SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
Commission File Number 0-26410
JAYHAWK ACCEPTANCE CORPORATION
(Exact name of registrant as specified in its charter)
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TEXAS 75-2486444
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
TWO GALLERIA TOWER
13455 NOEL ROAD, SUITE 1800, DALLAS, TX 75240
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 663-1000
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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
At November 12, 1996, the latest practicable date, there were
23,912,528 shares of Common Stock, $.01 par value, outstanding.
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JAYHAWK ACCEPTANCE CORPORATION AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS PAGE
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Consolidated Balance Sheets at September 30, 1996 (Unaudited) and December 31, 1995 3
Consolidated Income Statements for the three and nine months ended
September 30, 1996 and 1995 (Unaudited) 4
Consolidated Statement of Shareholders' Equity for the nine months ended
September 30, 1996 (Unaudited) 5
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1996 and 1995 (Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited) 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
PART II. OTHER INFORMATION
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 15
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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JAYHAWK ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
SEPTEMBER 30, DECEMBER 31,
1996 1995
--------------- --------------
(UNAUDITED)
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Cash and cash equivalents $ 431 $ 120
Restricted cash 19,665 -
Installment contracts receivable 331,765 167,491
Allowance for credit losses (6,290) (2,308)
--------------- --------------
Installment contracts receivable, net 325,475 165,183
Furniture, fixtures and equipment, net 8,646 5,004
Deferred income taxes - 2,088
Income taxes receivable 3,145 -
Other assets 2,952 978
--------------- --------------
Total assets $ 360,314 $ 173,373
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued liabilities $ 12,343 $ 7,982
Deferred dealer fees, net 2,852 2,052
Deferred income taxes 4,167 -
Dealer holdbacks, net 148,469 82,373
Revolving credit facility 39,330 32,386
Secured notes payable 55,422 -
--------------- --------------
Total liabilities 262,583 124,793
Shareholders' Equity:
Common stock, $.01 par value; 40,000,000 shares authorized;
23,892,028 and 20,486,046 shares issued and outstanding at
September 30, 1996 and December 31, 1995, respectively 239 205
Additional paid-in capital 88,547 47,461
Retained earnings 8,945 914
Total shareholders' equity 97,731 48,580
--------------- --------------
Total liabilities and shareholders' equity $ 360,314 $ 173,373
=============== ==============
<FN>
See notes to consolidated financial statements.
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JAYHAWK ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------- ----------------
1996 1995 1996 1995
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Revenues:
Finance charges $11,586 $ 4,967 $29,824 $11,547
Dealer fees 2,227 1,117 5,764 2,696
Service contracts 935 - 1,804 -
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14,748 6,084 37,392 14,243
Costs and expenses:
Sales and marketing 2,402 1,328 6,126 3,107
Operating 4,304 1,870 11,108 4,895
Provision for credit losses 1,363 769 3,175 1,452
Provision for service contract claims 373 - 805 -
Interest 1,598 318 4,015 783
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10,040 4,285 25,229 10,237
------- ------- ------- -------
Income before income taxes 4,708 1,799 12,163 4,006
Income taxes 1,583 364 4,132 900
------- ------- ------- -------
Net income $ 3,125 $ 1,435 $ 8,031 $ 3,106
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Net income per share $ .13 $ .07 $ .35 $ .17
======= ======= ======= =======
Weighted average number of shares outstanding 24,191 19,531 22,939 18,031
======= ======= ======= =======
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See notes to consolidated financial statements.
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JAYHAWK ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------- ----------- --------- -------
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Balance at December 31, 1995 $ 205 $ 47,461 $ 914 $48,580
Issuance of 3,350,000 shares of common
stock, net of costs 34 40,757 - 40,791
Issuance of 55,982 shares of common stock
upon exercise of stock options and employee
stock plan purchases - 329 - 329
Net income - - 8,031 8,031
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Balance at September 30, 1996 $ 239 $ 88,547 $ 8,945 $97,731
======= =========== ========= =======
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See notes to consolidated financial statements.
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JAYHAWK ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1996 1995
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Cash flows from operating activities:
Net income $ 8,031 $ 3,106
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,626 617
Provision for credit losses 3,175 1,452
Provision for service contract claims 805 -
Deferred income taxes 6,255 (823)
Changes in operating assets and liabilities:
Other assets (1,470) (268)
Accounts payable and accrued liabilities (581) 4,000
Income taxes receivable (4,073) -
Deferred dealer fees, net 800 859
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Net cash provided by operating activities 14,568 8,943
Cash flows from investing activities:
Payments to dealers (144,945) (64,785)
Collections of principal on installment contracts receivable 52,152 21,373
Capital expenditures (5,285) (3,166)
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Net cash used in investing activities (98,078) (46,578)
Cash flows from financing activities:
Net borrowings (repayments) under revolving credit facility 6,944 (12)
Net proceeds from the issuance of secured notes payable 35,757 -
Proceeds from sales of common stock, net 41,120 31,619
Net cash provided by financing activities 83,821 31,607
---------- ---------
Net increase (decrease) in cash and cash equivalents 311 (6,028)
Cash and cash equivalents at the beginning of the period 120 6,124
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Cash and cash equivalents at the end of period $ 431 $ 96
========== =========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 3,408 $ 866
========== =========
Cash paid for income taxes $ 1,950 $ 1,746
========== =========
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See notes to consolidated financial statements.
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JAYHAWK ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Jayhawk
Acceptance Corporation and subsidiaries (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for fair
presentation have been included. All significant intercompany transactions
and balances have been eliminated in the accompanying consolidated financial
statements as of and for the three and nine month periods ended September 30,
1996. There were no intercompany transactions or balances requiring
elimination as of December 31, 1995 and for the three and nine month periods
ended September 30, 1995. Operating results for the three and nine month
periods ended September 30, 1996 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1996. For further
information, refer to the financial statements and footnotes thereto included
in the Company's Annual Report on Form 10-K for the year ended December 31,
1995, filed with the Securities and Exchange Commission ("SEC") on March 27,
1996.
NOTE 2 - NET INCOME PER SHARE
The weighted average number of common and common equivalent shares
outstanding for the purposes of computing net income per share were 24,190,946
and 19,531,191 for the three months ended September 30, 1996 and 1995, and
22,938,956 and 18,030,761 for the nine months ended September 30, 1996 and
1995, respectively. Incremental shares resulting from the issuance of
convertible preferred stock and stock options issued prior to the Company's
initial public offering have been included in the weighted average shares
outstanding for 1995.
NOTE 3 - SUBSIDIARY OPERATIONS
On October 1, 1996, the Company announced the expansion of an elective
health care financing program offered by its wholly-owned subsidiary, Jayhawk
Medical Acceptance Corporation ("Jayhawk Medical"). The program, which on
November 8, 1996 was being marketed in sixteen markets under the tradename
"Truecare", provides financing for cosmetic surgery, ophthalmology,
orthodontic and other procedures not covered by health insurance.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1995
TOTAL REVENUE. Total revenue increased from $6,084,000 for the three
months ended September 30, 1995 to $14,748,000 for the same period in 1996, an
increase of $8,664,000 or 142%. The increase was primarily due to increased
finance charges resulting from the increased number of installment sales
contracts ("Contracts" or "Installment Contracts") held in the Company's
portfolio. Finance charges increased from $4,967,000 for the three months
ended September 30, 1995 to $11,586,000 for the same period in 1996, an
increase of $6,619,000 or 133%. The Company purchased 19,426 Installment
Contracts during the three months ended September 30, 1996, an increase of 50%
over the same period in 1995, and the Company's installment contracts
receivable balance increased from $121,167,000 as of September 30, 1995 to
$331,765,000 as of September 30, 1996, an increase of $210,598,000 or 174%.
Dealer fees also contributed to the increase in total revenue. Dealer fees
increased by $1,110,000 for the three months ended September 30, 1996 over the
same period in 1995 or 99%. The number of dealers enrolled in the Company's
program increased from 1,577 as of September 30, 1995 to 2,945 as of September
30, 1996, an increase of 1,368 dealers or 87%. The average annualized yield
on the Company's portfolio decreased from 20% to 15% for the three months
ended September 30, 1995 and September 30, 1996, respectively. The decrease
in the average annualized yield is primarily attributable to the longer
average original term of Contracts included in the Company's portfolio in the
third quarter of 1996, when compared with the third quarter of 1995, and to a
lesser extent, the higher percentage of Contracts in non-accrual status
included within the Company's portfolio as of the third quarter of 1996 when
compared with the third quarter of 1995. The percentage of Contracts in
non-accrual status in the Company's portfolio increased from 19% at September
30, 1995 to 29% at September 30, 1996. This increase was due in part to an
increase in the average age of the Contracts included within the portfolio
between the respective periods. See "-Credit Loss Policy." Service contract
revenue was $935,000 for the three months ended September 30, 1996. The
Company recognized no service contract revenue during the three months ended
September 30, 1995, as the Company did not offer the service contract program
to its dealers at that time. Jayhawk Medical revenue for the three months
ended September 30, 1996 was not significant.
SALES AND MARKETING. Sales and marketing expenses increased from
$1,328,000 for the three months ended September 30, 1995 to $2,402,000 for
the same period in 1996, but decreased as a percentage of total revenue from
22% for the third quarter of 1995 to 16% for the third quarter of 1996. The
dollar increase in sales and marketing expenses is primarily a result of the
continued effort by the Company to expand the number of dealers participating
in the Company's program and due to $130,000 of expenses related to the launch
of Jayhawk Medical. The decrease in sales and marketing expenses as a
percentage of total revenue was primarily the result of economies of scale
associated with increased total revenue. The Company anticipates that Jayhawk
Medical will have significantly increased sales and marketing expenses in the
fourth quarter of 1996.
OPERATING EXPENSES. Operating expenses increased from $1,870,000 for the
three months ended September 30, 1995 to $4,304,000 for the same period in
1996, an increase of $2,434,000 or 130%, but decreased as a percentage of
total revenue from 31% for the third quarter of 1995 to 29% for the third
quarter of 1996. The dollar increase in operating expenses is primarily a
result of the overall expansion in the Company's operations, including
$333,000 of expenses related to the launch of Jayhawk Medical. The decrease
in operating expenses as a percentage of total revenue was primarily the
result of economies of scale associated with increased total revenue. The
Company anticipates that Jayhawk Medical will have significantly increased
operating expenses in the fourth quarter of 1996.
PROVISION FOR CREDIT LOSSES. The amount provided for credit losses
increased from $769,000 for the three months ended September 30, 1995 to
$1,363,000 for the same period in 1996, but decreased from 13% to 9% as a
percentage of total revenue. See "-Credit Loss Policy."
PROVISION FOR SERVICE CONTRACT CLAIMS. The Company provided $373,000 for
service contract claims for the three months ended September 30, 1996. No
amount was provided for the three months ended September 30, 1995, as the
Company did not offer the service contract program at that time.
INTEREST EXPENSE. Interest expense increased from $318,000 during the
third quarter of 1995 to $1,598,000 during the same period in 1996. The
increase was due to higher average borrowings used to fund operations and the
purchase of Contracts. The Company anticipates that interest expense will
increase to the extent borrowings are used to fund growth of the Company.
INCOME TAXES. The Company's effective income tax rate was 34% for the
three-month period ended September 30, 1996, as compared with an effective
income tax rate of 20% for the same period in 1995. The lower rate in 1995
relates to a reduction in the Company's deferred tax asset valuation allowance
in 1995 to reflect the estimated realizability of the Company's deferred tax
assets.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1995
TOTAL REVENUE. Total revenue increased from $14,243,000 for the nine
months ended September 30, 1995 to $37,392,000 for the same period in 1996, an
increase of $23,149,000 or 163%. The increase was primarily due to increased
finance charges resulting from the increased number of Installment Contracts
held in the Company's portfolio. Finance charges increased from $11,547,000
for the nine months ended September 30, 1995 to $29,824,000 for the same
period in 1996, an increase of $18,277,000 or 158%. The Company purchased
57,623 Installment Contracts during the nine months ended September 30, 1996,
an increase of 100% over the same period in 1995. The Company's installment
contracts receivable increased from $121,167,000 as of September 30, 1995, to
$331,765,000, as of September 30, 1996, an increase of $210,598,000 or 174%.
Dealer fees also contributed to the increase in total revenue. Dealer fees
increased by $3,068,000 for the nine months ended September 30, 1996 over the
same period in 1995 or 114%. Service contract revenue was $1,804,000 for the
nine months ended September 30, 1996. The Company recognized no service
contract revenue during the nine months ended September 30, 1995, as the
Company did not offer the service contract program to its dealers at that
time. Jayhawk Medical revenue for the nine months ended September 30, 1996 was
not significant.
SALES AND MARKETING. Sales and marketing expenses increased from
$3,107,000 for the nine months ended September 30, 1995 to $6,126,000 for the
same period in 1996, but decreased as a percentage of total revenue from 22%
for the first nine months of 1995 to 16% for the first nine months of 1996.
The dollar increase in sales and marketing expenses is primarily a result of
the continued effort by the Company to expand the number of dealers
participating in the Company's program, and due to $130,000 of expenses
related to the launch of Jayhawk Medical. The decrease in sales and marketing
expenses as a percentage of total revenue was primarily the result of
economies of scale associated with increased total revenue. The Company
anticipates that Jayhawk Medical will have significantly increased sales and
marketing expenses in the fourth quarter of 1996.
OPERATING EXPENSES. Operating expenses increased from $4,895,000 for the
nine months ended September 30, 1995 to $11,108,000 for the same period in
1996, an increase of $6,213,000 or 127%, but decreased as a percentage of
total revenue from 34% for the first nine months of 1995 to 30% for the first
nine months of 1996. The dollar increase in operating expenses is primarily a
result of the overall expansion in the Company's operations, including
$388,000 of expenses related to the launch of Jayhawk Medical. The decrease in
operating expenses as a percentage of total revenue was primarily the result
of economies of scale associated with increased total revenue. The Company
anticipates that Jayhawk Medical will have significantly increased operating
expenses in the fourth quarter of 1996.
PROVISION FOR CREDIT LOSSES. The amount provided for credit losses
increased from $1,452,000 for the nine months ended September 30, 1995 to
$3,175,000 for the same period in 1996, but decreased as a percentage of total
revenue from 10% for the first nine months of 1995 to 8% for the first nine
months of 1996. See "Credit Loss Policy."
PROVISION FOR SERVICE CONTRACT CLAIMS. The Company provided $805,000 for
service contract claims for the nine months ended September 30, 1996. No
amount was provided for the nine months ended September 30, 1995, as the
Company did not offer the service contract program at that time.
INTEREST EXPENSE. Interest expense increased from $783,000 during the
first nine months of 1995 to $4,015,000 during the same period in 1996. The
increase was due to higher average borrowings used to fund operations and the
purchase of Contracts.
INCOME TAXES. The Company's effective income tax rate was 34% for the
nine month period ended September 30, 1996, as compared with an effective
income tax rate of 22% for the same period in 1995. The lower rate in 1995
relates to a reduction in the Company's deferred tax asset valuation allowance
in 1995 to reflect the estimated realizability of the Company's deferred tax
assets.
INSTALLMENT CONTRACTS RECEIVABLE
Installment contracts receivable consist of the following (in thousands):
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SEPTEMBER 30, DECEMBER 31,
1996 1995
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Gross installment contracts receivable $ 390,316 $ 198,397
Unearned finance charges (58,551) (30,906)
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Installment contracts receivable $ 331,765 $ 167,491
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Changes in gross installment contracts receivable are as follows (in
thousands):
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THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
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1996 1995 1996 1995
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Balance, beginning of period $335,877 $ 92,135 $198,397 $ 41,106
Gross amount of installment contracts accepted 109,158 66,939 323,163 136,927
Cash collections on installment contracts receivable (32,214) (14,048) (88,218) (32,740)
Charge offs (22,505) (2,049) (43,026) (2,316)
Balance, end of period $390,316 $142,977 $390,316 $142,977
========= ========= ========= =========
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The increase in charge-offs between the three and nine months ended September
30, 1996 and the three and nine months ended September 30, 1995, respectively,
is primarily attributable to the increase in the average age of such Contracts
and the growth in gross installment contracts receivable. See " Credit Loss
Policy."
DEALER HOLDBACKS
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Dealer holdbacks, net, consist of the following (in thousands):
SEPTEMBER 30, DECEMBER 31,
1996 1995
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Dealer holdbacks $ 312,205 $ 158,746
Less: Acquisition payments (163,736) (76,373)
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Dealer holdbacks, net $ 148,469 $ 82,373
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CREDIT LOSS POLICY
The Company regularly reviews its installment contracts receivable
portfolio to determine the adequacy of its allowance for credit losses.
Amounts provided for credit losses include the provision for credit losses, as
well as an amount recorded upon the purchase of Installment Contracts.
The level of related dealer holdbacks and the possible impact of economic
conditions on the creditworthiness of obligors are given major consideration
in determining the adequacy of the allowance. Credit loss experience, changes
in the character, size and age of the installment contracts receivable
portfolio and management's judgment are other factors used in assessing the
overall adequacy of the allowance and the resulting provision for credit
losses. Ultimate losses may vary from current estimates and the amount of the
provision, which is a current expense, may be either greater or less than
actual charge-offs.
The percentage of Contracts in non-accrual status included within the
Company's portfolio were 29% and 19% as of September 30, 1996 and September
30, 1995, respectively. The Company believes that this increase in
non-accrual contracts as a percentage of the total number of Contracts
included within the Company's portfolio was due primarily to an increase in
the average age of the Contracts included within its portfolio. Because the
Company specifically targets used vehicle buyers who do not qualify for
traditional financing, these non-accrual percentages are considered by the
Company to be reasonable. The Company anticipates that as the average age of
the Contracts included within its portfolio increases, the Company's
non-accrual contracts as a percentage of the total number of Contracts
included within the Company's portfolio will increase.
The following table sets forth certain information regarding charge-offs and
the provision for credit losses (in thousands):
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THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
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1996 1995 1996 1995
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Gross installment contracts receivable charged off $22,505 $2,049 $43,026 $2,316
Charged against dealer holdbacks 18,004 1,639 34,421 1,853
Charged against unearned finance charges 3,771 329 6,864 350
Charged against allowance for credit losses 730 81 1,741 113
Provision for credit losses 1,363 769 3,175 1,452
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Revenue on installment contracts receivable is recognized under the
interest method of accounting until the underlying obligation is 120 days
contractually past due or the collateral securing the Contract is repossessed,
whichever occurs first. At such time, the Company suspends the accrual of
revenue.
Contract balances on which no material payment has been received for a
significant period of time (in no event greater than one year) are charged-off
against the related dealer holdback and, if insufficient, the allowance for
credit losses. Because any remaining outstanding Installment Contracts in the
applicable dealer pool are available to recover acquisition payments paid upon
the Company's purchase of Contracts included within such pool and as the
acquisition payment generally approximates 50% to 55% of the principal amount
of the Contract, the risk of loss to the Company is mitigated.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal need for capital is to fund acquisition payments
to dealers upon its purchase of Installment Contracts. The Company's cash
needs resulting from acquisition payments and the payment of dealer holdbacks
to dealers increased from approximately $64.8 million for the nine months
ended September 30, 1995 to approximately $144.9 million for the nine months
ended September 30, 1996.
The Company maintains two revolving credit facilities. Under the first,
it may borrow up to $65 million, based on defined levels of qualified
installment contracts receivable. Borrowings under this facility were
approximately $32.4 million as of December 31, 1995 and approximately $39.3
million as of September 30, 1996. As of November 11, 1996, and after applying
approximately $11.8 million of the funds released to the Company from the
Pre-Funding Account (as defined below) established in connection with the
securitization transaction completed on August 7, 1996, to repay borrowings
under the Company's revolving credit facility, borrowings under the facility
were approximately $43.0 million, and the Company had approximately $4.5
million of availability under the facility.
Under the second facility, which was obtained in October 1996, the
Company may borrow up to $15.0 million from a commercial bank. The credit
line, which is unsecured, but guaranteed by the Company's principal
shareholder, bears interest at the bank's LIBOR rate plus 1.5% per annum
(6.88% at November 11, 1996) and expires in October 1997. As of November 11,
1996, $1.9 million had been borrowed under the facility.
To the extent the Company's acquisition payment to a dealer or a
physician upon purchase of a Contract continues to exceed the incremental
amount of borrowings available under the Company's revolving credit facilities
with respect to such Contract, additional capital will be required to fund the
Company's rapid growth. Such additional capital may be generated by either
additional debt or equity financing. The Company believes that cash flow from
operations and borrowings under the Company's revolving credit facilities will
be adequate to fund the Company's operations through the end of the Company's
current fiscal year at its current rate of growth. Additionally, the Company
is currently negotiating with its existing and other lenders regarding a
credit facility which would provide the Company with significantly increased
borrowing capacity. However, there can be no assurance as to if or when the
Company will enter into a new credit facility, nor can there be any assurance
as to the terms of any such facility or when the Company will be required to
seek additional capital to fund its operations.
The lease for the Corporate headquarters in Dallas, Texas expires in
November 1996. The Company has renewed the lease through June 1997 for a
portion of the space, and relocated part of its corporate offices to a
separate location. The Company is exploring the construction of a building in
Plano, Texas, which would serve as its corporate office and house all Dallas
operations. Management believes that the relocation of its corporate offices
will not have a material effect on the Company's operations.
STATEMENT REGARDING FORWARD LOOKING STATEMENTS
Except for the historical information contained herein, the matters
discussed in Management's Discussion and Analysis, including the matters
relating to the anticipated need for and availability of financing, are
forward looking statements that are dependent upon a number of risks and
uncertainties that could cause actual results to differ materially from those
in the forward looking statements. These risks and uncertainties include the
Company's actual rate of growth, delinquency and default rates with respect to
the Contracts included in the Company's portfolio, the impact of competitive
services and products, changes in market conditions, the impact of changes in
regulation or litigation, the management of growth and the other risk factors
identified in the Company's SEC filings, including under the caption "Risk
Factors" in its most recent registration statement on Form S-1. The Company
does not intend to provide updated information about the matters referred to
in these forward looking statements, other than in the context of management's
discussion and analysis in the Company's quarterly and annual reports on Form
10-Q and 10-K.
SEASONALITY
The Company's operations are affected by higher delinquency rates during
certain holiday periods, as well as higher sales of used vehicles during the
annual period at the beginning of the calendar year when many persons are
receiving state and federal tax refunds.
SECURITIZATION
On August 7, 1996, the Company completed its second securitization
transaction. Pursuant to this transaction, the Company contributed Contracts
having an aggregate principal balance of approximately $72.7 million and
approximately $4.4 million in cash (which generally represents the amount of
principal and interest collected on such Contracts between June 23, 1996 and
the closing of the securitization transaction) to a business trust
wholly-owned by the Company (the "Trust"), and the Trust sold approximately
$47.9 million principal amount of notes (the "Notes") to an institutional
investor. The Notes, which are comprised of approximately $42.9 million of
Class A Notes which bear interest at a fixed rate of 6.64% and $5.0 million of
Class B Notes which bear interest at a fixed rate of 11.57%, have a stated
maturity of March 15, 2000, and are secured by the installment sale contracts
contributed to the Trust, all amounts in the Pre-Funding Account (as defined
below) and approximately $1.6 million of additional cash deposits. The Class
A Notes were rated "Aaa" by Moody's Investors Service, Inc., "AAA" by Standard
& Poor's Ratings Group and "AAA" by Fitch Investors Service, L.P. ("Fitch"),
and the Class B Notes were rated "BB" by Fitch. MBIA Insurance Corporation
(the "Note Insurer") issued a note insurance policy for the benefit of the
Class A Noteholders. As a result of the structure of the transaction, the
Company did not recognize any gain upon contributing the Contracts to the
Trust and the Contracts are reflected in the Company's consolidated balance
sheet. The net proceeds from the sale of the Notes were used to repay
indebtedness under the Company's revolving credit facility.
Approximately $12.0 million of the proceeds from the sale of the Notes
were deposited in an account (the "Pre-Funding Account") securing the Notes,
$11.8 million of which was released to the Company effective October 1, 1996
as approximately $24.2 million principal amount of additional Contracts
meeting specified eligibility requirements were contributed to the Trust and
pledged to secure the Notes.
The Company acts as servicer of the Contracts contributed to the Trust
(the "Contributed Contracts") and is responsible for servicing, managing and
making collections on the Contributed Contracts. As long as the Company acts
as servicer, the Company is entitled to a monthly servicing fee generally
equal to one-twelfth of the product of 3% times the aggregate principal amount
of the Contributed Contracts (other than certain non-performing Contracts)
outstanding from time to time. Subject to certain limitations, including
certain limitations on the modification or amendment of Contributed Contracts,
the Company, in its capacity as servicer, is generally required to service and
administer the Contributed Contracts in the manner customarily employed by it
in servicing and administering its own Contracts. In the event the Company
fails to comply with certain covenants, it can be terminated as servicer.
Generally, all amounts collected by the Company on the Contributed
Contracts will be deposited into an account securing the Notes. Substantially
all of these collections will be applied to the payment of certain fees and
expenses, such as fees and expenses of the Note trustee, the servicer and the
Note Insurer, and to pay principal and interest on the Notes. Consequently,
the Company believes that it is likely that the Notes will be repaid in full
prior to their stated maturity, although no assurances can be given to such
effect.
The Company made certain representations and warranties in connection
with its contribution of Contracts to the Trust. If the interest of the
holders of the Notes or the Note Insurer is materially adversely affected by a
breach of any such representation or warranty with respect to a Contract, then
the Company will be obligated to purchase such Contract from the Trust.
Similarly, upon the breach by the Company, in its capacity as servicer, of
certain covenants regarding the maintenance of liens on the vehicles securing
the Contracts or the protection of the Noteholder's and Note Insurer's
interests in the Contracts, then the Company will be obligated to purchase the
Contracts affected by such breach from the Trust. Additionally, in the event
of the breach of certain representations, warranties and covenants, the Note
Insurer, and in certain cases, the Trustee or the holders of the Notes, can
declare an event of default and accelerate the Notes.
<PAGE>
<TABLE>
<CAPTION>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit Number Description
- -------------- ----------------------------------------------------------------------
<C> <S>
10.1 Letter Agreement, dated August 15, 1996, between the Company and C.
Fred Jackson.
10.2 Lease Agreement, dated October 29, 1996, between the Company, as
Tenant, and Two Galleria Tower Limited, as Landlord.
10.3 Lease Agreement, dated September 17, 1996, between the Company, as
Tenant, and Equitable-Crow Tower 2001, Ltd., as Landlord.
10.4 Promissory Note, dated October 1, 1996, between Jayhawk Medical, as
borrower, and Nations Bank of Texas, N. A., as lender.
10.5 Guaranty, dated October 1, 1996, between Jayhawk Medical, as borrower,
Nations Bank of Texas, N. A., as lender, and Carl H. Westcott, as
guarantor.
10.6 Negative Pledge, dated October 1, 1996, between Jayhawk Medical, as
borrower, and Nations Bank of Texas, N. A., as lender.
11 Statement re Computation of Per Share Earnings
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K; No reports on Form 8-K were filed during the
quarter ended September 30, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
JAYHAWK ACCEPTANCE CORPORATION
<TABLE>
<CAPTION>
<S> <C> <C>
Date: November 13, 1996 By: /s/ C. Fred Jackson
----------------------------------------------------------
C. Fred Jackson
Senior Vice President, Chief Financial Officer
and Treasurer (Principal Financial and Accounting Officer)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit Number Description
- -------------- ------------------------------------------------------------------------
<C> <S>
10.1 Letter Agreement, dated August 15, 1996, between the Company and C.
Fred Jackson.
10.2 Lease Agreement, dated October 29, 1996, between the Company, as
Tenant, and Two Galleria Tower Limited, as Landlord.
10.3 Lease Agreement, dated September 17, 1996, between the Company, as
Tenant, and Equitable-Crow Tower 2001. Ltd, as Landlord.
10.4 Promissory Note, dated October 1, 1996, between Jayhawk Medical, as
borrower, and Nations Bank of Texas, N. A., as lender.
10.5 Guaranty, dated October 1, 1996, between Jayhawk Medical, as
borrower, Nations Bank of Texas, N. A., as lender, and Carl H. Westcott,
as guarantor.
10.6 Negative Pledge, dated October 1, 1996, between Jayhawk Medical, as
borrower, and Nations Bank of Texas, N. A., as lender.
11 Statement re Computation of Per Share Earnings
27 Financial Data Schedule
</TABLE>
August 15, 1996
Mr. C. Fred Jackson
93 Alexandria Way
Basking Ridge, NJ 07920
Dear Fred:
It is with pleasure that we provide you this offer of employment with Jayhawk
Acceptance Corporation to be our new Chief Financial Officer. I feel that
your acceptance today launches a new era for Jayhawk. The synergy resulting
from your participation on the senior management team suggest dynamic results
- -- mutually rewarding for each of us, individually, and for the business.
Your starting 12-month base salary will be $180,000, and is payable on the
15th and the last working day of each month. In addition to your base salary,
you will be provided a bonus plan based on Company and individual performance.
Awards are made annually, shortly after the completion of the calendar year,
ending December 31. For our calendar year ending December 31, 1996, you will
be guaranteed a bonus award of $50,000.
On the date your employment commences, Jayhawk will grant you options to
purchase 20,000 shares of Jayhawk Acceptance Corporation stock under the
Company's Stock Option Plan. These options, granted to you on your first day
of employment with Jayhawk, will be granted at the strike price of the fair
market value of Jayhawk Acceptance Corporation stock on the date on which you
execute this letter, and will vest immediately. Additionally, you will be
granted options to buy 30,000 shares of stock, granted at the strike price of
the fair market value of Jayhawk stock on the date on which you execute this
letter -- vesting at a rate of 20% per year. You will be granted options to
buy 20,000 shares of Jayhawk stock, at minimum, for 1997 -- vesting at 20% per
year from your date of employment.
Jayhawk will also provide a relocation package for your move to the Dallas
area. This package consists of house hunting trips, temporary housing through
December, 1996, if necessary, and movement of household goods. All moving
expenses will be grossed up, in order to avoid the payment of taxes on your
part.
<PAGE>
Mr. C. Fred Jackson
August 15, 1996
Page 2
For two years from the date of your employment, should your employment be
terminated by Jayhawk for any reason other than Cause*, or if you are asked to
take a reduction in wages, or your position is eliminated of significantly
downgraded, you will receive 12 months base salary. Furthermore, in the event
that Jayhawk experiences a "change in control," resulting in a material change
to your job function, you will receive 12 months total compensation. In any
of the circumstances described above, the Company would maintain your health
and welfare benefits for the same period. Should your employment be
terminated as a result of certain "changes in control" of the Company, all
unvested stock options will vest immediately, in accordance with the terms of
the Plans. In the event you are terminated for any reason other than Cause*
or a "change in control**," all options would be treated in accordance with
the terms of the Stock Plans.
Kindly return a signed copy of this letter, using the enclosed Federal Express
package.
I am excited and happy about the successful future that your appointment
suggest for all of us. Mike Smartt and Carl Westcott join me and the entire
management team of Jayhawk in welcoming you.
Sincerely,
/s/ Richard B. Hoffman
Richard B. Hoffmann
President
/lb
Enclosures
Accepted By:_/s/ C. Fred Jackson_______
Date:_8/16/96________________
<PAGE>
Mr. C. Fred Jackson
August 15, 1996
Page 3
Offer Letter Footnotes
* Termination for "Cause" shall mean Jayhawk Acceptance Corporation's
("Company") termination of your employment due to: a) consistent and material
violation of Company's policies or procedures; b) material violation of any
material law, rule or regulation; c) conduct involving moral turpitude or
adverse to the public image of the Company; d) action in the aid of a
competitor, vendor or supplier of the Company to the disadvantage of the
Company; e) material misrepresentation or false statements on any document to
Company in connection with your hiring or the commencement of your employment
with the Company; f) misappropriation of funds or assets of the Company; g)
willful refusal to perform your duties or to comply with Company's direction
or instructions.
** A "change of control" will be deemed to occur if (i) the "beneficial
ownership" (as defined in Rule 13d-3 under the Exchange Act), of securities
representing more than 25% of the combined voting power of the Company is
acquired by an "person" as defined in Sections 13(d) and 14(d) of the Exchange
Act (other than the Company, any trustee or other fiduciary holding securities
under an employee benefit plan of the Company, any corporation owned,
directly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company or any person who is
the beneficial owner of 25% of the combined voting power of the Company as of
the effective date of the Stock Option Plan), (ii) the stockholders of the
Company approve a definitive agreement to merge or consolidate the company
with or into another corporation or to sell or otherwise dispose of all or
substantially all of its assets, or adopt a plan of liquidation, or (iii)
during any period of two consecutive years, individuals who at the beginning
of such period were members of the Board of Directors of the Company cease for
any reason to constitute at least a majority thereof (unless the election, or
the nomination for election by the company's stockholders, of each new
director was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of such period).
October 29, 1996
Mr. Paul Whitman
The Staubach Company
6750 LBJ Freeway, Suite 1100
Dallas, Texas 75240
Dear Paul:
As a follow up to our letter of July 22, 1996, please let this letter serve as
confirmation that Two Galleria Tower Limited is willing to extend Jayhawk
Acceptance Corporation's lease (on the eighteenth (18th) floor ONLY) in Two
Galleria Tower until JUNE 6, 1997 (the "Extension Termination Date") at the
following terms and conditions:
SQUARE FEET: 22,537
COMMENCEMENT: November 4, 1996
RENTAL RATE: $18.00 per square foot of Net Rentable Area per year.
EXPENSE STOP: $7.34
PARKING: Tenant shall be granted a total of eighty six (86) regular, ten
(10) executive and four (4) VIP parking spaces at no charge for the term of
the lease extension in the Two Galleria Tower parking garage. All other
parking spaces required by Tenant shall be designated by Landlord in other
parking garages within the Galleria complex at a charge of $45.00 per space
per month (plus applicable sales tax).
Please be advised that Landlord has received a letter of intent that it
intends to accept for the eighteenth (18th) floor that Jayhawk currently
occupies. In the event that Jayhawk does not vacate the eighteenth (18th)
floor on or before the Extension Termination Date, Jayhawk shall be subject to
all holdover penalties (including but not limited to all costs that Landlord
may incur due to such holding over) as provided for in Section 6.4 of the
lease by and between Jayhawk Acceptance Corporation and Two Galleria Tower
Limited. As we currently are aware, the tenant we are pursuing the lease with
will incur holdover penalties at
-2-
their existing location (if in fact we do not provide the eighteenth (18th)
floor space to them on or before June 7, 1997) in an amount of approximately
$37,000.00 per month. However, such amount shall not limit or be binding on
Landlord if in fact Landlord pursues damages from Jayhawk as provided for in
Section 6.4 of the lease.
Please call with any questions or comments.
Sincerely,
HINES
/s/ Walter J. Zartman
Walter J. Zartman
Director of Leasing
cc: Cameron Chandler
BASIC LEASE INFORMATION
Lease Date: September 17, 1996
Tenant: Jayhawk Acceptance Corporation
Tenant's Address: Two Galleria Tower
13455 Noel Road, Suite 1800
Dallas, TX 75240
Contact: C. F. Chandler Telephone: 214-663-1000
Landlord: Equitable-Crow Tower 2001, Ltd.,
a Texas limited partnership
Landlord's Address: 2200 Ross Avenue, Suite 3700
Dallas, Texas 75201
Contact: Jeff Carter
Telephone: 214-740-2323
Premises: Suite No. 600 in the office building (the
"Building")located on the land described on
Exhibit D (the "Land"). The Premises are outlined on the
plan attached to the Lease as Exhibit A.
Term: Nine months, commencing October 1, 1996 (the
"Commencement Date") and ending at 5:00 p.m.
June 30, 1997, subject to adjustment and earlier
termination as provided in the Lease.
Basic
Rental: $25,420.75 per month, which is based on an annual
Basic Rental of S11.50 per rentable square foot.
Security Deposit: $25,420.75.
Rent: Basic Rental, Tenant's Proportionate Share of
Electrical Costs, Tenant's share of Excess, and
all other sums that Tenant may owe to Landlord
under the Lease.
Permitted Use: General office purposes consistent with
comparable first class office buildings in the
central business district of Dallas, Texas.
Tenant's
Proportionate
Share: 2.4926%, which is the percentage obtained by
dividing (i) the 26,526 rentable square feet in the
Premises by (ii) the 1,064,210 rentable square feet in
the Building.
Expense Stop: 1996 base year.
Initial Liability
Insurance Amount: $5,000,000.
The foregoing Basic Lease Information is incorporated into and made a part of
the Lease identified above. If any conflict exists between any Basic Lease
Information and the Lease, then the Lease shall control.
LANDLORD: TENANT:
BQUITABLE-CROW TOWER 2001, LTD., JAYHAWK ACCEPTANCE CORPORATION
a Texas limited partnership a Texas corporation
By: EQ/GP Southwest, Ltd., By: /s/ Cameron F. Chandler
a Texas limited partnership Name: Cameron F. Chandler
Title: Director of Human Resources
By: GP/EQ Southwest, Inc.,
a Texas corporation
its sole general partner
By: /s/Jon L. Dooley
Name: Jon L. Dooley
Title:Investment Officer
<PAGE>
TABLE OF CONTENTS
DEFINITIONS AND BASIC PROVISIONS. . . . . . . . . . . . . 1
LEASE GRANT . . . . . . . . . . . . . . . . . . . . . 1
TERM. . . . . . . . . . . . . . . . . . . . . . . .. 1
RENT. . . . . . . . . . . . . . . . . . . . . . . . 1
a. Payment. . . . . . . . . . . . . . . . . . . . 1
b. Intentionally Deleted. . . . . . . . . . . . . 2
c. Electrical Costs . . . . . . . . . . . . . . . 2
d. Annual Cost Statement. . . . . . . . . . . . . 2
e. Adjustments to Electrical Costs. . . . . . . 2
DELINQUENT PAYMENT; HANDLING CHARGES. . . . . . . . 2
SECURITY DEPOSIT. . . . . . . . . . . . . . . . . . 2
LANDLORD'S OBLIGATIONS. . . . . . . . . . . . . . . 3
a. Services 3
b. Excess Utility Use 4
c. Discontinuance 4
d. Restoration of Services; Abatement . . . . . . . . 4
IMPROVEMENTS;ALTERATIONS; REPAIRS; MAINTENANCE . . . . . 4
a. Improvements; Alterations. . . . . . . . . . . . 5
b. Repairs; Maintenance . . . . . . . . . . . . .. . .5
c. Performance of Work. . . . . . . . . . . . . . . .5
d. Mechanic's Liens . . . . . . . . . . . .. . . . . .5
USE . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ASSIGNMENT AND SUBLETTING 6
a. Transfers: Consent . . . . . . . . . . . . . . . 7
b. Cancellation 7
c. Additional Compensation. . .. . . . . . . . . 7
INSURANCE; WAIVERS; SUBROGATION; INDEMNITY. . . . . . 7
a. Insurance. . . . . . . . . . . . . . . . . . . . . .7
b. Waiver of Negligence Claims: No Subrogation. . . . .7
c. Indemnity. . . . . . . . . . . . . . . . . . . . . .8
SUBORDINATION ATTORNMENT; NOTICE TO LANDLORD'S MORTGAGEE. . 8
a. Subordination. . . . . . . . . . . . . . . . . . . . 8
b. Attornment. . . . . . . . . . . . . . . . . . . . . .8
c. Notice to Landlord's Morgagee . . . . . . . . . . . .8
RULES AND REGULATIONS. . . . . . . . . . . . . . . . . . . . 9
CONDEMNATION. . . . . . . . . . . . . . . . . . . . . . . . 9
a. Taking - Landlord's and Tenant's Rights . . . . . . 9
b. Taking - Landlord's Rights. . . . . . . . . . . . . 9
c. Award. . . . . . . . . . . . . . . . . . . . . . . . 9
FIRE OR OTHER CASUALTY. . . . . . . . . . . . . . . . . . . . 9
a. Repair Estimate. . . . . . . . . . . .. . . . . . . . 9
b. Landlord's and Tenant's Rights . . . . . . . . . . . 9
c. Landlord's Rights. . . . . . . . . . . .. . . .. . . 10
d. Repair Obligation. . . . . . . . . . . . . . . . . . 10
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
PAYMENT BY TENANT; NON-WAIVER. . . . . . . . . . . . . . . . . 12
a. Payment by Tenant. . . . . . . . . . . . . . . . . . . 12
b. No Waiver. . . . . . . . . . . . . . . . . . . . . . . 12
LANDLORD'S LIEN . . . . . . . . . . . . . . . . . . . . . . . .12
SURRENDER OF PREMISES . . . . . . . . . . . . . . . . . . . . .13
HOLDING OVER. . . . . . . . . . . . . . . . . . . . . . . . . .13
CERTAIN RIGHTS RESERVED BY LANDLORD. . . . . . . . . . . . . . 13
SUBSTITUTION SPACES . . . . . . . . . . . . . . . . . . . . . .14
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . .15
a. Landlord Transfer. . . . . . . . . . . . . . . . . .. 15
b. Landlord's Liability . . . . . . . . . . . . . . .. . . 15
c. Force Majeure. . . . . . . . . . . . . . . . . . . . . 15
d. Brokeraqe. . . . . . . . . . . . . . . . . . . . . . . 15
e. Estoppel Certificates. . . . . . . . . . . . .. . . . . 16
f. Notices. . . . . . . . . . . . . . . . . . . . . . . . 16
g. Separability. . . . . . . . . . . . . . . . . . . . . 16
h. Amendments; and Bindinq Effect . . . . . . . . . . . . 16
i. Quiet Enjoyment. . . . . . . . . . . . . . . . . . . . 16
j. Joint and Several Liability. . . . . . . . . . . .. . . 16
k. Captions . . . . . . . . . . . . . . . . . . . . . . . 16
1. No Merger. . . . . . . . . . . . . . . . . . . . . . . 16
m. No Offer. . . . . . . . . . . . . . . . . . . . . . . 17
n. Tax Protest. . . . . . . . . . . . . . . . . . . . . . 17
o. Exhibits. . . . . . . . . . . . . . . . . . . . . . . .17
p. Entire Agreement. . . . . . . . . . . . . . . . . . . 18
LEASE
THIS LEASE AGREEMENT (this "Lease") is entered into as of _________,
1996, between EQUITABLE-CROW TOWER 2001,LTD., a Texas limited partnership
("Landlord"), and JAYHAWK ACCEPTANCE CORPORATION ("Tenant").
DEFINITIONS AND BASIC PROVISIONS
1. The definitions and basic provisions set forth in the Basic Lease
Information (the Basic Lease Information") executed by Landlord and Tenant
contemporaneously herewith are incorporated herein by reference for purposes.
LEASE GRANT
2. Subject to the terms of this Lease, Landlord leases to Tenant, and Tenant
leases from Landlord, the Premises.
TERM
3. If the Commencement Date is not the first day of a calendar month, then the
Term shall be extended by the time between the Commencement Date and the first
day of the next month. If this Lease is executed before the Premises become
vacant or otherwise available and ready for occupancy by Tenant, or if any
present occupant of the Premises holds over and Landlord cannot acquire
possession of the Premises before the Commencement Date, then (a) Tenant's
obligation to pay Rent hereunder shall be waived until Landlord tenders
possession of the Premises to Tenant, (b) the Term shall be extended
by the time between the scheduled Commencement Date and the date on
which Landlord tenders possession of the Premises to Tenant
(which date will then be defined as the Commencement Date),(c) Landlord shall
not be in default hereunder or be liable for damages therefor, and (d) Tenant
shall accept possession of the Premises when Landlord tenders
possession thereof to Tenant. By occupying the Premises, Tenant shall
be deemed to have accepted the Premises in their condition as of the date of
such occupancy, subject to the performance of punch-list items that remain to
be performed by Landlord, if any. Tenant shall execute and deliver to
Landlord, within ten days after Landlord has requested same, a letter
confirming (i) the Commencement Date, (ii) that Tenant has accepted the
Premises, and (iii) that Landlord has performed all of its obligations
with respect to the premises (except for punch-list items specified in
such letter).
RENT
4. a. Payment. Tenant shall timely pay to Landlord the Basic Rental and all
additional sums to be paid by Tenant to Landlord under this Lease, including
the amounts set forth in Exhibit C, without deduction or set off, at
Landlord's Address (or such other address as Landlord may from time to time
designate in writing to Tenant). Basic Rental, adjusted as herein provided,
shall be payable monthly in advance. The first monthly installment of Basic
Rental shall be payable contemporaneously with the execution of this Lease;
thereafter, monthly installments of Basic Rental shall be due on the first day
of the second full calendar month of the Term and continuing on the first day
of each succeeding calendar month during the Term. Basic Rental for any
fractional month at the beginning of Term shall be prorated based on 1/365 of
the current annual Basic Rental for each day of the partial month this Lease
is in effect, and shall be due on the Commencement Date.
b. [Intentionally Deleted.]
c. Electrical Costs. Tenant shall pay to Landlord an amount equal to the
product of (i) the cost of all electricity used by the Building
("Electrical Costs"), multiplied by (ii) Tenant's Proportionate Share.
Such amount shall be payable monthly based on The Landlord's estimate of the
amount due for each month, and shall be due on the Commencement Date and on
the first day of each calendar month thereafter unless Landlord has
theretofore furnished Tenant with information indicating the amount due, in
which event such amount shall be due within ten days after Landlord has
delivered to Tenant an invoice therefor.
d. Annual Cost Statement. By April 1 of each calendar year, or as soon
thereafter as practicable, Landlord shall furnish to Tenant a statement of
Landlord's actual Electrical Costs (the "Annual Cost Statement") for the
previous year adjusted as provided in Section 4.e. If the Annual Cost
Statement reveals that Tenant paid more for Electrical Costs than Tenant's
Proportionate Share of Electrical Costs in the year for which such statement
was prepared, then Landlord shall promptly reimburse or credit Tenant such
excess; likewise, if Tenant paid less than Tenant's Proportionate Share of
Electrical Costs, then Tenant shall promptly pay Landlord such deficiency.
e. Adjustments to Electrical Costs. With respect to any calendar year or
partial calendar year in which the Building is not occupied to the extent of
95% of the rentable area thereof, the Electrical Costs for such period shall,
for the purposes hereof, be increased to the amount which would have been
incurred had the Building been occupied to the extent of 95% of the rentable
area thereof.
DELINQUENT PAYMENT; HANDLING CHARGES
5. All payments required of Tenant hereunder shall bear interest from the date
due until paid at the maximum lawful rate. Alternatively, Landlord may charge
Tenant a fee equal to 10% of the delinquent payment to reimburse Landlord for
its cost and inconvenience incurred as a consequence of Tenant's delinquency.
In no event, however, shall the charges permitted under this Section 5 or
elsewhere in this Lease, to the extent the same are considered to be
interest under applicable law, exceed the maximum lawful rate of interest.
SECURITY DEPOSIT
6. Contemporaneously with the execution of this Lease, Tenant shall pay to
Landlord, in immediately available funds, the Security Deposit, which shall be
held by Landlord without liability for interest and as security for the
performance by Tenant of its obligations under this Lease. The Security
Deposit is not an advance payment of Rent or a measure or limit of Landlord's
damages upon an Event of Default (defined below). Landlord may, from time to
time and without prejudice to any other remedy, use all or a part of the
Security Deposit to perform any obligation which Tenant was obligated, but
failed, to perform hereunder. Following any such application of the Security
Deposit, Tenant shall pay to the Landlord on demand the amount so applied in
order to restore the Security Deposit to its original amount. Within a
reasonable time after the Term ends, provided Tenant has performed all of its
obligations hereunder, Landlord shall return to Tenant the balance of the
Security Deposit not applied to satisfy Tenant'sobligations. If Landlord
transfers its interest in the Premises, then Landlord may assign the Security
Deposit to the transferee and Landlord thereafter shall have no further
liability for the return of the Security Deposit.
LANDLORD'S OBLIGATIONS
7. a. Services. Provided no Event of Default exists, Landlord shall use all
reasonable efforts to furnish to Tenant (i) water (hot and cold) at those
points of supply provided for general use of tenants of the Building; (ii)
heated and refrigerated air conditioning as appropriate, at such times as
Landlord normally furnishes these services to all tenants of the Building, and
at such temperatures and in such amounts as are reasonably considered by
Landlord to be standard; (iii) janitorial service to the Premises on weekdays
other than holidays for Building-standard installations (Landlord reserves the
right to bill Tenant separately for extra janitorial service required for
non-standard installations) and such window washing as may from time to
time in Landlord's judgment be reasonably required; (iv) elevators for ingress
and egress to the floor on which the Premises are located, in common with
other tenants, provided that Landlord may reasonably limit the number of
elevators to be in operation at times other than during customary business
hours and on holidays; (v)replacement of Building-standard light bulbs and
fluorescent tubes, provided that Landlord's standard charge for such bulbs
and tubes shall be paid by Tenant; and (vi) electrical current during normal
business hours other than for special lighting, equipment that requires more
than 110 volts, or other equipment whose electrical energy consumption exceeds
normal office usage. Landlord shall maintain the common areas of the Building
in reasonably good order and condition, except for damage occasioned by
Tenant, or its employees,agents or invites. If Tenant desires any of the
services specified in this Section 7.a at any time other than times herein
designated, such services shall be supplied to Tenant upon the written request
of Tenant delivered to Landlord before 3:00 p.m. on the business day
preceding such extra usage, and Tenant shall pay to Landlord the cost of such
services within ten days after Landlord has delivered to Tenant an invoice
therefor.
b. Excess Utility Use. Landlord shall use reasonable efforts to furnish
electrical current for computers, electronic data processing equipment,
special lighting, equipment that requires more than 110 volts, or other
equipment whose electrical energy consumption exceeds normal office usage
through the then-existing feeders and risers serving the Building and the
Premises, and Tenant shall pay to Landlord the cost of such service within ten
days after Landlord has delivered to Tenant an invoice therefor. Landlord may
determine the amount of such additional consumption and potential consumption
by either or both: (i) a survey of standard or average tenant usage of
electricity in the Building performed by a reputable consultant selected by
Landlord and paid for by Tenant; or (ii) a separate meter in the Premises
installed, maintained, and read by Landlord, at Tenant's expense. Tenant
shall not install any electrical equipment requiring special wiring or
requiring voltage in excess of 110 volts or otherwise exceeding Building
capacity unless approved in advance by Landlord. The use of electricity
in the Premises shall not exceed the capacity of existing feeders and risers
to or wiring in the Premises. Any risers or wiring required to meet Tenant's
excess electrical requirements shall, upon Tenant's written request, be
installed by Landlord, at Tenant's cost, if, in Landlord's sole and absolute
judgment, the same are necessary and shall not cause permanent damage or
injury to the Building or the Premises, cause or create a dangerous or
hazardous condition, entail excessive or unreasonable alterations, repairs,
or expenses, or interfere with or disturb other tenants of the Buidlling
If Tenant uses machines or equipment (other than general office machines,
excluding computers and electronic data processing equipment) in the
Premises which affect the temperature otherwise maintained by the air
conditioning system or otherwise overload any utility, Landlord may install
supplemental air conditioning units or other supplemental equipment in the
Premises, and the cost thereof, including the cost of installation,
operation, use, and maintenance, shall be paid by Tenant to Landlord within
ten days after Landlord has delivered to Tenant an invoice therefor.
c. Discontinuance. Landlord's obligation to furnish services under Section 7.a
shall be subject to the rules and regulations of the supplier of such services
and governmental rules and regulations. Landlord may, upon not less than
30-days prior written notice to Tenant, discontinue any such service to the
Premises, provided Landlord first arranges for a direct connection thereof
through the supplier of such service. Tenant shall, however, be responsible
for contracting with the supplier of such service and for paying all deposits
for, and costs relating to, such service.
d. Restoration of Services: Abatement. Landlord shall use reasonable efforts
to restore any service that becomes unavailable; however, such unavailability
shall not render Landlord liable for any damages caused thereby, be a
constructive eviction of Tenant, constitute a breach of any implied warranty,
or, except as provided in the next sentence, entitle Tenant to any
abatement of Tenant's obligations hereunder. However, if Tenant is prevented
from making reasonable use of the Premises for more than 45 consecutive days
because of the unavailability of any such service, Tenant shall, as its
exclusive remedy therefor, be entitled to a reasonable abatement of Rent for
each consecutive day (after such 45-day period) that Tenant is so prevented
from making reasonable use of the Premises.
IMPROVEMENTS; ALTERATIONS; REPAIRS; MAINTENANCE
8. a. Improvements: Alterations. Improvements to the Premises
shall be installed at the expense of Tenant
only in accordance with plans and specifications which have
been previously submitted to and approved in writing by
Landlord. After the initial Tenant improvements are made,
no alterations or physical additions in or to the Premises
may be made without Landlord's prior written consent.
Tenant shall not paint or install lighting or decorations,
signs, window or door lettering, or advertising media of
any type on or about the Premises without the prior written
consent of Landlord. All alterations, additions, or
improvements (whether temporary or permanent in character,
and including without limitation all air-conditioning
equipment and all other equipment that is in any manner
Connected to the Buildings plumbing system) made in or
upon the Premises, either by Landlord or Tenant, shall be
Landlord's property at the end of the Term and shall remain
on the Premises without compensation to Tenant. Approval
by Landlord of any of Tenant's drawings and plans and
specifications prepared in connection with any improvements
in the Premises shall not constitute a representation or
warranty of Landlord as to the adequacy or sufficiency of
such drawings, plans and specifications, or the
improvements to which they relate, for any use, purpose, or
condition, but such approval shall merely be the consent of
Landlord as required hereunder. Notwithstanding anything
in this Lease to the contrary, Tenant shall be responsible
for the cost of all work required to comply with the
retrofit requirements of the Americans with Disabilities
Act of 1990, and all rules, regulations, and guidelines
promulgated thereunder, as the same may be amended from
time to time, necessitated by any installations, additions,
or alterations made in or to the Premises at the request of
or by Tenant or by Tenant's use of th Premises (other than
retrofit work whose cost has been particularly identified
as being payable by Landlord in an instrument signed by
Landlord and Tenant), regardless of whether such cost is
incurred in connection with retrofit work required in the
Premises (including the Work described in Exhibit D) or in
other areas of the Building.
b. Repairs Maintenance. Tenant shall maintain
the Premises in a clean, safe, operable, attractive
condition, and shall not permit or allow to remain any
waste or damage to any portion of the Premises. Tenant
shall repair or replace, subject to Landlords direction
and supervision, any damage to the Building caused by
Tenant or Tenant's agents, contractors, or invitees. If
Tenant fails to make such repairs or replacements within 15
days after the occurrence of such damage, then Landlord may
make the same at Tenant's cost. In lieu of having Tenant
repair any such damage outside of the Premises, landlord
may repair such damage at Tenant's cost. The cost of any
repair or replacement work performed by Landlord under this
Section 8 Shall be paid by Tenant to Landlord within ten
days after landlord has delivered to Tenant an invoice
therefor.
c. Performance of Work. All work described in
this Section 8 shall be performed only by Landlord or by
contractors and subcontractors approved in writing by
Landlord. Tenant shall cause all contractors and
subcontractors to procure and maintain insurance coverage
against such risks, in such amounts, and with such
companies as Landlord may reasonably require, and to
procure payment and performance bonds reasonably
satisfactory to Landlord covering the cost of the work.
All such work shall be performed in accordance with all
legal requirements and in a good and workmanlike manner so
as not to damage the Premises, the primary structure or
structural qualities of the Building, or plumbing,
electrical lines, or other utility transmission facility.
All such work which may affect the HVAC, electrical system,
or plumbing must be approved by the Building's engineer of
record.
d. Mechanic's Liens. Tenant shall not permit
any mechanic's liens to be filed against the Premises or
the Building for any work performed, materials furnished,
or obligation incurred by or at the request of Tenant. If
such a lien is filed, then Tenant Shall, within ten days
after Landlord has delivered notice of the filing to
Tenant, either pay the amount of the lien or diligently
contest such lien and deliver to Landlord a bond or other
security reasonably satisfactory to Landlord. If Tenant
fails to timely take either such action, then Landlord may
pay the lien claim without inquiry as to the validity
thereof, and any amounts so paid, including expenses and
interest, shall be paid by Tenant to Landlord within ten
days after Landlord has delivered to Tenant an invoice
therefor.
USE
9. Tenant shall continuously occupy and use the Premises only for
the Permitted Use and shall comply with all laws, orders, rules,
and regulations relating to the use, condition, and occupancy of the Premises.
The Premises shall not be used for any use which is
disreputable or creates extraordinary fire hazards or
results in an increased rate of insurance on the Building
or its contents or the storage of any hazardous materials
or substances. If, because of Tenant's acts, the rate of
insurance on the Building or its contents increases, then
such acts shall be an Event of Default, Tenant shall pay
to Landlord the amount of such increase on demand, and
acceptance of such payment shall not constitute a waiver
of any of Landlord's other rights. Tenant shall conduct its
business and control its agents, employees, and invitees
in such a manner as not to create any nuisance or interfere
with other tenants or Landlord in its management of the
Building.
ASSIGNMENT AND SUBLETTING
10. a. Transfers: Consent. Tenant shall not,without the
prior written consent of Landlord (which
Landlord may grant or deny in its sole discretion), (i)
advertise that any portion of the Premises is available for
lease, (ii) assign, transfer, or encumber this Lease or any
estate or interest herein, whether directly or by operation
of law, (iii) permit any other entity to become Tenant
hereunder by merger, consolidation, or other
reorganization, (iv) if Tenant is an entity other than a
corporation whose stock is publicly traded, permit the
transfer of an ownership interest in Tenant so as to result
in a change in the current control of Tenant, (v) sublet
any portion of the Premises, (vi) grant any license,
concession, or other right of occupancy of any portion of
the Premises, or (vii) permit the use of the Premises by
any parties other than Tenant (any of the events listed in
clauses (ii) through (vii) being a "Transfer"). If Tenant
requests Landlord's consent to a Transfer, then Tenant
shall provide Landlord with a written description of all
terms and conditions of the proposed Transfer, copies of
the proposed documentation, and the following information
about the proposed transferee: name and address; reasonably
satisfactory information about its business and business
history; its proposed use of the Premises; banking,
financial, and other credit information; and general
references sufficient to enable Landlord to determine the
proposed transferee's creditworthiness and character.
Tenant shall reimburse Landlord for its attorneys' fees and
other expenses incurred in connection with considering any
request for its consent to a Transfer. If Landlord
consents to a proposed Transfer, then the proposed
transferee shall deliver to Landlord a written agreement
whereby it expressly assumes the Tenant's obligations
hereunder; however, any transferee of less than all of the
space in the Premises shall be liable only for obligations
under this Lease that are properly allocable to the space
subject to the Transfer, and only to the extent of the rent
it has agreed to pay Tenant therefor. Landlord's consent
to a Transfer shall not release Tenant from performing its
obligations under this Lease, but rather Tenant and its
transferee shall be jointly and severally liable therefor.
Landlord's consent to any Transfer shall not waive
Landlord's rights as to any subsequent Transfers. If an
Event of Default occurs while that Premises or any part
thereof are subject to a Transfer, then Landlord, in
addition to its other remedies, may collect directly from
such transferee all rents becoming due to Tenant and apply
such rents against Rent. Tenant authorizes its transferees
to make payments of rent directly to Landlord upon receipt
of notice from Landlord to do so.
b. Cancellation. Landlord may, within 30 days after submission of Tenant's
written request for Landlord's consent to a Transfer, cancel this Lease (or,
as to a subletting or assignment, cancel as to the portion of the Premises
proposed to be sublet or assigned) as of the date the proposed Transfer was to
be effective. If Landlord cancels this Lease as to any portion of the
Premises, then this Lease shall cease for such portion of the Premises and
Tenant shall pay to Landlord all Rent accrued through the cancellation date
relating to the portion of the Premises covered by the proposed Transfer and
all brokerage commissions paid or payable by Landlord in connection with this
Lease that are allocable to such portion of the Premises. Thereafter,
Landlord may lease such portion of the Premises to the prospective transferee
(or to any other person) without liability to Tenant.
c. Additional Compensation. Tenant shall pay to Landlord, immediately upon
receipt thereof, all compensation received by Tenant for a Transfer that
exceeds the Basic Rental and Tenant's share of Electrical Costs and Excess
allocable to the portion of the Premises covered thereby.
INSURANCE; WAIVERS; SUBROGATION; IDEMNITY
11. a. Insurance. Tenant shall at its expense procure and maintain throughout
the Term the following insurance policies: (i) comprehensive general liability
insurance in amounts of not less than a combined single limit of $5,000,000
(the "Initial Liability Insurance Amount") or such other amounts as Landlord
may from time to time reasonably require, insuring Tenant, Landlord, and
Landlord's agent against all liability for injury to or death of a person of
persons or damage to property arising
from the use and occupancy of the Premises, (ii) contractual liability
insurance coverage sufficient to cover Tenant's indemnity obligations
hereunder, (iii) insurance covering the full value of Tenant's property and
improvements, and other property (including property of others), in the
Premises, (iv) workman's compensation insurance, containing a waiver of
subrogation endorsement reasonably acceptable to Landlord, and (v) business
interruption insurance. Tenant's insurance shall provide primary coverage to
Landlord when any policy issued to Landlord provides duplicate or similar
coverage, and in such circumstance Landlords policy will be excess over
Tenant's policy. Tenant shall furnish certificates of such insurance and such
other evidence satisfactory to Landlord of the maintenance of all insurance
coverages required hereunder, and Tenant shall obtain a written obligation on
the part of each insurance company to notify Landlord at least 30 days before
cancellation or a material change of any such insurance. All such insurance
policies shall be in form, and issued by companies, reasonably satisfactory to
Landlord.
b. Waiver of Negligence Claims: No Subrogation. Landlord shall not be liable
to Tenant or those claiming by, through, or under Tenant for any injury to or
death of any person or persons or the damage to or theft, destruction, loss,
or loss of use of any property or inconvenience (a "loss") caused by casualty,
theft, fire, third parties, or any other matter (including Losses arising
through repair or alteration of any part of the Building, or failure to make
repairs, or from any other cause), regardless of whether the negligence of any
party caused such Loss in whole or in part. Landlord and Tenant each waives
any claim it might have against the other for any damage to or theft,
destruction, loss, or loss of use
of any property, to the extent the same is insured against under any insurance
policy that covers the Building, the Premises, Landlord's or Tenant's
fixtures, personal property, leasehold improvements, or business, or, in the
case of Tenant's waiver, is required to be insured against under the terms
hereof, regardless of whether the negligence or fault of the other party
caused such loss; however, Landlords waiver shall not include any deductible
amounts on insurance policies carried by Landlord or apply to any coinsurance
penalty which Landlord might sustain. Each party shall cause its insurance
carrier to endorse all applicable policies waiving the carrier's rights of
recovery under subrogation or otherwise against the other party.
c. Indemnity. Subject to Section ll.b, Tenant shall defend, indemnify, and
hold harmless Landlord and its agents from and against all claims, demands,
liabilities,causes of action, suits, judgments, and expenses (including
attorneys' fees) for any Loss arising from any occurrence on the premises or
from Tenant's failure to perform its obligations under this Lease (other than
a Loss arising from the sole or gross negligence of Landlord or its agents),
even though caused or alleged to be caused by the joint, comparative, or
concurrent negligence or fault of Landlord or its agents, and even though any
such claim,cause of action, or suit is based upon or alleged to be based upon
the strict liability of Landlord or its agents. This indemnity provision is
intended to indemnify Landlord
and its agents against the consequences of their own
negligence or fault as provided above when Landlord or its
agents are jointly, comparatively, or concurrently
negligent with Tenant. This indemnity provision shall
survive termination or expiration of this Lease.
SUBORDINATION ATTORNMENT; NOTICE TO LANDLORD'S MORTGAGEE
12. a. Subordination. This Lease shall be
subordinate to any deed of trust, mortgage, or other
security instrument (a "Mortgage"), or any ground lease,
master lease, or primary lease (a "Primary Lease"), that
now or hereafter covers all or any part of the Premises
(the mortgagee under any Mortgage or the lessor under any
Primary Lease is referred to herein as Landlord's
Mortgagee").
b. Attornment. Tenant shall attorn to any party succeeding to Landlords
interest in the Premises, whether by purchase, foreclosure, deed in lieu of
foreclosure, power of sale, termination of lease, or otherwise, upon such
party's request, and shall execute such agreements confirming such attornment
as such party may reasonably request.
c. Notice to Landlords Mortqagee. Tenant shall not seek to enforce any
remedy it may have for any default on the part of the Landlord without first
giving written notice by certified mail, return receipt requested, specifying
the default in reasonable detail, to any Landlords Mortgagee whose address has
been given to Tenant, and affording such Landlord's Mortgagee a reasonable
opportunity to perform Landlord's obligations hereunder.
RULES AND REGULATIONS
13. Tenant shall comply with the rules and
regulations of the Building which are attached hereto as
Exhibit B. Landlord may, from time to time, change such
rules and regulations for the safety, care, or cleanliness
of the Building and related facilities, provided that such
changes are applicable to all tenants of the Building and
will not unreasonably interfere with Tenant'e use of the
Premises. Tenant shall be responsible for the compliance
with such rules and regulations by its employees, agents,
and invitees.
CONDEMNATION
14. a. Taking - Landlord's and Tenant's Rights. If
any part of the Building is taken by right of eminent
domain or conveyed in lieu thereof (a "Taking"), and such
Taking prevents Tenant from conducting its business in the
Premises in a manner reasonably comparable to that
conducted immediately before such Taking, then Landlord
may, at its expense, relocate Tenant to office space
reasonably comparable to the Premises, provided that
Landlord notifies Tenant of its intention to do so within
30 days after the Taking. Such relocation may be for a
portion of the remaining Term or the entire Term. Landlord
shall complete any such relocation within 180 days after
Landlord has notified Tenant of its intention to relocate
Tenant. If Landlord does not elect to relocate Tenant
following such Taking, then Tenant may terminate this Lease
as of the date of such Taking by giving written notice to
Landlord within 60 days after the Taking, and Rent shell be
apportioned as of the date of such Taking. If Landlord
does not relocate Tenant and Tenant does not terminate this
Lease, then Rent shall be abated on a reasonable basis as
to that portion of the premises rendered untenantable by
the Taking.
b. Taking - Landlord's Rights. If any material
portion, but less than all, of the Building becomes subject
to a Taking, or if Landlord is required to pay any of the
proceeds received for a Taking to Landlord's Mortgagee,
then this Lease, at the option of Landlord, exercised by
written notice to Tenant within 30 days after such Taking,
shall terminate and Rent shall be apportioned as of the
date of such Taking. If Landlord does not so terminate
this Lease and does not elect to relocate Tenant, then this
Lease will continue, but if any portion of the Premises has
been taken, Basic Rental shall abate as provided in the
last sentence of Section 14.a.
c. Award. If any Taking occurs, then Landlord
shall receive the entire award or other compensation for
the Land, the Building, and other improvements taken, and
Tenant may separately pursue a claim against the condemnor
for the value of Tanant's personal property which Tenant
is entitled to remove under this Lease, moving costs, loss of
business, and other claims it may have.
FIRE OR OTHER CASUALTY
15. a. Repair Estimate. If the Premises or the
Building are damaged by fire or other casualty (a
"Casualty"), Landlord shall, within 60 days after such
Casualty, deliver to Tenant a good faith estimate (the
"Damage Notice") of the time needed to repair the damage
caused by such Casualty.
b. Landlord's and Tenants Rights. If a
material portion of the Premises or the Building is damaged
by Casualty such that Tenant is prevented from conducting
its business in the Premises in a manner reasonably
comparable to that conducted immediately before such
Casualty and Landlord estimates that the damage caused
thereby cannot be repaired within 180 days after the
commencement of repair, then Landlord may, at its expense,
relocate Tenant to office space reasonably comparable to
the Premises, provided that Landlord notifies Tenant of
its intention to do so in the Damage Notice. Such relocation
may be for a portion of the remaining Term or the entire
Term. Landlord shall complete any such relocation within
180 days after Landlord has delivered the Damage Notice to
Tenant. If Landlord does not elect to relocate Tenant
following such Casualty, then Tenant may terminate this
Lease by delivering written notice to Landlord of its
election to terminate within 30 days after the Damage
Notice has been delivered to Tenant. If Landlord does not
relocate Tenant and Tenant does not terminate this Lease,
then (subject to Landlords rights under Section 15.c)
Landlord shall repair the Building or the Premiere, as the
case may be, as provided below, and Rent for the portion
of the Premises rendered untenantable by the damage shall be
abated on a reasonable basis from the date of damage until
the completion of the repair, unless Tenant caused such
damage, in which case, Tenant shall continue to pay Rent
without abatement.
c. Landlord's Rights. If a Casualty damages a
material portion of the Building, and Landlord makes a
good faith determination that restoring the Premises would be
uneconomical, or if Landlord is required to pay any
insurance proceeds arising out of the Casualty to
Landlord's Mortgagee, then Landlord may terminate this
Lease by giving written notice of its election to
terminate within 30 days after the Damage Notice has been delivered
to Tenant, and Basic Rental hereunder shall be abated as
of the date of the Casualty.
d. Repair Obligation. If neither party elects
to terminate this Lease following a Casualty, then
Landlord shall, within a reasonable time after such Casualty,
commence to repair the Building and the Premises and shall
proceed with reasonable diligence to restore the Building
and Premises to substantially the same condition as they
existed immediately before such Casualty; however,
Landlord shall not be required to repair or replace any part of the
furniture, equipment, fixtures, and other improvements
which may have been placed by, or at the request of, Tenant -
or other occupants in the Building or the Premises, and
Landlord's obligation to repair or restore the Building or
Premises Shall be limited to the extent of the insurance
proceeds actually received by Landlord for the Casualty in
question.
TAXES
16. Tenant shall be liable for all taxes levied or
assessed against personal property, furniture, or fixtures
placed by Tenant in the Premises. If any taxes for which
Tenant is liable are levied or assessed against Landlord or
Landlord's property and Landlord elects to pay the same, or
if the assessed value of the Landlord's property is increased
by inclusion of such personal property, furniture or
fixtures and Landlord elects to pay the taxes based on such
Increase, then Tenant shall pay to Landlord, upon demand,
that part of such taxes for which Tenant is primarily
liable hereunder.
EVENTS OF DEFAULT
17. Such of the following occurrences shall
constitute an "Event of Default":
a. Tenant's failure to pay Rent, or any other
sums due from Tenant to Landlord under the Lease (or any
other lease executed by Tenant for space in the Building),
when due;
b. Tenant's failure to perform, comply with, or
observe any other agreement or obligation of Tenant under
this Lease (or any other lease executed by Tenant for
space in the Building);
c. The filing of a .petition by or against
Tenant (the term "Tenant" shall include, for the purpose
of this Section 17.c, any guarantor of the Tenant's
obligations hereunder) (i) in any bankruptcy or other
insolvency proceeding; (ii) seeking any relief under any
state or federal debtor relief law; (iii) for the
appointment of a liquidator or receiver for all or
substantially all of Tenant's property or for Tenant's
interest in this Lease; or (iv) for the reorganization or
modification of Tenant's capital structure;
d. Tenant shall desert or vacate any portion of
the Premises; and
e. The admission by Tenant that it cannot meet
its obligations as they become due or the making by Tenant
of an assignment for the benefit of its creditors.
REMEDIES
18. Upon any Event of Default, Landlord may, in
addition to all other rights and remedies afforded Landlord
hereunder or by law or equity, take any of the following
actions:
a. Terminate this Lease by giving Tenant written
notice thereof, in which event, Tenant shall pay to
Landlord the sum of (i) all Rent accrued hereunder through
the date of termination, (ii) all amounts due under Section
l9.a., and (iii) an amount equal to (A) the total Rent that
Tenant would have been required to pay for the remainder of
the Term discounted to present value at a per annum rate
equal to the "Prime Rate" as published on the date this
Lease is terminated by th e Wall Street Journal, Southwest
Edition, in its listing of "Money Rates", minus (B) the
then present fair rental value of the Premises for such
period, similarly discounted; or
b. Terminate Tenant's right to possession of the
premises without terminating this Lease by giving written
notice thereof to Tenant, in which event Tenant shall pay
to Landlord (i) all Rent and other amounts accrued
hereunder to the date of termination of possession, (ii)
all amounts due from time to time under Section l9.a., and
(iii) all Rent and other sums required hereunder to be paid
by Tenant during the remainder of the Term, diminished by
any net sums thereafter received by Landlord through
reletting the Premises during such period. Landlord shall
use reasonable efforts to relet the Premises on such terms
and conditions as Landlord in its sole discretion may
determine (including a term different from the Term, rental
concessions, and alterations to, and improvement of, the
Premises); however, Landlord shall not be obligated to
relet the Premises before leasing other portions of
the Building. Landlord Shall not be liable for, nor shall
Tenant's obligations hereunder be diminished because
of, Landlord's failure to relet the Premises or to
collect rent due for such reletting. Tenant shall not be entitled
to the excess of any consideration obtained by
reletting over the Rent due hereunder. Reentry by Landlord in the
Premises shall not affect Tenant'e obligations
hereunder for the unexpired Term; rather, Landlord may, from
time to time, bring action against Tenant to collect amounts
due by Tenant, without the necessity of Landlords waiting
until the expiration of the Term. Unless Landlord delivers
written notice to Tenant expressly Stating that it
has elected to terminate this Lease, all actions taken by
Landlord to exclude or dispossess Tenant of the Premises
shall be deemed to be taken under this Section 18.b. If
Landlord elects to proceed under this Section 18.b., it may
at any time elect to terminate this Lease under Section
18.a.
Additionally, without notice, Landlord may alter locks or
other security devices at the Premises to deprive Tenant of
access thereto, and Landlord shall not be required to
provide a new key or right of access to Tenant.
PAYMENT BY TENANT;NON-WAIVER
19. a. Payment by Tenant. Upon any Event of
Default, Tenant shall pay to Landlord all costs incurred by
Landlord (including court costs and reasonable attorneys'
fees and expenses) in (i) obtaining possession of the
Premises, (ii) removing and storing Tenant's or any other
occupant's property, (iii) repairing, restoring, altering,
remodeling, or otherwise putting the Premises into
condition acceptable to a new tenant, (iv) if Tenant is
dispossessed of the Premises and this Lease is not
terminated, reletting all or any part of the Premises
(including brokerage commissions, cost of tenant finish
work, and other costs incidental to such reletting), (v)
performing Tenant's obligations which Tenant failed to
perform, and (vi) enforcing, or advising Landlord of, its
rights, remedies, and recourses arising out of the Event of
Default.
b. No Waiver. Landlord's acceptance of Rent
following an Event of Default shall not waive The Landlord's
rights regarding such Event of Default. No waiver by
Landlord of any violation or breach of any of the terms
contained herein shall waive Landlord's rights regarding
any future violation of such term or violation of any other
term.
LANDLORD'S LIEN
20. In addition to the statutory landlord's lien,
Tenant grants to Landlord, to secure performance of
Tenant's obligations hereunder, a security interest in
all equipment, fixtures, furniture, improvements, and other
personal property of Tenant now or hereafter situated
on the Premises, and all proceeds therefrom (the
"Collateral"), and the Collateral shall not be removed
from the Premises without the consent of Landlord until all
obligations of Tenant have been fully performed. Upon
the occurrence of an Event of Default, Landlord may, in
addition to all other remedies, without notice or
demand except as provided below, exercise the rights afforded
a secured party under the Uniform Commercial Code of the
State in which the Building is located (the UCC"). In
connection with any public or private sale under the
UCC, Landlord shall give Tenant five-days' prior written
notice of the time and place of any public sale of the
Collateral or of the time after which any private sale or other
intended disposition thereof is to be made, which is
agreed to be a reasonable notice of such sale or other
disposition. Tenant grants to Landlord a power of
attorney to execute end file any financing statement or
other instrument necessary to perfect Landlord's security
interest under this Section 20, which power is coupled
with an interest and shall be irrevocable during the Term.
Landlord may also file a copy of this Lease as a
financing statement to perfect its security interest in the
Collateral.
SURRENDER OF PREMISES
21. No act by Landlord shall be deemed an acceptance
of a surrender of the Premises, and no agreement to accept
a surrender of the Premises shall be valid unless the same
is made in writing and signed by Landlord. At the
expiration or termination of this Lease, Tenant shall
deliver to Landlord the Premises with all improvements
located thereon in good repair and condition, reasonable
wear and tear (and condemnation and fire or other casualty
damage not caused by Tenant, as to which Sections 14 and 15
shall control) excepted, and shall deliver to Landlord all
keys to the Premises. Provided that Tenant has performed
all of its obligations hereunder, Tenant may remove all
unattached trade fixtures, furniture, and personal property
placed in the Premises by Tenant (but Tenant shall not
remove any such item which was paid for, in whole or in
part, by Landlord). Additionally, Tenant shall remove such
alterations, additions, improvements, trade fixtures,
equipment, wiring and furniture as Landlord may request.
Tenant shall repair all damage caused by such removal. All
items not so removed shall be deemed to have been abandoned
by Tenant and may be appropriated, sold, stored, destroyed,
or otherwise disposed of by Landlord without notice to
Tenant and without any obligation to account for such
items. The provisions of this Section 21 shall survive the
end of the Term.
HOLDING OVER
22. If Tenant fails to vacate the Premises at the end
of the Term, then Tenant shall be a tenant at will and, in
addition to all other damages and remedies to which
Landlord may be entitled for such holding over, Tenant
shall pay, in addition to the other Rent, a daily Basic
Rental equal to the greater of (a) 150% of the daily Basic
Rental payable during the last month of the Term, or (b)
the prevailing rental rate in the Building for similar
space.
CERTAIN RIGHTS RESERVED BY LANDLORD
23. Provided that the exercise of such rights does
not unreasonably interfere with Tenant's occupancy of the
Premises, Landlord shall have the following rights:
a. To decorate and to make inspections, repairs,
alterations, additions, changes, or improvements, whether
structural or otherwise, in and about the Building, or any
part thereof; for such purposes, to enter upon the Premises
and, during the continuance of any such work, to
temporarily close doors, entryways, public space, and
corridors in the Building; to interrupt or temporarily
suspend Building services and facilities; and to change the
arrangement and location of entrances or passageways,
doors, and doorways, corridors, elevators, stairs,
restrooms, or other public parts of the Building;
b. To take such reasonable measures as landlord
deems advisable for the security of the Building and its
occupants, including without limitation searching all
persons entering or leaving the Building; evacuating the
Building for cause, suspected cause, or for drill purposes;
temporarily denying access to the Building; and closing the
Building after normal business hours and on Saturdays,
Sundays, and holidays, subject, however, to Tenant's
right to enter when the Building is closed after normal
business hours under such reasonable regulations as Landlord
may prescribe from time to time which may include by way
of example, but not of limitation, that persons entering
or leaving the Building, whether or not during normal
business hours, identify themselves to a security officer by
registration or otherwise and that such persons
establish their right to enter or leave the Building;
c. To change the name by which the Building is
designated; and
d. To enter the Premises at all reasonable hours
to show the Premises to prospective purchasers, lenders, or tenants.
SUBSTITUTION SPACE
24. a. From time to time during the Term,
Landlord may substitute for the Premises other space that has
an area at least equal to that of the Premises and is
located in the Building or in any other comparable building
managed by Landlord or an affiliate of landlord (the
"Substitution Space").
b. If Landlord exercises such right by giving
Tenant notice thereof ("Substitution Notice") at least
60 days before the effective date of such substitution,
then (i) the description of the Premises shall be replaced
by the description of the Substitution Space; and (ii) all
of the terms and conditions of this Lease shall apply to
the Substitution Space except that (A) if the then
unexpired balance of the Term shall be less than one year, then
the Term shall be extended so that the Term shall be one
year from the Substitution affective Date (defined below),
and
(B) if the Substitution Space contains more square
footage than the Premises, then the Basic Rental then in
effect shall be increased proportionately (provided that
such increase shall not exceed 105% of the Basic Rental due
for the Premises) and shall be subject to adjustment as
herein provided. The effective date of such substitution
(the "Substitution Effective Date") shall be the date
specified in the Substitution Notice or, if Landlord is required
to perform tenant finish work to the Substitution Space
under Section 24.c, then the date on which Landlord
substantially completes such tenant finish work. If Landlord is
delayed in performing the tenant finish work by Tenant's
actions(either by Tenant's change in the plans and
specifications for such work or otherwise), then the Substitution
Affective Date shall not be extended and Tenant shall
pay Rent for the Substitution Space beginning on the date
specified in the Substitution Notice.
c. Tenant may either accept possession of the
Substitution Space in its "as is" condition as of the
Substitution Effective Date or require Landlord to
alter the Substitution Space in the same manner as the
Premises were altered or were to be altered. Tenant shall
deliver to Landlord written notice of its election within ten
days after the Substitution Notice has been delivered to
Tenant. If Tenant fails to timely deliver notice of
its election or if an Event of Default then exists,
then Tenant shall be deemed to have elected to accept possession
of the Substitution space in its "as is" condition. If
Tenant timely elects to require Landlord to alter the
Substitution Space, then (i) notwithstanding Section 24.b, if the
then unexpired balance of the Term is less than three
years, then the Term shall be extended so that it continues
for three years from the Substitution Effective Date,
and (ii)Tenant shall continue to occupy the Premises (upon
all of the terms of this Lease) until the Substitution
Effective Date.
d. Tenant shall move from the Premises into the
Substitution Space and shall surrender possession of
the Premises as provided in Section 21 by the
Substitution Effective Date. If Tenant occupies the Premises
after the Substitution Effective Date, then Tenant's occupancy
of the Premises shall be a tenancy at will (and, without limiting
all other rights and remedies available to Landlord,
including instituting a forcible detainer suit), Tenant
shall pay Basic Rental for the Premises as provided in
Section 22 and all other Rent due therefor until such
occupancy ends; such amounts shall be in addition to the
Rent due for the Substitution Space.
e. If Landlord exercises its substitution right,
then Landlord shall reimburse Tenant for Tenant's
reasonable out-of-pocket expenses for moving Tenant's
furniture, equipment, supplies and telephone equipment from
the Premises to the Substitution Space and for reprinting
Tenants stationery of the same quality and quantity of
Tenant's stationery supply on hand immediately prior to
Landlord's notice to Tenant of the exercise of this
relocation right. If the Substitution Space contains more
square footage than the Premises, and if the Premises were
carpeted, Landlord shall supply and install an equal amount
of carpeting of the same or equivalent quality and color.
MISCELLANEOUS
25. a. Landlord Transfer. Landlord may transfer, in
whole or in part, the Building and any of its rights under
this Lease. If Landlord assigns its rights under this
Lease, then Landlord shall thereby be released from any
further obligations hereunder.
b. Landlord's Liability. The liability of
Landlord to Tenant for any default by landlord under the
terms of this Lease shall be limited to Tenant's actual
direct, but not consequential, damages therefor and shall
be recoverable from the interest of Landlord in the
Building and the Land, and Landlord shall not be personally
liable for any deficiency. This section shall not be
deemed to limit or deny any remedies which Tenant may have
in the event of default by Landlord hereunder which do not
involve the personal liability of Landlord.
c. Force Majeure. Other than for Tenant's
monetary obligations under this Lease and obligations which
can be cured by the payment of money (e.g., maintaining
insurance), whenever a period of time is herein prescribed
for action to be taken by either party hereto, such party
shall not be liable or responsible for, and there shall be
excluded from the computation for any such period of time,
any delays due to strikes, riots, acts of God, shortages of
labor or materials, war, governmental laws, regulations, or
restrictions, or any other causes of any kind whatsoever
which are beyond the control of such party.
d. Brokerage. Landlord and Tenant each warrant
to the other that it has not dealt with any broker
or agent, other than Trammell Crow Dallas/Fort Worth, Inc., in
connection with the negotiation or execution of this
Lease. Tenant and Landlord shall each indemnify the
other against all costs, expenses, attorneys' fees, and
other liability for commissions or other compensation
claimed by any broker or agent claiming the same by, through,
or under the indemnifying party.
e. Estoppel Certificates. From time to time, Tenant shall furnish to
any party designated by Landlord, within ten days after Landlord has made a
request therefor, a certificate signed by Tenant confirming and containing
such factual certifications and representations as to this Lease as Landlord
may reasonably request.
f Notices All notices and other communications given pursuant to this Lease
shall be in writing and shall be (i) mailed by first class, United
States Mail, postage prepaid, certified, with return
receipt requested, and addressed to the parties hereto at
the address specified in the Basic Lease Information, (ii)
hand delivered to the intended address, or (iii) sent by
prepaid telegram, cable, facsimile transmission, or telex
followed by a confirmatory letter. Notice sent by
certified mail, postage prepaid, shall be effective three
business days after being deposited in the United States
Mail; all other notices shall be effective upon delivery to
the address of the addressee. The parties hereto may
change their addresses by giving notice thereof to the
other in conformity with this provision.
g Separability. If any clause or provision of
this Lease is illegal, invalid, or unenforceable under
present or future laws, then the remainder of this Lease
shall not be affected thereby and in lieu of such clause or
provision, there shall be added as a part of this Lease a
clause or provision as similar in terms to such illegal,
invalid, or unenforceable clause or provision as may be
possible and be legal, valid, and enforceable.
h Amendments; and Binding Effect. This Lease
may not be amended except by instrument in writing signed
by Landlord and Tenant. No provision of this Lease shall
be deemed to have been waived by Landlord unless such
waiver is in writing signed by Landlord, and no custom or
practice which may evolve between the parties in the
administration of the terms hereof shall waive or diminish
the right of Landlord to insist upon the performance by
Tenant in strict accordance with the terms hereof. The
terms and conditions contained in this Lease shall inure to
the benefit of and be binding upon the parties hereto, and
upon their respective successors in interest and legal
representatives, except as otherwise herein expressly
provided. This Lease is for the sole benefit of Landlord
and Tenant, and, other than Landlord's Mortgagee, no third
party shall be deemed a third party beneficiary hereof.
i Quiet Enjoyment. Provided Tenant has
performed all of the terms and conditions of this Lease to
be performed by Tenant, Tenant shall peaceably and quietly
hold and enjoy the Premises for the Term, without hindrance
from Landlord or any party claiming by, through, or under
Landlord, subject to the terms and conditions of this Lease.
j Joint and Several Liability. If there is
more than one Tenant, then the obligations hereunder
imposed upon Tenant shall be joint and several. If there
is a guarantor of Tenant's obligations hereunder, then the
obligations hereunder imposed upon Tenant shall be the
joint and several obligations of Tenant and such guarantor,
and Landlord need not first proceed against Tenant before
proceeding against such guarantor nor shall any such -
guarantor be released from its guaranty for any reason
whatsoever.
k Captions. The captions contained in this
Lease are for convenience of reference only, and do
not limit or enlarge the terms and conditions of this
Lease.
1 No Merger. There shall be no merger of the
leasehold estate hereby created with the fee estate
in the Premises or any part thereof if the same person
acquires or holds, directly or indirectly, this Lease or any
interest in this Lease and the fee estate in the leasehold
Premises or any interest in such fee estate.
m No Offer. The submission of this Lease to
Tenant shall not be construed as an offer, nor shall Tenant
have any rights under this Lease unless Landlord executes a
copy of this Lease and delivers it to Tenant.
n Tax Protest. Tenant has no right to protest
the real estate tax rate assessed against the Project
and/or the appraised value of the Project determined by any
appraisal review board or other taxing entity with
authority to determine tax rates and/or appraised values
(each a "Taxing Authority"). Tenant hereby knowingly,
voluntarily and intentionally waives and releases any
right, whether created by law or otherwise, to (a) file or
otherwise protest before any Taxing Authority any such rate
or value determination even though Landlord may elect not
to file any such protest; (b) receive , or otherwise
require Landlord to deliver, a copy of any reappraisal notice
received by Landlord from any Taxing Authority; and
(c) appeal any order of a Taxing Authority which determines
any such protest. The foregoing waiver and release covers
and includes any and all rights, remedies and recourse of
Tenant, now or at any time hereafter, under Section 41.413
and Section 42.015 of the Texas Tax Code (as currently
enacted or hereafter modified) together with any other or
[ further laws, rules or regulations covering the subject
matter thereof. Tenant acknowledges and agrees that the
foregoing waiver and release was bargained for by Landlord
and Landlord would not have agreed to enter into this Lease
in the absence of this waiver and release. If,
notwithstanding any such waiver and release, Tenant files
or otherwise appeals any such protest, then Tenant will be
in default under this Lease and, in addition to Landlords
other rights and remedies, Tenant must pay or otherwise
reimburse Landlord for all costs, charges and expenses
incurred by, or otherwise asserted against, Landlord as a
result of any tax protest or appeal by Tenant, including,
appraisal costs, tax consultant charges and attorneys'
fees (collectively, the "Tax Protest Costs"). If, as a
result of Tenant's tax protest or appeal, the appraised
value for the Project is increased above that previously
determined by the Taxing Authority (such increase, the
"Value Increase") for the year covered by such tax protest
or appeal (such year, the "Protest Year"), then Tenant must
pay Landlord, in addition to all Tax Protest Costs, an
amount (the "Additional Taxes") equal to the sum of the
following (i) the product of the Value Increase
multiplied by the tax rate in effect for the Protest Year;
plus (ii) the amount of additional taxes payable during the
five (5) year period following the Protest Year, such
amount to be calculated based upon the Value Increase
multiplied by the tax rate estimated to be in effect for
each year during such five (5) year period. Tenant must
pay all Additional Taxes - even those in excess of Tenant's
proportionate share and which may relate to years beyond
the term of this Lease. The Additional Taxes will be
conclusively determined by a tax consultant selected by
Landlord, without regard to whether and to what extent
Landlord may be able in years following the Protest Year to
reduce or otherwise eliminate any Value Increase. All Tax
Protest Costs and Additional Taxes must be paid by Tenant
within five (5) days following written demand by Landlord.
o Exhibits. All exhibits and attachments
attached hereto are incorporated herein by this reference
Exhibit A - Outline of Premises
Exhibit B - Building Rules and Regulations
Exhibit C - Operating Expense Escalator
Exhibit D - Legal Description
Exhibit E - Tenant Finish-Work: As - Is
Exhibit F - Parking
p. Entire Agreement. This Lease constitutes the entire agreement between
Landlord and Tenant regarding the subject matter hereof and supersedes all
oral statements and prior writings relating thereto. Except for those set
forth in this Lease, no representations, warranties, or agreements have been
made by Landlord or Tenant to the other with respect to this Lease or the
obligations of Landlord or Tenant in connection therewith.
LANDLORD AND TENANT EXPRESSLY DISCLAIM ANY IMPLIED WARRANTY THAT THE PREMISES
ARE SUITABLE FOR TBNANT'S INTENDED COMMERCIAL PURPOSE, AND TENANT'S OBLIGATION
TO PAY RENT HEREUNDER IS NOT DEPENDENT UPON THE CONDITION OF THE PREMISES OR
THE PERFORMANCE BY LANDLORD OF ITS OBLIGATIONS HEREUNDER, AND, EXCEPT AS
OTHERWISE EXPRESSLY PROVIDED HEREIN, TENANT SHALL CONTINUE TO PAY THE RENT,
WITHOUT ABATEMENT, SETOFF, DEDUCTION, NOTWITHSTANDING ANY BREACH BY LANDLORD
OF ITS DUTIBS OR OBLIGATIONS HEREUNDER, WHETHER EXPRESS OR IMPLIED.
DATED as of the date first above written.
LANDLORD: TENANT:
EQUITABLE-CROW TOWER 2001, LTD., JAYHAWK ACCEPTANCE CORPORATION,
a Texas limited partnership a Texas corporation
By: EQ/GP Southwest, Ltd., By: /s/ Cameron F. Chandler
a Texas limited partnership Name: Cameron F. Chandler
Title: Director HR & Admin
By: GP/EQ Southwest, Inc.,
a Texas corporation
its sole general partner
By: /s/ Jon L. Dooley
Name: Jon L. Dooley
Title: Investment Officer
PROMISSORY NOTE
Customer Number: 4556882 Note Number: New
[X ] New [ ] Renewal [ ] Increase [ ] Decrease
Date:October 1, 1996 Amount:$15,000,000.00 Maturity Date:October 1, 1997
<TABLE>
<CAPTION>
<S> <C>
Bank: Borrower:
NationsBank of Texas, N.A. Jayhawk Medical Acceptance Corporation
Banking Center: Private Client Group Two Galleria Tower, Suite 1800
901 Main Street Dallas, Texas 75240
Dallas, Texas 75202-3714
Dallas County Dallas County
A\
(Street address including county) (Name and street address, including county)
===============================================================================
</TABLE>
FOR VALUE RECEIVED, the undersigned Borrower unconditionally (and jointly and
severally, if more than one) promises to pay to the order of Bank, its
successors and assigns, without setoff, at its offices indicated at the
beginning of this Note, or at such other place as may be designated by Bank,
the principal amount of Fifteen Million and No/100--------------Dollars
($15,000,000.00), or so much thereof as may be advanced from time to time in
immediately available funds, together with interest computed daily on the
outstanding principal balance hereunder, at an annual interest rate, and in
accordance with the payment schedule, indicated below.
[THIS NOTE CONTAINS SOME PROVISIONS PRECEDED BY BOXES. IF A BOX IS MARKED,
THE PROVISION APPLIES TO THIS TRANSACTION; IF IT IS NOT MARKED, THE PROVISION
DOES NOT APPLY TO THIS TRANSACTION.]
1. RATE.
[_] PRIME RATE. The Rate shall be the Prime Rate, plus
______________________ percent, per annum. The "Prime Rate" is the
fluctuating rate of interest established by Bank from time to time, at its
discretion, whether or not such rate shall be otherwise published. The Prime
Rate is established by Bank as an index and may or may not at any time be the
best or lowest rate charged by Bank on any loan.
[_] FIXED RATE. The Rate shall be fixed at percent per annum.
[X] LIBOR RATE. The Rate shall be the LIBOR Rate, plus 1.50 percent,
per annum. The LIBOR Rate shall mean the fluctuating rate of interest applied
by Bank from time to time, based on the average of interbank offered rates for
dollar deposits (one month term) on the London market based on quotations at
five major banks, as published in the Wall Street Journal, rounded upwards to
the nearest 1/100th of one percentage point. (.01%).
2. ACCRUAL METHOD. Unless otherwise indicated, interest at the Rate set
forth above will be calculated by the 365/360 day method (a daily amount of
interest is computed for a hypothetical year of 360 days; that amount is
multiplied by the actual number of days for which any principal is outstanding
hereunder). If interest is not to be computed using this method, the method
shall be: N/A .
3. RATE CHANGE DATE. Any Rate based on a fluctuating index or base rate
will change, unless otherwise provided, each time and as of the date that the
index or base rate changes. If the Rate is to change on any other date or at
any other interval, the change shall be: N/A .
In the event any index is discontinued, Bank shall substitute an index
determined by Bank to be comparable, in its sole discretion.
4. PAYMENT SCHEDULE. All payments received hereunder shall be applied
first to the payment of any expense or charges payable hereunder or under any
other loan documents executed in connection with this Note, then to interest
due and payable, with the balance applied to principal, or in such other order
as Bank shall determine at its option.
[_] PRINCIPAL PLUS ACCRUED INTEREST. Principal shall be paid in
consecutive equal installments of $___________________________, plus accrued
interest, payable [_] monthly, [_] quarterly or
[_]____________________________________________, commencing on
___________________________________, 19__________, and continuing on the [_]
same day, [_] last day of each successive month, quarter or other period (as
applicable) thereafter, with a final payment of all unpaid principal and
accrued interest due on_______________________________________, 19_________.
[_] FIXED PRINCIPAL AND INTEREST. Principal and interest shall be paid in
consecutive equal installments of $______________________________, payable
[_] monthly, [_] quarterly or [_]___________________________________________,
commencing on __________________________, 19__________, and continuing on the
[_] same day, [_] last day of each successive month, quarter or other period
(as applicable) thereafter, with a final payment of all unpaid principal and
interest due thereon on ____________________________________________,
19_______. If, on any payment date, accrued interest exceeds the installment
amount set forth above, Borrower will also pay such excess as and when billed.
[X] SINGLE PRINCIPAL PAYMENT. Principal shall be paid in full in a single
payment on October 1, 1997. Interest thereon shall be paid [_] at maturity,
or else [X] monthly, [_] quarterly or [_] , commencing on
November 1, 1996, and continuing on the [X] same day, [_] last day of each
successive month, quarter or other period (as applicable) thereafter, with a
final payment of all unpaid interest at the stated maturity of this Note.
[_] OTHER.
____________________________________________________________________________
__________________________________
5. REVOLVING FEATURE.
[X] Borrower may borrow, repay and reborrow hereunder at any time, up to a
maximum aggregate amount outstanding at any one time equal to the principal
amount of this Note, provided, that Borrower is not in default under any
provision of this Note, any other documents executed in connection with this
Note, or any other note or other loan documents now or hereafter executed in
connection with any other obligation of Borrower to Bank, and provided that
the borrowings hereunder do not exceed any borrowing base or other limitation
on borrowings by Borrower. Bank shall incur no liability for its refusal to
advance funds based upon its determination that any conditions of such further
advances have not been met. Bank records of the amounts borrowed from time to
time shall be conclusive proof thereof.
[_] UNCOMMITTED FACILITY. Borrower acknowledges and agrees that,
notwithstanding any provisions of this Note or any other documents executed in
connection with this Note, Bank has no obligation to make any advance, and
that all advances are at the sole discretion of Bank.
[_] OUT-OF-DEBT PERIOD. For a period of at least
_______________________ consecutive days during [_] each fiscal year, [_] any
consecutive 12-month period, Borrower shall fully pay down the balance of this
Note, so that no amount of principal or interest and no other obligation under
this Note remains outstanding.
6. AUTOMATIC PAYMENT.
[_] Borrower has elected to authorize Bank to effect payment of sums due
under this Note by means of debiting Borrower's account number
________________________________. This authorization shall not affect the
obligation of Borrower to pay such sums when due, without notice, if there are
insufficient funds in such account to make such payment in full on the due
date thereof, or if Bank fails to debit the account.
7. WAIVERS, CONSENTS AND COVENANTS. Borrower, any indorser, or guarantor
hereof or any other party hereto (individually an "Obligor" and collectively
"Obligors") and each of them jointly and severally: (a) waive presentment,
demand, protest, notice of demand, notice of intent to accelerate, notice of
acceleration of maturity, notice of protest, notice of nonpayment, notice of
dishonor, and any other notice required to be given under the law to any
Obligor in connection with the delivery, acceptance, performance, default or
enforcement of this Note, any indorsement or guaranty of this Note, or any
other documents executed in connection with this Note or any other note or
other loan documents now or hereafter executed in connection with any
obligation of Borrower to Bank (the "Loan Documents"); (b) consent to all
delays, extensions, renewals or other modifications of this Note or the Loan
Documents, or waivers of any term hereof or of the Loan Documents, or release
or discharge by Bank of any of Obligors, or release, substitution or exchange
of any security for the payment hereof, or the failure to act on the part of
Bank, or any indulgence shown by Bank (without notice to or further assent
from any of Obligors), and agree that no such action, failure to act or
failure to exercise any right or remedy by Bank shall in any way affect or
impair the obligations of any Obligors or be construed as a waiver by Bank of,
or otherwise affect, any of Bank's rights under this Note, under any
indorsement or guaranty of this Note or under any of the Loan Documents; and
(c) agree to pay, on demand, all costs and expenses of collection or defense
of this Note or of any indorsement or guaranty hereof and/or the enforcement
or defense of Bank's rights with respect to, or the administration,
supervision, preservation, protection of, or realization upon, any property
securing payment hereof, including, without limitation, reasonable attorney's
fees, including fees related to any suit, mediation or arbitration proceeding,
out of court payment agreement, trial, appeal, bankruptcy proceedings or other
proceeding, in such amount as may be determined reasonable by any arbitrator
or court, whichever is applicable.
8. PREPAYMENTS. Prepayments may be made in whole or in part at any time
on any loan without premium or penalty. All prepayments of principal shall be
applied in the inverse order of maturity, or in such other order as Bank shall
determine in its sole discretion.
9. EVENTS OF DEFAULT. The following are events of default hereunder: (a)
the failure to pay any obligation or indebtedness of Borrower to Bank as and
when due (wheter upon demand, at maturity or by acceleration); (b)the failure
by Guarantor to pay any obligation or indebtedness of Guarantor to Bank as and
when due and such failure shall continue for five (5) days after the sooner to
occur of Guarantor's receipt of notice of such failure from Bank or the date
on which such failure first became known to Guarantor; (c) the failure to
perform any other obligation or covenant by any Obligor under this Note or any
Loan Document as and when due, and such failure shall continue for ten (10)
days after the sooner to occur of Borrower's receipt of notice of such failure
from Bank or the date on which such failure first becomes known to any officer
of Borrower; (d) the failure to pay or perform any other material
obligation, liability or indebtedness of any obligor to any other party if
the payment or maturity of such indebtedness is accelerated in consequence of
such failure or demand for payment of such indebtedness is made; (e) the
commencement of a proceeding against any Obligor for dissolution or
liquidation, the voluntary or involuntary termination or dissolution of any
Obligor or the merger or consolidation of any Obligor with or into another
entity; (f) the insolvency of, the business failure of, the appointment of a
custodian, trustee, liquidator or receiver for or for any of the property of,
the assignment for the benefit of creditors by, or the filing of a petition
under bankruptcy, insolvency or debtor's relief law or the filing of a
petition for any adjustment of indebtedness, composition or extension by or
against any Obligor, and if against any Obligor, the continuation of such
proceeding for more than thirty (30) days; (g) the determination by Bank that
any representation or warranty made to Bank by any Obligor in any Loan
Documents or otherwise is or was, when it was made, untrue or materially
misleading; (h) the failure of any Obligor to timely deliver such financial
statements, including tax returns, other statements of condition or other
information, as Bank shall reasonably request from time to time and such
failure shall continue for ten (10) days (i) the entry of a judgment against
any Guarantor which Bank deems to be of a material nature, in Bank's sole
discretion; (j) the seizure or forfeiture of, or the issuance of any writ of
possession, garnishment or attachment, or any turnover order for any material
property of any Obligor not suspended within 30 days of such event; (k) the
determination by Bank that a material adverse change has occurred in the
financial condition of any Obligor; or (l) the failure of Borrower's business
to comply with any law or regulation controlling its operation, if such
failure can reasonably be expected to have a material adverse effect on
Borrower's financial condition.
10. REMEDIES UPON DEFAULT. Whenever there is an event of default under
this Note (a) the entire balance outstanding hereunder and all other
obligations to Bank (however acquired or evidenced) shall, at the option of
Bank, become immediately due and payable and any obligation of Bank to permit
further borrowing under this Note shall immediately cease and terminate,
and/or (b) to the extent permitted by law, the Rate of interest on the unpaid
principal shall be increased at Bank's discretion up to the maximum rate
allowed by law, or if none, 15% per annum (the "Default Rate"). The
provisions herein for a Default Rate shall not be deemed to extend the time
for any payment hereunder or to constitute a "grace period" giving Obligors a
right to cure any default. At Bank's option, any accrued and unpaid interest,
fees or charges may, for purposes of computing and accruing interest on a
daily basis after the due date of the Note or any installment thereof, be
deemed to be a part of the principal balance, and interest shall accrue on a
daily compounded basis after such date at the Default Rate provided in this
Note until the entire outstanding balance of principal and interest is paid in
full. Bank is hereby authorized at any time to set off and charge against any
deposit accounts, as well as any money, instruments, securities, documents,
chattel paper, credits, claims, demands, income and any other property, rights
and interests which at any time shall come into the possession or custody or
under the control of Bank or any of its agents, affiliates or correspondents,
without notice or demand, any and all obligations due hereunder.
Additionally, Bank shall have all rights and remedies available under each of
the Loan Documents, as well as all rights and remedies available at law or in
equity.
11. NON-WAIVER. The failure at any time of Bank to exercise any of its
options or any other rights hereunder shall not constitute a waiver thereof,
nor shall it be a bar to the exercise of any of its options or rights at a
later date. All rights and remedies of Bank shall be cumulative and may be
pursued singly, successively or together, at the option of Bank. The
acceptance by Bank of any partial payment shall not constitute a waiver of any
default or of any of Bank's rights under this Note. No waiver of any of its
rights hereunder, and no modification or amendment of this Note, shall be
deemed to be made by Bank unless the same shall be in writing, duly signed on
behalf of Bank; each such waiver shall apply only with respect to the specific
instance involved, and shall in no way impair the rights of Bank or the
obligations of Obligor to Bank in any other respect at any other time.
12. APPLICABLE LAW, VENUE AND JURISDICTION. Borrower agrees that this
Note shall be deemed to have been made in the State of Texas at Bank's address
indicated at the beginning of this Note and shall be governed by, and
construed in accordance with, the laws of the State of Texas, and is
performable in the City and County of Texas indicated at the beginning of this
Note. In any litigation in connection with or to enforce this Note or any
indorsement or guaranty of this Note or any Loan Documents, Obligors, and each
of them, irrevocably consent to and confer personal jurisdiction on the courts
of the State of Texas or the United States courts located within the State of
Texas. Nothing contained herein shall, however, prevent Bank from bringing
any action or exercising any rights within any other state or jurisdiction or
from obtaining personal jurisdiction by any other means available under
applicable law.
13. PARTIAL INVALIDITY. The unenforceability or invalidity of any
provision of this Note shall not affect the enforceability or validity of any
other provision herein and the invalidity or unenforceability of any provision
of this Note or of the Loan Documents to any person or circumstance shall not
affect the enforceability or validity of such provision as it may apply to
other persons or circumstances.
14. BINDING EFFECT. This Note shall be binding upon and inure to the
benefit of Borrower, Obligors and Bank and their respective successors,
assigns, heirs and personal representatives, provided, however, that no
obligations of Borrower or Obligors hereunder can be assigned without prior
written consent of Bank.
15. CONTROLLING DOCUMENT. To the extent that this Note conflicts with or is
in any way incompatible with any other Loan Document concerning this
obligation, the Note shall control over any other document, and if the Note
does not address an issue, then each other document shall control to the
extent that it deals most specifically with an issue.
16. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES
HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR
DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL
BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL
ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF
PRACTICE AND PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF
J.A.M.S./ENDISPUTE OR ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL
RULES" SET FORTH BELOW. IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES
SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY
COURT HAVING JURISDICTION. ANY PARTY TO THIS INSTRUMENT, AGREEMENT OR
DOCUMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO
COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES
IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE COUNTY OF
ANY BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION OF THIS INSTRUMENT,
AGREEMENT OR DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN
ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE
ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL
ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR
ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE
PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL
60 DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL
BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES
OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT,
AGREEMENT OR DOCUMENT; OR (II) BE A WAIVER BY BANK OF THE PROTECTION AFFORDED
TO IT BY 12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III)
LIMIT THE RIGHT OF BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT
NOT LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL
PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY
REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR
THE APPOINTMENT OF A RECEIVER. BANK MAY EXERCISE SUCH SELF HELP RIGHTS,
FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES
BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT
PURSUANT TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE OF
SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR
FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF
THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO
ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH
REMEDIES.
BORROWER REPRESENTS TO BANK THAT THE PROCEEDS OF THIS LOAN ARE TO BE USED
PRIMARILY FOR BUSINESS, COMMERCIAL OR AGRICULTURAL PURPOSES. BORROWER
ACKNOWLEDGES HAVING READ AND UNDERSTOOD, AND AGREES TO BE BOUND BY, ALL TERMS
AND CONDITIONS OF THIS NOTE.
NOTICE OF FINAL AGREEMENT:
THIS WRITTEN PROMISSORY NOTE REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
BANK: NATIONSBANK OF TEXAS, N.A. BORROWER
By:
Print Individual's Name:
Name:
Title:
Print Individual's Name:
CORPORATE OR PARTNERSHIP BORROWER
Jayhawk Medical Acceptance Corporation
Corporate or Partnership Name
By: /s/Michael I. Smartt
Name: Michael I. Smartt
Title:Chairman, CEO
/s/Linda Berneburg
Attest (If Applicable)
[Corporate Seal]
NationsBank of Texas, N.A. Customer# 4556900
Date: October 1, 1996
CONTINUING AND UNCONDITIONAL GUARANTY
<TABLE>
<CAPTION>
<S> <C>
BANK: GUARANTOR:
NationsBank of Texas, N.A. CARL H. WESTCOTT
Banking Center: PRIVATE CLIENT GROUP 100 CRESCENT COURT, SUITE 1620
DALLAS, TEXAS 75201
901 MAIN STREET
DALLAS, TEXAS 75202-3714
County: DALLAS County: Dallas
</TABLE>
"BORROWER": JAYHAWK MEDICAL ACCEPTANCE CORPORATION
1. GUARANTY. FOR VALUE RECEIVED, and to induce NationsBank of Texas, N.A.
(Attn: Private Client Group) ("Bank") to make loans or advances or to extend
credit or other financial accommodations or benefits, with or without
security, to or for the account of Borrower, the undersigned "Guarantor", if
more than one, then each of them jointly and severally, hereby irrevocably and
unconditionally guarantees to Bank the full and prompt payment when due,
whether by acceleration or otherwise, of any and all Liabilities (as
hereinafter defined) of Borrower to Bank. This Guaranty is continuing and
unlimited as to the amount, and is cumulative to and does not supersede any
other guaranties.
The undertakings of Guarantor hereunder are independent of the Liabilities of
Borrower and a separate action or actions for payment, damages or performance
may be brought or prosecuted against Guarantor, whether or not an action is
brought against Borrower or to realize upon the security for the Liabilities,
whether or not Borrower is joined in any such action or actions, and whether
or not notice is given or demand is made upon Borrower.
Bank shall not be required to proceed first against Borrower, or any other
person, or entity, whether primarily or secondarily liable, or against any
collateral held by it, before resorting to Guarantor for payment, and
Guarantor shall not be entitled to assert as a defense to the enforceability
of the Guaranty any defense of Borrower with respect to any Liabilities.
2. PARAGRAPH HEADINGS, GOVERNING LAW AND BINDING EFFECT. Guarantor agrees
that the paragraph headings in this Guaranty are for convenience only and that
they will not limit any of the provisions of this Guaranty. Guarantor further
agrees that this Guaranty shall be deemed to have been made in the State of
Texas at Bank's address indicated at the beginning of this Guaranty and shall
be governed by, and construed in accordance with, the laws of the State of
Texas, and is performable in the City and County of Texas at Bank's address
indicated at the beginning of this Guaranty. In any litigation in connection
with or to enforce this Guaranty or any other Loan Documents, Guarantor, and
each of them, irrevocably consent to and confer personal jurisdiction on the
courts of the State of Texas or the United States courts located within the
State of Texas. Nothing contained herein shall, however, prevent Bank from
bringing any action or exercising any rights within any other state or
jurisdiction or from obtaining personal jurisdiction by any other means
available by applicable law. This Guaranty is binding upon Guarantor, his,
their or its executors, administrators, successors or assigns, and shall inure
to the benefit of Bank, its successors, indorsees or assigns. Anyone
executing this Guaranty shall be bound by the terms hereof without regard to
execution by anyone else.
3. DEFINITIONS.
A. "Guarantor" shall mean Guarantor or any one or more of them.
B. "Liability" or "Liabilities" shall mean without limitation, all
liabilities, indebtedness, and obligations of Borrower under that certain
Promissory Note of even date herewith to Bank, whether direct or indirect,
absolute or contingent, joint or several, secured or unsecured, due or not
due, contractual or tortious, liquidated or unliquidated, arising by operation
of law or otherwise, now or hereafter existing, or held or to be held by Bank
for its own account or as agent for another or others, including but not
limited to all extensions or renewals thereof, and all sums payable under or
by virtue thereof, including without limitation, all amounts of principal and
interest, all expenses (including reasonable attorney's fees and cost of
collection) incurred in the collection thereof or the enforcement of rights
thereunder (including without limitation, any liability arising from failure
to comply with state or federal laws, rules and regulations concerning the
control of hazardous waste or substances at or with respect to any real estate
securing any loan guaranteed hereby), whether arising in the ordinary course
of business or otherwise. If Borrower is a partnership, corporation or other
entity the term "Liability" or "Liabilities" as used herein shall include all
Liabilities to Bank of any successor entity or entities.
C. "Loan Documents" shall mean all deeds to secure debt, deeds of trust,
mortgages, security agreements and other documents securing payment of the
Liabilities and all notes and other agreements, documents, and instruments
evidencing or relating to the Liabilities.
4. WAIVERS BY GUARANTOR. Guarantor waives notice of acceptance of this
Guaranty, notice of any Liabilities or Obligations to which it may apply,
presentment, demand for payment, protest, notice of dishonor or nonpayment of
any Liabilities, notice of intent to accelerate, notice of acceleration, and
notice of any suit or the taking of other action by Bank against Borrower,
Guarantor or any other person, any applicable statute of limitations and any
other notice to any party liable on any Loan Document (including Guarantor).
Each Guarantor also hereby subordinates to the claims, rights and remedies of
Bank any claim, right or remedy which such Guarantor may now have or hereafter
acquire against Borrower that arises hereunder and/or from the performance by
any other Guarantor hereunder including, without limitation, any claim, remedy
or right of subrogation, reimbursement, exoneration, contribution,
indemnification, or participation in any claim, right or remedy of Bank
against Borrower or against any security which Bank now has or hereafter
acquires, whether or not such claim, right or remedy arises in equity, under
contract, by statute, under common law or otherwise. Each Guarantor agrees
that such Guarantor will not exercise any claim, right or remedy against
Borrower unless and until all Liabilities have been paid in full.
Guarantor also waives the benefits of any provision of law requiring that Bank
exhaust any right or remedy, or take any action, against Borrower, any
Guarantor, any other person and/or property including but not limited to the
provisions of the Texas Civil Practice and Remedies Code 17.001, Texas Rules
of Civil Procedure Rule 31 and the Texas Business and Commerce Code Chapter
34, as amended, or otherwise.
Bank may at any time and from time to time (whether before or after revocation
or termination of this Guaranty) without notice to Guarantor (except as
required by law), without incurring responsibility to Guarantor, without
impairing, releasing or otherwise affecting the obligations of Guarantor, in
whole or in part, and without the indorsement or execution by Guarantor of any
additional consent, waiver or guaranty: (a) change the manner, place or terms
of payment, or change or extend the time of or renew, or change any interest
rate or alter any Liability or installment thereof, or any security therefor;
(b) loan additional monies or extend additional credit to Borrower, with or
without security, thereby creating new Liabilities the payment of which shall
be guaranteed hereunder, and the Guaranty herein made shall apply to the
Liabilities as so changed, extended, surrendered, realized upon or otherwise
altered; (c) sell, exchange, release, surrender, realize upon or otherwise
deal with in any manner and in any order any property at any time pledged or
mortgaged to secure the Liabilities and any offset there against; (d) exercise
or refrain from exercising any rights against Borrower or others (including
Guarantor) or act or refrain from acting in any other manner; (e) settle or
compromise any Liability or any security therefor and subordinate the payment
of all or any part thereof to the payment of any Liability of any other
parties primarily or secondarily liable on any of the Liabilities; (f)
release or compromise any Liability of Guarantor hereunder or any Liability of
any other parties primarily or secondarily liable on any of the Liabilities;
or (g) apply any sums from any sources to any Liability without regard to any
Liabilities remaining unpaid.
5. SUBORDINATION. Upon demand of Bank, Guarantor agrees that it will not
demand, take or receive from Borrower, by set-off or in any other manner,
payment of any debt now and at any time or times hereafter owing by Borrower
to Guarantor unless and until all the Liabilities shall have been fully paid
and performed, and any security interest, liens or encumbrances which
Guarantor now has and from time to time hereafter may have upon any of the
assets of Borrower shall be made subordinate, junior and inferior and
postponed in priority, operation and effect to any security interest of Bank
in such assets.
6. WAIVERS BY BANK. No delay on the part of Bank in exercising any of its
options, powers or rights, and no partial or single exercise thereof, shall
constitute a waiver thereof. No waiver of any of its rights hereunder, and no
modification or amendment of this Guaranty, shall be deemed to be made by Bank
unless the same shall be in writing, duly signed on behalf of Bank; and each
such waiver, if any, shall apply only with respect to the specific instance
involved, and shall in no way impair the rights of Bank or the obligations of
Guarantor to Bank in any other respect at any other time.
7. TERMINATION. This Guaranty shall be binding on each Guarantor until
written notice of revocation signed by such Guarantor or written notice of the
death of such Guarantor shall have been received by Bank, notwithstanding
change in name, location, composition or structure of, or the dissolution,
termination or increase, decrease or change in personnel, owners or partners
of Borrower, or any one or more of Guarantors. No notice of revocation or
termination hereof shall affect in any manner rights arising under this
Guaranty with respect to Liabilities that shall have been committed, created,
contracted, assumed or incurred prior to receipt of such written notice
pursuant to any agreement entered into by Bank prior to receipt of such
notice. The sole effect of such notice of revocation or termination hereof
shall be to exclude from this Guaranty, Liabilities thereafter arising that
are unconnected with Liabilities theretofore arising or transactions entered
into theretofore.
In the event of the death of a Guarantor, the liability of the estate of the
deceased Guarantor shall continue in full force and effect as to (i) the
Liabilities existing at the date of death, and any renewals or extensions
thereof, and (ii) loans or advances made to or for the account of Borrower
after the date of death of the deceased Guarantor pursuant to a commitment
made by Bank to Borrower prior to the date of such death. As to all surviving
Guarantors, this Guaranty shall continue in full force and effect after the
death of a Guarantor, not only as to the Liabilities existing at that time,
but also as to Liabilities thereafter incurred by Borrower to Bank.
8. PARTIAL INVALIDITY AND/OR ENFORCEABILITY OF GUARANTY. The
unenforceability or invalidity of any provision of this Guaranty shall not
affect the enforceability or validity of any other provision herein and the
invalidity or unenforceability of any provision of any Loan Document as it may
apply to any person or circumstance shall not affect the enforceability or
validity of such provision as it may apply to other persons or circumstances.
In the event Bank is required to relinquish or return the payments, the
collateral or the proceeds thereof, in whole or in part, which had been
previously applied to or retained for application against any Liability, by
reason of a proceeding arising under the Bankruptcy Code, or for any other
reason, this Guaranty shall automatically continue to be effective
notwithstanding any previous cancellation or release effected by Bank.
9. CHANGE OF STATUS. Guarantor will not become a party to a merger or
consolidation with any other company, except where Guarantor is the surviving
corporation or entity, and all covenants under this Guaranty are assumed by
the surviving entity. Further, Guarantor may not change its legal structure,
without the written consent of Bank and all covenants under this Guaranty are
assumed by the new or surviving entity. Guarantor further agrees that this
Guaranty shall be binding, legal and enforceable against Guarantor in the
event Borrower changes its name, status or type of entity.
10. FINANCIAL AND OTHER INFORMATION. Guarantor has made an independent
investigation of the financial condition and affairs of Borrower prior to
entering into this Guaranty, and Guarantor will continue to make such
investigation; and in entering into this Guaranty Guarantor has not relied
upon any representation of Bank as to the financial condition, operation or
creditworthiness of Borrower. Guarantor further agrees that Bank shall have
no duty or responsibility now or hereafter to make any investigation or
appraisal of Borrower on behalf of Guarantor or to provide Guarantor with any
credit or other information which may come to its attention now or hereafter.
11. NOTICES. Notice shall be deemed reasonable if mailed postage prepaid
at least five (5) days before the related action to the address of Guarantor
or Bank, at their respective addresses indicated at the beginning of this
Guaranty, or to such other address as any party may designate by written
notice to the other party. Each notice, request and demand shall be deemed
given or made, if sent by mail, upon the earlier of the date of receipt or
five (5) days after deposit in the U.S. Mail, first class postage prepaid, or
if sent by any other means, upon delivery.
12. GUARANTOR DUTIES. Guarantor shall upon notice or demand by Bank promptly
and with due diligence pay all Liabilities for the benefit of Bank in the
event of (a) the occurrence of any monetary default under any Loan Documents;
(b) the failure of any Borrower or Guarantor to pay any material liability or
indebtedness of any Borrower or Guarantor to Bank, or to any affiliate of Bank
and the continuation of such failure for five (5) days after Bank provides
Guarantor with notice thereof
.
13. REMEDIES. Upon the failure of Guarantor to fulfill its duty to pay
all Liabilities as required hereunder, Bank shall have all of the remedies of
a creditor and, to the extent applicable, of a secured party, under all
applicable law, and without limiting the generality of the foregoing, Bank
may, at its option and without notice or demand: (a) declare any Liability
due and payable at once; and (b) take possession of any collateral pledged by
Borrower or Guarantor wherever located, and sell, resell, assign, transfer and
deliver all or any part of said collateral of Borrower or Guarantor at any
public or private sale or otherwise dispose of any or all of the collateral in
its then condition, for cash or on credit or for future delivery, and in
connection therewith Bank may impose reasonable conditions upon any such sale,
and Bank, unless prohibited by law the provisions of which cannot be waived,
may purchase all or any part of said collateral to be sold, free from and
discharged of all trusts, claims, rights or redemption and equities of
Borrower or Guarantor whatsoever; Guarantor acknowledges and agrees that the
sale of any collateral through any nationally recognized broker-dealer,
investment banker or any other method common in the securities industry shall
be deemed a commercially reasonable sale under the Uniform Commercial Code or
any other equivalent statute or federal law, and expressly waives notice
thereof except as provided herein; and (c) set-off against any or all
liabilities of Guarantor all money owed by Bank or any of its agents or
affiliates in any capacity to Guarantor whether or not due, and also set-off
against all other Liabilities of Guarantor to Bank all money owed by Bank in
any capacity to Guarantor, and if exercised by Bank, Bank shall be deemed to
have exercised such right of set-off and to have made a charge against any
such money immediately upon the occurrence of such default although made or
entered on the books subsequent thereto.
Bank shall have a properly perfected security interest in all of Guarantor's
funds on deposit with Bank to secure the balance of any Liabilities and/or
Obligations that Guarantor may now or in the future owe Bank. Bank is granted
a contractual right of set-off and will not be liable for dishonoring checks
or withdrawals where the exercise of Bank's contractual right of set-off or
security interest results in insufficient funds in Guarantor's account. As
authorized by law, Guarantor grants to Bank this contractual right of set-off
and security interest in all property of Guarantor now or at anytime hereafter
in the possession of Bank, including but not limited to any joint account,
special account, account by the entireties, tenancy in common, and all
dividends and distributions now or hereafter in the possession or control of
Bank.
14. ATTORNEY FEES, COST AND EXPENSES. Guarantor shall pay all costs of
collection and reasonable attorney's fees, including reasonable attorney's
fees in connection with any suit, mediation or arbitration proceeding, out of
Court payment agreement, trial, appeal, bankruptcy proceedings or otherwise,
incurred or paid by Bank in enforcing the payment of any Liability or
defending this agreement.
15. PRESERVATION OF PROPERTY. Bank shall not be bound to take any steps
necessary to preserve any rights in any property pledged as collateral to Bank
to secure Borrower and/or Guarantor's Liabilities and Obligations as against
prior parties who may be liable in connection therewith, and Borrower and
Guarantor hereby agree to take any such steps. Bank, nevertheless, at any
time, may (a) take any action it deems appropriate for the care or
preservation of such property or of any rights of Borrower and/or Guarantor or
Bank therein; (b) demand, sue for, collect or receive any money or property at
any time due, payable or receivable on account of or in exchange for any
property pledged as collateral, to Bank to secure Borrower and/or Guarantor's
Liabilities to Bank; (c) compromise and settle with any person liable on such
property; or (d) extend the time of payment or otherwise change the terms of
the Loan Documents as to any party liable on the Loan Documents, all without
notice to, without incurring responsibility to, and without affecting any of
the Obligations or Liabilities of Guarantor.
16. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES
HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR
DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL
BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL
ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF
PRACTICE AND PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF
J.A.M.S./ENDISPUTE OR ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL
RULES" SET FORTH BELOW. IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES
SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY
COURT HAVING JURISDICTION. ANY PARTY TO THIS INSTRUMENT, AGREEMENT OR
DOCUMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO
COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES
IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE COUNTY OF
ANY BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION OF THIS INSTRUMENT,
AGREEMENT OR DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN
ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE
ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL
ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR
ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE
PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL
60 DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL
BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES
OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT,
AGREEMENT OR DOCUMENT; OR (II) BE A WAIVER BY BANK OF THE PROTECTION AFFORDED
TO IT BY 12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III)
LIMIT THE RIGHT OF BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT
NOT LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL
PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY
REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR
THE APPOINTMENT OF A RECEIVER. BANK MAY EXERCISE SUCH SELF HELP RIGHTS,
FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES
BEFORE, DURING OR AFTER THE PENDENCY
OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS INSTRUMENT, AGREEMENT
OR DOCUMENT. NEITHER THIS EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION
OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY
REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE
CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR
CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
18. CONTROLLING DOCUMENT. To the extent that this Continuing and
Unconditional Guaranty conflicts with or is in any way incompatible with any
other Loan Document concerning this Obligation, any promissory note shall
control over any other document, and if such promissory note does not address
an issue, then each other document shall control to the extent that it deals
most specifically with an issue.
19. NOTICE OF FINAL AGREEMENT.
THIS WRITTEN CONTINUING AND UNCONDITIONAL GUARANTY REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the undersigned has caused this guaranty to be executed on
this 1st day of October, 1996.
NATIONSBANK OF TEXAS, N.A. GUARANTOR:
By:/s/ Thomas C. Goyne /s/ Carl H. Westcott
Carl H. Westcott
Thomas C. Goyne, Vice President
INDIVIDUAL ACKNOWLEDGMENT
State of Texas_________________ )
)
County of Dallas_______________ )
This instrument was acknowledged before me on Oct. 1_____________, 1996____, by
_______________________________________________. /s/ Carl H. Westcott
(Guarantor)
(Seal)
/s/ Judith Pearce LeDoux
Notary Public
in and for the State of
Texas
12/12/96 Judith Pearce LeDoux
My Commission Expires Print Name of Notary
AGREEMENT
This Agreement dated October 1, 1996, by and between NationsBank of
Texas, N.A. (the "Bank") and Jayhawk Medical Acceptance Corporation(the
"Borrower");
Whereas, Borrower desires to obtain a loan (together with all extensions
and renewals thereof hereafter referred to as the "Loan") in the amount of
$15,000,000.00 from Bank in order to provide funds for start-up of consumer
finance company specializing in loans to individuals for elective surgery;
and
Whereas, Bank is willing to grant the Loan provided Borrower agrees not to
encumber certain real or personal property;
Now, therefore, for and in consideration of the Loan made or to be made
by Bank to Borrower, and for other good and valuable considerations, the
receipt and sufficiency of which is hereby acknowledged by both Borrower and
Bank, the parties hereto do agree as follows:
1. Property. Borrower hereby agrees that, for so long as any part of
the Loan remains outstanding, that it will not, without first obtaining the
prior written consent of Bank, create or permit any lien, encumbrance, charge,
or security interest of any kind to exist on:
Accounts: Any and all accounts and other rights of Debtor to the
payment for goods sold or leased or for services rendered whether or not
earned by performance, contract rights, book debts, checks, notes, drafts,
instruments, chattel paper, acceptances, and any and all amounts due to
Debtor from a factor or other forms of obligations and receivables, now
existing or hereafter arising out of the business of Debtor.
2. Recording. Bank is hereby authorized and permitted to cause this
instrument to be recorded at such time and at such place as Bank, at its
option, may elect.
3. Representations and Warranties of Borrower. Borrower represents
and warrants to Bank as follows:
(i) That Borrower owns the real or personal property referenced
above and there are no existing liens or encumbrances upon or
affecting such property.
(ii)Borrower is a (corporation)duly organized and validly existing and in
good standing under the laws of the State of Texas and has all requisite
power and authority to enter into this Agreement.
(iii)The execution and delivery by Borrower of this agreement and
the note (the "Note") evidencing the Loan and the performance of the
respective obligations hereunder and thereunder have been duly authorized.
This Agreement and the Note constitute the legal, valid and binding obligation
of Borrower enforceable in accordance with their terms. The execution and
delivery of this Agreement and the compliance with the provisions thereof
will not conflict with or constitute a breach of, or default under, any of the
provisions of any other agreement to which the Borrower is a party.
(iv)The continued validity in all respects of the aforesaid representations
and warranties shall be a condition precedent to Bank's obligation to fund the
Loan. If any of the representations and warranties shall not be correct at
the time the same is made or at the time a request for an advance under the
Loan is made, Bank will be under no obligation to make any such advance under
the Loan.
4. Reporting. Borrower hereby agrees to furnish to Bank quarterly
accounts receivable agings summaries to Bank within 30 days after the close of
each quarter of each fiscal year.
5. Default. Any failure of the Borrower to comply with the terms of
this Agreement shall constitute an event of default under the documents
evidencing the Loan and the Borrower agrees that in such event the Bank shall
have the right in addition to such other remedies as may be available to it,
to injunctive relief enjoining such breach of the Agreement and neither the
Borrower, its officers, directors, employees, agents or representatives shall
urge that such remedy is not appropriate under the circumstances, it being
expressly acknowledged by the Borrower that such action shall cause the Bank
irreparable damage for which legal remedies are inadequate to protect the
Bank.
6. Termination. This Agreement shall remain in full force and effect
until the Loan described above shall have been paid in full.
In witness whereof, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives.
Jayhawk Medical Acceptance Corporation
By:/s/ Michael I. Smartt
Name:Michael I. Smartt
Title: Chairman, CEO
NationsBank of Texas, N.A.
By:/s/ Thomas C. Goyne
Name: Thomas C. Goyne
Title: Vice President
State of Texas
County of Dallas_______________________
Personally appeared before me, the undersigned, Notary Public, _Michael I.
Smartt____________________________________, with whom I am personally
acquainted, and who acknowledged that he/she executed the within instrument
for the purposes therein contained.
Witness my hand, at office, this _11__ day of October_________, 1996___.
/s/ Linda Berneburg_______________
Notary Public
Commission expires:12-15-99_____
<TABLE>
<CAPTION>
COMPUTATION OF EARNINGS PER SHARE
Exhibit 11
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PRIMARY:
Net income $ 3,125,000 $ 1,435,000 $ 8,031,000 $ 3,106,000
=========== =========== =========== ===========
Shares as adjusted:
Weighted average common shares outstanding 23,871,409 18,114,728 22,577,376 15,572,997
Assumed conversion of Series A convertible
preferred stock - 1,039,748 - 2,153,793
Incremental shares from outstanding stock
options as determined under the treasury
stock method 319,537 376,715 361,580 303,971
----------- ----------- ----------- -----------
Shares as adjusted 24,190,946 19,531,191 22,938,956 18,030,761
=========== =========== =========== ===========
Net income per share $ .13 $ .07 $ .35 $ .17
=========== =========== =========== ===========
FULLY DILUTED:
Net income $ 3,125,000 $ 1,435,000 $ 8,031,000 $ 3,106,000
=========== =========== =========== ===========
Shares as adjusted:
Weighted average common shares outstanding 23,871,409 18,114,728 22,577,376 15,572,997
Assumed conversion of Series A convertible
preferred stock - 1,039,748 - 2,153,793
Incremental shares from outstanding stock
options as determined under the treasury
stock method 393,088 418,871 420,860 418,871
----------- ----------- ----------- -----------
Shares as adjusted 24,264,497 19,573,347 22,998,236 18,145,661
=========== =========== =========== ===========
Net income per share $ .13 $ .07 $ .35 $ .17
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> NO
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> JUL-01-1996 JAN-01-1996
<PERIOD-END> SEP-30-1996 SEP-30-1996
<EXCHANGE-RATE> 1 1
<CASH> 20,096<F1> 20,096
<SECURITIES> 0 0
<RECEIVABLES> 331,765 331,765
<ALLOWANCES> 6,290 6,290
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 11,556 11,556
<DEPRECIATION> 2,910 2,910
<TOTAL-ASSETS> 360,314 360,314
<CURRENT-LIABILITIES> 67,765<F2> 67,765
<BONDS> 39,330<F3> 39,330
0 0
0 0
<COMMON> 88,786 88,786
<OTHER-SE> 8,945 8,945
<TOTAL-LIABILITY-AND-EQUITY> 360,314<F4> 360,314
<SALES> 0 0
<TOTAL-REVENUES> 14,748 37,392
<CGS> 0 0
<TOTAL-COSTS> 6,706 17,234
<OTHER-EXPENSES> 373 805
<LOSS-PROVISION> 1,363 3,175
<INTEREST-EXPENSE> 1,598 4,015
<INCOME-PRETAX> 4,708 12,163
<INCOME-TAX> 1,583 4,132
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,125 8,031
<EPS-PRIMARY> .13 .35
<EPS-DILUTED> .13 .35
<FN>
<F1>INCLUDES RESTRICTED CASH OF $19,665.
<F2>INCLUDES SECURITIZED NOTES OF $55,422.
<F3>TWO-YEAR REVOLVING CREDIT FACILITY WHICH PERMITS BORROWINGS OF UP TO $65
MILLION AT A VARIABLE RATE ON INTEREST (8.25% AT SEPTEMBER 30, 1996).
<F4>INCLUDES DEALER HOLDBACKS OF $148,469.
</TABLE>
