AGREEMENT
THIS AGREEMENT made as of September 9, 1993 between ELK ASSOCIATES
FUNDING CORPORATION, a New York Corporation (the "Company"), with offices
located at 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 AND THE UNITED STATES
SMALL BUSINESS ADMINISTRATION, located at 000 Xxxxx Xxxxxx, XX, Xxxxxxxxxx, XX
00000 (the "SBA")
W I T N E S S E T H:
WHEREAS, the Company is a Specialized Small Business Investment
Company ("SSBIC") licensed by the SBA under the Small Business Investment Act
of 1958, as amended (the "Act"); and
WHEREAS, the Company and the SBA have entered into a letter of intent
dated October 1, 1992 (the "Letter of Intent"); and
WHEREAS, the parties desire to carry out their intentions as set forth
in the Letter of Intent by entering into a definitive agreement with respect to
the provisions thereof;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
I. Financial Statement Adjustments.
1.1 The SBA acknowledges that the Company has made certain adjustments
to the Company's financial statements for the year ended June 30, 1992, a copy
of which financial statements have been delivered to the SBA. The SBA further
acknowledges that it has no objection to such financial statements.
1.2 The Company agrees that for the fiscal year ended June 30, 1993,
it will make adjustments to its reserve loss account to the extent necessary to
comply with the accounting policies and practices for small business investment
companies as set forth in Appendix II to Part 107 of Title 13 of the Code of
Federal Regulations.
II. Retained Earnings Deficit.
2.1 The SBA agrees to permit the Company to carry the retained
earnings deficit on its books, which retained earnings deficit results from the
adjustments described in Sections 1.1 and 1.2 above, without penalty or
violation, until such retained earnings deficit has been reduced to zero,
subject to the regulatory limitations relating to capital impairment as set
forth in Part 107 of Title 13 of the Code of Federal Regulations, as amended
from time to time.
III. Indebtedness.
3.1 The company will limit the aggregate of its indebtedness,
consisting of senior bank debt and SBA debentures, notes or other borrowings
from the SBA, excluding any preferred stock previously or hereafter issued by
the Company to the SBA (the "Indebtedness"), to a level not to exceed:
(a) 80% of each of the Company's "acceptable" (as hereinafter
defined) loans which is secured by a New York City taxicab medallion;
and
(b) 80% of all other "acceptable" secured loans and
investments of the company.
An "acceptable" loan or investment is defined as follows:
(1) 100% of the principal amount of any loan not in
payment default 90 days or more (a "current loan") shall be
deemed to be "acceptable";
(2) For any non-current loan secured by a New York
City taxicab medallion, the entire principal balance of the
Company's ownership share of such non-current loan (a) up to
80% of the then current market value of such medallion
provided the Company has taken reasonable steps to exercise
its rights to foreclose upon and sell the collateral or to
the Company's knowledge a voluntary sale is pending at the
New York City Taxi and Limousine Commission or (b) up to 70%
of the then current market value of such medallion if the
Company has elected not to foreclose; provided, in each
case, that the Company is first lienholder and has not
released or transferred any rights as such lienholder.
Notwithstanding the foregoing, in the event the Company is a
second lienholder, an "acceptable" loan shall also include
any loan made by the Company which is non-current and which
is secured by a New York City taxicab medallion; provided,
however, any such loan together with the aggregate loan(s)
from first lienholder(s) shall not exceed 70% of the then
current market value of such medallion.
(3) For any non-current loan secured by real estate
or for any assets involved in "in substance foreclosures" in
process, 50% of the value of the collateral securing such
loan, marked to current market value, provided the Company is
the first mortgagee (30% if second or junior
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mortgagee) and provided the Company has an appraisal
acceptable to the SBA which is dated within the preceding 12
months (such acceptance not to be unreasonably withheld). For
purposes of obtaining appraisals, the Company agrees to have
its loan collateral with respect to non-current loans
re-evaluated or appraised each year at or about the time it
submits its Form 468; and the Company will submit once each
year with its Form 468 a schedule of loan valuations to be
utilized in computing the aggregate of acceptable loans; and
(4) For assets acquired as a result of the
foreclosure of any loan, 50% of the fair market value of the
Company's equity ownership in such acquired assets, unless
the asset is a New York City taxicab medallion, in which case
100% of the then fair market value of the Company's equity
ownership in such medallion.
Provided, however, in the event the Company's "Indebtedness" exceeds
the maximum permitted as provided herein, the Company will as soon as
practicable after it has exceeded such maximum, commence taking all reasonable
steps to reduce such "Indebtedness" to the maximum permitted level. Such
reduction shall in no event be completed later than December 31, 1996.
3.2 Either the SBA or the Company may request a review of the
percentages and terms utilized in calculating the amount of "acceptable" loans
set forth herein within 90 days of the end of the Company's fiscal year.
3.3 Subject to Section 8.1 hereof, the parties further agree that the
Banks (as defined in Article XII hereof) or other lenders now or hereafter may
loan on a senior secured basis, an amount which, when aggregated with the
Company's SBA debentures, notes or other SBA borrowings (excluding any preferred
stock previously or hereafter issued by the Company to the SBA) does not exceed
the maximum "Indebtedness" provided for in Section 3.1 above.
IV. Removal of Diversification Requirement.
4.1 The SBA agrees that the requirement that the Company maintain
certain non-taxicab medallion secured loans in the amount of $3,448,000 is
removed and, accordingly, the Company is no longer required to maintain any
level of non-taxicab medallion secured loans.
V. Refinancing.
5.1 The SBA agrees to rollover for ten years, subject to the terms of
a certain Intercreditor Agreement (as hereinafter defined) of even date, the
existing $1.925 million of demand debentures as of the date of the
SBA-guaranteed funding next ensuing the
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execution of this Agreement. In addition, the SBA agrees that the Company's
Private Capital (as defined in 13 CFR Sec. 107.3), $5,490,385 as of the date of
this Agreement, shall be calculated without giving effect to the retained
earnings deficit resulting from the adjustments described in Section 1.1. hereof
for purposes of
(a) "rolling over" any of the Company's debentures other
than those referred to above; and
(b) applying for new leverage from the SBA.
VI. Grant of Security Interest.
6.1 The SBA's performance under this Agreement is conditioned upon
the SBA's receipt of a perfected security interest in all of the Collateral (as
defined in the Security Agreement (defined below)), second only to the security
interest of the Banks. Contemporaneously with the execution of this Agreement,
the Company will execute a security agreement (the "Security Agreement") in
favor of the SBA and the Company agrees to execute Form UCC-1 Financing
Statements in the forms attached hereto as Exhibit A. Such grant of a security
interest will be subject to the rights of the Company's senior lenders, as may
exist from time to time, as provided under the Company's respective loan
agreements with each of such senior lenders, copies of which loan agreements are
attached hereto as Exhibits B1-B4. In connection therewith, the SBA will execute
an inter-creditor agreement with the Company's senior lenders (the
"Inter-Creditor Agreement") in the form attached hereto as Exhibit C,
acknowledging the SBA's secured position, which Inter-Creditor Agreement will,
among other things, contain cross-notice provisions among the parties in the
event of a default by the Company;
6.2 In order to allow the SBA to perfect its lien on Company assets,
the parties are simultaneously entering into a custodian agreement (the
"Custodian Agreement") with a third party (satisfactory to the SBA) and with the
Company's Banks, in the form attached hereto as Exhibit D, pursuant to which the
Company will immediately turn over to such third party all original notes,
mortgages, security agreements and other documents now held by the Company, the
possession of which is necessary to perfect a lien thereon. The Company agrees
to bear the expenses in connection therewith.
6.3 The SBA acknowledges that it has advised the Company that the
SBA's present policy is generally to obtain a security interest in collateral
owned by Small Business Investment Companies or Specialized Small Business
Investment Companies licensed under the Act which have secured indebtedness
senior to the indebtedness owed to the SBA by such licensees. In the event SBA
significantly changes this policy in the future, or if SBA fails to implement,
or
4
take significant steps toward the implementation of this policy with other
licensees within eighteen months from the date hereof by having such licensees
enter into substantially similar agreements as the Company is executing on the
date hereof, SBA agrees to notify the Company of the change of such policy, or
that it has failed to implement, or take significant steps toward the
implementation of this policy with other licensees. In such event, the Company
shall request SBA to execute and deliver to the Company all necessary documents
to terminate the security interest granted by the Company to SBA, and SBA agrees
that consent to such request shall not be unreasonably withheld.
VII. SBA Acceptance of Application for New Leverage and Repurchase of
Preferred Stock.
7.1 The SBA agrees to accept for consideration the Company's
applications for the sale of additional debentures from time to time which the
Company is entitled to apply for based upon its capital, subject to the terms of
this Agreement.
7.2 The SBA agrees that none of the audits conducted by the SBA
Inspector General's office as of the date of this Agreement shall prevent the
Company from submitting an application for leverage in connection with the sale
of preferred stock or debentures or from taking any other action normally
permitted to be taken by SSBICs.
7.3 Subject to final rules and policies, the SBA agrees to permit the
Company to apply to participate in the first round (after the pilot round of
nine SSBICs) of SSBICs that repurchase from the SBA the 3% cumulative preferred
stock previously sold to the SBA.
7.4 The SBA makes no commitment to guarantee additional debentures, to
purchase preferred stock or to permit the Company to repurchase its 3%
cumulative preferred stock at a discount.
VIII. Payment of Dividends and Limitation of Senior Indebtedness.
8.1 The Company agrees (a) not to pay or declare any dividends in the
future and (b) not to incur senior debt, including the aggregate amount of its
credit lines, in excess of the current level of nine million ($9,000,000)
dollars principal amount (excluding interest, costs and legal fees whether or
not such items are ultimately included in principal), until such time as the
Company has achieved positive retained earnings or has received a capital
contribution of cash in an amount equal to its then negative retained earnings,
as determined in accordance with the accounting policies and practices for small
business investment companies as set forth in Appendix II to Part 107 of Title
13 of the Code of Federal Regulations.
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IX. Compliance with Investment Company Act of 1940.
9. 1 The SBA acknowledges that the Company is a registered investment
company, registered under the Investment Company Act of 1940 (the "'40 Act"),
and that the SBA will not require the Company to take any action or refrain from
taking any action necessary in the opinion of the Company's counsel to comply
with the 140 Act; provided, however, the company will not take any action, or
refrain from taking any action, if to do so would violate any SBA regulation.
X. Termination of Investigation.
10.1 On January 28, 1993, the SBA provided the Company with a formal
stipulation and resolution of the investigation of certain matters previously
referred to the Office of the Inspector General (the "Investigation"), a copy of
which stipulation has been furnished to the parties hereto (the "Stipulation")
and incorporated by reference herein. Except as otherwise set forth in the
Stipulation, the SBA further acknowledges and agrees, with respect to the
Investigation, the Company is not presently subject to any further inquiry,
investigation, regulatory review, restriction or penalty by SBA.
XI. Reporting.
11.1 The Company agrees to provide financial statements and financial
information to the SBA as follows:
(a) (i) for the first fiscal quarter ending September 30, a
financial statement (compilation statement) prepared internally by
management, (ii) for the six month period ending December 31, a review
statement prepared by the Company's independent certified public
accountants for such period, (iii) for the nine month period ending
March 31, a financial statement (compilation statement) prepared
internally by management, and (iv) for the twelve month period ending
June 30, the company will provide an audited financial statement;
(b) simultaneously with the delivery of the financial
information for each of the four periods set forth in (a) above, the
Company will provide a summary of the computation of the amount of
"acceptable" loans and total Indebtedness as described herein; and
(c) the Company will provide the information referred to in
subparagraphs (a) and (b) above within 60 days following the end of
each fiscal quarter ending September 30 and March 31 and within 90
days following the end of each of the periods ending December 31 and
June 30.
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XII. Consent of Senior Lenders.
12.1 The Company has entered into loan agreements with the following
banks: (i) Israel Discount Bank of New York, (ii) Bank Leumi Trust Company of
New York, (iii) Extebank and (iv) Bank Hapoalim (each of the foregoing banks
being individually referred to as a "Bank" and collectively, as the "Banks").
The Company has entered into an Intercreditor Agreement with the Banks and the
SBA as of the date hereof pursuant to which the Banks have consented to the
terms of this Agreement.
XIII. Representations and Warranties.
13.1 Company's Representations and Warranties. The Company represents
and warrants that:
(a) the Company is a corporation duly organized and validly
existing, in good standing, under the laws of the State of New York and has
the corporate power and authority to enter into and to carry out the terms
of this Agreement, including the Exhibits hereto.
(b) the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on behalf of the Company and, except as
otherwise described in this Agreement and the Exhibits hereto, the Company is
not subject to any charter, bylaw, lien, encumbrance of any kind, agreement,
instrument, order, or decree of any court or governmental body (other than any
governmental approval required) which would prevent consummation of the
transactions contemplated by this Agreement.
13.2 SBA's Representations and Warranties. The SBA represents and
warrants that:
(a) the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby to be performed by SBA
have been duly authorized by all necessary action by or on behalf of the SBA
and the SBA is not presently subject to any statute, regulation, agreement,
instrument, order or decree of any court or governmental body which would
prevent the consummation of the actions contemplated by this Agreement,
including the Exhibits hereto.
(b) the Investigation has been resolved and terminated
pursuant to the Stipulation and no further action will be taken by the SBA
with respect to the matters which were the subject of such Investigation so
long as the Company is in compliance with the Stipulation.
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XIV. Affect of Non-Performance.
14.1 Non-performance of any of the terms of this Agreement by the
Company may be deemed also to be a violation of 13 CFR Sec. 107.906(a).
XV. Press Release.
15.1 The SBA agrees and acknowledges that as soon as practicable after
the execution of this Agreement, the Company may issue a press release
announcing certain of the transactions contemplated in this Agreement.
XVI. Assignment.
16.1 This Agreement will not be assigned or transferred by either
party without the prior written consent of the other.
XVII. Notices.
17.1 Any notices required or permitted to be given under this
Agreement will be sufficient if in writing and if sent by registered mail, by
overnight courier, or telefacsimile, as follows:
A. To the Company:
ELK ASSOCIATES FUNDING CORPORATION
000 Xxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxx X. Xxxxxxx, Esq.
Telecopy: 000-000-0000
With a Copy to:
Stursberg & Xxxxx
000 Xxxxxxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000-0000
Attn: C. Xxxxxx Xxxxxxxxx, Xx., Esq.
Telecopy: 000-000-0000
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B. To the SBA:
U.S. SMALL BUSINESS ADMINISTRATION
Office of Investment
000 Xxxxx Xxxxxx XX
Xxxxxxxxxx, XX 00000
Attn: Director, Office of Investment
Telecopy: 000-000-0000
With a Copy to:
U.S. SMALL BUSINESS ADMINISTRATION
Office of General Counsel
000 Xxxxx Xxxxxx XX, Xxxxx 0000
Xxxxxxxxxx, XX 00000
Attn: Chief Counsel for Investment.
Telecopy: 000-000-0000
or to such other persons or addresses as may from time to time be designated by
either of the parties in writing. Any such notice shall be deemed given upon
receipt.
XVIII. Waiver.
18.1 Waiver by either party of the breach of any provisions of this
Agreement will not operate or be construed as a waiver of any subsequent such
breach by the offending party. No failure or delay in exercising any right,
remedy, power or privilege hereunder shall operate as a waiver thereof.
XIX. Entire Agreement.
19.1 All prior negotiations, discussions and agreements by and between
the parties and/or their representatives, concerning this Agreement, whether in
writing or by parol, are herein merged and engrossed, and there are and will be
no other such agreements and/or understandings by the parties other than may be
contained herein or in a subsequent amendment or rider to this Agreement
executed by the parties with all of the formalities hereto.
XX. Severability.
20.1 The invalidity or unenforceability of any provision hereof shall
in no way affect the validity or enforceability of any other provisions.
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XXI. Applicable Laws.
21.1 In any case or controversy resulting from this Agreement, the
parties agree to the exclusive jurisdiction of the United States District Court
for the Southern District of New York.
XXII. Effect of Headings.
22.1 The section and paragraph headings herein are for convenience
only and shall not affect the construction hereof.
XXIII. Counterparts.
23.1 This Agreement may be executed in one or more counterparts, all
of which together shall constitute a single agreement.
IN WITNESS WHEREOF, the parties have set their hands and seals.
ELK ASSOCIATES FUNDING CORPORATION, INC.
By: /s/ Xxxx X. Xxxxxxx
-------------------------------
Xxxx X. Xxxxxxx Esq., President
U.S. SMALL BUSINESS ADMINISTRATION
By: /s/ Xxxxx X. Xxxxx
-------------------------------
Xxxxx X. Xxxxx
Associate Administrator for Investment
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EXHIBITS OMITTED
