Exhibit No. 10.31
SETTLEMENT AGREEMENT AND GENERAL MUTUAL RELEASE
This Settlement Agreement and Release ("Settlement Agreement") is by
and between American Direct Credit LLC ("ADC"), on the one hand, and Fidelity
Federal Bank, a Federal Savings Bank ("Fidelity"), on the other hand. (ADC and
Fidelity are collectively referred to as the "Parties"). This Settlement
Agreement is entered into as of this ___ day of December, 1998. The Parties
agree and state as follows:
RECITALS
A. On or about March 5, 1997 ADC and Fidelity entered into a contract
entitled "American Direct Credit Bankcard Program Agreement" (the "Agreement").
Under the terms and provisions of the Agreement, ADC was to provide certain
credit card processing functions and to provide for collection on credit card
accounts for credit cards issued by Fidelity to credit card holders who were
solicited by a network of dealers enlisted by ADC to market such credit cards.
ADC agreed, under the terms of the Agreement, to be responsible for one hundred
percent (100%) of all credit card losses in connection with the program. The
Agreement further provided for quarterly adjustments to the contractually
required loss reserves and specified certain procedures for changes in
underwriting standards for credit card issuance.
B. During late summer and early fall of 1998, disputes arose between
ADC and Fidelity in connection with the Agreement. Fidelity asserted that the
reserve levels established under the Agreement pursuant to reports submitted by
ADC were inaccurate and insufficient to cover expected credit losses. In
addition, Fidelity asserted that ADC had not been making timely payments as to
delinquent accounts which, in accordance with the terms and provisions of the
Agreement, ADC was required to purchase after the same became 152 days
delinquent. ADC denied that reserves were insufficient and inadequate and
further denied that it had any obligation to purchase delinquent accounts at the
time and in the manner asserted by Fidelity.
C. On October 2, 1998 ADC filed suit in the United States District
Court, for the District of Idaho, said suit being entitled "AMERICAN DIRECT
CREDIT LLC, A NEVADA LIMITED LIABILITY COMPANY, PLAINTIFF, V. FIDELITY FEDERAL
BANK, A FEDERAL SAVINGS BANK, DEFENDANT." bearing Case No. CIV 98-0391-BLW) (the
"Action"). In said Action ADC purported to state claims for breach of contract,
unfair competition, unfair trade practices and injunctive relief. Among other
things, ADC asserted that the reserves established under the Agreement were
sufficient and satisfactory, that Fidelity was improperly attempting to
unilaterally change the terms and provisions of the Agreement and the manner in
which the Parties had operated under the Agreement and that Fidelity was acting
for a number of improper reasons and based upon a number of improper motives.
ADC sought a temporary restraining order in connection with the filing of its
Complaint. Reference is made to the Complaint herein and the application for a
temporary restraining order and the same are incorporated by reference herein,
solely for purposes of describing the nature and scope of ADC's claims. The
Action has not been formally served upon Fidelity, although Fidelity has
appeared in and defended the Action.
D. A temporary restraining order was issued by the above-described
Court on October 6, 1998. In general, the temporary restraining order enjoined
Fidelity from implementing a termination of the Agreement premised upon ADC's
asserted insolvency and enjoined any increase in reserve rates. Thereafter, the
Parties conducted discovery and submitted affidavits, declarations, deposition
extracts and briefs in connection with ADC's application to the Court for
issuance of a preliminary injunction. On October 23, 1998 the Court issued a
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Memorandum Decision and Order and a Preliminary Injunction, the latter being
conditioned, as to effectiveness, on the posting of a $2 million bond by ADC.
ADC's application for a preliminary injunction and the filings by ADC and
Fidelity in pursuit of and opposition to such application, together with the
Memorandum Decision and Order issued by the Court are incorporated herein by
reference, solely for purposes of further describing the nature and scope of the
claims of the Parties hereto.
E. Following its review of the Memorandum Decision and Order, and the
accompanying preliminary injunction, ADC approached Fidelity in order to
initiate settlement negotiations. Such settlement negotiations proceeded through
October 30, 1998, at which time ADC and Fidelity entered into and executed an
agreement entitled "Settlement Term Sheet." This Settlement Agreement is one of
the documents prepared to implement such settlement.
F. Without admitting any liability whatsoever, and in order to
eliminate the expense and uncertainty of litigation, the Parties desire to enter
into this Settlement Agreement in order to mutually and fully resolve their
differences and the Action consistent with the Settlement Term Sheet.
AGREEMENT
In consideration of the mutual covenants and agreements set forth
below, and for good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Parties agree as follows:
1. CONSIDERATION
This Settlement Agreement is made in consideration of the reciprocal
promises of the Parties set forth in Amendment No. 1 to American Direct Credit
Bankcard Program Agreement ("Amendment") entered into contemporaneously with
this Settlement Agreement by ADC and Fidelity. In addition, ADC's contractual
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undertaking, under the circumstances specified in the Amendment, to pay Fidelity
the sum of $300,000 currently placed up as a cash bond in connection with the
temporary restraining order issued in the above-described Action, forms further
consideration for this Settlement Agreement.
2. EFFECTIVE DATE
Absent a material breach of the Amendment which terminates the
settlement contemplated hereby in accordance with the terms and provisions of
the Amendment, this Settlement Agreement, and the releases contained herein,
shall become effective upon the earlier of 11:59 p.m. December 31, 1998 or the
closing and consummation of an all cash sale of the credit card account and
receivable portfolio owned by Fidelity and created through the credit card
issuance program established by the Agreement (the "Portfolio"), in which latter
event this Settlement Agreement and the releases contained herein shall become
effective simultaneously with the closing and consummation of such sale of the
Portfolio. The executed counterparts of this Settlement Agreement shall be
retained, in trust, by counsel for the respective parties, until the occurrence
of either such event and thereafter shall be immediately delivered by such
counsel to counsel for the opposing Party. In the event of a material breach of
the Agreement, as amended by the Amendment, this Settlement Agreement, at the
option of the non-breaching party, shall terminate and there will be no exchange
of counterpart signed originals of this Settlement Agreement. Upon becoming
effective, this Settlement Agreement, and the releases contained herein, shall
apply to all facts, events, happenings and occurrences which have transpired on
or before December 31, 1998.
3. GENERAL MUTUAL RELEASES
A. Except for the provisions of the Agreement, as modified by the
Amendment, that are to survive a termination of the Agreement pursuant to
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Section 13A thereof (as so modified), and except to enforce any provisions of
this Settlement Agreement, Fidelity hereby releases, acquits, waives and forever
discharges ADC, its respective current and former members, and its respective
current and former managers, directors, members, officers and employees, each
solely in their capacities as such, and its successors and predecessors, of and
from any and all known and unknown past, present and future charges, claims,
complaints, actions, causes of action, liabilities, obligations, promises,
agreements, controversies, rights, damages, debts, costs, losses of services,
attorneys' fees, expenses and compensation of any nature whatsoever, through the
date of this Settlement Agreement including but not limited to each and all of
the matters described in Recitals A through D hereof and each and all of the
matters which were asserted or which could have been asserted in the litigation
identified in Recital C hereof.
B. Except for the provisions of the Agreement, as modified by the
Amendment, that are to survive a termination of the Agreement pursuant to
Section 13A thereof (as so modified), and except to enforce any provisions of
this Settlement Agreement, ADC hereby releases, acquits, waives and forever
discharges Fidelity, its respective current and former shareholders, and its
respective current and former directors, members, officers and employees, each
solely in their capacities as such, and its successors and predecessors, of and
from any and all known and unknown past, present and future charges, claims,
complaints, actions, causes of action, liabilities, obligations, promises,
agreements, controversies, rights, damages, debts, costs, losses of services,
attorneys' fees, expenses and compensation of any nature whatsoever, through the
date of this Settlement Agreement including but not limited to each and all of
the matters described in Recitals A through D hereof and each and all of the
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matters which were asserted or which could have been asserted in the litigation
identified in Recital C hereof.
C. The foregoing releases extend to all claims and causes of action,
whether claimed or suspected by the Parties hereto, arising on or before the
date hereof. The Parties and each of them, waive each and all of the provisions
of California Civil Code section 1542 which reads as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR.
It is expressly understood and agreed by the Parties that the facts
with respect to which this Settlement Agreement is made and given may
hereinafter turn out to be other than or different from the facts now known or
believed to be true, and the Parties hereto each expressly assume a risk of the
facts turning out to be so different and agree that this Settlement Agreement
shall be in all respects effective and not subject to termination or rescission
by reason of any difference in the facts. The Parties further acknowledge and
agree that these waivers of rights under Civil Code section 1542 have been
separately bargained for and are essential and material terms of this Settlement
Agreement.
4. DISMISSAL OF ACTION
Contemporaneously herewith ADC and Fidelity shall execute a Stipulation
Re Dismissal and [Proposed] Order for Dismissal with prejudice of the entire
Action identified in Recital C. The executed original of such document will be
held for presentation to and execution by the Court by counsel for Fidelity
until after this Settlement Agreement, and the included releases, have become
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effective, at which time it will be presented to the Court. The Stipulation Re
Dismissal and [Proposed] Order for Dismissal with prejudice of the entire Action
shall not be presented to the Court should this Settlement Agreement terminate.
5. NO ADMISSION OF WRONGDOING OR LIABILITY
This Settlement Agreement is not to be construed as evidence or an
admission of any alleged wrongdoing or liability by any Party to this Settlement
Agreement. Such liability is expressly denied by Fidelity and ADC.
6. ATTORNEYS FEES AND LITIGATION COSTS
A. Each Party shall bear its own costs and attorneys' fees incurred in
connection with the Action and in negotiating and finalizing this Settlement
Agreement.
B. In any litigation between the Parties to declare the rights or to
enforce the provisions in this Settlement Agreement, the Party prevailing in the
litigation, whether at trial, arbitration, or on appeal, shall be awarded its
costs and expenses (including experts) of suit, including, without limitation, a
reasonable sum for attorneys' fees incurred in such litigation. The term
"prevailing party" as used in this Section of this Settlement Agreement shall
not be limited to a prevailing plaintiff Party, but shall also include, without
limitation, any Party who is made a defendant in litigation in which damages or
other relief or both may be sought against such Party and a final judgment or
dismissal or decree is entered in such litigation in favor of such Party
defendant. Attorneys' fees incurred in enforcing any judgment or order rendered
in connection with the interpretation or enforcement of this Settlement
Agreement ("Judgment") are recoverable by the Party in whose favor such Judgment
or award is rendered, as a separate item of damages. The provisions of this
Section are severable from the other provisions of this Settlement Agreement and
shall survive any such Judgment or award, and the provisions of this Section
shall not be deemed merged into any such Judgment or award.
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7. MISCELLANEOUS PROVISIONS
A. Each of the Parties warrants and represents that it has not made or
suffered to be made any assignment, subrogation, hypothecation or other
disposition of any claim, right, title, interest, demand, obligation or cause of
action it may possess as against any other party to this Settlement Agreement.
B. Each person signing this Settlement Agreement as the agent,
representative, member, or officer of a business entity hereby warrants and
represents that he is fully authorized to enter into this Settlement Agreement
on behalf of the business entity.
C. This Settlement Agreement, when fully executed, constitutes and is
intended as an "integrated" and final expression and a complete and exclusive
statement of the understanding and agreement between the Parties hereto with
respect to the subject matter hereof and supersedes all prior and
contemporaneous agreements and understandings of the Parties hereto. No
modification, amendment, supplementation, waiver or termination of this
Settlement Agreement shall be binding unless executed in writing by the Party to
be bound thereby.
D. This Settlement Agreement shall be signed in counterparts, each of
which, once they are executed, shall be deemed to be an original and such
counterparts shall constitute one and the same instrument.
E. This Settlement Agreement shall be binding upon and inure to the
benefit of the successor and assigns of each of the Parties.
F. This Settlement Agreement shall in all respects be interpreted,
enforced and governed by and under the internal laws of the State of California.
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G. The Parties agree to execute any other and further documents
necessary or appropriate to implement this Settlement Agreement, including but
not limited to any documents which might require revision or modification for
filing with or acceptance by the Court.
IN WITNESS WHEREOF, ADC and Fidelity have caused their duly authorized
representatives to execute and enter into this Settlement Agreement.
AMERICAN DIRECT CREDIT LLC FIDELITY FEDERAL BANK
By: /S/ XXXX X. XXXXXXX By: /S/ XXXX X. XXXXX
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Xxxx X. Xxxxxxx Xxxx X. Xxxxx
Its: PRESIDENT Its: CHIEF EXECUTIVE OFFICER
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APPROVED AS TO FORM:
STOEL RIVES LLP XXXXXX, XXXX & XXXXXXXX LLP
By: /S/ XXXXXX X. XXXXXXXX By: /S/ XXXX XXXXX
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Xxxxxx X. Xxxxxxxx Xxxx Xxxxx
Attorneys for Plaintiff Attorneys for Defendant
American Direct Credit LLC Fidelity Federal Bank
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