On September 29, 2023 Cardiff Lexington Corporation (the “Company”) entered into a Revolving Purchase and Security Agreement (the “Agreement”) with Nova Ortho and Spine, PLLC, a Florida professional limited liability company and the Company’s wholly-owned subsidiary (“Nova”; the Company and Nova are referred to individually as “Seller” and collectively as, “Sellers”), and DML HC Series, LLC Series 308, a Texas limited liability company (the “Purchaser”) for a facility under which Purchaser will, from time to time, buy approved pools of accounts receivables from the Seller with an initial advance of not less than $500,000 and a maximum advance amount of $4,500,000. The Agreement provides the Purchaser’s obligation to advance being subject to its satisfaction of the following conditions in its sole discretion: (i) the aggregate principal amount advanced shall not exceed the then current Availability (as defined in the Agreement) as determined by Purchaser; and (ii) in no event shall any advance or advances attributable to any pool of accounts receivable exceed the advance rate multiplied by the face amount of such pool of accounts receivable. In connection with the purchase of approved pools of accounts receivables, the Seller is obligated to pay to Purchaser certain fees, including a closing fee in the amount of 2% of the maximum advance amount, discount fee in the amount of 2.25% multiplied by the face amount of each pool of purchased account receivables, minimum monthly discount fee in the amount of $3,000, subordinate lien fee in the amount of 5% of the maximum advance amount and certain other fees, expenses, and charges.
Sellers agreed to sell, transfer, assign and otherwise convey to Purchaser as a sale all rights, title and interests of Sellers in and to each pool of accounts receivable accepted by Purchaser for purchase under the Agreement, together with all related rights (but not obligations) of Sellers with respect thereto, including all contract rights, guarantees, letters of credit, liens in favor of Sellers, insurance and other agreements and arrangements of whatever character from time to time supporting or securing payment of all accounts and all right, title and interest of Sellers in any related goods, including Seller’s rights and remedies under Article 2, Part 7 of the UCC.
The Agreement contains customary events of default, including, among others: (a) Seller’s failure to pay any one or more obligations or perform any provision of the Agreement or any other agreement entered into with Purchaser; or any covenant, warranty or representation contained proven to be false in any way; (b) termination, unenforceability or withdrawal of any guaranty or validity guaranty for the Seller’s obligations to Purchaser, or Seller’s failure to perform any of its obligations under such a guaranty or validity guaranty; (c) Seller permits or grants a lien (except permitted liens as set forth in the Agreement) on any of the collateral; (d) suspension of the operation of any Seller’s present business; (e) entry of any judgment against Seller or creation, assertion, or filing of any judgment or tax lien against the Seller’s property, in each case which remains undischarged for 10 days after such entry or filing; (f) transfer of a substantial part (determined by market value) of the Seller’s property; (g) the sale, transfer or exchange of any equity of Nova without first obtaining Purchaser’s written consent; (h) appointment of a receiver for the collateral or for any other property in which any Seller has an interest; (i) seizure of any collateral by any person other than Purchaser; (j) the occurrence of any act, omission, event or circumstance which has or could reasonably be expected to have a materially adverse effect on Sellers; (k) payment by Seller on any subordinated debt in violation of the applicable subordination agreement; and (l) Purchaser, in good faith, deems itself insecure with respect to the prospect of repayment or performance of the Seller’s obligations or any other required performance under the Agreement, subject to any applicable cure period.
Under the Agreement, Seller shall indemnify Purchaser against and save Purchaser harmless from any and all manner of suits, claims, liabilities, demands and expenses, whether directly or indirectly, resulting from or arising out of the Agreement including the transactions or relationships contemplated (including the enforcement of the Agreement), and any failure by Seller to perform or observe its duties under the Agreement.
As collateral security for the payment and performance of all of the Seller’s obligations under the Agreement and related documents, the Seller granted the Purchaser a security interest in all of the assets of the Seller. The security interest granted under the Agreement is senior to any other outstanding liens on the Seller’s assets.
The term of the Agreement is to continue for two years from the date of the Agreement. The Agreement will automatically extend for successive one-year terms from the later of the Agreement date or the date of any executed modification unless the Seller provides at least 30 days but not more than 60 days prior written notice to purchaser of its intention to terminate. Either party may terminate the Agreement by providing at least 60 days prior written notice to the then-effective termination date.
The Agreement contains representations, warranties and covenants by Sellers, including collateral and negative covenants which are customary for transactions of this type.
The foregoing description of the Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Agreement, which is filed as Exhibit 10.1 to this report, and which is incorporated herein by reference.
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