-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Sox1NYBcIYWYddm6aIWFItqblRso88HdMhZ28ut5f+ysEFgtLjLV9hAXCuwmNLXS 2Sx6stIZ2rZ6YUME/EFK4A== 0000930413-01-501167.txt : 20010910 0000930413-01-501167.hdr.sgml : 20010910 ACCESSION NUMBER: 0000930413-01-501167 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20010828 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20010907 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DVL INC /DE/ CENTRAL INDEX KEY: 0000215639 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 132892858 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08356 FILM NUMBER: 1732902 BUSINESS ADDRESS: STREET 1: 70 EAST 55TH STREET STREET 2: 7TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2014871300 MAIL ADDRESS: STREET 1: 70 EAST 55TH STREET STREET 2: 7TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 FORMER COMPANY: FORMER CONFORMED NAME: DEL VAL FINANCIAL CORP DATE OF NAME CHANGE: 19920703 8-K 1 c21771_8k-.txt CURRENT REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): AUGUST 28, 2001 --------------- DVL, INC. --------- (Exact name of registrant as specified in its charter) DELAWARE -------- (State or other jurisdiction of incorporation) 1-8356 13-2892858 ------ ---------- (Commission File Number) (IRS Employer Identification Number) 70 EAST 55TH STREET, 7TH FLOOR, NEW YORK, NY 10022 -------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (212) 350-9900 -------------- ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS On August 28, 2001, the Registrant acquired, through a wholly-owned subsidiary, a significant equity interest in Receivables II-B LLC, a limited liability company engaged in the acquisition and management of periodic payment receivables, as described in more detail in the Press Release attached hereto as Exhibit 20.01. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (c) Exhibits: 10.01 Purchase Agreement, dated as of August 20, 2001, by and among J.G. Wentworth Receivables II LLC, Receivables II-B LLC, Receivables II-B Holding Company LLC, J.G. Wentworth S.S.C. Limited Partnership, J.G. Wentworth Management Company, Inc., S2 Holdings, Inc. and DVL, Inc. for the purchase of residual interests in securitized portfolios. 10.02 Non-Negotiable, Secured Purchase Money Promissory Note dated as of August 15, 2001 in the original principal amount of $7,931,560.00 payable to the order of J.G. Wentworth S.S.C. Limited Partnership from S2 Holdings, Inc. 10.03 Non-Negotiable, Secured Purchase Money Promissory Note dated as of August 15, 2001 in the original principal amount of $1,168,440.00 payable to the order of J.G. Wentworth S.S.C Limited Partnership from S2 Holdings, Inc. 10.04 Guaranty & Surety Agreement dated as of August 20, 2001 by and from DVL, Inc. in favor of J.G. Wentworth S.S.C. Limited Partnership. 10.05 Pledge Agreement, dated as of August 20, 2001 by S2 Holdings, Inc. for the benefit of J.G. Wentworth S.S.C. Limited Partnership. 10.06 Common Stock Warrant dated as of August 15, 2001. 20.01 Press Release, dated August 29, 2001. 2 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. DVL, INC. By: /s/ GARY FLICKER ------------------------------------ Name: Gary Flicker Title: Executive Vice President and Chief Financial Officer Date: September 7, 2001 3 EX-10.01 3 c21771_ex10-01.txt PURCHASE AGREEMENT EXHIBIT 10.01 PURCHASE AGREEMENT ------------------ PURCHASE AGREEMENT, dated as of August 20, 2001, by and among J.G. WENTWORTH RECEIVABLES II LLC, a Nevada limited liability company ("R-II"); RECEIVABLES II-B LLC, a Nevada limited liability company ("R-II-B"); RECEIVABLES II-B HOLDING COMPANY LLC, a Nevada limited liability company ("R-II-B Holdings"); J.G. WENTWORTH S.S.C. LIMITED PARTNERSHIP, a Nevada limited partnership ("SSC"); J.G. WENTWORTH MANAGEMENT COMPANY, INC., a Pennsylvania corporation ("JGW"), for the purpose of Sections 2(b) and (c) and 8 only; and S2 HOLDINGS, INC., a Delaware corporation ("Buyer"), and DVL, INC., a Delaware corporation ("DVL"). RECITALS -------- A. SSC and R-II are engaged in the business of acquiring, holding and collecting structured settlement receivables; J.G. Wentworth Receivables V LLC, a Nevada limited liability company ("R-V"), has acquired and securitized structured settlement receivables; and JGW is engaged in the business of servicing structured settlement receivables. B. R-II-B owns the entire equity interests in R-V. C. R-II-B Holdings owns (a) a one-tenth of one percent (00.1%) manager, Class A equity interest in R-II-B, and (b) a ninety-nine and nine-tenths percent (99.9%) non-manager, Class B equity interest in R-II-B (the "Class B Interest"). D. R-II-B Holdings desires to sell and assign the Class B Interest to Buyer, and Buyer desires to purchase and acquire the Class B Interest. E. At Closing (as hereinafter defined), DVL is willing to issue a Guaranty (as hereinafter defined) of the Notes (as hereinafter defined). F. The parties intend that the economic effective date of the Closing hereunder shall be August 15, 2001. NOW, THEREFORE, in consideration of the mutual covenants contained herein, and intending to be legally bound hereby, the parties hereto hereby agree as follows: 1. SALE AND PURCHASE OF CLASS B INTEREST. (a) SALE AND ASSIGNMENT. On the Closing Date (as hereinafter defined), and subject to the terms and conditions contained in this Agreement, SSC and R-II shall cause R-II-B Holdings to, and R-II-B Holdings shall, sell and assign the Class B Interest to Buyer, and Buyer shall purchase and acquire the Class B Interest, free and clear of all liens, security interests, pledges, mortgages, preferential arrangements with creditors, or other encumbrances of any kind ("Liens"). (b) PURCHASE PRICE. The purchase price for the Class B Interest (the "Purchase Price") shall consist of (i) a promissory note ("Note 1") in the original principal amount of Seven Million Nine Hundred Thirty-One Thousand Five Hundred Sixty Dollars ($7,931,560.00), subject to adjustment as provided in Section 1(c), payable to the order of SSC, in the form of EXHIBIT B-1 attached hereto, (ii) a promissory note ("Note 2" and, together with Note 1, the "Notes") in the original principal amount of One Million One Hundred Sixty-Eight Thousand Four Hundred Forty Dollars ($1,168,440.00), subject to adjustment as provided in Section 1(c), payable to the order of SSC, in the form of EXHIBIT B-2 attached hereto, and (iii) a warrant for the purchase of One Million (1,000,000) shares of DVL common stock, in the form attached hereto as EXHIBIT C (the "Warrant"), which amount of shares may, after the issuance of the Warrant, be adjusted in accordance with the anti-dilution and other adjustment provisions of the Warrant. Payment of a portion of the principal due under the Notes will be guaranteed by DVL pursuant to a guaranty (the "Guaranty") to be delivered by DVL to SSC at Closing, in the form attached hereto as EXHIBIT D. Buyer's obligation under the Notes will be secured pursuant to a pledge agreement (the "Pledge Agreement"), in the form attached hereto as EXHIBIT E, which will be delivered to SSC at the Closing. Eighty-Seven and 16/100ths percent (87.16%) of all payments made by Buyer under the Notes shall be allocated to, and paid to SSC under, Note l, and the balance shall be allocated to, and paid to SSC under, Note 2. (c) ADJUSTMENT TO PURCHASE PRICE. (i) From and after February 15, 2003, the Purchase Price and the principal amount of the Notes shall, effective as of the first day of each month, be increased PARI PASSU by (i) an amount, if any, equal to eighty-one percent (81%) of (x) the actual cash collected by R-V in the immediately prior month (the "Calculation Month") in excess of (y) the total dollar amount for the Calculation Month of "Performing Scheduled Payments" as of December 31, 2002, based upon the "Performing Cash Collections" column of the "secmodel" as shown on the form, dated June 30, 2001, of "secmodel" attached hereto as SCHEDULE 1(C)(I)-1, plus (ii) an amount, if any, equal to eighty-one percent (81%) of (x) the rehabilitated claims in the Calculation Month as shown on the monthly servicer reports for R-V (the "Monthly Servicer Reports") for the Calculation Month, samples of which reports are attached hereto as SCHEDULE 1(C)(I)-2, in excess of (y) the new defaults in the Calculation Month as shown on the Monthly Servicer Reports for the Calculation Month; provided, however, it is understood and agreed that increases -2- shall be made at such 81% level only to the extent there are no then outstanding cumulative reductions in the principal amount of the Notes that were made at a 100% level; otherwise, the increases referred to above in this sentence shall be made at the 100% level, and not at the 81% level, until such cumulative reductions made at the 100% level have been reduced to zero. (ii) From and after February 15, 2003, the Purchase Price and the principal amount of the Notes shall, effective as of the first day of each month, be reduced PARI PASSU by an amount, if any, equal to one hundred percent (100%) of (x) the new defaults in the Calculation Month as shown on the Monthly Servicer Reports for the Calculation Month in excess of (y) the rehabilitated claims in the Calculation Month as shown on the Monthly Servicer Reports for the Calculation Month; provided, however, it is understood and agreed that reductions shall be made at such 100% level only to the extent there are no then outstanding cumulative increases in the principal amount of the Notes that were made at an 81% level; otherwise, the reductions referred to above in this sentence shall be made at the 81% level, and not at the 100% level, until the cumulative increases made at the 81% level have been reduced to zero. (iii) From and after August 15, 2001, the Purchase Price and the principal amount of the Notes shall, on a monthly basis, also be increased PARI PASSU, on a dollar-for-dollar basis, by the amount of any reserve fund(s) existing on or prior to August 15, 2001, which reserve fund(s) have been established under, or as provided in, the documents listed in EXHIBIT A attached hereto (the "Securitization Documents"), paid after August 15, 2001 to the Series 2001-A Noteholders. (iv) From and after August 15, 2001, in the event of any "Event of Default" (as defined in the 8/2/01 Indenture) or "Servicer Default" (as defined in the 2001-A Supplement) that results in any suspension of payments to R-V under the 2001-A Supplement, the Purchase Price and the principal amount of the Notes will be reduced PARI PASSU by an amount equal to eighty-one percent (81%) of the net present value of the remaining cash flow attributable to the "Issuer Interest" (as defined in the 8/20/01 Indenture) of R-V, as determined pursuant to the following sentence. The calculation of the net present value of such remaining cash flow payable to R-V will be made using the "cash available" column of the "secmodel" as adjusted on a monthly basis, a copy of which has been furnished, and is acceptable, to Buyer. The discount rate used in the calculation of such net present value will be the discount rate used in the 2001-A Supplement. After reductions have been made under this Section 1(c)(iv) with respect to the securitization described in the Securitization Documents, no further reductions will be made under Section 1(c)(ii). If the suspension referred to above is -3- reversed for any reason, this clause (iv) shall have no application. (v) On January 15, 2003, (a) the Purchase Price and the principal amount of the Notes shall be reduced PARI PASSU by an amount, if any, equal to eighty-one percent (81%) of the excess of (x) the "Cumulative Defaults at the end of the Collection Period" as shown on the SSC Master Trust V, Series 2001-A December, 2002 servicer report less (y) Five Million Eighteen Thousand Five Hundred Sixty-Three Dollars ($5,018,563.00), or (b) the Purchase Price and the principal amount of the Notes shall be increased PARI PASSU by an amount, if any, equal to eighty-one percent 81% of the excess of (x) Five Million Eighteen Thousand Five Hundred Sixty-Three Dollars ($5,018,563.00) Five Million Seven Thousand Nine Hundred and Forty-Nine Dollars ($5,007,949.00) less (y) the "Cumulative Defaults at the end of the Collection Period" as shown on such December, 2002 servicer report. (vi) Net increases under Sections 1(c)(i), (ii) and (v) (that is, increases thereunder less reductions thereunder) shall not exceed Four Million Five Hundred Thousand Dollars ($4,500,000). Eighty-Seven and 16/100ths percent (87.16%) of all such increases and reductions, if any, shall be allocated to Note 1, and the balance shall be allocated to Note 2. All such increases and reductions, if any, shall be endorsed by SSC on a grid or schedule to be attached to the Notes, and SSC is authorized by Buyer to make such endorsements. All increases and reductions under this Section 1(c) shall be made without duplication. (vii) Examples of the application of this Section 1(c) are attached hereto as SCHEDULE 1(C)(VII). 2. REPRESENTATIONS AND WARRANTIES OF SSC, R-II-B, R-II-B HOLDINGS AND JGW. (a) REPRESENTATIONS AND WARRANTIES OF SSC, R-II-B AND R-II-B HOLDINGS. SSC, R-II-B and R-II-B Holdings, jointly and severally, hereby make the following representations and warranties to Buyer and DVL as of the date of the execution of this Agreement by SSC, R-II-B and R-II-B Holdings: (i) ORGANIZATION AND GOOD STANDING. SSC is a limited partnership duly organized and in good standing under the laws of the State of Nevada, and is duly qualified to do business and is in good standing in every jurisdiction in which the nature of its business requires it to be so qualified, except any jurisdiction(s) where the failure to be so qualified would not have a material adverse effect on its business or the -4- transactions contemplated hereby, by the other agreements, instruments, certificates and documents to be executed by such party under the terms of this Agreement (such other agreements, instruments, certificates and documents being collectively called, the "Seller Transaction Documents") or by the Securitization Documents. Each of R-II, R-II-B, R-II-B Holdings and R-V is a limited liability company, duly organized and in good standing under the laws of the State of Nevada, and is duly qualified to do business and is in good standing in every jurisdiction in which the nature of its business requires it to be so qualified, except any jurisdiction(s) where the failure to be so qualified would not have a material adverse effect on its business or the transactions contemplated hereby, by the Seller Transaction Documents or by the Securitization Documents. SSC has delivered to Buyer a true and correct copy of each of the Articles of Organization and the Operating Agreement of R-II, R-II-B, R-II-B Holdings and R-V and a true and correct copy of each of the Certificate of Limited Partnership and Agreement of Limited Partnership of SSC, in each case as amended through the Closing Date. (ii) OWNERSHIP OF CLASS B INTEREST. R-II-B Holdings owns the Class B Interest, free and clear of all Liens. R-II-B Holdings has the requisite power and authority to sell, transfer, assign and deliver the Class B Interest to Buyer and, upon receipt of the consideration therefor as provided by this Agreement, such sale, transfer, assignment and delivery will assign and transfer lawful and valid title to the Class B Interest to Buyer, free and clear of all Liens. There is no outstanding security, option, warrant, right, agreement, understanding or commitment of any kind entitling any person or entity to acquire any or all of the Class B Interest. (iii) AUTHORIZATION. Each of SSC, R-II, R-II-B and R-II-B Holdings has full power and authority to execute and deliver this Agreement and the Seller Transaction Documents to which it is a party and to perform all acts contemplated by this Agreement and the Seller Transaction Documents to which it is a party. The execution, delivery and performance by SSC, R-II, R-II-B and R-II-B Holdings of this Agreement and the Seller Transaction Documents to which it is a party and the transactions contemplated hereby and thereby have been duly authorized by all necessary action on its part. This Agreement and each of the Seller Transaction Documents to which it is a party, when executed and delivered by SSC, R-II, R-II-B and R-II-B Holdings in accordance with the provisions hereof and thereof, will constitute the legal, valid and binding obligation of SSC, R-II, R-II-B and R-II-B Holdings, and each instrument to which they are parties contemplated by this Agreement and the Seller Transaction Documents, when executed and delivered by SSC, R-II, R-II-B and R-II-B Holdings in accordance with the provisions hereof and -5- thereof, will be a legal, valid and binding obligation of SSC, R-II, R-II-B and R-II-B Holdings, in each case enforceable against SSC, R-II, R-II-B and R-II-B Holdings in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency and other similar laws affecting creditors rights generally, and general equitable principles. (iv) NO BREACH OR VIOLATION. Neither the execution and delivery of this Agreement or the Seller Transaction Documents to which they are a party nor the consummation of the transactions contemplated hereby or thereby by SSC, R-II, R-II-B or R-II-B Holdings (i) conflicts with or results in a violation or breach of, or constitutes a default or requires any party's consent under, or results in a loss of rights under, the organization documents of SSC, R-II, R-II-B, R-II-B Holdings or R-V, or any agreement to which SSC, R-II, R-II-B, R-II-B Holdings or R-V is a party or by which SSC, R-II, R-II-B, R-II-B Holdings, R-V or the Class B Interest is bound (other than the consent of ING (U.S.) Capital LLC which has been duly obtained); (ii) results in the creation of any Lien upon the Class B Interest; or (iii) violates any judgment, order, permit, injunction, decree or award of any court, administrative agency or governmental body against, or binding upon, SSC, R-II, R-II-B, R-II-B Holdings or R-V (or their respective properties including, in the case of R-II-B Holdings, the Class B Interest). (v) FINANCIAL STATEMENTS. SCHEDULE 2(A)(V) contains the unaudited consolidated balance sheet and profit and loss statement of SSC as of and at March 31, 2001 (the "Specified Date Balance Sheet") and for the year then ended, and the audited consolidated balance sheet and income statements of SSC for the years ended December 31, 1999, 2000 and 2001. The foregoing financial statements were prepared in accordance with generally accepted accounting principles, consistently applied, are true, complete and correct in all material respects, and fairly and accurately present in all material respects the consolidated financial position and results of operations of SSC and its consolidated subsidiaries as of the dates of such balance sheets and income statements and for the periods then ended; provided, however, the Specified Date Balance Sheet does not contain any footnotes or reflect year-end adjustments (which adjustments may be material). (vi) SUBSIDIARIES AND JOINT VENTURES. SSC has no subsidiaries and does not own any capital stock, security, partnership interest or other interest of any kind in any corporation, partnership, joint venture, association or other entity, except that SSC owns, of record and beneficially, all of the equity interests of R-II (and all of the voting rights in R-II, except those voting rights vested in the independent members of R-II under the terms of the organization documents of R-II); -6- R-II owns, of record and beneficially, all of the equity interests of, and voting rights in, R-II-B Holdings; R-II-B Holdings owns, of record and beneficially, all of the equity interests of, and voting rights in, R-II-B; and R-II-B owns, of record and beneficially, all of the equity interests of R-V (and all of the voting rights in R-V, except those voting rights vested in the independent members of R-V under the terms of the organization documents of R-V). There are no options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, convertible securities or other rights, agreements, arrangements or commitments of any character relating to the equity interests of R-II, R-II-B, R-II-B Holdings or R-V, or obligating SSC, R-II, R-II-B or R-II-B Holdings to issue, sell or otherwise cause to become outstanding any equity interest in R-II, R-II-B, R-II-B Holdings or R-V. (vii) UNDISCLOSED LIABILITIES. Neither SSC, R-II, R-II-B, R-II-B Holdings nor R-V has any material obligations or liabilities except (i) liabilities or obligations reflected on the Specified Date Balance Sheet; and (ii) liabilities incurred since such date in the ordinary course of business consistent with past practice. (viii) LITIGATION. Except as set forth in the Final Offering Memorandum, dated August 10, 2001, previously delivered to Buyer, relating to certain notes issued by R-V (the "PPM"), there are no material suits, litigation or other legal or administrative arbitrations or other proceedings or investigations pending or, to SSC's knowledge, threatened against SSC, R-II, R-II-B, R-II-B Holdings or R-V, or with respect to the transactions contemplated hereby or the Class B Interest. -7- (ix) PERMITS AND LICENSES; COMPLIANCE WITH LAWS. To SSC's knowledge, SSC, R-II, R-II-B, R-II-B Holdings and R-V are in compliance with all federal, state and local laws, rules and regulations and all requirements of all governmental bodies or agencies having jurisdiction over them or their respective properties including, in the case of R-II-B Holdings, the Class B Interest, that materially affect the conduct of their respective businesses and affairs, the Class B Interest or the transactions contemplated hereby, except for such non-compliance which is not reasonably likely to have a material adverse effect on SSC, R-II, R-II-B, R-II-B Holdings and R-V taken as a whole, or the Class B Interest or the transactions contemplated hereby. All material actions, approvals, consents, waivers, exemptions, variances, franchises, orders, permits, authorizations, rights and licenses required to be taken, given or obtained, as the case may be, by or from any governmental authority, that are necessary in connection with the performance by SSC, R-II, R-II-B and R-II-B Holdings under this Agreement and the Seller Transaction Documents to which they are parties and the conduct by SSC, R-II, R-II-B and R-II-B Holdings of their respective businesses as currently conducted have been obtained and are in full force and effect and are not subject to any pending proceedings or appeals (administrative, judicial or otherwise) which are reasonably likely to have a material adverse impact on SSC's, R-II's, R-II-B's or R-II-B Holdings' performance of its obligations under this Agreement and the Seller Transaction Documents to which they are parties. (x) GOVERNMENTAL APPROVAL. No consent, approval, waiver, order or authorization of, or registration, declaration or filing with, any governmental authority is required to be obtained by SSC, R-II, R-II-B or R-II-B Holdings in connection with the execution and delivery of this Agreement or the Seller Transaction Documents to which they are parties or the consummation of the transactions contemplated hereby or thereby. (xi) SECURITIZATIONS. (A) To SSC's knowledge, neither SSC, R-II, R-II-B, R-II-B Holdings nor R-V is in material default under any of the Securitization Documents; (B) to SSC's knowledge, (1) no "Event of Default" (as defined in the 8/2/01 Indenture and the Credit Agreement), "Servicer Default" (as defined in the 2001-A Supplement), "Surety Event" (as defined in the 8/2/01 Indenture), or material default or material breach of or under the Intercreditor Agreement, any Seller Purchase Agreement or any Issuer Purchase Agreement has occurred and is continuing, and (2) no event, which with notice or lapse of time or both, would constitute any such Event of Default, Servicer Default, Surety Event, or material default or material breach has occurred and is continuing; (C) (1) the Securitization Documents (x) are all those material agreements and other documents related to, or establishing the rights of any party with respect to, the -8- assets of R-V, and (y) are valid and binding on SSC, JGW, R-II and R-V (to the extent they are parties thereto) and, by reason of the consummation of the transactions contemplated by this Agreement, shall not fail to continue in full force and effect without penalty or adverse consequence, and (2) SSC has heretofore made available to Buyer a true, correct and complete copy of each Securitization Document and all amendments thereto through the Closing Date; and (D) to SSC's knowledge, (1) no "Overcollateralization Shortfall" (as defined in the 2001-A Supplement) has occurred and is continuing, (2) there are no "Accrued Liabilities" (as defined in the 2001-A Supplement) with respect to MBIA Insurance Corporation, (3) all interest payments and fees (including "Premium" payable to MBIA Insurance Corporation) payable on or prior to the Closing Date under the 2001-A Supplement have been duly paid, and (4) amounts in the "Series 2001-A Reserve Account" on the Closing Date are as required by the 2001-A Supplement. (xii) SOLVENCY. SSC, R-II, R-II-B, R-II-B Holdings and R-V are solvent and will not become insolvent after giving effect to the transactions contemplated by this Agreement and the Seller Transaction Documents; SSC, R-II, R-II-B, R-II-B Holdings and R-V are paying their debts as they mature; neither SSC, R-II, R-II-B nor R-II-B Holdings is entering into this Agreement or the Seller Transaction Agreements to which it is a party with the intent to hinder, delay or defraud any entity to which it was, or is becoming, indebted; neither SSC, R-II, R-II-B, R-II-B Holdings nor R-V has incurred debts beyond its ability to pay as they mature; and SSC, R-II, R-II-B, R-II-B Holdings and R-V, after giving effect to the transactions contemplated by this Agreement and the Seller Transaction Documents to which it is a party, will in the foreseeable future be able to pay their bills in the ordinary course. (xiii) RATING AGENCY. No"Rating Agency" (as defined in the 8/13/01 Indenture) has downgraded or withdrawn its rating of any security issued pursuant to the 2001 Indenture. (xiv) NO CONFLICT WITH CERTAIN EVENTS. SSC has delivered to Buyer a true, correct and complete copy of all documents and agreements in connection with the formation of R-II-B, R-II-B Holdings and R-V, and the assignment by R-II to R-II-B of its equity interests in R-V (the "Ancillary Documents"). There are no other material agreements or other documents related to the transactions contemplated by the Ancillary Documents. The Ancillary Documents are valid and binding on the respective parties thereto and, by reason of the consummation of the transactions contemplated by this Agreement, shall not fail to continue in full force and effect without penalty or adverse consequence. The execution and delivery of, and the consummation of the transactions contemplated by, the Ancillary Documents, do -9- not and will not conflict with, or result in a breach or default under, any of the Securitization Documents (and all consents relating thereto have been duly obtained), or result in a diminution of the rights or remedies of SSC, R-II or R-V under the Securitization Documents. (b) JOINT AND SEVERAL REPRESENTATIONS AND WARRANTIES OF JGW AND SSC. JGW and SSC hereby jointly and severally represent and warrant to Buyer and DVL that as of the date of the execution of this Agreement by JGW and SSC (i) the information set forth in the Monthly Servicing Reports for the most recent thirty-six (36) months delivered to DVL is true and correct in all material respects, and (ii) the representations and warranties set forth in the Securitization Documents made by JGW or R-V are true and correct in all material respects as of the date made, and DVL and Buyer shall be permitted to rely thereon as if such representations and warranties were made directly to DVL and Buyer. (c) REPRESENTATIONS AND WARRANTIES OF JGW. JGW hereby makes the following representations and warranties to Buyer and DVL as of the date of the execution of this Agreement by JGW: (i) ORGANIZATION AND GOOD STANDING. JGW is a corporation duly organized and in good standing under the laws of Commonwealth of Pennsylvania, and is duly qualified to do business and is good standing in every jurisdiction in which the nature of its business requires it to be so qualified, except any jurisdiction(s) where the failure to be so qualified would not have a material adverse effect on its business or the transactions contemplated hereby or by the Seller Transaction Documents or by the Securitization Documents. (ii) AUTHORIZATION. JGW has full power and authority to execute and deliver this Agreement and the Seller Transaction Documents to be executed by JGW under the terms of this Agreement and to perform all acts contemplated by this Agreement and the Seller Transaction Documents to which it is a party. The execution, delivery and performance by JGW of this Agreement and the Seller Transaction Documents to which it is a party and the transactions contemplated hereby and thereby have been duly authorized by all necessary action on its part. (iii) BINDING OBLIGATION. This Agreement and each of the Seller Transaction Documents to which it is a party, when executed and delivered by JGW in accordance with the provisions hereof and thereof, will constitute the legal, valid and binding obligation of JGW, and each instrument to which it is a party contemplated by this Agreement and the Seller Transaction Documents, when executed and delivered by JGW in accordance with the provisions hereof and thereof, will constitute the legal, -10- valid and binding obligation of JGW, in each case enforceable against JGW in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency and other similar laws affecting creditors rights generally, and general equitable principles. (iv) NO BREACH OR VIOLATION. Neither the execution and delivery by JGW of this Agreement or the Seller Transaction Documents to which it is a party nor the consummation of the transactions contemplated hereby or thereby (i) conflicts with or results in a violation or breach of, or constitutes a default under, any agreement or other arrangement to which JGW is a party or by which it is bound or (ii) violates any judgment, order, injunction, decree or award of any court, administrative agency or governmental body against, or binding upon, JGW. (v) LITIGATION. Except as set forth in the PPM, there are no material suits, litigations or other legal or administrative arbitrations or other proceedings or investigations pending or, to JGW's knowledge, threatened against JGW or with respect to the transactions contemplated hereby. (vi) PERMITS AND LICENSES; COMPLIANCE WITH LAWS. To JGW's knowledge, JGW is in compliance with all federal, state and local laws, rules and regulations and all requirements of all governmental bodies or agencies having jurisdiction over it that materially affect the conduct of its business and affairs, except for such non-compliance which is not reasonably likely to have a material adverse effect on JGW or the transactions contemplated hereby. All material actions, approvals, consents, waivers, exemptions, variances, franchises, orders, permits, authorizations, rights and licenses required to be taken, given or obtained, as the case may be, by or from any governmental authority, that are necessary in connection with the performance by JGW under this Agreement and the Seller Transaction Documents to which it is a party and the conduct by JGW of its business as currently conducted have been obtained and are in full force and effect and are not subject to any pending proceedings or appeals (administrative, judicial or otherwise) which are reasonably likely to have a material adverse impact on JGW's performance under this Agreement and the Seller Transaction Documents to which it is party. (vii) GOVERNMENTAL AUTHORITY. No consent, approval, waiver, order or authorization of, or registration, declaration or filing with, any governmental authority is required to be obtained by JGW in connection with the execution and delivery of this Agreement or the Seller Transaction Documents to which it is a party or the consummation of the transactions contemplated hereby or thereby. -11- (viii) INFORMATION. Each certificate, information, exhibit, financial statement, document, book or report furnished by JGW to DVL or Buyer in connection with any Securitization Document is accurate in all material respects as of its date. 3. REPRESENTATIONS AND WARRANTIES OF BUYER AND DVL. Buyer and DVL hereby jointly and severally make the following representations and warranties to SSC as of the date of the execution of this Agreement by Buyer and DVL: (a) ORGANIZATION AND GOOD STANDING. Each of Buyer and DVL is a corporation, duly organized and in good standing under the laws of the State of Delaware, and is duly qualified to do business and is in good standing in every jurisdiction in which the nature of its business requires it to be so qualified, except any jurisdiction(s) where the failure to be so qualified would not have a material adverse effect on its business or the transactions contemplated hereby or by the other agreements, instruments, certificates and documents to be executed by Buyer and/or DVL under the terms of this Agreement (collectively with this Agreement, the "Buyer Transaction Documents"). (b) AUTHORIZATION. Each of Buyer and DVL has full power and authority to execute, deliver and perform this Agreement and the other Buyer Transaction Documents to which it is a party. All material actions, approvals, consents, waivers, exemptions, variances, franchises, orders, permits, authorizations, rights and licenses required to be taken, given or obtained, as the case may be, by or from any governmental authority, that are necessary in connection with the performance by Buyer and/or DVL under this Agreement and the other Buyer Transaction Documents have been obtained and are in full force and effect and are not subject to any pending proceedings or appeals (administrative, judicial or otherwise) which are reasonably likely to have a material adverse impact on Buyer's and/or DVL's performance of their respective obligations under this Agreement and the other Buyer Transaction Documents. (c) NO BREACH OR VIOLATION. Neither the execution and delivery by Buyer or DVL of this Agreement or any of the other Buyer Transaction Documents nor the consummation of the transactions contemplated hereby and thereby will (i) conflict with or result in a violation or breach of, or constitute a default under, any agreement or other arrangement to which Buyer or DVL is a party or by which either is bound or (ii) violate any judgment, order, injunction, decree or award of any court, administrative agency or governmental body against, or binding upon, Buyer or DVL. -12- (d) BINDING OBLIGATION. This Agreement and the other Buyer Transaction Documents constitute the valid and binding obligation of Buyer and/or DVL (to the extent either is a party thereto), and is enforceable against them in accordance with their terms, except as such enforceability may be limited by bankruptcy, insolvency and other similar laws affecting creditors rights generally, and general equitable principles. Each of the other Buyer Transaction Documents constitutes the legal, valid and binding obligation of Buyer and/or DVL (to the extent they are parties thereto), and each instrument contemplated by the other Buyer Transaction Documents, when executed and delivered by Buyer and DVL in accordance with the provisions thereof, will be a legal, valid and binding obligation of Buyer and DVL (to the extent they are parties thereto) and are in each case enforceable against Buyer and DVL in accordance with their respective terms, except as such enforceability may be limited by bankruptcy, insolvency and other similar laws affecting creditors rights generally, and general equitable principles. (e) SEC REPORTS. All of the reports (including, without limitation, Forms 10-Q, 10-K and 8-K) filed by DVL with the Securities and Exchange Commission at any time on or after January 1, 1998 are true, complete and correct in all material respects. 4. CLOSING. (a) PLACE AND TIME. The closing of the transactions provided for in this Agreement (the "Closing") will take place at the offices of Jones Vargas, 3773 Howard Hughes Parkway, Third Floor South, Las Vegas, Nevada 89109, concurrently with the delivery of this Agreement, fully executed by all parties hereto, or at such other place, date and time as shall be mutually agreed upon by all parties hereto. The date and time of Closing is sometimes referred to herein as the "Closing Date." Notwithstanding the foregoing, the Closing shall be effective, and shall be deemed to be effective, on and as of August 15, 2001. (b) DELIVERIES. (i) DELIVERIES OF SSC. At the Closing, SSC will deliver (or cause to be delivered) to Buyer: (A) a "good standing" certificate issued for SSC, R-II, R-II-B, R-II-B Holdings and R-V, all of which shall be dated as of a date within fifteen (15) days prior to the Closing Date; (B) an assignment of the Class B Interest, executed by R-II-B Holdings, in a form satisfactory to Buyer; -13- (C) the legal opinion of counsel for SSC, in the form attached hereto as EXHIBIT F; (D) a certificate of SSC's general partner, executed by an officer of such general partner and in a form satisfactory to Buyer; (E) each of the Seller Transaction Documents, executed by SSC, R-II, R-II-B and/or R-II-B Holdings, as the case may be, and in a form satisfactory to Buyer; and (F) evidence of receipt of all applicable consents and approvals to be obtained by SSC, R-II, R-II-B, R-II-B Holdings or R-V in connection with the consummation of the transactions contemplated by this Agreement and the Seller Transaction Documents. (ii) DELIVERIES OF BUYER. At the Closing, Buyer will deliver (or cause to be delivered) to SSC (A) the Notes; (B) the Warrant; (C) the Guaranty; (D) the Pledge Agreement; (E) any and all documents referred to in the documents referred to in Sections 4(b)(ii)(A)-(D) required to be delivered by Buyer or DVL concurrently with or immediately after the execution or delivery of such documents; (F) a "good standing" certificate issued by Delaware for Buyer and DVL, each of which shall be dated as of a date within fifteen (15) days prior to the Closing Date; (G) the legal opinion of counsel for Buyer and DVL in the form attached hereto as EXHIBIT G; (H) a certificate of DVL, executed by an officer of DVL and in a form satisfactory to SSC; (I) a certificate of Buyer, executed by an officer of Buyer and in a form satisfactory to SSC; (J) each of the Buyer Transaction Documents, executed by DVL and/or Buyer, as the case may be, and in a form satisfactory to SSC; and -14- (K) evidence of receipt of all applicable consents and approvals to be obtained by Buyer and/or DVL in connection with the consummation of the transactions contemplated by this Agreement and the other Buyer Transaction Documents. 5. INTENTIONALLY OMITTED. 6. CONDITIONS TO THE OBLIGATIONS OF SSC, R-II AND R-II-B HOLDINGS. The obligations of SSC and R-II to cause R-II-B Holdings to sell, and of R-II-B Holdings to sell, the Class B Interest and to close hereunder shall be subject to the following conditions, any or all of which may be waived in writing by SSC: (a) all documents and payments required to be delivered by or on behalf of Buyer or DVL at or prior to Closing shall have been delivered or shall be delivered at the time and place of Closing; (b) Buyer and DVL shall have in all respects performed and complied with all terms and conditions required by this Agreement to be performed or complied with by Buyer or DVL on or before the Closing Date; and (c) all representations and warranties of Buyer and DVL in this Agreement and the other Buyer Transaction Documents shall be true and correct in all material respects as of the Closing Date as if made on the Closing Date, except to the extent any such representation is stated to be made as of a particular date or time. 7. CONDITIONS TO THE OBLIGATIONS OF BUYER. The obligations of Buyer to purchase the Class B Interest shall be subject to the following conditions, any or all of which may be waived in writing by Buyer: (a) SSC, R-II, R-II-B, R-II-B Holdings and JGW shall have in all respects performed and complied with all terms and conditions required by this Agreement and the Seller Transaction Documents to be performed and complied with by SSC, R-II, R-II-B, R-II-B Holdings and JGW on or before the Closing Date; and (b) the representations and warranties of SSC, R-II-B, R-II-B Holdings and JGW in this Agreement and the Seller Transaction Documents are true and correct in all material respects as of the Closing Date as if made on the Closing Date, except to the extent any such representation is stated to be made as of a particular date or time. 8. POST-CLOSING COVENANTS. From and after the Closing, and until R-II-B has received all distributions due it from R-V, and Buyer has received all distributions due Buyer from R-II-B: -15- (a) SSC and JGW shall, and SSC shall cause R-II to, deliver to Buyer (i) all notices (and, in the case of JGW, servicer reports) delivered by SSC, R-II or JGW, as the case may be, under or pursuant to any Securitization Document simultaneously with the delivery of such notice, and (ii) all notices and reports received by SSC, R-II or JGW, as the case may be, under or pursuant to any Securitization Document promptly, but in any event within five (5) business days, after receipt of such notice. Without limiting the foregoing, SSC shall, promptly after the Closing, instruct (to the extent permitted to do so) the other parties to the Securitization Documents (other than the Series 2001-A Noteholders) to deliver copies of all notices and reports to Buyer. (b) Buyer, DVL, their respective assigns (or designated representative thereof) and independent accountants appointed by, or other agents of, any of the foregoing, shall have the right, upon reasonable prior written notice to SSC, to visit SSC, to discuss the affairs, finances and accounts of R-II-B and R-V with, and to be advised as to the same by, SSC's officers, to examine the books of account and records of R-II-B and R-V, and to make or be provided with a copy and extract therefrom, all at such reasonable times and intervals (but not more than once in any one-month period) and to such reasonable extent during regular business hours as Buyer, DVL, their respective assigns (or designated representative thereof) or such accountants or agents appointed by any of the foregoing, as applicable, may desire. JGW shall cooperate reasonably in providing any information requested by Buyer, DVL, their respective assigns (or designated representative thereof) or such accountants or agents appointed by any of the foregoing pursuant to this Section 8(b). Each of SSC, R-II, R-II-B and JGW recognizes that Buyer is a wholly-owned subsidiary of a company that is required to report under the Securities Exchange Act of 1934, as amended. (c) Neither R-II-B nor R-V will engage in any business other than the business of acquiring, holding, managing and transferring structured settlement receivables as in effect on the Closing Date. (d) After the obligations of JGW as Master Servicer have terminated under the 8/2/01 Indenture and the 2001-A Supplement (the "2001 Agreements"), other than as a result of a Service Transfer (as defined in the 8/13/01 Indenture) following a Servicer Default, (i) JGW (or its successor permitted by the Securitization Documents) shall continue to serve as administrator and/or servicer with respect to the relevant Receivables upon the terms and conditions set forth in the 2001 Agreements, as the case may be, for the benefit of R-V until -16- Buyer shall have received all distributions due Buyer from R-II-B, and (ii) in the event of a breach or default by any of SSC, JGW or R-II of its obligations under any Securitization Document, Buyer shall have the right, upon prior written notice to such party, to enforce R-V's rights under the Securitization Document (and the certificates and documents, but not the legal opinions, executed in connection therewith) as if Buyer were a party thereto; provided, however, that (1) Buyer shall take no such action if, within thirty (30) days after Buyer has delivered such written notice, SSC, JGW or R-II, as the case may be, shall have cured such breach or default, and (2) such enforcement rights shall be subject to the terms and conditions of the Securitization Documents; provided further that, after payment in full of all notes and other obligations in favor of the Series 2001-A Noteholders, (A) the rights of the Trustee, any Rating Agency, any Controlling Party or any other third party VIS-A-VIS JGW under such agreements shall be deemed to be rights of the Issuer, and (B) if JGW or an affiliate of JGW is the Applicable Master Servicer, Buyer shall have the sole right to give any Termination Notices to the Master Servicer and to appoint a Successor Servicer on such terms and conditions as are agreed to by Buyer; provided, however, as long as one or both of the Notes are outstanding, Buyer and SSC shall mutually agree upon the choice of a Successor Servicer, each such party covenanting to act reasonably and in good faith in mutually agreeing to such appointment. (e) Buyer directs JGW, as servicer under the Securitization Documents, and JGW accepts such direction, to make all payments due under the Notes directly to SSC. 9. INDEMNIFICATION OF BUYER AND DVL. (a) BASIC PROVISION. SSC hereby indemnifies and agrees to hold harmless Buyer, DVL and their respective affiliates, officers, directors, employees and agents (in this Section 9 sometimes referred to as a "Section 9 Indemnitee"), from, against and in respect of the amount of any and all Section 9 Deficiencies (as hereinafter defined). (b) DEFINITION OF "SECTION 9 DEFICIENCIES". As used in this Section 9, "Section 9 Deficiencies" means: (i) any and all losses or damages resulting from any misrepresentation, breach of warranty, or any non-fulfillment of any warranty, representation, covenant or agreement on the part of SSC, JGW, R-II, R-II-B or R-II-B Holdings contained herein or in any Seller Transaction Document; (ii) any and all judgments, settlements and/or other direct losses and/or damages (but not indirect, -17- consequential or special damages including, without limitations, loss of profits) resulting from third party claims in connection with the securitization described in the Securitization Documents including, without limitation, claims by any claimant that is a party to a settlement purchase agreement with SSC, such claimant's bankruptcy estate, any governmental entity, or any annuity provider, unless caused by the negligence or willful misconduct of Buyer, DVL or any other Section 9 Indemnitee; and (iii) attorneys' fees, costs and expenses reasonably incurred incident to any of the foregoing. (c) PROCEDURES FOR THIRD PARTY CLAIMS. In the event that any claim shall be asserted by any party against any Section 9 Indemnitee which, if sustained, would result in a Section 9 Deficiency, such Section 9 Indemnitee, within a reasonable time after learning of such claim, shall notify SSC of such claim, and if such Section 9 Indemnitee intends to assert the right to indemnification hereunder with respect to such claim, then such Section 9 Indemnitee shall extend to SSC a reasonable opportunity to defend against such claim, at SSC's sole expense and through legal counsel reasonably acceptable to such Section 9 Indemnitee, provided that SSC proceeds in good faith, expeditiously and diligently. Notwithstanding the foregoing, any failure to timely give the notice referred to in the immediately preceding sentence shall not negate or impair the indemnification obligations set forth in this Section 9, but shall give SSC the right to offset against any indemnity payments made by it hereunder the actual damages caused to it as a result of such failure. Such Section 9 Indemnitee shall, at its option and expense, have the right to participate in any defense undertaken by SSC with legal counsel of such Section 9 Indemnitee's own selection. No settlement or compromise of any claim which may result in a Section 9 Deficiency may be made by SSC without the prior written consent of such Section 9 Indemnitee unless (A) prior to such settlement or compromise SSC acknowledges in writing its obligation to pay in full the amount of the settlement and all associated expenses and (B) such Section 9 Indemnitee is furnished with reasonably satisfactory evidence and security that SSC will in fact pay such amount and expenses. (d) PAYMENT OF SECTION 9 DEFICIENCIES. In the event any Section 9 Indemnitee discovers and claims any Section 9 Deficiency, such Section 9 Indemnitee shall give written notice to SSC of the nature and amount of the Section 9 Deficiency. SSC hereby agrees to pay the amount of any valid claim to such Section 9 Indemnitee within fifteen (15) days after such notice is given. (e) ABSOLUTE CAP. Notwithstanding any other provision in this Agreement, in no event shall the maximum aggregate -18- indemnification obligation of SSC under this Agreement, or otherwise in connection with the purchase and sale hereunder exceed the Purchase Price actually received by SSC; provided, however, this Section 9(e) shall not apply to SSC's indemnification obligation with respect to losses and damages under Section 9(b)(ii) and attorneys' fees, costs and expenses reasonably incurred incident thereto. (f) LIMITATION AND DEDUCTIBLE FOR SECTION 9 DEFICIENCIES. (i) Except for the representations contained in Sections 2(a)(i) through (iv), each of which shall survive for the applicable statute of limitations, no claim for indemnity on account of a breach of representation shall be made unless such claim is set forth in a written notice thereof given to SSC on or prior to that date which is eighteen (18) months after the date of Closing hereunder; provided, however, this Section 9(f)(i) shall not apply to SSC's indemnification obligation with respect to losses and damages under Section 9(b)(ii) and attorneys' fees, costs and expenses reasonably incurred incident thereto, which obligation shall survive indefinitely. (ii) No claim(s) for Section 9 Deficiencies, except for claim(s) based upon a breach of a covenant or agreement hereunder, may be made against SSC unless the aggregate amount of such claim(s) exceeds Fifty Thousand Dollars ($50,000) (the "Threshold Amount"), but if such claim(s) exceeds in the aggregate the Threshold Amount, Section 9 Indemnitee may claim for the entire amount of such claim(s) including such Fifty Thousand Dollars ($50,000) amount. (iii) At the direction of Buyer (subject to Section 9(h)), SSC will, and at the election of SSC, SSC may satisfy, all or any portion of the Section 9 Deficiencies payable by SSC by giving written notice to Buyer that Buyer shall be permitted to offset an amount specified in such notice against the next installments of the principal amount and accrued interest thereon of the Notes, and the amount of the Section 9 Deficiency deemed to be satisfied thereby shall be equal to the aggregate amount of principal and accrued interest of such offset; provided, however, this Section 9(f)(iii) shall not apply to SSC's indemnification obligation with respect to losses and damages under Section 9(b)(ii) and attorneys' fees, costs and expenses reasonably incurred incident thereto. (g) INSURANCE. Buyer and DVL hereby irrevocably assign to SSC all of their respective rights to receive, and their respective interests in, any and all any amounts receivable by them under any insurance policy(ies) as a result of, or relating to, any and/or all of the Section 9 Deficiencies (or -19- deliver to SSC all amounts received by them) to the extent of all amounts received by them under this Section 9, subject to any rights of recapture by any insurer under such insurance policies; PROVIDED THAT, in the event that any indemnification payments made to a Section 9 Indemnitee shall, for any reason, be required to be returned or otherwise disgorged to SSC (including, without limitation, as a preference payment in a bankruptcy of SSC), SSC's indemnification obligations hereunder shall not be deemed to have been satisfied and shall be deemed reinstituted to the extent of the amount so returned or disgorged. (h) SET-OFF. Upon discovery by any party of a breach by any other party of any of the representations and warranties set forth in Section 2, the discovering party shall give prompt written notice to the other parties hereto. If such breach materially and adversely affects Buyer's interest in the Class B Interest and a court of competent jurisdiction (in a proceeding in which SSC received notice and was given the opportunity to appear and defend itself) renders a judgment in favor of Buyer in excess of Fifty Thousand Dollars ($50,000) arising from a breach by SSC of any of the representations and warranties set forth in Section 2, Buyer shall have the right to set-off against any payment thereafter due under the Notes an amount equal to such judgment. 10. INDEMNIFICATION OF SSC AND AFFILIATES. (a) BASIC PROVISION. Buyer and DVL hereby jointly and severally indemnify and agree to hold harmless SSC, JGW, R-II, R-II-B, R-II-B Holdings and R-V, and their respective members (other than Buyer), partners, affiliates, officers, directors, employees and agents (in this Section 10 sometimes referred to as a "Section 10 Indemnitee"), from, against and in respect of the amount of any and all Section 10 Deficiencies (as hereinafter defined). (b) DEFINITION OF "SECTION 10 DEFICIENCIES". As used in this Section 10, "Section 10 Deficiencies" means: (i) any and all losses or damages resulting from any misrepresentation, breach of warranty, or any non-fulfillment of any warranty, representation, covenant or agreement on the part of Buyer and/or DVL contained herein or in any Buyer Transaction Document; (ii) any and all judgments, settlements and/or other direct losses and/or damages (but not indirect, consequential or special damages including, without limitations, loss of profits) resulting from third party (including, without limitation, any government or agency, commission or other arm thereof) claims in connection with any disclosure or filing with -20- any government or agency, commission or other arm thereof made or omitted by or on behalf of DVL or one or more of its affiliates (or their respective successors or assigns), or any securities law violation (or alleged violation) by DVL or one or more of its affiliates (or their respective successors or assigns), unless caused by the negligence or willful misconduct of SSC or any other Section 10 Indemnitee; and (iii) attorneys' fees, costs and expenses reasonably incurred incident to any of the foregoing. (c) PROCEDURES FOR THIRD PARTY CLAIMS. In the event that any claim shall be asserted by any party against any Section 10 Indemnitee which, if sustained, would result in a Section 10 Deficiency, such Section 10 Indemnitee, within a reasonable time after learning of such claim, shall notify DVL of such claim, and if such Section 10 Indemnitee intends to assert the right to indemnification hereunder with respect to such claim, then such Section 10 Indemnitee shall extend to DVL a reasonable opportunity to defend against such claim, at DVL's sole expense and through legal counsel reasonably acceptable to such Section 10 Indemnitee, provided that DVL proceeds in good faith, expeditiously and diligently. Notwithstanding the foregoing, any failure to timely give the notice referred to in the immediately preceding sentence shall not negate or impair the indemnification obligations set forth in this Section 10, but shall give Buyer and DVL the right to offset against any indemnity payments made by them hereunder the actual damages caused to them as a result of such failure. Such Section 10 Indemnitee shall, at its option and expense, have the right to participate in any defense undertaken by DVL with legal counsel of such Section 10 Indemnitee's own selection. No settlement or compromise of any claim which may result in a Section 10 Deficiency may be made by DVL without the prior written consent of such Section 10 Indemnitee unless (A) prior to such settlement or compromise DVL acknowledges in writing its obligation to pay in full the amount of the settlement and all associated expenses and (B) such Section 10 Indemnitee is furnished with reasonably satisfactory evidence and security that DVL will in fact pay such amount and expenses. (d) PAYMENT OF SECTION 10 DEFICIENCIES. In the event any Section 10 Indemnitee discovers and claims any Section 10 Deficiency, such Section 10 Indemnitee shall give written notice to DVL of the nature and amount of the Section 10 Deficiency. DVL hereby agrees to pay the amount of any valid claim to such Section 10 Indemnitee within fifteen (15) days after such notice is given. (e) ABSOLUTE CAP. Notwithstanding any other provision in this Agreement, in no event shall the maximum aggregate -21- indemnification obligation of Buyer and DVL under this Agreement, or otherwise in connection with the purchase and sale hereunder exceed the distributions and other monies actually received by Buyer with respect to the Class B Interest; provided, however, this Section 10(e) shall not apply to the indemnification obligations of Buyer and DVL with respect to losses and damages under Section 10(b)(ii) and attorneys' fees, costs and expenses reasonably incurred incident thereto. (f) LIMITATION AND DEDUCTIBLE FOR SECTION 10 DEFICIENCIES. (i) Except for the representations contained in Sections 3(a) through (d), each of which shall survive for the applicable statute of limitations, no claim for indemnity on account of a breach of representation shall be made unless such claim is set forth in a written notice thereof given to DVL on or prior to that date which is eighteen (18) months after the date of Closing hereunder; provided, however, this Section 10(f)(i) shall not apply to the indemnification obligations of Buyer and DVL with respect to losses and damages under Section 10(b)(ii) and attorneys' fees, costs and expenses reasonably incurred incident thereto, which obligations shall survive indefinitely. (ii) No claim(s) for Section 10 Deficiencies, except for claim(s) based upon a breach of a covenant or agreement hereunder, may be made against DVL unless the aggregate amount of such claim(s) exceeds Fifty Thousand Dollars ($50,000) (the "Threshold Amount"), but if such claim(s) exceeds in the aggregate the Threshold Amount, Section 10 Indemnitee may claim for the entire amount of such claim(s) including such Fifty Thousand Dollars ($50,000) amount. (g) INSURANCE. SSC, JGW, R-II, R-II-B and R-II-B Holdings hereby irrevocably assign to Buyer all of their respective rights to receive, and their respective interests in, any and all any amounts receivable by them under any insurance policy(ies) as a result of, or relating to, any and/or all of the Section 10 Deficiencies (or deliver to Buyer all amounts received by them) to the extent of all amounts received by them under this Section 10, subject to any rights of recapture by any insurer under such insurance policies; PROVIDED THAT, in the event that any indemnification payments made to a Section 10 Indemnitee shall, for any reason, be required to be returned or otherwise disgorged to Buyer or DVL (including, without limitation, as a preference payment in a bankruptcy of Buyer or DVL), Buyer's and DVL's indemnification obligations hereunder shall not be deemed to have been satisfied and shall be deemed reinstituted to the extent of the amount so returned or disgorged. -22- 11. MISCELLANEOUS. (a) WAIVERS. The failure (or delay) of any of the parties to this Agreement to require the performance of a term or obligation under this Agreement or the waiver by any of the parties to this Agreement of any breach hereunder shall not prevent subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach hereunder. (b) CONTROLLING LAW. This Agreement and all questions relating to its validity, interpretation, performance and enforcement (including, without limitation, provisions concerning limitations of actions), shall be governed by and construed in accordance with the laws of the State of Delaware (notwithstanding any conflict-of-law doctrines to the contrary), and without the aid of any canon, custom or rule of law requiring construction against the draftsman. (c) NOTICES. All notices, requests, demands and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given, made and received only when delivered (personally, by courier service such as Federal Express, or by other messenger) or four days following the day when deposited in the United States mails, registered or certified mail, postage prepaid, return receipt requested, addressed as set forth below: -23- (i) If to SSC, JGW, R-II, R-II-B and/or R-II-B Holdings: Green Valley Executive Suites 2920 N. Green Valley Parkway, Building 3, Suite 321 Henderson, NV 89014 with a copy, given in the manner prescribed above, to: Robert C. Jacobs, Esquire Wolf, Block, Schorr and Solis-Cohen LLP 1650 Arch Street 22nd Floor Philadelphia, PA 19103-2097 (ii) If to Buyer: S2 Holdings, Inc. 300 Delaware Avenue Suite 1704 Wilmington, DE 19801 with a copy, given in the manner prescribed above, to: DVL, Inc. 70 East 55th Street, 7th Floor New York, NY 10022 Attention: Chief Financial Officer and to: Ira Akselrad, Esquire Proskauer Rose LLP 1585 Broadway New York, NY 10036-8299 Any party may alter the address to which communications or copies are to be sent by giving notice of such change of address in conformity with the provisions of this Section for the giving of notice. (d) EXHIBITS AND SCHEDULES. All Exhibits and Schedules attached hereto are hereby incorporated by reference into, and made a part of, this Agreement. (e) BINDING NATURE OF AGREEMENT. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that no party may assign or transfer its rights or obligations under this -24- Agreement, and any such assignment or transfer shall be void AB INITIO. (f) EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories. (g) PROVISIONS SEPARABLE. The provisions of this Agreement are independent of and separable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part. (h) ENTIRE AGREEMENT. This Agreement contains the entire understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements and understandings, inducements or conditions, express or implied, oral or written, except as herein contained. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be waived, modified or amended other than by an agreement in writing. (i) SECTION HEADINGS. The section headings in this Agreement are for convenience only; they form no part of this Agreement and shall not affect its interpretation. (j) GENDER, ETC. Words used herein, regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context indicates is appropriate. (k) NUMBER OF DAYS. In computing the number of days for purposes of this Agreement, all days shall be counted, including Saturdays, Sundays and holidays; provided, however, that if the final day of any time period falls on a Saturday, Sunday or holiday on which federal banks are or may elect to be closed, then the final day shall be deemed to be the next day which is not a Saturday, Sunday or such holiday. (l) ENFORCEMENT COSTS. The parties hereto hereby agree that the prevailing party in any litigation or other proceeding to enforce this Agreement shall be reimbursed by the other party(ies) for out-of-pocket costs and expenses, including, -25- without limitation, legal fees and expenses incurred by the prevailing party in connection with such litigation or proceeding, and if such reimbursement is not made within fifteen days after demand therefor, the amount thereof shall thereafter bear interest until paid at the rate of twelve percent (12%) per annum or, if less, the highest rate permitted by applicable law. (m) EXPENSES. Except as otherwise specifically provided herein, all costs and expenses incurred in connection with the transactions contemplated by this Agreement shall be paid by the party incurring such expenses. (n) FURTHER ASSURANCES. Each party shall, promptly after request therefor from time to time by any other party, execute and deliver any and all such other documents and/or take any and all further action(s), as such requesting party shall reasonably request in order to effectuate the provisions of this Agreement and the transactions contemplated hereby. (o) KNOWLEDGE. As used in this Agreement, any reference to the "knowledge" of any party shall be deemed to be its actual knowledge, after due inquiry. (p) LIMITATIONS ON LIABILITY. The parties hereto hereby acknowledge and agree that the obligations and liabilities of R-II under this Agreement shall not survive the Closing, and in no event shall R-II be liable in any manner under Sections 2 and 9. Neither Buyer nor DVL (nor anyone claiming or acting on behalf of, or for, under or through, either or both of them) shall have any recourse against any asset(s) of any shareholder(s), partner(s), director(s), officer(s), employee(s) and/or agent(s) of SSC, its general partner and/or JGW solely as the result of their status as such (but only against the assets of SSC and JGW), such parties hereby fully, irrevocably and unconditionally waiving such rights. None of SSC, JGW, R-II, R-II-B or R-II-B Holdings (nor anyone claiming or acting on behalf of, or for, under or through, any one or more of them) shall have any recourse against any asset(s) of any shareholder(s), partner(s), director(s), officer(s), employee(s) and/or agent(s) of Buyer and/or DVL solely as a result of their status as such (but only against the assets of Buyer and DVL), such parties hereby fully, irrevocably and unconditionally waiving such rights. (q) CUMULATIVE REMEDIES. Subject to any limitations set forth herein, the rights and remedies set forth herein shall be cumulative and non-exclusive of any rights or remedies provided by law. -26- (r) DEFINITIONS. Capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in Exhibit A or in the Securitization Documents. (s) NON-DISCLOSURE. Except as required by law (including, without limitation, disclosure requirements under the Securities Exchange Act of 1934, as amended, and other securities laws), Buyer and DVL will maintain the confidential nature of (and will not disclose, file with the Securities and Exchange Commission or any other governmental agency, or deliver to anyone) the Securitization Documents and/or any other confidential or proprietary information now or hereafter provided by SSC, JGW and/or R-II, and/or their respective affiliates and agents, relating to their respective businesses of SSC, JGW, R-II, and/or their respective affiliates (including, without limitation, all matters now or hereafter provided under, or pursuant to, this Agreement), and Buyer and DVL will not use such confidential or proprietary information other than in connection with the transactions described herein. The obligation of Buyer and DVL hereunder shall not apply to any of such confidential or proprietary information that is already public or hereafter enters the public domain through no breach hereunder by Buyer, DVL and/or their respective affiliates and agents. (t) PRESS RELEASE. None of the parties hereto shall issue any press release relating to the transactions contemplated by this Agreement, except as mutually agreed to, in writing, by SSC and DVL. (u) FREE ALIENABILITY. R-II-B Holdings, and its successors and assigns, may, without limitation, sell, assign, transfer and/or encumber (in whole or from time to time in part) its interest in (i) any and all Investment Proceeds Accounts and/or (ii) the principal and earnings on any and all reserve accounts established pursuant to the Securitization Documents. -27- IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered as of the date first above written. S2 HOLDINGS, INC. By: -------------------------------------- Name: Title: DVL, INC. By: ------------------------------------ Name: Title: J.G. WENTWORTH S.S.C. LIMITED PARTNERSHIP, by its sole general partner: J.G. Wentworth Structured Settlement Funding Corporation By: -------------------------------------- Name: Title: J.G. WENTWORTH MANAGEMENT COMPANY, INC. By: -------------------------------------- Name: Title: J.G. WENTWORTH RECEIVABLES II LLC, by its designated manager: J.G. WENTWORTH S.S.C. LIMITED PARTNERSHIP, by its sole general partner: J.G. Wentworth Structured Settlement Funding Corporation By: -------------------------------------- Name: Title: -28- RECEIVABLES II-B LLC, by its managing manager: RECEIVABLES II-B HOLDING COMPANY LLC, by its designated manager: J.G. WENTWORTH RECEIVABLES II LLC, by its designated manager: J.G. WENTWORTH S.S.C. LIMITED PARTNERSHIP, by its sole general partner: J.G. Wentworth Structured Settlement Funding Corporation By: -------------------------------------- Name: Title: RECEIVABLES II-B HOLDING COMPANY LLC, by its designated manager: J.G. WENTWORTH RECEIVABLES II LLC, by its designated manager: J.G. WENTWORTH S.S.C. LIMITED PARTNERSHIP, by its sole general partner: J.G. Wentworth Structured Settlement Funding Corporation By: -------------------------------------- Name: Title: -29- EXHIBITS A - List of Securitization Documents B-1 - Form of Note 1 B-2 - Form of Note 2 C - Form of Warrant D - Form of DVL Guaranty E - Form of Pledge Agreement F - Form of Opinion of SSC's Counsel G - Form of Opinion of Buyer's Counsel SCHEDULES Schedule 1(c)(i)-1 Sample "Secmodel" Schedule 1(c)(i)-2 Sample Monthly Servicer Report Schedule 1(c)(vii) Examples of Purchase Price Adjustments as per Section 1(c) Schedule 2(a)(v) Financial Statements of SSC -30- EXHIBIT A LIST OF SECURITIZATION DOCUMENTS 1. Master Trust Indenture and Security Agreement, dated as of August 13, 2001 (the "8/13/01 Indenture"), among R-V, JGW, The Chase Manhattan Bank ("Chase") and MBIA Insurance Corporation ("MBIA"). 2. Series 2001-A Supplement, dated as of August 13, 2001 (the "2001-A Supplement"), among R-V, JGW, Chase and MBIA. 3. Seller Purchase Agreement (as defined in the 8/13/01 Indenture). 4. Issuer Purchase Agreement (as defined in the 8/13/01 Indenture). 5. Note Purchase Agreement (as defined in the 2001-A Supplement). 6. Intercreditor Agreement (as defined in the 8/13/01 Indenture). 7. Insurance Agreement (as defined in the 8/13/01 Indenture). 8. Limited Liability Company Agreement of each of R-II and R-V, and Limited Partnership Agreement of SSC. 9. Repurchase Agreement, dated as of August 13, 2001, by and among SSC, J.G. Wentworth Receivables I LLC, R-II, J.G. Wentworth Receivables III LLC, J.G. Wentworth Receivables IV LLC and R-V. 10. Swap Agreement, dated as of August 13, 2001, executed in connection with the 8-13-01 Indenture, and related Guarantee, dated as of August 13, 2001, from General Re Corporation in favor of R-V. -31- EX-10.02 4 c21771_ex10-02.txt NON-NEGOTIABLE PROMISSORY NOTE ($7,931,560) EXHIBIT 10.02 NON-NEGOTIABLE, SECURED PURCHASE MONEY PROMISSORY NOTE FOR VALUE RECEIVED, the undersigned, S2 HOLDINGS, INC., a Delaware corporation, with its chief executive offices at 300 Delaware Avenue, Suite 1704, Wilmington, Delaware 19801 ("Maker"), hereby promises to pay to the order of J.G. WENTWORTH S.S.C. LIMITED PARTNERSHIP, a Nevada limited partnership ("Payee"), the original principal amount of Seven Million Nine Hundred Thirty-One Thousand Five Hundred Sixty Dollars ($7,931,560.00), as such original principal amount may be increased or reduced as provided in Paragraph 1 of this Note (which original principal amount, as so increased or reduced, is referred to herein as "principal", "principal amount" or "principal sum"), with interest accrued thereon at the rate of eight percent (8%) per annum, compounded annually (determined by multiplying the outstanding principal of this Note at the beginning of each month by 1/12 of 8%), all in lawful money of the United States of America, and all payable as hereinafter provided, but in no event later than August 15, 2020. This Note is being executed and delivered in accordance with, and is subject to the terms and conditions of, the Purchase Agreement, effective as of August 15, 2001, among Payee, J.G. Wentworth Management Company, Inc. ("JGW"), J.G. Wentworth Receivables II LLC, Receivables II-B LLC, Receivables II-B Holding Company LLC, Maker and DVL, Inc. (the "Purchase Agreement") including, without limitation, the provisions of the Purchase Agreement regarding reductions of the principal of this Note under Sections 1(c) thereof and permitted offsets of the principal of this Note under Article 9 thereof. This Note is referred to in the Purchase Agreement as Note 1. A second note, referred to in the Purchase Agreement as Note 2, is also being executed and delivered in accordance with, and is subject to the terms and conditions of, the Purchase Agreement. Capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in the Purchase Agreement. 1. (i) From and after February 15, 2003, the Purchase Price and the principal amount of the Notes shall, effective as of the first day of each month, be increased PARI PASSU by (i) an amount, if any, equal to eighty-one percent (81%) of (x) the actual cash collected by R-V in the immediately prior month (the "Calculation Month") in excess of (y) the total dollar amount for the Calculation Month of "Performing Scheduled Payments" as of December 31, 2002" based upon the "Performing Cash Collections" column of the "secmodel" as shown on the form, dated June 30, 2001, of "secmodel" attached to the Purchase Agreement as SCHEDULE 1(C)(I)-1, plus (ii) an amount, if any, equal to eighty-one percent (81%) of (x) the rehabilitated claims in the Calculation Month as shown on the monthly servicer reports for R-V (the "Monthly Servicer Reports") for the Calculation Month, samples of which reports are attached to the Purchase Agreement as SCHEDULE 1(C)(I)-2, in excess of (y) the new defaults in the Calculation Month as shown on the Monthly Servicer Reports for the Calculation Month; provided, however, it is understood and agreed that increases shall be made at such 81% level only to the extent there are no then outstanding cumulative reductions in the principal amount of the Notes that were made at a 100% level; otherwise, the increases referred to above in this sentence shall be made at the 100% level, and not at the 81% level, until such cumulative reductions made at the 100% level have been reduced to zero. (ii) From and after February 15, 2003, the Purchase Price and the principal amount of the Notes shall, effective as of the first day of each month, be reduced PARI PASSU by an amount, if any, equal to one hundred percent (100%) of (x) the new defaults in the Calculation Month as shown on the Monthly Servicer Reports for the Calculation Month in excess of (y) the rehabilitated claims in the Calculation Month as shown on the Monthly Servicer Reports for the Calculation Month; provided, however, it is understood and agreed that reductions shall be made at such 100% level only to the extent there are no then outstanding cumulative increases in the principal amount of the Notes that were made at an 81% level; otherwise, the reductions referred to above in this sentence shall be made at the 81% level, and not at the 100% level, until the cumulative increases made at the 81% level have been reduced to zero. (iii) From and after August 15, 2001, the Purchase Price and the principal amount of the Notes shall, on a monthly basis, also be increased PARI PASSU, on a dollar-for-dollar basis, by the amount of any reserve fund(s) existing on or prior to August 15, 2001, which reserve fund(s) have been established under, or as provided in, the Securitization Documents, paid after August 15, 2001 to the Series 2001-A Noteholders. (iv) From and after August 15, 2001, in the event of any "Event of Default" (as defined in the 8/13/01 Indenture) or "Servicer Default" (as defined in the 2001-A Supplement) that results in any suspension of payment to R-V under the 2001-A Supplement, the Purchase Price and the principal amount of the Notes will be reduced PARI PASSU by an amount equal to eighty-one percent (81%) of the net present value of the remaining cash flow attributable to the "Issuer Interest" (as defined in the 8/13/01 Indenture) of R-V, as determined pursuant to the following sentence. The calculation of the net present value of such remaining cash flow payable to R-V will be made using the "cash available" column of the "secmodel" as adjusted on a monthly basis, a copy of which has been furnished, and is acceptable, to Buyer. The discount rate used in the calculation of such net present value will be the discount rate used in the 2001-A Supplement listed on Exhibit A to the Purchase Agreement. After reductions have been made under this Paragraph 1(iv) with respect to any securitization described in the Securitization Documents, -2- no further reductions will be made under Paragraph 1(ii) with respect to such securitization. If the suspension referred to above is reversed for any reason, this clause (iv) shall have no application. (v) On January 15, 2003, (a) the Purchase Price and the principal amount of the Notes shall be reduced PARI PASSU by an amount, if any, equal to eighty-one percent (81%) of the excess of (x) the "Cumulative Defaults at the end of the Collection Period" as shown on the SSC Master Trust V, Series 2001-A December, 2002 servicer report less (y) Five Million Eighteen Thousand Five Hundred Sixty-Three Dollars ($5,018,563.00), or (b) the Purchase Price and the principal amount of the Notes shall be increased PARI PASSU by an amount, if any, equal to eighty-one percent 81% of the excess of (x) Five Million Eighteen Thousand Five Hundred Sixty-Three Dollars ($5,018,563.00) less (y) the "Cumulative Defaults at the end of the Collection Period" as shown on such December, 2002 servicer report. (vi) Net increases under Paragraphs 1(i), (ii) and (v) (that is, increases thereunder less reductions thereunder) shall not exceed Four Million Five Hundred Thousand Dollars ($4,500,000). Eighty-Seven and 16/100ths percent (87.16%) of all such increases and reductions, if any, shall be allocated to Note 1, and the balance shall be allocated to Note 2. All such increases and reductions, if any, shall be endorsed by Payee on a grid or schedule to be attached to the Notes, and Payee is authorized by Maker to make such endorsements. All increases and reductions under this Paragraph 1 shall be made without duplication. (vii) It is understood and agreed that this Note shall not be deemed to have been repaid if the principal reduces to zero under this Paragraph 1 at any time prior to August 15, 2020, but shall be deemed to have been repaid upon payment in full of all principal and accrued interest outstanding on August 15, 2020. 2. Maker shall pay the principal of this Note and accrued interest thereon as follows: Within twenty (20) days after the end of each calendar month, provided Maker receives distributions or other monies in such calendar month with respect to its Class B Interest or immediately after Maker receives such distributions or monies, commencing with September 20, 2001, and until this Note has been paid in full, Maker shall pay to Payee an amount equal to eighty-seven and 16/100ths percent (87.16%) of eighty-one percent (81%) of the Cash Flow (as that term is hereinafter defined) of Maker for such month. In the event of a sale, transfer, financing or other similar transaction relating to the Class B Interest that results in the receipt of cash -3- proceeds by Maker in respect thereto, Maker shall pay to Payee an amount to be agreed to in good faith by Maker and Payee taking into account Payee's contribution to such transaction and the then respective after-tax positions of Maker and Payee and, in such event, future payments under SCHEDULE A attached hereto and made a part hereof shall be appropriately reduced. The foregoing provisions of this Paragraph 2 shall not limit or affect in any manner Payee's rights, and/or Maker's obligations, in the Pledge Agreement; nor, without limiting the foregoing, may the Class B Interest be sold, assigned or otherwise transferred or encumbered, except as permitted in the Pledge Agreement. All payments shall first be applied to the accrued but unpaid interest on this Note and then to the principal outstanding on this Note, until this Note is paid in full and fully amortized. Notwithstanding the foregoing, in no event shall the amount retained by Maker for any such month out of Cash Flow be less than one-twelfth (1/12th) of the amount set forth in said SCHEDULE A, column 1 (in respect of the year of the relevant payment) nor greater than the amount set forth in said SCHEDULE A, column 2 (in respect of the year of the relevant payment). For purposes of this Note, "Cash Flow" means all gross revenues and receipts (including, without limitation, distributions and sales and other proceeds) directly or indirectly attributable to, or received on or with respect to, Maker's interest in R-II-B and/or the Class B Interest (and all proceeds thereof). On or before twenty (20) days after the end of each such month, there shall be delivered by Maker to Payee a statement of the chief financial officer of Maker indicating the Cash Flow for the immediately preceding month set forth in reasonable detail; provided, however, as long as JGW is Master Servicer (as defined in the Securitization Documents referred to in the Purchase Agreement), Maker shall not be required to deliver such statement to Payee. Payee and its representatives shall from time to time have the right to inspect and make copies of the books and records of Maker to determine whether any and all payments by Maker were in the correct amount. The cost of such inspection shall be borne by Payee, except that if such examination reveals that there is an underpayment to Payee of more than five percent (5%) for any month for which the inspection is made, the cost of such inspection shall be paid by Maker to Payee within ten (10) days after demand therefor. Notwithstanding any other provision of this Note, the entire unpaid balance of the principal sum, plus all accrued and unpaid interest thereon, and all other sums, if any, due and payable hereunder shall be paid on August 15, 2020, regardless of the amount of Maker's Cash Flow from time to time. Any interest not paid when due hereunder shall accrue and be added to principal. 3. Subject to the provisions of this Note permitting reduction of, or offset against, principal otherwise due under this Note and to the terms of the Purchase Agreement (including, -4- without limitation, provisions of the Purchase Agreement permitting reduction of, or offset against, principal otherwise due under this Note), the principal sum and all other sums due hereunder shall be payable without set-off or deduction at the address of Payee at Green Valley Executive Suites, 2920 N. Green Valley Parkway, Building 3, Suite 321, Henderson, NV 89014, or at such other place as Payee, from time to time, may designate in writing, and provided Maker has notice of such other place, Maker shall make payment at such other place. 4. At any time after the fifth (5th) anniversary of the execution of the Notes, Maker shall have the right at any time to prepay the Notes in whole (but not in part) provided Maker pays an amount equal to (x) (i) Nine Million One Hundred Thousand Dollars ($9,100,000), plus (ii) the amount of any and all net increases in the principal amount of the Notes under Paragraph 1, plus (iii) all accrued but unpaid interest on the Notes, minus (y) the sum of all principal payments actually paid on the Notes; otherwise, Maker shall not have the right to prepay, and shall not prepay, the Notes, in whole or in part, without Payee's prior written consent in each instance (which consent may be withheld by Payee for any reason or for no reason). 5. If any payment of principal, interest or any other payment due hereunder is not made within ten (10) days when due (including, without limitation, when due as a result of acceleration under Paragraph 6), then, provided Maker receives distributions or other monies with respect to its Class B Interest with respect to the month such payment was due in an amount sufficient to make such payment, the amount of such payment shall, until paid, bear interest at a rate equal to the rate specified in the first paragraph hereof plus two and one-half percent (2.5%); provided, however, the proviso set forth above in this Paragraph 5 shall not apply to the payment due on August 15, 2020. 6. (i) Upon the failure of Maker to pay any installment of principal or interest due hereunder within ten (10) days after the due date thereof (and the continuation of such failure for five (5) days after written notice from Payee) or (ii) upon the commencement of an involuntary case or the filing of a petition against Maker seeking bankruptcy of Maker under the Federal bankruptcy laws, as now or hereafter constituted, or under any other applicable Federal or state bankruptcy, insolvency, reorganization or other similar law, or seeking the appointment of a receiver, liquidator, custodian, trustee (or similar official) of Maker for any substantial part of its property, or seeking the winding-up or liquidation of its affairs (and such involuntary case or petition is not dismissed within thirty (30) days after the filing thereof), or the -5- commencement by Maker of a voluntary case or the institution by Maker of proceedings to be adjudicated a bankrupt or insolvent, or the consent by it to the institution of bankruptcy or insolvency proceedings against it, under the Federal bankruptcy laws as now or hereafter constituted, or any other applicable Federal or state bankruptcy or insolvency or other similar law, or the consent by Maker to the appointment of or taking possession by a receiver, liquidator, trustee, custodian (or other similar official) of Maker for any substantial part of its property, or the making by it of any assignment for the benefit of creditors, or (iii) if Maker sells any material assets outside of the ordinary course of business (it being understood and agreed that a Capital Event shall not be deemed to be outside of the ordinary course of business) or authorizes any merger, consolidation, dissolution or liquidation of Maker, or (iv) there is any default not cured within any applicable grace period, under the Pledge Agreement, then the entire unpaid balance of principal and all other sums due under this Note shall accelerate and be immediately due and payable. 7. Maker hereby waives presentment for payment, demand, notice of demand, notice of nonpayment or dishonor, protest and notice of protest of this Note, and all other notices in connection with the delivery, acceptance, performance, default, or enforcement of the payment of this Note. Maker agrees that Maker's liability shall be unconditional, without regard to the liability of any other party, and shall not be affected in any manner by any indulgence, extension of time, renewal, waiver or modification granted or consented to by Payee. Maker agrees that additional makers, endorsers, guarantors, or sureties may become parties hereto without notice to Maker or affecting its liability hereunder. Maker hereby waives and releases all errors, defects and imperfections in any proceeding instituted by Payee under the terms of this Note. 8. If any provision of this Note is held to be invalid or unenforceable by a court of competent jurisdiction, the other provisions of this Note shall remain in full force and effect and shall be liberally construed in favor of Payee in order to effect the provisions of this Note. In addition, in no event shall the rate of interest payable under this Note exceed the maximum rate of interest permitted to be charged by applicable law (including the choice of law rules) and any interest paid in excess of the permitted rate shall be refunded to Maker. Such refund shall be made by application of the excessive amount of interest paid against any sums outstanding and shall be applied in such order as Payee may determine. If the excessive amount of interest paid exceeds the sums outstanding, the portion exceeding the said sums outstanding shall be refunded in cash by Payee. Any such crediting or refund shall not cure or waive any default by Maker hereunder. Maker agrees, however, that in determining whether or not any interest payable under this Note exceeds the highest rate permitted by law, any non-principal payment, including, without limitation, fees and late charges, shall be deemed, to the extent permitted -6- by law, to be an expense, fee, premium or liquidated damages, rather than interest. 9. All rights and remedies of Payee under this Note and any applicable law are separate and cumulative, and the exercise of one shall not limit or prejudice the exercise of any other such rights or remedies. The enumeration in this Note of any waivers or consents by Maker shall not be deemed exclusive of any additional waivers or consents by Maker which may be deemed to exist in law or equity. No delay or omission by Payee in exercising any right or remedy shall operate as a waiver thereof. No waiver of any rights and remedies hereunder, and no modification or amendment of this Note, shall be deemed made by Payee unless in writing -7- and duly signed by Payee. Any such written waiver shall apply only to the particular instance specified therein and shall not impair the further exercise of such right or remedy or of any other right or remedy of Payee, and no single or partial exercise of any right or remedy under this Note shall preclude any other or further exercise thereof or any other right or remedy. 10. Maker will reimburse Payee, upon demand, for all costs and expenses incurred in connection with the collection and/or enforcement of this Note, the Pledge Agreement and/or the Guaranty or with respect to any litigation or controversy arising from this Note, the Pledge Agreement and/or the Guaranty (including, without limitation, reasonable attorneys' fees) whether or not suit is actually instituted. 11. Maker agrees that this Note shall be governed by and construed according to the laws of the State of Delaware applicable to contracts wholly performed within such jurisdiction. 12. Payee shall have the absolute right to pledge and/or assign all or, at any time and from time to time, any part of its right, title and interest in, to and under this Note and/or the Pledge Agreement to any one or more of Payee's affiliates and/or to any one or more banks or other institutional lenders (including, without limitation, insurance companies, pension or retirement funds or systems, or regulated entities), or by operation of law; provided, however, this Note is non-negotiable. 13. The obligations of Maker under this Note are secured, limited recourse obligations of Maker, payable solely from the collateral pledged to Payee pursuant to the Pledge Agreement; provided, however, if Maker violates the terms of Section 8 and/or 9 of the Pledge Agreement in any respect, the obligations of Maker under this Note shall be fully recourse obligations of Maker, and any and all assets of Maker will be available for payment of such obligations. IN WITNESS WHEREOF, the undersigned has executed this Note on August 16, 2001 and delivered this Note on August 20, 2001, but this Note is effective as of August 15, 2001. S2 HOLDINGS, INC. BY: -------------------------------------- Alan Casnoff Vice President -8- EX-10.3 5 c21771_ex10-03.txt NON-NEGOTIABLE PROMISSORY NOTE ($1,168,440) EXHIBIT 10.03 NON-NEGOTIABLE, SECURED PURCHASE MONEY PROMISSORY NOTE FOR VALUE RECEIVED, the undersigned, S2 HOLDINGS, INC., a Delaware corporation, with its chief executive offices at 300 Delaware Avenue, Suite 1704, Wilmington, Delaware 19801 ("Maker"), hereby promises to pay to the order of J.G. WENTWORTH S.S.C. LIMITED PARTNERSHIP, a Nevada limited partnership ("Payee"), the original principal amount of One Million One Hundred Sixty-Eight Thousand Four Hundred Forty Dollars ($1,168,440.00), as such original principal amount may be increased or reduced as provided in Paragraph 1 of this Note (which original principal amount, as so increased or reduced, is referred to herein as "principal", "principal amount" or "principal sum"), with interest accrued thereon at the rate of eight percent (8%) per annum, compounded annually (determined by multiplying the outstanding principal of this Note at the beginning of each month by 1/12 of 8%), all in lawful money of the United States of America, and all payable as hereinafter provided, but in no event later than August 15, 2020. This Note is being executed and delivered in accordance with, and is subject to the terms and conditions of, the Purchase Agreement, effective as of August 15, 2001, among Payee, J.G. Wentworth Management Company, Inc. ("JGW"), J.G. Wentworth Receivables II LLC, Receivables II-B LLC, Receivables II-B Holding Company LLC, Maker and DVL, Inc. (the "Purchase Agreement") including, without limitation, the provisions of the Purchase Agreement regarding reductions of the principal of this Note under Sections 1(c) thereof and permitted offsets of the principal of this Note under Article 9 thereof. This Note is referred to in the Purchase Agreement as Note 2. A second note, referred to in the Purchase Agreement as Note 1, is also being executed and delivered in accordance with, and is subject to the terms and conditions of, the Purchase Agreement. Capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in the Purchase Agreement. 1. (i) From and after February 15, 2003, the Purchase Price and the principal amount of the Notes shall, effective as of the first day of each month, be increased PARI PASSU by (i) an amount, if any, equal to eighty-one percent (81%) of (x) the actual cash collected by R-V in the immediately prior month (the "Calculation Month") in excess of (y) the total dollar amount for the Calculation Month of "Performing Scheduled Payments" as of December 31, 2002" based upon the "Performing Cash Collections" column of the "secmodel" as shown on the form, dated June 30, 2001, of "secmodel" attached to the Purchase Agreement as SCHEDULE 1(C)(I)-1, plus (ii) an amount, if any, equal to eighty-one percent (81%) of (x) the rehabilitated claims in the Calculation Month as shown on the monthly servicer reports for R-V (the "Monthly Servicer Reports") for the Calculation Month, samples of which reports are attached to the Purchase Agreement as SCHEDULE 1(C)(I)-2, in excess of (y) the new defaults in the Calculation Month as shown on the Monthly Servicer Reports for the Calculation Month; provided, however, it is understood and agreed that increases shall be made at such 81% level only to the extent there are no then outstanding cumulative reductions in the principal amount of the Notes that were made at a 100% level; otherwise, the increases referred to above in this sentence shall be made at the 100% level, and not at the 81% level, until such cumulative reductions made at the 100% level have been reduced to zero. (ii) From and after February 15, 2003, the Purchase Price and the principal amount of the Notes shall, effective as of the first day of each month, be reduced PARI PASSU by an amount, if any, equal to one hundred percent (100%) of (x) the new defaults in the Calculation Month as shown on the Monthly Servicer Reports for the Calculation Month in excess of (y) the rehabilitated claims in the Calculation Month as shown on the Monthly Servicer Reports for the Calculation Month; provided, however, it is understood and agreed that reductions shall be made at such 100% level only to the extent there are no then outstanding cumulative increases in the principal amount of the Notes that were made at an 81% level; otherwise, the reductions referred to above in this sentence shall be made at the 81% level, and not at the 100% level, until the cumulative increases made at the 81% level have been reduced to zero. (iii) From and after August 15, 2001, the Purchase Price and the principal amount of the Notes shall, on a monthly basis, also be increased PARI PASSU, on a dollar- for-dollar basis, by the amount of any reserve fund(s) existing on or prior to August 15, 2001, which reserve fund(s) have been established under, or as provided in, the Securitization Documents, paid after August 15, 2001 to the Series 2001-A Noteholders. (iv) From and after August 15, 2001, in the event of any "Event of Default" (as defined in the 8/13/01 Indenture) or "Servicer Default" (as defined in the 2001-A Supplement) that results in any suspension of payment to R-V under the 2001-A Supplement, the Purchase Price and the principal amount of the Notes will be reduced PARI PASSU by an amount equal to eighty-one percent (81%) of the net present value of the remaining cash flow attributable to the "Issuer Interest" (as defined in the 8/13/01 Indenture) of R-V, as determined pursuant to the following sentence. The calculation of the net present value of such remaining cash flow payable to R-V will be made using the "cash available" column of the "secmodel" as adjusted on a monthly basis, a copy of which has been furnished, and is acceptable, to Buyer. The discount rate used in the calculation of such net present value will be the discount rate used in the 2001-A Supplement listed on Exhibit A to the Purchase Agreement. After reductions have been made under this Paragraph 1(iv) with respect to any securitization described in the Securitization Documents, -2- no further reductions will be made under Paragraph 1(ii) with respect to such securitization. If the suspension referred to above is reversed for any reason, this clause (iv) shall have no application. (v) On January 15, 2003, (a) the Purchase Price and the principal amount of the Notes shall be reduced PARI PASSU by an amount, if any, equal to eighty-one percent (81%) of the excess of (x) the "Cumulative Defaults at the end of the Collection Period" as shown on the SSC Master Trust V, Series 2001-A December, 2002 servicer report less (y) Five Million Eighteen Thousand Five Hundred Sixty-Three Dollars ($5,018,563.00), or (b) the Purchase Price and the principal amount of the Notes shall be increased PARI PASSU by an amount, if any, equal to eighty-one percent 81% of the excess of (x) Five Million Eighteen Thousand Five Hundred Sixty-Three Dollars ($5,018,563.00) less (y) the "Cumulative Defaults at the end of the Collection Period" as shown on such December, 2002 servicer report. (vi) Net increases under Paragraphs 1(i), (ii) and (v) (that is, increases thereunder less reductions thereunder) shall not exceed Four Million Five Hundred Thousand Dollars ($4,500,000). Eighty-Seven and 16/100ths percent (87.16%) of all such increases and reductions, if any, shall be allocated to Note 1, and the balance shall be allocated to Note 2. All such increases and reductions, if any, shall be endorsed by Payee on a grid or schedule to be attached to the Notes, and Payee is authorized by Maker to make such endorsements. All increases and reductions under this Paragraph 1 shall be made without duplication. (vii) It is understood and agreed that this Note shall not be deemed to have been repaid if the principal reduces to zero under this Paragraph 1 at any time prior to August 15, 2020, but shall be deemed to have been repaid upon payment in full of all principal and accrued interest outstanding on August 15, 2020. 2. Maker shall pay the principal of this Note and accrued interest thereon as follows: Within twenty (20) days after the end of each calendar month, provided Maker receives distributions or other monies in such calendar month with respect to its Class B Interest or immediately after Maker receives such distributions or monies, commencing with September 20, 2001, and until this Note has been paid in full, Maker shall pay to Payee an amount equal to twelve and 84/100ths percent (12.84%) of eighty-one percent (81%) of the Cash Flow (as that term is hereinafter defined) of Maker for such month. In the event of a sale, transfer, financing or other similar transaction relating to the Class B Interest that results in the receipt of cash -3- proceeds by Maker in respect thereto, Maker shall pay to Payee an amount to be agreed to in good faith by Maker and Payee taking into account Payee's contribution to such transaction and the then respective after-tax positions of Maker and Payee and, in such event, future payments under SCHEDULE A attached hereto and made a part hereof shall be appropriately reduced. The foregoing provisions of this Paragraph 2 shall not limit or affect in any manner Payee's rights, and/or Maker's obligations, in the Pledge Agreement; nor, without limiting the foregoing, may the Class B Interest be sold, assigned or otherwise transferred or encumbered, except as permitted in the Pledge Agreement. All payments shall first be applied to the accrued but unpaid interest on this Note and then to the principal outstanding on this Note, until this Note is paid in full and fully amortized. Notwithstanding the foregoing, in no event shall the amount retained by Maker for any such month out of Cash Flow be less than one-twelfth (1/12th) of the amount set forth in said SCHEDULE A, column 1 (in respect of the year of the relevant payment) nor greater than the amount set forth in said SCHEDULE A, column 2 (in respect of the year of the relevant payment). For purposes of this Note, "Cash Flow" means all gross revenues and receipts (including, without limitation, distributions and sales and other proceeds) directly or indirectly attributable to, or received on or with respect to, Maker's interest in R-II-B and/or the Class B Interest (and all proceeds thereof). On or before twenty (20) days after the end of each such month, there shall be delivered by Maker to Payee a statement of the chief financial officer of Maker indicating the Cash Flow for the immediately preceding month set forth in reasonable detail; provided, however, as long as JGW is Master Servicer (as defined in the Securitization Documents referred to in the Purchase Agreement), Maker shall not be required to deliver such statement to Payee. Payee and its representatives shall from time to time have the right to inspect and make copies of the books and records of Maker to determine whether any and all payments by Maker were in the correct amount. The cost of such inspection shall be borne by Payee, except that if such examination reveals that there is an underpayment to Payee of more than five percent (5%) for any month for which the inspection is made, the cost of such inspection shall be paid by Maker to Payee within ten (10) days after demand therefor. Notwithstanding any other provision of this Note, the entire unpaid balance of the principal sum, plus all accrued and unpaid interest thereon, and all other sums, if any, due and payable hereunder shall be paid on August 15, 2020, regardless of the amount of Maker's Cash Flow from time to time. Any interest not paid when due hereunder shall accrue and be added to principal. 3. Subject to the provisions of this Note permitting reduction of, or offset against, principal otherwise due under this Note and to the terms of the Purchase Agreement (including, -4- without limitation, provisions of the Purchase Agreement permitting reduction of, or offset against, principal otherwise due under this Note), the principal sum and all other sums due hereunder shall be payable without set-off or deduction at the address of Payee at Green Valley Executive Suites, 2920 N. Green Valley Parkway, Building 3, Suite 321, Henderson, NV 89014, or at such other place as Payee, from time to time, may designate in writing, and provided Maker has notice of such other place, Maker shall make payment at such other place. 4. At any time after the fifth (5th) anniversary of the execution of the Notes, Maker shall have the right at any time to prepay the Notes in whole (but not in part) provided Maker pays an amount equal to (x) (i) Nine Million One Hundred Thousand Dollars ($9,100,000), plus (ii) the amount of any and all net increases in the principal amount of the Notes under Paragraph 1, plus (iii) all accrued but unpaid interest on the Notes, minus (y) the sum of all principal payments actually paid on the Notes; otherwise, Maker shall not have the right to prepay, and shall not prepay, the Notes, in whole or in part, without Payee's prior written consent in each instance (which consent may be withheld by Payee for any reason or for no reason). 5. If any payment of principal, interest or any other payment due hereunder is not made within ten (10) days when due (including, without limitation, when due as a result of acceleration under Paragraph 6), then, provided Maker receives distributions or other monies with respect to its Class B Interest with respect to the month such payment was due in an amount sufficient to make such payment, the amount of such payment shall, until paid, bear interest at a rate equal to the rate specified in the first paragraph hereof plus two and one-half percent (2.5%); provided, however, the proviso set forth above in this Paragraph 5 shall not apply to the payment due on August 15, 2020. 6. (i) Upon the failure of Maker to pay any installment of principal or interest due hereunder within ten (10) days after the due date thereof (and the continuation of such failure for five (5) days after written notice from Payee) or (ii) upon the commencement of an involuntary case or the filing of a petition against Maker seeking bankruptcy of Maker under the Federal bankruptcy laws, as now or hereafter constituted, or under any other applicable Federal or state bankruptcy, insolvency, reorganization or other similar law, or seeking the appointment of a receiver, liquidator, custodian, trustee (or similar official) of Maker for any substantial part of its property, or seeking the winding-up or liquidation of its affairs (and such involuntary case or petition is not dismissed within thirty (30) days after the filing thereof), or the -5- commencement by Maker of a voluntary case or the institution by Maker of proceedings to be adjudicated a bankrupt or insolvent, or the consent by it to the institution of bankruptcy or insolvency proceedings against it, under the Federal bankruptcy laws as now or hereafter constituted, or any other applicable Federal or state bankruptcy or insolvency or other similar law, or the consent by Maker to the appointment of or taking possession by a receiver, liquidator, trustee, custodian (or other similar official) of Maker for any substantial part of its property, or the making by it of any assignment for the benefit of creditors, or (iii) if Maker sells any material assets outside of the ordinary course of business (it being understood and agreed that a Capital Event shall not be deemed to be outside of the ordinary course of business) or authorizes any merger, consolidation, dissolution or liquidation of Maker, or (iv) there is any default not cured within any applicable grace period, under the Pledge Agreement, then the entire unpaid balance of principal and all other sums due under this Note shall accelerate and be immediately due and payable. 7. Maker hereby waives presentment for payment, demand, notice of demand, notice of nonpayment or dishonor, protest and notice of protest of this Note, and all other notices in connection with the delivery, acceptance, performance, default, or enforcement of the payment of this Note. Maker agrees that Maker's liability shall be unconditional, without regard to the liability of any other party, and shall not be affected in any manner by any indulgence, extension of time, renewal, waiver or modification granted or consented to by Payee. Maker agrees that additional makers, endorsers, guarantors, or sureties may become parties hereto without notice to Maker or affecting its liability hereunder. Maker hereby waives and releases all errors, defects and imperfections in any proceeding instituted by Payee under the terms of this Note. 8. If any provision of this Note is held to be invalid or unenforceable by a court of competent jurisdiction, the other provisions of this Note shall remain in full force and effect and shall be liberally construed in favor of Payee in order to effect the provisions of this Note. In addition, in no event shall the rate of interest payable under this Note exceed the maximum rate of interest permitted to be charged by applicable law (including the choice of law rules) and any interest paid in excess of the permitted rate shall be refunded to Maker. Such refund shall be made by application of the excessive amount of interest paid against any sums outstanding and shall be applied in such order as Payee may determine. If the excessive amount of interest paid exceeds the sums outstanding, the portion exceeding the said sums outstanding shall be refunded in cash by Payee. Any such crediting or refund shall not cure or waive any default by Maker hereunder. Maker agrees, however, that in determining whether or not any interest payable under this Note exceeds the highest rate permitted by law, any non-principal payment, including, without limitation, fees and late charges, shall be deemed, to the extent permitted -6- by law, to be an expense, fee, premium or liquidated damages, rather than interest. 9. All rights and remedies of Payee under this Note and any applicable law are separate and cumulative, and the exercise of one shall not limit or prejudice the exercise of any other such rights or remedies. The enumeration in this Note of any waivers or consents by Maker shall not be deemed exclusive of any additional waivers or consents by Maker which may be deemed to exist in law or equity. No delay or omission by Payee in exercising any right or remedy shall operate as a waiver thereof. No waiver of any rights and remedies hereunder, and no modification or amendment of this Note, shall be deemed made by Payee unless in writing -7- and duly signed by Payee. Any such written waiver shall apply only to the particular instance specified therein and shall not impair the further exercise of such right or remedy or of any other right or remedy of Payee, and no single or partial exercise of any right or remedy under this Note shall preclude any other or further exercise thereof or any other right or remedy. 10. Maker will reimburse Payee, upon demand, for all costs and expenses incurred in connection with the collection and/or enforcement of this Note, the Pledge Agreement and/or the Guaranty or with respect to any litigation or controversy arising from this Note, the Pledge Agreement and/or the Guaranty (including, without limitation, reasonable attorneys' fees) whether or not suit is actually instituted. 11. Maker agrees that this Note shall be governed by and construed according to the laws of the State of Delaware applicable to contracts wholly performed within such jurisdiction. 12. Payee shall have the absolute right to pledge and/or assign all or, at any time and from time to time, any part of its right, title and interest in, to and under this Note and/or the Pledge Agreement to any one or more of Payee's affiliates and/or to any one or more banks or other institutional lenders (including, without limitation, insurance companies, pension or retirement funds or systems, or regulated entities), or by operation of law; provided, however, this Note is non-negotiable. 13. The obligations of Maker under this Note are secured, limited recourse obligations of Maker, payable solely from the collateral pledged to Payee pursuant to the Pledge Agreement; provided, however, if Maker violates the terms of Section 8 and/or 9 of the Pledge Agreement in any respect, the obligations of Maker under this Note shall be fully recourse obligations of Maker, and any and all assets of Maker will be available for payment of such obligations. IN WITNESS WHEREOF, the undersigned has executed this Note on August 16, 2001 and delivered this Note on August 20, 2001, but this Note is effective as of August 15, 2001. S2 HOLDINGS, INC. By: -------------------------------------- Alan Casnoff Vice President -8- EX-10.04 6 c21771_ex10-04.txt GUARANTY AND SURETY AGREEMENT EXHIBIT 10.04 GUARANTY AND SURETY AGREEMENT THIS GUARANTY AND SURETY AGREEMENT, dated as of August 20, 2001 (but effective as of August 15, 2001), by and from DVL, INC., a Delaware corporation (the "Guarantor"), with a place of business at 70 East 55th Street, 7th Floor, New York, NY 10022, in favor of J.G. WENTWORTH S.S.C. LIMITED PARTNERSHIP, a Nevada limited partnership ("Holder"). W I T N E S S E T H: - - - - - - - - - - Guarantor is the sole equity owner of S2 Holdings, Inc., a Delaware corporation (the "Company"). The Company has issued to Holder (i) a promissory note ("Note 1") in the original principal amount of Seven Million Nine Hundred Thirty-One Thousand Five Hundred Sixty Dollars ($7,931,560.00), subject to adjustment as provided in Note 1, payable to the order of Holder, and (ii) a promissory note ("Note 2") in the original principal amount of One Million One Hundred Sixty-Eight Thousand Four Hundred Forty Dollars ($1,168,440.00), subject to adjustment as provided in Note 2, payable to the order of Holder (Note 1 and Note 2, and any modifications, replacements and/or renewals of either or both thereof, are hereafter referred to collectively as the "Notes"). All liabilities and obligations of the Company to Holder and/or Holder's successors and assigns under the Notes, both now existing and hereafter arising, are hereinafter referred collectively to as the "Obligations". Guarantor will benefit from the transactions pursuant to which the Obligations are incurred, and Holder would be unwilling to cause certain of its subsidiaries to sell certain assets to the Company without having received this Guaranty. NOW, THEREFORE, in consideration of the foregoing and intending to be legally bound, Guarantor hereby agrees as follows: 1. (a) Guarantor hereby unconditionally and irrevocably guarantees to Holder the punctual payment and performance of all of the Obligations, subject to the provisions of Sections 1(b) and (e). All payments required to be made by Guarantor hereunder shall be made without set-off or deduction. Any sum due by Guarantor under any provisions of this Guaranty not paid within five (5) business days after such sum is required to be paid by the terms hereof shall thereafter bear interest until paid at the rate which is two and one-half percent (2.5%) per annum in excess of the prime rate from time to time of First Union National Bank or, if less, the highest rate permitted by applicable law. (b) Notwithstanding any other provision of this Guaranty (except Section 1(e)), Guarantor's liability hereunder with respect to the payment of the Obligations shall not exceed in the aggregate at any time ten percent (10%) of an amount equal to (x) Nine Million One Hundred Thousand Dollars ($9,100,000.00) minus (y) the sum of all principal payments actually paid on the Notes; provided, however, Guarantor's liability hereunder with respect to the payment of the Obligations shall never be less in the aggregate than the lesser of (1) Ninety-One Thousand Dollars ($91,000.00), and (2) an amount equal to (x) Nine Million One Hundred Thousand Dollars ($9,100,000.00) minus (y) the sum of all principal payments actually paid on the Notes. Eighty-Seven and 16/100ths percent (87.16%) of all payments made by Guarantor under this Guaranty shall be allocated to, and paid to the Holder of, Note 1, and the balance shall be allocated to, and paid to the Holder of, Note 2. (c) Notwithstanding any other provision of this Guaranty (except Section 1(e)), Guarantor shall pay to Holder on September 15, 2022 an amount equal to ten percent (10%) of an amount equal to (x) Nine Million One Hundred Thousand Dollars ($9,100,000.00) minus (y) the sum of all principal payments actually paid on the Notes. (d) Guarantor acknowledges that (i) the principal amount of the Notes may increase or decrease from time to time as provided in the Notes, (ii) Guarantor's obligations under this Guaranty shall continue and remain in full force and effect until final payment of all principal and interest under the Notes, and (iii) Guarantor's obligations under Section 1(c) are (A) absolute and unconditional regardless of the exact principal amount of the Notes (or increases or reductions thereto) from time to time and (B) a covenant independent of any other covenant of Guarantor under this Guaranty. (e) Notwithstanding any other provision of this Guaranty, (i) Guarantor's liability under this Guaranty shall not exceed Nine Hundred Ten Thousand Dollars ($910,000.00) in the aggregate, and (ii) except in the event that the Company fails to make monthly payments to Holder pursuant to Paragraph 2 of the Notes (or either of them) upon the receipt of distributions or other monies in a calendar month with respect to the Company's Class B Interest (all as described in said Paragraph 2), Holder may not make a demand for payment under this Guaranty until September 15, 2022 (it being understood by the parties hereto that if, and only if, an event described in the foregoing clause (ii) occurs, shall Holder have the right to make successive demands for payment under this Guaranty in respect of such monthly payment obligations described in Paragraph 2 of the Notes prior to September 15, 2022). (f) Notwithstanding the foregoing, if, as a result of any bankruptcy, insolvency, reorganization or any other proceeding, Holder is required to give back or otherwise surrender any amounts received by Holder on account of the principal amount of the Obligations, then the reductions set -2- forth above in Guarantor's aggregate liability shall not apply to such amounts until such amounts have, in fact, been indefeasibly paid to, and received by, Holder by court order. (g) Reductions in the principal amounts of the Notes (other than by payments made by, or on behalf of, the Company thereunder) shall not constitute payments on the Notes for the purpose of Sections 1 (a) through (f). 2. Guarantor hereby, to the fullest extent permitted by law waives any rights Guarantor may have by reason of any increases or reductions in the principal amount of the Notes (or either of them), or any forbearance, modification, waiver, renewal or extension which Holder may grant, or to which Holder and Company may agree, with respect to any agreement or the Obligations, waives notice of acceptance of this Guaranty, waives presentment, demand, notice or protest of any kind, waives giving of any notice of default or other notice to, or making any demand on, anyone (including, without limitation, Company and Guarantor) liable in any manner for the payment of any Obligations. 3. The obligations and agreements of Guarantor under this Guaranty are primary, absolute, independent, irrevocable and unconditional. This is an agreement of suretyship as well as of guaranty, and without being required to proceed first against Company or any other person or entity, Holder may proceed directly against Guarantor (without the necessity of joining Company in any action brought against Guarantor) whenever Company fails to make any payment when due relating to the Obligations or fails to perform any Obligation now or hereafter owed to Holder (subject to the limitations of Sections 1(b) and 1(e)). This Guaranty shall remain in full force and effect until all Obligations have been indefeasibly paid in full to Holder and performed and until all such sums or other things of value received by Holder are not subject to rescission or repayment upon the bankruptcy, insolvency or reorganization of Company, and if any such sums are rescinded or repaid, then, to such extent, Company shall not, for the purposes of this Guaranty, be deemed to have paid such amounts or things of value, and Guarantor shall remain liable for the payment thereof (subject to the limitations of Sections 1(b) and 1(e)). 4. The obligations of Guarantor under this Guaranty shall remain in full force and effect, and shall not be negated or impaired, irrespective of (a) the impossibility or the illegality of performance on the part of Company of the Obligations, (b) any defense that may arise by reason of the incapacity or lack of authority of Company or Guarantor or the failure of Holder to file or enforce a claim against the estate of Company in any bankruptcy or other proceeding, (c) the involvement of Company in any bankruptcy, reorganization, insolvency or any other -3- proceedings, or (d) any other circumstance, occurrence or condition, whether similar or dissimilar to any of the foregoing, which might otherwise constitute a legal or equitable defense, discharge or release of a guarantor or surety. 5. Guarantor hereby irrevocably waives any and all rights of subrogation, indemnification and contribution and any other rights Guarantor may have to make any claim against Company with respect to any sums which Guarantor may pay or be required to pay to Holder or any other party pursuant to this Guaranty. 6. Guarantor represents and warrants that (a) Guarantor has the full power, authority and legal right to enter into, execute and deliver this Guaranty; and (b) this Guaranty is a valid and binding obligation of Guarantor, and is fully enforceable against Guarantor in accordance with its terms. 7. Any notice, demand, request or other communication which either party may desire to give to the other party with respect to this Guaranty shall be deemed sufficient if in writing and mailed by certified or registered mail, postage prepaid, addressed if (a) to Guarantor at the address of Guarantor set forth in the heading of this Guaranty or such other address of which Holder has received any notice pursuant to the provisions of this Section 7, and (b) to Holder at Green Valley Executive Suites, 2920 N. Green Valley Parkway, Building 3, Suite 321, Henderson, NV 89014, or such other address of which Guarantor has received any notice pursuant to the provisions of this Section 7. No change of address by Guarantor shall be effective as against Holder unless Guarantor shall have advised Holder of the change of address by a written notice thereof mailed to Holder by registered or certified mail, return receipt requested, postage prepaid, and Holder shall have actually received such notice. No change of address by Holder shall be effective as against Guarantor unless Holder shall have advised Guarantor of the change of address by a written notice thereof mailed to Guarantor by registered or certified mail, return receipt requested, postage prepaid, and Guarantor shall have actually received such notice. 8. All rights and remedies of Holder under this Guaranty or law are separate and cumulative, and the exercise of one shall not limit or prejudice the exercise of any other such rights or remedies. The enumeration in this Guaranty of any waivers or consents by Guarantor shall not be deemed exclusive of any additional waivers or consents by Guarantor which may be deemed to exist in law or equity. No delay or omission by Holder in exercising any such right or remedy shall operate as a waiver thereof. No waiver of any rights and remedies hereunder, and no modification or amendment of this Guaranty shall be deemed made by Holder unless in writing and duly signed by Holder. Any such -4- written waiver shall apply only to the particular instance specified therein and shall not impair the further exercise of such right or remedy or of any other right or remedy of Holder, and no single or partial exercise of any right or remedy under this Guaranty shall preclude any other or further exercise thereof or any other right or remedy. 9. Guarantor will reimburse Holder, upon demand, for all expenses incurred in connection with the collection and/or enforcement of this Guaranty (including, without limitation, reasonable attorneys' fees) whether or not suit is actually instituted. 10. This Guaranty shall be a continuing Guaranty and shall be binding upon Guarantor, and Guarantor's successors and assigns, and shall inure to the benefit of Holder and its successors and permitted assigns as provided in the Note. Notwithstanding the foregoing, Guarantor may not assign or delegate any of its obligations under this Guaranty, and any such assignment or delegation shall be void AB INITIO. 11. If any provision of this Guaranty is held to be invalid or unenforceable by a court of competent jurisdiction, the other provisions of this Guaranty shall remain in full force and effect and shall be liberally construed in favor of Holder in order to effect the provisions of this Guaranty. 12. This Guaranty shall be governed by, and construed according to the laws of, the State of Delaware applicable to contracts wholly performed within such jurisdiction. 13. Guarantor shall, from time to time upon request by Holder, execute, acknowledge and deliver to Holder, promptly after such request and at no expense to Holder, such other documents and instruments as Holder shall request in order to effectuate the provisions of this Guaranty. -5- IN WITNESS WHEREOF, Guarantor has executed and delivered this Guaranty as of the date first above written. DVL, INC. By: ------------------------------------- Name: Title: AFFIDAVIT Commonwealth of Pennsylvania County of Philadelphia On this 16th day of August, 2001, personally appeared before me Alan Casnoff, who acknowledged that he executed the foregoing Guaranty and Surety Agreement for the purposes therein stated on behalf of DVL, Inc. as its President, and was authorized to do so. Notary Public Holder hereby joins in this Guaranty for the sole purpose of ratifying and confirming its consent to the provisions contained in Section 7 above. J.G. WENTWORTH S.S.C. LIMITED PARTNERSHIP, by its sole general partner: J.G. WENTWORTH STRUCTURED SETTLEMENT FUNDING CORPORATION By: ------------------------------------ Name: ------------------------------ Title: ------------------------------ EX-10.05 7 c21771_ex10-05.txt PLEDGE AGREEMENT EXHIBIT 10.05 PLEDGE AGREEMENT THIS PLEDGE AGREEMENT (the "PLEDGE"), dated as of August 20, 2001 (but effective as of August 15, 2001), by S2 HOLDINGS, INC., a Delaware corporation ("PLEDGOR"), for the benefit of J.G. WENTWORTH S.S.C. LIMITED PARTNERSHIP, a Nevada limited partnership ("PLEDGEE"). RECITALS WHEREAS, Pledgor, Pledgee and certain other parties have entered into a certain Purchase Agreement, effective as of August 15, 2001 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the "Purchase Agreement"); WHEREAS, pursuant to the Purchase Agreement, Pledgor has agreed to execute and deliver two promissory notes, each dated the date hereof, in favor of Pledgee (as the same may be replaced, increased, renewed, amended, restated, supplemented or otherwise modified from time to time, the "Notes"); WHEREAS, it is a condition precedent to the sale of the Class B Interest (as defined in the Purchase Agreement) to Pledgor that Pledgor shall have executed and delivered this Pledge in order to grant the security interest contemplated hereby; NOW, THEREFORE, in consideration of the promises set forth therein and herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Pledgor, intending to be legally bound, agrees as follows: 1. DEFINITIONS. For purposes of this Pledge, 1.1 "AFFILIATE" means, with reference to any specified Person, any other Person controlling or controlled by or under common control with such specified Person; PROVIDED, that for purposes of this Agreement when used with respect to DVL, Inc. or any of its direct or indirect subsidiaries or Affiliates, any directors of such Persons shall also be deemed "Affiliates" of any such Person. For the purposes of this definition, "control" when used with reference to any specified Person means the power to direct the management and policies of such specified Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. 1.2 "AFFILIATED ENTITY" shall have the meaning ascribed to such term in SECTION 8.8. 1.3 "CODE" means the Uniform Commercial Code as adopted by the State of Delaware, as the same may be amended from time to time. 1.4 "COLLATERAL" means (i) the LLC Interest, (ii) all distributions, cash, securities, certificates and property issued, paid, declared and/or made (or to be issued, paid, declared and/or made) in connection with the LLC Interest, or any portion thereof, (iii) all cash, securities, certificates and other property paid, issued and/or distributed (or to be paid, issued and/or distributed) to or for the benefit of Pledgor in exchange, redemption or substitution for the LLC Interest, or any portion thereof, (v) all other cash, securities and property paid, issued and/or distributed (or to be paid, issued and/or distributed) to or for the benefit of Pledgor as a consequence of Pledgor's ownership of the LLC Interest, or any portion thereof, and (vi) all proceeds of the foregoing. 1.5 "EVENT OF DEFAULT" means any and all events described in SECTION 10. 1.6 "INDEBTEDNESS" means all obligations and indebtedness of Pledgor to Pledgee under the Notes, all obligations of Pledgor to reimburse Pledgee for payments made by Pledgee at any time or from time to time for the preservation and/or protection of the Collateral, and all obligations or undertakings under Section 10 of the Purchase Agreement including, without limitation, all obligations of Pledgor under this Pledge or otherwise to immediately pay to Pledgee all interest and other sums payable in connection with any of the foregoing. For the avoidance of doubt, the term "Indebtedness" shall not include Indebtedness (as defined in the Pledge Agreement, dated April 27, 2001, made by Pledgor in favor of Pledgee (the "April 2001 Pledge Agreement")). 1.7 "ISSUER", "PROCEEDS" and "SECURITY" shall have the meanings given such terms in the Code. 1.8 "LLC INTEREST" means Pledgor's entire Class B Interest in Receivables II-B LLC (THE "LLC"), a Nevada limited liability company (being a ninety-nine and nine-tenths percent (99.9%) equity interest in the LLC), including, without limitation, all rights in, and claims to, any and all profits, losses, distributions and other benefits of any nature relating to such interest under the Nevada Limited Liability Company Act, as amended, and the LLC's Articles of Organization and Operating Agreement, each as amended (as so amended, the "Operating Documents") including, without limitation, all of Pledgor's right, title and interest in and to the LLC. 1.9 "NOTES" shall have the meaning ascribed to such term in the Recitals. 1.10 "PERSON" means any individual, corporation, partnership, joint venture, limited liability company association, joint-stock company, trust, unincorporated organization, Governmental Authority or any other entity of similar nature. 1.11 "PERMITTED ENCUMBRANCES" means: (a) liens imposed by law for taxes that are not yet due or are being contested in good faith by appropriate proceedings provided that (i) adequate reserves with respect thereto are maintained by Pledgor in accordance with generally accepted accounting principles, (ii) such contest shall suspend the collection thereof, and (iii) neither all nor any part of the Collateral would be in danger of being sold, forfeited or lost; (b) carriers', warehousemen's, mechanics', repairmen's and other like liens imposed by law, arising in the ordinary course of business that are not overdue for a period of more than thirty (30) days or that are being contested in good faith and by appropriate proceedings provided that (i) such contest shall suspend the collection thereof, and (ii) neither all nor any part of the Collateral would be in danger of being sold, forfeited or lost; (c) pledges or deposits made in the ordinary course of business in compliance with workers' compensation, unemployment insurance and other social security laws or regulations; (d) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business; and -2- (e) easements, zoning restrictions rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure monetary obligations and do not materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the business of the Pledgor; PROVIDED that the term "Permitted Encumbrances" shall not include any lien securing any indebtedness. 2. SECURITY INTEREST. Pledgor hereby pledges and grants to Pledgee a first priority security interest in, pledge of and a lien, on the Collateral. 3. EFFECT OF GRANT. The security interest, pledge and lien on the Collateral granted to Pledgee by Pledgor hereunder shall not be rendered void by the fact that no Indebtedness exists as of a particular date, but shall continue in full force and effect until (i) all Indebtedness has been paid in full, (ii) Pledgee has no agreement or commitment outstanding pursuant to which Pledgee may extend credit to or on behalf of Pledgor and (iii) Pledgee has executed and delivered termination statements and/or releases and has delivered the Collateral to Pledgor. 4. OBLIGATIONS SECURED. The Collateral and the continuing security interest granted therein shall secure all Indebtedness. IT IS THE EXPRESS INTENTION OF PLEDGOR THAT THE COLLATERAL SHALL SECURE ALL PLEDGOR'S EXISTING AND FUTURE OBLIGATIONS TO PLEDGEE AND ANY AND ALL PERMITTED SUCCESSORS AND ASSIGNS OF PLEDGEE UNDER THE NOTES, OR OTHERWISE (OTHER THAN THE OBLIGATIONS OF PLEDGOR TO PLEDGEE SECURED PURSUANT TO THE APRIL 2001 PLEDGE AGREEMENT). FOR THE AVOIDANCE OF DOUBT, IT IS UNDERSTOOD AND AGREED THAT THE COLLATERAL (AS DEFINED IN THE APRIL 2001 PLEDGE AGREEMENT) SHALL NOT SECURE THE OBLIGATIONS OF PLEDGOR TO PLEDGEE SECURED PURSUANT THIS PLEDGE AGREEMENT. 5. DELIVERY. All original certificates and instruments, if any, representing or evidencing the Collateral, or any portion thereof, shall be delivered to and held by or on behalf of Pledgee pursuant hereto and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignments in blank, all in form and substance satisfactory to Pledgee and with guaranteed signature(s). 6. REPRESENTATIONS AND WARRANTIES. Pledgor hereby represents and warrants as follows, which representations and warranties shall be true and correct as of the date hereof, at the time of the creation of any Indebtedness and until the Indebtedness has been paid in full: 6.1 TITLE TO COLLATERAL. The Collateral is and will be owned by Pledgor, free and clear of all liens and other encumbrances of any kind (including liens or other encumbrances upon properties acquired or to be acquired under conditional sales agreements or other title retention devices), excepting only liens in favor of Pledgee and the Permitted Encumbrances. Pledgor will defend the Collateral against any claims of all persons or entities other than Pledgee. 6.2 DUE AUTHORIZATION AND ISSUANCE. The Collateral consisting of certificates, if any, has been duly authorized and issued to or for the benefit of Pledgor by the respective issuer and is outstanding, fully paid and non-assessable. The LLC Interest is not presently evidenced by a certificate or certificates. -3- 6.3. NO VIOLATION. The execution, delivery and performance by Pledgor of this Pledge and the Notes will not violate or constitute a default under any indenture, note, loan, credit agreement or any other document or instrument to which Pledgor is a party or by which Pledgor is bound, or any judgment or order of any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign. 6.4 GOVERNMENTAL CONSENTS. No consent, approval or authorization of or designation, declaration or filing with any governmental authority by Pledgor is required in connection with the execution, delivery or performance by Pledgor of this Pledge or the consummation of the transactions contemplated hereby. 6.5 PENDING LITIGATION OR PROCEEDINGS. There are no judgments outstanding or actions, suits or proceedings pending or, to the best of Pledgor's knowledge, threatened against or affecting Pledgor or the Collateral, or any portion thereof, at law or in equity or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign. 6.6 TAXES. Pledgor has filed all tax returns which Pledgor is required to file and has paid, or made provision for the payment of, all taxes which have or may have become due pursuant to such returns or pursuant to any assessment received by Pledgor except such taxes, if any, as are being contested in good faith and as to which adequate reserves have been provided. Such tax returns are complete and accurate in all respects. Pledgor does not know of any proposed additional assessment or basis for any assessment of additional taxes. 6.7 ACCURACY OF REPRESENTATIONS AND WARRANTIES. No representation or warranty by Pledgor contained herein or in any certificate or other document furnished by Pledgor pursuant hereto or in connection herewith fails to contain any statement of material fact necessary to make such representation or warranty not misleading in light of the circumstances under which it was made. There is no fact which Pledgor knows or should know and has not disclosed to Pledgee, which does or may materially and adversely affect Pledgor, or the Collateral, or any portion thereof. 6.8 PURCHASE AGREEMENT REPRESENTATIONS AND WARRANTIES. The representations or warranties by Pledgor contained in the Purchase Agreement are true and correct. 6.9 CHIEF EXECUTIVE OFFICE. Pledgor's chief executive office is located at 300 Delaware Avenue, Suite 1704, Wilmington, Delaware 19801. 7. COVENANTS. Pledgor covenants and agrees that until the Indebtedness has been paid in full, Pledgor shall: 7.1 PAYMENT OF OBLIGATIONS. Pay, or cause to be paid, when due all amounts of Indebtedness payable by Pledgor to Pledgee. 7.2 SALE OF COLLATERAL. Not sell, lease, transfer, assign or otherwise dispose of the Collateral (or any portion thereof or interest therein), directly or indirectly. -4- 7.3 CREATION OF LIENS. Not create, incur or permit to exist any mortgage, pledge, encumbrance, lien, security interest or charge of any kind on the Collateral (or any portion thereof or interest therein), except as contemplated hereby and the Permitted Encumbrances. 7.4 ADDITIONAL DOCUMENTS AND FUTURE ACTIONS. Pledgor will, at its sole cost, take such actions and provide Pledgee from time to time with such agreements, financing statements and additional instruments, documents or information as Pledgee may in its reasonable discretion deem necessary or advisable to perfect, protect and maintain the security interests in the Collateral, or any portion thereof, to permit Pledgee to protect its interest in the Collateral, or any portion thereof, or to carry out the terms of this Pledge and the Notes. Pledgor hereby authorizes and appoints Pledgee as its attorney-in-fact, with full power of substitution, to take such actions as Pledgee may reasonably deem advisable to protect the Collateral and its interests thereon and its rights hereunder, to execute on Pledgor's behalf and file at Pledgor's expense financing statements, and amendments thereto, in those public offices reasonably deemed necessary or appropriate by Pledgee to establish, maintain and protect a continuously perfected security interest in the Collateral, including, without limitation, to receive, endorse and collect all certificates, instruments and securities made payable to or issued to Pledgor representing any dividend, interest, or other distribution in respect of the Collateral, or any portion thereof, and to execute on Pledgor's behalf such other documents and notices as Pledgee may reasonably deem advisable to protect the Collateral and Pledgee's interests therein and Pledgee's rights hereunder. Such power, being coupled with an interest, is irrevocable. Pledgor irrevocably authorizes the filing of a carbon, photographic or other copy of this Agreement, or of a financing statement, as a financing statement and agrees that such filing is sufficient as a financing statement. 7.5 REQUESTED INFORMATION. With reasonable promptness, deliver to Pledgee all such other data and information in respect of the financial condition and affairs of Pledgor and the value of the Collateral, as Pledgee may reasonably request from time to time. 8. ADDITIONAL AFFIRMATIVE COVENANTS. So long as any Indebtedness shall remain unpaid, Pledgor will, unless Pledgee shall otherwise consent in writing: 8.1 COMPLIANCE WITH LAW. Comply in all material respects with all applicable laws, rules, regulations and orders applicable to Pledgor, its business and properties and the Collateral, such compliance to include, without limitation, paying before the same become delinquent all taxes, assessments and governmental charges imposed upon it or upon its property, except to the extent contested in good faith provided that (i) adequate reserves with respect thereto are maintained by Pledgor in accordance with generally accepted accounting principles, (ii) such contest shall suspend the collection thereof, and (iii) neither all nor any part of the Collateral would be in danger of being sold, forfeited or lost. 8.2 REPORTING REQUIREMENTS. Furnish to Pledgee a copy of all material accounts, books, records and other information respecting the business, condition or operations, financial or otherwise, of Pledgor as Pledgee may from time to time reasonably request. 8.3 EXISTENCE AND RIGHTS. Preserve and keep in full force and effect its existence, rights, permits, patents, franchises, licenses, trademarks and trade names and obtain and preserve its qualification to do business as a foreign entity in each jurisdiction in which such qualification is or shall be necessary to protect the Collateral and the validity and enforceability of this Pledge. 8.4 BOOKS AND RECORDS. Maintain proper and complete financial and accounting books and records. -5- 8.5 PERFORMANCE AND COMPLIANCE WITH MATERIAL AGREEMENTS. Perform and comply with each of the provisions of all material agreements to which it is a party, or is otherwise bound or affected, other than the Buyer Transaction Documents, as defined in the Purchase Agreement (as defined, in turn, in the April 2001 Pledge Agreement). 8.6 LITIGATION. Give prompt notice to Pledgee of all litigation or proceedings affecting Pledgor and/or the Collateral. 8.7 CHANGE OF BUSINESS LOCATION. Notify Pledgee at least thirty (30) days in advance of (a) any change in the location of the principal place of business and chief executive office of Pledgor, and the office where Pledgor keeps its records, (b) the establishment of any new, or the discontinuance of any existing, place of business, or (c) any change to its name or of the use of any tradenames, fictitious names, assumed names or "doing business as" names, and, in each case, execute, deliver, and file (and, if necessary, pay related filing fees and taxes) all such documents as may be necessary or advisable in the opinion of Pledgee and Pledgee's legal counsel to continue to perfect and protect the liens of Pledgee in the Collateral (including, without limitation, UCC financing statements). Notwithstanding anything contained herein to the contrary, Pledgor may not move its principal place of business to a location outside of the United States. 8.8 MAINTENANCE OF SEPARATE MEMBER. Pledgor will maintain at least one (1) independent director, not otherwise (and has not at any time during the last five years otherwise been) an officer, director, employee, shareholder, partner, holder of any interest, creditor, trustee, liquidator, member, manager, conservator or receiver of or for DVL, Inc., any Affiliate of DVL, Inc. (including any direct or indirect subsidiary of DVL, Inc.), or any other Affiliate of Pledgor (unless so acting in a similar independent role), or any relative or related entity of any of the foregoing (DVL, Inc., such Affiliates and such relatives and related entities being defined herein individually as an "Affiliated Entity" and collectively as "Affiliated Entities"), and is otherwise acceptable to Pledgee. 8.9 MAINTENANCE OF SEPARATE EXISTENCE. Pledgor shall take all reasonable steps to continue its identity as a separate legal entity and to make it apparent to all Persons that its assets and liabilities are distinct from those of each of the Affiliated Entities or any other Person, and that it is not a division of any of the Affiliated Entities or any other Person. In that regard, and without limiting the foregoing in any manner, Pledgor shall: (a) maintain its existence and make independent decisions with respect to its daily operations and business affairs; (b) maintain separate and clearly delineated office space owned by it or evidenced by a written lease or sublease (even if located in an office owned or leased by, or shared with, another Affiliated Entity); (c) maintain its assets in a manner which facilitates their identification and segregation from those of any of the Affiliated Entities; (d) maintain a separate telephone number which will be answered only in its own name and separate stationery and other business forms; -6- (e) conduct all intercompany transactions with the Affiliated Entities on an arm's-length basis; (f) not guarantee any obligation of any of the Affiliated Entities, nor have any of its obligations guaranteed by any Affiliated Entity, except as provided in the Guaranty (as defined in the Purchase Agreement) or the Guaranty, dated April 27, 2001, made by DVL, Inc., in favor of Pledgee, or hold itself out as responsible for the debts of any Affiliated Entity or for the decisions or actions with respect to the business and affairs of any Affiliated Entity, nor seek or obtain credit or incur any obligation to any third-party based upon the creditworthiness or assets of any Affiliated Entity, or any other Person; (g) not permit the commingling or pooling of its funds or other assets with the assets of any Affiliated Entity; (h) maintain separate deposit and other bank accounts to which no Affiliated Entity has any access; (i) maintain financial records which are separate from those of the Affiliated Entities; (j) compensate (either directly or through reimbursement of allocable share of any shared expenses) all employees, consultants and agents, and Affiliated Entities, to the extent applicable, for services provided to Pledgor by such employees, consultants and agents or Affiliated Entities, in each case, from Pledgor's own funds; (k) have agreed with each of the relevant Affiliated Entities to allocate among themselves shared overhead and corporate operating services and expenses (including, without limitation, the services of shared employees, consultants and agents and reasonable legal and auditing expenses) on the basis of actual use or the value of services rendered, and otherwise on a basis reasonably related to actual use or the value of services rendered; (l) pay for its own account for accounting and payroll services, rent, lease and other expenses (or its allocable share of any such amounts provided by one or more Affiliated Entity) and not have such operating expenses (or Pledgor's allocable share thereof) paid by any of the Affiliated Entities, provided, that DVL, Inc. shall be permitted to pay the initial organizational expenses of Pledgor; (m) maintain adequate capitalization in light of its business and purpose; (n) conduct all of its business (whether in writing or orally) solely in its own name through its duly authorized officers, employees and agents; (o) not make or declare any dividends or other distributions of cash or property to the holders of its equity securities or make redemptions or repurchases of its equity securities, in either case, on a periodic basis any more frequently than monthly or otherwise, in certain other irregular cases, in accordance with appropriate legal formalities and consistent with sound business judgment; and all such distributions, redemptions or repurchases shall only be permitted hereunder to the extent that it is not violative of any applicable law and that no Event of Default then exists or would result therefrom; -7- (p) maintain at least one employee (which employee may be shared with an Affiliate pursuant to a written agreement allocating the compensation and other remuneration and benefits for such employee as among such parties) in charge of day-to-day operations of Pledgor; and (q) otherwise practice and adhere to legal formalities such as complying with its constitutive documents and member and director resolutions, the holding of regularly scheduled meetings of shareholders and directors, and maintaining complete and correct books and records and minutes of meetings and other proceedings of its shareholders and directors. 9. ADDITIONAL NEGATIVE COVENANTS. So long as any Indebtedness shall remain unpaid Pledgor will not, without the written consent of Pledgee: 9.1 BUSINESS ACTIVITIES. Conduct any business other than as contemplated in its charter. 9.2 LIABILITIES. Create, incur, assume or suffer to exist any liabilities, indebtedness and/or obligations (contingent or otherwise including, without limitation, by way of guarantee, suretyship or endorsement (other than endorsements of negotiable instruments for deposit or collection in the ordinary course of business)), except in favor of Pledgee. 9.3 LOANS AND ADVANCES. Make, or suffer to exist, any loans or advances to, or extend credit to, any Person. 9.4 DIVIDENDS. ETC. If any Event of Default shall have occurred and be continuing, declare or make any dividend payment or other distribution of assets, properties, cash, rights, obligations or securities on account of any interest in Pledgor, or purchase, redeem or otherwise acquire for value any interest in DVL, Inc. or any other Affiliated Entity, or any rights or options to acquire any such interest. 9.5 MERGERS, ETC. Merge or consolidate with or into, or convey, transfer, 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, or acquire all or substantially all of the assets of, any Person, or acquire any Person. 9.6 DISSOLUTION. Terminate, wind-up, liquidate or dissolve its affairs (or suffer the same). 9.7 INVESTMENTS. Make, or suffer to exist, any investment of any kind or in any manner in any Person, by purchase of stock or securities, contributions to capital, property transfer or otherwise, or acquire or agree to acquire by any manner any business or Person. 9.8 EXTRAORDINARY TRANSACTIONS. Enter into or agree to enter into any transaction that is not in the ordinary course of business. -8- 9.9 CHANGE OF BUSINESS, LEGAL FORM, CAPITAL STRUCTURE OR JURISDICTION. (a) Change the nature of its business or enter into a new business, (b) change the legal form of its business, (c) make any change in the capital structure thereof which could reasonably be expected to be detrimental to the interests of Pledgee, or (d) change its jurisdiction of organization. 9.10 CHANGE IN ORGANIZATIONAL DOCUMENTS. Amend, modify or otherwise change any of the terms or provisions in its organizational documents as in effect on the date hereof, except for the amendment set forth on SCHEDULE 1 attached hereto (it being understood and agreed that such amendment shall not constitute a default under the Buyer Transaction Documents, as defined in the Purchase Agreement (as defined, in turn, in the April 2001 Pledge Agreement)). 9.11 BANKRUPTCY PROCEEDINGS. (a) Commence any case, proceeding or other action under any existing or future bankruptcy, insolvency or similar law seeking to have an order for relief entered with respect to itself, or seeking reorganization, arrangement, adjustment, wind-up, liquidation, dissolution, composition or other relief with respect to itself or its debts, (b) seek appointment of a receiver, trustee, custodian or other similar official for itself or any part of its assets, (c) make a general assignment for the benefit of creditors, (d) take any action in furtherance of, or consenting to or acquiescing in, any of the foregoing, and/or (e) initiate or support the filing of a motion in any bankruptcy or other insolvency proceedings involving any of its Affiliates to substantively consolidate itself with any such Person. 9.12 TRANSACTIONS WITH AFFILIATES. Enter into, or be a party to, any transaction with any of its Affiliates, except any transactions (including, without limitation, the lease of office space or computer equipment or software by Pledgor from an Affiliate and the sharing of employees and employee resources and benefits) (A) in the ordinary course of business of both Pledgor and that Affiliate, and (B) upon fair and reasonable terms (and, to the extent material, pursuant to written agreements) that are consistent with market terms for any such transaction. 9.13 CLASSIFICATION ELECTION. Elect to be classified as an association taxable as a corporation for federal, state, local or other tax purposes. 10. EVENTS OF DEFAULT. The occurrence of any one or more of the following events shall constitute an "Event of Default" hereunder: 10.1 The occurrence of any event of default or default under the Notes after expiration of any applicable notice and/or grace period permitted in the Notes. 10.2 The failure of Pledgor to pay any amount of principal or interest on the Indebtedness on the date on which such payment is due, whether on demand, at the stated maturity, or due date thereof, or by reason of any requirement for prepayment thereof, by acceleration or otherwise. 10.3 The failure of Pledgor to duly perform or observe any obligation, covenant or agreement on its part contained herein and such failure shall continue for a period of thirty (30) days following written notice from Pledgee. 10.4 Any representation or warranty of Pledgor herein is discovered to be untrue in any material respect or any statement, certificate or data furnished by Pledgor pursuant hereto is discovered to be untrue in any material respect as of the date as of which the facts therein set forth are stated or certified -9- and, if the same is susceptible of cure, the failure of Pledgor to cure the same for a period of thirty (30) days following written notice from Pledgee. 11. RIGHTS OF PLEDGOR AND PLEDGEE. 11.1 BEFORE EVENT OF DEFAULT. Prior to the occurrence of an Event of Default: (a) VOTING. Pledgor shall be entitled to exercise any and all voting and other consensual rights arising under the Collateral, or any portion thereof, for any purpose not prohibited by the terms of the Notes. (b) DISTRIBUTIONS. Pledgor shall be entitled to receive and retain any and all distributions and interest, declared, distributed or paid, with respect to the Collateral, or any portion thereof, provided, however, that any and all (i) distributions and interest paid or payable other than in cash; (ii) instruments and other property received, receivable or otherwise distributed with respect to, or in exchange for, the Collateral, or any portion thereof; (iii) distributions paid or payable in cash with respect to the Collateral, or any portion thereof, in connection with (1) a partial or total liquidation or dissolution, or (2) a reduction of capital, capital surplus or paid-in-surplus; and (iv) cash paid, payable or otherwise distributed in respect of principal, or redemption of, or in exchange for, the Collateral, or any portion thereof; shall be forthwith delivered to Pledgee to hold as Collateral and shall, if received by Pledgor, be (x) received in trust for the benefit of Pledgee, (y) segregated from all other property or funds of Pledgor, and (z) forthwith delivered to Pledgee as Collateral in the same form as so received (with any necessary documents, endorsements or assignments in blank with guaranteed signature(s)). 11.2 AFTER EVENT OF DEFAULT. Upon the occurrence of an Event of Default and at all times thereafter: (a) VOTING. All rights of Pledgor to (i) exercise voting and other consensual rights which Pledgor would otherwise be entitled to exercise, pursuant to SECTION 11.1(a), and (ii) receive distributions and interest payments which Pledgor would otherwise be authorized to receive and retain, pursuant to SECTION 11.1(b), shall cease, and all such rights shall thereupon become absolutely vested in Pledgee. Pledgee shall thereafter have the sole and absolute right to exercise all voting and other consensual rights, and to receive and hold as Collateral all such distributions and interest payments and apply the same in accordance with Section 11.2(d), without any further notice to, or consent of, Pledgor. (b) DISTRIBUTIONS HELD IN TRUST. All distributions and interest payments which are received by Pledgor contrary to the provisions of SECTION 11.2(a)(ii) shall be (i) received in trust for the benefit of Pledgee, (ii) shall be segregated from other property or funds of Pledgor and (iii) forthwith delivered to Pledgee as Collateral in the same form as received (with any necessary documents, endorsements or assignments in blank with guaranteed signatures). (c) SALE OF COLLATERAL. Pledgee may exercise in respect of the Collateral and in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party upon default under the Code. Pledgee may also, without notice, except as specified below, sell the Collateral, or any part thereof, in one or more blocks at public or private sale, at any exchange or otherwise or for future delivery, and at such price or prices and upon such other terms as Pledgee may deem commercially reasonable. Pledgor agrees that, to the extent notice of sale shall be required by law, five (5) business days notice to Pledgor of the time and place of any public sale or private sale is to be made shall constitute reasonable notification. Pledgee shall not be obligated to make -10- any sale of Collateral regardless of notice of sale having been given. Pledgee may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (d) APPLICATION OF PROCEEDS. Any cash held by Pledgee as Collateral and all cash proceeds received by Pledgee in respect of any sale of, collection from, or other realization upon the Collateral, or any portion thereof, may, in the discretion of Pledgee, be held by Pledgee as Collateral for, and/or then or at any time thereafter applied in whole or in part by Pledgee against all or any part of the Indebtedness, in such order as Pledgee shall elect in its sole discretion. Any surplus of such cash or cash proceeds held by Pledgee and remaining after payment in full of all Indebtedness shall be paid to Pledgor or to whomsoever may be lawfully entitled to receive such surplus. 11.3 PLEDGEE'S RIGHTS. At any time and from time to time, Pledgee shall have the right, in its discretion and without notice to Pledgor, to transfer to or to register in the name of Pledgee, or any of Pledgee's nominees, the Collateral, or any portion thereof, provided, however, that Pledgor shall continue to be the beneficial owner of any Collateral transferred to or registered in the name of Pledgee, or Pledgee's nominees, prior to the occurrence of an Event of Default. In addition, Pledgee shall have the right at any time to exchange certificates or instruments representing or evidencing the Collateral, or any portion thereof, for certificates or instruments of smaller or larger denominations. 12. REASONABLE CARE. Pledgee shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which Pledgee accords its own property. 13. DELAY OR OMISSION NOT WAIVER. Neither the failure nor any delay on the part of Pledgee to exercise any right, remedy, power or privilege under this Pledge upon the occurrence of any Event of Default or otherwise shall operate as a waiver thereof or impair any such right, remedy, power or privilege. No waiver of any Event of Default shall affect any later Event of Default or shall impair any rights of Pledgee. No single, partial or full exercise of any rights, remedies, powers and privileges by Pledgee shall preclude further or other exercise thereof. No course of dealing between Pledgee and Pledgor shall operate as or be deemed to constitute a waiver of Pledgee's rights under this Pledge or affect the duties or obligations of Pledgor. 14. REMEDIES CUMULATIVE; CONSENTS. The rights, remedies, powers and privileges provided for herein shall not be deemed exclusive, but shall be cumulative and shall be in addition to all other rights, remedies, powers and privileges in Pledgee's favor at law or in equity. Whenever Pledgee's consent or approval is required or permitted, such consent or approval shall be at the sole and absolute discretion of Pledgee. 15. CERTAIN FEES, COSTS, EXPENSES AND EXPENDITURES. Pledgor agrees to pay on demand the following costs and expenses of Pledgee: 15.1 all losses, costs and expenses in connection with the enforcement, protection and preservation of the Pledgee's rights or remedies under this Pledge, or any other agreement of Pledgor relating to any Indebtedness (including without limitation court costs, reasonable attorney's fees and expenses of accountants and appraisers); and -11- 15.2 any and all stamp and other similar taxes payable or determined to be payable in connection with the execution and delivery of this Pledge, and all liabilities to which Pledgee may become subject as the result of Pledgor's delay in paying or omission to pay such taxes. In the event Pledgor shall fail to pay taxes, assessments, costs or expenses which it is required to pay hereunder, or fails to keep the Collateral free from security interests or lien (except as expressly permitted herein), or otherwise breaches any obligations under this Pledge, Pledgee in its discretion, may make expenditures for such purposes and the amount so expended (including reasonable attorney's fees and expenses, filing fees and other charges) shall be payable by Pledgor on demand and shall constitute part of the Indebtedness. In the event any action at law or in equity in connection with the Notes, the Indebtedness or matters collateral thereto is terminated adverse to one party, the other party will pay all reasonable attorneys' fees and legal costs incurred by such party in connection with such actions. With respect to any amount required to be paid by Pledgor under this Section, in the event Pledgor fails to pay such amount on demand, Pledgor shall also pay to Pledgee interest thereon at a default rate equal to 2.5% per annum in excess of the prime rate from time to time of First Union National Bank or, if less, the highest rate permitted by applicable law. Pledgor's obligations under this Section shall survive termination of this Pledge. 16. TIME IS OF THE ESSENCE. Time is of the essence in Pledgor's performance of Pledgor's obligations under the Notes. 17. COMMUNICATIONS AND NOTICES. All notices, requests, demands and other communications required or permitted under this Pledge shall be in writing and shall be deemed to have been duly given, made and received only when delivered (personally, by courier service such as Federal Express, or by other messenger) or four days following the day when deposited in the United States mails, registered or certified mail, postage prepaid, return receipt requested, addressed as set forth below: To Pledgee: J. G. WENTWORTH S.S.C. LIMITED PARTNERSHIP Green Valley Executive Suites 2920 N. Green Valley Parkway, Building 3, Suite 321 Henderson, NV 89014 With a copy, given in the manner prescribed above to: Robert C. Jacobs, Esquire Wolf, Block, Schorr and Solis-Cohen LLP 1650 Arch Street 22nd Floor Philadelphia, PA 19103-2097 To Pledgor: S2 HOLDINGS, INC. 300 Delaware Avenue, Suite 1704 Wilmington, DE 19801 -12- With a copy, given in the manner prescribed above to: DVL, Inc. 70 East 55th Street, 7th Floor New York, NY 10022 Attention: Chief Financial Officer and to: Ira Akselrad, Esquire Proskauer Rose LLP 1585 Broadway New York, NY 10036-8299 18. LIMITATION ON LIABILITY. Pledgor shall be responsible for and Pledgee is hereby released from any claim or liability in connection with: (a) Safekeeping any Collateral; (b) Any loss or damage to any Collateral; (c) Any diminution in value of the Collateral; or (d) Any act or default of another person or entity. Pledgee shall only be liable for any act or omission on its part constituting gross negligence or willful misconduct. In the event that Pledgee breaches its required standard of conduct, Pledgor agrees that Pledgee's liability shall be only for direct damages suffered and shall not extend to consequential or incidental damages. If Pledgor brings suit against Pledgee in connection with the transactions contemplated hereunder and Pledgee is found not to be liable, Pledgor will indemnify and hold Pledgee harmless from all costs and expenses, including attorney's fees, incurred by Pledgee in connection with such suit. 19. WAIVERS. In connection with any proceedings hereunder or in connection with any of the Indebtedness, including without limitation any action by Pledgee in replevin, foreclosure or other court process or in connection with any other action related to the Indebtedness or the transactions contemplated hereunder, Pledgor waives: (a) all errors, defects and imperfections in such proceedings; (b) all benefits under any present or future laws exempting any property, real or personal, or any part of any proceeds thereof from attachment, levy or sale under execution, or providing for any stay of execution to be issued on any judgment recovered in connection with the Indebtedness or in any replevin or foreclosure proceeding, or otherwise providing for any valuation, appraisal or exemption; (c) presentment for payment, demand, notice of demand, notice of non-payment, protest and notice of protest of any of the Indebtedness; -13- (d) any requirement for bonds, security or sureties required by statute, court rule or otherwise; (e) any demand for possession of Collateral prior to commencement of any suit; and (f) all rights to claim or recover attorney's fees and costs in the event that Pledgor is successful in any action to remove, suspend or prevent the enforcement of a judgment entered by confession. 20. MISCELLANEOUS PROVISIONS. 20.1 SEVERABILITY. The provisions of this Pledge and the Notes are deemed to be severable, and the invalidity or unenforceability of any provision shall not affect or impair the remaining provisions which shall continue in full force and effect. 20.2 HEADINGS. The headings of the Articles, Sections, paragraphs and clauses of this Pledge are inserted for convenience only and shall not be deemed to constitute a part of this Pledge. 20.3 BINDING EFFECT. This Pledge and all rights and powers granted hereby will bind and inure to the benefit of the parties hereto and their respective permitted successors and assigns. 20.4 AMENDMENT. No modification of this Pledge or the Notes shall be binding or enforceable unless in writing and signed by or on behalf of the party against whom enforcement is sought. 20.5 GOVERNING LAW. This Pledge will be construed in accordance with, and governed by, the laws of the State of Delaware. 20.6 NO THIRD PARTY BENEFICIARIES. The rights and benefits of this Pledge and the Notes shall not inure to the benefit of any third party. 20.7 EXHIBITS AND SCHEDULES. All exhibits and schedules, if any, attached hereto are hereby made a part of this Pledge. 20.8 COUNTERPARTS. This Pledge may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any of the parties hereto may execute this Pledge by signing any such counterpart. 20.9 NO JOINT VENTURE. Nothing contained herein is intended to permit or authorize Pledgor to make any contract on behalf of Pledgee, nor shall this Pledge be construed as creating a partnership, joint venture or making Pledgee an investor in Pledgor. 21. WAIVER OF RIGHT TO TRIAL BY JURY. PLEDGOR AND PLEDGEE WAIVE ANY RIGHT TO TRIAL BY JURY ON ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS PLEDGE OR ANY OTHER DOCUMENT OR INSTRUMENT REFERRED TO HEREIN OR DELIVERED IN CONNECTION HEREWITH, OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF PLEDGE WITH RESPECT TO THIS PLEDGE OR ANY OTHER DOCUMENT OR INSTRUMENT REFERRED TO HEREIN OR DELIVERED IN CONNECTION -14- HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE. PLEDGOR AND PLEDGEE AGREE AND CONSENT THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS PLEDGE MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF PLEDGOR AND PLEDGEE TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. -15- IN WITNESS WHEREOF, Pledgor has executed and delivered this Pledge as of the date first above written. PLEDGOR: S2 HOLDINGS, INC. By________________________________________ Name:__________________________________ Title:_________________________________ Pledgee hereby joins in this Pledge for the sole purpose of ratifying and confirming its consent to the provisions contained in SECTIONS 17 AND 21 above. PLEDGEE: J.G. WENTWORTH S.S.C. LIMITED PARTNERSHIP, by its sole general partner: J.G. WENTWORTH STRUCTURED SETTLEMENT FUNDING CORPORATION By:_______________________________________ Name:__________________________________ Title:_________________________________ -16- EX-10.06 8 c21771_ex10-06.txt COMMON STOCK WARRANT EXHIBIT 10.06 - -------------------------------------------------------------------------------- COMMON STOCK WARRANT - -------------------------------------------------------------------------------- DVL, INC. COMMON STOCK WARRANT THE TRANSFERABILITY OF THIS WARRANT IS RESTRICTED AS PROVIDED IN SECTION 2. VOID AFTER AUGUST 15, 2011 RIGHT TO PURCHASE 1,000,000 OF THE AGGREGATE SHARES OF COMMON STOCK OF THE COMPANY (SUBJECT TO ADJUSTMENT PURSUANT TO SECTION 3.4(b) HEREOF) NO. ______ - -------------------------------------------------------------------------------- PREAMBLE - -------------------------------------------------------------------------------- DVL, INC., a Delaware corporation (the "Company"), for value received, hereby certifies that J.G. WENTWORTH S.S.C., LIMITED PARTNERSHIP, a Nevada limited partnership (its permitted successors, assigns and transferees, the "HOLDER OF THIS WARRANT", or the "HOLDER HEREOF") is entitled, subject to the terms set forth below, to purchase from the Company at any time or from time to time before 5:00 P.M. New York time, August 15, 2011 (the "EXPIRATION DATE"), 1,000,000 fully paid and nonassessable shares of Common Stock, par value $0.01 per share (collectively, the "COMMON STOCK") of the Company, at a purchase price of $0.20 per share (such price, the "INITIAL PURCHASE PRICE"). The number and character of such shares of Common Stock and the Initial Purchase Price are subject to adjustment as provided herein. This Warrant (the "WARRANT") evidencing the right to purchase shares of Common Stock of the Company, is issued pursuant to a certain Purchase Agreement effective as of August 15, 2001 (the "AGREEMENT"), by and among the Company, J.G. Wentworth S.S.C., Limited Partnership, J.G. Wentworth Management Company, Inc. (with respect to Sections 2(b) and (c) and 8 thereof), J.G. Wentworth Receivables II LLC, Receivables II-B Holding Company LLC, Receivables II-B LLC and S2 Holdings, Inc. Copies of the Agreement are on file at the principal office of the Company. THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED BY THE HOLDER HEREOF FOR ITS OWN ACCOUNT, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO THE DISTRIBUTION OF SUCH SECURITIES. THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION THEREFROM. EACH OF THE CERTIFICATE OF INCORPORATION (THE "CERTIFICATE") AND THE BY-LAWS (THE "BY-LAWS") OF THE COMPANY CONTAINS RESTRICTIONS PROHIBITING THE SALE, TRANSFER, DISPOSITION, PURCHASE OR ACQUISITION OF ANY CAPITAL STOCK UNTIL SEPTEMBER 30, 2009, WITHOUT THE AUTHORIZATION OF THE BOARD OF DIRECTORS OF THE COMPANY (THE "BOARD OF DIRECTORS"), BY OR TO ANY HOLDER (A) WHO BENEFICIALLY OWNS DIRECTLY OR THROUGH ATTRIBUTION (AS GENERALLY DETERMINED UNDER SECTION 382 OF THE CODE) FIVE PERCENT OR MORE OF VALUE OF THE THEN ISSUED AND OUTSTANDING SHARES OF CAPITAL STOCK OF THE COMPANY OR (B) WHO, UPON THE SALE, TRANSFER, DISPOSITION, PURCHASE OR ACQUISITION OF ANY CAPITAL STOCK OF THE COMPANY WOULD BENEFICIALLY OWN DIRECTLY OR THROUGH ATTRIBUTION (AS GENERALLY DETERMINED UNDER SECTION 382 OF THE CODE) FIVE PERCENT OR MORE OF THE VALUE OF THE THEN ISSUED AND OUTSTANDING CAPITAL STOCK OF THE COMPANY, IF THAT SALE, TRANSFER, DISPOSITION, PURCHASE OR ACQUISITION WOULD, IN THE SOLE DISCRETION AND JUDGMENT OF THE BOARD OF DIRECTORS, JEOPARDIZE THE COMPANY'S PRESERVATION OF ITS FEDERAL INCOME TAX ATTRIBUTES PURSUANT TO SECTION 382 OF THE CODE. THE COMPANY WILL FURNISH WITHOUT CHARGE TO THE HOLDER OF RECORD OF THIS WARRANT A COPY OF THE CERTIFICATE AND/OR BY-LAWS, CONTAINING THE ABOVE-REFERENCED RESTRICTIONS ON TRANSFER OF STOCK, UPON WRITTEN REQUEST TO THE COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS. DEFINITIONS 1. DEFINITIONS. As used herein, each of the following terms, unless the context otherwise requires, shall have the meaning set forth below: "BUSINESS DAY" shall mean any day that is not a Saturday, a Sunday, or a day on which banks are required or permitted to be closed in the State of New York. "CODE" means the Internal Revenue Code of 1986, as amended. "COMPANY" means the Company and any corporation or other legal entity which shall succeed to or assume the obligations of the Company hereunder in compliance with SECTION 6 hereof. "COMMON STOCK" means all stock of any class or classes (however designated) of the Company, authorized on or after the date hereof, the holders of which shall have the right, without limitation as to amount, either to all or to a share of the balance of current dividends and liquidating dividends after the payment of dividends and distributions on any shares entitled to 2 preference, and the holders of which shall ordinarily, in the absence of contingencies, be entitled to vote for the election of a majority of directors of the Company (even though the right so to vote has been suspended by the happening of such a contingency). "CONVERTIBLE SECURITIES" shall mean any indebtedness, shares of stock or other securities convertible into or exchangeable for Common Stock. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect from time to time. "FAIR VALUE" shall mean with respect to Common Stock the current Market Price per share of such Common Stock at any date and, with respect to any other assets, shall be deemed to be the fair market value as determined, in good faith, by the Board of Directors of the Company (such value, the "BOARD VALUATION"); PROVIDED HOWEVER that if the holder hereof disputes the Board Valuation on or before 15 Business Days after the date the Board of Directors of the Company notifies such holder in writing of such Board Valuation, then, such holder shall be entitled to require the Board of Directors to retain an independent investment banker of the Board of Directors' choosing, at the expense of such holder, to determine such fair market value (such value, the "INDEPENDENT VALUATION"). It is agreed that the higher of (1) the Board Valuation and (2) the Independent Valuation shall constitute such "Fair Value" for all purposes. "INITIAL PURCHASE PRICE" shall have the meaning set forth in the Preamble to this Warrant. "MARKET PRICE" shall, at any given time, mean the average closing price, during the prior 30 Business Days, for a share of Common Stock as listed on any public exchange or automated quotation system, or the average bid price during such 30 Business Days for a share of Common Stock as traded in the over-the-counter market. In the event that the Common Stock is no longer listed on any public exchange or automated quotation system or traded in the over-the-counter market, THEN, the "Market Price" shall be equal to the "Fair Value." "NASD" shall mean the National Association of Securities Dealers, Inc., or any successor corporation thereto. "NET CONSIDERATION PER SHARE" shall mean the amount equal to the total amount of consideration received by the Company for the sale or issuance of Common Stock, Options or Convertible Securities plus, in the case of Options or Convertible Securities, the minimum amount of consideration, if any, payable to the Company upon exercise or conversion thereof, divided by the aggregate number of shares of Common Stock that would be issued if all such Options or Convertible Securities were exercised, exchanged or converted. "OPTIONS" shall mean any rights, warrants or options to subscribe for or purchase Common Stock or Convertible Securities. 3 "OTHER SECURITIES" means any stock (other than Common Stock) and other securities of the Company or any other person (corporate or otherwise) which the holders of the Warrants at any time shall be entitled to receive, or shall have received, on the exercise of the Warrants, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to SECTION 6 or otherwise. "PERSON" shall mean any natural or legal person. "PURCHASE PRICE" shall mean the Initial Purchase Price, as adjusted in accordance with this Warrant. "REGISTRABLE SECURITIES" shall mean the collective reference to (1) the shares of Common Stock issued hereunder to the holder of this Warrant, (2) this Warrant, and (3) the Shares. "SECURITIES ACT" means the Securities Act of 1933, or any successor federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "SECURITIES AND EXCHANGE COMMISSION" or "COMMISSION" means the Securities and Exchange Commission or any other federal agency then administering the Securities Act. "SHARES" means the Common Stock and Other Securities issued or issuable upon exercise of this Warrant. "WARRANT" shall have the meaning set forth in the Preamble to this Warrant. 2. RESTRICTED STOCK. 2.1 Without limitation of the restrictions of SECTION 2.3 hereof, if, at the time of any transfer or exchange (other than a transfer or exchange not involving a change in the beneficial ownership of this Warrant or Shares) of all or any portion of this Warrant or Shares, this Warrant or such Shares shall not be registered under the Securities Act, the Company may require, as a condition of allowing such transfer or exchange, that the holder of this Warrant or such Shares, as the case may be, furnish to the Company an opinion of counsel reasonably acceptable to the Company or, at the election of the holder of this Warrant, a "no action" or similar letter from the Securities and Exchange Commission to the effect that such transfer or exchange may be made without registration under the Securities Act. In the case of such a transfer or exchange and in the case of an exercise of this Warrant if the Shares to be issued thereupon are not registered pursuant to the Securities Act, the Company may require a written statement that such Warrant or Shares, as the case may be, are being acquired for investment and not with a view to the distribution thereof. The certificates evidencing the Shares issued on the exercise of this Warrant shall, if such Shares are being sold or transferred without registration under the Securities Act, bear a legend to the effect that the Shares evidenced by such certificates have not been so registered. 4 2.2 (a) The Company shall at all times maintain and keep available adequate public information, as those terms are understood and defined in Rule 144 under the Securities Act. (b) The Company shall furnish to the holder hereof and/or a prospective purchaser designated by such holder of this Warrant or Shares, forthwith upon request, (i) a copy of the most recent annual or quarterly report of the Company, (ii) any other reports and documents necessary to satisfy the information-furnishing condition to offers and sales under Rule 144A under the Securities Act, and (iii) such other reports and documents as the holder of this Warrant or Shares or any prospective purchaser thereof reasonably requests to avail itself of any rule or regulation of the Commission allowing such holder to sell any such securities without registration. 2.3 (a) During the term of this Warrant, the holder hereof shall not sell, transfer, or dispose, or purchase or acquire in any manner whatsoever, whether voluntarily or involuntarily, by operation of law or otherwise (any such sale, transfer, disposition, purchase, acquisition or contract being a "TRANSFER"), this Warrant or the Shares, except as authorized pursuant to this SECTION 2.3. Notwithstanding anything to the contrary set forth in this Warrant, this Warrant may not be exercised, in full or in part, unless (i) the Company obtains a favorable legal opinion, reasonably acceptable in form and substance to the Company and the holder hereof, to the effect that the exercise of the Warrant by such holder of this Warrant shall not result in a limitation of the Company's use of any net operating loss carryforwards solely by reason of the applicability of Section 382 of the Code (provided that, upon the request of the holder hereof, the Company shall cooperate in good faith with such holder in furnishing any information reasonably required to produce such opinion); or (ii) as provided in SECTION 6. (b) (i) The restrictions contained in this SECTION 2.3 are for the purpose of reducing the risk that any change in stock ownership may jeopardize the preservation of the Company's federal income tax attributes. In connection therewith, and to provide for the effective policing of these provisions, prior to the date of a proposed Transfer by the holder hereof, such holder shall request in writing (a "REQUEST") that the Board of Directors of the Company review the proposed Transfer and authorize or not authorize the proposed Transfer pursuant to SUBSECTION (b)(iii) hereof. A Request shall be mailed or delivered to the President of the Company at the Company's principal place of business or telecopied to the Company's telecopier number at its principal place of business. Such Request shall be deemed to have been delivered when actually received by the Company. A Request shall include: (a) a description of this Warrant or the Shares proposed to be Transferred by the holder hereof, (b) the date on which the proposed Transfer is expected to take place, (c) the name of the proposed transferee, and (d) a Request that the Board of Directors authorize, if appropriate, the Transfer pursuant to SUBSECTION (b)(iii) hereof and inform the holder hereof of its determination regarding the proposed Transfer. If the holder hereof seeks to sell or dispose of this Warrant or the Shares, then, as soon as reasonably practicable after receipt by the President of the Company of a Request, a meeting of the Board of Directors shall be held to determine whether to authorize the proposed Transfer described in the Request under SUBSECTION (b)(iii) hereof. The Board of Directors shall conclusively determine whether to authorize the proposed Transfer, in its sole discretion and judgment, and shall immediately cause the holder hereof to be informed of such determination; PROVIDED THAT, upon the request of the holder hereof, the Company shall cooperate in good faith with such holder in furnishing any information reasonably required by the Board of Directors to make such conclusive determination. 5 (ii) Any Transfer attempted to be made in violation of this SECTION 2.3 will be null and void. In the event of an attempted or purported Transfer involving a sale or disposition of this Warrant or the Shares in violation of this SECTION 2.3 the holder hereof shall remain the owner. (iii) The Board of Directors shall authorize a Transfer by the holder hereof, if, in its sole discretion and judgment, it determines that the Transfer will not jeopardize the Company's preservation of its federal income tax attributes pursuant to Code Section 382. In deciding whether to approve any proposed Transfer by the holder hereof, the Board of Directors may seek the advice of counsel with respect to the Company's preservation of its federal income tax attributes pursuant to Code Section 382 and may request all relevant information from the holder hereof with respect to all capital stock directly or indirectly owned by such holder. The holder hereof shall reimburse the Company, on demand, for all costs and expenses incurred by the Company with respect to any proposed Transfer, including, without limitation, the Company's costs and expenses incurred in determining whether to authorize that proposed Transfer. 3. EXERCISE OF WARRANT. 3.1 EXERCISE IN FULL. Subject to SECTION 2.3(b), the holder of this Warrant may at its option not later than the Expiration Date exercise it in full by surrendering this Warrant, with the form of subscription at the end hereof duly executed by such holder, to the Company at its principal office, attention the Secretary of the Company. The surrendered Warrant shall be accompanied by payment of the Purchase Price as set forth below for the number of shares of Common Stock which may be purchased hereunder. At the option of the holder of this Warrant, payment of the Purchase Price shall be made by (a) wire transfer of funds to an account in a bank located in the United States designated by the Company for such purpose, (b) certified or official bank check payable to the order of the Company, or (c) any combination of such methods. 3.2 PARTIAL EXERCISE. Subject to SECTION 3.4, the holder of this Warrant may at its option at any time or from time to time, but not later than the Expiration Date, exercise this Warrant in part by surrender of this Warrant in the manner and at the place provided in SECTION 3.1, except that the amount obtained shall be designated by the holder of this Warrant in the subscription at the end hereof as provided herein. The Purchase Price shall be payable by the holder of this Warrant in accordance with SECTION 3.1. On any such partial exercise the Company at its expense will forthwith issue and deliver to or upon the order of the holder hereof a new Warrant or Warrants of like tenor, in the name of the holder hereof or as such holder may request, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock equal to the number of such shares called for on the face of this Warrant minus the number of such shares designated by the holder of this Warrant in the subscription at the end hereof, subject to adjustment as provided herein. 3.3 SHARES TO BE FULLY PAID. The Company covenants and agrees that all Shares which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be duly authorized, validly issued, fully paid and nonassessable and free from all preemptive rights of any stockholder and free of all taxes, liens and charges with respect to the 6 issue thereof. The Company will take all such action as may be necessary to assure that such shares of Common Stock may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of any domestic securities exchange or automated quotation system upon which the Common Stock may be listed. 3.4 LIMITATIONS ON EXERCISE OF WARRANT. (a) Notwithstanding anything to the contrary set forth in this Warrant, this Warrant may not be exercised for any Shares prior to the first anniversary of the date of this Warrant. On such anniversary, and on each of the second, third, fourth and fifth anniversaries of this Warrant, subject to adjustment pursuant to Section 3.4(b), the number of Shares for which this Warrant may be exercised shall be increased by 200,000 (such number of additional Shares for which this Warrant may be exercised on any such anniversary, hereinafter "Additional Vested Shares"). (b) (i) In any year ending on or before the fourth anniversary of this Warrant, if the amount paid to S2 Holdings, Inc. out of Cash Flow (as defined in the Non-Negotiable, Secured Purchase Money Promissory Notes of S2 Holdings, Inc., payable to the order of J.G. Wentworth S.S.C., Limited Partnership (the "Notes")) during such year is less than the sum of the amounts shown in Note 1, Column 1 and Note 2, Column 1 on Schedule A of the Notes (such sum, the "Required Minimum Payment") for such year, then the Additional Vested Shares for such year shall be reduced from the number calculated pursuant to Section 3.4(a) by the number of Shares equal to the product of (i) the number of Additional Vested Shares for such year as otherwise calculated pursuant to Section 3.4(a), and (ii) the Cash Flow Shortfall Percentage for such year. For purposes hereof, "Cash Flow Shortfall Percentage" for any period means the ratio, expressed as a percentage, of (x) the dollar amount by which the Required Minimum Payment for such period exceeds the actual Cash Flow for such period, and (y) the Required Minimum Payment for such period. (ii) On the fifth anniversary of this Warrant, the Additional Vested Shares for such year shall be increased or decreased, as the case may be, such that the total number of Shares for which this Warrant may be exercised after such date shall be equal to the difference between (i) 1,000,000 and (ii) the product of (x) 1,000,000 and (y) the Cash Flow Shortfall Percentage for the period from the date of this Warrant through the fifth anniversary of this Warrant. 4. DELIVERY OF STOCK CERTIFICATES, ETC., ON EXERCISE. As soon as practicable after the exercise of this Warrant in full or in part, and in any event within 20 Business Days thereafter, the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the holder hereof, a certificate or certificates for the number of fully paid and nonassessable Shares to which such holder shall be entitled on such exercise. The Company agrees that the Shares purchased under this Warrant shall be and are deemed to be issued to the holder hereof as the record owner of such Shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such Shares. Each stock certificate so delivered shall be in such denominations of Common Stock as may be requested by holder hereof and shall be registered in the name of the holder hereof. 5. ADJUSTMENT OF INITIAL PURCHASE PRICE AND NUMBER OF SHARES. 7 5.1 The Initial Purchase Price hereof shall be subject to adjustment from time to time as follows: (a) In case the Company shall (i) at any time declare or pay a dividend on its Common Stock in shares of Common Stock, (ii) subdivide its outstanding shares of Common Stock into a greater number of shares, or (iii) combine its outstanding shares of Common Stock into a smaller number of shares, then, in such an event, the Purchase Price in effect immediately prior thereto shall be adjusted proportionately so that the adjusted Purchase Price will be equal to the Purchase Price immediately prior to such event multiplied by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately prior to such event and the denominator of which is the number of shares outstanding immediately after such event. An adjustment made pursuant to this subdivision (a), (i) shall become effective retroactively immediately after the record date in the case of a dividend and (ii) shall become effective immediately after the effective date in the case of a subdivision or combination. The Purchase Price, as so adjusted, shall be readjusted in the same manner upon the happening of any successive event or events described herein. (b) (i) In the event that the Company shall sell or issue (or shall be deemed pursuant to this Subsection to sell or issue), at any time after the issuance date of this Warrant, shares of Common Stock for Net Consideration Per Share that is less than the Fair Value in effect on the date of and immediately prior to such sale or issuance, then, upon such sale or issuance (or deemed sale or issuance), the Purchase Price shall be reduced concurrently with such sale or issuance (or deemed sale or issuance) to a Purchase Price (calculated to the nearest one hundredth of a cent) determined by dividing: (A) an amount equal to (x) the total number of shares of Common Stock outstanding immediately prior to such sale or issuance multiplied by the Purchase Price, plus (y) such Net Consideration Per Share, if any, received or deemed received, multiplied by the number of shares of Common Stock sold or issued (or deemed to be sold or issued), by (B) the total number of shares of Common Stock outstanding immediately after such sale or issuance. No adjustment in the Purchase Price shall be made which would increase the Purchase Price in effect immediately prior to such adjustment. (c) In case the Company shall distribute to holders of shares of Common Stock any of the following: any Other Securities, evidences of its indebtedness or assets (excluding cash dividends or cash distributions) or purchase rights, options or warrants to subscribe for or purchase such Other Securities, then, in each such case the Purchase Price in effect thereafter shall be determined by multiplying the Purchase Price in effect immediately prior thereto by a fraction, of which the numerator shall be the total number of outstanding shares of 8 Common Stock multiplied by the current Market Price per share of Common Stock on the record date mentioned below, less the Fair Value of the Other Securities, assets or evidences of indebtedness so distributed or of such rights or warrants, and of which the denominator shall be the total number of outstanding shares of Common Stock multiplied by such current Market Price per share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective retroactively immediately after the record date for the determination of stockholders entitled to receive such distribution. (d) No adjustment of the Purchase Price shall be made if the amount of such adjustment shall be less than one hundredth of one cent per share, but in such case any adjustment that would otherwise be required then to be made shall be carried forward and shall be made at the time of and together with the next subsequent adjustment, which, together with any adjustment so carried forward, shall amount to not less than one hundredth of one cent per share. In case the Company shall at any time issue Common Stock by way of dividend on any stock of the Company or subdivide or combine the outstanding shares of the Common Stock, said amount of one hundredth of one cent per share (as theretofore increased or decreased, if the same amount shall have been adjusted in accordance with the provisions of this subparagraph) shall forthwith be proportionately increased in the case of a combination or decreased in the case of such a subdivision or stock dividend so as appropriately to reflect the same. 5.2 Upon each adjustment of the Purchase Price pursuant to SECTION 5.1, the number of shares of Common Stock purchasable upon exercise of this Warrant shall be adjusted to the number of shares of Common Stock, calculated to the nearest one hundredth of a share, obtained by multiplying the number of shares of Common Stock purchasable immediately prior to such adjustment upon the exercise of this Warrant by the Purchase Price in effect prior to such adjustment and dividing the product so obtained by the new Purchase Price. 5.3 In case of any capital reorganization of the Company, or of any reclassification of the Common Stock, this Warrant shall be exercisable after such capital reorganization or reclassification upon the terms and conditions specified in this Warrant, for the number of shares of stock or other securities which the Common Stock issuable (at the time of such capital reorganization or reclassification) upon the full exercise of this Warrant would have been entitled to receive upon such capital reorganization or reclassification if such exercise had taken place immediately prior to such action. The subdivision or combination of shares of Common Stock at any time outstanding into a greater or lesser number of shares of Common Stock shall not be deemed to be a reclassification of the Common Stock of the Company for the purposes of this SECTION 5.3. 5.4 Whenever the Purchase Price is adjusted as herein provided, the Company shall compute the adjusted Purchase Price in accordance with SECTION 5.1 and shall prepare a certificate setting forth the adjusted Purchase Price and shall state the effective date of the adjustment and the increase or decrease, if any, in the number of shares purchasable at such price upon the exercise of this Warrant, and showing in reasonable detail the method of such adjustment and the fact requiring the adjustment and upon which such calculation is based, and such certificate shall forthwith be forwarded to the holder of this Warrant within 90 days after the event giving rise to such event. 9 5.5 The form of this Warrant need not be changed because of any change in the Purchase Price pursuant to SECTION 5 and any Warrant issued after such change may state the same Purchase Price and the same number of shares of Common Stock as are stated in this Warrant. 5.6 If the Company shall take a record of the holders of the Common Stock for the purpose of entitling them to receive a dividend or other distribution payable in Common Stock, Options or Convertible Securities or to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue, sale, distribution or grant of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. 5.7. If any event occurs as to which the foregoing provisions of this Section 5 are not strictly applicable or, if strictly applicable, would not, in the good faith judgment of the Board of Directors of the Company, fairly protect the purchase rights of the Warrrants in accordance with the essential intent and principles of such provisions, then such Board shall make such adjustments in the application of such provisions, in accordance with such essential intent and principles as shall be reasonably necessary, in the good faith opinion of such Board, to protect such purchase rights as aforesaid, but in no event shall any such adjustment have the effect of increasing the Purchase Price or decreasing the number of shares of Common Stock subject to purchase upon exercise of this Warrant, or otherwise adversely affect the Warrantholders. 5.8 As a condition precedent to the taking of any action which would require an adjustment pursuant to this Section 5, the Company shall take any action which may be necessary, including obtaining regulatory approvals or exemptions, in order that the Company may thereafter validly and legally issue as fully paid and nonassessable all shares of Common Stock which the holders of Warrants are entitled to receive upon exercise thereof. 5.9 Each holder of this Warrant may, at its option, be entitled to receive, in lieu of the adjustment pursuant to Section 5.1(c) or otherwise required as a result of any distribution of the type referenced in Section 5.1(c), on the date of exercise of the Warrants, the Other Securities, evidences of indebtedness or assets or purchase rights, options or warrants to subscribe for or purchase such Other Securities which such Warrantholder would have been entitled to receive if it had exercised its Warrants for share of Common Stock immediately prior to the record date with respect to such distribution. Subject to the other provisions and restrictions of this Warrant with respect to the exercise rights of the holder of this Warrant, each holder of this Warrant may exercise its option under this subsection 5.9 by delivering to the Company a written notice of such exercise within 7 days of its receipt of the notice required pursuant to Section 5.4 to be delivered by the Company in connection with such distribution. 6. OTHER NOTICES; ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC.: If at any time: (a) the Company shall propose to declare any cash dividend upon its Shares; 10 (b) the Company shall propose to declare or make any dividend or other distribution to the holders of its Common Stock, whether in cash, property or other securities; (c) the Company shall propose to effect any reorganization or reclassification of the capital stock of the Company or any consolidation or merger of the Company with or into another corporation or any sale, lease or conveyance of all or substantially all of the assets of the Company; or (d) the Company shall propose to effect a voluntary or involuntary dissolution, liquidation or winding-up of the Company; then, in any one or more of said cases, the Company shall give to the holder of this Warrant (i) at least 20 days' prior written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend or distribution or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, lease, conveyance, dissolution, liquidation or winding-up, and (ii) in the case of any such reorganization, reclassification, consolidation, merger, sale, lease, conveyance, dissolution, liquidation or winding-up, at least 20 days' written notice of the date when the same shall take place. Upon receipt of a notice of an event described in clauses (a) through (d), the holder of this Warrant may, at its option, exercise this Warrant in whole or in part. Upon the occurrence of an event described in clause (c), the holder of this Warrant shall be entitled thereafter to receive upon exercise of this Warrant the kind and amount of shares of stock or other securities or assets which the holder would have been entitled to receive after the occurrence of such event had this Warrant been exercised immediately prior to such event; and in any such case, appropriate provision shall be made with respect to the rights and interests of the holder to the end that the provisions of this Warrant (including, without limitation, provisions with respect to changes in and adjustments of the Purchase Price and the number of shares purchasable upon the exercise of this Warrant) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, or other securities or assets, thereafter deliverable upon the exercise of this Warrant. The Company will not effect any of the transactions described in clause (c) above unless, prior to the consummation thereof, each person (other than the Company) that may be required to deliver any cash, stock, securities or other assets upon the exercise of this Warrant as provided herein shall assume, by written instrument delivered to the holder of this Warrant, (x) the obligations of the Company under this Warrant (and if the Company shall survive the consummation of any such transaction, such assumption shall be in addition to, and shall not release the Company from, any continuing obligations of the Company under this Warrant) and (y) the obligation to deliver to such holder such cash, stock, securities or other assets as such holder may be entitled to receive in accordance with the provisions of SECTIONS 5 AND 6. The provisions of this SECTION 6 shall similarly apply to successive transactions. 6.1 DISSOLUTION. Except as otherwise expressly provided in SECTION 6.1, in the event of any dissolution of the Company following the transfer of all or substantially all of its properties or assets, the Company, prior to such dissolution, shall at its expense deliver or cause to be delivered the stock and other securities and property (including cash, where applicable) receivable by the holder of this Warrant after the effective date of such dissolution pursuant to this SECTION 6 to a bank or trust company having its principal office in the State of New York or the State of Delaware, as trustee for the holder of this Warrant. 11 6.2 CONTINUATION OF TERMS. Except as otherwise expressly provided in SECTION 6.1, upon any reorganization, consolidation, merger or transfer (and any dissolution following any transfer) referred to in this SECTION 6, this Warrant shall continue in full force and effect and the terms hereof shall be applicable to the shares of stock and other securities and property receivable on the exercise of this Warrant after the consummation of such reorganization, consolidation or merger or the effective date of dissolution following any such transfer, as the case may be, and shall be binding upon the issuer of any such stock or other securities, including, in the case of any such transfer, the person acquiring all or substantially all of the properties or assets of the Company. 7. NO IMPAIRMENT. The Company will not, by amendment of its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant to be observed or performed by it, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment. Without limiting the generality of the foregoing, the Company (a) will not increase the par value of any shares of stock receivable on the exercise of this Warrant, or permit such par value to be, above the amount payable therefor on such exercise, (b) will at all times reserve and keep available out of its authorized capital stock, solely for the purpose of issue upon exercise of this Warrant as herein provided, such number of shares of Common Stock and Other Securities as shall then be issuable upon exercise of this Warrant in full and shall take all such action as may be necessary or appropriate in order that all shares of Common Stock and Other Securities that shall be so issuable shall be duly and validly issued and fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof, (c) will not effect a subdivision or split up of shares or similar transaction with respect to any class of the Common Stock without effecting an equivalent transaction with respect to all other classes of Common Stock, and (d) will not issue any capital stock of any class which is preferred as to dividends or as to the distribution of assets upon voluntary or involuntary dissolution, liquidation or winding up, unless the rights of the holders thereof shall be limited to a fixed sum or percentage of par value in respect of participation in dividends and in any such distribution of assets. 8. EXCHANGE OF WARRANTS. On surrender for exchange of this Warrant, properly endorsed, to the Company, the Company at its expense will issue and deliver to or (subject to SECTION 2) on the order of the holder thereof a new Warrant or Warrants of like tenor, in the name of such holder or as such holder (on payment by such holder or any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of this Warrant so surrendered. 9. REPLACEMENT OF WARRANTS. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of such Warrant, the Company will, at the expense of the holder hereof, execute and deliver, in lieu thereof, a new Warrant of like tenor. 12 10. STAMP AND TRANSFER TAXES, ETC. The holder hereof agrees to pay any and all stamp, transfer and other similar taxes payable or determined to be payable in connection with the original issuance of this Warrant. 11. WARRANT AGENT. The Company may, by written notice to the holder of this Warrant, appoint an agent having an office in New York, New York, for the purpose of issuing Shares on the exercise of this Warrant pursuant to SECTION 3, exchanging this Warrant pursuant to SECTION 8, and replacing this Warrant pursuant to SECTION 9, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such agent. 12. INCIDENTAL REGISTRATION. If the Company at any time proposes to file on its behalf and/or on behalf of any of its security holders ("THE DEMANDING SECURITY HOLDERS") a registration statement under the Securities Act on any form (other than a registration statement on Form S-4 or S-8 or any successor form for securities to be offered in a transaction of the type referred to in Rule 145 under the Securities Act or to employees of the Company pursuant to any employee benefit plan, respectively) for the general registration of securities to be sold for cash with respect to its Common Stock or any other class of equity security (as defined in Section 3(a)(11) of the Exchange Act) of the Company, it will give written notice to all holders of Registrable Securities at least 60 days before the initial filing with the Commission of such registration statement, which notice shall set forth the intended method of disposition of the securities proposed to be registered by the Company. The notice shall offer to include in such filing the aggregate number of shares of Registrable Securities as such holders may request. Each holder of any such Registrable Securities desiring to have Registrable Securities registered under this SECTION 12 (each a "REGISTERING HOLDER") shall advise the Company in writing within thirty (30) days after the date of receipt of such notice from the Company, setting forth the amount of such Registrable Securities for which registration is requested. The Company shall thereupon include in such filing the number of shares of Registrable Securities for which registration is so requested, subject to the next sentence, and shall use its best efforts to effect registration under the Securities Act of such shares. If the managing underwriter of a proposed public offering shall advise the Company in writing that, in its opinion, the distribution of the Registrable Securities requested to be included in the registration concurrently with the securities being registered by the Company or such demanding security holder would materially and adversely affect the distribution of such securities by the Company or such demanding security holder, then the Company and the demanding security holders and the registering holders (collectively, "SELLING SECURITY HOLDERS") shall reduce the amount of securities each intended to distribute through such offering on a pro rata basis. 13. REGISTRATION PROCEDURES. If the Company is required by the provisions of SECTION 12 to use its best efforts to effect the registration of any of its securities under the Securities Act, the Company will, as expeditiously as possible: (a) prepare and file with the Commission a registration statement with respect to such securities and use its best efforts to cause such registration statement to become and remain effective for a period of time required for the disposition of such securities by the holders thereof, but not to exceed 180 days; PROVIDED THAT before filing such 13 registration statement, the Company will furnish to the selling security holders copies of all such documents proposed to be filed; (b) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the sale or other disposition of all securities covered by such registration statement until the earlier of such time as all of such securities have been disposed of in a public offering or the expiration of 180 days; PROVIDED THAT before filing such amendments and supplements, the Company will furnish to the selling security holders copies of all such documents proposed to be filed; (c) furnish to all selling security holders such number of copies of the registration statement (together, with all such amendments thereto) and the summary or each other prospectus, including each preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents, as such selling security holders may reasonably request; (d) use its best efforts to register or qualify the securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions within the United States and Puerto Rico as each holder of such securities shall request (PROVIDED, HOWEVER, that the Company shall not be obligated to qualify as a foreign corporation to do business under the laws of any jurisdiction in which it is not then qualified or to file any general consent to service or process), and do such other reasonable acts and things as may be required of it to enable such holder to consummate the disposition in such jurisdiction of the securities covered by such registration statement; (e) notify each holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; (f) notify each holder of Registrable Securities covered by such registration statement and such holder's underwriters, if any, and confirm such advice in writing: (i) when the registration statement has become effective, (ii) when any post-effective amendment to the registration statement becomes effective and (iii) of any request by the Commission for any amendment or supplement to the registration statement or prospectus or for additional information; (g) notify each holder of Registrable Securities if at any time the Commission should institute or threaten to institute any proceedings for the purpose of issuing, or should 14 issue, a stop order suspending the effectiveness of the registration statement. Upon the occurrence of any of the events mentioned in the preceding sentence, the Company will use diligent efforts to prevent the issuance of any such stop order or to obtain the withdrawal thereof as soon as possible. The Company will advise each holder of Registrable Securities promptly of any order or communication of any public board or body addressed to the Company suspending or threatening to suspend the qualification of any Registrable Securities for sale in any jurisdiction; (h) enter into customary agreements (including an underwriting agreement in customary form) and take such other actions as are reasonably required in order to expedite or facilitate the disposition of such Registrable Securities; and (i) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders (as understood under Rule 158 of the Securities Act), as soon as reasonably practicable, but not later than sixteen (16) months after the effective date of the registration statement, an earning statement covering the period of at least twelve (12) months beginning with the first full month after the effective date of such registration statement, which earnings statements shall satisfy the provisions of Section 11(a) of the Securities Act. It shall be a condition precedent to the obligation of the Company to take any action pursuant to this Warrant in respect of the securities which are to be registered at the request of any holder of Registrable Securities that such holder shall furnish to the Company such information regarding the securities held by such holder and the intended method of disposition thereof as the Company shall reasonably request and as shall be required in connection with the action taken by the Company. If any registration statement or comparable statement under the Securities Act refers to any registering holder or any of its affiliates, by name or otherwise, as the holder of any securities of the Company then, unless counsel to the Company advises the Company that the Securities Act requires that such reference be included in any such statement, each such holder shall have the right to require the deletion of such reference to itself and its affiliates. 14. REGISTRATION EXPENSES. All expenses incurred in complying with SECTIONS 12 AND 13 of this Warrant, including, without limitation, all registration and filing fees (including all expenses incident to filing with the NASD), printing expenses, fees and disbursements of counsel for the Company, the reasonable fees and expenses of counsel for the selling security holders (selected by those holding a majority of the shares being registered), expenses of any special audits incident to or required by any such registration and expenses of complying with the securities or blue sky laws of any jurisdictions pursuant to SECTION 13(d), shall be paid by the Company, except that: (a) all such expenses in connection with any amendment or supplement to the registration statement or prospectus filed more than 180 days after the effective date of such registration statement solely because any holder of Registrable Securities has not effected the disposition of the securities requested to be registered shall be paid by such holder; and 15 (b) the Company shall not be liable for any fees, discounts or commissions to any underwriter or any fees or disbursements of counsel for any underwriter in respect of the securities sold by such holder of Registrable Securities. 15. INDEMNIFICATION AND CONTRIBUTION. (a) In the event of any registration of any Registrable Securities under the Securities Act pursuant to this Warrant, the Company shall indemnify and hold harmless the holder of such Registrable Securities, such holder's directors and officers, and each other Person (including each underwriter) who participated in the offering of such Registrable Securities and each other Person, if any, who controls such holder or such participating Person within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which such holder or any such director or officer or participating Person or controlling Person may become subject under the Securities Act or any other statute or at common law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) any alleged untrue statement of any material fact contained, on the effective date thereof, in any registration statement under which such securities were registered under the Securities Act, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto, or (ii) any alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made, and shall reimburse such holder or such director, officer or participating Person or controlling Person for any legal or any other expenses reasonably incurred by such holder or such director, officer or participating Person or controlling Person in connection with investigating or defending any such loss, claim, damage, liability or action; PROVIDED, HOWEVER, that the Company shall not be ----------------- liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any alleged untrue statement or alleged omission made in such registration statement, preliminary prospectus, prospectus or amendment or supplement in reliance upon and in conformity with written information furnished to the Company by such holder specifically for use therein. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such holder or such director, officer or participating Person or controlling Person, and shall survive the transfer of such securities by such holder. (b) Each holder of any Registrable Securities, by acceptance thereof, agrees to indemnify and hold harmless the Company, its directors and officers and each other Person, if any, who controls the Company within the meaning of the Securities Act against any losses, claims, damages or liabilities, joint or several, to which the Company or any such director or officer or any such Person may become subject under the Securities Act or any other statute or 16 at common law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon information in writing provided to the Company by such holder of such Registrable Securities specifically for use in the following documents and contained, on the effective date thereof, in any registration statement under which securities were registered under the Securities Act at the request of such holder, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto. (c) If the indemnification provided for in this SECTION 15 from the indemnifying party is unavailable to an indemnified party hereunder in respect of any losses, claims, damages, liabilities or expenses referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified parties in connection with the actions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified parties shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such indemnifying party or indemnified parties, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. The parties hereto agree that it would not be just and equitable if contribution pursuant to this SECTION 15(c) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. 16. NO INCONSISTENT AGREEMENTS. The Company will not hereafter enter into any agreement with respect to its securities which is inconsistent with the rights granted to the holders of Registrable Securities in this Warrant. The Company has not previously entered into any agreement with respect to any of its securities granting any registration rights to any Person, other than registration rights granted in respect of this Warrant, the Shares and those agreements set forth on SCHEDULE 16 annexed hereto. 17. NEGOTIABILITY, ETC. This Warrant is issued upon the following terms, to all of which the holder hereof by the taking hereof consents and agrees: 17 (a) subject to the transfer restrictions herein, title to this Warrant may be transferred by endorsement (by the holder hereof executing the form of assignment at the end hereof) and delivery in the same manner as in the case of a negotiable instrument transferable by endorsement and delivery; (b) subject to the transfer restrictions herein, any person in possession of this Warrant properly endorsed is authorized to represent himself as absolute owner hereof and is empowered to transfer absolute title hereto by endorsement and delivery hereof to a bona fide purchaser hereof for value; each prior taker or owner waives and renounces all of his equities or rights in this Warrant in favor of each such bona fide purchaser, and each such bona fide purchaser shall acquire absolute title hereto and to all rights represented hereby; and (c) until this Warrant is transferred on the books of the Company, the Company may treat the registered holder hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. 18. NO VOTING RIGHTS; LIMITATION OF LIABILITY. Nothing contained in this Warrant shall be construed as conferring upon the holder hereof the right to vote or to consent or to receive notice as a stockholder in respect of meetings of stockholders for the election of directors of the Company or any other matters or any rights whatsoever as a stockholder of the Company. No provisions hereof, in the absence of affirmative action by the holder to purchase shares of Common Stock, and no mere enumeration herein of the rights or privileges of the holder hereof, shall give rise to any liability of such holder for the Purchase Price or as a shareholder of the Company whether such liability is asserted by the Company or by its creditors. 19. NOTICES. Except as otherwise provided herein, whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties by another, or whenever any of the parties desires to give or serve upon another any communication with respect to this Warrant, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and shall be deemed given only if (i) delivered in person, or (ii) sent by Federal Express or nationally recognized overnight courier service, and addressed as follows: 1. If to the holder of this Warrant, at its address as shown on the books of the Company with a copy to: Proskauer Rose LLP 1585 Broadway New York, New York 10036 Attn: Ira Akselrad, Esq. 18 2. If to Company, at: DVL, Inc. 70 East 55th Street, 7th Floor New York, NY 10022 Attn: President or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration or other communication hereunder shall be deemed effective upon receipt. 20. MISCELLANEOUS. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant is being delivered in the State of New York and shall be construed and enforced in accordance with and governed by its laws. The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. This Warrant is being executed as an instrument under seal. All nouns and pronouns used herein shall be deemed to refer to the masculine, feminine or neuter, as the identity of the person or persons to whom reference is made herein may require. [INTENTIONALLY LEFT BLANK] 19 21. EXPIRATION. The right to exercise this Warrant shall expire at 5:00 P.M., New York time, on August 15, 2011. Dated: As of August 15, 2001 DVL, INC., A DELAWARE CORPORATION (Corporate Seal) By:____________________________ Name: Title: 20 FORM OF SUBSCRIPTION -------------------- (To be signed only upon exercise of Warrant) To: ___________________________ The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, _____________________ (_______) shares of Common Stock, par value $0.01 per share (the "Stock"), of DVL, Inc. (the "Company") and herewith makes payment of _____________________________ Dollars ($__________) therefor and requests that the certificates for such shares be issued in the name of, and delivered to, __________________________________ _____________________________________________________________, whose address is ____________________________________________. The undersigned represents, unless the exercise of this Warrant has been registered under the Securities Act of 1933, as amended (the "Securities Act"), that the undersigned is acquiring such Stock for his own account for investment and not with a view to or for sale in connection with any distribution thereof (except for any resale pursuant to a registration statement under the Securities Act). DATED: _______________ ________________________________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant) ________________________________________ ________________________________________ (Address) 21 SCHEDULE 16 Other Registration Rights Previously Granted by the Company Warrants issued to NPM Capital, LLC and certain employees and directors of DVL, Inc., and the Common Stock Warrant issued as of February 15, 2001 to the holder of this Warrant. 22 EX-20.01 9 c21771_ex20-01.txt DVL ANNOUNCEMENT EXHIBIT 20.01 DVL, INC. ANNOUNCES CLOSING OF SECOND ACQUISITION ------------------------------------------------- New York, New York, August 29, 2001. DVL, Inc. (OTC Bulletin Board: "DVLN") announced today that it has closed its second transaction involving the purchase of the equity interests in a securitized portfolio of periodic payment receivables with a face amount of approximately $252 million, subject to underlying indebtedness of approximately $127 million. In May 2001, DVL announced the closing of the first acquisition of the equity in four other securitized portfolios of periodic payment receivables totaling approximately $300 million, subject to underlying indebtedness of approximately $200 million. This new transaction brings the total face amount of periodic payment receivables in which the Company owns the equity to approximately $552 million subject to underlying indebtedness of approximately $327 million. In the latest transaction, DVL paid the purchase price by issuing limited recourse notes in the aggregate amount of $9,100,000, payable from cash flows generated by the underlying receivables. The notes mature on August 15, 2020, bear interest at the rate of 8% annually, and are secured by a pledge of the underlying receivables. The principal amount of the notes and the purchase price may be adjusted, from time to time, based upon the performance of the underlying receivables. In addition, DVL issued warrants for the purchase of one million shares of DVL common stock, exercisable until August 15, 2011 at a price of $.20 per share, and its guaranty of up to $910,000 of the purchase price. The Company anticipates that the annual incremental net income as a result of this new transaction, will approximate an average of $800,000 per year over the next ten years (approximately $600,000 for 2002 increasing each year for the next 17 years with significant additional income to be realized over the approximate 25 year expected life). This new transaction combined with the first acquisition should yield aggregate average net income of approximately $1,800,000 per year over the next ten years with significant additional net income over the approximate 34 year life of the assets. Alan Casnoff, President of DVL, said "these acquisitions substantially further our goal of diversifying our asset base and revenue, and are anticipated to provide significant growth in earnings and cash flow over an extended period." Gary Flicker, Chief Financial Officer of DVL, added "as a result of these two acquisitions, we anticipate adding an aggregate of approximately $900,000 ($.05 per basic share) to net income for 2001 and approximately $1,500,000 million ($.09 per basic share) for 2002." This press release contains statements which constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Included are statements regarding the intent, belief and/or current expectations of the Company and its management. The Company's stockholders and prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements. Such risks and uncertainties include, among other things, general economic conditions, and the actual performance of the portfolios of periodic payment receivables and other risks and uncertainties that may be detailed in the Company's reports filed with the Security and Exchange Commission. DVL, Inc. is a commercial finance and real estate company which owns and services real estate, commercial mortgages, residual interests in securitized portfolios and other diversified commercial and consumer finance assets. For more information, contact Gary Flicker at (212) 350-9900. -----END PRIVACY-ENHANCED MESSAGE-----