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Certificates of deposit had been pledged as security for the
loans that PK Ventures had taken out with Norstar and Summit
Trust. Specifically, an $800,000 certificate of deposit secured
the outstanding principal balance of the $2.5 million revolving
line of credit and a $1 million certificate of deposit from
Printon Kane Government Securities secured the Summit Trust loan.
Under the terms of the debt service agreement, PK Ventures was to
instruct Norstar and Summit Trust to release a like amount of the
certificates of deposit that they had been holding as collateral
to the receiving agent for Kane, Kane Jr., Krutoy, and Mannello
as it made the scheduled payments to these institutions.
As contemplated by the debt service agreement, PK Ventures
borrowed $800,000 from Rose on February 16, 1990, in order to
make its scheduled payment to Norstar. Rose obtained a portion
of the funds for this loan by placing a $675,000 mortgage on his
New Jersey residence with First Fidelity Bank (First Fidelity).
Rose gathered the remaining $125,000 for this loan from other
sources. In exchange for this $800,000 loan, PK Ventures
executed documents entitled “Promissory Note” and “Security
Agreement” in favor of Rose. The terms of the Promissory Note
required that the principal amount bear interest at a rate equal
to 3 percent above First Fidelity’s stated prime rate, that
PK Ventures make payments of accrued interest on a monthly basis
beginning March 1, 1990, and that the principal balance become
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