Amendment #1 to the promissory note dated 3-30-98 made by cardiovascular laboratories, inc. of pa to anchor investment partnership ltd.
Amendment #1 to the Promissory Note Dated 3-30-98 made by Cardiovascular Laboratories, Inc. of PA to Anchor Investment Partnership Ltd.
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Promissory Note Dated 3-30-98
Cardiovascular Laboratories, Inc. of PA
Anchor Investment Partnership Ltd.
This Amendment #1 (hereinafter referred to as the "Amendment") to the
Promissory Note dated March 30, 1998 (hereinafter the "Note") between
Cardiovascular Laboratories, Inc. (hereinafter referred to as the "Maker") and
Anchor Investment Partnership Ltd. (hereinafter referred to as, the "Payee") is
dated June 28, 1999.
WHEREAS Maker is unable, as of the date of this Amendment, to make payment
on the interest and principal as set forth in the Note; and Maker is thereby in
default of the terms and conditions set forth in the Note; and
WHEREAS Maker is entering into this Amendment to offer Payee incentive to
refrain from enforcing such remedies as the Payee is lawfully entitled to under
the terms of the Note; and
WHEREAS Payee wishes to retain its rights and remedies under the Note; and
WHEREAS Payee wishes to restructure Note to enhance the chance of obtaining
repayment of interest and principal of Note and to obtain such additional
payment as may be available under the terms of this Amendment.
NOW, THEREFORE, in consideration of their mutual covenants, and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
Parties hereto, intending to be legally bound, hereby agree to amend the Note as
1. Interest rate. In accordance with the terms of the Note, the interest rate on
the outstanding unpaid principal amount shall be increased to the Default Rate
(as defined in the original Note) of 11% per annum, which interest shall accrue
from April 1, 1999 until the Maker has paid the outstanding principal in its
2. Principal and Interest Payment. Obligations under the Note shall remain
outstanding until repaid in their entirety. The final maturity of the Note shall
be extended to July 1, 2002, with twenty equal principal and interest payments
due on a monthly basis as set forth in Exhibit B. Additionally, any or all
outstanding principal and accrued but unpaid interest shall be eligible for
payment from the Payee's participation in the compensation plan of a proposed
network marketing organization organized to sell nutritional supplements
(hereinafter referred to as the ("NMO") as further described in this Amendment.
3. Current Interest Payments. Notwithstanding the provisions contained above in
Section 2 of this Amendment, Maker shall, in accordance with the provisions in
this Section 3, pay current interest at an 11% annualized rate on all
outstanding unpaid principal obligations
under the Note and this Amendment. Such current interest payments shall begin
prior to the payment schedule set forth in Exhibit B to this Amendment under the
A. Net Free Cash Flow Statements. Maker shall prepare a statement of net
free cash flow on a quarterly basis showing the net free cash flows of
Maker for each month in the preceding quarter and present such statements
of net free cash flow to Payee no later than 30 days following the close of
each calendar quarter. For the purposes of this Amendment, net free cash
flow ("Net Free Cash Flow") shall mean the gross cash revenues received by
the Maker during each month minus the gross cash payments made for expenses
during each month.
B. Current Interest Payments. Once Maker's Net Free Cash Flow reaches
$2,500 or more for any calendar quarter, Maker shall become obligated to
make interest payments to Payee on all outstanding principal amounts of the
Note as follows: First; all accrued interest payments up to the amount of
the Net Free Cash Flow. Second, all current interest payments to the end of
the last quarter.
4. Network Marketing Organization. Maker and its affiliates intend to
launch a NMO that will consist of the creation of a multi-level marketing
distributor sales force to sell nutritional supplements. Maker represents and
Payee expressly acknowledges that the NMO is not yet established, and may never
become successful enough to repay the principal, and interest on the Note.
Notwithstanding this fact, however, in an effort to induce the Payee not to
exercise all of its rights and remedies under the terms of the Note, Maker
offers the following additional incentive to Payee:
A. Establishment of NMO. The establishment of NMO shall take place as soon
as Maker is able to do so following the execution of this Amendment. Maker
represents and Payee expressly acknowledges that the establishment and
successful operation of the NMO is subject to inherent uncertainties,
including, but not limited to, the inexperience of Maker in the
establishment and operation of NMO's such as that contemplated by Maker.
B. Establishment of the Compensation Plan. Maker represents and warrants to
Payee that Maker shall ensure that NMO shall have a compensation plan (the
"Compensation Plan") established to compensate distributors on retail sales
of products made by distributors in the NMO. Such Compensation Plan shall
form a means by which Payee may have all obligations of Maker fulfilled as
well as affording Payee the opportunity to earn additional payments above
the full amount of interest and principal due under the Notes as amended
under terms set forth in this Amendment to compensate Payee for their
forbearance in accepting the terms of this Amendment.
C. NMO Compensation Plan With Respect to Payee. The Compensation Plan is
intended to motivate and incentivize independent distributors to build
their business through revenues generated within their downline multi-level
organization of distributors. The Compensation Plan shall be structured to
permit the Payee to be compensated at 25% of the Presidential Level of the
Compensation Plan. The Presidential Level of the Compensation Plan shall
consist of a 10% override on all net sales made by all distributors in the
NMO. For the Purposes of this Amendment, net sales ("Net Sales")
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shall refer to all revenues generated by the NMO for the sale of retail
products within the NMO minus any credits for returned merchandise, credit
card processing fees, distributor commissions, distributor rebates and
royalties. It is expressly represented by Maker and acknowledged by Payee
that this Compensation Plan may require the recruitment of experienced NMO
management and/or capital to launch and grow the NMO, and that such
management or investors may insist on being considered as distributors for
the purposes of calculating Net Sales under this agreement. It is expressly
represented by Maker and acknowledged by Payee that the formation,
operation and success of the NMO is highly dependent on Timothy W.
Cunningham ("Cunningham") and that therefore the Compensation Plan shall
consider Cunningham as a distributor for the purposes of calculating Net
Sales, provided, however, that any compensation received by Cunningham from
NMO retail sales shall not exceed 5% of the Net Sales unless the Payee has
received in excess of $500,000 in cumulative payment from the Compensation
Plan, at which time Cunningham's compensation from the NMO shall be subject
to adjustment by the Board of Directors of Maker at whatever level such
Board believes appropriate given the contribution of Cunningham to the
success of the NMO enterprise.
5. Payee Agrees to Subordiante Notes to DVIBC, No Action. Payee agrees to
subordinate the Note to DVIBC in accordance with Exhibit A, and to execute
Exhibit A as evidence of such subordination. Additionally, the Payee agrees to
take no further action evidencing a default under the original terms of the Note
provided Maker complies with the terms of this Amendment in its entirety.
6. Descriptive Headings, Arbitration/Jurisdiction of the Court. The headings of
the several paragraphs of this Amendment are inserted for convenience only
and do not constitute a part of this Amendment. Any controversy or claim arising
out of or relating to this Amendment, or the breach thereof, shall be
settled by arbitration in the County of Montgomery, Pennsylvania, USA,
in accordance with the rules of the American Arbitration Association there in
effect, except that the Parties thereto shall have any rights to discovery as
would be permitted by the Federal Rules of Civil procedure and the prevailing
Party shall be entitled to reasonable costs and reasonable attorney's fees from
arbitration or any other civil action. Judgement upon the award rendered therein
may be entered in any Court having jurisdiction thereof. Jurisdiction for any
legal action is stipulated between the Parties to lie in the County of
Montgomery, Pennsylvania, USA.
7. Partial Invalidity. In the event that one or more of the provisions contained
in this Amendment shall be held to be invalid, illegal or unenforceable in any
respect under any law, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
8. Assignability. Except as otherwise provided herein, neither Party may assign
this Amendment or any right or obligation under this Amendment without the prior
written consent of the other Party, and any purported assignment without such
prior written consent shall be void and ineffective.
9. Notice. Any notice required or permitted herein shall be in writing and shall
be deemed to have been properly given if delivered personally, or if sent by
facsimile (with a copy mailed by international air mail or U.S. mail), or if
sent by international registered air mail, return
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receipt requested, or if sent by U.S. mail, postage prepaid, return receipt
requested, or if sent by overnight courier in either case properly addressed to
the Party notified at the address set forth below or to the last known address
given by such Party to the other Party:
If to Payee:
If to Maker:
Cardiovascular Laboratories, Inc. of PA
999 Old Eagle School Road - Suite 108
Wayne, PA 19087
10. Entire Amendment/Counterparts. This Amendment constitutes the entire
amendment to the Note as agreed upon between the Parties and cancels and
supersedes any and all existing agreements or arrangements to amend the note by
and between Payee and Maker relating to the subject matter hereof, whether
written or oral, and all such prior agreements or arrangements are hereby deemed
terminated by mutual consent of the Parties. No amendment or modification of
this Amendment shall be deemed effective unless and until executed in writing by
Payee and Maker. This Amendment may be signed in one or more counterparts, each
of which shall be deemed an original and all of which, when taken together,
shall constitute one instrument.
Cardiovascular Laboratories, Inc. of PA
/s/ Timothy W. Cunningham 06/22/99
Anchor Investment Partnership Ltd.
/s/ James W. Porter Jr. 06/28/99
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This Subordination Agreement ("Agreement") is made and entered into June 28,
1999 between James W. Porter, Jr. (hereinafter collectively and individually
referred to as the "Subordinated Creditor"), Cardiovascular Laboratories. Inc.
of PA ("Debtor"), and DVI Business Credit Corporation ("DVIBC").
WHEREAS, Debtor is indebted to Subordinated Creditor; and
WHEREAS, Debtor desires to obtain leases, loans, extensions of credit, and other
financial services from DVIBC; and
WHEREAS, DVIBC is unwilling to extend credit or provide financial services to
Debtor unless Debtor and Subordinated Creditor enters into this Agreement with
NOW, THEREFORE, for value received and in consideration of the mutual covenants
herein, and to induce DVIBC to extend credit and provide financial services to
Debtor, the parties hereto intend to be legally bound, hereby, do agree as
1. For the purposes of this Agreement the following definitions shall
1.1 "Junior Debt" means all loans, advances, liabilities, debit balances,
covenants and duties at any time owed by Debtor to Subordinated Creditor,
whether direct or indirect, absolute or contingent, secured or unsecured, due or
to become due, now existing or hereafter arising, and whether created directly
or acquired indirectly by assignment, pledge, purchase or otherwise and whether
arising in connection with creditors, shareholders, directors or officers'
rights or other rights to distributions, dividends, salaries, bonuses, loan
payments, note payments, professional fees, management fees, or compensation of
any nature whether matured or not, together with all interest, fees, charges,
expenses and attorneys' fees for which Debtor is now or hereafter becomes liable
to pay to Subordinated Creditor under any agreement or by law.
1.2 "Senior Debt" means all loans, advances, liabilities, debit balances,
covenants and duties at any time owed by Debtor to DVIBC, whether direct or
indirect, absolute or contingent, secured or unsecured, due or to become due,
now existing or hereafter arising, including without limitation any debt,
liability or obligation owing from Debtor to others which DVIBC may have
obtained by assignment, pledge, purchase or otherwise, together with all
interest, fees, charges, expenses and attorneys' fees for which Debtor is now or
hereafter becomes liable to pay to DVIBC under any agreement or by law, and
including all deferrals, renewals, extensions, refundings and refinancings, in
whole or in part of any of the foregoing.
2. Subordinated Creditor hereby postpones and subordinates, to the extent
and in the manner provided in this Agreement, all of the Junior Debt, to the
payment of all of the Senior Debt. If Debtor issues or has issued any instrument
or document evidencing the Junior Debt, each such instrument and document
shall bear a conspicuous legend that it is subordinated to the Senior Debt. All
instruments and documents evidencing the Junior Debt shall upon request be
delivered DVIBC properly assigned or endorsed to DVIBC.
3. Subordinated Creditor agrees not to sue upon, or to collect, or to
receive payment upon, by setoff in any other manner, the Junior Debt, now or
hereafter existing, nor to sell, assign, transfer, pledge, or give a security
interest in the Junior Debt (except subject expressly to this Agreement), nor to
enforce or apply any security now or hereinafter existing, nor to join in any
petition to bankruptcy or any assignment for the benefit of creditors, or any
creditors agreement, not to take any lien or security on Debtor's property real
or personal, nor to incur any obligations nor to receive distributions except as
provided in Section 4 below, any lows, advances or gifts from Debtor, so long as
any Senior Debt shall exist or so long as DVIBC is committed or otherwise
obligated to make any loan to or grant any credit to Debtor.
4. All Senior Debt now or hereafter existing shall be first paid by Debtor
before any payment shall be made by Debtor to Subordinated Creditor on the
Junior Debt; provided, however that so long as (a) no Event of Default, or any
event which with the giving of notice or lapse of time (or both) would
constitute an Event of Default (as defined in any agreement evidencing any
Senior Debt) exists with respect to any Senior Debt; or (b) such payment will
not cause such an Event of Default, or otherwise render Debtor unable to pay the
Senior Debt, Debtor may pay valid claims owing to Subordinated Creditor incurred
in the ordinary course of business in accordance with the terms of that certain
Promissory Note of Debtor payable to Subordinated Creditor in the original
principal amount of $50,000, dated as of March 30, 1998 (which shall not be
modified without DVIBC's written consent thereto), but not by prepayment,
acceleration or otherwise.
5. The priority of payment set forth in Section 4 above shall apply during
the ordinary course of Debtor's business and in case of any assignment by Debtor
for the benefit of Debtor's creditors, and in case of any bankruptcy proceedings
instituted by or against Debtor's assets, and in case of any dissolution or
other winding up of the affairs of Debtor, or of Debtor's business, and in all
such cases respectively, the officers of Debtor and any assignee, trustee in
bankruptcy, receiver, and other person or persons in charge are hereby
directed to pay DVIBC the full amount of any Senior Debt before making any
payments to Subordinated Creditor, and so far as may be necessary for that
purpose, Subordinated Creditor hereby transfers, assigns and grants to DVIBC a
security interest in all of its interests and rights in and to the Junior Debt.
6. DVIBC is hereby irrevocably constituted and appointed the
attorney-in-fact of Subordinated Creditor with full power to act in the place
and stead of Subordinated Creditor, to make, present, file and vote any and all
proofs of claim and any other documents and to take all other action, either in
DVIBC's name or in the name of the Subordinated Creditor, which in DVIBC's
opinion is necessary or desirable to enable DVIBC to effectuate the provisions
of this Agreement.
7. No subordination of any Junior Debt has previously been executed by
Subordinated Creditor for the benefit of anyone else and any such subordinations
hereafter executed will be and shall be expressed to be subject and subordinate
to the effect hereof. This Agreement shall be continuing in effect, it shall not
be cancelled or otherwise rendered ineffective by the payment or discharge at
any time of the Senior Debt, and it shall apply to any and all Senior Debt
subsequently granted, renewed or extended by DVIBC for Debtor, unless
Subordinated Creditor shall deliver to DVIBC a written notice of revocation as
to future transactions at a time when Debtor is no longer obligated to DVIBC in
any way and while DVIBC is not committed to or otherwise obligated to make any
leases, loans or other financial accommodations to Debtor.
8. Subordinated Creditor hereby further agrees that Subordinated Creditor
shall not permit Debtor to: (i) make payment to any of the other parties
constituting a relative, affiliate or related in any way to Subordinated
Creditor contrary to the terms of this Agreement, including, without limitation,
payment of any distribution, professional fees, salary, bonus or other form of
compensation to Subordinated Creditor; and (ii) make payment to any other party
other than DVIBC in satisfaction of any Senior Debt and any other obligations as
may be owing to DVIBC from time to time except as may otherwise be consented to
by DVIBC in writing.
9. THE CONSTRUCTION, INTERPRETATION, VALIDITY AND ENFORCEABILITY OF THIS
AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS BY THE LAWS OF THE STATE OF
CALIFORNIA. SUBORDINATED CREDITOR AGREE TO SUBMIT TO THE JURISDICTION AND VENUE
OF THE STATE AND THE FEDERAL COURTS IN CALIFORNIA. In any action, suit,
arbitration, or mediation relating to the enforcement of this Agreement the
prevailing party shall be entitled to recover its costs and expenses including
reasonable attorneys' fees.
10. This Agreement may be signed in any number of counterparts, each of
which will constitute an original, and all of which, taken together, shall
constitute but one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first written.
CARDIOVASCULAR LABORATORIES, INC. OF PA DVI BUSINESS CREDIT CORPORATION
By: /s/ Timothy W. Cunningham By:
Name: Timothy W. Cunningham Name:
Title: Chairman Title:
/s/ James W. Porter Jr.
James W. Porter Jr.