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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
COMMISSION FILE NO.: 001-10785
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THE MONEY STORE INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
NEW JERSEY 22-2293022
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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2840 MORRIS AVENUE, UNION, NEW JERSEY 07083
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(908) 686-2000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE.)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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<S> <C>
(TITLE OF EACH CLASS) (NAME OF EACH EXCHANGE ON WHICH REGISTERED)
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COMMON STOCK, NO PAR VALUE NEW YORK STOCK EXCHANGE
$1.72 MANDATORY CONVERTIBLE PREFERRED STOCK,
NO PAR VALUE NEW YORK STOCK EXCHANGE
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
As of March 23, 1998 the aggregate market value of voting stock held by non-
affiliates of the Registrant was approximately $1,176,743,671.
As of March 23, 1998 the shares outstanding of the Registrant's class of
common stock were 58,494,447.
DOCUMENTS INCORPORATED BY REFERENCE:
Part III, items 10, 11, 12 and 13, is incorporated by reference to The Money
Store Inc.'s definitive proxy statement to shareholders which will be filed
with the Commission no later than 120 days after December 31, 1997.
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Certain information contained in this Annual Report and the documents
incorporated by reference herein constitute "forward-looking statements"
within the meaning of section 21E of the securities exchange act of 1934, as
amended (the "Exchange Act"), which can be identified by the use of forward-
looking terminology such as "may", "will", "expect", "anticipate", "estimate",
"objective", "projection", "forecast", "goal" or "continue" or the negatives
thereof or other variations thereon or comparable terminology. Such forward-
looking statements include, without limitation, the statements herein
regarding the timing of future events regarding the Company's operation.
Certain statements under the caption "Management's Discussion and Analysis of
Financial Conditions and Results of Operations" constitute cautionary
statements identifying important factors, including certain risks and
uncertainties, with respect to statements herein that could cause the actual
results, performance or achievements of the Company to differ materially from
those replicated in such forward-looking statements.
PART I
ITEM 1. BUSINESS
GENERAL
The Money Store Inc., together with its subsidiaries (the "Company") is a
financial services company engaged in the business of originating (including
purchasing), selling and servicing consumer and commercial loans of specified
types and offering related services. Loans originated by the Company primarily
consist of: (i) fixed and adjustable rate loans secured by mortgages on
residential real estate, including home equity lines of credit ("HELOCs") and
loans which allow consumers to borrow up to 125% of the value of their homes
("125 LTV Loans"), (collectively "Home Equity Loans"), which include FHA Title
I home improvement loans, ("FHA Title I Loans") insured by the Federal Housing
Authority (the "FHA") of the United States Department of Housing and Urban
development ("HUD") and other home improvement loans not insured by FHA
consisting of loans secured by real estate and unsecured loans ("Conventional
Home Improvement Loans" and, collectively with FHA Title I Loans, "Home
Improvement Loans"); (ii) loans guaranteed in part ("SBA Loans") by the United
States Small Business Administrations (the "SBA") and commercial loans
generally secured by first mortgages ("Small Business Loans" and, together
with SBA Loans, "Commercial Loans"); and (iii) government-guaranteed and
privately-insured student loans ("Student Loans").
The Company commenced operations in the United Kingdom in May 1997 with the
purchase of Platform Home Loans Ltd. ("Platform"), a United Kingdom-based
servicer of mortgage loans, and the organization of The Money Store Limited
U.K., a United Kingdom-based company engaged in the business of originating
and purchasing mortgage loans.
Since 1995, the Company has originated motor vehicle retail installment sale
contracts purchased from automobile dealers ("Auto Loans"). On January 21,
1998, the Company decided to close its Auto Finance division as part of its
overall strategy to focus on more profitable areas of lending, namely Home
Equity Loans, Commercial Loans and Student Loans. As a result of this action,
the Auto Finance division is treated as a discontinued operation for financial
reporting purposes.
The business strategy of the Company has been to identify and pursue niche
lending opportunities which management believes have had widespread
unsatisfied demand. For the year ended December 31, 1997, the Company
originated approximately $7.8 billion of loans. Of these loans, approximately
76% by principal amount were Home Equity Loans, approximately 9% by principal
amount were Commercial Loans, approximately 8% by principal amount were
Student Loans and approximately 7% by principal amount were Auto Loans. The
Company has been engaged in Home Equity lending since 1967, and based on
industry sources, was the second largest non-prime Home Equity lender in the
country in 1997. In addition, the Company began to originate SBA Loans and,
based upon statistics compiled by the SBA, management believes that during
each of the last 15 SBA fiscal years the Company originated a greater
principal amount of SBA Loans than any other originator of such loans in the
United States. In 1984, the Company entered into the government-guaranteed
Student Loan origination market.
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The majority of Home Equity Loans are made to borrowers owning one to four-
family homes, for the purpose of refinancing existing mortgage loans, debt
consolidation, home improvements, educational expenses and a variety of other
purposes. Management believes that American homeowners have substantial home
equity available as security for additional borrowings and that the use of
Home Equity Loans should continue to increase.
The focus of the Company's commercial lending activities has been to
originate business loans for the purchase or refinance of owner/user
commercial real estate or small businesses under SBA guidelines. The majority
of the Commercial Loans originated by the Company are loans to purchase or
refinance owner/user commercial real estate, with the balance primarily
consisting of loans for which the use of loan proceeds may not be limited to
the purchase or refinance of commercial real estate, which includes general
business loans for business acquisitions, equipment purchases, working capital
or debt refinancing.
The Company originates Student Loans, primarily targeting students attending
accredited four-year colleges and universities. In October 1995, the Company
began to originate privately-insured Student Loans.
Substantially all of the loans originated by the Company are sold to
institutional investors or pledged to the Company's warehouse lenders until
the loans can be sold and those lenders repaid. Revenue is recognized as gain
on sale of receivables, which represents the difference between the proceeds
(including premiums) from the sale, net of related transaction costs, and the
allocated carrying amount of the loans (including premiums paid on loans
purchased) between the portion sold and any retained interests (interest-only
strip receivables and servicing assets and liabilities) based on their
relative fair values at the date of sale. The net unrealized gains on
valuation of interest-only strip receivables include the recognition of
unrealized gains which represents the initial difference between the allocated
carrying amount of loans sold and their fair market value. In addition, gain
on sale includes non-refundable fees on loans sold and gains or losses on
certain transactions structured as an economic hedge. The Company recognizes
such gain on sale of loans on the settlement date. The Company's practice of
selling its loans is designed to increase the Company's liquidity, reduce its
need to access markets for capital and reduce certain risks associated with
interest rate fluctuations.
The Company has several strategies which it employs in an attempt to
minimize the risk of interest rate fluctuations during the period between the
time it originates loans and the time such loans are sold: i) the Company
attempts to package and sell loans on a regular basis, thereby minimizing the
period during which loans are held; ii) the Company usually does not fix the
interest rate applicable to fixed rate Home Equity Loans it originates until
shortly prior to the closing of the loans; iii) the Company, from time to
time, purchases and sells government securities at agreed upon prices as an
economic hedge; and iv) in certain securitizations, the Company enters into an
agreement that allows it to sell loans in the future at an agreed upon price
("pre-funding"). The Company has basis risk on certain variable rate loans it
sells where the customer and investor rates are based upon different indices
and adjust at varying intervals.
At December 31, 1997, the Company operated out of 211 branch offices and was
doing business in 50 states, the District of Columbia, the Commonwealth of
Puerto Rico and the United Kingdom.
2
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The following table shows the Company's originations and portfolio balances
for the three years ended December 31, 1997:
ORIGINATIONS AND SERVICED LOAN PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
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1997 1996 1995
------------------------------- ------------------------------- ------------------------------
ORIGINATIONS ORIGINATIONS ORIGINATIONS
------------------- ------------------- -------------------
NUMBER SERVICED NUMBER SERVICED NUMBER SERVICED
OF LOAN OF LOAN OF LOAN
AMOUNT LOANS PORTFOLIO AMOUNT LOANS PORTFOLIO AMOUNT LOANS PORTFOLIO
---------- ------- ----------- ---------- ------- ----------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Home Equity Loans....... $5,926,252 152,554 $11,430,392 $4,150,992 104,519 $ 8,230,776 $2,885,044 67,828 $5,751,677
% of Total.............. 76.0% 69.3% 72.9% 67.5% 75.5% 66.7%
Commercial Loans........ 728,961 1,650 2,694,640 635,498 1,769 2,282,384 440,728 1,461 1,907,050
% of Total.............. 9.3% 16.3% 11.2% 18.7% 11.5% 22.1%
Student Loans........... 582,294 163,350 1,590,791 458,459 168,837 1,203,739 369,129 139,946 845,501
% of Total.............. 7.5% 9.7% 8.0% 9.9% 9.7% 9.8%
Auto Loans.............. 563,507 54,383 778,121 448,105 45,124 475,533 128,070 13,141 117,239
% of Total.............. 7.2% 4.7% 7.9% 3.9% 3.3% 1.4%
---------- ------- ----------- ---------- ------- ----------- ---------- ------- ----------
Totals................. $7,801,014 371,937 $16,493,944 $5,693,054 320,249 $12,192,432 $3,822,971 222,376 $8,621,467
========== ======= =========== ========== ======= =========== ========== ======= ==========
</TABLE>
PENDING MERGER WITH FIRST UNION CORPORATION
On March 4, 1998, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") with First Union Corporation ("First Union") and its
wholly owned subsidiary, First Union National Bank ("FUNB"), providing for,
among other things, the merger (the "Merger") of a direct, wholly owned
subsidiary of FUNB with and into the Company. Pursuant to the Merger
Agreement, at the effective time of the Merger (the "Effective Time"), each
outstanding share of the Company's common stock, no par value (the
"Common Stock"), will be converted into the right to receive that number of
validly issued, fully paid and non-assessable shares of First Union's common
stock, par value $3.33 1/3 per share, together with the rights issued pursuant
to a Shareholder Protection Rights Agreement, dated December 18, 1990, as
amended, attached thereto (the "First Union Common Stock"), equal to the
result of dividing $34.00 by the Market Price (such quotient, rounded down to
four decimal places, the "Exchange Ratio"). The "Market Price" means the
average of the per share closing sales price of Parent Stock, rounded to four
decimal places, as reported under "NYSE Composite Reports" in The Wall Street
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Journal for each of the five trading days in the period ending on the trading
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day prior to the Effective Time. At the Effective Time, each outstanding share
of the Company's $1.72 Mandatory Convertible Preferred Stock, no par value
(the "Preferred Stock"), shall be converted into the right to receive the
number of shares of First Union Common Stock equal to the product of the
Exchange Ratio and 0.92. If any approval of the holders of the Preferred Stock
that may be required in order to deliver First Union Common Stock in exchange
therefor shall not be received, then each share of Preferred Stock outstanding
at the Effective Time shall instead be converted into the right to receive a
share of a new series of First Union convertible preferred stock (the "New
First Union Preferred Stock") containing substantially similar terms as the
Preferred Stock, as adjusted to reflect the Merger.
The Merger is intended to constitute a reorganization under Section 368 of
the Internal Revenue Code of 1986, as amended (the "Code"), and to be
accounted for as a purchase. Consummation of the Merger is subject to various
conditions, including: (i) approval of the Merger and the Merger Agreement by
the requisite vote of the Company's shareholders; (ii) receipt of requisite
regulatory approvals and third party consents; (iii) receipt of opinions as to
the tax-free nature of the transactions; (iv) listing on the New York Stock
Exchange (the "NYSE"), subject to notice of issuance of the First Union Common
Stock (and if required, the New First Union Preferred Stock) to be issued in
the Merger; and (v) satisfaction of certain other customary closing
conditions.
3
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In his capacity as a shareholder of the Company, Marc J. Turtletaub, Chief
Executive Officer of the Company, entered into an option and voting agreement
dated as of March 4, 1998 (the "Option Agreement") with First Union pursuant
to which Mr. Turtletaub granted First Union an option, that is exercisable
following the occurrence of certain contingencies set forth therein, to
purchase up to 14,547,261 shares of the Common Stock (approximately 24.9% of
the outstanding shares of Common Stock) owned by him at a price, subject to
certain adjustments, of $34.00 per share payable in First Union Common Stock.
Mr. Turtletaub has also agreed, in his capacity as a shareholder, to vote for
the Merger and the other actions contemplated in the Merger Agreement and to
vote against any merger (or other transaction involving the sale of a
substantial portion of the Company's assets or the Company Common Stock)
between the Company and a party other than First Union or an affiliate thereof
for a period beginning on March 4, 1998 and ending on the later of (i) 180
days after the Merger Agreement shall have been terminated or (ii) December
31, 1998. Mr. Turtletaub has provided the Company with a copy of the Option
Agreement.
HOME EQUITY LOANS
Overview
The Company's mortgage lending activities consist of originating, selling
and servicing Home Equity Loans. These loans are primarily secured by one to
four-family residential properties, including low-rise condominiums, single-
family detached homes, single-family attached homes, properties in planned
unit developments and mixed use properties. The Company generally does not
make Home Equity Loans secured by high-rise condominiums, cooperative
residences or other categories of properties that management believes have
high levels of risk. Home Equity Loans are made to borrowers for the purpose
of refinancing existing mortgage loans, debt consolidation, home improvements,
educational expenses and a variety of other purposes. In 1996, the Company
began test marketing HELOCs and in 1997 the Company began offering HELOCs to
its customers in a majority of states.
As of December 31, 1997, Home Equity Loans secured by property located in
California, New York, Illinois, New Jersey and Pennsylvania accounted for
13.5%, 8.1%, 5.8%, 5.6% and 5.2%, respectively, of the principal amount of
Home Equity Loans in the Home Equity Loan serviced loan portfolio. At such
date, Home Equity Loans secured by property located in any other jurisdiction
represented less than 5.0% of the principal amount of Home Equity Loans in the
Home Equity Loan serviced loan portfolio.
Home Equity Loan Origination
As of December 31, 1997, the Company's 108 Home Equity Loan origination
offices operated in 45 states, the District of Columbia and the United
Kingdom. The Company intends to enter remaining geographic markets in the
United States as conditions warrant.
In the United States the Company's Home Equity Loan division is centrally
organized with its administrative, underwriting and servicing operations based
in Sacramento, California, with local offices generally located in major
metropolitan areas. In the United Kingdom, the Company's Home Equity Loan
division is also centrally organized with all operations based in London.
Applications for Home Equity Loans typically are received by telephone
directly from the public or through independent mortgage brokers. The Company
also originates Home Equity Loans in the United States and for the most part,
in the United Kingdom by purchasing them from other originators or holders
("Wholesale Loans"). Wholesale loans accounted for approximately 43%, 29% and
19%, for the years ended December 31, 1997, 1996 and 1995, respectively.
The entire application and approval process for Home Equity Loans, other
than Wholesale Loans, is generally conducted by telephone. A loan officer is
responsible for completing, evaluating and processing the loan application of
a prospective borrower based on information obtained from the borrower or
mortgage broker and verified with third parties. Although some applications
are approved in branch offices, substantially all loan applications are
approved by a loan underwriter in Sacramento. Loan officers are trained to
structure loans that
4
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meet the applicant's needs, while satisfying the Company's lending guidelines.
If an applicant does not meet the guidelines for the loan for which an
application has been submitted, a different loan that better suits the
applicant's needs may be suggested to the applicant.
The Company originates Home Equity Loans to borrowers with credit histories
and income deemed satisfactory by management who indicate the ability to repay
their loan. Management supports two main origination policies. The primary and
initial origination policy is to analyze the applicant's creditworthiness
(i.e., a determination of the applicant's ability to repay the loan).
Creditworthiness is assessed by examining a number of factors, including
calculating a debt-to-income ratio, which is the sum of the borrower's normal
monthly expenses divided by the applicant's monthly income before taxes and
other payroll deductions (the "Gross Debt Ratio"), examining the applicant's
credit history through standard credit reporting bureaus, and by checking the
applicant's payment history with respect to existing mortgages, if any, on the
property.
The second origination policy for Home Equity Loans other than Home
Improvement Loans and certain HELOCs is a determination of the ratio (the
"Combined Loan-to-Value Ratio") that all mortgages existing on the property
(including the loan applied for, less any premiums for credit life or
disability insurance which are financed) bear to the appraised value of the
property securing such loan at the time of origination. Combined Loan-to-Value
Ratio guidelines are established depending on the type of loan and
creditworthiness of the borrower. For Home Equity Loans, the Company generally
confirms the value of the property to be mortgaged by appraisals (which in
certain cases may be "drive-by" appraisals) performed by independent
appraisers or by acceptable alternative valuation techniques. For Home
Improvement Loans and certain HELOCs, the loan-to-value determination includes
the costs of improvement in the value of the property.
The Company has several procedures which it uses to verify information
obtained from an applicant. The applicant's outstanding balance and payment
history on any mortgage may be verified by calling the mortgage lender. If the
mortgage lender, if any, cannot be reached by telephone or will not verify
this information, the Company attempts to verify the information using other
methods. In order to verify an applicant's employment status, the Company will
obtain from the applicant either recent tax returns or other tax forms (e.g.,
W-2 Forms) and current pay stubs and the Company may telephone the applicant's
employer or obtain written verification from the employer. Further, the
Company will not close a Home Equity Loan prior to receiving evidence that the
property securing the loan is insured. A title search is ordered to verify the
vesting of title to the mortgaged property, along with the existence of any
mortgages, tax or other liens that have been levied on the property, to assure
that the lien priority will be as represented by the borrower.
Most Home Equity Loans originated by the Company are scheduled to amortize
over their terms. The Company may also collect nonrefundable points, late
charges and various fees in certain states in connection with its Home Equity
Loans. Other fees charged, where allowable, include those related to credit
reports, lien searches, title insurance and recordings, prepayment fees and
appraisal fees. Home Equity Loans have original terms of up to 40 years.
Because of prepayments, it is expected that Home Equity Loans will have
shorter actual lives than their original terms to maturity.
The maximum amount that the Company will lend is determined by evaluating a
number of factors, including the applicant's ability to repay the loan, the
value of the borrower's equity in the real estate and the ratio of such equity
to the home's value.
The Company also originates Wholesale Loans through an indirect lending
program with independent brokers and mortgage bankers. These loans are
underwritten by the Company using the same criteria applied to loans
originated by the Company. Brokers and mortgage bankers participating in this
program must satisfy certain requirements established by the Company
pertaining to experience, size of business and various licenses and approvals.
The Company began making FHA Title I Loans in 1990 and Conventional Home
Improvement Loans in 1995. It began making both FHA insured and non-FHA
insured loans originated through and purchased from
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home improvement contractors ("Dealer/Contractor Loans") in 1994. Under
current FHA regulations, the maximum amount of an FHA Title I Loan on a single
family home is $25,000. Borrowers must use the proceeds of such FHA Title I
Loans to improve the property securing the FHA Title I Loan. The underwriting
process with respect to Home Improvement Loans other than Dealer/Contractor
Loans is substantially similar to the process for Home Equity Loans, except
for loans of $15,000 or less, Combined Loan-to-Value Ratios generally are not
computed and appraisals are not obtained. If a contractor desires to utilize
the Company's financing programs for Dealer/Contractor Loans, it must make
application to the Company for approval. All purchased Dealer/Contractor Loan
contracts are on forms provided or approved by the Company and each contract
purchased is approved in accordance with the Company's guidelines. Where
required, property values are generally determined by "drive-by" appraisals.
Title insurance is required on some of these loans in first lien position.
Where state laws permit, the Company has, in some instances, entered into
arrangements with insurance carriers pursuant to which the Company offers, as
agent for such insurers, credit life and accident and health coverage to its
Home Equity Loan borrowers. If an insurance policy is purchased, the cost to
the borrower of the policy is generally financed as part of the loan. The
Company receives a commission based on the insurance policy's premium and
remits the premium net of commissions to the sponsoring insurance carrier. The
Company occasionally receives a premium for reinsuring a portion of the credit
life and accident and health insurance offered to its borrowers. The purchase
of insurance is not a prerequisite to loan approval. Premiums and commissions
on credit life and accident and health insurance coverage vary from state to
state. For financial reporting purposes, insurance commissions received are
deferred and recognized over the life of the insurance policy.
Home Equity Loan Servicing and Sales
The Company currently sells Home Equity Loans primarily through the issuance
of asset-backed securities ("Asset-Backed Securities") to financial
institutions and retains the right to service the loans it originates.
Servicing includes collecting payments from borrowers, remitting payments to
investors who have purchased the loans, accounting for principal and interest,
contacting delinquent borrowers, supervising foreclosures and bankruptcies in
the event of unremedied defaults and managing real estate owned.
Through December 31, 1997, the Company has completed offerings of Home
Equity Loan Asset-Backed Securities aggregating $16.5 billion. In 1997, $5.6
billion of Home Equity Loans were sold in Home Equity Loan Asset-Backed
Securities and $228.0 million of Home Equity Loans were sold in whole loan
sales. The Home Equity Loan Asset-Backed Securities represent undivided
beneficial ownership interests in pools consisting of loans originated by the
Company which have been sold by the Company to an independent trust, or debt
instruments issued by independent trusts. The principal and part of the
interest payments on such loans are remitted by the Company, as the servicer
of the loan pool, to the trust and then passed from the trust to investors in
the Asset-Backed Securities. As a result of the credit enhancements described
below, in general, the primary risk to investors in Asset-Backed Securities is
the risk that loans underlying the Asset-Backed Securities will be prepaid at
a rate other than as expected, thereby changing the rate at which an
investor's principal is repaid. In senior subordinated structures,
subordinated tranches have a greater degree of risk of loss attributable to
defaults than in structures involving third-party insurance.
Each issue of Home Equity Loan Asset-Backed Securities sold to investors has
received an investment grade rating from Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Ratings Services, a division of The McGraw-
Hill Companies, Inc. ("S&P"), Duff & Phelps Credit Rating Co. ("Duff") or
Fitch IBCA Inc. ("Fitch"). Asset-Backed Securities provide an important source
of liquidity for the Company, and the Company intends to continue to sell Home
Equity Loans through sales of Asset-Backed Securities.
The investors' protection from losses is generally provided by various
structuring mechanisms which include combinations of cash deposits,
subordination accounts and credit enhancement provided by third parties. In
some structures, the senior certificate holders are protected from losses by
outstanding subordinated certificates and credit enhancement provided by third
parties. At December 31, 1997 and 1996, the Company had $132.0 million and
$113.6 million respectively, of short-term cash investments held in restricted
interest-bearing
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accounts to protect investors from losses. In addition, advances in connection
with subordination accounts of $379.5 million and $225.1 million at December
31, 1997 and 1996, respectively, are included in interest-only strip
receivables. In senior subordinated structures, the senior certificate holders
are protected from losses by outstanding subordinated certificates and in some
cases the limited guarantee of the Company. See "Item 7--Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
Delinquencies and Collections
Unless circumstances dictate otherwise, collection efforts begin when an
account is over 15 days past due, at which time the Company attempts to
contact the borrower to determine the reason for the delinquency and obtain
payment to bring the account current. If not successful in obtaining payment a
determination of the reasons for the borrower's inability to make payments is
made by the Company to proceed with the appropriate collection strategy. If
the borrower is experiencing temporary difficulty in making timely payments,
the Company may not require the loan to be brought fully current on a
contractual basis and will accept a payment plan to bring the account current
in the near future. Under certain circumstances, the Company will treat as
current, an account which is in contractual arrears but where the borrower has
established a recent record of timely and consistent payments. This
modification/cure policy does not forgive interest or affect the future
application of payments.
When a loan is contractually more than 90 days (four payments) past due, the
facts surrounding the delinquency are reviewed. The underlying property may be
reappraised and the results evaluated by the Company to determine a loss
mitigation strategy. Such loss mitigation strategy may include foreclosure on
the underlying property.
Regulations and practices regarding the liquidation of properties (e.g.,
foreclosure) and the rights of the mortgagor in default vary greatly from
state to state. Only if a delinquency cannot otherwise be cured will the
Company decide that liquidation is the appropriate course of action. After
determining that purchasing a property securing a Home Equity Loan will
minimize the loss associated with such defaulted loan, the Company may bid at
the foreclosure sale for such property or accept a deed in lieu of
foreclosure.
At December 31, 1997, the Home Equity Loan real estate owned portfolio,
which is carried at the lower of carrying value or fair value less estimated
cost to sell, was $1.9 million. In addition, at December 31, 1997, the Company
serviced $57.8 million of real estate owned by trusts in connection with
Asset-Backed Securities. These amounts may include any senior mortgage
balance, delinquent senior mortgage payments and other advances made on the
property.
The following table illustrates the Company's delinquency and charge-off
experience with respect to Home Equity Loans:
<TABLE>
<CAPTION>
HOME EQUITY LOAN
DELINQUENCIES AND
CHARGE-OFFS
AS OF AND FOR THE YEARS
ENDED DECEMBER 31,
-------------------------
1997 1996 1995
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
30-59 days past due............................. 1.53% 1.31% 1.76%
60-89 days past due............................. 0.81% 0.81% 0.68%
90+ days past due............................... 4.38% 3.83% 2.42%
Loans charged-off, net.......................... $58,739 $37,039 $24,205
Loans charged-off, net, as a percentage of the
Home Equity Loans in the serviced loan
portfolio at year end.......................... 0.51% 0.45% 0.42%
</TABLE>
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Repurchase Obligations
For certain whole loan sales prior to 1993, the Company is committed to
repurchase from investors any such loans that become 90 days (four payments)
past due or more. This obligation is subject to various terms and conditions,
including, in some instances, a limitation on the amount of loans that may be
required to be repurchased in any given year. Based on the Company's
repurchase obligations contained in certain of these loan sale contracts and
management's estimates of the lives of the underlying portfolios, management
believes that there were $40.2 million of Home Equity Loans at December 31,
1997, which the Company may be required to repurchase in the future should
such loans become 90 days past due.
The amount of Home Equity Loans repurchased during the years ended December
31, 1997, 1996, and 1995, were $4.2 million, $7.0 million, and $9.1 million,
respectively. At December 31, 1997 and 1996, the Company owned $15.3 million
and $24.4 million, respectively, of Home Equity Loans which had been
repurchased from investing institutions because such loans had become at least
90 days (four payments) past due. See "Item 7--Management's Discussion and
Analysis of Financial Condition and Results of Operations."
COMMERCIAL LOANS
Overview
In 1979, the Company received authorization from the SBA to make SBA Loans.
Based upon SBA-compiled statistics, during each of the last 15 SBA fiscal
years the Company has originated a greater principal amount of SBA Loans than
any of the approximately 12,000 banks, savings and loan associations and non-
bank lenders that have participated in the SBA program.
Commercial Loans originated by the Company may be used for owner/user real
estate acquisition, construction, renovation, expansion, land and site
improvements, acquisition and installation of machinery and equipment and the
interest on interim financing. Although the Company intends to increase the
number of Small Business Loans it originates, currently, 94% of the Commercial
Loans in the Company's serviced loan portfolio are comprised of SBA Loans.
As of December 31, 1997, Commercial Loans originated in California, Arizona,
Texas, Colorado and New Jersey accounted for 31.2%, 7.7%, 6.0%, 5.9% and 5.1%
respectively, of the principal amount of Commercial Loans in the serviced loan
portfolio. At such date, Commercial Loans originated in any other jurisdiction
represented less than 5.0% of the principal amount of the Commercial Loans in
the serviced loan portfolio.
Commercial Loan Origination
As of December 31, 1997, the Company's 57 Commercial Loan origination
offices operated in 49 states and the District of Columbia.
The Company maintains its national Commercial Loan administrative office in
Sacramento, California. Commercial Loans are originated through retail sales
offices, organized into seven regions reporting to regional management
offices, through the use of brokers and through relationships developed with
franchisors. Activities at the local and regional level include business
development and loan closing. Activities at the national level include
marketing, credit approval, quality control, document preparation, loan
servicing and secondary market sales.
In 1997, approximately 89% of the Company's Commercial Loan originations
were SBA Loans consisting of first mortgages for the purchase or finance of
commercial real estate, general business loans for business acquisitions,
equipment purchases, working capital or debt refinancing.
All Commercial Loans originated by the Company are evidenced by floating
rate notes which adjust quarterly, require payment monthly and are scheduled
to amortize fully over their stated term. SBA Loans
8
<PAGE>
originated by the Company have terms ranging from seven to 25 years depending
upon the use of proceeds, with an average term of approximately 22 years.
Generally, seven-year loans are made for working capital, ten-year loans for
equipment and 25-year loans for real estate. Small Business Loans originated
by the Company have terms ranging from seven years to 30 years with an average
term of approximately 25 years.
Loan officers in the Company's national offices in Sacramento evaluate the
applicant's financial statements, credit reports, business reports and plans
and other data to determine if the credit and collateral satisfy the Company's
standards as to historic debt service coverage, reasonableness of projections,
strength of management and sufficiency of secondary repayment and, if
applicable, the SBA's eligibility rules. Recommended applications are then
forwarded to a credit manager or senior credit officer for approval. In
accordance with SBA lending rules, all potential loans are considered first
under the Company's conventional loan programs, and only if they do not
qualify for conventional financing are they then considered under SBA
programs. Loans made pursuant to the SBA Preferred Lender Program (described
below) do not require further SBA approval. All other applications for SBA
Loans are submitted to the appropriate district SBA office for approval. Prior
to funding, any real property to be taken as primary collateral is appraised
by independent appraisers.
SBA Program
The SBA administers three levels of lender participation in its general
business loan program, pursuant to Section 7(a) of the Small Business Act of
1953, as amended, and the rules and regulations promulgated thereunder (the
"Small Business Act"). Under the first level of "Section 7(a)" lender
participation, commonly known as the Guaranteed Participant Program, the
lender gathers and processes data from applicants and forwards it, along with
its request for the SBA's guaranty, to the local SBA office. The SBA then
completes an independent analysis and makes its decision on the loan
application. SBA turnaround time on such applications can vary greatly,
depending on its backlog of loan applications.
Under the second level of lender participation, known as the Certified
Lender Program, the "Certified Lender" gathers and processes the application
and makes its request to the SBA, as in the Guaranteed Participant Program
procedure. The SBA then performs a review of the lender's credit analysis on
an expedited basis, which is generally completed within three working days.
The SBA generally requires that lenders originate loans meeting certain
portfolio quality and volume criteria before authorizing lenders to
participate as Certified Lenders. Authorization is granted on an SBA district
by district basis.
Under the third level of lender participation, known as the Preferred Lender
Program, the lender has the authority to approve a loan and to obligate the
SBA to guarantee the loan without submitting an application to the SBA for
credit review. The lender is required to notify the SBA of the approved loan,
along with the submission of pertinent SBA documents. The standards
established for participants in the Preferred Lender Program, the SBA's
highest designation, are more stringent than those for participants in the
Certified Lender Program. The Company has been named a Preferred Lender by the
SBA in virtually all of the major SBA loan markets in which it competes. Most
of the Company's SBA Loans are currently originated under the Preferred Lender
Program.
SBA Guarantees
Until October 12, 1995, under the Guaranteed Participant and the Certified
Lender Programs, for loans of $155,000 or less the SBA guaranteed up to 90% of
the principal amount, and for loans in excess of $155,000 with terms of less
than 10 years the SBA guaranteed up to 85% of the principal amount. For loans
in excess of $155,000 with terms greater than 10 years, the maximum guaranty
was 75% of the principal amount. Under the Preferred Lender Program, the
maximum guaranty was 70%.
After October 12, 1995, under the Guaranteed Participant and the Certified
Lender Programs, for loans of $100,000 or less the SBA guarantees up to 80% of
the principal amount; all other loans have a maximum guaranty of up to 75%.
The SBA's maximum guaranty per borrower under all three programs is $750,000,
with
9
<PAGE>
certain exceptions. In the event of a default by the borrower, any losses
resulting therefrom are shared pari passu between the Company and the SBA. If
the SBA establishes that any resulting loss is attributable to substantial
deficiencies in the manner in which the loan was originated, documented or
funded by the Company, the SBA may seek recovery of funds from the Company.
Due to federal budgetary constraints in 1995, the SBA had imposed a maximum
loan size for SBA Loans of $500,000 from January 1 through October 12, 1995.
The Company reviewed alternatives to address the effects of that change and,
as a result, made some companion Small Business Loans, in conjunction with SBA
Loans, when borrower needs exceeded $500,000. Effective May 5, 1997, the SBA
again imposed a maximum loan size for SBA Loans of $500,000. This maximum loan
size was imposed because of the impact high national demand for SBA Loans was
having on the SBA's budget at that time. A revised analysis of funding by the
SBA led to the lifting of the limitation on June 4, 1997. To date, such
limitations have not had a material effect on the Company's volume of SBA Loan
originations.
Commercial Loan Servicing and Sales
The Company sells and services substantially all the Commercial Loans it
originates. Servicing includes collecting payments from borrowers and
remitting payments to investors (including, with respect to the guaranteed
portion of SBA Loans, to the FTA (defined below)), accounting for principal
and interest, contacting delinquent borrowers and supervising loan
liquidations. The Company's quality control staff reviews loan files to
confirm that the loans are originated and maintained in accordance with its
requirements and applicable SBA regulations. The Company typically conducts
field visits to each borrower's place of business at least once during the
year the loan is made and once again within 24 months thereafter.
The Company sells the guaranteed portion of its SBA Loans individually and
sells the unguaranteed portion of the SBA Loans and its Small Business Loans
in the form of Asset-Backed Securities. The Company generally sells its
individual guaranteed portions of SBA Loans to financial institutions or
broker-dealers for their investment or resale. Investors in the guaranteed and
unguaranteed portions of SBA Loans and the Company (with respect to any
portion retained) share ratably in all principal collected from the borrowers
with respect to the SBA Loans.
SBA Loans are written at a variable rate of interest which generally is
limited to a maximum of 275 basis points over the lowest prime lending rate
published in The Wall Street Journal adjusted on the first day of each
-----------------------
calendar quarter. The guaranteed portions of SBA Loans are converted by the
SBA to registered government-guaranteed certificates and the certificates are
sold to investors to yield a variable rate that adjusts relative to the prime
rate. SBA lenders are required to pay a fee to the SBA of 40 basis points per
annum on the outstanding balance of the guaranteed portion of all loans sold
in the secondary market between September 1, 1993 and October 12, 1995. For
SBA Loans approved on or after October 12, 1995 a fee equal to 50 basis points
per annum on all SBA Loans is payable.
The SBA has contracted with Colson Services Corp. to serve as the exclusive
Fiscal and Transfer Agent (the "FTA") for the guaranteed portion of SBA Loans
sold in the secondary market. The Company collects payments from borrowers and
remits to the FTA amounts due to investors. The FTA then remits such amounts
to the investors and administers the transfer of SBA-guaranteed interests of
SBA Loans from one investor to another.
Through December 31, 1997, the Company had sold $762.0 million of the
unguaranteed portions of SBA Loans and $198.0 million of Small Business Loans
in the form of Asset-Backed Securities. Such Asset-Backed Securities represent
beneficial ownership interests in a trust consisting primarily of the right to
receive payments and other recoveries attributable to a pool of such
Commercial Loans. The principal and interest payments attributable to these
certificates are remitted by the Company, as the servicer of the loan pool, to
the trust and then passed from the trust to the investors in such Asset-Backed
Securities.
10
<PAGE>
The Company's credit enhanced Commercial Loan Asset-Backed Securities have
all received an investment grade rating from Moody's and Duff. Asset-Backed
Securities provide an important source of liquidity for the Company, and the
Company intends to continue to offer Commercial Loan Asset-Backed Securities.
The investors' protection from losses is generally provided by structuring
mechanisms and cash deposits. At December 31, 1997 and 1996, the Company had
$37.4 million and $25.6 million, respectively, of short-term cash investments
held in restricted interest-bearing accounts to protect investors from losses
in SBA Loan Asset-Backed Securities. See "Item 7--Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
Delinquency and Collections
As a general matter, when an SBA Loan becomes 75 days past due, the Company
initiates procedures that may result in the SBA purchasing the guaranteed
portion from the holder of the defaulted loan. The SBA will pay the guaranteed
portion of the principal balance, together with accrued interest covering a
period generally not to exceed 120 days. The Company's collection officers
contact delinquent borrowers and continue to maintain contact until the loan is
brought current or is liquidated. Generally, after a Commercial Loan becomes 90
days delinquent, the Company delivers a demand notice and begins the process of
workout, foreclosure and liquidation.
At December 31, 1997, the Commercial Loan real estate owned portfolio, which
is carried at the lower of carrying value or fair value less estimated cost to
sell, was $1.1 million. In addition, at December 31, 1997, the Company serviced
$9.5 million of real estate owned by trusts in connection with Commercial Loan
Asset-Backed Securities.
The following table shows the Company's delinquency and charge-off experience
with respect to Commercial Loans:
<TABLE>
<CAPTION>
COMMERCIAL LOAN DELIQUENCIES
AND CHARGE-OFFS
AS OF AND FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
30-59 days past due........................... 0.65% 1.08% 1.01%
60-89 days past due........................... 0.41% 0.60% 0.35%
90+ days past due............................. 4.73% 4.21% 3.97%
Unguaranteed portion of Commercial Loans in
the serviced loan portfolio.................. $ 830,431 $ 627,563 $ 437,829
Loans charged-off, net........................ $ 2,401 $ 2,553 $ 1,732
Loans charged-off, net, as a percentage of the
unguaranteed portion of the Commercial Loans
in the serviced loan portfolio at year end... 0.29% 0.41% 0.40%
</TABLE>
STUDENT LOANS
Overview
The Company was authorized in 1984 by the United States Department of
Education (the "DOE") to make Student Loans under the Higher Education Act. As
of December 31, 1997, Student Loans originated in California, Florida, Texas,
New Jersey and New York accounted for 31.0%, 18.7%, 13.1%, 8.0% and 6.2%
respectively, of the principal amount of the Student Loans in the serviced loan
portfolio. At such date, Student Loans originated in any other jurisdiction
represented less than 3.0% of the principal amount of Student Loans in the
Student Loan serviced loan portfolio.
11
<PAGE>
STUDENT LOAN PROGRAM PARTICIPATION
The Company primarily originates subsidized and unsubsidized Stafford Loans
(formerly known as Guaranteed Student Loans), Consolidation Loans and parental
loans for dependent students ("PLUS Loans"), all of which are or were part of
the federal government's Federal Family Education Loan Program. The federal
government eliminated Supplemental Loans for Students ("SLS Loans") in favor
of the unsubsidized Stafford Loan Program in 1994.
Currently the borrower's interest rate for both subsidized and unsubsidized
Stafford Loans made on or after July 1, 1995 is a variable rate of 250 basis
points over the 91-day T-bill rate during deferral periods, rising to 310
basis points over the 91-day T-bill rate during the loan repayment phase, with
a maximum rate to the borrower of 8.25% per annum. For both subsidized and
unsubsidized Stafford Loans made on or after July 1, 1995 the lender's yield
is 250 basis points over the 91-day T-bill rate during deferral periods, but
rises to 310 basis points over the 91-day T-bill rate during the loan
repayment phase. However, there is language in the Higher Education Act (the
"HEA") that will change the borrower interest rate for both subsidized and
unsubsidized Stafford loans to a variable rate equal to the bond equivalent
rate of the securities with a comparable maturity as established by the
Secretary of Health, Education and Welfare (the "Secretary") plus 100 basis
points for both the deferral and repayment phases of the loan period, with a
maximum rate to the borrower of 8.25%, for all student loans initially
disbursed on or after July 1, 1998. It is unclear whether such rate
calculation will be implemented and it is uncertain at this time what
substitute rate calculation, if any, might be adopted. The Company believes
that the language in the HEA, if left unchanged, could materially affect the
result of operations of the Student Loan division. The Company is actively
pursuing legislative remedies to effect a change to the HEA.
Most Stafford Loans made prior to July 1, 1995 bear a slightly higher lender
yield and borrower rate of interest and are subject to different and slightly
higher interest rate caps. If the lender's guaranteed yield exceeds the
borrower's maximum interest rate, the DOE, in most cases, pays the difference
to the lender or holder. Students must commence repaying Stafford Loans six
months after graduation or otherwise leaving school.
Stafford Loans ("Subsidized Stafford Loans") are available to eligible
dependent or independent students who can demonstrate financial need and thus
qualify for the federal subsidy of interest which characterizes this loan
type. Stafford Loans ("Unsubsidized Stafford Loans") are available to students
who cannot demonstrate sufficient financial need to qualify for the in-school
interest subsidy paid by the DOE on Subsidized Stafford Loans. The DOE pays
the interest on a Subsidized Stafford Loan to the lender or other holder of
the loan until the student is obligated to make principal payments. In all
other respects, Subsidized and Unsubsidized Stafford Loans are the same.
Interest that accrues on Unsubsidized Stafford Loans while the borrower is in
school (or during certain grace and deferral periods) is either periodically
paid by the borrower or deferred and added (capitalized) to the principal
balance of the loan.
SLS Loans were available until July 1, 1994, to eligible independent
students who did not meet the financial need tests for Stafford Loans. The
interest rate for both the borrower and the lender is 310 basis points over
the 52-week T-bill, adjusted annually, effective July 1 of each year. In no
event is the borrower required to pay more than 11% per annum. If the lender's
guaranteed interest rate exceeds the borrower's maximum interest rate, the DOE
pays the difference to the lender subject to certain adjustments. Students are
obligated to begin repaying SLS Loans upon disbursement unless an in-school
deferral is requested. Almost all students requested and received such a
deferral. If the borrower requested and was granted a deferral of the
repayment obligation, interest on an SLS Loan accrues during the deferral
period and is capitalized as a part of the principal of the loan until the
student is obligated to begin monthly amortization. Deferred interest is
capitalized by the Company and included in the insured principal amount by the
guarantee agencies.
PLUS Loans are available to parents of eligible dependent undergraduate
students. The interest rate characteristics of PLUS Loans are the same as
those of SLS Loans, except the interest rate cap was 10% for PLUS Loans made
prior to July 1, 1993 and is 9% thereafter. However, there is language in the
HEA that will change the borrower interest rate for the PLUS loans to a
variable rate equal to the bond equivalent rate of the
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<PAGE>
securities with a comparable maturity as established by the Secretary, plus
210 basis points for the loan period, with a maximum rate to the borrower of
9.0%, for all Plus Loans initially disbursed on or after July 1, 1998. It is
unclear whether such rate calculation will be implemented and it is uncertain
at this time what substitute rate calculation, if any, might be adopted. The
Company believes that the language in the HEA, if left unchanged, could affect
the results of operations of the Student Loan division. As indicated above,
the Company is actively pursuing legislative remedies to effect a change to
the HEA. Parents of the students are obligated to begin repaying PLUS Loans
upon disbursement. If the borrower requests and is eligible for a deferral of
the repayment obligation, the interest on a PLUS Loan accrues during the
deferment period and is capitalized as part of the loan until the parent is
obligated to begin monthly amortization. Deferred interest is included in the
insured principal amount by the guarantee agencies.
Consolidation Loans are available to eligible borrowers of Stafford Loans,
SLS Loans and PLUS Loans and other federally guaranteed loans (each an
"Underlying Federal Loan"). Subject to the satisfaction of certain conditions
set forth in the HEA, each holder of a Consolidation Loan will be entitled to
the same guaranteed and federal reinsurance arrangements as are available on
Stafford Loans, SLS Loans and PLUS Loans. Consolidation Loans originated
before November 13, 1997 bear interest at a rate per annum equal to the
weighted average of the interest rates on the Underlying Federal Loans
(rounded up to the nearest whole percent). The Emergency Student Loan
Consolidation Act of 1997 (the "Emergency Act") amended the HEA to allow
lenders under the Federal Family Education Loan Program to make Consolidation
Loans that include loans under the Federal Student Loan Program ("FSLP").
Lenders may only consolidate FSLP loans based on Consolidation Loan
applications received from November 13, 1997 through September 30, 1998 (the
"Emergency Period"). Except for the portion of a Consolidation Loan
attributable to certain underlying loans, the interest rate on Consolidation
Loans made based on applications received during the Emergency Period is a
variable interest rate set at the bond equivalent yield on the 91-day T-bills
auctioned on the final auction held prior to the preceding June 1, plus 3.10%
(subject to an 8.25% cap). This new rate applies for the life of any such
Consolidation Loan.
The Emergency Act changed the interest subsidy provisions applicable to
Consolidation Loans made based on applications received during the Emergency
Period. The Secretary will make interest subsidy payments on the portion of
such Consolidation Loans that repay Subsidized Stafford Loans. For
Consolidation Loans made based on applications received after September 30,
1998, the Secretary will not make interest subsidy payments except on loans
which consolidate only Subsidized Stafford Loans (same interest subsidy
provision existing prior to the Emergency Act). The Emergency Act does not
change the special allowance provisions applicable to Consolidation Loans or
the repayment requirements. In general, a borrower must repay each
Consolidation Loan in scheduled monthly installments over a period from 10 to
30 years, depending on the original principal amount of such Consolidation
Loan. Repayment of a Consolidation Loan must commence within 60 days after
disbursement of the proceeds to the holders of Underlying Federal Loans,
thereby discharging the liability of the borrower thereon.
Student Loan Guarantees
The payment of principal and interest on all Stafford Loans, Consolidation
Loans, SLS Loans and PLUS Loans is guaranteed by agencies approved by the DOE.
With respect to loans originated prior to October 1, 1993, the loans are fully
guaranteed against losses due to default, death, disability and bankruptcy;
with respect to loans originated on or after October 1, 1993, only 98% of the
principal amount and interest of each loan is guaranteed. Such guarantee
agencies are, in turn, reinsured for loss by the federal government. The
federal guarantee of Student Loans is contingent upon compliance with a
variety of due diligence regulations concerning the origination and servicing
of Student Loans.
Student Loan Origination
At December 31, 1997, the Company was marketing Student Loans in 42 states
and the Commonwealth of Puerto Rico through 8 offices. With the exception of
the Company's Student Loan operations center in Sacramento, California, these
offices are data entry offices out of which marketing and customer service
personnel operate. The Company intends to enter additional geographic markets
as conditions warrant.
13
<PAGE>
Maximum loan amounts, interest rates, terms and conditions and eligibility
all are determined by the DOE and are the same for all lenders. Prior to
funding, each application is guaranteed by the appropriate guarantee agency.
All loan applications are reviewed for compliance with federally mandated
eligibility criteria and completeness.
Student Loan Servicing and Sales
The Company originates Student Loans up to the maximum amount allowed under
each particular program, depending upon borrower eligibility. The loans may be
used for educational expenses only; generally, the loan proceeds checks are
made payable jointly to the student (or, in the case of PLUS Loans, to the
parent) and the school. The Company primarily targets students attending four-
year colleges and universities.
The Company currently sells Student Loans through the issuance of Asset-
Backed Securities to financial institutions and retains the right to service
the loans it originates. Servicing, often through sub-servicers, includes
collecting payments from borrowers, remitting payments to investors,
accounting for principal and interest, contacting delinquent borrowers and
arranging for repayment.
The Company generally services the loans on behalf of investors during the
initial payment deferral period and has contracted with the Pennsylvania
Higher Education Assistance Agency, AFSA Data Corporation and Great Lakes
Higher Education Servicing Corporation to service the loans during their
repayment phase. Prior to selling Student Loans, the Company warehouses them
pursuant to a financing arrangement. See "Loan Funding and Borrowing
Arrangements" below.
Through December 31, 1997, the Company has sold $1.8 billion of Student
Loans in the form of Asset-Backed Securities. The Student Loan Asset-Backed
Securities represent notes issued by and beneficial ownership interests in
trusts consisting primarily of the right to receive payments and other
recoveries attributable to a pool of Student Loans. The principal and interest
payments attributable to these securities are remitted by the Company, as the
servicer of the loan pool, to the trusts and then passed from the trusts to
investors.
As a result of various credit enhancements, including insurance provided by
third parties, each issue of credit enhanced Student Loan Asset-Backed
Securities sold to investors has received a rating of Aaa from Moody's and AAA
from S&P. Student Loan Asset-Backed Securities provide an important source of
liquidity for the Company and the Company intends to continue to sell Student
Loans through sales of Asset-Backed Securities.
DISCONTINUED OPERATIONS--AUTO LOANS
Overview
From 1995 to January 21, 1998, the Company was in the business of
originating loans to provide financing to non-prime borrowers for the purpose
of purchasing new and used cars, minivans, vans and light trucks. The Company
decided to close the Auto Finance division as part of the Company's overall
strategy to focus on more profitable areas of lending. As a result, the Auto
Finance division is treated as a discontinued operation for financial
reporting purposes. The Company will continue to service the existing auto
loan portfolio as the loans pay off.
As of December 31, 1997, Auto Loans originated in California, Illinois,
Texas, Georgia, and Florida accounted for 20.6%, 8.3%, 7.5%, 6.8% and 5.8%
respectively, of the principal amount of Auto Loans in the serviced loan
portfolio. At such date, Auto Loans originated in any other jurisdiction
represented less than 2.9% of the principal amount of the Auto Loans in the
serviced loan portfolio.
Auto Loan Servicing and Sales
The Company sold Auto Loans through the issuance of Asset-Backed Securities.
The Company retained the right to service loans it originated.
14
<PAGE>
Servicing and administrative activities were tailored to non-prime credits.
In servicing Auto Loans, the Company: (i) collects payments; (ii) remits
payments to investors; (iii) accounts for and posts all payments received;
(iv) responds to borrower inquiries; (v) takes all necessary action to
maintain the security interest granted in the financed vehicle; (vi)
investigates delinquencies and communicates with the borrower to obtain timely
payments; (vii) reports interest information to the borrower; (viii) monitors
the contract and its related collateral; and (ix) when necessary, repossesses
and disposes of the financed vehicle.
Through December 31 1997, the Company sold $1.1 billion of Auto Loans in the
form of Asset-Backed Securities. The Auto Loan Asset-Backed Securities
represent individual beneficial ownership interests in a pool consisting of
Auto Loans originated by the Company which have been sold to a trust. The
principal and interest payments attributable to these certificates are
remitted by the Company, as the servicer of the loan pool, to the trust and
then passed from the trust to the investor.
The Auto Loan Asset-Backed Securities all received a rating of Aaa from
Moody's and AAA from S&P. Auto Loan Asset-Backed Securities provided an
additional source of liquidity for the Company. The investors' protection from
losses is generally provided by structuring mechanisms which include
combinations of cash deposits and credit enhancement provided by third
parties. At December 31, 1997 and 1996, the Company had $26.2 million and
$22.5 million, respectively, of short-term cash investments held in restricted
interest-bearing accounts to protect investors from losses in Auto Loan Asset-
Backed Securities. See "Item 7--Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources".
Delinquency Control and Collections
The Company or its agent contacts borrowers for first payment delinquencies
commencing 5 days after the borrower's due date and 10 days after the due date
for subsequent payments. Contacts continue until payment has been received.
Under certain circumstances, the Company will treat as current an account
which is in arrears but meets certain criteria. This policy does not forgive
interest but could extend the maturity of the loan.
The Company's collection personnel generally review any account that becomes
15 days delinquent to assess collection efforts to date and to refine, if
necessary, collection strategy. Together with senior management, collection
personnel generally design a collection strategy that includes a specific
deadline within which the obligation must be collected. Accounts that have not
been collected during such period are again reviewed, and unless there are
specific circumstances which warrant further collection efforts, the account
is assigned to outside agencies for repossession of the financed vehicle.
Repossessed vehicles are generally resold through wholesale auctions, which
are attended principally by Dealers. Regardless of the actions taken or
circumstances surrounding a specific delinquent account, any account which
reaches 150 days of delinquency is charged-off and the borrower is pursued,
subject to legal limitations, for both the collateral and the deficiency.
At December 31, 1997, the Company serviced $14.1 million of repossessed
inventory owned by trust in connection with Asset-Backed Securities.
15
<PAGE>
The following table illustrates the Company's delinquency and charge-off
experience with respect to Auto Loans:
<TABLE>
<CAPTION>
AUTO LOAN DELINQUENCIES
AND CHARGE-OFFS
AS OF AND FOR THE YEARS ENDED
DECEMBER 31,
----------------------------------
1997 1996 1995
----------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
30-59 days past due...................... 8.75% 2.15% 1.60%
60-89 days past due...................... 2.40% 0.47% 0.15%
90+ days past due........................ 1.15% 0.41% 0.04%
Loans charged-off, net................... $ 40,466 $ 7,474 $ 290
Loans charged-off, net, as a percentage
of the Auto Loans in the serviced loan
portfolio at year end................... 5.20% 1.57% 0.25%
</TABLE>
The Company began originating Auto Loans in 1995 and discontinued operations
in January, 1998. Therefore, the above results will not be indicative of the
portfolio's future performance as it ages.
LOAN FUNDING AND BORROWING ARRANGEMENTS
The Company pledges loans to secure available warehouse lines of credit.
Warehouse lines are paid down when the Company receives the proceeds from the
sale of the loans.
At December 31, 1997, the Company had credit facilities for warehousing
loans totaling $2.5 billion. Outstanding borrowings under these credit lines
were approximately $391.6 million with a weighted average interest rate of
6.63% at December 31, 1997. The Company is not required to maintain
compensating balances or forward sales commitments under these facilities,
which generally mature on a periodic basis and are renewable at the lender's
discretion.
In addition, at December 31, 1997, the Company had outstanding $825.0
million of unsecured senior notes and $250.0 million of subordinated unsecured
notes, (collectively, the "Unsecured Notes"), which require principal payments
by the Company of $40.0 million in 1998, $190.0 million in 1999, $110.0
million in 2000, $35.0 million in 2001, $475.0 million in 2002 and $225.0
million thereafter. The Unsecured Notes bear interest at rates ranging from
7.30 % to 9.00%, with a weighted average interest rate of 8.21% at December
31, 1997.
The Company also has an $800.0 million unsecured, revolving credit facility
(the "Credit Facility") which expires June 30, 2000. At December 31, 1997,
outstanding advances under the Credit Facility were $287.8 million with a
weighted average interest rate of 6.36%. This credit facility replaces the
$400.0 million unsecured revolving credit facility that would have expired on
August 16, 1999.
Certain of the Company's loan agreements, including the Credit Facility and
the agreements pursuant to which the Unsecured Notes were issued (the "Note
Agreements"), prohibit Marc Turtletaub and Alan Turtletaub from beneficially
owning in the aggregate less than a specified percentage of the outstanding
voting stock of the Company, prohibit third parties from beneficially owning
more than a specified percentage of the outstanding voting stock of the
Company and/or prohibit certain changes in management of the Company. In the
case of the Note Agreements, violation of such provisions could require the
Company to offer to prepay such Unsecured Notes or could permit the holders of
50% of the outstanding principal amount of any issue of Unsecured Notes to
declare all the outstanding Unsecured Notes of such issue immediately due and
payable. A default in any of such provisions could also cause defaults under
the Credit Facility and other loan agreements. While a majority of the
executive officers relevant to such covenants have entered into employment
agreements with the Company, there can be no assurance that any or all of such
persons will remain employed with the Company. There can be no assurance that
Marc Turtletaub and Alan Turtletaub will retain the required percentages of
the voting control of the Company necessary to avoid violating such change in
control provisions. See "Pending Merger with First Union Corporation."
16
<PAGE>
ADVERTISING AND MARKETING
Management believes that the Company's Home Equity Loan advertising
campaigns have been responsible for generating the majority of the Company's
applications for Home Equity Loans. Most of the advertising relating to Home
Equity Loans is through television and direct mail. The Company monitors the
source of its applications to determine the most advantageous methods and
manner of advertising to determine the allocation of its funds for this
purpose.
Hall of Fame baseball player Jim Palmer has been the corporate spokesperson
for the Company since 1993. The Company believes that Mr. Palmer is an
effective spokesperson.
Advertising relating to Home Equity Loans features the Company's 24-hour
toll-free telephone number 1-800-LOAN-YES. Potential customers in geographic
regions served by the Company who call this number are automatically
transferred to the office nearest the caller's location or to the Company's
centralized Call Centers. The Company also utilizes a network of account
executives responsible for originating Home Equity Loans through home
improvement contractors, mortgage brokers and bankers. The Company also
purchases loans in bulk.
The Company's Commercial Loan division utilizes a national network of
Business Development Officers ("BDOs"), who are responsible for calling on
businesses in their respective local markets and marketing Commercial Loans
for the Company. BDOs work closely with their local commercial real estate
brokerage community, including major real estate brokerage firms, for
referrals. The Company also works directly with large national franchisers and
professional associations to market Commercial Loans.
The Company's primary advertising for Commercial Loans is in local business
print media and commercial real estate business publications. Advertising for
Commercial Loans supports the activities of the BDOs, who are the primary
direct source of the Company's Commercial Loan business.
The Company's Student Loan division utilizes a network of Regional Account
Executives ("RAE's") to work closely with colleges and universities.
Additionally, the RAE's provide borrowers with a variety of written
promotional materials through high school and college admissions personnel.
The Company also works directly with student and parent borrowers via its toll
free telephone number, 1-800 EDUCAID and its home page on the internet at
www.educaid.com.
- ---------------
LOSS ASSUMPTIONS
The Company provides for credit losses in the calculation of gain on sale of
receivables. The calculation is based upon future value of the expected cash
flows and includes assumptions relating to credit losses (defaults). These
loss assumptions are based upon the present value of the projected future
losses estimated on a static pool basis. The Company's charge-off policy is
based on a review of each individual receivable.
ALLOWANCE FOR CREDIT LOSSES ON LOANS NOT SOLD
The Company employs the allowance method for the purpose of providing for
credit losses on loans not sold. Provision for credit losses on loans not sold
is charged to income in amounts sufficient to maintain the allowance at a
level considered adequate to cover anticipated losses resulting from
liquidation of outstanding loans. The allowance for credit loss is based upon
periodic analysis of the portfolio, economic conditions and trends, historical
credit loss experience, borrowers' ability to repay, and collateral values.
The company's charge-off policy is based on a review of each individual
receivable.
17
<PAGE>
The activity in the allowance for credit losses on loans not sold is
summarized as follows:
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS
ENDED DECEMBER 31,
----------------------------
1997 1996 1995
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of year.................... $ 19,895 $ 15,591 $ 14,014
Provision for credit losses on loans not sold:
Continuing operations....................... 9,223 14,828 20,222
Discontinued operations..................... 3,010 2,412 420
Net loans charged off and reclassification to
collateral owned............................. (12,110) (12,936) (19,065)
-------- -------- --------
Balance, end of year.......................... $ 20,018 $ 19,895 $ 15,591
======== ======== ========
</TABLE>
REGULATION
Generally
The Company's operations are subject to extensive local, state and federal
regulations including, but not limited to, the following federal statutes and
regulations promulgated thereunder: the Small Business Act, the Small Business
Investment Act of 1958, as amended, (the "SBIA"), Title 1 of the Consumer
Credit Protection Act of 1968, as amended (including certain provisions
thereof commonly known as the "Truth-in-Lending Act" or "TILA"), the Equal
Credit Opportunity Act of 1974, as amended (the "ECOA"), the Fair Credit
Reporting Act of 1970, as amended (the "FCRA"), Title IV of the HEA, the Fair
Debt Collection Practices Act, as amended and the Real Estate Settlement
Procedures Act (the "RESPA"). In addition, the Company is subject to state
laws and regulations with respect to the amount of interest and other charges
which lenders can collect on loans (e.g., usury laws).
In the judgment of management, existing statutes and regulations have not
had a materially adverse effect on the business done by the Company. However,
it is not possible to forecast the nature of future legislation, regulations,
judicial decisions, orders or interpretations, nor their impact upon the
future business, financial condition or prospects of the Company.
Home Equity Loans
Mortgage lending laws in the United States and the United Kingdom generally
require licensing of the lender, limitations on the amount, duration and
charges for various categories of loans, adequate disclosure of certain
contract terms and limitations on certain collection practices and creditor
remedies. Most states have usury laws which limit interest rates, although the
limits generally are considerably higher than current interest rates that the
Company charges. State regulatory authorities may conduct audits of the books,
records and practices of the Company's operations. The Company is licensed to
do business in each jurisdiction in which it does business and in which such
licensing is required and believes it is in compliance in all material
respects with these regulations.
The Company's United States Home Equity Loan origination activities are
subject to TILA and Regulation Z promulgated thereunder. TILA contains
disclosure requirements designed to provide consumers with uniform,
understandable information with respect to the terms and conditions of loans
and credit transactions, in order to give them the ability to compare credit
terms. TILA also guarantees consumers a three-day right to cancel certain
credit transactions, including any refinanced mortgage or junior mortgage loan
on a consumer's primary residence. The Company believes that it is in
compliance in all material respects with TILA.
The Company is also required to comply with the ECOA which, in part,
prohibits creditors from discriminating against applicants on the basis of
race, color, sex, age or marital status. Regulation B promulgated under ECOA
restricts creditors from obtaining certain types of information from loan
applicants. It also requires
18
<PAGE>
certain disclosures by the lender regarding consumer rights and requires
lenders to advise applicants who are turned down for credit of the reasons
therefor. In instances where a loan applicant is denied credit or the rate or
charge for a loan is increased as a result of information obtained from a
consumer credit agency, another statute, the FCRA, requires the lender to
supply the applicant with the name and address of the reporting agency. Under
RESPA and Regulation X thereunder, disclosures to certain borrowers are
required to be made within prescribed time frames. Good faith estimates of
applicable closing costs are provided where required.
In the United Kingdom, the Company's Home Equity Loan origination operations
are subject to, among other requirements, the Unfair Terms, Consumer Contract
Regulations of 1994 providing for customer redress of possible unfair loan
terms or conditions and Advertising Standard Regulations which govern
advertising.
The Company's involvement in FHA Title I guaranteed lending activities
requires compliance with the regulatory and reporting requirements of the FHA.
The FHA only guarantees loans that comply with certain rigorous standards.
Commercial Loans
SBA Loans are governed by federal statutes (the SBIA) and the regulations
promulgated by the SBA and may be subject to regulation by certain states.
These federal statutes and regulations specify the types of loans and loan
amounts which are eligible for the SBA's guaranty as well as the servicing
requirements imposed on the lender to maintain SBA guarantees.
Although most states do not regulate commercial loans, certain states do
require licensing of lenders, have limitations on interest rates and certain
charges, require adequate disclosure of certain contract terms and place
limitations on certain collection practices and creditor remedies. Authorities
in those states that regulate the Company's Commercial Loan activities may
conduct audits of the books, records and practices of the Company.
The Company is also required to comply with certain portions of the ECOA
which are applicable to its Commercial Loans. The Company must comply with
ECOA's prohibition against discrimination on the basis of race, color, sex,
age or marital status and with the portion of Regulation B under the ECOA that
requires lenders to advise loan applicants of the reasons their credit request
was declined or subject to other adverse action.
Student Loans
Virtually every aspect of federally guaranteed student lending is highly
regulated pursuant to the HEA, including such matters as eligibility criteria
for borrowing, loan size limitations, interest rates, disclosure, repayment
terms and conditions, and loan origination and servicing requirements.
Although the Company believes it is in compliance in all material respects
with all applicable federal laws and regulations relating to Student Loans,
there can be no assurance that more restrictive laws and regulations will not
be adopted which could adversely impact the Company's Student Loan business.
Under the Omnibus Budget Reconciliation Act of 1993, Congress made a number
of changes that may affect the financial condition of the entities which
guarantee Student Loans. In addition, that legislation greatly expanded the
Federal Direct Student Loan Program volume to a target of 60% of Student Loan
demand in academic year 1998-1999, which could result in decreasing volumes of
Student Loans originated by the Company. For the past three years, the DOE has
failed to meet its statutorily prescribed targets for market share. There can
be no assurance that such changes will not have an adverse effect on the
Company's volume of Student Loan originations or on its ability to securitize
the Student Loans it originates due to the potential adverse impact on the
Student Loan guarantors. Also see "Student Loans--Student Loan Program
Participation". Finally, federal legislation considered from time to time
could modify many of the provisions of existing federal laws relating to
Student Loans.
19
<PAGE>
COMPETITION
The businesses in which the Company engages are competitive, with
competition occurring primarily on the basis of the type of loan, interest
rates and service. Competitors in the financial services business include
specialty finance companies, commercial banks, credit unions, thrift
institutions, industrial banks, credit card issuers, commercial finance
companies, leasing companies and investment banks, many of which have
considerably greater financial, technical and marketing resources than the
Company. Substantial national financial services networks have been formed by
major brokerage firms, insurance companies, retailers and bank holding
companies. The Company believes that it competes on the basis of providing
competitive rates, prompt, efficient and complete service and organizational
efficiency. Other national competitors include Associates First Capital,
ContiMortgage Corp., First Plus Financial, Household Financial Services,
United Companies, EquiCredit and Beneficial Corp. Competition for the Home
Equity Loans varies a great deal across geographic regions. On a local level,
banks and smaller independent mortgage companies are a competitive force.
The Company's major competitors for Commercial Loans vary from region to
region and market to market. Its primary competitors are regional banks and
non-bank lenders such as AT&T Capital Corp. and Heller First Capital. In
addition, state chartered business and industrial development companies offer
competition in certain states.
The origination portion of the student loan industry is becoming
increasingly concentrated. Many national and local banks make Student Loans,
but few have a focus on Student Loans. The Company's principal national
competitors are Citibank, N.A., Bank America Corp., Chase Manhattan Bank, Key
Corp., Bank One and Norwest Bank. In addition to competition from other
lenders, the Company faces competition from the Federal government. In 1993,
Congress authorized a "direct loan program" to be phased in through the 1998-
1999 academic year. The Company believes that yet-to-be recognized costs to
the federal government may eventually prevent full implementation of the
direct loan program. Full implementation of the direct loan program as
presently constituted could result in an adverse impact on this part of the
Company's business.
ENVIRONMENTAL POLICIES
In the course of its business, the Company has acquired, and may in the
future acquire, through foreclosure, properties securing loans it has
originated or purchased which are in default. In the event that hazardous
substances or wastes, contaminants, pollutants, or sources thereof were to be
discovered on such properties after acquisition by the Company, the Company
might be required to remove such substances from the affected properties at
its sole cost and expense.
The Company has instituted a policy with respect to Commercial Loans and
certain of its Home Equity Loans secured by multifamily properties that is
designed to protect the Company from environmental risks and liabilities. In
the loan origination process for Commercial Loans, the Company's standard
commitment letter to be signed by the applicant includes representations that
the property is free of contamination from hazardous materials and complies
with various other environmental requirements. Questions in the Commercial
Loan application designed to elicit possible environmental risks associated
with a particular Commercial Loan must be completed by every applicant.
Company personnel or designated agents are required to visit, and prepare an
analysis of, the site prior to submitting the loan for approval. The site is
also reviewed against a computerized, geographically customized selection of
federal and state environmental databases in order to determine whether
environmentally sensitive activities may have occurred on or near the
property. Any site with such indications must be fully investigated and
cleared for specific commercial use by environmental professionals and/or
appropriate governmental regulators, prior to loan closing. Additionally, if a
business operated on or adjacent to the collateral generates hazardous waste,
clearance by environmental professionals and/or appropriate governmental
regulators is also required. Applicants are also required to indemnify the
Company and provide a certificate that the property is free of hazardous waste
which would materially affect the prepared use of the property and will remain
so during the term of the loan. Additional factors may be evaluated, and
requirements imposed, depending upon the findings derived from the above-
described procedures and the particular
20
<PAGE>
circumstances of the loan or the location of the collateral. All appropriate
licenses and permits must be procured by the applicant prior to funding.
In the liquidation process for Commercial Loans, in addition to the
environmental policy described above, before foreclosure is commenced on real
property collateral, a determination is made as to whether the collateral is
on or adjacent to property where environmentally sensitive activities may have
occurred. If that is the case, then a satisfactory environmental site
assessment must be obtained prior to foreclosure. Decisions to foreclose upon
real property securing SBA Loans and certain Small Business Loans are made in
conjunction with the SBA.
The Company does not have an explicit environmental policy applicable with
respect to loans other than Commercial Loans and Home Equity Loans secured by
multifamily properties.
EMPLOYEES
As of December 31, 1997, the Company had 4,412 employees (full-time and
part-time), 3,264, 436 and 192 of whom were employed in connection with the
Company's Home Equity Loan, Commercial Loan and Student Loan activities,
respectively. The remaining 520 employees work in Corporate/Administration. In
addition, the Company had 473 employees (full-time and part-time) employed in
the Auto Finance division, at December 31, 1997. Most of the Auto Finance
division employees were terminated in January 1998 in connection with the
closing of that division, except for approximately 110 employees who remain to
service the Auto Finance serviced loan portfolio. The Company is not subject
to any collective bargaining arrangements. The Company believes that its
employee relations are good.
ITEM 2. PROPERTIES
The Company's headquarters are located in Union, New Jersey and in
Sacramento, California. The Company occupied approximately 50,000 square feet
in Union under a lease expiring in 2000. As of February 28, 1998, the Company
occupied approximately 468,000 square feet in Sacramento, primarily in ten
office buildings, under several leases expiring at various times through 2001.
In May 1996, the Company began development of an office building located in
West Sacramento, California. It is anticipated that full occupancy of the
building will occur in the second quarter of 1998. The 400,000 square foot
building will help centralize operations and support additional staff from the
anticipated growth of the business.
Of the Company's 211 branch offices at December 31, 1997, two in New Jersey
are owned by the Company. All other offices of the Company are leased pursuant
to leases expiring at various dates through 2003. Management believes that its
facilities are suitable for its business as presently conducted.
ITEM 3. LEGAL PROCEEDINGS
Because the nature of the business of the Company involves the collection of
numerous accounts, the validity of liens and compliance with state and federal
lending laws, the Company is subject to numerous claims and legal actions in
the ordinary course of its business. While it is impossible to estimate with
certainty the ultimate legal and financial liability with respect to such
claims and actions, the Company believes that the aggregate amount of such
liabilities will not result in monetary damage which in the aggregate would
have a material adverse effect on the financial condition or results of
operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
21
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock has been traded on the New York Stock Exchange under the
symbol "MON" since December 10, 1997. Prior thereto, the Common Stock was
traded on the Nasdaq National Market System under the symbol "MONE". The
following table sets forth for the periods indicated the range of the high and
low sale prices for the Common Stock. All quotations for 1996 and through
December 9, 1997 reflect the price of the Common Stock as quoted on the Nasdaq
National Market System. All quotations from and after December 10, 1997
reflect the price of the Common Stock as quoted on the New York Stock
Exchange. Such quotations reflect inter-dealer prices without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
DIVIDENDS DIVIDENDS
PAID PER PAID PER
1997 HIGH LOW SHARE 1996 HIGH LOW SHARE
- ---- ------ ------ --------- ---- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
First Quarter........... $30.13 $20.38 $.030 First Quarter...... $27.87 $13.25 $.020
Second Quarter.......... 29.00 16.38 .035 Second Quarter..... 28.25 21.00 .025
Third Quarter........... 37.50 28.13 .035 Third Quarter...... 26.50 18.50 .025
Fourth Quarter.......... 31.88 17.56 .040 Fourth Quarter..... 31.63 25.75 .030
</TABLE>
On February 26, 1998, the Company had approximately 270 holders of record of
its Common Stock. The Company believes its Common Stock is beneficially held
by in excess of 22,181 shareholders.
In 1997 and 1996, the Company paid quarterly dividends aggregating $8.1
million and $5.7 million, respectively, on its Common Stock. The Company
anticipates continuing its quarterly dividend program. However, The Merge
Agreement with First Union restricts the Company's ability to increase its
dividend and may affect the timing of dividend payments.
The Preferred Stock ranks prior to the Common Stock as to the payment of
dividends and distribution of assets upon liquidation. The liquidation
preference of each share of Preferred Stock is an amount equal to the sum of
$26.50 and all accrued and unpaid dividends thereon.
The Credit Facility and the agreements pursuant to which certain of the
Unsecured Notes were issued restrict the ability of the Company and certain of
its subsidiaries to pay dividends or to make other distributions and
investments. In addition, certain of the Company's warehouse lines incorporate
the restrictions contained in the Unsecured Note agreements or otherwise
contain similar restrictions. At December 31, 1997, the Company has available
$358.5 million for the payment of certain distributions, including dividends,
under the most restrictive of the operating and financial covenants contained
in these agreements. All dividends paid by the Company have been in compliance
with the above-stated restrictions.
22
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA:
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1997 1996(1) 1995(1) 1994(1) 1993(1)
----------- ----------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
SELECTED CONSOLIDATED
STATEMENTS OF FINANCIAL
CONDITION DATA:
Receivables, net........ $ 1,287,484 $ 1,157,889 $ 908,302 $ 575,143 $ 564,976
Interest-only strip
receivables............ 1,170,254 811,400 518,347 310,627 199,026
Total assets............ 3,136,701 2,391,940 1,667,093 1,101,281 878,743
Notes payable (excluding
senior notes).......... 691,081 682,197 420,892 321,420 296,636
Unsecured senior notes.. 825,000 637,000 655,000 355,000 205,000
Subordinated debt....... 250,000 2,000 24,000 24,000 41,000
Shareholders' equity.... 666,066 582,509 241,126 194,263 165,313
SELECTED CONSOLIDATED
STATEMENTS OF INCOME
DATA:
Gain on sale of
receivables............ $ 574,553 $ 395,120 $ 273,967 $ 213,625 $ 121,960
Finance income, fees
earned and other....... 256,248 209,919 152,048 70,557 60,233
Operating expenses...... 451,611 332,945 234,332 181,784 107,306
Provision for credit
losses on loans not
sold................... 9,223 14,828 20,222 6,312 5,130
Interest expense........ 142,218 118,651 92,830 43,059 29,184
Income from continuing
operations............. 132,629 80,807 46,072 31,321 21,771
Net earnings from
continuing operations
per common share:
Basic(2).............. $ 2.13 $ 1.42 $ 0.90 $ 0.62 $ 0.48
Assuming dilution(3).. 2.06 1.38 0.89 0.61 0.48
Cash dividends per
common share........... 0.14 0.10 0.07 0.05 0.04
SELECTED OTHER FINANCIAL
DATA:
Volume of loans
originated or
purchased.............. $ 7,801,014 $ 5,693,054 $3,822,971 $2,779,408 $1,699,010
Outstanding serviced
loan portfolio......... 16,493,944 12,192,432 8,621,467 5,898,469 3,872,708
</TABLE>
- --------
(1) Certain reclassifications have been made to the previous years selected
consolidated financial data to conform to the 1997 presentation, including
the adoption of FAS Nos. 125 and 128 and the effects of removing the
accounts of the discontinued operations from continuing operations.
(2) Basic net earnings per share of Common Stock is computed using the income
available to common shareholders and the weighted average number of shares
of Common Stock actually outstanding during each period. In addition, all
share and per share amounts have been restated to reflect stock splits
effected by the Company.
(3) Diluted net earnings per share of Common Stock is computed using the
income available to common shareholders and the weighted average number of
shares of Common Stock actually outstanding plus the net effect of the
assumed conversion of the Preferred Stock and the assumed conversion of
stock options, to the extent they are dilutive. In addition, all share and
per share amounts have been restated to reflect stock splits effected by
the Company.
23
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements under this caption constitute "forward-looking
statements" under the Private Securities Litigation Reform Act of 1995 which
involve risks and uncertainties. The Company's actual results may differ
materially from the results discussed in such forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
economic conditions, competition in the geographic and business areas in which
the Company conducts its operations, fluctuations in interest rates, credit
quality and government regulation.
Adoption of New Accounting Policies
See Note 1 to consolidated financial statements for the adoption of new
accounting policies.
Recent Accounting Developments
See Note 1 to consolidated financial statements for recent accounting
developments.
Certain Accounting Considerations
As a fundamental part of its business and financing strategy, the Company
sells the majority of its loans with the servicing retained. The majority of
the Company's revenue is recognized as gain on sale of receivables. The
calculation of the gain on sale is determined in part by the allocation of
fair value between the loans sold and the retained interest (interest-only
strip receivables). The calculation of the fair value of the interest-only
strip receivables is based upon the present value of future expected cash
flows ("Spreads") and utilizes certain estimates made by management at the
time loans are sold. These estimates include the following: (i) the discount
rate used to calculate present value; (ii) the rate of prepayment; (iii)
adequate servicing compensation; and (iv) annual loss (default) assumption.
The rate of prepayment of loans may be affected by a variety of economic and
other factors, including prevailing interest rates and the availability of
alternative financing to borrowers. The effect of those factors on loan
prepayment rates may vary depending on the type of loan. Estimates of
prepayment rates are made based on management's expectations of future
prepayment rates, which are based, in part, on the historical rate of
repayment of the Company's loans and other considerations. There can be no
assurance of the accuracy of management's estimates. Moreover, when the
Company introduces new loan products, such as 125 LTV Loans, there can be no
assurance that the historic performance of the Company's other loan products
will accurately predict the future performance of such new loan products. If
actual prepayments occur more quickly than was projected at the time loans
were sold, the carrying value of the interest-only strip receivables may have
to be written down through a charge to earnings in the period of adjustment.
The timing of sales of the Company's loans may impact the Company's earnings
from quarter to quarter. Accordingly, both the timing of sales of the
Company's loans and the amount of loans sold will impact the Company's
earnings from quarter to quarter. Subsequent to the initial recognition of the
interest-only strip receivables, on-going assessments are made to determine
the fair value of the expected future cash flows based upon current market
conditions. The asset is measured like available-for-sale securities or
trading securities under FAS No. 115 and, accordingly, adjustments to the fair
value are recorded based upon those classifications. At December 31, 1997, the
interest-only strip receivables are classified as trading securities.
24
<PAGE>
Certain Accounting Considerations (continued)
The following chart presents certain weighted average estimates and Spreads
used in the calculation of the interest-only strip receivables:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Discount rates:
Home Equity Loans............................ 11.70% 11.30% 11.60%
Commercial Loans............................. 10.50% 10.50% 11.20%
Student Loans................................ 8.30% 8.20% 8.70%
Auto Loans................................... 12.00% 12.00% 12.00%
Prepayment rates:
Home Equity Loans(1)......................... 26.00% 25.00% 22.00%
Commercial Loans(1).......................... 9.00% 9.00% 8.50%
Student Loans(1)(3).......................... 3.00% 4.00% 2.50%
Auto Loans(2)................................ 1.90% 1.80% 1.50%
Adequate servicing compensations:
Home Equity Loans............................ 0.38% 0.35% 0.35%
Commercial Loans............................. 0.40% 0.40% 0.40%
Student Loans(3)............................. 0.85% 0.85% 0.85%
Auto Loans................................... 1.50% 1.50% 1.50%
Annual loss assumptions:
Home Equity Loans............................ 0.75% 0.65% 0.65%
Commercial Loans............................. 0.20% 0.20% 0.25%
Student Loans................................ -- -- --
Auto Loans................................... 12.50% 4.30% 2.90%
Spreads:
Home Equity Loans............................ 4.55% 3.68% 3.65%
Commercial Loans............................. 2.21% 2.09% 2.04%
Student Loans................................ 1.76% 1.90% 1.63%
Auto Loans................................... 10.13% 10.09% 10.60%
</TABLE>
- --------
(1) Represents an annual prepayment rate (HEP/CPR).
(2) Represents a monthly rate based on original principal balance (ABS).
(3) Represents an average of the in-school and repayment periods.
The Company has several strategies which it employs in an attempt to
minimize the risk of interest rate fluctuations during the period between the
time it originates loans and the time such loans are sold: (i) the Company
attempts to package and sell loans on a regular basis, thereby minimizing the
period during which loans are held; (ii) the Company usually does not fix the
interest rate applicable to fixed rate Home Equity Loans it originates until
shortly prior to the closing of the loans; (iii) the Company, from time to
time, purchases and sells government securities at agreed upon prices as an
economic hedge; and (iv) in certain securitizations, the Company enters into
an agreement that allows it to sell loans in the future at an agreed upon
price ("pre-funding"). The Company has basis risk on certain variable rate
loans it sells where the customer and investor rates are based upon different
indices and adjust at varying intervals.
Financial Condition at December 31, 1997
On January 21, 1998, the Company decided to cease originating loans in the
Auto Finance division as part of an overall strategy to focus on more
profitable areas of lending. As a result, the Auto Finance division has been
treated as a discontinued operation for financial reporting. The results of
continuing operations of the Company are reported separately from the
discontinued Auto Finance division. The remaining assets and liabilities of
the Auto Finance division are included in the Consolidated Statements of
Financial Condition.
25
<PAGE>
Financial Condition at December 31, 1997 (continued)
Cash and cash equivalents increased $138.7 million to $301.7 million at
December 31, 1997 from $163.0 million at December 31, 1996. This is a result
of net cash provided by financing activities offset in part by net cash used
in operating activities and investing activities.
Short-term cash investments increased $33.9 million to $195.6 million at
December 31, 1997 from $161.7 million at December 31, 1996. These investments
consist of restricted cash deposits held in interest-bearing accounts for the
protection of investors from losses in various securitization transactions.
The increase over the previous year is due to incremental deposits made to
restricted cash accounts to achieve specified subordination levels. The
restrictions on deposits decrease as the underlying loans liquidate to certain
specified levels.
Receivables, net, increased $129.6 million to $1.3 billion at December 31,
1997 from $1.2 billion at December 31, 1996. The increase is primarily due to
increases in loans held for sale and accrued interest receivable. Loans held
for sale increased by $81.7 million to $1.1 billion at December 31, 1997 from
$1.0 billion at December 31, 1996, and accrued interest receivable increased
by $41.3 million to $110.1 million at December 31, 1997 from $68.8 million at
December 31, 1996, as a result of the growth in the serviced loan portfolio.
The increase in loans held for sale was due primarily to loans originated and
purchased exceeding loan sales by $97.7 million. Originations, including the
Auto Finance division, increased 37% to $7.8 billion in 1997 from $5.7 billion
in 1996, primarily as a result of the Company providing greater variety of
products and diversification in the methods of loan origination.
The interest-only strip receivables increased by $358.9 million to $1.2
billion at December 31, 1997 from $811.4 million at December 31, 1996. This
increase was due to the initial recognition of fair value of the interest-only
strip receivables of $589.5 million, and the initial recognition of unrealized
gain on loans sold during the year ended December 31, 1997 of $27.3 million.
Offsetting these increases is net amortization of $148.9 million, and the sale
of certain interest-only strip receivables of $109.0 million.
Property and equipment, net, increased by $79.6 million to $153.1 million at
December 31, 1997 from $73.5 million at December 31, 1996. This increase for
the year ended December 31, 1997 is primarily a result of $43.5 million of
development costs for the construction of an office building in West
Sacramento, California. The building is expected to be substantially completed
in the first quarter of 1998, with an anticipated total construction cost of
approximately $87.0 million, and with capitalized expenditures to complete the
building for occupancy of approximately $10.0 million. In addition, the
Company purchased $44.4 million in computer equipment to enhance the branch
offices' automation to support new product lines, provide system improvements
and electronic document generation, storage and retrieval. Leasehold
improvements and furniture and office equipment supporting employee growth
increased by $10.9 million. These increases were offset by depreciation and
amortization expenses of $19.2 million.
The Company's operating activities require continual access to financing
sources because of the net cash used in operating activities. A primary source
of funding for the Company's operations is borrowings under various credit
facilities. At December 31, 1997, the Company had notes payable of $1.5
billion, an increase of $196.9 million from $1.3 billion at December 31, 1996.
This increase is a result of the public issuance of $300.0 million in senior
Unsecured Notes, offset by net principal payments of $94.2 million on
Unsecured Notes and the Credit Facility, and a net decrease of $8.9 million in
secured warehouse facilities.
Subordinated debt increased $248.0 million, to $250.0 million at December
31, 1997 from $2.0 million at December 31, 1996. On September 2, 1997, $2.0
million of subordinated debt matured. On December 3, 1997 a public offering
was completed for an additional $250.0 million of unsecured subordinated
notes.
Accounts payable and other liabilities increased $208.9 million to $542.2
million at December 31, 1997 from $333.3 million at December 31, 1996. The
increase resulted primarily from an increase in funds collected on loans sold
and serviced for others ("collections payable") of $169.3 million. This
increase is a result of the
26
<PAGE>
Financial Condition at December 31, 1997 (continued)
increase in the loans sold with servicing retained included in the serviced
loan portfolio. In addition, miscellaneous liabilities and accrued expenses
increased $18.9 million primarily due to accruals for interest and other
operating expenses due to the growth of the Company. Also included in accounts
payable and other liabilities at December 31, 1997 is an accrual for the loss
on disposal of the Auto Finance division of $12.0 million and the recognition
of a servicing liability for the Auto Finance division of $8.7 million.
Income taxes, principally deferred, increased $5.7 million to $152.9 million
at December 31, 1997 from $147.2 million at December 31, 1996. This increase
is a result of a deferred tax provision of $23.5 million for the year ended
December 31, 1997, offset by a net decrease in current taxes payable of $17.8
million for the year ended December 31, 1997. The primary reason for the
increase in deferred income taxes is the tax effect of the temporary
differences between tax reporting and generally accepted accounting principles
which give rise to deferred tax assets and deferred tax liabilities. The most
significant of these differences is the gain on sale of receivables.
Total shareholders' equity at December 31, 1997 was $666.1 million compared
to $582.5 million at December 31, 1996, an increase of $83.6 million. The
increase in shareholders' equity primarily resulted from net income of $92.1
million. In addition, the Company received proceeds and related tax benefits
from exercised stock options of $8.5 million and recognized an adjustment for
foreign currency translation of $0.1 million. Shareholders' equity decreased
$17.1 million as a result of payment of cash dividends.
Results of Operations
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net income from continuing operations is $132.6 million for the year ended
December 31, 1997, compared to $80.8 million for the year ended December 31,
1996, an increase of 64%. Net earnings per share (basic) from continuing
operations increased 50% to $2.13 for 1997, from net earnings per share
(basic) from continuing operations of $1.42 for 1996. Diluted net earnings per
share from continuing operations increased 49% to $2.06 for 1997, from diluted
net earnings per share from continuing operations of $1.38 for 1996. The
increase in net income from continuing operations is primarily attributable to
income derived from gain on sale of receivables, including the net unrealized
gain on valuation of interest-only strip receivables and finance income and
fees earned due to the growth in the Company's serviced loan portfolio.
The Company reported a net loss from discontinued operations resulting from
the closing of its Auto Finance division, combined with an estimated net loss
on disposal, of $40.5 million for the year ended December 31, 1997 compared to
net income from discontinued operations of $4.8 million for 1996. The net loss
per share (basic) from discontinued operations is $0.70 for 1997, compared to
net earnings per share (basic) from discontinued operations of $0.09 for 1996.
The diluted net loss per share from discontinued operations is $0.63 for 1997,
compared with diluted net earnings per share from discontinued operations of
$0.08 for 1996.
The net loss from operations of the Auto Finance division is $33.4 million
for the year ended December 31, 1997 compared to net income of $4.8 million
for the year ended December 31, 1996. This current year loss is due primarily
to an unrealized loss on the interest-only strip receivables to reflect an
increase in the annual loss assumption based upon the present value of the
projected future losses estimated on a static pool basis.
The net loss on disposal of the Auto Finance division is $7.1 million. The
loss includes reserves necessary for the lease terminations, employment
severance and benefits, the write-off of fixed assets and leasehold
improvements and an accrual for estimated future operating losses.
Net income is $92.1 million for the year ended December 31, 1997, compared
to $85.7 million for the year ended December 31, 1996, an increase of 8%. Net
earnings per share (basic) decreased 5%, to $1.43 for the year ended December
31, 1997 from net earnings per share (basic) of $1.51 for the year ended
December 31, 1996. Diluted net earnings per share decreased 2% to $1.43 for
the year ended December 31, 1997 from $1.46 for the year ended December 31,
1996.
27
<PAGE>
Results of Operations (continued)
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
(CONTINUED)
Gain on sale of receivables increased 45% to $574.6 million for the year
ended December 31, 1997, compared to $395.1 million for the year ended
December 31, 1996. Included in gain on sale of receivables are the following:
(i) the initial recognition of fair value of the interest-only strip
receivables of $547.8 million; (ii) the initial recognition of the unrealized
gain on interest-only strip receivables of $77.9 million; (iii) premiums paid
on purchased loans (net of non-refundable fees) of $7.0 million; (iv) costs
related to the sale of loans of $23.5 million; and (v) losses of $20.6 million
on certain transactions structured as an economic hedge that are originated to
minimize risk of interest rate fluctuations.
The provision for credit losses on loans sold is included in the assumptions
used to calculate the future expected cash flows of the interest-only strip.
Loss assumption rates increased due to increases in the 125 LTV Loans sold
during the year. For loss assumptions for 1997 and 1996, see "Certain
Accounting Considerations."
Loans sold with servicing retained total $6.9 billion for the year ended
December 31, 1997 compared to $5.0 billion for the year ended December 31,
1996. In addition, loans sold with servicing released total $191.2 million for
the year ended December 31, 1997 compared to $41.9 million for the year ended
December 31, 1996. Gain on sale of receivables as a percentage of loans sold
on Home Equity Loans is 10.48% for the year ended December 31, 1997 compared
to 9.62% for the year ended December 31, 1996. Gain on sale of receivables as
a percentage of loans sold on Student Loans is 5.79% for the year ended
December 31, 1997 compared to 6.00% for the year ended December 31, 1996. Gain
on sale of receivables as a percentage of loans sold on Commercial Loans
including the unguaranteed portions of SBA Loans is 14.21% for the year ended
December 31, 1997 compared to 13.58% for the year ended December 31, 1996. See
"Certain Accounting Considerations", for estimates affecting such percentages.
Home Equity Loans delinquent 90 days-and-over increased to 4.38% at December
31, 1997 from 3.83% at December 31, 1996. Commercial Loans delinquent 90 days-
and-over increased to 4.73% at December 31, 1997 from 4.21% at December 31,
1996.
Total net charge-offs from continuing operations increased 54% to $61.1
million for the year ended December 31, 1997 from $39.6 million for the year
ended December 31, 1996 due to an increase in the Home Equity Loan net charge-
offs as a result of the increase in its serviced loan portfolio. Home Equity
Loan net charge-offs for the year ended December 31, 1997, are $58.7 million,
or 51 basis points of Home Equity Loans serviced. For the year ended December
31, 1996, Home Equity Loan net charge-offs were $37.0 million, or 45 basis
points of Home Equity Loans serviced. Commercial Loan net charge-offs for the
year ended December 31, 1997 are $2.4 million, or 29 basis points of the
unguaranteed portion of the Commercial Loans serviced. Commercial Loan net
charge-offs for year ended December 31, 1996 were $2.6 million, or 41 basis
points of the unguaranteed portion of Commercial Loans serviced.
Finance income, fees earned and other increased 22% to $256.2 million for
the year ended December 31, 1997 compared to $209.9 million for the year ended
December 31, 1996. The primary factors contributing to this growth are the
increase in the Company's interest-only strip receivables, (see "Financial
Condition") and the growth of the serviced loan portfolio of 34% to $15.7
billion at December 31, 1997, as compared to $11.7 billion at December 31,
1996.
Salaries and employee benefits increased 43% to $225.1 million for the year
ended December 31, 1997, compared to $157.9 million for the year ended
December 31, 1996. This increase is primarily a result of additional staff
needed in the Home Equity Loan division to support the increased marketing
efforts, loan origination and servicing activities and the diversification of
the product line.
Other operating expenses and provision for credit losses on loans not sold
increased 24% to $235.8 million for the year ended December 31, 1997, compared
to $189.9 million for the year ended December 31, 1996. The net increase is
primarily attributable to the following: (i) an increase in occupancy costs
and related office
28
<PAGE>
Results of Operations (continued)
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
(CONTINUED)
expenses of $27.8 million associated with the opening of additional branch
offices; (ii) an increase in advertising expenses of $8.9 million to help
stimulate loan originations; (iii) an increase in loan expenses of $8.8
million related to growth in loan originations; and (iv) an increase in
depreciation and amortization of $6.0 million, resulting primarily from
purchases of computer equipment and other office equipment to support the
growth in both new product lines and the Company's employment base. These
increases were offset in part by a decrease in the provision for credit losses
on loans not sold of $5.6 million.
Interest expense increased 20% to $142.2 million for the year ended December
31, 1997 from $118.7 million for the year ended December 31, 1996. The
increase is attributable to an increase of $505.7 million in the Company's
average debt outstanding for the year ended December 31, 1997, offset in part
by a decrease in the weighted average interest rate for the year.
Income taxes from continuing operations increased 65% to $95.1 million for
the year ended December 31, 1997 from $57.8 million for the year ended
December 31, 1996 due to an increase in pretax income from continuing
operations. The effective tax rate increased to 41.8% for the year ended
December 31, 1997 from 41.7% for the year ended December 31, 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net income from continuing operations was $80.8 million for the year ended
December 31, 1996, compared to $46.1 million for the year ended December 31,
1995, an increase of 75%. Net earnings per share (basic) from continuing
operations increased 58% to $1.42 for 1996, from net earnings per share
(basic) from continuing operations of $0.90 for 1995. Diluted net earnings per
share from continuing operations increased 55% to $1.38 for 1996, from diluted
net earnings per share from continuing operations of $0.89 for 1995. The
increase in net income from continuing operations was primarily attributable
to income derived from gain on sale of receivables as well as finance income
and fees earned due to the growth in the Company's serviced loan portfolio.
The Company reported net income from discontinued operations of $4.8 million
for the year ended December 31, 1996, compared to net income from discontinued
operations of $2.6 million for 1995. Net earnings per share (basic) from
discontinued operations was $0.09 for 1996, compared to net earnings per share
(basic) from discontinued operations of $0.05 for 1995. Diluted net earnings
per share from discontinued operations was $0.08 for 1996, compared with
diluted net earnings per share from discontinued operations of $0.05 for 1995.
Net income was $85.7 million for the year ended December 31, 1996, compared
to $48.7 million for the year ended December 31, 1995, an increase of 76%. Net
earnings per share (basic) increased 59% to $1.51 for the year ended December
31, 1996 from net earnings per share (basic) of $0.95 for 1995. Diluted net
earnings per share increased 55% to $1.46 for the year ended December 31, 1996
from $0.94 for the year ended December 31, 1995.
Gain on sale of receivables increased 44% to $395.1 million for the year
ended December 31, 1996, compared to $274.0 million for the year ended
December 31, 1995. Included in gain on sale of receivable were the following:
(i) the initial recognition of fair value of the interest-only strip
receivables of $374.7 million; (ii) non-refundable fees (net of premiums on
purchased loans) of $36.9 million; (iii) costs related to the sale of loans of
$15.4 million; and (iv) losses of $1.1 million on certain transactions
structured as an economic hedge that are originated to minimize risk of
interest rate fluctuations.
The provision for credit losses on loans sold is included in the assumptions
used to calculate the future expected cash flows of the interest-only strip.
For loss assumptions for 1996 and 1995, see "Certain Accounting
Considerations".
29
<PAGE>
Results of Operations (continued)
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
(CONTINUED)
Loans sold with servicing retained totaled $5.0 billion for the year ended
December 31, 1996 compared to $3.4 billion for the year ended December 31,
1995. Gain on sale of receivables as a percentage of loans sold on Home Equity
Loans was 9.62% for the year ended December 31, 1996 compared to 10.08% for
the year ended December 31, 1995. Gain on sale of receivables as a percentage
of loans sold on Student Loans was 6.00% for the year ended December 31, 1996
compared to 5.99% for the year ended December 31, 1995. Gain on sale of
receivables as a percentage of loans sold on Commercial Loans including the
unguaranteed portions of SBA Loans was 13.58% for the year ended December 31,
1996 compared to 13.24% for the year ended December 31, 1995. See "Certain
Accounting Considerations" for estimates affecting such percentages.
Home Equity Loans delinquent 90 days-and-over increased to 3.83% at December
31, 1996 from 2.42% at December 31, 1995. Commercial Loans delinquent 90 days-
and-over increased to 4.21% at December 31, 1996 from 3.97% at December 31,
1995.
Total net charge-offs from continuing operations increased 53% to $39.6
million for the year ended December 31, 1996 from $25.9 million for the year
ended December 31, 1995 due to the increase in the Company's serviced loan
portfolio. Home Equity Loan net charge-offs for 1996 were $37.0 million, or 45
basis points of the Home Equity Loans serviced. For 1995, Home Equity Loan net
charge-offs were $24.2 million, or 42 basis points of the Home Equity Loans
serviced. Commercial Loan net charge-offs for 1996 were $2.6 million, or 41
basis points of the unguaranteed portion of the Commercial Loans serviced. For
1995, Commercial Loan net charge-offs were $1.7 million, or 40 basis points of
the unguaranteed portion of the Commercial Loans serviced.
Finance income, fees earned and other increased 38% to $209.9 million for
the year ended December 31, 1996 compared to $152.0 million for the year ended
December 31, 1995. The primary factors contributing to this growth were the
increase in the Company's interest-only strip, (see "Financial Condition") and
the growth of the serviced loan portfolio of 38% to $11.7 billion at December
31, 1996, as compared to $8.5 billion at December 31, 1995.
Salaries and employee benefits increased 33% to $157.9 million for the year
ended December 31, 1996, compared to $118.9 million for the year ended
December 31, 1995. This increase was primarily a result of additional staff
needed for the growth in the Home Equity Loan division.
Other operating expenses and provision for credit losses on loans not sold
increased 40% to $189.9 million for the year ended December 31, 1996, compared
to $135.7 million for the year ended December 31, 1995. The net increase was
primarily attributable to the following: (i) an increase in occupancy costs
and related office expenses of $33.7 million associated with the opening of
additional branch offices; (ii) an increase in advertising expenses of $13.8
million to help stimulate loan originations; (iii) an increase in loan
expenses of $5.3 million related to growth in loan originations; (iv) an
increase in depreciation and amortization of $6.8 million, resulting primarily
from purchases of computer equipment and other office equipment to support the
growth in both new product lines and the Company's employment base; and (v) a
decrease in the provision for credit losses on loans not sold of $5.4 million.
Interest expense increased 28% to $118.7 million for the year ended December
31, 1996 from $92.8 million for the year ended December 31, 1995. The increase
was attributable to the increase in the Company's average debt outstanding
during 1996 of $511.9 million, offset in part by a decrease in the weighted
average interest rate to 7.1% in 1996 from 7.7% in 1995 on the Company's
warehouse facilities and to 8.2% in 1996 from 8.7% in 1995 on the Unsecured
Notes.
Income taxes from continuing operations increased 76% to $57.8 million for
the year ended December 31, 1996 from $32.6 million for the year ended
December 31, 1995 due to an increase in pretax income from continuing
operations. The effective tax rate remained at 41% for 1996 and 1995.
30
<PAGE>
Liquidity and Capital Resources
The Company's business requires continual access to short and long-term
sources of debt financing and equity capital. The Company's cash requirements
arise from loan originations and purchases, advances and reserve account
deposits in securitizations, loan repurchases, repayment of debt upon
maturity, payment of operating and interest expenses, tax payments due on the
Company's taxable income and capital expenditures. The Company's primary
sources of liquidity are sales into secondary markets of the loans it
originates (i.e. securitizations), long-term unsecured borrowing (i.e., the
Unsecured Notes), the Credit Facility and short-term warehouse facilities
secured by pledges of its loans, in most cases until such loans are sold and
the lenders can be repaid, and finance income and fees earned.
Since 1989, the Company has pooled and sold substantially all of the loans
or other assets which it originates or purchases through securitization
transactions as a means to improve its liquidity and to repay the Company's
warehouse lenders. Accordingly, adverse changes in the securitization market
in general, or adverse developments relating to the Company in particular,
could impair the Company's ability to originate, purchase and sell loans or
other assets on a favorable or timely basis. Any such impairment could have a
material adverse effect upon the Company's business and results of operations.
Any delay in the sale of a loan or other asset pool would postpone the
recognition of gain on such loans until their sale. Such delays could cause
the Company's earnings to fluctuate from quarter to quarter.
In certain securitizations, limited guarantees are provided by the Company
as credit enhancement. In 1997, the Company completed two asset-backed
securitizations, one collateralized by Commercial Loans, and the other by Home
Equity Loans which employed senior/subordinate structures with the subordinate
bonds enhanced by a limited guarantee by the Company. At December 31, 1997,
these limited guarantees amounted to approximately $13.0 million.
The Company has provided revolving credit facilities to various originators
of home equity loans. These facilities provide the originators with warehouse
financing prior to the sale of loans, usually to the Company. These
agreements, which are subject to renewal periodically, bear interest at rates
primarily between prime plus 2.00% and 2.50% and are collateralized by the
loans. Upon the sale of the loans the advances are repaid. At December 31,
1997, the Company has made available to originators lines of credit of
approximately $88.0 million, of which $17.4 million were outstanding and are
included in other receivables.
Cash and cash equivalents are $301.7 million at December 31, 1997, an
increase of $138.7 million from December 31, 1996. This increase is
principally a result of cash provided by financing activities of $597.0
million and is primarily attributable to the net proceeds received from public
offerings of $300.0 million from senior Unsecured Notes in April 1997 and
$250.0 million of subordinated Unsecured Notes in December 1997. This increase
is offset by total net cash used in operating and investing activities of
$458.3 million.
In December 1997, the Company completed the private placement of securitized
Net Interest Margin ("NIMs") notes representing a portion of the Company's
interest-only strip receivables. The NIMs were collateralized by the net cash
flow retained in residual certificates of a portion of certain Home Equity
Loan Asset-Backed securitizations. No gain or loss was recognized as a result
of this transaction. The proceeds from the sale which amounted to $109.0
million were used to reduce the Company's indebtedness under its Credit
Facility.
The Company from time to time sells certain of its loans, primarily
guaranteed portions of SBA Loans and Student Loans, at a premium. This
strategy does not significantly affect reported earnings in the period of
sales, but allows the Company to generate a higher level of cash flow from
current operations. Such a strategy also reduces the interest-only strip
receivables thereby reducing cash flows received in the future.
The Company began development of an office building located in West
Sacramento, California in May 1996, with substantial completion expected in
the first quarter of 1998. The project, which included the purchase of land
and building construction, is estimated to cost approximately $87.0 million
and has been funded out of
31
<PAGE>
Liquidity and Capital Resources (continued)
the general working capital of the Company. In addition, capitalized
expenditures to complete the building for occupancy are anticipated to be
approximately $10.0 million. Total expenditures through December 31, 1997 are
$66.8 million. The 400,000 square foot building will help to centralize
operations and support additional staff from the anticipated growth of the
business. The Company has signed a commitment letter to sell and leaseback the
building subject to the satisfaction of several contingencies. Should these
contingencies be met, the Company anticipates closing the transaction in the
second quarter of 1998, which would generate approximately $88.0 million of
gross proceeds.
On March 19, 1998, the Company entered into a Purchase and Sale Agreement
and Joint Escrow Instructions for the purchase of approximately 125 acres of
land for the future development of an employee office complex located in
Folsom, California, which is approximately 30 miles outside of Sacramento,
California. The plans are to ultimately consolidate the Company's lending,
collections, and customer service operations which are presently located in
various locations in Sacramento. The only significant contingency is the
approval by the City of Folsom of a development agreement. The Company has
placed $500,000 in escrow pending closing which, subject to the aforementioned
contingency, is expected to occur in May 1998. The total acquisition price is
$14.5 million. Plans for developing the site have not been finalized.
In order to continue to originate loans, the Company will need to maintain
and renew its various credit facilities at least at current levels, or obtain
new credit facilities to replace existing facilities and its long-term
borrowing as they become due.
At December 31, 1997, the Company has $2.5 billion of secured warehouse
facilities, which are generally subject to annual renewal and are used to
finance loans after origination and prior to sale. Of the amount available
under these facilities, $2.1 billion is unused at December 31, 1997. At
December 31, 1997, the Company has $391.6 million of borrowings outstanding
under the warehouse facilities with a weighted average interest rate of 6.63%.
In addition, at December 31, 1997, the Company has outstanding $825.0
million of senior Unsecured Notes which require principal payments by the
Company of $40.0 million in 1998, $190.0 million in 1999, $110.0 million in
2000, $35.0 million in 2001, $325.0 million in 2002, and $125.0 million
thereafter. The senior Unsecured Notes bear interest at rates ranging from
7.60% to 9.00%, with a weighted average interest rate of 8.37% at December 31,
1997.
The Company has the $800.0 million Credit Facility, which expires on June
30, 2000. At December 31, 1997, outstanding advances under this Credit
Facility are $287.8 million with a weighted average interest rate of 6.36%.
This Credit Facility replaces the $400.0 million unsecured revolving credit
facility that would have expired on August 16, 1999.
On December 3, 1997, the Company completed a public offering of $150.0
million of subordinated Unsecured Notes with a coupon of 7.30% and a maturity
of December 1, 2002, and $100.0 million of subordinated unsecured notes with a
coupon of 7.95% and a maturity of December 1, 2007. Each series of notes
constitute unsecured, subordinated indebtedness of the Company. The net
proceeds of this offering were used to repay other outstanding indebtedness.
The Company is required to comply with various operating and financial
covenants set forth in the above agreements including covenants which may
restrict the Company's ability to pay certain distributions including
dividends. At December 31, 1997, the Company has available $358.5 million for
the payment of such distributions under the most restrictive of such
covenants. See "Item 5--Market for Registrant's Common Equity and Related
Stockholders Matters."
While the Company believes that it will be able to refinance or otherwise
repay its warehouse facilities and unsecured debt in the normal course of its
business, there can be no assurance that the Company's existing
32
<PAGE>
Liquidity and Capital Resources (continued)
lenders will agree to refinance such debt, that other lenders will be willing
to extend lines of credit to the Company, or that funds otherwise generated
from operations will be sufficient to satisfy such obligations. Future
financing may involve the issuance of additional common stock or other
securities, including securities convertible into or exercisable for common
stock.
The terms upon which the Company is able to obtain financing are affected by
the Company's credit ratings. On December 3, 1997, in connection with the
offering by the Company of its Subordinated Notes, Moody's confirmed its
rating of Bal for the Company's outstanding senior Unsecured Notes and Ba2 for
the Company's outstanding Preferred Stock, but changed its outlook from stable
to negative. Moody's indicated that continued increases in effective leverage
and delinquencies would put additional downward pressure on the Company's
ratings. In the first week of February 1998, Moody's placed its ratings of the
Company's long-term debt and Convertible Preferred Stock on review for a
possible downgrade. On March 4, 1998, Moody's placed its ratings of the
Company's senior Unsecured Notes and Convertible Preferred Stock on review for
possible upgrade in response to news to the Company had signed the Merger
Agreement with First Union.
In addition, on December 15, 1997, S&P placed its ratings of the Company's
outstanding Unsecured Notes and Preferred Stock on CreditWatch with negative
implications. While citing industry issues and specific concerns with certain
of the Company's product lines, including the initial securitization plan for
125 LTV Loans, S&P stated that the placement on CreditWatch with negative
implications implies that the ratings could remain the same or be lowered
pending a detailed review of the Company during the first quarter of 1998. On
March 4, 1998, S&P revised its outlook from CreditWatch with negative
implications to positive implications, following the announcement that the
Company had signed the Merger Agreement with First Union.
On March 4, 1997, Duff placed its ratings for the Company's Unsecured Notes
on Rating Watch-Up in response to news that the Company had signed a
definitive merger agreement with First Union.
However, since there can be no assurance that the proposed Merger will be
consummated, there can be no assurance that such ratings will be upgraded. As
of the date of this annual report, none of such rating agencies have
downgraded the ratings of the Company or its securities, although there can be
no assurance that any such downgrading will not occur in the future, whether
or not the Merger is consummated.
The Company's business is substantially dependent on its information
systems. Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code fields. These date
code fields will need to accept four digit entries to distinguish 21st century
dates from 20th century dates. As a result, computer systems and software used
by many companies, including the Company, may need to be replaced or modified
to comply with such "Year 2000" requirements. Based on the initial analysis by
management, the Company currently expects to incur approximately $8.0 million
in expenses during 1998 and 1999 to modify its information systems for Year
2000 compliance. This amount will be in addition to the amounts required to be
expended to permit continued growth in the Company's business. The Company
continues to evaluate appropriate courses of corrective action, including
replacement of certain systems whose associated costs would be recorded as
assets and amortized, and modifying existing systems, whose associated costs
would be expensed as they are incurred. Management continues to monitor and
attempt to identify third-parties with whom it electronically processes
information, in order to assess and attempt to mitigate the risk that such
third parties will not be year 2000 compliant on a timely basis. Management
anticipates that this project will be conducted in a timely manner and
anticipates that the costs to replace or modify the Company's information
systems to be year 2000 compliant will not have a material impact on the
Company's consolidated financial statements. However, there can be no
assurance that the Company will not experience unanticipated delays,
complications and expenses in replacing or modifying its information systems.
Failure or inability to successfully replace or modify the Company's current
information systems on a timely basis, or failures with respect to third-
parties' or the Company's information systems generally, could have a material
adverse effect on the business, financial condition or prospects of the
Company.
33
<PAGE>
Liquidity and Capital Resources (continued)
On March 4, 1998, the Company signed a definitive merger agreement with
First Union Corporation. In connection with this transaction, First Union
Corporation will acquire all of the outstanding stock of the Company. It is
anticipated that the transaction will close in the third quarter of 1998
pending approval by shareholders and regulatory agencies. See "Item 1--
Business--Pending Merger with First Union Corporation."
ITEM 7A. QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
34
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
THE MONEY STORE INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
35
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
The Money Store Inc.:
We have audited the accompanying consolidated statements of financial
condition of The Money Store Inc. and subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the years in the three-year period ended December
31, 1997. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The Money
Store Inc. and subsidiaries as of December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the years in the three-
year period ended December 31, 1997, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities" in 1997.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Sacramento, CA
February 11, 1998
except as to Note 19, which
is as of March 4, 1998
36
<PAGE>
THE MONEY STORE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
------
Cash and cash equivalents................................ $ 301,669 $ 162,945
Short-term cash investments (Note 10).................... 195,580 161,703
Receivables, net (Note 3)................................ 1,287,484 1,157,889
Interest-only strip receivables (Note 4)................. 1,170,254 811,400
Property and equipment, net (Note 5)..................... 153,074 73,458
Other.................................................... 28,640 24,545
---------- ----------
$3,136,701 $2,391,940
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
Notes payable (Note 6)................................. $1,516,081 $1,319,197
Accounts payable and other liabilities (Note 8)........ 542,211 333,283
Income taxes, principally deferred (Note 9)............ 152,877 147,197
Unearned insurance commissions......................... 9,466 7,754
---------- ----------
2,220,635 1,807,431
---------- ----------
Subordinated debt (Note 7)............................. 250,000 2,000
---------- ----------
Commitments and contingencies (Note 10)
Shareholders' equity:
Preferred stock, no par; authorized 10,000,000 shares;
issued and outstanding 5,215,000 of $1.72 mandatory
convertible shares in 1997 and 1996 (aggregate
liquidation value of $138,198) (Note 12).............. 133,363 133,363
Common stock, no par; authorized 250,000,000 shares;
issued and outstanding 58,336,635 shares in 1997 and
57,791,436 shares in 1996 (Note 12)................... 196,748 188,276
Foreign currency translation adjustment (Note 12)...... 104 --
Retained earnings...................................... 335,851 260,870
---------- ----------
666,066 582,509
---------- ----------
$3,136,701 $2,391,940
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
37
<PAGE>
THE MONEY STORE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
REVENUES:
Gain on sale of receivables, including net
unrealized gain on valuation of interest-only
strips.......................................... $574,553 $395,120 $273,967
Finance income, fees earned and other............ 256,248 209,919 152,048
-------- -------- --------
830,801 605,039 426,015
-------- -------- --------
EXPENSES:
Salaries and employee benefits (Note 13)......... 225,061 157,869 118,892
Other operating expenses (Note 14)............... 226,550 175,076 115,440
Interest......................................... 142,218 118,651 92,830
Provision for credit losses on loans not sold
(Note 3)........................................ 9,223 14,828 20,222
-------- -------- --------
603,052 466,424 347,384
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES............................................. 227,749 138,615 78,631
INCOME TAXES (NOTE 9).............................. 95,120 57,808 32,559
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS.................. 132,629 80,807 46,072
DISCONTINUED OPERATIONS (NOTE 2):
Income (loss) from operations of auto finance
division, less applicable income taxes
(benefit)....................................... (33,419) 4,848 2,643
Loss on disposal of auto finance division,
including provision of $3,000 for operating
losses during phase-out period, less applicable
income tax benefit.............................. (7,122) -- --
-------- -------- --------
NET INCOME......................................... $ 92,088 $ 85,655 $ 48,715
======== ======== ========
NET EARNINGS (LOSS) PER COMMON SHARE:
Continuing operations (Note 15).................. $ 2.13 $ 1.42 $ 0.90
Discontinued operations.......................... (0.70) 0.09 0.05
-------- -------- --------
Net income....................................... $ 1.43 $ 1.51 $ 0.95
======== ======== ========
NET EARNINGS (LOSS) PER COMMON SHARE-ASSUMING
DILUTION:
Continuing operations (Note 15).................. $ 2.06 $ 1.38 $ 0.89
Discontinued operations.......................... (0.63) 0.08 0.05
-------- -------- --------
Net income....................................... $ 1.43 $ 1.46 $ 0.94
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
38
<PAGE>
THE MONEY STORE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOREIGN
PREFERRED STOCK COMMON STOCK CURRENCY TOTAL
------------------ ------------------- TRANSLATION RETAINED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT ADJUSTMENT EARNINGS EQUITY
--------- -------- ---------- -------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1994................... -- $ -- 50,804,963 $ 57,963 $ -- $136,300 $194,263
Net income.............. 48,715 48,715
Proceeds from exercise
of stock options....... 534,933 1,640 1,640
Common dividends........ (3,492) (3,492)
--------- -------- ---------- -------- ----- -------- --------
Balance, December 31,
1995................... -- -- 51,339,896 59,603 -- 181,523 241,126
Net income.............. 85,655 85,655
Issuance of preferred
stock (Note 12)........ 5,215,000 133,363 133,363
Issuance of common stock
(Note 12).............. 5,937,500 122,128 122,128
Proceeds and related tax
benefits from exercise
of stock options....... 514,040 6,545 6,545
Preferred dividends..... (621) (621)
Common dividends........ (5,687) (5,687)
--------- -------- ---------- -------- ----- -------- --------
Balance, December 31,
1996................... 5,215,000 133,363 57,791,436 188,276 -- 260,870 582,509
Net income.............. 92,088 92,088
Proceeds and related tax
benefits from exercise
of stock options (Note
13).................... 545,199 8,472 8,472
Foreign currency
translation adjustment
(Note 12).............. 104 104
Preferred dividends..... (8,970) (8,970)
Common dividends........ (8,137) (8,137)
--------- -------- ---------- -------- ----- -------- --------
Balance, December 31,
1997................... 5,215,000 $133,363 58,336,635 $196,748 $ 104 $335,851 $666,066
========= ======== ========== ======== ===== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
39
<PAGE>
THE MONEY STORE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................. $ 92,088 $ 85,655 $ 48,715
Adjustments to reconcile net income to
net cash used in operations:
Discontinued operations............... 40,541 (4,848) (2,643)
Depreciation and amortization......... 21,107 15,116 8,362
Provision for deferred income taxes... 27,347 47,007 12,033
Provision for credit losses on loans
not sold............................. 9,223 14,828 20,222
Net unrealized gain on valuation of
interest-only strip receivables...... (77,866) -- --
Net change in operating assets and
liabilities:
Increase in short-term cash
investments........................ (33,877) (83,449) (24,443)
Proceeds from loans sold............ 7,703,309 5,449,240 3,508,824
Loans originated and purchased...... (7,801,014) (5,693,054) (3,822,971)
Loans repurchased................... (4,196) (6,971) (9,059)
Sale of certain interest-only strip
receivables........................ 109,000 -- --
Increase in other receivables....... (39,927) (16,042) (30,412)
Increase in interest-only strip
receivables........................ (420,033) (274,645) (196,070)
Increase in accounts payable and
other liabilities.................. 21,756 28,382 26,249
Other, net.......................... (2,383) (3,574) (6,225)
----------- ----------- -----------
Net cash used in operating activities. (354,925) (442,355) (467,418)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.... (55,278) (32,430) (17,466)
Construction in progress.............. (43,507) (16,182) --
Payment for purchase of servicing
company, net of cash acquired........ (2,422) -- --
Payment for purchase of assets of
mortgage company..................... (2,200) -- --
----------- ----------- -----------
Net cash used in investing activities. (103,407) (48,612) (17,466)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in secured
credit facilities.................... (8,896) 52,415 84,472
Net increase in unsecured credit
facilities........................... 37,800 250,000 5,000
Principal payments on unsecured notes. (132,020) (83,000) (245,000)
Proceeds from unsecured notes......... 300,000 20,000 555,000
Principal payments on subordinated
debt................................. (2,000) (22,000) --
Proceeds from subordinated debt....... 250,000 -- --
Debt issuance costs................... (4,958) (1,413) (2,902)
Net increase in collections payable... 169,347 82,839 78,617
Net proceeds from issuance of
preferred stock...................... -- 133,363 --
Net proceeds from issuance of common
stock................................ -- 122,128 --
Proceeds from exercise of stock
options.............................. 4,786 2,953 1,640
Dividends paid........................ (17,107) (6,308) (3,492)
----------- ----------- -----------
Net cash provided by financing
activities........................... 596,952 550,977 473,335
----------- ----------- -----------
Effect of exchange rate changes on cash
and cash equivalents................... 104 -- --
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents..................... 138,724 60,010 (11,549)
Cash and cash equivalents at beginning
of period.............................. 162,945 102,935 114,484
----------- ----------- -----------
Cash and cash equivalents at the end of
period................................. $ 301,669 $ 162,945 $ 102,935
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
40
<PAGE>
THE MONEY STORE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
The Money Store Inc. together with its subsidiaries (the "Company") is a
financial services company engaged in the business of originating (including
purchasing), selling and servicing consumer and commercial loans of specified
types and offering related services. Loans originated by the Company primarily
consist of: (i) fixed and adjustable rate loans secured by mortgages on
residential real estate and loans which allow consumers to borrow up to 125%
of the value of their homes ("125 LTV Loans"), (collectively "Home Equity
Loans"), which include FHA Title I home improvement loans ("FHA Title I
Loans") insured by the Federal Housing Authority (the "FHA") of the United
States Department of Housing and Urban Development ("HUD") and other home
improvement loans not insured by FHA ("Conventional Home Improvement Loans"
and, collectively with FHA Title I Loans, "Home Improvement Loans"); (ii)
loans guaranteed in part ("SBA Loans") by the United States Small Business
Administration (the "SBA") and commercial loans generally secured by first
mortgages ("Small Business Loans" and, together with SBA Loans, "Commercial
Loans"); and (iii) government-guaranteed student loans ("Student Loans").
The Company commenced operations in the United Kingdom ("U.K.") in May 1997,
with the purchase of Platform Home Loans Ltd. ("Platform"), a U.K. based
servicer of mortgage loans, and the organization of The Money Store Limited
U.K. engaged in the business of originating and purchasing mortgage loans.
Since 1995, the Company has originated motor vehicle retail installment sale
contracts purchased from automobile dealers ("Auto Loans"). On January 21,
1998, the Company decided to close its Auto Finance division as part of its
overall strategy to focus on more profitable areas of lending. As a result of
this action, the Auto Finance division is treated as a discontinued operation
for financial reporting.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements include the accounts of The Money
Store Inc. and its subsidiaries, all of which are wholly-owned. The
consolidated financial statements are prepared in accordance with generally
accepted accounting principles. All significant intercompany accounts and
transactions have been eliminated in consolidation. In preparing the
consolidated financial statements, management is required to make estimates
and assumptions which affect the reported amounts of assets and liabilities as
of the date of the consolidated statements of financial condition and revenues
and expenses for the period. Actual results could differ from those estimates.
These estimates include, among other things, estimated prepayments and
discount rates on loans sold with servicing retained, valuation of collateral
owned, and determination of the allowance for credit losses.
INVESTMENT IN JOINT VENTURE
The Company has a 50% equity interest in a limited liability company which
is engaged in the business of originating, selling and servicing mortgage
loans. As of December 31, 1997, the joint venture had not commenced
operations.
ADOPTION OF NEW ACCOUNTING POLICIES
On January 1, 1997, the company adopted Statement of Financial Accounting
Standards ("FAS") No. 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities. This statement provides guidance for
distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings. FAS No. 125 supersedes FAS Nos. 76, 77 and 122,
while amending both FAS Nos. 65 and 115. The statement is to be applied
prospectively and earlier implementation was not permitted.
41
<PAGE>
THE MONEY STORE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
For each servicing contract in existence before January 1, 1997, previously
recognized servicing rights and excess servicing receivables that do not
exceed contractually specified servicing fees are required to be combined, net
of any previously recognized servicing obligations under that contract, as a
servicing asset or liability. Previously recognized servicing receivables that
exceed contractually specified servicing fees are required to be reclassified
as interest-only strip receivables and the allowance for credit losses on
loans sold will be reclassified as a reduction of these receivables.
On December 31, 1997, the Company adopted FAS No. 128, Earnings Per Share,
and FAS No. 129, Disclosure of Information about Capital Structure.
FAS No. 128 requires that the Company report basic and diluted earnings per
share ("EPS") which replaces primary and fully diluted EPS previously reported
by the Company. The key difference is that basic EPS does not adjust for
common stock equivalents. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with a
complex capital structure and requires a reconciliation of the numerator and
denominator of the basic EPS computations to the numerator and denominator of
the diluted EPS computation. All prior year EPS amounts have been restated to
reflect the adoption of FAS No. 128. The adoption of this statement has not
had a material effect on the Company's financial statements.
FAS No. 129 lists required disclosures about capital structure that had been
included in a number of previously existing, separate statements and opinions.
Adoption of this statement has had no effect on the Company's financial
statements.
REVENUE RECOGNITION
(A) GAIN ON SALE OF RECEIVABLES AND VALUATION OF INTEREST-ONLY STRIP
RECEIVABLES
Gain on sale of receivables represents the difference between the proceeds
(including premiums) from the sale, net of related transaction costs, and the
allocated carrying amount of the loans sold. The allocated carrying amount is
determined by allocating the original amount of loans (including premiums paid
on loans purchased) between the portion sold and any retained interests
(interest-only strip receivables and servicing assets and liabilities) based
on their relative fair values at the date of sale. The net unrealized gains on
valuation of interest-only strip receivables include the recognition of
unrealized gains which represents the initial difference between the allocated
carrying amount of loans sold and their fair market value. In addition, gain
on sale includes non-refundable fees on loans sold and gains or losses on
certain transactions structured as an economic hedge. The Company recognizes
such gain on sale of loans on the settlement date.
The fair value of the interest-only strip receivables is based upon the
present value of future expected cash flows. The cash flows are calculated
using a discount rate commensurate with the risk involved and include
estimates of future revenues and expenses including assumptions about defaults
and prepayments. In connection with securitization transactions, the value of
the future expected cash flows are calculated based upon the release of the
respective cash flows from the securitization.
Subsequent to the initial recognition of the interest-only strip
receivables, on-going assessments are made to determine the fair value of the
expected future cash flows based upon current market conditions. The asset is
measured like available-for-sale securities or trading securities under FAS
No. 115 and, accordingly, adjustments to the fair value are recorded based
upon those classifications. At December 31, 1997, the interest-only strip
receivables are classified as trading securities.
42
<PAGE>
THE MONEY STORE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company recognizes a servicing asset, which is included in interest-only
strip receivables, and a servicing liability, which is included in accounts
payable and other liabilities, both of which are initially measured based upon
fair value. Subsequently, the asset and liability are measured by amortizing
the amounts over the servicing period.
Impairment of the servicing asset is measured based upon a stratification of
risk characteristics. Adjustments are made through a valuation allowance if
the carrying value exceeds fair value. Adjustments are not made if the fair
value exceeds the carrying value.
(B) FINANCE INCOME
Finance income includes: (i) servicing compensation; (ii) earnings on the
interest-only strip receivables; (iii) interest income on receivables held for
sale by the Company; and (iv) miscellaneous fee income.
The Company ceases to accrue finance income on loans receivable which become
90 days delinquent. Finance income previously accrued and unpaid on loans
receivable which become 90 days delinquent is reversed.
LOANS RECEIVABLE
Loans receivable held for sale are carried at the lower of aggregate cost or
market value. Market value is determined by outstanding commitments from
investors or current investor yield requirements. There was no allowance for
market losses on loans receivable held for sale at December 31, 1997 and 1996.
Provision for credit losses on loans not sold is charged to income in
amounts sufficient to maintain the allowance at a level considered adequate to
cover anticipated losses resulting from liquidation of outstanding loans. The
allowance for credit losses on loans not sold is based upon periodic analysis
of the portfolio, economic conditions and trends, historical credit loss
experience, borrowers' ability to repay, and collateral values.
PROPERTY AND EQUIPMENT, NET
Property and equipment is stated at cost less accumulated depreciation and
amortization. Capital leases are included in property and equipment, at the
capitalized amount. Depreciation and amortization are computed primarily using
the straight-line method. Estimated useful lives range from three to seven
years for furniture and equipment, the lesser of ten years or the lease term
for leasehold improvements, and three to five years for capital leases.
Also included in property and equipment is the capitalization of costs
relating to the construction of an office building. Costs include expenditures
for the purchase of land, construction of the building along with related
costs and the amount of interest associated with the construction. Capitalized
interest is recorded as part of the asset cost and will be depreciated over
the useful life of the asset when it becomes operational.
COLLATERAL OWNED
Collateral owned consists of property acquired by foreclosure or in
settlement of loans receivable or repossession and is carried at the lower of
carrying value or fair value less estimated costs to sell. Collateral owned is
$3,068,000 and $7,199,000 at December 31, 1997 and 1996, respectively, and is
included in other assets.
43
<PAGE>
THE MONEY STORE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company recognizes 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. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply in the year in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
UNEARNED INSURANCE COMMISSIONS
The Company receives a commission from third party providers based upon the
insurance coverage sold to Home Equity Loan customers. For financial
reporting, this income is deferred and recognized over the expected life of
the insurance policy.
NET EARNINGS PER SHARE
The Company's common stock equivalents include the assumed conversion of
the Company's outstanding $1.72 Mandatory Convertible Preferred Stock and the
assumed exercise of stock options to the extent they are dilutive. Share and
per share amounts have been restated to reflect stock splits effected by the
Company. The basic weighted average number of common shares is 58,095,111 for
1997, 56,375,277 for 1996 and 51,023,609 for 1995. The diluted weighted
average number of common shares including common stock equivalents is
64,389,816 for 1997, 58,399,322 for 1996 and 51,790,787 for 1995.
STATEMENTS OF CASH FLOWS
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
Supplemental disclosure of cash flow information is as follows:
Cash paid for interest expense is $142,672,000, $122,531,000 and $84,335,000
for the years ended December 31, 1997, 1996 and 1995, respectively. Cash paid
for income taxes is $53,475,000, $9,253,000 and $12,940,000 for the years
ended December 31, 1997, 1996 and 1995, respectively.
Supplemental disclosure of non-cash investing and financing activities is as
follows:
Non-cash investing and financing activities consist of capital lease
obligations of $9,531,000 and $3,890,000 for the years ended December 31, 1997
and 1996, respectively, in connection with leases for equipment. There were no
non-cash investing or financing activities for the year ended December 31,
1995.
RECLASSIFICATION
Certain financial statement captions reported in the Consolidated Statement
of Financial Condition as of December 31, 1996, the Consolidated Statements of
Income and the Consolidated Statements of Cash Flows for the years ended
December 31, 1996 and 1995, as well as the 1996 Subsidiary Guarantors'
condensed consolidating financial data presented in Note 18 have been
reclassified to conform to the presentation of the 1997 consolidated financial
statements.
44
<PAGE>
THE MONEY STORE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACQUISITIONS
On May 14, 1997, the Company acquired 100% of the stock of Platform Home
Loans Ltd., a U.K. based servicer of mortgage loans which was accounted for as
a purchase transaction. This acquisition resulted in the recognition of
$2,000,000 of goodwill which is being amortized using the straight-line method
over five years and is included in other assets.
On August 14, 1997, the Company acquired substantially all of the assets of
Integrated Capital Group Inc., an originator and seller of mortgage loans
which was accounted for as a purchase transaction. The amount of $1,450,000
paid in excess of the assets purchased represents a covenant not to compete
which is being amortized using the straight-line method over three years and
is included in other assets.
FOREIGN CURRENCY TRANSLATION
All assets and liabilities of the U.K. subsidiaries are translated into U.S.
dollars at the rate in effect as of the date of the financial statements.
Income and expense items are translated at the weighted average exchange rate
for the period. The resulting translation adjustments are recorded as a
component of shareholders' equity.
RECENT ACCOUNTING DEVELOPMENTS
In June 1997, the FASB issued FAS No. 130, Reporting Comprehensive Income,
and FAS No. 131, Disclosures about Segments of an Enterprise and Related
Information.
FAS No. 130 establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains, and losses) in a full
set of general-purpose financial statements. It does not, however, specify
when to recognize or how to measure items that make up comprehensive income.
FAS No. 130 was issued to address the concerns over the practice of reporting
elements of comprehensive income directly in equity. FAS No. 130 is effective
for financial statements issued for periods beginning after December 15, 1997.
FAS No. 131 establishes standards for the way public business enterprises
are to report information about operating segments in annual financial
statements, and requires those enterprises to report selected information
about operating segments in interim financial reports issued to shareholders.
It also establishes standards for related disclosures about products and
services, geographic areas and major customers. FAS No. 131 is effective for
financial statements issued for years beginning after December 15, 1997.
(2) DISCONTINUED OPERATIONS
On January 29, 1998, the Company announced that it has ceased originating
loans in its Auto Finance division as part of an overall corporate strategy to
focus on more profitable areas of lending. This division operated on a
nationwide basis and originated loans for the purpose of purchasing new and
used cars, minivans, vans and light trucks. The Company sold these loans in
securitization transactions with servicing retained. In connection with this,
all related operating activity is reclassified and reported as discontinued
operations in the 1997 and the preceding years' Consolidated Financial
Statements. Also included in the Company's Consolidated Statements of
Financial Condition are the assets of the Auto Finance division of $40,662,000
and $91,512,000 at December 31, 1997 and 1996, respectively, consisting of
short-term cash investments, receivables, interest-only strip receivables and
equipment. In addition, the Company has liabilities of $80,092,000 and
$81,597,000 at December 31, 1997 and 1996, respectively, consisting of
accounts payable and intercompany liabilities.
45
<PAGE>
THE MONEY STORE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) DISCONTINUED OPERATIONS (CONTINUED)
The results of discontinued operations are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1997 1996 1995
-------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenues.......................................... $ 6,848 $45,210 $19,594
Expenses.......................................... 67,653 39,285 15,192
-------- ------- -------
Operating income (loss) before taxes and loss on
disposal......................................... (60,805) 5,925 4,402
Loss on disposal.................................. (12,000) -- --
-------- ------- -------
Income (loss) before taxes (benefit).............. (72,805) 5,925 4,402
Income taxes (benefit)............................ (32,264) 1,077 1,759
-------- ------- -------
Net income (loss) from discontinued operations.... $(40,541) $ 4,848 $ 2,643
======== ======= =======
</TABLE>
The loss on disposal provides for lease terminations, employment severance
and benefits, write-off of fixed assets and leasehold improvements and an
accrual for estimated future operating losses, and is included in accounts
payable and other liabilities.
(3) RECEIVABLES, NET
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
---------- ----------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Loans held for sale:
Home Equity Loans.................................... $ 727,840 $ 548,181
Commercial Loans..................................... 188,077 264,655
Student Loans........................................ 202,658 187,498
Auto Loans........................................... 2,228 38,779
---------- ----------
1,120,803 1,039,113
Other receivables...................................... 186,699 138,671
---------- ----------
1,307,502 1,177,784
Less allowance for credit losses on loans not sold..... 20,018 19,895
---------- ----------
$1,287,484 $1,157,889
========== ==========
</TABLE>
LOANS HELD FOR SALE
Home Equity Loans
Home Equity Loans held for sale have contractual maturities of up to 30
years. Real property of the borrower is usually pledged as collateral. Home
Equity Loans are generally sold in securitization transactions with servicing
retained.
Commercial Loans
SBA Loans have contractual maturities of up to 25 years. SBA Loans are made
under the Small Business Act and are guaranteed in part by the Federal
government. The guaranteed and unguaranteed portions of SBA Loans are sold in
separate transactions while the Company retains the servicing rights. At
December 31, 1997 and 1996, the unguaranteed portion of SBA Loans held for
sale is $58,568,000 and $44,829,000, respectively.
46
<PAGE>
THE MONEY STORE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) RECEIVABLES, NET (CONTINUED)
Small Business Loans have maturities up to 30 years. At December 31, 1997
and 1996, Small Business Loans held for sale are $21,618,000 and $120,450,000,
respectively.
Student Loans
Student Loans have varying maturities. Substantially all loans are made
through the Guaranteed Student Loan Program and are at least insured 98% by
agencies approved by the United States Department of Education. Student Loans
are generally sold in securitization transactions with servicing retained.
Auto Loans
Auto Loans have contractual maturities up to seven years. The vehicle
purchased by the borrower is pledged as collateral. Auto Loans are generally
sold in securitization transactions with servicing retained.
OTHER RECEIVABLES
Other receivables consist primarily of accrued interest, repurchased loans
and advances in connection with revolving credit facilities to various
originators of home equity loans.
ALLOWANCE FOR CREDIT LOSSES ON LOANS NOT SOLD
The activity in the allowance for credit losses on loans not sold is
summarized as follows:
<TABLE>
<CAPTION>
AS OF AND FOR THE
YEARS ENDED DECEMBER 31,
----------------------------
1997 1996 1995
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of year....................... $ 19,895 $ 15,591 $ 14,014
Provision for credit losses on loans not sold:
Continuing operations.......................... 9,223 14,828 20,222
Discontinued operations........................ 3,010 2,412 420
Net loans charged off and reclassification to
collateral owned................................ (12,110) (12,936) (19,065)
-------- -------- --------
Balance, end of year........................... $ 20,018 $ 19,895 $ 15,591
======== ======== ========
</TABLE>
As of December 31, 1997 and 1996, loans retained by the Company totaling
$73,787,000 and $31,602,000, respectively, were on non-accrual status.
SERVICED LOAN PORTFOLIO
The serviced loan portfolio, which consists of loans sold to investors and
loans retained by the Company, is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Home Equity Loans.................................... $11,430,392 $ 8,230,776
Commercial Loans..................................... 2,694,640 2,282,384
Student Loans........................................ 1,590,791 1,203,739
Auto Loans........................................... 778,121 475,533
----------- -----------
$16,493,944 $12,192,432
=========== ===========
</TABLE>
47
<PAGE>
THE MONEY STORE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) INTEREST-ONLY STRIP RECEIVABLES
The activity in the interest-only strip receivables is summarized as
follows:
<TABLE>
<CAPTION>
AS OF AND FOR THE
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
---------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of year.................... $ 811,400 $ 518,347 $310,627
Initial recognition of the fair value......... 589,464 406,138 272,175
Unrealized gain on valuation.................. 27,282 -- --
Net amortization.............................. (148,892) (113,085) (64,455)
Sale of certain interest-only strip
receivables.................................. (109,000) -- --
---------- --------- --------
Balance, end of year.......................... $1,170,254 $ 811,400 $518,347
========== ========= ========
</TABLE>
As of December 31, 1997 and 1996, servicing assets included in the interest-
only strip receivables are $39,809,000 and $25,970,000, respectively.
The following chart presents certain weighted average estimates used in the
valuation of the interest-only strip receivables:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Discount rates:
Home Equity Loans............................ 11.70% 11.30% 11.60%
Commercial Loans............................. 10.50% 10.50% 11.20%
Student Loans................................ 8.30% 8.20% 8.70%
Auto Loans................................... 12.00% 12.00% 12.00%
Prepayment rates:
Home Equity Loans(1)......................... 26.00% 25.00% 22.00%
Commercial Loans(1).......................... 9.00% 9.00% 8.50%
Student Loans(1)(3).......................... 3.00% 4.00% 2.50%
Auto Loans(2)................................ 1.90% 1.80% 1.50%
Adequate servicing compensations:
Home Equity Loans............................ 0.38% 0.35% 0.35%
Commercial Loans............................. 0.40% 0.40% 0.40%
Student Loans(3)............................. 0.85% 0.85% 0.85%
Auto Loans................................... 1.50% 1.50% 1.50%
Annual loss assumptions:
Home Equity Loans............................ 0.75% 0.65% 0.65%
Commercial Loans............................. 0.20% 0.20% 0.25%
Student Loans................................ -- -- --
Auto Loans................................... 12.50% 4.30% 2.90%
</TABLE>
- --------
(1) Represents an annual prepayment rate (HEP/CPR).
(2) Represents a monthly rate based on original principal balance (ABS).
(3) Represents an average of in-school and repayment periods.
48
<PAGE>
THE MONEY STORE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) PROPERTY AND EQUIPMENT, NET
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Land................................................ $ 7,316 $ 7,296
Buildings and improvements.......................... 8,411 6,182
Furniture and equipment............................. 128,274 75,085
Construction in progress(a)......................... 59,689 16,182
----------- ----------
203,690 104,745
Less accumulated depreciation and amortization...... 50,616 31,287
----------- ----------
$ 153,074 $ 73,458
=========== ==========
</TABLE>
- --------
(a) Includes capitalized interest of $4,047,000 and $803,000 at December 31,
1997 and 1996, respectively.
(6) NOTES PAYABLE
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Secured:
Warehouse notes................................. $ 391,561 $ 408,244
Obligations under capital leases................ 11,590 3,803
----------- -----------
403,151 412,047
----------- -----------
Unsecured:
Revolving credit facility....................... 287,800 250,000
Senior notes.................................... 825,000 637,000
Other unsecured notes........................... 130 20,150
----------- -----------
1,112,930 907,150
----------- -----------
$ 1,516,081 $ 1,319,197
=========== ===========
</TABLE>
Secured Notes
The Company has available lines of credit, which are subject to renewal
periodically, for warehousing of loans of $2,500,000,000 at December 31, 1997.
Outstanding borrowings under these credit facilities are collateralized by
loans of $395,081,000 at December 31, 1997. Upon the sale of loans, the notes
are repaid.
49
<PAGE>
THE MONEY STORE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) NOTES PAYABLE (CONTINUED)
At December 31, 1997, the future minimum lease payments under capital lease
obligations are as follows (dollars in thousands):
<TABLE>
<S> <C>
1998............................................................. $ 4,685
1999............................................................. 3,518
2000............................................................. 3,183
2001............................................................. 1,466
2002............................................................. 512
Thereafter....................................................... 15
-------
Total............................................................ $13,379
=======
</TABLE>
Included in the above amounts is $1,789,000 representing interest.
The following table presents data on warehouse notes payable:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Weighted average interest rate for the
year..................................... 6.2% 7.1% 7.7%
Weighted average interest rate at end of
year..................................... 6.6% 7.5% 6.6%
Average amount outstanding for the year... $ 904,717 $ 799,282 $548,733
Maximum amount outstanding at any month
end...................................... $1,143,994 $1,281,698 $916,426
</TABLE>
Unsecured Notes
The Company has an $800,000,000 unsecured revolving credit facility (the
"Credit Facility") which expires June 30, 2000. At December 31, 1997,
outstanding advances under the Credit Facility were $287,800,000.
The aggregate amount of senior notes maturities for each of the five years
following 1997 are as follows (dollars in thousands):
<TABLE>
<S> <C>
1998............................................................ $ 40,000
1999............................................................ 190,000
2000............................................................ 110,000
2001............................................................ 35,000
2002............................................................ 325,000
Thereafter...................................................... 125,000
--------
$825,000
========
</TABLE>
The Company is required to comply with various operating and financial
covenants defined in the agreements governing the issuance of the senior notes
and the Credit Facility. In addition, certain of the Company's warehouse notes
incorporate the restrictions contained in the senior notes or otherwise
contain similar restrictions. The covenants restrict the payment of certain
distributions including dividends. At December 31, 1997, the Company has
available $358,468,000 for the payment of such distributions under the most
restrictive of these covenants.
Costs incurred in connection with the issuance of the unsecured notes have
been deferred and are being amortized over the terms of the respective notes
using a method that approximates level-yield. At December 31, 1997 and 1996,
the unamortized debt issuance costs are $5,668,000 and $4,875,000,
respectively.
50
<PAGE>
THE MONEY STORE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) NOTES PAYABLE (CONTINUED)
The following table presents data on unsecured notes payable:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Weighted average interest rate for the
year..................................... 7.6% 8.2% 8.7%
Weighted average interest rate at end of
year..................................... 7.9% 7.8% 8.6%
Average amount outstanding for the year... $1,207,848 $ 822,833 $561,483
Maximum amount outstanding at any month
end...................................... $1,497,230 $1,010,150 $720,150
</TABLE>
(7) SUBORDINATED DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
7.3% due December 1, 2002(a)........................ $ 150,000 $ --
8.0% due December 1, 2007(a)........................ 100,000 --
7.8% due September 2, 1997.......................... -- 2,000
------------ ----------
$ 250,000 $ 2,000
============ ==========
</TABLE>
- --------
(a) Interest on the notes is payable semiannually on June 1 and December 1,
commencing June 1, 1998. The notes are unsecured, subordinated to all
existing and future senior indebtedness, and effectively subordinated to
all indebtedness and other obligations of the Company's subsidiaries.
As of December 31, 1997, the unamortized subordinated debt issuance costs
are $1,796,000. These costs are related to the $250,000,000 of subordinated
debt issued in 1997. The subordinated debt issuance costs associated with the
subordinated debt outstanding as of December 31, 1996 had been substantially
amortized.
(8) ACCOUNTS PAYABLE AND OTHER LIABILITIES
Accounts payable and other liabilities includes $415,365,000 and
$246,018,000 at December 31, 1997 and 1996, respectively, of funds collected
on loans sold and serviced for others. The Company is responsible for the
collection of principal and interest which is remitted primarily in the month
following collection. Also included in accounts payable and other liabilities
at December 31, 1997 is an accrual for the loss on disposal of the Auto
Finance division of $12,000,000 and the recognition of a servicing liability
for the Auto Finance division of $8,700,000.
(9) INCOME TAXES
The provision for income taxes from continuing operations is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1997 1996 1995
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current......................................... $ 52,019 $ 14,359 $ 22,920
Deferred........................................ 43,101 43,449 9,639
-------- -------- --------
$ 95,120 $ 57,808 $ 32,559
======== ======== ========
</TABLE>
51
<PAGE>
THE MONEY STORE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9) INCOME TAXES (CONTINUED)
Deferred tax benefit relating to discontinued operations is $19,596,000 for
the year ending December 31, 1997. Deferred tax expense from discontinued
operations for the years ending December 31, 1996 and 1995 was not material.
A reconciliation between the expected Federal income tax expense and the
actual income tax expense is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1997 1996 1995
-------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Income from continuing operations before
income taxes................................. $227,749 $138,615 $78,631
Statutory Federal income tax rate............. 35% 35% 35%
-------- -------- -------
Computed expected income tax expense.......... 79,712 48,515 27,521
State income taxes net of Federal income tax
benefit...................................... 15,408 9,293 5,038
-------- -------- -------
$ 95,120 $ 57,808 $32,559
======== ======== =======
</TABLE>
At December 31, 1997, the Company has state net operating loss carryforwards
available of $24,924,000, expiring on various dates through 2017.
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Provision for credit losses on loans not sold........... $ 8,007 $ 7,958
Interest on non-accrual loans........................... 18,679 12,307
Unearned insurance...................................... 3,935 3,213
Deferred bonuses........................................ 5,318 4,880
Auto division expense accruals.......................... 4,988 --
Other................................................... 3,266 713
-------- --------
44,193 29,071
-------- --------
Deferred tax liabilities:
Interest-only strip receivables......................... 200,019 162,552
Depreciation and amortization........................... 4,042 2,883
-------- --------
204,061 165,435
-------- --------
Net deferred tax liability................................ $159,868 $136,364
======== ========
</TABLE>
Management believes it is more likely than not that the Company will realize
the benefit of deferred tax assets and that such assets will reverse during
periods in which the Company generates net taxable income and reversal of
deferred tax liabilities.
52
<PAGE>
THE MONEY STORE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS OF CREDIT RISK
The Company is obligated under noncancellable operating leases for property
and equipment expiring at various dates through 2003. Minimum annual rental
payments at December 31, 1997 are as follows (dollars in thousands):
<TABLE>
<S> <C>
1998............................................................. $15,135
1999............................................................. 12,619
2000............................................................. 8,219
2001............................................................. 5,221
2002............................................................. 2,671
Thereafter....................................................... 5
-------
$43,870
=======
</TABLE>
Rent expense amounted to $14,462,000, $12,458,000 and $9,730,000 for the
years ended December 31, 1997, 1996 and 1995, respectively.
The Company began development of an office building located in West
Sacramento, California in May 1996, with completion expected in 1998. This
project, which includes the purchase of land and building construction, is
estimated to cost $87,000,000, and will be funded out of the general working
capital of the Company. In addition, capitalized expenditures to complete the
building for occupancy are anticipated to be approximately $10,000,000. Total
expenditures including capitalized interest to date are $66,802,000. The
400,000 square foot building will help to centralize operations and support
additional staff for the anticipated growth of the business.
The Company has provided revolving credit facilities to various originators
of home equity loans. These facilities provide the originators with warehouse
financing prior to the sale of loans, usually to the Company. These
agreements, which are subject to renewal periodically, bear interest at rates
primarily between prime plus 2.00% and 2.50% and are collateralized by the
loans. Upon sale of the loans, the advances are repaid. At December 31, 1997,
the Company has made available to originators, lines of credit of
approximately $88,000,000. Advances outstanding at December 31, 1997 and 1996,
are $17,389,000 and $8,291,000, respectively, and are included in Receivables,
net.
In certain securitization transactions, the Company subordinates a portion
of its interest in excess cash flows to the interest of investors. The
investors' protection from losses is provided by the subordination of the
Company's cash flows including among other methods, various combinations of
cash deposits provided by the Company, subordination accounts and credit
enhancement provided by third parties. At December 31, 1997 and 1996, short-
term cash investments represent restricted cash deposits held in interest-
bearing accounts for the protection of investors from losses. In addition,
advances in connection with subordination accounts of $379,500,000 and
$225,100,000 at December 31, 1997 and 1996, respectively, are included in
interest-only strip receivables. In senior subordinated structures, the senior
certificate holders are protected from losses by outstanding subordinated
certificates and credit enhancements provided by third parties, and in some
cases the limited guarantee of the Company.
In certain securitizations, limited guarantees are provided by the Company
as credit enhancement. During the second quarter of 1997, the Company
completed two asset-backed securitizations, one collateralized by Commercial
Loans, and the other by Home Equity Loans which employed a senior/subordinate
structure with the subordinate bonds enhanced by a limited guarantee by the
Company. At December 31, 1997, these limited guarantees amounted to
approximately $13,000,000.
53
<PAGE>
THE MONEY STORE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS OF CREDIT RISK (CONTINUED)
In an attempt to minimize the risk of interest rate fluctuations, one of the
strategies employed by the Company is to enter into agreements that allow it
to sell loans to certain trusts in the future at an agreed upon price. At
December 31, 1997, under the terms of such agreements the Company had the
right to deliver $207,710,000 of Home Equity Loans, $1,666,000 of Commercial
Loans, $12,634,000 of Student Loans and $21,486,000 of Auto Loans, within
approximately 90 days of such date.
In addition, the Company occasionally purchases and sells government
securities at agreed upon prices as an economic hedge. Losses on these
transactions, which are included in the gain on sale of receivables amounted
to $20,599,000, $1,139,000 and $5,110,000 for the years ended December 31,
1997, 1996 and 1995, respectively.
The Company generally sells its Home Equity Loans with servicing retained in
mortgage pass-through transactions and in whole loan transactions. In certain
whole loan transactions, the Company is subject to off-balance sheet credit
risk in the normal course of business due to commitments and obligations to
service and repurchase loan receivables which are not included in the
accompanying consolidated financial statements. These commitments and
obligations do not necessarily represent future cash flow obligations. The
obligations to repurchase Home Equity Loans are subject to various terms and
conditions including limitations on the amount of loans that may be required
to be repurchased in any given year. Based upon the terms of whole loan
transactions and management's estimates of the lives of the underlying
portfolios, management believes that there are $40,224,000 of Home Equity
Loans at December 31, 1997 which the Company may be required to repurchase in
the future should such loans become more than 90 days past due.
The Company's serviced loan portfolio is widely dispersed. At December 31,
1997, loans to borrowers in the State of California accounted for
approximately 18% of total serviced loan portfolio, while no other state
accounted for more than 7%.
In the normal course of business, the Company is subject to various legal
proceedings and claims, the resolution of which will not in management's
opinion, have a material adverse effect on the consolidated financial position
or results of operations of the Company.
(11) RELATED PARTY TRANSACTIONS
The Company leases corporate administrative offices in New Jersey from a
joint venture which includes a general partnership, whose partners are
shareholders and executive officers of the Company. The annual rent under this
lease, which expires in 2000, is subject to certain adjustments, and was
approximately $1,171,000, $1,184,000 and $1,200,000 for the years ended
December 31, 1997, 1996 and 1995, respectively.
In addition, the Company leases offices in California from a partnership,
whose general partner is a corporation in which an executive officer is a
majority shareholder. The annual rent under this lease which expires in March
1998 was $110,000, $203,000 and $203,000 for the years ended December 31,
1997, 1996 and 1995, respectively.
(12) SHAREHOLDERS' EQUITY
Foreign currency translation adjustment resulted in a gain of $104,000 in
1997. This gain represents the cumulative effect of translating assets and
liabilities of the Company's U.K. subsidiaries.
In May 1996, the shareholders of the Company approved the increase in
authorized shares of the Company from 100,000,000 shares to 250,000,000 shares
of common stock.
54
<PAGE>
THE MONEY STORE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12) SHAREHOLDERS' EQUITY (CONTINUED)
In March 1996, the Company sold 5,937,500 shares of common stock for $21.50
per share, the net proceeds of which amounted to $122,128,000.
In November 1996, the Company sold 5,215,000 shares of $1.72 Mandatory
Convertible Preferred Stock for $26.50 per share, the net proceeds of which
amounted to $133,363,000. Each share will pay an annual dividend of $1.72 per
share, will be convertible at the option of the holder into 0.833 shares of
common stock and will automatically convert on December 1, 1999 into common
stock. The mandatory conversion rate, based on a formula, will range from
0.833 to 1.000 shares of common stock per share.
(13) EMPLOYEE BENEFIT PLANS
Defined Contribution Plan
The Company has a defined contribution plan (401(k)) for all eligible
employees. Contributions to the plan are in the form of employee salary
deferrals which may be subject to employer matching contributions up to a
specified limit. In addition, the Company may make an annual profit sharing
contribution on behalf of its employees. The Company's cost for the plan, net
of reallocated forfeitures, amounted to $8,282,000, $4,851,000 and $3,479,000
for the years ended December 31, 1997, 1996 and 1995, respectively.
Profit Sharing Plan
The Company has a non-qualified profit sharing plan for certain employees.
Contributions to this plan are based on a percentage of pretax profits. The
Company's cost of the plan amounted to $9,342,000, $8,771,000 and $4,391,000
for the years ended December 31, 1997, 1996 and 1995, respectively.
Pension Plan
The Company has a non-qualified, unfunded pension benefit plan. The purpose
of the plan is to supplement the existing employee benefit plans for certain
key executives. The benefits are based upon years of service and the
employee's highest average compensation as defined.
The following table sets forth the plan's status and amounts recognized in
the Company's consolidated financial statements:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested........................................... $ -- $ 1,350
Non-vested....................................... 2,402 1,979
----------- -----------
Accumulated benefit obligation.................... 2,402 3,329
Effect of projected future compensation levels.... 3 94
----------- -----------
Projected benefit obligation...................... 2,405 3,423
Unrecognized prior service cost................... (1,648) (1,859)
Unrecognized net gain (loss)...................... (15) 53
Additional minimum liability...................... 1,660 1,712
----------- -----------
Total pension liability........................... $ 2,402 $ 3,329
=========== ===========
</TABLE>
55
<PAGE>
THE MONEY STORE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(13) EMPLOYEE BENEFIT PLANS (CONTINUED)
In determining the projected benefit obligation for the year ended December
31, 1997, the discount rate is 7.0% pre-retirement and 7.0% post-retirement.
For the year ended December 31, 1996, the discount rate was 7.5% pre-
retirement and 7.0% post-retirement. The rate of increase in the future
compensation levels was 4.0% in 1997 and 1996.
Net periodic pension cost includes the following components:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------------
1997 1996 1995
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service cost......................................... $ 108 $ 105 $ 144
Interest cost on projected benefit obligation........ 156 222 206
Net amortization and deferral........................ 210 210 210
------- ------- -------
Net periodic pension cost............................ $ 474 $ 537 $ 560
======= ======= =======
</TABLE>
In determining the net periodic pension cost for the year ended December 31,
1997, the discount rate is 7.5% pre-retirement and 7.0% post-retirement. For
the year ended December 31, 1996, the discount rate was 7.0% pre-retirement
and post-retirement. For the year ended December 31, 1995, the discount rate
was 7.5% pre-retirement and 7.0% post-retirement. The rate of increase in the
future compensation levels was 4.0% in 1997, 1996 and 1995.
Stock Option Plans
The Company's 1991 Stock Option Plan, as amended, the 1995 Stock Incentive
Plan and the 1997 Stock Incentive Plan (collectively the "Plans") provide for
a total of 8,284,375 shares to be reserved for issuance.
Options granted under the Plans may be incentive stock options or non-
qualified stock options. The exercise price of both types of options is equal
to 100% of the fair market value of the shares on the date of the grant.
Twenty percent of the options initially granted under the Plans are
exercisable by the holder one year after the date of grant, with an additional
20% of the options exercisable on the anniversary date of the grant for the
next four years. No options shall be granted under the 1991 Stock Option Plan,
the 1995 Stock Incentive Plan, or the 1997 Stock Incentive Plan after
September 15, 2001, August 15, 2005, and August 13, 2007, respectively.
Changes in options outstanding are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------------
1997 1996 1995
--------------------------- --------------------------- ---------------------------
NUMBER OF WEIGHTED-AVERAGE NUMBER OF WEIGHTED-AVERAGE NUMBER OF WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- ---------------- --------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of year...... 3,351,226 $13.95 3,168,090 $ 9.54 2,261,732 $ 4.27
Options granted......... 1,791,000 24.15 983,091 24.01 1,697,909 14.16
Options canceled........ (468,027) 18.02 (276,605) 15.34 (241,376) 6.23
Options exercised....... (545,199) 8.78 (523,350) 6.13 (550,175) 3.57
--------- --------- ---------
Options outstanding at
end of year............ 4,129,000 18.50 3,351,226 13.95 3,168,090 9.54
========= ========= =========
Options exercisable..... 643,869 12.43 521,750 7.62 530,000 3.77
========= ========= =========
</TABLE>
56
<PAGE>
THE MONEY STORE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(13) EMPLOYEE BENEFIT PLANS (CONTINUED)
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
WEIGHTED- REMAINING
AVERAGE CONTRACTED
NUMBER OF EXERCISE LIFE (IN
SHARES PRICE YEARS)
--------- --------- ----------
<S> <C> <C> <C>
Exercise prices:
$2.84
Options outstanding....................... 93,875 $2.84 --
Options exercisable....................... 93,875 2.84
$4.83-$7.07
Options outstanding....................... 777,187 5.53 2.2
Options exercisable....................... 190,489 5.41
$9.57
Options outstanding....................... 22,500 9.57 3.0
Options exercisable....................... 9,000 9.57
$15.90-$22.25
Options outstanding....................... 2,085,713 19.55 4.1
Options exercisable....................... 281,480 17.18
$24.06-$28.63
Options outstanding....................... 1,149,725 26.81 4.7
Options exercisable....................... 69,025 25.82
</TABLE>
FAS No. 123 establishes a new fair value based accounting method for stock-
based compensation plans and encourages (but does not require) employers to
adopt the new method in place of the provisions of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees ("APB No. 25").
Companies may continue to apply the accounting provisions of APB No. 25 in
determining net income; however, they must apply the disclosure requirements
of FAS No. 123 for all grants issued after 1994. The Company elected to
continue to apply the provisions of APB No. 25 in accounting for the employee
stock plans described above. Accordingly, no compensation cost has been
recognized.
Had compensation cost for these employee stock plans been determined based
on the new fair value method under FAS No. 123, the Company's net income and
net earnings per share would have been reduced based on the month of grant to
the pro forma amounts indicated as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------------
1997 1996 1995
------- ------- -------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net income:
As reported....................................... $92,088 $85,655 $48,715
======= ======= =======
Pro forma(1)...................................... $88,232 $83,677 $48,058
======= ======= =======
Net earnings per common share:
As reported....................................... $ 1.43 $ 1.51 $ 0.95
======= ======= =======
Pro forma(1)...................................... $ 1.37 $ 1.47 $ 0.94
======= ======= =======
Net earnings per common share-assuming dilution:
As reported....................................... $ 1.43 $ 1.46 $ 0.94
======= ======= =======
Pro forma(1)...................................... $ 1.37 $ 1.43 $ 0.93
======= ======= =======
</TABLE>
57
<PAGE>
THE MONEY STORE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(13) EMPLOYEE BENEFIT PLANS (CONTINUED)
- --------
(1) The pro forma amounts noted above only reflect the effects of stock-based
compensation grants made after 1994. Because stock options are granted
each year and generally vest over five years, these pro forma amounts may
not reflect the full effect of applying the (optional) fair value method
established by FAS No. 123 that would be expected if all outstanding stock
option grants were accounted for under this method.
The fair value of each option grant is estimated based on the date of grant.
In determining the fair value, the Company used a modified Black-Scholes
option-pricing model. For the fixed stock option plans, the following
weighted-average assumptions are used for 1997, 1996 and 1995, respectively:
expected dividend yield of 0.47%, 0.35% and 0.45%; expected volatility of
54.47%, 46.34% and 45.45%; risk-free interest rates of 6.53%, 6.41% and 5.96%;
and expected lives of five for all three years. The weighted-average grant-
date fair value of options granted are $11.49, $11.44 and $6.56 for the years
ended December 31, 1997, 1996 and 1995, respectively. Compensation expense
resulting from the granting of stock options relating to discontinued
operations was not material.
(14) OTHER OPERATING EXPENSES
Other operating expenses include the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1997 1996 1995
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Advertising...................................... $ 60,692 $ 51,848 $ 38,005
Depreciation and amortization.................... 21,107 15,116 8,362
Loan expenses.................................... 25,037 16,217 10,921
Office, stationery and supplies.................. 45,094 33,046 22,036
Professional fees................................ 15,293 16,102 6,360
Occupancy costs.................................. 14,462 12,458 9,730
Other expenses................................... 44,865 30,289 20,026
-------- -------- --------
$226,550 $175,076 $115,440
======== ======== ========
</TABLE>
(15) RECONCILIATION OF BASIC AND DILUTED NET EARNINGS PER COMMON SHARE FROM
CONTINUING OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-----------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Income from continuing operations.......... $132,629
Less: Preferred stock dividends............ (8,970)
--------
BASIC EPS
Income available to common stockholders.... 123,659 58,095,111 $2.13
=====
EFFECT OF DILUTIVE SECURITIES
Stock options.............................. 1,079,705
Convertible preferred stock................ 8,970 5,215,000
-------- ----------
DILUTED EPS
Income available to common stockholders +
assumed conversions....................... $132,629 64,389,816 $2.06
======== ========== =====
</TABLE>
58
<PAGE>
THE MONEY STORE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(15) RECONCILIATION OF BASIC AND DILUTED NET EARNINGS PER COMMON SHARE FROM
CONTINUING OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Income from continuing operations.......... $80,807
Less: Preferred stock dividends............ (621)
-------
BASIC EPS
Income available to common stockholders.... 80,186 56,375,277 $1.42
=====
EFFECT OF DILUTIVE SECURITIES
Stock options.............................. 1,164,154
Convertible preferred stock................ 621 859,891
------- ----------
DILUTED EPS
Income available to common stockholders +
assumed conversions....................... $80,807 58,399,322 $1.38
======= ========== =====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Income from continuing operations.......... $46,072
BASIC EPS
Income available to common stockholders.... 46,072 51,023,609 $0.90
=====
EFFECT OF DILUTIVE SECURITIES
Stock options.............................. 767,178
------- ----------
DILUTED EPS
Income available to common stockholders +
assumed conversions....................... $46,072 51,790,787 $0.89
======= ========== =====
</TABLE>
Options on 535,500, 491,250 and 1,352,909 shares of common stock were not
included in computing diluted earnings per share for the years ended December
31, 1997, 1996 and 1995, respectively, as they were antidilutive.
(16) FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" ("FAS No. 107"), requires disclosure of fair
value information about financial instruments, whether or not recognized in
the statement of financial condition. Fair values are based on estimates using
present value or other valuation techniques in cases where quoted market
prices are not available. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, could
not be realized in immediate settlement of the instrument. FAS No. 107
excludes certain financial instruments and all non-financial instruments from
its disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
59
<PAGE>
THE MONEY STORE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(16) FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
Estimated fair values, carrying values and various methods and assumptions
used in valuing the Company's financial instruments are set forth below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1997 1996
--------------------- ---------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents(a)..... $ 301,669 $ 301,669 $ 162,945 $ 162,945
Short-term cash investments(a)... 195,580 195,580 161,703 161,703
Receivables(b)................... 1,287,484 1,376,000 1,157,889 1,250,000
Interest-only strip
receivables(c).................. 1,170,254 1,170,254 811,400 811,400
Financial Liabilities:
Notes payable (excluding senior
notes)(d)....................... 691,081 691,081 682,197 682,197
Unsecured--senior notes(d)....... 825,000 836,000 637,000 648,000
Subordinated debt(e)............. 250,000 242,000 2,000 2,000
</TABLE>
- --------
(a) The carrying value of cash, cash equivalents and short-term cash
investments is considered to be a reasonable estimate of fair value.
(b) Since it is the Company's business to sell loans it originates, the fair
values were estimated using current investor yields or outstanding
commitments from investors. The fair value for non-performing loans was
based upon recent appraisals of collateral securing such loans. Included
in the carrying value and estimated fair value of receivables is the mark-
to-market effect of any open economic hedge transactions, which were
insignificant at December 31, 1997 and 1996.
(c) The interest-only strip receivables are carried at fair value (see Note
4).
(d) Warehouse and unsecured notes (excluding the senior notes) generally have
original maturities of less than 90 days; and therefore, the carrying
value is a reasonable estimate of fair value. Term notes are generally
adjustable rate and indexed to the prime rate, therefore, carrying value
is a reasonable estimate of fair value. The fair value of the senior notes
was estimated based on rates currently available for debt with similar
terms and remaining maturities.
(e) Fair value was estimated based on rates currently available for debt with
similar terms and remaining maturities.
The fair value estimates made at December 31, 1997 and 1996, were based upon
pertinent market data and relevant information about the financial instruments
at that time. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the entire portion of the
financial instrument. Because no market exists for a portion of the financial
instruments, fair value estimates may be based on judgments regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments and other factors. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on-and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not
considered financial instruments. For instance, the Company has certain fee-
generating business lines (e.g., its loan servicing operations) that were not
considered in these estimates since these activities are not financial
instruments. In addition, the tax implications related to the realization of
the unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered in any of the estimates.
60
<PAGE>
THE MONEY STORE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(17) SELECTED QUARTERLY DATA (UNAUDITED)
The following represents selected quarterly financial data of the Company,
which, in the opinion of management, reflects adjustments (comprising only
normal recurring adjustments) necessary for fair presentation:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1997
Revenues....................... $ 171,817 $ 177,877 $ 243,000 $ 238,107
Net income before income taxes. 43,698 43,706 74,378 65,967
Net income from continuing
operations.................... 24,558 25,756 43,163 39,152
Net income (loss) from
discontinued operations....... 2,141 4,468 (8,109) (39,041)
Net income..................... 26,699 30,224 35,054 111
NET EARNINGS (LOSS) PER COMMON
SHARE:
Continuing operations.......... $ 0.39 $ 0.41 $ 0.70 $ 0.63
Discontinued operations........ 0.04 0.08 (0.14) (0.67)
---------- ---------- ---------- ----------
Net income..................... $ 0.43 $ 0.49 $ 0.56 $ (0.04)
========== ========== ========== ==========
Weighted average number of
shares outstanding--basic..... 57,867,152 57,996,580 58,194,429 58,316,257
========== ========== ========== ==========
NET EARNINGS (LOSS) PER COMMON
SHARE--ASSUMING DILUTION:
Continuing operations.......... $ 0.38 $ 0.40 $ 0.66 $ 0.61
Discontinued operations........ 0.03 0.07 (0.12) (0.60)
---------- ---------- ---------- ----------
Net income..................... $ 0.41 $ 0.47 $ 0.54 $ 0.01
========== ========== ========== ==========
Weighted average number of
shares outstanding--diluted... 64,198,653 64,265,320 64,921,108 64,543,020
========== ========== ========== ==========
1996
Revenues....................... $ 130,428 $ 131,711 $ 161,673 $ 181,227
Net income before income taxes. 28,151 21,631 42,106 46,727
Net income from continuing
operations.................... 16,560 12,585 24,852 26,810
Net income (loss) from
discontinued operations....... (2,356) 6,312 (2,132) 3,024
Net income..................... 14,204 18,897 22,720 29,834
NET EARNINGS (LOSS) PER COMMON
SHARE:
Continuing operations.......... $ 0.31 $ 0.22 $ 0.43 $ 0.45
Discontinued operations........ (0.04) 0.11 (0.04) 0.05
---------- ---------- ---------- ----------
Net income..................... $ 0.27 $ 0.33 $ 0.39 $ 0.50
========== ========== ========== ==========
Weighted average number of
shares outstanding--basic..... 52,742,197 57,487,314 57,540,705 57,703,490
========== ========== ========== ==========
</TABLE>
61
<PAGE>
THE MONEY STORE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(17) SELECTED QUARTERLY DATA (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
NET EARNINGS (LOSS) PER COMMON
SHARE--ASSUMING DILUTION:
Continuing operations........... $ 0.31 $ 0.21 $ 0.42 $ 0.43
Discontinued operations......... (0.04) 0.11 (0.04) 0.05
---------- ---------- ---------- ----------
Net income...................... $ 0.27 $ 0.32 $ 0.38 $ 0.48
========== ========== ========== ==========
Weighted average number of
shares outstanding-- diluted... 53,978,406 58,931,031 58,819,160 62,494,392
========== ========== ========== ==========
</TABLE>
Amounts presented for the first, second and third quarters of 1997 and all
quarters of 1996 have been restated from previously reported amounts in order
to reflect the discontinued operations relating to the Auto Finance division
(see Note 2). Additionally, net earnings per common share amounts have been
restated to reflect the adoption of Statement of Financial Accounting
Standards No. 128 (see Notes 1 and 15).
(18) SUBSIDIARY GUARANTORS
On April 15, 1997, the Company completed a public offering of $175,000,000
of 8.05% senior notes due 2002 and $125,000,000 of 8.375% senior notes due
2004 (collectively the "Senior Notes"). The Senior Notes constitute unsecured
and unsubordinated senior indebtedness of the Company. The unsecured, joint
and several, basis by certain of the Company's wholly-owned subsidiaries (the
"Guarantors"), although the Subsidiary Guarantees may terminate prior to
maturity of the Senior Notes upon the occurrence of certain circumstances. The
Senior Notes rank equally in right of payment, on a pair passu basis, with all
existing and future unsecured and unsubordinated indebtedness and guarantees
of the Guarantors. The ability of the Company's subsidiaries to pay dividends
or make payments on intercompany indebtedness will be subject to applicable
state laws. The net proceeds of this offering were used to repay a portion of
the indebtedness outstanding under certain credit facilities.
The following condensed consolidating financial data illustrate the
composition of the combined Guarantors. The Company believes that providing
the condensed consolidating information is of material interest to potential
investors in the Senior Notes and has not presented separate financial
statements for each of the Guarantors because it was deemed that such
financial statements would not provide potential investors with any material
additional information.
Investments in subsidiaries are accounted for by the parent and Subsidiary
Guarantors on the equity method for the purposes of the consolidating
financial data. Earnings of subsidiaries are therefore reflected in the
parent's and Subsidiary Guarantor's investment accounts and earnings. The
principal elimination entries eliminate investments in subsidiaries and
intercompany balances and transactions.
62
<PAGE>
THE MONEY STORE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(18) SUBSIDIARY GUARANTORS (CONTINUED)
CONSOLIDATING STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
PARENT GUARANTOR NON-
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
------
Cash and cash
equivalents............ $ 284,495 $ 21,539 $ (4,365) $ -- $ 301,669
Short-term cash
investments............ -- -- 195,580 -- 195,580
Receivables, net........ 743 1,082,547 204,194 -- 1,287,484
Interest-only strip
receivables............ -- -- 1,170,254 -- 1,170,254
Investment in
subsidiaries........... 469,766 4,142 -- (473,908) --
Property and equipment,
net.................... -- 150,010 3,064 -- 153,074
Other................... 9,181 18,574 885 -- 28,640
----------- ---------- ---------- --------- ----------
$ 764,185 $1,276,812 $1,569,612 $(473,908) $3,136,701
=========== ========== ========== ========= ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------
Liabilities:
Notes payable......... $ 1,504,490 $ 11,591 $ -- $ -- $1,516,081
Accounts payable and
other liabilities.... 26,804 498,383 17,024 -- 542,211
Income taxes,
principally deferred. (64,273) 184,552 32,598 -- 152,877
Unearned insurance
commissions.......... -- 9,466 -- -- 9,466
Due to (from) parent
and affiliates....... (1,618,798) 207,667 1,411,207 (76) --
----------- ---------- ---------- --------- ----------
(151,777) 911,659 1,460,829 (76) 2,220,635
----------- ---------- ---------- --------- ----------
Subordinated debt....... 250,000 -- -- -- 250,000
----------- ---------- ---------- --------- ----------
Shareholders' equity:
Preferred stock....... 133,363 -- -- -- 133,363
Common stock.......... 196,748 27,366 3,190 (30,556) 196,748
Paid-in capital....... -- 12,553 47,897 (60,450) --
Foreign currency
translation
adjustment........... -- 104 -- -- 104
Retained earnings..... 335,851 325,130 57,696 (382,826) 335,851
----------- ---------- ---------- --------- ----------
665,962 365,153 108,783 (473,832) 666,066
----------- ---------- ---------- --------- ----------
$ 764,185 $1,276,812 $1,569,612 $(473,908) $3,136,701
=========== ========== ========== ========= ==========
</TABLE>
63
<PAGE>
THE MONEY STORE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(18) SUBSIDIARY GUARANTORS (CONTINUED)
CONSOLIDATING STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
PARENT GUARANTOR NON-GUARANTOR
ASSETS COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ----------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash and cash
equivalents............ $ 194,532 $ (40,968) $ 9,381 $ -- $ 162,945
Short-term cash
investments............ -- -- 161,703 -- 161,703
Receivables, net........ -- 964,259 193,630 -- 1,157,889
Interest-only strip
receivables............ -- -- 811,400 -- 811,400
Investment in
subsidiaries........... 367,246 2,684 -- (369,930) --
Property and equipment,
net.................... -- 71,636 1,822 -- 73,458
Other................... 5,204 18,516 825 -- 24,545
----------- ---------- ---------- --------- ----------
$ 566,982 $1,016,127 $1,178,761 $(369,930) $2,391,940
=========== ========== ========== ========= ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------
Liabilities:
Notes payable......... $ 1,315,394 $ 3,803 $ -- $ -- $1,319,197
Accounts payable and
other liabilities.... 21,926 303,207 8,150 -- 333,283
Income taxes,
principally deferred. (20,568) 147,545 20,220 -- 147,197
Unearned insurance
commissions.......... -- 7,754 -- -- 7,754
Due to (from) parent
and affiliates....... (1,334,279) 270,844 1,063,507 (72) --
----------- ---------- ---------- --------- ----------
(17,527) 733,153 1,091,877 (72) 1,807,431
----------- ---------- ---------- --------- ----------
Subordinated debt....... 2,000 -- -- -- 2,000
----------- ---------- ---------- --------- ----------
Shareholders' equity:...
Preferred stock....... 133,363 -- -- -- 133,363
Common stock.......... 188,276 20,413 3,190 (23,603) 188,276
Paid-in capital....... -- 9,103 47,897 (57,000) --
Retained earnings..... 260,870 253,458 35,797 (289,255) 260,870
----------- ---------- ---------- --------- ----------
582,509 282,974 86,884 (369,858) 582,509
----------- ---------- ---------- --------- ----------
$ 566,982 $1,016,127 $1,178,761 $(369,930) $2,391,940
=========== ========== ========== ========= ==========
</TABLE>
64
<PAGE>
THE MONEY STORE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(18) SUBSIDIARY GUARANTORS (CONTINUED)
CONSOLIDATING STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Gain on sale of
receivables.......... $ -- $543,567 $30,986 $ -- $574,553
Finance income, fees
earned and other..... 7,161 211,585 37,502 -- 256,248
------- -------- ------- -------- --------
7,161 755,152 68,488 -- 830,801
------- -------- ------- -------- --------
Expenses:
Operating expenses.... 4,789 436,395 19,650 -- 460,834
Interest.............. 2,405 123,684 16,129 -- 142,218
------- -------- ------- -------- --------
7,194 560,079 35,779 -- 603,052
------- -------- ------- -------- --------
Income (loss) from
continuing operations
before income taxes and
undistributed income of
subsidiaries........... (33) 195,073 32,709 -- 227,749
Income taxes (benefit).. (6) 83,129 11,997 -- 95,120
------- -------- ------- -------- --------
Income (loss) from
continuing operations.. (27) 111,944 20,712 -- 132,629
Income (loss) from
operations of Auto
Finance division less
applicable income taxes
(benefit).............. -- (34,606) 1,187 -- (33,419)
Loss on disposal of Auto
Finance division,
including provision of
$3,000 for operating
losses during phase-out
period, less applicable
income taxes (benefit). -- (7,122) -- -- (7,122)
Equity in undistributed
income of subsidiaries. 92,115 1,458 -- (93,573) --
------- -------- ------- -------- --------
Net income.............. $92,088 $ 71,674 $21,899 $(93,573) $ 92,088
======= ======== ======= ======== ========
</TABLE>
65
<PAGE>
THE MONEY STORE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(18) SUBSIDIARY GUARANTORS (CONTINUED)
CONSOLIDATING STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Gain on sale of
receivables.......... $ 296 $371,585 $23,239 $ -- $395,120
Finance income, fees
earned and other..... 5,841 175,207 28,871 -- 209,919
------- -------- ------- -------- --------
6,137 546,792 52,110 -- 605,039
------- -------- ------- -------- --------
Expenses:
Operating expenses.... 4,814 324,681 18,278 -- 347,773
Interest.............. 1,323 106,668 10,660 -- 118,651
------- -------- ------- -------- --------
6,137 431,349 28,938 -- 466,424
------- -------- ------- -------- --------
Income from continuing
operations before
income taxes and
undistributed income of
subsidiaries........... -- 115,443 23,172 -- 138,615
Income taxes............ -- 49,809 7,999 -- 57,808
------- -------- ------- -------- --------
Income from continuing
operations............. -- 65,634 15,173 -- 80,807
Income from operations
of Auto Finance
division less
applicable income
taxes.................. -- 4,528 320 -- 4,848
Equity in undistributed
income of subsidiaries. 85,655 1,094 -- (86,749) --
------- -------- ------- -------- --------
Net income.............. $85,655 $ 71,256 $15,493 $(86,749) $ 85,655
======= ======== ======= ======== ========
</TABLE>
66
<PAGE>
THE MONEY STORE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(18) SUBSIDIARY GUARANTORS (CONTINUED)
CONSOLIDATING STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Gain on sale of
receivables.......... $ -- $251,229 $22,738 $ -- $273,967
Finance income, fees
earned
and other............ 6,363 128,915 16,770 -- 152,048
------- -------- ------- -------- --------
6,363 380,144 39,508 -- 426,015
------- -------- ------- -------- --------
Expenses:
Operating expenses.... 6,365 231,169 17,020 -- 254,554
Interest.............. (2) 81,288 11,544 -- 92,830
------- -------- ------- -------- --------
6,363 312,457 28,564 -- 347,384
------- -------- ------- -------- --------
Income from continuing
operations before
income taxes and
undistributed income of
subsidiaries........... -- 67,687 10,944 -- 78,631
Income taxes (benefit).. (4) 28,615 3,948 -- 32,559
------- -------- ------- -------- --------
Income from continuing
operations............. 4 39,072 6,996 -- 46,072
Income from operations
of Auto Finance
division less
applicable income
taxes.................. -- 2,643 -- -- 2,643
Equity in undistributed
income of subsidiaries. 48,711 873 -- (49,584) --
------- -------- ------- -------- --------
Net income.............. $48,715 $ 42,588 $ 6,996 $(49,584) $ 48,715
======= ======== ======= ======== ========
</TABLE>
67
<PAGE>
THE MONEY STORE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(18) SUBSIDIARY GUARANTORS (CONTINUED)
CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SUBSIDIARIES SUBSIDIARIES
PARENT GUARANTOR NON-GUARANTOR
COMPANY COMBINED COMBINED ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income............. $ 92,088 $ 71,674 $ 21,899 $(93,573) $ 92,088
Adjustments to
reconcile net income
to net cash provided
by (used in)
operations:
Equity in undistributed
income of
subsidiaries.......... (92,088) (1,485) -- 93,573 --
Discontinued
Operations............ -- 39,354 1,187 -- 40,541
Depreciation and
amortization.......... 2,369 18,123 615 -- 21,107
Provision for deferred
income taxes.......... -- 24,119 3,228 -- 27,347
Provision for credit
losses on loans not
sold.................. -- 9,223 -- -- 9,223
Net unrealized gain on
valuation of interest-
only strip
receivables........... -- -- (77,866) -- (77,866)
Net changes in
operating assets and
liabilities:
Increase in short-term
cash investments..... -- -- (33,877) -- (33,877)
Proceeds from loans
sold................. -- 7,136,711 566,598 -- 7,703,309
Loans originated and
purchased............ -- (7,218,720) (582,294) -- (7,801,014)
Loans repurchased..... -- (4,196) -- -- (4,196)
Sale of certain
interest-only strip
receivables.......... -- -- 109,000 -- 109,000
Decrease (increase) in
other receivables.... (743) (44,316) 5,132 -- (39,927)
Increase in interest-
only strip
receivables.......... -- -- (420,033) -- (420,033)
Increase (decrease) in
accounts payable and
other liabilities.... 4,878 (1,146) 18,024 -- 21,756
Other, net............ (41,407) 10,226 28,798 -- (2,383)
--------- ----------- --------- -------- -----------
Net cash provided by
(used in) operating
activities............ (34,903) 39,567 (359,589) -- (354,925)
========= =========== ========= ======== ===========
Cash flows from
investing activities:
Purchase of property
and equipment......... -- (53,421) (1,857) -- (55,278)
Construction in
progress.............. -- (43,507) -- -- (43,507)
Payment for purchase of
servicing company, net
of cash acquired...... -- (2,422) -- -- (2,422)
Payment for purchase of
assets of mortgage
company............... -- (2,200) -- -- (2,200)
Investment in and
advances to
subsidiaries.......... (294,951) (52,749) 347,700 -- --
--------- ----------- --------- -------- -----------
Net cash provided by
(used in) investing
activities............ (294,951) (154,299) 345,843 -- (103,407)
--------- ----------- --------- -------- -----------
Cash flows from
financing activities:
Net increase (decrease)
in secured credit
facilities............ (16,684) 7,788 -- -- (8,896)
Net increase in
unsecured credit
facilities............ 37,800 -- -- -- 37,800
Principal payments on
unsecured senior note. (132,020) -- -- -- (132,020)
Proceeds from unsecured
notes................. 300,000 -- -- -- 300,000
Principal payments on
subordinated debt..... (2,000) -- -- -- (2,000)
Proceeds from
subordinated debt..... 250,000 -- -- -- 250,000
Debt issuance costs.... (4,958) -- -- -- (4,958)
Net increase in
collections payable... -- 169,347 -- -- 169,347
Proceeds from exercise
of stock options...... 4,786 -- -- -- 4,786
Dividends paid......... (17,107) -- -- -- (17,107)
--------- ----------- --------- -------- -----------
Net cash provided by
financing activities.. 419,817 177,135 -- -- 596,952
--------- ----------- --------- -------- -----------
Effect of exchange rate
changes on cash and
cash equivalents....... -- 104 -- -- 104
--------- ----------- --------- -------- -----------
Net increase (decrease)
in cash and cash
equivalents........... 89,963 62,507 (13,746) -- 138,724
Cash and cash
equivalents at the
beginning of period.... 194,532 (40,968) 9,381 -- 162,945
--------- ----------- --------- -------- -----------
Cash and cash
equivalents at the end
of period.............. $ 284,495 $ 21,539 $ (4,365) $ -- $ 301,669
========= =========== ========= ======== ===========
</TABLE>
68
<PAGE>
THE MONEY STORE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(18) SUBSIDIARY GUARANTORS (CONTINUED)
CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income............. $ 85,655 $ 71,256 $ 15,493 $(86,749) $ 85,655
Adjustments to
reconcile net income
to net cash provided
by (used in)
operations:
Equity in undistributed
income of
subsidiaries.......... (85,655) (1,094) -- 86,749 --
Discontinued
Operations............ (5,168) 320 -- (4,848)
Depreciation and
amortization.......... 2,499 12,188 429 -- 15,116
Provision for deferred
income taxes.......... -- 41,032 5,975 -- 47,007
Provision for credit
losses on loans not
sold.................. -- 14,828 -- -- 14,828
Net changes in
operating assets and
liabilities:
Increase in short-term
cash investments..... -- -- (83,449) -- (83,449)
Proceeds from loans
sold................. -- 5,061,776 387,464 -- 5,449,240
Loans originated and
purchased............ -- (5,234,595) (458,459) -- (5,693,054)
Loans repurchased..... -- (6,971) -- -- (6,971)
Decrease (increase) in
other receivables.... 274 (2,413) (13,903) -- (16,042)
Increase in interest-
only strip
receivables.......... -- -- (274,645) -- (274,645)
Increase in accounts
payable and other
liabilities.......... 775 25,214 2,393 -- 28,382
Other, net............ (490) 15,271 (18,355) -- (3,574)
--------- ----------- --------- -------- -----------
Net cash provided by
(used in) operating
activities............ 3,058 (8,676) (436,737) -- (442,355)
--------- ----------- --------- -------- -----------
Cash flows from
investing activities:
Purchase of property
and equipment......... -- (31,733) (697) -- (32,430)
Construction in
progress.............. -- (16,182) -- -- (16,182)
Investment in and
advances to
subsidiaries.......... (445,746) (5,108) 450,854 -- --
--------- ----------- --------- -------- -----------
Net cash provided by
(used in) investing
activities............ (445,746) (53,023) 450,157 -- (48,612)
--------- ----------- --------- -------- -----------
Cash flows from
financing activities:
Net increase (decrease)
in secured credit
facilities............ 53,130 (715) -- -- 52,415
Net increase in
unsecured credit
facilities............ 250,000 -- -- -- 250,000
Principal payments on
unsecured senior note. (83,000) -- -- -- (83,000)
Proceeds from unsecured
notes................. 20,000 -- -- -- 20,000
Principal payments on
subordinated debt..... (22,000) -- -- -- (22,000)
Debt issuance costs.... (1,413) -- -- -- (1,413)
Net increase in
collections payable... -- 82,839 -- -- 82,839
Net proceeds from
issuance of preferred
stock................. 133,363 -- -- -- 133,363
Net proceeds from
issuance of common
stock................. 122,128 -- -- -- 122,128
Proceeds from exercise
of stock options...... 2,953 -- -- -- 2,953
Dividends paid......... (6,308) -- -- -- (6,308)
--------- ----------- --------- -------- -----------
Net cash provided by
financing activities.. 468,853 82,124 -- -- 550,977
--------- ----------- --------- -------- -----------
Net increase in cash
and cash equivalents.. 26,165 20,425 13,420 -- 60,010
Cash and cash
equivalents at the
beginning of period.... 168,367 (61,393) (4,039) -- 102,935
--------- ----------- --------- -------- -----------
Cash and cash
equivalents at the end
of period.............. $ 194,532 $ (40,968) $ 9,381 $ -- $ 162,945
========= =========== ========= ======== ===========
</TABLE>
69
<PAGE>
THE MONEY STORE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(18) SUBSIDIARY GUARANTORS (CONTINUED)
CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income............. $ 48,715 $ 42,588 $ 6,996 $(49,584) $ 48,715
Adjustments to
reconcile net income
to net cash provided
by (used in)
operations:
Equity in undistributed
income of
subsidiaries.......... (48,715) (869) -- 49,584 --
Discontinued
Operations............ (2,643) -- -- (2,643)
Depreciation and
amortization.......... 1,888 6,150 324 -- 8,362
Provision for deferred
income taxes.......... -- 8,401 3,632 -- 12,033
Provision for credit
losses on loans not
sold.................. -- 19,794 428 -- 20,222
Net changes in
operating assets and
liabilities:
Increase in short-term
cash investments..... -- -- (24,443) -- (24,443)
Proceeds from loans
sold................. -- 3,129,486 379,338 -- 3,508,824
Loans originated and
purchased............ -- (3,453,842) (369,129) -- (3,822,971)
Loans repurchased..... -- (9,059) -- -- (9,059)
Decrease (increase) in
other receivables.... (191) 49,896 (80,117) -- (30,412)
Increase in interest-
only strip
receivables.......... -- -- (196,070) -- (196,070)
Increase (decrease) in
accounts payable and
other liabilities.... 9,692 17,982 (1,425) -- 26,249
Other, net............ (11,153) 5,790 (862) -- (6,225)
--------- ----------- --------- -------- -----------
Net cash provided by
(used in) operating
activities............ 236 (186,326) (281,328) -- (467,418)
========= =========== ========= ======== ===========
Cash flows from
investing activities:
Purchase of property
and equipment......... -- (16,684) (782) -- (17,466)
Investment in and
advances to
subsidiaries.......... (373,689) 100,528 273,161 -- --
--------- ----------- --------- -------- -----------
Net cash provided by
(used in) investing
activities............ (373,689) 83,844 272,379 -- (17,466)
--------- ----------- --------- -------- -----------
Cash flows from
financing activities:
Net increase (decrease)
in secured credit
facilities............ 84,861 (389) -- -- 84,472
Net increase in
unsecured credit
facilities............ 5,000 -- -- -- 5,000
Principal payments on
unsecured senior note. (245,000) -- -- -- (245,000)
Proceeds from unsecured
notes................. 555,000 -- -- -- 555,000
Debt issuance costs.... (2,902) -- -- -- (2,902)
Net increase (decrease)
in collections
payable............... -- 79,009 (392) -- 78,617
Proceeds from exercise
of stock options...... 1,640 -- -- -- 1,640
Dividends paid......... (3,492) -- -- -- (3,492)
--------- ----------- --------- -------- -----------
Net cash provided by
(used in) financing
activities............ 395,107 78,620 (392) -- 473,335
--------- ----------- --------- -------- -----------
Net increase (decrease)
in cash and cash
equivalents........... 21,654 (23,862) (9,341) -- (11,549)
Cash and cash
equivalents at the
beginning of period.... 146,713 (37,531) 5,302 -- 114,484
--------- ----------- --------- -------- -----------
Cash and cash
equivalents at the end
of period.............. $ 168,367 $ (61,393) $ (4,039) $ -- $ 102,935
========= =========== ========= ======== ===========
</TABLE>
70
<PAGE>
THE MONEY STORE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(19) SUBSEQUENT EVENT
On March 4, 1998 the Company signed a definitive merger agreement with First
Union Corporation, a leading provider of financial services with assets of
$157,000,000,000. In connection with this transaction, First Union Corporation
will acquire all of the outstanding stock of the Company. It is anticipated
that the transaction will close in the third quarter of 1998 pending approval
by shareholders and regulatory agencies.
71
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company hereby incorporates by reference herein information in its proxy
statement relating to its 1998 Annual Meeting of Shareholders which contains
the information called for by Item 10 of the Form 10-K. The proxy will be
filed at a later date with the Commission.
ITEM 11. EXECUTIVE COMPENSATION
The Company hereby incorporates by reference herein information in its proxy
statement relating to its 1998 Annual Meeting of Shareholders which contains
the information called for by Item 11 of the Form 10-K. The proxy will be
filed at a later date with the Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company hereby incorporates by reference herein information in its proxy
statement relating to its 1998 Annual Meeting of Shareholders which contains
the information called for by Item 12 of the Form 10-K. The proxy will be
filed at a later date with the Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company hereby incorporates by reference herein information in its proxy
statement relating to its 1998 Annual Meeting of Shareholders which contains
the information called for by Item 13 of the Form 10-K. The proxy will be
filed at a later date with the Commission.
72
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial statements
The following consolidated financial statements of The Money Store Inc. and
subsidiaries are included in Part II, Item 8 of this report
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
Independent Auditors' Report........................................ 36
Consolidated Statements of Financial Condition--December 31, 1997
and 1996........................................................... 37
Consolidated Statements of Income--Years ended December 31, 1997,
1996 and 1995...................................................... 38
Consolidated Statements of Shareholders' Equity--Years ended
December 31, 1997, 1996 and 1995................................... 39
Consolidated Statements of Cash Flows--Years Ended December 31,
1997, 1996 and 1995................................................ 40
Notes to Consolidated Financial Statements.......................... 41-71
(2) Financial statement schedules
None required.
(3) Exhibits..................................................... 73
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
2.1 Merger Agreement dated as of March 4, 1998 by and among First Union
Corporation, First Union National Bank, and the Registrant. Incorporated by
reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K dated
March 4, 1998 (the "Merger 8-K").
3.1 Restated Certificate of Incorporation of the Registrant. Incorporated by reference
to Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996 (the "1996 10-K").
3.2 Amended and Restated By-Laws of the Registrant. Incorporated by reference to
Exhibit 3.2 to the Registrant's Registration Statement on Form S-1; File No.
33-41172.
3.3 Certificate of Amendment to the Restated Certificate of Incorporation of the
Registrant, dated October 12, 1995. Incorporated by reference to Exhibit 3.3 to
the Registrant's 1996 10-K.
3.4 Certificate of Amendment to the Restated Certificate of Incorporation of the
Registrant, dated May 15, 1996. Incorporated by reference to Exhibit 3.4 to the
Registrant's 1996 10-K.
3.5 Certificate of Amendment to the Restated Certificate of Incorporation of the
Registrant, dated October 30, 1996. Incorporated by reference to Exhibit 3.5 to
the Registrant's 1996 10-K.
4.1 Specimen Common Stock Certificate of the Registrant. Incorporated by reference to
Exhibit 4.1 to the Registrant's Registration Statement on Form S-1; File No. 33-
41172.
4.2 Note Agreement, dated as of April 15, 1993, as amended, relating to the
Registrant's Senior Notes due April 15, 1998, including the form of Senior Note.
Incorporated by reference to the Registrant's 1993 Annual Report on Form 10-K.
4.2.1 Form of Amendment dated as of September 20, 1994 to Note Agreement dated as of
April 15, 1993.
4.2.2 Form of Amendment dated as of September 26, 1997 to Note Agreement dated as of
April 15, 1993.
4.3 Note Agreement, dated as of September 30, 1993, as amended, relating to the
Registrant's Series A and Series B Senior Notes, both due in September 2000,
including the form of Series A and Series B Senior Notes. Incorporated by
reference to the Registrant's 1993 Annual Report on Form 10-K.
</TABLE>
73
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
4.3.1 Form of Amendment dated as of September 20, 1994 to Note Agreement dated as of
September 30, 1993.
4.3.2 Form of Amendment dated as of October 23, 1996 to Note Agreement dated as of
September 30, 1993.
4.4 Note Agreement, dated as of September 20, 1994, as amended, relating to the
Registrant's Series A Senior Notes due September 30, 1999 and Series B Senior
Notes due September 30, 2000, including the form of Series A and Series B Senior
Notes. Incorporated by reference to the Registrant's 1994 Annual Report on Form
10-K.
4.5 Note Agreement dated as of April 6, 1995, as amended, relating to the Registrant's
Senior Notes due March 31, 2002, including the form of Senior Note. Incorporated
by reference to the Registrant's 1995 Annual Report on Form 10-K.
4.6 Note Agreement dated as of September 13, 1995, as amended, relating to the
Registrant's Series A Notes due September 15, 1999, Series B Notes due
September 15, 2000, and Series C Notes due September 15, 2001, including the
form of Series A, Series B, and Series C Senior Notes. Incorporated by
reference to the Registrant's 1995 Annual Report on Form 10-K.
4.7 Indenture dated as of April 15, 1997 among The Money Store Inc., as Issuer, The
Chase Manhattan Bank, as Trustee, and the subsidiaries of the Registrant named
therein, as Guarantors (the "Subsidiary Guarantors"). Incorporated by reference
to Exhibit 4.1 of the Registrant's Current Report on Form 8-K dated April 15,
1997.
4.8 First Supplemental Indenture dated as of April 15, 1997 among the Registrant, The
Chase Manhattan Bank, as Trustee, and the Subsidiary Guarantors, including form
of 8.05% Senior Note Due 2002 and the form of guaranty. Incorporated by reference
to Exhibit 4.2 of the Registrant's Current Report on Form 8-K dated April 15,
1997.
4.9 Second Supplemental Indenture dated as of April 15, 1997 among the Registrant, The
Chase Manhattan Bank, as Trustee, and the Subsidiary Guarantors, including form
of 8.375% Senior Note Due 2004 and the form of guaranty. Incorporated by
reference to Exhibit 4.3 of the Registrant's Current Report on Form 8-K dated
April 15, 1997.
4.10 Indenture dated as of December 1, 1997 among the Registrant, as Issuer, and The
Bank of New York, as Trustee. Incorporated by reference to Exhibit 4.1 to the
Registrant's Current Report on Form 8-K dated December 1, 1997.
4.11 First Supplemental Indenture dated as of December 1, 1997 among the Registrant
and The Bank of New York, as Trustee, including form of 7.30% Subordinated Note
Due 2002. Incorporated by reference to Exhibit 4.2 of the Registrant's Current
Report on Form 8-K dated December 1, 1997.
4.12 Second Supplemental Indenture dated as of December 1, 1997 among the Registrant
and The Bank of New York, as Trustee, including form of 7.95% Subordinated Note
Due 2007. Incorporated by reference to Exhibit 4.3 of the Registrant's Current
Report on Form 8-K dated December 1, 1997.
10.1 Form of 1991 Stock Option Plan. Incorporated by reference to Exhibit 10.1 to
the Registrant's Registration Statement on Form S-1; File No. 33-41172.
10.2 Amended and Restated Deferred Bonus Plan, effective January 1, 1982. Incorporated
by reference to Exhibit 10.2 to the Registrant's Registration Statement on Form
S-1; File No. 33-41172.
10.3 Amended Bonus Plan, effective January 1, 1982, relating to amendments as of
December 31, 1990. Incorporated by reference to the Registrant's 1992 Annual
Report on Form 10-K.
10.4 Form of Indemnification Agreement between the Registrant and certain of its
directors and officers. Incorporated by reference to Exhibit 10.4 to the
Registrant's Registration Statement on Form S-1; File No. 33-41172.
</TABLE>
74
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.5 Form of Amended and Restated Employment Agreement between the Registrant and Morton
Dear dated September 16, 1991. Incorporated by reference to Exhibit 10.5 to the
Registrant's 1992 Annual Report on Form 10-K.
10.6 Form of Employment Agreement between the Registrant and Marc Turtletaub dated
September 16, 1991. Incorporated by reference to Exhibit 10.6 to the Registrant's
Registration Statement on Form S-1; File No. 33-41172.
10.7 Amended and Restated Employment Agreement between the Registrant and Harry Puglisi
dated September 16, 1991. Incorporated by reference to Exhibit 10.8 to the
Registrant's Registration Statement on Form S-1; File No. 33-41172.
10.8 Amended and Restated Employment Agreement between the Registrant and William S.
Templeton dated September 16, 1991. Incorporated by reference to Exhibit 10.9 to
the Registrant's Registration Statement on Form S-1; File No. 33-41172.
10.9 Amended and Restated Employment Agreement between the Registrant and Alan
Turtletaub dated September 16, 1991. Incorporated by reference to Exhibit 10.10 to
the Registrant's Registration Statement on Form S-1; File No. 33-41172.
10.10 Agreement dated August 13, 1980 by and between The Money Store Investment
Corporation, a subsidiary of the Registrant, and the Small Business
Administration. Incorporated by reference to Exhibit 10.14 to the Registrant's
Registration Statement on Form S-1; File No. 33-41172.
10.11 Lease Agreement from Shav Associates, Barlis, Inc. and M.S. Associates, as
landlord, to the Registrant, as lessee, dated September 28, 1983. Incorporated by
reference to Exhibit 10.16 to the Registrant's Registration Statement on Form S-1;
File No. 33-41172.
10.12 Amended and Restated Indenture, dated as of July 1, 1994, among the Registrant as
Issuer, Trans-World Insurance Company ("TWIC") as Pledgor and Master Servicer and
Bankers Trust Company, not in its individual capacity, but solely as Indenture
Trustee. Incorporated by reference to the Registrant's 1994 Annual Report on Form
10-K.
10.13 Second Terms Supplement to the Amended and Restated Indenture of July 1, 1994,
dated as of August 23, 1994, among the Registrant as Issuer, TWIC as Pledgor and
Master Servicer and Bankers Trust Company as Indenture Trustee. Incorporated by
reference to the Registrant's 1994 Annual Report on Form 10-K.
10.14 Loan Purchase Agreement dated as of May 2, 1994, between TWIC and the Dauphin
Deposit Bank and Trust Company as Trustee for the Educaid Student Loan Trust 1994-
1. Incorporated by reference to the Registrant's 1994 Annual Report on Form 10-K.
10.15 The Money Store Inc. Supplemental Executive Retirement Plan (the "SERP"), dated as
of December 28, 1993. Incorporated by reference to the Registrant's 1994 Annual
Report on Form 10-K.
10.16 Form of Amendment to the SERP, dated as of February 27, 1998.
10.17 Form of 1998 Performance Bonus Plan of the Registrant, dated as of February 27,
1998.
10.18 Third Terms Supplement to the Amended and Restated Indenture of July 1, 1994, dated
as of October 12, 1995, among the Registrant as Issuer, TWIC as Pledgor and Master
Servicer and Bankers Trust Company as Indenture Trustee. Incorporated by reference
to the Registrant's 1995 Annual Report on Form 10-K.
10.19 Form of 1995 Stock Incentive Plan. Incorporated by reference to the Registrant's
1995 Annual Report on Form 10-K.
</TABLE>
75
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.20 Credit Agreement, dated as of June 30, 1997, among the Registrant as Borrower,
various financial institutions named therein, as Lenders, First Union National
Bank, as Documentation Agent, and The First National Bank of Chicago, as
Administrative Agent. Incorporated by reference to Exhibit 10.25 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.
10.21 Lease between the Registrant, as Tenant, and Crosstown Building Partners, as
Landlord, dated as of January 1, 1995.
10.22 Lease between the Registrant, as Tenant, and Crosstown Building Partners, as
Landlord, dated as of March 15, 1995 and amendment thereto dated March 15, 1995.
10.23 1997 Stock Incentive Plan. Incorporated by reference to the Registrant's
Registration Statement on Form S-8; File No. 333-41309.
21.1 Subsidiaries of the Registrant.
23.1 Consent of KPMG Peat Marwick LLP.
99.1 Shareholder Option and Voting Agreement dated as of March 4, 1998 among First Union
Corporation and Marc Turtletaub. Incorporated by reference to Exhibit 99.1 of the
Merger 8-K.
</TABLE>
(b) Reports on Form 8-K
The following reports on Form 8-K were filed during the fourth quarter of
1997:
(1) On December 1, 1997, the Company filed under Item 5 (i) the Underwriting
Agreement dated December 3, 1997 among The Money Store Inc., Prudential
Securities Incorporated, Bear, Stearns & Co., Inc, NationsBanc Montgomery
Securities, Inc., and Salomon Brothers Inc., (ii) the Indenture dated as of
December 1, 1997 among The Money Store Inc., as Issuer and The Bank of New
York, as Trustee, (iii) the First Supplemental Indenture dated as of December
1, 1997 among The Money Store Inc. and The Bank of New York, as Trustee, (iv)
the Second Supplemental Indenture dated as of December 1, 1997 among The Money
Store Inc., and The Bank of New York, as Trustee, (v) a form of 7.30%
Subordinated Notes Due 2002, and (vi) a form of 7.95% Subordinated Notes Due
2007.
76
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereto duly authorized.
Dated: March 31, 1998 THE MONEY STORE INC.
--------------------
Registrant
/s/ Michael H. Benoff
By: ___________________________________
Michael H. Benoff
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Alan Turtletaub March 31, 1998
By: ___________________________
Alan Turtletaub
Chairman of the Board
Director
/s/ Marc Turtletaub March 31, 1998
By: ___________________________
Marc Turtletaub
President and
Chief Executive Officer
Director
/s/ Morton Dear March 31, 1998
By: ___________________________
Morton Dear
Senior Executive Vice President
and Vice Chairman of the Board
Director
/s/ Harry Puglisi March 31, 1998
By: ___________________________
Harry Puglisi
Treasurer
Director
/s/ William S. Templeton March 31, 1998
By: ___________________________
William S. Templeton
Executive Vice President
Director
77
<PAGE>
/s/ James K. Ransom March 31, 1998
By: ___________________________
James K. Ransom
Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
March 31, 1998
By: ___________________________
Alexander C. Schwartz, Jr.
Director
March 31, 1998
By: ___________________________
Anthony L. Watson
Director
78
<PAGE>
EXHIBIT 4.2.1
[4/93 Notes]
AMENDMENT TO NOTE PURCHASE AGREEMENT
------------------------------------
THIS AMENDMENT TO NOTE PURCHASE AGREEMENT, dated as of September 20,
1994 (the "Amendment"), amends the Note Purchase Agreement dated as of April 15,
1993 (the "Agreement"), between THE MONEY STORE INC., a New Jersey corporation
(together with any corporation succeeding thereto by merger, consolidation, or
acquisition of all or substantially all of its assets as permitted in accordance
with Section 5.5 of the Agreement, the "Company"), and the several note
purchasers named in Schedule I to the Agreement (together with their permitted
successors, assigns, and transferees, the "Note Purchasers"; the Note Purchasers
currently a party to the Agreement are named on Schedule I hereto), relating to
the issuance and sale of the Company's 7.63% Senior Notes due April 15, 1998
(the "Notes").
W I T N E S S E T H:
-------------------
WHEREAS, the Company desires to amend the Agreement to, among other
things, modify and amend certain of the definitions and covenants contained
therein, and the Note Purchasers holding at least a majority of the unpaid
principal amount of the Notes are willing to agree to such amendments, subject
to the terms and conditions hereinafter set forth;
WHEREAS, the Company is also a party to (i) the several Note
Agreements, dated as of December 29, 1989, as amended from time to time prior to
the date hereof, with each of the several note purchasers respectively named
therein, relating to the issuance and sale of the Company's 12% Senior
Subordinated Notes due December 31, 1996, (ii) a Note Purchase Agreement, dated
as of September 9, 1992, with the several note purchasers named in Schedule I
thereto, relating to the issuance and sale of the Company's 8.57% Series A
Senior Notes due September 9, 1996, and the Company's 9.16% Series B Senior
notes due September 9, 1997, and (iii) a Note Purchase Agreement, dated as of
September 30, 1993, with the several note purchasers named in Schedule I
thereto, relating to the issuance and sale of the Company's 7.73% Series A
Senior Notes due September 30, 2000, and the Company's 7.94% Series B Senior
Notes due September 30, 2000 (taken together, the "Additional Agreements"); and
WHEREAS, the Company desires to amend the Additional Agreements to,
among other things, modify and amend certain of the definitions and covenants
contained therein, and the note purchasers holding an aggregate of at least a
majority in unpaid principal amounts of the notes issued under each of the
Additional Agreements are willing to agree to such amendments (the "Additional
Amendments"), subject to the terms and conditions set forth in the Additional
Amendments.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. Capitalized Terms. Unless otherwise defined herein, capitalized
-----------------
terms used herein shall have the respective meanings given thereto in the
Agreement.
2. Amendments to the Agreement. Subject to the terms and conditions
---------------------------
set forth herein, and in reliance upon the representations and warranties set
forth or incorporated herein, the Agreement is amended, effective as of the date
hereof as follows:
<PAGE>
2.01. Section 5.7 of the Agreement is hereby amended by deleting
the word "or" after clause (5), deleting the period after clause (6), inserting
the word "; or" after clause (6) and inserting the following new Section
5.7(a)(7):
(7) Liens placed on tangible real or personal Property being acquired by
the Company or any Restricted Subsidiary security Debt incurred to finance
all or part of the purchase price thereof, provided that (i) the principal
amount of such Debt shall not exceed 80% of the fair market value of such
Property at the time of such incurrence and (ii) the aggregate principal
amount of all Debt secured by Liens permitted by this clause (7) shall not
exceed $60,000,000 at any time outstanding.
2.02. Section 5.9 of the Agreement is hereby deleted in full. The
references to Section 5.9 appearing in Sections 5.6(b), 5.15(a) and 5.15(b) of
the Agreement are hereby deleted. The following new Section 5.9 is inserted in
lieu thereof:
Section 5.9. Default Under Subordinated Debt. The Company will not at any
time permit any default or event of default under any Subordinated Debt to
exist which default or event of default remains uncured for a period of 15
days (or such lesser period as is provided for such default or event of
default in the agreement establishing such Subordinated Debt).
2.03. Section 5.10 of the Agreement is hereby deleted in full and
the following new Section 5.10 is inserted in lieu thereof:
Section 5.10. Subordinated Debt. The Company will not at any time after
-----------------
August 31, 1994, issue any Subordinated Debt unless the first sinking fund
payment or other required payment or prepayment of principal with respect
to such Subordinated Debt is scheduled to occur after September 30, 2000.
2.04. Section 5.11 of the Agreement is hereby deleted in full and
the following new Section 5.11 is inserted in lieu thereof:
Section 5.11. Total Debt. The Company will not permit, (i) as of the
----------
last day of any fiscal quarter, (a) the ratio of Total Debt plus Contingent
Obligations to Consolidated Tangible Net Worth to exceed 7 to 1 or (b) the
ratio of Total Debt to Consolidated Tangible Net Worth to exceed 5 to 1, or
(ii) as of any date other than the last day of each fiscal quarter, (a) the
ratio of Total Debt plus Contingent Obligations to Consolidated Tangible
Net Worth to exceed 8 to 1 or (b) the ratio of Total Debt to Consolidated
Tangible Net Worth to exceed 7 to 1.
2.05. Section 5.12 of the Agreement is hereby deleted in full and
the following new Section 5.12 is inserted in lieu thereof:
Section 5.12. Secured Debt. The Company will not permit, as of the last
------------
day of any fiscal quarter, Secured Debt to exceed 50% of the total
liabilities (excluding deferred taxes) of the Company and its Restricted
Subsidiaries, determined on a consolidated basis.
2.06. Section 5.13 of the Agreement is hereby deleted in full and
the following new Section 5.13 is inserted in lieu thereof:
-2-
<PAGE>
Section 5.13. Coverage Requirements. The Company will not at any time
---------------------
permit the sum of (i) Consolidated Pre-Tax Income and (ii) Fixed Charges,
for the most recent period of four consecutive fiscal quarters of the
Company, to be less than 150% of Fixed Charges for such period of four
consecutive fiscal quarters.
2.07. The first sentence of Section 5.14(c) of the Agreement is
hereby deleted in full and the following new sentence is inserted in lieu
thereof:
Neither the Company nor any Restricted Subsidiary will make or become
obligated to make any Restricted Investment unless, after giving effect
thereto, the aggregate amount (at original cost) of all outstanding
Restricted Investments of the Company and all Restricted Subsidiaries shall
be less than 10% of Consolidated Tangible Net Worth.
2.08. Section 5.16 of the Agreement is hereby deleted in full and
the following new Section 5.16 is inserted in lieu thereof:
Section 5.16. Consolidated Tangible Net Worth. The Company will at all
-------------------------------
times during each calendar year maintain Consolidated Tangible Net Worth of
not less than the sum of (i) $150,000,000 plus (ii) 50% of the aggregate
Consolidated Net Income for the period from July 1, 1994 to and including
December 31, 1994 and for each fiscal year of the Company thereafter (but
without deducting from such amount any income deficit in any such period or
fiscal year) plus (iii) the aggregate net proceeds received by the Company
after June 30, 1994 from any issue and sale of its capital stock (less any
portion of the net proceeds of such sale of capital stock which was used by
the Company to contemporaneously redeem or acquire any of the Company's
capital stock or warrants, rights or other options to purchase or acquire
such stock).
2.09. Section 5.17(a) of the Agreement is hereby deleted in full
and the following new Section 5.17(a) is inserted in lieu thereof:
(a) The Company will at all times maintain a ration of Includable
Assets to Includable Liabilities of not less than 1 to 1.2.
2.10. The portion of Section 5.22 of the Agreement which precedes
clause (y) thereof is hereby deleted in full and the following is inserted in
lieu thereof:
At all times, either Alan Turtletaub or Marc Turtletaub shall devote full
attention to, and be actively engaged in, the management of the Company and
Restricted Subsidiaries and at least two persons from the group consisting
of Morton Dear, Harry Puglisi, William Templeton, John Reeves and Lawrence
Wodarski shall devote their full attention to, and be actively engaged in,
the management of the Company and Restricted Subsidiaries; provided,
--------
however, that it shall not be deemed to be a violation of this Section
-------
5.22 (x) if the conditions set forth above in this Section 5.22 cannot be
met because one or more of the group consisting of Morton Dear, Harry
Puglisi, William Templeton, John Reeves and Lawrence Wodarski shall be
unable to devote his attention to, and be actively engaged in, the
management of the Company as a result of such Person's death or disability
and as a result at least two Persons from such group shall not continue to
be actively engaged in the management of the Company,
-3-
<PAGE>
2.11. Section 6.1(a)(iv) of the Agreement is hereby deleted in
full and the following new Section 6.1(a)(iv) is inserted in lieu thereof:
(iv) a "cash basis" income statement, setting forth gross revenues less
expenses (including costs and expenses of operations, general corporate
expense and Fixed Charges) of the Company and its Restricted Subsidiaries,
determined on a consolidated cash basis,
2.12. Section 6.1(b)(iv) of the Agreement is hereby deleted in
full and the following new Section 6.1(b)(iv) is inserted in lieu thereof:
(iv) a "cash basis" income statement, setting forth gross revenues less
expenses (including costs and expenses of operations, general corporate
expense and Fixed Charges) of the Company and its Restricted Subsidiaries,
determined on a consolidated cash basis,
2.13. Section 7.2 of the Agreement is hereby amended by deleting
the definition of "Contingent Obligations" and inserting the following
definition in lieu thereof:
Contingent Obligations - means, at any date, the total of the Company's
----------------------
and the Restricted Subsidiaries' obligations to repurchase second mortgage
or other non-purchase money mortgage loans as presented in the footnotes to
the Company's most recent annual or quarterly consolidated financial
statements.
2.14. In Section 7.2 of the Agreement, clause (5) of the
definition of "Debt" is hereby deleted in full. The word "and" is hereby
inserted at the end of clause (4) of the definition of "Debt". Present
subclause (6) of the definition of "Debt" is hereby renumbered as "(5)".
2.15. In Section 7.2 of the Agreement, the definition of "Total
Senior Debt" is hereby deleted in full.
3. Effectiveness of Amendments. This Amendment shall become effective
---------------------------
upon (i) compliance with the provisions of Section 10 of the Agreement, (ii) the
effectiveness of the Additional Amendments, (iii) the delivery to special
counsel to the Note Purchasers, for redistribution to each Note Purchaser, of an
executed Confirmation of Guaranty, in substantially the form attached hereto as
Exhibit A, (iv) the delivery to special counsel to the note Purchasers, for
redistribution to each Note Purchaser, of the opinion of Eric R. Elwin,
Corporate Counsel to the Company, in substantially the form attached hereto as
Exhibit B and (v) the delivery to special counsel to the Note Purchasers, for
redistribution to each Note Purchaser, of the opinion of the law firm of Stroock
& Stroock & Lavan, counsel to the Company, in substantially the form attached
hereto as Exhibit C.
4. Representations and Warranties. In order to induce the Note
------------------------------
Purchasers to enter into this Amendment, the Company hereby represents and
warrants as follows:
4.01. Power, Authority, Non-Contravention. The execution,
-----------------------------------
delivery and performance by the Company of this Amendment and any other
documents or instruments delivered in connection herewith are within the
Company's corporate powers, have been duly authorized by all necessary corporate
action, do not and will not contravene, nor will they require any consent under
any law, rule, regulation (including, without limitation, regulations G, T, U,
and X of the Board of Governors of the Federal Reserve System), order, writ,
judgment,
-4-
<PAGE>
injunction, decree, determination or award or any contractual restriction
binding on or affecting the Company or any of its properties.
4.02. Consents. No authorization, consents, or approval or other
--------
action by, and no notice or filing with, any governmental authority or
regulatory body is required for the due execution, delivery, or performance by
the Company of this Amendment and any other documents or instruments being
executed and delivered in connection herewith or for the validity or
enforceability thereof.
4.03. Validity and Enforceability. This Amendment and the
---------------------------
Confirmation of Guaranty, respectively, have been duly executed and delivered by
the Company and the Subsidiaries listed on Schedule I to the Confirmation of
Guaranty and are legal and binding obligations of the Company or such
Subsidiaries, as the case may be (except as enforcement of the terms thereof is
subject to the effect of bankruptcy, insolvency, reorganization, receivership,
fraudulent conveyance, moratorium, arrangement and assignment for the benefit of
creditor laws and similar laws relating to or affecting creditors' rights
generally (including, but not limited to, matters of turnover, automatic stay,
avoiding powers, fraudulent transfer, preference and discharge) and court
decisions with respect thereto and except as the equitable remedy of specific
performance and other equitable remedies are subject to the discretion of the
court) and will not conflict with, constitute a violation of, or result in the
creation of any Lien upon any Property of the Company or any Subsidiary under
the provisions of, any agreement, charter instrument, by-law or other instrument
to which the Company or any Subsidiary is a party or by which any of them or
their respective Properties may be bound.
4.04. No Event of Default. No Event of Default or Default exists.
-------------------
4.05. Other Representations and Warranties. The representations
------------------------------------
and warranties of the Company set forth in Sections B-2, B-6, B-7, B-8 and B-9,
B-10 and B-11 (solely as to those portions of the Agreement and the Guaranty as
they may be applied to the Amendment and the Confirmation of Guaranty) of the
Agreement are true and correct on the date hereof as if restated at and as of
the date hereof and such representations and warranties are hereby incorporated
by reference.
4.06. Guarantors. The Subsidiaries executing the Confirmation of
----------
Guaranty herewith are all of the Subsidiaries which are Guarantors (as such term
is defined in the Senior Guaranty Agreement) under the Senior Guaranty Agreement
and have each executed either the original Senior Guaranty Agreement or a
counterpart thereto. Except for those parties that have since been merged into,
and have had their obligations under the Senior Guaranty Agreement assumed by a
Subsidiary which was, at the time of the merger, and is, on the date hereof, a
Guarantor under the Senior Guaranty Agreement, no party that was a Guarantor
when the Senior Guaranty Agreement was originally executed has ceased to be a
subsidiary of the Company or a Guarantor under the Senior Guaranty Agreement.
4.07. Survival. All representations, warranties and covenants of
--------
the Company contained in this Amendment or made in writing by or on behalf of
the Company in connection with the transactions contemplated hereby shall be
considered to have been relied upon by the Note Purchasers and shall survive the
execution and delivery of this Amendment, regardless of any investigation at any
time made by any Note Purchaser or on its behalf. All statements contained in
any certificate or other instrument delivered by or on behalf of the Company
hereunder or in connection with the transactions contemplated hereby shall be
deemed representations and warranties of the Company hereunder.
-5-
<PAGE>
5. References. On and after the date hereof, each reference in the
----------
Agreement to "this Agreement," "hereunder," "hereof," "herein," or words of like
import shall mean and be a reference to the Agreement as amended hereby.
6. Continued Effectiveness. Except as specifically amended hereby, all
-----------------------
of the terms and provisions of the Agreement shall remain unchanged and in full
force and effect.
7. No Waiver. The execution, delivery, and effectiveness of this
---------
Amendment shall not operate as a waiver of any right, power or remedy of the
Note Purchasers under the Agreement, nor constitute a waiver of any provision of
the Agreement.
8. Counterparts. This Amendment may be signed in any number of
------------
counterparts with the same effect as if the signatures thereto and hereto were
upon the same instrument.
9. Governing Law. This Amendment shall be governed by, and construed
-------------
and enforced in accordance with, the laws of the state of New York (without
regard to the conflict of law provisions thereof) including all matters of
construction, validity and performance.
-6-
<PAGE>
EXHIBIT 4.2.2
[4/93 Notes]
AMENDMENT TO NOTE PURCHASE AGREEMENT
------------------------------------
THIS AMENDMENT TO NOTE PURCHASE AGREEMENT, dated as of September 26,
1997 (the "Amendment"), amends that certain Note Purchase Agreement dated as of
April 15, 1993, as amended from time to time prior to the date hereof
(collectively, the "Agreement"), among THE MONEY STORE INC., a New Jersey
corporation (the "Company"), and the several note purchasers named in Schedule I
to the Agreement (together with their permitted successors, assigns, and
transferees, the "Note Purchasers"; the Note Purchasers currently a party to the
Agreement are named on Schedule I hereto), relating to the issuance and sale of
the Company's 7.63% Senior Notes due April 15, 1998 (the "Notes").
W I T N E S S E T H:
-------------------
WHEREAS, the Company desires to amend the Agreement to, among other
things, modify and amend certain of the covenants contained therein, and Note
Purchasers holding at least a majority of the unpaid principal amount of the
Notes are willing to agree to such amendments, subject to the terms and
conditions hereinafter set forth.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. Capitalized Terms. Unless otherwise defined herein, capitalized
-----------------
terms used herein shall have the respective meanings given thereto in the
Agreement.
2. Amendment to the Agreement. Subject to the terms and conditions
--------------------------
set forth herein, and in reliance upon the representations and warranties set
forth herein, the Agreement is amended, effective as of the date hereof, to
delete Section 5.17(a) in its entirety and to insert the following new Section
5.17(a) in lieu thereof:
(a) The Company will at all times maintain a ratio of Includable
Assets to Includable Liabilities of not less than 1 to 1.4286.
3. Effectiveness of Amendment. This Amendment shall become
--------------------------
effective upon compliance with the provisions of Section 10 of the Agreement.
4. References. On and after the date hereof, each reference in the
----------
Agreement to "this Agreement," "hereunder," "hereof," "herein," or words of like
import shall mean and be a reference to the Agreement as amended hereby.
5. Continued Effectiveness. Except as specifically amended hereby,
-----------------------
all of the terms and provisions of the Agreement shall remain unchanged and in
full force and effect.
6. No Waiver. The execution, delivery, and effectiveness of this
---------
Amendment shall not operate as a waiver of any right, power or remedy of the
Note Purchasers under the Agreement, nor constitute a waiver of any provision of
the Agreement.
7. Counterparts. This Amendment may be signed in any number of
------------
counterparts with the same effect as if the signatures thereto and hereto were
upon the same instrument.
<PAGE>
8. Governing Law. This Amendment shall be governed by, and
-------------
construed and enforced in accordance with, the laws of the state of New York
(without regard to the conflict of law provisions thereof) including all matters
of construction, validity and performance.
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be
duly executed by their respective representatives thereunto duly authorized as
of the date first set forth above.
THE MONEY STORE INC.
By:______________________________
Name: Morton Dear
Title: Chief Financial Officer
_________________________________
Name of Note Purchaser
(Please Print or Type)
By:______________________________
Name:
Title:
-2-
<PAGE>
EXHIBIT 4.3.1
AMENDMENT TO NOTE PURCHASE AGREEMENT
------------------------------------
THIS AMENDMENT TO NOTE PURCHASE AGREEMENT, dated as of September 20,
1994 (the "Amendment"), amends the Note Purchase Agreement dated as of September
30, 1993 (the "Agreement"), between THE MONEY STORE INC., a New Jersey
corporation (together with any corporation succeeding thereto by merger,
consolidation, or acquisition of all or substantially all of its assets as
permitted in accordance with Section 5.5 of the Agreement, the "Company"), and
the several note purchasers named in Schedule I to the Agreement (together with
their permitted successors, assigns, and transferees, the "Note Purchasers"; the
Note Purchasers currently a party to the Agreement are named on Schedule I
hereto), relating to the issuance and sale of the Company's 7.73% Senior Notes
due September 30, 2000 and the Company's 7.94% Senior Notes due September 30,
2000 (taken together, the "Notes").
W I T N E S S E T H:
-------------------
WHEREAS, the Company desires to amend the Agreement to, among other
things, modify and amend certain of the definitions and covenants contained
therein, and the Note Purchasers holding at least a majority of the unpaid
principal amount of the Notes are willing to agree to such amendments, subject
to the terms and conditions hereinafter set forth;
WHEREAS, the Company is also a party to (i) the several Note
Agreements, dated as of December 29, 1989, as amended from time to time prior to
the date hereof, with each of the several note purchasers respectively named
therein, relating to the issuance and sale of the Company's 12% Senior
Subordinated Notes due December 31, 1996, (ii) a Note Purchase Agreement, dated
as of September 9, 1992, with the several note purchasers named in Schedule I
thereto, relating to the issuance and sale of the Company's 8.57% Series A
Senior Notes due September 9, 1996 and the Company's 9.16% Series B Senior Notes
due September 9, 1997, and (iii) a Note Purchase Agreement, dated as of April
15, 1993, with the several note purchasers named in Schedule I thereto, relating
to the issuance and sale of the Company's 7.63% Senior Notes due April 15, 1998
(taken together, the "Additional Agreements"); and
WHEREAS, the Company desires to amend the Additional Agreements to,
among other things, modify and amend certain of the definitions and covenants
contained therein, and the note purchasers holding an aggregate of at least a
majority in unpaid principal amounts of the notes issued under each of the
Additional Agreements are willing to agree to such amendments (the "Additional
Amendments"), subject to the terms and conditions set forth in the Additional
Agreements.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
<PAGE>
1. Capitalized Terms. Unless otherwise defined herein, capitalized
-----------------
terms used herein shall have the respective meanings given thereto in the
Agreement.
2. Amendments to the Agreement. Subject to the terms and conditions
---------------------------
set forth herein, and in reliance upon the representations and warranties set
forth or incorporated herein, the Agreement is amended, effective as of the date
hereof as follows:
2.01. Section 5.7 of the Agreement is hereby amended by deleting
the word "or" after clause (5), deleting the period after clause (6), inserting
the word "; or" after clause (6) and inserting the following new Section
5.7(a)(7):
(7) Liens placed on tangible real or personal Property being acquired by
the Company or any Restricted Subsidiary securing Debt incurred to finance
all or part of the purchase price thereof, provided that (i) the principal
amount of such Debt shall not exceed 80% of the fair market value of such
Property at the time of such incurrence and (ii) the aggregate principal
amount of all Debt secured by Liens permitted by this clause (7) shall not
exceed $60,000,000 at any time outstanding.
2.02. Section 5.9 of the Agreement is hereby deleted in full. The
references to Section 5.9 appearing in Sections 5.6(b), 5.15(a) and 5.15(b) of
the Agreement are hereby deleted. The following new Section 5.9 is inserted in
lieu thereof:
Section 5.9. Default Under Subordinated Debt. The Company will not at
-------------------------------
any time permit any default or event of default under any Subordinated Debt
to exist which default or event of default remains uncured for a period of
15 days (or such lesser period as is provided for such default or event of
default in the agreement establishing such Subordinated Debt).
2.03. Section 5.10 of the Agreement is hereby deleted in full and
the following new Section 5.10 is inserted in lieu thereof:
Section 5.10 Subordinated Debt. The Company will not at any time after
-----------------
August 31, 1994, issue any Subordinated Debt unless the first sinking fund
payment or other required payment or prepayment of principal with respect
to such Subordinated Debt is scheduled to occur after September 30, 2000.
2.04. Section 5.11 of the Agreement is hereby deleted in full and
the following new Section 5.11 is inserted in lieu thereof:
Section 5.11. Total Debt. The Company will not permit, (i) as of the
----------
last day of any fiscal quarter, (a) the ratio of Total Debt plus Contingent
Obligations to Consolidated Tangible Net Worth to exceed 7 to 1 or (b) the
ratio of Total Debt to Consolidated Tangible Net Worth to exceed 5 to 1, or
(ii) as of any date other than the last day of each fiscal quarter, (a) the
ratio of Total Debt plus Contingent
-2-
<PAGE>
Obligations to Consolidated Tangible Net Worth to exceed 8 to 1 or (b) the
ratio of Total Debt to Consolidated Tangible Net Worth to exceed 7 to 1.
2.05. Section 5.12 of the Agreement is hereby deleted in full and
the following new Section 5.12 is inserted in lieu thereof:
Section 5.12. Secured Debt. The Company will not permit, as of the last
------------
day of any fiscal quarter, Secured Debt to exceed 50% of the total
liabilities (excluding deferred taxes) of the Company and its Restricted
Subsidiaries, determined on a consolidated basis.
2.06. Section 5.13 of the Agreement is hereby deleted in full and
the following new Section 5.13 is inserted in lieu thereof:
Section 5.13. Coverage Requirements. The Company will not at any time
---------------------
permit the sum of (i) Consolidated Pre-Tax Income and (ii) Fixed Charges,
for the most recent period of four consecutive fiscal quarters of the
Company, to be less than 150% of Fixed Charges for such period of four
consecutive fiscal quarters.
2.07. The first sentence of Section 5.14(c) of the Agreement is
hereby deleted in full and the following new sentence is inserted in lieu
thereof:
Neither the Company nor any Restricted Subsidiary will make or become
obligated to make any Restricted Investment unless, after giving effect
thereto, the aggregate amount (at original cost) of all outstanding
Restricted Investments of the Company and all Restricted Subsidiaries shall
be less than 10% of Consolidated Tangible Net Worth.
2.08. Section 5.16 of the Agreement is hereby deleted in full and
the following new Section 5.16 is inserted in lieu thereof:
Section 5.16. Consolidated Tangible Net Worth. The Company will at all
-------------------------------
times during each calendar year maintain Consolidated Tangible Net Worth of
not less than the sum of (i) $150,000,000 plus (ii) 50% of the aggregate
Consolidated Net Income for the period from July 1, 1994 to and including
December 31, 1994 and for each fiscal year of the Company thereafter (but
without deducting from such amount any income deficit in any such period or
fiscal year) plus (iii) the aggregate net proceeds received by the Company
after June 30, 1994 from any issue and sale of its capital stock (less any
portion of the net proceeds of such sale of capital stock which was used by
the Company to contemporaneously redeem or acquire any of the Company's
capital stock or warrants, rights or other options to purchase or acquire
such stock).
2.09. Section 7.2 of the Agreement is hereby amended by deleting
the definition of "Contingent Obligations" and inserting the following
definition in lieu thereof:
-3-
<PAGE>
Contingent Obligations - means, at any date, the total of the Company's
----------------------
and the Restricted Subsidiaries' obligations to repurchase second mortgage
or other non-purchase money mortgage loans as presented in the footnotes to
the Company's most recent annual or quarterly consolidated financial
statements.
2.10. In Section 7.2 of the Agreement, clause (5) of the definition
of "Debt" is hereby deleted in full. The word "and" is hereby inserted at the
end of clause (4) of the definition of "Debt". Present subclause (6) of the
definition of "Debt" is hereby renumbered as "(5)".
2.11. In Section 7.2 of the Agreement, the definition of "Total
Senior Debt" is hereby deleted in full.
3. Effectiveness of Amendments. This Amendment shall become effective
---------------------------
upon (i) compliance with the provisions of Section 10 of the Agreement, (ii) the
effectiveness of the Additional Amendments, (iii) the delivery to special
counsel to the Note Purchasers, for redistribution to the Note Purchasers of an
executed Confirmation of Guaranty, in substantially the form attached hereto as
Exhibit A, (iv) the delivery to special counsel to the Note Purchasers, for
redistribution to the Note Purchasers, of the opinion of Eric R. Elwin,
Corporate Counsel to the Company, in substantially the form attached hereto as
Exhibit B and (v) the delivery to special counsel to the Note Purchasers, for
redistribution to the Note Purchasers of the opinion of the law firm of Stroock
& Stroock & Lavan, counsel to the Company, in substantially the form attached
hereto as Exhibit C.
4. Representations and Warranties. In order to induce the Note
------------------------------
Purchasers to enter into this Amendment, the Company hereby represents and
warrants as follows:
4.01. Power, Authority, Non-Contravention. The execution,
-----------------------------------
delivery and performance by the Company of this Amendment and any other
documents or instruments delivered in connection herewith are within the
Company's corporate powers, have been duly authorized by all necessary corporate
action, do not and will not contravene, nor will they require any consent under
any law, rule, regulation (including, without limitation, regulations G, T, U,
and X of the Board of Governors of the Federal Reserve System), order, writ,
judgment, injunction, decree, determination or award or any contractual
restriction binding on or affecting the Company or any of its properties.
4.02. Consents. No authorization, consents, or approval or other
--------
action by, and no notice or filing with, any governmental authority or
regulatory body is required for the due execution, delivery, or performance by
the Company of this Amendment and any other documents or instruments being
executed and delivered in connection herewith or for the validity or
enforceability thereof.
4.03. Validity and Enforceability. This Amendment and the
---------------------------
Confirmation of Guaranty, respectively, have been duly executed and delivered by
the Company and the Subsidiaries listed on Schedule I to the Confirmation of
Guaranty and are legal and binding obligations of the Company or such
Subsidiaries, as the case may be (except as enforcement of
-4-
<PAGE>
the terms thereof is subject to the effect of bankruptcy, insolvency,
reorganization, receivership, fraudulent conveyance, moratorium, arrangement and
assignment for the benefit of creditor laws and similar laws relating to or
affecting creditors' rights generally (including, but not limited to, matters of
turnover, automatic stay, avoiding powers, fraudulent transfer, preference and
discharge) and court decisions with respect thereto and except as the equitable
remedy of specific performance and other equitable remedies are subject to the
discretion of the court) and will not conflict with, constitute a violation of,
or result in the creation of any Lien upon any Property of the Company or any
Subsidiary under the provisions of, any agreement, charter instrument, by-law or
other instrument to which the Company or any Subsidiary is a party or by which
any of them or their respective Properties may be bound.
4.04. No Event of Default. No Event of Default or Default exists.
-------------------
4.05. Other Representations and Warranties. The representations
------------------------------------
and warranties of the Company set forth in Sections B-2, B-6, B-7, B-8 and B-9,
B-10 and B-11 (solely as to those portions of the Agreement and the Guaranty as
they may be applied to the Amendment and the Confirmation Guaranty), of the
Agreement are true and correct on the date hereof as if restated at and as of
the date hereof and such representations and warranties are hereby incorporated
by reference.
4.06. Guarantors. The Subsidiaries executing the Confirmation of
----------
Guaranty herewith are all of the Subsidiaries which are guarantors (as such term
is defined in the Senior Guaranty Agreement) under the Senior Guaranty Agreement
and have each executed either the original Senior Guaranty Agreement or a
counterpart thereto. Except for those parties that have since been merged into,
and have had their obligations under the Senior Guaranty Agreement assumed by a
Subsidiary which was, at the time of the merger, and is, on the date hereof, a
Guarantor under the Senior Guaranty Agreement, no party that was a Guarantor
when the Senior Guaranty Agreement was originally executed has ceased to be a
subsidiary of the Company or a Guarantor under the Senior Guaranty Agreement.
4.07. Survival. All representations, warranties and covenants of
--------
the Company contained in this Amendment or made in writing by or on behalf of
the Company in connection with the transactions contemplated hereby shall be
considered to have been relied upon by the Note Purchasers and shall survive the
execution and delivery of this Amendment, regardless of any investigation at any
time made by any Note Purchaser or on its behalf. All statements contained in
any certificate or other instrument delivered by or on behalf of the Company
hereunder or in connection with the transactions contemplated hereby shall be
deemed representations and warranties oft he Company hereunder.
5. References. On and after the date hereof, each reference in
----------
the Agreement to "this Agreement," "hereunder," "hereof," "herein," or words of
like import shall mean and be a reference to the Agreement as amended hereby.
6. Continued Effectiveness. Except as specifically amended
-----------------------
hereby, all of the terms and provisions of the Agreement shall remain unchanged
and in full force and effect.
-5-
<PAGE>
7. No Waiver. The execution, delivery, and effectiveness of this
---------
Amendment shall not operate as a waiver of any right, power or remedy of the
Note Purchasers under the Agreement, nor constitute a waiver of any provision of
the Agreement.
8. Counterparts. This Amendment may be signed in any number of
------------
counterparts with the same effect as if the signatures thereto and hereto were
upon the same instrument.
9. Governing Law. This Amendment shall be governed by, and
-------------
construed and enforced in accordance with, the laws of the state of New York
(without regard to the conflict of law provisions thereof) including all matters
of construction, validity and performance.
-6-
<PAGE>
EXHIBIT 4.3.2
[4/93 Notes]
AMENDMENT TO NOTE PURCHASE AGREEMENTS
-------------------------------------
THIS AMENDMENT TO NOTE PURCHASE AGREEMENTS, dated as of October 23,
1996 (the "Amendment"), amends each of the several Note Purchase Agreements
dated as of September 30, 1993, as amended from time to time prior to the date
hereof (collectively, the "Agreement"), between THE MONEY STORE, INC., a New
Jersey corporation (together with any corporation succeeding thereto by merger,
consolidation, or acquisition of all or substantially all of its assets as
permitted in accordance with Section 5.5 of the Agreement, the "Company"), and
each of the several note purchasers respectively named as addressees of the
Agreement (together with their permitted successors, assigns, and transferees,
the "Note Purchasers"; the Note Purchasers currently a party to the Agreement
are named on Schedule I hereto), relating to the issuance and sale of the
Company's 7.73% Series A Senior Notes due September 30, 2000 and 7.94% Series B
Senior Notes due September 30, 2000 (the "Notes").
W I T N E S S E T H:
-------------------
WHEREAS, the Company is a party to that certain Note Purchase
Agreement, dated as of September 13, 1995, with the several note purchasers
named in Schedule I thereto, relating to the issuance and sale of the Company's
7.83% Series A Senior Notes due September 15, 1999, the Company's 7.88% Series B
Senior Notes due September 15, 2000 and the Company's 8.03% Series C Senior
Notes due September 15, 2001 (the "September 1995 Note Agreement"); and
WHEREAS, the Company desires to amend the Agreement to, among other
things, conform certain provisions contained therein to the corresponding
provisions contained in the September 1995 Note Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. Capitalized Terms. Unless otherwise defined herein, capitalized
-----------------
terms used herein shall have the respective meanings given thereto in the
Agreement.
2. Amendment to the Agreement. Subject to the terms and conditions
--------------------------
set forth herein, the Agreement is amended, effective as of the date hereof, as
follows:
2.1 The definition of "Change of Control" in Section 7.2 of the
Agreement is hereby deleted in full and the following definition of "Change of
Control" is inserted in lieu thereof:
Change of Control - means any change in the beneficial ownership of
-----------------
any of the capital stock of the Company which results in any Person,
together with such Person's "affiliates" and "associates" (as each of
such terms is defined in Rule 12b-2 under Exchange Act of 1934, as
amended (the "Exchange Act"), becoming the "beneficial owner" (as such
term is defined in Rule 13d-3 under the Exchange Act) of 40% or more
of the total voting power of the outstanding Voting Stock of the
Company (such Person, together with such Person's "affiliates" and
"associates" being herein after referred to as the "Acquiring
<PAGE>
Person"); provided, however, that the term "Acquiring Person" shall
-------- -------
be deemed to not include Alan Turtletaub and Marc Turtletaub or (x)
their respective "affiliates" and "associates" or (y) their respective
heirs or estates or (z) any trust created for the exclusive benefit or
the grandchildren of Alan Turtletaub or which either or both of Alan
Turtletaub or Marc Turtletaub shall be a trustee, and as such, shall
have sole power to vote the stock held in such trust; provided,
--------
further, however, that, solely for purposes of Section 4.4 hereof, no
------- -------
Change of Control shall be deemed to have occurred if: (A) in the case
of any merger or consolidation of the Company with or into any Person,
(1) all of the conditions set forth in Section 5.5(b) hereof have been
met, (2) the shareholders of the Company shall, directly or
indirectly, have acquired, or acquired the power to vote or direct the
voting of, more than 50% of the outstanding Voting Stock of such
Person immediately after giving effect to such merger or consolidation
and (3) within thirty (30) days of such merger or consolidation, such
Person's long term unsecured senior debt securities shall receive a
credit rating from Duff & Phelps Credit Rating Co. at least equal to
the higher of "BBB" or the credit rating of the long-term unsecured
senior debt securities of the Company immediately prior to such merger
or consolidation or if Duff & Phelps Credit Rating Co. does not at the
time of determination rate such securities, such securities shall have
an equivalent rating from Standard & Poor's Rating Group or Moody's
Investors Service; or (B) in the case of an acquisition by the Company
or a subsidiary of the Company of a business (the "Acquired Person")
for consideration consisting of or including Voting Stock of the
Company and/or securities convertible into Voting Stock of the
Company, (1) the terms of such acquisition provide that both (a) from
and after the consummation of such acquisition and until at least the
earlier of (i) two years from the date of such acquisition or (ii) the
date on which the Acquiring Person transfers substantially all of such
Voting Stock and/or securities convertible into Voting Stock, the
Acquiring Person will cause the Voting Stock owned by it at the time
of any stockholder vote (or action by consent) for the election of
directors of the Company to be voted in favor of the election, as a
majority of the members of the Board of Directors of the Company, of
(x) persons who were directors or executive officers of the Company
immediately prior to execution of the agreement or agreements pursuant
to which the transaction or transactions otherwise resulting in the
Change of Control were consummated (the "Pre-Acquisition Managers"),
and/or (y) persons (each of whom, without limitation, may or may not
have been a Pre-Acquisition Manager) who are approved by the Board of
Directors of the Company prior to such transaction or transactions and
who were not officers or directors of the Acquired Person prior to the
time of such transaction or transactions and (b) the Acquiring Person
will not, for a period of two years from the consummation of such
transaction or transactions, permit persons designated by the
Acquiring Person to become a majority of the members of the Board of
Directors of the Company, and (2) within 30 days after such
acquisition, the long-term unsecured senior debt securities of the
Company shall receive a credit rating from Duff & Phelps Credit Rating
Co. of "BBB" or better, or if Duff & Phelps Credit Rating Co. does not
at the time of determination rate such securities, such securities
shall have an equivalent rating from Standard & Poor's Rating Group or
Moody's Investors Service.
3. Effectiveness of Amendments. This Amendment shall become
---------------------------
effective upon compliance with the provisions of Section 10 of the Agreement.
-2-
<PAGE>
4. Counterparts. This Amendment may be signed in any number of
------------
counterparts with the same effect as if the signatures thereto and hereto were
upon the same instrument.
5. Governing Law. This Amendment shall be governed by, and construed
-------------
and enforced in accordance with, the laws of the state of New York (without
regard to the conflict of law provisions thereof) including all matters of
construction, validity and performance.
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be
duly executed by their respective representatives thereunto duly authorized as
of the date first set forth above.
THE MONEY STORE INC.
By:______________________________
Name: Morton Dear
Title: Chief Financial Officer
_________________________________
Name of Note Purchaser
(Please Print or Type)
By:______________________________
Name:
Title:
-3-
<PAGE>
Exhibit 10.16
AMENDMENT
TO
THE MONEY STORE INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
WHEREAS, The Money Store Inc. (the "Company") adopted The Money Store Inc.
Supplemental Executive Retirement Plan (the "Plan"), effective January 1, 1994;
and
WHEREAS, the Company desires to amend the Plan in certain respects;
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Section 7 of the Plan is hereby redesignated as Section 7(a) and a new
Section 7(b) is hereby added to the Plan, to read in its entirety as follows:
"(b) Change in Control. If, upon or following a 'Change in Control'
-----------------
(as hereinafter defined), a Participant's employment with the Company and
its Affiliates is terminated prior to his Normal Retirement Date either
by the Company or an Affiliate without 'cause' or by the Participant for
'Good Reason' (as hereinafter defined), then the Participant shall
receive a lump sum payment, on the last day of the month in which such
termination occurs, in an amount equal to the Actuarial Equivalent of the
Participant's Accrued Benefit or 'Projected Benefit' (as defined in
Appendix I in the case of a Participant who is a Covered Employee under
Appendix I hereto), determined in each case as if the Participant had
continued in employment with the Company and its Affiliates until his
Normal Retirement Date; provided, however, that for purposes of
determining the Actuarial Equivalent of the Participant's Accrued Benefit
or Projected Benefit, as the case may be, the Participant shall be
treated as if his age were five (5) years older than his actual age as of
the date of such termination; and, provided further, that in no event
shall the amount of the payment under this Section 7(b) exceed the amount
of the Participant's Projected Benefit (in the case of a Participant who
is a Covered Employee under Appendix I hereto) or the Actuarial
Equivalent of the Participant's Accrued Benefit (in the case of a
Participant who is not a Covered Employee under Appendix I hereto)
payable at Normal Retirement Age. For purposes of this Plan, a 'Change
in Control' shall be deemed to have occurred if (x) any 'person' or group
of 'persons' (as the term 'person' is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the 'Exchange Act'))
<PAGE>
('Person') acquires (or has acquired during the twelve-month period
ending on the date of the most recent acquisition by such Person) the
beneficial ownership, directly or indirectly, of securities of the
Company representing 40% or more of the combined voting power of the then
outstanding securities of the Company; provided, however, that for
purposes of this subsection (x) the term 'Person' shall be deemed to not
include Alan Turtletaub and Marc Turtletaub or (A) their respective
'affiliates' and 'associates' (as each of such terms are defined in Rule
12b-2 under the Exchange Act), or (B) their respective heirs or estates,
or (C) any trust created for the exclusive benefit of the grandchildren
of Alan Turtletaub of which either or both of Alan Turtletaub or Marc
Turtletaub shall be a trustee, and as such, shall have sole power to vote
the stock held in such trust; or (y) a Person acquires (or has acquired
during the twelve-month period ending on the date of the most recent
acquisition by such Person) assets from the Company that have a total
fair market value equal to or more than one-third of the total fair
market value of all of the assets of the Company immediately prior to
such acquisition. Notwithstanding the foregoing, for purposes of
subsection (x), a Change in Control will not be deemed to have occurred
if the power to control (directly or indirectly) the management and
policies of the Company is not transferred from a Person to another
Person; and for purposes of subsection (y), a Change in Control will not
be deemed to occur if the assets of the Company are transferred: (i) to
a shareholder in exchange for his stock, (ii) to an entity in which the
Company has (directly or indirectly) 50% ownership, or (iii) to a Person
that has (directly or indirectly) at least 50% ownership of the Company
with respect to its stock outstanding, or to any entity in which such
Person possesses (directly or indirectly) 50% ownership. For purposes of
this Plan, the term 'Good Reason' shall mean the occurrence of any of the
following events:
(i) a reduction in the Participant's base salary;
(ii) a change in the Participant's position, duties or
responsibilities with respect to his employment by the
Company or an Affiliate without the Participant's
prior written consent;
(iii) a reduction in the Participant's annual bonus amount;
(iv) an actual change in the Participant's place of
employment which is not within a 35-mile radius of his
place of employment immediately before such change,
without the Participant's prior written consent; or
2
<PAGE>
(v) any breach of the terms of an employment agreement, if
any, between the Company and the Participant, unless
such breach is immaterial;
provided, however, that a Participant's termination of employment shall
be for Good Reason only if:
(1) the Participant notifies the Company or its Affiliate
in writing during the 60-day period following the date
of the first occurrence of an event which constitutes
Good Reason of his intention to terminate his
employment for Good Reason;
(2) the Company or the Affiliate fails to correct or cure
the event which constitutes Good Reason within 30 days
of receipt of the Participant's written notice (the
'Correction Period'); and
(3) the Participant terminates his employment for Good
Reason during the 60-day period following the
expiration of the Correction Period.
Each event described in clauses (i) - (v), above, whether under the same
or different clauses, shall constitute a separate Good Reason for
purposes hereof."
2. Section 8 of the Plan is hereby amended to read in its
entirety as follows:
"8. Form of Payment. If a benefit becomes payable pursuant to
---------------
Sections 5, 6 or 7 hereof, the Company shall pay to the Participant (or
his Beneficiary) an amount equal to the Actuarial Equivalent of the
Participant's Accrued Benefit (or Projected Benefit with respect to any
Participant who is a Covered Employee under Appendix I hereto) determined
under Sections 5, 6 or 7, as the case may be. Such benefit payment shall
be made in the form of a single lump sum payment."
3. A new Appendix I is hereby added to the Plan, to read in its entirety
as follows:
"Appendix I
Special Provisions Relating to Certain Participants
A. The provisions of this Appendix I shall apply to those Participants
whose names are set forth on Exhibit A and Exhibit B attached hereto
(such persons being referred to hereinafter as 'Covered Employees').
3
<PAGE>
B. Notwithstanding any other provision of the Plan to the contrary,
the benefit under the Plan of a Covered Employee whose name is set forth
on Exhibit A attached hereto shall be the single sum amount set forth on
Exhibit A attached hereto, multiplied by a fraction not to exceed one
(1), the numerator of which is the Participant's active Years of Service
and the denominator of which is twenty-five (25). Such single sum benefit
is hereinafter referred to as the 'Projected Benefit' with respect to
such Covered Employee. If such Covered Employee continues his employment
with the Company and its Affiliates until his Normal Retirement Date, his
Projected Benefit shall be payable as of his Normal Retirement Date,
whether or not he continues in employment thereafter.
C. Notwithstanding any other provision of the Plan to the contrary,
the benefit under the Plan of a Covered Employee whose name is set forth
on Exhibit B attached hereto shall be the single sum amount set forth
opposite his name on Exhibit B attached hereto, multiplied by a fraction
not to exceed one (1), the numerator of which is the Participant's active
Years of Service and the denominator of which is twenty-five (25). Such
single sum benefit is hereinafter referred to as the 'Projected Benefit'
with respect to each respective Covered Employee whose name is set forth
on Exhibit B attached hereto. If a Covered Employee whose name is set
forth on Exhibit B attached hereto terminates his employment with the
Company and its Affiliates on the first day of the month following the
date on which the Participant attains his fifty-fifth (55th) birthday
(hereinafter referred to as his 'Age 55 Retirement Date'), his Projected
Benefit shall be payable as of his Age 55 Retirement Date. If such
Covered Employee terminates his employment with the Company or any of its
Affiliates after his Age 55 Retirement Date but before his 62nd birthday,
he shall be entitled to receive an increased benefit which is the
Actuarial Equivalent of his Projected Benefit payable at his Age 55
Retirement Date. If such Covered Employee continues his employment with
the Company or any of its Affiliates to the date of his 62nd birthday, an
increased benefit which is the Actuarial Equivalent of his Projected
Benefit payable at his Age 55 Retirement Date shall be payable as of the
date of his 62nd birthday whether or not he continues in employment
thereafter. For all other purposes of the Plan, the Age 55 Retirement
Date of each Covered Employee whose name is set forth on Exhibit B
attached hereto shall be deemed to be his Normal Retirement Date.
D. The benefit provided for in Section B or C of this Appendix I is
in lieu of any benefit that would otherwise be payable to a Covered
Employee pursuant to Section 5 of the Plan. The Projected Benefit of each
Covered Employee shall be deemed to be his Accrued Benefit for purposes
of Sections 6 and 7 of the Plan.
4
<PAGE>
E. Defined terms used in this Appendix I shall have the same meaning
as the identical defined terms used in the Plan."
4. This Amendment shall be effective as of February 27, 1998.
5. Except to the extent hereinabove set forth, the Plan shall remain in
full force and effect, without change or modification.
IN WITNESS WHEREOF, the Company has caused these presents to be executed by
a duly authorized officer as of the 27th day of February, 1998.
THE MONEY STORE INC.
By:___________________________
5
<PAGE>
Exhibit A
---------
Name Projected Benefit
---- -----------------
Morton Dear $2,000,000
6
<PAGE>
Exhibit B
---------
Name Projected Benefit
---- -----------------
William Templeton $2,000,000
Harry Puglisi $1,000,000
7
<PAGE>
Exhibit 10.17
1998 PERFORMANCE BONUS PLAN OF
THE MONEY STORE INC.
Section 1. Purpose. The 1998 Performance Bonus Plan of The Money Store Inc.
-------
is intended to further the attainment of the profit and growth objectives of The
Money Store Inc. by providing incentives to those key employees whose management
and individual performance have a direct impact on achieving those objectives.
The Plan also is expected to encourage the continued employment of such key
employees.
Section 2. Definitions. As used herein, the following terms shall have the
-----------
following meanings:
(a) "Acquisition Transaction" shall mean the acquisition by any
-----------------------
"person" or group of "persons" (as the term "person" is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended) ("Person") of (a) the direct or indirect beneficial ownership
of securities of the Corporation representing at least 80% of the
combined voting power of the then outstanding securities of the
Corporation, or (b) all or substantially all of the Corporation's
assets, but not including any such acquisition by (i) a shareholder in
exchange for his stock, (ii) an entity in which the Corporation has
(directly or indirectly) 50% ownership, or (iii) a Person that has
(directly or directly) at least 50% ownership of the Corporation with
respect to its stock outstanding, or to any entity in which such
Person possesses (directly or indirectly) 50% ownership.
(b) "Board of Directors" or "Board" shall mean the Board of Directors
------------------ -----
of the Corporation, as constituted at any time.
(c) "Corporation" shall mean The Money Store Inc., a New Jersey
-----------
corporation.
(d) "Participant" shall mean each person who participates in the Plan
-----------
pursuant to Section 5.
(e) "Performance Pool" shall mean the amount determined pursuant to
----------------
Section 4.
(f) "Plan" shall mean this 1998 Performance Bonus Plan of The Money
----
Store Inc., as adopted by the Board of Directors, and as such Plan
from time to time may be amended.
Section 3. Administration of Plan.
----------------------
(a) The Plan shall be administered by and in the discretion of the
Board. The Board may establish such rules and regulations as it deems
necessary, make amendments consistent with Section 7 hereof, interpret
the Plan and otherwise
<PAGE>
make all determinations and take such action in connection with the
Plan as it deems appropriate.
(b) The decisions of the Board shall be final, conclusive and binding
on all parties. In administering the Plan, the Board may employ
accountants and counsel (who may be the independent auditors and
outside counsel for the Corporation) and other persons to assist or
render advice to it, all at the expense of the Corporation.
Section 4. Performance Pool. In the event of an Acquisition Transaction,
-----------------
there shall be established a Performance Pool in an amount determined by the
Board not to exceed twenty million dollars ($20,000,000).
Section 5. Participants and Allocation of the Performance Pool. The
----------------------------------------------------
Performance Pool shall be allocated among the persons listed on Schedule A
attached hereto and such other employees as may be determined by the Board in
its sole discretion. The amount of the Performance Pool to be allocated to each
Participant shall be determined by the Board in its sole discretion, taking into
account factors which shall include, but not be limited to, the individual
performance of each Participant in furthering the Company's objectives in
connection with the Acquisition Transaction, the Participant's contributions to
the sale process, the success of the Acquisition Transaction and such other
factors as the Board deems appropriate.
Section 6. Payment of Awards. A Participant's allocable share of the
-----------------
Performance Pool shall be paid in cash in a lump sum payment to the Participant
simultaneously with the closing of the Acquisition Transaction.
Section 7. Amendment. The Board may from time to time amend any or all of
----------
the provisions of the Plan; provided, however, that no such amendment shall have
the effect of reducing a Participant's benefit under the Plan or otherwise
adversely affect a Participant's rights under the Plan without the Participant's
written consent.
Section 8. Termination. The Plan shall terminate upon the earlier of (i)
-----------
the closing of an Acquisition Transaction (and the full payment of benefits
awarded from any resulting Performance Pool, if applicable) or (ii) on December
31, 1999; provided, that the Board of Directors may extend the time period under
this clause (ii) to December 31, 2000 (and each anniversary thereof) by voting
to extend such date at least twelve (12) months in advance.
Section 9. Miscellaneous.
-------------
(a) No award under the Plan shall be subject in any manner to
anticipation, alienation, pledge, transfer, or assignment, except by
will or by laws of descent and distribution.
(b) No award under the Plan shall limit a Participant's right to
receive, or to be eligible for, any other compensation or benefits.
2
<PAGE>
(c) The Plan shall not constitute a contract of employment between
the Participant and the Corporation or otherwise entitle a Participant
to remain in the employ of the Corporation for a fixed term.
(d) The Plan shall at all times be entirely unfunded and no provision
shall at any time be made with respect to segregating assets of the
Corporation for payment of any portion of a Participant's award under
the Plan. Participants shall have the status of general unsecured
creditors of the Corporation and the Plan constitutes a mere promise
by the Corporation to make payments in the future, if there is a
Performance Pool.
(e) The masculine pronoun shall be deemed to include the feminine,
and the singular number shall be deemed to include the plural unless a
different meaning is plainly required by the context.
Section 10. Governing Law. The Plan shall be subject to and construed in
-------------
accordance with the laws of the State of New Jersey.
Section 11. Effective Date. The Plan shall be effective as of February 27,
--------------
1998.
IN WITNESS WHEREOF, the Company has caused these presents to be executed by
a duly authorized officer as of the 27th day of February, 1998.
THE MONEY STORE INC.
By:_________________________
3
<PAGE>
Schedule A
Name
----
Morton Dear
William Templeton
Michael Benoff
Harry Puglisi
John Reeves
Paul Leliakov
James Ransom
John Wagner
Larry Wodarski
4
<PAGE>
EXHIBIT 10.21
[CB COMMERCIAL LOGO] OFFICE BUILDING LEASE
CB COMMERCIAL REAL ESTATE GROUP, INC.
BROKERAGE AND MANAGEMENT
LICENSED REAL ESTATE BROKER
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Article 1 LEASE OF PREMISES............................................ 1
Article 2 DEFINITIONS.................................................. 1
Article 3 EXHIBITS AND ADDENDA......................................... 2
Article 4 DELIVERY OF POSSESSION....................................... 2
Article 5 RENT......................................................... 2
Article 6 INTEREST AND LATE CHARGES.................................... 4
Article 7 SECURITY DEPOSIT............................................. 4
Article 8 TENANT'S USE OF THE PREMISES................................. 4
Article 9 SERVICES AND UTILITIES....................................... 5
Article 10 CONDITION OF THE PREMISES.................................... 5
Article 11 CONSTRUCTION, REPAIRS AND MAINTENANCE........................ 5
Article 12 ALTERATIONS AND ADDITIONS.................................... 6
Article 13 LEASEHOLD IMPROVEMENTS; TENANT'S PROPERTY.................... 6
Article 14 RULES AND REGULATIONS........................................ 7
Article 15 CERTAIN RIGHTS RESERVED BY LANDLORD.......................... 7
Article 16 ASSIGNMENT AND SUBLETTING.................................... 7
Article 17 HOLDING OVER................................................. 8
Article 18 SURRENDER OF PREMISES........................................ 8
Article 19 DESTRUCTION OR DAMAGE........................................ 8
Article 20 EMINENT DOMAIN............................................... 8
Article 21 INDEMNIFICATION.............................................. 9
Article 22 TENANT'S INSURANCE........................................... 9
Article 23 WAIVER OF SUBROGATION........................................ 10
Article 24 SUBORDINATION AND ATTORNMENT................................. 10
Article 25 TENANT ESTOPPEL CERTIFICATES................................. 10
Article 26 TRANSFER OF LANDLORD'S INTEREST.............................. 10
Article 27 DEFAULT...................................................... 10
Article 28 BROKERAGE FEES............................................... 11
Article 29 NOTICES...................................................... 11
Article 30 GOVERNMENT ENERGY OR UTILITY CONTROLS........................ 11
Article 31 RELOCATION OF PREMISES....................................... 11
Article 32 QUIET ENJOYMENT.............................................. 12
Article 33 OBSERVANCE OF LAW............................................ 12
Article 34 FORCE MAJEURE................................................ 12
Article 35 CURING TENANT'S DEFAULTS..................................... 12
Article 36 SIGN CONTROL................................................. 12
Article 37 MISCELLANEOUS................................................ 12
</TABLE>
<PAGE>
[LOGO OF CB COMMERCIAL] OFFICE BUILDING LEASE
This Lease between CROSSTOWN BUILDING PARTNERS
-------------------------------------------------------------,
a CALIFORNIA LIMITED PARTNERSHIP
------------------------------------------------------------------------------,
("Landlord"), and THE MONEY STORE, INC.
--------------------------------------------------------------,
a NEW JERSEY CORPORATION , ("Tenant"), is
---------------------------------------------------------------
dated as of January 1 , 1995.
------------------------------------------------------------------
1. LEASE OF PREMISES.
In consideration of the Rent (as defined at Section 5.4) and the provisions of
this Lease, Landlord leases to Tenant and Tenant leases from Landlord the
Premises shown by diagonal lines on the floor plan attached hereto as Exhibit
"A," and further described at Section 21. The Premises are located within the
Building and Project described in Section 2m. Tenant shall have the
non-exclusive right (unless otherwise provided herein) in connection with
Landlord, other tenants, subtenants and invitees, to use of the Common Areas (as
defined at Section 2e).
2. DEFINITIONS
As used in this Lease, the following terms shall have the following meanings:
a. Base Rent (initial): $ (SEE ADDENDUM) per year.
---------------------------------------------
b. Base Year: The calendar year of 1995 .
--------------------------------------------
c. Broker(s)
Landlord's: None .
-----------------------------------------------------------
Tenant's: None .
-----------------------------------------------------------
In the event that CB Commercial Real Estate Group, Inc. represents both Landlord
and Tenant, Landlord and Tenant hereby confirm that they were timely advised of
the dual representation and that they consent to the same, and that they do not
expect said broker to disclose to either of them the confidential information of
the other party.
d. Commencement Date: January 1, 1995 ,
---------------------------------------------------------
e. Common Areas: the building lobbies, common corridors and hallways,
restrooms, garage and parking areas, stairways, elevators and other
generally understood public or common areas. Landlord shall have the right
to regulate or restrict the use of the Common Areas.
f. Expense Stop: (fill in if applicable): $ None .
-------------------------------------
g. Expiration Date: December 31, 1997 , unless otherwise
------------------------------------------
sooner terminated in accordance with the provisions of this Lease.
h. Index (Section 5.2): United States Department of Labor, Bureau of Labor
Statistics Consumer Price Index for All Urban Consumers, N/A Average,
------------
Subgroup "All Items" (1967 = 100).
i. Landlord's Mailing Address: 2222 Francisco Drive, Suite 430, El Dorado
------------------------------------------------
Hills, CA 95762
---------------------------------------------------------------------------
.
---------------------------------------------------------------------------
Tenant's Mailing Address: To be supplied to Landlord. The Money Store,
--------------------------------------------------
3301 "C" Street, suite 110-B, Sacramento, California 95816. ATTENTION:
---------------------------------------------------------------------------
National Leasing Manager .
---------------------------------------------------------------------------
j. Monthly installments of Base Rent (initial): $ (SEE ADDENDUM) per month.
--------------------
k. Parking: Tenant shall be permitted, upon payment of the then prevailing
monthly rate (as set by Landlord from time to time) to park nine (9)
----------------
cars on a non-exclusive basis in the area(s) designated by Landlord for
parking. Tenant shall abide by any and all parking regulations and rules
established from time to time by Landlord or Landlord's parking operator.
Landlord reserves the right to separately charge Tenant's guests and
visitors for parking.
l. Premises: that portion of the Building containing approximately 6,181
------------
square feet of Rentable Area, shown by diagonal lines on Exhibit "A,"
located on the first (1st) floor of the Building and known as
---------------------------
Suite 100 .
--------------
m. Project: the building of which the Premises are a part (the "Building") and
any other buildings or improvements on the real property (the "Property")
located at 1401 21st Street, Sacramento, CA 95814
-----------------------------------------------------------------
and further described at Exhibit "B." The
------------------------------
Project is known as The Crosstown Building .
--------------------------------------------------------
n. Rentable Area: as to both the Premises and the Project, the respective
measurements of floor area as may from time to time be subject to lease by
Tenant and all tenants of the Project, respectively, as determined by
Landlord and applied on a consistent basis throughout the Project.
(1)
<PAGE>
o. Security Deposit (Section 7): $ N/A
--------------------------------------------
p. State: the State of California
------------------------------------------------------
q. Tenant's First Adjustment Date (Section 5.2): the first day of the calendar
month following the Commencement Date plus N/A months.
---------
r. Tenant's Proportionate Share: 25.22%. Such share is a fraction, the
numerator of which is the Rentable Area of the Premises, and the
denominator of which is the Rentable Area of the Project, as determined by
Landlord from time to time. The Project consists of one building(s)
---
containing a total Rentable Area of approx. 24,500 square feet.
--------------
s. Tenant's Use Clause (Article 8): storage, warehouse, distribution and a
------------------------------------------
maximum of 50% of the space for standard office use
---------------------------------------------------------------------------
t. Term: the period commencing on the Commencement Date and expiring at
midnight on the Expiration Date.
3. EXHIBITS AND ADDENDA.
The exhibits and addenda listed below (unless lined out) are incorporated by
reference in this Lease:
a. Exhibit "A"-Legal description of Landlord's Property.
b.
c.
d. Exhibit "D"-Rules and Regulations.
e.
f. Addenda:
The Addendum attached hereto is made a part of this lease by this reference
-----------------------------------------------------------------------------
as though set forth herein in full.
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
4. DELIVERY OF POSSESSION.
If for any reason Landlord does not deliver possession of the Premises to Tenant
on the Commencement Date, Landlord shall not be subject to any liability for
such failure, the Expiration Date shall not change and the validity of this
Lease shall not be impaired, but Rent shall be abated until delivery of
possession. "Delivery of possession" shall be deemed to occur on the date
Landlord completes Landlord's Work as defined in Exhibit "C." If Landlord
permits Tenant to enter into possession of the Premises before the Commencement
Date, such possession shall be subject to the provisions of this Lease,
including, without limitation, the payment of Rent.
5. RENT.
5.1 Payment of Base Rent. Tenant agrees to pay the Base Rent for the Premises.
Monthly Installments of Base Rent shall be payable in advance on the first day
of each calendar month of the Term. If the Term begins (or ends) on other than
the first (or last) day of a calendar month, the Base Rent for the partial month
shall be prorated on a per diem basis. Tenant shall pay Landlord the first
Monthly Installment of Base Rent when Tenant executes the Lease.
5.2 Adjusted Base Rent. (See Addendum)
a. The Base Rent (and the corresponding Monthly Installments of Base Rent)
set forth at Section 2a shall be adjusted annually (the "Adjustment Date"),
commencing on Tenant's First Adjustment Date. Adjustments, if any, shall be
based upon increases (if any) in the Index. The Index in publication three
(3) months before the Commencement Date shall be the "Base Index." The
index in publication three (3) months before each Adjustment Date shall be
the "Comparison Index." As of each Adjustment Date, the Base Rent payable
during the ensuing twelve-month period shall be determined by increasing
the initial Base Rent by a percentage equal to the percentage increase, if
any, in the Comparison Index over the Base Index. If the Comparison Index
for any Adjustment Date is equal to or less than the Comparison Index for
the preceding Adjustment Date (or the Base Index, in the case of First
Adjustment Date), the Base Rent for the ensuing twelve-month period shall
remain the amount of Base Rent payable during the preceding twelve-month
period. When the Base Rent payable as of each Adjustment Date is
determined, Landlord shall promptly give Tenant written notice of such
adjusted Base Rent and the manner in which it was computed. The Base Rent
as so adjusted from time to time shall be the "Base Rent" for all purposes
under this Lease.
b. If at any Adjustment Date the Index no longer exists in the form
described in this Lease, Landlord may substitute any substantially
equivalent official index published by the Bureau of Labor Statistics or
its successor. Landlord shall use any appropriate conversion factors to
accomplish such substitution. The substitute index shall then become the
"Index" hereunder.
5.3 Project Operating Costs.
a. In order that the Rent payable during the Term reflect any increase in
Project Operating Costs, Tenant agrees to pay to Landlord as Rent,
Tenant's Proportionate Share of all increases in costs, expenses and
obligations attributable to the Project and its operation, all as provided
below.
b. If, during any calendar year during the Term, Project Operating Costs
exceed the Project Operating Costs for the Base Year, Tenant shall pay to
Landlord, in addition to the Base Rent and all other payments due under
this Lease, an amount equal to Tenant's Proportionate Share of such excess
Project Operating Costs in accordance with the provisions of this Section
5.3b.
(2)
<PAGE>
(1) The term "Project Operating Costs" shall include all those items described
in the following subparagraphs (a) and (b.)
(a) All taxes, assessments, water and sewer charges and other similar
governmental charges levied on or attributable to the Building or Project
or their operation, including without limitation, (i) real property taxes
or assessments levied or assessed against the Building or Project, (ii)
assessments or charges levied or assessed against the Building or Project
by any redevelopment agency, (iii) any tax measured by gross rentals
received from the leasing of the Premises, Building or Project, excluding
any net income, franchise, capital stock, estate or inheritance taxes
imposed by the State or federal government or their agencies, branches or
departments; provided that if at any time during the Term any governmental
entity levies, assesses or imposes on Landlord any (1) general or special,
ad valorem or specific, excise, capital levy or other tax, assessment, levy
or charge directly on the Rent received under this Lease or on the rent
received under any other leases of space in the Building or Project, or (2)
any license fee, excise or franchise tax, assessment, levy or charge
measured by or based, in whole or in part, upon such rent, or (3) any
transfer, transaction, or similar tax, assessment, levy or charge based
directly or indirectly upon the transaction represented by this Lease or
such other leases, or (4) any occupancy, use per capita or other tax,
assessment, levy or charge based directly or indirectly upon the use or
occupancy of the Premises or other premises within the Building or Project,
then any such taxes, assessments, levies and charges shall be deemed to be
included in the term Project Operating Costs. If at any time during the
Term the assessed valuation of, or taxes on, the Project are not based on a
completed Project having at least eighty-five percent (85%) of the Rentable
Area occupied, then the "taxes" component of Project Operating Costs shall
be adjusted by Landlord to reasonably approximate the taxes which would
have been payable if the Project were completed and at least eighty-five
percent (85%) occupied.
(b) Operating costs incurred by Landlord in maintaining and operating the
Building and Project, including without limitation the following: costs of
(1) utilities; (2) supplies; (3) insurance (including public liability,
property damage, earthquake and fire and extended coverage insurance for
the full replacement cost of the Building and Project as required by
Landlord of its lenders for the Project; (4) services of independent
contractors; (5) compensation (including employment taxes and fringe
benefits) of all persons who perform duties connected with the operation,
maintenance, repair or overhaul of the Building or Project, and equipment,
improvements and facilities located within the Project, including without
limitation engineers, janitors, painters, floor waxers, window washers,
security and parking personnel and gardeners (but excluding persons
performing services not uniformly available to or performed for
substantially all Building or Project tenants); (6) operation and
maintenance of a room for delivery and distribution of mail to tenants of
the Building or Project as required by the U.S. Postal Service (including,
without limitation, an amount equal to the fair market rental value of the
mail room premises); (7) management of the Building or Project, whether
managed by Landlord or an independent contractor (including, without
limitation, an amount equal to the fair market value of any on-site
manager's office); (8) rental expenses for (or a reasonable depreciation
allowance on) personal property used in the maintenance, operation or
repair of the Building or Project; (9) costs, expenditures or charges
(whether capitalized or not) required by any governmental or quasi-
governmental authority; (10) amortization of capital expenses (including
financing costs) (i) required by a governmental entity for energy
conservation or life safety purposes, or (ii) made by Landlord to reduce
Project Operating Costs; and (11) any other costs or expenses incurred by
Landlord under this Lease and not otherwise reimbursed by tenants of the
Project. If at any time during the Term, less than eighty-five percent
(85%) of the Rentable Area of the Project is occupied, the "operating
costs" component of Project Operating Costs shall be adjusted by Landlord
to reasonably approximate the operating costs which would have been
incurred if the Project had been at least eighty-five percent (85%)
occupied.
(2) Tenant's Proportionate Share of Project Operating Costs shall be payable by
Tenant to Landlord as follows:
(a) Beginning with the calendar year following the Base Year and for each
calendar year thereafter ("Comparison Year"). Tenant shall pay Landlord an
amount equal to Tenant's Proportionate Share of the Project Operating Costs
incurred by Landlord in the Comparison Year which exceeds the total amount
of Project Operating Costs payable by Landlord for the Base Year. This
excess is referred to as the "Excess Expenses."
(b) To provide for current payments of Excess Expenses, Tenant shall, at
Landlord's request, pay as additional rent during each Comparison Year, an
amount equal to Tenant's Proportionate Share of the Excess Expenses payable
during such Comparison Year, as estimated by Landlord from time to time.
Such payments shall be made in monthly installments, commencing on the
first day of the month following the month in which Landlord notifies
Tenant of the amount it is to pay hereunder and continuing until the first
day of the month following the month in which Landlord gives Tenant a new
notice of estimated Excess Expenses. It is the intention hereunder to
estimate from time to time the amount of the Excess Expenses for each
Comparison Year and Tenant's Proportionate Share thereof, and then to make
an adjustment in the following year based on the actual Excess Expenses
incurred for that Comparison Year.
(c) On or before April 1 of each Comparison Year after the first Comparison
Year (or as soon thereafter as is practical), Landlord shall deliver to
Tenant a statement setting forth Tenant's Proportionate Share of the Excess
Expenses for the preceding Comparison Year. If Tenant's Proportionate Share
of the actual Excess Expenses for the previous Comparison Year exceeds the
total of the estimated monthly payments made by Tenant for such year,
Tenant shall pay Landlord the amount of the deficiency within ten (10) days
of the receipt of the statement. If such total exceeds Tenant's
Proportionate Share of the actual Excess Expenses for such Comparison Year,
then Landlord shall credit against Tenant's next ensuing monthly
installment(s) of additional rent an amount equal to the difference until
the credit is exhausted. If a credit is due from Landlord on the Expiration
Date, Landlord shall pay Tenant the amount of the credit. The obligations
of Tenant and Landlord to make payments required under this Section 5.3
shall survive the Expiration Date.
(d) Tenant's Proportionate Share of Excess Expenses in any Comparison Year
having less than 365 days shall be appropriately prorated.
(e) If any dispute arises as to the amount of any additional rent due
hereunder, Tenant shall have the right after reasonable notice and at
reasonable times to inspect Landlord's accounting records at Landlord's
accounting office and, if after such inspection Tenant still disputes the
amount of additional rent owed, a certification as to the proper amount
shall be made by Landlord's certified public accountant, which
certification shall be final and conclusive. Tenant agrees to pay the cost
of such certification unless it is determined that Landlord's original
statement overstated Project Operating Costs by more than five percent (5).
(3)
<PAGE>
(f) If this Lease sets forth an Expense Stop at Section 21, then during the
Term Tenant shall be liable for Tenant's Proportionate Share of any actual
Project Operating Costs which exceed the amount of the Expense Stop. Tenant
shall make current payments of such excess costs during the Term in the
same manner as is provided for payment of Excess Expenses under the
applicable provisions of Section 5.3b(2)(b) and (c) above.
5.4 Definition of Rent. All costs and expenses which Tenant assumes or agrees
to pay to Landlord under this Lease shall be deemed additional rent (which,
together with the Base Rent is sometimes referred to as the "Rent"). The Rent
shall be paid to the Building manager (or other person) and at such place, as
Landlord may from time to time designate in writing, without any prior demand
therefor and without deduction or offset, in lawful money of the United States
of America.
5.5 Rent Control. If the amount of Rent or any other payment due under this
Lease violates the terms of any governmental restrictions on such Rent or
payment, then the Rent or payment due during the period of such restrictions
shall be the maximum amount allowable under those restrictions. Upon termination
of the restrictions, Landlord shall, to the extent it is legally permitted,
recover from Tenant the difference between the amounts received during the
period of the restrictions and the amounts Landlord would have received had
there been no restrictions.
5.6 Taxes Payable by Tenant. In addition to the Rent and any other charges to be
paid by Tenant hereunder, Tenant shall reimburse Landlord upon demand for any
and all taxes payable by Landlord (other than net income taxes) which are not
otherwise reimbursable under this Lease, whether or not now customary or within
the contemplation of the parties, where such taxes are upon, measured by or
reasonably attributable to (a) the cost or value of Tenant's equipment,
furniture, fixtures and other personal property located in the Premises, or the
cost or value of any leasehold improvements made in or to the Premises by or for
Tenant, other than Building Standard Work made by Landlord, regardless of
whether title to such improvements is held by Tenant or Landlord; (b) the gross
or net Rent payable under this Lease, including, without limitation, any rental
or gross receipts tax levied by any taxing authority with respect to the receipt
of the Rent hereunder; (c) the possession, leasing, operation, management,
maintenance, alteration, repair, use or occupancy by Tenant of the Premises or
any portion thereof; or (d) this transaction or any document to which Tenant is
a party creating or transferring an interest or an estate in the Premises. If it
becomes unlawful for Tenant to reimburse Landlord for any costs as required
under this Lease, the Base Rent shall be revised to net Landlord the same net
Rent after imposition of any tax or other charge upon Landlord as would have
been payable to Landlord but for the reimbursement being unlawful.
6. INTEREST AND LATE CHARGES.
If Tenant fails to pay when due any Rent or other amounts or charges which
Tenant is obligated to pay under the terms of this Lease, the unpaid amounts
shall bear interest at the maximum rate then allowed by law. Tenant acknowledges
that the late payment of any Monthly Installment of Base Rent will cause
Landlord to lose the use of that money and incur costs and expenses not
contemplated under this Lease, including without limitation, administrative and
collection costs and processing and accounting expenses, the exact amount of
which is extremely difficult to ascertain. Therefore, in addition to interest,
if any such installment is not received by Landlord within ten (10) days from
the date it is due, Tenant shall pay Landlord a late charge equal to ten percent
(10%) of such installment. Landlord and Tenant agree that this late charge
represents a reasonable estimate of such costs and expenses and is fair
compensation to Landlord for the loss suffered from such nonpayment by Tenant.
Acceptance of any interest or late charge shall not constitute a waiver of
Tenant's default with respect to such nonpayment by Tenant nor prevent Landlord
from exercising any other rights or remedies available to Landlord under this
Lease.
7. SECURITY DEPOSIT.
Tenant agrees to deposit with Landlord the Security Deposit set forth at Section
2.0 upon execution of this Lease, as security for Tenant's faithful performance
of its obligations under this Lease. Landlord and Tenant agree that the Security
Deposit may be commingled with funds of Landlord and Landlord shall have no
obligation or liability for payment of interest on such deposit. Tenant shall
not mortgage, assign, transfer or encumber the Security Deposit without the
prior written consent of Landlord and any attempt by Tenant to do so shall be
void, without force or effect and shall not be binding upon Landlord.
If Tenant fails to pay any Rent or other amount when due and payable under this
Lease, or fails to perform any of the terms hereof, Landlord may appropriate and
apply or use all or any portion of the Security Deposit for Rent payments or any
other amount then due and unpaid, for payment of any amount for which Landlord
has become obligated as a result of Tenant's default or breach, and for any loss
or damage sustained by Landlord as a result of Tenant's default or breach, and
Landlord may so apply or use this deposit without prejudice to any other remedy
Landlord may have by reason of Tenant's default or breach. If Landlord so uses
any of the Security Deposit, Tenant shall, within ten (10) days after written
demand therefor, restore the Security Deposit to the full amount originally
deposited; Tenant's failure to do so shall constitute an act of default
hereunder and Landlord shall have the right to exercise any remedy provided for
at Article 27 hereof. Within fifteen (15) days after the Term (or any extension
thereof) has expired or Tenant has vacated the Premises, whichever shall last
occur, and provided Tenant is not then in default on any of its obligations
hereunder, Landlord shall return the Security Deposit to Tenant, or, if Tenant
has assigned its interest under this Lease, to the last assignee of Tenant. If
Landlord sells its interest in the Premises, Landlord may deliver this deposit
to the purchaser of Landlord's interest and thereupon be relieved of any further
liability or obligation with respect to the Security Deposit.
8. TENANT'S USE OF THE PREMISES.
Tenant shall use the Premises solely for the purposes set forth in Tenant's Use
Clause. Tenant shall not use or occupy the Premises in violation of law or any
covenant, condition or restriction affecting the Building or Project or the
certificate of occupancy issued for the Building or Project, and shall, upon
notice from Landlord, immediately discontinue any use of the Premises which is
declared by any governmental authority having jurisdiction to be a violation of
law or the certificate of occupancy. To the extent Landlord would not otherwise
owe such duty or have a duty imposed upon it, Tenant, at Tenant's own cost and
expense, shall comply with all laws, ordinances, regulations, rules and/or any
directions of any governmental agencies or authorities having jurisdiction which
shall, by reason of the nature of Tenant's use or occupancy of the Premises,
impose any duty upon Tenant or Landlord with respect to the Premises or its use
or occupation. A judgment of any court of competent jurisdiction or the
conclusive admission by Tenant in any action or proceeding against Tenant that
Tenant has violated any such laws, ordinances, regulations, rules and/or
directions in the use of the Premises shall be deemed to be a conclusive
determination of that fact as between Landlord and Tenant. Tenant shall not do
or permit to be done anything which will invalidate or increase the cost of any
fire, extended coverage or other insurance policy covering the Building or
Project and/or property located therein, and shall comply with all rules, orders
regulations, requirements and recommendations of the Insurance Services Office
or any other organization performing a similar function. Tenant shall
(4)
<PAGE>
promptly upon demand reimburse Landlord for any additional premium charged for
such policy by reason of Tenant's failure to comply with the provisions of this
Article. Tenant shall not do or permit anything to be done in or about the
Premises which will in any way obstruct or interfere with the rights of other
tenants or occupants of the Building or Project, or injure or annoy them, or use
or allow the Premises to be used for any improper, immoral, unlawful or
objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance
in, on or about the Premises. Tenant shall not commit or suffer to be committed
any waste in or upon the Premises.
9. SERVICES AND UTILITIES.
Provided that Tenant is not in default hereunder, Landlord agrees to furnish to
the Premises during generally recognized business days, and during hours
determined by Landlord in its sole discretion, and subject to the Rules and
Regulations of the Building or Project, electricity for normal desk top office
equipment and normal copying equipment, and heating, ventilation and air
conditioning ("HVAC") as required in Landlord's judgment for the comfortable use
and occupancy of the Premises. If Tenant desires HVAC at any other time,
Landlord shall use reasonable efforts to furnish such service upon reasonable
notice from Tenant and Tenant shall pay Landlord's charges therefor on demand.
Landlord shall also maintain and keep lighted the common stairs, common entries
and restrooms in the Building. Except with respect to the negligence or willful
acts of Landlord, its agents or employees, Landlord shall not be in default
hereunder or be liable for any damages directly or indirectly resulting from,
nor shall the Rent be abated by reason of (i) the installation, use or
interruption of use of any equipment in connection with the furnishing of any of
the foregoing services, (ii) failure to furnish or delay in furnishing any such
services where such failure or delay is caused by accident or any condition or
event beyond the reasonable control of Landlord, or by the making of necessary
repairs or improvements to the Premises, Building or Project, or (iii) the
limitation, curtailment or rationing of, or restrictions on, use of water,
electricity, gas or any other form of energy serving the Premises, Building or
Project. Except with respect to the negligence or willful acts of Landlord, its
agents or employees, Landlord shall not be liable under any circumstances for a
loss of or injury to property or business, however occurring, through or in
connection with or incidental to failure to furnish any such services. If Tenant
uses heat generating machines or equipment in the Premises which affect the
temperature otherwise maintained by the HVAC system, Landlord reserves the right
to install supplementary air conditioning units in the Premises and the cost
thereof, including the cost of installation, operation and maintenance thereof,
shall be paid by Tenant to Landlord upon demand by Landlord.
Tenant shall not, without the written consent of Landlord, which consent shall
not be unreasonably withheld use any apparatus or device in the Premises,
including without limitation, electronic data processing machines, punch card
machines or machines using in excess of 120 volts, which consumes more
electricity than is usually furnished or supplied for the use of premises as
general office space, as determined by Landlord. Tenant shall not connect any
apparatus with electric current except through existing electrical outlets in
the Premises. Tenant shall not consume water or electric current in excess of
that usually furnished or supplied for the use of premises as general office
space (as determined by Landlord), without first procuring the written consent
of Landlord, which Landlord may not unreasonably refuse, and in the event of
consent, Landlord may have installed a water meter or electrical current meter
in the Premises to measure the amount of water or electric current consumed. The
cost of any such meter and of its installation, maintenance and repair shall be
paid for by the Tenant and Tenant agrees to pay to Landlord promptly upon demand
for all such water and electric current consumed as shown by said meters, at the
rates charged for such services by the local public utility plus any additional
expense incurred in keeping account of the water and electric current so
consumed. If a separate meter is not installed, the excess cost for such water
and electric current shall be established by an estimate made by a utility
company or electrical engineer hired by Landlord and Tenant at Tenant's expense.
Nothing contained in this Article shall restrict Landlord's right to require at
any time separate metering of utilities furnished to the Premises. In the event
utilities are separately metered, Tenant shall pay promptly upon demand for all
utilities consumed at utility rates charged by the local public utility plus any
reasonable additional expense incurred by Landlord in keeping account of the
utilities so consumed. Tenant shall be responsible for the maintenance and
repair of any such meters at its sole cost. If the necessity of such meter
installation was solely caused by Tenants non-typical use of the utilities.
Landlord shall furnish elevator service, lighting replacement for building
standard lights, restroom supplies, window washing and janitor services in a
manner that such services are customarily furnished to comparable office
buildings in the area.
10. CONDITION OF THE PREMISES.
Except for latent defects, Tenant's taking possession of the Premises shall be
deemed conclusive evidence that as of the date of taking possession the Premises
are in good order and satisfactory condition, except for such matters as to
which Tenant gave Landlord notice on or before the Commencement Date. No promise
of Landlord to alter, remodel, repair or improve the Premises, the Building or
the Project and no representation, express or implied, respecting any matter or
thing relating to the Premises, Building, Project or this Lease (including,
without limitation, the condition of the Premises, the Building or the Project)
have been made to Tenant by Landlord or its Broker or Sales Agent, other than as
may be contained herein or in a separate exhibit or addendum signed by Landlord
and Tenant.
11. CONSTRUCTION, REPAIRS AND MAINTENANCE.
a. Landlord's Obligations. Landlord shall perform Landlord's Work to the
Premises as described in Exhibit "C". Landlord shall maintain in good order,
condition and repair the Building and all other portions of the Premises not
the obligation of Tenant or of any other tenant in the Building.
b. Tenant's Obligations.
(1) Tenant shall perform Tenant's Work to the Premises as described in
Exhibit "C".
(2) Tenant at Tenant's sole expense shall, except for services furnished
by Landlord pursuant to Article 9 hereof, maintain the Premises in good
order, condition and repair, including the interior surfaces of the
ceilings, walls and floors, all doors, all interior windows, all
plumbing, pipes and fixtures, electrical wiring, switches and fixtures,
Building Standard furnishings and special items and equipment installed
by or at the expense of Tenant.
(3) Tenant shall be responsible for all repairs and alterations in and to
the Premises, Building and Project and the facilities and systems
thereof, the need for which arises out of (i) Tenant's use or occupancy
of the Premises, (ii) the installation, removal, use or operation of
Tenant's Property (as defined in Article 13) in the Premises, (iii) the
moving of Tenant's Property into or out of the Building, or (iv) the act,
omission, misuse or negligence of Tenant, its agents, contractors,
employees or invitees.
(5)
<PAGE>
(4) If Tenant fails to maintain the Premises in good order, condition
and repair, Landlord shall give Tenant notice to do such acts as are
reasonably required to so maintain the Premises. If Tenant fails to
promptly commence such work and diligently prosecute it to
completion, then Landlord shall have the right to do such acts and
expend such funds at the expense of Tenant as are reasonably required
to perform such work. Any amount so expended by Landlord shall be paid
by Tenant promptly after demand with interest at the prime commercial
rate then being charged by Bank of America NT & SA plus two percent
(2%) per annum, from the date of such work, but not to exceed the
maximum rate then allowed by law. Landlord shall have no liability to
Tenant for any damage, inconvenience, or interference with the use of
the Premises by Tenant as a result of performing any such work.
c. Compliance with Law. Landlord and Tenant shall each do all acts
required to comply with all applicable laws, ordinances, and rules of any
public authority relating to their respective maintenance obligations as
set forth herein.
d. Waiver by Tenant. Tenant expressly waives the benefits of any statute
now or hereafter in effect which would otherwise afford the Tenant the
right to make repairs at Landlord's expense or to terminate this Lease
because of Landlord's failure to keep the Premises in good order, condition
and repair.
e. Load and Equipment Limits. Tenant shall not place a load upon any
floor of the Premises which exceeds the load per square foot which such
floor was designed to carry, as determined by Landlord or Landlord's
structural engineer. The cost of any such determination made by Landlord's
structural engineer shall be paid for by Tenant upon demand. Tenant shall
not install business machines or mechanical equipment which cause noise or
vibration to such a degree as to be objectionable to Landlord or other
Building tenants.
f. Except as otherwise expressly provided in this Lease, Landlord shall
have no liability to Tenant nor shall Tenant's obligations under this Lease
be reduced or abated in any manner whatsoever by reason of any
inconvenience, annoyance, interruption or injury to business arising from
Landlord's making any repairs or changes which Landlord is required or
permitted by this Lease or by any other tenant's lease or required by law
to make in or to any portion of the Project, Building or the Premises.
Landlord shall nevertheless use reasonable efforts to minimize any
interference with Tenant's business in the Premises.
g. Tenant shall give Landlord prompt notice of any damage to or defective
condition in any part or appurtenance of the Building's mechanical,
electrical, plumbing, HVAC or other systems serving, located in, or passing
through the Premises.
h. Upon the expiration or earlier termination of this Lease, Tenant shall
return the Premises to Landlord clean and in the same condition as on the
date Tenant took possession, except for normal wear and tear. Any damage to
the Premises, including any structural damage, resulting from the Tenant's
use or from the removal of Tenant's fixtures, furnishings and equipment
pursuant to Section 13b shall be repaired by Tenant at Tenant's expense.
12. ALTERATIONS AND ADDITIONS.
a. Tenant shall not make any additions, alterations or improvements to
the Premises without obtaining the prior written consent of Landlord which
consent shall not be unreasonably withheld. Landlord's consent may be
conditioned on Tenant's removing any such additions, alterations or
improvements upon the expiration of the Term and restoring the Premises
to the same condition as on the date Tenant took possession. All work with
respect to any addition, alteration or improvement shall be done in a good
and workmanlike manner by properly qualified and licensed personnel
approved by Landlord, and such work shall be diligently prosecuted to
completion.
b. Tenant shall pay the costs of any work done on the Premises pursuant
to Section 12a, and shall keep the Premises, Building and Project free and
clear of liens of any kind. Tenant shall indemnify, defend against and
keep Landlord free and harmless from all liability, loss, damage, costs,
attorneys' fees and any other expense incurred on account of claims by
any person performing work or furnishing materials or supplies for Tenant
or any person claiming under Tenant.
Tenant shall keep Tenant's leasehold interest, and any additions or
improvements which are or become the property of Landlord under this Lease,
free and clear of all attachment or judgment liens. Before the actual
commencement of any work for which a claim or lien may be filed. Tenant
shall give Landlord notice of the intended commencement date a sufficient
time before that date to enable Landlord to post notices of non-
responsibility or any other notices which Landlord deems necessary for the
proper protection of Landlord's interest in the Premises, Building or the
Project, and Landlord shall have the right to enter the Premises and post
such notices at any reasonable time.
c. Landlord may require, at Landlord's sole option, that Tenant provide
to Landlord, at Tenant's expense, a lien and completion bond in an amount
equal to at least one and one-half (1 1/2) times the total estimated cost
of any additions, alterations or improvements to be made in or to the
Premises, to protect Landlord against any liability for mechanic's and
materialmen's liens and to insure timely completion of the work. Nothing
contained in this Section 12c shall relieve Tenant of its obligation under
Section 12b to keep the Premises, Building and Project free of all liens.
d. Unless their removal is required by Landlord as provided in Section
12a, all additions, alterations and improvements made to the Premises shall
become the property of Landlord and be surrendered with the Premises upon
the expiration of the Term; provided, however, Tenant's equipment,
machinery and trade fixtures which can be removed without damage to the
Premises shall remain the property of Tenant and may be removed, subject to
the provisions of Section 13b.
13. LEASEHOLD IMPROVEMENTS; TENANT'S PROPERTY.
a. All fixtures, equipment, improvements and appurtenances attached to or
built into the Premises at the commencement of or during the Term, whether
or not by or at the expense of Tenant ("Leasehold Improvements"), shall be
and remain a part of the Premises, shall be the property of Landlord and
shall not be removed by Tenant, except as expressly provided in Section
13b.
(6)
<PAGE>
b. All movable partitions, business and trade fixtures, machinery and
equipment, communications equipment and office equipment located in the
Premises and acquired by or for the account of Tenant, without expense to
Landlord, which can be removed without structural damage to the Building,
and all furniture, furnishings and other articles of movable personal
property owned by Tenant and located in the Premises (collectively
"Tenant's Property") shall be and shall remain the property of Tenant and
may be removed by Tenant at any time during the Term; provided that if any
of Tenant's Property is removed, Tenant shall promptly repair any damage to
the Premises or to the Building resulting from such removal.
14. RULES AND REGULATIONS.
Tenant agrees to comply with (and cause its agents, contractors, employees and
invitees to comply with) the rules and regulations attached hereto as Exhibit
"D" and with such reasonable modifications thereof and additions thereto as
Landlord may from time to time make. Except that Landlord shall make reasonable
efforts to force other Tenants to abide by all rules and regulations and to
mitigate the effects on Tenant of all other Tenants non-compliance with said
rules and regulations. Landlord shall not be responsible for any violation of
said rules and regulations by other tenants or occupants of the Building or
Project.
15. CERTAIN RIGHTS RESERVED BY LANDLORD.
Landlord reserves the following rights, exercisable without liability to Tenant
for (a) damage or injury to property, person or business, (b) causing an actual
or constructive eviction from the Premises, or (c) disturbing Tenant's
use or possession of the Premises:
a. To name the Building and Project and to change the name or street
address of the Building or Project;
b. To install and maintain all signs on the exterior and interior of the
Building and Project;
c. To have pass keys to the Premises and all doors within the Premises,
excluding Tenant's vaults and sales;
d. At any time during the Term, and on reasonable prior notice to Tenant,
to inspect the Premises, and to show the Premises to any prospective
purchaser or mortgagee of the Project, or to any assignee of any mortgage
on the Project, or to others having an interest in the Project or Landlord,
and during the last six months of the Term, to show the Premises to
prospective tenants thereof; and
e. To enter the Premises for the purpose of making inspections, repairs,
alterations, additions or improvements to the Premises or the Building
(including, without limitation, checking, calibrating, adjusting or
balancing controls and other parts of the HVAC system), and to take all
steps as may be necessary or desirable for the safety, protection,
maintenance or preservation of the Premises or the Building or Landlord's
interest therein or as may be necessary or desirable for the operation or
improvement of the Building or in order to comply with laws, orders or
requirements of governmental or other authority. Landlord agrees to use its
best efforts (except in an emergency) to minimize interference with
Tenant's business in the Premises in the course of any such entry.
16. ASSIGNMENT AND SUBLETTING.
No assignment of this Lease or sublease of all or any part of the Premises shall
be permitted, except as provided in this Article 16.
a. Tenant shall not, without the prior written consent of Landlord,
assign or hypothecate this Lease or any interest herein or sublet the
Premises or any part thereof, or permit the use of the Premises by any
party other than Tenant. Any of the foregoing acts without such consent
shall be void and shall, at the option of Landlord, terminate this Lease.
This Lease shall not, nor shall any interest of Tenant herein, be
assignable by operation of law without the written consent of Landlord.
b. If at any time or from time to time during the Term Tenant desires to
assign this Lease or sublet all or any part of the Premises, Tenant shall
give notice to Landlord setting forth the terms and provisions of the
proposed assignment or sublease, and the identity of the proposed assignee
or subtenant. Tenant shall promptly supply Landlord with such information
concerning the business background and financial condition of such proposed
assignee or subtenant as Landlord may reasonably request. Landlord shall
have the option, exercisable by notice given to Tenant within twenty (20)
days after Tenant's notice is given, either to sublet such space from
Tenant at the rental and on the other terms set forth in this Lease for the
term set forth in Tenant's notice, or, in the case of an assignment, to
terminate this Lease. If Landlord does not exercise such option, Tenant may
assign the Lease or sublet such space to such proposed assignee or
subtenant on the following further conditions.
(1) Landlord shall have the right to approve such proposed assignee
or subtenant, which approval shall not be unreasonably withheld;
(2) The assignment or sublease shall be on the same terms set forth
in the notice given to Landlord;
(3) No assignment or sublease shall be valid and no assignee or
sublessee shall take possession of the Premises until an executed
counterpart of such assignment or sublease has been delivered to
Landlord;
(4) No assignee or sublessee shall have a further right to assign or
sublet except on the terms herein contained; and
(5) Any sums or other economic consideration received by Tenant as a
result of such assignment or subletting, however denominated under the
assignment or sublease, which exceed, in the aggregate, (i) the total
sums which Tenant is obligated to pay Landlord under this Lease
(prorated to reflect obligations allocable to any portion of the
Premises subleased).
c. Notwithstanding the provisions of paragraphs a and b above. Tenant may
assign this Lease or sublet the Premises or any portion thereof, without
Landlord's consent and without extending any recapture or termination
option to Landlord, to any corporation which controls, is controlled by or
is under common control with Tenant, or to any corporation resulting from a
merger or consolidation with Tenant, or to any person or entity which
acquires all the assets of Tenant's business as a going concern, provided
that (i) the assignee or sublessee assumes, in full, the obligations of
Tenant under this Lease, (ii) Tenant remains fully liable under this Lease,
and (iii) the use of the Premises under Article 8 remains unchanged.
(7)
<PAGE>
d. No subletting or assignment shall release Tenant of Tenant's
obligations under this Lease or alter the primary liability of Tenant to
pay the Rent and to perform all other obligations to be performed by Tenant
hereunder. The acceptance of Rent by Landlord from any other person shall
not be deemed to be a waiver by Landlord of any provision hereof. Consent
to one assignment or subletting shall not be deemed consent to any
subsequent assignment or subletting. In the event of default by an assignee
or subtenant of Tenant or any successor of Tenant in the performance of any
of the terms hereof, Landlord may proceed directly against Tenant without
the necessity of exhausting remedies against such assignee, subtenant or
successor.
e. If Tenant assigns the Lease or sublets the Premises or requests the
consent of Landlord to any assignment or subletting or if Tenant requests
the consent of Landlord for any act that Tenant proposes to do, then Tenant
shall, upon demand, pay Landlord an administrative fee of One Hundred Fifty
and No/100ths Dollars ($150.00) plus any attorneys' fees reasonably
incurred by Landlord in connection with such act or request.
17. HOLDING OVER.
If after expiration of the Term, Tenant remains in possession of the Premises
with Landlord's permission (express or implied), Tenant shall become a tenant
from month to month only, upon all the provisions of this Lease (except as to
term and Base Rent), but the "Monthly Installments of Base Rent" payable by
Tenant shall be increased to one hundred twenty five percent (125%) of the
Monthly installments of Base Rent payable by Tenant at the expiration of the
Term. Such monthly rent shall be payable in advance on or before the first day
of each month, if either party desires to terminate such month to month
tenancy, it shall give the other party not less than thirty (30) days advance
written notice of the date of termination.
18. SURRENDER OF PREMISES.
a. Tenant shall peaceably surrender the Premises to Landlord on the
Expiration Date, in broom clean condition and in as good condition as when
Tenant took possession, except for (i) reasonable wear and tear, (ii) loss
by fire or other casualty, and (iii) loss by condemnation. Tenant shall, on
Landlord's request, remove Tenant's Property on or before the Expiration
Date and promptly repair all damage to the Premises or Building caused by
such removal.
b. If Tenant abandons or surrenders the Premises, or is dispossessed by
process of law or otherwise, any of Tenant's Property left on the Premises
shall be deemed to be abandoned, and, at Landlord's option, title shall
pass to Landlord under this Lease as by a bill of sale. If Landlord elects
to remove all or any part of such Tenant's Property, the cost of removal,
including repairing any damage to the Premises or Building caused by such
removal, shall be paid by Tenant. On the Expiration Date Tenant shall
surrender all keys to the Premises.
19. DESTRUCTION OR DAMAGE.
a. If the Premises or the portion of the Building necessary for Tenant's
occupancy is damaged by fire, earthquake, act of God, the elements of other
casualty. Landlord shall, subject to the provisions of this Article,
promptly repair the damage, if such repairs can, in Landlord's opinion, be
completed within (90) ninety days. If Landlord determines that repairs can
be completed within ninety (90) days, this Lease shall remain in full force
and effect, except that if such damage is not the result of the negligence
or willful misconduct of Tenant or Tenant's agents, employees, contractors,
licensees or invitees, the Base Rent and additional rent including all
project operating costs shall be abated to the extent Tenant's use of the
Premises is impaired, commencing with the date of damage and continuing
until completion of the repairs required of Landlord under Section 19d.
b. If in Landlord's opinion, such repairs to the Premises or portion of
the Building necessary for Tenant's occupancy cannot be completed within
ninety (90) days, Landlord or Tenant may elect, upon notice to the other
given within thirty (30) days after the date of such fire or other casualty
to terminate this Lease as of the date of such fire or casualty or agree to
have the Landlord repair such damage, in which event this Lease shall
continue in full force and effect, but the Base Rent shall be partially
abated as provided in Section 19a. If Landlord does not make such repairs,
this Lease shall terminate as of the date of such fire or other casualty.
c. If any other portion of the Building or Project is totally destroyed
or damaged to the extent that in Landlord's opinion repair thereof cannot
be completed within ninety (90) days, Landlord or Tenant may elect upon
notice to the other given within thirty (30) days after the date of such
fire or other casualty to terminate this Lease as of the date of such fire
or casualty or agree to have the Landlord repair such damage, in which
event this Lease shall continue in full force and effect, but the Base Rent
shall be partially abated as provided in Section 19a. If Landlord does not
make such repairs, this Lease shall terminate as of the date of such fire
or other casualty.
d. If the Premises are to be repaired under this Article, Landlord shall
repair at its cost any injury or damage to the Building and Building
Standard Work in the Premises. Except in the event of willful acts or
negligence of Landlord, its employees or agent Tenant shall be responsible
at its sole cost and expense for the repair, restoration and replacement of
any other Tenant provided Leasehold Improvements and Tenant's Property.
Landlord shall not be liable for any loss of business, inconvenience or
annoyance arising from any repair or restoration of any portion of the
Premises, Building or Project as a result of any damage from fire or other
casualty.
e. This Lease shall be considered an express agreement governing any case
of damage to or destruction of the Premises, Building or Project by fire
or other casualty, and any present or future law which purports to govern
the rights of Landlord and Tenant in such circumstances in the absence of
express agreement, shall have no application.
20. EMINENT DOMAIN.
a. If the whole of the Building or Premises is lawfully taken by
condemnation or in any other manner for any public or quasi public
purpose, this Lease shall terminate as of the date of such taking, and
Rent shall be prorated to such date. If less than the whole of the Building
or Premises is so taken, this Lease shall be unaffected by such taking,
provided that (i) Tenant shall have the right to terminate this Lease by
notice to Landlord given within ninety (90) days after the date of such
taking if twenty percent (20%) or more of the Premises is taken and the
remaining area of the Premises is not reasonably sufficient for Tenant to
continue operation of its business, and (ii) Landlord shall have the right
to terminate this Lease by notice to Tenant given within ninety (90) days
after the date of such taking. If either Landlord or Tenant so elects to
terminate this Lease, the Lease shall terminate on the thirtieth (30th) day
after either such notice. The Rent shall be prorated to the date of
termination. If this Lease continues in force upon such partial taking, the
Base Rent and Tenant's Proportionate Share shall be equitably adjusted
according to the remaining Rentable Area of the Premises and Project.
(8)
<PAGE>
b. In the event of any taking, partial or whole, all of the proceeds of
any award, judgment or settlement payable by the condemning authority shall
be the exclusive property of Landlord, and Tenant hereby assigns to
Landlord all of its right, title and interest in any award, judgment or
settlement from the condemning authority. Tenant, however, shall have the
right, to the extent that Landlord's award is not reduced or prejudiced, to
claim from the condemning authority (but not from Landlord) such
compensation as may be recoverable by Tenant in its own right for
relocation expenses and damage to Tenant's personal property.
c. In the event of a partial taking of the Premises which does not result
in a termination of this Lease, Landlord shall restore the remaining
portion of the Premises as nearly as practicable to its condition prior to
the condemnation or taking, but only to the extent of Building Standard
Work. Tenant shall be responsible at its sole cost and expense for the
repair, restoration and replacement of any other Leasehold Improvements and
Tenant's Property.
21. INDEMNIFICATION.
a. Except negligence or willful acts of landlord or that of its agents or
employees, Tenant shall indemnify and hold Landlord harmless against and
from liability and claims of any kind for loss or damage to property of
Tenant or any other person, or for any injury to or death of any person,
arising out of: (1) Tenant's use and occupancy of the Premises, or any
work, activity or other things allowed or suffered by Tenant to be done in
or on the Premises; (2) any breach or default by Tenant of any of Tenant's
obligations under this Lease; or (3) any negligent or otherwise tortious
act or omission of Tenant, its agents, employees, invitees or contractors.
Except as provided above, Tenant shall at Tenant's expense, and by counsel
satisfactory to Landlord, defend Landlord in any action or proceeding
arising from any such claim and shall indemnify Landlord against all costs,
attorneys' fees, expert witness fees and any other expenses incurred in
such action or proceeding.
b. Except in the event of negligence or willful acts of Landlord,
Landlord shall not be liable for injury or damage which may be sustained by
the person or property of Tenant, its employees, invitees or customers, or
any other person in or about the Premises, caused by or resulting from
fire, steam, electricity, gas, water or rain which may leak or flow from or
into any part of the Premises, or from the breakage, leakage, obstruction
or other defects of pipes, sprinklers, wires, appliances, plumbing, air
conditioning or lighting fixtures, whether such damage or injury results
from conditions arising upon the Premises or upon other portions of the
Building or Project or from other sources. Landlord shall not be liable for
any damages arising from any act or omission of any other tenant of the
Building or Project.
22. TENANT'S INSURANCE.
a. All insurance required to be carried by Tenant hereunder shall be issued
by responsible insurance companies acceptable to Landlord and Landlord's
lender and qualified to do business in the State. Each policy shall name
Landlord, and at Landlord's request any mortgagee of Landlord, as an
additional insured, as their respective interests may appear. Each policy
shall contain (i) a gross-liability endorsement, (ii) a provision that such
policy and the coverage evidenced thereby shall be primary and non-
contributing with respect to any policies carried by Landlord and that any
coverage carried by Landlord shall be excess insurance, and (iii) a waiver
by the insurer of any right of subrogation against Landlord, its agents,
employees and representatives, which arises or might arise by reason of any
payment under such policy or by reason of any act or omission of Landlord,
its agents, employees or representatives. A copy of each paid up policy
(authenticated by the insurer) or certificate of the insurer evidencing the
existence and amount of each insurance policy required hereunder shall be
delivered to Landlord before the date Tenant is first given the right of
possession of the Premises, and thereafter within thirty (30) days after
any demand by Landlord therefor. Landlord may, at any time and from time to
time, inspect and/or copy any insurance policies required to be maintained
by Tenant hereunder. No such policy shall be cancellable except after
twenty (20) days written notice to Landlord and Landlord's lender. Tenant
shall furnish Landlord with renewals or "binders" of any such policy at
least ten (10) days prior to the expiration thereof. Tenant agrees that if
Tenant does not take out and maintain such insurance, Landlord may (but
shall not be required to) procure said insurance on Tenant's behalf and
charge the Tenant the premiums together with a twenty-five percent (25%)
handling charge, payable upon demand. Tenant shall have the right to
provide such insurance coverage pursuant to blanket policies obtained by
the Tenant, provided such blanket policies expressly afford coverage to the
Premises, Landlord, Landlord's mortgagee and Tenant as required by this
Lease.
b. Beginning on the date Tenant is given access to the Premises for any
purpose and continuing until expiration of the Term, Tenant shall procure,
pay for and maintain in effect policies of casualty insurance covering (i)
all Leasehold improvements (including any alterations, additions or
improvements as may be made by Tenant pursuant to the provisions of Article
12 hereof), and (ii) trade fixtures, merchandise and other personal
property from time to time in, on or about the Premises, in an amount not
less than one hundred percent (100%) of their actual replacement cost from
time to time, providing protection against any peril included within the
classification "Fire and Extended Coverage" together with insurance against
sprinkler damage, vandalism and malicious mischief. The proceeds of such
insurance shall be used for the repair or replacement of the property so
insured. Upon termination of this Lease following a casualty as set forth
herein, the proceeds under (i) shall be paid to Landlord, and the proceeds
under (ii) above shall be paid to Tenant.
c. Beginning on the date Tenant is given access to the Premises for any
purpose and continuing until expiration of the Term, Tenant shall procure,
pay for and maintain in effect workers' compensation insurance as required
by law and comprehensive public liability and property damage insurance
with respect to the construction of improvements on the Premises, the use,
operation or condition of the Premises and the operations of Tenant in, on
or about the Premises, providing personal injury and broad form property
damage coverage for not less than One Million Dollars ($1,000,000.00)
combined single limit for bodily injury, death and property damage
liability.
d. Not less than every three (3) years during the Term, Landlord and
Tenant shall mutually agree to increases in all of Tenant's insurance
policy limits for all insurance to be carried by Tenant as set forth in
this Article. In the event Landlord and Tenant cannot mutually agree upon
the amounts of said increases, then Tenant agrees that all insurance policy
limits as set forth in this Article shall be adjusted for increases in the
cost of living in the same manner as is set forth in Section 5.2 hereof for
the adjustment of the Base Rent.
<PAGE>
23. WAIVER OF SUBROGATION.
Landlord and Tenant each hereby waive all rights of recovery against the other
and against the officers, employees, agents and representatives of the other, on
account of loss by or damage to the waiving party of its property or the
property of others under its control, to the extent that such loss or damage is
insured against under any fire and extended coverage insurance policy which
either may have in force at the time of the loss or damage. Tenant shall, upon
obtaining the policies of insurance required under this Lease, give notice to
its insurance carrier or carriers that the foregoing mutual waiver of
subrogation is contained in this Lease.
24. SUBORDINATION AND ATTORNMENT.
Upon written request of Landlord, or any first mortgagee or first deed of trust
beneficiary of Landlord, or ground lessor of Landlord, Tenant shall, in writing,
subordinate its rights under this Lease to the lien of any first mortgage or
first deed of trust, or to the interest of any lease in which Landlord is
lessee, and to all advances made or hereafter to be made thereunder. However,
before signing any subordination agreement, Tenant shall have the right to
obtain from any lender or lessor or Landlord requesting such subordination, an
agreement in writing providing that, as long as Tenant is not in default
hereunder, this Lease shall remain in effect for the full Term. The holder of
any security interest may, upon written notice to Tenant, elect to have this
Lease prior to its security interest regardless of the time of the granting or
recording of such security interest.
In the event of any foreclosure sale, transfer in lieu of foreclosure or
termination of the lease in which Landlord is lessee, Tenant shall attorn to the
purchaser, transferee or lessor as the case may be, and recognize that party as
Landlord under this Lease, provided such party acquires and accepts the Premises
subject to this Lease.
25. TENANT ESTOPPEL CERTIFICATES.
Within ten (10) days after written request from Landlord, Tenant shall execute
and deliver to Landlord or Landlord's designee, a written statement certifying
(a) that this Lease is unmodified and in full force and effect, or is in full
force and effect as modified and stating the modifications; (b) the amount of
Base Rent and the date to which Base Rent and additional rent have been paid in
advance; (c) the amount of any security deposited with Landlord; and (d) that
Landlord is not in default hereunder or, if Landlord is claimed to be in
default, stating the nature of any claimed default. Any such statement may be
relied upon by a purchaser, assignee or lender. Tenant's failure to execute and
deliver such statement within the time required shall at Landlord's election be
a default under this Lease and shall also be conclusive upon Tenant that: (1)
this Lease is in full force and effect and has not been modified except as
represented by Landlord; (2) there are no uncured defaults in Landlord's
performance and that Tenant has no right of offset, counter-claim or deduction
against Rent; and (3) not more than one month's Rent has been paid in advance.
26. TRANSFER OF LANDLORD'S INTEREST.
In the event of any sale or transfer by Landlord of the Premises, Building or
Project, and assignment of this Lease by Landlord, Landlord shall be and is
hereby entirely freed and relieved of any and all liability and obligations
contained in or derived from this Lease arising out of any act, occurrence or
omission relating to the Premises, Building, Project or Lease occurring after
the consummation of such sale or transfer, providing the purchaser shall
expressly assume all of the covenants and obligations of Landlord under this
Lease. If any security deposit or prepaid Rent has been paid by Tenant, Landlord
shall transfer the security deposit or prepaid Rent to Landlord's successor
and upon such transfer, Landlord shall be relieved of any and all further
liability with respect thereto.
27. DEFAULT.
27.1. TENANT'S DEFAULT. The occurrence of any one or more of the following
events shall constitute a default and breach of this Lease by Tenant:
a. If Tenant abandons or vacates the Premises without continuing to pay
rent; or
b. If Tenant fails to pay any Rent or any other charges required to be paid
by Tenant under this Lease and such failure continues for five (5) days
after such payment is due and payable; or
c. If Tenant fails to promptly and fully perform any other covenant,
condition or agreement contained in this Lease and such failure continues
for thirty (30) days or Tenant has not commenced to remedy any failure that
reasonably would take longer than thirty days to remedy after written
notice thereof from Landlord to Tenant; or
d. If a writ of attachment or execution is levied on this Lease or on any
of Tenant's Property; or
e. If Tenant makes a general assignment for the benefit of creditors, or
provides for an arrangement, composition, extension or adjustment with its
creditors; or
f. If Tenant files a voluntary petition for relief or if a petition against
Tenant in a proceeding under the federal bankruptcy laws or other
insolvency laws is filed and not withdrawn or dismissed within forty-five
(45) days thereafter, or if under the provisions of any law providing for
reorganization or winding up of corporations, any court of competent
jurisdiction assumes jurisdiction, custody or control of Tenant or any
substantial part of its property and such jurisdiction, custody or control
remains in force unrelinquished, unstayed or unterminated for a period of
forty-five (45) days; or
g. If in any proceeding or action in which Tenant is a party, a trustee,
receiver, agent or custodian is appointed to take charge of the Premises
or Tenant's Property (or has the authority to do so) for the purpose of
enforcing a lien against the Premises or Tenant's Property; or
h. If Tenant is a partnership or consists of more than one (1) person or
entity, if any partner or the partnership or other person or entity is
involved in any of the acts or events described in subparagraphs d through
g above.
27.2. REMEDIES. In the event of Tenant's default hereunder, then in addition
to any other rights or remedies Landlord may have under any law, Landlord shall
have the right, at Landlord's option, without further notice or demand of any
kind to do the following:
a. Terminate this Lease and Tenant's right to possession of the Premises
and reenter the Premises and take possession thereof, and Tenant shall have
no further claim to the Premises or under this Lease; or
b. Continue this Lease in effect, reenter and occupy the Premises for the
account of Tenant, and collect any unpaid Rent or other charges which have
or thereafter become due and payable; or
c. Reenter the Premises under the provisions of subparagraph b, and
thereafter elect to terminate this Lease and Tenant's right to possession
of the Premises.
(10)
<PAGE>
If Landlord reenters the Premises under the provisions of subparagraphs b or c
above, Landlord shall not be deemed to have terminated this Lease or the
obligation of Tenant to pay any Rent or other charges thereafter accruing,
unless Landlord notifies Tenant in writing of Landlord's election to terminate
this Lease. In the event of any reentry or retaking of possession by Landlord,
Landlord shall have the right, but not the obligation, to remove all or any part
of Tenant's Property in the Premises and to place such property in storage at a
public warehouse at the expense and risk of Tenant. If Landlord elects to relet
the Premises for the account of Tenant, the rent received by Landlord from such
relettting shall be applied as follows: first, to the payment of any
indebtedness other than Rent due hereunder from Tenant to Landlord; second, to
the payment of any costs of such reletting: third, to the payment of the cost of
any alterations or repairs to the Premises; fourth, to the payment of Rent due
and unpaid hereunder; and the balance, if any, shall be held by Landlord and
applied in payment of future Rent as it becomes due. If that portion of rent
received from the reletting which is applied against the Rent due hereunder is
less than the amount of the Rent due, Tenant shall pay the deficiency to
Landlord promptly upon demand by Landlord. Such deficiency shall be calculated
and paid monthly. Tenant shall also pay to Landlord, as soon as determined, any
costs and expenses incurred by Landlord in connection with such reletting or in
making alternations and repairs to the Premises, which are not covered by the
rent received from the reletting.
Should Landlord elect to terminate this Lease under the provisions of
subparagraph a or c above, Landlord may recover as damages from Tenant the
following:
1. Past Rent. The worth at the time of the award of any unpaid Rent which
had been earned at the time of termination; plus
2. Rent Prior to Award. The worth at the time of the award of the amount
by which the unpaid Rent which would have been earned after
termination until the time of award exceeds the amount of such rental
loss that Tenant proves could have been reasonably avoided; plus
3. Rent After Award. The worth at the time of the award of the amount by
which the unpaid Rent for the balance of the Term after the time of
award exceeds the amount of the rental loss that Tenant proves could
be reasonably avoided; plus
4. Proximately Caused Damages. Any other amount necessary to compensate
Landlord for all detriment proximately caused by Tenant's failure to
perform its obligations under this Lease or which in the ordinary
course of things would be likely to result therefrom, including, but
not limited to, any costs or expenses (including attorneys' fees),
incurred by Landlord in (a) retaking possession of the Premises, (b)
maintaining the Premises after Tenant's default, (c) preparing the
Premises for reletting to a new tenant, including any repairs or
alterations, and (d) reletting the Premises, including broker's
commissions.
"The worth at the time of the award" as used in subparagraphs 1 and 2 above, is
to be computed by allowing interest at the rate of ten percent (10%) per annum.
"The worth at the time of the award" as used in subparagraph 3 above, is to be
computed by discounting the amount at the discount rate of the Federal Reserve
Bank situated nearest to the Premises at the time of the award plus one percent
(1%).
The waiver by Landlord of any breach of any term, covenant or condition of this
Lease shall not be deemed a waiver of such term, covenant or condition or of any
subsequent breach of the same or any other term, covenant or condition.
Acceptance of Rent by Landlord subsequent to any breach hereof shall not be
deemed a waiver of any preceding breach other than the failure to pay the
particular Rent so accepted, regardless of Landlord's knowledge of any breach at
the time of such acceptance of Rent. Landlord shall not be deemed to have waived
any term, covenant or condition unless Landlord gives Tenant written notice of
such waiver.
27.3 Landlord's Default. If Landlord fails to perform any covenant, condition or
agreement contained in this Lease within thirty (30) days after receipt of
written notice from Tenant specifying such default, or if such default cannot
reasonably be cured within thirty (30) days, if Landlord fails to commence to
cure within that thirty (30) day period, then Landlord shall be liable to Tenant
for any damages sustained by Tenant as a result of Landlord's breach; provided,
however, it is expressly understood and agreed that if Tenant obtains a money
judgment against Landlord resulting from any default or other claim arising
under this Lease, that judgment shall be satisfied only out of the rents,
issues, profits, and other income actually received on account of Landlord's
right, title and interest in the Premises, Building or Project, and no other
real, personal or mixed property of Landlord (or of any of the partners which
comprise Landlord, if any) wherever situated, shall be subject to levy to
satisfy such judgement. If, after notice to Landlord of default, Landlord (or
any first mortgagee or first deed of trust beneficiary of Landlord) fails to
cure the default as provided herein, then Tenant shall have the right to cure
that default at Landlord's expense.
28. BROKERAGE FEES.
Tenant warrants and represents that it has not dealt with any real estate broker
or agent in connection with this Lease or its negotiation except those noted in
Section 2.c. Tenant shall indemnify and hold Landlord harmless from any cost,
expense or liability (including costs of suit and reasonable attorneys' fees)
for any compensation, commission or fees claimed by any other real estate broker
or agent in connection with this Lease or its negotiation by reason of any act
of Tenant.
29. NOTICES.
All notices, approvals and demands permitted or required to be given under this
Lease shall be in writing and deemed duly served or given if personally
delivered or sent by certified or registered U.S. mail, postage prepaid and
addressed as follows: (a) if to Landlord, to Landlord's Mailing Address and to
the Building manager, and (b) if to Tenant, to Tenant's Mailing Address, with
copy to: The Money Store, 3301 "C" Street, Suite 100-B, Sacramento, CA 95816
ATTN: National Leasing Manager, provided, however, notices to Tenant shall be
deemed duly served or given if delivered or mailed to Tenant at the Premises
with copy to: The Money Store, 3301 "C" Street, Suite 100-B, Sacramento, CA
95816 ATTN: National Leasing Manager, Landlord and Tenant may from time to time
by notice to the other designate another place for receipt of future notices.
30. GOVERNMENT ENERGY OR UTILITY CONTROLS.
In the event of imposition of federal, state or local government controls,
rules, regulations, or restrictions on the use or consumption of energy or other
utilities during the Term, both Landlord and Tenant shall be bound thereby. In
the event of a difference in interpretation by Landlord and Tenant of any such
controls, the interpretation of a mutually agreed upon third party shall
prevail, and Landlord shall have the right to enforce compliance therewith,
including the right of entry into the Premises to effect compliance.
31. RELOCATION OF PREMISES
(11)
<PAGE>
32. QUIET ENJOYMENT.
Tenant, upon paying the Rent and performing all of its obligations under this
Lease, shall peaceably and quietly enjoy the Premises, subject to the terms of
this Lease and to any mortgage, lease, or other agreement to which this Lease
may be subordinate.
33. OBSERVANCE OF LAW.
Tenant shall not use the Premises or permit anything to be done in or about the
Premises which will in any way conflict with any law, statute, ordinance or
governmental rule or regulation now in force or which may hereafter be enacted
or promulgated. To the extent Landlord would not otherwise owe such duty or have
a duty imposed upon it, Tenant shall, at its sole cost and expense, promptly
comply with all laws, statutes, ordinances and governmental rules, regulations
or requirements now in force or which may hereafter be in force, and with the
requirements of any board of fire insurance underwriters or other similar bodies
now or hereafter constituted, relating to, or affecting the condition, use or
occupancy of the Premises, excluding structural changes not related to or
affected by Tenant's improvements or acts. The judgment of any court of
competent jurisdiction or the conclusive admission of Tenant in any action
against Tenant, whether Landlord is a party thereto or not, that Tenant has
violated any law, ordinance or governmental rule, regulation or requirement,
shall be conclusive of that fact as between Landlord and Tenant.
34. FORCE MAJEURE.
Any prevention, delay or stoppage of work to be performed by Landlord or Tenant
which is due to strikes, labor disputes, inability to obtain labor, materials,
equipment or reasonable substitutes therefor, acts of God, governmental
restrictions or regulations or controls, judicial orders, enemy or hostile
government actions, civil commotion, fire or other casualty, or other causes
beyond the reasonable control of the party obligated to perform hereunder, shall
excuse performance of the work by that party for a period equal to the duration
of that prevention, delay or stoppage. Nothing in this Article 34 shall excuse
or delay Tenant's obligation to pay Rent or other charges under this Lease.
35. CURING TENANT'S DEFAULTS.
If Tenant defaults in the performance of any of its obligations under this
Lease, Landlord may (but shall not be obligated to) without waiving such
default, perform the same for the account at the expense of Tenant. Tenant
shall pay Landlord all reasonable costs of such performance promptly upon
receipt of a bill therefor.
36. SIGN CONTROL.
Tenant shall not affix, paint, erect or inscribe any sign, projection, awning,
signal or advertisement of any kind to any part of the Premises, Building or
Project, including without limitation, the inside or outside of windows or
doors, without the written consent of Landlord. Landlord shall have the right to
remove any signs or other matter, installed without Landlord's permission,
without being liable to Tenant by reason of such removal, and to charge the cost
of removal to Tenant as additional rent hereunder, payable within ten (10) days
of written demand by Landlord.
37. MISCELLANEOUS.
a. Accord and Satisfaction; Allocation of Payments. No payment by Tenant or
receipt by Landlord of a lesser amount than the Rent provided for in this Lease
shall be deemed to be other than on account of the earliest due Rent, nor shall
any endorsement or statement on any check or letter accompanying any check or
payment as Rent be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of the Rent or pursue any other remedy provided for in this Lease. In
connection with the foregoing, Landlord shall have the absolute right in its
sole discretion to apply any payment received from Tenant to any account or
other payment of Tenant then not current and due or delinquent.
b. Addenda. If any provision contained in an addendum to this Lease is
inconsistent with any other provision herein, the provision contained in the
addendum shall control, unless otherwise provided in the addendum.
c. Attorneys' Fees. If any action or proceeding is brought by either party
against the other pertaining to or arising out of this Lease, the finally
prevailing party shall be entitled to recover all costs and expenses, including
reasonable attorneys' fees, incurred on account of such action or proceeding.
d. Captions, Articles and Section Numbers. The captions appearing within the
body of this Lease have been inserted as a matter of convenience and for
reference only and in no way define, limit or enlarge the scope or meaning of
this Lease. All references to Article and Section numbers refer to Articles and
Sections in this Lease.
e. Changes Requested by Lender. Neither Landlord or Tenant shall unreasonably
withhold its consent to changes or amendments to this Lease requested by the
lender on Landlord's interest, so long as these changes do not alter the basic
business terms of this Lease or otherwise materially diminish any rights or
materially increase any obligations of the party from whom consent to such
change or amendment is requested.
f. Choice of Law. This Lease shall be construed and enforced in accordance
with the laws of the State.
(12)
<PAGE>
h. Corporate Authority. If Tenant is a corporation, each individual signing
this Lease on behalf of Tenant represents and warrants that he is duly
authorized to execute and deliver this Lease on behalf of the corporation, and
that this Lease is binding on Tenant in accordance with its terms. Tenant shall,
at Landlord's request, deliver a certified copy of a resolution of its board of
directors authorizing such execution.
i. Counterparts. This Lease may be executed in multiple counterparts, all of
which shall constitute one and the same Lease.
j. Execution of Lease; No Option. The submission of this Lease to Tenant shall
be for examination purposes only, and does not and shall not constitute a
reservation of or option for Tenant to lease, or otherwise create any interest
of Tenant in the Premises or any other premises within the Building or Project.
Execution of this Lease by Tenant and its return to Landlord shall not be
binding on Landlord or Tenant notwithstanding any time interval, until Landlord
has in fact signed and delivered this Lease to Tenant.
k. Furnishing of Financial Statements; Tenant's Representations. In order to
induce Landlord to enter into this Lease Tenant agrees that it shall promptly
furnish Landlord, from time to time, upon Landlord's written request, with
financial statements reflecting Tenant's current financial condition. Tenant
represents and warrants that all financial statements, records and information
furnished by Tenant to Landlord in connection with this Lease are true, correct
and complete in all respects.
l. Further Assurances. The parties agree to promptly sign all documents
reasonably requested to give effect to the provisions of this Lease.
m. Mortgage Protection. Tenant agrees to send by certified or registered mail
to any first mortgagee or first deed of trust beneficiary of Landlord whose
address has been furnished to Tenant, a copy of any notice of default served by
Tenant on Landlord. If Landlord fails to cure such default within the time
provided for in this Lease, such mortgagee or beneficiary shall have an
additional thirty (30) days to cure such default; provided that if such default
cannot reasonably be cured within that thirty (30) day period, then such
mortgagee or beneficiary shall have such additional time to cure the default as
is reasonably necessary under the circumstances.
n. Prior Agreements; Amendments. This Lease contains all of the agreements of
the parties with respect to any matter covered or mentioned in this Lease, and
no prior agreement or understanding pertaining to any such matter shall be
effective for any purpose. No provisions of this Lease may be amended or added
to except by an agreement in writing signed by the parties or their respective
successors in interest.
o. Recording. Tenant shall not record this Lease without the prior written
consent of Landlord. Tenant, upon the request of Landlord, shall execute and
acknowledge a "short form" memorandum of this Lease for recording purposes.
p. Severability. A final determination by a court of competent jurisdiction
that any provision of this Lease is invalid shall not affect the validity of any
other provision, and any provision so determined to be invalid shall, to the
extent possible, be construed to accomplish its intended effect.
q. Successors and Assigns. This Lease shall apply to and bind the heirs,
personal representatives, and permitted successors and assigns of the parties.
r. Time of the Essence. Time is of the essence of this Lease.
s. Waiver. No delay or omission in the exercise of any right or remedy of
Landlord or Tenant upon default by the other shall impair such right or remedy
or be construed as a waiver of such default.
t. Compliance. The parties hereto agree to comply with all applicable federal,
state and local laws, regulations, codes, ordinances and administrative orders
having jurisdiction over the parties, property or the subject matter of this
Agreement, including, but not limited to, the 1964 Civil Rights Act and all
amendments thereto, the Foreign Investment In Real Property Tax Act, the
Comprehensive Environmental Response Compensation and Liability Act, and The
Americans With Disabilities Act.
The receipt and acceptance by Landlord of delinquent Rent shall not constitute a
waiver of any other default; it shall constitute only a waiver of timely payment
for the particular Rent payment involved.
No act or conduct of Landlord, including, without limitation, the acceptance of
keys to the Premises, shall constitute an acceptance of the surrender of the
Premises by Tenant before the expiration of the Term. Only a written notice from
Landlord to Tenant shall constitute acceptance of the surrender of the Premises
and accomplish a termination of the Lease.
Landlord's consent to or approval of any act by Tenant requiring Landlord's
consent or approval shall not be deemed to waive or render unnecessary
Landlord's consent to or approval of any subsequent act by Tenant.
Any waiver by Landlord of any default must be in writing and shall not be a
waiver of any other default concerning the same or any other provision of the
Lease.
The parties hereto have executed this Lease as of the dates set forth below.
Date: 5/18/95 Date: ________________________
----------------------------------------
Landlord: Crosstown Building Partners Tenant: The Money Store, Inc.
By: Delta-Sierra Development, G.P. ----------------------
------------------------------------
By: /s/ Gary R. Bricker By: /s/ John Reeves
------------------------------------------ --------------------------
Gary R. Bricker John Reeves
Title: President Title: Sr. Vice President
--------------------------------------- -----------------------
By: __________________________________________ By: __________________________
Title: _______________________________________ Title: _______________________
- --------------------------------------------------------------------------------
CONSULT YOUR ADVISORS -- This document has been prepared for approval by your
attorney. No representation or recommendation is made by CB Commercial as to the
legal sufficiency or tax consequences of this document or the transaction to
which it relates. These are questions for your attorney.
In any real estate transaction, it is recommended that you consult with a
professional, such as a civil engineer, industrial hygienist or other person,
with experience in evaluating the condition of the property, including the
possible presence of asbestos, hazardous materials and underground storage
tanks.
- --------------------------------------------------------------------------------
(13)
<PAGE>
PAGE>
ADDENDUM TO LEASE
THIS ADDENDUM ("Addendum") is made to that certain lease (the "Lease") dated as
of January 1, 1995, by and between The Money Store Inc., a New Jersey
Corporation, as Tenant, and Crosstown Building Partners, a California limited
partnership, as Landlord. This Addendum shall be deemed a part of the Lease as
though set forth in full therein.
1. Adjusted Rents. The Fixed Minimum Monthly Rent, as adjusted during
--------------
the initial term, shall be as follows:
<TABLE>
<CAPTION>
Months Base Monthly Rent
------ -----------------
<S> <C>
1-12 $6,181.00
13-24 $6,366.43
25-36 $6,557.42
</TABLE>
2. Signs. Tenant shall not be permitted to install any sign on the
-----
exterior of the Building. Tenant may place a sign identifying Tenant as an
occupant of the building in the "billboard tenant identification sign" located
in the first floor lobby of the Building, and another identification sign
outside of the Premises, provided any such sign(s) are consistent with the
signage theme adopted for the Building by Landlord. No other signs may be
displayed without Landlord's prior written permission. THE EXISTING CARDBOARD
SIGN LOCATED IN THE FIRST FLOOR LOBBY AND THE CONSTRUCTION PAPER COVERING THE
GLASS OF THE FIRST FLOOR ENTRANCE MUST BE REMOVED WITHIN TEN (10) DAYS OF THE
DATE HEREOF, OR LANDLORD IS AUTHORIZED TO REMOVE THEM WITHOUT FURTHER NOTICE TO
TENANT. At the termination of this Lease for any reason whatsoever, Tenant
shall remove all signs installed pursuant to this Lease, and repair, replace
and/or repaint the areas effected by said signs in order to restore said area(s)
to the condition existing prior to said sign(s) installation, all at Tenant's
sole expense.
3. Tenant Improvements. Tenant leases and Landlord lets the Premises "as
-------------------
is". Tenant shall not demolish any existing tenant improvements or make any
additional tenant improvements without Landlord's expressed written consent,
which consent may not be unreasonably withheld. Landlord makes no representation
or warranty with regard to the existing improvements or to any improvements made
or to be made by Tenant. Unless otherwise determined by Landlord, any permitted
item of improvement made by Tenant shall be deemed part of the Premises and
shall be owned by Landlord. Tenant hereby indemnifies Landlord from and against
any liens, claims of lien or other causes of action brought as a result of
performing any tenant improvements to the Premises.
4. Option to Extend. Tenant is given the option to extend the term of
----------------
the Lease on all the terms and conditions contained herein, except the minimum
monthly rent, for one (1) three (3) year period (the "Extended Term") following
the expiration of the initial term, by giving notice of exercise of the option
("Option Notice") to Landlord at least five (5) months but not more than nine
(9) months before the expiration of the initial term. Provided that, if Tenant
is in default on the date of giving the Option Notice, at Landlord's election,
the Option Notice shall be ineffective, or if Tenant is in default on the date
the Extended Term is to commence, at Landlord's election, the Extended Term
shall not commence, and this Lease shall expire at the end of initial term. The
parties shall have sixty (60) days after Landlord receives the Option Notice in
which to agree on the applicable rental for the Extended Term. If the parties
agree to the applicable rental within said 60 days, they shall immediately
execute an amendment to this Lease stating the applicable rental for the
Extended Term.
If the parties are unable to agree on the applicable rental for the Extended
Term within said 60 days, then within ten (10) days thereafter, each party, at
its cost, and by giving notice to the other party, shall appoint a real estate
appraiser who is a member in good standing of the American Institute of Real
Estate Appraisers ("MAI") with at least five (5) years full time commercial
appraisal experience in the Sacramento County area, to render an opinion as to
the
<PAGE>
market rental to apply during the Extended Term. If a party fails to appoint an
appraiser within 10 days after the other party has given notice of the name of
its appraiser, the single appraiser so appointed shall be the sole appraiser and
shall set the applicable rental for the Extended Term. If two appraisers are
appointed as provided above, they shall meet promptly and attempt to set the
applicable rental for the Extended Term.
If the appraisers are unable to agree to the applicable rental within thirty
(30) days, they shall, within ten (10) days thereafter, submit their respective
opinions as to what the applicable rental should be to Landlord. In such event
the rent schedule last proposed in writing by Landlord in its previous
negotiations with Tenant shall be added together with each appraiser's rental
schedule, and the total divided by three (3). If the only practical means of
accomplishing the foregoing is to calculate the beginning rent in each case and
divide it by 3, the quotient so determined shall be the beginning rental, which
shall be subject to annual increases using the Consumer Price Index defined in
Section 2 (h) of the Lease, published as the U.S. City Average. In no event
shall the rental for the Extended Term be a flat rate rental for the entire
Extended Term.
If the Tenant objects to the rental schedule so determined, Tenant shall have
the right to elect to have the Lease expire at the end of the initial term,
provided Tenant pays for all the costs incurred in connection with the appraisal
procedure used to set the rental schedule for the Option Term, including
attorney's fees, if any. Tenant's election to allow the Lease to expire must be
exercised, if at all, within ten (10) days after receipt of notice from Landlord
or the appraisers, as the case may be, of the rental schedule for the Extended
Term as determined pursuant to this Paragraph 14.
5. Limited Right to Early Termination. Subject to the terms set forth
----------------------------------
in this Paragraph, Tenant shall have the right to terminate this Lease after the
twelfth (12th) month of the Lease term upon giving Landlord at least sixty (60)
days prior written notice, provided: a) in the event Tenant is in default on the
date of giving notice of early termination, such default must be cured prior to
the early termination date; and b) Tenant must be terminating this Lease in
order for the operations then occupying the Premises to consolidate with
Tenant's various other Sacramento operations (including affiliates and
subsidiary companies) into new headquarters. In the event any such default is
not cured or such consolidation is not immenent, the early termination shall be
ineffective and the full term of this Lease shall apply. The phrase "consolidate
Tenant's various other Sacramento operations" shall mean that not less than
ninety percent (90%) of the operations of Tenant and its affiliates and
subsidiaries, including The Money Store Investment Corporation and Educaid,
which are then operating in the Sacramento metropolitan Statistical Area, are at
that time consolidating into one building, or a single office complex of more
than one building.
6. Confidentiality Clause. Tenant acknowledges and agrees that the terms
----------------------
of this Lease are special, valuable and unique to this transaction, and hereby
covenants and agrees during the period prior to execution of this Lease and
during the term thereof, to not reveal or make available the Lease or its
content, terms or provisions to any individual or entity without the prior
written consent of Landlord. This Paragraph shall not apply to any auditor,
accountant or consultant to Tenant, when such party requires review of this
Lease as a part of its services to Tenant or a third party dealing with Tenant.
7. Safety/Indemnity. Tenant shall operate its business and use the
----------------
Premises in accordance with all applicable laws and ordinances, and in as safe
and hazard free manner as possible. Except with respect to any negligence or
willful acts of Landlord, its agents or employees, Tenant hereby indemnifies and
holds Landlord free and harmless against any and all losses, costs (including
attorneys' fees), damages, liability, personal or property damage, and shall
defend Landlord against any claims or causes of action brought against Landlord
as a result of Tenant's operation, possession or use of the Premises.
8. Interpretation. Any provision contained in the body of the Lease
--------------
which is inconsistent with any provision of this Addendum shall be superseded by
the provision contained in this Addendum. This Lease shall be governed by the
laws of the State of California.
<PAGE>
9. Rentable Area. The parties acknowledge and agree that the Rentable
-------------
Area of the Premises may change from time to time during the term as Landlord
may need to change the configuration of leasable space within the Building as
other tenant's leases commence or terminate, and therefore Tenant's
Proportionate Share, as defined in Section 2 (r) of the Lease, may vary from
time to time accordingly.
10. Parking. Notwithstanding anything to the contrary contained in the
-------
Lease, the parking stalls which Tenant will be allowed to use will be assigned
to Tenant, and parking in any parking stalls other than those assigned to Tenant
is strictly prohibited. Tenant acknowledges that tenant parking for the Building
is subject to non-discriminatory rules and regulations which may be adopted by
Landlord from time to time, that Landlord reserves the right to charge a monthly
or other fee to Tenant for the parking stalls assigned to Tenant, so long as
Tenant is not the only tenant within the Building to be so charged. Tenant
further acknowledges that Landlord does not guaranty that all or any portion of
the parking stalls assigned to Tenant will be located in the parking lot
immediately adjacent to the Building.
/
/
/
/
/
/
/
IN WITNESS WHEREOF, the parties have executed this Amendment in Sacramento,
California.
TENANT:
THE MONEY STORE INC., a New Jersey corporation
By: /s/ John Reeves
------------------------------------
John Reeves, Sr. Vice President
LANDLORD:
CROSSTOWN BUILDING PARTNERS, a California limited partnership
By Delta-Sierra Development, Inc. a California corporation, its general
partner
By: /s/ Gary R. Bricker
-------------------------------
Gary R. Bricker, President
<PAGE>
ADDITIONAL TERMS
This and the following paragraphs are added to the lease. In the event of
any inconsistencies between the provisions of this Addendum and the provisions
of the Lease, this Addendum shall govern.
11. Notwithstanding anything to the contrary in this Lease, Landlord agrees
that all of its duties, rights and obligations under this Lease shall be
exercised in a reasonable manner and in good faith with respect to the Tenant.
12. Notwithstanding anything to the contrary in this Lease, Tenant shall have
the first right of refusal on any adjacent space. In the event a first right of
refusal has been granted to any other Tenant, Tenant shall have a second right
of refusal.
13. Americans with Disabilities Act: Landlord recognizes and agrees that
--------------------------------
Tenant shall not be liable for any damages or claims, or for any changes to in,
or about the building, which may be required by The Americans with Disabilities
Act. Landlord agrees to indemnify and hold harmless, and to defend, Tenant
against all liability, cost and expenses Tenant may incur as a result of any
claim, damages, or action, including without limitation any lawsuit or
administrative proceedings, asserted against Tenant as a result of The Americans
with Disabilities Act.
14. Monetary Default: Notwithstanding anything in this Lease to the contrary
-----------------
Landlord shall give Tenant written notice of any ("Monetary Default") under this
Lease and Tenant shall have ten (10) days from receiving such notice, to satisfy
any ("Monetary Default") before Landlord shall consider Tenant in actual
default, except that landlord shall only be required to give notice to Tenant
under this paragraph a maximum of two (2) time per any 12 month period.
15. Operating Cost Exclusions:
--------------------------
In addition of the exclusions set forth in paragraph 5.3 of the Lease, Operating
---
Costs of the Building shall exclude the following:
A) Cost of decorating, redecorating, or special cleaning or other services not
provided on a regular basis to tenants of the Building, unless such
decorating, redecorating or special cleaning are typical and customary in
common areas of first-class office buildings in the market;
B) Wages, salaries, fees and fringe benefits paid to administrative of
executive personnel or officers or partners of Landlord unless employed at
competitive rates as independent contractors;
C) Any charge for depreciation of the Building or equipment;
D) Any charge for Landlords income, excess profit, franchise, inheritance,
gift, transfer, excise or profit taxes, or capital levies on Landlord's
business and any late payment charges or penalties with regard thereto;
E) All costs relating to activities for the solicitation and execution of
leases of space in the Building;
F) All costs for which Tenant or other tenants in the Building are being
charged other than pursuant to paragraph 5.3 of the Lease;
---
G) The cost of any repairs made by Landlord because of the total or partial
destruction of the Building or the condemnation of a portion of the
Building;
H) Any increases in insurance premiums to the extent that such increase is
caused or attributable to the use of the Building by any tenant other than
Tenant;
I) The cost of any items for which Landlord is reimbursed by insurance;
<PAGE>
J) The cost of any repairs, alterations, additions, changes, replacements,
and other items which under generally accepted accounting principles are
properly classified as capital expenditures to the extent they upgrade or
improve the Building as opposed to replace existing items which have worn
out;
K) The cost of repairing construction defects, replacement of the roof,
resurfacing the parking structure and exterior glass replacement;
L) Any Operating Costs of the Building representing an amount paid to a
related corporation, entity, or person which is in excess of the amount
which would be paid in the absence of such relationship;
M) The cost of tools and equipment used initially in the construction of the
Building;
N) The cost of any work or service performed for or facilities furnished to
any tenant of the Building to a greater extent or in a manner more
favorable to such tenant than that performed for or furnished to Tenant;
O) The cost of alterations of space in the Building leased to other tenants;
P) The cost of overtime or other expense to Landlord in curing its defaults
or performing work expressly provided in this Lease to be borne at
Landlord's expense; and
Q) Capital improvements or expenditures incurred to reduce expenses shall be
included in Operating Costs of the Building to the lesser of the annual
amortized amount of said improvements or expenditures (over the useful
life of the improvement or item) or the actual savings.
16. Landlord's Representation and Warranty:
--------------------------------------
Landlord represents and warrants, to the best actual knowledge of Landlord,
without inquiry, that:
(1) except as stated in the preliminary site assessment dated June 25,
1991 attached hereto, no Hazardous Substances are now or have ever been located,
produced, treated, stored, transported, incorporated, discharged, emitted,
released, deposited or disposed of in, upon, under, over or from the Property by
Landlord except for Hazardous Substances utilized in conjunction with office
equipment and systems or cleaning supplies; and
(2) neither the Property nor any part there of is in violation of any
Environment Law.
17. Landlord's Indemnification:
--------------------------
Landlord shall indemnify, defend and hold Tenant harmless against any and all
liability to any third person not a party to this Lease for any and all actions,
claims, demands, judgements, penalties, liabilities, costs, damages and
expenses, including court costs and attorney's fees incurred by Tenant, directly
or indirectly, resulting from the existence of any Hazardous Substances in,
upon, under, over or from the Property, unless such Hazardous Substances is
deposited in, upon, under, over or from the Property by Tenant. Each of the
representations and warranties of Landlord set forth within paragraph 16 above
--
and all of Landlord's obligations under this paragraph shall expire on the last
day of the second year after the expiration or earlier termination date of this
Lease.
<PAGE>
18. Interruption of Services:
------------------------
Notwithstanding anything to the contrary set forth within the Lease, in the
event any of the services set forth in paragraph 9 of the Lease are interrupted
--
and are not restored within seven (7) business days after Landlord's receipt of
Tenant's written notice, Tenant may abate payments of Base Rent provided that
(1) the ability to restore the interrupted services is within the reasonable
control of Landlord, and (2) Tenant's ability to use the Demised Premises is
materially interrupted. Tenant's Base Rent abatement period shall last only for
the period of time during which Tenant's use of the Demised Premises is
materially interrupted.
19. Tenant's Remedy for Landlord's Failure to Repair Maintain the Building:
----------------------------------------------------------------------
In the event Landlord fails to make any repairs, alterations or improvements
within seven (7) business days after receipt of Tenant's written notice, Tenant
may abate payments of Base Rent provided that (1) the ability to make the
repair, alteration or improvement is within the reasonable control of Landlord,
and (2) Tenant's ability to use the Demised Premises is materially interrupted.
Tenant's Base Rent abatement period shall last only for the period of time
during which Tenant's use of the Demised Premises is materially interrupted.
LANDLORD: TENANT:
CROSSTOWN BUILDING PARTNERS, THE MONEY STORE INC.,
A CALIFORNIA LIMITED PARTNERSHIP A NEW JERSEY CORPORATION
By: Delta Service Development, Inc.,
its general partner
By: /s/ Gary R. Bricker By: /s/ John A. Reeves
-------------------------------- -------------------------------
Its: President Its: Senior Vice President
-------------------------------- -------------------------------
Date: 5/18/95 Date:
------------------------------- ------------------------------
<PAGE>
EXHIBIT "A"
That real property situated in the City of Sacramento, County of Sacramento,
State of California, described as follows:
PARCEL NO. 1:
The North one-half of Lot 1 in the Block bounded by "N" and "O", 21st and 22nd
Streets of the City of Sacramento, according to the official map or plan
thereof; and
The West one-half of Lot 2 in the Block bounded by "N" and "O", 21st and 22nd
Streets of the City of Sacramento, according to the official map or plan
thereof.
PARCEL NO. 2:
The East one-half of Lot 3 in the Block bounded by "N" and "O", 21st and 22nd
Streets of the City of Sacramento, according to the official map or plan
thereof.
<PAGE>
EXHIBIT C
Exhibit C is intentionally omitted, as Tenant is leasing the premises "as is".
Where the context allows, any references in the Lease to improvements to be
constructed pursuant to "Exhibit C" of the Lease shall be deemed to be the
improvements to be constructed by Tenant at Tenant's sole expense. Note that
any and all improvements must be first be approved by Landlord, in writing.
<PAGE>
CROSSTOWN BUILDING
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside of
the Building without the written consent of Landlord first had and obtained, and
Landlord shall have the right to remove any such sign, placard, picture,
advertisement, name or notice without notice to and at the expense of Tenant.
All approved signs or lettering on doors shall be printed, painted, affixed
or inscribed at the expense of Tenant by a person approved of by Landlord.
Tenant shall not place anything or allow anything to be placed near the
glass of any window, door, partition or wall which may appear unsightly from
outside the Premises; provided, however, that Landlord may furnish and install a
Building standard window covering at all exterior windows. Tenant shall not,
without prior written consent of Landlord, cause or otherwise sunscreen any
window.
2. The sidewalks, halls, passages, exits, entrances, elevators and
stairways shall not be obstructed by any of the tenants or used by them for any
purpose other than for ingress or egress from their respective Premises.
3. Tenant shall not alter any lock or install any new or additional locks
or any bolts on any doors or windows of the Premises.
4. The toilet rooms, urinals, wash bowls and other apparatus shall not be
used for any purpose other than that for which they were constructed, and no
foreign substances of any kind whatsoever shall be thrown therein, and the
expense of any breakage, stoppage or damage resulting from the violation of this
rule shall be borne by the Tenant who or whose employees or invitees shall have
caused it.
5. Tenant shall not overload the floor of the Premises or in any way deface
the Premises or any part thereof.
6. No freight or equipment of any kind being so large or heavy as to
potentially risk the structural integrity, including without limitation the
floor load capacity, of the Building shall be brought into the Building without
prior notice to and approval of Landlord, and all moving of the same into or out
of the Building shall be done at such time and in such manner as
-1-
<PAGE>
Landlord shall designate. Landlord shall have the right to prescribe the
weight, size and position of all safes and other heavy equipment brought into
the Building. Safes or other heavy objects shall, if considered necessary by
Landlord, stand on supports of such thickness as is necessary to properly
distribute the weight. Landlord will not be responsible for loss of or damage
to any such safe or property from any cause, and all damage done to the Building
by moving or maintaining any safe or other property shall be repaired at the
expense of Tenant.
7. Tenant shall not use, keep, or permit to be used or kept, any foul or
noxious gas or substances in the Premises, or permit or suffer the Premises to
be occupied or used in a manner offensive or objectionable to the Landlord and
other occupants of the Building by reason of noise, odors and/or vibrations, or
interfere in any way with other tenants or those having business therein, nor
shall any animals or birds be brought in or kept in or about the Premises or
Building.
8. No cooking shall be done or permitted by any Tenant on the Premises,
except in areas designated and designed for such use and approved by Landlord,
such as a lunch or break room, nor shall the Premises be used for storage of
merchandise, for washing clothes, for lodging, or for any improper,
objectionable or immoral purposes.
9. Tenant shall not use or keep in the Premises or the Building any
kerosene, gasoline or inflammable or combustible fluid or material, or use any
method of heating or air conditioning other than: 1) that supplied by Landlord,
or 2) any fluids or materials necessary for Tenant's ordinary course of
business, including photographic (dark room) or photocomposition chemicals or
other materials.
10. Landlord will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for wires will be
allowed without the consent of Landlord. The location of telephones, call boxes
and other office equipment affixed to the Premises shall be subject to approval
of Landlord.
11. On Saturdays, Sundays and legal holidays, and on other days between
the hours of 6:00 p.m. and 8:00 a.m. the following day, access to the Building,
or to the halls, corridors, elevators and stairways in the Building, or to the
Premises, may be refused unless the person seeking access is known to the person
or employee of the Building in charge and has a pass or is properly identified.
The Landlord shall in no case be liable for damages for any error with regard to
the admission to or exclusion from the Building of any person. In case of
invasion,
-2-
<PAGE>
mob, riot, public excitement, or other commotion, the Landlord reserves the
right to prevent access to the Building during the continuance of the same by
closing of the doors or otherwise, for the safety of the tenants and the
protection of property in the Building.
12. Landlord reserves the right to exclude or expel from the Building any
person who, in the judgment of the Landlord, is intoxicated or under the
influence of liquor or drugs, or who shall in any manner do any act in violation
of any of the rules and regulations of the Building.
13. No vending machines, regardless of product, will be installed,
maintained, operated upon the Premises without the written consent of Landlord.
14. Landlord shall have the right, exercisable without notice and
without liability to Tenant, to change the name and street address of the
building of which the Premises are a part.
15. Tenant shall not disturb, solicit or canvass any occupant of the
Building and shall cooperate to prevent same.
16. Without the written consent of Landlord, Tenant shall not use the name
of the Building in connection with or in promoting or advertising the business
of Tenant except as Tenant's address.
17. Landlord shall have the right to control and operate the public
portions of the Building, the public facilities, the heating and air
conditioning, as well as facilities furnished for the common use of the tenants
in such manner as it deems best for the benefit of the tenants generally.
18. All entrance doors in the Premises shall be left locked when the
Premises are not in use, and all doors opening to public corridors shall be kept
closed except for normal ingress and egress from the Premises.
-3-
<PAGE>
EXHIBIT 10.22
[CB COMMERCIAL LOGO] OFFICE BUILDING LEASE
CB COMMERCIAL REAL ESTATE GROUP, INC.
BROKERAGE AND MANAGEMENT
LICENSED REAL ESTATE BROKER
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Article 1 LEASE OF PREMISES............................................ 1
Article 2 DEFINITIONS.................................................. 1
Article 3 EXHIBITS AND ADDENDA......................................... 2
Article 4 DELIVERY OF POSSESSION....................................... 2
Article 5 RENT......................................................... 2
Article 6 INTEREST AND LATE CHARGES.................................... 4
Article 7 SECURITY DEPOSIT............................................. 4
Article 8 TENANT'S USE OF THE PREMISES................................. 4
Article 9 SERVICES AND UTILITIES....................................... 5
Article 10 CONDITION OF THE PREMISES.................................... 5
Article 11 CONSTRUCTION, REPAIRS AND MAINTENANCE........................ 5
Article 12 ALTERATIONS AND ADDITIONS.................................... 6
Article 13 LEASEHOLD IMPROVEMENTS; TENANT'S PROPERTY.................... 6
Article 14 RULES AND REGULATIONS........................................ 7
Article 15 CERTAIN RIGHTS RESERVED BY LANDLORD.......................... 7
Article 16 ASSIGNMENT AND SUBLETTING.................................... 7
Article 17 HOLDING OVER................................................. 8
Article 18 SURRENDER OF PREMISES........................................ 8
Article 19 DESTRUCTION OR DAMAGE........................................ 8
Article 20 EMINENT DOMAIN............................................... 8
Article 21 INDEMNIFICATION.............................................. 9
Article 22 TENANT'S INSURANCE........................................... 9
Article 23 WAIVER OF SUBROGATION........................................ 10
Article 24 SUBORDINATION AND ATTORNMENT................................. 10
Article 25 TENANT ESTOPPEL CERTIFICATES................................. 10
Article 26 TRANSFER OF LANDLORD'S INTEREST.............................. 10
Article 27 DEFAULT...................................................... 10
Article 28 BROKERAGE FEES............................................... 11
Article 29 NOTICES...................................................... 11
Article 30 GOVERNMENT ENERGY OR UTILITY CONTROLS........................ 11
Article 31 RELOCATION OF PREMISES....................................... 11
Article 32 QUIET ENJOYMENT.............................................. 12
Article 33 OBSERVANCE OF LAW............................................ 12
Article 34 FORCE MAJEURE................................................ 12
Article 35 CURING TENANT'S DEFAULTS..................................... 12
Article 36 SIGN CONTROL................................................. 12
Article 37 MISCELLANEOUS................................................ 12
</TABLE>
<PAGE>
[LOGO OF CB COMMERCIAL] OFFICE BUILDING LEASE
This Lease between CROSSTOWN BUILDING PARTNERS
-------------------------------------------------------------,
a CALIFORNIA LIMITED PARTNERSHIP
------------------------------------------------------------------------------,
("Landlord"), and THE MONEY STORE, INC.
--------------------------------------------------------------,
a NEW JERSEY CORPORATION , ("Tenant"), is
---------------------------------------------------------------
dated as of March 15 , 1995.
-------------------------------------------------------------------- --
1. LEASE OF PREMISES.
In consideration of the Rent (as defined at Section 5.4) and the provisions of
this Lease, Landlord leases to Tenant and Tenant leases from Landlord the
Premises shown by diagonal lines on the floor plan attached hereto as Exhibit
"A," and further described at Section 21. The Premises are located within the
Building and Project described in Section 2m. Tenant shall have the
non-exclusive right (unless otherwise provided herein) in connection with
Landlord, other tenants, subtenants and invitees, to use of the Common Areas (as
defined at Section 2e).
2. DEFINITIONS
As used in this Lease, the following terms shall have the following meanings:
a. Base Rent (initial): $ (SEE ADDENDUM) per year.
---------------------------------------------
b. Base Year: The calendar year of 1995
--------------------------------------------,
c. Broker(s)
Landlord's: None .
-----------------------------------------------------------
Tenant's: None .
-----------------------------------------------------------
In the event that CB Commercial Real Estate Group, Inc. represents both Landlord
and Tenant, Landlord and Tenant hereby confirm that they were timely advised of
the dual representation and that they consent to the same, and that they do not
expect said broker to disclose to either of them the confidential information of
the other party.
d. Commencement Date: April 1, 1995
--------------------------------------------------------.
e. Common Areas: the building lobbies, common corridors and hallways,
restrooms, garage and parking areas, stairways, elevators and other
generally understood public or common areas. Landlord shall have the right
to regulate or restrict the use of the Common Areas.
f. Expense Stop: (fill in if applicable): $ None
------------------------------------.
g. Expiration Date: March 31, 1998 , unless otherwise
------------------------------------------
sooner terminated in accordance with the provisions of this Lease.
h. Index (Section 5.2): United States Department of Labor, Bureau of Labor
Statistics Consumer Price Index for All Urban Consumers, N/A Average,
------------
Subgroup "All Items" (1967 = 100).
i. Landlord's Mailing Address: 2222 Francisco Drive, Suite 430, El Dorado
------------------------------------------------
Hills, CA 95762
---------------------------------------------------------------------------
---------------------------------------------------------------------------.
Tenant's Mailing Address: To be supplied to Landlord
--------------------------------------------------
---------------------------------------------------------------------------.
j. Monthly installments of Base Rent (initial): $ (SEE ADDENDUM) per month.
--------------------
k. Parking: Tenant shall be permitted, upon payment of the then prevailing
monthly rate (as set by Landlord from time to time) to park eleven (11)
----------------
cars on a non-exclusive basis in the area(s) designated by Landlord for
parking. Tenant shall abide by any and all parking regulations and rules
established from time to time by Landlord or Landlord's parking operator.
Landlord reserves the right to separately charge Tenant's guests and
visitors for parking.
l. Premises: that portion of the Building containing approximately 6,308
------------
square feet of Rentable Area, shown by diagonal lines on Exhibit "A,"
located on the Fourth (4th) floor of the Building and known as
---------------------------
Suite 400 .
--------------
m. Project: the building of which the Premises are a part (the "Building") and
any other buildings or improvements on the real property (the "Property")
located at 1401 21st Street, Sacramento, CA 95814
-----------------------------------------------------------------
and further described at Exhibit "B." The
------------------------------
Project is known as The Crosstown Building
--------------------------------------------------------.
n. Rentable Area: as to both the Premises and the Project, the respective
measurements of floor area as may from time to time be subject to lease by
Tenant and all tenants of the Project, respectively, as determined by
Landlord and applied on a consistent basis throughout the Project.
(1)
<PAGE>
o. Security Deposit (Section 7): $ N/A
--------------------------------------------
p. State: the State of California
------------------------------------------------------
q. Tenant's First Adjustment Date (Section 5.2): the first day of the calendar
month following the Commencement Date plus N/A months.
---------
r. Tenant's Proportionate Share: 25.75 %. Such share is a fraction, the
numerator of which is the Rentable Area of the Premises, and the
denominator of which is the Rentable Area of the Project, as determined by
Landlord from time to time. The Project consists of one building(s)
---
containing a total Rentable Area of approx. 24,500 square feet.
--------------
s. Tenant's Use Clause (Article 8): standard office use, including computer
------------------------------------------
programming
---------------------------------------------------------------------------
t. Term: the period commencing on the Commencement Date and expiring at
midnight on the Expiration Date.
3. EXHIBITS AND ADDENDA.
The exhibits and addenda listed below (unless lined out) are incorporated by
reference in this Lease:
a. Exhibit "A"-Legal description of Owner's Property.
b.
c.
d. Exhibit "D"-Rules and Regulations.
e.
f. Addenda:
The Addendum attached hereto is made a part of this lease by this reference
-----------------------------------------------------------------------------
as though set forth herein in full.
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
4. DELIVERY OF POSSESSION.
If for any reason Landlord does not deliver possession of the Premises to Tenant
on the Commencement Date, Landlord shall not be subject to any liability for
such failure, the Expiration Date shall not change and the validity of this
Lease shall not be impaired, but Rent shall be abated until delivery of
possession. "Delivery of possession" shall be deemed to occur on the date
Landlord completes Landlord's Work as defined in Exhibit "C." If Landlord
permits Tenant to enter into possession of the Premises before the Commencement
Date, such possession shall be subject to the provisions of this Lease,
including, without limitation, the payment of Rent.
5. RENT.
5.1 Payment of Base Rent. Tenant agrees to pay the Base Rent for the Premises.
Monthly Installments of Base Rent shall be payable in advance on the first day
of each calendar month of the Term. If the Term begins (or ends) on other than
the first (or last) day of a calendar month, the Base Rent for the partial month
shall be prorated on a per diem basis. Tenant shall pay Landlord the first
Monthly Installment of Base Rent when Tenant executes the Lease.
5.2 Adjusted Base Rent.
a. The Base Rent (and the corresponding Monthly Installments of Base Rent)
set forth at Section 2a shall be adjusted annually (the "Adjustment Date"),
commencing on Tenant's First Adjustment Date. Adjustments, if any, shall be
based upon increases (if any) in the Index. The Index in publication three
(3) months before the Commencement Date shall be the "Base Index." The
index in publication three (3) months before each Adjustment Date shall be
the "Comparison Index." As of each Adjustment Date, the Base Rent payable
during the ensuing twelve-month period shall be determined by increasing
the initial Base Rent by a percentage equal to the percentage increase, if
any, in the Comparison Index over the Base Index. If the Comparison Index
for any Adjustment Date is equal to or less than the Comparison Index for
the preceding Adjustment Date (or the Base Index, in the case of First
Adjustment Date), the Base Rent for the ensuing twelve-month period shall
remain the amount of Base Rent payable during the preceding twelve-month
period. When the Base Rent payable as of each Adjustment Date is
determined, Landlord shall promptly give Tenant written notice of such
adjusted Base Rent and the manner in which it was computed. The Base Rent
as so adjusted from time to time shall be the "Base Rent" for all purposes
under this Lease.
b. If at any Adjustment Date the Index no longer exists in the form
described in this Lease, Landlord may substitute any substantially
equivalent official index published by the Bureau of Labor Statistics or
its successor. Landlord shall use any appropriate conversion factors to
accomplish such substitution. The substitute index shall then become the
"Index" hereunder.
5.3 Project Operating Costs.
a. In order that the Rent payable during the Term reflect any increase in
Project Operating Costs, Tenant agrees to pay to Landlord as Rent,
Tenant's Proportionate Share of all increases in costs, expenses and
obligations attributable to the Project and its operation, all as provided
below.
b. If, during any calendar year during the Term, Project Operating Costs
exceed the Project Operating Costs for the Base Year, Tenant shall pay to
Landlord, in addition to the Base Rent and all other payments due under
this Lease, an amount equal to Tenant's Proportionate Share of such excess
Project Operating Costs in accordance with the provisions of this Section
5.3b.
(2)
<PAGE>
(1) The term "Project Operating Costs" shall include all those items described
in the following subparagraphs (a) and (b.)
(a) All taxes, assessments, water and sewer charges and other similar
governmental charges levied on or attributable to the Building or Project
or their operation, including without limitation, (i) real property taxes
or assessments levied or assessed against the Building or Project, (ii)
assessments or charges levied or assessed against the Building or Project
by any redevelopment agency, (iii) any tax measured by gross rentals
received from the leasing of the Premises, Building or Project, excluding
any net income, franchise, capital stock, estate or inheritance taxes
imposed by the State or federal government or their agencies, branches or
departments; provided that if at any time during the Term any governmental
entity levies, assesses or imposes on Landlord any (1) general or special,
ad valorem or specific, excise, capital levy or other tax assessment, levy
or charge directly on the Rent received under this Lease or on the rent
received under any other leases of space in the Building or Project, or (2)
any license fee, excise or franchise tax, assessment, levy or charge
measured by or based, in whole or in part, upon such rent, or (3) any
transfer, transaction, or similar tax, assessment, levy or change based
directly or indirectly upon the transaction represented by this Lease or
such other leases, or (4) any occupancy, use per ?????? or other tax,
assessment, levy or charge based directly or indirectly upon the use or
occupancy on the Premises or other premises within the Building or Project,
then any such taxes, assessment levies and charges shall be deemed to be
included in the term Project Operating Costs. If at any time during the
Term the assessed valuation of the taxes on, the Project are not based on a
completed Project having at least eighty-five percent (85%) of the Rentable
Area occupied, then the "taxes" component of Project Operating Costs shall
be adjusted by Landlord to reasonably approximate the taxes which would
have been payable if the Project were completed and at least eighty-five
percent (85%) occupied.
(b) Operating costs incurred by Landlord in maintaining and operating the
Building and Project, including without limitation the following: costs of
(1) utilities; (2) supplies; (3) insurance (including public liability
property damage, earthquake and fire and extended coverage insurance for
the full replacement cost of the Building and Project as required by
Landlord of its tenders for the Project; (4) services of independent
contractors; (5) compensation (including employment taxes and fringe
benefits) of all persons who perform duties connected with the operations,
maintenance, repair or overhaul of the Building or Project, and equipment,
improvements and facilities located within the Project, including without
limitation engineers, janitors, painters, floor waxers, window washers,
security and parking personnel and gardeners (but excluding persons
performing services not uniformity available to or performed for
substantially all Building or Project tenants); (6) operation and
maintenance of a room for delivery and distribution of mail to tenants of
the Building or Project as required by the U.S. Postal Service (including,
without limitation an amount equal to the fair market rental value of the
mail room premises); (7) management of the Building or Project, whether
managed by Landlord or an independent contractor (including, without
limitation and amount equal to the fair market value of any on-site
manager's office); (8) rental; expenses for (or a reasonable depreciation
allowance on) personal property used in the maintenance, operation or
repair of the Building or Project; (9) costs, expenditures or charges
(whether capitalized or not) required by any governmental or quasi-
governmental authority: (10) amortization of capital expenses (including
financing costs) (i) required by a governmental entity for energy
conservation or life safety purposes or (ii) made by Landlord to reduce
Project Operating Costs; and (ii) any other costs or expenses incurred by
Landlord under this Lease and not otherwise reimbursed by tenants of the
Project. If at any time during the Term, less than eighty-five percent
(85%) of the Rentable Area of the Project is occupied, the "operating
costs" component of Project Operating Costs shall be adjusted by Landlord
to reasonably approximate the operating costs which would have been
incurred if the Project had been incurred if the Project had been at least
eighty-five percent (85%) occupied.
(2) Tenant's Proportionate Share of Project Operating Costs shall be payable by
Tenant to Landlord as follows:
(a) Beginning with the calendar year following the Base Year and for each
calendar year thereafter ("Comparison Year"). Tenant shall pay Landlord an
amount equal to Tenant's Proportionate Share of the Project Operating Costs
incurred by Landlord in the Comparison Year which exceeds the total amount
of Project Operating Costs payable by Landlord for the Base Year. This
excess is referred to as the "Excess Expenses."
(b) To provide for current payments of Excess Expenses, Tenant shall at
Landlord's request, pay as additional rent during each Comparison Year, an
amount equal to Tenant's Proportionate Share of the Excess Expenses payable
during such Comparison Year as estimated by Landlord from time to time.
Such payments shall be made in monthly installments, commencing on the
first day of the month following the month in which Landlord notifies
Tenant of the amount it is to pay hereunder and continuing until the first
day of the month following the month in which Landlord gives Tenant a new
notice of estimated Excess Expenses. It is the intention hereunder to
estimate from time to time the amount of the Excess Expenses for each
Comparison Year and Tenant's Proportionate Share thereof, and then to make
and adjustment in the following year based on the actual Excess Expenses
incurred for that Comparison Year.
(c) On or before April 1 of each Comparison Year after the first Comparison
Year (or as soon thereafter as if practical). Landlord shall deliver to
Tenant a statement setting forth Tenant's Proportionate Share of the Excess
Expenses for the preceding Comparison Year. If Tenant's Proportionate Share
of the actual Excess Expenses for the previous Comparison Year exceeds the
total of the estimated monthly payments made by Tenant for such year,
Tenant shall pay Landlord the amount of the deficiency within ten (10) days
of the receipt of the statement. If such total exceeds Tenant's
Proportionate Share of the actual Excess Expenses for such Comparison Year,
then Landlord shall credit against Tenant's next ensuring monthly
installment(s) of additional rent an amount equal to the difference until
the credit is exhausted. If a credit is due from Landlord on the Expiration
Date, Landlord shall pay Tenant the amount of the credit. The obligations
of Tenant and Landlord to make payments required under this Section 5.3
shall survive the Expiration Date.
(d) Tenant's Proportionate Share of Excess Expenses in any Comparison Year
having less than 365 days shall be appropriately prorated.
(e) If any dispute arises as to the amount of any additional rent due
hereunder, Tenant shall have the right after reasonable notice and at
reasonable times to inspect Landlord 's accounting records at Landlord's
accounting office and if after such inspection Tenant still disputes the
amount of additional rent owned, a certification as to the proper amount
shall be made by Landlord's certified public accountant, which
certification shall be final and conclusive. Tenant agrees to pay the cost
of such certification unless it is determined that Landlord's original
statement overstated Project Operating Costs by more than five percent (5).
(3)
<PAGE>
(f) If this Lease sets forth an Expense Stop at Section 21, then during the
Term Tenant shall be Cable for Tenant's Proportionate Share of any actual
Project Operating Costs which exceed the amount of the Expense Stop. Tenant
shall make current payments of such excess costs during the Term in the
same manner as is provided for payment of Excess Expenses under the
applicable provisions of Section 5.3b(2)(b) and (c) above.
5.4 Definition of Rent. All costs and expenses which Tenant assumes or agrees
to pay to Landlord under this Lease shall be deemed additional rent (which,
together with the Base Rent is sometimes referred to as the "Rent"). The Rent
shall be paid to the Building manager (or other person) and at such place, as
Landlord may from time to time designate in writing, without any prior demand
therefor and without deduction or offset, in lawful money of the United States
of America.
5.5 Rent Control. If the amount of Rent or any other payment due under this
Lease violates the terms of any governmental restrictions on such Rent or
payment, then the Rent or payment due during the period of such restrictions
shall be the maximum amount allowable under those restrictions. Upon termination
of the restrictions, Landlord shall, to the extent it is legally permitted,
recover from Tenant the difference between the amounts received during the
period of the restrictions and the amounts Landlord would have received had
there been no restrictions.
5.6 Taxes Payable by Tenant. In addition to the Rent and any other charges to
be paid by Tenant hereunder, Tenant shall reimburse Landlord upon demand for any
and all taxes payable by Landlord (other than net income taxes) which are not
otherwise reimbursable under this Lease, whether or not now customary or within
the contemplation of the parties, where such taxes are upon, measured by or
reasonably attributable to (a) the cost or value of Tenant's equipment,
furniture, fixtures and other personal property located in the Premises, or the
cost or value of any leasehold improvements made in or to the Premises by or for
Tenant, other than Building Standard Work made by Landlord, regardless of
whether title to such improvements is held by Tenant or Landlord; (b) the gross
or net Rent payable under this Lease, including, without limitation, any rental
or gross receipts tax levied by any taxing authority with respect to the receipt
of the Rent hereunder; (c) the possession, leasing, operation, management,
maintenance, alteration, repair, use or occupancy by Tenant of the Premises or
any portion thereof; or (d) this transaction or any document to which Tenant is
a party creating or transferring an interest of an estate in the Premises. If it
becomes unlawful for the Tenant to reimburse Landlord for any costs as required
under this Lease, the Base Rent shall be revised to net Landlord the same net
Rent after imposition of any tax or other charge upon Landlord as would have
been payable to Landlord but for the reimbursement being unlawful.
6. INTEREST AND LATE CHARGES.
If Tenant fails to pay when due any Rent or other amounts or charges which
Tenant is obligated to pay under the terms of this Lease, the unpaid amounts
shall bear interest at the maximum rate then allowed by law. Tenant acknowledges
that the late payment of any Monthly Installment of Base Rent will cause
Landlord to lose the use of that money and incur costs and expenses not
contemplated under this Lease, including without limitation, administrative and
collection costs and processing and accounting expenses, the exact amount of
which is extremely difficult to ascertain. Therefore, in addition to interest,
if any such installment is not received by Landlord within ten (10) days from
the date it is due, Tenant shall pay Landlord a late charge equal to ten percent
(10%) of such installment. Landlord and Tenant agree that this late charge
represents a reasonable estimate of such costs and expenses and is fair
compensation to Landlord for the loss suffered from such nonpayment by Tenant.
Acceptance of any interest or late charge shall not constitute a waiver of
Tenant's default with respect to such nonpayment by Tenant not prevent Landlord
from exercising any other rights or remedies available to Landlord under this
Lease.
7. SECURITY DEPOSIT.
Tenant agrees to deposit with Landlord the Security Deposit set forth at Section
2.0 upon execution of this Lease, as security for Tenant's faithful performance
of its obligations under this Lease. Landlord and Tenant agree that the Security
Deposit may be commingled with funds of Landlord and Landlord shall have no
obligation or liability for payment of interest on such deposit. Tenant shall
not mortgage, assign, transfer or encumber the Security Deposit without the
prior written consent of Landlord and any attempt by Tenant to do so shall be
void, without force or effect and shall not be binding upon Landlord.
If Tenant fails to pay any Rent or other amount when due and payable under this
Lease, or fails to perform any of the terms hereof, Landlord may appropriate and
apply or use all or any portion of the Security Deposit for Rent payments or any
other amount then due and unpaid, for payment of any amount for which Landlord
has become obligated as a result of Tenant's default or breach, and for any loss
or damage sustained by Landlord as a result of Tenant's default or breach, and
Landlord may so apply or use this deposit without prejudice to any other remedy
Landlord may have by reason of Tenant's default or breach. If Landlord so uses
any of the Security Deposit, Tenant shall, within ten (10) days after written
demand therefor, restore the Security Deposit to the full amount originally
deposited; Tenant's failure to do so shall constitute an act of default
hereunder and Landlord shall have the right to exercise any remedy provided for
at Article 27 hereof. Within fifteen (15) days after the Term (or any extension
thereof) has expired or Tenant has vacated the Premises, whichever shall last
occur, and provided Tenant is not then in default on any of its obligations
hereunder, Landlord shall return the Security Deposit to Tenant, or, if Tenant
has assigned its interest under this Lease, to the last assignee of Tenant. If
Landlord sells its interest in the Premises, Landlord may deliver this Deposit
to the purchaser of Landlord's interest and thereupon be relieved of any further
liability or obligation with respect to the Security Deposit.
8. TENANT'S USE OF THE PREMISES.
Tenant shall use the Premises solely for the purposes set forth in Tenant's Use
Clause. Tenant shall not use or occupy the Premises in violation of law or any
covenant, condition or restriction affecting the Building or Project or the
certificate of occupancy issued for the Building or Project, and shall, upon
notice from Landlord, immediately discontinue any use of the Premises which is
declared by any governmental authority having jurisdiction to be a violation of
law or the certificate of occupancy. To the extent Landlord would not otherwise
owe such duty or have a duty imposed upon it, Tenant, at Tenant's own cost and
expense, shall comply with all laws, ordinances, regulations, rules and/or any
directions of any governmental agencies or authorities having jurisdiction which
shall, by reason of the nature of Tenant's use or occupancy of the Premises,
impose any duty upon Tenant or Landlord with respect to the Premises or its use
or occupation. A judgment of any court of competent jurisdiction or the
conclusive admission by Tenant in any action or proceeding against Tenant that
Tenant has violated any such laws, ordinances, regulations, rules and/or
directions in the use of the Premises shall be deemed to be a conclusive
deformation of the fact as between Landlord and Tenant. Tenant shall not do or
permit to be done anything which will invalidate or increase the cost of any
fire, extended coverage or other insurance policy covering the Building or
Project and/or property located therein, and shall comply with all rules, orders
regulations, requirements and recommendations of the Insurance Services Office
or any other organization performing a similar function. Tenant shall
(1)
<PAGE>
promptly upon demand reimburse Landlord for any additional premium charged for
such policy by reason of Tenant's failure to comply with the provisions of this
Article. Tenant shall not do or permit anything to be done in or about the
Premises which will in any way obstruct or interfere with the rights of other
tenants or occupants of the Building or Project, or injure or annoy them, or use
or allow the Premises to be used for any improper, immoral, unlawful or
objectionable purpose nor shall Tenant cause, maintain or permit any nuisance
in, on or about the Premises. Tenant shall not commit or suffer to be committed
any waste in or upon the Premises.
9. SERVICES AND UTILITIES.
Provided that Tenant is not in default hereunder, Landlord agrees to furnish to
the Premises during generally recognized business days, and during hours
determined by Landlord in its sole discretion, and subject to the Rules and
Regulations of the Building or Project, electricity for normal desk top office
equipment and normal copying equipment and heating, ventilation and air
conditioning ("HVAC") as required in Landlord's judgment for the comfortable use
and occupancy of the Premises. If Tenant desires HVAC at any other time,
Landlord shall use reasonable efforts to furnish such service upon reasonable
notice from Tenant and Tenant shall pay Landlord's charges therefor on demand.
Landlord shall also maintain and keep lighted the common stairs, common entries
and restrooms in the Building. Except with respect to the negligence or willful
acts of Landlord, its agents or employees, Landlord shall not be in default
hereunder or be liable for any damages directly or indirectly resulting from,
nor shall the Rent be abated by reason of (i) the installation, use or
interruption of use of any equipment in connection with the furnishing of any of
the foregoing services, (ii) failure to furnish or delay in furnishing any such
services where such failure or delay is caused by accident or any condition or
event beyond the reasonable control of Landlord, or by the making of necessary
repairs or improvements to the Premises, Building or Project, except with
respect to the negligence or willful acts of Landlord, its agent or employees or
(iii) the limitation, curtailment or rationing of, or restrictions on, use of
water, electricity, gas or any other form of energy serving the Premises,
Building or Project. Except with respect to the negligence or willful acts of
Landlord, its agents or employees, Landlord shall not be liable under any
circumstances for a loss of or injury to property or business, however
occurring, through or in connection with or incidental to failure to furnish any
such services. If Tenant uses heat generating machines or equipment in the
Premises which affect the temperature otherwise maintained by the HVAC system,
Landlord reserves the right to install supplementary air conditioning units in
the Premises and the cost thereof, including the cost of installation, operation
and maintenance thereof, shall be paid by Tenant to Landlord upon demand by
Landlord.
Tenant shall not, without the written consent of Landlord, which consent shall
not be unreasonably withheld use any apparatus or device in the Premises,
including without limitation, electronic data processing machines, punch card
machines or machines using in excess of 120 volts, which consumes more
electricity than is usually furnished or supplied for the use of premises as
general office space, as determined by Landlord. Tenant shall not connect any
apparatus with electric current except through existing electrical outlets in
the Premises. Tenant shall not consume water or electric current in excess of
that usually furnished or supplied for the use of premises as general office
space (as determined by Landlord), without first procuring the written consent
of Landlord, which Landlord may not unreasonably refuse, and in the event of
consent, Landlord may have installed a water meter or electrical current meter
in the Premises to measure the amount of water or electric current consumed. The
cost of any such meter and of its installation, maintenance and repair shall be
paid for by the Tenant and Tenant agrees to pay to Landlord promptly upon demand
for all such water and electric current consumed as shown by said meters, at the
rates charged for such services by the local public utility plus any additional
expense incurred in keeping account of the water and electric current so
consumed. If a separate meter is not installed, the excess cost for such water
and electric current shall be established by an estimate made by a utility
company or electrical engineer hired by Landlord and Tenant at Tenant's expense.
Nothing contained in this Article shall restrict Landlord's right to require at
any time separate metering of utilities furnished to the Premises. In the event
utilities are separately metered, Tenant shall pay promptly upon demand for all
utilities consumed at utility rates charged by the local public utility plus any
reasonable additional expense incurred by Landlord in keeping account of the
utilities so consumed. Tenant shall be responsible for the maintenance and
repair of any such meters at its sole cost. If the necessity of such meter
installation was solely caused by Tenants non-typical use of the utilities.
Landlord shall furnish elevator service, lighting replacement for building
standard lights, restroom supplies, window washing and janitor services in a
manner that such services are customarily furnished to comparable office
buildings in the area.
10. CONDITION OF THE PREMISES.
Except for latent defects, Tenant's taking possession of the Premises shall be
deemed conclusive evidence that as of the date of taking possession the Premises
are in good order and satisfactory condition, except for such matters as to
which Tenant gave Landlord notice on or before the Commencement Date. No promise
of Landlord to alter, remodel, repair or improve the Premises, the Building or
the Project and no representation, express or implied, respecting any matter or
thing relating to the Premises, Building, Project or this Lease (including,
without limitation, the condition of the Premises, the Building or the Project)
have been made to Tenant by Landlord or its Broker or Sales Agent, other than as
may be contained herein or in a separate exhibit or addendum signed by Landlord
and Tenant.
11. CONSTRUCTION, REPAIRS AND MAINTENANCE.
a. Landlord's Obligations. Landlord shall perform Landlord's Work to the
Premises as described in Exhibit "C". Landlord shall maintain in good order,
condition and repair the Building and all other portions of the Premises not
the obligation of Tenant or of any other tenant in the Building.
b. Tenant's Obligations.
(1) Tenant shall perform Tenant's Work to the Premises as described in
Exhibit "C".
(2) Tenant at Tenant's sole expense shall, except for services furnished
by Landlord pursuant to Article 9 hereof, maintain the Premises in good
order, condition and repair, including the interior surfaces of the
ceilings, walls and floors, all doors, all interior windows, all
plumbing, pipes and fixtures, electrical wiring, switches and fixtures.
Building Standard furnishings and special items and equipment installed
by or at the expense of Tenant.
(3) Tenant shall be responsible for all repairs and alterations in and to
the Premises, Building and Project and the facilities and systems
thereof, the need for which arises out of (i) Tenant's use or occupancy
of the Premises, (ii) the installation, removal, use or operation of
Tenant's Property (as defined in Article 13) in the Premises, (iii) the
moving of Tenant's Property into or out of the Building, or (iv) the act,
omission, misuse or negligence of Tenant, its agents, contractors,
employees or invitees.
(5)
<PAGE>
(4) If Tenant fails to maintain the Promises in good order, condition
and repair, Landlord shall give Tenant notice to do such acts as are
reasonably required to so maintain the Premises. If Tenant fails to
promptly commence such work and diligently prosecute it to
completion, then Landlord shall have the right to do such acts and
expend such funds at the expense of Tenant as are reasonably required
to perform such work. Any amount so expended by Landlord shall be paid
by Tenant promptly after demand with interest at the prime commercial
rate then being charged by Bank of America NT & SA plus two percent
(2%) per annum, from the date of such work, but not to exceed the
maximum rate then allowed by law. Landlord shall have no liability to
Tenant for any damage, inconvenience, or intolerance with the use of
the Premises by Tenant as a result of performing any such work.
c. Compliance with Law. Landlord and Tenant shall each do all acts
required to comply with all applicable laws, ordinances and rules of any
public authority relating to their respective maintenance obligations as
set forth herein.
d. Waiver by Tenant. Tenant expressly waives the benefits of any statute
now or hereafter in effect which would otherwise afford the Tenant the
right to make repairs at Landlord's expense or to terminate this Lease
because of Landlord's failure to keep the Premises in good order, condition
and repair.
e. Load and Equipment Limits. Tenant shall not place a load upon any
floor of the Premises which exceeds the load per square foot which such
floor was designated to carry, as determined by Landlord or Landlord's
structural engineer. The cost of any such determination made by Landlord's
structural engineer shall be paid for by Tenant upon demand. Tenant shall
not install business machines or mechanical equipment which cause noise or
vibration to such a degree as to be objectionable to Landlord or other
Building Tenants.
f. Except as otherwise expressly provided in this Lease, Landlord shall
have no liability to Tenant nor shall Tenant's obligations under this Lease
be reduced or abated in any manner whatsoever by reason of any
inconvenience, annoyance, interruption or injury to business arising from
Landlord's making any repairs or changes which Landlord is required or
permitted by this Lease or by any other tenant's lease or required by law
to make in or to any portion of the Project, Building of the Premises
Landlord shall nevertheless use reasonable efforts to minimize any
interference with Tenant's business in the Premises.
g. Tenant shall give Landlord prompt notice of any damage to or defective
condition in any part or appurtenance of the Building's mechanical,
electrical, plumbing, HVAC or other systems serving, located in, or passing
through the Premises.
h. Upon the expiration or earlier termination of the Lease, Tenant shall
return the Premises to Landlord clean and in the same condition as on the
date Tenant took possession, except for normal wear and tear. Any damage to
the Premises including any structural damage, resulting from the Tenant's
use or from the removal of Tenant's fixtures, furnishings and equipment
pursuant to Section 13b shall be repaired by Tenant at Tenant's expense.
12. ALTERATIONS AND ADDITIONS.
a. Tenant shall not make any additions, alterations or improvements to
the Premises without obtaining the prior written consent of Landlord which
consent shall not be unreasonably withheld. Landlord's consent may be
conditioned on Tenant's removing any such additions, alterations or
improvements upon the expiration of the Term and restoring of the Premises
to the same condition as on the date Tenant took possession. All work with
respect to any addition, alteration or improvement shall be done in a good
and workmanlike manner by property qualified and licensed personnel
approved by Landlord and such work shall be diligently prosecuted to
completion.
b. Tenant shall pay the costs of any work done on the Premises pursuant
to Section 12a, and shall keep the Premises, Building and Project free and
clear of liens of any kind. Tenant; shall indemnify, defend against and
keep Landlord free and harmless from all liability, loss, damage, costs,
attorneys' fees and any other expense incurred on account of claims by
any person performing work or furnishing materials or supplies for Tenant
or any person claiming under Tenant.
Tenant shall keep Tenant's leasehold interest, and any additions or
improvements which are or become the property of Landlord under this Lease,
free and clear of all attachment or judgment liens. Before the actual
commencement of any work for which a claim or lien may be filed. Tenant
shall give Landlord notice of the intended commencement date a sufficient
time before the date to enable Landlord to post notices of non-
responsibility or any other notices which Landlord deems necessary for the
proper protection of Landlord's interest in the Premises, Building or the
Project and Landlord shall have the right to enter the Premises and post
such notices at any reasonable time.
c. Landlord may require, at Landlord's sole option, that Tenant provide
to Landlord, at Tenant's expense, a lien and completion bond in amount
equal to at least one and one-half (1 1/2) times the total estimated cost
of any additions alterations or improvements to be made in or to the
Premises to protect Landlord against any liability for mechanic's and
materialmen's liens and to insure timely completion of the work. Nothing
contained in this Section 12c shall relieve Tenant of its obligation under
Section 12b to keep the Premises, Building and Project free of all liens.
d. Unless their removal is required by Landlord as provided in Section
12a, all additions, alterations and improvements made to the Premises shall
become the property of Landlord and be surrendered with the Premises upon
the expiration of the Term, provided, however, Tenant's equipment,
machinery and trade fixtures which can be removed without damage to the
Premises shall remain the property of Tenant and may be removed subject to
the provisions of Section 13b.
13. LEASEHOLD IMPROVEMENTS; TENANT'S PROPERTY.
a. All fixtures, equipment, improvements and appurienances attached to or
built into the Premises at the commencement of or during the Term, whether
or not by or at the expense of Tenant ("Leasehold Improvements"), shall be
and remain a part of the Premises, shall be the property of Landlord and
shall not be removed by Tenant, except as expressly provided in Section
13b.
(6)
<PAGE>
b. All movable partitions, business and trade fixtures, machinery and
equipment, communications equipment and office equipment located in the
Premises and acquired by or for the account of Tenant, without expense to
Landlord, which can be removed without structural damage to the Building,
and all furniture, furnishings and other articles of movable personal
property owned by Tenant and located in the Premises (collectively
"Tenant's Property") shall be and shall remain the property of Tenant and
may be removed by Tenant at any time during the Term; provided that if any
of Tenant's Property is removed, Tenant shall promptly repair any damage to
the Premises or to the Building resulting from such removal.
14. RULES AND REGULATIONS.
Tenant agrees to comply with (and cause its agents, contractors, employees and
invitees to comply with) the rules and regulations attached hereto as Exhibit
"D" and with such reasonable modifications thereof and additions thereto as
Landlord may from time to time make. Except that Landlord shall make reasonable
efforts to force other Tenants to abide by all rules and regulations and to
mitigate the effects on Tenant of all other Tenants non-compliance with said
rules and regulations. Landlord shall not be responsible for any violation of
said rules and regulations by other tenants or occupants of the Building or
Project.
15. CERTAIN RIGHTS RESERVED BY LANDLORD.
Landlord reserves the following rights, exercisable without liability to Tenant
for (a) damage or injury to property, person or business, (b) causing an actual
or constructive aviction from the Premises, or (c) disturbing Tenant's use or
possession of the Premises.
a. To name the Building and Project and to change the name or street
address of the Building or Project;
b. To install and maintain all signs on the exterior and interior of the
Building and Project;
c. To have pass keys to the Premises and all doors within the Premises,
excluding Tenant's vaults and sales;
d. At any time during the Term, and on reasonable prior notice to Tenant
to inspect the Premises and to show the Premises to any prospective
purchaser or mortgagee of the Project, or to any assignee of any mortgage
on the Project, or to others having an interest in the Project or Landlord,
and during the last six months of the Term, to show the Premises to
prospective tenants thereof; and
e. To enter the Premises for the purpose of making inspections, repairs,
alterations, additions or improvements to the Premises or the Building
(including, without limitation, checking, calibrating, adjusting or
balancing controls and other parts of the HVAC system), and to take all
steps as may be necessary or desirable for the safety, protection,
maintenance or preservation of the Premises or the Building or Landlord's
interest therein or as may be necessary or desirable for the operation or
improvement of the Building or in order to comply with laws, orders or
requirements of governmental or other authority. Landlord agrees to use its
best efforts (except in an emergency) to minimize interference with
Tenant's business in the Premises in the course of any such entry.
16. ASSIGNMENT AND SUBLETTING.
No assignment of this Lease or sublease of all or any part of the Premises shall
be permitted, except as provided in this Article 16.
a. Tenant shall not, without the prior written consent of Landlord,
assign or hypothecate this Lease or any interest herein or sublet the
Premises or any part thereof, or permit the use of the Premises by any
party other than Tenant. Any of the foregoing acts without such consent
shall be void and shall, at the option of Landlord, terminate this Lease.
This Lease shall not, nor shall any interest of Tenant herein, be
assignable by operation of law without the written consent of Landlord.
b. If at any time or from time to time during the Term Tenant desires to
assign this Lease or sublet all or any part of the Premises. Tenant shall
give notice to Landlord setting forth the terms and provisions of the
proposed assignment or sublease, and the identity of the proposed assignee
or subtenant. Tenant shall promptly supply Landlord with such information
concerning the business background and financial condition of such proposed
assignee or subtenant as Landlord may reasonably request, Landlord shall
have the option exercisable by notice given to Tenant within twenty (20)
days after Tenant's notice is given, either to Sublet such space from
Tenant at the rental and on the other terms set forth in this Lease for the
term set forth in Tenant's notice, or, in the case of an assignment, to
terminate this Lease. If Landlord does not exercise such option, Tenant may
assign the Lease or sublet such space to such proposed assignee or
subtenant on the following further conditions.
(1) Landlord shall have the right to approve such proposed assignee
or subtenant, which approval shall not be unreasonably withheld.
(2) The assignment or sublease shall be on the same terms set forth
in the notice given to Landlord;
(3) No assignment or sublease shall be valid and no assignee or
sublessee shall take possession of the Premises until an executed
counterpart of such assignment or sublease has been delivered to
Landlord;
(4) No assignee or sublessee shall have a further right to assign or
sublet except on the terms herein contained; and
(5) Any sums or other economic consideration received by Tenant as a
result of such assignment or subletting, however denominated under the
assignment or sublease, which exceed, in the aggregate, (i) the total
sums which Tenant is obligated to pay Landlord under this Lease
(prorated to reflect obligations allocable to any portion of the
Premises Subleased).
c. Notwithstanding the provisions of paragraphs a and b above. Tenant may
assign this Lease or sublet the Premises or any portion thereof, without
Landlord's consent and without extending any recapture or termination
option to Landlord, to any corporation which controls, is controlled by or
is under common control with Tenant, or to any corporation resulting from a
merger or consolidation with Tenant, or to any person or entity which
acquires all the assets of Tenant's business as a going concern, provided
that (i) the assignee or sublessee assumes, in full, the obligations of
Tenant under this Lease, (ii) Tenant remains fully liable under this Lease,
and (iii) the use of the Premises under Article 8 remains unchanged.
<PAGE>
d. No subletting or assignment shall release Tenant of Tenant's
obligations under this Lease or after the primary liability of Tenant to
pay the Rent and to perform all other obligation to be performed by Tenant
hereunder. The acceptance of Rent by Landlord from any other person shall
not be deemed to be a waiver by Landlord of any provision hereof. Consent
to one assignment of a subletting shall not be deemed consent to any
subsequent assignment or subletting. In the event of default by an assignee
or subtenant of Tenant or any successor of Tenant in the performance of any
of the terms hereof. Landlord may proceed directly against Tenant without
the necessity of exhausting remedies against such assignee, subtenant or
successor.
e. If Tenant assigns the Lease or sublets the Premises or requests the
consent of Landlord to any assignment or subletting or if Tenant requests
the consent of Landlord for any act that Tenant proposes to do, then Tenant
shall, upon demand, pay Landlord an administrative fee of One Hundred Fifty
and No/100ths Dollars ($150.00) plus any attorneys' fees reasonably
incurred by Landlord in connection with such act or request.
17. HOLDING OVER.
If alter expiration of the Term, Tenant remains in possession of the Premises
with Landlord's permission (express or implied). Tenant shall become a tenant
form month to month only, upon all the provisions of this Lease (except as to
term and Base Rent), but the "Monthly Installments of Base Rent" payable by
Tenant shall be increased to one hundred twenty-five percent (125%) of the
Monthly installments of Base Rent payable by Tenant at the expiration of the
Term. Such monthly rent shall be payable in advance on or before the first day
of each month, if either party desires to termination such month to month
tenancy, it shall give the other party not less than thirty (30) days advance
written notice of the date of termination.
18. SURRENDER OF PREMISES.
a. Tenant shall peaceably surrender the Premises to Landlord on the
Expiration Date, in broom-clean condition and in as good condition as when
Tenant took possession, except for (i) reasonable wear and tear, (ii) loss
by fire or other casualty, and (iii) loss by condemnation. Tenant shall, on
Landlord's request, remove Tenant's Property on or before the Expiration
Date and promptly repair all damage to the Premises or Building caused by
such removal.
b. If Tenant abandons or surrender the Premises, or is dispossessed by
process of law or otherwise, any of Tenant's Property left on the Premises
shall be deemed to be abandoned, and, at Landlord's option, title shall
pass to Landlord under this Lease as by a bill of sale. If Landlord elects
to remove all or any part of such Tenant's Property, the cost of removal,
including repairing any damage to the Premises or Building caused by such
removal, shall be paid by Tenant. On the Expiration Date Tenant shall
surrender all keys to the Premises.
19. DESTRUCTION OR DAMAGE.
a. If the Premises or the portion of the Building necessary for Tenant's
occupancy is damaged by fire, earthquake, act of God, the elements of other
casualty. Landlord shall, subject to the provisions of this Article,
promptly repair the damage, if such repairs can, in Landlord's opinion, be
completed within (90) ninety days. If Landlord determines that repairs can
be completed within ninety (90) days, this Lease shall remain in full force
and affect, except that if such damage is not the result of the negligence
or willful misconduct of Tenant or Tenant's agents, employees, contractors,
licenses or invitees, the Base Rent and additional rent including all
project operating costs shall be abated to the extent Tenant's use of the
Premises is impaired, commencing with the date of damage and continuing
until completion of the repairs required of Landlord under Section 19d.
b. If in Landlord's opinion, such repairs to the Premises or portion of
the Building necessary for Tenant's occupancy cannot be completed within
ninety (90) days, Landlord or Tenant may elect, upon notice to the other
given within thirty (30) days after the date of such fire or other casualty
to terminate this Lease as of the date of such fire or casualty or agree to
have the Landlord repair, such damage, in which event this Lease shall
continue in full force and effect, but the Base Rent shall be partially
abated as provided in Section 19a. If Landlord does not make such repairs,
this Lease shall terminate as of the date of such fire or other casualty.
c. If any other portion of the Building or Project is totally destroyed or
damaged to the extent that in Landlord's opinion repair thereof cannot be
completed within ninety (90) days, Landlord or Tenant may elect upon notice
to the other given within thirty (30) days after the date of such fire or
other casualty to terminate this Lease as of the date of such fire or
casualty or agree to have the Landlord repair such damage, in which event
this Lease shall continue in full force and effect, but the Base Rent shall
be partially abated as provided in Section 19a. If Landlord does not make
such repairs, this Lease shall terminate as of the date of such fire or
other casualty.
d. If the Premises are to be repaired under this Article, Landlord shall
repair at its cost any injury or damage to the Building and Building
Standard Work in the Premises. Except in the event of willful acts or
negligence of Landlord, its employees or agent Tenant shall be responsible
at its sole cost and expense for the repair restoration and replacement of
any other Tenant provided Leasehold improvements and Tenant's Property.
Landlord shall not be liable for any loss of business, inconvenience or
annoyance from any repair or restoration of any portion of the Premises,
Building or Project as a result of any damage from fire of other casualty.
e. This Lease shall be considered an express agreement governing any case
of damage to or destruction of the Premises, Building or Property by fire
or other casualty, and any present or future law which purports to govern
the rights of Landlord and Tenant in such circumstances in the absence of
express agreement, shall have no application.
20. EMINENT DOMAIN.
a. If the whole of the Building or Premises is lawfully taken by
condemnation or in any other manner for any public or quari public
purposes, this Lease shall terminate as of the date of such taking, and
Rent shall be prorated to such date, if less than the whole of the Building
or Premises is so taken, this Lease shall be unaffected by such taking,
provided that (i) Tenant shall have the right to terminate this Lease by
notice to Landlord given within ninety (90) days after the date of such
taking it twenty percent (20%) or more of the Premises is taken and the
remaining area of the Premises is not reasonably sufficient for Tenant to
continue operation of its business, and (ii) Landlord shall have the right
to terminate this Lease by notice to Lease, the Lease shall terminate on
the thirtieth (30) days after either such notice. The Rent shall be
prorated to the date of termination. If the Lease continues in force upon
such partial taking, the Base Rent and Tenant's Proportionate Share shall
be equitably adjusted according to the remaining Rentable Area of the
Premises and Project.
(8)
<PAGE>
b. In the event of any taking, partial or whole, all of the proceeds of
any award, judgment or settlement payable by the condemning authority shall
be the exclusive property of Landlord, and Tenant hereby assigns to
Landlord all of its right, title and interest in any award, judgment or
settlement from the condemning authority. Tenant, however, shall have the
right, to the extent that Landlord's award is not reduced or prejudiced, to
claim from the condemning authority (but not from Landlord) such
compensation as may be recoverable by Tenant in its own right for
relocation expenses and damage to Tenant's personal property.
c. In the event of a partial taking of the Premises which does not result
in a termination of this Lease, Landlord shall restore the remaining
portion of the Premises as nearly as practicable to its condition prior to
the condemnation or taking, but only to the extent of Building Standard
Work. Tenant shall be responsible at its sole cost and expense for the
repair, restoration and replacement of any other Leasehold Improvements and
Tenant's Property.
21. INDEMNIFICATION.
a. Except negligence or willful acts of landlord or that of its agents or
employees, Tenant shall indemnify and hold Landlord harmless against and
from liability and claims of any kind for loss or damage to property of
Tenant or any other person, or for any injury to or death of any person,
arising out of: (1) Tenant's use and occupancy of the Premises, or any
work, activity or other things allowed or suffered by Tenant to be done in
or on the Premises; (2) any breach or default by Tenant of any of Tenant's
obligations under this Lease; or (3) any negligent or otherwise tortious
act or omission of Tenant, its agents, employees, invitees or contractors.
Except as provided above, Tenant shall at Tenant's expense, and by counsel
satisfactory to Landlord, defend Landlord in any action or proceeding
arising from any such claim and shall indemnify Landlord against all costs,
attorneys' fees, expert witness fees and any other expenses incurred in
such action or proceeding.
b. Except in the event of negligence or willful acts of Landlord,
Landlord shall not be liable for injury or damage which may be sustained by
the person or property of Tenant, its employees, invitees or customers, or
any other person in or about the Premises, caused by or resulting from
fire, steam, electricity, gas, water or rain which may leak or flow from or
into any part of the Premises, or from the breakage, leakage, obstruction
or other defects of pipes, sprinklers, wires, appliances, plumbing, air
conditioning or lighting fixtures, whether such damage or injury results
from conditions arising upon the Premises or upon other portions of the
Building or Project or from other sources. Landlord shall not be liable for
any damages arising from any act or omission of any other tenant of the
Building or Project.
22. TENANT'S INSURANCE.
a. All insurance required to be carried by Tenant hereunder shall be
issued by responsible insurance companies acceptable to Landlord and
Landlord's lender and qualified to do business in the State. Each policy
shall name Landlord, and at Landlord's request any mortgagee of Landlord,
as an additional insured, as their respective interests may appear. Each
policy shall contain (i) a gross-liability endorsement, (ii) a provision
that such policy and the coverage evidenced thereby shall be primary and
non-contributing with respect to any policies carried by Landlord and that
any coverage carried by Landlord shall be excess insurance, and (iii) a
waiver by the insurer of any right of subrogation against Landlord, its
agents employees and representatives, which arises or might arise by reason
of any payment under such policy or by reason of any act or omission of
Landlord, its agents, employees or representatives. A copy of each paid up
policy (authenticated by the insurer) or certificate of the insurer
evidencing the existence and amount of each insurance policy required
hereunder shall be delivered to Landlord before the date Tenant is first
given the right of possession of the Premises, and thereafter within thirty
(30) days after any demand by Landlord therefor. Landlord may, at any time
and from time to time inspect and/or copy any insurance policies required
to be maintained by Tenant hereunder. No such policy shall be cancellable
except after twenty (20) days written notice to Landlord and Landlord's
lender. Tenant shall furnish Landlord with renewals or "binders" of any
such policy at least ten (10) days prior to the expiration thereof. Tenant
agrees that if Tenant does not take out and maintain such insurance,
Landlord may (but shall not be required to) procure said insurance on
Tenant's behalf and charge the Tenant the premiums together with a twenty-
five percent (25%) handling charge, payable upon demand. Tenant shall have
the right to provide such insurance coverage pursuant to blanket policies
obtained by the Tenant, provided such blanket policies expressly afford
coverage to the Premises, Landlord. Landlord's mortgagee and Tenant as
required by this Lease.
b. Beginning on the date Tenant is given access to the Premises for any
purpose and continuing until expiration of the Term, Tenant shall procure
pay for and maintain in effect policies of casually insurance covering (i)
all Leasehold improvements (including any alterations, additions or
improvements as may be made by Tenant pursuant to the provisions of Article
12 hereof), and (ii) trade fixtures, merchandise and other personal
property from time to time in, on or about the Premises, in an amount not
less than one hundred percent (100%) of their actual replacement cost from
time to time, providing protection against any peril included within the
classification "Fire and Extended Coverage" together with insurance against
sprinkler damage, vandalism and malicious mischief. The proceeds of such
insurance shall be used for the repair or replacement of the property so
insured. Upon termination of this Lease following a casualty as set forth
herein, the proceeds under (i) shall be paid to Landlord, and the proceeds
under (ii) above shall be paid to Tenant.
c. Beginning on the date Tenant is given access to the Premises for any
purpose and continuing until expiration of the Term, Tenant shall procure,
pay for and maintain in effect workers' compensation insurance as required
by law and comprehensive public liability and property damage insurance
with respect to the construction of improvements on the Premises, the use
operation or condition of the Premises and the operations of Tenant in, on
or about the Premises, providing personal injury and broad form property
damage coverage for not less than One Million Dollars ($1,000,000.00)
combined single limit for bodily injury, death and property damage
liability.
d. Not less than every three (3) years during the Term, Landlord and
Tenant shall mutually agree to increases in all of Tenant's insurance
policy limits for all insurance to be carried by Tenant as set forth in
this Article, in the event Landlord and Tenant cannot mutually agree upon
the amounts of said increases, then Tenant agrees that all insurance policy
limits as set forth in this Article shall be adjusted for increases in the
cost of living in the same manner as is set forth in Section 5.2 hereof for
the adjustment of the Base Rent.
9
<PAGE>
23. WAIVER OF SUBROGATION.
Landlord and Tenant each hereby waive all rights of recovery against the other
and against the officers, employees, agents and representatives of the other, on
account of loss by or damage to the waiving party of its property or the
property of others under its control, to the extent that such loss or damage is
insured against under any fire and extended coverage insurance policy which
either may have in force at the time of the loss or damage. Tenant shall, upon
obtaining the policies of insurance required under this Lease, give notice to
its insurance carrier or carriers that the foregoing mutual waiver of
subrogation is contained in this Lease.
24. SUBORDINATION AND ATTORNMENT.
Upon written request of Landlord, or any first mortgagee or first deed of trust
beneficiary of Landlord, or ground lessor of Landlord. Tenant shall, in writing
subordinate its rights under this Lease to the lien of any first mortgage or
first deed of trust, or to the interest of any lease in which Landlord is
lessee, and to all advances made or hereafter to be made thereunder. However
before signing any subordination agreement, Tenant shall have the right to
obtain from any lender or lessor or Landlord requesting such subordination, an
agreement in writing providing that, as long as Tenant is not in default
hereunder, this Lease shall remain in effect for the full Term. The holder of
any security interest may, upon written notice to Tenant, elect to have this
Lease prior to its security interest regardless of the time of the granting or
recording of such security interest.
In the event of any foreclosure sale, transfer in lieu of foreclosure or
termination of the lease in which Landlord is lessee, Tenant shall attorn to the
purchaser, transferee or lessor as the case may be, and recognize that party as
Landlord under this Lease, provided such party acquires and accepts the Premises
subject to this Lease.
25. TENANT ESTOPPEL CERTIFICATES.
Within ten (10) days after written request from Landlord, Tenant shall execute
and deliver to Landlord or Landlord's designee, a written statement certifying
(a) that this Lease is unmodified and in full force and effect, or is in full
force and effect as modified and stating the modifications; (b) the amount of
Base Rent and the date to which Base Rent and additional rent have been paid in
advance; (c) the amount of any security deposited with Landlord; and (d) that
Landlord is not in default hereunder or, if Landlord is claimed to be in
default, stating the nature of any claimed default. Any such statement may be
retied upon by a purchaser, assignee or lender. Tenant's failure to execute and
deliver such statement within the time required shall at Landlord's election be
a default under this Lease and shall also be conclusive upon Tenant that: (1)
this Lease is in full force and effect and has not been modified except as
represented by Landlord; (2) there are no uncured defaults in Landlord's
performance and that Tenant has no right of offset, counter-claim or deduction
against Rent; and (3) not more than one month's Rent has been paid in advance.
26. TRANSFER OF LANDLORD'S INTEREST.
In the event of any sale or transfer by Landlord of the Premises, Building or
Project, and assignment of this Lease by Landlord. Landlord shall be and is
hereby entirely freed and relieved of any and all liability and obligations
contained in or derived from this Lease arising out of any act, occurrence or
omission relating to the Premises, Building, Project or Lease occurring after
the consummation of such sale or transfer, providing the purchaser shall
expressly assume all of the covenants and obligations of Landlord under this
Lease. If any security deposit or prepaid Rent has been paid by Tenant, Landlord
shall transfer the security deposit or prepaid Rent to Landlord's successor
and upon such transfer, Landlord shall be relieved of any and all further
liability with respect thereto.
27. DEFAULT.
27.1. TENANT'S DEFAULT. The occurrence of any one or more of the following
events shall constitute a default and breach of this Lease by Tenant:
a. If Tenant abandons or vacates the Premises without continuing to pay
rent or
b. If Tenant fails to pay any Rent or any other charges required to be paid
by Tenant under this Lease and such failure continues for five (5) days
after such payment is due and payable; or
c. If Tenant fails to promptly and fully perform any other covenant,
condition or agreement contained in this Lease and such failure continues
for thirty (30) days or Tenant has not commenced to remedy any failure that
reasonably would take longer than thirty days to remedy after written
notice thereof from Landlord to Tenant; or
d. If a writ of attachment or execution is levied on this Lease or on any
of Tenant's Property; or
e. If Tenant makes a general assignment for the benefit of creditors, or
provides for an arrangement, composition, extension or adjustment with its
creditors; or
f. If Tenant files a voluntary petition for relief or if a petition against
Tenant in a proceeding under the federal bankruptcy laws or other
insolvency laws is filed and not withdrawn or dismissed within forty-five
(45) days thereafter, of if under the provisions of any law providing for
reorganization or winding up of corporations, any court of competent
jurisdiction assumes jurisdiction, custody or control of Tenant or any
substantial part of its property and such jurisdiction, custody or control
remains in force unrelinquished, unstayed or unterminated for a period of
forty-five (45) days; or
g. If in any proceeding or action in which Tenant is a party, a trustee,
receiver, agent or custodian is appointed to take charge of the Premises
or Tenant's Property (or has the authority to do so) for the purpose of
enforcing a lien against the Premises or Tenant's Property; or
h. If Tenant is a partnership or consists of more than one (1) person or
entity, if any partner or the partnership or other persons or entity is
involved in any of the acts or events described in subparagraphs d through
g above.
27.2. REMEDIES. In the event of Tenant's default hereunder, then in addition
to any other rights or remedies Landlord may have under any law, Landlord shall
have the right, at Landlord's option, without further notice or demand of any
kind to do the following:
a. Terminate this Lease and Tenant's right to possession of the Premises
and reenter the Premises and take possession thereof, and Tenant shall have
no further claim to the Premises or under this Lease; or
b. Continue this Lease in effect, reenter and occupy the Premises for the
account of Tenant, and collect any unpaid Rent or other charges which have
or thereafter become due and payable; or
c. Reenter the Premises under the provisions of subparagraph b, and
thereafter elect to terminate this Lease and Tenant's right to possession
of the Premises.
(10)
<PAGE>
If Landlord reenters the Premises under the provisions of subparagraphs b or c
above. Landlord shall not be deemed to have terminated this Lease or the
obligation of Tenant to pay any Rent or other charges thereafter accruing,
unless Landlord notifies Tenant in writing of Landlord's election to terminate
this Lease, in the event of any reentry or retaking of possession by Landlord.
Landlord shall have the right, but not the obligation, to remove all or any part
of Tenant's Property in the Premises and to place such property in storage at a
public warehouse at the expense and risk of Tenant. If Landlord elects to relet
the Premises for the account of Tenant, the rent received by Landlord from such
relettting shall be applied as follows: first, to the payment of any
indebtedness other than Rent due hereunder from Tenant to Landlord; second to
the payment of any costs of such reletting: third, to the payment of the cost of
any alterations or repairs to the Premises: fourth to the payment of Rent due
and unpaid hereunder; and the balance, if any shall be held by Landlord and
applied in payment of future Rent as it becomes due. If that portion of rent
received from the reletting which is applied against the Rent due hereunder is
less than the amount of the Rent due. Tenant shall pay the deficiency to
Landlord promptly upon demand by Landlord. Such deficiency shall be calculated
and paid monthly. Tenant shall also pay to Landlord, as soon as determined, any
costs and expenses incurred by Landlord in connection with such reletting or in
making alternations and repairs to the Premises, which are not covered by the
rent received from the reletting.
Should Landlord elect to terminate this Lease under the provisions of
subparagraph a or c above, Landlord may recover as damages from Tenant the
following:
1. Past Rent. The worth at the time of the award of any unpaid Rent which
had been earned at the time of termination; plus
2. Rent Prior to Award. The worth at the time of the award of the amount
by which the unpaid Rent which would have been earned after
termination until the time of award exceeds the amount of such rental
loss that Tenant proves could have been reasonably avoided; plus
3. Rent After Award. The worth at the time of the award of the amount by
which the unpaid Rent for the balance of the Term after the time of
award exceeds the amount of the rental loss that Tenant proves could
be reasonably avoided; plus
4. Proximately Caused Damages. Any other amount necessary to compensate
Landlord for all detriment proximately caused by Tenant's failure to
perform its obligations under this Lease or which in the ordinary
course of things would be likely to result therefrom including, but
not limited to, any costs or expenses (including attorneys' fees),
incurred by Landlord in (a) relaxing possession of the Premises, (b)
maintaining the Premises after Tenant's default, (c) preparing the
Premises for reletting to a new tenant, including any repairs or
alterations, and (d) reletting the Premises including broker's
commissions.
"The worth at the time of the award" as used in subparagraphs 1 and 2 above, is
to be computed by allowing interest at the rate of ten percent (10%) per annum.
"The worth at the time of the award" as used in subparagraph 3 above, is to be
computed by discounting the amount at the discount rate of the Federal Reserve
Bank situated nearest to the Premises at the time of the award plus one percent
(1%).
The waiver by Landlord of any breach of any term, covenant or condition of this
Lease shall not be deemed a waiver of such term, covenant or condition or of any
subsequent breach of the same or any other term, covenant or condition.
Acceptance of Rent by Landlord subsequent to any breach hereof shall not be
deemed a waiver of any preceding breach other than the failure to pay the
particular Rent so accepted, regardless of Landlord's knowledge of any breach at
the time of such acceptance of Rent. Landlord shall not be deemed to have waived
any term, covenant or condition unless Landlord gives Tenant written notice of
such waiver.
27.3 Landlord's Default. If Landlord fails to perform any covenant, condition or
agreement contained in this Lease within thirty (30) days after receipt of
written notice from Tenant specifying such default, or if such default cannot
reasonably be cured within thirty (30) days, if Landlord fails to commence to
cure within that thirty (30) day period, then Landlord shall be liable to Tenant
for any damages sustained by Tenant as a result of Landlord's breach; provided,
however, it is expressly understood and agreed that if Tenant obtains a money
judgement against Landlord resulting from any default or other claim arising
under this Lease, that judgment shall be satisfied only out of the rents,
issues, profits, and other income actually received on account of Landlord's
right, title and interest in the Premises, Building or Project, and no other
real, personal or mixed property of Landlord (or of any of the partners which
comprise Landlord, if any) wherever situated, shall be subject to levy to
satisfy such judgement. If, after notice to Landlord of default, Landlord (or
any first mortagee or first deed of trust beneficiary of Landlord) fails to cure
the default as provided herein, then Tenant shall have the right to cure that
default at Landlord's expense.
28. BROKERAGE FEES.
Tenant warrants and represents that it has not dealt with any real estate broker
or agent in connection with this Lease or its negotiation except those noted in
Section 2.c. Tenant shall indemnify and hold Landlord harmless from any cost,
expense or liability (including costs of suit and reasonable attorneys' fees)
for any compensation, commission or fees claimed by any other real estate broker
or agent in connection with this Lease or its negotiation by reason of any act
of Tenant.
29. NOTICES.
All notices, approvals and demands permitted or required to be given under this
Lease shall be in writing and deemed duly served or given if personally
delivered or sent by certified or registered U.S. mail, postage prepaid and
addressed as follows: (a) if to Landlord, to Landlord's Mailing Address and to
the Building manager, and (b) if to Tenant, to Tenant's Mailing Address, with
copy to: The Money Store, 3301 "C" Street, Suite 100-B, Sacramento, CA 95816
ATTN: National Leasing Manager provided, however, notices to Tenant shall be
deemed duly served or given if delivered or mailed to Tenant at the Premises
with copy to: The Money Store, 3301 "C" Street, Suite 100-B, Sacramento, CA
95816 ATTN: National Leasing Manager Landlord and Tenant may from time to time
by notice to the other designate another place for receipt or future notices.
30. GOVERNMENT ENERGY OR UTILITY CONTROLS.
In the event of imposition of federal, state or local government controls,
rules, regulations, or restrictions on the use or consumption of energy or other
utilities during the Term, both Landlord and Tenant shall be bound thereby. In
the event of a difference in interpretation by Landlord and Tenant of any such
controls, the interpretation of a mutually agreed upon third party shall
prevail, and Landlord shall have the right to enforce compliance therewith,
including the right of entry into the Premises to effect compliance.
31. RELOCATION OF PREMISES
(11)
<PAGE>
32. QUIET ENJOYMENT.
Tenant, upon paying the Rent and performing all of its obligations under this
Lease, shall peaceably and quietly enjoy the Premises, subject to the terms of
this Lease and to any mortgage, lease, or other agreement to which this Lease
may be subordinate.
33. OBSERVANCE OF LAW.
Tenant shall not use the Premises or permit anything to be done in or about the
Premises which will in any way conflict with any law, statute, ordinance or
governmental rule or regulation now in force or which may hereafter be enacted
or promulgated to the extent Landlord would not otherwise owe such duty or have
a duty imposed upon it. Tenant shall, at its sole cost and expense, promptly
comply with all laws, statutes, ordinances and governmental rules, regulations
or requirements now in force or which may hereafter be in force, and with the
requirements of any board of fire insurance underwriters or other similar bodies
now or hereafter constituted, relating to, or affecting the condition, use or
occupancy of the Premises, excluding structural changes not related to or
affected by Tenant's improvements or acts. The judgment of any court of
competent jurisdiction or the conclusive admission of Tenant in any action
against Tenant, whether Landlord is a party thereto or not, that Tenant has
violated any law, ordinance or governmental rule, regulation or requirement,
shall be conclusive of that fact as between Landlord and Tenant.
34. FORCE MAJEURE.
Any prevention, delay or stoppage of work to be performed by Landlord or Tenant
which is due to strikes, labor disputes, inability to obtain labor, materials,
equipment or reasonable substitutes therefor, acts of God, governmental
restrictions or regulations or controls, judicial orders, enemy or hostile
government actions, civil commotion, fire or other casually, or other causes
beyond the reasonable control of the party obligated to perform hereunder, shall
excuse performance of the work by that party for a period equal to the duration
of that prevention, delay or stoppage. Nothing in this Article 34 shall excuse
or delay Tenant's obligation to pay Rent or other charges under this Lease.
35. CURING TENANT'S DEFAULTS.
If Tenant defaults in the performance of any of its obligations under this
Lease, Landlord may (but shall not be obligated to) without waiving such
default, perform the same for the account at the expense of Tenant. Tenant
shall pay Landlord all reasonable costs of such performance promptly upon
receipt of a bill therefor.
36. SIGN CONTROL.
Tenant shall not affix, paint, erect or inscribe any sign, projection, awning,
signal or advertisement of any kind to any part of the Premises, Building or
Project, including without limitation, the inside or outside of windows or
doors, without the written consent of Landlord. Landlord shall have the right to
remove any signs or other matter, installed without Landlord's permission,
without being liable to Tenant by reason of such removal, and to charge the cost
of removal to Tenant as additional rent hereunder, payable within ten (10) days
of written demand by Landlord.
37. MISCELLANEOUS.
a. Accord and Satisfaction; Allocation of Payments. No payment by Tenant or
receipt by Landlord of a lesser amount than the Rent provided for in this Lease
shall be deemed to be other than an account of the earliest due Rent, nor shall
any endorsement or statement on any check or letter accompanying any check or
payment as Rent be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of the Rent or pursue any other remedy provided for in this Lease. In
connection with the foregoing, Landlord shall have the absolute right in its
sole discretion to apply any payment received from Tenant to any account or
other payment of Tenant then not current and due or delinquent.
b. Addands. If any provision contained in an addendum to this Lease is
inconsistent with any other provision herein, the provision contained in the
addendum shall control, unless otherwise provided in the addendum.
c. Attorneys' Fees. If any action or proceeding is brought by either party
against the other pertaining to or arising out of this Lease, the finally
prevailing party shall be entitled to recover all costs and expenses, including
reasonable attorneys' fees, incurred on account of such action or proceeding.
d. Captions, Articles and Section Numbers. The captions appearing within the
body of this Lease have been inserted as a matter of convenience and for
reference only and in no way define, limit or enlarge the scope or meaning of
this Lease. All references to Article and Section numbers refer to Articles and
Sections in this Lease.
e. Changes Requested by Lender. Neither Landlord or Tenant shall unreasonably
withhold its consent to changes or amendments to this Lease requested by the
lender on Landlord's interest, so long as these changes do not alter the basic
business terms of this Lease or otherwise materially diminish any rights or
materially increase any obligations of the party from whom consent to such
charge or amendment is requested.
f. Choice of Law. This Lease shall be construed and enforced in accordance
with the laws of the State.
(12)
<PAGE>
h. Corporate Authority. If Tenant is a corporation, each individual signing
this Lease on behalf of Tenant represents and warrants that he is duly
authorized to execute and deliver this Lease on behalf of the corporation, and
that this Lease is binding on Tenant in accordance with its terms. Tenant shall,
at Landlord's request, deliver a certified copy of a resolution of its board of
directors authorizing such execution.
i. Counterparts. This Lease may be executed in multiple counterparts, all of
which shall constitute one and the same Lease.
j. Execution of Lease; No Option. The submission of this Lease to Tenant shall
be for examination purposes only, and does not and shall not constitute a
reservation of or option for Tenant to lease, or otherwise create any interest
of Tenant in the Premises or any other premises within the Building or Project.
Execution of this Lease by Tenant and its return to Landlord shall not be
binding on Landlord or Tenant notwithstanding any time interval, until Landlord
has in fact signed and delivered this Lease to Tenant.
k. Furnishing of Financial Statements; Tenant's Representations. In order to
induce Landlord to enter into this Lease Tenant agrees that it shall promptly
furnish Landlord, from time to time, upon Landlord's written request, with
financial statements reflecting Tenant's current financial condition. Tenant
represents and warrants that all financial statements, records and information
furnished by Tenant to Landlord in connection with this Lease are true, correct
and complete in all respects.
l. Further Assurances. The parties agree to promptly sign all documents
reasonably requested to give effect to the provisions of this Lease.
m. Mortgage Protection. Tenant agrees to send by certified or registered mail
to any first mortgagee or first deed of trust beneficiary of Landlord whose
address has been furnished to Tenant, a copy of any notice of default served by
Tenant on Landlord. If Landlord fails to cure such default within the time
provided for in this Lease, such mortgagee or beneficiary shall have an
additional thirty (30) days to cure such default: provided that if such default
cannot reasonably be cured within that thirty (30) day period, then such
mortgagee or beneficiary shall have such additional time to cure the default as
is reasonably necessary under the circumstances.
n. Prior Agreements; Amendments. This Lease contains all of the agreements of
the parties with respect to any matter covered or mentioned in this Lease, and
no prior agreement or understanding pertaining to any such matter shall be
effective for any purpose. No provisions of this Lease may be amended or added
to except by an agreement in writing signed by the parties or their respective
successors in interest.
o. Recording. Tenant shall not record this Lease without the prior written
consent of Landlord. Tenant, upon the request of Landlord, shall execute and
acknowledge a "short term" memorandum of this Lease for recording purposes.
p. Severability. A final determination by a court of competent jurisdiction
that any provision of this Lease is invalid shall not affect the validity of any
other provision, and any provision so determined to be invalid shall, to the
extent possible, be construed to accomplish its intended effect.
q. Successors and Assigns. This Lease shall apply to and bind the heirs,
personal representatives, and permitted successors and assigns of the parties.
r. Time of the Essence. Time is of the essence of this Lease.
s. Waiver. No delay or omission in the exercise of any right or remedy of
Landlord or Tenant upon default by the other shall impair such right or remedy
or be construed as a waiver of such default.
t. Compliance. The parties hereto agree to comply with all applicable federal,
state and local laws, regulations, codes, ordinances and administrative orders
having jurisdiction over the parties, properly or the subject matter of this
Agreement, including but not limited to, the 1964 Civil Rights Act and all
amendments thereto, the Foreign Investment In Real Property Tax Act, the
Comprehensive Environmental Response Compensation and Liability Act, and The
Americans With Disabilities Act.
The receipt and acceptance by Landlord of delinquent Rent shall not constitute a
waiver of any other default; it shall constitute only a waiver of timely payment
for the particular Rent payment involved.
No act or conduct of Landlord, including, without limitation, the acceptance of
keys to the Premises, shall constitute an acceptance of the surrender of the
Premises by Tenant before the expiration of the Term. Only a written notice from
Landlord to Tenant shall constitute acceptance of the surrender of the Premises
and accomplish a termination of the Lease.
Landlord's consent to or approval of any act by Tenant requiring Landlord's
consent or approval shall not be deemed to waive or render unnecessary
Landlord's consent to or approval of any subsequent act by Tenant.
Any waiver by Landlord of any default must be in writing and shall not be a
waiver of any other default concerning the same or any other provision of the
Lease.
The parties hereto have executed this Lease as of the dates set forth below.
Date: 5/18/95 Date: ________________________
----------------------------------------
Landlord: Crosstown Building Partners Tenant: The Money Store, Inc.
By: Delta-Sierra Development, G.R. ----------------------
------------------------------------
By: /s/ Gary R. Bricker By: /s/ John Reeves
------------------------------------------ --------------------------
Gary R. Bricker John Reeves
Title: President Title: Sr. Vice President
--------------------------------------- -----------------------
By: __________________________________________ By: __________________________
Title: _______________________________________ Title: _______________________
- --------------------------------------------------------------------------------
CONSULT YOUR ADVISORS -- This document has been prepared for approval by your
attorney. No representation or recommendation is made by CB Commercial as to the
legal sufficiency or tax consequences of this document or the transaction to
which it relates. These are questions for your attorney.
In any real estate transaction, it is recommended that you consult with a
professional, such as a civil engineer, industrial hygienist or other person,
with experience in evaluating the condition of the property, including the
possible presence of asbestos, hazardous materials and underground storage
tanks.
- --------------------------------------------------------------------------------
(13)
<PAGE>
PAGE>
ADDENDUM TO LEASE
THIS ADDENDUM ("Addendum") is made to that certain lease (the "Lease") dated as
of March 15, 1995, by and between The Money Store Inc., a New Jersey
Corporation, as Tenant, and Crosstown Building Partners, a California limited
partnership, as Landlord. This Addendum shall be deemed a part of the Lease as
though set forth in full therein.
1. Adjusted Rents. The Fixed Minimum Monthly Rent, as adjusted during
--------------
the initial term, shall be as follows:
<TABLE>
<CAPTION>
Months Base Monthly Rent
------ -----------------
<S> <C>
1-12 $7,569.60
13-24 $7,885.00
25-36 $8,200.00
</TABLE>
2. Signs. Tenant shall not be permitted to install any sign on the
-----
exterior of the Building. Tenant may place a sign identifying Tenant as an
occupant of the building in the "billboard tenant identification sign" located
in the first floor lobby of the Building, and another identification sign
outside of the Premises, provided any such sign(s) are consistent with the
signage theme adopted for the Building by Landlord. No other signs may be
displayed without Landlord's prior written permission. At the termination of
this Lease for any reason whatsoever, Tenant shall remove all signs installed
pursuant to this Lease, and repair, replace and/or repaint the areas effected by
said signs in order to restore said area(s) to the condition existing prior to
said sign(s) installation, all at Tenant's sole expense.
3. Tenant Improvements. Tenant leases and Landlord lets the Premises "as
-------------------
is". Tenant shall not demolish any existing tenant improvements or make any
additional tenant improvements without Landlord's expressed written consent,
which consent may not be unreasonably withheld. Landlord makes no representation
or warranty with regard to the existing improvements or to any improvements made
or to be made by Tenant. Unless otherwise determined by Landlord, any permitted
item of improvement made by Tenant shall be deemed part of the Premises and
shall be owned by Landlord. Tenant hereby indemnifies Landlord from and against
any liens, claims of lien or other causes of action brought as a result of
performing any tenant improvements to the Premises.
4. Option to Extend. Tenant is given the option to extend the term of
----------------
the Lease on all the terms and conditions contained herein, except the minimum
monthly rent, for one (1) three (3) year period (the "Extended Term") following
the expiration of the initial term, by giving notice of exercise of the option
("Option Notice") to Landlord at least five (5) months but not more than nine
(9) months before the expiration of the initial term. Provided that, if Tenant
is in default on the date of giving the Option Notice, at Landlord's election,
the Option Notice shall be ineffective, or if Tenant is in default on the date
the Extended Term is to commence, at Landlord's election, the Extended Term
shall not commence, and this Lease shall expire at the end of initial term. The
parties shall have sixty (60) days after Landlord receives the Option Notice in
which to agree on the applicable rental for the Extended Term. If the parties
agree to the applicable rental within said 60 days, they shall immediately
execute an amendment to this Lease stating the applicable rental for the
Extended Term.
If the parties are unable to agree on the applicable rental for the Extended
Term within said 60 days, then within ten (10) days thereafter, each party, at
its cost, and by giving notice to the other party, shall appoint a real estate
appraiser who is a member in good standing of the American Institute of Real
Estate Appraisers ("MAI") with at least five (5) years full time commercial
appraisal experience in the Sacramento County area, to render an opinion as to
the market rental to apply during the Extended Term. If a party fails to
appoint an appraiser within 10 days after the other party has given notice of
the name of its appraiser, the single appraiser so appointed shall be the sole
appraiser and shall set the applicable rental for the Extended Term. If two
appraisers are appointed as provided above, they shall meet promptly and
attempt to set the applicable rental for the Extended Term.
<PAGE>
If the appraisers are unable to agree to the applicable rental within thirty
(30) days, they shall, within ten (10) days thereafter, submit their respective
opinions as to what the applicable rental should be to Landlord. In such event
the rent schedule last proposed in writing by Landlord in its previous
negotiations with Tenant shall be added together with each appraiser's rental
schedule, and the total divided by three (3). If the only practical means of
accomplishing the foregoing is to calculate the beginning rent in each case and
divide it by 3, the quotient so determined shall be the beginning rental, which
shall be subject to annual increases using the Consumer Price Index defined in
Section 2 (h) of the Lease, published as the U.S. City Average. In no event
shall the rental for the Extended Term be a flat rate rental for the entire
Extended Term.
If the Tenant objects to the rental schedule so determined, Tenant shall have
the right to elect to have the Lease expire at the end of the initial term,
provided Tenant pays for all the costs incurred in connection with the appraisal
procedure used to set the rental schedule for the Option Term, including
attorney's fees, if any. Tenant's election to allow the Lease to expire must be
exercised, if at all, within ten (10) days after receipt of notice from Landlord
or the appraisers, as the case may be, of the rental schedule for the Extended
Term as determined pursuant to this Paragraph 14.
5. Limited Right to Early Termination. Subject to the terms set forth
----------------------------------
in this Paragraph, Tenant shall have the right to terminate this Lease after the
twelfth (12th) month of the Lease term upon giving Landlord at least sixty (60)
days prior written notice, provided: a) in the event Tenant is in default on the
date of giving notice of early termination, such default must be cured prior to
the early termination date; and b) Tenant must be terminating this Lease in
order for the operations then occupying the Premises to consolidate with
Tenant's various other Sacramento operations (including affiliates and
subsidiary companies) into new headquarters. In the event any such default is
not cured or such consolidation is not immenent, the early termination shall be
ineffective and the full term of this Lease shall apply. The phrase "consolidate
Tenant's various other Sacramento operations" shall mean that not less than
ninety percent (90%) of the operations of Tenant and its affiliates and
subsidiaries, including The Money Store Investment Corporation and Educaid,
which are then operating in the Sacramento metropolitan Statistical Area, are at
that time consolidating into one building, or a single office complex of more
than one building.
6. Confidentiality Clause. Tenant acknowledges and agrees that the terms
----------------------
of this Lease are special, valuable and unique to this transaction, and hereby
covenants and agrees during the period prior to execution of this Lease and
during the term thereof, to not reveal or make available the Lease or its
content, terms or provisions to any individual or entity without the prior
written consent of Landlord. This Paragraph shall not apply to any auditor,
accountant or consultant to Tenant, when such party requires review of this
Lease as a part of its services to Tenant or a third party dealing with Tenant.
7. Safety/Indemnity. Tenant shall operate its business and use the
----------------
Premises in accordance with all applicable laws and ordinances, and in as safe
and hazard free manner as possible. Except with respect to any negligence or
wilful acts of Landlord, its agents or employees, Tenant hereby indemnifies and
holds Landlord free and harmless against any and all losses, costs (including
attorneys' fees), damages, liability, personal or property damage, and shall
defend Landlord against any claims or causes of action brought against Landlord
as a result of Tenant's operation, possession or use of the Premises.
8. Interpretation. Any provision contained in the body of the Lease
--------------
which is inconsistent with any provision of this Addendum shall be superseded by
the provision contained in this Addendum. This Lease shall be governed by the
laws of the State of California.
9. Rentable Area. The parties acknowledge and agree that the Rentable
-------------
Area of the Premises may change from time to time during the term as Landlord
may need to change the configuration of leasable space within the Building as
other tenant's leases commence or terminate, and therefore Tenant's
Proportionate Share, as defined in Section 2 (r) of the Lease, may vary from
time to time accordingly.
<PAGE>
10. Parking. Notwithstanding anything to the contrary contained in the
-------
Lease, the parking stalls which Tenant will be allowed to use will be assigned
to Tenant, and parking in any parking stalls other than those assigned to Tenant
is strictly prohibited. Tenant acknowledges that tenant parking for the Building
is subject to non-discriminatory rules and regulations which may be adopted by
Landlord from time to time, that Landlord reserves the right to charge a monthly
or other fee to Tenant for the parking stalls assigned to Tenant, so long as
Tenant is not the only tenant within the Building to be so charged. Tenant
further acknowledges that Landlord does not guaranty that all or any portion of
the parking stalls assigned to Tenant will be located in the parking lot
immediately adjacent to the Building.
/
/
/
/
/
/
/
IN WITNESS WHEREOF, the parties have executed this Amendment in Sacramento,
California.
TENANT:
THE MONEY STORE INC., a New Jersey corporation
By: /s/ John Reeves, Sr.
------------------------------------
John Reeves, Sr. Vice President
LANDLORD:
CROSSTOWN BUILDING PARTNERS, a California limited partnership
By Delta-Sierra Development, Inc. a California corporation, its general
partner
By: /s/ Gary R. Bricker
-------------------------------
Gary R. Bricker, President
<PAGE>
ADDITIONAL TERMS
This and the following paragraphs are added to the lease. In the event of
any inconsistencies between the provisions of this Addendum and the provisions
of the Lease, this Addendum shall govern.
11. Notwithstanding anything to the contrary in this Lease, Landlord agrees
that all of its duties, rights and obligations under this Lease shall be
exercised in a reasonable manner and in good faith with respect to the Tenant.
12. Notwithstanding anything to the contrary in this Lease, Tenant shall have
the first right of refusal on any adjacent space. In the event a first right of
refusal has been granted to any other Tenant, Tenant shall have a second right
of refusal.
13. Americans with Disabilities Act: Landlord recognizes and agrees that
--------------------------------
Tenant shall not be liable for any damages or claims, or for any changes to in,
or about the building, which may be required by The Americans with Disabilities
Act. Landlord agrees to indemnify and hold harmless, and to defend, Tenant
against all liability, cost and expenses Tenant may incur as a result of any
claim, damages, or action, including without limitation any lawsuit or
administrative proceedings, asserted against Tenant as a result of The Americans
with Disabilities Act.
14. Monetary Default: Notwithstanding anything in this Lease to the contrary
-----------------
Landlord shall give Tenant written notice of any ("Monetary Default") under this
Lease and Tenant shall have ten (10) days from receiving such notice, to satisfy
any ("Monetary Default") before Landlord shall consider Tenant in actual
default, except that landlord shall only be required to give notice to Tenant
under this paragraph a maximum of two (2) time per any 12 month period.
15. Operating Cost Exclusions:
--------------------------
In addition of the exclusions set forth in paragraph 5.3 of the Lease, Operating
---
Costs of the Building shall exclude the following:
A) Cost of decorating, redecorating, or special cleaning or other services not
provided on a regular basis to tenants of the Building, unless such
decorating, redecorating or special cleaning are typical and customary in
common areas of first-class office buildings in the market;
B) Wages, salaries, fees and fringe benefits paid to administrative of
executive personnel or officers or partners of Landlord unless employed at
competitive rates as independent contractors;
C) Any charge for depreciation of the Building or equipment;
D) Any charge for Landlords income, excess profit, franchise, inheritance,
gift, transfer, excise or profit taxes, or capital levies on Landlord's
business and any late payment charges or penalties with regard thereto;
E) All costs relating to activities for the solicitation and execution of
leases of space in the Building;
F) All costs for which Tenant or other tenants in the Building are being
charged other than pursuant to paragraph 5.3 of the Lease;
---
G) The cost of any repairs made by Landlord because of the total or partial
destruction of the Building or the condemnation of a portion of the
Building;
H) Any increases in insurance premiums to the extent that such increase is
caused or attributable to the use of the Building by any tenant other than
Tenant;
I) The cost of any items for which Landlord is reimbursed by insurance;
<PAGE>
J) The cost of any repairs, alterations, additions, changes, replacements,
and other items which under generally accepted accounting principles are
properly classified as capital expenditures to the extent they upgrade or
improve the Building as opposed to replace existing items which have worn
out;
K) The cost of repairing construction defects, replacement of the roof,
resurfacing the parking structure and exterior glass replacement;
L) Any Operating Costs of the Building representing an amount paid to a
related corporation, entity, or person which is in excess of the amount
which would be paid in the absence of such relationship;
M) The cost of tools and equipment used initially in the construction of the
Building;
N) The cost of any work or service performed for or facilities furnished to
any tenant of the Building to a greater extent or in a manner more
favorable to such tenant than that performed for or furnished to Tenant;
O) The cost of alterations of space in the Building leased to other tenants;
P) The cost of overtime or other expense to Landlord in curing its defaults
or performing work expressly provided in this Lease to be borne at
Landlord's expense; and
Q) Capital improvements or expenditures incurred to reduce expenses shall be
included in Operating Costs of the Building to the lesser of the annual
amortized amount of said improvements or expenditures (over the useful
life of the improvement or item) or the actual savings.
16. Landlord's Representation and Warranty:
--------------------------------------
Landlord represents and warrants, to the best actual knowledge of Landlord,
without inquiry, that:
(1) except as stated in the preliminary site assessment dated June 25,
1991 attached hereto, no Hazardous Substances are now or have ever been located,
produced, treated, stored, transported, incorporated, discharged, emitted,
released, deposited or disposed of in, upon, under, over or from the Property by
Landlord except for Hazardous Substances utilized in conjunction with office
equipment and systems or cleaning supplies; and
(2) neither the Property nor any part there of is in violation of any
Environment Law.
17. Landlord's Indemnification:
--------------------------
Landlord shall indemnify, defend and hold Tenant harmless against any and all
liability to any third person not a party to this Lease for any and all actions,
claims, demands, judgements, penalties, liabilities, costs, damages and
expenses, including court costs and attorney's fees incurred by Tenant, directly
or indirectly, resulting from the existence of any Hazardous Substances in,
upon, under, over or from the Property, unless such Hazardous Substances is
deposited in, upon, under, over or from the Property by Tenant. Each of the
representations and warranties of Landlord set forth within paragraph 16 above
--
and all of Landlord's obligations under this paragraph shall expire on the last
day of the second year after the expiration or earlier termination date of this
Lease.
<PAGE>
18. Interruption of Services:
------------------------
Notwithstanding anything to the contrary set forth within the Lease, in the
event any of the services set forth in paragraph 9 of the Lease are interrupted
--
and are not restored within seven (7) business days after Landlord's receipt of
Tenant's written notice, Tenant may abate payments of Base Rent provided that
(1) the ability to restore the interrupted services is within the reasonable
control of Landlord, and (2) Tenant's ability to use the Demised Premises is
materially interrupted. Tenant's Base Rent abatement period shall last only for
the period of time during which Tenant's use of the Demised Premises is
materially interrupted.
19. Tenant's Remedy for Landlord's Failure to Repair Maintain the Building:
----------------------------------------------------------------------
In the event Landlord fails to make any repairs, alterations or improvements
within seven (7) business days after receipt of Tenant's written notice, Tenant
may abate payments of Base Rent provided that (1) the ability to make the
repair, alteration or improvement is within the reasonable control of Landlord,
and (2) Tenant's ability to use the Demised Premises is materially interrupted.
Tenant's Base Rent abatement period shall last only for the period of time
during which Tenant's use of the Demised Premises is materially interrupted.
LANDLORD: TENANT:
CROSSTOWN BUILDING PARTNERS, THE MONEY STORE INC.,
A CALIFORNIA LIMITED PARTNERSHIP A NEW JERSEY CORPORATION
By: Delta Service Development, Inc.,
its general partner
By: /s/ Gary R. Bricker By: /s/ John Reeves
-------------------------------- -------------------------------
Its: President Its: Senior Vice President
-------------------------------- -------------------------------
Date: 5/18/95 Date: 5 -
------------------------------- ------------------------------
<PAGE>
EXHIBIT "A"
That real property situated in the City of Sacramento, County of Sacramento,
State of California, described as follows:
PARCEL NO. 1:
The North one-half of Lot 1 in the Block bounded by "N" and "O", 21st and 22nd
Streets of the City of Sacramento, according to the official map or plan
thereof; and
The West one-half of Lot 2 in the Block bounded by "N" and "O", 21st and 22nd
Streets of the City of Sacramento, according to the official map or plan
thereof.
PARCEL NO. 2:
The East one-half of Lot 3 in the Block bounded by "N" and "O", 21st and 22nd
Streets of the City of Sacramento, according to the official map or plan
thereof.
<PAGE>
EXHIBIT C
Exhibit C is intentionally omitted, as Tenant is leasing the premises "as is".
Where the context allows, any references in the Lease to improvements to be
constructed pursuant to "Exhibit C" of the Lease shall be deemed to be the
improvements to be constructed by Tenant at Tenant's sole expense. Note that
any and all improvements must be first be approved by Landlord, in writing.
<PAGE>
AMENDMENT TO LEASE
THIS IS THE FIRST AMENDMENT ("Amendment") to that certain lease, dated as of
March 15, 1995 (the "Lease"), by and between Crosstown Building Partners, a
California limited partnership ("Landlord"), and The Money Store, Inc., a New
Jersey corporation ("Tenant"). Subject to the terms and conditions set forth in
this Amendment, the parties wish to amend the Lease as follows:
1. Additional Leased Space. As of the Effective Date set forth below,
-----------------------
and subject to the terms and conditions set forth herein, the Premises as
defined in Paragraph 2(l) of the Lease shall be amended to include that portion
of the Building known as Suite 370, being the office space approximately 969
square feet in area, located in the Northeast corner of the Building on the 3rd
floor (the "Additional Space"). The premises, including the Additional Space,
will contain approximately 7,277 square feet of leasable space. The Additional
Space is leased "as is", and any improvements shall pre-approved by Landlord and
made at Tenant's sole cost and expense.
2. Effective Date. This Amendment, and the Lease as it applies to the
--------------
Additional Space, shall become effective (the "Effective Date") as of: 1) the
earlier of the date of Tenant's occupancy of the Additional Space, or 2) October
1, 1995.
3. Revised Rent Schedule. As of the Effective Date, the Fixed Minimum
---------------------
Rent, as adjusted through the remainder of the initial term shall be as follows:
<TABLE>
<CAPTION>
Months Base Monthly Rent
------ -----------------
<S> <C>
Effective Date* - March 31, 1996 $8,732.40
April 1, 1996 - March 31, 1997 $9,096.25
April 1, 1996 - March 31, 1998 $9,459.64
</TABLE>
*Note: If the Effective Date does not fall on the first of the month, that
month's rent shall be prorated based on a 30 day month times the actual number
of days applicable.
4. Tenant's Proportionate Share. As of the Effective Date, Tenant's
----------------------------
Proportionate Share, as defined in Paragraph 2 (r) of the Lease, shall be
increased to 29.70% for all purposes under the Lease.
5. Parking. As of the Effective Date, and subject to the terms,
-------
conditions and restrictions contained in the Lease and any rules or regulations
promulgated by Landlord from time to time, Tenant shall be allowed the use of
two (2) additional parking stalls in the parking lots owned by Landlord. Said
parking stalls shall be assigned by Landlord, and Tenant shall not park in any
other parking stalls than those assigned to Tenant. Nothing contained in this
Addendum or in the Lease shall prevent Landlord from charging Tenant for the
parking stalls designated for Tenant's use, as provided in the Lease.
IN WITNESS WHEREOF, the parties have entered into this Amendment as of September
15, 1995.
LANDLORD: Crosstown Building Partners, a California limited partnership
By Delta-Sierra Development, a California corporation, its general
partner
/s/ GARY R. BRICKER
-----------------------------------
Gary R. Bricker, President
TENANT: The Money Store, Inc., a New Jersey corporation
By: /s/ John A. Reeves Title: E.V.P.
-------------------------------- ------------
<PAGE>
CROSSTOWN BUILDING
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside of
the Building without the written consent of Landlord first had and obtained, and
Landlord shall have the right to remove any such sign, placard, picture,
advertisement, name or notice without notice to and at the expense of Tenant.
All approved signs or lettering on doors shall be printed, painted, affixed
or inscribed at the expense of Tenant by a person approved of by Landlord.
Tenant shall not place anything or allow anything to be placed near the
glass of any window, door, partition or wall which may appear unsightly from
outside the Premises; provided, however, that Landlord may furnish and install a
Building standard window covering at all exterior windows. Tenant shall not,
without prior written consent of Landlord, cause or otherwise sunscreen any
window.
2. The sidewalks, halls, passages, exits, entrances, elevators and
stairways shall not be obstructed by any of the tenants or used by them for any
purpose other than for ingress or egress from their respective Premises.
3. Tenant shall not alter any lock or install any new or additional locks
or any bolts on any doors or windows of the Premises.
4. The toilet rooms, urinals, wash bowls and other apparatus shall not be
used for any purpose other than that for which they were constructed, and no
foreign substances of any kind whatsoever shall be thrown therein, and the
expense of any breakage, stoppage or damage resulting from the violation of this
rule shall be borne by the Tenant who or whose employees or invitees shall have
caused it.
5. Tenant shall not overload the floor of the Premises or in any way deface
the Premises or any part thereof.
6. No freight or equipment of any kind being so large or heavy as to
potentially risk the structural integrity, including without limitation the
floor load capacity, of the Building shall be brought into the Building without
prior notice to and approval of Landlord, and all moving of the same into or out
of the Building shall be done at such time and in such manner as
-1-
<PAGE>
Landlord shall designate. Landlord shall have the right to prescribe the
weight, size and position of all safes and other heavy equipment brought into
the Building. Safes or other heavy objects shall, if considered necessary by
Landlord, stand on supports of such thickness as is necessary to properly
distribute the weight. Landlord will not be responsible for loss of or damage
to any such safe or property from any cause, and all damage done to the Building
by moving or maintaining any safe or other property shall be repaired at the
expense of Tenant.
7. Tenant shall not use, keep, or permit to be used or kept, any foul or
noxious gas or substances in the Premises, or permit or suffer the Premises to
be occupied or used in a manner offensive or objectionable to the Landlord and
other occupants of the Building by reason of noise, odors and/or vibrations, or
interfere in any way with other tenants or those having business therein, nor
shall any animals or birds be brought in or kept in or about the Premises or
Building.
8. No cooking shall be done or permitted by any Tenant on the Premises,
except in areas designated and designed for such use and approved by Landlord,
such as a lunch or break room, nor shall the Premises be used for storage of
merchandise, for washing clothes, for lodging, or for any improper,
objectionable or immoral purposes.
9. Tenant shall not use or keep in the Premises or the Building any
kerosene, gasoline or inflammable or combustible fluid or material, or use any
method of heating or air conditioning other than: 1) that supplied by Landlord,
or 2) any fluids or materials necessary for Tenant's ordinary course of
business, including photographic (dark room) or photocomposition chemicals or
other materials.
10. Landlord will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for wires will be
allowed without the consent of Landlord. The location of telephones, call boxes
and other office equipment affixed to the Premises shall be subject to approval
of Landlord.
11. On Saturdays, Sundays and legal holidays, and on other days between
the hours of 6:00 p.m. and 8:00 a.m. the following day, access to the Building,
or to the halls, corridors, elevators and stairways in the Building, or to the
Premises, may be refused unless the person seeking access is known to the person
or employee of the Building in charge and has a pass or is properly identified.
The Landlord shall in no case be liable for damages for any error with regard to
the admission to or exclusion from the Building of any person. In case of
invasion,
-2-
<PAGE>
mob, riot, public excitement, or other commotion, the Landlord reserves the
right to prevent access to the Building during the continuance of the same by
closing of the doors or otherwise, for the safety of the tenants and the
protection of property in the Building.
12. Landlord reserves the right to exclude or expel from the Building any
person who, in the judgment of the Landlord, is intoxicated or under the
influence of liquor or drugs, or who shall in any manner do any act in violation
of any of the rules and regulations of the Building.
13. No vending machines, regardless of product, will be installed,
maintained, operated upon the Premises without the written consent of Landlord.
14. Landlord shall have the right, exercisable without notice and
without liability to Tenant, to change the name and street address of the
building of which the Premises are a part.
15. Tenant shall not disturb, solicit or canvass any occupant of the
Building and shall cooperate to prevent same.
16. Without the written consent of Landlord, Tenant shall not use the name
of the Building in connection with or in promoting or advertising the business
of Tenant except as Tenant's address.
17. Landlord shall have the right to control and operate the public
portions of the Building, the public facilities, the heating and air
conditioning, as well as facilities furnished for the common use of the tenants
in such manner as it deems best for the benefit of the tenants generally.
18. All entrance doors in the Premises shall be left locked when the
Premises are not in use, and all doors opening to public corridors shall be kept
closed except for normal ingress and egress from the Premises.
-3-
<PAGE>
THE MONEY STORE INC. & SUBSIDIARIES
Exhibit 21.1 SUBSIDIARIES OF REGISTRANT
TMS MORTGAGE INC.
THE MONEY STORE/MINNESOTA INC.
THE MONEY STORE/D.C. INC.
PRINCETON ESCROW
THE MONEY STORE HOME EQUITY CORP.
THE MONEY STORE/KENTUCKY INC.
TMS SPECIAL HOLDINGS, INC.
TMS HOME HOLDINGS, INC.
TMS SPV, INC.
INTEGRATED CAPITAL GROUP
THE MONEY STORE HELOC HOLDINGS, INC.
THE MONEY STORE U.K. INC.
THE MONEY STORE HOLDINGS LTD
PLATFORM HOME LOANS LTD
THE MONEY STORE LTD
THE COMMERCE GROUP
MAJOR BROKERAGE CO. INC.
TMS VENTURE HOLDINGS INC.
THE MONEY STORE INVESTMENT CORP.
THE MONEY STORE OF NEW YORK INC.
TMS SBA HOLDINGS, INC.
TRANS-WORLD INSURANCE COMPANY
TMS STUDENT HOLDINGS INC.
EDUCAID STUDENT HOLDINGS, INC.
CLASS NOTES INC.
THE MONEY STORE COMMERCIAL MORTGAGE INC.
THE MONEY STORE AUTO FINANCE INC.
TMS AUTO HOLDINGS, INC.
EQUITY INSURANCE AGENCY INC.
THE MONEY STORE/SERVICE CORP.
THE MONEY STORE REALTY INC.
DYNA-MARK INC.
FIRST MONEY STORE SECURITIES INC.
TMS INSURANCE SERVICES CORP.
AE MORTGAGE SERVICES LLC
TMS STERLING I PLC
THE MONEY STORE SPV LTD
<PAGE>
Independent Auditors' Consent
-----------------------------
The Board of Directors and Shareholders
The Money Store Inc.:
We consent to incorporation by reference in the Registration Statements (Nos.
33-98972 as amended by 333-24807 and, 333-14075 and 33-32775) on Forms S-3 and
the Registration Statements (Nos. 33-66332, 33-96830 and 333-41309) on Forms S-8
of our report dated February 11, 1998, except as to Note 19, which is as of
March 4, 1998, relating to the consolidated statements of financial condition of
The Money Store Inc. and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1997, which
report appears in the December 31, 1997 Annual Report on Form 10-K of The Money
Store Inc. Such report reflects the adoption of the Financial Accounting
Standards Board's Statement of Financial Accounting Standard No. 125 Accounting
for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities.
/s/ KPMG Peat Marwick LLP
- -------------------------
Sacramento, California
March 30, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER 31,
1997 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996
<CASH> 497,249 324,648
<SECURITIES> 0 0
<RECEIVABLES> 1,287,484 1,157,889
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 153,074 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 3,136,701 2,391,940
<CURRENT-LIABILITIES> 0 0
<BONDS> 250,000 0
133,363 0
0 0
<COMMON> 196,748 0
<OTHER-SE> 335,955 0
<TOTAL-LIABILITY-AND-EQUITY> 3,136,701 2,391,940
<SALES> 0 0
<TOTAL-REVENUES> 830,801 605,039
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 451,611 332,945
<LOSS-PROVISION> 9,223 145,652
<INTEREST-EXPENSE> 142,218 118,651
<INCOME-PRETAX> 227,749 138,615
<INCOME-TAX> 95,120 57,808
<INCOME-CONTINUING> 132,629 80,807
<DISCONTINUED> (40,541) 4,848
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 92,088 92,088
<EPS-PRIMARY> 1.43<F1> 1.51<F1>
<EPS-DILUTED> 1.43 1.46
<FN>
<F1> REPRESENTS EPS-BASIC
</FN>
</TABLE>
