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U. S. 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 (Fee required)
For the fiscal year ended December 31, 1998
Commission File Number 0-23484
STANDARD FUNDING CORP.
(Name of Small Business Issuer in Its Charter)
New York 11-2523559
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
335 Crossways Park Drive, Woodbury, New York 11797
(Address of Principal Executive Offices) (Zip Code)
(516) 364-0200
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
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Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes |X| No
|_|
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |X|
State issuer's revenues for its most recent fiscal year: $7,110,534.
State the aggregate market value of voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days: $4,581,057 based on the price at which the stock was sold on March 18,
1999.
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 2,760,000 shares of Common
Stock, $.001 par value per share, were outstanding at March 26, 1999.
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III, Items 9, 10, 11 and 12 is
incorporated herein by reference from Standard Funding Corp.'s definitive Proxy
Statement for the Annual Meeting of Shareholders to be held on or about May 21,
1999 which will be filed on or about April 21, 1999.
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<PAGE>
STANDARD FUNDING CORP.
1998 ANNUAL REPORT ON FORM 10-KSB
Item Page
Number Number
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PART I
1. Description of Business 1
2. Description of Property 5
3. Legal Proceedings 5
4. Submission of Matters to a Vote of Security-Holders 5
PART II
5. Market for the Company's Common Equity and
Related Shareholder Matters 6
6. Management's Discussion and Analysis or Plan of Operation 6
7. Financial Statements 11
8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 11
PART III
9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act. 12
10. Executive Compensation 12
11. Security Ownership of Certain Beneficial Owners and Management 12
12. Certain Relationships and Related Transactions 12
Index to Financial Statements F-1
<PAGE>
PART I
Item 1. Description of Business.
General
Standard Funding Corp. (the "Company"), incorporated in New York in 1978,
is a financial services company engaged in the business of financing the payment
of insurance premiums. The Company offers financing of approximately 75 to 85%
of an insurance premium to individual and commercial purchasers of property,
casualty and liability insurance who wish to pay their insurance premiums on an
installment basis. While many insurance carriers require advance payment of a
full year's premium, the Company allows the insured to spread the cost of the
insurance policy over time.
The Company finances insurance premiums without assuming the risk of loss
borne by insurance carriers. When the insured buys an insurance policy from an
independent insurance agent or broker who offers financing through the Company,
the insured generally pays a down payment of approximately 15% to 25% of the
total premium and signs a premium finance agreement for the balance. Under the
terms of the Company's standard form of financing contract, the Company is given
the power of attorney by the insured to cancel the insurance policy if there is
a default in the payment on the finance contract and to collect the unearned
portion of the premium from the insurance carrier. The down payment is set at a
level designed, in the event of cancellation of a policy, such that the return
premium from the insurance carrier is sufficient to cover the loan balance plus
interest and other charges due to the Company. To finance its insurance premium
loans, the Company relies primarily on proceeds from a revolving credit
agreement with a consortium of banks, subordinated debt, the issuance of
commercial paper and the sale of equity. The Company derives profit to the
extent that interest earned and fees charged generate income exceeding the
interest expense for borrowed funds and the Company's operating and selling
expenses and provision for credit losses.
The Company is licensed as an insurance premium finance company in 14
states and authorized to transact business in 3 additional states that only
require a Certificate of Authority. The Company is in the process of obtaining a
license as an insurance premium financing company in 3 other states. Management
estimates that approximately 98% of the Company's outstanding receivables are
commercial accounts and approximately 2% are personal lines. At December 31,
1998, the Company had approximately 18,200 active outstanding accounts.
The Company's marketing strategy is based on establishing and maintaining
relationships with insurance agents by offering a high degree of service. Senior
management is directly involved in the Company's marketing efforts which
currently focus on commercial accounts. The Company believes that these accounts
provide higher returns at lower risk than other sectors of the marketplace. The
Company has four marketing sales executives.
Industry Background
Premium finance companies are licensed to finance property, casualty and
liability insurance premiums for corporate and individual insured's that are
unable to or do not wish to pay an entire insurance premium in one lump sum. The
insured may be able to finance a premium with an affiliated company of the
insurance carrier, if any, an independent premium finance company such as the
Company, a bank or other lending institution. Customarily, insurance agents
utilize the services of premium finance companies to assist in the sale of an
insurance policy to their customers. Upon the execution of a finance agreement
with the insured, the agent forwards the completed documents to a premium
finance company. The premium finance company then pays the premium in full to
the insurance carrier, agent, or broker. The premium finance company collects
principal and interest from the insured (borrower) in the form of an installment
payment. In the event the insured (borrower) defaults, the Company has the right
to cancel the insurance policy by mailing a notice of cancellation to the
insurance carrier. The insurance carrier is then required by state law to refund
the gross unearned premium in full to the finance company for the benefit of the
insured.
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<PAGE>
Insurance Premium Financing Services
The Company offers financing to qualified purchasers of various types of
insurance policies including coverage for property, casualty and liability
insurance, of up to approximately 75% to 85% of the entire premium for such
policies. The Company's standard form of premium finance agreement discloses to
the insured, among other things: the price of the total premium; the amount of
the cash down payment made; the amount financed; the amount of the finance
charge; the amount which will be paid after the insured has made all payments as
scheduled; the applicable annual percentage rate charged; the fact that a late
charge is due in the event a payment is late; the insureds entitlement to a
refund of part of the finance charge in the event of prepayment by the insured;
the grant of a security interest in any and all unearned return premiums which
may become payable under the policy; and the insured's appointment of the
Company as the attorney-in-fact with authority to cancel the policy and to
receive from the insurance carrier the unearned portion of the premium. The
Company's agreements generally provide for monthly payments over a period of
between seven to nine months on a one-year policy.
Each insurance broker in the Company's referral network is provided with
financing kits. When an insured seeks premium financing, the broker completes
(and has the insured sign) the Company's form of premium finance agreement and
collects a down payment of approximately 15% to 25% of the total premium. The
broker also signs the contract to certify that the insurance policy has been
issued and delivered and warrants to the correctness of the information in the
premium finance agreement. The broker submits the original and one copy of the
executed premium finance agreement to the Company, along with its check or the
insured's certified check or money order for the down payment. Upon acceptance
of the finance contract, the Company issues a check payable to the insurance
carrier, agent, or broker for the total premium. The Company inputs all
information into its computer system and sends a payment book to the insured
with the first payment due approximately 30 days from the effective date of
coverage. The Company gives notice to the carrier of its interest in the policy
and informs the carrier that any return premium must be sent to the Company in
the event of cancellation of the policy.
Although the insured is primarily liable on the finance contract, the
Company does not look solely to the insured's creditworthiness for payment.
Rather, the insured assigns to the Company its interest in any unearned premium
in the financed insurance policy as security for the loan and grants to the
Company the power to cancel the insurance policy and collect the unearned
premium if there is a default in payment on the finance contract. Thus, the
unearned premiums held by the insurance company provide a collateral source of
payment on a delinquent finance contract.
The Company endeavors to increase revenues by using its resources to
finance as many premiums as is practicable. From the inception of the Company's
operations through December 31, 1998, the Company has financed the premiums on
more than 176,000 insurance policies. The Company currently does business with
more than 700 insurance brokers, more than 500 insurance companies and had,
during the year ended December 31, 1998, average amounts originally financed of
approximately $4,497 per finance contract.
In order to minimize losses, the Company will not finance premiums unless
the insurance policy provides for the return of unearned premiums upon
cancellation. The Company generally requires policyholders to make loan payments
sufficient to insure that at all times the unearned premium available for refund
will pay the loan balance plus interest and other charges. Advance payment of
approximately 15% to 25% of the premium generally ensures such a margin. Any
monies paid for insurance coverage for time extending after the cancellation
date constitute "unearned premiums" and must, under applicable state statutes,
be refunded to the insured. The Company's form of premium finance agreement
provides that all such refunds be remitted by the insurance carrier to the
Company on behalf of the insured. Before it forwards the refund to the insured
(or to the broker on behalf of the insured where state regulations require), the
Company deducts all interest earned, service and late charges due. In the
Company's experience, the time periods between the cancellation date and receipt
of the refund of unearned premiums has averaged between 60 and 120 days. There
can be no assurances, however, that the Company will be able to collect, or will
not experience increasing delays in collecting, such refunds in the future.
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<PAGE>
Upon receipt of the gross return premium from the insurance carrier, and
the crediting of this return to the insured's account, debit balances might
still be reflected in certain instances. The causes of such a situation include
improper disclosure of information to insurance agents on the insured's
application for insurance or clerical errors by Company personnel. The Company
uses its in-house collection department in an attempt to collect such balances.
If in-house efforts are unsuccessful, the use of external collection attorneys
is initiated. Certain transactions are written with recourse against the
producing agent, broker or agency and/or offsetting reserves to a few selected
insurance producers.
The Company charges against income a general provision for credit losses
on finance receivables in such amounts as management deems appropriate. These
amounts are based upon historical activity and an understanding of
collectability by type of finance receivable. Case-by-case direct write-offs,
net of recoveries on finance receivables, are charged to the Company's allowance
for losses. The amount of such allowance is reviewed periodically in light of
economic conditions, the status of the outstanding finance receivables and other
factors. The following table sets forth information concerning the Company's
allowance for credit losses on finance receivables and its loss experience for
the year ended December 31, 1998.
Year Ended December 31,
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1998 1997
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(Dollars in Thousands)
Allowance for credit losses at beginning of period $ 310 $ 300
Provision for credit losses during period 353 572
Charge offs during period (474) (607)
Amounts recovered during period 121 45
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Allowance for credit losses at end of period $ 310 $ 310
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Percentage of allowance for credit losses to
finance receivables outstanding at end of period .65% .72%
Percentage of net credit losses to finance
receivables liquidated during period .32% .60%
The Company bears the credit risk of collections from insurance carriers.
Upon a carrier becoming insolvent and unable to pay claims to an insured or
refund unearned premiums upon cancellation of a policy to a finance company,
each state provides a state guaranty fund that will pay such refund, less a per
claim deductible in certain states. The Company seeks to diversify its financing
activities among a wide range of brokers and insurance carriers.
Sales and Marketing
The Company generates business through referrals from independent
insurance agents and brokers, and through its own sales efforts. Such brokers
are associated with various insurance companies. Insurance brokers may refer
financing business to an insurance premium financing company because such
companies can assist them in servicing their clients, particularly where the
insurance carrier does not offer an installment payment option. Since the
Company has no contracts with any brokers to continue to refer business to the
Company, there can be no assurance that brokers presently directing financing
business to the Company will continue to do so, or that the Company will be able
to locate and establish relationships with additional brokers.
The Company believes that it offers more flexibility with regard to late
payments and policy cancellations than affiliated companies of insurance
carriers, banks and other lending institutions, which generally subject a policy
to automatic cancellation on a designated date if a premium payment is late. It
is the Company's general policy to notify the broker immediately when any
payment is past due, thereby allowing the broker to arrange with the insured for
payment and to prevent cancellation of the policy. Under certain circumstances
the grace period can be extended, thereby avoiding cancellation of the policy
and the loss of part of the broker's commission which may result from such
cancellation. No assurances can be given that the affiliated companies of the
insurance carriers, banks and other lending institutions will not add greater
flexibility to their insurance financing business practices and, in the event
this should occur, there may be a material adverse effect on the Company's
business operations.
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<PAGE>
Regulation
State statutes regulate the Company's operations, and regulations
promulgated thereunder, which provide for the licensing, administration and
supervision of premium finance companies. Such statutes and regulations impose
significant restrictions on the operation of the Company's business.
The Company is licensed as an insurance premium finance company in 14
states. However, the majority of the Company's business is conducted in five
states located in the northeastern section of the United States. The Company
must renew its license to operate as a premium finance company each year in
every state except New Jersey which requires renewal every two years. The
Company is also subject to periodic examinations and investigations by state
regulators.
State statutes and regulations impose minimum capital requirements, govern
the form and content of financing agreements and limit the interest and service
charges the Company may impose. The Commonwealth of Pennsylvania requires a
minimum net worth of $50,000. The State of New York requires that equity capital
be equal to at least 10% of outstanding receivables and, in any event, not less
than $1,500.
State statutes also prescribe notice periods prior to the cancellation of
policies for non-payment, limit delinquency and collection charges and govern
the procedure for cancellation of policies and collection of unearned premiums.
Changes in the regulation of the Company's activities, such as increased
rate regulation, could have an adverse effect on the Company's operations. The
statutes do not provide for automatic adjustments in the rates a premium finance
company may charge. Consequently, during periods of high prevailing interest
rates on institutional indebtedness and fixed statutory ceilings on rates the
Company may charge its insured's, the Company's ability to operate profitably
could be adversely affected.
Competition
The Company encounters intense competition from numerous other firms,
including companies affiliated with insurance carriers, independent insurance
brokers who offer premium finance services, banks and other lending
institutions. Some of the Company's competitors are larger and have greater
financial and other resources and are better known to consumers than the
Company. In addition, there are few, if any, barriers to entry in the event
other firms, particularly insurance carriers and their affiliates, seek to
compete in this market.
The market for premium finance companies is two-tiered. The first tier is
that of national companies that are owned by insurance companies, banks, and
commercial finance companies. In this group are five companies that on a
combined basis finance over $9 billion per annum of premium finance agreements.
Management believes that one of these companies financed over $3 billion in
insurance premiums in 1998 and is a major competitor of the Company. The second
tier is comprised of smaller local companies and is highly fragmented. The
Company believes that it offers better service and more flexibility with regard
to late payments and policy cancellations than affiliates of insurance carriers,
banks and other lending institutions. The Company competes with these entities
by emphasizing a high level of knowledge of the insurance industry, flexibility
in structuring financing transactions and the timely purchase of qualifying
contracts. The Company believes that its commitment to account service also
distinguishes it from its competitors. It is the Company's general policy to
notify the insurance agent when an insured is in default and to assist in
collection, if requested by the agent. To the extent that affiliates of
insurance carriers, banks, and other lending institutions add greater service
and flexibility to their financing practices in the future, the Company's
operations could be adversely affected. There can be no assurance that the
Company will be able to continue to compete successfully in its markets.
Personnel
The Company's staff consists of 33 employees (of whom 30 are full-time
employees and 3 are part-time employees), including 4 executive officers, 4
sales and marketing representatives and 25 clerical and administrative
employees.
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<PAGE>
Item 2. Description of Property.
The Company's offices are located at 335 Crossways Park Drive, Woodbury,
New York 11797. The Company leases (from a non-affiliated person) approximately
5,676 square feet of office space at a cost of $8,967 per month under a
five-year lease expiring on the 31st day of May 2001.
Item 3. Legal Proceedings.
The Company is not a party to any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
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<PAGE>
PART II
Item 5. Market for the Company's Common Equity and Related Shareholder Matters.
The Company's Common Stock has been listed on the Nasdaq SmallCap Market
under the symbol "SFUN" and traded publicly since August 9, 1994. The table
below sets forth, for the periods indicated, the high and low bid prices per
share of Common Stock, as reported on the Nasdaq SmallCap Market. The quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission,
and may not represent actual transactions.
1997 Period High Low
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First Quarter $ 5 $ 4
Second Quarter $ 4 3/4 $ 4 1/4
Third Quarter $ 4 1/2 $ 4 1/4
Fourth Quarter $ 3 1/8 $ 2 3/8
1998 Period High Low
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First Quarter $ 2 7/8 $ 2 3/8
Second Quarter $ 2 7/8 $ 2 3/8
Third Quarter $ 2 3/4 $ 1 3/8
Fourth Quarter $ 1 7/8 $ 1 1/8
1999 Period High Low
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First Quarter (through
February 23, 1999) $ 3 3/16 $ 1 3/4
There were 360 shareholders of record of the Company's Common Stock as of
February 23, 1999. The Company has not declared or paid any dividends on its
Common Stock since its inception. It is the present intention of the Company to
retain any future earnings to provide funds for the operation and expansion of
its business. Future payment of dividends, if any, will be at the discretion of
the Board of Directors and will be dependent upon the Company's financial
condition, results of operations, capital requirements and such other factors as
the Board of Directors may deem relevant. The Company is prohibited from
declaring or paying any dividends on its capital stock (other than dividends
payable solely in shares of its Common stock) pursuant to one of the Company's
subordinated debt arrangements which matures on December 27, 2000.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
The Company derives profits to the extent that finance rates and fees
charged generate income exceeding the Company's cost of funds, operating and
selling expenses and provision for possible credit losses. The Company borrows
funds from various financial institutions in the wholesale market and from other
sources and lends such funds on a secured basis to individual and commercial
purchasers of property and casualty insurance. The cost of borrowed funds
(interest expense) constitutes by far the largest expense of the Company and to
a large degree is beyond the control of the Company. The difference between
finance charge income and the Company's cost of funds is sometimes referred to
as net interest income or "spread." The Company's "spread" is affected by
changes in market interest rates, competitive conditions and other factors.
Presently, the Company's revolving credit agreement is on a variable rate basis
and all of its commercial paper and subordinated debt is on a fixed rate basis.
See "Liquidity and Capital Resources." While the Company's installment loans
receivable are all on a fixed rate basis, the rapid rate of turnover of the
Company's total loan portfolio, 3.1 times in both 1998 and 1997, and the short
term to maturity of its outstanding installment loans, with an average maturity
of approximately four months at December 31, 1998, help to reduce the Company's
exposure to interest rate fluctuations.
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<PAGE>
The following table sets forth the spread that the Company has maintained
for the last two fiscal years, based upon average monthly receivable balances:
Year Ended December 31,
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1998 1997
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(Dollars in Thousands)
Average Installment Loans Receivable - net $47,021 $40,270
Net Interest Income (Spread) 4,202 3,796
% of Spread to Average Loans Receivable 8.9 9.4
The Company is licensed as an insurance premium finance company in 14
states. However, the majority of the Company's business is conducted in five
states located in the northeastern section of the United States.
The following table sets forth certain income statement items as a
percentage of total finance charge income:
Year Ended December 31,
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1998 1997
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NET INTEREST INCOME:
Finance charge income and other 100.0% 100.0%
Less: Interest and other expenses on borrowings 40.9 40.0
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Interest income before provision for credit losses 59.1 60.0
Less: Provision for credit losses 5.0 9.0
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Net interest income 54.1 51.0
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OTHER EXPENSES:
Operating expenses 32.0 28.6
Selling expenses 11.3 11.4
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Total 43.3 40.0
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INCOME BEFORE PROVISION FOR INCOME TAXES 10.8 11.0
PROVISION FOR INCOME TAXES 5.0 4.9
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NET INCOME 5.8% 6.1%
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Finance charge income increased by 12.38% to $7,110,534 in the year ended
December 31, 1998 from $6,327,115 for the year ended December 31, 1997 primarily
because of an increase in total installment loans financed. Total installment
loans financed increased 11.6% to $115,347,014 from $103,320,694 and the number
of contracts representing these loans increased 5.2% to 25,650 from 24,389. The
Company's average receivables for the year ended December 31, 1998 increased
16.8% to $47,020,588 from $40,269,644 for the year ended December 31, 1997.
Interest expense for the year ended December 31, 1998 increased 14.9% to
$2,908,066 from $2,530,859 for the year ended December 31, 1997, an increase of
$377,207. This increase in interest expense is due primarily to the increased
borrowing due to the increase in average receivables. Operating and selling
expenses increased by 21.7% to $3,079,305 in the year ended December 31, 1998
from $2,529,856 in the year ended December 31, 1997. This increase was primarily
attributable to increases in salaries, commission, and certain other
administrative expenses. Due to the $783,419 increase in finance charge income,
compared to only a $377,207 increase in interest expense, there was a 10%
increase in the "spread" to $4,202,468 for the year ended December 31, 1998 from
$3,796,256 for the year ended December 31, 1997.
In 1998, the Company had gross write-offs of $473,957, of which $427,036
represented assigned risk automobile policies and $46,921 represented Commercial
policies. Management feels that with the curtailment of financing assigned risk
business in 1998, we have reduced the likelihood of large assigned risk
write-offs for the future. Management believes that's its reserves are
sufficient to cover losses inherent in the current portfolio.
The provision for credit losses decreased by 38.3% to $352,835 for the
year ended December 31, 1998 from $572,297 for the year ended December 31, 1997.
Past due amounts represent policies that the Company has canceled and is waiting
to receive return premiums, and include policies where the insurance carrier has
credited the return premium to the broker or agent who originated the policy and
who subsequently is required to forward such amount to the Company.
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<PAGE>
Effective Income Tax Rate
The effective tax rate for fiscal 1998 was 46.0% compared to 44.6% for
fiscal 1997. The tax rate in both years was higher than the federal statutory
tax rate primarily as a result of the inclusion of state income taxes and
certain nondeductible expenses for income tax purposes.
Subsequent Event
On January 28, 1999, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Atlantic Bank and Atlantic Premium,
pursuant to which Atlantic Premium will be merged with the Company. For each
share of the Company's common stock, provided it is 20% or less of the Company's
issued and outstanding common stock at the time of the Merger Agreement,
shareholders will receive $3.50 in cash. Shareholders owning more than 20% of
the outstanding common stock at the time of the Merger Agreement will receive
$2.97479 per share in cash and a note having a principal amount of $0.52521 per
share. After the transaction, which will be accounted for as a purchase, the
Company will be a subsidiary of Atlantic Bank. The merger is subject to
shareholder and regulatory approval. The Company expects to consummate the
merger during the second quarter of 1999, assuming all of the conditions to the
merger, as outlined in the Merger Agreement, are met or waived prior to that
date.
Liquidity and Capital Resources
The Company's operations are dependent upon the continued availability of
funds on satisfactory terms and rates. The Company uses such funds principally
to finance the origination of installment loans under premium finance
agreements. The Company obtains required funds from a variety of sources,
including internal generation of funds, unsecured borrowings under lines of
credit, direct issuance of commercial paper, placement of subordinated debt and
the sale of common equity.
As the Company increases the size of its business, it originates more
installment loans receivable than it collects, resulting in a larger outstanding
balance of installment loans receivable. For the years ended December 31, 1998
and 1997, the Company originated installment loans receivable of $115,347,014
and $103,320,694 respectively, compared to installment loans collected for each
period of $110,332,555 and $93,509,063 respectively. The result was an increase
in net outstanding installment loan receivables to $46,505,191 from $41,843,567
respectively, at December 31, 1998 and 1997.
The growth in the Company's loan portfolio has been the single largest
factor influencing the Company's cash flow from operations. The determining
factor influencing the growth in the loan portfolio has been the extent to which
the Company has been able to leverage its capital into subordinated debt and
then into short-term senior debt. For years ended December 31, 1998 and 1997,
net cash provided by operating activities was $642,846 and $1,594,716
respectively, which amounts were comprised primarily of net earnings, loss
provisions, depreciation and amortization and other changes in assets and
liabilities. For the years ended December 31, 1998 and 1997, net cash provided
by financing activities was $4,430,026 and $8,388,734 respectively, comprised
primarily of proceeds from bank notes and repayment of bank notes, proceeds from
sales and repayments of commercial paper, net proceeds of subordinated debt and
the sale of accounts receivable participation program.
The Company has no present plans related to significant capital
expenditures but does intend to add marketing locations in order to increase its
volume of new business. The Company does not expect that such additional
marketing locations will require any significant capital expenditures. The
Company is not aware of any pending legislation that would have a material
effect on its capital requirements or business prospects.
The Company is subject to minimum capital requirements imposed by certain
of the states in which it is licensed. In addition, the Company is prohibited
from declaring or paying any dividends on its capital stock (other than
dividends payable solely in shares of Common Stock) pursuant to one of the
Company's subordinated debt arrangements which matures on December 27, 2000.
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<PAGE>
The sources of funds (other than internal generation of funds) that are
presently available or have been utilized by the Company are described below.
Management believes that the sources of funds presently available to the Company
are adequate for the conduct of its business at its present level for the next
twelve months. To the extent that the Company in the future expands its business
and increases its total installment receivables outstanding beyond its present
levels of funding, which may not be available or, if available, may not be on
terms acceptable to the Company.
Lines of Credit. At December 31, 1998, the Company had a revolving credit
agreement with a consortium of banks aggregating $45,000,000, under which
$29,900,000 was outstanding. Amounts outstanding under this agreement bear
interest at prime or 1.15% over LIBOR. The Company pays commitment fees to the
consortium in connection with this agreement. The borrowing is unsecured and
there are no compensating balance agreements. This revolving credit agreement
expires January 2001, although there can be no assurance that these lines will
not be revoked, suspended or reduced at any time. None of the banks in the
consortium is contractually obliged to renew any such line. During the years
ended December 31, 1998 and 1997, the maximum aggregate amount outstanding under
these lines at any time was $32,100,000 and $26,500,000, respectively.
Commercial Paper. The Company directly issues its own commercial paper
with maturities of up to 270 days, which is unsecured and is unrated by
commercial paper rating agencies. Commercial paper outstanding at December 31,
1998 bore interest at fixed annual rates ranging from 5.5% to 6.7%. During the
years ended December 31, 1998 and 1997, the maximum outstanding commercial paper
at any month end was $3,626,650 and $2,481,337, respectively. Such commercial
paper is generally sold to officers of the Company and their affiliates and to
non-affiliated investors. The Company has obtained no commitments from any
purchaser of its commercial paper regarding additional or future purchases. It
is the Company's policy to maintain unused short-term bank lines of credit in an
amount in excess of the amount of commercial paper outstanding. The interest
rate on the Company's commercial paper has been and will continue to be
determined by reference to prevailing interest rates in the commercial paper
market. The Company does not anticipate any change in the level of financing
provided by affiliates of the Company or any changes in the costs of financing
provided by such affiliates. There can be no assurance, however, that such
levels of financing will be maintained in the future.
Subordinated Debt. The Company has obtained unsecured senior subordinated
debt in the amount of $4,150,000 and unsecured junior subordinated debt of
$903,000 from outside investors. The notes bear interest at fixed rates from
10.00 to 14.25% and are due from June 27, 1999 to December 31, 2003. The notes
restrict the Company's ability, among other things, to merge, pay dividends and
permit its business to be heavily concentrated with a single broker or agency.
Several of the underlying agreements also contain various covenants requiring
the Company to meet certain financial ratios and other restrictions on
acquisitions and investments. The Company may, at its option, prepay the loans
in whole or in part. However, with respect to several of the notes, the Company
must reimburse the investors for any loss of margin on reemployment of the funds
so repaid. The Company does not currently anticipate prepaying or otherwise
refinancing its existing senior subordinated debt prior to its maturity. In
addition, the Company has obtained unsecured junior subordinated debt from
various investors. The interest rates are fixed and vary in term. The following
table indicates amounts, rates and maturity dates as at December 31, 1998.
Rate Due Date Amount
---- -------- ------
14.25% 06/30/2001 $ 810,000
14.00% 11/01/2000 500,000
14.00% 06/27/1999 400,000
14.00% 12/27/1999 400,000
14.00% 06/27/2000 400,000
14.00% 12/27/2000 1,000,000
12.50% 03/31/2001 510,000
12.00% 02/16/2001 50,000
11.25% 09/30/2001 43,000
10.95% 12/31/2003 850,000
10.00% 03/31/2002 90,000
----------
$5,053,000
==========
Subordinated debt is generally sold to officers and directors of the
Company and their affiliates and to non-affiliated investors. The Company has
obtained no commitments from any holder of its subordinated debt regarding
additional or future purchases.
- 9 -
<PAGE>
Other Sources. In addition to the sources of funds described above, the
Company has transferred to banks participating interests in certain receivables
under a financing arrangement. The interest in these receivables have been
transferred on a pari passu basis without any recourse to the Company. As of
December 31, 1998 there was a zero balance with these institutions.
The Company continually engages in discussions with both current and
prospective lenders regarding obtaining increases in, extensions of or additions
to, both its short-term lines of credit, its subordinated borrowings and its
participation program. The Company is currently engaged in such discussions with
several lenders, but can give no assurance as to whether or when such
discussions will be favorably consummated.
New Accounting Pronouncements
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income", and Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information" have no
effect on the financial statements of the Company. The Company's management also
believes that Statement of Financial Accounting Standards No. 133, "Accounting
For Derivative Instruments and Hedging Activities" will have no material effect
on the financial statements of the Company at December 31, 1998.
Year 2000 Matters
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions invoices, or engage
in similar normal business activities.
In 1997, the Company initiated a conversion from its then existing
accounting software to programs that are year 2000 compliant. Management has
determined that the year 2000 issue will not pose significant operational
problems for its computer systems. The Company will utilize both internal and
external resources to reprogram, or replace, and test all of its operating
software for Year 2000 modifications. The Company has retained a consulting firm
to assist it in the conversion of its operating systems. The Company anticipates
completing the Year 2000 project during the second quarter of 1999, which is
prior to any anticipated impact on its operating systems. The total cost of the
Year 2000 project is estimated at $25,000, of which $9,000 has been spent to
date and is being funded through operating cash flows. The total project cost is
attributable to the re-engineering of current software and such costs will be
expensed as incurred.
The costs of the project and the date on which the Company believes it
will complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved, and actual results could differ materially
from those anticipated. Specific factors that might cause such material delays
or difficulties in implementing the project include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.
In the merger agreement with Atlantic Bank, the Company has ensured that
any software products or services owned, provided or otherwise developed by the
Company, or used in the conduct of its business as presently conducted and as it
is expected to be conducted after the date of the merger agreement, will, on the
effective date of the merger, provide, among other things, the following
functionality: (i) accurate processing of date-related information before,
during and after January 1, 2000, including accepting the date input, providing
the date output, and performing calculations on dates or portions of dates; (ii)
accurate functioning without interruption before, during and after January 1,
2000, without any change in operation associated with the advent of the new
century; (iii) ability to respond to two-digit input in a way that resolves any
ambiguity as to century in a disclosed, defined and predetermined manner; and
(iv) the ability to store and provide output date information in ways that are
unambiguous as to the century.
- 10 -
<PAGE>
The Company has initiated formal communications with all of its
significant vendors and large customers to determine the extent to which the
Company's interface systems are vulnerable to those third parties' failure to
remediate their own Year 2000 issues. There can be no guarantee that the systems
of other companies on which the Company's systems rely will be timely converted
or that the failure to make such a conversion will not have an adverse effect on
the Company's systems.
However, there can be no guarantee that other companies upon which the
Company relies will be able to timely address their Year 2000 compliance issues,
the effects of which may have an adverse impact on the Company's results of
operations. At this stage of the process, the Company believes that it is
difficult to specifically identify the cause of the most reasonable worst case
Year 2000 scenario.
A worst case Year 2000 scenario would be the failure of key vendors to
have corrected their own Year 2000 issues which could cause disruption of the
Company's operations and have a material adverse effect on the Company's
financial condition. The impact of such disruption cannot be estimated at this
time. In the event the Company believes that any of its key vendors are unlikely
to be able to resolve their Year 2000 issues, it will seek alternative sources.
Inflation
The moderate rate of U.S. inflation during the past two years has not
significantly affected the Company.
Forward-Looking Statements
All statements other than statements of historical fact contained herein
are forward looking statements. When used herein, words such as "anticipate,"
"expect," "believe," and "estimate" as they relate to the Company and its
management, identify forward-looking statements. Such forward-looking statements
reflect the current views, and are based upon beliefs, of the Company's
management. Actual results could differ materially from those in the forward
looking statements as a result of certain factors, including but not limited to,
the volume of insurance premiums financed by the Company, changes in legal
regulatory requirements, competitive factors and pricing pressures and general
economic conditions.
Item 7. Financial Statements.
The Company's financial statements begin on page F-3. Reference is made to
the Index to Financial Statements on page F-1 herein.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
- 11 -
<PAGE>
PART III
The Proxy Statement for the Annual Meeting of Shareholders to be held on
April 25, 1998, which, when filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934, will be incorporated by reference in this
Annual Report on Form 10-KSB pursuant to General Instruction E(3) of Form
10-KSB, will provide the information required under Part III (Items 9, 10, 11
and 12).
Item 13. Exhibits, List and Reports on Form 8-K.
(a) Exhibits
*3.1 Restated Certificate of Incorporation of the Company.
*3.2 By-laws of the Company.
*4.1 Specimen certificate for shares of Common Stock of the Company.
*4.2 Form of Representatives' Warrants.
*4.3 Form of Registration Rights Agreement between the Company and
Bernard G. Palitz.
*10.1 Equity Incentive Plan of the Registrant, as amended.
*10.2 Form of Financial Consulting Agreement between the Registrant and
the Representatives.
*10.3 Promissory Note in the amount of $3,000,000 payable to National
Westminster Bank USA.
*10.4 Grid Promissory Note in the amount of $2,500,000 payable to Atlantic
Bank of New York.
*10.5 Promissory Note in the amount of $3,000,000 payable to the Bank of
New York.
*10.6 Grid Demand Promissory Note in the amount of $3,000,000 payable to
The Chase Manhattan Bank, N.A.
*10.7 Demand Grid Note in the amount of $2,000,000 payable to Marine
Midland Bank, N.A.
*10.8 Fixed Rate Senior Subordinated Note in the amount of $2,000,000
payable to National Westminster Bank USA, together with a Loan
Agreement between the Registrant and National Westminster Bank USA
with respect thereto.
*10.9 Lease for premises at 335 Crossways Park Drive, Woodbury, New York.
*10.10 Consulting Agreement between the Company and American Credit
Management Inc.
*10.11 Employment Agreement between the Company and Alan J. Karp.
*10.12 Employment Agreement between the Company and David E. Fisher.
**10.13 Promissory Note in the amount of $3,000,000 payable to Chemical
Bank.
**10.14 Promissory Note in the amount of $4,000,000 payable to the Bank of
New York.
**10.15 Letter agreement dated May 9, 1995 increasing demand Grid Note
payable to Marine Midland Bank, N.A. previously filed as Exhibit
10.7 herein, to $3,000,000.
**10.16 Note agreement in the amount of $3,000,000 payable to Bernard G.
Palitz, members of Mr. Palitz's family and persons affiliated with
Mr. Palitz, together with form of 14% Senior Subordinated Note due
December 27, 2000 with respect thereto.
- 12 -
<PAGE>
**10.17 Form of 12.50% Senior Subordinated Notes due March 31, 2001 payable
to various non-affiliated investors in the aggregate amount of
$485,000.
**10.18 14% Senior Subordinated Note due November 1, 2000 payable to Claire
Cohn in the amount of $500,000.
**10.19 14.25% Junior Subordinated Notes due June 30, 2001 payable to David
Fisher in the aggregate amount of $490,000.
**10.20 14.25% Junior Subordinated Notes due June 30, 2001 payable to U.S.
Clearing Corp. - Alan Karp -IRA Rollover in the aggregate amount of
$110,000.
**10.21 Form of 14.25% Junior Subordinated Notes due June 30, 2001 payable
to Sharon Goldaber in the amount of $80,000.
**10.22 12% Junior Subordinated Note due February 16, 2001 payable to J.C.F.
Consulting Corp. in the amount of $50,000.
**10.23 14.25% Junior Subordinated Note due June 30, 2001 payable to Herb
and Judi Pitch in the amount of $50,000.
**10.24 Form of 11.25% Junior Subordinated Note due September 30, 2001
payable to Kathleen Belz in the amount of $43,000.
**10.25 Promissory Note in the amount of $6,000,000 payable to European
American Bank.
**10.26 Form of agreement of accounts receivable participation program with
Atlantic Bank of New York.
**10.27 Form of agreement of accounts receivable participation program with
Fleet Bank.
**10.28 Form of agreement of accounts receivable participation program with
Interbank.
**10.29 Form of 10% Senior Subordinated Note due March 31, 2002 payable to
Paul & Joyce Rand in the amount of $25,000.
**10.30 Form of 10% Senior Subordinated Note due March 31, 2002 payable to
Estate of Ferdinand Harms in the amount of $25,000.
**10.31 Form of 10% Senior Subordinated Note due March 31, 2002 payable to
Mildred Ebbighausen in the amount of $40,000.
**10.32 Letter agreement dated July 16, 1997 increasing promissory note
payable to the Bank of New York previously filed as Exhibit 10.14
herein, to $8,000,000.
**10.33 Letter agreement dated May 9, 1995 increasing demand Grid Note
payable to Marine Midland Bank, N.A. previously filed as Exhibit
10.7 herein, to $6,000,000.
**10.34 Promissory note in the amount of $10,000,000 payable to Mellon Bank.
10.35 Form of 10.95% Senior Subordinated Note due December 31, 2003
payable to Charles Meyerson in the amount of $200,000.
10.36 Form of 10.95% Senior Subordinated Note due December 31, 2003
payable to Charles Meyerson in the amount of $25,000.
10.37 Form of 10.95% Senior Subordinated Note due December 31, 2003
payable to Harry Krupnick in the amount of $100,000.
- 13 -
<PAGE>
10.38 Form of 10.95% Senior Subordinated Note due December 31, 2003
payable to Peter & Barbara Bardaxe in the amount of $25,000.
10.39 Form of 10.95% Senior Subordinated Note due December 31, 2003
payable to Herbert Epstein in the amount of $25,000.
10.40 Form of 10.95% Senior Subordinated Note due December 31, 2003
payable to Risha Sohn in the amount of $150,000.
10.41 Form of 10.95% Senior Subordinated Note due December 31, 2003
payable to Herman Goldberger in the amount of $25,000.
10.42 Form of 10.95% Senior Subordinated Note due December 31, 2003
payable to Daniel & Petrina Dymond in the amount of $25,000.
10.43 Form of 10.95% Senior Subordinated Note due December 31, 2003
payable to Janet Gutenplan in the amount of $200,000.
10.44 Form of 10.95% Senior Subordinated Note due December 31, 2003
payable to Estate of Ferdinard Harms in the amount of $25,000.
10.45 Form of 10.95% Senior Subordinated Note due December 31, 2003
payable to Olinda Rodrigues in the amount of $25,000.
10.46 Form of 10.95% Senior Subordinated Note due December 31, 2003
payable to Jerold Krupnick in the amount of $25,000.
10.47 Revolving Credit Agreement with Mellon Bank in the Amount of
$45,000,000.
10.48 Agreement and plan of merger dated as of January 28, 1999, among
Atlantic Bank of New York, Atlantic Premium, Inc. and Standard
Funding Corp.
24 Power of attorney (included on signature page).
27 Financial Data Schedules (for electronic submission only)
- ----------
* Filed as same numbered exhibit to the Company's Registration Statement on
Form SB-2 (Reg. No. 33-75130) and incorporated herein by reference.
** Previously filed.
(b) Reports on Form 8-K
The Company did not file any report on Form 8-K during the last quarter of the
period covered in this report.
- 14 -
<PAGE>
STANDARD FUNDING CORP.
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report F-2
Balance Sheet at December 31, 1998 F-3
Statements of Income for the years ended December 31, 1998 and 1997 F-4
Statements of Shareholders' Equity for the years ended December 31, 1998
and 1997 F-5
Statements of Cash Flows for the years ended December 31, 1998 and 1997 F-6
Notes to Financial Statements F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Standard Funding Corp.
Woodbury, New York
We have audited the accompanying balance sheet of Standard Funding Corp.
(the "Company") as of December 31, 1998 and the related statements of income,
shareholders' equity and cash flows for each of the two years in the period then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 financial statements present fairly, in all material
respects the financial position of Standard Funding Corp. at December 31, 1998
and the results of its operations and its cash flows for each of the two years
in the period then ended in conformity with generally accepted accounting
principles.
/s/ DELOITTE & TOUCHE LLP
Jericho, New York
March 5, 1999
F-2
<PAGE>
STANDARD FUNDING CORP.
BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
1998
------------
<S> <C>
ASSETS
Cash $ 223,031
------------
Installment loans receivable under premium finance agreements 47,887,880
Less: Unearned interest (1,072,689)
Allowance for credit losses (310,000)
------------
Installment loans receivable under premium finance agreements - net (Note 2) 46,505,191
Due from officers (Note 3) 146,049
Property and equipment - net (Note 4) 228,102
Other assets 532,345
------------
Total $ 47,634,718
============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Notes payable to financial institutions (Note 5) $ 29,900,000
Commercial paper issued (Note 5) 3,408,424
Amounts due to insurance companies 1,166,526
Accrued expenses and other 311,000
Deferred income taxes (Note 7) 267,076
------------
Total, exclusive of subordinated debt 35,053,026
Subordinated debt (Note 6) 5,053,000
------------
Total Liabilities 40,106,026
============
COMMITMENTS AND CONTINGENCIES (Notes 9 and 10)
SHAREHOLDERS' EQUITY (Note 8):
Preferred Stock, par value $.001 per share;
1,000,000 authorized, none issued --
Common Stock, par value $.001 per share; 4,000,000 authorized,
2,760,000 shares issued and outstanding 2,760
Additional paid-in capital 3,991,501
Retained earnings 3,534,431
------------
Total Shareholders' Equity 7,528,692
------------
Total $ 47,634,718
============
</TABLE>
See notes to financial statements.
F-3
<PAGE>
STANDARD FUNDING CORP.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997
---- ----
<S> <C> <C>
NET INTEREST INCOME:
Finance charge income and other $7,110,534 $6,327,115
Less: Interest and other expenses on borrowings (Notes 2, 5, and 6) 2,908,066 2,530,859
---------- ----------
Interest income before provision for credit losses 4,202,468 3,796,256
Provision for credit losses (Note 2) 352,835 572,297
---------- ----------
Net Interest Income 3,849,633 3,223,959
---------- ----------
OTHER EXPENSES:
Operating expenses (Note 10) 2,275,797 1,809,713
Selling expenses 803,508 720,143
---------- ----------
Total 3,079,305 2,529,856
---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES 770,328 694,103
PROVISION FOR INCOME TAXES (Note 7) 354,542 309,900
---------- ----------
NET INCOME $ 415,786 $ 384,203
========== ==========
NET INCOME PER SHARE :
BASIC AND DILUTED $ 0.15 $ 0.14
========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING (Note 1) 2,760,000 2,760,000
========== ==========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
STANDARD FUNDING CORP.
STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
--------------- -------------------- Paid in Retained
Shares Amount Shares Amount Capital Earnings
------ ------ ------ ------ ------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 -- -- 2,760,000 $ 2,760 $3,991,501 $2,734,442
Net Income -- -- -- -- -- 384,203
----- ----- ---------- ------- ---------- ----------
Balance, December 31, 1997 -- -- 2,760,000 2,760 3,991,501 3,118,645
Net Income -- -- -- -- -- 415,786
----- ----- ---------- ------- ---------- ----------
Balance, December 31, 1998 -- -- 2,760,000 $ 2,760 $3,991,501 $3,534,431
===== ===== ========== ======= ========== ==========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
STANDARD FUNDING CORP.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 415,786 $ 384,203
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible credit losses 352,835 572,297
Deferred income taxes 75,049 (95,701)
Depreciation and amortization 173,426 112,631
Changes in assets and liabilities:
Due from officers and other assets (149,377) (229,610)
Accrued expenses and other amounts
due to insurance companies (224,873) 1,070,877
Funds due-accounts receivable participation program -- (219,981)
------------- -------------
Net cash provided by operating activities 642,846 1,594,716
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Installment loans receivable originated (115,347,014) (103,320,694)
Collections of installment loans receivable 110,332,555 93,509,063
Purchase of equipment (38,396) (101,368)
------------- -------------
Net cash used in investing activities (5,052,855) (9,912,999)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from accounts receivable participation program -- 4,153,656
Payment of accounts receivable participation program -- (4,929,652)
Proceeds from bank notes--net 3,400,000 8,900,000
Proceeds of commercial paper issued--net 980,026 174,730
Proceeds of subordinated debt 50,000 90,000
------------- -------------
Net cash provided by financing activities 4,430,026 8,388,734
------------- -------------
INCREASE IN CASH 20,017 70,451
CASH AT BEGINNING OF YEAR 203,014 132,563
------------- -------------
CASH AT END OF YEAR $ 223,031 $ 203,014
============= =============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOWS INFORMATION:
Income taxes paid $ 225,416 $ 414,921
============= =============
Interest paid $ 2,818,778 $ 2,349,788
============= =============
</TABLE>
See notes to financial statements.
F-6
<PAGE>
STANDARD FUNDING CORP.
NOTES TO FINANCIAL STATEMENTS
For the years ended December 31, 1998 and 1997
1. SIGNIFICANT ACCOUNTING POLICIES
a. Business - Standard Funding Corp. (the "Company") is a financial
service Company engaged in the business of financing the payment of
insurance premiums. The Company finances substantially all forms of
property, casualty and liability insurance premiums on policies,
which are written through independent insurance agents, and brokers.
b. Revenue Recognition - Unearned interest on installment loans
receivable under premium finance agreements is recognized as income
using a method which approximates the results which would be
obtained using the interest method.
The Company has entered into agreements to transfer, on a
non-recourse basis, interests in its installment loans receivable
under premium finance agreements to financial institutions. The
differential of stated interest to be recorded over the course of
the finance period and interest to be paid to the financial
institution is recognized as interest expense over the course of the
outstanding transfer.
Loan processing costs incurred are deferred and amortized on the
straight-line method, which approximates the interest method, over
the term of the related installment loans receivable under premium
finance agreements. Cancellation fees and late charges are
recognized as income when received.
c. Allowance for Credit Losses - The balance in the allowance for
credit losses are based on management's assessment of risk in the
installment loan portfolio. The Company writes off receivables upon
determination that no further collections are probable based upon
historical activity and an understanding of collectability by type
of finance receivable.
d. Property and Equipment - Property and equipment is stated at cost.
Depreciation is provided on the straight-line basis over such
assets' estimated useful lives ranging from three to five years.
Leasehold improvements are amortized over the shorter of their
estimated useful lives or the remaining term of the lease.
e. Revenue and Credit Concentration - The Company receives
substantially all of its revenues from financing arrangements made
within New York, New Jersey, Connecticut, Pennsylvania, and
Massachusetts. These five states account for in excess of 95% of all
revenues. Accordingly, as of December 31, 1998, substantially all of
the Company's installment loans outstanding were from this
geographic region.
f. Income Taxes - The Company accounts for income taxes pursuant to
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS No. 109"). SFAS No. 109 requires recognition of
deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the Company's
financial statements or tax returns. Under this method, deferred tax
assets and liabilities are determined based on the differences
between the financial accounting and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse.
g. Stock-based Compensation - The Company accounts for stock-based
awards to employees using the intrinsic value method in accordance
with APB No. 25, "Accounting for Stock Issued to Employees" ("APB
25").
F-7
<PAGE>
STANDARD FUNDING CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
h. Fair Value of Financial Instruments - The following methods and
assumptions were used to estimate the fair value of each class of
financial instruments:
1. Cash and Notes Payable to Financial Institutions - The
carrying amount approximates fair value because of the short
maturity of these instruments.
2. Installment Loans Receivable Under Premium Finance Agreements,
Due From Officers, Commercial Paper, and Subordinated Debt -
The Company estimates the fair value of financial instruments
based upon interest rates available to the Company and by
comparison to quoted market prices. At December 31, 1998, the
fair value of the Company's financial instruments approximated
the carrying value.
i. Pervasiveness of Estimates - The preparation of financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets, liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
j. Impairment of Long-Lived Assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting For the
Impairment of Long-Lived Assets and For Long-Lived Assets To Be
Disposed Of" ("SFAS No. 121"), the Company reviews its long-lived
assets, including property and equipment, and other assets for
impairment whenever events or changes in circumstances indicate that
the carrying amount of the assets may not be fully recoverable. To
determine recoverability of its long-lived assets, the Company
evaluates the probability that future undiscounted net cash flows,
without interest charges, will be less than the carrying amount of
the assets. Impairment is measured at fair value. SFAS No. 121 had
no effect on the Company's financial statements.
k. Earnings Per Share - The Company adopted Financial Accounting
Standards No. 128 "Earnings per Share" ("SFAS No. 128") which
requires dual presentation of basic and diluted earnings per share
on the face of the income statement.
Basic earnings per share are based on the weighted average number of
shares of common stock outstanding during the period. Diluted
earnings per share are based on the weighted average number of
shares of common stock and common stock equivalents (options and
warrants) outstanding during the period, computed in accordance with
the treasury stock method. The effect of common stock equivalents
was antidilutive for 1998 and 1997, and accordingly, such common
stock equivalents were excluded from the weighted average number of
common shares for 1998 and 1997. There where 100,000 warrants and
58,525 stock options outstanding at December 31, 1998 and 1997.
l. New Accounting Pronouncements - Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" and Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments
of an Enterprise and Related Information" have no effect on the
financial statements of the Company. The Company's management
believes that Statement of Financial Accounting Standards No. 133,
"Accounting For Derivative Instruments and Hedging Activities" will
have no material effect on the financial statements of the Company
at December 31, 1998.
m. Other Assets - The Company has capitalized costs associated with
issuance of subordinated debt and costs associated with securing a
line of credit with a constitution of banks. These deferred
financing costs are carried at cost less accumulated amortization
and are included in other assets. Amortization is provided on a
straight-line method over the life of the respective debt
agreements.
F-8
<PAGE>
2. INSTALLMENT LOANS RECEIVABLE UNDER PREMIUM FINANCE AGREEMENTS
Substantially all installment loans receivable under premium finance
agreements are repayable in less than one year. In the event of default by
a borrower, the Company is entitled to cancel the underlining insurance
policy financed and receive a refund for the unused term of such policy
from the insurance carrier.
In October 1996, the Company entered into an agreement with a financial
institution to transfer, on a non-recourse basis, a fifty percent interest
in certain designated installment loans receivable, not to exceed
$1,000,000 at any one point. This agreement was extended to a limit of
$2,000,000 in April 1997. The Company entered into similar financing
agreements with two additional financial institutions. The aggregate
borrowing limit for these agreements was $4,000,000 during 1997. Under
terms of these agreements, the Company remitted the financial
institution's share in monthly installment loans receivable collections.
Interest was payable monthly based upon the average outstanding balance
under this agreement at LIBOR (at the time of purchase) plus 200 or 225
basis points as stipulated in these agreements. Installment loans
receivable transferred under this agreement were zero for the year ended
December 31, 1998.
During 1997, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 125, "Accounting For Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities" ("SFAS No. 125").
Installment loans receivable under this agreement were classified as
securitized loans payable. As of December 31, 1998 the Company had no
outstanding borrowings under these agreements. One of these agreements
with aggregate maximum borrowings of $2,000,000 expired on October 1998.
The agreements with the other financial institutions do not stipulate a
termination date.
A summary of activity in the allowance for possible credit losses is as
follows:
December 31,
----------------------
1998 1997
---- ----
Balance, beginning of period $ 310,000 $ 300,000
Provision 352,835 572,297
Charge-offs--net of recoveries of $121,122
and $44,504, respectively (352,835) (562,297)
--------- ---------
Balance, end of period $ 310,000 $ 310,000
========= =========
3. DUE FROM OFFICERS
Amounts due from officers bear interest at the prime lending rate (7.75%
at December 31, 1998) and have no specified maturity dates.
4. PROPERTY AND EQUIPMENT
Property and equipment - consisted of the following:
December 31, 1998
-----------------
Equipment including computer hardware and software $ 521,150
Office furniture and fixtures 159,503
Leasehold improvements 43,281
---------
723,934
Less accumulated depreciation and amortization (495,832)
---------
Property and equipment $ 228,102
=========
5. NOTES PAYABLE AND COMMERCIAL PAPER ISSUED
a. Notes Payable to Financial Institutions - At December 31, 1998, the
Company had a revolving credit agreement with a consortium of banks
which aggregated $45,000,000. Borrowings under the agreement bear
interest at prime or the LIBOR rate (5.06% at December 31, 1998)
plus 1.15% above such rate and may contain certain commitment fees.
Interest rates during 1998 ranged from 6.18 to 8.50%. The
outstanding borrowings are unsecured and there are no compensating
balance arrangements. This revolving credit agreement expires
January 2001.
F-9
<PAGE>
STANDARD FUNDING CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
b. Commercial Paper Issued - The commercial paper issued is privately
placed by the Company. The weighted average interest rate in effect
for outstanding obligations at December 31, 1998 was 6.24%. At
December 31, 1998, commercial paper outstanding held by the
principals of the Company and other related parties aggregated
approximately $1,774,762.
6. SUBORDINATED DEBT
Subordinated debt consists of the following:
December 31, 1998
-----------------
14% senior subordinated note (1) $2,200,000
14.25% junior subordinated note (2) 810,000
12.50% senior subordinated note (3) 510,000
14% senior subordinated note (3) 500,000
10% senior subordinated note (3) 90,000
12% junior subordinated note (3) 50,000
11.25% junior subordinated note (3) 43,000
10.95% senior subordinated note (3) 850,000
----------
$5,053,000
==========
(1) The 14% senior subordinated note is payable in semi-annual
installments through December 27, 2000 and contains certain
covenants which restrict the Company's ability, among other things,
to merge, pay dividends and permit its business to be heavily
concentrated with a single broker or agency. In connection with the
proposed merger discussed in Note 11, the Company has received
waivers of default. In the event the prime rate as defined increases
to over 11%, the interest rate will increase on a pari passu basis.
The underlying agreement also contains various covenants requiring
the Company to meet certain financial ratios. Interest on this note
is due monthly.
(2) At December 31, 1998, subordinated debt with an aggregate principal
amount of $600,000 was held by the principal shareholders of the
Company. Interest on these notes is due semi-annually. There are no
covenants relating to this indebtedness.
(3) Interest on these subordinated notes is payable either monthly, or
semi-annually, as designated under the terms of each specific note.
There are no covenants relating to this indebtedness.
Subordinated debt outstanding at December 31, 1998 matures as follows:
Year Ending December 31, Amount
------------------------ ------
1999 800,000
2000 1,900,000
2001 1,413,000
2002 90,000
2003 850,000
----------
Total $5,053,000
==========
F-10
<PAGE>
STANDARD FUNDING CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
7. INCOME TAXES
The provision for income taxes consisted of the following components:
Years Ended December 31,
------------------------
1998 1997
---- ----
Federal:
Current $ 207,622 $ 282,000
Deferred 55,772 (69,800)
--------- ---------
263,394 212,200
--------- ---------
State:
Current 71,871 123,600
Deferred 19,277 (25,900)
--------- ---------
91,148 97,700
--------- ---------
Total $ 354,542 $ 309,900
========= =========
Deferred income taxes substantially consists of differences in the methods
in which the Company accounts for unearned interest and the allowance for
possible credit losses for income tax purposes compared with financial
reporting purposes.
The deferred tax assets and liabilities at December 31, 1998 consisted of
the following:
Assets:
Allowance for possible credit losses $ 126,944
---------
Liabilities:
Unearned interest (364,463)
Other (28,557)
---------
Total deferred tax liabilities (394,020)
---------
Net deferred income tax liability $(267,076)
=========
A reconciliation of the differences between the federal statutory tax rate
of 34% and the Company's effective tax rate is as follows:
Years Ended December 31,
------------------------
1998 1997
---- ----
Federal statutory income tax rate 34.0% 34.0%
State income taxes, net of federal benefit 6.2 6.8
Permanent differences 5.1 5.2
Miscellaneous difference .7 (1.4)
---- ----
Effective income tax rate 46.0% 44.6%
==== ====
8. SHAREHOLDERS' EQUITY
(a) Initial Public Offering
During August and September 1994, the Company consummated an initial
public offering of its common stock by selling 1,060,000 shares at $4.25
per share. Cash proceeds to the Company from this offering aggregated
approximately $3,593,000, net of aggregate issuance costs of approximately
$912,000. In addition, the Company issued 100,000 warrants at a purchase
price of $.001 per warrant to purchase common stock at $6.17 per share to
the underwriters' representatives. These warrants are exercisable for a
period of four years, commencing on August 8, 1995. No warrants have been
exercised as of December 31, 1998.
F-11
<PAGE>
STANDARD FUNDING CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(b) Stock Option Plan
The Company has an Equity Incentive Plan (the "Plan") that provides for
the grant of up to 250,000 shares of Common Stock in the form of stock
options (incentive and nonstatutory), stock appreciation rights,
performance shares, restricted stock, stock units and other stock-based
awards. Awards under the Plan can be granted to employees, consultants and
non-employee directors as determined by the Board of Directors. The
exercise price of all "incentive stock options" granted under the Plan
must be at least equal to the fair market value of the option shares on
the date of grant. The term of any incentive stock option granted under
the Plan may not exceed ten years.
During 1997, 58,525 options were granted to various officers, directors
and employees of the Company. These options are exercisable from the date
of grant and expire five years from the date of grant. No options were
granted under the Plan prior to 1997.
The weighted average remaining contractual life remaining on options
granted under the plan is 3.2 years. The weighted average exercise price
and fair value is $4.38. At December 31, 1998, 58,525 options are
exercisable. There have been no forfeitures of options to date.
As discussed in Note 1, the Company continues to account for its
stock-based awards using the intrinsic value method in accordance with APB
25 and its related interpretations. Accordingly, no compensation cost has
been recognized in the financial statements.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", ("SFAS 123") requires the disclosure of pro
forma net income and earnings per share had the Company adopted the fair
value method as of the beginning of fiscal 1996. Under SFAS No. 123, the
fair value of stock-based awards to employees is calculated through the
use of option pricing models, even though such models were developed to
estimate the fair value of freely tradable, fully transferable options
without vesting restrictions, which significantly differ from the
Company's stock option awards. These models also require subjective
assumptions, including future stock price volatility and expected time to
exercise, which greatly affect the calculated values. The Company's
calculations were made using the Black-Scholes option pricing model with
the following weighted average assumptions for 1998: remaining life of
three years, stock volatility of 66 percent, risk free interest rate of
4.7 percent and no dividends during the expected term. The Company's
calculations are based on a multiple option valuation approach and
forfeitures are recognized as they occur. If compensation cost for the
Company's outstanding and vested stock options had been determined
consistent with SFAS No. 123, the Company's net income and earnings per
share would have been the pro forma amounts indicated below:
Year Ended December 31,
-----------------------
1998 1997
---- ----
Net Income:
As reported $ 415,786 $ 384,203
Pro forma $ 355,336 $ 312,348
Basic and Diluted EPS:
As reported .15 .14
Pro forma .13 .11
(c) Capital Requirements
The Company is subject to minimum capital requirements imposed by certain
of the states in which it is licensed. The Commonwealth of Pennsylvania
requires an insurance premium finance company to have and maintain a
minimum net worth of $50,000. The State of New York requires that
insurance premium finance companies have and maintain equity capital equal
to at least 10% of outstanding receivables and, in any event, not less
than $1,500. In addition, the Company is prohibited from declaring or
paying any dividends on its capital stock (other than dividends payable
solely in shares of Common Stock) pursuant to a subordinated debt
arrangement.
F-12
<PAGE>
STANDARD FUNDING CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
9. PENSION PLANS
The Company has a voluntary contribution pension plan which complies with
Section 401(k) of the Internal Revenue Code. The Plan permits employees to
make contributions to a pension trust, with a matching contribution by the
Company, at the rate of 20% for every dollar contributed up to 6% of the
employee's salary. For the years ended December 31, 1998 and 1997, the
Company contributed $52,000 and $44,000, respectively to the plan.
10. COMMITMENTS AND CONTINGENCIES
Lease Commitments - The Company is obligated under operating lease
commitments for its office facility and automobiles. Future minimum lease
payments and other lease related costs are as follows:
Year Ending December 31, Amount
------------------------ ------
1999 $114,878
2000 107,604
2001 44,835
--------
Total $267,317
========
The facility lease requires payment of real estate taxes, insurance and
other related costs. Rent expense for the years ended December 31, 1998
and 1997 aggregated approximately $114,738 and $107,799, respectively.
Employment Agreements - The Company has employment agreements with two
officers/shareholders of the Company. Such agreements, as renewed in July
1998, provide for full-time employment to the Company from the officers in
return for aggregate officers' salary of $391,600 per year plus bonus and
other benefits. These contracts may be renewed on their anniversary date
for successive one-year terms. These agreements also contain clauses on
termination, severance and covenants not to compete after the date of
termination.
Litigation - The Company is a defendant in lawsuits arising in the
ordinary course of business. It is the opinion of management of the
Company that it has meritorious defenses against all outstanding claims
and that the outcome of such litigation will not have a significant
adverse effect on the Company's financial position or results of
operations. Further, management intends to vigorously defend all such
litigation.
11. SUBSEQUENT EVENT
On January 28, 1999, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Atlantic Bank and Atlantic Premium,
pursuant to which Atlantic Premium will be merged with the Company. For
each share of the Company's common stock, provided it is 20% or less of
the Company's issued and outstanding common stock at the time of the
Merger Agreement, shareholders will receive $3.50 in cash. Shareholders
owning more than 20% of the outstanding common stock at the time of the
Merger Agreement will receive $2.97479 per share in cash and a note having
a principal amount of $0.52521 per share. After the merger, the Company
will be a subsidiary of Atlantic Bank. The merger is subject to
shareholder and regulatory approval. The Company expects to consummate the
merger during the second quarter of 1999, assuming all of the conditions
to the merger, as outlined in the Merger Agreement, are met or waived
prior to that date.
* * * * *
F-13
<PAGE>
STANDARD FUNDING CORP.
SIGNATURES
In Accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934 ("Exchange Act"), the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on the 26th day of March,
1999.
STANDARD FUNDING CORP.
/s/ Alan J. Karp
------------------------------------------
By: Alan J. Karp
Its: President and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Alan J. Karp and David E. Fisher, and each
of them, his true and lawful proxies, attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to (i) act on, sign and file with the
Securities and Exchange Commission any and all amendments to this Annual Report
on Form 10-KSB, together with all exhibits thereto, (ii) act, sign and file such
certificates, instruments, agreements and other documents as may be necessary or
appropriate in connection therewith, and (iii) take any and all actions which
may be necessary or appropriate in connection therewith, granting unto such
agents, proxies and attorneys-in-fact, and each of them and his and their
substitute or substitutes, full power and authority to do and perform each and
every act and thing necessary or appropriate to be done in connection therewith,
as fully for all intents and purposes as he might or could do in person, hereby
approving, ratifying and confirming all that such agents, proxies and
attorneys-in-fact, any of them or any of his or their substitute or substitutes
may lawfully do or cause to be done by virtue hereof.
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Alan J. Karp President, Chief Executive Officer March 26, 1999
- ------------------- and Director (principal executive officer)
Alan J. Karp
/s/ David E. Fisher Director, Treasurer and Chief Financial March 26, 1999
- ------------------- Officer (principal financial and accounting
David E. Fisher officer)
/s/ James Faust Director March 26, 1999
- -------------------
James Faust
/s/ Joyce Karp Director March 26, 1999
- -------------------
Joyce Karp
/s/ Richard Belz Director March 26, 1999
- -------------------
Richard Belz
Exhibit 10.35
<PAGE>
Exhibit "A"
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE OTHER THAN THOSE OF THE
STATE OF NEW YORK, AND IT MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED
UNLESS IT HAS BEEN SO REGISTERED OR THE COMPANY SHALL HAVE RECEIVED AN OPINION
OF COUNSEL WHICH IS IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY
TO THE EFFECT THAT REGISTRATION HEREOF FOR PURPOSES OF TRANSFER IS NOT REQUIRED
UNDER THE ACT OR THE SECURITIES LAWS OF ANY STATE.
STANDARD FUNDING CORP.
10.95% SENIOR SUBORDINATED NOTE DUE 2003
No 3831-01 $200,000 xx/100
Standard Funding Corp., a New York corporation (herein called the
"Company", which terms include any successor corporation or other entity under
this Note), for value received, hereby promises to pay to Charles Meyerson, or
registered assigns, the principal sum of two-hundred thousand ($200,000) on Dec
31, 2003, and to pay interest thereon from the date of original issuance hereof;
or from the most recent Interest Payment Date to which interest has been paid or
duly provided for, based on a 365-day year, semi-annually on June 30 and
December 31 in each year commencing December 31, 1998, at a rate of 10.95% per
annum, until the principal hereof is paid or made available for payment.
The Company shall have the right to prepay the indebtedness evidenced by
this Note, in whole or part, provided that (i) at the time of such prepayment
there is no default under this Note; (ii) any prepayment in part be in even
multiples of $10,000.00; and (iii) the amount of any prepayment made prior to
the third anniversary of the issuance of this Note be equal to (a) 103% of the
principal prepaid if such prepayment is made prior to the first anniversary of
the issuance of this Note, or (b) 102% of the principal prepaid if such
prepayment is made after the first anniversary but prior to the second
anniversary of the issuance of this Note, or (c) 101% of the principal prepaid
if such prepayment is made after the second anniversary but prior to the third
anniversary of the issuance of this Note.
The payment of principal and interest on this Note is expressly
subordinated in right of payment to the prior payment in full of all of the
Company's obligations and liabilities for money borrowed, whether outstanding on
the date hereof or hereafter incurred, which are not by their terms expressly
subordinate and junior in right to payment of principal and interest and
premium, if any, to this Note ("Superior Indebtedness"). Upon any distribution
to creditors of the Company in a liquidation or dissolution of the Company, or
in a bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or its property, an assignment for the benefit of
<PAGE>
creditors or any marshalling of the Company's assets or liabilities, the holders
of the Superior Indebtedness shall be entitled to receive payment in full of all
obligations due in respect of such Superior Indebtedness (including interest
after the commencement of any such proceeding at the rate specified in the
applicable Superior Indebtedness) before the holder(s) of this Note shall be
entitled to receive any payment with respect to this Note.
No payment may be made upon or with respect to this Note if (i) a default
in the payment of the principal of, or premium or interest on, any Superior
Indebtedness occurs and is continuing beyond any applicable period of grace, or
(ii) any other default occurs and is continuing with respect to any Superior
Indebtedness that permits the holders of such Superior Indebtedness to
accelerate its maturity and the Company receives a notice of such default (a
"Default Notice") from any holder or holders thereof Payments with respect to
the Notes may and shall be resumed (a) in case of a default in payment, upon the
date on which such default is cured or waived, and (b) in the case of a default
other than in payment, the earlier of the date on which such default is cured or
waived or 182 days after the date on which the applicable Default Notice is
received, unless the maturity of any Superior Indebtedness has been accelerated.
This Senior Subordinated Note has been issued by the Company and is on a
parity and equality in all respects with other Senior Subordinated Notes issued
and hereafter issued, except with respect to maturity and rate of interest of
such Senior Subordinated Notes. The holder of this Note by accepting the same,
agrees that while any Senior and/or Superior Indebtedness, including Senior
Subordinated Notes is outstanding, he will not make any demands for payment of
the principal of the debt evidenced hereby, or bring or maintain any action to
enforce payment of the principal of this Note; however, nothing contained herein
shall prevent the Company from paying the principal on the Note at maturity
hereof, provided the Company is not in default in payment of Superior
Indebtedness.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its seal.
STANDARD FUNDING CORP.
By: /s/ Alan J. Karp
--------------------------
Alan J. Karp
President
Dated July 14, 1998
2
Exhibit 10.36
<PAGE>
Exhibit "A"
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE OTHER THAN THOSE OF THE STATE
OF NEW YORK, AND IT MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS
IT HAS BEEN SO REGISTERED OR THE COMPANY SHALL HAVE RECEIVED AN OPINION OF
COUNSEL WHICH IS IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY TO
THE EFFECT THAT REGISTRATION HEREOF FOR PURPOSES OF TRANSFER IS NOT REQUIRED
UNDER THE ACT OR THE SECURITIES LAWS OF ANY STATE.
STANDARD FUNDING CORP.
10.95% SENIOR SUBORDINATED NOTE DUE 2003
No. 3831-05A $25,000 00/xx
Standard Funding Corp., a New York corporation (herein called the
"Company", which terms include any successor corporation or other entity under
this Note), for value received, hereby promises to pay to CHARLES MEYERSON, or
registered assigns, the principal sum of Twenty Five Thousand ($25,000 00/xx) on
12-31, 2003, and to pay interest thereon from the date of original issuance
hereof, or from the most recent Interest Payment Date to which interest has been
paid or duly provided for, based on a 365-day year, semi-annually on June 30 and
December 31 in each year commencing December 31, 1998, at a rate of 10.95% per
annum, until the principal hereof is paid or made available for payment.
The Company shall have the right to prepay the indebtedness evidenced by
this Note, in whole or part, provided that (i) at the time of such prepayment
there is no default under this Note; (ii) any prepayment in part be in even
multiples of $10,000.00; and (iii) the amount of any prepayment made prior to
the third anniversary of the issuance of this Note be equal to (a) 103% of the
principal prepaid if such prepayment is made prior to the first anniversary of
the issuance of this Note, or (b) 102% of the principal prepaid if such
prepayment is made after the first anniversary but prior to the second
anniversary of the issuance of this Note, or (c) 101% of the principal prepaid
if such prepayment is made after the second anniversary but prior to the third
anniversary of the issuance of this Note.
The payment of principal and interest on this Note is expressly
subordinated in right of payment to the prior payment in full of all of the
Company's obligations and liabilities for money borrowed, whether outstanding on
the date hereof or hereafter incurred, which are not by their terms expressly
subordinate and junior in right to payment of principal and interest and
premium, if any, to this Note ("Superior Indebtedness"). Upon any distribution
to creditors of the Company in a liquidation or dissolution of the Company, or
in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property, an assignment for the
benefit of
<PAGE>
creditors or any marshalling of the Company's assets or liabilities, the holders
of the Superior Indebtedness shall be entitled to receive payment in full of all
obligations due in respect of such Superior Indebtedness (including interest
after the commencement of any such proceeding at the rate specified in the
applicable Superior Indebtedness) before the holder(s) of this Note shall be
entitled to receive any payment with respect to this Note.
No payment may be made upon or with respect to this Note if (i) a default
in the payment of the principal of, or premium or interest on, any Superior
Indebtedness occurs and is continuing beyond any applicable period of grace, or
(ii) any other default occurs and is continuing with respect to any Superior
Indebtedness that permits the holders of such Superior Indebtedness to
accelerate its maturity and the Company receives a notice of such default (a
"Default Notice") from any holder or holders thereof. Payments with respect to
the Notes may and shall be resumed (a) in case of a default in payment, upon the
date on which such default is cured or waived, and (b) in the case of a default
other than in payment, the earlier of the date on which such default is cured or
waived or 182 days after the date on which the applicable Default Notice is
received, unless the maturity of any Superior Indebtedness has been accelerated.
This Senior Subordinated Note has been issued by the Company and is on a
parity and equality in all respects with other Senior Subordinated Notes issued
and hereafter issued, except with respect to maturity and rate of interest of
such Senior Subordinated Notes. The holder of this Note by accepting the same,
agrees that while any Senior and/or Superior Indebtedness, including Senior
Subordinated Notes is outstanding, he will not make any demands for payment of
the principal of the debt evidenced hereby, or bring or maintain any action to
enforce payment of the principal of this Note; however, nothing contained herein
shall prevent the Company from paying the principal on the Note at maturity
hereof, provided the Company is not in default in payment of Superior
Indebtedness.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its seal.
STANDARD FUNDING CORP.
By: /s/ Alan J. Karp
--------------------------
Alan J. Karp
President
Dated July 7, 1998
2
Exhibit 10.37
<PAGE>
Exhibit "A"
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE OTHER THAN THOSE OF THE STATE
OF NEW YORK, AND IT MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS
IT HAS BEEN SO REGISTERED OR THE COMPANY SHALL HAVE RECEIVED AN OPINION OF
COUNSEL WHICH IS IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY TO
THE EFFECT THAT REGISTRATION HEREOF FOR PURPOSES OF TRANSFER IS NOT REQUIRED
UNDER THE ACT OR THE SECURITIES LAWS OF ANY STATE.
STANDARD FUNDING CORP.
10.95% SENIOR SUBORDINATED NOTE DUE 2003
No. 3831-04 $100,000
Standard Funding Corp., a New York corporation (herein called the
"Company", which terms include any successor corporation or other entity under
this Note), for value received, hereby promises to pay to HARRY KRUPNICK, or
registered assigns, the principal sum of one hundred thousand dollars ($100,000)
on 12/31, 2003, and to pay interest thereon from the date of original issuance
hereof, or from the most recent Interest Payment Date to which interest has been
paid or duly provided for, based on a 365-day year, semi-annually on June 30 and
December 31 in each year commencing December 31, 1998, at a rate of 10.95% per
annum, until the principal hereof is paid or made available for payment.
The Company shall have the right to prepay the indebtedness evidenced by
this Note, in whole or part, provided that (i) at the time of such prepayment
there is no default under this Note; (ii) any prepayment in part be in even
multiples of $10,000.00; and (iii) the amount of any prepayment made prior to
the third anniversary of the issuance of this Note be equal to (a) 103% of the
principal prepaid if such prepayment is made prior to the first anniversary of
the issuance of this Note, or (b) 102% of the principal prepaid if such
prepayment is made after the first anniversary but prior to the second
anniversary of the issuance of this Note, or (c) 101% of the principal prepaid
if such prepayment is made after the second anniversary but prior to the third
anniversary of the issuance of this Note.
The payment of principal and interest on this Note is expressly
subordinated in right of payment to the prior payment in full of all of the
Company's obligations and liabilities for money borrowed, whether outstanding on
the date hereof or hereafter incurred, which are not by their terms expressly
subordinate and junior in right to payment of principal and interest and
premium, if any, to this Note ("Superior Indebtedness"). Upon any distribution
to creditors of the Company in a liquidation or dissolution of the Company, or
in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property, an assignment for the
benefit of
<PAGE>
creditors or any marshalling of the Company's assets or liabilities, the holders
of the Superior Indebtedness shall be entitled to receive payment in full of all
obligations due in respect of such Superior Indebtedness (including interest
after the commencement of any such proceeding at the rate specified in the
applicable Superior Indebtedness) before the holder(s) of this Note shall be
entitled to receive any payment with respect to this Note.
No payment may be made upon or with respect to this Note if (i) a default
in the payment of the principal of, or premium or interest on, any Superior
Indebtedness occurs and is continuing beyond any applicable period of grace, or
(ii) any other default occurs and is continuing with respect to any Superior
Indebtedness that permits the holders of such Superior Indebtedness to
accelerate its maturity and the Company receives a notice of such default (a
"Default Notice") from any holder or holders thereof. Payments with respect to
the Notes may and shall be resumed (a) in case of a default in payment, upon the
date on which such default is cured or waived, and (b) in the case of a default
other than in payment, the earlier of the date on which such default is cured or
waived or 182 days after the date on which the applicable Default Notice is
received, unless the maturity of any Superior Indebtedness has been accelerated.
This Senior Subordinated Note has been issued by the Company and is on a
parity and equality in all respects with other Senior Subordinated Notes issued
and hereafter issued, except with respect to maturity and rate of interest of
such Senior Subordinated Notes. The holder of this Note by accepting the same,
agrees that while any Senior and/or Superior Indebtedness, including Senior
Subordinated Notes is outstanding, he will not make any demands for payment of
the principal of the debt evidenced hereby, or bring or maintain any action to
enforce payment of the principal of this Note; however, nothing contained herein
shall prevent the Company from paying the principal on the Note at maturity
hereof, provided the Company is not in default in payment of Superior
Indebtedness.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its seal.
STANDARD FUNDING CORP.
By: /s/ Alan J. Karp
--------------------------
Alan J. Karp
President
Dated: July 14, 1998
2
Exhibit 10.38
<PAGE>
Exhibit "A"
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE OTHER THAN THOSE OF THE STATE
OF NEW YORK, AND IT MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS
IT HAS BEEN SO REGISTERED OR THE COMPANY SHALL HAVE RECEIVED AN OPINION OF
COUNSEL WHICH IS IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY TO
THE EFFECT THAT REGISTRATION HEREOF FOR PURPOSES OF TRANSFER IS NOT REQUIRED
UNDER THE ACT OR THE SECURITIES LAWS OF ANY STATE.
STANDARD FUNDING CORP.
10.95% SENIOR SUBORDINATED NOTE DUE 2003
No. 3831-02 $25,000 xx/100
Standard Funding Corp., a New York corporation (herein called the
"Company", which terms include any successor corporation or other entity under
this Note), for value received, hereby promises to pay to Peter & Barbara
Bardaxe, or registered assigns, the principal sum of twenty-five thousand
($25,000) on 12/31, 2003, and to pay interest thereon from the date of original
issuance hereof, or from the most recent Interest Payment Date to which interest
has been paid or duly provided for, based on a 365-day year, semi-annually on
June 30 and December 31 in each year commencing December 31, 1998, at a rate of
10.95% per annum, until the principal hereof is paid or made available for
payment.
The Company shall have the right to prepay the indebtedness evidenced by
this Note, in whole or part, provided that (i) at the time of such prepayment
there is no default under this Note; (ii) any prepayment in part be in even
multiples of $10,000.00; and (iii) the amount of any prepayment made prior to
the third anniversary of the issuance of this Note be equal to (a) 103% of the
principal prepaid if such prepayment is made prior to the first anniversary of
the issuance of this Note, or (b) 102% of the principal prepaid if such
prepayment is made after the first anniversary but prior to the second
anniversary of the issuance of this Note, or (c) 101% of the principal prepaid
if such prepayment is made after the second anniversary but prior to the third
anniversary of the issuance of this Note.
The payment of principal and interest on this Note is expressly
subordinated in right of payment to the prior payment in full of all of the
Company's obligations and liabilities for money borrowed, whether outstanding on
the date hereof or hereafter incurred, which are not by their terms expressly
subordinate and junior in right to payment of principal and interest and
premium, if any, to this Note ("Superior Indebtedness"). Upon any distribution
to creditors of the Company in a liquidation or dissolution of the Company, or
in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property, an assignment for the
benefit of
<PAGE>
creditors or any marshalling of the Company's assets or liabilities, the holders
of the Superior Indebtedness shall be entitled to receive payment in full of all
obligations due in respect of such Superior Indebtedness (including interest
after the commencement of any such proceeding at the rate specified in the
applicable Superior Indebtedness) before the holder(s) of this Note shall be
entitled to receive any payment with respect to this Note.
No payment may be made upon or with respect to this Note if (i) a default
in the payment of the principal of, or premium or interest on, any Superior
Indebtedness occurs and is continuing beyond any applicable period of grace, or
(ii) any other default occurs and is continuing with respect to any Superior
Indebtedness that permits the holders of such Superior Indebtedness to
accelerate its maturity and the Company receives a notice of such default (a
"Default Notice") from any holder or holders thereof. Payments with respect to
the Notes may and shall be resumed (a) in case of a default in payment, upon the
date on which such default is cured or waived, and (b) in the case of a default
other than in payment, the earlier of the date on which such default is cured or
waived or 182 days after the date on which the applicable Default Notice is
received, unless the maturity of any Superior Indebtedness has been accelerated.
This Senior Subordinated Note has been issued by the Company and is on a
parity and equality in all respects with other Senior Subordinated Notes issued
and hereafter issued, except with respect to maturity and rate of interest of
such Senior Subordinated Notes. The holder of this Note by accepting the same,
agrees that while any Senior and/or Superior Indebtedness, including Senior
Subordinated Notes is outstanding, he will not make any demands for payment of
the principal of the debt evidenced hereby, or bring or maintain any action to
enforce payment of the principal of this Note; however, nothing contained herein
shall prevent the Company from paying the principal on the Note at maturity
hereof, provided the Company is not in default in payment of Superior
Indebtedness.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its seal.
STANDARD FUNDING CORP.
By: /s/ Alan J. Karp
--------------------------
Alan J. Karp
President
Dated: July 7, 1998
2
Exhibit 10.39
<PAGE>
Exhibit "A"
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE OTHER THAN THOSE OF THE STATE
OF NEW YORK, AND IT MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS
IT HAS BEEN SO REGISTERED OR THE COMPANY SHALL HAVE RECEIVED AN OPINION OF
COUNSEL WHICH IS IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY TO
THE EFFECT THAT REGISTRATION HEREOF FOR PURPOSES OF TRANSFER IS NOT REQUIRED
UNDER THE ACT OR THE SECURITIES LAWS OF ANY STATE.
STANDARD FUNDING CORP.
10.95% SENIOR SUBORDINATED NOTE DUE 2003
No. 3831-06A $25,000 00/xx
Standard Funding Corp., a New York corporation (herein called the
"Company", which terms include any successor corporation or other entity under
this Note), for value received, hereby promises to pay to HERBERT EPSTEIN, or
registered assigns, the principal sum of TWENTY-FIVE THOUSAND ($25,000 00/) on
12/31, 2003, and to pay interest thereon from the date of original issuance
hereof, or from the most recent Interest Payment Date to which interest has been
paid or duly provided for, based on a 365-day year, semi-annually on June 30 and
December 31 in each year commencing December 31, 1998, at a rate of 10.95% per
annum, until the principal hereof is paid or made available for payment.
The Company shall have the right to prepay the indebtedness evidenced by
this Note, in whole or part, provided that (i) at the time of such prepayment
there is no default under this Note; (ii) any prepayment in part be in even
multiples of $10,000.00; and (iii) the amount of any prepayment made prior to
the third anniversary of the issuance of this Note be equal to (a) 103% of the
principal prepaid if such prepayment is made prior to the first anniversary of
the issuance of this Note, or (b) 102% of the principal prepaid if such
prepayment is made after the first anniversary but prior to the second
anniversary of the issuance of this Note, or (c) 101% of the principal prepaid
if such prepayment is made after the second anniversary but prior to the third
anniversary of the issuance of this Note.
The payment of principal and interest on this Note is expressly
subordinated in right of payment to the prior payment in full of all of the
Company's obligations and liabilities for money borrowed, whether outstanding on
the date hereof or hereafter incurred, which are not by their terms expressly
subordinate and junior in right to payment of principal and interest and
premium, if any, to this Note ("Superior Indebtedness"). Upon any distribution
to creditors of the Company in a liquidation or dissolution of the Company, or
in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property, an assignment for the
benefit of
<PAGE>
creditors or any marshalling of the Company's assets or liabilities, the holders
of the Superior Indebtedness shall be entitled to receive payment in full of all
obligations due in respect of such Superior Indebtedness (including interest
after the commencement of any such proceeding at the rate specified in the
applicable Superior Indebtedness) before the holder(s) of this Note shall be
entitled to receive any payment with respect to this Note.
No payment may be made upon or with respect to this Note if (i) a default
in the payment of the principal of, or premium or interest on, any Superior
Indebtedness occurs and is continuing beyond any applicable period of grace, or
(ii) any other default occurs and is continuing with respect to any Superior
Indebtedness that permits the holders of such Superior Indebtedness to
accelerate its maturity and the Company receives a notice of such default (a
"Default Notice") from any holder or holders thereof. Payments with respect to
the Notes may and shall be resumed (a) in case of a default in payment, upon the
date on which such default is cured or waived, and (b) in the case of a default
other than in payment, the earlier of the date on which such default is cured or
waived or 182 days after the date on which the applicable Default Notice is
received, unless the maturity of any Superior Indebtedness has been accelerated.
This Senior Subordinated Note has been issued by the Company and is on a
parity and equality in all respects with other Senior Subordinated Notes issued
and hereafter issued, except with respect to maturity and rate of interest of
such Senior Subordinated Notes. The holder of this Note by accepting the same,
agrees that while any Senior and/or Superior Indebtedness, including Senior
Subordinated Notes is outstanding, he will not make any demands for payment of
the principal of the debt evidenced hereby, or bring or maintain any action to
enforce payment of the principal of this Note; however, nothing contained herein
shall prevent the Company from paying the principal on the Note at maturity
hereof, provided the Company is not in default in payment of Superior
Indebtedness.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its seal.
STANDARD FUNDING CORP.
By: /s/ Alan J. Karp
--------------------------
Alan J. Karp
President
Dated: July 14, 1998
2
Exhibit 10.40
<PAGE>
Exhibit "A"
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE OTHER THAN THOSE OF THE STATE
OF NEW YORK, AND IT MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS
IT HAS BEEN SO REGISTERED OR THE COMPANY SHALL HAVE RECEIVED AN OPINION OF
COUNSEL WHICH IS IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY TO
THE EFFECT THAT REGISTRATION HEREOF FOR PURPOSES OF TRANSFER IS NOT REQUIRED
UNDER THE ACT OR THE SECURITIES LAWS OF ANY STATE.
STANDARD FUNDING CORP.
10.95% SENIOR SUBORDINATED NOTE DUE 2003
No. 3831-07 $150,000.00
Standard Funding Corp., a New York corporation (herein called the
"Company", which terms include any successor corporation or other entity under
this Note), for value received, hereby promises to pay to RISHA SOHN, or
registered assigns, the principal sum of One hundred fifty thousand dollars
($150,000) on 12/31, 2003, and to pay interest thereon from the date of original
issuance hereof, or from the most recent Interest Payment Date to which interest
has been paid or duly provided for, based on a 365-day year, semi-annually on
June 30 and December 31 in each year commencing December 31, 1998, at a rate of
10.95% per annum, until the principal hereof is paid or made available for
payment.
The Company shall have the right to prepay the indebtedness evidenced by
this Note, in whole or part, provided that (i) at the time of such prepayment
there is no default under this Note; (ii) any prepayment in part be in even
multiples of $10,000.00; and (iii) the amount of any prepayment made prior to
the third anniversary of the issuance of this Note be equal to (a) 103% of the
principal prepaid if such prepayment is made prior to the first anniversary of
the issuance of this Note, or (b) 102% of the principal prepaid if such
prepayment is made after the first anniversary but prior to the second
anniversary of the issuance of this Note, or (c) 101% of the principal prepaid
if such prepayment is made after the second anniversary but prior to the third
anniversary of the issuance of this Note.
The payment of principal and interest on this Note is expressly
subordinated in right of payment to the prior payment in full of all of the
Company's obligations and liabilities for money borrowed, whether outstanding on
the date hereof or hereafter incurred, which are not by their terms expressly
subordinate and junior in right to payment of principal and interest and
premium, if any, to this Note ("Superior Indebtedness"). Upon any distribution
to creditors of the Company in a liquidation or dissolution of the Company, or
in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property, an assignment for the
benefit of
<PAGE>
creditors or any marshalling of the Company's assets or liabilities, the holders
of the Superior Indebtedness shall be entitled to receive payment in full of all
obligations due in respect of such Superior Indebtedness (including interest
after the commencement of any such proceeding at the rate specified in the
applicable Superior Indebtedness) before the holder(s) of this Note shall be
entitled to receive any payment with respect to this Note.
No payment may be made upon or with respect to this Note if (i) a default
in the payment of the principal of, or premium or interest on, any Superior
Indebtedness occurs and is continuing beyond any applicable period of grace, or
(ii) any other default occurs and is continuing with respect to any Superior
Indebtedness that permits the holders of such Superior Indebtedness to
accelerate its maturity and the Company receives a notice of such default (a
"Default Notice") from any holder or holders thereof, Payments with respect to
the Notes may and shall be resumed (a) in case of a default in payment, upon the
date on which such default is cured or waived, and (b) in the case of a default
other than in payment, the earlier of the date on which such default is cured or
waived or 182 days after the date on which the applicable Default Notice is
received, unless the maturity of any Superior Indebtedness has been accelerated.
This Senior Subordinated Note has been issued by the Company and is on a
parity and equality in all respects with other Senior Subordinated Notes issued
and hereafter issued, except with respect to maturity and rate of interest of
such Senior Subordinated Notes. The holder of this Note by accepting the same,
agrees that while any Senior and/or Superior Indebtedness, including Senior
Subordinated Notes is outstanding, he will not make any demands for payment of
the principal of the debt evidenced hereby, or bring or maintain any action to
enforce payment of the principal of this Note; however, nothing contained herein
shall prevent the Company from paying the principal on the Note at maturity
hereof, provided the Company is not in default in payment of Superior
Indebtedness.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its seal.
STANDARD FUNDING CORP.
By: /s/ Alan J. Karp
--------------------------
Alan J. Karp
President
Dated: July 16, 1998
2
Exhibit 10.41
<PAGE>
Exhibit "A"
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE OTHER THAN THOSE OF THE STATE
OF NEW YORK, AND IT MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS
IT HAS BEEN SO REGISTERED OR THE COMPANY SHALL HAVE RECEIVED AN OPINION OF
COUNSEL WHICH IS IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY TO
THE EFFECT THAT REGISTRATION HEREOF FOR PURPOSES OF TRANSFER IS NOT REQUIRED
UNDER THE ACT OR THE SECURITIES LAWS OF ANY STATE.
STANDARD FUNDING CORP.
10.95% SENIOR SUBORDINATED NOTE DUE 2003
No. 3831-08 $25,000
Standard Funding Corp., a New York corporation (herein called the
"Company", which terms include any successor corporation or other entity under
this Note), for value received, hereby promises to pay to HERMAN GOLDBERGER, or
registered assigns, the principal sum of twenty five thousand dollars
($25,000.00) on 12/31, 2003, and to pay interest thereon from the date of
original issuance hereof, or from the most recent Interest Payment Date to which
interest has been paid or duly provided for, based on a 365-day year,
semi-annually on June 30 and December 31 in each year commencing December 31,
1998, at a rate of 10.95% per annum, until the principal hereof is paid or made
available for payment.
The Company shall have the right to prepay the indebtedness evidenced by
this Note, in whole or part, provided that (i) at the time of such prepayment
there is no default under this Note; (ii) any prepayment in part be in even
multiples of $10,000.00; and (iii) the amount of any prepayment made prior to
the third anniversary of the issuance of this Note be equal to (a) 103% of the
principal prepaid if such prepayment is made prior to the first anniversary of
the issuance of this Note, or (b) 102% of the principal prepaid if such
prepayment is made after the first anniversary but prior to the second
anniversary of the issuance of this Note, or (c) 101% of the principal prepaid
if such prepayment is made after the second anniversary but prior to the third
anniversary of the issuance of this Note.
The payment of principal and interest on this Note is expressly
subordinated in right of payment to the prior payment in full of all of the
Company's obligations and liabilities for money borrowed, whether outstanding on
the date hereof or hereafter incurred, which are not by their terms expressly
subordinate and junior in right to payment of principal and interest and
premium, if any, to this Note ("Superior Indebtedness"). Upon any distribution
to creditors of the Company in a liquidation or dissolution of the Company, or
in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property, an assignment for the
benefit of
<PAGE>
creditors or any marshalling of the Company's assets or liabilities, the holders
of the Superior Indebtedness shall be entitled to receive payment in full of all
obligations due in respect of such Superior Indebtedness (including interest
after the commencement of any such proceeding at the rate specified in the
applicable Superior Indebtedness) before the holder(s) of this Note shall be
entitled to receive any payment with respect to this Note.
No payment may be made upon or with respect to this Note if (i) a default
in the payment of the principal of, or premium or interest on, any Superior
Indebtedness occurs and is continuing beyond any applicable period of grace, or
(ii) any other default occurs and is continuing with respect to any Superior
Indebtedness that permits the holders of such Superior Indebtedness to
accelerate its maturity and the Company receives a notice of such default (a
"Default Notice") from any holder or holders thereof. Payments with respect to
the Notes may and shall be resumed (a) in case of a default in payment, upon the
date on which such default is cured or waived, and (b) in the case of a default
other than in payment, the earlier of the date on which such default is cured or
waived or 182 days after the date on which the applicable Default Notice is
received, unless the maturity of any Superior Indebtedness has been accelerated.
This Senior Subordinated Note has been issued by the Company and is on a
parity and equality in all respects with other Senior Subordinated Notes issued
and hereafter issued, except with respect to maturity and rate of interest of
such Senior Subordinated Notes. The holder of this Note by accepting the same,
agrees that while any Senior and/or Superior Indebtedness, including Senior
Subordinated Notes is outstanding, he will not make any demands for payment of
the principal of the debt evidenced hereby, or bring or maintain any action to
enforce payment of the principal of this Note; however, nothing contained herein
shall prevent the Company from paying the principal on the Note at maturity
hereof, provided the Company is not in default in payment of Superior
Indebtedness.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its seal.
STANDARD FUNDING CORP.
By: /s/ Alan J. Karp
--------------------------
Alan J. Karp
President
Dated: July 17, 1998
2
Exhibit 10.42
<PAGE>
Exhibit "A"
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE OTHER THAN THOSE OF THE STATE
OF NEW YORK, AND IT MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS
IT HAS BEEN SO REGISTERED OR THE COMPANY SHALL HAVE RECEIVED AN OPINION OF
COUNSEL WHICH IS IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY TO
THE EFFECT THAT REGISTRATION HEREOF FOR PURPOSES OF TRANSFER IS NOT REQUIRED
UNDER THE ACT OR THE SECURITIES LAWS OF ANY STATE.
STANDARD FUNDING CORP.
10.95% SENIOR SUBORDINATED NOTE DUE 2003
No. 3931-09 $25,000
Standard Funding Corp., a New York corporation (herein called the
"Company", which terms include any successor corporation or other entity under
this Note), for value received, hereby promises to pay to Daniel & Petrina
Dymond, or registered assigns, the principal sum of twenty five thousand
($25,000) on 12/31, 2003, and to pay interest thereon from the date of original
issuance hereof, or from the most recent Interest Payment Date to which interest
has been paid or duly provided for, based on a 365-day year, semi-annually on
June 30 and December 31 in each year commencing December 31, 1998, at a rate of
10.95% per annum, until the principal hereof is paid or made available for
payment.
The Company shall have the right to prepay the indebtedness evidenced by
this Note, in whole or part, provided that (i) at the time of such prepayment
there is no default under this Note; (ii) any prepayment in part be in even
multiples of $10,000.00; and (iii) the amount of any prepayment made prior to
the third anniversary of the issuance of this Note be equal to (a) 103% of the
principal prepaid if such prepayment is made prior to the first anniversary of
the issuance of this Note, or (b) 102% of the principal prepaid if such
prepayment is made after the first anniversary but prior to the second
anniversary of the issuance of this Note, or (c) 101% of the principal prepaid
if such prepayment is made after the second anniversary but prior to the third
anniversary of the issuance of this Note.
The payment of principal and interest on this Note is expressly
subordinated in right of payment to the prior payment in full of all of the
Company's obligations and liabilities for money borrowed, whether outstanding on
the date hereof or hereafter incurred, which are not by their terms expressly
subordinate and junior in right to payment of principal and interest and
premium, if any, to this Note ("Superior Indebtedness"). Upon any distribution
to creditors of the Company in a liquidation or dissolution of the Company, or
in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property, an assignment for the
benefit of
<PAGE>
creditors or any marshalling of the Company's assets or liabilities, the holders
of the Superior Indebtedness shall be entitled to receive payment in full of all
obligations due in respect of such Superior Indebtedness (including interest
after the commencement of any such proceeding at the rate specified in the
applicable Superior Indebtedness) before the holder(s) of this Note shall be
entitled to receive any payment with respect to this Note.
No payment may be made upon or with respect to this Note if (i) a default
in the payment of the principal of, or premium or interest on, any Superior
Indebtedness occurs and is continuing beyond any applicable period of grace, or
(ii) any other default occurs and is continuing with respect to any Superior
Indebtedness that permits the holders of such Superior Indebtedness to
accelerate its maturity and the Company receives a notice of such default (a
"Default Notice") from any holder or holders thereof. Payments with respect to
the Notes may and shall be resumed (a) in case of a default in payment, upon the
date on which such default is cured or waived, and (b) in the case of a default
other than in payment, the earlier of the date on which such default is cured or
waived or 182 days after the date on which the applicable Default Notice is
received, unless the maturity of any Superior Indebtedness has been accelerated.
This Senior Subordinated Note has been issued by the Company and is on a
parity and equality in all respects with other Senior Subordinated Notes issued
and hereafter issued, except with respect to maturity and rate of interest of
such Senior Subordinated Notes. The holder of this Note by accepting the same,
agrees that while any Senior and/or Superior Indebtedness, including Senior
Subordinated Notes is outstanding, he will not make any demands for payment of
the principal of the debt evidenced hereby, or bring or maintain any action to
enforce payment of the principal of this Note; however, nothing contained herein
shall prevent the Company from paying the principal on the Note at maturity
hereof, provided the Company is not in default in payment of Superior
Indebtedness.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its seal.
STANDARD FUNDING CORP.
By: /s/ Alan J. Karp
--------------------------
Alan J. Karp
President
Dated: July 17, 1998
2
Exhibit 10.43
<PAGE>
Exhibit "A"
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE OTHER THAN THOSE OF THE STATE
OF NEW YORK, AND IT MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS
IT HAS BEEN SO REGISTERED OR THE COMPANY SHALL HAVE RECEIVED AN OPINION OF
COUNSEL WHICH IS IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY TO
THE EFFECT THAT REGISTRATION HEREOF FOR PURPOSES OF TRANSFER IS NOT REQUIRED
UNDER THE ACT OR THE SECURITIES LAWS OF ANY STATE.
STANDARD FUNDING CORP.
10.95% SENIOR SUBORDINATED NOTE DUE 2003
No. 3831-10 $200,000 00/
Standard Funding Corp., a New York corporation (herein called the
"Company", which terms include any successor corporation or other entity under
this Note), for value received, hereby promises to pay to Janet Gutenplan, or
registered assigns, the principal sum of two-hundred thousand ($200,000) on
12-31, 2003, and to pay interest thereon from the date of original issuance
hereof, or from the most recent Interest Payment Date to which interest has been
paid or duly provided for, based on a 365-day year, semi-annually on June 30 and
December 31 in each year commencing December 31, 1998, at a rate of 10.95% per
annum, until the principal hereof is paid or made available for payment.
The Company shall have the right to prepay the indebtedness evidenced by
this Note, in whole or part, provided that (i) at the time of such prepayment
there is no default under this Note; (ii) any prepayment in part be in even
multiples of $10,000.00; and (iii) the amount of any prepayment made prior to
the third anniversary of the issuance of this Note be equal to (a) 103% of the
principal prepaid if such prepayment is made prior to the first anniversary of
the issuance of this Note, or (b) 102% of the principal prepaid if such
prepayment is made after the first anniversary but prior to the second
anniversary of the issuance of this Note, or (c) 101% of the principal prepaid
if such prepayment is made after the second anniversary but prior to the third
anniversary of the issuance of this Note.
The payment of principal and interest on this Note is expressly
subordinated in right of payment to the prior payment in full of all of the
Company's obligations and liabilities for money borrowed, whether outstanding on
the date hereof or hereafter incurred, which are not by their terms expressly
subordinate and junior in right to payment of principal and interest and
premium, if any, to this Note ("Superior Indebtedness"). Upon any distribution
to creditors of the Company in a liquidation or dissolution of the Company, or
in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property, an assignment for the
benefit of
<PAGE>
creditors or any marshalling of the Company's assets or liabilities, the holders
of the Superior Indebtedness shall be entitled to receive payment in full of all
obligations due in respect of such Superior Indebtedness (including interest
after the commencement of any such proceeding at the rate specified in the
applicable Superior Indebtedness) before the holder(s) of this Note shall be
entitled to receive any payment with respect to this Note.
No payment may be made upon or with respect to this Note if (i) a default
in the payment of the principal of, or premium or interest on, any Superior
Indebtedness occurs and is continuing beyond any applicable period of grace, or
(ii) any other default occurs and is continuing with respect to any Superior
Indebtedness that permits the holders of such Superior Indebtedness to
accelerate its maturity and the Company receives a notice of such default (a
"Default Notice") from any holder or holders thereof. Payments with respect to
the Notes may and shall be resumed (a) in case of a default in payment, upon the
date on which such default is cured or waived, and (b) in the case of a default
other than in payment, the earlier of the date on which such default is cured or
waived or 182 days after the date on which the applicable Default Notice is
received, unless the maturity of any Superior Indebtedness has been accelerated.
This Senior Subordinated Note has been issued by the Company and is on a
parity and equality in all respects with other Senior Subordinated Notes issued
and hereafter issued, except with respect to maturity and rate of interest of
such Senior Subordinated Notes. The holder of this Note by accepting the same,
agrees that while any Senior and/or Superior Indebtedness, including Senior
Subordinated Notes is outstanding, he will not make any demands for payment of
the principal of the debt evidenced hereby, or bring or maintain any action to
enforce payment of the principal of this Note; however, nothing contained herein
shall prevent the Company from paying the principal on the Note at maturity
hereof, provided the Company is not in default in payment of Superior
Indebtedness.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its seal.
STANDARD FUNDING CORP.
By: /s/ Alan J. Karp
--------------------------
Alan J. Karp
President
Dated: July 20, 1998
2
Exhibit 10.44
<PAGE>
Exhibit "A"
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE OTHER THAN THOSE OF THE STATE
OF NEW YORK, AND IT MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS
IT HAS BEEN SO REGISTERED OR THE COMPANY SHALL HAVE RECEIVED AN OPINION OF
COUNSEL WHICH IS IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY TO
THE EFFECT THAT REGISTRATION HEREOF FOR PURPOSES OF TRANSFER IS NOT REQUIRED
UNDER THE ACT OR THE SECURITIES LAWS OF ANY STATE.
STANDARD FUNDING CORP.
10.95% SENIOR SUBORDINATED NOTE DUE 2003
No. 3931-12 $25,000 00/xx
Standard Funding Corp., a New York corporation (herein called the
"Company", which terms include any successor corporation or other entity under
this Note), for value received, hereby promises to pay to Estate of Ferdinand
Harms, or registered assigns, the principal sum of twenty five thousand ($25,000
xx/) on 12/31, 2003, and to pay interest thereon from the date of original
issuance hereof, or from the most recent Interest Payment Date to which interest
has been paid or duly provided for, based on a 365-day year, semi-annually on
June 30 and December 31 in each year commencing December 31, 1998, at a rate of
10.95% per annum, until the principal hereof is paid or made available for
payment.
The Company shall have the right to prepay the indebtedness evidenced by
this Note, in whole or part, provided that (i) at the time of such prepayment
there is no default under this Note; (ii) any prepayment in part be in even
multiples of $10,000.00; and (iii) the amount of any prepayment made prior to
the third anniversary of the issuance of this Note be equal to (a) 103% of the
principal prepaid if such prepayment is made prior to the first anniversary of
the issuance of this Note, or (b) 102% of the principal prepaid if such
prepayment is made after the first anniversary but prior to the second
anniversary of the issuance of this Note, or (c) 101% of the principal prepaid
if such prepayment is made after the second anniversary but prior to the third
anniversary of the issuance of this Note.
The payment of principal and interest on this Note is expressly
subordinated in right of payment to the prior payment in full of all of the
Company's obligations and liabilities for money borrowed, whether outstanding on
the date hereof or hereafter incurred, which are not by their terms expressly
subordinate and junior in right to payment of principal and interest and
premium, if any, to this Note ("Superior Indebtedness"). Upon any distribution
to creditors of the Company in a liquidation or dissolution of the Company, or
in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property, an assignment for the
benefit of
<PAGE>
creditors or any marshalling of the Company's assets or liabilities, the holders
of the Superior Indebtedness shall be entitled to receive payment in full of all
obligations due in respect of such Superior Indebtedness (including interest
after the commencement of any such proceeding at the rate specified in the
applicable Superior Indebtedness) before the holder(s) of this Note shall be
entitled to receive any payment with respect to this Note.
No payment may be made upon or with respect to this Note if (i) a default
in the payment of the principal of, or premium or interest on, any Superior
Indebtedness occurs and is continuing beyond any applicable period of grace, or
(ii) any other default occurs and is continuing with respect to any Superior
Indebtedness that permits the holders of such Superior Indebtedness to
accelerate its maturity and the Company receives a notice of such default (a
"Default Notice") from any holder or holders thereof. Payments with respect to
the Notes may and shall be resumed (a) in case of a default in payment, upon the
date on which such default is cured or waived, and (b) in the case of a default
other than in payment, the earlier of the date on which such default is cured or
waived or 182 days after the date on which the applicable Default Notice is
received, unless the maturity of any Superior Indebtedness has been accelerated.
This Senior Subordinated Note has been issued by the Company and is on a
parity and equality in all respects with other Senior Subordinated Notes issued
and hereafter issued, except with respect to maturity and rate of interest of
such Senior Subordinated Notes. The holder of this Note by accepting the same,
agrees that while any Senior and/or Superior Indebtedness, including Senior
Subordinated Notes is outstanding, he will not make any demands for payment of
the principal of the debt evidenced hereby, or bring or maintain any action to
enforce payment of the principal of this Note; however, nothing contained herein
shall prevent the Company from paying the principal on the Note at maturity
hereof, provided the Company is not in default in payment of Superior
Indebtedness.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its seal.
STANDARD FUNDING CORP.
By: /s/ Alan J. Karp
--------------------------
Alan J. Karp
President
Dated: Sept. 15, 1998
2
Exhibit 10.45
<PAGE>
Exhibit "A"
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE OTHER THAN THOSE OF THE STATE
OF NEW YORK, AND IT MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS
IT HAS BEEN SO REGISTERED OR THE COMPANY SHALL HAVE RECEIVED AN OPINION OF
COUNSEL WHICH IS IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY TO
THE EFFECT THAT REGISTRATION HEREOF FOR PURPOSES OF TRANSFER IS NOT REQUIRED
UNDER THE ACT OR THE SECURITIES LAWS OF ANY STATE.
STANDARD FUNDING CORP.
10.95% SENIOR SUBORDINATED NOTE DUE 2003
No. 3831-03 $25,000.00
Standard Funding Corp., a New York corporation (herein called the
"Company", which terms include any successor corporation or other entity under
this Note), for value received, hereby promises to pay to OLINDA RODRIGUES, or
registered assigns, the principal sum of twenty five thousand ($25,000.00) on
12/31, 2003, and to pay interest thereon from the date of original issuance
hereof, or from the most recent Interest Payment Date to which interest has been
paid or duly provided for, based on a 365-day year, semi-annually on June 30 and
December 31 in each year commencing December 31, 1998, at a rate of 10.95% per
annum, until the principal hereof is paid or made available for payment.
The Company shall have the right to prepay the indebtedness evidenced by
this Note, in whole or part, provided that (i) at the time of such prepayment
there is no default under this Note; (ii) any prepayment in part be in even
multiples of $10,000.00; and (iii) the amount of any prepayment made prior to
the third anniversary of the issuance of this Note be equal to (a) 103% of the
principal prepaid if such prepayment is made prior to the first anniversary of
the issuance of this Note, or (b) 102% of the principal prepaid if such
prepayment is made after the first anniversary but prior to the second
anniversary of the issuance of this Note, or (c) 101% of the principal prepaid
if such prepayment is made after the second anniversary but prior to the third
anniversary of the issuance of this Note.
The payment of principal and interest on this Note is expressly
subordinated in right of payment to the prior payment in full of all of the
Company's obligations and liabilities for money borrowed, whether outstanding on
the date hereof or hereafter incurred, which are not by their terms expressly
subordinate and junior in right to payment of principal and interest and
premium, if any, to this Note ("Superior Indebtedness"). Upon any distribution
to creditors of the Company in a liquidation or dissolution of the Company, or
in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property, an assignment for the
benefit of
<PAGE>
creditors or any marshalling of the Company's assets or liabilities, the holders
of the Superior Indebtedness shall be entitled to receive payment in full of all
obligations due in respect of such Superior Indebtedness (including interest
after the commencement of any such proceeding at the rate specified in the
applicable Superior Indebtedness) before the holder(s) of this Note shall be
entitled to receive any payment with respect to this Note.
No payment may be made upon or with respect to this Note if (i) a default
in the payment of the principal of, or premium or interest on, any Superior
Indebtedness occurs and is continuing beyond any applicable period of grace, or
(ii) any other default occurs and is continuing with respect to any Superior
Indebtedness that permits the holders of such Superior Indebtedness to
accelerate its maturity and the Company receives a notice of such default (a
"Default Notice") from any holder or holders thereof. Payments with respect to
the Notes may and shall be resumed (a) in case of a default in payment, upon the
date on which such default is cured or waived, and (b) in the case of a default
other than in payment, the earlier of the date on which such default is cured or
waived or 182 days after the date on which the applicable Default Notice is
received, unless the maturity of any Superior Indebtedness has been accelerated.
This Senior Subordinated Note has been issued by the Company and is on a
parity and equality in all respects with other Senior Subordinated Notes issued
and hereafter issued, except with respect to maturity and rate of interest of
such Senior Subordinated Notes. The holder of this Note by accepting the same,
agrees that while any Senior and/or Superior Indebtedness, including Senior
Subordinated Notes is outstanding, he will not make any demands for payment of
the principal of the debt evidenced hereby, or bring or maintain any action to
enforce payment of the principal of this Note; however, nothing contained herein
shall prevent the Company from paying the principal on the Note at maturity
hereof, provided the Company is not in default in payment of Superior
Indebtedness.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its seal.
STANDARD FUNDING CORP.
By: /s/ Alan J. Karp
--------------------------
Alan J. Karp
President
Dated: July 8, 1998
2
Exhibit 10.46
<PAGE>
Exhibit "A"
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE OTHER THAN THOSE OF THE STATE
OF NEW YORK, AND IT MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS
IT HAS BEEN SO REGISTERED OR THE COMPANY SHALL HAVE RECEIVED AN OPINION OF
COUNSEL WHICH IS IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY TO
THE EFFECT THAT REGISTRATION HEREOF FOR PURPOSES OF TRANSFER IS NOT REQUIRED
UNDER THE ACT OR THE SECURITIES LAWS OF ANY STATE.
STANDARD FUNDING CORP.
10.95% SENIOR SUBORDINATED NOTE DUE 2003
No. 3831-03 $25,000.00
Standard Funding Corp., a New York corporation (herein called the
"Company", which terms include any successor corporation or other entity under
this Note), for value received, hereby promises to pay to OLINDA RODRIGUES, or
registered assigns, the principal sum of twenty five thousand ($25,000.00) on
12/31, 2003, and to pay interest thereon from the date of original issuance
hereof, or from the most recent Interest Payment Date to which interest has been
paid or duly provided for, based on a 365-day year, semi-annually on June 30 and
December 31 in each year commencing December 31, 1998, at a rate of 10.95% per
annum, until the principal hereof is paid or made available for payment.
The Company shall have the right to prepay the indebtedness evidenced by
this Note, in whole or part, provided that (i) at the time of such prepayment
there is no default under this Note; (ii) any prepayment in part be in even
multiples of $10,000.00; and (iii) the amount of any prepayment made prior to
the third anniversary of the issuance of this Note be equal to (a) 103% of the
principal prepaid if such prepayment is made prior to the first anniversary of
the issuance of this Note, or (b) 102% of the principal prepaid if such
prepayment is made after the first anniversary but prior to the second
anniversary of the issuance of this Note, or (c) 101% of the principal prepaid
if such prepayment is made after the second anniversary but prior to the third
anniversary of the issuance of this Note.
The payment of principal and interest on this Note is expressly
subordinated in right of payment to the prior payment in full of all of the
Company's obligations and liabilities for money borrowed, whether outstanding on
the date hereof or hereafter incurred, which are not by their terms expressly
subordinate and junior in right to payment of principal and interest and
premium, if any, to this Note ("Superior Indebtedness"). Upon any distribution
to creditors of the Company in a liquidation or dissolution of the Company, or
in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property, an assignment for the
benefit of
<PAGE>
creditors or any marshalling of the Company's assets or liabilities, the holders
of the Superior Indebtedness shall be entitled to receive payment in full of all
obligations due in respect of such Superior Indebtedness (including interest
after the commencement of any such proceeding at the rate specified in the
applicable Superior Indebtedness) before the holder(s) of this Note shall be
entitled to receive any payment with respect to this Note.
No payment may be made upon or with respect to this Note if (i) a default
in the payment of the principal of, or premium or interest on, any Superior
Indebtedness occurs and is continuing beyond any applicable period of grace, or
(ii) any other default occurs and is continuing with respect to any Superior
Indebtedness that permits the holders of such Superior Indebtedness to
accelerate its maturity and the Company receives a notice of such default (a
"Default Notice") from any holder or holders thereof. Payments with respect to
the Notes may and shall be resumed (a) in case of a default in payment, upon the
date on which such default is cured or waived, and (b) in the case of a default
other than in payment, the earlier of the date on which such default is cured or
waived or 182 days after the date on which the applicable Default Notice is
received, unless the maturity of any Superior Indebtedness has been accelerated.
This Senior Subordinated Note has been issued by the Company and is on a
parity and equality in all respects with other Senior Subordinated Notes issued
and hereafter issued, except with respect to maturity and rate of interest of
such Senior Subordinated Notes. The holder of this Note by accepting the same,
agrees that while any Senior and/or Superior Indebtedness, including Senior
Subordinated Notes is outstanding, he will not make any demands for payment of
the principal of the debt evidenced hereby, or bring or maintain any action to
enforce payment of the principal of this Note; however, nothing contained herein
shall prevent the Company from paying the principal on the Note at maturity
hereof, provided the Company is not in default in payment of Superior
Indebtedness.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its seal.
STANDARD FUNDING CORP.
By: /s/ Alan J. Karp
--------------------------
Alan J. Karp
President
Dated: July 8, 1998
2
Exhibit 10.47
<PAGE>
REVOLVING CREDIT AGREEMENT
dated as of January 14, 1998
among
STANDARD FUNDING CORP., as Borrower,
and
MELLON BANK, N.A., as Administrative Agent,
THE BANK OF NEW YORK, as Documentation Agent.
and
THE FINANCIAL INSTITUTIONS PARTY HERETO
<PAGE>
REVOLVING CREDIT AGREEMENT (the "Agreement") dated as of January 14,
1998 among STANDARD FUNDING CORP., a corporation organized under the laws of the
State of New York (the "Borrower"), MELLON BANK, N.A., a national banking
association, as administrative agent (in such capacity, the "Agent"), THE BANK
OF NEW YORK, a New York banking corporation, as documentation agent (in such
capacity, the "Documentation Agent"), and the financial institutions that are
listed on the signature pages hereto (the "Banks").
WHEREAS, the Borrower has requested the Banks to extend credit to
the Borrower from time to time and the Banks are willing to extend such credit
in accordance with the terms of this Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1.
DEFINITIONS; ACCOUNTING TERMS
Section 1.1. Definitions.
As used in this Agreement the following terms have the following
meanings (terms defined in the singular to have a correlative meaning when used
in the plural and vice versa):
"Acquisition" means any transaction pursuant to which the Borrower
or any of its Subsidiaries (a) acquires equity securities (or warrants, options
or other rights to acquire such securities) of any Person other than any Person
which is a Subsidiary of the Borrower, pursuant to a solicitation of tenders
therefor, or in one or more negotiated block, market or other transactions not
involving a tender offer, or a combination of any of the foregoing, or (b) makes
any Person a Subsidiary of the Borrower, or causes any such Person to be merged
into the Borrower or any of its Subsidiaries, in any case pursuant to a merger,
a purchase of assets or any reorganization providing for the delivery or
issuance to the holders of such Person's then-outstanding securities, in
exchange for such securities, of cash or securities of the Borrower or any of
its Subsidiaries, or a combination thereof, or (c) purchases all or
substantially all of the business or assets of any Person.
"Additional Costs" has the meaning given to such term in Article 4
hereof.
"Admitted Insurer" means an insurance company licensed in the State
of New York or an insurance company covered by its respective state's guarantee
fund with policy recovery terms which (x) allow for reimbursements to be
directed to the applicable premium finance company and (y) are otherwise
acceptable to each of the Banks.
"Affiliate" means any Person: (a) which directly or indirectly
controls, or is controlled by, or is under common control with, the Borrower;
(b) which directly or indirectly beneficially owns or holds 5% or more of any
class of voting stock of the Borrower; (c) 5% or more of the voting stock or
other voting interests of which is directly or indirectly beneficially
1
<PAGE>
owned or held by Borrower; or (d) which is a partnership in which the Borrower
is a general partner. The term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract, or otherwise.
"Agent" means Mellon Bank, N.A., or its successors or assigns.
"Aggregate Outstandings" means, at a particular time, the aggregate
outstanding principal amount of all Revolving Credit Loans hereunder plus the
aggregate principal amount of all Swing Line Loans hereunder plus the aggregate
outstanding principal balance of all loans listed on Schedule 5.1.
"Agreement" means this Agreement, as amended or supplemented from
time to time. References to Articles, Sections, Exhibits, Schedules and the like
refer to the Articles, Sections, Exhibits, Schedules and the like of this
Agreement, unless otherwise indicated.
"Alternate Base Rate" means the rate of interest determined by the
Agent to be the higher of (i) the Federal Funds Rate plus 1/2 of 1% per annum or
(ii) the Prime Rate.
"Amortization" means amortization as determined in accordance with
GAAP.
"Applicable Percentage" means (a) ninety percent (90%) in respect of
all Eligible Accounts Receivable which are not more than 30 days past due and
sixty percent (60%) in respect of all Eligible Accounts Receivable which are
more than 30 but not more than 60 days past due and (b) eighty percent (80%) in
respect of all Non-Conforming Eligible Accounts Receivable which are not more
than 30 days past due and sixty percent (60%) in respect of all Non-Conforming
Eligible Accounts Receivable which are more than 30 but not more than 60 days
past due.
"Banking Day" means a day on which banks are not required or
authorized by law or executive order to close in New York City and, in the
context of LIBOR Loans, such a day on which dealings are carried on in the
London interbank market.
"Banks" means, at any time, each of the financial institutions that
has executed this Agreement as a Bank, and any of their permitted assigns
pursuant to Section 12.5 hereof.
"Base Rate Loan" means any Loan when and to the extent the interest
rate therefor is determined on the basis of the Alternate Base Rate.
"Borrowing Base" means, at any time, (A) the Applicable Percentage
of all Eligible Accounts Receivable, plus (without duplication) the Applicable
Percentage of all Non-Conforming Eligible Accounts Receivable (in each case,
after deduction of any unearned interest or any receivables, to the extent that
the Borrower has sold participations therein, but without giving effect to any
allowance for bad debts) minus (B) the aggregate outstanding principal amount of
all commercial paper issued by the Borrower minus (C) amounts payable by the
2
<PAGE>
Borrower to insurance companies in connection with insurance premiums financed
by the Borrower minus (D) the aggregate outstanding principal amount of all
extensions of credit to the Borrower (other than the Loans) minus (E) amounts
due by the Borrower under or in connection with the Borrower's participation
programs.
"Borrowing Base Certificate" means a certificate signed by the Chief
Executive Officer or the Chief Financial Officer of the Borrower in the form of
Exhibit B hereto with such changes as the Agent may require from time to time.
"Capital Expenditures" means the sum of (a) expenditures for any
fixed assets or improvements, replacements, substitutions, or additions thereto
which would be treated as capital expenditures in accordance with GAAP and (b)
the portion of all payments with respect to Capital Leases which are required to
be capitalized on the balance sheet of the lessee in accordance with GAAP.
"Capital Funds" means, at any time, the sum of Tangible Net Worth
plus the aggregate outstanding principal balance of Subordinated Debt.
"Capital Lease" means any lease which is required to be capitalized
on the balance sheet of the lessee in accordance with GAAP.
"Change in Control" means the occurrence of any of the following
events: (i) if at any time at least 30% of the voting stock of the Borrower, on
a fully diluted basis, is not owned directly or beneficially by Alan Karp and/or
David Fisher in the aggregate; (ii) if the continuing directors of the Borrower
(consisting of the Board of Directors on the Closing Date (the "Current Board")
and any directors either nominated by Alan Karp or David Fisher or whose
election was approved by a majority of the Current Board or whose election was
approved by Alan Karp and/or David Fisher) shall not constitute a majority of
the Board of Directors of the Borrower; (iii) if, at any time, at least 30% of
the voting stock of the Borrower is acquired by a person or group acting in
concert other than Alan Karp and David Fisher; or (iv) if both Alan Karp and
David Fisher cease to be employed by the Borrower for any reason.
"Closing Date" means January 14, 1998.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Commitment" means, with respect to each Bank, the obligation of
such Bank to extend credit to the Borrower hereunder and, subject to the terms
hereof, in the aggregate amounts set forth opposite its name on the signature
pages hereto.
"Commitment Fee" means the fees payable by the Borrower to the Banks
pursuant to Section 3.3 hereof.
"Commitment Proportion" means, with respect to each Bank at the time
of determination, that proportion that its Commitment bears to the Total
Commitment.
3
<PAGE>
"Debt" means with respect to any Person: (a) indebtedness of such
Person for borrowed money; (b) indebtedness for the deferred purchase price of
property or services; (c) Unfunded Vested Liabilities of such Person; (d) the
face amount of any outstanding letters of credit issued for the account of or
upon the application of such Person or any reimbursement obligation of such
Person in respect of any such letter of credit; (e) obligations arising under
acceptance facilities; (f) guaranties, endorsements (other than for deposit or
collection in the ordinary course of business) and other contingent obligations
to purchase, to provide funds for payment, to supply funds to invest in any
Person, or otherwise to assure a creditor against monetary loss; (g) obligations
secured by any Lien on property of such Person; (h) obligations of such Person
as lessee under Capital Leases; (i) indebtedness of such Person evidenced by a
note, bond, indenture or similar instrument; and (j) obligations of any
partnership in which such Person is a general partner.
"Default" means any event which with the giving of notice or lapse
of time, or both, would become an Event of Default.
"Default Rate" means a rate per annum equal to 2% plus the rate of
interest otherwise (assuming no Event of Default has occurred and is continuing)
applicable to the relevant Loan.
"Dividends" means, for any period, dividends paid by the applicable
Person.
"Dollars" and the sign "$" mean lawful money of the United States of
America.
"Eligible Accounts Receivable" means those accounts receivable of
the Borrower (other than Non-Conforming Eligible Accounts Receivable) which
satisfy each of the following criteria:
i. Such account receivable is created in connection with an insurance
premium finance contract which satisfies all of the following
criteria:
a. Such insurance premium finance contract is in full force and
effect;
b. Such insurance premium finance contract constitutes a legal,
valid and binding obligation of a U.S. resident other than a
governmental entity;
c. Such insurance premium finance contract is enforceable in
accordance with its terms and is not subject to any defense,
offset or counterclaim;
d. Such insurance premium finance contract is denominated in U.S.
Dollars;
e. Such insurance premium finance contract relates to one or more
insurance policies and has a term of not more than (x) one
year or (y) if written by insurers with an A.M. Best Rating of
A- or better, 30 months;
4
<PAGE>
f. Such insurance premium finance contract requires either (x)
even monthly installment payments, commencing not more than 60
days from execution, (y) even quarterly installment payments,
commencing not more than 90 days from execution or (z) other
amortization, provided that the aggregate amount of the
accounts receivable of the Borrower relating to all insurance
premium finance contracts referred to in this clause (z) does
not exceed 10% of all accounts receivable of the Borrower;
g. Such insurance premium finance contract required a minimum
down payment of not less than:
1. If such insurance premium finance contract requires even
monthly installment payments commencing within one month
from execution, 15% of the insurance premiums being
financed thereunder (or such other down payment as is
sufficient to provide an unearned premium which would
repay the outstanding principal amount of the related
premium finance loan upon cancellation of the underlying
insurance policy);
2. If such insurance premium finance contract requires even
monthly installment payments commencing more than one
month but within 60 days from execution, 25% of the
insurance premiums being financed thereunder (or such
other down payment as is sufficient to provide an
unearned premium which would repay the outstanding
principal amount of the related premium finance loan
upon cancellation of the underlying insurance policy);
3. If such insurance premium finance contract requires even
quarterly installment payments commencing not more than
90 days from execution, 30% of the insurance premiums
being financed thereunder (or such other down payment as
is sufficient to provide an unearned premium which would
repay the outstanding principal amount of the related
premium finance loan upon cancellation of the underlying
insurance policy); and
4. In all other cases, such down payment as is sufficient
to provide an unearned premium which would repay the
outstanding principal amount of the related premium
finance loan upon cancellation of the underlying
insurance policy; and
h. Such insurance premium finance contract is otherwise
satisfactory in form and substance to the Agent; and
ii. Such account receivable is not more than 60 days past due.
5
<PAGE>
In computing Eligible Accounts Receivable, certain accounts,
including but not limited to, the following will be excluded:
a. All accounts receivable in connection with insurance premium
finance contracts with a term of more than one year but less
than 30 months, to the extent the aggregate amount of all such
accounts receivable is in excess of 10% of the aggregate
amount of all accounts receivable of the Borrower;
b. The amounts due under one or more insurance premium finance
contracts with the same person or entity to the extent that
such amounts exceed 2% of the premiums due under all insurance
premium finance contracts;
c. In respect of all insurers (a) which wrote the related
insurance policies, (b) which are Admitted Insurers and (c)
which are rated by A.M. Best below B+ or are unrated, the
amount of all accounts receivable which relate to such
insurance policies to the extent in excess of 15% of all
accounts receivable of the Borrower;
d. In respect of all insurers which are not Admitted Insurers,
the amount of all accounts receivable which relate to
insurance policies written by such insurers to the extent in
excess of (a) if such insurer has an A.M. Best rating of A- or
better, 10% of all accounts receivable of the Borrower and (b)
if such insurer has an A.M. Best rating below A- or is
unrated, 5% of all accounts receivable of the Borrower;
e. The aggregate amount of all accounts receivable which relate
to any one insurance company which is an Admitted Insurer to
the extent in excess of (a) if such insurance company has an
A.M. Best rating of A- or better, 25% of the aggregate amount
of all such accounts receivable, (b) if such insurance company
has an A.M. Best rating of B+ or B++, 10% of the aggregate
amount of all such accounts receivable and (c) if such
insurance company has an A.M. Best rating below B+ or is
unrated, 3.5% of the aggregate amount of all such accounts
receivable; and
f. The aggregate amount of all accounts receivable which relate
to any one insurance company which is not an Admitted Insurer
to the extent in excess of 3.5% of the aggregate amount of all
such accounts receivable.
"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes into the
environment, including, without limitation, ambient air, surface water, ground
water, or land, or otherwise relating to the
6
<PAGE>
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants, chemicals, or industrial,
toxic or hazardous substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, including any rules and regulations promulgated
thereunder.
"ERISA Affiliate" means any corporation or trade or business which
is a member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as the Borrower or is under common control (within
the meaning of Section 414(c) of the Code) with the Borrower.
"Event of Default" has the meaning given such term in Section 10.1
hereof.
"Eurocurrency Reserve Requirements" means, with respect to each
Interest Period for each LIBOR Loan, the aggregate of the maximum rates
(expressed as a percentage and rounded upward, if necessary, to the nearest
1/100 of 1%) of reserve requirements current on the date two Banking Days prior
to the beginning of such Interest Period (including, without limitation, basic,
supplemental, marginal and emergency reserves under any regulations of the Board
of Governors of the Federal Reserve System or other governmental authority
having jurisdiction with respect thereto), as now and/or from time to time
hereafter in effect, dealing with reserve requirements prescribed for
eurocurrency funding maintained by any Bank.
"Facility Documents" means this Agreement, the Notes, the
Guarantees, and all other agreements, documents and instruments executed in
connection herewith or therewith including, but not limited to, all documents
and instruments executed by the Borrower or any Guarantor in favor of the Agent
or any Bank in connection with this Agreement and the Loans made hereunder.
"Federal Funds Rate" means, for any day, the rate per annum equal to
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 Banking Day, for the next
preceding Banking Day) by the Federal Reserve Bank of New York, or, if such rate
is not so announced or published for any day which is a Banking Day, the Federal
Funds Rate for the last day on which such rate was announced or published.
"Forfeiture Proceeding" means the commencement of any action or
proceeding by any governmental authority affecting the Borrower or any of the
Guarantors before any court, governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, which would result in the
seizure or forfeiture of any of their property.
"GAAP" means generally accepted accounting principles in the United
States of America, as in effect from time to time, consistently applied with
respect to the financial statements of the Borrower, its Subsidiaries and
Affiliates or any Guarantor which are the subject of Section 6.5 hereof, subject
to any changes that are required by changes in generally accepted accounting
principles after the date of this Agreement.
7
<PAGE>
"Guarantees" means the guarantees to be delivered on the Closing
Date to the Banks by each of the Guarantors and the guarantees to be delivered
to the Banks from time to time hereafter by Persons that become Guarantors
subsequent to the Closing Date, all in the form(s) attached hereto as Exhibit C.
"Guarantors" means all now existing (if any) or hereafter created
Subsidiaries of the Borrower.
"Hazardous Substance" or "Hazardous Substances" means any material,
including, without limitation, raw, processed or waste by-product materials,
which in itself or as found or used, is toxic, noxious or harmful to the health
or safety of human or animal life or vegetation, regardless of whether such
material be found on or below the surface of the ground, in any surface or
underground water, or airborne in ambient air or in the air inside of any
structure built or located upon or below the surface of the ground, or in any
machinery, equipment or inventory located or used in any such structure,
including, but in no event limited to, all hazardous materials, hazardous
wastes, toxic substances, infectious wastes, pollutants and contaminants from
time to time defined or classified as such under any Environmental Law,
regardless of the quantity found, used, manufactured or removed from a given
location.
"Interest Coverage Ratio" means the ratio of (i) the sum of (A)
Pre-Tax Income plus (B) Interest Expense plus (C) cash dividends on capital
stock of the Borrower to (ii) the sum of (A) Interest Expense plus (B) cash
dividends on the capital stock of the Borrower.
"Interest Expense" means, for a particular period, the interest
expense of the Borrower and its Subsidiaries, if any, as reflected on its
financial statements for such period, calculated in accordance with GAAP.
"Interest Period" means the period commencing on the date of making,
renewal or conversion of a Revolving Credit Loan to a LIBOR Loan and expiring
one, three or six months thereafter, as designated by the Borrower in the notice
given to the Agent under Section 2.4 hereof; provided that,
(a) the initial Interest Period for any LIBOR Loan shall
commence on the date of the making of such Loan (including the date of any
conversion from a Base Rate Loan) and each Interest Period occurring
thereafter in respect of such Loan shall commence on the date on which the
next preceding Interest Period expires;
(b) if any Interest Period would otherwise expire on a day
which is not a Banking Day, such Interest Period shall expire on the next
succeeding Banking Day, provided, however, that if any Interest Period
would otherwise expire on a day which is not a Banking Day but is a day of
a calendar month after which no further Banking Day occurs (in such
month), such Interest Period shall expire on the next preceding Banking
Day;
8
<PAGE>
(c) no Loan shall be continued as or converted to a LIBOR Loan
if at the time of any such continuation or conversion a Default or an
Event of Default exists; and
(d) no Interest Period shall extend beyond the Termination
Date.
"Lending Office" means, for each Bank and for each type of Loan, the
lending office of such Bank (or of an affiliate of such Bank) designated as such
for such type of Loan on its signature page hereof or such other office of such
Bank (or of an affiliate of such Bank) as such Bank may from time to time
specify to the Agent as the office by which its Loans are to be made and
maintained.
"LIBOR" shall mean, with respect to any Interest Period, the rate
per annum equal to the arithmetic mean (rounded upwards to the nearest 1/16 of
1%) of the offered rates for deposits of Dollars for a period equal to such
Interest Period which appear on the Reuters Screen LIBO Page at approximately
11:00 a.m. London time (or as soon thereafter as practicable) on the date two
Business Days prior to the first day of such Interest Period.
"LIBOR Loan" means any Loan when and to the extent the interest rate
therefor is determined on the basis of the Reserve Adjusted LIBOR Rate.
"Lien" means any lien (statutory or otherwise), security interest,
mortgage, deed of trust, priority, pledge, charge, conditional sale, title
retention agreement, Capital Lease or other encumbrance or similar right of
others, or any agreement to give any of the foregoing.
"Loan" means any Revolving Credit Loan or Swing Line Loan.
"Loan Concentration Ratio" means, at any time, the ratio of (i)
loans made by the Borrower to finance insurance premiums and generated by any
single broker or agent to (ii) all loans made by the Borrower to finance
insurance premiums.
9
<PAGE>
"Margin" means, for LIBOR Loans, the following:
Borrower's Senior Leverage Ratio
<TABLE>
<CAPTION>
Greater than or equal
Borrower's Interest to 2.0:1.0 but less Greater than or equal
Coverage Ratio: Less than 2.0:1.0 than 3.25:1.0 to 3.25:1.0
--------------- ----------------- ------------- -----------
<S> <C> <C> <C>
Greater than 2.0:1.0 0.95 1.05 1.15
Greater than 1.5:l.0 but
less than or equal to 2.0:1.0 1.05 1.10 1.20
less than or equal to 1.10 1.15 1.25
1.5:1.0
</TABLE>
The Margin will be set on the day which is 5 Banking Days following the receipt
by the Agent of the financial statements referenced in Section 7.8(a) or Section
7.8(b) hereof; as the case may be, and shall apply to all LIBOR Loans (i.e., new
or additional LIBOR Loans, or LIBOR Loans which are continuations or
conversions) to be made on or after such date until, but not including, the next
date on which the Margin is reset in accordance with the provisions hereof;
provided, however, that if any financial statements are not received by the
Agent within the time period relating to such financial statements as provided
in Section 7.8(a) or Section 7.8(b) hereof; as the case may be, the Margin on
all LIBOR Loans to be made on or after the date the Margin should have been
reset in accordance with the foregoing provisions (i.e., assuming timely
delivery of the requisite financial statements), until but excluding the day
which is 5 Banking Days following the receipt by the Agent of such financial
statements, will be 1.25%; and further provided. however, that the Banks shall
not in any way be deemed to have waived any Event of Default or any of their
remedies hereunder (including, without limitation, remedies provided in Article
10 hereof) in connection with the provisions of the foregoing proviso.
"Material Adverse Effect" means any material adverse effect upon (i)
the business, properties, assets, prospects or condition (financial or
otherwise) of the Borrower or of the Borrower and the Guarantors taken as a
whole, (ii) the ability of the Borrower or any Guarantor to perform its
obligations hereunder or under any Facility Document or (iii) the validity or
enforceability of any Facility Document.
"Money Purchase Plan" means the Standard Funding Corp. Money
Purchase Plan established effective January 1, 1982 and frozen on December 28,
1990.
"Multiemployer Plan" means a Plan defined as such in Section
4001(a)(3) of ERISA to which contributions have been made by the Borrower or any
ERISA Affiliate and which is covered by Title IV of ERISA.
10
<PAGE>
"Non-Conforming Eligible Accounts Receivable" means accounts
receivable of the Borrower (other than Eligible Accounts Receivable) which
satisfy all requirements of the definition of "Eligible Accounts Receivable"
other than the requirement set forth with respect to minimum down payments set
forth in subclause (g) of the definition of "Eligible Accounts Receivable". For
purposes hereof, a "Non-Conforming Eligible Account Receivable" shall become an
"Eligible Account Receivable" simultaneously with the Borrower submitting a
Borrowing Base Certificate together with evidence satisfactory to the Agent that
the unearned premium with respect to the insurance policy to which such account
relates is sufficient to repay the then outstanding principal balance of the
related insurance premium finance loan upon cancellation of the related
insurance policy. Notwithstanding any other provision of this Agreement, for
purposes of inclusion in the Borrowing Base the aggregate amount of
Non-Conforming Eligible Accounts Receivable shall not exceed $1,000,000 at any
time.
"Note" means any Revolving Credit Note or Swing Line Loan Note.
"Obligations" means all of the obligations of the Borrower or any
Guarantor to the Banks under or in relation to this Agreement, the Notes, the
Guarantees or any of the other Facility Documents, as such agreements, documents
and instruments are originally executed or as modified, amended, restated,
supplemented or extended from time to time, and all obligations of the Borrower
or any Guarantor to the Banks arising out of any extension, refinancing or
refunding of any of the foregoing obligations, whether such obligations are now
existing or hereafter acquired or arising, direct or indirect, joint or several,
absolute or contingent, due or to become due, matured or unmatured, liquidated
or unliquidated, arising by contract, operation of law or otherwise.
"Operating Income" means, with respect to a particular Person for a
particular period, such Person's operating income for such period determined or
calculated in accordance with GAAP as reflected on such Person's financial
statements.
"Palitz Agreement" means that certain Note Agreement, dated December
27, 1995, by and between the Borrower and Bernard G. Palitz, relating to
$3,000,000 14% Senior Subordinated Notes due December 27, 2000.
"Payment Office" means, with respect to the Agent for payments in
Dollars, such account at such bank or office in New York City or Philadelphia as
the Agent shall designate by notice to the Person required to make the relevant
payment.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Permitted Investments" means any of the following investments: (i)
obligations issued or guaranteed by states or municipalities within the United
States of America; (ii) obligations issued or guaranteed by the United States of
America or any agency or subdivision thereof; (iii) certificates of deposit,
time deposits, Eurodollar certificates of deposit, bankers acceptances and other
"money market instruments" issued by any bank, trust company or
11
<PAGE>
financial institution organized under the laws of the United States of America
or any state thereof having capital and surplus in an aggregate amount not less
than $1,000,000,000; (iv) commercial paper rated at least Prime-1 by Moody's
Investors Service, Inc. or A-1 by Standard & Poors Corporation; (v) securities
issued by money market funds with assets of $2,500,000,000 or more, and (vi)
repurchase agreements with terms of not more than seven days entered into with
any bank, trust company or financial institution organized under the laws of the
United States of America or any state thereof having capital and surplus in an
aggregate amount not less than $1,000,000,000 and relating to any of the
obligations referred to in clauses (i), (ii), (iii) above; in each maturing or
being due or payable in full not more than one year after the acquisition
thereof such entity.
"Permitted Liens" means those certain Liens defined in Section 8.2
hereof.
"Person" means an individual, partnership, corporation, limited
liability company or partnership, business trust, joint stock company, trust,
unincorporated association, joint venture, governmental authority or other
entity of whatever nature.
"Plan" means any employee benefit or other plan established or
maintained, or to which contributions have been made, by the Borrower or any
ERISA Affiliate and which is covered by Title IV of ERISA or to which Section
412 of the Code applies, provided that such term shall not include plans
terminated under Title IV of ERISA more than six (6) years prior to the date
hereof, and such term shall not include the Money Purchase Plan for any period
during which it is frozen and no contributions are required to be made under
Section 412 of the Code.
"Pre-Tax Income" means, for a particular period, the net income of
the Borrower and its Subsidiaries, if any, for such period calculated before
payment of any federal or state income taxes, determined in accordance with
GAAP.
"Prime Rate" means that rate of interest most recently publicly
announced from time to time by the entity which is the Agent as its prime rate
or equivalent commercial lending rate.
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System as the same may be amended or supplemented from time to
time.
"Regulatory Change" means, with respect to any Bank, any change
after the Closing Date in United States federal, state, municipal or foreign
laws or regulations (including Regulation D) or the adoption or making after
such date of any interpretations, directives or requests applying to a class of
banks including such Bank under any United States, federal, state, municipal or
foreign laws or regulations (whether or not having the force of law) by any
court or governmental or monetary authority charged with the interpretation or
administration thereof.
"Reportable Event" means any of the events set forth in Section
4043(b) of ERISA as to which events the PBGC by regulation has not waived the
requirement of Section 4043(a) of ERISA that it be notified within 30 days of
the occurrence of such event.
12
<PAGE>
"Required Banks" means, at any time, with respect to any decisions
to be made by the Banks hereunder, Banks having at least 66-2/3% of the
aggregate of the Commitments hereunder.
"Reserve Adjusted LIBOR Rate" means, with respect to the Interest
Period for each LIBOR Loan, the rate per annum (rounded upwards to the nearest
whole multiple of 1/100th of one percent) equal to the following:
LIBOR
---------------------------------
1.00 - Eurocurrency Reserve Requirements.
"Revolving Credit Loan" has the meaning set forth in Section 2.1
hereof.
"Revolving Credit Note" means a promissory note of the Borrower
evidencing Revolving Credit Loans substantially in the form of Exhibit A hereto,
as such note may be amended, modified, supplemented or replaced from time to
time.
"Senior Leverage Ratio" means, at any time, the ratio of (I) Total
Liabilities less Subordinated Debt to (ii) the sum of (A) Tangible Net Worth
plus (B) the aggregate outstanding principal balance (net of any original issue
discount) of all Subordinated Debt.
"Solvent" means when used with respect to any Person on a particular
date, that on such date: (a) the fair saleable value of its assets is in excess
of the total amount of its liabilities, including, without limitation, the
reasonably expected amount of such Person's obligations with respect to
contingent liabilities, (b) the present fair saleable value of the assets of
such Person is not less than the amount that will be required to pay the
probable liability of such Person on its Debts as they become absolute and
matured, (c) such Person does not intend to, and does not believe that it will,
incur Debts or liabilities beyond such Person's ability to pay as such Debts and
liabilities mature and (d) such Person is not engaged in business or a
transaction for which such Person's property would constitute an unreasonably
small capital.
"Subordinated Debt" means the indebtedness described on Schedule 1.1
hereto and any additional indebtedness incurred by the Borrower or any of its
Subsidiaries, if any, which is subordinated to the Borrower's indebtedness
hereunder on terms of subordination and repayment satisfactory to the Required
Banks.
"Subsidiary", with respect to any Person, means any corporation or
other entity of which at least a majority of the securities or other ownership
interests having ordinary voting power (absolutely or contingently) for the
election of directors or other persons performing similar functions are, at the
relevant time, owned directly or indirectly by such Person.
"Swing Line Loan Commitment" means $1,000,000, as such amount may be
reduced in accordance to Section 2.9 hereof.
13
<PAGE>
"Swing Line Loans" means the loans made by the Agent to the Borrower
pursuant with Section 2.9 hereof.
"Swing Line Loan Note" means the promissory note of the Borrower in
favor of the Agent evidencing the Swing Line Loans and substantially in the form
of Exhibit D hereto as such promissory note may be amended, modified,
supplemented, or replaced from time to time.
"Tangible Net Worth" means, at a particular date, the excess of
Total Assets over Total Liabilities which would, in conformity with GAAP, be
included under shareholders' equity on a balance sheet of the Borrower and its
Subsidiaries, if any, less all intangible assets, including, without limitation,
organizational expenses, patents, trademarks, service marks, copyrights,
goodwill, covenants not to compete and research and development costs as at such
date.
"Taxes" means any present or future income, stamp or other taxes,
levies, imposts, duties, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any governmental
or taxing authority of any jurisdiction, excluding, in the case of each Bank,
income taxes and franchise taxes, or taxes on the overall capital or net worth
of such Bank or any of its branches, affiliates or lending offices, imposed on
such Bank as a result of a present or former connection between the jurisdiction
of the government or the taxing authority imposing such tax and such Bank
(excluding a connection arising solely from such Bank having executed,
delivered, or performed its obligations or received a payment under, or
enforced, this Agreement, the Notes or the other Facility Documents) or any
political subdivision or taxing authority thereof or therein.
"Termination Date" means the earlier to occur of (a) the date on
which the Commitments shall terminate hereunder and (b) December 30, 2000.
"Total Assets" means, at a particular date, all amounts which would,
in conformity with GAAP, be included as assets on a balance sheet of the
Borrower and its Subsidiaries, if any, as at such date.
"Total Commitments" means, at any time, the aggregate of the
Commitments in effect at such time.
"Total Leverage Ratio" means, at any time, the ratio of (i) Total
Liabilities to (ii) Tangible Net Worth.
"Total Liabilities" means, at a particular date, all amounts which
would, in conformity with GAAP, be included as liabilities on a balance sheet of
the Borrower and its Subsidiaries, if any, as at such date.
"Unfunded Vested Liabilities" means, with respect to any Plan, the
amount (if any) by which the present value of all vested benefits under such
Plan exceeds the fair market value of all Plan assets allocable to such
benefits, as determined on the most recent valuation
14
<PAGE>
date of such Plan and in accordance with the provisions of ERISA for calculating
the potential liability of the Borrower or any ERISA Affiliate to the PBGC or
such Plan under Title IV of ERISA.
"Up Front Fee" has the meaning given to such term in Section 3.4
hereof. Section 1.2. Accounting Terms.
All accounting terms not specifically defined herein shall be
construed in accordance with GAAP, and all financial data required to be
delivered hereunder shall be prepared in accordance with GAAP.
ARTICLE 2.
REVOLVING CREDIT FACILITY
Section 2.1. Revolving Credit Loans.
Subject to the terms and conditions of this Agreement, each of the
Banks severally agrees, upon request by the Borrower, to make loans to the
Borrower (each such loan being a "Revolving Credit Loan") from time to time on
any Banking Day during the period from the date hereof to but excluding the
Termination Date; provided, however, that no Revolving Credit Loan shall be made
if, after giving effect to such Revolving Credit Loan, the Aggregate
Outstandings at the time of such Revolving Credit Loan would exceed the lesser
of (i) the Total Commitments or (ii) the Borrowing Base as in effect on such
date. The Revolving Credit Loans may be outstanding as Base Rate Loans or LIBOR
Loans, provided, however, that during the occurrence and continuance of an Event
of Default, the Borrower may not elect and the Banks shall have no obligation to
make LIBOR Loans. All Revolving Credit Loans shall be made by the Banks, on a
pro rata basis, in accordance with their respective Commitment Proportions.
Subject to the foregoing limits, the Borrower may borrow, repay and reborrow all
or a portion of the Commitments hereunder. Any amount of any Revolving Credit
Loan not paid when due (at maturity, by acceleration or otherwise) shall bear
interest thereafter until paid at the Default Rate.
Section 2.2. The Revolving Credit Notes.
The Revolving Credit Loans of each Bank shall be evidenced by a
single promissory note in favor of such Bank with appropriate insertions duly
executed by the Borrower. Each Bank is hereby authorized to record the date and
amount of each Revolving Credit Loan, the date and amount of each payment of
principal thereof; the principal amount subject thereto and the interest rate
with respect thereto in such Bank's records or on schedules annexed to and
constituting a part of its Revolving Credit Note, and absent, manifest error,
any such recordation shall constitute conclusive evidence of the information so
recorded; provided that the failure to make such recordation shall not in any
way affect the obligation of the Borrower to repay the Revolving Credit Loans.
Each Revolving Credit Note (a) shall be dated the date hereof, (b) shall be
stated to mature on the Termination Date and (c) shall bear interest on the
unpaid principal amount thereof from time to time as provided herein.
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<PAGE>
Section 2.3. Use of Proceeds.
The Borrower shall use the proceeds of the Loans (i) on the date of
this Agreement, to repay existing indebtedness and (ii) for general working
capital purposes. No part of the proceeds of any of the Loans will be used for
any purpose which violates the provisions of Regulation G, T, U or X of the
Board of Governors of the Federal Reserve System as in effect on the date of
making such Loans.
Section 2.4. Borrowing Procedure for Revolving Credit Loans.
(a) Each Revolving Credit Loan shall be, at the option of the
Borrower, either a Base Rate Loan or a LIBOR Loan. The Borrower shall give the
Agent (i) at least three Banking Days irrevocable telephonic notice of each
LIBOR Loan (whether representing an additional borrowing hereunder, a conversion
of a borrowing hereunder from a Base Rate Loan to a LIBOR Loan, or a
continuation of such Revolving Credit Loan as a LIBOR Loan for an additional
Interest Period) prior to 12:00 p.m., New York, New York time on the day any
such notice is given (the "LIBOR Notice"), and (ii) irrevocable telephonic
notice of each Base Rate Loan (whether representing an additional borrowing
hereunder or the conversion of an existing LIBOR Loan to a Base Rate Loan at the
end of the Interest Period with respect to such LIBOR Loan) prior to 12:00 p.m.,
New York, New York time on the day of the proposed Base Rate Loan (the "Base
Rate Loan Notice"). Each such notification, which shall be effective only upon
receipt thereof by the Agent, shall specify the amount of the borrowing, the
type of Revolving Credit Loan (i.e., Base Rate Loan or LIBOR Loan), the date of
the proposed borrowing, whether any such Revolving Credit Loan represents an
additional borrowing, a conversion or a continuation as referenced above, and,
in the case of a LIBOR Loan, the Interest Period to be used in the computation
of interest with respect thereto. The Borrower shall provide the Agent with
written confirmation of each such telephonic notice on the same day by
telefacsimile transmission in such form as shall be reasonably acceptable to the
Agent. Notice of receipt of any such notice by the Agent shall be provided by
the Agent to each Bank by telephone with reasonable promptness but, assuming
receipt by the Agent of any such notice prior to 12:00 p.m., New York, New York
time on a Banking Day, by no later than 1:00 p.m., New York, New York time on
the same day as the Agent's receipt of any such notice.
(b) Each Bank will make its Commitment Proportion of each borrowing
available to the Agent at the Payment Office by 2:00 p.m. (New York City time),
on the date for such Borrowing by payment in Dollars and in immediately
available funds. Unless any applicable condition specified in Article 5 hereof
has not been satisfied, the amounts so received by the Agent will be made
available to the Borrower at such Payment Office by crediting the account of
such Borrower with such amounts and in like funds as received by the Agent;
provided, however, that if the proceeds of any borrowing or any portion thereof
are to be used to prepay outstanding Loans, then the Agent shall apply such
proceeds for such purpose to the extent necessary and credit the balance, if
any, to the Borrower's account.
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<PAGE>
Section 2.5. Minimum Amounts of Revolving Credit Loans.
Except for borrowings which involve or utilize the full remaining
amount of the Commitments and payments which result in the prepayment of all
Base Rate Loans, each borrowing and payment of Base Rate Loans shall be in an
amount at least equal to $500,000 and, if greater, integral multiples of
$100,000 in excess thereof. Each borrowing of LIBOR Loans shall be in an amount
at least equal to $1,000,000 and, if greater, in integral multiples of
$1,000,000 in excess thereof.
Section 2.6. Interest Period Elections for Borrowings.
(a) The Borrower with respect to any outstanding Revolving Credit
Loan consisting of LIBOR Loans may, upon notice to the Agent in accordance with
Section 2.6(b), but subject to the provisions of Section 2.1 hereof, elect to
specify a new Interest Period for such borrowing, which Interest Period will
commence on the last day of the Interest Period applicable thereto (an "Election
Date").
(b) If a Borrower elects to specify a new Interest Period for any
borrowing of LIBOR Loans pursuant to Section 2.6(a), it shall give the Agent
written notice thereof to be received by the Agent not later than 12:00 p.m.
(New York City time) at least three Banking Days prior to the Election Date in
respect of such borrowing specifying:
(i) the borrowing to which such notice relates;
(ii) the Election Date; and
(iii) the duration of the requested Interest Period.
(c) If by the time set forth in Section 2.6(b), the Borrower has
failed to give timely notice of an Interest Period election for a LIBOR Loan,
such Revolving Credit Loan shall automatically convert to a Base Rate Loan at
the end of the applicable Interest Period.
(d) The Agent will promptly notify each Bank of the duration of each
new Interest Period applicable to each borrowing consisting of LIBOR Loans.
Section 2.7. Interest on Loans.
(a) Base Rate Loans. The Borrower shall pay interest on the
outstanding and unpaid principal amount of each Base Rate Loan made under this
Agreement at a fluctuating rate per annum equal to the Alternate Base Rate from
time to time in effect. Each change in the interest rate shall take effect
simultaneously with the corresponding change in the Base Rate. Interest shall be
calculated on the basis of the actual number of days elapsed divided by a year
of three hundred sixty (360) days and shall be paid to the Agent for the
accounts of the Banks in arrears on the first day of each month commencing
February 1, 1998, and on the Termination Date.
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(b) LIBOR Loans. The Borrower shall pay interest on the outstanding
and unpaid principal amount of each LIBOR Loan made under this Agreement at a
rate per annum equal to the Reserve Adjusted LIBOR Rate in effect with respect
thereto, plus the applicable Margin. Interest shall be calculated on the basis
of the actual number of days elapsed divided by a year of three hundred sixty
(360) days, and shall be paid to the Agent for the accounts of the Banks in
arrears on the last day of the Interest Period applicable to such LIBOR Loan;
provided, however, that if such Interest Period is longer than three months,
interest shall be paid on the last day of each three-month period following the
commencement of such Interest Period and on the last day of such Interest
Period.
(c) Default Interest. Notwithstanding any other provision of this
Section 2.7, during the occurrence and continuance of an Event of Default all
outstanding Loans hereunder shall bear interest at the Default Rate.
Section 2.8. Changes of Commitments.
(a) The Borrower shall have the right to reduce or terminate the
amount of unused Commitments at any time or from time to time prior to the
Termination Date, provided that: (i) the Borrower shall give five (5) days prior
written notice of each such reduction or termination to the Agent; and (ii) each
partial reduction shall be in an aggregate amount at least equal to $1,000,000
or, if greater, in integral multiples of $500,000 in excess thereof.
(b) The Commitments once reduced or terminated may not be
reinstated.
(c) Any reduction of Commitments pursuant to this Section 2.8 shall
be applied to reduce the Commitments of the Banks on a pro rata basis.
Section 2.9. Swing Line Loans.
(a) Swing Line Loan Commitment. Subject to the terms and conditions
set forth herein, the Agent agrees to make revolving loans to the Borrower in
Dollars from time to time from the date hereof to the Termination Date (each
such loan, a "Swing Line Loan" and collectively, the "Swing Line Loans");
provided that (i) the aggregate amount of the Swing Line Loans outstanding at
any one time shall not exceed the Swing Line Loan Commitment and (ii) the
Aggregate Outstandings at any one time may not exceed the lesser of (a) the
Total Commitments and (B) the Borrowing Base in effect on such date. The Swing
Line Loan Commitment may be reduced or terminated by the Agent, in its sole
discretion, upon three Business Days' notice to the Borrower. Prior to the
Termination Date, Swing Line Loans may be repaid and reborrowed by the Borrower
in accordance with the provisions hereof. Upon the request of any Bank, the
Agent shall provide such Bank a schedule of Swing Line Loans then outstanding.
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(b) Method of Borrowing Swing Line Loans. By no later than 12:00
noon, New York City time, on the date of the requested borrowing of a Swing Line
Loan, the Borrower shall give written notice (or telephonic notice promptly
confirmed in writing) to the Agent. Each such notice shall be irrevocable and
shall state (A) that a Swing Line Loan is requested, (B) the date of the
requested Swing Line Loan which shall be a Banking Day) and (C) the principal
amount of the Swing Line Loan requested. Each Swing Line Loan shall bear
interest at such rate and shall have such maturity date as the Agent and the
Borrower shall agree upon receipt by the Agent of any such notice from the
Borrower, provided, that the maturity date for any Swing Line Loan shall not in
any event be a date more than fourteen (14) Banking Days from the date such
Swing Line Loan is advanced or a date after the Termination Date.
(c) Payment and Participations of Swing Line Loans. The Borrower
agrees to repay all Swing Line Loans then outstanding within one Banking Day of
demand therefor by the Agent, which may be accomplished by the Borrower being
deemed to have requested a Revolving Credit Loan pursuant to Section 2.4 hereof.
In the event that the Borrower shall fail to repay any Swing Line Loan on demand
therefor by the Agent, and in any event upon (i) a request by the Agent, (ii) an
Event of Default described in Section 10.1(e) hereof or (iii) the acceleration
of any Note or termination of the Commitments pursuant to Article 10 hereof;
each Bank shall irrevocably and unconditionally purchase from the Agent, without
recourse or warranty, an undivided interest and participation in such Swing Line
Loan in an amount equal to such other Bank's Commitment Proportion thereof, by
directly purchasing a participation in such Swing Line Loan in such amount
(regardless of whether the conditions precedent thereto set forth in Section 5.2
hereof are then satisfied, whether or not the Borrower has requested a Revolving
Credit Loan and whether or not the Commitments are then in effect, any Event of
Default exists or all the Notes have been accelerated) and paying the proceeds
thereof to the Agent at its Payment Office, or at such other address as the
Agent may designate, in lawful money of the United States of America and in
immediately available funds. The Agent agrees to notify each Bank that is
obligated to purchase a participation in Swing Line Loans hereunder of the
occurrence of any event described in clause (ii) or (iii) above promptly after
the Agent becomes aware thereof; but the failure to give such notice will not
affect the obligation of any such Bank to purchase any such participation.
Provided that the Agent has provided notice to the Banks by 2:00 p.m., New York
City time, the Banks shall be obligated to purchase such participations on the
same Banking Day. If any such notice is delivered after 2:00 p.m., New York City
time, the Banks shall be obligated to purchase such participations on the next
succeeding Banking Day. If such amount is not in fact made available to the
Agent by any Bank, the Agent shall be entitled to recover such amount on demand
from such Bank together with accrued interest thereon for each day from the date
such amount is required to be paid, at the Federal Funds Rate. If such Bank does
not pay such amount as provided above, and until such time as such Bank makes
the required payment, the Agent shall be deemed to continue to have outstanding
Swing Line Loans in the amount of such unpaid participation obligation for all
purposes of the Facility Documents other than those provisions requiring the
Banks to purchase participations therein. Further, such Bank shall be deemed to
have assigned any and all payments made of principal and interest on its
Revolving Credit Loans and any other amounts due to it hereunder to the Agent to
refinance Swing Line Loans in the amount of the participation in Swing Line
Loans that such Bank failed to purchase pursuant to this Section 2.9(c) until
such amount has been purchased (as a result of
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such assignment or otherwise). Upon the purchase of a participation interest in
respect of such Swing Line Loan by a Bank pursuant to this Section 2.9, the
amount so funded shall become a Revolving Credit Loan which is a Base Rate Loan
by the purchasing Bank hereunder and shall no longer be a Swing Line Loan. On
the date that the Banks are required to purchase participations in Swing Line
Loans under this Section 2.9, the pro rata share of such Swing Line Loans of the
Bank then acting as the Agent shall no longer be a Swing Line Loan hereunder but
shall be a Revolving Credit Loan.
(d) Swing Line Note. The Swing Line Loans made by the Agent shall be
evidenced by a duly executed promissory note of the Borrower to the Agent in the
face amount of the Swing Line Loan Commitment and in substantially the form of
Exhibit D hereto.
(e) Funding of Swing Line Loans. Upon receipt of a request for a
Swing Line Loan as provided above, unless any applicable condition specified in
Article 5 hereof has not been satisfied, the Agent will fund such amount to the
Borrower by 2:00 p.m.. New York City time, on the date specified in such request
by crediting an account of the Borrower on the books of the Agent.
ARTICLE 3.
GENERAL CREDIT PROVISIONS; FEES AND PAYMENTS
Section 3.1. Certain Notices.
Notices by the Borrower to the Agent of each borrowing pursuant to
Section 2.4 hereof, each prepayment pursuant to Section 3.2 hereof and each
reduction or termination of Commitments pursuant to Section 2.8 hereof shall be
irrevocable and shall be effective on the date of receipt only if received by
the Agent on a Banking Day not later than 12:00 p.m., New York City time, on the
date notice with respect thereto is required to be given hereunder, and
otherwise shall be effective on the next succeeding Banking Day. Each such
notice relating to the borrowing, continuation, conversion or prepayment of a
Loan, as the case may be. shall specify the Loans to be borrowed, converted,
continued or prepaid, and the amount and type of the Loans to be borrowed or
prepaid, the Interest Period with respect to any LIBOR Loan and the date of
borrowing, conversion, continuation or prepayment (which shall be a Banking
Day). Each such notice of reduction or termination of Commitments shall specify
the amount of the Commitments to be reduced or terminated. The Agent shall
notify the Banks of the contents of each such notice promptly after the Agent's
receipt thereof.
Section 3.2. Prepayments.
(a) Voluntary Prepayments of Base Rate Loans. The Borrower shall
have the right at any time and from time to time to prepay without premium or
penalty Base Rate Loans, in whole or in part, upon telephonic notice to the
Agent; provided, however, that any such partial prepayment shall be in a minimum
aggregate principal amount of $500,000 or, if greater, in amounts which are
integral multiples of $100,000 in excess thereof.
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(b) Voluntary Prepayments of LIBOR Loans. The Borrower shall have
the right at any time and from time to time to prepay LIBOR Loans, in whole or
in part, on at least three Banking Days' prior written notice to the Agent,
subject to the provisions of Article 4 hereof; provided, however, that any such
partial prepayment shall be in a minimum aggregate principal amount of
$1,000,000 or, if greater, in amounts which are integral multiples of $100,000
in excess thereof.
(c) Mandatory Prepayments. In the event that Aggregate Outstandings
exceed the lesser of the Total Commitments or the then applicable Borrowing Base
at any time prior to the Termination Date, the Borrower shall promptly pay or
prepay so much of the Loans outstanding as shall be necessary in order that
Aggregate Outstandings will not exceed the lesser of the Total Commitments or
the then applicable Borrowing Base. All prepayments under this subsection shall
be applied first to Base Rate Loans outstanding and then to LIBOR Loans
outstanding.
(d) Accrued Interest and Other Amounts. All prepayments made
pursuant to this Section 3.2 shall be accompanied by the payment of all accrued
interest on the amount so prepaid and by all amounts required to be paid
pursuant to Article 4 hereof in connection therewith.
Section 3.3. Commitment Fee.
The Borrower shall pay to the Agent on behalf and for the ratable
benefit of each Bank a Commitment Fee for the period from and including the date
hereof to and excluding the Termination Date equal to such Bank's Commitment
Proportion of an amount equal to the product of (a) 0.20% per annum multiplied
by (b) the average daily unused portion of the Total Commitments during the
applicable period. The Commitment Fee shall be calculated on the basis of a year
of 360 days for the actual number of days elapsed. The Commitment Fee shall be
due and payable quarterly in arrears on the first day of each calendar quarter
and on the Termination Date and, to the extent thereof, on the date of any
reduction in the Total Commitments. For purposes of calculating the Commitment
Fee only, the aggregate principal amount of Swing Line Loans outstanding shall
not be considered to be outstanding hereunder.
Section 3.4. Up Front Fee.
The Borrower shall pay to the Agent on or before the Closing Date on
behalf and for the ratable benefit of the Banks in accordance with their
respective Commitment Proportions a non-refundable fee of $45,000 (the "Up Front
Fee"). The payment under this Section 3.4 shall be due and payable on the
Closing Date in accordance with the provisions of Section 5.1 hereof.
Section 3.5. Payments Generally.
(a) All payments under this Agreement or on the Notes shall be made
in immediately available funds to the Agent at its Payment Office for the
ratable benefit of the Banks, in accordance with their respective Commitment
Proportions, not later than 1:00 p.m.
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(New York City time) on the relevant dates specified above (each such payment
made after such time on such date is to be deemed to have been made on the next
succeeding Banking Day). The Agent may (but shall not be obligated to) debit the
amount of any such payment which is not made by such time to any ordinary
deposit account of the Borrower with the Agent. The Borrower shall, at the time
of making each payment under this Agreement or the Notes, specify to the Agent
the principal or other amount payable by the Borrower under this Agreement or
the Notes to which such payment is to be applied; provided, however, that in the
event that the Borrower fails to so specify, or if a Default or an Event of
Default has occurred and is continuing, the Agent and the Banks shall apply such
payment as they may elect in their sole discretion. If the due date of any
payment under this Agreement or the Notes would otherwise fall on a day which is
not a Banking Day, such date shall be extended to the next succeeding Banking
Day and interest shall be payable for any principal so extended for the period
of such extension.
(b) All payments made by the Borrower under this Agreement, the
Notes or the other Facility Documents shall be made free and clear of; and
without deduction or withholding for or on account Of; Taxes. If any Taxes are
withheld from any amounts payable to any Bank hereunder or under the other
Facility Documents, the amounts so payable to such Bank shall be increased to
the extent necessary to yield to such Bank (after payment of all Taxes) interest
or any such other amounts payable hereunder at the rates or in the amounts
specified in this Agreement, the Notes and the other Facility Documents.
Whenever any Taxes are payable by the Borrower, as promptly as possible
thereafter, the Borrower shall send to such Bank a copy of an original official
receipt received by the Borrower showing payment thereof. If the Borrower fails
to pay any Taxes when due to the appropriate taxing authority or fails to remit
to the Banks the required receipts or other required documentary evidence, the
Borrower shall indemnify the Banks for any incremental taxes, interest or
penalties that may become payable by any Bank as a result of any such failure.
The agreements in this subsection shall survive the termination of this
Agreement and the other Facility Documents and the payment of the Notes and all
other amounts payable hereunder or thereunder.
(c) Each Bank and the Agent agrees that if it subsequently recovers
or receives a refund or credit in respect of the Taxes paid by the Borrower
under subsection (b) such Bank or the Agent shall promptly repay the Borrower
such refund or credit net of all out-of-pocket expenses related thereto;
provided, however, that if, due to subsequent adjustment of such Taxes, such
Bank or the Agent is required to repay such amount to the relevant taxing
authority, the Borrower agrees to repay such Bank or the Agent the amount
required to be repaid.
ARTICLE 4.
YIELD PROTECTION, ETC.
Section 4.1. Certain Compensation.
(a) The Borrower hereby agrees to indemnify the Banks against any
actual loss or expense which the Banks or any one of them may sustain or incur
as a consequence of any of the
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following (unless such loss or expense results from the applicable Bank's
failure to fund any LIBOR Loan after satisfaction of all applicable conditions
hereunder):
(i) the receipt or recovery by such Bank, whether by voluntary
prepayment, acceleration or otherwise, of all or any part of a LIBOR Loan prior
to the last day of an Interest Period applicable thereto;
(ii) the conversion, prior to the last day of an applicable
Interest Period, of a LIBOR Loan into a Base Rate Loan;
(iii) the failure by the Borrower to borrow any LIBOR Loan,
convert any Base Rate Loan to a LIBOR Loan or continue any LIBOR Loan on the
date of borrowing, conversion or continuation by the Borrower pursuant to the
provisions hereof; or
(iv) the failure by the Borrower to pay, punctually on the due
date thereof. any amount payable by the Borrower with respect to or on account
of any LIBOR Loan.
Without limiting the effect of the foregoing, the amount to be paid
by the Borrower to the Agent on behalf of any Bank in order to so indemnify such
Bank for any actual loss occasioned by any of the events described in the
preceding paragraph, whether existing or prospective, and as liquidated damages
therefor, shall be equal to the excess, discounted to its present value as of
the date paid to the Agent, of (x) the amount of interest which otherwise would
have accrued on the principal amount so received, recovered, converted or not
borrowed, continued or converted during the period (the "Indemnity Period")
commencing with the date of such receipt, recovery, conversion, or failure to
borrow, continue or convert to the last day of the applicable Interest Period
for such LIBOR Loan at the rate of interest applicable to such LIBOR Loan (or
the rate of interest agreed to in the case of a failure to borrow, continue or
convert) provided for herein (prior to default) over (y) the amount of interest
which would be earned by such Bank during the Indemnity Period if it invested
the principal amount so received, recovered, converted or not borrowed,
continued or converted at the rate per annum approximately equal to LIBOR, on an
amount approximately equal to such principal amount for a period of time
comparable to such Indemnity Period.
(b) A certificate as to any additional amounts payable pursuant to
this Section 4.1 setting forth the basis and method of determining such amounts
shall be conclusive, absent manifest error, as to the determination by each Bank
set forth therein if made reasonably and in good faith. The Borrower shall pay
to the Agent any amounts so certified to the Agent by a Bank within thirty (30)
days of demand. For purposes of this Section 4.1, all references to the "Bank"
shall be deemed to include any participant in a Bank's Commitment and/or the
Loans; provided, however, that the Borrower shall not be required to compensate
a Bank and its participants for any amount that exceeds the amount that it would
have been required to pay hereunder if no participation had been sold by such
Bank.
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Section 4.2. Additional Costs.
(a) The Borrower shall pay to the Agent on behalf of any Bank, from
time to time, on demand of such Bank, such amounts as such Bank may reasonably
determine to be necessary to compensate it for any costs which such Bank
reasonably determines are attributable to its obligation to make any Loan
hereunder, or any reduction in any amount receivable by such Bank hereunder in
respect of any Loans or such obligation (such increases in costs and reductions
in amounts receivable being herein called "Additional Costs"), resulting from
any Regulatory Change which: (i) changes the basis of taxation of any amounts
payable to such Bank under this Agreement or its Note in respect of any Loans or
such obligation (other than taxes imposed on the overall net income or franchise
of such Bank or of its Lending Office for any of such Loans by the jurisdiction
in which such Bank has its principal office or such Lending Office); or (ii)
imposes or modifies any reserve, special deposit, deposit insurance or
assessment, minimum capital, capital ratio or similar requirements relating to
any extensions of credit or other assets of, or any deposits with or other
liabilities of; such Bank (including any of such Loans or any deposits referred
to in the definitions of "LIBOR Loans", except to the extent that such cost is
incorporated in the definition of "Reserve Adjusted LIBOR"); or (iii) imposes
any other condition affecting this Agreement, or its Note (or any of such
extensions of credit or liabilities) and such Bank's obligations with respect
thereto. Each Bank will notify the Agent, and the Agent shall notify the
Borrower, of any Regulatory Change which will entitle such Bank to compensation
pursuant to this Section 4.2(a) as promptly as practicable after it obtains
knowledge thereof and determines to request such compensation, which notice
shall set forth the basis of the calculation of such additional compensation.
The determination by any Bank of such amount shall, in the absence of any
manifest error, be conclusive.
(b) Without limiting the effect of the foregoing provisions of this
Section 4.2, in the event that, by reason of any Regulatory Change, any Bank
either (i) incurs Additional Costs based on or measured by the excess above a
specified level of the amount of a category of deposits or other liabilities of
such Bank which includes deposits by reference to which the interest rate on
LIBOR Loans is determined as provided in this Agreement or a category of
extensions of credit or other assets of such Bank which includes LIBOR Loans or
(ii) becomes subject to restrictions on the amount of such a category of
liabilities or assets which it may hold, then, if such Bank so elects by notice
to the Agent, the obligation of such Bank to make LIBOR Loans hereunder shall be
suspended until the date such Regulatory Change ceases to be in effect (in which
case the provisions of Section 4.5 shall be applicable).
(c) Without limiting the effect of the foregoing provisions of this
Section 4.2 (but without duplication), the Borrower shall pay to the Agent, and
the Agent shall pay to any Bank from time to time on request such amounts as
such Bank may reasonably determine to be necessary to compensate such Bank for
any costs which it reasonably determines are attributable to the maintenance by
it or any of its Affiliates pursuant to any law or regulation of any
jurisdiction or any interpretation, directive or request (whether or not having
the force of law and whether in effect on the date of this Agreement or
thereafter) of any court or governmental or monetary authority, of capital in
respect of its Loans or other obligations hereunder (such compensation to
include, without limitation, an amount equal to any reduction in return on
assets
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or equity of such Bank to a level below that which it could have achieved but
for such law, regulation, interpretation, directive or request). Each Bank will
notify the Agent, and the Agent will notify the Borrower, if it is entitled to
compensation pursuant to this Section 4.2(c) as promptly as practicable after it
determines to request such compensation, which notice shall set forth the basis
of the calculation of such additional compensation. The determination by any
Bank of such amount, if done in good faith on the basis of any reasonable
method, shall, in the absence of any manifest error, be conclusive.
(d) Determinations and allocations by a Bank for purposes of this
Section 4.2 of the effect of any Regulatory Change pursuant to subsection (a) or
(b), or of the effect of capital maintained pursuant to subsection (c), on its
costs of making or maintaining Loans or its obligation to make Loans, or on
amounts receivable by, or the rate of return to, it in respect of Loans, and of
the additional amounts required to compensate such Bank under this Section 4.2,
shall be conclusive absent manifest error.
Section 4.3. Limitations on Types of Loans.
Anything herein to the contrary notwithstanding, if:
(a) any Bank determines (which determination shall be conclusive)
that quotations of interest rates for the relevant deposits referred to in the
definition of "LIBOR Loans" in Section 1.1 are not being provided in the
relevant amounts or for the relevant maturities for purposes of determining the
rate of interest for any LIBOR Loans as provided in this Agreement; or
(b) any Bank determines (which determination shall be conclusive)
and notifies the Agent, and the Agent notifies the Borrower that the relevant
rates of interest referred to in the definition of "LIBOR Loans" in Section 1.1
upon the basis of which the rate of interest for any type of LIBOR Loans is to
be determined do not adequately cover the cost to such Bank of making or
maintaining such Loans,
then, and so long as such condition remains in effect, such Bank shall be under
no obligation to make LIBOR Loans (in which case the provisions of Section 4.5
hereof shall be applicable).
Section 4.4. Illegality.
Notwithstanding any other provision in this Agreement, in the event
that it becomes unlawful for any Bank or its Lending Office to honor its
obligation to make or maintain LIBOR Loans hereunder, then such Bank shall
promptly notify the Agent, and the Agent shall notify the Borrower thereof and
such Bank's obligation to make or maintain LIBOR Loans hereunder shall be
suspended until such time as such Bank may again make and maintain such affected
Loans (in which case the provisions of Section 4.5 hereof shall be applicable).
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Section 4.5. Certain LIBOR Loans Pursuant to Sections 4.2. 4.3 and 4.4.
If an event referred to in Section 4.2, 4.3 or 4.4 hereof has
occurred, the affected Bank shall be required to make Base Rate Loans in
accordance with this Agreement, and all LIBOR Loans of such Bank then
outstanding shall be automatically converted into Base Rate Loans on the date
specified by such Bank in such notice, and, to the extent that LIBOR Loans are
so made as (or converted into) Base Rate Loans, all payments of principal which
would otherwise be applied to such Bank's LIBOR Loans shall be applied instead
to its Base Rate Loans. In the event of any conversion of any LIBOR Loan to a
Base Rate Loan pursuant to this Section 4.5 prior to the maturity date with
respect to such LIBOR Loan, the Borrower shall pay to the Agent for the account
of the relevant Bank all amounts required to be paid pursuant to Section 4.1
hereof.
Section 4.6. Change of Lending Office.
Each Bank agrees that, upon the occurrence of any event giving rise
to the operation of Section 4.2, 4.3 or 4.4 hereof with respect to such Bank, it
will use reasonable efforts (subject to overall policy considerations of such
Bank) to designate another lending office for any Loans affected by such event
with the object of avoiding the consequences of the event giving rise to the
operation of any such Section; provided that such designation is made on such
terms that, in the good faith judgment of such Bank, such Bank and its Lending
Office suffer no economic, legal or regulatory disadvantage.
Section 4.7. Survival.
The indemnities and other obligations set forth in this Article 4
shall survive payment in full of all Loans or extensions of credit made pursuant
to this Agreement and the Termination Date.
ARTICLE 5.
CONDITIONS PRECEDENT
Section 5.1. Documentary Conditions Precedent.
The obligations of the Banks to make the Loans on or after the date
hereof are subject to the conditions precedent that:
(a) each Bank shall have received on or before the date hereof each
of the following, in form and substance reasonably satisfactory to such Bank and
its counsel:
(i) this Agreement, executed by all parties hereto, and the
Notes, duly executed by the Borrower;
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(ii) a certificate of the Secretary of the Borrower dated the
Closing Date, attesting to all corporate action taken by such entity, including
resolutions of its Board of Directors authorizing the execution, delivery and
performance of the Facility Documents and each other document to be delivered
pursuant to this Agreement, together with certified copies of the certificate or
articles of incorporation and the by-laws of the Borrower; and such certificate
shall state that the resolutions and corporate documents thereby certified have
not been amended, modified, revoked or rescinded as of the date of such
certificate and are in full force and effect;
(iii) a certificate of the Secretary of the Borrower dated the
Closing Date, certifying the names and true signatures of the officers of such
entity authorized to sign the Facility Documents and the other documents to be
delivered by such entity under this Agreement;
(iv) a certificate of a duly authorized officer of the
Borrower, dated the Closing Date, stating that the representations and
warranties in Article 6 hereof and in the other Facility Documents are true and
correct on such date as though made on and as of such date and that no event has
occurred and is continuing which constitutes a Default or Event of Default;
(v) a favorable opinion of counsel for the Borrower, dated the
Closing Date, in form and substance satisfactory to such Bank and its counsel;
(vi) satisfactory evidence that the Borrower is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and each other jurisdiction where qualification is
necessary;
(vii) the Borrower's annual report on Form 10-K for the year
ended December 31, 1996 and the Borrower's quarterly report on Form l0-Q for the
quarter ended September 30, 1997, each as filed by the Borrower with the
Securities and Exchange Commission;
(viii) satisfactory evidence that the Borrower and the
Guarantors maintain all insurance required to be maintained hereunder; and
(ix) such other documents, instruments, approvals, opinions
and evidence as the Banks may reasonably require;
(b) the Borrower shall have paid or caused to be paid to the Agent
for the benefit of the Banks in full the Up Front Fee and all other fees
required to be paid hereunder or in connection herewith, to the Agent in full
all accrued fees and expenses of the Agent in connection with the preparation,
execution and delivery of this Agreement and the other Facility Documents and
the consummation of the transactions contemplated thereby and to the
Documentation Agent in full all accrued fees and expenses of the Documentation
Agent;
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(c) the Borrower and the Guarantors shall have obtained all
consents, permits and approvals required in connection with the execution,
delivery and performance by the Borrower and the Guarantors of their obligations
hereunder and such consents, permits and approvals shall continue in full force
and effect;
(d) the Borrower shall have provided reasonably satisfactory
evidence that neither it nor any Guarantor is in default with respect to any
contractual obligations to which it is a party, the effect of which could
reasonably be expected to have a Material Adverse Effect;
(e) the Agent and the Banks shall have completed, and be satisfied
with the results of, their due diligence investigations of the Borrower,
including without limitation, the Borrower's information systems, premium
finance contracts, participation program agreements and litigation;
(f) the Agent and the Banks shall have completed a satisfactory
review of all debt instruments, mortgages, indentures and leases to which the
Borrower is a party;
(g) simultaneously with the first Loan hereunder, the Borrower shall
have repaid all of its obligations under its existing credit facilities with
Fleet Bank, N. A., The Bank of New York, Marine Midland Bank, Mellon Bank, N.A.
and Atlantic Bank other than those existing loans bearing interest at a rate
based on LIBOR and listed on Schedule 5.1 hereto;
(h) the Agent and the Banks shall be satisfied that no event or
series of events has occurred that could result in a material adverse change in
the business, operations, properties, assets, prospects or condition (financial
or otherwise) of the Borrower; and
(i) all legal matters in connection with this financing shall be
satisfactory to the Banks and their counsel.
Section 5.2. Additional Conditions Precedent.
The obligations of the Banks to make any Loan shall be subject to
the further conditions precedent (which shall be in addition to, and shall not
be deemed to limit or modify, any of the other terms and conditions hereunder)
that on the date of such Loan the following statements shall be true:
(a) (i) with respect to any Loan made to the Borrower on the date
hereof, the representations and warranties contained in Article 6 hereof are
true and correct on and as of the date hereof; and (ii) with respect to any Loan
made after the date hereof; the representations and warranties contained in
Article 6 hereof, which for purposes of this Section, shall be deemed to relate
to the Borrower and to each Guarantor as if each such Person were the subject of
each such representation and warranty, are true and correct in all material
respects on and as of the date of such Loan as though made on and as of such
date (except when any such representation or warranty by its terms relates to
the date hereof or another specific date); and
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(b) no Default or Event of Default shall have occurred and be
continuing or would result from such Loan.
Section 5.3. Deemed Representations.
Each notice of a Loan and the acceptance by the Borrower of the
proceeds thereof shall constitute a representation and warranty that the
statements contained in Section 5.2 hereof are true and correct as of the date
of such Loan.
ARTICLE 6.
REPRESENTATIONS AND WARRANTIES
The Borrower hereby represents and warrants that:
Section 6.1. Incorporation, Good Standing and Due Qualifications: Compliance
with Law.
Each of the Borrower and the Guarantors is duly incorporated,
validly existing and in good standing under the laws of its respective
jurisdiction of incorporation, has the requisite power and authority to own its
assets and to transact the business in which it is now engaged or presently
proposes to be engaged, and is duly qualified as foreign corporations and in
good standing under the laws of each other jurisdiction in which such
qualification is required except where the failure to so qualify and/or be in
good standing would not, in any case or in the aggregate, have a Material
Adverse Effect. In addition, the Borrower and each Guarantor is in compliance,
in all material respects, with all laws, treaties, rules or regulations, and
determinations or orders of or with respect to all arbitrators, courts or other
governmental authorities, in each case applicable to or binding upon it or any
of its property or to which it or any of its property is subject.
Section 6.2. Power and Authority; No Conflicts.
The execution, delivery and performance by the Borrower and the
Guarantors of each of the Facility Documents to which it is a party are within
the corporate power and authority of the Borrower and the Guarantors, have been
duly authorized by all necessary corporate action and do not and will not: (a)
require any consent or approval of the stockholders of the Borrower or any of
the Guarantors or of any third party; (b) contravene the charter or by-laws of
the Borrower or any of the Guarantors; (c) violate any provision of; or require
any filing, registration, consent or approval under, any law, rule, regulation
(including, without limitation, the provisions of Regulation G, T, U or X of the
Board of Governors of the Federal Reserve System as in effect from time to
time), order, writ, judgment, injunction, decree, determination or award
presently in effect having applicability to the Borrower or any of the
Guarantors; (d) result in a breach of or constitute a default or require any
consent under any indenture or loan or credit agreement or any other agreement,
lease or instrument to which the Borrower or any of the Guarantors is a party or
by which properties of the Borrower or any of the Guarantors may be bound or
affected, the violation of which would reasonably be expected to cause a
Material Adverse Effect; (e) result in or require the creation or imposition of
any Lien (other than
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Permitted Liens) upon or with respect to any of the properties now owned or
hereafter acquired by the Borrower or any of the Guarantors; or (f) cause the
Borrower or any of the Guarantors to be in default under any such rule,
regulation, order, writ, judgment, injunction, decree, determination or award or
any such indenture, agreement, lease or instrument.
Section 6.3. Legally Enforceable Agreements.
Each Facility Document is, or when delivered under this Agreement
will be, a legal, valid and binding obligation of the Borrower and each
Guarantor (if such entity or Person is a party thereto) enforceable against such
Person in accordance with its terms, except to the extent that such enforcement
may be limited by applicable bankruptcy, insolvency and other similar laws
affecting creditors' rights generally or by the effect of general principles of
equity which may limit the availability of equitable remedies (whether in a
proceeding at law or in equity).
Section 6.4. Litigation.
There are no actions, suits or proceedings pending or, to the
knowledge of the Borrower or the Guarantors, threatened, against the Borrower or
any of the Guarantors before any court, governmental agency or arbitrator, which
would, if adversely determined, cause a Material Adverse Effect.
Section 6.5. Financial Statements; Other Liabilities.
(a) The balance sheet of the Borrower as at December 31, 1996, and
the related income statements and statements of cash flow of the Borrower for
the fiscal year then ended, and the accompanying notes, together with the
opinion thereon of Deloitte & Touche, independent certified public accountants,
and the interim financial statements of the Borrower as at and for the nine
months ended (as the case may be) September 30, 1997, copies of which have been
furnished to each of the Banks, fairly present the financial condition of the
Borrower as at such dates and the results of the operations of the Borrower for
the periods covered by such statements, all in accordance with GAAP consistently
applied (subject, in the case of interim financial statements, to year-end
adjustments and except, in the case of such interim financial statements, for
the absence of GAAP notes thereto).
(b) As of the date hereof, there are no material liabilities or
obligations of the Borrower, whether direct or indirect, absolute or contingent,
or matured or unmatured, other than (i) as disclosed or provided for in the
financial statements and notes thereto which are referred to above, or (ii)
which are disclosed elsewhere in this Agreement or in the Schedules hereto or in
the Borrower's annual and quarterly reports referred to in Section 5.1 (vii)
hereof; or (iii) arising in the ordinary course of business since September 30,
1997 or (iv) created by this Agreement. None of the written information,
exhibits and reports furnished by the Borrower to the Banks in connection with
the negotiation of this Agreement contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
contained therein not misleading.
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Section 6.6. Ownership and Liens.
Each of the Borrower and the Guarantors has title to, or valid
leasehold interests in, all of its properties and assets, real and personal,
including the properties and assets, and leasehold interests reflected in the
financial statements referred to in Section 6.5 hereof, and none of the
properties and assets owned by the Borrower and each of the Guarantors, and none
of their leasehold interests is subject to any Lien, except for Permitted Liens.
Section 6.7. Taxes.
Each of the Borrower and the Guarantors has filed all tax returns
(foreign, federal, state and local) required to be filed (including, without
limitation, with respect to payroll and sales taxes), and the Borrower and each
of the Guarantors have paid all Taxes, other than Taxes which are not yet
delinquent or are being contested in good faith by appropriate proceedings and
with respect to which adequate reserves in conformity with GAAP shall have been
provided on the books of the Borrower and the Guarantors.
Section 6.8. ERISA.
As of the date hereof, the Borrower and its ERISA Affiliates are in
compliance in all material respects with all provisions of ERISA applicable to
any Plan. No Reportable Event has occurred with respect to any Plan; no notice
of intent to terminate a Plan has been filed nor has any Plan been terminated;
no circumstance exists which constitutes grounds under Section 4042 of ERISA
entitling the PBGC to institute proceedings to terminate, or appoint a trustee
to administer, a Plan, nor has the PBGC instituted any such proceedings; neither
the Borrower nor any ERISA Affiliate has completely or partially withdrawn under
Section 4201 or 4204 of ERISA from a Multiemployer Plan; the Borrower and each
of its ERISA Affiliates have met their minimum funding requirements under ERISA
with respect to all of their Plans, there are no Unfunded Vested Liabilities,
and neither the Borrower nor any ERISA Affiliate has incurred any material
liability to the PBGC under ERISA with respect to any Plan. As of the date
hereof, no contributions are required to be made to the Money Purchase Plan for
the current plan year or for any future plan years and there are no funding
deficiencies under Section 412 of the Code with respect to the Money Purchase
Plan. All contributions that were required to be made in respect of the Money
Purchase Plan were made on a timely basis.
Section 6.9. Subsidiaries and Ownership of Stock.
As of the date hereof; Schedule 6.9 is a complete and correct list
of all Subsidiaries of the Borrower.
Section 6.10. Credit Arrangements.
Schedule 6.10 is a complete and correct list of all credit
agreements, indentures, purchase agreements, guaranties, Capital Leases and
other investments, agreements and
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arrangements in effect on the date of this Agreement providing for or relating
to extensions of credit to the Borrower or any of the Guarantors for borrowed
money (including agreements and arrangements for the issuance of letters of
credit or for acceptance financing) in respect of which the Borrower or any of
the Guarantors is in any manner directly or contingently obligated; and the
maximum principal or face amounts of the credit in question, outstanding and
which can be outstanding, are correctly stated, and all Liens of any nature
given or agreed to be given as security therefor are correctly described or
indicated in such Schedule.
Section 6.11. Operation of Business.
The Borrower and the Guarantors possess all licenses, permits,
franchises, patents, copyrights, trademarks and trade names, or rights thereto,
to conduct their respective businesses substantially as now conducted and as
presently proposed to be conducted except where the failure to do so could not
reasonably be expected to cause a Material Adverse Effect.
Section 6.12. Hazardous Substances.
The Borrower and the Guarantors are in compliance with all
applicable Environmental Laws, and have obtained all necessary licenses and
permits required to be issued pursuant to any applicable Environmental Law. As
of the date hereof; neither the Borrower nor any of the Guarantors has received
any notice or communication from any governmental agency with respect to (i) any
Hazardous Substance relative to its operations, property or acts or (ii) any
investigation, demand or request pursuant to or enforcing any applicable
Environmental Law relating to it or its operations, and no such investigation is
pending or, to the best knowledge of the Borrower or any Guarantor, threatened.
Section 6.13. No Default on Outstanding Judgments. Orders or Agreements.
(a) Each of the Borrower and the Guarantors has satisfied all
judgments, if any, issued against any of them, and (b) neither the Borrower nor
any of the Guarantors is in default with respect to any judgment, writ,
injunction, decree, rule or regulation of any court, arbitrator or federal,
state, municipal or other governmental authority, commission, board, bureau,
agency or instrumentality, domestic or foreign, or of any agreement or
instrument to which it is a party, the default of which could reasonably be
expected to cause a Material Adverse Effect.
Section 6.14. Labor Disputes and Acts of God.
As of the date hereof, neither the business nor the properties of
the Borrower or any of the Guarantors are affected by any fire, explosion,
strike, lockout or other labor dispute or embargo, or act of God or other
casualty (whether or not covered by insurance) which could reasonably be
expected to cause a Material Adverse Effect.
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Section 6.15. Governmental Regulation.
Except for state statutes governing premium finance companies (none
of which are violated by the execution, delivery and performance of this
Agreement), neither the Borrower nor any of the Guarantors is subject to
regulation under the Public Utility Holding Company Act of 1935, the Investment
Company Act of 1940 or any other statute or regulation limiting its ability to
incur indebtedness for money borrowed as contemplated hereby.
Section 6.16. Partnerships.
As of the date hereof; neither the Borrower nor any Guarantor is a
partner in any partnership.
Section 6.17. No Forfeiture Proceeding.
Neither the Borrower nor any Guarantor is engaged in or proposes to
be engaged in the conduct of any business or activity which is likely to result
in a Forfeiture Proceeding, and no Forfeiture Proceeding against any of them is
pending or, to the best knowledge of the Borrower and the Guarantors as of the
date hereof, threatened.
Section 6.18. No Default of Event of Default.
No Default or Event of Default has occurred and is continuing.
Section 6.19. Solvency.
Each of the Borrower and the Guarantors, if any, is Solvent.
Section 6.20. Material Adverse Change.
No event or series of events has occurred since September 30, 1997
which would, individually or in the aggregate, cause a Material Adverse Effect.
Section 6.21. Name and Location.
Except as disclosed in Schedule 6.21, during the five years prior to
the making of this Agreement, neither the Borrower nor any Guarantor has been
known under, or transacted business using, any name or trade style except for
the name set forth above such entity's signature on this Agreement. All
locations at which the Borrower and any Guarantor transacts business are
described in Schedule 6.21.
Section 6.22. Margin Stock.
Neither the Borrower nor any Guarantor is engaged in the business of
extending credit for the purpose of purchasing or carrying "margin stock" within
the meaning of Regulation G, T, U or X of the Board of Governors of the Federal
Reserve System, and no proceeds of any
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Loan will be used to purchase or carry any "margin stock" or to extend credit to
others for the purpose of purchasing or carrying any "margin stock" in violation
of such regulations.
ARTICLE 7.
AFFIRMATIVE COVENANTS
So long as any of the Notes or any other Obligations shall remain
unpaid or any Bank shall have any Commitment hereunder, the Borrower shall, and
the Borrower shall cause each of the Guarantors to:
Section 7.1. Maintenance of Existence.
Except as otherwise provided or permitted in this Agreement,
preserve and maintain its corporate existence and remain in good standing in the
jurisdiction of its organization, and qualify and remain qualified as a foreign
corporation in each jurisdiction in which such qualification is required.
Section 7.2. Conduct of Business.
Continue to engage in the businesses conducted by it on the date
hereof.
Section 7.3. Maintenance of Properties.
Maintain, keep and preserve, all of its properties (tangible and
intangible) necessary or useful in the proper conduct of its business in good
working order and condition, in all material respects, ordinary wear and tear
excepted.
Section 7.4. Maintenance of Records.
Keep adequate records and books of account in which complete
entries, reflecting all financial transactions of such Person, will be made.
Section 7.5. Maintenance of Insurance.
Maintain insurance covering its assets and its business with
financially sound and reputable insurance companies or associations in such
amounts and covering such risks as are usually carried by companies engaged in
the same or a similar business and similarly situated. The Borrower shall
deliver certified copies of the policy or policies of such insurance or
certificates of insurance to the Agent if the Agent so requests.
Section 7.6. Compliance with Laws.
Comply in all material respects with all applicable laws, rules,
regulations and orders applicable to it.
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Section 7.7. Right of Inspection.
At any reasonable time upon reasonable notice and subject to the
provisions of Section 12.14 hereof, permit the Agent or any Bank or any agent or
representative thereof, during normal business hours, to examine and make copies
and abstracts from the records and books of account of; and visit the properties
of, such Person and to discuss the affairs, finances and accounts of such Person
with any of its officers and directors and such entity's independent accountants
at the sole cost and expense of the Banks; provided, however, that
notwithstanding the foregoing to the contrary, upon the occurrence and during
the continuance of any Default or Event of Default, such costs and expenses
shall be borne by the Borrower.
Section 7.8. Reporting Requirements.
Furnish directly to the Agent with sufficient copies for each of the
Banks (except in the case of clause (d) hereof; in which case the Borrower shall
furnish such items directly to the Banks):
(a) as soon as available and in any event within one hundred (100)
days after the end of each fiscal year of the Borrower, consolidating and
audited consolidated financial statements of the Borrower and the Guarantors,
which shall include consolidated and consolidating balance sheets of the
Borrower and the Guarantors as of the end of such fiscal year, together with
consolidated and consolidating income statements and statements of cash flows of
the Borrower the Guarantors for such fiscal year and as of the end of and for
the prior fiscal year, all prepared in accordance with GAAP and accompanied by
an unqualified opinion thereon by independent certified public accountants
reasonably acceptable to the Required Banks together with a copy of the
management letter prepared by such independent certified public accountants;
(b) as soon as available and in any event within fifty (50) days
after the end of each of the first, second and third quarters of each fiscal
year of the Borrower, unaudited consolidated and consolidating financial
statements of the Borrower and the Guarantors, which shall include unaudited
consolidated and consolidating balance sheets of the Borrower and the Guarantors
as of the end of each such quarter, together with consolidated and consolidating
income statements and statements of cash flows of the Borrower and the
Guarantors for each such quarterly period and for the period commencing at the
end of the previous fiscal year and ending with the end of such quarter, all in
reasonable detail and stating in comparative form the respective figures for the
corresponding date and period in the previous fiscal year and all prepared by or
under the supervision of and certified by the chief financial officer of the
Borrower in accordance with GAAP and as to fairness of presentation (subject to
year-end adjustments and except for the absence of GAAP notes thereto);
(c) simultaneously with the delivery of the financial reporting
statements referred to in (a) and (b) above, a certificate of the President or
the chief financial officer of the Borrower, certifying that to the best of his
knowledge (i) no Default or Event of Default has occurred and is continuing or,
if a Default or Event of Default has occurred and is continuing, a statement as
to the nature thereof and the action which is proposed to be taken with respect
thereto, with
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computations demonstrating compliance (or non-compliance, as the case may be)
with the covenants contained in Article 9, and (ii) such financial statements
have been prepared in accordance with GAAP (subject in the case of (b) above to
year-end adjustments and except for the absence of GAAP notes thereto);
(d) promptly, and in any event within five (5) Banking Days after
the sending or filing thereof, copies of all proxy statements, financial
statements and reports which the Borrower or any of the Guarantors sends to its
stockholders or files with the United States Securities and Exchange Commission
or any successor agency;
(e) not later than the 15th day of each month, a Borrowing Base
Certificate, together with a detailed portfolio statistics report in form and
substance satisfactory to the Required Lenders;
(f) promptly after the Borrower or any Guarantor becomes aware of
the commencement thereof, notice of all actions, suits, and proceedings before
any court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, to which the Borrower or any Guarantor is
a party, including, without limitation, any such proceeding relating to any
alleged violation of any Environmental Law, which, if determined adversely to
the Borrower or any such Guarantor would have a Material Adverse Effect;
(g) as soon as possible after any Default or Event of Default has
occurred, a written notice setting forth the details of such Default or Event of
Default and the action which is proposed to be taken by the Borrower or
Guarantors with respect thereto;
(h) as soon as possible after the Borrower knows that any of the
events or conditions specified below with respect to any Plan or Multiemployer
Plan has occurred or exists, a statement signed by a senior financial officer of
the Borrower setting forth details respecting such event or condition and the
action, if any, which the Borrower or its ERISA Affiliate proposes to take with
respect thereto (and a copy of any report or notice required to be filed with or
given to PBGC by the Borrower or an ERISA Affiliate with respect to such event
or condition):
(i) any Reportable Event;
(ii) the filing under Section 4041 of ERISA of a notice of
intent to terminate any Plan or the termination of any Plan;
(iii) the institution by PBGC of proceedings under Section
4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Plan, or the receipt by the Borrower or any ERISA
Affiliate of a notice from a Multiemployer Plan that such action has been
taken by PBGC with respect to such Multiemployer Plan;
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(iv) receipt by the Borrower or ERISA Affiliate of notice from
a Multiemployer Plan of the complete or partial withdrawal by the Borrower
or any ERISA Affiliate under Section 4201 or 4204 of ERISA from a
Multiemployer Plan imposing withdrawal liability (as of the date of such
notification) exceeding $1,000,000 or requiring payments exceeding
$1,000,000 per annum;
(v) the receipt by the Borrower or any ERISA Affiliate of
notice from a Multiemployer Plan that it is in reorganization or
insolvency pursuant to Section 4241 or 4245 of ERISA or that it intends to
terminate or has terminated under Section 4041 A of ERISA if the aggregate
annual contributions of the Borrower and all ERISA Affiliates to all
Multiemployer Plans which are then in reorganization or being terminated
have been increased by over amounts contributed to such Multiemployer
Plans for the plan year immediately preceding the plan year in which the
reorganization or termination occurs by an amount exceeding $1,000,000;
and
(vi) the institution of a proceeding by a fiduciary or any
Multiemployer Plan against the Borrower or any ERISA Affiliate to enforce
Section 515 of ERISA for delinquent contributions in excess of $100,000
which proceeding is not dismissed within thirty (30) days;
(i) promptly after the furnishing thereof; copies of any reports or
records required to be filed with or furnished to any insurance carriers or
governmental authorities relating to Hazardous Substances located on any of the
real properties owned or occupied by the Borrower or any Guarantor;
(j) promptly after the Borrower or any Guarantor knows of the
commencement or threat thereof, notice of any Forfeiture Proceeding; and
(k) promptly upon becoming aware thereof, notice of any event or
series of events which could reasonably be expected to cause a Material Adverse
Effect;
(l) promptly upon becoming aware thereof, notice of any "Event of
Default" under the Palitz Agreement or of any event which with the giving of
notice or the lapse of time would become an "Event of Default" under the Palitz
Agreement; and
(m) subject to Section 12.14 hereof, such other information
respecting the condition or operations, financial or otherwise of the Borrower
or any of its Subsidiaries or ERISA Affiliates as the Agent may from time to
time reasonably request.
Section 7.9. Payment of Obligations.
Pay, discharge or otherwise satisfy at or before maturity or before
they become delinquent, as the case may be, all material Debt and other material
obligations of whatever nature (including any obligation for taxes or wages),
except for any Debt or other material obligation (other than the Obligations)
which is being contested in good faith and with respect to
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which, on a consolidated basis, adequate reserves in conformity with GAAP shall
have been provided on the books of the Borrower.
Section 7.10. Subsidiaries.
Simultaneously with its creation, the Borrower shall cause any
future Subsidiary to become a Guarantor hereunder pursuant to the execution and
delivery to the Agent of a Guarantee.
Section 7.11. "Key Man" Life Insurance.
Maintain at all times "Key-Man" life insurance policies on the lives
of Alan Karp and David Fisher in amounts of not less than $1,500,000 each.
Section 7.12. Deposit Relationship.
Maintain at all times its primary deposit account with one of the
Banks or any of their Affiliates.
Section 7.13. Year 2000.
Take all action necessary to assure that the Borrower's computer
based systems are able to effectively process data including dates on and after
January 1, 2000 such that there will be no Material Adverse Effect. At the
request of the Agent, the Borrower shall provide the Agent with assurance
reasonably acceptable to the Agent of the Borrower's year 2000 capability.
ARTICLE 8.
NEGATIVE COVENANTS.
So long as any of the Notes or other Obligations shall remain unpaid
or any Bank shall have any Commitment hereunder, the Borrower shall not, and the
Borrower shall cause all Guarantors not to:
Section 8.1. Debt.
Create, incur, assume or suffer to exist, any Debt, except:
(a) Debt of the Borrower under this Agreement or the Notes;
(b) Debt described in Schedules 6.10 and 5.1;
(c) Subordinated Debt;
(d) Debt of the Borrower to any Guarantor, or of any Guarantor to
the Borrower or to another Guarantor;
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(e) Debt incurred in connection with operating leases entered into
by the Borrower or any of the Guarantors consistent with their respective past
practices or in the ordinary course of their respective businesses;
(f) Debt of the Borrower or any Guarantor secured by purchase money
Liens permitted by Section 8.2(f) hereof;
(g) Debt incurred in connection with Capital Leases permitted
hereunder;
(h) Debt in respect of current accounts payable and accrued expenses
incurred in the ordinary course of business including, to the extent not
current, accounts payable and accrued expenses that are subject to bonafide
dispute;
(i) Debt incurred to finance Capital Expenditures permitted pursuant
to Section 9.7 hereof; and
(j) obligations evidenced by interest rate protection agreements
entered into between the Borrower and one or more of the Banks or any of their
Affiliates in connection with indebtedness of the Borrower under this Agreement,
not for investment or speculative reasons.
Section 8.2. Liens.
Create, incur, assume or suffer to exist any Lien upon or with
respect to any of its properties, now owned or hereafter acquired, except the
following ("Permitted Liens"):
(a) Liens for taxes or assessments or other government charges or
levies if not yet due and payable or the payment of which is being contested in
good faith by appropriate proceedings and with respect to which adequate
reserves in conformity with GAAP shall have been provided on the books of the
Borrower and the Guarantors;
(b) Liens imposed by law, such as mechanic's, materialmen's,
landlord's, warehousemen's and carrier's Liens, and other similar Liens,
securing obligations incurred in the ordinary course of business which are not
past due for more than forty-five (45) days or Liens arising out of judgments or
awards against such Person with respect to which such Person shall then be
prosecuting an appeal or proceeding for review and with respect to which
adequate reserves in conformity with GAAP shall have been provided on the books
of such Person;
(c) Liens under workers' compensation, unemployment insurance,
social security or similar legislation (other than ERISA);
(d) Liens, deposits or pledges to secure the performance of bids,
tenders, contracts (other than contracts for the payment of money), leases,
public or statutory obligations. surety, stay, appeal, indemnity, performance or
other similar bonds, or other similar obligations arising in the ordinary course
of business;
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(e) easements, rights-of-way, survey exceptions, restrictions and
other similar encumbrances which, in the aggregate, do not materially interfere
with the occupation, use and enjoyment by the Borrower or any of its
Subsidiaries of the property or assets encumbered thereby in the normal course
of its business or materially impair the value of the property subject thereto;
(f) (i) purchase money Liens on any property heretofore or hereafter
acquired or the assumption of any Lien on any property existing at the time of
such acquisition which secure the payment of the purchase price of such property
(but not in excess of the purchase price thereof), provided that no such Lien
shall at any time encumber any other property of the Borrower or any other
property of any Subsidiary of the Borrower, or (ii) a Lien incurred in
connection with any conditional sale or other title retention agreement or a
Capital Lease; provided, that in the case of any of (i)-(ii) above, the creation
or incurrence of any such Lien shall not otherwise result in a Default or Event
of Default; and
(g) Liens described on Schedule 8.2 hereof.
Section 8.3. Investments.
Make any loan or advance to any Person or purchase or otherwise
acquire any capital stock, obligations or other securities of, make any capital
contribution to, or otherwise invest in, or acquire any interest in, any Person
except for (i) Permitted Investments; (ii) loans to officers of the Borrower not
to exceed $150,000 in the aggregate at any one time outstanding; (iii) accounts
receivable created, acquired or made in the ordinary course of business and
payable or dischargable in accordance with customary trade terms; and (iv)
Capital Expenditures permitted by Section 9.7 hereof.
Section 8.4. Sale of Assets.
Sell, lease, assign, transfer or otherwise dispose of any of its now
owned or hereafter acquired assets (except to the Borrower), except for: (a)
inventory disposed of in the ordinary course of business or (b) the sale or
other disposition of assets no longer used or useful in the conduct of its
business. In particular, neither the Borrower nor any Guarantor shall sell,
transfer, discount or otherwise dispose of notes, accounts receivable or other
rights to receive payment, except for (i) the sale of accounts receivable on a
non-recourse basis and (ii) sales of participations in accounts receivable on a
non-recourse basis consistent with the Borrower's participation program in
effect on the Closing Date; provided that the aggregate sales pursuant to
clauses (i) and (ii) above in any fiscal year shall not exceed 25% of the
aggregate receivables acquired by the Borrower in such fiscal year.
Section 8.5. Transactions with Affiliates.
Except to the extent permitted by Section 8.3(u) hereof; enter into
any transaction, including, without limitation, the purchase, sale or exchange
of property or the rendering of any service, with any Affiliate, except in the
ordinary course of and pursuant to the
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reasonable requirements of the relevant Person's business and upon fair and
reasonable terms no less favorable to the relevant Person than would obtain in a
comparable arm's length transaction with a Person not an Affiliate.
Section 8.6. Mergers. Etc.
Merge or consolidate with, or sell, assign, lease or otherwise
dispose of (whether in one transaction or in a series of transactions) all or
substantially all of its assets (whether now owned or hereafter acquired) to,
any Person, or acquire all or substantially all of the assets or the business of
any Person; provided that notwithstanding the foregoing provisions of this
Section 8.6, any Subsidiary may be merged or consolidated with or into the
Borrower if (a) the Borrower is the continuing or surviving corporation; (b) the
Agent is given prior written notice of such action, and the relevant parties
execute and deliver such documents, instruments and certificates as the Agent
may request; and (c) after giving effect thereto no Default or Event of Default
exists.
Section 8.7. Acquisitions.
Make an Acquisition.
Section 8.8. No Activities Leading to Forfeiture.
Engage in the conduct of any business or activity which would be
likely to result in a Forfeiture Proceeding.
Section 8.9. Corporate Documents; Fiscal Year; Accounting Practices
Amend, modify or supplement its certificate or articles of
incorporation or bylaws in any way which would materially adversely affect the
ability of the Borrower or any Guarantor to perform its obligations hereunder;
change its fiscal year; or change its accounting treatments or reporting
practices except as required by or permitted by changes in GAAP or to conform
with GAAP.
Section 8.10. Hazardous Substances; Use of Real Property.
Use, or permit the use of, the owned or leased real properties for
conducting any manufacturing, industrial, commercial or retail business which
involves in any way the introduction, manufacture, generation, processing or
storage of any Hazardous Substance in violation, in any material respect, of any
applicable Environmental Law.
Section 8.11. Dividends, etc.
Declare or pay any dividend or make any other distribution, whether
in cash, property, securities or any combination thereof, with respect to any
shares of capital stock or redeem, purchase or retire any class of capital stock
or set apart any sums for such purposes except that (i) the Borrower may declare
dividends payable solely in capital stock of the
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Borrower; (ii) the Borrower may declare and pay cash dividends on any preferred
stock of the Borrower issued after the Closing Date provided that the proceeds
of the issuance of such preferred stock are applied to increase the capital of
the Borrower or to repay Subordinated Debt and for no other purpose; and (iii)
any Subsidiary of the Borrower may pay dividends to the Borrower or to any other
Subsidiary of the Borrower.
Section 8.12. Other Material Adverse Change.
Suffer or permit any event or series of events which could
reasonably be expected to cause a Material Adverse Effect.
Section 8.13. Amendments to Subordinated Debt.
Amend the provisions of any instrument evidencing Subordinated Debt.
Section 8.14. Effect of Negative Covenants.
Notwithstanding the foregoing, none of the negative covenants or
other provisions of this Agreement shall prohibit or be deemed to prohibit the
Borrower from engaging in any of the following activities provided that, in each
case, no Default or Event of Default results therefrom and that the Borrower
notifies the Agent prior to engaging in any such activities: (a) purchasing
portfolios of insurance premium finance receivables from other premium finance
companies; (b) rediscounting or financing insurance premiums for other premium
finance companies; or (c) being engaged as a "backup servicer" or "subservicer"
for any securitization of insurance premium finance company receivables.
ARTICLE 9.
FINANCIAL COVENANTS
So long as any of the Notes or other Obligations shall remain
unpaid, or any Bank shall have any Commitment under this Agreement, the Borrower
shall:
Section 9.1. Minimum Tangible Net Worth.
Maintain a Tangible Net Worth of not less than the sum of (i)
$5,987,086 plus (ii) 50% of net income (but not net loss) of the Borrower for
each fiscal quarter of the Borrower ending after December 31, 1996 on a
cumulative basis.
Section 9.2. Minimum Interest Coverage Ratio.
Maintain, as of the last day of each of its fiscal quarters and for
the period of four consecutive fiscal quarters of the Borrower then ended, an
Interest Coverage Ratio of not less than 1.20:1.00.
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Section 9.3. Maximum Senior Leverage Ratio.
Maintain at all times a Senior Leverage Ratio of not more than
4:00:1.00.
Section 9.4. Maximum Total Leverage Ratio.
Maintain at all times a Total Leverage Ratio of not more than
7.50:1.00.
Section 9.5. Maximum Loan Concentration Ratio.
Not permit its Loan Concentration Ratio with respect to loans to
finance insurance premiums generated by any one broker or agent to exceed
0.20:1.00 at any time.
Section 9.6. Minimum Capital Funds.
Maintain, as at each date listed below, minimum Capital Funds of the
amount set forth opposite such date:
Date Minimum Capital Funds
---- ---------------------
12/31/97 Actual Capital Funds at 12/31/96 plus $300,000
12/31/98 Actual Capital Funds at 12/31/96 plus $750,000
12/31/99 Actual Capital Funds at 12/31/96 plus $1,000,000
Section 9.7. Maximum Capital Expenditures.
Not make aggregate Capital Expenditures in excess of $100,000 in any
fiscal year.
Compliance with all of the financial covenants contained in this
Article 9 may be determined by reference to consolidated financial statements of
the Borrower and its Subsidiaries delivered to the Agent in accordance with
Section 7.8 hereof. All financial covenants may be tested more frequently, but
shall not be tested less frequently, than quarterly, at the discretion of the
Banks.
ARTICLE 10.
EVENTS OF DEFAULT
Section 10.1. Events of Default.
Any of the following events shall be an "Event of Default":
(a) The Borrower shall: (i) fail to pay the principal on any Note as
and when due and payable; (ii) fail to pay interest on any Note within one (1)
Banking Day of the date any such
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payment is due and payable; or (iii) fail to pay any other Obligation within
five (5) Banking Days of the date any such payment is due and payable;
(b) Any representation or warranty made or deemed made by the
Borrower in this Agreement or in any other Facility Document, or any
certificate, document or financial or other statement furnished at any time
under or in connection with any Facility Document, shall prove to have been
untrue in any material respect on the date on which it is made or deemed made or
furnished hereunder;
(c) The Borrower shall: (i) fail to perform or observe any term,
covenant or agreement contained in any of (A) Section 7.2, Section 7.8, Article
8, Article 9, or Section 12.3 hereof; or (ii) fail to perform or observe any
term, covenant or agreement on its part to be performed or observed (other than
the obligations specifically referred to in any of Section 10.1(a),
Section 10.1(b) or Section 10.1(c)(i) hereof) in this Agreement or under any
other Facility Document and (in the case of this Section 10.1(c)(ii) only) such
failure shall continue for thirty (30) consecutive days after written notice
given by the Agent to the Borrower;
(d) The Borrower or any Guarantor shall: (i) fail to pay any Debt or
Debts for borrowed money in an aggregate principal amount of $100,000 or more
(other than the payment obligations described in (a) above) or any interest or
premium thereon, when due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise) after giving effect to any applicable grace
periods; or (ii) fail to perform or observe any term, covenant or condition on
its part to be performed or observed, including the obligation to make payment,
under any agreement or instrument relating to any such Debt or Debts (other than
the payment obligations described in (a) above) when required to be performed or
observed, if the effect of such failure to perform or observe is to accelerate
or permit the acceleration of the maturity of such Debt, after giving effect to
any applicable grace period;
(e) The Borrower or any Guarantor (i) shall generally not, or be
unable to, or shall admit in writing its or their inability to, pay its or their
debts as such debts become due; or (ii) shall make an assignment for the benefit
of creditors, petition or apply to any tribunal for the appointment of a
custodian, receiver or trustee for it or a substantial part of its assets; or
(iii) shall commence any proceeding under any bankruptcy, reorganization,
arrangement, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction, whether now or hereafter in effect; or (iv) shall have had any
such petition or application filed or any such proceeding shall have been
commenced, against it or them, in which an adjudication or appointment is made
or order for relief is entered which petition, application or proceeding remains
unstayed and in effect for a period of sixty (60) days or more; or (v) by any
act or omission shall indicate its consent to, approval of or acquiescence in
any such petition, application or proceeding or order for relief or the
appointment of a custodian, receiver or trustee for all or any substantial part
of its property; (vi) shall suffer any such custodianship, receivership or
trusteeship (as referenced in (v) above, exclusive of any of the matters
referenced in any of (i) - (iv) hereof) to continue undischarged for a period of
sixty (60) days or more; or (vii) the Borrower shall cease to be Solvent;
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(f) One or more judgments, decrees or orders for the payment of
money shall be rendered against the Borrower or any Guarantor involving
aggregate liabilities of $100,000 or more (to the extent not paid or covered by
insurance provided by a carrier who has acknowledged coverage) and such
judgments, decrees or orders shall continue unsatisfied and in effect for a
period of forty-five (45) consecutive days without being vacated, discharged,
satisfied or stayed or bonded pending appeal;
(g) An event or condition specified in Section 7.8 (h) hereof shall
occur or exist with respect to any Plan or Multiemployer Plan and, as a result
of such event or condition, together with all other such events or conditions,
the Borrower, any Guarantor or any ERISA Affiliate shall incur a liability to a
Plan, a Multiemployer Plan or the PBGC (or any combination of the foregoing);
(h) Any Forfeiture Proceeding shall have been commenced against the
Borrower or any Guarantor;
(i) Any of the Guarantees shall at any time after their execution
and delivery and for any reason cease to be in full force and effect or shall be
declared null and void, or the validity of enforceability thereof shall be
contested by the Borrower or any Guarantor (or any assignee or transferee of the
Borrower or any Guarantor), or any Guarantor (or any assignee or transferee of
any Guarantor) shall deny that it has any further liability or obligation under
any Guarantee to which it is a party, or any Guarantor (or any assignee or
transferee of any Guarantor) shall fail to perform any of its obligations under
the Guarantee to which it is a party;
(j) Any Change in Control shall occur;
(k) Any state in which more than 10% of the business of the Borrower
is conducted shall change its laws to permit refunds of insurance policies to be
sent directly to the insured on such policies rather than to the applicable
premium finance company and such laws have become effective; or
(l) an "Event of Default" shall occur under the terms of the Palitz
Agreement.
Section 10.2. Remedies.
Upon the occurrence of any Event of Default, the Agent, with the
consent of the Required Banks may, and upon the direction of the Required Banks
shall, by notice to the Borrower, do one or more of the following: (a) declare
the Commitments to be terminated, whereupon the same shall forthwith terminate,
and (b) declare the outstanding principal of the Notes, all interest thereon and
all other Obligations to be forthwith due and payable, whereupon the Notes, all
such interest and all such amounts shall become and be forthwith due and
payable, without presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived by the Borrower; provided that, in the case
of an Event of Default referred to in Section 10. 1(e) or Section 10.1(h) above,
the Commitments shall be immediately terminated, and the Notes, all interest
thereon and all other amounts payable under this Agreement or the Notes
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shall be immediately due and payable without notice, presentment, demand,
protest or other formalities of any kind, all of which are hereby expressly
waived by the Borrower. Furthermore, if an Event of Default has occurred and the
Required Banks have exercised the remedies set forth in (a) and (b) above,
interest and fees payable hereunder in connection with the Loans shall
automatically be increased to the Default Rate.
ARTICLE 11.
THE AGENT;
RELATIONS AMONG BANKS AND BORROWER
Section 11.1. Appointment, Powers and Immunities of Agent
Each Bank hereby irrevocably appoints and authorizes Mellon Bank, N.A. to
act as its agent hereunder and under any other Facility Document with such
powers as are specifically delegated to the Agent by the terms of this Agreement
and any other Facility Document, together with such other powers as are
reasonably incidental thereto. The Agent shall have no duties or
responsibilities except those expressly set forth in this Agreement and any
other Facility Document, and shall not by reason of this Agreement be a trustee
for any Bank. The Agent shall not be responsible to the Banks for any recitals,
statements, representations or warranties made by the Borrower or any of the
Guarantors, or any officer or official of the Borrower, or any of the
Guarantors, or any other Person contained in this Agreement or any other
Facility Document, or in any certificate or other document or instrument
referred to or provided for in, or received by any of them under, this Agreement
or any other Facility Document, or for the value, legality, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
any other Facility Document or any other document or instrument referred to or
provided for herein or therein, or for any failure by the Borrower or any of the
Guarantors to perform any of their or its respective obligations hereunder or
thereunder. The Agent may take all necessary actions by itself and/or it may
employ agents and attorneys-in-fact and shall not he responsible, except as to
money or securities received by it or its authorized agents, for the negligence
or misconduct of itself or its employees or of any such agents or
attorneys-in-fact, if such agents or attorneys-in-fact are selected by it with
reasonable care. Neither the Agent nor any of its directors, officers, employees
or agents shall be liable or responsible for any action taken or omitted to be
taken by it or them hereunder or under any other Facility Document or in
connection herewith or therewith, except for its or their own gross negligence
or willful misconduct. The Borrower shall pay any fee agreed to by the Borrower
and the Agent with respect to the Agent's services hereunder.
Section 11.2. Reliance by Agent.
The Agent shall be entitled to rely upon any certification, notice
or other communication (including any thereof by telephone, telex, telegram or
cable) reasonably believed by it to be genuine and correct and to have been
signed or sent by or on behalf of the proper Person or Persons, and upon advice
and statements of legal counsel, independent accountants and other experts
selected by the Agent. The Agent may deem and treat each Bank as the holder of
the Loans made by it for all purposes hereof unless and until a notice of the
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assignment or transfer thereof satisfactory to the Agent signed by such Bank
shall have been furnished to the Agent, but the Agent shall not be required to
deal with any Person who has acquired a participation in any Loan from a Bank.
As to any matters not expressly provided for by this Agreement or any other
Facility Document, the Agent shall in all cases be fully protected in acting, or
in refraining from acting, hereunder in accordance with instructions signed by
the Required Banks, and such instructions of the Required Banks and any action
taken or failure to act pursuant thereto shall be binding on all of the Banks
and any other holder of all or any portion of any Loan.
Section 11.3. Defaults.
The Agent shall not be deemed to have knowledge of the occurrence of
a Default or Event of Default (other than the non-payment of principal of or
interest on the Loans to the extent the same is required to be paid to the Agent
for the account of the Banks) unless the Agent has received notice from a Bank
or the Borrower specifying such Default or Event of Default and stating that
such notice is a "Notice of Default." In the event that the Agent receives such
a notice of the occurrence of a Default or Event of Default, the Agent shall
give prompt notice thereof to the Banks (and shall give each Bank prompt notice
of each such non-payment). The Agent shall (subject to Sections 11.8 and 12.1
hereof) take such action with respect to such Default or Event of Default which
is continuing as shall be directed by the Required Banks; provided that, unless
and until the Agent shall have received such directions, the Agent may take such
action, or refrain from taking such action, with respect to such Default or
Event of Default as it shall deem advisable in the best interest of the Banks;
and provided further that the Agent shall not be required to take any such
action which it determines to be contrary to law.
Section 11.4. Rights of Agent as a Bank.
With respect to its Commitment and the Loans made by it, the entity
which is the Agent, in its capacity as a Bank hereunder, shall have the same
rights and powers hereunder as any other Bank and may exercise the same as
though it were not acting as the Agent, and the term "Bank" or "Banks" shall,
unless the context otherwise indicates, include such entity in its capacity as a
Bank. The Agent or any Bank and their respective Affiliates may (without having
to account therefor to any other Bank) accept deposits from, lend money to (on a
secured or unsecured basis), and generally engage in any kind of banking, trust
or other business with, the Borrower or the Guarantors or any of them (and any
of their Affiliates). In the case of the Agent, it may do so as if it were not
acting as the Agent, and the Agent may accept fees and other consideration from
the Borrower or the Guarantors or any of them for services in connection with
this Agreement or otherwise without having to account for the same to the Banks.
Although the Agent or a Bank or their respective Affiliates may in the course of
such relationships and relationships with other Persons acquire information
about the Borrower, the Guarantors and their respective Affiliates, neither the
Agent nor such Bank shall have any duty to disclose such information to the
other Banks.
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Section 11.5. Indemnification of Agent.
The Banks agree to indemnify the Agent (to the extent not reimbursed
under Section 12.3 hereof or under the applicable provisions of any other
Facility Document, but without limiting the obligations of the Borrower under
Section 12.3 hereof or such provisions), ratably in accordance with the
aggregate unpaid principal amount of the Loans made by the Banks (without giving
effect to any participation, in all or any portion of such Loans, sold by them
to any other Person) or, if no Loans are at the time outstanding, ratably in
accordance with their respective Commitments, for any and all liabilities,
obligations, losses, damages, penalties. actions, judgments, suits, costs,
expenses or disbursements of any kind and nature whatsoever which may be imposed
on, incurred by or asserted against the Agent in any way relating to or arising
out of this Agreement, any other Facility Document or any other documents
contemplated by or referred to herein or the transactions contemplated hereby or
thereby (including, without limitation, the costs and expenses which the
Borrower is obligated to pay under Section 12.3 hereof or under the applicable
provisions of any other Facility Document but excluding, unless a Default or
Event of Default has occurred, normal administrative costs and expenses
incidental to the performance of its agency duties hereunder) or the enforcement
of any of the terms hereof or thereof or of any such other documents or
instruments; provided that no Bank shall be liable for any of the foregoing to
the extent they arise from the gross negligence or willful misconduct of the
party to be indemnified.
Section 11.6. Documents.
The Agent will forward to each Bank, promptly after the Agent's
receipt thereof; a copy of each report, notice or other document required by
this Agreement or any other Facility Document to be delivered to the Agent.
Section 11.7. Non-Reliance on Agent and Other Banks.
Each Bank agrees that it has, independently and without reliance on
the Agent or any other Bank, and based on such documents and information as it
has deemed appropriate, made its own credit analysis of the Borrower and the
Guarantors and the decision to enter into this Agreement and that it will,
independently and without reliance upon the Agent or any other Bank, and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own analysis and decisions in taking or not taking action
under this Agreement or any other Facility Document. The Agent shall not be
required to keep itself informed as to the performance or observance by the
Borrower or the Guarantors of this Agreement or any other Facility Document, or
any other document referred to or provided for herein or therein, or to inspect
the properties or books of the Borrower or the Guarantors. Except for notices,
reports and other documents and information expressly required to be furnished
to the Banks by the Agent hereunder, the Agent shall not have any duty or
responsibility to provide any Bank with any credit or other information
concerning the affairs, financial condition or business of the Borrower or the
Guarantors which may come into the possession of the Agent or of its Affiliates.
The Agent shall not be required to file this Agreement, any other Facility
Document or any document or instrument referred to herein or therein for record
or give notice
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of this Agreement, any other Facility Document or any document or instrument
referred to herein or therein, to anyone.
Section 11.8. Failure of Agent to Act.
Except for action expressly required of the Agent hereunder, the
Agent shall in all cases be fully justified in failing or refusing to act
hereunder unless it shall have received further assurances (which may include
cash collateral) of the indemnification obligations of the Banks under Section
11.5 hereof in respect of any and all liability and expense which may be
incurred by it by reason of taking or continuing to take any such action.
Section 11.9. Resignation of Agent.
Subject to the appointment and acceptance of a successor Agent as
provided below, the Agent may resign at any time by giving written notice
thereof to the Banks and the Borrower, provided that the Borrower and the other
Banks shall be promptly notified thereof. Upon any such resignation, the
Required Banks shall have the right to appoint a successor Agent from among the
Banks. If no successor Agent shall have been so appointed by the Required Banks
and shall have accepted such appointment within thirty (30) days after the
retiring Agent's giving of notice of resignation, then the retiring Agent may,
on behalf of the Banks, appoint a successor Agent, which shall be a bank which
has an office in New York, New York with a minimum capital (plus surplus) of
$1,000,000,000. The appointment of any bank which is not then a party hereto
shall be subject to the approval of the Borrower, which shall not be
unreasonably withheld. The Required Banks or the retiring Agent, as the case may
be, shall upon the appointment of a successor Agent promptly so notify the
Borrower and the other Banks. Upon the acceptance of any appointment as Agent
hereunder by a successor Agent, such successor Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring Agent, and the retiring Agent shall be discharged from its duties and
obligations hereunder. After any retiring Agent's resignation hereunder as
Agent, the provisions of this Article 11 shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as the Agent.
Section 11.10. Amendments Concerning Agency Function.
The Agent shall not be bound by any waiver, amendment, supplement or
modification of this Agreement or any other Facility Document which affects its
duties hereunder or thereunder unless it shall have given its prior consent
thereto.
Section 11.11. Liability of Agent.
The Agent shall not have any liabilities or responsibilities to the
Borrower on account of the failure of any Bank to perform its obligations
hereunder or to any Bank on account of the failure of the Borrower to perform
its obligations hereunder or under any other Facility Document.
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Section 11.12. Transfer of Agency Function.
Without the consent of the Borrower or any Bank, the Agent may at
any time or from time to time transfer its functions as Agent hereunder to any
of its offices wherever located, provided that the Agent shall notify the
Borrower and the Banks thereof in advance.
Section 11.13. Non-Receipt of Funds by the Agent.
Unless the Agent shall have been notified by a Bank or the Borrower
(either one as appropriate being the "Payor") prior to the date on which such
Bank is to make payment hereunder to the Agent of the proceeds of a Loan or the
Borrower is to make payment to the Agent, as the case may be (either such
payment being a "Required Payment"), which notice shall be effective upon
receipt, that the Payor does not intend to make the Required Payment to the
Agent, the Agent may assume that the Required Payment has been made and may, in
reliance upon such assumption (but shall not be required to), make the amount
thereof available to the intended recipient on such date and, if the Payor has
not in fact made the Required Payment to the Agent, the recipient of such
payment shall, on demand, repay to the Agent the amount made available to it
together with interest thereon for the period from the date such amount was so
made available by the Agent until the date the Agent recovers such amount at a
rate per annum equal to the average daily Federal Funds Rate for such period.
Section 11.14. Withholding Taxes.
Each Bank represents that it is entitled to receive any payments to
be made to it hereunder without the withholding of any tax and will furnish to
the Agent such forms, certifications, statements and other documents as the
Agent may request from time to time to evidence such Bank's exemption from the
withholding of any tax imposed by any jurisdiction or to enable the Agent to
comply with any applicable laws or regulations relating thereto. Without
limiting the effect of the foregoing, if any Bank is not created or organized
under the laws of the United States of America or any state thereof; in the
event that the payment of interest by the Borrower is treated for U.S. income
tax purposes as derived in whole or in part from sources from within the U.S.,
such Bank will furnish to the Agent and the Borrower duplicate originals of Form
4224 or Form 1001 of the Internal Revenue Service (and updates of the same as
required by law), or such other forms, certifications, statements or documents,
duly executed and completed by such Bank as evidence of such Bank's exemption
from the withholding of U.S. tax with respect thereto. The Agent shall not be
obligated to make any payments hereunder to such Bank in respect of any Loan or
such Bank's Commitment (and the Borrower shall be entitled to withhold amounts
for payments of taxes) until such Bank shall have furnished to the Agent and the
Borrower duplicate originals of the requested form, certification, statement or
document.
Section 11.15. Several Obligations and Rights of Banks.
The failure of any Bank to make any Loan to be made by it on the
date specified therefor shall not relieve any other Bank of its obligation to
make its Loan on such date, but no Bank shall be responsible for the failure of
any other Bank to make a Loan to be made by such
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other Bank. The amounts payable at any time hereunder to each Bank shall be a
separate and independent debt, and each Bank shall be entitled to protect and
enforce its rights arising out of this Agreement, and it shall not be necessary
for any other Bank to be joined as an additional party in any proceeding for
such purpose.
Section 11.16. Pro Rata Treatment of Loans, Etc.
Except with respect to Swing Line Loans which shall be made by, and
shall be repaid to, the Agent for its own account and except to the extent
otherwise provided in this Agreement: (a) each borrowing under Section 2.4
hereof shall be made from or for the benefit of the Banks, each payment of the
Commitment Fee accruing under Section 3.3 hereof; and the Up Front Fee accruing
under Section 3.4 hereof; and each conversion of a Revolving Credit Loan from
one type of Revolving Credit Loan to another pursuant to Section 2.4 hereof;
shall be made for the account of the Banks, pro rata in accordance with their
respective Commitment Proportions; (b) each prepayment and payment of principal
of or interest on Loans of a particular type and a particular Interest Period
shall be made to the Agent for the account of the Banks holding Loans of such
type and Interest Period pro rata in accordance with the respective unpaid
principal amounts of or interest on such Loans of such Interest Period held by
such Banks.
Section 11.17. Sharing of Payments Among Banks.
If a Bank shall obtain payment of any principal of or interest on
any Revolving Credit Loan made by it through the exercise of any right of
setoff; banker's lien, counterclaim, or any other means, it shall promptly
purchase from the other Banks participations in (or, if and to the extent
specified by such Bank, direct interests in) the Revolving Credit Loans made by
the other Banks in such amounts, and make such other adjustments from time to
time as shall be equitable to the end that all the Banks shall share the benefit
of such payment (net of any expenses which may be incurred by such Bank in
obtaining or preserving such benefit) pro rata in accordance with the unpaid
principal and interest on the Revolving Credit Loans held by each of them. To
such end, the Banks shall make appropriate adjustments among themselves (by the
resale of participation sold or otherwise) if such payment is rescinded or must
otherwise be restored. The Borrower agrees that any Bank so purchasing a
participation (or direct interest) in the Revolving Credit Loans made by other
Banks may exercise all rights of setoff; banker's lien, counterclaim or similar
rights with respect to such participation (or direct interest). Nothing
contained herein shall require any Bank to exercise any such right or shall
affect the right of any Bank to exercise, and retain the benefits of exercising,
any such right with respect to any other indebtedness of the Borrower.
Section 11.18. Documentation Agent.
The Documentation Agent has no duties, responsibilities or
obligations hereunder.
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ARTICLE 12.
MISCELLANEOUS
Section 12.1. Amendments and Waivers.
Except as otherwise expressly provided in this Agreement, any
provision of this Agreement may be amended or modified only by an instrument in
writing signed by the Borrower and the Required Banks, and any provision of this
Agreement may be waived by an instrument signed by the Required Banks (if such
provision requires performance by the Borrower), including, but not limited to,
any Event of Default; provided that no amendment, modification or waiver shall,
unless by an instrument signed by the Borrower and all of the Banks: (a)
increase or extend the term, or extend the time or waive any requirement for the
reduction or termination, of the Commitments, (b) extend the date fixed for the
payment of principal of or interest on any Loan or any fees, (c) change the
amount of any payment of principal thereof or the rate at which interest is
payable thereon or any fee payable hereunder, (d) alter the terms of Article 4
or Sections 12.1 through 12.8 and Section 12.13 hereof, (e) change the
Commitment of any Bank or the fees payable to any Bank, except as expressly
otherwise provided herein, (f) permit the Borrower, or any of the Guarantors, to
transfer or assign any of its obligations hereunder or under the other Facility
Documents, (g) release any Guarantor from its obligations under the Facility
Documents or (h) change the definition of the term "Required Banks", "Borrowing
Base", "Admitted Insurer", "Applicable Percentage", "Eligible Accounts
Receivable" or "Non-Conforming Eligible Accounts Receivable". No failure on the
part of any Bank to exercise, and no delay in exercising, any right hereunder
shall operate as a waiver thereof or preclude any other or further exercise
thereof or the exercise of any other right. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
Section 12.2. Usury.
Anything herein to the contrary notwithstanding, the Obligations
shall be subject to the limitation that payments of interest shall not be
required to the extent that receipt thereof would be contrary to provisions of
law applicable to a Bank limiting rates of interest which may be charged or
collected by such Bank. If any of the above-referenced payments of interest,
together with any other charges or fees deemed in the nature of interest, exceed
the maximum rate permitted by law, then the Banks shall have the right to make
such adjustments as are necessary to reduce any such aggregate interest rate
(based on the foregoing aggregate amount) to the maximum rate permitted by law,
and if any Bank ever receives, collects or applies any such excess, it shall be
deemed a partial repayment of principal and treated as such; and if principal is
paid in full, any remaining excess shall be refunded to the Borrower. The
Borrower waives any right to prior notice of such adjustment and further agrees
that any such adjustment may be made by the Banks subsequent to notification
from the Borrower that such aggregate interest charged exceeds the maximum rate
permitted by law.
52
<PAGE>
Section 12.3. Expenses.
The Borrower shall reimburse the Agent on demand for all reasonable
costs, expenses and charges (including, without limitation, reasonable fees and
charges of the Agent's special counsel, Rivkin, Radler & Kremer, plus
disbursements, incurred in connection with or in relation to the documentation,
negotiation and closing of the transactions contemplated hereby, subject to the
limits previously agreed to by the Agent and the Borrower) incurred in
connection with the preparation, review, execution and delivery of this
Agreement and the Facility Documents. In addition, the Borrower shall reimburse
the Agent and each Bank for all of its reasonable costs and expenses in
connection with the enforcement or preservation of any rights under this
Agreement, the Notes or the other Facility Documents. The Borrower agrees to
indemnify the Agent and each Bank and their respective directors, officers,
employees and agents from, and hold each of them harmless against, any and all
losses, liabilities, claims, damages or expenses incurred by any of them arising
out of or by reason of any investigation or litigation or other proceedings
(including any threatened investigation or litigation or other proceedings)
relating to any actual or proposed use by the Borrower or any of its Affiliates
of the proceeds of the Loans, or to the failure of the Borrower to perform or
observe any of the terms, covenants or conditions on its part to be performed or
observed under this Agreement or under any of the Facility Documents including,
without limitation, the reasonable fees and disbursements of counsel incurred in
connection with any such investigation or litigation or other proceedings (but
excluding any such losses, liabilities, claims, damages or expenses incurred by
reason of the gross negligence, willful misconduct or bad faith of the Person or
Persons to be indemnified).
Section 12.4. Survival.
The obligations of the Borrower under Section 2.3, Section 3.3,
Section 3.4, Article 4 and Section 12.3 hereof shall survive the repayment of
the Loans and the Termination Date.
Section 12.5. Assignment; Participation.
This Agreement shall be binding upon, and shall inure to the benefit
of the Borrower, the Banks and their respective successors and assigns, except
that the Borrower may not assign or transfer its rights or obligations
hereunder. Each Bank may sell a participation in. or, with the prior written
consent of the Borrower and the Agent (which consents shall not be unreasonably
withheld) assign, all or any part of any Loan and Commitment to another bank or
other entity, in which event (a) in the case of an assignment, upon notice
thereof by such Bank to the Borrower and the Agent and subject to the Borrower's
and Agent's consent (as referenced above), the assignee shall have, to the
extent of such assignment (unless otherwise provided therein), the same rights,
benefits and obligations (including, without limitation, a ratable assumption of
the assigning Bank's Commitment and Commitment Proportion hereunder) as it would
have if it were a Bank hereunder; and (b) in the case of a participation, the
participant shall have no rights under the Facility Documents and all amounts
payable by the Borrower under Articles 2 and 3 hereof shall be determined as if
such Bank had not sold such participation. Such Bank may furnish any information
concerning the Borrower in the possession of such
53
<PAGE>
Bank from time to time to assignees and participants (including prospective
assignees and participants); provided that such Bank shall require any such
prospective assignee or such participant (prospective or otherwise) to agree in
writing for the benefit of the Borrower to maintain the confidentiality of such
information in accordance with Section 12.14 hereof. There shall be no limit on
the number of assignments or participations that may be granted by any Bank.
Notwithstanding any other provisions of this Agreement and except as provided in
the next sentence, no Bank may make an assignment of less than the lesser of
$2,000,000 or the entire remaining amount of its Loans and Commitment hereunder.
Notwithstanding anything contained herein to the contrary each Bank shall be
permitted, without the prior consent of the Borrower or the Agent, to assign all
or part of its Loans hereunder to any Federal Reserve Bank in connection with
any collateral assignment thereto in the ordinary course of any such Bank's
business or assign (upon notice to the Borrower and the Agent) or participate
all or part of its Loans and Commitment hereunder to any Affiliate of such Bank.
Section 12.6. Notices.
Unless the party to be notified otherwise notifies the other party
in writing as provided in this Section, and except as otherwise provided in this
Agreement, notices shall be given to the Borrower by certified or registered
mail or by recognized overnight delivery services to such party at its address
on the signature page of this Agreement, and in any such case, any such notice
shall be accompanied by notice by telecopy. Copies of all notices addressed to
the Borrower shall be provided to Reed, Smith, Shaw & McClay LLP, 375 Park
Avenue, New York, New York 10152; Attn: Sol W. Bernstein, Esq. provided that the
failure to provide such copy shall not effect the validity of any notice given
hereunder. Initially, notice shall be delivered to each party hereto at the
addresses set forth on the signature page hereof. Notices shall be effective:
(a) if given by registered or certified mail, 72 hours after deposit in the
mails with postage prepaid, addressed as aforesaid; or (b) if given by
recognized overnight delivery service, on the Banking Day following deposit with
such service addressed as aforesaid; or (c) if given by telecopy, when the
telecopy is transmitted to the telecopy number as aforesaid and confirmed with a
confirmation receipt.
Section 12.7. Setoff.
The Borrower agrees that, in addition to (and without limitation of)
any right of setoff; banker's lien or counterclaim a Bank may otherwise have,
each Bank shall be entitled, at its option without any prior notice to the
Borrower (any such notice being expressly waived by the Borrower to the extent
permitted by applicable law), to offset balances (general or special, time or
demand, provisional or final) held by it for the account of the Borrower at any
of such Bank's offices, in Dollars or in any other currency, against any amount
payable by the Borrower to such Bank under this Agreement or such Bank's Note
which is not paid when due (regardless of whether such balances are then due to
the Borrower), in which case it shall promptly notify the Borrower thereof;
provided that such Bank's failure to give such notice shall not affect the
validity thereof. Payments by the Borrower hereunder shall be made without
setoff or counterclaim.
54
<PAGE>
Section 12.8. Jurisdiction; Immunities.
(A) THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF
ANY NEW YORK STATE OR UNITED STATES FEDERAL COURT SITTING IN NEW YORK OR NASSAU
COUNTIES OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE NOTES, AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL
CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN
SUCH NEW YORK STATE OR FEDERAL COURT. THE BORROWER IRREVOCABLY CONSENTS TO THE
SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING
(BY CERTIFIED OR REGISTERED MAIL) OF COPIES OF SUCH PROCESS TO THE BORROWER AT
THE ADDRESS SPECIFIED IN SECTION 12.6 HEREOF. THE BORROWER AGREES THAT A FINAL
JUDGMENT (INCLUDING ANY APPLICABLE APPEALS) IN ANY SUCH ACTION OR PROCEEDING
SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE
JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. THE BORROWER FURTHER WAIVES ANY
OBJECTION TO VENUE IN SUCH STATE AND ANY OBJECTION TO AN ACTION OR PROCEEDING IN
SUCH STATE ON THE BASIS OF FORUM NON CONVENIENS. THE BORROWER FURTHER AGREES
THAT ANY ACTION OR PROCEEDING BROUGHT AGAINST ANY BANK SHALL BE BROUGHT ONLY IN
A NEW YORK STATE OR UNITED STATES FEDERAL COURT SITTING IN NEW YORK OR NASSAU
COUNTIES. EACH OF THE AGENT, THE BANKS AND THE BORROWER WAIVES ANY RIGHT THEY
MAY HAVE TO JURY TRIAL WITH RESPECT TO THIS AGREEMENT AND THE OTHER FACILITY
DOCUMENTS.
(B) NOTHING IN THIS SECTION 12.8 SHALL AFFECT THE RIGHT OF ANY BANK
TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT
OF ANY BANK TO BRING ANY ACTION OR PROCEEDING AGAINST THE BORROWER OR ITS
PROPERTY IN THE COURTS OF ANY OTHER JURISDICTIONS.
(C) TO THE EXTENT THAT THE BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY
IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER FROM
SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION,
EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, IT HEREBY
IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS
AGREEMENT AND THE NOTES.
Section 12.9. Table of Contents; Headings.
Any table of contents and the headings and captions hereunder are
for convenience only and shall not affect the interpretation or construction of
this Agreement.
55
<PAGE>
Section 12.10. Severability.
The provisions of this Agreement are intended to be severable. If
for any reason any provision of this Agreement shall be held invalid or
unenforceable in whole or in part in any jurisdiction, such provision shall, as
to such jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without in any manner affecting the validity or enforceability
thereof in any other jurisdiction or the remaining provisions hereof in any
jurisdiction.
Section 12.11. Counterparts.
This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one and the same instrument, and any party
hereto may execute this Agreement by signing any such counterpart.
Section 12.12. Integration.
The Facility Documents set forth the entire agreement among the
parties hereto relating to the transactions contemplated thereby and supersede
any prior oral or written statements or agreements with respect to such
transactions.
Section 12.13. Governing Law.
This Agreement shall be governed by, and interpreted and construed
in accordance with, the law of the State of New York.
Section 12.14. Confidentiality.
Each of the Agent and the Banks agrees that it will maintain the
confidentiality of all information furnished by the Borrower in accordance with
the Agent or such Bank's customary practices for handling confidential
information of its customers and that it will not disclose without the prior
written consent of the Borrower (other than to Affiliates of such Banks and
their respective directors, employees, auditors, counsel or other professional
advisors on terms of confidentiality consistent with this Section 12.14), any
information identified by the Borrower as "confidential" with respect to the
Borrower or any of its Subsidiaries which is furnished by the Borrower and will
not at any time use or permit the use of any such information for any purpose
which could reasonably be considered to be in direct competition by the Agent,
any Bank or any of their respective affiliates or their officers, directors or
employees with the business of the Borrower; provided that the foregoing
provisions of this Section 12.14 shall not apply to and any Bank may disclose
any such information (a) that is or has become generally available to the
public; (b) as may be required or appropriate (x) in any report, statement or
testimony submitted to any municipal, state or Federal or other governmental
regulatory body having or claiming to have jurisdiction over such Bank or to the
Federal Reserve Board or the Federal Deposit Insurance Corporation or similar
organizations (whether in the United States or elsewhere) or their successors or
(y) in connection with any request or requirement of any such regulatory body;
(c) as may be required or appropriate in response to any summons or subpoena
56
<PAGE>
or in connection with any litigation; (d) to comply with any law, order,
regulation or ruling applicable to such Bank; and (e) to any prospective
transferee in connection with any contemplated transfer of any of the Notes or
any interest therein by such Bank; provided that such prospective transferee
agrees to be bound by this Section 12.14 to the same extent as such Bank.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the
date first above written.
STANDARD FUNDING CORP.
By: _______________________
Name: Alan J. Karp
Title: President
Address for Notices: Standard Funding Corp.
335 Crossways Park Drive
Woodbury, New York 11797
Attn: Alan J. Karp, President
Telephone No.: (516) 364-0200
Telefax No.: (516) 364-0205
BANKS:
MELLON BANK, N.A. Commitment: $16,000,000
By: ______________________
Name: Morris Danon
Title: Senior Vice President
Lending Office and Address for Notices:
MELLON BANK, N.A.
176 EAB Plaza
West Tower, 11th Floor
Uniondale, NY 11556-0165
Attention: Jeffrey B. Carstens
Vice President
Telephone No.: (516) 338-3012
Telefax No.: (516) 338-3070
57
<PAGE>
THE BANK OF NEW YORK Commitment: $11,500,000
By: _____________________
Name: Stephen Kelly
Title: Assistant Vice President
Lending Office and Address for Notices
THE BANK OF NEW YORK
1401 Franklin Avenue
Garden City, New York 11530
Attention: Stephen Kelly
Telephone No.: (516) 294-2243
Telefax No.: (516) 294-2055
FLEET BANK, NATIONAL ASSOCIATION Commitment: $10,000,000
By: _____________________
Name: Anthony Nocera
Title: Vice President
Lending Office and Address for Notices:
Fleet Bank, National Association
1185 Avenue of the Americas
New York, New York 10036
Attention: Steven Groth, Senior Vice President
Telephone No.: (212) 819-6107
Telefax No.: (212) 819-6211
58
<PAGE>
MARINE MIDLAND BANK Commitment: $7,500,000
By: _____________________
Name: Roger M. Coleman
Title: Vice President
Lending Office and Address for Notices:
Marine Midland Bank
534 Broad Hollow Road
Melville, New York 11747
Attention: Roger Coleman
Vice President
Telephone No.: (516) 752-4343
Telefax No.: (516) 752-4340
59
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1. DEFINITIONS; ACCOUNTING TERMS .................................. 1
Section 1.1. Definitions ............................................. 1
Section 1.2. Accounting Terms ........................................ 15
ARTICLE 2. REVOLVING CREDIT FACILITY ...................................... 15
Section 2.1. Revolving Credit Loans .................................. 15
Section 2.2. The Revolving Credit Notes .............................. 15
Section 2.3. Use of Proceeds ......................................... 16
Section 2.4. Borrowing Procedure for Revolving Credit Loans .......... 16
Section 2.5. Minimum Amounts of Revolving Credit Loans ............... 17
Section 2.6. Interest Period Elections for Borrowings ................ 17
Section 2.7. Interest on Loans ....................................... 17
Section 2.8. Changes of Commitments .................................. 18
Section 2.9. Swing Line Loans ........................................ 18
ARTICLE 3. GENERAL CREDIT PROVISIONS; FEES AND PAYMENTS ................... 20
Section 3.1. Certain Notices ......................................... 20
Section 3.2. Prepayments ............................................. 20
Section 3.3. Commitment Fee .......................................... 21
Section 3.4. Up Front Fee ............................................ 21
Section 3.5. Payments Generally ...................................... 21
ARTICLE 4. YIELD PROTECTION, ETC. ......................................... 22
Section 4.1. Certain Compensation .................................... 22
Section 4.2. Additional Costs ........................................ 24
Section 4.3. Limitations on Types of Loans ........................... 25
Section 4.4. Illegality .............................................. 25
Section 4.5. Certain LIBOR Loans Pursuant to Sections
4.2, 4.3 and 4.4 ..................................................... 26
Section 4.6. Change of Lending Office ................................ 26
Section 4.7. Survival ................................................ 26
ARTICLE 5. CONDITIONS PRECEDENT ........................................... 26
Section 5.1. Documentary Conditions Precedent ........................ 26
i
<PAGE>
Section 5.2. Additional Conditions Precedent ......................... 28
Section 5.3. Deemed Representations .................................. 29
ARTICLE 6. REPRESENTATIONS AND WARRANTIES ................................. 29
Section 6.1. Incorporation, Good Standing and Due Qualifications;
Compliance with Law .................................................. 29
Section 6.2. Power and Authority; No Conflicts ....................... 29
Section 6.3. Legally Enforceable Agreements .......................... 30
Section 6.4. Litigation .............................................. 30
Section 6.5. Financial Statements; Other Liabilities ................. 30
Section 6.6. Ownership and Liens ..................................... 31
Section 6.7. Taxes ................................................... 31
Section 6.8. ERISA ................................................... 31
Section 6.9. Subsidiaries and Ownership of Stock ..................... 31
Section 6.10. Credit Arrangements .................................... 31
Section 6.11. Operation of Business .................................. 32
Section 6.12. Hazardous Substances ................................... 32
Section 6.13. No Default on Outstanding Judgments, Orders or
Agreements ........................................................... 32
Section 6.14. Labor Disputes and Acts of God ......................... 32
Section 6.15. Governmental Regulation ................................ 33
Section 6.16. Partnerships ........................................... 33
Section 6.17. No Forfeiture Proceeding ............................... 33
Section 6.18. No Default of Event of Default ......................... 33
Section 6.19. Solvency ............................................... 33
Section 6.20. Material Adverse Change ................................ 33
Section 6.21. Name and Location ...................................... 33
Section 6.22. Margin Stock ........................................... 33
ARTICLE 7. AFFIRMATIVE COVENANTS .......................................... 34
Section 7.1. Maintenance of Existence ................................ 34
Section 7.2. Conduct of Business ..................................... 34
Section 7.3. Maintenance of Properties ............................... 34
Section 7.4. Maintenance of Records .................................. 34
ii
<PAGE>
Section 7.5. Maintenance of Insurance ................................ 34
Section 7.6. Compliance with Laws .................................... 34
Section 7.7. Right of Inspection ..................................... 35
Section 7.8. Reporting Requirements .................................. 35
Section 7.9. Payment of Obligations .................................. 37
Section 7.10. Subsidiaries ........................................... 38
Section 7.11. "Key Man" Life Insurance ............................... 38
Section 7.12. Deposit Relationship ................................... 38
Section 7.13. Year 2000 .............................................. 38
ARTICLE 8. NEGATIVE COVENANTS ............................................. 38
Section 8.1. Debt .................................................... 38
Section 8.2. Liens ................................................... 39
Section 8.3. Investments ............................................. 40
Section 8.4. Sale of Assets .......................................... 40
Section 8.5. Transactions with Affiliates ............................ 40
Section 8.6. Mergers, Etc. ........................................... 41
Section 8.7. Acquisitions ............................................ 41
Section 8.8. No Activities Leading to Forfeiture ..................... 41
Section 8.9. Corporate Documents; Fiscal Year; Accounting Practices .. 41
Section 8.10. Hazardous Substances; Use of Real Property ............. 41
Section 8.11. Dividends, etc. ........................................ 41
Section 8.12. Other Material Adverse Change .......................... 42
Section 8.13. Amendments to Subordinated Debt ........................ 42
Section 8.14. Effect of Negative Covenants ........................... 42
ARTICLE 9. FINANCIAL COVENANTS ............................................ 42
Section 9.1. Minimum Tangible Net Worth .............................. 42
Section 9.2. Minimum Interest Coverage Ratio ......................... 42
Section 9.3. Maximum Senior Leverage Ratio ........................... 43
Section 9.4. Maximum Total Leverage Ratio ............................ 43
Section 9.5. Maximum Loan Concentration Ratio ........................ 43
Section 9.6. Minimum Capital Funds ................................... 43
Section 9.7. Maximum Capital Expenditures ............................ 43
iii
<PAGE>
ARTICLE 10. EVENTS OF DEFAULT ............................................. 43
Section 10.1. Events of Default ...................................... 43
Section 10.2. Remedies ............................................... 45
ARTICLE 11. THE AGENT; RELATIONS AMONG BANKS AND BORROWER ................. 46
Section 11.1. Appointment, Powers and Immunities of Agent ............ 46
Section 11.2. Reliance by Agent ...................................... 46
Section 11.3. Defaults ............................................... 47
Section 11.4. Rights of Agent as a Bank .............................. 47
Section 11.5. Indemnification of Agent ............................... 48
Section 11.6. Documents .............................................. 48
Section 11.7. Non-Reliance on Agent and Other Banks .................. 48
Section 11.8. Failure of Agent to Act ................................ 49
Section 11.9. Resignation of Agent ................................... 49
Section 11.10. Amendments Concerning Agency Function ................. 49
Section 11.11. Liability of Agent .................................... 49
Section 11.12. Transfer of Agency Function ........................... 50
Section 11.13. Non-Receipt of Funds by the Agent ..................... 50
Section 11.14. Withholding Taxes ..................................... 50
Section 11.15. Several Obligations and Rights of Banks ............... 50
Section 11.16. Pro Rata Treatment of Loans, Etc. ..................... 51
Section 11.17. Sharing of Payments Among Banks ....................... 51
Section 11.18. Documentation Agent ................................... 51
ARTICLE 12. MISCELLANEOUS ................................................. 52
Section 12.1. Amendments and Waivers ................................. 52
Section 12.2. Usury .................................................. 52
Section 12.3. Expenses ............................................... 53
Section 12.4. Survival ............................................... 53
Section 12.5. Assignment; Participation .............................. 53
Section 12.6. Notices ................................................ 54
Section 12.7. Setoff ................................................. 54
Section 12.8. Jurisdiction; Immunities ............................... 55
Section 12.9. Table of Contents; Headings ............................ 55
iv
<PAGE>
Section 12.10. Severability .......................................... 56
Section 12.11. Counterparts .......................................... 56
Section 12.12. Integration ........................................... 56
Section 12.13. Governing Law ......................................... 56
Section 12.14. Confidentiality ....................................... 56
v
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EXHIBITS
Exhibit A - Form of Note
Exhibit B - Form of Borrowing Base Certificate
Exhibit C - Form of Guarantee
Exhibit D - Form of Swing Line Loan Note
SCHEDULES
Schedule 1.1 - Subordinated Debt
Schedule 5.1 - LIBOR Loans Outstanding on Closing Date
Schedule 6.9 - Subsidiaries
Schedule 6.10 - Credit Agreements
Schedule 6.21 - Names and Locations
Schedule 8.2 - Existing Liens
vi
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SCHEDULE 5.1
EXISTING LIBOR LOANS
Lender Principal Balance Maturity Date
------ ----------------- -------------
European American Bank $1,500,000 1/26/98
vii
Exhibit 10.48
<PAGE>
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ATLANTIC BANK OF NEW YORK
ATLANTIC PREMIUM, INC.
and
STANDARD FUNDING CORP.
Dated as of January 28, 1999
<PAGE>
i
TABLE OF CONTENTS
ARTICLE I
THE MERGER ................ 1
SECTION 1.1 The Merger ................................ 1
SECTION 1.2 Effective Time ............................ 2
SECTION 1.3 Effect of the Merger ...................... 2
SECTION 1.4 Certificate of Incorporation; By-Laws ..... 2
SECTION 1.5 Directors and Officers .................... 2
SECTION 1.6 Effect on Capital Stock ................... 2
SECTION 1.7 Dissenters' Rights ........................ 4
SECTION 1.8 Payment for Shares ........................ 4
SECTION 1.9 No Further Rights or Transfers ............ 6
SECTION 1.10 Taking of Necessary Action; Further Action 6
SECTION 1.11 Material Adverse Effect ................... 7
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY 7
SECTION 2.1 Corporate Organization .................... 7
SECTION 2.2 Capitalization ............................ 7
SECTION 2.3 Subsidiaries .............................. 8
SECTION 2.4 No Commitments to Issue Capital Stock ..... 8
SECTION 2.5 Authorization; Execution and Delivery ..... 8
SECTION 2.6 Governmental Approvals and Filings ........ 9
SECTION 2.7 No Conflict ............................... 9
SECTION 2.8 SEC Filings ............................... 9
SECTION 2.9 Financial Statements; Absence of Undisclosed
Liabilities; Receivables .................. 10
SECTION 2.10 [Intentionally Omitted] ................... 11
SECTION 2.11 Absence of Changes ........................ 11
SECTION 2.12 Tax Matters ............................... 13
SECTION 2.13 Relations with Employees and Brokers ...... 14
SECTION 2.14 Employee Benefits ......................... 15
SECTION 2.15 Title to Properties ....................... 19
SECTION 2.16 Compliance with Laws; Legal Proceedings ... 19
SECTION 2.17 Finders ................................... 20
<PAGE>
ii
SECTION 2.18 Intellectual Property ..................... 20
SECTION 2.19 Insurance ................................. 21
SECTION 2.20 Contracts; etc. ........................... 21
SECTION 2.21 Permits, Authorizations, etc. ............. 23
SECTION 2.22 Environmental Matters ..................... 23
SECTION 2.23 Company Acquisitions ...................... 24
SECTION 2.24 Books and Records ......................... 24
SECTION 2.25 Interested Party Transactions ............. 24
SECTION 2.26 Certain Approvals ......................... 25
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
PARENT AND MERGER SUB .......... 25
SECTION 3.1 Corporate Organization .................... 25
SECTION 3.2 Capitalization ............................ 25
SECTION 3.3 Authorization; Execution and Delivery ..... 25
SECTION 3.4 Governmental Approvals and Filings ........ 25
SECTION 3.5 No Conflict ............................... 26
SECTION 3.6 No Legal Proceedings ...................... 26
SECTION 3.7 Finders ................................... 26
SECTION 3.8 Financial Ability to Perform .............. 26
SECTION 3.9 Proxy Statement ........................... 26
ARTICLE IV
COVENANTS, TRANSACTIONS AND CONDUCT OF
BUSINESS PENDING THE MERGER ....... 27
SECTION 4.1 Conduct of Business by the Company Pending
the Merger ................................ 27
SECTION 4.2 Shareholders' Meeting; Proxy Material ..... 29
SECTION 4.3 No Shopping ............................... 29
SECTION 4.4 Access to Information ..................... 31
SECTION 4.5 Amendment of Company's Employee Plans ..... 31
SECTION 4.6 Stock Options and Warrants ................ 31
SECTION 4.7 Best Efforts .............................. 31
SECTION 4.8 Consents .................................. 31
SECTION 4.9 Public Announcements ...................... 32
SECTION 4.10 Notification of Certain Matters ........... 32
SECTION 4.11 Indemnification ........................... 32
<PAGE>
iii
SECTION 4.12 Directors and Officers Liability Insurance 32
SECTION 4.13 Employment Contracts ...................... 33
SECTION 4.14 Conveyance Taxes .......................... 33
SECTION 4.15 Repayment of Indebtedness ................. 34
SECTION 4.16 Keyman Life Insurance ..................... 34
ARTICLE V
CONDITIONS TO THE MERGER ......... 33
SECTION 5.1 Conditions to Obligation of Each Party to
Effect the Merger ......................... 33
SECTION 5.2 Additional Conditions to Obligations of
Parent and Merger Sub ..................... 34
SECTION 5.3 Additional Conditions to Obligation of the
Company ................................... 36
ARTICLE VI
TERMINATION ............... 36
SECTION 6.1 Termination .............................. 36
SECTION 6.2 Effect of Termination .................... 38
SECTION 6.3 Fees and Expenses and Damages ............ 38
ARTICLE VII
GENERAL PROVISIONS ............ 39
SECTION 7.1 Effectiveness of Representations,
Warranties and Agreements ................ 39
SECTION 7.2 Notices .................................. 39
SECTION 7.3 Certain Definitions ...................... 40
SECTION 7.4 Amendment ................................ 41
SECTION 7.5 Waiver ................................... 41
SECTION 7.6 Headings; Construction ................... 41
SECTION 7.7 Severability ............................. 41
SECTION 7.8 Entire Agreement ......................... 42
SECTION 7.9 Assignment; Merger Sub ................... 42
SECTION 7.10 Parties in Interest ...................... 42
SECTION 7.11 Failure or Indulgence Not Waiver;
Remedies Cumulative ...................... 42
SECTION 7.12 Governing Law ............................ 42
SECTION 7.13 Counterparts ............................. 42
SECTION 7.14 WAIVER OF JURY TRIAL ..................... 43
<PAGE>
iv
Exhibit 1.6(b) Form of Note
Exhibit 4.6 Resolutions
Exhibit 5.2(j) Commercial Paper
Exhibit A Form of Employment Agreement (Karp)
Exhibit B Form of Employment Agreement (Fisher)
Exhibit C-1 Form of Kramer Levin Opinion
Exhibit C-2 Form of James Maxwell, Esq. Opinion
Exhibit D Form of Blau Kramer Opinion
<PAGE>
1
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of January 28, 1999 (this
"Agreement"), among ATLANTIC BANK OF NEW YORK, a New York corporation
("Parent"), ATLANTIC PREMIUM, INC., a New York corporation and a direct,
wholly-owned subsidiary of Parent ("Merger Sub"), and STANDARD FUNDING CORP., a
New York corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Boards of Directors of Parent, Merger Sub and the
Company have each determined that it is advisable and in the best interests of
their respective shareholders for Parent to cause Merger Sub to merge with and
into the Company upon the terms and subject to the conditions set forth herein;
WHEREAS, in furtherance of such combination, the Boards of Directors
of Parent, Merger Sub and the Company have each approved the merger (the
"Merger") of Merger Sub with and into the Company in accordance with the
applicable provisions of the New York Business Corporation Law ("NYBCL"), and
upon the terms and subject to the conditions set forth herein; and
WHEREAS, pursuant to the Merger, each outstanding share (a "Share")
of the Company's Common Stock, par value $0.001 per share (the "Company Common
Stock"), subject to the provisions of Section 1.7, shall be converted into the
right to receive the Merger Consideration (as defined in Section 1.6(b)), upon
the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Parent, Merger Sub and the Company hereby agree as follows:
<PAGE>
2
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. (a) Effective Time. At the Effective Time (as
defined in Section 1.2), and subject to and upon the terms and conditions of
this Agreement and the NYBCL, Merger Sub shall be merged with and into the
Company, the separate corporate existence of Merger Sub shall cease, and the
Company shall continue as the surviving corporation. The Company as the
surviving corporation after the Merger is hereinafter sometimes referred to as
the "Surviving Corporation."
(b) Closing. Unless this Agreement shall have been terminated and
the transactions herein contemplated shall have been abandoned pursuant to
Section 6.1 and subject to the satisfaction or waiver of the conditions set
forth in Article V, the consummation of the Merger will take place as promptly
as practicable (and in any event within two business days) after satisfaction or
waiver of the conditions set forth in Article V at the offices of Kramer Levin
Naftalis & Frankel LLP, 919 Third Avenue, New York, New York, unless another
date, time or place is agreed to in writing by the parties hereto.
SECTION 1.2 Effective Time. As promptly as practicable after the
satisfaction or waiver of the conditions set forth in Article V, the parties
hereto shall cause the Merger to be consummated by filing a certificate of
merger as contemplated by the NYBCL (the "Certificate of Merger"), together with
any required related certificates, with the Secretary of State of the State of
New York, in such form as required by, and executed in accordance with the
relevant provisions of, the NYBCL (the time of such filing being the "Effective
Time").
SECTION 1.3 Effect of the Merger. At the Effective Time, the effect
of the Merger shall be as provided in this Agreement, the Certificate of Merger
and the applicable provisions of the NYBCL. Without limiting the generality of
the foregoing, and subject thereto, at the Effective Time (i) the Surviving
Corporation shall possess all the rights, privileges, immunities, powers and
purposes of Merger Sub and the Company, (ii) all the property, real and
personal, including subscriptions to shares, causes of action and every other
asset of Merger Sub and the Company shall vest in the Surviving Corporation
without further act or deed, and (iii) the Surviving Corporation shall assume
and be liable for all the liabilities, obligations and penalties of Merger Sub
and the Company.
SECTION 1.4 Certificate of Incorporation; By-Laws. (a) Certificate
of Incorporation. Unless otherwise determined by Parent prior to the Effective
Time, at the Effective Time the Certificate of Incorporation of the Company, as
in effect immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation
<PAGE>
3
until thereafter amended as provided by the NYBCL and such Certificate of
Incorporation.
(b) By-Laws. The By-Laws of the Company, as in effect immediately
prior to the Effective Time, shall be the By-Laws of the Surviving Corporation
until thereafter amended as provided by the NYBCL, the Certificate of
Incorporation of the Surviving Corporation and such By-Laws.
SECTION 1.5 Directors and Officers. The directors of Merger Sub
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Certificate of
Incorporation and ByLaws of the Surviving Corporation, and the officers of the
Company immediately prior to the Effective Time shall be the initial officers of
the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified.
SECTION 1.6 Effect on Capital Stock. At the Effective Time, by
virtue of the Merger and without any action on the part of the Parent, Merger
Sub, the Company or the holders of any of the following securities:
(a) Conversion of Shares Held by Small Holders. Subject to the
provisions of Section 1.7, each Share of the Company Common Stock issued and
outstanding immediately prior to the Effective Time held by a Person that holds,
in the aggregate, shares of the Company Common Stock that represent 20% or less
of such issued and outstanding Company Common Stock (a "Small Holder") shall be
converted into the right to receive $3.50 in cash (the "Small Holder Cash
Consideration").
(b) Conversion of Shares Held by Large Holders. Subject to the
provisions of Section 1.7, each Share of the Company Common Stock issued and
outstanding immediately prior to the Effective Time held by a Person that holds,
in the aggregate, shares of the Company Common Stock that represent more than
20% of such issued and outstanding Company Common Stock (a "Large Holder") shall
be converted into the right to receive (i) $2.97479 in cash (the "Large Holder
Cash Consideration"), and (ii) Notes, dated the Effective Date and otherwise in
substantially the form set forth on Exhibit 1.6(b) hereto (the "Notes"), having
an aggregate principal amount equal to $0.52521 for each Share of the Company
Common Stock held by such Large Holder immediately prior to the Effective Time.
The Small Holder Cash Consideration, Large Holder Cash Consideration and Notes
are collectively referred to herein as the "Merger Consideration."
(c) Cancellation. Each share of the Company Common Stock held in the
treasury of the Company and each share of the Company Common Stock owned by
Parent, Merger Sub or any direct or indirect wholly owned subsidiary of the
Company or Parent immediately prior to the Effective Time shall, by virtue of
the Merger and without any action on the part of the
<PAGE>
4
holder thereof, cease to be outstanding, be canceled and retired without payment
of any consideration therefor and cease to exist.
(d) Warrants and Options.
(i) Each warrant (a "Warrant") to purchase shares of the Company Common
Stock heretofore granted under any warrant agreement or other arrangement
with the Company shall be converted into a right to purchase and receive,
upon the basis and upon the terms and conditions specified in such warrant
agreement or other arrangement, in lieu of such shares, the Small Holder
Cash Consideration with respect to that same number of shares.
(ii) Each option (an "Option") to purchase shares of the Company Common
Stock heretofore granted under any stock option or compensation plan or
other arrangement with the Company shall be converted into a right to
purchase and receive, upon the basis and upon the terms and conditions
specified in such option or compensation plan or other arrangement, in
lieu of such shares, the Small Holder Cash Consideration with respect to
that same number of shares.
(e) No Liability. Neither Parent, Merger Sub nor the Company shall
be liable to any holder of Company Common Stock for any Merger Consideration
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
(f) Withholding Rights. Parent or the Disbursing Agent (as defined
in Section 1.8) shall be entitled to deduct and withhold from the Merger
Consideration otherwise payable pursuant to this Agreement to any holder of
Company Common Stock such amounts as Parent or the Disbursing Agent is required
to deduct and withhold with respect to the making of such payment under the
Internal Revenue Code of 1986, as amended (the "Code") or any provision of
state, local or foreign tax law. To the extent that amounts are so withheld by
Parent or the Disbursing Agent, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the holder of the Shares in
respect of which such deduction and withholding was made by Parent or the
Disbursing Agent.
(g) Capital Stock of Merger Sub. Each share of common stock, $0.01
par value, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for 27,600 validly issued,
fully paid and nonassessable shares of common stock, $0.001 par value, of the
Surviving Corporation.
SECTION 1.7 Dissenters' Rights. Notwithstanding any provision of
this Agreement to the contrary, any shares of Company Common Stock outstanding
immediately prior to the Effective Time held by a holder who has demanded and
perfected the right, if any,
<PAGE>
5
for appraisal of those shares in accordance with the provisions of Sections 623
and 910 of the NYBCL and as of the Effective Time has not withdrawn or lost such
right to such appraisal ("Dissenting Shares") shall not be converted into or
represent a right to receive Merger Consideration pursuant to Section 1.6, but
the holder shall only be entitled to such rights as are granted by the NYBCL. If
a holder of shares of Company Common Stock who demands appraisal of those shares
under the NYBCL shall effectively withdraw or lose (through failure to perfect
or otherwise) the right to appraisal, then, as of the Effective Time or the
occurrence of such event, whichever last occurs, those shares shall be converted
into and represent only the right to receive the Small Holder Cash Consideration
or the Large Holder Cash Consideration and Notes, as the case may be, as
provided in Section 1.6, without interest, upon compliance with the provisions,
and subject to the limitations, of Section 1.8. The Company shall give Parent
(a) prompt notice of any written demands for appraisal of any shares of Company
Common Stock, attempted withdrawals of such demands, and any other instruments
served pursuant to the NYBCL and received by the Company relating to
shareholders' rights of appraisal, and (b) the opportunity to direct all
negotiations and proceedings with respect to demands for appraisal under the
NYBCL. The Company shall not, except with the prior written consent of Parent,
voluntarily make any payment with respect to any demands for appraisal of
Company Common Stock, offer to settle or settle any such demands or approve any
withdrawal of any such demands.
SECTION 1.8 Payment for Shares.
(a) At or before the Effective Time, Parent or Merger Sub shall
deposit in immediately available funds with any disbursing agent selected by
Parent and reasonably acceptable to the Company that is organized under the laws
of the United States or any state of the United States with capital, surplus and
undivided profits of at least $500,000,000 (the "Disbursing Agent"), an amount
equal to the sum (rounded up or down to the nearest whole $.01, with $.005
rounded up to the nearest whole $.01) of (A) the product of (i) the number of
shares of Company Common Stock issued and outstanding immediately prior to the
Effective Time (other than shares then held of record by Parent or Merger Sub or
any other direct or indirect subsidiary of Parent or the Company or by the Large
Holders), and (ii) the Small Holder Cash Consideration and (B) the product of
(x) the number of shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time held by the Large Holders, and (y) the
Large Holder Cash Consideration (such sum being hereinafter referred to as the
"Fund"). Out of the Fund, the Disbursing Agent shall, pursuant to irrevocable
instructions from the holders of Company Common Stock, make the payments
referred to in Sections 1.6(a) and 1.6(b), subject to the requirements of
paragraph (b) of this Section 1.8. At the request of the Surviving Corporation,
in its sole discretion at any time, but without any obligation to make any such
request, the Disbursing Agent also may make payments, in final discharge of any
obligations of the Surviving Corporation pursuant to Sections 623 and 910 of the
NYBCL, to holders of Company Common Stock who have
<PAGE>
6
exercised dissenters' rights pursuant to Sections 623 and 910 of the NYBCL and
have not subsequently withdrawn or lost such rights as long as the payment from
the Fund with respect to any Dissenting Share does not exceed the Small Holder
Cash Consideration or the Large Holder Cash Consideration, as the case may be.
The Disbursing Agent may invest portions of the Fund as Parent or the Surviving
Corporation directs, provided that all such investments shall be held as cash or
in obligations of or guaranteed by the United States of America, in commercial
paper obligations receiving the highest rating from either Moody's Investors
Service, Inc. or Standard & Poor's Corporation, or in certificates of deposit,
bank repurchase agreements or bankers' acceptances of commercial banks with
capital, surplus and undivided profits exceeding $500,000,000 (collectively,
"Permitted Investments"), or in money market funds which are invested solely in
Permitted Investments. Any net profit resulting from, or interest or income
produced by, such investments shall be payable to the Surviving Corporation, and
shall be remitted from time to time by the Disbursing Agent upon the request of
Parent or the Surviving Corporation. Any amount remaining in the Fund after nine
months after the Effective Time may be refunded to the Surviving Corporation at
its option; provided, however, that the Surviving Corporation shall be liable
for any cash payments required to be made thereafter pursuant to Sections 1.6(a)
and 1.6(b).
(b) As soon as practicable after the Effective Time, the Disbursing
Agent shall mail to each holder of record (other than Parent or Merger Sub or
any direct or indirect subsidiary of Parent or the Company) of a certificate or
certificates (a "Certificate" or "Certificates") which immediately prior to the
Effective Time represented issued and outstanding shares of Company Common Stock
(other than those holders who have exercised dissenters' rights pursuant to
Sections 623 and 910 of the NYBCL and have not subsequently withdrawn or lost
such rights), a form letter of transmittal (the "Letter of Transmittal") for
return to the Disbursing Agent, and instructions for use in effecting the
surrender of Certificates and to receive the Merger Consideration for each of
such holder's shares of Company Common Stock pursuant to Sections 1.6(a) and
1.6(b). The Letter of Transmittal shall specify that delivery shall be effected,
and risk of loss shall pass, only upon proper delivery of such Certificate or
Certificates to the Disbursing Agent. The Disbursing Agent, as soon as
practicable following receipt of any such Certificate or Certificates together
with the Letter of Transmittal, duly executed, and any other items specified by
the Letter of Transmittal, shall (A) pay, by check or draft, to the Small
Holders, the sum (rounded up or down to the nearest whole $.01, with $.005
rounded up to the nearest whole $.01) of the amounts determined by multiplying
(i) the number of shares of Company Common Stock represented by the Certificate
or Certificates so surrendered and (ii) the Small Holder Cash Consideration and
(B) shall (i) deliver to the Large Holders Notes in aggregate principal amount
equal to the product of $0.525 and the number of shares of Company Common Stock
represented by the Certificate or Certificates so surrendered, and (ii) pay, by
check or draft, to the Large Holders the sum (rounded up or down to the nearest
whole $.01, with $.005 rounded up to the nearest whole $.01) of the amounts
determined by multiplying (x) the number of shares of Company Common Stock
<PAGE>
7
represented by the Certificate or Certificates so surrendered and (y) the Large
Holder Cash Consideration. All of the foregoing payments and deliveries shall be
subject to any required withholding of taxes by the Surviving Corporation. No
interest will be paid or accrued on the cash payable upon the surrender of the
Certificate or Certificates. If payment is to be made to a person other than the
person in whose name the Certificates surrendered are registered, it shall be a
condition of payment that the Certificates so surrendered shall be properly
endorsed or otherwise in proper form for transfer and that the person requesting
the payment shall pay any transfer or other taxes required by reason of the
payment to a person other than the registered holder of the Certificates
surrendered or establish to the satisfaction of the Surviving Corporation that
the tax has been paid or is not applicable.
(c) In the event any such Certificate or Certificates shall have
been lost, stolen or destroyed, upon the making of an affidavit of that fact by
the person claiming such Certificate or Certificates to have been lost, stolen
or destroyed, the amount to which such person would have been entitled under
Section 1.8(b) hereof but for failure to deliver such Certificate or
Certificates to the Disbursing Agent shall nevertheless be paid to such person,
provided that the Surviving Corporation may, in its reasonable discretion and as
a condition precedent to such payment, require such person to give the Surviving
Corporation a written indemnity agreement in form and substance reasonably
satisfactory to the Surviving Corporation and, if reasonably deemed advisable by
the Surviving Corporation, a bond in such sum as the Surviving Corporation may
direct as indemnity against any claim that may be had against Parent or the
Surviving Corporation with respect to the Certificate or Certificates alleged to
have been lost, stolen or destroyed.
SECTION 1.9 No Further Rights or Transfers. At and after the
Effective Time, all shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time shall be canceled and cease to exist,
and each holder of a Certificate or Certificates that represented shares of
Company Common Stock issued and outstanding immediately prior to the Effective
Time shall cease to have any rights as a shareholder of the Company with respect
to the shares of Company Common Stock represented by such Certificate or
Certificates, except for the right to surrender such holder's Certificate or
Certificates in exchange for the payment provided pursuant to Sections 1.6(a)
and 1.6(b) or to perfect such holder's right to receive payment for such
holder's shares pursuant to Sections 623 and 910 of the NYBCL and Section 1.7
hereof if such holder has validly exercised and not withdrawn or lost such
holder's right to receive payment for such holder's shares pursuant to Section
623 and 910 of the NYBCL, and no transfer of shares of Company Common Stock
issued and outstanding immediately prior to the Effective Time shall be made on
the stock transfer books of the Surviving Corporation.
SECTION 1.10 Taking of Necessary Action; Further Action. Each of
Parent, Merger Sub and the Company will take all such reasonable and lawful
action as may be
<PAGE>
8
necessary or appropriate in order to effectuate the Merger in accordance with
this Agreement as promptly as possible. If, at any time after the Effective
Time, any such further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with all the
rights, privileges, immunities, powers and purposes, and all the property, real
and personal, including subscriptions to shares, causes of action and every
other asset of the Company and Merger Sub, the officers and directors of the
Company and Merger Sub immediately prior to the Effective Time are fully
authorized in the name of their respective corporations or otherwise to take,
and will take, all such lawful and necessary action.
SECTION 1.11 Material Adverse Effect. When used in connection with
the Company, the term "Material Adverse Effect" means any change, effect or
circumstance that, individually or when taken together with all other such
changes, effects or circumstances that have occurred prior to the date of
determination of the occurrence of the Material Adverse Effect, is or is
reasonably likely to be materially adverse to the business, operations, assets
(including intangible assets), condition (financial or otherwise), liabilities,
or results of operations of the Company. When used in connection with Parent and
Parent's Subsidiaries, the term "Material Adverse Effect" means any change,
effect or circumstance that, individually or when taken together with all other
such changes, effects or circumstances that have occurred prior to the date of
determination of the occurrence of the Material Adverse Effect, is or is
reasonably likely to be materially adverse to the business, operations, assets
(including intangible assets), condition (financial or otherwise), liabilities,
or results of operations of Parent and its Subsidiaries.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub
that, except as set forth in the written disclosure schedule delivered by the
Company to Parent (the "Company Disclosure Schedule"):
SECTION 2.1 Corporate Organization. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of New York and has all requisite corporate power and authority to own,
operate and lease its properties and assets as and where the same are owned,
operated or leased and to conduct its business as it is now being conducted. The
Company is in good standing and duly qualified or licensed as a foreign
corporation to do business in those jurisdictions listed in Section 2.1 of the
Company Disclosure Schedule, such jurisdictions being the only jurisdictions in
which the location of the
<PAGE>
9
property and assets owned, operated or leased by the Company or the nature of
the business conducted by the Company makes such qualification or licensing
necessary, except where the failure to be so qualified or licensed would not
have a Material Adverse Effect. The Company has heretofore delivered to Parent
complete and correct copies of the Company's Certificate of Incorporation and
By-laws, as amended to and as in effect on the date hereof.
SECTION 2.2 Capitalization. (a) The authorized capital stock of the
Company consists of 4,000,000 shares of Company Common Stock and 1,000,000
shares of Preferred Stock, par value $0.001 per share. As of the date hereof,
2,760,000 shares of Company Common Stock and no shares of Preferred Stock are
issued and outstanding.
(b) All outstanding shares of Company Common Stock are validly
issued and outstanding, fully paid and nonassessable, and there are no
preemptive or similar rights in respect of the Company Common Stock. All shares
of Company Common Stock issuable upon the exercise of stock options and the
Warrants will, when issued in accordance therewith, be validly issued, fully
paid and nonassessable. All outstanding shares of Company Common Stock were
issued in compliance with all requirements of all applicable federal and state
securities laws.
(c) Section 2.2 of the Company Disclosure Schedule sets forth a
complete and correct list of (i) all stock options, including Stock Options
granted under the Company's Stock Option Plan, and (ii) all warrants to purchase
any capital stock of the Company, including the Warrants, indicating as to each
holder thereof, the number of shares of Company Common Stock or other securities
subject thereto and the exercisability, exercise price and termination date
therefor.
SECTION 2.3 Subsidiaries. The Company does not have, and never has
had, any Subsidiaries, and except as listed in Section 2.3(a) of the Company
Disclosure Schedule, there are no entities 10% or more of whose outstanding
voting securities or other equity interests are owned, directly or indirectly
through one or more intermediaries, by the Company.
SECTION 2.4 No Commitments to Issue Capital Stock. Except for the
Stock Options and the Warrants and as set forth in Section 2.4 of the Company
Disclosure Schedule, there are no outstanding options, warrants, calls,
convertible securities or other rights, agreements, commitments or other
instruments pursuant to which the Company is or may become obligated to
authorize, issue or transfer any shares of its capital stock or any other equity
interest. Except as set forth in Section 2.4 of the Company Disclosure Schedule,
there are no agreements or understandings in effect among any of the
shareholders of the Company or with any other Person and by which the Company is
bound with respect to the voting, transfer, disposition or registration under
the Securities Act of any shares of capital stock of the Company, except such
agreements or understandings that would not have a Material Adverse
<PAGE>
10
Effect or will not affect the Company's ability to consummate the Merger or the
other transactions contemplated by this Agreement.
SECTION 2.5 Authorization; Execution and Delivery. The Company has
all requisite corporate power and authority to execute, deliver and perform its
obligations under this Agreement. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by all requisite
corporate action on the part of the Company, except that the Company's
shareholders are required to approve and adopt this Agreement. This Agreement
has been duly executed and delivered by the Company and, subject to such
shareholder approval, constitutes the legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, except as
the enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws generally affecting the rights of
creditors and subject to general equity principles (the "Exceptions"). The Board
of Directors of the Company has unanimously adopted this Agreement and
recommended that the shareholders of the Company approve and adopt this
Agreement and the Merger.
SECTION 2.6 Governmental Approvals and Filings. No approval,
authorization, consent, license, clearance or order of, declaration or
notification to, or filing or registration with, any governmental or regulatory
authority is required in order (a) to permit the Company to consummate the
Merger or perform its obligations under this Agreement, or (b) to prevent the
termination of or a material and adverse effect on any governmental right,
privilege, authority, franchise, license, permit or certificate of the Company
to provide its services or carry on its business ("Governmental Licenses"), or
to prevent any material loss or disadvantage to the Company's business, by
reason of the Merger, except for (i) filing and recording of the Certificate of
Merger as required by the NYBCL, (ii) filings and other required submissions
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), (iii) those filings required by the New York Banking Law that are
set forth in Section 2.6 of the Company Disclosure Schedule (iv) those filings
required by the Massachusetts Bank Law that are set forth in Section 2.6 of the
Company Disclosure Schedule; (v) those filings with other state regulatory
agencies regulating insurance premium finance companies that are set forth in
Section 2.6 of the Company Disclosure Schedule, and (vi) as is otherwise set
forth in Section 2.6 of the Company Disclosure Schedule.
SECTION 2.7 No Conflict. Subject to compliance with the Governmental
Licenses described in Section 2.6 of the Company Disclosure Schedule and
obtaining the other consents and waivers that are set forth and described in
Section 2.7 of the Company Disclosure Schedule (the "Private Consents"), neither
the execution, delivery and performance of this Agreement by the Company, nor
the consummation by the Company of the transactions contemplated hereby, will
(i) conflict with, or result in a breach or violation of, any provision
<PAGE>
11
of the certificate of incorporation (or similar organizational document) or
by-laws of the Company; (ii) conflict with, result in a breach or violation of,
give rise to a default, or result in the acceleration of performance, or permit
the acceleration of performance, under (whether or not after the giving of
notice or lapse of time or both) any mortgages, pledges, claims, liens, security
interests or other restrictions or encumbrances of any kind or nature whatsoever
("Encumbrances"), or any note, bond, indenture, guaranty, lease, license,
agreement or other instrument, writ, injunction, order, judgment, decree,
statute, rule or regulation to which the Company or any of its properties or
assets is subject; (iii) give rise to a declaration or imposition of any
Encumbrance upon any of the properties or assets of the Company; or (iv) impair
the Company's business or adversely affect any Governmental License necessary to
enable the Company to carry on its business as presently conducted, except, in
the case of clauses (ii), (iii) or (iv), for any conflict, breach, violation,
default, declaration, imposition or impairment that would not have a Material
Adverse Effect.
SECTION 2.8 SEC Filings. (a) The Company has filed all forms,
reports and documents required to be filed with the Securities and Exchange
Commission (the "SEC") since January 1, 1995 and has made available to Parent
(i) its Annual Reports on Form 10-KSB for the fiscal years ended December 31,
1995, 1996 and 1997; (ii) all proxy statements relating to the Company's
meetings of shareholders (whether annual or special) held since January 1, 1995;
(iii) all other reports or registration statements filed by the Company with the
SEC; and (iv) all amendments and supplements to all such reports and
registration statements filed by the Company with the SEC (collectively, the
"Company SEC Reports"). Except as disclosed in Section 2.8 of the Company
Disclosure Schedule, the Company SEC Reports (i) were prepared in accordance,
and complied as of their respective dates as to form in all material respects,
with the applicable requirements of the Securities Act or the Securities
Exchange Act of 1934, as amended and the SEC's rules thereunder (the "Exchange
Act"), as the case may be, and (ii) did not at the time they were filed (or if
amended or superseded by a filing prior to the date of this Agreement, then on
the date of such filing) contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. The Company has filed with the SEC as exhibits to the
Company SEC Reports all agreements, contracts and other documents or instruments
required to be so filed, and such exhibits are correct and complete copies of
such agreements, contracts and other documents or instruments.
(b) The Proxy Statement (as defined in Section 4.2(b) hereof) will
not, at the time the Proxy Statement is mailed, contain any untrue statement of
a material fact, or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading and will not, at the
time of the meeting of shareholders to which the Proxy Statement relates or at
the Effective Time omit to state any material fact necessary to correct any
statement which has
<PAGE>
12
become false or misleading in any earlier communication with respect to the
solicitation of any proxy for such meeting; except that no representation is
made by the Company with respect to statements made or incorporated by reference
into the Proxy Statement based on information furnished in writing to the
Company by Parent specifically for use in the Proxy Statement. The Proxy
Statement will comply as to form in all material respects with the requirements
of the Exchange Act.
SECTION 2.9 Financial Statements; Absence of Undisclosed
Liabilities; Receivables. (a) The Company has heretofore delivered to Parent
complete and correct copies of the following financial statements (the "Company
Financial Statements"), all of which have been prepared from the books and
records of the Company in accordance with generally accepted accounting
principles ("GAAP") consistently applied and maintained throughout the periods
indicated (except as may be indicated in the notes thereto) and fairly present
in all material respects the financial condition of the Company as at their
respective dates and the results of their operations and cash flows for the
periods covered thereby, except that unaudited interim results were or are
subject to normal and recurring year-end adjustments which were not or are not
expected to be material in amount:
(i) audited balance sheets at December 31, 1995, December 31, 1996
and December 31, 1997 and audited statements of income, cash flows
and shareholders' equity of the Company for the fiscal years then
ended, audited by Deloitte & Touche LLP, independent certified
public accountants; and
(ii) unaudited balance sheet (the "Company Interim Balance Sheet")
of the Company as at September 30, 1998 (the "Company Interim
Balance Sheet Date") and statements of income and cash flows for the
three and nine months then ended.
Such statements of income do not contain any items of special or nonrecurring
revenue or income or any revenue or income not earned in the ordinary course of
business, except as expressly specified therein.
(b) Except as and to the extent reflected or reserved against on the
Company Interim Balance Sheet, and except for liabilities which will not have a
Material Adverse Effect, the Company did not have, as of the Company Interim
Balance Sheet Date, any liabilities, debts or obligations (whether absolute,
accrued, contingent or otherwise) of any nature that would be required as of
such date to have been included on a balance sheet prepared in accordance with
GAAP. Since the Company Interim Balance Sheet Date, the Company has not incurred
or suffered to exist any liability, debt or obligation (whether absolute,
accrued, contingent or otherwise), except liabilities, debt and obligations
incurred in the ordinary course of business, consistent with past practice, none
of which will have a Material Adverse Effect.
<PAGE>
13
Since the Company Interim Balance Sheet Date, there has been no material adverse
change in the business, operations, assets (including intangible assets),
condition (financial or otherwise), liabilities, or results of operations of the
Company and no event has occurred which is reasonably likely to cause any such
material adverse change.
(c) All receivables of the Company (including installment loans
receivable under premium finance agreements and any other accounts receivable,
loans receivable and advances) which are reflected in the Company Interim
Balance Sheet, and all such receivables which have arisen thereafter and prior
to the Effective Time, have arisen or will have arisen only from bona fide
transactions in the ordinary course of business at the aggregate recorded
amounts.
SECTION 2.10 [Intentionally Omitted]
SECTION 2.11 Absence of Changes. Except as set forth in Section 2.11
of the Company Disclosure Schedule, since September 30, 1998 the Company has
conducted its business only in the ordinary course and has not:
(a) recorded or accrued any item of revenue, except in the ordinary
course of business and consistent with prior practice;
(b) subjected to any Encumbrance or other restriction any of its
properties, business or assets except Encumbrances or other restrictions that
would not have a Material Adverse Effect;
(c) discharged or satisfied any Encumbrance, or paid any obligation
or liability, absolute, accrued, contingent or otherwise, whether due or to
become due, other than current liabilities shown on the Company's balance sheet
as of December 31, 1997 and current liabilities incurred since that date in the
ordinary course of business and consistent with prior practice;
(d) sold, transferred, leased to others or otherwise disposed of any
material properties or assets or purchased, leased from others or otherwise
acquired any material properties or assets except in the ordinary course of
business;
(e) cancelled or compromised any debt or claim or waived or released
any right of substantial value;
(f) terminated or received any notice of termination of any
contract, lease, license or other agreement or any Governmental License from any
state regulatory agency regulating insurance premium finance companies or
otherwise, or suffered any damage, destruction or loss (whether or not covered
by insurance) that would have a Material Adverse Effect;
<PAGE>
14
(g) made any change in the rate of compensation, commission, bonus
or other remuneration payable, or paid or agreed or orally promised to pay,
conditionally or otherwise, any bonus, extra compensation, pension or severance
or vacation pay, to any director, officer, employee, salesman, distributor or
agent of the Company except in the ordinary course of business consistent with
prior practice and pursuant to or in accordance with plans disclosed in Section
2.14(a) of the Company Disclosure Schedule that were in effect as of January 1,
1998;
(h) made any increase in or commitment to increase any employee
benefits, adopted or made any commitment to adopt any additional employee
benefit plan or made any contribution, other than regularly scheduled
contributions, to any Employee Benefit Plan, as defined in Section 2.14(a);
(i) lost the employment services of a senior manager or other
employee of equal or higher ranking;
(j) made any loan or advance to any Person other than travel and
other similar routine advances in the ordinary course of business consistent
with past practice, or acquired any capital stock or other securities of any
other corporation or any ownership interest in any other business enterprise;
(k) instituted, settled or agreed to settle any material litigation,
action or proceeding before any court or governmental body relating to the
Company or its properties or assets;
(l) entered into any transaction, contract or commitment other than
in the ordinary course of business;
(m) changed any accounting practices, policies or procedures
utilized in the preparation of the Company Financial Statements;
(n) suffered any change, event or condition that, in any case or in
the aggregate, has had or is reasonably likely to result in a Material Adverse
Effect; or
(o) entered into any agreement or made any commitment to take any of
the types of action described in subparagraphs (a) through (m) of this Section
2.11.
SECTION 2.12 Tax Matters. (a) For purposes of this Agreement, "Tax"
or "Taxes" shall mean taxes, fees, levies, duties, tariffs, imposts and
governmental impositions or charges of any kind in the nature of (or similar to)
taxes, payable to any federal, state, local or foreign taxing authority,
including (without limitation) (i) income, franchise, profits, gross receipts,
ad valorem, net worth, value added, sales, use, service, real or personal
property, special
<PAGE>
15
assessments, capital stock, license, payroll, withholding, employment, social
security, workers' compensation, unemployment compensation, utility, severance,
production, excise, stamp, occupation, premiums, windfall profits, transfer and
gains taxes, and (ii) interest, penalties, additional taxes and additions to tax
imposed with respect thereto; and "Tax Returns" shall mean returns, reports, and
information statements with respect to Taxes required to be filed with the
Internal Revenue Service (the "IRS") or any other taxing authority, domestic or
foreign, including, without limitation, consolidated, combined and unitary tax
returns, including returns required in connection with any Employee Benefit Plan
(as defined in Section 2.14(a)).
(b) The Company hereby represents that, other than as disclosed in
Section 2.12(b) of the Company Disclosure Schedule: The Company has timely filed
all United States federal income Tax Returns and all other material Tax Returns
required to be filed by it. All such Tax Returns are complete and correct in all
material respects (except to the extent a reserve has been established as
reflected in the Company Interim Balance Sheet). The Company has timely paid and
discharged all Taxes due in connection with or with respect to the periods or
transactions covered by such Tax Returns and has paid all other Taxes as are
due, except such as are being contested in good faith by appropriate proceedings
(to the extent that any such proceedings are required), and there are no other
Taxes that would be due if asserted by a taxing authority, except with respect
to which the Company is maintaining reserves unless the failure to do so would
not have a Material Adverse Effect. Except as does not involve or would not
result in liability to the Company that would have a Material Adverse Effect,
(i) there are no tax liens on any assets of the Company; (ii) the Company has
not granted any waiver of any statute of limitations with respect to, or any
extension of a period for the assessment of, any Tax; (iii) no unpaid (or
unreserved) deficiencies for Taxes have been claimed, proposed or assessed by
any taxing or other governmental authority with respect to the Company; (iv)
there are no pending or threatened audits, investigations or claims for or
relating to any liability in respect of Taxes of the Company; and (v) the
Company has not requested any extension of time within which to file any
currently unfiled Tax Returns. The accruals and reserves for Taxes (including
deferred taxes) reflected in the Company Interim Balance Sheet are in all
material respects adequate to cover all Taxes accruable through the date thereof
(including Taxes being contested) in accordance with GAAP. No written claim has
ever been made by a taxing authority in a jurisdiction where the Company does
not presently file Tax Returns that the Company is or may be subject to taxation
by that jurisdiction.
(c) The Company on behalf of itself hereby represents that, other
than as disclosed in Section 2.12(c) of the Company Disclosure Schedule, and
other than with respect to items the inaccuracy of which would not have a
Material Adverse Effect: (i) the Company is not obligated under any agreement
with respect to industrial development bonds or other obligations with respect
to which the excludability from gross income of the holder for federal
<PAGE>
16
or state income tax purposes could be affected by the transactions contemplated
hereunder; (ii) the Company is not, or has not been, a United States real
property holding corporation (as defined in section 897(c)(2) of the Code)
during the applicable period specified in section 897(c)(1)(A)(ii) of the Code;
(iii) the Company has not filed or been included in a combined, consolidated or
unitary return (or substantial equivalent thereof) of any Person other than the
Company; (iv) the Company is not liable for Taxes of any Person other than the
Company, or currently under any contractual obligation to indemnify any Person
with respect to Taxes, or a party to any tax sharing agreement or any other
agreement providing for payments by the Company or any of its Subsidiaries with
respect to Taxes; (v) except entities the beneficial ownership of which is
wholly owned by the Company, the Company is not a party to any joint venture,
partnership or other arrangement or contract which could be treated as a
partnership for United States federal income tax purposes; (vi) the Company is
not a party to any agreement, contract, arrangement or plan that would result
(taking into account the transactions contemplated by this Agreement),
separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of section 280G of the Code or would give rise to
an excise tax under Sector 4999 of the Code (or any corresponding provision of
state, local or foreign tax law); (vii) the Company is not a "consenting
corporation" under section 341(f) of the Code or any corresponding provision of
state, local or foreign law; (viii) the Company has not made an election or is
not required to treat any of its assets as owned by another Person for federal
income tax purposes or as tax-exempt bond financed property or tax-exempt use
property within the meaning of section 168 of the Code (or any corresponding
provision of state, local or foreign law); (ix) the Company is not an investment
company within the meaning of section 368(a)(2)(F)(iii) of the Code; (x) the
Company has withheld and paid all Taxes required to have been withheld and paid
in connection with any amounts owing to any employee, independent contractor,
creditor, shareholder or other party; (xi) the Company has not agreed or is not
required, as a result of a change in method of accounting or otherwise, to
include in taxable income any material adjustment under Section 481 of the Code
or any corresponding provision of state, local or foreign law; and (xii) there
are no private letter rulings in respect of any Tax pending between the Company
and any taxing authority.
SECTION 2.13 Relations with Employees and Brokers. (a) Except as set
forth
(i) The Company has satisfactory relationships with its employees
and with the insurance brokers that introduce policyholders to the Company
("Brokers").
(ii) The Company is in compliance in all material respects with all
applicable laws respecting employment and employment practices, terms and
conditions of employment, and wages and hours, and the Company is not engaged in
any unfair labor practices.
(iii) No collective bargaining agreement with respect to the
business of the
<PAGE>
17
Company is currently in effect or being negotiated. The Company has no
obligation to negotiate any such collective bargaining agreement, and to the
knowledge of the Company there is no indication that the employees of the
Company desire to be covered by a collective bargaining agreement.
(iv) There are no strikes, slowdowns or work stoppages pending or,
to the Company's knowledge, threatened with respect to the employees of the
Company, nor has any such strike, slowdown or work stoppage occurred or, to the
best of the Company's knowledge, been threatened since January 1, 1996. There is
no representation claim or petition or complaint pending before the National
Labor Relations Board or any state or local labor agency and, to the best of the
Company's knowledge, no question concerning representation has been raised or
threatened since January 1, 1996 respecting the employees of the Company.
(v) There are no complaints or charges against the Company pending
before the National Labor Relations Board or any state or local labor agency
and, to the best of the Company's knowledge, no person or entity has threatened
since January 1, 1995 to file any complaint or charge against the Company or any
of its Subsidiaries with any such board or agency.
(vi) To the Company's knowledge, no charges with respect to or
relating to the business of the Company are pending before the Equal Employment
Opportunity Commission, or any state or local agency responsible for the
prevention of unlawful employment practices.
(vii) Since January 1, 1996, the Company has not received notice of
the intent of any federal, state, local, or foreign agency responsible for the
enforcement of labor or employment laws to conduct an investigation of the
Company, and to the Company's knowledge, no such investigation is in progress.
(viii) The Company has not made any statements or representations or
distributed any written material to any of its employees regarding continued
employment of such employees subsequent to the date hereof or the Closing Date.
(b) Section 2.13(b) of the Company Disclosure Schedule contains a complete
and correct list of all employment, management or other consulting agreements
with any Persons employed or retained by the Company (including independent
consultants and commission agents), complete and correct copies of which have
been delivered to Parent.
SECTION 2.14 Employee Benefits. (a) Section 2.14(a) of the Company
Disclosure Schedule sets forth each employee benefit plan, policy, program,
practice, agreement, understanding, arrangement or commitment providing
compensation, benefits or perquisites of
<PAGE>
18
any kind to any current or former officer, employee or consultant (or to any
dependent or beneficiary thereof) of the Company, which are now, or were within
the past six years, maintained by, contributed to by or with respect to which an
obligation to contribute exists on the part of the Company or any other trade or
business, whether or not incorporated, which, together with the Company, is
treated as a single employer under section 414 of the Code (such other trades or
business, collectively, "Related Persons") or with respect to which the Company
or the Related Persons has or may have any liability (whether direct, indirect,
contingent or otherwise, including, without limitation, a liability arising out
of an indemnification, guarantee, hold harmless or similar agreement) including,
without limitation, all material employment or consulting agreements, incentive,
bonus, deferred compensation, pension, profit sharing, vacation, holiday,
cafeteria, medical, disability, stock purchase, stock option, stock
appreciation, phantom stock, restricted stock or other stock-based compensation
plans, policies, programs, practices or arrangements and any "employee benefit
plan" within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended from time to time ("ERISA"), whether or not
subject to ERISA (each, an "Employee Benefit Plan" and together, the "Employee
Benefit Plans").
(b) Seller has provided to Parent or its counsel prior to the date
hereof true and complete copies of (i) any employment agreements and any
procedures and policies relating to the employment of employees of the Company
and the use of temporary employees, independent contractors or leased employees
by the Company (including summaries of any material procedures and policies that
are unwritten), (ii) plan instruments and amendments thereto for all Employee
Benefit Plans and related trust agreements, insurance and other contracts and
funding arrangements, summary plan descriptions, written descriptions of any
unwritten Employee Benefit Plans and summaries of material modifications, and
material communications distributed, or otherwise communicated, to the
participants of each Employee Benefit Plan or sent to or received (whether
orally or in writing) from any governmental authority (including, without
limitation, the Internal Revenue Service), (iii) the three most recent annual
reports on Form 5500 required to be filed with respect to any Employee Benefit
Plan (including all schedules thereto), (iv) where applicable, the most recent
(A) opinion or determination letter as to the qualification under Applicable
Benefits Law (including any special provisions relating to registered or
qualified plans including Sections 401 and 501 of the Code) of any Employee
Benefit Plan (and the latest IRS form 5300 or 5307, whichever is applicable,
filed with the IRS for each such Employee Benefit Plan), (B) audited financial
statements and (C) actuarial valuation reports. "Applicable Benefits Law" refers
to the legal requirements imposed by the United States, any political
subdivision thereof or any other jurisdiction that may apply to employee benefit
plans (including any requirements enforced by the IRS with respect to employee
benefit plans intended to confer tax benefits on the Company or any of its
employees).
(c) No Employee Benefit Plan is, a "defined benefit plan" within the
meaning of
<PAGE>
19
section 3(35) of ERISA and the Company has no liability with respect to any such
plan. Neither the Company nor any of its Related Persons has ever contributed
to, or with drawn in a complete or partial withdrawal from, any multiemployer
plan (within the meaning of Subtitle E of Title IV of ERISA) or incurred
contingent liability under section 4204 of ERISA.
(d) No Employee Benefit Plan provides for benefits, including,
without limitation, medical or health benefits (through insurance or otherwise)
or provides for the continuation of such benefits or coverage for any
participant or any dependent or beneficiary of any participant after such
participant's retirement or other termination of employment (except (i) as may
be required by Applicable Benefits Law, (ii) retirement or death benefits under
any employee pension plan, (iii) disability benefits under any employee welfare
plan that have been fully provided for by insurance or otherwise, (iv) deferred
compensation benefits accrued as liabilities on the books of the Company; or (v)
benefits in the nature of severance pay). There has been no communication to any
employee that could reasonably be expected to promise or guarantee any such
employee any such benefits.
(e) Each Employee Benefit Plan (and each related trust, insurance
contract and fund) is in compliance in all material respects in form and in
operation with all applicable requirements of Applicable Benefits Law (including
ERISA and the Code), and is being administered in accordance with all relevant
plan documents to the extent consistent with Applicable Benefits Law, including,
without limitation, any special provisions relating to registered or qualified
plans with which any Employee Benefit Plan is intended to qualify (including,
without limitation, Sections 401 and 501 of the Code), and no condition exists
as a result of which the Parent, the Company or the Related Persons or any
fiduciary could be subject to any liability under any Applicable Benefits Law in
connection with any Employee Benefit Plan (including, without limitation,
Section 4972, 4975 or 4976 of the Code and Section 406, 502(i) and 502(l) of
ERISA). No Employee Benefit Plan is under investigation or audit by the
Department of Labor or Internal Revenue Service other than as part of a routine
tax audit of the Company. The Company is not aware of any actions, claims (other
than routine claims for benefits), lawsuits or arbitrations pending or, to the
knowledge of the Company, threatened with respect to any Employee Benefit Plan
(including against any fiduciary of any Employee Benefit Plan) and the Company
has no knowledge of any facts that could reasonably be expected to give rise to
any such actions, claims, lawsuits or arbitrations that could, individually or
in the aggregate, cause the Company to incur any material liability There has
been full compliance in all material respects with the notice and continuation
requirements of section 4980B of the Code and with sections 9801 through 9833 of
the Code and section 713 of ERISA applicable to any Employee Benefit Plan.
(f) No provision of any Employee Benefit Plan becomes effective in
the event of a change in control of the employer maintaining such Employee
Benefit Plan. The consummation of the Merger or any other transaction
contemplated by this Agreement will not
<PAGE>
20
result in (i) any payment (including, without limitation, severance,
unemployment compensation, golden parachute or bonus payments or otherwise)
becoming due to any current or former director, officer, employee or consultant
of the Company, (ii) any increase in the amount of compensation or benefits
payable in respect of any current or former director, officer, employee or
consultant of the Company, or (iii) the acceleration of vesting or time of
payment of any material benefits or compensation payable in respect of any
current or former director, officer, employee or consultant of the Company and
the transactions contemplated by this Agreement will not result in any payment
or series of payments by the Company of a "parachute payment" within the meaning
of Section 280G of the Code. No employee or former employee of the Company will
be entitled to any severance benefits under the terms of any Employee Benefit
Plan solely by reason of the consummation of the Merger or any other transaction
contemplated by this Agreement.
(g) The Company has not communicated to employees or agreed to the
creation of any new employee benefit plan or, with respect to any existing
Employee Benefit Plan, any increase in benefits or new benefits or change in
employee coverage which would increase the expense of maintaining such Employee
Benefit Plan. No provision of any Employee Benefit Plan prohibits the employer
maintaining it from amending or terminating such Employee Benefit Plan at any
time and to the fullest extent that law permits.
(h) At no time since the organization of the Company has any entity
(other than the Company) been an "ERISA Affiliate" of the Company. "ERISA
Affiliate" means any trade or business, whether or not incorporated, which
together with the Company, is or was at any time during such period treated as a
"single employer" within the meaning of section 414(b), (c), (m) or (o) of the
Code or a part of the same "controlled group" as the Company within the meaning
of section 4001 of ERISA. No leased employee (within the meaning of section
414(n) or (o) of the Code) performs any services for the Company.
(i) All actions required to be taken on behalf of any Employee
Benefit Plan that is a stockholder of the Company, in order to effectuate the
Merger or the other transactions contemplated by this Agreement, shall have been
duly authorized by the appropriate fiduciaries of such Employee Benefit Plan,
and shall comply with the terms of such Employee Benefit Plan, ERISA and other
applicable laws.
(j) The fair market value of the assets of each funded Employee
Benefit Plan (or the insurance coverage of each Employee Benefit Plan funded
through insurance) equals or exceeds the accrued benefits thereunder through the
Effective Time according to the actuarial assumptions and valuations most
recently used to determine employer contributions to any such Employee Benefit
Plan and specified on Section 2.14(j) of the Company Disclosure Schedule. With
respect to each such Employee Benefit Plan, all payments due from the Company to
date have been made when due and all amounts properly accrued to date or as of
the Effective Time
<PAGE>
21
as liabilities of the Company which have not been paid have been properly
recorded on the books of the appropriate entity. With respect to each Employee
Benefit Plan that is funded wholly or partially through an insurance policy, all
premiums required to have been paid to date under the insurance policy have been
paid, all premiums required to be paid under the insurance policy through the
Effective Time will have been paid on or before the Effective Time and, as of
the Effective Time, there will be no liability of the Company under any such
insurance policy or ancillary agreement with respect to such insurance policy in
the nature of a retroactive rate adjustment, loss sharing arrangement or other
actual or contingent liability arising wholly or partially out of events
occurring prior to the Effective Time.
(k) There are no complaints, charges or claims against the Company
pending or to the Company's knowledge threatened to be brought by or filed with
any governmental authority based on, arising out of, in connection with or
otherwise relating to the employment by the Company of any individual, including
individuals classified by the Company as independent contractors or "leased
employees" (within the meaning of section 414(n) of the Code), or the failure to
employ any individual, including any claim relating to employment
discrimination, equal pay, employee safety and health, immigration, wages and
hours or workers' compensation.
(l) The Company is in compliance in all material respects with all
laws (including any legal obligation to engage in affirmative action) relating
to the employment of former, current, and prospective employees, independent
contractors and "leased employees" (within the meaning of section 414(n) of the
Code) including all such laws relating to wages, hours, collective bargaining,
employment discrimination, immigration, disability, civil rights, safety and
health, workers' compensation and pay equity and has timely prepared and filed
all appropriate forms (including Immigration and Naturalization Service Form
I-9) required by any relevant governmental authority.
(m) Except as set forth on Section 2.14(m) of the Company Disclosure
Schedule, the Company is not a contractor or subcontractor with obligations
under any federal, state or local government contracts as result of any business
engaged in by the Business.
(n) No fact or condition exists as a result of which the Company may
have any material liability, whether absolute or contingent, including any
obligations under any Employee Plans, as a result of or related to any
misclassification of a person performing services for the Company as an
independent contractor rather than as an employee.
(o) There are no material liabilities, whether absolute or
contingent, to any employees relating to workers compensation benefits that are
not fully insured against by a bona fide third-party insurance carrier. With
respect to each workers' compensation arrangement that is funded wholly or
partially through an insurance policy or public or private
<PAGE>
22
fund, all premiums required to have been paid to date under the insurance policy
or fund have been paid, all premiums required to be paid under the insurance
policy or fund through the Closing Date will have been paid on or before the
Closing Date and, as of the Closing Date, there will be no material Liability of
the Company under any such insurance policy, fund or ancillary agreement with
respect to such insurance policy or fund in the nature of a retroactive rate
adjustment, loss sharing arrangement or other actual or contingent liability
arising wholly or partially out of events occurring prior to the Closing Date.
(p) No Employee Benefit Plan is a plan, agreement or arrangement
providing for benefits in the nature of severance benefits, and the Company does
not have outstanding any liabilities with respect to any severance benefits
available under any Employee Benefit Plan.
(q) Except as set forth on Section 2.14(q) of the Company Disclosure
Schedule, no Business employee participates in any Employee Benefit Plan,
program or arrangement that provides any benefits or provides for payments based
on or measured by the value of any equity security of or interest in the
Company.
SECTION 2.15 Title to Properties. Except as set forth in Section
2.15 of the Company Disclosure Schedule, the Company has good and indefeasible
title to all of its properties and assets, free and clear of all Encumbrances,
except liens for taxes not yet due and payable and such Encumbrances or other
imperfections of title, if any, as do not materially detract from the value of
or interfere with the present use of the property affected thereby or which
would not have a Material Adverse Effect, and except for Encumbrances which
secure indebtedness reflected in the Company Interim Balance Sheet.
SECTION 2.16 Compliance with Laws; Legal Proceedings. (a) The
Company is not in violation of, or in default with respect to, any applicable
statute, regulation, ordinance, writ, injunction, order, judgment, decree or any
Governmental License, except where such violation or default does not have and
cannot reasonably be expected to have, a Material Adverse Effect.
(b) Except as set forth in Section 2.16(b) of the Company Disclosure
Schedule, there is no order, writ, injunction, judgment or decree outstanding
and no legal, administrative, arbitration or other governmental proceeding or
investigation pending or, to the best of the Company's knowledge, threatened,
and there are no claims (including unasserted claims of which the Company is
aware) against or relating to the Company or any of its properties, assets or
businesses or any of its officers, employees or directors that, (i) individually
or in the aggregate could have a Material Adverse Effect, or (ii) could have an
adverse affect on the Company's ability to perform its obligations under this
Agreement or any documents or agreements contemplated hereby.
<PAGE>
23
SECTION 2.17 Finders. Except for Ladenburg Thalmann & Co. Inc.
(whose fees shall be paid by the Company and shall in the aggregate not exceed
the amount set forth in Section 2.17 of the Company Disclosure Schedule), no
broker, finder or investment advisor acted directly or indirectly for the
Company in connection with this Agreement or the Merger, and no broker, finder,
investment advisor or other Person is entitled to any fee or other commission,
or other remuneration, in respect thereof based in any way on any action,
agreement, arrangement or understanding taken or made by or on behalf of the
Company.
SECTION 2.18 Intellectual Property. (a) The Company owns, or is
licensed or otherwise possesses legally enforceable rights to use, all patents,
trademarks, trade names, service marks, copyrights, and any applications
therefor, technology, know-how, trade secrets, computer software programs or
applications and tangible or intangible proprietary information or material and
other intellectual property rights that are used in the business of the Company
as currently conducted, except where the failure to do so would not have a
Material Adverse Effect.
(b) Except as disclosed in Section 2.18(b) of the Company Disclosure
Schedule, or where such event does not and cannot reasonably be expected to have
a Material Adverse Effect: (i) the Company is not, nor will it be as a result of
the execution and delivery of this Agreement or the performance of its
obligations hereunder, in violation of any licenses, sublicenses and other
agreements as to which the Company is a party and pursuant to which the Company
is authorized to use any patents, trademarks, service marks or copyrights or
other intellectual property rights owned by others ("Company Third-Party
Intellectual Property Rights"); (ii) no claims with respect to the patents,
registered and unregistered trademarks and service marks, registered copyrights,
trade names and any applications therefor or other intellectual property rights
owned by the Company (the "Company Intellectual Property Rights"), any trade
secret material to the Company, or Company Third Party Intellectual Property
Rights to the extent arising out of any use, reproduction or distribution of
Company Third Party Intellectual Property Rights by or through the Company, are
currently pending or, to the Company's knowledge, have been threatened by any
Person; and (iii) the Company does not know of any valid grounds for any bona
fide claims (1) to the effect that the sale, licensing or use of any product or
service as now sold, licensed or used, or proposed for sale, license or use by
the Company infringes on any intellectual property rights of a third-party
including copyright, patent, trademark, service mark or trade secret; (2)
against the use by the Company of any intellectual property including
trademarks, trade names, trade secrets, copyrights, patents, technology,
know-how or computer software programs and applications used in the business of
the Company as currently conducted or as proposed to be conducted; (3)
challenging the ownership, validity or effectiveness of any of the Company
Intellectual Property Rights or other trade secret material to the Company; or
(4) challenging the license or legally enforceable right to use of Company Third
Party Intellectual Rights by the Company.
(c) To the Company's knowledge, there is no material unauthorized
use,
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24
infringement or misappropriation of any of the Company Intellectual Property
Rights by any third party, including any employee or former employee of the
Company.
(d) Set forth in Section 2.18(d) of the Company Disclosure Schedule
is a complete and accurate list of (i) all patents and patent applications owned
by the Company worldwide; (ii) all trademark and service mark registrations and
all trademark and service mark applications and all trade names owned by the
Company worldwide; (iii) all copyright registrations and copyright applications
owned by the Company worldwide; and (iv) all licenses owned by the Company in
which the Company is (A) a licensor with respect to any of the patents,
trademarks, service marks, trade names or copyrights listed in the Disclosure
Schedule, or (B) a licensee of any other person's patents, trade names,
trademarks, service marks or copyrights. The Company has made all necessary
filings and recordations to protect and maintain its interest in the patents,
patent applications, trademark and service mark registrations, trademark and
service mark applications, trade names, copyright registrations and copyright
applications and licenses set forth in the Disclosure Schedule, except where
such failure to file or record has not and could not reasonably be expected to
have a Material Adverse Effect.
(e) The Company shall ensure that any software products or services
owned, provided or otherwise developed by the Company, or used in the conduct of
the Company's business as presently conducted and as it is expected to be
conducted after the date of this Agreement, whether in whole or in part, by or
for the Company, which incorporate any date- related information or otherwise
process any date-related information, will, on the Effective Date, provide,
among other things, the following functionality: (i) accurate processing of
date- related information before, during and after January 1, 2000, including
accepting the date input, providing the date output, and performing calculations
on dates or portions of dates; (ii) accurate functioning without interruption
before, during and after January 1, 2000 without any change in operation
associated with the advent of the new century; (iii) ability to respond to
two-digit input in a way that resolves any ambiguity as to century in a
disclosed, defined and predetermined manner; and (iv) the ability to store and
provide output date information in ways that are unambiguous as to the century.
SECTION 2.19 Insurance. Except as set forth in Section 2.19 of the
Company Disclosure Schedule, all material fire and casualty, general liability,
business interruption, product liability and other insurance policies maintained
by the Company is with reputable insurers, provide adequate coverage for all
normal risks incident to the Company's assets, properties and business
operations and are in character and amount at least equivalent to that carried
by Persons engaged in a business subject to the same or similar perils or
hazards. The Company has not since January 1, 1995 been denied or had revoked or
rescinded any policy of insurance.
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25
SECTION 2.20 Contracts; etc. (a) Set forth on Section 2.20 of the
Company Disclosure Schedule is a complete and correct list of each of the
following agreements, leases and other instruments to which the Company is a
party or by which Company or any of its properties or assets are bound:
(i) each service or other similar type of agreement under which services
are provided by any other Person to the Company which is material to the
business of the Company;
(ii) each agreement that restricts the operation of the business of the
Company or the ability of the Company to retain employees or brokers or to
solicit customers or employees;
(iii) each operating lease (as lessor, lessee, sublessor or sublessee)
that is material to the Company taken as a whole of any real or tangible
personal property or assets;
(iv) each agreement under which services are provided by the Company to
any material customer;
(v) each agreement (including capital leases) under which any money has
been or may be borrowed or loaned or any note, bond, indenture or other
evidence of indebtedness has been issued or assumed (other than those
under which there remain no ongoing obligations of the Company), and each
guaranty of any evidence of indebtedness or other obligation, or of the
net worth, of any Person (other than endorsements for the purpose of
collection in the ordinary course of business);
(vi) each partnership, joint venture or similar agreement;
(vii) each agreement containing restrictions with respect to the payment
of dividends or other distributions in respect of the Company's capital
stock; and
(viii) each agreement to make unpaid capital expenditures in excess of
$50,000.
A complete and correct copy of each written agreement, lease or other type of
document required to be disclosed pursuant to this Section 2.20(a) has been
delivered to Parent.
(b) Each agreement, lease or other type of document required to be
disclosed pursuant to Section 2.13, 2.14 or 2.20(a) or filed as an exhibit to
the Company's SEC Reports to which the Company is a party or by which the
Company or its properties or assets are bound (collectively, the "Company
Contracts"), except for Company Contracts, the loss of which would not have a
Material Adverse Effect, is valid, binding and in full force and effect
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26
and is enforceable by the Company or such Subsidiary in accordance with its
terms except for the Exceptions. The Company is not (with or without the lapse
of time or the giving of notice, or both) in breach of or in default under any
of the Company Contracts, and, to the Company's knowledge, no other party to any
of the Company Contracts is (with or without the lapse of time or the giving of
notice, or both) in breach of or in default under any of the Company Contracts.
No existing or completed agreement to which the Company is a party is subject to
renegotiation with any governmental body.
SECTION 2.21 Permits, Authorizations, etc. Section 2.21 of the
Company Disclosure Schedule sets forth all Governmental Licenses and each other
material approval, authorization, consent, license, including the New York State
Banking Authority, order or other permit of all governmental agencies, whether
federal, state, local or foreign, necessary to enable the Company to own,
operate and lease its properties and assets as and where such properties and
assets are owned, leased or operated and to provide and carry on its business as
presently provided and conducted (collectively, the "Company Permits") or
required to permit the continued conduct of such business following the Merger
in the manner conducted on the date of this Agreement (and indicates in each
case whether or not the consent of any Person is required for the consummation
of the transactions contemplated hereby). The Company has all necessary Company
Permits of all governmental agencies, whether federal, state, local or foreign,
all of which are valid and in good standing with the issuing agencies and not
subject to any proceedings for suspension, modification or revocation, except to
the extent such failure to maintain such permits or be in good standing, or such
proceedings, would not have a Material Adverse Effect.
SECTION 2.22 Environmental Matters. (a) For purposes of this
Agreement, the capitalized terms defined below shall have the meanings ascribed
to them below.
(i) "Environmental Law(s)" means all federal, state or local law
(including common law), statute, ordinance, rule, regulation, code, or
other requirement relating to the environment, natural resources, or
public or employee health and safety and includes, but is not limited to
the Comprehensive Environmental Response Compensation and Liability Act
("CERCLA"), 42 U.S.C. Section 9601 et seq., the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801 et seq., the Resource
Conservation and Recovery Act ("RCRA"), 42 U.S.C. Section 6901 et seq.,
the Clean Water Act, 33 U.S.C. Section 1251 et seq., the Clean Air Act, 33
U.S.C. Section 2601 et seq., the Toxic Substances Control Act, 15 U.S.C.
Section 2601 et seq., the Oil Pollution Act of 1990, 33 U.S.C. Section
2701 et seq., and the Occupational Safety and Health Act, 29 U.S.C.
Section 651 et seq., as such laws have been amended or supplemented, and
the regulations promulgated pursuant thereto, and all analogous state or
local statutes and any applicable transfer statutes.
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27
(ii) "Environmental Permits" means all approvals, authorizations,
consents, permits, licenses, registrations and certificates required by
any applicable Environmental Law.
(iii) "Hazardous Substance(s)" means, without limitation, any flammable
explosives, radioactive materials, urea formaldehyde foam insulation,
polychlorinated biphenyls, petroleum and petroleum products (including but
not limited to waste petroleum and petroleum products), methane, hazardous
materials, hazardous wastes, pollutants, contaminants and hazardous or
toxic substances, as defined in or regulated under any applicable
Environmental Laws.
(iv) "Release" means any past or present spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
dumping or disposing of a Hazardous Substance into the Environment.
(b) Except for violations that do not and will not cause a Material
Adverse Effect, the Company has obtained all Environmental Permits that are
required for the lawful operation of its business. The Company (i) is in
compliance in all material respects with all terms and conditions of their
Environmental Permits and of any applicable Environmental Law, and (ii) has not
received written notice of any material violation by or claim against the
Company under any Environmental Law.
(c) There have been no Releases, or threatened Releases of any
Hazardous Substances into, on or under any of the properties owned or operated
(or formerly owned or operated) by the Company (including the costs of
investigation and remediation) under any applicable Environmental Law that would
have a Material Adverse Effect.
(d) The Company has not received any written notice of possible
liability as a potentially responsible party at any federal or state National
Priority List ("Superfund") site.
SECTION 2.23 Company Acquisitions. Section 2.23 of the Company
Disclosure Schedule hereto contains a complete and correct list of all
agreements ("Acquisition Agreements") since January 1, 1995, executed by the
Company pursuant to which the Company has acquired or agreed to acquire all or
any part of the stock or assets (including any customer list) of any Person. A
complete and correct copy of each of the Acquisition Agreements has been
delivered to Parent. The Company has no further obligation or liability under
any of the Acquisition Agreements or as a result of the transactions provided
for therein, except as described in reasonable detail in Section 2.23 of the
Company Disclosure Schedule.
SECTION 2.24 Books and Records. All accounts, books, ledgers and
official and other records prepared and kept by the Company are complete in all
material respects, and
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28
there are no material inaccuracies or discrepancies contained or reflected
therein.
SECTION 2.25 Interested Party Transactions. Except as set forth in
Section 2.25 of the Company Disclosure Schedule or the Company SEC Reports,
since January 1, 1997 no event has occurred that would be required to be
reported as a Certain Relationship or Related Transaction, pursuant to Item 404
of Regulation S-K promulgated by the SEC.
SECTION 2.26 Certain Approvals. The Company's Board of Directors has
taken any and all necessary and appropriate action to render inapplicable to the
Merger and the other transactions contemplated by this Agreement Section 9.12 of
the NYBCL. No other state takeover statute or similar domestic or foreign
statute or regulation applies or purports to apply to the Merger or the other
transactions contemplated by this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
PARENT AND MERGER SUB
Each of Parent and Merger Sub hereby represents and warrants to the
Company that, except as set forth in the written disclosure schedule delivered
by Parent to the Company (the "Parent Disclosure Schedule"):
SECTION 3.1 Corporate Organization. Each of Parent and Merger Sub is
a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation or organization and has all requisite
corporate power and authority to own, operate and lease its properties and
assets as and where the same are owned, operated or leased and to conduct its
business as it is now being conducted. Each of Parent and Merger Sub is in good
standing and duly qualified or licensed as a foreign corporation to do business
in those jurisdictions in which the location of the property and assets owned,
operated or leased by it or the nature of the business conducted by it makes
such qualification or licensing necessary, except where the failure to be so
qualified or licensed would not have a Material Adverse Effect. Each of Parent
and Merger Sub has heretofore delivered to the Company complete and correct
copies of its Certificate of Incorporation and By-laws, as amended to and as in
effect on the date hereof.
SECTION 3.2 Capitalization. The authorized capital stock of Merger
Sub as of the date hereof consists of 100 shares of common stock, par value $.01
per share (the "Merger Sub Common Stock"). All 100 shares of the Merger Sub
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29
Common Stock are issued and outstanding and owned beneficially and of record by
Parent as of the date hereof. Merger Sub has no subsidiaries, no material assets
or liabilities (except pursuant to this Agreement) and was formed solely to
facilitate the Merger.
SECTION 3.3 Authorization; Execution and Delivery. Each of Parent
and Merger Sub has all requisite corporate power and authority to execute,
deliver and perform its obligations under this Agreement. The execution,
delivery and performance of this Agreement by each of Parent and Merger Sub and
the consummation by Parent or Merger Sub of the transactions contemplated hereby
have been duly authorized by all requisite corporate action on the part of
Parent and Merger Sub. This Agreement has been duly executed and delivered by
Parent and Merger Sub and constitutes the legal, valid and binding obligation of
Parent and Merger Sub, enforceable against Parent and Merger Sub in accordance
with its terms, except for the Exceptions.
SECTION 3.4 Governmental Approvals and Filings. No approval,
authorization, consent, license, clearance or order of, declaration or
notification to, or filing or registration with, any governmental or regulatory
authority that currently regulates Parent or Merger Sub is required in order to
permit Parent or Merger Sub to consummate the Merger or perform its obligations
under this Agreement, except for (i) filing and recording of the Certificate of
Merger as required by the NYBCL, (ii) filings and other required submissions
under the HSR Act, (iii) the filings required pursuant to the New York Banking
Law that are set forth in Section 3.4 of the Parent Disclosure Schedule, (iv)
approval of the Bank of Greece, and (v) as is otherwise set forth in Section 3.4
of the Parent Disclosure Schedule.
SECTION 3.5 No Conflict. Subject to compliance with any Governmental
Licenses described in Section 3.4 of the Parent Disclosure Schedule and
obtaining the consents and waivers that are set forth and described in Section
3.5 of the Parent Disclosure Schedule (the "Private Consents"), neither the
execution, delivery and performance of this Agreement by Parent or Merger Sub,
nor the consummation by Parent or Merger Sub of the transactions contemplated
hereby, will (i) conflict with, or result in a breach or violation of, any
provision of the certificate of incorporation (or similar organizational
document) or by-laws of Parent or Merger Sub; (ii) conflict with, result in a
breach or violation of, give rise to a default, or result in the acceleration of
performance, or permit the acceleration of performance, under (whether or not
after the giving of notice or lapse of time or both) any Encumbrance, note,
bond, indenture, guaranty, lease, license, agreement or other instrument, writ,
injunction, order, judgment, decree, statute, rule or regulation to which Parent
or Merger Sub or any of their respective properties or assets is subject; (iii)
give rise to a declaration or imposition of any Encumbrance upon any of the
properties or assets of Parent or Merger Sub; or (iv) impair Parent's business
or adversely affect any Governmental License necessary to enable Parent and
Merger Sub to carry on their business as presently conducted, except, in the
cases of clauses (ii), (iii) or (iv), for any conflict, breach, violation,
default, declaration, imposition or impairment that would not have a Material
Adverse Effect.
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30
SECTION 3.6 No Legal Proceedings. Neither the execution and delivery
of this Agreement by Parent or Merger Sub, nor the consummation by Parent or
Merger Sub of the transactions contemplated hereby, are being challenged by or
are the subject of any pending or, to the knowledge of Parent or Merger Sub,
threatened litigation or governmental investigation or proceeding as of the date
of this Agreement.
SECTION 3.7 Finders. Except for Keefe Bruyette & Woods, Inc., no
broker, finder or investment advisor acted directly or indirectly as such for
Parent, any Subsidiary of Parent or any stockholder of Parent in connection with
this Agreement or the Merger, and no broker, finder, investment advisor or other
Person is entitled to any fee or other commission, or other remuneration, in
respect thereof based in any way on any action, agreement, arrangement or
understanding taken or made by or on behalf of Parent, any Subsidiary of Parent
or any stockholder of the Parent.
SECTION 3.8 Financial Ability to Perform. Parent has or will at the
time of the consummation of the Merger have cash funds available sufficient to
make all cash payments required to be made for the Company Common Stock under
this Agreement and pay all fees and expenses related to the transaction
contemplated by the Agreement.
SECTION 3.9 Proxy Statement. None of the information supplied or to
be supplied in writing by Parent or Merger Sub specifically for inclusion in the
Proxy Statement will, at the time the Proxy Statement is mailed, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading and will
not, at the time of the meeting of shareholders to which the Proxy Statement
relates or at the Effective Time omit to state any material fact necessary to
correct any statement which has become false or misleading in any earlier
communication with respect to the solicitation of any proxy for such meeting.
ARTICLE IV
COVENANTS, TRANSACTIONS AND CONDUCT OF
BUSINESS PENDING THE MERGER
SECTION 4.1 Conduct of Business by the Company Pending the Merger.
The Company covenants and agrees that during the period from the date of this
Agreement until the earlier of the termination of this Agreement or the
Effective Time, unless Parent shall otherwise agree in writing, (i) the Company
shall conduct its business only in the ordinary
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31
course of business consistent with past practice; (ii) that the Company shall
use reasonable commercial efforts to preserve substantially intact the business
organization of the Company, to keep available the services of the present
officers, employees, agents and consultants of the Company and to preserve the
present relationships of the Company with governmental agencies, insurance
brokers, insurance companies, lenders, customers, suppliers and other Persons
with which the Company has significant regulatory or business relations. By way
of amplification and not limitation, except as contemplated by this Agreement,
the Company shall not, during the period from the date of this Agreement and
continuing until the earlier of the termination of this Agreement or the
Effective Time, directly or indirectly do, or propose to do, any of the
following:
(a) amend or otherwise change the Company's Certificate of Incorporation
or By-Laws;
(b) issue, sell, pledge, dispose of or encumber, or authorize the
issuance, sale, pledge, disposition or encumbrance of, any shares of
capital stock of any class, or any options, warrants, convertible
securities or other rights of any kind to acquire any shares of capital
stock, or any other ownership interest (including, without limitation, any
phantom interest) in the Company or any of its Affiliates (except for the
issuance of shares of Company Common Stock issuable upon the exercise of
the Warrants pursuant to the Warrant Agreements or Stock Options under the
Company Stock Option Plans, which Warrants and Stock Options are
outstanding on the date hereof);
(c) sell, pledge, dispose of or encumber any assets of the Company (except
for (i) sales of assets in the ordinary course of business and in a manner
consistent with past practice, (ii) dispositions of obsolete or worthless
assets, and (iii) sales of immaterial assets not in excess of $10,000);
(d) (i) declare, set aside, make or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect
of any of its capital stock; (ii) split, combine or reclassify any of its
capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock; or (iii) amend the terms or change the period of
exercisability of, purchase, repurchase, redeem or otherwise acquire, any
of its securities, including, without limitation, shares of Company Common
Stock or any option, warrant or right, directly or indirectly, to acquire
shares of Company Common Stock;
(e) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or
division thereof; (ii) incur any indebtedness for borrowed money, except
for borrowings and reborrowing under
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32
the Company's existing credit facilities or issue any debt securities or
assume, guarantee (other than guarantees of bank debt of the Company's
subsidiaries under existing credit facilities entered into in the ordinary
course of business) or endorse or otherwise as an accommodation become
responsible for, the obligations of any Person, or make any loans or
advances, except in the ordinary course of business consistent with past
practice; (iii) authorize any capital expenditures or purchases of fixed
assets which are, in the aggregate, in excess of $50,000; or (iv) enter
into or amend any contract, agreement, commitment or arrangement to effect
any of the matters prohibited by this Section 4.1(e);
(f) make any material change in the rate of compensation, commission,
bonus or other remuneration payable, or pay or agree or promise to pay,
conditionally or otherwise, any bonus, extra compensation, pension or
severance or vacation pay, to any director, officer, employee, salesman,
broker or agent of the Company except in the ordinary course of business
consistent with prior practice and pursuant to or in accordance with plans
disclosed in Section 2.14(a) of the Company Disclosure Schedule that were
in effect as of January 1, 1998, or make any increase in or commitment to
increase any employee benefits, adopt or make any commitment to adopt any
additional employee benefit plan or make any contribution, other than
regularly scheduled contributions, to any Employee Benefit Plan;
(g) take any action to change accounting practices, policies or procedures
(including, without limitation, procedures with respect to revenue
recognition, payments of accounts payable or collection of accounts
receivable);
(h) make any material tax election inconsistent with past practice or
settle or compromise any material federal, state, local or foreign Tax
liability or agree to an extension of a statute of limitations, except to
the extent the amount of any such settlement has been reserved for in the
financial statements contained in the Company SEC Reports filed with the
SEC prior to the date of this Agreement;
(i) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, contingent or otherwise) in excess of $10,000 per
matter or $50,000 in the aggregate, other than the payment, discharge or
satisfaction in the ordinary course of business and consistent with past
practice of liabilities reflected or reserved against in the Company
Financial Statements or incurred in the ordinary course of business and
consistent with past practice; or
(j) take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.1(a) through (i) above, or any action which would
make any of the representations or warranties of the Company contained in
this Agreement untrue or
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33
incorrect in any material respect or prevent the Company from performing
or cause the Company not to perform its covenants herein.
SECTION 4.2 Shareholders' Meeting; Proxy Material.
(a) The Company shall cause a meeting of its shareholders to be duly
called and held as soon as reasonably practicable after the execution of this
Agreement for the purpose of voting on the adoption of this Agreement (the
"Company Shareholder Meeting"). The Board of Directors of the Company shall
recommend approval and adoption of this Agreement and the Merger by the
Company's shareholders. The Company shall use its best efforts consistent with
applicable legal requirements to solicit proxies in connection with the Company
Shareholder Meeting called pursuant to this Section 4.2(a) and shall solicit
such proxies in favor of such approval and adoption and take all other action
reasonably necessary to attempt to secure the shareholder approval required to
effect the Merger under applicable law.
(b) The Company will prepare, and file with the SEC, a proxy
statement, together with a form of proxy, with respect to the shareholders
meeting described in Section 4.2(a) (such proxy statement, together with any
amendments thereof or supplements thereto, being herein called the "Proxy
Statement"). The Company (i) will use its best efforts to have the Proxy
Statement cleared by the SEC as soon as reasonably practicable, if such
clearance is required, (ii) will as soon as reasonably practicable thereafter
mail the Proxy Statement to shareholders of the Company and (iii) will otherwise
comply in all material respects with all applicable legal requirements in
respect of such meeting. The Company shall notify Parent promptly of the receipt
of any comments from the SEC or its staff and any request by the SEC or its
staff for amendments or supplements to the Proxy Statement or for additional
information and will supply Parent with copies of all correspondence between the
Company and its representatives, on the one hand, and the SEC or its staff, on
the other hand, with respect to the Proxy Statement or the Merger. Prior to
filing the Proxy Statement with the SEC, the Company shall provide reasonable
opportunity for Parent to review and comment upon the contents of the Proxy
Statement and shall not include therein any information to which counsel to
Parent shall reasonably object (unless counsel to the Company shall reasonably
determine that such information should be included consistent with applicable
legal principles) or omit therefrom any information which counsel to Parent
shall reasonably request. If at any time prior to the meeting of the
shareholders of the Company contemplated by this Section 4.2, any event relating
to the Company or any of its subsidiaries, officers or directors is discovered
by the Company which should be set forth in an amendment or supplement to the
Proxy Statement, the Company shall promptly so inform Parent. The Proxy
Statement shall contain the recommendation of the Board of Directors of the
Company in favor of the Merger and that the shareholders vote for and adopt the
Merger and this Agreement.
SECTION 4.3 No Shopping.
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(a) From the date hereof until the termination of this Agreement,
the Company will not, and will not permit any officer, director, employee,
investment banker or other agent to, directly or indirectly (i) take any action
to seek, initiate or solicit any offer from any person, entity or group to
acquire any shares of capital stock of the Company or its subsidiaries, to merge
or consolidate with the Company or its subsidiaries, or to otherwise acquire any
significant portion of the assets of the Company and its subsidiaries, taken as
a whole (a "Third Party Acquisition Offer"), or (ii) engage in negotiations or
discussions concerning a Third Party Acquisition Offer or the business or assets
of the Company or its subsidiaries with, or disclose financial information
relating to the Company or its subsidiaries, or any confidential or proprietary
trade or business information relating to the business of the Company or its
subsidiaries to, or afford access to the properties, books or records of the
Company or its subsidiaries to, any third party that may be considering a Third
Party Acquisition Offer; provided, however, that the Company may enter into any
such negotiations or discussions, disclose any such information or afford any
such access to any third party, if (A) the Board of Directors of the Company is
advised by one or more of its financial advisors and concludes in good faith
that the third party has the financial resources to consummate a Superior
Acquisition, as defined in paragraph (c) below, and the Board of Directors of
the Company determines in good faith that the third party is likely to submit a
bona fide Third Party Acquisition Offer to consummate a Superior Acquisition;
(B) the Company has provided Parent, as soon as reasonably practicable and in
any event prior to such discussions, negotiations, disclosure or access, notice
of the Company's intent to enter into such discussions or negotiations, to
supply information and/or to provide access, the identity of such third party
and, as soon as reasonably practicable after such terms are known by the
Company, the terms of the Third Party Acquisition Offer; and (C) such third
party has signed and delivered to the Company a confidentiality agreement
substantially equivalent to the Confidentiality Agreement in Section 4.4. The
Company will immediately cease or cause to be terminated any existing
activities, discussions or negotiations with any parties conducted with respect
to any of the foregoing.
(b) The Company will orally notify Parent immediately, followed by
prompt written notice, of the receipt and the terms of any Third Party
Acquisition Offer from any person, entity or group, or of any request for
information or access, with respect to any Third Party Acquisition Offer, or any
indication from any person, entity or group that it or another person, entity or
group is considering making a Third Party Acquisition Offer or such a request,
which notice shall include the identity of the third party and will promptly
update the Company with respect to any developments with respect to such Third
Party Acquisition Offer.
(c) For purposes of this Agreement, a "Superior Acquisition" is a
transaction pursuant to which a tender offer is made to acquire all of the
outstanding Company Stock, or a merger, consolidation or a sale of substantially
all of the assets of the Company (to be followed
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35
by a complete liquidation of the Company) occurs, which the Board of Directors
of the Company concludes in good faith (after consultation with its financial
advisors and legal counsel), taking into account all legal, financial,
regulatory and other aspects of the proposal and the Person making the proposal,
(i) would, if consummated, result in a transaction that is more favorable to the
Company's shareholders (in their capacities as shareholders), from a financial
point of view, than the transactions contemplated by this Agreement and (ii) is
reasonably capable of being completed.
SECTION 4.4 Access to Information. The Company will give Parent and
Merger Sub, and their respective counsel, financial advisors, auditors and other
authorized representatives, full access to the offices (including a work area
for the use of Parent and Merger Sub and their authorized representatives),
properties, employees, books and records of the Company and its subsidiaries at
all reasonable times upon reasonable notice, and will instruct the employees,
counsel, financial advisors and auditors of the Company and its subsidiaries to
cooperate in all reasonable respects with Parent and Merger Sub and each such
representative in its investigation of the business of the Company and its
subsidiaries, provided that no investigation pursuant to this Section 4.4 shall
affect any representation or warranty given by the Company to Parent or Merger
Sub hereunder. The Company will confer from time to time with Parent at Parent's
request to discuss the status of the operations of the Company and its
subsidiaries. Parent shall keep such information confidential in accordance with
the terms of the confidentiality letter, dated June 23, 1998 (the
"Confidentiality Letter"), between Parent and the Company.
SECTION 4.5 Amendment of Company's Employee Plans. The Company will,
effective at or immediately prior to the Effective Time, cause any Employee
Plans (as hereinafter defined) which it may have to be amended, to the extent,
if any, reasonably requested by Parent, for the purpose of permitting the
Employee Plans to continue to operate in conformity with ERISA and the Code
subsequent to the Merger.
SECTION 4.6 Stock Options and Warrants. In accordance with the
Company's Equity Incentive Plan (the "Plan"), the Company will, as soon as
practicable after the execution of this Agreement, but in any event no later
than March 1, 1999, cause the Committee that administers the Plan to adopt the
resolutions set forth on Exhibit 4.6 hereto pursuant to Section 12(g) of the
Plan (the "Resolutions").
SECTION 4.7 Best Efforts. Subject to the terms and conditions herein
provided, each of the Company, Parent and Merger Sub agrees to use its
commercially reasonable efforts consistent with applicable legal requirements to
take, or cause to be taken, all action, and to do, or cause to be done, all
things reasonably necessary or proper and advisable under applicable laws and
regulations to ensure that the conditions set forth in Article V are satisfied
and to consummate and make effective, in the most expeditious manner reasonably
practicable,
<PAGE>
36
the Merger and the other transactions contemplated by this Agreement.
SECTION 4.8 Consents. Parent and the Company each shall use their
respective commercially reasonable efforts to obtain all material consents of
third parties and governmental authorities, and to make all governmental
filings, necessary for the consummation of the transactions contemplated by this
Agreement. Parent and the Company each shall as soon as practicable file (i) a
Pre-Merger Notification and Report Form under the Hart Scott Rodino Antitrusts
Improvements Act (the "HSR Act") with the Federal Trade Commission (the "FTC")
and the Antitrust Division of the Department of Justice (the "Antitrust
Division"), (ii) all filings required by the New York State Banking Law with the
New York State Banking Department, (iii) those filings required by the
Massachusetts Bank Law and shall use their respective best efforts to respond as
promptly as reasonably practicable to all inquiries received from the FTC or the
Antitrust Division, or from the New York State Banking Department, the
Massachusetts banking authorities, or any other relevant regulatory authority
for additional information or documentation.
SECTION 4.9 Public Announcements. Except as hereinafter provided in
this Section 4.9, Parent and the Company will consult with each other before
issuing any press release or otherwise making any public statements prior to the
Effective Time with respect to the Merger or the other transactions contemplated
hereby and shall not issue any such press release or make any such public
statement prior to receiving the consent of the other party, which consent will
not be unreasonably withheld or delayed. Nothing stated herein shall prohibit
any party from making a press release or other statement required by law or by
obligations pursuant to any listing agreement with any automated interdealer
quotation system if the party making the disclosure has first consulted with the
other parties hereto.
SECTION 4.10 Notification of Certain Matters. The Company will give
prompt notice, as soon as reasonably practicable, to Parent and Merger Sub of
the occurrence or non-occurrence of any event (i) which has had or is reasonably
likely to have a Material Adverse Effect, (ii) which has caused any
representation or warranty of the Company contained in this Agreement to be
untrue or inaccurate in any material respect or (iii) which has caused any
failure of the Company to comply in all material respects with or satisfy in all
material respects any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement; provided, however, that the delivery of
any notice pursuant to this Section 4.10 will not limit or otherwise affect the
remedies available under this Agreement to Parent or limit the rights of the
Company under this Agreement.
SECTION 4.11 Indemnification. All rights to indemnification and
exculpation existing in favor of any present or former director, officer or
employee of the Company or any of its subsidiaries (an "Indemnified Party") as
provided in the Company's Certificate of Incorporation or By-Laws or the
certificate or articles of incorporation, by-laws or similar
<PAGE>
37
organizational documents or by-laws of any of its subsidiaries as in effect on
the date hereof shall survive the Merger for a period of six years with respect
to matters occurring at or prior to the Effective Time and no action taken
during such six-year period shall be deemed to diminish the obligations set
forth in this Section 4.11.
SECTION 4.12 Directors and Officers Liability Insurance. For a
period of four years after the Effective Time, the Surviving Corporation shall
cause to be maintained in effect either (i) the current policy of directors' and
officers' liability insurance maintained by the Company (provided that Parent or
the Surviving Corporation may substitute therefor policies of at least the same
coverage and amounts containing terms and conditions which are no less
advantageous in any material respects to the indemnified parties thereunder)
with respect to claims arising from facts or events which occurred before the
Effective Time; provided, however, that in no event shall the Surviving
Corporation be required to expend pursuant to this Section 4.12 more than an
amount per year equal to 150% of the current annual premium (which current
annual premium for the policy year ending September 2001 the Company represents
and warrants to be approximately $8,000 in the aggregate) paid by the Company
for such existing insurance coverage (the "Cap"); and provided, further, that if
equivalent coverage cannot be obtained, or can be obtained only by paying an
annual premium in excess of the Cap, the Surviving Corporation shall only be
required to obtain as much coverage as can be obtained by paying an annual
premium equal to the Cap, or (ii) a run-off (i.e., "tail") policy or endorsement
with respect to the current policy of directors' and officers' liability
insurance covering claims asserted within three years after the Effective Time
arising from facts or events which occurred before the Effective Time.
SECTION 4.13 Employment Contracts. At the Effective Time, the
Company shall terminate, and cause Alan J. Karp and David E. Fisher to
terminate, the existing employment agreements of Alan J. Karp and David E.
Fisher with the Company, and the Company shall enter into the Employment
Agreements with Alan J. Karp and David E. Fisher substantially in the forms of
Exhibits A and B hereto, respectively (the "Employment Agreements).
SECTION 4.14 Conveyance Taxes. Parent and the Company shall
cooperate in the preparation, execution and filing of all returns,
questionnaires, applications or other documents regarding any real property
transfer or gains, sales, use, transfer, value added, stock transfer and stamp
taxes, any transfer, recording, registration and other fees, and any similar
taxes which become payable in connection with the transactions contemplated
hereby that are required or permitted to be filed on or before the Effective
Time and the Surviving Corporation shall be responsible for the payment of all
such taxes and fees.
SECTION 4.15 Prepayment of Indebtedness. At the Effective Time, the
Parent shall prepay or cause the Surviving Corporation to prepay, including any
prepayment penalties in connection therewith, each of the notes and other forms
of indebtedness of the Company
<PAGE>
38
that is then prepayable.
SECTION 4.16 Keyman Life Insurance. The Company shall obtain and
maintain, at its expense, "keyman" life insurance coverage on the lives of Alan
J. Karp and David E. Fisher, with either the Company or Parent as sole
beneficiary, in the amount of $1,000,000 for each such person, which insurance
shall be issued by an insurance company rated A minus or better by A. M. Best
Co. Inc.
ARTICLE V
CONDITIONS TO THE MERGER
SECTION 5.1 Conditions to Obligation of Each Party to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) Shareholder Approval. The Merger and this Agreement shall have been
approved and adopted by the requisite vote of the shareholders of the
Company;
(b) HSR Act; etc. All waiting periods applicable to the consummation of
the Merger under the HSR Act shall have expired or been terminated; all
consents required to be obtained under the New York State Banking Law and
the Massachusetts Bank Law, and from the Bank of Greece shall have been
obtained, and any waiting periods applicable to the consummation of the
Merger under such law shall have expired or been terminated.
(c) Governmental Actions. There shall not have been instituted, pending or
threatened any suit, action or proceeding (or any investigation or other
inquiry that might result in such an action or proceeding) by or before
any governmental authority, administrative agency or court of competent
jurisdiction, domestic or foreign, nor shall there be in effect any
judgment, decree or order of any governmental authority, administrative
agency or court of competent jurisdiction, or any other legal restraint
(i) preventing or seeking to prevent consummation of the Merger, (ii)
prohibiting or seeking to prohibit or limiting or seeking to limit Parent
from exercising all material rights and privileges pertaining to its
ownership of the Surviving Corporation or the ownership or operation by
Parent or any of its Subsidiaries of all or a material portion of the
business or assets of Parent or any of its Subsidiaries, or (iii)
compelling or seeking to compel Parent or any of its Subsidiaries to
dispose of or hold separate all or any material portion of the business or
assets of Parent or any of its
<PAGE>
39
Subsidiaries (including the Surviving Corporation), as a result of the
Merger or the transactions contemplated by this Agreement;
(d) Illegality. No statute, rule, regulation or order shall be enacted,
entered, enforced or deemed applicable to the Merger which makes the
consummation of the Merger illegal;
(e) Opinions of Counsel. The Company shall have received the written
opinions of Kramer Levin Naftalis & Frankel LLP and James Maxwell, Esq.,
in the forms attached hereto as Exhibits C-1 and C-2, respectively. Parent
and Merger Sub shall have received the written opinion of Blau, Kramer,
Wactler & Lieberman, P.C. in the form attached hereto as Exhibit D.
SECTION 5.2 Additional Conditions to Obligations of Parent and
Merger Sub. The obligations of Parent and Merger Sub to effect the Merger are
also subject to the following conditions:
(a) Representations and Warranties. The representations and warranties of
the Company contained in this Agreement (including the Company Disclosure
Schedule) that are qualified as to materiality shall be true and correct
in all respects on and as of the Effective Time with the same force and
effect as if made on and as of the Effective Time and each of the
representations and warranties of the Company contained in this Agreement
(including the Company Disclosure Schedule) that is not so qualified shall
be true and correct in all material respects on and as of the Effective
Time with the same force and effect as if made on and as of the Effective
Time, except for (i) changes contemplated by this Agreement and (ii) those
representations and warranties which address matters only as of a
particular date (which shall have been true and correct as of such date
and Parent and Merger Sub shall have received a certificate to such effect
signed by the Chief Executive Officer and Chief Financial Officer of the
Company;
(b) Agreements and Covenants. The Company shall have performed or complied
in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it on or prior to the
Effective Time, and Parent and Merger Sub shall have received a
certificate dated as of the Effective Time to such effect signed by the
Chief Executive Officer and Chief Financial Officer of the Company;
(c) Consents Obtained. All material consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required
to be made, by the Company for the authorization, execution and delivery
of this Agreement, the consummation by it of the transactions contemplated
hereby and the continuation in full force and effect of any
<PAGE>
40
and all material rights, documents, agreements or instruments of the
Company, including, without limitation, all such consents required from
governmental agencies, shall have been obtained and made by the Company,
except where the failure to receive such consents, waivers, approvals,
authorizations or orders would not have a Material Adverse Effect on the
Company or Parent;
(d) Absence of Material Adverse Effect. There shall not have been, since
December 31, 1997 (i) any damage, destruction or loss, whether covered by
insurance or not, that has had, or will have, a Material Adverse Effect;
(ii) any suit, action, investigation, inquiry or other proceeding by or
before any court or governmental or other regulatory or administrative
agency or commission requesting an order, judgment or decree (except those
in which Parent or Merger Sub is a plaintiff directly or derivatively)
which, in the reasonable judgment of Parent, would be reasonably likely,
if issued, to have a Material Adverse Effect; or (iii) any other event or
condition (financial or otherwise) of any character or any operations or
results of operations that has had, or is reasonably likely to have, a
Material Adverse Effect.
(e) Dissenting Shares. The holders of not more than 7.5% of the issued and
outstanding Company Common Stock shall have taken such action prior to or
at the time of the shareholders' vote as is necessary as of that time to
entitle them to the statutory dissenters' rights referred to in Section
1.7 hereof.
(f) Options and Warrants. In accordance with the Plan, the Company shall
have caused the Committee that administers the Plan to take action,
pursuant to Section 12(g) of the Plan to adopt the Resolutions.
(g) Employment Agreements. The Company and Alan J. Karp and David E.
Fisher shall have entered into the Employment Agreements.
(h) Company Net Worth. As of the last day of the month immediately
prior to the month in which the Effective Time occurs, the Company's net
worth, calculated in accordance with GAAP, shall be no less than
$7,000,000.
(i) Contracts Receivable. As of the last day of the month
immediately prior to the month in which Effective Time occurs, the
Company's net Contracts Receivable, calculated in accordance with GAAP,
shall be no less than $40,000,000.
(j) Prepayable Indebtedness. The holders of all notes and other
forms of indebtedness of the Company (other than the commercial paper set
forth on Schedule 5.2(j) hereto, any refundings of such commercial paper
and any other commercial paper having similar terms and conditions that
may be issued by the Company between
<PAGE>
41
the date of this Agreement and the Effective Date pursuant to the terms of
this Agreement (the "Commercial Paper")) shall have agreed to allow Parent
to prepay or to cause the Surviving Corporation to prepay such notes and
other indebtedness.
SECTION 5.3 Additional Conditions to Obligation of the Company. The
obligation of the Company to effect the Merger is also subject to the following
conditions:
(a) Representations and Warranties. The representations and warranties of
Parent and Merger Sub contained in this Agreement (including the Parent
Disclosure Schedule) that are qualified as to materiality shall be true
and correct in all respects on and as of the Effective Time with the same
force and effect as if made on and as of the Effective Time and each of
the representations and warranties of Parent or Merger Sub contained in
this Agreement (including the Parent Disclosure Schedule) that is not so
qualified shall be true and correct in all material respects on and as of
the Effective Time with the same force and effect as if made on and as of
the Effective Time, except for (i) changes contemplated by this Agreement
and (ii) those representations and warranties which address matters only
as of a particular date and the Company shall have received a certificate
to such effect signed by the Chief Executive Officer and the Chief
Financial Officer of Parent; and
(b) Agreements and Covenants. Parent and Merger Sub shall have performed
or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them on or
prior to the Effective Time, and the Company shall have received a
certificate dated as of the Effective Time to such effect signed by the
President and Chief Financial Officer of Parent.
ARTICLE VI
TERMINATION
SECTION 6.1 Termination. This Agreement may be terminated at any
time prior to the Effective Time, notwithstanding approval thereof by the
shareholders of the Company or Parent:
(a) by mutual written consent duly authorized by the Boards of Directors
of Parent and the Company; or
(b) by either Parent or the Company if the Merger shall not have been
consummated on or before June 1, 1999 (provided that the right to
terminate this Agreement under
<PAGE>
42
this Section 6.1(b) shall not be available to any party whose failure to
fulfill any obligation under this Agreement has been the cause of or
resulted in the failure of the Merger to occur on or before such date, and
provided further that, in the event that the Merger would have occurred on
or before such date except that either (i) the condition set forth in
Section 5.2(j) hereof has not been met by such date, or (ii) the
representations set forth in Section 2.18(e) shall not be true and correct
in all material respects on such date, Parent or the Company shall have
the option to extend such date until July 1, 1999); or
(c) by either Parent or the Company if a court of competent jurisdiction
or governmental, regulatory or administrative agency or commission,
including, without limitation, the New York State Banking Department,
shall have issued a nonappealable final order, decree or ruling or taken
any other action having the effect of permanently restraining, enjoining
or otherwise prohibiting the Merger (provided that the right to terminate
this Agreement under this Section 6.1(c) shall not be available to any
party who has not complied with its obligations under Section 4.7 and such
noncompliance materially contributed to the issuance of any such order,
decree or ruling or the taking of such action); or
(d) by either Parent or the Company if the requisite vote of the
shareholders of the Company shall not have been obtained by May 27, 1999,
or if the shareholders of the Company shall not have approved and adopted
the Merger and this Agreement at the Company Shareholders Meeting; or
(e) by Parent or the Company if any representation or warranty of the
Company, or Parent and Merger Sub, respectively, set forth in this
Agreement shall be untrue when made, such that the conditions set forth in
Section 5.2(a) or 5.3(a), as the case may be, would not be satisfied (a
"Terminating Misrepresentation"); provided, however, that, if such
Terminating Misrepresentation is curable prior to May 27, 1999 by the
Company or Parent, as the case may be, through the exercise of its
commercially reasonable efforts and for so long as the Company or Parent,
as the case may be, continues to exercise such reasonable efforts, neither
Parent nor the Company, respectively, may terminate this Agreement under
this Section 6.1(e); or
(f) by Parent if any representation or warranty of the Company shall have
become untrue such that the condition set forth in Section 5.2(a) would
not be satisfied (a "Company Terminating Change"), or by the Company if
any representation or warranty of Parent and Merger Sub shall have become
untrue such that the condition set forth in Section 5.3(a) would not be
satisfied (a "Parent Terminating Change" and together with a Company
Terminating Change, a "Terminating Change"), in either case other than by
reason of a Terminating Breach (as hereinafter defined); provided,
<PAGE>
43
however, that if any such Terminating Change is curable prior to May 27,
1999 by the Company or Parent, as the case may be, through the exercise of
its commercially reasonable efforts, and for so long as the Company or
Parent, as the case may be, continues to exercise such commercially
reasonable efforts, neither Parent nor the Company, respectively, may
terminate this Agreement under this Section 6.1(f); or
(g) by Parent or the Company upon a breach of any covenant or agreement on
the part of the Company or Parent, respectively, set forth in this
Agreement, such that the conditions set forth in Sections 5.2(b) or
5.3(b), as the case may be, would not be satisfied (a "Terminating
Breach"); provided, however, that, if such Terminating Breach is curable
prior to May 27, 1999 by the Company or Parent, as the case may be,
through the exercise of its commercially reasonable efforts and for so
long as the Company or Parent, as the case may be, continues to exercise
such commercially reasonable efforts, neither Parent nor the Company,
respectively, may terminate this Agreement under this Section 6.1(g); or
(h) by the Company, if the Company receives a bona fide Third Party
Acquisition Offer which constitutes a Superior Acquisition and which Third
Party Acquisition Offer the Board of Directors of the Company accepts,
approves or recommends; or
(i) by Parent or Merger Sub, if the Board of Directors of the Company
fails to call or hold a special meeting of shareholders or to conduct the
vote to approve and adopt this Agreement and the Merger at the special
meeting or any adjournment thereof or if the Board of Directors of the
Company fails to recommend the Merger to the Company's shareholders,
withdraws or qualifies such recommendation or its approval of this
Agreement or the Merger once given or takes any position or action that is
inconsistent with such recommendation or accepts, recommends or approves a
Third Party Acquisition Offer.
SECTION 6.2 Effect of Termination. In the event of the termination
of this Agreement pursuant to Section 6.1, this Agreement shall forthwith become
void and there shall be no liability on the part of any party hereto or of any
of its Affiliates, directors, officers or shareholders except (i) as set forth
in Section 6.3 and Section 7.1, and (ii) nothing herein shall relieve any party
from liability for any breach hereof.
SECTION 6.3 Fees and Expenses and Damages. (a) Except as set forth
in this Section 6.3, all fees and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expenses, whether or not the Merger is consummated.
(b) The Company shall pay Parent a fee of $193,200 upon the
termination of this
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44
Agreement where such termination occurs for any of the following reasons: (x) by
Parent pursuant to Section 6.1(i); (y) by Company pursuant to 6.1(h); or (z) by
Parent or the Company pursuant to Section 6.1(d).
(c) Upon termination of this Agreement by either Parent or the
Company, the respective parties hereto may seek any and all remedies or damages
available to it under applicable law.
(d) The fee payable pursuant to Section 6.3(b) shall be paid within
one business day after a written demand for payment following the occurrence of
any of the events described in Section 6.3(b).
ARTICLE VII
GENERAL PROVISIONS
SECTION 7.1 Effectiveness of Representations, Warranties and
Agreements. (a) Except as otherwise provided in this Section 7.1, the
representations, warranties, covenants and agreements of each party hereto shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of any other party hereto, any Person controlling any such
party or any of their officers, directors or representatives, whether prior to
or after the execution of this Agreement. The representations, warranties,
covenants and agreements in this Agreement shall terminate at the Effective Time
or upon the termination of this Agreement pursuant to Section 6.1, as the case
may be, except that the covenants and agreements set forth in Article I and
Sections 4.11 and 4.12 shall survive the Effective Time and those set forth in
Section 6.3 shall survive such termination. The Confidentiality Letter shall
survive termination of this Agreement as provided therein.
(b) Any disclosure made with reference to one or more Sections of
the Company Disclosure Schedule or the Parent Disclosure Schedule shall be
deemed disclosed with respect to each other section therein as to which such
disclosure is relevant provided that such relevance is reasonably apparent.
Disclosure of any matter in the Company Disclosure Schedule or the Parent
Disclosure Schedule shall not be deemed an admission that such matter is
material.
SECTION 7.2 Notices. All notices and other communications given or
made pursuant hereto shall be in writing and shall be deemed to have been duly
given or made if and when delivered personally or by overnight courier to the
parties at the following addresses or sent by electronic transmission, with
confirmation received, to the telecopy numbers specified
<PAGE>
45
below (or at such other address or telecopy number for a party as shall be
specified by like notice):
(a) If to Parent or Merger Sub:
Atlantic Bank of New York
960 Avenue of the Americas
New York, NY 10001
Attention: George Jarvis
Telecopier No.: (212) 695-6907
Telephone No.: (212) 714-7389
and
James Maxwell, Esq.
Telecopier No.: (212) 967-2557
Telephone No.: (212) 714-7312
With a copy to:
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, NY 10022
Telecopier No.: (212) 715-8000
Telephone No.: (212) 715-9100
Attention: Peter S. Kolevzon, Esq.
(b) If to the Company:
Standard Funding Corp.
335 Crossways Park Drive
Woodbury, NY 11797
Telecopier No.: (516) 364-8497
Telephone No.: (516) 364-0200
Attention: Alan Karp, President
With a copy to:
Blau, Kramer, Wactlar & Lieberman, P.C.
100 Jericho Quadrangle
Jericho, New York 11753
Telecopier No.: (516) 822-4824
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46
Telephone No.: (516) 822-4820
Attention: Edward I. Kramer, Esq.
SECTION 7.3 Certain Definitions. For purposes of this Agreement, the
term:
(a) "Affiliate" means a Person that directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under common
control with, the first mentioned Person;
(b) "Business Day" means any day other than a day on which banks in
New York are required or authorized to be closed;
(c) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the
management or policies of a Person, whether through the ownership of
stock, as trustee or executor, by contract or credit arrangement or
otherwise;
(d) "Person" means an individual, corporation, partnership, limited
liability company, association, trust, unincorporated organization other
entity or group (as defined in Section 13(d)(3) of the Exchange Act); and
(e) "Subsidiary" or "Subsidiaries" of any Person means any
corporation, partnership, limited liability company, or other legal entity
of which such Person, as the case may be (either alone or through or
together with any other subsidiary), owns, directly or indirectly, more
than 50% of the stock or other equity interests the holders of which are
generally entitled to vote for the election of the board of directors or
other governing body of such corporation or other legal entity.
SECTION 7.4 Amendment. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time; provided, however, that, after approval
and adoption of the Merger and this Agreement by the shareholders of the
Company, no amendment may be made which by law requires further approval by such
shareholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed by the parties hereto.
SECTION 7.5 Waiver. At any time prior to the Effective Time, any
party hereto may with respect to any other party hereto (a) extend the time for
the performance of any of the obligations or other acts, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto, or (c) waive compliance with
<PAGE>
47
any of the agreements or conditions contained herein. Any such extension or
waiver shall be valid if set forth in an instrument in writing signed by the
party or parties to be bound thereby.
SECTION 7.6 Headings; Construction. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. In this Agreement (a) words
denoting the singular include the plural and vice versa, (b) "it" or "its" or
words denoting any gender include all genders, (c) the word "including" shall
mean "including without limitation," whether or not expressed, (d) any reference
to a statute shall mean the statute and any regulations thereunder in force as
of the date of this Agreement or the Effective Time, as applicable, unless
otherwise expressly provided, (e) any reference herein to a Section, Article,
Schedule or Exhibit refers to a Section or Article of or a Schedule or Exhibit
to this Agreement, unless otherwise stated, (f) when calculating the period of
time within or following which any act is to be done or steps taken, the date
which is the reference day in calculating such period shall be excluded and if
the last day of such period is not a Business Day, then the period shall end on
the next day which is a Business Day, and (g) any reference to a party's "best
efforts" or "reasonable efforts" shall not include any obligation of such party
to pay, or guarantee the payment of, money or other consideration to any third
party or to agree to the imposition on such party or its Affiliates of any
condition reasonably considered by such party to be materially burdensome to
such party or its Affiliates.
SECTION 7.7 Severability. (a) If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the extent reasonably
possible.
(b) The Company and Parent agree that the fees provided in Section
6.3(b) are fair and reasonable in the circumstances. If a court of competent
jurisdiction shall nonetheless, by a final, non-appealable judgment, determine
that the amount of any such fee exceeds the maximum amount permitted by law,
then the amount of such fee shall be reduced to the maximum amount permitted by
law in the circumstances, as determined by such court of competent jurisdiction.
SECTION 7.8 Entire Agreement. This Agreement constitutes the entire
agreement and supersedes all prior agreements and undertakings (other than the
Confidentiality Letter), both written and oral, among the parties, or any of
them, with respect to the subject
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48
matter hereof, except as otherwise expressly provided herein.
SECTION 7.9 Assignment; Merger Sub. This Agreement shall not be
assigned by operation of law or otherwise, except that all or any of the rights
of Merger Sub hereunder may be assigned to any direct, wholly-owned Subsidiary
of Parent provided that no such assignment shall relieve the assigning party of
its obligations hereunder.
SECTION 7.10 Parties in Interest. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
Person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement, including, without limitation, by way of subrogation, other
than Sections 4.11 and 4.12 (which are intended to be for the benefit of the
Indemnified Parties and may be enforced by such Indemnified Parties).
SECTION 7.11 Failure or Indulgence Not Waiver; Remedies Cumulative.
No failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty, covenant or
agreement herein, nor shall any single or partial exercise of any such right
preclude other or further exercise thereof or of any other right. All rights and
remedies existing under this Agreement are cumulative to, and not exclusive of,
any rights or remedies otherwise available.
SECTION 7.12 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of New York
applicable to contracts executed and fully performed within the State of New
York.
SECTION 7.13 Counterparts. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
SECTION 7.14 WAIVER OF JURY TRIAL. EACH OF PARENT, MERGER SUB AND
THE COMPANY HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER
BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.
[This space intentionally left blank.]
<PAGE>
49
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused
this Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.
ATLANTIC BANK OF NEW YORK
By /s/
----------------------------------
Name: Thomas K. Sipple
Title: Executive Vice President & CFO
ATLANTIC PREMIUM, INC.
By /s/
----------------------------------
Name: Thomas K. Sipple
Title: President
STANDARD FUNDING CORP.
By /s/
----------------------------------
Name: Alan J. Karp
Title: President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from 12-31-98 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 223,031
<SECURITIES> 0
<RECEIVABLES> 46,505,191
<ALLOWANCES> 310,000
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 723,934
<DEPRECIATION> 495,832
<TOTAL-ASSETS> 47,634,718
<CURRENT-LIABILITIES> 40,106,026
<BONDS> 0
0
0
<COMMON> 2,760
<OTHER-SE> 7,525,932
<TOTAL-LIABILITY-AND-EQUITY> 47,634,718
<SALES> 0
<TOTAL-REVENUES> 7,110,146
<CGS> 0
<TOTAL-COSTS> 803,508
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 352,835
<INTEREST-EXPENSE> 2,908,066
<INCOME-PRETAX> 770,328
<INCOME-TAX> 354,542
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 415,786
<EPS-PRIMARY> .15
<EPS-DILUTED> 0
</TABLE>
