-----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, IB3rlkYgsXCDftIWSqDZjKhmJhb1MPBMNUkdnL6rsZjyv5f1pTlh7XMrf8Q0TpO5 pg1q0c2yRWYjLP+tHfWK1A== 0000930413-03-001619.txt : 20030514 0000930413-03-001619.hdr.sgml : 20030514 20030514111212 ACCESSION NUMBER: 0000930413-03-001619 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030514 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: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08356 FILM NUMBER: 03697365 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 10-Q 1 c28265_10q-.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2003 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from_____________________ to _________________________ Commission file number: 1-8356 DVL, Inc. (Exact name of registrant as specified in its charter) Delaware 13-2892858 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. employer identification no.) incorporation or organization) 70 East 55th Street, New York, New York 10022 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (212) 350-9900 Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes: _X_ No: ___ Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes: ___ No: _X_ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Class Outstanding at May 14, 2003 ----- --------------------------- Common Stock, $.01 par value 21,713,563 DVL, INC. AND SUBSIDIARIES INDEX Part I. Item 1 - Financial Information: Pages ----- Consolidated Balance Sheets - March 31, 2003 (unaudited) and December 31, 2002 1-2 Consolidated Statements of Operations - Three Months Ended March 31, 2003 (unaudited) and 2002 (unaudited) 3-4 Consolidated Statement of Shareholders' Equity - Three Months Ended March 31, 2003 (unaudited) 5 Consolidated Statements of Cash Flows - Three Months ended March 31, 2003 (unaudited) and 2002 (unaudited) 6-7 Notes to Consolidated Financial Statements (unaudited) 8-15 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 16-21 Item 3 - Quantitative and Qualitative Disclosures About Market Risk 21 Item 4 - Controls and Procedures 21 Part II. Other Information: Item 6 - Exhibits and Reports on Form 8-K 22 Signature 23-25 Exhibits 26 Part I - Financial Information Item 1. Financial Statements DVL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands) March 31, December 31, 2003 2002 -------- ----------- (unaudited) ASSETS Residual interests in securitized portfolios $ 39,121 $ 36,111 -------- -------- Mortgage loans receivable from affiliated partnerships (net of unearned interest of $14,860 for 2003 and $15,597 for 2002) 29,438 31,222 Allowance for loan losses 2,536 2,870 -------- -------- Net mortgage loans receivable 26,902 28,352 -------- -------- Cash (including restricted cash of $169 and $177 for 2003 and 2002) 2,488 2,373 Investments Real estate at cost (net of accumulated depreciation of $275 for 2003 and $226 for 2002) 8,741 8,490 Real estate lease interests 912 945 Affiliated limited partnerships (net of allowances for losses of $536 and $538, for 2003 and 2002) 1,077 1,066 Deferred income tax benefits 1,626 1,447 Other assets 695 800 -------- -------- Total assets $ 81,562 $ 79,584 ======== ======== (continued) See notes to consolidated financial statements. 1 DVL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands except share data) (continued) March 31, December 31, 2003 2002 -------- ----------- (unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Notes payable - residual interests $ 36,212 $ 33,416 Underlying mortgages payable 18,121 19,391 Long-term debt - affiliates 2,149 2,084 Long-term debt - other 8,802 8,901 Notes payable - litigation settlement 1,702 1,735 Redeemed notes payable - litigation settlement 808 810 Fees due to affiliates 484 573 Security deposits, accounts payable and accrued liabilities (including deferred income of $36 for 2003 and $18 for 2002) 345 296 -------- -------- Total liabilities 68,623 67,206 -------- -------- Commitments and contingencies Shareholders' equity: Preferred stock $10.00 par value, authorized, issued and outstanding 100 shares 1 1 Preferred stock, $.01 par value, authorized 5,000,000 Common stock, $.01 par value, authorized - 90,000,000 issued and outstanding 21,713,563 shares for 2003 and 2002 217 217 Additional paid-in capital 95,785 95,785 Deficit (83,064) (83,625) -------- -------- Total shareholders' equity 12,939 12,378 -------- -------- Total liabilities and shareholders' equity $ 81,562 $ 79,584 ======== ======== See notes to consolidated financial statements. 2 DVL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands) (Unaudited) Three Months Ended March 31, ---------------------- 2003 2002 -------- -------- Income from affiliates: Interest on mortgage loans $ 721 $ 769 Gain on satisfaction of mortgage loans 48 -- Partnership management fees 69 74 Management fees 95 46 Transaction and other fees from partnerships 36 19 Distributions from investments 30 30 Income from others: Interest income - residual interests 1,096 1,092 Net rental income (including depreciation and amortization of $49 for 2003 and $52 for 2002) 300 199 Other income and interest 9 9 -------- -------- 2,404 2,238 Operating expenses: General and administrative 399 391 Asset Servicing Fee - NPO Management LLC 164 161 Legal and professional fees 58 90 Interest expense: Underlying mortgages 357 470 Notes payable - residual interests 690 699 Affiliates 71 71 Litigation Settlement Notes 68 80 Others 190 126 -------- -------- 1,997 2,088 -------- -------- Income before income tax benefit 407 150 Income tax benefit (154) -- -------- -------- Net income $ 561 $ 150 ======== ======== (continued) See notes to consolidated financial statements. 3 DVL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands except share and per share data) (unaudited) (continued) Three Months Ended March 31, -------------------------- 2003 2002 ----------- ----------- Basic earnings per share: Net income $ .03 $ .01 =========== =========== Diluted earnings per share: Net income $ .01 $ .00 =========== =========== Weighted average shares outstanding - basic 21,713,563 21,713,563 Effect of dilutive securities 32,487,535 43,664,626 ----------- ----------- Weighted average shares outstanding - diluted 54,201,098 65,378,189 =========== =========== See notes to consolidated financial statements. 4 DVL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands except share data) (unaudited)
Preferred Stock Common Stock Additional ---------------- ------------------- paid-in Shares Amount Shares Amount capital Deficit Total ------- ------ ---------- ------ ------- -------- ------- Balance-January 1, 2003 100 $ 1 21,713,563 $ 217 $95,785 $(83,625) $12,378 Net income -- -- -- -- -- 561 561 ------- ------ ---------- ------ ------- -------- ------- Balance-March 31, 2003 100 $ 1 21,713,563 $ 217 $95,785 $(83,064) $12,939 ======= ====== ========== ====== ======= ======== =======
See notes to consolidated financial statements. 5 DVL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Three Months Ended March 31, ------------------ 2003 2002 ------ ------ Cash flows from operating activities: Income before adjustments $ 561 $ 150 Adjustments to reconcile net income to net cash provided by (used in) operating activities Interest income accreted on residual interests (122) (89) Accrued interest added to indebtedness 65 85 Gain on satisfactions of mortgage loans (48) -- Depreciation 49 19 Amortization of unearned interest on loan receivables (69) (40) Amortization of real estate lease interests 33 33 Imputed interest on notes 68 80 Stock issued for services received -- 32 Net increase in deferred income tax benefits (179) -- Net decrease (increase) in prepaid financing and other assets 105 (45) Net increase (decrease) in accounts payable, security deposits and accrued liabilities 31 (650) Net decrease in fees due to affiliates (89) (89) Net increase in deferred income 18 27 ------ ------ Net cash provided by (used in) operating activities 423 (487) ------ ------ Cash flows from investing activities: Collections on residual interests 7 -- Collections on loans receivable 1,267 456 Real estate acquisitions and capital improvements -- (25) Net increase in affiliated limited partnership interests and other investments (11) -- ------ ------ Net cash provided by investing activities 1,263 431 ------ ------ (continued) See notes to consolidated financial statements 6 DVL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) (continued) Three Months Ended March 31, -------------------- 2003 2002 ------- ------- Cash flows from financing activities: Proceeds from new borrowings $ -- $ 400 Repayment of indebtedness (200) (128) Payments on underlying mortgages payable (1,270) (543) Payments on notes payable - residual interest (99) (112) Payments related to debt redemptions (2) (12) ------- ------- Net cash used in financing activities (1,571) (395) ------- ------- Net increase (decrease) in cash 115 (451) Cash, beginning of period 2,373 2,987 ------- ------- Cash, end of period $ 2,488 $ 2,536 ======= ======= Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 1,315 $ 1,254 ======= ======= Supplemental disclosure of non-cash investing and financing activities: Residual interests in securitized portfolios - increase (decrease) $ 2,895 $ (625) ======= ======= Notes payable - residual interests - increase (decrease) $ 2,895 $ (625) ======= ======= Foreclosure on mortgage loan receivable collateralized by real estate $ 300 $ -- ======= ======= See notes to consolidated financial statements. 7 DVL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Dollars in thousands unless otherwise noted (except share and per share amounts) 1. Basis of Presentation In the opinion of DVL, Inc. ("DVL" or the "Company"), the accompanying financial statements contain all adjustments (consisting of only normal accruals) necessary in order to present a fair presentation of the financial position of DVL and the results of its operations for the periods set forth herein. The results of the Company's operations for the three months ended March 31, 2003 should not be regarded as indicative of the results that may be expected from its operations for the full year. Certain amounts from the three months ended March 30, 2002 have been reclassified to conform to the presentation for the three months ended March 31, 2003. For further information, refer to the consolidated financial statements and the accompanying notes included in DVL's Annual Report on Form 10-K for the year ended December 31, 2002. 2. Residual Interests In Securitized Portfolios During 2001, the Company, through its wholly-owned consolidated subsidiary, S2 Holdings Inc. ("S2"), acquired 99.9% Class B member interests in Receivables II-A LLC, a limited liability company ("Receivables II-A") and Receivables II-B LLC, a limited liability company ("Receivables II-B"), from an unrelated party engaged in the acquisition and management of periodic payment receivables. The Class B member interests entitle the Company to be allocated 99.9% of all items of income, loss and distribution of Receivables II-A and Receivables II-B. Receivables II-A and Receivables II-B solely receive the residual cash flow from five securitized receivable pools after payment to the securitized noteholders. The Company purchased its interests for an aggregate purchase price of $35,791, including costs of $1,366, which included the issuance of warrants, valued at $136, for the purchase of 3 million shares of the common stock of DVL, exercisable until 2011 at a price of $.20 per share and investment banking fees to an affiliate aggregating $900. The purchase price was paid by the issuance of 8% per annum limited recourse promissory notes by S2 in the aggregate amount of $34,425. Principal and interest are payable from the future monthly cash flow. The notes mature August 15, 2020 through December 31, 2021 and are secured by a pledge of S2's interests in Receivables II-A, Receivables II-B and all proceeds and distributions related to such interests. The principal amount of the notes and the purchase price are adjusted, from time to time, based upon the performance of the underlying receivables. DVL also issued its guaranty of payment of up to $3,443 of the purchase price. The amount of the guaranty is regularly reduced by 10% of the principal paid. The amount of the guaranty at March 31, 2003 was $3,385. Payments, if any, due under this guaranty are payable after August 15, 2020. In accordance with the purchase agreements, from the acquisition dates through March 31, 2003, the residual interests in securitized portfolios and the notes payable were increased by approximately $2,363 as a result of purchase price adjustments. The following table reconciles the initial purchase price with the carrying value at March 31, 2003: Initial purchase price $ 35,791 Adjustments to purchase price 2,363 Principal payments (48) Accretion 1,015 -------- $ 39,121 ======== 8 The purchase agreements contain annual minimum and maximum levels of cash flow that will be retained by the Company, after the payment of interest and principal on the notes payable, which are as follows: Years Minimum Maximum ----- ------- ------- 2003 to 2009 $ 743 $ 880 2010 to final payment on notes payable* $1,050 $1,150 * Final payment on the notes payable expected 2016 related to the Receivables II-A transaction and 2018 for the Receivables II-B transaction. The Company believes it will receive significant cash flows after final payment of the notes payable. 3. Mortgage Loans Receivable Virtually all of DVL's loans receivable arose out of transactions in which affiliated limited partnerships purchased commercial, office and industrial properties typically leased on a long-term basis to unaffiliated creditworthy tenants. Each mortgage loan is collateralized by a lien, subordinate to senior liens, on real estate owned by the affiliated limited partnership which owns such property. DVL's loan portfolio is comprised of long-term wrap-around and other mortgage loans due from affiliated limited partnerships. 4. Real Estate The Company, directly and through various wholly owned subsidiaries, currently owns the following properties: (1) Eight buildings totaling 347,000 square feet on eight acres located in an industrial park in Kearny, NJ leased to various unrelated tenants. (2) An 89,000 square foot building in Kearny, NJ, which adjoins the property described above currently leased to K-Mart Stores, Inc. ("K-Mart"). (3) A vacant 31,000 square foot former Grand Union Supermarket and approximately six acres of land underlying the building. On March 12, 2003, the Company entered into an agreement to sell a portion of the property for $185. There is no assurance that the transaction will be completed. The property, which was acquired through foreclosure on a mortgage, was recorded at $416, which was the net carrying value of the mortgage at the date of foreclosure and was less than the fair value at that date. (4) A vacant 32,000 square foot former Ames Department Store and approximately 1 acre of land underlying the building. The property, which was acquired through foreclosure on a mortgage, was recorded at $300, which was the net carrying value of the mortgage at the date of foreclosure and was less than the fair value at that date. 5. Notes Payable - Litigation Settlement/Redemptions In December 1995, DVL completed its obligations under a 1993 settlement of its class action litigation by, among other things, issuing notes to the plaintiffs (the "Notes") in the aggregate principal amount of $10,387. The Notes, which are general unsecured obligations of DVL, accrue interest at a rate of ten (10%) percent per annum, with principal under the Notes, together with all accrued and unpaid interest thereunder, due on December 31, 2005. The Company has the option to redeem the outstanding Notes by issuing shares of Common Stock (See Note 8, Shareholder's Equity). 9 To date, the Company has sent redemption letters to note holders who held Notes that aggregated approximately $1,145, offering to pay the Notes in cash at face value plus accrued interest of approximately $49. As of March 31, 2003, $386 has been paid and the remaining $808 payable is reflected as a non-interest bearing liability. Additionally, the Company entered into an agreement in December 2001 with Blackacre Bridge Capital, LLC ("BBC") under which BBC exchanged $1,188 principal amount of Notes ($862 carrying value) for 4,753,113 shares of DVL's common stock valued at $380. Since October 1997, the Company has conducted three cash tender offers at a tender offer price of $0.12 per $1.00 principal amount of Notes, resulting in the retirement of approximately $9,016 principal amount of Notes. Accordingly, notes with an aggregate principal amount of approximately $1,947 remain outstanding as of March 31, 2003 (carrying value $1,702). 6. Transactions with Affiliates A. The Company has provided management, accounting, and administrative services to certain entities which are affiliated with NPO Management, LLC ("NPO") and/or, Blackacre Capital, LLC ("Blackacre"), which are entities engaged in real estate lending and management transactions and are affiliated with certain stockholders and insiders of the Company. The fees received from management service contracts are as follows: Fees Received Fees Received For The Three For The Three Months Ended Months Ended Affiliate Of 03/31/03 03/31/02 - ------------ ------------- ------------- NPO and Blackacre $ 13 $ 13 NPO (1) $ 105 $ 96 (1) Of the total cash received for the three months ended March 31, 2003 and 2002, $39 and $78 respectively, represented prior deferred fees paid in the first quarter of 2003 and 2002. The Company is entitled to a current fee of $2 per month and a deferred fee of $7 per month paid annually in the first quarter of the fiscal year. In addition, the Company received annual incentive fees of $48 and $0 during the three months ending March 31, 2003 and 2002, respectively. B. Millennium Financial Services, an affiliate of NPO, has received fees representing compensation, and reimbursement of expenses for collection services as follows: Fees For The Fees For The Three Months Three Months Ended 03/31/03 Ended 03/31/02 -------------- -------------- $ 47 $ 30 In connection with the sales of property owned by affiliated limited partnerships, a licensed real estate brokerage affiliate of the Pembroke Group was paid brokerage fees as follows: Fees For The Fees For The Three Months Three Months Ended 03/31/03 Ended 03/31/02 -------------- -------------- $ 12 $ -0- 10 The Pembroke Group and the Millenium Group, whose members are affliates of NPO, were issued a total of 400,000 shares of common stock, valued at $32, during the first quarter of 2002 for additional services rendered to the Company outside the scope of the Asset Servicing Agreement (defined below). C. In connection with the acquisitions of residual interests in Receivables II-A and Receivables II-B, affiliates of NPO and the special director of the Company will be paid investment banking fees of $900 in aggregate for their services in connection with the origination, negotiation and structuring of the transactions. The fee is payable without interest, over 30 months starting January, 2002, from a portion of the monthly cash flow generated by the acquisitions. At March 31, 2003, $450 remained payable. D. Interest expense on amounts due to affiliates was as follows: Three Months Three Months Ended Ended 03/31/03 03/31/02 ------------ ------------ Blackacre Capital Group, LLC $ 70 $ 66 NPO 1 5 ------------ ------------ $ 71 $ 71 ============ ============ E. The Company recorded fees to NPO of $164 and $161 for the three months ended March 31, 2003 and 2002, respectively, plus other expenses of $2 in each period under the Asset Servicing Agreement (the "Asset Servicing Agreement" between the Company and NPO, pursuant to which NPO provides the Company with administrative and advisory services relating to the assets of the Company and its Affiliated Limited Partnerships). During 2003 and 2002 the Company provided office space under the Asset Servicing Agreement to NPO consisting of 228 square feet of the Company's New York location. 7. Contingent Liabilities Pursuant to the terms of the Limited Partner Settlement, a fund has been established into which DVL is required to deposit 20% of the cash flow received on certain of its mortgage loans from Affiliated Limited Partnerships after repayment of certain creditors, 50% of DVL's receipts from certain loans to, and general partnership investments in, Affiliated Limited Partnerships and a contribution of 5% of DVL's net income (based on accounting principles generally accepted in the United States of America) subject to certain adjustments in the years 2001 through 2012. The adjustments are significant enough that no amounts were accrued for the three months ended March 31, 2003 and 2002. During the three months ended March 31, 2003 and 2002 the Company expensed approximately $37 and $1, respectively, for amounts due to the fund of which approximately $36, and $-0-, respectively, was accrued at March 31, 2003 and 2002. These costs have been netted against the gain on satisfaction of mortgages and/or interest on mortgage loans, where appropriate. The real estate lease interest held by the Company's subsidiary, Professional Service Corporation, is subject to a master lease agreement through June 2010 which requires monthly payments of approximately $39. The master lease payments are netted against rental income in the Company's financial statements. DVL is a limited recourse guarantor on debt of approximately $2,302 which is secured soley by DVL's interest in the property. 11 8. Shareholder's Equity The Company has the option to redeem the outstanding Notes (approximately $1,947 at March 31, 2003) by issuing additional shares of Common Stock with a then current market value (determined based on a formula set forth in the Notes), equal to 110% of the face value of the Notes plus any accrued and unpaid interest thereon. Because the applicable market value of the Common Stock will be determined at the time of redemption, it is not possible currently to ascertain the precise number of shares of Common Stock that may have to be issued to redeem the outstanding Notes. The redemption of the notes may cause significant dilution for current shareholders. In 1996, affiliates of NPM acquired 1,000,000 shares (the "Base Shares") of DVL Common Stock and DVL issued to affiliates of NPM and NPO warrants (the "Warrants") to purchase shares of Common Stock which, when added to the Base Shares, aggregates 49% of the outstanding Common Stock of DVL, adjusted for shares of common stock subsequently issued to and purchased by affiliates of NPM and NPO, on a diluted basis expiring December 31, 2007. The original exercise price of the Warrants was $.16 per share, subject to applicable anti-dilution provisions, including; without limitation, anti-dilution protection from any redemption of the Notes and subject to a maximum aggregate exercise price of $1,900. At March 31, 2003, shares underlying the Warrants aggregated 20,348,538 at an exercise price of $0.09. No warrants have been exercised through March 31, 2003. The actual dilutive effect of the Warrants and the Notes cannot be currently ascertained since it depends on the number of shares to be actually issued to satisfy the Notes and the Warrants. The Company currently intends to exercise at some point in the future its redemption option to the extent it does not buy back the outstanding Notes by means of cash tender offers or cash redemptions. RESTRICTION ON CERTAIN TRANSFERS OF COMMON STOCK: Each share of the stock of the Company includes a restriction prohibiting sale, transfer, disposition or acquisition of any stock until September 30, 2009 without the prior consent of the Board of Directors of the Company by any person or entity that owns or would own 5% or more of the issued and outstanding stock of the Company if such sale, purchase or transfer would, in the opinion of the Board, jeopardize the Company's preservation of its federal income tax attributes under Section 382 of the Internal Revenue Code. 12 9. Earnings per share (unaudited) The following tables present the computation of basic and diluted per share data for the three months ended March 31, 2003 and 2002.
Three Months Ended March 31, ---------------------------------------------------------------------------- 2003 2002 --------------------------------- ------------------------------------- Weighted Weighted Average Average Number of Per Share Number of Per Share Amount Shares Amount Amount Shares Amount ----- ---------- -------- ------ ---------- --------- Basic EPS, Income available to common stockholders $ 561 21,713,563 $ .03 $ 150 21,713,563 $ 0.01 ======== ======= Effect of litigation settlement notes 68 12,138,997 80 19,421,885 Effect of dilutive stock options and warrants -- 20,348,538 -- 24,242,741 ----- ---------- ------ ---------- Diluted EPS, Income available to common stockholders $ 629 54,201,098 $ .01 $ 230 65,378,189 $ 0.00 ===== ========== ======== ====== ========== =======
13 At March 31, 2003 and 2002 there were 3,893,131 and 4,008,131, respectively, potentially dilutive options and warrants excluded from the computation of Diluted EPS because the exercise price was greater than the average market price of the Common Stock, thereby resulting in an anti-dilutive effect. The following pro forma information regarding net income and earnings per share is required by Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS No. 123"). March 31, ------------------- 2003 2002 ------- ------- Net income $ 561 $ 150 Proforma charge for stock options -- -- ------- ------- Proforma net income $ 561 $ 150 ======= ======= Earnings per share: Basic $ 0.03 $ 0.01 ======= ======= Diluted $ 0.01 $ 0.00 ======= ======= Proforma earnings per share Basic $ 0.03 $ 0.01 ======= ======= Diluted $ 0.01 $ 0.00 ======= ======= 10. Segment Information The Company has two reportable segments; real estate and residual interests. The real estate business is comprised of real estate assets, mortgage loans on real estate, real estate management and investments in affiliated limited partnerships which own real estate. The residual interests business is comprised of investments in residual interests in securitized receivables portfolios. The corporate/other net income of $131 and $9 in 2003 and 2002 respectively, include $179 and $-0- of deferred income tax benefit, respectively. March 31, -------------------- 2003 2002 ------- -------- Revenues Real estate $ 1,299 $ 1,137 Residual interests 1,096 1,092 Corporate/Other 9 9 ------- -------- Total consolidated revenues $ 2,404 $ 2,238 ======= ======== Net income Real estate $ 26 $ (252) Residual interests 404 393 Corporate/Other 131 9 ------- -------- Total consolidated net income $ 561 $ 150 ======= ======== Assets Real estate $42,441 $ 41,935 Residual interests 39,121 36,370 ------- -------- Total consolidated assets $ 81,562 $ 78,305 ======== ======== 14 11. Income Taxes The Company accounts for income taxes under the provisions of Statement of Financial Accounting Standards No. 109 ("FAS 109"), which requires the Company to recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. In addition, FAS l09 requires the recognition of future tax benefits such as net operating loss carryforwards, to the extent that realization of such benefits is more likely than not. In 2003 the Company recognized $154 of income tax benefit as a result of a reduction in the valuation allowance on deferred tax assets. In 2002 the provision for income taxes was completely offset by the reduction in the valuation allowance on deferred tax assets. 12. Subsequent Events Effective April 1, 2003, the Company entered into an employee "leasing" contract with Compensation Solutions, Inc. ("CSI"). Under such agreement, all personnel working for the Company, including the Company's executive officers, are actually employed by CSI and "leased" to the Company. CSI provides such employees with their medical, unemployment, workmen's compensation and disability insurance through group insurance plans maintained by CSI for the Company and other clients of CSI. Pursuant to the contract, the cost of such insurance as well as the payroll obligations for the leased employees is funded by the Company to CSI, and CSI is required to then apply such proceeds to cover the payroll and administrative costs to the employees. Should CSI fail to meet its obligations under the Contract, the Company would be required to either locate a substitute employee leasing firm or directly re-employ its personnel. The contract has a one year term after which it is cancelable with 30 days written notice by either party. 15 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (in thousands) This March 31, 2003 Quarterly Report on Form 10-Q 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. Those statements include statements regarding the intent, belief or current expectations of DVL and its management team. DVL'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 other risks and uncertainties that are discussed herein and in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2002. CRITICAL ACCOUNTING POLICIES AND ESTIMATES - ------------------------------------------ The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principals generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to residual interests and allowance for losses. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilties that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. RESIDUAL INTERESTS: Residual interests represent the estimated discounted cash flow of the differential of the total interest to be earned on the securitized receivables and the sum of the interest to be paid to the noteholders and the contractual servicing fee. Since these residual interests are not subject to prepayment risk they are accounted for as investments held-to-maturity and are carried at amortized cost using the effective yield method. Permanent impairments are recorded immediately through earnings. Favorable changes in future cash flows are recognized through earnings as interest over the remaining life of the retained interest. INCOME RECOGNITION: Interest income is recognized on the effective interest method for the residual interest and all performing loans. The Company stops accruing interest once a loan becomes non-performing. A loan is considered non-performing when scheduled interest or principal payments are not received on a timely basis and in the opinion of management, the collection of such payments in the future appears doubtful. Interest income on restructured loans are recorded as the payments are received. ALLOWANCE FOR LOSSES: The adequacy of the allowance for losses is determined through a quarterly review of the portfolios. Specific loss reserves are provided as required based on management's evaluation of the underlying collateral on each loan or investment. DVL's allowance for loan losses generally is based upon the value of the collateral underlying each loan and its carrying value. Management's evaluation considers the magnitude of DVL's non-performing loan portfolio and internally generated appraisals of certain properties. 16 For the Company's mortgage loan portfolio, the partnership properties are valued based upon the cash flow generated by base rents and anticipated percentage rents or base rent escalations to be received by the partnership. The value of partnership properties which are not subject to percentage rents was based upon historial appraisals. Management believes that generally, the values of such properties have not changed as the tenants, lease terms and timely payment of rent have not changed. When any such changes have occurred, management revalues the property as appropriate. Management evaluates and updates such appraisals periodically, and considers changes in the status of the existing tenancy in such evaluations. Certain other properties were valued based upon management's estimate of the current market value for each specific property using similar procedures. LIMITED PARTNERSHIPS: DVL does not consolidate any of the various Affiliated Limited Partnerships in which it holds the general partner and limited partner interests nor does DVL account for such interests on the equity method due to the following: (i) DVL's interest in the partnerships as the general partner is a 1% interest, (the proceeds of such 1% interest is payable to the limited partnership settlement fund pursuant to the 1993 settlement of the class action between the limited partners and DVL) the ("Limited Partnership Settlement"); (ii) under the terms of such settlement, the limited partners have the right to remove DVL as the general partner upon the vote of 70% or more of the limited partners; (iii) all major decisions must be approved by a limited partnership Oversight Committee in which DVL is not a member, (iv) there are no operating policies or decisions made by the Affiliated Limited Partnership, due to the triple net lease arrangements for the Affiliated Limited Partnership properties and (v) there are no financing policies determined by the partnerships as all mortgages were in place prior to DVL's obtaining its interest and all potential refinancings are reviewed by the Oversight Committee. Accordingly, DVL accounts for its investments in the Affiliated Limited Partnerships, on a cost basis with the cost basis adjusted for impairments which took place in prior years. RESULTS OF OPERATIONS - --------------------- THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THREE MONTHS ENDED MARCH 31, 2002 DVL had net income of $561 and $150 for the three months ended March 31, 2003 and 2002, respectively. Interest income on mortgage loans from affiliates decreased (2003 - $721, 2002 - $769) and interest expense on underlying mortgages decreased (2003 - $357, 2002 - - $470). During 2002, the Company disposed of one mortgage loan, which had an underlying mortgage and stopped accruing interest income on two mortgage loans which were delinquent. Gain on satisfaction of mortgage loans was as follows: Three Months Ended Three Months Ended March 31, 2003 March 31, 2002 ------------------ ------------------ $ 48 $ -0- The gain in 2003 was a result of the Company collecting net proceeds on the satisfaction of a mortgage loan that was greater than its carrying value. Transaction and other fees from affiliated limited partnerships were as follows: Three Months Ended Three Months Ended March 31, 2003 March 31, 2002 ------------------ ------------------ $ 36 $ 19 17 Transaction fees are earned by the Company in connection with sales of partnership properties, and the Company sold more partnership properties during the first quarter 2003 compared to the first quarter 2002. Interest income on residual interests (2003 - $1,096, 2002 - $1,092) and interest expense on the related notes payable (2003 - $690, 2002 - $699) remained consistent as the periodic payment receivables continued to perform. Three Months Ended Three Months Ended March 31, 2003 March 31, 2002 ------------------ ------------------ Net rental income from others $ 300 $ 199 Gross rental income from others $ 639 $ 573 The increase in net rental income from 2002 to 2003 was the result of higher gross rents as the Company obtained a temporary tenant at a higher rent for the property which the Company operates under a master lease. It is not anticipated that this increase will continue. General and administrative expenses increased (2003 - $399, 2002 - $391). The primary reason for the increase was greater insurance costs. The asset servicing fee due from the Company to NPO increased (2003 - $164, 2002 - - $161) pursuant to its terms due to an increase in the consumer price index. Legal and professional fees decreased (2003 - $58, 2002 - $90) as a result of the issuance of stock valued at $32 for services rendered by an affiliate to the Company in 2002. Interest expense on the litigation settlement notes decreased (2003 - $68, 2002 - - $80) as a result of the redemption of litigation settlement notes during 2002. Interest expense relating to other debts increased (2003 - $190, 2002 - $126) primarily due to the Company borrowing $3,968 in August 2002 to finance the purchase of real estate. In 2003, the Company recognized $154 of income tax benefit as a result of a reduction in the valuation allowance on deferred tax assets. In 2002 the provision for income taxes was completely offset by the reduction in the valuation allowance on deferred tax assets utilized during the quarter. 18 LIQUIDITY AND CAPITAL RESOURCES The Company's cash flow from operations is generated principally from rental income from its leasehold interests and ownership of real estate, distributions in connection with the residual interests in securitized portfolios, interest on its mortgage portfolio, management fees and transaction and other fees received as a result of the sale and/or refinancing of partnership properties and mortgages. The Company believes that its anticipated cash flow provided by operations is sufficient to meet its current cash requirements through at least May, 2004. The Company believes that its current liquid assets will be sufficient to fund operations on a short-term basis as well as on a long-term basis. The Company obtained an unsecured line of credit on December 15, 2002 for $500,000 with an interest rate of prime plus one percent per annum and terminates December 15, 2003. To date the Company has not drawn on the line of credit. The terms of the line of credit provide that interest shall be payable on the first day of each month. The Company's acquisition in 2001 of its member interests in Receivables II-A and Receivables II-B should provide significant liquidity to the Company. The purchase agreements with respect to such acquisition contain annual minimum and maximum levels of cash flow that will be retained by the Company after the payment of interest and principal on the notes payable, which are as follows: Years Minimum Maximum ----- ------- ------- 2003 to 2009 $ 743 $ 880 2010 to final payment on the notes* $1,050 $1,150 * Final payment on the notes payable expected 2016 related to the Receivables IIA transaction and 2018 for the Receivables IIB transaction. The Company believes it will receive significant cash flow after final payment of the notes payable. 19 ACQUISITIONS AND FINANCINGS Loans which are scheduled to become due through 2008 are as follows: Outstanding Principal Original Balance at Loan March 31, Due Purpose Creditor Amount 2003 Date - ------- -------- -------- ----------- ---- Repurchase of Notes Issued by the Company Blackacre(1) $ 1,560 $ 2,149 09/30/03 Purchase of Mortgages Unaffiliated Bank(2)(3) $ 1,000 $ 562 05/01/06 Purchase of a Mortgage and Refinancing of Existing Mortgages Unaffiliated Bank(2)(3) $ 1,450 $ 712 11/30/06 Purchase of Real Estate Assets Unaffiliated Bank(4) $ 4,500 $ 4,500 09/01/04 Purchase of Mortgages Unaffiliated Bank(5)(2) $ 400 $ 333 06/01/06 Purchase of Real Estate Assets Unaffiliated Bank(6)(7) $ 2,668 $ 2,636 06/30/08 (1) Interest rate is 12% per annum, compounded monthly. Interest is added to principal and is paid from a portion of cash received in satisfaction of certain mortgage loans. (2) This loan self-amortizes. (3) Interest rate is prime plus 1.5% per annum payable monthly. (4) Interest rate is 8.5% per annum. Monthly payments are interest only. (5) Interest rate is 8.25% per annum payable monthly. (6) Interest rate is 7.5% per annum with a balloon payment due June 30, 2008 of $2,285. 20 IMPACT OF INFLATION AND CHANGES IN INTEREST RATES - ------------------------------------------------- The Company's portfolio of mortgage loans made to affiliated limited partnerships consists primarily of loans made at fixed rates of interest. Therefore, increases or decreases in market interest rates are generally not expected to have an effect on the Company's earnings. Other than as a factor in determining market interest rates, inflation has not had a significant effect on the Company's net income. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK DVL has no substantial cash flow exposure due to interest rate changes for long term debt obligations, because a majority of the long-term debt is at fixed rates. DVL primarily enters into long-term debt for specific business purposes such as the repurchase of debt at a discount, the acquisition of mortgage loans or the acquisition of real estate. DVL's ability to realize value on its mortgage holdings is sensitive to interest rate fluctuations in that the sales prices of real property and mortgages vary with interest rates. ITEM 4. CONTROLS AND PROCEDURES In designing and evaluating the disclosure controls and procedures, the Company's management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurances of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Within 90 days prior to the date of this report, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and prodedures are effective in timely alerting them to material information required to be included in our periodic SEC reports. In addition, we reviewed our internal controls, and there have been no significant changes in our internal controls or in other factors that could significantly affect those controls subsequent to the date of their last evaluation. 21 Part II - Other Information Item 6. EXHIBITS AND REPORTS ON FORM 8-K (A) Exhibits: 10.1 Client Service Agreement between the Company and Compensation Solutions, Inc. dated March 28, 2003 99.1 Chief Executive Officer and Chief Financial Officer Certificate Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 (B) There were no reports of Form 8-K filed during the three months ended March 31, 2003 22 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 thereunto duly authorized. DVL, INC. By: /s/ Jay Thailer ----------------------------- Jay Thailer, Executive Vice President and Chief Financial Officer May 14, 2003 23 CERTIFICATIONS I, Alan E. Casnoff, certify that: 1. I have reviewed this quarterly report on Form 10-Q of DVL, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ Alan E. Casnoff - ----------------------- Alan E. Casnoff Chief Executive Officer May 14, 2003 24 CERTIFICATIONS I, Jay Thailer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of DVL, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ Jay Thailer - ----------------------- Jay Thailer Chief Financial Officer May 14, 2003 EX-10.1 3 c28265_ex10-1.txt Exhibit 10.1 CLIENT SERVICE AGREEMENT COMPENSATION SOLUTIONS INC 169 RAMAPO VALLEY ROAD OAKLAND, NJ 07436 201-405-1115 THIS AGREEMENT made this 26th day of March, 2003 by and between COMPENSATION SOLUTIONS INC., d.b.a. COMPSolutions a New Jersey Corporation, (hereinafter "CSI"), and DVL, Inc. (hereinafter "CLIENT"), whose Federal ID Number is 13-2892858, and whose principal place of business is located at 70 EAST 55TH STREET , NEW YORK, NEW YORK 10022 WHEREAS, CSI Is engaged in the business of managing and Co-Employing personnel and providing consulting and administrative services associated with payroll and related activities and; WHEREAS, CLIENT is in need of some or all of the aforesaid services and wishes to take advantage of CSI's skills and utilize CSI's services as listed above. NOW THEREFORE, in consideration of the following terms and covenants, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. TERM: This Agreement shall be effective for an initial term of one (1) year ("Initial Term"), commencing on March 31, 2003 (hereinafter "Commencement Date"), and shall automatically renew for additional one (1) year periods thereafter ("Extended Term"), unless either party gives written notice to the other party of their intent not to renew this Agreement at least thirty (30) days prior to the expiration of the Initial Terms or any extension thereof. 2. PERSONNEL: (A) TRANSFER: CLIENT agrees to transfer to the payroll of CSI all existing and future personnel to be hired by CLIENT (individually and collectively hereinafter referred to as "Transferred Employees"). (B) ACCEPTANCE: Prior to acceptance of CLIENT's Transferred Employees by CSI, CLIENT must furnish CSI with necessary information for each Transferred Employee's, name, address, social security number, CSI's employment application and enrollment form, CLIENT's employment application, if any, worker's compensation code classification, W-4 withholding form, Employment Eligibility Verification Form I-9, and any other information reasonably requested by CSI. CLIENT agrees to verify all payroll data submissions of Transferred Employees. CSI shall not be considered an employer of any Transferred Employees until each of the foregoing is completed and submitted to CSI, and CSI notifies CLIENT that each Transferred Employee has been accepted, at which time the Transferred Employees shall become employees of CSI (hereinafter individually and collectively referred to as "Co-Employees" or "Leased Employees"). (C) ASSIGNMENT: Co-Employees shall be immediately assigned by CSI to one or more of CLIENT's work sites, and CLIENT agrees to accept such assignments. 3. SERVICES: CSI agrees to: (A) assume full responsibility for such administrative employment matters as payment of federal, state and local employment taxes, worker's compensation coverage, and fringe benefits (i.e. Life Insurance, Health Insurance, Disability Insurance, 401(k) Plan, Dental Insurance, Short-Term & Long-Term Disability Insurance and COBRA coverage, among others) for its co-employees; (B) assume responsibility for the payment of wages to each Co-employee without regard to payments by CLIENT to CSI, except that the provisions of this section shall not affect the CLIENT's obligations with respect to the payment of wages of Co-employees, and nothing herein shall abrogate or diminish that responsibility; (C) assume full responsibility for the payment of payroll taxes and collection of taxes from the payroll of the Co-Employees; CSI shall hold CLIENT harmless from direct out-of-pocket expenses of CLIENT which may result if such payroll taxes are not properly withheld or remitted to the appropriate governmental agencies; (D) to provide workers' compensation coverage for Co-Employees while they are employees of and performing services for CSI; (E) give written notice of the relationship between CLIENT and CSI to each Co-Employee CSI assigns to perform services at CLIENT's work site; 1 (F) acknowledge that it will have fiduciary obligations with respect to funds delivered to it by CLIENT on account of payroll, payroll taxes, and employees' benefits for the Co-Employees. In accord with said fiduciary obligations CSI agrees that it will use said funds exclusively for these purposes and that any other use of these funds shall be a material breach of this Agreement; and (G) provide the following ancillary and convenience services: (i.) Dependent Care Assistance Programs, Dependent Child Care Plans, and Medical Expense Reimbursement Accounts; (ii.) An Employee Assistance Program; (iii.) Employee Handbooks and Supervisor's Policy and Procedure Manuals; (iv.) Safety Compliance Assistance, including consultations and seminars; (v.) Employment Law advice, including consultations and seminars; (vi.) Advise and consultation on Governmental Employment Regulations; (vii.) Convenience services for co-employees including, but not limited to, Credit Counseling, Credit Union Membership, Dependent Care Services, Direct Deposit of Payroll, Travel Club Membership, Rent A Car services, Financial Planning and Estate Planning Services, Vision Services, Prepaid Legal Services, Transportation Pre-Tax Expense Programs, Health Club Membership, Bank Loans and other "cafeteria style benefits;" (viii.) Provision of these services shall entail CSI Human Resources Personnel being on site at CLIENT'S workplace from time-to-time, as reasonably determined by CSI. 4. LIMITATIONS: (A) At the end of each pay period, CLIENT shall furnish CSI with records of actual time worked by each Co-Employee, and verify each Co-Employee's exempt or non-exempt status and that the hours reported are accurate and in accordance with the requirements of the Fair Labor Standards Act and any other applicable laws relating to wages, hours or otherwise. These records shall become the basis for CSI to issue all payroll checks and CSI shall not be responsible for incorrect, improper, or fraudulent records of hours worked, or for the improper determination of exempt status. All time cards, time records and/or puch clock records will be retained by CLIENT for a minimum of six (6) years, and such records and data will be provided to CSI or a governmental unit with appropriate jurisdiction within a reasonable after the request for same. (B) Except as required by applicable state or federal law, CSI shall not be considered an employer of any individual for whom payroll information whatsoever is not supplied by CLIENT during any payroll period. CLIENT understands that CSI's responsibility and liability is specifically limited and conditioned upon receipt of information from the CLIENT, the timeliness of same, and CLIENT's compliance with its payment obligations under this contract. (C) CSI will provide only the services specified herein and no other services shall be provided or implied, including, without limitation, any strategic, operational or other business related decisions with regard to CLIENT's business. CSI will not provide any equipment to the employees. If any supervisory employees are being co-employed by CLIENT hereunder, the scope of employment of such supervisory employees' is limited to labor related matters. Any other services provided by such supervisory employees will be outside the scope of this Agreement, and in such an event; such supervisory employees will be acting solely as agents of CLIENT. (D) CLIENT expressly acknowledges that CSI shall not be liable for CLIENT's loss of business goodwill, profits or other consequential, special, or incidental damages, and CLIENT shall hold harmless and indemnify, CSI's shareholders, non-co-employed employees, attorneys, officers, directors, agents and representatives for any loss of the same. Further, CSI does not assume responsibility for, and makes no assurances, warranties, or guarantees as to the ability or competence of any Co-Employee. (E) CLIENT shall be considered an employer of Co-Employees for purposes of any claim of sexual harassment; discrimination involving disability, race, sex, religion, color, age, national origin, marital status, veteran status, or any other protected class; or any other claim pursuant to local, state, or federal laws, regulations or ordinances, unless the claim is a result of action taken by CLIENT in compliance with a written corporate policy, procedure, or directive of CSI. 5. WORKERS' COMPENSATION: CSI shall obtain, and keep in full force and effect, workers' compensation insurance coverage and coverage amounts as are required by applicable state law on all Co-Employees, subject to and conditioned upon the performance of CLIENT as required hereunder. CSI shall post conspicuously a notice of proof of Workers' Compensation Coverage. Workers' compensation coverage shall not be provided to any employee for whom CLIENT is not reporting hours for payroll to CSI. The failure of CLIENT to report payroll hours for any pay period will cause, without notice to CLIENT, the 2 immediate suspension of workers' compensation insurance until such time as CSI has been notified that the work schedule has resumed and subsequent payroll hours are reported. Workers' compensation is only offered, and shall be provided, to employees of CSI and shall not be offered or provided to any employees of CLIENT. Employees of CLIENT, for purposes of the Paragraph, are persons for whom CLIENT does not report payroll hours to CSI during any payroll period or for whom CSI has not received payroll or other information as required by this Agreement. CSI shall have no responsibility to any employees other than those which qualify as Co-Employees as defined herein. In addition, CLIENT assumes full responsibility for workers' compensation claims of other persons hired by, or working for, CLIENT. 6. MANAGEMENT: Employment responsibilities with regard to Co-Employees shall be shared by CLIENT with CSI. Without limiting or affecting CSI's rights and responsibilities as described in this Agreement or as required by applicable law, CLIENT shall have sufficient direction and control over the Co-Employees as is necessary to conduct CLIENT's business and without which CLIENT would be unable to conduct CLIENT's business, discharge any fiduciary responsibility CLIENT may have, or comply with any applicable licensing, regulatory, or statutory requirements CLIENT may have. CLIENT may also supervise the Co-Employees and set their times, wages, and other terms and conditions of employment, and CLIENT agrees to periodically assist CSI in the evaluation of the payment of Co-Employees. CSI shall use these evaluations to determine salary and rate adjustments. CLIENT is aware, however, that pursuant to the Fair Labor Standards Act's definition of an Employer, CSI specifically reserves: (A) A right of direction and control over Co-Employees assigned to CLIENT's location or work site; (B) The authority to hire, terminate, discipline and reassign Co-Employees, (FROM CSI'S EMPLOY ONLY) for any reason deemed adequate by CSI and with three (3) days notice to CLIENT; provided, however, that no covered co-employee shall be re-assigned to another client company without that covered employee's consent and the CLIENT has the right to accept or cancel the assignment of such covered co-employee; and (C) A right of direction and control over management of safety, risk, and hazard control (with one (1) day notice) at the worksites or sites affecting its Co-Employees, including: (i) performing safety inspections of CLIENT's equipment and premises; (ii) promulgation and administration of employment and safety policies; and (iii) the management of workers' compensation claims, the filing of such claims, and related procedures; and (D) any other rights afforded, imposed or required by applicable law. 7. SERVICE FEES: (A) Fees: In addition to any initial or commencement fees which may apply, CLIENT shall pay CSI a service fee equal to the fee rate percentages specified in Exhibit H, attached hereto and made a part hereof, multiplied by the gross earnings of the Co-Employees filling any job functions for CLIENT. CLIENT may also be charged additional administrative fees (limited to $20.00 per check) if: CLIENT's payroll is delayed due to CLIENT's untimely transmittal of payroll information to CSI; CLIENT changes the number of hours reported after the payroll has already been prepared; payroll checks must be reissued due to no fault of CSI; or if CLIENT requires or otherwise causes multiple payrolls to be issued by CSI for the same pay period. If CLIENT terminates its relationship with CSI for any reason, and CSI is then currently administering COBRA benefits for employees of CLIENT, CLIENT shall pay CSI a fee of $500.00 per month for each COBRA participant whose benefits are administered by CSI. If CSI performs additional services for CLIENT, which are not contemplated by this Agreement, the fees for any such additional services shall be negotiated by the parties and paid independently of any fees paid pursuant to this Agreement. (B) Adjustments: CLIENT understands that the service fee may be adjusted for increases or decreases in statutory employment taxes, insurance, change in job function, or change in size of CLIENT's work force. Upon written notice to CLIENT of a fee adjustment, CLIENT shall have the right to terminate this Agreement by giving fifteen (15) days written notice of termination to CSI within seven (7) days of receipt of a fee adjustment. (C) Time and manner of payment: CLIENT shall pay CSI all service fees by cash, certified funds, or wire transfer 48 hours prior to the issuance of payroll checks or by the due date listed on CLIENT's invoices, whichever is earlier. Should any payments not be made to CSI when due, CLIENT shall pay a monthly surcharge of two percent (2%) per month on the unpaid balance as an additional administrative fee. Such surcharge shall be reduced to the highest rate allowed by law if it is deemed to be usurious. (D) Minimum fee: CLIENT agrees to pay CSI a minimum service fee of $100 for each pay-period in which CLIENT fails to provide payroll information to CSI or accept a payroll upon delivery, or in which no payroll checks are prepared. 3 (E) Review: CLIENT has a duty to review any and all invoices submitted by CSI, and if CLIENT believes that any billing or other communication between the parties is in error, CLIENT shall immediately notify CSI of such error as soon as practicable. (F) Enrollment: An administrative enrollment fee of $100.00 per employee will be imposed simultaneously with the execution of this Agreement. (G) Returned checks: A return check charge will be imposed as specified in the Exhibit H. If none is stated therein, the maximum charge allowed by applicable law will be imposed. 8. PREPAYMENT/DEPOSIT (A) Requirement: CSI reserves the right at any time during the term of this Agreement to require CLIENT to furnish a performance bond, or to deposit such sums as CSI may determine necessary from time to time, to guaranty CLIENT's performance hereunder. The waiver by CSI of this requirement at any time shall not stop or act as a waiver of CSI's rights to require a deposit at any subsequent time during the terms of this Agreement. If Workers' Compensation certificates are issued by CSI prior to the first payroll, CSI shall require repayment equal to the estimated first payroll, plus fees, or One Thousand Dollars ($1,000.00), whichever is greater. (B) Failure to Maintain: In the event CLIENT fails to maintain the required deposit from time to time as determined at the sole discretion of CSI, the same shall be deemed a material breach of the Agreement and CLIENT shall immediately pay CSI an amount sufficient to establish the required deposit. (C) Use: Any monies of CLIENT in possession of CSI hereunder shall be applied by CSI to any default in payment by CLIENT under the terms of this Agreement. (D) Return: Upon termination of this Agreement, any balance remaining in the account of CLIENT shall be remitted to CLIENT, without interest, on or before sixty (60) days after termination of this Agreement, provided that CLIENT has performed all of its obligations under the terms of this Agreement. 9. REPRESENTATIONS: CLIENT represents and warrants that: (A) All wages and compensation to which any of CLIENT's employees are entitled and which have accrued as of the Commencement Date of this Agreement have been paid in full, or will be paid in full by the Commencement Date. (B) Except as expressly stated herein, or disclosed to and acknowledged by in writing, there are no separate agreements or arrangements, whether in the nature of employment agreements, collective bargaining agreements, deferred compensation agreements, or otherwise, under which CSI would be obligated or which would materially alter CSI's obligations hereunder. (C) CLIENT has terminated any and all other employee leasing arrangement to which CLIENT was previously a party, and CLIENT shall not enter into any other employee leasing arrangement while this Agreement is in affect. (D) CLIENT to the best of his knowledge without independent audit, is not now, nor has been in the past three (3) years, in violation of any state or federal labor or employment laws. (E) Co-Employees used by CLIENT will be compensated in accordance with federal and state laws. CLIENT also agrees that it will comply with the Worker Adjustment and Retraining Notification Act (WARN) and that it has sole responsibility for and will give CSI at least sixty-two (62) days notice prior to effecting any plant closing or mass lay-off as defined in WARN. (F) If requested by CSI, CLIENT will adhere to the Return to Work policies of CSI or to implement a light-duty return to work program to assist eligible injured workers' compensation claimants (provided a suitable doctor's release has been obtained) in returning to gainful employment. (G) CLIENT will adhere to any Drug Free Work Place Act policies if such policies are implemented. (H) CLIENT will provide all facilities, supplies, equipment, and all other necessary items that may be required by the Co-Employees to perform their respective duties and services. CLIENT will also maintain cards and time as required by the FLSA and all state and federal regulations for a period of six years from the date hereof. (I) If either CLIENT or CSI is the subject of any governmental investigations, inquiries or audits, or if either becomes a party, or is threatened to be joined as a party, to any lawsuit, administrative proceeding of any kind, (including proceedings or investigations involving EEOC, NLRB, OSHA, worker's compensation laws, or any other employment matter), each party to this Agreement will immediately disclose same with any details reasonably requested by the other party related to such matters. Further, CLIENT shall fully disclose CLIENT's involvement in any such matters within the three (3) years immediately preceding the Commencement Date hereof. (J) CLIENT will comply with all New York Labor Standards, and all federal and state laws and regulations requiring employers to pay the full amount of wages due to an employee, and no portion of this Client Service Agreement shall abrogate or diminish that responsibility. (K) The CLIENT shall continue to honor and abide by the terms of any applicable collective bargaining agreements, and upon expiration thereof, any obligations of the CLIENT to bargain in good faith in connection with such collective bargaining agreements shall not be affected in any manner by this Agreement. 4 10. SAFE WORK ENVIRONMENT: CLIENT shall provide Co-Employees with a safe working environment which is in compliance with the Occupational Health and Safety Act (OSHA) standards, and CLIENT shall comply with all health and safety laws, directives and rules imposed by any governmental agencies with jurisdiction thereof, reasonably deemed by CSI, or by any workers' compensation carrier covering the Co-Employees. Environmental factors, equipment, machinery and all other matters which affect employee safety shall be maintained in compliance with OSHA standards. CLIENT represents that its working environment, equipment and machinery currently meet, and will be maintained, in compliance with all OSHA standards during the terms of this Agreement. CLIENT agrees that it shall bear responsibility for any OSHA violations, citations and penalties. Further, CLIENT, at CLIENT's sole expense, shall also provide and ensure the use of all personal protective equipment, as required by federal, state, or local law, regulation, ordinance, directive, or rule as reasonably deemed necessary by CSI or any workers' compensation carrier covering Co-Employees. 11. INSURANCE: (A) During the terms of the Agreement, CSI and CLIENT shall maintain individual liability insurance policies, naming each other as an additional insured, with a minimum coverage in the amount of One-Million Dollars ($1,000,000.00) per occurrence for bodily injury and property damage. (B) If any Co-Employee is to drive a vehicle of any kind for CLIENT, CLIENT shall provide liability insurance. The policy shall insure against public liability for bodily injury and property damage with a minimum combined single limit of One-Million Dollars ($1,000,000.00); in states where "no-fault" laws apply, Personal Injury Protection or equivalent coverage shall apply. CLIENT shall cause its insurance carrier to issue a Certificate of Insurance to CSI, allowing not less than twenty (20) days advance notice of cancellation or material change. Failure to provide Proof of Insurance within 48 hours of a request by either CSI or CLIENT is a material breach and grounds for immediate termination of this Agreement. (C) If CLIENT Co-Employs professional employees, CLIENT shall maintain professional or malpractice insurance in the minimum amount of One-Million Dollars ($1,000,000.00). (Not applicable to CLIENT unless they add "Professional Employees" (As defined under the FLSA) at which time CLIENT shall notify CSI before actual hire date.) (D) CLIENT shall also maintain other insurance reasonably necessary, as determined by CSI and CLIENT, after considering the nature of CLIENT's business. (E) CLIENT agrees to accept CSI's designated broker-of-record for all insurances and pensions provided to CLIENT's co-employees in conjunction with this agreement. CLIENT agrees not to effect or request a change in broker, which was designated by CSI anytime during or after this agreement. Furthermore CLIENT agrees not to reverse any changes in broker-of-record which CLIENT effected to enact this Agreement without the express written consent of CSI. (F) All insurance policies and fidelity bonds required to be maintained as set forth in this Agreement shall name CLIENT and CSI as an additional insured and shall provide that coverage shall not be canceled or materially affected without first providing twenty (20) days written notice of such cancellation or material change. At the request of CSI, CLIENT shall also deliver to CSI certificates evidencing CLIENT's procurement of such insurance. (G) CLIENT waives any claim in its favor against CSI by way of subrogation or otherwise which arises during the initial or extended term of this Agreement, and all insurance policies required to be maintained by CLIENT shall waive such subrogation rights. 12. INJURIES: As soon as CLIENT becomes aware of an injury, CLIENT must notify CSI immediately by telephone, and in writing within 48 hours. The failure to timely report any injury may result in a substantial fine pursuant to applicable law. Any fines or other costs incurred due to the failure of CLIENT to timely adhere to the requirement of injury reporting shall be the sole and absolute cost and responsibility of CLIENT. If any Co-Employee participates in actions that result in bodily injury, property damage or any type of loss not covered by workers' compensation insurance, CLIENT shall file for recovery against its own liability insurance carrier. 13. TERMINATION: (A) Without precluding termination as otherwise set forth herein, this Agreement may be terminated as follows: (i) At any time, the parties may terminate this Agreement by mutual written consent; (ii) Either party, without cause, may terminate this Agreement by giving the other party thirty (30) days written notice; (iii) In the event of a material breach by CSI or CLIENT, the non-breaching party shall have the option to terminate this Agreement by giving twenty-four (24) hours written notice to the breaching party; 5 (iv) At any time CSI may terminate this Agreement, with written notice, if CSI, in its sole discretion, determines that (a) a material adverse change has occurred in the financial condition of CLIENT, (b) CLIENT is unable to pay its debts as they become due in the ordinary course of business; or (c) federal or state legislation, regulatory action or judicial decisions have adversely affected CSI's interests under this Agreement; or (v) Automatically, without notice to CLIENT, if a petition in bankruptcy is filed by or against CLIENT, if CLIENT shall have made an assignment for the benefit of creditors, shall have voluntarily or involuntarily been adjudicated bankrupt by a court of competent jurisdiction, or if a petition for reorganization is filed by CLIENT. CLIENT and any guarantor of CLIENT's obligations hereunder shall immediately notify CSI upon the happening of any of the foregoing events, it being acknowledged that the acceptance of any payrolls from CSI thereafter would be fraudulent to CSI in the absence of such notice. (B) In the event it appears to CSI that circumstances may exist which would warrant a termination of this Agreement, CSI shall be entitled to suspend its performance pending its review and determination of such circumstances, without incurring any liability to CLIENT for doing so. (C) Upon termination of this Agreement for any reason whatsoever, all Co-Employees shall be deemed to have been laid off by CSI, and CLIENT shall immediately give each Co-Employee notice thereof. CLIENT shall also immediately assume all federal, state and local obligations of an employer, including the obligation to provide workers' compensation insurance. To the extent permitted by law, CSI shall immediately be released of all it obligations hereunder. If CSI has made any payment to Co-Employees or has otherwise incurred expenses as an employer of the Co-Employees following the termination hereof, CLIENT shall immediately reimburse CSI for same, regardless of the reason for which such payments or expenses were made. 14. BREACH: Material breaches of this Agreement by CLIENT shall include, but not be limited to, the following: (A) Failure to pay any monies required under the terms and conditions of this Agreement when due. (B) Failure to comply with any directive regarding health and safety for CSI, any Workers' Compensation carrier covering the Co-Employees, or any government agencies. (C) Failure to provide or furnish proof of any insurance required under the terms of this Agreement. (D) A change in the type of business conducted by CLIENT as determined in the sole and absolute opinion of CSI. (E) Misrepresentation of Workers' Compensation classification or inaccurate reporting of employee payroll hours or employee information. (CLIENT is obligated to pay to CSI any additional monies due as a result of Workers' Compensation audits). (F) Conducting any illegal activity on CLIENT's worksite, regardless of whether it affects, pertains to, or is in conjunction with any Co-Employees. 15. (A) INDEMNIFICATION: CLIENT shall unconditionally indemnify, hold harmless, protect, and defend CSI, its stockholders, non-leased employees, attorneys, officers, directors, agents and representatives from and against any and all claims, demands, damages, (including punitive and compensatory), injuries, deaths, actions, costs and expenses (including attorney's fees and expenses at all levels of proceedings), losses and liabilities of whatever nature, including liability to third parties, arising out of or involving: (i) actions, conduct, or incidents, whether actual or alleged, by or involving CLIENT, CLIENT's real and personal property, Co-Employees, and any non-leased employees of CLIENT, resulting in claims of negligence; other tortious conduct; breach of contract; criminal or dishonest activity; claims covered by all liability policies, professional liability policies, and fidelity bonds maintained or required to be maintained by CLIENT; costs associated with the administration of any collective bargaining agreements, and; claims arising out of any non-payment or payment to, or participation in, any labor organization's health and welfare retirement or other benefit fund, including the cessation of payment thereto or withdrawal from participation therein; (ii) claims relating to CLIENT's use of any Co-Employee or involving the use of the CLIENT's (or any employee, if such employee is acting or alleged to be acting on behalf of the CLIENT or CSI) machinery, facilities, equipment and/or vehicles, whether leased, rented, borrowed or owned; (iii) employment-related matters, arising under local, state and/or federal right-to-know laws, environmental laws, OSHA, WARN, EEOC, ERISA, ADA, (including those related to employment, public access and public accommodation), wage and hour laws, (including those related to prevailing wage rate, exempt and non-exempt status, child labor, and minimum wage and overtime matters), NLRB laws, disclosed and undisclosed benefit plans, and all other labor laws, arising out of clients' disregard for compliance with a written corporate policy, procedure, or directive of CSI; 6 (iv) any and all laws, regulations and ordinances, arising out of, or in connection with any obligations arising out this Agreement, including, without limitation, those arising from products or service (professional or otherwise) produced or provided by Co-Employees or because of injuries suffered by the Co-Employees; (v) acts committed by, injuries to, or claims of any independent contractors or other employees hired by CLIENT outside of this Agreement, or individuals which do not otherwise qualify as Co-Employees; and acts of negligence by or towards any Co-Employee which are not covered by workers' compensation insurance. (B) INDEMNIFICATION: CSI agrees to indemnify, and hold CLIENT, and CLIENT's officers and directors, harmless from and against any and all claims, demands, damages, injuries, actions, costs and expenses, losses and liabilities arising out of CSI'S gross misconduct, unlawful act, and material breach of any obligation or warranty contained in this Agreement. 16. CLIENT'S PAYMENT OBLIGATIONS: CLIENT shall pay and reimburse CSI for all service fees and for all monies paid, if any and/or disbursed by CSI related to the services provided to the CLIENT on completion of each payroll period, inclusive of any items for paid time off. ALL INVOICES MUST BE PAID IN FULL UPON PRESENTATION and in no event less than Forty-eight (48) hours prior to payroll delivery. If payment in full is not received by CSI upon presentation of invoice, or if payroll data is not received for processing by CSI (within 72 hours), after completion of each payroll period and presentation of invoice, then the Client Service Agreement will be considered null and void for that pay period, all future pay periods and CLIENT will be in default under this Agreement. In which case, CLIENT agrees to be liable for payment to the Co-Employees directly for the current pay period, all future pay periods, and all payroll costs and related taxes, and indemnify CSI for any claims thereof. If any monies are due and not paid in full on presentation of invoice, then administrative charges of 2% per month will be charged. CLIENT will pay any and all costs and attorney's fees that CSI may incur in collection of these monies. If payment is made by check, and check is returned for insufficient funds, a fee of $50.00 will be charged. All payment obligations shall survive any termination of this Agreement until fully satisfied. 17. RE-INSTATEMENT: At CSI's election, CLIENT may pay a re-instatement fee of $50.00 per employee after any default or termination under this Agreement. In the event of default under any term or condition of payment under this Agreement, including without limitation: timeliness, sufficiency, and good and clear funds, CSI shall not re-instate or issue payroll checks, either in net or gross, to any OWNER, OFFICER, SHAREHOLDER holding more than 5% of the CLIENT's outstanding shares, or any controlling person, which term is defined to mean any person who had or should have had knowledge of CLIENT's financial condition, and was in a position to affect the incursion of additional debt by CLIENT, or in a position to impair or enable CLIENT's compliance with this Agreement. 18. MISCELLANEOUS: (A) Whole Agreement: This Agreement constitutes the entire agreement between the parties and is intended as an integration of all prior agreements, negotiations, statements, understandings, and promises between the parties unless otherwise provided for herein. Further, no change, modification or amendment to this Agreement of any kind shall be valid unless it is made in writing and executed by both parties. (B) Wavier: The failure of either party to this Agreement to require performance by the other party or failure to claim a breach of any provision of the Agreement shall not constitute or be construed as a waiver of any subsequent breach nor affect the effectiveness of this Agreement or any part thereof or prejudice either party as regards to any subsequent action. (C) Notices: Any and all notices required under the terms of this Agreement shall be effected by hand delivery, in writing or by certified mail, return receipt requested. Unless otherwise designated in writing Notice shall be addressed to CSI c/o Matthew Kirnan, Esq., COMPSolutions, 169 Route 202 Oakland NJ 07436 and to CLIENT at CLIENT's principal place of business listed above. (D) Assignment: CLIENT may transfer or otherwise assign any of its rights or obligations under this Agreement only with CSI's prior written consent. If CLIENT attempts to so assign its interests hereunder, CSI shall have the option to immediately terminate the Agreement at any time prior to consenting to the assignment in writing. CSI specifically reserves the right to assign all or a portion of its rights and obligations in this Agreement (i.e. TPA's used for: 401 (k), Section 125 Plan, Child Care Dependency, Certified Financial Planners, Labor Attorneys, and Human Resources Consultants, etc.) Any such assignment by CSI may be of a temporary or permanent nature, and may encompass all or a portion of CSI's rights and obligations hereunder. (E) Validity: In the event any term or provision of this Agreement shall be held to be invalid or unenforceable, the balance of this Agreement shall remain in full force and effect. (F) Construction: The paragraph headings of this Agreement are for reference only and shall not be considered in the interpretation of this Agreement. If interpretation of this Agreement is required by a court of competent jurisdiction, it shall not be construed against CSI as the drafter hereof, since CLIENT acknowledges that CLIENT had ample opportunity to seek advice and to negotiate and amend the terms of this Agreement prior to CLIENT's execution hereof. (G) Governing Law: The Agreement shall be subject to the laws of the State of New Jersey, and venue of any proceedings related to this Agreement shall be in Bergen County, New Jersey. 7 (H) Attorney's Fees: Should litigation ensue between the parties, the prevailing party will be entitled to attorney's fees and costs. In addition, CSI shall also be entitled to reasonable attorney fees and costs incurred while attempting to collect sums owed by CLIENT under this Agreement. (I) Time of Essence: Time is of the essence with regard to the terms and conditions of this Agreement. (J) Survival: The respective obligations of the parties, including CLIENT's duties related to indemnification and payments for COBRA participation by CLIENTS former employees, shall survive the termination of this Agreement. (K) CSI acknowledges that any individual covered by this Agreement, and performing services for CLIENT, is an Employee of the CLIENT for the purposes of determining whether such persons are qualified to receive incentive stock options pursuant to the Internal Revenue Code, applicable law, and election of accounting treatment for same. CSI is specifically prohibited from offering, selling or granting any form of Incentive Stock Option or Employee Stock Purchased Plan to the persons who are deemed to be an Employee of CLIENT under this paragraph and/or who provide services exclusively to CLIENT under this Agreement. CSI agrees to refrain from taking any action as may be permitted hereunder, and to take all actions as may be deemed necessary or advisable by the CLIENT to ensure that such employees qualify to receive incentive stock options under the Internal Revenue Code or other applicable laws. In addition, CSI agrees that CLIENT, and not CSI shall have the exclusive right to make whatever accounting treatment election for stock options CLIENT chooses. (L) Standard of Performance: CSI warrants and agrees that it will perform all services undertaken by it pursuant to this Agreement with such reasonable diligence, care, and skill as would be required of any professional fiduciary in a commercial setting and in compliance with all applicable laws. (M) Unemployment benefit and Disability Contribution Rate Disclosure: Attached hereto as Exhibit G is CSI's written disclosure to CLIENT of the method utilized for calculation of unemployment benefit experience contribution rates and temporary disability contribution rates. CSI shall also provide CLIENT with a written disclosure as to the method for calculating the aforementioned rates upon termination or dissolution of this Agreement. COMPENSATION SOLUTIONS INC. DVL, INC. (seal) (seal) Signed: /s/ Thomas J. Cioffe Signed: /s/ Jay Thailer --------------------- ---------------- BY: THOMAS J. CIOFFE BY: Jay Thailer President Executive Vice President and CFO 8 EXHIBIT B OFFICER'S CERTIFICATION The undersigned, Jay Thailer, is Executive Vice President of DVL, INC., makes the following certification: 1) The Company filed its Certificate of Incorporation in the State of Delaware on MARCH 28, 1977 (list date of incorporation). Attached hereto is a true copy of the Company's Certificate of Incorporation (attach Certificate of Incorporation, if available). 2) The Company's Federal Employer Identification No. (EIN) is 13-2892858. 3) Set forth below are all shareholders of the Company who own Two Percent or more of the Company's stock, together with their address and Social Security Number: NAME ADDRESS SOCIAL SECURITY NO. (A) _____________________ ___________________________ ___________________ ___________________________ (B) _____________________ ___________________________ ___________________ ___________________________ (C) _____________________ ___________________________ ___________________ ___________________________ (D) _____________________ ___________________________ ___________________ ___________________________ (Please provide separate list, if necessary) 4) Set forth below are the officers of the Company: President Alan Casnoff (set forth name of President) -------------- Executive V. P. Jay Thailer (set forth name of Executive V. P.) -------------- Secretary Henry Swain (set forth name of Secretary) -------------- Treasurer Jay Thailer (set forth name of Treasurer) -------------- 5) The signatories hereto acknowledge and understand that federal and state laws and regulations requiring employers to pay the full amount of wages due to an employee, that owners and shareholders are responsible for the full and prompt payment of unpaid employee wages, and no portion of this certification or the Client Service Agreement shall abrogate or diminish that responsibility which currently exists regardless of the co-employment relationship. 6) I certify that to the best of my knowledge the foregoing information is true and correct. /s/ Jay Thailer ----------------------------- Jay Thailer, Executive Vice President 9 EXHIBIT C COMPENSATION SOLUTIONS FLEXIBLE BENEFIT PLAN ADOPTION AGREEMENT The undersigned, DVL, INC. ("Adopting Employer"), by executing this Adoption Agreement, hereby adopts the Compensation Solutions Flexible Benefit Plan (the "Plan"). Compensation Solutions, Inc. ("Compensation Solutions"), by executing this Adoption Agreement, hereby consents to the adoption of the Plan by the Adopting Employer. EFFECTIVE DATE |X| Initial Adoption: This is the Adopting Employer's initial adoption of the Plan and the "Effective Date" is __________________. |_| Amendment of the Plan: This Adoption Agreement is an amendment of the Adopting Employer's previous adoption of the Plan and the "Effective Date" of the amendment is _______________. The "Effective Date" of the Adopting Employer's initial adoption of the Plan was _________________. BENEFIT OPTIONS A Participant may elect among the following optional benefit coverages: |X| health and group term life insurance premium benefits; |X| uninsured health expense reimbursement, up to a maximum of the following amount for the calendar year: (Choose one) |_| $1,000 |_| $2,500 |_| $5,000 |X| work related dependent care expense reimbursement, up to $5,000 per year, per employee and; |X| taxable cash payments in the form of regular salary. The Adopting Employer agrees that it is adopting the Plan for the benefit of its Employees (as such term is defined in the Plan). The Adopting Employer agrees to properly disclose to Compensation Solutions all information reasonable required by Compensation Solutions for the proper administration of the Plan. The Adopting Employer agrees that Compensation Solutions has made no representations to the Adopting Employer regarding the legal or financial impact of the adoption of the Plan by the Adopting Employer. 10 The Adopting Employer agrees to indemnify Compensation Solutions for any claims, taxes or costs incurred by Compensation Solutions at any time as a result of the Adopting Employer's failure to fulfill its obligations and duties with respect to the Plan. The Adopting Employer recognizes that it is in its best interest to have the Plan reviewed by legal counsel to ensure that the Plan as adopted by the Adopting Employer is suitable and appropriate for adoption by the Adopting Employer. By executing this Adoption Agreement, the Adopting Employer agrees to the provisions of the Plan and the obligations, responsibilities and duties imposed with respect to the Plan. In witness of their agreement, the Adopting Employer and Compensation Solutions have executed this Adoption Agreement on this 26th day of March, 2003. NAME OF ADOPTING EMPLOYER: DVL, INC. Signature: /s/ Jay Thailer -------------------- Signed by: Jay Thailer Title: Executive Vice President Date: 3/26/03 FOR COMPENSATION SOLUTIONS, INC. Signature: /s/ Thomas J. Cioffe -------------------- Signed by: THOMAS J. CIOFFE Title: PRESIDENT Date: 3/26/03 211 EXHIBIT D SECTION 125 CAFETERIA PLAN ADDENDUM TO CLIENT SERVICE AGREEMENT CLIENT acknowledges that Compensation Solutions, Inc. (CSI) will withhold amounts from work-site co-employees compensation to provide co-employees with pre-tax reimbursement for qualifying medical expenses under the COMPENSATION SOLUTIONS, INC. MEDICAL EXPENSE REIMBURSEMENT PLAN. CLIENT understands CSI may be required to reimburse the worksite co-employees for qualifying medical expenses in an amount that exceeds the amount actually withheld from the worksite co-employees' pay at the time of such reimbursement. In this event, CLIENT acknowledges that the plan administrator, will from time to time audit the account balances of clients' work-site employees and may require CLIENT fund said employees accounts to reach a zero balance. CLIENT agrees if its relationship with CSI is terminated prior to the end of a period of coverage under the Medical Expense Reimbursement Plan, CLIENT will reimburse CSI for qualifying medical expenses reimbursed by CSI during such period of coverage to the extent the expenses reimbursed by CSI exceed the amounts withheld from the worksite co-employees' compensation during the period of coverage. The CLIENT also agrees that CSI may charge an administrative fee of up to five percent (5%) of the excess reimbursement amount. COMPENSATION SOLUTIONS, INC. DVL, INC. (seal) (seal) Signed: /s/ Thomas J. Cioffe Signed: /s/ Jay Thailer -------------------- ------------------- By: THOMAS J. CIOFFE By: Jay Thailer SECTION 132 CAFETERIA PLAN ADDENDUM TO CLIENT SERVICE AGREEMENT CLIENT acknowledges that Compensation Solutions, Inc. (CSI) will withhold amounts from work-site co-employees compensation to provide co-employees with pre-tax reimbursement for qualifying transportation expenses under the COMPENSATION SOLUTIONS, INC. TRANSIT ONE REIMBURSEMENT PLAN. CLIENT understands CSI may be required to reimburse the worksite co-employees for qualifying transportation expenses in an amount that exceeds the amount actually withheld from the worksite co-employees' pay at the time of such reimbursement. In this event, CLIENT acknowledges that the plan administrator, will from time to time audit the account balances of clients' work-site employees and may require CLIENT fund said employees accounts to reach a zero balance. CLIENT agrees if its relationship with CSI is terminated prior to the end of a period of coverage under the Transit One Reimbursement Plan, CLIENT will reimburse CSI for qualifying transportation expenses reimbursed by CSI during such period of coverage to the extent the expenses reimbursed by CSI exceed the amounts withheld from the worksite co-employees' compensation during the period of coverage. The CLIENT also agrees that CSI may charge an administrative fee of up to five percent (5%) of the excess reimbursement amount. COMPENSATION SOLUTIONS, INC. CLIENT (seal) (seal) Signed: /s/ Thomas J. Cioffe Signed: /s/ Jay Thailer -------------------- ------------------- By: THOMAS J. CIOFFE By: Jay Thailer 12 EXHIBIT E CORPORATE RESOLUTION FOR ADOPTION OF THE COMPENSATION SOLUTIONS FLEXIBLE BENEFIT PLAN DVL, INC. A special meeting of the Board Of Directors of the above-captioned Delaware Corporation (the "Company") was held on the 24th day of March, 2003. All of the members of the Board of Directors of the Company were present. The Executive Vice President of the Company acted as Chairman of the meeting and the Secretary of the Company acted as Secretary of the meeting. The Executive Vice President stated that the purpose for calling the special meeting of the Board of Directors was to discuss adoption of the Compensation Solutions Flexible Benefit Plan (the "Plan"). The Executive Vice President stated that the reason for adopting the Plan is to provide the Corporation with the benefit of a better benefits option for its employees. The meeting, after substantial discussion and upon motion duly made and seconded, unanimously adopted the following resolution: RESOLVED, that the Company hereby adopts the Plan in a form acceptable to the officers of the Corporation. There being no further or other business to come before the meeting, on motion duly made, seconded and unanimously carried, the meeting adjourned. /s/ Henry Swain - ------------------- Secretary of the Meeting The undersigned, being all of the Directors of the Company, hereby waive notice of the foregoing meeting and approve the actions taken therein. - ------------------------------------------------ - ------------------------------------------------ - ------------------------------------------------ 13 EXHIBIT F STATEMENT OF CONFIDENTIALITY THIS AGREEMENT is entered into this 26th day of March 2003, by and between Compensation Solutions, Inc. *, a New Jersey corporation, whose address is 169 Ramapo Valley Road, Oakland, New Jersey 07436, and DVL, Inc. a Delaware Corporation/Limited Liability Company/Partnership with offices at 70 East 55th Street , New York, New York 10022. WHEREAS, DVL, Inc. (hereinafter referred to as "CLIENT") and Compensation Solutions, Inc. (hereinafter referred to as "CSI") have, simultaneously herewith, entered into a certain co-employer relationship as evidenced by a certain Client Services Agreement dated even date herewith; WHEREAS, CLIENT will reveal to CSI certain confidential and proprietary information concerning CLIENT. CLIENT desires certain assurances that CSI shall treat as confidential any and all information disclosed by CLIENT, and that CSI shall not disclose such information to any third party accept as provided for in the CSI Privacy Policy attached hereto; NOW THEREFORE, in consideration of the promises, covenants and agreements contained herein, and other good and valuable consideration, the receipt of which is hereby acknowledged, it is hereby agreed as follows: 1. CONFIDENTIAL INFORMATION. CSI agrees to treat as confidential any and all information concerning CLIENT (regardless of whether prepared by CLIENT, its advisors, agents or otherwise, and whether in writing or orally) which is furnished to CSI by or on behalf of CLIENT (collectively referred to as the "Confidential Information"), in accordance with the provisions of this Agreement. The term "Confidential Information" does not include information which (i) is or becomes generally available to the public other than as a result of a disclosure by CSI or (ii) becomes available to CSI on a non-confidential basis from a source (other than CLIENT or its agents) which is not prohibited from disclosing such information to CSI by a legal, contractual or fiduciary obligation. 2. NON-DISCLOSURE. CSI agrees that the Confidential Information will be used solely for the purpose of evaluating a possible business relationship between CSI and CLIENT (the "Purpose"), and for no other purpose, and that such information will be kept confidential by CSI and its advisors and agents. CSI agrees that (i) neither it nor any of its advisors or agents shall at any time or in any manner, directly or indirectly, disclose to any person or entity any or all of the Confidential Information, and (ii) neither it nor any of its advisors or agents shall at any time or in any manner, directly or indirectly, utilize any or all of the Confidential Information for any purpose whatsoever (including use of any ideas, concepts, or business plans) other than the Purpose. CSI shall be responsible for any breach or violation of this Agreement by its directors, officers, employees, agents or advisors. * All references to CSI mean Compensation Solutions, Inc., Compensation Solutions of Oakland, Inc., CSI Management Group, Inc., The Bergen Group, Inc. and any and all other affiliated companies within our corporate family. 14 3. GENERAL. a. Remedies. The parties agree that a violation of the provisions of this Agreement would cause irreparable injury for which there would be no adequate remedy at law. Accordingly, these provisions may be enforced by injunction without a showing of irreparable injury and/or inadequate remedy at law. The parties may also recover damages as a result of any breach of the terms of this Agreement. The foregoing rights are cumulative with all other rights and remedies of the parties and are not exclusive. b. Applicable Law; Venue. The parties hereby agree that in the event of any dispute concerning the subject matter of this letter, (i) the prevailing party shall be awarded all attorney's fees and costs, (ii) the laws of the State of New Jersey shall apply, and (iii) proper venue shall be Bergen County, New Jersey. c. Waiver. It is further understood and agreed that no failure or delay by CLIENT in exercising any right, power or privilege hereunder will operate as a waiver thereof, nor will any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any right, power or privilege hereunder. ACCEPTED AND AGREED TO BY: DVL, INC. By: /s/ Jay Thailer ------------------------ Jay Thailer Executive Vice President COMPENSATION SOLUTIONS, INC. By: /s/ Thomas J. Cioffe ------------------------ THOMAS J. CIOFFE President 15 CSI PRIVACY POLICY YOUR PRIVACY IS A PRIORITY TO US. At Compensation Solutions, Inc (CSI)*, we are committed to safeguarding Client as well as Co-Employee information. Since your privacy is a priority to us, CSI will not share nonpublic information about you with third parties outside of the CSI corporate family without your consent, except as explained in our Privacy Policy. At CSI we train our staff how to properly handle your personal information and restrict access to your files to only those authorized. From time to time, we may communicate to you special offers for products or services of third parties outside of the CSI corporate family, which we believe, may be of interest to you, as explained in our Privacy Policy. However, we will not provide these third parties with any nonpublic information about you without your consent. WE DO NOT PROVIDE NONPUBLIC INFORMATION ABOUT YOU TO ANY NON-CSI COMPANY WHOSE PRODUCTS AND SERVICES ARE BEING MARKETED UNLESS YOU AUTHORIZE US TO DO SO. THESE NON-CSI COMPANIES ARE NOT ALLOWED TO USE THIS INFORMATION FOR PURPOSES BEYOND YOUR SPECIFIC AUTHORIZATION. We have created our Privacy Policy to communicate our privacy commitment to you, and to serve your privacy needs. PRIVACY POLICY ABOUT OUR PRIVACY POLICY... Protecting your privacy is important to CSI. We want you to understand what information we may gather and how we may or may not share it. This Privacy Policy explains CSI's collection, use, retention and security of information about you. HOW WE GATHER INFORMATION As part of providing you with payroll deducted services or financial products, we may obtain information about you from the following sources: o Applications, forms, and other information that you provide to us, whether in writing, in person, by telephone, electronically or by any other means. This information may include your name, address, employment information, income, social security number and credit references; o Your transactions with us, our affiliates (members of the CSI corporate family), or others. This information may include your payment history on installment loans; o Consumer reporting agencies. This information may include account information and information about your creditworthiness; o Public sources. This information may include real estate records and telephone numbers. SHARING INFORMATION OUTSIDE THE CSI CORPORATE FAMILY We are required to, or we may, provide information about you to third parties outside of the CSI corporate family without your consent, as permitted by law, such as: o to respond to a subpoena or court order, judicial process or regulatory authorities; o to consumer reporting agencies when we are obligated; o in connection with a proposed or actual sale, merger, or transfer of all, or a portion of, a business or real estate transaction; o to protect against fraud. * All references to CSI mean Compensation Solutions, Inc., Compensation Solutions of Oakland, Inc., CSI Management Group, Inc., The Bergen Group, Inc. and any and all other affiliated companies within our corporate family. 16 CSI shall notify you in the event CSI receives a subpoena or other legal request for information which CSI is obligated to respond, and CSI shall discuss its response with you prior to CSI's formal response to the subpoena or legal request. In addition, we may provide information about you to our service providers to help us process your applications or service your accounts. Our service providers may include, mail and telephone service companies, insurers, loan service providers, or other professionals. We may also provide information to help us perform marketing of CSI products. The information provided to these providers shall be limited to only that which is appropriate for these service providers to carry out their functions. SHARING INFORMATION WITHIN THE CSI CORPORATE FAMILY We also may share information about you within our corporate family of financial service companies-for example, our retail banking, mortgage banking, credit card, brokerage and insurance companies as well as other members of the CSI family. By sharing this information, CSI can better understand your financial needs. We can then send you notification of new products and special promotional offers that you might not otherwise know about. For example, if you have a mortgage loan with a CSI mortgage lender, we would know that you are a homeowner and may be interested in hearing how a home equity loan may be a better option than an auto loan to finance the purchase of a new car. You may prohibit the sharing of application and third party credit-related information within CSI's corporate family. Simply mail a written request, with your name, address and social security number, to the following address: CSI Privacy, 169 Ramapo Valley Road Oakland, NJ 07436, or call toll free 800-654-4234. If you make such a request, it will apply to all of your consumer relationships with all the companies within the CSI corporate family. We will honor your choice on restricting information sharing. Even if you are no longer a CSI Co-Employee our Privacy Policy will continue to apply to you. OUR SECURITY PRACTICES AND INFORMATION ACCURACY We also take steps to safeguard Client/Co-Employee information. We restrict access to the personnel information of our Co-Employees to those staff members who need to know that information in the course of their job responsibilities. We maintain physical, electronic, and procedural safeguards that meet or exceed applicable state and federal standards to protect Co-Employee information. We also have internal controls to keep Co-Employee information as accurate and complete as we can. If you believe that any information about you is not accurate, please let us know. OTHER INFORMATION If you would like CSI to limit its telephone contacts with you for marketing purposes, please call us at 1-800-654-4234. This Privacy Policy applies to products or services provided by CSI used primarily for personal, family, or household purposes (not business purposes). We reserve the right to change this Privacy Policy at any time. QUESTIONS? PLEASE CALL 1-800-654-4234 17 EXHIBIT G DISCLOSURE FOR CALCULATION OF UNEMPLOYMENT BENEFIT EXPERIENCE CONTRIBUTION RATES AND DISABILITY CONTRIBUTION RATES A. UPON INCEPTION OF THIS AGREEMENT:: CSI hereby advises CLIENT that the following methods shall be utilized for calculation of the unemployment benefit experience contribution rates and the temporary disability contribution rates upon the inception and dissolution of this Agreement: (1) If CSI acquires CLIENT's total workforce, CSI shall report wages and pay contributions pursuant to the "unemployment compensation law," R.S.43:21-1 et seq., based on the benefit experience assigned to CSI under R.S.43:21-7. The benefit experience of the CLIENT shall not be transferred to CSI and shall not be used in the calculation of CSI'S FUTURE contribution rates. (2) If CSI acquires less than all of CLIENT's total workforce, CSI shall report wages and pay contributions pursuant to the "unemployment compensation law," R.S.43:21-1 et seq. for that portion of the workforce acquired based on the benefit experience assigned to CSI under R.S.43:21-7. The benefit experience associated with that portion of CLIENT's workforce acquired by CSI shall not be transferred to CSI and shall not be used in the calculation of CSI's future contribution rates. CLIENT shall continue to report wages and pay contributions for the workforce not acquired by CSI using CLIENT's contribution rate. B. UPON DISSOLUTION OF THIS AGREEMENT: (1) If, under the dissolved employee leasing agreement, CLIENT had leased its total workforce, and if, at the time of dissolution, CLIENT had leased those employees for at least two full calendar years, CLIENT shall be assigned the rate of a new employer under R.S.43:21-7 until it is eligible for a rate based on benefit experience pursuant to that section or enters into another employee leasing agreement. (2) If, under the dissolved employee leasing agreement, CLIENT had leased its total workforce, and if, at the time of the dissolution, CLIENT had leased those employees for less than two full calendar years, CSI at the time of dissolution shall provide the Department of Labor with the data necessary to calculate the benefit experience of CLIENT for the duration of the employee leasing agreement. That benefit experience shall then be added to CLIENT's benefit experience which was established prior to entering the employee leasing agreement. Both CLIENT and CSI shall continue to use the rate of CSI for the period from the date of the dissolution of the employee leasing agreement until the following July 1. (3) If, under the dissolved employee leasing agreement, CLIENT had leased less than its total workforce from CSI, and if, at the time of dissolution, CLIENT had leased those covered employees for at least two full calendar years, the benefit experience associated with that portion of CLIENT's workforce which had been leased from CSI shall not be transferred to CLIENT and shall not be used in the calculation of CLIENT's future contribution rates. (4) If, under the dissolved employee leasing agreement, CLIENT had leased less than its total workforce from CSI, and if, at the time of dissolution, CLIENT had leased those covered employees for less than two full calendar years, the leasing company shall provide the department with the data necessary to calculate the benefit experience associated with that portion of the client's workforce which had been leased from CSI. The department shall combine that benefit experience with CLIENT's existing benefit experience. Both CLIENT and CSI shall continue to use their own rates for the period from the date of the dissolution until the following July 1. (5) If, immediately upon dissolution of the employee leasing agreement, the client company enters into a subsequent employee leasing agreement regarding those covered employees with another employee leasing company, the payroll relative to the client company shall be reported and paid at the rate assigned the second employee leasing company. 18 EXHIBIT H DVL, INC. will pay Compensation Solutions Inc.: (1) for wages paid to Compensation Solutions Inc. work-site co-employees which are assigned exclusively to DVL, INC. workplace or field position (which are limited to NY Workers' Compensation Codes NY Clerical 8810, NY Sales 8742 and NJ Building NOC 9015); (2) a service fee on all contract wages which includes: State Unemployment & Disability Insurance, Workers' Compensation Insurance, Social Security and Medicare Payments, Federal Unemployment Insurance, and Compensation Solutions' Administration according to the following schedule: NEW YORK EMPLOYEES Bill Rate per $100.00 in payroll for: CATEGORY 100 NY CLERICAL / SALES 8810 AND 8742 13.34% on Wages From $1 to $7,000 12.54% on Wages From $7,001 to $8,500 10.34% on Wages From $8,501 to $87,000 2.24% on all Wages Over $87,000 NEW JERSEY EMPLOYEES Bill Rate per $100.00 in payroll for: Category 200 NJ Building NOC 9015 17.43% on Wages From $1 to $7,000 16.63% on Wages From $7,001 to $8,500 15.13% on Wages From $8,501 to $87,000 6.14% on all Wages Over $87,000 DVL, INC. agrees to pay a delivery fee of $12.75 to CSI for each pay-period payroll is processed. (3) for all employer mandated taxes and/or insurance for Compensation Solutions Inc. work-site employees assigned to DVL, INC. workplace not included in the aforementioned; (4) the costs of any other benefits which Compensation Solutions Inc. may extend to its work-site employees covered by this Agreement (including the administrative charges and expenses associated with COBRA coverage), throughout the term and extensions of this Agreement. (5) in the event of a material change in the business or economic activity of CLIENT, or in the event that a workers compensation code assigned to any co-employee of CLIENT, CSI reserves the right, upon thirty (30) days written notice, to amend the assigned bill rates to actually reflect the proper workers compensation code or cost associated with the change in business activity. (6) DVL, INC. agrees that the fee schedule above is reasonable and not necessarily related to any specific cost of doing business by either party to this Agreement. Furthermore, DVL, INC. agrees to pay these category service fees throughout the year without regard to individuals' earnings outside of CSI. (7) DVL, INC. shall pay said fees to Compensation Solutions Inc. on a C.O.D. basis, in cash, cashier's check or via Automated Clearing House procedures, all amounts set forth in this Exhibit G when 19 due. Such amounts not paid when due will be subject to a late payment penalty of 5% of the amount due plus carrying charges of 2% per month. (8) DVL, INC.'S failure to pay on dates due, or at any other time reasonably established by Compensation Solutions Inc., shall be a material breach of this Agreement, and, at the election of Compensation Solutions Inc., grounds for immediate termination of this Agreement. (9) At any time at which Compensation Solutions Inc., reasonably feels insecure, it shall have the right to require payment by cash, cashier's check or equivalent. Any final payment under this Agreement, or any payments made after notice of termination of this Agreement is given by either party, must be made by cash, cashier's check or equivalent. COMPENSATION SOLUTIONS INC. DVL, INC. (seal) (seal) Signed: /s/ Thomas J. Cioffe Signed: /s/ Jay Thailer ------------------------- ------------------------ By: THOMAS J. CIOFFE By: Jay Thailer President Executive Vice President 20 EX-99.1 4 c28265_ex99-1.txt Exhibit 99.1 CERTIFICATE PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 The undersigned, Chief Executive Officer and Chief Financial Officer of DVL, Inc. (the "Company"), each hereby certify pursuant to 18 U.S.C.ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that: (1) The Company's Quarterly Report on Form 10-Q for the period ending March 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Quarterly Report"), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Alan Casnoff - ----------------------- Alan E. Casnoff Chief Executive Officer May 14, 2003 /s/Jay Thailer - ----------------------- Jay Thailer Chief Financial Officer May 14, 2003 -----END PRIVACY-ENHANCED MESSAGE-----