheduled to expire during the Term other than as set forth on Schedule 5.14
hereto.
5.15. Margin Regulations. Borrower is not engaged, nor will it
engage, principally or as one of its important activities, in the business of
extending credit for the purpose of "purchasing" or "carrying" any "margin
stock" within the respective meanings of each of the quoted terms under
Regulation U or Regulation G of the Board of Governors of the Federal Reserve
System as now and from time to time hereafter in effect. No part of the proceeds
of any Advance will be used by Borrower for "purchasing" or "carrying" "margin
stock" as defined in Regulations U and G of such Board of Governors.
5.16. Investment Company Act. Borrower is not an
"investment company" registered or required to be registered under
the Investment Company Act of 1940, as amended, nor is it
controlled by such a company.
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5.17. Disclosure. No representation or warranty made by Borrower in
this Agreement or in any financial statement, report, certificate or any other
document furnished by Borrower in connection herewith or therewith contained any
untrue statement of a material fact when made or omitted to state any material
fact necessary to make the statements herein or therein not misleading. There is
no fact known to Borrower which Borrower has not disclosed to Agent in writing
with respect to the transactions contemplated by this Agreement which would have
a Material Adverse Effect.
5.18. Swaps. Borrower is not a party to, nor will it be a party to,
any swap agreement whereby Borrower has agreed or will agree to swap interest
rates or currencies unless same provides that damages upon termination following
an event of default thereunder are payable on an unlimited "two-way basis"
without regard to fault on the part of either party.
5.19. Conflicting Agreements. No provision of any mortgage,
indenture, contract, agreement, judgment, decree or order binding on Borrower or
affecting the Collateral conflicts with, or requires any Consent which has not
already been obtained to, or would in any way prevent the execution, delivery or
performance of, the terms of this Agreement or the Other Documents.
5.20. Application of Certain Laws and Regulations. Neither Borrower
nor any Subsidiary of Borrower is subject to any statute, rule or regulation not
applicable to businesses in general which regulates the incurrence of any
Indebtedness. No Affiliate of Borrower is subject to any statute, rule or
regulation which regulates the incurrence of any Indebtedness the effect of
which would have a Material Adverse Effect.
5.21. Property of Borrower. On the Effective Date, Borrower
will own all the property and possess all of the rights and
Consents necessary for the conduct of the business of Borrower.
5.22. Other Ventures. Borrower is not engaged in any joint
venture or partnership with any other Person.
VI. AFFIRMATIVE COVENANTS.
Borrower shall, until payment in full of the Obligations and
termination of this Agreement:
6.1. Payment of Fees. Pay to Agent on demand all usual and customary
fees and expenses which Agent incurs in connection with (a) the forwarding of
Advance proceeds and (b) the establishment and maintenance of any Lockbox
Account or Depository Account as provided for in Section 4.16. Agent may,
without making demand, charge the account of Borrower for all such fees and
expenses.
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6.2. Conduct of Business and Maintenance of Existence and Assets. (a)
Conduct continuously and operate actively its business according to good
business practices and maintain all of its properties useful or necessary in its
business in good working order and condition (reasonable wear and tear excepted
and except as may be disposed of in accordance with the terms of this
Agreement), including, without limitation, all licenses, patents, copyrights,
tradenames, trade secrets and trademarks and take all actions necessary to
enforce and protect the validity of any intellectual property right or other
right included in the Collateral; (b) keep in full force and effect its
existence and comply in all material respects with the laws and regulations
governing the conduct of its business where the failure to do so would have a
Material Adverse Effect; and (c) make all such reports and pay all such
franchise and other taxes and license fees and do all such other acts and things
as may be lawfully required to maintain its rights, licenses, leases, powers and
franchises under the laws of the United States or any political subdivision
thereof where the failure to do so would have a Material Adverse Effect.
6.3. Violations. Promptly notify Agent in writing of any
violation of any law, statute, regulation or ordinance of any
governmental entity, or of any agency thereof, applicable to
Borrower which may have a Material Adverse Effect.
6.4. Government Receivables. At the request of Agent, (a) take or
cause to be taken all steps necessary to protect Agent's interest in the
Collateral under the Federal Assignment of Claims Act or other applicable state
or local statutes or ordinances to the extent applicable; (b) shall use its best
efforts to cause Clients to take all steps necessary to protect Borrower's
rights to receive payment under contracts between the United States and such
Clients to the extent Borrower has purported to purchase Receivables under such
contracts; and (c) after the occurrence and during the continuance of an Event
of Default deliver to Agent appropriately endorsed, any instrument or chattel
paper connected with any Receivable arising out of contracts between (i)
Borrower and the United States, any state or any department, agency or
instrumentality of any of them and (ii) any Client and the United States, any
state or any department, agency or instrumentality of any of them to the extent
in Borrower's possession.
6.5. Execution of Supplemental Instruments. Execute and deliver to
Agent from time to time, upon demand, such supplemental agreements, statements,
assignments and transfers, or instructions or documents relating to the
Collateral, and such other instruments as Agent may request, in order that the
full intent of this Agreement may be carried into effect including (i) using its
best efforts to secure all consents and approvals necessary or appropriate for
the assignment to or for the benefit of Agent of any license or contract held by
Borrower or in which Borrower has any rights not heretofore assigned, (ii)
filing any financing or continuation statements under the UCC with respect to
the liens and security interests granted hereunder or under any Other Document,
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and (iii) transferring Collateral to Agent's possession or the possession of a
Person to whom such transfer will perfect Agent's Lien under applicable law (if
such Collateral can be perfected only by possession).
6.6. Payment of Indebtedness. Pay, discharge or otherwise satisfy at
or before maturity (subject, where applicable, to specified grace periods and,
in the case of the trade payables, to normal payment practices) all its
obligations and liabilities of whatever nature other than obligations and
liabilities which in the aggregate do not exceed $100,000 outstanding at any
time or , except when the amount or validity thereof is currently being
contested in good faith by appropriate proceedings and Borrower shall have
provided for such reserves as Agent may reasonably deem proper and necessary,
subject at all times to any applicable subordination arrangement in favor of
Agent or Lenders.
6.7. Standards of Financial Statements. Cause all financial
statements referred to in Sections 9.6, 9.7, 9.8, 9.9, 9.10 and 9.11, as to
those to which GAAP is applicable to be complete and correct in all material
respects (subject, in the case of interim financial statements, to normal
year-end audit adjustments and except for the omission of footnotes as permitted
by the rules of the Securities and Exchange Commission or other applicable
governmental authority) and to be prepared in reasonable detail and in
accordance with GAAP applied consistently throughout the periods reflected
therein (except as concurred in by such reporting accountants or officer, as the
case may be, and disclosed therein).
6.8. Credit Standards. Borrower shall (a) maintain its internal
credit approval and classification standards as set forth in Exhibit 6.8
("Credit Standards"), (b) apply the Credit Standards to each purchase of
Receivables and (c) not modify the Credit Standards without the prior written
consent of Agent in each instance, such consent not to be withheld unreasonably.
6.9. Insurance. Borrower shall and shall cause each of its
Subsidiaries to maintain insurance in the type, scope and amounts described in
Section 4.11 hereof. Borrower and each of its Subsidiaries shall use its best
efforts to cause its insurance carriers to be obligated to notify Agent 30 days
in advance if any carrier intends to cancel the insurance policies. Borrower
shall, and shall cause each of its Subsidiaries to, pay when due all insurance
premiums payable by them. Borrower shall deliver to Agent, upon request, a
certificate of insurance that evidences the existence of each policy of
insurance, payment of all premiums therefor and compliance with Section 4.11
hereof and this Section 6.9. In addition, Borrower shall notify Agent promptly
of any occurrence causing a material loss or decline in value of any real or
personal property used by Borrower and the estimated (or actual, if available)
amount of such loss or decline. Upon the occurrence of any event causing a
material loss or decline in value of any real or personal property of any Client
against which Borrower has
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made documented advances and with respect to which Borrower has received the
proceeds thereof, Borrower shall notify Agent by the end of the month in which
such proceeds are received. In the event Borrower at any time or times hereafter
shall fail to obtain or maintain any of the policies of insurance required above
or to pay any premium in whole or in part relating thereto, Agent, without
waiving or releasing any Obligations or Default or Event of Default hereunder,
may at any time or times thereafter (but shall not be obligated to) obtain and
maintain such policies of insurance and pay such premiums and take any other
action with respect thereto which Agent deems advisable. All sums so disbursed
by Agent, including reasonable attorneys' fees, court costs, expenses and other
charges relating thereto, shall be payable, on demand, by Borrower to Agent and
shall be additional Obligations hereunder secured by the Collateral. Agent
reserves the right at any time, upon review of Borrower's risk profile, to
require additional forms and limits of insurance to, in Agent's reasonable
opinion, adequately protect Lenders' interests.
6.10. Filing of Financing Statements. Borrower shall file appropriate
UCC-1 financing statements against Clients to the extent necessary to perfect
Borrower's ownership or security interests under the applicable Factoring
Agreement, applicable Collateral Funding Repayment Agreement and/or applicable
Inventory Collateral Funding Repayment Agreement, if any, to the extent such
interest may be perfected by filing financing statements under the Uniform
Commercial Code.
VII. NEGATIVE COVENANTS.
Borrower shall not, until satisfaction in full of the Obligations and
termination of this Agreement:
7.1. Merger, Consolidation, Acquisition and Sale of Assets.
(a) Except as permitted under Section 7.4, 7.7 or
7.12 hereof, enter into any merger, consolidation or other reorganization with
or into any other Person or acquire all or a substantial portion of the assets
or stock of any Person or permit any other Person to consolidate with or merge
with it.
(b) Except as permitted under Section 4.3, sell,
lease, transfer or otherwise dispose of any of its properties or assets, except
in the ordinary course of its business.
Provided, however, that in the case of preceding clauses (a) and (b) (i)
Borrower may acquire Receivables in the ordinary course of business; (ii)
Borrower may acquire assets of Clients or guarantors of Clients pursuant to
foreclosure or other realization proceedings and Borrower or a Subsidiary of
Borrower may own real property which has been bid in for obligations owing to
Borrower at a foreclosure sale of assets of a Client or a guarantor of a Client;
(iii) Borrower may sell, transfer, convey, assign or otherwise dispose of
Collateral (including Receivables) acquired by Borrower
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in connection with a default by a Client; (iv) Borrower may sell Risk
Participations in Factoring Agreements, Collateral Funding Repayment Agreements
and/or Inventory Collateral Funding Repayment Agreements provided that such
sales are recorded on the books of Borrower and disclosed to Agent; (v) Borrower
may make transfers resulting from any casualty or condemnation of assets or
properties, (vi) Borrower may engage in transactions contemplated in this
Agreement, (vii) Borrower may sell all or part of the stock owned by it in LOI,
(viii) Borrower may sell warrants and stock and make other investments permitted
pursuant to Sections 7.4(a) and (d) hereof, (ix) Borrower may sell, transfer,
convey, assign or otherwise dispose of Collateral (including Receivables) in
connection with the repayment of a Client's obligations to Borrower and (x)
Borrower may sell, transfer, convey, assign or otherwise dispose of Collateral
(including Receivables) to a direct wholly-owned Subsidiary of Borrower if (i)
in the exercise of Borrower's business judgment, such sale, transfer,
conveyance, assignment or other disposition should maximize the value of such
Collateral and/or reduce risks to Borrower associated with such Collateral or
the collection thereof, (ii) Borrower shall notify Agent upon such occurrence
and (iii) such Subsidiary is or shall become a party to the Guaranty and the
Security Agreement.
To the extent Borrower sells, transfers, conveys, assigns, or otherwise disposes
of properties or assets pursuant to this Section 7.1 (or pursuant to any waiver
hereof) (i) the properties or assets so sold, transferred, conveyed, assigned,
or otherwise disposed of shall be sold, transferred, conveyed, assigned, or
otherwise disposed of free and clear of the Liens created by this Agreement and
the Other Documents, but such Liens shall continue in the proceeds of such sale,
transfer, conveyance, assignment or other disposition and (ii) to the extent
that such sale, transfer, conveyance, assignment or disposition is in connection
with Sections 7.1(iii) or 7.1(ix) above, Borrower shall promptly remit such
proceeds to Agent for application to the outstanding Obligations.
7.2. Creation of Liens. Create or suffer to exist any Lien
upon or against any of its property or assets now owned or
hereafter acquired, except Permitted Encumbrances.
7.3. Guaranties. Become liable upon the obligations of any person,
firm or corporation by assumption, endorsement or guaranty thereof or otherwise
(other than to Agent or Lenders) except (a) as disclosed on Schedule 7.3, (b)
the Guaranty, Letters of Guaranty and Guaranteed Indebtedness thereunder
provided that such Letters of Guaranty and Guaranteed Indebtedness shall only be
provided on a fully secured basis (as determined by Borrower in the reasonable
exercise of its business judgment at the time any such Letters of Guaranty and
Guaranteed Indebtedness are provided) or Borrower shall otherwise have available
to it at the time payment is made upon such Letters Guaranty or Guaranteed
Indebtedness sufficient Collateral to secure such performance and (c) the
endorsement of checks in the ordinary course of business and (d) to the extent
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permitted by law the indemnification of officers and directors of AFC Holding
Corporation who are not also officers or directors of the Borrower (if any) from
and against costs and losses incurred in connection with the service and
performance by such officers and directors (if any) of their duties to AFC
Holding Corporation.
7.4. Investments. Except as permitted by and subject to the terms of
Sections 7.1, 7.3, 7.5, 7.10, or 7.12 hereof, make any investment in, or make or
accrue loans or advances of money to any Person, through the direct or indirect
holding of securities or otherwise; provided, however, that (a) Borrower may
purchase and own Cash Equivalents, (b) Borrower may maintain its existing
investments set forth on Schedule 7.4, (c) Borrower may in the ordinary course
of business make loans and advances of money or credit to or for the benefit of
Clients in accordance with Section 7.5(d) hereof, and (d) Borrower may maintain
those investments set forth in Schedule 7.4 and may make additional investments
in Clients through the acquisition of stock options or warrants (and the
exercise thereof); provided further, however, that all investments set forth in
clauses (a), (b), (c) and (d) above shall be pledged to the Agent for the
benefit of the Lenders.
7.5. Loans. Except as otherwise permitted under Sections 7.3, 7.4,
7.7 or 7.10 hereof, make advances, loans or extensions of credit to any Person,
including without limitation, any Parent, Subsidiary or Affiliate except with
respect to (a) the extension of credit in connection with the sale of Collateral
to the extent permitted hereunder, (b) loans to its employees in the ordinary
course of business not to exceed the aggregate amount of $50,000 at any time
outstanding, (c) loans to LOI and SSI for working capital purposes, such
outstanding loans not to exceed in the aggregate $4,000,000 outstanding at any
time; provided, however, that if (i) all such intercompany loans to LOI and/or
SSI, as the case may be, are paid in full and (ii) Borrower agrees in writing
not to make any further loans to SSI and/or LOI, as the case may be, Agent and
Lenders will release LOI and SSI from their obligations under the Guaranty and
the Security Agreement, (d) advances, loans or extensions of credit to or for
the benefit of Clients in accordance with the applicable Factoring Agreements,
Collateral Funding Repayment Agreement and/or applicable Inventory Collateral
Funding Repayment Agreement which at the time made are either (i) fully secured
(as determined by Borrower in the reasonable exercise of its business judgment
at the time any such advances, loans or extensions of credit are provided) or
(ii) after a Client has defaulted under its Factoring Agreement or, if
applicable, its Collateral Funding Repayment Agreement or its Inventory
Collateral Funding Repayment Agreement and in connection with a work-out, for
the purpose of maximizing the amount to be realized upon the collateral securing
such advances, loans or extensions of credit, provided that Agent (1) has been
notified that it is a work-out and (2) has been given the reasonable details of
Borrower's work-out plan, (e) advances to Receivable Financing Corporation to
pay legal fees and any final judgment in an amount not in excess of $425,000;
and (f) advances to Subsidiaries who have acquired property in
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foreclosure or from Borrower, such advances to all Subsidiaries not to exceed in
the aggregate $350,000 in any Fiscal Year.
7.6. Capital Expenditures. Make Capital Expenditures in
excess of $150,000 in any fiscal year; provided, that, Borrower may
make Capital Expenditures up to an additional $500,000 for the
purchase of computer equipment.
7.7. Restricted Payments. Except as otherwise permitted under
Sections 7.5 or 7.10, make any Restricted Payments; provided, that (a) so long
as no Default has occurred and is continuing, or would exist after giving effect
to any such payment, subsequent to the receipt by Agent of Borrower's annual
audited financial statements pursuant to Section 9.6 hereof for any Fiscal Year,
Borrower may declare and pay cash dividends in an amount not to exceed 50% of
Borrower's consolidated net income determined in accordance with GAAP for the
preceding Fiscal Year, (b) Borrower may declare and pay dividends in common
stock of Borrower, (c) Subsidiaries of Borrower may declare and pay cash or
other dividends to Borrower, (d) so long as no Event of Default has occurred and
is continuing or would exist after giving effect to any such payment, Borrower
may make Restricted Payments to the Stockholders in the form of all or a portion
of the Stock of LOI and/or SSI, and to the extent the Stock of LOI and/or SSI is
distributed in accordance with the foregoing, Agent shall release its Lien on
the Stock of LOI and SSI held by Agent pursuant to the applicable Stock Pledge
Agreement, (e) Borrower may from time to time acquire, purchase, redeem or
otherwise retire common Stock of Borrower in exchange for Convertible, Senior
Subordinated Notes, (f) Borrower may make regularly scheduled payments of
principal and interest in respect of the Convertible, Senior Subordinated Notes
in accordance with (and subject to) the terms thereof and of the Indenture, and
(g) Borrower may from time to time issue common Stock of Borrower upon the
proper exercise of the conversion rights contained in the Convertible, Senior
Subordinated Notes and in the Indenture (whether or not Borrower is deemed to
have received reasonably equivalent value in connection with any such
conversion).
7.8. Indebtedness. Create, incur, assume or suffer to exist any
Indebtedness (exclusive of trade debt) of Borrower except in respect of (i)
Indebtedness to Agent and Lenders (including all Obligations); (ii) Indebtedness
incurred for capital expenditures permitted under Section 7.6 hereof; (iii) the
Guaranty and to the extent permitted in Section 7.3, the Letters of Guaranty,
and the Guaranteed Indebtedness thereunder; (iv) credit balances of factoring
clients and accrued expenses determined, in each case, in a manner consistent
with the determination of the line item entitled "credit balances of factoring
clients" and "accounts payable and accrued expenses", respectively, appearing in
Borrower's audited balance sheet dated December 31, 1996; (v) Indebtedness
arising from any judgment, compromise, settlement or consent relating to any
litigation, investigation or other proceeding whether or not actually commenced;
(vi) Indebtedness
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under Risk Participations permitted pursuant to Section 7.1; (vii) unsecured
Indebtedness incurred in the ordinary course of business (except with respect to
the Convertible, Senior Subordinated Notes), not to exceed $5,000,000
outstanding at any one time in the aggregate, bearing interest at a rate not
greater than the Base Rate plus five percent (5%), provided that the instruments
evidencing such Indebtedness shall state that no repayment shall be made on such
Indebtedness so long as any Event of Default shall exist and is continuing or
would occur as a result of or after giving effect to any such payment; (viii)
Indebtedness to AFC Holding Corporation so long as immediately prior to each
loan giving rise to such Indebtedness, Borrower pays a like amount to AFC
Holding Corporation in a transaction permitted under Section 7.10; (ix)
Indebtedness secured by Liens permitted under Section 7.2; (x) accrued income
and other taxes not yet payable; and (xi) unsecured notes payable incurred by
Subsidiaries of Borrower to related parties and appearing on Borrower's
consolidated balance sheet from time to time not in excess of $1,250,000 in the
aggregate outstanding at any time.
7.9. Nature of Business. Substantially change the nature of the
business in which it is presently engaged as disclosed in Borrower's Annual
Report on Form 10-KSB for Fiscal Year ended December 31, 1993, nor except as
specifically permitted hereby purchase or invest, directly or indirectly, in any
assets or property other than in the ordinary course of business for assets or
property which are useful in, necessary for and are to be used in its business
as presently conducted. With respect to Borrower's Subsidiaries formed after the
Original Closing Date in accordance with Section 7.12, Borrower shall not permit
any such Subsidiary to engage in any business other than the marketing and
development of the business of Borrower outside the Commonwealth of Virginia or
the marketing and development of the business or programs offered by banks and
other financial institutions.
7.10. Transactions with Affiliates.
(a) Enter into or be a party to any transaction with
any Affiliate of Borrower, except as otherwise permitted in this Agreement, or
in the ordinary course of and pursuant to the reasonable requirements of
Borrower's business and upon fair and reasonable terms that are fully disclosed
to Agent and are no less favorable to Borrower than would be obtained in a
comparable arm's-length transaction with a Person not an Affiliate of Borrower
except that (i) Borrower may pay a licensing fee to AFC Holding Corporation in
an amount equal to one percent (1%) of Borrower's gross purchases of
Receivables, so long as immediately following such payment AFC Holding
Corporation loans a like amount to Borrower in a transaction permitted under
Section 7.8, (ii) Borrower may pay customary fees to directors, (iii) Borrower
may make payments under and in accordance with the Brasch Employment Agreement,
the C. Fishman Employment Agreement, the Demas Employment Agreement, the
Hotsenpiller Employment Agreement, the Madden Employment Agreement, the Matthy
Employment Agreement and
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the Winkler Employment Agreement, (iv) Borrower may make payments to any
Subsidiary formed in accordance with Section 7.12 to fund the salary, overhead
and other necessary business expenses of such subsidiaries and (v) Borrower may
(x) issue, from time to time the Convertible, Senior Subordinated Notes and make
regularly scheduled payments of principal and interest in respect of the
Convertible, Senior Subordinated Notes in accordance with (and subject to) the
terms thereof and of the Indenture and (y) issue from time to time common Stock
of Borrower upon the proper exercise of the conversion rights contained therein.
(b) Enter into any agreement or transaction to pay management,
consulting, advisory or similar fees (i) to any Person, based on or related to
Borrower's or any of its Subsidiaries' operating performance or income or any
percentage thereof except (x) to Mr. Leon Fishman as and to the extent approved
by the Borrower's board of directors or the compensation committee thereof, (y)
that Borrower may pay commissions to financial intermediaries who are not
Affiliates of the Borrower, in the ordinary course of business, for business
referred to the Borrower and (z) Borrower may make payments under and in
accordance with the Performance-Based Incentive Compensation Plan), or (ii) to
an Affiliate or Subsidiary except that Borrower may pay management or collateral
administration fees to Subsidiaries in amounts sufficient to fund such
Subsidiary's salary, overhead and necessary business expenses.
7.11. Leases. Enter as lessee into any lease arrangement for real or
personal property (unless capitalized and permitted under Section 7.6 hereof) if
after giving effect thereto, aggregate annual rental payments for all leased
property would exceed $350,000 in any one fiscal year.
7.12. Subsidiaries.
Except as permitted by Section 7.1 or 7.4 Borrower
shall not directly or indirectly, by operation of law or otherwise, merge with,
consolidate with, acquire all or substantially all of the assets or capital
stock of, or otherwise combine with, any Person or form any Subsidiary after the
date hereof, except that (i) Borrower may form new Subsidiaries in jurisdictions
outside of the Commonwealth of Virginia, which new Subsidiaries shall be formed
solely for the purpose of marketing Borrower's products and services outside of
the Commonwealth of Virginia or the products and services of banks and other
financial institutions and shall not own any assets or, contract for any
liabilities inconsistent with such purpose; provided, however, that upon the
formation of any such Subsidiary, Borrower will supplement Schedule 5.2(b) to
add such Subsidiary thereto and Borrower shall cause such Subsidiary to become a
party to the Guaranty and to grant to the Agent for the benefit of the Lenders a
security interest in all assets of such Subsidiary, all in form and substance
satisfactory to the Agent; (ii) with the prior written consent of Agent (such
consent not to be unreasonably withheld), wholly-owned Subsidiaries
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of Borrower may merge with and into each other or with and into Borrower; (iii)
Borrower and its Subsidiaries may acquire Receivables in the ordinary course of
business; and (iv) Borrower or a Subsidiary of Borrower may acquire assets of
Clients or guarantors of Clients pursuant to foreclosure or other realization
proceedings and Borrower or a Subsidiary of Borrower may own real property which
has been bid in for obligations owing to a Borrower at a foreclosure sale of
assets of a Client or a guarantor of a Client.
7.13. Fiscal Year and Accounting Changes. Change its fiscal
year end from December 31 or make any change (i) in accounting
treatment and reporting practices except as required by GAAP or
(ii) in tax reporting treatment except as required by law.
7.14. Intentionally Omitted.
7.15. Amendment of Articles of Incorporation, By-Laws. Amend, modify
or waive any term or material provision of its Articles of Incorporation or
By-Laws unless required by law or unless such amendment, modification or waiver
would not adversely affect the repayment of Obligations and notice of such
change has been given to Agent.
7.16. Compliance with ERISA. (i) (x) Maintain, or permit any member
of the Controlled Group to maintain, or (y) become obligated to contribute, or
permit any member of the Controlled Group to become obligated to contribute, to
any Plan, other than those Plans disclosed on Schedule 5.8(d) except as
otherwise disclosed to Agent in writing, (ii) engage, or permit any member of
the Controlled Group to engage, in any non-exempt "prohibited transaction", as
that term is defined in section 406 of ERISA and Section 4975 of the Code, (iii)
incur, or permit any member of the Controlled Group to incur, any "accumulated
funding deficiency", as that term is defined in Section 302 of ERISA or Section
412 of the Code, the effect of which would have a Material Adverse Effect (iv)
terminate, or permit any member of the Controlled Group to terminate, any Plan
where such event could result in any liability of Borrower or any member of the
Controlled Group or the imposition of a lien on the property of Borrower or any
member of the Controlled Group pursuant to Section 4068 of ERISA, the effect of
which would have a Material Adverse Effect (v) assume, or permit any member of
the Controlled Group to assume, any obligation to contribute to any
Multiemployer Plan not disclosed on Schedule 5.8(d) except as otherwise
disclosed to Agent unless otherwise disclosed to Agent in writing, (vi) incur,
or permit any member of the Controlled Group to incur, any withdrawal liability
to any Multiemployer Plan the effect of which would have a Material Adverse
Effect; (vii) fail promptly to notify Lender of the occurrence of any
Termination Event, (viii) fail to comply in all material respects, or permit a
member of the Controlled Group to fail to comply in all material respects, with
the requirements of ERISA or the Code or other applicable laws in respect of any
Plan, (ix) fail to meet, or permit any member of the Controlled Group to
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fail to meet, all minimum funding requirements under ERISA or the Code or
postpone or delay or allow any member of the Controlled Group to postpone or
delay any funding requirement with respect to any Plan, the effect of which
would in any case have a Material Adverse Effect.
7.17. Prepayment of Indebtedness. At any time, directly or
indirectly, prepay any Indebtedness (other than to Agent or Lenders), or
repurchase, redeem, retire or otherwise acquire any Indebtedness of Borrower
other than when due in accordance with the terms of the agreements governing
such Indebtedness or repurchase, redeem, retire or otherwise acquire, in whole
or in part, the Convertible, Senior Subordinated Notes prior to their final
stated maturity in the year 2000, provided that nothing contained in this
Section 7.17 shall (or shall be deemed to) restrict or impair Borrower's ability
to issue from time to time common Stock of Borrower upon the proper exercise of
the conversion rights contained in the Convertible, Senior Subordinated Notes
and in the Indenture.
7.18. Pledge of Credit. Pledge Agent's or any Lender's credit on any
purchases or for any purpose whatsoever (other than Letters of Credit issued in
accordance with this Agreement) or use any portion of any Advance in or for any
business other than Borrower's business as conducted on the date of this
Agreement except as otherwise permitted under Sections 7.9 or 7.12.
7.19. Financial Covenants. Breach, on a consolidated basis,
any of the following financial covenants, each of which shall be
calculated in accordance with GAAP as in effect on the Effective
Date:
(a) (i) On the last day of each Fiscal Quarter
commencing with the Fiscal Quarter ending June 30, 1997, the ratio of (a) EBIT
to (b) interest expense (other than interest expense in respect of the
Convertible, Senior Subordinated Notes for the four Fiscal Quarters then ended
(taken as one accounting period) shall not be less than 3:1 and (ii) on the last
day of each Fiscal Quarter commencing with the Fiscal Quarter ended June 30,
1997, the ratio of (A) EBIT to (B) total interest expense for the four Fiscal
Quarters then ended (taken as one accounting period) shall not be less than 2:1.
(b) On the last day of each Fiscal Quarter, the ratio
of (i) Total Liabilities to (ii) Tangible Net Worth plus the aggregate principal
amount of Convertible, Senior Subordinated Notes then outstanding shall not
exceed 2:1.
(c) (1) The sum of (i) Tangible Net Worth plus (ii)
the aggregate principal amount of Convertible, Senior Subordinated Notes
outstanding shall equal or exceed $27,250,000 on December 31, 1996, and (2) on
the last day of any Fiscal Quarter thereafter, the sum of (i) Tangible Net Worth
and (ii) the aggregate principal amount of Convertible, Senior Subordinated
Notes then outstanding,
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shall equal or exceed the sum of (x) $27,250,000 and (y) $10,000 times the
number of Fiscal Quarters elapsed from December 31, 1996 to the end of such
Fiscal Quarter.
(d) (i) Net cash advanced to any Client by Borrower
(net of Risk Participations sold with respect to such Client) shall not at any
time exceed 25% of the sum of (x) Borrower's Tangible Net Worth (on a
consolidated basis) and (y) the aggregate principal amount of Convertible,
Senior Subordinated Notes outstanding at such time; and (ii) net cash advanced
by Borrower (net of Risk Participations) with respect to Receivables owed by a
single Account Debtor shall not at any time exceed 25% of the sum of (x)
Borrower's Tangible Net Worth (on a consolidated basis) and (y) the aggregate
principal amount of Convertible, Senior Subordinated Notes outstanding at such
time.
For purposes of this Section 7.19(d), (x) each agency,
branch or division of the Federal government shall be treated as a separate
Account Debtor and (y) each insurance company under state workman's compensation
arrangements shall be treated as a separate Account Debtor.
7.20. Assets of Certain Subsidiaries. Permit Receivable
Financing Corporation or Premium Sales Northeast, Inc. to acquire
any additional assets.
VIII. CONDITIONS PRECEDENT.
8.1. Conditions to Initial Advances. The agreement of
Lenders to make the initial Advances requested to be made on the
Effective Date is subject to the satisfaction, or waiver by
Lenders, immediately prior to or concurrently with the making of
such Advances, of the following conditions precedent:
(a) Revolving Credit Note. Agent shall have received
the Revolving Credit Note duly executed and delivered by an
authorized officer of Borrower;
(b) Filings, Registrations and Recordings. Each
document (including, without limitation, any Uniform Commercial Code financing
statement) required by this Agreement, any Other Document or under law or
reasonably requested by Agent to be filed, registered or recorded in order to
create, in favor of Agent, a perfected security interest in or lien upon the
Collateral shall have been properly filed, registered or recorded in each
jurisdiction in which the filing, registration or recordation thereof is so
required or requested, and to the extent practicable Agent shall have received
an acknowledgment copy, or other evidence satisfactory to it, of each such
filing, registration or recordation and satisfactory evidence of the payment of
any necessary fee, tax or expense relating thereto;
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(c) Corporate Proceedings of Borrower. Agent shall
have received a copy of the resolutions in form and substance reasonably
satisfactory to Agent, of the Board of Directors of Borrower and its
Subsidiaries, as applicable, authorizing (i) the execution, delivery and
performance of this Agreement, the Revolving Credit Note, Collateral Assignment
of Security, Guaranty, Security Agreement, Stock Pledge Agreements, and any
related agreements (collectively the "Documents") and (ii) the granting by
Borrower and each Guarantor of the security interests in and liens upon the
Collateral in each case certified by the Secretary or an Assistant Secretary of
Borrower and each Guarantor as of the Effective Date; and, such certificate
shall state that the resolutions thereby certified have not been amended,
modified, revoked or rescinded as of the date of such certificate;
(d) Incumbency Certificates of Borrower. Agent shall
have received a certificate of the Secretary or an Assistant Secretary of
Borrower, dated the Effective Date, as to the incumbency and signature of the
officers of Borrower executing this Agreement, any certificate or other
documents to be delivered by it pursuant hereto, together with evidence of the
incumbency of such Secretary or Assistant Secretary;
(e) Certificates. Agent shall have received a copy
of the Articles or Certificate of Incorporation of Borrower, and all amendments
thereto, certified by the Secretary of State or other appropriate official of
its jurisdiction of incorporation together with copies of the By-Laws of
Borrower and all agreements of Borrower's Stockholder's certified as accurate
and complete by the Secretary of Borrower;
(f) Good Standing Certificates. Agent shall have
received good standing certificates for Borrower dated not more than fifteen
(15) days prior to the Effective Date, issued by the Secretary of State or other
appropriate official of Borrower's jurisdiction of incorporation and each
jurisdiction where the conduct of Borrower's business activities or the
ownership of its properties necessitates qualification;
(g) Legal Opinion. Agent shall have received the
executed legal opinion of Craig Fishman in form and substance satisfactory to
Lenders which shall cover such matters incident to the transactions contemplated
by this Agreement, the Revolving Credit Note, and related agreements as Agent
may reasonably require;
(h) No Litigation. (i) No litigation, investigation
or proceeding before or by any arbitrator or Governmental Authority shall be
continuing or, to the best of Borrower's knowledge, threatened against Borrower
or against the officers or directors of Borrower (A) in connection with the
Documents or any of the transactions contemplated thereby and which, in the
reasonable opinion of Agent, is deemed material or (B) which if adversely
determined, would, in the reasonable opinion of Agent, have a
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Material Adverse Effect other than litigation previously disclosed to Agent in
Borrower's Quarterly Report on Form 10-Q for the quarter ended September 30,
1996, Borrower's Annual Report on Form 10-KSB for Fiscal Year ended December 31,
1996 and Borrower's Quarterly Report on Form 10-Q for the quarter ended March
31, 1997; and (ii) no injunction, writ, restraining order or other order of any
nature materially adverse to Borrower or the conduct of its business or
inconsistent with the due consummation of the transactions contemplated hereby
shall have been issued by any governmental authority;
(i) Financial Condition Certificate. Agent shall
have received an executed Financial Condition Certificate in the
form of Exhibit 8.1(i).
(j) Collateral Examination. Agent shall have
completed Collateral examinations and received appraisals, the results of which
shall be satisfactory in form and substance to Lenders, of the Receivables,
Inventory, General Intangibles, and Equipment of Borrower and all books and
records in connection therewith;
(k) Fees. Agent shall have received all fees due and
payable to Agent and Lenders on or prior to the Effective Date
pursuant to this Agreement and under any related agreement;
(l) Insurance. Agent shall have received in form and
substance satisfactory to Agent, certified copies of Borrower's casualty
insurance policies, together with, to the extent contemplated in this Agreement,
loss payable endorsements on Agent's standard form of loss payee endorsement
naming Agent as loss payee, and certified copies of Borrower's liability
insurance policies, together with, to the extent contemplated in this Agreement,
endorsements naming Agent as a co-insured;
(m) Leasehold Agreements. Agent shall have received
a landlord agreement satisfactory to Agent with respect to
Borrower's chief executive office;
(n) Reaffirmation of Guaranty, Stock Pledge
Agreements, etc.. Agent shall have received an executed (i) reaffirmation of the
Guaranty and Security Agreement, (ii) reaffirmation of the Collateral Assignment
of Security and (iii) reaffirmation of the Stock Pledge Agreements, each in form
and substance satisfactory to Lenders;
(o) Payment Instructions; Borrowing Base Certificate.
Agent shall have received written instructions from Borrower directing the
application of proceeds of the initial Advances made pursuant to this Agreement
and an initial Borrowing Base Certificate from Borrower reflecting that Borrower
has Eligible Receivables in amounts sufficient in value and amount to support
Advances in the amount by or on behalf of Borrower on the date of such
certificate;
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(p) Lockbox Accounts. Agent shall have received duly
executed blocked account agreements with respect to the Lockbox Accounts in form
and substance and with financial institutions acceptable to Agent;
(q) Consents. Agent shall have received any and all
Consents necessary to permit the effectuation of the transactions contemplated
by this Agreement and the Other Documents; and, Agent shall have received such
Consents and waivers of such third parties as might assert claims with respect
to the Collateral, as Agent and its counsel shall deem necessary;
(r) No Adverse Material Change. Since December 31,
1996, there shall not have occurred any event, condition or state of facts which
would have a Material Adverse Effect;
(s) Undrawn Availability. After giving effect to the
initial Advance hereunder, Borrower shall have aggregate Undrawn Availability of
at least $2,500,000.
(t) Contract Review. Lenders shall have reviewed all
material contracts of Borrower and such contracts shall be
satisfactory in all respects to Lenders;
(u) Closing Certificate. Agent shall have received a
closing certificate signed by the President and Chief Financial Officer of
Borrower dated as of the date hereof, stating that (i) all representations and
warranties set forth in this Agreement and the Other Documents are true and
correct on and as of such date, (ii) Borrower is on such date in compliance with
all the terms and provisions set forth in this Agreement and the other Documents
and (iii) on such date no Default or Event of Default has occurred and is
continuing;
(v) Representations and Warranties. Each of the
representations and warranties made by Borrower and each Subsidiary in or
pursuant to this Agreement and any of the Other Documents and each of the
representations and warranties contained in any certificate, document or
financial or other statement furnished by Borrower any time under or in
connection with this Agreement or any Other Documents shall be true and correct
on and as of the Effective Date as if made on and as of such date except as
otherwise disclosed to Agent in writing on or before the Effective Date; and
(w) Other. All corporate and other proceedings, and
all documents, instruments and other legal matters in connection with the
transactions contemplated by this Agreement shall be satisfactory in form and
substance to Agent, Lenders and their counsel.
8.2. Conditions to Each Advance. The agreement of Lenders
to make any Advance requested to be made on any date (including,
without limitation, its initial Advance), is subject to the
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satisfaction of the following conditions precedent as of the date
such Advance is made:
(a) Representations and Warranties. Each of the
representations and warranties made by Borrower in or pursuant to this Agreement
and any Other Document to which it is a party, and each of the representations
and warranties contained in any certificate, document or financial or other
statement furnished by Borrower to Agent at any time under or in connection with
this Agreement or any Other Document shall be true and correct in all material
respects on and as of such date as if made on and as of such date;
(b) No Default. No Event of Default shall have
occurred and be continuing on such date, or would exist after giving effect to
the Advances requested to be made, on such date; provided, however that Lenders
in their sole discretion, may continue to make Advances notwithstanding the
existence of an Event of Default; and
(c) Maximum Advances. In the case of any Advances
requested to be made, after giving effect thereto, the aggregate Advances shall
not exceed the maximum Advances permitted under Section 2.4, Section 2.5 or
Section 2.5A hereof, as applicable.
Each request for an Advance by Borrower hereunder shall constitute a
representation and warranty by Borrower as of the date of such Advance that the
conditions contained in this subsection shall have been satisfied.
IX. INFORMATION AS TO BORROWER.
Borrower shall, until satisfaction in full of the Obligations and the
termination of this Agreement:
9.1. Disclosure of Material Matters. Promptly upon learning thereof,
report to Agent all matters materially and adversely affecting the value,
enforceability or collectibility of the Collateral taken as a whole. With
respect to any Client whose Receivables are at the time of determination
included in the Borrowing Base, Borrower shall notify Agent within three
Business Days following any unreimbursed adjustment to such Receivables in
excess of $100,000.
9.2. Schedules; Borrowing Base Certificate. Deliver to Agent on or
before the fifteenth (15th) day of each month as and for the prior month (a) a
Borrowing Base Certificate; provided, however, Borrower may submit a Borrowing
Base Certificate more frequently, (b) accounts receivable ageings in
substantially the form delivered to Agent prior to the Effective Date, (c)
Schedule of Receivables ("Schedule of Receivables") substantially in the form
and detail of an IBJS Lending Base Worksheet with such changes as Agent may,
from time to time, request, (d) a schedule of loans
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made by Borrower to its Clients which are secured by Client Funded Equipment
stating the name of the Client to which such loans are made and the dollar
amount thereof and (e) a schedule of loans made by Borrower to its Clients which
are secured by Eligible Client Funded Inventory stating the name of the Client
to which such loans are made and the dollar amount thereof. In addition,
Borrower will deliver to Agent at such intervals as Agent may require following
the occurrence and during the continuation of an Event of Default: (i)
confirmatory assignment schedules, (ii) copies of Client's invoices, (iii)
evidence of shipment or delivery of goods, and (iv) such further schedules,
documents and/or information regarding the Collateral as Agent may require
including, without limitation, trial balances and test verifications. Agent
shall have the right to confirm and verify all Receivables in writing, or upon
the occurrence and during the continuation of an Event of Default, by any manner
and through any medium it considers advisable and do whatever it may deem
reasonably necessary to protect its interests hereunder. The items to be
provided under the second sentence of this Section are, when required to be
delivered under such sentence, to be in form satisfactory to Agent and executed
when appropriate by Borrower and delivered to Agent from time to time solely for
Agent's convenience in maintaining records of the Collateral, and Borrower's
failure to deliver any of such items to Agent shall not affect, terminate,
modify or otherwise limit Agent's Lien with respect to the Collateral.
9.3. Litigation. Promptly notify Agent in writing of any
litigation affecting Borrower, whether or not the claim is covered
by insurance, and of any suit or administrative proceeding, which
in any case may have a Material Adverse Effect.
9.4. Occurrence of Defaults, etc. Promptly notify Agent in writing
upon the occurrence of (a) any Event of Default; (b) any event, development or
circumstance whereby any financial statements or other reports furnished to
Agent fail in any material respect to present fairly, in accordance with GAAP
consistently applied, the financial condition or operating results of Borrower
as of the date of such statements; (c) any accumulated retirement plan funding
deficiency which, if such deficiency continued for two plan years and was not
corrected as provided in Section 4971 of the Internal Revenue Code, could
subject Borrower to a tax imposed by Section 4971 of the Internal Revenue Code
the effect of which would have a Material Adverse Effect; (d) each and every
default by Borrower which might result in the acceleration of the maturity of
any Indebtedness for borrowed money in an aggregate amount in excess of
$100,000, including the names and addresses of the holders of such Indebtedness
with respect to which there is a default existing or with respect to which the
maturity has been or could be accelerated, and the amount of such Indebtedness;
and (e) any other development in the business or affairs of Borrower which might
reasonably be likely to have a Material Adverse Effect; in each case describing
the nature thereof and the action Borrower proposes to take with respect
thereto.
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9.5. Intentionally Omitted.
9.6. Annual Financial Statements. Furnish Agent within one hundred
(100) days after the end of each Fiscal Year annual audited financial statements
of Borrower and its Subsidiaries on a consolidated basis and annual unaudited
financial statements of Borrower and its Subsidiaries on a consolidating basis
excluding the statement of cash flows, including, but not limited to, statements
of income and stockholders' equity from the beginning of the prior fiscal year
to the end of such fiscal year and the balance sheet as at the end of such
fiscal year, all prepared in accordance with GAAP (only with respect to the
consolidated financial statements) applied on a basis consistent with prior
practices, and in reasonable detail and reported upon without qualification by
Deloitte & Touche or another independent certified public accounting firm
selected by Borrower and satisfactory to Agent (the "Accountants"); provided,
however, that delivery of substantially the same financial statement information
that is required by an Annual Report on Form 10-KSB or any successor form for
such Fiscal Year under the Exchange Act, together with the consolidating
financial statements referred to herein, shall be deemed to satisfy the
requirements of this Section 9.6. The report of such accounting firm shall be
accompanied by a statement of such accounting firm certifying that in making the
examination upon which such report was based either no information came to their
attention which to their knowledge constituted an Event of Default under this
Agreement or, if such information came to their attention, specifying any such
default, and such report shall contain or have appended thereto calculations
which set forth Borrower's compliance with the financial covenants contained in
Sections 7.6, 7.11 and 7.19. In addition, the reports shall be accompanied by a
certificate of Borrower's President, Chief Financial Officer or Chief Operating
Officer which shall state that, based on an examination sufficient to permit him
to make an informed statement, no Default or Event of Default exists, or, if
such is not the case, specifying such Default or Event of Default, its nature,
when it occurred, whether it is continuing and the steps being taken by Borrower
with respect to such event and, such certificate shall have appended thereto
calculations which set forth Borrower's compliance with the financial covenants
contained in Sections 7.6, 7.11 and 7.19.
9.7. Quarterly Financial Statements. Furnish Agent within 55 days
after the end of the first three Fiscal Quarters of each year, an unaudited
balance sheet of Borrower and its Subsidiaries on a consolidated and
consolidating basis and unaudited statements of income and stockholders' equity
and cash flow of Borrower and its Subsidiaries on a consolidated basis
reflecting results of operations from the beginning of the fiscal year to the
end of such quarter and for such quarter, prepared on a basis consistent with
prior practices and complete and correct in all material respects, subject to
normal year end adjustments, provided, however, that delivery of substantially
the same financial statement information that is required by a Quarterly Report
on Form 10-Q or any
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successor form for such Fiscal Quarter under the Exchange Act, together with the
consolidating financial statements referred to herein, shall be deemed to
satisfy the requirements of this Section 9.7. The reports shall be accompanied
by a certificate of Borrower's President, Chief Financial Officer or Chief
Operating Officer which shall state that, based on an examination sufficient to
permit him to make an informed statement, no Default or Event of Default exists,
or, if such is not the case, specifying such Default or Event of Default, its
nature, when it occurred, whether it is continuing and the steps being taken by
Borrower with respect to such event and, such certificate shall have appended
thereto calculations which set forth Borrower's compliance with the financial
covenants contained in Sections 7.6, 7.11 and 7.19
9.8. Intentionally Omitted.
9.9. Other Reports. Furnish Agent as soon as available,
but in any event within ten (10) days after the issuance thereof,
with copies of such financial statements, reports and returns as
Borrower shall send to its Stockholders.
9.10. Additional Information. Furnish Agent with additional
information as Agent shall reasonably request in order to enable Agent to
determine whether the terms, covenants, provisions and conditions of this
Agreement and the Revolving Credit Note have been complied with by Borrower
including, without limitation, copies of all environmental audits and reviews in
Borrower's possession or subject to Borrower's control. Borrower shall (a) at
least ten (10) days prior thereto, notify Agent of Borrower's opening of any new
office or place of business or Borrower's closing of any existing office or
place of business, and (b) promptly upon Borrower's learning thereof, notify
Agent of any material labor dispute to which Borrower is a party, any strikes or
walkouts relating to any of its plants or other facilities, and the expiration
of any labor contract to which Borrower is a party or by which Borrower is
bound.
9.11. Projected Operating Budget. Within 100 days after the end of
each Fiscal Year, furnish Agent an operating plan, approved by Borrower's board
of directors, which includes the quarterly budget for the following year and
which integrates operating profit projections, such projections to be
accompanied by a certificate signed by Borrower's President, Chief Financial
Officer or Chief Operating Officer to the effect that such projections have been
prepared on the basis of sound financial planning practice consistent with past
budgets and financial statements and that such officer has no reason to question
the reasonableness of any material assumptions on which such projections were
prepared; provided that such certificate may contain the following
qualification:
Projections as to future events are not to be viewed as
facts and actual results during the period(s) covered by
these projections may
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differ from the projected results and such
differences may be material.
9.12. Intentionally Omitted.
9.13. Notice of Suits, Adverse Events. Furnish Agent with (x) prompt
notice of (i) any lapse or other termination of any Consent issued to Borrower
by any Governmental Authority or any other Person that is material to the
operation of Borrower's business, and (ii) any refusal by any Governmental
Authority or any other Person to renew or extend any such Consent, (y) copies of
any periodic or special reports filed by Borrower with any Governmental
Authority or Person, if such reports indicate any material adverse change in the
business, operations, affairs or condition of Borrower and (z) copies of any
notices and other communications from any Governmental Authority or Person which
specifically relate to Borrower which are reasonably likely to have a Material
Adverse Effect.
9.14. ERISA Notices and Requests. Furnish Agent with prompt written
notice in the event that (i) Borrower or any member of the Controlled Group
knows or has reason to know that a Termination Event has occurred, together with
a written statement describing such Termination Event and the action, if any,
which Borrower or member of the Controlled Group has taken, is taking, or
proposes to take with respect thereto and, when known, any action taken or
threatened by the Internal Revenue Service, Department of Labor or PBGC with
respect thereto, (ii) Borrower or any member of the Controlled Group knows or
has reason to know that a prohibited transaction (as defined in Sections 406 of
ERISA and 4975 of the Internal Revenue Code) has occurred together with a
written statement describing such transaction and the action which Borrower or
any member of the Controlled Group has taken, is taking or proposes to take with
respect thereto, (iii) a funding waiver request has been filed with respect to
any Plan together with all communications received by either Borrower or any
member of the Controlled Group with respect to such request, (iv) any increase
in the benefits of any existing Plan or the establishment of any new Plan or the
commencement of contributions to any Plan to which either Borrower or any member
of the Controlled Group was not previously contributing shall occur the effect
of which would have a Material Adverse Effect, (v) Borrower or any member of the
Controlled Group shall receive from the PBGC a notice of intention to terminate
a Plan or to have a trustee appointed to administer a Plan, together with copies
of each such notice, (vi) Borrower or any member of the Controlled Group shall
receive any unfavorable determination letter from the Internal Revenue Service
regarding the qualification of a Plan under Section 401(a) of the Code, together
with copies of each such letter; (vii) Borrower or any member of the Controlled
Group shall receive a notice regarding the imposition of withdrawal liability,
together with copies of each such notice; (viii) Borrower or any member of the
Controlled Group shall fail to make a required installment or any other required
payment under Section 412 of the Code on or before the due date for
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such installment or payment; (ix) Borrower or any member of the Controlled Group
knows that (a) a Multiemployer Plan has been terminated and such termination
would have a Material Adverse Effect, (b) the administrator or plan sponsor of a
Multiemployer Plan intends to terminate a Multiemployer Plan, or (c) the PBGC
has instituted or will institute proceedings under Section 4042 of ERISA to
terminate a Multiemployer Plan.
9.15. Additional Documents. To the extent not inconsistent with any
other provision of this Agreement, execute and deliver to Agent, upon request,
such documents and agreements as Agent may, from time to time, reasonably
request to carry out the purposes, terms or conditions of this Agreement.
X. EVENTS OF DEFAULT.
The occurrence of any one or more of the following events shall
constitute an "Event of Default":
10.1. failure by Borrower to pay any principal or
interest on the Obligations when due, whether at maturity or by reason of
acceleration pursuant to the terms of this Agreement, or by required prepayment
pursuant to the terms of this Agreement or failure to pay any other liabilities
or make any other payment, fee or charge to Lenders or Agent provided for in
this Agreement;
10.2. any representation or warranty made or deemed
made by Borrower in this Agreement or any Other Document or in any certificate,
document or financial or other statement furnished by Borrower or any Subsidiary
at any time in connection herewith or therewith shall prove to have been
misleading in any material respect on the date when made or deemed to have been
made or furnished;
10.3. failure by Borrower to (i) furnish when due the
financial information required under Article IX, or (ii) permit the inspection
of its books or records under and in accordance with the terms of this
Agreement;
10.4. issuance of a notice of Lien, levy, assessment,
injunction or attachment against property of Borrower or Guarantors having an
aggregate value of more than $500,000 outstanding at any time which is not
stayed, bonded, paid or discharged for a period of sixty (60) days;
10.5. except to the extent addressed by other Events
of Default, failure or neglect of Borrower or any Guarantor to perform, keep or
observe any term, provision, condition, covenant herein contained, or contained
in any other agreement or arrangement, now or hereafter entered into between
Borrower and Lender which failure or neglect shall remain unremedied for a
period of the earlier of (x) ten (10) days after Borrower shall
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receive written notice from Agent of any such failure or (y) thirty (30) days
after Borrower shall become aware thereof;
10.6. any judgment is rendered or judgment liens
filed against Borrower or Guarantors for an aggregate amount in excess of
$500,000 outstanding at any time not fully covered by insurance which within
forty-five (45) days of such rendering or filing is not either vacated,
satisfied, stayed, bonded or discharged of record;
10.7. Borrower shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian, trustee
or liquidator of itself or of all or a substantial part of its property, (ii)
make a general assignment for the benefit of creditors, (iii) commence a
voluntary case under any state or federal bankruptcy laws (as now or hereafter
in effect), (iv) be adjudicated a bankrupt or insolvent, (v) file a petition
seeking to take advantage of any other law providing for the relief of debtors,
(vi) acquiesce to, or fail to have dismissed, within thirty (30) days, any
petition filed against it in any involuntary case under such bankruptcy laws, or
(vii) take any action for the purpose of effecting any of the foregoing;
10.8. Borrower shall admit in writing its inability,
or be generally unable, to pay its debts as they become due or
cease operations of its present business;
10.9. any Subsidiary (other than Receivable Financing
Corporation and Premium Sales Northeast, Inc.) of Borrower or any Guarantor
shall (i) apply for or consent to the appointment of, or the taking of
possession by, a receiver, custodian, trustee or liquidator of itself or of all
or a substantial part of its property, (ii) admit in writing its inability, or
be generally unable, to pay its debts as they become due or cease operations of
its present business, (iii) make a general assignment for the benefit of
creditors, (iv) commence a voluntary case under any state or federal bankruptcy
laws (as now or hereafter in effect), (v) be adjudicated a bankrupt or
insolvent, (vi) file a petition seeking to take advantage of any other law
providing for the relief of debtors, (vii) acquiesce to, or fail to have
dismissed, within thirty (30) days, any petition filed against it in any
involuntary case under such bankruptcy laws, or (viii) take any action for the
purpose of effecting any of the foregoing;
10.10. An "Event of Default" under (and as defined
in) the Indenture shall have occurred and be continuing;
10.11. any Lien created hereunder or provided for
hereby or under any Other Document for any reason ceases to be or is not a valid
and perfected Lien having a first priority interest except as otherwise provided
herein or in any Other Document;
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10.12. any default of the obligations of Borrower
under any other agreement to which it is a party the effect of
which shall result in a Material Adverse Effect;
10.13. termination or breach of the Guaranty,
Security Agreement, Stock Pledge Agreements, or Collateral Assignment of
Security, or Equipment Collateral Assignment of Security or Inventory Collateral
Assignment of Security or if any Guarantor attempts to terminate, challenge the
validity of, or its liability under, any such Guaranty;
10.14. any Change of Control;
10.15. any material provision of this Agreement
shall, for any reason, cease to be valid and binding on Borrower,
or Borrower shall so claim in writing to Agent; or
10.16. an event or condition specified in Sections
7.16 or 9.14 hereof shall occur or exist with respect to any Plan and, as a
result of such event or condition, together with all other such events or
conditions, Borrower or any member of the Controlled Group shall incur, or in
the opinion of Agent be reasonably likely to incur, a liability to a Plan or the
PBGC (or both) which, in the reasonable judgment of Agent, would have a Material
Adverse Effect upon the Collateral or the ability of Borrower to perform its
Obligations under this Agreement.
XI. LENDERS' RIGHTS AND REMEDIES AFTER DEFAULT.
11.1. Rights and Remedies. Upon the occurrence of an Event of Default
pursuant to Section 10.7 all Obligations shall be immediately due and payable
and this Agreement and the obligation of Lenders to make Advances shall be
deemed terminated; and, upon the occurrence of any of the other Events of
Default and at any time thereafter (such Event of Default not having previously
been cured or waived), upon the declaration of the Agent with the consent of or
at the direction of Required Lenders all Obligations shall be immediately due
and payable and with the consent of or at the direction of Required Lenders
Agent shall have the right to terminate this Agreement and to terminate the
obligation of Lenders to make Advances. Upon the occurrence and during the
continuance of any Event of Default, Agent shall have the right to exercise any
and all other rights and remedies provided for herein, under the Uniform
Commercial Code and at law or equity generally, including, without limitation,
the right to foreclose the security interests granted herein and to realize upon
any Collateral by any available judicial procedure and/or to take possession of
and sell any or all of the Collateral with or without judicial process. Agent
may following the occurrence and during the continuance of an Event of Default
enter any of Borrower's premises or other premises without legal process and
without incurring liability to Borrower therefor, and Agent may thereupon, or at
any time thereafter, in its discretion without notice or demand, take the
Collateral and remove
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the same to such place as Agent may deem advisable and Agent may require
Borrower to make the Collateral available to Agent at a convenient place. With
or without having the Collateral at the time or place of sale, Agent may sell
the Collateral, or any part thereof, at public or private sale, at any time or
place, in one or more sales, at such price or prices, and upon such terms,
either for cash, credit or future delivery, as Agent may elect. Except as to
that part of the Collateral which is perishable or threatens to decline speedily
in value or is of a type customarily sold on a recognized market, Agent shall
give Borrower reasonable notification of such sale or sales, it being agreed
that in all events written notice mailed to Borrower at least ten (10) days
prior to such sale or sales is reasonable notification. At any public sale Agent
or any Lender may bid for and become the purchaser, and Agent, any Lender or any
other purchaser at any such sale thereafter shall hold the Collateral sold
absolutely free from any claim or right of whatsoever kind, including any equity
of redemption and such right and equity are hereby expressly waived and released
by Borrower. The proceeds realized from the sale of any Collateral shall be
applied first to the reasonable costs, expenses and attorneys' fees and expenses
incurred by Agent for collection and for acquisition, completion, protection,
removal, storage, sale and delivery of the Collateral; second to interest due
upon any of the Obligations; and third to the principal of the Obligations. If
any deficiency shall arise, Borrower shall remain liable to Agent and Lenders
therefor. Any surplus shall be returned to Borrower unless any other Person(s)
shall be entitled to same as a matter of law.
11.2. Agent's Discretion. Agent shall have the right in its sole
discretion to determine which rights, Liens, security interests or remedies
Agent may at any time pursue, relinquish, subordinate, or modify or to take any
other action with respect thereto and such determination will not in any way
modify or affect any of Agent's or Lenders' rights hereunder.
11.3. Setoff. In addition to any other rights which Agent or any
Lender may have under applicable law, upon the occurrence and during the
continuance of an Event of Default hereunder, Agent and such Lender shall have a
right to apply any of Borrower's property held by Agent and such Lender or by
IBJS to reduce the Obligations.
11.4. Rights and Remedies not Exclusive. The enumeration of
the foregoing rights and remedies is not intended to be exhaustive
and the exercise of any right or remedy shall not preclude the
exercise of any other right or remedies, all of which shall be
cumulative and not alternative.
XII. WAIVERS AND JUDICIAL PROCEEDINGS.
12.1. Waiver of Notice. Borrower hereby waives notice of
non-payment of any of the Receivables, demand, presentment, protest
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and notice thereof with respect to any and all instruments, notice of acceptance
hereof, notice of loans or advances made, credit extended, Collateral received
or delivered, or any other action taken in reliance hereon, and all other
demands and notices of any description, except such as are expressly provided
for herein.
12.2. Delay. No delay or omission on Agent's or any
Lender's part in exercising any right, remedy or option shall
operate as a waiver of such or any other right, remedy or option or
of any default.
12.3. Jury Waiver. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY
WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION (A) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (B) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR
ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS
RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE AND EACH PARTY
HEREBY CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE
DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY
FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENTS OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO
TRIAL BY JURY.
XIII. EFFECTIVE DATE AND TERMINATION.
13.1. Term. This Agreement, which shall inure to the benefit of and
shall be binding upon the respective successors and permitted assigns of each of
Borrower, Agent and each Lender, shall become effective on the date hereof and
shall continue in full force and effect until the end of the initial Term unless
sooner terminated as herein provided. Borrower may terminate this Agreement at
any time during the Term upon not less than thirty (30) days' prior written
notice to Agent ("Termination Date") upon payment in full of the Obligations;
provided however that Borrower pays to Agent for the ratable benefit of Lenders
an early termination fee in an amount equal to the Required Percentage of the
Maximum Revolving Advance Amount. For the purposes of this paragraph, Required
Percentage shall mean (a) 1% from the Effective Date through and including
November 12, 1997, (b) 1/2% from November 13, 1997 through and including May 12,
1998 and (c) 0% at any time thereafter. Notwithstanding the foregoing, if during
the period commencing February 12, 1998 through and including May 12, 1998,
Borrower secures replacement financing from another financial institution on
terms and conditions similar to (or more favorable than) those provided
hereunder, but without the necessity of a borrowing base or formula advance
rate, Agent and Lenders shall waive the early termination fee, provided, that,
prior to such
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termination Borrower shall provide Agent and Lenders a good faith opportunity to
match the terms of any replacement financing.
13.2. Termination. The termination of the Agreement shall not affect
any of Borrower's, Agent's or any Lender's rights, or any of the Obligations
having their inception prior to the effective date of such termination, and the
provisions hereof shall continue to be fully operative until all Obligations
have been paid in full. The security interests, Liens and rights granted to
Agent and Lenders hereunder and the financing statements filed hereunder shall
continue in full force and effect, notwithstanding the termination of this
Agreement or the fact that Borrower's account may from time to time be
temporarily in a zero or credit position, until all of the Obligations of
Borrower have been paid or performed in full after the termination of this
Agreement or Borrower has furnished Agent and Lenders with an indemnification
satisfactory to Agent and Lenders with respect thereto. Upon termination of this
Agreement and payment in full of all Obligations in immediately available funds
(or, with respect to Obligations arising out of an indemnification claim of
Agent and/or any Lender against Borrower in accordance with the terms of this
Agreement which has been made at such time, the establishment of security
arrangements satisfactory to Agent and Lenders), at the request and expense of
Borrower, Agent shall deliver to Borrower (without recourse and without
representation and warranty) all Collateral then in Agent's (or its designee's)
possession and deliver to Borrower (without recourse and without representation
and warranty) termination statements with respect to the Collateral and take
such further actions as may be required under the Other Documents or as may be
reasonably requested by Borrower to fully release (i) the Collateral from all
Liens in favor of Agent and (ii) Borrower and its Subsidiaries hereunder and
under the Other Documents. All representations, warranties, covenants, waivers
and agreements contained herein shall survive termination hereof until all
Obligations are repaid or performed in full, except for those which, by their
terms, expressly survive termination of this Agreement.
XIV. Regarding Agent.
14.1. Appointment. Each Lender hereby designates IBJS to act as Agent
for such Lender under this Agreement and the Other Documents. Each Lender hereby
irrevocably authorizes Agent to take such action on its behalf under the
provisions of this Agreement and the Other Documents and to exercise such powers
and to perform such duties hereunder and thereunder as are specifically
delegated to or required of Agent by the terms hereof and thereof and such other
powers as are reasonably incidental thereto and Agent shall hold all Collateral,
payments of principal and interest, fees, charges and collections (without
giving effect to any collection days) received pursuant to this Agreement, for
the ratable benefit of Lenders. Agent may perform any of its duties hereunder by
or through its agents or employees. As to any matters not expressly
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provided for by this Agreement (including without limitation, collection of the
Revolving Credit Note) Agent shall not be required to exercise any discretion or
take any action, but shall be required to act or to refrain from acting (and
shall be fully protected in so acting or refraining from acting) upon the
instructions of the Required Lenders, and such instructions shall be binding;
provided, however, that Agent shall not be required to take any action which
exposes Agent to liability or which is contrary to the Documents or applicable
law unless Agent is furnished with an indemnification reasonably satisfactory to
Agent with respect thereto.
14.2. Nature of Duties. Agent shall have no duties or
responsibilities except those expressly set forth in this Agreement. Neither
Agent nor any of its officers, directors, employees or agents shall be (i)
liable for any action taken or omitted by them as such hereunder or in
connection herewith, unless caused by their gross negligence (but not mere
negligence) or willful misconduct, or (ii) responsible in any manner to any
Lender for any recitals, statements, representations or warranties made by
Borrower or any officer thereof contained in this Agreement, or in any of the
Other Documents or in any certificate, report, statement or Other Document
referred to or provided for in, or received by Agent under or in connection
with, this Agreement or any of the Other Documents or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement, or
any of the Other Documents or for any failure of Borrower to perform its
obligations hereunder. Agent shall not be under any obligation to any Lender to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any of the Other
Documents, or to inspect the properties, books or records of Borrower. The
duties of Agent shall be mechanical and administrative in nature; Agent shall
not have by reason of this Agreement a fiduciary relationship in respect of any
Lender; and nothing in this Agreement, expressed or implied, is intended to or
shall be so construed as to impose upon Agent any obligations in respect of this
Agreement except as expressly set forth herein.
14.3. Lack of Reliance on Agent and Resignation. Independently and
without reliance upon Agent or any other Lender, each Lender has made and shall
continue to make (i) its own independent investigation of the financial
condition and affairs of Borrower in connection with the making and the
continuance of the Advances hereunder and the taking or not taking of any action
in connection herewith, and (ii) its own appraisal of the creditworthiness of
Borrower. Agent shall have no duty or responsibility, either initially or on a
continuing basis, to provide any Lender with any credit or other information
with respect thereto, whether coming into its possession before making of the
Advances or at any time or times thereafter except as shall be provided by or on
behalf of Borrower pursuant to the terms hereof. Agent shall not be responsible
to any Lender for any recitals, statements, information, representations or
warranties
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herein or in any agreement, document, certificate or a statement delivered in
connection with or for the execution, effectiveness, genuineness, validity,
enforceability, collectability or sufficiency of this Agreement or the Revolving
Credit Note, or of the financial condition of Borrower, or be required to make
any inquiry concerning either the performance or observance of any of the terms,
provisions or conditions of this Agreement, the Revolving Credit Note, the Other
Documents or the financial condition of Borrower, or the existence of any Event
of Default.
Agent may resign on sixty (60) days' written notice to Borrower and
each of the Lenders and upon such resignation, the Required Lenders will
promptly designate a successor Agent reasonably satisfactory to Borrower.
Without the consent of any Lender, the Borrower or any other Person, Agent may
appoint IBJ Schroder Business Credit Corporation as successor Agent.
Any such successor Agent shall succeed to the rights, powers and
duties of Agent, and the term "Agent" shall mean such successor agent effective
upon its appointment, and the former Agent's rights, powers and duties as Agent
shall be terminated, without any other or further act or deed on the part of
such former Agent. After any Agent's resignation or removal hereunder as Agent,
the provisions of this Article XIV shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Agent under this Agreement.
14.4. Certain Rights of Agent. If Agent shall request instructions
from Lenders with respect to any act or action (including failure to act) in
connection with this Agreement or any Other Document, Agent shall be entitled to
refrain from such act or taking such action unless and until Agent shall have
received instructions from the Required Lenders; and Agent shall not incur
liability to any Person by reason of so refraining. Without limiting the
foregoing, Lenders shall not have any right of action whatsoever against Agent
as a result of its acting or refraining from acting hereunder in accordance with
the instructions of the Required Lenders.
14.5. Reliance. Agent shall be entitled to rely, and shall be fully
protected in relying, upon any note, writing, resolution, notice, statement,
certificate, telex, teletype or telecopier message, cablegram, order or other
document or telephone message believed by it to be genuine and correct and to
have been signed, sent or made by the proper person or entity, and, with respect
to all legal matters pertaining to this Agreement and its duties hereunder, upon
advice of counsel selected by it. Agent may employ agents and attorneys-in-fact
and shall not be liable for the default or misconduct of any such agents or
attorneys-in-fact selected by Agent with reasonable care.
14.6. Notice of Default. Agent shall not be deemed to have
knowledge or notice of the occurrence of any Event of Default
hereunder or under the Other Documents, unless Agent has received
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notice from a Lender or Borrower referring to this Agreement or the Other
Documents, describing such Event of Default and stating that such notice is a
"notice of default". In the event that Agent receives such a notice, Agent shall
give notice thereof to Lenders. Agent shall take such action with respect to
such Event of Default as shall be reasonably directed by the Required Lenders;
provided, that, unless and until Agent shall have received such directions,
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Event of Default as it shall deem
advisable in the best interests of Lenders.
14.7. Indemnification. To the extent Agent is not reimbursed and
indemnified by Borrower, each Lender will reimburse and indemnify Agent in
proportion to its respective portion of the Advances (or, if no Advances are
outstanding, according to its Commitment Percentage), from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever which
may be imposed on, incurred by or asserted against Agent in performing its
duties hereunder, or in any way relating to or arising out of this Agreement or
any Other Document; provided that, Lenders shall not be liable for any portion
of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from Agent's gross
negligence (but not mere negligence) or willful misconduct.
14.8. Agent in its Individual Capacity. With respect to the
obligation of Agent to lend under this Agreement, the Advances made by it shall
have the same rights and powers hereunder as any other Lender and as if it were
not performing the duties as Agent specified herein; and the term "Lender" or
any similar term shall, unless the context clearly otherwise indicates, include
Agent in its individual capacity as a Lender. Agent may engage in business with
Borrower as if it were not performing the duties specified herein, and may
accept fees and other consideration from Borrower for services in connection
with this Agreement or otherwise without having to account for the same to
Lenders.
14.9. Delivery of Documents. To the extent Agent receives
documents and information from or on behalf of Borrower pursuant to
the terms of this Agreement, Agent will promptly furnish such
documents and information to Lenders.
14.10. Borrower' Undertaking to Agent. Without prejudice to its
obligations to the Lenders under the other provisions of this Agreement,
Borrower hereby undertakes with Agent to pay to Agent from time to time on
demand all amounts from time to time due and payable by it for the account of
Agent or the Lenders or any of them pursuant to this Agreement to the extent not
already paid. Any such payment made to Agent pursuant to any such demand shall
pro tanto satisfy Borrower's obligations to make payments for the account of the
Lenders or the relevant one or more of them pursuant to this Agreement.
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14.11. Sharing of Setoffs. Each of the Lenders agrees that (i) all
Obligations of Borrower to each Lender under this Agreement and under the
Revolving Credit Note rank pari passu in all respects with each other, and (ii)
if any Lender shall, through the exercise of a right of banker's lien, setoff,
counterclaim or otherwise, obtain payment (whether from Borrower or otherwise)
with respect to principal of or interest on Revolving Advances, which results in
its receiving more than its pro rata share of the Revolving Advances, then (A)
such Lender shall be deemed to have simultaneously purchased from the other
Lenders a share in their Revolving Advances so that the amount of the Revolving
Advances of all Lenders shall be equal to their Commitment Percentage and (B)
such other adjustments shall be made from time to time as shall be equitable to
insure that all Lenders share such payments ratably. If all or any portion of
any such excess payment is thereafter recovered from the Lender which received
the same, the purchase provided in this Section 14.11 shall be deemed to have
been rescinded to the extent of such recovery, without interest. Borrower
expressly consents to the foregoing arrangements and agrees that each Lender so
purchasing a portion of another Lender's Revolving Advances may exercise all
rights of payment (including without limitation, all rights of setoff, banker's
lien or counterclaim) with respect to such portion as fully as if such Lender
were the direct holder of such portion.
14.12. Applicability of Section to Borrower. Except as otherwise
provided in this Article XIV, the rights and obligations of Borrower under this
Agreement shall not be affected by any provision otherwise included in this
Article XIV. Borrower shall be permitted to rely on communications from Agent
which it reasonably believes are made on behalf of Agent and, if specified
therein, the Lenders or the Required Lenders, and except as otherwise set forth
specifically herein, all notices and payments to be made by Borrower hereunder
shall be made to Agent. Further, if any Lender shall be in default hereunder,
such default shall not affect the rights and obligations of Borrower hereunder
or the rights and obligations of any other Lender hereunder.
XIV. MISCELLANEOUS.
15.1. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applied to
contracts to be performed wholly within the State of New York. Any judicial
proceeding brought by or against Borrower with respect to any of the
Obligations, this Agreement or any related agreement may be brought in any court
of competent jurisdiction in the State of New York, United States of America,
and, by execution and delivery of this Agreement, Borrower accepts for itself
and in connection with its properties, generally and unconditionally, the
non-exclusive jurisdiction of the aforesaid courts, and irrevocably agrees to be
bound by any judgment rendered thereby in connection with this Agreement.
Nothing herein shall affect the right to serve process in any manner permitted
by law or shall limit the
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right of Lenders to bring proceedings in the courts of any other jurisdiction.
Borrower waives any objection to jurisdiction and venue of any action instituted
hereunder in the aforesaid courts and shall not assert any defense based on lack
of jurisdiction or venue or based upon forum non conveniens. Any judicial
proceeding by Borrower against Lenders involving, directly or indirectly, any
matter or claim in any way arising out of, related to or connected with this
Agreement or any related agreement, shall be brought only in a federal or state
court located in the City of New York, State of New York.
15.2. Entire Understanding. (a) This Agreement and the documents
executed concurrently herewith contain the entire understanding between
Borrower, Agent and each Lender and supersedes all prior agreements and
understandings, if any, relating to the subject matter hereof. Any promises,
representations, warranties or guarantees not herein contained and hereinafter
made shall have no force and effect unless in writing, signed by Borrower's,
Agent's and each Lender's respective officers. Neither this Agreement nor any
portion or provisions hereof may be changed, modified, amended, waived,
supplemented, discharged, cancelled or terminated orally or by any course of
dealing, or in any manner other than by an agreement in writing, executed in
accordance with Section 15.2(b) hereof. Borrower acknowledges that it has been
advised by counsel in connection with the execution of this Agreement and the
Other Documents and is not relying upon oral representations or statements
inconsistent with the terms and provisions of this Agreement.
(b) The Required Lenders, Agent with the consent in
writing of the Required Lenders, and Borrower may, subject to the provisions of
this Section 15.2 (b), from time to time enter into written supplemental
agreements to this Agreement, the Revolving Credit Note or the Other Documents
executed by Borrower, for the purpose of adding or deleting any provisions or
otherwise changing, varying or waiving in any manner the rights of Lenders,
Agent or Borrower thereunder or the conditions, provisions or terms thereof or
waiving any Event of Default thereunder, but only to the extent specified in
such written agreements; provided, however, that no such supplemental agreement
shall, without the consent of all Lenders:
(i) increase or decrease the amount of the Commitment
Percentage of any Lender, it being understood and agreed that this Section 15.2
(b)(i) does not (and shall not be deemed to) require the consent of any Lender
(other than a transferor Lender or Purchasing Lender) to an increase or a
decrease in the Commitment Percentage of a transferor Lender or a Purchasing
Lender in connection with an assignment effected in accordance with Section 15.3
(d) hereof.
(ii) change the maturity of the Revolving Credit Note,
or increase the Maximum Revolving Advance Amount, the Maximum
Equipment Value Advance Amount, the Maximum Inventory Value Advance
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Amount or the sublimit with respect to Letters of Credit, or reduce the rate or
extend the time of payment of interest or of any fee payable by Borrower to
Agent for the ratable benefit of Lenders pursuant to this Agreement.
(iii) alter the definition of the term Required
Lenders or the eligibility standards applied by Agent to the determination of
which Receivables are Eligible Receivables.
(iv) alter, amend or modify this Section 15.2(b) or
release Collateral having a fair market value of in excess of $100,000, it being
understood and agreed that this Section 15.2(b) (iv) does not (and shall not be
deemed to) require the consent of any Lender (or all of the Lenders) in
connection with a sale, transfer, conveyance, assignment or other disposition of
any of Borrower's properties or assets (or any of the Collateral) to the extent
any such sale, transfer, conveyance, assignment or other disposition is
authorized or permitted by the terms of this Agreement or any Other Document.
(v) change the rights and duties of Agent.
Any such supplemental agreement shall apply equally to each of the Lenders and
shall be binding upon Borrower, Lenders and Agent and all future holders of the
Revolving Credit Note and all Participants. In the case of any waiver, Borrower,
Agent and Lenders shall be restored to their former positions and rights, and
any Event of Default waived shall be deemed to be cured and not continuing, but
no waiver of a specific Event of Default shall extend to any subsequent Event of
Default (whether or not the subsequent Event of Default is the same as the Event
of Default which was waived), or impair any right consequent thereon.
15.3. Successors and Assigns; Participations; New Lenders.
(a) This Agreement shall be binding upon and inure to
the benefit of Borrower, Agent, each Lender, all future holders of the Revolving
Credit Note and their respective successors and assigns, except that Borrower
may not assign or transfer any of its rights or obligations under this Agreement
without the prior written consent of Agent and each Lender.
(b) Subject to Section 15.3(d), and subject to
Borrower's consent, which consent shall not be unreasonably withheld, any Lender
may sell, assign or transfer all or any part of its rights under this Agreement
and the Revolving Credit Note and all Other Documents, instruments and documents
provided Borrower is given notice of such sale as soon as practicable and the
transferee agrees to perform the obligations of the transferor. In addition to
the foregoing, any Lender may grant one or more participations in its interests
in the Advances in a minimum amount equal to $3,000,000 or in integral multiples
of $l,000,000 in excess thereof; provided, however, that (a) such Lender shall
remain a "Lender" for all purposes under this Agreement, (b) any
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such grant of a participation will be made in compliance with all applicable
state or federal laws, rules and regulations, and (c) no Lender shall grant any
participation under which the participant shall have rights to approve any
amendment to or waiver of this Agreement or the Other Documents, except to the
extent such amendment or waiver would: (i) increase the amount of the Commitment
Percentage of any Lender; (ii) change the maturity of the Revolving Credit Note
or the principal amount thereof, or reduce the rate or extend the time of
payment of interest thereon or of any fee payable by Borrower to Lenders
pursuant to this Agreement; (iii) alter the definition of the term Required
Lenders; (iv) alter, amend or modify this Section 15.2(b); or (v) change the
rights and duties of Agent. In the case of any participation, the participant
shall not have any rights under this Agreement or any of the Other Documents
(the participant's right against such Lender in respect of such participation to
be those set forth in the participation or other agreement executed by such
Lender and the participant related thereto) and all amounts payable to any
Lender hereunder (including, without limitation, Sections 3.2, 3.10 or 3.9
hereof) shall be determined as if such Lender had not sold such participation.
In no event shall any participant grant a participation in its participation
interest in the Advances without the prior written consent of Agent.
(c) In connection with any assignments,
participations or offers thereof pursuant to this Section 15.3 each Lender shall
be entitled to provide to any assignee or participant or prospective assignee or
participant such information pertaining to Borrower or any of its Subsidiaries
as such Lender may deem appropriate or such assignee or participant or
prospective assignee or participant may request; provided, however, that such
assignee or participant or prospective assignee or participant shall agree (i)
to treat in confidence all such information, (ii) not to disclose such
information to any third party, and (iii) not to make use of such information
for purposes of transactions other than contemplated by such assignment or
participation.
(d) Subject to Borrower's consent, which consent
shall not be unreasonably withheld, any Lender may sell, assign or transfer all
or any part of its rights under this Agreement and the Other Documents to one or
more additional banks or financial institutions and one or more additional banks
or financial institutions may commit to make Advances hereunder (each a
"Purchasing Lender"), in minimum amounts of not less than $3,000,000, pursuant
to a Commitment Transfer Supplement, executed by a Purchasing Lender, the
transferor Lender, and Agent and delivered to Agent for recording. Upon such
execution, delivery, acceptance and recording, from and after the transfer
effective date determined pursuant to such Commitment Transfer Supplement, (i)
Purchasing Lender thereunder shall be a party hereto and, to the extent provided
in such Commitment Transfer Supplement, have the rights and obligations of a
Lender thereunder with a Commitment Percentage as set forth therein; provided,
however, that unless Borrower consents, IBJS shall maintain at all times during
the Term
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a Commitment Percentage in excess of 50%, and (ii) the transferor Lender
thereunder shall, to the extent provided in such Commitment Transfer Supplement,
be released from its obligations under this Agreement, the Commitment Transfer
Supplement creating a novation for that purpose. Such Commitment Transfer
Supplement shall be deemed to amend this Agreement to the extent, and only to
the extent, necessary to reflect the addition of such Purchasing Lender and the
resulting adjustment of the Commitment Percentages arising from the purchase by
such Purchasing Lender of all or a portion of the rights and obligations of such
transferor Lender under this Agreement and the Other Documents. Borrower hereby
consents to the addition of such Purchasing Lender and the resulting adjustment
of the Commitment Percentages arising from the purchase by such Purchasing
Lender of all or a portion of the rights and obligations of such transferor
Lender under this Agreement and the Other Documents. Without in any manner
limiting the foregoing, the Borrower and each Lender specifically consents to
the sale, assignment and/or transfer by IBJS to IBJ Schroder Business Credit
Corporation of all or any part of its rights and obligations under this
Agreement and the Other Documents in its capacity as Agent and as Lender.
(e) Agent shall maintain at its address a copy of
each Commitment Transfer Supplement delivered to it and a register (the
"Register") for the recordation of the names and addresses of the Advances owing
to each Lender from time to time. The entries in the Register shall be
conclusive, in the absence of manifest error, and Borrower, Agent and Lenders
may treat each Person whose name is recorded in the Register as the owner of the
Advance recorded therein for the purposes of this Agreement. The Register shall
be available for inspection by Borrower or any Lender at any reasonable time and
from time to time upon reasonable prior notice. Agent shall receive a fee in the
amount of $3000 payable by the applicable Purchasing Lender upon the effective
date of each transfer or assignment to such Purchasing Lender.
(f) At Agent's or Lenders' expense, Borrower shall
execute and deliver to Agent, upon request, such further documents and
agreements and do such further acts and things as Agent may request in order to
carry out the purposes, terms or conditions of this Section 15.3.
15.4. Application of Payments. Agent shall have the continuing and
exclusive right to apply or reverse and re-apply any payment and any and all
proceeds of Collateral to any portion of the Obligations in accordance with the
terms of this Agreement. To the extent that Borrower makes a payment or Agent or
any Lender receives any payment or proceeds of the Collateral for Borrower's
benefit, which are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, debtor in
possession, receiver, custodian or any other party under any bankruptcy law,
common law or equitable cause, then, to such extent, the Obligations or part
thereof intended to
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be satisfied shall be revived and continue as if such payment or proceeds had
not been received by Agent or such Lender.
15.5. Indemnity. Borrower shall indemnify Agent and each Lender from
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses and disbursements of any kind or
nature whatsoever (including, without limitation, reasonable fees and
disbursements of counsel) which may be imposed on, incurred by, or asserted
against Agent or any Lender in any litigation, proceeding or investigation
instituted or conducted by any governmental agency or instrumentality or any
other Person with respect to any aspect of, or any transaction contemplated by,
or referred to in, or any matter related to, this Agreement, whether or not the
Agent or any Lender is a party thereto, except to the extent that any of the
foregoing arises out of the gross negligence or willful misconduct of the party
being indemnified.
15.6. Notice. Any notice or request hereunder may be given to
Borrower or to Agent or any Lender at their respective addresses set forth below
or at such other address as may hereafter be specified in a notice designated as
a notice of change of address under this Section. Any notice or request
hereunder shall be in writing and given by (a) hand delivery, (b) registered or
certified mail, return receipt requested, (c) telex or telegram, subsequently
confirmed by registered or certified mail, or (d) telefax to the number set out
below (or such other number as may hereafter be specified in a notice designated
as a notice of change of address) with telephone communication to a duly
authorized officer of the recipient confirming its receipt and subsequently
confirmed by registered or certified mail or recognized overnight courier. Any
notice or other communication required or permitted pursuant to this Agreement
shall be deemed given on the earliest of (a) when personally delivered to any
officer of the party to whom it is addressed, (b) on the earlier of actual
receipt thereof or five (5) days following posting thereof by certified or
registered mail, postage prepaid, or (c) upon actual receipt thereof when sent
by a recognized overnight delivery service or (d) upon actual receipt thereof
when sent by telecopier to the number set forth below with telephone
communication confirming receipt in each case addressed to each party at its
address set forth below or at such other address as has been furnished in
writing by a party to the other by like notice:
(A) If IBJS (either as Agent or a Lender), at:
IBJ Schroder Bank & Trust
Company
One State Street
New York, New York 10004
Attention: Alfred J. Scoyni
Telephone: (212) 858-2020
Telecopier: (212) 858-2151
with a copy to: Hahn & Hessen
-94-
<PAGE>
350 Fifth Avenue
New York, New York 10118
Attention: Steven J. Seif
Telephone: (212) 736-1000
Telecopier: (212) 594-7167
(B) If to any Lender other than Agent, as specified in the applicable
Commitment Transfer Supplement (or a schedule thereto).
(C) If to Borrower, at: Allstate Financial Corporation
2700 South Quincy Street
Suite 540
Arlington, Virginia 22206
Attention: Craig Fishman -
President
Telephone: (703) 931-2274
Telecopier: (703) 931-2034
with a copy to its General Counsel at the same
address, telephone and telecopier numbers.
15.7. Severability. If any part of this Agreement is contrary to,
prohibited by, or deemed invalid under applicable laws or regulations, such
provision shall be inapplicable and deemed omitted to the extent so contrary,
prohibited or invalid, but the remainder hereof shall not be invalidated thereby
and shall be given effect so far as possible.
15.8. Expenses. All reasonable, out-of-pocket costs and expenses
including, without limitation, reasonable attorneys' fees and disbursements
incurred by Agent, Agent on behalf of Lenders and Lenders (a) in all efforts
made to enforce payment of any Obligation or effect collection of any
Collateral, or (b) in connection with the entering into, modification,
amendment, administration and enforcement of this Agreement or any consents or
waivers hereunder and all related agreements, documents and instruments, or (c)
following the occurrence and during the continuance of an Event of Default, in
instituting, maintaining, preserving, enforcing and foreclosing on Agent's
security interest in or Lien on any of the Collateral, whether through judicial
proceedings or otherwise, or (d) in defending or prosecuting any actions or
proceedings arising out of or relating to Agent's or any Lender's transactions
hereunder with Borrower, or (e) in connection with any advice given to Agent or
any Lender with respect to its rights and obligations under this Agreement and
all Other Documents, may be charged to Borrower's account as a Revolving Advance
and shall be part of the Obligations; provided, that, the reasonable
out-of-pocket fees and expenses of counsel to Agent in connection with the
initial closing of the loans hereunder shall not exceed $50,000 in the
aggregate.
15.9. Injunctive Relief. Borrower recognizes that, in the
event Borrower fails to perform, observe or discharge any of its
obligations or liabilities under this Agreement, any remedy at law
-95-
<PAGE>
may prove to be inadequate relief to Lenders; therefore, each Lender, if such
Lender so requests, shall be entitled to temporary and permanent injunctive
relief in any such case without the necessity of proving actual damages.
15.10. Consequential Damages. Neither Lenders nor any agent
r attorney for any of them shall be liable to Borrower for
consequential damages arising from any breach of contract, tort or
other wrong relating to the establishment, administration or
collection of the Obligations.
15.11. Captions. The captions at various places in this
Agreement are intended for convenience only and do not constitute
and shall not be interpreted as part of this Agreement.
15.12. Counterparts. This Agreement may be executed in one
or more counterparts, each of which taken together shall constitute
one and the same instrument.
-96-
<PAGE>
15.13. Construction. The parties acknowledge that each party and its
counsel have reviewed this Agreement and that the normal rule of construction to
the effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Agreement or any amendments,
schedules or exhibits thereto.
Each of the parties has signed this Agreement as of the 13th day of
May 1997.
ALLSTATE FINANCIAL CORPORATION
--------------------------------
Name: Craig Fishman
Title: President
IBJ SCHRODER BANK & TRUST COMPANY,
as Lender and as Agent
-------------------------------
Name: Alfred J. Scoyni
Title: Vice President
Commitment Percentage: 60%
NATIONAL BANK OF CANADA, as Lender
-------------------------------
Name:
Title:
-------------------------------
Name:
Title:
Commitment Percentage: 40%
-97-
<PAGE>
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On this ______ day of May, 1997, before me personally came
_____________, to me known, who, being by me duly sworn, did depose and say that
he is the ______________ of ALLSTATE FINANCIAL CORPORATION, the corporation
described in and which executed the foregoing instrument; and that he signed his
name thereto by order of the board of directors of said corporation.
------------------------------
NOTARY PUBLIC
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On this _____ day of May, 1997, before me personally came
_________________, to me known, who, being by me duly sworn, did depose and say
that he is the ______________ of IBJ SCHRODER BANK & TRUST COMPANY, the
corporation described in and which executed the foregoing instrument and that he
was authorized to sign his name thereto on behalf of said corporation.
------------------------------
NOTARY PUBLIC
-98-
<PAGE>
Table of Contents
I. DEFINITIONS...................................................... 1
-----------
1.1. Accounting Terms................................... 1
----------------
1.2. General Terms...................................... 1
-------------
1.3. Uniform Commercial Code Terms...................... 22
-----------------------------
1.4. Certain Matters of Construction.................... 22
-------------------------------
II. ADVANCES, PAYMENTS............................................... 23
------------------
2.1. (a) Revolving Advances........................ 23
------------------
(b) Discretionary Rights...................... 24
--------------------
2.2. ................................................... 24
2.3. Disbursement of Revolving Advance Proceeds......... 27
------------------------------------------
2.4. ................................................... 27
2.5. ................................................... 27
2.6. ................................................... 28
2.7. Statement of Account............................... 28
--------------------
2.8. Letters of Credit.................................. 28
-----------------
2.9. Issuance of Letters of Credit...................... 29
-----------------------------
2.10. Requirements For Issuance of Letters of Credit..... 29
----------------------------------------------
2.11. Additional Payments................................ 31
-------------------
2.12. Manner of Borrowing and Repayment of Advances...... 31
---------------------------------------------
2.13. Use of Proceeds.................................... 36
---------------
III. INTEREST AND FEES..................................................... 36
-----------------
3.1. Interest........................................... 36
--------
3.2. Letter of Credit Fees.............................. 36
---------------------
3.3. Closing Fee........................................ 37
-----------
3.4. Unused Line Fee.................................... 37
---------------
3.5. Collateral Evaluation Fee.......................... 37
-------------------------
3.6. Field Examinations................................. 37
------------------
3.7. Computation of Interest and Fees................... 37
--------------------------------
3.8. Maximum Charges.................................... 38
---------------
3.9. Increased Costs.................................... 38
---------------
3.10. Capital Adequacy................................... 39
----------------
3.11. Survival.................................................. 39
--------
IV. COLLATERAL: GENERAL TERMS............................................. 40
--------------------------
4.1. Security Interest in the Collateral................ 40
-----------------------------------
4.2. Perfection of Security Interest.................... 40
-------------------------------
4.3. Disposition of Collateral.......................... 41
-------------------------
4.4. Preservation of Collateral......................... 41
--------------------------
4.5. Ownership of Collateral............................ 42
-----------------------
4.6. Defense of Agent's and Lender's Interests.......... 42
-----------------------------------------
4.7. Books and Records.................................. 43
-----------------
4.8. Financial Disclosure............................... 43
--------------------
4.9. Compliance with Laws............................... 43
--------------------
4.10. Inspection of Premises............................. 43
----------------------
4.12. Failure to Pay Insurance........................... 44
------------------------
-i-
<PAGE>
4.13. Payment of Taxes.................................... 44
----------------
4.14. Payment of Leasehold Obligations.................... 45
--------------------------------
4.15. Receivables......................................... 45
-----------
(a) Nature of Receivables...................... 45
---------------------
(b) Solvency of Account Debtor................. 45
--------------------------
(c) Locations of Borrower...................... 46
---------------------
(d) Collection of Receivables.................. 46
-------------------------
(e) Notification of Assignment of Receivables.. 46
-----------------------------------------
(f) Power of Agent to Act on Borrower's Behalf. 46
------------------------------------------
(g) No Liability............................... 49
------------
4.16. Cash Management Systems............................. 50
-----------------------
4.17. Inventory........................................... 51
---------
4.18. Maintenance of Equipment............................ 51
------------------------
4.19. Exculpation of Liability............................ 52
------------------------
4.20. Environmental Matters............................... 52
---------------------
V. REPRESENTATIONS AND WARRANTIES........................................... 54
------------------------------
5.1. Authority........................................... 54
---------
5.2. Formation and Qualification......................... 55
---------------------------
5.3. Survival of Representations and Warranties.......... 55
------------------------------------------
5.4. Tax Returns......................................... 55
-----------
5.5. Financial Statements................................ 55
--------------------
5.6. Corporate Name...................................... 56
--------------
5.7. O.S.H.A............................................. 56
--------
5.8. Solvency; No Litigation, Violation, Indebte
ness or Default..................................... 57
---------------
5.9. Patents, Trademarks, Copyrights and Licenses........ 58
--------------------------------------------
5.10. Licenses and Permits................................ 58
--------------------
5.11. Default of Indebtedness............................. 59
-----------------------
5.12. No Default.......................................... 59
----------
5.13. No Burdensome Restrictions.......................... 59
--------------------------
5.14. No Labor Disputes................................... 59
-----------------
5.15. Margin Regulations.................................. 59
------------------
5.16. Investment Company Act.............................. 59
----------------------
5.17. Disclosure.......................................... 59
----------
5.18. Swaps............................................... 60
-----
5.19. Conflicting Agreements.............................. 60
----------------------
5.20. Application of Certain Laws and Regulations......... 60
-------------------------------------------
5.21. Property of Borrower................................ 60
--------------------
5.22. Other Ventures...................................... 60
--------------
.................................................... 60
VI. AFFIRMATIVE COVENANTS................................................... 60
6.1. Payment of Fees..................................... 60
---------------
6.2. Conduct of Business and Maintenance of Existence
and Assets.......................................... 60
----------
6.3. Violations.......................................... 61
----------
6.4. Government Receivables.............................. 61
----------------------
6.5. Execution of Supplemental Instruments............... 61
-------------------------------------
6.6. Payment of Indebtedness............................. 62
-----------------------
6.7. Standards of Financial Statements................... 62
---------------------------------
6.8. Credit Standards.................................... 62
----------------
6.9. Insurance........................................... 62
---------
6.10. Filing of Financing Statements...................... 63
------------------------------
-ii-
<PAGE>
VII. NEGATIVE COVENANTS..................................................... 63
7.1. Merger, Consolidation, Acquisition and Sale of
Assets.............................................. 63
------
7.2. Creation of Liens................................... 64
-----------------
7.3. Guaranties.......................................... 64
----------
7.4. Investments......................................... 65
-----------
7.5. Loans............................................... 65
-----
7.6. Capital Expenditures................................ 66
--------------------
7.7. Restricted Payments................................. 66
-------------------
7.8. Indebtedness........................................ 66
------------
7.9. Nature of Business.................................. 67
------------------
7.10. Transactions with Affiliates........................ 67
----------------------------
7.11. Leases.............................................. 68
------
7.12. Subsidiaries........................................ 68
------------
7.13. Fiscal Year and Accounting Changes.................. 69
----------------------------------
7.14. Intentionally Omitted............................... 69
---------------------
7.15. Amendment of Articles of Incorporation, By-Laws..... 69
-----------------------------------------------
7.16. Compliance with ERISA............................... 69
---------------------
7.17. Prepayment of Indebtedness.......................... 70
--------------------------
.................................................... 70
7.18. Pledge of Credit.................................... 70
----------------
VIII. CONDITIONS PRECEDENT.................................................. 71
--------------------
8.1. Conditions to Initial Advances...................... 71
------------------------------
(a) Revolving Credit Note...................... 71
---------------------
(b) Filings, Registrations and Recordings...... 71
-------------------------------------
(c) Corporate Proceedings of Borrower.......... 72
---------------------------------
(d) Incumbency Certificates of Borrower........ 72
-----------------------------------
(e) Certificates............................... 72
------------
(f) Good Standing Certificates................. 72
--------------------------
(g) Legal Opinion.............................. 72
-------------
(h) No Litigation.............................. 72
-------------
(i) Financial Condition Certificate............ 73
-------------------------------
(j) Collateral Examination..................... 73
----------------------
(k) Fees....................................... 73
----
(l) Insurance.................................. 73
---------
(m) Leasehold Agreements....................... 73
--------------------
(n) Reaffirmation of Guaranty, Stock Pledge
---------------------------------------
Agreements, etc............................ 73
(o) Payment Instructions; Borrowing Base
Certificate................................ 73
-----------
(p) Lockbox Accounts........................... 74
----------------
(q) Consents................................... 74
--------
(r) No Adverse Material Change................. 74
--------------------------
(s) Undrawn Availability....................... 74
--------------------
(t) Contract Review............................ 74
---------------
(u) Closing Certificate........................ 74
-------------------
(v) Representations and Warranties............. 74
------------------------------
(w) Other...................................... 74
-----
8.2. Conditions to Each Advance.......................... 74
--------------------------
(a) Representations and Warranties............. 75
------------------------------
(b) No Default................................. 75
----------
(c) Maximum Advances........................... 75
----------------
-iii-
<PAGE>
IX. INFORMATION AS TO BORROWER.............................................. 75
--------------------------
9.1. Disclosure of Material Matters...................... 75
------------------------------
9.2. Schedules; Borrowing Base Certificate............... 75
-------------------------------------
9.3. Litigation.......................................... 76
----------
9.4. Occurrence of Defaults, etc......................... 76
---------------------------
9.5. Intentionally Omitted............................... 77
---------------------
9.6. Annual Financial Statements......................... 77
---------------------------
9.7. Quarterly Financial Statements...................... 77
------------------------------
9.8. Intentionally Omitted............................... 78
---------------------
9.9. Other Reports....................................... 78
-------------
9.10. Additional Information.............................. 78
----------------------
9.11. Projected Operating Budget.......................... 78
--------------------------
9.12. Intentionally Omitted............................... 79
---------------------
9.13. Notice of Suits, Adverse Events..................... 79
-------------------------------
9.14. ERISA Notices and Requests.......................... 79
--------------------------
9.15. Additional Documents................................ 80
--------------------
X. EVENTS OF DEFAULT........................................................ 80
XI. LENDERS' RIGHTS AND REMEDIES AFTER DEFAULT.............................. 82
------------------------------------------
11.1. Rights and Remedies................................. 82
-------------------
11.2. Agent's Discretion.................................. 83
------------------
11.3. Setoff.............................................. 83
------
11.4. Rights and Remedies not Exclusive................... 83
---------------------------------
XII. WAIVERS AND JUDICIAL PROCEEDINGS....................................... 83
--------------------------------
12.1. Waiver of Notice.................................... 83
----------------
12.2. Delay............................................... 84
-----
12.3. Jury Waiver......................................... 84
-----------
XIII. EFFECTIVE DATE AND TERMINATION........................................ 84
------------------------------
13.1. Term................................................ 84
----
13.2. Termination......................................... 85
-----------
XIV. Regarding Agent........................................................ 85
---------------
14.1. Appointment......................................... 85
-----------
14.2. Nature of Duties.................................... 86
----------------
14.3. Lack of Reliance on Agent and Resignation........... 86
-----------------------------------------
14.4. Certain Rights of Agent............................. 87
-----------------------
14.5. Reliance............................................ 87
--------
14.6. Notice of Default................................... 87
-----------------
14.7. Indemnification..................................... 88
---------------
14.8. Agent in its Individual Capacity.................... 88
--------------------------------
14.9. Delivery of Documents............................... 88
---------------------
14.10. Borrower' Undertaking to Agent...................... 88
------------------------------
14.12. Applicability of Section to Borrower................ 89
------------------------------------
XIV. MISCELLANEOUS.......................................................... 89
15.2. Entire Understanding................................ 90
--------------------
15.3. Successors and Assigns; Participations; New
Lenders............................................. 91
-------
15.4. Application of Payments............................. 93
-----------------------
15.5. Indemnity........................................... 94
---------
15.6. Notice.............................................. 94
------
-iv-
<PAGE>
15.7. Severability........................................ 95
------------
15.8. Expenses............................................ 95
--------
15.9. Injunctive Relief................................... 95
-----------------
15.10. Consequential Damages............................... 96
---------------------
15.11. Captions........................................... 96
--------
15.12. Counterparts.............................................. 96
------------
15.13. Construction................................ 96
-v-
<PAGE>
FIRST AMENDMENT
TO
AMENDED AND RESTATED REVOLVING CREDIT AND SECURITY AGREEMENT
FIRST AMENDMENT ("First Amendment") dated as of June 20, 1997
to the Amended and Restated Revolving Credit and Security Agreement dated as of
May 28, 1997 (as amended and waived to the dated hereof and as may be further
amended, supplemented, modified or waived from time to time, the "Loan
Agreement") by and among ALLSTATE FINANCIAL CORPORATION, a corporation organized
under the laws of the Commonwealth of Virginia ("Borrower"), IBJ SCHRODER BANK &
TRUST COMPANY ("IBJS"), the other lenders party to the Loan Agreement (IBJS, and
each of the other lenders which may now or in the future be a party to the Loan
Agreement, the "Lenders") and IBJS, as agent for the Lenders (IBJS, in such
capacity, the "Agent").
BACKGROUND
Borrower has requested that Agent and Lenders amend certain
provisions of the Loan Agreement and Agent and Lenders are willing to do so on
the terms and conditions hereafter set forth.
NOW, THEREFORE, in consideration of any loan or advance or
grant of credit heretofore or hereafter made to or for the account of Borrower
by Lenders, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. Definitions. All capitalized terms not otherwise
defined herein shall have the meanings given to them in the Loan
Agreement.
2. Amendments to Loan Agreement. Subject to
satisfaction of the conditions set forth in Section 4 below, the
Loan Agreement is hereby amended as follows:
(a) Section 1.2 of the Loan Agreement is hereby amended
as follows:
(i) the following defined terms are hereby added in
appropriate alphabetical order:
"Allstate Factors" shall mean the Allstate Factors
division of Borrower.
"Allstate Factors Borrowing Base" shall have the
meaning set forth in Section 2.2B(a).
<PAGE>
"Allstate Factors Advances" shall mean the Advances
made to Allstate Factors pursuant to Section 2.2B(a) hereof.
"Allstate Factors Lockbox Account" shall have the
meaning set forth in Section 4.16(a).
"Allstate Factors Operating Account" shall have the
meaning set forth in Section 4.16(d).
"Amounts Due From Republic" shall mean, at any time,
all amounts or balances (i) due from Republic to Borrower (or Allstate Factors)
at such time (whether or not payable at such time) and (ii) otherwise standing
on the books of Republic to the credit of Borrower (or Allstate Factors) at such
time, but only to the extent such amounts, balances or credits are payable
directly to the Allstate Factors Lockbox Account under and in accordance with
the terms of this Agreement and the Republic Intercreditor Agreement.
"First Amendment" shall mean the First Amendment
dated as of June 20, 1997 to Amended and Restated Revolving Credit and Security
Agreement dated as of May 28, 1997.
"First Amendment Effective Date" shall mean the date
on which all conditions set forth in Section 4 of the First Amendment are
satisfied or waived in writing by the Agent.
"Republic" shall mean Republic Business Credit
Corporation and shall include its successors and assigns.
"Republic Collateral" shall mean "Collateral" as
defined in Section 3 of the Republic Factoring Agreement.
"Republic Factoring Agreement" shall mean the
Factoring Agreement between Borrower (or Allstate Factors) and Republic in
substantially the form attached hereto as Exhibit 1.2(e), together with such
modifications thereto as Borrower and Republic may from time to time deem
appropriate or desirable; provided, however, that no such modifications can be
made, without Agent's prior approval, (i) at any time, to (a) the definition of
"Collateral" set forth in Section 3 thereof, (b) Section 4 thereof or (c) the
definition of "Receivables" set forth in Section 15 thereof, or (ii) following
the occurrence and during the continuance of an Event of Default, any other
Section thereof, such approval not to be unreasonably withheld.
"Republic Intercreditor Agreement" shall mean the
Subordination Agreement and Assignment of Monies Due Under Factoring Agreement
among Republic, Agent and Borrower (or Allstate Factors) in substantially the
form attached hereto as Exhibit 1.2(f), together with such modifications thereto
as may be made from time to time in accordance with the terms thereof.
2
<PAGE>
(ii) the following defined terms are hereby amended
in their entirety to provide as follows:
"Advances" shall mean and include, without
duplication, the Revolving Advances, the Allstate Factors Advances,
the Inventory Value Advances, the Equipment Value Advances and
Letters of Credit.
"Borrower" shall have the meaning set forth in the
preamble to this Agreement and shall extend to all permitted successors and
assigns. Unless the context otherwise requires, the term "Borrower" shall
include Allstate Factors. In certain circumstances in this Agreement and the
Other Documents, the term "Borrower" may be followed by words such as
"including, without limitation, Allstate Factors" or other words or phrases of
similar import. In such circumstances, the reference to "Allstate Factors" is
intended to provide emphasis only and not to exclude "Allstate Factors" from the
term "Borrower" in other circumstances. In addition, the inclusion of "Allstate
Factors" is for emphasis only and is not intended to mean that Allstate Factors
has a legal existence separate from that of Borrower.
"Cash Collateral Account" shall have the meaning set
forth in Section 2.10(d).
"Revolving Advances" shall mean Advances made other
than Letters of Credit, Equipment Value Advances, Inventory Value
Advances and Allstate Factors Advances.
(iii) the word "and" appearing immediately
before clause (n) of the definition of "Permitted Encumbrances" is hereby
deleted; clause (n) of the definition of "Permitted Encumbrances" is hereby
re-lettered clause (o) and the following new clause (n) is inserted immediately
before clause (o) (as re-lettered):
"(n) Liens on the Republic Collateral in favor of
Republic (which Liens may be senior to the Liens
thereon in favor of Agent) relating solely to the
Republic Collateral, but only to the extent such
Liens do not secure outstanding Indebtedness for
borrowed money by, or actual cash advances by
Republic to, Borrower or Allstate Factors; and"
(iv) the definition of "Receivables" is hereby
amended by (x) inserting the words ", without duplication" immediately before
clause (a) thereof, (y) re-designating clause (iv) thereof as clause (v) and (z)
inserting the following new clause (iv) at the end of clause "(iii)" thereof:
"(iv) the Republic Factoring Agreement (including,
without limitation, all Amounts Due from Republic)"
3
<PAGE>
(v) Exhibit 1.2(c) attached to the Loan Agreement
is hereby amended to include as a "Factoring Agreement" an agreement in
substantially the form attached hereto as Exhibit I and the Republic Factoring
Agreement and the Republic Intercreditor Agreement are hereby attached as
Exhibits 1.2(e) and 1.2(f), respectively, to the Loan Agreement.
(b) Section 2.1(a)(x) of the Loan Agreement is hereby
amended by deleting the parenthetical phrase appearing therein and
inserting the following in lieu thereof:
"(less the sum of the aggregate amount of (I) outstanding
Letters of Credit, (II) outstanding Equipment Value Advances,
(III) outstanding Inventory Value Advances and (IV)
outstanding Allstate Factors Advances"
(c) The Loan Agreement is hereby amended by inserting the
following new Section 2.2B immediately after Section 2.2A thereof:
"2.2B Allstate Factors Advances. (a) Subject to the terms and
conditions of this Agreement, each Lender, severally and not jointly,
agrees to make loans to Allstate Factors ("Allstate Factors Advances")
in aggregate amounts outstanding at any time equal to such Lender's
Commitment Percentage of the lesser of (x) the Maximum Revolving
Advance Amount (less the sum of the aggregate amount of (I) outstanding
Revolving Advances, (II) outstanding Letters of Credit, (III)
outstanding Equipment Value Advances and (IV) outstanding Inventory
Value Advances) or (y) an amount equal to the lesser of 85% (subject to
increase or decrease in the same manner as changes to the Advance Rates
under Section 2.1(b) hereof) of (i) the Amounts Due from Republic from
time to time or (ii) the aggregate amount from time to time outstanding
of actual cash advances by Allstate Factors to Clients secured by the
Amounts Due from Republic at such time, less (in either case) such
reserves as Agent may reasonably deem proper and necessary from time to
time in connection with charges, judgments or other amounts which Agent
may have to pay to preserve the Amounts Due from Republic or the
priority of the Lien of the Agent therein (preceding clause (y)(i) or
(ii), as applicable, the "Allstate Factors Borrowing Base").
(b) Allstate Factors Advances shall be made on and after the First
Amendment Effective Date and thereafter during the Term, subject to the
terms hereof. Allstate Factors may use the Allstate Factors Advances by
borrowing, repaying and reborrowing, all in accordance with the terms
and conditions hereof. The proceeds of each Allstate Factors Advance
requested by Allstate Factors shall, to the extent Lenders make such
Allstate Factors Advance, be made available to Allstate Factors on the
day so requested by way of credit to
4
<PAGE>
Allstate Factors Operating Account, in immediately available federal or
other immediately available funds. The aggregate principal amount of
Allstate Factors Advances outstanding on the last day of the Term shall
be payable in full upon the expiration of the Term, subject to
acceleration upon the occurrence of an Event of Default under this
Agreement or termination of this Agreement.
(d) The Loan Agreement is hereby amended by inserting the
following new Section 2.5B immediately after Section 2.5A thereof:
"Maximum Allstate Factors Advances. The aggregate
balance of Allstate Factors Advances outstanding at any time shall not exceed
the lesser of (x) the Maximum Revolving Advance Amount less (a) outstanding
Revolving Advances, (b) outstanding Letters of Credit, (c) outstanding Equipment
Value Advances and (d) outstanding Inventory Value Advances and (y) the Allstate
Factors Borrowing Base."
(e) Section 2.6 of the Loan Agreement is hereby amended
in its entirety to provide as follows:
"2.6 Repayment of Excess Advances. The aggregate
balance of Revolving Advances, Equipment Value Advance,
Inventory Value Advances and Allstate Factors Advances, as the
case may be, outstanding at any time in excess of the maximum
permitted under Section 2.4, Section 2.5, Section 2.5A or
Section 2.5B, as applicable, shall be immediately due and
payable without the necessity of any demand, at the Payment
Office, whether or not a Default or Event of Default has
occurred."
(f) Section 2.8 of the Loan Agreement is hereby amended by
inserting the following new clause immediately after clause (c) thereof:
"less (d) outstanding Allstate Factors Advances"
(g) Section 2.10(c) of the Loan Agreement is hereby
amended by inserting the following new clause immediately after
clause (iv) thereof:
"less (v) outstanding Allstate Factors Advances"
(h) Section 2.12 (a) of the Loan Agreement is hereby amended
by inserting the words ", Allstate Factors Advance" after the words "Equipment
Value Advance" appearing in the first sentence thereof.
(i) Sections 2.12(h) and (j) of the Loan Agreement are
hereby amended by deleting the words "Revolving Advances" appearing
5
<PAGE>
therein and inserting in lieu thereof the words "Advances (other than Letters of
Credit)".
(j) The first sentence of Section 2.12(k) of the Loan
Agreement is amended in its entirety to read as follows:
"Each payment (including each prepayment) by Borrower on
account of the principal of and interest on the Revolving
Credit Note, shall, subject to Sections 2.1, 2.2, 2.2A and
2.2B, be applied to the Revolving Advances, Equipment Value
Advances, Inventory Value Advances and Allstate Factors
Advances, as the case may be, as applicable, pro rata
according to the Commitment Percentages of the Lenders."
(k) Sections 2.12(l)(i), 2.12(m) and 2.12(n) of the Loan
Agreement are hereby amended by inserting the words ", Allstate Factors
Advances" after the words "Equipment Value Advances" each place they appear
therein.
(l) Section 4.4 of the Loan Agreement is hereby amended by
inserting the parenthetical phrase "(but subject in all events to the terms of
the Republic Intercreditor Agreement)" immediately after the words "Event of
Default" appearing therein.
(m) Section 4.6 of the Loan Agreement is hereby amended by (x)
inserting the words "(but subject in all events to the terms of the Republic
Intercreditor Agreement)" after the words "Event of Default" appearing in the
fourth sentence thereof and (y) deleting the last sentence thereof in its
entirety and inserting the following in lieu thereof:
"Following the occurrence and during the continuation of an
Event of Default, Borrower shall (except with respect to the
Republic Collateral) at Agent's request, and Agent may
(subject to the terms of the Republic Intercreditor
Agreement), at its option, instruct all suppliers, carriers,
forwarders, warehouses or others receiving or holding cash,
checks, Inventory, documents or instruments in which Agent
holds a security interest to deliver same to Agent and/or
subject to Agent's order and if they shall come into
Borrower's possession they and each of them (except to the
extent any of them constitute Republic Collateral), shall be
held by Borrower in trust as Agent's trustee and (except to
the extent any of them constitute Republic Collateral)
Borrower shall immediately deliver them to Agent in their
original form together with any necessary endorsement."
(n) Section 4.15(d) of the Loan Agreement is hereby amended by
(x) inserting the parenthetical phrase "(other than Receivables that constitute
Republic Collateral)" immediately after
6
<PAGE>
the word "Receivables" appearing in the first sentence thereof and (y) inserting
the words "or cause to be deposited in the Allstate Factors Lockbox Account, as
the case may be," immediately after the words "Lockbox Account" appearing in the
second sentence thereof.
(o) Section 4.15(e) of the Loan Agreement is hereby amended by
(x) inserting the parenthetical phrase "(but subject to the terms of the
Republic Intercreditor Agreement)" immediately after the words "Event of
Default" appearing in the first sentence thereof and (y) by inserting the
parenthetical phrase "(subject to the terms of the Republic Intercreditor
Agreement)" immediately after the phrase "Agent shall have the sole right"
appearing in the second sentence thereof.
(p) Section 4.15 (f)(2) of the Loan Agreement is hereby
amended by inserting the parenthetical phrase "(but subject in all events to the
terms of the Republic Intercreditor Agreement)" immediately after the words
"Event of Default" appearing at the end of the introductory paragraph thereof.
(q) Sections 4.15(f)(5) and 4.15(g) of the Loan Agreement are
hereby amended by inserting the parenthetical phrase "(but subject to the terms
of the Republic Intercreditor Agreement)" immediately after the words "Event of
Default" each place they appear therein.
(r) Section 4.16(a) of the Loan Agreement is hereby
deleted in its entirety and the following is inserted in lieu
thereof:
"(a) Commencing on the Original Closing Date and for so long
as any Obligations are outstanding, Borrower shall deposit
within three (3) Business Days following the date of receipt
thereof or cause to be deposited directly all cash, checks,
notes, drafts or other similar items of payment relating to or
constituting payments made in respect of any and all
Receivables (other than Amounts Due from Republic and amounts
due in respect of the Republic Collateral) into one collection
account in Borrower's name at each bank set forth on Schedule
4.16 hereto that have no rights of setoff or recoupment or any
other claim against such accounts (collectively, the "Lockbox
Accounts"). To the extent that any Lockbox Accounts are from
time to time maintained at Agent or any other Lender, all
cash, checks, notes, drafts and other similar items of payment
from time to time deposited in such Lockbox Accounts shall be
made available to Borrower for all purposes hereof at the
times and in a manner consistent with IBJS's past practices
with Borrower.
Commencing on the date on which the Republic Factoring
Agreement becomes effective and for so long as it remains
7
<PAGE>
effective and any Obligations are outstanding, Borrower
(including Allstate Factors) shall, at the time and to the
extent same would otherwise be available to Borrower
(including Allstate Factors) under and in accordance with the
Republic Factoring Agreement, cause Republic to deposit all
Amounts Due from Republic directly into one collection account
in Borrower's (or Allstate Factors' name) maintained at Agent
(the "Allstate Factors Lockbox Account"). All amounts from
time to time deposited in the Allstate Factors Lockbox Account
shall be made available to Allstate Factors for all purposes
hereof at the times and in a manner consistent with IBJS's
past practices with Borrower's deposits to the Lockbox
Account(s). Blocked account arrangements shall be established
with the banks at which the Lockbox Accounts and the Allstate
Factors Lockbox Account are maintained.
At any time when an Event of Default is not continuing,
Borrower may pay down the Advances (other than Letters of
Credit) by (i) wiring funds from the Lockbox Account or the
Allstate Factors Lockbox Account, as the case may be, to
Agent's depository account as designated by Agent from time to
time (the "Depository Account"), and (ii) providing notice to
Agent of such deposit. At any time when an Event of Default is
not continuing, Borrower may, in lieu of wiring funds to the
Depository Account, cause the transfer of funds in the Lockbox
Accounts to the Operating Accounts and funds in the Allstate
Factors Lockbox Account to the Allstate Factors Operating
Account.
At any time when an Event of Default is continuing, all
amounts deposited in the Lockbox Accounts and the Allstate
Factors Lockbox Account shall on the same day that such
amounts are available for transfer, unless the Lockbox Account
banks are, or the Allstate Factors Lockbox Account bank is,
otherwise instructed by Agent, be deposited via wire transfer,
in immediately available funds, into the Depository Account.
Notwithstanding the foregoing, unless an Event of Default is
continuing under Section 10.1, 10.7 or 10.8 hereof, Allstate
Factors shall be permitted to transfer amounts from the
Allstate Factors Lockbox Account to the Allstate Factors
Operating Account to the extent (but only to the extent)
necessary to enable Allstate Factors to remit such amounts to
(or for the benefit or account of) Clients of Allstate Factors
who have no outstanding loans or advances owing to Allstate
Factors.
Agent shall give Borrower at least five (5) Business Days
notice prior to changing the Depository Account. So long as no
Default has occurred, Borrower may open a Lockbox
8
<PAGE>
Account with any bank in lieu of or in addition to those
listed on Schedule 4.16 hereto; provided, however, that (i)
Agent shall have consented to the opening of such Lockbox
Account with such bank, and (ii) at the time of the opening of
such Lockbox Account Borrower shall deliver to Agent a blocked
account agreement duly executed by Borrower and such bank, in
form and substance satisfactory to Agent. The Lockbox Accounts
and the Allstate Factors Lockbox Account shall be cash
collateral accounts, with all cash, checks and other similar
items of payment in such accounts securing payment of the
Obligations, and in which Borrower will have granted a Lien to
Agent for the benefit of Lenders."
(s) Section 4.16 of the Loan Agreement is hereby further
amended by inserting the following new subsection (d) immediately
after subsection (c) thereof:
"(d) Borrower (or Allstate Factors) shall maintain an account
(the "Allstate Factors Operating Account") at a bank
acceptable to Agent in which Agent or Lenders shall from time
to time, (i) deposit proceeds of Allstate Factors Advances
made pursuant to Section 2.2B hereof to be used for the
working capital and general corporate needs of Allstate
Factors and (ii) in accordance with Section 4.16(a), cause or
permit transfers from the Allstate Factors Lockbox Account.
The Allstate Factors Operating Account shall be a cash
collateral account, with all cash checks and other similar
items of payment in such account securing payment of the
Obligations, and in which Borrower (and Allstate Factors)
hereby grants a Lien to Agent for the benefit of Lenders,
provided that, unless an Event of Default is continuing under
Section 10.1, 10.7 or 10.8 hereof, neither Agent nor any
Lender shall exercise its rights, remedies or powers with
respect to any amounts on deposit in the Allstate Factors
Operating Account to the extent (but only to the extent)
Allstate Factors is obligated pursuant to one or more
Factoring Agreements to remit such amounts to (or for the
benefit or account of) Clients of Allstate Factors who have no
outstanding loans or advances owing to Allstate Factors.
(t) Section 6.4 of the Loan Agreement is hereby amended by
inserting the parenthetical phrase (x) "(other than Receivables that constitute
Republic Collateral) immediately after the word "Collateral" appearing in clause
(a) thereof, (y) "(except to the extent such Receivables are sold, transferred,
conveyed or assigned to Republic in accordance with Section 7.1 hereof)" at the
end of clause (b) thereof, and (z) "(other than a Receivable that constitutes
Republic Collateral)" immediately after the word "Receivable" appearing in
clause (c) thereof.
9
<PAGE>
(u) Section 7.1 of the Loan Agreement is hereby amended by (i)
deleting the word "and" appearing at the end of clause (ix) thereof and
inserting in lieu thereof "," and (ii) inserting the following new clause (xi)
immediately after clause (x) thereof:
"and (xi) Borrower (or Allstate Factors) may sell, transfer,
convey, assign or otherwise dispose of Receivables to Republic
but only if (i) such Receivables are acquired by Allstate
Factors pursuant to a Factoring Agreement with a Client of
Allstate Factors, (ii) such sale, transfer, conveyance,
assignment or other disposition is made to Republic pursuant
to the Republic Factoring Agreement, and (iii) the Republic
Intercreditor Agreement is in full force and effect"
(v) Section 7.8 of the Loan Agreement is hereby amended by (i)
inserting immediately after the date "December 31, 1996" appearing in clause
(iv) thereof the phrase "and credit balances and other amounts due to Clients of
Allstate Factors under and in accordance with the applicable Factoring
Agreements as long as such credit balances and other amounts are reflected on
Borrower's balance sheet in accordance with generally accepted accounting
principles", (ii) deleting the word "and" appearing at the end of clause (x)
thereof and (iii) inserting the following new clause (xii) immediately after
clause (xi) thereof:
"and (xii) Indebtedness to Republic under and in accordance
with the Republic Factoring Agreement other than Indebtedness
for borrowed money or actual cash advances by Republic to
Borrower (or Allstate Factors)"
(w) Section 7.9 of the Loan Agreement is hereby amended by (i)
deleting the date "December 31, 1993" appearing in the first sentence thereof
and inserting in lieu thereof the date "December 31, 1996" and (ii) inserting
the following new sentence at the end thereof:
"Notwithstanding the foregoing, Borrower (through Allstate
Factors) may expand its business (as constituted on the
Effective Date) to include traditional factoring products and
services and other reasonably related or incidental products
and services.
(x) Section 7.19(d) of the Loan Agreement is hereby
amended by inserting the following new, stand-alone sentence at the
end thereof:
"For purposes of Section 7.19(d)(ii), "Receivables" shall not
include Amounts Due from Republic and "Account Debtor" shall
not include Republic."
10
<PAGE>
(y) Section 8.2(c) of the Loan Agreement is hereby amended by
(i) deleting the word "or" before the words "Section 2.5A" and inserting in lieu
thereof "," and (ii) inserting the words "or Section 2.5B" immediately before
the word "hereof" appearing therein.
(z) Section 9.2 of the Loan Agreement is hereby amended by
inserting the following sentence immediately after the first sentence thereof:
"Within three (3) business days of receipt by Borrower,
Borrower shall deliver to Agent a copy of each monthly
statement received from Republic (together with all pertinent
supporting documentation received from Republic)."
(aa) Section 11.1 of the Loan Agreement is hereby amended
by inserting the following sentence at the end thereof:
"Notwithstanding anything to the contrary contained in this
Article XI, the rights, remedies and powers of Agent or any
Lender shall, as they relate to Receivables sold, transferred,
conveyed or assigned to Republic in accordance with Section
7.1 hereof, be subject to the terms of the Republic
Intercreditor Agreement."
(bb) Section 11.3 of the Loan Agreement is hereby amended by
inserting after the words "Agent and such Lender shall" the following clause:
", subject to Sections 4.16(a) and 4.16(d) as same relate to
transfers from the Allstate Factors Lockbox Account into the
Allstate Factors Operating Account and from the Allstate
Factors Operating Account to (or for the benefit or account
of) Clients of Allstate Factors who have no outstanding loans
or advances owing to Allstate Factors,"
3. Each Lender, by its signature hereto, authorizes and
directs Agent to execute and deliver the Republic Intercreditor Agreement and to
take such actions from time to time as Agent deems necessary or appropriate to
comply with the terms thereof.
4. Conditions of Effectiveness. This First Amendment
shall become effective as of the date first above written (the
"First Amendment Effective Date") upon receipt by Agent of a copy of this First
Amendment duly executed by Borrower and each Lender and consented to by each of
the Guarantors.
5. Representations and Warranties. Borrower hereby
represents and warrants as of the First Amendment Effective Date as
follows:
11
<PAGE>
(a) This First Amendment and the Loan Agreement, as amended
hereby, constitute the legal, valid and binding obligations of Borrower
and are enforceable against Borrower in accordance with their
respective terms.
(b) After giving effect to this First Amendment, Borrower
hereby reaffirms all covenants, representations and warranties made in
the Loan Agreement and the Security Agreement and agrees that all such
covenants, representations and warranties shall be deemed to have been
remade as of the First Amendment Effective Date.
(c) No Event of Default or Default has occurred and is
continuing or would exist, in each case, after giving effect to this
First Amendment.
(d) Borrower has no defense, counterclaim or offset to
the Obligations.
6. Effect on the Loan Agreement.
(a) Upon the effectiveness of Section 2 hereof, each reference
in the Loan Agreement to "this Agreement," "hereunder," "hereof,"
"herein" or words of like import shall mean and be a reference to the
Loan Agreement as amended hereby.
(b) Except as specifically amended hereby, the Loan Agreement
and all other documents, instruments and agreements executed and/or
delivered in connection therewith, shall remain in full force and
effect, and are hereby ratified and confirmed.
(c) Except as expressly set forth herein, the execution,
delivery and effectiveness of this First Amendment shall not operate as
a waiver of any right, power or remedy of Agent and Lenders, nor
constitute a waiver of any provision of the Loan Agreement or any other
documents, instruments or agreements executed and/or delivered under or
in connection therewith.
7. Governing Law. This First Amendment shall be binding
upon and inure to the benefit of the parties hereto and their
respective successors and assigns and shall be governed by and construed in
accordance with the laws of the State of New York.
8. Headings. Section headings in this First Amendment
are included herein for convenience of reference only and shall not
constitute a part of this First Amendment for any other purpose.
9. Counterparts; Telecopy Signatures. This First
Amendment may be executed by the parties hereto in one or more counterparts,
each of which taken together shall be deemed to
12
<PAGE>
constitute one and the same agreement. Any signature delivered by a party by
facsimile transmission shall be deemed to be an original signature hereto.
IN WITNESS WHEREOF, the parties hereto, by their duly
authorized officers, have executed this First Amendment as of the day and year
first above written.
IBJ SCHRODER BANK & TRUST
COMPANY, as Agent and Lender
By
Name:
Title:
NATIONAL BANK OF CANADA, a
Lender
By
Name:
Title:
By
Name:
Title:
ALLSTATE FINANCIAL CORPORATION
By
Name: Craig Fishman
Title: President
13
<PAGE>
CONSENTED AND AGREED TO:
LIFETIME OPTIONS, INC., A
VIATICAL SETTLEMENT COMPANY
By
Name: Craig Fishman
Title: President
PREMIUM SALES NORTHEAST, INC. SETTLEMENT SOLUTIONS, INC.
By By
Name: Craig Fishman Name: Craig Fishman
Title: President Title: President
RECEIVABLE FINANCING CORPORATION
By
Name: Craig Fishman
Title: President
BUSINESS FUNDING OF FLORIDA, INC.
By
Name: Craig Fishman
Title: President
BUSINESS FUNDING OF AMERICA, INC.
By
Name: Craig Fishman
Title: President
AFC HOLDING CORPORATION
By
Name: Craig Fishman
Title: President
14
<PAGE>
STANDARD FORM OF OFFICE LEASE The Real Estate Board
of New York, Inc.
2/94
AGREEMENT OF LEASE, made as of the 26th day of September, 1997 between
MIDTOWN REALTY COMPANY, L.L.C., a New York limited liability company, having
an office at 1775 Broadway, New York, New York 10019 ("Owner".) and ALLSTATE
FINANCIAL CORPORATION, a Virginia corporation, (."Tenant"), having its
principal office at 2700 South Ouincy Street, Arlington, Virginia 22206.
WITNESSETH
Owner hereby leases to Tenant and Tenant hereby hires from Owner the space
known as Suite 604 depicted on Exhibit A annexed hereto and made a part
hereof (the Demised premises) located on the sixth (6th) floor in the
building (the Building) known as 1775 Broadway, New York, New York for a
term of four (4) years commencing on November 1, 1997 (the Commencement
Date.) and ending on October 31, 2001 (the Expiration Dater) or until such
term shall sooner cease and expire as hereinafter provided, both dates
inclusive, at an annual rental rate (hereinafter sometimes referred to as
"Base Rent.) of $86,130.00 per annum from December I . 1997 through and
including the Expiration Date. which Tenant agrees to pay in lawful money of
the United States which shall be legal tender in payment of all debts and
dues, public and private, at the time of payment in equal monthly
installments in advance on the first day of each month during said term at
the office of Owner or such other place as Owner may designate, without any
set off or deduction whatsoever except that: (i) Tenant shall pay $7,177.50
on the execution hereof which shall be applied against the installment of
Base Rent due hereunder on December 1, 1997; and (ii) Tenant shall pay Owner
an amount of $652.50 per month, as additional rent, for electricity supplied
to the demised premises from the Commencement Date through and including
November 30, 1997.
The parties hereto, for themselves, their heirs, distributees, executors,
administrators, legal representatives, successors and assigns, hereby
covenant as follows:
Rent: 1. Tenant shall pay the rent as above and as hereinafter provided.
Occupancy: 2. Tenant shall use and occupy the demised premises solely for
executive and administrative offices for Tenant's factoring and commercial
lending business and for no other purpose.
Tenant 3. Tenant shall make no changes in or to the Alterations: demised
premises of any nature without Owner's prior written consent l . Subject to the
prior written consent of Owner, and to the provisions of this article, Tenant,
at Tenant's
expense, may make alterations, installations, additions or improvements
which are non-structural and which do not affect utility services or
plumbing and electrical lines, in or to the interior of the demised premises
by using contractors or mechanics first approved in each instance by Owner.
Tenant shall, before making any alterations additions, installations or
improvements, at its expense, obtain all permits, approvals and certificates
required by any governmental or quasi-governmental bodies and (upon
completion) certificates of final approval thereof and shall deliver
promptly duplicates of all such permits, approvals and certificates to Owner
and Tenant agrees to carry curd will cause Tenant's contractors and
sub-contractors to carry such workman's compensation, general liability,
personal and property damage insurance as Owner may require. If any
mechanic's lien is filed against the demised premises, or the building of
which the same forms A part, for work claimed to have been done for, or
materials furnished to, Tenant, whether or not done pursuant to this
article, the same shall be discharged by Tenant within thirty days
thereafter, at Tenant's expense, by payment or filing the bond required by
law. All 2. fixtures and all paneling, partitions, railings and like
installations installed in the premises at any time, either by Tenant or by
Owner on Tenant's behalf, shall, upon installation, become the property of
Owner and shall remain upon and be surrendered with the demised premises
unless Owner, by notice to Tenant no later than twenty days prior to the
date fixed as the termination of this lease, elects to relinquish Owner's
right thereto and to have them removed by Tenant, in which event the same
shall be removed from the premises by Tenant prior to the expiration of the
lease, at Tenant's expense. Nothing in this Article shall be construed to
give Owner title to or to prevent Tenant's removal of trade fixtures,
moveable office furniture and equipment, but upon removal of any such from
the premises or upon removal of other
installations as may be required by Owner, Tenant shall immediately and at
its expense, repair and restore the premises to the condition existing prior
to installation and repair any damage to the demised premises or the
building due to such removal. All property permitted or required to be
removed, by Tenant at the end of the term remaining in the premises after
Tenant's removal shall be deemed abandoned and may, at the election of
Owner, either be retained as Owner's property or may be removed from the
premises by Owner, at Tenant's expense.
1
Maintenance 4. Tenant shall, throughout the term of this lease,
and take good care of the demised premises and the
Repairs: fixtures and appurtenances therein. Tenant shall be
responsible for all damage or injury to the demised
premises or any other part of the building and the systems and
equipment thereof, whether requiring structural or nonstructural repairs
caused by or resulting from carelessness. omission neglect or improper
the demised premises caused by the moving of Tenant's fixtures, furniture
and equipment. Tenant shall promptly make, at Tenant's expense, all repairs
in and to the demised premises for which Tenant is responsible, using only
the contractor for the trade or trades in question, selected from a list of
at least two" contractors for the trade or trades in question, selected from
a list of at least tug contractors per trade submitted by Owner. Any other
repairs in or to the building or the facilities and systems thereof for
which Tenant is responsible shall be performed by Owner at the Tenant's
expense. Owner shall maintain in good working order and repair the exterior
and the structural portions of the building, including the structural
portions of its demised premises, and the public portions of the building
interior and the building plumbing, electrical, heating and ventilating
systems (to the extent such systems presently exist) serving the demised
premises. Tenant agrees to give prompt notice of any defective condition in
the premises for which Owner may be responsible hereunder. There shall be no
allowance to Tenant for diminution of rental value and no liability on the
part of Owner by reason of inconvenience. annoyance or injury to business
arising from Owner or others making repairs, alterations, additions or
improvements in or to any portion of the building or the demised premises or
in and to the fixtures, appurtenances or equipment thereof. It is
specifically agreed that Tenant shall not be entitled to any setoff or
reduction of rent by reason of any failure of Owner to comply with the
covenants of this or any other article of this Lease. Tenant agrees that
Tenant's sole remedy at law in such instance will be by way of an action for
damages for breach of contract. The provisions of this Article ~ shall not
apply in the case of fire or other casualty which are dealt with in Article
9 hereof.
Window 5. Tenant will not clean nor require, permit. suffer Cleaning: or
allow any window in the demised premises to be cleaned from the outside in
violation of Section 202 of the Labor Law or any other applicable law of the
Rules of the Board of Standards and Appeals, or of any other Board or body
having or asserting jurisdiction.
Requirements 6. Prior to the commencement of the lease term, if
of Law, Tenant is then in possession, and at all times
Fire Insurance, thereafter, Tenant, at Tenant's sole cost and expense, Floor
Loads: shall promptly comply with all present and future laws, orders and
regulations of all state, federal, municipal and local governments,
departments, commissions and boards and any direction of any public officer
pursuant to lab:, and all orders, rules and regulations of the New York
Board of Fire Underwriters,
Insurance Services Office, or any similar body which shall impose any
violation, order or duty upon Owner or Tenant with respect to the demised
premises, arising out of Tenant's use or manner of use thereof, (including
Tenant's permitted use) or, with respect to
the building if arising out of Tenant's use or manner of use of the
premises or the building (including the use permitted under the lease). Nothing
herein shall require Tenant to make structural repairs or alterations unless
Tenant has, by its manner of use of the demised premises or method of operation
therein, violated any such laws, ordinances, orders, rules, regulations or
requirements with respect thereto. Tenant may, after securing Owner to
Owner's satisfaction ad damages. interest. penalties and expenses,
including, but not limited to, reasonable attorney's fees, by caste deposit
or by surety bond in an amount and in a company satisfactory It" Owner,
contest and appeal any such laws, ordinances, orders, rules, regulations or
requirements provided same is done with all reasonable promptness and
provided such appeal shall not subject Owner to prosecution for a criminal
offense or constitute a default under any lease or mortgage under which
Owner may be obligated, or cause the demised premises or any pan thereof to
be condemned or vacated. Tenant shall not do or permit any act or thing to
be done in or to the demised premises which is contrary to law, or which
will invalidate or be in conflict with public liability, fire or other
policies of insurance at any time carried by or for the benefit of Owner
with respect to the demised premises or the building of which the demised
premises form a pan. or which shall or might subject Owner to any liability
or responsibility to any person or for property damage. Tenant shall not
keep anything in the demised premises except as now or hereafter permitted
by the Fire Department. Board of Fire Underwriters, Fire Insurance Rating
Organization
or other authority having jurisdiction. and then only in such manner and
such quantity so as not to increase the rate for fire insurance applicable to
the building, nor use the premises in a manner which will increase the
insurance rate for the building or any property located therein over that 3.
Tenant shall pay all costs, expenses. fines, penalties, or damages. which may
be imposed upon Owner by reason of I Tenant's failure to comply with the
provisions of this article end if by reason of such failure the fire
insurance rate shall.
be higher than it
otherwise would be, then Tenant shall reimburse Owner, as additional rent
hereunder, for that portion of all fire insurance premiums thereafter paid
by Owner which shall have been charged because of such failure by Tenant. In
any action or proceeding wherein Owner and Tenant are parties, a schedule or
"make-up" of rate for the building or demised premises issued by the New
York Fire Insurance Exchange, or other body making fire insurance rates
applicable to said premises shall be conclusive evidence of the facts
therein stated and of the several items and charges in the fire insurance
rates then applicable to said premises. Tenant shall not place a load upon
any floor of the demised premises exceeding the floor load per square foot
area which it was designed to carry and which is allowed by law. Owner
reserves the right to prescribe the weight and position of all safes
business machines and mechanical equipment. Such installations shall be
placed and maintained by tenant, at Tenant's expense, in settings
sufficient, In Owner's judgement, to absorb and prevent vibration, noise and
annoyance.
Subordination; 7, This lean is subject and subordinate to all ground or
underlying leases and to all mortgages which may now or hereafter affect
such leases or the real property of which demised premises arc a pan and to
all renewals, modifications, consolidations, replacements and extensions of
any such underlying leases and mortgages.
This clause shall be self-operative am no further instrument of
subordination shall be required by any ground or underlying lessor or by any
mortgagee, affecting any lease or the real property of which the demised
premises arc a pan. In confirmation of such subordination. Tenant shall from
time to time execute promptly any certificate that Owner may request.
Property Loss, Damage Reimbursement Indemnity: 8. Owner or its agents shall
not be liable for any damage to property of Tenant or of others
entrusted to employees of the building, Or for loss
of or damage to any property of Tenant by theft or
otherwise, nor for any injury or damage to persons
or property resulting from any cause of whatsoever nature, unless caused by
or due to the negligence of Owner, to agents, servants or employees. Owner
or its agents will not be liable for any such damage caused by other tenants
or persons in, upon or about said building or caused be operations in
construction of any private, public or quasi pubic work. If at any time any
windows of the demised premises are temporarily closed. darkened or backed
up (or permanently closed. darkened or bricked up if required by law) for
any reason whatsoever including. but not limited to Owner's own acts, Owner
shall not be liable for any damage Tenant may sustain thereby and Tenant
shall not be entitled to any compensation tberefor nor abatement or
diminution of rent nor shall the same release Tenant from its obligations
hereunder nor constitute an eviction. Tenant shall indemnify and save
harmless Owner against and from all liabihues, obligations, damages,
penalties, claims, costs and expenses for which Owner shall not be
reimbursed by insurance, including reasonable attorneys fees,. paid,
suffered or incurred as a result of any breach by Tenant, Tenant's agents,
contractors, employees, invitees, or licensees, of any covenant or condition
of this lease, or the carelessness, negligence or improper conduct of the
Tenant. Tenant's agents, contractors, employees, invitees or licensees.
Tenant's liability under this lease extends to the acts and ommissions of
any sub-tenant, and any agent, contractor, employee, invitee or licensee of
any sub-tenant. In case any action or proceeding is brought against Owner by
reason of any such claim. Tenant, upon written notice from Owner, will, at
Tenant's expense, resist or defend such action or proceeding by counsel
approved by Owner in waung, such approval not to be unreasonably withheld.
Destruction, Fire and Other Casualty:
9. (a) If the demised premises or any part thereof shall be damaged by fire
or other casualty, Tenant
shall give immediate notice thereof to Owner and this lease shall
continue in full force and effect except
as hereinaher set forth. (b) If the demised premises are partially damaged
or rendered partially unusable by fire or other casualty, the damages
thereto shall be repaired by and at the expense of Owner and the rent and
other items of additional rent, until such repair shall be substantially
completed, shall be apportioned from the day following the casualty
according to the part of the premises which is usable. (c) If the demised
premises are totally damaged or rendered wholly unusable by fire or other
casualty, then the rent and other items of additional rent as hereinafter
expressly provided shall be proportionately paid up to the time of the
casualty and thenceforth shall cease until the date when the premises shall
have been repaired and restored by Owner (or sooner reoccupied by Tenant
then rent shall be apportioned as provided in subsection (b), subject to
Owner's right to elect not to restore the same as hereinafter provided. (d)
If the demised premises are rendered wholly unusable or (whether or not the
demised premises are damaged in whole or in part) if the building shall be
so damaged that Owner shall decide to demolish it or to rebuild it, then, in
any of such events, Owner
may elect to terminate this lease by written notice to Tenant, given with
90 days after such fire or casualty, or 30 days after adjustment of the
insurance claim
for such fire or casualty, whchever is sooner, specifying a date for the
expiration of the lease, which date shall not be more than 60 days after
the giving of such notice, and upon the date
specified in such notice the term of this lease shall expire as fully and
completely as if such date were the date set forth above for the termination
of this lease and Tenant shaft forthwith quit, surrender and vacate the
premises without prejudice however, to 4 rights and remedies against Tenant
under the lease provisions in effect prior to such termination, and any rent
Owing shad be paid up to such date and any payments of rent made by Tenant
which were on account of any period subsequent to such date shall be
returned to Tenant. Unless Owner shall serve a termination notice as
provided for herein, Owner shall make the repairs and restorations under the
conditions of (b) and (c) hereof, with all reasonable expedition, subject to
delays due to adjustment of insurance claims, labor troubles and causes
beyond Owner's control. After any such casualty, Tenant shall cooperate with
Owner's restoration by removing from the premises as promptly as reasonably
possible, all of Tenant's salvageable inventory and moveable equipment,
furniture, and other property. Tenant's liability for rent shall resume five
(5) days after written notice from Owner that the premises are substantially
ready for Tenant's occupancy. (e) Nothing contained hereinabove shall
relieve Tenant from liability that may exist as a result of damage from fire
or other casualty. Notwithstanding the foregoing, including Owner's
obligation to restore under subparagraph (b) above, each party shall look
first to any insurance in its favor before making any claum against the
other party for recovery for loss or damage resulting from fire or other
casualty, and to the extent that such insurance
is in force and collectible and to the extent permitted by law, Owner and
Tenant each hereby releases and waives all right of recovery with respect to
subpaAgApbs (b), (d), and (e) above, against the other or any one claiming
through or under each of them by way of subrogation or otherwise. The
release and waiver herein referred to shall be deemed to include any loss or
damage to the demised premises and/or to any personal property, equipment,
trade fixtures, goods and merchandise located therein. The foregoing release
and waiver shall be in force only if both releasers' insurance policies
contain a clause providing that such a release or waiver shil not invalidate
the insurance. If, and to the extent, that such waiver can be obtained only
by the payment of additional premiums, then the party benefiting from the
waiver shil pay such premium within ten days after written demand or shall
be deemed to have agreed that the party obtaining insurance coverage shall
be free of any further obligation under the provisions hereof with respect
to waiver of subrogation. Tenant acknowledges that Owner will not carry
insurance on Tenant's furniture and/or Furnishings or any fixtures or
equipment, improvements, or appurtenences 5 Tenant and agrees that Owner
will not be obligated to repair any damage thereto or replace the same. (f)
Tenant hereby waives the provisions of Section 227 of the Real Properly Law
and agrees that the provisions of this article shall govern and control in
lieu thereof.
Eminent Domain: 10. If the whole or any part of the demised premises
shall be acquired or condemned by Eminent Domain for any public or quasi
public use or purpose, then and in that event, the term of this lease shall
cease and terminate from the date of title vesting in such proeeeding and Tenant
shall have no claim for the value of any unexpired term of said lease and
assigns to Owner, Tenant's entire interest in any such award. Tenant shall have
the right to make an independent claim to the condemning authority for the value
of Tenant's moving expenses and personal property, trade fixtures and
equipment, provided Tenant is entitled pursuant to the terms of the lease to
remove such property, trade fixture and equipment at the end of the term and
provided further such claim does not reduce Owner's award.
Assignment, Mortgage, Etc.: 11. Tenant, for itself, its heirs, distributees,
executors, administrators. legal representative
successor and assigns, expressly covenants that it
shall not assign, mortgage or encumber this
agreement, nor underlet, or suffer or permit the demised premises or any
part thereof to be used by others. without the prior written consent of
Owner in each instance. Transfer of the majority of the stock of a Corporate
Tenant or the majority partnership interest of a partnership Tenant shall be
deemed an assignment. If this lease be assigned, or if the demised premises
or any part thereof be underlet or occupied by anybody other than Tenant.
Owner may, after default by Tenant, collect rent from the assignee,
under-tenant or occupant, and apply the net amount collected to the rent
herein reserved, but no such assignment, underletting, occupancy or
collection shall be deemed a waiver of this covenant, or the acceptance of
the assignee, under- temnt or occupant as tenant, or a release of Tenant
from the further Performance by Tenant of covenants on the part ofTenant
herein contained. The consent by Owner to an assignment or underlettingg
shall not in any wax be construed to relieve Tenant from obtaining the
express consent in wnung of Owner to any hunher assignment or underierting.
Electric Current: 12. Rates and conditions in respect to submetering
or rent inclusion, as the case may be, to be added in
RIDER attached hereto. Tenant covenants and agrees that at all times its use
of electric current shall not exceed the capacity of existing feeders to the
building or the risers or
wiring installation and Tenant may not use any electrical equipment which,
in Owner's opinion, reasonably exercised, will overload such installations
or interfere with the use thereof by other tenants of the building. The
change at any time of the character of electric service shall in no wise make
Owner liable or responsible to Tenant, for any loss, damages or expenses which
Tenant may sustain.
Access to
Premises:
13. Owner or Owner's agents shall have the right
(but shall not be obligated) to enter the demised
premises m any emergency at any ume, and, at ocher
reasonable times, to examine the same and to make such repairs, replacements
and improvements as Owner may deem necessary and reasonably desirable to the
demised premises or to any other portion of the building or which Owner may
elect to perform. Tenant shall permit Owner to use and
Maintain and replace pipes and conduits in and through the demised premises
and to erect new pipes and conduits therein provided they are concealed within
the walls, floor, or ceiling. Owner may, during the progress of any work in the
demised premises, take all necessary materials and equipment into said premises
without the same constituting an eviction nor shall the Tenant be entitled to
any abatement of rent while such work is in progress nor to any damages by
reason of loss or interruption of business or otherwise. Throughout the term
hereof Owner shall have the right to enter the demised premises at reasonable
hours for the purpose of showing the same to prospective purchasers or mortgages
of the building, and during the six months of the term for the purpose of
showing the same to prospective tenants. If Tenant is not present to open and
permit an entry into the demised premises, Owner or Owner's agents may enter the
same whenever such entry maybe necessary or permissible by master key or
forcibly and provided reasonable care is exercised to safeguard Tenant's
property, such entry shall not render Owner or it's agents liable therefor, nor
in any event shall the obligations of Tenant hereunder be affected. If during
the last month of the term Tenant shall have removed all or substainially all of
Tenant's property therefrom Owner may immediately enter, alter, renovate or
redecorate the demised premises without limitations or abatement of rent, or
incurring liability to Tenant for any compensation and such act shall have no
effect on this lease or Tenant's obligation's hereunder.
Vault,
Vault Space,
Area:
14. No Vaults, vault space or area, whether or not enclosed or covered, not
within the property line of the buildup is leased hereunder. anything
contained in or indicated on any sketch, blue print or plan, or anything
contained elsewhere in this lease to the contrary notwithstanding.
Owner makes no representation as to the location of the property line of the
building. All vaults and vault space and all such areas not within the
property line of the building, which Tenant may be permitted to use and or
occupy, is to be used znd/or occupied under a revocable license, and if any
such license be revoked. or if the amount of such space or area be
diminished or required by any federal, state or municipal authority or
public utility. Owner shall not be subject to any liability nor shall Tcnant
be entitled to any compensation or diminution or abatement of rent, nor
shall such revocation, diminution or requisition be deemed constructive or
actual eviction. Any tax, fee or charge of municipal authorities for such
vault or area shall be paid by Tcnant.
Occupancy: 15. Tenant will not at any time use or occupy the demised
premises in violation of the certificate of occupancy issued for the building of
which the demised premises are a part. Tenant has inspected the premises and
accepts them as is, subject to the riders annexed hereto with respect to Owacr's
work, if any. In any event Owner makes no representation as to the condition of
the premises and Tenant agrees to accept the same subject to violations, whether
or not of record.
Bankruptcy: 16. (a) Anything elsewhere in this lease to the contrary
norwithstanding, this Iease may be cancelled by Owner by the sending of a
written notice to Tenant within a reasonable time after the happening of any one
or more of the following events.. ( I ) the commencement of a case in bankruptcy
or under the laws of any state naming Tenant as the debtor, or (2) the making by
Tenant of an assignment or any other arrangement for the benefit of creditors
under any state statute. Neither Tenant nor any person claiming through or under
Tenant. or by reason of any statue or order of count, shall thereafter be
entitled to possession of the premises demised but shall forthwith quit and
surrender the premises. If this lease shall be assigned in accordance with its
terms, the provisions of this Article 16 shall be applicable only to the party
then owning Tenant's interest in this lease.
(b) it is stipulated and agreed that in the event of the termmanon of this
lease pursuant to (a) hereof, Owner shall forthwith, norwithstanding any other
provisions of this lease to the contrary, be entitled to recover from Tenant as
and for liquidated damages an amount equal to the difference between the rent
reserved hereunder for the unexpired portion of the team demised and the fair
and reasonable rental value of the demised premises for the same period. In the
computation of such damages
the difference between any installment of rent becoming due hereunder after
the date of termination and the fair and reasonable rental value of the
demised premises for the period for which such installment was payable shall
be discounted to the date of termination at the rate of four percent (4%)
per annum. If such premises or any part thereof be re-let by the Owner for
the unexpired term of said lease, or any part thereof. Before presentation
of proof of such liquidation damages to any count, commission or tribunal,
the amount of rent reserved upon such re-letting shall be
deemed to be the fair and reasonable rental value for the part or the whole
of the premises so re-let during the term of the re-letting. Nothing herein
contained shall limit or prejudice the right of the Owner to prove for and
obtain as liquidated damages by reason of such termination, an amount equal
to the maximum allowed by any statute or rule of law in effect at the time
when. and governing the proceedings in which, such damages are to be proved.
whether or not such amount be greater, equal to, or less than the amount of
the difference referred to above.
Default: 17. (1) If Tenant defaults in fulfilling any of the covenants of
for the payment of rent or additional rent: or if the demised premises
become vacant or deserted: or if any execution or attachment shall be Issued
against Tenant or any of Tenant's property whereupon the demised premises
shall be taken or occupied by someone other than Tenant or if this lease be
rejected under Title 11 of the U.S. Code (bankruptcy code). or if Tenant
shall fail to move into or take possession of the premises within thirty
(30) days after the commencement of the term of this lease. then, in any one
or more of such events, upon Owner serving z written notice upon Tenant
specifying the nature of said default and upon the expiration of Tenant
shall have failed to comply with or remedy such default, or if the said
default or omission complained of shall be of nature that the same cannot be
completely cured or remedied within and if Tenant shall not have diligently
commenced curing such default within and shall not thereafter with
reasonable diligence and in good faith, proceed to remedy or cure such
default, then Owner may serve a written five (5) days' notice of
cancellation of this lease upon Tenant. and upon the expiration of said five
(S) days this lease and the term thereunder shall end and expire as fully
and completely as if the expiration of such five (5) day period were the day
herein definitely fixed for the end and expiration of this lease and the term
thereof and Tenant shall then quit and surrender the demised premises to Owner
but Tenant shall remain liable as hereinafter provided.
(2) 1f the notice provided for in (1) hereof shall have been given, and
the term shall expire as aforesaid; or if Tenant shall make default
in the payment of the rent reserved herein or any item of additional rent
herein mentioned or any part of either or in making any other payment herein
required; then and in any of such events Owner may without notice, re-enter
the demised premises either by force or otherwise, and dispossess Tenant by
summary proceedings or otherwise, and the legal representative of Tenant or
other occupant of demised premises and remove their effects and hold the
premises as if this lease had not been made, and Tenant hereby waives the
service of notice of intention to re-enter or to institute legal proceedings
to that end. If Teneant shall make default hereunder prior to the date fixed
as the commencement of any or extension of this lease. Owner may cancel and
terminate such renewal or extension agreement by written notice.
Remedies of
Oowner and
Waiver of
Redemption:
18. In czar of any such default. re-enrry. expiration
znd/or dispossess by summary proceedings or order
wise, (a) the rent shall become due thereupon and be
paid up to the time of such re-entry, dispossess and/
or expiration, (b) Owner may re-let the premises or
any part or parts thereof. either in the name of Owner or otherwise, for a
term or terms, which may at Owner's option be less than or exceed the period
which would otherwise have constituted the balance of the term of this lease
and may grant concessions or free rent or charge a higher rental
than that in this lease, and/or (c) tenant or the legal representatives of
Tenant shall also pay Owner as liquidated damages for the failure of Tenant
to observe and perform said Tenant's covenants herein contained, any
deficiency between the rent hereby reserved and/or covenanted to be paid and
the net amount, if any, of the rents collected on account of the lease or
leases of the demised premises for each month of the period which would
otherwise have constituted the balance of the term of this lease. The
failure of Owner to re-let the premises or any part or parts thereof shall
not released or affect Tenant's liability for damages. In computing such
liquidated damages there shall be added to the said deficiency such expenses
as Owner may incur in connection with re-letting, such as legal expenses.
Reasonable attorneys' fees, brokerage, advertising and for keeping the
Demised premises in good order or for preparing the same for re-letting. Any
Such liquidated damages shall be paid in monthly installments by Tenant on
The rent day specified in this lease and any suit brought to collect the
Amount of the deficiency for any month shall not prejudice in any way the
Rights of Owner to collect the deficiency for anv subsequent month by a
Similar proceeding. Owner, in putting the demised premises in good order or
preparing the same for re-rental may. at Owner's option, make such
alterations, repairs, replacements, and/or decorations in the demised
premises as Owner, in Owner's sole judgement, considers advisable and
necessary for the purpose of re-letting the demised premises, and the making
of such alterations, repairs, replacements, and/or decorations shall not
operate or be construed to release Tenant from liability hereunder as
aforesaid. Owner shall in no event be liable in any way whatsoever for
failure to re-let the demised premises, or in the event that the demised
premuses are re-let, for failure to collect the rent thereof under such re-
letting, and in no event shall Tenant be entitled to receive any excess, if
any of such net rents collected over the sums payable by Teant to Owner
hereunder. In the event of a breach or threatened breach by Tenant of any of
the covenants or provisions hereof, Owner shall have the right of injunction
and the right to invoke any remedy allowed at law or in equity as if
re-entry, summary proceedings and other remedies were not herein provided
for. Mention in this lease of any particular remedy. shall not preclude
Owner from any other remedy, in law or in equity. Tenant hereby expressly
waives any and all rights of redemption granted by or under any present or
future laws in the event of Tenant being evicted or dispossessed for any
cause, or in the event of Owner obtaining possession o demised premises, by
reason of the violation by Tenant of any of the coveants and conditions of
this lease, or otherwise.
Fees and 19. If Tenant shall default in the observance or Expenses:
performance of any team or covenant on Tenant's part to be observed or
performed under or by virtue of any of the terms or provisions in any
article of this lease, after notice required and upon expiration of any
applicable grace period if any, (except in an emergency), then, unless
otherwise provided elsewhere in this lease Owner may immediately or at any
time thereafter and without notice perform the obligation of Tenam
thereunder. If Owner, in connection with the foregoing or in connection with
any default by Tenant in the covenant to pay rent hereunder, makes any
expenditures or incurs any obligations for the payment of money, including
but not limited to reasonable attorneys' fees, in instituting, prosecute or
defending any action or proceeding. and prevails in any such action
proceeding then Tenant will reimburse Owner for such sums so paid or
obligations incurred with interest and costs. The foregoing expenses
incurred by reason of Tenant's default shall be deemed to be additional rent
hereunder and shall be paid by Tenant m Owner within (10) days of rendition
of on bill or statement to Tenant therefor If Tenant's lease term shall have
expired at the time of making of such expenditures or incurring of such
obligations, such sums shall be recoverable by Owner, as damages.
Building
Alterations
and
Management:
20. Owner shall have the right at any time
without the same constituting an eviction and without incurring
liability to Tenant therefor to change the arrangement and/or location
of public entrances. passageways, doors, doorways, corridors, eleva
tors, stairs, toilets or other public parts of the building and to change
the name, number or designation bv which the building may be known. There
shall be no allowance to Tenant for diminution of rental value and no
liability on the part of Owner by reason of inconvenience, annoyance or
injury to business arising from Owner or other Tenants making any repairs in
the building or any such alterations, additions and improvements.
Furthermore, Tenant shall not have any claim against Owner by reason of
imposition of such controls of the manner of access to the building by
Tenant's social or business visitors as the Owner may deem necessary for the
security of the building and its occupants.
No Repre-
sentations
by Owner:
21. Neither Owner nor Owner's agents have made any representations or
promises with respect to the physical condition of the building, the land upon
Which it is erected or the demised premises, the rents, leases, expenses of
operation or any other matter or thing affecting or related to the premises
except as herein expressly set forth and no nghts. easements or licenses are
acquired by Tenant by implication or otherwise except as expressly set forth in
the provisions of this lease. Tenant has inspected the building and the demised
Premises and is thoroghly acquainted with their condition and agrees to take the
as is and acknowledge that the taking of possession of the demised
premises by Tenant shall be conclusive evidence that the said premises and
the building of which the same form a part were in good and satisfactory
condition at the time such possession was so taken except as to latent
defects. All understandings and agreements heretofore made between the
parties hereto are merged in this contract. Which alone fully and
completely expresses the agreement between Owner and Tenant and any
executory agreement hereafter made shall be in ineffective to change,
modify, discharge or effect an abandonment of it in whole or in part,
unless such executory agreement is in writing and signed by the party
against whom enforcement of the change, modification, discharge or
abandonment is sought.
Term:
22. Upon the expiration or other termination of the term of this lease,
Tenant shall quit gad surrender to Owner the demised premises, broom clean,
in good order and condition, ordinary wear and damages which Tenant is not
required to repair as provided elsewhere in this lease excepted, and Tenant
shall remove all its property. Tenant's obligation to observe or perform
this covenant shall survive the expiration or other termination of this
lease . If the last day of the term of this Lease or any renewal thereof,
falls on Sunday, this lease shall expire at noon on the preceding Saturday
unless it be a legal holiday in which case it shall expire at noon on the
preceeding business day.
23. Owner covenants and agrees with Tenant that upon Tenant paying the
Quiet rent and additional rent and observing and performing all the
Enjoyment terms, covenants and conditions, on Tenant's part to be observed
and performed, Tenant may peaceably and quietly enjoy the premises
hereby demised, subject, nevertheless, to the terms and conditions
of this lease including, but not limited to, Article 31 hereof and
to the ground leases, underlying leases and mortgages hereinfore
mentioned.
Failure
to Give
Possession:
24. If Owner is unable to give possession of the demised premises on the
date of the commencement of the term hereof, because of the holding-over or
retention of possession of any tenant, undenenant or occupants or if the demised
premises are located in a building being constructed, because such building has
not been sufficiently completed to make the premises ready for occupancy or
because of the fact that a certicate of occupancy has not been procured or for
any other reason, Owner shall not be subject to any liabibry for failure to give
possession on said date and the validity of the lease shall not be impaired
under such circumstances, nor shall the same be construed in any wise to extend
the term of this lease, but the rent payable hereunder shall be abated (provided
Tenant is not responsible for Owner's inability to obtain possession or complete
construction) until after Owner shall have given Tenant written notice that the
Owner is able to deliver possession in condinon required by this lease. If
permission is given to Tenant to enter into the possession of the demises
premises or to occupy premises other than the demised premises prior to the date
specified as the commencement of the term of this Tenant, covenants and agrees
that such possession and/or occupancy shall be deemed to be under all the terms,
covenants, conditions and provisions of this lease except the obligation to pay
the fixed annual rent set forth in the preamble to this lease. The provisions of
this article are intended to Constitute -an express provision to the contrary
within the meaning of Sccoon 223-a of the New York Real Property Law.
No Waiver: 25. The failure of Owner to seek redress for violation of, or to
insist upon the strict performance of any covenant or condinon of this lease or
of any of the Rules or Regulauons, set forth or hereafter adopted by Owner,
shall not prevent a subsequent act which would have originally constituted a
vioiabon from having all the force and effect of an original violation. The
receipt Dy Owner of rent and/or additional rent with knowledge of the breach of
any covenant of this lease shall not be deemed a waiver of such breach and no
provision of this lease shall be deemed to have been waived by Owncr unless such
waiver be in writing signed by Owncr. No payment by Tenant or receipt by Owner
of a lesser amount than the monthly rent herein stipulated shall be deemed to
be other than on account of the earliest stipulated rent, nor shall any
endorsement or statement of any check or any letter accompanying any check
or payment as rent be deemed an accord and satisfaction, and Owner may
accept such check or payment without prejudice to Owner's right to recover
the balance of such rent or pursue any other remedy m this lease provided.
No act or thing done by Owneror Owncr's agents during the term hereby
demised shall be deemed an acceptance of a surrender of said premises, and
no agreement to accept such surrender shall he valid unless in writing
signed by Owner. No employee of Owner or Owner's agent shall have any power
to accept the keys of said premises prior to the termination of the lease
and the delivery of keys to any such agent or employee shall not operate as
a termination of the lease or a surrender of the premises
Waiver of
Trial by Jury:
26. It is mutually agreed by and berween Owner and Tenant that the
respective parties hereto shall and they hereby do waive trial by Jury in any
action proceeding or counterclaim brought by either of the parties hereto
against the other (except for personal injury or property damage ) on any
matters whatsoever arising out of or in any way connected with this lease the
relationship of Owner and Tenant Tenant"s use of or occupancy of said premises
and any emergency statutory or any other statutory remedy. It is further
mutuallv agreed that in the event Owner commences any proceeding or action for
possession including a summary proceeding for possession of the premises. Tenant
will not interpose any counterclaim of whatever nature or description in any
such proceeding including a counterclaim under Anicle 4 except for statutory
mandatory counterclaims.
Inability to 27. This Lease and the obligation of Tenant to pay
Perform: rent hereunder and perform all of the other cov-
enants and agreements hereunder on part of Tenant
to be performed shall in no wise be affected impaired or excused because
Owner is unable to fulfill any of its obligations under this lease or to
supply or is delayed in supplying any service expressly or impliedly to be
Supplied or is unable to make or is delayed in making any repair additions
alterations or decorations or is unable to supply or is delayed in supplying
any equipment fixtures or other materials if Owner is prevented or delayed
from so doing by reason of strike or labor troubles or any cause whatsoever
including but not limited to government preemption or restrictions or by
reason of any rule. order or regulation of any department or subdivision
therefore of any government agency or by reason of conditions which have
been or are affected , either directly or indirectly, by war or other
emergency.
28. Except as otherwise in this lease provided, a bill, statement, notice
or communication which Owner may desire or be reqwuired to give Tenant,
shall be deemed sufficiently given or rendered if, in writing,
Delivered to Tenant personally or sent by registered or certified mail
Addressed to Tenant at the building of which the demised premises form
Part or at the last known residence address or business of Tenant or
Left at any of the aforesaid premises addressed to Tenant, and the time of
the renition of such bill or statement and of the giving of such notice or
communication shall be deemed to be the time when the same is delivered to
Tenant, mailed, or left at the premises as herein provided. Any notice Tenant to
Owner must be served by registered or certified mail addressed to Owner at the
address first hereinabove given or at such other address as Owner shall
designate by written Price.
Services
Provided by
Others:
29. As long as Tenant is not in default under any of the covenants of this
lease beyond the applicable grace period provided in this lease for the curing
of such defaults Owner shall provide: (a) necessary elevator facilities on
business days from 8 a.m. to 6 p.m. and have one elevator subject to call at all
other times: (b) heat to the demised premises when and as required by law. on
business days from 8 Am. to 6 p.m.; (c) water for ordinary lavatory purposes but
If Tenant uses or consumes water for any other purpose or in unusual quantities
(of which fact On. ner shall be the sole judge) Owner may install a water meter
at Tenant's expense which Tenant shall thereafter maintain at Tenant's expense
in good working order and repair to register such water consumption and Tenant
shall pay for water consumed as shown on said meter as additional rent as and
when bills are rendered; (d) cleaning service for the demised premises on
business days at Owner's expense provided that the same are kept in order by
Tenant. (e) If the demised premises are serviced by
1 Owner's air conditioning/cooling and ventilating system. air
conditioning/ cooling will be furnished on business days during the aforesaid
hours except when air conditioning/cooling is being furnished as aforesaid. If
Tenant requires air conditioning/cooling or ventilation for more extended hours
or on Saturdays. Sundays or on holidays. Owner will furnished the same at
Tenant's expense. RIDER to be added in respect to rates and conditions for such
additional
service; (f) Owner reserves the right to stop services of heating, elevators
plumbing, air-conditioning electric, power systems or cleaning or other
services, it any, when necessary by reason of accident or for repairs
alterations replacements or improvements necessary or desirable in the judgment
of Owner for as long as may be reasonably required by reason thereof. If the
building of which the demised premises are a part supplies manually operated
elevator service. Owner at any time may substitute automatic control elevator
service and proceed diligently with alterations necessary therefor without in
any wise affecting this lease or the obligation of Tenant hereunder.
Captions: 30. The Captions are inserted only as a matter of convenience and
for reference and In no way define. Limit or describe the scope of this lease
nor the intent of any provisions thereof. Definitions: 31. The term -office-
or~offices-. Wherever used in this lease shall not be construed to mean premises
used as a store or stores for the sale or display at any time, of goods. wares
or merchandise of any kind or as a restaurant shop. booth bootblack or other
stand barber shop. or for other similar purposes or for manufac" turing The term
"Owner- means a landlord or lessor, and as used in this lease means only the
owner or the mortgagee in possession, for the time being of the land and
building (or the owner of a lease of the building or o of the land and building)
of which the demised premises form a pan so that in the event of any sale or
sales of said land and building or of said lease or In the event of a lease of
said building. or of the land and building. The said Owner shall be and hereby
Is entirely freed and relieved of all covenants and obligations of Owner
hereunder and it shall be deemed and construed without further agreement between
the parties or their successors in
interest or between the parties and the purchaser at any such safe or the
said lessee of the buildup or of the land and building. that the purchaser or
the lessee of the butiding has assumed and agreed to carry out any and all
covenants artd obligations of Owncr hereunder. The words ~re-enter- and re-enty
as used in this lease are not restricted to their techanical legal meaning. The
term "business days" as used in this lease shall exclude Saturdays Sundays and
all days as observed by the State or Federal Government as legal holidays and
those designated as holidays by the applicable building service union employees
service contact or by the applicable Operating Engineers contract with respect
to HVAC service. Wherever it is expressly provided in this lease that consent
shall not be unreasonably withheld such consent shall not be unreasonably
delayed.
AdJacent
Excavation-
Shoring:
32. If an excavation shall be made upon land adjacent to the demised
premises or shall be autho- rized to be made. Tenant shall afford to the person
causing or authorized to cause such excavation license to enter upon the demised
premises for the purpose of doing such work as said person shall deem necessary
to preserve the wall or the building of which demised premises form a part from
injury or damage and to support the same by proper foundations without any claim
for damages or indemnity against Owner or diminution or abatement of rent.
Rules and Regulations:
33. Tenant and Tenant's servants. employees agents visitors and licensees
shall observe faith- fully and comply strictly with the Rules and Regulations
and such other and further reasonable Rules and Regulanons as Owner or Owner's
agents may from time to time adopt. Notice of any additional rules or
regulations shall be given in such manner as Owner may elect In case
Notes to
Printed Form
1. which shall not be unreasonably withheld or delayed in the case of
nonstructural alterations that do not affect Building systems and are made
wholly within the demised premises.
2. (including carpeting)
3. otherwise in effect
is this lease contained shall be construed to impose upon Owner any duty or
obligation to enforce the Rules seal Regulations or terms, covenant or condition
in any other lease, as against say other tenant And Owner shall not be liable to
tennat for violation of the same by any other tenants, its servants, employees,
agents, visitors or licensees.
Security
34. Tenant has deposited with Owner the sum of $7,177.50 as security for
the faithful perfomance and observance by Tenant of the terms, provisions and
conditions of this lease.
SEE RIDER ATTACHED HERETO AND MADE A PART HEREOF
In Witness Whereof, Owner And Tenant Eve respectively signed ;md Bled this
lease as of the day ~ year first above written.
MIDTOWN REALTY
By
ALLSTATE FINANCIAL CORPORATION
By /s/ Peter D. Matthy
Executive Vice President
RIDER ATTACHED TO AND FORMING PART OF LEASE DATED
AS OF SEPTEMBER 26, 1997 BETWEEN MIDTOWN REALTY
COMPANY, L.L.C., AS OWNER, AND ALLSTATE FINANCIAL
CORPORATION, INC., AS TENANT, COVERING SUITE 604
ON THE SIXTH FLOOR IN THE BUILDING LOCATED AT 1775
BROADWAY. NEW YORK. NEW YORK
37. ACCEPTANCE OF DEMISED PREMISES; OWNER'S WORK.
Tenant acknowledges and represents to Owner that it has inspected and
examined the demised premises and the Building or caused the same to be
inspected and examined, and is fully familiar and satisfied with the
physical condition and state of repair thereof and all materials existing,
utilized and/or present therein, and hereby agrees to accept possession of
the demised premises in their existing condition and state of repair, "as
is", subject, however, to substantial completion of Owner's Work (as
hereinafter defined) and Tenant agrees that Owner shall have no obligation
to do any work or make any installation or alteration to or in respect
thereof, except that Owner shall: (i) furnish and install additional
partitions and interior doors; (ii) furnish and install a pantry sink and
counter top and appropriate electric outlets; (iii) furnish and install new
Building standard i' phoenix Designweave 2802" carpet throughout the demised
premises (except that pantry and air conditioning
~^~--- _o:..~ :_ ..vt be -~ ~l-l-enanc s color choice; and (iv) paint the
demised premises with one coat Building standard Benjamin Moore t' Bone
White" paint (except that window frames, ceiling and entrance door shall not
be painted), all as more particularly depicted on Exhibit B annexed hereto
and made part hereof. Provided that Tenant notifies Owner of its carpet
color selection by no later than October 6, 1997, Owner shall use reasonable
efforts (subject to force majeure) to substantially complete the
aforementioned items ("Owner's Work") by the Commencement Date. Owner's Work
shall be performed in a good and workerlike manner in accordance with all
applicable legal requirements.
Moms snail not De carpeted) in Tenant's
paint the demised ~
38. ELECTRIC INCLUSION. A. Owner shall, through
Owner's facilities, equipment and installations in the Building
furnish the electricity Tenant shall reasonably require in the
demised premises on a "rent inclusion)' basis (i.e., there shall
be no separate charge to Tenant for such electricity by way of
measuring the same on any meter or otherwise); the furnishing of
such electricity being included in the Base Rent reserved
hereunder as estimated in Paragraph B of this Article, subject,
however, to all of the other provisions of this Article. Owner
shall not be liable in any way to Tenant for any failure or
defect in the supply or character of electricity furnished to the
demised premises other
negligent or otherwise
than such as may result from Owner's
~ wrongful acts with respect to Owner's
continuing maintenance and keeping in good repair of Owner's electrical
equipment, facilities and installations in the Building. Tenant shall
maintain all lighting fixtures and furnish and install all lighting tubes,
lamps, ballast transformers, starters and bulbs in the demised premises, in
accordance with the standards of the Building.
supplying electricity to the Building as of April 1, 1996. At any time after
Tenant commences occupancy of the demised premises and opens the demised
premises for business either Owner or Tenant may demand a survey to be
prepared by the Office of James Carey ("Carey"), or if Carey shall not be
available, or if in Owner's judgment Carey is not suitable for the purpose,
then by another reputable, independent electrical consultant to be selected
by Owner, the cost of which survey shall be borne by Tenant. The purpose of
said survey shall be to determine the appropriate charge to Tenant for
electricity to be included in the Base Rent taking into account the full
electric service including the potential demand (connected load) necessary
or useful for Tenant's operation of all equipment, lighting and other
installations, including, without limitation, air conditioning, heating and
ventilation and any additional hours in excess of normal business hours
during which the demised premises are in use. The rent inclusion factor
shall, from time to time, be determined on the basis of the then prevailing
local public utility rates at the highest per unit rates payable by Owner
for electric service, inclusive of all applicable "demand", "fuel
adjustment", "time of day" and any other charges and any taxes included in
or applicable to such rates and without regard to the electricity used in
the remainder of the Building. When the charge for electricity has been so
determined as a result of such survey, the Base Rent shall be increased or
decreased, as the case may require, by the difference between the charge per
annum determined by the survey and the estimated rent inclusion factor,
effective as of the first day of the term hereof.
C. Tenant's use of electricity in the demised premises shall not at any time
exceed the capacity of any of the electrical conductors, equipment,
installations or facilities as hereinbefore enumerated or otherwise serving
the demised premises. In order to ensure that such capacity is not exceeded
and to avert a possible adverse effect upon the Building electric service,
Tenant shall not, without Owner's prior written consent in each instance,
connect any additional fixtures, appliances or equipment (other than lamps,
personal computers, desktop copiers, facsimile machines, fractional
horsepower appliances and similar items of small power consumption) to the
Building electric distribution system or make any alteration or addition to
the electric system of the demised premises existing as of the commencement
date of this lease. Should Owner grant such consent, all additional risers
or other equipment required therefor shall be installed by Owner and the
cost thereof shall be paid by Tenant, as additional rent, upon Owner's
demand. As a condition to granting such consent, Owner may require that
Tenant agree to an increase in the Base Rent by an amount which will reflect
the additional service to be furnished by Owner, that is, the potential
electric energy (connected load) to be made available to Tenant based upon
the estimated additional capacity of such additional risers or other
equipment. Such increases shall be determined on the basis of the cost of
furnishing and installing any additional equipment or electrical facilities
as well as the then prevailing local public utility rates at the highest per
unit rates payable by Owner for electric service, inclusive of all
applicable "demand", "time of day", "fuel adjustment" and any other charges
and any taxes included in or applicable to such rates and without regard to
the electricity used in the remainder of the Building. If Owner And T=n=~-
adjusted. Such increase and adjustment shall be effective
retroactive to the date such additional service is made
available.
D. If Tenant shall require electricity beyond the normal business hours
specified above or for purposes other than as specified in Paragraph B of
this Article, or if the public utility rate schedule, including any
supplementary charges such as "fuel adjustments", "time of day" charges or
any other charges for the supply of electricity to the Building shall be
increased or imposed subsequent to the date hereof, or if there shall be a
change in taxes, or if additional taxes shall be imposed upon the sale or
furnishing of such electricity, then the Base Rent shall be adjusted to
reflect the resulting increases in Owner's service in providing electricity
to the demised premises, and the amount set forth in Paragraph B of this
Article shall also be adjusted accordingly. If Owner and Tenant cannot agree
thereon, the amount of such increases shall be determined by Carey, or if
Carey shall not be available, or if in Owner's judgment Carey is not
suitable for the purpose, then by another reputable, independent electrical
consultant to be selected by Owner, and paid equally by Owner and Tenant.
Such increases shall be based on the application of the thereby established
potential demand and electrical consumption to the then prevailing local
public utility rates at the highest per unit rates payable by Owner for
electric service, inclusive of all applicable "demand", "time of day", "fuel
adjustment" and any other charges and any taxes included in or applicable to
such rates, and without regard to the electricity used in the remainder of
the Building. In the event that during the term hereof there should be any
change in the regulations of the public utility company or the Public
Service Commission or any governmental or quasi governmental entity claiming
jurisdiction or in the event there should be any change in the
interpretation of such regulations or ordinances by any court of law
claiming jurisdiction which may affect the furnishing of electricity to the
demised premises by Owner, Base Rent shall be adjusted to fully defray the
cost, on a pro rata square foot of occupancy basis, of complying with any
such revised regulations, requirements or interpretations and the amount set
forth in Paragraph B of this Article shall also be adjusted accordingly.
E. If Owner shall be required by law, by any
governmental authority claiming jurisdiction or by the utility
company supplying electric energy to the Building, or if Owner
shall make it a policy with respect to the Building's tenants in
~ discontinue
furnishing electricity, Owner shall have the right to discontinue the
furnishing of electricity upon not less than ninety (90) days prior written
notice to Tenant. If Owner exercises such right, this lease shall continue
in full force and effect and shall be unaffected thereby, except that from
and after the effective date of such discontinuance, Owner shall not be
obligated to furnish electricity to Tenant and the Base Rent payable under
this lease shall be reduced by the then applicable rent inclusion factor. If
Owner so discontinues furnishing electricity to Tenant, Tenantshall arrange
to obtain electricity directly from the public utility company furnishing
electricity to the Building as expeditiously as is possible and shall
thereafter pay Owner for maintaining the current transformers. service
sWihch-Q-- fast
general Lout not necessarily all tenants) to
directly from the public
to the Building as
thereafter pay Owner
F. Whenever, pursuant to any of the provisions of this Article the amount of
the rent inclusion factor shall be adjusted, the parties shall execute an
agreement supplementary hereto to reflect such adjustment, and the Base Rent
shall be adjusted accordingly and the amount set forth in Paragraph B of
this Article shall likewise be adjusted, effective from the effective date
of such increase or decrease in usage or from the effective date of the
change in public utility rates; but such adjustment shall be effective from
such date whether or not such supplementary agreement is executed.
G. At no time shall Tenant's connected electrical load in the demised
premises exceed 5.0 watts per square foot of rentable space. Tenant has
reviewed the electrical capacity available to the demised premises and
represents that it is satisfied therewith.
39. EXPENSE ESCALATION. A. For purposes of this lease the following terms
shall have the following meanings: (i) "Rate" shall mean the minimum regular
hourly wage rate without fringe benefits prescribed for Porters (as
hereinafter defined) for Class A office buildings (or any successor
category), pursuant to the present and any successor agreement between the
Realty Advisory Board on Labor Relations, Incorporated (or any successor
thereto) and Local 32B of the Building Service Employees International
Union, AFL-CIO (or any successor thereto), covering the wage rates for
Porters in such buildings ("Agreement"), provided, however, that if, at any
time during the term hereof: (a) regular employment of Porters occurs on
days or during hours when overtime or other premium pay rates are in effect
pursuant to the Agreement, "Rate" shall mean the average hourly wage rate
for the hours in a calendar week during which Porters are regularly employed
(e.g., if, pursuant to the Agreement, the regular weekly employment of
Porters is for forty (40) hours at a regular hourly wage rate of $20.00 for
the first thirty (30) hours and an overtime hourly wage rate of $30.00 for
the remaining ten (10) hours, the average hourly wage rate for the
applicable period shall be the weekly wage rate of $900.00 divided by the
number of regular hours of employment, to wit, forty (40), or $22.50); and
(b) no Agreement exists, "Rate" shall mean the average minimum regular
hourly wage rate actually payable to Porters by Owner or the contractor
performing cleaning services in the Building, or, if no Porters are employed
at the Building, such rate for Porters employed at Class A office buildings
(as such buildings are presently described in the Agreement); (ii) "Base
Rate" shall mean the Rate in effect on January 1, 1998; (iii)
"Multiplication Factor" shall mean 2,700; and (iv) "Porters" shall mean
those employees who have been employed for ten (10) years or more and who
are engaged in the general maintenance and operation of office buildings,
classified as "Others" in the current Agreement, or, failing such
classification in any subsequent Agreement, the most nearly comparable
classification in such Agreement.
B. If, in any period during the term hereof, the
Rate exceeds the Base Rate, Tenant shall pay Owner an amount
("Expense Escalation") equal to the product of the Multiplication
Factor multiplied by one (1) cent for each one (1) cent that
the Rate exceeds the Base Rate, appropriately adjusted for any
such period which is only partially within the term hereof. The
termination of this lease. Notwithstanding the foregoing, if, by reason of
any law, or any rule, order, regulation or requirement of any governmental
or quasi-governmental authority having or asserting jurisdiction
(collectively, the "Restrictions"), an increase in the Rate is reduced or
does not take effect, or increases in the Rate are limited or prohibited,
then, for the period of the Restrictions (the "Restrictions Period"), the
applicable increase (the "Increase") in the Rate for purposes of this
Article shall be the Increase in the Rate ("Prior Increase") which most
immediately preceded the effective date of the Restrictions. The Increase
shall take effect on the date following the expiration of the period for the
Prior Increase and an equivalent Increase shall take effect on each
anniversary of such effective date during the Restriction Period.
C. Each notice given by Owner pursuant to
Paragraph B of this Article shall be binding upon Tenant unless, within
ninety (90) days after its receipt of such notice, Tenant notifies Owner of
its disagreement therewith, specifying the portion thereof with which Tenant
disagrees. Pending resolution of such dispute, Tenant shall, without
prejudice to its rights, pay all amounts determined by Owner to be due
subject to refund or credit by Owner (without interest) upon any contrary
determination.
D. Owner's failure to timely bill all or any portion of the Expense
Escalation (or any increase therein) for any period or periods during the
term hereof (whether because of a failure to timely consummate an Agreement
or because of an error or oversight of Owner or its managing agent or for
any other reason) shall not constitute a waiver of Owner's right to
ultimately collect such amount, nor a waiver of Owner's right to bill Tenant
at any subsequent time retroactively for the entire amount so untilled,
which untilled amount shall be payable by Tenant within ten (10) days after
Tenant is so billed.
E. Any payments due under this Article for any period of less than a full
calendar year or a full calendar month shall be equitably prorated. Tenant's
obligation to make any payments pursuant to this Article shall survive the
expiration or sooner termination of this lease,
F. Nothing contained in this Article shall be construed so as to reduce the
Base Rent below the sum set forth in this lease, plus any increases therein,
pursuant to any provisions of this lease.
G. Upon request of Owner, Tenant shall execute an agreement supplementary to
this lease confirming any Expense Escalations due pursuant to this Article,
but such amounts shall be due and payable regardless of whether any such
supplementary agreement is executed.
40. IMPOSITIONS. A. For the purposes of this lease
the following terms shall have the following meanings: (i)
"Impositions" shall mean and include all real estate taxes, water
and sewer rents, rates and charges, all assessments and levies
attributable or payable to any business improvement or similar
district in which the Building is located and all other
governmental and quasi-governmental fees, charges and
: ~
Impositions shall be deemed to include income taxes assessed against Owner,
capital levy, franchise, estate, succession, inheritance or transfer taxes
of Owner; provided, nevertheless, that if at any time during the term of
this lease the present method of taxation or assessment shall be changed so
that in lieu of or in addition to the whole or any part of the taxes,
assessments or other charges now levied, assessed or imposed on real estate
or the improvements thereon, there shall be levied, assessed or imposed
wholly or partially a franchise tax, capital levy or other tax on real
estate as such, or on the use and occupancy thereof, or on the rents or
income derived therefrom, or if any such tax or charge, or any part thereof,
howsoever called, shall be measured by or based on the Building or the Land
or the rents or income derived therefrom, then all such taxes, assessments,
levies or charges or the part thereof so measured or based shall be deemed
to be included within the definition of the term "Impositions" for the
purpose of this lease, to the extent that such tax would be payable if the
Building and the Land were the only property of Owner subject to such tax;
(ii) "Base Tax Yeari' shall mean the period comprised of the twelve (12)
full calendar months ending June 30, 1998; and (iii) "Tenant's Percentage"
shall mean 0.46~; Tenant hereby acknowledges the fact that, and agrees that,
Tenant's Percentage is greater than the relationship between the actual
measurable size of the demised premises and the size of the Building.
B. If the Impositions, or any item thereof, for or allocable to any fiscal
tax year, or any part thereof, subsequent to the Base Tax Year shall be
greater than the amount of such Impositions (or such item thereof), as
finally determined, due and payable for or allocable to the Base Tax Year,
whether by reason of an increase either in the tax rate or the assessed
valuation, or both, or by reason of the levy, assessment or imposition of
any tax on real estate or rents not now levied, or for any other reason,
Tenant shall pay and hereby covenants to pay Owner, as additional rent
hereunder, an amount equal to Tenant's Percentage of the increase in the
amount of such Impositions or any item thereof, over the corresponding
Impositions, or any item thereof, paid or payable for or allocable to the
Base Tax Year, at least thirty (30) days prior to the date on which any such
Imposition or installment thereof is due and payable or, at Owner's option,
on a monthly, quarterly or semi-annual basis within twenty (20) days
following the rendition of a bill by Owner. Upon Tenant's request therefor
Owner shall provide Tenant with a copy of the bill rendered to Owner by the
taxing authority. If a final determination in legal proceedings shall reduce
Impositions for the Base Tax Year, the reduced amount thereof shall
thereafter determine the amount of additional rent payable by Tenant
pursuant to this Paragraph B and, in such event, the additional rent
theretofore paid by Tenant in respect of such Impositions shall be
recomputed on the basis of such reduction and Tenant shall pay Owner, within
twenty (20) days after being billed therefor, any deficiency between the
amount of such additional rent as theretofore computed and paid and the
amount thereof due as a result of such recomputation. If any tax exemption
or abatement, in whole or in part, shall be granted or be or become
effective with respect to the Building and/or the Land, or any part thereof
or unit (or subdivision) therein, by reason of the ownership or any interest
in or occupancy of the Buildina and/nr the T.=n~ ^' are, ~,_. -~^ - ~^=
extent as if no such exemption or abatement had been granted or become
effective. In the case of any such exemption or abatement, any statement,
certification or bill issued by the taxing authority, or any official
thereof, indicating the amount of Impositions which would be payable during
any period if such exemption or abatement had not been granted, or had not
become effective, shall be conclusive upon the parties hereto for the
purpose of computing Tenant's Percentage of any increase in Impositions over
the Base Tax Year. The additional rent payable by Tenant under this Article
for the final lease year shall be prorated on the basis of the number of
days within the applicable fiscal tax year falling within the term of this
lease and such obligation shall survive the expiration or sooner termination
of the term of this lease.
C. If Owner shall file any application or
institute any action or conduct any negotiation either before or after a
valuation is assessed for a reduction of the assessed valuation of the Land
or any part thereof and/or the Building or any part thereof and/or shall
prosecute any proceeding or action (including appeals) in pursuance thereof,
or shall compromise and settle the same on such terms as Owner in its sole
judgment shall deem proper, there shall be charged against Tenant, Tenant's
Percentage of the expenses (including, without limitation, attorneys' fees
and expenses and appraisers' fees) incurred by Owner in connection with any
such application, proceeding, action, appeal or negotiation. If, after
Tenant shall have made a payment of additional rent under this Article,
Owner shall receive a refund of any portion of the Impositions on which such
payment shall have been based as the result of any such application,
proceeding, action or appeal, Owner shall pay Tenant Tenant's Percentage of
the refund. Nothing in this Article shall be deemed or be construed to
require Owner to pay to Tenant any portion of a refund of Impositions paid
to Owner during or in respect of the Base Tax Year or to reflect a reduction
in the amount of Impositions to a level below those in effect during the
Base Tax Year, or during any period Tenant shall be in default hereunder.
Tenant shall not institute tax reduction, certiorari or other proceedings to
reduce the assessed value of the Land, the Building or any part of either of
them, it being expressly understood and agreed that only Owner shall be
eligible to institute such proceedings.
D. Tenant shall also pay Owner, within twenty (20) days after being billed
therefor and as additional rent for the year in which the same shall be
payable by Owner, an amount equal to Tenant's Percentage of any assessments
or installment thereof for public betterments or improvements (whether the
same shall have been commenced or completed prior to or subsequent to the
date of this lease) which may be levied upon the Land and/or the Building, a
description of which betterments and improvements shall accompany such bill.
Owner, if permitted to do so under any mortgage(s) encumbering the Land
and/or the Building, may take the benefit of the provisions of any statute
or ordinance permitting any such assessment to be paid over a period of time
and, in such case, Tenant shall be obligated to pay only Tenant's Percentage
of the installments of any such assessments which become due and payable
during the term of this lease; and such additional rent shall be
appropriately prorated for the final lease year-of the term of this lease.
Saturdays, Sundays or on holidays between May 1st and October 10th, Owner
will furnish same at Tenant's expense, provided that same shall be provided
in minimum increments of four (4) hours. The electric consumption of the air
conditioning and mechanical ventilation to be provided in the demised
premises under this Article shall be governed by the provisions governing
electrical usage in the demised premises set forth in Article 38 hereo..
Owner shall maintain the air conditioning equipment of the Building in good
working condition throughout the term hereof. Tenant agrees to keep and
cause to be kept closed all windows in the demised premises and doors
leading to the demised premises while the air conditioning equipment is in
operation and likewise to lower and close the blinds when necessary due to
the sun's position and Tenant agrees at all times to cooperate fully with
Owner and to abide by all regulations and requirements which Owner may
prescribe for the protection of and proper functioning of the air
conditioning system at its optimum potential. Owner, throughout the term of
this lease, shall have free and unrestricted access to all air conditioning
equipment and facilities in the demised premises and Owner reserves the
right to interrupt, curtail, stop or suspend air conditioning service when
necessary by reason of accident or for repairs, alterations or improvements
which are, in the judgment of Owner, desirable or necessary to be made, or
by reason of the difficulty or unavailability in securing supplies or labor,
strikes, or for any other causes beyond Owner's control, whether such other
causes be similar or dissimilar to those hereinabove specifically mentioned.
Furthermore, Owner reserves the right, at any time throughout the term of
this lease, to modify, change, reconstruct or alter the air conditioning
system or any portion thereof, and the risers, pipes, ducts and conduits
used in connection therewith, without affecting the obligations of Tenant
hereunder or incurring any liability to Tenant therefor.
, ~ ~_--~ TV ~= ~=,,llsed
42. INDEMNITY. From and after the date Tenant enters into possession of the
demised premises Tenant hereby assumes, except as herein otherwise provided,
the sole responsibility for the condition, operation, management and control
of the demised premises, and hereby covenants and agrees to indemnify and
hold Owner and its agents and employees harmless (except for injury or
damage resulting from the negligence of Owner, its agents or employees) from
and against all claims, actions, judgments, damages, liability or expense,
including reasonable attorneys' fees and disbursements, in connection with
damage to property or injury or death to persons, arising from or out of the
use, alteration, occupation, management, possession or control of the
demised premises, or occasioned wholly or in part by any act, omission or
other wrongful act of Tenant, its agents, employees, contractors,
subtenants, invitees, licensees and the like, or any breach by Tenant of its
obligations under this lease.
In case Owner, without fault on its part, shall be made a party to any
litigation commenced against Tenant, Tenant shall protect and hold Owner
harmless and shall pay all costs and expenses, including reasonable
attorneys' fees and disbursements, incurred or paid by Owner in connection
with such litigation. Upon request by Owner, Tenant shall resist and defend
any such action or proceeding by counsel chosen by Tenant who shall be
reasonably satisfactory to Owner. Tenant or its counsel shall
keep Owner fully apprised at alltimes of the status of such defense.
43. Notice of Damage. Tenant shall give prompt notice to Owner of any fire,
accident, loss or damage or dangerous or defective condition materially
affecting the demised premises or any part therof or the fixtures or other
property of Owner therin of which Tenant has any knowledge. Such notice shall
not, however, be deemed or construed to impose upon Owner any obligation to
perform any work to be performed by Tenant under this lease or not otherwise
hereunder undertaken to be performed by Owner.
44. ASSIGNMENT SUBLETTING.
hereby amended in the following respects:
Article 11 hereof is
Provided this lease is then in full force and effect and Tenant is not in
default hereunder.
A. (1) If Tenant desires to assign this lease or to sublet all of the
demised premises, and shall have obtained a proposed assignee or subtenant
upon terms satisfactory to Tenant, Tenant shall submit to Owner in writing a
request for Owner's consent, together with: (i) the name of the proposed
assignee or subtenant; (ii) the terms and conditions of the proposed
assignment or subletting; (iii) the nature and character of the business
which the proposed assignee or subtenant proposes to conduct in the demised
premises; (iv) current financial statements and banking and other references
of such proposed assignee or subtenant; and (v) such other information
concerning such proposed assignment or subletting as Owner may reasonably
request.
(2) Owner shall thereupon have the right and option, which may be exercised
within thirty (30) days following Owner's receipt of Tenant's aforementioned
request for Owner's consent and documentation, to cancel and terminate this
lease effective as of the date proposed by Tenant of such assignment or
subletting, by giving notice to Tenant within the aforesaid thirty (30) day
period of Owner's election so to do. If Owner shall exercise its said
option, Tenant shall vacate and surrender the demised premises in the manner
prescribed in Article 22 hereof on or before the effective date of such
termination, all rents, additional rents and other charges shall be
apportioned as of said date and Tenant's obligation in respect thereof shall
survive the termination of this lease. Owner shall thereupon be free to
lease the demised premises and/or other space in the Building to Tenant's
prospective assignee or subtenant. If Owner shall exercise its said option,
Owner shall have no liability to Tenant in such event.
B. (1) If Owner shall not exercise its aforesaid option to terminate this
lease pursuant to Paragraph A of this Article, and provided Tenant shall not
then be in default under this lease beyond any applicable cure period,
Owner's consent to any such proposed assignment or subletting shall not be
unreasonably withheld if Owner, in its reasonable discretion, is satisfied
as to the reputation and financial responsibility of the proposed assignee
or subtenant, that the business of the proposed assignee or subtenant is and
will be conducted in the demised premises in a manner consistent with the
character and reputation of the Building and is for administrative or
executive use for another responsible professional use or business
acceptable to Owner. Notwithstanding the foregoing, however, if Owner, in
its reasonable discretion is dissatisfied with the type of business or
profession, or the reputation or financial responsibility of the proposed
assignee or subtenant, or is of the opinion that the business of the
proposed assignee or subtenant is not consistent with or will not be
conducted in a manner consistent with the character and reputation of the
-. .,, -
assignee or subtenant. If Owner's sole objection to a prospective subletting
is the form of the proposed sublease agreement, Owner shall inform Tenant of
the nature of Owner's objection(s) and if Tenant revises the form of the
sublease agreement so as to fully satisfy Owner's objection(s), Owner shall
consent to the subletting.
(2) It shall not be deemed unreasonable if
Owner withholds its consent to an assignment or subletting of the demised
premises for any of the following reasons:
(a) if the effective date of the proposed
assignment or subletting occurs during the last 6
months of the term of the lease;
(b) if the proposed assignee or subtenant is a tenant or occupant of the
Building or a subsidiary, division or affiliate of any such tenant or
occupant of the Building, or is a party with whom Owner is then negotiating
to lease space in the Building;
(c) if the proposed assignment or subletting is for use of the demised
premises or any part thereof as an auction room, public stenographic
service, political campaign office, or governmental (foreign or domestic)
agency, department or office, labor union offices or hiring hall, dance or
music modeling or art studio, radio or television broadcasting transmission
activities, sound recording studio, talent or audition agency, travel
agency, airline ticket office, personnel or employment agency, gymnasium,
real estate brokerage business, restaurant or other place of public
assembly, barber shop, beauty salon, doctors' or dentists' office, or
messenger service;
(d) if the proposed subletting is for less than all of the demised premises
(and any such partial subletting shall be deemed a material breach of this
lease); or
(e) if the proposed subletting shall be at a rental rate that is more than
two ($2.00) dollars per rentable square foot less than the rental rate then
being charged by Owner for comparable space in the Building.
(3) If Owner shall grant its consent to a
proposed assignment of this lease or subletting of the demised premises,
such consent and the effectiveness of any such assignment or subletting
shall nevertheless be conditioned upon Tenant complying with the following
conditions: (a) in the case of an assignment, the assignee shall duly
assume, directly for the benefit of Owner, all of the obligations of Tenant
hereunder and shall cause a written assumption agreement (in form
satisfactory to Owner) to be delivered to Owner; and (b) a duplicate
original of the executed assignment and assumption agreement~or sublease, as
the case may be, shall be delivered to
treated as a nullity and of no force or effect whatsoever against
Owner.
C. Every assignment of this lease or subletting hereunder shall be expressly
subject to the condition and restriction that the assigned lease or sublease
shall not be assigned, encumbered or otherwise transferred or the subleased
premises further sublet by the sublessee in whole or in part, or without
first complying with all of the provisions of this Article. Every subletting
hereunder shall he subject to hereunder
~ ,~ the
express condition, and by accepting a sublease hereunder each subtenant
shall be conclusively deemed to have agreed, that if this lease should be
terminated prior to the expiration date herein set forth or if Owner shall
succeed to Tenant's estate in the demised premises, then at Owner's election
the subtenant shall attorn to and recognize Owner as the subtenant's owner
under the sublease, any provision of law to the contrary notwithstanding;
and the subtenant shall promptly execute and deliver to Owner any instrument
Owner may reasonably request to evidence such attornment, and each subtenant
shall conclusively be deemed to have appointed Owner its attorney-in-fact to
execute and deliver any such certificate for and on behalf of such
subtenant.
D. Tenant shall reimburse Owner on demand for the
amount of any reasonable attorneys' fees and disbursements (other
than fees and disbursements of Owner's in-house counsel),
reasonable architectural and engineering fees and other costs
incurred by Owner in acting upon any proposed assignment or
subletting by Tenant, including fees and costs incurred by Owner
in preparing the demised premises in every respect for such
assignee's or subtenant's occupancy, whether before or after
Owner's consent is granted and whether or not Owner's consent is
granted. ~
E. Notwithstanding any assignment and assumption by the assignee of the
obligations of Tenant hereunder or subletting of the demised premises, or
the consent of Owner thereto, the Tenant herein named, and each immediate or
remote successor in interest of the Tenant herein named, shall remain
liable, jointly and severally (as a primary obliger), with its assignee and
all subsequent assignees for the performance of Tenant's obligations
hereunder and, without limiting the generality of the foregoing, shall
remain fully and directly responsible and liable to Owner for all acts and
omissions on the part of any assignee subsequent to it in violation or
breach of any of Tenant's obligations under this lease.
F. If Tenant shall receive any consideration from its assignee or subtenant
for or in connection with the assignment of this lease or a subletting
permitted hereunder, or if Tenant shall sublet the demised premises to
anyone for rents which for any period shall exceed the Base Rent payable
under this lease during the term of the sublease, Tenant shall account to
Owner therefor and shall pay over to Owner, as additional rent hereunder,
fifty (50%) percent of such consideration or excess amount within ten (10)
days after such consideration or excess amount is payable to Tenant.
~ - G. If Tenant is a corporation, any sale,
:: Q =; tareCal ~ __ _ ~ C _ _ ~ _ ~ ~
H. Tenant agrees that in connection with any assignment or subletting
hereunder, Tenant shall be solely responsible for any alteration work to be
done in connection therewith and such alterations shall only be permitted
upon compliance with the terms, covenants and provisions of this lease
relating to alterations.
I. Except as expressly modified by this Article,
all of the terms and provisions of Article 11 hereof shall remain
in full force and effect.
45. ARBITRATION OF DISPUTES. A. All questions,
issues and disputes arising under or in connection with this
lease which cannot be resolved by Owner and Tenant acting alone
shall be resolved or settled by arbitration in the Borough of
Manhattan, City and State of New York, in accordance with the
rules then obtaining of the American Arbitration Association,
governing commercial arbitration.
ARBITRATION OF DISPUTES. A
B. The expenses of arbitration shall be shared equally by Owner and Tenant,
but each party shall pay and be separately responsible for its own counsel
and witness fees. Owner and Tenant agree to sign all documents and to do all
other things necessary to submit any question, issue or dispute arising
hereunder or in connection herewith to arbitration and further agree to, and
hereby do, waive any and all rights they or either of them may at any time
have to revoke their agreement hereunder to submit to arbitration and to
abide by the decision rendered thereunder and agree that a judgment or order
may be entered in any court of competent jurisdiction based on an
arbitration award (including the granting of injunctive relief) but nothing
contained herein or otherwise shall prevent, delay or impede Owner from
bringing any action at law or in equity in any court or before any tribunal
of-competent jurisdiction against Tenant or otherwise in connection with any
breach of or default under this lease by Tenant.
C. The arbitrators shall have the right to retain and consult experts and
competent authorities skilled in the matters under arbitration, but any such
consultation shall be made in the presence of both Owner and Tenant, with
full right on their part to cross-examine such experts and authorities. The
arbitrators shall render their decision and award not later than thirty (30)
days after the appointment of the third arbitrator. Their decision and award
shall be in writing and counterpart copies thereof shall be delivered to
Owner and Tenant. In rendering their decision and award, the arbitrators
shall have no power to modify or in any manner alter or reform any of the
provisions of this lease, and the jurisdiction of the arbitrators is limited
accordingly.
D. Neither invocation of the right to arbitrate a question, issue or dispute
or the commencement of arbitration shall in any way delay or vitiate the
obligation of Tenant, hereby confirmed, to perform each and every one of its
obligations hereunder, including, without limitation its obligation to pay
when due all rent, additional rent and other charges specified herein and to
observe all of its covenants herein contained. Any action or proceeding
which may be brought by Owner by Summary Proceedings is hereby specifically
excluded from being .ql]h4.=r~ ~m ant; -~. 4 ~ _~ :_ _~ . ~
from and against any and all claims, demands or judgments (and for all
expenses, including but not limited to counsel fees and expenses, incurred
by Owner in connection therewith) for any commissions, fees or other
compensation of any kind by or in favor of any broker or other party other
than Williamson, Picket, Gross, Inc. claiming to have brought the
availability of the demised premises to the attention of Tenant and/or to
have exhibited the demised premises to Tenant or any representative of
Tenant and/or claiming to have acted in any capacity as a broker in bringing
about this lease or the transaction contemplated hereby. In case any action
or proceeding shall be instituted against Owner for the payment of any such
commissions, fees or other compensation to any broker or other party other
than Williamson, Picket, Gross, Inc. upon notice from Owner and at Tenant's
sole expense, shall resist and defend such action or proceeding by counsel
chosen by and paid for by Tenant, who shall be reasonably satisfactory to
Owner, and Owner shall also have the right, but not the obligation, to
participate in the defense of any such action or proceeding by counsel of
its own choice paid for by Owner.
47. OWNER'S ALTERATIONS. Tenant understands and acknowledges that Owner may
alter, restore and/or renovate the entrance lobby and/or other portions of
the Building (exclusive of the demised premises, except as herein otherwise
expressly set forth) and that such alterations, restoration and/or
renovation or other work in the Building (including, without limitation the
temporary relocation of the entrance to the Building) may result in certain
inconveniences or disturbances to Tenant and other occupants of the
Building. Tenant agrees that the performance of any such work shall not
constitute or be deemed to be a constructive eviction or be grounds for a
termination of this lease or the term hereof, nor shall the same in any way
affect the obligations of Tenant under lease, including, without limitation,
the obligation to pay the rents herein reserved or give Tenant the right to
claim damages or any matter or thing from Owner or Owner's agent(s) or
contractor(s).
Owner shall have the right, in its sole judgment, from time to time during
the term of this lease, to modify and change: (i) which particular elevators
shall serve particular floors; (ii) the number of elevators that serve any
particular floor or group of floors; (iii) which elevators shall be
passenger elevators and which elevators shall be freight elevators or part
one and part the other; and (iv) whether any elevators be manually or
automatically controlled; and to make any and all alterations which may be
necessary to effect all or any of the foregoing without affecting the
obligations of Tenant hereunder or incurring any liability to Tenant
therefor, provided that one (1) elevator serving the floor on which the
demised premises are located shall be in service at all times.
48. SUBORDINATION. ATTORNMENT. A. Tenant hereby
acknowledges that as of the date hereof Owner is not the owner of
the entire Building but rather the owner of the condominium unit
in which the demised premises is located and the lessee of the
balance of the Building. This lease is subject and subordinate
to the declaration of condominium now affecting the Building and
the Land (as same may be amended from time to time; the
"Declaration"), all ground or underlying leases and all mortgages
subordination, Tenant shall execute promptly any certificate Owner may
request. Owner hereby represents that to its knowledge consummation of this
lease will not conflict with the Declaration and that it has not received
any notice of default under the Declaration. Owner agrees to use reasonable
efforts to obtain non-disturbance agreements from holders of any mortgages
which may now or hereafter affect the leases hereinbefore described or the
real property of which the demised premises are a part (such non-disturbance
agreements to be in form and content satisfactory to the holders of such
mortgages) but the failure or inability of Owner to obtain same shall not
affect this lease or Tenant's obligations hereunder.
B. Tenant covenants and agrees that, if by reason of a default on the part
of Owner, as lessee under any ground or underlying lease, in the performance
of any of the terms or provisions of such ground or underlying lease, for
any other reason of any nature whatsoever, such ground or underlying lease
and the leasehold estate of Owner as lessee thereunder is terminated by
summary proceeding or otherwise, or if such ground or underlying lease and
such leasehold estate is terminated through foreclosure proceedings brought
by the holder of any mortgage to which such ground or underlying lease is
subject or subordinate, or in case of any foreclosure of any mortgage
affecting the real property of which the demised premises is a party, Tenant
will attorn to the lessor under such ground or underlying lease or the
purchaser in such foreclosure proceedings, as the case may be, and will
recognize such lessor or such purchaser as Tenant's owner under this lease,
unless the lessor under such ground or underlying lease or the holder of any
such mortgage in any such proceedings shall elect in connection therewith to
terminate this lease and the rights of Tenant to the possession of the
demised premises. Tenant agrees to execute and deliver at any time and from
time to time, upon the request of Owner, the lessor under any such ground or
underlying lease, or such mortgagee or purchaser, any instrument which may
be necessary or appropriate to evidence such attornment. Such attornment by
Tenant shall contain, among other things, provisions to the effect that in
no event shall such lessor, mortgagee or purchaser, as owner: (i) be
obligated to repair, replace or restore the Building or the demised premises
in the event of damage or destruction, beyond such repair, replacement or
restoration as can be reasonably accomplished from the net proceeds of
insurance actually received by or made available to such owner; (ii) be
responsible for any previous act or omission of the owner or the tenant
under such ground or underlying lease or for the return of any security
deposit unless actually received by such owner; (iii) be subject to any
liability or offset accruing to Tenant against Owner; (iv) be bound by any
previous modification or extension of this lease unless previously consented
to; or (v) be bound by any previous prepayment of more than one month's rent
or other charge. Tenant further waives the provisions of any statute or rule
of law now or hereafter in effect which may give or purport to give Tenant
any right of election to terminate this lease or to surrender possession of
the demised premises in the event such ground or underlying lease terminates
or any such summary proceeding or foreclosure proceeding is brought by the
lessor under any such ground or underlying lease or the holder of any such
mortgage, and agrees that, unless and until any such lessor under No Huh
office use rubbish and refuse and the general cleaning services performed by
Owner in the Building. Notwithstanding the foregoing, however, Tenant shall
pay Owner the cost of removal of all of Tenant's refuse and rubbish that is
in excess of such normal executive office use, such as large quantities of
refuse, as well as cartons, boxes, crates, packing cases, furniture and
furnishings, filing cabinets, etc. Tenant shall, at its sole cost and
expense, comply with all present and future laws, orders and regulations of
all state, federal, municipal and local governments, departments,
commissions and boards regarding the collection, sorting, separation and
recycling of waste products, garbage, refuse and trash (collectively,
"Refuse"). Tenant shall sort and separate Refuse into such categories as
required by law and shall place such sorted Refuse in separate receptacles
reasonably approved by Owner. Owner may refuse to remove Tenant's Refuse
that is not separated and sorted as required by law.
50. OTHER SERVICES. Tenant shall pay Owner's customary charges (as
additional rent) within fifteen (15) days of receipt of Owner's invoice
therefor, for any and all maintenance and/or repair work done by Owner for
Tenant, at Tenant's request, but nothing contained herein shall in any
manner or to any degree obligate Owner to do any such maintenance or repair
work.
51. FEES AND EXPENSES. Whenever any default by Tenant causes Owner to engage
an attorney and/or incur any other expenses, Tenant agrees that it shall pay
such reasonable fees and expenses within twenty (20) days after being billed
therefor as additional rent.
52. LATE CHARGE. If during the term of this lease Tenant shall fail to pay
Base Rent, additional rent or any other charge due or payable hereunder or
in connection herewith within ten (10) days after same is first due or
payable, Tenant agrees to pay to Owner: (i) as and for agreed upon late
charges (and not a penalty) on account of Owner's additional administrative,
accounting and overhead costs attributable to Tenant's delinquency, five (5)
cents for each dollar that is not timely paid; and (ii) an amount equal to
the lower of: (a) 23% per annum; or (b) the highest rate permitted by law,
on the amount not paid when due, from the due date until the date of
payment. All amounts payable to Owner pursuant to this Article shall be
considered additional rent. Nothing contained in this Article or otherwise
is intended to grant Tenant any extension of time in respect of the due
dates for any payments under this lease, nor shall same be construed to be
in limitation of or in substitution for any other rights, remedies or
privileges available to Owner under this lease, at law, in equity or
otherwise.
53. BILLS INVOICES OR STATEMENTS. All bills, invoices or statements rendered
to Tenant pursuant to the terms of this lease shall be deemed binding upon
Tenant and determined by Tenant to be correct in all respects if, within
ninety (90) days after its receipt of same, Tenant fails to notify Owner, in
writing, that it disputes such bills, invoices or statements.
54. ADDITIONAL RENT. In addition to the Base Rent,
all other payments required to be paid by Tenant hereunder shall
be deemed-to be additional rent, whether or not the same shot ~ h"
additional listings on the directory board in the lobby of the Building,
except that no name shall be listed on the directory board that is not a
person or entity directly related to or associated with Tenant and an
occupant of the demised premises.
56. ESTOPPEL CERTIFICATES. At any time, and from time to time, within
fifteen (15) days after written demand therefor, Tenant shall execute,
acknowledge and deliver to Owner, without charge, a statement addressed to
Owner (and/or such other persons or parties as Owner shall require)
certifying that this lease is unmodified and in full force and effect (or,
if there have been modifications, that the same is in full force and effect,
as modified, and stating the modifications), certifying the date to which
the Base Rent and additional rents have been paid, and stating whether or
not Owner is in default in performance of any of its obligations under this
lease, and if so, specifying each such default, it being intended that any
such statement delivered pursuant thereto may be relied upon by Owner and
others with whom Owner may be dealing.
57. LIMITATION OF LIABILITY. Notwithstanding anything contained in this
lease or at law or in equity to the contrary, it is expressly understood,
acknowledged and agreed by Tenant that there shall at no time be or be
construed as being any personal liability by or on the part of Owner under
or in respect of this lease or in any wise related hereto or the demised
premises; it being further understood, acknowledged and agreed that Tenant
is accepting this lease and the estate created hereby upon and subject to
the understanding that it shall not enforce or seek to enforce any claim or
judgment or any other matter, for money or otherwise, personally against any
officer, director, member, stockholder, partner, principal (disclosed or
undisclosed), representative or agent of Owner, but shall look solely to the
equity of Owner in the condominium unit in which the demised premises are
located, and not to any other assets of Owner, for the satisfaction of any
and all remedies or claims of Tenant in the event of any breach by Owner of
any of the terms, covenants or agreements to be performed by Owner under
this lease or otherwise; such exculpation of any officer, director, member,
stockholder, partner, principal (disclosed or undisclosed), representative
or agent of Owner from personal liability as set forth in this Article to be
absolute, unconditional and without exception of any kind.
If Tenant shall at any time claim that Owner unreasonably withheld its
consent to any act to which Owner has agreed hereunder not to unreasonably
withhold its consent, Owner's sole obligation or liability to Tenant
therefor shall be to consent thereto if Tenant prevails against Owner in an
arbitration commenced in accordance with the provisions of Article 45
hereof, and Tenant hereby waives and relinquishes any and all claims for
damages or other compensation by reason thereof.
58. RESTRICTIONS ON RENTS. If at the commencement of, or at any time or
times during the term of this lease, the Base Rent or additional rents
reserved in this lease shall not be fully collectible by reason of any
Federal, State, County or City law, proclamation, order or regulation, or
direction of any public officer or body pursuant to law, Tenant shall enter
into such agreement(s) and take such other steps as Owner may request
permissible, an amount equal to the rents which would have been paid
pursuant to this lease but for such legal rent restriction, less the rents
paid by Tenant to Owner during the period(s) such legal rent restriction was
in effect.
59. BEE~RUd3IL[IX. If any of the terms or provisions of this lease or the
application thereof shall be held invalid or otherwise unenforceable, the
remaining terms and provisions of this lease andtor the application of such
term(s) or provision(s) to persons or circumstances other than those to
which the same were held invalid or unenforceable shall not be affected
thereby and shall remain in full force and effect, and each term and
provision of this lease shall be valid and enforceable to the fullest extent
permitted by law.
60. INTERPRET,~]ON OF LEASE. In the event of any conflict between the
printed portions of this lease and the typewritten provisions or this Rider
forming a part hereof, the typewritten provisions of this Rider shall
control.
61. INSURANCE. Supplementing the provisions of
Article 8 hereof;
Tenant hereby covenants and agrees to indemnify and hold Owner (which term
as used in this Article and Article a shall include Owner's employees,
agents, partners, officers, members, shareholders and directors, whether or
not disclosed) harmless from and against any and all claims, actions,
judgments, damages, liabilities and expenses, including (without limitation)
reasonable attorneys, fees, in connection with damage to property or injury
or death to persons, or any other matters (except for injury, damage, death
or other matters resulting from the negligence of Owner, its agents or
employees), arising from or out of the use, or occupation of the demised
premises or the execution of this lease. If Owner shall be made a party to
any litigation commenced against Tenant, then Tenant shall protect and hold
owner forever harmless and shall pay all reasonable costs and expenses,
including (without limitation) reasonable attorneys' fees and disbursements,
incurred or paid by Owner in connection with such litigation. Tenant hereby
agrees that fees charged by Owner's insurer Is attorneys shall be deemed
reasonable. In furtherance of Tenant's obligations under this Article and
this lease (but not in limitation thereof) Tenant covenants and agrees, at
its sole cost and expense, to carry and maintain in force from and after the
date of this lease and throughout the term hereof: (i) worker's compensation
and all other required statutory forms of insurance in statutory limits; and
(ii) comprehensive general public liability insurance, which shall be
written on an-occurrence basis, naming Tenant and Owner as the insured and
naming the lessor under any ground or underlying lease or others having an
interest in the Land and/or the Building as additional insureds, in limits
(subject to increase at Owner's reasonable request) of not less than
03,000,000.00 for bodily and personal injury or death to any one person and
not less than $4,000,000.00 for bodily and personal injury or death in any
one occurrence, and for property damage of not less than $1,000,000.0O per
occurrence, protecting the aforementioned parties from all such claims for
bodily or personal injury or death or property damage occurring in or about
the demised premises and its appurtenances. All insurance required to be
maintained by Tenant shall be carried with a company or companies acceptable
to Owner, rated "A-10n or better by Best Insurance Guide and licensed to do
business in the State of New York and shall be written for terms of not less
than one year. Tenant shall furnish Owner (and any other parties required to
be designated as additional insureds under all insurance
policies required to be maintained by Tenant) with certificates evidencing:
(a) the maintenance of insurance as aforesaid; (b) the payment of the
premiums therefor; and (c) the renewals thereof at least thirty (30) days
prior to the expiration of any such policy. Such policy or policies shall
also provide that it or they shall not be cancelled or altered without
giving owner at
ItL3:190131.4
-17-
least thirty (30) days prior written notice thereof which shall be sent to
Owner by certified mail at the address to which notices are required to be
sent to Owner hereunder. Upon Tenant's default in obtaining or delivering
any such policy, policies or certificates or Tenant's failure to pay the
premiums therefor, Owner may (but shall not be obligated to) secure or pay
the premium for any such policy or policies and charge Tenant as additional
rent therefor.
Tenant hereby releases Owner from all liability, whether for negligence or
otherwise, in connection with all losses covered by any insurance policies
which Tenant carries (whether or not such insurance is required to be
carried under this lease) or is obligated to carry with respect to the
demised premises, or any interest or property therein or thereon.
62. END OF TERM. Article 22 hereof is hereby amended
to add the following:
"If the demised premises are not surrendered and vacated as and at the time
required by this lease (time being of the essence), Tenant shall be liable
to Owner for: (a) all losses and damages which Owner may incur or sustain by
reason thereof, including, without limitation, attorneys' fees and
disbursements, and Tenant shall"indemnify Owner against all claims made by
any succeeding tenants against Owner or otherwise arising out of or
resulting from the failure of Tenant timely to surrender and vacate the
demised premises in accordance with the provisions of this lease; and (b)
per diem use and occupancy in respect of the demised premises equal to two
times the Base Rent and additional rent payable hereunder for the last year
of the term of this lease (which amount Owner and Tenant presently agree is
the minimum to which Owner would be entitled and is presently contemplated
by them as being fair and reasonable under such circumstances and not a
penalty). In no event shall any provision hereof be construed as permitting
Tenant to hold over in possession of the demised premises after expiration
or termination of the term hereof."
63. SECURITY.
add the following:
Article 34 hereof is hereby amended to
"As long as major commercial banks in the City make interest bearing
security deposit accounts available, said security deposit shall be placed
by Owner or its agent in an interest bearing account. Interest that may
accrue thereon shall belong to Tenant, except such portion thereof as shall
be equal to one (1~) per cent per annum of said security deposit (or such
higher percentage as Owner may from time to time be lawfully entitled to
retain), which such percentage shall belong to and be the sole property of
Owner as an administrative fee which Owner may withdraw from time to time
and retain. That portion of the interest belonging to Tenant shall be
accumulated and retained with such deposit and shall be considered
additional security hereunder. The obligation to pay any taxes, whether
income or otherwise, related to or affecting any interest earned on such
security deposit (except as to that portion thereof which belongs to Owner)
shall be the sole responsibility of Tenant and Tenant hereby agrees to pay
same and to forever indemnify and save
herein described as the demised premises. This lease shall not be or become
binding upon Owner to any extent or for any purpose unless and until it is
executed by Owner and a fully executed copy thereof is delivered to Tenant.
ADDITIONAL RULES AND REGULATIONS
16. No machine or mechanical equipment of any kind, including window mounted
or portable air conditioners, other than typewriters, desk-top computers,
desk-top printers, desk-top copiers and other ordinary portable computer
equipment and business machines, may be installed or operated in any tenant'
s premises without Owner's prior written consent, which shall not be
unreasonably withheld or delayed, and in no case (even where the same are of
a type so excepted or as so consented to by Owner) shall any machines or
computer or mechanical equipment be so placed or operated as to disturb
other tenants; and such machines and computer and mechanical equipment as
may be permitted to be installed and used in a tenant's premises shall be so
equipped, installed and maintained by such tenant as to prevent any
disturbing noise, vibration or electrical or other interference from being
transmitted from such premises to any other area of the Building. Hand
trucks not equipped with rubber tires and side guards shall not be used
within the Building.
17. No noise or other activity, including the playing of any musical
instruments, radio, television or other sound reproduction system, which
would, in Owner's judgment, disturb other tenants in the Building, shall be
made or permitted by any tenant, and no cooking shall be done in the
tenant's premises, except as expressly approved in writing by Owner.
18. All entrance doors in each tenant's premises shall be left locked by the
tenant when the tenant's premises are not in use. Entrance doors shall be
kept closed at all times.
19. Owner and its cleaning contractor and their employees shall have access
to the Tenant's premises after regular business hours and the free use of
light, power and water as may be reasonably required for the purpose of
cleaning the Tenant's premises in accordance with Owner's obligations under
the Tenant's lease. All locks affording access to Tenant's premises and to
circulation within Tenant's premises shall be conformed to Owner's master
key system.
20. The requirements of tenants will be attended to only upon application to
the Building Superintendent at his office in the Building. Building
employees shall not be requested by any tenant, and will not be permitted,
to perform any work or services specially for any tenant, unless expressly
authorized to do so by the Building Superintendent.
21. Owner reserves the right to rescind, alter, waive, expand or add any
rule or regulation at any time prescribed for the Building when, in its
judgment, it deems it necessary, desirable or proper for its best interest
and for the best interests of the tenants, and no alteration or waiver of
any rule or regulation in favor of one tenant shall operate as an alteration
or waiver in favor of any other tenant. Owner shall not be responsible to
any tenant for the non-observance or violation by any other tenant of any of
the rules and regulations at any time prescribed for the Building.
23. Tenant shall have access to the demised premises twenty-four hours per
day, seven days per week, excluding Thanksgiving Day, Christmas Day and New
Year's Day. If Tenant wishes to access the demised premises on Thanksgiving
Day, Christmas Day or New Year's Day, Tenant shall arrange for such access
in advance with Owner. Owner may refuse admission to the Building outside of
ordinary business hours to any person not known to the watchman in charge or
not having a pass issued by Owner or not properly identified, and may
require all persons admitted to or leaving the Building outside of ordinary
business hours to register. Any person whose presence in the Building at any
time shall, in the judgment of Owner, be prejudicial to the safety,
character, reputation and interests of the Building or of its tenants may be
denied access to the Building or may be ejected therefrom. In case of
invasion, riot, public excitement or other commotion Owner may prevent all
access to the Building during the continuance of the same, by closing the
doors or otherwise, for the safety of the tenants and protection of property
in the Building. Owner may require any person leaving the Building with any
package or other object to exhibit a pass from the tenant from whose
premises the package or object is being removed, but the establishment and
enforcement of such requirement shall not impose any responsibility on Owner
for the protection of any tenant against the removal of property from the
premises of the Tenant. Owner shall, in no way, be liable to any tenant for
damages or loss arising from the admission, exclusion or ejection of any
person to or from the tenant's premises or the Building under the provisions
of this rule. Canvassing, soliciting or peddling in the Building is
prohibited and every tenant shall cooperate to prevent the same, in or about
its premises.
24. Tenant shall not at any time store or keep any material, supplies,
furniture, furnishings or equipment of any kind in any machine room or in
any mechanical or electrical equipment room in the Building whether such
room be within or outside premises demised to Tenant.
25. Owner may charge Tenant for directory board changes subsequent to
initial listings. All requests for directory board listings shall be in
writing on Tenant's letterhead signed by an authorized representative of
Tenant.
26. In no event and under no circumstances shall hand trucks be brought into
or used in any passenger elevators in the Building, it being understood that
all freight, furniture, business equipment and bulky matters of every
description shall be moved into and out of the Building and between floors
therein only on the freight elevator and otherwise in accordance with Rule 8
and the other Rules annexed to this lease.
27. Tenant, at its cost and expense, shall affix to its office entrance door
and thereafter maintain a sign or lettering, whose design shall be subject
to Owner's approval, indicating Tenant's name or the name of Tenant's
business.
28. No tenant shall perform any alteration or installations in or to the
demised premises (including, without limitation, the installation of any
window treatments) which may be visible from outside of the demised premises
or the Building without the prior written consent of Owner.
Exhibit 21 to 1997 10-KSB
Allstate Financial Corporation
Wholly-owned Subsidiary List
State of
Name Incorporation
Receivable Financing Corporation Virginia
Business Funding of Florida, Inc. Florida
Business Funding of America, Inc. Virginia
Premium Sales Northeast, Inc. Virginia
Lifetime Options, Inc., a Viatical
Settlement Company Maryland
Settlement Solutions, Inc Virginia
AFC Holding Corporation Delaware
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<CIK> 0000852220
<NAME> ALLSTATE FINANCIAL CORP
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
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0
0
<COMMON> 40000
<OTHER-SE> 23524040
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<INTEREST-EXPENSE> 1170152
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<INCOME-TAX> 606985
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<EXTRAORDINARY> 0
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<NET-INCOME> 1033513
<EPS-PRIMARY> .45
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